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COMPETITIVENESS AND CLIMATE POLICY: 

AVOIDING LEAKAGE OF JOBS AND EMISSIONS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ENERGY AND ENVIRONMENT 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

MARCH 18, 2009 

Serial No. 111–17 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

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COMMITTEE ON ENERGY AND COMMERCE 

HENRY A. WAXMAN, California, Chairman 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

FRANK PALLONE, JR., New Jersey 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

Vice Chairman 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANE HARMAN, California 

TOM ALLEN, Maine 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

CHARLIE MELANCON, Louisiana 

JOHN BARROW, Georgia 

BARON P. HILL, Indiana 

DORIS O. MATSUI, California 

DONNA CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

CHRISTOPHER MURPHY, Connecticut 

ZACHARY T. SPACE, Ohio 

JERRY MCNERNEY, California 

BETTY SUTTON, Ohio 

BRUCE BRALEY, Iowa 

PETER WELCH, Vermont 

JOE BARTON, Texas 

Ranking Member 

RALPH M. HALL, Texas 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

NATHAN DEAL, Georgia 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOHN B. SHADEGG, Arizona 

ROY BLUNT, Missouri 

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

PARKER GRIFFITH, Alabama 

ROBERT E. LATTA, Ohio 

(II) 

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(III) 

SUBCOMMITTEE ON ENERGY AND ENVIRONMENT

EDWARD J. MARKEY, Massachusetts, Chairman 

MICHAEL F. DOYLE, Pennsylvania 

G.K. BUTTERFIELD, North Carolina 

CHARLIE MELANCON, Louisiana 

BARON HILL, Indiana 

DORIS O. MATSUI, California 

JERRY MCNERNEY, California 

PETER WELCH, Vermont 

JOHN D. DINGELL, Michigan 

RICK BOUCHER, Virginia 

FRANK PALLONE, New Jersey 

ELIOT ENGEL, New York 

GENE GREEN, Texas 

LOIS CAPPS, California 

JANE HARMAN, California 

CHARLES A. GONZALEZ, Texas 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

JIM MATHESON, Utah 

JOHN BARROW, Georgia 

DENNIS HASTERT, Illinois 

Ranking Member 

RALPH M. HALL, Texas 

FRED UPTON, Michigan 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

HEATHER WILSON, New Mexico 

JOHN B. SHADEGG, Arizona 

CHARLES W. ‘‘CHIP’’ PICKERING, 

Mississippi 

STEVE BUYER, Indiana 

GREG WALDEN, Oregon 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

MICHAEL C. BURGESS, Texas 

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(V) 

C O N T E N T S 

Page 

Hon. Edward J. Markey, a Representative in Congress from the Commonwealth of Massachussetts, opening statement ................................................... 1 

Hon. Fred Upton, a Representative in Congress from the State of Michigan, 

opening statement ................................................................................................ 3 

Hon. John D. Dingell, a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 4 

Hon. John Shimkus, a Representative in Congress from the State of Illinois, 

opening statement ................................................................................................ 5 

Hon. Michael F. Doyle, a Representative in Congress from the Commonwealth 

of Pennsylvania, opening statement ................................................................... 6 

Hon. Joseph R. Pitts, a Representative in Congress from the Commonwealth 

of Pennsylvania, opening statement ................................................................... 7 

Hon. Doris O. Matsui, a Representative in Congress from the State of California, opening statement .................................................................................... 8 

Hon. Jay Inslee, a Representative in Congress from the State of Washington, 

opening statement ................................................................................................ 9 

Hon. John B. Shadegg, a Representative in Congress from the State of Arizona, opening statement ...................................................................................... 9 

Hon. Steve Scalise, a Representative in Congress from the State of Louisiana, 

opening statement ................................................................................................ 11 

Hon. Tammy Baldwin, a Representative in Congress from the State of Wisconsin, opening statement ................................................................................... 12 

Hon. Cliff Stearns, a Representative in Congress from the State of Florida, 

opening statement ................................................................................................ 12 

Hon. Joe Barton, a Representative in Congress from the State of Texas, 

opening statement ................................................................................................ 13 

Hon. Greg Walden, a Representative in Congress from the State of Oregon, 

opening statement ................................................................................................ 14 

Hon. Michael C. Burgess, a Representative in Congress from the State of 

Texas, opening statement .................................................................................... 15 

Hon. Gene Green, a Representative in Congress from the State of Texas, 

prepared statement .............................................................................................. 164 

WITNESSES

John McMackin, Jr., Williams and Jenson, PLLC, On Behalf Of The Energy 

Intensive Manufacturers Working Group on Greenhouse Gas Regulations ... 16 

Prepared statement .......................................................................................... 19 

Answers to submitted questions ...................................................................... 185 

Martin McBroom, Director, Federal Environmental Affairs, American Electric 

Power ..................................................................................................................... 42 

Prepared statement .......................................................................................... 44 

Paul Cicio, Industrial Energy Consumers of America .......................................... 87 

Prepared statement .......................................................................................... 89 

Answers to submitted questions ...................................................................... 187 

Margo Thorning, Ph.D., Senior Vice President and Chief Economist, American 

Council for Capital Formation ............................................................................ 106 

Prepared statement .......................................................................................... 108 

Answers to submitted questions ...................................................................... 191 

Richard D. Morgenstern, Senior Fellow, Resources for the Future ..................... 126 

Prepared statement .......................................................................................... 128 

Answers to submitted questions ...................................................................... 196 

Eileen Claussen, President, Pew Center on Global Climate Change .................. 136 

Prepared statement .......................................................................................... 139 

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VI 

SUBMITTED MATERIAL

Letter of March 18, 2009, from American Chemistry Council to Subcommittee, 

submitted by Mr. Green ...................................................................................... 166 

Article entitled, ‘‘Obama climate plan could cost $2 trillion,’’ Washington 

Times, March 18, 2009, submitted by Mr. Barton ............................................ 180 

Article entitled, ‘‘Trade Barriers Could Threaten Global Economy,’’ Washington Post, March 18, 2009, submitted by Mr. Barton ................................... 182 

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(1) 

COMPETITIVENESS AND CLIMATE POLICY: 

AVOIDING LEAKAGE OF JOBS AND EMISSIONS 

WEDNESDAY, MARCH 18, 2009 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON ENERGY AND ENVIRONMENT, 

COMMITTEE ON ENERGY AND COMMERCE, 

Washington, DC. 

The subcommittee met, pursuant to call, at 9:35 a.m., in room 

2123 of the Rayburn House Office Building, Hon. Edward Markey 

(chairman) presiding. 

Members present: Representatives Markey, Doyle, Inslee, 

Butterfield, Melancon, Matsui, McNerney, Dingell, Green, Baldwin, 

Matheson, Barrow, Upton, Stearns, Whitfield, Shimkus, Shadegg, 

Blunt, Pitts, Walden, Sullivan, Burgess, Scalise, and Barton (ex 

officio). 

Also present: Representative Terry. 

Staff present: Matt Weiner, Clerk; Michael Goo, Counsel; Melissa 

Bez, Professional Staff; Lindsay Vidal, Press Assistant; Andrea 

Spring, Minority Professional Staff; Peter Spencer, Minority Professional Staff; and Garrett Golding, Minority Legislative Analyst. 

OPENING STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH 

OF MASSACHUSETTS 

Mr. MARKEY. Welcome to the Energy and Commerce Committee 

and the Subcommittee on Energy and Environment, and we welcome you to this very important hearing, and it is import just because of the symbolic nature of today because with March Madness 

about to begin, it is important that we keep in mind the need for 

a level playing field. As we work to get more players in the clean 

energy game, including wind and solar and new clean tech companies, we cannot afford to simultaneously tilt the playing field 

against American businesses and manufacturers. 

This hearing will explore ways to keep all countries economically 

in bounds in the global challenge to reduce global warming pollution. 

Global warming does not recognize national borders. CO2 emitted 

in California has the same warming effect as CO2 emitted in 

China, Europe, or India. Rising sea levels threaten millions of people across the globe, in places as far apart as Bangladesh, Boston 

and Shanghai. Global warming highlights that we are, in fact, one 

world. 

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2 

And just as we are connected environmentally, so too are we connected economically. The actions we take in the United States to 

curb global warming pollution and create jobs cannot stand alone. 

A cement factory that emits heat-trapping emissions in the 

United States and then decides to move to Mexico or China in response to our laws would have accomplished nothing to reduce 

global warming, except perhaps to export jobs and emissions overseas. Thus, in a global economy, we cannot ignore the reality of 

global emissions, nor the reality of global competition. 

The subcommittee will hear today about some innovative proposals to address this problem, which is important but manageable. 

Once you drill down on the facts it is clear that a relatively small 

number of industry sectors are highly energy-intensive and directly 

vulnerable to international competition and the effects of that 

which are brought about by carbon limits. 

Those industry sectors include iron, steel, aluminum, cement, 

glass, paper and pulp, and basic chemicals. These sectors face 

international competition and have energy or carbon intensive production processes. While it is true that these sectors together account for more than half of all CO2 from the manufacturing sector, 

their overall percentage is modest: the big six energy intensive industries account for only about 6 percent of total U.S. emissions. 

These important industrial sectors interestingly constituted a little more than 3 percent of America’s gross domestic output in 2005 

and accounted for less than 2 percent of our jobs. 

To avoid shipping jobs or emissions overseas, some have suggested requiring that energy intensive products imported into the 

United States be accompanied by some kind of fee or surcharge, 

unless the product comes from a country with carbon pollution limits. This approach would put imported, carbon-intensive products 

on the same footing as American made goods and thus level the 

playing field. 

Mr. Marty McBroom of the American Electric Power is here to 

discuss the tariff/allowance proposal his company co-authored with 

the International Brotherhood of Electrical Workers. 

Another way of dealing with potential competitive effects would 

be to take some of the allowance values from the carbon market 

and give them to the trade exposed industry sectors to aid in their 

transition to a low-carbon economy. I commend the work of Mr. 

Doyle and Mr. Inslee, who have authored such an approach. 

Mr. Jack McMackin, who represents a coalition of energy intensive manufacturers who favor such an approach, is here to provide 

his views regarding that strategy. 

Finally, we should remember that in order to stop global warming, it will be necessary for virtually all countries, particularly industrialized countries, to limit their emissions of carbon pollution. 

If we are ultimately successful in halting global warming, the 

playing field will not remain tilted forever, and the best approach 

for keeping all countries in bounds is to encourage them to permanently match the United States by limiting emissions immediately. 

Only then will it truly be possible for teams and companies from 

places like China, India or Australia to compete without restrictions on the same court as teams from places like North Carolina 

or Boston College or the University of Illinois or Michigan or Michimstockstill on DSK4VPTVN1PROD with HEARINGS

3 

gan State or Pittsburgh or Wisconsin or Texas A&M or Cal-Berkley 

or the University of Illinois down state. 

Mr. UPTON. And don’t forget Penn State won in overtime last 

night in NIT. 

Mr. MARKEY. Penn State is in the NIT? The University of Pittsburgh is doing well, however. And again, dare I say it, the University of Michigan. 

I look forward to all of our witnesses’ testimony here today, and 

that completes time for the opening statement of the Chair. 

We turn and recognize the Ranking Member, the gentleman from 

Michigan, Mr. Upton. 

Mr. UPTON. Thank you, Mr. Chairman. I look forward to putting 

my bracket up against yours, so you better get yours done tonight. 

Mr. MARKEY. You don’t happen to pick all Jesuit schools to go 

all the way, do you? That has never been a winning strategy for 

me, but I can’t break my habit of doing that. 

Mr. UPTON. I am glad you pick with your heart and not your 

head. 

Mr. MARKEY. Not a good strategy. 

OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. UPTON. Thank you again for having this hearing. I appreciate testimony from our witnesses that I looked at last night, but 

before I begin I would like to submit a letter that was submitted 

to our committee last year from former U.S. Trade Representative 

Susan Schwab. She wrote that we have serious concerns particularly for the enthusiasm for using import provisions that might be 

perceived as unilateral trade restrictions directed against other 

countries to push them to move rapidly to reduce their emissions 

of greenhouse gases. This approach will take us down a dangerous 

path and adversely affect U.S. manufacturing, farmers, and consumers, and even cause an all-out trade war where no one wins 

and everyone loses. 

History has shown that the U.S. is stronger with a robust manufacturing and industrial base. The jobs and industries that will 

bear the greatest costs of climate legislation are the same industries that we need to keep in America in order to remain a power 

on the world stage. These are the jobs that built the middle class, 

and since 2000, U.S. manufacturing has been struggling. From 

2000 to 2008, we lost 3.8 million manufacturing jobs, a decline of 

about 22 percent. At the same time, imports were up 29 percent, 

a direct correlation, and my home State of Michigan has been 

ground zero for these losses. Manufacturing and energy intensive 

industrial sectors are highly competitive. More often than not, the 

cost of energy is the difference between operating in the U.S. and 

shutting the doors to move overseas. 

What happens to our national security when we don’t manufacture anything? Well, what happens when we need to order all of 

our steel and aluminum from China? If we take the wrong legislative path dealing with climate change, we run the real risk of permanently destroying our manufacturing and defense supply chains, 

and in times of crises we will be helpless, at the mercy of others. 

The days of Rosie the Riveter and an entire generation of coming 

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4 

together to rebuild our military from the ground up will only be a 

distant memory. By design, a cap-and-trade scheme works by adding to the cost of energy, and through that, an increase in production costs for energy-intensive industries and manufacturing. There 

are cost containment mechanisms that will be discussed this morning that may help mitigate some of the increases, but at the end 

of the day, they won’t be enough to save the jobs. And when factories move overseas, the environment is worse for it. 

Let us take steel. In the United States, steel producers are the 

most efficient in the world. An average American steel maker emits 

1.2 tons of greenhouse gases per ton of steel. Compare that to Chinese steel emissions estimated to be in the neighborhood of 4 or 5 

tons of greenhouse gases emitted for each ton of steel they make. 

We are not helping the environment by sending industries that 

operate cleanly and efficiently in the United States to a regulationfree China. China is the number one emitter in the world with 

greenhouse gas growth every year that equals the current output 

of German. We shouldn’t be tying a hand behind our back. We can 

reduce emission and create jobs through other policies, and now is 

not the time for a costly cap-and-trade system. 

In closing, I would like to put the scale of emissions reductions 

being called for in these bills a little bit in perspective. These proposals would mean that the United States cannot emit more in the 

year 2050 than we emitted in 1910. That is a pretty daunting task 

considering that in 1910 the United States only had 92 million people compared to an estimated 420 million that we will have in 2050 

and a per-capita income in current dollars of about $6,000. To 

reach that lofty goal of 80 percent reduction, emissions from the 

entire transportation sector would have to drop to zero. Emissions 

from all electricity generation would have to drop to zero. Then we 

would need to reduce the remainder by about 50 percent. Think 

about the industries and jobs that we would lose to meet those 

goals. Can we really succeed as a power on the world stage if we 

shed these industries? Can our economy recover without those 

jobs? My guess is that most of us know the answers. I yield back. 

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Michigan, Mr. Dingell. 

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. DINGELL. I want to thank you for holding this hearing today. 

It is an important one. As I have said before, you are to be commended for building a strong record as we continue to move toward 

comprehensive climate change legislation. 

I would like to be clear. The United States is the largest emitter 

of greenhouse gases, and we are also the lone superpower. We 

must also be a leader. That said, we need to make strong action 

corresponding to ours by developing countries and others if we are 

to go forward on this. We need this for three reasons. First, without compensating action from developing companies, we simply will 

not get the reductions that the vast majority of scientists agree we 

need to achieve to avoid devastating effects of climate change. And 

I would note that the Senate has already acted on this under the 

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5 

Byrd-Hagel resolution which passed 95 to nothing, setting out the 

strong feelings of the Senate on this particular matter. 

Two, without corresponding action by developing countries with 

whom we compete internationally, the relative cost of American 

goods and services could increase and could cause U.S. industry 

and jobs to migrate to nations that do not limit their emissions. 

And I can tell you from discussions with the Chinese and others 

that this is a very real danger, especially based upon the concerns 

that I expressed to the Chinese in the meeting at Kyoto. 

Three, past debate on climate change suggests that the Congress 

would be unlikely to adopt legislation committing the United 

States to eliminating its greenhouse gas emissions in absence of assurances that developing countries will take similar action, and I 

would note again, the Byrd-Hagel resolution that passed the Senate 95 to nothing on this point. 

There are two options to ensure mandated reductions in the 

United States will not cause jobs and the emissions associated with 

them to move to countries with less stringent controls. First, free 

emission allocation to entities that produce goods sold internationally in internationally competitive marketplaces and whose competitiveness would be sorely affected by a domestic cap-and-trade 

program. Second is a program of border adjustments which is commonly referred to the IBEW approach which you referred to in your 

comments. Under this proposal we would require through tariffs, 

border taxes or other mechanisms the prices of relevant imported 

goods to reflect the same price that is included in competing U.S. 

goods as a result of domestic climate change legislation. Again, you 

referred to this, and I believe it is an essential part of any legislation which this Committee or other committees can and should 

move forward. I would note that the draft that Representative Boucher and I released last year contains a combination of these two 

approaches, and it is to be noted that that draft carries the proposals which were made and endorsed and approved by an organization of industry and environmentalists. I would urge my colleagues to take a look at this draft as a reference point. 

It is critical that whatever approach the Committee decides to 

take, it must be a matter that is reasonably certain to withstand 

a challenge before the World Trade Organization which realistically 

we must expect to be filed. 

I look forward to hearing from our witnesses today about the two 

proposals and their WTO compliance. Thank you, Mr. Chairman. 

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Illinois, Mr. Shimkus. 

OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS 

Mr. SHIMKUS. Thank you, Mr. Chairman. A theory is a coherent 

group of general propositions used as principles of explanation for 

a class of phenomenon. We unequivocally state mostly on my colleagues’ side that global warming is a fact. It is still a theory, and 

I would like to submit for the record a story yesterday from the 

University of Wisconsin Milwaukee, and the headline is University 

of Wisconsin Milwaukee study could realign climate change debate. 

And part of it that I have highlighted is scientists said that the air 

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6 

and ocean systems of the earth are now showing signs of synchronization with each other. Eventually the systems begin to couple, 

and the synchronous states destroy, leading to a climate shift in 

climate. When this happens, the climate state changes. You go 

from a cooling regime to a warming regime, or a warming regime 

to a cooling regime. This way we are able to explain all the functions in the global temperature trend in the past century. The research team has found the warming trend of the past 30 years has 

stopped. OK, these are scientists now. The research team has found 

the warming trend of the past 30 years has stopped, and in fact, 

global temperatures have leveled off since 2001. 

Now, I say that to start with the debate of is there a turning at 

all and should there be games played? I am not convinced that 

there is. The Chairman is correct in that cement factories will 

move. I have already been told that. Iron, steel, manufacturing, it 

is not the climate provisions, it is the energy costs that will cause 

them to move. A study of the Warner-Lieberman, 1 million jobs lost 

without carbon, 3 million with carbon. This hearing is avoiding 

leakage. That is cute for saying jobs will be lost. And I yield back 

my time. 

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Pennsylvania, Mr. Doyle. 

OPENING STATEMENT OF HON. MICHAEL F. DOYLE, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH 

OF PENNSYLVANIA 

Mr. DOYLE. Thank you, Mr. Chairman, and thank you for having 

this very critical hearing. I believe the concerns with job and emissions leakage, as well as international competitiveness, will be one 

of the key issues we need to address if we are going to be able to 

successfully pass a climate bill this session. As many of you know, 

Jay Inslee and I have been working over the past 18 months to put 

together a comprehensive policy to address this critical question. 

Our policy, which essentially will pay for the additional cost the 

bill imposes on these industries using funds generated through a 

cap-and-trade program, will go a long way toward addressing the 

concerns of a specific group of high-carbon intensive industries who 

have an internally set price for their product. It should be noted 

that the European Union has identified similar industries within 

their Phase III cap-and-trade program. The industries we believe 

should qualify would include steel, cement, aluminum, along with 

a few others. 

Our policy, however, Mr. Chairman, will not address every single 

concern these industries face, and other policies will be needed to 

complement it. 

For example, we do not directly seek to address the possibility 

of a rising cost of natural gas, and other policies within the overall 

cap-and-trade bill will be necessary to address this very real concern. 

With that said, though, I believe that our policy is the most comprehensive one yet proposed and look forward to having it included 

as a baseline provision in the draft bill you are expected to release 

by the end of the month. 

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7 

Some specific questions do remain as this policy evolves and is 

integrated into the overall bill. We are limited at this time by the 

lack of necessary data but hope that the greenhouse gas registry 

that EPA is developing will be able to guide this policy in the future. 

I look forward to working closely with you, Mr. Chairman, as we 

seek to answer these remaining questions. Although this issue is 

extremely complicated, our proposal will go a long way toward answering many of the industries’ legitimate concerns, and with that, 

I yield back my time. 

Mr. MARKEY. I thank the gentleman. The gentleman’s time has 

expired. The Chair recognizes the gentleman from Pennsylvania, 

Mr. Pitts. 

OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH 

OF PENNSYLVANIA 

Mr. PITTS. Thank you, Mr. Chairman, for convening today’s hearing. In a time of economic crisis, it is critical that American jobs 

are not lost due to an overly burdensome cap-and-trade bill. However, after looking at several studies on how cap-and-trade will affect employment, I have a hard time understanding how what 

amounts to a big tax increase won’t lead to even more job losses. 

An EPA analysis illustrates that even less stringent emission-cutting measures than the President’s budget will reduce manufacturing jobs by up to 12 percent. This means 3 to 4 million people 

will lose employment. 

A CBO study says that, ‘‘Investors might see the value of their 

stocks decline, and workers could face higher risk of unemployment 

as jobs in those sectors were cut.’’ Even if large and high-energy 

intensive industries are given emissions allowances, small business 

will still be hit very hard as they will have to shoulder the burden 

of high gasoline and energy prices and higher-priced goods. 

MIT researchers predict that a family’s energy bill will increase 

by $3,128 per year. So not only would Americans lose their jobs, 

they would be forced to pay much higher household energy bills because of legislation proposed. President Obama acknowledged this 

in a meeting with the editorial board of the San Francisco Chronicle in January of ’08 when he said, ‘‘Under my plan of a cap-andtrade system, electricity rates would necessarily skyrocket. That 

will cost money. They will pass money onto consumers.’’ 

Mr. Chairman, we need to carefully consider the negative impact 

of an overly burdensome cap-and-trade bill that it will have on our 

economy, and in today’s economy, I do not believe it is in the best 

interest of American families to pass a bill that will cost jobs, raise 

energy costs, and make their way of life harder and more challenging. 

I look forward to hearing today’s witnesses and yield back. 

Mr. MARKEY. I thank the gentleman. The gentleman’s time has 

expired. The Chair recognizes the gentleman from Texas, Mr. 

Green. I am sorry, the gentlelady from California, Ms. Matsui. 

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OPENING STATEMENT OF HON. DORIS O. MATSUI, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Ms. MATSUI. Thank you, Mr. Chairman. Thank you very much 

for continuing to tackle this issue in examining the details of how 

we need to construct an effective and strong climate change plan. 

As I have said before in this room, Sacramento is seeing the effects of climate change every day from less snow pack to increased 

wildfires to water shortages. My constituents who are at the mercy 

of the Sacramento and American Rivers are truly afraid of what 

will happen if we do not act. However, Sacramento’s unemployment 

is over 10 percent. I do not need to tell anyone here what more job 

losses would do. So as we craft this bill, I want to ensure that we 

incorporate appropriate policy measures that enhance American industry and vitality. 

The witnesses will be laying out a number of policy options today 

that I want to further explore as we craft this bill. However, we 

need to go more in depth on an exact formula for the upcoming legislation. We need to get this right. That is why we want to hear 

from you, our witnesses, on specifics of what this country needs to 

do. If we give allocations to carbon-intensive manufacturers, we 

need to ensure that we do not simply give our efforts to clean this 

planet. If we incorporate tax breaks, we need to ensure that they 

are targeted enough so that companies in need receive help but 

also defined in scope so we begin to move to a cleaner economy as 

a whole. 

And if we pursue international agreements and border duties, I 

want to ensure that we fully understand WTO trade implications. 

Some say the devil is in the details, yet I think a better future is 

in the details. I just want to make sure we get this right. 

Thank you, Mr. Chairman. I yield back the balance of my time. 

Mr. MARKEY. The gentlelady’s time has expired. The Chair recognizes the gentleman from Kentucky. 

Mr. WHITFIELD. Thank you very much, Mr. Chairman. We look 

forward to this hearing, and we certainly welcome our witnesses 

today. Yesterday’s AEP had a story, U.S.-China, Worlds Apart on 

Climate Change Curbs, and the Director of China’s Climate 

Change Office said that China did not want to be held accountable 

for emissions that it produces to make goods for export. He went 

on to say that if the United States tried to impose tariffs on imports from China or other countries that didn’t have mandatory 

emission controls, that that would be unfair and a violation of 

trade rules and would start a serious trade war. 

So as we move forward, all of us are very much concerned about 

the impact on employment and our competitiveness with other 

countries. I look forward to these witnesses and yield back the balance of my time. 

Mr. MARKEY. The Chair recognizes the gentleman from Texas, 

Mr. Green. 

Mr. GREEN. Thank you, Mr. Chairman, and I would like to waive 

my time but ask you to place my statement and also a letter from 

the American Chemistry Counsel into the record. 

[The information appears at the conclusion of the hearing.] 

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Mr. MARKEY. The gentleman may do that. The Chair recognizes 

the gentleman from Washington State, Mr. Inslee. 

OPENING STATEMENT OF HON. JAY INSLEE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON 

Mr. INSLEE. Thank you, Mr. Chairman. I appreciate your holding 

this hearing. I just consider myself a ditto-head for Mike Doyle, so 

I want to associate myself with his brilliant comments about this 

amendment we are working on. We have proposed one approach to 

this, and I just want to note a couple of advantages of Mike and 

my approach that I want to comment on. 

First, it is clear that we do need to address this issue, and just 

ignoring it is not a solution. So, number one, we have got a proposal addressing it. Two, our proposal is an output-based allocation 

of these allowances, and I think that might seem a little technical 

but an extremely important part of our proposal because when you 

do an output-based allocation, it essentially is an incentive for efficiency and it gives an incentive for our industry to move to more 

efficient processes and infrastructure which will become a great 

competitive advantage in international competition over the long 

term. So the way we structured this, it gives a reason for American 

industry to become more competitive over time so that we can win 

those jobs over the long term in international competition. 

Second, this approach is something we can do now without the 

necessity of risking trade wars right now. You know, that is something that we always have the option of doing with trade adjustment at the border. We can do this now in a way that I think the 

testimony today will demonstrate can be helpful to our industries, 

both in the import issue and in the export issue because our approach will help both the import and the export side of the competitive international markets. 

Third, we think we are heading in the right direction in figuring 

out and defining the industries that will be assisted by this, and 

we are going to continue to work with some of the witnesses and 

some of the stakeholders to define that. But we think we have got 

a fairly rational way of doing that. 

So we will look forward to the testimony today. We have some 

more work to do. I look forward to making the right decisions. 

Thanks. 

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Arizona, Mr. Shadegg. 

OPENING STATEMENT OF HON. JOHN B. SHADEGG, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ARIZONA 

Mr. SHADEGG. Thank you, Mr. Chairman, and thank you for 

holding this hearing. I find that this kind of hearing is vitally important for the people of America to understand the implications of 

the policies we are currently considering. I think everyone understands that the goal of reducing greenhouse gases is well-intended, 

and it is believed that a cap-and-trade mechanism is one mechanism to get there and worthy of pursuit. The sad thing is that so 

many people don’t understand exactly how that will be applied 

here in the Nation and what consequences it will have. 

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I recently was having dinner with a friend of mine who is deeply 

involved in the trucking business, and the President’s budget had 

already come out in which he had made it clear that whatever capand-trade system he imposed, he wanted to have a 100 percent 

auction of the initial credits. My friend from the trucking industry 

did not understand that concept and believed that the initial distribution of the credits was going to be based on historical use as 

has been discussed here and that there would not be an actual auction. 

I think these are very, very important questions to be discussed 

and answered here and to be communicated to the American people 

if, in fact, the President’s proposal that we auction every single initial credit to those industries that need them in order to remain 

in business, then there will be a vast cost imposed by this program 

across the economy. Many of my colleagues on the Republican side 

are calling this a tax. Unfortunately, that may cause some confusion among the public because it isn’t technically tax. It is not an 

additional charge where the money flows directly to the government. However, it is the sale of a new commodity that the government is going to create where the revenues come to the government, and the people need to understand that and need to understand that it will impact literally everything they do, from turning 

on the lights in their home to the price of a suit to the cost of a 

sandwich. And whenever this Congress proposes to enact new policies, we need to both make clear the goal those policies intend to 

address and also the consequences of those policies. I think the 

American people deserve to know precisely what the cost of this 

policy will achieve and also what danger it will alleviate or purportedly alleviate before we impose, particularly on a down economy, a new policy of this size which could have vast consequences 

across the entire economic structure. 

So I thank the Chairman for holding the hearing. 

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from California, Mr. NcNerney. 

Mr. MCNERNEY. Thank you, Mr. Chairman. I appreciate your 

holding this hearing because it is an important issue. I think global 

warming has tremendous potential for us to become more efficient, 

for us to create new industries and new jobs, but there are 

downsides or potential downsides. As my colleague right here next 

to me mentioned, I have unemployment as high as 18 percent in 

parts of my district. So losing jobs is the last thing that I want to 

see happen, and I think if we look at Mr. Doyle’s and Mr. Inslee’s 

proposal carefully, look at all these things carefully, we can come 

up with a good policy that will protect American jobs and accomplish the critical goal of reducing greenhouse gas emissions and at 

the same time create a whole new sector of jobs. 

So let us look at this with an open mind. I certainly look forward 

to seeing what the Committee is going to say after having read 

their testimony, and with that I yield back to the Committee. 

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Missouri, Mr. Blunt. 

Mr. BLUNT. Thank you, Mr. Markey. With unanimous consent, I 

will place a statement in the record. 

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[The prepared statement of Mr. Blunt was unavailable at the 

time of printing.] 

Mr. MARKEY. Without objection, so ordered. The Chair recognizes 

the gentleman from Louisiana, Mr. Scalise. 

Mr. MELANCON. Thank you, Mr. Chairman. I will waive an opening statement—oh, I am sorry. 

Mr. MARKEY. Mr. Scalise. 

Mr. MELANCON. I forgot we have two from Louisiana now. 

OPENING STATEMENT OF HON. STEVE SCALISE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF LOUISIANA 

Mr. SCALISE. I will speak for both of us if that will meet your 

time. Thank you, Mr. Chairman. I want to thank the witnesses for 

also appearing before our Subcommittee. 

Serious issues surround global climate change policy, issues that 

spread throughout our country and touch every American family. 

Efforts to tax carbon emissions could cause serious, possibly irreparable harm to our national economy, not to mention that our 

country’s efforts could be in vain if other countries like China and 

India do not follow a similar strategy. 

A strong economy includes a strong energy sector, and this Subcommittee must be very careful not to pass an energy tax that will 

have a negative immediate and long-term effect on the health of 

our national economy while adding more than $1,300 to every 

American family’s energy bill. 

The dislocation of American businesses and American jobs is a 

strong possibility if Congress passes legislation that will make it 

unrealistic and economically unfeasible to remain in our country. 

Some estimates reach as high as 7 million jobs lost in America if 

we pass a cap-and-trade tax as was proposed in the 110th Congress. Add to that the fact that some geographical regions of our 

country will suffer disproportionate and devastating economic 

losses if such legislation were to become law. In addition, to take 

certain forms of clean, renewable sources of energy like nuclear off 

the table for consideration only adds insult to injury. As I have reiterated in past hearings, it is imperative that we consider these 

realities as we consider these policies. Instead of Washington bureaucrats mandating harmful policies that will kill key sectors of 

our national economy, we should instead explore policies that encourage investment in cleaner technology and innovation in the private sector. The ingenuity of the American entrepreneurial sprit is 

the one that has made our country the best in the world, and this 

Congress would be wise to encourage more of that entrepreneurial 

spirit rather than running off with harmful energy tax policies with 

that same spirit. The effect of a cap-and-trade tax are broader in 

scope than some in this Congress want to admit to the American 

people. Such legislation will ship American jobs overseas, will make 

heating and cooling our homes much more expensive, and will increase the cost of everyday household products. I would urge caution as we proceed with a cap-and-trade plan and make sure that 

we fully explore these adverse effects that such a policy would have 

on American jobs and American families. 

I look forward to hearing from our witnesses, and I yield back. 

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Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentlelady from Wisconsin, Ms. Baldwin. 

OPENING STATEMENT OF HON. TAMMY BALDWIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN 

Ms. BALDWIN. Thank you, Mr. Chairman. Our Nation is a lone 

superpower in an increasingly interconnected and interdependent 

world. With this stature comes the unique responsibility to set an 

example, to model behaviors that we want other nations to emulate. It is true that emissions are rising fastest in developing countries. China’s emissions are projected to continue rising rapidly, up 

71 percent by 2020. India is in a similar situation with emissions 

projected to continue rising up to 68 percent in that very same 

timeframe. But we cannot use the behavior of developing nations 

as an excuse for our inaction. Rather, we must demonstrate by our 

own example that it is possible to rise to the challenge of creating 

efficient, effective, and environmentally friendly climate change 

programs which in turn will create jobs in a new green economy. 

However, we have a responsibility to our Nation, our businesses, 

our workers, our consumers, our constituents to ensure that American industries remain competitive, that American jobs and the 

production of products remain right here in this country and that 

prices and costs remain reasonable and affordable. 

In Wisconsin, our many energy-intensive manufacturers face 

tough international competition, particularly from businesses located in countries that have not committed to regulating emissions. 

To ensure that we do not unjustifiably disadvantage our domestic 

manufacturing base, we must examine ways to minimize the costs 

of cap-and-trade compliance and do everything that we can to prevent the loss of U.S. jobs to less or unregulated countries. 

I recognize this issue is complex, but there are policy options for 

mitigating potential competitiveness impacts and encouraging developing countries to curb their greenhouse gas emissions, and I 

look forward to this challenge. 

Thank you, Mr. Chairman. I welcome our witnesses. 

Mr. MARKEY. The gentlelady’s time has expired. The Chair recognizes the gentleman from Florida, Mr. Stearns. 

OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA 

Mr. STEARNS. Good morning. Thank you, Mr. Chairman. I think 

we are hearing on this side that we are going to lose jobs, and we 

hear the gentlelady just talking about this is going to create jobs. 

So I think we got a disconnect here, Mr. Chairman. Maybe you can 

be the referee here, but when we look at, for example, the National 

Association of Manufacturers, they estimate that a cap-and-trade 

scheme will cost up to 4 million jobs, the Heritage Foundation, who 

estimates the loss of up to 5.3 million jobs, or the Charles River 

Associates estimate that the job loss could be as high as 7 million. 

So there seems to be a consensus on our side, we are going to lose 

jobs, and yet you indicate we are going to gain jobs. 

Now, Mr. Whitfield, in his opening statement, pointed out what 

China said. China does not want to become a low-carbon society. 

In fact, they don’t want to have any kind of this cap-and-trade part 

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of their export process, and their individual who is the Director of 

China’s Climate Change Office said it would be a disaster and possibly the start of a trade war if the United States were to impose 

tariffs on imports from China and other countries that didn’t have 

mandatory emissions control. 

So I ask the gentlelady, in light of all the statistics and the 

groups that I see here and in light of what China said, it is hard 

to believe that this cap-and-trade is going to create more jobs. In 

fact, it appears to be the consensus is an industry where the jobs 

are created, it is going to lose jobs, and massive regulatory burdens 

imposed by a cap-and-trade will inevitably undercut the growth 

and innovation we desperately need. To build a lasting and effective solution, fostering technology and scientific research, not capping the economy and trading U.S. jobs will obviously guard our security, increase our energy independence, and so Mr. Chairman, I 

look forward to the witnesses and I just think there is another way 

to go. Thank you. 

Mr. MARKEY. I thank the gentleman. The gentleman’s time has 

expired. The Chair recognizes the gentleman from Louisiana, Mr. 

Melancon. The gentleman from Louisiana? 

Mr. MELANCON. See, you tried to catch me twice. I am going to 

waive my opening statement. 

Mr. MARKEY. I thank the gentleman. The gentleman’s time has 

expired. The Chair recognizes the gentleman from Georgia, Mr. 

Barrow. The Chair sees the gentleman from Texas, the Ranking 

Member of the Full Committee, Mr. Barton, and recognizes him for 

an opening statement. 

OPENING STATEMENT OF HON. JOE BARTON, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. BARTON. Thank you, Mr. Chairman, and we appreciate the 

opportunity to have another dialogue today about climate change. 

In a global economy where any producer is just an airplane ride 

away from any customer and boundaries don’t seem to matter, the 

United States does need a competitive edge. Our edge is individual 

creativity, freedom, an educated and dedicated workforce, and an 

energy policy at least until now based on free markets and supply 

and demand, least cost. 

Unfortunately, we have an unemployment rate that is going up, 

now down. It just hit 8.1 percent. And it appears that there is a 

Congressional majority determined to adopt a carbon cap-and-trade 

policy that is absolutely the worst thing we could be doing right 

now to protect the jobs that we still have in our economy. 

We can debate the in’s and out’s all we want, but if we really 

want to stop job leakage, don’t do cap-and-trade. It is that simple. 

We cannot escape the unassailable truth that if you are trying to 

cap carbon, which is one of the most ubiquitous elements in the 

world, it is going to put a price on it, it is going to go up, and if 

the price goes up, jobs are going to go down. It is that simple. Manufacturers compete globally. The cost of energy has a bearing 

whether we manufacture or create that energy, produce that energy in the United States or in China, Mexico, or Brazil. If consumers can just as easily import steel, concrete, and other energyintensive goods from our competitors, then American producers 

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won’t be able to add the cost of greenhouse gas permits to their 

bills without losing that competitive edge. Everyone knows what 

happens next. Declining revenues push companies to close facilities 

in the United States and cut American jobs. 

I have a factory in my district in my small hometown of Ennis, 

Texas, of about 15,000 people that has been there for 60 years. 

They announced 2 weeks ago they are closing the factory and moving it to China. They make mattress box springs. They have been 

doing it for 60 years in Ennis, Texas, but some time next year they 

are going to start doing it somewhere in China. 

We are naive if we think that China and India and other emerging industrialized countries will sacrifice their own growing economies and their own jobs in response to a theory that has yet to be 

proven. It just won’t work. 

So I look forward to this hearing. I know most of the witnesses 

on a personal basis. They are all good people, and I am sure we 

are going to have a good dialogue, Mr. Chairman. With that, I yield 

back. 

Mr. MARKEY. The gentleman from Oregon, Mr. Walden, is recognized. 

OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON 

Mr. WALDEN. Thank you, Mr. Chairman. I want to touch on two 

topics this morning. Before I get into my views on the cap-andtrade proposal, I would just like to draw to your attention and that 

of the Committee’s that apparently in the stimulus bill there was 

a provision I think a lot of people supported to encourage people 

to install new energy-efficient windows and get a tax credit for it. 

The House passed a version that was logical, reasonable, the Senate did as well, but somewhere in conference, new standards got 

put in place that have been brought to my attention that would 

make the cost of these windows exceed any logical ability for anybody to make a decision to go get them, which negates the whole 

idea of energy efficiency and simulative effect. And I draw that to 

your attention, Mr. Chairman, because I hope we can look into this 

problem and correct it. Apparently this was something parachuted 

in in conference. It sets such a high standard. Instead of a $400 

or $500 window, it would be a $1,500 window. And so people aren’t 

going to take advantage of either the incentive or the energy reduction. And so I draw that to your attention, and I would hope we 

could find out how that happened and its impact. 

Regarding cap-and-trade, I am deeply concerned about the $646 

billion tax increases represents when a number of us on this side 

of the aisle met with industry leaders from U.S. CAP. I posed the 

question, if we create a cap-and-trade system that means higher 

energy costs, will you commit not to take your jobs to cheaper energy places that don’t play by these rules, and not a single corporate executive would agree to that request. 

I think that is all that needed to be said on that point. It is very 

disturbing what it will do to our economy at a time of great job loss 

to increase taxes and to drive more jobs overseas. Thank you, Mr. 

Chairman. 

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Mr. MARKEY. I thank the gentleman. The gentleman’s time has 

expired. The Chair recognizes the gentleman from Texas, Mr. Burgess. 

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. BURGESS. Thank you, Mr. Chairman, and congratulations for 

getting the television cameras back on. This is great. 

I want to thank you for holding this hearing, and I thank you 

for allowing us to have some time to talk about cap-and-trade and 

the effect that it may have on employment and also the potential 

effect that we could have in moving more energy-intensive industries and jobs from America to countries with less stringent emissions requirements. 

Saving jobs and creating new economic growth is something that 

I hope that we could accomplish in this Committee. I don’t think 

that we can overlook the fact that these new jobs are likely to be 

at the expense of good jobs in energy-intensive industries or in 

small businesses that do not qualify for allocations or protection 

from higher energy costs. 

Taxing greenhouse gas intensive imports will not be an effective 

way to limit job loss. Consider the impact of the United States’ attempts to induce foreign countries into unfavorable trade agreements. It could possibly incite other trade difficulties or at least exchanges of harsh words over trade balance. Either way, our Nation’s global position reliance on trade is too important to risk without a serious cost benefit analysis, and to date I don’t think I have 

seen one. 

Shifting import taxes upon countries of origin will only make 

American products more expensive. Companies are in business to 

make money. If the rest of the world develops, export-rich companies will simply sell wherever the best opportunity is for profit. If 

you are looking to sell product, realistically would you look toward 

a company that is in recession and stacking on excessive trade barriers and forcing industries to buy carbon credits to cover emission? 

It is not likely, especially when there are major emerging alternatives. 

In the end, globalization of trade markets are based upon getting 

around barriers such as taxes to lower production costs and ultimately the prices that consumers pay. If there is a way to get 

around taxes that continue to emit in order to achieve higher 

prices, I suspect people will find a way. 

With that, Mr. Chairman, I will yield back the balance of my 

time. 

Mr. MARKEY. The gentleman’s time has expired. The Chair sees 

no other members of the Subcommittee, but it sees Mr. Terry, a 

member of the full committee who is visiting with us, and we welcome you, sir. 

So we will turn to our witness panel, and I would ask the witnesses to please move up to their assigned spots at the witness 

table and I will introduce our first witness who is Mr. John 

McMackin. Mr. McMackin is here today on behalf of the Energy Intensive Manufacturers Working Group On Greenhouse Gas Regulation. Members of that group include many major corporations, 

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Alcoa, Corning, Dow, Holcim, U.S., Nucor, Owings-Corning, Rio 

Tinto, U.S. Steel, Owens, Illinois. We welcome you, Mr. McMackin, 

and if you could move that microphone in a little bit closer, whenever you are ready, please begin. 

STATEMENTS OF JOHN MCMACKIN, JR., WILLIAMS AND 

JENSON, PLLC, ON BEHALF OF THE ENERGY INTENSIVE 

MANUFACTURERS WORKING GROUP ON GREENHOUSE GAS 

REGULATIONS; MARTIN MCBROOM, DIRECTOR, FEDERAL 

ENVIRONMENTAL AFFAIRS, AMERICAN ELECTRIC POWER; 

PAUL CICIO, INDUSTRIAL ENERGY CONSUMERS OF AMERICA; MARGO THORNING, PH.D., SENIOR VICE PRESIDENT 

AND CHIEF ECONOMIST, AMERICAN COUNCIL FOR CAPITAL 

FORMATION; RICHARD D. MORGENSTERN, SENIOR FELLOW, 

RESOURCES FOR THE FUTURE; AND EILEEN CLAUSSEN, 

PRESIDENT, PEW CENTER ON GLOBAL CLIMATE CHANGE 

STATEMENT OF JOHN MCMACKIN, JR. 

Mr. MCMACKIN. Mr. Chairman and members of the Subcommittee, it is an honor to be here. The Energy-Intensive Manufacturers’ Working Group on Greenhouse Gas Regulation, on whose 

behalf I appear today, greatly appreciates this opportunity, and we 

thank you and all the members of the Subcommittee and staff who 

are devoting so much time and energy to this critical issue. 

I am Jack McMackin, and I am a principal in the law firm of 

Williams & Jensen, and a director of Owens-Illinois, Inc. OI, 

headquartered in Perrysburg, Ohio, and with facilities in 11 states, 

is the world’s largest manufacturer of glass containers. Our group 

was formed last year for a narrow but important purpose, to engage constructively with the other stakeholders and Congress to attempt to solve what is often referred to as the carbon leakage problem but which, as the title of today’s hearing indicates, is a problem of the leakage of carbon and ob jobs. It is a problem that primarily affects energy-intensive industries that face foreign competition, the two factors that define our members. 

Our working group is composed of companies from U.S. industries that are widely and correctly seen as most vulnerable to leakage, that is, ferrous metals, iron and steel; non-ferrous metals, aluminum and copper; cement; glass, including fiberglass; ceramics; 

chemicals; and paper. As the Chairman indicated, the companies 

include Alcoa, Corning, Dow, Holcim U.S., NewPage Corporation, 

Nucor, Owens Corning, Owens-Illinois, PPG, Rio Tinto, and U.S. 

Steel. 

Let me very briefly highlight five points from my written testimony. First, of the two types of leakage solutions that have appeared in legislation to date, our group is focused exclusively on 

the allowance allocation type provisions that attempt to address 

the root cause of the problem by mitigating the cost differential 

that unilateral legislation would otherwise impose on U.S. production relative to unregulated foreign producers. Last year’s InsleeDoyle Anti-Carbon Leakage Act, which was largely adopted by the 

Dingell-Boucher discussion draft, is a prominent and in our view 

very promising instance of this type of measure. 

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Second, the other type, the border equalization provisions that 

Mr. McBroom will testify about, will take a different approach. 

Rather than mitigate cost differential through free allocations or 

allocation value rebated, border equalization provisions attempt to 

impose comparable cost on competing goods at the border. Our 

group’s focus as I said is exclusively on the first form of relief, but 

let me say this. They are not necessarily incompatible. It is possible 

to do both, and indeed most of the measures to date, the bills that 

have been introduced have contained both. 

Third, the Inslee-Doyle Output-Based Rebate represents a real 

breakthrough. Let me just talk about two of its key attributes, and 

here I am echoing the comments of Mr. Inslee. A, by basing its allowances on actual production rather than historic emissions, it removes a significant disincentive to additional production and eliminates the possibility of a windfall. B, by including in its calculations inefficiency standard measured by sectoral average efficiency. 

It in fact creates a powerful efficiency incentive and establishes a 

standard that gets tougher every year as the more efficient press 

their advantage and the less efficient strive to close the gap. 

Fourth one, there are several important remaining issues, but 

the single biggest issue requiring further work in our view is eligibility. As introduced last year, the Inslee-Doyle bill left the determination of eligible sectors or subsectors up to EPA subject to a series of generalized standards aimed at assessing leakage potential. 

No given industry could know the outcome of an ultimate EPA determination, a determination that could be preceded by warring 

economists and conflicting pricing models, nor could any member 

of Congress know whether key industries in his or her district 

would get relief or not. 

By contrast, most of the other legislative proposals, including 

Lieberman-Warner, the Boxer Substitute, and the Brown-Stabenow 

Amendment on the Senate side and the Dingell-Boucher discussion 

draft have straightforwardly listed the legislatively determined eligible industries; each proposal containing almost exactly the consensus list of industries represented by our working group members. 

Fifth, and lastly, a very workable and reasonable solution, a middle ground to this eligibility issue is emerging and is under consideration by Congressmen Inslee and Doyle, and we commend it to 

the examination of others. Moreover, our group unveils today a 

study by FTI Consulting attached as Attachment A to my written 

testimony, that we hope will help all concerned to better understand and better evaluate this proposed solution and the general 

issue of which industry should be eligible for relief. Building on the 

EU approach and work done by the World Resources and Peterson 

Institutes and many others, the proposed solution would establish 

objective criteria for energy intensity and trade exposure. Industries that met both of these thresholds would be presumptively eligible to receive allowances. They could be refused relief only if the 

administrator found that they are not subject to significant leakage. Sectors that did not meet the thresholds could still establish 

their qualification by individuated showings that they are subject 

to leakage. 

Mr. MARKEY. If you could summarize, please? 

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Mr. MCMACKIN. Let me say in summary then, Mr. Chairman, 

that the overall results show that about 45 out of the 473 6-digit 

code subsectors would qualify. They represent about 8 percent, Mr. 

Chairman, of direct emissions in comparison I think to the 6 percent figure for the six industries, and that does include process 

emissions. 

So we very much look forward to discussing the study with all 

concerned and to working with the Subcommittee, Congressmen 

Inslee and Doyle, and all other interested members and stakeholders to build on the remarkable progress to date in fashioning 

a workable solution to the leakage problem. 

[The prepared statement of Mr. McMackin follows:] 

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Mr. MARKEY. Thank you, Mr. McMackin, very much. Our next 

witness is Mr. Martin McBroom. He is the Director of Federal Environmental Affairs at American Electric Power which owns the 

Nation’s largest electricity generation system. We welcome you, Mr. 

McBroom. Whenever you are ready, please begin. 

STATEMENT OF MARTIN MCBROOM 

Mr. MCBROOM. Good morning, Mr. Chairman and distinguished 

members of the Subcommittee. I am Director of Federal Environmental Affairs of American Electric Power. Headquartered in Columbus, Ohio, AEP is one of the Nation’s largest electricity generators and service more than 5 million retail consumers in 11 states 

in the Midwest and south central regions of our Nation. 

AEP was one of the earliest companies to publicly endorse actual 

cap-and-trade legislation. We are committed to working with you to 

pass federal legislation that is well-thought out, achievable, and 

reasonable which includes requirements that are timed to coincide 

with the development of advanced technology and which would 

allow AEP to recover costs for deployment of advanced technology. 

Any domestic greenhouse gas reduction program must be coupled 

with effective international measures to ensure that rapidly developing nations such as China and India also promptly address this 

problem. If such a provision is not included, we will not succeed at 

curbing global loadings of greenhouse gases. 

If fast-developing countries do not curtail their emissions, then 

U.S. legislation will succeed only in pushing U.S. production and 

jobs abroad, undercutting and possibly worsening the environmental objective. That production shift is of concern to AEP because 38 percent of our generation serves industrial customers who 

could be impacted. When factories move overseas, AEP loses industrial customers and our residential customers who work in those 

facilities lose jobs and their families are in peril. 

Recognizing that trade is a key component in effective climate 

change legislation, Mr. Edwin D. Hill, International President of 

the International Brotherhood of Electrical Workers, and Michael 

G. Morris, Chairman, CEO, and President of AEP, jointly proposed 

in February 2007 a means to effectively leverage U.S. climate negotiators to help to make sure that developing countries also limit 

their greenhouse gas emissions. 

We applaud your decision, Mr. Chairman, to include the IBEW– 

AEP proposal in a climate bill you introduced in the last Congress. 

We urge you and your colleagues to do so again this year. Simply 

put the proposal serves as a backstop for U.S. climate negotiators 

and compliments other provisions that Congress is contemplating 

to ensure that U.S. climate legislation does not inadvertently undercut U.S. competitiveness. 

The IBEW–AEP proposal works in concert and is complementary 

with granting free domestic allowances to industries impacted by 

competitiveness, and we believe both approaches should be supported by the Committee, but only the IBEW–AEP proposal provides direct leverage to shape the behavior of the largest emitting 

developing counties, and the IBEW–AEP proposal is the one backstop that will remain. No matter what the outcome of international 

negotiations might be with regard to fast-developing countries and 

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regardless of whether free allowances are phased out or auction 

revenues are used for other big-ticket budget priorities, the IBEW– 

AEP proposal will remain. For those reasons, industry needs both, 

America needs both. The IBEW–AEP proposal creates the possibility that the United States Government could require importers 

of carbon-intensive goods to submit international reserve allowances just as producers of U.S. goods must, unless the exporting 

country acts to address emissions in a fashion that is comparable 

to that of the United States. 

If the IBEW–AEP proposal is successful, then the allowance requirement would likely never need to be applied to imported goods. 

Instead, fast-developing countries would agree to take effective action to also reduce their emissions. 

This proposal recognizes that some governments might not act or 

might act ineffectively. The IBEW–AEP proposal affords Congress 

the assurance that at least the exports of carbon-intensive goods 

from such countries would not escape the regulatory impact of the 

overall federal program. That is only fair. The United States has 

taken similar action on imports in the context of other conservation 

and environmental programs. Those measures were reviewed by 

GATT and WTO panels. The IBEW–AEP proposal respects the jurisprudence that has emerged to ensure that Congress could deploy 

these measures in conformity with our international obligations. 

Mr. Chairman, AEP believes that our proposal will be helpful to 

you and your colleagues to ensure developing countries actually 

join with America in meeting the climate challenge. Thank you 

again for this important opportunity to testify. I look forward to 

your questions. 

[The prepared statement of Mr. McBroom follows:] 

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Mr. MARKEY. Thank you very much, Mr. McBroom. Our next witness is Mr. Paul Cicio. He is the President of Industrial Energy 

Consumers of America. He has represented the interests of a variety of industries and consumers, the National Coal Council, the 

National Association of Manufacturers and others. We welcome 

you, Mr. Cicio. Whenever you are ready, will you please begin. 

STATEMENT OF PAUL CICIO 

Mr. CICIO. Thank you, Chairman Markey and Ranking Member 

Upton and members of the committee. Attached to our written testimony are six policy recommendations that would have a significant impact on reducing greenhouse gas emissions, and we urge 

you to work with us to do these things today. There is no reason 

to wait on those policies, and they will help manufacturing competitiveness. 

For the industrial sector, climate policy is also a trade policy, it 

is energy policy, economic, and it is also employment policy. They 

are all linked, and they are all inseparable. It is for this reason 

that regulating greenhouse gas emissions for the industrial sector 

should be negotiated between developed and developing countries 

in the context of fair trade and productivity and not act unilaterally. International agreements should be negotiated first, and U.S. 

industrial emissions regulated second. Regulating the industrial 

sector in advance of negotiations removes our leverage. 

President Obama rightfully points to the disappearing middle 

class as troubling. We agree. The United States began to lose the 

middle class when we began to lose competitiveness of the manufacturing sector. The timing is absolutely consistent. Let us just 

look at the facts. OK. Chart number one. 

[Chart.] 

Chart number one. Since 2000, U.S. manufacturing has been losing competitiveness and jobs. From 2000 to 2008, imports are up 

29 percent, and manufacturing employment fell by 22 percent, a 

loss of 3.8 million jobs. What is not included is the hundreds of 

thousands of jobs that have been lost this year. Chart number two. 

[Chart.] 

Chart number two simply extends the trend of job losses forward 

to 2012, and unless Congress and we, the industrial sector, work 

together to stem these losses, a simple extension of those job losses 

says that we are on track to lose another 2 million jobs by 2012. 

Chart number three. 

[Chart.] 

Chart number three plots investment in industrial equipment in 

the United States as a share of GDP from 1990 to 2008. This slide 

illustrates companies have consistently invested less and less in 

this country. The only conclusion one can draw from this chart is 

that the United States has not been an attractive place to invest, 

and to the point of this hearing, placing new carbon costs unilaterally on us will only make things worse. Chart number four. 

[Chart.] 

Chart number four shows emissions of each sector of the economy. The industrial emissions are only 2.6 percent above 1990 levels, while the other four sectors of the economy are up an average 

of 31 percent. Industrial emissions are low because of plant shutmstockstill on DSK4VPTVN1PROD with HEARINGS

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downs, job losses, and because of the continuous improvement to 

improve energy efficiency. 

As you can see, industrial emissions are not a problem. Most importantly, Congress has a choice to make as it considers imposing 

an economy-wide cap-and-trade regulation. It must decide whether 

to maintain and possibly increase U.S. manufacturing jobs by not 

unilaterally imposing greenhouse gas costs, or you can do so but it 

will create jobs in foreign countries and increased imports. The decision actually in our view should not be too hard because there is 

very sound economic and environmental justification for Congress 

to act in the short term to not do so. But we do urge you to act 

to forge an important and different policy path that will provide 

sustained and significant greenhouse gas reductions globally by 

harnessing real market forces and competition. We need U.S. leadership to forge a global effort to address industrial-sector greenhouse gas emissions that is focused on fair trade and productivity. 

This is the only way to potentially bring developing countries to the 

table. Productivity is a language that all manufacturers around the 

world understand and is fundamental to competition. We believe 

that all governments want productivity by their industrial sectors, 

so this is a win-win. 

In summary, the industrial sector needs a level playing field. 

Adding costs unilaterally helps all of our competitors around the 

world and takes our business and our jobs. However, if the United 

States proceeds to cap industrial greenhouse gas emissions anyway, despite our plea, we urge you to provide free allowances equal 

to the resulting direct and indirect cost due to greenhouse gas regulations until major competing countries have similar cost increases. The decision is yours to make. Unfortunately or fortunately, company CEOs have responsibilities to their shareholders 

to protect company interests, and they will. Thank you. 

[The prepared statement of Mr. Cicio follows:] 

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Mr. MARKEY. Thank you, Mr. Cicio. We appreciate that very 

much. I can actually see out in the audience we have been joined 

by former great Republican Congressman Sherwood Boehlert, and 

we thank you for coming here and we wish nothing but the worst 

for the New York Yankees this year, at least from this seat. But 

we welcome you. Thank you for being here. 

Our next witness is Dr. Margo Thorning, Senior Vice President 

and Chief Economist with the American Council for Capital Formation which promotes cost-effective environmental policies in the 

United States and abroad. You can move that microphone in. 

Whenever you are ready, please begin. 

STATEMENT OF MARGO THORNING 

Ms. THORNING. Thank you, Mr. Chairman and Ranking Member 

Upton, thank you, members of the Committee, for allowing me to 

appear before me. I am Margo Thorning, Chief Economist, Senior 

Vice President with the American Council for Capital Formation, 

and I respectfully request my testimony be submitted for the 

record. 

Mr. MARKEY. Without objection it will be. 

Ms. THORNING. I would like to make four points. First, policies 

to reduce greenhouse gas emissions such as were debated last year 

in Congress with the Lieberman-Warner proposal or the new 

Obama Administration proposal are virtually certain to reduce jobs 

and to increase unemployment. May I draw your attention to Table 

1 of my testimony which presents a survey of different modeling results on the Lieberman-Warner bill from the ACCF–NAM study, 

Charles River, the Energy Information Administration, the Environmental Protection Agency, and MIT. There is a range of estimates for the impact of the loss of jobs and GDP which, in 2020, 

which, the lowest is .7 percent of GDP, the highest from EPA is 1.5 

percent loss in GDP. Job losses in 2020 range from 270,000 fewer 

jobs to as many as 3.2 million fewer jobs. And these modeling results do take account of new, green jobs that are thought about as 

we move more into renewables and alternative technologies. By 

2030, the results are even more striking. So I think the evidence 

suggests that cap-and-trade proposals such as are being discussed 

now will certainly have a negative impact on U.S. employment and 

job growth and will speed leakage of jobs abroad. 

Second point, the Obama Administration’s revenue estimates are 

seriously understated. Their new budget suggests that revenue 

yield from carbon allowance auctioning would be about $80 billion 

a year. I believe that is a serious understatement. We looked at the 

numbers that the Energy Information Administration released last 

year when they analyzed the revenue yield of the Lieberman-Warner bill which is not that different from the Obama Administration 

proposal in terms of ultimate targets. 

As you see in Figure 3 in my testimony, the blue bar is the estimate of $675 billion over the 2012–2019 period that the Obama Administration says their cap-and-trade proposal would bring in. 

EIA’s estimates, we recalculated EIA’s numbers on LiebermanWarning assuming 100 percent auctioning. Those numbers, the 

hash mark numbers, are significantly higher, three to four to five 

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times higher than the yield that the Obama Administration is 

showing. 

We then recalculated using the lower initial targets in the 

Obama plan which is the red bars in my Figure 3. Those show revenue cost to taxpayers and business of three to four times higher. 

So I am guessing that actually the Obama plan would bring in a 

trillion to over $3 trillion over the 2012–2019 period. So that is a 

very significant cost that would have the impact, of course, of slowing job growth and GDP growth, and in fact the Administration 

recognizes that. If you look at their budget, page 129 of their budget, footnote five, it says that if additional revenues are raised, those 

will be rebated to the public. So it is clear that they know 100 percent auctioning proposal that they have would yield much more 

revenue. 

Third point, the environmental benefits of achieving the Obama 

plan or the Lieberman-Warner plan are very small, and if you talk 

about cost-benefit analysis, I think a look at the table that the Administration released in their Council of Economic Advisors’ report, 

which is Figure 5 of my testimony, the Administration says that if 

we achieve the Lieberman-Warner targets, which again are similar 

to the Obama Administration, by the end of this century, there will 

be virtually no environmental benefit. So if you look at costs and 

benefits, it is clear that going it alone is not likely to yield any 

meaningful environmental benefit, but it will impose significant 

cost. 

Final point, there are positive strategies that the United States 

can adopt to reduce greenhouse gas emissions. There are things we 

can do here. I commend you to look at Table 2 of my testimony 

which shows how slow the capital cost recovery is in the United 

States for new energy investments. Our Ernst and Young study 

which is on our ACCF Web site shows that the United States has 

the worst capital cost recovery and the highest effective tax rate on 

new energy investment of major industrial countries. We could also 

continue to promote international cooperation that previously administrations have started through the Asia-Pacific Partnership, 

the Global Nuclear Energy Partnership, Clean Technology, and the 

Major Economies Initiative. These international agreements are designed to promote technology transfer. 

Finally, if we do impose a mandatory regime, I would suggest a 

carbon tax rather than a cap-and-trade system. It would provide 

more certainty to the business community and households than the 

cap-and-trade. Thank you, Mr. Chairman. 

[The prepared statement of Ms. Thorning follows:] 

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Mr. MARKEY. Thank you Dr. Thorning very much. Our next witness is Dr. Richard Morgenstern. He is a Senior Fellow at Resources for the Future. His research includes work on economic 

analysis of environmental policies. Prior to joining Resources for 

the Future, Dr. Morgenstern was a Senior Economic Counselor at 

the Department of State and participated in the negotiations of the 

Kyoto Protocol. So we welcome you, sir, and whenever you are 

ready, please begin. 

STATEMENT OF RICHARD D. MORGENSTERN 

Mr. MORGENSTERN. Mr. Chairman, I appreciate the opportunity 

to appear here and address you and members of the Committee. I 

would note for the record that Resources for the Future is both an 

independent and non-partisan organization, and the views I 

present here today are mine alone. 

I would like to summarize a few basic points in my written testimony. First of all, the aggregate impact for proposed legislation are 

relatively small. Using the Lieberman-Warner bill as a benchmark, 

the Energy Information Administration has estimated GDP reductions in 2030 that range from .3 to .8 of 1 percent of GDP, and 

2030 is the time period where GDP levels are expected to approximately double over today’s levels. 

There are other modelers besides EIA who have other results. 

Some are similar, some are different. I would note that the ones 

that differ usually, not usually, but in fact, the differences are related to three factors. Number one, other modelers have much more 

conservative assumptions about technology development than the 

Energy Administration. Secondly, other modelers ignore domestic 

and international offsets which are in fact a part of most of the 

bills. And thirdly, other modelers ignore banking of allowances 

which is in fact the basic proposition in all the bills. These are factors which can influence model results, and you can see significant 

differences along these lines. 

Secondly, despite the small aggregate impacts of these legislation 

on the sale of Lieberman-Warner, there are potentially significant 

employment and output effects in some industries, particularly energy-intensive and trade sensitive industries as this Committee is 

well aware. 

Third, modeling analysis by myself and others indicates that the 

impacts decline over time, as firms adopt new technologies, they 

change processes, they vary outputs. So some of the impact numbers we see are based upon initial impacts and do not always reflect these changes. Additionally, I would note that the modeling 

that has been done, including my own, is based upon unilateral action, and this is a convenient technique we use in doing calculations, but in fact other countries are adopting, certainly the Europeans are adopting changes, and in all likelihood, the estimates 

generated by this modeling approach of unilateral action overstates 

the impact on the United States industry. 

Fourth, a key challenge to this Committee and to all of us is to 

identify particular industry segments that are most affected. Calculations that I have done suggest that when you look at a broad 

industrial category, typically referred to as a two-digit industrial 

category, you can see within that category variation that can vary 

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by a factor of 10. So different sub-elements of broad categories of 

industries can have quite different impacts, and that is a challenge 

in devising appropriate remedies. 

Fifth, a missions leakage is clearly a concern in some industries, 

and this is particularly a concern over the long term. 

Turning to possible solutions, there are basically two approaches 

to address this problem. One approach is to exempt certain industries or provide special regulations for them, and the second approach is to try to level the playing field between domestic and 

international competition, and the mechanisms for that are the 

border tax, mechanisms that have been referred to, or free allowance allocation. As regards to exemptions, this was tried in the 

BTU tax days that were back in the days when President Clinton 

introduced this notion, and other than simplicity, I would say this 

approach has very little to recommend it. It ignores some low-cost 

reduction opportunities that exist in some industries. It makes CO2

reductions more expensive for others, and it encourages what we 

call rent-seeking behavior which is not justified by the fact. 

Turning to the border tax and free allocation mechanisms, they 

are both contained as you have discussed in several bills. The emphasis to put on one versus another depends on several factors. 

Trade law is certainly a big issue. I am not a trade lawyer, but I 

do read the literature on this subject and certainly many have 

raised questions about the defensibility and the timing of border 

tax adjustments. And I would note that none of the bills addresses 

exports which is in fact an important consideration in international 

trade. Additionally, a border tax adjustment is going to require 

more information on the part of Government about foreign companies and foreign countries, and this can be very difficult to obtain, 

and as has been noted by earlier commentator, this could lead to 

trade wars. 

Almost done, Mr. Chairman. Free allowance allocation is certainly a very attractive mechanism, particularly the output-based 

allocation that has been discussed here. It can address both import 

and export issues. The Inslee-Doyle approach is a very pragmatic 

mechanism for addressing this. I understand that some revisions 

are under consideration, and I would be happy to answer questions 

on that. Thank you. 

[The prepared statement of Mr. Morgenstern follows:] 

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Mr. MARKEY. Thank you Mr. Morgenstern very much. Our final 

witness is Eileen Claussen. She is the President of the Pew Center 

on Global Climate Change where she specializes in international 

issues. She is the former Assistant Secretary of State for Oceans 

and International Environmental and Scientific Affairs. Whenever 

you are ready, please begin. 

STATEMENT OF EILEEN CLAUSSEN 

Ms. CLAUSSEN. Mr. Chairman, Mr. Upton, and members of the 

Subcommittee, thank you for the opportunity to testify. 

Addressing global climate change presents policy challenges at 

both the domestic and the international levels, and the issue of 

competitiveness underscores the very close nexus between the two. 

In the long term, a strong multilateral framework ensuring that all 

major economies contribute their fair share to the global climate effort is the most effective means of addressing competitiveness concerns. In designing a domestic climate program, the question before 

Congress is what to do in the interim, until an effective global 

agreement is in place. 

A first step in addressing competitiveness is assessing the potential scope and magnitude of potential impacts. Our focus must be 

on energy-intensive industries whose goods are traded globally 

such as steel, aluminum, cement, paper, glass, and chemicals. As 

heavy users of energy, these industries will face higher costs as a 

result of domestic greenhouse gas constraints. However, as the 

price of their goods are set globally, their ability to pass along 

these price increases is limited. 

To empirically quantify the potential magnitude of this competitiveness impact, the Pew Center commissioned an analysis by 

economists at Resources for the Future. This work, which we will 

be publishing shortly, analyzes 20 years of data in order to discern 

the historical relationship between electricity prices and production, consumption, and employment in more than 400 U.S. manufacturing industries. Our analysis found that at the price levels 

studied, the projected competitiveness impacts, as well as the 

broader economic effects on energy-intensive industries, would be 

modest but not insignificant, and in our view, readily managed 

with a range of policy instruments. 

In a domestic cap-and-trade system, competitiveness concerns 

can be addressed in part through banking and borrowing and the 

use of offsets, which can help reduce the costs to all firms. However, other transitional policies may be needed to directly address 

competitiveness concerns for energy-intensive industries for the period preceding the establishment of an effective international 

framework. 

Allow me to mention a couple of options we would not recommend and then a few that we would. One option is to exclude 

vulnerable sectors from coverage under the cap-and trade program. 

Exclusions however would undermine the goal of reducing greenhouse gas emissions economy-wide and reduce the economic efficiency of a national greenhouse gas reduction program. They also 

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exempt competitors and provide no incentive for improved performance. 

A second option is to try to equalize greenhouse gas-related costs 

for United States and foreign producers by impost or other requirement on energy-intensive imports from countries with weaker or no 

greenhouse gas constraints. Such measures would apply however 

only to imports to the United States and would not help level the 

playing field in the larger global market, which is where U.S. 

manufacturers compete. In addition, if the United States were to 

impose border requirements there is a greater likelihood that it 

would become the target of similar measures. There is a significant 

risk that border adjustments would engender more conflict than cooperation, in the end making it more difficult to reach agreements 

that could more effectively address competitiveness concerns globally. 

The Pew Center believes that Congress should seek to address 

competitiveness concerns by strongly encouraging the executive 

branch to negotiate a new multilateral climate agreement establishing strong, equitable, and verifiable commitments by all major 

economies and including in cap-and-trade legislation transitional 

measures to cushion the impact of mandatory greenhouse gas limits on energy-intensive trade-exposed industries and the workers 

and communities they support. These transitional measures should 

be structured as follows: In the initial phase of a cap-and-trade program, allowances should be granted to vulnerable industries to 

compensate them for the costs of greenhouse gas regulation. For direct costs, allocations should be based on actual production levels. 

For indirect costs, allowances should reflect an emitter’s production-based energy consumption, taking into account the greenhouse 

gas intensity of its energy supplies. 

Allocations should be set initially so a producer whose emissions 

intensity is average for the sector is fully compensated for regulatory costs, while those who are above or below-average receive allowances whose value is greater or less than their costs, respectively. This factor should be adjusted over time as an incentive to 

producers to continually improve their performance. This is similar 

to the approach proposed by Congressmen Inslee and Doyle. 

Allowance levels should decline over time, gradually 

transitioning to full auctioning, although at a slower rate than for 

other sectors. A review should be conducted periodically to assess 

whether sectors are experiencing competitiveness impacts and, if 

warranted, to adjust allowance levels or the rate of transitioning to 

full auctioning. A portion of allowance auction revenue should be 

earmarked for programs to assist workers and communities in 

cases where greenhouse gas constraints are demonstrated to have 

caused dislocation. Transition assistance should be curtailed for a 

given sector upon entry into force of a multilateral or sectoral 

agreement establishing reasonable obligations for foreign producers, or upon a Presidential determination that such measures 

have been instituted domestically. 

We believe this approach addresses the transitional competitiveness concerns likely to arise under a mandatory cap-and-trade program, while maintaining the environmental integrity of the promstockstill on DSK4VPTVN1PROD with HEARINGS

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gram and providing an ongoing incentive for producers to improve 

their greenhouse gas performance. 

Thank you very much. 

[The prepared statement of Ms. Claussen follows:] 

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Mr. MARKEY. Thank you, Ms. Claussen, very much, and that concludes our opening statements from the witnesses. We will now 

turn to questions from the Subcommittee members, and the chair 

will recognize himself for a round of questions, and I am going to 

start with you, Mr. McMackin and you, Mr. McBroom. Is there a 

way in which we can reconcile, you know, the two approaches 

which you present, that is, the free allocation approach which Mr. 

Doyle and Mr. Inslee are proposing or, you know, some border protection measures, which are taken as well. Is there a way to do 

them in concert, sequentially? What would be your recommendation if they could be put together as complimentary policies? 

Mr. MCMACKIN. Mr. Chairman, our working group doesn’t have 

a formal position on the border equalization provision, so I guess 

that means we don’t have a formal position on the interface of the 

two, but let me say this sort of for myself at least that I think it 

is reasonable to say that most people who would support doing 

both would say that there is a role for border equalization at least 

as a backup measure and as one of the weapons of armamentarium 

of our negotiators. For instance, kind of as a necessity, the allowance grants takes priority because if we eliminate the cost differential at the source, there is no cost differential to be equaled at the 

border. But what if the allowances are inadequate? What if some 

future Congress decides to eliminate allowance grants? Well, then 

some believe that rather than let leakage proceed which is unacceptable that at that point consideration of a WTO compliant border equalization process or at least negotiations that involve those 

might be good policy. 

Mr. MARKEY. Mr. McBroom. 

Mr. MCBROOM. Well, I want to begin by associating myself with 

the remarks of Mr. McMackin. I think we are in complete agreement. Both should be utilized, both can be utilized. They serve 

complimentary purposes but somewhat different purposes. Some 

have noted the issue that the IBEW–AEP would not deal with exports. A grant of free allowances would, in fact, accomplish that because you are providing the direct grant of allowances or subsidy 

to industries that are impacted by competitiveness, and that helps 

solve both of those issues at the same time. 

Mr. MARKEY. So let me go down to you, Ms. Claussen. Do you 

agree with that? Can they be made complimentary as policies? 

Ms. CLAUSSEN. You could, but I would like to take issue a little 

bit with what Mr. McMackin said that having all of these things 

in your quiver as you go and do an international negotiation, I 

think actually the border measures would have the opposite effect 

and make it very difficult to negotiate an international agreement. 

So I think if you were going to include them, they should absolutely be a last resort. 

Mr. MARKEY. OK. Let me go back to Mr. McBroom. You heard 

what Ms. Claussen just said. 

Mr. MCBROOM. No, not entirely. I would make two points both 

referencing both her comment and other comments that have been 

made by many members. Recently as Mr. Whitfield acknowledged, 

Chinese officials came to the United States and they protested very 

loudly on two points. One is that they don’t want a border adjustment mechanism. In that I would say they protest too much. The 

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fact that they are protesting as vigorously as they are would indicate that it is in fact effective leverage because at the same time 

they are saying that they don’t want to be held accountable for any 

of the emissions from any products that they make that export to 

the United States, so they want the jobs, they want the factories, 

they want the economic growth. 

Mr. MARKEY. So let us come back to Ms. Claussen. What is your 

answer, Ms. Claussen? 

Ms. CLAUSSEN. Yes, actually, it was The Pew Center event at 

which the Chinese Director General spoke. 

Mr. MARKEY. Congratulations on having such an interesting 

event. 

Ms. CLAUSSEN. And I actually think it was misreported. I mean, 

they did raise the issue of their goods, but you know, this has been 

common in international negotiations. I mean, the Canadians raise 

it all the time. So they weren’t actually making it as a proposal, 

they were just sort of making a point. Unfortunately, I think the 

AP story was slightly off. 

Mr. MARKEY. And Mr. Cicio, Ms. Claussen, suggests that we 

should wait to cap greenhouse gas emissions until we have a global 

agreement. What do you think of that approach? 

Ms. CLAUSSEN. I do not think we can get a global agreement unless we act first. 

Mr. MARKEY. Mr. Morgenstern, do you agree with that? 

Mr. MORGENSTERN. Yes. 

Mr. MARKEY. Mr. McMackin, do you agree with that? 

Mr. MCMACKIN. Mr. Chairman, I think that we will be aided in 

getting a global agreement if we do an Inslee-Doyle type measure 

for this simple reason. 

Mr. MARKEY. So you agree that it would be good if we pass something first before we begin to negotiate? 

Mr. MCMACKIN. Our group is solely limited to working constructively on that. 

Mr. MARKEY. That is great. Thank you. Mr. McBroom. 

Mr. MCBROOM. The most likely scenario is that Congress will 

pass something first, but I think it will be too difficult in a very 

short period of time to negotiate an international agreement that 

will include mandatory binding commitments on the large emitters 

in the developing world. The negotiation will simply take too long, 

so as a practical matter in terms of chronology, you are most likely 

to see domestic legislation to move first. 

Mr. MARKEY. Thank you, Mr. McBroom. My time has expired. 

The Chair recognizes the gentleman from Michigan, Mr. Upton. 

Mr. UPTON. Well, thank you, Mr. Chairman. I want to make a 

couple points. First I want to talk a little bit about coal. Mr. 

McBroom, I am glad that you are here. Although you didn’t say 

this specifically, it was in your testimony. I just want to reiterate 

it. China’s coal use as a percentage of world consumption increased 

from about 20 percent in 1985, and it will almost double by the 

year 2025. We know that China is bringing on line almost two new 

plants every single week. In fact, in 2006, China brought into service 90,000 megawatts of new coal-fired generating capacity which 

amounts to two large coal-generating units every week as I said, 

and we also know that emissions have increased by 80 percent 

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since 1990 and they are projected to rise by another 65 percent by 

2020. Now, it is my understanding that they have made some 

strides, and I think they are using the low-sulfur coal, but obviously they are not using the new technique that we would like to 

see happen, carbon capture. And because we haven’t developed the 

carbon capture technique fully yet in this country, I don’t think we 

brought a single new coal plant on line in the United States at all 

last year. 

So what is happening is that they are imitating what we have 

done on coal. They have another, in all likelihood, about 50 or 60 

years probably of generating capacity with current technology that 

we have, and obviously that is one of the big reasons why they 

have become the number one emitter in the world. Now, this statement that is in today’s Wall Street Journal that has been referenced a couple times by my colleagues dating back to the conference earlier in the week. This is from Secretary Chu who says, 

‘‘If other countries don’t impose a cost on carbon, then we will be 

at a disadvantage and we would look at considering perhaps duties 

that would offset that cost.’’ Li Gao, a senior Chinese negotiator 

from the National Development and Reform Commission told Dow 

Jones news wires Monday that a carbon tax would be a ‘‘disaster,’’ 

would prompt a trade war and wouldn’t be legal under the WTO. 

And then he says this, ‘‘It does not abide by the rule of the WTO, 

and secondly it is not fair,’’ adding that his delegation would relate 

China’s concerns to U.S. officials. 

Now, as we look at manufacturing in this country and the charts 

in terms of the loss of jobs, we see what China is doing without 

real clean-coal technology and we see what I think will be a real 

migration of jobs, and as much as we would like to say, well, we 

can use the WTO to make sure that they have to purchase offsets, 

we had heard last year from Susan Schwab that in fact that would 

provide real difficulty and we see what the Chinese are saying. And 

furthermore, we had testimony last year, and India and China, neither one of them, thought that they would really want to participate. 

So to me it sounds a little bit like pie in the sky. I don’t know 

how we achieve what we would all perhaps like to see happen, and 

we just see a further migration of the jobs. Mr. McMackin is a 

board member on OI. I don’t know how much production is in this 

country. I know that OI has international facilities all around the 

world. I mean, you are in the State of Ohio. Eighty-six percent of 

your electricity comes from coal. So if you impose these burdens, 

and I don’t know Ohio all that well, but I don’t know if you have 

production in Ohio. Do you? 

Mr. MCMACKIN. We have some production in Ohio, yes. 

Mr. UPTON. Well, how much of a base in Ohio do you have in 

terms of total production that you have got? Twenty percent? Fifty 

percent? 

Mr. MCMACKIN. No, about a third of our worldwide production 

is in the United States. Our major states of production are Pennsylvania and California. 

Mr. UPTON. And what will happen if we have something like this 

that will have a cap-and-trade and increase those costs, knowing 

in fact that—you know, as we look at China, I think they are about 

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currently, if we send all those jobs there, they don’t export all that 

much here but it will be a higher burden for us. 

Mr. MCMACKIN. Mr. Upton, I am from the little town of 

Brockway, Pennsylvania, which has two of these glass plants, and 

my main motivation is to get those people a fair level playing field 

to compete against foreign location suppliers. So I do agree. Unless 

we do something, something that mitigates the cost that would be 

imposed on energy-intensive, trade-exposed industries like glass, 

that employment will suffer and jobs around the country, including 

in Brockway, Pennsylvania, will be at risk. 

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Pennsylvania, Mr. Doyle. 

Mr. DOYLE. Thank you, Mr. Chairman. You know, I would just 

say to my colleagues, I think we all accept the fact that if we implement a cap-and-trade system and both put in some provisions 

in the bill to deal with issues of leakage or issues with coal-fired 

utility plants, of course it is going to end up being a very expensive 

proposition, and jobs are going to be lost and it is not going to be 

a good way to go and we aren’t going to pass a bill because I don’t 

think many members will vote for a bill like that. 

What we are trying to do and what we are trying to learn more 

about today is how we can put provisions in the bill that deal with 

some of these issues so we don’t have some of the things that we 

are afraid may happen if we do nothing. So it is the whole part of 

this hearing. Mr. Chairman, I appreciate it and I look forward to 

continuing to work with you on this bill. 

Mr. McBroom, thank you for your testimony today. I was glad to 

hear you say and to see that there is a widespread agreement on 

the panel that the border tax and the proposal that Jay and I have 

been working on, you know, don’t compete with one another or are 

not mutually exclusive of one another. Both can be done, and one 

does not, you know, negate the effects of the other. And I agree. 

I think we need as many weapons in the arsenal, so to speak, as 

we can. So I was happy to hear your testimony today. 

Ms. Claussen, Mr. McMackin shared a report with us that is offering some suggestions as the best way to answer the eligibility 

question, you know, what industry should or shouldn’t be covered 

by this policy. What do you think about the energy-intensive trade 

exposures benchmarks that his report suggests? Have you had a 

chance to see it? 

Ms. CLAUSSEN. No, I am sorry, I haven’t had a chance to look at 

it. We will look at it. I would be happy to get back to you on what 

we think of it. 

Mr. DOYLE. Thank you. And Mr. McMackin, we appreciate you 

saying that our proposal is a breakthrough, but we know we still 

have some more work to do and probably this whole issue of eligibility of, you know, looking at these industries and these industries 

subsect. There is still a lot more work to be done, and we need 

some more data. But I look forward to seeing the report that you 

have on the subject. I haven’t had a chance to read it yet, either, 

but we are looking forward to do that. 

I wonder for the benefit of our colleagues here on the Committee 

if you could just take a moment and express to our colleagues here 

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the process as you view it that helps lead us to this latest version 

of the proposal. 

Mr. MCMACKIN. Mr. Doyle, I have been doing policy work in 

Washington for about 30 years, and the process on crafting to this 

point the energy-intensive foreign trade exposed relief provision 

has been as constructive as I have been engaged in. It has been 

transparent. It has been open and inclusive. We had the advantage 

of course that the leakage problem is every bit as much an environmental problem as it is an economic problem. So all stakeholders 

had a real incentive to solve it, and we have made very good 

progress because everyone has been able to engage in a constructive dialogue. 

Mr. DOYLE. Thank you. Mr. Morgenstern, I think your testimony 

also made a strong case for why, you know, certain industries face 

unique challenges with leakage and loss of competitiveness, and 

you talked a little bit about the free allowance allocation as part 

of the solution to the problem. I just want to give you an opportunity if you wish to expand on what you see as the strengths or 

weaknesses of our approach and how it could be improved. 

Mr. MORGENSTERN. Well, I think the idea that you have identified energy intensity and trade sensitivity as the key issues is absolutely right, and I commend that completely. I think in any of these 

approaches there are details that need to get sorted through, and 

there are major data issues as you and others have referred to that 

kind of limit the ability to have a very precise answer as we sit 

here. And presumably, some additional information will be forthcoming in, for example, the EPA Registry which is forthcoming. 

I think the idea that Congress would ultimately give very precise 

guidance to the agencies is really important and not leave this 

open to a great deal of discretion because I think that can cause 

problems down the road. 

Mr. DOYLE. Thank you. Mr. Chairman, thank you very much. I 

yield back my time. 

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Texas, Mr. Barton. 

Mr. BARTON. Thank you, Mr. Chairman. I want to acknowledge 

in the audience we have a former colleague and chairman of the 

Science Committee, Congressman Sherwood Boehlert of New York, 

a nemesis of this Committee when he was on the Science Committee, but a good friend and an avid baseball player, baseball fan. 

Mr. Chairman, I have two articles from today’s papers I would 

like to put in the record, a Washington Times article, Obama Climate Plan Could Cost $2 Trillion and the Washington Post article, 

Trade Barriers Could Threaten Global Economy. 

Mr. MARKEY. It sounds like two things we want in the record, so 

without objection we will include them. 

[The information follows:] 

Mr. BARTON. Well, it is two things that need to be in the record, 

and I appreciate you and the members of the Committee allowing 

them to be in the record. 

Mr. McMackin, you talked about an efficiency standard in your 

testimony. Would you and your group support such a standard absent a mandatory cap-and-trade program? 

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Mr. MCMACKIN. Mr. Barton, I think that most of the members 

of the group would be very reluctant to. Efficiency standards are 

more in the nature of the command and control type regulation 

than the more market-oriented cap-and-trade, and we think that 

Mr. Inslee and Doyle have found a way to make it work within the 

context of an allowance grant of cap-and-trade, but that is a very 

different consideration in its absence. 

Mr. BARTON. Mr. Cicio, you point out in your testimony that industrial emissions in the United States have only gone up about 

21⁄2 or 2.6 percent while residential, commercial and transportation 

emissions have gone up between 27 and 29 percent. In your opinion, is it possible to cap-and-trade those parts of the economy that 

continue to go up more rapidly than the economy itself? 

Mr. CICIO. The question is, can we cap the other sectors? 

Mr. BARTON. Yes, sir. 

Mr. CICIO. Just those sectors? 

Mr. BARTON. Yes, sir. I mean, it seems kind of silly to cap industrial emissions when they are going up less than the rate of growth 

of the economy but commercial, residential and transportation are 

going up 10 times as rapidly. If you really want to cap it, that is 

where you have to do it but I don’t think you can do it. 

Mr. CICIO. No, capping all of those sectors wouldn’t make sense. 

In our view that there are many, many cost-effective ways to improve the efficiency and reduce the greenhouse gas emissions of 

those sectors without cap-and-trade. And the thing that we have to 

as a country continue to look toward in this important debate is 

cost effectiveness, and an economy-wide cap-and-trade approach is 

not necessarily in our view not cost effective. There are better 

ways. 

Mr. BARTON. OK. Ms. Claussen, first let me say I enjoyed our 

dialogue at the Congressional Quarterly breakfast. You are actually a very pleasant person when you are not testifying, disagreeing with me on whatever the subject happens to be. My question for you, because we talked about it at the CQ breakfast, would 

the groups that you represent support meeting our electrical generation targets with natural gas plants, even though natural gas, 

when you consume it or burn it, it does create CO2. It just creates 

less CO2 than coal plants? 

Ms. CLAUSSEN. Well, I enjoyed our breakfast, too, and you are a 

very nice person when you are not asking me hard questions. 

Mr. BARTON. That is my easy question. 

Ms. CLAUSSEN. First of all, I should clarify that I don’t represent 

anybody other than The Pew Center. We work with lots of companies ourselves, we work within U.S. CAP so we work with lots of 

companies. 

Mr. BARTON. Well, would they accept natural gas as an element 

of our—— 

Ms. CLAUSSEN. I think most would agree that natural gas could 

be a transition because of course burning natural gas does result 

in greenhouse gas emissions but far less than coal. On the other 

hand, we are very sensitive to what we could call a dash-for-gas because we really think coal is going to be part of our future. 

Mr. BARTON. We put you down as undecided on that? Anytime 

somebody answers a question on the other hand—— 

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Ms. CLAUSSEN. On the other hand—— 

Mr. BARTON. I have got one more question I want to—— 

Ms. CLAUSSEN. I just want to say there is no single solution here. 

You need all of it. We have to do carbon capture and sequestration. 

In my opinion we have to do nuclear, we have to use gas, we have 

to do efficiency, meet everything. 

Mr. BARTON. I will take that as a yes. Dr. Thorning—can I ask 

one—— 

Mr. MARKEY. Please, yes, please. 

Mr. BARTON. I tried to get it in before it went to zero, Mr. Chairman. I was starting to ask the question. 

Mr. MARKEY. You were wasting a lot of time being gracious to 

each other, OK? Just stick to the subject. 

Mr. BARTON. I have learned that from you, though. It is a good 

trick. Dr. Thorning, you go into some of the economic consequences 

of reducing our CO2 emissions below the 1990 baseline and other 

baselines. The Obama budget would reduce by the year 2020 emissions 14 percent below the 2005 baseline and 83 percent by the 

year 2050. I am told if we adopt the Obama budget and actually 

meet those targets, by 2050 we will have an absolute emissions 

level in this country last seen in 1910 and a per capita emissions 

level last seen in this country in 1875. 1875. Do you think the 

American people would support those types of lifestyle changes to 

get those draconian reductions? 

Ms. THORNING. I think the American public would be reluctant 

to make the drastic changes in lifestyles that would be necessary 

under any of the major plans. In my testimony I have a couple of 

charts, one of which shows the per capita emission reductions that 

would be required by 2020 and 2030 to comply with the Obama 

plan. Cutting emissions from an average of 23 tons per person 

right now down to approximately 18 by 2020 and down to perhaps 

12 by 2030 would require the kind of changes that the American 

public simply would not go along with. So I think we need to be 

very cautious as we approach this issue because if you can’t sell it 

politically, it is just not going to happen. 

Mr. BARTON. Thank you, Mr. Chairman. 

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Texas, Mr. Green. 

Mr. GREEN. Thank you, Mr. Chairman, and I appreciate the time 

and the hearing. Let me first say before I get into my questions, 

I am concerned, Ms. Claussen, about the dash-for-gas also but that 

is also because I have a chemical industry that provides a lot of 

jobs that is really in tough shape right now. But just for the panel, 

last year is probably the first year we actually increased our production of domestically produced natural gas. There has been some 

great discoveries in the Gulf of Mexico, obviously in the shales and 

in other parts of the United States. So there is a way that we can 

produce that and literally cut our emissions much down. And I understand the transitional phase and that is true, but the transition 

may last a few years until our economy can absorb it. 

The other issue I think that if we do not have something like 

that Inslee-Doyle amendment that is enforceable, I don’t think we 

will see cap-and-trade. I can’t vote for it because I can’t see a fake 

to the blue-collar workers of our country that we are really going 

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to control not exporting your jobs. Again, coming from a blue-collar 

area that is refinery and chemical jobs, those products could easily 

be made in India or China. In fact, I had this discussion with a diplomat from India, and I said, you can’t expect me to want to send 

my jobs to you while we are concerned about climate change. 

Whether it goes up in India or China or in Texas, it still creates 

carbon in our atmosphere. And so that is why that amendment and 

as strong as possible—I think our country can provide leadership 

in climate change and still say this is the way we want to do it. 

And we haven’t had that leadership for a number of years, and I 

would like to see the leadership but also want to make sure it also 

goes in the right direction. 

Mr. McMackin, in your testimony you state that ‘‘a true cost negating anti-leakage provision would address indirect or other direct 

costs and that the Inslee-Doyle approach would not compensate for 

cost increases on feedstocks or other inputs, nor would it compensate for the demand and demand-curve cost increases in natural gas.’’ Unlike you, I believe in all the higher costs contribute 

to the costs of competitiveness. Should the compensation program 

take these and other indirect cost impacts into account? 

Mr. MCMACKIN. Congressman, it is true that the Inslee-Doyle 

provision would leave a significant gap in making up for these regulation-caused cost increases, and that does raise the risk of leakage. And that is one of the reasons we are looking forward to continue to working with Congressman Doyle and Inslee and others on 

the provision to try and make sure we get that balance right. 

Mr. GREEN. Do you have an idea what we would need to cover 

those full and direct costs? 

Mr. MCMACKIN. It is very difficult to know because the one you 

mentioned that is the most troublesome, the most difficult to measure, is that part of the increase in natural gas which is not just 

a function of the allowances that need to be submitted for its combustion but that part of the increase that increases because demand for it will go up and the demand curve will shift precisely 

because it is carbon advantage. It would be very difficult to know 

how to measure that. 

Mr. GREEN. Anyone else like to touch on that one before I go to 

another? 

Mr. CICIO. Yes, sir. I would. Natural gas, increased natural gas 

demand and the resulting increase in the price of natural gas is 

only part of the increased cost. The fact is that across the country, 

natural gas-powered generation sets the march on the price for 

electricity. So as the price of natural gas goes up, because of climate policy, that will help drive up the price of natural gas also. 

So actually, there is two impacts that are not accounted for in the 

Inslee-Doyle approach. 

Mr. GREEN. Thank you. Mr. Morgenstern, in your testimony you 

state that the hardest-hit industry is by carbon pricing for chemicals, plastic, primary metals, non-metallic minerals, and that over 

the long term you estimate that the leakage rate for the few most 

vulnerable industries could be as high as 40 percent in the case of 

the unilateral $10 per ton of CO2 price, at $10 you estimate a 40 

percent leakage rate. The Obama Administration estimates that 

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trade proposal. How much would you estimate the leakage change 

under $20 per ton for the average carbon cost? 

Mr. MORGENSTERN. Congressman, we have actually not done 

that calculation. It might be somewhat higher, but it is certainly 

not double. I am pretty sure of that. We are in the process of doing 

that analysis right now. 

Mr. GREEN. OK. I appreciate any follow-up that you could provide to the Committee. In your testimony you state that unilateral 

policy that establishes a price on carbon dioxide emissions, a readily identifiable set of industries is at a greater risk of contraction 

over both the short and long term and that the hardest hit industry, petroleum refining, would likely be able to pass along most cost 

increases, thereby muting the impact. On what statistics do you 

base your assertion that the refiners can pass through all their 

costs? 

Mr. MORGENSTERN. Well, Congressman, the principal statistic is 

the percentage of product which is imported, and as opposed to certain other industries which have a much higher percentage of their 

product imported, petroleum refining has a relatively small number. I don’t have the actual number at my fingertips. 

Mr. GREEN. I would estimate, I think I heard numbers, that 60 

percent of our oil is imported. So does that seem right? 

Mr. MORGENSTERN. Well, Congressman, I think you have to distinguish between imported crude oil and finished product, and imported crude oil would be subject to the same charge as domestically produced crude oil. So there is not going to be any change in 

incentives on that side. It is strictly on the slightly additional cost 

of refining because refining, as you well know, is an energy-intensive activity. There would be some additional costs associated with 

that, and they would not be completely able to pass them along but 

given the relatively small percentage of the product that is imported, they would be relatively protected. 

Mr. GREEN. A study by the NERA Economic Consulting on the 

impacts of Lieberman-Warner on the refining sector states that the 

level of cost passed through is highly uncertain, particularly in 

later years since price increases depend upon the nature of increased costs, the level and nature of international competition and 

other factors. One of these factors is the market and the fact gasoline stations compete and consumers make choices based on a 

penny a difference per gallon. Given these realities and certainties, 

how can you be certain that American refiners would be able to 

pass through all their cost? Won’t competition from international 

products undermine the cost for recovery to a certain extent? For 

example, higher carbon cost and U.S. relative international sources 

of refined products could likely lower the pass-through of carbon 

costs. 

Mr. MORGENSTERN. Congressman, you are correct. They would 

not be able to pass through 100 percent of their costs. There will 

be some burden placed on domestic refineries. Compared to the 

other industries we studied, we believe it will be relatively small. 

Mr. GREEN. Thank you, Mr. Chairman. 

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Illinois, Mr. Shimkus. 

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Mr. SHIMKUS. Thank you, Mr. Chairman. What happens to these 

coal miner jobs in a cap-and-trade regime, Ms. Claussen? 

Ms. CLAUSSEN. If we can get carbon capture and sequestration 

up and running—— 

Mr. SHIMKUS. How long is that going to take us? What are the 

projections? 

Ms. CLAUSSEN. Well, there are lots of projections. 

Mr. SHIMKUS. What is the shortest time projected? 

Ms. CLAUSSEN. Probably 10 years. 

Mr. SHIMKUS. Ten years? Ten years. What happens to these jobs 

if we don’t have carbon capture and sequestration immediately? 

You know, the difference between the Clean Air Act Amendment 

of ’90 and now is that we could fuel switch or we had technology. 

Is there current technology to save these coal miner jobs? 

Ms. CLAUSSEN. I mean, I believe that the first thing that happens when you put a cap-and-trade in place is that people try to 

become more efficient because that is the cheapest way. 

Mr. SHIMKUS. But we have new legislation called New Source Review that doesn’t allow coal power plants to be efficient. In fact, it 

delays the implementation of more efficient generators with a permitting process that takes years. 

Ms. CLAUSSEN. Please don’t ask me to talk about New Source Review. 

Mr. SHIMKUS. It is a failure of our policy. Anyone else want to 

answer the question of what happens to these jobs? Mr. 

Morgenstern? 

Mr. MORGENSTERN. Congressman, I guess I would note that in 

several of the analyses that have been done, I believe by the Energy Information Administration, they find, and it does depend on 

scenario, you are correct, but they find that actual production, domestic production in 2020, is higher than it is today. 

Mr. SHIMKUS. Do you know what happened in the State of Ohio 

when they passed the Clean Air Amendment in 1990? We had testimony of that last week. Do you know how many jobs they lost? 

Thirty-five thousand. Dr. Thorning? 

Ms. THORNING. I would like to mention that in Table 1 of my testimony I do present various scenarios from EPA and EIA, including 

scenarios that we think are more realistic. Under EPA’s scenario 

number seven, when they analyzed Lieberman-Warner last year 

they assumed slow growth of nuclear generating capacity. They assumed carbon capture storage would not be available until at least 

2020 or 2025, and they found that there would be a significant—— 

Mr. SHIMKUS. I am really running out of time. I got three more 

major issues. So do we lose the coal mining jobs? 

Ms. THORNING. Pardon? 

Mr. SHIMKUS. Do we lose—— 

Ms. THORNING. A significant number of coal mining jobs, and 

those are detailed in the ACCF study. Mr. Cicio? Sir? 

Mr. CICIO. Yes, absolute correlation to your point. I can relate to 

manufacturing, and that is that when energy prices went up in this 

country relative to the rest of the world, we lost 2 million manufacturing jobs in the period of less than 2 years. 

Mr. SHIMKUS. Isn’t that the intent of climate change legislation, 

to raise energy rates? 

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Mr. CICIO. Yes. 

Mr. SHIMKUS. It is President Obama’s statement. Let me quote 

from the Washington Post, April 9, higher electricity rates are the 

intent of the whole exercise. If there were no effects, why should 

you have a cap-and-trade system? Now, when you addressed the 

manufacturing jobs, your testimony talks about the emissions side. 

What is a job loss because of higher energy costs? 

Mr. CICIO. As I said, there is a direct correlation to the increased 

cost of natural gas and then electricity that started in 2000 to 

2003. We lost 2 million manufacturing jobs just like that. 

Mr. SHIMKUS. I am not trying to be disrespectful, I just don’t 

have a lot of time. So higher energy cost relates to job loss. Does 

everyone agree with that? Yes? Everybody is nodding yes? That is 

the intent of this Administration and this legislation. Let me do another quote from President Obama, President-elect at the time. He 

was a candidate. When I was asked earlier about the issue of coal, 

uh, you know, under my plan of a cap-and-trade system, electricity 

rates would necessarily skyrocket. 

So we can talk about the carbon dioxide. We are talking about 

leakage of jobs. I would love to engage in a debate. Let me ask you 

this question. From his inaugural address, we will harness the sun 

and wind and soil to fuel our cars and run our factories. Yes or no. 

Can we run a factory on wind and solar power? 

Mr. CICIO. I am afraid not. 

Mr. SHIMKUS. Well, are we close to it? 

Mr. CICIO. Manufacturing needs reliable energy, and they run 

often 24/7. Solar, wind—— 

Mr. SHIMKUS. What is the percentage of electricity generated in 

this country today by renewables? Anyone know? 

Ms. THORNING. Three percent if you don’t count hydro. 

Mr. SHIMKUS. If you don’t count hydro, 3 percent? So if we doubled to six, that would be a dramatic gain. We will have massive 

job loss, massive job dislocation, and I challenge the democrats to 

move this bill because we will defeat them at the polls. I yield 

back. 

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Washington State, Mr. Inslee. 

Mr. INSLEE. Well, I just want to say I always welcome my good 

friend, Mr. Shimkus, to come in and challenge me in the first district in the State of Washington. I will just—as they say, but that 

is another matter. 

Dr. Thorning, I want to ask. We were comparing in any economic 

analysis two scenarios, one an action scenario based on a cap-andtrade bill, one an inaction scenario where we don’t respond to climate change. In your assessment, what figure did you or what assumption did you make about the jobs that will be lost in the inaction scenario where we do not as a result of the significant changes 

to the climate in the United States? What assumption did you 

make? 

Ms. THORNING. It is an excellent question, and I would like to 

draw you back to the figure in my testimony showing the impact 

on global concentrations of CO2 at the end of this century. If we 

do adhere to the Lieberman-Warner targets, for example, and the 

rest of the world does not adopt strict targets. 

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Mr. INSLEE. Excuse me just for a minute. I only have 5 minutes. 

Could you just answer the question? What assumptions did you 

make about the job losses that would be caused by climate change 

if the U.S. Congress sits on its hands and doesn’t do something 

about climate change? What assumption did you make? How many 

jobs would be lost by the inaction scenario? Just give me a number 

or a percentage, please? 

Ms. THORNING. We did not specifically look at jobs lost due to inaction because climate change is a global problem. It really doesn’t 

matter what the U.S. does because our emissions are an evershrinking share. The point is, how many jobs will be lost if we 

move down a cap-and-trade or even a tax proposal because each 1 

percent of GDP is accompanied by a .3 percent increase—— 

Mr. INSLEE. I appreciate your answer because I think it exposes 

a Titanic flaw in your assessment of this problem. There are two 

choices America can make. It can decide not to act on this and have 

massive job losses in the agricultural economy, massive job losses 

in the sectors that depend on water because the snow pack is not 

going to be in the Cascades which is feeding our hydroelectric system which feeds the Boeing manufacturing plant with relatively inexpensive electricity, massive job losses in a whole host of areas. 

The Stern Report indicates there will be five times any jobs losses 

associated with action on global. Your assessment, you are coming 

in here and telling us we are going to have job loss when any assessment says we are going to have more job loss that has been 

done. The only assessment that I have seen in the course of the 

globe not responding to climate change. Now, I find that stunning 

that an economist would come in here and not compare apples to 

apples in this regard. Now, do I take it that the reason that you 

didn’t do that is that you thought that because this is a global 

problem it just doesn’t matter and the United States will just ignore it? That is pretty much your assessment, right? 

Ms. THORNING. The point of my testimony is it is a global problem, and even if the United States were to hit the targets in the 

Lieberman-Warner proposal, the Administration’s own analysis 

shows that it won’t matter. 

Mr. INSLEE. Well, let me just say—— 

Ms. THORNING. So we need to think about maintaining economic 

growth so that we can develop the technology to capture and store 

carbon. 

Mr. INSLEE. I have hardly ever heard a more defeatist statement 

in this hearing that we are just going to let the world go burn, and 

because we can’t solve it alone, we shouldn’t do anything. That I 

would assert is not the American act of leadership. There was 

something that a couple other witnesses talked about that I am not 

sure I fully understood that may be a virtue of one of the approaches that Mike and I have suggested, and I don’t mean to get 

into a contest between border adjustment or what Mike and I have 

proposed because they may be complementary. But I do want to 

make sure I understand something a couple of witnesses talked 

about. The approach that Mike and I have suggested would give a 

benefit on the export side of the economy. In other words, it would 

give the benefit to our manufacturers as they export product because they would get this benefit of a free allowance. Do I undermstockstill on DSK4VPTVN1PROD with HEARINGS

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stand correctly that a trade adjustment, at least to the extent that 

I have seen it proposed, would not give that benefit on the export 

side, it would give them a benefit by protecting against imports, 

competitive imports, but would not give a benefit to our exports 

which also have to compete internationally outside of our domestic 

markets. Is that a correct assessment? 

Mr. MCMACKIN. Mr. Inslee, it is. We view that as one of the critical advantages of the Inslee-Doyle type allowance. Grant, the problem is a WTO prohibition on export rebates. There is some talk of 

trying to design one that is WTO compliant, but I am certainly not 

an expert on that. 

Mr. INSLEE. Anyone else disagree with that assessment at all. 

Thank you. Thank you very much. 

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Pennsylvania, Mr. Pitts. 

Mr. PITTS. Thank you, Mr. Chairman. Mr. Cicio, China’s top climate negotiator Monday said any fair international agreement on 

emissions reduction should not require China to reduce emissions 

caused by goods it exports to other countries. This doesn’t sound 

like China wants to play by our self-imposed rules. What evidence 

do we have that we can convince China to go along if we make our 

industries less competitive? 

Mr. CICIO. Congressman, that is exactly why our testimony has 

taken the approach that it has, is that cap-and-trade is not a viable 

policy option for the industrial sector in developing countries, nor 

is it good for us. A better approach that all industrial companies 

around the world understand is productivity. They can control the 

efficiency. They can improve the electricity improvement in their 

plant, the natural gas improvement, or whatever fuel. They can improve the yield, but it is very, very difficult for them to reduce absolute quantities. There is no movement on the part of the Chinese 

that we have seen that they will accept a cap and the absolute reduction for the industrial sector. This is why we need to jump-start 

negotiations across all developed and developing countries to deal 

with explicitly the industrial sector from a trade and from a productivity standpoint. 

Mr. PITTS. Dr. Thorning, a lot of the policy discussion about effectiveness of cap-and-trade is derived from large, integrated models 

of the economy and international markets. It involves a modelbased analysis of what we might expect if the United States and 

all nations work together to reduce emissions. Do these modeling 

exercises represent what happens in the real world? 

Ms. THORNING. That is an excellent point, Congressman, and I 

think that we need to take account of the reality of politics. For example, stepping back and looking at China, China buys huge portions of U.S. debt. They are funding our lack of saving. If we impose a border tax adjustment on China using other imported goods, 

there might be some reluctance on the part of the Chinese to continue to invest in the United States. So I think we need to look at 

climate policy as a whole and look at how moving one part of our 

economy through say border tax adjustments might impact other 

parts of our economy. I think the models that have been developed 

simply do not recognize political reality. We don’t have the ability 

to enforce international agreements. We have been working on this 

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for some 20 years trying to evolve that type of agreement. It hasn’t 

come about, and according to a recent study by Lee Lane and 

David Montgomery, it is unlikely to. We are going to have to depend on technology. We are going to have to depend on new technology, new nuclear, carbon capture and storage if we want to continue to grow our economy as well as reduce greenhouse gas emissions. 

So I think the models that have been developed simply are not 

reflective of reality. 

Mr. PITTS. Dr. Thorning, what in a nutshell is the European industry doing to cope with its cap-and-trade system, and how does 

this compare with what the United States will face? 

Ms. THORNING. Well, the experiment in the European Union, 

they have had an ETS since 2005, shows that they don’t have the 

political will to tighten down emissions to actually hit their Kyoto 

target. Without strong, new measures the EU is unlikely to meet 

their Kyoto target because they have exempted large sectors of 

their economy and haven’t covered enough facilities. Their new 

plan, their 20/20 by 2020 reduction, is unlikely to be enforced because it would require significantly higher taxes. The only way Europe will meet their new target is through economic collapse. 

Mr. PITTS. Ms. Claussen, should we be concerned about a trade 

war if we impose tariffs on countries that don’t take action on 

greenhouse gas emissions? Would a trade war have implications for 

our relationship with China and other arenas such as working to 

improve China’s record on human rights or China’s relationship 

with Tibet? 

Ms. CLAUSSEN. We do not like trade wars. We do not like border 

adjustment measures, so I think if you are going to use them, they 

should absolutely be a last resort and we should do everything else 

before we get there. 

Mr. PITTS. Thank you, Mr. Chairman. 

Mr. MARKEY. The gentleman’s time has expired. And we will end 

the hearing by recognizing Mr. Scalise from Louisiana for a round 

of questions. 

Mr. SCALISE. Thank you, Mr. Chairman, and I will try to run 

through them quickly since the vote is going on right now on the 

floor. Mr. Morgenstern, in your testimony you had stated, and I 

will quote this, ‘‘Within the manufacturing sector the hardest-hit 

industries are chemicals and plastics, primary metals, and non-metallic minerals. Another hard-hit industry, petroleum refining, will 

likely be able to pass along most cost increases, thereby muting the 

impacts.’’ When you talk about muting those impacts, clearly if 

they are passing them on, who have they been passing them on to 

and who would actually get that impact if they didn’t get the impact? 

Mr. MORGENSTERN. Congressman, they would pass along the impacts in the form of higher prices which in turn will enter into consumers’ and businesses’ calculations about their choice of technologies, new vehicles, et cetera. 

Mr. SCALISE. Any estimates on how much would be passed on to 

consumers, let us say, when somebody goes to fill up their gas tank 

how much more they will pay, or when they go to the grocery store, 

how much more will they pay? 

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Mr. MORGENSTERN. Yes, I don’t have a number at my fingertips, 

but it would be a very high proportion of the actual cost of the allowances that would be passed forward to the consumer. 

Mr. SCALISE. And I have seen reports that show up to $3,000 per 

American family in increased costs due to these pass-throughs, 

whether it be from electricity bills going up because the utility companies would be able to pass those costs on or the energy-related 

products that would also be able to be passed on. And in fact, Mr. 

Orszag, the President’s Budget Director, himself acknowledged that 

there would be increased costs to consumers because of these. 

Mr. MORGENSTERN. Congressman, my colleague, Dallas Burtraw, 

who is not here today has actually done an extensive study on this 

question, and there clearly will be higher costs to consumers and 

to households across the country. It will vary somewhat by region, 

and some of the provisions in the legislation presumably would attempt to compensate for those losses. 

Mr. SCALISE. Yes, and that concerns a lot of people. Ms. 

Claussen, if you could real briefly get on that? 

Ms. CLAUSSEN. Yes, I mean, there is a wide range. It depends on 

the model you use. Some of them are as low as $200 per household 

per year. Some of them are as high as you pointed out as $3,000 

per household per year. I think the most important thing to do is 

to make sure that there are no price spikes or really high prices 

for consumers which you can do by making sure that there are allowances for local distribution companies who provide electricity. 

Mr. SCALISE. Yes, and I think we have seen that there are some 

proposals to exempt certain people which, of course, under the 

President’s budget, he expects to generate $640 billion in new taxes 

from this proposal. So that would actually put an even higher disproportionate share. We used the teacher married to the police officer. That married couple would then almost see a doubling if you 

exempt lower income earners because that couple would earn about 

$80,000. And so that teacher married to the police officer would not 

appreciate the fact that they are considered rich under these proposals and would have to pay maybe $5,000 more. 

Ms. CLAUSSEN. That is—— 

Mr. SCALISE. I have only got about a minute left. I apologize for 

that. Mr. Cicio, you had talked about U.S. industries working on 

efficiencies. For decades we have seen people cutting back, businesses cutting back. Are there more effective policies that can help 

foster innovation to provide that next generation of energy efficiency other than this tax policy? 

Mr. CICIO. Manufacturing is very energy efficient, but there is always this constant effort. We need good tax policy, faster depreciation. We certainly need removal of regulatory barriers and financial 

barriers to utilizing, for example, combined heat and power and 

waste heat. These are all very positive incentives that would be 

very helpful to the sector. 

Mr. SCALISE. And final question, how has regulatory policy such 

as decoupling electricity rates actually affected your industries? 

Mr. CICIO. Well, I am glad you asked that question because decoupling separate volume from price, and manufacturing needs a 

return on investment to invest in energy efficiency with the objective of course of reducing the amount of for example electricity that 

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it would consume. But when you decouple, oK, there is all of a sudden a lack of incentive, financial incentive to invest because the 

prices will not go down. 

Mr. SCALISE. All right. That is all I have. I yield back. Thank 

you, Mr. Chairman. 

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from—and all of the time for this hearing has 

expired. We thank this panel very much. Obviously in any legislation which we draft we are going to need to deal with those industries that are most affected, especially from a trade perspective, 

from a climate policy which we adopt and we intend on doing that. 

We thank this panel very much, and we would like to stay in close 

contact with you as we are moving along in the legislative process. 

This hearing is adjourned. 

[Whereupon, at 11:52 a.m., the subcommittee was adjourned.] 

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