[Senate Hearing 118-72]
[From the U.S. Government Publishing Office]
S. Hrg. 118-72
LEFT HOLDING THE BAG: THE COST OF OIL DEPENDENCE IN A LOW-CARBON WORLD
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HEARING
before the
COMMITTEE ON THE BUDGET
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
March 29, 2023
__________
Printed for the use of the Committee on the Budget
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
www.govinfo.gov
_________
U.S. GOVERNMENT PUBLISHING OFFICE
53-163 WASHINGTON : 2023
COMMITTEE ON THE BUDGET
SHELDON WHITEHOUSE, Rhode Island, Chairman
PATTY MURRAY, Washington CHARLES E. GRASSLEY, Iowa
RON WYDEN, Oregon MIKE CRAPO, Idaho
DEBBIE STABENOW, Michigan LINDSEY O. GRAHAM, South Carolina
BERNARD SANDERS, Vermont RON JOHNSON, Wisconsin
MARK R. WARNER, Virginia MITT ROMNEY, Utah
JEFF MERKLEY, Oregon ROGER MARSHALL, Kansas
TIM KAINE, Virginia MIKE BRAUN, Indiana
CHRIS VAN HOLLEN, Maryland JOHN KENNEDY, Louisiana
BEN RAY LUJAN, New Mexico RICK SCOTT, Florida
ALEX PADILLA, California MIKE LEE, Utah
Dan Dudis, Majority Staff Director
Kolan Davis, Republican Staff Director and Chief Counsel
Mallory B. Nersesian, Chief Clerk
Alexander C. Scioscia, Hearing Clerk
C O N T E N T S
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WEDNESDAY, MARCH 29, 2023
OPENING STATEMENTS BY COMMITTEE MEMBERS
Page
Senator Sheldon Whitehouse, Chairman............................. 1
Prepared Statement........................................... 29
Senator Charles E. Grassley, Ranking Member...................... 3
Prepared Statement........................................... 31
STATEMENTS BY COMMITTEE MEMBERS
Senator Ron Johnson.............................................. 17
Senator Ben Ray Lujan............................................ 25
WITNESSES
Mr. Claudio Galimberti, Senior Vice President & North America
Research Director, Rystad Energy............................... 6
Prepared Statement........................................... 33
Dr. Gregor Semieniuk, Assistant Research Professor, Political
Economy Research Institute & Department of Economics,
University of Massachusetts, Amherst........................... 8
Prepared Statement........................................... 112
Mr. Daniel Raimi, Fellow & Director, Equity in the Energy
Transition Initiative, Resources for the Future................ 9
Prepared Statement........................................... 124
Dr. Benjamin Zycher, Senior Fellow, American Enterprise Institute 11
Prepared Statement........................................... 139
Mr. Lucian Pugliaresi, President, Energy Policy Research
Foundation..................................................... 12
Prepared Statement........................................... 183
APPENDIX
Responses to post-hearing questions for the Record
Mr. Galimberti............................................... 216
Dr. Semieniuk................................................ 218
Dr. Zycher................................................... 220
Mr. Pugliaresi............................................... 227
Charts submitted by Chairman Sheldon Whitehouse.................. 230
LEFT HOLDING THE BAG: THE COST OF OIL DEPENDENCE IN A LOW-CARBON WORLD
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WEDNESDAY, MARCH 29, 2023
Committee on the Budget,
U.S. Senate,
Washington, DC.
The hearing was convened, pursuant to notice, at 10:00
a.m., in the Dirksen Senate Office Building, Room SD-608, Hon.
Sheldon Whitehouse, Chairman of the Committee, presiding.
Present: Senators Whitehouse, Van Hollen, Lujan, Grassley,
Crapo, Johnson, Braun, and R. Scott.
Also present: Democratic Staff: Dan Dudis, Majority Staff
Director; Matthew Bolden, Climate Policy Advisor; Jonathan
Misk, Director of Oversight and Senior Counsel.
Republican Staff: Chris Conlin, Deputy Staff Director;
Krisann Pearce, General Counsel; Jordan Pakula, Professional
Staff Member.
Witnesses:
Mr. Claudio Galimberti, Senior Vice President & North
America Research Director, Rystad Energy
Dr. Gregor Semieniuk, Assistant Research Professor,
Political Economy Research Institute & Department of Economics,
University of Massachusetts, Amherst
Mr. Daniel Raimi, Fellow & Director, Equity in the Energy
Transition Initiative, Resources for the Future
Dr. Benjamin Zycher, Senior Fellow, American Enterprise
Institute
Mr. Lucian Pugliaresi, President, Energy Policy Research
Foundation
OPENING STATEMENT OF CHAIRMAN WHITEHOUSE \1\
Chairman Whitehouse. Let me call this hearing of the Senate
Budget Committee to order. As usual, we will begin from opening
remarks from me and from Ranking Member Grassley, followed by
my introductions of the witnesses, and then witness statements.
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\1\ Prepared statement of Chairman Whitehouse appears in the
appendix on page 29.
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I have been pretty rigorous about trying to keep the
witness statements to five minutes each, so that we have a
conversation. So please try to observe that, and also know that
your full statement, your full report will be made a part of
the record of these proceedings, and then we will proceed to a
question and answer round of five minutes per Senator per
round.
So Ranking Member Grassley and colleagues, welcome to the
fifth Committee hearing on our series on the economic and
budgetary havoc that climate change threatens to wreak. The
last four hearings on this topic presented expert testimony on
the outcomes when climate change's physical effects disrupt
insurance, mortgage and property markets, and how those risks
are both systemic and multiple, with likely cascades of
economic disruption throughout the economy.
Today we'll hear about risks that don't result directly
from ecological upheaval, but stem from failing to keep up with
the global energy transition. Market transitions can be held
back by outside influence, and that occurs suddenly as economic
shocks.
These are potential costs of the fossil fuel funded
campaign of denial, delay, and obstruction, holding back the
transition, and then having it occur anyway in a sudden
collapse.
In other hearings, the operative term was ``systemic
risk,'' when losses in one sector cascade out through the
economic system. Here the issue is that the world is moving
away from oil and gas, but truculent and politically connected
market actors persist in fossil fuel investments, which then
crash in value when their unsustainable economics overwhelms
the artificial politics that supported them.
The operative term of today's hearing is therefore stranded
assets. The prospect of investments in fossil fuels becoming
relatively worthless when there is no one to buy the dirty
product may sound like a far-off possibility.
But for the United States, the world's largest producer of
oil and gas, it could be just around the corner. Why is that?
That's because Saudi Arabia and pretty much everyone else in
OPEC can produce oil far more cheaply, and thus can sell it a
lower price point than the United States.
If there is ever a rush for the exits, they can sell at
cost and price us out of the market. For now, prices are
propped up by the cartel. But just like a run on a bank, when a
major supplier loses confidence in the cartel and drops prices
to cost, things will change in a hurry.
The present artificial market cannot last forever. There
are too many externalities looming. Even fossil fuel companies
talk about the inevitably of reaching peak oil or the point at
which maximum oil demand is reached, followed by an
irreversible decline. How does that decline come? Is it slowly
up and then slowly down the other side of the peak?
Likely not. The International Energy Agency notes that as
soon as it becomes clear that oil demand is going to decline,
it will be in the economic interests of these lower cost
producers to flood the market at prices just above their
marginal cost of production. That shift could be fast.
When it happens, all the assets producing more expensive,
less competitive fossil fuels stateside can't compete with the
lower price, and they become worthless, stranded. The market
for American oil dries up fast. Our witnesses estimate that
stranded U.S. fossil fuel assets could total $397 billion.
Globally, the losses could total $1.4 trillion. This is what is
known as the carbon bubble.
Similar to the systemic risks that rising seas, flooding,
and wildfires pose to the housing, insurance, and mortgage
markets, a mass stranding of fossil fuel assets could also lead
to large economic shocks that reverberate across the broader
economy with real consequences for the federal budget.
And as we will hear today, peak oil is on the horizon. As
Putin's brutal invasion of Ukraine reminded the world, foreign
energy from petrocrats often comes with strings attached. It's
in the national self-interest of every single fossil fuel
importer from the EU to China to exit the volatile and
expensive oil and gas market as soon as they can, especially
when more solid energy security can be found in the form of
renewables, EVs and other low carbon technologies.
In the same way that a carbon bubble bursting hits the
United States particularly hard, within the United States
certain states will be hit particularly hard. States heavily
dependent on fossil revenue sources, as one of our witnesses
will elaborate. Preparing for that day by those who represent
those states is elementary prudence.
If we want to avoid the worst economic disruptions of a
carbon bubble, we need an orderly transition to zero carbon
energy. An orderly transition requires policies to smooth the
change, precisely the policies the fossil fuel industry has
spent over three decades fighting.
Every day that industry uses political power to hold back
progress, more water backs up behind the dam, making the
downstream catastrophe more damaging when the grim day arrives.
Orderly versus disorderly transition has grave ramifications.
Our choice is clear we can plan for the future and try to
minimize the economic damages associated with stranded assets,
or we can just keep plowing ahead and hope that all the
evidence is wrong.
Just as the scientists haven't been wrong about climate
change, something tells me the economists are not likely to be
wrong about the economic fallout. Ranking Member Grassley.
OPENING STATEMENT OF SENATOR GRASSLEY \2\
Senator Grassley. I have had the honor of serving Iowa in
the Senate for four decades. I've been Chairman of the Finance
and Judiciary Committees, so I know what it is to be chairman
of a committee, and I'm honored to serve with you on this
committee with you as chairman and I'm Ranking Member.
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\2\ Prepared statement of Senator Grassley appears in the appendix
on page 31.
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I've seen plenty of problems facing our nation, and most
were resolved through bipartisanship. Bipartisanship is going
to be really, really necessary if we're ever going to crawl out
of our deep fiscal hole that we're in right now.
Every week since becoming Ranking Member, I've tried to
focus the conversation on America's fiscal problems. We're
facing public debt that in a few years will surpass record
levels set in the wake of World War II. But five of our first
six hearings this Congress have been about climate change.
We've discussed sea level rise, hurricanes, wildfires, and the
state of the insurance industry.
Climate change is always worth discussing and must be
discussed. It should be on everybody's agenda. But a more
immediate threat within this Committee's jurisdiction needs to
be addressed. The United States is barreling towards a fiscal
crisis. We've been on an unsustainable fiscal path for decades,
and that's under both Republican and Democrat. Bipartisan
pandemic spending accelerated our journey to this fiscal cliff
that we're facing.
In times of national crisis, the federal government must be
able to respond with emergency spending. But once the crisis
subsides, Congress must tighten its belt to put debt and
deficits on a sustainable, manageable path.
Unfortunately, the exact opposite approach was taken in the
past two years. Despite an economy well on its way to recovery,
the Democrats who controlled the entire government, all three
branches or all three political branches, chose to go on a
multi-trillion dollar partisan spending binge.
Prominent economists from previous Democrat administrations
sounded a warning alarm. We had Larry Summers and Jason Furman
being the most prominent, speaking out. They correctly warned
that the Biden administration partisan spending spree would
have consequences. Those consequences are now coming to a head.
Decades-high inflation is proving difficult to stamp out.
Rapidly rising interest rates are taking a toll on our economy
most visibly on our financial system. Several banks have found
themselves flat-footed holding onto older low interest
government bonds that nobody wants to take in. The Fed finds
itself behind the eight ball. Further rate hikes are probably
necessary to tame inflation.
But doing so will put more stress on our financial system
and the broader economy, and yet President Biden and too many
in Congress refuse to acknowledge what everyone knows to be
true, that our debt and deficits are unsustainable, at
unsustainable levels. We can no longer kick the can down the
road.
President Biden, I want to tell you for the good of the
country, you must show presidential leadership. No more playing
politics. A good first step would be to engage Speaker McCarthy
in bipartisan talks to raise the debt limit and lay the
groundwork for fiscal discipline moving forward.
This Committee should also be engaged. Let's have a serious
and frank discussion about our dire fiscal situation. Let's
hold bipartisan hearings with respected economists and policy
experts from both sides of the aisle. Let's examine our
finances and find solutions.
So let me be clear. I support an all of the above approach
to energy production. The majority of Iowa's energy comes from
wind. I've been credited with creating the wind energy tax
credit. We get 60 percent of our electricity today from wind,
and in three or four years that will be 80 percent. I support
renewable technologies becoming more and more competitive.
I hope 30 years ago when I got the wind energy tax credit
passed, I was 10 or 15 years ahead of any discussion of climate
change at that time. So I don't think I have to take a back
seat to anybody doing what we can to fight global warming.
Now we have oil and gas clearly dominant in the United
States energy sector. The reality is that fossil fuels account
for 79 percent of U.S. energy consumption. It's naive to think
that an energy transition will happen even in ten years, or
that markets won't be able to keep up.
Environmentalists blocking the permitting of new energy and
mining projects will cause further delay. And for the United
States to change to renewables is entirely proper. But when you
think about how the third world nations are dependent upon
cheap energy, and if we want to help them get out of the
poverty hole that they're in, we're doing an injustice to them
if we believe in them. Besides, we seem to be backing up the
use of child labor in the Congo, when we get lithium out of the
Congo for our batteries for our cars.
So we need diversity to maintain energy security, and
energy security is of course national security. Even President
Biden understands that we're going to need fossil fuels well
into the foreseeable future. So Mr. Chairman, you've made your
message on climate change loud and clear.
But let's also focus on the immediate threats that are
squarely within this Committee's jurisdiction. I thank you very
much for listening to me.
Chairman Whitehouse. Well, I always listen to you, and I
would simply say that my idea of a good first step would be for
the Speaker to lay out what his actual plan is, and maybe even
try a vote on it. My experience is that in a democracy, secrets
from the public are usually a bad idea, and if it's a bunch of
bad ideas that are the secret, then that makes it a worse idea.
So let's see what Speaker McCarthy's plan is with specifics,
and we'll get going.
Our witnesses today are Claudio Galimberti, the Senior Vice
President and North American Research Director of Rystad
Energy, a leading energy consultancy, where he oversees their
analysis of global oil demand. He has worked in the energy
industry for over 20 years. We thank him for his testimony.
Next, we will have Dr. Gregor Semieniuk, who is an
assistant research professor at the Political Economy Research
Institute and the Department of Economics at the University of
Massachusetts-Amherst. He is an expert on the economic risks
posed by stranded assets, and has consulted for the United
Nations Environment Program, the European Commission, and the
UK government. We look forward to his testimony.
Daniel Raimi is a fellow and the director of the Equity in
the Energy Transition Initiative at Resources for the Future,
as well as a lecturer at the Gerald R. Ford School of Public
Policy at the University of Michigan. His work covers a wide
range of energy policy issues, with a particular focus on tools
that can enable an equitable energy transition for communities
dependent on the fossil fuel economy. We're glad to have your
testimony also sir.
Next is Dr. Benjamin Zycher, a senior fellow at the
American Enterprise Institute. He was formerly a senior fellow
at the Pacific Research Institute and the Manhattan Institute,
an adjunct scholar at the Cato Institute, a senior economist at
the Rand Corporation and a senior staff economist on the
Council of Economic Advisors.
Finally, we have Lucian Pugliaresi, the president of the
Energy Policy Research Foundation. He previously served at the
National Security Council under President Reagan, and in roles
at the Departments of State, Energy, Interior, and EPA. We
welcome him back to the Senate.
The last time I think he was testifying in the Senate, it
was at the Environment and Public Works Committee, where he
came to testify in opposition to renewable fuel standard
requirements for ethanol in gasoline, to say that the mandate
was wrong, that it was anti-consumer, that it raised prices for
consumers, presumably as a result of raising corn prices. With
that, let me turn it over to Mr. Galimberti please.
STATEMENT OF CLAUDIO GALIMBERTI, SENIOR VICE PRESIDENT AND
NORTH AMERICA RESEARCH DIRECTOR, RYSTAD ENERGY \3\
Mr. Galimberti. Thank you, Chairman Whitehouse, Ranking
Member Grassley and all the Committee Members for the kind
invitation to be here today. My name is Claudio Galimberti, and
I'm here representing Rystad, a global energy analysis and
consulting firm.
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\3\ Prepared statement of Mr. Galimberti appears in the appendix on
page 33.
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The global energy industry is at a turning point. A
transition is sweeping across many of its sectors. In some
areas like electric vehicles, solar PV, wind battery, the pace
of change has been gaining momentum. In others, commercially
competitive alternatives to oil and gas are yet to emerge.
The net effect is that we don't know yet how fast and deep
the process of energy transition will be. But one thing we know
for sure: the change already underway is relentless, and it is
not going to be business as usual. Fifteen years ago, the Shale
revolution led to a resurgence in American oil and gas
production, helping play a crucial role in satisfying domestic
and global demand for hydrocarbon.
This has kept supplies steady and as a result, prices in
check through geopolitical upheavals such as the Arab Spring.
In 2022, Russia's invasion of Ukraine has been perhaps the most
powerful illustration of how oil and gas supply routes can be
disrupted within a matter of days. Again, U.S. oil and gas has
been essential at keeping the market balanced and prices in
check.
In a similar fashion when oil began to--when oil began to
displace coal as the main source of energy in the 20th century,
technological breakthrough has been slowly but surely
integrated in renewables and non-fossil fuel sources into the
U.S. and global energy systems.
Just as coal was displaced by oil and gas, renewables and
emerging clean technologies are positioned to take much of the
pressure away from fossil fuel in the coming years and decades.
The energy transition is once in a generation opportunity for
the U.S. With strategic moves such as the Inflation Reduction
Act, with targeted incentive to accelerate the formation of
clean tech industries such as hydrogen and CCUS, the U.S. can
cement its position as an energy superpower.
Yet oil and gas demand is not going away in the short and
medium-term. The capital stock associated with energy
consumption takes time to be replaced, while emerging nations
aim to grow their per capita energy consumption on the back of
their urbanization and industrialization.
The U.S. is currently the largest oil and gas producer
worldwide, meeting 16 percent of world oil supply and 20
percent of natural gas. It is one of the cleanest and cheapest
suppliers, because U.S. production is in the bottom quarter of
upstream carbon intensity globally, and in the bottom half in
terms of breakeven costs.
Hence, if we were to divest too quickly from oil and gas,
the price of both will increase. Rystad Energy has developed
three scenarios, energy transition scenarios using our
proprietary modeling. A fast transition, which we call minus
sigma, compatible to the 1.6 degree increase in temperature
according to the IPPC, a slow transition called Plus Sigma,
compatible with 2.2 and the middle of the ground, meaning 1.9
degree. Any of these scenarios is still achievable. The fast
deployment of renewables and EVs in the past five years may
lead us to think we are on the fast transition.
Yet extrapolation of trends might fail to grasp supply
chain constraint, the need for regulatory tightening to achieve
those targets, and the likely higher costs associated with that
transition. Also, China's current stranglehold on some
renewable supply chain nodes could be a risk factor if a
dramatic reduction in global trade were to occur.
By the same token, the current lack of competitive
alternatives to oil in key demand sectors such as
petrochemical, heavy duty road transportation, aviation, may
lead us to think that oil is in a slow transition, while
technological breakthrough could quickly upend these
assumptions.
Currently, we think that the mean scenario is perhaps the
one with the higher chances of coming to fruition for oil. In
that case, U.S. shale will remain a key energy source for the
next 10 to 15 years, maintaining today's level of crude
production and increasing natural gas.
In a slow transition, shale production would need to
increase quite dramatically to match global demand. Yet if a
fast transition comes about, then shale production will need to
decrease rapidly in response to very low oil prices.
In conclusion, Committee, the transition is highly
uncertain and the outcome for oil and gas can be dramatically
different past 2030, depending on the pace of technological
development and uptake. Thus, now is the time for the U.S. to
take a pragmatic approach for energy policy, which leverages on
the flexibility of shale oil and gas while championing
renewables. By doing so, the U.S. can maintain its place as the
leader of the energy world.
Chairman Whitehouse. Thank you very much. Next is Dr.
Semieniuk.
STATEMENT OF DR. GREGOR SEMIENIUK, ASSISTANT RESEARCH
PROFESSOR, POLITICAL ECONOMY RESEARCH INSTITUTE AND DEPARTMENT
OF ECONOMICS, UNIVERSITY OF MASSACHUSETTS, AMHERST \4\
Dr. Semieniuk. Chairman Whitehouse, Ranking Member Grassley
and Members of the Senate Budget Committee. Thank you for
inviting me to testify. It is an honor to do so. My name is
Gregor Semieniuk. I am an assistant research professor of
Economics at the University of Massachusetts-Amherst.
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\4\ Prepared statement of Dr. Semieniuk appears in the appendix on
page 112.
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I research the economic drivers and consequences of
structural change in the energy transition. Recent publications
of my team in Nature Energy and Nature Climate Change analyze
the macroeconomic and financial risks of global oil and gas
asset stranding, due to uncertainty about the pace at which
energy demand is shifting to low carbon alternatives.
The U.S. economy is a major oil and gas producer and
therefore exposed to these risks. A key problem is that final
investment decisions today have to be made for projects that
require returns years into the future. Financial investors must
make decisions today about how to value companies based on
their ability to deliver shareholder distributions years into
the future.
The energy transition creates major uncertainty about
future fossil fuel demand. Here, I focus on reasons for
downside risk. That is, demand for fossil fuels that turns out
to be lower than what was expected at the time of investment.
That can lead to the stranding of the invested assets.
There are three key reasons for such downside risks to
materialize, and that depends on the actions of the whole
world, not just those of the United States. First, importers of
oil and gas have always had the energy security incentive to
wean themselves off the imports of fossil fuels.
Thanks to the fast decline in costs of low carbon
alternatives, there is now also an economic incentive to do so.
Cost declines and deployment of renewables continue to outpace
even bullish projections. Since Russia's invasion of Ukraine,
transition efforts in importing countries have only
intensified, with global record investments into renewables in
2022.
Thanks to the robust negative correlation between
cumulative investment and the price of various renewable
technologies, which is called ``wright's law,'' these efforts
will lead to even stronger incentives for a fast transition in
a self-reinforcing cycle. That is advantageous for fossil fuel
importers, but it creates stranded asset risks for exporters.
The second reason is the United States does not produce the
lowest cost product in the world. If other lower cost producers
expect fossil fuel demand to decline, they are incentivized to
attempt to capture as much of the remaining market as they can.
They would do this by flooding the market to lower prices.
We find that this is the dominant strategy for low-cost
producers to play, which leaves a diminished market for U.S.
producers to export to. We calculate that these two causes of
downside risk combined could lead to revenue losses in the U.S.
fossil fuel sector of $1.6 trillion in about 15 years. That in
turn would spur a GDP loss of $1.8 trillion over 15 years. Both
figures are discounted to present values.
These losses do not account for medium term lower
competitiveness in low carbon sectors if the U.S. economy
remains specialized in fossil fuel compatible technologies
longer than its competitors.
Third, U.S. investors are globally active, thereby exposed
to stranded fossil fuel assets not just in the United States.
We calculate that 400 billion U.S. dollars in potentially
stranded assets are currently sitting on U.S. balance sheets, a
third more than the value of U.S.-based production assets, and
30 percent of the global total. In light of the
interconnectedness of financial markets and herd behavior, such
financial risks could have systemic implications.
The current undersupply of fossil fuels may suggest that
stranded assets are really just an illusion. But it is
precisely the uncertainty about future demand for their
products that makes oil and gas companies more reluctant to
proceed with new projects today. Capitalist economies are
unrivaled in their ability to supply an expanding market.
The same cannot be said of a declining one.
Energy security in the short and long run must consider a
robust diversification away from relying mainly on fossil
fuels, whose prices will only become more volatile in a
declining global market. Thank you very much.
Chairman Whitehouse. Thank you very much, Doctor.
Our next witness is Mr. Raimi from RFF. Please proceed.
STATEMENT OF DANIEL RAIMI, FELLOW AND DIRECTOR, EQUITY IN THE
ENERGY TRANSITION INITIATIVE, RESOURCES FOR THE FUTURE \5\
Mr. Raimi. Senator Whitehouse, Senator Grassley,
distinguished Members of the Committee, thank you for the
opportunity to provide testimony today. My name is Daniel
Raimi. I am a fellow at Resources for the Future, and I direct
our Equity in the Energy Transition Initiative.
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\5\ Prepared statement of Mr. Raimi appears in the appendix on page
124.
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RFF is an independent, non-profit research institution. Our
mission is to improve environmental, energy and natural
resource decisions through impartial economic analysis and
policy engagement. The views expressed here are my own, and may
differ from those of other RFF experts, its officers or its
directors. RFF does not take positions on specific legislative
proposals.
As you've heard, the outlook for U.S. oil and gas
production is uncertain, but there are hundreds of communities
around the United States that depend on the production of oil
and gas for jobs and tax revenue. One crucial issue for these
communities and indeed the entire nation is the volume of
government revenue collected from fossil fuels, particularly
oil and natural gas.
I'd like to state that although I will be describing the
risks of government revenue losses from reducing our reliance
on fossil fuel, I do not view these risks as justification for
delay or inaction on climate change mitigation.
On average, from 2015 through 2019, the production and use
of fossil fuels generated $138 billion per year in revenue for
local, state, tribal, and federal governments. The largest
source is the gasoline tax, totaling $49 billion per year for
states, and $40 billion for the federal government.
These revenues fund transportation infrastructure and they
are declining. As fuel economy improves and electric vehicles
become more common, they will decline further. By 2050, we
estimate that these revenues will fall by $26 billion per year
under a business-as-usual scenario, and by 60 billion per year
under a scenario that limits global warming to two degrees
Celsius by 2100.
One option to replace these declining revenues is a tax on
vehicle miles traveled. This approach would more fairly
distribute the cost of maintaining our transportation
infrastructure. More than a dozen states and the federal
government are currently experimenting with pilot programs that
tax drivers based on miles driven. In addition, this tax could
be adjusted to reflect the weight of each vehicle, so that
drivers pay for the wear and tear that they impose on the
roads.
The second largest revenue source is from oil and gas
production, which generates bonus payments and royalties for
the federal government, states, and tribes, severance taxes for
states, property taxes for local governments, and several other
smaller revenue streams.
We estimate that these revenues total $34 billion per year,
with $7 billion for the federal government and $27 billion per
year for state and local governments. We estimate that by 2050,
these revenues will be $6 billion higher under a business-as-
usual scenario, and $8 billion lower under a two-degree
scenario. Under a 1.5-degree scenario, oil and gas revenues
would be $23 billion lower by 2050 for states and the federal
government.
Some local governments, states and native nations are
highly dependent on coal oil and natural gas to support
essential services. In Wyoming for example, fossil fuels
provide more than $7,000 per person in local and state revenue.
They represent more than half of all state and local revenue in
Wyoming. In North Dakota, Alaska, and New Mexico, fossil fuels
account for more than 15 percent of state and local revenue.
Native Nations, such as the Navajo, Southern Ute, and MHA
Nation are also heavily dependent on fossil fuels to support
essential services. Even in states like California, which does
not rely on fossil fuels for a large share of its revenue,
local communities such as those in Kern County depend heavily
on oil production to fund local services and education.
Transition to a net zero emissions economy will have major
implications for these communities and governments at every
level. For governments that rely on fossil fuels, investing in
economic diversification to develop new sources of revenue will
be critical.
Another important step would be investing more of today's
fossil fuel revenues, which in some places are at all-time
highs, in permanent funds that provide revenue regardless of
what happens to future oil and gas production. For the federal
government, the most economically efficient approach to
addressing climate change and raising revenue would be through
pricing carbon.
But even without a carbon price, the federal government can
play an important role in supporting local communities that
rely heavily on fossil fuels. The federal interagency working
group on energy communities is starting to play this role,
focused on coal communities. Although the challenges faced by
coal communities are large and deserve attention, the oil and
natural gas industry is a far larger employer and revenue
generator, and a downturn in oil and gas demand will have
larger impacts on government budgets.
We've learned from the coal experience that if we want
energy communities to thrive, policy intervention needs to
occur well in advance of industry decline. In short, the time
to design smart revenue policies and invest in these
communities is now. Thank you again for the opportunity to
speak.
Chairman Whitehouse. Thank you very much sir, and now we
turn to Dr. Zycher.
STATEMENT OF DR. BENJAMIN ZYCHER, SENIOR FELLOW, AMERICAN
ENTERPRISE INSTITUTE \6\
Dr. Zycher. Thank you, Chairman Whitehouse and Ranking
Member Grassley. A large shift away from fossil fuels is
virtually certain not to occur, because fossil fuels
overwhelmingly are the most efficient forms of energy now and
prospectively. Unconventional energy technologies are far more
costly and less reliable. It is only massive subsidies and
other policy subventions that allow them to attract investment.
---------------------------------------------------------------------------
\6\ Prepared statement of Dr. Zycher appears in the appendix on
page 139.
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Any such shift resulting from market forces would take
place over many years or decades as part of the long-term
process of capital depreciation and investments. There will be
no market-driven stranding.
Shifts in the values of capital assets are a constant
feature of a market economy, in particular resulting from
technological advances. There is no principle consistent with
support for a market economy that would imply a role for
government in response to such shifts.
Nor will government policies engender a massive stranding
of fossil capital assets. With perhaps one minor exception,
Congress has never enacted a statute mandating direct
reductions in greenhouse gas emissions, because that would
require sharp declines in the consumption of fossil fuels, that
is, a substantial increase in energy costs. That would not be
consistent with the political interests of elected public
officials.
IPIC argues that achievement of purported 1.5-degree safe
limit on global temperature increases would require explicit or
implicit taxes on fossil fuels equivalent to more than $35 per
gallon of gasoline by 2030 in constant year 2022 dollars and
rising sharply thereafter. No Congress will enact such policies
or any others even remotely approximating them.
Nor will international policies create a stranding. The
Paris Agreement, apart from the reality that the national
determined contributions are meaningless, necessarily contains
no enforcement mechanism nor could it. The only remaining
possibility is a massive regulatory stranding of fossil assets.
It would not survive judicial review under the major questions
doctrine.
The energy transition usually is justified on grounds of an
asserted climate crisis, in support of which there exists no
evidence, none, in terms of a comprehensive list of climate
phenomena. Instead, the crisis narrative derives entirely from
climate models that overstate the mid-tropospheric temperature
record by factors of about 2.5 on average.
The models are fine-tuned so as to deny the importance of
natural influences on climate phenomena, but that is
inconsistent with a large body of evidence, in particular the
sharp warming observed between 1910 and 1945.
Almost all of the adverse IPIC predictions are based upon
scenarios that IPIC itself describes as low probability, and
IPIC itself is deeply dubious about the various catastrophes
often asserted as looming large. NASA reports significant
planetary greening due to increasing atmospheric concentrations
of carbon dioxide, and data from the United Nations show that
global per capita food production has increased sharply since
the 1960s.
Cold kills far more people than heat. Just as anthropogenic
warming might create adverse effects, it also yields beneficial
impacts which are incontrovertible, and the two must be weighed
against each other. Government policies to reduce greenhouse
gas emissions would have future climate effects either
attributable or indistinguishable from zero, as predicted by
the EPA climate model under assumptions that exaggerate the
prospective effects of such policies.
The Biden administration net zero policy, just to pick an
example, would reduce global temperatures in 2100 by about 17/
100ths of one degree. That would be barely detectable. Such
policies cannot survive any plausible benefit cost test. That
is why the Biden administration has substituted calculations of
the social costs of carbon, a fatally flawed analytical
framework.
Let me conclude with an admonition. The title of this
hearing contains the phrase ``in a low carbon world,'' a
blatant attempt to assume the answers to the underlying
questions. It is therefore deeply misleading. This Committee, I
think, would be wise to reorient its focus and assumptions, and
to begin anew. Thank you very much.
Chairman Whitehouse. And our next witness is Mr.
Pugliaresi. Please proceed for five minutes.
STATEMENT OF LUCIAN PUGLIARESI, PRESIDENT,
ENERGY POLICY RESEARCH FOUNDATION \7\
Mr. Pugliaresi. Thank you, Chairman Whitehouse,
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\7\ Prepared statement of Mr. Pugliaresi appears in the appendix on
page 183.
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Ranking Member Grassley, Members of the Budget Committee.
Thank you for this opportunity to explore some of the
issues regarding stranded assets and energy transition. Let's
go to the first slide, please.
So you know, one of the issue is that the world still runs
on fossil fuels, and in fact, all the efforts we've made to
date on alternative fuels and more advanced kinds of fuels have
been additive to the world's energy supply. Renewable fuels
have not substituted for fossil fuels but have been added to
our energy supply.
This is data through 2019. You'll see there's a slight
flattening off in coal, but I'm sure when we see the '21-2022
data, we're going to see coal is up, resulting in the large
requirements for new gas supplies and in Europe causing greater
use of coal in Asia, as gas supplies have been diverted to
Europe.
Next slide, please. It's very important to understand that
the North American production platform is an instrument of
national power and wealth creation and energy security for not
only all of North America but for the United States. In fact,
if you look at this data on this slide, between 2010 and 2020,
the United States alone provided over 80 percent of the
increment in world demand for oil. It was that increment of
production out of the United States that helped to moderate
gasoline prices.
Next slide, please. There's a lot of discussion about
stranded assets, and we can see here from the various index
funds that since 2022, investors have been flooding into
traditional fossil fuel companies, particularly oil and gas.
In addition, if we look at the long bond market for
investment grade equities, there is no evidence at all that
investors, perhaps our most conservative investors, view oil
and gas as a risky investment, and some of these bond durations
go up to 16 years.
Next slide. There was some discussion about this issue
already, but I do think that these policies that much of the
administration's been talking about to halt oil and gas
development before we have cost-effective substitutes are both
risky and problematical.
Actually, this is a fundamental risk towards stranded
assets, but it's from government behavior. Here you can see
that some of the high bids in 2018 on federal lands in New
Mexico generated a billion dollars. Nearly $500 million of that
was returned to the state of New Mexico for use in schools,
health care, roads. Somebody is going to have to talk to the
officials in New Mexico and let them know that under the
administration's proposals, none of these funds will be
available.
Next slide. Okay. Let's talk a little bit about some of the
modeling. Next slide. Now you can see here the zero, the zero
net assumptions under the International Energy Agency shows
that between now and 2050 we must remove as much energy from
the world system as the entire OECD produces today.
This is an enormous task, and keep in mind four pillars of
modern civilization: steel, cement, fertilizers, and plastics,
have no cost-effective substitute today. These emerging
economies throughout the world, particularly in Asia, are
planning to grow. Their populations are going to expand, and
their economies are going to expand and they're going to need
vast quantities of energy.
Next slide. Now one of the--one of the assumptions we're
often told, or conclusions made is that if we would switch out
of fossil fuels into renewable fuels, we would insulate
ourselves from energy security. But as you can see here, it is
not a given. These renewable fuels require the importation and
the production of vast quantities of critical materials, and
these are rising in supply now. They face a broad number of
energy supply problems.
Next slide. In addition, right now, if you look on this
slide here you can see that the U.S. dominates the world
production of oil and gas. It does not dominate the world
production of critical materials needed for the transition, and
these materials, particularly the processing of them, are
entirely dominated by China.
Next slide. This is my final slide. Even if the entire OECD
were to go to net zero by 2050, in the absence of the rest of
the world engaging in some dramatic and draconian effort to
reduce its use of energy, total carbon emissions in 2050 would
only be about ten percent less than they would be in a
business-as-usual scenario. Thank you, Mr. Chairman.
Chairman Whitehouse. Thank you, Mr. Pugliaresi. Let me
start with Mr. Galimberti. For starters, tell me what kind of
entities rely on Rystad's expert judgments? Who are--what's
your customer base look like?
Mr. Galimberti. Thank you for your question, Mr.
Whitehouse. It's governments, it's all the energy sector. So
for starting with the oil producer, of course, renewables
producer. So it's the entire supply chain of energy.
Chairman Whitehouse. And it's your view that we are at a
point that you describe as epochal change. Epochal is a very
strong word to use. Could you describe why you use such a word?
Mr. Galimberti. We think we are. We think that the evidence
that it's been accumulating on the investment in renewables,
investment in batteries, in electric vehicles. Let's take the
electric vehicle. For the past 100 years, transportation, which
is half of all demand, has been dominated by an internal
combustion engine.
Chairman Whitehouse. So you see this as a really major
shift, equivalent to gasoline engines replacing horse-drawn?
Mr. Galimberti. It is possible. It is possible, Senator.
There are some caveats that are very important for us to
consider. The first is that so far----
Chairman Whitehouse. Let me come back to the caveats
because I just have five minutes, and you can always follow on
if you don't--if I don't get back to you, because the next part
of this was Doctor--and by the way, you say the peak could
happen in 2025, right, just a few years ahead?
Mr. Galimberti. In the 1.6-degree scenario, yes.
Chairman Whitehouse. Yes. When that happens, Dr. Semieniuk,
you talk about the systemic implications of stranded asset
risk. We've heard the word ``systemic'' repeatedly defined in
this Committee. It's a mild-mannered sounding word, but it
means big things, does it not?
Dr. Semieniuk. Yes indeed, thank you. Financial regulators
like to think about the risk around the climate change
transition as physical and transition risks, and transition
risks are associated with moving away from a fossil fuel-based
economy in order to mitigate climate change.
These risks have drivers in government policy and
technological change that is unanticipated by market
participants, and there are various transmission channels, and
one of these channels could be a decline in the asset values in
the fossil energy sector.
Chairman Whitehouse. So systemic implies that something
very big and dangerous might happen?
Dr. Semieniuk. Well yes. As we all know, the financial
system is interconnected. A few weeks ago, we saw with Silicon
Valley Bank that, you know, activities by the Federal Reserve
have far-reaching implications elsewhere in the system that
were unforeseen.
And so the thing with systemic implications is that, you
know, if we knew them we could hedge against them. That would
be priced in the market. But so, there is a risk of mispricing
and it is hard to predict how that could play out.
Chairman Whitehouse. Let's look at one way it could play
out, Mr. Galimberti has suggested that 2025 could be peak. On
the other side of peak, is it likely that participants in the
oil market will change their behavior as they see a declining
sales outlook?
Dr. Semieniuk. Yeah, certainly so. As I----
Chairman Whitehouse. So it would be prudent--it would be
prudent to consider that as a distinct possibility.
Dr. Semieniuk. Oh yeah, definitely.
Chairman Whitehouse. And the scenario could be that, for
instance, instead of honoring cartel pricing, Saudi Arabia
begins to sell at cost plus, and under price American and other
products; correct?
Dr. Semieniuk. That could be, conditional on the market
actually declining, so that there isn't a strain on suppliers
to actually meet demand, exactly.
Chairman Whitehouse. Yeah, and if they do that and the U.S.
products are priced out of the market, that can be--the effect
in the United States could be much more abrupt than the global
effect on the fossil fuel market?
Dr. Semieniuk. To the extent that U.S. producers are not
able to compete with these prices and that there is a global
market for the product that is being sold, yes.
Chairman Whitehouse. And this is not entirely in our
control, because actors overseas, the EU and Asia reducing
their fossil fuel dependence could provoke that decline, and
then we'd have to live with it even if we were still buying
just as much fossil fuel as ever.
Dr. Semieniuk. Indeed. There are strong economic and energy
security incentives for a large part of the global economy to
try and reduce fossil fuel imports, which are not only more
costly to use at some point today in some applications but
also, you know of course, hurt the current account balance that
drains foreign currency that could be spent on other things.
Chairman Whitehouse. And just a last question to Mr. Raimi.
We've heard testimony that the U.S. is particularly vulnerable
in the event of this market shift. Your testimony shows that
within the U.S. there are certain states that are particularly
vulnerable.
Could you give a brief description of what the economic
dangers are within those states, if that vulnerability should
come to fruition.
Mr. Raimi. Yes Senator, they are substantial. Some of the
states I mentioned in my testimony, such as Wyoming and North
Dakota, Alaska, parts of Texas, parts of other states rely
heavily on oil and gas extraction to fund public services.
If there is a sharp downturn in demand for oil and gas, or
prices of oil and gas, then these communities could face
revenue shortfalls, which could lead local and state
governments to reduce public services and/or raise taxes.
That could encourage people to leave the area and leave the
state, which would reinforce the negative cycle. So it's a
substantial issue.
Chairman Whitehouse. Thanks. Thanks for letting me go on a
bit longer. Ranking Member, I turn to you, Senator Grassley.
Senator Grassley. You know, quite regularly we Are preached
at by corporate elitists that think that we ought to be carbon-
neutral by some arbitrary dates, and then we see the hypocrisy
of how they fly around the world in their private jets, Dr.
Zycher and then they say they could pay for it, because they
have the wealth to buy carbon credits.
And then they talk about how they want to save the planet
and help the working class of America by paying lip service to
environmental justice. But no one ever addresses just how
harmful their decarbonization dreams would be in practice. So
to you, what impact would federally imposed divestment from
fossil fuels have on the U.S. economy?
Dr. Zycher. Well, we have several estimates in the
literature on the cost of achieving net zero emissions in the
U.S. and internationally. There is my estimate from a few years
ago, the cost of the Green New Deal, which is just one
variation of a net zero policy, for the electricity sector
alone my estimate was about $500 billion per year permanently,
or about $4,000 per U.S. household.
The American Action Forum, Doug Holtz-Eakin, wrote a study.
He used to be the head of the Congressional Budget Office. He
used a somewhat different methodology and came up with numbers
roughly equal to mine, about $500 billion per year.
Senator Grassley. Let me take you from those two figures
you just gave us, and tell us the impact that would have on
poor and working-class American families?
Dr. Zycher. Well, if you look--if you look at the data on--
from the Energy Integration Administration about the cost of
electricity from renewable sources, wind and solar power versus
conventional energy, what you'll see is the cost of wind plus
gas turbine backup, which you need to avoid blackouts, is about
four times higher than the cost of natural gas generation.
And then to answer your question, the question then becomes
what does that do to household budgets? If you look at the
Bureau of Labor Statistics reports on the percentage of
household budgets spent on electric power by income quintile,
you'll see that for the lowest income quintile it is nine
percent. For the next quintile it's I think around six percent,
and it's a slow--it's a declining percentage of household
budget as you move up the income ladder.
So there's no question that these policies are really
highly regressive, unless they are funded by taxpayers through
the tax system, in which case we should double the cost amounts
at a minimum, because of the excess burden or deadweight loss,
if you want to call it that, of the tax system.
Turner and Lassman did a study of the energy, of net zero
emissions not only for the electricity sector but for the whole
economy, electric vehicles, building refits, etcetera, and
their estimate is $50,000 a year per household permanently
every year.
This is not cheap, and anyone who claims that an energy
transition will occur naturally because of a cost advantage on
the part of unconventional energy is, I think, being deeply,
deeply unrealistic.
Senator Grassley. Okay. Let me go to Mr. Pugliaresi. We all
know you have a broad background in various departments of the
government on this whole issue. So do you expect the world to
forego energy security in an effort to reduce greenhouse gases,
and will fossil fuel demand collapse and are you concerned
about fossil fuel assets being stranded?
Mr. Pugliaresi. So absolutely not, Senator Grassley. We've
had a long-term project with the Institute of Energy Economics
in Japan, traveled all through South Asia. What you--when you
meet the local political leaders and energy planners in those
countries, they tell you they'd like to buy gas if it were
cheaper, but if they can't get it, they're going to get coal.
So our--it's so misguided. We can put a lot of gas into the
water, we could produce a lot more natural gas in this country,
and even at the upcoming G-7 meetings you're going to see some
disagreement on the role of gas.
Unfortunately, I think our--the current administration is
sort of opposed to making a strong statement and to promote the
use of gas for energy security and cost effectiveness.
Senator Grassley. Thank you.
Chairman Whitehouse. Senator Johnson.
STATEMENT OF SENATOR JOHNSON
Senator Johnson. Thank you, Mr. Chairman. I just want to
ask, do any of the witnesses, do you have a cost estimate of
what we've already spent trying to combat climate change? Mr.
Pugliaresi.
Mr. Pugliaresi. Yeah. So we know that for the world, the
last 20 years Bloomberg has done an estimate that we've spent
about, in direct subsidies and not mandates, not feed-in
tariffs, but just money from governments, $5 trillion. And for
solar, wind, and what we call modern biofuels, and the estimate
is that is generating about five percent of total primary.
Senator Johnson. So $5 trillion. We keep hearing that the
world's going to end in 12 years if we don't do something now.
Well, we've already spent $5 billion. Mr. Semieniuk, you raised
your hand here.
Dr. Semieniuk. Yeah, thank you Senator. Just to add to
this, the world also spent over $1 trillion in subsidies for
the fossil fuel sector in 2022. So it's a question both of
gross spending and net spending and also what that leads to in
the future.
Senator Johnson. But again, my point is if we've already
spent $5 trillion, I mean you're here and we've held now, this
is our fifth or sixth hearing, again trying to create an alarm
over climate change is going to create this calamity.
I mean Mr. Semieniuk, you're talking about stranded assets
that could cost us $400 billion. We've already spent $5
trillion and haven't even moved the mark because the rest of
the world is going to continue to do fossil fuels. Mr. Zycher.
Dr. Zycher. Yeah. One point I'd like to make in response to
Professor Semieniuk's comments; most of the global subsidies
for fossil fuel are consumption subsidies in Third World
countries designed to maintain social peace. What that tells us
is that an effort to make fossil fuels even more expensive will
be resisted heavily by most governments around the world,
precisely for the same reason that they subsidize the
consumption of fossil fuels now so heavily.
Senator Johnson. Again, if we're talking though about if
it's climate change and what climate change is going to produce
in terms of economic calamity, you know, higher insurance
costs, you know, I mean stranded assets.
The costs that I've listened to in these five hearings
pale, I mean pale in comparison to what we've already I would
say wasted, $5 trillion trying to hold back the tides, which we
cannot do.
I mean the most recent example, Goldman Sachs. This was
just in the Wall Street Journal, did their own study in terms
of the costs of the green energy subsidies in the Inflation
Reduction Act.
Now we were told before we voted on that it was going to
cost about $391 billion, very similar to the cost, you know,
the calamitous cost of stranded assets. Well, we just spent
$391 billion that we don't have, mortgaging our kids' future.
But Goldman Sachs says no, it's not $391 billion. It's $1.2
trillion.
So again, to me this calamity is all self-inflicted, and
all you have to do is just take a look at the total dollars
we're spending, having apparently no impact because everybody
keeps predicting things that the world's going to end in 12
years, and by the way, all the predictions that have been
ongoing for the last few decades haven't resulted in those
calamities. They're not true. They've been proven false. But
sir, you raised your hand.
Mr. Raimi. Thank you, Senator. I would just point you and
the Committee to recent work from Resources for the Future and
other institutions that's been published in peer-reviewed
literature, not white papers from think tanks, that looks at
the social cost of carbon and finds that, you know, every year
in the United States we are essentially doing $900 billion
worth of damage to society through our CO2
emissions.
Senator Johnson. Yeah listen. I have the greatest respect
for peer-reviewed literature. Mr. Zycher.
Dr. Zycher. Yeah. The social cost of carbon estimates both
from the Obama administration on an interim basis, the interim
estimates from the Biden administration, the RFF estimates in
Nature, and the forthcoming Biden administration finalized
estimates are deeply, deeply, deeply problematic.
They're based upon the inclusion of co-benefits of
purported reductions in other pollutants already regulated
under the Clean Air Act; the inclusion of global benefits,
which is an improper methodologically procedure; the use of
discount rates that are artificially low.
That factor alone, if one uses a discount rate of seven
percent as outlined in OMB Circular A-4, the social cost of
carbon and almost any integrated assessment model, it goes to
almost zero.
Senator Johnson. So let me ask. Who is doing these studies?
I mean what kind of government grants are they getting from the
agencies that want to prove climate change?
Again, this is a self-perpetuating----
Dr. Zycher. Well, I don't know. I don't care where the
funding comes from. It's irrelevant analytically.
Senator Johnson. They're just flawed studies.
Dr. Zycher. It's just--well the issue is whether the
analyses are rigorous intellectually, and the answer is no,
they're not.
Senator Johnson. Okay. I've run out of time, but I'm happy
to let your witnesses respond to that if they can.
Mr. Raimi. I would just encourage Dr. Zycher to engage with
the peer-reviewed literature on these topics, that is reviewed
by the top experts in the field.
Senator Johnson. All right.
Dr. Semieniuk. Thank you, and if I can still make two
points. First, I am glad that stranded assets estimates aren't
any higher than they are, meaning that a transition is a lot
cheaper than the possible cost if there isn't a transition from
physical damages.
Second, subsidies in the developing world are done to make
fossil fuels affordable. Luckily, renewable energy is now
actually cheaper than fossil fuels in many applications and is
set to become even more cheaper than fossil fuels, which tend
to become more expensive over time as the cheapest reservoirs
are depleted.
Senator Johnson. Then the economy will take care of it. If
it's cheaper, we'll move investments towards those cheaper
energy sources.
Dr. Semieniuk. Unless subsidies distort these markets.
Senator Johnson. Well thank you, Mr. Chairman.
Chairman Whitehouse. Thanks, Senator Johnson. Well let's
talk for a minute about subsidies that might distort these
markets.
It seems to me that it's fairly elementary economics that
the negative externalities of a product ought to be included in
the price of the product, in order for the proper market
decisions to be made. I think that's basically Milton Friedman
Econ 101. Does anybody disagree with that proposition?
(No response.)
Chairman Whitehouse. Okay. No evident disagreement.
So if and let's just go back. The most famous negative
externality is of course pollution, is it not? Across the
economic literature.
Dr. Zycher. Are you including the negative externalities,
Senator, attendant upon renewable, unconventional energy?
Chairman Whitehouse. I'm asking the general economic
question, whether we all agree, which we seem to, that negative
externalities under basic market theory ought to be included in
the price of the product so the market can work correctly. If
that's true, then if there are negative externalities that are
not baked into the price of the product, it would seem to me
that that would count as a subsidy.
In fact, economists regularly refer to those socialized
negative externalities as subsidies. That's a fairly standard
proposition in economic literature, isn't it, Mr. Raimi?
Mr. Raimi. Just minor distinction, you know.
Typically, I think we would refer to unpriced externalities
as an indirect subsidy.
Chairman Whitehouse. Yeah.
Mr. Raimi. Where it's a tax credit or a grant, it would be
a direct subsidy.
Chairman Whitehouse. Yeah, but a subsidy, nonetheless?
Mr. Raimi. Yes.
Chairman Whitehouse. And that's widely accepted as the
appropriate terminology in the economic literature; correct?
Mr. Raimi. In environmental economics, the field that I
know, yes.
Chairman Whitehouse. Yeah. Dr. Semieniuk.
Dr. Semieniuk. And if I may add, the International Monetary
Fund, to put this into perspective, estimates about one
trillion or even less in direct subsidies. In '22 they were
above one trillion. But these indirect subsidies amount to $5
trillion. I just want to add that our estimates about economic
competitiveness do not take into account these indirect
subsidies, because as you say, they are unpriced.
Chairman Whitehouse. Yeah. In fact, I was going to raise
that International Monetary Fund number myself. The most recent
one that I have seen from the International Monetary Fund for
indirect subsidy of fossil fuel just in the United States is
$660 billion every year.
That is a very, very big subsidy for renewables to have to
climb uphill against. Is that part of--Dr. Semieniuk, is that
the U.S. part of the number, the $5 trillion number you're
referring to?
Dr. Semieniuk. Yes.
Chairman Whitehouse. Okay. Thanks very much. Do you want
to--I'm kind of--okay. Well let me ask--I'd like to ask a
series of questions of Mr. Zycher, if you'd stand by for a
moment.
First of all, you seem to be agreeing that negative
externalities under economic theory ought to be into price, and
that when they're not, that's an indirect subsidy of the
product whose negative externalities are not priced. Is that a
correct statement?
Dr. Zycher. Yes, that's correct.
Chairman Whitehouse. Now reviewing your testimony, I'm a
little bit, just a little bit confused by it, and I'd like to
go through some of the propositions. You seem to be saying on
occasions that the earth just isn't warming, that in 2015----
Dr. Zycher. That's not what I said at all.
Chairman Whitehouse. Well, you have an exhibit that says
there are no significant trends in warming. You then separately
say that there is in fact a 1.1 degree increase since 1880, and
that roughly half of it is produced by anthropogenic sources,
which I presume you mean fossil fuel combustion?
Dr. Zycher. Well, much of it is fossil fuel combustion, not
all of it.
Chairman Whitehouse. You say roughly half.
Dr. Zycher. Anthropogenic sources are man-made. Natural
variability is not.
Chairman Whitehouse. And you think that half of the 1.1
percent increase that we've seen is anthropogenic.
Dr. Zycher. The available evidence in literature suggests
that about half of the 1.1-degree temperature increase since
1850 is anthropogenic. Yes, that's correct.
Chairman Whitehouse. And of the anthropogenic, it's
essentially all carbon combustion?
Dr. Zycher. Well no. It's not all. It's----
Chairman Whitehouse. Essentially all.
Dr. Zycher. Some of it is agriculture. Some of it is cement
production. It's anthropogenic in the form of the emissions of
greenhouse gases. It's not all fossil fuels.
Chairman Whitehouse. Okay, I'll take that, emission of
greenhouse gases, not just pure CO2 combustion.
Dr. Zycher. Right, right.
Chairman Whitehouse. So as recently as 2020, you've said
there's no consensus among scientists about climate science. Is
that a proposition you'll stand by here today?
Dr. Zycher. About climate science?
Chairman Whitehouse. Yep.
Dr. Zycher. I don't even understand what--I didn't say
that.
Chairman Whitehouse. Actually, you did, and we'll get that
information to you. But no point quarreling----
Dr. Zycher. Where in my statement do you see that?
Chairman Whitehouse. No, this is in 2020. It was in a
document called ``A Critique of the House Republican Climate
Policy Proposals.''
Dr. Zycher. There's no consensus on the equilibrium of
climate--the sensitivity of the climate system. In other words,
if you emit another ton of greenhouse gases, what is the effect
on temperatures after the climate system adjusts fully. There's
no consensus about that.
Chairman Whitehouse. So saying that one additional aliquot
of carbon dioxide can't predict precisely a degree of
temperature increase.
Dr. Zycher. No. We do not know. We do not know.
Chairman Whitehouse. That's a different thing than saying
that there's no consensus among scientists about climate
science. Would you concede that you may have overstated the
proposition?
Dr. Zycher. I would have to see what I said, Senator.
Chairman Whitehouse. Okay. Well let's move on then, because
we don't have that in front of us.
Dr. Zycher. Fine.
Chairman Whitehouse. In 2019, when President Trump said
that global warming is a hoax, you said there is very
substantial truth in that statement. What did you mean by
saying that there is very substantial truth in President Trump
calling this a hoax.
Dr. Zycher. You know, I would be the first to agree that
the precise use of language is not among Mr. Trump's political
habits and mannerisms. What he actually said was a lot of it
was a hoax. Now the argument that----
Chairman Whitehouse. Is a lot of it a hoax?
Dr. Zycher. A lot of it is a hoax. I don't know what ``a
lot of it'' means.
Chairman Whitehouse. Well, you're the one who said very
substantial.
Dr. Zycher. Pardon?
Chairman Whitehouse. You're the one who used the words
``very substantial,'' not a lot.
Dr. Zycher. Well, the argument that there's a crisis
looming is a hoax. The argument that a U.S. net zero policy
will make an appreciable difference is a hoax. There are lots
of hoaxes in this debate. It does not mean anthropogenic
warming itself is a hoax. It certainly is not.
Chairman Whitehouse. You said in 2015 that since the
implementation of the Kyoto Protocol, the satellite temperature
record essentially has been flat. Now you say 1.1 degree is
since 1880 and half of it is greenhouse gas emissions; correct?
Dr. Zycher. Well, the satellite record begins in 1979, not
1880 Senator.
Chairman Whitehouse. You used the term 1880.
Dr. Zycher. Well, that's the surface temperature record,
not the satellite record. The satellite record begins in 1979,
and then the question is how you interpret the changes in mid-
tropospheric temperatures over the last 40 years. That's much
more difficult. But there certainly has----
Chairman Whitehouse. It was your intention in 2015 to
convey the notion that global warming was not happening because
the satellite temperature record was flat, right? What other
point would you have been making?
Dr. Zycher. No. There was a hiatus after the--there was a
hiatus after the El Nino of 1998.
Chairman Whitehouse. Gotcha.
Dr. Zycher. Extending to something like 2014 or something
like that. I'd have to go back and look.
Chairman Whitehouse. Okay. So you meant that----
(Simultaneous speaking.)
Dr. Zycher. That does not mean--that does not mean,
Senator, that climate change or anthropogenic climate change
``is not happening.'' There are anthropogenic effects. There's
natural variability. We don't understand the relationships
between the two, and to say that the temperature is not
changing over some short period of time does not mean that
there is no anthropogenic warming. Of course there is.
Chairman Whitehouse. I will agree with you on that very
point. Thank you. I think that's wisely stated. And you concede
that the ten warmest years in the historical record have all
occurred since 2010?
Dr. Zycher. No, that's certainly not correct. That is
certainly not correct. The argument that you see in the
literature, especially from the--in the National Climate
Assessment, that there's been an increase in extreme
temperatures----
Chairman Whitehouse. So this, this graph----
Dr. Zycher. Yeah.
Chairman Whitehouse [continuing]. Is not, correct?
Dr. Zycher. No, it is correct.
Chairman Whitehouse. And are not the top ten temperature
years all up here in the last----
Dr. Zycher. Well, I can't really--I can't really--I'm not
sure which, I'm not sure what the base period is. I can't
really read that chart very well.
Chairman Whitehouse. Well, you know it reasonably well,
because it's actually in your testimony, right?
Dr. Zycher. Yeah, that's right. Well, I'm not--I don't know
if it's the same one. I have one very similar to it. It may
be----
Chairman Whitehouse. And does your one very similar to it
also show that the top ten years, the top ten heat years----
Dr. Zycher. I'm sorry what?
Chairman Whitehouse. The ten warmest years on the
historical record have all occurred since 2010. Your graph and
this graph both show the same temperatures; correct?
Dr. Zycher. Yeah. I'm not sure. I have to go look.
Chairman Whitehouse. Okay. Let me go on a little bit, just
to some of the things that you've said. Has the climate
industry evolved into a totalitarian ideology?
Dr. Zycher. Well, climate policy has evolved into a
totalitarian ideology, controlling how people move, controlling
the type of heaters they use, controlling the type of stoves
they use, controlling the characteristics of the homes they
live in.
Chairman Whitehouse. And you draw an equivalence in the
statement that you said ``The climate industry evolved into a
totalitarian ideology'' is your quote, and you make a reference
in that quote, in that passage also to Benito Mussolini. What
is the point of making a reference to Benito Mussolini in the
context of discussing what you call the climate industry?
Dr. Zycher. Mussolini's quote was that everything within
the state, everything by the state, everything for the state,
and we have arrived not far from the position in which
everything is climate, everything is part of climate, and
everything is driven by climate.
Chairman Whitehouse. All right.
Dr. Zycher. So it really is, I think, a certain--there is a
certain totalitarian flavor at a minimum.
Chairman Whitehouse. And to add to that, you've also
compared environmentalist views as ``strangely reminiscent of
Joseph Stalin's view of the difference between one death and
millions.'' What is your point in trying to compare
environmentalists and Joseph Stalin?
Dr. Zycher. The environmental left has made no secret of
its lack of caring about the deaths of many millions of people
in the Third World as a result of energy shortages and all the
rest. I've been quite explicit about that.
Chairman Whitehouse. Is that why you say environmentalists
hate humanity?
Dr. Zycher. Yeah, I do actually. Yes, that is why I say
that. Or left-wing environmentalists. I wouldn't, I don't know
that I----
Chairman Whitehouse. Well, let's talk about a non-left-wing
environmentalist who is on this Committee, Senator Graham. He
suggested that Republicans should put together their own
environmental plan as an alternative of the Green New Deal.
You responded that he was embracing an anti-human world
view, and that the mere endorsement of a climate policy implies
an endorsement of the climate crisis view. Was it your
intention to compare Senator Graham with an anti-human----
Dr. Zycher. Those are two separate statements, Senator. If
fossil fuels are evil, then the factors that increase the
demand for fossil fuels are also evil. Among them prominently
are investments in human capital, health care training,
education and all the rest. If you really believe that fossil
fuels are evil, then investments in human capital are also evil
and therefore----
Chairman Whitehouse. No, I don't think I've said that
fossil fuels----
Dr. Zycher. I didn't say that you said that, Senator.
Chairman Whitehouse. You have said that it's an anti-human
world view.
Dr. Zycher. Yeah, and I'm explaining why that is true.
Chairman Whitehouse. Okay, okay, and what was--what was
your saying that Senator Graham is embracing that anti-human
world view by agreeing to work or trying to develop a climate
policy?
Dr. Zycher. No. What I said about Republicans endorsing
climate policies is that if in fact they endorse climate
policies, then they implicitly or explicitly are endorsing the
climate crisis narrative, for which there is no evidence. Once
you adopt that stance, there is no principle to defend against
the most extreme policy proposals. I never said or thought that
Senator Graham was anti-human in any sense.
Chairman Whitehouse. Well, that's good, because he and I
are friends, and I don't think he is either. Before you
became--Senator Lujan is here. Let me--are you ready to go sir
or shall I--okay. Before you began to offer testimony in the
arena of climate change, you were often consulted and offered
reports and so forth by the tobacco industry; is that correct?
Dr. Zycher. No. That's simply not correct.
Chairman Whitehouse. Nope? You were not part of the Tobacco
Institute's stable of consultants?
Dr. Zycher. No Senator. The late Professor Bob Tollison,
for two or three years running, received small grants from the
Tobacco Institute to organize sessions at the Western Economic
Association annual meetings on the topic of--on the general
topic of whether or not tobacco taxes are efficient
economically.
Chairman Whitehouse. Well, I'll tell you what I will do.
Dr. Zycher. Well Senator, if you would let me answer your
question, I'd appreciate it.
Chairman Whitehouse. The question was quite simple--did
you, were you paid by tobacco industry organizations or
organized by them to provide testimony, including the Tobacco
Institute.
Dr. Zycher. I received about a hundred dollars each year
for about two or three years, yes.
Chairman Whitehouse. Okay. Well, here's what I will do,
because Senator Lujan is ready to go. I will review what I
consider to be multiple occasions upon which you spoke for the
tobacco industry against the regulation or taxation of
cigarettes, and I'll give you the chance in writing to relate
what your role was on all those various occasions.
Dr. Zycher. I just told you what the role was.
Chairman Whitehouse. Yeah, and I'll give you the chance to
put that in writing.
Dr. Zycher. Very good.
Chairman Whitehouse. Senator Lujan.
STATEMENT OF SENATOR LUJAN
Senator Lujan. Thank you, Mr. Chairman, and thank you to
Ranking Member Grassley for this hearing and to all the
panelists who are here today. Much of the written testimony for
this hearing focuses on the financial risks and stranded
assets.
These financial risks are real and need to be managed, but
I want to focus on another area. I would like to highlight for
the witnesses and for my fellow Committee members, another type
of stranded risk, in the area of stranded communities or
livelihoods lost or job opportunities as well.
Mr. Raimi, your testimony states that communities with
stranded assets might need a decade or more of support to
recover. What types of programs will support these communities
and local governments for the decade it will take for them to
recover?
Mr. Raimi. Thank you, Senator. In the short to medium term,
I think it's likely that these communities will need support
either from their state governments or from the federal
government to provide essential services, including education,
public safety, roads, and other essential services.
In the long term, I think the goal for many of these
communities will be to build economic resilience over time, and
frankly the solutions to building economic resilience are
complex and they vary enormously from community to community.
My hope is that the federal government can support the
priorities of local stakeholders and local community leaders,
to pursue the economic resilience strategies that they think
will be most promising for their communities.
Senator Lujan. And the conclusions of your testimony
emphasize the urgency of the clean energy transition, and the
importance of providing support to state and local governments.
But your testimony does not go as far as suggesting how much
support, for how long and in what form.
Does the federal government have an obligation to provide
support to state and local governments to replace revenue lost
in the transition to clean energy?
Mr. Raimi. I think ultimately that will be a question for
you and your colleagues to decide. RFF does not make specific
policy recommendations on these types of issues.
We do provide evidence and research to support your
decision-making, and what I would say is that if there is
federal government policy that leads to stranded assets or
reduced revenue for local governments, it seems logical to me
that the federal government would help those communities manage
those negative impacts.
Senator Lujan. I appreciate that, and one area, Mr.
Chairman, that we've been able to do some work in an area that
was completely ignored, which was included in the Bipartisan
Infrastructure package, was to plug abandoned and orphaned oil
and gas wells, for example, an area where neglect throughout
the country, including families where there were maybe one
generation to the next in inheritance of a well that was not in
production, that was completely abandoned left there.
You know, if any of you have been to these, the last time
that I traveled to some orphaned oil and gas wells, there were
some cattle grazing near a couple of them. No investment had
been made in the structures themselves. There was leaking oil
all around the area that I went in. As a matter of fact,
there's a--for those of you that are familiar, there's a
collection to the tank that is a pipe that comes out and then
there's like a bucket that will capture whatever is coming out
of it.
Well, there were no trucks going in. There were cows out
there, and they were drinking from that bucket, a bucket that
had a couple of inches of residue on top of the water. And so,
I'm very proud that we were able to work in a bipartisan way,
to go out and do some of this additional cleanup.
Mr. Raimi, that's what I'm trying to get at, is
opportunities, job creation, looking at areas where there's
been neglect. In New Mexico for right now, while we're not the
number one oil or gas producer in the country, and New Mexico
has been an energy producer for some years, but we have the
largest methane plumes in the country.
Makes zero sense to me. If we're not the largest, why don't
the largest have them? What investments have been made to stop
that, for example? That's a job creator. As a matter of fact,
one of the times I went out there was some technology made
available to us, where we could see methane plumes. You can
always smell it, but this would allow us to see it.
When I was looking at this stuff, you could see it for as
far as--Dr. Zycher, I'll let you finish there, sir.
Dr. Zycher. I'm sorry.
Senator Lujan. I wasn't calling on you. I was just--I
didn't want to get in the way of your conversation. Is what
could happen from the perspective of not controlling, when we
saw this space. But having more technology to stop those leaks,
plug those leaks, creating opportunity in places like New
Mexico is just another area.
As there's more investments and decisions being made, we're
seeing something finally being embraced by the industry in New
Mexico, when you see the largest producers in the country now
and around the world embracing renewable deployments and
changing where they're putting their money.
I certainly hope that everyone else will catch up with what
we can be doing in that space. So that's what I was trying to
get at. I'm sorry for going over my time Mr. Chairman, but I
really appreciate everyone being here and for us to be able to
have this conversation. Thank you, Mr. Chairman.
Chairman Whitehouse. Thanks very much. I'm getting ready to
conclude but let me just ask Dr. Zycher one last question about
his tobacco work. There's a report in 1990, in which you are
cited to have said that ``various proposals for regulation or
taxation of cigarettes are a figurative gold mine for those
interested in a display of moral posturing.''
Is there another motive that is possible for regulation or
taxation of cigarettes than mere display of moral posturing?
Dr. Zycher. Is there another motive possible? Sure. There
are lots of possible motives.
Chairman Whitehouse. Like public health? Like people not
dying of cigarette-caused cancer?
Dr. Zycher. That's a private health, not a public health
issue, Senator. Lung cancer and emphysema are not contagious.
Chairman Whitehouse. So if something's not--okay.
That's an interesting definition of public health. Let me
conclude by referring back to the previous Republican-invited
witness, Jessica Wankel, who said that it was very important in
evaluating the testimony and research that is prepared, to
understand the funding behind organizations.
If we could just take a quick look at AEI, through 2020,
AEI has received more than $4.4 million just from oil and gas
giant ExxonMobil, the most that any think tank recipient of
funds from Exxon has ever received. At the same time, AEI also
received over $28 million from Donors Trust and Donor Capital
Fund, two organizations that I talk about quite regularly
because they have essentially no role other than to obscure the
identity of donors.
They are an identity laundering mechanism, referred to as
the ``dark money ATM'' of the conservative movement.
In addition, nearly $15 million from the Scaife Foundation,
over $2.2 million from Coke family foundations, and hundreds of
thousands from the American Petroleum Institute, which it's a
little on the nose to actually give directly when you could run
it through Donors Trust, but there they are.
So I will ask a question for the record, and Dr. Zycher you
can answer this how you wish. I know you say that your
testimony here is not endorsed by the American Enterprise
Institute, but I will ask for any information that you have
related to the continued fossil fuel funding of your work at
AEI, and we'll do that in a question for the record, so you
have all the time in the world to answer is carefully.
Dr. Zycher. Well, could I make two points about that now?
Chairman Whitehouse. Fire away.
Dr. Zycher. First, I'm not involved in fundraising at AEI.
I have no idea where AEI's funding comes from, and it has no
effect on my work. Second, you know really Senator, your not
very subtle effort to imply that anyone that disagrees with you
is little more than a prostitute, is really rather shameful,
and I would urge you to abandon it.
If you have found an error of either fact or analysis in my
work, I'd love to hear it. Complaining about where AEI does or
does not get its funding over some time period really has
nothing to do with the substance of the issues, and I would
urge you to abandon that line of thinking. But I will respond
to your written questions.
Chairman Whitehouse. That would be great, and I would point
out to you that sitting here as an elected official in
Congress, trying to find ways to deal with the climate problem,
I see the malevolent force of the fossil fuel industry through
its politics and through its dark money everywhere.
It is the reason that since Citizens United, we have made
really no bipartisan progress on any significant piece of
climate legislation, when in the years before Citizens United
there was abundant bipartisan effort on climate legislation.
The before and after is clear.
I think the cause, which is abundant fossil fuel money
pouring into politics to buy compliance with their narrative,
is exactly the reason that we are in the bad state we are here
today. So whatever AEI and other fossil fuel-funded
organizations might mean to you, they mean quite a lot to me
because I see their handiwork in this building all the time.
With that, the hearing is concluded. The record will be
open for--until noon tomorrow for any questions that any member
may have. I would ask all the witnesses, if you have a response
to a question that comes in, please get it back in a week, and
I thank everyone for a particularly interesting hearing.
[Whereupon, at 11:35 a.m., Wednesday, March 29, 2023, the
hearing was adjourned.]
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