[Senate Hearing 111-284]
[From the U.S. Government Publishing Office]
S. Hrg. 111-284
INTERNATIONAL ASPECTS OF CLIMATE CHANGE
=======================================================================
HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
TO
EXPLORE INTERNATIONAL ASPECTS OF GLOBAL CLIMATE CHANGE
__________
NOVEMBER 17, 2009
Printed for the use of the
Committee on Energy and Natural Resources
U.S. GOVERNMENT PRINTING OFFICE
55-049 PDF WASHINGTON : 2010
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
COMMITTEE ON ENERGY AND NATURAL RESOURCES
JEFF BINGAMAN, New Mexico, Chairman
BYRON L. DORGAN, North Dakota LISA MURKOWSKI, Alaska
RON WYDEN, Oregon RICHARD BURR, North Carolina
TIM JOHNSON, South Dakota JOHN BARRASSO, Wyoming
MARY L. LANDRIEU, Louisiana SAM BROWNBACK, Kansas
MARIA CANTWELL, Washington JAMES E. RISCH, Idaho
ROBERT MENENDEZ, New Jersey JOHN McCAIN, Arizona
BLANCHE L. LINCOLN, Arkansas ROBERT F. BENNETT, Utah
BERNARD SANDERS, Vermont JIM BUNNING, Kentucky
EVAN BAYH, Indiana JEFF SESSIONS, Alabama
DEBBIE STABENOW, Michigan BOB CORKER, Tennessee
MARK UDALL, Colorado
JEANNE SHAHEEN, New Hampshire
Robert M. Simon, Staff Director
Sam E. Fowler, Chief Counsel
McKie Campbell, Republican Staff Director
Karen K. Billups, Republican Chief Counsel
C O N T E N T S
----------
STATEMENTS
Page
Bingaman, Hon. Jeff U.S. Senator From New Mexico................. 1
Colvin, Jake, Vice President, Global Trade Issues, National
Foreign Trade Council.......................................... 36
Harbert, Karen, President and CEO, Institute for 21st Century
Energy, Chamber of Commerce.................................... 22
Levi, Michael A., Ph.D., David M. Rubenstein Senior Fellow For
Energy and the Environment, Council on Foreign Relations....... 4
Murkowski, Hon. Lisa U.S. Senator From Alaska.................... 2
Purvis, Nigel, President, Climate Advisers....................... 9
Smith, Taiya, Senior Associate, Energy and Climate Program,
Carnegie Endowment for International Peace..................... 16
APPENDIX
Responses to additional questions................................ 57
INTERNATIONAL ASPECTS OF CLIMATE CHANGE
----------
TUESDAY, NOVEMBER 17, 2009
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The Committee met, pursuant to notice, at 10:03 a.m. in
room SD-366, Dirksen Senate Office Building, Hon. Jeff
Bingaman, presiding.
OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW
MEXICO
The Chairman. OK, why don't we get started. Thank you all
for coming today. The committee is having a hearing on the
international aspects of global climate change. The committee
has held several hearings to learn about the implications of
domestic climate change legislation on the energy sector and on
consumers, and today's hearing is to learn how United States
domestic efforts would fit in with global efforts to reduce
greenhouse gas emissions.
Much of the discussion of international climate policy
revolves around the United Nations and negotiations to reach an
international agreement to reduce emissions. This weekend at
the Asia Pacific Economic Cooperation Summit, President Obama
and other world leaders decided to delay the goal of reaching a
climate change agreement at the next global climate conference
in Copenhagen.
Today we'll hear from witnesses on this issue and explore
the realms of possibility for an international agreement. We'll
also hear about specific countries and their efforts to deal
with climate change policy. Major emitters such as the United
States and the European Union and China and India, and tropical
rain forest countries as well, are at the core of climate
discussions. It's important for the committee to understand the
unique differences and challenges that each of these countries
face.
I was glad to see that there's an announcement today that
the U.S. and China have made a series of announcements with
regard to this set of issues. The United States and China
clearly share many of the same energy and climate challenges,
and a strong bilateral partnership on clean energy and
renewables and efficiency could benefit both countries.
Let me also just mention that we hear a lot about United
States clean technology development and deployment. Effective
programs to spur the development and deployment of clean energy
technologies abroad are vital to our national goals of
mitigating climate change and also to promoting U.S.
competitiveness in future energy technologies.
U.S. international clean energy technology research,
development, and deployment programs are spread across six
agencies at the current time. Each program does valuable work,
but they lack a unified national strategy to guide their
efforts. I think there are structural and budgetary problems
that we need to look at. The result is a duplication of
capacity across agencies, underresourcing of programs where
they do exist, and less than optimal outcomes from the Nation's
international energy technology portfolio. I hope we can
develop a better approach to international energy cooperation
than simply creating more interagency coordinating groups. So
this is an important issue and a follow-on to the other
hearings we've had.
Let me defer to Senator Murkowski for her comments and then
we'll introduce the panel.
STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR
FROM ALASKA
Senator Murkowski. Thank you, Mr. Chairman. I'd like to
thank the witnesses for joining us here this morning. You
mentioned the other hearings that we have held, the four
hearings on the domestic climate legislation. We have looked at
cost containment, cost estimates, price volatility, allowance
allocations, the role of natural gas. Of course, we have the
hearing which is being rescheduled that will look more broadly
at our climate policy options.
Today, as we discuss the international aspects of climate
change, it's like Paul Harvey's ``And now we're going to hear
the rest of the story,'' ranging from actions in other
countries to the replacement of the Kyoto Protocol.
We recognize that these are incredibly important subjects
because climate change is clearly a global challenge that
requires nothing short of a global solution. Our committee has
been focused on the nuts and bolts of the domestic policy, but
we can't forget that our actions will make little difference
unless the rest of the world is working with us as partners in
that effort. I think we recognize the global emissions trends
make this apparent.
While we recognize that climate change mitigation must be a
global effort, progress on the international front has been
slow and difficult. The U.N. process is well behind the time
line that was set just a couple years ago, and less than 3
weeks before the start of the Copenhagen conference almost
everyone involved in that effort has pivoted to managing the
expectations for what can be accomplished. Instead of a legally
binding treaty, it appears that the goal now for Copenhagen is
to broker a political agreement.
Those that would insist that America must act first assume
that others will always follow our example, but I think we know
that our history shows that this isn't always the case. The
United States has made great strides in civil rights, worker
protections, environmental stewardship, but no amount of
domestic leadership can guarantee similar progress abroad, and
it's difficult in my opinion to see how climate change is going
to be any different.
This line of thinking, that domestic actions will make an
international difference, also diverts our attention away from
the sticking points that negotiators have been unable to
resolve. It's difficult to see how an American climate policy
would ease the deep divisions over the level of emissions cuts
that are necessary, not to mention who should make those cuts
and who should pay for them.
It's also tough to imagine that this Congress, while we
grapple with record deficits and high unemployment, would pass
a bill that freely transfers the amount of money and technology
that other nations appear to be seeking.
Now, I want to be clear. None of these observations are
meant to suggest that we should halt the development of
domestic climate policies or retreat from the international
process. But instead of trying to pass any bill that somehow
would convince the world that we're serious about climate
change, I think that we need to go back to the drawing board,
work on a policy that the rest of the world may actually want
to follow.
It's fair to say that we haven't developed that policy yet.
For better or for worse, I'm not convinced that there are
countries that want to copy either the House or the Senate
bills. From a broader perspective, until we show the world that
it's possible to reduce emissions and maintain economic growth,
I believe it's going to remain difficult to secure the
international commitments that will matter the most.
By examining the nations around the world and what they are
doing, what they might need help with, the status of
international negotiations, I do hope that this hearing will
assist in our efforts to develop an effective climate policy
that positions the United States as the leader that others will
want to follow.
With that, Mr. Chairman, I again thank you for this series
of hearings and look forward to the comments from the
witnesses.
The Chairman. Very good.
Let me introduce our witnesses. Dr. Michael Levi is the
Senior Fellow for Energy and the Environment with the Council
on Foreign Relations. Thank you for being here.
Mr. Nigel Purvis is President of Climate Advisers. Thank
you for testifying today.
Ms. Taiya Smith--Is ``TIE-yah'' correct?
Ms. Smith. That's right, ``TIE-yah.''
The Chairman. She is Senior Associate with the Carnegie
Endowment for International Peace.
Ms. Karen Harbert is here from the--she's President and CEO
of the Institute for 21st Century Energy with the U.S. Chamber
of Commerce.
Mr. Jake Colvin is Vice President of Global Trade Issues
with the National Foreign Trade Council.
Thank you all very much for being here, if each of you
could take about 6 minutes and give us the main points that you
think we need to understand. We are advised by the Majority
Leader that there's going to be three votes beginning about
11:15. So we want to hear from all of you and then hopefully
get some good questions asked, and we'll see if we need to
reconvene after those votes.
But Dr. Levi, why don't you go right ahead.
STATEMENT OF MICHAEL A. LEVI, PH.D., DAVID M. RUBENSTEIN SENIOR
FELLOW FOR ENERGY AND THE ENVIRONMENT, COUNCIL ON FOREIGN
RELATIONS
Mr. Levi. Good morning, Chairman Bingaman, Senator
Murkowski, members of the committee. Thank you for inviting me
to speak with you about the state of global efforts to combat
climate change, about prospects for the ongoing U.N.
negotiations, and about climate policy in Europe and India.
What will matter most to meeting the climate challenge is
the introduction of effective domestic policies in the biggest
economies. International agreements and initiatives are
essential, but they are not a substitute. International efforts
should be judged on whether they help facilitate smart domestic
actions around the world.
The U.S. should focus its UN-based efforts on things that
that forum can do well, rather than on solving the entire
climate problem alone. Our efforts should in particular promote
transparency and accountability in each country's emissions-
cutting efforts through regular measurement, reporting, and
verification, and by creating a mandatory review process for
states to scrutinize each other's efforts.
Agreement in the U.S.-China joint statement released a few
hours ago in Beijing on the need for full transparency is an
important step in that direction.
Legally binding commitments to robust targets or emissions-
cutting policies would be a valuable additional outcome and we
should try hard to obtain them. But those commitments may not
be forthcoming in the near future and they do not guarantee
that countries will actually deliver on their promises.
It is also essential to remember that the U.S. negotiations
exist within a broader universe of climate initiatives, many of
which may be much better at advancing international
cooperation. That wider context includes bilateral efforts with
key countries like China and India, gatherings of small but
pivotal groups like the G-20 and the Major Economies Forum, and
institutions like the World Bank that work on the ground to
actually implement big energy projects.
I said at the outset that what matters most is what
individual countries actually do. With that in mind, let me
turn to Europe. The EU has adopted an aggressive stance toward
climate policy. They've agreed on a set of ambitious domestic
efforts through 2020 aiming to cut emissions to 20 percent
below 1990 levels by then and to boost renewables to 20 percent
of primary energy. Their cuts will be achieved through a mix of
cap and trade for big sources, like power plants and factories,
efficiency standards and gasoline taxes for transportation,
purchases of international offsets, and a host of other smaller
domestic initiatives. What's most important to note is that
Europe will use a wide range of tools in order to achieve its
goals, rather than relying on a single instrument.
Europe and the United States do differ considerably in
their international approaches. The Europeans have demanded
binding targets from the developed world, but only voluntary
actions from developing countries. Some European leaders have
recently begun to move considerably closer to the U.S.
position, which correctly insists on real commitments from all
countries. But there's still real possibility that Europe would
accept a lopsided deal.
Europe has also been more aggressive in offering money to
developing countries. It's not clear whether they can deliver
on those proposals, but it's fairly clear that the United
States will not match their numbers. We need to be careful that
we are not blamed for the failure of international negotiations
when we don't meet that bar.
Let me underline this introduction to Europe by saying that
U.S. climate diplomacy is far more effective when we can align
it with our partners across the Atlantic. It's very important
that U.S. Senators make clear their bottom lines to their
European counterparts.
The last thing I'd like to do is give you a brief tour of
where India stands. Indian domestic climate strategy is
extremely uneven. It includes so-called ``missions'' on solar
energy, energy efficient, urban economy use, and forest cover,
but most of the details are still being fleshed out. We're
going to need to watch over the coming months and, frankly,
over the coming years to see where they're actually heading.
They are going to engage in a much more bottom-up process,
along the lines of what we do here, than in a top-down process
that takes us from high-level goals to specific policies like
we're used to seeing from Europe.
India has at least a couple problems delivering on its
goals. The first is money. Renewables and nuclear cost more
than the alternatives. They also cost more up front. Efficiency
can save India money over time, but it also requires more
initial investment.
The second problem is regulatory capacity. The Indian
system is still riddled with holes. For example, India just
announced its intent to create an EPA a few months ago. This is
a critical problem in many developing countries and inhibits
their ability to enter international agreements with
confidence.
India has taken a hard line in the international
negotiations, in part for that reason and in part for
ideological reasons. But it is important to also know that
Indian climate policy is in flux. The Indian environment
minister recently suggested a much more flexible approach than
India's negotiators have been taking. He's faced a lot of
political push-back, but my sense in talking to people in India
is that a significant slice of the political establishment is
with him. It's a minority, but it's serious.
We need to empower those who will take a more constructive
role in working with us. It's important to keep that in mind in
particular when we talk about carbon tariffs in the U.S.
system. Indians are very upset about that threat. The tariffs
reflect legitimate concerns by U.S. lawmakers, but they're more
likely to alienate our potential allies in India than they are
to provoke positive action. I'd encourage the Senate to focus
on other tools for addressing competitiveness.
Let me make one final note on the Indian foreign policy.
India has taken a much more positive role outside the formal
U.N. negotiations. This stresses the importance of engagement
outside the U.N. process. Even a small amount of flexible
funding for DOE and EPA to help them take advantage of emerging
opportunities for concrete cooperation would be invaluable.
I thank you for your time and attention and I look forward
to any questions that you have.
[The prepared statement of Mr. Levi follows:]
Prepared Statement of Michael A. Levi, Ph.D., David M. Rubenstein
Senior Fellow for Energy and the Environment, Council on Foreign
Relations
Chairman Bingaman, Senator Murkowski, members of the committee,
thank you for inviting me to speak with you about the state of global
efforts to combat climate change, about prospects for the ongoing
United Nations climate negotiations, and about climate policy in Europe
and India.
There is an emerging international political consensus that global
emissions should be cut at least in half by midcentury. The
International Energy Agency estimates that the United States, Europe,
China, and India will each need to cut their energy-related emissions
by 12-15% below business as usual by 2020 and by 34-42% below business
as usual by 2030 to get the world on this path. What will matter most
to meeting this extraordinary challenge is the introduction of strong
and effective domestic policies in the biggest economies. International
agreements and initiatives, while essential, are no substitute.
International efforts should be judged by whether they make it easier
for countries to implement smart domestic policies and to ensure that
those succeed.
the global climate landscape
The international climate regime is often conflated with the UN
climate negotiations or the Kyoto protocol. This is wrong and
distorting. The UN talks are an important part of global climate
efforts. But a meaningful appraisal of the global scene must go well
beyond that. Three other elements are particularly important: bilateral
engagement with countries like China; highlevel coordination through
groups like the G-20 and Major Economies Forum (MEF); and institutions
like the World Bank that can help countries develop in climate-friendly
ways.
Bilateral engagement provides opportunities to address the unique
incentives, opportunities, and challenges that each country faces in
confronting climate change. These cannot be adequately exploited in
large global settings like the UN negotiations, which seek common
approaches that work for all. I will discuss U.S. opportunities for
engaging India later; another panelist will address China. Others--
notably Europe and Japan--also have their own programs of bilateral
climate engagement, which are often deeper and more developed than U.S.
efforts. The United States should coordinate with and learn from those
other initiatives.
The G-20 and MEF are playing increasingly important roles in high-
level efforts to improve climate policy. Each involves fewer than
twenty countries that together are responsible for about 80% of global
emissions. They are essential to watch. The G-20 has recently become
the premier political forum for coordinating global economic policy. It
is wading slowly but determinedly into energy issues. Its first victory
was a decision in September to phase out inefficient fossil fuel
subsidies. The decision does not create legally binding commitments,
but it has generated muchneeded domestic efforts in major countries to
reexamine subsidy policies. This sort of interplay between global
discussion and domestic action is the future of climate cooperation.
The MEF, meanwhile, has helped advance global climate discussions
by allowing a small but critical group of countries to focus on climate
policy on a regular basis in a relatively informal setting. It should
continue indefinitely. One particularly promising area of MEF
discussion has centered around energy technology innovation. The world
must drive down the cost of existing low-carbon technologies while
developing their next-generation replacements. Governments will need to
promote private investment in order to do this. Coordinating those
actions internationally will help save money and minimize the odds that
gaps are left unaddressed. The new MEF-based Global Partnership for
low-carbon technology aims to do this. It is still in its infancy, and
much remains to be fleshed out, but with the right resources, it could
play an important futre role.
Institutions that can help developing countries implement low-
carbon technologies will also play a critical role. Chief among these
are the World Bank and the regional development banks. Transforming
energy systems will require efficient use of public funds to unlock
private investment on a massive scale. While many developing countries
are wary of institutions like the World Bank, the reality is stark: no
existing institutions other than the multilateral development banks are
capable of handling the sums of money and the complex energy projects
that will be needed. In particular, the Bank's climate funds, including
the U.S.-sponsored Clean Technology Fund, are providing important
experience, and a model for moving forward, in international public
finance. Congress is poised to approve Clean Technology Fund funding
for FY10. This will be important--both as practical progress and as a
political signal--heading to Copenhagen.
the un negotiations
The UN negotiations are making considerably less progress than many
had hoped for not long ago, and the bulk of the blame for the current
state has been directed at the United States. Many analysts and
negotiators argue that the world could seal a deal at Copenhagen if
only the United States passed climate legislation before then. I
disagree. Let me be clear: robust U.S. climate legislation is essential
to effective international action on climate change. But it is not
enough alone. The world must still bridge difficult disagreements on
what developing countries will do under a global agreement and what
financial assistance developed countries will provide them. U.S. action
on domestic legislation would help remove the United States as an
excuse for inaction and as a distraction from these critical issues.
But it will not be determinative alone.
The UN process occupies a special place in the foreign policy of
many U.S. allies, friends, and partners. For that reason alone, the
United States should take it seriously. But the UN process is severely
limited. It involves a large and unwieldy number of participants. This
makes proceedings inefficient and tailored deals for the most important
countries difficult to include.
The United States should focus its UN-based efforts on things that
the UN process can do well rather than on solving the entire climate
problem alone. This points to three areas for near-term focus where
real and important progress is possible. First, negotiators should
agree on a longterm global goal for cutting emissions. This will
provide an agreed benchmark against which to measure efforts in all
forums. Second, negotiators should promote transparency in national
emissions-cutting efforts. They should create a scheme for measurement,
reporting, and verification of whether states are implementing promised
domestic emissions-cutting efforts and delivering pledged emissions-
cutting assistance, and create a regular review process through which
states would scrutinize each others' climate policies. This would help
replace the current climate of distrust with a virtuous cycle of
stronger policies. Third, the UN process should help mobilize funds to
help the most vulnerable countries adapt to the unavoidable
consequences of climate change. The UN is a useful forum for addressing
this issue given the large number of countries affected. There may also
be opportunities for targetted mini-deals, including on avoided
deforestation and on reform of international offsets, with the latter
being more difficult.
Legally binding commitments to robust targets or emissions-cutting
policies would be a valuable additional outcome. The United States
should be engaged in a long-term effort to obtain them and should not
make its own binding UN commitments unless other major emitters do. But
such commitments may not be forthcoming in the near future. Nor should
we confuse the legal character of states' commitments with their
seriousness. Canada took a binding commitment at Kyoto but will fail to
meet it because it did not put the necessary policies in place to
achieve it. Russia will meet its legally binding Kyoto target with zero
effort because that target was set too high. It is much more important
to elicit ambitious, credible, and transparent domestic policies than
it is to obtain legally binding promises that may amount to little in
practice.
europe
The states of the European Union (EU) have adopted an aggressive
stance, both domestically and in international negotiations, toward
climate change policy. The United States need not worry much about
European greenhouse gas emissions. The United States needs, however, to
be careful to coordinate its foreign policy approach with Europe if it
wants to succeed.
Europe has agreed on an ambitious set of domestic efforts through
2020. Its core ``20-20-20 by 2020'' plan aims to cut European emissions
to 20% below 1990 levels by 2020 while boosting renewables to 20% of
primary energy and increasing efficiency by 20% too.\1\ Emissions cuts
are to be achieved by the EU Emissions Trading System (ETS), which
covers large stationary emissions sources (about half of EU emissions)
through a cap-and-trade system; by emissions standards for
transportation (about one-fifth of EU emissions); through purchases of
international offsets; and through complementary measures pursued by
member states in areas like efficiency and renewables. Efforts to reach
the renewables and efficiency targets are essentially a matter for
individual countries. All this is done against the challenging backdrop
of east-west divisions over costs and other internal tensions stemming
from varying dependence on Russian natural gas. Experts agree that
Europe will be able to deliver on its goal of cutting economy-wide
emissions for 2020--though they believe that it will need to use
international offsets to deliver part of that. There is less agreement
on whether Europe will be able to deliver on its renewables goals.
---------------------------------------------------------------------------
\1\ The EU emissions target will be increased to 30% is there is a
strong global climate deal.
---------------------------------------------------------------------------
Many have claimed that there is an ``ambition gap'' between what
the United States is considering and what the EU plans to do. This is
incorrect by almost any meaningful measure. Indeed the European target
amounts to cutting EU emissions to 17% below 2005 levels--slightly less
than the 20% cut below 1990 levels envisioned in the Kerry-Boxer
legislation. That said, if the United States continues on its current
course, it will fall well short of Europe.
Europe and the United States differ more in their international
approaches. The European Commission has demanded that any new climate
deal include binding emissions targets for all developed countries but
has only called for voluntary actions from the developing world. This
is clearly unworkable for the United States. But there are signs of
evolution from key European countries. German Chancellor Angela Merkel
recently appeared to assert that China and India would need to take on
commitments as part of a deal.\2\ Other reports suggest that the UK is
also taking a firmer stand. Still, there is a real possibility that
Europe would accept a deal that required binding commitments of
developed countries and only voluntary actions from others.
---------------------------------------------------------------------------
\2\ Developing countries would be asked to commit to policies, not
to targets. This tracks the U.S. position.
---------------------------------------------------------------------------
Europe has also been more aggressive than the United States in
offering money to developing countries. The EU has indicated that $33-
$74 billion of public funds will be needed each year by 2020. It has
not declared the share that it would be willing to contribute, and
there is debate over who in Europe would pay, making it unclear whether
the EU can deliver. The United States is highly unlikely to support a
similar sum, but it may be blamed for the failure of international
negotiations if it does not meet the European bar.
Ultimately, the United States is far more effective in its climate
diplomacy when it stands shoulder-to-shoulder with Europe. It is
extremely important that U.S. Senators make their bottom-lines clear
directly to their European counterparts and work with them to close any
gaps.
india
India has been wrongly lumped together with China in climate
discussions. Total Indian emissions were, as of 2005, about one quarter
of total Chinese emissions. Indian GDP is about 30% of Chinese GDP, and
its foreign exchange reserves are barely 10% of those held by China.
About 40% of Indians have no access to electricity; almost all Chinese
have at least some. And while both countries are vulnerably to climate
change, the danger to India is particularly acute.
Indian domestic energy and climate policy contains some important
elements but currently lacks strategic breadth and coherence. It is
driven primarily by a desire to improve air quality, energy security,
access to energy, and economic efficiency. This is to be commended:
such aims are a more sustainable foundation for Indian energy policy
than climate change. The 2008 National Action Plan on Climate Change
was the first Indian attempt at developing a comprehensive climate
strategy, and included ``missions'' on solar energy, energy efficiency,
urban energy use (including vehicle fuel economy), and forest cover.
Details mostly remain to be fleshed out. We will learn much more about
Indian policy over the coming months and years.
Some highlights of existing policy are still worth noting. India
aims to have more than 20 GW of nuclear capacity (equivalent to twenty
large plants) installed by 2020, enabled in part by the recent U.S.-
India nuclear deal, though the IEA estimates that it is on course to
have only 11 GW by then. It appears prepared to set a goal of
installing 20 GW of solar power by 2022--more than double the amount of
solar currently installed worldwide. India has a robust wind industry,
led by Suzlon, the fifth-largest turbine producer in the world. It is
also attempting to move toward cleaner coal-fired power, though its
plants are still far less efficient than those in China.
End-use efficiency, however, will be the greatest near-and mid-term
opportunity in India. This may strain Indian finances, since efficiency
requires larger investments up front even it pays off in lower energy
bills over time. Others, including the United States, will need to step
in to help where appropriate. The need to target efficiency will also
stress Indian regulatory capacity. India often lacks the capacity to
effectively regulate emissions even when it wants to. Indeed it was
only three months ago that India announced plans to create an
Environmental Protection Agency. This lack of implementation capacity
is a critical problem in many developing countries--but one that is
often overlooked by analysts. A global agreement to curb emissions will
be of little value if the countries involved lack the capacity to
deliver on their promises. This points again to the importance of
technical cooperation in building capacity and of transparency and
review to ensure that promises are being carried out and that policies
are effective.
India has, historically, taken a hard line in international climate
negotiations. It has refused to accept commitments, either to emissions
targets or to emissions-cutting policies and measures. It has joined
other developing countries in demanding transfers of several hundred
billion dollars each year to pay for mitigation and adaptation while
asking for developed countries to weaken intellectual property
protections on low-carbon technology too. It would be surprising if
India adopted a substantially different position at the upcoming
negotiations in Copenhagen.
Yet, under the surface, Indian foreign policy on climate is in
flux. The environment minister, who is close to Prime Minister Singh,
recently suggested a much more flexible approach to international
engagement, arguing that India should take strong unilateral emissions-
cutting actions and submit those to international scrutiny. He has run
into strong political opposition and has had to retract some of the
positions. Yet my own discussions suggest that this more forwardleaning
position has support among a significant faction, if still a minority,
of Indian elites. They believe that Indian foreign policy will gain if
the country takes a positive approach to climate. U.S. foreign policy
should aim to empower those who are ready to adopt this constructive
stance.
Indian policymakers across the political spectrum have reacted with
alarm to U.S. threats of carbon tariffs. Those tariffs reflect
legitimate concerns by U.S. lawmakers about the impacts of climate
legislation on U.S. competitiveness. Yet those Indian lawmakers who are
most interested in climate cooperation often happen to be those who
care most about free trade too; they are internationalists. Tariffs are
more likely to alienate potential U.S. allies in India than they are to
provoke positive action on climate. The Senate should focus strongly on
other tools for addressing competitiveness, including rebates to
energy-intensive trade-exposed industries.
India has also taken a more positive role outside formal UN
negotiations. This stresses the importance of non-UN engagement.
Reports suggest that U.S.-India discussions on technology cooperation
in advance of Prime Minister Singh's planned November 24 visit to
Washington have been very productive. Secretary of Energy Steven Chu
visited New Delhi last week.
In sum, the United States should be focused primarily on what India
does at home--and on working with India, bilaterally and through
international forums and institutions outside the UN process, to make
strong domestic action more likely. Congress should ensure that
appropriate financial support is available to empower joint efforts.
Cooperation in the UN negotiations is a longer-term prospect. The
United States should aim for it while keeping its expectations modest.
The Chairman. Thank you very much.
Mr. Purvis, go right ahead.
STATEMENT OF NIGEL PURVIS, PRESIDENT,
CLIMATE ADVISERS
Mr. Purvis. Mr. Chairman, Senator Murkowski, other
distinguished members of the committee:
Thank you for the opportunity to testify.
Mr. Chairman, in requesting my participation at this
hearing you asked me to address two specific issues. The first
is the state of play of global climate negotiations. The second
is the status of international efforts to reduce tropical
deforestation.
Let me begin with global climate talks. With the Copenhagen
conference just a few weeks away, it is now possible to see the
contours of a possible political agreement. Copenhagen promises
to be a major step forward from Kyoto if nations can reach
agreement. Kyoto was premised on a single and somewhat
scientifically arbitrary 5-year goal. Copenhagen is likely to
be grounded in a shared science-based vision of what needs to
happen by 2050 in order to protect the climate for future
generations.
Whereas Kyoto created mitigation obligations for developed
nations only, the Copenhagen outcome is likely to mandate
nationally appropriate mitigation actions by all major
emitters. Kyoto sought to dictate domestic policy through top-
down, globally negotiated emissions targets. Copenhagen is
likely to pursue a bottom-up approach that is anchored in the
diverse domestic laws and programs of each nation.
Kyoto demanded international commitments only from nations,
whereas Copenhagen will ask nations to show that their
international commitments are supported by domestically
enforceable laws and programs.
Kyoto provided little opportunity to verify in real time
whether nation were honoring their commitments, whereas
Copenhagen is expected to enable a stronger system for
measuring, reporting, and verifying progress, with the details
of that system to come in the months ahead.
This progress in Copenhagen is striking and encouraging if
an agreement can be reached. In these negotiations, the
American people have been well served by the U.S. negotiating
team. Importantly, reaching agreement in Copenhagen may not be
possible without some progress on the 2020 mitigation goals by
major economies and on some level of financial assistance the
developed nations could provide to developing nations in the
near term. Most developed nations are ready to commit. Most
developing nations appear on the verge of pledging new
mitigation actions. In fact, in the last few days we have the
announcement this morning from China, we have an ambitious
announcement from Brazil, as well as a new mitigation target
from South Korea. So there is evidence that the major emerging
developing countries are in fact gearing up to promise new
mitigation actions in Copenhagen.
The Obama Administration therefore faces a significant
challenge. It needs to be forthcoming enough to keep
international negotiations moving forward, while at the same
time not getting too far ahead of the Senate and the Congress
as a whole, which needs more time to consider energy and
climate legislation.
Success in Copenhagen is far from guaranteed. Climate
negotiations aren't always predictable. A failure in
Copenhagen, if it occurs, should not be read by the Congress as
an absence of political will in other nations, but rather as a
sign that major emerging economies need greater certainty and
clarity about the shape of U.S. commitments and action in the
years ahead.
If Copenhagen does succeed, as I suspect it shall, further
success may not be possible in 2010, however, without that
increased clarity about the new direction of U.S. policy.
Either way, therefore, in my view it is time for the Senate to
craft a durable, bipartisan approach, one that protects our
economy, national security, and environment.
As you requested, Mr. Chairman, I will conclude with some
observations about the important question of what can be done
to reduce emissions from tropical deforestation. This is
perhaps the area where the prospects for progress in Copenhagen
are strongest. Over the last year I have had the privilege of
serving as the executive director of the Independent Commission
on Climate and Tropical Forests. That commission is chaired by
former Senator Lincoln Chafee and Center for Environmental
Progress CEO John Podesta, and includes former Senator Chuck
Hagel and other prominent leaders.
Last month the commission released a detailed report* with
concrete recommendations for U.S. policymakers, which I have
here, and with your permission, Mr. Chairman, if I could ask
that that be submitted for the record.
---------------------------------------------------------------------------
* Document has been retained in committee files.
---------------------------------------------------------------------------
The Chairman. It will be included.
Mr. Purvis. Thank you.
The commission found that including strong tropical forest
protections in domestic climate legislation is in the vital
economic, national security, and environmental interests of the
United States. The commission recommended that, in partnership
with developing countries, the United States should lead a
global effort to halve emissions from deforestation by 2020 and
achieve zero net emissions from forests by 2030.
Solving the climate problem will not be possible without
urgent efforts to stem tropical deforestation, which accounts
for 17 percent of global greenhouse gas emissions, more than
the entire global transport sector. By moving aggressively to
reduce emissions, the world can buy time and achieve a more
smooth transition to a clean energy economy of tomorrow. No new
technologies are needed to stop cutting trees.
Including tropical forests in U.S. climate legislation,
moreover, would dramatically lower the cost of U.S. action.
According to analysis done by EPA, the price of emissions
permits under a cap-and-trade program in the climate bill
approved by the House of Representatives would be 89 percent
higher if U.S. companies were not allowed to meet part of their
domestic regulatory burden by financing international emissions
reductions. EPA's analysis shows that the majority of these
international offsets, as they are known, would come from
tropical forests. McKinsey and Company suggest that the
percentage could be over 80 percent of the expected
international offsets between now and 2020 could come from
tropical forests.
So the total savings to the U.S. economy net of investments
needed to achieve--to slow deforestation, would be about $50
billion, the commission found, by 2020--a $50 billion savings
by including forests in U.S. domestic climate legislation if
the House bill were enacted into law.
Thank you, Mr. Chairman. Thank you for the opportunity to
testify. I'd be happy to answer your questions.
[The prepared statement of Mr. Purvis follows:]
Prepared Statement of Prepared Statement of Nigel Purvis, President,
Climate Advisers
1Mr. Chairman, Senator Murkowski, and other distinguished members
of the Committee, thank you for the opportunity to testify on
international climate change policy. My name is Nigel Purvis, and I am
president of Climate Advisers, a consulting firm that specializes in
U.S. and international climate policy. From 1998 to 2002, I was a U.S.
climate change negotiator, serving most recently as deputy assistant
secretary of state for oceans, environment and science. Currently, I am
also a scholar at Resources for the Future, the German Marshall Fund of
the United States, and The Brookings Institution. These organizations
neither lobby nor take positions on specific proposals. The views I
present today are my own.
Mr. Chairman, in requesting my participation at this hearing, you
asked me to address two specific issues and their implications for U.S.
climate policy. The first is the state of play of global climate
negotiations. The second is the status of international efforts to
reduce emissions from tropical deforestation.
copenhagen
Let me begin with global climate talks. Two years ago, the
international community set the goal of concluding next month in
Copenhagen, Denmark, new global arrangements that would define the
terms for international climate cooperation after 2012, when the Kyoto
Protocol expires. Negotiations have proceeded under the United Nations
Framework Convention on Climate Change, the leading global climate
agreement to which almost all nations, including the United States, are
parties.
Status of Global Climate Negotiations
With the Copenhagen conference just weeks away, most governments
and experts now believe that it will prove impossible to finalize a new
legal instrument this year. There are several reasons why.
First, nations remain divided on important and contentious issues,
including:
The legal form of a new agreement--whether it should be
legally binding and, if so, on what categories of countries.
The emissions mitigation responsibilities of developed and
developing nations.
The financial responsibilities of developed nations to
assist developing nations adapt to climate change and pursue
low-carbon economic growth.
The mechanisms and institutional arrangements needed to
verify emissions reductions and manage any new financial
resources intended to assist developing nations.
Resolving these issues would be difficult and time consuming under
the best of circumstances. Climate agreements are every bit as complex
as trade agreements and, like trade negotiations, climate negotiations
sometimes defy political deadlines. The Kyoto negotiations took a
decade from start to finish. The Copenhagen process will not require
that long, but it will take some months or possibly years more.
Second, the negotiations have been affected by significant
uncertainty surrounding the shape of future U.S. climate and energy
policies. The world learned from the Kyoto negotiations that the United
States cannot deliver on new climate commitments unless the president
and Congress see eye-to-eye. In 2008, the international community
waited for a new American president. In 2009, nations have been waiting
for the Obama administration and Congress to find common ground on
climate and energy legislation. The United States is the world's
largest economy and, historically speaking, the world's largest
greenhouse gas emitter. In 1992 our nation pledged to return emissions
to 1990 levels by 2000, and yet our emissions are far above that level
today. Because we have the most innovative economy in the world, other
nations reason that if we cannot reduce our emissions, perhaps few can.
Understandably, other nations are reluctant to commit to ambitious
climate policies until they see the United States reduce its emissions.
Copenhagen Political Agreement
Despite these significant challenges, there are many hopeful signs
internationally. Several key nations--both developed and developing--
are taking robust climate action at home. Increasingly, the world's
major economies believe that sound climate policies advance other
important national interests, including energy security, economic
growth, and public health. Internationally, countries are finding
common ground on principles that could guide global cooperation. The
Copenhagen conference presents an opportunity for nations to agree upon
the architecture underpinning a new climate agreement even if reaching
a full agreement is not yet possible.
Progress made in Copenhagen on the structure for the next phase of
global climate cooperation would initially be captured by nations in
the form of a written political agreement rather than a legal
instrument. Although political agreements do not create legally binding
obligations under international law, by definition, a high-profile
outcome from Copenhagen would be politically binding in the sense that
nations would commit publicly to specific outcomes. A solid political
agreement would send a clear signal about where the international
community is heading while also providing concrete guidance to
negotiators as they continue the work of crafting a complete
international agreement.
Architecture for a Copenhagen Agreement
What could be included in such a political agreement coming out of
Copenhagen? Here are a few specific examples where progress may be
possible next month.
Shared Long-Term Goals.--Nations could agree in Copenhagen to
limit global warming to 2 degrees Celsius (3.6 degrees
Fahrenheit) above pre-industrial levels and to reduce global
emissions 50 percent by 2050. Developed countries could commit
to reducing their emissions 80 percent, with developing nations
committing that their emissions should decline significantly
compared to business as usual by 2020 and peak by a certain
date. Some of these goals were embraced earlier this year by
key regional and economic groups, such as the G8, Major
Economies Forum, and Asia Pacific Economic Cooperation (APEC),
but Copenhagen presents an opportunity to elevate these long-
term goals to the global level.
Low-Carbon Growth Plans.--Consensus has been building for
each country to create a lowcarbon growth plan that describes
in detail its long-term strategies for climate-friendly
economic growth. The experience of countries that have created
such plans shows that, done well, the process strengthens
domestic political consensus for action and increases
international transparency.
International Registration of Domestic Actions.--There is
also growing agreement that global action on climate needs to
be built on a foundation of domestic action, backed by domestic
law, and that these domestic actions should be registered with
the international community. Such registration of domestic
programs would provide recognition for what each country is
doing, help build trust, facilitate discussions of
comparability, and enable a global assessment of the overall
environmental adequacy of actions. Whereas low-carbon growth
plans would show what nations plan to do, an international
registry would record what nations are actually doing.
Developed countries would commit to actions that achieved
substantial reductions in national emissions from a base year.
Developing nations would commit to nationally appropriate
mitigation actions that would result in significant deviations
from projected emissions trajectories. These actions would be
supported by technical and financial assistance from developed
nations.
Measurement, Reporting, and Verification.--Any agreement will
require robust measurement, reporting, and verification to
ensure commitments are met. Nations in Copenhagen can lay out
the general framework for such a system by establishing the
principle that all major emitters need to strengthen their
international reporting and also participate in a credible
verification system.
Targets for 2020
Importantly, reaching agreement in Copenhagen on the architecture
of the next global climate agreement may not be possible without some
progress on targets and timetables for action. Developing nations are
looking for clearer evidence that developed nations really will lead,
as they agreed to do when adopting the U.N. Framework Convention on
Climate Change. More specifically, developing nations are asking
developed nations to commit in Copenhagen to firm emissions reduction
targets for the year 2020. They are also asking developed nations to be
specific about how much financing they will provide to the developing
world to help nations adapt to climate change and pursue low-carbon
economic growth.
Most developed nations are ready to commit to 2020 mitigation and
financing targets in Copenhagen. The European Union and Japan have
already announced their emissions mitigation targets for 2020--30
percent\1\ and 25 percent below 1990 levels, respectively. European
leaders recently proposed a global funding package of $150 billion
annually by 2020 for climate change mitigation and adaptation in
developing nations, with $33 billion to $75 billion in public funding
per year from developed nations, and a fast-start fund of $7.5 billion
to $10.5 billion total from 2010 through 2012. The Obama
administration, therefore, faces a significant challenge. It needs to
be forthcoming enough on U.S. mitigation and financing targets to keep
international negotiations moving forward and avoid attempts to blame
the United States, while at the same time not getting too far ahead of
the Senate, which needs more time to consider climate and energy
legislation.
---------------------------------------------------------------------------
\1\ The European Union has pledged to reduce emissions 30 percent
below 1990 levels by 2020 if other nations take comparable action, or
20 percent below 1990 levels by 2020 if other nations do not take
comparable actions.
---------------------------------------------------------------------------
Major Step Forward from Kyoto
Assuming the administration is able to strike the right balance, a
political agreement in Copenhagen along the lines presented previously
would be a major step forward from Kyoto.
Whereas Kyoto created mitigation obligations for developed
nations only, the Copenhagen outcome is likely to mandate
nationally appropriate mitigation actions by all major
emitters.
Kyoto provided little opportunity to verify in real time
whether nations were honoring their commitments, whereas
Copenhagen is expected to enable a stronger system for
measuring, reporting, and verifying progress.
Kyoto sought to dictate domestic policy through top-down,
globally negotiated emissions targets; Copenhagen will take a
bottom-up approach that is anchored in domestic laws and
programs.
Kyoto demanded international commitments only, whereas
Copenhagen will ask nations to show that their international
commitments are backed by domestically enforceable laws and
programs.
Kyoto was premised on a single and somewhat scientifically
arbitrary five-year goal; Copenhagen is likely to be grounded
in a shared, science-based vision of what needs to happen by
2050 to protect the climate for future generations.
This potential for progress is striking and encouraging. In these
negotiations, the president, Congress, and the American people have
been well-served by the U.S. negotiating team.
All Eyes on the Senate
Copenhagen provides an opportunity for a historic political
agreement that could structure continuing climate negotiations in ways
that advance U.S. national interests. Success in Copenhagen, however,
is far from guaranteed. Even the less controversial architectural
issues I have described remain unresolved and climate negotiations are
always unpredictable. If Copenhagen fails to deliver, the international
community will blame the United States for not completing its work in
time. A failure in Copenhagen should not be read by Congress as an
absence of political will in other nations but rather a sign that major
emerging economies need greater certainty about U.S. policy before they
make new commitments.
If Copenhagen succeeds in creating a new political agreement, as I
suspect it will, the conference will prove to be an important but not
final step on the road toward a new global structure for climate
cooperation. Even with a successful outcome, further progress in 2010
would be unlikely without greater clarity about the shape, timing, and
ambition of new U.S. climate and energy legislation. The time has come
for the Senate to craft a durable, bipartisan approach--one that
protects our economy, national security, and environment. The Senate
must show the American people and the world that they are not waiting
for Godot.
tropical forests
As you requested, Mr. Chairman, I will conclude with observations
on the important question of what can be done to reduce emissions from
tropical deforestation. This is perhaps the area where the prospects
for progress in Copenhagen are strongest.
Over the past six months I have had the privilege of serving as
executive director of the Commission on Climate and Tropical Forests.*
The Commission is an independent group chaired by Senator Lincoln
Chafee (R-RI) and Center for American Progress CEO John Podesta. It
includes in its membership Senator Chuck Hagel (R-NE); Mike Morris, CEO
of American Electric Power; Sam Allen, CEO of Deere & Co.; and other
prominent political, foreign policy, national security, business,
labor, and environmental leaders. Last month, the Commission released a
consensus report with concrete findings and policy recommendations for
the United States, which I shall summarize now. These recommendations
were based on extensive research and due diligence by the Commission,
including meetings with leaders of tropical forest nations, field
visits in Brazil, and discussions with leading climate and tropical
forest experts.
---------------------------------------------------------------------------
* For further information and to download the commission's report,
visit www.climateforestscommission.org.
---------------------------------------------------------------------------
U.S. National Interests and Tropical Deforestation
The Commission found that including strong tropical forest
provisions in ambitious domestic climate policies is in the vital
environmental, economic, and national security interests of the United
States.
Solving the climate crisis will be nearly impossible without urgent
efforts to stem tropical deforestation, which accounts for
approximately 17 percent of global greenhouse gas emissions--more than
all the cars, trucks, planes, trains, ships, and buses in the world. By
moving aggressively to reduce deforestation, the world can buy time and
more smoothly transition to the clean energy economy of tomorrow.
Including tropical forests in U.S. climate legislation, moreover,
would dramatically lower the cost of ambitious U.S. action. According
to analysis done by the Environmental Protection Agency (EPA), the
price of emissions permits under the cap-and-trade program in the
climate bill approved by the House of Representatives would be 89
percent higher if U.S. companies were not allowed to meet part of their
domestic emissions-reduction obligation by financing international
emissions reductions. EPA's analysis suggests that the majority of
these international ``offsets'', as they are known, would come from
tropical forests. The total cost savings for the U.S. economy, net of
investments needed to reduce deforestation, would be $50 billion by
2020 compared to domestic action alone.
Incentives to halt tropical deforestation also provide a dual
benefit for U.S. national security--both by reducing the adverse
impacts of climate change, which act as a ``threat multiplier,'' and
protecting natural resources that are a key source of corruption,
political instability, and conflict in strategically important nations
around the world.
Well-designed forest conservation policies would also help
alleviate poverty, as 90 percent of those living in extreme poverty
depend on forests for some part of their livelihood. Forest
conservation, furthermore, would protect priceless biodiversity because
the majority of known terrestrial species live in forests.
Ambitious Action by Developing Nations
Importantly, developing nations are eager to reduce deforestation.
Brazil, for example, has pledged to reduce deforestation in the Amazon
region an astonishing 80 percent by 2020, a potential annual reduction
greater than the total yearly emissions from Canada. Impressively,
Brazil is already making substantial progress toward this goal, with
deforestation down 50 percent from its peak in 2004. Indonesia, for its
part, has pledged to reduce its national emissions 26 percent below
business-as-usual levels by 2020, and 41 percent below if the
international community provides financial support. Brazil and
Indonesia account for half of global deforestation and are two of the
world's five largest emitters.
While tropical forest nations are showing they have the political
will to reduce their emissions, many of these countries face
significant obstacles. The primary drivers of deforestation are the
economic opportunities provided by agriculture, ranching, and timber.
Strong and reliable financial incentives are needed to change the
economic calculus facing local landowners and forest-dwelling
communities. In many nations, technical assistance is needed to
strengthen forest sector governance and increase the capacity of
nations to verify emissions reductions.
Opportunity for U.S. Leadership
In view of the many vital national interests at stake, as well as
the opportunities for immediate progress and constructive partnerships
with developing nations, the Commission concluded that the United
States should help lead a global effort to halve emissions from
deforestation by 2020 and achieve zero net emissions from forests by
2030. These are ambitious but achievable goals with the right policies
in place.
The Commission believes that a well-designed cap-and-trade program
would provide an effective mechanism for mobilizing financing from U.S.
sources, finding that by 2020, U.S. carbon markets could mobilize
roughly $9 billion annually for tropical forest conservation.
Furthermore, public sector investments should increase gradually to $5
billion annually by 2020 to help prepare developing nations to
participate in U.S. carbon markets and to reduce deforestation in
nations that cannot attract private capital. The climate bills passed
by the House of Representatives and the Senate Environment and Public
Works Committee would both generate funding for international forest
conservation on this scale.
Senators, as you weigh the many important national priorities
involved in climate and energy legislation, I urge you to consider
maintaining this strong emphasis on reducing tropical deforestation.
These provisions are essential to solving the climate crisis, making
climate action affordable for the United States, encouraging action by
developing nations, and establishing U.S. leadership.
I commend the Committee for organizing this hearing and thank you
for the opportunity to present my views. I would be happy to answer
your questions.
The Chairman. Thank you very much.
Ms. Smith, why don't you go right ahead.
STATEMENT OF TAIYA SMITH, SENIOR ASSOCIATE, ENERGY AND CLIMATE
PROGRAM, CARNEGIE ENDOWMENT FOR INTERNATIONAL PEACE
Ms. Smith. Thank you. Thank you, Mr. Chairman, Senator
Murkowski, and members of the committee.
You've asked me to focus on China and its role in managing
climate change. On August 12, Chinese Premier Wen Jiabao
announced that the State council had decided to incorporate
climate change into its economic and social planning process.
That's important and it includes China's climate change goals,
which are, notably:
Reducing its energy intensity by 20 percent between 2005
and 2010. China announced in 2008 it had already reduced carbon
intensity by 10 percent and analysts predict that if current
rates continue it will reach this 2010 goal.
Obtaining 15 percent of the Nation's energy supply from
non-fossil fuels by 2020. They're already on great progress to
also reach this goal.
Increasing forest coverage by 20 percent from 2005 levels,
which has been one of China's most successful goals so far.
China's stated targets and objectives are impressive, but
they leave us with questions: How can we validate what they're
doing and what's the impact on us?
Our ability to trust China's data is very important. The
Chinese climate change negotiators have stated that China will
not accept a carbon cap because they see it as limiting their
economic growth. If the 2010 target of reducing carbon
intensity by 20 percent is met, China's carbon dioxide
emissions will be reduced by 1.5 billion tons, which is larger
than was pledged by all the other countries who ratified the
Kyoto Protocol.
We know that China will only make commitments if it's in
its national interest. National stability is paramount in
China. After decades of strife, China now enjoys relative peace
for the last 30 years, but nearly all the Chinese over the age
of 50 still remember what it was like before the current era.
Since 1978, China has achieved nearly double-digit GDP
growth and brought more than 3 million rural Chinese out of
poverty. Much of its current stability rests on the promise
that economic growth will continue and its citizens will
achieve prosperity. I like to think of this as the Chinese
dream, which is like the American dream, but it's on steroids.
This miraculous growth that has achieved the first round of
poverty alleviation has become harder and harder to achieve as
China moves up the industrialization scale and deals with its
legacy of previous growth. So now in addition there are
approximately 25 protests a day in China due to environmental
issues, such as contamination, polluted air, and rivers that no
longer support fish. The government has seen this. They
recognize the risk to their stability and also that
environmental degradation is sapping their GDP.
At the same time, they've been studying climate change.
Severe winter storms brought home the reality that dependence
on foreign supplies of oil and coal for energy production are
not viable for long-term logistics as well as political
reasons.
The impact of all of this is that China has come firmly to
the conclusion it has to deal with climate change, in addition
to energy security and environmental degradation, in order to
maintain its economic growth and thereby national stability. At
the same time, top Chinese officials have come to the
conclusion there are simply not enough resources in the world
to support another billion people living the energy-intensive
western lifestyle. They're looking for a new, uniquely Chinese
model of sustainable economic growth that will allow their
population to achieve long-term prosperity.
Then at the same time we have to think about how they
achieve this. The Chinese government battles every day to
enforce national policy, and incentivize local governments,
enterprises and individuals to support its goal of the
sustainable model of economic growth. U.S. EPA, U.S. Department
of Energy, many State governments, and many American companies
and NGO's work closely with the Chinese government to improve
China's oversight, policies and processes. We must continue to
support this work.
There are still accounts of powerplant scrubbers sitting
idle, but there are also some positive stories. China has two
projects, the Program on Large Substituting for Small, which
shuts down small, inefficient coal-fired powerplants, and the
Top 1,000 Energy Consumer Enterprise program, which sets energy
targets for China's 1,000 highest energy-consuming enterprises.
As part of this, China has now shut down 54 gigawatts worth of
small, inefficient coal plants and plans to close a further 31
gigawatts over the next 3 years.
As we think about how we can help work with China on
reaching its goals, we want to remember that, as Dr. Levi was
saying, we need to encourage China to actually be able to be
transparent and improve its verification process. Also we need
to remember that China will resist allowing international
inspectors into China to verify its emissions. Reciprocity is a
very powerful tool in China and if the U.S. and other key
powers were to allow inspectors in, China would have a harder
time holding out against them.
Short of that, though, we need to remember that China is
very sensitive in its international reputation. So establishing
an international body that would allow countries to monitor
each other through a dispute reconciliation mechanism, such as
the WTO, could turn out to be one of the most effective ways to
ensure both China develops a strong internal system and that
the international community has a way to engage with China on
the data that it issues.
I think the last important thing for us to remember is
that, while we know China has a strong domestic motivation,
this has a big impact for the U.S. and for our companies here.
What it means is that the market for clean technology has
expanded exponentially. We need to keep pressure on China to
keep its markets open. The most powerful tool we have to drive
the development and deployment of technology is the combined
U.S.-China market. Bringing a single standard U.S.-China market
for these goods and services provides market-based incentives
that no government policy or funding source could ever supply.
Conversely, if we do not engage with them on developing the
standard marketplace, it is our economy and our industry that
will likely lose out.
The Chinese are moving forward to develop these goods and
services. Only through cooperative development of common
standards will we also be able to benefit from their growing
market. So I would encourage us to press the Chinese very hard
on jointly developing standards with us.
Thank you for this opportunity. I look forward to your
questions.
[The prepared statement of Ms. Smith follows:]
Prepared Statement of Taiya Smith, Senior Associate, Energy and Climate
Program, Carnegie Endowment for International Peace
Mr. Chairman and Members of the Energy and Natural Resources
Committee. Thank you for giving me the opportunity to comment on the
global dynamics of climate change. I am going to focus my remarks on
China and its role in managing climate change. The Climate and Energy
program at Carnegie has focused much of its work on China and
especially U.S.-China cooperation. Carnegie also has a significant
China program, including an office in Beijing.
On August 12, 2009, Chinese Premier Wen Jiabao announced that the
State Council had decided to incorporate climate change into its
economic and social planning process. ``Controlling greenhouse gas
emissions and adapting to climate change,'' he said, would become ``an
important basis for setting the medium and long-term development
strategies and plans of government at every level.'' This decision by
the State Council was the result of years of internal debate, study,
and discussions with international and domestic climate change and
economic experts. It was followed shortly after by China's top
legislative chamber adopting a resolution calling for active engagement
in global climate negotiations, and by new domestic initiatives to
``make carbon reduction a new source of economic growth.''
In order to achieve these objectives, in September this year at the
United Nations General Assembly, President Hu announced to the world
China's climate change goals, notably:
Reducing energy intensity by 20% between 2005 and 2010.\1\
China has reduced its energy used per unit of GDP by 1.8% in
2006, 4% in 2007, and 4.6% in 2008. In the first half of 2009,
China reduced energy intensity by 3.35%. Analysts predict that
if China is able to continue at this pace, it will reach its
2010 goal.
---------------------------------------------------------------------------
\1\ ``The Energy Development Plan for the 11th Five-Year Period.''
the National Development and Reform Council (NDRC), Government of the
People's Republic of China, April 2007. Available at: http://
www.ccchina.gov.cn/WebSite/CCChina/UpFile/File186.pdf
---------------------------------------------------------------------------
Obtaining 15% of the nation's energy supply from non-fossil
fuels by 2020. China's internal goal is to have 15% of its
energy from renewable sources by 2020.\2\ Expectations are that
it will reach the internal goal. For example, by 2008, China
had 12 GW of installed wind capacity and anticipates having 20
GW by the end of 2009. In addition, China has the largest
surface area for solar water heating in the world and the most
nuclear power capacity under construction.
---------------------------------------------------------------------------
\2\ ``The Medium and Long-Term Development Plan for Renewable
Energy,'' the National Development and Reform Council (NDRC),
Government of the Peoples' Republic of China, August 2007. Available
at: http://www.ccchina.gov.cn/WebSite/CCChina/UpFile/2007/
20079583745145.pdf.
---------------------------------------------------------------------------
Increasing forest coverage by 40 million hectares and forest
stock volume by 1.3 billion cubic meters by 2020 from 2005
levels (which is a 20% increase). China's reforestation effort
is one if its most successful programs, and the State Forestry
Administration believes that they are on target to reach this
goal. China's stated targets and objectives are impressive and,
according to official data, it appears to be on target to reach
them. To an American audience, two questions logically follow.
First, how can we validate the carbon emissions data coming
from China, and, second, what impact will China's addressing
climate change have on us?
validating china's data
The question of how to evaluate the data provided by the Chinese
government especially in light of the Chinese climate change
negotiators clearly stating that China will not accept a carbon cap
(which they see as limiting their economic growth potential) and
instead will focus on carbon intensity targets. Carbon intensity refers
to the amount of carbon used to produce a unit of gross domestic
product. The key difference between a carbon cap and carbon intensity
targets is that under the latter, carbon emissions would likely
continue to grow as the economy continues to expand. However, given
accurate predictions of economic growth, an intensity target can be
translated into an escalating carbon cap which meets both the Chinese
need to continue growing and the U.S. requirement that China not be
allowed unlimited green house gas emissions.
On its face, China has made remarkable progress towards its energy
intensity goals. Under the current Five-Year Plan, China pledged to
reduce its energy intensity by 20% between 2006 and 2010. According to
Chinese authorities, by 2008, China had reduced its carbon intensity by
10%. If the Five-Year Plan is fully implemented, addressing carbon
intensity alone will reduce China's carbon dioxide emissions by 1.5
billion tons, which is larger than that pledged in total by all of the
other countries who ratified the Kyoto Protocol.
To understand how serious China is about its climate change, we
first need to understand its internal motivations. National stability
is paramount in China. After decades of strife, China has now enjoyed
relative peace for the last 30 years. But nearly all Chinese over the
age of 50 still remember what it was like before the current era. Since
1978, China has achieved near double digit GDP growth for over two
decades and brought more than 300 million rural Chinese out of poverty.
Much of the current stability rests on the promise that economic growth
will continue and all citizens will achieve prosperity. Yet, as Beijing
is aware, the prospects of this are tenuous. First, the miraculous
growth that achieved the first round of growth has become harder and
harder to achieve as China both moves up the industrialization scale
and deals with the legacy of previous growth. Among the challenges it
must face are a myriad of environmental degradation and public health
hazards. In addition to the daily realities and domestic unrest brought
by contamination, polluted air, and rivers that can no longer support
fish (there are approximately 25 protests a day in China due to
environmental issues), the government recognizes that environmental
degradation is sapping GDP growth.
At the same time, Beijing has been studying climate change and the
potential effects it could have on China. The results of this study are
worrying. China is in the part of the world that will be hardest hit by
climate change, and will be managing rising sea levels, increasingly
intense storms and desertification simultaneously. Severe winter storms
two winters ago brought home the reality that dependence on foreign
supplies of oil and coal for energy production is not viable long term
for logistical as well as political reasons. China had long ago come to
the conclusion that reliance on foreign oil creates difficulties
politically and has focused efforts on trying to lock in oil and gas
supplies (often from controversial countries like Sudan, Iraq, and
Iran) to ensure supply.
The impact of all these factors is that China has come firmly to
the conclusion that it has to deal with climate change, in addition to
energy security and environmental degradation, in order to maintain
economic growth and thereby national stability. After years of
research, top Chinese officials have come to the conclusion that there
simply are not enough resources in the world to support another billion
people living the energy-intensive lifestyle of the West. As a result,
they are looking for a new, uniquely Chinese model of sustainable
economic growth that will allow their population to achieve long term
prosperity. With the State Council supporting the President and
Premier, we are seeing the Chinese government taking an increasingly
large role in international climate change activities. In the last six
weeks, China has signed a climate change agreement with India, offered
assistance with adaptation to Africa, and further strengthened its
agreements with Japan on climate change and technology transfer.
While the power of the central government in Beijing is essential
to catalyze change in China, it is not necessarily enough to ensure
that change does occur throughout the country. A popular saying in
China explains that ``the mountains are high and Beijing is far away''
and therefore it is hard for the central government to ensure that
policies and actions are taken in the manner prescribed. The Chinese
government battles daily to enforce national policy and incentivize
local governments, enterprises and individuals to support its goal of a
sustainable model of economic growth. Along with the U.S. EPA, the U.S.
Department of Energy, and U.S. state government officials, many
American companies and NGOs are working closely with the Chinese
government to improve China's oversight policies and processes. While
there are still stories of power plant scrubbers sitting idle, there
are an increasing number of positive stories.
China has launched a series of programs to reach the goal of
reducing energy intensity by 20%. Two of the most noteworthy programs
are the ``Program of Large Substituting for Small,'' which shuts down
small, inefficient coal fired powers plants, and the ``Top 1000 Energy-
Consuming Enterprises'' program, which set energy-saving targets for
China's 1000 highest energy-consuming enterprises (themselves
responsible for a staggering one-third of China's energy consumption).
Since 2006, China has shut down 54 GW worth of small, inefficient coal
plants and plans to close a further 31 GW in the next three years. As a
result, many of the world's cleanest and most efficient coal-fired
power plants are now located in China: the Chinese coal-fired power
plant fleet is now more efficient on average than the U.S. fleet.\3\
The Top 1000 program began in 2006. That year, the program alone
accounted for two-thirds of China's efficiency improvements and by
2007, when the country was making improvements, the Top 1000 still
represented half of all the efficiency improvements in the country. If
the trend continues, by 2010 it could prevent 450 million tons of
carbon dioxide from being released into the atmosphere from a business
as usual scenario.\4\
---------------------------------------------------------------------------
\3\ ``Cleaner Coal in China.'' 2009. International Energy Agency/
OPEC report
\4\ Price, L., Wang. X, and Jiang, Y. (2008). ``China's Top-1000
Energy-Consuming Enterprises Program: Reducing Energy Consumption of
the 1000 Largest Industrial Enterprises in China.'' Lawrence Berkeley
National Laboratory Report (LBNL-519E)
---------------------------------------------------------------------------
While we have ways to monitor and evaluate actions on a project
basis, we still have to rely on the central government for national
statistics. For example, the metric by which the energy intensity
target is measured is energy intensity of GDP. President Hu announced
in September that China would decrease its energy intensity per dollar
of GDP by a ``notable margin''. Looking past the withholding of an
exact number (certainly done for negotiating purposes as this and
monitoring and evaluation mechanisms are the two most significant
issues China has to trade with developing countries in the COP
negotiations), China has an established process for evaluating each
province's energy intensity. Two ministries, the National Development
and Reform Commission (NDRC) and the National Bureau of Statistics
(NBS) jointly set standards and implement a comprehensive system
reviewing progress made on the goals defined through the Five-Year
Plan. While some have questioned the exact figures produced (some of
which is explained by differing assessments of China's economic growth
each year), the process is rigorous and has produced interesting
results. We must continue to support the work being done through U.S.
agencies to help China develop its internal monitoring and verification
regime.
The alternatives to depending on China's internal processes are
limited. Many in China will resist allowing international inspectors
into China to verify its emissions, in much the same way as many in the
United States will resist allowing foreign inspectors to check heavy
industry and power plants. Reciprocity, however, is a powerful tool. If
the U.S. and the other key powers were to allow international
inspectors, China would have a harder time holding out against them.
Additionally, China is very sensitive to its international reputation.
Establishing an international body that would allow countries to
monitor each other through a dispute reconciliation mechanism, such as
the way the WTO operates, could turn out to be one of the most
effective ways to ensure both that China develops a strong internal
system and that the international community has the ability to engage
with China on the data that it issues. For such a system to work, China
would have to be willing to report all its data to the management
organization, not just those figures associated with internationally
funded projects.
impact on the united states
Knowing that China has the strong domestic motivation to address
climate change and has now taken the political decision to make climate
change part of its planning process, we can plan on there being a
market in China for new and existing products and services oriented to
cleaning up China's energy sector and addressing climate change, as
well as other environmental impacts such as dirty water. The biggest
impact for the U.S., outside of the climate change negotiations and
global carbon emissions, is that the market for clean technology has
expanded exponentially. The decisiveness of Chinese decision makers has
made its market attractive to businesses searching for certainty. For
example:
China's total installed wind capacity doubled for the 4th
year in a row in 2008. At 12.2 GW capacity, China has the
fourth largest installed capacity in the world behind the U.S.,
Germany, and Spain and plans to expand to 100GW by 2020. By the
end of 2008, 61.8% of China's market share came from domestic
and Sino-foreign joint venture turbine makers. In 2004,
foreign-made equipment accounted for 75%.\5\
---------------------------------------------------------------------------
\5\ Global Wind Energy Council (2008). ``GWEC: China.'' Retrieved
at: http://www.gwec.net/
---------------------------------------------------------------------------
China has recently announced increased spending on research
and development and new subsidies to foster a stronger domestic
market in the solar field as well. The ``Golden Sun'' program
announced in July 2009 offers up to 70% of the cost of
installing PV generation and transmission systems for projects
selected by provincial governments.\6\
---------------------------------------------------------------------------
\6\ China People's Daily. (July 22, 2009) Retrieve at: http://
english.people.com.cn/90001/90778/90857/90860/6707179.html
In the last five years, Chinese renewable energy firms have
capitalized on domestic incentives and binding renewable energy targets
to grow the wind industry in China. At first it appeared that the
government incentives were not available to foreign participants.
However, following the meeting of the U.S.-China Joint Commission on
Commerce and Trade (JCCT) in which China agreed to drop its ``Buy
Chinese'' policy that required local governments to source more than
70% of products and technologies from domestic sources, we may see a
resurgence of foreign companies investing in this sector.
We will need to keep the pressure on China to keeps its markets
open. The most powerful tool that we have to drive the development and
deployment of technology is the combined U.S.-China market. Bringing
together a single, standard U.S. and China market for these goods and
services provides market-based incentives that no policy or government
funding source could ever supply.
Conversely, if we do not engage with them on developing this
standard marketplace, it is our economy, and our industry, which will
likely lose out. The Chinese are going to move forward to develop these
goods and services; only through cooperative development of common
standards will we also be able to benefit from their growing market.
Several steps can help us reach that goal, including to:
Work with China to create policies that encourage
competition in clean technology.
Emphasize the importance of dropping barriers, from policy
to political, to market access and investment in each other's
country. As in the discussion on monitoring and verification,
reciprocity is a strong tool. ``Buy American'' clauses are
often met with ``Buy Chinese'' clauses. At the same time, we
need to educate Chinese investors that developing American jobs
is part of the cost of investing in the U.S.
Press China hard to jointly develop new standards with us. A
single standard for new technology, such as electric vehicle
batteries, will ensure that American companies are able to
compete in the Chinese markets.
summary
In summary, China is making many of the right steps towards
managing climate change. Its policies and actions are aligned to
achieve substantial cuts in the country's carbon emissions in the
short, medium and long term. China needs to find a new model of
sustainable economic growth in order to ensure stability, energy
independence, and environmental health. Managing climate change is a
critical part of that mix. The U.S. can have confidence that China is
going to do what it says it is going to do because its motivations are
internal. And, China is continually improving its ability to enforce
its own policies. Improving the process by which Beijing monitors how
well it reaches its national goals requires continued technical
support. While it is unlikely that China will allow international
inspectors, a process that puts its reputation at stake could be
helpful. Most important is the recognition of reciprocity. China will
push back hard against any policy or initiative that appears to set it
in a special category.
Finally, for the United States, China represents a critical market.
Access to the joint American-Chinese market will be a critical
motivator for the development and dissemination of clean technology. We
need to work with the Chinese to ensure that we keep our markets open
to each other. Specifically, we need to develop shared standards, drop
barriers to access and investment in each other's markets, and
implement the right set of incentives to encourage competition in this
rapidly expanding sector.
Thank you for this opportunity to appear before you. I look forward
to your questions. Thank you.
The Chairman. Thank you very much.
Ms. Harbert, why don't you go right ahead.
STATEMENT OF KAREN HARBERT, PRESIDENT AND CEO, INSTITUTE FOR
21ST CENTURY ENERGY, CHAMBER OF COMMERCE
Ms. Harbert. Thank you, Chairman Bingaman and Ranking
Member Murkowski and members of the committee, for holding this
hearing and inviting me to participate. My testimony today will
focus on what I believe are some of the major components and
challenges to an international agreement and where I believe
the business community can play a constructive role.
Trying to get over 190 countries to agree on a new treaty
would be tough enough even in the best of economic
circumstances, and these today are not the best of economic
times. It's important to keep in mind the global context in
which these negotiations are occurring. The world has changed
considerably since the U.N. framework convention was launched
in 1992, with the vast majority of future energy demand and
greenhouse gas emissions coming now from the developing world.
Our energy institute has cautioned for some time about
unrealistic expectations surrounding technology readiness and
commercial adoption, short-term commitments by developed
countries, burden-sharing by developing countries, capital
requirements, expectations for wealth transfers, technology
transfer, and intellectual property. The complexity of these
issues has yielded confrontation and finger-pointing and not
much progress.
I think it would be a mistake to draw from these
developments the conclusion that all would be well if only the
U.S. had domestic legislation in hand. These issues go well
beyond what we can expect to see addressed in domestic
legislation and they will be no less contentious even when we
have it. We need to put to rest the idea if the U.S. goes first
China, India, and other large emerging countries will fall in
line into binding commitments of their own when they currently
have no legal obligation to do so. This remains an unjustified
article of faith and carries with it considerable risk.
We have seen with the Kyoto Protocol that a top-down
approach does not work. We need in a new agreement a bottom-up
approach that accommodates a wide range of national
circumstances and should be as simply as possible to implement.
Climate change risks need to be addressed as part of an
integrated agenda that proceeds from a very clear understanding
that for many countries energy security is still a greater
concern than climate change. At its most fundamental level,
reducing carbon dioxide emissions from energy is a technology
challenge that, as an article in Science once famously noted,
``cannot simply be regulated away.'' It can't be negotiated
away, either. It has to be innovated.
An agreement that focuses on technology offers a path
forward that developed and developing nations can embrace
together. How rapidly advanced energy technologies develop and
are adopted commercially will be the most important factor In
determining how quickly and at what cost greenhouse gas
emissions can be reduced. Existing technologies surely can make
an important contribution, but they alone are not capable of
significantly reducing greenhouse gas emissions on the global
scale at an affordable cost.
New and in some case revolutionary energy technologies,
many still years, if not decades, over the horizon, will have
to be developed, invested in, adopted commercially, and we need
the infrastructure to go along with them. That's why it's so
critical that there not be a weakening of intellectual property
rights in any agreement, which would only serve the stymie the
development of the very technologies we need to make progress.
With a clear stake in the process, developing country
governments can be convinced that intellectual property
protections are in their interests as well as ours. Their
businesses already know this. From less than 5 percent of
patents in 1998, emerging economies now account for roughly 20
percent of patents worldwide.
Improving the performance and lowering the cost of advanced
alternative technologies can, if successful, broaden the range
of economically and politically viable policy options available
to decisionmakers. However, in order to have these technologies
more quickly penetrate both developed and developing nations'
markets, we should seriously undertake efforts to reduce global
tariff and non-tariff barriers on clean energy goods and
services.
In addition, to be credible and effective in reducing
greenhouse gas emissions a new arrangement must include
realistically ambitious commitments by all countries. Large
developing countries like China, India, and Brazil must be part
of any new international accord for it to actually reduce
greenhouse gas emissions.
Finally, we believe there needs to be a greater role for
the international business community in these negotiations.
When all is said and done, after all, it's largely going to
fall on the business community to implement whatever's in the
treaty. Given the right environment, business is prepared to do
what it does best: innovate to find solutions. But we need a
seat at the table.
In September the U.S. Chamber hosted the first meeting of
the major economies business forum on energy security and
climate change. Over 2 days, high-level representatives from 13
business organizations spanning 6 continents and representing
more than 25 million businesses exchanged views, identifying
common ground on many of the issues being considered in the
international negotiations.
Maybe surprising to policymakers, but not to businesses,
there was a significant amount of agreement on the importance
of practically addressing energy security, finance, technology,
and economic competitiveness issues. I would ask that the
formal declaration* endorsed by all those business
organizations be included in the record of this hearing.
---------------------------------------------------------------------------
* Document has been retained in committee files.
---------------------------------------------------------------------------
The Chairman. It will be included.
Ms. Harbert. Our organizations will continue to meet
regularly to provide valuable and practical input to the
international negotiations. But the bottom line is this:
International business and the business community would welcome
a more formal role in the U.N. framework convention and the
major economies forum, and we should be allowed to do so. We
are the solution.
In closing, let me say that business needs a predictable
environment in which to operate and plan and remain
competitive, and it would welcome an ambitious international
climate change agreement. But that ambition needs to be
tempered with a healthy dose of pragmatism. A realistic vision,
focused on technology, that encourages cooperation, not
confrontation, would be a good place to start.
Thank you, and I'll be happy to answer any of your
questions.
[The prepared statement of Ms. Harbert follows:]
Prepared Statement of Karen Harbert, President and CEO, Institute for
21st Century Energy, Chamber of Commerce
executive summary
As this year's negotiations wind their way to a conclusion in
Copenhagen, Denmark, the prospect of a new international deal is not
very bright, and it is not hard to see why.
Consider that the starting point for discussion is a 50% reduction
in global greenhouse gas emissions by 2050. Endorsed by G8 leaders,
this ``50-by-50'' goal is among the most aggressive of the 177
emissions reduction scenarios examined by the Intergovernmental Panel
on Climate Change.
Meeting such a goal would require large and expensive emissions
reductions and avoidances, most of which would have to occur in
developing countries. Th ough ultimately non-binding and unenforceable,
the long-term vision nonetheless drives expectations about technology
readiness and commercial adoption, short-term goals, burden sharing by
developing countries, finance and wealth transfers, and technology
transfer, issues that are among the most contentious in the
international negotiations. A 2008 report from the International Energy
Agency (IEA) describes the scale of the technology breakthroughs that
would be needed over the next 40 years to transform the energy sector
and halve global carbon dioxide emissions from their 2005 level.
In the power sector, IEA estimates that carbon-free sources would
have to boost their output over 550% and provide 95% of the electricity
generated worldwide in 2050. To realize a shift of this magnitude,
nuclear capacity would have to be added at an annual rate half again as
large the historical high every year from 2010 to 2050. Renewable
energy sources (excluding hydropower) also would have to be installed
at a breakneck pace and grab 34% of an electricity market well more
than twice the size it was in 2005, when these renewables claimed a
meager 2% market share. Additionally, all coal plants and most natural
gas plants would have to be fitted with carbon capture technology,
which is not yet commercially available and may not be for many years.
The world's transportation sector, now dominated by oilbased fuels,
would have to undergo similarly sweeping changes. For example, from
virtually none today, IEA estimates that by 2050 nearly 1 billion
electric and fuel cell cars would have to be on the world's roads.
Developing countries contend that as developed countries are
responsible for most of the build-up of atmospheric carbon dioxide (a
debatable claim), they should go first with emissions cuts of at least
40% to 45% below the 1990 level by 2020 and 80% to 95% below by 2050.
These targets are an extraordinary leap for developed countries; no
developed country has proposed such reduction schemes to date. Even if
developed countries could achieve these deep cuts, without meaningful
commitments by developing countries, prospects for meaningful
reductions in greenhouse gases remain dim. That is because about 80% or
more of the expected growth in global carbon dioxide emissions to 2050
is expected to occur in developing countries, with China and India
leading the way. As challenging as it is for developed countries to
rein in emissions, the challenges for developing countries, which need
cheap, reliable energy to raise living standards, are greater still.
Let us assume that developed countries succeeded in cutting
emissions by 80% in 2050. To meet a 50% global target, total emissions
from developing countries, aft er rising for decades, would have to
return to or slightly below their 2000 level in 2050. What is more,
because developing countries will have much larger populations 40 years
hence, their per capita emissions, now about 2.5 tons, would have to be
lower, too--and that would be the case even if developed countries
slashed their emissions to zero.
With billions of people still lacking access to electricity,
developing countries are unlikely to cap emissions if it hampers their
economic development. Many sit on large reserves of fossil fuels and
see no reason why they should forgo their use. They've made it plain
that their cooperation will come only with significant financial
contributions from other countries.
Developing countries are pressing the United States and other
developed countries to transfer anywhere from 0.5% to 2.0% of their
gross domestic product each year to bankroll climate change programs in
developing countries. At that rate, in 2008 the cost to American
taxpayers alone would have been $72 billion to $289 billion.
But even that might not be enough. A Massachusetts Institute of
Technology report warns that if developing countries are fully
compensated for their efforts, implied financial transfers from
developed countries could amount to over $400 billion annually in 2020
and about $3 trillion in 2050.
Developing countries also are trying to use the negotiations to
weaken intellectual property protections through compulsory licensing
of advanced energy technologies, ostensibly to remove barriers to
``technology transfer.'' Without intellectual property rights, there is
very little incentive for companies to invest in costly research and
development that will lead to the technology breakthroughs required to
meet reduction targets.
Just as worrisome are threats by some governments to impose carbon
tariffs on goods coming from nations that don't take on comparable
commitments, which would inevitably lead to a green trade war.
Every delegation at the U.N. negotiating table understands these
numbers, so it is little wonder the Parties remain so far apart. Many
countries are coming to realize that it is one thing to achieve 50-by-
50 in a computer model, quite another in the real world.
How rapidly advanced energy technologies develop and are adopted
commercially will be the most important factor in determining how
quickly and at what cost greenhouse gas emissions can be reduced. An
accelerated program to improve the performance and lower the costs of
advanced alternate energy technologies can, if successful, broaden the
range of economically and politically viable options available to
policymakers. National and international climate policy should
concentrate on supporting greater energy efficiency and
commercialization of low-carbon technologies for energy supply. In
addition, developed and large developing countries alike must make a
larger commitment to technology development worldwide.
A new agreement should be flexible; recognize growing energy needs;
set realistic goals; ensure global participation, including major
developing countries; promote the development of and trade in clean
energy technologies; protect intellectual property; and maintain U.S.
competitiveness.
At the end of the day, all the ``modalities'' and ``frameworks''
erected in these negotiations cannot ward off failure if the goal
itself is not practicable.
Business needs a predictable environment in which to operate and
plan, and it would welcome an ambitious agreement. But that ambition
needs to be tempered with a healthy dose of pragmatism. A realistic
vision that encourages co-operation would be a good place to start.
This paper explores some of the fault lines among the Parties in
the negotiations, primarily the rift between developed and developing
countries. It discusses the scale and scope of the technology
challenge--which oft en gets overlooked in the public discussion--and
some of the dynamics at work that hinder an agreement. And it off ers
the broad outlines of a technology-centered approach that could form
the basis of a workable agreement.
state of play
Climate change is among the most complex issues facing the
international community. Negotiations are currently taking place under
both the United Nations Framework Convention on Climate Change (UNFCCC)
and the Kyoto Protocol with a goal of completing a new arrangement to
address climate change in Copenhagen, Denmark at the end of 2009.
However, despite the urgency governments attach to an agreement, the
prospects for a comprehensive deal remain dim.
The ultimate long-term objective of the Convention, which was
adopted in 1992 and entered into force in 1994, is the stabilization of
greenhouse gas concentrations in the atmosphere at a level [undefined
in the text] that would prevent dangerous anthropogenic interference
with the climate system. This goal should be achieved within a time
frame that would allow ecosystems to adapt and in a manner that ensures
food production is not threatened and that would promote sustainable
economic development (UNFCCC 1992). Meeting these complementary
objectives will require a sustained, long-term commitment by all
nations over many generations.
The Kyoto Protocol completed in 1997 sets binding greenhouse gas
emissions targets for 37 developed countries and the European Community
that combined would reduce emissions for these countries as a whole 5%
below the 1990 level over the period 2008 to 2012. Developing countries
have no obligations to slow or reduce emissions under the Protocol. To
date, 187 UNFCCC Parties have acceded to the Protocol, excluding the
United States.
The Bali Action Plan agreed to at the 13th Conference of the
Parties in Indonesia in December 2007 launched a twoyear negotiations
process to strengthen the international response to climate change
through the ``full, effective and sustained implementation of the
Convention through longterm cooperative action, now, up to and beyond
2012, in order to reach an agreed outcome and adopt a decision'' at
Copenhagen in 2009.
The Bali Action Plan set up two parallel negotiating tracks: (1) a
Kyoto Protocol track, which is looking at a second commitment period
under that treaty; and (2) a ``Long-Term Cooperative Action'' track
under the UNFCCC. The U.S. observes in the former and participates in
the latter. If or how these two tracks merge is the topic of
considerable speculation. For procedural reasons it could only occur in
Copenhagen at the earliest.
The negotiations revolve around a shared vision for longterm co-
operation--including a global emissions goal--and four actions areas
covering mitigation, adaptation, technology, and finance (UNFCCC 2007).
The success of these negotiations will depend in large part on the
ability of the developed countries to entice large developing countries
such as China, India, and Brazil into a binding agreement, but that
will be easier said than done. The rift between developed and
developing countries is wide, and it is difficult to see how it can be
bridged in the remaining negotiating sessions. Just how far apart the
Parties remain can be seen in the leaders' statements on climate change
emerging from the G8,\1\ Major Economies Forum on Energy and Climate
(MEF),\2\ and G5\3\ meetings in Italy last July. The matrix in table 1
breaks down the emissions targets each group of countries was able to
agree on in Italy.
---------------------------------------------------------------------------
\1\ The Group of Eight includes the United States, Canada, France,
Germany, Italy, Japan, Russia, and the United Kingdom.
\2\ The MEF includes the United States, Australia, Brazil, Canada,
China, the European Union, France, Germany, India, Indonesia, Italy,
Japan, the Republic of Korea, Mexico, Russia, South Africa, and the
United Kingdom.
\3\ The Group of Five includes Brazil, China, India, Mexico and
South Africa.
---------------------------------------------------------------------------
Matrix of Climate Change Declarations for the G8, MEF & G5
------------------------------------------------------------------------
Issue G8 MEF G5
------------------------------------------------------------------------
Average Global Temperature 2 above pre- 2 above pre- ----
Limit industrial industrial
------------------------------------------------------------------------
Peak Global Emissions As soon as As soon as ----
possible possible,
with
developed
countries
peaking
before
developing
countries
------------------------------------------------------------------------
Short-Term Target (2020):
------------------------------------------------------------------------
Global ---- ---- ----
------------------------------------------------------------------------
Developed Countries ``Robust'' ``Robust'' -40%
aggregate and aggregate and from
individual individual 1990
reductions reductions baseli
ne
------------------------------------------------------------------------
Developing Countries Reduce ``Meaningful'' .......
emmissions deviation
below from [Note:
``business-as- not
usual'' ``below'']
projections business-as-
usual
------------------------------------------------------------------------
Long-Term Goal (2050):
------------------------------------------------------------------------
Global -50% (no ---- ----
baseline
provided)
------------------------------------------------------------------------
Developed Countries -80% from 1990 ---- ----
baseline
------------------------------------------------------------------------
Developing Countries ---- ---- ----
------------------------------------------------------------------------
Much has been made of the reference in the G8 and MEF declarations
to limit the average global surface temperature to no more than a 2C
increase above the pre-industrial level.\4\ Using the ``best estimate''
provided by the Intergovernmental Panel on Climate Change's Fourth
Assessment Report (IPCC 2007), a 2C target translates into an
atmospheric carbon dioxide concentration in the range of 350 ppm to 400
ppm.\5\ (To put this in perspective, the current atmospheric
concentration of carbon dioxide is a little under 390 ppm, roughly 120
ppm above the preindustrial level.) To get global emissions on a
trajectory to stabilize atmospheric carbon dioxide concentrations
within this range, IPCC estimates that global emissions would have to
peak no later than 2015 and would have to be about 50% to 85% below
their 2000 level in 2050.\6\
---------------------------------------------------------------------------
\4\ Both the G8 and the MEF declarations state that it is the
``scientific view'' that the average global temperature ``ought not''
exceed 2C above the pre-industrial level. The IPCC is barred, however,
from offering policy recommendations in its reports. The IPCC presents
a range of possible emissions pathways to stabilize the atmospheric
carbon dioxide concentration.
\5\ This is based on a best estimate of climate sensitivity whereby
a doubling of the atmospheric concentration of carbon dioxide would
lead to a 3C average global temperature rise from the preindustrial
average (IPCC 2007, WGIII SPM Table SPM.5). IPCC, however, gives a
range of climate sensitivities from about 2.0C to 4.5C. Th us, there
is a range of possible atmospheric carbon dioxide concentrations,
roughly from about 300 ppm to 550 ppm, corresponding to a 2C average
rise. Th e emissions trajectories needed to meet either end of this
range are very different.
\6\ A 50% cut in carbon dioxide emissions by 2050 would not
stabilize atmospheric carbon dioxide concentrations in the 350ppm to
400ppm range. Further cuts and avoidances would be needed after 2050.
In fact, IPCC notes that many scenarios aimed at meeting the most
aggressive carbon dioxide stabilization targets--440 ppm and lower--
call for net negative global emissions sometime before 2100 (IPCC
2007).
---------------------------------------------------------------------------
The G8 also reiterated its support specifi cally for a 50%
reduction in global emissions by 2050 (with no baseline supplied), and
it called on developed countries to commit to an 80% reduction from a
1990 baseline over the same period.
The G5 statement is noteworthy more for what it leaves unsaid.
Developing countries as a group clearly are not interested in moving
the discussion beyond midterm commitments for developed countries. As
long as the discussion focuses on 2020, developing countries really see
no reason to do much of anything. That is not the case when the
discussion turns to a 2050 global goal.
In the U.N. negotiations, the idea of a 50% reduction in global
emissions (from base years ranging from 1990 to 2005) by 2050--with
developed countries pitching in at least 80%--has become the starting
point of discussion of the long-term emissions goal.\7\ The general
view is that, as part of the shared vision, this ``50-by-50'' long-term
goal will not be considered operational, but rather aspirational.
---------------------------------------------------------------------------
\7\ Draft U.N. negotiating text in the Ad Hoc Working Group on
Long-Term Cooperative Action has a number of different proposals--
stabilizing greenhouse gases (in carbon dioxide equivalents) from 350
ppm to 450 ppm, limiting the temperature rise from 1.5C to 2C, and
reducing global emissions anywhere from 50% to 95% below the 1990 level
by 2050 (UNFCCC 2009a)--all of which imply a minimum global reduction
of 50% by 2050.
---------------------------------------------------------------------------
Though ultimately non-binding and unenforceable, the longterm
vision nonetheless drives expectations about technology readiness and
commercial adoption, short-term goals, burden sharing by developing
countries, fi nance and wealth transfers, and technology transfer,
issues that are among the most contentious in the international
negotiations.
technology scale and scope
As we consider the international negotiations, it is important to
take stock of the technology challenge to achieve deep reductions in
carbon dioxide emissions. A 50-by-50 global goal is among the most
aggressive of the 177 emissions reduction scenarios examined by the
Intergovernmental Panel on Climate Change. Meeting it would demand the
almost complete transformation of the global energy system in just 40
years. It would require extremely large and expensive emissions
reductions and avoidances, most of which would have to occur in
developing countries, from where the lion's share of future emissions
are expected to come.
a note about the data
For simplicity, most of the 50-by-50 scenario data cited in this
paper stem from IEA 2008 unless noted otherwise. The IEA's scenario
results are consistent with those of other groups, such as the U.S.
Climate Change Science Program's report on stabilization scenarios
(CCSP 2007), which included scenario results from three different
models. The IEA figures should be seen as an indication of the scale
and scope of the changes in energy systems and reductions and
avoidances in emissions that would be needed to meet a 50-by-50 target
for energy-related carbon dioxide only (it does not consider emissions
of carbon dioxide from land use change or industrial processes or
emissions of other greenhouse gases). While mitigation scenarios from
other groups yield somewhat different results, they are generally all
of the same magnitude and tell essentially the same story.
In addition, the definitions of ``developed'' and ``developing''
countries in the IEA report align with OECD and non-OECD countries, not
the more familiar Annex I and Non-Annex I designation used in the
UNFCCC. This does not impact the data in any meaningful way.
The scale of the changes required to meet a goal of this magnitude
is not well appreciated. A 2008 report from the International Energy
Agency (IEA) describes in detail the technology breakthroughs--in
fossil fuel power generation; carbon capture and storage; nuclear
energy; biomass, wind, solar, and other renewable energy;
transportation fuels; batteries; electricity systems; and other
technologies--that would be needed over the next 40 years to transform
the energy sector and halve global energy-related carbon dioxide
emissions from their 2005 level (IEA 2008).\8\
---------------------------------------------------------------------------
\8\ Using IEA's ``BLUE Map'' scenario. The IEA ``50-by-50''
scenario described is compared to a no-policy ``reference case.'' This
reference scenario assumes that some technology and efficiency
improvements will occur even in the absence of any additional climate
change policies. Thus projected emissions are lower than they would be
under a scenario where technology and efficiency were ``frozen'' over
the next 40 years. The 50-by-50 mitigation scenario focuses on
determining the amount of additional emissions reductions needed beyond
the reference scenario.
---------------------------------------------------------------------------
There is always a large element of uncertainty when peering into
the future, and as IEA notes, many of the technologies demanded by a
50-by-50 scenario are still under development, and their progress is
highly uncertain. Even under the most optimistic circumstances,
however, 50-by-50 would be extraordinarily difficult to achieve.
In 2005, global emissions of carbon dioxide were around 26.6
gigatons.\9\ IEA estimates that, assuming no additional climate
policies and some ``business as usual'' technology and energy effi
ciency improvements, global carbon dioxide emissions could rise to 61.7
gigatons by 2050. To halve energy-related carbon dioxide emissions in
2050 relative to 2005--i.e., 13.3 gigatons--implies reductions and
avoidances in excess of 48 gigatons, an amount about equal to 8 times
current U.S. carbon dioxide emissions (figure 1).*
---------------------------------------------------------------------------
\9\ A gigaton equals 1 billion metric tons.
* Figures 1-7 have been retained in committee files.
---------------------------------------------------------------------------
Energy efficiency is the biggest source of emissions reductions in
IEA's scenario. Immediately following the oil price shock of the 1970s,
energy effi ciency in developed countries improved at a rate of about
2.5% per year. More recently, however, yearly efficiency improvements
have been lagging at well less than half that rate. To achieve 50-by-
50, IEA requires energy effi ciency to improve at a sustained rate of
1.7% from 2010 to 2050 compared to 0.9% in its baseline scenario. This
represents an increase in rate of annual effi ciency gains of 85% to
90% and would be very challenging to maintain. Under its 50-by-50
scenario, total global energy demand is one-third less than in the
reference case.
In the power sector, IEA estimates that electricity production will
more than double from 2005 to 2050. In 2005, non-emitting sources of
power accounted for about one-third of electricity generated worldwide,
and just about all of that was from either nuclear or hydropower
sources. To meet rising electricity demand and reduce carbon dioxide
emissions, carbon-free sources would have to boost their output from 6
to 40 petawatt hours,\10\ a jump of more than 550%, and provide 96% of
the electricity generated worldwide in 2050 (figure 2).
---------------------------------------------------------------------------
\10\ A petawatt hour equals one quadrillion watt hours.
---------------------------------------------------------------------------
To realize a shift of this magnitude, low-emission sources of power
would have to be at added at an unprecedented rate (figure 3). Nuclear
capacity would have to be added at an annual rate half again as large
the historical high every year from 2010 to 2050. Renewable energy
sources, excluding hydropower, would have to be installed at a
breakneck pace--rising about 3,500%--and grab 34% of an electricity
market well more than twice the size it was in 2005, when non-hydro
renewables claimed a meager 2% market share. (For example, nearly
18,000 4-megawatt wind turbines would have to be installed each year
from 2010 to 2050.\11\) By 2050, all coal plants and most natural gas
plants would have to be fitted with carbon capture technology, which is
not yet commercially available and may not be for many years.
---------------------------------------------------------------------------
\11\ Most wind turbines in service and available today are rated
well below 4 megawatts.
---------------------------------------------------------------------------
The world's transportation sector, now dominated by oilbased fuels,
would have to undergo similarly sweeping changes. Batteries and fuel
cells are expected to be the main alternatives to the internal
combustion engine in automobiles. Because these alternatives are too
expensive and impractical for trucks, ships, and planes, biofuels are
expected to play a greater role in these transport modes.
On average, something on the order of 85% to 90% of all the cars
and light trucks sold annually from 2010 to 2050 would have to be some
sort of alternate vehicle, and by 2050, new conventional gasoline and
diesel vehicles essentially would be unavailable. Figure 4 shows the
dramatic change in global new car sales in 2050 under IEA's business as
usual baseline and 50-by-50 scenarios. From virtually none today, IEA
estimates that 40 years from now nearly 1 billion electric and fuel
cell cars would have to be on the world's roads.
A 50-by-50 goal would demand, then, an unprecedented global
transformation of existing and future energy systems away from fossil
fuels--which in 2005 supplied nearly 90% of energy demand--on a massive
scale and at a breathtaking pace.\12\ IEA pegs the additional
investment for all this at $45 trillion, a yearly average, it notes,
equivalent to the (GDP) national product of Italy.\13\ By 2050, the
marginal costs for a ton of carbon dioxide would be $200. Under a more
pessimistic technology outlook, the cost of carbon dioxide could climb
to $500 to $800 a ton.
---------------------------------------------------------------------------
\12\ The technology challenge may be even greater than many models
suggest. An analysis of the IPCC's mitigation scenarios appearing in
Nature found that two-thirds or more of the emissions reductions from
technology change and effi ciency improvements are built in to the no-
policy reference cases. The amounts of ``spontaneous decarbonization''
assumed in the IPCC reference cases, the authors argue, are
``optimistic at best and unachievable at worst, potentially seriously
underestimating the scale of the technological challenge.'' They
conclude that ``if most decarbonization does not occur automatically,
then the challenge to stabilization could in fact be much larger than
presented by the IPCC'' (Pielke Jr. et al. 2008). Recent trends in
global emissions lend credence to this view. IPCC, for example, reports
that, ``Th e long-term trend of a declining carbon intensity of energy
supply reversed aft er 2000'' (IPCC WGIII 2007).
\13\ IEA did not measure global GDP impacts, noting that, ``Th is
expenditure represents a re-direction of economic activity and
employment, and not necessarily a reduction in GDP'' (IEA 2008).
---------------------------------------------------------------------------
sharing the burden--after you
Studies on global emissions trends demonstrate that emissions
reductions by the developed world alone cannot reduce global emissions
appreciably. There is, however, a huge and perhaps unbridgeable divide
between the developed countries and the developing countries. The
UNFCCC did not create these divisions, but it does refl ect and sustain
them.
The blame game is played with great aplomb within the Convention.
Developing countries assert that as developed countries bear
``historical responsibility'' for most of the build-up of atmospheric
carbon dioxide,\14\ they bear a responsibility to reduce emissions in
their own countries and finance reductions in others. This notion of
historical responsibility pervades much of the negotiations.
---------------------------------------------------------------------------
\14\ This is a debatable claim. An analysis commissioned by the
UNFCCC and presented at the COP-14 in Bali, Indonesia suggests that
when land use change is factored in, total emissions from large
developing countries have contributed appreciably to the stock of
atmospheric carbon dioxide (though their per capita contribution would
still be relatively low) (MATCH 2007).
---------------------------------------------------------------------------
In addition, the Convention's preamble expresses the view that
``the share of global emissions originating in developing countries
will grow to meet their social and development needs'' (UNFCCC 1992).
The link between industrialization and increasing greenhouse gas
emissions is strong, so it is expected that as these countries develop
economically, they will emit more.
Parties to the UNFCCC also agreed in the treaty text that, as a
matter of principle, protecting climate system should be ``on the basis
of equity and in accordance with their common but differentiated
responsibilities and respective capabilities. Accordingly, the
developed country Parties should take the lead in combating climate
change and the adverse eff ects thereof '' (UNFCCC 1992). In other
words, developing countries are not expected to do as much as developed
countries, which have greater economic and technological capabilities
to curb emissions. This principle of common but differentiated
responsibilities is on full display in the Kyoto Protocol, where only
developed countries have binding obligations to reduce emissions, a
state of affairs developing countries have no incentive to see changed.
While the gradation between developed and developing countries has
always been murky, the Convention, nonetheless, established and
maintains clear lines of differentiation among its Parties. The
Convention divides Parties into three main categories, and it is
through these designations that the commitments and responsibilities of
the Parties largely have been determined.
Annex I includes countries that made up the Organization for
Economic Co-operation and Development (OECD) in 1992 and countries with
``economies in transition'' (Russia, the Baltic states, and most
Central and Eastern Europe states). In general, the Convention places a
heavier burden on Annex I countries to report and reduce greenhouse gas
emissions. The OECD countries listed in Annex I comprise Annex II. This
subset of countries is obliged to provide financial support to
developing countries for reporting, mitigation, and adaptation
activities. All other countries--almost all of which can be viewed as
developing--are designated Non-Annex I.
The world has changed considerably since the UNFCCC was launched in
1992. Mexico and South Korea, both Non-Annex I Parties, are OECD
members. Singapore, another Non-Annex I party, has one of the highest
levels of per capita income in the world. Major emitting countries like
China, India, Brazil and other large and emerging economies are rapidly
industrializing and becoming major players in the world's economies and
its energy markets.
There are, however, no criteria or instruments in the Convention
that would automatically move Parties, as they advance economically,
from Non-Annex I to Annex I, or even to an intermediate status. The
Convention does allow for changes to occur either voluntarily or
through a treaty amendment, an arduous process requiring consensus of
the Parties or, if that cannot be achieved, a three-fourths majority
vote.\15\
---------------------------------------------------------------------------
\15\ Provision was made in the UNFCCC to consider additions to
Annex I by 1998, and six European countries were added.
---------------------------------------------------------------------------
Obviously, developed countries have a strong interest in supporting
such a change, and Australia, for one has been pushing to introduce
such a mechanism into the Kyoto Protocol. Just as obvious, developing
countries have no incentive to agree to a more systematic and dynamic
approach not only because of what this may mean for them in the UNFCCC,
but in other U.N. and international venues as well. None of this alters
the fact that to reduce global emissions appreciably, any new
international arrangement addressing climate change must include active
participation from developing countries, especially large economies
like China and India. In this regard, the Bali Roadmap that emerged
from the UNFCCC talks in Indonesia in 2007 was promising in that
developing countries agreed to consider ``nationally appropriate
mitigation actions'' that are ``measurable, reportable, and
verifiable''. Such actions would be ``supported and enabled by
technology, financing and capacity-building'' from developed countries
(UNFCCC 2007).
It is within these broad parameters that the negotiations should be
viewed, particularly the discussions about burden sharing to achieve a
global emissions goal.
Developed countries have proposed a global goal of a 50-by-50
reduction, with developed countries kicking in an aggregate reduction
of 80% through ``comparable'' reductions by individual states.
Consistent with the concept of common but diff erentiated
responsibilities and respective capabilities, more advanced developing
countries (e.g., South Korea, Singapore, Mexico) would undertake
significant mitigation commitments, and major emitting developing and
emerging economies (e.g., China, India, Brazil, South Africa) would
reduce their emissions growth below a business-as-usual baseline.
For their part, developing countries contend that because human-
induced climate change has global impacts, the ``carbon space'' should
be shared more equitably. This carbon space represents the historical
and future amount of greenhouse gas emissions that would be consistent
with a specific (and presumably agreed upon) concentration of carbon
dioxide in the atmosphere. Citing historical responsibility, developing
countries argue that developed countries have exceeded their fair share
of the carbon space. Thus, developed countries have an obligation to go
first with emissions cuts below their 1990 level of at least 40% to 45%
by 2020 and 80% to 95% below by 2050.
The scale and transformation necessary to achieve a 40% to 45%
reduction by 2020 has received far less evaluation than the targets
themselves. In the United States, for example, no administration or
congressional proposal under serious consideration comes anywhere near
a 40% reduction by 2020. An 80% cut by 2050 would shrink the country's
``carbon footprint,'' relative to its economy and population, to levels
today seen only in countries like Haiti and North Korea.\16\
---------------------------------------------------------------------------
\16\ Based on data from the Energy Information Administration,
World Carbon Intensity--World Carbon Dioxide Emissions from the
Consumption and Flaring of Fossil Fuels Using Purchasing Power
Parities, 1980--2006 (available at: http:// www.eia.doe.gov/pub/
international/iealf/tableh1pco2.xls) and World Per Capita Carbon
Dioxide Emissions from the Consumption and Flaring of Fossil Fuels,
1980--2006 (available at: http://www.eia.doe.gov/pub/international/
iealf/ tableh1cco2.xls).
---------------------------------------------------------------------------
No other developed country is aiming for midterm targets
approaching a 40% to 45% reduction, either. The European Union has
pledged cuts of 20% by 2020 below a 1990 baseline (and allowing
international off sets) and would be willing to go as high as 30% if
other developed countries take on similar goals. Japan's new government
announced its intention of reducing emissions 25% below from the 1990
level in 2020, contingent on an international deal. Australia has set a
2020 goal of 5% to 15% below its 2000 level and would be prepared to
accept 25% if certain conditions are met as part of an international
agreement. Canada is looking at a 20% reduction from its 2006 level by
2020. New Zealand announced its intention to limit emissions 10% to 20%
below 1990 levels by provided certain conditions are met. And Russia
said it would commit to 2020 goal of a 10% to 15% reduction from the
1990 level.\17\
---------------------------------------------------------------------------
\17\ Russia's emissions in 2007 were roughly a third below 1990's
level, so its goal actually represents an increase in emissions of 29%
to 36% from 2007's level.
---------------------------------------------------------------------------
Even if developed countries could deliver steep cuts in emissions,
absent meaningful commitments by developing countries, it will be
nearly impossible to achieve signifi cant reductions in global
emissions. That is because about 80% or more of the expected growth in
global carbon dioxide emissions to 2050 is expected to occur in
developing countries, with China, India, and Southeast Asia leading the
way (figure 5).\18\
---------------------------------------------------------------------------
\18\ While much of the focus is on large emerging economies such as
China, India, and Brazil, we should not lose sight of the fact that a
great deal of emissions growth is expected to occur in other regions of
the world. Non-MEF countries, for example, could see their carbon
dioxide emissions rise by 6 gigatons between 2005 and 2050. That is
roughly equivalent to total gross carbon dioxide emissions from the
United States in 2007, a not insignificant amount.
---------------------------------------------------------------------------
Brisk economic and population growth can be expected to increase
greatly the demand for energy, primarily from fossil fuels, in
developing countries. Between 2005 and 2050, IEA expects that GDP in
China and India will grow nearly 900% and in Brazil nearly 300%.\19\
Over the same period, the world's population is expected to soar from
6.5 billion to 9.2 billion, a rise of more than 40%, with most of the
growth coming in Asia and Africa and almost none from developed
countries. Out of a projected 2050 global population of over 9 billion
people, only about 1 billion will be in OECD countries (IEA 2008).
---------------------------------------------------------------------------
\19\ Per capita GDP of developing and emerging economies, however,
will remain well below those of OECD countries.
---------------------------------------------------------------------------
These trends are expected to lead to a huge appetite for energy
that could see global demand more than double over the period, again
with the vast majority of the increase occurring in developing
countries.
To have any impact on greenhouse gas concentrations, therefore, the
developing world also must act. So what would developing countries have
to contribute to meet a 50-by-50 goal?
Let us assume that developed countries succeeded in cutting
emissions by 80% in 2050. To meet a 50% global target, total emissions
from developing countries, aft er rising for decades, would have to
peak and subsequently return to or slightly below their 2000 level
(figure 6).\20\ What is more, because developing countries will have
much larger populations 40 years hence, their combined per capita
emissions also would have to be lower than today's--and that would be
the case even if developed countries eliminated their emissions
entirely (figure 7).
---------------------------------------------------------------------------
\20\ Nationally appropriate mitigation actions that reduce
emissions below a business as usual baseline have been proposed for
developing countries. However, even if these were successful in slowing
emissions growth, at some point carbon dioxide emissions from these
countries still would have to peak and decline sharply for a 50% global
reduction to be realized.
---------------------------------------------------------------------------
Developing countries are unwilling to accept restrictions on their
development and energy use. Providing modern energy services to lift
their people out of poverty is a much more pressing need than
addressing climate change. With billions of people still lacking
electricity, developing countries are understandably loath to cap
emissions if it hampers their economic development and energy security.
Much of the energy needed to power economic growth will likely be
supplied by fossil fuels. Many developing countries sit atop large
reserves of coal, oil, and gas, and it would be naive to expect them to
forego their use in favor of more costly and less reliable energy
options.
Developing countries routinely point out that their per capita
emissions, now at approximately 2.5 tons, are generally much lower than
those in developed countries, now in the neighborhood of 11 to 12 tons.
There is a wide range of per capita carbon dioxide emissions exhibited
among developing countries. Some small developing states with large
energy intensive industries, such as refining, have per capita
emissions that are very high (greater than 30 tons), but for the vast
majority of these countries, they are under 3 tons.
At about 4 tons, China's per capita emissions from energy, like its
emissions as a whole, have experienced tremendous growth over the last
decade in step with that country's rapid industrialization.
Nevertheless, its emissions per person are still only about a third as
much as that of the average person living in a developed country.
India's emissions per capita are quite low, and it is a major
emitter largely by virtue of its sizeable population, not because its
people consume an inordinate amount of fossil fuels. Carbon dioxide
emissions for each Indian hover just over 1 ton, less than a tenth of
the developed country average.
China and India, and other developing countries, have stated
unequivocally that they are not in a position to take on legally
binding emissions reductions, especially given their low per capita
emissions. The Indian government, in particular, has said repeatedly
that as a matter of equity it will not allow its per capita emissions
to exceed the average for the developed world (Government of India
2009). Other countries have embraced this idea of a ``fair sharing'' of
the carbon space and the ``convergence'' of per capita emissions
between developed and developing countries.
But again, let us suppose that developed countries managed to slash
their dioxide emissions 80% by 2050, which would place their combined
per capita emissions at just about 2 tons per person. If every country
in the world somehow matched this remarkably low level,\21\ last seen
globally on the eve of World War II, global carbon dioxide emissions
from energy would decline to about 18.4 gigatons, an amount that is
still well above the level needed to reach a 50% global reduction
target.\22\
---------------------------------------------------------------------------
\21\ Estimates vary, but developing country per capita emissions
are expected to exceed 4 and possibly 5 tons by 2050 under various
business as usual scenarios.
\22\ Using IEA's global population projection of 9.2 billion (IEA
2008, Table B.1, Population Projections, 2005--2050). At 9.3 billion,
the U.S. Census Bureau's forecast for global population is about the
same as IEA's (see: http://www. census.gov/ipc/www/idb/worldpop.php).
With global per capita emissions at 2 tons per person, to meet a 50-by-
50 emissions target, the world's population would have to be a little
above its level in 2005 (6.5 billion people), a completely unrealistic
scenario given current population projections.
---------------------------------------------------------------------------
money talks
Although many developing countries, including China, India, Mexico,
and South Africa, have issued or plan to issue national climate action
plans, implementing a national plan is a different undertaking than
accepting a binding commitment as part of an international treaty.
Whereas developed countries are willing to off er their national plans
as a basis for a binding international obligation, the position of the
developing countries is that they are not prepared to do so.
Developing countries have been forthright in saying that their
cooperation, in addition to being nonbinding, will only come with
financial strings attached. The Convention directs Annex II Parties to
provide financial resources, including transferring technologies, to
cover the ``agreed full incremental costs'' to developing countries of
complying with various articles implementing the treaty.\23\
---------------------------------------------------------------------------
\23\ UNFCCC Article 4.3.
---------------------------------------------------------------------------
In the Bali Roadmap,\24\ developing countries agreed to consider
nationally appropriate mitigation actions ``in the context of
sustainable development, supported and enabled by technology, financing
and capacity-building, in a measurable, reportable and verifiable
manner'' (UNFCCC 2007). This language has been interpreted in various
ways, but in general, the phrase ``measureable, reportable, and
verifiable'' refers both to the nationally appropriate mitigation
actions of developing countries and the support for ``technology,
financing and capacity-building'' that developed countries are expected
to provide. The G77 China group, for example, has stressed that
nationally appropriate mitigation actions undertaken by developing
countries would be voluntary and dependent upon adequate provision of
financing.
---------------------------------------------------------------------------
\24\ Paragraph (1)(b)(ii).
---------------------------------------------------------------------------
These provisions have become fodder for all manner of demands by
developing countries on the economies of developed countries.
Developing countries are counting on huge direct transfers of wealth to
support their eff orts to mitigate emissions and fund adaptation
efforts, and it is perhaps the case that developed countries have not
done enough to temper these expectations.
China, India, South Africa, Bolivia, Colombia, among others, are
pushing developed countries to transfer anywhere from 0.5% to 2.0% of
their GDP each year to support climate change programs in developing
countries. At that rate, the contribution from American taxpayers alone
would have been $72 billion to $289 billion in 2008. Yet even that may
not be enough. A report out of the Massachusetts Institute of
Technology estimates that if developing countries are fully compensated
for their mitigation activities\25\ through a global emissions trading
scheme, the implied financial transfers from developed countries to
meet a 50-by-50 goal could amount to over $400 billion annually in 2020
and about $3 trillion in 2050 (Jacoby et al. 2008). The U.N.'s World
Economic and Social Survey 2009 suggests developing countries will need
international support to the tune of 1% of global GDP a year, currently
about $500 to $600 billion (UN 2009).
---------------------------------------------------------------------------
\25\ The MIT study did not consider transfers for adaptation.
---------------------------------------------------------------------------
It was always very unlikely that developed country governments
would agree to such vast sums in the best of times, much less in the
midst of a severe crisis in world financial markets. In any event, most
of this financing would have to come from the private sector, with
government financing serving to spur and bolster these investments.
There is a real concern that these financial flows could be used to
underwrite the modernization and competitiveness of often state-run
firms in developing countries, putting private firms at a distinct
disadvantage.
intellectual property protections under assault
The Convention also states that Annex II Parties ``shall take all
practicable steps to promote, facilitate and finance, as appropriate,
the transfer of, or access to, environmentally sound technologies and
know-how to other Parties, particularly developing country Parties, to
enable them to implement the provisions of the Convention'' (UNFCCC
1992).
Developing countries have used this provision deftly to justify
their attempts to weaken intellectual property protections, ostensibly
to remove barriers to technology transfer. Compulsory licensing and a
fund supported by developed countries to buy down intellectual property
are two of many proposals being bruited.
There is, however, no justification for the view that intellectual
property protections hinder technology diffusion. A review of the
relevant literature by researchers at Colorado College found that
intellectual property rights ``do not constitute as signifi cant a
barrier as claimed since a variety of technologies exist for reducing
emissions.'' The study also found that, ``In many cases, IPR protected
technologies are not necessarily more costly than those not covered''
(Johnson and Lybecker 2009).
All the same, developing countries continue to call for weakened
intellectual property regimes. The China/G77 group proposed treaty text
that reads: ``All necessary steps shall be immediately taken in all
relevant fora to mandatorily exclude from patenting climate friendly
technologies held by Annex II countries which can be used to adapt to
or mitigate climate change.'' The Philippines put forward the
following: ``All necessary measures and actions shall be immediately
taken to facilitate technology pools that include associated trade
secrets and know-how on environmentally sound technologies and enable
them to be accessed, including on royalty-free terms for developing
countries.'' Bolivia offered similar language, suggesting that
``nothing in any international agreement on intellectual property shall
be interpreted or implemented in a manner that limits or prevents any
Party from taking any measures to address adaptation or mitigation of
climate change, in particular the development and transfer of and
access to technologies'' (UNFCCC 2009b).
If provisions such as these are included in a final climate change
agreement, developing countries could claim the legal right to seize
the ``green'' technologies developed by American and other companies.
Without intellectual property rights, there is precious little
incentive for companies to invest in advanced technologies if after
years of research and development and millions or even billions of
dollars invested, their inventions could be expropriated outright by
companies in developing countries and manufactured and sold around the
world at reduced cost.
If their incentives are removed through what would amount to
legalized theft of their intellectual property, some of the most
innovative companies in the developed world would simply abandon the
development of clean energy technologies. U.S. negotiators were joined
by their colleagues from Europe, Japan, and other developed countries
in declaring that any weakening of intellectual property would be a
deal-breaker.
a green trade war?
Just as worrisome as the assault on intellectual property rights
are threats by some developed country governments to engage in
protectionist practices to avoid ``carbon leakage''--that is, the
movement of energy-intensive industries, and thus their carbon dioxide
emissions, to other countries. Many developed country governments,
including the United States and the European Union, are considering
imposing border adjustments on goods coming from nations that do not
take on comparable commitments. (Remember, under the principle of
common but differentiated responsibilities, developing countries are
not expected to take on similar commitments.)
H.R. 2454, The American Clean Energy and Security Act of 2009,
includes border adjustment measures that would impose carbon tariff s
on goods imported from countries that, as determined by the government,
have not adopted restrictions on emissions similar to those in the
United States. The tariff would take eff ect in 2020 and fall on
imports of carbon-intensive products, such as cement and steel.
These kinds of proposals are counterproductive. They do little to
raise the level of trust between the developing and developed
countries, and they are unnecessary if an international agreement
eventually is reached. The U.S. proposal earned swift rebukes from
China and India, both of whom object to putting up trade barriers under
the guise of protecting the climate, and they have proposed treaty text
that would prohibit the use of carbon tariffs.
One expects a little gamesmanship as the negotiations progress, but
threats of trade sanctions set a dangerous precedent and--
notwithstanding a recent World Trade Organization (WTO) and U.N.
Environment Programme report (WTO/ UNEP 2009)--could violate WTO rules
if put into practice.\26\ At the very least, border adjustments would
inevitably invite retaliation and incite a green trade war, and because
no one wins a trade war, warnings of carbon tariffs have little value
as negotiating leverage. Moreover, these types of proposals stand in
stark contrast to the commitment made by the G20 countries in April
2009 to ``refrain from raising new barriers to investment or to trade
in goods and services'' (Wenk & Westerman 2009).
---------------------------------------------------------------------------
\26\ The WTO/UNEP report states: ``The general approach under WTO
rules has been to acknowledge that some degree of trade restriction may
be necessary to achieve certain policy objectives, as long as a number
of carefully crafted conditions are respected.'' However, the report
also includes a disclaimer that ``opinions refl ected in this
publication are the sole responsibility of the World Trade Organization
(WTO) Secretariat. Th ey do not purport to refl ect the opinions or
views of Members of the WTO.'' The 153 Members of the WTO have varied
views on the relationship between trade rules and climate change, as
seen in recent warnings by China and India.
---------------------------------------------------------------------------
It is important that the international climate negotiations not be
used as an excuse to erect barriers to free and open trade, or as a way
to gain competitive advantage or redistribute wealth. The WTO, not the
UNFCCC, is the appropriate forum for intellectual property and trade
discussions. Instead of raising barriers, governments should be
pursuing the elimination of tariff and nontariff barriers to
environmental goods and services to lower their costs and increase
global access of clean energy technologies.
In a more constructive vein, developed countries have proposed the
idea of sectoral approaches focused on specific industries (e.g.,
steel, refining, and cement) as a way to ease competitiveness concerns,
motivate action in developing countries, and bring them into
international carbon markets (other than the market for offsets).
There are many different sectoral proposals being considered. Under
sectoral crediting, a developing country could set a specific
improvement in emissions intensity for a sector that if exceeded would
generate internationally-tradable credits. If the sector failed to meet
the target, no penalty would apply. Under sectoral trading, a
developing country would commit a sector to an emissions cap for which
it would receive tradable credits.
While promising, sectoral approaches are not without their
detractors, and as with many other proposals, the devil is in the
details. There is, for example, a real concern that sectoral agreements
could be structured in such a way that the primary beneficiaries would
wind up being ineffi cient state-run enterprises that dominate many
industrial sectors in developing countries.
Sectoral agreements could be very difficult to reach given both the
number of Parties involved and the almost complete lack of any mention
of sectors in either the Convention or the Kyoto Protocol, both of
which emphasize country-wide engagement.\27\
---------------------------------------------------------------------------
\27\ The exceptions being forestry, shipping, and aviation.
---------------------------------------------------------------------------
Moreover, with but a few exceptions--notably South Korea and
Mexico--developing countries have shown little interest in sectoral
approaches, especially if doing so would involve binding commitments.
whither now?
Every delegation sitting around the U.N. negotiating table
understands these numbers and their implications, so it is little
wonder that the Parties are so far apart. It is one thing to achieve
50-by-50 in a computer model, quite another in the real world. The
focus on an unenforceable target and timetable has made an already
difficult negotiation that much more difficult by creating expectations
that both developed and developing Parties are seemingly unprepared to
fulfill.
As a practical matter, any long-range numeric goal makes
assumptions about the pace of technology development and diffusion, an
inherently unpredictable process. At its most fundamental level,
reducing carbon dioxide emissions from energy is a technology challenge
that, as a 2002 article in Science famously noted, ``cannot be simply
regulated away'' (Hoffert et al. 2002). Neither can it be negotiated
away.
A 50-by-50 vision also takes for granted a degree of burden sharing
that developing countries are not willing to accept, and that in turn
compels unreasonable demands for assistance from developing countries.
Even under the rosiest scenarios that include deep emissions cuts in
developed countries, 50-by-50 still implies large emissions cuts by
developing countries at some time in the future that in their view
poses a threat to their industrial development. Right now, there is
little reason for them to accept any sort of reduction commitment,
binding or otherwise, without wealth and technology transfers worth
hundreds of billions, and perhaps rising to trillions, of dollars each
year.
The top-down approach embodied in the Kyoto Protocol is seriously
flawed, and it is unlikely to supply the vehicle for a new,
comprehensive international agreement. What is needed instead is a
long-term vision that motivates and provides direction for national and
regional co-operative activities, takes into account emerging science
and technology development and turnover, recognizes growing energy
needs, ensures the broadest participation, and does not undermine
economic growth.\28\
---------------------------------------------------------------------------
\28\ For more on the Energy Institute's principles for a sound
international agreement, see Harbert, K. 2009.
---------------------------------------------------------------------------
An agreement that focuses on technology offers a path forward that
developed and developing countries can embrace. How rapidly advanced
energy technologies develop and are adopted commercially will be the
most important factor in determining how quickly and at what cost
greenhouse gas emissions can be reduced. Existing technologies can make
an important contribution, but they alone are not capable of signifi
cantly reducing greenhouse gas emissions on a global scale and at an
acceptable cost. New and in some cases revolutionary energy
technologies, many still years if not decades over the horizon, will
have to be developed and adopted commercially along with the
infrastructure to support them. But there is a great deal of
uncertainty about how fast, or even if, these technologies will
progress.
An accelerated program to improve the performance and lower the
costs of advanced alternate energy technologies can, if successful,
broaden the range of economically and politically viable policy options
available to decision makers. National and international climate policy
should concentrate on supporting greater energy efficiency and
commercialization of all low-emitting technologies for energy supply,
including nuclear power.
Developed and developing countries alike must make a larger
commitment to technology development worldwide. Together, the United
States and Japan account for an estimated 80% of all energy research
and development spending by national governments. That has to change.
Research and development into the next generation of potentially
transformational energy technologies needs a substantial boost in
funding, and the Energy Institute has recommended doubling the federal
budget for advanced energy technologies.
A successful new agreement, then, should promote new partnerships
involving developed, emerging, and developing countries and the private
sector that create opportunities for technology co-operation, public-
private partnerships, innovative financing, and capacity building.
With a clear stake in the process, developing country governments
can be convinced that intellectual property protections are in their
interests as well as ours. Their businesses already know this--from
less than 5% of patents in 1998, emerging economies now account for
roughly 20% of patents worldwide (Copenhagen Economics 2009).
To be effective in reducing greenhouse gas emissions, a new
arrangement should include realistically ambitious commitments by all
countries in keeping with the principle of ``common but differentiated
responsibilities and respective capabilities.'' Large developing
economies, like China, India, and Brazil, must be a part of any new
international accord for it to be credible. This is not to say that we
should expect developing countries to take on commitments similar in
scope to developed countries. While the character of the commitments in
developing countries should be similar to those in developed countries
in terms of ambition, the content of those commitments could be quite
different depending on national circumstances.
The emphasis, therefore, should be on co-operation to assess the
mitigation potential of different countries and develop cost-effective
action plans that are ``measurable, reportable, and verifiable.'' A
bottom-up approach that recognizes the results of domestic, bilateral,
and multilateral activities and incorporates sufficient leeway to
permit new ideas and approaches to be introduced as they emerge is one
that could garner a broad support. It is also important that these
commitments evolve as economic circumstances change.
Governments also should be taking take steps outside of the
Framework Convention to overcome barriers to technology transfer and
commerce. Eliminating tariff and non-tariff barriers to environmental
goods and services should be pursued vigorously to lower costs and
increase global access of clean energy technologies. Although WTO, not
UNFCCC, is the appropriate forum for these discussions, it is an
example of how the international discussion on climate change can
catalyze action in other areas.
In addition, the energy supply sectors in many countries suffer
from extensive and lengthy regulations that delay new energy projects.
National governments also can ensure that energy projects move ahead
with greater predictability by streamlining siting, permitting, and
other regulatory requirements. It is inexplicable that governments have
not taken these relatively simple but extremely effective steps.
Finally, the range of voices in the negotiations needs to be
expanded. To get a workable agreement, the energy, industry, and
finance ministries must get fully engaged. It is these ministries,
after all, that will be responsible for implementing key aspects of any
agreement. Governments also should recognize and embrace business
engagement so the international process can take better advantage of
the range of technical expertise that business can provide.
At the end of the day, all the ``modalities'' and ``frameworks''
erected in these negotiations cannot ward off failure if the vision is
not realistic--unreasonable expectations only breed unreasonable
demands and finger-pointing. Business needs a predictable environment
in which to operate and plan, and it would welcome an ambitious
international climate change agreement. But that ambition needs to be
tempered with a healthy dose of pragmatism. A realistic vision focused
on technology that encourages cooperation, not confrontation, would be
a good place to start.
The Chairman. Thank you very much.
Mr. Colvin.
STATEMENT OF JAKE COLVIN, VICE PRESIDENT FOR
GLOBAL TRADE
Mr. Colvin. Thank you very much, Mr. Chairman. Thank you,
Senator Murkowski. I'm honored to be here today and we welcome
the commitment of Congress and the administration to address
the urgent problem of climate change. We particularly welcome
the attention of this committee to the international aspects of
climate policies.
The National Foreign Trade Council is the country's oldest
trade association devoted specifically to international trade
and tax policies. I'm proud to say that a number of our member
companies have been leaders in addressing climate change
through their business practices, partnerships, and advocacy
efforts.
NFTC broadly supports efforts to reduce U.S. emissions, as
well as an international framework agreement. But the council
does not take a position on comprehensive climate legislation,
which addresses issues beyond our mandate and expertise. We
focus only on the aspects of climate policies which are likely
to impact the global economy. I would like to concentrate on
two of those issues here today. First is the importance of a
robust green trade component of U.S. climate policies and the
second is to put a finer point on some of the things that my
fellow panelists have said, the danger of imposing new carbon
tariffs.
Efforts to expand overseas markets for U.S. climate
technologies will be critical for creating new green collar
jobs. While the United States is the largest consumer, one of
the largest consumers, of green goods and services today,
demand growth has slowed in recent years. Overseas markets
offer significant potential for U.S. businesses. U.S. exporters
face high tariffs and other obstacles to green exports.
Reducing these hurdles would allow U.S. companies to capture a
larger share of the $600 billion environmental goods and
services market. In addition, the World Bank notes that it is
widely accepted that trade liberalization would benefit the
environment.
But thus far green trade has not received a great deal of
attention in the international climate discussions. Given its
environmental importance, we hope that the administration and
Congress can work together to advance cooperation on these
issues, not only in economic forums but in relevant
international climate forums, including the U.N. FCCC and the
Major Economies Forum.
Two issues that have received a great deal of attention in
international climate discussions are intellectual property
rights and financing. My colleague Karen has noted, IP rights
are important to the U.S. economy as well as to the development
of new energy solutions and environmental technologies. This is
why proposals at the U.N. FCCC that would weaken the value of
intellectual property assets are so troubling. We commend the
administration and Congress for their continued strong support
of global intellectual property rights protection and we would
urge your continued vigilance as the negotiations progress.
I think it's equally important, though, to note that the
United States should support robust financing mechanisms, and
getting this pillar right is critical to the success of
international climate negotiations. It will also create new
markets for U.S. exports. Overall, an aggressive strategy to
promote green exports and innovation would complement the
administration's goal of rebalancing the global economy.
I think green trade also presents a unique opportunity for
Congress and the President to work together toward objectives
that ought to attract strong bipartisan support.
Given the increasing reliance on exports to grow the U.S.
economy, it is essential to avoid measures which could make it
more difficult for American businesses to succeed in the global
economy. We are particularly concerned about the potential for
carbon tariffs in U.S. cap-and-trade legislation to encourage
retaliation from U.S. trading partners and the potential to
ignite a global green trade war.
This concern is shared by a number of U.S. industries,
including some of the sectors which are most likely to be
affected by U.S. climate policies. For example, the Farm Bureau
has testified that carbon tariffs are in serious jeopardy of
being found to be noncompliant with our WTO obligations and
that they could very likely lead to retaliation. The American
Forest and Paper Association has written that a border tax is
highly imperfect and should be avoided. The U.S. chemical and
aluminum industries have expressed similar concerns.
Increasingly, other countries are also raising the
possibility of using green tariffs against the United States.
If Congress legitimizes carbon tariffs through U.S.
legislation, it will become more difficult to argue against
their use by others.
Imposing green tariffs also threatens to cause diplomatic
tensions which will make it more likely to cooperate on
environmental initiatives with developing countries, I think as
already mentioned.
For all of these reasons, we share the skepticism expressed
by President Obama to border measures. At the same time, we
appreciate the need to address legitimate political and
economic concerns and ensure the passage of U.S. climate
legislation. So if a border adjustment mechanism is to be
contemplated in U.S. legislation, we believe it is essential
that any provision provide complete authority and discretion to
the President to determine if and when such a measure should
apply. We think it will also be important to design a measure
in a way that recognizes steps that other countries, and even
overseas individual firms, are taking to reduce their carbon
footprint.
To conclude, an aggressive and innovative green trade
policy can assist efforts to advance U.S. economic priorities
as well as environmental goals, but attempts to impose new
green tariffs could harm both.
Thank you very much for the opportunity to share our views.
[The prepared statement of Mr. Colvin follows:]
Prepared Statement of Jake Colvin, Vice President for Global Trade
Mr. Chairman, Thank you for the opportunity to testify before the
Committee. We welcome the commitment of Congress and the Administration
to address the real and urgent problem of climate change. We
particularly appreciate your efforts to highlight the international
aspects of climate policies.
The National Foreign Trade Council (NFTC) is the country's oldest
and largest trade association devoted specifically to international
trade and tax policies. Our members are global companies doing business
in virtually every country on earth. The NFTC supports an open, rules-
based trading system, promotes international tax policies that
contribute to economic growth and job creation, and opposes unilateral
economic sanctions.
Given our focus on international economic issues, the Council does
not take a position on specific legislative approaches to climate
change. While we broadly support targets to reduce U.S. emissions and
an international framework agreement to put countries on low emissions
pathways, comprehensive climate legislation addresses issues beyond our
mandate and expertise.
I am proud to say that a number of NFTC's member companies have
been leaders in addressing climate change through their business
practices, partnerships and advocacy. For example,
ExxonMobil is a leader in the development and use of
component technologies essential for carbon capture and storage
(CCS), which represents an important opportunity for reducing
global emissions.
GE is on track to double its R&D in its ecomagination
products to $1.5 billion by 2010 and has reduced the intensity
of its greenhouse gas by 41 percent since 2004--surpassing its
own goal of a 30 percent reduction.
Procter & Gamble has doubled its 2012 reduction targets for
greenhouse gas emissions, waste generation and water and energy
consumption and recently unveiled the activation of a 1.1
megawatt photovoltaic solar system at its paper products
manufacturing plant in Oxnard, California.
Wal-Mart has outlined a series of aggressive goals and
expectations with leading suppliers, officials and NGOs in
China to improve energy efficiency, use of natural resources,
transparency and compliance with environmental laws.
In addition, a number of NFTC's member companies have partnered
with organizations such as Conservation International and the World
Wildlife Fund on projects to reduce voluntarily their carbon footprint
and conserve resources. Others have expressed views about U.S. climate
policies on their own or through organizations such as the Business
Roundtable, which just released a report outlining its views on a
sustainable climate and energy policy, and the United States Climate
Action Partnership (USCAP), in which nine of the Council's board
companies participate.
The Council focuses only on the aspects of climate policies which
are likely to impact the global economy, relations with U.S. trading
partners, and the international competitiveness of our member
companies. I would like to concentrate today on two issues related to
international economic aspects of climate change:
First, the United States has an opportunity to further U.S.
economic growth and global environmental goals by more fully
incorporating a green trade component into the U.S. climate
agenda.
Second, addressing competitiveness concerns in U.S. climate
legislation presents a serious challenge for policymakers.
There is a danger that well-intentioned and politically popular
measures such as carbon tariffs could threaten U.S. export
markets and undermine global environmental cooperation.
promoting u.s. green jobs and clean technology development and
deployment
The Administration and Congress can promote green jobs at home and
advance global environmental objectives by incorporating a more robust
green trade component into the international climate agenda.
Expanding overseas markets through green trade
In particular, efforts to expand overseas markets for U.S. climate
technologies by reducing trade barriers is critical for creating new
green collar jobs in the United States and can aid global climate
goals.
Future growth of the U.S. clean energy economy will depend on
access to foreign markets. While the United States is among the largest
producers and consumers of green goods and services today, demand
growth has slowed in recent years. Demand for environmental goods and
services is growing rapidly in developing countries, which offer
significant opportunities for U.S. companies.
U.S. exporters face disproportionately high tariffs and other
obstacles to selling environmental goods and services like wind
turbines and solar panels abroad. In fast-growing developing countries
such as China and India, tariffs can be as high as 40 percent. In some
instances, non-tariff measures such as preferential government
procurement policies and foreign investment restrictions present even
larger obstacles for U.S. businesses. Reducing these impediments would
allow U.S. companies to capture a larger share of the more than $600
billion environmental goods and services market, which is growing at
twice the rate of all trade.
Removing green trade barriers can also help the environment. The
World Bank notes that, ``it is widely accepted that trade
liberalization of [environmental goods and services] would benefit the
environment by contributing to lowering the costs of goods and services
necessary for environmental protection, including those beneficial for
climate change.'' Research also suggests a link between more green
trade and improved environmental quality.
Thus far, green trade has not received a great deal of attention in
international climate negotiations despite the clear environmental
benefits. While the United States has proposed an Environmental Goods
and Services Agreement as part of the Doha Development Round of trade
negotiations under the World Trade Organization (WTO), progress has
been slow.
Given the economic and environmental importance of green trade, we
hope that the Administration and Congress can work together to identify
additional channels to advance cooperation on these issues, including
through the Major Economies Forum and the United Nations Framework
Convention on Climate Change (UNFCCC).
Earlier this year, NFTC partnered with eight other leading U.S.
business associations to call on the President to elevate the priority
of lowering green trade barriers and to pursue a green trade agreement
``through all appropriate international economic and environmental
forums.'' A copy of the letter is attached to this testimony.
Improving global frameworks to encourage the development and deployment
of U.S. clean technologies
Two issues that have received a great deal of attention in
international climate discussions are intellectual property rights and
financing. Ensuring the global protection of intellectual property
rights and addressing funding and capacity needs in developing
countries will promote investment environments abroad that are better
able to adopt and develop clean technologies.
The intellectual property rights system--and predictable
enforcement of those rights overseas--helps spur innovation and
economic growth across all sectors of the U.S. economy. Importantly,
the system promotes the development of new energy solutions and
environmental technologies needed by communities around the world to
address global warming. Given the importance of IP protection for
promoting innovation and developing clean technologies, proposals in
the UNFCCC negotiations that seek to weaken the value of intellectual
property assets are troubling. We commend the Administration and
Congress for their strong and continued support for global intellectual
property rights protection.
While it is essential to protect and reward U.S. innovation, it is
equally important for the United States to support robust financing and
assistance mechanisms to ensure that developing countries can develop
the capacity to address climate change and adopt clean technologies.
Financing is an important pillar on which success of the UNFCCC
negotiations will hinge, and can help secure strong actions from
developing countries. Getting it right--in terms of adequate public
funding, proper mechanisms and reporting requirements, and targeting
public funds to create enabling environments that will attract private
capital and investment--is critical. Investing in the development of
overseas capacity for clean energy technology will help accelerate the
reduction of global emissions and create new markets for U.S. products
and services.
Promoting sustainable economic policies
An aggressive strategy to promote green trade and innovation would
complement the goal of rebalancing the global economy that President
Obama and other world leaders established at recent G-20 forums. As
President Obama said prior to his recent trip to Asia, a new global
growth strategy will be ``one in which prosperity around the world is
no longer as dependent on American consumption and borrowing, but
rather more on American innovation and products.'' Future U.S. job
growth will rely increasingly on tapping higher demand from overseas
markets, particularly from China and other advanced developing
countries.
Green trade also presents a unique opportunity for the President
and Congress to work together on a bipartisan basis and restore a
common purpose to U.S. trade policy. Policies aimed at opening markets
for U.S. clean technologies, protecting and promoting innovation, and
providing high-quality financial assistance to developing countries
ought to attract strong bipartisan support.
addressing competitiveness concerns
As Congress seeks to address competitiveness and carbon leakage
concerns from implementing an emissions reduction program, one popular
option--the use of border adjustment measures--could damage the ability
of American companies to compete in key markets and global
environmental cooperation. Given the increasing reliance on exports to
grow the U.S. economy and create new jobs, it is essential to avoid
introducing measures which could cause unnecessary friction with U.S.
trading partners.
Avoiding a green trade war
One concern is the compatibility of border adjustment measures with
global trade rules. Although border measures are not inherently
incompatible with trade rules, the WTO notes that, ``a connection must
be established between the stated goal of the climate change policy and
the border measure at issue'' and ``the measure must not constitute a
``means of arbitrary or unjustifiable discrimination'' or a ``disguised
restriction on international trade.'' As a result, according to Jeffrey
Frankel of Harvard University, ``border measures to address leakage
need not necessarily violate the WTO or sensible trade principles, but
there is a very great danger that in practice they will.''
The House-passed American Clean Energy and Security Act is
particularly troublesome in this regard. By establishing a mandatory
international reserve allowance program and requiring Congress to
approve a joint resolution to turn it off, the House of Representatives
introduced a political element into the decision-making process. U.S.
trading partners will argue that such a program is as likely to be
fueled by a desire to protect domestic industry as by an interest in
protecting the environment.
While NFTC believes that the free allowances contained in current
legislative proposals could also be scrutinized for their compatibility
with global trade rules, the reality is that these allocations are less
likely to disrupt the global trading system or cause conflict with U.S.
trading partners. One reason is that most countries contemplating
emissions reduction programs include free allowances in their plans and
will be reluctant to challenge similar efforts by others. Trade expert
Gary Horlick also pointed out earlier this year in testimony before the
Senate Finance Committee that, ``import restrictions are much more
likely to be challenged in the WTO than is financial assistance to
producers, such as offsetting costs or giving away permits.'' In
practice, countries are bothered more by tariffs than financial
assistance.
Regardless of whether it is possible to design a provision that
complies with global trade rules, it is not in the economic or
environmental interest of the United States to rely on border
adjustment measures. They have already been met with fierce resistance
by developing countries such as China and India. Border measures are
likely to encourage retaliation from U.S. trading partners and will
make it more difficult for American businesses to succeed in the global
economy.
Concerns about the impact of border measures on the global
competitiveness of U.S. businesses and workers have led many industries
to oppose them, including some of the sectors projected to be most
heavily affected by climate legislation. Associations representing the
forest, chemical and aluminum industries, along with the American Farm
Bureau Federation, have all expressed skepticism about their utility.
For example:
The American Chemistry Council said in a September statement
that, it ``does not support policies that aim to address
emissions leakage by imposing border taxes or some other trade-
related cost adjustments.''
The American Farm Bureau Federation has testified that,
``Provisions such as those contained in the House bill
effectively imposing border tariffs on goods from countries
that do not have similar GHG restrictions will almost certainly
be challenged in the WTO and are in serious jeopardy of being
found to be non-compliant with our obligations. Moreover, such
actions could very likely lead to retaliation.''
In August, the American Forest & Paper Association wrote in
a statement to the Senate Finance Committee that, ``a border
tax or other border measures are highly imperfect, will have
their own negative repercussions, and should be avoided.''
Stephen Larkin, President of the U.S.-based Aluminum
Association, observed recently that, ``We believe that border
adjustments are not useful.''
Increasingly, other countries are also raising the possibility of
using a border tariff against the United States if Washington fails to
pass climate legislation or U.S. targets are seen as too weak. If
Congress legitimizes carbon tariffs through U.S. legislation, it will
become more difficult to argue against their use by U.S. trading
partners.
In short, border measures threaten to ignite a green trade war and
diminish the President's authority and ability to rebalance the global
economy.
Balancing U.S. political interests with international environmental
goals
Imposing a cost on certain imports into the United States through a
border adjustment measure or carbon tariff is also unlikely to advance
U.S. environmental goals. Doing so could have a negative effect on
relations with key developing countries whose participation in an
international agreement is essential to addressing global climate
change.
One problem is that a carbon tariff is a blunt instrument, at least
as it has been conceived in U.S. legislation thus far. Carbon tariffs
would likely apply equally to imports from energy-efficient facilities
and carbon-intensive producers from a target country. This blanket
application does not provide the kind of incentive to foreign producers
to become more energy efficient that would encourage a reduction in
carbon emissions.
More broadly, imposing green tariffs would likely cause diplomatic
tensions that will make it more difficult to cooperate on important
environmental initiatives with key developing countries.
For all of these reasons, we share the skepticism expressed by
President Obama to border measures in June. In order to create a level
playing field for manufacturers, the President said that, ``there may
be other ways of doing it than with a tariff approach.''
Although we are skeptical about the utility or necessity of
including carbon tariffs in U.S. climate legislation, we appreciate the
need to address legitimate political and economic concerns to ensure
the passage of climate legislation in the United States.
If a border adjustment mechanism is to be included in U.S. climate
change legislation, it is essential that any provision provides
complete authority and discretion to the President to determine if and
when it should apply. It will also be important to design a measure in
a way that recognizes steps that other countries are taking to green
their economies, particularly in the context of an international
framework agreement on climate change. We would also encourage Congress
to consider whether it is feasible to design a measure in such a way
that provides incentives for foreign companies to green their
production. Carbon tariffs should not be applied either to countries
which are taking nationally-appropriate steps to combat climate change
or to imports of goods from overseas facilities, wherever located, if
those individual facilities haven taken steps to lower their greenhouse
gas emissions on their own.
conclusion
Aggressive and innovative green trade policies can assist efforts
to advance U.S. economic priorities and environmental goals, but
attempts to impose new tariffs could harm both. As General Electric's
CEO Jeffrey Immelt wrote earlier this year, ``Renewing American
competitiveness will not be accomplished through protectionism, but by
rebuilding American technology, manufacturing and exports.'' Efforts to
open markets abroad for U.S. businesses and workers in the clean
technology arena will be essential to rebalance the global economy and
create the next generation of green manufacturing jobs in the United
States. Thank you for the opportunity to share our views.
attachment.--letter to the president
Washington, DC, July 30, 2009.
Hon. President of the United States,
The White House, 1600 Pennsylvania Avenue, NW, Washington, DC.
Dear Mr. President: We write to express our appreciation for your
commitment to lower trade barriers to environmentally-friendly goods
and services, which would result in important benefits for the U.S.
economy and to global climate change efforts. We strongly urge you to
pursue a swift conclusion of a comprehensive Environmental Goods and
Services Agreement through all appropriate international economic and
environmental forums.
Lowering trade barriers on green goods and services would be good
for the environment and the U.S. economy. The World Bank notes that,
``it is widely accepted that trade liberalization of [environmental
goods and services] would benefit the environment by contributing to
lowering the costs of goods and services necessary for environmental
protection, including those beneficial for climate change.'' U.S.
businesses and workers would also benefit from the removal of
disproportionately high tariffs and non-tariff barriers that U.S.
exporters face on green goods and services in a large and rapidly
growing export market. Lowering trade barriers would help create the
green jobs that will accelerate recovery of the U.S. economy.
We urge you to use all possible channels to pursue an agreement to
reduce or eliminate trade barriers on environmental goods and services.
While the Doha Development Round of trade negotiations under the World
Trade Organization (WTO) is one appropriate forum, we believe the
combined economic and environmental benefits of an agreement warrant
the exploration of alternative or complementary efforts. We hope you
will investigate the feasibility of either a plurilateral agreement at
the WTO or the initiation of negotiations via another forum, balancing
the need to capture a significant portion of environmental trade and an
ability to enforce commitments with a framework that is flexible enough
to permit the rapid conclusion of a deal. We believe that either the
Forum on Asia Pacific Economic Cooperation (APEC) or the Organization
for Economic Cooperation and Development (OECD), which have initiated
important work on reducing barriers to green goods and services, could
serve as the basis for interim commitments in advance of an agreement
at the WTO.
We also encourage you to introduce the consideration of avoiding
and eliminating barriers to green trade into international climate
change discussions. While an environmental forum is not the appropriate
venue for negotiating a trade agreement, international climate
discussions--for example at the United Nations, in the Major Economies
Forum and in bilateral and regional forums--should reflect the
importance of lower trade barriers in delivering clean technologies to
developing countries. As international climate change negotiators seek
to agree upon a range of policies to help developing countries finance
and adopt clean technologies, promoting the utility of lowering trade
barriers on green goods and services should be a key component of a
U.S. approach. This approach should also facilitate the deployment of
technology while preserving in full the incentives for U.S. companies
to invest in the development of new solutions. Promoting trade and
protecting Intellectual Property rights in green technologies are of
paramount importance if we are to enable the creation of new solutions
to climate change and green jobs in the United States.
It is equally vital for domestic efforts to recognize the
importance of lowering trade barriers. Thus far, congressional efforts
to provide a framework for exporting clean technology, for example
through the American Clean Energy and Security Act of 2009, have failed
to include any mention of global trade in environmentally-friendly
goods and services. Emphasizing the importance of an international
environmental goods and services agreement in domestic legislation
would enhance legislative efforts to deliver clean technologies to the
developing world. We hope that you and your Administration will work
with Congress to generate clear signals of support for lower trade
barriers, which can help to reinforce a positive message on lowering
green tariffs to the international community.
We look forward to working with you to amplify and support your
efforts to achieve an Environmental Goods and Services Agreement in the
coming months. Thank you for your consideration of these comments.
Sincerely,
Business Council for Sustainable Energy, Coalition
of Service Industries, Emergency Committee
for American Trade, Information Technology
Industry Council, National Association of
Manufacturers, National Foreign Trade
Council, Organization for International
Investment, Retail Industry Leaders
Association, United States Chamber of
Commerce.
The Chairman. Thank you and thank you all for your
testimony. Let me ask a few questions.
Ms. Smith, one of the talking points that we hear a lot
here in the Congress is that it doesn't matter what we do about
climate change, the Chinese are building another couple of
coal-fired powerplants every week and that's sort of the way
things are going. Sometimes the talking point says they're
building one a week, sometimes the talking point says they're
building two.
You testify--in your testimony you indicate that they're
shutting down coal-fired powerplants. Could you maybe give us
your best opinion or advice or expertise on what are the facts?
Are they adding to the production of electricity from coal-
fired plants? Are they moving away from that? What's happening?
Ms. Smith. Thank you, Senator. They're doing both. So
China's share of world coal use is about over 40 percent and
it's continuing to rise. Coal now provides 70 percent of
China's energy and almost 80 percent of its electricity. They
have the project which shuts down dirty smaller coal-fired
powerplants while they're building new, more innovative ones.
So China's coal fleet right now is actually more efficient than
the U.S. coal fleet when you look at it overall.
The idea is that----
The Chairman. On a net basis, is there a way to say that
they are increasing or decreasing emissions from coal-fired
powerplants as we move ahead?
Ms. Smith. On a net basis, I think right now you would say
that they are increasing. But at the same time, they've also
taken some significant steps to really clean up their projects.
So right now China has the most advanced coal-fired powerplant
projects in the world, including GreenGen, which is the most
forward-leaning CCS project in the world.
The Chairman. Mr. Colvin, let me ask you a question about--
you talked about green trade and green tariffs, the advantages
of not having these kinds of tariffs or barriers to trade. This
latest--this announcement a week or two ago that a Chinese firm
is going to build a very large wind-fired--wind-powered farm
there in West Texas, I believe, my understanding of that is
that they are doing that as a joint venture with some U.S.
companies and they are insisting that all of the turbines that
would be used at that wind farm would be Chinese manufactured.
Is that something that should concern us, if you have
financing coming in to underscore or underwrite the costs of
projects in this country with restrictions on what kinds of--
where the manufactured equipment that is going into those
projects needs to come from?
Mr. Colvin. Thank you, Senator. I'm unfamiliar with the
example that you've just provided, but I think as you described
it it should certainly concern us. I think it underscores the
difficulty, but also the opportunity, to work with China.
I think as Taiya explained in her testimony, our markets
are relatively open to foreign investments. The Chinese market
is not necessarily. So while China has embarked on clean energy
policies as a national strategy, we haven't done much on the
trade side and on the investment side in terms of collaboration
with China and other countries of late to open up markets for
our technologies, for our goods, for our services.
So I think there are a couple of components here. The first
is a robust offensive, aggressive U.S. trade policy. When we
enter into a negotiation with China, with other countries, for
example to lower or eliminate barriers on environmental goods
and services, we get to lower barriers in China. Since our
barriers are already low, we get to enter into a negotiation
and help to remove barriers in their countries.
I think another thing that's important is something that
Taiya alluded to, which is that we need to set up standards
that are transparent, that are nondiscriminatory, that do not
advantage one particular country's products or firms or
technologies versus another. When American firms can compete on
a level playing field and the process is transparent, I think
that's better for all of us.
The Chairman. Let me ask one more question here in my
remaining 6 seconds. Mr. Purvis, could you just briefly
describe what Europe is doing in recognizing this deforestation
as a legitimate offset? To what extent does it figure into
their ETS, emissions trading scheme?
Mr. Purvis. Senator, as you may know, Europe was one of the
more skeptical parties in the Kyoto negotiations about the idea
of including forests in climate agreements and in their
domestic or regional climate policy. So in the early phases of
the European emissions trading system there's a very limited
role for forests. In fact, it's largely squeezed out.
But Europe has made it clear, the European Union has made
it clear, that if there is an agreement, a global agreement
that includes forests, they will allow those forests into the
next phase of the European emissions trading system and that
they will adopt the rules that are negotiated internationally.
So they've turned the corner.I think they have much greater
confidence that these emissions reductions can be measured and
verified, and they are willing to allow them in on the basis of
a global agreement.
Some European countries are leading--Norway is an example.
Norway has pledged over a billion dollars of funding to help
countries like Brazil and Indonesia, even countries where
deforestation is not currently a problem, but where the threat
of deforestation exists, such as Guyana; and it is really
showing what can be done by engaging with these countries.
Brazil's deforestation is now down remarkably, well over 50
percent from its high in 2005. Brazil has pledged to reduce
deforestation in the Amazon region 80 percent by 2020 compared
to its high water mark, and has now in just this last couple of
days put forward a national economy-wide emission reduction
goal that is over 30 percent.
In Indonesia, the president of Indonesia recently in the
margins of the recent General Assembly summit in New York
pledged that Indonesia's emissions, most of which come from
deforestation, would be reduced over 20 percent by 2020, and
with international financial assistance 40 percent.
So Europe is encouraging this leadership by developing
countries.
The Chairman. Thank you very much.
Senator Murkowski.
Senator Murkowski. Thank you, Mr. Chairman.
This handful of countries, notably China, France, and
Japan, have expressed some degree of support, or at least had
discussion about, a carbon tax. As we listen to all of you this
morning, you raise the issues of trade certainty within the
business community. I throw this out to any of you to discuss
the merits of a possible carbon tax as opposed to a cap-and-
trade type of a system and just how it interrelates at the
international level.
Ms. Harbert. Thank you, Senator.
Senator Murkowski. Ms. Harbert, if you could lead off.
Ms. Harbert. I'll address what I think are the
characteristics that might differentiate the two. If you employ
a carbon tax, you reduce the volatility associated with cap-
and-trade. There's a sure price, obviously, on carbon. It's a
more transparent system and I think that that bears a lot of
value in today's very uncertain market, that there's a very
transparent way of doing it.
We have to look at how you could actually include offsets,
because in any scheme, whether it's cap-and-trade or a carbon
tax, as noted by I think Dr. Levi, that EPA itself said that
without offsets the price for reductions would be 89 percent
higher. So we're clearly going to have to think a lot more
creatively than we currently are so that we can actually
demonstrate the leadership that you referenced in your opening
remarks, which is to show the developed and developing world
that you can grow your economy and be good stewards of the
environment at the same time. By emphasizing other approaches
and different suites of technologies and different financial
incentives and reducing tariff barriers around the world,
there's a way to do this that's not disruptive.
I think all options should be on the table, whether it's
cap-and-trade or a carbon tax. They each have different merits
and they shouldn't be just immediately written off the table.
Senator Murkowski. Mr. Purvis, then Mr. Levi.
Mr. Purvis. Senator, I agree that a number of policy
options should be considered by the Senate. Internationally,
the momentum is toward cap-and-trade and away from taxes. So
what we see in the European Union is that they've extended
their cap-and-trade system through 2050 and they've also
expanded the share of the European economy that is covered by
that cap-and-trade system.
The new government in Japan has reversed course and the
long opposition to a cap-and-trade system there is now over and
the official policy is that they're moving rapidly toward cap-
and-trade. In Australia there is before the senate a bill to
establish a cap-and-trade program. There are many countries
that have not gone this route that are moving rapidly toward
that.
So I think there are still opportunities for the U.S. to
affect the mix of international policies, but cap-and-trade is
gathering momentum.
Senator Murkowski. Dr. Levi.
Mr. Levi. A carbon tax is perfectly fine in principle. Let
me make a few points that I think are important to consider
when thinking about it. First, a carbon tax is not simple. Once
you run a carbon tax through a real political process, it will
look very complicated. It can quite easily include things like
offsets through tax credits. It can include a lot of other
measures that we have in the cap-and-trade legislation that's
been put before the Senate.
The second is the numbers matter a lot. So the level of the
tax is fundamentally important to its impact.
The third is verification. We can verify quite
straightforwardly in other countries whether a carbon tax is
being imposed, but we need to be able to look at that in a
broader context. If a carbon tax is imposed and the revenue is
used to subsidize dirty industries in other parts of the
economy, that doesn't necessarily give us a net gain on
emissions. So we need to look at this within a broader context
of what countries are doing.
Let me put, though, one recommendation for something to
look at. We're talking about--it's come up in several people's
testimony, the possibility of carbon tariffs on imports into
the United States. One option to preempt that would be for
countries like China to levy their own fees on exports heading
out of their countries, essentially a carbon tax, but
restricted to exports from their countries. There have been
signals from China in the past of heading in that direction. It
would level the playing field when we compete abroad in energy-
intensive industries and would avoid some of the diplomatic
complications involved in imposing a tariff here.
Senator Murkowski. Let me ask very quickly. As you know, we
have the EPA that has a stick over the head of Congress here in
terms of rolling out any climate change policy as they begin to
regulate domestic greenhouse emissions sooner than later. Can
any of you discuss whether or not we have any other countries
that are in a similar situation, considering this type of a
command and control type of regulation as their principal
climate policy, because that may be where we end up next year,
the EPA setting that policy?
Ms. Smith. Certainly when you talk about command and
control the Chinese government comes to mind. Their policy has
very much been a top-down, where they are defining for the rest
of the country how they shall be working on climate change.
What they found is that the mountains are high and Beijing is
far away, which means that it's very difficult to enforce that
throughout the provinces, even in an authoritarian government
like they have in China.
So were this to happen, there would be plenty of people
within similar company, but you're finding that you have to do
the same things throughout the country to ensure that the
policies are actually followed through on.
Ms. Harbert. I would just add one reason why I think other
countries are not considering this, and it goes back to
competitiveness. Countries are very concerned about their
ability to compete in an increasingly competitive global
marketplace, and command and control tends to penalize certain
industries and inhibit their ability to compete on a level
playing field internationally. So I think that's why we see
most countries shy away from that.
The Chairman. Senator Cantwell.
Senator Cantwell. Thank you, Mr. Chairman. Thank you for
this important hearing.
I thank the witnesses for their testimony and their
expertise. I want to say that I'm glad that President Obama and
President Hu have signed an agreement today on clean energy
cooperation. Myself and Senator Murkowski sent a letter to the
administration in February asking them to pursue that, and
several members of this committee, Senator Shaheen and Senator
Bayh and many others, signed that letter. So we're glad that
they're making some progress on that. I think we called for
accelerated development of clean energy for an economic value
that we could see in the United States.
Ms. Smith, again I want to thank you for your leadership in
the last administration on getting a 10-year memorandum of
understanding of cooperation between the U.S. and China on
clean energy, because that was also mentioned in the
President's statement from the White House today, a part of the
framework moving forward.
But both you and Ms. Harbert mentioned this notion of kind
of the concept of a single market, of the United States and
China being able to accelerate the deployment of clean energy
solutions if we were working more cooperatively together. One
of the things that we have been pushing up here on the Hill is
the notion of reducing tariffs between China and the United
States in a cooperative fashion. Right now there is anywhere
from--let me say it differently. The United States and China
should take the lead in trying to zero out tariffs on clean
energy solutions, and if we did that as a joint cooperative we
would be very successful in convincing the rest of the world,
but we would have created a market in China for U.S. products
and services that would be much more affordable than they are
today.
Any thoughts about that? I think right now some of the
tariffs on U.S. products going into China are as much as 25
percent, so very high tariffs.
Ms. Smith. Thank you, Senator. There are up to 26 percent
tariffs on goods going into China, environmental goods and
services. This issue has obviously been debated throughout the
Doha Round of trade negotiations as well. Right now I
understand they are pushing it forward to be considered at
Copenhagen, and one of the hopes is that if we can rally enough
political pressure to have the political agreement include
countries getting together to reduce these tariffs, that this
could be a real positive feat.
The Chinese government is reluctant, and we've had many
conversations with them at the highest levels of their
government about this, and expressing that the Chinese people
are actually suffering because of these extra costs on
environmental goods and services going into China. So it's
something that we need to continue to explain and certainly
more discussion of it and making sure that more people
understand the impact is going to be a key part of that.
Ms. Harbert. The challenge is not just limited to China. If
you look at Brazil or India, there are very high tariffs there
on solar technology, on wind technology, that they could be
greatly taking advantage of, and it would create new American
jobs, new American industries.
I think the European Union strongly believes that we should
be doing this as well, and if we had the U.S., the EU, and some
of the leaders in the developing world, it would be really a
win-win. That's where we are in the negotiations. We need to
start looking for some win-wins and this strikes us and the
business community as something that would generate growth and
certainly be a win for the environment.
So I hope you continue to push it forward, and we will,
too.
Senator Cantwell. We have S. Res. 76 and we are going to.
But I'm interested, Ms. Harbert. What do you think--I've
had many conversations with Chinese business and academics who
are part of clean energy forums and discussions. They seem to
be very supportive. Obviously, doing that and the government
doing that are two different things. But how would we go about
expressing the level of cooperation that this might garner
between the United States and China? Considering they have so
many products currently that are coming to the United States,
this is about helping the trade imbalance with a solution that
they actually need, and making it more cost affordable for
their citizens.
Ms. Harbert. You've hit the nail right on the head. This is
an economic growth issue and, as we all know, the primary
objective for the Chinese government for its people is economic
growth, and then things come way after that, probably similar
to what it is right now in the United States as well.
However, that means preserving at all cost their ability to
develop technologies, to develop things that they will actually
not just use for the domestic market, frankly, but to export.
That's what this is about. It is about competition, and they
want to be seen and be able to grow their domestic market for
export in this. I think that we need to be able to convince
them that this is actually an opportunity for them to exhibit
leadership. They care very much about leadership. If we were to
take a leadership role together, we could actually make a huge
difference and they could claim a very respectable contribution
to reducing greenhouse gas emissions.
Senator Cantwell. Thank you very much.
The Chairman. Senator Barrasso.
Senator Barrasso. Thank you very much, Mr. Chairman. I
really appreciate you holding this hearing. I also want to
thank you for partnering with me on introducing new legislation
aimed at technological challenges that we face in addressing
global climate change. As you know, 2 weeks ago we introduced
legislation called the Carbon Dioxide Capture Technology Act of
2009. In the Senate we've discussed various proposals to
regulate the output of carbon dioxide through a cap-and-trade
approach. Some have advocated a carbon tax.
But as we've discussed, overlooked in the debate is the
carbon dioxide already in the atmosphere, that is the carbon
dioxide contributing to the warming of the planet. The best
scientists tell us it's a factor. To what extent, there is
disagreement. We're not exactly sure. But it seems to me a
worthy approach to find a way to remove existing carbon dioxide
from the atmosphere and then permanently sequester it.
This is the other end of the problem and it's sometimes
referred to as ``air capture.'' To accomplish this, we're going
to need to invest the money to develop the technology. The
technology can then be used worldwide. So the approach of our
bill is to address it through a series of financial prizes,
where we set technological goals and outcomes. The first to
meet each criteria would receive Federal funds and
international acclaim. Prizes would be determined by an
advisory board under the Department of Energy. The board would
be comprised of climate scientists, physicists, chemists,
engineers, business manager, economists. They'd be appointed by
the President and with the advice and consent of the Senate.
The awards would go to those both public and private who could
achieve milestones in developing and then applying the
technology.
This is technology that could significantly help to slow or
reverse the accumulation of carbon dioxide in the atmosphere.
The carbon dioxide would have to be permanently sequestered in
a manner that would be without significant harmful effects.
I believe that prizes can be a unique tool in creating
technological developments. It only seems natural that if we
can get all the best scientific minds thinking about the same
problem we will significantly enhance our chances of solving
it. I think that nations around the world would then want to
use this technology.
The United States currently offers prizes through NASA's
Centennial Challenge program. The Economist a couple of weeks
ago reported on NASA's competition to create a new Moon Lander
for future Moon exploration. The article states that NASA's
system of prizes, quote, ``spur technological development using
the twin lures of hard cash and the kudos of being officially
recognized,'' as the Economist says, ``as cleverer than your
peers.''
So I want to thank you, Mr. Chairman, for working across
the aisle on this important legislation when we talk about new
technology which will not just benefit us in the United States,
but will have global implications.
If I could, Ms. Harbert. There was an op-ed column in the
Washington Post last week, November 13, ``Cooling the Planet
Without Chilling Trade.'' The authors say: ``We agree that it's
politically unrealistic and unwise to try and enact a cap-and-
trade system that puts manufacturers in the United States at a
competitive disadvantage with those operating overseas that
don't produce under comparable requirements.''
In my home State of Wyoming, I'm concerned about the impact
cap-and-trade would have on our soda ash industry. Our main
competitor is China. If China's not bound by the same rules our
industry is under, then American jobs are going to go overseas.
So I'd just like to ask for you to comment on that and what
we should do in the case that, realistically, China is not
going to go with hard caps?
Ms. Harbert. I think that's why we have to have--we have to
hit the rest button and have some new discussions on finding a
way to bring the developing world and the developed world
together on a reasonable and achievable path. If we embark on
this alone, we certainly are not going to gain the accolades of
our business community because they're going to be moving with
their feet and moving to other countries that don't have the
same environmental regulation.
That's not just bad for the American economy and bad for
American jobs. That's bad for the environment, because they're
going to places that will not have the same environmental
regulation. So we need to be very clear about the objective. We
want to remain competitive and we want to do good things for
the environment and we want to have affordable energy. You can
achieve all three if we're very creative and we invest in
technology solutions like you have proposed or Senator
Bingaman, if we get serious about innovative financing like
this committee has approved in the Clean Energy Development
Authority.
If we marry up technology, innovation, and financing, we
can actually show countries like India and Brazil and Malaysia
that there's a way to do this that invests in our future,
brings technology to the forefront, and actually allows us to
remain competitive, because I don't think anybody is going to
sign onto something that imperils their future ability to grow
their economy. That's just a fundamental reality.
So that's why we have continued to call for a little more
realism in this approach. Let's go forward, let's go forward
smartly, because then it will be achievable.
Senator Barrasso. Thank you.
Thank you, Mr. Chairman.
Mr. Levi. Senator, may I add a quick remark on that? The
concerns are very important, but it's also important to look at
the level of ambition in different countries, not just whether
they have the same form of legislation or policy. Different
countries have different circumstances, can approach the
problem in different ways. Whether or not China has a hard cap
or not doesn't matter as much as whether its rules, its
regulations, its incentives are strong enough.
They can have a cap that's very high and very meaningless.
They can have regulations that are tight and significant.
That's where we need to focus in eliciting ambition from them.
The Chairman. Senator Shaheen.
Senator Shaheen. Thank you, Mr. Chairman, and thank you all
for appearing here today.
Mr. Purvis, you talked about the importance of addressing
deforestation as part of any kind of a global agreement. Can
you--coming from a State where we are very heavily forested,
the second most heavily forested in the country, and where
timber is a big interest in our economy, there is concern about
how in fact any agreements, any global agreements, would
actually hold those developing countries accountable for
reducing deforestation.
Can you speak to how you think we can reassure people who
are concerned about that, that in fact any efforts to address
deforestation are going to be verifiable and that we can
measure those and people can be confident that that's actually
happening
Mr. Purvis. Senator, thank you very much for the question
and for your interest in this issue.
Of course, our forests in this country are growing, and the
problem of deforestation is largely in developing countries. In
fact, half of the deforestation globally is occurring in just
two countries, Brazil and Indonesia. So the challenge is to
work in partnership with these developing countries who are
increasingly showing a real interest in curbing their
deforestation, which they see as a threat to their long-term
economic viability and to their security and to the welfare of
their people, how we can do that in partnership with them.
Fortunately, satellite technology and other systems are
allowing us to have a very clear sense of what's actually
happening on the ground. We're able to use remote sensing to
accurately establish not only the forest cover, but also the
health of the forests, and determine through some good science
the actual carbon content in those forests.
As a result of that ability, it gives us an opportunity to
work with developing countries on a pay-for-performance system,
where after some initial capacity-building assistance to make
sure that they have the right plans in place and the right
systems to be able to go forward, we can then reward them when
in fact they do reduce their deforestation and achieve emission
reductions.
That pay-for-performance approach is absolutely essential,
I think, to set the incentives right in those countries, but
also to assure the American people that the partnerships that
they could have with developing countries would be achieving
real outcomes, outcomes that would be reducing the cost of our
climate action as well as achieving a real environmental
benefit.
Senator Shaheen. Do you have estimates on what the cost of
that kind of a pay-for-performance program would be?
Mr. Purvis. Sure. We know from Brazil, as an example, that
in their current Amazon Fund, where as I said they have pledged
to reduce their emissions 80 percent by 2020, that they are
asking for a $5 a ton payment. That's a quarter of the expected
cost of emission reductions under the bill that was approved by
the House or by the Senate Environment and Public Works
Committee. So significant cost savings are possible based on
what developing countries themselves are asking for.
We also know from experience in the voluntary carbon
markets that the cost of reducing deforestation, even on a
relatively small scale, where it's less efficient than doing it
on a large scale, are roughly in that range. So I think it's
reasonable for the Senate to conclude that there would be very
substantial cost savings, with the average cost being well
under $10 a ton, probably closer to $5 a ton in the next
decade.
Senator Shaheen. Thank you.
Mr. Colvin, you talked about your concern about tariffs and
the barriers that would be to global competitiveness, I think
is the way I would translate what you said. I certainly share
that. I think it's very important, particularly as we come out
of this recession, that we have strong measures in place to
help American businesses trade overseas and get their products
into overseas markets, and appreciate the dynamic that we might
set up by putting tariffs on imports is going to affect our
exports.
But, having said that, what is the alternative for
companies who feel like they're going to be negatively affected
by our failure to address cheaper imports coming into the
country?
Mr. Colvin. Thank you very much. I think it's important to
recognize that, as President Obama said in June after the
passage of the American Clean Energy and Security Act, that
there are other ways to address the problem. One of them is
through free allocation of allowances through a cap-and-trade
system. So if you are looking just at the current framework,
free allowances are a way to make whole companies that are
disproportionately affected by energy legislation.
I would also make the point that those companies are a
small segment of the U.S. business community. It's important
and it's important to get it right, there's no doubt. But I
think it's important to take--it's also important to take a
broader view of competitiveness. All of our firms, whether or
not they are substantially affected by climate legislation,
operate globally. So when you operate globally, it's important
to make sure that markets are open and that other countries are
not taking steps against your company for totally unrelated
reasons, for example to retaliate against carbon tariffs.
Senator Shaheen. Thank you.
My time is up.
The Chairman. Senator Murkowski, did you have additional
questions? Go right ahead.
Senator Murkowski. I just have one more question. Thank
you, Mr. Chairman.
This relates to the Kyoto Protocol. There's a group of
professors, including Steve Rainer of Oxford and Gwen Prinz of
the London School of Economics, and they have argued that it is
in the world's best interest to abandon the construct behind
the Kyoto Protocol, and have noted that Kyoto has failed to
reduce the emissions of participating nations. They wrote
recently that ``It was always the wrong tool for the nature of
the job,'' and instead have advocated a massive investment in
the technological innovation and adaptation.
I would like to know your opinions on this assessment. Is
the Kyoto Protocol a failure? Should we rethink this
international framework?
Mr. Purvis, I believe it was you that mentioned if we
succeed in Copenhagen or if we fail. I'm curious to know how
you might define what success in Copenhagen is or, on the other
hand, what failure might be?
Mr. Purvis. Thank you, Senator. I think Kyoto is a
Rorschach test. It's one of those things where you can see what
you want. But there are a few things that I think are important
to note. One, as a matter of fact it expires in 2012.
Currently, the discussions are moving so that there is little
interest among the developed countries who have obligations
under Kyoto to continue Kyoto per se. So the outcome of the
Copenhagen process, whenever it culminates, will be a legal
instrument that is different from Kyoto, that will be under the
framework convention on climate change, but will not be an heir
to Kyoto.
I tried to highlight in my testimony a number of ways in
which that process is moving in a much more beneficial manner
to U.S. interests, where it's bottom-up, it's driven on the
basis of action. We're not just taking countries' word that
they're going to act. We're actually looking to see what
they're doing. We're judging outcomes based on actual results
rather than on promises. There's a greater diversity of actions
that nations are allowed to put forward.
The formal proposals that are being considered envision
that every country would have a schedule that it fills out that
explains to the world what it's doing. The U.S. President
working with the Congress would be able to determine the
actions that the U.S. would submit to the international
community and then there would be a process of reporting and
monitoring and verifying what's been done in each country and a
political process that would be, building on Dr. Levi's point
about the importance of transparency, a political process to
judge whether the sum of these different actions that are
listed on each of these national schedules is in fact
environmentally adequate, whether it's comparable, whether
there's equity in terms of different countries taking action
based on their different level of development.
That kind of approach strikes me as much--as politically
realistic and well suited to the moment that we're in. It
allows the President to work with the Congress to define an
approach that works for this country. It gives that same
flexibility to other countries to really figure out what's
nationally appropriate for them, but then encourages a real
exchange of information so we know what's happening in real
time and we can intervene politically to make sure that
countries are doing what they say that they are going to do.
Senator Murkowski. Some have suggested, however and they
are backing away from this now, that in order for Copenhagen to
be successful that the Congress in the United States needed to
adopt some form of climate policy. Obviously this is not going
to occur prior to Copenhagen. Do we walk into Copenhagen with
this label of ``the U.S. has failed''?
Mr. Purvis. I think that if Copenhagen fails there'll be an
effort to blame the U.S. The President in his remarks, in his
agreement with the Chinese president, suggested that the United
States would be going to Copenhagen with some numbers. I
suspect that what the administration is likely to do is to
consult with the Congress and to leave some flexibility for the
political process to work in this country after Copenhagen.
But the window to influence what the U.S. puts on the table
will be relatively small, and at some point the international
community would like a clear answer about what the U.S. is able
to offer. So at most, I think we have maybe 6 months or a year
for the Congress and the President to find common ground and to
establish a new set of agreements or a new set of actions for
the U.S. that will be offered to the international community.
So I think Copenhagen can succeed in creating an
architecture that allows for that additional political process
in this country.
Senator Murkowski. That would be a success in your opinion
then, if it established that framework?
Mr. Purvis. That architecture that is bottom-up, that
allows for real verification of actions, allows for a political
process about whether countries are doing enough, to me that
would be a very positive outcome. Ultimately, countries will
have to be definitive about what they're prepared to do. I
don't think that the window for that ends in Copenhagen, but
it's a limited window and I think there's an appreciation
internationally of how the midterm elections and the political
process in this country maybe mean that really the beginning of
next year is the time for the Congress to consider what
additional actions, if any, the United States would be prepared
to put on the table.
Mr. Levi. Senator, let me reinforce something that Nigel
has said. If we get the right kind of architecture at
Copenhagen, it steers all countries in the direction that is,
frankly, that is discussed in the paper that you mentioned, one
where we focus more on bottom-up efforts and one where we focus
on political engagement and on implementation in countries, as
well as transparency.
On the question of the interaction between U.S. legislation
and international action, we've had a really polarized debate.
There's been one side that basically says once we act
everything will follow. There's another that says we won't make
any difference at all. The reality lies in between those.
Unfortunately, as long as we don't have a comprehensive
policy in place here the bulk of the international discussions
will be focused on what the United States is or isn't doing. In
particular, our European friends will spend a very large
fraction of their time focusing on what the United States is or
isn't doing.
Once we act at home, we can start to move beyond that.
We've seen that when the United States and the Europeans line
up in their positions toward the developing countries, we can
make considerably more progress. To get to that point, though,
we're going to have to remove this as a debating point across
the Atlantic.
Senator Murkowski. Thank you, Mr. Chairman.
The Chairman. Senator Sessions, did you wish to ask some
questions of the panel?
Senator Sessions. Thank you, Mr. Chairman. I would. I don't
want to repeat what has occurred. I had to be at a briefing, a
closed briefing on the shooting at Fort Hood, so I apologize
for not being here. It remains a matter of interest to me.
One of my concerns is that the last panel we had, I asked
the question about whether or not the EPW bill would actually
create jobs. Nobody agreed that it would create jobs. The
experience in Spain was that, a study there, as I understand
it, that it cost jobs. When you drive up the cost of energy,
you definitely lose some jobs. The idea that they'll be more
than made up by some sort of green jobs is, at least to the
panelists that I asked, about as many as here today, including
top government agencies, concluded it's a net loss; as I would
interpret their testimony, that it would be a loss.
One of the things that worries me is our unemployment as
surging is, what about international offsets? Perhaps you
talked about that some, but I would like to ask any of you to
comment on it if you would like. What about the danger of
transfer of American wealth to competitive economies, economies
that are competing against us very day, in many cases winning
that competition, because Americans get laid off and then two
things occur. No. 1, we raise the cost of our energy, so our
plant then becomes even less competitive; and No. 2, we take
American--we buy offsets, for example, that I think could occur
under the EPW bill, that we would pay money to a steel mill,
let's say in China, to make efficiencies in their production
that they might not otherwise make.
So am I missing something here, and is there a danger in
international offsets that we would enhance the competitiveness
of our global competitors and transfer American wealth and
indeed could help us lose jobs here? Mr. Purvis?
Mr. Purvis. Senator, thank you for the question. The idea
of offsets is not that attractive to American business and to,
I would imagine, the American political establishment, in the
context of our not yet having made a decision to dramatically
reduce our emissions. But once we're on the path toward
ambitious climate action, then offsets are what allow us to
achieve those actions in an affordable manner.
The Environmental Protection Agency has said that the price
of emissions permits would be 89 percent higher under the bill
that you cited if international offsets were not made
available.
Senator Sessions. That's a good point. So it's cheaper to
reduce CO2 by giving money to China because their
plants already are far less efficient and they use more energy
to melt steel and create steel than we do, I would agree. But
if that's not your only goal and your goal is the health of the
American economy, how do you weigh that?
Mr. Purvis. The other point I would make on competitiveness
is that the EPA analysis shows that the majority of the
international offsets over the next decade are likely to be in
the forest sector. When we are purchasing offsets from Brazil
or Indonesia or other tropical forest countries, what we're
doing is protecting their forests and making sure that those
forests are not harvested for their timber, which competes with
U.S. timber, that those forests are not converted into
agricultural lands, which then grow commodities which compete
with U.S. agricultural commodities.
So in the early years the money in the large program is
likely to not really go to China as much as it is to these
other countries where there are very substantial co-benefits
for allowing those offsets. So I think there are the initial
cost savings as well as the opportunity to support other
aspects of the U.S. economy.
Senator Sessions. There are studies that raise some
question about the legitimacy of those offsets, since these
countries may well have been replanting anyway, or they have an
economic interest in doing so.
Would anybody else like to comment?
Ms. Harbert. The availability of offsets is central to the
affordability of any scheme. So the first question is are they
going to be available? If we're successful in having an
international agreement, those offsets might very likely be
used by the countries themselves, thereby raising the price of
compliance here in the United States. So we either are going to
be transferring it to other countries or in an international
format we actually may be increasing the price of--we are going
to be increasing the price of electricity and gas, but it may
be even higher than that if these offsets end up not being
available for use.
I think the real issue for competitiveness and for the
American business community is to find out how to do this
without having to sacrifice jobs and move them overseas or
transfer wealth, because at the end of the day if we are
subject to some U.N. body that's going to determine whether
this offset is real or not, American businesses all over the
country are going to not be able to make business decisions in
real time and capital investments, because they're going to be
subject to a higher level of review by U.N. panels or whoever
to determine whether these offsets are available to them or
not. That's not really a real-time recipe for competitiveness
in today's fast-moving economy.
Mr. Levi. Senator, I think it's important to think about
offsets in a broader context. If all we do is take steps at
home and pay for emissions reductions below business as usual
in a country like China, that's insufficient. But if we can
include offsets in a system where we extract other commitments
from those countries, where they take steps on their own in
order to become eligible for offsets beyond those steps, where
they take perhaps steps to reduce some of the tariff and non-
tariff barriers to our selling clean technology into their
countries in order to meet their regulatory requirements, then
we can find win-wins.
But we need to broaden the discussion of what it is we're
after if we want to get those win-win outcomes.
Senator Sessions. But if we pass the House or the Senate
bill, we don't have any guarantee that that would happen. In
fact, maybe we would have given it up because we had already
declared that we were going to buy offsets from abroad. So I
think the net of it is that it will not create jobs. I'll just
leave it at that.
Thank you, Mr. Chairman.
The Chairman. Senator Shaheen, did you have another
question?
Senator Shaheen. No.
The Chairman. Senator Murkowski, did you have other
questions?
Senator Murkowski. No, thank you.
The Chairman. Let me just thank this panel very much for
all your good testimony. I think this has been a useful hearing
and we appreciate your efforts to educate us on these issues.
Thank you very much.
[Whereupon, at 11:28 a.m., the hearing was adjourned.]
APPENDIX
Responses to Additional Questions
----------
Responses of Jake Colvin to Questions From Senator Murkowski
Question 1a. Many argue that the United States must implement a
robust climate policy in order to re-take the lead in the development
of clean energy technologies. Key to this effort will be the protection
of intellectual property rights, which can help companies recoup their
investments and encourage them to keep working on new technologies.
Can you discuss some of the opportunities to secure intellectual
property rights in both domestic legislation and an international
treaty?
Answer. Internationally, the World Trade Organization Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPS)
establishes the worldwide baseline for intellectual property rights and
enforcement. Beyond TRIPS, many countries have extended IP rights and
enhanced enforcement efforts through numerous regional and bilateral
agreements. United States free trade agreements, for example, contain
commitments from trading partners to extend IP rights and enhance
enforcement efforts beyond TRIPS. Developing deeper economic
relationships with U.S. trading partners--for example by concluding
trade agreements--would provide additional avenues to strengthen
protection of IP assets abroad.
Domestically, Congress should be commended for its attention in
climate legislation and recent letters to the importance of
intellectual property protection for promoting innovation and
delivering clean technologies to developing countries. NFTC strongly
supports the inclusion of the language in the American Clean Energy and
Security Act at Section 441 and agrees that, ``Intellectual property
rights are a key driver of investment and research and development in,
and the global deployment of, clean technologies.''
It is important for Congress to continue to make clear the priority
it attaches to resisting attempts in global climate negotiations to
distort trade and weaken global rules on intellectual property, as
recent letters to the Administration from Members of both the Senate
and House have done.
Congress should use future climate and energy legislation as
opportunities to urge the Administration to resist the range of trade-
distorting or IP-weakening mechanisms that governments have proposed
and to target capacity-building assistance and funding to efforts to
improve environments in developing countries for protecting IP rights.
Question 1b. If the United States demands that strong intellectual
property rights be included in a post-Kyoto framework, how do you think
the rest of the world will react?
Answer. Any country that seeks to promote the production of
innovation should support a predictable market for intellectual
property rights. These markets will stimulate investment in new
technology and provide the legal framework for deployment. Ultimately,
we believe that the world--particularly advanced developing countries
like China and India, which are developing clean technology industries
of their own, will support strong IP protection. And given the
scientific consensus that time is short and we must invest heavily in
new technologies to meet mitigation targets, the only IP conversation
that should be happening at the UN is whether IP rights are strong
enough.
Yet numerous proposals submitted to the United Nations Framework
Convention on Climate Change (UNFCCC) draft negotiating text seek to
weaken the value and global protection of IP rights. These efforts are
based on the false premise that IP protection will slow technology
deployment efforts, particularly in developing countries.
One of the worst things we can do is chill investment by giving any
credibility to arguments which seek to weaken the assets underlying
clean tech investments. It is our experience that such proposals are
not supported by companies, environmentalists--or by most member
states. Weakening IP rights is not in the interest of any country which
seeks to contribute to innovating and deploying new technology
solutions.
We believe the best approach to international climate negotiations
is to emphasize the importance of strong IP protection and make clear
that global climate negotiations must exist within the established
intellectual property regime. The system of rules that have been
established under the WTO should not be altered by another body.
Ultimately, the real issues in the international negotiations are
funding and capacity-building, not IP. The United States and other
developed countries will need to get creative to establish policies and
incentivize adequate funding to help countries transition to low-carbon
pathways.
Question 2. Like many academics and economists, you testified that
border adjustment mechanisms in climate policy could prove highly
problematic. Would it be easier to protect our nation's balance of
trade under a carbon tax, a sectoral approach, greater investment on
technological innovation, or another strong climate policy, as opposed
to cap-and-trade?
Answer. While a carbon tax may make a border adjustment measure
easier and more transparent to administer, the imposition of a ``carbon
tariff'' under such a system could cause some of the same concerns
among U.S. trading partners. Countries are bothered by the idea of new
tariffs, however straightforward or fair they may be from an
implementation perspective.
Regardless of the type of carbon-pricing policy Congress may
implement, it would be useful to consider how to help workers in
energy-intensive industries who may be harmed by the transition to a
clean energy economy. As Joe Aldy and Billy Pizer concluded in a report
prepared for the Pew Center on Global Climate Change, ``most of the
effect on domestic production arises from a shift in consumption away
from carbon-intensive goods--rather than a shift in production to
unregulated foreign imports.''
It is important to remember that certain energy-intensive
manufacturing sectors are likely to face transition costs under a cap-
and-trade program from a shift in consumer demand towards less energy-
intensive products. While I believe that transitioning to a clean
energy economy will ultimately create jobs, it is important to be
honest about the costs too.
Congress might consider whether to provide transition assistance to
American workers in energy-intensive industries who may face new
competition from U.S. energy-efficient industries, which will become
relatively more competitive if the United States puts a price on
carbon. It might be especially useful to think about ways to target
such assistance to more experienced workers who may be less willing or
able to transition to green industries.
The United States may wish to look to how other countries are
handling similar issues. Germany, for instance, is providing payments
to older workers who have lost jobs in their domestic coal industry,
and economic development programs to help coal towns transition to new
industries.
Finally, there are numerous other trade-related incentives under
consideration in the United States and other countries which have the
potential to create jobs and help the environment. Eco-labeling
schemes, clean technology funds, government procurement policies
favoring climate-friendly goods, and incentives for research,
development and production of clean technologies have all been
discussed in various contexts. In general, policies are less likely to
violate global trade rules to the extent that they are transparent,
apply the same rules to foreign and domestic entities, do not
needlessly restrict trade and are not designed to impact the export
performance of domestic industry.
______
Responses of Karen A. Harbert to Questions From Senator Murkowski
Question 1. While the United States has focused almost exclusively
on cap-and-trade, can you comment on other nations' ability and
interest in implementing that type of system? Are other nations,
developed and developing, capable of implementing economy-wide caps on
emissions, creating a new carbon market, and properly administering
cap-and-trade?
Answer. No nation that I am aware of has relied, or plans to rely,
exclusively on cap & trade. The European Emissions Trading System, for
example, covers the power generation and industrial sectors--sectors
that constitute about 45% of total European greenhouse gas emissions.
Nations, including the U.S., rely on many different policy options to
achieve emissions reductions, including energy efficiency standards,
lighting standards, building efficiency codes, renewable electricity
requirements, renewable fuel requirements, vehicle fuel efficiency
standards, and others. Indeed, many of these other policy mandates
require actions that might, because they are more costly, not be
pursued under a true economy-wide cap & trade scheme.
For a cap & trade system to function properly, carbon traders have
to be assured of the integrity of the emissions credits being sold on
the market. Ensuring market transparency as well as an offset
verification process is paramount for the private sector. It will be
even more challenging to establish such a system in a developing
country, many of whose power generation sectors are not as well
established (for example, it is not uncommon for households to pirate
power from the grid in many developing countries, which then weakens
price signals we take for granted here in a well-functioning market).
Moreover, developing countries have been clear that they will not
accept binding emissions targets, which would be a prerequisite for a
carbon market. It is very unlikely that a global emissions market on
the scale as foreseen by the UN could be set in place with the
requisite governance structure to ensure transparency and verifiability
anytime soon.
Policy leaders and negotiators alike should be less focused on
dictating the mechanism for countries to adopt and instead should
ensure that existing mechanisms are utilized to the fullest extent
possible. For example, we should be pursuing the removal of tariff and
non-tariff barriers on clean energy goods and services through the Doha
round, which would reduce the cost of clean energy and stimulate jobs
here and around the world. That is the type of win-win approach
negotiators should embrace.
Some countries may trend toward a sectoral approach focused on
specific industries (e.g., steel, refining, and cement) as a way to
ease competitiveness concerns, motivate action in developing countries,
and bring them into international carbon markets (other than the market
for offsets). Under sectoral trading, a developing country would commit
a sector to an emissions cap for which it would receive tradable
credits. While promising, sectoral approaches are not without their
detractors, and as with many other proposals, the devil is in the
details. There is, for example, a real concern that sectoral agreements
could be structured in such a way that the primary beneficiaries would
wind up being inefficient state-run enterprises that dominate many
industrial sectors in developing countries which would disadvantage our
private sector.
Question 2. In my opening statement, I expressed skepticism that an
American climate policy would prompt the international cooperation
that's needed to truly address this challenge. After all, while our
nation has made significant progress on a host of issues here--from
worker protections to environmental stewardship--those achievements
have not always been matched by progress throughout the rest of the
world.
Assuming the United States does pass a climate policy, can you
comment on how that would affect the issues that have made
international negotiations so tough, including who should be required
to make emissions cuts, how steep those cuts should be, and who should
pay for the costs associated with them?
Answer. I agree that it would be a mistake to conclude that all
would be well if only the U.S. had domestic legislation in hand. While
the U.S. Chamber supports Federal climate legislation, we also
recognize that the most contentious issues in the international
negotiations go well beyond what we can expect to see addressed in
domestic legislation. These contentious issues include short-term
emissions reduction commitments by developed countries, burden sharing
by developing countries, finance, wealth transfers, technology
transfer, and intellectual property concerns. It is not likely that
these issues will be less contentious if a bill is signed into law. One
need look no farther than the European Union, which has firm
commitments and now finds itself in an unenviable position
competitively. I would also note that very few other developed
countries have comprehensive economy-wide climate laws on the books at
present.
The position of developing countries is that developed countries
should go first with deep and binding emissions reductions. Developing
countries are not prepared to accept internationally binding
commitments and they have been up front that their cooperation, in
addition to being nonbinding, will only come with significant financial
contribution. They are pressing for the developed countries to transfer
anywhere from 0.5% to 2.0% of their gross domestic product each year to
bankroll climate change programs in developing countries. At that rate,
in 2008 the cost to American taxpayers alone would have been $72
billion to $289 billion. Developing countries also are trying to use
the negotiations to weaken intellectual property protections through
compulsory licensing of advanced energy technologies, ostensibly to
remove barriers to ``technology transfer.'' It is unlikely that a
domestic climate bill would change these dynamics in any meaningful
way.
It is important to recognize that how rapidly advanced energy
technologies develop and are adopted commercially will be the most
important factor in determining how quickly and at what cost greenhouse
gas emissions can be reduced. Existing technologies can make an
important contribution, but they alone are not capable of significantly
reducing greenhouse gas emissions on a global scale and at an
acceptable cost.
To address global climate change and promote economic growth, we
must promote a long-term vision that motivates and provides direction
for national and regional cooperative activities, takes into account
emerging science and technology development and turnover, recognizes
growing energy needs, ensures the broadest participation from developed
and developing nations, and does not undermine economic growth.
Question 3. To meet the 50-by-50 goals outlined in your written
testimony, you indicated that emission-free electricity, most of which
comes from nuclear and hydro sources, would have to increase by over
500% by 2050 from today's levels. Many developing countries and those
with small electric grids would be challenged to increase their use of
these resources, from both a technology and regulatory point of view.
Do you think a concerted international effort should be made to
develop and promote small- and medium-size nuclear reactors for the
developing world, along with the technical and regulatory capabilities
those countries would need?
Answer. An agreement that focuses on technology offers a path
forward that developed and developing countries can embrace. We believe
all energy sources should be on the table, but it is difficult to see
how deep global emission reductions could be achieved absent a large
role for nuclear power. As we consider the scale and scope of the
technology challenge, we have to move beyond the current discussions
and ask ourselves if the world is prepared to undertake the transition
in energy systems that would be needed to cut global emissions
significantly. Is the world prepared and able to deploy nuclear power
and other advanced technologies (e.g., carbon capture and storage and
second generation biofuels, to name two) at the scale and within the
timelines required to meet the UN's targets?
A successful new agreement should promote new partnerships
involving developed, emerging, and developing countries and the private
sector that create opportunities for technology cooperation, public-
private partnerships, innovative financing, and capacity building. A
concerted and cooperative effort along these lines focusing on nuclear
power could be very effective in making nuclear power a reliable and
safe technology option.
Question 4. There is an unprecedented effort to create millions of
new jobs--``green jobs''--in America's energy sector. Is this same
emphasis present in other countries, or are other concerns, such as
keeping energy affordable or simply transitioning to non-fossil
resources, given higher priority?
Answer. Only where there is national interest to do so. Developing
countries are unwilling to accept restrictions on their development and
energy use. Providing modern energy services to lift their people out
of poverty is a much more pressing need than addressing climate change.
With billions of people still lacking electricity, developing
countries are understandably loath to cap emissions if it hampers their
economic development and energy security. Much of the energy needed to
power economic growth will likely be supplied by fossil fuels. Many
developing countries sit atop large reserves of coal, oil, and gas, and
it would be naive to expect them to forego their use in favor of more
costly and less reliable energy options.
To the extent that developing countries can use their comparative
advantages in labor to attract green manufacturing jobs, it is likely
they will do so. Many developing countries are home to manufacturing
plants that produce solar panels and wind turbines, for example, but
the products of these facilities are largely focused on an export
market. Further, some firms are thinking of moving manufacturing
facilities from developed to developing countries to take advantage of
lower labor costs.
As we consider the implications the negotiations will have on job
creation, we shouldn't lose sight of the fact that a bad agreement--and
bad domestic legislation, too--would ship existing U.S. jobs overseas,
especially those from energy intensive industries. To avoid this, we
need an agreement that doesn't tilt the competitive playing field
against U.S. industry. And to do that, large developing economies, like
China, India, and Brazil, must signal their willingness to commit to
realistically ambitious and binding goals. That will be one of the real
tests coming out of Copenhagen that will have tremendous implications
for U.S. policy.
______
Responses of Michael A. Levi to Questions From Senator Murkowski
Question 1. While the U.S. has focused almost exclusively on cap-
and-trade, can you comment on other nations' ability and interest in
implementing that type of system? Are other nations, developed and
developing, capable of implementing economy-wide caps on emissions,
creating a new carbon market, and properly administering cap-and-trade?
Answer. Cap-and-trade appears to be the most popular emissions-
cutting tool for large emissions sources in the developed world. It has
been the central element of European Union emissions-cutting efforts.
New Zealand passed a cap-and-trade bill last year; Australia has been
debating one for some time. Japan, after resisting the approach, is
aggressively exploring it now. Canada also appears to favor cap-and-
trade over other tools. All of these nations are capable of
implementing economy-wide caps as well as creating and administering
carbon markets. That said, in each case, cap-and-trade has been
complemented by other policy tools, and in most cases, it has been
limited to power plants and factories.
Developing countries differ in their abilities to implement
economy-wide emissions caps, create carbon markets, and properly
administer economy-wide cap-and-trade systems. Advanced developing
countries like South Korea are currently capable of implementing such
systems. Intermediate developing countries like China and India are
not. They lack the means to monitor economy-wide emissions and to
enforce the rules of an economy-wide cap-and-trade system. There are,
however, likely to be subsectors of both coutnries' economies that
could administer and enforce cap-and-trade systems successfully.
Question 2a. Many argue that the United States must implement a
robust climate policy in order to re-take the lead in the development
of clean energy technologies. Key to this effort will be the protection
of intellectual property rights, which can help companies recoup their
investments and encourage them to keep working on new technologies.
Can you discuss some of the opportunities to secure intellectual
property rights in both domestic legislation and an international
treaty?
Answer. The greatest opportunities to secure intellectual property
rights are through bilateral engagement with key countries like China
and India, rather than in domestic legislation or a global climate
treaty. The most that domestic legislation can do is limit U.S.
negotiators' flexibility. It is important that Congress provide clear
direction to negotiators, but it could be counterproductive to overly
constrain negotiators' options, as they try to negotiate agreements
that expand markets for U.S. clean technologies. A global treaty is
also unlikely to provide a solution to intellectual property rights,
since the most important concerns are specific to only a handful of
countries (such as China). That said, the United States should avoid
allowing any international agreement to permit compulsory licensing of
low-carbon technologies, which would undermine incentives for
innovation while possibly also inhibiting the diffusion of critical
clean energy solutions.
U.S. negotiators must remember that when it comes to U.S. exports
of clean technologies, their goal should not be to simply protect IPR--
it should be to grow opportunities for U.S. businesses to profit as the
world transitions to a low-carbon economy. That can be done both by
protecting IPR and by expanding demand and markets for new clean
technologies. If U.S. negotiators can make small compromises on IPR in
exchange for developing-country actions that massively expand demand
and markets for U.S. products, that may produce a win-win outcome.
While the United States should be careful, it should not foreclose such
opportunities.
Question 2b. If the United States demands that strong intellectual
property rights be included in a post-Kyoto framework, how do you think
the rest of the world will react?
Answer. The United States will have strong support from other
developed countries if it demands that strong intellectual property
rights be reaffirmed in a post-Kyoto framework. It will likely face
opposition from major developing countries, but that opposition is
unlikely to derail a deal.
Question 3. In 2005, the Bush Administration started the Asian
Pacific Partnership on Clean Development and Climate to foster
international cooperation and technology development. That program
brought together the governments and private sectors of seven nations--
Australia, Canada, China, India, Japan, Korea, and the United States--
to reduce pollution while maintaining economic strength.
From your viewpoint, is this program achieving its goals? Is it a
successful model that could be incorporated into other climate change
programs?
Answer. The APP has made important contributions to the development
of policies and technologies that will help reduce global emissions.
Its informal nature and its focus on specific initiatives (rather than
on high-level promises) can unlock action where diplomatic efforts are
deadlocked. That said, it could benefit from substantial increases in
both high-level attention and financial support.
The APP provides a useful model for future programs, though it is
not a substitute for high-level engagement or for enactment of strong
incentives (whether financial or regulatory) that steer businesses
toward low-carbon investments. In 2008, a Council on Foreign Relations
sponsored Independed Task Force Report, Confronting Climate Change: A
Strategy for Foreign Policy, a bipartisan group of over two dozen
senior leaders from business, policy, finance, labor, academia, and
environmental groups called for the creation of a ``Partnership for
Climate Cooperation'', which would combine an intensified APP-type
focus on bottom-up efforts with high-level engagement among national
leaders. Such an approach, which could be facilitated through the Major
Economies Forum or possibly the G-20, remains attractive.
Question 4. The levels of pollution we're seeing in Alaska are at
least partially a function of pollution coming over the pole from
Europe and Russia. We're seeing firsthand how pollution travels--it
does not recognize political borders. Because what happens in places
like China or India will affect the U.S., I'm interested to hear your
perspective on the level of urgency that economically-developing
nations are showing with regard to reducing their emissions.
In looking at China and India's recent actions, it appears they are
more interested in economic development, in order to maintain
stability, rather than putting controls on their economies that will
reduce emissions. Do you agree with that assessment, or have you seen a
shift in the approach that developing nations like China and India are
taking to climate change?
Answer. China and India have been taking significant steps that
reduce their emissions--but they are not taking those steps because of
concerns about climate change. They are taking those steps because of
concerns about dependence on imports of oil and gas, because of
concerns about local air pollution (and, in the case of China, the
implications of that for political stability), and because of concerns
about inefficient consumption of energy. So long as those steps are
sufficiently strong, they should be acceptable to the United States.
The problem with current Chinese and Indian policies is not that they
are not aimed at dealing with climate change--it is that they do not
yet appear to be strong enough to sufficiently curb energy use and
associated emissions.
Question 5. There is an unprecedented effort to create millions of
new jobs--``green jobs''--in America's energy sector. Is this same
emphasis present in other countries, or are other concerns, such as
keeping energy affordable or simply transitioning to non-fossil
resources, given higher priority?
Answer. The focus on ``green jobs'' has been dominated by the
United States. Other countries have pursued policies with different
emphases. In most developed countries, and in Europe in particular, the
emphasis has been on climate benefits. Japan has emphasized the
importance of both climate and energy efficiency. China has been
concerned with reliance on imported oil, as well as on the local
environmental impacts of the inefficient burning of coal. The different
priorities lead to somewhat different policy approaches. Ultimately,
employment in the United States will be determined primarily by
economic policies that have nothing to do with climate change. Good
climate policy, including well-designed cap-and-trade efforts, can and
should avoid doing significant harm to employment, but those efforts
should not be expected to substantially increase U.S. employment
either.
______
Responses of Nigel Purvis to Questions From Senator Murkowski
Question 1a. Many argue that the United States must implement a
robust climate policy in order to re-take the lead in the development
of clean energy technologies. Key to this effort will be the protection
of intellectual property rights, which can help companies recoup their
investments and encourage them to keep working on new technologies.
Can you discuss some of the opportunities to secure intellectual
property rights in both domestic legislation and an international
treaty?
Answer. A strong system to protect intellectual property rights
(IPR) is absolutely essential to spur innovation to address climate
change and to foster U.S. economic growth. Domestic legislation can
strengthen international protections for IPR by promoting the right
kind of international clean technology partnerships. New funding for
international technology cooperation, including funding provided under
a cap-and-trade program, could be conditioned on new commitments from
other countries to better implement existing IPR standards and
protections. This approach would create stronger incentives for
improved IPR compliance and enforcement in other nations while also
encouraging dissemination of new technologies developed jointly through
bilateral clean energy programs.
Question 1b. If the United States demands that strong intellectual
property rights be included in a post-Kyoto framework, how do you think
the rest of the world will react?
Answer. It is probably not feasible to include new IPR protections
in a new global climate change agreement in the Copenhagen process
under the United Nations. In these negotiations, developing countries
are pushing to weaken, not strengthen, IPR protections. The most likely
compromise outcome, therefore, is that the next global agreement will
leave international IPR protections unchanged and possibly unaddressed.
The more productive path forward would be for the United States to
include provisions relating to IPR in bilateral climate and trade
agreements that the United States negotiates with key countries,
including its major trading partners in the developing world. In
exchange for the opportunity to cooperate with the United States on the
development and dissemination of clean energy technologies, as well as
opportunities for enhanced access to U.S. carbon markets, major
emerging economies might agree to significantly strengthen their
enforcement of existing IPR standards.
Question 2. It is commonly agreed that financing for clean energy
technologies is critical to agreement on a new international climate
framework. Some countries believe this could ultimately cost more than
$1 trillion per year.
Given our nation's struggling economy and record deficits, how much
do you think the U.S. is capable of pledging for these efforts, and
where can that money come from?
Answer. The European Union estimates that developing countries will
need approximately $150 billion by 2020 to mitigate their emissions and
adapt to climate change. Their estimate includes financing from all
countries and all sources, both public and private sectors and
developed and developing countries. This estimate seems realistic and
in line with estimates prepared by the World Bank. A substantial
portion of the needed funding is likely to come from the private
sector. Developing nations would also be expected to self-finance a
significant portion of their efforts.
At the same time, it is in the interest of the United States to
invest in clean energy and emissions reduction partnerships with
developing nations. The cost of reducing emissions in the United States
exceeds the cost of emissions reductions in developing nations. We can
strengthen our economy and enhance our security by achieving part of
our emissions reduction responsibility in developing nations rather
than at home. Well-designed foreign investments and partnerships would
advance other U.S. foreign policy goals as well, including poverty
alleviation, energy security, international stability, and biodiversity
conservation. Importantly, these investments should not be viewed by
Congress and the American people as foreign aid. On the contrary,
reducing the cost of U.S. climate policy is a strong self-interested
goal.
Question 3. In 2005, the Bush Administration started the Asian
Pacific Partnership on Clean Development and Climate to foster
international cooperation and technology development. That program
brought together the governments and private sectors of seven nations--
Australia, Canada, China, India, Japan, Korea, and the United States--
to reduce pollution while maintaining economic strength.
From your viewpoint, is this program achieving its goals? Is it a
successful model that could be incorporated into other climate change
programs?
Answer. The Asia Pacific Partnership (APP) should be extended and
expanded. Bringing together key nations and industries to share best
practices and develop common standards is a sound approach. However,
the APP has never been funded adequately and thus its results have been
modest. The United States should increase funding for the APP and
consider expanding its membership to include other willing countries
that could contribute resources and expertise, such as nations in
Europe.
Question 4. As you are aware, wildland fires in the United States
and Canada have been increasing over the last 20 years. Several
different studies have shown that significant amounts of carbon dioxide
are released while these fires burn, and then again as the trees killed
in the fires decompose. One study in California found the fires between
2001 and 2007 released as much carbon dioxide as half of the registered
cars in that state over the same period.
If tropical forests are going to be considered for credit for
sequestering carbon, shouldn't the carbon saved by preventing domestic
fires, as well as insect and disease outbreaks that kill trees, be
eligible as well?
Answer. U.S. climate policies should create incentives to reduce
emissions and increase carbon sequestration across all sectors of the
economy, including our nation's forests. Of course, proposals to
suppress forest fires also need to consider ecological impacts beyond
climate change. U.S. climate policy should also reflect that tropical
forests and North American forests are somewhat different. Tropical
forests tend to hold more carbon and can be less expensive to protect
than North American forests. In addition, some scientists believe that
northern forests may contribute to climate change (by absorbing the
sun's heat) in ways that are quite different than in the tropics.
Question 5. Studies have shown that fires in the northern
latitudes, such as Alaska and Northern Canada, release more carbon
dioxide than fires in the continental United States because of the
organic duff that persists in tundra and taiga forests. History also
shows that we tend to allow those fires to burn until the weather puts
them out.
Should we be more concerned about these fires, not least because of
the high emission rates associated with them, and try to put them out
more quickly compared to fires in other areas, such as southwestern
deserts?
Answer. U.S. climate policies should create incentives to reduce
emissions and increase carbon sequestration across all sectors of the
economy, including our nation's forests. The role of forests in the
northern latitudes should receive special attention and consideration
given the potential for deforestation in those latitudes to release
higher levels of greenhouse gases, including from tundra and taiga
soils. Proposals to suppress forest fires in northern latitudes also
need to consider ecological impacts beyond climate change.
______
Responses of Taiya Smith to Questions From Senator Murkowski
Question 1. While the United States has focused almost exclusively
on the creation of a capand-trade system, can you comment on China's
interest in that type of policy? Is China capable of successfully
implementing an economy-wide cap, creating a carbon market, and
administering such a program?
Answer. Initially skeptical about the carbon trading market, China
worried that a cap-and-trade system will sap its GDP growth and will
allow richer nations to pay their way out of obligations to reduce
greenhouse gas emissions. However, China now has come to embrace it as
an opportunity to attract foreign investment in promoting energy
efficiency and renewable energy projects. Jiang Weixin, a senior
official of the National Development and Reform Commission (NDRC) has
stated, ``The cap-and-trade system create opportunities for developed
countries to emit greenhouse gases at a relatively low economic cost
and achieve their emission reduction targets, while developing
countries obtain benefits such as funding and technology transfer,
which will boost their efforts to pursue sustainable development.'' The
Chinese now see cap-and-trade as a win-win for them.
Further, after a decade of small-scale experiments in using
emissions trading to reduce pollution, China is taking steps to set up
a nationwide system. Three cities--Shanghai, Beijing and Tianjin--have
begun creating emissions exchanges modeled on carbon trading markets in
the U.S. and Europe.\1\ China currently accounts for 60 percent of
carbon credits trading under the Clean Development Mechanism (CDM).
This is a significant increase from its initial role in CDM, which was
just five percent of the contracted volume.
---------------------------------------------------------------------------
\1\ China National Petroleum Corp. (CNPC) has joined with the
Chicago Climate Exchange and the European Climate Exchange to set up
the Tianjin Climate Exchange. BlueNext has partnered with the Beijing
Environment Exchange to establish the Beijing exchange, and the
Shanghai United Assets and Equity Exchange is backing the Shanghai
Environment Energy Exchange.
---------------------------------------------------------------------------
Implementing a national program of carbon trading will take more
time. The national sulfur trading program is due to roll out in 2011,
with significant support from the U.S. Environmental Protection Agency
(EPA). Expanding this to include other gases will take longer,
potentially up to a decade, while this first program is established.
Already many in Beijing are already thinking seriously about what a
national program could look like, including consideration of the
necessary legislative and legal bodies. Critical to a successful
establishment of a trading program in China will be economic incentives
and expert support. EPA had been working with China for 15 years before
they had the technical capability and political willingness to attempt
to expand the program nationally.
Question 2. In 2005, the Bush Administration started the Asian
Pacific Partnership on Clean Development and Climate to foster
international cooperation and technology development. That program
brought together the governments and private sectors of seven nations--
Australia, Canada, China, India, Japan, Korea, and the United States--
to reduce pollution while maintaining economic strength. From your
viewpoint, is this program achieving its goals? Is it a successful
model that could be incorporated into other climate change programs?
Answer. The U.S. works with China to accelerate the deployment and
development of clean energy technologies through two different forums,
the bilateral U.S.-China Ten Year Cooperative Framework on Energy and
the Environment (TYF) and the multilateral Asia-Pacific Partnership on
Clean Development and Climate (APP). The TYF was established in June
2008, and expanded through a memorandum of understanding signed at the
Strategic and Economic Dialogue in July 2009 and again at the
Presidential Summit in November 2009. It focuses on ten strategic areas
ranging from cleaner uses of coal to natural resource conservation with
the aim of achieving concrete progress in each of these areas. The APP
brings together seven countries to focus regionally on five key areas
(climate change mitigation, energy security, air pollution, economic
development, reduction of poverty) and has twenty projects. Both
initiatives coordinate and utilize the private sector to help implement
their projects.
The APP has had some success; most importantly it has regularly
brought together an important group of countries to discuss the
practicalities of managing climate change and encouraged the use of
market-based mechanisms under the Kyoto Protocol. Through its programs,
it has had a number of achievements, but funding shortages,
insufficient communications, technical barriers, and so forth have
prevented APP and its projects from making any breakthrough. Moreover,
national strategy and interests differ amongst participating nations
and this has resulted in limiting the work that the partnership can
achieve. In contrast, the bilateral TYF is more nimble and able to
respond at a higher level more rapidly. Further, the TYF is able to
incorporate ongoing efforts and funding streams into its work and can
easily raise awareness and support to the Presidential level as it was
established with agreement at the highest levels of the U.S. and
Chinese governments.
Both programs have advantages and core constituents. The APP model
will likely prove to be useful as we expand regional relationships to
manage and bring down the costs of climate change, though it will never
replace bilateral relationships. To improve the effectiveness of the
APP, stricter project management should be implemented for scope,
schedule, budget, and accountability as well as discussions around how
intellectual property should be managed.
Question 3. In your written testimony, you note that China is
pursuing ``new domestic initiatives to `make carbon reduction a new
source of economic growth.''' Do you believe China would ever implement
policies to reduce emissions that are seen as hampering, rather than
promoting, economic growth?
Answer. China is in a difficult place; it has to maintain economic
growth and it has to reduce its dependency on unsustainable energy
sources. For the government in Beijing, there is no choice between the
two in the long term. However, over the short term, continuing economic
growth will trump carbon reduction. As new technologies are developed
and introduced into the market place, this will adjust and they will
decrease carbon emissions.
There will be certain instances where the government will institute
policies that will slow growth or redirect growth, but I believe that
they will be confined to scenarios that can be controlled or that have
proven in the long term to result in the successful creation of a
sustainable economic system. Another instance where this could occur is
if the environmental degradation is so bad that it must become a
priority over economic growth. On the national scale, China has decided
to seize climate change as an opportunity and hopes to use it to propel
its economy into cleaner, sustainable growth while managing both
environmental degradation and energy security. The decision to announce
its own target ahead of Copenhagen was a move to both lock in its
ability to continue to grow the economy, and also to assure the world
that China is participating. What it also means however, is that China
will be under increasing international pressure to ensure that it is
able to meets its own targets. This pressure will be particularly
important in helping manage the political factions within China as it
becomes increasingly difficult for the government to reach its economic
growth and climate change targets at the same time.
Question 4. What do you think of this week's bilateral clean
technology agreement between the United States and China? What progress
might it lead to in the years ahead?
Answer. The agreements reached at the Presidential Summit are
substantive and important. The challenge now will be to ensure that the
U.S. is able to dedicate the necessary resources toward their
implementation.
As China continues to devote more resources to developing clean
energy, it will become increasingly competitive in the international
market. However, it will not be able to do this fast enough to slow its
emissions without considerable support. The combination of Americans
and Chinese working together has proven to be effective and profitable
for both sides. The agreements signed on November 17 expanded the Ten
Year Framework as an instrument to manage our cooperation and also
launched cooperation on coal, electric vehicles, and reached out to the
private sector for assistance in building joint R&D centers. The
results anticipated will range from improvements in technology (such as
battery) to larger scale policy changes in China. The development of
new applications for technology and standards so that companies can
market their products in both the U.S. and China is also an important
potential result. The Chinese are fully committed to participate in
them and are providing the necessary staff to be able to make the most
of the agreements.
However, as the scope, depth, and complexity of U.S.-China
cooperation on clean energy rapidly expands, there is a risk on both
sides that it will become more difficult to coordinate this cooperation
effectively. On the U.S. side, the coordination efforts will take
considerable human power, dedication, determination, and hours of work
each day. The Obama administration will need to seriously consider
appointing a high-level official to manage the clean energy cooperation
relationship with China. One purpose this person would serve is to
better coordinate the various parts of the U.S. government effort as we
deal with constituencies from scientists to public policy specialists
to corporate executives. A second important objective would be to
encourage the Chinese side to appoint a counterpart who could help
overcome the bureaucratic disconnects within the Chinese system.