we are going to lose 1 percent of GDP over the next hundred years and all kinds of disastrous consequences that you seem to have put some thought into, but not thought into the cost of gasoline.

You seem to indicate that if we don't implement the Kyoto protocol that you've already done analysis about the cost of air-conditioning versus the savings on heating and, all kinds of things of this nature. I can't imagine that we haven't done something about the cost of the price of gasoline at the same time so that's just an expression, I guess, of some frustration.

Chairman. TALENT. Would the gentleman yield?
Mr. SNOWBARGER. Yes, certainly.

Chairman. TALENT. I've expressed some frustration too. Dr. Yellen, she's a representative of the Administration and that's who I am expressing my frustration with regard to. I'm simply flabbergasted that there is no estimate from the Council of Economic Advisers on what the cost of reducing to 7 percent below 1990 emission levels would be without this network of incentives or sweeteners. I don't see how we can possibly credit any ultimate conclusion when there was no estimate as to the base premise. That's my frustration. It's just impossible to make a judgment about the credibility of the ultimate conclusion. I mean, if the witness wants to comment she can-I'm doing this on your time.

Mr. SNOWBARGER. I guess the other part of the frustration here is that it's amazing to me that we would go into negotiations on this without having some idea what the impact is of what we agreed to.

If I may, Mr. Chairman, change the direction on this. I'm wondering what kind of analysis we've done about-presuming we entered into the protocol, what kind of future reductions may be required. The President indicated, I think in October 1997, that there would be a specific proposal for reductions beyond the year 2012. First of all, I didn't get any details with that; do you know what kind of proposed reductions are out there after 2012?

Dr. YELLEN. There has been no discussion or agreement domestically or internationally about what would be in store beyond that time, but, clearly, if we are to deal with the problem of climate change effectively, I think that we have to regard Kyoto as the first stage of something that would be a continuing process of reductions continuing beyond 2012. But there is no agreement.

Mr. SNOWBARGER. Let's make that assumption, that there are going to be further reductions after 2012. To what extent does your analysis include that assumption in determining how we approach the trading of credits and of permits? And the reason I ask that is, if countries anticipate that in the future they are going to have further reductions required of them, what incentive do they have to get rid of their credits early? Why don't they save those credits for future reductions, and, in that case, the whole sweeteners the chairman has called of trying to reduce costs here. That whole analysis goes out the window.

Dr. YELLEN. Countries under the protocol, I believe, that are part of the emissions trading system do have the right to bank their permits beyond 2012. It's been very difficult, frankly; modelers who have looked at this have found it difficult to estimate what the impact is of this treaty without knowing what's going to happen be

yond 2012 and, when I talk about the difficulties of coming up with precise estimates, this is one of the difficulties because behavior between now and 2012 does depend in part on expectations about what will occur beyond that. So, this is certainly a difficulty in drawing conclusions about the economic impact and I've acknowledged that in the testimony.

Mr. SNOWBARGER. Mr. Chairman, thank you.

Chairman TALENT. Ms. Millender-McDonald.

Ms. MILLENDER-MCDONALD. Thank you, Mr. Chairman. Thank you so much for being here, Dr. Yellen. I have a couple of questions I want to raise and especially given the fact is my mike on or what? All right this one I can hear myself and that's better too.

Given the fact that California has begun an energy deregulation process, electrical, and my question is are you explicitly taking into account energy efficiency improvements and the energy cost-savings from these improvements in your analysis of the cost of complying with the Kyoto Protocol, given the fact that States like California has begun to enter into a deregulatory type of electrical proc

ess.

Dr. YELLEN. That's a very important question and I think the answer is that we've tried to include initiatives that have been undertaken so far by States and at the wholesale level, but not the further benefits that could accrue from National retail deregulation of electricity that would enhance competition. So, to the extent that, as we fully expect, electricity restructuring Nationally at the retail level would generate significant declines in electricity costs, that's a factor that is not included in the cost estimate. I indicate in the testimony that for the typical, at least on average for households, a household could expect to see from electricity restructuring about $100 decline in their electricity bill, which would fully offset the anticipated impact of the Kyoto Protocol in the kinds of examples I've given in the testimony.

So, this is significant, it's beneficial and it's on the same scale of impact for households as the Kyoto Protocol would be.

Ms. MILLENDER-MCDONALD. Yes. Would you describe some of the additional nonclimate benefits that we might expect from reducing our carbon emissions and explain why we gain from these benefits. Dr. YELLEN. First we had some discussion about the contribution to clean air

Ms. MILLENDER-MCDONALD. Right.

Dr. YELLEN [continuing]. If we were to reduce coal use. For example, that would produce fewer NOX emissions that would contribute to clean air. We don't expect significant impacts, large impacts, on gas prices. But any impact on gas prices has some effect on reducing congestion and reducing accidents and fatalities on our highways. These are additional benefits.

The programs that we would envision that the President has proposed as part of his climate change technology initiative, could lead to the development, for example, of highly fuel-efficient cars. We could see these cars on the road and households could be looking at a $3,000 or $4,000 tax credit for buying highly fuel-efficient cars, plus having them available more rapidly than they otherwise would be.

We think that there exists even now energy efficiency improvements that would benefit typical households and actually lower their energy bills and some of the programs that the President envisions would speed the diffusion of technologies that would bring benefits to households and actually make them better off in the sense of lowering their energy bills.

Ms. MILLENDER-MCDONALD. I wish with I could get further into that because I would like to know how that would happen.

The last one, and thank you, Mr. Chairman, I see the light there, but I want to know how would this protocol affect minority small businesses? In what way will that impact minority small businesses?

Dr. YELLEN. I believe that this program would have a very marginal, minimal effect on small businesses. First and foremost, we should ask what is the impact on energy prices. Our belief is that the impact would be very modest and taking into account retail electricity restructuring, almost nil, roughly a wash. First and foremost, that is the way in which any business would be impacted. So that's the first thing to say. Beyond that, there are opportunities that are present if we undertake these obligations. For example, in developing new technologies, I think small businesses can make a contribution; they would have new business opportunities in marketing and selling such innovations worldwide.

Ms. MILLENDER-MCDONALD. I would like to see that further down the road. Thank you, Mr. Chairman.

Chairman TALENT. Mr. Hill informs me his questions are brief so we will try to get them in before we break. Mr. Hill.

Mr. HILL. Thank you, Mr. Chairman, and thank you, Dr. Yellen. I just have a couple of questions here and if the Administration disagrees with these numbers, I'd appreciate having some numbers, these are scientific numbers. But it's estimated that—I'm particularly talking about carbon dioxide emissions now and, frankly, that's the part probably of this whole Kyoto agreement that troubles me the most. But it's estimated that 90 billion tons per year, metric tons per year, come from oceans, carbon emissions, carbon dioxide emissions; about 30 billion tons per year, metric tons, come from decaying plants; about another 30 billion metric tons come from just plants and animal activity; and that all of the consumption of fossil fuels and all human activity on the planet comes to about 7 billion metric tons. Which represents about 5 percent of the carbon dioxide emissions which is essentially what we are talking trying to deal with here. In other words, we're trying to solve a problem, at least a theoretical problem, of carbon dioxide in the atmosphere that arise, 95 percent arises just from natural causes and about 5 percent from human activity and we're going to create this huge regimen to try to control the 5 percent.

But if you disagree with those numbers, I'd appreciate knowing what the Administration's view of those sources is. But going from that, the next question then is sinks. I think Ms. Emerson talked earlier about forest management. Do you think it's appropriate that the Administration estimate the impact on carbon dioxide emissions as a consequence of its public land management policies? Dr. YELLEN. That the Administration estimate the impact? Mr. HILL. Yes.

Dr. YELLEN. We do have estimates, I believe, of the level of sink activity in the United States.

Mr. HILL. So can you tell me then what the prescribed burning policy that the Administration has initiated with regard to forest management, what that will have in terms of impacts on carbon dioxide emissions?

Dr. YELLEN. No, I cannot.

Mr. HILL. How about the let-it-burn policy that it has for forest management.

Dr. YELLEN. I cannot

Mr. HILL. How about the reduction of harvest of old-growth forests, replacing high-growth forest with old-growth forest which reduces the amount of CO2 reductions as a consequence of fiber storage in the forest. Is there any estimate of that?

Dr. YELLEN. I don't know. I'm not

Mr. HILL. Thank you. You said earlier, and I found this a real interesting comment, and that is you said in response to Mrs. Emerson, it is generally believed that it is unfair for the richer developed countries to asked the undeveloped world to experience lower economic growth or sacrifice to its standard of living as a consequence of the implementation of the Kyoto accords. Is that

a

Dr. YELLEN. I said, what I said was, that many developing countries believe that that is what we want them to do.

Mr. HILL. Your argument, essentially, in response to that is that developing countries would benefit from this because the cost of compliance would be lower, and that the combination of trading credits could attract foreign investment that could create comparative trade advantages for those countries.

Dr. YELLEN. That is certainly possible.

Mr. HILL. So, in essence, what you are saying then is that it's our public policy now, as a consequence of our agreement, that we want to create an environment in which we cause our companies to invest in foreign countries to create a comparative trade advantage for them. Is that in essence what you're saying?

Dr. YELLEN. What I've said is that our policy is that our firms should be able to satisfy the obligations that we agree to in whatever manner they regard as most efficient and we should notMr. HILL. So, for example

Dr. YELLEN [continuing]. We should not, we should not be telling them, prescribing to them, what the manner is in which they meet these obligations and they should have the freedom to do whatever they think is cheapest and best.

Mr. HILL. So, for example, if a U.S. company could, in essence, get credits for investing in an undeveloped country in a technology that reduced emissions in that country, and obtain credits for here. Right? That's essentially one of the elements of the trading elements that you are proposing.

Dr. YELLEN. The clean development mechanism already is embodied in the treaty and would provide our firms with, yes, options to invest in projects that generate such credits.

Mr. HILL. So the whole point of that is that that will encourage people to invest in less-developed countries. Right?

Dr. YELLEN. It's to undertake reductions in emissions. We're talking

Mr. HILL. I'm not talking about the environmental aspects. I'm talking about the economic aspect. The net, the result of that will be investment, U.S. investment in foreign countries.

Dr. YELLEN. I'm not sure I want to call it investment in foreign countries. We could be talking about going to Moscow and taking old pipes and wrapping them with asbestos and I'm not sure that I would regard that as an investment project.

Mr. HILL. I don't know what you would regard it, but if people spend money

Dr. YELLEN [continuing]. To reduce emissions.

Mr. HILL [continuing]. If people spend money in those countries, I would consider it an investment, but you can call it an expenditure. The whole point is, is that does your economic model-obviously the whole purpose is to determine that there be a change in behaviors with regard to environmental impacts. But does your model take into consideration the fact that the consequence of this could very well be an increase of investment, U.S. investment, in foreign countries, which would have the result of creating comparative advantage for those countries in trading with us?

Does it or doesn't it?

Dr. YELLEN. It takes account of the possibility for meeting our obligations in a less-expensive, more cost-efficient way.

Mr. HILL. Does it measure the economic impacts of a lower standard of living less investment in the United States is the question.

Dr. YELLEN. I don't see that that is the impact of this agreement. I think that you should also look at the possibilities that our firms will have to export energy-efficient, high-tech equipment which will create jobs and create exports. If you look at the international impacts, think about the possibility that by reducing world demand for oil that the price of oil could be driven down and our cost and dependence on imported oil could also fall. There are a variety of international impacts, many of them highly desirable.

Chairman. TALENT. Would the gentleman yield? If we didn't use any oil at all, the price would go way down. That would be a real

Mr. HILL. If I could just pursue this one step further. That is that the argument that you make with regard to power deregulation savings accruing to consumers, offsetting the costs, presumes that we are going to maintain the current competitive environment in which we have a surplus of energy. We have a surplus of electricity in this country; it's a supply and-demand situation that is likely to cause a reduction in consumers' cost of power. Half of our power today is generated by coal. This protocol generally presumes that coal-fired generation will become a thing of the past. We're going to have to replace substantially half of the generation of power in this country, which is going to change the supply and-demand equation dramatically.

In addition to that, and it presumes there will be alterative energy sources, you say it is going to wind and solar power. Most people think it will be natural gas, perhaps, or others. But the whole point of that is that over the long term we are going to replace a

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