Mr. BROWN of California. In your new study, the graphs that display the various trends in prices and economic growth and so on all show this smooth progression after 1995, and a more erratic picture before it. Now, this is not a criticism. This is the only way you can do it. You take the existing point, in this case 1995, you take an end point, and then you connect with a smooth curve. So that neglects the changes that you see in the earlier period. And I want to ask some questions about that, not about your graph making, which is excellent.

I want you to say a word or two about the large peaks and valleys, which are evident in this chart. And, as we all recall, these represent the changes due to the oil embargoes and other kinds of oil price changes in the 1970's or 1980's. And these took place within a 10-year time frame, and that's about the same time frame that we're looking at in your current analysis. Is that correct?

Dr. HAKES Yes.

Mr. BROWN of California. And would you say that the variations in oil prices during 1975 to 1985-well, you've already said that this is similar to what the price changes are that you have modeled in this new analysis. The question I next have is do energy price changes always guide changes in economic growth? Or do other factors influencing growth sometimes drive changes in energy prices? Dr. HAKES Well, it works both ways. I think that there are some historical similarities to this earlier period, and I think there are some important differences: one is, you know, these straight lines can be a little bit misleading because, as you know, some of the areas that supply oil are unstable and oil can be taken off the world market, and, you know, that obviously has a disruptive effect.

Several things have happened since those earlier peaks and valleys are the most severe. One is that we've decontrolled oil and that has allowed the market to be more flexible.

Second, energy sources, and oil in particular, are a smaller part of our economy today than they were at that time; therefore, the impacts on the economy would be somewhat less than they would have been in this earlier period.

And third, during that period, the sort of additional rents that were being paid for this higher energy were going to the oil exporting countries, whereas currently there is some potential that the higher prices could be rebated back into the economy. So, part of the straightness of that line is a factor of just the model itself and how it treats these things. But, as you can see, the interruption during the Persian Gulf War, which was actually larger than the interruption in oil supplied during the late 1970's and early 1980's did not have as big an impact on energy prices as that earlier spike. And I think that's because there's more flexibility built into the energy system today than there was in that earlier period.

Mr. BROWN of California. Yes. Let me ask you with regard to figure 7 in your 1994 charts, the rather large shift in the projections in natural gas from 1995 to 1996. Do you have a reason for that? Dr. HAKES Yes. Basically what has had huge impacts in both oil and gas is the improvements in technology. The finding cost for oil

1980's. It is one of the most incredible achievements of American technology that we have been able to achieve that.

Before our 1996 outlook, we now believe we were too optimistic about the future developments of technology, in particular for natural gas, the 3-D seismology, the horizontal drillings, some of the new off-shore drilling techniques that are being used. So in 1996, we made a fairly major revision in our outlook for gas. Since that time we have been more stable in our projections.

Mr. BROWN of California. All right. That's a more than adequate explanation. Let me ask you one further question. Do you have any way of quantifying the error range that you have with regard to any of these? From my student days as a pseudo scientist, I remember we used to when we made a projection, we would say plus or minus 5 percent error or something of that sort. Do you have the ability to make reasonable error estimates with regard to these?

Dr. HAKES Not exactly. We do that in several different ways. What we do to show the uncertainty, we certainly agree with the concept of uncertainty, we try to show where these lines move if you change some of the major variables, like the rate that technology penetrates or the rate that the economy grows. That will show a fairly wide range.

Another thing that we do is that EIA regularly publishes studies looking at how we have done historically. Those are readily available to anyone. I am not sure that the other models do this because it is somewhat of a humbling experience, but what you generally find is during the late 1970's and early 1980's, that we, like most all forecasters of that time, were way off on price, and not quite so far off in terms of consumption patterns.

My own view is that the modeling efforts have improved substantially since that time. I think going through the 1980's, where we haven't had quite as-or excuse me, the 1990's, where we don't have quite as much time to see how we have done, I think our track record is pretty good. But we do generally publish these articles to show that all users of models have to be cautious.

Chairman SENSENBRENNER. The gentleman's time has expired. The gentleman from California, Mr. Calvert.

CAN ENERGY PRICES REMAIN STABLE IF WE INITIATE THE KYOTO PROTOCOL?

Mr. CALVERT. Thank you, Mr. Chairman. I have been obviously following the whole issue of global warming for some time and was happy to attend with the Chairman and the Ranking Member the Kyoto meeting. First, I guess I have to say this. First we have to accept the theory that humans are the cause of global warming, which I haven't accepted yet. But assuming that that's the case, then we must compel ourselves and other countries in order to bring down the total amount of carbon and other gases that are being emitted. Saying that, if the Administration is successful in doing that, then by definition there could be lower economic output. By doing that, we would have lower emissions.

I mean in going through that process, that is not acceptable. Already we're having troubles in Asia. Asia is in a tank. South America is not far behind. The United States certainly is not isolated

from other world activities. So as we talk about this and inevitably everyone here is saying that we're going to have to raise the price of energy in order to meet the Kyoto Protocols for a theory that has not yet been proven, as far as this Member is concerned.

But saying that, and based upon this study that the Department of Energy, the Administration's own Department of Energy has concluded, Dr. Hakes, do you believe that in fact that energy prices I know the answer to this question, that energy prices can be stable if in fact we were able to initiate this Protocol?

Dr. HAKES I don't believe so. Let me make one distinction here. The Energy Information Administration has, under the statutes, has independent authority apart from the Administration in the department. The views that we are expressing are simply those of the EIA, not of the Administration. It is somewhat similar to the authority that other statistical agencies have within the government to do independent work.

But as I testified in February before the Committee, I think we have seen over time that it is the price signal that really drives energy behavior. For instance, Mr. Geller says in his testimony that we have made this rapid progress in energy intensity over the last 25 years of 34 percent. Well, that's an important observation and one that we have also made. But I think it is more helpful to break it down into the two periods because in the early period when prices were high, we made almost all of that progress. In the period over the last 10 years, when energy prices have been low, energy intensity has scarcely improved at all.

So basically when we look at energy, the history of energy, the future of energy, it seems to be that price is what drives behavior. I can't conceive of another method of how we would get from there. Mr. CALVERT. Saying that, in the first parts of energy efficiency, the simplest parts to reach, a lot of that has already been done, the low hanging fruit has kind of been plucked. I know that we are trying to get other efficiencies, fuel cell technology, which is something I am very interested in, other types of technologies that are very interesting and we have put a lot of money into, are not quite there. Not just the United States is putting significant funds into, but Japan and Germany certainly in fuel cell technology, and they haven't been able to get there.

One point I want to make, I am from California and I am interested in clean air. Trust me, I share the same air basin as the Ranking Member. We're next-door neighbors. We probably have some of the poorest air quality anywhere in the United States. But we have made significant improvements in that area, primarily because of clean air programs that we have initiated in California. In fact if California was a model, we have already met the Kyoto Protocol, if you allow for the last 10 year's progress that we have made in California. We have done that without a treaty. We have done that without some kind of an artificial U.N. goal to be set for us in order to meet those goals and efficiencies.

When I hear Mr. Geller talk about efficiencies, generally it means higher prices. I like to see the consumers in California and the United States have lower prices. At the same time, try to meet, and I think we are, meet better air quality standards and have a better life for all of us.

With that, Mr. Chairman, thank you very much.

Chairman SENSENBRENNER. Thank you. The gentlewoman from California, Ms. Lee.

Ms. LEE. Thank you, Mr. Chairman.

Let me just ask Mr. Geller, is it?

Mr. GELLER. Yes. It is.

LESSONS LEARNED FROM OTHER COUNTRIES

Ms. LEE. Could you just tell us briefly how other countries such as England, Germany, and Japan are approaching the Kyoto Protocol and are there any lessons or any adoption strategies of these technologies that might make sense for us to look at here?

Mr. GELLER. Thank you. I think there's a number of lessons from what is going on in other industrialized countries. First of all, they are not waiting until 2005 to put in place the policies necessary to get to their Kyoto goals. They are not even waiting until the protocol is ratified. They are moving ahead now.

Second, they are not adopting extremely high carbon taxes, at least at this point. They are moving forward in stimulating development, commercialization, and widespread use of better technologies, energy efficiency technologies and renewable energy technologies, what I would call the smart approach.

I would agree with Mr. Calvert that California has been a leader in stimulating adoption of these technologies. There's significant energy efficiency improvements that California has made that the rest of the country hasn't. That's from a combination of leadership on reasonable efficiency standards, which California was a pioneer in, leadership in utility funded energy efficiency and renewable energy investments, and other kinds of technology-oriented policies that we could go a long way with nationally if we just followed California's lead.

Let me give you a couple of examples of some of the things being done in other countries. The European Community and its auto manufacturers have just agreed on a policy, a target for reducing the carbon emissions per mile of new cars sold in Europe, a target of a 25 percent reduction in the carbon intensity of new vehicles, which is equivalent to a 33 percent improvement in fuel economy by 2008. That is an agreement that GM of Europe and Ford of Europe have agreed to, to make significant improvements in fuel economy of their vehicles. I believe it's about twice the rate of efficiency improvement that's been agreed to now in Europe as compared to what EIA projects will occur in the marketplace with the prices and then the carbon taxes that EIA postulates over the next 10 years.

Japan, likewise, is moving ahead with similar kinds of agreements for fuel efficiency improvement between MIDI and industries. They are moving ahead and putting in place tax incentives to stimulate fuel cell vehicles, electric vehicles, hybrid vehicles, the kinds of incentives like the one proposed in the Administration's

ROLE OF TAX INCENTIVES

Ms. LEE. Thank you. Are tax incentives the primary mechanism that's being utilized to encourage the adoption of these technologies?

Mr. GELLER. No. I think it's one of a number of strategies fromincreased R&D is another strategy that I didn't mention, which there's very significant increases in the last year or two in R&D programs in Europe and Japan for these technologies. They realize these are the technologies of the future. They want their businesses to be the world leader, the world's leaders in these technologies. So it's a range of market incentives, reasonable efficiency standards, and tax incentives to help get the technologies into the market and get them adopted.

Ms. LEE. Thank you very much, Mr. Chairman. Thank you.
Chairman SENSENBRENNER. Thank you.

The gentleman from Minnesota, Mr. Gutknecht.

FUTURE OF NUCLEAR ENERGY

Mr. GUTKNECHT. Thank you, Mr. Chairman. Again, I want to thank the Chairman and the staff for putting this hearing together. Let me first of all offer this disclaimer. It is disturbing to me in some respects that the Administration went off to Kyoto and negotiated this "treaty" and yet still are not willing to come back and have an honest debate in front of the U.S. Senate to decide whether or not this treaty is ever going to be ratified. Jefferson gave us this admonishment over 200 years ago. Give the people the truth and the Republic will be saved. I am glad we're having these hearings, but I think frankly we need to have a national debate.

Frankly, I also believe that we also need to have something more akin to a national energy policy. It disturbs me, for example, and I want to get to this question first for Dr. Hakes. Right now we have got sort of a shadow boxing debate going on about nuclear energy. The question was raised about Europe. I think one of the reasons that the Europeans are not as concerned about some of these things is they are much more heavily dependent upon nuclear energy. Does the Administration, has there been a decision made relative to what the future of nuclear energy is going to be in the United States? Are we going to allow any plants to be built? Are we even going to allow a nuclear repository to be opened in Nevada, which has been studied at a cost of billions of dollars to rate payers. I mean is there some solution to be found in nuclear energy or is that not to be part of our energy future?

Dr. HAKES I cannot speak for the Administration on policy issues. I am an independent data analysis part of the Executive Branch. But I would say that the difficulty that nuclear has in the United States is the capital cost. When you look at the different fuel options for meeting the Kyoto agreement, one of the reasons that the natural gas plants come out so high in our analysis is that they have very low capital cost compared to other sources of energy, like renewables or like nuclear. So even if you removed any policy limitations on nuclear, it would take a very hefty price signal and it would take a long time before that became a more attractive