"The objective of the National Energy Strategy, is- achieving balance among our increasing need for energy at reasonable -from President Bush's National Energy Strategy established in July 1989 During the 1970's awareness also grew that our fuel consumption patterns and trends were extracting 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. The reference case presented in the EIA analysis suggests that our past and current policies have not gotten us nearly as far as we had hoped to go. We need to do better. I believe we can do better and I am hoping that Mr. Howard Geller from the American Council for an Energy-Efficient Economy will offer us some creative ideas about how we can do that in his testimony today. 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 to mitigate those costs? The accomplishments in these areas that are achieved in the six emission reduction cases examined in the EIA 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. I would also point out, that EIA's analysis indicates that for all of the cases examined, the economy continues to grow. That should not surprise us. Our economy experienced a shock of similar magnitude to those predicted by this analysis during the 1970's oil embargo and, while it faltered, it did not collapse and, as we now know, it recovered nicely. Continued economic growth does not ensure that all of our citizens will directly benefit from an emissions reduction policy. This does not argue that there won't be disruptions during the transition phase. Economic growth is not a guarantee of benefits for any one individual or economic sector. Clearly, there are legitimate concerns about the future of the coal industry, coal miners, and the communities that depend upon this industry for their economic base. However, trends for this industry, even under the reference case, are not favorable. Coal-fired electric generators are older, their replacement costs are higher, they burn dirtier, and they are less energy efficient than natural gas-fired equipment. Productivity increases in the coal mining industry have and will result in a continued erosion of mining jobs. Whether or not the Kyoto Protocol is ratified, we will need to address these coal-related issues. I do not expect the EIA study to resolve the debate about global climate change or the Kyoto Protocol or even about its potential economic impacts. I hope it stimulates serious thinking about the direction we are headed in with our energy policy. It is in our national interest to improve energy efficiency, reduce pollution, and diversify our energy supplies. That was true before the global climate change debate began and it is true now. I also believe it is in our national interest to reduce our emissions of greenhouse gases. If we believe it is too expensive to achieve these goals under the current policy framework, then we should work to change the framework to lower the cost of achieving these important policy goals. I look forward to hearing from our witnesses today, and I once again commend Dr. Hakes and his staff for their hard work and for providing us with this valuable contribution to our deliberations. I would first like to thank Chairman Sensenbrenner and Ranking Member Brown for holding this important hearing on the implications of the Kyoto Protocol on the economy of the United States. The purpose of this hearing is to provide a forum for the release of a study that was conducted by the Energy Information Administration (EIA) at the request of Chairman Sensenbrenner and Ranking Member Brown. The aim of the study is to assess the potential economic impacts of the Kyoto Protocol on the United States. The release of this study is very timely, because, as most of us have seen in recent weeks, American business and industry groups have launched a media campaign urging us to not to implement the provisions of Kyoto. The Kyoto Protocol, which was developed by the Third Session of the Conference of Parties to the U.N. Framework Convention on Climate Change (COP-3), contains various recommendations on how we can deal with global warming. Many critics have challenged the protocol on the basis of its original premise -- that greenhouse gas emissions cause global warming. However, that issue is not the subject of our discussion today, rather, we will be focusing on how the adoption of the treaty, in whole or in part, would affect the American people. Today, the EIA will be releasing two documents. The first is a long-form dissertation on the impact of Kyoto to our industry, which includes an analysis of several different approaches that the United States could take in implementing the protocol. For instance, it details how differently our economy would react if we were to reduce our overall emissions by direct emission control or via international emissions trading (which is allowed under the Protocol). I am very happy to see that EIA took this approach when conducting its review, because it gives us a full range of choices and does not box us into a yes or no decision when considering how we will handle the treaty. The second document is a short summary of EIA's research called "What Does the Kyoto Protocol Mean to U.S. Energy Markets and the U.S. Economy?" I applaud the release of this booklet, and hope that is of great help to the many small businesses out there that are interested in the outcome of this debate because they are Some of the Kyoto Protocol provisions could have far-reaching affects on our industries. This is especially true in my district in Houston, where there is a large concentration of energy industry leaders. We have a very tough time with the automobile manufacturers every time Congress or the appropriate agency attempts to modify their emissions standards, and I expect similar complaints from other industries, like those in my district, if we are to move forward here. This study should give us a much more informed perspective on whether their complaints will be justifiable, and if they are, we can begin working on a plan that will be more palatable to them. We all know that implementing Kyoto will cost the country something. The real question is whether, on balance, the United States economy can digest it without a significant loss of jobs or to our competitiveness. I am sure that the Senate is as anxious as we are to review the report, and I am looking very forward to hearing the testimony of our esteemed panel today. Thank you. Chairman SENSENBRENNER. Thank you. Our witnesses today are the Honorabie Jay E. Hakes, Administrator of the Energy Information Administration, U.S. Department of Energy in Washington; Dr. W. David Montgomery, Vice President of Charles River Associates in Washington; and Mr. Howard Geller, the Executive Director of the American Council for an Energy Efficient Economy in Washington. Are Dr. Montgomery and Mr. Geller here? If so, please take your seats at the witness table, and the Chair will swear the witnesses in. So would all three of you please rise, raise your right hand. Do you solemnly swear the testimony you are about to give before this Committee be the truth, the whole truth, and nothing but the truth, so help you God? Dr. HAKES I do. Dr. MONTGOMERY. I do. Mr. GELLER. I do. Chairman SENSENBRENNER. Thank you. Without objection, all of the witnesses' statements, written statements, will be inserted in the record with their testimony. I would ask that each of the witnesses summarize their testimony in a statement of about 5 minutes or so, and then the question and answer period by members of the Committee will be conducted under the 5-minute rule. Dr. Hakes, I guess you would like to be first. TESTIMONY OF THE HONORABLE JAY E. HAKES, ADMINISTRATOR, ENERGY INFORMATION ADMINISTRATION, U.S. DEPARTMENT OF ENERGY, WASHINGTON, DC Dr. HAKES Thank you, Mr. Chairman. I appreciate your request and the request of Mr. Brown to conduct this study, and we would like to present it to you today. The uncertainties involved in such analysis are many, not the least of which is the ambiguity about how much emissions from energy use would actually have to be reduced in the United States versus how much of the Kyoto Protocol requirement could be met by other factors, such as reduced emissions from other greenhouse gases and international emissions trading. For this reason, further studies will be needed. Despite the limitations of this study, we believe that the general direction of our conclusions are likely to be reflected in the actual course of events, if the reductions in emissions are eventually agreed to and the Kyoto Protocol is adopted and implemented. Our study of the Kyoto Protocol impacts assumes no change to current policies, except for the Kyoto Protocol itself. As a result, it does not explore energy policy options that might mitigate or aggravate the magnitude of the impact. As in much of the work of EIA, proponents on all sides of the debate may find some support in this report, but our goal has been to work independently and develop the strongest possible analysis regardless of what the impacts might be on the debate. Whatever their weaknesses-and there are several-models, such as the National Energy Modeling System used by EIA, provide disciplined methodologies for analyzing complex issues. To cover a broad range of possibilities with regard to trading and other factors, we have focused, as you mentioned, on a menu of six |