Figure 2:

%A in GNP

from baseline

IMPACT OF A CARBON TAX ON ESTIMATED GNP UNDER
ALTERNATIVE ECONOMIC MODEL ASSUMPTIONS

D Carbon
C Tax

A = Lump sum distribution, no cost-effective options, no non-carbon benefits

Source: Adapted from James Sweeney, Stanford University, personal notes.

58-759 0-92-8

($/ton)

B

The CHAIRMAN. Thank you very much, Mr. Dower.
Next we will hear from industry.

Mr. Baroody.

STATEMENT OF MICHAEL E. BAROODY, SENIOR VICE PRESIDENT, NATIONAL ASSOCIATION OF MANUFACTURERS, AND CHAIRMAN, GLOBAL CLIMATE COALITION, ACCOMPANIED BY DR. DAVID MONTGOMERY, VICE PRESIDENT, CHARLES RIVER & ASSOCIATES

Mr. BAROODY. Thank you, Mr. Chairman and members of the committee. I am Michael E. Baroody, Senior Vice-President of the National Association of Manufacturers and Chairman of the Board of the Global Climate Coalition. The Global Climate Coalition is a broad-based organization of business trade associations and companies representing virtually all elements of U.S. industry, including energy producers and energy consumers.

Mr. Chairman, the coalition believes it is essential that the climate change issue be framed in the context of industrial competitiveness in a global economic environment. We would urge Congress not to adopt policy which would cede the United States' sovereignty and industrial leadership in world markets. A strong and growing economy and a robust industrial sector are prerequisites to addressing domestic and international environmental challenges. Ill-considered policy responses to issues such as climate change that adversely impact the competitiveness of our Nation's industries would ultimately hamstring our ability to respond to other pressing energy and environmental challenges.

There is no question that measures to sharply reduce greenhouse gas emissions would impose massive costs on the U.S. economy. GNP would fall by over $95 billion a year and 600,000 jobs would be lost. And the United States would suffer economic losses greater than its European and Japanese competitors.

In addition, there are no easy technological answers to emission reduction. Science, not emotional or political reactions, must serve as the foundation for global climate policy decisions. Policy decisions made without the benefit of adequate scientific understanding of the complex global change phenomenon could have farreaching and detrimental social and economic impacts.

The coalition supports a comprehensive and international approach to global climate change based on cost effective, scientifically sound policies that are independently justifiable in their own right.

In addition, U.S. industry firmly believes that a crucial element not only of any international agreement on global climate change, but also of this country's particular response to the issue must be technology cooperation in the international community.

Although many countries have announced substantial commitments to curb carbon dioxide, very few, if any, of the statements have been supported by binding obligations under the laws and regulations of those countries. As such, these so-called commitments are not particularly meaningful. However, any binding commitments made by the United States would be vigorously enforced by our regulatory authorities.

Negotiations wrapped up last week on the international climate change convention. This convention seeks a coordinated, international response to the climate change issue. Importantly, the pact does not bind signatory nations to do specific actions to control greenhouse gases, as we heard from the earlier panel. Importantly, it focuses on all greenhouse gases.

On the other hand, a command and control oriented proposal introduced in the Senate to mandate unilateral U.S. stabilization of CO2 emissions at 1990 levels would, we believe, have severe negative competitive and economic impacts. The proposal offered by Senator Gore would actually require reduction of projected carbon emissions of almost 20 percent by the year 2000 and could, in effect, substantially curb the growth of jobs and of our economy. The effect of artificial carbon restrictions necessary to achieve the stabilization or reduction of greenhouse gas emissions would be devastating on the U.S. economy.

A recent study conducted by Charles Rivers & Associates and endorsed by the coalition found that stabilizing carbon dioxide emissions at 20 percent below current levels would produce the loss in GNP of up to $95 billion a year.

A recent study by the Department of Commerce indicates that a tax on fossil fuels designed to obtain a 20 percent reduction in CO2 emissions by the year 2020 would lower output among major OECD nations by 1 to 3.5 percent. Our trade competitors know that carbon dioxide stabilization would be disproportionately costly for the United States and give them increased advantage.

The coalition believes that technology costing models, such as those used by the National Academy of Sciences study, are fundamentally flawed. Their conclusions that the introduction of new energy efficient technologies would have net economic benefits are dramatically opposed to the unanimous conclusion of the economic models which illustrate that reductions in carbon emissions can only come at significant cost.

Many of our members demand extremely brief payback periods because they are under severe competitive economic pressure and short of capital. These companies have a variety of investment priorities which compete for limited capital investment dollars. In addition, they certainly cannot afford the risk involved in trying new technologies. These short payback periods and capital limitations are real costs which the academic proponents of conservation must recognize.

To conclude, any policy response to the climate change issue must taken into account impacts on U.S. industrial competitiveness. Short-sighted unilateral policy responses that adversely impact the competitiveness of our Nation's industries would ultimately hamstring our ability to respond to pressing energy and environmental challenges.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Baroody follows:]

PREPARED STATEMENT OF MICHAEL E. BAROODY, SENIOR VICE PRESIDENT, NATIONAL
ASSOCIATION OF MANUFACTURERS, AND CHAIRMAN, GLOBAL CLIMATE COALITION
Mr. Chairman, Members of the Committee, I am Michael E. Baroody, Senior Vice-
President of the National Association of Manufacturers and Chairman of the Board

of the Global Climate Coalition. The Global Climate Coalition is a broad-based organization of business trade associations and companies representing virtually all elements of U.S. industry including the energy producing and energy consuming sectors. A list of our members is attached. We are pleased to provide our comments on the implications for international competitiveness of U.S. industry in setting domestic and international climate change policy.

Mr. Chairman-We believe it is essential that the climate change issue be framed in the context of industrial competitiveness in a global economic environment. We would urge Congress not to adopt policy which would cede the United States' sovereignty and industrial leadership in world markets. A strong and growing economy and a robust industrial sector are prerequisites to addressing domestic and international environmental challenges. Ill-considered policy responses to issues such as climate change that adversely impact the competitiveness of our nation's industries would ultimately hamstring our ability to respond to other pressing energy and environmental challenges.

With a strong and growing economy, United States industry can continue to develop and produce technologies that will make the U.S. economy more efficient, and through technology cooperation make it possible for developing nations and those with economies in transition to expand their economies in an environmentally sound manner.

The Coalition believes that proposed climate change response strategies must be thoroughly analyzed to assess their impacts on the domestic consumer and competitive impacts on our overall economy. There is no question that measures to sharply reduce greenhouse gas emissions would impose massive costs on the U.S. economy. In addition, there are no easy, technological answers to emission reductions.

• GNP would fall by over $95 billion a year, according to a study by Charles River Associates. A 1990 Congressional Budget Office study reached similar conclusions.

• 600,000 jobs per year would be lost, according to a recently released Department of Commerce study.

• And the U.S. would suffer economic losses greater than its European and Japanese competitors, according to the same study.

SCIENCE

Science-not emotional or political reactions-must serve as the foundation for global climate policy decisions. Rational decision-making requires that we first understand the nature and extent of whatever problems we are trying to address and then formulate our responses based on this understanding. For science to properly provide the basis for critical policy decisions, enhanced scientific research must be the first priority as it is in the United States. Policy decisions made without the benefit of adequate scientific understanding of the complex global change phenomena could have far-reaching and detrimental social and economic impacts.

There is no disagreement over the theory that there is a natural "greenhouse effect" which keeps the Earth warmer than it would otherwise be, and that atmospheric accumulations of several greenhouse gases are increasing. However, there is still substantial uncertainty about the importance of anthropogenic global warming. While some minor global climate changes have been suggested, it has yet to be determined whether that is a result of natural forces (which account for the overwhelming share of the greenhouse gas concentrations and emissions each year), human activity or a combination of both. While many scientists agree that continued accumulation of greenhouse gases means that some changes in global temperatures and climate are possible, there is substantial uncertainty within the scientific community. The timing, magnitude, rate, and regional impacts-and, hence, the costs and benefits, of those changes remain unclear. Indeed, these effects may well be small relative to the range of natural variation.

To remove as much of this kind of uncertainty as possible, the Coalition strongly supports a coordinated international research program. The Coalition also recommends that the U.S. continue its substantial investment in this area (over $1 billion invested in FY 1991, $1.1 billion committed in FY 1992 and $1.4 billion requested in FY 1993) with future research focused on: improving our understanding of the carbon cycle, determining the roles of clouds, oceans, polar ice caps, soil and forests and their interactions; identifying regional impacts of possible climate changes; differentiating between climate change arising from natural causes and changes attributable to manmade emissions; understanding the role of CFC's and their substitutes; understanding the role of solar activity in climate change; and testing and improving "general circulation models"-the computer models used to predict complex interactions of the climate system.