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Mr. EIZENSTAT. The EU umbrella is—the EU bubble, as it's called—is a formal part of the agreement. The non-EU umbrella is a conceptual agreement, which is not formally part of the agreement, but we are going to be meeting with those countries and hope to firm up our cooperation.

Mr. KLINK. Is there a possibility you'll have GATT problems with that

Mr. EIZENSTAT. We've looked at that and we have looked at it as have the other countries. And we believe the answer is no.

Mr. KLINK. So, is it my understanding that, under the bubble, the European bubble, that they would be able to exchange credits, and that part of what would occur is that they would get credit for actions that have already been taken: that is factories, and with the unification of Germany, factories in East Germany that have already shut down; for the fact that the British under Margaret Thatcher have already gone from coal powered plants, to gas powered plants and have cut tremendous amounts of pollution. And so under that bubble, they would get credit for what's already been done.

Mr. EIZENSTAT. Let me clarify one minor point of what you say. Mr. KLINK. Please do.

Mr. EIZENSTAT. But the major thrust of what you said is very well taken. And let me elaborate on it.

Mr. KLINK. Please do.

Mr. EIZENSTAT. The minor point of clarification is that they will not formally be actually exchanging credits and trading within the bubble, they will be allocating their overall 8 percent burden.

Mr. KLINK. Yes, sir. I was aware of that.

Mr. EIZENSTAT. Okay, with that clarification. One of the points that we have made as the Europeans—and Congressman Schaefer, Chairman Schaefer, knows that this was a point, and you do as well, which the Europeans made when they were trying to limit our trading, and someone read out what the German Environmental Minister meant—they can't come and tell us to limit our ability to trade when they've, No. 1, got a bubble which allows a country like Portugal to go up 30 or 40 percent in emissions while they take advantage of the fact that years ago Britain switched to natural gas because they found natural gas in the North Sea, or because the East German economy collapsed and when they were reunited with Germany it gave them a benefit.

This gets also to the issue of trading with Russia, where the EU has made a big issue of trading with Russia. And they say well, look, you know, the Russian economy collapsed and this is an artificial benefit. Well, it's absolutely no different than what happened with East Germany. So, I'm very pleased that you have highlighted that. And it's a major issue that we have with the Europeans.

Mr. KLINK. Well, and now let me just step back from that. And I'm glad that you analyzed that the way you did, Mr. Secretary, because if I'm one of the developing nations, I'm going to take a look at this sweetheart deal that the Europeans made with their bubble, getting credits for something that's already been done. I'm going to take a look at this new umbrella that's formed with Russia, where the United States, and Australia, and Canada, and Japan, and New Zealand, and the Ukraine, and everybody else are going to get credit for factories that closed down, and I'm going to say, wait a minute. This is all hokey. This is a fake. You're giving yourselves credits for something that's already been achieved.

They're never going to reopen those gas-fired—those coal-powered plants in Britain again. We're never going to open those old, dirty factories in East Germany again. We're never going to restart all those dirty factories in Russia again. And you want us to sign on to something, and between the European Nations and the United States, you've hooked up a real hokey deal here. And now you come to me, China, with how many billion people. You come to me, India, and you want me to sign on. Where am I going to get a sweetheart deal like this, that I can get credit for something I've already done?

Mr. EIZENSTAT. It's not a hokey deal in terms of being able to trade with Russia. They went through an economic collapse that no one would have wished on themselves and their economy will grow.

Mr. KLINK. But where's the level playing field for the developing countries to come in and get the same kind of a sweetheart deal that both the Europeans and the umbrella nations

Mr. EIZENSTAT. The incentive for them to come in is in fact the very trading we're talking about. They're going to want to participate in that trading. They're going to want the benefits and the dollars that go with the trading. If they stay out of this system, they don't get it. And that's the strong incentive for them to come in.

Mr. KLINK. But they're not part of the umbrella group. Is there any way—there's—you're saying

— Mr. ÉIZENSTAT. But the only way

Mr. KLINK. [continuing] that there's no benefit to us being part of this umbrella group, or there is?

Mr. EIZENSTAT. We have left the umbrella group consciously open, unlike the EU's closed in bubble, we have made it clear that if, to the extent that we are able to develop this umbrella, that it should be open to any country that wishes to come in.

Mr. KLINK. Now, I know that the chairman has been very patient with me. We have a tremendous amount of questions, and a lot of things that we need to go over. You have been very forthright in your attempt to answer my questions. I look forward to continuing a dialog with you again.

I think that we're going down the wrong road with this agreement. I don't think anybody's surrprised to hear me say that. I'm afraid that we're hamstringing ourselves. I understand that weparticularly coming out of an area that has schools like CarnegieMellon University, University of Pittsburgh, and Duquesne University, and others—but we need to develop some technologies that are clean technologies, so we can get in the marketplace.

I'll tell you a couple of things that really disturb me in our meeting with the environmentalists in Kyoto. It was a room about, I think, the chairman would give me his opinion, probably about half the size of this room?

Mr. SCHAEFER. About half the size.

Mr. KLINK. And it was full of environmentalists from this country. Now here I am in Japan, with a room this big full of environmentalists from this country. I said, somebody's making a lot of money of this issue. To be over here for this many people to be over here, dressed pretty well, somebody's making a lot of money off of this issue.

And of course the industry's were there in huge numbers. And somebody—there's a lot of money at risk for them also. So, we understand the dollars that this issue means to people who want to fundraise, or industries that want to have an opportunity to expand and to manufacture and for people in the marketplace. And I'm going to make sure that I'm convinced we're doing things the right way. And I'm not convinced of that yet.

Mr. EIZENSTAT. In fairness, Congressman Klink, I don't think the great bulk of the environmental community—I was at Kyoto, I was there in the sense of making money, I think there was a legitimate concern for the impact of this problem on the environment. And that is a concern we share, as you indicated.

It's important at the same time to be operating in the middle zone, that is between those who are hyperbolic on one side or the other. We believe there is a serious environmental problem, that the environmental community that was there, was evidence of that, and was concerned with it. And the question is coming up with the least costly, most effective way of dealing with this environmental problem.

Mr. KLINK. Well, then let me ask you a question, because you know—and the chairman I'm sure will bear me out on this. The environmentalist meeting that we had, began with—and I can't remember the gentleman who started the meeting-saying the science on this matter is ill defined. That was the first statement that he made. Well, that gave us a lot of confidence that we were there making an important decision.

And then we talked to them later on about, you know, if we're going to do all of these things, and hit these targets, the Japanese are ready to make a commitment to at least a dozen nuclear power plants. Now given their history with nuclear power, I think that's a stunning change of events. Are we, and would the Administration be promoting the further use of nuclear technology to try to hit some of these numbers? How are we going to be able to hit these sorts of numbers? Are we looking at a resurgence in nuclear energy in this country?

Mr. EIZENSTAT. Well, the administration will have to come to its own conclusions on nuclear power, and that will be an issue that undoubtedly will have to be dealt with. My personal view is that nuclear power has to be a part of this equation.

Mr. KLINK. I thank you for that honest answer.
Mr. Chairman, thank you. You've been very courteous.

Mr. SCHAEFER. I thank the gentleman for some very excellent, excellent questions. And I've just got a couple of loose ends to tieup here, before we conclude, after more than 4 hours.

You were talking about the information, Mr. Eizenstat, that you have over there about going back into the industrial revolution. Are these the core samples that were taken out of the Antarctic?

Mr. EIZENSTAT. I think that they were. I don't frankly know which one of the poles, but they were core ice data from one of the poles.

Mr. SCHAEFER. Well, it wouldn't be the North Pole.

Mr. EIZENSTAT. But I can certainly give you that

Mr. SCHAEFER. I think it was the Antarctic. I had the opportunity to go down to the ice, and we visited a number of stations, and there was core sampling done. And as a matter of fact, the Russians were the ones doing it, or the Soviet Union at the time. And they were bringing them back to the University of Colorado. And that's where they were analyzing all that. So, I can't think of any place else in the world that they would be doing that, except the Antarctic. I just wanted to ask that question is all.

Ms. Yellen, in your testimony—and you've been kind of quiet here, so I'll come back to you—you've indicated that the economic work is just beginning, which I certainly understand. And much of it's going to continue to go outside of the government. What kind of activities are we talking about, outside of the government? I mean, is this private industry? What?

Ms. YELLEN. Well, particularly in the academic community and in various labs, including the Department of Energy labs, there are really what amount to now dozens of large scale models, like the one whose results I cited this morning and in my testimony. These are

Mr. SCHAEFER. Well, like work that's done at NREL and
Ms. YELLEN. Excuse me.

Mr. SCHAEFER. Like work that's being done at NREL with biomass and with solar and wind and on and on and on. Is this what you're talking about?

Ms. YELLEN. Oh, I guess, I was thinking about in the economic community. For example, the OECD has a model, the Electric Power Research Institute has a model called MERGE. There are researchers at Stanford and at Yale who have very large scale detailed energy models that really capture, the best of them, the technical possibilities all around the world in terms of substitution possibilities.

Mr. SCHAEFER. Oh, yes.
Ms. YELLEN. They're really very elaborate.

Mr. SCHAEFER. Well, just the use of solar shingles, for example, that are certinly out there now, and available. So, this is what you mean by outside?

Ms. YELLEN. Yes. These are models in the academic community that try to capture the costs of large number detailed energy technologies, to look at what the technological possibilities are, and to buildup their estimates of likely economic impacts from realistic descriptions of the existing technological alternatives. That's what the model does whose results I cited and there are others. And these modelers will be looking at the details of the Kyoto agreement and trying to assess it.

Mr. SCHAEFER. Let me just follow up. If this work has just begun, have you run the same assumptions used in the SGM model you have summarized today through the other two models used in the IAT analysis.

Ms. YELLEN. The other two models that were used in the IAT analysis are completely inappropriate and unsuited to evaluating the Kyoto Treaty protocol.


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Ms. YELLEN. Because they take no account whatsoever of international trading. They are U.S. models with no inclusion of opportunities in other parts of the world. So what we're focused on is, for example that we know a country like Russia is six times less energy efficient than we are, and a treaty like the one that we've negotiated that would look around the world for the most cost effective ways of mitigating emissions is going to be looking around the world for where can we do it cheap.

Mr. SCHAEFER. I understand.
Ms. YELLEN. Those models cannot take

Mr. SCHAEFER. When you provide the SGM data to the committee, could you also provide the results from the other two IAT models?

Ms. YELLEN. We have no results on those models, what you saw

Mr. SCHAEFER. You have none?

Ms. YELLEN. Those are not appropriate, not for evaluating this treaty.

Mr. SCHAEFER. Well, I guess I'm confused then. If you have no data on them, how can we say they're inappropriate?

Ms. YELLEN. They don't take into account the flexibility provisions that are critical in our estimate to holding the cost down, namely: international trading, the clean development mechanism, the possibility for non-Annex I countries of taking on international emissions trading. They don't possess the ability to analyze any of those kinds of arrangements. So we wouldn't use them or look at them again.

We insisted on those flexibility arrangements because all of the models that are capable of analyzing that, plus our plain common sense and economic judgment, looking around the world and observing, for example, that replacing boilers in coal-fired electric plants in China, they're so inefficient, one can cut emissions and save money. All of that kind of analysis, is what led to our opinion. We're not going to look at those models again.

Mr. SCHAEFER. And I've been to China to these coal-fired plants. I know what you're talking about. But, didn't you say, you can't just rely on one model?

Ms. YELLEN. That's correct. The IAT report that you've talked about looked at three, of which, one is suited, not perfectly, but is suited to looking at these kinds of trading arrangements. That's the Second Generation Model that I have discussed.

Mr. SCHAEFER. I see.

Ms. YELLEN. There are other models that also can be used to look at these arrangements, but they're manned by various academic units and researchers around the world. Stanford has a model comparision exercise, a group called the Energy Modeling Forum. And they periodically ask models that participate in their project to take a look under common assumptions at what is the impact of a given scenario. We expect that they will take a look at the Kyoto treaty and be coming up in the next year with results that will be informative.

Mr. SCHAEFER. The numbers that you quoted in testimony today, is this coming from just one model?

Ms. YELLEN. That's correct.

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