big issue like this I always think it is better to be up-front about your concerns

Dr. YELLEN. Absolutely.

Chairman TALENT [continuing]. To air them, and if that requires some vigor in the discussion, I think that is very worthwhile and I appreciate your coming here and giving us so much of your time. I will recess the hearing until somebody returns who can chair it. [Recess.]

Mr. PAPPAS. [presiding] Dr. Yellen, again thank you for accommodating me. Earlier, when you were speaking, you spoke of, and actually from your written testimony, third paragraph, second sentence, "We are firmly committed to meaningful developing countries' participation." You spoke of, in your brief remarks, that the Administration is involved in a dialog with China and we can say that that's taking place on a variety of fronts, not just in regard to Kyoto. I visited India earlier this year and saw in the urban areas so many people walking around with surgical masks because the air pollution is so bad.

In Mr. Pascrell's questions, in his questioning, you spoke of potential future decline in our shore areas, increasing air-conditioning costs, decreasing heating costs, the possible adverse consequences of us not doing anything. In Chairman Talent's opening statement, he spoke of the residual oil prices for industrial facilities could increase by roughly 140 percent; 90 percent increase for natural gas prices; possible GDP decline of 2.5 percent; whereas, I think you mentioned that there could be a 1 percent decline in that, if no action is taken.

Is that point that you made about the 1 percent without or without other developing nations' cooperation?

Dr. YELLEN. The 1 percent that I indicated that was a number that came out of a study by William Cline who was then at the Institute for International Economics. There are several other studies that made bold attempts to quantify what increased global mean temperature could mean to the United States and those are the numbers I've cited from other studies.

Mr. PAPPAS. Thank you. I also would reiterate I think the point that Mrs. Kelly about the EPA's, I guess it was the May memorandum. I think that you responded, at least in part, I did not, quite frankly, sense in you your ability to directly respond because you are not sure of what your staff may or may not be doing with regard to that particular document, so if you could address

Dr. YELLEN. I conferred with my staff during the break and none of us have any idea what this document is. None of us have seen this document or have any idea what its content is. I haven't seen it and my staff here has not seen it.

Mr. PAPPAS. It's not really a question but just to reiterate I guess what, I don't want to repeat other issues that have been raised, but the international body with some oversight responsibility that you made reference to, I have great concern for that. I certainly would not want this, or any other similar treaty, to relinquish sovereignty, that this, our Federal Government has over our Nation, responsibility that we have and, therefore, would reiterate or restate, at least this member's objection to any attempt to endorse in any way that kind of component to this overall effort. I know a lot.

of these kinds of treaties are well intended, but if we don't have other developing nations, I'll just mention two-China and Indiathat are not expected to take part in this. I see tremendous shortterm adverse consequences for the people of our country and I think that has got to be-my opinion, it's got to place a greaterthere needs to be greater importance placed upon that than at least it appears to be.

Dr. YELLEN. I want to reassure you that the President is firm in his commitment that this is a treaty that will not be submitted to the Senate for ratification until we have achieved meaningful developing country participation and we are not there yet, so clearly there is more work to do on that front and I agree with you we cannot lick this problem and deal with it effectively without that.

Chairman. TALENT. Is the gentleman finished? Dr. Yellen, again, thank you. You stayed three or 4 minutes after and I appreciate that. Again, we do appreciate your attendance today.

As Dr. Yellen is leaving, will the second panel of witnesses please take your seats.

All right. I do appreciate your patience waiting through that entire first panel. So we will get right into the second panel of witnesses and we will begin with Mr. Raymond J. Keating, who is the chief economist with the Small Business Survival Committee here in Washington. Mr. Keating.

STATEMENT OF RAYMOND J. KEATING, CHIEF ECONOMIST, SMALL BUSINESS SURVIVAL COMMITTEE, WASHINGTON, DC Mr. KEATING. Thank you. On behalf of the Small Business Survival Committee and its more than 40,000 members across the nation, I appreciate the opportunity to offer the following summary of my full statement for the record regarding the potential impact of the Kyoto Protocol.

SBSC is an advocacy and information organization that supports policies promoting the survival and growth of the entrepreneurial sector our economy.

We oppose the global warming treaty for several reasons, but our opposition mainly, and naturally, springs from the crushing cost that would be imposed on businesses of all sizes and in practically all industries as well as consumers and the economy in general.

As most, and I guess I have to underline most, studies of global warning treaty indicate, this treaty will be an indiscriminate killer of businesses and jobs. This will be the case no matter what the means utilized to attempt to reduce so-called greenhouse gas emissions, that is, through higher taxes, increased regulations, emissions "cap-and-trade" system, or some combination of these options. Let's not forget, even with the imposition of such regulations, it is quite dubious that the treaty's emission reduction goals will ever actually be met. Unfortunately, a certain arrogance regarding this treaty's costs persists among many of its supporters. For example, one professor writing in the November-December 1997 issue of Foreign Affairs said, "slowing global warming is a political problem. The cost will be relatively low-a few trillion dollars over the next 30-40 years."

Of course, those lost trillions of dollars in GDP across the globe mean lost businesses, jobs, consumer goods for adults and children, and increased poverty for many.

A wide range of studies, which I have summarized in my full statement, show tremendous losses in output and jobs resulting from the global warming treaty. For now, I simply note that though these studies vary some in their findings, the basic theme is constant throughout: energy costs, from the price to a gallon of gasoline to electricity costs to home heating oil prices, will rise dramatically.

The loss in GDP will be significant and hundreds of thousands to millions of jobs will be destroyed. Make no mistake, governmentimposed costs inflict the most harm on smaller enterprises. Small businesses often operate on tight margins, struggling to stay alive month to month and year to year. This is perhaps best illustrated by the fact that more than half of new businesses fail or reorganize within 5 years, according to the SBA.

At the same time, however, small businesses have long proven to be the wellspring of innovation, invention, and job creation in our economy. In any given year, for example, smaller businesses account for anywhere from two-thirds to more than 100 percent of net job creation.

Unfortunately, government-imposed costs weigh heavily around the necks of entrepreneurs. For example, according to another SBA study, the annual per-employee cost of Federal regulations range from $2,979 for businesses for 500 or more employees to $5,532 for businesses with fewer than 20 employees. Regulatory economist Thomas Hopkins estimates that the real cost of Federal regulations are expected to rise by more than 30 percent between 1988 and the year 2000.

If implemented, the Kyoto Protocol would guarantee that the governmental burden on entrepreneurs would continue to rise dramatically, thereby, of course, damaging economic growth and job creation. All industry sectors and businesses from home-based businesses to the largest U.S. corporations will be adversely impacted. For example, for argument's sake, let's take WEFA's estimates-a very prestigious econometrics forecasting firm-and cut them in half. Under such a scenario, by 2010, home-based businesses will be confronted by a 27 percent increase in home heating oil costs, a 25 percent hike in natural gas, a 24 percent increase in electricity costs, and a hike of 22 cents at the gas pump.

Commercial establishments, again taking half of WEFA's estimates, face price hikes on distillate fuel oil of 37 percent, 29 percent for natural gas, 26 percent on electricity. Industrial facilities would be confronted by price increases of 70 percent on residual fuel oil, 46 percent on natural gas, 37 percent on electricity, and, finally, trucking and rail firms would face a 21 percent increase in the price of diesel, about 51 cents per gallon. Again, all of these are WEFA's estimates cut in half.

Absolutely no business will escape these costs and their economic fallout, many will not survive, and countless others will never come into existence. Imagine the devastation, for example, brought on truckers, delivery companies, and cab drivers due to higher diesel and gas prices; bakeries, grocery stores, and delis due to higher

electricity costs; small manufacturers due to across-the-board higher fuel costs, energy costs. The damage to the economy would be considerable.

Will small businesses, like New Hampshire's Granite State Potato Chip Company, which reportedly pays $300-$400 a month in electricity costs be able to handle massive increases in energy costs? Perhaps as much as 73 percent for electricity alone? What about Bruce's Bakery on Long Island in New York which already pays $8,000 per month for electricity, twice as much as its mortgage.

The list of potential casualties from the cost of the global warming treaty goes on and on, virtually without end and these small companies will not be able to shift their operations overseas as large businesses can and no doubt will. They will face tougher competition from imports from nonparticipating countries.

The Kyoto Protocol choices are clear. First, devastate U.S. businesses, consumers, and the economy because of what we would quite arguably say is a dubious theory of global warming, or second, allow entrepreneurs to innovate, create jobs, boost the economy, and, thereby, aid, rather than hinder, our environmental well being.

Proponents call the Kyoto Protocol an insurance policy, but an insurance policy against the most remote of risks that is so costly that it kills businesses and jobs makes no sense. This isn't insurance, it's more like playing Russian roulette with our economy and small businesses.

Thank you for this opportunity to address the Kyoto Protocol and I look forward to answering any of your questions.

[Mr. Keating's statement may be found in the appendix.]

Chairman TALENT. Thank you. Our next witness is well we have them lined up differently, we'll just do it that way. Mr. Terry Steinbecker. He's the President and CEO of St. Joseph Light and Power Company from the great State of Missouri.

Thank you, Terry, for being here and I appreciate your patience.

STATEMENT OF TERRY F. STEINBECKER, PRESIDENT AND CEO, ST. JOSEPH LIGHT AND POWER CO., ST. JOSEPH, MISSOURI

Mr. STEINBECKER. Thank you, Mr. Chairman. Good morning, Members of the Committee. Thank you for the opportunity to discuss the Kyoto Protocol and its impact on the electric utility industry, my company, and our small business customers who would be affected by higher electricity rates.

My name is Terry Steinbecker. I am President and Chief Executive Officer of St. Joseph Light & Power Company, a small investor-owned electric and natural gas utility headquartered in St. Joseph, Mo. The company has served northwest Missouri for 115 years. Today our 350 employees proudly serve 61,000 electric and 6,300 natural gas customers.

I'm also pleased to represent today the Edison Electric Institute, the trade association for investor-owned electric utilities.

We at Light and Power, like many other EEI member companies, have been successful by giving our customers excellent service and competitive prices. Today our prices, the lowest in the State, are

reasonable. They won't remain that way if the Kyoto Protocol is ratified by the Senate or implemented through the back door.

Our industry takes seriously its responsibility to protect the environment and is active in many voluntary efforts to that end. One such effort is our climate challenge program. That program is the world's largest and most successful voluntary environmental program which, according to DOE, will reduce, avoid, or sequester 172 metric tons of greenhouse gases by the year 2000.

Light and Power also has its own environmental programs. We recently received an award from the National Arbor Foundation for one of our programs that promotes and protects the health of trees. We take pride in our environmental stewardship, service, and prices. But the Kyoto Protocol could restrict our ability to maintain our service and our prices.

The Administration negotiated a protocol that according to numerous studies would greatly stress the U.S. economy. These studies indicate that electric prices could increase substantially. While Dr. Yellen has said the economic impact and increases in electricity prices will be minimal, those predictions are based upon overly optimistic assumptions, such as developing country participation, and a perfectly functioning international emissions trading program.

These assumptions are unlikely. The impact on our industry is illustrated in a study conducted by Resource Data International or RDI which you have at your desk.

The RDI study finds that massive reductions in coal use would be necessary and that, because there are no commercially viable CO2 removal technologies, replacement of coal with lower CO2 emitting fuels such as natural gas would be the only option. Thirtysix percent of current coal-fired generation may need to be replaced with natural gas. Given that coal accounts for about 57 percent of the U.S. generation mix, that's a very tall order.

My company's estimates track closely with RDI's. We have a total generating capacity of 382 megawatts. Coal accounted for 94 percent of our total fuel used in 1997. Under the Kyoto Protocol my company would likely have to make a complete shift to natural gas at our Lake Road plant. That's a serious concern because the cost of natural gas is higher than coal. Light and Power anticipates that the agreement would result in an increase of over $47 million per year in energy supply costs. That's about a 41 percent increase in electricity prices for our customers.

One local supermarket owner in St. Joseph would see his annual bill increase from about $55,000 to more than $87,000 in just one store. Supermarkets operate on narrow margins. Their profit comes in volume sales. How many cans of soup must they sell to make up for a $32,000 increase in annual electricity costs?

Fast-food stores also face similar increases. One of our fast-food outlet customers would see his electricity bill increase by nearly $18,000 annually.

Proponents of the protocol have said that any increase in electricity prices can be offset by electric restructuring. I believe it would be wrong to take from our customers the possible savings from restructuring to pay for this protocol. Further, the laws of economics work in both directions: Prices can rise; prices can fall.