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THE EFFECT OF THE KYOTO PROTOCOL ON

AMERICAN SMALL BUSINESS

THURSDAY, APRIL 29, 1999

U.S. HOUSE OF REPRESENTATIVES,
COMMITTEE ON SMALL BUSINESS,

Washington, DC.

The Committee met at 9:00 a.m., in room 2360 of the Rayburn House Office Building, the Honorable Jim Talent, Chairman of the Committee, presiding.

Chairman TALENT. The hearing will come to order.

I'll convene the hearing of the Small Business Committee, another in a series of hearings on the global warming protocol, otherwise known as the Kyoto Protocol.

In December of 1997, at Kyoto, the United States agreed as part of a protocol to reduce its production of greenhouse gases to approximately seven percent below 1990 levels.

Dr. Janet Yellen, the Chair of the Council of Economic Advisors, was here in June of 1998 to testify regarding the economic impact of that protocol, and she offered her observations at that time.

She had not at that time published for public consumption the economic analysis underlying her conclusions. She has since done so and so we've asked her to return so we can ask her questions about that analysis.

She has kindly agreed to do so.

However, Dr. Yellen is on a short timeframe so rather than make a formal opening statement, I'll just submit something for the record later and then I'll yield to my friend and colleague, the distinguished Ranking Member, for any comments she may wish to make.

[Mr. Talent's statement may be found in the appendix.] Ms. VELAZQUEZ. Thank you, Mr. Chairman.

I would like to thank you for holding this hearing. It is important that the Committee review the Kyoto Protocol in the context of our nation's small business.

As we do, we should keep an open mind and take into account not only the potential negative effects it might have, but the positive opportunities it can bring.

The effects of greenhouse gases on our environment are becoming more and more evident. During the last century, the earth's temperature has risen by one degree Fahrenheit.

While this might not seem a lot to you or I, in the delicate balance of nature, it is significant. Furthermore, the forecast for the future predicts this rise to continue, with scientists estimating that

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temperatures will continue to rise another 1.8 to 6.3 degrees over the next century.

This fundamental change in the environment has started to cause some serious problems. Shifts in agricultural growth conditions are beginning to rob regions of their ability to produce food. There has been a reduction in the ability of fresh water and we have seen an increase in the range and incidence of disease.

Estimates show that by the year 2100, we may see 50 to 80 million more cases of malaria alone.

If these trends go unchecked, so will the threat to human health. Unfortunately, these problems show no signs of going away on their own, which means we cannot ignore them.

On December 10th, 1997, the United States, along with leaders from 161 other nations, concluded the Kyoto Protocol. This agreement sets binding targets for the reductions of emissions of greenhouse gases world-wide.

It was an important first step and a good place to start. The Administration itself has acknowledged, however, that Kyoto is not perfect and it's still a work in progress.

The flexibility and enforcement of emission reductions that the Administration secured were important in creating a workable solution to the problem of global warming.

But the protocol did not include developing nations in the framework and the Administration is working to correct that.

The President has also stated that he will not send the treaty to the Senate until other nations, notably China, have agreed to emission reductions.

These are problems and they're being addressed.

From a domestic standpoint, we have different issues to consider. The last time this Committee examined the economic impact of the Kyoto Protocol, we did not have a study detailing the cost of implementing the treaty.

As a result, there were justifiable concerns regarding how much Kyoto will cost America's small business community. Today, we have a detailed study about the potential cost of the treaty for American businesses and consumers which we can now incorporate into our debate. These statistics are especially important to me.

As the Ranking Member of the Small Business Committee, I have concerns about the impact of the Kyoto Protocol on America's small business community and I know that the Chairman shares my concerns.

Small- and medium-sized businesses should not be asked to pay an unfair share of the burden of reducing global warming. But examining this issue in only negative terms is too limiting. I believe we should also look at how the protocol might have created new opportunities for small enterprises that focus on green technology.

Entrepreneurs have always been at the forefront of innovation and have been able to meet new technological challenges. I believe that stricter emissions standards may offer opportunities to countless small businesses who are working to innovate new environmentally sound technologies.

Finally, Mr. Chairman, I believe it is not productive for us to simply criticize the treaty without offering an alternative. If the

answers that lay in this agreement are unworkable, then I am interested in hearing others.

Congress cannot just sit idly by criticizing without offering other solutions.

Let me close by once again thanking the Chairman for holding this hearing and I'm looking forward to the testimonies offered today.

Chairman TALENT. I thank the gentlelady for her comments.

And I'll just say that while I have been critical, I certainly haven't been idle. [Laughter.]

I appreciate the gentlelady's comments. We'll go to Dr. Yellen. Dr. Yellen, I gave up my opening statement, which for a member of Congress and the chairman of a committee, is a great sacrifice because I understand that you have to leave. You're on a time schedule. You need to leave about 10:30 or so.

Dr. YELLEN. Yes, I do.

Chairman TALENT. So, in view of my sacrifice, I hope you will be conscientious in summarizing your testimony for us and keeping it brief.

Because, assuming members come, I want them to have the opportunity to ask you questions.

Thank you. You can proceed.

STATEMENT OF DR. JANET YELLEN, CHAIR, COUNCIL OF ECONOMIC ADVISERS

Dr. YELLEN. Thank you, Mr. Chairman. I appreciate your accommodating my schedule this morning. I'll try to be brief and I'd ask that my full testimony be included in the record.

Chairman TALENT. Without objection.

Dr. YELLEN. I appreciate having this opportunity to discuss with you the economics of climate change and the Administration's efforts to address this significant environmental challenge.

As you mentioned, the Administration released a report last July entitled, The Kyoto Protocol and the President's Policies to Address Climate Change.

In addition, since the Kyoto Conference, a variety of research on the economics of Kyoto, and especially on the economics of Kyoto's flexibility mechanisms, has been undertaken.

Today, I'll provide a brief summary of the Administration's economic analysis and review several of the key findings in the recent economic literature on climate change.

The Administration's economic analysis found that the economic cost of attaining targets and timetables specified in the Kyoto Protocol will be modest for the United States in aggregate and for typical households, assuming that effective mechanisms for international trading, joint implementation, and the clean development mechanism are established and also assuming that the United States achieves meaningful participation by key developing countries.

An illustrative assessment using the Second Generation Model that accounts for effective trading and developing country participation yields permit price estimates ranging between $14 and $23 a ton, and direct resource costs to the United States between $7 billion and $12 billion per year.

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