THE ROAD FROM KYOTO-PART 4: THE KYOTO PROTOCOL'S IMPACTS ON U.S. ENERGY MARKETS AND ECONOMIC ACTIVITY FRIDAY, OCTOBER 9, 1998 HOUSE OF REPRESENTATIVES, The Committee met, pursuant to notice, at 10 a.m., in room 2318, Rayburn House Office Building, Hon. James F. Sensenbrenner, Jr., Chairman of the Committee, presiding. Chairman SENSENBRENNER. The Committee will be in order. Without objection, the Chair will be given authority to recess the Committee during votes today, and we expect a number of them. Without objection, so ordered. Today is the Science Committee's fourth hearing on the Kyoto Protocol, the U.N. treaty that would mandate the United States cut its greenhouse gas emissions by 7 percent below 1990 levels during the time frame, 2008 to 2012. Now just 3 weeks before the opening of the fourth session of the Conference of the Parties in Buenos Aires, we will consider the protocols' impact on U.S. energy markets and economic activities. At our last hearing, Under Secretary of State, Stuart Eizenstat, among other things, provided us the Administration's "free lunch" economic analyses of the costs of implementing the Protocol. The Administration's economic spokesperson, Dr. Janet Yellen, Chair of the Council of Economic Advisers, has proclaimed at numerous Congressional hearings, including the one held earlier this week by the House Commerce Committee, that the costs of Kyoto will "be modest." According to Dr. Yellen, carbon permit prices will be only $14 a ton and $23 a ton, and direct resource costs to the United States between $7 billion and $12 billion a year, and GDP declines are between $1 billion and $5 billion. This, she said, will translate into energy price increases at the household level between 3 and 5 percent, fuel oil price increases of about 5 to 9 percent, natural gas price increases of 3 to 5 percent, gasoline price increases of about 3 to 4 percent, or around 4 to 6 cents a gallon, and electricity price increases of about 3 to 4 percent. And, she has said that, "this increase in energy prices at the household level would raise the average household's energy bill in 10 years by between $70 and $110 per year, although such predictions may not be observable because they would be small rel ative to typical energy price changes, and nearly fully offset by electricity price declines from federal electricity restructuring." The Administration's analysis paints a much rosier scenario than most private economists, including Dr. David Montgomery of Charles River Associates, who is also appearing here today. Upon closer examination, it appears the Administration's sanguine outlook is based on rather flimsy assumptions. These assumptions include, among other things, one, developing country participation in the Protocol; two, a full global emissions trading scheme that will work with near perfect efficiency; and three, vast amounts of cheap emissions credits to be had, particularly in the developing worldand that there will be enough of them to satisfy European, Japanese, and American demand. Being skeptical of the Administration's "free lunch" theory, I, along with Mr. Brown, the Committee's Ranking Member, requested the Energy Information Administration to perform a study of the Kyoto Protocol impacts on U.S. energy use, prices, and the economy in the year 2008 to 2012 time frame. The EIA has considered six cases to investigate a range of Protocol impacts. At one extreme is the option of cutting U.S. domestic carbon emissions by about 539 million metric tons, or 30.1 percent from the level expected by the year 2010-the Kyoto Protocol target without offsets, sinks, and international emissions trading. At the other extreme is the option of cutting U.S. domestic carbon emissions by 121 million metric tons from the level expected by 2010, and achieving the remainder of the cuts required by the Protocol target-nearly 78 percent-through international emissions trading. The EIA has prepared two reports, which are being released today: a long report, over 250 pages, entitled "Impacts of the Kyoto Protocol on U.S. Energy Markets and Economic Activities," and a short, 22-page summary report entitled "What Does the Kyoto Protocol Mean to U.S. Energy Markets and the U.S. Economy?" Although I don't want to steal Dr. Hake's thunder, I will say that the EIA's findings for 2010 are at great variance with the Administration's estimates, and indicate that the Protocol will have significant negative impacts upon the U.S. economy. These include increased energy costs for the average household of about $335 to $1,740 per year; electricity price increases of 20 percent to 86 percent; gasoline price increases of 14 to 66 cents a gallon, or 11 percent to 53 percent; fuel oil price increases of 14 percent to 76 percent; natural gas price increases of 25 percent to 147 percent; and actual GDP declines of between $60 billion and $397 billion per year. In addition, the EIA estimates a decline in coal use of 20 percent to 80 percent, and an average coal price increase of 154 percent to 866 percent, with additional coal mining job losses of between 10,400 and 43,000, which amounts to 15 percent to 63 percent of our coal miners being thrown out of work. I've suspected all along that the White House position on the Kyoto Protocol is unrealistic and untenable, and this EIA study confirms my suspicions. We now know the real story behind the Kyoto Protocol: energy use will become much more expensive, economic growth will be jeopardized, and people will be thrown out of The Administration tries to gloss over these fatal flaws, but it cannot sugarcoat the harsh realities that would inevitably bring to our economy and our way of life. And now, I would like to turn to Mr. Brown for an opening statement. Mr. BROWN of California. Thank you, Mr. Chairman. May I repeat what I've said in prior hearings that the series of hearings on critical problems which you've convened are a very important part of our Committee's activities, and I want to give you due credit for making such arrangements. I should point out, of course, that there is and should be a close relationship between the specific topics that we've been exploring, and the broader topic of science policy, which yesterday was presented to the House Floor and passed overwhelmingly on a voice vote. The issue of science policy and our ability to solve important economic and other problems is closely related and that relationship needs to be recognized. I would like to thank Dr. Hakes and his colleagues at EIA for providing us with the analysis that they will present to us today. The analysis adds to the growing body of predictions about the potential economic impacts of pursuing carbon dioxide emission reduction policies, as we would be required to do if we ratify the Kyoto Protocol. As we know from the examination of present and past estimates presented to us by the EIA and the Annual Energy Outlook, these sorts of estimates have a high degree of uncertainty associated with them. This is not a criticism of EIA's efforts, but the inevitable results of the complexity and difficulty of the task they undertake. The analysis also provides us with a glimpse of the role that the different energy sources, fossil, nuclear, renewable, and alternative energy products are likely to play in our economy under status quo policies that make no provision for emission reduction. The status quo scenario to which I am referring is the reference case to which all other emission reduction scenarios are compared. While I am encouraged to see that the low stable energy prices included in this projection maintain a healthy level of economic growth, I am very discouraged to see that we make virtually no progress in diversifying the sources of energy we use to produce goods and services in our economy. We remain highly dependent on imported oil and in some important sectors we failed to improve energy efficiency. As a case in point, in the transportation sector, it appears that we've become less energy efficient over the next decade or so than we are today if we continue current policy. So I point this out because I am concerned that in the frenzied and polarized debate that has surrounded the climate change issue, we seem to have lost sight of an important national policy goal. It is a goal that we've pursuing since the oil embargo in the early 1970's gave us a sobering lesson in the relationship between energy, the environment, and economics. In fact, we have a national energy strategy, established nearly 10 years ago under President Bush, that states this relationship clearly. And I quote from that statement of the Bush Administration: "The objective of the national energy strategy is achieving balance among our increasing need for energy at reasonable prices, our commitment to a safer, healthier environment, our goal to reduce dependence by ourselves and our friends and allies on potentially unreliable energy suppliers." That energy strategy statement was established in July 1989, roughly 92 years ago. During the 1970's awareness also grew that our fuel consumption patterns and trends were exacting high and increasing environmental costs. Since that time, successive Congresses and Administrations have pursued energy policies aimed at increasing energy efficiency, decreasing pollution, and achieving greater energy security in part by diversifying the sources of energy on which we rely. I know the opponents of the Kyoto treaty will argue that the estimated economic costs of the Protocol generated by the EIA analysis are reason enough for us not to pursue its ratification. However, I would ask whether the cost of improving energy efficiency, increasing market penetration of alternative fuels and alternative energy products, and reducing emissions of not only carbon dioxide but of NOx, SO2, and other air pollutants, need be this high? Are there not policies that can help mitigate these costs? The accomplishments in these areas that are achieved in the six emission reduction cases examined in the analysis are in our national interest, and we should pursue policies that will achieve them with minimum adverse impacts. As is demonstrated by the EIA analysis, sticking with the current policy mix seems unlikely to do that. Mr. Chairman, I'll ask unanimous consent to put the remainder of the my statement in the record at this point. Chairman SENSENBRENNER. Without objection. Also without objection, all members may insert opening statements in the record at this point. [The prepared statements of Mr. Brown and Ms. Jackson Lee follow:] OPENING STATEMENT The Honorable George E. Brown, Jr. Committee on Science Hearing The Kyoto Protocol's Impacts on U.S. Energy Markets and Economic Activity October 9, 1998 I would like to thank Dr. Hakes and his colleagues at the Energy Information Administration for providing us with the analysis they will present to us today. The analysis adds to the growing body of predictions about the potential economic impacts of pursuing carbon dioxide emission reduction policies as we would be required to do if we ratify the Kyoto Protocol. As we know from the examination of present and past estimates presented to us by the EIA in the Annual Energy Outlook, these sorts of estimates have a high degree of uncertainty associated with them. This is not a criticism of EIA's efforts, but the inevitable result of the complexity and difficulty of the task they undertake. The EIA analysis also provides us with a glimpse of the role that the different energy sources, fossil fuels, nuclear, and renewable and alternative energy products, are likely to play in our economy under "status quo" policies that make no provision for emission reduction. The "status quo" scenario to which I am referring is the reference case to which all other emission reduction scenarios are compared. While I am encouraged to see that the low, stable energy prices included in this projection maintain a healthy level of economic growth, I am very discouraged to see that we make virtually no progress in diversifying the sources of energy we use to produce goods and services in our economy, we remain highly dependent upon imported oil, and in some important sectors we fail to improve energy efficiency. As a case in point, in the transportation sector it appears that we become LESS energy efficient over the next decade or so than we are today if we continue current policies. I point this out because I am concerned that in the frenzied and polarized debate that has surrounded the climate change issue we seem to have lost sight of an important national policy goal. It is a goal that we have been pursuing since the oil embargo in the early 1970's gave us a sobering lesson in the relationship between energy, the environment, and economics. In fact, we have a national energy strategy, established nearly ten years ago under President Bush, that states this relationship clearly. Our national energy strategy states: |