U.S. GOVERNMENT PRINTING OFFICE

64–876 CC WASHINGTON : 2000

KYOTO AND THE INTERNET: THE ENERGY

IMPLICATIONS OF THE DIGITAL ECONOMY

HEARING

BEFORE THE

SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH,

NATURAL RESOURCES, AND REGULATORY AFFAIRS

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

FEBRUARY 2, 2000

Serial No. 106–125

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

BOB BARR, Georgia

DAN MILLER, Florida

ASA HUTCHINSON, Arkansas

LEE TERRY, Nebraska

JUDY BIGGERT, Illinois

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

HELEN CHENOWETH-HAGE, Idaho

DAVID VITTER, Louisiana

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

HAROLD E. FORD, JR., Tennessee

JANICE D. SCHAKOWSKY, Illinois

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

DAVID A. KASS, Deputy Counsel and Parliamentarian

LISA SMITH ARAFUNE, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH, NATURAL RESOURCES, AND

REGULATORY AFFAIRS

DAVID M. MCINTOSH, Indiana, Chairman

PAUL RYAN, Wisconsin

BOB BARR, Georgia

LEE TERRY, Nebraska

GREG WALDEN, Oregon

HELEN CHENOWETH-HAGE, Idaho

DAVID VITTER, Louisiana

DENNIS J. KUCINICH, Ohio

TOM LANTOS, California

PAUL E. KANJORSKI, Pennsylvania

BERNARD SANDERS, Vermont

HAROLD E. FORD, JR., Tennessee

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

MARLO LEWIS, JR., Staff Director

BARBARA F. KAHLOW, Professional Staff Member

GABRIEL NEIL RUBIN, Clerk

ELIZABETH MUNDINGER, Minority Counsel

(III)

C O N T E N T S

Page

Hearing held on February 2, 2000 ......................................................................... 1

Statement of:

Hakes, Jay, Administrator, Energy Information Administration, Department of Energy; Joseph Romm, executive director, Center for Energy

and Climate Solutions, and former Acting Assistant Secretary for Energy Efficiency and Renewable Energy, Department of Energy; and

Mark Mills, senior fellow, Competitive Enterprise Institute, and scientific advisor, Greening Earth Society ...................................................... 12

Letters, statements, et cetera, submitted for the record by:

Chenoweth-Hage, Hon. Helen, a Representative in Congress from the

State of Idaho, prepared statement of ......................................................... 2

Hakes, Jay, Administrator, Energy Information Administration, Department of Energy, prepared statement of ...................................................... 14

Kucinich, Hon. Dennis J., a Representative in Congress from the State

of Ohio, prepared statement of .................................................................... 9

McIntosh, Hon. David M., a Representative in Congress from the State

of Indiana, prepared statement of ............................................................... 5

Mills, Mark, senior fellow, Competitive Enterprise Institute, and scientific

advisor, Greening Earth Society, prepared statement of .......................... 58

Romm, Joseph, executive director, Center for Energy and Climate Solutions, and former Acting Assistant Secretary for Energy Efficiency and

Renewable Energy, Department of Energy, prepared statement of ......... 40

(1)

KYOTO AND THE INTERNET: THE ENERGY

IMPLICATIONS OF THE DIGITAL ECONOMY

WEDNESDAY, FEBRUARY 2, 2000

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH,

NATURAL RESOURCES, AND REGULATORY AFFAIRS,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 10:30 a.m., in room

2247, Rayburn House Office Building, Hon. David M. McIntosh

(chairman of the subcommittee) presiding.

Present: Representatives McIntosh, Ryan, and Kucinich.

Staff present: Marlo Lewis, Jr., staff director; Barbara F.

Kahlow, professional staff member; Bill Waller and Heather Henderson, counsels; Gabriel Neil Rubin, clerk; Elizabeth Mundinger,

minority counsel; and Jean Gosa, minority staff assistant.

Mr. RYAN [presiding]. A quorum being present, the Subcommittee on National Economic Growth, Natural Resources, and Regulatory Affairs will come to order. I ask unanimous consent that all

Members’ and witnesses’ written opening statements be included in

the record. Without objection, so ordered.

I ask unanimous consent that all articles, exhibits, extraneous or

tabular material referred to be included in the record. Without objection, so ordered.

I also ask unanimous consent that the record be left open for 10

days for any additional statements to be included in the record.

Without objection, so ordered. I understand that my colleague, Ms.

Chenoweth-Hage, is attending a mark up and may not be able to

join us today. However, she has asked that a prepared statement

of hers be entered into the record. Without objection, so ordered.

[The prepared statement of Hon. Helen Chenoweth-Hage follows:]

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Mr. RYAN. Today’s hearing will examine how the burgeoning digital economy, comprised of e-commerce and the information technology industries that make e-commerce possible may change energy trends in the U.S. economy and how such changes may affect

the cost and feasibility of the Kyoto protocol.

In March 1999, Vice President Gore stunned some of us and

amused others by claiming to have created the Internet. ‘‘During

my service in the U.S. Congress, I took the initiative in creating

the Internet,’’ Mr. Gore said during an interview with CNN’s Wolf

Blitzer. Now, whether or not Al Gore is the father of the Internet,

he is unquestionably the father of the Kyoto protocol. Mr. Gore led

the United States negotiating team at the December 1997 Climate

Change Conference in Kyoto, Japan. During his service in the Senate and at the White House, Al Gore took the initiative in creating

a legally binding international climate treaty.

So, one might say that today’s hearing will examine the relationship between the Vice President’s brain children. Will the digital

economy facilitate Kyoto-style energy restriction policies by decreasing the energy intensity of the U.S. economy? Or, will the digital economy sweep the Kyoto protocol into the dust bin of history

by increasing United States and global demands for electric power?

The digital economy is growing at a phenomenal pace. For example, during the past 2 years alone, the number of web users worldwide increased by 55 percent, the number of web servers increased

by 128 percent, and the number of new web address registrations

rose by an astounding 137 percent. The U.S. Department of Commerce’s recent publication, the Emerging Digital Economy II, forecasts that by 2006, almost half the U.S. work force will be employed by industries that are either major producers or intensive

users of information technology products and services. The Commerce Department study also reports that information technology

industries contributed over one-third of the Nation’s real economic

growth from 1998 to 1999.

In thinking about this key driver of U.S. economic performance,

I can’t help noticing that the digital economy runs solely on electricity. More than half of U.S. electricity is produced from coal.

Coal is the fuel source targeted for extinction by the Kyoto protocol.

So, is there not a fundamental incompatibility between the energy

requirements of a digital economy and the Kyoto protocol? Can we

really wire the world and, at the same time, restrict United States

and global access to abundant, affordable and reliable electric

power?

Our witnesses, I am aware, have different answers to those questions. We encourage this, and we are excited about hearing your

testimony. Yet, there appear to be some broad areas of agreement.

The experts agree that the digital economy is enormously important, enormously large, and growing exponentially. They also agree

that Internet forecasting is fraught with uncertainty. As the Commerce Department has observed, this emerging digital economy

regularly surprises those who study it most closely. What this suggests to me is that we should proceed with caution in considering

any policy that may damage or restrict the electricity supply that

powers the digital economy. Indeed, since the digital economy is

still very much in its infancy, we should probably move more slowVerDate 11-MAY-2000 09:23 Aug 03, 2000 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\DOCS\64876.TXT HGOVREF1 PsN: HGOVREF1
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ly and cautiously in considering a treaty like the Kyoto protocol

than at any other time.

Before turning to my colleague, Mr. Kucinich, for his opening

statement, I would like to introduce our witnesses: The Honorable

Jay Hakes, Administrator of the Energy Information Administration [EIA], of the U.S. Department of Energy. Jay, I believe, will

be speaking first. Mr. Hakes will present EIA’s analysis of energy

trends and the digital economy. EIA testified before this subcommittee last year on a related issue. Welcome back, Mr. Hakes.

Mr. HAKES. Thank you.

Mr. RYAN. Dr. Joseph Romm, executive director of the Center for

Climate and Energy Solutions and a former Clinton administration

Acting Assistant Secretary for Energy Efficiency and Renewable

Energy, will speak next. Welcome, Dr. Romm.

Mr. ROMM. Thank you.

Mr. RYAN. Dr. Romm will present the case that the Internet

economy is breaking the historic link between economic growth and

energy demand growth. If I am not mistaken, Dr. Romm believes

that Internet efficiencies will enable us to implement the Kyoto

protocol without economic pain. Thank you for testifying, Dr.

Romm.

Our final witness is Mark Mills, senior fellow at the Competitive

Enterprise Institute and scientific advisor to the Greening Earth

Society. Mr. Mills will present the case that the digital economy is

fueling a surge in demand for cheap, abundant and reliable electric

power. He views the Kyoto protocol as a threat to the digital economy. To my knowledge, Mr. Mills was the first analyst to raise the

topic of today’s discussion. Thank you for participating in this hearing, Mr. Mills.

Mr. MILLS. Thank you.

[The prepared statement of Hon. David M. McIntosh follows:]

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Mr. RYAN. Mr. Kucinich.

Mr. KUCINICH. Good morning, Mr. Chairman.

Mr. RYAN. Good morning.

Mr. KUCINICH. Nice to see you. I appreciate the chance to participate with this panel, with you in the chair.

As you know, my approach in this Congress has been bipartisan,

and I think that is a good way to proceed in trying to get to the

truth of all of the matters into which we inquire, and I think that

one of the things that we may be able to do in future Congresses,

anticipating that we are both going to be here, is to find a way to

diminish the partisan rancor and find ways where we can work together.

Now, we may have differences of opinion on this particular hearing. I would like to say that I consider Vice President Gore one of

the most visionary leaders we have ever had in American government. He has corrected his misstatement about whether he was

the—about being the creator of the Internet, but I think that everyone understands that his involvement in the development of new

technologies cannot be disputed. I also know that as someone who

is the author of a book called Earth in the Balance, it was one of

the most visionary statements on the concern for the global and the

U.S. environment.

So I just want that said, because to let this hearing begin on a

note where the Vice President is challenged I think requires a response, not simply in order to defend his record, which speaks for

itself, it can stand without my humble efforts, but because I think

that the nature of what we are discussing today is so significant

that it shouldn’t be minimized by setting a tone, which I think we

are all capable of going beyond.

I really appreciate having this hearing on the impact of the

Internet on energy demand and our production of greenhouse

gases.

The Internet economy is growing at an explosive rate. Studies estimate that it may grow more than tenfold, from the tens of billions

of dollars to perhaps trillions of dollars. Our economy is already

reaping the benefits. The question remains, what does this mean

for the environment?

Historical patterns indicate that economic growth comes at the

expense of the environment. Economic growth and energy use rose

and fell in tandem. However, the rules seem to be changing. In

1997 and 1998, our economy soared, yet energy use and our emission of greenhouse gases rose at a much slower rate than was indicated by historical pattern. Apparently, our economy is becoming

more energy efficient.

I think President Clinton made that point in his State of the

Union when he spoke about how perhaps in this next century we

can finally put to rest this mythology that you cannot have economic growth and a cleaner environment at the same time. So we

are challenged in this Congress to keep unfolding this new thinking, which I think we are capable of doing.

I think there is good reason to believe the Internet will help us

become even more energy efficient. E-businesses require less retail

space, relying instead on warehouses. This saves energy otherwise

spent on construction. Businesses and individuals do not need to

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store as much information on paper, which saves energy otherwise

spent producing paper and building storage space. Businesses will

likely obtain more accurate consumer information, which saves energy otherwise spent building storage space for unused inventory.

Consumers save the energy used to drive to and from the mall

when they order products on line, and telecommuting saves energy

otherwise expended on driving to work and constructing office

space.

These benefits apparently come at little cost because the Internet

is not energy intensive. According to the Energy Information Administration, personal computers in residences and business accounted for less than 2 percent of our electricity use in 1999. Much

of this energy was used to power other aspects of computer use, not

just the Internet. And we did not see a substantial increase in energy use in 1997 and 1998 when Internet use rose dramatically. In

fact, energy use increased at a much slower rate than expected. In

his written testimony, Mr. Hakes testifies that ‘‘it is clear that the

size of Internet electricity use today is small compared to that of

all other uses of electricity.’’

If the Internet does provide great energy benefits at little cost,

we may need to rethink some of our earlier analyses of the cost of

complying with the Kyoto protocol. A working paper prepared at

the Environmental Protection Agency found that information and

communication technology ‘‘may prompt large structural changes

that can reduce overall energy consumption.’’ These changes could

potentially significantly reduce mainstream estimates of energy use

and carbon emissions, such as the Energy Information Administration’s analysis of the cost of the Kyoto protocol. In other words, we

may have greatly overestimated the cost of complying with the

Kyoto protocol.

I think that one of the things that we should also consider is that

as we move toward this tremendous explosion of new thought in

this new century, that we will most likely be ushering in alternative energy strategies. It is inevitable. We could not foresee at

the beginning of the 19th century the great developments in transportation and energy and science. I think that we have an understanding of how this impulse to create is so powerful in our society,

and I think we can anticipate that there will be dramatic developments in information technologies, which in some ways will make

this debate itself hopefully obsolete. But it is not obsolete at the

moment, I respect that, and I appreciate the opportunity to proceed. I think it is an important issue.

I look forward to hearing from the witnesses today, and I would

ask the Chair unanimous consent to hold the record open for relevant materials.

Mr. RYAN. Without objection.

[The prepared statement of Hon. Dennis J. Kucinich follows:]

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[Witnesses sworn.]

Mr. RYAN. I will start with Mr. Hakes. Mr. Hakes, thank you.

STATEMENTS OF JAY HAKES, ADMINISTRATOR, ENERGY INFORMATION ADMINISTRATION, DEPARTMENT OF ENERGY;

JOSEPH ROMM, EXECUTIVE DIRECTOR, CENTER FOR ENERGY AND CLIMATE SOLUTIONS, AND FORMER ACTING ASSISTANT SECRETARY FOR ENERGY EFFICIENCY AND RENEWABLE ENERGY, DEPARTMENT OF ENERGY; AND MARK

MILLS, SENIOR FELLOW, COMPETITIVE ENTERPRISE INSTITUTE, AND SCIENTIFIC ADVISOR, GREENING EARTH SOCIETY

Mr. HAKES. Thank you, Mr. Chairman. It is a pleasure to be before the Congress talking about something other than high oil

prices this week.

The Energy Information Administration estimates that if current

Federal policies remain in place, electricity use in the United

States over the next two decades is likely to grow by about 1.5 percent a year. While no one can estimate growth in electricity with

exactitude, this number does provide a useful benchmark for people

who study energy issues.

A lively debate has emerged over whether consumption of electricity is likely to rise more slowly or more rapidly than the EIA

projects. One camp represented today argues the former and another the latter, and they can testify why they have reached these

conclusions.

The points raised by these analysts certainly have some merit.

Most of them, however, are already incorporated in the EIA analysis, although not at a scale that would satisfy either of the camps.

Several of our assumptions would seem to reflect the trends they

are talking about; for example, a steady shift to less energy intensive industries, new equipment in the industrial sector that is

much more efficient than the stock it replaces, penetration of more

efficient equipment in the residential and commercial sectors, and

a growth of 3.2 percent a year in a category called ‘‘other uses of

electricity,’’ which would allow for considerable growth in electric

load brought about by computers and the Internet.

While it is certainly not possible to rule out the slower electronic

growth or the faster electric growth arguments, we don’t find either

convincing enough to suggest that the EIA should be altered in either direction. In the first place, as seen from the list above, the

arguments haven’t been ignored in the EIA analysis and, in addition, to some extent, they offset each other.

The slow energy growth camp must deal with expectations that

lower prices for electricity and rapid growth in personal disposable

income will create a climate in which demand for new energy services is likely to grow and the priority given to reducing fuel costs

is not likely to be high. The rate of stock turnover limits the speed

with which many more efficient pieces of equipment can enter the

market and many of the changes suggest that they are less dramatic than they might appear.

For instance, as web-based shopping grows, much of the displacement will be of catalogs and 800 telephone numbers. There will

still be some reduction in energy use, but trucks will still be needed

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for their frequently long journey from the warehouse to the home.

The warehouses the products come from are likely to be smaller,

but the homes they go to are likely to be larger.

The high energy growth camp has to deal with the fact that computer equipment of whatever type tends to have very low electric

load compared to space heating and cooling and other more traditional equipment. This can be seen in the graph which is figure 1

of my prepared testimony. Those of you who have the testimony

can find this as figure 1, but on the graph here, you can see that

PCs are estimated to be 2 percent of the electric load in residential

buildings. Now, as other witnesses will point out, there is some

fuzziness to the data, and maybe that is not perhaps an exact number. But we do know a lot about these other uses and we know the

total electric consumption. Say we are off by some magnitude here,

we are still not talking about something that is a heavy load in the

home. At home I now listen to more CDs, music on my computer,

but that means I am using my stereo system less, which actually

uses more watts.

PCs and other electronics are growing rapidly, but still a small

part of overall consumption, and this is shown in a later graph.

This is all buildings, commercial and residential. Some of what Mr.

Mills is talking about is in the PC category and some of it is in

commercial office equipment. You can see that the rates of growth

are very, very high there, much above average, but the BTUs

growth is relatively small, because it is just a small part of the

electrical load.

I would also say that we do question some of the calculations in

the high-growth camp on the load of these pieces of electrical

equipment.

Future trends in energy efficiency and expanded demand for energy services are particularly difficult to anticipate. It is hard often

to get good data. But in summary, we continue to believe that our

estimates on the growth of electricity are good base case projections

under current policies for at least a couple of reasons. One, we are

not seeing either of the alternate growth paths reflected in the current data. Second, the advances in technology that accelerate efficiency are often the same as those that accelerate demand for energy services. Just look at the automobile as an example of that.

For instance, if technology progresses more rapidly than projected, it will likely spur both greater efficiency and greater demand for new energy services, so the two results tend, to some extent, to offset each other.

I would also hope in the question period I will have an ample opportunity to discuss the testimony of my former colleague, Mr.

Romm. His characterizations of EIA’s previous work on Kyoto and

other subjects I believe are highly misleading. These mistakes have

been pointed out rather fully in the public record, and I am somewhat puzzled why they continue to appear in the public record. So

I hope that in the question and answer period we will have a

chance to fully discuss some of the points he raises in his testimony.

[The prepared statement of Mr. Hakes follows:]

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Mr. MCINTOSH [presiding]. Thank you, Mr. Hakes. We will certainly afford you that opportunity during that period.

Our next witness is Mr. Romm. If you could summarize your

written testimony for us, that would be great.

Mr. ROMM. Mr. Chairman and members of the subcommittee, I

am delighted to appear before you today. Let me start with three

things that we know for sure. Mr. Mills is wrong; EIA’s key forecasts are often wrong; and something very unusual is happening

with the way the United States uses energy. Let’s start with Mr.

Mills.

It is rare that we know so conclusively that someone is as wrong

as Mr. Mills. Let me present the results of a detailed study by five

scientists at Lawrence Berkeley National Laboratory. On the left is

current electricity used by the Internet according to Mr. Mills, the

revision by Lawrence Berkeley National Laboratory on the right.

Mills now repeatedly overestimates the electricity consumed by different components of the Internet. Mills is wrong by at least a factor of 8. He makes a variety of methodological and analytical errors

that I would be happy to go into during the question and answer.

He keeps ascribing all of the electricity used by a computer for all

purposes, even if it only spends a few hours on the Internet. But

the main reason we know Mr. Mills is wrong is, as Dr. Hakes said,

electricity consumption hasn’t exploded in the last few years, and

I will return to this point later.

On EIA, EIA is quite good at collecting and analyzing data. It is

very bad at forecasting. In a 1996 Science Committee hearing, Dr.

Hakes and I were witnesses. Chairman Dana Rohrabacher asked

him, ‘‘Dr. Hakes, you admit in your testimony that your forecasts

have been off, and I would say they have been off not just a small

amount, but they have been off the chart. How come your predictions have been so far off?’’ Dr. Hakes replied, ‘‘It is the price

side where there has been the greatest error in areas like predicted

demand and consumption. I think basically a lack of understanding

of the impact of decontrol of the market. Second, I think a lot of

people, including us, underestimated the impact of technologies.’’

Dr. Hakes testified that such errors were in the past, but that

is not the case. Fourteen months ago, EIA projected that the world

price of oil in the year 2000 would be $13.97 a barrel. That looks

to be wrong by a factor of 2. EIA also predicted that total U.S. carbon emissions would rise by 105 million tons from 1997 to 2000.

That also looks to be wrong by more than a factor of 2. EIA’s analysis of the Clean Air Act overestimated the cost of sulfur permits by

a factor of 4. Why? They underestimated technology improvements,

fuel switching and the benefits of railroad competition.

I believe their estimates of the costs of Kyoto are also wrong by

a factor of 4 since they make the exact same mistakes. EIA’s model

shuts out almost all industrial fuel-switching; EIA freezes electric

utility restructuring and, as but one technology example, EIA

projects that fuel cells will provide no electricity, not even 100

megawatts, through 2020, even under the most extreme scenario,

coal prices up 600 percent, electricity prices doubled. These kind of

obviously wrong assumptions have hurt their credibility.

The last thing we know for sure and the most interesting is that

something unusual has happened to the way the United States

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uses energy. I think this is the central chart. It compares 4 years

of data, 1992 to 1996, which are the left-hand bars in each case,

with the 3 years of 1996 through 1999. The left-hand bars could

be called right before the Internet economy took off, and the righthand bars, the Internet economy. What is fascinating is that as you

can see, GDP before the Internet had about 3.2 percent growth per

year. GDP growth since the Internet was accelerated by 1 full percentage point. But what is fascinating is at the same time that the

GDP has taken off, electricity consumption is down, which is the

main reason we know that Mr. Mills is wrong. We are actually

using less electricity, energy use is way down, and carbon dioxide

emissions are also way down. This is stunning.

Mr. MCINTOSH. Mr. Romm, just to interject quickly, your chart

doesn’t really say energy use is down—just the growth in energy

use——

Mr. ROMM. Yes, you are right. What we have here is the historical rate relationship between GDP and energy use. As you can see,

if you compare these 2 numbers, energy use grew just slightly less

than GDP from 1992 to 1996, but from 1997 through 1999, 3 years

of data, what we see is bigger GDP growth, and I appreciate the

correction, and slower energy growth and slower electricity growth

and slower CO2 growth. Obviously, the key question is whether

this is an anomaly or a trend. I believe that this is, in fact, a trend,

and I think that is the central point.

Let me, if I may, just briefly explain why I do think this is a

trend, because after all, if this were to continue, it would be the

biggest trend to hit the U.S. energy economy in 50 years.

First, technology. The information technology sector, as Dr.

Hakes has said, which includes computer manufacturing and software, is just not very energy-intensive. A new EPA study that Mr.

Kucinich cited projected that if this sector continues to generate a

large fraction of our economic growth, this alone will reduce energy

consumption in 2010 by 5 percent, compared to current EIA forecasts.

Second, the Internet economy also makes the economy more efficient. I won’t go into this at length. I wrote an 80-page report on

this and we can get into this in the question and answer. Let me

say what I think is the most important aspect of the Internet economy. As more companies put their supply chain on the Internet

and reduce inventories, overproduction, unnecessary capital purchases and mistaken orders, they achieve greater output with less

energy consumption. Federal Reserve Board Chairman Alan Greenspan testified in front of Congress in June, ‘‘Newer technologies

and foreshortened lead times have, thus, apparently made capital

investment distinctly more profitable, enabling firms to substitute

capital for labor and other inputs far more productively than they

could have a decade or 2 ago.’’

What I am basically positing is that if you believe that the Internet is increasing labor productivity and reducing inflation, that it

is also improving total factor productivity, including the Nation’s

energy productivity.

I think there is another reason why emissions may be slowing,

and that is that a lot of companies are voluntarily cutting their

emissions. The Wall Street Journal article noted in October 1999,

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‘‘in major corners of corporate America, it is suddenly becoming

cool to fight global warming.’’ Mr. Hakes collects data on this subject and their latest report, which came out just last week, said

that since 1994, the quantity of emissions reductions reported each

year has roughly tripled. Total reported savings in 1998 alone exceeded 3 percent of U.S. emissions, no small amount. I also believe

that electricity competition will slow emissions. We can get to that

in the question and answer.

Let me just sum up. In conclusion, we know Mr. Mills is completely wrong. Indeed, his argument is the reverse of the truth. The

Internet almost certainly saves energy. I personally believe that

the Internet may be one of the greatest systems ever devised for

minimizing energy use and greenhouse gas emissions.

The final point. Again, something big is happening to the U.S.

economy. Faster economic growth and slower energy and greenhouse gas growth. I believe this is a major trend, a new energy

economy, and that current EIA forecasts of high growth in greenhouse gas emissions for the next decade are, like many of their

forecasts, wrong, perhaps by a factor of 2.

Thank you very much.

[The prepared statement of Mr. Romm follows:]

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Mr. MCINTOSH. Thank you, Mr. Romm. I look forward to our

questioning session. Actually, this is going to be a good hearing.

Our final witness is Mr. Mills, who has already been much

talked about. Share with us a summary of your written testimony,

please.

Mr. MILLS. Thank you, Mr. Chairman and distinguished members of the subcommittee. I really am delighted that you are having

this hearing, and I thank you for doing this. It is a fascinating

area, and there is one thing that Mr. Romm and I agree about; perhaps only one, but it is that the Internet is a very big deal. As your

opening remarks indicated, Mr. Chairman, it is a very big deal and

it is going to be a bigger deal.

This subject is particularly fascinating for me for two reasons.

My testimony I will summarize very quickly, but I should start

with a preamble. As a personal reason it is fascinating. My career

started in integrated circuits, telecommunications, and fiberoptics.

In fact, I have patents in those areas. I was intimately involved in

that business in my early career. I will confess that I had no idea

that the field of telecommunications, nor did anybody I worked

with at that time in research and development, have any idea that

the telecom industry was going to become what it is today, which

is the driver of our economy. Nor did I anticipate that that industry, that profession would intersect with my current profession,

which is the study of energy and electricity. It is utterly fascinating, and it is delightful to be working with my colleagues again in

the telecom industry.

The second point I want to make is that what you have heard

is actually dramatized in what I learned in doing this analysis, is

that the folks in the energy business don’t understand telecom.

They have profound misunderstandings and in some cases ignorance of the telecom industry and the technologies of that industry.

Not surprising, because the energy industry and the environmental

community and analysts that have grown up around it have basically been brought up on the culture of the oil era that started in

1973, and telecom is quite different.

We have been told for 20 years by forecasters like Mr. Romm

that efficiency measures were going to stop electric load growth. I

published a long monograph in fact for CEI documenting dozens

and, in fact, hundreds of forecasts for 20 years that we were going

to stop seeing electric demand grow because of efficiencies of all

kinds. I should like to point out for the record that EIA’s data does

show that in the last digital decade, and I am a firm believer as

a physicist that you can’t tell a trend from one data point; 1 year

doesn’t help a lot. This past decade I have called the digital decade,

and in the past digital decade where there has been an explosion

in the purchase and installation of telecommunications equipment

of all kinds, we have not only seen our economy grow, but the consumption of electricity has grown by 650 billion kilowatt hours.

Just for perspective that would have required the additional electrical capacity equal to all of the electric output of Central and

South America. So it is a fairly significant addition to the U.S. electric supply system driven, I would submit, primarily by our digital

economy. Not specifically by the Internet, but by our digital economy.

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The principal objection, and we will do this in the question and

answer, there are two principal objections to the analysis that I detect. One is the efficiency sufficiency argument, that I didn’t count

it, or my colleagues and I ignored it. We didn’t. We weren’t seeking

to look for the efficiency information. We were seeking the answer

to a simple question, and I will put it to you this way. It is based—

and, in fact, this whole analysis started with a very simple

premise. Every single piece of equipment in the digital economy,

every piece of information technology equipment has two plugs, one

for bits, one for power. All of them have power plugs.

The purchase rate of hardware in the information economy today

is running at $400 billion a year. In the last several years we have

added $1 trillion of telecom hardware to the U.S. economy. We

have added trillions of dollars of hardware that has been plugged

in, net-new hardware in the last digital decade. In looking at this,

it sort of begged the question, wouldn’t it be reasonable that all of

this hardware at some point would begin to consume a reasonable

or significant amount of electricity?

What we found in trying to seek an answer to this question was

that the data collection mechanisms aren’t up to the task. I am a

personal fan of EIA; I think their data is the finest, in fact, in the

world. I study data from all kinds of countries. EIA does a great

job, but the problem is they don’t have a collection mechanism to

find what we need to find.

Let me just give you a real quick example of the profoundness

of the misunderstanding of the Internet and one example of the

very disappointing analysis that the Lawrence Berkeley folks undertook that Mr. Romm has summarized. It is profoundly disappointing and misleading as well as being factually wrong, which

is a problem for scientists, but it does happen. We all make mistakes.

The first problem is that folks keep interpreting the Internet as

the PC on your desktop. The PC on your desktop constitutes a tiny

fraction of the portal to the Internet. The Internet comprises the

hundreds of millions of pieces of equipment that are in the network

that create, shape, move, route and feed bits into the entire network. In fact, when one looks at the analysis, you not only find

that the PC itself constitutes about 20 percent of a total energy appetite of the Internet, the critical fact is that you can take the PC

out of the picture totally, and you still have electric use growing

for the Internet.

The folks at Lawrence Berkeley did an analysis that rebutted

themselves. Their own rebuttal of my study contains statements of

fact which contradict their own analyses from 5 years ago. They

also contradict analyses from the National Academy of Sciences,

from the Environmental Protection Agency and other organizations. It is an embarrassingly shoddy piece of analysis, frankly, and

I was surprised that they would not do better research. I will be

happy to give you more examples in the question and answer.

Let me just finish with an observation about efficiencies. Quite

obviously, the Internet is driving economic efficiencies, and it is

certainly driving some energy efficiencies. Where it is driving efficiency largely is in the transportation sector. I would submit to you

that that means that electricity is substituting for oil. This has

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been going on in the American economy for about 30 years; in fact,

for a century. This is a good trend, and, in fact, it is a trend that

I analyzed a decade ago and published widely on. I think it is continuing. However, I do believe that what we are seeing is the thin

edge of a wedge that, in fact, I don’t believe you can see in EIA

data yet.

Let me give you one specific example of why you can’t. The data

you see right here for the commercial sector shows you that the

largest category after lighting for a commercial building energy use

is ‘‘other.’’ ‘‘Other,’’ if I understand the data correctly, and Mr.

Hakes will correct me if I’m wrong—but ‘‘other,’’ if I understand it,

includes telecom equipment. I will remind you again, telecom

equipment is the Internet.

Now, if we have a disagreement about how much electricity the

Internet uses, I submit to the Lawrence Berkeley scientists and I

submit to my other colleagues, let’s start then with the telecom industry, and then let’s ask telecom experts, what share of the

telecom industry is being driven by the Internet. I think you will

find that they will say that it is the driving force. But we can at

least agree to start with a broader definition to begin to understand the broader electrical appetite of a digital age. It is enormous, it is growing.

When I started this analysis, it was not to shoot holes into Kyoto

or EIA or forecasters, but to answer a very important question that

is still not adequately answered by EIA, Lawrence Berkeley, by Mr.

Romm, or by anybody else. How much electricity is the digital economy using specifically, and, as a subset, how much electricity is the

Internet using?

I will tell you since I published my study, I have engaged in substantial additional research with my colleagues in the telecommunications industry. All of the data strengthens my original

conclusions, it does not diminish it. Thank you, Mr. Chairman.

[The prepared statement of Mr. Mills follows:]

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Mr. MCINTOSH. I thank all of you.

Mr. Kucinich has to go to the floor, but let me ask unanimous

consent that the record be held open, and if Mr. Kucinich has some

questions that he would like to pose to any of you, I ask that you

answer them in writing.

Mr. KUCINICH. I just want to thank the Chair for doing that. Unfortunately, I have to go to the floor right now. A bill that I am

involved in is in debate.

So I want to tell you, I am very impressed with this panel. There

are differences of opinion, and I wish I could stay. But if we have

another Member come, they might want to ask the questions that

I have. But if they don’t show up, I would like them inserted in

the record.

Mr. MCINTOSH. In fact, let me ask unanimous consent for questions from any of the members of the subcommittee.

Mr. KUCINICH. Mr. Chairman, thank you.

Mr. MCINTOSH. Thank you, Dennis.

Mr. Mills, I called this hearing because some of your data made

its way into one of our hearings on Kyoto. Today, you made some

pretty conclusory statements that you are right and they are

wrong. It appears from this chart that we were given that there is

a factual question on the magnitude of Internet-related electricity

demand, and that you and your critics are using the same definitions, or is there an explanation for why the Lawrence Berkeley

people using your definitions came up with lower numbers?

Mr. MILLS. Well, let me, Mr. Chairman, give you an example. In

their analysis to adjust my data down, they looked at web servers.

This is one representative example. There are many, and it would

take far too long, but this is typical of what they did wrong. They

said that I counted the number of servers incorrectly.

One of the things you said in your opening remarks is that we

are having a hard time measuring the Internet right now. In fact,

there is a great debate figuring out what the metrics are for it. I

wasn’t looking at how much e-commerce was going on, but how

much hardware exists. A server is the computer box that contains

the website, and it can contain one website, or it can contain 100

websites.

It turns out that there are organizations that do something

called ping the Internet. They send signals up, and they ask computers, are you there, are you a server. Every server has an identity, and it says, yes, hello, I am here.

In my original report, I estimated the number of servers by looking at the number of websites and doing an extrapolation. I came

up with the number 4 million servers in the United States. By the

way, that number is growing geometrically, but that number was

4 million last year. Lawrence Berkeley said, no, no, Mills’ assumptions were wrong, it should be reduced by 80-some percent to 1 million, because there are more websites per box.

What I have done subsequently and they obviously decided not

to do is to find out what the actual hard data is for the number

of servers; not websites, but the number of physical boxes. The

number is 4 million. So their adjustment now of my web servers

by a factor of 80 percent is simply completely wrong.

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Now, they have done this over and over again in other areas. It

is that kind of methodological failure on their part that made me

wonder if they were seeking their own conclusion rather than seeking to get the facts, because they clearly did not look into this data

properly.

Mr. MCINTOSH. OK. Would you for the committee go through an

analysis of the different ways in which they have done that?

Frankly, we are going to ask them to justify their work as well.

Let me ask this question to Mr. Romm, because I actually think

that it is possible that Mr. Mills or Mr. Romm are actually looking

at the same thing from 2 different perspectives.

Part of what your chart there demonstrates is this. As we have

seen growth in the economy, acknowledged by all of us to be driven

by the technology, computers and telecommunications, we are seeing a reduction in the growth of energy and electricity use in particular, but energy overall, and therefore the growth in emissions

from energy production. That means, essentially, that there are

jobs being added into the economy driven by that technology sector.

The flip side of that, and we see this in my district, there are jobs

leaving the economy that are the old manufacturing jobs that were

more electricity-intensive. So you have a shift going on from the

older economy to the new.

Now, that doesn’t necessarily mean that you don’t also have an

increase of use in electricity, because if you assume that that decrease in manufacturing jobs were to occur regardless of the technology revolution, what could be happening is that we might, had

we not seen the technology revolution, have seen the growth in

electricity be even lower. Is that not right?

Mr. ROMM. Well, you ask a very complicated question, because

one has to try to figure out exactly what is going on in every aspect

of the economy. I think that part of what you are saying is certainly correct, although it is worth saying that U.S. manufacturing

output has not declined. As I am sure you know, Bethlehem Steel

and other companies in Indiana have gotten more productive, far

more productive in the last few years, so they have been able to

generate more output with the same or fewer workers.

I think the main point is that a very large fraction of our growth

is coming from the computer industry, the software industry, the

telecom industry, industries that do not consume as much energy

as the steel industry would. And so——

Mr. MCINTOSH. Let me ask you, what does that mean, ‘‘consume

as much’’?

Mr. ROMM. In other words, let’s say——

Mr. MCINTOSH. Is that per dollar of GDP?

Mr. ROMM. Per dollar of GDP. In other words, what we are seeing here is, in some sense, the measure that is used of overall U.S.

economic efficiency is to divide the total energy number each year,

the growth in energy, by the growth in GDP, to come up with a

metric called energy intensity. You can clearly see that the Nation

became a lot more—a lot less energy-intensive in the last 3 years

because we had big growth in GDP, small growth in energy. What

this suggests is that in part, we might get $1 trillion in economic

growth from the information technology sector, but if we had gotten

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$1 trillion in economic growth from the steel industry, that would

have used, you know, easily that much energy.

Mr. MCINTOSH. So you are seeing a shift from manufacturing

and therefore manufacturing jobs into technology and technology

jobs, which use less electricity?

Mr. ROMM. By and large, yes. I think—there has been a study

done by the EPA and Argonne which roughly says that that structural change which you have just described is about a third to a

half of the explanation for this trend. There is another trend—

there are two ways the economy can become more efficient at using

energy or less energy-intensive. One is the structural change that

you have described. The other is to put in energy-efficient light

bulbs, to replace trips to the mall with working at your desktop.

That is becoming more efficient.

Mr. MCINTOSH. Exactly. Which leads me to my next question,

and then I will come back for some of the other witnesses.

If—and as I understand by your testimony, that structural shift

can account for a savings of about 300 million metric tons by 2010,

and that that is approximately two-thirds of what the obligation

under the Kyoto protocol would be for the United States, my question is, wouldn’t we be better off allowing that invisible hand of the

marketplace to work, rather than bringing in a regulatory structure when you are going to be able to see those reductions and savings because of the structural shifts in the economy?

Mr. ROMM. Sure. Well, I know that we probably take different

views of some aspects of this issue. Let me try to answer the question this way: I believe that greenhouse gas emissions are going to

grow more slowly because of the Internet and other factors than

EIA does, and that will certainly make it easier to meet the Kyoto

targets. Those of us who think that it is important for the country

and the world to reduce greenhouse gas emissions still feel strongly

that some market-based signals help show businesses that we don’t

want to reduce energy consumption per se. What we want to do is

pull CO2, greenhouse gases, out of the U.S. economy the way we

pulled sulfur out of the electricity grid and lead out of gasoline. It

is my belief that a relatively low market——

Mr. MCINTOSH. Unless you move to hydroelectricity or nuclear

fuels, you can’t do that.

Mr. ROMM. No, that is not true. The utility system right now is

only 28 percent efficient in converting fossil fuels to electricity. It

is very inefficient, in part because we have had a regulated monopoly.

The average coal plant is only 30 percent efficient. There are gasfired, combined-cycle units which are 55 percent efficient. There is

cogeneration, the simultaneous generation of electricity and steam,

which is 90 percent efficient. We can have, you know, what is

called fuel-switching or more efficient conversion. We can have

some renewables. I don’t think——

Mr. MCINTOSH. All of that depends on the price signals.

Mr. ROMM. Well, what is very clear is that there are a lot of lowcost measures, and it appears, from Mr. Hakes’s report on voluntary actions by companies, that a lot of companies are taking

voluntary actions to reduce their greenhouse gas emissions. Most

of those, I believe, are utilities.

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I think it is quite interesting that in 1998, U.S. global greenhouse gas emissions dropped, and total energy use in the world actually dropped for the first time since 1982.

I think you will find that there are a lot of steps that companies

and governments can take that do not require a very big price signal, and that are very—obviously, we have shown that you can

have low CO2 growth and high GDP growth at the same time, so

it is certainly difficult to argue that having lower CO2 growth

harms GDP.

Mr. MCINTOSH. Let me let Mr. Ryan ask questions, and then,

Mr. Hakes, I will give you your opportunity which you asked for

in your testimony.

Do you have a set of questions?

Mr. RYAN. Sure.

Actually, Mr. Hakes, you haven’t had a chance to talk about any

of this. I would like to get you involved right now, if I may.

I was intrigued with what Dr. Romm said about EIA’s overestimation of Kyoto’s costs. EIA estimates that the Kyoto protocol

would increase average electricity prices from 20 percent to 86 percent in 2010.

Dr. Romm, I think you said in your testimony that that is wholly

irrelevant to the real world.

Could you comment on that, your assessment of Dr. Romm’s comments?

Mr. HAKES. Well, this is a very detailed study that we did for the

House Science Committee, and my view is that it has held up well

over time. I think the analysis is quite good; I think there is material in there that somewhat supports the view of Kyoto critics, and

I think there is some conclusions that do not support the views of

Kyoto critics.

I think that we have suggested in there that carbon emissions

would grow a little bit over 1 percent a year; you know, a little bit

larger than the population growth.

If you look at Mr. Romm’s chart for CO2, you can see in the last

couple of years it grew at a slower pace. Why did it grow at a slower pace? The main reason was the mild weather; it wasn’t because

of some new efficiency gain. People have to use less heating oil, less

heating from their space heaters and less natural gas. The other

reason was there was an economic decline in Asia that reduced the

demand for a lot of products that are energy-intensive.

If you look at the preliminary data for 1999, which is not official

yet, it looks like carbon emissions will grow about 1 percent a year.

In 2000, we are having a very cold winter, maybe they will grow

more.

On the issue of Mr. Romm’s attacks on our forecasts, he has

launched a lot of grenades here, but let me mention one that he

suggests in his written testimony—that EIA doesn’t have foresight

on the Kyoto treaty. Critics like Mr. Romm have said we have overestimated costs because we don’t allow people to adjust before

2005. It is just flat wrong, and it has been corrected in the public

record.

We allow perfect foresight by the electric utilities. In other

words, in our model we assume that it started at the date of our

study, which is now more than a year old, and is fully operational

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now, which is I think very overly optimistic to his side. We have

also assumed perfect foresight in the refining industries, so the voluntary programs by BP and others that tend to focus on refining

are already fully incorporated and obviously a lot of companies are

not doing this. So if there are other industrial sectors that don’t

have foresight, I think it all adds up.

We treat, I think, foresight in our study very, very fairly and

very balanced, and maybe even perhaps tilted a little bit to Mr.

Romm’s point of view, and yet he continues to repeat over and over

again, even when it is shown by us to be very clear in the document itself, if you actually read it, that we allow foresight rather

amply throughout our system.

His attacks on our oil price forecasts; our forecasts are very highly respected among energy experts. There was something that happened last March. OPEC cut world production by about 3 million

barrels. We do not have a pipeline by which OPEC tells us whether

they are going to cut production or not, but that was certainly the

main reason that everybody’s signals on oil prices were reversed.

And once they made that policy decision, we said that prices would

be going up into the basic range that they are now.

Of the big errors that he mentioned, and I certainly admit to, one

of the things that EIA does as a Federal agency, as a public agency, is to bend over backward to point out ourselves any previous

mistakes we have made. But the one he was talking about in the

Science Committee was talking about the early 1980’s, the first one

or two forecasts we did at the time of deregulation.

I think our forecasts in the 1990’s have stood up extremely well.

We had some arguments. The administration had a study in 1993

saying that voluntary programs would cause carbon emissions in

the year 2000 to be what they were in 1990. We said, ‘‘No, we don’t

think that will work, they are going to grow in the 1990’s.’’ I think

we were basically correct, and I think we have been more correct

than some of the optimists like Mr. Romm.

One other point on electricity that is very interesting. In our

forecasts, consistently in the 1980’s, we have underestimated the

growth of electricity because we had too much built in for appliance

efficiency. So EIA, who Mr. Romm you seem to portray as always

underestimating these efficiency gains, actually consistently overestimated them in the electricity sector in the 1990’s.

We try to do a balanced job. I think we don’t always get it exactly right. I don’t think there is a systematic bias, particularly

since we have put more attention on technology issues in recent

forecasts.

Mr. ROMM. Could I just—very little—many things that Mr.

Hakes said are just factually incorrect. In their latest annual energy review, which they just released in December, they predict for

the next 7 years that CO2 emissions will grow 1.8 percent for 7

years, not 1 percent, as Mr. Hakes said.

I think the key point is there is no question that the EIA occasionally stumbles onto the truth. If they would be more humble

about the fact that they are often wrong and not release reports

that are called Impacts of the Kyoto protocol on U.S. Energy Markets and Economic Activities, but even Possible Impacts, or A Scenario of Impacts, but they continue to believe over and over again

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that they are correct, and over and over again they are proved not

to be correct. I will leave the rest of the corrections for the record.

Mr. MCINTOSH. Let me actually have a followup, because while

Mr. Romm is critiquing them from one direction, Mr. Mills, in your

testimony you seem to think that they had underestimated the impacts of the digital economy on electricity demand. Can you explain

your viewpoint on that?

Mr. MILLS. Well, let me explain it from two perspectives. One is

forecasting, and one is from the history. Actually, I think that—

well, for the record, I actually believe that EIA is—not that I want

to get into the middle of a battle between the lovers and haters of

EIA. I actually think that their track record is remarkable. Mr.

Hakes is absolutely correct. The track record in the 1980’s was

pretty abysmal. After that it has gotten very good. They have gotten very sophisticated in understanding the markets and have

overestimated the impact, as Mr. Hakes said, of efficiency measures in the economy, partly because it is an engineer’s dilemma.

When more efficient refrigeration exist, people tend to use more of

it. The markets are a little more complicated than that, as Mr.

Hakes’ analysts know.

I think what we have seen in the last digital decade is, in fact,

the information economy effect. In the last decade there has been

an enormous increase in the efficiency of lighting, in refrigerators,

in motors. We have spent in this country tens of billions of dollars

on these so-called demand-side management programs for the last

20 years, and the fruit was born in the 1990’s. If you go by sector,

you will find, yes, they are incredibly more energy-efficient in lighting of buildings and air conditioning of buildings, and yet demand

went up. The growth rate wasn’t as high as the 1970’s and 1980’s,

but it still went up. It went up in aggregate by an enormous

amount.

The most fascinating thing to me is that it went up so much in

the category that used to be a grab bag, and this is—not that I am

pleading for funding for EIA, but it is a funding problem.

In the old days, you threw things that you couldn’t count into the

‘‘other’’ category, and everything else took up 90 percent of electricity demands. So the 10 percent in ‘‘other,’’ who cares? If you

look at commercial building electric use in the EIA data now,

‘‘other’’ is a third of all electricity used in commercial buildings.

‘‘Other’’ is growing faster than anything else, and ‘‘other’’ is exceeded only by lighting. It is 300 billion kilowatt hours of ‘‘other’’ stuff,

which was where I contend a lot of the Internet hardware is showing up, because it is not tracked. In fact, many of the organizations

that track data like refrigerators and motors don’t even track servers.

Cisco is everybody’s pick. They hope they bought into Cisco 5

years ago. Cisco is selling a million routers a year. Cisco’s routers

don’t show up in information technology industry data books because they didn’t exist when they created the data books. They

don’t track them. Neither does EIA track them. There is a methodological problem which is inherent in the new economy.

Mr. MCINTOSH. And so if you are correct and the energy use is

going to grow dramatically because of the electricity demands of

the equipment that drives the Internet, what explains the decrease

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in electricity growth with the increase in economic growth? Is it

that we are losing manufacturing jobs faster than we are replacing

them with the demand for the Internet equipment?

Mr. MILLS. We found one other area where Mr. Romm and I

agree. There is more manufacturing in America. There are fewer

jobs, but there is actually more manufacturing output.

Just as an aside, the manufacturing sector in the last decade has

decreased its consumption of combustible fuels and increased its

use of electricity. It has become more electrified. Steel mills are a

great example. Five percent of steel mills in 1970 were electric;

now it is 40 percent. So they are very electric intensive, very efficient. They are computerized, and they have fewer jobs. The jobs

have gone to the information and technology and service sectors.

Let me explain more clearly my forecast is that I think that EIA

is close to right and, in fact, Mr. Hakes’s testimony says he thinks

the Internet could take it either way, lower or higher. My guess is

that it will take it higher. But a 1 or 2 percent range in load

growth in the electric sector as big as ours is a very big number.

We are not a small country. When we move electric demand a few

tenths of a percent it makes a huge difference.

The explanation for the efficiency numbers is something like

that, and I don’t mean to be facetious, but I call it the Bill Gates

effect. We have a tendency, energy analysts, to measure energy efficiency the way Mr. Romm was showing you: BTUs per dollar of

GDP. I would submit to you that this is interesting but probably

totally irrelevant and indeed enormously misleading. If we have an

economy like our economy where the Internet is consuming more

energy, not enormous amounts, but more energy, not less, but it is

bootstrapping economic growth even faster, which is the effect we

see from an Amazon.com, if you like, what you get from that is

modest continued energy growth from a huge base. Also huge GDP

growth. So the energy efficiency improves.

Let me put it to you this way. Who would be the most energy

efficient person in the world today by this measure? The answer is

Bill Gates.

Mr. MCINTOSH. Let me take it one step further. If you have a

public policy, such as the Kyoto protocol, that says we are going to

increase the cost of electricity for the social good of eliminating or

reducing carbon dioxide, what is the impact on the new emerging

computer and communications industry compared to the other sectors of the economy?

Mr. MILLS. It is a serious impact, and it would have been modest,

if not irrelevant, 20 years ago. But once you take—once you state

the premise that the information economy is at the core of our

economy as the Commerce Department has estimated a third of

GDP, real growth, once you know that it is no longer trivial, webserving firms are huge, electric-consuming beasts, the price, supply

and reliability of electricity become the central factor in our economy, not secondary. They become, I would argue, more important

than oil.

It is now—oil is still extremely important, but the price, supply

and reliability of electricity are now more important than oil to our

economic future. To me that suggests that things like Kyoto and

the Kyoto protocol that create enormous risk in the electric supply

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sector are dangerous to move quickly on for that simple reason. It

is so important now.

Mr. MCINTOSH. I will share with you just one example from my

home State in Indiana where EPA has filed a ridiculous lawsuit

against the electric utilities saying that if you try to maintain your

plants you are going to be in violation of the Clean Air Act. What

is driving that policy is a desire to stop the utilities from using

coal. If you remove coal as an electric power source, that does a

huge amount of damage to the economy in the Midwest, driven by

these other social goals.

Mr. MILLS. One of the things that we are seeing here is that EIA,

regardless of whether we think their forecast is accurate or not, I

think it is pretty good, sees the demand for electricity rising. So we

have, as Mr. Hakes said, about half of our electricity—a little over

half comes from coal in America. In the future, we will need more

electricity and not less. If we implement policies that reduce the

base while we still have an increased demand, we create enormous

risks.

Mr. MCINTOSH. I have one question for each of you, actually. Are

there any forecasts out there if you double the cost of electricity,

what that does to impede the growth in the technology sector?

Mr. MILLS. Well, I did an analysis like that 2 years ago on the

commodities basis, but I will be happy to defer to Mr. Hakes first

if you have looked at this.

Mr. HAKES. If you are talking about a Kyoto scenario, it depends

on how you would implement the Kyoto scenario. One of the scenarios that economists have used is that you auction off the carbon

credits which are then recycled back into the economy, perhaps

through a Social Security tax cut. If that was done, your energyintensive industry, your coal industry would be net losers, but

some of your low intensity users might actually be winners. But

there is a whole range of policies there that have not been addressed in any systematic way, so without those kinds of considerations, it is hard to assess the total impact on an industry.

Mr. MCINTOSH. You mentioned, Mr. Hakes, recycling through a

carbon tax. At least as far as I can tell, there are no proponents

for that, either in the administration or here in Congress. How

about some of the other scenarios where it is just done through a

command and control pricing increase policy?

Mr. HAKES. Well, everything that I have seen has been proposed

to cap carbon in some way. You can do that by either

grandfathering people in or you can auction credits. There are different ways to do that. I don’t think that those types of issues are

being discussed very much, because they tend to be somewhat sensitive. There are large economic impacts. But you couldn’t implement the Kyoto treaty without making some judgments in those

areas. You probably would have to use some revenues to compensate the coal industry in some way, since they would be such

obvious losers in a transition.

Mr. MCINTOSH. But if you grandfathered people in and you see

the shift from oil to electric generation, which is generally done

through coal, then you could cause some distortions in the growth

in the economy.

Mr. HAKES. It would probably help some areas and hurt others.

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Mr. MCINTOSH. I guess my question is, on which side of that

equation would technology and communications fall?

Mr. HAKES. Depending on how it was recycled, they might be net

beneficiaries.

Mr. MCINTOSH. But that is assuming there is a tax. In the absence of a tax.

Mr. HAKES. Without it, they would be less hurt than, say, the

aluminum industry or the refining industry or the auto manufacturing industry, who are very energy intensive industries, or the

airlines industry, who have high energy costs and therefore it

would affect their bottom line a lot more. I think for the computer

companies, this is not as big an issue for them, although, clearly,

they do have energy costs and have a great interest in the reliability of the electric system.

Mr. ROMM. Let me make a few points.

First of all, certainly the worst-case scenario, electricity prices

aren’t going to double under Kyoto.

B, even in the most pessimistic analysis, which is Mr. Hakes, he

says that we could comply with Kyoto with ‘‘no appreciable change’’

in the long-term GDP growth rate. So the fact is that it would not

harm the economy.

The third is that Mr. Mills—Mr. Mills is testifying that, on the

basis of his study, he can tell you that Kyoto would be bad for the

U.S. economy, and yet he has only looked at the electricity used by

the Internet. He has not looked at the electricity saved by the use

of the Internet in the economy. Therefore, his study is wholly inadequate to draw that conclusion.

I am not going to testify here today that I know for a certainty

that everything that I wrote is true. That is why we called our

work a scenario. But it is very clear that if you look at the data,

electricity, the rate of growth of electricity consumption has

dropped, energy growth has dropped, CO2 growth has dropped, and

GDP growth has grown. So I don’t see how anyone can argue with

the premise that we can have lower CO2 growth and higher GDP

growth.

Just to correct one other misstatement by Mr. Hakes, we have

done a weather correction. It is very clear that the United States

is getting warmer. NOAA has—you know, the National Oceanic

and Atmospheric Administration has acknowledged that, EIA has

acknowledged that. When you do the weather correction, we have

had a slightly warm 1997, very warm 1998, not a particularly

warm 1999 compared to 1998. The weather correction brings annual energy growth up to slightly under 1 percent and the same

for CO2. It explains about one-quarter of this remarkable graph

here.

Mr. MCINTOSH. And I think I am going to have to leave; but, Mr.

Hakes, you have a comment you want to make.

Mr. HAKES. Mr. Romm talks about this remarkable graph. I

would like to introduce into the record the intensity gains and

losses in the U.S. economy going back to 1960. You look at 1981,

the intensity gain was 4.6. If you look at 1983, the gain was 4 percent, greater than we have seen in the last 2 years. So in 1984, you

have Amory Lovins saying, we see electricity demand ratcheting

downward over the medium and long term, much as Mr. Romm is

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saying today, and he actually had more convincing data at that

time than Mr. Romm has today.

So what happened in the next few years? The pattern reversed

itself. Because things go in cycles. Weather goes in cycles. The

economy in Asia goes in cycles. If we were to use Mr. Romm’s approach, if you take the 4 years before 1997, the intensity gains in

3 of those 4 years rounded out to zero. We didn’t change our optimism about continuing intensity gains because we thought those

statistics were aberrations.

Mr. Romm didn’t come to us at that time and say lower your intensity gains because we got these very low intensity numbers. So

he picks two numbers in 2 recent years that raise some interesting

questions but are clearly highly relevant to weather, where you

don’t see energy use going down, you don’t see carbon going down,

and tries to argue that it is a brand-new trend. I think the data

are much less convincing than the data from 1981 and 1983.

Mr. RYAN. Mr. Mills, could you comment on that as well, please?

Mr. MILLS. Well, the energy intensity trends of the economy, it

again masks two things. One is, are we getting more energy efficient by this measure? Which again I contend is a misleading

measure. What you see in these graphs is, regardless of what the

growth rate is, the operative word is growth. The economy is growing. Consumption of energy is growing. The emissions of carbon dioxide are growing. None of it is declining.

So my conclusion, which Mr. Romm misstated—misrepresented,

was not that the Kyoto protocol harms us. It is that the kind of

policies that would tamper with the electric supply system of this

country, which is the single most important part of our economic

infrastructure at the root, are dangerous given the rising importance of electricity, not its declining importance.

Let me add one other point just as an overlay on this to get back

to an earlier remark I said about the challenge we have here is understanding this new economy. Mr. Romm, I don’t believe, understands it. Mr. Hakes knows that it is complicated and has said—

in fact, I have seen in their data their analysts are struggling to

figure out how to fit it in, and we don’t have the data collection

mechanisms.

But one particular conclusion in Mr. Romm’s study that is

breathtaking in its erroneousness I have to just put on the record.

His conclusion about how much energy the Internet uses states

that it is not a significant energy user because it uses the existing

telecommunications infrastructure.

I have to say, this is laughable if you talk to people in the

telecom industry and go to any hearings in the Congress on

telecom. The telecom industry has been turned upside down by the

Internet. We have had trillions of dollars of new infrastructure

built because of the Internet. There was no existing infrastructure.

It was created for the digital economy and for the Internet. This

would be like saying in 1950 that the interstate highway system

existed and was an existing infrastructure, did not require energy

or materials to build out over the next 40 years. It didn’t exist. It

had to be built. We are in the build-out phase. This is 1950 for the

digital highway right now.

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Mr. RYAN. Mr. Romm, I am very intrigued at his confidence in

this chart and the confidence in these 2-year sets of data——

Mr. ROMM. Three.

Mr. RYAN [continuing]. 3-year sets of data indicate a trend. Let

me ask just left from right, Mr. Mills and then Mr. Hakes and Mr.

Romm at the end, to comment on that. Does 3 years of data indicate a trend? Have we severed the tie?

Mr. MILLS. I will make this answer short. Three years does not

set a trend. A decade, 5 to 10 years is useful. I do not believe we

have severed any ties of any kind. I think there are some important structural changes, but, no, 3 years is interesting but not a

trend.

Mr. RYAN. Mr. Hakes.

Mr. HAKES. He has averaged the 3 years, but you can hide a lot

of things with averaging. The intensity gain in 1996 was 0.2 percent. That happened to be a cold period, so that is not surprising.

So the real intensity gains that he is talking about are only in 1997

and 1998, 3.4 and 3.9, and because of the unusual weather and economic conditions, as I have said before. There are a lot of people

around town, economists and others, in the administration and others, and I think most of them agree with us that weather was a

big factor. This is certainly worth watching but does not indicate

a significant new trend.

Mr. ROMM. First, to just correct Mr. Mills, the paper makes very

clear one of the things the Internet does is take advantage of the

fact that everybody had computers or a lot of people had computers

before the Internet and that consumed a great deal of electricity.

For Mr. Mills, if the economy was consuming a lot of electricity, if

someone had a PC and it consumed electricity, they spent any time

on the Internet, that is all Internet electricity, even though the

economy was using it for other purposes beforehand.

Let me make a few things clear. In Mr. Hakes’s testimony, he

believes I am talking about 1997 and 1998. We are, in fact, averaging in the first 10 months of the 1990 data—the 1999 data. What

is interesting about the 1999 data is that it has nothing to do with

weather, because 1999 was not as mild as 1998. We have talked

to EIA’s analysts. We have done the weather correction. We have

talked to EPA. The weather correction is only 25 percent of this effect.

Mr. RYAN. Let me interject at this point. Mr. Hakes, what about

the Asian meltdown? How much of that is significant to this data?

Mr. HAKES. We think that it is part of the drop in natural gas

usage in 1998. I think the chairman was getting at this point earlier. You can talk about intensity gains, but if you are relating this

to Kyoto, you are not getting Kyoto gains if the economy grows

faster and energy consumption stays the same. So we are sort of

talking about apples and oranges here.

Intensity is a little bit irrelevant—it is a factor, but the real

issue is how much energy is being consumed and how much carbon

is being emitted. So the fact that we have had this incredible economic growth in the last few years and its improved intensity,

doesn’t necessarily mean energy use will go down.

One other point I think the committee might be interested in is

that the Commerce Department has changed the way we calculate

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GDP and that is it gives us statistics that are higher not because

the economy is growing faster but because the statistical calculations are different, which means that all of these intensity numbers

are going to be adjusted upward in the next year or two, so that

you will see more improvements of intensity because there is a better measurement system now for GDP. You can sit around and celebrate when that statistical adjustment is made and say that this

makes Kyoto easy, but, the bottom line, it doesn’t change energy

consumption; it just changes the ratio between energy and the

economy.

Mr. ROMM. What I would like to end up by saying is as follows:

We put out our scenario on the table because it looks like something very interesting is happening in the economy. Mr. Hakes is

supposed to be representing an objective, independent, energy analytical agency. They ought to be very interested in what is going

on in the economy. And yet he comes here and he tries to tell you

nothing is going on, I can explain it all, even though—and I would

like to introduce into the record a chart that we have done that

shows that, in fact, energy intensity in every sector has improved,

including the transportation sector. In fact, the transportation sector, which is completely—almost completely independent of the

weather, has seen the biggest 2-year drop in the intensity of travel

per GDP in 30 years of data.

The fact of the matter is that something big is going on in the

economy, and I just challenge EIA to be curious about it.

To give you an idea of what they did in their last annual energy

outlook 1 year ago, they projected 8 years of 1.6 percent CO2

growth. We had no growth in CO2, 0.3 percent, in 1998. And instead of saying, oh, something big may be happening in the economy, we should lower our CO2 forecasts, they actually jacked them

up to 1.8 percent, which suggests to me that they are not sufficiently curious as to whether something big is going on in the economy that might affect forecasts that people make very important

decisions on.

Mr. RYAN. OK. Before I go with a final question, Mr. Mills, would

you like to respond to that?

Mr. MILLS. I just want to make this observation about the forecasting challenges and energy intensity. One of the things that is

very clear and that is important to the subject at hand is that we

haven’t stopped building out the Internet. Regardless of what we

decide that the consumption of electricity is that is ascribed to the

Internet, it is still growing exponentially.

We are at the buildup phase. We are building up everywhere, not

just .coms and servers, but homes, multiple PCs in home, cable

modems, wireless telephony, wireless data access, wireless palms,

all of these things use electricity and they are growing at exponential rates. They will increase the consumption of electricity reasonably, and it will bootstrap the GDP even faster.

So when we combine that effect with the readjustment in how we

measure the GDP, we are going to get an even bigger appearance

of improved energy efficiency by this fallacious measure which is

BTUs per dollar of GDP, but we will still use more energy, which

is a critical thing to keep in mind.

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Mr. RYAN. How important is the comparisons of growth rates

versus nominal mall growth?

Mr. MILLS. Well, what matters from the reality of physics and

materials is growth, not the rate. And from a fundamental perspective, we want to know how much stuff are we using, where is oil,

gas, coal, steel, aluminum, are we going to use more stuff next

year. The rate can change, depending on how you measure the

rate, per person, per house, per dollar. You can get very odd results

with statistics. There is that old Mark Twain saying: there are lies,

damn lies, and then there are statistics. Rates are tough things.

But the absolute growth tells you a lot about the materials.

And we have used more stuff, and we will use more stuff and the

biggest increase in stuff will be kilowatt hours. That is where the

risk is in Kyoto. It is not this rate discussion and forecast into the

future. The one forecast I can make confidently is that we will use

more. We don’t know exactly how much more. That is the challenge.

Mr. RYAN. I was a fan of the Presidential debates which we have

seen over the last few weeks, and I think we had some interesting

dynamics in those Presidential debates and that was where the

candidates asked each other a question. I think this has been a

very informative hearing, it has been interesting. We have some

unique personalities assembled here today. I would like to interject

that little trend here, so to speak.

Let me do this, how about in no particular order or reason, Mr.

Mills, why don’t you ask Mr. Romm a question; Mr. Romm why

don’t you ask Mr. Hakes a question; and Mr. Hakes, why don’t you

ask Mr. Romm a question. We have been asking questions, but I

would be intrigued to watch a dialog between the three of you, each

of you asking each other a question, and then we will wrap it up.

Mr. Mills.

Mr. MILLS. Thank you. I think the critical analytic question to

ask Mr. Romm is that while it is clear that there are efficiency effects from the use of Internet, it is A minus B equals C, C being

the net result. You have to know what A is first. You have to know

how much energy the Internet uses to calculate how much energy

it saves.

So I guess my question is really simple. Does your organization

intend to try to figure out on their own, independent of my analysis, through their own analysis, perhaps with Lawrence Berkeley,

to figure out how much electricity the Internet uses?

Mr. ROMM. Well, as you know, we have had many e-mail exchanges on this very point. I think Lawrence Berkeley labs is one

of the most recognized authorities on how the economy uses electricity and energy. EIA uses them, everybody uses them. The international energy bodies use them.

Their five scientists did a very comprehensive analysis, in an admittedly difficult area. They came to the conclusion that you were

wrong by a factor of 8 and that they won’t say specifically, but I

am certainly prepared to say that the Internet, specifically the

Internet uses about 1 percent of U.S. electricity maximum.

However, you know, I think this is an important point for the

committee. If Mr. Mills were right and his numbers were correct,

which is that electricity consumption has soared since 1997 because

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of the Internet, these numbers couldn’t be true. So the fact that

electricity consumption rates have slowed since the Internet took

off is, in my mind, prima facie evidence that he can’t possibly be

right. So he can engage in a very complicated and elaborate analysis to show that the Sun goes around the Earth, but the Sun

doesn’t go around the Earth, and so his analysis is pointless. We

have put on the table our explanation of why his methodology is

wrong and why he comes up with the wrong answer, which the

macroeconomic data clearly shows is wrong. So I don’t think we

need to do any more work.

Mr. RYAN. In keeping with the Iowa and the New Hampshire

tradition, we will give the questioner a 30 second rebuttal.

Mr. MILLS. I think 2 things are relevant to this. The adjective

‘‘soar’’ is an adjective. The electric use went up when all of the forecasters in Mr. Romm’s camp said it would stop going up. More to

the point, I will take the 1 percent, that is fine. Given the growth

rates on the Internet and let’s say it is starting at 1 percent today,

I will tell you that we just have to wait a few years, and it will

be 8 percent and then more. Because the growth rate is astonishing.

So the real issue is not so much whether it is 1 or 2 or 3 or 4,

but that it is a positive integer. I am glad to hear Mr. Romm recant

the ‘‘0’’ that is in his study.

Mr. RYAN. Mr. Romm, would you like to ask Mr. Hakes a question?

Mr. ROMM. I realize, to use the full New Hampshire format, he

asked for the specific number of the Internet use of electricity: 1

percent. The net impact of the Internet on electricity which would

include not only the energy used by the components of the Internet,

but what the impact of the Internet is on the economy, I believe

the Internet saves electricity and far more than electricity, it saves

energy. So that having the Internet is why the electricity growth

has slowed.

The question that I would ask Mr. Hakes is, you know, first of

all—let me think about this for a second.

If it were the case—well, let me ask you this question. If it were

the case that the energy intensity were, in fact, changing in the

last 3 years, and that, in fact, energy intensity has averaged from

1997, 1998, and 1999 about 3.5 percent, although you project that

it is going to improve 1.1 percent, so we think, you know, currently

you have been wrong 3 years in a row by a factor of 3, if it were

the case that that was happening, would EIA—and we could convince you that that was happening, would EIA be willing to modify

its forecasts?

I take your point that you have cited, very high energy intensity

declined in the 1980’s, but that occurred when oil prices were doubling and tripling. We have never had energy gains this big when

energy prices were low and even declining. So that is my question.

Is EIA open to exploring this very important issue and perhaps

changing its forecasts?

Mr. HAKES. We have extensive internal dialogs about these

issues and external dialogs, and we certainly would take this into

consideration. But I think again you are mixing apples and oranges. It makes a big difference if the intensity improves because

85

the economy is going up or it improves because energy use is going

down. Because if, for instance, you take the scenario that energy

use stays about the same and the economy goes up, then you would

be asking us to adjust our intensity estimates, but you would also

be asking us to adjust our GDP estimates. We estimate GDP to

grow at about 2.3 percent a year. So if Mr. Romm wants us to take

the last year as the statistical call trend, we would then have to

raise our GDP rates to about 4 percent a year, which might conceivably make it harder to meet the Kyoto protocol.

Now, if there was a comparable gain in intensity, it would be a

wash.

So you can’t just change one part of the equation and take the

part you like and not add in the other point you don’t like. So are

you arguing, Joe, that we have too low a growth rate for the economy and we should jack up economic growth which will create

more new energy usage than we have in our model?

Mr. ROMM. Actually I am arguing that EIA has done what you

just accused me of doing. In fact, if you look at EIA’s forecasts this

year and last year, they jacked up the GDP level in 2005, but they

didn’t change the energy intensity level. So they actually predict,

even though we have had 3 amazing years, they have predicted

higher GDP growth, but no improvement in energy intensity, which

is why this year’s forecast, even though oil prices are higher than

they were a year ago and even though they have another year’s

data that something is going on in the economy, they actually

raised GDP, but they don’t raise the energy intensity, which is why

they have higher CO2 levels predicted this year for 2005 than they

did last year, which I would argue suggests that they are defending

a perspective which is to say higher CO2 growth rates, as opposed

to saying gee, maybe something is happening in the economy.

Mr. RYAN. Since we are talking about your chart so much, why

don’t we have Mr. Hakes ask Mr. Romm a question and then we

will conclude.

Mr. HAKES. Back in 1996, carbon emissions went up about 3 percent and EIA took the position that a lot of that was weather related, and we didn’t jack up our carbon emissions growth-rates. In

fact, we, I think, came down a little bit, because we thought that

was a specific aberration. Why didn’t you come to us in 1996 and

express your concerns that we were underestimating carbon growth

because the data for that year showed it was much higher than

were in the EIA estimates?

Mr. ROMM. Well, I take your point that 1 year’s worth of data

is not something that I would change your forecasts on. We started

this report when we had about 21⁄2 years worth of data. I think we

now have 3 years worth of data.

You can certainly say that OK, we have to wait for a 4th year

and then a 5th year and a 6th year. I would pose that 3 years

worth of data is very impressive. We have never in U.S. history

seen this improvement in how the Nation uses energy at a time of

low energy prices. The only data that he could cite was 1982. Oil

prices doubled in the early 1970’s, they doubled again in the late

1970’s, this is why energy intensity improved. He has to explain

how it is that we had GDP go up and energy growth rates go down.

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As I say, we have talked to EIA to understand how they do

weather analysis. When you do the weather correction, I will be

happy to go over this with you, because we used your numbers in

our second case, it only gets you up to 1 percent. The fact is that

over the last 3 years, weather-adjusted energy growth has been

under half of what the weather-adjusted energy growth was in the

previous 4 years.

Mr. HAKES. I would point out that the period you cover just coincidentally happens to be a period that was highly unusual historically in not having a heavy cold snap. It will be very interesting

to look at the 2000 data where we obviously have had some months

here where we have had heavy demands for heating oil and natural

gas that we haven’t seen for several years, and I think that will

balance out our perspective quite a bit.

Mr. RYAN. That was going to be my last question. Mr. Romm,

you said something that intrigued me. You made an assumption

that Internet efficiencies are going to lead to less energy consumption. I would like to ask the other 2 gentlemen, Mr. Mills to start

with, if the digital economy increases wealth, will it or will it not

increase demand? If the digital economy makes us wealthier, won’t

this increase the demand for TVs, computers, cars, air travel, energy-producing products?

I represent the First Congressional District of Wisconsin. We

produce the Chevy Tahoe, Suburban, medium-duty trucks, the Jeep

Cherokee, the Wrangler, SUVs which are gas-guzzling vehicles. We

are selling them like hot cakes. It is producing a lot of jobs where

I live. Could you comment on that?

Mr. MILLS. Sure, and really there are two issues. The one issue

is the wealth effect. I think there is no question that the digital

economy is driving the wealth effect; and as Mr. Hakes has said,

that is one of the complications. As you push the GDP up because

of the lubrication, if you like, of the information economy, you get

more purchases of SUVs, bigger houses, more renovations, more

travel. In fact airline travel is up, driving is up, everything is up.

So the measures of efficiency are really misleading. Yes, there is

so much more money which drives up the energy efficiency metric.

The efficiency of driving measured in miles per dollar is better, but

that doesn’t matter. Driving is up.

The narrow point, of course, is that in the electric area, that as

you keep adding this infrastructure, you get net more demand for

electricity. Yes, it drives efficiencies in oil and transportation; yes,

it drives efficiency, it controls lights better. But what we already

see happening is that the growth rate is still a growth. So that the

fundamental problem we had, and what I heard in this exchange

just now between Mr. Hakes and Mr. Romm, is measuring the

growth, in fact the reason we started our analysis.

Much of the energy discussion that is going on triggered by

Kyoto is locked in a historical way of looking at our energy economy and has not fully accommodated the profound structural

changes that the information age has brought. It specifically has

not accommodated the demand side of it. Not because it is going

to necessarily soar—I used the word ‘‘soar’’ because I believe that

is a big increase over what would have been claimed to be zero. But

for me, a growth equal to all the electricity of Central and South

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America, that is soaring. But I use that phrase to point out this

is an enormously important growth held against the desire to back

out the coal industry.

So the answer to the question is I am very confident in saying

that the wealth effect will keep driving electric growth, that I am

confident the telecom sector will be the recipient.

Mr. RYAN. Mr. Hakes.

Mr. HAKES. Well, I think motor vehicles are a very interesting

issue, because it is something we all deal with every day. Mr.

Romm was pointing out that he sees some tendency here of improved intensity. We are still taking some pre-1988 vehicles off the

road which does create some efficiency gains. But the fact is that

new vehicles today are less efficient than ones from the early

1990’s.

And what happened is we have had a lot of advanced technologies go into these vehicles, but we have had a lot of service requirements added on to the vehicles and those seem to be offsetting

these new technologies. So where this is going to come from, it certainly is not showing up in the data at this point. The new vehicles

today are less efficient than the new vehicles in the early 1990’s.

Mr. ROMM. I this—I—the Internet can’t affect the efficiency of

vehicles, but it can affect how they are used. EIA in October—excuse me, in November, acknowledged that there has been a breakoff in the historical relationship between economic growth and

transportation. It is very clear, although it is too early to say it is

a trend, because it is only 1 or 2 years’ data, that vehicle miles

traveled in the last 2 years have slowed noticeably.

I won’t repeat all of the ways that the Internet economy increases efficiency. I had the 30,000 word report on that subject.

Compared to traditional companies, Internet firms require less

square footage and under one-tenth of the building energy consumption per dollar of sales; companies are using the Internet to

cut inventories 25 to 50 percent; and more or more firms like IBM

and AT&T are reducing square footage for their mobile workers because of the Internet. Some firms are even auctioning off empty

space on cargo trucks, I am sure you read about that, making the

freight system more efficient.

So I believe that we have only scratched the surface in understanding all of the ways that the Internet is making the economy

more efficient. But I put it to anyone else to explain what is going

on in the economy, if the Internet isn’t playing a role in making

it more efficient.

Mr. RYAN. Those are interesting anecdotes, and I wonder if they

encapsulate the whole picture. I was just wondering, you said 1 or

2 years of data doesn’t indicate a trend in the automobile industry,

but it does in your chart here. I find that to be quite a contradiction.

Mr. ROMM. I think 3 years worth of data in the entire U.S. economy suggests something big is going on. We titled our report a scenario, because I don’t think anyone can testify that they know exactly what is going on. I mean I think we know enough to know

that Mr. Mills has to be wrong, and that Mr. Hakes’s forecasts are

probably wrong. We have offered the best explanation for something big going on in the economy. I am not certain that—and we

88

just want people to say gee, we better look at this because it is important.

Mr. RYAN. Well, I appreciate your candor.

Mr. HAKES. His saying that I am probably wrong is the nicest

thing he has said all day.

Mr. RYAN. I will let Mr. Mills have the final say because of that

salvo.

Mr. MILLS. Let me just end with a Lawrence Berkeley number

to put the whole thing into perspective. I agree that the Internet

drives efficiency. That is fine. But Lawrence Berkeley guys said

that the commercial sector’s use of computers: PCs, monitors, printers collectively in 1995 was 50 billion kilowatt hours. That was

Lawrence Berkeley in 1995 for 1993 consumption of that whole

class, not just PCs. Seven Internet years ago. My study says that

that class of devices not just nor the Internet is up in the 300 to

400 billion kilowatt hour range. I would just submit to you that in

that 7 Internet years, I don’t think it is obvious that I am obviously

wrong.

Mr. RYAN. Point taken.

Gentlemen, thank you very much for very interesting testimony.

This hearing is adjourned.

[Whereupon, at 12 noon, the subcommittee was adjourned.]

[Additional information submitted for the hearing record follows:]

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