The American Gas Association (AGA) commends Congress for keeping a spotlight on our nation’s energy issues by giving careful consideration to several different bills on the table right now, including Kerry-Boxer. By recognizing the role that clean, domestic and abundant natural gas can and will play in combating climate change, our legislators can help reach our nation’s energy goals sooner.

AGA also urges members of Congress to take a look at the successful track record of America’s natural gas utilities and their customers. During the past 40 years, while the number of natural gas customers has doubled, actual gas use and greenhouse gas emissions have remained essentially flat. This remarkable success in both reducing natural gas usage on a per-household basis and increasing appliance efficiency should be considered when crafting a national energy strategy. Instead of simply mandating arbitrary prescriptive requirements, a far more effective course of action would be to continue to support these proven and successful approaches.

We believe that natural gas could, and should, be used as a tool to improve environmental quality and energy efficiency. To that end, AGA believes that as lawmakers craft climate change and energy legislation, the following key points should be considered.

If a cap-and-trade approach is implemented, Congress should maintain or increase the four-year delay for natural gas utilities coming under that program, while increasing their allowance allocation from nine percent to 12 percent and extending their allocated allowance phase-out from 2030 to 2040. Congress should also significantly modify or delete the provision that stipulates one-third of the value of allowances allocated to natural gas utilities should go to energy efficiency programs, as this approach will not reduce emissions and will only raise costs. In addition, Congress should treat all renewable energy sources equally, whether they are used to generate electricity or supplement natural gas supplies.

An approach to reducing emissions that is focused on appliance efficiency standards, building codes, and utility-supported conservation/efficiency programs has a proven track record for residential and commercial natural gas customers. AGA asks that Congress strengthen this approach rather than impose the higher costs and greater uncertainties that would result from a cap-and-trade approach.

Pete Sepp, Vice President for Policy and Communications at the National Taxpayers Union, submitted the following:

As the EPW Committee listens to testimonies this week from experts representing small business owners, farmers, truckers, and taxpayers more broadly, we can only hope that all Senators on the panel recognize one fact: millions of their constituents will bear the brunt of this "cap and trade" economic assault. No matter how many bells and whistles are attached to the Kerry-Boxer bill, be it through subsidies, weak nuclear power incentives, or half-hearted offshore drilling provisions, hard-working Americans will suffer under a cap and trade system that is designed to raise the cost of energy and transportation fuels we rely on every day. This is the last thing hard-working taxpayers need just as we're pulling out of recession.

Supporters of the Kerry-Boxer bill have pushed back against these claims, citing lower-range cost estimates from the CBO and EPA. However, these studies tend to employ much narrower assumptions when taking effects into account, such as discounting. The fact that the Treasury Department projected as much as $200 billion a year in higher revenues from cap and trade, plus as much as several hundred billion more in added costs, means there is still a huge difference of opinion over what the expense of the final cap-and-trade legislation will be.

In addition, other estimates by Charles River Associates, the Heritage Foundation and the American Council on Capital Formation have found that the legislation would impose huge new costs on consumers and businesses.

The bottom line: households will suffer under a burden of between $2,000 and $4,000 per year, when all costs and scenarios are accounted for realistically.

Another falsity that supporters are promoting is that smaller firms, which are mostly exempt from emissions requirements, won't be adversely impacted. However, as Competitive Enterprise Institute's Marlo Lewis points out, the extent to which emissions exemptions gives them cover is likely way overstated.

That's because the "findings" of the bill, which state that even exempted firms can be dangerous C02 emitters, creates an actionable presumption for lawsuits. Small companies that use a lot of transportation fuel may find themselves staring at court action rather than regulatory action.

If the Senate is sincere in its pursuit of a comprehensive energy policy, we recommend putting a cap on this legislation and trading it for an alternative that won't muzzle our economic growth. A better approach is through tax incentives and regulatory abatements that will work to economize fuel use. For example, H.R. 1799 would raise the weight limits on trucks to a level close to that found in Canada, adding a sixth axle to heavier trailers so as to mitigate pavement damage. The fuel savings to companies that haul consumer goods -- and hence the reduced emissions -- are really staggering (which is why the National Taxpayers Union, to give just one of dozens of examples, has endorsed the bill.)

It's really quite amazing. The main response at Tuesday's opening hearing of the Senate Environment Committee on the Clean Energy Act was that its 2020 goal -- a 20% reduction in US emissions of greenhouse pollution -- was over-the-top ambitious. Senators both Republican and Democratic expressed grave concern that it would somehow tank the economy. In fact, its somewhat alarmingly unagressive, and won't do as much as it should to jump-start the clean energy revolution we need for economic recovery.

It appears that those who complain that 20% is too ambitious haven't been tracking our progress for the past three years. Every year the Energy Information Agency does a forecast of how much carbon dioxide the US economy will emit over time. At the end of 2005 EIA projected that the US would be emitting 7,500 million metric tons of CO2 in 2020 -- up from about 6,000 mmt in 2005 -- so a big increase. Over the next three years 100 coal fired power plants were cancelled, 24 states adopted renewable energy standards which collectively added up to about 10% of national electrical generation, and Congress passed 35 mpg fuel efficiency standards. So at the end of 2008 EIA issued its new estimate, which was that America's CO2 emissions wouldn't grow at all between 2008 and 2020 -- and in 2020 we would only be emitting 6,000 million metric tons.

Then this year, as a result of the Obama Administration's stimulus package, its adoption of even more agressive vehicle fuel economy and emission standards for 2016, more coal fired power plants being cancelled, and the economic downturn, EIA projected that by 2020 emissions would actually decline to 5,900 mmt.

So in four years we reduced our 2020 emissions trajectory by 1,600 mmt.

So is it now so ambitious to take another 10 years to reduce those 2020 numbers by another 1,200 mmt, which is all that the Senate Clean Energy bill would require? Have we already taken all the easy, cheap steps we can to reduce carbon waste in our economy?

No way. Not even close. A few simple data checks show that there is more than 1200 mmt's in reductions we can get by 2020,depolying a few simple improvements we could make in our energy sector -- things that would create jobs, enhance our national security and clean-up pollution -- without breaking the bank and speeding the economic recovery.

Not only did I find 1,200 mmt's of potential "no regrets, good investment" savings we could make, I found a little more. . A few samples: just continuing to improve vehicle performance from 2016-2020 saves another 109 mmt; state energy efficiency standards could yield another 401 mmt. A modest national renewable energy standard would cut emissions. 350 mmt. We could reduce CO2 by by almost 200 mmt if we just made heavier use of affordable natural gas units. And cleaning up old power plants would save at least. 125 mmt. This package of steps -- which is only illustrative -- requires no increase in our energy bills -- the savings from the efficiency measures easily make up for the costs of things like switching from coal to natural gas and cleaning up old power plants. So this scenario is far short of what we can and should achieve -- yet all the Beltway can do is moan, "it's too hard."

Washington, join America.

What defines a 20% reduction as "too strict"? Certainly not according to what will be required to stabilize global CO2 emissions. Any objective analysis of the proposed legislation has made clear that a 20% reduction is in fact readily achievable with the technology options, both supply side and demand side, that we currently have on the table.

The most important thing is to establish a set of market rules - a cap - that will provide industry with the clear guidance necessary to inform investment decisions moving forward. Establish the cap and then turn American capitalism loose to demonstrate the multitude of ways that are available to meet such a target.

The Clean Air Act demonstrated the effectiveness of market mechanisms such as cap and trade in achieving least cost solutions. That earlier legislative battle demonstrated something else that we see prominently today - the extent to which the opponents will go in exaggerating the costs of compliance. Shall we trot out some examples of those earlier "end of civilization" claims just to compare with today's rhetoric and wildly inaccurate consultant studies?

Senator Boxer’s bill is headed in the wrong direction, and definitely is a step backward from the Waxman-Markey bill. At the EPW hearings, Senator Boxer announced "we have already made 8-9% emissions reductions, so the real goal (20%) is easy to meet," without acknowledging this as being the result of the greatest economic collapse since the Great Depression. This is not the kind of logic you want to use to bolster your defense of a climate provision. In my sector, for example, steel production has been down 40 to 60% since October 2008. If cutting manufacturing is the path to achieving climate goals, Senator Boxer has introduced the perfect bill to do the job. Unfortunately, sending American manufacturing jobs to places like China and India, will not only harm the economy but it will also increase global emissions, the opposite of what Senator Boxer and her EPW colleagues hope to achieve.

The House climate bill has many shortcomings that would cause severe job losses here and a shift of emissions to less regulated countries: the allowances for energy intensive manufacturers are too few; there are no provisions to counter an almost-certain sharp rise in energy cost (a huge competitiveness risk for domestic energy intensive, trade-exposed industries); and, it contains a weak border provision. In the Boxer-Kerry bill, the allowance provisions are not only less (it provides 2 billion fewer allowances for energy-intensive trade exposed industries than the House bill) because the 2020 cap is 20% vs. 17% in the House, there is a 16% across-the-board reduction in the allowance pool. This means that not only has an insufficient allowance pool for energy intensive, trade-exposed industries gotten worse, but allowances to energy providers such as utilities will also take a 16% cut, making energy prices subject to an even sharper rise. There remains no provision to counter energy cost increases, the need for which is more acute under Boxer-Kerry...and there is no border provision.

It is clear that the current structure of cap and trade legislation is incompatible with a growing and healthy manufacturing sector in the US.

It is important to keep in mind that the quality put into an economic analysis is crucial to the quality of the product put out. With that in mind, there are some serious problems with current EPA analysis of Kerry-Boxer:

• First, it should be noted that the Kerry-Boxer analysis is based on their June 2009 analysis of the Waxman-Markey bill from the House of Representatives.

• Second, its important to note the assumption used in most scenarios in the new EPA report on Kerry Boxer about new nuclear plants for electricity generation. The EPA report says that the new Kerry-Boxer report is based on their Waxman-Markey analysis which assumes a 150% increase in the number nuclear plants by 2050. It seems likely that that is also the number assumed for the Kerry-Boxer report. The U.S. currently has approximately 100 nuclear plants, so to increase that number by 150% would mean that we would have to build 150 new plant by 2050, or about 4 per year for the next 4 decades. Since we haven’t built a nuclear plant in the last 30 years in the U.S., this assumption seems highly unlikely. See slide 17 for the details of the EPA nuclear assumptions. See http://www.epa.gov/climatechange/economics/pdfs/HR2454_Analysis.pdf. The significance of this is of course that when you assume a large number of carbon free sources of electricity will be put in place, the cost of reducing GHG emissions is substantially reduced. Thus the allowance prices and economic impacts shown in Table 4 on page 17 of the new Kerry-Boxer report are likely to be seriously underestimated.

• The EPA’s Kerry-Boxer analysis also assumes that the institutions are put in place to process the domestic and international offsets need to realize reductions on the magnitude shown in the analysis. assumption, if it came true, would allow U.S. companies to purchase less-costly offsets from developing countries, which have emission reduction targets in place. In reality, the assumption is not likely to be realized since China and India have made it quite clear they will not undertake programs that would set limits on Chinese GHGs.
  
• EPA assumes that CCS for coal and natural gas fired utilities will be available in 2020, but most experts think CCS is 15 years away.

It is troubling assumptions like these that could lead astray legislators just trying to enact good policy. The lesson: erroneous assumptions lead to bad policy.

It seems much of the discussion around this bill, and even the analysis of its impact, ignores the issue of where we will get our energy today and tomorrow. If we are actually going to pass a climate change bill, shouldn’t we also be working to actively expand our near and long-term energy solutions?

Our hope is that the analysis and discussions on this issue will press further to provide transparency into all aspects of the bill. This bill, if passed, could have a significant impact on the US economy and the process should be accessible to consumers so they understand its full implications – including the legislation’s impact on US business competitiveness vis a vis the rest of the world. This means a global solution, not just a US solution to a real global problem.

Over 40 years ago, a group called the Lovin Spoonful made the song Do You Believe in Magic popular. That should be the theme song for the Kerry-Boxer cap and trade legislation and this week’s hearings.

The emission reduction mandate of 20% below 2005 levels by 2020 lacks any connection to economic, energy, or technology realities. According to analysis by the Energy Information Administration, achieving a reduction of that magnitude would require a reduction of about 1 gigaton. To provide a frame of reference, 1 gigaton of CO2 is the equivalent of doubling the miles per gallon of every car on the road, building over 100 nuclear power plants, or over 300 clean coal electric generation facilities. Only someone who believes in magic would assume that is realistic.

If the reduction goal can’t be achieved directly, the sponsors must have in the back of their minds that “offsets”—the equivalent of indulgences to keep sinning-- would be used to claim success. But, once companies and the government get involved in the offset market, there will be incentives to create the type of risky financial instruments and schemes that contributed to the collapse of financial markets. The EU experience with offsets has demonstrated that they lead to rampant fraud and abuse.

During this week’s hearings, the sponsors and their supporters will claim that the economic impact of the legislation will cost less than 30¢ a day or as was asserted with Waxman-Markey, less than the cost of a postage stamp. Analyses that come to this conclusion represent of triumph of gimmickry and a rebirth of the “rosy scenario”. The over whelming conclusion of serious analyses—for example those conducted by Rob Shapiro, Bill Nordhaus at Yale, and Richard Cooper at Harvard—is that the cost of cap and trade could be in the hundreds of billions of dollars. And that cost will be borne by consumers and those who represent lost jobs.

What Senators Kerry and Boxer should be asked to produce is a road map for achieving the 2020 target and an explanation of how it can be achieved while also achieving the robust economic growth that Americans expect. Of course, they will not do that because they cannot.

The Kerry-Boxer bill is similar to the Waxman-Markey bill, but its impact would be even worse.

Consumers, farmers, truckers, airline passengers, and all businesses relying on petroleum fuels would pay the lion's share of the costs. According to numerous studies about the Waxman-Markey bill, it appears that the more costly Kerry-Boxer bill could raise the cost of gasoline and diesel fuel to more than $5.00 a gallon, destroy more than 2 million U.S. jobs--even allowing for the creation of new green jobs--and would send jobs and refining capacity overseas, doubling imports of refined products. Since the bill does not provide "energy-intensive, trade-exposed" status to the U.S. petroleum industry, despite being the second most energy-intensive industry according to the federal government, it would give a competitive advantage to non-U.S. refiners.

The Kerry-Boxer bill also could increase costs by reducing the availability of less costly international offsets. Further, it proposes to reduce the allowance allocations to all regulated entities below Waxman-Markey levels by putting more than 20 percent of the total allowances in "reserve" to be used for deficit reduction and other purposes.

Although the Environmental Protection Agency (EPA) was directed to assess the Kerry-Boxer bill, it did not conduct a formal analysis. Instead, it chose to rely on its earlier assessment of the Waxman-Markey bill, which was fraught with overly optimistic assumptions that greatly downplayed energy costs. The government's own Energy Information Administration (EIA) has projected that the Waxman-Markey bill would drive up total costs by as much as $1,870 per household in 2030, which is much higher than the often-quoted "price of a postage stamp a day."

The Kerry-Boxer bill, like its predecessor in the House, is too costly for too little positive impact on the climate. The Senate should reject it and start over.

The best thing that can be said about the new Kerry-Boxer mark is that it retains the Clean Air Act as a catalyst and backstop for reducing greenhouse pollutants that cause climate change. The Act is the only legal mechanism, a proven one at that, which can get U.S. emissions down to the requiste levels (e.g., 350 ppm of CO2) as demanded by science. It is no surprise that the oil, gas and coal industries are taking aim at the Act. But the public interest clearly mandates retention of the Clean Air Act. Any backsliding in this area will immediately erode support for Senate legislation (and significantly reduce the potential to actually get the job done against global warming).

The Chairman's Mark distributed on Friday provides an excellent starting point for Senate Environment Committee consideration.

As expected, it specifies the distribution of allowance value, and I am pleased to see that the vast majority of the allowances go to well defined public purposes, such as helping consumers, providing a level playing field for energy intensive industries, deploying low-carbon technologies, and preventing deforestation.

The bill includes several key elements. It has dedicated investments in energy efficiency, clean transportation, and renewable energy deployment. It also has an effective mechanism to stabilize allowance prices, with a bigger allowance reserve and a greater clarity about when this reserve will be tapped than in the House bill. And the bill's consensus approach to promoting the deployment of carbon capture and storage technology should bring additional political support.

Perhaps most important of all is the fact that the EPA has concluded the bill is affordable. Its analysis shows that the legislation brings an average cost of less than $120 per year per household.

The agency also found that it will be more effective than the House bill at avoiding excessive allowance price volatility, and it will result in an increase in net farm income--a key finding for the prospects of the bill in the Senate.

Still, I see two areas for further work. First, the bioenergy loophole must be closed. Right now, the bill doesn't properly account for emissions from bioenergy, and without that information, we can't guarantee bioenergy is fighting global warming rather than actually costing us forests.

Second, the bill's energy efficiency provisions could be even stronger. A new study by University of California economists shows that the legislation could produce up to 1.9 million jobs with strengthened energy efficiency provisions, compared with 900,000 jobs with provisions similar to those that passed the House.

I hope that the hearings this week will bring out these key points and cut through the overheated rhetoric of opponents who are making ridiculous claims about the cost of this legislation in order to score political points.

At close to midnight on Friday, Senators Kerry and Boxer released a 923-page version of global warming legislation with an overview of emission allocations that closely resembles the widely unpopular House cap and trade bill. Even with further modifications and compromises, it’s difficult to imagine a scenario in which the Senate legislation can secure the 60 votes necessary to pass.

Climate legislation driven by wishful thinking rather than hard facts simply will not work. The Senate’s current efforts to repackage Waxman-Markey into a politically viable, environmentally effective policy amounts to rearranging deck chairs in an effort to keep the Titanic from sinking; it looks like considerable work but ultimately will have little effect.

Since the Kyoto Protocol, there have been an overwhelming number of studies analyzing cap and trade. The vast majority of this research has arrived at the same conclusion—the benefits, if any, are greatly outweighed by the cost to the economy and by unintended consequences. Just recently, the CBO issued an analysis that came to the same conclusion. What we can be fairly certain of is that cap and trade system will cost the U.S. economy $100 billion or more annually, become a regulatory nightmare, enrich Wall Street and special interests, spawn fraud and abuse, and put an unnecessary burden on American consumers.

The European Union has, in effect, already conducted a real world experiment with cap and trade. And the results are clear. It hasn’t worked, and households -- not to mention the Planet – have paid a high price.

The fundamental problems with cap and trade should be obvious. No member of Congress, nor anyone else, is smart enough to be able to set a cap that is just tight enough to spur innovation but not so tight as to constrain economic growth. And, none of the advocates for this emissions trading scheme know how to bring forward commercially competitive alternatives to the fossil fuels that would be forced out of our energy system. Bottom line: the notion that this nation could reduce emissions 20% below the 2005 level by 2020 without causing serious economic damage is a flight from reality.

Unfortunately, the scheduled hearings will not be organized to illuminate as much as they will be designed to provide a cloak of legitimacy for this bad legislation. Cap and trade advocates will stack the witness lists. Yet if Senators Kerry and Boxer were genuinely interested in obtaining helpful information, they would ask one question: “How can we reduce emissions by 1 gigaton in a decade while still achieving our economic objectives?” For the foreseeable future, the honest answer is “we cannot.”

But, in a world where image trumps reality, that question and answer will likely remain buried.

EPA’s analysis -- which will be used to justify the Kerry-Boxer approach -- is a triumph of the power of assumptions. It simply demonstrates that if you control the assumptions, you can get any answer that you want. But, in the real world, reality and facts prevail and the reality is that EPA has low-balled the cost and consequences of this legislation.

Anyone who doubts that only needs to look to the E.U. experience and compare its success to America’s impressive achievements through existing policies and measures. In part, this may explain why past efforts to cobble together 60 votes for cap and trade have fallen short. And if the nation is fortunate, this one will too.