[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]




                               BEFORE THE


                                 OF THE

                        HOUSE OF REPRESENTATIVES


                             FIRST SESSION


                             MARCH 12, 2009


                           Serial No. 111-14

      Printed for the use of the Committee on Energy and Commerce


67-102                    WASHINGTON : 2012
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                 HENRY A. WAXMAN, California, Chairman

JOHN D. DINGELL, Michigan            JOE BARTON, Texas
  Chairman Emeritus                    Ranking Member
EDWARD J. MARKEY, Massachusetts      RALPH M. HALL, Texas
RICK BOUCHER, Virginia               FRED UPTON, Michigan
FRANK PALLONE, Jr., New Jersey       CLIFF STEARNS, Florida
BART GORDON, Tennessee               NATHAN DEAL, Georgia
BOBBY L. RUSH, Illinois              ED WHITFIELD, Kentucky
ANNA G. ESHOO, California            JOHN SHIMKUS, Illinois
BART STUPAK, Michigan                JOHN B. SHADEGG, Arizona
ELIOT L. ENGEL, New York             ROY BLUNT, Missouri
GENE GREEN, Texas                    STEVE BUYER, Indiana
DIANA DeGETTE, Colorado              GEORGE RADANOVICH, California
  Vice Chairman                      JOSEPH R. PITTS, Pennsylvania
LOIS CAPPS, California               MARY BONO MACK, California
MICHAEL F. DOYLE, Pennsylvania       GREG WALDEN, Oregon
JANE HARMAN, California              LEE TERRY, Nebraska
TOM ALLEN, Maine                     MIKE ROGERS, Michigan
JAN SCHAKOWSKY, Illinois             SUE WILKINS MYRICK, North Carolina
HILDA L. SOLIS, California           JOHN SULLIVAN, Oklahoma
CHARLES A. GONZALEZ, Texas           TIM MURPHY, Pennsylvania
JAY INSLEE, Washington               MICHAEL C. BURGESS, Texas
TAMMY BALDWIN, Wisconsin             MARSHA BLACKBURN, Tennessee
MIKE ROSS, Arkansas                  PHIL GINGREY, Georgia
ANTHONY D. WEINER, New York          STEVE SCALISE, Louisiana
JIM MATHESON, Utah                   PARKER GRIFFITH, Alabama
G.K. BUTTERFIELD, North Carolina     ROBERT E. LATTA, Ohio
BARON P. HILL, Indiana
DORIS O. MATSUI, California
JERRY McNERNEY, California

                 Subcommittee on Energy and Environment

               EDWARD J. MARKEY, Massachusetts, Chairman
MICHAEL F. DOYLE, Pennsylvania       DENNIS HASTERT, Illinois
G.K. BUTTERFIELD, North Carolina          Ranking Member
CHARLIE MELANCON, Louisiana          RALPH M. HALL, Texas
BARON HILL, Indiana                  FRED UPTON, Michigan
DORIS O. MATSUI, California          ED WHITFIELD, Kentucky
JERRY McNERNEY, California           JOHN SHIMKUS, Illinois
PETER WELCH, Vermont                 HEATHER WILSON, New Mexico
JOHN D. DINGELL, Michigan            JOHN B. SHADEGG, Arizona
RICK BOUCHER, Virginia               CHARLES W. ``CHIP'' PICKERING, 
FRANK PALLONE, New Jersey                Mississippi
ELIOT ENGEL, New York                STEVE BUYER, Indiana
GENE GREEN, Texas                    GREG WALDEN, Oregon
LOIS CAPPS, California               SUE WILKINS MYRICK, North Carolina
JANE HARMAN, California              JOHN SULLIVAN, Oklahoma
MIKE ROSS, Arkansas

                             C O N T E N T S

Hon. Edward J. Markey, a Representative in Congress from the 
  Commonwealth of Massachussetts, opening statement..............     1
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, opening statement....................................     2
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................     3
    Prepared statement...........................................     5
Hon. Gene Green, a Representative in Congress from the State of 
  Texas, opening statement.......................................    15
    Prepared statement...........................................    17


Steve Kline, Vice-President of Corporate Environmental and 
  Federal Affairs, Pacific Gas And Electric Corporation..........    22
    Prepared statement...........................................    24
    Answers to submitted questions...............................   125
Sonny Popowsky, Consumer Advocate of Pennsylvania, Pennsylvania 
  Office of the Consumer Advocate................................    56
    Prepared statement...........................................    58
    Answers to submitted questions...............................   137
Robert Greenstein, Executive Director, Center on Budget Policies 
  and Priorities.................................................    69
    Prepared statement...........................................    72
    Answers to submitted questions \1\...........................    00
Steven F. Hayward, American Enterprise Institute.................    87
    Prepared statement...........................................    89
    Answers to submitted questions...............................   140
Mike Carey, Ohio Coal Association................................    92
    Prepared statement...........................................    94
    Answers to submitted questions...............................   146
John S. Hill, Director for Economic and Environmental Justice, 
  United Methodist Church, General Board of Church and Society...    99
    Prepared statement...........................................   102

\1\ Mr. Greenstein did not respond to submitted questions for the 



                        THURSDAY, MARCH 12, 2009

                  House of Representatives,
            Subcommittee on Energy and Environment,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:05 a.m., in 
Room 2322 of the Rayburn House Office Building, Hon. Edward J. 
Markey (chairman) presiding.
    Members present: Representatives Markey, Inslee, 
Butterfield, Matsui, McNerney, Welch, Green, Capps, Gonzalez, 
Baldwin, Matheson, Barrow, Waxman (ex officio), Upton, Hall, 
Whitfield, Shimkus, Pitts, Burgess, Scalise, and Barton (ex 
    Staff present: Matt Weiner, Clerk; Melissa Bez, 
Professional Staff; Alex Barron, Professional Staff; Lorie 
Schmidt, Senior Counsel; Michael Goo, Counsel; and Lindsay 
Vidal, Press Assistant.


    Mr. Markey. In over 30 years in Congress one word has 
always come first in every piece of legislation, and that is 
the word, consumers. From telecommunications to fuel economy 
standards, I have always found that starting with the goal of 
saving families money through technological innovation is the 
best vehicle for effective public policy.
    For too long American consumers have been unprotected 
against costs from our old energy economy and the threat of 
global warming.
    First, America's dependence on foreign oil continues to 
impact our economy. Before the sub-prime and derivatives crisis 
created a financial markets meltdown, $4 gasoline and sky-
rocketing goal and natural gas prices sent early shockwaves 
through the economy, destabilizing our financial house of 
    Second, consumers are losing money on an inefficient, 
outdated energy grid that wastes about half of the energy it 
    Third, by delaying action on clean energy and global 
warming, consumers are losing money every day on the lost 
innovation of new, clean energy products.
    Fourth, we have heard in this committee that the cost of 
climate inaction will have negative financial consequences. We 
have already seen the impact of this on the insurance industry, 
as storms have increased in strength from a warming earth.
    And so, much like the Telecommunications Act and fuel 
economy legislation, climate legislation is consumer 
legislation, and there is a proper way and an improper way to 
craft this legislation. Improperly done, climate legislation 
could unjustly enrich corporations at the expense of consumers. 
Improperly done, the investments needed to drive the clean 
energy economy will be put on consumers, while polluters get a 
free pass.
    Properly done, we will put a cap on pollution that will 
allow businesses the flexibility to innovate and create highly-
profitable clean energy solutions. Properly done, we will 
defray costs to consumers as we transition to a clean energy 
    Of course, this is where it all gets very tricky, and that 
is why we are here today. Creating a market base global warming 
bill means that the market will set a price on the right to 
send carbon into the atmosphere. These permits will have a 
financial value, allowing companies that become clean and 
efficient to prosper while polluters will be forced to pay. The 
key is to protect consumers from drawing the short straw and 
paying for these permits when a company decides to pass the 
cost directly to the consumer.
    The danger here is that if we give pollution permits for 
free to polluting companies, they may actually charge consumers 
for the market value of what they receive free of charge and 
pocket a huge cash windfall. Imagine this. A scalper finds 
Celtics tickets outside the Boston Garden. Will he sell them to 
the next consumer for free? No. He will charge the going rate.
    To address this problem some have suggested that instead of 
giving away these permits to emitters for free, the bill should 
ensure that the value to local electric utilities and other 
entities that are regulated by the State public utility 
commissions or otherwise subject to cost of service 
requirements so that the money actually benefits consumers.
    This position is shared by various groups like the U.S. 
Climate Action Partnership, Edison Electric Institute, and the 
National Association of Regulatory Utility Commissioners. 
Others have come up with alternatives. The Center for Budget 
and Policy Priorities is here with us today. They have proposed 
a policy that would completely eliminate any negative financial 
impacts from climate legislation on the poorest one-fifth of 
Americans. And we shouldn't forget that low-income Americans 
will be disproportionately affected by the impacts of global 
    It has been suggested that we use some of the revenues from 
a climate legislation to fund energy efficiency programs and 
invest in new cost-saving technology so that we can all benefit 
from the long-term savings potential afforded by a clean energy 
    The bottom line is that there are many options before us on 
how to benefit and protect consumers under a cap-and-trade 
system. The subcommittee looks forward to exploring these 
options with all of the members this morning.
    Let me now turn and recognize the Ranking Member of the 
subcommittee, the gentleman from Michigan, Mr. Upton.


    Mr. Upton. Thank you, Mr. Chairman. The title of today's 
hearing, of course, is ``Consumer Protection in Climate 
Legislation,'' which recognizes the undisputable fact that 
climate legislation will increase the cost of energy, and 
consumers will need to be protected.
    These are some very tough and difficult times for our 
country. Michigan, in particular, where I am from, has been hit 
very, very hard. In fact, in 2008, approximately 21 percent of 
all utility accounts nationally were overdue, with folks 
carrying past-due balances on average of about $160 on an 
electric bill and $360 for natural gas. Total account of debt 
in Mr. Markey's Massachusetts was about $456 million, with 28 
percent of all electricity accounts and 48 percent of gas 
accounts being past due. In Michigan the account debt totaled 
$367 million, and in some parts of my State one in three 
consumers are already behind on their bills. One in three.
    And we all know which direction these numbers move when 
prices go up. Congress must make its number one priority to get 
the economy back on track and protect jobs, and that is my top 
priority as well. Keeping energy affordable is the key to this 
    According to an MIT model of a 100 percent auction cap-and-
trade, the American people will be taxed $366 billion in 2015, 
four times as much as the President's estimate of $80.3 billion 
in 2015. Job losses under such a plan would be greater than 6 
million. Increased energy costs would near $1 trillion in 2030. 
Increases in electricity costs could be greater than 100 
percent. GDP could fall perhaps as much as 7 percent by the 
year 2050. And a family of four could expect to pay as much as 
$4,500 in additional costs by the year 2015.
    In written testimony OMB Director Orszag stated that the 
average household cost would be $1,300 for a 15 percent cut in 
emissions. This Administration has seen an 80 percent cut. Our 
former colleague, Sherrod Brown, now a senator from Ohio, who 
opposed capped trade last June, said that Obama's plan, 
President Obama's plan would lead to an increase in energy cost 
and would drive American firms abroad, and he said this, ``It 
really does say to manufacturing, go to China where they have 
weaker environmental standards. And that is a very bad message 
in bad economic times, in any economic times.``
    There are not too many absolutes in this business of 
politics, but one thing is irrefutable. As power demands 
increase, our Nation will continue to grow, our power demands 
as a Nation will continue to grow. Unless we pursue coherent, 
pragmatic policies, we can, in fact, send our Nation's economy 
into a freefall, and there will be great difficulty to keep the 
lights on in homes in across the country.
    I yield back.
    Mr. Markey. Great. The gentleman's time has expired.
    The Chair recognizes the Chairman of the full committee, 
the gentleman from California, Mr. Waxman.


    Mr. Waxman. Thank you very much, Chairman Markey.
    Before we start crying about what things are going to be 
like, let us realize where they are right now for consumers. 
Our consumers are paying an average American household $2,800 
more in 2008, for basic energy needs than they spent in 2001. 
This is not a consumer-friendly time in the energy sector. 
Average household expenditures for gasoline, electricity, and 
home heating increased by 81 percent between 2001, and 2008, 
almost four times the overall inflation rate in this same 
period of time, which was 21 percent.
    And while energy prices climbed, our dependence on oil 
grew. We send more and more of our wealth overseas instead of 
keeping it here at home, and with no plan to address global 
warming our children's future is in jeopardy.
    Low-income consumers take a drubbing in the current system. 
Not only do they bear unaffordable energy costs, families with 
low income also find it harder to cope with the public health 
consequences of unchecked climate change. The poorer often hit 
the hardest by extreme weather events that will increase if we 
fail to reduce global warming. The pictures coming out of New 
Orleans after Hurricane Katrina showed an unforgettable 
contrast in the abilities of the rich and the poor to cope with 
such catastrophes.
    This committee will have an opportunity to put the country 
back on track. If we enact a comprehensive energy and climate 
bill, we can help low-income families while helping all 
American families. Low-income and all American families will 
benefit from the increase in domestic jobs that will accompany 
a clean-energy future. They will benefit from reducing our 
dependence on foreign oil, which will, in turn, reduce the need 
for our military to engage in unstable parts of the world. We 
can turn the page to a brighter future, but we must design our 
legislation carefully.
    The witnesses you have assembled today will tell us a 
poorly-designed program to reduce global warming, pollution 
could impose significant costs on low-income consumers. This 
means that we have to be smart about how we are going to design 
this legislation.
    There are various ways to assist consumers, especially low-
income consumers with a transition to clean energy future and 
reduce global warming pollution. We are going to hear about 
energy efficiency programs that can reduce consumers energy 
bills, even if the rates increase, and reduce the overall costs 
of the program to the country as a whole. By making the country 
more efficient these programs make our economy more 
    The Center on Budget Policy and Priorities suggest that 
allowances be auctioned and that some of the proceeds be sent 
to low and perhaps middle-income consumers to offset increased 
costs of reduced global warming pollution. Another suggestion 
is to provide allowances for the benefit of consumers to local 
companies that distribute electricity and natural gas, and we 
will hear from a consumer advocate and an electricity company 
about how that approach would work. I think it is important we 
have this hearing, we recognize the consequences of legislation 
on consumers as we obviously have to recognize the consequences 
on industries, businesses, our trade, and our economic future 
overall. And that is part of the job of making sure that we 
pass a broad, comprehensive energy bill which we hope to do 
before the Memorial Day recess.
    Thank you, Mr. Chairman. Yield back my time.
    [The prepared statement of Mr. Waxman follows:]

    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the Ranking Member of the full 
committee, the gentleman from Texas, Mr. Barton.
    Mr. Barton. Thank you, Mr. Chairman. Before I do my opening 
statement, could I just ask a process question? And I don't 
know the answer, so this is not a set up.
    Mr. Markey. Absolutely.
    Mr. Barton. Most of our hearings are televised where we 
have a TV feed here, and if we want to stay in our office and 
watch it on the internal House channels we can. I notice our 
cameras aren't on. Is--do we have a technical problem, or is 
    Mr. Markey. Can I--I thank the gentleman. The gentleman 
from Illinois, Mr. Shimkus, brought this issue to our attention 
last week.
    Mr. Barton. Oh, I am sorry.
    Mr. Markey. No, that is fine, and on Tuesday the House----
    Mr. Barton. I know you are not camera shy.
    Mr. Markey. The office responsible for this brought up a 
separate group of portable cameras that made it possible for 
all of this to be televised as they repair these cameras. We 
made the same request for this morning. We thought that they 
were going to be showing up again this morning with all the 
portable equipment, and they are not here.
    Mr. Barton. OK.
    Mr. Markey. But the request was made. Our goal was to have 
the set-up the same as it was on Tuesday, and I actually don't 
know what happened, but I know that----
    Mr. Barton. But these cameras just don't work.
    Mr. Markey. They do not work.
    Voice. I thought it was because the Michigan, Iowa 
basketball game in the first round of the Big Ten Tournament 
    Mr. Markey. What time is that on today?
    Voice. 2:30.
    Mr. Markey. OK. OK. The hearing will be concluded before 
    Mr. Barton. Thank you. I just wondered about--thank you.
    Mr. Markey. So I don't--I will find out what happened.
    Mr. Barton. OK. Not a problem. Thank you, Mr. Chairman, for 
this hearing.
    The task of the hearing consumer protection policies in 
climate legislation is almost an oxymoron. It is not quite, but 
it is obvious that if you have a serious cap in trade component 
to climate change legislation, that there are going to be 
serious economic consequences. I don't think those economic 
consequences can be overcome by some sort of an internal 
reshuffling of the monies that are raised through the carbon 
tax, through a cap-and-trade policy. But it is a noble cause to 
at least attempt to see if they might, could be alleviated.
    The best way to alleviate or guarantee consumer protection 
in climate change legislation is not have a cap-and-trade 
component in my opinion. Having said that, I look forward to 
hearing the witnesses. We have six excellent witnesses, and we 
are going to have a variety of opinions from these witnesses. I 
have perused their preliminary testimony or the testimony that 
we have received in advance, and I think we will have a pretty 
lively hearing.
    With that I yield back, Mr. Chairman.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentleman from California, Mr. 
    Mr. McNerney. Thank you, Mr. Chairman.
    We all know that energy usage is a complex and difficulty 
question. We have peak oil looming, which has related problems 
of price increases. We have climate change, we have national 
security. But we in this committee have the responsibility to 
address this question in a reasonable and rational way.
    Cap-and-trade I believe can be used as a tool to reduce our 
consumption, to reduce our greenhouse emissions, but we must be 
doing, we must do it rationally, we must do it thoughtfully. 
Certainly we have a variety of opinions which need to be taken 
into account. We are not going to shove cap-and-trade 
legislation down the pike without taking these viewpoints into 
    But I want to say we don't want to get trapped by the false 
choice that we can have either clean energy or a good economy 
but not both. That is a false choice. We--the real choice, I 
think, is to become efficient and to create new forms of 
energy. We can do that. Cap-and-trade legislation can help us 
get there. The real question is how do we do it in a way that 
doesn't hurt the people at the bottom, hurt the people that are 
suffering through high utility bills. We can use the revenue 
from cap-and-trade to do that. We can use it in a rational way, 
and I think everyone is going to benefit. Our national security 
is going to benefit. We are going to reduce our consumption. We 
are going to reduce greenhouse gas emissions.
    So I look forward to what the testimony is going to be this 
morning, and I yield back to the committee.
    Mr. Markey. OK. The gentleman's time has expired.
    The Chair recognizes the gentleman from Pennsylvania, Mr. 
    Mr. Pitts. Thank you, Mr. Chairman, and I would like to 
thank you for convening this hearing today on this important 
    As this committee moves forward, I believe that it is 
essential to keep in mind the negative effects that improperly-
drafted climate change legislation will have on the consumers. 
The best way to protect consumers is to protect their jobs and 
keep the economy from tanking.
    Unfortunately, cap-and-trade legislation would do exactly 
the opposite, causing serious economic hardships. If a cap-and-
trade bill looks anything like the Lieberman, Warner bill we 
saw last year, it will have drastically negative effects on 
consumers and the economy. According to a Heritage Foundation 
study, in the first 20 years alone the bill would have resulted 
in aggregate real GDP losses of nearly $5 trillion. In the 
first 20 years it would have destroyed 900,000 jobs and caused 
nearly 3 million job losses in the manufacturing sector by 
2029. Fifty percent of jobs in the manufacturing sector would 
have been lost. In Pennsylvania it was projected that 94,500 
jobs would have been lost in the manufacturing sector by 2030, 
and according to their model in my district alone $260 to $294 
million would have been lost in gross State product in 2025.
    This does not sound like a consumer protection measure to 
me, and no amount of investment and efficiency measures, direct 
rate reductions or rebates will mitigate the effects of 
tremendous job losses in a terrible economy.
    Mr. Chairman, our economy is suffering right now. We all 
recognize that. It is my belief that passing a cap-and-trade 
bill will continue to add to the economic pain most Americans 
are feeling right now.
    So I look forward to hearing from our witnesses today about 
how we can truly help consumers and to protect our environment 
and atmosphere. I yield back.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentlelady from California, Ms. 
    Ms. Capps. Thank you, Mr. Chairman.
    Climate change legislation is not only about caps and 
kilowatt hours but also about kids and communities. The 
legislation we pass must account for consumers, especially 
those who are least able to pay for their energy needs. To that 
end I am very grateful that we are holding this hearing today, 
and I want to thank our witnesses for traveling here to talk 
with us about this incredibly important issue.
    In my home State of California we have an unemployment rate 
of more than 10 percent and a poverty rate that is over 13 
percent. Like my colleagues, I am very concerned about adding 
any additional financial burden to those already struggling in 
these difficult economic times. Low and moderate-income 
households are always disproportionately affected by hikes in 
energy costs.
    However, I am greatly encouraged by the proposals on the 
table today that seek to offset costs for lower-income 
households. Studies by the Congressional Budget Office suggest 
that lower-income households could even be better off as a 
result of a well-executed cap-and-trade program, and this 
assessment does not even include the additional benefits that 
all citizens will experience as the result of a reduction in 
greenhouse gasses and hopefully a slowing or reversal of 
climate change.
    As we heard yesterday from United Nations Secretary 
General, Ban Ki-moon, the cost of inaction are far greater than 
the cost of action. And these include costs to human health, to 
our natural resources, and to our infrastructure. So we must 
act now, but we must also act wisely, ensuring that we are 
always protecting the most vulnerable among us.
    Mr. Chairman, I yield back.
    Mr. Markey. The gentlelady's time has expired.
    The Chair recognizes the gentleman from Kentucky, Mr. 
    Mr. Whitfield. Chairman Markey, thank you very much, and I 
want to thank the witnesses for being with us this morning. 
Also, these hearings are vitally important, because it is 
imperative that as we move forward on this very serious issue 
that we do frame what the debate is all about, and I think it 
is very clear that the debate is about the cost of action 
versus the cost of inaction. And from all of the studies that I 
have seen the cost of inaction really does not have a--the cost 
of action does not have a quantifiable benefit that can be 
calculated in my view.
    The cost of implementing a cap-and-trade system and 
renewable energy mandate definitely does have a quantifiable 
cost. We asked a local cooperative in my district to calculate 
the 5 cent-per-kilowatt-hour penalty that would be assessed in 
Kentucky if they were not able to meet the proposed renewable 
energy mandate, and a company, a mid-sized manufacturing plant 
it would cost them $18,000 per month more as a penalty. And I 
think at this time with the economy being as weak as it is, 
unemployment going up, that if we are not very careful, a cap-
and-trade system and renewable energy mandate can really have a 
significant negative impact on our economy.
    The second part that I would just like to discuss briefly 
is that the President in his budget said that the cap-and-trade 
system would generate around $641 billion of additional revenue 
for the Government, and he has put that in his Budget, but the 
sad thing about it is recognizing that coal is going to 
continue to play a vital role, not only in producing 
electricity in our country, but also in China. There is not $1 
of that cap-and-trade revenue that is going to go into the 
carbon capture and sequestration research and technology, and I 
think that is a mistake.
    But I do look forward to the testimony of our witnesses 
today, and thank you for the hearing.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentleman from Utah, Mr. Matheson.
    Mr. Matheson. I will waive, Mr. Chairman.
    Mr. Markey. The Chair recognizes the gentleman from 
Georgia, Mr. Barrow.
    Mr. Barrow. I will waive.
    Mr. Markey. The Chair recognizes the gentlelady from 
California, Ms. Matsui.
    Ms. Matsui. Thank you, Mr. Chairman. I am very pleased to 
be here today, and I am glad that this subcommittee is taking a 
broad look at this issue; from meeting with the Secretary 
General of the United Nations on international strategies and 
getting into specifics of helping consumers with our panel 
today. On that topic, I would like to thank today's panelists. 
We appreciate your time and expertise on these matters.
    I think we all agree that as we craft a comprehensive bill 
we need to ensure that includes protections for consumers. The 
way we distribute allowances and who receives them will greatly 
impact our constituents across this country. That is why I look 
forward to hearing our panelists' advice on strategies that 
this committee can use as we draft this bill.
    We need to understand how to allocate allowances so that we 
can effectively reduce our overall emissions. We have a 
responsibility to ensure that consumers negatively affected by 
this bill see some relief, and we must also be aware that there 
are significant costs to our constituents that are associated 
with inaction.
    I hope our witnesses today can help us all understand the 
role that allocations can play as we craft a climate change 
bill. This is one of the most important topics we will consider 
during this entire process, and I am looking forward to today's 
    And once again, Mr. Chairman, thank you very much for this 
hearing. I yield back the balance of my time.
    Mr. Markey. The gentlelady's time has expired.
    The Chair recognizes the gentleman from Louisiana, Mr. 
    Mr. Scalise. Thank you, Mr. Chairman, and our panel.
    As this subcommittee considers climate change legislation, 
it is critical that we also weigh the effects that climate 
change legislation will have on American families, especially 
in these tough economic times. Creating a market for emissions 
will impose costs to consumers. This is just basic economics.
    Peter Orszag, now the President's Budget Director, has 
verified that energy taxes designed to decrease carbon 
emissions will be passed onto American families. Estimates show 
that the average annual household cost will be about $1,300 a 
year for a tax applied to a 15 percent cut in CO2 
emissions. Mr. Orszag admitted to Congress last year that the 
price increases borne by consumers are essential to the success 
of a cap-and-trade program. In fact, he stated, and I quote, 
``Decreasing emissions would also impose costs on the economy. 
Most of those costs will be passed along to consumers in the 
form of higher prices for energy and energy-intensive goods.''
    While we consider these increased costs for utilities, we 
must not overlook a very direct impact cap-and-trade 
legislation will have on American jobs. The National 
Association of Manufacturers estimates a net loss of three to 
four million jobs as a result of a cap-and-trade program. Other 
estimates reach as high as seven million jobs lost in our 
    And as we know, cap-and-trade will unfairly burden certain 
regions of our country more than others. In my home State of 
Louisiana we rely heavily on gas and nuclear for our 
electricity generation, and under current proposals nuclear is 
not considered a renewable source of energy, and as we saw here 
yesterday, Secretary General of the U.N. even acknowledges that 
he considers nuclear a renewable source of energy.
    So, Mr. Chairman, I urge caution as we pursue cap-and-trade 
legislation that could have a devastating affect on our economy 
and on American families, especially in these tough economic 
times. We are all working hard to advance renewable and 
alternative sources of energy, but it would be unwise for us to 
pass policies that will only hinder our economic recovery and 
place further hardships on American families.
    I look forward to hearing from our panel today. Thank you, 
and I yield back.
    Mr. Markey. OK. The gentleman's time has expired.
    The Chair recognizes the gentleman from Washington State, 
Mr. Inslee.
    Mr. Inslee. Thank you. Just to make a couple points, I 
really think this hearing could be turned totally on its head 
about protecting the consumers because it is very clear that 
even if we did not do anything to help consumers through this 
process of a cap-and-trade bill, even if we did nothing and we 
don't intend to do nothing, but even if we intended to do 
nothing, we would still reduce the damages that consumers will 
otherwise experience in the next several decades. And the 
reason is it is very clear that the path of inaction, the path 
of doing nothing about climate change, which is the path that 
many of the people in this room still want to pursue 
unfortunately, we do know that that path will have enormous 
costs to consumers.
    It was the poor folks in Chicago who died in the heat wave 
a couple of years ago. Those were the people who were packed 
into the pathology labs were the poor people. It is the people 
up in the Arctic who today are losing their livelihood. There 
are Americans today who are losing their ability to feed 
themselves in the Arctic today because of climate changes. It 
is the people in the agricultural sector who are picking our 
fruit and vegetables who are out of work today because of some 
changes in the climate system.
    So even in the absence of any action today to help 
consumers in the cap-and-trade system, we are preventing more 
damages those consumers and folks are going to experience in 
this country. So I don't think the path of inaction is the 
right one.
    Secondly, I just want to say that the one thing I learned 
in Europe, I went and spent a week there looking at their cap-
and-trade system, the biggest mistake they made was giving away 
all the permits because it was a scandal. They told me do not, 
whatever you do, don't give away all the permits. You will be 
politically embarrassed, and the reason is is because those 
costs then get, without adequate protection, pushed down to the 
consumer. We don't intend to make that mistake.
    Thank you.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentleman from Texas, Mr. 
    Mr. Gonzalez. Waive opening.
    Mr. Markey. The Chair recognizes the gentlelady from 
Wisconsin, Ms. Baldwin.
    Ms. Baldwin. Thank you, Mr. Chairman. Addressing climate 
change is truly a consumer protection issue as has been 
mentioned already. Today we will look into consumer protection 
policies for climate legislation. We must also keep in mind 
that by taking steps to address our greenhouse gas emissions we 
are protecting consumers for generations to come. If we fail to 
act comprehensively, the impacts will be felt through drastic 
losses; loss of life, loss of good health, species extinction, 
loss of ecosystems, and social conflict.
    I believe that a federal cap-and-trade system can be 
developed in a way that balances most of the negative effects 
on consumers against the need to address climate change threats 
to our economy, our environment, and our national security.
    In particular, we must design a system that minimizes 
potential negative aspects that many States, like my own 
midwestern State of Wisconsin, may face due to our significant 
industrial base and in the case of our State, our heavy 
reliance on coal for electrical generation. My home State is 
moving forward on its own goals to reduce our coal dependency 
and to lower greenhouse gas emissions. Our governor has 
committed the State to supporting a national economy-wide cap-
and-trade program. However, costs must be manageable and how we 
design this system will determine who pays and how much.
    In other words, distribution of allowances and how we 
apportion the revenue will be key to determining the costs and 
the consumer impacts. As we take the necessary and bold 
actions, we must be concerned about the impact of our actions 
on consumers, which I believe we can do if we keep in mind the 
diverse needs across our country and across American 
    I look forward to the witness testimony today, and thank 
you, Mr. Chairman, for this hearing.
    Mr. Markey. Thank you. The Chair recognizes that gentleman 
from North Carolina, Mr. Butterfield.
    Mr. Butterfield. Thank you very much, Mr. Chairman, for 
convening this very important hearing and especially to the six 
witnesses in front of me. Thank you for your participation 
    Mr. Chairman, this is perhaps one of the most important 
hearings that we have had to date. No other issue strikes 
closer to the central conflict in this bill, that is, the 
conflict between acting to prevent future climate catastrophic 
occurrences for future generations and protecting the current 
generation from bearing an undue burden. The CBO, the Center on 
Budget and Policy Priorities, Duke Power, have all projected 
the increased cost of energy to be substantial under a cap-and-
trade program. Of families in my district with a child under 
the age of five, 40 percent. Yes. Forty percent of those live 
below the poverty line.
    Now, when it comes to a necessity like energy, they cannot 
afford to projected increase. I sat down with my staff last 
night and we worked up a sample budget for a single mom with 
two dependents and making $8 an hour, and it just won't fit. 
These people are hurting, and they cannot absorb the increase 
in the cost of electricity.
    To that end I support disbursement of considerable auction 
revenue to be returned to low and middle-income households to 
offset the cost of our policy. The Chairman's bill last year 
took a promising approach to meeting this need by committing to 
completely offset energy cost increases for two-thirds of all 
U.S. households.
    Further, the CBPP has made extensive proposals to deal with 
this issue, and I eagerly anticipate Mr. Greenstein's 
testimony. Maintaining an approach that holds at least guilty 
consumers harmless in our policy is absolutely imperative. The 
problem offers us an opportunity, Mr. Chairman, to think 
creatively, employing a variety of techniques, from rebates to 
energy efficiency to mitigate the cost and make this thing 
    Now, Mr. Chairman, I am certainly not alone in this view. 
They have been expressed by many others. I have a letter with 
me today from the National Rural Electric Cooperative 
Association that I ask unanimous consent to include in the 
record today.
    Mr. Markey. Without objection it will be included.
    [The information was unavailable at the time of printing.]
    Mr. Butterfield. With that, Mr. Chairman, I yield back.
    Mr. Markey. Great. The gentleman's time has expired.
    The Chair recognizes the gentleman from Texas, Mr. Green.


    Mr. Green. Thank you, Mr. Chairman. I know my colleague 
from North Carolina was talking about Greenstein, Mr. Green 
Jeans, I have been called that a couple times, and I used to 
say it added about ten points to my name ID because that as a 
childhood--some of us watched Captain Kangaroo.
    I want to thank the Chairman for particularly including 
this in our series of hearings on consumer protection policy 
and climate legislation. While several of our subcommittee 
hearings thus far focused on efforts to protect our 
environment, I am pleased today to hear focus on equal-
important policy objectives that protect the U.S. consumer 
under any climate legislation. If we don't do that, no matter 
what else we try to do, it will not work, because the people in 
our country will respond. Those of us who to support some 
reasonable control, if we don't control the cost to the 
consumer, it is kind of like Social Security. I tell people, 
don't worry about Social Security. There will be a new Congress 
if we change Social Security to your detriment. And I think 
this could happen with us.
    I represent a predominantly blue-collar, low-income 
district where employees must work long hours and oftentimes 
double shifts just to make ends meet, and it is an energy-
producing district. It is the east end of Houston, Texas, 
Harris County, where we have petrochemical complexes, and we 
still produce natural gas and oil in our district. But I am 
also proud to have the largest bio-fuel refinery in the 
    With family budgets already stretched thin, any additional 
increase in electricity, natural gas, or gasoline bills as a 
result of climate legislation will necessitate tough family 
choices between whether to pay bills, put food on the table, or 
to purchase much-needed medication. Low-income households 
already spend more than five times their household income on 
energy than high-income households and less likely to be able 
to afford home weatherization services or to purchase more-
efficient appliances.
    And our climate change policy leads to--if our climate 
change policy leads to energy supply disruption and price 
spikes without effective remediation, consumers and voters will 
begin to question that policy. Perhaps one of the most 
important design elements with any cap-and-trade addressing the 
price impacts to the consumers is allocation of emission 
allowances and the distribution of auction allowance proceeds. 
As evidenced in the President's budget proposal, auction 
allowances have the ability to generate over half a trillion 
dollars to the Federal Government in less than 10 years alone. 
There will be huge demands for these funds, and consumers need 
more than the government's promise that they will receive 
future assistance to dampen the cost impacts of climate 
    In the power sector there is a growing consensus to 
allocate allowances to the local distribution companies or 
LDCs, which are required by law to act in the public interest 
and pass through allocation benefits to consumers. This 
proposal has merit and must be further flushed out to ensure 
utilities have the infrastructure in place to accurately 
collect consumer data that can target all needy consumers in 
the LCD allocation distribution but not disadvantage LDCs that 
serve low-income families with lower-per-capita energy 
    Mr. Chairman, I know I am out of time, so I appreciate your 
patience today.
    [The prepared statement of Mr. Green follows:]

    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentleman from Illinois, Mr. 
    Mr. Shimkus. Thank you, Mr. Chairman. I see we have no 
cameras again today.
    Mr. Markey. May I say, and we will just hold the time here 
that I already had this conversation with Mr. Barton, and we 
did make the request for these, for the, that portable 
equipment here, and I expected it to be here today, but we were 
told this morning that Armed Services and the Oversight 
Committee at full committee, there is only two of these 
portable systems that they have, and that they were having the 
hearings in their full committee rooms, and we could not, 
unfortunately, persuade them to move them over here.
    But that was my----
    Mr. Shimkus. No. I understand. I just----
    Mr. Markey [continuing]. Expectation this morning.
    Mr. Shimkus. Yes. And I understand, and I appreciate your 
effort. I just say if the world is coming to the end because of 
climate change, that this probably should take precedence over 
the military hearing or the oversight hearing. If the world is 
ending, the public ought to know about it. And I think we are, 
you know, it begs the question of how important these hearings 
are if we are not willing to televise them.
    We are on Universal Service Fund downstairs. It is an 
important issue to my district. I think if the world is ending, 
this is even more important that the Universal Service Fund. So 
I am going to continue to, as you would expect, to belabor the 
    Mr. Markey. And by the way, it is a point worth belaboring. 
OK. This is not something that I understand exactly why House, 
the House can't fix these cameras. OK. I don't understand it, 
and I don't understand how the House Armed Service Committee 
and House Oversight Committee doesn't have rooms that have a 
camera in them. I don't----
    Mr. Inslee. Mr. Chairman.
    Mr. Markey. Yes.
    Mr. Inslee. I just want to report that my constituents, 
they do believe the world is ending in not being able to see 
John Shimkus. Believe me. This is a perception that is shared 
widely in my district. I just wanted to----
    Mr. Markey. I am going to work very hard to solve this 
problem, but, believe me, I have learned more about the 
operations of cameras in committee rooms in the last 1 week 
since your point has been made, very validly, by the way.
    Mr. Shimkus. About the only thing I can get done in this 
Congress, Mr. Chairman.
    Mr. Markey. That is not so. That is absolutely not so.
    Mr. Shimkus. But, thank you.
    I have talked about the job loss issue. Kincaid, Illinois, 
1,200 mines because of the 90 amendments. Last hearing I had, I 
talked about 14,000 mine workers just in southern Illinois 
losing their jobs. It is great we got the Ohio Coal Association 
here, and in his testimony on--I will just read it. ``In the 15 
years following the 1990, passage of the Clean Air Act, which 
imposed drastic reductions in coal production, Ohio lost nearly 
120 mines, costing more than 36,000 primary and secondary jobs. 
These impacted areas of my State, the State of Ohio, that have 
spent years recovering and some never will,'' and sir, that is 
southern Illinois. Exactly the same.
    And the more and more we learn about climate change and 
cap-and-trade, the more you find out that, what this is all 
about. This is about a simple premise of monetizing carbon, and 
what it will do, it will pay people not to manufacture. If you 
have a coal-powered plant, and you have credit, and there is a 
trading floor, you can shut that power plant off and make 
money. Simply put. And whose money is it? It is the rate 
payers' money. It is taxes. It is earning income that is going 
to go away. This is probably the number one biggest 
distribution of wealth plan that this country has ever seen, 
and that is why these things have to be covered, televised. And 
that is why some of us are skeptical that the truth is being 
inhibited from being told to the public.
    One hundred percent option will pay people to stop 
generating electricity. Well, pay them. That is not a policy 
that we want. It deprives us of our economic livelihood. It 
distributes wealth around the world. It is bad policy. We are 
going to fight it.
    Mr. Markey. I thank the gentleman.
    And I would just make this note. When we are talking about 
televising, we are talking about televising on the internal 
House system so that members and staffs in their offices can 
see this subcommittee hearing. We are not talking about C-Span.
    Mr. Shimkus. No. Would the gentleman yield?
    Mr. Markey. I will just finish the point. What C-Span has 
to decide on a daily basis as an editorial decision is which 
committee hearings they are going to actually put on C-Span. 
And so this hearing right now would be competing with about 
another 30 hearings on the House and Senate side as to whether 
or not they would actually broadcast it on C-Span.
    So what we are talking about principally here is that other 
offices can see this hearing rather than----
    Mr. Shimkus. No. That is--Mr. Chairman, if the Chairman 
would yield, that is not directly true. We, this also could be 
streamed online right now.
    Mr. Markey. But that is not accurate.
    Mr. Shimkus. And the other thing is C-Span will air 
hearings throughout the weekend and not in real time. So I 
understand your point.
    Mr. Markey. I understand.
    Mr. Shimkus. If the firm doesn't think we are going down 
the wrong path----
    Mr. Markey. No. I agree with--again, I agree with you. I 
agree with you, and this audio stream is going out, and there 
are print press here that are reporting what happens here, but 
I agree with you 100 percent. I wish that this was being 
    Let me now turn and recognize the gentleman from Vermont, 
Mr. Welch.
    Mr. Welch. Thank you, Mr. Chairman. I will waive my opening 
    Mr. Markey. The Chair recognizes the gentleman from Texas, 
Mr. Burgess.
    Mr. Burgess. Thank you, Mr. Chairman, and I appreciate you 
having this hearing, and I know you are working as hard as you 
can to get the television cameras turned back on.
    We have to face the stark reality that the United States as 
a Nation is getting older, and we may be looking at a time in 
the not too distant future where those who could least afford 
to pay for more, more for their energy needs are exactly those 
who are going to be affected under a cap-and-trade regimen.
    Last August the United States Census Bureau reported that 
today 40 percent of the United States' population is over the 
age of 45, and according to their projections 43 percent will 
be over the age of 45 in 2025. In addition, we have a shrinking 
population under the age of 18, so we are talking about a large 
majority of our population who are either past their peak 
earning years so it will be more difficult for them to pay 
higher energy costs or will be living on a fixed income. People 
on a fixed income cannot afford increases in their monthly 
energy bills. In fact, it is the antithesis of a compassionate 
society that charges more for energy for those who can least 
afford it.
    Even more troubling is the realization that every worker 
who retires is not replaced with another equal-wage earner. So 
when you look at these numbers you begin to see that we are 
looking at a potentially very troubled scenario in the earning 
situation in America's future, which will be directly impacted 
by high costs for energy.
    People take less flights, drive less, buy smaller houses, 
use less energy, all that may be to the good, but if the goal 
of cap-and-trade is to reduce the use of energy, then maybe it 
is not the best strategy. Based upon these projections from the 
United States Census Bureau, in 2025, the majority of our 
population is not going to be able to afford the amount of 
energy they use today, even without a new tax through cap-and-
    So, Mr. Chairman, I am anxious to hear from our witnesses 
today about how we can protect consumers from increased energy 
costs and as a result of what we are going to do in this 
committee with our cap-and-tax regimen.
    With that I will yield back my time.
    Mr. Markey. Great. The gentleman's time has expired. The 
Chair recognizes the gentleman from Texas, Mr. Hall.
    Mr. Hall. Mr. Chairman, thank you. I will be very brief, 
and I don't know what has been testified to. I have seen some 
of the testimony, but I just make the simple statement that any 
cap-and-tax or cap-and-energy tax and scheme is going to create 
a regulatory nightmare that we can't live with. But we know 
that, Mr. Chairman, and I admire you and respect you and you 
know it, and you have numbers on us, and you are going to pass 
whatever you hand out over there.
    I think I have quoted this to you before back through the 
28 years we have been sitting together here, said the young 
madam of Siam to her lover, young Kiam, ``If you kiss me, of 
course, you got to use force, but God knows you are stronger 
than I am.'' So you are going to pass it, but I just urge you 
to be as kind and gentle with the taxpaying public as you can.
    I yield back my time.
    Mr. Markey. Honestly, Ralph, I see this as something--my 
goal is like the Telecommunications Act of 1996, that wound up 
at 423 to three, that ultimately we should all work it out, and 
it should be us in Boston as it always is and----
    Mr. Hall. Were one of the three?
    Mr. Markey. I can tell you who those three were, and it is 
a good story. Each one was a good story.
    Mr. Hall. OK. I will still yield back my time.
    Mr. Markey. Great. The gentleman's time has expired.
    The Chair does not see any other members seeking 
recognition at this time. So we will turn to our very 
distinguished panel, and we will ask our first witness, Mr. 
Steven Kline, to begin testifying.
    Steve is the Vice-President of Corporate Environmental and 
Federal Affairs for the Pacific Gas and Electric Corporation. 
PG&E Corporation is an energy-based holding company based in 
San Francisco. He has worked extensively on all of these 
issues. We welcome you, sir.


                    STATEMENT OF STEVE KLINE

    Mr. Kline. Good morning, Chairman----
    Mr. Markey. If you could move that microphone in a little 
bit closer.
    Mr. Kline. Certainly. Is that better?
    Mr. Markey. Yes. Please.
    Mr. Kline. Ranking Member Upton, and members of the 
committee. Thank you for the opportunity to be before you 
today. PG&E is one of the Nation's----
    Mr. Markey. Move it in just a little bit closer.
    Mr. Kline. PG&E is one of the Nation's largest utilities 
and has long been working on clean energy, energy efficiency, 
and the effort to address climate change. We strongly support 
comprehensive climate change legislation. In our view the best 
solution is a well-designed, economy-wide, market-based cap-
and-trade program.
    In my written testimony I have defined well-designed by 
detailing certain basic building blocks as the foundation for 
any cap-and-trade effort. But also to state that even with the 
best design consumer protections are going to be critical. For 
electricity and natural gas consumers one of the most 
effective, efficient, and transparent ways to accomplish this 
is by directing allowance value to regulated local distribution 
companies or LDCs where it can be put to the benefit of 
consumers. In fact, LDCs are virtually tailor made for this 
role. They are closest to the end-user consumer, they 
understand better than anyone how to work with individual 
customers in their area, and in many cases, like PG&E, they 
already run existing initiatives like energy efficiency, low-
income programs, and others which can serve as the 
infrastructure for delivering value back to customers.
    Most importantly, LDCs operate under the direct oversight 
of State utility commissions or other governing boards. This 
provides the means to assure that the value of the allowances 
is returned to consumers in a timely, targeted, and transparent 
manner that overall advances the objectives of the National 
Climate Program.
    There are important built-in advantages that lend 
themselves ideally to this task at hand, and we believe 
Congress can take full advantage of them. In order to do that, 
we recommend the following framework.
    Allowances should be allocated to LDCs. LDCs would then 
sell the allowances and use the proceeds to buffer consumer 
impacts in a way that doesn't undermine the incentive to reduce 
their usage and hence emissions. Congress should set guidelines 
for using allowance value, require timely and transparent 
reporting on how to allocate, and how the value is used.
    Allowance value provided to LDCs for consumer benefits 
should obviously fall under the guidance of State public 
utilities commissions. LDCs should be required to invest the 
revenue from selling allowances solely to benefit consumers. 
This includes investing in programs to assist low and moderate-
income consumers, small businesses, as well as to advance 
energy efficiency and reduce demand.
    This point is critical. Energy efficiency and demand 
reduction are two of the best ways to sustainably contain costs 
for consumers and do it in a manner that improves their comfort 
and standard of living. In fact, many States have comprehensive 
energy efficiency programs that save customers $2 to $4 for 
every dollar invested. These programs also create significant 
new energy service jobs and through increased efficiency drive 
broad economic growth.
    We are convinced that if one of the goals of a national 
program is increasing energy efficiency and lowering demand, 
that no better mechanism exists than directing allowance value 
through LDCs, and leveraging the established relationships 
between LDCs and their customers provides the best opportunity 
for success. It is worth noting that PG&E is not alone in 
supporting LDC allocations. Others include the NARLC, National 
Association of Regulatory Utility Commissioners, the Natural 
Defense--I am sorry. Natural Resources Defense Council, 
Environmental Defense Fund, the National Commission on Energy 
Policy, U.S. Climate Action Partnership or U.S. CAP, the Clean 
Energy Group, the Edison Electric Institute, the American Gas 
Association, and the American Public Gas Association. These are 
submitted as attachments to my prepared testimony.
    In closing, let me say that our country has a historic 
opportunity to change the way we produce and use energy, 
producing huge environmental and economic benefits, but this is 
a long journey. It has to be sustainable over time, and that 
means we have to take careful steps at the outset to assist 
consumers along the way. We believe LDC allocations are one way 
to do that. Thank you.
    [The prepared statement of Mr. Kline follows:]

    Mr. Markey. Thank you very much, Mr. Kline.
    Our next witness is Mr. Sonny Popowsky, Consumer Advocate 
of the State of Pennsylvania, where he represents consumer 
matters with their utility companies. We welcome you, sir, and 
whenever you are ready, please begin.


    Mr. Popowsky. Thank you, Mr. Chairman, Mr. Upton, members 
of the committee. My name is Sonny Popowsky. I have been the 
Consumer Advocate of Pennsylvania since 1990, and I have been a 
member of that office since 1979. My office is also a member of 
the National Association of State Utility Consumer Advocates.
    Let me state at the outset that the National Association, 
NASUCA, supports the enactment of federal legislation to reduce 
greenhouse gases on an economy-wide basis. As representatives 
of utility consumers, however, it is NASUCA's position that any 
greenhouse gas emission reduction program for the electric 
industry should provide appropriate emission reductions while 
minimizing the cost to consumers and must not produce windfall 
gains for electric generators at the expense of electric 
    Now, the primary focus of the Congressional debate has been 
on the development of a cap-and-trade program for carbon 
dioxide. I think that is understandable given the success from 
an economic perspective of the Clean Air Act of 1990, with 
respect to the reduction in sulfur dioxide emissions.
    But Congress must recognize that the electric industry of 
2009, is far different from the electric industry of 1990, 
particularly in those States such as my home State of 
Pennsylvania that have restructured or deregulated the 
generation function of our electric utilities. What worked to 
reduce pollution at reasonable costs for the United States 
Electric Industry of 1990, could well result in much higher 
costs to consumers and many billions of dollars of unnecessary 
payments to generators in the electric industry of 2009.
    This difference is most clear in the question of how to 
distribute emission allowances among electric providers. In 
1990, under the Clean Air Act allowances were initially 
allocated at no charge to utility generators, but the benefit 
of those free allowances in 1990, could be flowed back to 
customers through cost-based rates throughout the Nation. To 
the extent that the utilities incurred costs to comply with the 
Act through adding scrubbers or buying lower sulfur coal, those 
costs were passed through to customers but no more than that.
    The same is not true in the electric industry in 2009, 
particularly, again, in States like Pennsylvania and other 
restructured states where electricity is no longer regulated on 
a cost basis but on a market basis.
    So the first point to recognize is the one that you made, 
Chairman Markey, which is that if you give away an allowance to 
an unregulated generator, they are going to charge us for them 
anyway. Because in the unregulated markets like the market that 
we are a part of, the market value or opportunity costs of that 
allowance will still be reflected in the price that is charged 
by that generator. Your analogy to the scalper outside Boston 
Garden is exactly correct. That scalper won't pick up the 
ticket and give it away. The scalper will pick up the ticket 
off the ground and sell it at the market price.
    The second point is that the way our markets work and it is 
what is called the single market clearing price in the 
restructured markets, which, again, not just Pennsylvania but 
in these markets that are in a large part of the country, the 
single market price works that the highest cost unit that is 
operating in that given hour sets the price for the whole 
market. So if that high-price unit is a coal or even a gas unit 
that includes the cost of the--or the opportunity cost of the 
credit, that amount gets charged, gets paid to everyone, 
including, for example, nuclear units that don't have any 
emissions costs, that don't have to buy allowances but they 
will still get paid an amount in their charges as if they were 
incurring these costs.
    So the single-market clearing price would work, it is as if 
in your analogy, Chairman Markey, if the scalper charged $100 
to get into the Garden, everybody got charged $100. That is the 
way it works. Everybody would have to pay the highest price. So 
that is another source of tremendous cost to customers under a 
cap-and-trade program if we think it is still 1990.
    Well, I think I agree with Mr. Kline, though, in that one 
way to address this is not to give away allowances to 
unregulated generators, but you can get around at least part of 
this by giving the allowances to the regulated distribution 
companies; the state regulator investor owned companies, the 
coops, immunities, and the other public power organizations. If 
we give the allowances to the regulated entities, at least we 
can make sure that to the extent those allowances are sold that 
the benefits go to consumers.
    That similar result can occur, as you know, in the RGGI 
states in the Regional Greenhouse Gas Initiative where the 
states can serve a similar role and can sell the allowances to 
the generators, but make sure that the allowance benefits go to 
customers, and the same could even be done at the federal 
level, but, again, the further away we get from the customer, 
the more it concerns me that the benefits of the allowances 
will not go to the customers.
    My last point is that simply raising the price of 
electricity through a cap-and-trade system is, I think, harmful 
and not the most cost-effective way to reduce emissions. We 
need complimentary policies such as increased energy efficiency 
and replacement of existing high carbon units with low or no 
carbon-emitting units. We need these complimentary policies 
that are designed to reduce costs for consumers and provide the 
environmental benefits at the lowest cost.
    Thank you.
    [The prepared statement of Mr. Popowsky follows:]

    Mr. Markey. OK. Thank you, Mr. Popowsky, very much.
    Next witness is Mr. Robert Greenstein. He is the Founder 
and Executive Director of the Center for Budget and Policy 
Priorities. He was recently honored with the Heinz Award for 
Public Policy to recognize his work in improving, the economic 
outlook of low-income Americans. And he has also won the John 
W. Gardner Award. We welcome you, sir.


    Mr. Greenstein. Thank you very much, Mr. Chairman, and in 
this testimony I will provide a different view than those you 
have just heard.
    Climate change policies can be designed in a way that 
preserve the incentives from higher energy prices while using 
proceeds from auctioning allowances to shield consumers. But to 
do that it is essential that most or all of the permits be 
auctioned rather than given away free. An argument is sometimes 
made that if the permits are given away free, costs to 
consumers won't rise as much.
    Economists across the political spectrum reject that 
argument. It ignores the basic laws of supply and demand. If 
allowances are given away free to firms that emit, the firms 
and their shareholders will reap on warranted benefits. The 
Congressional Budget Office has explained that and said that 
the result would be windfall profits. Former President George 
W. Bush's Chief Economic Advisor, Greg Mancue of Harvard, has 
explained the same thing and said the result would be large-
scale corporate welfare.
    Most of the Center on Budgets' work on climate policy has 
focused on developing proposals to shield low and moderate-
income households from increased poverty and hardship as a 
result of climate policies in a way that would be effective in 
reaching these households, efficient with low administrative 
costs, and consistent with energy conservation goals without 
lessening incentives to conserve.
    With these goals in mind we have designed a climate rebate 
that would offset the average impact of higher energy-related 
costs on low and moderate-income households. The energy would 
be delivered in two ways.
    For very-low-income households it would be programmed onto 
the debit cards that every State runs through State electronic 
benefit transfer systems. These are the debit card systems 
States already use to deliver food stamps and other forms of 
assistance to low-income families. You simply take everybody 
who is getting food stamps, everybody who is on the low-income 
subsidy for the prescription drug benefit. You just 
automatically program them onto the debit card.
    For low-income working families we already addressed the 
earned income tax credit each year for inflation. You just 
adjust it further for the energy price impact. What you now 
have is we have covered the bulk of the low-income population. 
Others who aren't in one of those two could apply. You have 
done it without creating a new bureaucracy, hardly any new 
administrative costs, no big amount of new paperwork, very 
    We would also provide some additional money, must lesser 
amount, to the Low-Income Home Energy Assistance Program to 
fill gaps that otherwise aren't filled by the rebate.
    Now, recently, we have modified this proposal. So instead 
of just being for low and moderate-income households, it is low 
and middle-income households as well. That is not hard to do. 
We remove the earned income credit component, and we replace it 
with a tax credit that covers middle-income families and the 
working poor as well.
    How far up the income scale that will go, what the exact 
size of the rebate would be, that is up to you. You could--
depends on what proportion of the permits you wanted to vote to 
this mechanism. But all of the variations that we have 
developed have one common principle. They all fully offset the 
average hit on low-income consumers because climate policies 
need not and should not push more Americans into poverty or 
make those who are poor already poorer.
    Now, we have been working on this for a year and a half, 
and we make these recommendations after careful examination of 
other approaches to consumer relief. I am afraid that other 
approaches have serious flaws. We are particularly concerned 
about approaches that rely on utility companies to provide 
consumer relief and proposals that would cut tax rates as 
distinguished from providing a tax credit.
    Let us take the tax rate. CBO has analyzed proposals that 
would auction the proceeds and use them to lower tax rates 
across the board. What they find is the bottom 60 percent of 
the population is worse off, the tax reduction is less, the 
farther down the income scale, the greater degree. The degree 
to which it is less than the increase in energy prices. At the 
top of the income scale you get a tax cut that exceeds your 
income, your increase in energy prices. So that is clearly not 
a promising approach.
    Turning now to the utility company approach, let me be very 
clear that I do think that allocations to utility companies for 
energy efficiency improvements is something that merits very 
serious consideration. I am distinguishing that from 
allocations to utility companies for consumer relief, an 
approach that is deeply problematic for a number of reasons.
    First, utility companies do not routinely collect 
information on their customers' income, and, therefore, can't 
target it on low and moderate or lower and middle-income 
households. To do so they would have to set up new 
bureaucracies to collect income information and audit it, and 
they would turn to the Federal Government for billions of 
dollars of subsidies that would be needed to pay the cost of an 
administrative infrastructure that would duplicate what public 
programs already do.
    Secondly, we have an issue of millions of renters who don't 
pay utility bills directly but have them reflected through the 
    Thirdly, and particularly important, the utility company 
approach is aimed at electricity and natural gas bills. Over 
half of the impact on consumers of climate change legislation 
will come in other areas. Impacts on gasoline and in particular 
for all sorts of other goods and services, food and many other, 
any service that uses energy in the manufacture or transport to 
market is affected, you can't cover that through an allocation 
to the utility company.
    Fourth, there is no good formula for allocating emissions 
among the more than 3,300 LDCs in the country. I won't take the 
time to do it here but--in my oral testimony but almost any 
formula that has been suggested results in significant 
inequities, in many cases particularly to low and moderate-
income communities.
    Fifth, limiting consumer assistance through utility 
companies artificially lowers households' utility bills and 
thereby reduces the incentives to conserve that are part of 
what we are trying to accomplish in the first place.
    Last and most important, the approach would necessarily 
fail. Bear with me for a moment. Let me just try and do some 
basic economics. We have a cap, and we give money to utility 
companies, and they keep electric rates down, then you do not 
get as much reduction in use of electricity. But the cap is 
still at the same level. So if you don't get as much reduction 
in electricity use, you have to get a bigger reduction in other 
energy use. What that means is the costs of meeting the cap go 
up. The price of the emissions allowances ends up being higher, 
and consumer costs go up more for other kinds of energy while 
they go up less for electricity.
    Bottom line we spend tens of billions of dollars giving 
allowances to the LDCs, and consumer impacts don't go down that 
much because other energy prices are jacked up in return. The 
bottom line is it ends up being kind of wasteful and 
    Mr. Markey. I apologize to you, Mr. Greenstein, but you are 
now 3 minutes over.
    Mr. Greenstein. I am sorry. I got one final sentence?
    Mr. Markey. One final sentence.
    Mr. Greenstein. The main form of criticism is that this 
would represent a tax increase. What I am proposing answers 
that criticism. You use the money for the broad middle class 
and the working poor for an offsetting tax cut. There is not 
net tax increase, and we protect people at the bottom. Answers 
the main criticism efficiently.
    Thank you.
    [The prepared statement of Mr. Greenstein follows:]

    Mr. Markey. Thank you, Mr. Greenstein, very much.
    Our next witness is Mr. Steven Hayward. He is an F. K. 
Weyerhaeuser fellow at the American Enterprise Institute, while 
focusing on the environment he has worked with a wide range of 
public policy issues. He is also the co-author of the Annual 
Index of Leading Environmental Indicators. We welcome you, sir.


    Mr. Hayward. Thank you, Mr. Chairman, and members of the 
committee for the invitation.
    At the American Enterprise Institute we try to take the 
long view of things, and so my own work and the work of about 
seven of us right now at AEI is trying to clarify the scope and 
challenge of reducing greenhouse gas emissions by 80 percent 
from 1990, levels by the year 2050, a level of emissions it 
turns out that the U.S. last experienced around the year 1910, 
when our population was about 92 million people. But in 2050, 
our population will be about 420 million people, which means 
our per capita greenhouse gas emissions will need to be about 
2\1/2\ tons down from 19\1/2\ tons today or 10 tons in 1910.
    What this means in one sentence is that attaining this 
target will require essentially replacing almost the entire 
fossil fuel energy infrastructure in the United States in the 
next 4 decades. Now, obviously you can't make a target like 
that in a single leap or even a series of leaps, and so what we 
are trying to do is get a grasp of the various scenarios of 
developing and scaling up potential technologies and what 
policy strategies might get us there.
    So the time being that we and lots of other people are 
talking about emissions trading, cap-and-trade, or straight up 
carbon tax, which like most economists we think is more 
efficient but obviously politically problematic. Still the 
seven of us at AEI have vigorous arguments about various parts 
of this, and it strikes me that if seven reasonably like-minded 
people, economists, one scientist, several lawyers, if seven 
like-minded people are wrestling with the problems of this, how 
much more difficult it is for you all in Congress with many 
more moving parts to worry about than we do, to wrestle with 
the policy.
    And it is also sobering to think that even if either carbon 
tax or the first round of cap-and-trade works according to 
plan, it gets us maybe 5 percent towards that 2050 goal. I am 
not even sure that qualifies as a leap. It is more like two 
hopscotch squares. Still we have to start somewhere, and it is 
difficult to estimate what it is going to cost because a lot 
will depend on whether we auction some, half, or all the 
permits or allocate them for free as has been mentioned 
already. There is some low-end estimates if you give a lot of 
them away, assuming that the savings will be passed onto 
consumers. The caveats have already been made about that. To 
very high if they are auctioned and so forth.
    But still, I think we should take President Obama at his 
word when he told the San Francisco Chronicle last year that, 
``Electricity rates would necessarily skyrocket,'' and they 
would pass this cost onto consumers. Well, these issues are 
well known. I think less well known or harder to work out are 
some of the what I call asymmetries in energy use, and here is 
where, without disagreeing with Mr. Greenstein's proposal, I am 
a little skeptical that there is this problem.
    There is lots of variation across the country from State to 
State, even within States on energy use, having to do with 
climate variations, you know, the source of energy, high coal 
States, cold States, western States that have what the 
Department of Energy calls fewer degree cooling and heating 
days. And so that means that to make a scheme work, that means 
you are going to have to figure out some regional and even in-
State variations, which necessarily adds the bureaucracy of the 
matter. Not impossible but it is something that has to be 
wrestled with and has to be worked out.
    The other thing I would mention is, very quickly, is 
something I left out of my prepared remarks is indirect energy 
use, and this is something that we have just started to publish 
on at AEI, one paper just in the last few days. Most of the 
conversation here and elsewhere on the subject is talking 
about, you know, utility rates and you know, the energy that 
goes into direct energy, electricity generation and so forth.
    We have been looking at trying to calculate how much energy 
is used indirectly. Simple example would be the can of soup 
made by Campbell's or some soup company. It is, you know, a 
heavy thing, you know, make it, put it in the can, and then put 
it on a truck somewhere to get it to markets. And it turns out 
that our calculation is about almost half of energy use in this 
country is used indirectly. Pharmaceuticals use a lot of energy 
in their production and distribution. The healthcare industry 
uses a lot of energy, and we have also now done this by the 
income scales, and so the lowest tenth decile of income earners 
we estimate spend about 5 percent of their income on energy 
    And so a lot of the schemes talked about here today, 
whether it is an energy rebate as Mr. Greenstein says, or 
something to the utilities as Mr. Kline says, probably has 
trouble reaching to those added costs that consumers will bear, 
and so even if we work on, you know, some scheme that keeps 
consumers reasonably whole on electricity rates, we are 
probably going to see consumers paying more for goods and 
services like in a manner that they will, an amount that they 
will notice.
    Thank you.
    [The prepared statement of Mr. Hayward follows:]

    Mr. Markey. Thank you, Mr. Hayward, very much.
    Our next witness is Mr. Mike Carey. He is the President of 
the Ohio Coal Association. As the leader of a trade group with 
over 40 producing members, he has gained a wealth of knowledge 
of the coal industry. And we welcome you here today, Mr. Carey.

                    STATEMENT OF MIKE CAREY

    Mr. Carey. Thank you, Mr. Chairman, members of the 
committee. I want to thank you for the opportunity to speak to 
you today on the potential impact of climate change and how 
those proposals affect America and the middle class.
    My name is Mike Carey, and I represent the Ohio Coal 
Association. We are a trade organization that roughly 
represents 40 coal-producing companies and 50 affiliated 
industries. In those companies we directly employ close to 
3,000 individuals in and outside of the mines. The secondary 
jobs associated with those are roughly 33,000. It is because of 
these stakeholders and the thousands of Ohioans who rely on our 
State's coal industry for their livelihoods and the millions of 
Ohioans who enjoy lower-than-average electricity rates because 
of coal is why I am here to speak to you today.
    In the coming weeks you will be asked to consider a number 
of proposals that purport to address the perceived manmade 
climate change issue. Many of those proposals offer extremist 
approaches that threaten the very consumer protections set 
forth by the U.S. Congress. You have a unique opportunity to 
learn from history and make your decisions based upon not 
negatively affecting your customers.
    Fifteen years ago, roughly over 15 years ago the 1990 Clean 
Air Act was passed. In that time period Ohio alone as 
Congressman Shimkus mentioned, lost nearly 120 mines. 
Associating with that close to 36,000 individuals lost their 
jobs. When you consider the basic facts, the picture is even 
clearer. Coal-fired power plants produce anywhere from what 
National Mining Association said just a couple days ago, 27 
percent of the world's electricity, to the industrialized 
world, which is 40 percent. If you look at the United States, 
it is over 52 percent, and in Ohio we are close to 90 percent. 
U.S. Energy Information Industry has also--or Administration 
has also estimated that electric rates would actually, we would 
need 40 percent more by 2025.
    There are three core reasons that climate change 
legislation must be considered in the context of consumer 
protection. One, the effect the extremist proposals would have 
on our direct coalmining and affiliated jobs. Two, the effect 
that a loss of coal production would have on our region's 
employers, particularly those with energy intensive 
manufacturing sector. And three, the impact that eliminating or 
drastically reducing the use of coal as a resourced electricity 
would have on electric rates and on the consumers who 
ultimately pay them.
    Some climate change legislative proposals would force us to 
limit the use of coal, and yet no other source can replace coal 
at the same cost. There are some groups, you have probably seen 
the commercials, that oppose coal altogether. These are also 
many of the groups that oppose the use of nuclear energy. 
Natural gas is great. It is domestic. Unfortunately, it can be 
almost three times the cost of coal, and there are distribution 
    Some continue to encourage the subsidy of alternative 
energy sourcing, which we apply, but unfortunately, energy 
sources like solar, wind don't have the capability to replace 
the existing fleet and also have high initial costs. While 
increasing the role of renewable energy is a laudable goal, it 
is simply not a comprehensive solution to address our Nation's 
rapidly-growing demand for electricity.
    First and foremost proposals for cap-and-trade legislation 
constitute little more than a coal tax on Ohio's coal 
producers. Mandatory carbon emissions will bring deep, sweeping 
reductions in coal production and will cause much greater 
economy carnage and reductions in the quality of life and the 
standard of living of the thousands of Ohio workers who rely on 
the coal industry.
    Coal is a major industry in the State of Ohio, and yet over 
the last few years we have seen our coal production remain 
somewhat static. We cannot afford to lose those high-paying 
coal jobs, particularly in these challenging times.
    Secondly, coal impacts many industries like I mentioned 
earlier with the, with energy, massive energy-consuming 
industries. Cap-and-trade legislation would hurt those Ohioans 
who work in those industries and not just those who actually 
are employed in the coal mines.
    But I think finally, perhaps the most important, it cannot 
be overstated that reducing or eliminating coal from our 
electricity, what effect it will have on the ultimate consumer. 
The human toll would be substantial. Even the bipartisan 
Congressional Budget Office has agreed that almost one, the 
lowest one-fifth of the U.S. population would suffer the worst 
losing about 3 percent of their take-home income. Clearly, the 
most vulnerable population cannot withstand this hardship.
    Today low-cost electricity is a staple of life for all 
Americans. Further, coal-fired electricity is by far the lowest 
cost option available to consumers. Our message to you is that 
coal represents our Nation with tremendous economic benefits 
and even greater potential in the future.
    Our industry has made significant improvements since the 
1970s, but I want to leave you with one final thought. Access 
to reliable, affordable energy supplies is the core tenant of 
economic growth, and the U.S. Energy Policy must be feasible to 
implement economically beneficial and environmentally sound. 
That could be achieved without passage of unreasonable measures 
that would put my industry out of business, threaten job 
providers who need a ready supply of low-cost electricity to 
power their operations, and eliminate the affordable 
electricity that not just our region's working families but our 
region's individuals that are on fixed incomes have come to 
count on, especially during these hard economic times.
    I thank you for the opportunity and appreciate any 
questions that you may ask.
    [The prepared statement of Mr. Carey follows:]

    Mr. Markey. Thank you, Mr. Carey, very much.
    And our final witness is Mr. John Hill. He is the Director 
for Economics and Environmental Justice for the United 
Methodist Church. He has worked on issues of global warming and 
worker justice as the Chair of the Policy Committee for the 
National Council of Churches, Eco Justice Working Group. So we 
welcome you, sir. Whenever you are ready, please begin.

                   STATEMENT OF JOHN S. HILL

    Mr. Hill. Thank you, Chairman Markey, Congressman Upton, 
members of the committee. I appreciate the opportunity to 
testify before you today.
    As the Chairman said, my name is John Hill. I work with the 
General Board of Church and Society, which is the Social 
Justice Agency of the United Methodist Church. Our church has 
around 11 million members across Asia, the United States, 
Europe, and Africa.
    In addition, I am here representing the National Council of 
Churches, an organization that represents roughly 35 member 
communions, Christian communions, over 100,000 congregations 
and approximately 45 million people here in the United States.
    Let me begin by stating unequivocally that the United 
Methodist Church and the National Council of Churches take 
seriously our call to be faithful stewards of God's earth and 
to love our neighbors, and we believe global climate change is 
a real and growing threat to creation with profound and 
potentially devastating environmental economic and social 
consequences. For over 15 years we have worked to educate and 
equip our members and congregations to take action to reduce 
our own contribution to climate change and have petitioned our 
government to provide strong leadership and develop domestic 
and international frameworks to lower greenhouse gas emissions.
    In recent years the faith community has developed a set of 
principles on global warming, principles that represent key 
tenants of our faith traditions and provide the lens through 
which we consider potential policy solutions. Those four 
principles are justice, stewardship, sustainability, and 
    Justice is our first principle and for a very specific 
reason. God calls us to serve those living on the margins of 
society and to protect those individuals and communities living 
in poverty, whether in the United States or around the world. 
Quite frankly, for too long climate change advocates have 
minimized the potential impact of climate legislation on the 
poor, and opponents have used such impacts as a justification 
for inaction.
    Neither course brings us closer to a just future, and 
neither serves the interests of those we are called to be in 
ministry with. I applaud the leadership of this committee for 
holding today's hearing where we can explore another way, a 
course the provides strong emissions reductions and protects 
low-income individuals and vulnerable communities. We believe a 
just climate policy must first and foremost contain effective 
and mandatory emissions reduction targets in order to prevent 
catastrophic impacts for the people and planet we are called to 
    While this morning's hearing focuses on the critical issue 
of how climate legislation will impact consumers, as many of 
you mentioned in your opening statements, let us not forget the 
devastating impacts of inaction, rising sea levels, more 
intense storms, floods, droughts, and spreading disease factors 
affect those living in poverty, communities of color, and other 
vulnerable communities first and hardest. The Gulf Coast 
hurricanes of 2004 demonstrated all too painfully the 
devastating consequences that occur when storms of nature 
interact with the manmade storms of poverty and racism that 
batter daily communities in the United States and around the 
    Our churches were on the front lines and continue to 
provide aid and assistance to those struggling to rebuild, as 
we will be in every disaster that may come.
    And as someone who serves a global church, I am keenly 
aware of the cost of inaction on my brothers and sisters in 
Africa. Rosemary Miega, who is a woman who founded a farming 
co-op in Uganda told me last year of how her growing seasons 
are shifting because of climate change. Now, for most of us, 
those of who live in the United States, particularly in cities, 
if the rain falls a few weeks late, there is little impact on 
our lives. For Rosemary and her community that shift means crop 
failure and famine.
    Last year the African bishops of the United Methodist 
Church issued a call for action on poverty and recognized that 
we cannot separate the plight of the poor from the plight of 
the planet and must act now to protect both. Inaction is simply 
not an option for the community of faith.
    But likewise, action must be centered on a vision of 
justice for all God's people. In developing policies we must 
ensure that the solutions protect the needs of the poor, that 
we don't push families deeper into poverty due to higher 
energy-related costs.
    The good news is is that there are proposals such as those 
outlined by the Center on Budget and Policy Priorities that we 
believe can efficiently, effectively, and justly provide 
benefits to offset these cost increases for low-income 
individuals and families.
    We support using established and proven methods to deliver 
benefits for low-income consumers that provide funds sufficient 
to offset all energy-related price increases. Mechanisms such 
as those outlined by my colleague from the Center could provide 
this benefit, and we believe could adequately address many of 
the valid concerns raised by Mr. Hayward with regards to 
indirect energy costs.
    In contrast, proposals such as those put forward by U.S. 
cap that would use local distribution companies or other 
utilities to deliver a consumer rebate would ignore over one-
half of the estimates cost to low-income families and require 
the establishment of new delivery systems and outreach programs 
to encourage participation.
    In closing, the faith community supports strong and quick 
action to address the dangers of climate, while ensuring that 
solutions mitigate rather than compound economic injustices. We 
believe financial assistance for those living in poverty in the 
United States and international adaptation assistance for 
vulnerable communities abroad must be a part of any climate 
policy, and we look forward to working with the committee as 
you develop legislation that protects God's good creation and 
all of God's children.
    Thank you.
    [The prepared statement of Mr. Hill follows:]

    Mr. Markey. Thank you, Mr. Hill, very much, and that 
completes our opening panel.
    We will now turn to the subcommittee members for questions, 
and the Chair will recognize himself.
    I am going to go down the line, ask Mr. Kline, Mr. 
Popowsky, Mr. Greenstein this question. Is it a good idea to 
allocate free allowances to admitters? Mr. Kline.
    Mr. Kline. I would say only under the circumstances that I 
have described. I think absent a delivery mechanism that brings 
that value, assures that value goes to consumers, that the risk 
that was described earlier and the risks that occurred in 
Germany in the initial phases of the European system, where 
those dollars went into the earnings of utilities and others. 
At the same time prices were going up to consumers is the 
challenge, and I think what we are talking about here would 
avoid that.
    Mr. Markey. OK. Thank you.
    Mr. Popowsky.
    Mr. Popowsky. Yes. The way you phrase that question the 
answer is absolutely not. That is you should not allocate free 
allowances to emitters, and by that I take it you mean the 
generators, the people who, the companies or the plants that 
generate the emissions. If you are going to allocate free 
allowances to anybody in the utility industry, it has to be to 
the folks who are regulated so that we have a way of 
recapturing those benefits for customers.
    Mr. Markey. Mr. Greenstein.
    Mr. Greenstein. Allowances should not be allocated free to 
emitters. As I noted, most economists concur that that would 
not reduce consumer prices and would confer windfall gains on 
the emitters, and you would lose the resources you need for 
everything from consumer relief to research and to cleaner 
energy technologies.
    Mr. Markey. OK. Now, the Wall Street Journal in a recent 
article said that the Congressional Budget Office was cited for 
the proposition that a 15 percent reduction in emissions would 
lead to increased costs for the poorest of one-fifth of 
households. Of course, that is only half of the story because 
there could be mechanisms in place in order to deal with that 
impact, and that could be included in this legislation.
    Could you deal with that, Mr. Greenstein?
    Mr. Greenstein. Yes. The Congressional Budget Office 
estimate is that if you look at the bottom fifth of households, 
which is less than the bottom fifth of people because if you 
simply look at households by income without adjusting for 
family size, you get a lot of one and two-person elderly 
households, that the average impact from a 15 percent reduction 
in emissions is a $680-a-year increase in cost. We adjust for 
family size, so we are looking at the bottom fifth of the 
population, the bottom 60 million people. You get somewhat 
larger households, larger households use more energy, and I 
figure $750. They are all in the same range.
    So there is a significant impact on low-income consumers if 
nothing is done. But as we have indicated in the proposals we 
have developed and as you have heard here this morning, the 
foreign auctions, the permits, one can absolutely offset that 
cost. The notion that a cap-and-trade system inherently has to 
disadvantage low and moderate-income households is simply 
    Mr. Markey. OK. Thank you.
    Mr. Greenstein. It depends on how it is designed, and you 
can design it so it does not have that effect.
    Mr. Markey. Thank you, Mr. Greenstein, very much.
    Now, let us go to energy efficiency because that obviously 
is going to be a centerpiece for what hopefully the 
consequences will be of a cap-and-trade system being put into 
place, that is, we will learn how to work smarter, not harder 
in terms of the consumption of energy in our society.
    Mr. Kline, can you give us briefly your view out there in 
terms of the experience that you have?
    Mr. Kline. From our vantage point and our involvement in 
the recent work with the McKenzie Global Institute, energy 
efficiency is the untold resource that is out there that will 
allow us to offset emissions in a cost-effective manner. Or 
that will substantially reduce those costs, and that is because 
if you look across the Nation, there is an immense amount of 
actual negative costs, opportunities that aren't being seized, 
and with the proper incentives and regulatory structures those 
low-hanging fruit will be captured in the early years, which 
will help offset these costs.
    In California we are spending $1 billion this year on 
energy efficiency, and we are delivering it at a cost of about 
4 cents for the average customer. If we go out to the market to 
buy power from a new power plant, it is at least 9 cents.
    Mr. Markey. Can you briefly respond to that as well, Mr. 
Greenstein, the economic efficiency as compared to other energy 
    Mr. Greenstein. Yes. This is an on the one hand, on the 
other hand. On the one hand, obviously, we want to pursue 
energy efficiency. On the other hand is--or the caveat is 
simply that we have to be realistic about how much it can do, 
how fast. Unlike things like the earned income credit or the 
mechanisms I have discussed, we don't have energy efficiency 
programs that, at any level of government, that serve more than 
very small percentages of the low-income population in any 
given year. The Weatherization Program, a good program, maybe 
gets a few hundred thousand households a year.
    So we should recognize both that we need to learn a lot 
more about how to do energy efficiency programs on a much 
larger scale. It will take many years to ramp them up, and even 
if we are at the point in the not too distant future where we 
are weatherizing say one million homes a year, far beyond what 
we do now, it would still take under that approach about 40 
years just to reach the homes of all the people that qualify 
for the Low-Income Energy Assistance Program, and that only 
affects the half of increased costs that are home utility 
related as distinguished from the other half of the impact on 
    Mr. Markey. Mr. Greenstein, yes, my time has run out, and I 
thank you, sir.
    The Chair recognizes the gentleman from Michigan, Mr. 
    Mr. Upton. Thank you, Mr. Chairman. I think certainly as we 
listen to this hearing, we know that costs are going to go up, 
and not only do we need to protect consumers but almost as 
equally important if not more is we need to protect those jobs 
as well, because it is no good if you just provide a subsidy to 
the individual households as they struggle to pay those 
mounting costs, whether they be direct or indirect, but if they 
don't have a job at the end of the day, that doesn't help them 
either. And that is a concern certainly that I would think most 
of us share.
    Mr. Greenstein, you talked a little bit about your rebates, 
trying to shield moderate and low-income households. Do you do 
anything for businesses? And I want to use the example that was 
pretty well publicized a couple of weeks ago, I think the New 
York Times had a story about the cement company in California 
that was going to be, because of the California Environmental 
Laws was going to have to increase their pollution-abating 
controls that was going to cost $200 million to make the 
changes. And in essence they said they are going to go out of 
business, and all of their people are going to be out of work.
    Do you do anything for businesses, large or small?
    Mr. Greenstein. Mr. Upton, our rebate proposal is designed 
to address consumers. Let me be very clear. Our proposal is not 
to use 100 percent of the revenue from auctions on consumer 
rebates. It is to use a portion of it, covering middle as well 
as low-income households maybe somewhere in the vicinity of 50, 
55 percent of the permits. That would leave significant value 
for other purposes.
    I leave to others who have much more expertise in the 
business aspect of this than I do as to whether----
    Mr. Upton. I am just watching the clock, so I got to stop.
    Mr. Kline, what is the percentage of folks, of consumers in 
your area in PG&E that are in arrears for not paying their 
utility bills? I talked about Michigan, some of our areas, one 
in three households. Do you have a percentage that can't pay it 
based on----
    Mr. Kline. The last numbers I saw were about 7 or 8 
    Mr. Upton. Seven or 8 percent. So you are well under the 
national average.
    Mr. Kline. That number is growing, however, but it is 
relatively low, and I attribute that partly to our low-income 
programs that build on state and local programs.
    Mr. Upton. OK. I am going to pass this chart out. I think 
you all, you will have it, and I will pass these down the row 
here as well. This is the electric power sector of coal 
consumption for '06, and the blue areas are particularly hard 
hit. We rely heavily on coal versus some areas, some of the 
areas that don't. When you look at some other charts in terms 
of per capita emitted of carbon, I know the cold States and the 
warm States, the northern States and the southern States are 
particularly impacted as well, North Dakota, I can presume 
might not in terms of what they have to do with heating or 
    Mr. Hayward, you made a very good presentation. What 
happens to these regions? I mean, as we try to struggle in the 
midwest it seems as though our area is hit harder than ever, 
and I note Mr. Kline, if you have a chance to comment on this 
as well, in a May letter to Senator Boxer, Lieberman, and 
Warner, the Clean Energy Group of which PG&E is a member said 
that any allocation must recognize the value of low and non-
emitting forms of generation and should not reward the highest 
    But we are in the south and the midwest because temperature 
for--and because of reliance on coal, you mean to say that 
customers in those regions shouldn't receive the allocations 
based on historical emissions? I would like if you both maybe 
answer that. Mr. Kline, maybe in response to that letter.
    Mr. Kline. I think the intent is not to punish coal by any 
means. I mean, we recognize----
    Mr. Upton. Well, that is what it does.
    Mr. Kline. Sir, it does that only if we apply this in a 
kind of mindless manner. I mean, when I talked about 
sustainability here, I think what I am talking about is we 
recognize a program can't blow up the economy, and it can't 
impact areas in an unfair manner. And our view is that by 
structuring this correctly, we can send price signals which 
have to happen but do it in a manner that isn't going to 
abruptly affect----
    Mr. Upton. All right. I want to get my last question in.
    Mr. Hayward, I know I didn't give you a chance to answer, 
so I am going to ask you something else. You talked in your 
opening about where we would go if you reduce it by 80 percent 
by the year 2050, in essence back to 1910. So let us say we get 
rid of all coal. There is no more coal, generation, sorry, Mr. 
Carey, you are not able to answer that. So we move to gas. 
Fifty percent emissions is coal. How far do we miss the target 
by 2050 if we eliminate all coal and move to gas? What do we 
miss it by?
    Mr. Hayward. Well off the top of my head I don't know the 
exact answer to that, but if you switched all coal to gas, that 
gets you about a 50 percent cut in the CO2 emissions from coal, 
because gas emits on a BTU basis, per unit BTU, about half the 
amount of CO2 as coal does.
    So, you know, coal accounts for what, I think two-fifths or 
something of our total greenhouse gas emissions in the country, 
so that maybe gets you one-fifth of the way toward, you know--
so in other words, you still have a long way to go.
    I have gone through this about, you know, we got--right now 
to give one quick example, we burn about 180 billion gallons a 
year of gasoline and motor fuels. We have to go back to, if we 
are going to, you know, stay within our allegations, that has 
got to go back to about 30 billion gallons by the year 2050, if 
we are still using petroleum-based fossil fuels for aviation, 
trucking, all the rest.
    So you have to go a long way on everything else, too, 
including natural gas.
    Mr. Upton. And we still don't make it.
    Mr. Markey. OK. The gentleman's time has expired.
    The Chair recognizes the gentleman from California, Mr. 
    Mr. McNerney. Thank you, Mr. Chairman.
    I can't help but remark how stark the testimony we have 
seen here this morning is. Mr. Carey, on the one hand, is 
showing us the impact on people's lives, not only the producers 
but the consumers. Mr. Hill, on the other hand, is showing us 
what will happen if we do nothing. So we are in a position 
where we have to be thoughtful. We don't want to hurt people, 
but we have to make change.
    One of the things that struck me was Mr. Greenstein's 
discussion about how to allocate the money to the lowest income 
and the middle income. Do you think it would be reasonable to 
use the revenue to give a credit, say onto homeowners, for 
example, to use to purchase efficiency in their homes or cars? 
Would that be a reasonable way to use the revenue or a portion 
of the revenue?
    Mr. Greenstein. This is not something we have looked into 
in detail. The difficulty here, you only have so much revenue, 
you want to make the best use of it. So what you would need to 
take into account is to what degree would you be using revenue 
to subsidize people to make purchases they would have made 
anyway, and to what degree would you get increased purchases of 
more energy efficiency products?
    Now, I guess the reason why I am skeptical of that approach 
is the cap itself provides somewhat of a subsidy. In other 
words, under the cap itself anything that uses fossil fuel 
becomes more expensive and vehicles or appliances that are 
energy efficiency or use fuels other than fossil fuel become 
more competitive. And so the cap itself gives the consumer a 
direct subsidy in a sense to move from the old style kinds of 
products to the new ones.
    Mr. McNerney. It is not a subsidy, it is a penalty.
    Mr. Greenstein. A penalty--it gives----
    Mr. McNerney. Right.
    Mr. Greenstein [continuing]. Them an economic advantage.
    Mr. McNerney. Incentive.
    Mr. Greenstein. Economic incentive. So what one would have 
to do is to say if you take into account the economic incentive 
the cap already gives for the purchases you want to incentivize 
and the degree to which you would have a loss of, if you used 
revenue for this from the cap, the degree you would have a loss 
if you would be subsidizing people for purchases they would 
make anyway as a result of the incentives under----
    Mr. McNerney. Well, a lot of people aren't going to be able 
to make those purchases because you are getting an incremental 
increase in your electricity costs or your heating costs, and 
the purchase of a new car is a $30,000 investment or 
weatherizing your home is $10,000 anyway. So we need to get 
something out there to give people the ability to make those 
    Mr. Greenstein. I understand the notion one would have to 
an economic analysis to see if the increases in the purchases 
and the energy gain you--the efficiency gain you get from them 
justifies spending that proportion of the allowances on them.
    Mr. McNerney. Thank you. Mr. Kline, a simple question. Are 
you advocating free allocation of permits to LDCs? Is that what 
I heard in your testimony?
    Mr. Kline. That is correct, but let me clarify. I am not 
talking as Mr. Greenstein wasn't either, about 100 percent of 
the allowances out there. We are talking about a percentage 
that represents the contribution from electricity and natural 
gas usage.
    Mr. McNerney. OK. Thank you. I am going to yield back, Mr. 
    Mr. Markey. OK. The gentleman's time has expired.
    The Chair recognizes the gentleman from Louisiana, Mr. 
    Mr. Scalise. Thank you, Mr. Chairman.
    Mr. Greenstein, when you are talking about the climate 
rebates, what level of income are you talking about there when 
you talk about the bottom fifth or one-fifth of the, I guess, 
population that would be getting these rebates? Do you have a 
population range?
    Mr. Greenstein. Well, the bottom fifth has average income 
of a little over $15,000 a year, and I think for a family----
    Mr. Scalise. Is your microphone on? Is your microphone on?
    Mr. Greenstein. Sorry.
    Mr. Scalise. Yes. There we go.
    Mr. Greenstein. The bottom fifth has average income of 
around $15,000. The top of the bottom fifth is maybe $27,000 
for a family of three or four, but, Mr. Scalise, my proposal is 
really to incorporate the middle class as well.
    Mr. Scalise. But, I mean, at some point legislation would 
have to----
    Mr. Greenstein. Yes. So----
    Mr. Scalise [continuing]. What would that limit?
    Mr. Greenstein [continuing]. One proposal that we provided 
some assistance on which is actually in the bill that Chairman 
Markey introduced last year, as I recall I think there were, 
was a full offset of the average hit for married families up to 
about $70,000 a year if I remember correctly, and then I think 
it phased out between $70 and $110,000.
    Mr. Scalise. And so----
    Mr. Greenstein. And there was some benefit up to $110.
    Mr. Scalise. Right. While I oppose any energy tax and would 
also really strongly caution against class warfare being used 
to basically build in some sort of cap on any of these types 
of, I guess, rebate proposals, and ultimately because what it 
will end up doing, and we were talking about economics earlier, 
right now the President's budget estimates that he would 
generate about $646 billion out of this energy tax.
    And so for the President's budget to be met, if you are 
exempting out one group, you are in essence going to be 
shifting an even higher percentage to those remaining, and I 
will give you an example.
    A school teacher married to a police officer is going to be 
making on average $80,000. So that school teacher married to 
the police officer before would have been paying $1,300 a year 
more. If you exempt out that many more people, now that school 
teacher married to a police officer might be paying $1,600 a 
year more. So they actually get an increased burden and you 
don't accomplish, I guess, what you are trying to achieve on 
the bottom end because the people making below $70,000 are 
still going to be paying higher food prices, higher--well, 
according to Mr. Orszag's testimony he basically says that all 
energy-intensive goods would have costs added.
    And so I will ask Mr. Hayward, because you had talked in 
your testimony about, you know, the Campbell's soup example. 
Number one, the school teacher married to the police officer 
now according to Mr. Greenstein's plan would actually be paying 
more because they would have to have a higher percentage if 
that lower percentage is completely eliminated, but then what 
would those people that are making below $70 still pay on your 
estimate on all of these other energy-intensive products?
    Mr. Hayward. That is a really hard question to answer 
because, you know, it varies from product to product and also 
the distance involved. I mean, one thing we have really been 
trying to break this down pretty finely, and one thing we think 
is that, in fact, the highest effect on consumers of cap-and-
trade is not necessarily the cold coal States, but it might be 
the mountain States, partly because of the longest distances 
goods are transported, more gasoline consumption, things of 
that kind. And that was, you know, a finding that would not 
have occurred to us without running it through a fancy model, 
and we all have criticisms of our own model about this. It is 
one of those arguments we have.
    But, I mean, we sort of broke this down by, you know, a 
variety of specific goods, and it looks like, you know, between 
\1/2\ to 1 percent increase in the direct cost of producing and 
shipping certain goods, and that is just going to ripple 
through the supply chain in some multiplier of--it is hard to 
say. I couldn't begin to make a good estimate of that.
    Mr. Scalise. And obviously that same price increase that 
would be shifted over to that school teacher married to the 
police officer would also be shifted over to an even higher 
percentage that businesses would be forced to pay now because 
you still have that end $646 billion tax that needs to be 
raised, but now it is a smaller group of people that are paying 
it, so the business taxes would also go up, which would lead to 
even further job losses.
    I guess if coal is out of the picture there for Mr. Carey, 
I don't know if he can respond to it, but even if coal is being 
used, what does that then do to even further losses of jobs?
    Mr. Carey. Mr. Chairman, Congressman, the issue is when you 
start looking at what I think Congressman Shimkus said just 
earlier when, earlier today when he said that you are actually 
going to pay power producers to actually shut down their power-
producing facilities. When you shut down poor-producing 
facilities, those poor-producing facilities aren't consuming 
coal. If they are not consuming coal, we aren't mining coal, 
because we are not selling it to those power-producing 
facilities. So, therefore, those coalminers would be put out of 
business and out of jobs. Also, the ancillary of associated 
    But I do want to say this. When you are talking about the 
school teacher and the police officer, you talk about a 
coalminer who on average in our region can make anywhere 
between $45 and $75,000 a year, he is not going to be able to 
pay that bill because he is not going to have a job to pay that 
    Mr. Scalise. That is a very important point. Appreciate 
your testimony.
    I yield back my time.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentlelady from California, Ms. 
    Ms. Capps. Thank you, Mr. Chairman.
    Mr. Greenstein, some critics have argued that the proposal 
to place a cap on greenhouse gas emissions to combat global 
warming represents a tax increase. However, this claim ignores 
the fact that a cap-and-trade program, if it is designed 
wisely, should also raise substantial revenue that could be 
returned to consumers in order to offset higher energy costs.
    You might wish to speak on that just very briefly. I do 
want to ask Mr. Kline a question, too. My question to you is, 
what might be the cost, both human, environmental, and economic 
of a failure to act?
    Mr. Greenstein. Well, a failure to act at some point, is it 
in 10 years, is it in 50 years, we don't know, but at some 
point we could have catastrophic changes in climate in the 
world's atmosphere that would have all sorts of dislocating 
economic effects that would dwarf the shorter-term, much 
smaller effects we are talking about from a cap.
    In terms of the tax issue, what you said is precisely 
right. If one uses a significant share of the resources raised 
by auctioning the permits to rebate the money to families and 
particularly if, as I am suggesting, you do it through the tax 
code other than for people at the bottom of the income scale, a 
lot of people would actually end up getting a net tax cut.
    I don't think I explained clearly what I am talking about 
here in terms of what Mr. Scalise said. I am not proposing a 
rebate only for the electricity or the home utility part. In 
the way we have designed the rebate it is designed to offset 
the impact on costs of consumers from everything; gasoline, 
other goods and services. Businesses generally that have higher 
costs will pass them through to consumers. One wants to cover 
this at the consumer level. I agree that in particular 
industries like coal there are larger effects, and again, we 
have tried to design our proposal so it does not consume all of 
nearly all of the proceeds so that you have proceeds left to 
decide what to, how to provide relief, for example, to 
coalmining regions.
    And I agree with Mr. Hayward. There are some variations 
that have got to be taken into effect, and I would hope that 
some of the additional permits would be used to address some of 
the variations that Mr. Hayward talked about.
    Ms. Capps. Thank you. Thank you very much. I--Mr. Kline, 
PG&E has served my Congressional District and many others for a 
long time, and I commend the work that your company has done. I 
have seen it firsthand, to implement efficiency measures. In 
California our energy commission has concluded that for every 
dollar invested in energy efficiency consumers get a $2, some 
have said higher, return.
    My question. If allowance values were distributed to PG&E 
and other local distribution companies, what specific energy 
efficiency measures would you implement so that you could cut 
costs for consumers and pass that savings onto consumers?
    Mr. Kline. Congresswoman, I will give you several examples 
of programs that we already have in place that we would expand, 
and one of them is referenced in an attachment to my testimony 
that captures programs that utilities are doing across the 
    We have a program called Power Partners, which affects 
small businesses and low and moderate-income customers. We 
literally go in and we assess their energy usage, we change out 
appliances when needed, to replace them with energy efficient 
appliances. We do changes to the structure. This is both for 
renters and for owners to make their dwellings more energy 
efficient, reduce bills, and make them more comfortable.
    Ms. Capps. Excellent. I am glad this is in your statement 
so that it can be used.
    Final question. How can LDC allocations be structured so 
that we can best achieve these efficiency measures? And also, 
see the immediate consumer benefits. I think there is a great 
deal to be gained by allowing consumers to see how much they 
are saving.
    Mr. Kline. I am happy to say that the Edison Electric 
Institute, the Trade Association for Electric Utilities, has 
created an institute for energy efficiency, and a lot of what 
they are doing is focused on the development of and sharing the 
best practices across the country. So I think you are going to 
find that electric and gas utilities are ready to implement 
these programs broadly across the country.
    Ms. Capps. Thank you very much. Mr. Chairman, I yield back.
    Mr. Markey. Great. The gentlelady's time has expired.
    The Chair recognizes the gentleman from Illinois, Mr. 
    Mr. Shimkus. Thank you, Mr. Chairman.
    Mr. Carey, I am sorry I missed your opening statement. I 
did read part of it. The Wall Street Journal had an editorial 
where you were referenced and actually submitted for the record 
2 days ago that talked about the winners and the losers. The 
winners are the coastal States, shocked. I am shocked. And the 
losers are the midwestern States. No surprise.
    Talk about the, restate for me and briefly because I do 
have a series of questions, the impact of job loss just on the 
1990, amendments to the Clean Air Act. I have reiterated them 
here, not just--I have said in one coalmine 1,200 miners lost 
their job, multiplied by that--I know the individual who 
bargained for the United Mine Workers quoted to me, before the 
90 amendments 14,000 jobs in just southern Illinois. Then he 
moved to a tri-State region, and all he had was 4,000 
mineworkers left in a three-State region. Can you talk about 
job loss?
    Mr. Carey. Mr. Chairman, Congressman Shimkus, yes. In my 
statement we lost close to 120 mines and lost close to 36,000 
direct and indirect jobs. Penn State University did a study 
that said for every coalmining job there is essentially 12 
spin-off jobs. So that would be the number to which I am 
referring to in the 1990s. Particularly we were hard hit in the 
State of Ohio because of sulfur.
    Mr. Shimkus. Yes. And talk about small town rural Ohio. 
These mines are in the rural areas. Are--in many of these mine 
locations, is there a company that comes to the amount of jobs 
that would be employed in a mine?
    Mr. Carey. Mr. Chairman, Congressman, the answer to that is 
no. The coalmining, in coalmining regions of Appalachia, if you 
look particularly in Ohio, western Pennsylvania, and also in 
southeast or in West Virginia, Kentucky, and all the way down 
to your State, Congressman, many of these small rural 
communities, the coalmining, the mines, the associated 
businesses that supply those mines, they are in many cases the 
only game in town. Not just the coalmining but also the energy 
producers that are using that product.
    Mr. Shimkus. Let me move to, actually since--let me go to 
Mr. Popowsky, consumer advocate. How many jobs were lost in 
Pennsylvania after the Clean Air Amendments of 1990, in 
coalmining alone?
    Mr. Popowsky. I am sorry. I don't know that figure but 
certainly Pennsylvania is a coal State, and I have, you know, 
great sympathy----
    Mr. Shimkus. So if you were advocating for consumers and 
job loss, you would probably at least admit the fact that there 
were thousands of jobs lost in Pennsylvania through the Clean 
Air Amendments of 1990?
    Mr. Popowsky. I would expect so, and let me just add. One 
of the latest legislative developments in Pennsylvania that I 
would certainly support is the establishment of a coal capture 
and sequestration program in Pennsylvania.
    Mr. Shimkus. Yes, and because my time is short I don't want 
to hold you up, but the same answer would be for the steel 
industry, would it not? I mean, the coal is either the co-
production aspect of steel or it is the energy related, and 
Pennsylvania has been hard hit since 1990, in steel production. 
Is that correct?
    Mr. Popowsky. We have certainly lost thousands of steel 
jobs in the time I have been in Pennsylvania.
    Mr. Shimkus. And if energy costs continue to rise, it makes 
it more difficult for us to compete internationally in steel 
production, wouldn't you agree to that?
    Mr. Popowsky. Absolutely.
    Mr. Shimkus. Yes.
    Mr. Popowsky. If it is done----
    Mr. Shimkus. I would agree, too.
    Mr. Popowsky [continuing]. On a national basis, not a 
global basis.
    Mr. Shimkus. Mr. Kline, when the California power crisis 
hit, I don't know, 4 or 5 years ago, your company, I do 
believe, and this is just going off of memory, had 
interruptible power agreements with major utility, not 
utilities but really manufacturing facilities. Is that correct?
    Mr. Kline. Yes.
    Mr. Shimkus. And so when, with interruptible power 
agreements, they actually made money when they shut down their 
operation during the crisis. Isn't that correct?
    Mr. Kline. I think that more frequently happened further up 
the coast in the northwest where there were aluminum producers 
    Mr. Shimkus. That is exactly really what I am talking 
about. So they actually made money by stopping manufacturing 
    Mr. Kline. Yes. I----
    Mr. Shimkus. Through the agreements?
    Mr. Kline. And or exceptional circumstances.
    Mr. Shimkus. And I would submit that in the European 
experience of cap-and-trade, industries are making money off 
this shell game of a cap-and-trade, where they reduce their 
amount of manufacturing or close down the ability because they 
have credits to sell, and it is money made with no affect. Very 
similar to this issue of this interruptible power of past 
    And I think that is a very dangerous precedent. I would 
also submit now, and I will end with this, Mr. Chairman, my 
time is out, is that a cap-and-trade hides attacks. I think now 
estimates are four-fold. We want to be clear to the public of a 
cost of engaging. We want to have clear transparency, not a 
shell game labeled cap-and-trade.
    And I yield back.
    Mr. Markey. Great. The gentleman's time has expired.
    The Chair recognizes the gentleman from Utah, Mr. Matheson.
    Mr. Matheson. Thank you, Mr. Chairman.
    Mr. Greenstein, when you were giving your testimony I think 
I heard you say that in terms of avoiding unnecessary 
bureaucracies to try to redistribute revenues to consumers 
affected, disproportionately affected by this, that you would 
suggest it goes to a tax cut. We use the revenues from this for 
a tax cut for just certain levels of income across America?
    Mr. Greenstein. Basically two components. One would be a 
broad, refundable tax credit.
    Mr. Matheson. OK.
    Mr. Greenstein. The tax credit can go up to whatever income 
level you set, depending on how many resources you want to 
distribute. Mr. Markey's bill of a year ago, as I said, it went 
up to $70,000 a year for married families and then phased down 
to $110,000. That doesn't capture people at the bottom of the 
income scale, elderly, disabled people who aren't in the tax 
code. What I recommend there is for people at the bottom we use 
these electronic benefit systems, transfer systems, debit card 
systems states already have, already use to deliver low-income 
benefits. You just program another benefit on. It is the 
climate rebate.
    And finally, as in the recovery legislation that Congress 
just passed, and that recovery legislation for people who 
aren't in the--for seniors and people with disabilities, 
veterans not in the tax code, you just have in there a direct 
payment alongside the work pay tax cut. The people who get 
Social Security, veterans and the like, I would do the same 
thing here. You get them that payment, you do the debit card at 
the bottom, you do a broad tax credit for the low-income 
working families and the middle class, up to whatever income 
level you feel you can afford, and you have offset the impact 
on consumers for the substantial majority of the population.
    Mr. Matheson. How do you address the problem that we got 25 
States that rely on coal for the majority of their electricity 
and 25 who don't, and we are going to have a regional 
difference here, and I am concerned about sort of a wealth 
transfer in different regions of the country.
    Mr. Greenstein. Yes. So there is two possibilities here. 
One thing, we are looking at this now. We are still in the 
process. One possibility which I think is probably not going to 
work out to be a good possibility, but we are looking into it, 
is if we could come up with really good data, we, I don't mean 
we, if the government could come up with really good data on 
the variation by State, you certainly could adjust the amount 
that each State puts through its electronic benefit transfer 
system on the debit cards. We would need to talk to IRS as to 
whether you could vary the tax credit rebate depending on the, 
by the State you live in.
    If that turns out not to be feasible, then I think you 
supplement the rebate maybe. You make the tax rebate a little 
smaller, then you supplement it with some other mechanism such 
as, this is another thing we are looking into, maybe you have 
some kind of a block grant funding stream to States to give 
further protection to consumers where you target the money on 
the harder-hit States.
    Mr. Matheson. Mr. Hayward, in your testimony you mentioned 
this issue of the regional price differences. Do you have 
comments on this?
    Mr. Hayward. Well, only that even within States there is 
sometimes substantial variation. I mean, my home State is 
California, and you know, a person on Monterey will use a lot 
less energy than a person in Fresno 200 miles away where it is 
a lot hotter and colder in the winter, et cetera. And so, I 
mean, if you are really going to be, you know, try to be fairly 
strict about keeping equity in mind, then it is not just the 
State level. Then you start slicing it down, you know, and that 
just starts to get pretty cumbersome and good luck.
    Mr. Matheson. Another issue I would like to raise with the 
panel is I know a lot of folks have been advocating rebates or 
funding into existing programs, i.e., weatherization. Those are 
good programs, but I am concerned that that does not 
necessarily reflect how we should target impacts on consumers 
in general.
    And how do we figure out the right balance on that? I don't 
know if anybody----
    Mr. Greenstein. We have looked at that a great deal. LIHEAP 
is a very good program, and we would give some amount, I mean, 
this isn't magic. Our recommendation may be 1 percent of the 
permit value to LIHEAP. LIHEAP can't handle this on a big 
scale. This is a little program. It serves only one in six or 
one in seven of every low-income household that is eligible. It 
is run as a block grant. There are no national eligibility 
standards. So I think of LIHEAP as a supplement to the kind of 
system I am talking about. No system is perfect. There will 
always be gaps. There will be people with old homes that have 
higher-than-average increases in their costs, and hopefully you 
use LIHEAP to supplement the rebates I am talking about through 
the LIHEAP structure to do that.
    So I definitely would include them, but it is the small 
piece. It is not something you are going to cover the 60 
million lowest-income households or the proposals that cover 
the broad middle classes well, you know, over 200 million 
people in the country.
    Weatherization, you get some of that through LIHEAP and 
some through the separate Weatherization Program. I certainly 
think that is worth doing again. You have to look at what is 
the, you know, can you, for example, actually get the program 
to weatherize more than 1 million homes a year. It is currently 
much smaller than that. So, you know, you would want to really 
see what you can effectively and efficiently do through those 
programs, but both LIHEAP and the Weatherization Program I 
think should get something. Probably relatively small 
percentages of the permits but something significant.
    Mr. Matheson. OK. Thanks. Mr. Chairman, I yield back.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentleman from Texas, Mr. Burgess.
    Mr. Burgess. Thank you, Mr. Chairman.
    Mr. Hayward, let me just ask you because you have the 
discrepancy question laid out in your testimony. Now, in Texas 
it seems like we have many more cooling days that are necessary 
for low-income households than we do heating days, and we never 
seem to come out on the correct end of that equation, and yet 
there are more deaths in this country, heat-related deaths 
every year than there are cold-related deaths.
    So I, forgive me if I am a little skeptical that the LIHEAP 
is in someway going to be the redistributionist's dream of 
getting the tax, can we call it a tax? Well, the money 
collected under cap-and-trade, tax-and-trade, we can get that 
to the people that actually need it.
    Mr. Hayward. Yes. I am not quite sure what your question 
    Mr. Burgess. Well, we don't--I will just say in Texas we 
never fare well in this light. We talk about LIHEAP in this 
committee, and we never come out on the correct end of that, 
and yet at the same time if you just look at the public health 
hazard from heat-related deaths versus cold-related deaths, 
heat-related deaths are far in excess of what happens to 
people--we lose more people from heat-related deaths than we do 
from cold-related deaths.
    Mr. Hayward. That may be true in Texas. Well, two comments. 
One, I have no expertise on the way this funding formula works 
for things like LIHEAP or similar programs, so I can't comment 
on that.
    Texas--two more comments. Texas, of course, is a different 
world when it comes to energy, of your own grid and own system. 
It is also its own little world that way.
    The final point, and so I have, you know, limited knowledge 
on that. The final point is it may be true in Texas that heat 
deaths outnumber cold deaths, although the data I have seen is 
that heat deaths in Dallas, for example, I have looked at have 
been declining for years because people are generally getting 
wealthier on average, and there is more air-conditioning even 
for low-income people. For the country as a whole there is 
actually more cold-weather-related deaths than heat-related 
deaths. And as I said, it may be different in Texas, but Texas 
    Mr. Burgess. Well, France had that big spike a few years 
ago when they were unprepared for it. Chicago----
    Mr. Hayward. Right.
    Mr. Burgess [continuing]. Has had a couple of big spikes.
    Mr. Hayward. If you look at World Health Organization data 
for Europe and the U.S., Canada, you actually have more cold-
related deaths. This is one of those counter-intuitive things 
that most people aren't aware of.
    Mr. Burgess. Well, nevertheless, we never come out 
correctly on the LIHEAP formula in the State of Texas. I have 
never been successful in advocating for my low-income residents 
if they need more help during the cooling part of the cycle 
than they do the heating part of the cycle, and we never seem 
to be able to get those funds to where they are actually 
needed. So I am very skeptical of us being able to redistribute 
stuff where it needs to go.
    Mr. Greenstein, if I could ask you, I am not sure I 
understand how this electronic benefits transfer is actually 
going to work, and one of our big fights during SCHIP, the 
State Children's Health Insurance Program, a few months ago or 
really for the past 18 months, is there are 800,000 children 
according to CBO, Congressional Budget Office, estimates that 
just simply are outside the system who should be inside the 
system but are outside the system because they are hard to 
find; single-parent homes, they move around a lot. These are 
people who are unlikely to have a place in which to deposit the 
benefits transfer if, even if you have that in place.
    But yet these are the individuals who are going to be most 
hurt by the fact that they have now higher heating and cooling 
bills under a cap-and-trade scheme.
    So how are we going to capture the people that are probably 
in Mr. Hill's, included in your mission statement on your Web 
site, how are we going to capture those folks and make certain 
we are not hurting them with this tax?
    Mr. Greenstein. That is precisely what proposal I am 
outlining is designed to do. These electronic benefit transfer 
systems already exist. Every State, your State of Texas has 
been running them for years.
    Mr. Burgess. Let me just interrupt, because my time is 
going to grow short. The current 47 million estimated uninsured 
in this country, 20 percent according to some estimates have 
Medicare aid and SCHIP available to them, and they just simply 
don't take it. They don't sign up for it.
    Mr. Greenstein. I understand. What we are suggesting is 
every--a lot of these people are on food stamps. Everybody who 
is on food stamps, all the elderly and disabled people who, low 
income who get the drug subsidy for the Medicare drug, they are 
automatically just put on the debit card system that States 
already operate. They already--and then additionally to the 
degree that there are working poor people, a lot of the people 
that aren't signed up for SCHIP are working poor. They file tax 
returns, they get the earned income credit. When you put those 
two together, you have a relatively small proportion of the 
low-income population you haven't reached. We would have to do 
outreach and urge them to sign up.
    Mr. Burgess. But what about in a State like Texas where we 
have a significant number of people who fall between the cracks 
because they are in the country without the benefit of a Social 
Security number? And they are inherently hesitant to sign up 
for these types of programs for fear that someone will discover 
they don't have a Social Security number. How are they going to 
be made whole in this equation, or are we even going to try?
    Mr. Greenstein. That is a very good question. I think as we 
envision that Congress would need to determine in designing 
this what the rules are for this rebate. Do you need a Social 
Security number, what are the requirements? Whatever the 
requirements are people who meet them, if they are not already 
in one of the programs where you are automatically put on the 
debit card, you could go and apply and enroll.
    But you are getting into a question that is sort of beyond 
what I have a specific proposal on. It is kind of what you all 
decide you want to do with regard to who is eligible for the 
consumer compensation and whether they--what requirements they 
have to meet with regard to things like Social Security 
    Mr. Burgess. But if we don't meet the needs of that portion 
of the population, again, Mr. Hill's mission statement on his 
Web site of economic opportunity and security for all, is not 
going to be met.
    Now, I grant you, we should do something about the problem 
we have with immigration in this country, the fact that we 
don't is a serious problem. We can't fix our healthcare system 
until we do, but this, we are opening the door to significant 
other problems with this tax that you are talking about 
creating, and it will hit this portion of the population 
    I yield back, Mr. Chairman.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentleman from Washington State, 
Mr. Inslee.
    Mr. Inslee. Thank you. While we have been having this 
hearing I got a little blurb on my Blackberry that said they 
just got a report in California that climate change will cost 
the State of California somewhere between $2.5 and $15 billion 
a year. So there is a cost of, if we do what some suggest we do 
here, which is nothing, we are going to have costs associated 
that particularly will fall on lower-income people.
    The best evidence that I have seen comparing the costs of 
that scenario, which is an inaction scenario, to an action 
scenario is the Stern Report out of the England, and it 
suggests that we will have five times more cost on low and 
high-income people if we do nothing, compared to if we do 
    Does anybody--so does anybody have any other evidence to 
suggest that figure is wrong, that there is a different 
analysis? Does anybody have any other better assessment of 
    Mr. Kline. Sir, I would say the one piece of analysis I 
have seen that was done in California is on an integrated basis 
by Berkley and Stanford, is that the immense affects in 
California would occur primarily through water, which would 
have a huge impact on, if the State were very hydro-dependent 
as I know you are, and an immense cost due to fire and to 
    So the costs were substantially greater than any cost that 
could be put together for action.
    Mr. Inslee. Well, the reason I point this out is I think it 
is very important for us to address this issue, but I just want 
to point out that it is going to be worse, it is just really 
clear. It is going to be worse for our constituents. It is 
going to cost them more money to do nothing in this chamber 
than to do something.
    I want to ask Mr. Greenstein about the ideas about sort of 
cash cushions for low-income folks. You have suggested some 
very intriguing ways to do that. How do we balance that against 
the idea that we ought to be making investments in the 
efficiency to reduce those low-income folks' energy costs over 
    I have to say I do have some concern that if we rely just 
on a cash cushion as opposed to an efficiency investment that 
will lower their--that will clearly give us more bang for the 
buck, because clearly these efficiency investments actually 
reduce costs, they have a positive net economic return. So I 
think it is very clear that if we can help a person in a low 
income get a weatherized home, that same expenditure will save 
them a lot more money, be a lot bigger cushion over time 
compared to just say cash distribution.
    How do we oppose those, realizing it is more difficult to 
do some efficiency measures?
    Mr. Greenstein. I don't think it is an either or. Again, I 
am not proposing a cap and dividend where all the money goes 
out in cash payments. I am proposing a portion of it. I do 
think energy efficiency should be one of the uses of the 
remaining auction proceeds.
    And this all fits together because the way we envision the 
rebates working, they are tied to how much energy costs go up 
in the economy, which will be reflected in the price of the 
permits. The more effective we are on efficiency, the less the 
price of the permits will go up, and the smaller the cash 
rebates will be to the people that I am talking about. The 
two--what you are talking about and what I am talking about, 
they really fit together. The one caveat, I mentioned earlier, 
is that most energy efficiency programs like Weatherization now 
operate on a pretty small scale. We need to make them bigger.
    But it is not like overnight or in 5 or even 10 years that 
we can weatherize the home of every low and moderate-income 
person in the United States. And even if we weatherize a 
million low-income homes a year, it would take about 37 years 
to weatherize the homes of everybody eligible for----
    Mr. Inslee. So what is the best, if we do want to make a 
substantial investment in efficiency for low-income people, 
what is the best mechanism to do it? A voucher program? A some 
kind of cash or other infusion to distributors that somehow we 
mandate is used for efficiency? What is the best system? That 
is an open panel question to the whole panel.
    Mr. Greenstein. This is something we are still looking at. 
I frankly don't think the answer is crystal clear, and I do 
want to clarify. I have been very critical, and I am very 
critical of giving free allowances to the LDCs to lower 
electricity rates. Actually, we are going to get more incentive 
for people to use, for example, some of the rebates I am 
proposing for efficiency if they feel the sticker shock of the 
increase in rates.
    But I want to distinguish that and listen carefully to Mr. 
Kline, from what he was talking about in terms of energy 
efficiency. It may make sense to give allocations to the LDCs 
for energy efficiency.
    Mr. Inslee. Could I just real quickly ask Mr. Kline, is 
there a way to do distributions to distributors or utilities, 
and in fact, know that they are going to be used for 
    Mr. Kline. Absolutely. You can mandate that those dollars 
be used and reporting accordingly. So it is going to be 
transparent. You are going to see the numbers on an annual 
basis of achievement, and you are going to be able to judge if 
it is working.
    Mr. Inslee. It is a little tough on some planting issues, 
but thank you very much.
    Mr. Markey. OK. The gentleman's time has expired.
    The Chair recognizes the gentleman from Vermont, Mr. Welch.
    Mr. Welch. Thank you. I want to--I was impressed with the 
testimony of Mr. Carey. I am from New England. We don't have 
coal much there, and it is just the luck of the draw where we 
live. But the point you make about the jobs, about the economy 
are compelling, and it is just a matter of whose ox is being 
    On the other hand, there is a lot of sentiment in Vermont, 
and maybe it is because it is easier for us that we don't rely 
on coal to really focus on this question of global warming.
    And what I am trying to understand is given the 
responsibility you have towards those coalminers and your 
industry and appreciate the risk of any plan that has a tax or 
a cap-and-trade system, is it your view after you assess all of 
that that the harm that would be done by taking some action, 
however well intentioned, to the people that you represent is a 
cure that would be worse than the disease?
    Mr. Carey. Mr. Chairman, Congressman, you know, first I 
want to kind of address your question and kind of answer what I 
didn't have an opportunity just to answer just a second----
    Mr. Welch. Yes, and keep in mind we don't have a lot of 
    Mr. Carey. The first thing is is where is the information 
coming on the true cost of global warming on any State and on 
any given community.
    Mr. Welch. OK. So let me stop you here, because that is 
what I am trying to understand.
    Mr. Carey. Right.
    Mr. Welch. You dispute that?
    Mr. Carey. Right. I do dispute that, because I think you 
have to look at the sources. I think the other question is is 
what is the true economic cost and the social cost behind not 
having reliable, affordable, and increasingly clean energy.
    Mr. Welch. Right. So then there is a big risk is what you 
are pointing out.
    Mr. Carey. There is a huge risk.
    Mr. Welch. But do you, what is your view on the 
environmental threat?
    Mr. Carey. I think it is key to, that we continue to 
research in clinical technology, which is carbon sequestration. 
I think that any proposals that we have out there whether there 
be some type of safety valve legislation so there would be a 
certain level of cost that would be associated with any type 
of--and you can't, you have to separate. You have to----
    Mr. Welch. I want to understand this because I think if I 
am fairly summarizing your view, there is a big cost that is 
associated with taking action, whatever plan we advance, that 
may be more costly than whatever benefits occur, and you want 
more research, and you have some skepticism about the 
environmental impact compared to other impacts.
    Mr. Carey. Mr. Chairman, Congressman Welch, I think what I 
have heard from this panel is how we are going to protect these 
low-level consumers. Who is going to protect them? It is going 
to be the taxpayer. It is going to be the individuals that are 
paying the electricity rates, whether it is in small business, 
whether it is in heavy manufacturing, whether it is just the 
people that I represent that go in the mine every day. They are 
not looking for a handout, Congressman. They are looking to be 
able to provide----
    Mr. Welch. Oh, no. They want to work, and listen, they do 
hard work, you know, the folks who go in those mines and bring 
that coal out. That is tough work. There is no question about 
it. I mean, there is just, and there is always disruption when 
you are going to make a transition from a way of doing business 
to a new way of doing business.
    Do you have any concrete--let us just say for a minute you 
were faced with the likelihood of there being action on a cap-
and-trade or a carbon tax. Are there any concrete steps you 
would recommend that would mitigate the impact on your workers 
and your miners, your companies?
    Mr. Carey. Mr. Chairman, Congressman, it would be hard for 
me to advocate for anything that I disagree with, but what I 
would say, Congressman, is any time, there has to be a level of 
    Mr. Welch. Right.
    Mr. Carey. There has to be a level, you know, I am hearing 
about, you know, I have heard in testimony today that, you 
know, well, we got to look how this helps or how this would 
    Mr. Welch. Right.
    Mr. Carey [continuing]. The coal communities. Well, that, 
you know, it is very easy for us to sit up on this----
    Mr. Welch. Yes. OK. No. I appreciate----
    Mr. Carey [continuing]. Table and say that.
    Mr. Welch [continuing]. Your comments and only because I 
only have limited time I am going to go to Mr. Greenstein.
    Mr. Greenstein, you raised a red flag about proposals to 
reduce the impact of climate change legislation on consumers' 
budgets through policies that would provide permits to utility 
companies, and that is one of the proposals that some folks 
favor, relying on the utility companies to keep their bills 
down. And obviously, that is where consumers pay a big bill, 
hits them hard, and why do you think that would be a problem, 
basically providing the utility companies opportunity to lower 
those bills?
    Mr. Greenstein. As I mentioned, I think it might be a good 
idea for delivering energy efficiency, but in terms of doing 
that as a way to offset the impact on consumers' budgets 
directly rather than through rebates, and this is for both low 
and middle-income families, I think it would be a large mistake 
for a variety of reasons.
    Let me just mention two. One, we have over, about 3,300 
LDCs in the electricity sector alone. How do we know how many 
permits to give each LDC? Most of the proposals say, well, you 
allocate them based on electricity use. Higher-income people 
use more electricity per capita than lower-income people, so we 
would overcompensate in areas.
    But I think the two biggest problems are that it would 
reduce incentives to conserve, and that frankly it wouldn't 
effectively protect consumers. The premiere environmental think 
tank is resources for the future. RFF in a paper that came out 
last summer explained that if you gave free allowances to the 
electricity sector, to the LDCs to lower electricity rates, 
that in order to hit the emissions cap, prices for other energy 
products would have to go up more. So you would spend a lot of 
money, but you would have a partial affect at best on 
consumers' budgets. So it would be a very inefficient way of 
doing it.
    Mr. Welch. OK.
    Mr. Greenstein. I think a better way is you give people the 
rebates, you don't artificially depress their energy bills. The 
whole point is to have the energy bills go up in order to 
create incentives. And then you supplement that with things 
like efficiency, where I think the LDCs can be very important.
    Mr. Welch. OK. Another question. The policy choice, does it 
matter whether you give emission allowances free to energy 
companies and other emitters or auction them?
    Mr. Greenstein. You need to auction them. Consumer prices--
    Mr. Welch. Why?
    Mr. Greenstein [continuing]. Economists say that consumer 
prices will go up either way, as a result of which the free 
giveaways to the emitters effectively gives you, gives them 
windfall profits and means there are no resources to help 
consumers to fund alternative energy research. If one can--I am 
not an expert on this, if one can come up with the appropriate 
remedies to mitigate the pain in coal communities, whatever 
they may be, you need the resources to do these things.
    Mr. Welch. OK. Thank you.
    I yield back.
    Mr. Markey. Great. The gentleman's time has expired, and 
all time for this hearing has expired. I think we have really 
been benefited by the testimony from this panel. We are right 
at the heart of the matter here in this discussion. We know we 
have a big problem. Global warming is real. The planet is 
running a fever. There is no emergency room for a planet, so we 
have to act in preventative ways in order to make sure that the 
problem does not get worse.
    So we have to figure out something here that helps to deal 
with the impact of the actions we have to take in order to 
protect the planet, and your testimony today has helped us a 
lot in helping to frame those issues. Thank you.
    This hearing is adjourned.
    [Whereupon, at 12:30 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]