Vehicles for personal transportation, for instance, became dramatically more fuel efficient from the early 1970's to the mid 1980's, but the miles per gallon for new vehicles peaked in 1987. Because of switches to trucks and vans, the average fuel efficiency of new vehicles remains below 1987 levels, and is likely to remain below those levels through 2010. The introduction of energy auto technologies is offset by the demand for increased energy services, particularly more powerful engines.

We do try to look at factors that would cause our projections to be changed, and I will just show one of them which relates to technology. We made some assumptions. What would happen if the cost of the energy efficiency technologies went down and people use more efficient insulations and other factors? And if this would happen, you can see it changes the line. The more efficiency that comes in, the lower the carbon emissions. And the higher-with less efficiency, the emissions go up. But these changes do not come close to getting us to the levels needed for stabilization.

We have done this analytic work on other factors like the availability of nuclear power, renewables, economic growth, and we would be glad to share those at the appropriate time. But we do not view our projections as fixed in stone.

Let me then turn to the Kyoto Protocol. This is a complex issue and I will try to contribute whatever clarity I am able. Since EIA projects that carbon emissions will grow by 34 percent from 1990 to 2010, and the Kyoto Protocol would require the United States to reduce carbon emissions 7 percent below 1990 levels, a cut of 550 million metric tons out of the expected level will be necessary. This cut equals a 31 percent reduction below the expected levels. The reduction actually required in the United States, however, is likely to be less deep if the system of international trading is developed. Because of economic decline, Russia and other annex 1 members of the former Soviet Union, are expected to actually emit 165 million metric tons less of carbon in 2010 than in 1990, even under a business-as-usual analysis. Even countries that expect growth in carbon emissions may have cheaper ways of making reductions than the United States. Some interpretations of the Kyoto Protocol would allow further offsets through reforestation.

There are numerous uncertainties concerning the Kyoto agreement and we have not modeled the impact of its provisions. However, our previous work on the subject does allow us to make some tentative suggestions about what the impacts would be. If the reductions result from domestic trading of carbon, or some other system that encourages least-cost options to be adopted first, the expected impacts of reductions in carbon emissions are: one, dramatically reduced use of coal, with petroleum dropping to a lesser extent; faster growth in the use of natural gas and renewables than in a nonreduction case; more rapid improvements in efficiencies of electric generation and end-use energy consumption; and some reduction in energy services. Domestic impacts tend to be lessened if carbon permits can be acquired internationally and at significantly lower cost than possible in the United States.

It is unlikely the adjustments necessary can be achieved without a significant price mechanism. Under most scenarios the price

growth. A critical issue for economic growth is whether, or how, revenues from higher energy prices are recycled back into the economy.

Finally, one of the most important lessons of the careful modeling we undertake is the importance of the normal rate of purchase of energy-using equipment, often referred to as "stock turnover." The major categories of energy-using equipment tend to have useful lives of 8 to 50 or more years. As a result, each month that goes by sees the purchase of air conditioners, industrial boilers, and other equipment that will still be in use in 2010 and beyond. Because of the importance of stock turnover, there will be no quick fixes from dramatically more efficient equipment that becomes available only a few years before 2010. Such breakthroughs, if they occur, will at that point have only limited opportunities to penetrate the market. Any strategy that depends on throwing away otherwise useful equipment, will probably add substantially to the cost of adjusting to a lower carbon economy.

[The prepared statement and attachments of Dr. Hakes follow:]

STATEMENT OF

JAY HAKES

ADMINISTRATOR, ENERGY INFORMATION ADMINISTRATION

DEPARTMENT OF ENERGY

before the

COMMITTEE on SCIENCE

UNITED STATES HOUSE of REPRESENTATIVES

FEBRUARY 4, 1998

Mr. Chairman and Members of the Committee:

I appreciate the opportunity to appear before you today to discuss the Energy Information Administration's (EIA) projections of energy consumption and carbon emissions and our analysis of some factors that could influence these projections.

EIA is an autonomous statistical and analytical agency within the Department of Energy. We are charged with providing objective, timely, and relevant data, analysis, and projections for the use of the Department, the Congress, and the public. We do not take positions on policy issues, but we do produce data and analysis reports that are meant to help policy makers decide energy policy. Because we have an element of statutory independence with respect to the analyses that we publish, our views are strictly those of EIA. We do not speak for the Department, nor for any particular point of view with respect to energy policy, and our views should not be construed as representing those of the Secretary of Energy or the Department's policy position. EIA's baseline projections on energy trends, however, are widely used by government agencies, the private sector, and academia for their own energy analyses.

Projections of carbon emissions from the use of energy are published each year by EIA in the Annual Energy Outlook, which provides projections and analysis of domestic energy consumption, supply, and prices. These projections are not meant to be predictions of the future but represent a likely future, assuming known trends in demographics and technology improvements and current laws and regulations. I would like to begin by presenting the baseline projections from the Annual Energy Outlook 1998 (AEO98), which we published in December 1997. The forecast horizon in AEO98 is 2020; however, I will focus on the year 2010 because of the subject under discussion today.

Baseline Projections

In the energy arena, carbon emissions are dependent on the level of services demanded by consumers, the amount of energy required to meet those services, and the mix of fuels used to meet those demands. Ultimately, the demand for energy and the fuel choice are highly dependent on the expected prices of the fuels and on economic growth.

Throughout EIA's forecast horizon, energy demand is unlikely to be constrained by high prices. In AEO98, EIA projects that average world crude oil prices will increase slightly from $20.48 a barrel in 1996 to $20.81 a barrel in 2010. (All prices are in real, inflation-adjusted 1996 dollars.) Although the world demand for oil is projected to increase at an average rate of 2.3 percent a year through 2010, continued expansion of oil production potential and technological improvements in the production of oil worldwide are expected to moderate price increases. The average wellhead price of natural gas is also projected to increase from $2.24 per thousand cubic feet in 1996 to $2.31 per thousand cubic feet in 2010. Similar to oil, technological advances in the exploration and production of natural gas are expected to moderate the growth in prices even as the consumption of natural gas increases.

Due to increasing productivity in the coal industry and a shift in production to lower-cost western mines, the average minemouth price of coal is projected to decline from $18.50 a ton in 1996 to $15.05 a ton in 2010. Declining coal prices, restructuring of the electricity industry, a gradual transition to competitive prices in certain States and regions, and new, lower-cost generation technologies lead to a projected decline in average electricity prices from 6.9 cents per kilowatthour in 1996 to 5.9 cents per kilowatthour in 2010.

Total energy consumption is projected to reach 112 quadrillion Btu by 2010, a 19-percent increase over the 1996 level of 94 quadrillion Btu (Figure 1). Energy intensity, measured as energy consumption per dollar of gross domestic product (GDP), is projected to continue declining throughout the forecast, but at a slower rate than experienced between 1970 and the