Hearing of the House Committee on Agriculture - Pending Climate Legislation

Chaired By: Rep. Collin C. Peterson (D-MN)

Witnesses: Tom Vilsack, Secretary, Department of Agriculture; Bob Stallman, President, American Farm Bureau Federation; Steve Ruddell, Senior Associate, First Environment; Earl Garber, Second Vice President, National Association of Conservation Districts, Basile, Louisiana; Fred Yoder, Past President and Climate Change Task Force Member, National Association of Corn Growers, Plain City, Ohio; Roger Johnson, President, National Farmers Union; Ken Nobis, Treasurer, National Milk Producers Federation, St. Johns, Michigan; Ford West, President, The Fertilizer Institute; Glenn English, Chief Executive Officer, National Rural Electric Cooperative Association, Arlington, Virginia

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REP. PETERSON: (The committee will come to ?) order. Good afternoon, everybody. Welcome to today's hearing on the House Agriculture Committee.

And Secretary Vilsack, thank you for being here, with us today. This is the first time that we've had an opportunity to have you testify at the House Agriculture Committee, although you've been up here to meet with us, and I've met with you, as you know, many times. And you have one of the toughest jobs in Washington, and I think that you're off to a good start so far, so welcome to the committee, and we look forward to your thoughts today as you share your thoughts on climate change legislation that we're considering and offer suggestions to improve it.

I'm also interested to get an update from you on the Biofuels Working Group, which includes USDA and is supposed to be involved in the peer review of the RFS-2 rule that EPA recently issued. Today's hearing is an opportunity for members of the House Agriculture Committee to review climate change legislation that Congress is considering and to examine the impact it will have on agriculture in rural America.

I know that members have many questions about the proposals included in the legislation as it's currently drafted, and I hope that witnesses joining us here today will be able to help us better understand what is being proposed and what can be done to improve the legislation. I look forward to hearing from our witnesses today, and welcome, everybody, to the Agriculture Committee.

And I would like unanimous -- ask unanimous consent for the material that each members place on top of the folders be submitted for the hearing record. Without objection, so ordered.

And with that, I would recognize the ranking member, Mr. Lucas from Oklahoma, for his statement. Oh, and we're going to have opening statements by myself, Mr. Lucas, Mr. Holden, Mr. Goodlatte, and for the rest of you, we will allow you to make a statement, but they will be closing statements. And so if you're here at the end of the hearing, you'll be allowed to make a closing statement.

So with that, we will proceed.

Mr. Lucas?

REP. FRANK D. LUCAS (R-OK): Thank you, Mr. Chairman, and I do appreciate your willingness to allow the chairman and the ranking member of the subcommittee a primary jurisdiction to also have an opening statement and provide members of both sides the opportunity to express their observations from this important set of hearings. Thank you for that cooperation. And even more so, thank you for calling this hearing to review Waxman-Markey, the bill.

I have said many times before, and I'll say it again today. The most important thing we can do for our agricultural community is to allow the legislative process to work, to take the time to understand the consequences of our actions. There are still many unanswered questions surrounding the Waxman-Markey bill, and yet we have speaker Pelosi and Chairman Waxman working to try and force this thing through Congress by my definition.

A thousand page bill of this magnitude deserves thoughtful consideration and debate. The committee is familiar with that kind of a process. After all, we only recently completed a five-year reauthorization of the 2008 Farm Bill. Consider the fact for a moment, because it offers an important contrast from where we are today. For roughly two years, this committee held a series of field hearings across the country, multiple hearings on specific titles of the Farm Bill in this very room, and enjoyed bipartisan discussion and collaboration between the members. It took us two years to reauthorize a bill that would last for five years.

But here today we are to have our first public hearing to consider a bill that is written to last forever, no expiration date, forever. This is a bill that is enormous in size and consequence that has the potential to permanently damage the standard of living of every man, woman and child for decades to come. This legislation will span the working lifetime of every young farmer and rancher with no off-ramps, with no waivers from the negative impacts that it will have on rural economies. And yet, this committee will hold one hearing without a markup in sight with the speaker of the House insisting that this bill will be on the House floor for a vote before the Fourth of July recess.

The cap and trade part of the bill creates a national energy tax that will do more harm to production agriculture, American industry, and our standard of living than it will do any good for the environment. From the higher energy costs to lost jobs, to higher food prices, cap and trade promises to cap our incomes, our livelihoods, our standard of living while it trades away American jobs and opportunities. Agriculture is a prime target because it's energy- intensive.

Just this week, the Heritage Foundation released an economic study of how cap and trade will impact farmers. That study revealed that by 2035 the average net income for farmers will decrease by 57 percent. No wonder nearly 50 agricultural groups and food groups have expressed opposition to the bill with more groups joining the cause every day. They understand that this legislation has the potential to destroy their livelihoods.

Proponents of cap and trade -- and our secretary's included in that -- would like to claim that agriculture will be a net winner when it comes to climate change legislation. But they have failed to provide us with any numbers to make that case. This bill does not specifically recognize the role that agriculture can play in providing carbon offsets.

It does not provide a meaningful way for farmers to participate in carbon tax credit programs.

I'm not convinced that agriculture could ever benefit from a cap and trade program system. As a lifelong rancher, a student of agricultural economics, as the ranking member of this committee, I cannot support a bill that will damage an industry that consistently provides America and the world with the safest, most abundant, affordable food supply and fiber supply. I cannot support a bill which despite its magnitude will be pushed through Congress without any respect to the regular legislative process. We need more hearings, more outreach, more information, more understanding about this bill. Instead, the speaker's rushing it through Congress. I'm afraid to the detriment of all of us.

Again, chairman, thank you for holding this hearing. I know you didn't have to do it. I realize it presents many challenges. But thank you for the opportunity.

Yield back.

REP. PETERSON: I thank the gentleman for his statement.

The subcommittee chairman, Mr. Holden, you're recognized.

REP. TIM HOLDEN (D-PA): Thank you, Mr. Chairman. If this climate change bill becomes law, it will have a broad affect on our nation's farms, agri-businesses and consumers. And as our economy continues to change, we will rely more and more on renewable energy, including biofuels. Linking agriculture and renewable energy is important to diversify our energy market, protecting our environment, and revitalizing rural America.

However, the definition of renewable biomass contained in the renewable fuels standard of the Energy Independence and Security Act of 2007 is problematic because it could exclude a majority of the country's biomass. The definition would exclude much forest land because it was not clear-cut and then replanted. Hardwood forest land in my home state of Pennsylvania and much of the Northeast as well as several other regions of the country could be an important component in meeting the new renewable fuel standard, but would be excluded by definition.

Pennsylvania also has hundreds of thousands of acres of abandoned mine lands. These lands can be restored and planted with conserving grasses, such as switchgrass, which could be used for cellulosic biofuel. Being able to use the abandoned mine land for growing feedstocks would create an economic incentive to restore the desolate landscape, which now relies on inadequate federal and state funds, but not under the new renewable fuel standard because the statute requires land to have been previously cultivated.

If we continue with these provisions that were in H.R. 6, we will sure change a large part of the country before we even get started. It's the statute which was not created through regular order. That's a problem, and it needs to be changed to allow for greater flexibility. Pennsylvania is at the forefront of promoting renewable energy and will continue to be at the helm, but only if its feedstock potential is eligible for use under the new renewable fuel standard.

There are also some other problems with the renewable fuel standard, and now is the time to fix them. When Congress is considering a bill dealing with renewable energy, I hope we can move forward to ensure agriculture's continued role in producing renewable fuels and energy.

Thanks, chairman.

REP. PETERSON: I thank the gentleman.

I now recognize the ranking member, former chairman of the committee and ranking member of the committee, Mr. Goodlatte.

REP. BOB GOODLATTE (R-VA): Well, thank you, Mr. Chairman. I very much appreciate your holding this hearing today. Cap and trade legislation has the potential to devastate the agriculture community with higher operating costs and destroy ways of life in rural America. This committee should be looking intensely into how this legislation will affect farmers and producers, as well as consumers of agricultural products. It's my hope that this hearing is only the first the committee will hold and that members of this committee will have a chance to mark up this far-reaching legislation.

The impact that this legislation will have on our economy and our lives is extensive. We should make sure that we fully vet this bill. The cap and trade proposal is really an $846 billion national energy tax that will hit nearly every American. Moving into a cap and trade system will place the United States economy at a distinct competitive disadvantage because it would place significant additional costs on every American business, farmer, manufacturer and American family.

This bill will raise electric bills across the country by hindering the development of traditional energy sources while also ironically limiting the development of renewable energy. Coal provides the majority of the electric generation in our country, and this bill will effectively stop coal-fired power plants from being built in the United States. At the same time that one new coal-fired electric generating plant per week is being built in India and China where they will manufacture products previously manufactured in the United States and build on cheap electricity at the expense of the United States at the same time that they are putting into the air the CO2 gas emissions that this bill purports to prevent.

Nuclear, the second largest source of electricity generation and the largest source of CO2-free energy, is effectively ignored by the bill. Also concerning to me is the one size fits all renewable electric standard. This legislation assumes that all states have the exact same amount of renewable resources and can develop them and penalize states when they cannot. Furthermore, this legislation excludes far too many people who should be able to participate in the renewable energy market.

I know I speak for members on both sides of the aisle and this committee when I say that the biomass definition in this bill is inadequate. Woody biomass is a clean, sustainable form of energy that deserves encouragement from the federal government, not unneeded restrictions. Given the restrictions already placed on woody biomass by the renewable fuels standard, we should not be repeating the same mistake in this bill.

We must keep in mind that agriculture is an energy-intensive industry, and this legislation will make the cost of energy even higher. It is estimated that the Waxman legislation will raise electricity rates 90 percent after adjusting for inflation. Gas prices -- 74 percent, and natural gas prices -- 55 percent. There is no doubt that this legislation will also raise the cost of fertilizer, chemicals and equipment which farmers use daily.

This will cause economic harm for the American farmer. According to the Heritage Foundation, farm income is expected to drop because of this legislation by $8 billion in 2012, $25 billion in 2024, and over $50 billion in 2035. These are -- (audio break) -- of 28 percent, 60 percent, and 94 percent respectively. I do not know how we can expect American agriculture to survive when we cut farm income by 94 percent.

What I find even more frustrating is that the impetus for this legislation is to reduce carbon emissions, yet it does not recognize the role that agriculture and forestry play in sequestering carbon. The legislation does not specifically provide for agricultural or forestry offsets, but rather leaves eligible offsets to the discretion of the Environmental Protection Agency. To add insult to injury, over 30 pages of this bill are devoted to developing international forestry offsets, including provisions to send American taxpayer money overseas to forest owners in developing countries while disregarding our own forest owners.

Quite frankly, leaving these offsets at the discretion of the EPA makes me very nervous. The EPA is not known to have the best working relationship with farmers and ranchers. The U.S. Department of Agriculture has a long record of working with farmers and ranchers, and they have the experience and expertise in agriculture and forestry that will make an agricultural offset program successful.

This legislation needs to be amended to allow the USDA, not the EPA, to be in charge of administering agricultural offsets. This legislation has far-reaching consequences for every person, farmer and business in this country. We cannot ignore that America's economy is intrinsically linked to the availability and affordability of energy.

During this economic slow-down, we should be adopting policies that serve to rebuild our economy and create more jobs. We need reliable and affordable energy supplies from all sources, from renewable fuels, from new technologies, from wind and solar, but also from coal and nuclear and natural gas and oil production domestically here in the United States.

Unfortunately, cap and trade legislation will only further cripple our economy. Instead of government mandates and bureaucracy, we should focus on policies that support technological advances and consumer choices. The bottom line is we need policies which encourage investment in environmentally sound, cost effective practices without stifling -- (audio break) -- it's important for him to hear from people on both sides of the aisle the grave concerns that we have about the dramatic effect that this legislation will have upon rural America.

We need to take this legislation and completely re-do it in a completely different fashion and offer a competing version that people on both sides of the aisle can join together in a bipartisan fashion and pass to promote a sound energy policy for America and address the environmental concerns that some have raised.

Mr. Chairman, thank you very much for holding this hearing.

REP. PETERSON: I thank the gentleman for his statement, and Mr. Secretary, again, we appreciate your being with us today and look forward to your testimony.

SEC. VILSACK: Thank you, Mr. Chairman, and to the ranking members and members of the committee, thank you for the opportunity to discuss the American Clean Energy and Security Act and the role of Agriculture and Forests in mitigating the build-up of greenhouse gases in the atmosphere.

Climate change is one of the great challenges facing the United States and the world. The science is clear. The planet is already warming. This is an international problem that will require commitments and actions from all countries. Later this year, countries will meet in Copenhagen to seek agreement on a path towards tackling climate change. Ultimately, the world must transition from an economy that generates significant pollution and waste to one based on clean energy and new technologies. Yet, America has been on the sidelines on this issue for eight years, putting us at a significant disadvantage.

We must understand that countries that make this transition to clean energy will be in a much stronger position to prosper in a world economy. America cannot allow its economy to be left behind. America must lead. As we prepare for Copenhagen's conference this summer, President Obama has made clear that American leadership is absolutely crucial and critical. The President has called upon Congress to pass legislation that tackles climate change, that creates millions of clean energy jobs, and enhances U.S. competitiveness that catapults American innovators into the forefront of the green energy economy, that reduces our dependence on foreign oil, and that begins to make America truly energy interdependent.

Passing legislation in the U.S. House of Representatives would send an important message that America is ready to lead. The legislation that Chairman Waxman and Energy and Commerce Committee have written is an important first step in putting America back into the forefront in creating a new energy economy and in addressing global climate change. In meeting the President's call for Congress to enact comprehensive legislation, the House Agricultural Committee has a crucial and critical role to play in delineating the role that agriculture and forestry can play in helping to address climate change.

As part of the congressional actions, what this committee does is absolutely vital in passing comprehensive climate and energy legislation. Congressional enactment will make a significant statement to other countries around the world as to the seriousness of America's commitment to tackle this global problem. And I believe it is critical that we engage the participation of farmers, ranchers and forest landowners so that they can contribute to and potentially profit from efforts to reduce global warming.

This issue is too important for agriculture and forestry to sit on the sidelines. I'd like to commend the committee and the chair for the important role you all are playing in this debate. In particular, we appreciate your efforts to survey public views on options being considered to reduce greenhouse gas emissions. The 2000-plus pages of responses to the survey released by the committee are an indicator of the high level of public interest in the role of agriculture and forests and climate change mitigation. There is indeed a wealth of ideas and experiences contained in the responses that can be drawn upon in developing policy.

Within the USDA, we are reviewing the responses you received, and we thank the committee and those that responded for making this information available. The interest that you've tapped into with this survey is similar to the level of interest we are seeing at USDA when we talk with our stakeholders around the country. There are obvious challenges with climate change for agriculture and for natural resource management. Many farmers and ranchers are concerned about the impact of climate and energy legislation on the costs of diesel fuel and other inputs. But I believe there are significant opportunities for agriculture and forestry as well if we seize them.

That's why when I travel around the country, I ask farmers and ranchers to look at climate change not simply as a problem, but also as an opportunity for those who make a living on the land. A viable carbon offset market, one that rewards farmers, ranchers and forest landowners for stewardship activities has the potential to play a very important role in helping America address climate change while also providing a possible new source of revenue for landowners.

The President has offered a clear vision for the future. Together with our colleagues elsewhere in the Administration, USDA is working to bring this vision into reality. We are continuing to actively review and analyze a full range of policies that implement the President's vision. We look forward to working with this committee and other committees, producers, forest landowners, other federal agencies, state, local and tribal governments, as we work together in the creation of an effective and comprehensive solution to address global climate change and an overall market-based program.

Allowing Agriculture and Forests an efficient mechanism to offset the emissions of regulated companies if properly designed will help enable lower overall costs for everyone, including those making a living off the land. USDA will have an important role in helping farmers improve efficiency, reduce energy and fertilizer uses, as well as helping farmers become self reliant for their energy needs. A number of emerging renewable technologies, such as anaerobic digesters, geothermal and wind power, can reduce farmers' reliance on fossil fuels. USDA research will need to contribute to the development of other technologies, and outreach and extension networks will be needed to help make them available to farmers, ranchers and land managers.

The potential of our working lands to generate greenhouse gas reductions is significant. In fact, today our lands are a net sink of greenhouse gases. Based on the latest statistics from the EPA's Inventory of U.S. Greenhouse Gas Emissions and Sinks, forests and agricultural lands in the U.S. take up more greenhouse gases in the form of carbon dioxide than as released from all other of our agricultural operations.

A wide range of practices exist to reduce greenhouse gas emissions, including carbon sequestration, development of renewable energy, improved energy efficiency on farms and forest lands. These opportunities take many forms. Some are relatively simple, like planting trees on marginal farm lands or shifting cultivation from conventional tillage to reduced tillage or no till. Some will involve advanced technologies that are currently available, such as precision nutrient management, wind power, anaerobic digesters.

To fully realize the potential for greenhouse gas mitigation from lands, we will need to go beyond what is available now and develop new farming methods and energy conservation technologies, such as advances in genomics, feed additives for livestock, and cellulosic ethanol among others. In other areas where there is scientific uncertainty regarding global climate change, adaptation and mitigation, priorities will need to be aligned to conduct research that can help inform decision making about climate change, adaptation and mitigation.

To capture these opportunities, farmers and landowners will need to rethink business models and develop ways to partner with industries that will be their customers for greenhouse gas reductions through a carbon offsets market, or through expanding markets for renewable energy. To be effective in addressing climate change, the actions need to be implemented on a scale large enough to matter. The availability of carbon offsets from agriculture and forestry will contribute to a comprehensive, cost effective cap and trade program.

But in order to make a dent in greenhouse gas emissions nationally, we need to think about increasing the rates of continuous conservation tillage and no till as a component of overall emissions reduction strategies. We'll need to consider planting trees on millions of acres of marginal crop and pasture land or elsewhere. Farmers across the country will need to adopt advanced nutrient management and manure management systems to reduce nitrous oxide and methane emissions.

Unlike other sectors where greenhouse gas policy could affect hundreds or possibly thousands of companies to be effective, greenhouse gas mitigation on the land will involve hundreds of thousands of individual farmers, ranchers and forest landowners. The system we established will need to recognize the scale of the changes needed, the capabilities of our farmers and landowners involved, and the infrastructure necessary and required to develop information, manage data and resources, and maintain records and registries.

In addition to bringing offsets to scale, we must also ensure that offset markets have high standards of environmental integrity to ensure that offsets result in real and measurable greenhouse gas reductions while bolstering efforts to conserve soil, water, fish and wildlife resources. I believe the USDA can work with a wide range of stakeholders to play an important role in working with farmers, ranchers and forest owners in both bringing offsets to scale and ensuring that offsets have environmental integrity. This will ensure in turn that land use offsets fit seamlessly within the overall market-based program. This will mean that USDA and other federal agencies will need to work well together. I'm confident we can do that.

As we think through how a greenhouse gas offset program could work in the forest and agricultural sectors, it's important to understand the specific elements that will be needed. These might include procedures to determine eligibility practices, establish metrics for qualifying real and additional greenhouse gas benefits, establish reporting requirements, providing technical assistance to landowners to familiarize them with offsets and how they might participate, ensure that the activities to reduce emissions or increase sequestration have been implemented, provide a repository for reporting and record keeping, conducting audits and spot checks, monitoring how activities impact ecosystem functions and values, and monitor and account for potential losses of carbon that is sequestered, and award offset credits.

Within a comprehensive effort involving private landowners, regulated entities, and federal state, local and tribal governments, USDA is well positioned I believe to work with farmers, ranchers and forest landowners as we work through how such a new system will function. The USDA has many tools and capabilities that we can bring to bear. We have built an extensive network and infrastructure to implement commodity and conservation programs in the farm sector.

Our experience with these programs provides a platform that could be used to help bring an offsets program to scale. In particular, existing USDA programs and systems could be used to bolster greenhouse gas mitigation markets. USDA's ability to contribute to this effort is a result of the following experiences: the administration of conservation and commodity programs that involve millions of landowners on hundreds of millions of acres around the country, our field technicians who oversee the development of conservation plans and approved contracts. We certify private sector technical service providers that develop and implement conservation plans for farmers, and we conduct audits and spot checks to ensure the provisions of conservation contracts and agreements are adhered to while maintaining records and registry of program participants.

Let me give you a few examples of the scale of these activities that USDA provides nationwide. Under the conservation reserve program USDA manages over 750,000 contracts with landowners who take environmentally sensitive land out of production. The USDA's NRCS manages a network of 1,300 registered technical service providers nationwide. To bring the offsets market to scale quickly will require significant outreach and communication with landowners. The USDA is well positioned to help efforts that can make that happen.

We can also continue to develop technical capabilities specific to greenhouse gases. Our research programs are at the forefront of reducing uncertainties in the measurement of greenhouse gas emissions and carbon sequestration on farms and forest lands. In 2006, the USDA released guidance to farm and forest landowners to allow them to estimate their greenhouse gas footprint. We're developing user friendly tools that can help farmers and ranchers make these calculations, and with the Department of Energy -- has adopted USDA's technical greenhouse gas (method ?) for their use in voluntary greenhouse gas reporting registry.

We plan to make improvements to these technical guidelines in light of new authorities provided under the 2008 Farm Bill and are planning a process that is rigorous, science-based, transparent and comprehensive. We envision a process that can engage the public and technical experts at every step to ensure that the most recent information is included and there's high confidence in the emission reductions produced through Agriculture and Forestry offsets.

In addition, USDA will need to improve upon the job we are doing in providing landowners with assistance and ensuring the conservation activities are carried out properly. Concerns regarding equivalence between Agriculture and Forestry offsets and emission reductions in other sectors of the economy have led some to argue that many Agriculture and Forestry practices should be excluded from the offset market, or their benefits should be significantly discounted.

If Agriculture and Forests are to play a major role in addressing climate change, the benefits that carbon offsets provide need to go beyond what would have happened anyway. Qualification and reporting systems need to be rigorous, verifiable and transparent, and review and auditing systems will need to be put in place. Uncertainties must be accounted for and reduced. Greenhouse gas benefits accrue through carbon sequestration will need to be monitored over time to ensure that benefits are maintained and that reversals are accounted for if they occur. If these principles are followed, the resulting offsets should be real, additional, verifiable and lasting.

I'd like to close again by thanking the committee for taking up this important issue for agriculture, for rural lands and the environment. As I stressed in the opening, America must demonstrate leadership on energy and climate legislation. Doing so will benefit our economy while also making it possible for countries to commit to address this problem as well. I believe that Agriculture and Forestry can and should play a vital role in addressing climate change, and that if done properly, there are significant opportunities for landowners to profit from doing right by the environment. And USDA is ready to make that happen.

Thank you, Mr. Chairman. I'd be glad to answer questions.

REP. PETERSON: Thank you, Mr. Secretary, for your testimony. As you can see, we have votes. We're going to keep going through this first process, and we will recess when we're voting on the motion to re-commit, probably ten minutes into that vote where we're going to keep going through this. Mr. Holden is coming back, you know, so to try to save the secretary's time -- (inaudible) --

REP. : So Mr. Chairman, when you go vote, we should go vote at the very least by then.

REP. PETERSON: Right. Yeah, so you can go vote. You know, if you're down the line, you can go vote now, but come back if you can. We're going to try to move this along.

Mr. Secretary, you know, I think most of us, all of us on the committee, believe that USDA should run an offset program. We think that that's the way to do things. But we're having people tell us that the USDA doesn't have the expertise to run a credible offset program for Ag and Forestry projects and that you don't have the science capabilities.

What is your response to that, those that are saying that?

SEC. VILSACK: Well, Mr. Chairman, let me, first of all, say that there is always room for improvement. It is fairly clear that over the last several years there have been some criticisms leveled at the way in which have managed some of our programs. We are addressing those concerns and trying to improve our process.

Having said that, I think USDA has a unique opportunity to contribute and to partner. I believe that we have the research capabilities, the economic capabilities, access to data, the technical experience, and also the significant outreach and network throughout the country with 2,250 offices in our FSA program and approximately 850 offices in our rural development area. We have significant outreach.

I think we have a relationship with farmers and ranchers that has been built over time. So as a result of all of that, I think we are in a position to assist in providing technical assistance to farmers to understand compliance. I think we're in a position to assist in the implementation of whatever offset program might be created and to make sure that farmers and ranchers understand fully and completely their opportunities under it. I think we can provide and will provide technical experience and assistance to allow farmers to look at ways in which their inputs might, in fact, be reduced. I think we can provide assistance in the application process that may be required in the implementation of an offset program, in the auditing and reviewing of the implementation, and in the reporting.

I think we are well positioned, and I think we can provide assistance and benefit. And I would hope that as Congress acts on this and as you all exercise your judgment about how this should be structured, that you'll recognize those qualifications and those opportunities as well.

REP. PETERSON: Well, if Congress gives you the authority to run this program, can you run it? You know, I understand what you're saying, but --

SEC. VILSACK: Well, I tell you, Mr. Chairman, if I had a dollar for every time during my confirmation process I had to commit to doing something consistent with the intent of Congress, we wouldn't have a deficit.

REP. PETERSON: (Laughs.)

SEC. VILSACK: We will do what you tell us to do, and we'll try to do it as best we can consistent with the intent so long as you're clear in your intent.

REP. PETERSON: All right. Are you familiar with this chart here that was put out? EPA came out with this new analysis of the greenhouse gas mitigation potential a couple days ago I guess? Have you seen this thing -- (inaudible)?

SEC. VILSACK: (I'm not -- ?)

REP. PETERSON: FAASOM -- I have no idea what that means, what that stands for, but apparently they've done some new study, and they've significantly cut back what they think can be done in agriculture with, you know, these offsets. They've got almost no, you know, benefit that we can give in soil sequestration, and it's a mystery to me how they came up with this. Have you or anybody down there studied this, and do you agree with this?

SEC. VILSACK: Mr. Chairman, our staffs have begun the process -- and I want to emphasize begun the process -- of taking a close look and analysis of the recent EPA analysis. While I don't want to speak for EPA, I believe that they would at least acknowledge that perhaps they were trying to respond to deadlines and timelines. We think we can add additional information to the analysis that may very well change some of these numbers and the calculations. It's part of what I think is important in the partnership I've talked about.

We do have technical expertise. We do have access to data. We do understand the potential. We have been studying this for some time. And I think we can add to this calculation. I think we can help and assist in providing more specific information and more accurate information as time goes on as all of us better understand the modeling that's required.

REP. PETERSON: Well, you know, for your colleagues and the Administration, I think you should let them know that this kind of stuff is not helpful. This, you know, EPA rule that came out on the RFS-2 and them bringing in this international indirect land use, which I don't think holds water at all, and then coming up with these kinds of projections that I don't agree with -- this is why a lot of us on the committee do not want the EPA near our farms, okay? And I don't think you're going to get any kind of a bill through the Congress that -- whatever the Administration wants -- that's going to have that kind of a system. That's just my reading of my members here. So for whatever that's worth.

What do we have? Five minutes left?

REP.: Yes.

REP. PETERSON: Should we -- Mr. Holden isn't here.

REP. : (Off mike.)

REP. PETERSON: Well, I think Mr. Holden's going to be back shortly. Do you want to start your questioning, and then ask one question? We'll give you some more time when we get back. Is that okay?

REP. LUCAS: Fair enough, Mr. Chairman. Fair enough.

Mr. Secretary, you are in an unenviable position. For a century plus you and your predecessors in your role had been viewed as -- not only to the Administration, whoever's Administration it might be -- as the voice of rural American agriculture within a presidential administration, but you're also viewed out in the countryside as our champion, the individual who understands us, who works on our behalf in the Administration, just as your predecessors have been. And that's a tough position, I realize, and I respect that. You've also been quoted in recent weeks as saying that -- and even today in your testimony -- that agriculture will be a net winner when it comes to climate change legislation.

I have to ask, Mr. Secretary -- the bill that we're discussing today, the bill that was marked up in the Energy and Commerce Committee, the bill that basically will not be marked up in any other committees, the bill that we will get to vote on most likely in a couple of weeks -- this bill would dramatically raise the cost of everything farmers and ranchers buy, but it does not specifically give agriculture, as I read the bill, the benefit for providing carbon offsets or benefit of anything.

So I guess my first question would be -- and we can go from there -- do you, Mr. Secretary, support the bill that we are considering today, the bill as passed out by Energy and Commerce?

SEC. VILSACK: Representative Lucas, what I support is the notion that there is obviously work yet to be done on this bill, as you have indicated earlier today in your statement. And I believe at the end of the day that agriculture and forestry's role in cap and trade will be recognized and appreciated for the opportunity and the challenges, as you've outlined them, that exist. I honestly believe that if this is established and set up properly that we can in the countryside benefit from a wide variety of options and opportunities created from a cap and trade system.

I think it is important to recognize agriculture's role. I think it's important to recognize forest's role. And I think and I have confidence as Congress works on this that if it is not expressly stated today -- although some would suggest that it's in the bill -- if it's not expressly stated today that it will by the end of the day be recognized. I think it has to be recognized. It's an important --

REP. LUCAS: Mr. Secretary, does the Obama Administration support this bill as passed out of the Energy and Commerce Committee in its form now?

SEC. VILSACK: Representative Lucas, what the President has indicated is a support for Congress taking action to establish this year a cap and trade system that allows us to provide leadership on this very important climate change issue and believes that's it's -- he has the confidence, as he has expressed to us, in Congress's capacity to get that job done. We recognize it is a big job. You've outlined how big it is today. But it is an important job. It is absolutely essential that we do -- that we take action.

And here's why. The challenges of climate change aren't going to go away. The problems that climate change presents aren't going to go away. It's going to require a global response, and America has to be in a position to lead. Secondly, the economies and the countries that essentially create a leadership opportunity I think are in the best position to create a new economy that moves away from pollution, that moves away from waste towards innovation, towards green collar jobs. That's what the President believes in, that's what he supports, and that's what we support.

REP. LUCAS: Mr. Secretary, the bill that's before us, the one that it appears that we will get to vote on the floor of the United States House in the coming weeks, the one that the speaker of the United States House has been quoted as saying "will pass," appears to have all of the cost for agriculture and rural America up front. I do not see in the language any of the benefits that you've discussed, that I think most of us in this committee are in favor of. We are by the legislative nature of this body compelled to vote on the bills brought before us. I fully expect -- and this is speculation on my part -- they either have a closed rule or a near closed rule when the bill comes to the floor.

So when my colleagues, who are right now on the floor doing their duty, return, when in two weeks they vote on this bill, they will not vote on the idealistic result of the bill. They will cast their votes, they will put their name on the line on this version of the bill. I guess my question -- and maybe you can't answer this, but if you were a member of Congress representing the great state of Iowa and you had to vote yes or no in 14 days on this bill, what would you do, Mr. Secretary?

SEC. VILSACK: (Laughs.) Well, congressman, you're asking me a hypothetical --

REP. LUCAS: But you're the voice of agriculture within the administration, sir.

SEC. VILSACK: I appreciate that, and I'm going to answer your question, and I just -- I'm happy at the job I have. (Laughter.) I would simply say this. And I don't know the process as well as you do, obviously, because I haven't been a member of Congress, but it seems to me as if the process envisions members having the capacity to continue to work on a bill for the next two weeks, to do what has to be done in your view and in the committee's view to improve this bill, to be more specific, to clarify, to correct, whatever you believe is necessary. That's your responsibility, and we are looking forward to working with you to do whatever is necessary to make sure that Agriculture and Forestry are, in fact, part of this opportunity. And I'm confident that that will happen. I'm confident it needs to happen. And we'll be glad to provide whatever assistance and help to whatever member of Congress on either side of the aisle -- to allow that to happen.

So I'm not sure how else I can say it. I think Agriculture and Forestry need to play an important role. I think they will play an important role.

REP. LUCAS: I respect your responses intensely. I know you're a chief executive officer of a state. You're a Cabinet officer. I truly appreciate the challenge you're in. But sitting on this side of the dais looking at this bill before us now, a bill that -- this is the first time we as a committee have been able to address it. This is most likely the last time as a committee we'll be able to address it, a bill that will that will go across the floor, if something passes in the Senate will wind up in conference, conference reports that are un-amendable by members on the floor. We put our constituents on the line in the vote that's coming, and right now this bill is something I would hope my colleagues who care about rural America and their districts cannot vote for.

Thank you, Mr. Chairman, or Mr. Secretary, for your observations, and thank you, Mr. Chairman.

REP. PETERSON: The chair thanks the gentleman.

Mr. Secretary, getting back to my opening statement with the definition of renewable biomass, I was wondering why it is your and USDA's position on changing that definition. There was an attempt in the Energy and Commerce Committee to change it to something that we would like in this committee and then it was defeated. And secondly, on those lines, if we do not change the definition, will we be able to meet our requirements for RFS if we do not do that?

SEC. VILSACK: It's our belief that you all have done a very good job working over the course of several years to craft a Farm Bill in an effort to try to promote the notion of bioenergy and biomass as an energy source. We think the definition that you all have in the Farm Bill is a very good definition and a comprehensive definition, and it's one that I think it would be appropriate to look to in terms of trying to determine how best to integrate Agriculture and Forestry into this system. And that would be our hope.

REP. PETERSON: Yeah. And Mr. Secretary, I want to get you a copy of a study done by the Pennsylvania Department Environmental Protection on the switchgrass capabilities and abandoned mines. That's something I really think USDA should take a look at, because we were hoping you were going to have a greater role in this. And so can you tell us about the meetings taking place of the President's Biofuels Working Group? Can you reassure us about the roles of USDA and DOE and the efforts on the RFS-2? And in particular, the remaining question many of us have about many of EPA's assumptions and the way that they choose to pull together and separate economic models to try and achieve their purposes?

SEC. VILSACK: Certainly. First of all, the Working Group has begun its work at the President's directive -- first and foremost, directed the USDA to provide the rules and regulations to the extent we could within 30 days on the energy (part ?) of the Farm Bill, and last Friday we met that deadline. So we are prepared to work with folks to build new refineries, to retrofit existing power refineries, to encourage the development of alternative feedstocks, switchgrass, obviously, being one of them. (Audio break.)

REP. : Mr. Secretary, has the department looked at the impacts of H.R. 2454 on other programs at USDA, such as the RES, Energy Efficiency and Carbon -- (inaudible) -- on the RUS loan portfolio or the impact on the green building code requirement on your housing -- of your housing program?

SEC. VILSACK: We have not had a full and complete analysis of all of the potential impacts. We are just in the process of getting to have an understanding, a general understanding. We recognize and understand that this process has just begun. And as soon as there is some indication of finality, we will make sure that we fully understand and appreciate how best to implement these provisions.

I will tell you that we are working in connection with the Recovery and Reinvestment Act. We are working very hard with -- (inaudible) -- and the energy units available is used appropriately so that we can begin the process of making sure homes that are constructed or remodeled -- America -- are given the benefit of weatherization, as is the case in urban centers, because we understand and appreciate that energy efficiency is part of the equation, not by all means the only part of the equation, but part of the equation.

REP. PETERSON: Thank the gentleman.

Gentleman from Virginia, Mr. Goodlatte.

REP. GOODLATTE: Thank you, Mr. Chairman.

Mr. Secretary, welcome. I think we had the opportunity to speak on the phone after you had been nominated, and I don't know if we've ever actually met in person, but we're delighted to have you with us today, and we appreciate the effort that you're making on behalf of American agriculture.

You stated in your testimony that countries that make this transition to clean energy will be in a much stronger position to prosper in the world economy. America cannot allow its economy to be left behind.

But do you believe that our economy will really be stronger under a cap and trade system with the burdens and the increased cost imposed by this legislation put domestic industries at a severe competitive disadvantage when compared to our international peers, especially from -- (inaudible) -- countries?

SEC. VILSACK: I have, and I know that you do -- I have a profound confidence and faith in the capacity of Americans to be innovators. I believe that our success in the past economically has been directly tied and connected to our capacity to accept challenges and to be the innovator of first resort. I think the transition from an economy that's based on pollution and waste to an economy that's focused on clean energy and clean technologies plays to the great strength of America. I can list a number of the components --

(Audio break.)

REP. : (In progress) -- rural America in terms of limiting access to other forms of energy that farmers and ranchers and businesses that operate in rural areas need, like coal. Coal is treated so poorly in this process, and yet we have more coal reserves than any other country in the world. And nuclear -- if you want to talk about reducing greenhouse gas emissions, nuclear power today without any of the incentives that ought to be in a bill like this and aren't in a bill like this already reduces greenhouse gas emissions by a factor of several times what all the sources of energy do, and yet it's given short shrift in this legislation.

The result of that, given that those provide about 75 percent of our electricity in this country today, is going to be -- (audio break) -- (costs and a dramatic -- about ?) the transition to a green economy. We're all in favor of that. You talk about the creation of green jobs. But isn't it a fact that nowhere in your statement or in the Waxman bill is there any description of how we get there? We talk about things we'd like to do and we talk about who will do them, but nowhere is there a roadmap to show those things, and therefore, we're taking a big risk when we enact legislation like this that cuts back on our reliance on a whole host of domestic sources of energy and works on the promise that there'll be something cost effective.

SEC. VILSACK: I think that we do make some -- in terms of Agriculture's role and the steps and processes and procedures that Agriculture can adopt and that can be encouraged that might provide real opportunity. Let me also say that this process is not static. Even as we sit here today, there are scientists, there are people working in laboratories trying to figure out how we can (cope ?) with less. Just had a conversation with one of the CEOs of one of the major seed companies not too long ago, and he was extraordinarily confident that we could come up with technology that would increase yields, potentially reduce inputs, by perhaps as much as a third.

REP. : Do you think the EPA should have the authority to -- (inaudible) -- deal with those agricultural offsets -- (audio break) -- to your department or somebody who has a greater understanding of agriculture?

SEC. VILSACK: I'm proud of what we do at the USDA, and I think we have -- (audio break) -- applications that may be forthcoming, the scaling up of this when you take a look at Agriculture and Forestry's role. I think --

REP. : I hope that's a yes. Maybe we agree on this point.

SEC. VILSACK: I think EPA -- I think it is a partnership. I think it is a partnership. I think it is unrealistic to think that EPA's going to have no role in cap and trade generally. I think it would be unwise for USDA not to have a role. I think we need to work to figure out how to integrate those roles to take advantage of the expertise of each agency to come up with the best possible program. (Inaudible) --

REP. : My time has expired. Let me just ask one last quick question. Has the USDA done an analysis on how this bill will affect the operating costs for American farmers and ranchers?

SEC. VILSACK: Let me just double -- I think I know the answer to the question, but I want to double check. There has not been a USDA-specific analysis. We recognize that EPA did an analysis which they are in the process of redoing, and we can't actually complete our analysis until they have completed theirs. But the answer to the question is we have not done a full, complete analysis of the bill, and again, our assumption and belief is that this is a work in progress and a work in process.

REP.: Thank you, Mr. Chairman. I hope we'll slow down this process to give USDA and others an opportunity to do those kinds of analysis before we put the cart before the horse and pass this legislation.

REP. PETERSON: Thank the gentleman, remind members that we'll be recognizing people as they appeared at the committee, so the next person is the gentlelady from South Dakota, Ms. Herseth Sandlin.

REP. HERSETH SANDLIN (D-SD): Thank you, Mr. Chairman.

Thank you, Mr. Secretary, for your testimony today and your leadership of the department. I want to associate myself with the questions and comments of Chairman Peterson and the former chairman, Mr. Goodlatte, as it relates to USDA's role in better understanding, what that role can be, in our opinion, what it should be, and enhancing the opportunity for the department to administer and offsets program for agriculture and forestry.

I also know that Mr. Holden posed some questions with -- regarding to the biomass definition. I encouraged one of your under secretaries, Mr. Jensen, to -- for the Administration to get more into the debate and to take a position with regard to expanding the biomass definition. It would be good for Agriculture and Forestry as it relates to meeting our biofuels and renewable electricity demands that we would set out and perhaps an RES and to meet the targets we set forward in the RFS.

And I know that you had a chance to address indirect land use, and I would hope that the Department would insist -- and perhaps if it doesn't, this committee will insist that USDA must play a role in the peer review process that the EPA is undertaking as it relates to indirect land use calculations.

And finally, one further comment before posing my question. On the RFS-2, I know that you had indicated I believe in response to Mr. Holden's questions that the USDA is involved as it relates to evaluating how the RFS-2 is going with the EPA.

I would caution against -- and I would imagine other members of the committee would agree. Any cap on grain-based ethanol should be avoided as we construct the RFS-2. You just referenced meeting with a company that relates to seed technology and advancements in projected yields. I've seen those same studies and calculations and think it would be very premature -- and not based on sound science, based on the new technologies coming online and that are estimated in the next five to ten years -- to put any kind of cap of 15 billion gallons or whatever that number may be that's been discussed on grain-based ethanol.

My question is -- an issue that many of the commodity groups state in their testimony today. It's a small but very important factor in an agricultural offsets program, and that's the idea of the stackability of credits to maximize economic benefits to producers. In South Dakota, as you know, many producers take advantage of programs like CRP, Equip, the Wetlands Reserve Program, and carbon sequestration and CRP acres in the upper Great Planes, including South Dakota, are among the highest in the country. And I think we need to allow producers to see the full benefit of these carbon sequestration activities.

And so I'm wondering Mr. Secretary how do you see an agricultural offsets program fitting in with other USDA conservation programs as passed in the Farm Bill? And does USDA believe stacking credits is possible, especially given the reduction in CRP acres and other conservation program changes as mandated in the '08 Farm Bill?

SEC. VILSACK: Part of what our challenge is is to make sure that whatever system is established is one that where we are in a position to ensure that the benefits are real, they're credible, they're verifiable, and they're durable, and that they are not necessarily things that would otherwise have taken place. That the qualification reporting system that's necessary is rigorous, is verifiable and transparent.

One of the benefits that I think we have is the fact that we have been operating these conservation programs, we do understand how to go through that process.

We have I think been rightly criticized in the past for not being as vigilant on some of these criteria as we should be on the conservation programs. We're addressing those issues. So I think we're in a position to be of assistance and help. I think it's important for us to take a look at how we can continue to create as many options as possible for farm families and rural families to profit. We have I think some serious and interesting dynamics taking place in rural America.

We have the emergence of small producers, 108 new farm operations in the last five years, these are very, very small operations, they're aren't necessarily operations that would take full advantage of the conservation programs but they're very important to repopulating rural America. There are very large production agriculture systems that provide 75 percent of what we consume. They obviously are users of those programs and need to be encouraged to continue to use them.

Then there are the folks in the middle where we lost 80,000 operations in the last five years. And I am looking for as many ways as I possible can as the Secretary of Agriculture to figure out how we can help those folks in the middle between $10,000 in sales and $500,000 in sales in continuing the operation. So to the extent that we set up systems that provide income opportunities, we should always look for opportunities to maximize those opportunities.

REP. SANDLIN: So stackability of credits is a concept that as you do that evaluation may enhance the potential for economic profitability for those midsized operations?

SEC. VILSACK: Representative, we're looking for all of the options, all of the opportunities, that may be possible and available. We want to make sure that we are able to always quantify, justify, and verify what we're reporting because otherwise we undermine the integrity of the system which we don't want to do.

REP. SANDLIN: Thank you Mr. Chairman. Thank you Mr. Secretary.

REP. PETERSON: Thank the gentlelady. Gentleman from Oklahoma. Oh, you already done? Okay. Got you. The gentleman from Kansas Mr. Moran.

REP. JERRY MORAN(R-KS): Thank you for recognizing me. Mr. Secretary, welcome to the ag committee. When we first met in this room back in January I invited you to Kansas and I would again extend that invitation. We would welcome an Iowan to come to Kansas someplace other than the basketball court, we'd be delighted to have you.

This is a serious issue for us and I'm delighted that Mr. Peterson has called this hearing. I'm interested in following up on Mr. Goodlatte's question about USDA's analysis of this bill. I'm interested in knowing whether USDA has completed even in preliminary form any assessment of the additional costs to farmers for fertilizer, for natural gas, for diesel fuel, do we have any estimates of what increased costs may occur so that we have something to compare at least the hypothetical opportunity for an offset against? What are we offsetting?

SEC. VILSACK: Well we're offsetting, the answer to that question is we're offsetting the capacity of other parts of the economy not to meet whatever thresholds that are required under the cap and trade system and the capacity for them to purchase additional permission.

REP. MORAN: Let me ask my differently because you answered my question correctly. My question is what are the amounts of money that farmers are going to pay additionally under this legislation that we need to then worry about how they find income? You've talked a lot about the opportunity for farmers to generate income from these payments, what does USDA estimate the increased cost production agriculture to be as a result of this legislation?

SEC. VILSACK: Well I can't give you a specific number today in large part because we, the analysis upon which would make that determination has not been completed. EPA is in the process of redoing their analysis based on changes that took place when the initial bill was passed by the committee. I think it is fair to say that there may well be additional costs associated with a farming operation but it is very difficult to quantify how specific and how much those costs will be. The reason I'm hesitant about this is because there are so many factors apart from this legislation that impact that answer.

First of all, are we talking about one year, are we talking about five years, are we talking about 10 years, are we talking about 20 years?

Secondly, what assumptions are you going to make relative to new technologies, greater efficiency in machinery, new discoveries, crop rotations and impacts, all of that takes into account, so it is extremely difficult and I think a challenge for anyone to specifically indicate with a high level of confidence a precise number.

REP. MORAN: That's the challenge we face in trying to decide whether this is a good idea and we've often relied upon USDA and their chief economists to come tell us that their best analysis of what costs and benefits might be.

SEC. VILSACK: Well I think one of the analysis is that as this is structured and when it and I believe it will be structured properly with a role for agriculture and forestry that you all contribute to creating, I think what you're going to see is if we do this right, there is real opportunity.

There's real opportunity in two respects, first there is the opportunity to pay farmers and ranchers for certain practices that are used as offsets, and then secondly I think there are terrific opportunities in terms of economic development in rural communities of jobs and industries and activities that will be generated in small towns that will provide off-farm income in addition to the offsets.

So I think there are multiple opportunities here if we do this right and if we are aggressive about it.

REP. MORAN: You indicated Mr. Goodlatte's question that agriculture that there's offsets mentioned in the bill and at least as I read the bill while the word agriculture is mentioned only seven times in the bill, it's never mentioned in relationship to any offset corresponding benefit to agriculture. And it seems to me that maybe one of the difficulties we have is that you come to the committee in support of a concept. We're here ultimately to vote on a bill and I guess my question would be do you endorse this bill, or you just endorse the concept behind the bill?

SEC. VILSACK: Well I respect the role that you will be playing in crafting and creating this bill. I mean, I think there's a committee process for a reason and there is an amendment process for a reason. I don't know what the final bill is going to look like because I don't want to presuppose what you will or will not do or what decisions will or will not be made by Congress. Let me just simply say we are prepared at USDA to advocate agriculture and forestry's role in a cap and trade system and an offset process. And we are prepared to partner with federal agencies, with state agencies and other, to administer this in a way that is fair and beneficial.

REP. MORAN: Well I would ask you then in your capacity as a representative of the president, of the administration to visit with our leadership, because our frustration here is while you continue to express the belief that we will work our way through this magic legislative process and they'll be some final product.

What this hearing we're having today unless Mr. Peterson has different plans is our only opportunity not to amend, not really to debate but simply to ask questions of witnesses and so there's going to be virtually no input or no change from the members of this committee. And with the speaker's announcement that the bills mark up have to be completed in all committees by June the 19th, and be on the floor the week of June the 22nd, 3rd and 4th something like that, the bill that's in front of us is the bill we have.

And so while I'm appreciative of your desire to see that agriculture works its way and that the ultimate legislative process reflects the concepts and things that you support, at least I have great concern that the bill before us will never reach the stage that you described.

And the only way -- that's our problem, not yours -- but if you could help us with President Obama in his encouragement to Congressional leadership to take a step back and say this is such an important issue for the country, for our economy, for the future of agriculture, let Congress take its time to do a better job than what I think is going to be.

My time has well expired. Mr. Chairman, thank you for the opportunity.

REP. PETERSON: Thank the gentleman. Gentleman from Iowa, Mr. Boswell.

REP. LEONARD BOSWELL (D-IA): Thank you Mr. Chairman. Thank you Mr. Secretary and appreciate your participation this morning.

I believe you can build that partnership; however I have serious doubt about this partnership and I know from your history that you're a person that very good at putting partnerships together. But as this bill stands today, I don't see, I can't vote for it. I don't know anybody else in the committee that can. And I talked to my constituency and you know those folks out there about as well as I do, maybe better in some cases. We've got to have USDA involved in this, and we have to have the confidence they will be, or I don't think we're going to have a bill.

And I know it's for important administration, some of us were over there just the other day. And I'd like very much for our president to go to Copenhagen with something. But this is not getting there I don't think, maybe I'm wrong, but I don't think so. And I join with my ranking member from Kansas and for the chairman and the ranking member of the committee and we implore, we beg you to do whatever you can to say repeating what you've been saying for the last little bit that you've got the staff, you've got the tools, give you some time you can do it, we think you got to do it. You feel very, very strongly. I don't know how I can emphasize it anymore.

And we want to help to do that. We want to partnership with you on this and whatever possibilities or things you can do with the folks in administration, more power to you. But we got quite a line up with people as you know that are very uneasy on this, and I could go through a litany of things which you've been talking about, we've got to vote on. But I know of a lot of people, myself included, but my part's not important. It is for the people I represent that have been practicing good conservation measures to stop these kind of gas releases for a long time. They shouldn't be left out because they've been good stewards and they've been going with the minimum till, no till and right on down the line. So when you start matching that up with what it's going to cost them to keep doing that as we see it now, it just won't work. And we've got dairy farmers as you well know and you've been trying to help them, thank you, we've got pork producers as you well know and right up and down the line that it's really, really tight. And we can't throw something else at them I don't think.

So I pledge to help them anyway you can to try to convince people that USDA has got to be the player in this, we have to be. And if whatever partnership you can work out with EPA fine, that's okay, but we have to tell our producers and our people in the agricultural state like ours and like Mr. Moran and a whole bunch of others that we have to be at the table, we have to be. And I can't say that strong enough.

I hope that I'm not just singing to the choir because Mr. Chairman, we've got to get this done. And I know that you know it, we've talked plenty. And I know from talking to you that you want to work with the secretary, I know that. But I think this committee's going to stand together on this and we want USAD to have hands on. Thank you Mr. Chairman.

REP. PETERSON: Thank the gentleman. We're going to try to sneak in Mr. King then we're going to have to recess for about 10 minutes. We apologize Mr. Secretary but we'll do the best we can here. Mr. King, you're recognized.

REP. STEVE KING (R-IA): Thank you Mr. Chairman. Mr. Secretary thank you for your testimony. It's pretty rare in this committee to have Iowans not just back to back but in triplicate at least. And I know that from past history that you've done a very good job of doing your homework, you understand the legalities, the policy and the science behind the things that you and I have worked together on and the things we've produced good legislation from.

And so the question that doesn't seemed to get asked and that is this, that the underlying science that drives this entire global warming initiative, is that something that you've examined and are you comfortable with the science?

SEC. VILSACK: Representative King, it's good to visit with you and thank you for that question. I have, just to give you a sense of this, Governor Pataki and I co-chaired Council on Foreign Relations task force on climate change prior to my having this opportunity and we issued a report based on the international implications of climate change and some recommendations concerning domestic policy that would help enhance our position internationally.

I would argue I've also seen first hand the impact of climate change. I recently was in Colorado and you're probably familiar with the pine bark beetle and the infestation of a lot of the timber in the Colorado area. It is absolutely heartbreaking to see that 90 percent of that timber stand of lodge pole pines may well be destroyed because --

REP. KING: And Mr. Secretary not only am I familiar with that, I'm familiar with that on up into Canada in very large areas would impact on our economy. And I recognize the point that you're making. I wanted to though ask if you could speak to the issue it seems to me that the meteorologists are very uneasy about this science. We have 31,000 scientists that are signed on and said that they don't accept the science. We have a whole group of others that have shifted their positions and yet when I trace the dollars almost 100 percent of the dollars that are going into the research are the dollars that support the advocacy for addressing this as a global warming issue now it's been changed to a climate change issue.

And are you familiar with the assumptions that have to be made in these models such as for example the clouds actually warm the earth or do they cool the earth? And in that assumption relies the entire crux of this matter. Is that something that you've looked at from a scientific standpoint?

SEC. VILSACK: Well I wouldn't say that I'm a particular expert in the science of this, Representative, but I do know this, I do know that we run a serious risk of inaction. A failure of this country to lead and countries from around the globe to act could result in significant temperature increases which could increase the intensity of storms, that could change planting locations and planting seasons, that could result in temperatures increasing and seeing an increase in human disease and animal health being compromised --

REP. KING: And watching that clock tick.

SEC. VILSACK: And shorelines being destroyed and mass migration. I think there is a serious risk of inaction.

REP. KING: And I appreciate the Secretary's response to that. I recognize in your testimony you'd also referenced where there is scientific uncertainty. But I'd like to shift this thing over to the cap and trade component of this and you've emphasized the need to have a very solid type cap and trade program that has pulled full transparency and if this happens, I fully agree with that.

And I would just point out that we do have an experience with cap and trade here in the Capital when Speaker Pelosi first received the gavel, she decided we would be a CO2 emissions neutral complex here. And directed that the Capital power plant be shifted over from coal to natural gas burning. And still found herself $89,000 short in carbon credits so went on the board and purchased those $89,000. I actually went and chased that down a little bit and found that some of that money went to no till farmers in North Dakota, no particular objection there, although I'm not convinced that it changed their behavior which was the intent.

But I did go to Chillicothe, Iowa and I'm sure you're familiar with that generating plant, the coal fire generating plant that received a grant to burn switch grass and as I stood there on those bales where there hadn't been any switch grass burned for two years and asked for the data on what they'd learned, they told me they didn't have really a conclusion that they had drawn yet.

But it looks to me like perhaps all of that $89,000 that Speaker Pelosi spent to purchase these carbon credits was essentially brought about no change in anyone's behavior. In fact, if it had gone under your audit system, we might have found out that it was a complete failure. And I'd ask if you're familiar with that plant in Chillicothe.

SEC. VILSACK: Well I am familiar with the specific plant Congressman King, and I'm assuming you're very familiar with the Stern Report which suggests that the cost of inaction will be very, very severe --

REP. PETERSON: The gentleman --

SEC. VILSACK: -- internationally and that's why I think it's important for us to work together to try to get this process to move forward and why I think and will continue to think and continue to state agriculture and forestry have to play a role because I think we have something to contribute.

REP. KING: Thank you Mr. Secretary.

REP. PETERSON: -- last so thank you Mr. Secretary, we'll be back as soon as we can.

(Recess)

REP. PETERSON: All right. The committee will come back to order.

(Off mike.)

REP. PETERSON: All right. They're going to get the secretary. Everybody get back to order. We're finding the secretary and we'll get going here.

(Off mike.)

REP. PETERSON: Welcome back Mr. Secretary. We made that quick, huh?

We'll now recognize the gentleman from Minnesota, Mr. Walz.

REP. TIMOTHY WALZ (D-MN): Thank you Mr. Chairman and thank you Mr. Secretary for being here. I think many of us, it's been very apparent we share the deep concerns about the issues of climate change and carbon emissions but we also are equally concerned that as we do this legislation, we do what's right by our true stewards of the land, our agricultural producers. You've grown up and you know this as well as anyone that our producers have done great good for the environment and they continue to do so.

What I would say is more a subjective wise than specific on this. You're listening to this committee, you're listening to your stakeholders who are out there, whatever. In your mind, what's it going to take to truly bring about the positive changes and hold those rural areas as harmless as possible, especially our ag producers, biofuels and those types of things, what do we need to make sure happens to ensure that, to ensure the vitality of our rural areas?

SEC. VILSACK: I'm going to limit my response as it relates to climate change because there are an awful lot of things that we need to do that haven't been done or need to be done differently to be totally responsive. But as it relates to climate change, I think it's a recognition that agriculture and forestry play our very small percentage of the problem if you define the problem as the emission of green house gases of all kinds, and represent at least by some studies as much as 20 to 25 percent of the potential solution. So you would want to make sure that that's recognized in whatever policy you advance.

And what's, I think, significant is that USDA is prepared to work with our farmers and ranchers in maximizing those opportunities because we understand what they do and why they do it and how they do it, and we're on the ground. And so it seems to me that a recognition of the important role that agriculture plays and forestry plays and a recognition that USDA can partner with federal agencies, state agencies, local agencies to make it work as well as possible.

REP. WALZ: Well I very much appreciate hearing that because I think that's what many of us want too. I hope your voice is resonating with folks on that because I think Mr. Goodlatte brought up a point that all of us know, out in our districts USDA is highly respected and I wouldn't say the opposite is true of EPA but the ability to work with them is more difficult. So I think there's a sense of seeing us as the solution, seeing your agency can be part of this solution instead of seeing us as another place to possibly where things can fall down on us and that's --

SEC. VILSACK: Our goal is to work with folks.

REP. WALZ: I appreciate that. I yield back, Mr. Chairman.

REP. PETERSON: I thank the gentleman. Let's see here, where are we. Well we're -- yeah, gentleman from Texas, Mr. Conaway.

REP. MICHAEL CONAWAY (R-TX): Thank you Mr. Chairman. Thank you Mr. Secretary for being here.

By prefacing my question, Galileo was the preeminent scientist of his era, probably the only one you and I know whose name it was. The clear science of his time said that the earth was the center of the universe. Roman Catholic Church believed it, and the most all other scientists did. Galileo dared say that the sun was the center of the universe and for that heresy spent the last years of his life in house arrest because the Roman Catholic Church disagreed with him. You and I both know of course that Washington, DC is the center of the universe but that's a different conversation.

Clear science, help me understand how you make that statement to us. I've got a book here that's got almost 32,000 American scientists who disagree vehemently with that particular position. So help me understand your statement to us that the science is clear.

SEC. VILSACK: I think it's fair to say that 80 percent of the scientists who --

REP. CONAWAY: Do you have a basis for that percentage?

SEC. VILSACK: I can get you that basis.

REP. CONAWAY: Okay.

SEC. VILSACK: I don't have it --

REP. CONAWAY: I'm a CPA by background, when people start using percentages --

SEC. VILSACK: I would be happy to provide that to you.

REP. CONAWAY: Thank you.

SEC. VILSACK: I mean there's a number of reports that have suggested it.

REP. CONAWAY: Sure.

SEC. VILSACK: And I think there are some objective signs as I indicated with Congressman King when we had a conversation about what's taking place in Colorado.

I mean you've got trees being destroyed in large part because we can't get rid of this beetle and we can't get rid of the beetle because it doesn't get cold enough like it used to to kill it off. So I mean I think there are some indications that --

REP. CONAWAY: Okay. The beetle aside, can you help me with your understanding of the 21 climate change models that the intergovernmental panel on climate change uses as their prediction and the first nine years of the first actual experience with those models?

SEC. VILSACK: Well if memory serves me correct the significant percentage of those models suggests the possibility of a temperature increases somewhere between three and seven degrees.

REP. CONAWAY: Yeah. And Earth's actual experience over the last nine years?

SEC. VILSACK: Well I know that the last 100 years is among the warmest we've --

REP. CONAWAY: Okay.

SEC. VILSACK: -- experienced in --

REP. CONAWAY: The last nine --

SEC. VILSACK: -- 600 --

(Cross talk)

REP. CONAWAY: I've only got a limited amount of time so if you're not going to answer my question I'll answer it for you. The last nine years the actual Earth's temperature --

(Cross talk)

REP. CONAWAY: -- yeah the last nine years is actually below the most conservative model and falling away from that. So I would disagree with your statement that science is clear.

As I mentioned I'm a CPA by background, I know that you had extensive experience as governor balancing budgets. You make another statement to us in your testimony that allowing agricultural forests and efficient mechanisms to offset the emissions of regulated companies if properly designed will help enable lower overall costs for everyone. How do you add six to $800 billion in new costs to generating electricity and using energy to the system and look us in the eye and tell us we're going to have lower costs for everyone?

SEC. VILSACK: Well I think the nature of the statement is that by including agriculture and forestry in a significant way, you essentially provide opportunities for offsets which in turn make it easier for those who are being regulated to comply with the law and potentially --

REP. CONAWAY: But lower costs for everyone.

SEC. VILSACK: -- potentially less expensive for them than otherwise would occur if you did not include agriculture and forestry in the offset program.

REP. CONAWAY: Okay. You also mentioned earlier in your testimony that your analysis of the existing bill is incomplete. As decision makers, wouldn't you advise us to wait until you and your team have some clear understanding of what the costs and offsets and benefits et cetera are going to be or should we rush to judgment on this and ignore whatever wisdom your team can provide to the decision makers on what the bill would do? Wouldn't it be better to slow down just a mite?

SEC. VILSACK: As you know, EPA is in the process of reworking its analysis of the energy costs. We will take that information and then do an evaluation of --

REP. CONAWAY: Okay.

SEC. VILSACK: -- best estimate that we have and that we can make --

REP. CONAWAY: But would you advise us to wait?

SEC. VILSACK: Well I --

REP. CONAWAY: Is your information irrelevant to the decision?

SEC. VILSACK: It's not irrelevant Representative, but here's my concern. I think you can give ranges, I think you can give an outline of the direction, but I'm not sure that anybody can be as --

REP. CONAWAY: I'm not asking you for a precise number, but just some board category guess that's --

SEC. VILSACK: Well I think broad -- I'm sorry, sir.

REP. CONAWAY: Yeah, let me finish off. Your partnership with the EPA, all things climate change, will you be the limited partner in that deal, coach and a partner, will you work for the, I mean, do you have as many lawyers as the new EPA will have to go toe to toe with them if you disagree with something that they put out?

SEC. VILSACK: Well we have a very large general counsel's office and I'm a lawyer myself so I think we will hold our own. I think the point of this is it's not a contest, it's not a competition, I think this is serious business and I think it requires us to work cooperatively. I think it requires us to recognize the strengths that each of us bring to this overall conversation. And I think the USDA has many, many strengths, many particular strengths and unique strengths --

REP. CONAWAY: And in those strengths, do you see yourself as an advocate for ag and you would oppose the EPA if you believe that they were going down the wrong track or does the EPA get the tiebreaker?

SEC. VILSACK: Well I think first and foremost it depends obviously on how you all structure this but I would say that the opportunity for cooperation I think involves an understanding of each position and I think the best position ought to be the position that ultimately is agreed upon.

REP. CONAWAY: Okay. Thank you.

SEC. VILSACK: And I would do -- if I can finish.

REP. CONAWAY: Sure.

SEC. VILSACK: I would do my best to present as strong a case, if I feel strongly about something, I can guarantee you, you would know it and the EPA administer would know it and rural America would know it.

REP. CONAWAY: Well, not to be a contrarian and I'm out of time but we've asked you some pretty point blank questions and you don't seem to be -- have any strong opinions on them that you shared with us this afternoon. So --

SEC. VILSACK: Well --

REP. CONAWAY: Anyway, thank you for your -- I appreciate you being here and I hope I wasn't rude that I only had five minutes or six minutes and 23 seconds. I yield back. Thank you, Mr. Chair.

REP. PETERSON: I thank the gentleman. The gentleman from Indiana, Mr. Ellsworth.

REP. BRAD ELLSWORTH (D-IN): Thank you, Mr. Chairman. Thank you, Mr. Secretary, for being here. Good to see you again.

SEC. VILSACK: Nice to see you.

REP. ELLSWORTH: My line of -- or my particular question today is about what you're seeing in the proposed legislation as it -- as it relates to farmer-owned cooperatives (in the face ?). I've got a farmer-owned cooperative refinery in my district -- a wonderful employer -- and I'd like to leave you with a summary with you and your staff before we leave today, if I could.

But while agriculture activities are excluded from the -- from the current proposed legislation, I'd like to know if you feel there's been adequate examination so far, the full effects of the proposed legislation on farm activities in rural communities, and if not what do you think has been overlooked and if you're familiar with, like I said, the farmer-owned cooperatives as it relates to refineries, what your opinion is on that and where we go from there.

SEC. VILSACK: Well, I appreciate that the RECs and these refineries are obviously concerned and have expressed those concerns. You know, I had the staff actually take a look at back in the 1930s what the reaction was when we first began to discuss rural electrification, and there were a lot of skeptics at that point in time in terms of whether or not it would be a good thing for rural America. The co-ops have obviously answered that question in a very affirmative way.

What I have been most intrigued by is the reaction of co-ops to embracing renewable forms of energy, at least in my state. I have seen a real desire and interest in embracing renewable energy, and my sense and belief is that we need to do everything we possibly can to allow them to continue to provide the very important and vital service to rural communities, recognizing that their challenges are much different than the challenges of utility companies in urban centers because of the concentration of citizens served, and do everything we possibly can to give them as many options to continue promotion of renewable energy because that's not only good for the environment -- I think it's also good for the kinds of jobs that it's creating, at least in my state, with windmills and manufacturing coming back in part. I've learned that there are 8,800 parts to a windmill and so somebody's got to make those parts, and I think they could be made and ought to be made here in the United States.

REP. ELLSWORTH: Let me take you to besides that -- the -- or besides the rural electric, particularly refineries. We can't run the tractors and the combines on wind yet. It would be a nice -- it'd be a good day we can -- but the small, and I'm talking about ultra small, refineries that these farmers rely on that they can keep those gas prices steady -- the fuel prices -- that they rely on these rural- owned refineries and what consideration might be taken in this legislation for them.

SEC. VILSACK: Well, I think you obviously have to take a look at the way in which -- depending upon whether the decision is made to auction off credits or to allocate them you have to look at the way in which the auctions or the allocations work to make sure that it's a fair and balanced approach. I would say that, again, I guess I'm optimistic about the future of this country and the capacity to innovate.

I'm going to be anxious to see where we are 20 years from now in terms of the machinery that's used on the farm -- what changes have been made. I -- you know, I don't want to take time today but (I had an ?) interesting experience in India relative to tractors that are made there and tractors that are made here, and it's pretty remarkable the difference in technology and I think we're just on the cusp of more innovation.

REP. ELLSWORTH: I share those feelings and that optimism. I would -- (I wouldn't go away ?) and I'll yield back in just a second but also the farmers and the ranchers in my community really want to see this kept under USDA and not EPA. That's just the message they -- when they heard you were going to be here today they wanted me to tell you that. So thank you, Mr. Secretary. Thank you, Mr. Chairman. I yield back.

REP. PETERSON: I thank the gentleman. The gentleman from Nebraska, Mr. Fortenberry.

REP. JEFF FORTENBERRY (R-NE): Thank you, Mr. Chairman, and thank you, Mr. Secretary, for your testimony today. I appreciate your willingness to be here and I agree that agriculture should play a key role in leading us toward a renewable and sustainable energy future in our country.

Clearly, we need a bold new energy vision for America. I also believe that reducing greenhouse gas emissions is critically important to our environmental health as well as societal well being, and a serious discussion of how America should address this challenge is appropriate (time necessary ?).

Our sustainable energy future must clearly include the integration of conservation and new technologies powered by clean renewable sources such as wind and solar, biomass, biofuels. Chapter by chapter I think we can build this future. While I would support the goal of reducing greenhouse gas emissions, I do have serious concerns about this approach and its effectiveness in potentially achieving meaningful emissions reductions.

I cite the European Union's experiment with the cap-and-trade system implemented in 2005. Thus far, the EU effort has resulted in significant complications creating windfall profits for utilities at the expense of energy users while achieving negligible results in emission reductions. I'm also concerned that the legislation would prompt, as has been addressed earlier, a shift of America's manufacturing and agricultural production to other countries such as China and India and Brazil that aren't -- would not be bound by similar restrictions.

One of our colleagues who used to serve here aptly pointed out that a significant portion of the mercury pollution in the Chesapeake Bay actually comes from China. Simply by shifting this production overseas, we would likely result in no net reduction in greenhouse gas emissions and we may actually contribute to an increase inadvertently. As we all agree and know, through the hard work of many public policy officials before us, America's farmers and ranchers are the most productive in the world.

However, as we will hear from a number of witnesses today, this proposal may seriously tie agriculture's hands at the same time many of our competitors, such as soybean growers in Brazil and cattle producers in Argentina, will not have to be bound by these restrictions that we will potentially place in our system. As a side note, by the way, Mr. Secretary, Nebraska has created one of the highest numbers of new green jobs without this particular mechanism. So two questions for you -- first, will you oppose a cow tax or similar fee based upon livestock emissions? And secondly, do you have -- let's go back to that concern about shifting American agricultural production overseas because we'd be placed at an economic disadvantage.

SEC. VILSACK: I'm sorry. I didn't hear the last part of your question.

REP. FORTENBERRY: Would this have a significant impact on American agricultural production and give incentive for it to shift overseas?

SEC. VILSACK: Well, obviously I'm not supportive of the cow tax and I don't really think at the end of the day we will have such a thing. Can I -- are you going to move on from there? Go ahead if you want.

REP. FORTENBERRY: I just want to clarify then what you -- let's unpack your statement where you said farmers across the system -- farmers across the country will need to adapt to advanced nutrient management and manure management systems to reduce nitrous oxide and methane emissions.

SEC. VILSACK: Well, I think that the reason for that will be an economic one. I think that they will be encouraged to be as efficient and as effective as possible with their farming practices.

REP. FORTENBERRY: Yes. All right. Of course, we do have -- (inaudible) -- regulation --

SEC. VILSACK: Just in the same way that we are currently using technology to reduce the amount of pesticides and chemicals, seed technology, to reduce the overall cost we'll continue to see that kind of, I think, adoption and acceptance of new practices.

REP. FORTENBERRY: But the enforcement mechanism?

SEC. VILSACK: I'm really not quite sure --

REP. FORTENBERRY: Well, would the farmer in effect have to buy an offset in order to continue to allow his herd to -- (inaudible) -- emissions?

SEC. VILSACK: I don't think -- I don't think that's what -- I don't think that is what is being suggested or proposed, at least that's not what my understanding of it is. My understanding is that we're looking at the impact sort of indirectly on input costs because of other aspects of the economy being subject to emission standards or emission requirements, and then the economic opportunity with agriculture and forestry involved and engaged on the opportunity side. And if we structure this properly -- it's my belief that we actually at the end of the day if we structure this properly we can bring some economic activity and viability back to rural America that we obviously and desperately want and that I think we share in our desire to see happen.

REP. FORTENBERRY: I agree that there's tremendous opportunities here for agriculture and we're engaging in a number of those now, but clearly, there might be impacts. I'm sorry, Mr. Chairman, we can't get to the second part of the question about how we might inadvertently occur -- give incentive for production overseas due to increased input cost.

SEC. VILSACK: I'm not willing to concede that we are going to cede the competitiveness of our agriculture as a result of this. I think what you're going to continue to see is extraordinary innovation in this country. I am a strong believer in the capacity of this country to always be at the cutting edge of innovation, and certainly in agriculture no one can match us in terms of innovation. The seed technology that has been developed and will continue to be developed is nothing short of remarkable and extraordinary, and I would imagine that if I polled this entire committee we would all agree on this -- that we are a leader in innovation -- ag innovation -- and will continue to be, and I think we have to be and I'm just confident we will be.

REP. FORTENBERRY: We'll work with you on that goal. Thank you, Mr. Secretary.

REP. PETERSON: I thank the gentleman. Let's see -- the gentle lady from Illinois, Ms. Halvorson.

REP. DEBORAH HALVORSON (D-IL): Thank you, Mr. Chairman. Mr. Secretary, great to have you here. Thank you so much. I just have a couple of questions. I would like to know if you can comment on any discussions you maybe have had with the administration with regards to possibly the change in policy that maybe the offset program could be under the purview of the USDA versus the EPA.

SEC. VILSACK: I think what I have been able to do in meetings with my fellow Cabinet members is to continue to stress the unique characteristics and tools that USDA has, and I think that there is an understanding within the administration of those unique characteristics and tools -- everything from the fact that we have boots on the ground, a tremendous network, a connection with our farm and ranch families in this country, and the technical expertise both in our office here in Washington, D.C. and throughout the United States to assist farmers in taking full advantage of this opportunity. So I think there is a recognition of that.

REP. HALVORSON: And also the amount of offices and --

SEC. VILSACK: That's what I refer to when I say boots on the ground.

REP. HALVORSON: Okay.

SEC. VILSACK: That's what -- I mean the 2,250 rural offices in our farm service programs and over 850 offices in our rural development.

REP. HALVORSON: And do you maybe know how many EPA has?

SEC. VILSACK: You know, I don't know that. I do know that I'm fairly certain that we have more direct on-the-ground communications and contacts -- (inaudible).

REP. HALVORSON: Well, and the only reason I bring that up is because if you say we have more, obviously they should be able to counter that by saying oh, no, we have X.

SEC. VILSACK: You know, to be candid and honest, we're not in a competition on this.

REP. HALVORSON: Uh-huh.

SEC. VILSACK: I mean, we -- I'm looking and I believe it's appropriate. I think the president's been very clear about this. He wants to change the way in which we do business in Washington. This is not about stovepiping. This is not about protecting turf. This is about figuring out how you can cooperate to move the country -- all parts of the country forward, and so my view of this is I want to work with EPA.

I want to work with the Interior Department. I want to work with Commerce. I want to work with anybody who's involved in this, and I want to work at the state and local level as best we can to make this work for farmers and ranchers because if it does we can bring prosperity back to rural communities. We can repopulate the rural communities, and there are many, many benefits, the greatest of which, I think, is the important value system that that part of the country represents that can be -- that can be preserved.

So we are committed to working with folks, and with due respect to this committee, this is not -- you know, I understand that there's a concern about EPA but from my vantage point let's figure out how we work together. Whoever has the expertise, whoever has the knowledge, whoever's in the best position to carry the policy forward we'd have confidence in all of you to make that best judgment.

REP. HALVORSON: Okay. Well, then I think that I can speak for many of the people on this committee that we have confidence in the fact that the USDA should be the ones that do it, not the EPA, because of the infrastructure, because of what we believe in, and that's just where we stand and how we feel about it. So, you know, and I appreciate, you know, that you say that you're willing to work with everybody. I think we are also but we still believe from our standpoint that the USDA is in a better position to deal with the -- (inaudible).

SEC. VILSACK: I agree we have unique opportunities and unique tools which are important to this.

REP. HALVORSON: Great. Thank you. I yield back.

REP. PETERSON: I thank the gentle lady for her comments. Gentleman from Nebraska, Mr. Smith.

REP. ADRIAN SMITH (R-NE): Thank you, Mr. Chairman. Thank you, Mr. Secretary, for your service. You spoke of planting trees on tens of millions of acres of marginal farmland. Could you elaborate and either point to geographically where that might be or describe what that might look like?

SEC. VILSACK: Well, this is an example of what may potentially occur if there is an opportunity for farmers and ranchers just as there is with the conservation programs that we have today. If we can offer a greater return on marginal land for farmers and ranchers then they're going to make the right set of decisions for their operation, for their families, for their bottom line. If the incentives are there, if the opportunities are there, they're going to seize those opportunities.

And so the question is as we establish and set this process up and recognize the role that agriculture and forestry play there may very well be places -- and I'm not going to be able to tell you with precision as to precisely what acreage or what state -- but there may be places where there may be highly erodible land or land that is not particularly productive that as farmers take a look at the options as this evolves they may say, you know, if we plant trees we actually might be better off financially using this as an offset rather than simply using some other program or planting a crop and not getting a particularly significant yield from that land. So I mean, it's a set of decisions that farmers are going to -- are making today with reference to conservation programs. This is just an extension of that decision-making process.

REP. SMITH: So would that be a one-time offset for planting trees?

SEC. VILSACK: Well, I think what you're going to see is a process by which those who are required to have offsets will be in the process of purchasing those offsets and, you know, I can't imagine that what we have is a process or situation where you don't have some degree of predictability when you're talking about making a decision that is a longstanding position as opposed to a different cover crop on a particular piece of ground or a different other conservation practice that might be changed from year to year. So I think it's a matter of how this is all set up and how we best incent the greatest opportunity for offsets.

REP. SMITH: But you -- would you see in offsets a one-time offset for planting trees being more lucrative than other crops in perpetuity being harvested every year or every other year?

SEC. VILSACK: I think it depends on the circumstance. It depends on the farming operation. It depends on a lot of variables. I don't know that you can specify one or the other. I think what you want are wide range of options so that farmers can make choices just in the same way that you all gave farmers a multitude of options with the farm bill.

This is just a continuation of that philosophy. Give them as many options, as many choices so that they can make the best decision for their individual operation and in turn make the best decision for the overall benefit of the country. That's what we ought to be allowed.

REP. SMITH: Okay. Switching gears just a bit here, what about the ag producers who are unable to take part in the credit program -- for example, those who have been engaged in conservation practices for quite some time who probably would not receive that increased margin of green practices?

SEC. VILSACK: Well, I think this is a policy decision that obviously has to be discussed and you all are going to have to decide, and it's a tough one -- it's not an easy one -- because when you're talking about folks who have committed to conservation in the past you have to balance the need for competition and equity which is very, very important -- the competitiveness of farming operations and equity -- against making sure that if the purpose of this overall is to reduce greenhouse gases because there is a -- at least in my view a recognizable concern on this area that you make that balance, and I certainly don't want to penalize people for decisions that they've made.

I think we ought to be encouraging folks continually to look for how to use their land in the best possible way not just for themselves and their families, which is important, but also if they can -- if there's a societal benefit as there is when you grow crops, as there is with conservation programs today, there ought to be an acknowledgement of that.

REP. SMITH: Okay. I appreciate that and I think we should all be good stewards of the resources we've been given. Do you -- are you certain -- I mean, I hear you saying that there's, you know, a lot of potential and maybe this, maybe that. Are we ready to vote on this?

SEC. VILSACK: Well, I don't want to speak for you, Congressman, because I'm not a congressman and I don't have -- I'm not in the position that you're in. But I would say this. I don't think as a country or as an international community that we should delay decisions on this particular set of issues relative to climate change. I think the longer you delay, the longer you put it off, if you don't make a decision today, you don't make a decision tomorrow, you eventually will have to make a decision some day, and the longer we wait the more severe that decision may very well be and the more costly it may be and the more difficult it may be.

So my view is let's try to take some significant steps now -- that's number one. Number two, I think the international community with the decision that was made by the previous administration at Bali to establish and to commit to the roadmap in Bali I think there's an expectation from the international community that America is going to lead on this issue, and I think it may be difficult to lead if there's nothing to offer.

REP. SMITH: Thank you.

REP. PETERSON: And I thank the gentleman. The gentle lady from Colorado, Ms. Markey.

REP. BETSY MARKEY (D-CO): Yes. Thank you, Mr. Chairman, and thank you, Secretary Vilsack, for being here today, and I also want to thank you for coming to Colorado just a couple of weeks ago to see first hand the devastating impact that the bark beetles are having on our forest due to climate change. I also want to take a moment to reiterate what many of my colleagues have said -- that the offsets we do believe and as I believe as well that the offsets should be run by USDA and not EPA.

But let me switch gears just a little bit and ask you another question. The USDA has several existing conservation programs. How will compensation from offsets fit with the existing programs? Should or will farmers and ranchers receive financial incentives for implementing conservation programs and carbon offsets generated from the conservation programs?

SEC. VILSACK: I think we should continue to look for ways to complement and enhance all these programs. Again, I keep coming back to this notion and I -- let me take a minute of your time to explain why this is important. It is absolutely essential to provide options, as many possible options as possible, for farmers and ranchers to profit. The reason is that it's important for rural communities to have strong agriculture.

It's important for us to focus on the fact that we lost 80,000 mid-sized operators in the last five years. Now, some of them may have migrated to larger operations but the bottom line is we have lost people in rural communities -- rural operations -- and we need to continue to look for ways to provide options. We also need to look for ways in which the smaller operators, where we saw a significant increase in numbers, will be able to utilize additional opportunities, additional programs, the farm bill that you all passed -- all of those options -- to be able to continue to increase their operations and expand so that we can repopulate rural communities.

We don't want to end up with just either really small farmers or really, really large farmers. It's nice to have a mix. And I think part of what I see -- recognizing the skepticism that's out there, I understand that -- but what I see is more options, more opportunities creates chances for us to hang on to those farming operations that I think are important to the health and vitality of rural communities.

REP. MARKEY: Thank you, Mr. Secretary. I yield back.

REP. PETERSON: I thank the gentle lady. Gentleman from Ohio, Mr. Latta.

REP. ROBERT LATTA (R-OH): Thank you, Mr. Chairman. Thank you very much, Mr. Secretary, for being with us today. Just kind of a little background -- my district I represent, it's kind of a unique district. I represent the largest agricultural district in Ohio and I also represent the largest manufacturing district in Ohio.

It's kind of unique in that I have so many of my farmers according to the Department of Ag in Ohio that (probably ?) we only have about 1 percent of folks in -- actively engaged in agriculture across our state. But so many of these folks that are engaged in agriculture also full time are also full time working in manufacturing, and as we also know in Ohio that we get 87 percent of our energy comes from coal. And I know that in your statement on Page 2 you said that the president (has offered ?) a clear vision for the future, and the one thing that worries me is the president also said that with his -- (what he saw ?) last year when he spoke in San Francisco that under his program that we were going to see electric prices skyrocket.

So I guess the question is -- the first question I'd like to ask is, you know, we want to get a lot more younger people engaged in agriculture.

Land prices are going up. You know, we all -- we see the cost of everything going up. Every year when I go to all my 16 counties I check, see what the prices are on equipment every year, and those are pretty high.

But how do we get these young farmers engaged and how do we keep other people on the farm when we're going to be seeing such dramatic increases in their utility costs and across the board -- in fuel -- you name it, from fertilizer, et cetera -- if we're going to have these dramatic increases right now? Because, you know, we might -- some people might say, well, we're going to look down the road and we're going to have some other alternatives out there. But how do we save these people today?

SEC. VILSACK: Well, there are obviously a number of things that we're currently doing in USDA, and you are correct to make the connection between farm families and those who are working off the farm. Ninety percent of our farm families actually have to have some form of off-farm income either because of health insurance issues or income issues. Of the 2.2 million operators in the country today, 900,000 of them are themselves required to work at least 200 days off the farm. So it is important.

There's a marriage -- there's a synergy between rural development and economic development in rural communities and the capacity to save family farms. So part of what we're going to try to do is to develop wealth-creation strategies within the utilization of rural development tools -- for example, linking local producers with local consumers so that those dollars that are currently flowing out of a district stay in the district; developing a continued effort at a more robust export effort -- obviously, bringing, you know, the crops leaving the district to bringing cash into the district; the opportunity for renewable energy and renewable fuel to be expanded and to grow, creating manufacturing jobs, creating construction jobs, creating maintenance jobs.

I know in my home state when we aggressively pursued a wind energy strategy that we saw an increase in manufacturing jobs as a result of those wind -- those windmills. We saw a new emergence of new maintenance jobs that didn't exist before and we saw community colleges respond and react with training programs. So there's a whole series of things that I think we have to do and it's not one -- there's no silver bullet. I wish there were. It's a multitude of things that need to be done.

REP. LATTA: Let me follow up with another question. On your -- on Page 1 and the last page of your testimony you say that, you know, the United States needs to be the leader out there, really talking -- when we're talking about this commitment to show the rest of the world where we stand. When China has already said that they are not going to follow this program of a cap-and-trade or a cap-and-tax, and today another statement was made by the Chinese that they're not going to abide by it -- that they say they're going to keep doing what they're doing -- how does the -- how do we tell our constituents back home that they're supposed to be out there producing in a lot of cases against folks that are going to be doing it a lot cheaper and we're supposed to be out there competing against the rest of the world in a lot of sectors?

So how -- you know, I guess my question is when China is out there with 1.3 billion people and they're saying they're not going to do this and, you know, we're -- how do we lead from that angle when we're putting ourselves at a competitive disadvantage?

SEC. VILSACK: Well, I think our capacity to make China, India, and other developing nations respond to the global challenge we face is by providing that leadership. I mean, we provide them a relatively easy out for inaction if we take no action. Secondly, I genuinely believe that our capacity to innovate is unmatched in the globe today and has been unmatched for as long as I've been on this Earth and will continue to be, and I think that we will be developing technologies and innovation that the rest of world will need and want. And I believe it will allow us to create the kinds of jobs not only here in America that will stay in America but creating product that will -- the rest of the world will need as opposed to what we see and have seen with some of the consumer goods.

REP. LATTA: Let me -- (inaudible) -- just briefly. I'm sorry to interrupt. How long do you think it's going to take India and China to decide to play ball with us?

SEC. VILSACK: Well, I've had some conversations with Chinese officials. I'm not going to be able to tell you today, Representative, it's a month or six months. I just recognize and appreciate China wants to be recognized as also a leader. They want to be recognized in the international community. They will have a very difficult time doing that if they do not engage actively and aggressively in conversations about climate change, and I think there's a recognition on the part of the Chinese government of that.

And I think there's also a recognition on the part of the Indian government as well, in my travels and discussions with Indian officials. So if we are not prepared and if we have not led I think it becomes increasingly difficult for us or the rest of the world to compel the Chinese and Indians to participate. If we do lead, I think it becomes much more difficult for them to say no.

REP. LATTA: Thank you, Mr. Secretary. Thank you, Mr. Chairman.

REP. PETERSON: I thank the gentleman. The gentleman from North Carolina, Mr. Kissell.

REP. LARRY KISSELL (D-NC): Thank you, Mr. Chairman, and thank you, Mr. Secretary, for being with us today and I would like to start out by just saying that I too, as many have said, believe that the offset program should administered by USDA; that their record and their abilities and their expertise are there. That's where we should go; as you talked about, we need to work together but go with what works best.

I think that record belongs to USDA.

That said, yesterday in a hearing Undersecretary Tonsager -- and I'm hoping I'm not too far off in his name -- mentioned that he was in Brazil at a bio-fuels conference recently and that he very much supports bio-fuels and the role they can play in the future; especially with our helping our farmers and creating green jobs.

He said that in Brazil, that they don't seem to be too concerned about land use in terms of feed stock; that only like one percent of their lands are dedicated to feed stock. Which would lead me to wonder why are we so concerned about what we should be limiting up here in the United States for our farmers to do because of fear of what they may or may not do in Brazil when they don't seem to be concerned about it.

I'm just wondering what your thoughts might be on that.

SEC. VILSACK: Well, Congressman, our view is that -- that's one of the reasons, among a number, why we advocated for a peer review of that portion of the RFS2 rule, number one.

Number two, I appreciate Undersecretary Tonsager's comments; I will tell you that we are focused as much on today as we are on tomorrow as it relates to bio-fuels industry which is why we are very concerned, as I'm sure that anybody who has bio-fuels facilities in their district is concerned about, the credit worthiness of these enterprises today and our challenges to figure out ways in which we can help provide appropriate credit assistance so that the infrastructure we have in place, remains in place.

I am a strong believer in the bio-fuels industry in this country; I think if we are to end our addiction to foreign oil, if we are to become more secure in terms of our energy supplies, it is fairly clear to me that it has to be homegrown and its fairly clear to me that we are seeing some stress in that industry today and that we need to take significant steps now to address the credit issues.

And, we need to make sure that the peer review process, which has been agreed upon, is rigorous and evaluates tit appropriately. I think if it does, I think we'll probably see a concentration on what happens within the borders of our country as opposed to what's taking place outside of the United States.

REP. KISSELL: Thank you, Mr. Secretary and Mr. Chairman, I yield back my time.

REP. PETERSON: Thank you gentleman.

Gentleman from Missouri, Mr. Luetkemeyer.

REP. LUETKEMEYER: Thank you, Mr. Chairman.

Thank you, Mr. Secretary, for being here today.

I'm just kind of curious -- you seem to be a little -- you seem to talk in general terms about the bill and we need to be able to do specifics with it. We've had a member of both Energy and EPA here, as well as a member of USDA; they have never given us a good number on exactly how much its going to cost, how much these things are going to impact the different groups, especially farm groups.

The other day, you made a statement with regards to some of the CO2 credits with regards to $125 to $100 billion worth and not EPs come out with a new estimate that shows its going to be from $0 to $660 million. There seems to be numbers all over the place and it's difficult for us to get a handle around it.

Where are you on this with regards to the actual cost of the bill; how much is it going to impact agriculture as a whole?

SEC. VILSACK: Well, I appreciate that question and we are in the process of, as I may have indicated earlier --

EPA is currently doing analysis of what they believe the energy costs are going to be. They are retooling that analysis based on changes in order for us to do an evaluation, as you requested. We need to have those numbers.

I think we are confident enough to know that looking at the size of the problem and the size of the opportunity, relative to how much agriculture contributes to greenhouse gasses and how much we believe -- and many believe -- it can help in solving the problem, that there is an opportunity side to this.

We stand ready to work with you to develop a policy that maximizes the opportunity side and we stand ready to continue doing research and to facilitate research to try to figure out how to reduce overall cost and expenses to our farm families.

So, if you're asking me for a precise number, I don't have a precise number, but I believe based on what I've read and based on what I want to know and based upon my belief in the capacity of this country, I believe we can provide an opportunity side to this that is often not discussed.

When people are saying, "Well, how much is it going to cost?" Well, I would say, "How much can we benefit from it?" I think at the end of the day, if we do this right, the benefits will outweigh the cost.

I know there's skepticism about that, but that's what I believe.

REP. LUETKEMEYER: That begs a question though that if we're not sure of whether we're going to get any benefit out of this and there is some cost to it, my fear is that we're going to cost some farmers their jobs.

As the president has said, and as Mr. Smith a while ago intimated, what happens to the farmers who can't participate in the program and you have sky rocketing costs for input costs for the farmers. Where are we going to go with this? How are those guys going to be able to exist if their costs continue to sky rocket?

I'll give you a little background -- I come from a district that's got a lot of small farms on it, which it's very difficult for those guys to absorb some of these costs. I don't think they can participate in this program.

SEC. VILSACK: I'm not convinced of that.

If we establish it -- as I indicated earlier -- if we establish this properly, I think there will be opportunity side.

I do know this -- I think it's fairly -- I feel fairly confident to suggest that the amount of greenhouse gases that agriculture/forestry create and the amount it can reduce, that there's a net benefit there. If there's a net benefit, than I think you create a market process, I think the market will respond by providing a net benefit.

Now, is that benefit going to be broadly over agriculture and forestry; I believe it will be. Will we respond and react -- you're asking for us to sort of project in the future -- will we respond and react to those farmers who may not benefit from this program; then I would suggest that we take a look at all the other options that we're creating.

This is really, ultimately, about how many options you can create for farmers to stay on the farm. The more options we have, the more opportunities there are to profit, the more distinct and different they are, the greater the choices are. It's our job to promote those choices; it's our job to advocate for those choices; it our job to try to figure out if there's a way in which input costs are going to be reduced.

I will say to you, when I met with the CEO of the seed company the other day and he said to me we can increase corn yields significantly and we can reduce input costs by a third; how does that factor into the equation of costs relative to what we're talking about here and what other innovations are going to take place.

I'm not willing to limit -- I think our capacity to innovate is limitless. I appreciate that there are skeptics about that, but I look at our past; I look at what we've done in the past. What have we done in the past?

Every time we have been confronted with a challenge, we have been the innovator. We've been on the leading edge of innovation and it's built the strongest most powerful economy and country in the world.

I'm not willing to concede we can't do that and continue to do that.

REP. LUETKEMEYER: I appreciate your passion and optimism, I just hope you're correct, Mr. Secretary.

Thank you, Mr. Chairman.

REP. PETERSON: I thank the gentleman.

The gentle lady from Pennsylvania, Ms. Dahlkemper.

REP. DAHLKEMPER: Mr. Chairman, since I was not here because I had some other meetings --

REP. PETERSON: We're going by when people came.

The way we do things here is who gets here first gets rewarded by being high on this list and you're fairly high, so, you're next.

REP. DAHLKEMPER: Well, not knowing what questions have been asked, I'm going to yield back at this time.

REP. PETERSON: All right; very good.

I thank the gentle lady.

Lets see, the -- is it all right to go on our side one more time -- figure out who's next here -- the gentleman from Oregon, Mr. Schrader.

REP. SCHRADER: Thank you, Mr. Chairman.

I appreciate you being here, Mr. Secretary.

I know you're in a difficult position; a difficult spot. I appreciate you coming here; I think a lot of what goes forward in the claimant change bill is all about confidence and people have to be confident that what ever we put forward is going to have a chance of working and of confidence that people that are promulgating that program and I would suggest to you that, like we've heard again and again, that the USDA has a lot better confidence level with the American farmers than the EPA.

We've experienced that in my own state with some of our own water policy; we've been able to share some of the jurisdiction with our EPA and our Department of Agriculture and that's worked very, very well. So, just hope you'll be strong in working with EPA.

Question would be, do you believe that using the farm bill definition of biomass would enable us to sequester more carbon that the definition currently in the climate change bill?

SEC. VILSACK: I think it would certainly help.

The difficulty that we sometimes face out in the countryside is a difference of rules and definitions and regulations, which makes it sometimes more difficult for these farmers to understand all the choices that they have. So, the degree to which there can be consistency, I think, helps. In this particular case, I think it would help a good deal.

I think there are multiple opportunities in the way in which you all have fashioned the definition of biomass in the farm bill and I think consistency would be helpful.

REP. SCHRADER: Follow up question -- well, different question --

(Inaudible) -- there's a lot of conservation practices already in play, a lot of farmers have been doing them for years. Is it your opinion that they should be getting credit in any bill going forward for some of the sequestration, if you will, that's already been accomplished?

SEC. VILSACK: This is obviously a difficult balancing act that you all will be engaged in, in terms of making sure that as you set this up that you don't (disincent ?) activities, that you don't create a lack of competition or competitiveness on the part of these operations and that you provide a degree of equity and fairness as these programs compliment and reinforce each other.

I think it is important in terms of the integrity program that we not -- that we are able to quantify the results and the benefits and if we're able to do that, then these programs ought to be able to compliment each other and that's what we would be looking forward to trying to do.

REP. SCHRADER: So, you're saying they should get credit?

SEC. VILSACK: I'm saying that that's obviously a policy decision that you all will make.

I would hope that you would structure it in such a way that you don't disincent activities and that you compliment activities and that you support those activities.

REP. PETERSON: Would the gentleman yield?

REP. SCHRADER: Yes, certainly.

REP. PETERSON: Apparently, in the bill, I thought they were talking about having some kind of a date that if you did things before 2005, you weren't going to get paid for it and if you did it after 2005, you were.

I think that's the situation -- which I think is a very bad idea.

Could you specifically comment on that?

SEC. VILSACK: Well, Mr. Chairman, I don't think that date is as important as the practice.

I think the practice --

REP. PETERSON: Well, how do you explain to one farmer -- the guy's been doing this right for 20 years -- that he is not going get anything and then somebody that just starts now is going to get it.

You talk about causing a problem out there; even with the -- I wouldn't be in favor of you guys -- (inaudible) -- if that's what the program is.

SEC. VILSACK: I was (unartfully ?) trying to agree with you, Mr. Chairman.

REP. SCHRADER: Thank you.

Mr. Chairman, you made my point much better.

REP. PETERSON: Doesn't the chair always do that?

(Laughter)

REP. SCHRADER: Question regarding -- you talk about clear science and I actually agree with you that we do have a serious problem facing the world, as we speak, with climate change.

But, there is some not such clear science that's being inferred by rule making and EPA regarding indirect land use cost. It has not been well received by members of the Ag community -- I guess my simple question to you is do you believe in that indirect land use cost modeling that is being propagated by the bureaucrats?

SEC. VILSACK: We articulated and advocated strongly for peer review of that concept.

REP. SCHRADER: Okay, I'll take that as some degree of skepticism and I appreciate that, Mr. Secretary.

SEC. VILSACK: Let me amplify -- I think it's a lot easier to determine what's happening within the borders of your country than it is determining what's happening outside the borders of your country.

REP. SCHRADER: I think most of us would rather our taxpayer dollars stay in this country and not flow overseas also, sir.

I will yield back, Mr. Chair.

REP. PETERSON: I thank the gentleman for his questions and I'd like -- we have a chart here, as long as we're talking about this international land use -- I think it's on the computer, if you could put that up -- wherever my staff is.

This is the ethanol production -- the blue line is the deforestation and the green line is ethanol production. So, I don't know how much money you have to spend on a peer review to figure out what that's about.

(Laughter)

Lets see; the gentleman from Pennsylvania, Mr. Thompson.

REP. THOMPSON: Thank you, Mr. Chairman.

Secretary, good to talk with you again.

I want to start out by saying I can't tell you how much I agree that innovation's important. Where I disagree is that what I see as a subsidy bubble, these allowances, is a way to promote innovation. In fact, I think in terms of all the issues we have in agriculture, a lot of subsidies over the years which have been layered on have created significant issues.

To layer a new subsidy bubble is -- would not be good.

In Pennsylvania, the Waxman Bill has been projected, I think pretty accurately, to increase electricity costs by 30 percent, gas prices by 76 percent, the cost of fertilizer using natural gas as a primary feed stock will be out the roof for our farmers.

I know that it's tough for you; you've been asked this a number of times in terms of actual dollars and actual costs -- I'll be a little more general with my question.

Do you have any concern that the Waxman Bill will increase costs for farms and ranches?

SEC. VILSACK: You always have concerns, with due respect to everything you do here.

REP. THOMPSON: I agree.

SEC. VILSACK: But, having said that, I think there is -- I don't know how we can --

I'm trying to figure out how to phrase this properly --

I think that we have seen remarkable changes in agriculture. I think we're going to continue to see remarkable changes in agriculture. I think we have not yet limited ourselves in terms of seed technology. I think you're going to see a continuation and evolution of seed technology that requires less inputs and less reliance on natural resources, which is potentially a good thing particularly as it relates to chemicals, pesticides, water quality and the amount of water used.

I think its -- I'm confident that we're going to see that and --

REP. THOMPSON: Let me just say, I would agree with that and I truly see that as a responsibility of USDA and in your role as Secretary to lead on that innovation, but I see where that has nothing to do with this climate change legislation.

SEC. VILSACK: It does in this respect.

You may very well see a reduction in the amount of inputs of a particular kind or you may see an application differential or you may see a reduction in the amount that has to be applied or you may find ways in which other inputs may be substituted for or you may find seed technology that reduces the reliance on the current inputs.

Its I think -- it's a changing landscape and I think what we want to see are ways in which we can encourage, promote that changing landscape to the benefit of the bottom line of farmers; both in terms of helping to reduce input costs to the extent that we can and also again, creating that opportunity side and frankly, going beyond that and trying to figure out ways in which we can enhance rural development so there are farm incomes, creating new markets, creating local markets --

It's a combination of steps that have to be taken. That's why I keep returning to this notion of options and choices and giving folks in the country side as many chances as possible to succeed.

REP. THOMPSON: I come back to the fact that much of what you're talking about is "may find."

It's speculative and I would argue that certainly promoting innovation is -- I would think that's a key role of USDA.

Let me just take it a step further -- my district has in a number of -- a number of districts across the country and we have a number of what I see as agriculture related crisis right now. For example, in terms of timber, with this under the jurisdiction of your department and --

In the Allegheny National Forest, our timber industry is struggling. My national forest that I have there, their forest plan says that they can harvest up to 90 million board feet a year and it's sustainable. You have no loss in terms of timber; you can harvest that much and it's good for everybody. It's certainly good for the local community and I've heard from some of the folks working for the Forest Service that are acknowledging the role with the local economies with forest.

Our dairy industry is just in terrible straits right now in terms of diary prices and losing farms. So I have significant concerns obviously with the costs because those are not speculative; there not maybe, it's definite.

You start raising energy costs 30 percent these folks are not getting their bills paid right now; they're in dire straits.

Taking it a step further, I really have a concern with the USDA, which needs to be there for that and all aspects of our agriculture industry, whether the USDA's going to have adequate resources to meet today's real crisis that we're experiencing; timber, dairy and maybe others.

My question is can you guarantee that the Waxman Bill will not drain or distract the USDA resources in the current real crisis in agriculture that people are living with and struggling with?

SEC. VILSACK: I believe that we can do the job that Congress directs us to do.

I also believe that we are today trying to respond to many of the challenges that you have indicated; especially in the diary industry. We've taken a number of significant steps in the recent past to try to help that industry.

I will say that as you work through the process -- this is a far field from your question, but as you work through the process and you look at the Commodity Credit Corporation and some of the restrictions that sometimes Congress places on the Commodity Credit Corporation and the ability of the USDA to use that tool to respond to crisis, you may give us a bit more flexibility that we have today that might help us provide more immediate response.

Again, we're looking for ways in which we can help and we are up to the task. If you give us a job, we will do our level best to do it as you intended us to do it.

REP. THOMPSON: Thank you, Mr. Secretary.

Mr. Chairman, I yield back.

REP. PETERSON: I thank the gentleman.

The gentleman from Georgia, Mr. Scott.

REP. SCOTT: Thank you, Mr. Chairman.

Mr. Secretary, it's good to have you and I just want to commend you on the excellent job you've been doing since you've been our secretary of Agriculture; good job.

Two points, if I may, I'd like to get your response on.

The first one is that I'm not prepared to move ahead with this bill for two important reasons. One is that I'd like to get your response to is to treatment of derivatives markets.

There's language in this bill that's been added by one of my colleagues, who is a very good guy, good friend, Mr. Stupak, who is not a member of this committee and I'd say probably is well intentioned, but its over broad, its completely onerous and would do a great deal of harm to the market place.

Our committee has jurisdiction as Agriculture Committee, I'm also on the Financial Services Committee and I think with the Agriculture Committee and the Financial Services Committee, along with the Obama Administration, if we could take a look at this language, try to get it removed so that we could put forward a bill that I think would deal more responsibly in the derivatives trading in a more careful and calculated way than this language that is in there; hopefully you'll agree with us on the derivatives.

My other point that I'd like to get your comment on -- I represent the Atlanta Metropolitan area; around seven or eight counties around Atlanta, which is suburbs and rural. There is contained in this climate change bill, terminology as far as housing is concerned as an energy star; energy star, which presumably is to signify that they meet some energy efficiency standard.

Now, Mr. Secretary, with the housing market still mixed and mired, in a slump and housing prices continuing to fall, creating such an inherit bias towards older homes is not in our best interest. I'd like to see if you could give us comments on the derivatives and this sort of bias which is in the energy bill towards older homes, which I think need to be rectified.

SEC. VILSACK: Representative, I will admit that I am not as well versed about the derivatives as I suspect you are.

I do recognize the concern; I know that the Chair has expressed that to me on a number of occasions and I respect his opinion and your opinion. Its something I obviously need to get more well versed on, but I will tell you that we stand ready to assist and help in whatever calculations and determinations may be necessary to improve that aspect of it.

As it relates to the houses, I think one of the efforts that we're trying to do -- and I can only speak to rural communities on this -- we are really trying to enable homeowners of older homes to utilize the recovery and reinvestment proceeds, the weatherization money that's available, to aggressively utilize that.

We have a goal of one million houses countrywide to be weatherized and I know that you all have looked at tax credits and ways in which you can incent the purchase of more energy efficient appliances and be able to provide, as you have with furnaces in the past, the capacity of people to actually get their money back with savings in energy costs. I think we should be doing everything we can.

As it relates to climate change generally, there's the energy efficiency side, there's the conservation side and there's the new technologies and clean technology side; all of that has to be advanced.

REP. SCOTT: You know, my point is that older homes are more predominate in rural areas.

If this bias is not corrected, it would have a disproportionate impact in rural communities if there's not some other way of addressing this issue; direct payments maybe.

SEC. VILSACK: There are a multitude of programs within USDA that could be directed to assist or help homeowners respond and address and make their homes more efficient to try to overcome whatever bias might be created in any bill.

We're prepared to use our tools as best we can to help homeowners. The reason this is important is as we repopulate rural communities, that old housing stock becomes actually in a sense, an inducement in the capacity for someone to have homeownership at maybe a cost that's less expensive for the home than otherwise in a suburban or urban area. That's a selling point for us.

If we can make them energy efficient, than the operation of that house becomes a selling point to try to get young families to consider living in rural communities. I think we can make that case.

REP. SCOTT: Absolutely.

I just think, Mr. Chairman, including that making direct aid to the homeowners in the rural areas would be a much more effective way of making them energy efficient and at the same time, not having a negative impact on the economy of those rural communities and depressing the housing prices.

Thank you, Mr. Secretary.

REP. PETERSON: The chair thanks the gentleman and recognizes the gentleman from California, Mr. Cardoza.

REP. CARDOZA: Thank you, Mr. Chairman and thank you, Mr. Secretary for being here today.

You've been a real friend since you've been in the office and I appreciate you very much.

I want to thank you in front of the entire committee -- well, those here -- and the audience, on implementing the dairy export enhancement program and the work that you did to make that happen; you kept your commitment, you kept your word, and I want to publically say thank you.

SEC. VILSACK: Thank you.

REP. CARDOZA: I know it wasn't always easy.

Mr. Secretary, I want to discuss with you some of the issues about the last environmental bill -- the big omnibus bill that we did in the Congress was the Endangered Species Act and like this one, incredibly well intentioned, but it has potential ramifications that are unanticipated in its implementation.

I want to start and preface my comments today by telling you that I think global warming is real, I think your statement with regard to the scientists and the conclusions amongst those knowledgeable on the topic, are accurate. I want to tell you that I've been to places like South America -- the tip of South America -- gone all the way up to the glaciers.

There's a place called the Glacier Hotel that is now surrounded by dirt and the glacier's way up the hill because of global warming and climate change; I think it's a real problem and I think it's an imperative that we need to try and work on.

But, I'm very concerned about the impacts of the specific legislation, both possibly foreseen now and those that might be unforeseen. I'm going to reference the ESA and the drought that's happening in my district right now. We just had another biological opinion on salmon that coincides with the biological opinion on smelt.

Where I come from, the most endangered species might be the farmers that are trying to till land because without water, you can't farm -- as you well know. We do a lot of irrigation; we used to be a desert at one time. I think that the legislation has actually caused us, in its implementation, to have the courts interpret those rules in such a way that we have a man-made drought and a man-made crisis for agriculture. And so, I want to raise that.

And I'm just going to raise my other issue and let you comment on both of them at the conclusion. The second part of this is that, as we look at the way this bill is written and the work that I have had to do with EPA, I have found that farmers tend to be environmentalists and they understand rural America, but the folks that work at EPA tend to be urban, and it doesn't work the other way. They don't get agriculture. They don't get rural America. They form their views of the world in large cities and then expect us to implement their views of the world.

And it's a cultural bias that I think is very important to take into consideration as we decide who administers the program. I think that the USDA can be incredibly positive and effective stewards of our Gods-given planet, but I'm not so sure that EPA can understand the dynamics of rural America. And so, I am going to take a very jaundiced view of this legislation, if, Sir, you're not in charge. And with that, I'll give you the opportunity to respond.

SEC. VILSACK: Thank you, Representative.

First of all, let me express my understanding of your concern about your farmers and specifically, your dairy farmers. It is a difficult, stressful situation, and we continue to look for opportunities as we did with -- (inaudible) -- to provide some assistance. You mentioned drought. As you probably know, the Secretary of Interior and myself established a drought task force. The Secretary of Interior is sort of the lead, as he needs to be, given the issues that you've addressed, and I know that there is a good deal of sensitivity to the challenges and we're searching for ways in which we can provide assistance and help.

Let me just say that, in a broader perspective, USDA has a role and responsibility relative to the maintenance of its force that can have an impact, a positive or negative impact on water, on both the quantity and the quality of water, and what I hope to be able to do with staff and with the forest service is to integrate proper management and maintenance processes with the assistance of Congress in providing us the proper budgeting proposals in terms of maintaining the forests, linking that to our working lands and the private working lands programs of NRCS and establishing a better link with our urban friends, so that they understand and appreciate, as the farmers do, the importance of forests and water.

And I hope that, through that effort, we can do a better job of being conservers of that. Let me also join in your comments about farmers being stewards of the land. No one cares more deeply about the health and welfare of soil and water than the people who rely on the soil and water for their very livelihood. Every agency of government has their area of expertise, their area where they specialize, their area where they know more than a lot of folks, and I would suggest, with respect and with pride that the USDA and the people who work at the USDA care deeply about the farmers they serve and the land and the water that we're talking about, and as a result, over a period of years and decades have developed a level of expertise, both in their relationship with farmers and in their understanding of what farmers need and do that, I think, puts them in a unique position to contribute significantly as we embark on climate change legislation.

And we stand ready to partner with all of the agencies, and hopefully, in a framework that you all establish that allows each agency to utilize its strengths to complement the strengths of other departments. And I think we have, as I said earlier, a unique set of tools. And we're prepared to use them, if given the opportunity.

REP. CARDOZA: Thank you.

REP. COLLIN C. PETERSON (D-MN): The Chair thanks the gentleman and recognizes the gentleman from Texas.

REP. K. MICHAEL CONAWAY (R-TX): Thank you, Mr. Chairman.

Mr. Secretary, it's good to see you again. Mr. Secretary, there's an old saying in Texas that, about a cowboy that thinks he's bigger than he is, and he says, we refer to those folks as "all hat, no cattle." And when I look at this energy bill, that phrase comes to my mind, that this bill, when it goes to energy title, it is all hat and no cattle.

As a tax bill, it's all tax and no energy. And one of the things that concerns me about that is that it's being sold as an energy bill. And when you look through the bill, and I haven't read it all, but it doesn't give us much hope that we are going to make much of a significant dent in our dependency on foreign energy. But more importantly, as I look at what the impact could be, I hear this administration talking about reducing the safety net for agriculture. I look at the consequences of this bill and it increases the costs of inputs and I think about my congressional district, where the soils are such that there's going to be very little opportunity for them to participate in any carbon offsets.

And then when I listen to other people and not just conservative folks, but folks that maybe are a little more left leaning, economist Martin Feldstein, this week or last week, from Harvard, supposed to be a smart guy, says "This plan is all pain and no gain." And he goes on to say that a 15 percent reduction would reduce global CO2 by less than four percent. And he goes on to say unless China and India sign on, it puts America at a huge disadvantage.

And I know your passion for bringing new farmers into agriculture. I'm worried about new farmers, but I'm also worried about old farmers. But when I look at that scenario, that doesn't paint a very pretty picture for agriculture, particularly, for example, cotton which we grow in my district. India and China are some of our competitors. India and China buys some of our cotton, as you know.

But if our competitors are not going to sign onto this and we're going to sign on it and we're going to put this huge burden on American business, and particularly, American farm families, I'm trying to figure out, and then I find out that maybe we might, we might reduce CO2 by less than four percent globally. I think, what I need from you, Mr. Secretary, and I think this committee needs from you, is you need to write us a letter and assure us that, in your best analysis, your best understanding of this bill, that you do not think it will have a significant impact on American agriculture. If you're not able to write that letter, then I'm very concerned about that. So I would give you the floor.

SEC. VILSACK: I appreciate the opportunity to respond. You've obviously said a lot in a couple of minutes. Let me specifically respond to the China and India issue. And I think that's very strongly based on my understanding of the circumstances and my discussions with officials.

I think it is important for China and India to participate in this and I think in order for them to do so, they are, we in this country can't give them a convenient excuse not to. By failure of this country to respond to this challenge and to lead as a lot of people after our commitment in the Bali framework expect us to. They expect us to lead. We made a commitment last year to the Bali framework and that was the first indication that the United States was going to be serious about this.

They're looking forward to leadership. And so I think we will need to provide that. I think, frankly, also early adopters, I think, have a potential advantage in terms of technology and innovation, which I honestly and truly believe that we'll be able to export and create jobs here, jobs that might very well be located in small communities across the country. And since there is a significant dependence on our farm income, it is a strategy, but by no means the only strategy, for helping preserve the farmers that you want preserved and that I want preserved.

There are other strategies that we at USDA are implementing right now and will continue to implement. Again, it gets back to providing a menu, a set of choices, a set of options, as extensive as you possibly can provide.

We are cognizant of the importance of the safety net. We are cognizant of rural development. We're cognizant of exports. We're cognizant of breaking down barriers that exist in trade, all of that and other steps that we're taking are important strategies. I think this is an opportunity. The opportunity side of this has to be understood and we're committed to making it work, if you all decide that this is what you want us to do. We're committed to making it work.

REP. CONAWAY: Yes, or no, this will not have an impact on American agriculture?

SEC. VILSACK: Well --

REP. CONAWAY: No --

SEC. VILSACK: The answer, I'm going to answer our question --

REP. CONAWAY: Okay.

SEC. VILSACK: And the answer is yes, it will have an impact. Okay? It'll have an impact in terms of opening up opportunities that don't exist today, expanding opportunities in a list of choices that farmers have. Encouraging them to use land in multiple ways that could potentially be profitable.

Will there be increased costs on one side? Yes. But I believe at that the end of the day, the costs, if we structure this right, if we manage it right, I think the opportunity side is beneficial to the farmer. And I'm committed to making it work from the USDA perspective to make it as beneficial as possible for the farmer.

REP. CONAWAY: Do you think it's structured correctly?

SEC. VILSACK: I think that it's important to specifically support the notion, as I think everyone in this committee, as I listen to what you all have to say, I think all of you know, whether you agree on the bill or not, I think you all agree that agriculture and forestry has a role to play, and that that role is an important role to recognize in any legislation that goes forward. And I certainly agree with that.

REP. CONAWAY: But I heard you say, you haven't had a chance, really to look at some of the data, so you're really not prepared today to endorse this bill, or are you endorsing this bill?

SEC. VILSACK: I'm endorsing the opportunity side of cap and trade. I'm endorsing the opportunity side that I believe exists because agriculture is seven to eight to ten percent of the problem of greenhouse gases, and by most estimates, it's somewhere between 20 and 25 percent of the solution.

That leads me to conclude that there's an opportunity side to this that we need to maximize and we need to take advantage of.

REP. CONAWAY: And is it worth trillions of dollars for a four percent or maybe less return in CO2?

SEC. VILSACK: I've not had an opportunity to look at the study that you reference on that specific number, but I will tell you that the challenge we face, and if I could just spend a minute to respond, the challenge we face, I think, is probably, in my view, best articulated by a recent report from the McKenzie Group, where they suggested that the challenge that we face today is improving and increasing the productivity of a ton of carbon that we emit into the air, or the equivalent of a ton, similar to what we did with the Industrial Revolution.

We increased productivity tenfold during the Industrial Revolution. We need to do something similar to that today. Today, we produce about $730 worth of goods and services from a ton of carbon emitted into the atmosphere. We need to get that up to $7300 in order to reach the thresholds that are being discussed, $7300 from $730. A tenfold increase. All right?

Well we did it with the Industrial Revolution. The challenge, though, is the timeframe. The Industrial Revolution was 125 years. We have roughly 40 years or so to get it done. We've got to get working. It could be done. It's been done before. We've seen tenfold increases in productivity that have been done before. It's been done before. It can be done again, but we have to get going.

REP. COLLIN C. PETERSON (D-MN): I thank the gentleman. I think we're done on our side.

So the gentle lady from Wyoming, Ms. Lummis.

REP. CYNTHIA LUMMIS (R-WY): Thank you, Mr. Chairman.

And Mr. Secretary, I'm so pleased to hear you talking about innovation and American ingenuity and what a role it can play in climate change. And so, if that's the case, why don't we do this? There are two elements to this bill. There's cap and then there's trade. And the cap part is to place a limit on carbon emissions, a goal that we will meet by the year 2050.

Why don't we just go with that? Why don't we just say let's place a cap on carbon emissions so the president can go to Copenhagen and say we have placed a cap on our emissions. We have set a goal, and through American ingenuity and American productivity and innovation, our industries will meet that goal.

Instead, we have this enormous, complicated, incomprehensible trade component which will cost farms and ranchers all over this country hundreds of millions of dollars in aggregate, and that has nothing to do with a cap. So if this bill were really about climate change, I do not, for the life of me, understand why it's not just a cap, relying on American business ingenuity and our strength of character to figure out constructive business ways to meet the cap. Instead, there's this massive tax component that has nothing to do with the environment. What's your response to that?

SEC. VILSACK: Well, I think that the desire is to establish a market based system and in order to do that you have to basically put a price, if you will, on carbon and as you do that, you have to create a market in which that commodity, if you will, can be traded. And depending upon how you do it, whether you auction off allowances or whether you allocate them, you can, I think, accelerate innovation.

Secondly, I think it's important and necessary for us to figure out ways in which we can mesh what has already taken place internationally, so that we don't put our companies at a competitive disadvantage. If you just establish a cap, it is conceivable that you create a competitive disadvantage. If you allow us to mesh our systems, I think you put us in a better position to compete.

So I think there are many reasons why it's structured the way it is. Obviously, there's a lot of debate on how to do this and you're having it today. And I apparently am in the middle of it.

REP. LUMMIS: (Laughing) Indeed you are. So let's move on to a topic that's near and dear to your heart as an Iowan. Do you support the use of ethanol as part of the renewable energy solution?

SEC. VILSACK: Yes.

REP. LUMMIS: Okay. Well, then you're no doubt familiar with the ethanol industry's reliance on natural gas to operate their distilleries. Do you know how much natural gas is necessary to produce ethanol in support of our renewable energy efforts?

SEC. VILSACK: I don't know the specific numbers, but I also know that there are some innovations and advancements in the production of ethanol which might potentially get us away from an over-reliance on natural gas -- (inaudible) --.

REP. LUMMIS: Let me tell you, because I do just happen to know --

SEC. VILSACK: Good.

REP. LUMMIS: How much.

SEC. VILSACK: I'll learn.

REP. LUMMIS: It takes about 28 billion cubic feet of natural gas to produce one billion gallons of ethanol. In fact, some of the industry sources that I talked to have said last year alone, the ethanol industry used a trillion cubic feet of natural gas to produce the ethanol in the U.S. for the last year. Obviously, the Waxman- Markey Bill is going to drive up the cost of natural gas, putting ethanol even further away from being economically viable, which creates a further spiral, saying in order to make a viable ethanol industry, we're going to have to subsidize it even more. So there's, it seems to me that we're moving the target away from where we need to be going instead of closer.

SEC. VILSACK: Well, I mean, that doesn't take into consideration what's done with the allocations or the allowances and the resources from those allotments, or if you auction off the allowances. It also doesn't take into consideration efforts underway currently within the ethanol industry to become far more efficient in terms of energy use, and it doesn't take into consideration new technologies that may potentially get us away from utilizing energy or new energy, or being able to recycle from the production process, using the energy from the production process to continue in a sort of a continuous cycle.

So there are, this is not static. That's the issue here. I mean, we're talking about discussion points where it's not a static world. It is a changing world. It is an innovative world. And you know, I hope that as you consider this, as you look at this, as you fashion this, as you frame it, that there's at least a recognition of the innovation side of the equation, that we're just not going to stay where we are. We're going to improve. We're going to get better. We're going to be more efficient. We're going to be smarter about what we do.

REP. LUMMIS: And Mr. Chairman, I couldn't agree with you more. I'm a big believer in innovation, but I really err on the side of private market innovation to meet goals that are set by government rather than government telling private business how they're going to get there. But I do appreciate your remarks. Thank you so much.

SEC. VILSACK: Thank you.

REP. PETERSON: I thank the gentle lady.

The gentle lady from Pennsylvania, Ms. Dahlkemper.

REP. KATHLEEN A. DAHLKEMPER (D-PA): Thank you, Mr. Chairman.

And thank you, Secretary, for spending so much of your afternoon with us. This question should maybe be a little easier than some of them that you've received so far, but I want to ask you about the fact that various climate change proposals that include the carbon offset programs have indicated that such a program would need to be fully implemented and functioning shortly after the enactment of the legislation.

And I want to ask you, would such a system be able to be operational within one year after enactment, if Congress were to pass a carbon reduction program this summer? And where is the USDA in terms of being able to make that happen?

SEC. VILSACK: Well, obviously, that depends, to a certain extent, on the way in which it ultimately is done, and ultimately, the nature and structure of what you do. Having said that, you know, when the president challenged us about 32 days ago for us to implement the energy title, the Farm Bill, in 30 days, I wasn't sure we would be able to do that, but we worked hard to get it done.

Again, if we're instructed to do something, we will move mountains to get it done, because this is important for the country and it's important for rural America to get it done and get it done right. If we're given a role, we will try to do it as expeditiously and as appropriately as possible.

REP. DAHLKEMPER: Sort of on the outreach and education side of that, and kind of staying on that same USDA role, you're going to have a role in educating those in the agriculture community who really, obviously, don't have a lot of familiarity with things such as climate change mitigation concepts and actions and terminology. And I guess, what role do you see the USDA playing in providing the agriculture community with that education?

SEC. VILSACK: Well, I recognize that there are concerns and uncertainty about this, and so your question is a good one, which is that we will have a responsibility and role to educate. And the benefit for the tool or the asset that the USDA has is, is that it has a network. It doesn't have to create a network to do that education.

It has, working with extension, working with its research and economics and education aspect, working with the farm service folks, working with rural development folks, I think we have a network of people on the ground in virtually every county of this country that can provide assistance, and I think, with technology, if we wisely use technology, we can also provide information that will be easily accessible and convenient for farmers and ranchers to access.

And so I think there are tools, both human tools and technology tools that we have available to us that we'll be ready to use and are looking forward to using if you direct us to do so.

REP. DAHLKEMPER: So you currently have the technical staff with the capabilities to help relay the strategies to the average USDA client?

SEC. VILSACK: We've dealt with 750,000 conservation programs and applications and contracts, and we have technical experts, hundreds of technical experts available. I have a lot of faith and confidence in the people that work for USDA, and the reason I do is that because, as I travel around the country and I stop at farm service offices or I stop at the rural development offices, and I talk to these folks, the one thing that impresses me no matter what part of the country I'm in is how deeply committed they are to the people they serve. And if they can help, if they can provide information, I think they're prepared to do it and I think they're interested in doing it.

REP. DAHLKEMPER: Lastly, I guess, within this, if this legislation would pass, and there would be this opportunity, do you see opportunities to collaborate with other agencies, and how would you see that progressing?

SEC. VILSACK: Well, I think it's vital that there be collaboration and I think that the idea is that, as this is being constructed, that you, that the Congress understand the various strengths that each department has the expertise, the technical information, the unique experiences that each department has and utilize those experiences, and compel cooperation, compel a cooperative effort, not just at the federal level, but also at the state and local level.

REP. DAHLKEMPER: Are there specific agencies that you would see the USDA working closest with?

SEC. VILSACK: Well, I can think of three or four. The Department of Energy, EPA, the Department of Commerce, the Department of Interior, just to name a few.

REP. DAHLKEMPER: Okay. Thank you. I yield back.

REP. PETERSON: I thank the gentle lady.

The gentleman from Tennessee, Mr. Roe.

REP. DAVID P. ROE (R-TN): Thank you, Mr. Chairman.

Thank you, Mr. Secretary, for being here. I come with a background as a scientist and a mayo, and our city where I'm from, Johnson City, was voted the Green City of the year in the state and it won the EPA award for methane use in the country, and also some other. We had the first recycling program in the state, and the only one that's complete now, but I haven't seen this great growth in green jobs.

And I just met in our district with our farmers and our dairymen and they are really in desperate times there. Any added cost, I can't think of any business in the world, having run one for over 30 years, where you can increase the cost and your commodity prices don't go up, how that doesn't put you out of business. When your costs rise and your income doesn't, how do you explain that?

And also you made a comment about, and we just look at the experiences of Europe right now. It's, what happened in Europe with the EU, is that they gave out so many allowances that to carbon per ton went down from 30 Euros per ton to one-tenth of a euro per ton, and essentially, didn't do anything to lower CO2 emissions. What lowered the CO2 emissions in Europe and in the United States, which dropped almost exactly the same percentage, was our GDP went down. Our output went down.

So when you lower your GDP, CO2 necessarily will go down, and that's what I've seen. We've got another company there, a lot of our farmers work at Eastman Corporation, and Brian Ferguson is a CEO there. They use 60 carloads of coal a day. And this particular bill, they've looked at it and evaluated it, will essentially eliminate their profit.

And their options, they cannot raise prices because they compete on a world market, just like our farmers do, and what will happen at that point, they have two options, that's either to go out of business or to move overseas where they're not complying, where China and India are not. And I don't know why you think India and China, when they have a huge competitive advantage on us, are going to suddenly give us an advantage back. They won't do it. I can't believe that'll happen. Could you comment on that?

SEC. VILSACK: Well, first of all, let me respond to your comments about dairy again. I want to make sure that you know that I know how difficult that the industry is, and the difficulties they're currently having, which is why we've taken steps at USDA to provide assistance and help. And your comments suggest that there's no opportunity side to this, and I guess that's an assumption that I'm just, you and I have, I guess, a disagreement about that.

I think there is an opportunity side and if there's an opportunity side, then that's a profit opportunity side, and I think if we structure this right and operate it right, that we will provide more options, more choices and more profitable opportunities for farm families. I'm not willing to concede that it's just a total negative. I think I see the opportunity side of this.

As it relates to China and India, again, I think that we will never be able to move them where they have to be, if we don't ourselves provide some leadership. And if our leadership is to essentially say we're just not interested in doing anything, we're just going to continue to put this off, I think that plays into their hands.

REP. ROE: Well, here's the other things that EU has noted, that their energy costs, they didn't reduce CO2 usages, but the cost of business and the cost to individuals went up. The same thing has happened in Spain. And you know, right now, the absolute worst time is when our farmers, I mean they are hanging on in my district by a thread, is to increase their costs. If you do that, you're going to put them out of business.

And we can talk about innovation. I think the innovation everyone has talked about is a good thing. But today is today. And the first thing, we tried this carbon tax a year ago when oil went to $147 a barrel, and it about broke our farmers. We tried that last year. Fertilizer.

I've asked around and nobody knows what a ton of fertilizer costs. Well, it cost $1,000 for Triple 19 last year. It's down to about $650, but I can assure you, with oil and natural gas prices rising and with this carbon tax, it's going to go up through the roof.

And I'll ask one last question. Do you know how many windmills it takes to replace one power plant, one coal fired power plant, if the wind blows a steady 13 miles an hour? That's what, the TVA has passed this on to me. Do you know how many?

SEC. VILSACK: Well, it depends on the size of the windmills. (Laughter)

REP. ROE: How many?

SEC. VILSACK: Pardon?

REP. ROE: How many? Pick your size.

SEC. VILSACK: Well it depends on whether you've got one megawatt, two megawatts, so I don't know the --

REP. ROE: Thirty-seven hundred.

SEC. VILSACK: Well, let me tell you my experience with windmills and that is that it has, in my state, there has been a real opportunity created from wind. We are now the number one state in the country in terms of wind generated electricity on the grid. We've actually seen manufacturing jobs created as a result of it.

We've seen community colleges develop new training programs for maintenance jobs. And I think, and we're seeing a real interest in our farm families of having that option of being able to rent their land for a windmill and also be able to produce a crop on that land.

REP. ROE: But a plant, a gas powered plant that we're going to build in TVA is also going to create jobs --

SEC. VILSACK: Right.

REP. ROE: And also create those opportunities, too.

SEC. VILSACK: So I think you look for ways, you know, as we look at carbon sequestration, I'm intrigued by what ADM is currently looking at in terms of their carbon sequestration project, in which they're going to try to figure out ways in which they can use opportunities underground to sequester carbon, and as we look at that, that's another potential opportunity. So, I think there are opportunities here. And I'm not willing to concede that there's absolutely no opportunity side, no upside to this. I realize the concerns that you raise and I think what we have to look for is an opportunity to balance off whatever those concerns might be.

REP. ROE: I'm looking at losing 10,000 jobs and that's not good. Thank you, Mr. Chairman.

REP. PETERSON: The Chair thanks the gentleman and recognizes the gentleman from North Dakota, Mr. Pomeroy.

REP. POMEROY: Hello, Mr. Secretary. The sixth Secretary of Agriculture I've had the chance to meet in the course of my service on this committee and, knowing you, knowing your reputation, I should say, as the North Dakota watch in Iowa, I am very excited about the tenure in front of you at U.S. Department of Agriculture. In fact, you have indicated just the same kind of common sense notions about rural America that base my high opinion of you.

You've said that you think early actors in terms of favorable conservation practices, certainly, ought to have some recognition should there be an offset plan emerging under a climate change legislation. The bill does not provide for that. I couldn't agree with you more. The consequence, of course, we know the consequence. They'd tear up CRP. They'd do all this other -- they'd tear out the conservation practices so they could put them in again and get paid for them. It makes no sense, but actually, I have an adverse environmental impact and your leadership on helping us understand that one is going to be very helpful. Not help us understand it, help the process understand and include early actors as we move the legislation forward would be very important.

Another thing. I enjoyed learning of your skepticism on indirect land use as calculated by EPA. I don't think there was a state that had a better record or pursuing renewable fuel production than yours under your leadership as governor, so it had to be a terrible concern to you as a member of the cabinet to see, here, EPA comes out with this indirect land use proposal which is going to, essentially, grandfather and freeze ethanol and knock out biodiesel altogether notwithstanding the two billion gallons of production capacity we now have established.

You mentioned earlier in your testimony that you didn't think where the offsets got placed were so important because you could work with EPA. I'm curious about how it's coming, trying to talk to EPA about this indirect land use business on renewable fuels. We have not gotten very far as an Ag Committee. We had the agency in, you know, to me, it was pure nonsense that they testified and I'd be curious whether you're faring any better?

SEC. VILSACK: I appreciated the fact that Administrator Jackson was open to the suggestion of a peer review of the indirect land use. We are indeed plowing new ground and this is a fairly complicated topic and I'm encouraged by the fact that there's going to be a rigorous peer review as there needed to be. She was open to that.

We have advocated the need for us to take a look at the blend rate on ethanol as a strategy for continuing to see this industry that's important for us in terms of reducing our addition to foreign oil and creating homegrown energy opportunities. I'm hopeful. I can't say today that the blend rate is going to be increased, but I'm hopeful. There is a willingness to take a look at that.

And, you know, the willingness of the Administrator to jointly appear with me in a number of different Ag forums, I think, was an important step. Now, I recognize that there is very deep skepticism and that's why I think it's important for whatever structure is created that there is an understanding and appreciation for the unique tools and characteristics of each department and the expertise each department can bring and to take full advantage of that expertise.

REP. POMEROY: That's precisely what we think. You know, you've talked about agriculture, you've talked about new opportunities, well, we've never found agriculture, opportunity and the EPA fitting naturally in the same sentence. And so, we feel pretty strongly about this needing to be realigned and, certainly, they picked a mighty inopportune time to reinforce negative notions long held in this committee, at least by me, about the fair and discerning approach they take to production agriculture.

You know, the rule for co-ops financed under the rural utilities service within the U.S. Department of Agriculture are very anxious about this bill and they oppose it in its present form. We're looking in our area at co-ops playing such an important role in providing power to our farmers, it's coal-based power, and horrific rate increases have been projected. They indicate that the target is too short.

They've got to bring it down more quickly than technology is developed and can be implemented. They also believe giving free allowances to people who don't have carbon emission issues in their present base load generation provides a windfall to them even while we're struggling with very substantial new costs under the legislation in our parts of the country.

Have you had a chance to visit with the co-ops as part of your administration in the U.S. Department of Agriculture and do you have an impression on what they're saying?

SEC. VILSACK: I appreciate that they are concerned about the way in which the allowance allocation has been determined at this point in time. Essentially, equally based on emissions and sales which, for those who use coal, creates an issue and a problem, so we are aware of their concern about that balance and the belief that perhaps it needs to be tipped in a different direction. I also appreciate the role that the rural electric coppers play in economic development in communities. In my state, in particularly, they're very much involved, not just in providing power, but also providing resources and assistance in creating industrial parks and creating new manufacturing opportunities and trying to encourage business opportunities. So we, obviously, need to be sensitive to those concerns.

I'm anxious to work with you and with the members of this committee and the members of Congress in any way we can to help educate folks about the challenges that REC has faced so that, as you make decisions about policy, that you make them in the most informed and best way possible. They, obviously, need to survive. They're important to rural America.

REP. PETERSON: Then Chair thanks the gentleman and recognizes the gentleman from Louisiana, Mr. Cassidy.

REP. CASSIDY: Thank you, Mr. Secretary, and obviously you have a position and obviously we're expressing our concern and I'm among those. First, I'd like to say I have a statement to submit for the record.

I think what's kind of boggled my mind is that there are a lot of dots, but the dots seem to be connected by conjecture, if you will. We can hope that things will work, but we're not quite sure they will. I'll give some examples. Wow! The impact of this is going to be soon. My state is an energy state, they predict that there will be a 35-to-40 percent decrease in employment in petro chemical and in crude oil refinement in 15 years, so the timeframe of this is very short.

Now, it's kind of an immutable thing about this issue that's going to take a while for technology to be developed and deployed. When you speak of innovation as perhaps being a solution, I'm wondering will it be out there within 5-to-15 years because the dramatic loss of employment tells us that these changes will occur rapidly.

I'm looking at the amount of emissions, not by forestry but just by agriculture and, according to the CRS report I'm reading, in the last something years, it's gone from 460 million metric tons of CO2 to 582, so we're actually on an upward slope of emissions from the Ag sector with only about a 30 million sequestration by Ag and yet we're going to develop and deploy the technology to reverse not just the upward rise, but actually bring it down within 5-to-15 years.

It just doesn't seem like it's going to happen. You're thoughts?

SEC. VILSACK: I wish we could travel back 15 years ago and see what technology existed then and compare it to the technology today in all aspects of our economy.

REP. CASSIDY: But if I could, I would say that 16 years ago, we would've known that it was about to be born. It isn't as if it had not yet been -- in terms of the technology that was going to be deployed 14 years ago or 10 years ago, that means 15 years ago it was about to be birthed.

SEC. VILSACK: With respect, I'm not so sure that that's necessarily the case with all the technologies. You know, you and I must be looking at different numbers and different figures because I'm of the view that agriculture's capacity to sequester and agriculture's sequestering capacity today outstrips its emissions.

REP. CASSIDY: No, that is if you combine Ag plus Forestry. If you split those up -- I'm looking at a CRS report from June 9, 2009, it's a table on page three -- and if you split Ag from Forestry --

SEC. VILSACK: That's tough to do because so many forests are privately owned and, basically, are part of what we grow and what we raised in this country, so I'm sure that's hard to do.

REP. CASSIDY: See, I didn't know that the farmer, it wasn't my impression that the farmer would simultaneously have a large forest interest.

SEC. VILSACK: Some farmers, I mean, the farm I own, about 90 acres of it is timber.

REP. CASSIDY: I think of my Louisiana sugar cane farmers and my rice growers and it seems unlikely that they have a large --

SEC. VILSACK: Well, you know, it's obviously clear that there are differences around the country, but bottom line, I think, it's hard to separate the two, maybe because, within USDA, we think the forest service is part of our responsibility and we see that as part of agriculture.

REP. CASSIDY: You know, CRS splits it out and when I look at that and I look at the rate of growth of emissions in just the Ag sector, it seems, again, are we, in 5-to-10 years, going to be able to develop and deploy that which not only reverses--

SEC. VILSACK: I can just, I mean, again, this is actually two conversations I've had with CEOs of major seed companies and they are genuinely convinced within 10 years you're going to see significant increases in productivity and significant decreases in inputs by virtue of just seed technology alone.

REP. CASSIDY: And I wonder if they're going to use more fertilizer, the cost of which will increase?

SEC. VILSACK: Well, I don't think so. I don't think that, no, because they're talking about the input side--

REP. CASSIDY: Well, let me ask something else because I'm almost out of time. I have to admit, it also seems a dot that is not connected in the sense that we're imagining there's going to be increased rural activity and, yet, as I look at the graph, inevitably, we're going to have to let more land go fallow in order for it to be forested, if I'm pronouncing that correctly -- I've just learned that term -- so the land is going fallow, so we're going to produce less and yet, at the same time, our coal-fired co-ops are going to increase the utility rates for the farmers and the farmers who are driving longer distances to get anywhere because they live in a rural area are paying more for gasoline. It seems like we're truly increasing the cost of living in the rural area fairly substantially.

SEC. VILSACK: That assumes that we don't have productivity increases which I'm not willing to concede. It also assumes that there isn't a network of local markets that are created through our efforts to try to link local consumption with local production. It assumes that there isn't going to be a biofuels industry that allows us to have regional distribution of bio refineries that are closer so farmers have markets where they don't necessarily have to transport product as far. It assumes that there isn't going to be markets for agricultural products today that are considered waste material and have little or no value.

It makes a lot of assumptions that, frankly, I'm not willing to concede. I believe that all of what I just outlined can and ought to happen and I believe, with the right set of policies, it will happen.

REP. CASSIDY: It's hard for me to imagine that someone growing rice in south Louisiana will be able to sell the entirety of their product within south Louisiana, so inevitably, there's going to be some transportation that's involved there. And I will say, again, going back to what Brookings suggests for the loss of employment in petro chemical, we have a timeframe which is tight, 5-15 years, so again, what I may say you're conjecturing has to be developed and deployed within 5-to-15, that seems unlikely.

SEC. VILSACK: I could be wrong about this, I could be completely wrong about it because I don't have the numbers, but I would be willing to bet that we have more employed people in America today than we did 15 years ago.

REP. CASSIDY: Yes, but in the real world--

SEC. VILSACK: And I'm willing to, you know, maybe we could come back 10 years from now and you and I can settle this up, but I'm willing to bet we have more employed Americans 10 years from now than we do today.

REP. CASSIDY: Not in petro chemical. Look at the Brookings.

SEC. VILSACK: Well, it may be industries that we don't even know exist and it may be opportunities. I mean--

REP. CASSIDY: Brookings actually says we're going to be down 0.5 percent overall in the overall economy. The energy sector gets really battered and that's Brookings which, obviously, would've left it sooner.

Actually, I'm sorry, I'd love to keep talking, but I've way gone over my time.

REP. PETERSON: The Chair thanks the gentleman and recognizes the gentlewoman from Ohio.

REP. SCHMIDT: Thank you very much. Before I begin, I have two letters, two different foods groups that I would like to offer for testimony, if I could, sir? And thank you for that. I'll leave them here to collect.

Mr. Secretary, I don't even know where to begin. I'm a pretty practical, skeptical, direct, to-the-point person. I am a farmer and, you know, you've said something that really has irked me.

You said "assume," "assumption," and my mother said, "Break it apart, you won't like what you hear." We're getting ready to embark on something, untraveled water, in this country and I don't know where we're going to be in 30 years when we do this, but my main concern are the farmers that I represent in my district.

You go on and you say that we're going to have these great opportunities, but I look at where my farmers are and where they live and the roads and the infrastructure and I'm not so sure they can really dramatically change their way of life.

I also know that when we implement this bill and if this Congress chooses to do this that they're going to have a direct production cost without reaping the benefits and I'm really concerned with that. Because the bottom line is I represent those people first, not the rest of the world.

Having said that and telling you my practical nature and skepticism and my directness, I've got a bunch of questions I want to ask you and I'm going to ask them all so I can get my time claimed.

I've heard a lot of generalities about the new jobs to be created in small rural towns. You need to visit some of mine so you can show me where they're going to be. Specifically, what new jobs are you going to bring to Adams County? What new jobs are you going to bring to Pike County, Scioto County, Claremont County, and Brown County?

You said that the USDA would work together with the EPA on the application of this legislation to our farmers, but what guarantees do we have that the EPA won't trump you? Exactly how are you going to work together and how are you going to guarantee that the USDA will be the representative for our farmers?

Do you have any specific details and data to give us before we vote on this bill and not generalities and not assumptions, or are you just asking us to have faith and hope?

Because, you see, sir, I'm a farmer and I do believe in that handshake, but before I make that handshake, I get all my ducks in a row and all my questions answered. So before I do this handshake, I got to have these questions answered a bunch of others. Thank you.

SEC. VILSACK: I'll try to respond as best I can in the time I've got. There are a number of strategies that we need to take a look at in terms of job growth in rural America in addition to and apart from this particular bill. You asked what new jobs can be created. I see an opportunity in many parts of the country where we, as I said earlier, link local production with local consumption. To do that, you have to build an infrastructure that doesn't necessarily exist in the rural communities today.

REP. SCHMIDT: I have to interrupt you because you really need to see my roads so you can understand the kind of infrastructure and demands you're going to place.

SEC. VILSACK: And part of what I'm talking about is the infrastructure that would allow opportunities for local producers to be able to network together to have the cooling and refrigeration systems, to have the processing systems that would allow them to, basically, provide opportunities to institutional purchasers in communities like schools, jails, other groups, colleges, and so forth to link that local production with local consumption. I think there is opportunity there. I think there are opportunities for construction jobs; I think there are opportunities for full-time employment; and I think there are opportunities for additional local markets that reduce the cost of transport and create competition for that farmer's product.

REP. SCHMIDT: So then you're saying, sir, that they're not going to be farmers anymore, they're going to be doing something else?

SEC. VILSACK: No. No. They're going to farm. They're actually going to farm.

REP. SCHMIDT: But if their production costs go up and you say we're going to offset this by new opportunities and you're saying these new opportunities aren't farm related, then I guess, they're not going to farm?

SEC. VILSACK: No, well, you asked -- I'm sorry, I must've misunderstood your question. I thought you were asking for the discussion--

REP. SCHMIDT: You said that there are new opportunities and I want new opportunities for people, but I also want my folks to be able to farm.

SEC. VILSACK: I agree with you. Ninety percent of farms today, farm families today, have off farm income opportunities. The vast majority of farmers require that either for healthcare purposes or for income purposes and, if you create jobs in rural areas, then you create opportunities for farmers to supplement, opportunities for farmers to maintain the farm. I think that's a strategy. There are multiple ways in which you can create new jobs.

I think there is an opportunity side to this discussion we're having today. I think there are real development components to this that we haven't had a chance to talk about today which I'd love to be able to talk about which is in part local consumption, local production, it's in part wealth creation strategies that have been used successfully in parts of the country to create economic opportunity. And so, I think there are multiple strategies.

REP. SCHMIDT: Sir, you keep saying "multiple strategies." I just want to go back to my farmers and say, "Hey, guys in West Union, here's what we're going to do for you," because they're practical like me. They want answers. They don't want, "We're going to build something." They want to know what you're going to build.

SEC. VILSACK: Well, we're going to build refineries that will process agricultural products and waste products into fuel. We're going to create local production and processing facilities that will allow local consumption. We're going to create manufacturing jobs based on renewable energy depending upon the nature of renewable energy that makes sense for your area.

In my state, it is wind, so therefore, we have wind manufacturing jobs, we have turbines being made, we have blades being made, we have parts that the 8,800--

REP. SCHMIDT: But, sir, when?

SEC. VILSACK: Well, it's happening right now.

REP. SCHMIDT: And so, that's for your area. How are you going to build it in my area and what you are going to build in my area and where are you going to get the refinery? We've already got refineries trying to be built now that are not so profitable, so I'm really kind of concerned with all these generalities.

SEC. VILSACK: That's the reason why the President instructed us to get the energy title, the farm bill, implemented as quickly as we could so that resources could be made available to work with your economic development folks in your counties, which I'm happy to do, to try to get that done immediately. You all have passed a farm bill in which you've created multiple options here and these options are now in the process of being worked through and monies are being made available.

It's the reason why we have a Recovery and Reinvestment Act and we're using our rural development resources to try to create opportunities in communities.

That money is going to work to create jobs. It's happening now, it can happen, and I'm happy to work with you and I'd be happy to help--

REP. SCHMIDT: Well, we really do need your help, sir, and I know that, you know, I sound a little skeptical and a little nervous and maybe a little edgy about this, but again, I represent the folks in the 2nd Congressional District in Ohio and those are my frontline people and my farmers are hanging on by a threat. With what happened with the energy costs last year, they're already dipping into their savings. They can't afford another tidal wave of an economic catastrophe against them.

They're nervous about this bill and I'm nervous with them and I just want to make sure that whatever we do doesn't dramatically affect us because, whenever you change the paradigm, you create winners and losers and I don't want the folks in my district to be losers. That might be selfish, but I know I'm over time.

REP. PETERSON: The Chair thanks the gentlewoman.

Mr. Secretary, you have been very generous with your time and the whole committee thanks you for that, but I think you have a pretty good flavor of the great concerns that have been expressed here on both sides of the aisle. We are very nervous about this bill and we need your help. So, sir, thank you very much for your time today.

SEC. VILSACK: Thank you all.

REP. PETERSON: Now, I'd like to welcome our second panel.

Mr. Bob Stallman, President of the American Farm Bureau Federation; Mr. Steve Ruddell, Senior Associate, First Environment; Mr. Earl Garber, Second Vice President, National Association of Conservation Districts from Louisiana; Mr. Fred Yoder, Past President and Climate Change Task Force Member, National Association of Corn Growers from Ohio; Mr. Roger Johnson, President, National Farmers Union; Mr. Ken Nobis, Treasurer, National Milk Producers Federation from Michigan.

Mr. Stallman, when you're ready, you may begin. I thank all of you for your patience as well.

MR. BOB STALLMAN: Thank you, Mr. Chairman, members of the committee. My name is Bob Stallman. I'm a rice and cattle producer from Columbus, Texas, and am testifying today as President of the American Farm Bureau Federation. We appreciate the invitation to testify.

How Congress addresses climate change will have a tremendous impact on agriculture. We welcome and support the committee's attention to the needs and concerns of farmers and ranchers. Those concerns are extensive. They include not only mitigating the impact of higher energy costs, but assuring that wherever and however possible, we maximize the role of agriculture producers in any climate policy including maximizing the opportunities to reduce and sequester carbon.

From an agricultural perspective, there are several changes we believe must be made to the legislation reported from the Energy and Commerce Committee.

First, the legislation must include a strong, robust statutorily authorized program with agricultural offsets that are explicitly included in the legislative language. Early adopters must be eligible to participate in the program. Two, the U.S. Department of Agriculture must be given the primary role in developing, administering, and overseeing this offset program. And, three, all of the provisions of HR 2409, particularly those correct in the controversy over measuring indirect land use and the definition of bowel mass must be incorporated in any climate change bill.

From a more general policy perspective, HR 2454 has two critical flaws that must be remedied.

One, there must be some mechanism included in the bill to assure that other countries, particularly China and India, are part of the global climate solution. If that is not done, our country will be engaging in the economic equivalent of unilateral disarmament.

Two, Congress must not create a hole in America's energy supply. If carbon-based energy is taken out, something else, nuclear for example, must be substituted. We must plug the hole created by the bill or run the risk of congressionally mandated shortages that will create spikes in energy prices. The agricultural sector, in particular, is poorly equipped to absorb or pass on such costs.

Determining the exact economic impact to agriculture of HR 2454 is extraordinarily difficult because the range of variables is enormous and assumptions play a large role in determining the outcome. For instance, how much and how quickly will nuclear energy grow? When and how will China or India control their own emissions? Will carbon capture and sequestration come on line in five years or fifteen? Will international offsets crowd out domestic offsets? What if nuclear facilities are not approved and constructed as needed, or that wind and solar generation does not come on line as quickly as projected?

These are just a few of the questions no one today can answer.

We would strongly urge Congress, not only to ask those questions before the bill is brought to the floor, but to have some reliable analysis of alternate scenarios beyond just the best case to provide answers before they pass a bill that is bound to affect every American.

But it appears debate on this bill will occur as early as this month, so I share with the committee out best estimates. In the near term, by about 2020, we project input costs to rise for agriculture by five billion dollars versus a continuation of current policy translating into a nearly five billion dollar reduction in farm income. Foreign production would face some of the highest increases in cost with a rise of nine percent. Reduction in corn plantings would lead to slightly higher corn prices just as movement into soybeans would drive those prices lower.

Overall cash receipts for the crop sector expected to rise by five to six hundred million, but these revenue increases for crops translate almost directly to increased feed costs for the livestock industry. These early period costs in industry effects may not seem to be all that large, but the 2020 costs are only the tip of the iceberg. Do not lose sight of the fact that this bill will dictate emission caps from now through 2050.

While there are many costs mitigation provisions in this bill for the early years, they eventually run out at about the same time some of the emission caps really begin to bite. In 2050, with the full effects of the cap and the end of the provision of free allowances, we would expect at least a 20 percent reduction in net farm income relative to what would otherwise be the case. And this is probably a best case scenario since we used the figures from EPA's analysis of the Waxman-Markey proposal.

Earlier analysis by EPA on the Lieberman-Warner proposal suggests carbon prices would be at least twice as high if these assumptions do not come true and we can certainly devise a set of assumptions as valid as those used by the EPA that could cut farm income nearly in half. Remember, too, that some agricultural producers will never benefit from the legislation under any scenario. For example, most fruit and vegetable producers will not qualify for offsets, western ranchers whose operations are heavily dependent on the use of Federal lands for livestock forage also had very limited offset opportunities, yet these other producers will incur the same increased fuel, fertilizer, and energy costs as their counterparts.

In closing, Mr. Chairman, we remain very concerned about the broad potential adverse impacts of cap and trade on agriculture. Even though some say agriculture will benefit, that will depend to a great degree on where the producer is located, what he or she grows, and how his or her business model can take advantage of any provisions yet to be incorporated in the legislation. Not every day a farmer could afford to capture methane. It's a capital intensive endeavor; not every farmer lives in a region where wind turbines are an option; not every farmer can take advantage of no till; and not every farmer has the land to set aside to plant trees.

It is absolutely critical that this committee exercises its prerogatives under the Rules of the House and make this legislation as strong as possible for agriculture. Thank you for the invitation to testify. I look forward to answering your questions.

REP. PETERSON: Thank you, Mr. Stallman. The Chair recognizes Mr. Ruddell.

MR. RUDDELL: Chairman Peterson, Ranking Member Lucas, members of the committee, thank you for the opportunity to appear before you today to discuss pending climate legislation, particularly the role of our nation's forests in this legislation.

I am a professional forester and currently lead First Environment's environmental markets consulting and verification services, including bio-carbon. First Environment is an American National Standards Institute accredited company that conducts greenhouse gas and offset project validations and verifications for voluntary market programs like The Climate Registry, the Voluntary Carbon Standard, the Climate Action Reserve and the Chicago Climate Exchange.

Regarding the role of forests in mitigating climate change, a primary goal in a U.S. climate bill should be to keep our forests as forests. U.S. climate legislation must support policies and programs that provide incentives for private landowners to manage their lands for increasing carbon sequestration and storage, to avoid conversion to other land uses, to encourage sustainable forestry practices and to support the complementary relationships between forest carbon markets and other forest ecosystem service markets that will evolve.

I'd like to spend most of my time today discussing the opportunities for forests to play a role in carbon offset markets. Recent EPA estimates of the Waxman-Markey Climate bill point out that forests, mostly improved forest management activities, are likely to produce 81 percent of offsets, equating to roughly 290 million tons of carbon annually.

While forests have this tremendous potential, this can only be tapped if the rules for their participation in these markets are workable. Unfortunately, my read of the current legislation is that there is a lack of clarity in how the EPA might interpret the legislation, and there is no clear recognition that EPA will develop the opportunity for forests to participate in offset markets.

I believe this must be improved to give the needed market signals and reassurance that forests will be part of any emissions reduction scheme. With this in mind, I offer six suggestions for your consideration as you work to improve this legislation:

First, ensure that all private forests can participate. U.S. legislation must provide incentives equitably so that both small and large forests can participate in a future forest carbon offsets market.

Second, ensure a strong USDA role. This committee made it clear in the 2008 Farm Bill, that USDA would take a leading role in establishing carbon offset rules with the establishment of the Office of Ecosystem Services and Markets. But more urgent is that the process of developing forest carbon standards begins moving forward today. This process will take at least 24 months, and markets are waiting now for clear signals.

Third, clearly recognize forest project types. Provide clear direction to EPA to develop offset project rules for forest projects including aforestation, reforestation, avoided deforestation and improved forest management with appropriate crediting for wood products.

Fourth, recognize and reward early action. Early action taken to develop and trade offset projects in the current voluntary markets must not be ignored. Forest landowners and forest carbon investors need to know that their past efforts to mitigate climate change will be recognized.

Fifth, environmental integrity standards must be workable. Standards such as baselines, additionally, leakage, and permanence, must all be workable. Unfortunately, my read of the current legislation is that there is a lack of clarity as to whether these standards will work for landowners.

And sixth, third-party verification will ensure program integrity. Third-party verification conducted by verifiers conducted by the American National Standards Institute will provide Congress with assurances that offset project emission reductions have integrity and credibility.

In closing, achieving a balance of environmental integrity and economic viability within forest offset project rules is critical. I address some of these in my written testimony. These are issues that make offset projects workable, but are probably not detailed, but the details don't need to be worked out in this legislation.

Thank you again for the opportunity to come before you today. And I am happy to answer questions that you may have.

REP. PETERSON: Thank you. Mr. Garber.

MR. GARBER: Thank you, Mr. Chairman. Good Afternoon. My name is Earl Garber. I am the second vice president and the chair of the legislative committee of the National Association of Conservation Districts, better known as NACD.

I own a rice, soybean and hay farming operation in Basile, Louisiana and work as a crop consultant with G&H Seed Company. I have served as a supervisor with the Acadia Soil and Water Conservation District in southwest Louisiana since 1981. I am pleased to be here today to discuss climate change legislation and the work of several conservation districts across the country that serve as verifiers of carbon credit contracts.

NACD has always supported locally-led conservation and maintaining our member district's ability to work directly with communities to protect natural resources. We recommend that climate change legislation recognize the contributions of agriculture, forestry and community conservation efforts to reduce greenhouse gas emissions via a market-based payment for emissions offsets.

Building upon our foundation of natural-resource protection, we believe that additional gains can be made to sequester carbon and reduce greenhouse gas emissions. However, we must also recognize and reimburse those landowners that have already taken appropriate conservation activities on their land, in order to protect existing valuable carbon stocks that have already been built up. We should not risk losing the conservation efforts, the sequestered carbon and the natural resource protections we have put in place today or penalize the early adopters.

Today, several of our members are working with partners, participating in carbon sequestration efforts to mitigate greenhouse gas emissions. Conservation districts are a known and trusted resource assisting landowners to ensure that they understand their climate mitigation contracts and are fulfilling their contractual obligations.

Conservation districts in Illinois, Michigan, North Dakota are working as verifiers of the carbon contracts through the Chicago Climate Exchange. Conservation districts in Oklahoma are also verifying under the Oklahoma carbon initiative.

The work being done in Illinois is a good example of the work the conservation district is doing to verify carbon sequestration contracts. Landowners sign contracts with aggregators to perform activities that sequester carbon through agriculture and forestry conservation practices.

Under current markets, such as CCX, producers that enroll land are paid annually at a standardized rate for carbon per acre. The Illinois Association of Conservation Districts serves as a verifier of carbon sequestration contracts or no till under the CCX. Their work is predominantly in the State of Illinois.

Districts undertake contract verification of 10 percent of the total acres under contract filed under a specific timeframe, or they refer to them as pools when these contracts are entered into. Verification reviews the adherence to the contract requirements and the assurance that conservation practices meet or exceed NRCS technical standards. Verification costs are shared among producers based on the percentage of acreage in the pool.

Costs associated with a conservation district activity for verification will vary depending on the location of the producer and such factors as the size and proximity of tracts of land that are enrolled. Smaller, more disbursed tracts of land typically incur greater cost than larger contiguous tracts. Average verification costs in states in which conservation districts are involved in carbon trading average $120 per contract or they generally charge $30 per hour plus transportation costs.

NACD believes that a carbon offset program can successfully work if USDA is provided a leadership role and producers undertake carbon sequestration efforts that result in real, verifiable carbon offsets. Today, verifiers of contracts under the CCX system utilize NRCS practice standards in performing verification. We encourage the continuation of this model under any climate legislation.

Many current farm bill conservation programs -- such as EQUIP, WHIP and CRP -- promote conservation practices that also provide carbon sequestration benefits. As climate-change legislation is developed, it is important to consider the current benefits of these programs and the carbon credits they generate qualify under any cap- and-trade system.

Conservation districts are currently undertaking the role of verifiers under the voluntary market that exists today. NACD would like to ensure that conservation districts can continue to provide this service under any climate legislation.

I thank you for the opportunity to testify today on behalf of conservation districts across the country.

REP. PETERSON: Thank you. Mr. Yoder, please.

MR. YODER: Thank you, Mr. Chairman and distinguished members of the committee. I want to thank you for the opportunity to testify today on behalf of the National Corn Growers Association on H.R. 2454. I applaud the committee's efforts to focus attention on the important role the agriculture industry has in the area of climate change.

My name is Fred Yoder, and I grow corn, soybeans and wheat near Plain City, Ohio, and have been an active participant in climate change discussions for a long time. Last December, I had the opportunity to attend and participate in the United Nations World Climate Conference, in Poland, where I was able to discuss and talk to others about the role of agriculture in reducing greenhouse gas emissions.

I feel strongly that as Congress -- legislation that agriculture should be considered as a significant part of the broader solution as we evaluate ways to reduce greenhouse gas emissions. Our nation's corn growers can play a major role in a cap-and-trade system through sequestering carbon on agriculture lands. In fact, numerous economic analyses have indicated that a robust offset program will significantly reduce the costs of a cap-and-trade program for consumers.

In the near term, greenhouse gas reductions from livestock and agricultural conservation practices are the easiest and most readily available means of achieving reductions -- on a meaningful scale. The EPA estimates that agricultural and forestry lands can sequester at least twenty percent of all annual greenhouse gas emissions in the United States.

Given these opportunities, it is critical that any climate-change legislation seeks to maximize agriculture's participation and ensure greenhouse gas reductions while sustaining a strong farm economy.

For years, corn growers have adopted conservation practices such as no till or reduced tillage, which result in a net benefit of carbon stored in the soil. In fact, on my own farm, I engage in both no till and reduced tillage.

For the past five years, I have worked with my state association, the Ohio Corn Growers, on a research project with Dr. Rattan Lal of the Ohio State University on soil carbon sequestration research. As part of our research, we have on-farm plots in six locations with various soil types and their carbon capture capabilities, which there are definitely differences in the soil types. This is just one example of the proactive steps that our industry has taken.

NCGA has identified several critical elements that are currently lacking with H.R. 2454 and we hope we can address this with this committee. As many of you -- (audio break) -- of additionality are also of the utmost importance.

Under the Kyoto Protocol, member nations agreed to targeted greenhouse gas emission reductions relative to the 1990 levels. Therefore, all greenhouse gas reductions subsequent to that date would contribute to meeting the goals set out in the international agreement.

NCGA feels strongly that agricultural practices that originated after January 1, 1991, should be considered additional and contributing to the goals of the treaty. Now, we are not recommending credits for carbon sequestration that occurred between 1991 and 2009. However, producers who have adopted sequestration practices during that timeframe should not be placed at a disadvantage in the competition by being excluded from the compensation for further offsets that occur as a result of their ongoing efforts.

The House Energy and Commerce Committee acknowledges this issue by including that language that gives the EPA Administrator discretion for moving the early actors dates back to 2001. However, we believe the language referring to 1991 more accurately reflects the goals of the Kyoto Protocol.

Additionally, an important component of creating a successful cap-and-trade system is ensuring that domestic offsets are not artificially limited. While H.R. 2454 includes one-billion tons of domestic offsets, we believe the market should be unlimited since offsets represent real emissions reductions.

In conclusion, let me be clear, unless this committee can make the necessary changes to provide assurances that agriculture will have access to a robust offset provision, NCGA has no choice but to oppose this bill.

We thank you for the time that you've given me, and I look forward to your questions. Thank you.

REP. PETERSON: Thank you. Mr. Johnson.

MR. JOHNSON: Thank you, Mr. Chairman and members of the committee for holding this important hearing. For the record, my name is Roger Johnson, president of National Farmers Union. We're pleased to be here to testify on this bill, the American Clean Energy and Security Act of 2009.

We think the bill is a good first step for agriculture in that it does not attempt to regulate agriculture or to cap the emissions from our industry. That is a good thing that they put in the bill.

We, however, believe that the legislation also has some very serious deficiencies. Many of you will recall that approximately one month ago I wrote a letter to Chairman Peterson, and I think it was copied to all members of this committee, wherein I again described the position that National Farmers Union has on this climate-change legislation.

Some have suggested that that letter suggested that perhaps Farmers Union was just going to roll over and support a bill at the end of the day regardless of what happened with respect to the asks (ph) that we had in that letter. Let me assure you that that is not the case. We in the ag community all feel the same way about the provisions that we think need to be changed in this bill.

We will not support this bill if the provisions that we asked for in that letter that we have repeatedly asked for in front of other committees of this Congress and to other officials of this administration are not provided for. Specifically, they are -- and our policy says this very clearly -- we support a national mandatory carbon emission cap-and-trade system with a number of conditions.

The first one, USDA must play a prominent role. We're all saying that. These ag offsets need to be run by the agency that knows something about running them. That's USDA. Early actors must be recognized. You cannot establish a system whereby you penalize the very people who led us to the position that we're at today. And the bill, as it stands today, does not adequately recognize the early actors.

Thirdly, we don't think that there should be an artificial cap placed on any of the offsets. To the degree that you place a cap on offsets or you refuse to allow offsets from agriculture to be included, you simply drive the cost of compliance for all of society higher. Further, by applying a cap to offsets, you minimize the income opportunities that might otherwise be available for all of us in agriculture.

Fourthly, we think carbon sequestration rates need to be based on science, sound science. There's probably no better entity in the world than USDA when it comes to the scientific expertise associated with how you calculate carbon sequestration rates from different agricultural practices.

And, lastly, we want these benefits to be stacked, as many others have talked about before. So I hope that this position is very clear.

Now, thirdly, let me say that we do believe that the science is pretty compelling that greenhouse gases and man's impact on their releases are changing this earth. Much of the rest of the world has come to this same conclusion.

I believe that the U.S. position would be strongly served, would be the most strongest served, if, at the end of this year, prior to our negotiators going to Copenhagen, the Congress has acted on, at least in one House, a bill and passed that bill.

I believe that that bill must contain the provisions we've asked for for agriculture or it is not just those of us in this country and in this industry that will be harmed. It will be agriculture around the world. That -- having a bill passed, I suspect, is why you see so much pressure to get this bill through the House of Representatives.

It's important for us, as we reinsert our leadership in the rest of the world, that we do that. And I think you heard the secretary make that case really compellingly earlier today.

So, with that, Mr. Chairman, members of the committee, I do have a couple of very quick slides. Farmers Union has been one of the -- is, in fact, a leading aggregator in the carbon sequestration game with the CCX. And there are some slides in the testimony that show some of the different areas of the country by practice -- no-till practices, permanent-grassland practices, sustainable-rangeland practices, et cetera.

The process is very simple. This screen simply shows what the farmer can pull up on the computer and see in terms of what he may or may not get by signing up for this program. It's a simple, one- screen, put in a few numbers and you end up finding out what it's going to pay you.

This second screen actually shows you a screen print from a computer that is the tool that a farmer uses to sign up for the program. You simply pull up the screen. You plug in your data all on one page. At the end of this process, you simply hit print. It'll print out a contract. You sign the contract, send it in. You got a deal.

So the process is very streamlined. The process is something that we think should be emulated by adopting these sorts of provisions in this bill. With that, Mr. Chairman, I'm sorry I've gone over my time. I thank you for your attention.

REP. PETERSON: Thank you. Mr. Nobis.

MR. NOBIS: Mr. Chairman, Ranking Member and members of the committee, thank you for the opportunity to testify on dairy farmers' views on H.R. 2454, the American Clean Energy and Security Act of 2009.

My name is Ken Nobis and I am a dairy farmer from St. John's, Michigan. I'm also treasurer of the National Milk Producers Federation and president of Michigan Milk Producers Association, a Michigan-based dairy cooperative.

Today, I am speaking for the more than 40,000 dairy-farmer members of National Milk Producers Federation on the subject of proposed climate change-legislation, and I want to thank you for the opportunity to offer this testimony on their behalf today. My testimony will focus on the specific context of offsets and allowances and the changes we would like to see in H.R. 2454.

But before I begin, I would also like to thank the members of this committee for their continued support during these very difficult times for dairy producers across the nation. We're seeing some of the worst prices in history combined with continued high input costs and greatly appreciate your help in trying to address this terrible situation.

With respect to greenhouse gases, inaccurate perceptions have persisted that animal agriculture is a significant contributor to U.S. greenhouse gas emissions. The reality is that dairy farmers have a history of dramatically reducing the carbon footprint of the industry as noted in a Cornell University study published last year.

This study indicated that there had been a 40-percent reduction in greenhouse gases since 1944, and the dairy industry wasn't even trying. We were just advancing our herds to the more efficient production system we have today, which, coincidentally, lowered the carbon footprint of a gallon of milk.

We have committed ourselves to continue our efforts to reduce our carbon footprint by an additional 25 percent by 2020. Although the dairy industry doesn't support all climate change legislation, if such legislation is in our future, we support the cap-and-trade concept. Agriculture should not be a capped industry, and dairy farmers should be allowed the ability to trade carbon credits with capped industries. And we would like a system that allows all dairies, regardless of size, to have an opportunity to participate.

One of our greatest concerns is economic impact of climate change legislation. This has been a very difficult year for dairy farmers. One concern is how this legislation would impact our ability to continue to provide an affordable, highly-nutritious food for consumers.

A cap-and-trade scenario would provide a method of raising additional funds to help us pay for added measures we could put into place to lower our carbon footprint more than we already have.

We feel strongly that, under cap-and-trade, USDA should be the agency dealing with farmers on developing and implementing standards regarding offsets. We understand EPA probably needs to be involved to some degree to oversee the environmental integrity of the offsets program, but EPA should not be empowered to act without involvement from USDA.

USDA personnel are already located in most agricultural counties throughout the U.S., and farmers are accustomed to working with USDA personnel. The overall infrastructure is already in place to make the program a success.

Many farmers are, by nature, innovative and have already invested to reduce greenhouse gas emissions and sequester carbon. Congress must recognize and reward these efforts. These farmers should be eligible for compensation for the ongoing greenhouse gas emission reduction or carbon sequestration that they achieve within the offset program, if they qualify under all other offset protocols.

Even if their practices existed prior to legislation, they should be eligible for offset credits. In addition, baseline rules should not be changed without consideration of the economic impact on farmers. Frequent baseline changes will severely limit participation.

Climate-change legislation must not be used as a backdoor method of adding even more regulations to large dairies than already exist today. It needs to be clear that emissions from all agricultural and livestock activities are not regulated, either directly by climate- emission caps or indirectly by performance standards.

A very great concern of ours is that legislation would be passed here without similar regulations in other countries with whom our dairy farmers compete in the global marketplace. U.S. dairy farmers are suffering losses like many other segments of our society in this global recession. We're struggling to survive today because of the dramatic decline in export demand for dairy products. If we can't compete on a level playing field with other countries, we won't survive.

We, in the dairy industry, appreciate the help you've been able to give us in this economic crisis, and we are here today asking that we continue to work together, including on this important issue of climate-change legislation, to continue to grow our very efficient dairy industry. Thank you.

REP. PETERSON: Thank you -- questions at this time and I'll yield my time to Mr. Costa, California.

REP. COSTA (D-CA): I want to thank the gentleman for yielding his time. Thank you, Mr. Chairman. Thank the panel of witnesses. Let me begin with Mr. Nobis talked about the plight of the U.S. dairy industry. I'm third-generation dairy family, and I think ground zero started in California, but it's now spread around the entire country and it is very, very difficult as you noted.

I'm wondering, as we see some of the dairies trying to be innovative and look at efforts to deal with digesters to provide energy, where you see that fitting with this whole effort. We have complicating factors in California because of conflicts with attainment/non-attainment air basins, but as it relates to where do you see the digesters providing energy, and, at the same time, fitting in with this Waxman bill.

MR. NOBIS: Well, digesters, there are problems with digesters, as you know. They cost a lot of money to build. In addition to that, the energy that most of us are able to sell from a digester is valued far below the cost of producing that energy. So --

REP. COSTA: You think that needs to be a consideration as a part of the change on this larger energy package to how much energy potentially, across the country, could be provided if we could sell those back to the utility companies for energy? Has your group done any national evaluation as to the potential of energy source?

MR. NOBIS: We have done a lot of work trying to get a higher price in individual states for the renewable energy and have met with little success. But if we could get -- generally speaking, it takes seven to eight cents per kilowatt hour to break even with a digester. In my state, in Michigan, the buy-back from the utility is three centers per kilowatt hour, three to four cents.

REP. COSTA: Yes.

MR. NOBIS: So we need something above seven or eight cents to make them economically viable.

REP. COSTA: I'd like to move on, and I'm not sure which of the panel members might want to address this, but there's been a lot of discussion of not punishing early adopters. And farmers and dairymen around the country have done a lot of things like you noted in your various testimonies with no-till and a host of other efforts to reduce emissions, switch to other environmentally-friendly farming practices.

How do we account for that in this proposed Waxman-Markey bill or the Senate proposals that -- under the category of no good deed goes unpunished -- that you get credit for which we've already done?

MR. : I'll take a shot at that. I think the thing that's important to remember here is that each and every crop that is grown, new carbon is sequestered. So it's additional carbon each time you grow it.

Why in the world would we want to punish some innovative farmer that has went to great lengths to learn and adapt and try to find new ways to do it in a more conservative, environmentally-friendly way?

REP. COSTA: I would go further. I think we should get credit for that, don't you?

MR. : Well, that's why in my testimony I'm even going even further back yet. Let's go back to the original Kyoto protocol and go from there. And we have done a tremendous amount already from there. So I would say, you know, if during those years somebody would adopted these new technologies for no till, then they should actually have the option to go ahead and participate in this. The one thing that we don't want is to have a, people breaking out the breaking plow and turning this stuff under so they can qualify for a new program. So, we have to make sure that those early adopters are rewarded, not punished.

MR. : Right and if the current law that's being proposed requires measurable improvements, we're going to be disadvantaged if we don't take that into account. And so I think that's got to be an important issue that this committee -- (tape interruption).

MR. : -- that just because a farmer is engaged in a certain practice that has a societal benefit, the fact that you're engaged in it and maybe paid for it from wherever, does, should not preclude --

REP. JIM COSTA (D-CA): EQIP program or whatever else.

MR. : Exactly.

REP. COSTA: Yeah.

MR. : Should not preclude you from participating in a carbon offset program. Many folks will find that before they will adopt a practice, it has to be more than just, you know, we're going to get a little bit of cow share, or we're going to get some of this or we're going to -- you have to add the various benefits, not unlike any other business. Before you make a business decision to purchase something, you have to figure out what are all the different advantages that you can get from that purchase.

REP. COSTA: Get credit and incentivize good behavior.

MR. : That's right.

REP. COSTA: Yeah. Thank you, Mister Chairman, for yielding your time. I appreciate it very much.

REP. COLLIN C. PETERSON (D-MN): You're welcome. The chair recognizes Mister Lucas.

REP. FRANK D. LUCAS (D-OK): Thank you, sir. Gentlemen, members of the panel, you know from listening to the last, the last witness that the issue, I think, before us is the question of how do we address the current draft of this cap and trade legislation put forth by Chairman Waxman and Chairman Markey. So, I'd like to go down the row and discuss, for the record, starting with you, Mister Stallman, for the record, does your organization recommend a yes vote or a no vote for the current draft of the Waxman-Markey Cap and Trade bill as we will see it in two weeks?

MR. BOB STALLMAN (President, American Farm Bureau Federation): Easiest question I've ever been asked. A No vote.

REP. LUCAS: A follow up question, as I'll ask everyone. If an Ag offset program is established, and there's still possibilities for change, but, established with the EPA in charge, your response, then, to the bill would be?

MR. STALLMAN: Still a No vote.

REP. LUCAS: Mister Ruddell?

MR. RUDDELL: The current title for offsets is really lacking enough that there's not enough detail to be able to say anything but No to that.

REP. LUCAS: So, No on the present bill draft and No if the EPA is put in charge of an Ag offset program?

MR. RUDDELL: The USDA would have to have a co, some sort of a co-work working agreement with the EPA.

REP. LUCAS: So, No, and No to my question. Mister Garber.

MR. GARBER: On behalf of the Conservation Districts I'm somewhat limited in that we haven't set a policy on the position on this bill, so, I won't really be able to answer the first question in that we're working on policy and should have something in the near future so we can take a position on that. And in relation to if EPA has control, you know, Conservation Districts cross all the spectrums of agriculture and into all small land ownerships and we'll be able to work cooperatively with a lot of different organizations and again, we really don't have a policy on this but we do try to work cooperatively with all agencies.

REP. LUCAS: So, Mister Garber, if you were a member of Congress from Louisiana and you voted for the Waxman-Markey Bill as it is now, could you go home?

MR. GARBER: (Laughter).

REP. LUCAS: Good enough answer, sir. Mister Yoder.

MR. YODER: The first part of your question is whether we could vote it the way it is today. Waxman-Markey, in its present draft, which as far as we know at this point in time, because committee action is being cut off on the 16th of June, this will be the draft that will come to the floor the following week. That's, as I said in my testimony, in its present form, there does not have any Ag offset provisions for it, so therefore NACG would be opposed to this bill.

REP. LUCAS: Thank you. If language was added between now and the time it comes to the floor to create an Ag offset program, but it is administered by the Environmental Protection Agency, what would your organization's recommendation be to members?

MR. YODER: I think it would be horribly inefficient and ridiculous to have EPA reinvent the wheel and have people that don't understand agriculture promote this bill. I would think it would not make sense. The devil would be in the details, but, my first inclination would be, it would not work, so therefore probably not.

REP. LUCAS: I'll take that as the appropriate answer. Mister Johnson.

MR. JOHNSON: We very much would like to support a bill, but in its current form, we will not support this bill. If EPA is put in charge of offsets, and USDA does not have a significant role in those, in the implementation of offsets, we will oppose that as well. We very much want to pass a bill because we think the ramifications of not doing it may, in fact, be worse than what we're going to face in it. But we can't support the current version.

REP. LUCAS: You were very clear and I appreciate it, Mister Johnson. Mister Norbis.

MR. NOBIS: Well, I testified today that we were not necessarily in favor of climate change legislation, but if we were, it would have to include cap and trade, that concept, and since this bill does not include cap and trade as I understand it --

REP. LUCAS: -- the answer would be a No.

MR. NOBIS: -- it would have to be a No.

REP. LUCAS: And if the bill was modified to allow for offsets to address cap and trade, but it was administered by the Environmental Protection Agency, the answer would be? Because we only get a Yes or No when we vote as members.

MR. NOBIS: We have to see it first, but, the inclination would be no.

REP. LUCAS: Thank you, sir. And, in my few remaining moments, to Mister Nobis, I particularly feel for the dairy industry. Oklahoma was a substantial dairy state until the mid 1980's. And, much like the rest of the country, the industry's changed across the board. I just simply put the question to you, one of the things I worry about in our remaining dairies across America, and especially the smaller ones, if it comes down to the decision of how to allocate that methane gas, that the little dairymen, and there's still some 50 cow dairies in certain parts of this country, and 200 and 250 cow dairies, I worry that they will not be able to compete with municipal sewer lagoons over who gets that allocation of methane and that unless it's addressed clearly, as you and my colleague from California addressed, they're not going to be able to afford these digesters or these other technologies. I worry very much about your people.

MR. NOBIS: And so do we, sir, that's, as I testified, we are very concerned about the small and medium sized producer. The larger producer is more able to spread those costs over more cows.

REP. LUCAS: Thank you very much. I yield back, Mister Chairman.

REP. PETERSON: The chair recognizes Mister Walz -- (inaudible).

REP. TIMOTHY J. WALZ (D-MN): Thank you, Mr. Chairman and I thank the ranking member for being very clear. Each one of you are witnesses. I want to thank you for several reasons. For creating quality of life in southern Minnesota. Agriculture is very, very important and each of your organizations have, have improved the quality of life not just of your producers but all of us. And you've also been on the forefront. I reject the false dichotomy, though, that our producers aren't on the leading edge of environmental concerns. They are. And so the questions that are being raised today are truly how to make this work. I don't think you're going to find anybody in this room who disagrees. We need to get this right and I think the most poignant thing that secretary Vilsack said that I could not echo more is, we're part of the solution. We're not the problem. We're part of the solution.

And what we want to try and do is how we get at that. And we want to get there. And I think Mister Johnson, you brought up a very, very good point that I want to be very clear on, too, and I guess I'll do the same thing, maybe, that the ranking member did, and go down the line. It's been suggested we just do nothing and go on as usual. Would your organization support that? Just throw this all out, do nothing on climate change, reject and just go on as business as usual.

MR. STALLMAN: If it meant rejecting this current bill and doing that. Yes.

REP. WALZ: Okay.

MR. RUDDELL: No.

MR. GARBER: NACD does feel like we need to do something on climate change.

MR. YODER: For the last four years we've been working on figuring ways opportunities could be present for agriculture, and there are, so I would say, no, that we would seek ways that we could showcase agriculture as a solution, as you said.

MR. JOHNSON: As I think my testimony was quite clear, we believe very strongly that this issue needs to be addressed. We think it should be addressed legislatively. We have a Supreme Court decision staring at us, a determination that EPA has made that is very troublesome for us. We understand that other people can sue and that compels a lot of actions that get put on us, and, frankly, as, you know, much of the rest of the world is doing this. I think it would be very sad if the U.S. didn't try to re-exert a leadership role in solving this troubling issue for our planet. And the time to do that is now.

MR. NOBIS: The problem that we have with it currently is that it's going too fast, that there is too many questions yet, there is too many assumptions. It would appear that maybe we need to do something and, especially in the case of energy security. We're willing to look at it under the proper context.

REP. WALZ: Well, I appreciate that and I hope there's other members of Congress listening to this. I think Mister Lucas' two questions were very appropriate and needed to be there and I think it's also appropriate the question that I asked that they need to hear, we want to be part of the solution as we already are. We want to get something done here. But we want it in a workable manner and we don't have to take the false choices that this has to be economically damaging. I've seen golden opportunities in Southern Minnesota where we benefitted, we've also benefitted on energy security and we've also benefitted on reducing carbon emissions. Those things are there, but it needs to be smart, so, again, I'll yield back my time, but I do want to thank each of you for being part of the solution and being here, and thank the Chairman and Chairman Peterson for, for recognizing that we're not here to be, to be naysayers on everything, we're here to make something actually work. My largest concern is, whatever we do, needs to work for everyone. So, thank you and I yield back.

REP. PETERSON: Thank you. Mister Goodlatte.

REP. BOB GOODLATTE (R-VA): Mister Chairman, thank you very much. And I appreciate all the members of the panel for their candid answers to our questions.

I want to take you all to take a deep breath and step back. Mister Johnson, I know you said you've got a Supreme Court decision staring you in the face. Congress can certainly take action to prohibit the EPA from acting on that. That legislative effect could go on from year to year or we could actually repeal where they stand right now on that. That certainly is not where the Congress is today, but, I would urge you not to rush forward without taking a look at where we may be headed. Now, you also said that you felt that there was a, there were countries in the world who were doing this already. Can you name one?

MR. JOHNSON: Of course.

REP. GOODLATTE: One that has anything remotely like the Waxman legislation?

MR. JOHNSON: Well, much of the EU has adopted cap and trade legislation. That is their tool of choice.

REP. GOODLATTE: Yeah, but --

MR. JOHNSON: Most of the signatories to Kyoto have adopted some sort of a market based mechanism and the tool of choice seems to be cap and trade because it allows the market to sort of figure out who the lowest cost emitters are and let them get the emissions from the lowest cost sources first.

REP. GOODLATTE: I think if you'll look you'll find that none of those countries have adopted anything remotely like the Waxman legislation.

MR. JOHNSON: Well, you know, I spent some time in Europe meeting with the folks in charge of the system that was created over there, probably about three years ago. And so I visited at some length with the folks from the European Commission. We went around to different countries and visited with environmental ministers. We looked at coal plants and what the technologies they were trying to use. We learned a lot about what they did that didn't work very well and I think, I mean, to compare exactly that to Waxman-Markey is quite difficult. But, the cap and trade methodology is what is being used there, is what we use here in EPA with other criteria pollutants and so, that methodology seems to be the best tool. Certainly it's better than simply regulating down, squashing down emissions from everybody.

REP. GOODLATTE: Well, I, let me ask you, in terms of looking what we should do here. Are you familiar with a book called, Cool It by Bjorn Lomborg?

MR. JOHNSON: No.

REP. GOODLATTE: A Dane? I would recommend it to all of you. It's a short book. It's less than 200 pages long. He says, global warming exists. He says global warming is largely caused by human activity. And he says that cap and trade and efforts like the Kyoto protocol to reduce greenhouse gas emissions to effectively try to turn down the thermostat of the world is one of the biggest wastes of resources that jeopardizes the well-being of advanced economies around the world.

And people are listening to him in more and more places around the world. They're saying you're far better off spending these resources adapting to change that comes about from greenhouse gas emissions and to putting it into developing technologies that would lead us away from reliance upon energy that is produced through carbon, and not trying to rush to judgment on reducing this when the mean average estimated reduction in temperature of the globe 60 years from now is estimated to be somewhere between 0.2 percent and 0.05 of one degree Celsius.

I mean, what are we wasting these huge resources for when trillions of dollars are being diverted from fighting clean, producing clean water, fighting disease, dealing with flood control, all of the other things that challenge societies. And we would devote our resources instead to something that will raise electricity rates to the average American 95 percent, that will raise the average gas prices 74 percent, that will raise natural gas prices 55 percent and that will devastate not just American agriculture but manufacturing, many other sections of our economy. Let me ask you this, all of the nuclear power plants in this country are located in rural parts of the country.

Do you favor legislation that would give no recognition, no cap and trade benefit to nuclear power producers, which provide 20 percent of the electricity in the country and which have no greenhouse gas emissions? This legislation doesn't provide any credit to them. We could build, like France has, nuclear power capacity to a much greater extent if we could get them to get credit for the sales of their electricity that is greenhouse gas emission free. Do you think the legislation should include that? Anybody?

MR. : I absolutely think we ought to do whatever we can to encourage and continue the use of nuclear energy, in fact, the plug the gap issue that I talked about in terms of energy supply is a very clear one, and if we're going to do it with non carbon based fuels, we have limited choices. Nuclear is a clear choice. We know it works. All we need to do is provide incentives and streamline the approval and siting process and, you know, cut out the delays of ten years plus and billions of dollars worth of costs that have been inherent in siting and building nuclear power plants but, yes, nuclear has to be a part of the solution.

REP. GOODLATTE: With coal producing 50 percent of our electricity today do you think that legislation that would prohibit the construction of any new coal fired electric generating plants is one that will help us out of this problem? Do you think that we should jump to the conclusion of not producing new sources of energy from traditional carbon based fuels without having the reliable replacement, whatever it might be, in, on hand is a good idea?

MR. : Well, I'd just like to say, to address that that, you know, in Ohio, we're, I think 95 percent of our electricity is generated by coal and that's the biggest reason why you have to have a robust and plentiful agriculture carbon offset market because if you know farmers, they'll always, you know, they go to work and these things, these carbon credits will be real, and they'll be verifiable and so, the more, the more carbon credits you can supply to the market for the people that need it, the less impact it will be on those.

REP. GOODLATTE: They're going to need it just to offset their own increased electric costs, aren't they?

MR. : Yes, but the point is, if you have a robust and plentiful carbon market, that will decrease the amount that's going to cost and the consumer's going to benefit by not having that bit shock like we all know is going to happen if we don't have a plentiful amount.

REP. GOODLATTE: My time's expired. Thank you, Mister Chairman.

REP. PETERSON: (Off mike).

MS. : I know.

REP. : Chairman, can I -- (inaudible).

REP. PETERSON: Let me see, from Illinois, Ms. Halvorson.

REP. DEBORAH L. HALVORSON (D-IL): Thank you, Mister Chairman, and thank you panelists for being here. We've all heard in the testimony that you think it's important to establish measurement rates for offsets and, offset practices that are based on a standards based approach rather than a project based, could somebody from the panel explain why it's more important to have a standards based other than the project based? I heard someone say it and I'm not sure who it was.

MR. : I'd like to say that one of the reasons why it would be on a standard based rather than a project based is if everyone, we hope everyone can, that's possible, can contribute in this way. If, say, take for instance carbon sequestration. If you physically went out and measured each and every ton of carbon that was sequestered, it would be an enormous cost and what happens is, if you, even if you thought that carbon was worth $30 a ton, you may use 50 percent of that up in the verification process. But if you could, if you could develop standards for that particular soil type and that particular environment and that particular location, that, if you do these practices that it's scientifically verifiable that you are sequestering X amount of tons, than that's a much more efficient way to do it and that way there's that much left over for the farm that the farmer can go ahead and can receive that money from the carbon rather than give it all to the verification system.

REP. HALVORSON: So, in your opinion, does that make it more objective instead of subjective?

MR. : I think it makes it more efficient and more practical.

REP. HALVORSON: Okay, thank you. I yield back.

MR. : If I could add to that. If you were to look at my testimony on the page where I showed the map of the U.S. in it, those are standards based protocols that are involved. Science has been used to figure out that if you follow these practices, in these geographical areas, you will, in fact, sequester X tons of carbon dioxide or carbon dioxide equivalent. And so, it is much, much, much more efficient if you can have the science that says, over a large area, you follow this protocol, you're going to get this result as opposed to having to prove on a project by project by project basis. It's efficiency more than anything else. Cost effective.

REP. HALVORSON: Yes --

MR. : I might also add that in the USDA, the NRCS is very much qualified in doing this and that knowledge is there and can be improved to meet whatever needs is here.

REP. HALVORSON: Right. Thank you.

REP. PETERSON. Thank you. Mister Moran.

REP. JERRY MORAN (R-KS): Mister Chairman, thank you very much. Thank you for associating yourself earlier with my remarks. I appreciate the working relationship you and I have. Let me start with the Energy and Commerce Committee held some hearings on this bill. To my knowledge, no agricultural witness was asked to testify or testified during any of those hearings. And I want to confirm that as far as you know that's true of Farmers Union, Farm Bureau, Wheat Growers, Corn Growers, was, did you all have any opportunity for input for a piece of legislation that I assume you would tell me would have a dramatic effect upon your members?

MR. : Just only, nothing beyond what we did behind the scenes with the staff trying to exert some influence and provide some input, but no, we had no ability to affect the outcome.

REP. MORAN: Anyone else?

MR. : We did not. We testified in front of small business, I believe, in fact, a number of us on this panel did, we shared all of our testimony with folks on the E&C but were not provided any opportunity for direct input or testimony on that language.

MR. YODER: Same with Corn Growers.

REP. MORAN: Thank, thank you very --

MR. NOBIS: Dairy had no opportunity either.

REP. MORAN: I assume that you would all concur with the reality that agriculture will be dramatically affected by a piece of legislation that, as far as we know, no one from the agriculture community had an opportunity to testify in, is that true?

MR. : That's why we so greatly appreciate what the House Ag Committee here is doing. It's our first opportunity to weigh in.

REP. MORAN: I appreciate -- I guess, let the record show that none of our witnesses know of any agricultural witness that was asked or had the opportunity to testify before the Energy and Commerce Committee which, as I think about it, is just an, I'm astonished by that, knowing what the consequences will be. It's a reminder of why we have this discussion about how we want the department of agriculture involved in this issue. The same is true in committees. We have the Agriculture Committee is a (shop ?) that agriculture will have just as we hope the Department of Agriculture is. It doesn't happen with the Commerce Committee and, unfortunately it doesn't happen with the EPA when it comes to interpretation and implementation of rules and regulations. Mister Johnson indicated that, at least to some degree, the European Union is operating under rules related to climate change, global warming, to some degree, cap and trade. I don't know what, how similar they are or not, but, what percentage of our Ag income comes from exports, for American agriculture?

MR. : Which crops?

MR. : Depends on --

MR. : It varies. A quarter to a third. Basically.

REP. MORAN: Across the agricultural sectors, a quarter to a third of what income we produce in agriculture comes from our ability to export agricultural commodities, food, to other countries, true? And is there any analysis that any of you have done or seen that determines the consequence of the increase in cost that will come from this legislation upon our ability to remain competitive to continue to have 20 to 30 percent of Ag economics, Ag income come from foreign sources, or, let me ask the question more precisely, any analysis out there that shows how increasing costs associated with cap and trade, as written, will affect our ability to sell agriculture commodities and food around the world?

MR. : That's strictly an international competitiveness issue and that answer really can't be provided till we know if other countries are going to burden themselves with the same economic constraints that we see under the Waxman-Markey bill for us. I mean, if they, if China, India and some of the advanced, developing countries that compete with us directly sort of what the U.S. to lead, which means the U.S. should give and they shouldn't, and they don't have to be restricted by the same kind of economic burdens it looks like we would be under Waxman-Markey, then, yes, that would have an impact and, yes, we would be able to measure it at that point.

REP. MORAN: But under current scenario, in the absence of those legislative changes, that policy change in other countries, what's the effect upon our ability to compete in a global economy?

MR. : It'd make us less competitive.

REP. MORAN: And can you create a --

MR. : I can't quantify that at this point. We did not analyze that at this point.

REP. MORAN: The, well, it's an interesting observation that we might wait and see what other countries might do before we know the outcome of this legislation or one might think that we would want to sent down, as we've attempted to do in trade agreements, an reach a conclusion at the same time, so that we're operating under similar constraints and a much more level playing field. But, clearly, the United States unilaterally making this decision in the absence of someone immediately following us, any of our competitors, seems to me we'd be at a significant competitive disadvantage.

MR. : If I could just clarify the answer to your question. One of the things that I think is very imperative is, if this Waxman- Markey Bill does not include agriculture offsets, and it gets passed, if it gets passed in the House and that's the so called marker or template for when the United States goes to Copenhagen this next winter to negotiate Kyoto II, we'll be at a horrible, horrible disadvantage in agriculture. If we can showcase agriculture offsets as a possible way that they can use and be on the same page, it's going to be much more important than if we go in there with nothing provided for agriculture. We'll be at a horrible disadvantage. So, it's very important that Ag offsets are included in this bill.

REP. MORAN: I appreciate your remarks.

That's a good reminder that if we're setting the template, if we're setting the standard by which we expect the rest of the world to operate, we ought to make certain that we do it right as compared to just do it.

MR. : You bet.

REP. MORAN: And the only other observation I'd make, Mr. Chairman, is I appreciate Mr. Johnson pointing out that in the absence of these agricultural offsets, it's not just agriculture that is negatively affected. What he pointed out it's across the board to the economy. And I had not thought about that, but I think that was a, to me, seems a very important feature, a fact to know, is that in the failure to get what many on this committee are seeking, in regard to agricultural offsets, the entire U.S. economy, you point out about what happens if it becomes worldwide, in this, if this is the framework, but what we're saying is, that the additional costs, there's going to be a significant increase in the overall cost of cap and trade in the absence of agricultural offsets that will affect everybody else, not just Ag producers.

MR. : I know the time has expired, Mr. Chairman, but if I could add just a point to what the Congressman made. Ag offsets expand the market for carbon. When you can expand the market and have more players involved in the market, either by more people under the cap or more people allowed to bring offsets into the cap, you have more opportunities for more efficient emission reducers to act. And as you get more efficient emission reducers acting, you tend to lower the costs for everybody. You lower the price for carbon, in fact, through the whole system, and that helps to make the whole system more competitive.

That is the reason fundamentally, I think, why most of us think that if you're going to do something relative to climate change it makes more sense to have a cap-and- trade system that allows the market to sort of move these things, as opposed to having a regulatory agency say you will reduce; you will reduce by x, y, or z. If you let the market do it, it'll be more efficient.

REP. MORAN: Thank you, Mr. Chairman. I'm additionally troubled that not only were there no ag members -- no ag testimony in the Energy and Commerce Committee, but a gentleman, I think Mr. Space from Ohio, offered an amendment to bring agriculture in with those offsets and was -- that amendment was withdrawn, which suggests to me that there is no support among that sector of -- those members of Congress for the things we're talking about. Thank you.

REP. PETERSON: I thank the gentleman. The gentleman from North Carolina is recognized for five minutes.

REP. LARRY KISSELL (D-NC): Thank you, Mr. Chairman, and thank you everybody for being here. And following along the lines of some of the questioning that we've had and maybe in the way that Mr. Lucas did earlier, if -- and I emphasize the word "if" -- if we had adequate, good, agriculture offsets in this program that were administered in an acceptable way by the USDA -- and if each one of you could kind of respond to this -- would that change your opinion of how you would look at this bill?

MR. STALLMAN: That would be a necessary but not sufficient condition for the American Farm Bureau. We would still have to have some of the other provisions I talked about in the testimony. And even then, we would have to analyze what the ultimate economic effect would be on agriculture.

MR. RUDDELL: I'd have to agree with that. It's important to have USDA have a strong role, but there's many other parts of the offsets provisions that are too weak to be able to support it.

MR. GARBER: The offsets is very much a big part of what NACD believes in, and they would definitely need to be a part of it for us to support it.

MR. YODER: Once again, the devil will be in the details. If the ag offsets would be sufficient and robust and the protocol would be put forward where you could manage it efficiently and appropriately and have it all ready to go, definitely I think we'd have a much better chance of supporting it, absolutely.

MR. JOHNSON: We would be very inclined to support the bill if it contained all the provisions that have been outlined in the letter that I referenced in my testimony and that I think all of the members of the committee received just short of a month ago.

MR. NOBIS: For us, it would be a move in the right direction but it would not necessarily mean that we can support it. That's just one piece of what we think we need.

REP. KISSELL: Okay, thank you gentleman, and Mr. Chairman, I yield back my time.

REP. PETERSON: Thank you. The gentleman from Texas is recognized for five minutes.

REP. : Thank you, Mr. Chairman. Thank you all for staying late and putting up with our nonsense of running back and forth across the street and all that kind of stuff. I appreciate you guys being here. A broad, 10,000 foot statement is it looks like everybody wants to go to heaven but nobody wants to die to get there. Nobody wants to pay for all this kind of stuff. I was particularly keen on Mr. Johnson's comment about your idea that the should-be cost benefit analysis should be a cost benefit to this overall program.

I have an opportunity to talk to -- I'm on also the Intel Committee. We've got some scientists over there that spend a good deal of amount of their time on climate change as it relates to our national security interests. And I asked him, I said if we got this Waxman-Markey Bill done, 83 percent reduction over the next 40 years, what could you measure as a scientist, measure the benefit to the atmosphere for putting ourselves through this thing, because it's -- some conservative estimates are showing $3100 a year in costs to the average family? And he looked me right in the eye and said, "Maybe." And I said, you might be able to measure the positive benefits? He said, yeah, we might be able to.

To concur with that, we had a conversation with a fellow named Niger Innis with CORE, the Congress of Racial Equality, not someone you would normally think would be lined up with all things Republican. But he's got a great presentation on the impact that this regressive tax will have on the poor and low income of our society. And all the swaps and credits and all the other -- it's always inefficient; it never works -- will have on those folks. They've got a study that shows that if America went to a zero carbon footprint that over the next 100 years it might make a .007 thousands of a degree Celsius on the atmosphere, again, not measurably in the benefit.

So Mr. Johnson, do you generally recommend to your folks that they spend whatever amount of money, whether it's $1,000 a year or $3100 a year and get no benefit from those expenditures? Is that something that any good business person would normally do?

MR. JOHNSON: There's a little bit of a rhetorical --

REP. : Sure.

MR. JOHNSON: -- element to that question. I'm not a scientist, and I can't tell you what the deal is and how much reductions are going to be and all those sorts of things. My understanding is that the glide path that Waxman-Markey outlined in terms of emission reductions is similar -- and there's pretty fuzziness around that word -- but it's similar to what Kyoto and the scientific consensus, if you will, has suggested is the necessary glide path.

REP. : Yeah.

MR. JOHNSON: Our input is not into what the numbers should be.

REP. : Okay. But the issue though is who presumes that that glide path is right and that's where ought to go? I mean, again, it is rhetorical. I just question that it's like a Sim City exercise. We've decided to build a new city, whether we need one or not. And we go through all this exercise and then we've put all this stuff together and oh, my goodness, we've jammed up this deal. We've jammed up that deal. And we started trying to fix all these kinds of things, but the predicate is, do we really need this? And I get to skeptical in this regard.

Let's switch over to the EPA real quickly.

Any experience with your members in which the EPA has been particularly farmer friendly and would make a decision that would -- I'm thinking off the top of my head, of these pending regulations that would require them, every time they put down a chemical, to have to go get a permit from somebody. A recent headline is that the EPA has decided that farm dust has to be regulated as well and controlled. So anybody have any positive experiences with the EPA and their pending takeover of this arena?

MR. JOHNSON: Well, I don't want to suggest that it is in this arena. But I mean, in fairness to EPA, I just spent 12 years as an elected official in the State of North Dakota as the Agriculture Commissioner. And we did numerous engagements with EPA. We regulated pesticide use through the department. Most states have similar arrangements with EPA. And so there are ways that states and state agencies can cooperate with them. And we happen to have -- our local office, if you will, was Denver, Colorado.

REP. : Well, let me -- just forget it. It was more rhetorical than anything else. This is a new EPA, bigger budgets, more lawyers, different head. Lisa's got a particular bent toward more regulatory schemes, et cetera. One final question, does anybody on the panel think that it's in Congress' best interest to make a decision on this bill, right, wrong, or different without having USDA's best guess as to what the overall impact on all things ag, the ag industry, the ag community, our local, small farmers, big farmers, middle-aged farmers, whatever it is -- should we make the decision on this bill before we get USDA's estimate? Anybody think that's a good idea?

MR. : Well, not only should you not make the decision before you have USDA estimates as to the affect on agriculture, but all of the alternate scenarios I talked about that could happen beyond the sort of best case scenario presented by the EPA analysis, that Congress should take the time to have analyses that shows what happens if the best case doesn't work. So yes, you -- I would think you would want much more information than you have now.

REP. : All right. Thank you, Mr. Chairman. I yield back.

REP. PETERSON: The gentlewoman from Pennsylvania is recognized for five minutes.

REP. KATHLEEN DAHLKEMPER (D-PA): Thank you, Mr. Chairman. And I also want to thank the panel for your patience with us today and for giving us your afternoon and now into your evening. I just want to go back to carbon offsets and ask you to what extent you think Congress should identify eligible practices and legislation or should authority be delegated to the federal agency that oversees the program and develops regulations and standards for the program? And I think everyone in this room believes that that agency should be USDA, so if someone could answer that.

MR. : In the statement we submitted for the record, we included, I think, Section 733 in the Energy and Commerce Committee report, which actually laid out a list of offset practices that could be included. It wasn't specific. It was general enough to where there was still room for development within those categories, but at least it listed the types of projects that would qualify for offsets. And what we're asking is such a list be included in the actual legislation.

REP. DAHLKEMPER: Well, what land use changes and practices should be eligible when we're talking about land conversion, restoration, retirement? We're talking about livestock operations and grazing and crop production practices. Anybody maybe could identify, in your specific area, what you think should be eligible?

MR. : Well, I think that we tend to just think of credits as carbon sequestration for no till or reduced till. I think that the sky is the limit as far as creating these carbon credits. For instance, technology is going to be coming very soon where we can raise the crop with draught resistant genes so we can pump 40 percent less water to grow a bushel of corn. And so we think that there should be a carbon credit maybe delivered from that. Or if a livestock person wanted to cover their lagoon and capture the methane from that, there should be a carbon credit generated from that. There's lots and lots of ways that you can create these credits that you don't necessarily have to completely change your cropping practices, but they're still real and verifiable. And you can prove that they're worthy of a carbon credit and payment. So let's not limit ourself to just no till or carbon sequestration.

MR. JOHNSON: We would agree with that. If you'll go back to my testimony, you will see a reference to a number of different practices that are currently -- the science is robust. It's there. It's accepted. It's pretty much all been generated by USDA, so listing those kinds of things would make some sense.

But I think you also want to make sure that you leave some room for new science to develop and new practices to be economic such that we can, through offsets, encourage their more rapid adoption if they in fact contribute to reducing greenhouse gas emissions. And so there is a long, long list of those. If you look at page 12 of my testimony, which is probably 10 pages longer than it should have been, you will see a list of the various states that currently participate in the Farmers Union Aggregation Program and a listing of four different practices that are currently -- certainly at a minimum you ought to start with the stuff that we know and then leave flexibility. And again, we don't want EPA in charge of this. This should be USDA science. And I think we've pretty much all, watching body language, come to that conclusion.

REP. DAHLKEMPER: Mr. Garber, you want to comment on that?

MR. GARBER: Yes, I might add, and I have that in my testimony, basically we believe that USDA needs a lead role in this. We firmly believe that the NRCS has the ability to work on this technology to clarify these different practices so they'll qualify and set the standards so they can be verified out in the field.

REP. DAHLKEMPER: Okay, thank you, and I yield. Did you want to comment on that, Mr. Ruddell?

MR. RUDDELL: Yes. Within voluntary carbon markets for forest offset projects, it's a fairly short list that I mentioned early in my written testimony that include aforestation, reforestation, managed forests, and also avoided deforestation. So there's ways of being able to avoid emissions through avoiding deforestation and changing land use but also active sequestration, which would be through aforestation, reforestation, and active forest management.

REP. DAHLKEMPER: Thank you. Thank you, gentlemen. I yield back.

REP. PETERSON: Thank you. The gentleman from Ohio, Mr. Latta, is recognized for five minutes.

REP. ROBERT LATTA (R-OH): Well, thank you very much, and gentlemen thank you for sticking with us and bearing with us this afternoon and this evening. I'd like to go back and revisit what the secretary said a little earlier. And we're talking about China and if China is going to abide by what we're going to -- what is being recommended that the United States do to our producers here. And the secretary, if I can paraphrase him, said that he believes that over time -- not sure if it's a month or six months or what it might be -- that the Chinese will fall in line and decide that they're going to go into cap-and-trade.

I happen to disagree with that philosophy, because everything that I have read and everything I've seen from their ministers have said they're not going to do it, because they said that they're not going to put themselves behind an 8-ball. One of the ministers that was quoted in the Washington Times this not too distant past said that you don't understand what the problem is. The problem is that we only produce it; you consume it. Since you consumed it, you pay for it. We're not going to because we're just producing it.

And that's the attitude. And I'd just like to ask each of you on the panel, do you think that this philosophy that the Chinese have right now, that they're going to fall within cap-and-trade or do you think they're going to stay outside of it and keep doing what they're doing right now and be in direct competition with the United States? And my fear is this, is that when we put a ball and chain around the American producers' legs and say go start swimming, I don't think it's going to work.

MR. STALLMAN: I am skeptical that the Chinese will come on to the extent that they need to in terms of implementing a cap-and-trade program. I mean, exhibit A, as of yesterday their foreign ministry says that they would not be bound by any mandatory caps on their omissions.

But oh, by the way, they want the U.S. to reduce our emissions from the 1990 levels by 40 percent by 2020, which is an order of magnitude greater than the 83 percent that we're proposing in Waxman-Markey by 2050. And by the way, we want you to dedicate 1 percent of your GDP to help us and other countries become cleaner.

Now, I just think it's unrealistic to think that the Chinese will cooperate to the extent that we would think is necessary to keep a competitiveness issue from arising. The other issue is we don't have a lot of leverage. They hold too much of our debt.

REP. LATTA: This is true.

MR. RUDELL: China is developing the Clean Development Mechanism project. It's essentially an offset project concept through the Kyoto protocol to be able to trade primarily in the European trading scheme. And so they've actively developed offset projects, invested in those to be able to trade in Europe. But because they are considered to be a Non-Annex I country within Kyoto, I can't expect that they're going to develop their own cap-and-trade system anytime soon.

REP. LATTA: Thank you. Mr. Garber.

MR. GARBER: Basically, on this subject, I probably answer it as a producer and as a crop consultant in that it is somewhat of a tough situation for us to move out into the arena and hope that the others would follow us in that area. So I would think it would pretty much a dangerous situation for us to do.

REP. LATTA: Thank you.

MR. YODER: Last November when I was in Poznan, Poland, I heard with my own ears that the Chinese say that they're going to commit to do this, and I heard India say that too. But sometimes chalk talk can be very cheap. The only way this whole thing will work is if it's a global thing. There's no doubt. You can't tie America's hand with one hand behind their back and expect to compete globally. We can't do it. The only way -- and that's one reason that there's such an attempt to get a marker down, a template so to speak, so when we go to the meeting, which this administration has said they want to be a big part of being a leadership role in Copenhagen, that we get everybody on board. If the United States is the only one doing this, it's not going to work.

MR. JOHNSON: Yeah. As sort of a takeoff on that, I don't know that any of us feel like we're experts in Chinese diplomacy. But it does seem to me that our country is going to Copenhagen. We are going there for the purpose of trying to advance climate change mechanisms around the world. It seems to me that what the secretary said about having leverage made some sense, that if you had at least some evidence of doing something in this country, that gives you more standing to argue with the Chinese, the Indians, and others. Now, I don't know anybody -- maybe I'm misreading everything, but I don't know anybody that really, really believes that this is not only going to pass the House but the Senate and be conference and signed into law before Copenhagen. That would shock me if that happened.

It seems to me we'd have a pretty strong lever if you had a bill through one of the houses and you could say, with a straight face, we're not sure we can get it the rest of the way without some concessions from other countries. It seems to me that that's kind of how this international diplomacy works. Now, I would hasten to add that if it's in its current form, without the aid (ph) provisions, I think it's the wrong lever to be using. And so, as we indicated earlier, I think we would all oppose that.

MR. NOBIS: And the dairy industry feels very strongly that climate change legislation, if enacted here, similarly has to be enacted around the world, because we've learned very, very well this year what happens when we are not competitive or if somebody is not our product. A year ago, we exported 12 percent of our dairy production, and we had very good prices. This year, that's dropped to 7 percent, and that's the primary reason the dairy industry is suffering the economic problems it's suffering this year.

Domestic consumption has remained stable. It's that 5 percentage point drop in export that has devastated our industry. So in our opinion, it has to be comprehensive, or we won't be in business.

REP. LATTA: All right. I appreciate your comments, because -- and again, as you mentioned about how much debt that the Chinese hold of ours. I think the last time I checked it was $767 billion. And throw in the Fannie and the Freddies, it's over a trillion dollars. And yes, you do diminish your bargaining chips real quick. But I appreciate your comments, because I think that the American people need to know that this is serious, and we've got to compete. And I appreciate it; thank you. Thank you, Mr. Chair.

REP. PETERSON: The gentleman from Pennsylvania is recognized for five minutes.

REP. GLENN THOMPSON (R-PA): Thank you, Chairman. I'm going to change gears just a little bit. Mr. Ruddell, you made a point to say that a primary goal in a U.S. climate bill should be to keep our forests as forests. I'm hoping you mean that we should encourage our forests to grow as we actively manage them. Could you elaborate a little bit on your statement, please?

MR. RUDDELL: Yes. Keeping forests as forests is kind of a principle, I think, when we think about putting a climate bill together. We can use carbon markets to do that. It's important to maintain forests because they provide many different ecosystem services along with climate mitigation. And so from a climate mitigation perspective, having forests as forests is really important.

And I also mentioned that a bill needs to support the concept of avoiding conversion of forests to other land uses. And that is also a project -- an onset project type as well. We need to ensure that forests are here, because we rely on them for many things like clean water and biodiversity as well as climate mitigation.

REP. THOMPSON: Okay. Just a follow up then, and I would agree in terms of uses, keeping them forests. In terms of wilderness areas that generally cannot be managed, and because management is so important, the question is should we halt converting more of our federal lands into wilderness areas?

MR. RUDDELL: Well, that's certainly a policy decision that I'm probably not qualified to address. I think that in terms of a bill, we're talking primarily about private land owners, because there's a private investment issue. When we talk about public lands, it's important to think about how we manage public lands to ensure that they're healthy. Healthy forests will also be better forests in terms of mitigating climate and providing the other benefits, ecosystem service benefits. Wilderness is important in and of itself, but converting all public lands to wilderness would not provide for all of the sweeter (ph) services along with healthy forests.

REP. THOMPSON: Actually, and I have a concern that as we look at what we're talking about, the cost benefits -- the benefit of this Waxman Bill, is about reducing carbon emissions. And at least some of the numbers I've seen is that where human activity constitutes or contributes less than 4 percent of CO2 emissions; wildfires is -- the number I've seen is approximately 10 percent. Now, I know you're a forester, and that's your background. I don't know if you would -- is that in the ball park of your experience?

MR. RUDDELL: I'm not familiar with the numbers, and so I can't comment on that. But I do know -- I think the data shows, over the last 10 years for example, at least in the recent past, that wildfires are getting worse, not better. They're a bigger impact on the environment, and that relates mostly to unhealthy forests and the lack of management on those forests.

REP. THOMPSON: And essentially, wilderness areas are unmanaged, left to --

MR. RUDDELL: Yes.

REP. THOMPSON: Mr. Nobis, one of the biggest issues I have in my area is with my dairy farmers. I come from a long line of dairy farmers. We got out of that business when the corps engineers took the valley where my family farmed. But we still have a lot of farms in Pennsylvania's Fifth District. And throughout Pennsylvania, agriculture is our number one industry. Do you see that -- they're really suffering now with milk prices the way they are. That's something that just tends to be ongoing.

And given that current state of dairy prices and the cost structure of dairy operations, do you believe that the dairy farmers in this country can really handle the input price increased inherent in this piece of legislation as proposed?

MR. NOBIS: As proposed, no, we couldn't. That's why we testify very strongly that we would have to have some sort of carbon cap-and- trade to try to offset the increased costs.

REP. THOMPSON: Do you have any projection? Has the federation done any projection of what percentage of dairy farmers do you think can reasonably be expected to participate and benefit from the crediting system?

MR. NOBIS: Well, we haven't seen it yet, but as it stands now the one clear area that would be a credit would be the methane digesters. And that could be a lot of cows, but it will not be a high percentage of dairy farmers, because as it stands now, for a digester to pay, you need a huge grant to build it, and you need a special deal cut with the electrical power company to give you more than that 3 cents a kilowatt buying it. So I don't see a lot of people building digesters under the current economic situation.

REP. THOMPSON: Yes. And just real quick, one follow-up question. The average size farm in my district is about 80 head for a dairy operation. For those folks -- let's just take out the scenario, those folks that do qualify for the credit. So we're just dealing with the ones who don't. What do you think the economic future is for those farms?

MR. NOBIS: Not very bright, to be real honest, unless there's some other system in place that they can make up that shortfall in revenue that's not going to cover their increased input costs.

REP. THOMPSON: Okay, and thank you.

REP. PETERSON: The gentlewoman from Wyoming is recognized for five minutes.

REP. CYNTHIA LUMMIS (R-WY): Thank you, Mr. Chairman. I neglected to mention earlier that I have an opening statement that I would like to submit for the record and --

REP. PETERSON: Without objection.

REP. LUMMIS: Thank you. And I would like to add my compliments to those of you who have stayed with us this afternoon. I'd like to ask Mr. Stallman, without ag offsets do you believe this bill amounts to the equivalent of a huge cost increase to the American farmer and rancher?

MR. STALLMAN: Yes, absolutely.

REP. LUMMIS: Anyone else have any different response to that? Thank you. I will assume that means that you uniformly feel that way, and of course, I do too. And I wanted to mention also that this morning the Wyoming Stock Growers Association joined the list of fellow ranchers and farmers around the country that are opposed to this bill and see only increases in their costs of operation as opposed to real benefits to them and particularly so for those of us who have livestock producers who graze on public lands. And I have a question regarding that. Mr. Stallman, can you talk to us a little bit about why western states with large federal lands would have a limited opportunity to use offsets?

MR. STALLMAN: Well, grazing on public lands, I doubt that a structure would be in place like there is for a land owner to create a long-term program that would allow for offsets. Not to mention the fact that a lot of western lands, it would probably be limited opportunities for sequestration to start with just because the forage load is very light compared to areas that have more rainfall and the western areas don't really have enough rainfall to grow a lot of forage or create a lot of plant mass which would sequester the carbon.

REP. CYNTHIA LUMMIS (R-WY): Thank you.

And I'd like to ask, Mr. Johnson, how would you describe the difference between a carbon credit as you envision it and a derivative and I'm getting to the -- my point is this: You know, we've seen in the financial markets the creation of financial products that didn't exist ten years ago, things like credit default swaps and collateralized mortgage obligations that were taken to a different level than we previously saw.

What is to protect the American consumer by way of the utilities and entities that will have to buy these carbon credits from the creation of an artificial financial product, like a derivative, like a credit default swap that went horribly awry and now has cost the American consumer billions of dollars by way of the TARP program.

MR. ROGER JOHNSON: You know actually that same issue could potentially be an issue in any market and so I presume that if this committee is hoping to weigh in with changes to the bill that is currently under consideration, that that be one of the things you might weigh in on. I would point out that a carbon credit offset is more like a bushel of wheat than it is like a derivative, that in fact -- and by that I mean what you are selling is essentially a commodity.

It's undifferentiated. It is a ton is a ton is a ton and it doesn't matter. A ton of CO2 whether it's in North Dakota or Oklahoma, you take it out of the atmosphere. The science suggests that it has the same impact on the climate and so it's much more like a commodity than it is like some -- you know, the credit default swaps, the derivatives, etc cetera, etc cetera, and so to that point, if you are concerned about that sort of market shenanigans as I detect from the tone of your question, you ought to prevent those sorts of actions and I have read enough about what the chairman of the committee has been saying to believe that he has that concern pretty deeply and so it certainly could apply here like it does anywhere else in any other commodity market.

REP. LUMMIS: Thank you, Mr. Johnson. I share our chairman's concern.

And I might ask, Mr. Yoder, with regard to a very small ethanol plants, let's say around the country, I know there's a threshold below which the EPA is not expected to get involved in regulation in this bill, however, there is an opportunity for emitters of, I think, 25,000 metric tons to be regulated by the EPA and that is a fairly small threshold.

A small ethanol plant could be regulated under that standard. Do you have the same concern that I do?

MR. FRED YODER: No, it's true. I don't know whether it's 20,000 or 25,000 and something like that that could be regulated, but there is some technologies that are being developed now. I know in my own state Greenville, Ohio, they're actually coming up with a program where you either actually sequestering that carbon that's captured from the ethanol plant below the ground and deep in the ground in the city of Greenville.

So there's other possibilities that we're working on and in Ohio there's also a company called Univenture (ph) that's actually taking some of those greenhouse gases, the CO2, capturing it and putting it into long tubes of buildings and growing algae and using it up completely. So technology, as the Secretary said, is going to be a big component in this.

They will be subject -- there will be some subject to those regulations, but we just have to make sure technology keeps up with that.

REP. LUMMIS: Well, gentlemen, I want to thank you. My time is up, but I share your -- you've educated me on a number of things and I'm deeply grateful. Thank you.

REP. COLLIN C. PETERSON (D-MN): Gentleman from Louisiana is recognized for five minutes.

REP. BILL CASSIDY (R-LA): Thank you. Thank you.

Y'all got wisdom. Believe me I sure wish that y'all had had input with some of your ideas into this bill because it would make me feel a lot better about it. So first, let me just compliment you. Bingo.

Secondly, Mr. Johnson, I think it was you that said something that kind of -- I've been conferring with staff ever since, that this bill does not necessarily -- that farms are not a covered entity, that so -- and yet I was reading my CRS reports and, Mr. Garber, hello from a fellow Louisianian (sic), and Mr. Stallman, I was reading about how rice produces methane and so in one of the tables here it says that a ton of methane is equal to 25 tons of carbon dioxide and so I asked staff does that mean my rice farmers could be affected? And they said probably not at the current level, but if you look on section -- oh, I had it written down and now I've lost it. I'm sorry -- 722, it says in 2020 that the administrator -- EPA administrator would be allowed to decrease the threshold for something to be considered a covered entity from 25 tons to -- by 60 percent. That would decrease it to 10 tons.

I may be getting my math wrong, but with this conversion of 25 tons of carbon dioxide as one ton of methane, that suddenly starts bringing in rice farmers, I'm told. Now, I don't -- I don't understand this bill yet. In fact, Mr. Stallman, when you said you couldn't vote for it until y'all did an analysis, I said, boy, wouldn't it be great if the federal government felt the same way.

But that said, what are your thoughts about this potential to bring in rice farmers by year 2020?

MR. STALLMAN: Being a rice producer, there has been concern expressed, I don't know, decades ago, about the degree of rice production in the world and what that meant for methane production as soon as, you know, there started to be concern about global warming.

There's not a lot we can do about that because that's the interaction between the water and the biomass basically. There are some techniques to reduce that, but I would have -- well, in my testimony I pointed out that not all agricultural producers will have the same opportunities or be treated the same even under an agricultural offsets program or under some regulatory scheme because livestock producers obviously have methane emission issues. Rice producers do.

Other producers don't have the opportunity to sequester carbon, so there's a wide variation amongst agricultural commodities as to what the potential is either for regulation or for actually sequestering carbon and providing offsets. I would note that in Section 733 of the Energy and Commerce Committee report though that they did offer one opportunity for rice farmers to provide offsets and that was in the reduction in the frequency and duration of flooding of rice paddies.

Now, frankly, being a rice producer, I'm not sure how that works, because every time my rice has been deprived of water, it hasn't produced very well, but regardless, at least the committee did acknowledge that there was an opportunity there.

REP. CASSIDY: Okay.

Mr. Garber?

MR. EARL GARBER: The methane is a natural occurrence, because when rice crop is flooded, the plant begins to obtain its oxygen through the leaves and then, of course, transpires everything back out into the atmosphere, so this is what is going to occur no matter what we want to do. That relates to the flooding occurrence that Bob just referred to there in that if you can pull it out of the flood then you may not have that occurrence of transpiration into the air of the CO2, but the best yields come with the flood. The best weed control comes with the flood.

So we would definitely have to have a complete change in culture of rice production into a dry land type culture and that complicates it tremendously. So we are going to be subject to that at that point, yes.

REP. CASSIDY: Yeah, and so I think what I learned, speaking with staff, is that this bill doesn't statutorily preclude you guys being brought in as covered entities. It's just right now you don't make the threshold, but what I'm hearing from you is that it is reasonable given this conversion factor and also reasonable to consider that in 2020 she can decrease -- or he can decrease by 60 percent that at some point you would be brought in at which point your options with current farming techniques would be limited.

MR. GARBER: The general -- I attended a briefing by the committee when they were going to submit this bill that they had had it for agriculture and I think most of the representatives for these gentlemen were there, and the general principle that they presented it to us was that agriculture is not mentioned in it but it is specifically written that where we won't be affected by it, and that was the premise by which they presented it to us that day.

REP. CASSIDY: And the staff is telling me it's only because of the thresholds they set, but if you take 2020 and you decrease it by 60 percent, that all of sudden you guys are threatened to be covered entities. Now, that may be one person's interpretation, but --

MR. GARBER: Very -- probably very much possible.

REP. CASSIDY: The last thing I would say, is I think there -- we all agree it would be nice to decrease carbon and everyone is speaking about how we need to have a bill, but I have to say from my personal point of view that it -- I don't what's -- in fact I know what's worse. A bad bill or no bill, I think a bad bill is worse than no bill. But that said, thank you again for your input.

REP. PETERSON: Thank you, gentleman.

Gentle lady from Ohio.

REP. JEAN SCHMIDT (R-OH): Thank you very much, Mr. Chairman.

And I've been kind of frustrated today, not by you gentlemen. I think you have put some light on a very important situation, because we're about to embark on changing the economic landscape of the United States with this potential bill, and while I have to be concerned with the economy of the United States, my personal concern is with the state of Ohio and of course, with the folks in the second congressional district. So I'm really going to -- this is one question, but I'm going to talk for a minute first. So my question really is to Mr. Yoder.

But looking at the bill and looking at Ohio and recognizing that we are a coal-producing state and that our energy comes from coal and recognizing that in this bill the energy costs for coal are going to go up significantly. Recognizing that there is a direct correlation between energy costs and farming, I think that one can calculate that the cost production of farming is going to go up and whether you get and offset for that or not, the cost of producing your corn is going to go up.

Mr. Vilsack was, you know, trying to be very upbeat and Pollyannaish in his views and tried to talk about the fact that we're going to be innovative and create new opportunities, but knowing the landscape of Ohio and the difficulties that we have faced with the last recession and not even coming out of it and coming into the current recession, knowing that whenever you change a paradigm you have to have winners and losers in that paradigm.

Mr. Yoder, the challenge is not just that farmers will face in this bill, but that all people in the state of Ohio will face. Do you think Ohio is going to come out a net winner or a net loser?

MR. YODER: Well, Madam Congressman, that depends on -- the devils are going to be in the details. There's potential for Ohio farmers to come out very good. I know in your district of your types of soils there's a great chance to sequester additional carbon where your farmers could participate in a carbon market, but I'm not sure you were here when I said before. One of the things that makes it so imperative for the state of Ohio, which gets the majority of our electricity from coal, is we have to produce a robust amount of -- and plentiful amount of low cost credits so that those burners of coal can go ahead and remain in business because of the shock to the community and the shock to the state of Ohio would be tremendous if electricity went up 50 percent, so to speak.

We know. We know good and well that farmers are going to be faced with higher input costs. There's no doubt. We know that the only way we're going to be able to survive is to have some kind of mechanism to offset those additional costs and so if we're going to go down this road, then it's imperative that we have to have agricultural offsets.

That's the bottom line or farmers are going to be hurting really bad.

REP. SCHMIDT: And thank you, Mr. Yoder, because I think the way this bill is written, there's not a real clear direction that we're going to have the offsets that Ohio is going to need to remain competitive, not just in the United States, but in the world and that's what really concerns me.

The other thing for all the gentlemen here, I submitted two pieces of -- two letters, one from the American Frozen Food Institute and for the Food Industry Environmental Council, and in both of those letters talked about what the ramifications of this bill or the impact of this bill that food costs will go up to the American consumer. So whether you're a farmer or not a farmer, all of us are consumers and all of us go to the grocery store and buy some part of our groceries.

How is that going to -- is that going to help or hurt the families in the United States, up or down? If the food costs go up is that going to help or hurt the families, yes or no to all of you.

MR. STALLMAN: Well, I think it's definitely going to hurt. Our analysis shows that food costs would increase by about $13 billion if you assume kind of the 2050 scenario in the Waxman Markey Bill and fast forward it to 2012, so an increase -- a definite increase will hurt them and that is under the rosy scenario of the EPA analysis of the Waxman Markey Bill.

REP. SCHMIDT: We're running short of times so if you guys can do a yes or no because I know the chairman is going to get anxious on me.

MR. STEVE RUDDELL: I'll just defer to the other panelists. I haven't studied that.

REP. SCHMIDT: All right.

MR. GARBER: All indications are is that if consumer costs go up then it definitely hurts our pocketbook.

REP. SCHMIDT: Mr. Yoder.

MR. YODER: The cost could be greatly curtailed if we have offsets to keep the cost of our raw products down. If we don't have offsets, the public will get much higher food prices. That's for sure.

MR. JOHNSON: I agree.

MR. KEN NOBIS: So do I.

REP. SCHMIDT: Thank you.

And thank you, Mr. Chairman. I'm twenty seconds beyond --

REP. PETERSON: I thank the gentle lady and thank the panel. I apologize for having to miss most of this. I was at a meeting that was a little bit important and I won't belabor this. We've got some folks on the next panel and this has been going on quite a while. So.

I was getting reports on what you guys were up to while I was in the meeting, so I've been kept up a little bit with what you've been saying. So thank you very much for being with us and for your patience and waiting. And there's a lot of interest in this topic obviously and it's taken a little longer than we expected.

Mr. Lucas told me he thought this would be a short hearing today.

(Laughter.)

REP. PETERSON: So I don't know what he considers a long hearing.

REP. FRANK D. LUCAS (R-OK): Oh.

REP. PETERSON: Thank you very much.

And we will call the next panel, the last panel of the day.

(Off mike.)

REP. PETERSON: So we welcome our final panel, Mr. Glenn English, the CEO of the National Rural Electric Cooperative Association; and Mr. Ford West, the president, of The Fertilizer Institute.

So, gentlemen, thank you very much for your patience. You've been hanging around here quite a while. I hope you haven't worn out so you still know what you need to tell us and welcome to the committee. We appreciate you being here, and your full statements will be made part of the record. You feel free to summarize at your discretion.

Mr. English, do you want to start?

MR. GLENN ENGLISH: Thank you very much, Mr. Chairman, I appreciate it, and let me just say first of all I'm delighted to be back at this committee. I spent nearly twenty years on this committee back some years ago as Mr. Lucas' predecessor, and so this has always been home, and it's a delight to be here and talk about electric cooperatives, talk about the American Clean Energy and Security Act, and let me just start off with saying that, of course, America's electric cooperatives are over 900 electric cooperatives scattered across this country in 47 states.

Forty-two million consumers all across this nation are served by electric cooperatives and we're not for profit. That means your constituents own those electric cooperatives, own them as utilities, and certainly as not for profits, we do our best to keep those electric bills as low as we possibly can and that's what I'm going to be talking about here today. And to also make sure electric cooperatives have enough electric power to meet those members' needs and we're able to grow in this nation.

First of all let me say that I testified before the Energy and Commerce Committee over two months ago that in fact electric cooperatives felt that we needed an energy bill, we needed a bill, and let me say the reason why is because of the Supreme Court action in 2007, which instructed the Environmental Protection Agency to determine whether carbon was an endangerment to the health of the American people and, of course, we're now into that process of that happening.

Now, as I understand it, and I'm no expert on the Clean Air Act. I was here when it was passed in 1990. I don't remember anything said about carbon at the time.

Mr. Chairman, you were here as well. I don't recall anything said about carbon when we voted. And I voted for that legislation. You probably did too. But I do know that the former chairman of the Energy and Commerce Committee, Chairman Dingell, has made the observation that if we try to regulate carbon under the Clean Air Act, we're going to have a glorious mess and we whole-heartedly agree with him.

It's a slow drip by drip torture that we wound undergo as a nation as that legislation is, according to attorneys tell me takes on an automatic approach. It gets beyond the control of the administrator of the EPA. It even gets beyond the control of the President of the United States and the Congress. It gets on automatic pilot as to what takes place. So it's not a pretty thing and we need to fix that problem and that's what I urge the committee to do, fix the problem, but we need to fix the problem and only that problem.

It needs to be something that is affordable, something that's flexible and something that is sustainable, and what I mean by sustainable is it needs to be politically sustainable. That means the American people have got to accept it and be able to live with it year in and year out. Not just the first year or two, but the next decade, for the next forty and fifty years. It's got to stand that test of time, and certainly from the draft that was initially presented, there have been many improvements that have been made, and there's no question that there is still improvements that need to be made in this legislation. It's got still a long ways to go in our opinion.

But we would not be raising serious concerns, not to the level that we're raising today, if it were not for an issue of fairness. Of fairness, Mr. Chairman. We would in fact not be objecting to moving this bill forward if it were not for those levels of concern of fairness.

We would recognize the legislative process that as you move along you've got to make these changes and make these improvements that are still needed in the bill. The fairness is not something that we can accept.

The fairness is not something that we can simply turn a blind eye toward, and in this cases (sic) the allowances that are allowed under the bill, allowances that under the original concept were supposed to be there to help those that were carbon-based, that had carbon-based fuels, whether it's coal, natural gas, or whatever it may be, to reduce what is going to be a rather severe shock in their electric bills and that was the original concept and idea of those allowances.

And it seemed to us that those allowances should be focused on those people who had the greatest need, not on the utilities, on people, because that's what this is really about. It's people and their electric bill and what kind of economic impact that this is going to have, their ability to grow economically in this country, their -- and certainly those of us who live in rural areas that rely on rural development, who have hopes for rural development, we depend on reliable, affordable electric power to be able to carry that out.

Well, Mr. Chairman, what we ended up with was a piece of legislation that has wide disparities, does not focus those allowances on the people who need them the most. In some cases, those who need it the least get the most. Let me give you an example. For instance the state of Kentucky really gets the fewest allowances from a statewide standpoint. The best we can tell, the best that the Energy Information Agency can tell, they get the least, about 59 percent of what their needs are going to be.

But the fortunate folks in Washington, not to their fault, they didn't ask for this, but they're getting blessed. They're one of the big receivers, and in fact they're going to get 3700 percent of their needs met through the allowances. A huge windfall for them.

Now, we've got electric cooperatives that are catching it both ways, folks. We've got many that are going to be well short of what their needs are. We've got others that are going to be in excess of what their needs are, but we all understand that these are electric co-op members. We all recognize and understand that we've got to stick together and work together, and I know that many of those folks from some of those areas that they are neediest for these allowances have been some of the first to speak up and defend those who have been fighting to protect the PMA's over the past twenty years.

Some of those that have been defended the most vigorously come from areas from other parts of the country that have no hydro whatsoever, because we've learned under the cooperative principles that people have to work together, stick together, and look after each other, and that's what they've done. And in this case we find that electric co-op members are rallying to their colleagues who are getting shortchanged through this legislation.

Well, Mr. Chairman, as we move forward here, we're suggesting that this legislation should not be about winners and losers. We're suggesting that this legislation shouldn't be a situation on one region of the country versus another. We're suggesting this shouldn't be a case of Democrats versus Republicans. What this ought to be is about the American people in making sure that all of our citizens have affordable electricity. Affordable electricity. Trying to make sure that the needs of all of our citizens are met.

Most of these folks didn't have any say as to what fuel was used to generate their electric power. Their fuel was determined from what region of the country it came from. In some cases, Mr. Chairman, it was the United States government itself who dictated what fuel they would have to use. This goes back many years for us old timers to 1978. We had something called the Fuel Use Act down in our home state of Oklahoma.

Mr. Lucas, I know, remembers this. Oklahoma, Texas, many of that -- we have natural gases, in some cases a mile away from the generating plants and we were using natural gas like crazy, but all of a sudden the United States government decided we had a shortage of natural gas, so the United States government came in and passed a law called the Fuel Use Act that required all those gas fired utilities down in the state of Oklahoma and through many other parts of the country switch to coal.

We had to start shipping coal from Wyoming to burn in those generating plants in Oklahoma, Texas, Louisiana, and elsewhere around the country. We had three-quarters of all the power plants that were built for electric cooperatives built during the ten years of the Fuel Use Act in which we had a case in which they had to by either planning or building or converting to coal fired generation during that period.

So those people shouldn't be penalized because they met those requirements. They obeyed what the federal government said, and they carried it out. They ought to be treated in a way that we try to lessen the impact on their electric bills and continue to make their electric power affordable to them. That's fairness. That's what's right, and I think that's what most citizens in this country expects to be done.

Mr. Chairman, I would also point out that some states get well over 100 percent of the allowances they need. It's not fair that any state get more than 100 percent. That's not just right. That's just not right.

And I'd also say one other thing, Mr. Chairman, that no member of Congress should be asked to vote for a bill that would require them to take allowances away from their own constituents and give it to constituents in another region of the country. That's not right either.

So, Mr. Chairman, what we're urging here is fairness. What we're urging is that all of our citizens be looked upon as deserving of affordable electric power, that we recognize and understand that we're making a change in policy and that some people are going to be very fortunate. They're not going to see their electric bill soar higher because they're using hydro. They're not going to see their electric bill soaring higher because they may get their power from a nuclear power plant, but there are many others that are going to see their electric bills soar higher, much, much higher because in fact, unfortunately they get their power from a fossil-based fuel.

Mr. Chairman, I hope this committee will join with us and help us get some fairness for all American people, no matter what region of the country they're from and no matter what their power source might be.

Thank you very much.

REP. PETERSON: Thank you very much, Mr. English. We appreciate your being with us.

Now, Mr. West, we appreciate you as well and you're recognized to summarize your statement.

MR. FORD WEST: Thank you, Mr. Chairman. I appreciate the opportunity to be here.

First of all let me say that the fertilizer industry is very supportive if this committee can generate some carbon emission offsets for agriculture. We've been working with the Providence of Alberta up in Canada to put together a protocol based on fertilizer best management practices to reduce nitric oxide emissions in the field. It's peer reviewed, the protocol is, based on fertilizer best management practices using the 4R nutrient stewardship system, which is use the right product, right rate, right time, right place. It has the potential to increase agriculture yields, to enhance fertilizer use efficiency, reduce emissions and greenhouse gas emissions, and really generate emission allowance for farmers.

We think the Alberta farmers will be using that this Fall and we want to make sure that if we're working with the USDA to make sure they are aware of the program and understand it and we thank it ought to be part of any offset program.

Now, let me talk about fertilizer. My good friend, Mr. English, here is urging fairness. I'm urging survival out of this climate change legislation. We're energy intensive. We're greenhouse gas intensive. We're trade intensive. We're subject to competition in the global market, and we meet the 25,000-ton criteria for -- in this bill and I'm going to -- fertilizer is nitrogen phosphate and potash, but I'm going to focus on nitrogen because it's the most vulnerable economic impact to the cap and trade system.

One of the challenges that we have is that we take nitrogen from the air, combine it with hydrogen from natural gas and make ammonia, which is the building block of all nitrogen fertilizer, and we produce CO2 in that process. Now, that's a chemical process, and we're bound by that process, and we can't change that process.

So when everybody wants to get to this new economy that we're in, this low carbon economy, we're kind of old school. We're stuck in the old economy, because if we produce ammonia, we produce CO2 and 65 percent of our emissions are tied to what we call process gas emissions, that's CO2, and 35 percent of our combustion related emissions.

Now, when we repealed the Fuel Use Act after all these utilities built all these coal plants, we allowed the utilities to go back to burning natural gas to produce electricity. Now, there's a term in this whole complex called leakage that has come up, and leakage is a term that says what industry can we afford to lose or what economic activity can we afford to lose to meet our policy goals.

Well, when we converted the -- repealed the Fuel Use Act and allowed the utilities to burn natural gas to produce electricity and we went from zero of electricity produced by natural gas to about 20 percent today. The leakage was the U.S. nitrogen industry. We closed 29 plants as natural gas price went from about $2 to about $7 and a half simply because we were not competitive in world markets with that price of natural gas.

It takes about 32,000 cubic feet of natural gas to make a ton of ammonia and about 90 percent of the cost of doing that is from ammonia -- is from natural gas. I'm sorry. Now, we are eligible for the emission allocation program that's in 2454. We are eligible for that, and that whole program is designed to provide transition assistance for energy like ours, energy intensive, trade intensive. About 15 percent of the emission allowances in 2454 are targeted for the energy intensive industries, and they will be adjusted down 2 percent a year starting in 2015 to 2025.

Now, right now I can't tell you how many allowances our industry will be eligible for, whether it's 100 percent in year one and we got to downsize 80 percent in 2025, or we start out at 75, and we got to get to 50. We don't know because that determination has not yet met. But it looks like to us that we are not going to get enough allowances to keep us competitive in this ten-year transition period between 2015 to 2025, and so the real issue for us is are we going to produce nitrogen in the United States.

We currently import 55 percent of our nitrogen, and if we cannot be competitive in this ten-year transition period, and of course after that it gets phased out, then we'll look offshore for our production. Now, we have 29 fertilizer plants, nitrogen plants left. These are good paying jobs, about 150, 200 jobs tied to each plant. They're located in rural America. It's about 75,000 per year per employee. That's considerably higher than what your average job is, 42,000, so these are good paying jobs. These are very efficient plants, but we are very concerned about their viability in this time.

We already talked about fuel switching. That's another issue. Mr. English, we was talking to him here about this being a late hearing and us two left. He said, "Well I'm going to tell you what our answer is, we're going to switch all our coal plants back to natural gas and we'll use up all our natural gas."

Today natural gas is $3 and a half in MBTU and we are saying that because of the new finds of natural gas we're going to have a lot of natural gas. Natural gas has spiked three times above $10 since 19 -- since 2000. A year ago at this time natural gas was $13. We were producing ammonia at $13, but ammonia was 1000 bucks a ton. Today it's $3 and a half and ammonia is about 3.50.

Certainly everyone is concerned about what this cost will be. Production costs will go up. We did a -- Doane's Advisory Service did an analysis for us of Lieberman Warner and said that production costs will go up from 6 to $12 billion dollars. We are trying to wait for EPA's analysis to do that again.

In conclusion, let me just say that we don't want to be leakage this time around in this legislation and I just want to remind this committee that food security is a national security. Forty to 60 percent of the world's production is tied to fertilizer use and if we ship our fertilizer offshore, that will be a detriment to our own food security and thank you and I will take your questions.

REP. PETERSON: I thank the gentleman for his testimony.

The -- so do you know how many credits you're getting or is that what you said you don't know?

MR. WEST: Well, here's how it works. The energy intensive industries gets 15 percent and there's probably 45 sectors in energy intensive. Okay?

REP. PETERSON: So you're in with those guys?

MR. WEST: I'm in with all of them.

REP. PETERSON: So you don't know what your share is going to be?

MR. WEST: I don't know what my share is going to be.

And if we have enough, then I'll probably get 100 percent, but if we don't have enough then everybody gets prorated.

REP. PETERSON: Okay.

MR. WEST: And all the sectors are trying to figure out, you know, what their emissions are. We are right now in rule making at EPA to determine the rule that all those sectors will have to report to EPA. EPA decides who the sectors are and then will decide what the average emission rate is for that sector and then that's what you get.

REP. PETERSON: But the law hasn't passed yet, so they're already doing this?

MR. WEST: The rule? Absolutely.

REP. PETERSON: Well, the rule, okay.

MR. WEST: Yeah, the rule to report.

REP. PETERSON: Okay.

MR. WEST: Anybody over 25,000 tons of emissions, there's a rule underway right now. We just submitted our comments on the rule.

REP. PETERSON: Okay.

MR. WEST: That will be finalized and that will be the standard for which you have to report under this bill.

REP. PETERSON: And if you go offshore, it means you move this to producing it in Canada then you don't have to comply with any of this?

MR. WEST: Well, what's interesting is when you -- when I go to my counterparts around the world, Europe, Canada, Australia, they're all -- they all signed up on Kyoto, but none of them has ever gone to implement it yet, because they don't know what to do with their energy intensive industries, and they don't want their industries -- their manufacturing facilities to get out of their country. So they're just kind of playing around right now.

The only political body that's regulating energy intensive industries is Alberta. Now, how Alberta treated their nitrogen plant was they took their processed gas and set it out. They said we won't include processed gas in the calculations for your energy intensive, and you got to remember now in the States in this bill there is no requirement that any facility has to cut emissions. You do have to have emission allowances, and if you don't get your emission allowances, you'll have a permit from EPA that says you got to have emission allowances to cover your emissions, and if you don't get those emission allowances then you have to cut back on your production.

REP. PETERSON: Or you have to buy them some place?

MR. WEST: Or you got to buy them some place.

REP. PETERSON: Okay.

Mr. English, in your testimony you speak about the cooperatives using over the counter derivatives to hedge natural gas risk. There's language in the Waxman Markey that appear to close down the over the counter market for energy derivatives.

Do your members have a position on that?

MR. ENGLISH: Well, we're very concerned that that will obviously eliminate that opportunity to hedge for our members. We're small. We're not of the magnitude that I think was envisioned there. So we have some great concerns over that. We think particularly that that market needs to be made available for legitimate hedging purposes and that there shouldn't be anything language wise or the implementation wise that would damage our opportunity to carry that out. That obviously would be -- that risk mechanism should it be eliminated would increase the cost to our membership significantly.

REP. PETERSON: You were talking about the -- Kentucky having 59 percent and Washington State 3700 percent. Can you supply the committee with a sheet of paper that shows us, or we already have it?

MR. ENGLISH: Yes.

REP. PETERSON: Okay. It's in your testimony?

MR. ENGLISH: Right. Well, also I know the committee had made the request to the Energy Information Agency regarding that information as well. We're making it available as far as electric cooperatives are concerned. As far as investor run utilities, they have not been that forthcoming.

REP. PETERSON: Are we getting that information, do you think, or --

MR. ENGLISH: Energy Information Agency evidently doesn't have good information on it. What I would suggest to members of Congress, and this -- I know there are a lot of members who are wondering well, am I a donor state or am I reciprocal state, which one am I.

I would suggest to you that you call your local investor owned utility at home and ask them what percentage of the generation do we have that is coal or fossil fuel generated. If it's over 50 percent, considerably over 50 percent then I would say their odds are pretty good they're going to be a donor state. In other words, they're going to lose.

If it's a lot less than that you may be one of those states that's winning, but they have not been that forthcoming with this information. The information we've gotten so far, we've pulled out of a few annual reports and some public information that we have found on websites. It would be nice if we could get all that information forthcoming and then we could truly get an accurate picture of that.

REP. PETERSON: Yeah.

MR. ENGLISH: But it -- we feel for electric cooperatives, and that's what you have before you. That is pretty close.

REP. PETERSON: Okay. All right. Thank you.

My time has expired. The gentleman from Oklahoma, Mr. Lucas.

REP. LUCAS: Thank you, Mr. Chairman.

Mr. West, let me get this straight. You're telling me that you're now providing information to a registry about what you emit and the federal government until this point had no clue. We've been working on policy on things we didn't understand?

MR. WEST: No, there's a rule making underway at EPA right now, and that rule making is in the final stages, and when it becomes final, we're going to have to start reporting our emissions to EPA.

REP. LUCAS: That's kind of like tying your own noose, isn't it?

MR. WEST: And that will be the basis for really the industry- wide baseline, especially for the energy intensive industries that will have to comply with it.

REP. LUCAS: And the emphasis for this rule came from EPA internally as far as you know? Do you have any idea what their justification was for launching into the rule making process?

MR. WEST: Well, I assume that it's getting ready for climate change legislation.

REP. LUCAS: You got it. Let's touch for a moment on the survival of your industry. From what you told us, if the present form of Waxman Markey were to become law, and that's what we're dealing with now.

MR. WEST: Yeah.

REP. LUCAS: The present form passed out of the Energy and Commerce Committee. What percentage of your industry under the present laws proposed will survive?

MR. WEST: Well, we have 29 nitrogen plants. Each one of them has a different carbon footprint, so everyone of them is impacted a little bit, but I don't think if we don't get 100 percent of our direct and indirect costs and maybe some emissions for what happens to the price of natural gas, none of them will be here in ten years.

REP. LUCAS: So every pound, ton of your product we buy domestically now, in ten years --

(Cross talk.)

MR. WEST: Well, we're already buying 55 percent of it.

REP. LUCAS: But it could be 100 percent --

(Cross talk.)

MR. WEST: It could --

(Cross talk.)

REP. LUCAS: -- in ten years imported?

Congressman English, Mr. English, Mr. President, whatever the case may be, let's talk for a moment about the affect on our folks out in the countryside. I guess my first question is if you were still the 6th District Congressman for Oklahoma and you voted for this present version of Waxman Markey, could you go home?

MR. ENGLISH: I'd have a very difficult time, Congressman Lucas, explaining to the folks back in my district, the 6th District, years ago as to how I could agree to vote to give away allowances that would keep their electric bills less than what they were going to be otherwise and giving those allowances to some other region of the country. I don't think I would be good enough at explaining that to be able to convince them that I did the right thing.

REP. LUCAS: Nor would any of your successors be good enough either.

The NRECA, were y'all a part of this process negotiating these allowance allocations?

MR. ENGLISH: No, we were not a part of the negotiating of any of the allowances as far as the allocations were concerned, no.

REP. LUCAS: Fascinating. So if you weren't a part of the process and you take care of a huge amount of America, tell me what happens when the free allowances go away, what will the impact be on the price paid by country customers in this great United States?

MR. ENGLISH: Well, keep in mind as the bill is written --

(Cross talk.)

REP. LUCAS: As written, of course. As written.

MR. ENGLISH: As written, we will see the cap steadily reduced each and every year as move say toward 2020, and under the objectives of the legislation, we will be 17 percent less than where we were in 2005. Now, also at the same time we have some growth that's going to take place. We hope our economy is going to recover. We expect to have growth.

So if you use the Energy Information Agency's actual numbers as to what they project as a growth in emissions, you're really talking about more in the neighborhood of 24 percent rather than 17 percent. So that -- that's something you've got to keep in mind, and these are 2005 emissions that we're talking about here. So there's -- it's a pretty steady reduction and a sizable number.

REP. LUCAS: So under this present bill proposal, it's fair to say the folks back home will pay more to get less so they can be hotter in the summer, colder in the winter, and stay real close to home.

MR. ENGLISH: Without getting your fair share of emissions, as it stands today.

REP. LUCAS: Exactly.

Thank you, sir.

Yield back.

REP. PETERSON: Thank you, gentleman.

The gentleman from Indiana, Mr. Ellsworth.

REP. BRAD ELLSWORTH (D-IN): Thank you, Mr. Chairman.

Thank you gentlemen.

Mr. Chairman, thank you for holding this hearing. Just because it was long, it was extremely important and a lot of things needed to be heard. I hope a lot of people hear them.

Gentlemen, if my notes are correct, it was probably supplied by the Rural Electric Association. I've got 132,775 rural electric customers in my district in Indiana. I know these name tags don't say where we're from, but I've got this little thing called the Illinois Coal Basin that I -- my whole district is sitting right on top of. Numbers vary widely from that we're a 96 percent coal fired district electricity to 98. So you know where I'm coming from.

We're going to get 62 percent is my understanding is what they're showing us from carbon emissions allocated under the current plan. That leaves 38 percent to be purchased.

Like I said, when you told us, Mr. English, that some of these will receive well over 100, in fact some are going to receive 3,741 if the numbers are correct of what they actually need. I guess my question is simple, don't either of you gentlemen think that these areas that are going to get 3000 times that they are just going to donate those to Indiana and Ohio and out of the goodness of their heart and for the goodness of America so that those poor Hoosiers don't happen to bill -- and if you don't think that and you can answer that first, but if you don't think that then please tell me what's going to happen to those 132,775 members of rural electric in my district.

I think we all represent about 675,000 people so that's a pretty good chunk of my people. What's going to happen to their electric bill? So will they donate from other of those fortunate areas that have the nuclear and hydro and if not what's going to happen to my electric bills?

MR. ENGLISH: Well, I think that obviously as I mentioned we're very proud of the cooperative spirit that we have in this country. We're very proud of our cooperatives in the Northwest and this would be a huge windfall for them, but they recognize that the people from other regions of the country that have no hydro have come to their defense, have supported them with the PMA's and helped make certain that they're able to keep their electric bills low and they're responding in the same way in this particular instance.

That's tough. That's tough to turn around and recognize and understand that, but that's what you do with neighbors. One neighbor helps another. Why, in their time in need you respond and we're experiencing that same kind of response.

As to what happens with those folks, if you're from -- because of the reduction of the carbon emissions, your electric bill is going to increase substantially. Substantially. And as I mentioned earlier, the whole idea of those allowances is to try to dampen that somewhat, take some of the pain out of it. If you're not getting your full share of allowances that just means that it's going to be that much more painful and more difficult.

It means that basically people are piling on. It basically means that in effect they're saying not only should you -- do we want to eliminate or reduce carbon emissions in this country for clean air purposes or for climate change purposes, but we're going to penalize you as well.

REP. ELLSWORTH: If those states -- I know sometimes it's easy to be neighborly when times are good, if the state budgets are in the situation they are, California and many states, even Indiana, and you've got this commodity in hand that you can then sell, trade, barter with, I think that neighborliness might be a little less --

MR. ENGLISH: It's going to be tough. And there's no question that a huge amount of money could be made. It's expected that you -- we have a lot of speculators from Wall Street that are going to be big time in this market. I know many have talked about even getting in international speculators will likely be in this. That's who your local co-ops are going to have to go to to buy the allowances after they've acquired them elsewhere and so you're going to be paying in this huge premium which then, of course, gets reflected on your electric bill. That's going to impact all the economy within your district. So if your folks are suffering now, they're going to be suffering a whole lot more with that approach.

That's the reason as I said we're kicking up a big fuss and some folks are telling us, y'all just be quiet. Or you guys go to the Senate. Go talk to the Senate. Don't talk to us. This is already said. It's a very delicate matter here. It's a delicate coalition we put together. Well, I would suggest the reason it's so darn delicate is because of the unfairness of this thing, and if you're really going to have a piece of legislation that is going to have this kind of impact on the economy of this country and on so many districts around this nation.

It should be something that people get behind and support because it's not going to be easy to do this job, but if it's delicate and it's really bounced on taking away from one group of people and inflicting pain on them to the expense and benefit of somebody else, you know, I don't think that's going to be sustainable, and I don't think that's going to work, and we just want to make sure that every member of the House understands, you know, as I pointed out to Mr. Lucas, you know, one of these days you may have to go home and explain how you can give away your allowances to somebody else in some other part of the country and how that was justified and how that was fair. I don't -- I sure couldn't do it, but I'm sure there are folks that are a lot better communicators than I am that might be able to pull that off, but I don't see how.

REP. ELLSWORTH: Thank you very much, Mr. English.

Mr. Chairman, I yield back.

REP. PETERSON: I thank the gentleman.

Gentleman from Virginia, Mr. Goodlatte.

REP. BOB GOODLATTE (R-VA): Thank you, Mr. Chairman, and, Mr. English, welcome back --

MR. ENGLISH: Thank you --

(Cross talk.)

REP. GOODLATTE: -- I've been on this committee for a very brief time --

(Cross talk.)

MR. ENGLISH: Yes.

REP. GOODLATTE: -- when -- before you departed and since that time I've been sitting close by this gentleman from Oklahoma.

He's done a great job. We're glad to have him, but we're also glad to have you back and, Mr. West, it's good to have you here too.

MR. ENGLISH: He's made them all forget about me. I just want you to know that, Mr. Goodlatte --

(Cross talk.)

REP. GOODLATTE: We're remembering you today.

MR. ENGLISH: (Laughing.)

REP. GOODLATTE: We're honoring you today, but I appreciate very much your plea for fairness, and Mr. West's plea for survival. I'm making a plea today for common sense, and I very much appreciate your discussion of the unfairness with the allocations.

I represent a district in Western Virginia where you have a lot of rural electric and unfair allocation here that's going to cause electricity prices to go up for my constituents more than they will in other places. But the premise behind this whole legislation and the Kyoto Treaty and whatever may be negotiated moving forward is that the greenhouse gas emissions that every power plant, business, home, automobile, truck, person emits are collectively causing a reduction in the -- or an increase in carbon dioxide in the atmosphere and other greenhouse gases, which is causing an effect that's raising the temperature of the world.

So as we juggle all these different allocations between different communities and different industries and different forms of energy production and energy usage, we got mindful of the fact that we're not just talking about what happens here in the United States, because it's one atmosphere, one globe, and when you have China building one new coal-fired power plant a week, I'm told, and India doing something similar and many, many other developing countries doing the same, and even countries that have signed onto the Kyoto Protocol as Mr. West has talked about with regard to fertilizer, they're honoring it in the breech in many instances. They're nowhere near meeting the targets that they had agreed to.

So I guess my common sense question is does it make sense to go forward with this legislation at all if what we're in the end accomplishing is simply transferring to countries elsewhere in the world who I don't think have any intention of participating in this like China and India or being given such allowances because they're developing countries or whatever, that we'll never ever catch up to them or see the competitiveness that the United States presently has in terms of manufacturing, in terms of agriculture, in terms of other things that we have to use sources of energy for.

MR. ENGLISH: Well, Mr. Goodlatte, I think if the Supreme Court hadn't pulled that trigger on the Clean Air Act, I think we would have had the luxury of being able to have that discussion and come to that conclusion.

REP. GOODLATTE: Well, let's talk about that.

MR. ENGLISH: Okay.

REP. GOODLATTE: Because the Supreme Court decision does not say that the EPA is right or wrong. It just says the EPA has authority to do what they're doing.

MR. ENGLISH: I believe, If I recall correctly, it ordered them to make a determination as to whether carbon was harmful to the health of the American public.

REP. GOODLATTE: Correct.

(Cross talk.)

MR. ENGLISH: And if --

(Cross talk.)

REP. GOODLATTE: And there's lots of different ways you can define what's harmful to the health of the American public.

MR. ENGLISH: That's correct.

REP. GOODLATTE: What we emit when we exhale is hardly harmful to our health, but perhaps if you were reducing the temperature of the globe by reducing these emissions you might accomplish that, but it's highly doubtful that we're going to significantly reduce those emissions even if we go through this process. So it might make more sense for the Congress, for example, to take a different approach in terms of how to do this or even simply to cut off the funding to the EPA and tell them you cannot spend these funds for this purpose because the Supreme Court wasn't saying this is a constitutional requirement. It was simply saying this is our interpretation of what the Congress already did.

MR. ENGLISH: Right.

REP. GOODLATTE: What the Congress gives, the Congress can take away.

MR. ENGLISH: Exactly.

REP. GOODLATTE: The Congress could on a year-by-year basis say don't spend any money on implementing these rules and regulations. Let's instead take these trillions of dollars that we're going to spend and put them toward developing new technologies and over the long period of time move away from carbon-based fuels and over the long period of time address the effects of climate change, whether it be flood control measures or measures to help different communities adapt to temperature changes, and let's take the other trillions of dollars that we save and fight disease and let's fight starvation.

Let's make sure we have clean water around the United States and around the globe. All of these things we're going to give up in order to pursue this goal of somehow lowering the thermostat of the world, and if you look at the mean average of what different scientists say you'll be successful in reducing that temperature. That mean average is about one-twentieth of one degree Celsius.

So for trillions of dollars and decades we will pursue a goal that scientists today don't know, we don't know, but scientists today on average say we'll only have a miniscule impact on reducing the temperature. So I agree with you we've got a Supreme Court decision, but I don't think the Congress should be blackmailed by the EPA, do you?

(Cross talk.)

MR. ENGLISH: Well, the point -- I guess the position we're put into is that we recognize that the Environmental Protection Agency is already moving forward to make that determination. There is not a lot of doubt in our mind -- maybe it's poor judgment on our part, but there's not a lot of doubt in our mind that the Environmental Protection Agency is going to come to that conclusion whether you agree with it or not. We've got to deal with the reality of that situation.

REP. GOODLATTE: But we got to deal with the political reality that if Lucas said that can we go home and explain to our constituents why we would go to all of this complexity and all of this increase in utility cost, which we're told will increase electricity costs by close to 100 percent, will increase gasoline by about 75 percent, natural gas by 55 percent. I don't know what it'll increase fertilizer. But we do know we're going to face all these increased costs. We do know we're going to lose jobs. There are varying estimates of how many millions we will lose.

But why would we go back and explain to our constituents that the EPA's getting ready to do something and the Congress is getting ready to say well that's not the best path to go down, let's go down a different path and come up with a different solution. What the Congress granted the EPA to do the Congress has the authority to take away or delay.

MR. ENGLISH: And if the Congress does that, obviously we're going to respond to that accordingly. But in the meantime, until that law has a better approach, until the law's passed, we don't have much choice but to deal with the reality ---

REP. GOODLATTE: I understand. I understand you want to be in there negotiating for your allocation but your fairness is not necessarily common sense.

And so my question is if this were not the path that the Congress is presently taking is there, in your opinion, other paths that would be better to pursue?

MR. ENGLISH: I want to say I'll stand forthrightly for common sense.

REP. GOODLATTE: Alright. Well I'm going to define common sense the way I just defined it for you and take that as a positive answer.

But I will suggest to you that it is fool's gold to simply say that if we make these necessary reallocations that everything will be okay because we're still going to face those higher electricity costs and we're going into this without any idea about whether the technology is there to change that. We're doing nothing for nuclear power in this. If you had credit for nuclear power, why, we could build --- we could raise the capital to build nuclear plants like France has done, like other countries are doing right now and move away from greenhouse gas emissions that way.

There are lots of other things that we could do but this legislation doesn't get us there.

MR. ENGLISH: I would agree all those factors need to play into it. It would be -- (audio break).

REP. GOODLATTE: (In progress) -- good analysis for electricity customers, for farmers, for manufacturers ---

MR. ENGLISH: But I've seen no one who's laid out such a plan.

REP. GOODLATTE: No. Absolutely not.

Thank you, Mr. Chairman.

REP. PETERSON: Thank you. That's our job, I guess, to lay that out at this point.

So I'm up now and I said I got here the same way I think I became a Sergeant Major, by pure attrition. Everybody else quit by the time they got to that point.

But I do really appreciate both of you being here. You're both incredibly important to the industry that drives my district in southern Minnesota. I'm very proud about our diversity. I'm also very proud and I would say to you, Mr. English, I too know that I have a large number of rural electric cooperatives. In fact, I believe Chairman Peterson and myself are in the top ten in those, almost 175,000 people.

And the one thing I can tell you, and I --- listening to you talk about this, of trying to make it work, that's the attitude your people have always taken. You electrified rural America; you've brought prosperity and opportunities to rural America. It hasn't been easy. You've got 80 percent of the land and 15 percent of the people. Economy of scale and those types of things just don't work out so well. But the fact of the matter is the quality of life for our citizens in rural areas in just as important as the urban areas and it's because you've done that.

And the thing I think we need to keep into mind here and I keep coming back to is I think all of us realize there's major flaws in the legislation. But I also think, I'll keep coming back to where Secretary Vilsack was, there are opportunities if we get this right. And every time I've talked to your producers out there we have a very high rural portfolio standard and the producers out there said we'll get to it, give us the tools. Give us the tools to get there and don't penalize our people.

And I think it's important to keep in mind these rural electric customers overall per capita make less than the average income. And, in fact, a large number of these people actually fall below the poverty line and it would be really felt.

So this would be incredibly regressive on them. That's a huge concern for me. We need to get it right so that your producers can start benefitting from the wind that's out there, the biofuels that are out there.

So I would ask, maybe --- and this is probably, Mr. West, more towards Mr. English on the generation side of this and then come back to you. What tool would we need to give you? What would look good to you as we got this going forward because I don't hear any of your people say we don't care about carbon emissions, we don't care about making this country energy independent. They said we're with you on this but you simply say it there and then we're expected to carry it out where the rubber meets the road. We need the tools. So what tools?

MR. ENGLISH: If we had to restrict it to one tool and one tool only --- there're many tools that would be helpful but if you're coming up to one tool that's most important it'd been technology and we need it quick. So if anything --- from the Congress we need more money to speed up that technology.

What a lot of people don't understand is we've got a very narrow window here. We're short of capacity. All that capacity that was built up over the years, we've run out of that. So we're slap up against the wall from the standpoint of having enough capacity to be able to generate enough electric power to, in fact, meet the needs of our members, your members, your constituents, over the next decade.

So anything we can do to speed that up, to get us that power, is ---

REP. PETERSON: I agree. And I think Mr. Stallman in the last panel brought up the point of don't leave us this hole. As we make this transition from a carbon based energy and a carbon based society make sure that we are able to get there.

And there are some amazing things out there and I tell you it's being done by private entities. And I know, I'm going to have to tell you, I'm still a huge believer that biofuels have a way to go. People are acting like the biofuels --- if they'd have asked of the Wright brothers the day after they made their flight they'd have wanted transcontinental flight or they're going to scrap the whole dang industry.

We have a plant out in Winnebago that doesn't --- it's 62 percent less than natural gas. It uses wind generation floats a lava bed, they palletize the leftovers for fertilizer and they capture the CO2 and sell it to the local beer brewery.

Those are things that are happening or have the potential but if they're not supported, I agree with you, if we don't transition and help them get over that and we just say tomorrow it has to be there I too --- I have your sheet here of seeing where we fall. We would be incredibly disadvantaged and all of the gains you've made, I think, would be lost.

Do you think that's fair to say?

MR. ENGLISH: I think that's fair to say and this is not going to be any easy handoff. It --- this 10 years is where the real problem is and that's what I meant about the sustainability. We desperately need to make certain that this thing is achievable. We need to make certain that we get the technology. You were talking about on biomass, that research and development to get this thing on line quick. The urgency thing is where we seem to have a problem getting across to people. It's not something we can just drag on and on and on. We need it. We need the commitment. We need it now and it's going to be sustained for the next decade till we get over this hump.

And then maybe --- maybe you could take a breather.

REP. PETERSON: Mr. West, is that true? Could we be providing --- you know, we want the private sector to do this. Is there a role for it in the land-grant universities for research or anything to help you on this, because, again, we need your industry?

MR. WEST: Well I think for us the challenge is take the pressure off natural gas use to produce electricity. I mean, that's --- natural gas is kind of the environmental fuel of choice because it has the lowest carbon content, okay. But if we're going to get rid of coal or put so much pressure on coal then we're going to go switching to natural gas and who knows what that is going to drive the prices ---

REP. PETERSON: Do you think Boone Pickens was right, get that wind up to displace --- his whole point was to displace that natural gas. Now he wanted to shift it towards mobile.

MR. WEST: Well the problem of it is is when the wind ain't blowing and the sun ain't shinning natural gas is the backup.

REP. PETERSON: That's right. We need to get to where --- we're doing some things out there with injection of compressed gas. I mean, there are things out there but we're not there yet. And I think many of my colleagues share that concern.

MR. WEST: I would say that probably the thing that needs to be done is we need to find a way to capture and sequester CO2, put the money in that so that we can find a way to inject that or do whatever we need to do because that'll be the only way these coal plants will stay if we can find a way to capture that CO2 and inject it in the -- (inaudible) —- and leave it there.

REP. PETERSON: Well I --- and I share your concern on that. I oftentimes say we'll hear a lot of people debating this and we'll hear in these hearings people saying that we need to go off coal tomorrow. Well, we need to turn these lights off and the air conditioner in here that's being generated by coal as we speak.

MR. WEST: And then on the side make sure I've got enough allowances to cover my direct and indirect costs over the next 10 years.

REP. PETERSON: Well no, I thank you both. The gentleman from Kansas. Thank you.

REP. MORAN: Mr. Chairman, thank you.

Mr. West, part of what you said that was most interesting to me was your comments about visiting with your counterparts from Europe and Australia and other places --- we had this conversation with the previous panel and one of my concerns is about our competitiveness. I'm not sure your issue is competitive. Your issue is, as you say, is survival.

MR. WEST: Sure. Eighty-two percent of the nitrogen we currently import is from countries that really are not interested in greenhouse gas reduction.

I mean, I can talk to my Europeans counterpart, my Australian counterpart, my Canadian counterpart. I can bring it up with my Arab Fertilizer Association counterpart and he's looking at me like what the hell you talking about.

REP. MORAN: Do you know, is any of the fertilizer that we import into the United States today manufactured under the circumstances of strict regulations regarding CO2?

MR. WEST: The only one is we get about 17 percent of our nitrogen from Canada and about 60 percent of that's in Alberta and Alberta's the only one that's really regulating fertilizer. And what they've done is they do it a little bit different. Each facility has to have a emission intensity but they took the processed gas, that's CO2 that comes from taking nitrogen out of the air, hydrogen from natural gas and making CO2. And they took it and just put it off to the side and said we're not going to count that in your emission intensity and that's the way they're doing it.

And, of course, the Canadians are looking very close at what the United States is going to do because they want to be equal in North America.

REP. MORAN: What --- tell us what the impact of fertilizer costs in increases upon agriculture. How dependant is agriculture upon fertilizer in the United States?

MR. WEST: Well, you know, 40-60 percent of the world's food production is tied to the use of fertilizer. Now, the growth and the use of fertilizer is all outside the United States. The politics of fertilizer in the United States is how efficient can you be. And that's why we've been working with our protocols, on trying to be as efficient as we can under the ---(inaudible)—- stewardship system. But if I'm going to produce ammonia then I'm going to produce CO2 and that chemical reaction I just can't make it any more efficient.

Now we can capture the CO2. I can see it to Pepsi. We have a plant in North Dakota that pipes it to Canada and put it in the oil shell. We can do some of those things but I'm producing it.

REP. MORAN: Congressman English the conversation earlier was about technology. How much more efficient are --- in reducing CO2 and other gases are our new electrical generation facilities as compared to what we've had in the past? Are we having quantum increases in the ability to improve that or is it marginal?

MR. ENGLISH: According to the Electric Power Research Institute, as far as off the shelf technology that we can use to deal with withdrawing the carbon from those emissions and storing it in the ground or using it for some other purpose we're probably a decade off, maybe 15 years. And that's assuming that we're willing to spend another billion dollars a year on research and development. That's how difficult it is.

So we've --- that's the reason I keep saying this next decade is going to be extremely difficult. What you're doing as far as new generation is concerned you're pretty much eliminating coal, which being your primary fuel of generating electric power in this country, your pretty much eliminating that as an option.

REP. MORAN: So our --- the private sector would spend little or no effort in trying to figure out how to generate electricity from coal in a more efficient and more environmentally friendly way. It just wouldn't --- it wouldn't be feasible.

MR. ENGLISH: Well, yeah. It's the technology and the development that's involved and it is extremely complicated and difficult to do. If you think about the amount, it's a huge amount of carbon that you're going to have to do something with, put it in the ground.

Let me just --- one thing that I was always able to understand as far as the complications, think about the liability issues that are going to arise from pumping that much carbon into the ground all across this country. Well the Congress is going to have to deal with that. Can you imagine trying to get liability immunity in this country through the Congress for that kind of an issue? I mean, that'll go on for years in itself.

So you've got a whole host of issues that are going to involved for us to be able to bring the coal back online with the elimination of those emissions.

REP. MORAN: Congressman, I want to explore just a little bit further your conversation about fairness.

MR. ENGLISH: Sure.

REP. MORAN: One of the things we did today is take a look at where --- you're better to be in Washington state than you are in Kansas under this plan.

And we then took a look at, for example, the income, the average mean income, I'm sorry, the mean income in Seattle is about $46,000 in Seattle, Washington. The mean income in my largest city, Salina, Kansas, is about 36,000 (dollars). A typical county seat in Kansas, Bellville, has a mean income of about 26,000 people.

So what we're doing is we're transferring wealth, income from those who can least afford it, at least in this example of Kansas and our mean income, to those who are better able to afford it.

So when you talk about unfairness, in many instances our rural communities and the states that have lots of rural areas in which coal was the primary provider of their electricity, their incomes are generally less than the coast, which appear to me this bill is better designed to protect.

And so we're taking income, we're increasing the cost of living, the cost of being in business in areas in the country that have low incomes and we're protecting, in this process, those areas of the country that have high incomes, higher incomes.

MR. ENGLISH: I don't know that that was the intension but that seems to be the result, yes.

REP. MORAN: Okay. Thank you very much.

REP. PETERSON: Gentlewoman from Illinois.

REP. HALVORSON: Thank you, Mr. Chairman.

And thank you, panelists.

Mr. English, I have a couple questions for you. As a general matter what I'm hearing from you is that your group believes that the free allocation of allowances is preferable to optioning off the allowances, apparently because it's better, more direct way to protect consumers from rate shock. Can you explain that a little further for me?

MR. ENGLISH: Sure. If the allowances that you have, what you're going to provide by the federal government, obviously if you're going to provide those allowance in the way that most of the legislation is done is through the distribution systems, the local distribution companies is the way they describe it. In the case of electric cooperatives it'd be our distribution system. Those are the closest to the people.

Well those allowances have to be used to generate electric power. So if, in fact, you're using those allowances to generate the electric power then you can minimize the cost to your consumers.

If, on the other hand, you don't have any allowances and particularly if those allowances have been auctioned off and say --- and what you would likely have are people who have deep pockets not folks that are in small distribution cooperatives and small towns. If, in fact, you've got to go to New York City to a market and you're going to have to compete on that market to buy the number of allowances to allow you to generate enough power to take care of your members needs, that's going to be a very expensive proposition.

So, you know, that's where the real issue comes down. What do you do with those allowances? And there was some --- there's been some debate, I know, within the government as to which way you go. I know some have suggested, well, if we go out and auction off all these allowances we'll raise just about enough money to pay for healthcare in this country.

Well, in effect, if you're going to do that that gives you some idea of the magnitude of increase you're going to have to have in electric bills over and above what they would be otherwise, otherwise being providing the allowances for free to those consumers.

So it's really a consumer issue and as we all know, whether you're talking about the taxpayers, which seem to be the same people who are the consumers, it's a question of which way do you do this?

So it may be an indirect, politically acceptable way to raise taxes as opposed to giving those allowances, and I'm pleased to say that the committee did make a big step in that direction, in giving most of the allowances away. They did recognize that the need to do something for consumers. The only problem was is they didn't distribute them fairly so that the people that are going to be hit the hardest, hit the most, are getting a proportionate share.

REP. HALVORSON: Okay. Thank you.

And then the only other question I have is you also recommend that the bill allocate emission allowances to local distribution companies based upon the carbon content of the fuel used to provide the electricity sold by the LDC's. By eliminating the portion of the utility allowances allocations based on the sales, wouldn't this deny the benefits to the customers of the early adapter utilities because these utilities made early decisions to increase their emphasis on energy efficiencies and renewables and other low emitting technologies, which, in some cases, resulted in higher rates for their customers, me being one of them. Because don't these customers, many of them who live in my state of Illinois and my district, deserve relief from this bill just like any other customers?

MR. ENGLISH: Well I would say no. And the reason that I would say that --- let's just think about this a minute. I know electric cooperatives and municipals back in the 1930s and '40s when we were building all these dams in this country for flood control, the federal government's trying to pay for that. And we contracted to buy that power at rates that were above the market.

But since that time we've gotten a huge benefit out of that because today those electric bills, those electric rates, out of those power marketing administrations is actually less, considerable less, than what the market price is. So we've been rewarded. We've got lower market prices.

Now what we're saying is due to the actions of the federal government we're going to require those people who made investments --- and as I just explained in the case of electric cooperatives, three quarters of all the generating facilities that we built in this country were built because the federal government required us to use coal instead of natural gas so we can keep those fertilizer prices down. That to turn around and say well but we ought to give those allowances to those folks who've got the cheapest power in this country to begin with, how's that fair?

REP. HALVORSON: Well it's probably cheaper because all the investments that were made to make it more expensive now.

MR. ENGLISH: Back in the 1930s and '40s.

REP. HALVORSON: Oh, well ---

MR. ENGLISH: And we did it. And our members are recognizing and understand that. And from time to time we've seen, about every 10 to 15 years, the federal government makes a move and this was last done, I believe, under the Clinton administration, in which there was an effort saying well we ought to sell off those power marketing administrations and put this money into the federal treasury, you know.

Well all these folks out there who are from these rural areas that had absolutely no low cost hydropower but were using coal fire generation, even though the rates of those folks up there in the state of Washington were less they stood up in the Congress and their elected representatives and said that was wrong, that's wrong, we paid for that, we made that investment, we made that very point.

Now we've got the reverse. We've got a situation in which we've got those folks from those areas that were required to build those coal fired plants as opposed to using natural gas and now they're being told not only are you electric bills going up because we're going to remove those carbon emissions and we're going to make it tougher and tougher, you're going to have to buy some extra allowances in order to generate any power at all. But then on top of that we're going to penalize you. We're going to add a penalty on top of that. And, as I said, I'm very proud at least of our co-op folks that are saying, hey, you know, it's time to return the favor to our neighbors. And while we would get a huge windfall off of this, we get over 3,000 percent of any needs that we've got and we could go sell on that on the market and get this huge windfall, it's going to be at the expanse of our neighbors down the way here who stood up for us when they were trying to eliminate our low cost power.

Now that's what neighbors are about and that's what the co-op program is all about and that's the reason we stick together. And that's the reason we're saying, you know, this all should not be about windfalls for regions of the country. It's supposed to be about reducing carbon emissions, carbon emissions.

If we just go back and stick to the basic thing --- we're trying to fix the clean air act, we're trying to reduce carbon emissions, we're trying to address climate change. Let's just stick to the basics.

If we're going to try to give huge windfalls to one region of the country or the other, you know, let's not do it under this bill. It's going to be difficult enough as it is. If we're going to try to provide windfalls from one region of the country to another let's not pile on the people that are going to get hurt the worst. It's not going to be the utilities, it's going to be the individual consumers.

That's what I would urge.

REP. PETERSON: Thank the gentle lady.

Gentleman from Pennsylvania, Mr. Thompson.

REP. THOMPSON: Thank you, Chairman.

Mr. West, I want to thank you for mentioning that the natural gas will be capped and let me add taxed under the bill because it's a fossil fuel. And also for pointing out all the other reasons why natural gas is so important. Personally, I believe natural gas should be a major component of any energy policy that this Congress endorses for a variety of reasons.

Number one, as you mentioned, it's --- natural gas is not a world market, meaning that we control the price and the supply of it here in the U.S.

And number two, we have a tremendous amount of it right here at home, offshore and onshore. For example, my home district, 80 percent of my district in Pennsylvania rests above the recently discovered Marsala shale. And natural gas formation is virtually on tap and has a net work projected to be anywhere from $500 billion to $1 trillion.

And finally, it's a clean fossil fuel.

Now my area has a significant number of dairy farmers who are struggling to operate because of milk prices. And while there are a variety of reasons why the milk prices are low, I believe that high and unsustainable energy prices is a part of that reason. Is that an accurate statement to make, in your opinion?

MR. WEST: Yes.

REP. THOMPSON: Okay.

MR. WEST: I think energy --- there's a lot of money tied up in this piece of legislation. I'll try to give you an idea. Let's say the Congressional Budget Office says that the cost of an allowance may be anywhere from $16 in 2012 to $26 in 2025. So we took 20 bucks --- I heard anything from 15 to 20 bucks. And let's say we get 75 percent of our emission allowances given to us. We have to purchase 25 (percent). That's $300 million. There's a lot of change lying around here. And if we didn't get any it would probably be over a billion dollars, you know.

So energy is --- throughout our economy you raise the price of energy everything's going to go up.

REP. THOMPSON: And my dairy farmers, all dairy farmers, are going to get hit hard by that during especially these tough times.

Now I've been circulating a letter that the Pennsylvania Public Utilities Commission sent to the whole state delegation here in Washington and their finding are concerning to me. And I'm going to just reference just a few sentences from the letter. Pennsylvania's the fourth largest coal producer in the nation, distributing over 75 million tons of coal each year, roughly 70 percent --- seven percent of the nation's coal supply is in Pennsylvania and 58 percent of all electricity used here comes from coal.

However, if the Waxman-Markey Bill were to pass, Pennsylvania's looking at a bleak scenario by 2020. And that loss of as many as 66,000 jobs, a sizable hike in the electric bills for residential customers, an increase in natural gas prices and significant downward pressure on our gross state product. And we are far from convinced that the negative impacts this legislation could have on our state's economy are fully understood and appreciated and the cost estimates are staggering.

Mr. English, are you aware of other states putting together studies such as this that'll demonstrate how much electrical costs will skyrocket under the Waxman bill?

MR. ENGLISH: Well I certainly hope that they are. I'm not sure how many states have picked up on this and have really started focusing on it that much. I know that some of the public utility commissions have begun doing that. I know the National Association of Public Utility Commissioners are looking at some of these costs like that and looking at the distribution of these allowances and how they would impact various entities. But mostly from the standpoint of the generation of electric power not just as the economy at large. But there's no way that you can raise energy costs and not have it affect the entire economy.

I would like to make one other point here, I think, that's good for us to keep in mind. You go back to all the way to 1932. Franklin Roosevelt at that time made the observation that this country had arrived at the point that electricity was no longer a luxury but had become a requirement.

If we're not careful here I think we've got an excellent chance that we're going to take a huge step back and for many of our citizens were going to find electricity once again becoming a luxury not a necessity. And it is not going to just be people in rural America.

REP. THOMPSON: Thank you, Mr. English.

MR. ENGLISH: Thank you.

REP. THOMPSON: Mr. Chairman, I'd ask, if I could, permission to just submit that letter from the Pennsylvania Public Utilities Commission just for the record.

REP. PETERSON: Without objection, so ordered.

REP. THOMPSON: Thank you.

REP. PETERSON: Thank the gentleman.

Gentle lady from Wyoming.

REP. LUMMIS: Well thank you, Mr. Chairman.

And it's amazing to have the Pennsylvania Public Utility commission even coming out against this bill. You'd think that there would be deference to states that already regulate these industries.

Mr. English, it's nice to meet you and I want you to know that there are 11 rural electrics in Wyoming, that they cover 60 percent of the area and 40 percent of the residential customers in Wyoming are served by rural electric co-ops. And so I'm really grateful that you've here this evening.

MR. ENGLISH: The president of our association is from Wyoming, --(inaudible).

REP. LUMMIS: And a dear, wonderful constituent of mine. And so thank you for that.

MR. ENGLISH: We've got a nitrogen plan along -- (inaudible).

(Laughter)

REP. LUMMIS: Now you're just buttering me up.

(Laughter)

I did want to mention that here's an example of the kind of costs that they estimate they're going to incur. One of our rural co-ops that serves my state estimated that under this legislation it will cost its customers alone 17 and a half million (dollars) by 2012 more, 31 million (dollars) by 2022, and $59 million by 2030.

Now that's will less than 168,000 rural cooperative customers total in Wyoming. And this is just the estimate of one of those 11 co-ops that serve Wyoming.

Would you say those estimates are the exception or the rule for the kind of rural co-op customers that you're talking to?

MR. ENGLISH: Well, obviously, it's going to vary from state to state and region to region and even within the state it'll vary. But I think you're going to find an awful lot of numbers similar to that all across the country to be honest about it.

REP. LUMMIS: Well I'm hearing that from other rural electric co- ops as well. So I'm --- you confirmed what I suspected.

You also mentioned that the emissions levels that are in this bill would have to reached by 2020 is extremely ambitious.

How would we get there? Have you talked to some of your providers about if they had to meet that standard how can they get there?

MR. ENGLISH: It's not going to be easy. I did mention natural gas. I think a lot of our members would have to convert. Natural gas doesn't contain carbon. It wouldn't be that we would necessarily want to go down that road because it becomes more volatile as far as price is concerned, it's less dependable. Obviously, it's very disruptive to folks in the fertilizer business and a lot of other businesses around this country. That's not something we'd choose to do.

I don't think most people understand that for base load generation or even for peaking, if you start using a lot of -- using natural gas, you'll have a huge amount of consumption. We found some new natural gas fields since 1970 and I'm very pleased to say that those predictions by the government back in 1978 were wrong. But at this particular point if you start using it for base load generation for electric power, and that's probably what we're going to be driven to in the short term over the next 10 years, then it's going to have a huge impact. That takes a -- the massive amount of gas that would be required for that I don't think has been calculated by anybody yet.

REP. LUMMIS: Well and we have some studies that show that as you have to ramp down wind energy when it quits blowing and then ramp up natural gas power to meet that change in load, that it actually emits more carbon than if you had run that natural gas plant flat out because you're -- of the inefficiencies of having to ramp us so quickly to get a replacement base load for that wind source. So it's got some bugs in it.

MR. ENGLISH: It's challenging.

REP. LUMMIS: It is challenging. Thanks.

Mr. West, a question for you as well. You testified that this cap and trade proposal would likely force the domestic fertilizer industry overseas to countries that have no carbon reduction policies in place. So they'll be producing fertilizer.

So will the American farmer quit using fertilizer or will they just buy fertilizer that's produced overseas?

MR. WEST: No, they're buying it now. We import about 55 percent of the nitrogen that we consume here in the United States.

REP. LUMMIS: So we're going to send the jobs overseas, we're going to send the plants overseas, we're going to send the tax revenue overseas. And then send dollars overseas to buy product that we're producing in the United States now, at least to the tune of 45 percent of our production.

MR. WEST: And we -- we're going to probably buy that from areas of the country with lower gas prices and that's the Middle East, Russia, Venezuela. That's what we're bringing in.

Now I've got numbers, I got producers, importers, wholesalers, and retailers that do that, they go in the world market and buy it. And I think last year when we saw that run up in fertilizer prices it was because of the demand in the world and the struggle that those guys were having bringing product to the United States.

REP. LUMMIS: Well I can tell you I also serve on the Natural Resources committee and we had a gentleman come in and testify that if the United States cut its carbon emissions to zero and Europe did and Japan did and China, Russia, and India go on as planned, that we'll have no impact on global climate anyway.

MR. WEST: That's true.

REP. LUMMIS: Thank you. Appreciate your testimony.

REP. PETERSON: Thank the gentle lady.

Does any member have a closing statement? Or, I guess, witnesses I can probably excuse you. You've probably been here long enough. I think Mr. Moran has a very gripping and edifying closing statement if you want to remain for that. But otherwise you're excused. We appreciate very much your being with us and your testimony.

REP. MORAN: Mr. Chairman, I listened to Mr. English and Mr. West.

(Laughter)

REP. PETERSON: Alright, Mr. Moran is recognized for five minutes.

REP. MORAN: Mr. Chairman, thank you very much. I appreciate this hearing. I think it's very useful. This hearing is one of those things that happen in this Ag committee I think that means a lot to us. And I'm appreciative of you hosting this hearing.

I do believe that this is one of the pieces of legislation that may be one of the most damaging, detrimental things that we could do to agriculture, to farmers and ranchers, to small business across the country.

From its inception in the House the Energy and Commerce committee less than one month ago --- this is a 1,000 page document has been forced upon members of Congress with little time to consider the real consequences.

One of the problems we've encountered here today is that there's no solid economic analysis on how this ill conceived legislation will really affect the economy. Preliminary evidence and it was, again, it seemed to me that people were little more than guessing, shows that it will increase the cost of energy and with it the cost of everything we utilize every day in our lives.

In its current form, agriculture will have little if any ability to recover those additional costs. This will not only lead to decreased profitability in agriculture but increased food prices for all Americans.

What we do know is that the Congressional Budget Office has said that this bill will raise government revenues by $846 billion in the first 10 years of this legislations life. In layman's terms what that means to folks back home is this is a huge tax increase. It's a tax increase so large that it could pay for the commodity title of the 2008 farm bill 24 times over.

According to the 2007 Agricultural Census $846 billion is over 155 times the total U.S. agricultural sales for 2007.

And this is only the beginning. The legislation we discussed today is permanent. And after the 10 year period analyzed by CBO, free carbon allowances are phased out while auction carbon allowances are phased in. This means future generations will be forced to pay even more than the initial 10 year budget analysts concluded.

Although billed as cap and trade in reality HR-2454 is cap and tax. It's a tax bill that will be forced not only on agriculture and rural America but on our entire country. Instead of government levying a tax directly on the American people this legislation disguises the tax as a carbon allowance auction that subsequently requires electrical generation companies, refiners, manufacturers, and others to collect that tax imposed through increased costs.

What is worse, due to the way this legislation is written, mid- western states like my own of Kansas, will bear the brunt of the economic blow because the inequality in the way that carbon allowances are allocated, giving excess carbon allowances to the east and west coast power plants while shortchanging allowances given to Midwest electric cooperatives.

I have seen preliminary estimates that indicate that rural electric cooperative of customers in Kansas would have their utility bills increased some place between $200 and $1,000 per year. And the consequences go beyond our ability to turn on our lights in rural America. Our rural communities are the places where we must travel greater distances for work, school, and medical care and we will pay a disproportionate share compared to our urban cousins who have shorter distances to drive and have access to public transportation.

I'm particularly concerned that many in agriculture believe that agriculture will somehow be made whole under this legislation.

We had a lot of conversation about offsets today. But under the Waxman-Markey bill we know that this is not the case. The word agriculture is mentioned seven times in this bill and it's not mentioned once in the section that defines offsets.

Instead, 2454 directs the EPA to define the world of carbon offsets. And this is a mistake that will lead to few benefits for agriculture and increase the ability of EPA to further intrude upon our farms and ranches. We know that EPA is not farmer friendly or even farmer neutral. It has consistently made determinations that harm producers and fail the common sense test. This includes EPA's recent finding the agriculture will sequester significantly less carbon than determined under the 2005 EPA study and includes the proposed rule to take indirect land costs into consideration when determining carbon footprint, as well as EPA's recent decision to regulate farmer's sprayers -- farmers with a sprayer at point source that impose costs on a permit system.

EPA cannot be trusted with agricultural carbon offsets. Even if the offsets are defined and USDA is given authority over them on the macro scale it is difficult for me to see that agriculture will even get close to mitigating the increased costs of inputs caused by the cap and tax system.

Some sources disclose that agriculture can sequester nearly half a ton of carbon through practices like no till. If carbon trades between $15 and $40 per ton and the cost per acre of corn production is increased by $40 to $80 the numbers won't add up.

In a best case scenario a farmer could mitigate half the costs of this legislation. In a worst case scenario a farmer could mitigate perhaps 10 percent of the cost of this legislation. Either way it does not bode well for our farmers.

This analysis does not even take into account the livestock sector, which will be equally disadvantaged and unlike crop farmers operations like cow/calf operations and feed yards have few opportunities to accumulate carbon credits.

This committee must act responsibly and continue to hold hearings. Further examination of this legislation is a necessity. The current pace set by the speaker of the House must be abandoned until a better objective research can be conducted.

Regardless of the legislative pace we must act to correct the irresponsible decisions that have been made and included now in this legislation.

Mr. Chairman, I would ask, if we were in a business meeting I would move that either we have a markup of this legislation or would move the committee to report this bill unfavorably with a recommendation that it be reported unfavorably to the House of Representatives. I'm sorry that's not an option tonight. I hope we have further opportunities to continue to pursue this legislation but I can tell you that if we can't get there common sense demands that we defeat this bill on the House floor.

Congress frequently gets thing right when we take a lot of time and have ample opportunity to study and research. We certainly never make good decisions when we're rushed by arbitrary deadlines.

So, Mr. Chairman, I think agriculture demands something different than this bill. Rural America demands it and the American public demands it as well. Anything less is an abdication of our responsibility as elected officials and the constituents that we care so much about.

Thank you, Mr. Chairman.

REP. PETERSON: I thank the gentleman.

And I guess the gentleman from Minnesota has a closing statement as well.

REP. WALZ: A brief one, Mr. Chairman.

Thank you and thank the members who are still here and the witnesses and those that are sticking around. This is a very important hearing, very important issue.

First of all I want to be very clear, climate change is real and it's a serious problem. Concentrations of carbon dioxide in the atmosphere are up 30 percent in the industrial age and are at the highest concentration in 650,000 causing massive changes to the climate affecting hundreds of millions of people.

Nearly all national and international scientific bodies agree that human activities are impacting climate change. In fact, 97.4 percent of all climatologist who deal specifically with the science of climate agree on a consensus that it's a concern.

There is only one, not an individual voice, but only one national or international scientific agency that will not agree with that and that's the American Association of Petroleum Geologists.

With that being said, we have an obligation to our children to address this problem, to set an example for the world, the strengthen our economic security and gain energy independence. However, it must be done wisely, it must make sense, and it must do no harm.

Mr. Chairman, I thank you for the opportunity to bring together these experts. And I, along with my fellow members of this committee have serious concerns with this legislation, particularly as it pertains to rural America and the agricultural community.

We all know we must do our part to reduce our carbon footprint and that our agricultural producers have been leader in this area. I'm proud to say that southern Minnesota's a leader in renewable energy technology. We're the fourth leading producer of wind energy in the nation and we're leading in biofuels. We've moved to a level now where we have entrepreneurs creating small, mobile ethanol plants of one million gallons that are using very little energy and are being bought with -- the Indian trade minister was in my office to buy these and use the remains of tapioca in the developing world.

This has a great potential to reduce carbon footprint in the developing world, create jobs in southern Minnesota, and move us to the next level we need to get to.

We're all part of that solution. But I have serious concerns as it stands today. My colleagues have time and time again pointed those out. I think many of us on this committee have heard and quite disappointedly, I may add, that experts in this area like yourselves sitting here and the pervious panels were not consulted to the degree they needed to.

I think Mr. Moran made a very good point. I believe in this organization and this body and the people that are here to bring up good points and counterpoints, to craft a piece of legislation that'll do all the things we want to see it do. But at this point I think many of us have yet to see that piece of legislation. We'll continue to work on it. I know good common sense solutions come out of this committee as often as any other and it's a pleasure for me to be here and I think I would share Mr. Moran's wish that if we could mark this up and have a chance at this I think you'd end up with a better product.

So, Mr. Chairman, I thank you for this opportunity. We've got our work cut out but I'm optimistic that we can create a positive if we do it right. I yield back.

REP. PETERSON: Thank the gentleman.

The gentleman from Oklahoma.

REP. LUCAS: Just simply to note, Mr. Chairman, that we in the minority appreciate this hearing. This has been seven hours well spent on a critically important topic and thank you. I yield back.

REP. PETERSON: I thank the gentleman for hanging in there to the end.

So with that if anybody else have anything good for the order -- for the good of the order here?

I guess I have some magic words I have to say. I think I lost them. They're buried under the debris here.

Alright, under the rules of the committee the record of today's hearing will remain open for 10 days to receive additional material and supplementary written responses from the witnesses and any question posed by a member to the panel.

This hearing of the Committee on Agriculture is adjourned.

END.