The convention also requires the Conference of the Parties (the treaty's governing body) to "periodically examine the obligations of the Parties and the institutional arrangements under the Convention, in the light of the objective of the Convention, the experience gained in its implementation and the evolution of scientific and technological knowledge." It was agreed that the first meeting of the Conference of the Parties (in about two years, if the required number of countries promptly sign and ratify the treaty) would “review the adequacy" of the treaty's developed country commitments and "shall take appropriate action" based on that review. What is likely to emerge is a process not unlike that of the Montreal Protocol, where requirements are progressively tightened as scientific knowledge increases and the technical and economic feasibility of absolute emissions reductions becomes ever more apparent. I believe it would be prudent for government and industry energy planners to assume steadily increasing pressure to cut energy-related emissions in the decades ahead.

Despite all the controversy over the stabilization goal during the climate change treaty negotiations, it is increasingly apparent that it will not be that difficult for the U.S. to hold its year 2000 CO2 emissions at or below 1990 levels. The "Annual Energy Outlook 1992" published in January by the DOE Energy Information Administration gives a reference case projection for fossil fuel consumption in 2000 of about 80 quads, just over a 10 percent increase over 1990 levels; this translates into an increase in carbon emissions of about 140 million metric tons between 1990 and 2000. The Bush Administration's "U.S. Views on Global Climate Change" estimates that actions already underway or planned will reduce carbon emissions by some 87 to 121 million metric tons between now and 2000. These reductions do not appear to reflect the energy efficiency and renewable energy provisions in S. 2166 and H.R. 776, which ACEEE and the Alliance to Save Energy have estimated will cut carbon emissions by about 60 million tons by 2000. They also do not reflect the numerous actions being taken by state and local governments and the private sector to reduce carbon emissions. Given that federal actions alone will likely produce emissions cuts exceeding EIA's 140 million ton base case increase estimate, it's clear that the U.S. is on a path towards stabilization at 1990 levels, despite the Administration's unyielding opposition to legally committing us to such a goal.

I believe it's more productive to now focus on the actions that will be needed to achieve long-term reductions in emissions of carbon dioxide and other greenhouse gases, reductions required of industrialized nations if the world is to have any chance of achieving the climate change treaty objective agreed to last weekend at the United Nations. Evaluating the feasibility and cost-effectiveness of such reductions was the objective of "America's Energy Choices," which I will now discuss.

AMERICA'S ENERGY CHOICES

I am submitting for the record a copy of the full report and technical appendices of "America's Energy Choices," a study conducted in 1990 and 1991 by my organization and the three others cited above. We launched this study in the spring of 1990 out of two interrelated concerns: that the Bush Administration National Energy Strategy would fail to tap the full potential of energy efficiency and renewable energy to meet a major share of our future energy needs; and that the Administration's belief that reducing fossil fuel use would inevitably hurt the U.S. economy was endangering the prospects for an effective global warming treaty.

We designed the study to test the conventional wisdom that substantial reductions in energy-related pollution could only be achieved at significant cost to energy users. The study examines the technical and economic potential of energy efficiency and renewable energy technologies over the next 40 years, and estimates the reductions in atmospheric pollution and the net costs or savings to consumers from greater use of these technologies.

To do this we constructed four scenarios:

• a Reference case, reflecting continuation of current policies and trends;

• a Market case, which implements cost-effective efficiency and renewable energy technologies assuming supporting policies and moderately rapid penetration rates;

• an Environmental case, which assumes policies reflecting the costs to society of pollution from fossil fuel use in energy prices, thus leading to more rapid penetration of technologies with low or no pollutant emissions;

• and a Climate Stabilization case, which was designed to achieve reductions in carbon dioxide emissions of at least 25% by 2005 and 50% by 2030.

The study analyzed energy use in each sector of the economy: residential and commercial buildings, industry, personal and freight transportation, along with the electricity supply sector. To integrate our sectoral results, we used the Tellus Insti

tute's Long-Range Energy Alternative Planning (LEAP) system, a "bottom-up" computer model which allows exploration of alternative energy futures, along with their costs and environmental impacts. Our analysis embodies the impact of a variety of factors energy prices, technological change, demographic variables and structural shifts in the economy, among others on energy use. Unlike many econometric (or "top-down") models, the model does not integrate the price and income effects that would ensure an equilibrium between supply and demand for each scenario. As energy efficiency increases, for example, the demand for energy falls, and some reduction in fuel prices would be expected. Similarly, as the cost of energy services is reduced by the use of cost-effective efficiency technologies, the demand for energy could, in turn, rise slightly. We did not account for the first effect, on energy prices; thus, our analysis is conservative in that it probably underestimates the full economic benefits that result from the implementation of energy-efficiency and renewable energy measures. We did make adjustments for the latter phenomenon, sometimes called the "take-back effect," in those cases where we expected it to be significant.

Our assumptions on energy prices, population and GNP growth were derived from the model used to produce the DOE/EIA 1990 "Annual Energy Outlook;" the assumptions used for the NES were not publicly available at the time. It is true that our assumptions on future GNP growth, as well as on the structural composition of the economy (the growth of heavy, energy-intensive industries versus light manufacturing and service industries) and on growth in personal vehicle travel, differ somewhat from those used in the NES. Two points should be made here. First, we believe these corrected assumptions are more realistic than those used in the NES; in this regard, it should be noted that the NES projects an increase in fossil fuel consumption of some 14 quads between 1990 and 2000, nearly double the 7.4 quad increase predicted by the 1992 DOE/EIA "Annual Energy Outlook;" even DOE is adjusting its energy growth assumptions downward. Second, and more importantly, our assumptions were applied to all of our scenarios; thus, while they affect aggregate levels of energy use and atmospheric pollutant emissions, they do not affect the differences in energy consumption, costs and pollution between our four scenarios. The savings in our three non-reference scenarios are just as substantial in absolute (though not percentage) terms whether one uses our Reference scenario's projected 2030 energy consumption of 120 quads, or the NES's 140 quads.

Our analysis takes a least-cost approach, ranking energy efficiency and renewable technologies and measures on the basis of cost per unit of energy saved or supplied, then comparing them with the cost of conventional supply technologies (using mostly DOE and EPRI cost numbers) to determine which are cost-effective. We analyzed over a hundred efficiency and renewable energy technologies and measures, as well as a number of advanced fossil power generation technologies and life extension of existing fossil-fired powerplants. We did not examine fossil fuel production technologies (i.e. enhanced oil recovery or coal refining), and we used DOE's base case assumption of no construction of new nuclear plants and no life-extension of current nuclear units in all of our scenarios. For each energy-using sector, we estimated the penetration rate of these cost-effective efficiency and renewable energy technologies into the market, limited by rates of capital stock turnover, existing infrastructure and market inertia. This penetration rate increased as we moved to successive scenarios that assumed increasingly aggressive sets of policies.

We then aggregated the sectoral results, using the LEAP model, to generate projections of primary energy use, pollutant emissions, and energy cost and savings. We took a societal perspective in our costing analysis, using a 3 percent real annual rate to discount future cost and savings streams (about the cost of capital to society based on the long-term average yield on U.S. treasury bonds); we performed a sensitivity analysis using a private or "market" discount rate of 7 percent, to test the impact of discount rate choice on our results. We used the current costs of those energy efficiency technologies already available (a conservative assumption, as their costs are likely to fall as production expands); cost and performance assumptions for more speculative efficiency technologies and for renewable technologies not yet fully mature were made by our analysts based on current trends and their estimates of likely technological advances.

Our report describes a range of energy policies that we believe would move the nation towards a cleaner, more competitive, more secure energy future. We divide the policies into three categories: harnessing market forces, making efficiency the standard, and investing in the future. Under harnessing market forces, we include least-cost planning by utilities in all states, establishing a performance-based tax credit of 25 cents/kilowatthour for renewable electricity production, market incentives such as "feebates" to promote consumer purchase of more efficient appliances

and automobiles, and in the Environmental and Climate Stabilization scenarios, shifting some of the current tax burden from income and capital to pollution.

Under making efficiency the standard, we include steady increases in CAFE standards, setting minimum performance standards on buildings, appliances, lighting and other equipment so as to minimize life-cycle costs, and requiring better energy management by federal government, including establishment of a $500 million revolving fund for efficiency improvements. Under the category investing in the future, we place a steady increase in R&D support for efficiency and renewables over next decade, making reforms in zoning practices, implementing programs to increase vehicle occupancy (HOV lanes, carpooling incentives, etc.), investing more heavily in mass transit, and expanding education, training, and certification programs in efficiency and renewables energy technologies.

Some of the policies are quantitatively linked to our analysis; for example the Environmental scenario incorporates increased taxes on gasoline and new taxes on industrial pollution emissions, to reflect the environmental and national security costs of energy use. Various of the scenarios also assume the implementation of such policies as the incorporation of environmental costs in utility planning, automobile efficiency standards, and energy-efficient building codes. Other policies are more difficult to model, such as integrating land-use and transportation planning or increasing renewable energy R&D. The study was not designed to estimate the effectiveness of each individual policy, although such evaluation would be useful. We believe that in its next version of the National Energy Strategy, DOE should employ leastcost principles to analyze these and other policies needed to achieve scenarios similar to those described in our report.

Now let me give you an overview of the results of our analysis.

For primary energy use, our Reference case projects an increase of 40 percent over the next four decades, from 1988 levels of 85 Quads to 120 Quads in 2030. Our Market case projects demand of 82 Quads in 2030, a slight reduction from current levels and some 32 percent below Reference case. Our Environmental scenario projects consumption of just 70 Quads in 2030, 42 percent less than Reference case, and 18 percent below current levels. Finally, our Climate Stabilization scenario projects demand of 62 Quads in 2030, almost half that of the Reference case, and 27 percent less than current levels.

I should note that we do predict efficiency gains in the Reference case; in fact energy intensity (the amount of energy consumed per unit of real GNP) decreases 42 percent over the 40-year period, or about 1.3 percent a year. In the other three scenarios, energy intensity decreases by 21 percent, 25 percent and 28 percent per year, respectively. By comparison, U.S. energy intensity decreased about 2.4 percent a year between 1973 and 1986; the efficiency gains in our non-reference scenarios are clearly within the range of historical experience.

Our Reference case forecasts a doubling of renewable energy production over the next 40 years from about 7.4 Quads to 15 Quads, but because of overall growth in energy demand, renewable energy's share of the market only increases to 13 percent from the current 9 percent In the Market scenario, renewable energy production increases to 29 Quads, or 36 percent of total demand. In the Environmental scenario, renewables provide a little over 29 Quads in 2030, or 42 percent of total demand. Finally, in the Climate Stabilization case, renewables supply almost 33 Quads, or some 53 percent of total energy demand. These rates of transition from fossil to renewable energy sources also have historical precedent. The shift from coal to petroleum and natural gas was comparably rapid in the middle of this century, with coal use declining from 70 percent of energy supply in 1920 to less than 20 percent in 1970.

Oil consumption, which increases about 15 percent from current levels by 2030 in the Reference case, is reduced by 40 percent in the Market case, 54 percent in the Environmental case, and by two-thirds in the Climate Stabilization case. We did not analyze domestic oil production, but our projected 2030 oil consumption of under 6 million barrels/day in the Climate Stabilization case is within hailing distance of the NES base case domestic petroleum production projections of about 4.5 million barrels/day in that year (as opposed to the nearly 20 million barrels/day in our Reference scenario, which would leave us heavily dependent on oil imports).

We projected emissions for carbon dioxide and other pollutants based on our energy demand and supply mix projections. In our Reference case, CO2 emissions increase 58 percent over the next 40 years, from 5.3 billion tons in 1988 to 8.3 billion tons in 2030. In the Market case, CO2 emissions are stabilized over the next decade and then decline gradually to 3.8 billion tons in 2030, 28% below today's levels. In the Environmental case, emissions are cut 48 percent by 2030, to 27 billion tons. Finally, in the Climate Stabilization case, with its additional efficiency improvements

and major shift from coal to gas and renewables for power generation, emissions of CO2 decrease 17% by 2000, 40% by 2010, and 71% by 2030. It should be noted that we also project substantial reductions in emissions of Clean Air Act criteria pollutants, such as nitrogen oxides and sulfur dioxide.

Our alternative scenarios require greater up-front investment in efficiency and renewables technologies than in the Reference case, but produce fuel and electricity savings to consumers. The net present value of the added investment costs over the 40-year period relative to the Reference case is $1.3 trillion in the Market case, $2.1 trillion in the Environmental case, and $2.7 trillion in the Climate Stabilization case. But the savings to energy consumers from reduced fuel and electricity consumption total $3.1 trillion, $4.2 trillion, and $5 trillion, respectively, over the 40 years. This yields net savings of $1.8 trillion, $2.1 trillion, and $2.3 trillion, respectively, to energy consumers over the next 40 years. All of these figures do not include the economic benefits associated with reduced pollution levels.

It may seem counterintuitive that the net savings are greatest in the Climate Stabilization case, but this is because the more rapid penetration of lower-cost efficiency and renewable technologies in this scenario more than offsets the use of highercost technologies at the margin to meet the carbon reduction goals.

When a 7 percent discount rate is used instead of a 3 percent rate, the net savings are reduced to about $0.6 trillion in all three scenarios, reflecting the reduced value of future fuel and electricity savings.

It should be stressed that these are just estimates they depend on our technology cost, energy price, and discount rate assumptions. But the bottom line seems clear to us: the United States can achieve a win-win energy future-one that combines cost savings and environmental integrity. We don't have to sacrifice our natural environment or provide additional taxpayer subsidies to the coal, oil, and nuclear power industries to meet our future energy needs. Our study also demonstrates that in future rounds of climate treaty negotiations, the United States can afford to play a leadership role, rather than serving as a roadblock to further progress in reducing industrialized nation emissions of CO2 and other greenhouse gases.

We recognize that achieving this future will require basic changes in the way we price energy, construct buildings, manufacture goods, and transport ourselves. It will require new policies and more aggressive political leadership. It will not be easy. But the consequences of not moving forward-increased oil imports, higher costs of using energy, and a high risk of ecological damage from global warming-is to us, unacceptable.

Let me conclude with some basic principles that I believe must guide U.S. energy policy in the future.

The first principle should be clear from the discussion above: global warming, and in particular, the need to reduce carbon dioxide emissions, is going to be a major factor in energy policy for decades to come; those industries and nations that fail to come to grips with this basic fact do so at their own peril. In this regard, I note the recent interim decision of the California Public Utilities Commission requiring utilities in that state to obtain assurances from any prospective power supplier with significant carbon emissions that "it alone will bear . any future costs resulting from a carbon tax, acquisition of tradable emission permits, retrofits, or any other carbon emission control strategy or regulation applicable to the supplier's plant." Second, I believe we must recognize the desirability of securing "insurance," through investment in mitigation measures, against the risks of climate change. This was to me the central finding of last year's National Academy of Sciences report on greenhouse warming, along with their related finding that "substantial mitigation can be accomplished at modest cost. In other words, insurance is cheap." We need to reflect some modest premium for low-carbon and no-carbon technologies in our energy planning and pricing decisions, and in federal research and commercialization strategies.

The third principle is to look for multiple benefits. The efficiency and renewable energy investments that we believe should be the centerpiece of U.S. energy policy will, in addition to their greenhouse benefits, reduce our vulnerability to future oil price shocks, help mitigate other environmental impacts such as acid rain and urban smog, and in most cases, save consumers money over the life cycle of the technology. There are also large markets to be won in these technologies in the coming decades; those countries that encourage their widespread use at home will see their companies better-positioned to win shares of that growing market.

Energy policy must also look at multiple impacts. While there are limited incentives in the recently passed Clean Air Act for utility investment in efficiency and renewables, much of the utility effort will involve installing scrubbers at coal plants, which will reduce sulfur emissions but is likely to slightly increase carbon

emissions per unit of electric output. The Congress is now considering federal incentives or in some cases requirements for increased use of alternative fuels. But different alternative fuels have widely varying impacts on overall greenhouse gas emissions; by not distinguishing among them, we miss an opportunity to address our oil dependency problem and the global warming threat at the same time. In the worst case, such failure to integrate greenhouse considerations into our energy and environmental policy actions could risk premature write-off of substantial investments in technologies that are, in hindsight, deemed incompatible with greenhouse gas reduction requirements.

My final point is that goals are useful. Whether set as broad objectives or as the "targets and timetables" that so spooked the White House, goals serve as both important prods to action and benchmarks against which to measure success. Would the Administration have so exerted itself to come up with additional policies and measures to reduce carbon emissions if the Europeans hadn't vigorously advocated the 1990 level CO2 stabilization target in the climate negotiations? I think the answer is clearly no. Congress has an important role in laying out broad goals for our nation on energy policy, whether it's on carbon emissions reductions, efficiency gains, or the share of our energy supply that we aim to meet through use of renewable sources. In that regard, I urge the Senate and House to remove any remaining uncertainty and mandate legislatively that the U.S. will stabilize its emissions of CO2 at 1990 levels by the year 2000. As discussed above, such a goal should not be difficult to meet; but without it, the pressure on the Administration to propose additional emissions-reducing measures will be much less.

I thank you for the opportunity to share my views with you, and I look forward to any questions you may have.

The CHAIRMAN. Thank you, Mr. Meyer.

Next we will hear from Dr. Roger C. Dower.

STATEMENT OF DR. ROGER C. DOWER, DIRECTOR, CLIMATE, ENERGY AND POLLUTION PROGRAM, WORLD RESOURCES INSTITUTE, ACCOMPANIED BY RAFE POMERANCE, SENIOR ASSOCIATE, CLIMATE, ENERGY AND POLLUTION PROGRAM AND POLICY AFFAIRS PROGRAM

Dr. DOWER. Mr. Chairman and committee members, I am Roger Dower, Director of the Climate, Energy and Pollution Program at the World Resources Institute, a not-for-profit, public policy research organization focusing on national and international issues. I am accompanied today by Rafe Pomerance, a senior associate in our Climate, Energy and Pollution and Policy Affairs Programs.

For most of its relatively short lifetime, the formal negotiations of the Intergovernmental Negotiating Committee on a framework convention for climate change has been in part a debate over the economic costs to developed and developing countries of lowering their carbon dioxide emissions. While there surely have been other important issues and concerns, as there are other important greenhouse gases, much of the controversy, at least in the United States, has been fueled by anxieties over the suspected tradeoff between CO2 reductions and economic well-being.

My written testimony suggests that these fears may be exaggerated. While I have no doubt that we could design a ČO2 reduction strategy that would cost us plenty, this is by no means the only possible outcome. Economic modeling efforts undertaken over the last several years provide what I think is a clear picture of how to structure a program that leads to moderate reductions in CO2 emissions without holding our economy hostage. In fact, properly done, such a program is likely to have economic benefits, not costs for our economic welfare.