A5.2 Not enough data was found on most developing countries for a good comparison to the US. The following list of international electricity prices was compiled from several sources.

Energy Cost Subsidization by the U.S. and Other Nations

Q6.

A6.

Q7.

A7.

Q8.

A8.

Don't all nations currently have ways of subsidizing energy costs to attract industry to their country?

Yes, all nations have means of subsidizing energy costs and most do to some extent if an appropriately broad definition of subsidy is used (see question 7). However, energy use, even in energy intensive industries, is not a major factor in a firm's decision to relocate (see question 2). In most industries, energy does not exceed 5% of their total costs. Indeed, many countries have higher energy prices than the U.S. and yet they maintain successful industries.

Are fossil fuels directly or indirectly subsidized in the U.S.?

In its study entitled Federal Energy Subsidies (November 1992), the Energy Information Administration incorporated a broad definition of energy subsidies including most governmental actions which had as their function alteration of energy markets by benefiting some group of producers or consumers. With this definition, a subsidy includes the following tax incentives, direct supply of energy by the government below market prices, government buy down of interest for financing, and some research and development (R&D) activities. If the government conducts R&D which benefits a specific group, then it is counted as a subsidy.

Strictly looking at R&D expenditures, almost all significant energy sources receive some subsidy in the U.S. Determining which energy source has the greatest subsidy is a subject of rancorous debate, and is beyond the scope of this response.

If a country can use energy subsidization to attract industry to locate within their boundaries what would prevent them from doing so now apart from any agreements related to carbon dioxide reduction?

Apart from any future agreements, all nations have means of subsidizing energy costs. For example, Germany provides large subsidies to its coal industry and the Netherlands subsidizes its wind industry.

However, for most industries, energy costs are not a major factor in relocation. Such a decision is usually based on total costs of doing business and is affected by many factors. In those industries where energy costs are relatively high, such as aluminum, copper, steel, cement, and plastic, higher prices of energy may have a marginal influence on location decisions.

HEARING OF THE SUBCOMMITTEE ON ENERGY AND ENVIRONMENT

COMMITTEE ON SCIENCE

U.S. HOUSE OF REPRESENTATIVES

on

Countdown to Kyoto-Part 2: The Economics of a Global Climate Change Agreement

Thursday, October 9, 1997

Post-Hearing Questions Submitted to

Mr. Michael Buckner

Research Director

United Mine Workers of America

Administration Knowledge of Potential Impacts to the Economy and to Workers of the President's Climate Change Proposal

Q1.

Al.

Do you think the Administration knows enough about the potential impacts to the economy and to workers of the President's climate change proposal?

No. Although the Administration conducted several analyses of the economic effects of climate change policies, they never released them in final form. The most comprehensive effort, by the Interagency Analysis Team (IAT), was released to the House Commerce Committee in draft form, but the Administration essentially walked away from its results and informed the committee that it would not conduct further economic analysis of greenhouse gas policies.

The IAT analysis found that 900,000 jobs would be lost by 20005 as a result of a policy to reduce emissions back to 1990 levels by 2010. I believe that many in the Administration understand the potential adverse effect of climate change policies on the economy, but the decision has been made not to engage the public in a debate about those costs for fear that it would weaken support for the Administration's efforts. Instead, they repeat the line that "if we do it smart" we can accomplish the goal at little cost.

Areas of the Country Hardest Hit by an Agreement to Limit Greenhouse Gas Emissions

Q2.

Based on the study you commissioned, what are some of the areas of the country that will be hardest hit by an agreement to limit greenhouse gas emissions?

A2.

Overall, the DRI analysis found that a policy to reduce greenhouse gas emissions to 1990 levels by 2010 would cost 1.55 million jobs in 2005, rising to a loss of 1.7 million jobs by 2010. Every region of the country is adversely affected but there is an uneven distribution of the economic hardship. The interior regions of the country, which depend more on fossil fuel production and heavy industrial output, are more affected in terms of job loss and loss of real disposable income. New England and the Pacific Northwest, which are less dependent on such economic activity, are less affected than the interior regions but nonetheless suffer economic hardship from such policies.

The regional effects of a policy to reduce to 1990 levels by 2010 are shown below:

Q3.

A3.

Your testimony suggests that an agreement would actually hurt U.S. energy security. Please explain why you think this is the case?

The United States generates 56% of its electricity from coal fired power plants, the single largest source of electricity. To the extent that U.S. greenhouse gas reduction efforts require that coal be backed out of our energy supply mix, it must be filled by other sources of fuel. It is unlikely that hydro or nuclear power could make up the slack. Non-hydro renewables make up only a very small percentage of generation and could not possibly replace coal. The only potential sources are natural gas or oil. Reliance on oil would inevitably result in increased dependence on foreign sources of supply. While we currently have abundant supplies of domestic natural gas, in the long run attempts to replace coal with gas will most likely result in dependence on foreign sources of gas.

Do We Have the Technology to Reduce the Emissions of CO, from Coal Combustion?

Q4.

A4.

The U.S. has enough recoverable reserves of coal to last hundreds of years. This is a tremendous resource. Do we have the technology to reduce the emissions of CO, from coal combustion?

There are two ways to reduce carbon emissions from coal combustion--increased efficiency or carbon capture sequestration.

Can we improve efficiency?

Yes, and we should.

Do we have technology for carbon sequestration?

No. The question is how long will it take to develop it?

While Japan and Norway are spending considerable time and money working on CO2 scrubbers, the U.S. has no serious program to capture and sequester carbon.

Norway is reportedly scrubbing North Sea gas and pumping liquefied CO2 deep into the ocean. At present Norway is sequestering about 1 million tons of carbon dioxide per year through this program. Without question, we could develop the technology to capture carbon. The questions are at what cost and how do we ensure that the carbon is properly sequestered and does not reach the atmosphere.

The UMWA believes that much more emphasis should be placed on such programs at the
Department of Energy.

U.S. Greenhouse Gas Emissions and Economic Output

Q5.

The U.S. has been criticized because it the average American produces about than five times the greenhouse gas emission of the average person on Earth. Concerning this:

Q5.1 How much does the average American produce in economic output compared to the average person on Earth?

A5.1

Measured by Gross Domestic Product (GDP), the average American produces about $27,000 of GDP and the average person in the world produces about $5,900 of GDP.

Q5.2 Is the U.S. average of CO2 emissions per unit of economic output above, below, or equal to the world average?

46-495-17