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THE KYOTO PROTOCOL AND ITS ECONOMIC

IMPLICATIONS

WEDNESDAY, MARCH 4, 1998

HOUSE OF REPRESENTATIVES,

COMMITTEE ON COMMERCE,
SUBCOMMITTEE ON ENERGY AND POWER,

Washington, DC. The subcommittee met, pursuant to notice, at 10:05 a.m., in room 2123, Rayburn House Office Building, Hon. Dan Schaefer (chairman) presiding.

Members present: Representatives Schaefer, Crapo, Largent, Burr, Whitfield, Norwood, White, Coburn, Hall, Furse, McCarthy, Wynn, Markey, Pallone, and Dingell (ex officio).

Also present: Representatives Ganske, Klink, and Sawyer.

Staff present: Catherine Van Way, majority counsel; Sue Sheridan, minority counsel; and Dennis Fitzgibbons, minority staff.

Mr. SCHAEFER. I'd like, certainly, to welcome everybody to today's hearing on the Kyoto Protocol and its possible economic implications to this country. Unfortunately, after six hearings, my concerns about where the administration is really headed with this agreement seems to increase rather than to decrease with every time we have an opportunity to look closely at the domestic implications of this issue. Today, I hope to focus my questions on the results of the economic analysis contained in the prepared testimony for today.

Last July, the administration released a document at least 59 people across the administration spent nearly 2 years in trying to develop. That economic analysis determined the costs of stabilizing greenhouse gas emissions at 1990 levels by the year 2010 would require an equivalent of a $95-per-ton carbon tax.

The day that the document was made public, the administration called it a flawed effort. And, today, we are presented with the results of analysis done in, I presume, the 3 months past Kyoto that, apparently, using at least one of the same models used in the previous analysis produces vastly different results for a more ambitious target: $14 to $23 per ton of carbon.

Now what disturbs me, really, the most about this outcome is it appears to be based on assumptions that the outcome of future negotiations that may not materialize. To be specific, according to Ms. Yellen's testimony, the cost of complying with the Kyoto Protocol is reduced between 50 percent and 75 percent if there is efficient international emissions trading. However, the details of emissions trading are, unfortunately, one of those things the administration has left to work out over future negotiations. Probably, between

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now and the Buenos Aires meeting in, I think, November. And other parties to this agreement, and non-governmental groups, are already positioning themselves to place as many restrictions, as possible, on emissions trading.

And, for me, this is a very, very important issue. And in this context, I would remind you of the history of joint implementation. The Rio treaty provides for it, but in subsequent negotiations, the promise that it held for significantly reducing costs of compliance proved hollow when it was limited to develop countries only.

Similarly, Ms. Yellen's testimony notes that the cost of compliance is further reduced, if we can secure full participation, by developing countries in the emissions trading market. And I'm extremely disturbed if this was relied upon to reach the cost prediction in today's testimony, because with respect to meaningful developing country commitments under the Kyoto Protocol, it's a done deal and they don't have any.

In order for us to fully analyze the administration's economic analysis and the assumptions used I am formally requesting that the administration provide, to this subcommittee no later than 2 weeks from today, the complete analysis of the conclusions presented in today's testimony and any other economic analysis was done that reached different conclusions. And I ask the administration to send its analysis out for peer review.

The reason why understanding this analysis is so important was highlighted in an article that appeared in The Washington Post this morning. Robert Stevenson, an economics professor, I believe, at Harvard, noted the impact can be "relatively small if done in the smartest possible way. But if we don't do it that way, it will cost 10 times what the administration is asking."

Finally, I'm pleased that the administration is supportive of the idea of electricity restructuring. I believe it will bring real savings to electricity consumers. Unfortunately, it's becoming clear to me that the administration supports restructuring as a way to mask the cost of complying with this treaty from American consumers. And, as I stated at the last hearing, I would like the benefits of restructuring to flow to the consumers and not be spent buying emissions credits from a foreign governmen

I hope today the administration can answer our questions about the agreement in a straightforward manner. And, being one of those individuals who has spent time over in Kyoto, and listening to all the negotiations that were going on, I gained a tremendous amount of respect for Mr. Eizenstat and Ms. Yellen. So, I am looking forward to the testimony and certainly would now yield to my good friend from Texas, Mr. Hall.

Mr. HALL. Mr. Chairman, thank you and I won't have an official opening remarks, but just to thank you two for coming today. And I've enjoyed the presentations that were made before Tim Worth and others and I understand we've lost him. That he has gone to work for Henry Fonda's daughter's husband somewhere down in Atlanta.

And, I'm sorry for him to make that move, because he is a very reliable, very sensible guy that's one of us, you know, that's been on this committee for a long, long time when he in the House and then gave us good service in the Senate.

We look forward to your presentation. Hope you're going to tell us it's not going to increase energy rates and that things are going be such that we can support it.

Thank you.
Mr. SCHAEFER. The Chair thanks the gentleman.
My vice chairman, the gentleman from Idaho, Mr. Crapo.

Mr. CRAPO. Thank you, Mr. Chairman. I appreciate that you've held this additional hearing on this important issue and I would simply associate myself with the comments that both you and Mr. Hall have made and add that it seems remarkable to me that the United States would agree to be bound in this arena by standards and requirements that all other nations are not bound to meet. That's going to be a very important issue to me as we address matters in this hearing. And I know that there are some rationales to try to explain that away or to say that other nations are bound in some way, but it seems to me that we want to get into detail with an understanding of what was required of the United States and what was not required of other countries, and what differences there may be between the commitments of the various countries on this issue.

Second, I was also very concerned about the elements of cost, and it is fascinating to me to read in the newspaper, today that it's not going to cost very much to comply with this protocol. I was interested in what the chairman quoted from the stories where it said that if we don't do this right, it could costs 10 times what it's projected to. Because, Mr. Chairman, when I reading the news this morning about the fact that this is not going to cost very much, I said to myself, you know, every time I've seen one of these projections, the ultimate costs end up being as least 10 times higher than what it's projected to be. I was hoping that this wouldn't be one of those circumstances. And I'm going be interested in the analysis that is presented to understand how it is that after 2 or 3 months scrubbing, all of sudden, the costs are dramatically different than what they were projected to be just a few months ago.

I think that we've got to examine these issues very closely and make certain that we are dealing with adequate and accurate information and that we do not cause the United States to enter into a protocol which could be devastating to us economically without, frankly, a significant environmental benefit.

Thank you, Mr. Chairman.

Mr. SCHAEFER. The Chair thanks the gentleman. The gentleman from Michigan, the ranking member of the full committee, Mr. Dingell.

Mr. DINGELL. Thank you, Mr. Chairman. I thank you and I commend you for holding this hearing today.

It's a pleasure to welcome Mr. Eizenstat and Ms. Yellen to the committee this morning. I had the pleasure of seeing Mr. Eizenstat over there in Kyoto, where I think we converted an opportunity for mischief into a genuine disaster.

I know that you will try to defend an ill-conceived and badly executed Kyoto agreement on climate change by claiming repeatedly that it is a work-in-progress, as the administration achieved two of its three negotiating positions in Kyoto.

That reminds me of the Confederate who would brag about how the South won the first and second battles at Bull Run. The listeners noted, however, that one important detail was omitted and that was that his side lost the war. It is unfortunate, indeed, that today Ms. Yellen is going to be here to present us with what appeared on the opening page of The Washington Post this morning, which was an economic analysis that says that this is only going to cost about $70 per American family, when, in fact, it's going to require about a 30 percent reduction in energy costs.

I would note that included in that is an estimate about the wonderful savings that are going to be achieved from the administration's plan for deregulation of electric power which does not exist as of this particular time. Nobody in the administration has seen it. No one has shared it with me. Nobody knows what it's going to do and nobody knows what impact it's going to have on the industry. Indeed, nobody knows whether or not it's going to cause a termination of use of high-cost facilities which, by an interesting coincidence, include the facilities which use nuclear power for the generation of electricity, which is going to be an important component of any plan that the United States puts forward domestically to address the problem of CO2 emissions.

Certain facts are inescapable. One of them is that nothing in the Kyoto Agreement requires anything from the developing countries. These countries, including most significantly China, which has sternly resisted the idea—and which told me to my hearing through its representatives that they will always be a developing country and will never be bound by this

and India, which has a similar position, are already some of our toughest competitors.

When the congressional delegation in Kyoto, as I reiterated, asked the Chinese delegation when China might sign the agreement, we got this answer: “Not this year. Not by 2010. Not by 2020. Not by 2050, and probably not ever." I would note that China and India have spent considerable time pressuring the developing countries with regard to the idea of whether they should, ultimately, sign onto some understandings which would commit them to doing something. As a matter of fact, they have taken the strong position that there will be no trading of credits under the agreement.

Now, I don't have any great quarrel with the domestic component of the administration's program on climate change, so far. I support research and I support the incentives being proposed, though largely for reasons unrelated to climate change. But, that program alone will hardly lead to the kind of emission reductions to which the United States is now committed by the administration's actions. And, I would note that we're talking about a 30 percent reduction in energy use by American citizens, the American economy, and American industry.

I will be especially interested this morning in listening to you, Ms. Yellen, telling us about the costs of the climate change agreement. For a considerable time, I spent a great amount of effort trying to procure these kinds of estimates from the administration. Mr. Wirth always promised that such were forthcoming, but they never were and they have not been made available until this morning, when I looked at the press when I saw that perhaps something

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