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It is also interesting that Mr. Geller has parted company with the Council of Economic Advisors by criticizing EIA for assuming that emissions permit trading, not regulatory policies, would be used to reduce emissions. He implies that regulatory policies would cost less. This not only contradicts every economic study of regulation I have seen, but also is directly contradictory to the position taken by the Council of Economic Advisors. Every study of regulatory programs has concluded the opposite — regulatory programs increase cost relative to market incentives. Dr. Yellen herself testified that "dumb policies" could raise cost. I believe that she was including the kind of regulatory programs described by Mr. Geller in her category of dumb policies, and she clearly stated that permit trading is a smart policy. Mr. Geller is now claiming that emissions permit trading is the dumb policy, though it is what the Administration is committed to for implementing the Protocol domestically in 2008-2012.

A technology-oriented approach can achieve many of the benefits Mr. Geller alleges, but only if a more gradual approach to reducing emissions is taken. This is what all the recent work on integrated assessment shows including studies done with the SGM and by Alan Manne and Richard Richels. Technologies need to be developed first, to make the promise Mr. Geller describes possible, and then deployed on a timetable that does not create stranded assets. This would put us on a path on which emissions would probably increase at baseline rates until 2020 or after, but with new technologies available emissions could be reduced much more cost-effectively in subsequent decades. Studies examining these alternatives for a more gradual approach to reducing emissions, combined with technology development, have concluded that concentration goals of 550 ppm or less could be achieved at less cost than compliance with the Kyoto limits forever, and that compliance with Kyoto forever would still not stabilize emissions at any level because of the Protocol's failure to include limits on developing countries.

COMMITTEE ON SCIENCE

U.S. HOUSE OF REPRESENTATIVES

Hearing

on

The Road from Kyoto—Part 4:

The Kyoto Protocol's Impacts on U.S. Energy Markets and Economic Activity

October 9, 1998

Post-Hearing Questions Submitted to

Mr. Howard Geller
Executive Director

American Council for an Energy-Efficient Economy

Questions Submitted by Chairman F. James Sensenbrenner. Jr.

Criticism of EIA's 2005 Start for Emissions Reductions Mandated by the Kyoto Protocol

Q1.

Al.

You are very critical of EIA assumption that the U.S. wait until 2005 to begin emissions reductions and say that it is both “dumb” and “would be contrary to the Protocol." However, the Administration, from the President and the Vice President on down, have publicly stated that they will not even submit the Protocol to the Senate for its advice and consent to ratification until there is “meaningful participation by key developing countries”—a process that Administration officials, such as Under Secretary of State Eizenstat, say could take years. Also, even in the absence of the developing country issue, developing and implementing an emission trading system, including the verification and enforcement mechanisms, will be a long and complicated process. And finally, EIA made the 2005 start assumption at the specific request of the Committee.

Given the above circumstances, why is it “dumb” to assume a 2005 start, when it is a very realistic date? Is the Administration “dumb”? Is the Committee “dumb” for requesting that EIA choose such a date? Or, do you believe it is “dumb” because you don't like the results?

The EIA's assumption of waiting until 2005 to begin emissions reductions is "dumb" and contrary to the Protocol because: 1) as noted in my testimony, the Kyoto Protocol states "Each Party included in Annex 1 shall, by 2005, have made demonstrable progress achieving its commitments under this Protocol"; 2) the U.S. is a party to and the U.S. Senate has ratified the United Nations Framework Convention on Climate Change, which requires industrialized countries to limit greenhouse gas emissions and attempt to meet a

and 3) actions are increasingly being taken to limit emissions and achieve the Kyoto target by the public and private sectors prior to the ratification of the Kyoto Protocol by the U.S. Senate.

Companies such as BP, Shell and United Technologies are pledging to substantially cut greenhouse gas emissions from their own facilities and are not waiting until 2005 to start emissions reductions, and are doing so in advance of the treaty being submitted to the Senate for ratification. And many other initiatives for stimulating early commitments and action are underway, including negotiations between the Clinton Administration and major industrial sectors such as steel and paper/pulp producers concerning industrywide voluntary emissions reduction commitments. So the EIA study not only models a "dumb" approach, it models an approach that is inconsistent with reality. If the EIA was following the Committee's request, I assert that the Committee erred and biased the study by insisting that emissions reductions not start until 2005.

Studies Funded By Vested Interests

Q2. On page 6 of your testimony, you state that “it is fair to ask why some studies claim that reducing GHG emissions will harm our economy. First it should be noted that many of these studies are funded by producers and major consumers of the fossil fuels that cause global warming, the parties that have a vested interest in preventing GHG emissions reductions on a large scale.”

Q2.1 Do you mean to imply that all such studies “funded by producers and major consumers of the fossil fuels that cause global warming” are dishonest and/or tainted?

A2.1 Studies predicting the future costs and economic impacts of reducing GHG emissions are based on a modeling approach and set of assumptions about the structure and functioning of the economy as well as actions taken to limit GHG emissions. As pointed out in detail in a report referenced in my testimony, studies' using worst case assumptions show the largest adverse impact on economic growth from cutting GHG emissions while studies using more favorable assumptions show neutral or positive impacts on economic growth, The studies funded by producers and major consumers of fossil fuels that I have seen use these worst case assumptions and therefore show adverse economic impacts, I do not know if all studies funded by producers and major consumers of fossil fuels use worst case assumptions, but the studies I have seen that are funded by these interests do this.

'R. Repetto and D. Austin, "The Costs of Climate Protection: A Guide for the Perplexed", World

Q2.2 It is my understanding that your organization's web site lists some 23 utilities that fund your work and that many of these utilities are major consumers of fossil fuels. Isn't this correct, and if so, why shouldn't your studies funded by these sources be suspect?

A2.2

Most of the utilities that fund ACEEE are major consumers of fossil fuels. However, most provide funding as sponsors of our conferences, not as supporters of our studies on energy and climate change policy. In fact no utilities are funding our studies on energy and climate policy.

Q2.3 In addition, your organization's web lists many funding sources that would benefit financially by selling products and/or services, such as R&D, that would lessen or prevent GHG emissions, and have a vested interest in reducing GHG emissions. Isn't this equally correct, and if so, why shouldn't your studies funded by these sources also be suspect?

A2.3 The private companies, national laboratories, and research institutes that provide funding to ACEEE are not funding our studies of energy and climate change policy. Our studies of energy and climate change policy are funded solely by charitable foundations.

Technologies and Policies You Sav EIA “Ignored”

Q3.

A3.

Weren't most of the technologies and many of the policies you say EIA “ignored” actually considered by EIA? Aren't you really objecting to EIA considered these technologies and reaching the independent judgment that they wouldn't be ready in time to compete economically?

In my testimony (pp. 1-2) I note eight policies, programs, and technological trends that I claim EIA ignores (e.g., new appliance efficiency standards, adoption of public benefits funds and renewable energy performance standards in additional states, implementation of Clean Air Act standards on particulates, etc.). I have reviewed the EIA study again and maintain the position that EIA study fails to account for a wide range of ongoing and likely policies, programs, and technological trends that will lead to reductions in carbon emissions. In fact, the EIA study states (p. 7): "New or tightened efficiency standards could also reduce the demand for energy, but stock turnover would still limit the speed of penetration.... however, proposed and possible future standards, legislation, and programs

Pace of Energy Efficiency

Q4.

A4.

You are very optimistic about the pace of energy efficiency in this country. How would you evaluate the efficiency gains make in the U.S. since the mid-1980s? You used energy intensity data as a rough measure of efficiency gains in your testimony. What have the intensity gains been since the mid-1980s? Is it not true that such intensity gains have been virtually nil since that time, and if so what is the reason for your optimism?

Overall U.S. energy intensity (E/GDP) declined 10% between 1985 and 1997 according to the Energy Information Administration. In contrast, U.S. energy intensity declined 27% between 1973 and 1985. Given these data, I would not conclude that intensity have been "virtually nil" since the 1980s, although the pace of improvement has clearly slowed. Substantial reductions in energy intensity have occurred in the past and could occur again in the future if such a goal were set, adequate policies for achieving the goal were adopted and leadership exerted.

"Promoting Greater Energy Efficiency Can Substantially Reduce Greenhouse Gas Emissions While Saving Energy."

Q5.

A5.

In your testimony, you state that "Promoting better technologies such as more efficient appliances, lighting, vehicles, and industrial processes as well as renewable energy sources, rather than onerous taxes or heavy-handed regulations, is the key to cutting GHG emissions without harming the economy." You go on to cite five policy initiatives contained in your study “Approaching the Kyoto Targets: Five Key Strategies for the United States" that you say could cut U.S. carbon emissions by 310 million tons per year. According to this study 108 million tons, or nearly 35% comes from your vehicle efficiency strategy, which includes "tougher CAFE standards on cars and light trucks in order to achieve a new-fleet average fuel economy of about 42 mpg by 2010 and 59 mpg by 2020."

If "tougher CAFE standards on cars and light trucks in order to achieve a new-fleet average fuel economy of about 42 mpg by 2010 and 59 mpg by 2020" is not a "heavy-handed” regulation, please give me an example of one.

First, our vehicle efficiency strategy includes a combination of financial incentives (revenue-neutral taxes and rebates for consumers based on the fuel economy of each vehicle, and tax incentives for manufacturers) as well as tougher CAFE standards in order to increase new-fleet fuel economy. Second, the existing CAFE standards have been a great success in terms of increasing auto fuel economy at reasonable cost, and without significantly harming consumers or manufacturers. David Greene, a respected transportation expert from Oak Ridge National Laboratory, recently wrote:

3

2Monthly Energy Review," DOE/EIA-0035(98/10), Energy Information Administration, Oct. 1998, p. 16

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