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I suspect the members of this Committee are thoroughly familiar with the economic estimates of the costs that compliance with the goals of the Kyoto Protocol would have on the U.S. economy. Since this Administration is not proposing much more than a few tax credits and some research money until at least 2004, there is certainly going to be a big economic jolt when the federal government suddenly raises the cost of carbon emissions from zero to $150 per ton between 2004 and 2010. Rather than talk about the impact on the nation of tens of billions of dollars a year, what I would like to do here is to bring these costs down to a more personal level -- what this Administration's goals will do to my company and the 30 workers, and their families, who rely on my company for their livelihood, as well as the workers of our vendors.

The goal of reducing fossil fuel use to 7 percent below 1990 levels is, on its face, wacky. Data provided by the Energy Information Administration indicate that the Kyoto Protocol would require the United States to reduce its overall greenhouse gas emissions by more than one-third between now and 2010. If taken seriously, these energy reduction goals will seriously harm my company in four ways: My raw materials costs will go up; my manufacturing costs will go up; my customer base will decline; and the price of goods sold by our competitors in the exempt developing world will not allow me to increase my own prices. I must add that market-trading schemes -- whether international or domestic -- merely shift the increased costs of the false energy shortage around. The fundamental question remains, "How am I even supposed to produce the same quantity of galvanizing steel pipe in 2010 as I did last year using one-third less energy?"

First, the costs of my raw materials will increase. We use zinc. Zinc is produced using large amounts of energy, so it will cost more for us to purchase. Second, all my energy costs will go up. A highly regarded economic consulting firm, (WEFA, Inc.) will release a study around the middle of June that I understand will demonstrate this fact. The WEFA, Inc., study estimates that, if the Kyoto Protocol targets are enforced, Louisiana's electric rates would be 120 percent than they otherwise will be in 2010, and natural gas rates would be 162 percent higher. Incidentally, gasoline will be 51 cents per gallon more than it otherwise would be in 2010. This means that I will be paying $180,000 per year more for the same amounts of electricity and natural gas than I would have paid without the protocol.

Third, assuming my company could meet the foreign competition, a policy mandating the Kyoto Protocol's energy-reduction goals will definitely cripple part of our customer base, which are the Gulf Coast petroleum and chemical facilities. How are refineries and chemical plants going to use onethird less energy to produce the same level of products in 2010 as they did last year? If they cannot compete in the international marketplace after having to pay for the carbon permits, then they will close. The United States has already been importing an ever-increasing amount of the refined petroleum products it uses. A Kyoto-type energy policy will definitely further erode our domestic value-added infrastructure. A crippled customer base will increase the competition in a shrinking domestic market, forcing the Americans involved in galvanizing steel out of business. There may be some Americans who want to throw all U.S. industry into the ocean and let this be a country of insurance agents and stockbrokers. Well, I won't be

buying any insurance or having any stock to sell if the Kyoto Protocol goes into effect.

Fourth, the Administration's willingness to exempt China, India,



Korea, Mexico, Brazil and other powerful economies from the Kyoto Protocol is a fatal flaw. It is a fatal flaw in the very purpose of the protocol because, without those countries, the Kyoto Protocol will not stop the increase in greenhouse-gas concentrations in the atmosphere. Moreover, it will also be fatal to me and my employees because galvanizing that is produced by those countries will be substantially cheaper than my galvanizing. Thus, my raw material and production costs go up, but my foreign competitors' costs do not, which prevents me from raising my prices to cover my increased costs.

Seriously, if you assume that the Administration intends that Americans use 33 percent less energy in 2010 than today, and there isn't the technology, the capital or the time enough to conserve our way to one-third less energy use by 2010, then we all have a big problem.

Will this problem be solved, as the Administration has been suggesting, by the efficiencies of carbon permit trading? I suggest to you that all that permit trading means is that I have to buy permits from someone -- on a commodity market, from an international broker, or from a neighboring company that is closing its doors. And buying a permit to use fuel is the same thing as a tax, or the same thing as paying the higher prices for the energy in the first place. Whether through a trading scheme, a tax, or a quota, once energy becomes unaffordable, my business and thousands of

others will close their doors.

In summary, this Administration appears to be perfectly willing to legally bind the United States to energy-reduction goals that can only be met during the short-time frame available by closing businesses like mine. While some people are willing to make unreasonable sacrifices to save the world, I assure you that my 30 workers and their families do not think it makes sense to lose their jobs and face higher costs of living to do little or nothing to affect the world's climate for the better.

Thank you, Mr. Chairman, for this opportunity to testify and I am prepared to answer your questions.


American Council for an Energy-Efficient Economy






June 4, 1998

The American Council for an Energy-Efficient Economy (ACEEE) is a non-profit
research organization dedicated to advancing energy efficiency as a means of promoting both
economic prosperity and environmental protection. We conduct studies, advise
policymakers, assist with energy efficiency program design and evaluation, work
collaboratively with business, disseminate information, and inform consumers. I appreciate
the opportunity to appear before the Committee.

In my testimony, I would like to make three main points:

1) Reducing greenhouse gas emissions and achieving the targets in the Kyoto Protocol
can yield economic benefits for the United States as a whole.

2) Reducing greenhouse gas emissions offers enormous growth opportunities for small

3) Federal energy efficiency and renewable energy programs can help small businesses to
profit and grow while cutting greenhouse gas emissions.

Reducing Greenhouse Gas Emissions Can Benefit the Economy.

A strong commitment to cut U.S. emissions of carbon dioxide and other greenhouse gases (GHGs) does not need to be a drain on the U.S. economy, as some critics of the Kyoto Protocol have claimed. For example, over 2000 economists issued a statement last year which says in part, “Economic studies have found that there are many potential policies to reduce greenhouse gas emissions for which the total benefits outweigh the total costs."

Relying on better technologies such as more efficient appliances, lighting, vehicles, and industrial processes as well as renewable energy sources, rather than onerous taxes or heavy-handed regulations, is the key to cutting GHG emissions without harming the

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