[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
CONSUMER PROTECTION PROVISIONS IN CLIMATE LEGISLATION
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ENERGY AND ENVIRONMENT
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
MARCH 12, 2009
__________
Serial No. 111-14
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
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COMMITTEE ON ENERGY AND COMMERCE
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
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
BARON P. HILL, Indiana
DORIS O. MATSUI, California
DONNA CHRISTENSEN, Virgin Islands
KATHY CASTOR, Florida
JOHN P. SARBANES, Maryland
CHRISTOPHER MURPHY, Connecticut
ZACHARY T. SPACE, Ohio
JERRY McNERNEY, California
BETTY SUTTON, Ohio
BRUCE BRALEY, Iowa
PETER WELCH, Vermont
(ii)
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
CHARLES A. GONZALEZ, Texas MICHAEL C. BURGESS, Texas
TAMMY BALDWIN, Wisconsin
MIKE ROSS, Arkansas
JIM MATHESON, Utah
JOHN BARROW, Georgia
C O N T E N T S
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Page
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
Witnesses
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
record.
CONSUMER PROTECTION PROVISIONS IN CLIMATE LEGISLATION
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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
officio).
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.
OPENING STATEMENT OF HON. EDWARD J. MARKEY
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
cards.
Second, consumers are losing money on an inefficient,
outdated energy grid that wastes about half of the energy it
transports.
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
economy.
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
warming.
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
economy.
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.
OPENING STATEMENT OF HON. FRED 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
equation.
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.
OPENING STATEMENT OF HON. HENRY A. 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
competitive.
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:]
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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
there----
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
is----
Mr. Markey. What time is that on today?
Voice. 2:30.
Mr. Markey. OK. OK. The hearing will be concluded before
2:30.
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.
McNerney.
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
consideration.
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.
Pitts.
Mr. Pitts. Thank you, Mr. Chairman, and I would like to
thank you for convening this hearing today on this important
topic.
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.
Capps.
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.
Whitfield.
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
testimony.
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.
Scalise.
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
economy.
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.
Gonzalez.
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
households.
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
today.
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
work.
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.
OPENING STATEMENT OF HON. GENE 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
country.
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
legislation.
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
consumption.
Mr. Chairman, I know I am out of time, so I appreciate your
patience today.
[The prepared statement of Mr. Green follows:]
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Mr. Markey. The gentleman's time has expired.
The Chair recognizes the gentleman from Illinois, Mr.
Shimkus.
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
point.
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
televised.
Let me now turn and recognize the gentleman from Vermont,
Mr. Welch.
Mr. Welch. Thank you, Mr. Chairman. I will waive my opening
statement.
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-
trade.
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.
STATEMENTS OF STEVE KLINE, VICE-PRESIDENT OF CORPORATE
ENVIRONMENTAL AND FEDERAL AFFAIRS, PACIFIC GAS AND ELECTRIC
CORPORATION; SONNY POPOWSKY, CONSUMER ADVOCATE OF PENNSYLVANIA,
PENNSYLVANIA OFFICE OF THE CONSUMER ADVOCATE; ROBERT
GREENSTEIN, EXECUTIVE DIRECTOR, CENTER ON BUDGET POLICIES AND
PRIORITIES; STEVEN F. HAYWARD, AMERICAN ENTERPRISE INSTITUTE;
MIKE CAREY, OHIO COAL ASSOCIATION; AND JOHN S. HILL, DIRECTOR
FOR ECONOMIC AND ENVIRONMENTAL JUSTICE, UNITED METHODIST
CHURCH, GENERAL BOARD OF CHURCH AND SOCIETY
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:]
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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.
STATEMENT OF SONNY POPOWSKY
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
customers.
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:]
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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.
STATEMENT OF ROBERT GREENSTEIN
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
efficient.
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
rent.
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
inefficient.
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:]
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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.
STATEMENT OF STEVEN HAYWARD
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
indirectly.
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:]
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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
issues.
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:]
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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
sufficiency.
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
serve.
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
world.
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:]
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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
incorrect.
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
sources?
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
consumers.
So----
Mr. Markey. Mr. Greenstein, yes, my time has run out, and I
thank you, sir.
The Chair recognizes the gentleman from Michigan, Mr.
Upton.
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
percent.
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
cooling.
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
emitters.
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.
McNerney.
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
purchases.
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.
Chairman.
Mr. Markey. OK. The gentleman's time has expired.
The Chair recognizes the gentleman from Louisiana, Mr.
Scalise.
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
industries.
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
bill.
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.
Capps.
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
country.
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.
Shimkus.
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
who----
Mr. Shimkus. That is exactly really what I am talking
about. So they actually made money by stopping manufacturing
aluminum?
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
cases.
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
is.
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
is----
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
numbers.
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
disproportionately.
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
something.
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
this?
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
storms.
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
time?
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
efficiency?
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
gored.
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
time.
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
practicality.
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
affect----
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.]
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