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Testimony of Michael E. Baroody
March 3, 1992
Page 3

"general circulation models" -- the computer models used to predict complex interactions of the climate system.

While international research proceeds, the Coalition encourages its members to contribute to better scientific understanding both through in-house research and through financial support to others conducting research. The Coalition also supports activities that make economic sense in their own right -- continuing sound business practices that will lead to more efficient use of energy

INTERNATIONAL CONCERNS

The Coalition supports a comprehensive and international approach to global climate change based on cost-effective, scientifically sound policies that are independently justifiable in their own right. Any action on the global climate change issue must take into account the negotiations of the United Nations Intergovernmental Negotiating Committee for a Framework Convention on Climate Change (INC) and the work of the Intergovernmental Panel on Climate Change (IPCC). Proceeding on a unilateral basis to stabilize or reduce greenhouse gas emissions, in the absence of an enforceable international agreement applicable to all nations, would place U.S. industry at a competitive disadvantage in world markets and could harm our nation's economy.

The Coalition believes that any international agreement dealing with greenhouse gases should (1) be based on sound science (2) be comprehensive, addressing all gases, not just carbon dioxide or any single gas; (3) require that all countries bear their fair share in undertaking climate change policies; and (4) emphasize flexibility in policies to allow countries and private markets the ability to respond as economically and efficiently as possible. In addition, U.S. industry firmly believes that a crucial element not only of any international agreement on global climate change, but also of this country's response to the issue, must be technology cooperation in the international community.

The Coalition believes that any policy designed to deal with greenhouse gases should be scientifically and economically justified and should be undertaken through a multilateral approach. We should emphasize flexibility in our energy, agricultural, foreign assistance, trade and research policies so that we can adjust our programs and our investments as our understanding of the global climate change phenomenon increases and as our multilateral discussions mature.

Testimony of Michael E. Baroody
March 3, 1992
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PROPOSALS OF OTHER COUNTRIES

Although many countries have announced substantial "commitments" to curb carbon dioxide, very few, if any, of the statements have been supported by binding obligations under the laws and regulations of those countries -- as such, these so-called "commitments" are not particularly meaningful. However, any commitments made by the U.S., in the context of a treaty, are binding under implementing laws and regulations that would be vigorously enforced by our regulatory authorities. Many of the lesser developed countries and countries with economies in transition, including China, the Commonwealth of Independent States (CIS) and India, have not made commitments to reduce their emissions of carbon dioxide or greenhouse gases. Because these developing countries have expanding populations, and indigenous fossil fuel resources, and are planning significant economic growth in the future, they will be responsible for a majority of the greenhouse gas emissions growth in the near future. For example, China, with approximately 20 percent of the world's population, plans to double its electricity generation in the next ten years, and about 75 percent of that will be coal-fired. Comparable generation growth will occur in populous India, Africa and Latin America. Many of these countries are calling on the developed countries of the world to bear vastly more than their share of greenhouse gas reductions in order to allow for increases in greenhouse gas emissions in the developing world. Or, unfortunately, many of these countries are using the carbon dioxide issue as a lever to obtain additional development funds from the industrial countries.

Further, several industrialized countries have suggested that policies address only carbon dioxide, and thus ignore methane and other greenhouse gases. To focus solely on carbon dioxide emissions is to ignore up to half of the potential impact of greenhouse gas emissions. Inevitably, this approach would require substantially greater overall costs to control greenhouse gases. As previously stated, the Coalition believes that any international agreement dealing with greenhouse gases should be comprehensive, addressing all gases, not just carbon dioxide or another single gas.

Moreover, even if the other industrialized countries made real commitments to reducing greenhouse gases, their goals may not make sense for the United States. Energy demand in industrialized countries is determined by widely disparate and largely non-energy characteristics: climate, geography, population density, personal incomes, life styles, resource availability, building stocks, transportation systems, industry structure, and so forth. Only a relatively small part of country-to-country differences can be reasonably ascribed to different levels of energy utilization. The international statistics on energy end-uses are too general to adjust for all of these factors. As the International Energy Agency observes, it is "impossible to develop uniform statistical measures (of energy efficiency) for whole economies or even sectors."

Testimony of Michael E. Baroody
March 3, 1992
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The United States requires more energy than many other countries for heating and cooling (our summers and winters are more extreme), and for transportation (our land mass is larger and our population more geographically dispersed). Since 1973, the U.S. has reduced energy usage almost 40% per dollar of GNP.

ARTIFICIAL RESTRICTIONS

Although every national economy would be affected by the imposition of artificial carbon emissions restriction, the effect would vary greatly. The impact on China, and the rest of the nations with emerging economies or nations with economies in transition, would clearly exceed the ability of these fragile economies to cope with this international carbon reduction. China's losses alone from such restrictions would exceed 10 percent of its annual GDP by the latter half of the 21st century.

The effect of artificial carbon restrictions necessary to achieve the stabilization or reduction of greenhouse gas emissions would be devastating on the U.S. economy. A recent study conducted by Charles River Associates and endorsed by the Coalition, found that stabilizing carbon dioxide emissions at 20 percent below current levels would produce annual losses of 1.7 percent of the GNP in 2020, increasing to 2.4 percent in 2100, a loss to the GNP of over $95 billion per year. Another study released by the Department of Energy also concluded that the total cost for capping carbon dioxide at 20 percent below 1990 levels could cost $95 billion a year. In addition, the United States would suffer a significant loss in employment averaging 600,000 per year over a 25-year period.

A recent study by the Department of Commerce indicates that a tax on fossil fuels designed to obtain a 20 percent reduction in emissions of carbon dioxide by the year 2020 would lower output among major OECD nations by 1 to 3 1/2 percent. The United States and other nations that are heavy users of fossil fuels would experience the greatest loss in output (as measured by gross domestic product or gross national product). The study stated that the U.S. economic output would be 3.1 percent lower. By contrast, France, which uses nuclear power for a large amount of its electricity, would have its GDP reduced by only 1.7 percent over the quarter-century.

Our trade competitors know that carbon dioxide stabilization would be disproportionately costly for the United States and would give them increased trade competitive advantage. In order for the U.S. to stabilize its carbon dioxide emissions at current levels by 2000 a tax of $120 per ton of carbon is required; in order to achieve a 10 percent reduction by 2010 a tax of $384 per ton is required; and in order to achieve a 20 percent reduction by 2020 a tax of $720 per ton is required. In the United States a tax per $100 per ton of carbon would

Testimony of Michael E. Baroody
March 3, 1992
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equate to a tax of $70 per short ton of coal, $11 per barrel of oil, $1.66 per MCF of natural gas and $0.27 per gallon of gasoline.

Developed countries and developing countries are economically interdependent. Trade, interest rates, capital flows and commodity prices are the common denominator of this interdependence. The linkage is so intimate that a 1991 World Bank report estimated that a 1 percent per annum change in OECD growth could affect the growth rate of developing countries by an average of 0.7 percent. Lower economic growth rates in industrialized countries could result in a deteriorating balance of trade for developing countries and for countries with economies in transition. The business community emphasizes that an integrated assessment of the possible economic consequences of reduced growth in developed countries on the economies of developing countries and countries in transition is urgently required as a basis for policy decisions.

TECHNOLOGY COOPERATION

The Global Climate Coalition has an active program to address national and international issues and to assist U.S. government activities related to technology cooperation. The Coalition has participated in numerous policy meetings with representatives of Congress and federal agencies such as the Environmental Protection Agency, Department of Commerce, Department of State, Department of Energy, and the Council on Environmental Quality; addressed technology cooperation issues before the INC; and cosponsored a conference with the U.S. Department of Commerce on technology transfer to Eastern Europe.

Even more significantly, U.S. industry has an extensive program of environmental technology programs overseas. Many companies that are members of the Coalition have joint ventures or other mechanisms in which they engage in technology cooperation projects in developing countries and countries with economies in transition. In addition, the U.S. Government is expanding and refocusing its technology and research and development programs to facilitate technology cooperation between the government and private industry to enhance the international competitiveness of U.S. industry.

The Coalition urges the United States to continue its leadership role in such international forums as the INC and IPCC. Technology cooperation has been a major issue through the negotiations of the INC and is expected to be a major issue of the United Nations Conference on Environment and Development (UNCED) in June 1992. In this regard, the Coalition strongly endorses the plan by the Administration to provide a $75 million fund to assist developing nations in reducing their emissions of greenhouse gases. The Coalition is however, concerned that many foreign countries view technology cooperation as a form and means of

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Testimony of Michael E. Baroody
March 3, 1992
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obtaining U.S. foreign aid. The INC has stated that the developing countries have requested that the "best available, environmentally sound technologies“ be transferred to them on a "most favorable basis” and with the developed countries providing "adequate and additional financial resources" to assure the transfer occurs expeditiously.

Importantly, inadequate protection of intellectual property rights creates substantial barriers to technology transfer technology. Without guaranteed protection for patents, trademarks and copyrights, U.S. companies have a strong disincentive to pursue the costly work of technological and industrial innovation and to transfer that technology overseas. To facilitate technology transfer, the U.S. must demand that foreign governments and firms protect U.S. technology, and property rights and that any transfer occur on a commercial basis.

For the past two decades the U.S. has been at the forefront among the nations of the world on environmental policy and technology development and implementation. This leadership position, combined with private and public research and development capabilities in the U.S. gives us the edge in providing technology, training, operation, maintenance and management assistance to developing countries and economies in transition, including Eastern Europe, as those countries focus on the dual objectives of environmental improvement and economic development.

Specifically, the Federal Government could assist U.S. technology transfer

activities by:

1)

Helping countries prepare accurate and detailed needs assessments.

2)

Providing additional analysis and information on environmental technology
needs and market opportunities to U.S. business through the embassy and
consulate staff as well as through the Commerce Department's
International Trade Administration staffs.

3)

Identifying and eliminating impediments to technology transfer.

4)

Facilitating the entry and acceptance of new technologies where
appropriate.

5)

Promoting U.S. businesses as sources of environmental technology to
meet the needs to developing countries and their industries.

6)

Supporting research, development, demonstration and commercialization
programs.

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