<DOC>
[110th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:37453.wais]
CLIMATE CHANGE: INTERNATIONAL ISSUES, ENGAGING DEVELOPING
COUNTRIES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ENERGY AND AIR QUALITY
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
MARCH 27, 2007
__________
Serial No. 110-26
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
U.S. GOVERNMENT PRINTING OFFICE
37-453 PDF WASHINGTON DC: 2008
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COMMITTEE ON ENERGY AND COMMERCE
JOHN D. DINGELL, Michigan, JOE BARTON, Texas
Chairman Ranking Member
HENRY A. WAXMAN, California RALPH M. HALL, Texas
EDWARD J. MARKEY, Massachusetts J. DENNIS HASTERT, Illinois
RICK BOUCHER, Virginia FRED UPTON, Michigan
EDOLPHUS TOWNS, New York CLIFF STEARNS, Florida
FRANK PALLONE, Jr., New Jersey NATHAN DEAL, Georgia
BART GORDON, Tennessee ED WHITFIELD, Kentucky
BOBBY L. RUSH, Illinois BARBARA CUBIN, Wyoming
ANNA G. ESHOO, California JOHN SHIMKUS, Illinois
BART STUPAK, Michigan HEATHER WILSON, New Mexico
ELIOT L. ENGEL, New York JOHN B. SHADEGG, Arizona
ALBERT R. WYNN, Maryland CHARLES W. ``CHIP'' PICKERING,
GENE GREEN, Texas Mississippi
DIANA DeGETTE, Colorado VITO FOSSELLA, New York
Vice Chairman STEVE BUYER, Indiana
LOIS CAPPS, California GEORGE RADANOVICH, California
MIKE DOYLE, Pennsylvania JOSEPH R. PITTS, Pennsylvania
JANE HARMAN, California MARY BONO, California
TOM ALLEN, Maine GREG WALDEN, Oregon
JAN SCHAKOWSKY, Illinois LEE TERRY, Nebraska
HILDA L. SOLIS, California MIKE FERGUSON, New Jersey
CHARLES A. GONZALEZ, Texas MIKE ROGERS, Michigan
JAY INSLEE, Washington SUE WILKINS MYRICK, North Carolina
TAMMY BALDWIN, Wisconsin JOHN SULLIVAN, Oklahoma
MIKE ROSS, Arkansas TIM MURPHY, Pennsylvania
DARLENE HOOLEY, Oregon MICHAEL C. BURGESS, Texas
ANTHONY D. WEINER, New York MARSHA BLACKBURN, Tennessee
JIM MATHESON, Utah
G.K. BUTTERFIELD, North Carolina
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
BARON P. HILL, Indiana
<RULE>_________________________________________________________________
Professional Staff
Dennis B. Fitzgibbons, Chief of
Staff
Gregg A. Rothschild, Chief Counsel
Sharon E. Davis, Chief Clerk
Bud Albright, Minority Staff
Director
(ii)
Subcommittee on Energy and Air Quality
RICK BOUCHER, Virginia, Chairman
G.K. BUTTERFIELD, North Carolina J. DENNIS HASTERT, Illinois
Vice Chairman Ranking Member
CHARLIE MELANCON, Louisiana RALPH M. HALL, Texas
JOHN BARROW, Georgia FRED UPTON, Michigan
HENRY A. WAXMAN, California ED WHITFIELD, Kentucky
EDWARD J. MARKEY, Massachusetts JOHN SHIMKUS, Illinois
ALBERT R. WYNN, Maryland JOHN B. SHADEGG, Arizona
MIKE DOYLE, Pennsylvania CHARLES W. ``CHIP'' PICKERING,
JANE HARMAN, California Mississippi
TOM ALLEN, Maine STEVE BUYER, Indiana
CHARLES A. GONZALEZ, Texas MARY BONO, California
JAY INSLEE, Washington GREG WALDEN, Oregon
TAMMY BALDWIN, Wisconsin MIKE ROGERS, Michigan
MIKE ROSS, Arkansas SUE WILKINS MYRICK, North Carolina
DARLENE HOOLEY, Oregon JOHN SULLIVAN, Oklahoma
ANTHONY D. WEINER, New York MICHAEL C. BURGESS, Texas
JIM MATHESON, Utah JOE BARTON, Texas (ex officio)
JOHN D. DINGELL, Michigan (ex
officio)
------
Professional Staff
Sue D. Sheridan, Chief Counsel
David J. McCarthy, Minority Counsel
Margaret Horn, Legislative Clerk
C O N T E N T S
----------
Page
Hon. Rick Boucher, a Representative in Congress from the
Commonwealth of Virginia, opening statement.................... 1
Hon. J. Dennis Hastert, a Representative in Congress from the
State of Illinois, opening statement........................... 2
Hon. Jane Harman, a Representative in Congress from the State of
California, opening statement.................................. 3
Hon. John Shimkus, a Representative in Congress from the State of
Illinois, opening statement.................................... 4
Hon. G. K. Butterfield, a Representative in Congress from the
State of North Carolina, opening statement..................... 5
Hon. Joe Barton, a Representative in Congress from the State of
Texas, opening statement....................................... 6
Prepared statement........................................... 7
Hon. Ralph M. Hall, a Representative in Congress from the State
of Texas, opening statement.................................... 8
Hon. John D. Dingell, a Representative in Congress from the State
of Michigan, opening statement................................. 9
Witnesses
Annie Petsonk, international counsel, Environmental Defense,
Washington, DC................................................. 10
Prepared statement........................................... 89
Jeffrey Holzschuh, vice chairman, institutional securities,
Morgan Stanley, New York, NY................................... 12
Prepared statement........................................... 56
W. Thomas Stephens, chairman and chief executive officer, Boise
Cascade, LLC, Boise, ID........................................ 14
Prepared statement........................................... 133
Jonathan Pershing, director, Climate Energy and Pollution
Program, World Resources Institute, Washington, DC............. 16
Prepared statement........................................... 60
Edward S. Steinfeld, associate professor, Department of Political
Science, Massachusetts Institute of Technology, Cambridge, MA.. 18
Prepared statement........................................... 124
Pramit Pal Chaudhuri, Bernard Schwartz Fellow, the Asia Society,
New York, NY, and foreign editor, Hindustan Times, New Delhi,
India.......................................................... 20
Prepared statement........................................... 52
CLIMATE CHANGE: INTERNATIONAL ISSUES, ENGAGING DEVELOPING COUNTRIES
----------
TUESDAY, MARCH 27, 2007
House of Representatives,
Subcommittee on Energy and Air Quality,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:08 a.m., in
the Rayburn House Office Building, Hon. Rick Boucher, chairman,
presiding.
Members present: Representatives Butterfield, Melancon,
Barrow, Wynn, Harman, Gonzalez, Inslee, Baldwin, Ross, Hooley,
Matheson, Dingell, Hastert, Hall, Upton, Shimkus, Shadegg,
Walden, Sullivan, Burgess, and Barton.
Staff present: Sue Sheridan, Bruce Harris, Lorie Schmidt,
Chris Treanor, Margaret Horn, David McCarthy, and Matt Johnson.
OPENING STATEMENT OF HON. RICK BOUCHER, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF VIRGINIA
Mr. Boucher. The subcommittee will come to order. This
morning, we welcome witnesses who will discuss the
international component of the U.S. response to the challenge
of climate change. Shortly following the negotiation of the
Kyoto Climate Change treaty, the United States Senate, by the
rare unanimous vote of 98 to nothing, adopted a non-binding
resolution expressing opposition to the Kyoto Treaty.
Consequently, that treaty was never presented to the United
States Senate for ratification.
Perhaps the major reason for that broad statement of
opposition in the U.S. Senate was the absence of any obligation
in the treaty for leading developing nations such as China,
India, and Brazil to undertake greenhouse gas emissions
reductions. Why, opponents ask, should the United States assume
the painful burden of reducing emissions to 1990 levels by the
year 2010 if the developing world, which accounts for most of
the growth in greenhouse gas emissions, is assuming no burden
whatsoever?
I think a clear message that comes from that experience is
that for a mandatory greenhouse gas emissions program to
succeed in the United States, we must include in our
legislation establishing the program a reliable means of
assuring meaningful participation by developing nations. I will
welcome the views of our witnesses this morning on the most
appropriate way for the United States to obtain that assurance.
I will also welcome their views on the role that the United
States should be playing in working with both developed and
developing countries to structure an international agreement
relating to greenhouse gas emission control for implementation.
After the time that the Kyoto Treaty expires, this would be
implementation in the post-2012 environment.
The United States should play a lead role in these
negotiations in my view, and suggestions from our witnesses on
the best way to encourage United States participation in that
multi-lateral exercise will be welcome this morning. With those
comments, I will conclude my opening statement and announce
that pursuant to the rules of the committee, any Member who
decides to waive an opening statement will have the time
allotted for that statement added to that person's question
period. And I am now pleased to recognize the ranking
Republican member of our subcommittee, the gentleman from
Illinois, Mr. Hastert.
OPENING STATEMENT OF HON. J. DENNIS HASTERT, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF ILLINOIS
Mr. Hastert. Thank you, Mr. Chairman. Mr. Chairman, once
again let me commend you on your holding another thought-
provoking hearing. An international perspective on greenhouse
gas emissions is, in my view, absolutely essential to the
climate change policy discussions we have been having. We have
heard a significant amount of testimony over the past month on
the state of the Earth's climate, causes of climate change, and
potential consequences.
We have also learned the important fact that greenhouse gas
emissions are a global, not a national, issue. Whatever the
effect a ton of CO\2\ has when it is added to the atmosphere,
the impact is the same whether it is emitted in the United
States or China or another part of the globe.
Today, we will begin to hear directly how other countries
view the debate over climate change, what kind of international
commitments that they are likely to make, and whether we can
rely upon them to meet those commitments. I personally believe
that one of the most important things the U.S. can do today to
offset greenhouse gas emissions around the world is to share
our technology and ingenuity with other nations, particularly
in underdeveloped and developing countries. That includes
energy-producing technology such as advanced nuclear, wind,
solar, hydroelectricity, and zero-emissions coal; alternative
fuel technologies such as ethanol, biodiesel, and advanced
biomass; and energy efficiency breakthroughs in manufacturing
processes, building designs, appliances and vehicles.
One of the best programs to jumpstart this effort is the
Asian Pacific Partnership initiated in 2005 by President Bush,
along with Australia, China, India, Japan, and South Korea.
These six countries are critical to any effort dealing with the
Earth's climate because together they count for almost half the
world's population, primary energy consumption, half the
world's effort or contribution to CO\2\ emissions, electricity
generation, and economic activity.
The Asian Pacific Partnership was created to identify and
deploy cost-effective technologies that either produce energy
without greenhouse gas emissions like wind, solar and nuclear,
or save energy through increases in efficiency.
Let me take a second and give you an example of how this
program is working. We know methane is 20 times more potent
that CO\2\ as a greenhouse gas. By deploying American
technology to capture methane that is ordinarily vented into
the atmosphere, a Chinese coal mining concern will reduce
emissions by 4\1/2\ million tons. That is one entity over 20
years. Moreover, this project will pay for itself by converting
the methane gas into 120-megawatts of power. Thus, this project
makes sense economically and environmentally.
However, our international efforts in methane capture are
not confined to the six countries in Asian Pacific Partnership.
The Methane to Markets Partnership, another U.S.-lead effort
includes 17 nations and more than 250 private sector
organizations and projects to advance methane recovery in
agriculture, landfills, coalfields, and natural gas and oil
systems.
Beyond the multinational efforts, what are some of the
other initiatives that we should be looking at? As a nation and
global partner, we need to examine what we can do to expand the
deployment of emission-free generating technologies, like
advanced wind, solar, and nuclear. Furthermore, we must
accelerate the research into affordable cellulosic ethanol. And
finally, because coal is critical to meeting both American and
global energy needs, let us do more research and development on
zero-emission coal technology and carbon capture and
sequestration.
All these initiatives and other like them have benefits
that go beyond reducing greenhouse gas emissions. These
proposals make sense for a variety of reasons, all of which are
critical to our economic future. They have a demonstratively
favorable environmental impact. They seek to deploy existing
technologies as they become available and push new innovations.
They make economic sense, and they foster long-term economic
growth and security by reducing our dependence on foreign
sources of energy.
Mr. Chairman, again I thank you for holding this important
hearing. I look forward to the testimony of our witnesses.
Mr. Boucher. Thank you very much, Mr. Hastert. Calling on
Members now in order of seniority on the subcommittee who were
present at the time the hearing convened, the gentlelady from
California, Ms. Harman, is recognized for 3 minutes.
OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Ms. Harman. Thank you, Mr. Chairman. Let me apologize in
advance to you and witnesses for coming in and out of this
hearing today. Sadly, I have a conflict just down the hall. I
would however urge witnesses, as I did to one before we
convened, to be bold, to make certain that in your 5 minutes,
committee members know what is on your mind, what has worked,
what hasn't worked, what you feel we might try to do because we
are all trying to get this right and to move on quickly.
Climate change is the ultimate diplomatic challenge.
Emissions reductions at home will make our economy more
efficient. In the long run, they will also make us more
prosperous and competitive, but without coordinated global
action, emissions reductions at home will not solve global
warming. That is no reason for us to sit on our hands. Never
have we waited for other countries to show us how to solve
problems, and we shouldn't wait here. The U.S. should lead the
way on climate change and exercise leadership to forge a global
solution.
Our diplomatic prestige has suffered in recent years for
reasons well known, but the U.S. still wields extraordinary
soft power partly as a result of our robust economy. It may
take years to regain what diplomatic capital we have spent
since 9/11, but the economic incentives we can offer the
developing world to follow our lead in reducing CO\2\ emissions
are still considerable.
To give just one example, the U.S. is the largest market in
the world for many consumer goods. Anyone who has been inside a
Wal-Mart can tell you that, and we will likely be the largest
carbon market too. So let us make developing nations want to
sell us carbon credits. That is just one way of making the
global market work to reduce global warming.
International agreements like Kyoto are important and
perhaps we can do better agreements as Al Gore suggested last
week, but our means of bringing the rest of the world along are
vast, and we should use our resources to solve climate change
on our terms. The first step is acting boldly in this
committee.
So again, Mr. Chairman, I urge our witnesses to help us be
bold, be responsible, and be successful in doing our part. I
yield back the balance of my time.
Mr. Boucher. Thank you, Ms. Harman. The gentleman from
Michigan, Mr. Upton, is recognized for 3 minutes.
Mr. Upton. I will waive.
Mr. Boucher. The gentleman from Michigan waives.
The gentleman from Illinois, Mr. Shimkus, is recognized for
3 minutes.
OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Shimkus. Thank you, Mr. Chairman. I want to thank you
for holding this hearing today and welcome our witnesses. In
order to understand the long-term ramifications of global
climate change and decide the best near term course of action,
we must weigh carefully all sides of the issue.
Today's hearing will add yet another uncertainty into this
broad and complicated debate. Just yesterday, Reuters reported
that Chinese energy data shows that China is about to surpass
the United States and become the world's biggest carbon
emitter. But when asked to comment, here is what the Chinese
had to say. ``These figures are very complicated. We don't have
an estimate of carbon dioxide for such recent date. Such an
official, who declined to be named, we have just set in motion
our national reporting plan, but it will not be done for 2 or 3
years.''
This doesn't seem like a comment that would signal that
China is ready to be a partner of any global initiatives, and
that would make mandatory the reduction of carbon dioxide. It
is expected that China will account for more than half the
global growth in coal supply in demand over the next 25 years.
At the same time, India gets over half of their energy
output from coal. The two countries combined are projected to
account for nearly 70 percent of the world coal demand through
2030. I remain highly skeptical that China or India would
follow the U.S. into any implementation of a cap and trade
program to reduce carbon dioxide emissions that other nations
would follow.
We know today that only six of the 120 Kyoto countries are
meeting their agreement. We also know that China and India, as
developing nations, are not part of the Kyoto Agreement or any
other agreement to constrain carbon dioxide emissions. What
would be the purpose of the United States investing billions in
unproven scheme to reduce emissions if all projections show
that the fast growing economies of China and India will surpass
the U.S. with emissions output, but again show no willingness
to participate in such a program?
Why not continue investment in the kinds of programs that
are working and don't run the risk of burdening economies,
especially developing economies? China and India are both part
of the Asian Pacific Partnership on clean development climate,
and both have made investments in the president's FutureGen
initiative. The Earth exists in a vacuum, but the people on
Earth do not. And it is dangerous to worry about one and ignore
the other.
Carbon dioxide is a byproduct of jobs, growth, and
opportunity for average working people. Despite impressive
gains in American energy efficiency over the past few years, a
basic reality is that with the technology mix deployed today,
capping carbon dioxide emissions will restrain economic output,
jeopardize economic growth, and eliminate people's jobs. Kyoto
level caps would likely eliminate hundreds of thousands, if not
millions, of American jobs.
With that, Mr. Chairman, I yield back my time.
Mr. Boucher. Thank you very much, Mr. Shimkus. The
gentleman from Texas, Mr. Gonzalez, is recognized for 3
minutes. Mr. Gonzalez waives an opening.
Ms. Hooley from Oregon is recognized for 3 minutes. Ms.
Hooley waives.
Mr. Matheson from Utah is recognized for 3 minutes. Mr.
Matheson is not here. Mr. Butterfield from North Carolina is
recognized for 3 minutes.
OPENING STATEMENT OF HON. G.K. BUTTERFIELD, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NORTH CAROLINA
Mr. Butterfield. Thank you, Mr. Chairman. I too want to
thank you for convening this hearing today. You told us a few
weeks ago that you were serious about climate change, and you
are certainly demonstrating that today.
Mr. Chairman, as we continue these hearings, the
fundamental question with global warming that we must consider
is not whether Congress should act, but instead how soon and
what is the best way for Congress to act. The scientific data
and evidence demonstrates that climate change is a reality. I
repeat that. It is a reality, and we must act responsibly by
taking the necessary steps to curb global warming where it is
possible.
Earth was created to endure, but our pollution and
emissions seem to be causing our planet grave harm. No single
generation of people holds possession of this Earth, and it
should not put itself in the position of overly-influencing its
fate. Earth was created with enough abundance to provide for
everyone who has lived and for all future generations. Our
actions and our subsequent inactions could put that abundance
into jeopardy.
For many years, people seemed eager to believe that it was
only important to deal with emissions, pollution, and global
warming to ensure that the world and our nation would be left a
better place for our children and grandchildren. Unfortunately,
however, we are already seeing the troubling effects of climate
change, and the evidence suggests these problems will soon grow
far beyond our control unless we act and act quickly.
We must be faithful and wise stewards because at this
point, we all know that we have a problem, which could
substantially affect the way we live our daily lives. It is my
hope, Mr. Chairman, that we will soon put forward some
carefully constructed and sound policy, which addresses the
issue of global warming.
America is the leading nation in the world, and our actions
will greatly influence the direction that the rest of the world
moves on this important issue. I thank all of the panelists for
being here today. I look forward to their testimony. I started
reading some of the statements just a few minutes ago. All of
you bring a very important message that people need to hear. I
look forward to your testimony and thank each of you for being
here today. I yield back.
Mr. Boucher. Thank you, Mr. Butterfield. The gentleman from
Texas, Mr. Barton, the ranking member of the full committee, is
recognized for 5 minutes.
OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Barton. Well, Mr. Chairman, I am going to give you back
some of that time. I will put my formal statement in the
record. I just want to make a few general comments. It is my
opinion that a citizen of the undeveloped world is not going to
forgo electrification of their life for some amorphous
environmental benefit that, if realized, won't be realized for
far in the future.
By the same token, I don't think citizens in our country
are going to willingly give up their jobs to accomplish that
same amorphous environmental benefit some time in the future.
When we talk about countries like China, China's coal-fired
capacity, in 7 months, their additional coal-fired capacity
will equal the entire coal generation capacity of the State of
Texas, which has, I believe, the largest base-load coal-fired
generation system of any State in the country. And in a year,
China's new coal-fired capacity will equal the entire output of
the State of Texas.
The Chinese, who barely pay lip service to the criteria
pollutants, have stated in no uncertain terms that they have
absolutely no intention of reducing their CO\2\ emissions any
time in the foreseeable future. To the extent that we have
statistics, we know that between 2000 and 2004, China's CO\2\
emissions went up 60 percent. During that same timeframe, the
CO\2\ emissions in the United States went up a little under 2
percent. It is expected any year now that China's overall CO\2\
emissions are going to surpass the United States.
And for us to sit here and somehow think that the United
States of America can do something that will morally challenge
the Chinese, and to a lesser extent the Indians, to follow us,
is just not common sense. In fact, I think it is the opposite
of common sense. So I am very interested in what our witnesses
have to say on this issue, but this issue today, Mr. Chairman,
is one of the most critical in terms of common sense
recognition of any proposed solutions. You cannot have a
legislative package that passes the House of Representatives
that does not have an enforceable, meaningful mechanism to
include the developing world and especially the Chinese.
With that, I yield back.
[The prepared statement of Mr. Barton follows:]
Prepared Statement of Hon. Joe Barton, a Representative in Congress
from the State of Texas
Mr. Chairman, today we begin to look beyond our own borders
to examine greenhouse gas emissions in other countries.
Some witnesses today will talk about how American companies
are helping other countries avoid greenhouse gas emissions.
Others will recommend that the U.S. use its muscle to get other
countries to cut back.
We need a clear picture of what countries are actually
doing, and are likely to do, with and without our influence.
We also need to understand countries' ambitions for their
own people, and how greenhouse gas emissions reduction stacks
up as a priority.
Here's one thing I know already: Poor countries don't spend
money on environmental causes. And here's something else I
know: If China and India don't reverse their emission trends,
nothing the United States can do will matter in the long run,
except to the American taxpayers who have to pay the enormous
costs.
Take China. The Chinese are adding coal-fired generation at
an unprecedented pace. They are said to be starting up another
500 megawatts of coal-fired power plants every 4 days.
Compare that to California which made the dramatic
commitment to turn away from its cheapest source of power, out-
of-state coal-fired power plants. Replacing that power will
certainly be expensive. Consequences may well be power
shortages and retail price spikes. Will it make a lasting
contribution to world reductions of greenhouse gas emissions?
China will add an equivalent amount of new coal-fired capacity
in a matter of weeks.
In my own State of Texas, one company has thrown State
resource planning into a tailspin. The company had promised,
then backed away from, construction of 6,000 megawatts of new
coal generation. Those new plants would have been among the
cleanest ever built, virtually eliminating emissions of
criteria pollutants.
Then they were cancelled, supposedly to reduce greenhouse
gas emissions. China will produce 6,000 megawatts in 2 months
and never break a sweat.
According to a new study by MIT, coal output in China has
doubled since 2000. Its coal output is now No. 1 in the world
and more than double the United States.
Will China make and stick by commitments to reduce
greenhouse gases? It is highly doubtful.
The study says that, ``China's energy-related governmental
bureaucracy is highly fragmented and poorly coordinated.''
Also, ``infrastructural issues are being resolved very quickly
by individuals and organizations operating well below the level
of national energy corporations.''
What are some of the results? One is that China doesn't
even seem to do a good job of controlling criteria pollutants.
Well under 5 percent of China's coal plants have any sulfur
dioxide control equipment at all, and apparently for those that
do have scrubbers, there is not much reason to assume that the
scrubbers actually operate. Why operate them when there is no
enforcement and all they do is reduce power output?
No wonder China has some of the most polluted cities in the
world. And that pollution won't ease up anytime soon if more
and more companies choose to move operations to China for the
cheap power, especially if we in the U.S. increase our own
costs with a carbon cap.
Meanwhile, India is also growing its coal consumption and
expects to surpass the United States by 2020.
Mr. Chairman, this examination will not slow down our own
best efforts. Pursuant to the Energy Policy Act of 2005 we are
providing incentives for next generation alternative
technologies, atmospheric research, and regulatory reforms that
open the door for those technologies .
I think we should look first to build on those efforts in
EPAct and a few others before we resort to regulating,
rationing, or taxing CO\2\ emissions.
Mr. Chairman, I look forward to hearing from our witnesses
on some of these topics.
----------
Mr. Boucher. Thank you very much, Mr. Barton. The gentleman
from Louisiana, Mr. Melancon, is recognized for 3 minutes. The
gentleman waives an opening statement.
The gentleman from Washington State, Mr. Inslee, is
recognized for 3 minutes. Mr. Inslee waives.
Gentlelady from Wisconsin, Ms. Baldwin, is recognized for 3
minutes. The gentlelady waives.
Without objection, all of the opening statements will be
received in the record. The gentleman from Arizona, Mr.
Shadegg, is recognized for 3 minutes. Mr. Shadegg waives.
The gentleman from Oregon, Mr. Walden, is recognized for 3
minutes. Mr. Walden waives.
The gentleman from Oklahoma, Mr. Sullivan, is recognized.
Mr. Sullivan waives.
The gentleman from Mississippi, Mr. Pickering, is
recognized for 3 minutes. Mr. Pickering waives.
And the gentleman from Texas, Mr. Hall, is recognized for 3
minutes.
OPENING STATEMENT OF HON. RALPH M. HALL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Hall. Mr. Chairman, I almost waived. I just want to say
that Mr. Barton is exactly right to lead into this discussion
with something that all of you know is obvious from watching
television, reading the paper, and listening to testimony up
here. There is a war on energy today, outright war on energy.
And I think the people that are waging that war need to
remember that energy might keep our kids from having to fight a
war, if we can solve the energy problem.
We have to be honest about this, and Mr. Shimkus was also
right in talking about the vast expenditures of money that it
takes or the gentleman from North Carolina addressed climate
change as a reality, and certainly we all know that. And the
answer is technology and money. I don't believe, as Chairman
Barton said, that the American people are going to guess that
$180 billion a year for almost 70 years with no known cure is
the answer to it. It involves shipping all of our jobs to
China, the worst polluter in the entire world.
We just need to get realistic about it. Global warming or
global freezing or whatever you have without Russia, without
China, without India, without Mexico, I go on down the line, it
is just not a possibility. And I say to my friends on the other
side it isn't going to happen. You might make it happen over
here in the House, but the Senate is going to work on it. It is
going to eventually get to a President over there that has some
opinions about it. And we have enough votes to uphold his veto
when it happens.
So let us be realistic about it, and let us tell our
children that those signs that say no nukes, if we can protect
nuclear power--and I am a fossil fuel guy, but I want nuclear
power. I want any kind of a power. Joe Barton gave us about 15
ways to increase our energy output in the energy bill he passed
a year and a half ago. That is the answer to it, and I yield
back my time.
Mr. Boucher. Thank you very much, Mr. Hall. I thank all of
the Members for their opening statements, and I particularly
thank those who chose to waive an opening statement in
anticipation of questions.
I want to briefly introduce the members of this panel, and
then I am going to recognize the gentleman from Michigan, the
chairman of the full committee, for his opening statement. So
first, a word of introduction about the members of our panel
today. Joining us this morning is Annie Petsonk, who is
international counsel for Environmental Defense. Jeffrey
Holzschuh is vice chairman of institutional securities for
Morgan Stanley. Mr. Thomas Stephens is the president and chief
executive officer of Boise Cascade. Jonathan Pershing is the
director for Climate and Energy Pollution Program at World
Resources Institute. Dr. Edward Steinfeld is associate
professor of political science and co-director for China Energy
Group, Industrial Performance Center at the Massachusetts
Institute of Technology. And Mr. Pramit Pal Chaudhuri is a
Bernard Schwartz Fellow, with the Asia Society in New York, and
the foreign editor, Hindustan Times of New Delhi. I want to say
welcome to each of our witnesses, and we will turn to your
testimony momentarily. But it is now my pleasure to recognize
the chairman of our full Energy and Commerce Committee, the
gentleman from Michigan, Mr. Dingell, for 5 minutes.
OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr Dingell. Mr. Chairman, thank you for your great
courtesy. I want to commend you for this hearing and the fine
way in which you are leading this subcommittee on a very
difficult issue.
The issue today is a very important one. It has percolated
through every other hearing that the subcommittee has held on
climate change: the contribution of developing nations to the
growth in greenhouse concentrations, and their potential role
in mitigating this environmental threat.
It is widely understood that without commitments from both
developed and developing nations to limit greenhouse emissions,
this global environmental problem cannot be addressed. It is
also broadly accepted that absent a major effort on the part of
the United States, large developing countries such as China and
India are not likely to significantly limit their own rapidly
rising emission levels.
What is clear is that we don't know a whole heck of a lot
about this problem. Now, what is most unclear is how to
coordinate the two responsibilities we have here. Some
witnesses at prior hearings have argued that the United States
has a moral and practical imperative to act unilaterally to
limit its emissions, whether or not developing countries act in
parallel within the same time period.
A number of witnesses predicted that if the United States
leads, developing countries are likely to follow suit. Other
witnesses, however, have argued that it would be foolhardy of
the United States to unilaterally bind itself to emission
limits and that doing so could cause both jobs and emissions
problems to migrate to the developing world, thereby harming
our economy without securing real reductions in global
emissions. My sense is that people of good conscience are
looking for practical solutions to the dilemma.
I was skeptical of the Kyoto Protocol because, to my mind,
it did not strike a fair or effective balance between the
developed and developing nations. I hope that the current U.N.
negotiations will produce a more workable approach in the post-
Kyoto era. I would note that the Senate voted 95 to nothing on
this particular matter, as my colleagues will remember when
they passed the Byrd-Hagel resolution on this precise point.
In any event, in its legislative considerations, Congress
must find ways to limit emissions from the U.S. that do not
amount to shifting their origin and American jobs to other
countries. The subcommittee has heard anecdotal evidence about
a new openness in China and other developing nations to cleaner
paths to economic growth. I hope today's hearings will help us
all to gain a better understanding of what changes are underway
in developing countries and how the U.S. might align its
efforts with theirs to mutually address this growing
environmental concern.
Again, Mr. Chairman, I thank you for holding this hearing.
I look forward to the testimony of our witnesses here today,
and I yield back the balance of my time.
Mr. Boucher. Thank you very much, Mr. Dingell.
We will now be pleased to hear from our witnesses, and I
want to thank each of them for their attendance this morning.
Without objection, your full opening statement will be made a
part of our record, and we would welcome your oral summary of
approximately 5 minutes. And I will simply call on the
witnesses in the order in which I introduced them. Ms. Petsonk,
we will happy to begin with you if you are ready.
STATEMENT OF ANNIE PETSONK, INTERNATIONAL COUNSEL,
ENVIRONMENTAL DEFENSE, WASHINGTON, DC
Ms. Petsonk. Thank you very much, Mr. Chairman. Good
morning, Chairman Boucher and distinguished members of the
subcommittee. Good morning, Chairman Dingell. My name is Annie
Petsonk. I am the international counsel with Environmental
Defense. My organization is already known to you, so with your
permission, I would like to go straight to making three points
about what you can do to engage developing countries in the
climate challenge.
Before I make my three points, I just want to note that if
you cap America's emissions and allow those who cut emissions
better, cheaper, faster to trade allowance with those who
can't, you will create what is likely to become the world's
largest carbon market. Europe's cap and trade market is already
worth about $25 billion, and its volume is forecasted to double
next year. If you design it well, America's market will draw
more investment capital and more entrepreneurial energy into
the search for low-carbon solutions than any place else in the
world.
My first point follows an idea that Representative Harman
raised. Congress can engage developing countries by offering
them the carrot of access to our carbon market if they measure,
report, and reduce their emissions across the board. Currently,
developing countries can only earn carbon credits for
scattershot projects on a case-by-case basis. That means their
slice of the carbon credit business is small. It is only about
a sixth of the global total.
Access to our carbon market will be a significant incentive
that you can offer them in exchange for their emission cuts. A
good place for Congress to start is with tropical forest
nations, and we have a slide here showing--you can see some
bars showing global emissions. The bar all the way on the left-
hand side is the emissions of the United States. We are the
world's biggest emitter.
But the bar all the way on the right-hand side, which is
even bigger, is the emissions from the destruction of rain
forests around the world. Tropical deforestation emits as much
carbon dioxide as all the fossil fuel consumed in America. We
are the world's biggest emitter. China is No. 2. But did you
know who is No. 3? It is Indonesia. And No. 4? It is Brazil. 70
percent of those countries' emissions come from deforestation,
but they cannot earn any credit in the carbon market today for
reducing those emissions.
If you open America's carbon market to rainforest countries
that reduce their national deforestation below a historical
level, you will create a powerful incentive for them to reduce
what, for many of them, is their biggest source of emissions.
Some rainforest countries have already indicated their interest
in signing up for this approach if you create it.
That, in turn, is putting competitive pressure on other
developing countries to figure out how they are going to get
into our carbon market if you create it. You can heighten that
pressure on developing countries.
Today, China and India participate in the carbon market to
the tune of about $5 billion. In the absence of emission caps,
it is all in these one off projects. You don't have to accept
that framework. You can instead design our carbon market so
that the sooner those countries cap their emissions, the more
favorable the terms of access to our carbon market they will
get. That would give them a strong incentive to open their
entire economies to the kinds of emission reduction investments
in new technologies, American technologies, the kind of
technologies that Representative Hastert mentioned, economy-
wide instead of in the individual projects to which the current
carbon market is now restricted.
What if even with these carrots developing countries still
refused to cut emissions? My second point is that you have
sticks that Congress can deploy. For example, you can design
our carbon market so that credits from these one-off projects
in countries that don't cap and cut their emissions are worth
less in our carbon market. If those countries want their
credits to trade at par in our market, they will have to cap
and reduce their total emissions.
Another stick, one I believe that you heard about last
week, is a proposal put forward by American Electric Power and
the International Brotherhood of Electrical Workers to require
that imports of carbon-intensive products from nations that
have refused to cap and cut emissions be accompanied by
emission allowances. The aim of that proposal is to prevent the
kind of emission shifts and job shifts that Chairman Dingell
and other members of the subcommittee have referred to. And we
think that that proposal merits close consideration, and I
would be happy to talk further with you about that if you have
questions.
My last point is that you have the power to lead by
example. If you create a durable carbon market with enforceable
mechanisms, one that taps innovation in the service of a safe
climate, then America can demand that where we lead, others
should follow. But if you adopt a weak program, other nations
will too, and that could hurt not only the climate but American
industry.
Here is how. Let me give an example. If you load the
program with safety valves in the form of price controls on
emissions, our trade competitors will race to do likewise. If,
for example, you set a price ceiling of, let us say, $15 a ton
in the U.S. carbon market so that when the price of trade
allowances hits the ceiling, the Government simply prints more
allowances for sale at the ceiling price.
That busts the emissions cap, but let me also tell you it
undercuts our industry because developing countries are going
to adopt the same kinds of price controls but they are going to
set them at much lower levels relative to their economies. If
we cap ours at $15 a ton, they might cap theirs at $5 a ton.
Then instead of investing in the kind of low-carbon
technologies that have been mentioned here, emitters simply
will buy up allowances in the countries with the cheapest price
ceilings and emit as much as they want. Who would buy American
low-carbon clean-coal technology then? I urge you not to take
this route.
Let me close by saying your decisions will have an enormous
influence on the choices developing countries make. I urge you
to use the carrots and the sticks along with your leadership.
Thank you.
[The prepared statement of Ms. Petsonk appears at the
conclusion of the hearing.]
Mr. Boucher. Thank you very much, Ms. Petsonk. Mr.
Holzschuh, we will be happy to hear from you.
STATEMENT OF JEFFREY R. HOLZSCHUH, VICE CHAIRMAN, INSTITUTIONAL
SECURITIES, MORGAN STANLEY, NEW YORK, NY
Mr. Holzschuh. Thank you, Mr. Chairman, and distinguished
members of the subcommittee. My name is Jeff Holzschuh. I am
vice chairman of our institutional securities business at
Morgan Stanley, head of what we call our global power and
utilities group, and also I chair the firm's environmental
policy committee. So from three perspectives, I speak to you
this morning. I hope I can add some useful perspectives on some
of the developing countries and the steps that they have taken
to think about reducing greenhouse gas and including how the
U.S. and other developed nations are impacting this issue.
As developing countries, particularly China, continue their
rapid growth trajectories, their energy use and demand,
including their emissions, have obviously been growing. With
the global warming increasingly confirmed for the U.N. and IPC
reports, both the developed and developing world needs to take
appropriate actions now.
Morgan Stanley is a leading, global financial firm. I think
most of you probably have heard of us, but a couple of things
that we have tried to do, we have committed in excess of $3
billion of our own capital to begin developing the carbon
emissions credits, purchasing them, trading them, projects,
other initiatives related to greenhouse gas over the next few
years. In addition, we are one of the most active traders of
environmental commodities, including sulfur dioxide, nitrogen
oxides, biodiesel, ethanol, and weather derivatives. We also
work with a variety of our industry clients to craft new and
innovative approaches to the evolving greenhouse gas concerns
in this country and globally.
Internationally, our commodities trading division in
Europe, for example, has been actively trading EU carbon
allowances in the new cap and trade regime. It works with
clients to develop carbon offset projects as well. We believe
the trend toward more country, regional, and international
carbon trading is positive, can provide useful incentives and
structures to help reduce global greenhouse gas emissions in
the future.
You have heard extensive analysis on greenhouse in
testimony, but from our perspective, I wanted to add a couple
of points. We are very aware of China's potential impact on
greenhouse gas due to its growing greenhouse emissions, its
projected energy demand growth over the next 20 years. Since
1990, China's emissions have risen 77 percent compared to only
18 percent in the U.S., as recently estimated by the World
Resource Institute Study.
Nearly 32 percent of future global energy demand over the
next 20 years will come from China alone, as estimated by the
International Energy Agency, McKinsee, and our own research.
Actually, India and Latin America, in comparison, are only
projected to account for 12 percent of the future global energy
demand during that period. The Chinese emissions growth is due
primarily to its reliance on its abundant coal reserves and
satisfying those growing energy needs.
According to the EIA's world energy outlook 2006, China and
India will account for 80 percent of the incremental increase
in coal consumption globally between now and 2030. Today, China
is opening new coal-fired generation plants every 7 to 10 days.
Currently, the coal-fired plants are inefficient. They consume
twice as much coal per kilowatt produced, compared to the U.S.
plants. They lack the anti-pollution stack scrubbers that are
found on most U.S. plants.
Other developing countries, such as India, also have
inefficient plants, and we believe it is our country's best
interest to enable countries like China to use the best
available clean coal technologies and help reduce their
greenhouse gas emissions from this key source in the coming
years. China is projected to become the world's largest emitter
of greenhouse gas, and is now preparing a national strategy to
address climate change and reduce those greenhouse gases.
Evidence suggests that the approval of this strategy make take
a couple of years. I think the good news is that they are
addressing it at the national level; however, we are not naive.
We think it will be limited or there won't be regulatory
enforcement mechanisms. They will lag until they can create an
effective regulatory and enforcement agency.
An interesting and new twist is the emergence of the
emissions trading and its potential to help countries like
China. For example, China failed to meet its goal to reduce its
sulfur dioxide emissions by 10 percent between 2001 and 2005.
And instead, emissions increased by 27 percent over the same
period.
To address this concern, in August 2006, the Chinese
Academy of Environmental Planning previewed a new national
emissions cap and trade program, which if similar to the
existing U.S. emissions trading program for SO\2\, could be
very effective in reducing greenhouse gases within China.
China's emissions cap and trading efforts would be made more
effective if America creates its own carbon cap and trading
system to foster emissions reductions.
This subcommittee has received extensive detailed testimony
on how that market might be structured. I would only add that
given the excellent efforts already in setting up an effective
SO\2\ program that we do have the collective expertise in the
U.S. to develop an effective cap and trade system. Ideally, we
need to build from the Europe experience as well.
We recognize this is an extremely complex subject, but
encouraging effective regulatory and incentive systems, such as
carbon trading both in our country and others, would be a key
part of an effective global approach. Obviously, this is only
one piece, however, of a comprehensive greenhouse gas emissions
reduction approach with other actions that are also needed such
as increasing energy efficiency, promoting the clean
technologies, assisting in changing consumer behavior to adapt
and change the energy use in coming years in both developed and
developing countries.
For example, Australia's seemingly simple action to hand
out efficient light bulbs is a small but significant signal, we
believe, to their citizens to change and adapt their energy use
behaviors. Ideally the U.S. needs to take a leadership position
in addressing its own greenhouse gas emissions effectively and
comprehensively in a large part to encourage, I think, to lead
and inspire the developing countries, such as China and India,
to follow our lead and to coordinate their own gas emissions.
Morgan Stanley is committed to assisting and being a part
of these efforts and in helping achieve the best outcome for
the U.S. and globally. And I thank you again for the
opportunity to share these views.
[The prepared statement of Mr. Holzschuh appears at the
conclusion of the hearing.]
Mr. Boucher. Thank you very much, Mr. Holzschuh. Mr.
Stephens.
STATEMENT OF W. THOMAS STEPHENS, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, BOISE CASCADE, L.L.C., BOISE, ID
Mr. Stephens. Thank you, Mr. Chairman and members of the
committee. I would like to take some of my 5 minutes to zero in
on some real people and some communities that are going to be
significantly influenced and impacted by the actions that are
being contemplated by Congress. These are people and these are
communities that are going to be operating at the margin of
change in terms of climate change legislation and international
competition.
I do suggest that while Congress should enact rational,
constructive, and timely legislation, be very careful to avoid
creating unintended results. Doing it right, to me, is much
more important than doing it quickly.
I don't envy you your challenge. Finding a way to put all
the pieces of this puzzle together and finding solutions that
really work is a tremendous task for our Government and for our
society as a whole.
I have always believed that the best way to solve complex
problems is to work backwards from the desired results, and
very simply the results that I would hope we set our sights on
is a halt to the increase in greenhouse gas emissions on a
worldwide basis. The development of and the integration into
our economy of new technologies that would allow us to conserve
energy, rebalance our energy sources away from carbon, and, of
course, sequester carbon back into the Earth.
While we are working on those outcomes, I suggest that we
keep some other goals in mind. I hope that whatever steps that
we take that provide for the mitigation of the inevitable
inequities, imbalances, and economic dislocations that are
going to be byproduct of something of this scale. The U.S.
can't fix this one by ourselves, and we have to assure that
there are no free riders that grow their standard of living on
the backs of workers in this country. I have always been a free
trader. Enhancement of fair trade and market mechanisms has to
be, to me, a part of the overall design.
Finally, while we surely need to use market forces and
economic systems, such as cap and trade, where they are
appropriate, we have to be careful not to create markets that
can be abused and can be gained so that we don't actually
accomplish the results we set out for.
Today we, as a country, are debating how to take giant
step, but, to me, a step in the right direction. And as the
world's economic and innovation leader, I believe it is the
U.S.'s responsibility to take the lead.
Now, talking about theory is the easy part. I want to get
back to hard reality and talk about some of the people I work
with that are going to be impacted by Congress's decisions. In
my company, we have to make decisions every day based on
international competition and energy cost, both of which are
going to be influenced by what Congress decides in terms of
climate change.
Employees at our paper mill in St. Helens, Oregon are
already fighting for that bill's existence because of the high
cost of energy and the availability of raw materials in the
Pacific Northwest. It is ironic that in the middle of the best
place in the world to grow trees the high cost of fiber and
energy are threatening the existence of the mill. Our
competition is no longer just the paper mill in another town,
but also new ones that are being built in places like Indonesia
and China.
Just to give you some perspective, we have 485 employees in
that mill, and they take home $90,000 a year when you include
their benefits. The town of St. Helens is 12,000 people. If
that mill goes down, it is going to be very painful for those
people and for that community. I can assure you if the cost of
energy goes up at St. Helens faster than the cost of energy for
our competition, that mill will go down.
Now, at the same time, we are not asking for a bailout. We
are just asking that Congress maintain a level playing field
and don't make the hole any deeper. If we can keep our market
share, if we can continue to make paper in St. Helens rather
than buying it for China, our employees win, our customers are
better off, and of course, the environment is too.
There are some other issues related to climate change
legislation that I don't have enough time to talk about this
morning, but in another form, I would like to expand on the
mass confusion that exists around forest management and climate
change. Suffice it to say that every year forest fires in
Oregon produce enormous amounts of carbon dioxide, and, in
fact, some years more carbon dioxide than all other sources
combined. Letting fertile forest burn, not letting us harvest
dead trees, and then not providing funding to replant new trees
is just not good policy.
Finally, let me wind up by just saying it was technology
that moved us into such an energy-intensive economy and created
a standard of living that we enjoy in America. I have high
hopes that legislation will promote and not hinder the
development of technology to remediate greenhouse gas at its
source as well as develop fuel alternatives.
Innovation and higher productivity are the keys to a
growing economy and a higher standard of living for the U.S.
and around the world. Thank you, Mr. Chairman.
[The prepared statement of Mr. Stephens appears at the
conclusion of the hearing.]
Mr. Boucher. Thank you very much, Mr. Stephens. Mr.
Pershing, we will be happy to hear from you.
STATEMENT OF JONATHAN PERSHING, DIRECTOR, CLIMATE ENERGY AND
POLLUTION PROGRAM, WORLD RESOURCES INSTITUTE, WASHINGTON, DC
Mr. Pershing. Thank you very much, Mr. Chairman and members
of the committee. I very much appreciate this opportunity to
discuss my views and provide some input to your important
deliberations on the international component of the climate
change problem. The World Resources Institute is a non-profit,
non-partisan group that does research and policy analysis on a
series of global issues, including climate change, ecosystems
and development, and it is within that framework that I would
like to offer some comments and some suggestions.
We work quite extensively internationally, and one of the
things that is quite apparent is that the climate change
science is perceived as real internationally. And the reason
that is important is that it doesn't mean that we are not alone
in what we can do; all countries are considering action. That
means India and China as well as the U.S. and Japan.
The second point is that there is a consensus that we can't
wait to start. At the moment, our best understanding suggests
that every time we delay, every moment we delay, means we have
got to do more later if we want to achieve the same level of
reductions. The scale of the problem is huge. The best science
we have got says that if you would like to stabilize at any
point, at any time, you will need to have massive reductions at
some point in time on the order of 90 percent below current
levels.
To stabilize in the near term means 60 to 80 percent
reductions by 2050. That is still enough time for massive
technology shift, but not a lot of time. No single country, no
single sector, and no single actor is likely to be adequate to
solve the problem on its own. That means the U.S. can't do it
by itself, but neither could China, neither could the EU. It
will require efforts from all countries, from all sectors,
addressing all greenhouse gases.
Furthermore, not all countries are the same. If we think
about applying a standard to all countries that would be the
same for all countries, we will not make the kind of progress
that we need. We have to be real and recognize that there are
real differences between the way countries perform, between
their national circumstances, and design a policy that is
adequately flexible to manage that.
Let me point another number out. If you took the top 15
emitters in the world, you have 80 percent of global emissions.
So you actually don't need 150 or 190 countries to solve the
problem. You need the big countries, and that means we can have
a different process, perhaps not only a different process but
including a difference process that manages some of those major
players. We need to think about that as part of our program.
I would note that there are a number of solutions that
would take the self-interests of all countries into account as
we seek to design those next steps. I would like to offer
three. The first one is we think about a price, and we already
have a mechanism to frame a price. That mechanism comes at the
individual State level, in fact, is beginning to do it. The
Europeans have begun to do it. The Japanese have begun to do
it. We are seeing the capacity of prices to influence
investment decisions, to influence behavior, and to influence
the long term.
But in order to move that forward, we have to expand the
market. And that means bringing other countries on board, and
that means developing the standards and the references which
would allow them to participate. I do not myself believe that
those exist outside of a relatively small set of countries. We
do not yet have standards in my mind, which would allow us to
trade with Russia easily. I witness what goes on in the gas
market, and it is not because they live by contracts that we
all sign up to. That therefore suggests to me that we have to
do considerable work to move Russia in the right direction.
That is around all issues, including standards for carbon as
well as other trade.
The second solution: capture the co-benefits. There are
many, many co-benefits. There are virtually no climate change
reduction opportunities that do not also involve other things
that we care about. There are no countries that we are talking
about here today that are not concerned with energy security.
We all worry about it. If we can improve efficiency, we will
improve energy security. We will also reduce greenhouse gas
emissions. If we can improve rates of deforestation, we will
decrease greenhouse gas emissions and improve ecosystem
management as well as reduce the loss of soil.
We need to find the technologies that do that. We need to
promote the opportunities that do that, but we can work with
all the countries we have been talking about in that real way
to influence that kind of change.
And finally, we need to think about technology. There are
very few sets of technologies that will clearly be absolutely
critical. Dr. Steinfeld will probably talk a little bit about
the coal issue, but I want to make one point about it. It may
be the only technology, capture and storage, which has no or
less obviously a solution for other things besides climate. It
will slightly increase our energy costs. It will change the
price that we therefore put on some things that we care deeply
about.
But at the end of the day, China's reliance on coal,
India's reliance on coal, the U.S. reliance on coal requires
that we take this step. And that with a carbon price, we could
move it forward, but it will need help. It will need your
investment and your considered deliberations to promote it much
more rapidly than we are currently moving. That means to me
that we need to have a great deal more energy, and
unfortunately, we won't probably get there adequately. We will
need some adaptation. We will need some funding to cope with
the consequences. The climate change we can't avoid, and that
has got to be part of the puzzle.
I think in conclusion, we can use the existing four that we
have got, but the ones that we currently have are not enough.
We need to put more money into the things that we are doing. We
need to put more force into the things that we are doing. The
Asia Pacific Partnership, while a very strong first start, is
wholly inadequate to the scale of the problem. The Kyoto
Protocol, a start, inadequate to the scale of the problem. We
nee do to move all of these things forward if we can succeed.
Thank you.
[The prepared statement of Mr. Pershing appears at the
conclusion of the hearing.]
Mr. Boucher. Thank you, Dr. Pershing. Dr. Steinfeld.
STATEMENT OF EDWARD S. STEINFELD, ASSOCIATE PROFESSOR,
DEPARTMENT OF POLITICAL SCIENCE, MASSACHUSETTS INSTITUTE OF
TECHNOLOGY, CAMBRIDGE, MA
Mr. Steinfeld. Mr. Chairman and members of the committee,
thank you very much for the opportunity to speak today. I am
Edward Steinfeld. I am a professor of political science and
political economy at MIT and a specialist on Chinese industrial
development. In that capacity, I served as one of the principle
authors of MIT's recently released study on the future of coal
in a carbon-constrained world.
The MIT study began with two premises. First that the risks
of global warming are real and that carbon mitigation efforts
should move forward. And second, for the foreseeable future,
coal would be a critical resource for meeting global energy
needs. Those two premises, taken together, as many people have
noted already today, placed China dead center in the discussion
of climate change.
I won't go over all of the numbers that have already been
stated and stated quite accurately. China will soon pass the
United States whether this year or next year, maybe the year
after--will soon surpass the United States, the world's largest
emitter of CO\2\. The largest coal-consuming sector China, the
electric-power generating sector, as others have noted, is
expanding at a torrid rate. A 500 gigawatt roughly generating
capacity system in 2004 added 70 gigawatts of generating
capacity roughly in 2005, and 102 gigawatts of capacity in
2006, virtually all of that is pulverized coal-fired standard
power generation. That is an incredible rate of increase, one
of the most rapid in human history.
The question though that I would like to address are the
conditions under which, and the institutional framework under
which, this very rapid expansion is happening. There are a few
features of the Chinese system that I would like to point out.
First, my research suggests it is not the case that this
expansion is centrally coordinated, coherently coordinated,
strategically coordinated, whether progressively coordinated or
regressively coordinated. Rather, the story on the ground is
that this expansion is happening at a rate far faster than
central officials in China can grasp and understand. And they
are scrambling just to get information and to get raw data.
Second, the decisions that are made regarding this build-
out and their technology decisions and design decisions and
infrastructure decisions relating to power plants, these are
highly localized decisions, and decentralized decisions but not
decentralized institutionally through formal processes, but
institutionalized in the de facto fashion. The decisions are
made before the center can really recognize what is going on.
In fact, power plants in China almost routinely receive
approval after they are already up and operating, rather than
before.
Third, in this environment of ad hoc decision making, of
self-help, and making due, there are a wide variety of players
who get involved. Some are commercial players. Some are
regulatory players. Some are investors. Some are wearing all
three hats simultaneously and are not exactly sure which role
they are supposed to be playing, but the ultimately deliver the
electrons. They deliver the electricity for economic
development. It is a tough, chaotic environment, not only for
outsiders to deal with, but for insiders to deal with and
particularly to regulate.
So the question then is what does this mean for Chinese
participation in carbon mitigation efforts? Well, first and
obviously, to the extent China participates as a system, we
have to expect that the system will not and cannot turn on a
dime. It is not the kind of system that can do that. No matter
what the central dictates happen to be, the system will not
turn on a dime, and compliance, as it is for virtually all
regulations in China, compliance will be a problem.
Second, though, there is some cause for optimism. The first
point I would like to raise there is some central players in
China--and, of course, there are debates within the central
government, as there are in any government. Some central
players do want change and want it rather desperately. They
face pressures that are familiar to all of us as has been
mentioned. Dependence on external energy, resources,
environmental pressures from their publics, pressures to
improve competitiveness of industry in their own country, they
would like to get better regulatory control of the sector. One
tried and true method of doing this in China has been to
outsource regulation to external global institutions. The WTO
excession story in the past is really this kind of story, and
there are Chinese policy makers who are looking for some kind
of external agreement or binding factor that they can use to
drive regulation inside the country.
The second issue related to that is that there is quite
surprising to me and interesting to me a certain bottom-up
pressure from some commercial players, particularly
manufacturers of power generating components and technologies.
We see it also on the renewable side. We see it a bit actually
in the coal industry itself. There are commercial players in
China who want to push their own government to move toward
carbon constraints simply to create incentives for these
commercial producers' own products. Or to put it somewhat
differently, these producers want to be globally competitive.
They want to feed products into markets in Europe and North
America as well, and they feel they can't do that unless their
domestic market converges in a regulatory sense, in a
regulatory fashion toward the rest of the world.
So what is the conclusion? Well, first I can imagine a WTO-
like excession process or a political conversion process inside
China, but with respect to climate change. Had you asked me in
the early 1990's would China ever exceed the WTO on the terms
it did, I would have said absolutely not. Of course, it is a
criticism of myself, but virtually all of my colleagues who
study China would have said the same thing. Politics changed,
and the government then changed its strategy and grasped this
external institution to push further change in the country.
But that presumes that there will be some kind of external
agreement to which these policy entrepreneurs in China can grab
hold, and that----
Mr. Boucher. Mr. Steinfeld, if you could wrap up just a few
minutes.
Mr. Steinfeld. And the last point is even if China does--
and I predict that it will join and grab hold to an
international agreement on carbon constraints. Even if it does,
we will likely see, as we have seen with WTO excession,
continuing compliance problems as China works to build domestic
capacity over the long run.
[The prepared statement of Mr. Steinfeld appears at the
conclusion of the hearing.]
Mr. Boucher. Thank you very much, Mr. Steinfeld. Mr.
Chaudhuri.
STATEMENT OF PRAMIT PAL CHAUDHURI, BERNARD SCHWARTZ FELLOW, THE
ASIA SOCIETY, NEW YORK, NY, AND FOREIGN EDITOR, HINDUSTAN
TIMES, NEW DELHI, INDIA
Mr. Chaudhuri. Thank you. I am a journalist in India who is
presently on a 1-year fellowship at the Asia Society where I am
looking at a host of issues relating to India, the United
States, and India's role in the world in the coming decades.
The debate in India about global warming is curious because
domestically, it barely exists. There is no dispute. Very few
dispute the issue of global warming or its importance, but the
debate is minimal because there is a general view that the most
controversial aspect of the debate, which is carbon emission
limits, simply does not apply to India. When the U.N.
Intergovernmental Panel on climate change issued its last
report, my guess would be that of India's 26,000 newspapers,
barely 1 or 2 percent bothered to put it on page one.
And there is a reason for this lack of debate because there
is an overriding consensus within the Indian establishment, the
political elite, the media, even within the environmental
movement in India, that the overriding priority for the country
is rapid economic growth.
And since carbon emission limits are seen as inimical to
that growth, they are generally simply ruled out of the debate.
The late Indian prime minister, Mrs. Indira Gandhi, famously
said in the 1970's the ultimate polluter is poverty. And it is
a line that is repeated again and again and again even to this
day by the prime ministers and the leadership and the media and
anybody in India who talks about pollution in any way.
And I suppose everybody knows how poor India is, but I will
reiterate it because it is so important. India has more poor
people than sub-Saharan Africa. It has as many as--the
estimates differ--as many as 300 million people living on a
dollar a day. If that figure is taken to $2 a day, that figure
rises to almost 700 million. What we are looking in India right
now, the economy boom that we have been experiencing in the
past 10 years, as a recent World Bank study says, for the first
time, India can actually look at the possibility of eradicating
poverty, in others word bringing it down to single-digit levels
within the population in a generation.
It is very difficult to explain how important this is for
everybody in India, not just because of the poor but even the
people at the top. To be able to look at something that we have
not been able to do for centuries. So even if you were to
theoretically argue that carbon emission limits might affect
that growth, it is immediately ruled out because this is
something that Indians cannot believe that we can possibly
accomplish, and they are not prepared to threaten it in any
way.
This, of course, is why India as well as China declined to
accept carbon emission limits when they signed the Kyoto
Protocol. They accepted the global warming was an issue, but
they were not prepared to sacrifice growth, even theoretically.
And this is one of the reasons why both India and China, I
believe, are dragging their heels and are extremely wary of a
second Kyoto agreement because there seem to be a large number
of people who argue that this agreement should bring carbon
emission limits and apply them to India and China.
This automatically for India and China--well, I won't speak
on behalf of China, but I will say my impressions on India--
means that you are trying to sacrifice our ability to eradicate
poverty.
The U.N. framework convention on climate changes chief
official, Evo Debower, spoke in Delhi in January, and he put
his thumb right on this issue. He said I understand this
perfectly. ``Developing countries fear that the new round of
climate negotiations would impose on them obligations that
would hurt their economic growth.'' And because of that, they
are not prepared to negotiate or they are not prepared to be as
constructive as they can be. Because of this fear that lies in
the background of this entire game, the prime minister, who is
an economist by training, Dr. Manuel Sing, last year in a
speech on our Government's integrated energy policy, made it
very clear, 8 percent growth.
And even if you assume only 8 percent growth--we have grown
9 percent in the past 2, 3 years--until 2030 would require a
four to fivefold increase in our energy consumption and
increase of our electricity capacity from its present 131,000
megawatts to somewhere between 800,000 to 950,000 megawatts.
But the linkage is always very clear in all of the
Government's statements. Energy consumption is directly linked
to our rapid economic growth. We try to curb the energy
consumption, and, in fact, the prime minister has repeatedly
said that is our No. 1 constraint on our future economic
prospects because our energy production remains far behind the
rate of the growth of the economy as a whole.
And Indians look at the figures. We generated in 2005 312
million metric tons of CO\2\ emissions. We were the fifth
largest producer, just a notch behind Japan. But per capita--
and I should add when you measure this by per capita, of
course, it falls dramatically to only two tons per person. And
it was interesting that it was the Indian environmental
movement that recommended to the Government back in the 1980's
that you measure it by per capita because it strengthens your
negotiations position and puts it in a better perspective.
So it is not that India is not prepared to do anything
about carbon emissions. We do look at other things, such as we
are an active player in carbon trading it has been mentioned.
The clean development mechanism that work in the U.S., we have
155 registered projects as of January 2007 and 400 more in the
pipeline. We are part of the FutureGen project, the hydrogen
fuel initiative. And somebody mentioned the Asia Pacific
Partnership on Clean Development.
So I will quickly summarize to just say that in the long
term, we are prepared to do something, but again it has to be
done in a manner that does not affect the economic growth rate
of the country. This is a not merely political and economic
issue, it is a moral issue for the Indian political leadership
as a whole.
[The prepared statement of Mr. Pal Chaudhuri appears at the
conclusion of the hearing.]
Mr. Boucher. Thank you very much, Mr. Chaudhuri. And thank
you to each of our witnesses for your presentation here this
morning. The testimony that you have provided is going to be
extremely helpful to us as later during the course of the
spring we structure a mandatory program for greenhouse gas
emissions in the United States. The point was made by members
of the subcommittee and by witnesses alike that if we are going
to have a mandatory program here, that does not fundamentally
injure the U.S. economy, it is essential that we assure
participation by the larger developing nations.
I agree with that point. I think our legislation has got to
make provisions for it. Not only is it a necessity from the
standpoint of our economy, but I think it is also a political
necessity. If we are to be successful in passing this
legislation through the House and the Senate and having
President Bush sign it into law, and it is our goal to have
that happen during this 2-year period.
So let me ask about the best way that we can obtain that
assurance in our legislation. One approach that has been
recommended is that we have something in the nature of an off-
ramp so that we would put our program into law. We would
announce our targets. We would announce the schedule upon which
those targets would take effect and emission reductions would
begin. But at the point at which those reductions are scheduled
to take effect, if we do not at that time have buy-in by the
developing countries and an assured participation on their part
with mandatory programs in those countries as well, then our
program would not take effect. That perhaps is the most direct
and perhaps Draconian way in which we could assure
international participation if we are to have a program.
Some would argue that that approach might be effective. We
have heard comments from some developing countries that they
are not willing to undertake programs of their own as long as
the United States is not committing itself to greenhouse gas
reductions. Perhaps if we show our good faith in the exercise
that we intend to do so here, that might encourage developing
countries to do the same. So I would appreciate your comments
about the possibility of an off-ramp.
Now, second, we heard testimony last week from the chief
executive officer of American Electric Power, Michael Morris. I
think Ms. Petsonk referred in her testimony to his proposal. It
is a very interesting one. It essentially says that there would
be a requirement that the importation of products from
developing countries that do not have mandatory greenhouse gas
emission controls be accompanied by an emission credit that
would be equal to the greenhouse gas emissions attributable to
the manufacture of that item. And so the importer of that item
would be required to go into the world market and purchase an
emissions credit that would be equal to that greenhouse gas
burden, that burden assigned to that particular item. It is a
very interesting recommendation, somewhat similar to what I
think Ms. Petsonk and Mr. Stephens had recommended but not
exactly the same.
A couple of questions that I have for you, and I will turn
my time over to the panel members to respond. Number 1, do you
think the off-ramp is the best approach? Do you think some sort
of trade-related approach to this with the requirement somewhat
similar to Mr. Morris's is the best approach? If it is the
latter, what about WTO compliance? Are we consistent with our
WTO obligations with China in particular in the event that we
have that kind of requirement go into effect? I can imagine a
challenge being made. So do you think either of those
approaches is recommendable? If you think that some variation
of Mr. Morris's proposal is better, tell me what that is. And
if you have some third way, we would be happy to hear about
that too. Ms. Petsonk, maybe we could begin with you.
Ms. Petsonk. Thank you, Mr. Chairman. And I have a standard
rule. If you catch me using an acronym that you don't
understand, stop me. If I don't stop, throw a small object at
me to get me to stop or your gavel.
Mr. Boucher. I have it back now.
Ms. Petsonk. OK, thanks. First with regard to the off-ramp
proposal. When I was a kid, we had a saying if one kid wanted
to do something and the other kids wouldn't go along, we said
nobody loves me, everybody hates me, I am going to go eat
worms. And the problem with eating worms is it doesn't help you
solve the problem. And in particular, the off-ramp proposal
could be hurtful to American industry in developing the low-
carbon technologies of the future that are going to be needed
because that kind of off-ramp could send enormous uncertainty
into the carbon market without any clear signal for what would
be the trigger for the off-ramp.
So let me not say anything further about that and go
instead to the American Electric Power-International
Brotherhood of Electrical Workers proposal. It is a very
interesting proposal. It is attracting significant attention in
the business community as well as in the labor community.
I am authorized to say I was talking with a company
yesterday, which happens to be one of the world's largest
manufacturers of cement. It is the Holcim Company. You may know
it. It has substantial operations in North America, and 60
percent of its operations are in the developing world. And they
indicated to me that quite independently they have come up with
a quite similar idea that they are considering proposing in
Europe. They haven't taken a final decision as to whether to
propose it. But certainly is it the kind of proposal that one
would want to coordinate between the United States and Europe
so that together the markets of the nations that adopt
emissions caps take the position that energy-intensive goods
coming in from countries that refuse to cap or cut their
emissions all face this requirement to submit emissions
allowances.
We are looking closely at the WTO aspects of this. I do not
proclaim myself to be GATTologist, but I am an alumna of the
U.S. Trade Representative's office. And there is a good
argument under the--sorry to get technical on you, but you
asked for it--the GATT 1947 as it was incorporated into the
GATT 1994 and incorporated into the WTO--that nations have the
ability to take WTO-inconsistent measures if it is necessary to
protect their environment if they do so in a way that is non-
discriminatory and if they tried really darn hard to convince
other countries to do the thing that they needed to protect
their environment.
Mr. Boucher. Well, that is a very clear answer.
Ms. Petsonk. Thanks.
Mr. Boucher. Let me move on to Mr. Stephens who I am sure
has some comments. And, Mr. Stephens, if you could be brief. I
have expired my time unfortunately.
Mr. Stephens. Yes, I can be brief because the accurate
answer to your question is I don't know, and I don't think most
of us know the answer to that question yet. As I said in my
statements, I have got this conflict that is driving me crazy
between a free trade enthusiast and understanding that if we
want to solve this problem, we are going to have to deal with
the fact that we have markets. If we have them by their
markets, their carbon sequestration will follow.
Mr. Boucher. Thank you very much. I would like to hear from
the other witnesses on this. Perhaps we could have individual
conversations after the hearing because I would very much
welcome your views. Mr. Hastert is recognized for 5 minutes.
Mr. Hastert. I thank the chairman, and to each and every
witness, I would say that I would probably like to have an
individual conversation with you because I think there are
questions out there that we just have a hard time answering.
For 16 years, I taught high school economics. I never fessed up
to being an economist, Mr. Steinfeld, but----
Mr. Steinfeld. Doctor.
Mr. Hastert. Dr. Steinfeld, that is right. I never fessed
up to be a doctor either. I got five honorary doctorates, but
anyway, I did teach economics, and I taught 16 years old
economics. I had to bring it down to a level where 16 year olds
could understand it. And if we are going to bring this thing
down to a level, I guess it would be like all the world players
sitting around this big poker table, and somebody had to ante
up. And who is the first guy to ante up? And every time we had
to ante up, and I just heard the testimonies of some of the
questions I wrote down. And my question is do these costs get
passed on to the consumer? And what is your safety level to
deal with China? What if the U.S. changed the numbers, and we
stepped up first? Is there any guarantee that China or India or
anybody else is going to ante up too?
And the fact is when you ante up, it may cost you jobs. It
may cost the ability for you to manufacture up in the Northwest
where you are being challenged already. It may cost your
consumers more. You go to the Dollar Store. My people go to the
Dollar Store. Probably a lot of things made at the Dollar Store
aren't made in this country, but the few things that are made
in this country, whether it is toothpaste or soap or whatever,
then all of a sudden we are challenged and our products go up
to be a $1.15 so they don't qualify for the Dollar Store
anymore. And foreign products are under that level.
What happens to your jobs? Our jobs go offshore. They go
some place else. And how do you persuade--and this is an
esoteric question--how do you persuade, as Mr. Chaudhuri was
talking about--a country that has 300 million people in
absolute poverty that earn a dollar a day, to all of a sudden
use sophisticated technologies when they are just trying to get
over the lip of existence?
And this is the real issues, and I am a market guy too, a
very free market guy. Always have been. That is where my goals
are. That is where my legislation has been, and I think that is
where I would like to pass on a legacy. But the fact is can you
do this with free-market incentives, or do you have to overlay
a huge international goal?
I have dealt with the Chinese over the years and tried to
talk about ideas of intellectual property. It takes a long time
to get that done. Transparency. There is always a lot of good
intentions, but intentions never really translate into product,
and so I am just asking you how do you do this? I only have
about a minute and 45 seconds left, so each of you can give me
a concise, maybe 20-second answer. Mr. Steinfeld, if you can
squeeze economics into that, what would you say?
Mr. Steinfeld. Thank you very much for your question.
Mr. Hastert. That took up 5 seconds, sir.
Mr. Steinfeld. The first point I would raise is that in the
last 15 years, Chinese reformers at various levels of the
system have passed on a variety of costs to their populations.
The populations have endured a variety of costs on the
environmental side, on the social equity side, on the
employment side. And some of those costs have been generated
simply by growth itself. Some have been generated by China's
joining things like the WTO. So the notion of China, as a
system, accepting costs has a certain historical record.
Then the question is well, why would they do it on carbon?
Part of the answer there has to do with the idea that China,
like any economy, is a complicated one. It has producers as
well as consumers, citizens as well as corporate players. And a
number of the corporate players have a particularly privileged
voice in the Government and some of them view carbon
constraints or other market-focus regulatory interventions as a
commercial opportunity, particularly if it involves exporting
and global leadership.
Mr. Hastert. Ms. Petsonk.
Ms. Petsonk. I want to pick up on that theme of commercial
opportunity and give one example. In India and in a number of
other very poor countries, some of the most popular carbon
emission reduction projects that are being done for credit now
are supplying the poorest people with more efficient cook
stoves to use in their houses so they don't have to cut down as
many trees. They don't have to breathe as much pollution. These
stoves are very cheap. The poor people can't afford to buy
them.
Microlending carbon banks are essentially loaning the money
to these very poor people, allowing them to use these very
efficient cook stoves. It doesn't have to be a fancy technology
to get very nice emission reductions out of it. And the
emission credits then can be sold to pay off the loan, maybe
even with some profit back to the poor people and their village
so that they can begin to climb up that economic ladder.
The carbon market, if you create it, can deliver those
kinds of incentives across poor economies as well as wealthier
economies very broadly.
Mr. Hastert. Thank you. And I just want to say in
conclusion--I know I am over my time--make sure the first guys
that ante up aren't in the game by themselves. I guess that is
the process. That is the question, and that is the challenge
that we have. Thank you.
Mr. Boucher. Thank you very much, Mr. Hastert, for a very
thought-provoking series of questions and answers. The
gentleman from Michigan, the chairman of the full committee,
Mr. Dingell, is recognized for 5 minutes.
Mr. Dingell. Mr. Chairman, I thank you. This to Dr.
Steinfeld. When I was a young fellow, I went to Kyoto, to the
treaty signing, and we had a big meeting with the Chinese, and
I said now, are you going to be bound by this? And the Chinese
said no, we are not. I said well, why are you not going to be
bound? They said because we are a developing country. I said
how long is China going to be a developing country? They said
we are always going to be a developing country. I said that
means that you are not going to be bound by Kyoto, and you are
not going to contribute. They said that is right.
So this again to Dr. Steinfeld. Do you agree with Ms.
Petsonk and Mr. Stephens that legislation should include
incentives to ensure that other countries do their fair share
or suffer their consequence in terms of access to U.S. markets?
Mr. Steinfeld. I do believe incentives should be included
in legislation. I will mention that in the WTO story, Chinese
negotiators also, for 13 years, maintained the position that
China, as a developing country, should not be held to specific
standards and they----
Mr. Dingell. I want to hear more, but I have got a bunch of
questions that I have got to ask, and I do apologize. Now, Ms.
Petsonk, this question. Your recommendation about what Congress
should require, in carbon market access agreements with other
nations, as a condition for access to our markets is
intriguing. But I am not clear how this would work; although, I
happen to very much favor the idea. What would induce other
countries to sign such agreements? Why do you believe that
placing conditions on access to U.S. carbon markets provides
sufficient leverage to induce others to adopt emission caps?
Ms. Petsonk. First, the size of America's carbon market.
Some people look at our economy and see very nice emission
reduction opportunities in many, many places. Other countries
will want access to that carbon market to try and sell us the
technologies that they produce, just as we will want our
technologies to come into that market.
But second, they will want to sell us emission reduction
credits that they may be able to earn where it may be able
cheaper to reduce emissions overseas than it is to reduce
emissions at home. They will want to sign up to those
agreements if Congress directs the executive branch to
negotiate those agreements.
In my view, the problem with Kyoto was that the resolution
that so many folks have referred to came too late. Congress
needs to instruct the executive branch, here are the objectives
these carbon market access agreements need to reach, and we are
going to hold you to it.
Mr. Dingell. I recall, though, the thing that was very
clear to me was that we would be buying carbon credits from
places like the former Soviet Union, from China, and they would
just keep selling these credits to us and manufacturing new
opportunities for us to buy without conferring any significant
benefits in terms of reduction of carbon emissions. That is
obviously something we have got to be very careful of, is it
not?
Ms. Petsonk. Exactly, and it is a major flaw in the
existing framework. The existing framework awards you a carbon
credit if you reduce emissions below what you would have done
anyway. Well, let me tell you. If you ask me, Annie, sorry, Ms.
Petsonk, how many slices of cheesecake were you going to eat
next week anyway because if you eat less than that, I will give
you some cheesecake credits that you can sell to somebody else,
I am going to tell you that I was planning to eat cheesecake
every day three times a day.
Those kinds of credits don't produce a real environmental
benefits, and that is why we favor Congress directing the
executive branch to negotiate in these carbon market access
agreements real baselines that hold countries to an absolute
level of reductions.
Mr. Dingell. Thank you, ma'am. Now, this question to Dr.
Pershing. Do you agree with Ms. Petsonk and Mr. Stephens that
Congress can induce other nations to limit their emissions
through legislation requiring such action as a precondition for
access to United States markets?
Mr. Pershing. I think you could. I am not sure it would be
so straightforward. The thing you need to focus on really quite
explicitly is what the rules would look like. At the moment, if
you take a look at what it would mean to, say, follow a
structure such as AES's outline, it would require that we have
full information about how much carbon is in every commodity.
And we might want to think about where the commodity came from
and its life-cycle chain.
So I have an import from aluminum that comes from alumina
that was smelted in Australia that went into a can that went to
Japan that went into a product that went to Russia, and then it
comes back to the U.S. What share am I going to go for? The
aluminum share from Australia which I am OK with, or the share
from China which I am worried about. Those kinds of rule-making
processes will be difficult.
Mr. Dingell. Now, this to Mr. Holzschuh. Do you agree with
Dr. Steinfeld's assertion that with respect to emission
limitations, China's ability to enter into international
agreements would be on a primarily aspirational basis?
Mr. Holzschuh. Yes, I stated that I think their enforcement
and regulatory actions would clearly lag any policy statement
that they would make. I would just make one other point on this
issue, which is from the private sector, and Mr. Stephens
mentioned this, that there are trillions of dollars that need
to be committed now for us to build the next generation of
energy in this country, security, things that go with it.
The difficulty for the executives who are trying to make
those decisions is the lack of rules or the perception that the
rules would change midstream. So the off-ramp is particularly
troubling in that regard, and that is going to be true--China
has to invest now no matter what. We are trying to make
business decisions based on shareholders and other things, and
it is very difficult.
Mr. Dingell. I agree with you on that point. As my own
daddy used to say, trust everybody but cut the cards. Thank
you, Mr. Chairman.
Mr. Boucher. Thank you very much, Mr. Dingell. I can't see
whether Mr. Barton is here or not. He is here. The gentleman
from Texas, Mr. Barton, is recognized for 5 minutes.
Mr. Barton. If it is a climate change here now, can I not
be here?
Mr. Boucher. I knew you were here.
Mr. Barton. This is actually enjoyable to for me. Shows how
twisted I am sometimes. I want to thank you, Mr. Chaudhuri, for
your quote that the ultimate polluter is poverty. I wish we had
the ability to put that up at all these hearings. Do you agree
with me that where China and India and the developing world are
today in terms of their electrification programs, there are
many similarities to where the United States was in the 1930's
when we had the TVA Project, the Bonneville Project, and the
Rural Electrification Administration?
Mr. Chaudhuri. I think we are actually still far behind
what the United States was in the 1930's. I think we would be
looking more at something in the 19th century to see where
exactly we are in terms of electrification.
Mr. Barton. But what do you think our political process
would have--where would Franklin Delano Roosevelt responded if
the British and the French and the Germans and the Russians in
the 1930's had somehow tried to co-op us and prevent us from
electrifying our country in the same of some social
environmental benefit in the future? How do you think our
political process would have responded?
Mr. Chaudhuri. World War II might have been fought on very
different lines. I think that for an Indian politician, it
would be suicidal. I should point out that in India, when we go
to general elections, 50 percent of our members of Parliament
are tossed out of their seats every election. Antion Compency
is the single most powerful political force in India.
Mr. Barton. We felt a little bit of that in this last
election.
Mr. Chaudhuri. Indian politicians are terrified of their
voters because Indian voters are extremely unwilling to listen
to politicians, especially those who argue something on the
lines that you are saying that you should take a drop in your
living standards or even your potential living standards at a
time when I said 700 million of them are living on $2 a day.
Mr. Barton. Dr. Steinfeld, your group has just put out a
paper on coal use recently that has received quite a bit of
play in the media. I think it is very thoughtful. In order for
us to get the Chinese and the Indians to adopt some of our
cleaner technology, I would assume you agree, since you, I
believe, stated this in your work, that we have to get the cost
of that down to where it is at least approximately equal to the
current technology that they are using right now that is not as
clean. Do you agree with that?
Mr. Steinfeld. I am not sure that is exactly the point in
the study. There are tradeoffs that some players in the Chinese
system seem to be prepared to make for more expensive
technologies that happen to be cleaner, particularly in certain
parts of China. The per capita in Shanghai is around the level
of Portugal, whereas the per capita income of the whole country
is obviously much lower, maybe $1000 U.S. in many parts of
China. So in the wealthier areas, there is some willingness to
trade off.
Mr. Barton. But if we were to adopt some international
protocol where the United States would commit itself to making
our technology available at equal or less cost and subsidize in
that in some way, that might encourage some of these developing
nations to use the cleaner technology. If we can get an
environmental benefit and make it cost effective, then there is
no reason for them not to use it.
Mr. Steinfeld. It is conceivable.
Mr. Barton. OK, Mr. Stephens, you represent the forest
products industry. Do you think that some of our land use
programs and carbon seek programs, reforestry programs, do you
think they could be large enough to actually have an impact?
Because they certainly could be cost effective in terms of
doing things to lessen the overall effect of carbon.
Mr. Stephens. Yes, and I tried to address that in my
comments. Certainly if we can stop burning the forest down,
that is a great first step to taking CO\2\ out. And then if we
can convert biomass into energy--and we do know how to do
that--I think the science would indicate that wood is pretty
much carbon neutral.
Mr. Barton. So those are some programs that actually are
cost effective and we could adopt and implement immediately?
Mr. Stephens. Yes, in the bill that you sponsored in 2005,
I think there is a lot in that bill that would be very helpful
and not in conflict with what is being discussed today.
Mr. Barton. With that answer, Mr. Chairman, I am going to
yield back.
Mr. Boucher. Thank you very much, Mr. Barton. The
gentlelady from California, Ms. Harman, is recognized for 5
minutes.
Ms. Harman. Thank you, Mr. Chairman. I think this hearing
is fascinating, and the witnesses have all given us some bold,
clear ideas, which certainly was my exhortation at the front
end. I also am impressed that Members on a bipartisan basis are
very much engaged in seeing if we can figure some of this out,
and I surely hope that we will be able to do that.
In my opening comments, I said that we were in a diplomacy
deficit in the world at the moment. This wasn't limited to
environmental or energy issues, but I said that we have
considerable soft power, partly as a result of our robust
economy, to re-engage the world on these issues. Obviously we
need a worldwide solution. None of you would disagree with
that.
I just wonder if you agree with me that we can overcome our
diplomacy deficit with our soft economic power if we can figure
out the right way forward. Does anyone disagree with that? Yes?
Mr. Pershing. Thank you very much. I think you can overcome
a great deal of it but not all of it. There is a formal process
which I think will ultimately be needed, and we need to have
the formal diplomatic channels that we also use.
Ms. Harman. I surely agree with that. Does anyone disagree
with that? Ms. Petsonk?
Ms. Petsonk. I don't disagree with it. I think that the
single most important step in this area that the United States
could take to rectify the diplomacy deficit is to enact a
clear, enforceable mandatory cap and trade program here.
Ms. Harman. I heard you on that, and I support that. I know
that some members on this committee don't, but I support that.
But we have to get it right. Doing something may not achieve
anything. I have heard you all say that. OK, changing the
subject slightly.
When Vice President Gore was before us last week, he made a
number of suggestions. One of which was--and I am quoting from
my notes--that carbon pollution should be priced into the
economy, not be an externality. Now, obviously if there is a
market base to cap and trade system, carbon gets a price. But I
am wondering what you think of this suggestion that Gore made,
and he was talking about the U.S. economy, but I am also
wondering whether you think this has some legs for more of an
international focus.
Mr. Pershing. It seems to me the answer is yes, and you can
do it in two ways. The first way is you can create the market
by countries that want to have the market. The U.S., Europe
already doing it. My sense is that will create an implicit
market price for anyone that trades with us. You do not need
all countries to be in the market to create a global price.
Ms. Harman. Other comments?
Mr. Holzschuh. I would just say quickly that any time there
is not a price on such an issue that is this complex, it seems
to me that the bid and the ask from a market perspective is so
wide, it is very difficult to create that market. And so when
there is an assumption of price, whether it is mandated, open
market, whatever the mechanism is, my guess is this debate will
move much more rapidly.
Mr. Stephens. If I could just comment, I think capital is
an integral part of solving a problem. It is going to take an
enormous amount of capital on a worldwide basis to solve the
problem. Capital is a coward. It runs away from uncertainty,
and we need to be very clear, and there needs to be a
reasonable chance to understand the consequences before capital
is afforded.
Ms. Harman. Anyone else? Well, I am not going to take all
my time, Mr. Chairman, but we have a new chairman here. But I
would just conclude with this. I mean I think you have to be an
optimist to serve in Congress these days. It is a hardship post
in both parties. So I am an optimist. I can see huge
opportunities for U.S. businesses, and some of you have been
suggesting this, by getting these technologies right and then
exporting to the world market under a set of standards,
guidelines, treaties, agreements, that would welcome U.S.
exports.
And I have seen that happen in many other industry sectors.
My district is the aerospace center of California, and the
export market is the critical part of the health, which we
need, of our aerospace industry. So I can see this being a huge
win. Does anyone disagree with that? Fine. Mr. Shadegg
disagrees. Well, he will get his 5 minutes to rebut very
shortly. I yield back, Mr. Chairman.
Mr. Matheson [presiding]. Thank you. The Chair recognizes
Mr. Upton for 8 minutes.
Mr. Upton. Well, thank you, Mr. Chairman. I don't know if I
will use all my 8 minutes. I just want to say that I am an
optimist too. Maybe that is why I am a Cubs fan, and it is
preseason, and we have already lost our two starting pitchers
before the first pitch is thrown.
But I have to say the international cooperation element of
this issue is certainly the most complex. That is very clear.
Dr. Pershing, you made the comment in your testimony that the
top 15 emitters equal 80 percent of the world's output. We
know, Mr. Chaudhuri, that India by the year 2020 will equal the
coal consumption in this country, in the United States. And it
is headlines like this front page of yesterday's Washington
Times, China on the brink as the No. 1 polluter. We knew that
already as well, but there it is for everyone to see.
And when we go along with the other comments, and, Mr.
Chaudhuri, you were talking to us about the level of acceptance
of change by the Indian parliamentarians, by the members of
Parliament. Dr. Steinfeld, your comment that the Chinese allow
these two new coal plants to be built virtually every week
without any rhyme or reason perhaps in terms of regulations in
terms of emissions. We look at the hard evidence. Mr.
Holzschuh, when you indicated that instead of, in China, the
SO\2\ emissions, instead of a reduction of by 10 percent, in
fact, they went up by 27 percent, so a 37 percent swing.
And when we think about the test vote that they had on
Kyoto back in the 1990's when President Clinton was in office,
it was unanimous of those that were voting because China and
India were not part of the agreement. And Brazil and Mexico
weren't part of it either. And that is what gives us all real
pause in terms of how we are going to go. And I think Chairman
Boucher made the very accurate point that, in fact, if we do
embark on something like this, we have got to have an exit ramp
because we don't want to lose all that we have here and have it
go overseas with the lack of controls that folks over there
have.
Ms. Petsonk, you talked a little bit about having a WTO
structure. Congressman Hastert talked a little bit about some
of the problems we have had dealing with the Chinese on a host
of issues, particularly on intellectual property and
copyrights. Being able to see a movie the first day that you
are there before it is almost even out here. I mean a whole
number of different products that are built there and avoiding
all of that copyright protection.
So if we in the Congress begin to look at something, a cap
and trade, whatever it might be, how is it that we can craft
something? What ideas do you have specifically that we can in
fact not only engage these other countries, but actually see
them follow through with this, what President Reagan said:
trust but verify. Dr. Pershing?
Mr. Pershing. Thanks very much. I think that is exactly the
question, and I think there are not easy answers. But here are
a couple of thoughts you might think about. The first one is
that there is, as Annie Petsonk has noted, this issue of the
price incentive. Let us put that aside for a minute. I think
you are all considering that. And look at a couple of others
that might be less immediately----
Mr. Upton. Well, your example, or someone gave the example
about the aluminum can. I mean how in the world do we figure
something like that out?
Mr. Pershing. There are ways you could figure it out. There
is a process you could go through. It would take a little
while. You could make it happen.
I want to come to two other points that you might
contemplate as part of your decision-making process. The first
one is that if you set a price and require countries to do it,
it requires they have got a domestic commitment already. We
don't see that from very many places. We are seeing it
increasing. We don't yet see it adequate to make a constructor
that we would like to see.
We do clearly however see very high interest in some other
things that would make a lot of sense. Energy security debate,
perhaps, is the paramount one. We share that interest with
China. We can have a cooperative discussion with them. They are
importing oil from equally insecure places. That is part of the
reason that they have driven to have a domestic program on
automobile efficiency. That is why we are thinking about it. It
has consistent and competent questions that we can manage
jointly, which would lead to serious reductions. We should take
advantage of those as well as this larger carbon price
discussion.
Mr. Upton. Mr. Holzschuh.
Mr. Holzschuh. Unfortunately, I leave the politics to
someone else. What I would say is markets work here. We have
seen in Europe the system work. We have seen it work here in
SO\2\. I think if there is a trading mechanism that can have
some market-based parameters for which to operate, it will
stumble at times, but it will work. And I think that it is a
trust to get the market started, but there is a bunch of
entrepreneurs, a bunch of people who are willing to commit
capital around the globe to make it work. And there will be
enforcers just like the politicians.
Mr. Upton. Ms. Petsonk.
Ms. Petsonk. I think that point of Mr. Holzschuh's is very
important. By creating a cap and trade market, you create
constituencies of people who want to reduce emissions because
that creates more markets for their technologies, and also want
to be sure that the next guy isn't cheating on their emissions
report.
Mr. Upton. But how do you do that with China building two
new coal plants every week?
Ms. Petsonk. For much of the infrastructure, I believe, and
I would be interested to hear Dr. Steinfeld's comments on this
as well. For a lot of the power plants that are currently being
built in China, the design plans for those are set. That is not
to say though that there are not very good opportunities to
come into those plants and improve their efficiency if it can
be done cost effectively. Having a carbon market price signal
would make that cost effective, and it would also give actually
a price signal for innovations in other parts of China's
economy.
For example, we have talked a little bit about trees and
forests. Representative Barton actually asked about land use
practices that can improve the growing of trees and store more
carbon in the soil. Those are two things that China is very
interested in. They have lost a lot of trees. They are now
embarked on a major program to try to plant and protect trees
because it is so important for the local environment and local
communities. And the same in agriculture. They have got to
improve their agricultural productivity, and they can do that
by saving more carbon in the soil.
Mr. Upton. Let me just go to the last minute to Dr.
Steinfeld, knowing I want him to wear his political science hat
as well. Well, no, I think he is a political scientist too,
right? All right, wear them both. How do we get through to the
Chinese Government? I mean what is your assumptions in terms of
what may or may not happen?
Mr. Steinfeld. Over the last decade and a half, generally
speaking, the way change has happened in China is that in this
sort of archaic political process, political constituencies
inside the country arise in a poorly regulated environment. The
government generally then binds itself to some kind of external
international agreement to support those constituencies, and
that international agreement is used as a club to beat away the
former incumbent constituencies that are there.
I personally am also a believer in markets and in civil
society, and I think both of those are viable avenues in China
and probably the most likely avenues for change that will have
to in some senses lead the bilateral discussion that goes on.
So when I am in China, the particularly privileged voice that I
see operating in that system actually is international capital,
and that the Morgan Stanleys of the world, the Goldman Sachs of
the world actually carry a lot of weight. And when markets are
created and prices are set, I think some of those actors can
play an incredibly powerful role, an influential role, as with
environmental and civil society type organizations.
Mr. Upton. Yield back. My time has expired.
Mr. Matheson. The Chair recognizes the gentlewoman from
Oregon, Ms. Hooley, for 8 minutes.
Ms. Hooley. Thank you, Mr. Chairman, and thanks to all of
the panelists, and my apologies that I had to leave for a
while. I had another committee hearing going on at the same
time.
Mr. Stephens, thank you for being here and testifying
today. We have had some companies come in and say this is not
going to work. We don't really have global climate change. If
we did a cap and trade system for greenhouse emissions, we
would go broke. It is not going to work. So what, first of all,
brought you to the conclusion that Boise Cascade would embrace
this approach, and you think your company can remain
competitive under such a system?
Mr. Stephens. Well, the reason is very simple. I was asked
by three important stakeholders Boise Cascade, what do you
stand for? What are your principles with respect to climate
change? Those three stakeholders were my customers who said if
we are going to buy your product, tell us about your
principles. My employees say Tom, what do we stand for? And
finally, my grandchildren said Papa, what do you stand for? So
I decided to show up.
Ms. Hooley. I am going to ask you a couple other questions,
then I have a question for the whole panel. Right now, we have
some States enacting some provisions and other States not. I
know you operate in many States. How much more difficult is it
for you to deal with the different standards in different
States versus having some kind of a national standard, or does
that really make any difference to you?
Mr. Stephens. It does make a difference. As an example, the
laws and regulations in Oregon are fundamentally different than
Washington when it comes to biomass and using spent black
liquor to generate energy in the paper business. That is very
confusing, and frankly we have not made some capital decisions
to use biomass and to move away from other fuels because of
uncertainty about what are the rules going to be.
To build a boiler may take me 5 years from engineering to
installation and startup. It is a long lead time. We are trying
to anticipate, at this point, what the rules we are going to be
accountable for are going to be, and they are very different
across the country.
Ms. Hooley. And I am interested in biomass. Can you tell me
what changes in regard to biomass, if any, you would recommend
to Congress as it relates to the development of the use as an
energy resource?
Mr. Stephens. Well, first of all, don't discourage its use.
As I indicated a while ago, in some States, it is not
considered a renewable energy source. So clear up the science.
Make sure we recognize it for what it is.
Ms. Hooley. OK, and then a question that I have for all the
panelists. If we went with a cap and trade system, how
important is it that we lead the way, or does it have to happen
internationally, or can it happen with our leading the way and
then trying to, as we figure out how to do this, then working
with other countries to make sure that they are also doing it?
I am going to start at that end.
Mr. Pershing. Thanks very much. I think the answer is we
would not be leading the way. We are already a follower. There
is already a market. It is worth about $25 billion. The market
is part that U.S. companies already play in. They have already
seen the price in the international context of their
investments. However, that market doesn't work as well as it
could. We could make it better. We could make it bigger, and if
we did that, we would have an enormous impact both on the
problem and on the way our international systems and our
international companies can play.
Ms. Hooley. OK.
Mr. Holzschuh. I concur. Any market that we have
established, and there are so many commodity markets that have
been established in the last 20 years, have taken an incredible
amount of innovation and technology to get started. What we are
not seeing is that investment now in that technology, and if
you are building a plant a week, all the technology is going
over there. I am very concerned that China will beat us to
clean coal technology. They will beat us to some of the things
that, I think, to the extent we had an open market, those
dollars would be spent here.
Ms. Hooley. Yes?
Ms. Petsonk. I agree with the previous speakers.
Ms. Hooley. OK.
Mr. Stephens. I agree.
Mr. Steinfeld. I would just add it is the ambition of some
Chinese industrial policy makers to ensure that China
geographically is the locus for introduction of new-to-the-
world technologies, whether it is by foreign companies or
hopefully for them, by Chinese domestic companies. And some of
those policy makers see energy as an area where that is going
to happen, particularly nuclear now, but also renewables and
clean coal technologies.
Mr. Chaudhuri. I can't actually speak for the Indian
government, but I would say that India has no problems with
carbon trading, whereas I suspect they would fight very
strongly against anything that brings in a cap on India.
Ms. Hooley. Another question for all of the panelists. I
mean we are here to try to make decisions about climate change,
what are we going to do. If there was one thing you could
recommend, what would it be? What is the one thing we could do
that would make a difference?
Mr. Pershing. Establish a price for greenhouse gases.
Ms. Hooley. OK.
Mr. Holzschuh. Create a capital pool to finance the initial
infrastructure investment in these clean technologies in the
U.S.
Ms. Hooley. OK.
Ms. Petsonk. Establish our carbon market with the way that
encourages other countries to dock into it and do so quickly.
Ms. Hooley. OK.
Mr. Stephens. Realize that we are not going to get it right
the first time. Probably what comes out of Congress will be
called the first mistake. There will be a second mistake and a
third mistake. So it has got to evolve over time. It is really
tough.
Ms. Hooley. Thank you.
Mr. Steinfeld. I will simply express the conclusion from
the MIT future of coal study. One tangible first step would
involve demonstration projects of carbon capture and
sequestration in the United States.
Ms. Hooley. OK, thank you.
Mr. Chaudhuri. Find ways and innovative ways to spread
things like the clean development mechanism and clean
technologies into the developing countries, but again I would
say without bringing in carbon emission limits.
Ms. Hooley. I thank our panelists. You have done a great
job. Thank you.
Mr. Matheson. The Chair recognizes Mr. Shimkus for 5
minutes.
Mr. Shimkus. Thank you, Mr. Chairman. One thing I like
about hearings is that you really do get a lot of good
information. I would encourage those who are in the DC area
normally come by, as I think Speaker Hastert said, and visit
with me. I am a skeptic. I can tell you about my regional
criteria, but it would give us more of a time to be able to
visit, and I can tell you where my skepticism comes from.
And so I have a few questions I want to get asked, and then
if I have time, I may go off on some of the great phrases today
from the panel. Mr. Steinfeld, I noted in your report, or your
co-author, the central government officials in China
acknowledge of the 440,000 megawatt equivalents of generating
capacity in place at the beginning of 2005, there was about a
110,000 megawatt of illegal power plants, which never receive
construction approval by the responsible central government
agency. Is this a common trend with expansion of power
generation in China?
Mr. Steinfeld. Yes, it is.
Mr. Shimkus. So can we conclude that China has a coherent
national policy for construction of new power plants?
Mr. Steinfeld. No.
Mr. Shimkus. No, good. What would this say to the
possibility of China contributing in the carbon dioxide
reduction program?
Mr. Steinfeld. That is much harder to say since the
ambition of many policy makers is to move toward a more
coherent policy, as is true----
Mr. Shimkus. But the facts of the expansion of generation,
if the central government is not involved in the citing of
these plants, that would make it very difficult?
Mr. Steinfeld. Yes, difficult.
Mr. Shimkus. At what rate is expansion of coal-fired plants
happening in China to your best estimate?
Mr. Steinfeld. Well, the latest numbers released for 2006
surprised everybody. 102 gigawatts in small capacity was added.
Mr. Shimkus. We hear reports that a new plant goes up every
week, and we have mentioned this before. And we can safely
assume that then, correct? Mr. Chaudhuri, during the first
hearing on climate change, we learned the German perspective of
a cap and trade program. It seems coal use is coming back there
mostly because imported natural gas is so expensive, and that
is a concern of this nation with our high natural gas prices.
Is this similar to what is going on in India? And let me just
follow up. Do you see coal as remaining an inexpensive dominant
source of power in India?
Mr. Chaudhuri. Yes, we are already 50 percent coal, and it
is likely that will, in fact, expand over time. India, like
most countries, looking at the energy security side, wants to
reduce its dependence on petrol chemicals because we import all
of our gas and petrol, virtually 80 percent of it. We have
large amounts of coal, which we do not tap in any really large
manner because of the inefficiency of the nationalized coal
sector. And so coal will almost certainly be king in India and
will probably expand its role over time.
Mr. Shimkus. Yes, and that is great. And I want to follow
up because you mentioned petrol chemicals, and one of my
obviously favorite subjects is the coal-to-liquid technologies
and applications. It really is part of this debate, the
question is India pursuing that? I know China is.
Mr. Chaudhuri. Yes, I think we have an agreement with South
Africa, which is one of the world leaders in that technology,
on working on that. The real problem in India is that, as I
said, the coal industry has been nationalized for almost 40, 50
years and therefore is stuck in a rut. And privatization of
that really is the first step towards it.
Mr. Shimkus. Great, thank you. And I know China is also,
and here we are talking about electricity generation. But we
are talking about fuel use, energy security, big issue here.
There will be folks in Washington that will not want to accept
the decrease of imported crude oil by moving to coal liquid
because of this carbon dioxide issue.
And I want to read some of these quotes. I thought they
came through sitting through here the whole time. ``The
ultimate polluter is poverty.'' Key. ``Capital is a coward.'' I
agree. I am going to use that. ``The trillions of dollar off-
ramp is particularly troubling.'' That is the amount of--my
quote that I have been using a lot: the Federal Government
always over promises and underdelivers.
So be careful how we in the authorizing committees move a
bill with the promises of research and development, money being
paid out, taxes raised to do that, because we won't be there in
the end. And then what does that do to the capital markets? I
know what it does because we are dealing with the expansion of
nuclear power. We are dealing with coal-to-liquid technologies.
We are dealing with all the aspects that you deal with. I do
appreciate this panel, and I would encourage you to come visit
with me. Thank you, Mr. Chairman, I yield back.
Mr. Boucher [presiding]. OK, thank you. And the Chair will
recognize himself for 5 minutes. Dr. Pershing, you propose
several policy solutions in your testimony including rebates
for some of the proceeds from a trading system to offset
exporters who are at a competitive disadvantage or allocating
allowances in a manner that reduces liability. In your opinion,
what is the best way to level the playing field for various
U.S. businesses or industrial sectors?
Mr. Pershing. There are two parts to the question. The
first one is if you design a domestic system, what would you
do? The second is as you think about the international linkages
the domestic system might create, what would you do? And there
might be slightly different solutions for each of those two
problems.
On the domestic side, I think you have a number of
different choices. The allocation question, I think, is
certainly one option. My own sense about it, however, is that
you need to be very careful as you do that because when you do
allocations to some, you therefore deny it to others, and that
makes it enormously difficult.
Congress however is quite good at dealing with financial
issues and deciding how best to allocate resources. And so if
you have an auction program in which you auction out your
permits, you create a set of revenues which you could then
redistribute to those who are affected or to, in an equitable
even way, using decision-making processes we have already got.
On the international side, it is slightly more difficult.
There the question is going to be who is at risk because of
competition from overseas, and how do you manage that? There
are a number of different ways. There are options that could
deal again with allocation. You allocate more permits to those
who are at risk.
There are options that deal with how you deal with the
financial flows, put it back into those. There are options that
deal with additional outside the carbon mechanism, other
benefits like reduced depreciation on things like technology
development that could bring the long-term cost down.
So there are many different solutions you could address
that would exactly solve your problem.
Mr. Boucher. I appreciate that. Mr. Holzschuh, in your work
at Morgan Stanley, you note that your commodities trading
division in Europe has been actively trading carbon allowances.
If Congress were to choose to go with the trading system, how
would you suggest that the system be designed in the U.S. to
improve upon the experience in Europe? How would you structure
it? What are your thoughts on that?
Mr. Holzschuh. Well, I would put it in the same box, I
think, as Mr. Stephens did, which is it was their first try. It
was a pilot. They are going to revise it this go-round. It was
restricted primarily to the generators of power in the European
Union. I think it needs to be broader than that. Has to address
some other industries.
To address one of the issues that you just asked of Dr.
Pershing, it is not going to work globally if we pick industry
by industry and put all of the burden, for example, on the
power generators when they are only 40 percent of the emitters.
We are going to have to spread that out. I think the allocation
process is difficult. I think there probably should be a
mixture of allocation and auction, and there may be tax that
goes with it, maybe all three.
I think the one piece that probably didn't get enough time
today that I would just say to you is the investment has to be
now. It takes 3 to 5 years to build a power plant. We don't
even have the technology yet on clean coal. We don't have the
technology on some of the bigger issues. That is something I
think you could do now, to put some money forth to move those
technologies, move the formation of a market, and maybe it is a
test period before it goes live.
Mr. Boucher. Mr. Chaudhuri, you mentioned that, in response
to, I think, Congresswoman Hooley, that you would like to see a
trading system without a cap. Is that correct?
Mr. Chaudhuri. For India, yes.
Mr. Chaudhuri. I would assume India would fight for that.
Mr. Boucher. Can you tell me how, without a cap, how the
trading system might help accomplish goals of reduction of
greenhouse gas?
Mr. Chaudhuri. Well, one of the means that could be done on
a cap for a growing economy like India or China would be to
link your cap to your growth rate. So in other words, if your
economy is growing at 10 percent, your cap keeps rising at a
certain level so that you essentially try to control that. We
are part of the carbon trading, though we do it on a firm-to-
firm basis, which I think is something that still should be
considered as a possibility in carbon trading.
But basically I think the fundamental principle remains
that if you are attempting to cap the economies of India and
China, other than driving India and China closer together,
which has so far been proved impossible, I would say that there
will be extremely strong political resistance to the very idea
that you are trying to restrain India's growth.
India is one of the few countries in the world that has
actually seen pro-American sentiment rise in the past 20 years.
I think in one survey, we are third most pro-American country
in Asia. You will probably lose a lot of that if you attempt to
or seem to be trying to restrain India's growth.
Mr. Boucher. OK, my time is just winding up, so I will
yield back, and I next recognize Mr. Shadegg for, I believe, 8
minutes.
Mr. Shadegg. Thank you, Mr. Chairman, and I want to thank
all of our witnesses. I would join in the request that any of
you that have an interest come by and see me and talk about
your specific concerns in this area. I serve with Mr. Walden on
the select committee, and we have a lot of work cut out. I am a
little saddened that today the select committee drew an entire
cadre of press and accomplished nothing. And this committee has
had great testimony from you and a great dialogue, and I
daresay I don't see at least a single--well, there is one
reporter in the back. We got a few. All right, they are over
here. OK, great. Well, that room was chock full of cameras.
Maybe that is the difference.
I do appreciate all of your input on this topic, and I
believe that it is at least nice that many of you acknowledged
how difficult this job is because as I listen to you, I hear it
as extremely difficult. I see a contrast between Mr.
Chaudhuri's testimony, which I believe is the real challenge
here. How, in fact, do we deal with this issue without being
seen as having imposed the burden on developing nations or more
importantly on the people in those nations who have every right
to expect to move forward with their economic life and do well.
I am going to focus a little bit of my questioning on that
point, it is nice that we want to do the right thing. How then
can you do the right thing? Mr. Chaudhuri, I heard testimony
that just by having a big market, people would participate in
it. Well, I am inclined to believe that prosperous nations
might participate in a big market. Can you explain to me how
you see India being drawn to a large market if the United
States establishes a mandatory cap and trade program?
Mr. Chaudhuri. Well, I think the crucial issue for India
would be the private sector, how do the Indian corporations
respond to the incentives within that market. I think that one
of the key problems, and I suspect this is also true for China,
is that a very large portion of our manufacturing sector is in
the informal sector. In other words, it is outside the
government's regulatory vein. I think almost 70 percent of our
industrial labor force, and sort of a large number of companies
and factories are simply just not recognized or not known to
the government.
These companies cannot participate in the market that you
are talking about because they will be scared to get stuck in a
tax net or a regulatory mess as a consequence. And this is
going to be crucial because in many ways, they are the fastest
growing segments of the manufacturing site.
Another crucial problem is that 80 of our carbon emissions
are linked to energy production, and I am not certain how a
large number of electricity utilities and so on are going to be
able to participate. In India, power is subsidized. Like
kerosene, for example, is subsidized.
On the other hand, there are huge taxes on petroleum far
beyond anything that exists in the United States. And how
exactly a lot of these institutions will be able to participate
in a global market strikes me right now off the top of my head,
I really don't know how they would do it.
So a market would be good because a lot of the larger
corporations--and that is good because that brings a lot of
steel and coal industries into play--would be useful. And they
could seen the benefits if the price incentives are strong
enough.
Mr. Shadegg. Mr. Steinfeld, hasn't he just described in
similar terms the problems you described in China? That is that
the government doesn't have control of what is going on even,
for that matter, knowledge of what is going on with regard to a
good portion of the economy that is producing greenhouse gases?
Mr. Steinfeld. There are parallels.
Mr. Shadegg. And your answer to that is that reform groups
will come along and pressure the Chinese Government to take
progressive steps?
Mr. Steinfeld. Not just that, although that is going to be
a key component. Reform in China has moved forward in fits and
starts, by reform accelerates and the capacity of the
government fails to--initially, it lags, fails to catch up.
Then it catches up. We see that with property rights provisions
today, we have seen it with some intellectual property rights
issues, we have seen it with ownership distinctions. Then the
economy surges forward again and we lose the capacity. It is a
give and take kind of process.
Mr. Shadegg. Mr. Stephens, I think you are being extremely
charitable by acknowledging that we will get it wrong the first
time, the second time, and the third time. I think I would get
voted out of office the first time, and the chairman gets voted
out of office the second time. And I don't know who is left for
the third time.
But I am worried about the employees of that mill that you
discussed at the beginning of your testimony. Since 1997, 136
pulp and paper mills have closed in the United States with a
loss of, I am told, 85,000 jobs. And there have been an
additional 60,000 jobs lost in the wood products industry since
1997.
And we heard just a few minutes ago from Mr. Holzschuh that
in Europe, well, they got it wrong. But they are going to get
it better this next time. They saw a 67 percent increase in
electric prices in Europe after establishing their cap and
trade system. Have you done an estimate of how many more pulp
plants or how many more wood industry jobs would be lost if we
make a mistake of that scope?
Mr. Stephens. No, I haven't done that estimate, but I think
it is interesting that for most of my 50 years I have been
around this business, we were exporters. And today, we have
become importers.
Mr. Shadegg. And that troubles me very much as well. I have
another question. I heard a great deal of frustration in your
voice about not getting biomass right, not getting forest
policy right, not being able to remove dead trees--big problem
for us in Arizona--not being able to clean up the floor of the
forest, new policies now say let forests burn because our
artificially suppressing fires was a bad idea. But you point
out in your testimony accurately that allowing for us to burn
emits massive amounts of CO\2\.
If we can't get forest policy right, I am concerned that we
can't get these policies right. And I am concerned that we will
lose a lot of American jobs in the interim. You have a plant in
Brazil. I don't want to see more outsourcing of jobs to your
Brazilian plant.
You point out in your company's climate change principles
that over the past 5 years, Boise Cascade has decreased your
use of purchased fossil fuel paper in your paper mills by 28
percent while increasing production by nearly 4 percent. That
is a real step forward in terms of greenhouse gases. You did
that voluntarily. If we had solid policy on biomass, you would
be able to do better than that, I would bet, quite
dramatically. Is that correct?
Mr. Stephens. Well, the laws of physics do put certain
limitations on conservation, but yes. But the reason we were
able to accomplish that is our investors gave us capital. We
put that capital to work in our mills, and it was an economy
incentive for us to conserve energy because our cost went down.
If we ever forget that, we are toast.
Mr. Shadegg. Well, and I noted your comment earlier when
you asked give one thing, it is come up with the capital to
fund the start of this, and I agree with that. Your company's
principles also state that you are concerned about not pushing
the jobs offshore. Yet in your testimony, you say well, the way
to deal with that is to simply stop market access. That is your
written testimony says don't impose a tariff, as Vice President
Gore talked about, but simply restrict access.
I have two problems with that. I am concerned that creates
a global trade war, No. 1. And second, I think there are smart
businessmen in India who say fine, I can't sell direct to the
United States. I will sell to England who will sell to the
United States. Have you thought those two issues through?
Mr. Stephens. As I have indicated, it is the Gordian Knot
that has be to dealt with. It is a fundamental conflict in
principles with me, but maybe I am just stupid. I haven't
figured out an alternative.
Mr. Shadegg. Well, fair enough. Fair answer. Thank you very
much. Thank all of you.
Mr. Boucher. Thank you. The Chair recognizes Mr. Inslee for
8 minutes.
Mr. Inslee. Thank you. Thanks for your help on this tough
issue. Listening to you, I had two thoughts I wanted to mention
before my question. First off, it seems to me if we are going
to get the developing world to joint us in this quest, there is
a really a fundamental fact that none of us have talked about
today. We have had a good time engaging in the American sport
of bashing China, which is always a good time, I suppose.
But there is really an important fact that I think we ought
to at least talk about a little bit this hearing. And that is
that the per capita emissions of Americans and Chinese are
radically different. I am looking at charts that are before me
that shows that a typical citizen of China emits about four
metric tons of carbon dioxide per year per person. And that is
how I break it down. We are talking about people not just
countries. And the average American does about six times that
much, about 24 metric tons per person. India is about two and a
half, maybe to three it looks like metric tons. We are about
eight times that much, or about 24 metric tons per person.
Now, the reason I note that is that when we go to China and
India and chastise them for not being as morally pure as
Americans, it seems to me they might say who are you to talk
when you are emitting six to eight times as much per person as
we are. And I think we have to think of a response to that if
we are going to make any meaningful progress in this regard and
how we respond to that sort of perception that they will have.
I don't feel like I am wearing totally the moral white hat
here telling the Chinese to stop doing any CO\2\ emissions when
we are doing six times more than they are per person. It is
difficult to wear the white hat in that circumstance frankly.
So I think that is something we have to work through and have a
strategy in that regard.
The second thing I want to note is listening to you all,
what I was struck by--and one of the reasons I do not agree
with this sort of doomsday scenario that if the rest of the
developing world doesn't follow up to the letter within the
first 24 hours of us adopting this policy that we are just
going to abandon our policy. I think that is a really bad
mistake, and the reason is that the more I listen to you, the
more it becomes apparent to me that the real goal of our
domestic policy should be to drive technological development in
America so we can sell it to India and so we can sell it to
China.
And that doomsday scenario would handicap and retard the
development of these new technologies. I want to sell products
made in Tacoma, Washington to China, one of which is a clean
coal technology that allows us to compress CO\2\ at 30 or 40
percent less cost and make clean coal. I want to sell that to
China, and if we weaken our cap and trade system, if we shoot
it in the foot by putting this sort, I will just call it the
doomsday scenario that we don't play until China does, we will
retard the ability of these companies to grow.
Mr. Holzschuh indicated growing a capital pool for these
companies is absolutely pivotal to the development of this
export economy for the United States. That is why, if we are
thinking, I would much rather think about requiring emissions
price to be paid if some company does not ultimately become
responsible in this regard.
So first question. If we were to adopt some type of
requirement at some point in the future that countries that do
not do X, that they have to buy emissions credits to make up
for the fact that their country did not participate. Let us
assume that we can deal with the WTO issues, and we figure out
when we should do that. What is the X? What should the X be?
When we have a country that is one-sixth or one-eighth as we
are per capita, what is the X? How should we think of that if
we were to adopt that type of mechanism? That is an open
question to any of you.
Ms. Petsonk. It is exactly this kind of question we think
merits a closer look. One proposal that is in the process of
being developed is to look at as a gradual thing. I think you
are exactly right, that countries are not going to spin on a
dime and simply because we cap emissions, they are going to cap
emissions.
They will need time to put their caps in place. It may be
that during that time period they could still do--you would let
them come into our market with some carbon trading along the
lines that Mr. Chaudhuri has talked about where they don't have
a cap, but they do individual projects that reduce emissions.
Those are useful projects, but the carbon credits from those
don't trade at par in our market because the overall country
doesn't have a cap.
If over the time the country still refused to either accept
a cap or reduce their total emissions, then you could look at
carbon intensive goods from those countries that come into our
market. If they come in made with a greater amount of carbon
per kilowatt hour or per barrel of oil or per ton of cement or
per ton of steel greater than a standard that we set as an
efficient, reasonable standard, then what they would need to
purchase in order to get their products into our market would
be the delta, the difference, between what our standard is on a
per-ton or whatever basis and how much it took to produce those
products in their countries.
Now, I am not saying that for sure that is the answer. I
just want you to know that that is the kind of answer that some
companies, multinationals with production facilities around the
world, are thinking about. Is that helpful?
Mr. Inslee. Yes.
Mr. Pershing. I just want to say a couple of different
things. We were responsible for the data in this particular
chart, and I think it is extremely important to use this in
thinking about the next steps. But I would note that this chart
in some ways is a little bit misleading because what it
represents is what the national average is. And the national
average is not where productivity happens or emissions happen.
And if I look, for example, at the case of China, Dr.
Steinfeld talked briefly about this in terms of at the high
end, it is Shanghai. Shanghai does not look like western China.
At the high end in India, it doesn't look like the rest of
India. It looks like where the center of populations are, where
the significant growth is, where enormous capital resides.
And one of the ways to think about it and what you do with
these countries is not to so much think about what the average
is, but think about what you are trying to control. You are
trying to control the direction of future energy production.
You are trying to incentivize the kind of investment that would
make it lower cost and lower emissions based.
And what you have got is amazingly large pools of capital
globally that could move in. And if you create it from the
other end, not the penalty, but the incentive, you may actually
create the kind of advantages that you want to create.
Mr. Inslee. Well, just the way I look at this is when I am
thinking about how to move forward, I am going to judge these
proposals on how they incentivize and create market
opportunities for United States technology because I really
believe that is the way the United States is going to lead the
world to solving this, as much as even international
agreements.
If we can develop these technologies to sell the China and
India, they will buy them even without a cap perhaps. The key
is developing those technologies. And if we can come up with a
solar thermal plant that a son of India, a guy named Vernard
Kolsa, just who helped Sun Microsystems get started, he just
bought a solar thermal company. He has renamed it Oster. It was
an Australian company. He has moved it to the United States.
They believe they might be able to have market-based grid
competitive solar thermal energy in the next 5 to 6 years.
Now, if they can do that, if we can help that company by
having a cap and trade system here in this country to drive
capital into those companies, we will sell India this
technology even if they don't get into this market. Yes?
Mr. Pershing. One additional thing on that same front is
that I note that India does in fact have a ministry of
renewable power. It is the only country in the world that has a
ministry that is focused explicitly on how you move that
forward. We can cooperate with a ministry like that and do
aggressively promoting the technology that we have got in that
kind of a structure.
Mr. Inslee. Well, my idea is, since I just found out
yesterday that the gavel in the U.S. Senate is ivory, a gift
from the vice president of India, they owe us to buy our
technology.
Mr. Boucher. The time of the gentleman has expired. The
Chair recognizes the gentleman, Mr. Walden, for 8 minutes.
Mr. Walden. Thank you, Mr. Chairman. Mr. Stephens, I would
like to dedicate the next 5 minutes so you could read your
testimony again to the committee, but I won't do that. I
chaired the Subcommittee on Forest and Forest Health for a
couple of years when we were in the majority. And we passed in
the House bipartisan legislation to get at this issue of better
managing America's forests because, as Brian Baird, my
colleague from Washington, and I agreed, Americans are going to
use wood, and that is not a bad thing.
It is a matter of where we get it. And today, we let
forests rot and burn in the United States so we can mow down
rainforests around the world where they lack environmental
safeguards. And then we wonder why we have some of these
environmental problems. You referenced in your testimony the
amount of carbon emissions that are put into the atmosphere by
forest fires. The B and B fire in central Oregon in 2003
contributed at least twice as much carbon, among other
pollutants, into the atmosphere as the entire State of Oregon
did for 1 year.
We have so hamstrung the Federal ability to manage our
forests, to get them back in tune with nature, that when we get
fire, it is of catastrophic consequences. And then we let the
trees stand and decay and rot rather than replant and harvest
those that have some value. And we do it in the name of the
environment while we happily go and import wood at astronomical
rates from these foreign countries.
Now, I guess the question I have for you is is that the way
that Boise in its former iteration managed its forest lands?
Mr. Stephens. No, it is not. We managed it as a working
forest and balanced its economic value with its environmental
value. I think when we reached the point as recently as, I
guess, a month ago where a Federal judge has to decide what is
a dead tree and a live tree and a tree that can be harvested in
the middle of a fire, that gets very frustrating to the members
of the forestry service that I visited on that fire walking
through that burned area. We have essentially handcuffed them
as professionals from doing their job.
Now, the logic of it is so silly. If we could harvest that
tree, we can convert it into a wooden I-joist in Bedford,
Oregon. We can ship it to China and use it for building homes
rather than using concrete.
Mr. Walden. Right.
Mr. Stephens. And we are carbon neutral. The concrete could
put carbon into the atmosphere. So when you look at the whole
picture, when you integrate the whole thing together, we still
have a lot of problems we need to solve in managing the Federal
forests. The good news, forests in the U.S. are not that much
less than they were 100 years ago, and we can make them much
healthier.
Mr. Walden. That is true, except they are far less healthy
than they were 100 years ago. You have 192 million acres of
Federal forestland subject to catastrophic fire, bug
infestation, and disease. And we are not doing much about it to
improve it.
Now, I am a big advocate of renewable energy too. My
district is host to one of the only renewable energy centers in
the country at Oregon Institute of Technology, OIT, down in
Klamath Falls where they are doing some remarkable work on
geothermal development as well as other renewables.
We worked with the Navy to secure a site that may become
home to a very substantial solar energy development. My
district is home to an enormous amount of wind, not just
because I reside there, but because of the winds off the coast
coming up the Columbia Gorge. And as a result, we are seeing
literally thousands and thousands of megawatts of new wind
energy being put into place. And it works well, as you probably
read in the Washington Post last week, because of the synergy
that exists with hydrosystem.
Now, Ms. Petsonk, with all due respect, there is some in
the environmental community that would take out the dams, that
opposed us vociferously on our forest health strategies. How do
we, as a country, get to where we can actually be good managers
of our Federal lands, use these alternatives renewables. The
efficiency rate of hydro is like 90 percent. There isn't
another fuel efficiency out there that is above about 50, I
think. How can you help us get there?
Ms. Petsonk. I know my organization has done some work with
the Confederated Tribes of the Warm Springs Reservation, a
place I dearly love. And when the Confederated Tribes began to
look at if there were a price on carbon, how would it change
their management of forest lands, of water, and also grazing,
they came up with some very interesting results. They found
that there would be incentives to restore forests along the
banks of streams. They would grow carbon by letting the big
trees get bigger, taking out some of the small trees like you
are talking about that add to the fire----
Mr. Walden. And even out, yes. Ladder fuels.
Ms. Petsonk. That reduces the runoff going into the streams
to improve stream quality and clarity, and it also makes hydro
more efficient because there is less siltation so they get a
carbon benefit out the back end because they get better low-
head hydro going that can displace coal. So once you begin to
look at this through that prism of carbon, and we are lucky
that it is carbon. What if it were arsenic? We are lucky it is
carbon. It has so much to do with so many aspects of daily
life. I think we will see economic incentives that press toward
forest restoration.
Mr. Walden. Right, but the economic incentives, frankly,
are there absent carbon trading. The problem we have, and the
tribe supported the legislation we passed in the House. The
problem we have is that we have hamstrung the management
ability of our professional forests on Federal ground to do
exactly that. There are already setbacks on streams, hundreds
of feet back on each side where you can't harvest, and that is
understandable.
What I am talking about though is nearly every thinning
project out there gets appealed. You get a burn on a Federal
forest, you will be court 3 years later deciding what size tree
you can cut, if any, and by then the value is gone. And you
can't replant and start the sequestration process over. It is a
terrible mess out there I am telling you.
And we could do a lot for the atmosphere. I am tired of
going into my communities that are choked in the summer with
not only carbon dioxide but also all the other pollutants that,
in one fire, are doubled, tripled. I have seen reports up to
six times just in the one fire of what the entire State of
Oregon emits.
And so there is a lot of good stuff we could be doing on
the ground now that would help resolve some of these issues.
And I just hope that we can look at those as well, how we
improve nature and work with nature to reduce carbon emissions.
Certainly there are positives there. And not do these things
where we rip out the battery, the dams, that are the storage
unit that make wind energy work and be more reliable. And yet
there are people that want to do that. And that is real
troubling.
And just as a final note, having been on this committee now
for probably, I guess, 6 years, having gone through the
Medicare Part D Program, I can't imagine setting up some of the
cap and trade programs that some witnesses we have had before
the committee have envisioned, just in terms of the complexity
and cost and making them work.
And finally, Dr. Steinfeld, I supported giving China
excession to the WTO. Do you think they are fully compliant
today? And would they be under a cap and trade carbon system?
Mr. Steinfeld. Full compliance is, I think you have a point
that it just hasn't--and it is an ideal level that--but I do
think that China, in a few areas, has become more compliant
than it was. I say that not as an advocate for China, but we
have seen progress. And that intrigues me, and understanding
why that progress happens, I think, is a worthwhile endeavor.
Mr. Walden. OK, thank you.
Mr. Boucher. Thank you. The Chair recognizes the gentleman
from Texas, Mr. Gonzalez, for 8 minutes.
Mr. Gonzalez. Thank you very much. Let me catch my breath
and apologize to one and all. Dr. Burgess may be treating me in
a minute.
Mr. Burgess. Take your time, and then if you need to catch
your breath----
Mr. Gonzalez. You see? And that is good medical advice.
Thank you very much. As a matter of fact, I just came from a
meeting. My mayor is in town. My county judge is in town. My
city manager is in town. My chamber of commerce is in town, and
believe it or not, they really are interested in global
warming.
And the reason for that is that our newly planned energy
plant is--guess what it is. It is coal, and the mix we have
right now is probably 50 percent coal, 10 percent wind energy.
I forget what percentage is nuclear, and the rest is natural
gas. But our big investment is going to be in coal, and that is
what I want wanted to talk to you about. And I know that some
of this may have already been covered, and I apologize to you
for my absence and the fact that I might be repeating a couple
of things.
I only have a question or two to the witnesses, and I will
direct those questions to them in a minute. We have about 12
new coal-fired plants being built in the United States as we
speak to come online very soon. We have 40 others that are
planned. They will come online in the next 5 years. Then the
predictions are by 2030 we will have 150 more, and that is
United States alone.
In the United States, half our energy-producing plants are
coal fired. China, what is it? 75 percent? I forget. Something
like that. So nothing is really going to drastically change in
the immediate future, and so whatever we put in place, I am not
real sure how we retrofit or what we do. So this cap and trade
looms large if you know what I mean, and I think that is where
a lot of our attention, a lot of our energy probably is going
to be focused as we try to meet some sort of a June date or
whatever to have something out there for consideration as
reported of this committee. And as you well know, there is a
select committee operating out there also on this same subject.
It has been described before that we should do what we are
going to do as a nation because it is a moral imperative. Yet
we have those individuals, and you heard from them today on
this committee, that truly believe why should we do anything if
the other nations aren't joining us, if the other don't do
their part. And that is a good question. Why do you sacrifice
it all? And I am not real sure that I have that particular
answer.
But the question that I am going to pose to Ms. Petsonk and
then Dr. Steinfeld. If we cannot predict control or influence
to any appreciable extent, the conduct of other nations,
whether it is going to be India, whether it is going to be
China, Indonesia, Brazil, it doesn't matter. To what extent
should we pay a price as a society in higher costs and such?
Why should we go it alone? I actually think there is a reason
why we should still improve on a bad situation, irrespective of
what we could expect from other countries.
But you tell me based on your own experience, what do you
tell the United States? Let us say worst case scenario. The
other nations don't do a thing. Why should the United States
move forward? Because the laws we pass will only impact that
which is within our jurisdiction, the United States of America.
So I will start with Ms. Petsonk.
Ms. Petsonk. Thank you, sir. When I first started in this
field, the only job I could get was in the area of
international environmental law, and I was a newly minted
environmental lawyer. And I wasn't interested in international
stuff because I said there is no global EPA. There is no global
police force. There is no way to enforce any of this stuff. But
my supervising attorney said to me you ought to take this job
because the challenge of international environmental law is
designing legal frameworks that sovereign nations will want to
obey.
That is a very big challenge. You are right. What I have
tried to do in my testimony is offer up some suggestions for
both carrots and sticks that Congress could include in
legislation that would increase the likelihood that our trading
partners would want to participate. We don't have a way to
force them to do it. We do have tools that can engage them, and
we also have tools that can level the playing field if they
don't. And so those are the tools that I have tried to suggest
to you.
I do not have a tool that I can guarantee you will make
them do what we do, but I can guarantee you that if we don't
take the first step, they will not.
Mr. Gonzalez. Dr. Steinfeld.
Mr. Steinfeld. Speaking personally, I tend not to be
persuaded as much by the moral arguments as by the simple,
rational arguments. I view measures to deal with climate change
as an insurance policy. Insurance policy, in part, regarding
environmental issues. An insurance policy in part regarding
resource availability issues or energy availability issues, and
an insurance policy, in part, involving industrial
competitiveness and innovation.
We have a slight advantage in the United States of not
being at the absolute cutting edge of some of these measures.
We are slightly following in some areas, but my concern is that
if we don't play, that other countries, including developing
countries, will be buying pieces of this insurance policy. And
by addressing some of the climate change issues, we will be
inducing innovation or providing centers for innovation in
their industrial bases, which ultimately will put us in a
position to buy rather than selling. And I think that is not a
position we want to be in.
Mr. Gonzalez. Did you want to add anything?
Ms. Petsonk. Yes, I would just like to add, you mentioned
about wind power and coal, and I am certainly familiar with
some of the decisions facing Texans going forward looking at
coal and wind. I had the opportunity last year to have lunch
with the head of wind power in GE, and I asked him is it really
the case that GE is the largest producer of wind turbines in
the world. And he said actually, no. And this may not be true,
but this may not still be true, but at the time it was true. He
said actually no, the largest producer of wind turbines in the
world is Denmark.
I said Denmark, why Denmark? He said well, they figured out
that if they let farmers generate electrons with wind and sell
the surplus back to the grid, they would let farmers make money
doing that. And that very quickly gave an incentive to farmers
to develop really good wind turbines, and so they have gotten
that market share. Now, I believe, and maybe Mr. Chaudhuri
knows a little bit about this as well or maybe Dr. Pershing,
that India is not far behind in developing wind turbine
technology.
And so it is the case that as other nations look at the
climate change problem, some of them will adopt emissions caps.
Some of them will do less than that, and they will go into the
carbon market with individual projects that reduce emissions.
But if we don't begin to give a price signal for reducing
carbon in our economy, we are going to end up buying the low-
carbon technologies in the future from other nations.
Mr. Gonzalez. I have 36 seconds. Does anybody want to add
anything?
Mr. Chaudhuri. I will just add onto what Ms. Petsonk
mentioned. One of India's newest billionaires, in fact, is a
wind turbine magnate, a dollar millionaire. And he has in fact
bought a billion dollars overseas investment. He has been
buying small companies across Europe to master the technology
of wind turbines, and sure he has got as big a monopoly as he
can on that.
Mr. Gonzalez. Well, thank you very much. I yield back.
Mr. Boucher. Thank you. The Chair recognizes Mr. Burgess
from Texas for 5 minutes.
Mr. Burgess. Well, I do want to, following on what Mr.
Inslee said when he was talking about wanting to export his
technology from Washington. In Gainesville, Texas, we make some
of the finest windmill blades known to man. And so we hope that
the Indian billionaire will buy good, solid Texas blades that
are made to exacting specifications and don't pick up those
cheap Brazilian blades because they are only going to break
when the wind gets strong.
Dr. Steinfeld, on the MIT coal report, which evaluates 10-
year lag for developing countries to join the greenhouse gas
reduction regimen, how realistic is it to expect the Chinese to
be able to conform to that 10-year timeframe. It seems like a
relatively short amount of time.
Mr. Steinfeld. In my personal opinion, 10 years, given the
pace of change in China and this give and take between
regulatory capacity building and then development, I think 10
years is a reasonable time to expect the building of compliance
capabilities.
Mr. Burgess. What is likely to happen though as far as the
economy and jobs in China during that 10-year lag?
Mr. Steinfeld. In my estimate, what we will see is we will
see a shifting of industrial structure in China, as is already
happening, increasingly toward services. To some extent, there
is going to be a response, and we are seeing a bit, to the
government's mandates to increase energy efficiency. So some
financial incentives have already been created for internal,
domestic switching in China out of energy intensive and into
more valued service intensive industries.
Mr. Burgess. Mr. Chaudhuri, did I pronounce that correctly?
Mr. Chaudhuri. That is close enough.
Mr. Burgess. It would seem that, and we have heard some
discussion on this, and I apologize also for being late. We are
doing children's dental care under S-CHIP downstairs in our
health subcommittee. And I promised I would do no puns about
picking on problems or flossing over problems. But focusing on
the cap and trade program and your focus on the economic growth
in India to alleviate poverty within this generation, so what
impact will the U.S. implement an economy-wide cap and trade
regimen, is that likely to have an impact on India?
Mr. Chaudhuri. If the United States does one unilaterally
or globally you mean, or imposes something as----
Mr. Burgess. Assume unilaterally at this point.
Mr. Chaudhuri. Well, if it is unilaterally, I don't see--it
would depend on the nature of it in terms, as Ms. Petsonk
mentioned, whether it allows other countries and companies in
other countries to tag into that. In that case, it would be
beneficial. The CDM already are looking at an estimate by the
UN. The CDM mechanism by 2015 was expecting to issue certified
emission CRs of about 300 million tons in India alone, which is
equal to what we produce all of 2005. So if that incentivizes
us to join into that, then it will be perfect because both
sides win. It is a win-win situation for both sides.
If you were to issue it as a trade tariff, there was talk
about issuing that, I would recommend against it because I
would essentially run into severe sovereignty issues. At that
point, it becomes confrontational. India has no problems
participating, but if you are going to add tariffs, essentially
what amounts to a tariff, on your goods coming in, outside of
the fact that I am not certain how in regulatory terms it is
even feasible in India to work that out, my expectation they
would then treat it is as WTO is, which is that this has now
become a sovereignty trade issue and be treated with hostility
or treated as a difficult negotiations process.
Mr. Burgess. Thank you. Mr. Holzschuh, on the clean
development mechanism, referencing that process in regard to
China, there are some anecdotal stories that there are
industries in China that are occurring simply to create
pollution in order to get the credits when they dismantle or
deactivate those activities. Is that an issue? Is China
creating a problem just to be able to correct it later on in
order to sell those credits to, say, European countries?
Mr. Holzschuh. I am not familiar with the statistics there,
but I would say it is not just China. When a market is
developed, there will be people who try to front run, take
advantage of markets. And as part of that market mechanism, the
constituents in that market and the regulatory bodies that sit
above it are going to have to control that. So there is no
doubt in my mind that people will attempt that. Hopefully the
policing mechanisms work.
Mr. Burgess. But we already heard reference of some of the
difficulties with dealing in a punitive way with trade
sanctions, and likely that would play a significant role in
that type of activity if a country elected to go down that
path. Thank you, Mr. Chairman. I appreciate. I will yield back.
Mr. Boucher. Thank you, Mr. Burgess. Following the
subcommittee's usual practice, the hearing record will be left
open to permit various members of the committee to submit
additional questions to the witnesses. And we would appreciate
your written responses and will include them in the record.
With that, I want to thank you for your time and patience
participating in the hearing today, and with that, this hearing
is adjourned.
[Whereupon, at 10:52 a.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
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