price tag on that, that results in frightening and worrisome losses in income in the future.

Mr. PASCRELL. Mr. Chairman, just a final suggestion, if I may. I don't think there's anybody-I can't speak for anybody else but myself on this panel, but I, knowing when we discuss other subjects, I don't know of anybody on this panel who wants to do nothing about that. But there is a concern, I think you know it quite well, Dr. Yellen, as has happened in domestic environmental policy, and we've had to make changes along those lines because many times we've cutoff our nose to spite our face, and we want to have a fair policy that doesn't, destroy economic incentive. So what I am saying is that we can assure a reciprocity, if we can ensure that there are some targets in those developing nations, and not simply win, I mean that's a necessity. I know the Senate is going to vote on this but I cannot support a policy where those developing nations that simply continue to do business as they do. This has to be very clear because our folks in this country, our business community in this country have had to respond to all kinds of regulations and paperwork over the last 15 years and many times it's been prosecutorial, not abatement, oriented. I want to get something moving here in terms of the economy, understanding that we have very severe obligations and responsibilities to what our kids inherit in terms of the environment.

But I don't see that in this policy at this point.

Dr. YELLEN. The President has said repeatedly that meaningful developing country participation is critical and that this would not be submitted for Senate ratification without it. I share your concern that of course it is critical to get participation by developing countries. We're not going to have a solution to it without that. That's very important. It doesn't mean it's a one-size-fits-all, it doesn't they would have to take on the same targets that we take on, given the difference in income and development levels, but getting them in and agreeing ultimately to participate in this I think is important.

Mr. PASCRELL. We've had the same kind of commitments from the last two Administrations, including this one, that we would have fair and reciprocal trade agreements and that hasn't happened. There have been industries in this country that have been totally destroyed. So right now, more important than whose word is valid, is what the policy says. The policy right now does not include, as far as I'm concerned and as far as I can perceive, enough target-oriented goals from the other countries, developing countries in the world, and until so, I wouldn't support it. Thank you, Mr. Chairman.

Chairman TALENT. Thank you, gentleman. I recognize Mrs. Kelly.

Mrs. KELLY. Thank you, Mr. Chairman. Thank you Dr. Yellen for being here with us today. I'm sitting here with some press clippings that I find very concerning. The titles are "EPA not waiting for Senate to OK warming treaty", "White House may be secretly trying to enact Kyoto", "Yielding to global limitations by fiat. These are all press clippings that have come out since Kyoto. I'm concerned because what they are saying is the EPA has drafted a predecisional document that outlines a strategy for implementing

99

the Kyoto agreement without congressional approval. Have you seen that document?

Dr. YELLEN. I have not seen that document.

Mrs. KELLY. Do you know anything about this?

Dr. YELLEN. No.

Mrs. KELLY. Have you heard of it before?

Dr. YELLEN. It's not something that I have any familiarity with at all.

Mrs. KELLY. You have not heard of it before?

Dr. YELLEN. The EPA document that's a

Mrs. KELLY. Or the EPA decision to try to do something to go ahead with doing something about the Kyoto

Dr. YELLEN. I have not seen anything of the sort that meets the description that you have given. I'm not aware of any such document. I've indicated to you that the Administration is clearly committed to not implementing this protocol in any way until it's ratified by the Senate. Now, as I said, also, there are obligations that we have under the Framework Convention on Climate Change to which we're a party so it is certainly appropriate to be thinking about things that would fall in the domain of meeting such commitments, but something that would be specific to the Kyoto Protocol, to begin to implement without Senate approval, I'm not aware of any such plan.

Mrs. KELLY. You don't have a copy that you're using in your considerations from the EPA. A copy of a May 31 memorandum? Dr. YELLEN. I, personally, have no such memorandum. Mrs. KELLY. What about your agency, ma'am?

Dr. YELLEN. I do not know what staff in my agency might or might not have seen. I am telling you I personally have never seen such a document. It has never crossed my desk and I do not have it in my possession. I cannot speak to what staff in my agency might have seen. I am not aware of this document.

Mrs. KELLY. In figuring the baseline of what the President's policies are, and since you are here testifying, that might be something that you may want to take a look at and see what's going on there because it may be something that you need to see and consider. I would hope that you would. Do you know of any plans by the Administration to implement the terms of the Kyoto treaty without a mandate from Congress?

Dr. YELLEN. No. I mean, as I indicated the 1999 budget, which is before you, has a climate change technology initiative which is spelled out very clearly. In fact, I think the deputy assistant secretary for tax analysis from Treasury is testifying as we speak about the logic of that plan, so there's certainly no secret there what the proposal is. But that set of initiatives are things that we regard as sensible and good energy policy on their own merits, even without an impact on greenhouse gases. So certainly the Administration feels free and has felt free to propose in its budget policies geared toward improving energy efficiency while spelling out the rationale for them clearly.

Mrs. KELLY. Dr. Yellen, I'm sitting here with a copy of the EPA memorandum. I'm going to ask, Mr. Chairman, that you allow us to enter that into the record?

Chairman TALENT. Without objection.

[The information may be found in the appendix.]

Mrs. KELLY. I wonder, Dr. Yellen, if the President is saying electricity-his support for restructuring is going to result in savings to consumers, but we're also going to be able to reduce the greenhouse emissions, and I'm really concerned about how you can do both cost savings and reduce the carbon dioxide reductions at the same time. Do you want to explain that one? It seems an oxymoron

to me.

Dr. YELLEN. The logic of it is that under the present system, electricity is not produced in an efficient manner. For example, a great deal of heat is lost because we make limited use of cogeneration. An analysis suggests that a deregulated, more highly competitive electricity industry would be a much more efficient industry. So, it would be possible to lower prices due to increased competition, but there would be incentives for firms producing electricity to enhance efficiency and that would be part of the reason that electricity prices would fall. Improved efficiency translates into less fuel to produce a given amount of heat, light, and electricity and that is one source of savings in greenhouse gases.

In addition to that, the President's proposal includes a renewable portfolio standard that would provide some incentives for use of renewable energies, and there are provisions as well for green labeling, so consumers who might want to buy energy, buy electricity from sources that are environmentally friendly would have the ability to know what the characteristics were.

Mrs. KELLY. You don't think that the cost of compliance would be translated into an increased cost for consumers?

Dr. YELLEN. Our estimates are that the President's bill could result in $20 billion in savings for consumers, and, I believe, this is an area where consumers stand to make very substantial, very substantial gains. Its a form of deregulation that I think will produce very valuable consumer benefits.

Mrs. KELLY. Dr. Yellen, I just want to go back to my original train of thought here. Do you think you could assure us that the Administration isn't going to take any steps at all to implement the treaty until there is congressional approval?

Dr. YELLEN. I tried to provide assurance on that, that the Administration does not intend in any way to take any steps to implement the Kyoto Protocol that would go beyond the existing obligations that we've undertaken under the Framework Convention to which we are a party.

Mrs. KELLY. But, without congressional approval?

Dr. YELLEN. Without Senate approval of the Kyoto Protocol. Mrs. KELLY. Thank you very much. Thank you, Mr. Chairman. Chairman TALENT. Dr. Yellen, you've been talking about the various trading permit plans that would be included in this, and from the beginning, I've been concerned about this if we don't have the trading permits. I'm also concerned about it if we have the trading permits. Because no matter how you set that system up, what you are doing is creating something of enormous value, giving exclusively to developing countries, countries other than the United States. Tell me why the following scenario is unlikely: We set up some kind of system whereby India, China, Brazil, Mexico, other countries, have these kinds of permits which they can, through

some fashion or the other, sell to our firms in our country. So now we have a massive transfer of wealth from the United States to these other countries in return for these permits. Then they continue to do exactly whatever it is they want to do and simply defying any scheme or defying or deceiving any scheme of international regulation.

Now, why in the real world, which is where the average American is going to have to deal with this, not in Washington, not in cocktail parties, not in the suites of the planning agencies, not wherever it is that people are deciding what they are going to do in November in Buenos Aires, why is that an unlikely scenario? Why should we not be concerned about protecting the interest of our own people?

Dr. YELLEN. The way I would look at it is that it's not that countries will be endowed with enormous quantities of permits which is wealth, but that countries will only be able-well, let me step back. First I want to say very clearly, no country will be allowed to participate in an international permit trading scheme unless they have undertaken a quantitative target. So to the extent that we might be talking about non-Annex 1 countries, we would only be talking about them if they undertake a quantative binding target. That is what they have to do to be able to trade. Now, if they can trade, what we're saying is, to the extent that they reduce emissions below what their quantative commitment is, yes, they can sell permits to companies in the United States and that's good from both sides. The alternative to that is saying to our own companies, no matter what it costs you, you have to undertake emissions reductions here.

Why should we do that to our own companies? We have an environmental objective. We want to reduce emissions. It doesn't matter whether those emissions are reduced here, or in France, Japan, or China. We have a job and we want to get it done. We want to give our firms a chance to do it in whatever ways are cheapest for them. If they can make a deal with a firm in another country that can do that cheaply, that's the cost-effective way to do it. Why should they be stopped from doing it? That's what international permit-trading is about. Those countries bear the cost of lowering their emissions, getting the environmental job done and our companies get the credit for it. I think that's what our companies would want, that's what we should want if we care about lowering the costs and making this a financially reasonable project to undertake. Chairman. TALENT. I recognize Mr. Boyd.

Mr. BOYD. Thank you, Mr. Chairman.

Thank you, Dr. Yellen for being here today. It's quite a lively discussion. Sorry Ms. Emerson left early. One of the programs that we are in the process of implementing here in this Nation is the NAAQS standards, National Ambient Air Quality Standards, that have been through the process, had the public hearings, and will be going in place soon.

In your analysis of the Kyoto agreements, have you also analyzed them in conjunction with or what combined impact of these with the new NAAQS standards would be and, particularly, if you would address the issue of impact on agriculture with the two together.

Dr. YELLEN. We have given thought to the benefits of undertaking emissions reductions in the form of ancillary or nonclimate benefits. Three possible categories of nonclimate benefits would be some contribution toward meeting the air standards under the NAAQS, possible reduction in congestion in the roads from any small increase in gas prices that occurred, and decreases in fatality, decreases in fatality from traffic accidents, so those are three things that we have done. Some analysis of I don't have right now any numbers to give you on the impact with respect to the NAAQS, on, air standards but we have done some work to look at that. Chairman. TALENT. Mr. Snowbarger.

Mr. SNOWBARGER. This wasn't necessarily the order I wanted to go in, but I have some questions about NAAQS as well. You're saying that there has not been any consideration under NAAQS in trying to determine what the cost to U.S. businesses is, for the combination of Kyoto as well as the ambient quality standards?

Dr. YELLEN. If you're asking is there a cost analysis that integrates in some way Kyoto and the NAAQS, that is not something that we have undertaken. But, as I indicated to Congressman Boyd, we have viewed the contribution toward satisfying the air standard as a potential benefit that should be counted in assessing the Kyoto Protocol.

Mr. SNOWBARGER. This may be getting to the extent to which you have looked at what EPA has done with air quality standards but in December-or actually, EPA has now indicated that their assessment of the cost which was at $46 billion a year. Their initial cost estimates were considerably lower than that and it seems to me that part of the methodology might be the same in trying to figure out air quality and the climate problems addressed in Kyoto. Have you corrected the problems in EPA's methodology in terms of developing costs on this?

Dr. YELLEN. In terms of?

Mr. SNOWBARGER. In terms of developing costs analysis for implementation of Kyoto.

Dr. YELLEN. There was a document, I guess, that was produced last summer that gave cost estimates. I believe there is some ongoing work but I

Mr. SNOWBARGER. I guess my question is that, in light of the Administration's cost estimates with the air quality standards, why should we believe your cost estimate on the Kyoto implementation? Dr. YELLEN. I'm not prepared to discuss at this time the NAAQS cost estimates. I have come to defend the Administration's estimates with respect to Kyoto and that is certainly what I am trying to do this morning.

Mr. SNOWBARGER. I understand. It's just that some of us are going to have difficulty with those estimates as well if you haven't tried to correct the problems that came out earlier.

Let me express a little frustration here that came from the chairman's questioning. Very frankly, I'm trying to figure out what these costs are going to be and how they affect the American people. I mean, he used a gallon of gasoline for most of his questions. The thing that is kind of frustrating about it is that I didn't feel like we got a straight answer on anything, and when you're asked the reverse, what's the cost of not doing anything, all of a sudden