[Senate Hearing 106-150]
[From the U.S. Government Publishing Office]
S. Hrg. 106-150
CREDIT FOR EARLY REDUCTIONS ACT
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HEARINGS
BEFORE THE
COMMITTEE ON
ENVIRONMENT AND PUBLIC WORKS
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
ON
S. 547
A BILL TO AUTHORIZE THE PRESIDENT TO ENTER INTO AGREEMENTS TO PROVIDE
REGULATORY CREDIT FOR VOLUNTARY EARLY ACTION TO MITIGATE POTENTIAL
ENVIRONMENTAL IMPACTS FROM GREENHOUSE GAS EMISSIONS
__________
MARCH 24, 1999--WASHINGTON, DC
JUNE 3, 1999--PROVIDENCE, RHODE ISLAND
__________
Printed for the use of the Committee on Environment and Public Works
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U.S. GOVERNMENT PRINTING OFFICE
59-381 CC WASHINGTON : 1999
_______________________________________________________________________
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington DC
20402
COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
one hundred sixth congress
JOHN H. CHAFEE, Rhode Island, Chairman
JOHN W. WARNER, Virginia MAX BAUCUS, Montana
ROBERT SMITH, New Hampshire DANIEL PATRICK MOYNIHAN, New York
JAMES M. INHOFE, Oklahoma FRANK R. LAUTENBERG, New Jersey
CRAIG THOMAS, Wyoming HARRY REID, Nevada
CHRISTOPHER S. BOND, Missouri BOB GRAHAM, Florida
GEORGE V. VOINOVICH, Ohio JOSEPH I. LIEBERMAN, Connecticut
MICHAEL D. CRAPO, Idaho BARBARA BOXER, California
ROBERT F. BENNETT, Utah RON WYDEN, Oregon
KAY BAILEY HUTCHISON, Texas
Jimmie Powell, Staff Director
J. Thomas Sliter, Minority Staff Director
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(ii)
C O N T E N T S
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Page
MARCH 24, 1999
OPENING STATEMENTS
Baucus, Hon. Max, U.S. Senator from the State of Montana......... 3
Letter, response to article on global warming, Mark F. Meier. 4
Chafee, Hon. John H., U.S. Senator from the State of Rhode Island 1
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma... 5
Article, Behavior of World's Glaciers Fails to Prove Global
Warming Theory............................................. 5
Lieberman, Hon. Joseph I., U.S. Senator from the State of
Connecticut.................................................... 10
Thomas, Hon. Craig, U.S. Senator from the State of Wyoming....... 12
Voinovich, Hon. George V., U.S. Senator from the State of Ohio... 2
WITNESSES
Claussen, Eileen, Executive Director, Pew Center on Global
Climate Change................................................. 13
Prepared statement........................................... 47
Keating, Raymond, Chief Economist, Small Business Survival
Committee...................................................... 33
Prepared statement........................................... 65
Testimony before House Small Business Committee, June 1998... 38
Landgren, Dale, Vice President for Business Planning, Wisconsin
Electric Power Company......................................... 16
Prepared statement........................................... 50
Nelson, Tia, Deputy Director, Climate Change Program, The Nature
Conservancy.................................................... 19
Prepared statement........................................... 58
Passacantando, John, Executive Director, Ozone Action............ 31
Prepared statement........................................... 62
Sandor, Richard, Chief Executive Officer, Environmental Financial
Products....................................................... 17
Article, Creating a Market for Carbon Emissions.............. 54
Prepared statement........................................... 53
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JUNE 3, 1999--PROVIDENCE, RHODE ISLAND
OPENING STATEMENT
Chafee, Hon. John H., U.S. Senator from the State of Rhode Island 69
WITNESSES
Colburn, Ken, Director, Air Resources Division, New Hampshire
Department of Environmental Services........................... 73
Prepared statement........................................... 97
Fantozzi, Peggy, Chair, Massachusetts Commission for Conservation
of Soil, Water and Related Resources........................... 84
Prepared statement........................................... 108
Fay, Kevin, Executive Director, International Climate Change
Partnership.................................................... 76
Executive summary, Department of Energy Report............... 102
Membership list, ICCP........................................ 101
Prepared statement........................................... 99
Hamburg, Steven, Ittleson Associate Professor of Environmental
Studies, Brown University, Providence, RI...................... 81
Prepared statement........................................... 102
Rabideau, Hon. Scott P., Rhode Island House of Representatives... 71
Prepared statement........................................... 93
ADDITIONAL MATERIAL
Text of S. 547, Credit for Early Reductions Act.................. 110
CREDIT FOR VOLUNTARY REDUCTIONS ACT
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WEDNESDAY, MARCH 24, 1999
U.S. Senate,
Committee on Environment and Public Works,
Washington, DC.
The committee met, pursuant to notice, at 9:30 a.m. in room
406, Senate Dirksen Building, Hon. John Chafee (chairman of the
committee) presiding.
Present: Senators Chafee, Voinovich, Inhofe, Baucus,
Lieberman, Thomas, and Wyden.
OPENING STATEMENT OF HON. JOHN H. CHAFEE,
U.S. SENATOR FROM THE STATE OF RHODE ISLAND
Senator Chafee. I want to welcome everyone this morning.
This is a meeting of the full Committee on the Environment and
Public Works on the subject of credit for voluntary greenhouse
gas mitigation. In other words, credit for early reductions.
Today's hearing has been called to receive testimony on
voluntary greenhouse gas mitigation projects performed by U.S.
firms.
Specifically, we hope to learn more about the challenges
set by official policy and technical issues surrounding the
proposed crediting of these voluntary reductions.
It sounds simple, the range from governmental to
certification of legitimate, voluntary--just remember the word
``voluntary'' is all through here--emission reductions.
Companies that have taken, or are interested in taking
voluntary steps to reduce or sequester greenhouse gases, have
come to Congress to secure legal assurance that such actions
would be taken in the event the U.S. decides to establish a
regulatory program.
Why shouldn't the government provide a safe haven for
entities that decided to move forward voluntarily to improve
the efficiency of generating and delivering electricity, for
example, or to increase the use of renewables, or to manage
forests and crop lands in a sustainable way, or manufacture new
consumer products that would require less power to function?
As a general principle, not too many are opposed to this.
But there are a few who contend that this kind of endeavor is
pointless without the imposition of regulations, without the
ratification of the Kyoto Protocol and its cap on emissions.
This isn't true. Just ask the leading decisionmakers in
industry what they would pay for certainty. That is what we are
seeking here, legal certainty that their self-determined cost,
their voluntary cost to lower greenhouse gas outputs, will not
put their organization at a disadvantage relative to
competitors who have done nothing in the event that at some
time in the future there should be regulatory requirements for
reduction.
I am the first to admit that there are legitimate and tough
policy issues that are going to require our careful attention.
To ensure both the environmental and economic integrity of this
program we must assure that government credits are issued only
for verifiable actions that can contribute to climate
stabilization.
The alternative to this path, of what we are suggesting,
the alternative is to do nothing. To do nothing to protect
business, to do nothing to create incentives, to do nothing to
begin dealing with what could turn out to be a substantial
environmental and economic problem.
Senator Voinovich, do you have some comments you would like
to make?
OPENING STATEMENT OF HON. GEORGE V. VOINOVICH,
U.S. SENATOR FROM THE STATE OF OHIO
Senator Voinovich. Yes, I would, Mr. Chairman. First of
all, I want to thank you for conducting this hearing today to
discuss how to create incentives and remove barriers to
companies that voluntarily attempt to clean up gas emissions.
As you know, I signed on as an original cosponsor of your
Credit for Voluntary Reductions Act, Senate Bill 547. I believe
it is a good starting point for discussions on how to give
credit to companies that are trying to invest in opportunities
to reduce or sequester greenhouse gas emissions.
I look forward to working with you to address the concerns
that have been raised about the specifics in the bill. Again, I
commend you and Senators Baucus and Lieberman and others for
taking the lead on this important issue.
As Governor of Ohio, I challenged the top 100 companies
that released toxic wastes to join our Prevention First Program
to develop comprehensive pollution prevention plans. This is
one of the programs that I am most proud of because the
response was overwhelming. Think of this: More than 160
companies joined this voluntary program. These companies have
already reduced 651,000 tons of hazardous wastes, 229,000 tons
of solid wastes and 135 million pounds of toxic release
inventory wastes. They are good actors and we have honored them
every year.
One of the things I worry about, however, is that they are
doing these things voluntarily and at some point the Federal
Government may come in with stringent regulations to make them
reduce their wastes from their current base line. I think we
should reward companies that act voluntarily, and that is what
I believe we are trying to do under Senator Chafee's bill.
I think the purpose of providing a credit program is to
remove uncertainty for companies that initiate voluntary
greenhouse gas mitigation projects. Currently companies are
uncertain how their efforts will be treated if there is a
future regulatory program to reduce greenhouse gas emissions.
For instance, if regulations were put in place in the
future, companies that reduced their emissions now need
assurances that they would receive credit for their actions.
Otherwise, they might be forced to make additional and most
costly reductions while companies that did not act early on
make their target at lower cost. This scenario penalizes
companies that took the initiate to reduce their emissions
early on and puts them at a competitive disadvantage to those
that did.
As you know, during the 105th Congress the Senate voted 95-
0 that the U.S. should not be a signature to any protocol that
would result in serious harm to the U.S. economy or require
companies to limit or reduce emission unless such an agreement
also requires developing countries to limit or reduce emissions
within the compliance period.
I strongly agree with this rationale. I would not put the
United States in an economic or competitive disadvantage with
other countries that are not required to reduce emissions as
well.
I do believe that creating a credit system--and I think
this is important, Mr. Chairman--for voluntary reductions means
that we are not trying to implement what some people would
allege in the 1997 Kyoto Protocol, or some other regulatory
measure prior to Senate ratification.
We are trying to create a voluntary program that creates
incentives and reduces uncertainty in the future for companies
that are good citizens to act now to reduce their emissions. I
believe that if business is willing to voluntarily invest in
measures that reduce greenhouse gases and protect our forests
and agriculture, then Congress should put in place a framework
that rewards those actions.
Thank you.
Senator Chafee. Well, I certainly agree with that statement
and I thank you for it.
Senator Baucus?
OPENING STATEMENT OF HON. MAX BAUCUS,
U.S. SENATOR FROM THE STATE OF MONTANA
Senator Baucus. Thank you very much, Mr. Chairman.
Mr. Chairman, this hearing is about how the free markets
can help us face the challenge of climate change. Some people
think these gases are not a problem; they would rather do
nothing. But personally, I have heard from a lot of experts and
scientists and I am convinced that the continued growth in the
emissions of greenhouse gases is a risk with potentially
serious consequences, like changes in growing seasons, violent
weather extremes, melting glaciers.
I believe it is prudent to take common sense steps now to
deal with this question. That is why I think this hearing is
very important. If we get it right, we can use the marketplace
to harness people's ingenuity and reduce greenhouse gases. We
got it right when we set up the sulfur allowance trading System
in the Clean Air Act. That works better, more efficiently than
anyone expected.
There is no guarantee this kind of approach will work with
greenhouse gases, but it might. If we design it right it will
be like an insurance policy. It won't cost much. But it will
help to protect our economy and the environment.
A lot of discussion thus far has focused on manufacturing
companies, utilities. But the agriculture and forestry sectors
could well benefit from this approach as well. It could
generate credits and income by removing carbon from the
atmosphere and blocking it up to the soils and trees.
Today's witnesses can help us define the concept of credit
trading so it can work for everyone, not just for big,
sophisticated companies. It can also tell us about what kind of
information we will need to make sure we get real reductions.
So thank you very much, Mr. Chairman, for your leadership.
And Senator Lieberman, for your leadership as a sponsor of this
bill, and Senator Mack and Senator Voinovich, you are starting
us on the path of positive constructive steps to be taken. We
will do our very best to begin to take significant steps to
reduce the threat of climate change.
[A letter submitted by Senator Baucus commenting on the
article submitted by Senator Inhofe follows:]
University of Colorado at Boulder,
Institute of Arctic and Alpine Research,
1560 30th Street,
Campus Box 450,
Boulder, Colorado 80309-0450, July 12, 1999.
Hon. Max Baucus,
U.S. Senate,
Dirkson Senate Office Building,
Washington, DC 20510.
Dear Senator Baucus: In late May I was asked by a member of your
staff to comment on testimony Senator Inhofe entered into the record,
which was based in part on a newsletter article, ``Behavior of World's
Glaciers Fails to Prove Global Warming Theory,'' by John Carlisle. The
Carlisle article is misleading and contains errors, and Senator
Inhofe's testimony also is not entirely correct.
One problem with Senator Inhofe's view is that a small number of
scientists have come out against the prevailing view of global warming
in the climatological community. Many of these 'contrarians' have high
scientific credentials, although I only know of three who are
recognized climatologists. They are articulate, well supported, and
deliver a message some persons wish to hear. Thus these few people
effectively mask a near universal scientific consensus. My experience
with the 1995 IPCC Scientific Assessment (I was a Lead Author of the
sea-level change chapter) demonstrated that this study had a remarkable
scientific consensus. Yes, there are particular items that are not yet
completely understood, but these do not negate the firm statistical
conclusions based on observational data. Yes, that we cannot prove that
the current warming is due to human action, but we can prove that
global warming is occurring and that it is very unlikely to be caused
by natural climate variability (see Nature, vol. 399, 10 June 1999, p.
569-572). If you haven't seen it, take a look at Jerry Mahlman's
seminal paper on the degrees of uncertainty in our knowledge of global
warming (Science, vol. 278, 21 Nov. 1997, p. 1416-1417).
The Carlisle article, from the National Center for Public Policy
Research, is based in part on a press release from the Langhein
Memorial Lecture I gave at the May, 1998, Annual Meeting of the
American Geophysical Union. There are serious mix-statements in the
Carlisle article. For instance, he suggests that the response times of
glaciers are long so that they are not reacting to current climate
change. The actual response time of glaciers in our observational suite
ranges from 1 to 100 years or so; to claim that they are
``remembering'' the Medieval Warm Period 1000 years ago is ludicrous.
Although these small glaciers mav rake up only 6 percent of the ice on
Earth, they cycle more water from the atmosphere to the ocean per year
than do the major ice sheets, contrary to what Carlisle indicates.
Vice-President Gore was correct in his comments on the glaciers of
Glacier National Park. Anyone can look at the numerous topographic maps
of Grinnell Glacier and note the striking shrinkage, and it is easy to
extrapolate that shrinkage to its disappearance in the next century. I
am glad that Carl Key has made a more definitive and authoritative
study of that issue. Of course a few examples from Montana do not make
a global conclusion. I showed, however, in my Langbein Lecture and in a
subsequent USGCRP seminar last July in the Dirksen Building that this
shrinkage is, in fact, a near-global phenomena.
Please let me know if I can supply any more information.
Sincerely yours,
Mark F. Meier, Professor Emeritus, Geological Sciences,
Fellow of INSTAAR.
Senator Chafee. Thank you very much, Senator.
Senator Inhofe?
OPENING STATEMENT OF HON. JAMES M. INHOFE,
U.S. SENATOR FROM THE STATE OF OKLAHOMA
Senator Inhofe. Thank you, Mr. Chairman. I am glad you are
having this hearing before you are finalizing all the details
in your legislation. I hope you have other opportunities to
hear from people during the course of this. The way you
normally conduct things, I am sure we will. I do applaud your
efforts at the introduction of the voluntary program. I look
forward to working with you. I do have a number of concerns.
First, the question of global warming is far from certain.
In our hearings of this committee last year we heard from
leading scientists who did not agree on on whether there is
global warming, much less what the cause might be.
In addition, since the treaty was negotiated, a number of
scientists disagreeing with the Clinton-Gore administration
conclusions has far outnumbered those who agree. I want to
submit for the record a copy of an article that explains the
relationship between the world's glaciers and global warming
theory by John Carlyle of the National Center for Public Policy
Research. It explains quite clearly why the Vice President's
claims at Glacier National Park in Montana 2 years ago were
completely wrong.
[The referenced article follows:]
[From the National Policy Analysis, February 1999]
Behavior of World's Glaciers Fails to Prove Global Warming Theory
(by John Carlisle)
Global warming theory proponents have resorted to the politics of
fear to drive their point home. They argue that man-made greenhouse
gases are already causing the world's glaciers to melt, causing sea
levels to rise and threatening humanity with a multitude of economic
and environmental calamities. A recent Smithsonian Institution exhibit
on climate change, for instance, included a depiction of the Washington
Monument partially submerged in the Atlantic Ocean, leaving visitors
with the distinct impression that we must reduce greenhouse gas
emissions now if we want our descendants to be able to visit the famous
monument. But such scenarios belong in the realm of science fiction,
not science fact.
Glaciers Are Inaccurate Barometers of Climate Change
Global warming theorists argue that examples of receding glaciers,
primarily those located in the mid-latitude regions of the planet,
provide evidence that climate change caused by human activities is
underway. But glaciers are poor barometers of global climate change.
Glaciers are influenced by a variety of local and regional natural
phenomena that scientists do not fully comprehend. Besides temperature
changes, glaciers also respond to changes in the amount and type of
precipitation, changes in sea level and changes in ocean circulation
patterns. \1\ As a result, glaciers do not necessarily advance during
colder weather and retreat during warmer weather.
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\1\ Dr. Martin Beniston, ``Climatic Change and its Consequences for
Mountain Regions,'' Institute of Geography, University of Fribourg,
Switzerland, 1996.
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A major obstacle to linking glacial behavior to global warming is
that mountain glaciers, the types of glaciers found in places like
Switzerland and the United States, are especially difficult to
understand due to the complex topography of mountain areas.
Furthermore, Global Climate Circulation Models (GCMs) used by global
warming theory proponents to forecast future climate, including the
climate's effect on glaciers, have been notoriously inaccurate. NASA
scientist James Hansen, the man who helped ignite the global warming
debate in the United States in the late 1 980's, admitted last year
that it was impossible to come up with reliable climate models because
there is too much about the climate that scientists don't understand.
\2\
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\2\ ``NASA's Hansen Recants on Warming,'' Electricity Daily,
November 19, 1998.
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Those same inaccurate GCMs have been even less reliable when it
comes to assessing the impact of warming on mountain glaciers.
According to Professor Martin Beniston of the Institute of Geography at
the University of Fribourg, Switzerland, ``Numerous climatological
details of mountains are overlooked by the climate models.'' This makes
it difficult to predict the consequences of global warming on glaciers.
Beniston says it is ``difficult to estimate the exact response of
glaciers to global warming, because glacier dynamics are influenced by
numerous factors other than climate, even though temperature and
cloudiness may be the dominant controlling factors. According to the
size, exposure and altitude of glaciers, different response times can
be expected for the same climatic forcing.''
That may explain why there are several Swiss glaciers that are
advancing even though Switzerland has experienced a decade of mild
winters, warmer summers and less rainfall. \3\
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\3\ Beniston.
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Other scientists agree that it is unwise to look to glaciers for
evidence of global warming. Keith Echelmeyer, a glaciologist at the
University of Alaska's Geophysical Institute, says, ``To make a case
that glaciers are retreating, and that the problem is global warming,
is very hard to do. . . The physics are very complex. There is much
more involved than just the climate response.'' Echelmeyer points out
that in Alaska there are large glaciers advancing in the very same
areas where others are retreating. \4\
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\4\ ``Gore's Defense of Glacier Tourism Trivializes Global Warming
Debate,'' press release, Science and Environmental Policy Project,
September 2, 1997.
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Dr. Richard Alley of Pennsylvania State University agrees that the
response of glaciers to global temperatures can be difficult to
predict. ``Glaciers do odd things sometimes,'' observes Alley. ``They
flow fast, then slow down. . . You could anthropomorphize [apply human
characteristics to] them and say they have a mind of their own.''
Vice President Al Gore would have done well to remember this point
before he held a major press conference in 1997 announcing that the
century-long retreat of the Grinnel Glacier in Montana's Glacier
National Park was caused by global warming.
Size appears to be one of the most significant determinants in the
response time of glaciers to climate change. Basically, the larger a
glacier, the longer it takes to be affected by climate change. For
example, it would take a polar ice sheet 10,000-100,000 years to
respond to any global warming that might be occurring now. A large
mountain glacier would take 1,000 to 10,000 years to respond to warming
today, while a small mountain glacier would take 100 to 1,000 years to
respond. \5\ Thus, one explanation for some glaciers retreating today
is that they are responding to natural warming that occurred either
during the Medieval Warm Period in the 11th century or to an even
warmer period that occurred 6,000 years ago.
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\5\ ``How Do Glaciers Deal With Environmental Change?'' article
downloaded January 21, 1999 from the GLACIER web site of the National
Science Foundation at http://www.glacier.rice.edu/land/5--
glaciersandtheir2.html.
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Global warming theory proponents point to the retreat of glaciers
in the mid-latitude regions of the planet areas where the United
States, Europe and Africa are located--as evidence of human-induced
global warming. As mentioned above, these mid-latitude glaciers cannot
be used as reliable indicators of global climate change given that they
are affected by a complex mixture of local and regional phenomena. By
focusing so much attention on these glaciers, however, one gets the
distinct impression that global warming theory proponents are
deliberately picking glaciers to analyze that support their thesis that
global warming is underway while ignoring those glaciers that don't
support their theory.
In May 1998, for example, scientists at the University of Colorado
at Boulder released a study purporting to show that glaciers are in
headlong retreat due to global warming. According to one of the study's
authors, Professor Mark Meter: ``In the last century, there has been a
significant decrease in the area and volume of glaciers, especially at
mid- and low-latitudes. . . The disappearance of glacier ice is more
pronounced than we previously had thought.'' To support this claim,
Meier noted that Africa's Mount Kenya had lost 92 percent of its mass
over the last 100 years while Spain's glaciers had fallen in number
from 27 in 1980 to just 13 today. \6\
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\6\ ``World's Glaciers Continue to Shrink,'' press release,
University of Colorado at Boulder, May 26, 1998.
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Because glaciers respond to a variety of phenomena and glaciers in
warmer regions tend to be more susceptible to these phenomena, it is
unwise to point to a loss of ice volume in vulnerable mid-latitude
glaciers to draw ambitious conclusions about alleged warming worldwide.
More important, any melting of mid-latitude glaciers that has
occurred has had little effect on sea levels. This is because mid-
latitude glaciers represent a mere 6 percent of the world's total ice
mass while Antarctica and Greenland glaciers represent the other 94
percent of the ice mass. As even the University of Colorado study
noted, there is no evidence that the glacial ice sheets in Antarctica
and Greenland are melting. Nevertheless, the study suggested that
alleged melting of the mid-latitude ice was enough to cause a major sea
level increase because the water from mid-latitude glaciers would be
``recycled more quickly'' than water from polar glaciers. \7\ This
conclusion is suspect, however, since some of the glaciers in the mid-
latitude region are advancing and glaciers currently in retreat could
very easily start advancing again. The fact that mid-latitude glaciers
are not uniformly retreating coupled with the fact that they represent
only 6 percent of the world's glacial ice strongly argues against the
claim that these glaciers are contributing to a rise in sea level. If
there is going to be any major sea level increase, it is going to have
to come from the melting of the Antarctica and Greenland ice sheets.
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\7\ Ibid.
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Antarctica
Although the Colorado study did not allege that the Antarctic ice
sheets are in retreat, other global warming proponents have made such
claims. This is understandable from their perspective since a
theoretical meltdown of the world's ice caps has the potential to scare
the public into supporting major reductions in greenhouse gas
emissions.
According to the West Antarctic Ice Sheet Study, a project of the
National Science Foundation, if all of the world's ice melted, the sea
level would rise by 235 feet. \8\ NOVA, the Corporation for Public
Broadcasting's science program, estimates that the melting of the
Antarctic ice sheets alone would raise the oceans by 187 feet. One
hundred 70 feet of this rise would be caused by the melting of the East
Antarctic Ice Sheet while just 17 feet of this rise would be caused by
melting of the West Antarctic Ice Sheet. But the East Antarctic Ice
Sheet is considered stable and not threatened by warming because it
rests on land above sea level, making any significant sea level rise
unlikely. \9\ The West Antarctic Ice Sheet, however, has attracted the
attention of global warming theory proponents because it rests mostly
below sea level where it is allegedly more sensitive to any global
warming that may occur. \10\ The balance of scientific evidence
suggests that the West Antarctic Ice Sheet isn't melting either.
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\8\ ``What is the West Antarctic Ice Sheet,'' article downloaded
January 19, 1999 from the GLACIER web site of the National Science
Foundation at http://www.glacier.rice.edu/misc.whatisglacier.html.
\9\ ``Water World,'' NOVA Online, Warnings From the Ice, downloaded
January 19, 1999 from http://www.pbs.org/wabh/nova/warnings/
waterworld/.
\10\ ``What is the West Antarctic Ice Sheet,'' article downloaded
January 19, 1999 from the GLACIER website of the National Science
Foundation at http://www.glaciers.rice.edu/misc.whatisglacier.html.
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To begin with, the Antarctic is extremely cold with a high average
temperature of just -56 degrees F. Even if the Antarctic temperatures
did rise a few degrees, they wouldn't be high enough to melt the
glaciers as the temperatures would still be well below -87 degrees F
below--freezing. The latest GCMs predict warming of just 1-3 degrees F
by 2100, still leaving the Antarctic bitterly cold. Furthermore, the
Antarctic ice sheet is very large, and thus it takes a long time for
the ice sheet to respond to warming. For instance, it would take the
West Antarctic Ice Sheet 50,000 years to react to any warming that may
be occurring now--so the world is not in any imminent danger of a
catastrophic flood. \11\
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\11\ Ibid.
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So what does the scientific evidence say about a human-induced
shrinking of the Antarctic today?
In December 1998, an international team of scientists announced
that after analyzing 5 years of satellite radar measurements, they
concluded that the West Antarctic Ice Sheet is not melting rapidly. The
scientists determined that the West Antarctic Ice Sheet has actually
been stable for the last 100 years--precisely when global warming
theory proponents insist human-induced warming should have been causing
the glaciers to retreat. Dr. C.K Shum, an Ohio State University
professor who participated in the study, said that while the team
assumed that global warming was underway, they found no evidence that
this purported warming was affecting the Antarctic ice sheet. \12\
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\12\ ``West Antarctic Ice Sheet Not In Jeopardy,'' Environmental
News Network, December 1, 1998.
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In October 1998, the British Antarctic Survey also announced that
it had found no evidence of global warming on the continent. The study
noted that it did find 3-4 degrees F of warming on the Antarctic
Peninsula over the last 50 years, but that there was no evidence that
this localized warming was the result of global warming. The scientists
believed it more likely that the origins of the warming ``could be
found in regional mechanisms.''
The survey also analyzed the behavior of two major ice shelves, the
Ross and Filchner-Ronne shelves, for any retreat. Again, the study
concluded that ``it is no longer clear that the small warming that is
predicted to result from anthropogenic emissions of greenhouse gases is
likely to cause a retreat'' of those ice shelves. On the more
vulnerable West Antarctic Ice Sheet, scientists likewise concluded that
the ``dramatic vision of a rapid collapse of the West Antarctic Ice
Sheet resulting from atmospheric warming is becoming less acceptable.''
\13\
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\13\ ``Antarctica: Climate Change and Sea Level,'' Ice and Climate
Division, British Antarctic Survey, Cambridge, UK, October 1998.
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The Antarctic Cooperative Research Centre, a scientific union of
the Australian Antarctic Division, the Bureau of Meteorology, the
Australian Geological Survey Organization, and the University of
Tasmania, released a position statement in April 1997 announcing that
it is ``very unlikely'' that the Antarctic ice sheet will melt enough
to cause a significant rise in sea level. Even more interesting, the
report stated that over the next one to two centuries, ``it is probable
that greater snowfall on Antarctica'' will outweigh any loss of ice due
to warmer ocean water--thus causing the Antarctic ice sheet to expand.
\14\
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\14\ ``Global Change, Antarctica and Sea Level,'' Position
Statement, Antarctica Research Centre, April 1997.
---------------------------------------------------------------------------
The prospect that the Antarctic ice sheet is expanding was also
noted by the British Antarctic Survey. The British scientists concluded
that it is possible that the Antarctic expansion was actually
counteracting a rise in sea level. \15\ Indeed, many other scientists
have concluded that even if the world continues to get warmer, whether
human-induced or naturally, the Antarctic ice sheet would grow because
warming increases the amount of precipitation which leads to increased
snowfall in the polar regions.
---------------------------------------------------------------------------
\15\ ``Antarctica: Climate Change and Sea Level,'' Ice and Climate
Division, British Antarctic Survey, Cambridge, UK, October 1998.
---------------------------------------------------------------------------
Indeed, it seems that historically the Antarctic glaciers have
frequently expanded during warm conditions. A study by E.W. Domack,
A.J.T. Jull and S. Nakao on the history of glacial expansions in
Antarctica found that over the past 10,000 years, several glaciers
expanded during conditions that were a lot warmer than today.
This uncomfortable fact has not escaped the attention of
environmentalists, some of whom are now arguing that glacial expansion
supports the global warming theory. Greenpeace's Climate Impacts Data
base now cites the Domack study in an effort to link the expansion of
the Antarctic ice cap with man-made global warming. The summation of
the study notes that ``the new data suggest strongly that Antarctica's
response to future warming will be an increase in mass balance.'' \16\
Of course, now they can't claim that the sea level is rising since
expansion lowers the level. Nevertheless, environmental groups still
make contradictory claims about apocalyptic sea level rises in their
haste to mobilize public opinion to stop greenhouse gas emissions.
---------------------------------------------------------------------------
\16\ Advance of East Antarctic Outlet Glaciers during the
Hypsithermal,'' E.W. Domack, A.J.T. Jull and S. Nakao, Summary
downloaded January 6, 1999 from Greenpeace Climate Impacts Data base,
http://193.67.176.1/climate/database/records/zgpz0774.html.
---------------------------------------------------------------------------
Greenland
Like the Antarctic, the Greenland ice sheets show no evidence of
receding due to alleged global warming. The record shows that the
Arctic region where Greenland is located is cooling despite the fact
that, under global warming models, it should be the first area of the
planet to show significant temperature increases. According to these
models, the polar regions should have warmed 2-5 degrees F since 1940.
But between 1955 and 1990, the Arctic cooled by 1 degree F and
Greenland's glaciers actually expanded. According to the scientific
journal Geophysical Research Letters, the West Greenland Ice Sheet, the
largest mass of polar ice in the Northern Hemisphere, has thickened by
up to seven feet since 1980. \17\
---------------------------------------------------------------------------
\17\ Patrick Michaels, ``Post Fans Administration's Pre-Kyoto
Fires,'' World Climate Report, December 13, 1997.
---------------------------------------------------------------------------
Furthermore, some scientists believe that atmospheric circulation,
not temperature, has been the greatest influence on the accumulation of
snow and ice in central Greenland for the past 18,000 years. In an
article that appeared in Nature magazine in 1995, the authors explained
that changes in the way storms move across the island play the key role
in how glaciers will thicken or recede. \18\
---------------------------------------------------------------------------
\18\ ``Dominant Influence of Atmospheric Circulation on Snow
Accumulation in Greenland over the Past 18,000 Years,'' W.R. Kapsner
et. al., Summary downloaded on January 21, 1999 from the web site of
the Global Change Research Information Office at http://www.gcrio.org/
ASPEN/AGCI-ABS/orig/444.html.
---------------------------------------------------------------------------
Conclusion
There is no indication that the world's glaciers are melting
significantly due to global warming and, thus, there is little to fear
from sea level rises in coming decades. Proponents of the global
warming theory have been irresponsible in attempting to use glaciers as
barometers of global temperatures since glaciers respond to a range of
natural phenomena that have nothing to do with global temperature
changes. In addition, the advance of the Antarctic and Greenland
glaciers, which contain more than 90 percent of the world's glacial
ice, completely contradicts previous predictions that warming would
cause these glaciers to retreat. Far from providing scientific proof of
global warming, the behavior of glaciers represents yet another
powerful indictment of the already controversial global warming theory.
Senator Inhofe. However, Mr. Chairman, I understand your
bill is not tied directly to the Kyoto Treaty, but instead will
create an early credit program in case the treaty or any other
greenhouse gas regulation should become effective in the
future. I have two major issues with the proposed bill and I am
anxious to see how we can address those during the markup of
this bill.
First of all, I agree with the comments of Senator
Voinovich concerning the 95 to nothing vote that we took on the
Floor. I just come to a different conclusion as a result of
that. I think we may be sending a message to an administration
who has said, ``We don't care if you don't ratify this treaty.
We are going to go on anyway and implement it by executive
order or by legislation.''
I don't want this to be sent as a signal of agreement with
that philosophy.
My second major concern is that we not provide EPA with the
authority to list CO2 as a criteria pollutant. The
EPA General Counsel issued a paper last year claiming they
currently have the authority under the Clean Air Act, although
the paper was roundly dismissed by environmental attorneys
everywhere, my concern is that the bill would provide the
agency with a stronger argument that should only be debated and
considered by Congress in the context of the Clean Air Act
reauthorization.
So, I want to stress that although I do not support your
bill at this time I am looking forward to working with you to
address the concerns that I have. Thank you.
Senator Chafee. Thank you very much, Senator. You have
legitimate concerns that, as we noted earlier, we have not done
the science part of this, but I look forward to your continued
interest in this and see if we can't come up with something
that is mutually acceptable. The key word, I think, throughout
all of this is it is voluntary. We are not pushing anybody into
doing anything.
Senator Lieberman.
OPENING STATEMENT OF HON. JOSEPH I. LIEBERMAN,
U.S. SENATOR FROM THE STATE OF CONNECTICUT
Senator Lieberman. Thank you, Mr. Chairman, for holding
this hearing and thank you for the active leadership role that
you have taken, characteristically in encouraging us to deal
with this difficult but very important problem.
Last October I was proud to join with you and Senator Mack
in introducing the Credit for Early Action legislation in the
Senate for the first time. Since then there has been active
debate about the concept and policy choices involved in this
new approach to climate change. Now, I am very pleased at the
number of original cosponsors on the Credit for Voluntary Early
Action Act which we introduced in this Session has grown to
twelve, six Republicans and six Democrats.
I think that the number of original cosponsors has grown
because people have concluded that you don't have to have
reached a final judgment on whether global warming and climate
change is real to support the Credit for Voluntary Early Action
proposal. In fact, this proposal embraces and builds on two of
the most significant trends in environmental protections in our
country over the last decade.
The first is the introduction of market incentives through
law to encourage environmental protection by the private
sector. The second is the extraordinary embrace by large
segments of the private sector of an environmental ethic. Some
of the most significant steps forward in environmental
protection in recent times have come as a result of judgments
by individual companies and their leadership to be good
environmental citizens. This measure intends to built on those
two developments, and in doing so to break what might otherwise
be a legislative logjam here in Congress on this problem.
My own conclusions are that global warming is real and that
climate change is happening and that the sooner we begin to
act, the sooner we will deflect the alarming upward trend of
our own American greenhouse gas emissions. The sooner we begin
to act the sooner we can turn the problem of climate change
into an opportunity to use one of our most valuable resources,
which is American ingenuity, to help us sustain our economy
that is vibrant and growing while we make our air healthier to
breathe and safer to live in.
Early actions to address climate change enjoy the distinct
environmental and economic advantages of achieving near term
greenhouse gas emission reductions while extending the period
of time in which our companies and communities can innovate to
maximize efficiency and minimize the cost of protecting the
environment.
Time is a factor here. Between 1990 when nations of the
world agreed we should attempt to stabilize greenhouse gas
emission levels, and 1997, our own greenhouse gas emissions
increased 11 percent according to the EPA. The U.S. Energy
Information Administration predicts if we continue to pursue a
status quo business as usual path, America's contribution to
global greenhouse gas pollution will almost double by 2020 to
145 percent of 1990 levels. Since greenhouse gases remain in
the atmosphere for generations, the longer we wait to reduce
our emissions, the more drastic, I fear, our future our future
efforts will have to be to deal with this problem.
The scientists have spoken in a way that, to me, is
compelling, more than 2,500 of them, the best of them worldwide
have concluded that the trend of increases in the temperature
is likely to increase, so that our own earth's temperature will
go up between two to six degrees in the next century, which
would have grave impact for not only our global environment,
but for life as we know it.
While it is difficult to link specific weather events to
global climate change, the extreme weather we have seen in the
past year is consistent with what scientists have told us under
current models of global warming. Underscoring the importance
of confronting this problem, the American Geophysical Union, a
professional society comprised of 35,000 geoscientists,
recently stated ``The present understanding of the earth's
climate system provides a compelling basis for legitimate
public concern over increased concentration of greenhouse
gases.''
Today we have an opportunity, whatever one thinks about the
science I have just quoted, to discuss the concept of credit
for voluntary early action. I think the hearing provides us a
great opportunity to learn from one another as we discuss the
arguments for and against providing these credits.
I look forward, therefore, to the witnesses and to the
discussion.
[The prepared statement of Senator Lieberman follows:]
Statement of Hon. Joseph I. Lieberman, U.S. Senator from Connecticut
Thank you, Mr. Chairman, for holding this hearing and for taking an
active leadership role on this difficult but important issue. Since
last October, when I joined with you and Senator Mack in introducing
credit for early action legislation in the Senate for the first time,
there has been active debate about the concept and policy choices
involved Ems new idea. The number of original cosponsors on the Credit
for Voluntary Early Action Act, which we recently reintroduced in this
session, has grown to 12--6 Republicans and 6 Democrats. While we may
not all agree on the extent of the problem of global climate change, we
all support the use of market mechanisms to solve environmental
problems and I want to encourage the environmental ethic that is
developing in industry.
The sooner we begin to act, the sooner we turn the challenge of
climate change into an opportunity to use one of our most valuable
resources--American ingenuity--to help us sustain an economy that is
vibrant, growing and sustainable, while we make our air healthier to
breath and safer to live in. Early actions to address climate change
enjoy the distinct environmental and economic advantages of achieving
near-term greenhouse gas emissions reductions while extending the
period of time in which our companies and communities can innovate to
maximize efficiency and minimize costs of protecting the environment.
Time is a relevant factor in the debate about global warming.
Between 1990, when nations of the world agreed we should attempt to
stabilize greenhouse gas emissions levels, and 1997, U.S. greenhouse
gas emissions increased 11 percent according to the EPA. The U.S.
Energy Information Administration predicts that if we continue to
pursue a ``business as usual path,'' our contribution to global
greenhouse gas pollution will nearly double by 2020 to 145 percent of
1990 levels. Since greenhouse gases remain in the atmosphere for
generations, the longer we wait to reduce our emissions, the more
drastic and difficult our future efforts will have to be to address the
problem.
Greenhouse gas pollution is a major and growing problem. Emissions
of greenhouse gases, due in substantial part to the combustion of
fossil fuels, are causing greenhouse concentrations in the atmosphere
to rise faster and higher than they would naturally. More than 2,500 of
the world's best scientific and technical experts have concluded that
this trend is likely to increase the Earth's temperature by 2-6 degrees
in the 21st Century with serious impacts on the global environment.
While it is difficult to link specific weather events to global
climate change, the extreme weather we have seen in the past year is
consistent with what scientists predict under current models of global
warming. Last year in our country, severe drought in the South and West
had devastating effects on agricultural production. Wildfires in
Florida consumed roughly .5 million acres burning timber, worth more
than $300 million. Flooding in Texas and Mexico claimed lives and
devastated communities. Record temperatures in Texas were so high that
sections of Interstate Highway 35 melted.
Underscoring the importance of confronting the problem of climate
change, the American Geophysical Union, a professional society
comprised of 35,000 geoscientists, recently stated that ``present
understanding of the Earth climate system provides a compelling basis
for legitimate public concern--over . . . increased concentrations of
greenhouse gases.''
Since we introduced this voluntary early action bill, climate
change discussions have heated up and many stakeholders have expressed
their desire to constructively participate in this important debate.
Big businesses such as BP/Amoco, Shell, Lockheed Martin, and United
Technologies are finding ways to contribute solutions by improving
energy efficiency and reducing emissions. Communities are also showing
leadership. For example, the International Council for Local
Environmental Initiatives has helped more than 48 American cities and
counties that are committed to climate change protection, to undertake
local action plans to achieve voluntary emissions reduction goals. Part
of our responsibility as legislators is to make sure that we recognize
and encourage these acts of good environmental citizenship. We must not
inadvertently discourage or penalize early actions that are good for
companies, communities, and the environment.
I hope that our panels today will focus not on the science of
climate change nor on the specifics of our legislation but on the
concept of crediting voluntary early actions to control U.S. greenhouse
gas emissions. This hearing provides an opportunity to learn from one
another as we discuss the arguments for and against providing credits
to those who take voluntary early actions to address climate change.
This discussion should pave the way for improving our bill so that it
delivers on the promise embodied in the idea of credit for voluntary
early action to break the current legislative stalemate on this
increasingly critical global environmental problem. I look forward to
hearing from our witnesses. Thank you.
Senator Chafee. Thank you, Senator. Those are good points
you made. I think there is a sense of urgency here and the
longer we wait the more difficult the situation gets.
Senator Thomas?
OPENING STATEMENT OF HON. CRAIG THOMAS,
U.S. SENATOR FROM THE STATE OF WYOMING
Senator Thomas. Thank you, sir. I do think voluntary
reduction of greenhouse gases, of course, is an honorable goal.
We ought to be doing that, looking at that. Voluntary emissions
for the sake of credit makes me a little uneasy. I am not sure
how that works, as a matter of fact, and so I am anxious to
know more about it. As you know, in the Kyoto arrangement, we
would have to have a reduction under that of 31 percent. We are
about 4 percent of the world's population and we produce about
25 percent of the world's products. So it is not unusual that
we have a unique situation.
We are having a hearing over in the Energy Committee on the
impacts of Kyoto. I think that would be interesting for all of
you to listen.
So, I don't think the goals of economic growth and
environmental protection have to be mutually exclusive. I am
not certain about this plan leading to credits. So I am anxious
to hear more. In the electric industry in the past I would say
it has not been a great producer.
Senator Chafee. Well, thank you, Senator. I am glad that
you are doing that in the Energy Committee. The more attention
we get with this the better. Trying to devise this credit
system is not easy. This involves a lot of challenges, what
happens to the normal growth that is going to occur for these
companies. So the more the merrier, as far as I am concerned. I
am glad the committee is taking an interest in this subject
that I think is so terribly important.
Now we will start with our first witness, Ms. Eileen
Claussen, Executive Director of the Pew Center on Global
Climate Change. Welcome, Ms. Claussen. There is no trap door
there, but if you can keep it within 5 minutes or close to
that, it would be helpful.
STATEMENT OF EILEEN CLAUSSEN, EXECUTIVE DIRECTOR, PEW CENTER ON
GLOBAL CLIMATE CHANGE
Ms. Claussen. I will do my best.
Mr. Chairman, Senator Baucus and members of the committee,
thank you for your invitation to testify this morning on
voluntary efforts to reduce greenhouse gas emissions. The Pew
Center on Global Climate Change was founded in the belief that
our generation's challenge will be to address global climate
change while sustaining a growing global economy. And there is
no better place for us to begin than with early action to
reduce greenhouse gas emissions.
Mr. Chairman, throughout your career you have been at the
forefront of the movement to protect and enhance our Nation's
environment. Your recent decision to retire from the Senate at
the end of your current term represents a profound loss to the
Senate and to our country. It will also be a profound loss in
the field of global climate change where leadership will be
vitally needed, and where your vision and pragmatism will be
sorely missed.
Senator Chafee. Thank you very much for those kind
comments. I appreciate it.
Ms. Claussen. My time is going faster here.
Senator Chafee. I will give you time off for my comments.
And if you want to add some more, go to it.
Ms. Claussen. I am the Executive Director of the Pew Center
on Global Climate Change, an organization founded by the Pew
Charitable Trusts to work constructively on the climate change
issue and to forge a consensus for action.
The Pew Center and its Business Environmental Leadership
Council were established in May 198. We formed the Business
Environmental Leadership Council because we believe that the
business community is ready and willing to provide the impetus
to move forward on the issue of climate change. The Council
consists of over 20 of the Nation's and the world's largest
corporations. Together their annual revenues total more than
$550 billion.
Mr. Chairman, we do not believe that action on climate
change should be delayed until we are satisfied with the
progress that has been made on this issue internationally.
Instead, we believe that companies can and should take concrete
steps now in the U.S. and abroad to assess their opportunities
for emission reductions and establish and meet emission
reduction objectives.
Perhaps some examples of company efforts would be
instructive. BP Amoco, for example, has established a target to
reduce its greenhouse gas emissions by 10 percent from the 1990
baseline by 2010. These reductions will be measured using
established protocols and will be verified by external
observers.
America Electric Power has implemented climate challenge
programs with a total cumulative effect of avoiding
approximately 10 million tons of carbon dioxide that would
otherwise have been emitted into the atmosphere.
United Technologies, by 2007, will reduce its energy and
water consumption per dollar of sales by 25 percent below 1997
levels, with approximately the same reductions in emissions
that cause climate change.
The DuPont Company will, by 2000, cut its annual global
greenhouse gas emissions by about 45 percent below 1991 levels.
Shell International aims to reduce greenhouse gas emissions by
10 percent below 1990 levels by 2002. Since 1990 Baxter
International has reduced the global warming impact of its
emissions by 81 percent. In 1995, Entergy committed to
eliminating over four million tons of carbon dioxide emissions
per year through the year 2000.
Regardless of the outcome of negotiations on an
international climate change agreement, the members of the
Business Council will continue to move forward because they
believe that this is a serious issue that demands a serious
response.
We do expect that at some time in the future the United
States will ratify a climate change treaty that includes a
commitment to reduce emissions of greenhouse gases. So, while
our companies are already taking voluntary actions to reduce
their emissions, they also want to be sure that they will
receive credit for these actions under any future climate
change treaty, particularly since many of these actions are and
were taken at the request of the U.S. Government to fulfill the
goal of the Framework Convention on Climate Change.
But the issue is not primarily one of getting credit or
providing incentives to act early. The key issue is one of
eliminating disincentives: voluntary action, in the absence of
credit, can work to the disadvantage of companies who act early
to reduce their emissions. It is clearly not in our interest
for companies that do the right thing by voluntarily attempting
to slow the rate of greenhouse gases entering our atmosphere to
be penalized and economically harmed for their efforts.
Solving this problem requires leadership from the Congress.
An analysis undertaken by the Pew Center and published in
October 1998 finds that Federal agencies do not have sufficient
legal authority to provide the certainty that firms need to
make significant early investments.
So while the Pew Center doesn't take a position on the
merits of any particular bill, we believe there are a number of
issues that must be addressed in a legislative framework. We
would like to stress the following:
First, credit should only be provided for actions that are
real and verifiable. This means that reductions must be
measured and monitored using standardized measurement
techniques. Any system that is adopted should reward virtuous
actors, not those who engage in sham or paper reductions, or
who ``game'' and manipulate the system. There can be no
effective credit or early action program if we are not
committed to establishing a robust and vigorous monitoring and
verification effort.
Two, the program should be simple and flexible.
Participation in a system of credit for early action would be
voluntary, but it is in our collective interest to encourage as
many businesses as possible to reduce their emissions.
Companies and sectors that are experiencing high growth must be
accommodated as must those who produce products, be they
appliances or autos, that use significant quantities of energy.
We must also keep transaction costs to a minimum, so that the
costs of participation do not exceed the benefits to the
participants.
Three, the legislative framework should not prejudge the
future national implementation scheme. We are not at a point
now where we can predict the design of the program that will be
implemented in the United States to meet a future international
obligation. So no system of credit for early action should
prejudge the scheme that might be used.
Four, domestic action should be the primary emphasis, but
verifiable international projects should be included. For
example, international projects that earn credits for
reductions achieved after the year 2000 under the Clean
Development Mechanism should be incorporated into an early
action crediting scheme. The small number of projects already
accepted into the U.S. Initiative on Joint Implementation that
achieve reductions prior to 2000 should also be recognized if
they meet rigorous monitoring and verification standards.
Five, the legislative framework should not over-mortgage a
possible U.S. greenhouse gas allocation. The Kyoto Protocol, in
its current form, does not contain any incentive to act early.
As long as this remains a feature of a possible future
international control regime credits allocated for early
domestic reductions would have to come out of any U.S.
allocation granted under a treaty. Allocating too many credits
early could increase the difficulty of complying with a
regulatory regime. On the other hand, removing the
disincentives for early action is an early action objective of
an early action program. The design of the program should
balance these two objectives, perhaps through the establishment
of appropriate baselines.
The Pew Center and its Business Environmental Leadership
Council believe climate change is serious business and that
early action is smart business. And the Pew Center and the
Business Environmental Leadership Council are not alone. A
national survey taken this weekend showed that among those with
an opinion on early action, establishing a legal framework is
favored by a ratio of four to one.
Thank you very much, Mr. Chairman.
Senator Chafee. Thank you very much, Ms. Claussen.
We will hear from all the witnesses and then we will come
back with questions.
Senator Chafee. Our next witness is Mr. Dale Landgren, Vice
President for business Planning, Wisconsin Electric Power
Company. Mr. Landgren, we welcome you here.
STATEMENT OF DALE LANDGREN, VICE PRESIDENT FOR BUSINESS
PLANNING, WISCONSIN ELECTRIC POWER COMPANY
Mr. Landgren. Thank you. Mr. Chairman and members of the
committee, I am Dale Landgren from Wisconsin Electric Power
Company in Milwaukee, Wisconsin. Mr. Chairman, let me begin by
commending you for your leadership on this issue and for
beginning the important dialog that we are having today.
I appreciate the opportunity to appear before you today to
express Wisconsin Electric's support for the concept of credit
for early and voluntary greenhouse gas reduction actions and to
encourage Congress to enact legislation that establishes a
program to provide credit to companies that undertake voluntary
actions to reduce greenhouse gas emissions.
We do not believe that support for this concept binds us or
binds you as Senators to support the Kyoto Protocol or any
other greenhouse gas action. We view a credit for early action
program simply as an insurance policy in the event that
greenhouse gas reductions are required. Congress should view
credit for early action in the same way as an insurance policy,
where there is zero cost for the premium.
Wisconsin Electric is acting now because: first, we want
the experience to determine what works and what doesn't; our
customers want us to be environmentally sound and sensitive; we
have been successful as a trader in the sulfur dioxide market,
and believe that we can be as successful and prosperous under a
greenhouse gas trading regime; and finally, we want to be good
corporate citizens.
We are working to develop strategies that integrate
environmental, economic, and energy goals to assure that the
energy industry has as many options as possible, including non-
emitting nuclear power, to meet any potential greenhouse gas
reduction goals.
The business reasons for early action are driven by our
assessment of the high probability that some controls will be
placed on greenhouse gas emissions in the next 10 years. Plus,
if we can identify and get experience in low-cost ways to
reduce greenhouse gases, our company will be better positioned
in the long run.
The short-run cost of this strategy to us is the out-of-
pocket dollars we spend on early action with no contribution to
the bottom line. The biggest risk for this strategy is that we
will not be given credit for these actions and this has two
negatives that you need to understand. First, we will need to
spend the money twice and second, we will spend more because
the inexpensive opportunities will have been lost.
Currently there is no legal framework regarding the
treatment of early greenhouse gas reductions or credit for
these early actions. This uncertainty is inhibiting companies
from investing in greenhouse gas reduction activities and
projects. We have been proactive in implementing greenhouse gas
reduction strategies through a variety of programs such as
joint implementation projects, a very successful green pricing
program and participation in the Climate Challenge program.
Wisconsin Electric is a partner in two joint implementation
projects. We helped fund a coal-to-gas repowering project in
the City of Decin in the Czech Republic and a carbon
sequestration project in Belize in Central America. Our Energy
for Tomorrow Green Pricing Program is the largest and most
successful of its kind in the country. We are participating in
the Department of Energy's voluntary Climate Challenge program,
the world's most successful voluntary greenhouse gas reduction
effort. The programs we are involved in are outlined in more
detail in my written statement.
Any credit for early action program should include a number
of basic principles, such as credit to companies that made
commitments under the voluntary Climate Challenge program and
under the United States Initiative on Joint Implementation. I
agree with Ms. Claussen that these commitments need to be
verified. We call this ``real credits for real reductions.'' We
would include a certification process that provides clear and
consistent standards for determining early reduction credits.
Such standards would prohibit double-counting of the emission
reductions: that is, crediting of the same emission reductions
to multiple parties.
We would also include provisions that adjust the
displacement of emissions, which is also known as leakage, as a
necessary component of the integrity of the program. Other
recommended principles are outlined in more detail in my
written statement.
In conclusion, Wisconsin Electric has undertaken and wants
to continue to pursue opportunities to voluntarily reduce
greenhouse gas emissions through low and no-cost strategies.
However, the lack of assurance that credit will be provided for
our voluntary actions to reduce greenhouse gas emissions causes
us to be reluctant to pursue additional reduction activities.
Congress should enact legislation to establish a credit for
early and voluntary greenhouse gas reduction program to provide
the assurance we need in the event that greenhouse gas
reductions are required.
Mr. Chairman, thank you again for the opportunity to appear
before you today.
Senator Chafee. Well, thank you very much, Mr. Landgren.
Now we will hear from Dr. Richard Sandor, Chief Executive
Officer, Environmental Financial Products.
STATEMENT OF RICHARD SANDOR, CHIEF EXECUTIVE OFFICER,
ENVIRONMENTAL FINANCIAL PRODUCTS
Mr. Sandor. Thank you very much, Mr. Chairman. It is a
privilege to be here before this committee. I would like to add
my praise to the other members of the panel for your great work
in this effort.
Environmental Financial Products is a small investment bank
that specializes in inventing, launching and trading new
products. We have been involved in the mortgage-backed
securities business, in financial futures, inventing those, in
insurance derivatives, catastrophe derivatives, and the
(SO2) market.
I got involved in the environmental trading business in
1990, writing a paper for a public interest group in Ohio to
advocate market-based solutions to environmental problems.
During that time I worked and chaired the Clean Air committee
of the Chicago Board of Trade and led the effort to partner up
with the EPA, ultimately acting in the business, doing the
first registered trade, trading options on SO2
allowances with Wisconsin Electric in the early 1990's,
financing utilities and being an active participant in the
market.
At the outset of the market there were tremendous
skepticism whether this would work. Many argued it would not be
possible to ``commodicize'' the environmental good: ``The
prices will be high.'' In fact, the median was estimated to be
$600 a ton. Throughout six auctions at the Chicago Board of
Trade, however, we have averaged $118 per ton as opposed to
$600. We are 40 percent ahead of schedule in cutting emissions,
and we are at 10 to 20 percent of the cost that Congress had
predicted.
Senator Chafee. I must say, Doctor, we remember that.
Senator Baucus, I believe, was chairman of the committee at the
time. We foresaw the day when those tradings would be up there
on the list. There would be hog bellies and next there would be
tradings.
Mr.Sandor. That is what we are hoping for, greenhouse gases
right next to soybeans. Let me explain our position on that. We
have been involved--and I think your efforts for early action
are actually the start, the beginning of the end of climate
change problems as we know them. I think this committee's
efforts are unambiguously that important.
We, for the last 9 years, have been working on greenhouse
gases in the private sector. We have clients today such as the
country of Costa Rica that we work with on AIJ, landfill gas
collection projects, coal bed methane, major U.S. electricity
generating companies, as well as agriculture and farm
interests. There is an inchoate market already starting in
greenhouse gases. We need the framework from all of you to get
it started, just as the Internet needed the URLs and the other
infrastructures. This is aside from Kyoto.
I am here, in contrast to my fellow members who are
speaking about the industrial area, to emphasize what Senator
Baucus said, the role of U.S. agriculture. I had the privilege
in 1973 of serving as vice president and chief economist of the
Chicago Board of Trade. Many of you will now remember that was
the year of the Arab oil embargo, $4 corn, $10 soybeans, and in
fact, the end of the western world as we knew it because of
problems associated with inflation.
American agriculture found 50 million acres. That came into
production once you put the price up on the board. That was
critical. We have 450 million acres in agriculture, 550 million
in forestry. If we just take the 300 million that we have, put
best management practices in, we could generate 200 million
tons of carbon credits, another 100 million from forestry,
without even stretching it, all of that could be thrown in the
pot in a private trade system.
Why is that important? In fact, Charles River Associates,
Wharton Econometrics, Bob Stavins at Harvard, a number of
economists think that carbon is worth $200 a ton. Given that,
American agriculture could have $60 billion in net income if
those forecasts are right. I don't believe those forecasts. I
think it is going to be $10 or $20 a ton. I think it is going
to be a small percentage. But nevertheless it is going to
provide a new stream of income for American agriculture.
Remember, whether you mine the soil or fossil fuels, you
put carbon into the air. We have taken out 40 percent of the
sequestered carbon since the turn of the century when we plowed
up the prairies. We have an opportunity to put it back and to
incentivize the farm sector to do it.
So, what I am hoping is that all of you will take a look at
the area of American agriculture and forestry and make sure
they are included in such a program.
Let me conclude with a few statements.
Senator Chafee. Yes, they can come in if they want to come
in.
Mr. Sandor. If they want to come in. But give them the
opportunity. Make sure soil sequestration and sinks are part of
the effort to voluntarily comply or to voluntarily participate
in any bargaining.
In conclusion, I agree with my colleagues that it is very,
very simple. The steps are simple. No. 1, you need a
homogeneous commodity that is fungible.
No. 2, very importantly, tradeability, that is voluntary
credit, we must talk about transferability of ownership and the
ability to trade and know each other on a voluntary basis.
No. 3, monitoring and verification are critical drivers. I
do believe that a voluntary program with the proper
infrastructure will unleash the American agriculture's
productivity and the capital market's ability to design and
efficiently trade carbon permits. Thank you.
Senator Chafee. Thank you very much, Doctor.
Our next witness is Ms. Tia Nelson, Deputy Director,
Climate Change Program, of the Nature Conservancy.
Ms. Nelson?
STATEMENT OF TIA NELSON, DEPUTY DIRECTOR, CLIMATE CHANGE
PROGRAM, THE NATURE CONSERVANCY
Ms. Nelson. Good morning, Mr. Chairman. The Nature
Conservancy is happy to be here today to discuss the concept of
credit for voluntary early action and to share with you the
Nature Conservancy's experience in developing carbon
sequestration projects. We believe that a well-crafted early
action bill could be a critical and cost-effective step
encouraging companies to act now to help reduce greenhouse
gases while achieving other important environmental benefits.
In particular, the Conservancy urges that any credit for
early action legislation include scientifically valid, credible
carbon sequestration provisions to provide adequate incentives
for projects which slow or reverse the pace of deforestation,
encourage better forestry and agricultural management
practices.
I am sure you know, Mr. Chairman, that over 20 percent of
the annual greenhouse gas emissions today are attributable to
land use change and forestry activities, not to the
agricultural sector. This is an important component of any
climate change program, in our view.
The Conservancy believes the carbon sequestration project,
properly designed, can achieve real and measurable greenhouse
gas benefits while also protecting biodiversity and enhancing
sustainable growth, which after all is our mission.
Our experience in developing and helping implement carbon
sequestration projects has convinced us that we can meet the
technical challenges of demonstrating and quantifying carbon
sequestration benefits. Projects we have developed to slow the
release of carbon dioxide and to enhance the so-called carbon
sinks are protecting some of the most important natural areas
in the world, sequestering millions of tons of carbon dioxide,
and in a cost-effective manner, and helping local communities
develop their economies in a sustainable way.
We are doing these projects in partnership with other
conservation organizations and industry. Government action to
provide these companies with clear incentives in this area, in
our view, could have a dramatic positive effect on greenhouse
gas mitigation as well as associated environmental benefits to
society including biodiversity and watershed protection,
sustainable development, sustainable agriculture, et cetera.
I would briefly like to tell you a little of our project
experience to help illuminate what we believe the potential of
this type of incentive mechanism could be. Our first project
was in the country of Belize with substantial support from
Wisconsin Energy that is appearing on this panel with me today.
In 1994 Wisconsin Energy and the Nature Conservancy discussed
the idea of undertaking a project which could demonstrate the
potential forest conservation and sustainable management as a
greenhouse gas mitigation strategy.
Our simple goal was to develop a model which balanced
carbon sequestration, biodiversity and sustainable development
benefits in a cost-effective way.
Subsequent to Wisconsin Electric Company coming to the
Nature Conservancy, Cinergy of Ohio, Detroit Edison of
Michigan, the PacifiCorp of Oregon, and Utilitree Carbon
Company, which is a consortium of over 64 utility companies in
the United States, provided the Conservancy and its Belizean
partner the money necessary to purchase an imminently
threatened parcel of unique tropical rain forest, provided
funding for small scale sustainable forestry, a project
certified under the Forest Stewardship Council principles and
supported community education programs. We provided local jobs
and income for local people.
We have protected forests and we have had a net positive
impact on the environment. We are very excited about these
types of opportunities.
Our second project, the largest of its kind in the world,
was done with support from American Electric Power, PacifiCorp
again, and BP Amoco. It was in Bolivia. We retired some
forestry concessions, established an endowment for the now
largest national park in the world, funded rehabilitation of a
local school, all this with industry money. We funded a local
health facility.
Senator Chafee. Is this the Bolivian thing?
Ms. Nelson. Yes, sir. The local health facility provided
regular doctor visits to the community, funding for capital and
local communities for sustainable development, orchid
propagation, sustainable palmetto harvest. The multitude of
benefits from this project, beyond the climate change benefits,
are enormous. Estimated carbon benefits are over 15 million
tons, just over 3 years. Just to give you a perspective, that
is equal to the lifetime emissions of 850,000 automobiles.
Both of these projects include the most rigorous monitoring
verification methodologies currently in use today. They were
developed for us by Winrock International Institute for
Agricultural Development, a nonprofit out of Arkansas. They are
peer-reviewed, field-based methodologies. They have proven to
us that it is possible to measure and quantify the carbon
benefits of forest protection management.
Our work to encourage additional companies to get involved
in these types of projects, domestically and internationally,
in the forestry sector and in the agriculture sector, has led
us to conclude that without clear incentives from government
and assurances that their investments will be recognized under
a future crediting program, this type of activity will be quite
limited.
Since I am running out of time I will move quickly, if I
could, to a set of recommendations which we would like to make
to the committee as they contemplate this mechanism. As I have
noted, the Conservancy strongly favors the inclusion of carbon
sequestration provisions in any early action program.
We do encourage the legislators to move carefully in
developing these provisions so as to create valid and
measurable benefits and to avoid the creation of any kind of
perverse incentive.
There are four principles we would like the committee to
keep in mind. All projects, we believe, should be subject to
rigorous monitoring and verification and transparent reporting.
Credits for forest projects should take into account the
potential for the displacement of their benefits, the so called
``leakage'' problem. And these should be addressed in project
design.
Carbon sequestration provisions under any early action bill
should be awarded for additional changes in land management
above and beyond current practices. There should be no credit
in cases where landowners are clearing land and establishing
monocultured tree plantations. A proper carbon accounting
system would not allow that anyway, in our view. Credit should
not be awarded for business as usual scenarios.
Last, we believe that international projects accepted under
the USIJI program, which meet the subsequent legislative
criteria considered by this body, should be eligible for early
action.
With these principles we think the carbon sequestration
projects can play an important role in any early action
program.
Thank you, sir, for your leadership and the opportunity to
testify today.
Senator Chafee. Well, thank you, Ms. Nelson. There is no
question but that Wisconsin Power has certainly been a good
citizen. What is the reaction in a country like Belize when you
make these tremendous purchases and in effect it is going to
remain in forest as opposed to being deforested and then
subsequently raising soybeans or something to that effect? What
do the people of Belize think about that?
Ms. Nelson. Increasingly, it is the Conservancy's
experience, and we are after all an international organization
with a number of activities abroad, the developing countries in
which the Conservancy has been working for some years on
protected areas, management strategies, these developing
countries have come to view--particularly in Latin America
which is the area of my experience so I will try to stick to
that--they have come to view this mechanism as a fascinating
opportunity to do something that we have struggled to do for
many, many years, in essence to value an environmental service,
and by doing so, provide a greater incentive to protect and
manage a forest than to clear it and convert it to other non-
sustainable purposes.
In our view and in the view of the partners with whom we
work in developing countries, it is one of the promising
conservation tools we have ever had.
Senator Chafee. Well, I have had the experience of going to
Belize as a tourist, and the reason we went there was because
of what you described in your testimony here, places with
romantic names like Gallon Jug.
Ms. Nelson. I came from there last week, as a matter of
fact. The Belizeans are quite proud of the visitors they
attract with their natural resources.
Senator Chafee. Well, you say hello to everybody in Gallon
Jug.
Ms. Nelson. I will do that for you, sir. Now that you are
retiring maybe you will have some extra time and you can go and
relax down there.
Senator Chafee. All right. Well, I certainly would like to
go back.
Ms. Claussen, there have been some suggestions that this is
a dark plot by these large companies such as you represent or
that are part of your coalition. Somehow through inexplicable
ways they are going to make out like bandits and it is really a
big profit scheme that translates into their bottom line. Have
you heard those charges and what is your answer?
Ms. Claussen. Yes, I have. I think there are lots of
different kinds of motivations that make these companies do
some of the things that we think they ought to be doing. I
think, first of all, many of them, in fact all of the ones
affiliated with the Pew Center accept the views of the
scientists that this is a serious problem and that they ought
to be doing something about it. All of these companies believe
that companies have a really strong role to play here and that
they themselves should take actions. I don't think there is any
question that there is a motivation here stemming from the
science and environmental impacts.
I think they believe that taking action will give them a
seat at the table when policies are developed and give them an
opportunity to talk about what they think makes sense. So, I
think that is in there as well.
Obviously, these companies are in business to make money. I
think some of them think that at least parts of their business
could be more profitable under some climate change regime. But
what I think really motivates them on early action is that they
don't want to be penalized. They want to be able to do some
things that they think are important. They want to do what they
are asked, but they certainly don't want to incur a penalty.
Senator Chafee. I certainly have not objection to any
company making some money. I certainly understand their concern
that they take these steps now, and obviously the steps they
take in the beginning, with the low-hanging fruit, the easy
ones. Then if there comes a subsequent starting point that
delays, they don't get the early starting point but a later
starting point, it makes it very difficult for them. The
competition is starting at zero whereas they are starting at
minus 30 or whatever it is. Their reductions are going to be
much harder to obtain. So I can perfectly well understand their
concerns.
Senator Baucus, do you have some questions?
Senator Baucus. Thank you, Mr. Chairman.
Ms. Claussen, one question I have is how do you get a lot
of American companies to participate? I am thinking of small
business now. There are many more small business enterprises
than there are big business. I can see big business finding an
economic opportunity here, you know, like Westinghouse. You
know, it makes sense. But most companies don't have the size,
don't have the sophistication, the research capabilities. What
is the opportunity for small business in credit for early
action?
Ms. Claussen. It seems to me that small business has
opportunities just like big business does. I think by and large
small business understands less about how this whole thing will
work, even what the climate change problem is.
Senator Baucus. Could you give us an example? Say a small
grocery store or a print shop or an accounting firm. You know,
not a utility.
Ms. Claussen. I mean based on long years of working in this
field, it seems to me that there are always efficiency
improvements that people don't take advantage of because they
don't think about them. So I think there are always those.
In terms of carbon emissions, there are also opportunities
to switch fuel. So, I think small business will have
opportunities. The issue is whether they can take advantage of
them, whether they know how to do it and whether the system
that you eventually, I hope, agree on gives them something that
is simple enough so that they don't need a large staff and a
lot of people to help them understand the intricacies.
So the challenge is really, I think, to make it possible
for them to take advantage of opportunities that exist.
Mr. Landgren. Senator, could I just add to that to
enlighten?
Senator Baucus. Yes.
Mr. Landgren. As I mentioned in my testimony, Wisconsin
Electric has a very large green pricing program. Most of those
have always been focused on residential customers. We are now
trying to target small business because we do know that there
are some small businesses that would like to do something to
assist the environment.
Today, green power in the Midwest costs more than our
regular power does. So, if we asked them to sign up for our
green pricing and we allowed them to purchase 25 percent of
their use, 50 percent of their use, or all of it that will come
from a green source, they will pay more for that.
If we were able to have you folks give credit for early
action, there could be a procedure by which those small
businesses could also receive that credit for early action;
whether or not it was a negotiated split between us and them or
if we just decided that it was appropriate for them to get all
of that.
So, another way in which small business could participate,
and we know that they want.
Senator Baucus. Other than a reduction in their power bill,
what else could they do? Examples for small business, you know,
so that they could have some ownership, be part of all of this,
and ways to provide incentive, to think of new ways to do
things. I just think that most small businessmen will see this
as a--``well, it is interesting, but what can I do?''
Ms. Claussen. Yes, but you could do anything, from changing
your lighting to changing your insulation. I mean, there is a
whole spectrum. Thirty-five percent of greenhouse gas emissions
come from buildings. I mean all of these small businesses are
in buildings. There is lots of opportunity.
Senator Baucus. But how are you going to measure that and
get a credit for it, I mean a small company?
Ms. Claussen. Well, you can. Actually you can.
Mr. Landgren. It has been measured in the SO2
program. Utilities were allowed, for verifiable energy
efficiency improvements, to obtain additional SO2
credits. The U.S. Government did a very good job of insisting
on strict verification, but my company along with others were
able to prove that we had real reductions and we received real
SO2 credits for those reductions.
Those efficiency improvements came from small businesses
and residential customers.
Mr. Sandor. Senator, if we consider farmers or small farms
as small business people, I think there is an enormous
opportunity there in the sequestration level. It is relatively
easy to monitor. We have been in touch with several major----
Senator Baucus. I was interested in your figures. They are
massive, I mean 450 million--what were your figures on forestry
and agriculture?
Mr. Sandor. I thought about 300 million tons. I have used
numbers from Rattan Lal at Ohio State. He has estimated that
the carbon sequestration with low-till or no-till practices,
plus biomass fuels can generate half of that.
Senator Baucus. So that is in addition to what agriculture
now sequesters?
Mr. Sandor. Yes, just by switching.
Senator Baucus. By switching? That is it?
Mr. Sandor. That is it. And that doesn't speak to new soil
cover.
Senator Baucus. What is the most cost-effective switch?
Mr. Sandor. To low-till or no-till agriculture, where you
don't deep plow.
Senator Baucus. So what percent of that 300 million is
that?
Mr. Sandor. That is 100 million tons.
Senator Baucus. That is a third. So, one-third would be no-
till, low-till?
Mr. Sandor. Yes.
Senator Baucus. I am just curious. How much has
deforestation of the world, you know, since the Middle Ages,
contributed? I mean, you go across Europe and there are no
trees anymore. In the eastern United States there aren't any
trees any more. I'm just curious.
Ms. Nelson. There are two figures that I can refer to, both
the World Resources Institute, Inter-governmental Panel on
Climate Change, and others have looked at this question. On an
annual basis, estimates are that more than 20 percent of
CO2 emissions today, on an annual basis, are
attributable to deforestation, principally in the tropics, in
land use change.
Historically, WRI just recently released a report which I
found quite interesting, that sought to estimate emissions
attributable to deforestation and land use change since the
beginning of the industrial age until now. That number exceeded
30 percent. So, over 30 percent of the problem historically has
been attributed to deforestation.
Right now on an annual basis it is a little bit more than
20 percent.
Senator Baucus. How much does the ocean sequester?
Ms. Nelson. I don't understand the ocean cycle.
Senator Baucus. Does anybody here understand it? Do you
want to take a stab?
Ms. Nelson. No.
Senator Baucus. Well, that is an interesting question. If
nobody understands it----
Ms. Nelson. Well, lots of people do; just not me. I would
rather not speak to it. It is part of the carbon cycle. It is
complicated. It both releases carbon dioxide, takes in carbon,
cycles through coral reefs and other complicated chemical
processes that I dare not venture to. I will stick with my
expertise which is forests.
Senator Baucus. OK. Well, my time is up. Thank you.
Senator Chafee. Senator Wyden.
Senator Wyden. Thank you, Mr. Chairman. Mr. Chairman, I
want to commend you and Senator Baucus for, I think, extremely
important work. I am very pleased to be a sponsor of this
legislation and look forward to working closely with you and
Max so we can get it passed in a bipartisan way.
I will tell you, however, that I am very troubled as I
listen to this panel, that so much of the discussion is about
forestry actions that remove carbon from the atmosphere, so
much of the discussion involves projects that are located
overseas. I feel very strongly about trying to take sensible
steps to deal with forestry issues in Belize, Ms. Nelson, but I
care about Bend, Oregon as well.
We have to do some things there as well, both from the
standpoint of the environment, protecting habitat and
watersheds, as well as steps that are going to help promote
jobs in rural communities. We have a crisis in our rural
economy, and yet all of this discussion seems to focus on
forestry overseas rather than a lot of the forestry concerns in
this country.
For example, if we were to do nothing else but to plant
trees on the millions of unforested conservation reserve lands
in our country and to help some of the private landowners who
are willing to put conservation easements on their private
lands, by paying some of the upfront costs we would be taking
steps in our country that would deal with the kind of early
action that we are talking about with respect to forestry as
well as creating jobs in the rural West.
Yet, I hear virtually no discussion of this. All the major
projects seem to involve forestry overseas. My question to you,
Ms. Nelson--I see the gentleman at the other end is raising his
hand and gyrating frantically as well----
Ms. Nelson. That is Dr. Sandor, yes.
Senator Wyden. Do you share my view of the enormous
potential for domestic reductions in our country, and if so,
what can we do as this debate goes forward to make sure that we
think about people, say in the rural west of this country who I
think very much would like to be part of this solution in a way
that would help our environment and protect jobs.
Ms. Nelson?
Ms. Nelson. Thank you, Senator. That is a good question. I
have a couple of comments. I do share your view that there is
enormous domestic potential, if done right. I think one of the
reasons the first pilot projects were abroad would speak very
well to the issue before you today. There were clear rules. The
U.S. Initiative on Joint Implementation has guidelines and
criteria on how to meet a test of additionality and what
leakage is and how to establish your baseline.
It has a process for approving and accepting these projects
into a U.S. Government reporting mechanism. There is greater
certainty and understanding of the operational guidelines and
criteria necessary to demonstrate the validity of this
mechanism under the USIJI guidelines, a voluntary program
established by this government after the conference of the
parties in Berlin several years ago.
There are no rules or guidelines for domestic projects.
Nobody is quite sure what to do and what would count. Properly
designed, we believe there is enormous potential both in the
forestry and the agriculture sector in the United States to
incentivize additional activities above and beyond what is
going on now that will provide that benefit.
To date, these pilot projects have taken place abroad
because there was a clear set of rules, for one. They were
cost-effective experiments. And I only just want to add in the
interest of sharing one fact with you, the greenhouse gas
benefits of our projects in Belize know no boundaries.
Greenhouse gases, after all, are global pollutants. So, the
benefit from a greenhouse gas standpoint is one that we feel
here domestically as well.
But your point is well taken as regards to forestry
activities at home and I think that if this body would provide
some clear guidelines and rules and do it in a credible way,
you would see an enormous amount of activity in that area and I
think that would be good.
Senator Wyden. I want to let your associate comment. Your
point is well taken as well. I will tell you, when you go to
the rural West and you see all these people, you know, hurting.
These are people who have been left out of this economic
transformation. They do not own Microsoft stock. They are not
going to be able to run a biotechnology company. We have to
make sure that they have an economic future as well.
As I said, I think your point is well taken. If we tell
them, gee, you know, the priorities are overseas, the
priorities are in Belize, that is not going to cut it with
them. So we are going to be anxious to work with you.
As you know, I am about to introduce a comprehensive bill
and we have asked for your organization's input and others. Let
us not create a situation where we pit Belize against Bend,
Oregon because there are a lot of folks in Bend, Oregon, in the
rural West.
Senator Baucus and I both have huge sections of the rural
West where folks are really hurting. We have to get them into
this equation as well. Suffice it to say, when you do the
benefits, as you say, are worldwide. But they have special
ramifications for the people who give Senator Baucus and I an
election certificate.
Ms. Nelson. Absolutely.
Mr. Sandor. Well, I couldn't agree more with you. I just
had the privilege to be in Missoula, Montana last week with the
Montana Carbon Coalition. It is precisely the problem that
there are no credits voluntarily created and no standards for
those folks to reforest. There are Indian reservations. There
is wide-open rural poverty where tree planting could be an
enormous source of revenue.
We have 145 million acres of forests that are now grazed.
That could be theoretically reforested. At a recent
presentation that we made at the National Conservation Reserve
Program in San Diego a lot of ranchers asked me, ``How can I
switch from this grazing? The land is not too productive. Can
you somehow help me certify it?''
At 2 tons sequestration per year for 60 years, which can be
gotten out of some projects using any of the leading forecasts,
it is a far better use of that land to reforest than to keep it
idle in either the CRP Program or to have it poorly grazed.
I don't get it. I feel like I am Tom Hanks in the movie,
``Big.'' We are not paying any attention to monitor
certification of forest sequestration in the U.S. The West, I
think, has enormous opportunities and I think the Deep South--
we were looking at a project in Mississippi the same way.
We are involved in doing this, but we have no signal from
all of you that there is a certification process. We are not
asking you to do anything more than help us certify that and
make it tradable so it can be easily transferred. So, if you
can help us out that way, I think that is of enormous value.
Mr. Landgren. Could I just add briefly, and maybe it is an
oversight on our part, but Wisconsin Electric has actually
spent more time and money working with organizations like the
Nature Conservancy in Wisconsin, doing things to either donate
land or to purchase land and to safe it and restore it and use
the proper land management techniques that Ms. Nelson referred
to.
Again, what we are looking at is in the U.S. many of the
opportunities are reforestation. In places like Belize, it is a
massive opportunity at a much lower cost to save the rain
forest before it is chopped down and then you have to work to
restore it. So it is a matter of priorities, but we would also
support the fact that there is much that can be done in this
country.
Senator Wyden. My time is up. Your testimony has been very
good. Hopefully, it will give some impetus as we go forward
with this legislation and come up with these standards.
I will tell you, I am just struck at how this country talks
about spending billions of dollars on various technologies and
whiz bang gadgets to deal with this global climate problem and
we have got a much cheaper solution in front of us.
You have issued a challenge to this committee and to the
Congress to get in place some sensible kinds of standards. We
will make sure that that will be part of the legislation that I
introduce and we will look forward to having your comments on
how to do it right.
I am pleased to join Chairman Chafee and Senator Baucus in
support of their bill. I yield back.
Senator Chafee. Thank you very much. Dr. Sandor, I have
just one question here that troubles me. I don't know how you
deal--I can understand Amoco and British Petroleum and
companies like DuPont, companies that are part of Ms.
Claussen's coalition. I can understand that we can institute
some kind of a system whereby we start here and if they reduce
they get credits for going below the area.
In the next panel there will be folks representing small
businesses. You were talking about farms, for example. Let us
just say methane gas that is being produced there. But could
you envision some kind of a system that seems like such a leap
that farms would have a target ascribed to them? Let us say I
have a fairly prosperous family farm. I have 300 milkers in a
dairy farm. I am not sure the American public is going to
countenance having a system whereby somebody is going to come
to my farm and tell me that I have to reduce the CO2
gases.
Mr. Sandor. I would hope that the committee would not get
hung up on the accuracy of measurement to make a market
successful. In 1848 the Chicago Board of Trade graded grain and
came up with standards. There were no microscopes. They had
protein content, infestation. We traded mortgage-backed
securities with houses in Rhode Island and houses in California
and houses in Chicago and Madison and we managed to homogenize
them and come up with a certificate.
Rating agencies rate department stores in Chicago as junk
bonds along with the countries of Belize and the capital
markets manage to trade them. We trade credit card receivables.
We trade silver ounce bars that are deliverable on our world's
exchanges here in America that have a 10 percent variance. Yet,
we are the envy of the world.
There are mechanical means of measurement. We did some work
with Jet Propulsion Laboratory that can now estimate biomass
within a 10 percent tolerance, very much similar to what a bond
market does. We know that 9 percent of the U.S. carbon
emissions are from methane. We know 3 percent of the 9 percent
is from animals. We know that there are 100 million cattle and
150 hogs and pigs on feed. That is 250 million. We can take the
average methane emission per animal.
These numbers, we don't have to get it exactly right. This
is our first job. I think all of us working together is not to
design your first plane as a 747. OK? You know, Orville and
Wilbur flew for 56 seconds and that was a big deal.
Financial inventions, industrial inventions start with
small and simple bases. I have watched the capital markets in
almost every different area and I think if you get it close
enough you can get a trading instrument that will be
acceptable. You over-collateralize. You can in fact do that.
We have FCIC people out there in the field. They take a
look and rate farmers for crop insurance. They are visiting. It
is a very successful program. We have all the USDA districts,
the Conservation Reserve Program.
I would only hope that this committee would not reinvent
the wheel. Take a look at what is out there. Get it close
enough so that we can have a voluntary pilot market, and I
think the private sector will take care of the rest.
Senator Baucus. I take it that essentially you four are
saying that even though the Kyoto Treaty has not been ratified,
let alone submitted, which would set caps, that you feel as a
matter of faith that the time is going to come, sometime
relatively soon, when the world will recognize the need,
including developing countries, to sign a treaty. You, as a
matter of faith, want to get ahead and get credit for thinking
ahead and for being wise, omnipresent, and all those things.
Is that basically it? I mean, do you advise Congress to
pass this bill prior to the treaty or not? How would it work
without caps? How could you set a value on the amount of
greenhouse gases without caps? There are no caps because there
is no treaty.
So, I guess I am asking two questions. Do we proceed, in
your judgment, irrespective of the treaty, proceed in passing
this legislation? And second, are you saying, well, I don't
know if you want to pass the bill, but we are taking a certain
amount of early action because we think that the time is going
to come fairly quickly?
The question I have is why pass this bill when there are no
caps? How do you quantify the amounts traded when there are no
caps?
Mr. Sandor. I will take a first jump at it and then I hope
that, if you will forgive me, if I can excuse myself. Today
happens to be, fortuitously, the seventh annual auction at the
Chicago Board of Trade of SO2 and I must go host it.
So, quickly, I would say, one, I believe that caps are coming
somewhere in the world. I would like us to be able to export
our reductions. If they come in Ireland or Australia----
Senator Baucus. The caps are coming?
Mr. Sandor. Not necessarily in the United States; in other
jurisdictions. I think that British Petroleum, if it cleans up
and registers, and Amoco, and reduces here, it might want to
use it in another jurisdiction.
Senator Baucus. Why will caps come in another jurisdiction
when there is no agreement on caps in other countries?
Mr. Sandor. I have been going to a lot of other countries
around the world. We are talking to Canada and we are advising
them on an emissions trading system, our company is. I think
they will have a cap independent of what happens
internationally. England is looking at it. The International
Petroleum Exchange has a greenhouse gas program.
Senator Baucus. Ms. Claussen, could you answer that,
please?
Ms. Claussen. Yes. First of all, let me say that I think
that some form of binding commitments are inevitable, globally.
I mean inevitable for the United States, and for the rest of
the world, including the developing countries. I do think that
some countries may move forward faster than we in dealing with
a cap. I think that is certainly true for some countries in
Europe which I think will go ahead and ratify the Kyoto
Protocol.
Even if the treaty doesn't enter into force, they will, as
a domestic matter, impose caps. So I think there is some truth
in what was said down at the end of the table here.
Senator Baucus. So you advise what?
Ms. Claussen. I think it is very important for the Congress
to pass some legislation that grants credit for early action. I
think that is one way for us to get moving and for our
emissions path to move in a more reasonable way.
Senator Baucus. Even though we don't know what the value
is?
Ms. Claussen. Even though we don't know what the value is.
Mr. Sandor. Senator Baucus, could I answer one last
question? We in fact trade the largest commodities in the world
with no caps. Those are called currencies. Any central bank can
print as much as it wants and the market doesn't have a problem
and hasn't had a problem in trading it. So we could trade it
and put a value on it even though there is no cap. It might
have a depreciated value relative to it, if it did have a cap.
But the markets can handle it. They have handled hyper-
inflated currencies, traded them all.
Senator Baucus. That is true, but there are only a few
institutions who can print money, whereas in this case we are
talking about a multitude of entities who could emit greenhouse
gases. So that is a huge difference, frankly.
Mr. Sandor. That is a difference. But I think that there is
an argument that could be made. I would hope that you would
offer credit for early action.
Senator Baucus. I appreciate that. Thank you.
Mr. Landgren?
Mr. Landgren. I would just respond, No. 1, my company does
believe in the inevitability that there will be some kind of
regulation on greenhouse gases. But the point I tried to make
in my testimony was that if you believe otherwise, this is
really a zero cost to the government, other than the minor
costs of verification and monitoring. In return for that you
are getting a lot of companies being willing to invest money to
do good things like improve the efficiency of the American work
place and to save rainforests.
Senator Baucus. I am just asking these questions to try to
force us to think more clearly, frankly, so we can move more
definitely and less pie in the sky. That is why I am asking
these questions.
Mr. Landgren. So we would support this bill--not this bill
because again we are not necessarily here supporting this
bill--but this concept going forward ahead of a treaty.
Senator Baucus. Thank you very much.
Senator Chafee. Also, I would stress the point that you
have made, Mr. Landgren, in your testimony where you talk
about--and you others have likewise--that there is a certain
value that comes from certainty.
In your statement you say: ``We do not believe we do not
believe this support binds us to support the Kyoto Protocol. We
view credit for early action simply as an insurance policy in
the event that domestic or international programs to reduce
greenhouse emissions is implemented, Congress should view the
credit for early action in the same way, as an insurance
policy.''
Well, thank you all very much for your testimony. Ms.
Nelson, please give our regards to your Dad.
Ms. Nelson. Thank you very much. I will.
Senator Chafee. I served here with him.
Ms. Nelson. I will have dinner with him tonight. I will
tell him you asked about him.
Senator Chafee. Please do. That is very, very nice. Thank
you.
Would the next panel come forward? That will consist of Mr.
John Passacantando, and Mr. Raymond Keating.
Gentlemen, if you will take your seats, we will be glad to
hear from you. Why don't we start with you, Mr. Passacantando?
We look forward to your testimony.
Mr. Passacantando is the Executive Director of Ozone
Action.
STATEMENT OF JOHN PASSACANTANDO, EXECUTIVE DIRECTOR, OZONE
ACTION
Mr. Passacantando. Thank you. Senator Chafee, thank you for
the invitation to be here today. I am John Passacantando,
Executive Director of Ozone Action, a nonprofit organization
dedicated to building a public constituency for leadership to
address global warming.
We are here to talk about the concept of early action. I
want to emphatically state that we support this concept. Even
before the Kyoto Protocol was agreed upon, Ozone Action was
promoting the importance of early emissions reductions. By
promoting measures to get industry to voluntarily reduce their
missions, you can foster the type of paradigm shift that
encourages leadership by the industries that will dominate in
the 21st century.
Unfortunately, as currently written, S. 547 does not do
this. In fact, in our eyes it is a Band-Aid approach that may
ultimately be counterproductive.
A doctor, when treating a patient with high cholesterol
will likely prescribe medication, but no responsible doctor
would limit that treatment to medication. He would insist that
the patient address the source of the cholesterol problem. To
do anything less would be irresponsible.
In many ways our climate shows the symptoms of an ailing
patient. Scientists around the world recognize that glaciers
are retreating, ice caps thinning, our seas are rising, violent
storms increasing and rising temperatures are breaking records
that go back to the Middle Ages.
S. 547 would be like giving the sick patient a pill without
addressing the source of the problem. It is imperative that any
bill focus on the source of global warming, the escalating
emissions of greenhouse gases from the burning of fossil fuels.
Our country's history of strong environmental regulation
and economic prosperity is the clearest indicator that properly
crafted regulations can provide incentives for the innovations
that drive our markets.
Michael Porter, Harvard Business School professor and
former member of President Reagan's Commission on Industrial
Competitiveness, has written in his most recent book that ``The
data clearly show that the costs of addressing environmental
regulations can be minimized, if not eliminated, through
innovations that deliver other competitive benefits.''
Like Porter, I do not come at these issues purely as an
environmental advocate. My background is on Wall Street. I
spent 8 years of my career in decidedly non-environmental
roles. For a majority of that period I worked for Jude
Wanniski, the high priest of supply side economics. I believe
in the careful use of government intervention and remain as
suspicious of corporate welfare as any conservative.
The history of environmental regulation in the U.S. is one
of the government raising environmental standards, usually over
the strong objections of the effected industries, only to have
those standards met by creative innovations that come in at a
fraction of the initially projected costs or even as new profit
centers for these industries.
The Clean Air Act, removing lead from gasoline, phasing out
ozone-depleting chemicals, these are just a few examples of
regulations that have spurred innovations. The fight against
global warming is no different from these other efforts. It is
just larger. Overall, S. 547 fails to promote the better angels
of our industrial base. Instead of promoting innovation, the
bill rewards our biggest polluters, even if they have made no
changes whatsoever.
It also has the potential to preempt real emissions
reductions just as a mandate is emerging from the American
people who are increasingly concerned about global warming.
There are several key flaws of the bill that the committee
should be aware of as it assesses its merits. First, it allows
blanket crediting of unverified reductions claimed under the
Department of Energy's (1605(b)) program, some going back
almost 10 years.
This loophole sacrifices environmental integrity and
threatens America's ability to meet our commitment under the
Kyoto Protocol.
Second, this bill also would provide incentives for
increasing our dependence on nuclear power.
To further subsidize this uncompetitive industry in the
name of global warming would exacerbate an existing problem.
Nuclear energy may not emit carbon dioxide, but it is
unacceptable to trade one environmental threat for another.
Third, the bill diverts attention from sorely needed
domestic pollution prevention and rewards vague and
unverifiable overseas projects.
Fourth, as for all aspects of this or any bill on global
warming, the science must drive the policy. Carbon absorbing
sinks projects must be left out of the early credit discussion,
at least until the international scientific body completes its
study next year and defines the way sinks will be dealt with
under the Kyoto Protocol.
There are a number of other flaws, some of which were
outlined in my submitted testimony. Many of them have been
described in a memo circulated as a legislative analysis
offered by a majority of the members of the environmental
community.
If this bill becomes law, any future efforts to lower
industrial emissions may be met with the cry of ``I already
gave at the office.'' Passing the bill as a means to combat
global warming would be like a doctor combating a patient's
high cholesterol by giving him a pill and then treating him to
a steak and fries dinner. Our global climate deserves better.
Thank you again for the opportunity to share our concerns
with you about this bill. We stand ready to help you in any way
possible.
Senator Chafee. Well, thank you very much. That is why we
are having this hearing, to find out some of the challenges and
difficulties you envision. I have always felt that this is
very, very difficult. The concept is readily understandable.
Why shouldn't somebody get credit if subsequently some caps or
regulatory levels are imposed? It is voluntary. Absent some
legislation such as this, there is certainly no incentive for
any company to make the effort, unless it is because they are
just plain good citizens.
So, Mr. Keating, your testimony comes from the Small
Business Survival Committee.
STATEMENT OF RAYMOND KEATING, CHIEF ECONOMIST, SMALL BUSINESS
SURVIVAL COMMITTEE
Mr. Keating. Thank you, Mr. Chairman. As a side note, I
also worked for Jude Wanniski once, and I hope you won't hold
that against me.
I am Raymond Keating, Chief Economist for the Small
Business Survival Committee. SBSC is a nonpartisan, nonprofit,
small business advocacy group, with more than 50,000 members
across the Nation. SBSC opposes the Kyoto Protocol on Climate
Change for a variety of reasons, including the significant
costs it would impose on small businesses, consumers and the
U.S. economy in general, as well as the global competitive
disadvantage U.S. small businesses would suffer.
Unlike others here today, obviously we have been asked to
discuss formal recognition or crediting of voluntary greenhouse
gas mitigation activities.
First, we need to understand or come to agree on what these
credits would be used for. Obviously the credits would only
have meaning and value under the Kyoto Protocol or some similar
regulatory regime which would implement an emissions ``cap and
trade'' system. Otherwise the entire early credit endeavor
would be pointless. Therefore, we must take a look at how
emissions trading would likely work, and what problems it
presents.
The Kyoto Protocol would require dramatic reductions in
energy usage. One method for reducing energy consumption and
emissions would be an emissions trading program whereby the
government would cap emissions and then ration or auction off
credits equivalent to certain levels of emissions.
I think we need to understand that trading emission credits
is really another regulatory system, shifting around, maybe
with some flexibility, but shifting around massive government-
imposed costs. The bottom line is that the government would
place severe restrictions on CO2 emissions and
therefore on energy consumption and, quite frankly, economic
activity.
Many problems exist with such a system. It is costly and
stealthy. Like other forms of regulation, in fact the costs
would remain largely a mystery to consumers, but nonetheless
they would be paying in the form of increased cost, lost GDP
and lost jobs.
The most daunting problem with an emissions trading
regulatory system is compliance. In summary, countless dollars
would be spent in pursuit of, quite frankly, what we see as an
impossible compliance goal.
Administration of this treaty would require monitoring all
sources of emissions, and comparing those results with
permissible credit amounts. Stationary sources would be bad
enough. Think of the number of businesses, nonprofit and
governmental facilities that would be under surveillance. But
remember there are more than 200 million more vehicles in use
in the United States today.
Now, take this scenario and apply it internationally. The
complexity, costs and extent of government intrusiveness grow
exponentially in pursuit of this compliance. If this treaty is
meant to be taken seriously, the developing nations eventually
must be brought into the fold.
An exclusion for developing nations would provide them with
a tremendous economic advantage, allowing them to attract
industries, businesses and jobs away from nations forced to
impose significant costs under the treaty. Obviously, this
cannot stand.
But what would happen if the developing nations are placed
under some sort of Global Warming Treaty emissions caps? If
imposed and somehow enforced, limiting emissions in such
nations, we would argue, would sentence millions of people to
permanent poverty.
Under emissions trading smaller enterprises would be at a
distinct disadvantage as bidding raises the price of credits.
As is the case with other forms of regulation, these added
costs will hit smaller ventures harder. Many small businesses
operate under the slimmest of margins, and simply would be
unable to play the credits game.
As it stands now, most small businesses find it daunting to
comply with the hundreds of laws and regulations required under
all levels of government. In addition, basic business matters
require their hour-by-hour, day-to-day attention.
The credits game will be viewed by most as being the domain
of big business, or be construed as some complex and vague
program that offers no or little current quantifiable benefit
in running their day-to-day operations. In addition, the high
risk nature of smaller, entrepreneurial firms require the
opportunity, at least the possibility, of making substantial
returns.
The Kyoto Treaty and emissions trading raise costs, and
therefore reduce potential returns, which means that many
start-up, innovative, potentially high-growth enterprises would
be nipped in the bud.
Indeed, it certainly does not take an active imagination to
see mature, entrenched large enterprises gaining a clear
advantage over smaller businesses under an emissions trading
regulatory system. Large firms with greater ability--including
the necessary capital--to survive the added cost of playing the
credits game will actually face reduced competition from
smaller upstarts who will not survive.
Having noted the many problems with emissions trading, it
becomes obvious that any kind of early action to reduce
emissions--so-called ``voluntary'' or not--manages to only make
matters worse. For example, the Federal Government would most
likely enter into early implementation agreements with large
established businesses who have the legal expertise, the
technical abilities, and discretionary capital to undertake
early actions.
Since there would only be so many credits to go around
under the Kyoto Protocol, or a national cap as part of,
perhaps, a domestic program, those who do not participate in
the early actions would suffer accordingly. Small and mid-sized
businesses would bear a heavy burden.
Politics, no doubt, would play a major part in this early
implementation program. Those with political connections and
lobbying clout would have the clear advantage when it comes to
entering into early implementation agreements at the expense of
the non-politically connected, i.e., smaller enterprises.
Even if so-called ``pooling'' is allowed, its usefulness
would be quite limited. For example, established businesses
would have absolutely no incentive to pool with other firms.
Why would they? For the rest, the costs or organizing in terms
of dollars, time, personnel, education et cetera would be
formidable.
Also, mature businesses in predictable industries would
more easily participate in early implementation than would
small, high-growth businesses in new, dynamic and far less
predictable industries.
Credits for early implementation would establish a strong
special-interest group favoring Kyoto implementation or a
comparable domestic regulatory program. I believe this would
effectively split some of the business community in its
opposition to the Kyoto Protocol, pitting many large companies
with special interests in seeing the treaty and its trading
system become reality, against a far more dispersed opposition
overwhelmingly populated by small and mid-sized firms.
Especially from the small business perspective, early
action credits are a bad deal. The economics of the Kyoto
Protocol, or a similar program, including its emissions trading
scheme, are dismal. In our view, Congress should not be looking
for ways to advance Kyoto and its attendant implementation
systems, but instead should be stating quite clearly that it
will not ratify this costly, misguided, and highly dubious
treaty.
Once again, thank you for allowing me to testify. I would
be glad to answer any of your questions.
Senator Chafee. Well, Mr. Keating, you seem to base your
presentation on the fact that the chances are good that the
Kyoto Protocol will be implemented. That is not the basis for
this, from my point of view anyway. There may be something
coming along and there may not. What we want to do is assure
that this legislation--and it is very difficult to draw this
legislation, as you pointed out--the thrust of it is that the
companies, small or large, that make efforts now to reduce
emissions will get credit for it. What is the matter with that?
By the way, it is voluntary. In your statement you are pretty
concerned about what is going on here. If it is strictly
voluntary, what is the problem?
Mr. Keating. Well, whatever your intentions may be, I think
this legislation sends a clear message that Kyoto is coming or
something like Kyoto is coming and that this is laying the
groundwork for it, quite frankly. We hear they are setting up a
group that will be advocating the advancement of the treaty.
So, all signals from legislation such as this are that
Kyoto is coming or something very similar is coming.
Now, in terms of voluntary actions, that is great. Every
business can make their own decisions on whatever they would
like to do. I would argue that most businesses make such
investments to increase their efficiency and help their bottom
line. Fantastic. More power to them. They are going to gain
benefits from that as are consumers in the marketplace.
The question is whether those investments should
necessarily be counted toward a system that is leading us,
taking us down the road to increased regulation on all
business. I would argue that that is not a good idea. It takes
us further down the road to a treaty that is costly. I would be
glad to submit for the record my testimony when I testified on
this treaty last year over in the House. I went through stacks
and stacks of economic analysis and studies. This is going to
be quite costly. There is no way of getting around it.
The trading system might be more flexible, but this type of
regulation which this legislation envisions happening, one day
is going to be quite costly. So, obviously, we are going to
oppose any kind of measure that advances something like this
that is going to hurt the small business community and the
economy overall.
Senator Chafee. It seems to me that there is a fundamental
question here that we all have to answer. That is, are we
concerned about global warming? Is there a problem? Now, if you
conclude that there is no problem, then this is all hogwash.
What do we care about how much CO2 is emitted or
methane or any of the greenhouse gases?
If we think there is a problem and we are convinced through
the science that this is serious business, then our steps to do
something about it, and I don't really know what that might be,
but it seems to me to take the attitude--if you assume, as I
do, that there is a problem here, that global warming is
serious business, then you try to do something about it. It may
not be perfect, but at least you try.
But your attitude, I assume, is that there is no problem,
that the science does not indicate that the earth is gradually
warming through man's activities. I assume that that is the
position you take.
Mr. Keating. We are certainly not climate scientists at
SBSC, but in terms of what I have looked at in the literature,
it is often being presented as a complete unified opinion in
the science community that global warming is happening.
I would disagree. Again I will go back to the testimony I
gave last year that shows that there is large disagreement in
the scientific community over this. There is no majority
opinion, I don't think you can find anywhere that this is
seriously happening and it is being caused by man. So you are
right. You have to get back to the fundamentals here as to
whether these mighty costs that will be imposed on the economy,
consumers, and businesses make any sense in terms of what we
are trying to accomplish.
We certainly have serious, to be gentle, questions about
the existence of global warning and the science behind it. So,
yes, I think that is the fundamental issue that everybody has
to wrestle with.
Senator Chafee. I think you are not quite accurate in
stating that the majority view--you know, we have all read
these opinions of climate scientists. Are they unanimous? No. I
suspect it would be pretty hard to find any unanimity from a
whole bunch of scientists. But the evidence is pretty
overwhelming. There have been samples that they have taken in
the Antarctic and so forth. It is not going to be 100 percent,
that is for sure.
Mr. Keating. I don't even think you need to get to 100
percent. This is from my testimony from last year. Jethrow
Hickey did an article in late 1997 in Inside Magazine, laying
down a few facts that I think a lot of people are not aware of.
For example, only 13 percent of the scientists polled by
Greenpeace believe that there will be catastrophic consequences
if consumption remains at present levels. A recent Gallup poll
of members of the American Geophysical Society and
Meteorological Society found that just 17 percent believe that
greenhouse gas emissions have been responsible for global
warming. Citizens for a Sound Economy found that 89 percent of
scientists they polled believe that, ``current science is
unable to isolate and measure variations in local
temperatures'' caused by humans. The United Nations surveyed
400 scientists and they did not agree that ``global warming is
a process that is caused by greenhouse gas emissions.''
So, I would argue that. There are two scientists from the
Oregon Institute of Science and Medicine that argue with the
science as well. Just based on that, I think it is pretty clear
that we hear a lot about, you know, this is an insurance
policy, but this is a mighty, mighty expensive insurance policy
for something that we don't know is going on, that we don't
know what may be causing it, quite frankly.
I don't think it is an insurance policy. It is a much more
dangerous game than that for our economy and for our way of
life.
Senator Chafee. Well, I think it behooves us to have some
hearings here on the science. I suspect no matter who we come
up with there will be those who disbelieve. We are all familiar
with that.
I think we know here in the Senate that there are polls and
polls, Gallup polls and so forth have been taken of various
groups. I would hope we have an opportunity to have them in
here and let us go at it. I am sure when we finish--I am not
sure everybody will be convinced one way or the other.
Mr. Passacantando, do you have some thoughts on this issue?
Mr. Passacantando. Well, I would report that essentially
with scientists--and the one thing I can tell you is that it is
remarkable and it is overwhelming the number of scientists, the
number of legitimate climate scientists who have spoken out and
encouraged leadership by Congress, by the United States in
addressing global warming.
The IPCC, in assessing the work of thousands of scientists,
says there is a human fingerprint on global climate. We were
involved in pulling together 2,400 scientists who signed a
statement written by George Woodwell, of Woods Hole Research
Institute, and John Holdren at Harvard, which urged U.S.
leadership in global warming.
Additionally, The Union of Concerned Scientists had a
similar statement, signed by 1,500 scientists from all around
the world. You rarely see this kind of unanimity on any threat,
if ever. At least not since the nuclear threat. Rare is it to
have this many scientists speaking out with a political voice,
urging leadership.
It really comes down to asking the question, can you find a
scientist who at this stage would say, ``There should be no
concern with the excess amount of carbon dioxide that human
behavior, human action has put into the atmosphere?'' You would
have to look under rocks. You could not find a scientist, in my
opinion, who would actually say it. Maybe two or three in the
entire world would say it is good for us.
Senator Chafee. I will tell you what we would like to do. I
would like to get a copy of the testimony that you gave last
year over at the House. I would appreciate if you would send us
a copy of that. I would just like to check out some of the
references that you mentioned.
Mr. Keating. I will make sure that it gets over here. My
copy has scribble on it. I will get you a clean copy.
[The referenced material follows:]
Testimony of Raymond Keating Chief Economist Small Business Survival
Committee before the House Committee on Small Business, June 4, 1998
On behalf of the Small Business Survival Committee (SBSC) and its
more than 40,000 members across the nation, I appreciate the
opportunity to offer the following comments regarding the potential
impact of the Kyoto Protocol, or ``Global Warming Treaty,'' agreed to
this past December by the Clinton Administration in Kyoto, Japan.
SBSC is an advocacy and information organization that supports
policies which promote the survival and growth of the entrepreneurial
sector of our economy.
As I will more fully explain in a moment, SBSC opposes the Global
Warming Treaty for several reasons, but primarily due to the crushing
costs that would be imposed on businesses of all sizes and in
practically all industries, as well as on consumers and the economy in
general. As most studies of the Global Warming Treaty indicate--whether
performed by private industry or by the Clinton Administration itself--
this treaty will be an indiscriminate killer of businesses and jobs.
And this will be the case no matter what the means utilized to reduce
so-called ``greenhouse gas emissions''--primarily CO2--that
is, whether through higher taxes, increased regulations, an emissions
``cap and trade'' system, or some combination of these options.
Like other Americans, we also have other concerns about this
treaty, such as national security implications, the fact that it is
based on, to be generous, debatable science, the exclusion of
``developing'' nations, the foreign aid and transfer of wealth
implications among nations, as well as the often secretive and at times
misleading methods used by the Clinton Administration in seeking to
advance its global climate policies.
background
Make no mistake, government-imposed costs inflict considerable harm
on smaller enterprises.
Small businesses often operate on tight margins, struggling to stay
alive month to month and year to year. This is perhaps best illustrated
by the fact that more than half of new businesses fail or reorganize
within 5 years, as noted by the U.S. Small Business Administration
(SBA).
At the same time, however, small businesses have long proven to be
the wellspring of innovation, invention and job creation in our
economy. In any given year, smaller businesses also account from
anywhere from two-thirds to more than 100 percent (large firms often
shed more jobs than they create) of net job creation. So, these high-
risk ventures are critical to the economy.
Unfortunately, increased government-imposed costs weigh heavily
around the necks of entrepreneurs. For example, according to an SBA
study, the annual per employee costs of Federal regulations range from
$2,979 for businesses with 500 or more employees to $5,195 for
businesses with 20 to 499 employees to $5,532 for businesses with fewer
than 20 employees. Regulatory economist Thomas Hopkins estimates that
the real costs of Federal regulations are expected to rise by more than
30 percent between 1988 and 2000.
Starting up and investing in businesses are high-risk ventures. If
government imposes weighty taxes and regulations, then fewer
enterprises will be created, fewer will survive, and job creation will
wane.
If implemented, the Kyoto Protocol would guarantee that
governmental burdens on entrepreneurs--indeed, on businesses of all
sizes--would continue to rise, thereby damaging economic growth and job
creation.
questionable science
When it comes to global warming, a major question persists: Does it
make sense from either an economic or environmental viewpoint to impose
weighty costs (as will be illustrated later) given the current state of
science on the issue?
While we at SBSC are not climate scientists, a general review of
the literature and results of various polls show that a scientific
consensus on the existence of global warming and its potential effects
simply does not exist.
For example, according to ground-level measurements, the earth's
average temperature has increased by 0.5C over the past 100 years.
However, much, if not all of that increase occurred before 1940.
Meanwhile, satellite measurements indicate no warming trend over the
past two decades, but a slight cooling.
Meanwhile, in the December 15, 1997 issue of Insight magazine,
reporter Jennifer Hickey noted the following findings:
Only 13 percent of scientists polled by Greenpeace
believe that there will be catastrophic consequences if consumption
remains at present levels.
A recent Gallup Poll of members of the American
Geophysical Society and the Meteorological Society found that just 17
percent believe that greenhouse-gas emission have been responsible for
global warming.
Citizens for a Sound Economy found that 89 percent of the
scientists they polled agreed that ``current science is unable to
isolate and measure variations in global temperatures'' caused by
humans.
The United Nations' Climate Change Bulletin surveyed 400
climate scientists and found they could not agree that ``global warming
is a process that is already under way.''
In addition, S. Fred Singer, an atmospheric physicist and president
of the Science & Environmental Policy Project, noted the following in
the May 5, 1998 Washington Times (``Scientists Add to Heat Over Global
Warming''):
``The Global Warming Treaty and its shaky science are under attack
by the largest group of scientists ever. A petition, initiated by the
Oregon Institute of Science and Medicine and endorsed by more than
15,000 scientists, urged President Clinton not to sign the Climate
protocol negotiated in Kyoto, Japan, last December.''
``The 15,000-plus signers, about two-thirds of whom hold advanced
academic degrees, question the uncertain science underlying the
protocol, noting it does not agree with atmospheric data.''
Singer goes on in his article to also note how some top proponents
of global warming--including the National Academy of Sciences--were
warning of a drastic cooling of earth temperatures in the 1970's.
Writing in The Wall Street Journal on December 4, 1997 (``Science
Has Spoken: Global Warming Is a Myth''), Arthur Robinson and Zachary
Robinson, chemists at the Oregon Institute of Science and Medicine,
simply declare:
``The global warming hypothesis . . . is no longer tenable.
Scientists have been able to test it carefully, and it does not hold
up. During the past 50 years, as atmospheric carbon dioxide levels have
risen, scientists have made precise measurements of atmospheric
temperature. These measurements have definitively shown that major
atmospheric greenhouse warming of the atmosphere is not occurring and
is unlikely ever to occur.
``The temperature of the atmosphere fluctuates over a wide range,
the result of solar activity and other influences. During the past
3,000 years, there have been five extended periods when it was
distinctly warmer than today. One of the two coldest periods, known as
the Little Ice Age, occurred 300 years ago. Atmospheric temperatures
have been rising from that low for the past 300 years, but remain below
the 3,000-year average.''
In contrast, the myth that the scientific has arrived at a
consensus on global warming is supposedly buttressed by a letter
circulated by a group called Ozone Action and signed by 2,600
scientific experts. However, an analysis by Citizens for a Sound
Economy indicates that less than 10 percent of signees possess
expertise in any scientific discipline related to climate science.
Also, it is quite interesting that Janet Yellen, chairwoman of
President Clinton's Council of Economic Advisers, has raised the issue
regarding the ``futility'' of econometric models to predict the
future--specifically, ``the economic impacts of a given climate change
policy''--but the Administration raises no questions about models
predicting future climate changes. Meanwhile, Frances B. Smith reports
in the September 1997 issue of Consumers' Research Magazine that ``as
computer models are adjusted and new data are incorporated, the
predicted temperature rise has gotten smaller and smaller--from about
SC over the next century to the current prediction of less than 2C.''
the exclusion of developing nations and foreign aid
In the November-December 1997 issue of Foreign Affairs, Thomas C.
Schelling, a Distinguished Professor of Economics and Public Affairs at
the University of Maryland, and a believer in the potential woes of
global warming, acknowledged the following: ``Any costs of mitigating
climate change during the coming decades will surely be borne by the
high-income countries.'' He continued: ``Any action combating global
warming will be, intended or not, a foreign aid program.''
Therefore, problems with the Kyoto Protocol are two-fold. First,
``developing'' countries are not required to reduce their ``greenhouse-
gas'' emissions, and therefore, businesses in those nations will avoid
the draconian costs heaped onto the backs of U.S. firms. These ``Third
World'' companies will possess clear cost advantages in international
markets, hurting U.S. exports, as well as advantages in U.S. markets
themselves, cutting consumption of domestically produced goods and
services by U.S. consumers.
Under this treaty, U.S. industry also will possess the perverse
incentives to move manufacturing facilities--and therefore jobs--to
these nations. (Environmentally, one has to ask whether this makes any
sense, given the fact that these nations will be jacking up their
CO2 emissions considerably one way or another?) However,
small firms rarely, if ever, shift their operations overseas, and will
therefore bear a heavy burden under the global warming treaty here at
home.
Salt is rubbed into these U.S. economic wounds by the fact that
under any kind of international system of CO2 credits (a
system approved in Kyoto but in no way detailed) the U.S. will wind up
sending resources to other nations in a kind of foreign aid payment.
administration tactics
Another concern regarding the Kyoto Protocol has been the Clinton
Administration's tactics in advancing their agenda. For example, in
order to reach an agreement in Kyoto, Administration negotiators set a
dangerous precedent regarding national sovereignty and security. The
Center for Security Policy explains in a December 15, 1997 Perspective
(``The Senate Must Insist on an Early Vote on the Kyoto Treaty''):
``. . . the GCCT [Global Climate Change Treaty] sets a totally
unacceptable precedent that must be repudiated at once. According to
The Washington Times, in order to get agreement on Al Gore's treaty,
the U.S. delegation was obliged to abandon 'its plan to exempt U.S.
military training and overseas operations from fuel cutbacks that would
be needed for the United States to reach its target.'' The Times goes
on to report that, 'In the draft treaty, only overseas actions approved
by the United Nations would remain exempt as would training and combat
in international waters.'''
My SBSC colleague, Christopher Homer, noted in recent congressional
testimony another worry, i.e., that the Clinton Administration might
not wait for Senate approval before implementing the Global Warming
Treaty:
``Recently uncovered internal EPA documents disclose that as far
back as 1994 the Administration began cataloging ways to reduce
'greenhouse gases.' As the documents also show, the effort expressly
was to focus on those efforts most likely not requiring legislative
approval. Included among the recommendations are a shocking assortment
of big government dream programs: 1) a 50 cent per gallon additional
gas tax, to be implemented without congressional approval under Section
232 of the Trade Expansion Act of 1962 (estimated cost to motorists-$47
billion in the year 2000 alone); 2) seven individual energy taxes,
including a carbon tax, 'greenhouse tax,' and the failed Btu tax; 3)
ways to encourage an increase in state taxes to fund the highway Trust
Fund, to 'fully price roads,' at an estimated cost per household of
$400 per year, 4) further auto emission reduction requirements; 5)
increased fees on automobile inspection and maintenance.''
Another issue is the Administration's cavalier treatment of U.S.
Senate concerns. In July 1997, the U.S. Senate had expressed unanimous
approval (95-0) of the ``Byrd/Hager Resolution,'' which expressed the
Senate's position that the Administration should neither sign a treaty,
nor send one to the Senate for ratification if such a treaty would a)
harm the U.S. economy, or b) not include binding commitments by
``developing countries'' to reduce greenhouse gases. The Administration
then promised the Senate ``meaningful participation'' from developing
nations currently exempt from the treaty. However, in mid-May at the
Birmingham Summit of the G-8, the Administration signed a communique
stating, ``We look forward to increasing participation from developing
countries, which are likely to be most affected by climate change and
whose share of emissions is growing. We will work together with
developing countries to achieve voluntary efforts and commitments,
appropriate to their national circumstances and development needs.''
Finally, Janet Yellen, chairwoman of the White House Council of
Economic Advisors, claims that a new Administration study shows the
Kyoto protocol having only ``modest'' impacts on the U.S. economy and
jobs. However, while the Administration is reportedly using this
analysis to negotiate with developing nations in order to get them to
``meaningfully participate'' in the Global Warming Treaty, this
information is not being released to the American public for
evaluation. This, despite the fact that the Administration promised the
Congress and the American public a full economic impact analysis on
reduced greenhouse gas emissions to 1990 levels a year prior to the
Kyoto negotiations. Now, of course, emissions are to drop to 7 percent
below 1990 levels, but still no economic analysis.
As a result, SBSC filed a Freedom of Information Act request with
the Council of Economic Advisors on May 18 for any and all of the
economic analysis developed, utilized and cited by the Clinton
Administration in the context of the Kyoto Protocol. The American
public has a right to know what taxpayer-financed economic studies
conclude and why top advisors at the White House were and are so
divided on the issue of the Global Warming Treaty.
costs
Still, as a small business group, SBSC's primary concerns grow from
the massive costs that would have to be imposed on businesses,
consumers, and the economy in order to implement the Kyoto Protocol.
And even if such costs were imposed, it is highly doubtful that
emissions reduction goals could ever actually be met.
In his aforementioned November-December 1997 Foreign Affairs
article, Professor Thomas C. Schelling of the University of Maryland
exhibited incredible cavalierness regarding the costs of dealing with
global warming by offering a declaration that only could be made by a
cloistered ideologue: ``Slowing global warming is a political problem.
The cost will be relatively low: a few trillion dollars over the next
30 or 40 years. . . '' Of course, those lost trillions of dollars in
GDP across the globe translate into lost businesses, jobs, consumer
goods for adults and children, and continued or increased poverty for
many.
At least one can say that Schelling is honest. Proponents of the
Global Warming Treaty must be aware of the costs that would be
inflicted, but, like Schelling, they cannot really care all that much.
For the United States, the cost of emission reductions will be
particularly brutal because, as Professor Richard Cooper points out in
the March-April issue of Foreign Affairs, emissions are expected to
grow by 30 percent between 1990 and 2010. That means, given the
Administration's Kyoto pledge that U.S. emissions would be decreased to
7 percent below 1990 levels by 2012, the U.S. will have to reduce
emissions by almost 40 percent.
Indeed, most studies attempting to access the impact of the Global
Warming Treaty--whether performed by private industry or by the Clinton
Administration itself--indicate this treaty will be an indiscriminate
killer of businesses and jobs. And this will be the case no matter what
the means utilized to reduce so-called ``greenhouse gas emissions''--
primarily CO2--that is, whether through higher taxes,
increased regulations, an emissions ``cap and trade'' system, or some
combination of these options.
Taxes. The most often cited tax that would be implemented in order
to reduce energy consumption and therefore ``greenhouse gas'' emissions
is a carbon tax.
The administration of such a tax is fairly simple-boosting its
appeal to those advocating tax increase--as it would be levied at the
wholesale level on fossil fuels based on carbon content. However, it is
not necessarily efficient in terms of controlling CO2
emission because different uses of fuel produce different emission
levels. Yet, the costs would be massive.
Emissions ``Cap and Trade'' System. Another method for reducing
energy consumption and emissions would be a CO2 trading
program which would require the purchase of CO2 credits in
order to maintain current or possibly expand emissions. In a 1994
document, the EPA noted the troubles facing an overt energy tax, and
then cynically noted the following about a ``cap and trade'' system:
``A cap would likely not be as unpopular as a tax, since people are
generally less familiar with the concept.''
The administration of such a tradable credit system would be nearly
impossible both domestically and internationally. In an October 1997
study for the Center for the Study of American Business, Frank Reuter
notes:
Even within a single nation, administering a tradable emission
permit policy would be difficult and expensive. It would involve
monitoring the emissions of greenhouse gases from all sources,
comparing the measured emissions with the amounts authorized for
individual sources by the permits that they possess after all trading
has been completed, and enforcing compliance with the terms of their
permits by sources that have discharged excess emissions. These tasks
would be exacting even if greenhouse gases were released only from
stationary sources.
``A substantial portion of CO2 emissions, however, is
discharged from mobile sources. The administrative feasibility and
cost-effectiveness of applying emission permits to mobile sources are
doubtful. More than 200 million motor vehicles are currently registered
in the United States alone. . . . ``Moreover, administering the
implementation of an emission permit policy would be even more
difficult if the permits were tradable internationally. Different
nations perceive different risks from prospective climate change, and
face different domestic issues that are competing for their scarce
resources and attention. . . .
``As a result, negotiating suitable inducements to achieve
universal participation in such a policy among a group of sovereign
nations and establishing adequate international sanctions to ensure
uniform compliance with the policy by all nations would be arduous
tasks. Obtaining full cooperation among developing nations would be
particularly daunting. Yet, such cooperation is essential to coherent
policy.''
Bottom line, the purchase of such tradable credits will raise costs
to businesses, consumers and the economy. Auctioning off such credits
assures that the ``cap and trade'' system carries the same costs as
straightforward taxes, with the same detrimental economic effects.
Smaller businesses would be at a distinct disadvantage under such a
scheme as bidding--perhaps international bidding--raised the price of
credits. Particularly perverse, such a system could have the effect of
protecting entrenched businesses by jacking up costs for smaller and
new enterprises. Indeed, many businesses would not come into existence
at all due to higher energy costs.
In addition, manufacturers exposed to international competition at
home and in foreign markets--which most are today--would suffer due to
lower energy costs in developing nations.
Estimating the Economic Costs. A wide range of studies show
tremendous losses in output and jobs resulting from the Global Warming
Treaty. For example:
WEFA (formerly Wharton Economic Forecasting Associates) analyzed
the potential economic impact of reducing U.S. carbon emissions to 1990
levels by 2010. They found the following:
Lost GDP, just in the year 2010, would equal $227 billion
(in 1992 dollars).
``On a per person or per household basis, the cost of
adopting the Administration's carbon abatement policy results in a real
GDP loss by 2010 of $838 per person and $2,061 per household.
Cumulatively, for the period 2001 to 2020, the loss of aggregate income
(real GDP) per household would average almost $30,000 (in 1996).''
Steep price increases would be felt by both consumers and
businesses. For example, consumer's would face price increases of 55
percent on home heating oil by 2010, and 79 percent by 2020; 50 percent
on natural gas by 2010, and 79 percent by 2020; 48 percent on
electricity by 2010, and 71 percent by 2020; 36 percent on motor
gasoline by 2010, and 65 percent by 2020 (translating in an additional
44 cents per gallon by 2010, and 65 cents by 2020).
Commercial establishments would see price hikes of 74
percent on distillate fuel oil by 2010, and 106 percent by 2020; 58
percent on natural gas by 2010, and 90 percent by 2020; and 52 percent
on electricity by 2010, and 77 percent by 2020.
Industrial facilities would witness price increases of
139 percent on residual fuel oil by 2010, and 200 percent by 2020; 91
percent on natural gas by 2010, and 132 percent by 2020; and 73 percent
on electricity by 2010, and 101 percent by 2020.
Trucking and rail would see a 42 percent increase in the
price of diesel by 2010, and 61 percent by 2020 (translating into 51
cents per gallon by 2010, and 76 cents by 2020).
A May 1998 report by CONSAD Research Corporation (``The Kyoto
Protocol: A Flawed Treaty Puts America at Risk'') estimated that the
Kyoto Protocol would devastate the U.S. economy. Specifically:
By 2010, employment losses would range between 1.6
million and 3.1 million. Lost output in 2010 would register between $
178 billion and $316 billion (in 1995 dollars).
The analysis estimates job and output losses by state and
region as well. For example, regionally, by 2010, New England could
lose up to 133,000 jobs and $12.5 billion in output (again, in 1995
dollars); the Mid-Atlantic states up to 400,000 jobs and $39.8 billion
in output; East North Central 524,000 jobs and $49.9 billion in output;
West North Central 184,000 jobs and $17.8 billion in output; South
Atlantic 533,000 and $45.4 billion in output; East South Central
180,000 jobs and $19 billion in output; West South Central 523,000 jobs
and $65.2 billion in output; Mountain 201,000 jobs and $20.8 billion in
output; Pacific Contiguous 522,000 jobs and $45.2 billion in output;
and Pacific Noncontiguous 24,000 lost jobs and $2.3 billion in lost
output.
Also, the study estimates lost jobs and output by
industry sectors. By 2010, manufacturing could see as many as 695,000
lost jobs and $137 billion in lost output; mining 260,000 jobs and
$47.6 billion in output; construction 117,000 jobs and $9.3 billion in
output; finance, insurance and real estate 180,000 jobs and $22.8
billion in output; trade 738,000 jobs and $47.9 billion in output;
services 1,118,000 jobs and $41.9 billion; and agriculture/forestry/
fishing services 30,000 jobs and $533 million in output. Also,
transportation and public utilities would be estimated to actually gain
11,000 jobs, but still lose $9.9 billion in output.
In March 1998, the American Petroleum Institute (API) released a
blunt and alarming report assessing the costs of reaching the Kyoto
Protocol goal of reducing U.S. ``greenhouse gas'' emissions to 7
percent below 1990 levels by 2008-2012. API senior economist Ronald A.
Sutherland notes in ``Achieving the Kyoto Protocol: An Analysis of
Policy Options,'' ``If the U.S. were to achieve this target by the year
2010, carbon emission would have to decline by 2.32 percent per year
from the year 2000, instead of increasing by 1.5 percent per year as in
the [Energy Information Administration's] Reference Case projection.''
The author shows that altering the carbon/energy ratio or the
development of new technologies will not come close to being enough to
reduce carbon emissions. Indeed, continued economic growth and capital
stock renewal will ensure that carbon levels continue rising.
The author notes only two avenues that will allow the U.S. to meet
its Kyoto Protocol goals: ``A decline in GDP of about 4 percent per
year would reduce the demand for energy and thereby carbon emissions
sufficient to achieve the Kyoto target. Alternatively, an increase in
the price of energy of about 12 percent per year for a 10-year period
also would achieve the Kyoto target.''
He concludes: ``Either of these changes would impose unacceptable
costs on the American economy.'' To say the least. According to these
estimates, in effect, an extended U.S. economic depression would be
necessary in order to meet Kyoto Protocol goals.
A DRI-McGraw Hill study by Dr. Lawrence Horowitz found the
following:
A $100 per ton carbon tax could lower emission levels
close to 1990 levels by 2010 and would cost the economy $203 billion
annually in lost output;
A $200 per ton carbon tax would be required to reduce
emissions below 1990 levels, and would cost the economy $350 billion in
lost products and services;
Annual job losses from 1995 to 2010 under a $100 per ton
carbon tax would hit 520,000, and would leap to 1.1 million annually
under a $200 per ton carbon tax;
Gasoline prices could jump by as much as 60 cents per
gallon, and electricity costs could increase by 50 percent, and home
heating oil by 50-100 percent.
Resources Data International Inc. (RDI) was retained last year by
Peabody Holding Company Inc., reportedly the world's largest private
coal producer, to study the economic impact of a new global warming
treaty. RDI estimated that a $100 per ton carbon tax imposed in order
to reduce CO2 emissions to 1990 levels would:
Limit the annual growth rate in the supply of electricity
between 1995 and 2015 to 0.83 percent from a projected 1.45 percent;
Place up to $ 1.314 trillion, or 14 percent of GDP, at
risk in 2010 and up to $16.823 trillion cumulatively from 2005 to 2015.
RDI estimates that any kind of CO2 trading program would
mimic the effects of a tax, with the Federal Government collecting at
least $133 billion annually.
As the Heritage Foundation notes in a recent report (``The Road to
Kyoto'' by Angela Antonelli, Brett D. Schaefer and Alex Annett, October
1997), the U.S. Department of Energy had the Argonne National
Laboratory perform a study on the Kyoto Protocol under consideration.
In February 1997, the study found that it would cause:
20 to 30 percent of the basic chemical industry to move
to developing countries within 15 or 20 years;
All primary aluminum smelters to close by 2010;
A 30 percent decline in the number of steel producers at
a cost of 100,000 jobs;
Domestic paper production to be displaced by imports;
A 20 percent reduction in the output of petroleum
refiners; and??
The closing of between 23 percent and 35 percent of the
cement industry, which is significant because many cement plants are
major employers in small communities.
However, as noted above, recent statements by the Chairwoman of the
White House's Council of Economic Advisers, Janet Yellen, claim a
``modest'' impact on the economy. J.T. Young, chief economist for the
Republican Policy Committee in the U.S. Senate, explained the woes of
Ms. Yellen's assertions in a recent Washington Times article (``Kyoto
Treaty's Ultimate Costs,'' May 11,1998):
``. . . hyperbolic assumptions allowed Mrs. Yellen to give the
lowest estimate of the Kyoto agreement's costs ever released [in March
4, 1998 congressional testimony]. 'Our overall assessment is that the
economic cost to the United States will be modest; an emissions price
in the range of $14 to $23 per ton of carbon equivalent. This
translates into an increase in gasoline prices of 3 to 4 percent (or
around 4 to 6 cents per gallon).'
``Strangely enough, the administration is known to have done three
recent studies of the economic costs arising from lowering greenhouse
gas emissions just to the 1990 level: the Interagency Analytical Team
(IAT) estimate done in June 1997; the Department of Energy (DOE)
estimate done by five of its laboratories (the Five lab Study) in
September 1997; and the estimate by the Energy Information
Administration (EIA) of DOE done in October 1997.
``All three studies were conducted by the administration within the
last year. In contrast to Mrs. Yellen's statement, all three provide a
detailed list of assumptions and calculations on which their estimates
are based. All three also assume less emissions reduction-only to 1990
levels, not 7 percent below it. Yet all three assume anywhere from
double (the Five lab Study) to nine times (EIA study) the cost cited by
Mrs. Yellen.''
Frederick H. Reuter notes in his study for the Center for the Study
of American Business (``Framing a Coherent Climate Change Policy,''
October 1997) that ``estimates from standard, multi-industry
econometric models indicate that stabilizing annual CO2
emissions at their 1990 levels by 2010 will reduce GDP by 0.2 to 0.7
percent and will decrease total employment by 900,000'' by 2005. In
addition, Reuter finds:
``Although the proposed economic incentive mechanisms would
encourage firms to undertake pertinent technological research and
development, they also would reduce firms' net revenues. The decline in
net revenues would diminish firms' ability to fund research,
development, and implementation of new technologies. Thus, on balance,
the economic incentive mechanisms may impede crucial technological
advancement instead of stimulating it.''
A 1997 study by Gary W. Yohe for the American Council for Capital
Formation found that reducing CO2 emissions to 1990 levels
by 2010 would:
cause a 1 percent cut in the nation's annual rate of GDP
growth rate;
cut real annual wages and income by 5 percent;
reduce fuel oil/coal consumption by 25 percent overall;
cut electricity consumption by 20 percent overall; and??
reduce vehicle purchases by 3 percent overall.
In a chapter in the 1997 book The Costs of Kyoto, edited by
Jonathan Adler and published by the Competitive Enterprise Institute,
W. David Montgomery offers a chapter based on a study by Charles River
Associates, which found that if emissions from OECD countries were to
be reduced to 1990 levels by 2010 and maintained at that level through
2030, then:
combined OECD GDP would decline by an estimated 2.8
percent in 2030;
U.S. GDP in 2030 would fall by better than 3 percent.
In a report for the Center for the Study of American Business,
Christopher Douglass and Murray Weidenbaum note the following possible
perverse effects from a global warming treaty that excludes developing
nations (``The Quiet Reversal of U.S. Global Climate Change Policy,''
November 1996):
``Whichever means of curtailing carbon emissions is used, limiting
emissions will degrade living standards. Moreover, if a carbon tax fell
solely on industrialized nations and not on developing nations, as is
currently the plan in every protocol before the Framework Convention,
total worldwide greenhouse gas emissions would be likely to rise, not
fall. If emission reduction standards become law in industrialized
nations, total consumption of carbon-emitting goods will fall.
Thus, the price of goods such as oil is likely to substantially
decline on the world market. However, the lower prices of these goods
would encourage poorer developing countries--with much less fuel
efficient technology--to increase their use of fossil fuels, resulting
in a net increase in greenhouse gas emissions.''
Douglass and Weidenbaum also note interesting results from another
study examining impact that economic growth has on carbon emissions:
``A study by Douglas Holtz-Eakin and Thomas Selden of Syracuse
University finds that the marginal propensity to emit carbon shrinks as
economies grow and develop. According to their report, if economies
continue to grow at their present rates, the annual emissions growth
will fall from its 1955-87 average of 3.2 percent a year to 1.8 percent
annually for the period 1990-2025. Thus, any efforts which limit
economic growth unwittingly slow down progress toward carbon emissions
reduction.''
The Coalition for Vehicle Choice has noted that various economic
studies on the impact of a global warming treaty predict price
increases at the gas pump of up to 60 cents per gallon. The Coalition
has noted:
``Annually, U.S. cars and light trucks are driven more than 2
trillion miles, getting an average of 17 miles per gallon. A 50-cent
hike in gas prices could therefore skyrocket the price of driving by
$66 billion. On an individual basis, every licensed driver in America
could face a $381 increase in the cost of driving.''
The Washington Times reported the following on October 4, 1997
regarding Administration plans for complying with a global warming
treaty:
``Administration documents show it is considering phased-in fees
ranging from $25 to $100 per ton of carbon in fuels such as coal, oil
and gas. The fees would raise gasoline prices by as much as 25 cents
per gallon and add hundreds of dollars a year to the average
homeowner's heating and electricity bills, analysts say.''
At a conference of financial analysts sponsored by the Edison
Electric Institute, Todd Myers, a senior consultant at Resources Data
International Inc., noted that U.S. electric utilities may be forced to
close some 58 coal-fired power plants due to more stringent Federal air
pollution standards (as reported by Reuters on May 15, 1998). If the
U.S. signs on to the Global Climate Treaty, compliance would force the
closure of even more plants. In such a case, Myers declared: ``You are
cutting 50 percent of coal-fired generation according to the Kyoto
accord.'' He warned that resulting cuts in coal-fired generation and
the boost in the demand for natural gas could add a 10 percent premium
on electricity prices by 2010.
In the November 3, 1997 Forbes (``Bill and Al's Global Warming
Circus'' by Ronald Bailey), the following chart provided a summary of
the major economic forecasts regarding a reduction in ``greenhouse
gas'' emissions.
Note that only one study out of the ten cited called for emission
levels to come in below 1990 levels, when in reality the Kyoto Protocol
calls for U.S. emission levels to be 7 percent below 1990 levels. Also,
each study may be optimistic in terms of the total amount emissions
need to be cut, as emissions may have to be reduced by as much as 40
percent below baseline levels. Therefore, these dismal scenarios for
the U.S. economy will become even more dire.
And make no mistake, all industry sectors and businesses--from
home-based businesses to the largest U.S. corporations--will be
adversely impacted.
For example, for argument sake, let's cut the prestigious WEFA
firm's estimates in half.
Under such a scenario, by 2010, home-based businesses will still be
confronted by a 27 percent increase in home heating oil costs, a 25
percent hike in natural gas, a 24 percent increase in electricity
costs, and a price hike of 22 cents at the gas pump.
As for commercial establishments, price hikes on distillate fuel
oil would register 37 percent, 29 percent for natural gas, and 26
percent on electricity.
Industrial facilities would be confronted by price increases of 70
percent on residual fuel oil, 46 percent on natural gas, and 37 percent
on electricity.
Trucking and rail firms would face a 21 percent increase in the
price of diesel (translating into 51 cents per gallon)--all half of
WEFA's estimates.
Absolutely no businesses will escape these costs and their economic
fallout; many will not survive; and countless will never come into
existence. Imagine the devastation, for example, wrought on truckers,
delivery companies and cab drivers due to higher diesel and gas prices;
bakeries, grocery stores, and delis due to higher electricity costs;
and small manufacturers due to across-the-board higher fuel costs. The
damage to the economy and devastating job losses should be obvious to
all.
However, no good reason exists to believe that WEFA's, estimates--
or any of the others above--need to be cut at all. In fact, the
American Petroleum Institute's projects that in order to reach Kyoto
Protocol emission goals would require either a decline in GDP of about
4 percent per year or an energy price hike of about 12 percent per year
for a 10-year period. These numbers are frightening and compelling.
Resulting Deaths. Of course, even more sobering than lost
businesses and jobs are the possibility of lost lives if officials
decide to boost CAFE standards. Again, Frances B. Smith explains:
``Most critically, climate change policies will have a lethal
effect on people. They will kill more people through raising the
Federal Corporate Average Fuel Economy (CAFE) mandate for cars from
27.5 mph to 45 mph--a proposal pushed by several environmental groups.
President Clinton recently one-upped this by promising to triple auto
fuel efficiency over the next few years.
``But the human cost of CAFE is already too high; CAFE causes
manufacturers to downsize cars in size and weight to meet the Federal
standard for their fleets, and smaller cars are much less safe than
large cars in crashes.
``According to a 1989 Harvard-Brookings study by Bob Crandall and
John Graham, the current CAFE standard causes nearly 2,000 to 4,000
additional traffic deaths per year. If the standard were raised to 40
mph, a 1992 study by Graham estimated, there would be an even greater
increase in highway deaths--resulting in a total of 3,800 to 5,800
fatalities each year. Each day, from 10 to 16 people would die
unnecessarily.''
In conclusion, I leave you with this thought offered by Cornell
University political scientist Jeremy Rabkin as quoted in the December
15, 1997 Wall Street Journal (``Shanghaied in Kyoto''): ``One way or
another, the climate control system means a global plan for reducing
energy consumption or, in other words, a scheme for rationing energy
use. If the world can have global governance to ration energy--the
lifeblood of modern economies--what might global governance not
attempt. Indeed.
The Kyoto Protocol choices are clear: devastate U.S. businesses,
consumers and the economy because of a dubious theory; or allow
entrepreneurs to flourish and innovate, create jobs, boost the economy,
and thereby aid, rather than hinder, environmental health.
Thank you for this opportunity to address the Kyoto Protocol, or
``Global Warming Treaty.'' I look forward to answering any of your
questions.
Senator Chafee. That would be helpful. Thank you.
Mr. Keating. One of the things I wanted to say is, there
are strong feelings on both sides of this issue right now. What
makes sense, I think, would be to have a greater exploration of
the science by the Senate, by Congress in general, as well as
the costs involved. We always have to remember that.
There has been talk by some folks about the opportunities
here. We'll have a trading system set up, and therefore, we
will be additional opportunities in the economy.
As an economist, I warn you about the opportunity costs for
those resources. Investors and other people in the marketplace
otherwise would be deciding where those resources would go to
ultimately please consumers rather than where regulators think
they should go.
So, I would say that all sides of this, the science and the
economics have to be explored in far greater detail before we
step forward on something of this magnitude.
Senator Chafee. Well, I am not so sure that we have to have
every detail in place before we get this legislation, which is
a voluntary piece of legislation, enacted. Also, I think it is
terribly important when we talk about costs involved in doing
something, that we also pay attention to costs involved if we
don't do something.
In this case if indeed polar ice caps are melting and
glaciers, if sea level is rising, then there are costs
involved, not only if we do nothing. To do something is better
than to do nothing.
Well, I want to thank you both very much for coming. We
appreciate it. This is a subject that we will spend more time
on and it is a subject, as I have indicated, is important to me
personally and many members of this committee. Thank you very
much.
[Whereupon, at 11:18 a.m., the committee adjourned, to
reconvene at the call of the Chair.]
[Additional statements submitted for the record follow:]
Statement of Eileen Claussen, Executive Director, The Pew Center on
Global Climate Change
Mr. Chairman, Senator Baucus, and members of the Committee, thank
you for your invitation to testify this morning on voluntary efforts to
reduce greenhouse gas emissions. The Pew Center on Global Climate
Change was founded in the belief that our generation's challenge will
be to address global climate change while sustaining a growing global
economy. To ensure that future generations enjoy a healthy environment
and sound economy, it is imperative that we address the issue of
climate change. And there is no better place for us to begin than with
early action to reduce greenhouse gas emissions.
Mr. Chairman, throughout your career, you have been at the
forefront of the movement to protect and enhance our nation's
environment and natural resources. Your recent decision to retire from
the Senate at the end of your current term represents a profound loss
to the Senate and to our country. It will also be a profound loss in
the field of climate change where leadership will be vitally needed,
and where your vision and pragmatism will be sorely missed.
I am the Executive Director of the Pew Center on Global Climate
Change, an organization founded by the Pew Charitable Trusts to work
constructively on the climate change issue and to put forward
meaningful and credible information and analyses to help us forge a
consensus for action. The Pew Center and its Business Environmental
Leadership Council were established in May 1998. While Council members
serve as active participants and advisors to the Pew Center, we do not
accept financial contributions from these or any other corporations. We
formed the Business Environmental Leadership Council because we believe
that the business community is ready and willing to provide the impetus
to move forward on the issue of climate change. The Council consists of
over 20 of the nation's and world's largest corporations. Together, the
annual revenues of these companies total more than $550 billion
dollars. Total employment for the companies is well over 1 1/2 million
people.
The Pew Center and its Business Council accept the views of most
scientists that enough is known about the science and environmental
impacts of climate change for us to begin to take actions to address
the problem. We recognize that the concentration of greenhouse gases is
steadily increasing, and that these gases will remain in our atmosphere
for many years--in some cases, for thousands of years. The current
scientific consensus indicates that greenhouse gases generated by human
activities could increase the temperature of the earth's atmosphere by
1.8 to 6 degrees Fahrenheit over the next 100 years with potentially
serious impacts on the global environment.
Concern over changes occurring to the earth's climate led to United
States' ratification of the Rio Framework Convention on Climate Change
in 1992. This Convention calls upon our nation to voluntarily reduce
our emissions of greenhouse gases to 1990 levels by the year 2000. We
will not come close to meeting our obligations under the Rio
Convention, nor will many of the other industrialized nations who
accepted the same voluntary target. And while we debate the reasons for
our failure to meet our Rio obligations, our emissions continue to
increase, and the global concentrations of greenhouse gases continue on
their inexorable upward path.
For this reason, we do not believe that action on climate change
should be delayed until we are satisfied with the progress that has
been made on this issue internationally. Instead, we believe that
companies can and should take concrete steps now in the U.S. and abroad
to assess their opportunities for emission reductions and establish and
meet emission reduction objectives.
The companies of the Pew Business Environmental Leadership Council
support the view that they should act now, not later. Perhaps some
examples of current company efforts would be instructive. BP Amoco, for
example, has established a target to reduce its greenhouse gas
emissions by 10 percent from a 1990 baseline by 2010. These reductions
will be measured using established protocols and will be verified by
external observers. BP Amoco has also created a pilot project for
internal emissions trading. This allows individual business units to
find the lowest cost way of meeting the companywide target. At this
stage, 12 business units are involved in this internal trading program,
and five trades have occurred. The program will expand to include all
the activities of BP Amoco over the next 18 months.
Another of our companies, American Electric Power (AEP), has
implemented Climate Challenge programs that fall into four main
categories: improvements in the efficiency of generating and delivering
electricity; increasing the use and output of its nonfossil fuel
plants; establishing energy conservation programs at AEP facilities and
for its customers; and sequestering carbon in forests. The total
cumulative effect of these actions will be the avoidance of
approximately 10 million tons of carbon dioxide that would otherwise
have been emitted into the atmosphere.
In one of the more innovative programs designed to reduce carbon
emissions, AEP joined with BP Amoco, The Nature Conservancy, PacifiCorp
and the Bolivian Friends of Nature Foundation to establish the Noel
Kempff Mercado Climate Action Project in December 1996. The primary
goal of this project is to preserve threatened tropical forests in the
Province of Santa Cruz, Bolivia, thereby protecting its rich biological
diversity and reducing releases of carbon dioxide into the atmosphere.
The Noel Kempff Mercado Climate Action Project was approved by the US
Initiative on Joint Implementation in December 1996.
Other ambitious examples from Business Council companies include
the program of United Technologies which will, by 2007, reduce its
energy and water consumption per dollar of sales by 25 percent below
1997 levels, with approximately the same reduction in emissions that
cause climate change. This program is global in scope, covering 229
facilities in 36 countries, including 96 in the U.S. DuPont will, by
2000, cut its annual global greenhouse gas emissions by about 45
percent below 1991 levels. Shell International aims to reduce
greenhouse gas emissions by 10 percent below 1990 levels by 2002. Since
1990 Baxter International has reduced the global warming impact of its
emissions by 81 percent. Baxter also has a goal to improve their energy
efficiency 10 percent per unit of production by the year 2005, based on
1996 levels of production. In 1995, Entergy committed to eliminating
over four million tons of carbon dioxide emissions per year through
2000.
Regardless of the outcome of negotiations on an international
climate change agreement, the members of the Business Council will
continue to move forward, because they believe that this is a serious
issue that demands a serious response. These programs will include
internal audits of their emissions, the establishment of baselines, and
the implementation of programs to reduce their greenhouse gas
emissions.
The Pew Center recognizes that the nations of the world unanimously
adopted the Kyoto Protocol and that this Protocol has already been
signed by 84 countries. We believe that this Protocol represents a
first step. But we also believe that more must be done to fully design
and implement the market-based mechanisms that were adopted in
principle in the Protocol. Further, the present Protocol does not
ensure the participation of many important countries, and this omission
must be remedied if we are to meet our environmental and economic
objectives. However, we do not know when this will occur.
But we do expect that at some point in the future, the United
States will ratify a climate change treaty that includes a binding
commitment to reduce emissions of greenhouse gases. And while our
companies are already taking voluntary actions to reduce their
emissions, they also want to ensure that they will receive credit for
these actions under any future climate change treaty, particularly
since many of these actions are and were undertaken at the request of
the U.S. Government to fulfill the goal of the Framework Convention on
Climate Change.
But the issue is not primarily one of getting credit or providing
incentives to act early. The key issue is one of eliminating
disincentives: voluntary action, in the absence of credit, can work to
the disadvantage of companies who act early to reduce their emissions.
It is clearly not in our interest for companies that do the right thing
by voluntarily attempting to slow the rate of greenhouse gases entering
our atmosphere to be penalized and economically harmed for their
efforts.
How could this happen? It is because companies typically delay the
most expensive steps until the most cost effective options have been
undertaken. Consider the following scenario. One company acts early,
and begins by first making the most cost effective reductions. Its
competitor does nothing, and continues to emit greenhouse gases. After
a number of years, a binding treaty is ratified by the United States.
Both companies are now asked to make the same level of reductions.
However, if the company who acted early has not received credit for its
reductions, its emissions baseline will be set at its new lower level,
and it will be required to make additional and more costly
expenditures. The competitor, who did nothing, can now meet its
emissions target with lower cost reductions, resulting in a competitive
advantage. The company who acted early is penalized. And for that
reason, many companies may choose not to act early and voluntarily.
Without credit for early action, there is a disincentive to act before
rules are in place. Thus credit for early action is not just an issue
of providing incentives for early emission reductions. It also removes
the disincentives that penalize companies that recognize and work to
ameliorate the threat that greenhouse gases pose to our atmosphere.
Solving this problem requires leadership from Congress. An analysis
undertaken by the Pew Center and published in October 1998 finds that
Federal agencies do not have sufficient legal authority to provide the
certainty that firms need to make significant early investments.
Congress must provide the legislative framework to remove the
disincentives to early action. Such a legislative framework would also
demonstrate that the United States takes its commitments under the
Framework Convention seriously, and that we, as the Nation with the
world's highest emissions, are committed to addressing the problem of
climate change.
While the Center does not take a position on the merits of any
particular bill, we believe there are a number of issues that must be
addressed in such a legislative framework. We would like to stress the
following:
Credits should only be provided for actions that are real
and verifiable. Verifiability means that reductions must be measured
and monitored using standardized measurement techniques. Any system
that is adopted should reward virtuous actors--not those who engage in
sham or paper reductions, or who ``game'' and manipulate the system.
Paper reductions could occur if companies are allowed to count the same
reduction twice, or to report a reduction at one facility, while
transferring the production--and the emissions--to another facility.
There can be no effective credit for early action program if we are not
committed to establishing a robust and rigorous monitoring and
verification effort.
The program should be simple and flexible. Participation
in a system of credit for early action would be voluntary, but it is in
our collective interest to be inclusive, so that many businesses are
encouraged to mitigate and reduce their emissions. Companies in sectors
that are experiencing high growth must be accommodated as must those
who produce products, be they autos or appliances, that use significant
quantities of energy. We must also keep transaction costs to a minimum,
so that the costs of participation do not exceed the benefits to the
participants.
The legislative framework should not prejudge the future
national implementation scheme. We are not at a point now where we can
predict the design of the program that will be implemented in the
United States to meet a future international obligation. Any system for
credit for early voluntary action should therefore be designed to
operate within the framework of any likely domestic regulatory or tax
program that might be fashioned to control domestic greenhouse gas
emissions. It should also be accompanied by, and integrated into, a set
of policies that stimulate early action, including fiscal policies and
funding for research and development.
Domestic action should be the primary emphasis, but
verifiable international projects should be included. The framework
should focus primarily on domestic early action, but should also
consider provisions related to international actions that comply with
accepted international standards. International projects may earn
credits for reductions achieved after the year 2000 under the Clean
Development Mechanism. These should clearly be incorporated into any
early action crediting framework. The small number of projects already
accepted into the U.S. Initiative on Joint Implementation that achieved
reductions prior to 2000, and meet rigorous standards for verification
and monitoring, should also be recognized.
The legislative framework should not over-mortgage the
U.S. greenhouse gas allocation. The Kyoto Protocol, in its current
form, does not contain any incentives to act early. As long as this
remains a feature of a future international control regime, credits
allocated for early domestic reductions will have to come out of any
U.S. allocation granted under a treaty. Therefore, careful
consideration needs to be given to the impact of an early credit
program on the availability of credits to those who choose not to
participate in the early action initiative. Allocating too many credits
too early could significantly increase the difficulty of complying with
a regulatory regime. On the other hand, removing the disincentives for
early action is the objective of an early action program. The design of
the program should balance these two objectives, perhaps through the
establishment of reasonable baselines.
The Pew Center and its Business Environmental Leadership Council
believe climate change is serious business, and that early action is
smart business. Our effort is founded on the belief that enough is
known about the science and environmental impacts of climate change for
us to take action now to address its consequences. Awarding credit for
early action is an important first step in what we believe will be a
long and intense effort.
__________
Statement of Dale A. Landgren, Assistant Vice President of Business
Planning, Wisconsin Electric Power Company
Mr. Chairman and Members of the Committee: Good morning. My name is
Dale Landgren. I am Assistant Vice President of Business Planning for
Wisconsin Electric Power Company. I appreciate the opportunity to
appear before you today to express Wisconsin Electric's support for the
concept of credit for early and voluntary greenhouse gas reduction
actions, and to encourage Congress to enact legislation that
establishes a program to provide credit to companies that undertake
voluntary actions to reduce greenhouse gas emissions.
Wisconsin Electric, a subsidiary of Wisconsin Energy Corporation,
is headquartered in Milwaukee. Wisconsin Electric provides electricity,
natural gas and/or steam service to approximately 2.3 million people in
a 12,000 square mile service area which includes southeastern Wisconsin
(including the Milwaukee area), the Appleton area, the Prairie du Chien
area, and in northeastern Wisconsin and Michigan's Upper Peninsula. Our
electric energy mix is 67 percent coal, 24 percent nuclear, 2 percent
renewable including hydro, 1 percent natural gas/oil and 6 percent
purchased power.
Mr. Chairman, let me commend you for your leadership on this issue,
and for holding this hearing and beginning a dialog. As I stated
earlier, I am here today to express my company's support for the
concept of credit for early action. We do not believe this support
binds us to support the Kyoto Protocol or any other greenhouse gas
action. We view a credit for early action program simply as an
insurance policy in the event that a domestic or international program
to reduce greenhouse gas emissions is implemented. Congress should view
the credit for early action concept in the same way . . . as an
insurance policy where there is zero cost for the premium.
Wisconsin Electric is a strong proponent of options and flexibility
based on business strategies--rather than political strategies--to
address the global climate change issue in the context of modernizing
the energy industry.
Clearly there are strong positions on both sides of the climate
change debate. Finding common ground on the issues and reaching
consensus on a policy solution will be a very difficult task, at best.
Wisconsin Electric could enter the debate on whether or not the climate
is changing and what should be done. But, instead of focusing on
reasons why we should oppose the Kyoto Protocol or a possible climate
change mandate, Wisconsin Electric is trying to find ways that we can
prosper from any climate change policy. While we are not advocating
such a policy, based on a number of issues including the environmental
regulation trend and the public perception on the climate change issue,
we do believe there will be a future mandate to reduce greenhouse
gases. I don't wish to debate this point; I am simply stating my
company's belief. As a result of this belief, we are acting now to
position ourselves to prosper in the future. We are undertaking
voluntary greenhouse gas reduction measures for the following reasons:
Experience--We are experimenting now to determine what
works and what doesn't. Acting now gives us invaluable experience for
the future.
Customers--We are responding to our customers' desire to
be an environmentally sound company. Their interest in a clean
environment and their willingness to personally get involved is
evidenced by our successful green pricing program.
Trading--We have had a very successful experience as a
trader of sulfur dioxide credits and believe we can be as successful
and prosperous under a future trading regime for greenhouse gases.
Profit--We are working now to determine how to be profitable in the
future if greenhouse gas emissions reductions are required. Corporate
Citizenship--Wisconsin Electric pledges environmental accountability
and includes environmental factors as an integral part of our planning
and operating decisions.
Wisconsin Electric has a longstanding commitment to the environment
as part of our business strategy. Despite the scientific uncertainty
surrounding the climate change issue, we believe it is appropriate to
start moving toward stabilization, then reduction of greenhouse gases.
At a minimum, we should explore and expand low- and no-cost strategies
to reduce, avoid or sequester greenhouse gas emissions. We believe it
is important to develop reasonable solutions to address the climate
change issue in the context of modernizing the energy industry. Thus,
we are working to develop strategies that integrate environmental,
economic and energy goals, and assure that the energy industry has as
many options as possible--including non-emitting nuclear power--to meet
any potential greenhouse gas reduction goals.
Currently, there is no legal framework regarding the treatment of
early greenhouse gas reductions or credit for these early actions. This
uncertainty is inhibiting companies from investing in greenhouse gas
reduction activities and projects. Wisconsin Electric supports
establishment of a program that guarantees credit that can be applied
against a future requirement . . . should there be one. Appropriate
credit for these early actions is necessary to account for the
investments that have already been made. Disallowing these credits puts
the ``good actors'' at an economic disadvantage in attempting to meet
any future potential greenhouse gas limits since the next tier of
options is more costly than options available to companies that choose
to wait for mandates. In addition, impending competition in the
electric utility industry increases the importance of making sound
strategic investment decisions now.
Wisconsin Electric is an active participant in ongoing efforts to
address the climate change issue. Through our efforts, we lead by
example, proactively implementing greenhouse gas reduction strategies
through a variety of programs such as carbon sequestration and coal-to-
gas repowering projects, a successful green pricing program and
participation in the Climate Challenge program. Wisconsin Electric has
undertaken and continues to pursue voluntary efforts to reduce
greenhouse gas emissions. We should be given credit for these actions
and not be penalized for our good deeds in any subsequent climate
program.
A brief summary of our voluntary efforts to reduce greenhouse gas
emissions follows.
Joint Implementation (JI) Projects
Wisconsin Electric is a partner in two projects approved by the
United States Initiative on Joint Implementation (USIJI). The USIJI
encourages U.S. private-sector investment and innovation in developing
and disseminating technologies and procedures to reduce or sequester
greenhouse gas emissions; promotes cost-effective projects that
encourage technology cooperation and sustainable development projects
in developing countries and emerging economies; and promotes a broad
range of projects to test and evaluate methodologies for measuring,
tracking and verifying costs and benefits of JI projects. The JI
concept was introduced in 1992 during the negotiations leading up to
the Rio Earth Summit.
Joint implementation projects involve a collaborative effort
between entities from two or more countries to mitigate greenhouse gas
emissions. This approach enables these entities to achieve greenhouse
gas reductions at a lower cost than would otherwise be possible. JI
projects can take the form of emission reduction efforts (e.g., energy
efficiency or renewable energy) or can involve protection and
enhancement of greenhouse gas sinks (e.g., forests, grass lands, or
coral reefs).
Wisconsin Electric has supported the JI concept since its
introduction. In 1994, we submitted two proposals in the first round of
the USIJI solicitation. Of the 30 proposals submitted, both of our
projects were among the seven approved. Our projects demonstrate the
two types of greenhouse gas mitigation strategies I previously
discussed:
Decin Project--The Decin Project is an energy efficiency/emission
reduction project that involves the replacement of inefficient, highly
polluting district heating boilers at the Bynov District Heating Plant
with high efficiency, natural gas-fired internal combustion engines. An
important strategy in reducing greenhouse gas emission in the face of
growing demand for energy is to produce and use energy as efficiently
as possible.
The Decin Project is a partnership with the City of Decin in the
Czech Republic, Wisconsin Electric and two other U.S. energy companies.
Development of the project was coordinated by the Center for Clean Air
Policy. Each energy company partner provided to the City of Decin an
interest-free loan, which enabled the City to secure the additional
required financing from sources within the Czech Republic.
The project was developed in response to the local need for air
quality improvement coupled with the global goal of reducing greenhouse
gas emissions. Through the energy efficiency improvements and the
switch to natural gas, carbon dioxide emissions are reduced by about
8,000 metric tons annually, along with reductions in nitrogen oxides,
sulfur dioxide, particulates and ozone emissions, and reductions in
energy consumption of over 30 percent.
The Decin Project is a first-of-its-kind joint implementation pilot
project, which serves as a model for other efforts. The project has
encouraged the Czech government to become increasingly involved in
domestic and international global climate issues. And while the City of
Decin was keenly interested in improving local air quality and reducing
air emissions, it was only through development of this project that
they learned of the opportunity to achieve these goals through focusing
on greenhouse gas emissions. Bynov plant operators use state-of-the-art
equipment and provide educational opportunities and experience for
other communities interested in improving air quality. It also
demonstrates the ability of voluntary partnerships in market-based
initiatives to accomplish environmental goals cost-effectively.
Rio Bravo Project--The Rio Bravo Project is a carbon sequestration
project that consists of two components: the purchase and protection of
endangered tropical forests in Belize, Central America; and development
and implementation of a sustainable forestry management program that
will increase the total pool of sequestered carbon in a 120,000 acre
area. The size of the original project has been more than doubled due
to the recent acquisition of an additional parcel of contiguous land.
Wisconsin Electric played a significant role in accomplishing this
expansion.
The Rio Bravo Carbon Sequestration Project is a partnership with
Programme for Belize (PfB), The Nature Conservancy, Wisconsin Electric,
and several other energy companies. Development of the project was
coordinated by Wisconsin Electric.
The forest land purchased as part of the project was threatened by
imminent conversion to intensive agricultural land. By retaining the
parcel in its native forest cover and combining its acreage with
adjoining forested lands, an area large enough to implement a
sustainable forestry program has been created. Retaining the forest
cover and natural habitat it provides also satisfies the need to
conserve the region's biodiversity.
The Rio Bravo project will realize carbon benefits over 40-plus
years of 2.4 million tons of carbon. Through its management and
preservation aspects, the project has many direct and indirect benefits
to the people and natural resources of Belize.
Although some have suggested that forestry initiatives be
discounted as a climate change mitigation strategy, our efforts in Rio
Bravo prove that measurable and verifiable results can be demonstrated
and documented.
We believe that all types of JI projects--including energy
efficiency, carbon sequestration and renewable energy--should receive
full credit, including credit for early actions.
While we are aware that there are new opportunities for investments
and participation in joint implementation projects, the lack of
certainty over credit for early action causes us some reluctance to
pursue these opportunities.
``Energy for Tomorrow'' Renewable Energy Program
Green pricing of electricity is a concept that allows individual
consumers to vote on the environment with their purchase of
electricity. With approximately 8,500 green pricing subscribers,
Wisconsin Electric's ``Energy for Tomorrow'' renewable energy program
is the largest and most successful of its kind in this country. Since
its inception, the program has offset CO2 emissions by over
40,000 tons.
The program was launched in 1996 in response to increased customer
interest in reducing dependence on fossil fuels like coal and natural
gas and a growing public awareness of the benefits of using renewable
resources to generate electricity. This voluntary program allows our
customers to personally and positively impact the environment by
electing to purchase electricity generated from renewable resources.
Power for the Energy for Tomorrow program comes from a combination of
biomass and hydroelectric facilities. This year we are building two
utility scale wind turbines that will be on line by the end of June,
and we are evaluating opportunities for additional sources of renewable
based generation.
One aim of the Energy for Tomorrow program is to help expand the
market for renewables, which will prompt more investment and
technological developments that will further decrease the costs.
Climate Challenge Program
As a participant in the U.S. Department of Energy's (DOE) voluntary
Climate Challenge Program, Wisconsin Electric has successfully
implemented a wide range of climate change initiatives. The Climate
Challenge program, established in 1994,is a joint, voluntary
partnership of the electric utility industry and the DOE to reduce,
avoid or sequester greenhouse gas emissions. The Climate Challenge
Program is the world's most successful voluntary greenhouse gas
reduction initiative.
As one of the original 30 electric utilities that signed a Climate
Challenge Participation Accord with DOE in 1995, Wisconsin Electric
agreed to cut annual greenhouse gas emissions by 16 percent from what
would occur absent these actions. We will achieve a cumulative total of
10-14 million tons of voluntary reductions between 1995 and 2000.
Our commitment calls for using a broad array of approaches to
reduce greenhouse gases, including innovative energy efficiency
measures, beneficial ash use, carbon sequestration and alternative
fuels. In addition to the initiatives I have already described, a few
examples of our projects and actions include:
Providing demand-side management (DSM)programs to assist
customers in using electrical and natural gas energy more efficiently.
Improving energy efficiency at all fossil fuel power
plants, maintaining hydroelectric operations and improving output and
net capacity at our Point Beach Nuclear Plant.
Developing or supporting cost-effective waste-to-energy
projects through such activities as purchasing electricity generated
from landfill gas. Maximizing utilization of our fly ash by actively
seeking opportunities to market ash for use in other products primarily
within the construction industry.
Providing assistance in the conversion of motor vehicles
to dual fuel (Compressed Natural Gas/gasoline) capability. Reducing
transmission and distribution system line losses by such actions as
upgrading low voltage lines to higher voltages and improving operating
equipment.
We are well-positioned to meet our Climate Challenge Participation
Accord commitments, and have implemented many promising approaches for
carbon dioxide reductions and mitigation that can be replicated across
industry sectors and across international borders.
Credit for Early Action--Basic Principles
Following the Rio Earth Summit in 1992, Wisconsin Electric
anticipated proposals for greenhouse gas limits and began investing in
voluntary greenhouse gas reduction programs.
Providing credit for these early actions is appropriate and
necessary to account for the investments that have already been made.
As I mentioned earlier, Wisconsin Electric supports the concept of
credit for early actions in the event that a domestic or international
program to reduce greenhouse gas emissions is implemented.
Wisconsin Electric believes that any program to provide credit for
early action should include the following:
Credit to companies that made commitments under the voluntary
Climate Challenge Program and under the United States Initiative on
Joint Implementation program. A certification process that provides
clear and consistent standards for determining early reduction credits;
such standards should prohibit double counting of emissions reductions
(crediting of the same emission reduction to multiple parties).
Allowance for the use of third party verification firms, at a company's
option, to certify reductions. Provisions that address displacement of
emissions (a.k.a. ``leakage'') as a necessary component to ensure the
integrity of the program.
A simple mechanism to account for changes of ownership,
and provisions that establish baselines for new sources that want to
participate in the credit for early action program. Annual accounting
for credits earned to better facilitate the formation of a viable
market for emission reductions.
Conclusion
As I stated earlier, Wisconsin Electric believes it is appropriate
to start moving toward stabilization, then reduction of greenhouse
gases. We have undertaken and continue to pursue opportunities to
voluntarily reduce greenhouse gas emissions through low- and no-cost
strategies. We believe this is the right thing to do. However, the lack
of assurance that credit will be provided for our voluntary actions to
reduce greenhouse gas emissions causes us to be reluctant to pursue
additional reduction activities.
Wisconsin Electric believes that if a program to reduce greenhouse
gas emissions is implemented either nationally or internationally, then
we should not be penalized for the early, voluntary actions that we
have undertaken. Congress should enact legislation to establish a
credit for early and voluntary greenhouse gas reduction program to
provide the assurance we need in the event that a greenhouse gas
mitigation program is implemented.
Mr. Chairman, thank you again for the opportunity to appear before
you today.
__________
Statement of Richard L. Sandor, Chairman and Chief Executive Officer,
Environmental Financial Products LLC
Mr. Chairman, thank you for inviting our participation in today's
hearing. Our company, Environmental Financial Products, is a small
business dedicated to designing, launching and trading new market
mechanisms. We have had some success with new financial and
agricultural markets, and over the past 10 years we have had the
privilege of helping the U.S. sulfur dioxide allowance market take root
and succeed.
While a serving as a director of the Chicago Board of Trade, I
encouraged the exchange to support the SO2 emission
allowance market. The EPA ultimately selected the CBOT to administer
its annual allowance auctions. The results of the seventh auction were
announced today in Chicago today. The success of that program truly
represents a milestone in environmental and financial history. It gave
us faster-than-required pollution cuts at far lower cost than
predicted. This success has been realized despite the predictions of
the naysayers. We were told the sulfur program would never work. We
heard: ``. . . it's too complicated, it will cost too much, its too
hard to measure, utilities don't know how to trade, where will the
price data come from?'' Despite this huge success, those of us who
believe we can harness a market to protect against global climate
change are now hearing the same protests. People have not learned the
lesson: never sell short America's entrepreneurial ingenuity.
The success of emissions trading is further proof that the private
sector brings forth enormous creativity in solving social problems if
we introduce a profit motive and a price signal. The Credit for
Voluntary Early Actions bill offers just the sort of signal that will
unleash the creativity and innovation needed to prevent, at low cost,
the economic damage that sudden climate changes threaten to bring.
In anticipation of opportunities to export credits for greenhouse
gas cuts, we have been working with a wide range of businesses, most of
them small ones, that are eager to act for the good for the environment
while doing well for themselves. We work with farmers and foresters,
with entrepreneurs who collect landfill and coalbed methane to produce
electricity, and with large electric power companies. All these
businesses are prepared to cut and capture even more greenhouse gas
emissions if we give them a signal. These businesses are ready to take
action, and they view the emerging international carbon credit market
as a new business line. It is not just the producers of carbon credits
who will gain. We will see a wide range of new opportunities for small
businesses in the fields of new energy efficiency technologies, remote
sensing, carbon certification, soil testing, project finance and
trading. Credit for Voluntary Early Actions is the positive signal
needed to unleash this new economic sector.
By getting us moving sooner, we can further cut the cost of the
global climate insurance policy that the public wants. My company's
high-end estimate of the cost of cutting net GHG emissions 7 percent
below 1990 yield a cost to the U.S. comparable to raising gasoline
prices by a nickel per gallon. If we implement the proposed
legislation, we will stimulate early action and innovation, which will
help us realize the even lower costs that we believe a trading system
will produce.
Of course, these low costs do not take into account the wide range
of additional environmental benefits that emerge from cutting and
capturing greenhouse gases. We are likely to also realize improved air
quality in our cities, making it easier for children with asthma to
enjoy the outdoor activities most of us take for granted. Expanding our
forests will give more families a chance to enjoy hunting and hiking.
Fishermen win because no-till farming and capturing carbon through
grass and tree plantings will improve water quality in our rivers and
lakes. The benefits that hunters, hikers and fishermen bring to small
businesses in our rural economies are enormous.Mr. Chairman, thank you
again. We encourage the Committee to contribute to a safer future for
the planet and cleaner future for our country by moving this bill
forward.
______
Creating a Market for Carbon Emissions: Opportunities for U.S. Farmers
(By Richard L. Sandor and Jerry R. Skees)
Reducing greenhouse gases has become a major international
objective. While the international community debates the Kyoto
protocol, a number of countries have already announced that they will
reduce greenhouse gases. The November 1998 Buenos Aires meeting on the
Kyoto Protocol helped advance the trading approach as one means for
reducing greenhouse gases. Since carbon dioxide is a major greenhouse
gas, creating a market for carbon emissions is under consideration.
Should such a market evolve, U.S. farmers could be big winners.
Even though some in the scientific community do not believe carbon
emissions contribute to global warming,
eryone agrees carbon emissions are increasing rapidly. Since it is
possible that carbon emissions increase the likelihood of significant
climate change, a market should be at the top of the list of policy
options to cost-effectively manage emissions. In effect, a carbon
trading system may be cheap insurance against potentially large
societal problems.
Sulfur Emissions Trading Paves the Way
Emission allowance trading is a straightforward concept that is
already operational on a national scale. The U.S. sulfur dioxide
emissions market provides a good example. Congress placed an overall
restriction on power plant emissions nationwide, effectively allowing
power plants to comply by either 1) investing in cleaner fuels or
pollution control technologies or 2) buying extra emissions rights from
another power plant that made extraordinary emission cuts. Buying
excess rights from a more efficient power plant allows the older and
less efficient plant to meet its obligations at lower cost to
consumers. In short, trading emissions permits allows industry to meet
emissions goals in a least cost way.
Title IV of the 1990 Clean Air Act Amendments cleared the way for
trading sulfur emissions among 110 power plants. During the debate on
this legislation, experts estimated that these emission rights would
command a very high premium. Some initial estimates ran as high as
$1500 per ton. Hahn and May report several pre-1992 estimates of
forecasted per ton prices for sulfur emission allowances, ranging from
$309 (Resource Data International) to $981 (United Mine Workers). In
1998, the Chicago Board of Trade (CBOT) auctioned off a large number of
allowances at an average price of $115. Carlson et. al. argue that many
factors, in addition to trading of emissions rights, created low prices
of sulfur emission allowances: improved technologies for burning low
sulfur coal, improvements in electrical generating efficiency, and
lower fuel costs.
Evaluations of the sulfur emissions trading program suggest that it
has been a success. By 1998 actual sulfur emissions averaged 30 percent
below the allowable level. There has also been steady growth in the
interutility trading of allowances from 700,000 tons in 1995 to 2.8
million in 1997. The full effects of the trading have not been realized
as the market is still adjusting to this new innovation. Carlson et.
al. estimate that this innovation will save $784 million annually
beginning in the year 2000. Further, they estimate the net cost of the
cap and trade system is 43 percent of the estimated costs under a
command and control system.
The Potential of Carbon Trades for U.S. Agriculture
If a market evolves for greenhouse gas emissions, those who are now
contributing to carbon emissions may be willing to pay others to
sequester carbon (remove it from the atmosphere) as a permanent offset
to emissions, or as a means of buying time to invest in technologies
needed to reduce emissions. When sequestering carbon costs less than
reducing carbon emissions, the carbon market would provide a more
efficient solution. Firms would likely use a combination of reductions
in emissions and offsets with carbon trades.
A market would also motivate technological improvements to both
sequester carbon and reduce emissions. For example, if prices signal
farmers to sequester additional carbon, the market would respond with
new technologies. Price incentives would encourage bioengineering
plants that more efficiently and effectively sequester carbon. Most
soil organic carbon is in the upper meter of soil. Could plants with
deeper roots sequester more carbon to deeper levels?
The agricultural sector provides a number of effective alternatives
for sequestering carbon. Forests and cropland offer the most promise. A
large number of solutions will be needed to offset the increase in
carbon emissions, and a market offers the best way to orchestrate them.
Agronomists (Lal et. al) estimate the overall potential for carbon
sequestration using U.S. cropland at 120-270 million metric tons of
carbon per year (MMTC/yr). Around 100 MMTC/yr would come from increased
use of Best Management Practices (BMPs). The remainder comes largely
from acreage conversion and biofuels. Worldwide carbon emissions are
growing by about 3,000 MMTC/yr. The U.S. emissions target under the
Kyoto protocol is roughly 600 MMTC/yr below the level projected by 2010
under current trends. Thus, U.S. cropland could be used to reduce the
projected annual world increase in carbon by about 7 percent, or about
30 percent of the U.S. share under the Kyoto protocol.
Most soils have a capacity for sequestering additional carbon.
Tilling the soil, however, releases carbon into the atmosphere. Lal et
al. report that Corn Belt soils likely have about 61 percent of the
carbon that was present in 1907. Minimum and no-till systems can
sequester more carbon. In 1997, about 37 percent of the arable land in
the U.S. was under conservation tillage. Lal et. al estimate that using
more BMPs (primarily reduced and minimum tillage systems) could
sequester 5000 MMTC in cropland soils over the next 50 years. That
converts to 100 MMTC/yr via wider use of BMPs, while other options
offer the possibility of up to an additional 100 MMTC/yr.
Estimates of the value of carbon emissions allowances range from
$15 per ton (Council of Economic Advisers)
$348 per ton (Energy Information Administration). Based on early
market signals, Environmental Financial Products is using market values
between $20 and $30 per ton of carbon. Without a market to trade carbon
emissions, the lower prices (and the lower mitigation cost to society)
will not be possible.
Using the low-end estimates of $20 to $30 per ton, paying farmers
to sequester 200 MMTC/yr could add $4 to $6 billion of gross income to
the farm economy--and possibly up to 10 percent of typical net farm
income. The market for carbon could be a major supplement to the
Conservation Reserve Program and, if managed properly, opportunities in
the international carbon market could soften farm income cycles by
taking land out of crop production and putting it into conservation
uses when relative prices favor carbon sequestering over food
production.
BMP's increase the agronomic productivity of U.S. cropland, reduce
soil erosion, and improve water quality and wildlife habitat. Thus,
BMP's help both the global and local environments. The local benefits
are consistent with the goals of the much discussed 'green support
payments' (Lynch and Smith). However, rather than using taxpayer
dollars, this green support payment could evolve in a marketplace with
more diligent monitoring and enforcement. Paying farmers to sequester
carbon will heighten the stakes for verification that farmers make
changes in their farming practices or that they are actually
sequestering more carbon. Lal et. al. estimate the long-term nutrient
value of an additional ton of soil organic carbon at $200. A ton of
soil organic carbon can be added in 4-5 years. In 4-5 years the value
of some of the country's most productive farmland could increase 10 to
15 percent. In summary, a carbon market could increase both income and
net worth in the farming community by 10 percent or more.
Leading scientists expect that climate change brought about by
increased greenhouse gases may bring more extreme droughts and floods.
Thus, American farmers can not only sell a new ``crop'' in the
international environmental service market, but also help solve, at
least in a marginal way, long-term weather problems affecting farming.
Implementing a Carbon Emissions Allowance Trading Program
A number of factors must be considered when designing a market for
carbon emissions. In contrast to the sulfur market, carbon emission
sources are less concentrated. In addition, sulfur could be reduced
only by cutting emissions. A carbon market, on the other hand, may work
through both outright reductions and sequestration. Considerable care
must be taken to assure that incentives do not encourage farmers or
others to change the baseline used to reward additional carbon
sequestered. For example, in the short run a farmer or forester could
release more carbon via changed practices so that they are ready to
gain more when trading begins.
Low-cost systems to measure carbon in the soils are becoming more
feasible. As the market develops, new technologies should emerge to
make this task economically feasible. Lal et. al have provided
estimates of the existing soil organic carbon for the lower 48 states,
but improved estimates are needed. The existing base of carbon needs to
be mapped. Only additional tons of carbon that are added to the
baseline should be eligible for the market.
While many will get bogged down worrying about monitoring how much
additional carbon is sequestered on an individual field, there are more
effective means for monitoring and verification. Consider the
opportunity for farmer cooperatives, grain merchandizers, biotech
firms, and almost any agribusiness. Any of these firms could become a
wholesaler for carbon sequestering. Estimates of the amount of carbon
actually in the soil on an individual parcel may be flawed. However,
the error likely has typical statistical properties and conventional
statistics apply--estimating many individual parcels and aggregating
them into one measurement will improve the estimate considerably. The
agribusiness firm would be responsible for monitoring the individual
farmers, possibly with some advisory role from USDA on adoption of
BMPs. Under this system farmers could be rewarded for adopting BMPs and
the agribusiness firm would be rewarded based on estimates of actual
carbon sequestered.
Sandor, a student of the history of markets, has been heavily
involved in inventing a number of new markets. He postulates a simple
seven-stage process for market development:
a structural economic change that creates a demand for
new services; the creation of uniform standards for a commodity or
security; the development of a legal instrument which provides evidence
of ownership; the development of informal spot markets (for immediate
delivery) and forward markets (non-standardized agreements for future
delivery) in commodities and securities where ``receipts'' of ownership
are traded; the emergence of securities and commodities exchanges; the
creation of organized futures markets (standardized contracts for
future delivery on organized exchanges) and options markets (rights but
not guarantees for future delivery) in commodities and securities; and
(7) the proliferation of over-the-counter markets (p.2).
Based on this experience, Sandor develops recommendations for
implementing an international pilot program for carbon emissions
trading. An international pilot is in keeping with the Kyoto protocol
which, during the first phase, puts the burden on developed economies.
With trading, those in developed countries would also have the option
of involving developing countries by funding low-cost emission
reduction projects and by helping developing countries finance their
efforts to prevent destruction of existing forests.
An effective carbon emissions market must have a clearly defined
tradable commodity for greenhouse gas emissions--the standard measure
to be traded must be agreed. An oversight body is needed, along with
emissions baselines and clearly specified allocation and monitoring
procedures. Once these standards are in place, existing exchanges and
trading systems can be used to facilitate trades. Widely accepted
standards will increase the credibility of the trades and help
standardize the legal mechanics more quickly. All of these steps will
lower the transaction costs in the new market.
With standardization and use of existing exchanges and trading
systems, a carbon emissions market is very feasible. If we can trade
corn on the Chicago Board of Trade, we can trade carbon. A system of
quotes, hedging, and options will evolve. The market for carbon trades
is, if fact, already evolving (Sandor). Niagara Mohawk (an electric
power company in New York) and Arizona Public Service completed a swap
of carbon offsets for sulfur dioxide emission allowances in 1996.
Environmental Financial Products purchased rainforest protection carbon
offsets from the Republic of Costa Rica in 1997. A subsequent 1.1
million acre program also includes assurance from the Costa Rican
government that the area will be placed in a national preserve. In
1998, the Japan-based Sumitomo began converting coal-fired electric
power plants in Russia to natural gas to earn carbon offsets.
The road to price discovery is being built. A market for carbon
reduction services is now emerging. Carbon markets are being designed
in the United Kingdom on the International Petroleum Exchange and in
Australia at the Sydney Futures Exchange. Major companies such as
United Technologies, British Petroleum and Royal Dutch Shell have also
committed to large and early reductions in their own greenhouse gas
emissions. Therefore, regardless of whether the U.S. approves the
treaty, firms in other countries may soon be willing to pay American
farmers to sequester carbon. U.S. action to limit net carbon emissions
would help make the benefits and incentives to U.S. agriculture even
greater.
Carbon trading is feasible. The prospects of a market will increase
this feasibility as new investments are made in technologies and
research needed to monitor and standardize carbon measurement. Active
trading of carbon could prove an inexpensive insurance policy against
the unknown problems that may emerge because of the rapid increase in
global carbon emissions. An effective and efficient market-based
solution will become even more important as governments around the
world tighten restrictions on carbon emissions. U.S. farmers are well-
positioned to help in sequestering more carbon. While helping to clean
up the air, the benefits to the sector could be substantial. Farm
income and land values should both increase. Local soil, water, and
wildlife should benefit. All the while, carbon trading could also make
the sector more resilient to other forces that have persistently
created cycles in farm income through a market-based CRP program.
For more information:
Carlson, Curtis, Dallas Burtraw, Maureen Cropper, and Karen L.
Palmer. Sulfur Dioxide Controls by Electric Utilities: What are the
Gains from Trade? Resources for the Future Discussion Paper, July
1998:98-44.
Energy Information Administration. What Does the Kyoto Protocol
Mean to U.S. Energy Markets and the U.S. Economy. October, 1998.
Money to Burn? The Economist. 344(1997): 86.
Hahn, Robert W., and Carol A. May, The Behavior of the Allowance
Market: Theory and Evidence, The Electricity Journal, March 1994, 7:2,
28-37.
Lal, R., J.M. Kimble, R.F. Follett, and C.V. Cole. The Potential of
U.S. Cropland to Sequester Carbon and Mitigate the Greenhouse Effect.
Ann Arbor: Sleeping Bear Press, 1998.
Lynch, Sarah and Katherine R. Smith. Lean, Mean and Green--
Designing Farm Support Programs in a New Era. Policy Studies Program
Report No. 3, Henry A. Wallace Institute For Alternative Agriculture,
December 1994.
Sandor, Richard L. The Role of the United States in International
Environmental Policy. Presentation to the White House Conference on
Climate Change. Washington, DC. 6 Oct. 1997.
Walsh, Michael J. Potential for Derivative Instruments on Sulfur
Dioxide Emission Reduction Credits, Derivatives Quarterly, Vol. 1, No.
1, pp. 1-8, Fall 1994.
Dr. Richard Sandor is CEO of Environmental Financial Products,
L.L.C. and Dr. Jerry Skees is professor of agricultural economics, at
the University of Kentucky.
This article emerged from two presentations by Dr. Richard Sandor.
First, at Monsanto in St. Louis, Mo. and then at the University of
Kentucky (UK) as the fall seminar of Gamma Sigma Delta. Dr. Sandor
expresses his appreciation to Dr. Bruno Alesii, agronomic systems
manager at Monsanto, and Dean Oran Little of the College of
Agriculture, University of Kentucky. Both authors are also grateful for
reviews of this article provided by Dr. Craig Infanger, Dr. Barry.
__________
Statement of Tia Nelson, Deputy Director, Climate Change Program, The
Nature Conservancy
My name is Tia Nelson. I am Deputy Director of the Climate Change
Program at The Nature Conservancy. The Nature Conservancy is a non-
profit conservation organization founded in 1951. The Conservancy's
mission is to protect rare and endangered plants, animals, and natural
communities that represent the diversity of life on Earth by protecting
the lands and waters they need to survive. Throughout its history, the
Conservancy has protected more than 10 million acres of land in North
America and millions more in Latin America, Asia, and the Pacific. The
Nature Conservancy owns or manages approximately 2 million acres in the
United States, comprising the largest system of private nature
preserves in the world. Although it is known primarily as the
organization that buys land to create nature preserves, the Conservancy
also engages in many other conservation activities such as purchasing
or holding conservation easements, working with private landowners to
improve land management practices, and working with local communities
to help them determine their environmental future. Internationally we
work with in-country conservation partners, local governments,
multilateral institutions, U.S. Government agencies, and private sector
firms to foster support for conservation and develop additional sources
of funding. The Conservancy has more than 900,000 members and has at
least one office in every state and in many other countries.
I am happy to be here today to discuss the concept of credit for
voluntary early action and the Conservancy's experience in developing
carbon sequestration projects as a climate change mitigation strategy.
We believe that a well crafted early action bill can be a critical and
cost effective step in the process of slowing the buildup of greenhouse
gases in the atmosphere while achieving other important societal
benefits. In particular, the Conservancy hopes that any early action
legislation will contain scientifically valid, credible carbon
sequestration provisions that will provide incentives for projects
which slow or reverse the pace of deforestation of sensitive
environmental areas in both the U.S and abroad, and encourage better
forestry and agricultural management practices.Deforestation and land
degradation account for more than 20 percent of the annual greenhouse
gas emissions and thus is an important component of any effort to
address the threats of climate change. We believe that carbon
sequestration, properly designed, can achieve real and measurable
greenhouse gas benefits while protecting biodiversity and enhancing
sustainable development. There are also important opportunities in the
agricultural sector. Dr. Rattan Lal, a leading expert of soil science
at Ohio State University, states that 116 million tons of carbon is
released into the atmosphere each year from conventional agricultural
activities in the U.S. Through better soil conservation practices such
as reduced tillage, we have the potential to conserve substantial
amounts of soil carbon, and reward farmers for good agricultural
practices. We commend Senator Chafee and his co-sponsors for
introducing legislation to start the process of creating these
incentives.
The Conservancy's experience with carbon sequestration projects,
funded voluntarily by private companies, has shown us the potential
inherent in this mechanism. Our experience in developing and helping
implement these types of projects has convinced us that we can meet the
technical challenges of demonstrating and quantifying carbon
sequestration benefits. Projects developed by the Conservancy to slow
the release of carbon dioxide and enhance carbon reserves into the
atmosphere are protecting two of the most important natural areas in
the world, sequestering over 20 millions tons of carbon in a cost-
effective manner and helping local communities develop their economies
in a sustainable way. Governmental action to provide companies with
clear incentives in this area could have dramatic positive results for
greenhouse gas reductions and mitigation as well as other environmental
benefits by encouraging more of these types of investments.
I would like tell you about several of our projects in order to
help you understand the potential that we believe could lie in well-
crafted incentives for carbon sequestration projects. Our first project
is in the country of Belize and was carried out with significant
support from Wisconsin Energy, a company that is represented here
today. Wisconsin Energy approached The Nature Conservancy in 1994 with
the idea of undertaking a project that would demonstrate the potential
of forest conservation and sustainable forest management to address the
buildup of greenhouse gases. Both the company and The Conservancy were
aware that, according to experts such as the World Resources Institute,
forests act as both a source of CO2 emissions and also as an
important carbon ``sink'', absorbing atmospheric CO2
concentrations through the process of photosynthesis and storing it as
biomass--both above and below ground. The volume of carbon stored by
forestland increases as the volume of biomass increases.
The Conservancy has long sought the protection of the rainforests
of central and western Belize for conservation activities. This is one
of the world's hotspots of biodiversity. These forests are home to 70
different mammals (including several cat species like the jaguar and
howler monkeys), 340 species of birds (many of which spend their
summers in the U.S) and 240 different species of trees. Unfortunately,
these forests are being bulldozed, burned and converted to agricultural
fields in many areas. The result is a significant emission of carbon
dioxide into the atmosphere as well as a tremendous loss of
biodiversity.
In 1995, a 14,000-acre parcel of rainforest was put up for sale by
a local land owner. The leading bidder was a local farm interest that
intended to use the land for soybean production. Instead, Wisconsin
Energy and other companies--Cinergy, Detroit Edison, PacifiCorp, and
Utilitree Carbon Company--gave the Conservancy and its Belizean
partner, Programme for Belize, $2.6 million. With this funding
Programme for Belize was able to purchase the land and set aside
funding for its management. Special care was taken to ensure that the
potential for ``leakage'' of benefits was adequately addressed through
project design. Funding also allowed for a small-scale sustainable
forestry operation, certified by the Forest Stewardship Council, as
well as community education programs. This provided jobs and income for
the local population. In 1998, with additional funding from Wisconsin
Energy and Suncor, a Canadian oil company, the Conservancy and
Programme for Belize were able to purchase an additional parcel of land
and add it to the holdings managed under the carbon sequestration
project. In all, $5.6 million has been generated for this project. This
would not have been possible without investments from companies seeking
to demonstrate the validity of this mechanism through the U.S.
government's initiative on Joint Implementation. Our estimate is that,
if the area purchased had been converted to agriculture instead of
maintained as an intact forest, the additional carbon dioxide released
into the atmosphere and the decrease in carbon stored would total 2.4
million tons over the next 40 years. This estimate is based on an
analysis undertaken by the Winrock International Institute for
Agricultural Development, a non-profit organization with considerable
expertise in carbon measurement. Winrock was retained to develop a
system to measure the greenhouse gas benefits of the project. The
monitoring protocol involved the use of permanent sample plots in which
carbon from soil, trees and leaves is measured and analyzed in
laboratories. Thus, the actual carbon sequestered by the project, which
is registered with the U.S. Initiative on Joint Implementation, is
backed by a scientifically rigorous measurement system.
Our second and largest project to-date is the Noel Kempff Climate
Action Project in Bolivia. This $10 million project, supported by
American Electric Power, PacifiCorp, and BP Amoco, has been used to
retire forestry concessions in one of the most biologically diverse
areas in Latin America. This allowed the Bolivian government to double
the size of the Noel Kempff National Park, a long-time goal. While much
of the rainforest in Bolivia has been destroyed by unsustainable
forestry practices, Noel Kempff has now been expanded by 1.5 million
acres and is protected by one of the best-funded management programs in
the region. In addition to funding the retirement of forestry
concessions and the establishment of a permanent endowment for the
park, funding also has been used to rehabilitate a local school and
health facility and to provide capital to local communities for
sustainable economic development projects.
The carbon sequestered by the project has been estimated using
scientifically rigorous methodology developed by Winrock. Of the $10
million project budget, nearly $2 million is for monitoring and
verification of greenhouse gas benefits. Our current estimate is that
the project will reduce, avoid or mitigate 15 million tons of carbon in
the next 30 years. This amount is equal to the lifetime emissions of
approximately 850,000 cars. These estimates will be verified
periodically over the life of the project by on-the-ground measurement.
The project and its monitoring and verification protocol is viewed as
an important model in demonstrating scientifically valid carbon
measurements.
In addition to these two projects, The Nature Conservancy is
working closely with other companies to encourage support for other
carbon sequestration projects domestically and internationally that can
help achieve climate change mitigation and conservation benefits. We
know from these discussions that many companies are hesitant to commit
to this kind of investment without assurances that these investments
will be recognized. It is important to remember that the size of these
investments vastly exceeds traditional corporate giving for
conservation purposes and that the companies which have been involved
to date have done so in an effort to help develop new cost-effective
mechanisms for climate mitigation. They have been leading by doing.
We believe the potential to expand this mechanism to slow the
buildup of greenhouse gases, preserve carbon sinks and simultaneously
achieve conservation goals will not be achieved unless the U.S.
Government offers some incentives and clear guidelines to companies
prepared to act now. Without clear rules, companies which have acted
responsibly and made investments in slowing the buildup of greenhouse
gases will be treated the same as those which ignored the problem. We
believe this would be a mistake, and a lost opportunity.
As I have noted earlier, the Conservancy strongly favors the
inclusion of carbon sequestration provisions in any early action
program. We do encourage legislators to move carefully in creating such
provisions so as to create measurable greenhouse gas benefits and
improvements in the ways in which lands are managed and to avoid the
creation of perverse incentives that might have a counter-productive
impact. Some principals we think the committee should keep in mind are:
All projects should be subjected to rigorous monitoring
and verification and transparent reporting.
Credits for forest conservation should take into account
potential displacement of these benefits to other areas, to ensure that
``leakage'' is addressed.
Carbon sequestration provisions under early action should
be awarded for additional changes in land management above and beyond
current practices. There should be no credit in cases where landowners
deforest land and then engage in tree planting. Neither should credits
be accrued for business as usual scenarios.
International projects screened by the joint
implementation program should be eligible for early action credits. The
key sources of emissions from the land use sector stem from
deforestation of the tropics. Companies should have an incentive to
help address this issue.
With these principles, we believe that carbon sequestration
projects can play an important role in an early action program. We
thank you for the opportunity to present our views here and look
forward to providing the committee with whatever assistance we can as
it continues its work.
__________
Statement of John Passacantando, Ozone Action
Senator Chafee, Senator Baucus, and members of the Committee, Thank
you for the invitation to be here today. My name is John Passacantando,
Executive Director of Ozone Action. Ozone Action is a 6-year-old non-
profit organization dedicated to working on the atmospheric threats of
global warming and ozone depletion. Our mission is one of public
education, spreading the word on the science of global warming, and
helping to build the public constituency for leadership to address
these global threats.
Facing the threat of global warming, this Committee must decide
whether to address the root of the problem or simply to treat its
symptoms. I am here today to challenge this Committee to do the former
by passing a bill that will start U.S. industries on a path to greater
efficiency, less pollution, and put the U.S. in a leadership role as
the key exporters of the new and exciting energy efficient technologies
that are beginning to emerge. I am also here to warn you against taking
the Band-Aid approach to global warming that S. 547 now presents.
Any doctor, when treating a patient with high cholesterol, will
likely prescribe some type of medication. But no responsible doctor
would limit his treatment to just medication. He would insist that the
patient address the source of his cholesterol problem by changing his
eating and exercise habits. To do anything less would be not only
irresponsible, but obviously dangerous to the patient's health. It is
widely recognized that one of the inherent dangers in our ever-
advancing medical technologies is the belief that there will always be
some pill, whether it is for cholesterol, dieting, blood pressure, or
otherwise that will solve our problem so that we won't have to change
our habits.
In many ways, our global climate shows the symptoms of an ailing
patient. Scientists around the world recognize that our glaciers are
retreating, our ice caps are thinning, our seas our rising, our violent
storms increasing, and rising temperatures are breaking records that go
back to the middle ages. To pass S. 547 as it currently stands would be
like giving this sick patient a pill without addressing the source of
the problem--escalating emissions of CO2 from the burning of
fossil fuels. Just as it would have been irresponsible for the doctor
in the cholesterol analogy to send his patient off without changing the
habits that caused his problem, it would be irresponsible for this
Committee to pass a bill that allows companies to continue increasing
their emissions while being rewarded for everything from creating tree
plantations to unverifiable, self-reported projects almost a decade
old.
Our country's history of strong environmental regulation and
economic prosperity is the clearest indicator that properly crafted
regulations can provide incentives for the innovations that drive our
markets. Michael Porter, Harvard Business School professor and former
member of President Reagan's Commission on Industrial Competitiveness
notes in his most recent book that ``the data clearly show that the
costs of addressing environmental regulations can be minimized, if not
eliminated, through innovation that delivers other competitive
benefits.'' He goes on to suggest that we should ``focus, then, on
relaxing the tradeoff between environmental protection and
competitiveness by encouraging innovation and resource productivity.''
Like Porter, I do not come at these issues purely as an
environmental advocate. While it is my duty as the leader of an
environmental organization that focuses on atmospheric protection to
speak as one, my background is in business, economics and Wall Street.
I spent 8 years of my career in decidedly non-environmental roles, and
for a majority of that period, working for Jude Wanniski, the high
priest of supply side economics. That is to say, I believe in a very
careful use of government intervention, and am as suspicious of
corporate welfare as any conservative.
The history of environmental legislation in the United States is
one of the government continually raising environmental standards,
usually over the strong objections of the affected industries, only to
have those standards met by creative innovations that come in at a
fraction of the initially projected costs or even as new profit centers
for these industries. The Clean Air Act, removing lead from gasoline,
phasing out ozone depleting chemicals are just a few of the examples.
The fight against global warming is no different than these other
efforts--it's just larger. Cheap and abundant fossil fuels have been
important to our economic growth. But so have intelligence, technology
and innovation. The most recalcitrant companies are still fighting even
the thought that human actions may be contributing to global warming.
Meanwhile, the most innovative companies are investing in highly
efficient technologies for cars, buildings and homes.
Overall, S. 547 is a failure in that it does not promote innovation
and resource productivity. Instead, the bill rewards our biggest
polluting companies even if they make no changes whatsoever. It also
has the potential to preempt real emissions reductions, just as a
mandate is emerging from the American people, increasingly concerned
about global warming.
Specific flaws with S. 547 include:
1605(b) credits: The bill allows for the issuing of emissions
credits for past voluntary emissions reductions reported to the
Department of Energy (1605(b)). These projects simply cannot be given
credit without a tight screen to rule out unverifiable projects
(according to the General Accounting Office, more than 1,800 claims
under 1605(b) during 1994-1996 have at best a ``moderate'' level of
accuracy) those with negative environmental impacts or those that would
have taken place anyway in the course of normal business. Perhaps more
importantly, these unverifiable 1605(b) credits could completely offset
emissions reductions targets adopted by the U.S., (credits claimed
under just 2 years of 1605(b) reporting represent 80 percent of U.S.
emissions reductions requirement). Furthermore, according to the
nonprofit National Environmental Trust, just a handful of companies
reporting under 1605(b) could potentially get credits worth $11 billion
for questionable global warming pollution reduction cuts.
A great example of the flawed accounting within the 1605(b) program
is in a submission from General Motors. GM filed for 1605(b) credits
for reduced emissions of their portion in the U.S. vehicle fleet.
Twenty-five percent of the reductions GM claimed came not from
efficiency improvements, but simply because they didn't sell as many
cars and trucks--their fleet diminished. Awarding credits for lost
market share amounts to no more than corporate welfare, a handout to
big business.
Nuclear incentives: Sen. Wyden, in his letter supporting the bill,
eloquently outlined many of the problems that are embedded in the bill
as presently drafted. He drew specific attention to the incentives this
bill could provide for increased use of nuclear power and the
inadequacy of many of the 1605(b) reported projects. For example, 60
percent of Southern Company's 1605(b) projects are nuclear plant
upgrades and increased output from nuclear plants. To further subsidize
this moribund industry in the name of global warming, would exacerbate
an existing problem, and one the American public has resoundingly
rejected. While nuclear energy does not omit carbon, it is unacceptable
to trade one environmental threat for another.
International projects: By allowing for the granting of credits for
overseas greenhouse gas abatement efforts, this bill diverts the focus
from innovative investments at home where they are most needed. It
instead relies on difficult-to-measure efforts in the developing world,
many of which these companies are undertaking as profitable business
investments anyway. In addition, there is great potential to corrupt
the international negotiation process, as it will be done ahead of the
global effort to create the framework for cooperation within the Kyoto
Protocol. For example, S. 547 allows a double standard in which U.S.
corporations can get credit for reducing emissions overseas but do not
get penalized for increasing emissions overseas.
Sinks: Carbon absorbing ``sinks'' projects should be left out of
the early credit discussion at least until the international scientific
body, the Intergovernmental Panel on Climate Change completes its study
in the year 2000 and defines the way sinks will be dealt with under the
Kyoto Protocol. The science must drive the policy, not the other way
around. Any U.S. credits for such actions promised prior to that report
have great potential to set false expectations for companies or even to
put the U.S. in a position of advocating a less rigorous accounting for
these projects. If you can find a way to protect our forests and stop
global warming, terrific. But if you are encouraging polluters to
offset their emissions by putting their own fences around existing
forests or for planting tree plantations destined for the paper mill,
then the bill has no environmental integrity. Regardless, to ensure
environmental integrity, policy decisions must be based on scientific
decisions that are not yet available.
Additionally, as sinks are related to agriculture, it is one thing
to promote no regrets measures to insure sustainable farming practices
designed, in part, to buildup the organic matter in the soils--a
process which helps the soil hold more carbon dioxide. However, it is
troublesome if false hopes are created that companies will be able to
offset their emissions through a change in practices in the
agricultural sector. In our opinion, including soil-based sinks could
create false hopes and the potential for greater backlash down the road
if the international community decides not to include soils in the
Kyoto Protocol. There are so many other benefits of soil conservation
and other sustainable agricultural practices; there must be a better
way to provide incentives for this behavior.
There are other flaws as well. Among them are: any early action
program must be capped to provide security that the credits given out
prior to a Kyoto Protocol compliance period do not overwhelm and
obviate any action during that period; instances where more than one
entity might claim credit for the very same action must be avoided; and
a static baseline as presently stipulated in the bill is not aggressive
enough. A steadily declining baseline target would both encourage real
progress and weed out and discourage business-as-usual emissions
reductions.
Until these flaws are fixed, any future efforts to lower industrial
emissions of greenhouse gases will be met with the cry of ``I already
gave at the office.'' Passing the bill before you as a means to combat
global warming is like a doctor combating a patient's high cholesterol
by giving him a pill and then treating him to a steak and fries dinner.
Our global climate deserves better treatment.
In 1960, President Kennedy said, ``It is time for a new generation
of leadership, to cope with new problems and new opportunities. For
there is a new world to be won.'' His words are as true today as they
were almost 40 years ago. Today's new world will not be won if we cling
to old technologies at the expense of our environment and fail to
promote the innovations our companies need to be competitive
internationally. The challenge before this Committee is to pass a bill
that will address the source of global warming so that the US will
continue to lead tomorrow as we have led in the past in both
environmental protection and economic strength.
__________
Statement of Raymond J. Keating, Chief Economist, Small Business
Survival Committee
Thank you Mr. Chairman and Members of the Committee for the
opportunity to testify today. I am Raymond J. Keating, chief economist
for the Small Business Survival Committee (SBSC). SBSC is a
nonpartisan, nonprofit small business advocacy group with more than
50,000 members across the nation.
As explained in many of our publications, articles and in previous
congressional testimony, SBSC opposes the Kyoto Protocol to the United
Nations Framework Convention on Climate Change for a variety of
reasons, including, and primarily due to, the significant costs it
would impose on small businesses, consumers and the U.S. economy in
general, as well as the competitive disadvantage U.S. small businesses
would face versus exempted international businesses in most other
countries.
As noted in the invitation letter for this hearing to SBSC from the
Committee Chairman and Ranking Minority Member, what we have been asked
to specifically address today are the issues related to ``formal
recognition or crediting of voluntary greenhouse gas mitigation
activities.'' These fundamental issues, for example, are raised by the
proposed ``Credit for Voluntary Reductions Act'' (S. 547).
First, we need to understand, or come to agree on what these
credits would be used for. Obviously, the credits would only have
meaning and value under the Kyoto Protocol or some similar regulatory
regime which would implement an emissions ``cap and trade'' system.
Otherwise, the entire early credit endeavor would be pointless.
Therefore, we must take a look at how emissions trading would likely
work, and what problems it presents.
Under the Kyoto Protocol, the U.S. would be obliged to reduce so-
called greenhouse gas emissions mainly CO2 to 7 percent
below 1990 levels by 2012. That would require dramatic reductions in
energy usage. One method for reducing energy consumption and emissions
would be an emissions trading program whereby the government would cap
emissions, and then ration or auction off credits equivalent to certain
levels of emissions. (Under S. 547, for example, a ``greenhouse gas
reduction credit'' means an authorization to emit 1 metric ton of
greenhouse gas.) The credits would be tradable. For example, nations or
companies seeking to maintain current or expand emissions would buy
credits from nations or companies cutting their emissions and not
needing the credits.
U.S. Assistant Secretary of State Melinda Kimble, a top climate
negotiator, told Reuters (October 21, 1998), ``In the United States,
first and foremost domestic action is going to be a trading system.''
Trading emission credits is called a market-based system, but in
fact, it has very little to do with markets. It is merely another
regulatory system for shifting around massive government-imposed costs.
The government would place severe restrictions on CO2
emissions and therefore on energy consumption and economic activity
then implement a kind of shell game to shift around and attempt to hide
the enormous costs.
Massive problems exist with such a system.
Costly and Stealthy. A ``cap and trade'' system does the
same amount of damage to small businesses, consumers and the economy as
do overt energy taxes, but in a dangerously stealthy manner. In a 1994
document, the Environmental Protection Agency reportedly noted the
problems facing an overt energy tax, and then cynically declared: ``A
cap would likely not be as unpopular as a tax, since people are
generally less familiar with the concept.'' Like other forms of
regulation, the exact costs would remain largely a mystery to
consumers, but nonetheless they would be paying in the form of
increased costs, lost GDP, and lost jobs.
Impossible Enforcement. The most daunting problem with an
emissions trading regulatory system is compliance. In summary,
countless dollars would be spent in pursuit of an impossible compliance
goal.
Administration of this treaty would require monitoring all sources
of emissions, and comparing those results with permissible credit
amounts. Environmental bureaucrats would have to monitor both
stationary and mobile sources of emissions. Stationary sources would be
bad enough think of the number of business, nonprofit and governmental
facilities that would be under surveillance but remember there are more
than 200 million motor vehicles in use in the U.S. today.
Now, take this scenario, and apply it internationally. The
complexity, costs and extent of government intrusiveness grow
exponentially. After all, the U.S. cannot even successfully monitor
chemical and nuclear weapons activities in Iraq, never mind global
monitoring of practically all economic activity. This would require
either a massive international environmental policelike force sticking
their noses into private-sector and public-sector ventures nation by
nation, or extensive domestic regulation under the assumption that each
nation will be equally faithful and efficient in their monitoring
activities. Either route is naive and costly, but be sure that our
Environmental Protection Agency our likely Kyoto Protocol regulator
will be the most aggressive enforcer.
Developing Nations. If this treaty is meant to be taken
seriously, then developing nations eventually must be brought into the
fold. Currently, developing nations are excluded from emissions caps.
An exclusion for developing nations would provide them with a
tremendous economic advantage, allowing them to attract industries,
businesses and jobs away from nations forced to impose draconian costs
under the treaty. Obviously, this cannot stand.
But what would happen if developing nations are placed under the
Global Warming Treaty emissions caps? Imagine the insurmountable
obstacles involved in monitoring emissions in many Third World nations
where it can be a formidable task just to feed the populace. If imposed
and somehow enforced, limiting emissions in such nations would sentence
millions of people to permanent poverty.
Small Business at a Disadvantage. Under emissions
trading, smaller enterprises would be at a distinct disadvantage as
bidding domestically and/or internationally raises the price of
credits. As is the case with other forms of regulation, these added
costs will hit smaller ventures hardest. Many small businesses operate
on the slimmest of margins, and simply would be unable to play the
credits game. As it stands now, most small businesses find it daunting
to comply with the hundreds of laws and regulations required under all
levels of government. In addition, basic business matters require their
hour-by-hour, day-to-day attention.
The credits game will be viewed by most as being the domain of big
business, or be construed as some complex and vague program that offers
no or little current quantifiable benefit in running their day-to-day
operations. In addition, the high-risk nature of smaller,
entrepreneurial firms require the opportunity to make substantial
returns.
The Kyoto treaty and emissions trading raise costs, and therefore
reduce potential returns, which means that many startups, innovative,
potentially high-growth enterprises would be nipped in the bud.
Indeed, it certainly does not take an active imagination to see
mature, entrenched large enterprises gaining a clear advantage over
smaller businesses under an emissions trading regulatory system. For
large firms with greater ability including the necessary capital to
survive the added costs of playing the credits game will actually face
reduced competition from smaller upstarts who will not survive.
Trading emission credits merely would shift the costs of the Kyoto
Protocol around, but certainly would not make them disappear. The
economic costs and dislocations promise to be severe.
Having noted the many problems with emissions trading, it becomes
obvious that any kind of early action to reduce emissions so-called
``voluntary'' or not of such a system manages to only make matters
worse. For example:
The Federal Government would most likely enter into early
implementation agreements with large, established businesses who have
the legal expertise, technical abilities, and discretionary capital to
undertake early actions. This level of resources would naturally give
an advantage to big business to become ``volunteers'' in an early
action program. And since there would only be so many credits to go
around under the Kyoto Protocol or a national cap as part of a domestic
program, those who did not participate in early actions would suffer
accordingly. Small and mid-sized businesses would bear a heavy burden
in 2008 and beyond.
Politics no doubt would play a major part of this early
implementation program. For example, S. 547 would authorize ``the
President to enter into binding agreements under which entities
operating in the United States will receive credit, usable in any
future domestic program that requires mitigation of greenhouse gas
emissions, for voluntary mitigation actions taken before the end of the
credit period.''
Those with political connections and lobbying clout would have the
clear advantage when it comes to entering into early implementation
agreements, at the expense of the non-politically connected, i.e.,
smaller enterprises. Even if so-called ``pooling'' is allowed whereby a
group of participants act as one participant for purposes of early
action its usefulness would be quite limited. For example, established,
politically connected businesses would have absolutely no incentives to
pool with other firms. Why would they? For the rest, the costs of
organizing in terms of dollars, time, personnel, education, etc. would
be formidable.
As noted earlier, most business owners struggle day after day for
long hours to keep their business going, or hopefully growing
constantly assessing the best way to serve their customers, to keep
their employees productive and happy, and to project where their market
is headed. These are the folks that will not have the ability to play
the politics of credits for early action, and they then will be the
ones most savaged by the costs of the Kyoto Protocol, or any other
domestic initiative to reduce greenhouse emissions, or another domestic
regulatory regime developed to manage, monitor and attempt to reduce
emissions.
Mature businesses in predictable industries would more
easily participate in early implementation than would small, high-
growth businesses in new, dynamic and far less predictable industries.
None of us really know what the new businesses and industries of
tomorrow will be. But we do know that under a credit for early action
plan, they will be especially hurt, as they obviously cannot take
advantage of early action.
Credits for early implementation would establish a strong
special-interest group favoring Kyoto implementation or a comparable
domestic regulatory program. Credits potentially worth untold millions
of dollars would act as powerful incentives to push and lobby for
treaty ratification, or some type of regulatory structure that would
give value to such credits. In other words, without a program to give
value to such credits they would be worthless. I believe this would
effectively split some of the business community in its opposition to
the Kyoto Protocol pitting many large companies with a special interest
in seeing the treaty and its trading scheme become reality, against a
far more dispersed opposition overwhelmingly populated by small and
mid-sized firms. Already, whatever ruptures that exist in the business
community over whether the Kyoto Protocol should be implemented or not
are largely based on whether certain industry sectors believe they can
take advantage of the new regulatory structure. For example, it is no
surprise that we see renewable energy companies and large corporations
with vast natural gas reserves cheerfully supporting Kyoto or a similar
domestic version of it.
Emissions caps on nations effectively are caps on economic growth.
As entrepreneurs try to startup and grow businesses, they will be at a
severe disadvantage in securing credits in a highly political system,
and then will be hurt as the prices of domestically and/or
internationally traded credits rise. Naturally, there is a tradeoff
between risks and potential rewards. The higher costs resulting from
the Kyoto Protocol would mean reduced rewards, and therefore, less risk
taking. Less risk taking means slower economic growth and reduced job
creation.
Especially from the small business perspective, early action
credits are a bad deal. The economics of the Kyoto Protocol or a
similar program, including its emissions trading scheme, are dismal.
Congress should not be looking for ways to advance Kyoto and its
attendant implementation schemes, but instead should be stating quite
clearly that it will not ratify this costly, misguided, and highly
dubious treaty.
As a final point, it is well worth noting the increasing energy
efficiency in the United States brought about mainly by businesses and
entrepreneurs without any such draconian measures along the lines of a
Kyoto Protocol. For example, between 1970 and 1996, total energy
consumption increased by 41 percent, while our economy more than
doubled in real terms over the same period. Indeed, the private sector
possesses every incentive to become more and more efficient in terms of
energy usage.
Once again, thank you for allowing me to testify today, and I would
be glad to answer any of your questions.
CREDIT FOR VOLUNTARY REDUCTIONS ACT
----------
THURSDAY, JUNE 3, 1999
U.S. Senate,
Committee on Environment and Public Works,
Providence, Rhode Island.
The committee met, pursuant to notice, at 10:30 a.m. at
Faunce House, Brown University, Providence, Rhode Island, Hon.
John H. Chafee (chairman of the committee) presiding.
Present: Senator Chafee.
OPENING STATEMENT OF HON. JOHN H. CHAFEE,
U.S. SENATOR FROM THE STATE OF RHODE ISLAND
Senator Chafee. The subject we're gathered to hear about
this morning, climate change caused by human activity and what
to do about it, is very controversial. The science is
challenging because we're considering the long-term future of a
global system that involves interactions of atmosphere, oceans,
forests and human society, and the politics is challenging
because the US Government has signed a far-reaching treaty, the
Kyoto Protocol of 1997, that is, regrettably, strongly opposed
by much of US industry. I had the privilege of being at that
Kyoto gathering in 1997.
The uncertainty and controversy seemed daunting, but it's
important, it seems to me, that we struggle with this issue. If
we are headed in the direction most scientists predict we're
headed in, we can't afford to put off starting solutions until
the day when all our questions are completely answered. If we
wait around until everything is absolutely clear, no
controversy, it may be well too late. Some things are certain,
we know that greenhouse gases trap heat in the atmosphere. We
know that greenhouse gasses exist naturally and are cycled
through oceans and forests. From the ice cores taken from
glaciers we've been able to examine the concentration of
atmospheric carbon dioxide, an important greenhouse gas over
the past 400,000 years. Now, that's a long time, 400,000 years.
We know that increases in carbon dioxide have always been
associated with increases in temperature over that period.
In 1995, an organization of 2,500 scientists formed the
intergovernmental panel on climate change, IPCC, that's a term
we'll hear frequently today and in the continuing study of this
matter, and this group of scientists, 2,500 of them, the IPCC
issued a report summarizing the evidence gathered over the past
100 years on the greenhouse effects of carbon dioxide and other
gases. They concluded there's a small but discernible human
influence on global climate, and they warned that this impact
may be gathering momentous. The concentration of carbon dioxide
in the atmosphere has steadily increased over the past 200
years. The earth is warmed by one degree Fahrenheit over the
past hundred years. It may warm another two to six degrees
Fahrenheit over the next 100 years. Now, those are incredible
statistics. That would be the fastest increase in temperature
experienced by the species now comprising life on earth.
Whether the complex ecosystems that are involved evolved over
eons can adapt successfully, the change is so rapid, in other
words, two to six degrees change in Fahrenheit in 100 years,
can we adjust to that? It's the most important unanswered
question. But we humans will face challenges as well. For
instance, IPCC predicts that sea levels may rise an additional
\1/2\ to 3 \1/2\ feet in that 100-year period. All of us in
Rhode Island can appreciate the significance of a result like
that, an increase in sea levels of \1/2\ to 3 \1/2\ feet.
The bill we're considering, S. 547, this morning makes only
the modest beginnings on this large problem. It would encourage
voluntary reductions in greenhouse gas emissions by U.S.
industries by promising those industries credits for the
reductions they took if a mandatory program is ever adopted. In
other words, the legislation we have says if you--we don't have
any mandatory statute on the books yet about having to reduce
greenhouse emissions, but some companies are willing to do it,
and if voluntarily they want to do it, reduce their greenhouse
emission, if subsequently legislation is enacted requiring such
reductions, then the companies that have made the reductions
prior thereto will get credit for it, and they're doing it
voluntarily and they deserve credit for it. Now, this is a
modest start, but getting a start is very important.
Carbon dioxide accumulates in the atmosphere. From the
perspective of climate, the ton of carbon dioxide that we
voluntarily avoid emitting today is just as important as the
ton that may eventually be prevented by the Kyoto Protocol of
some other mandatory program.
It may be many years before our political system responds
to the threat of climate change in any meaningful way. When it
does, and I, for one, am convinced that we must change our
course, the reductions that have been accumulated year after
year from this modest beginning will pay big dividends, and the
companies that take advantage of this opportunity will realize
much lower compliance costs because they had a longer period to
adjust their business practices.
Now, even this modest beginning, you say who can object to
that, it's voluntary, you get credit later on if you make the
reductions, who can complain. Well, welcome to Washington. Even
this modest beginning is not without its controversy. Everyone
salutes the concept of giving credit for voluntary reductions,
but, indeed, there are devils in the details. What Government
agency should run the program? How do we ensure that our
accounting methods only count real reductions in greenhouse
gases? How do we recognize projects like reforestation or
preservation that sequester carbon rather than reduce
emissions? Should foreign investments count? Should we give
credit to the reductions that have been made since the Rio
Treaty was signed in 1982? How far back do we go?
We've got a distinguished group of witnesses to wade into
this controversy and help us answer these questions.
We all appreciate the time and thought that's evident in
their written statements and welcome the opportunity to hear
from them.
Now I want to express my appreciation for all the witnesses
coming, some of considerable distance. Mr. Fay came from
Washington, Mr. Colburn came from New Hampshire, Mr. Rabideau
came from the northern part of the state. Dr. Hamburg is here.
Let me see where Ms.--oh, you're from Massachusetts, that's
right. So we are grateful for all of you to come, being here.
We'll start with the Honorable Scott Rabideau, who is a
member of the Rhode Island House of Representatives. Scott, why
don't you go first.
STATEMENT OF HON. SCOTT P. RABIDEAU, RHODE ISLAND HOUSE OF
REPRESENTATIVES
Mr. Rabideau. Thank you, Senator. And, first and foremost,
I want to thank you and your staff for giving me the
opportunity to testify here today. You know as a legislator I
often have the opportunity to testify, but never in my wildest
dreams did I think I would be on the record for a U.S. Senate
Committee, so I thank you for that.
It is also interesting that you chose to have the
politician go first. We have quite a distinguished panel of
people here testifying before your committee, these people
probably know a lot more about the concepts that we're talking
about than I do, but what I think I bring to this panel is a
local political view on how a bill of this magnitude can have
far-reaching impacts, not only here in Rhode Island, but across
the country, when politicians and local legislators get a hold
of this bill and understand just exactly what this bill will
do.
As you stated in your summation, you know, the ingenuity of
this bill is the fact that it gives credit for reductions in
carbon emissions prior to any regulations being in place, and I
think that is a fantastic process. It is an incentive for
Corporate America. We all like to participate in our mutual
funds today, and sometimes we put money into aggressive funds,
where we're not quite sure if they're going to be extremely
productive funds or if we're going to lose a little money, but
corporations are the same way, they can utilize some of their
capital spending. Corporate profits are at record levels right
now. They can utilize some of their corporate spendings today
to make those reductions as a hedge fund against possible
regulations in the future, and I think that's imperative.
Beyond voluntary credit for reductions, one of the things
that interest me the most, and I think has the most potential
to impact Rhode Island, is the fact that you are giving credit
for carbon sequestration.
Senator Chafee. Why don't you tell them what sequestration
means? That's a big term that we'll be hearing a lot of today.
Mr. Rabideau. Would you like me to tell it?
Senator Chafee. Yes.
Mr. Rabideau. Very good. All undeveloped and vegetated
space has the ability to sequester atmospheric carbon. Plants
take in carbon dioxide and fix that carbon dioxide within the
plant itself, they give off oxygen, so the carbon is taken out
of the atmosphere and fixed in a plant. If this were a wooden
table, which it probably isn't, and I banged on it, that's
sequestered carbon, the wood in this table is sequestered
carbon, and as long as we don't burn the wood, we take it out
of the atmosphere and kept in it in an earth state where it is
not a greenhouse gas, and that's carbon sequestration.
Your bill allows companies to take credit for carbon
sequestration on a per ton basis, and this isn't an
unprecedented thing. From what I've been able to gather, in
Oregon, for example, the Oregon Climate Trust worked with a
local power producer to allow that producer to, when they were
trying to cite the facility through the local and Federal
regulations, they were allowed to create a sequestered
landscape as part of their emissions standards, so they were
allowed a certain level of emissions as long as they took care
of this sequestered landscape for a fixed period of time. The
Oregon Climate Trust is taking the initiative to monitor that
landscape on every 10 years to prove that the amount of
sequestered carbon that they thought they were going to get is
actually occurring, or disproven, but those are the type of
studies that are taking place right now, and I think, on a
local level, it had the potential to just reap great rewards
for states.
I brought a picture, am I'm going to describe it for you,
Senator. I know you probably like aerial photographs. This is
an aerial photograph for Warwick, Rhode Island. What we're
looking at here is, this is Route 117, this is the Valley
Country Club up in this area. The West Warwick/Warwick line is
right in here. This is a real world case, Senator. You can see
the development around the area. This is a very densely
populated portion of our state. Residential development all to
the west, commercial development on Route 2 all to the east.
There's one lonely track of farmland left here, and I'll
highlight it in blue for you so you can see it. The farmer
right now is faced with the problem of having to pay the taxes.
The farmer is currently in the process of developing this land.
So, in all likelihood, if I bring you an aerial photograph of
this in the year 2000, the end of the year 2000, you won't see
this farmland. What you're going to see are these homes. If
there were a mechanism in place for Corporate America to
participate in the preservation and management of open space,
this might not have to be developed, because at this point in
time this farmland, because it's pasture, may not sequester
that much carbon; however, if a reforestation plan were put in
place over a period of 20 to 30 years with the help of U.S.
Generation, or Ocean State Power, or Powell Edison, for that
matter, we could probably have the Natural Resource
Conservation Service work with these farmers, come up with a
figure of how much carbon could be sequestered over that time,
then we can approach these corporations and say, you get your
credit if you help this state with open space. It's a unique
concept, and I think it bears looking into.
I mean, you know, Senator, that in my profession I'm a
wetlands biologist, and had anybody thought in 1972, when the
Federal Government passed the Clean Water Act, that wetlands
were going to be such a huge issue. Today, the Federal
Government has allowed people to work in wetlands only if they
demonstrate that there is a mitigation of impact.
When the Senators and the Congressmen worked with that bill
in 1972, they faced the same problems you're facing with this
bill today, with business and industry, but I think that
everybody recognizes in 1999 the importance of protecting
wetlands. Businesses, industries, farmers, land owners alike,
they all now understand the value of those ecosystems. I think
the same thing is going to happen here. Your vision in
providing us with this bill today and your colleagues who
cosponsored it with you is such that in the future, 20 years
from now, we will be dealing with corporations and not just
public money, in maintaining over space for the people in our
state and in our country. That piece of property right there
next year will go from the carbon reservoir to a carbon source.
My hope is that if your bill passes and I can take legislation
on the state level that will mimic it, in the 21st Century we
will be stopping things like that and helping farmers preserve
their land through the carbon sequestration process, and I
thank you for the opportunity.
Senator Chafee. Thank you very much, Representative
Rabideau. That's very, very helpful.
I thought what we would do is hear from each of the
witnesses and then we'll have questions for the group gathered
here.
Now we're going to hear from Ken Colburn, Director, Air
Resources Division of the New Hampshire Department of
Environmental Services.
Mr. Colburn?
STATEMENT OF KEN COLBURN, DIRECTOR, AIR RESOURCES DIVISION, NEW
HAMPSHIRE DEPARTMENT OF ENVIRONMENTAL SERVICES
Mr. Colburn. Thank you, Senator Chafee. I'm pleased to be
with you. I should add that I also serve as chair of the Global
Warning Committee for Staff at the National Association of Air
Directors.
In those capacities, I'm pleased to have the opportunity to
address you today relative to S. 547, the credits for early
reductions, Voluntary Reductions Act of 1999. In doing so, I'm
mindful of the fact that S. 547 is only one of a number of
environmental leadership initiatives that you and your staff at
EPW has brought forward over the years. I think that your
timing is going to leave some significant shoes to fill,
Senator.
I'm also in a comfortable situation here as an
environmental regulator. It's usually the case that I'm between
the legislature and the business community, so I'm on familiar
ground.
In New Hampshire, our economic livelihood has long been
directly linked to the health of our natural environment,
whether you harp back to the hay days of the paper and timber
industries or look today toward our tourism-based economy and
quality of life attractiveness. This linkage has remained a
constant. Two other constants have been our State's traditional
parsimoniousness and frugality and our stubborn reluctance to
control and regulate, when outcomes equally good, outcomes can
be achieved through properly encouraged voluntary action. Thus,
it comes as no surprise, I'm sure, that we strongly support S.
547, a measure that shares these values. S. 547 would directly
benefit both the economy and the environment and promote
innovative, cost effective solutions on a voluntary basis.
S. 547 encourages U.S. entities, businesses, institutions,
governments, etc., to pursue actions that will mitigate the
threat of global climate change. In doing so, that will provide
our Nation with other benefits as well, including substantial
savings in energy expenditures, reduced air and water
pollution, less waste, better natural resource management and
enhanced technological competitiveness. Early voluntary
greenhouse gas reduction measures will help ensure that the
legacy we leave our children is not one of myopic selfishness
and environmental degradation, but rather one of sustainable
stewardship and respect for our planet. This Act is not about
the science of global climate change, it's not about the Kyoto
Protocol, it's not about what level of reductions are necessary
or how much they will cost or through what flexible mechanisms
they should be approved. S. 547 is about reducing uncertainty
for U.S. businesses and other entities by ensuring that any
reductions of greenhouse gas emissions that they undertake
voluntarily will be appropriately recognized and credited.
U.S. businesses and other entities are reluctant to make
such reductions at this point because of uncertainty about
future regulatory programs that may be imposed on them to
mitigate atmospheric concentrations of carbon dioxide and other
greenhouse gases. Many are concerned that if the example of the
Federal Clean Air Act amendments of 1990 holds true, that
actions now will not be appropriately recognized and lead to
increased burdens later on. The State of New Hampshire has had
direct experience with this dynamic, inasmuch as the closure of
the Pease Air Force Base in 1989 was not recognized as an
emission reduction under the 1990 baseline in those amendments.
This dynamic applies even if actions would yield cost savings,
because the known benefits of today might be outweighed by the
as yet unknown costs under a future program, and this isn't
just a theoretical concern. Anytime an American company
refrains from making itself more cost competitive, our Nation's
competitive advantage suffers as well. S. 547 will encourage
reduction of greenhouse gases and greater competitiveness by
eliminating the potent disincentive of uncertainty.
How should a credit for early action program be designed? I
think Mr. Fay and Mr. Hamburg and Ms. Fantozzi will go into
greater detail on that, so in the interest of time, I will only
leap over a couple of cornerstones that I think are important.
First, the reductions must be strictly quantifiable and
verifiable, subject to third-party verification.
Second, they should not be limited to any particular
program, particular carbon source, economic sector or even a
particular greenhouse gas.
Some have suggested, for example, that only certain
emission restrictions should count, based, for example, on
whether they reflect genuine environmental intent. I would
suggest that this approach irresponsibly cripples the vital
linkage between economic and environmental well-being that we
cherish and are trying to foster. It also introduces more
lawyers into the process rather than engineers who are actually
going to make the reductions. We should be less concerned with
motives and more concerned with getting tons out of the air.
Third, just as there are a variety of ways to reduce
greenhouse gas emissions, we may need to employ a variety of
yardsticks for measuring them.
And, fourth, great care I think should be taken in limiting
the number of credits available because we might, similarly,
limit the incentives available to folks who would participate
in the program. I understand that may be necessary ultimately,
but we should do so only with care.
Similarly, who should these entities be? Who should the
participants be? They should--these incentives should apply
across the broadest possible array of participants. I think S.
547 at this point does encompass that, and it also includes, as
Representative Rabideau has mentioned, sequestration of carbon
sources and sinks, not only one. That's important for us in
north country state that have the opportunity to sequester
additional carbon, such as those companies operating in the
northern forestlands.
I'm particularly pleased that states and municipalities are
allowed to participate in the early emission credits program
envisioned by S. 547, both because they generate emissions
themselves, who are also users, but also because we're
typically left to implement whatever it is the Federal
Government decides to do. Great uncertainty prevails here as
well. In the case of the acid rain program, for example, the
Federal Government, through EPA, dealt directly with emission
sources. States have no role at all. In EPA's proposed NOx
Transport SIP call, states were assigned emissions budgets,
and, thus, did have a say in how these budgets were allocated.
Since most multiple environmental benefits, including
significant reductions in the criteria pollutants and toxic air
contaminants already regulated by states will accompany
harmonized approaches to reducing greenhouse gases, the sooner
states have more certainty and clarity about their future role,
the better.
In an effort to reduce such uncertainty for New Hampshire
entities, including the state itself, we've introduced
legislation to create a state registry of voluntary greenhouse
gas reduction. That bill, as it was introduced, is attached to
the handouts. I can, with your forbearance, read the pertinent
part. In order to help protect the interest of New Hampshire
sources and the State's economy under a future Federal
regulatory scheme relating to greenhouse gas emissions and to
help encourage the voluntary reduction of greenhouse gas
emissions by New Hampshire sources, the Department shall
establish and administer a mechanism whereby sources of
greenhouse gas emissions may record and register early
voluntary greenhouse gas emission reductions made after 1990.
The purpose of this registry shall be to help sources establish
a baseline against which any future Federal greenhouse gas
emission requirements may apply. I'm sure that----
Senator Chafee. That's rather unique, isn't it? I wonder if
any other state has done anything like that.
Mr. Colburn. Not to my knowledge, Senator.
Senator Chafee. State registry.
Mr. Colburn. But I think that--I hope at least that many
will. The bill at this point has been supported by our State
Business Association and a letter to that effect is also in the
packet. It was introduced in and has passed in our State Senate
and has gone from the Policy Committee of the House to the
floor of the House with a recommendation of ours to pass. So
it's in pretty good shape at this point.
Besides states and municipalities similarly look forward to
the opportunity to earn credits, the International Council for
Local Environmental Initiatives, ICLEI, has worked with over 60
American towns and cities, and in doing so has reduced
greenhouse gas emissions by almost 5 \1/2\ million tons of
carbon equivalent per year. In doing so, incidentally, they've
saved almost $30 million a year in energy costs and have
reduced thousands of tons of criteria pollutants.
As this example shows, states and locals have substantial
experience and knowledge infrastructure in achieving cost
effective, cost savings emission reduction. I urge you to tap
into that experience in developing S. 547.
In conclusion, S. 547 and the Credit for Voluntary
Reductions Act of 1999, is a crucial measure to remove existing
disincentives to early constructive environmental action. By
providing legal guarantees that responsible early actors will
receive appropriate credit, S. 547 will spur entities to
voluntarily undertake cost-effective, multiply beneficial
strategies that include greenhouse gas reduction and economic
competitiveness. We thus believe that establishing such an
early reduction credit system at this time is in New
Hampshire's best interest, in the Nation's best interest and
future generations' best interest, and we urge you to move
forward with it aggressively.
Thank you for the opportunity to assist in the creation of
a sound, responsible early credits program, and I hope you'll
call on the considerable expertise of states and local
governments as you refine this groundbreaking initiative.
Senator Chafee. Thank you, Mr. Colburn.
Now, Mr. Kevin Fay, who is the executive director of
International Climate Change Partnership. Mr. Fay came up from
Washington. We appreciate that. Why don't you proceed, Mr. Fay?
STATEMENT OF KEVIN FAY, EXECUTIVE DIRECTOR, INTERNATIONAL
CLIMATE CHANGE PARTNERSHIP
Mr. Fay. Thank you, Senator. I appreciate the opportunity
to appear before you today. It's also a good opportunity, I
appreciate the opportunity to come back to my home here in the
State of Rhode Island.
I guess as the industry representative here I'm going to be
burdened with representing the left, the middle and the right
based on your comments at the beginning. I'll do my best.
The International Climate Change Partnership is a coalition
of U.S. industry representatives and associations, as well as
the international associations, interested in the policy
development process with respect to global climate change.
We appreciate the opportunity to appear before you today
and commend you for holding this hearing on this increasingly
important topic.
ICCP, as in contrast to IPCC, was organized in 1991 to
provide an industry forum to address this issue and to be a
constructive participant in the policy debate. We continue to
recognize the climate change issue as an important matter which
the Government should and are concerned, and we are one of, if
not, the largest industry coalition in the world focused
exclusively on this issue. A list of our member companies and
our associations is attached to our testimony.
Senator Chafee. You're not just U.S.?
Mr. Fay. Not just U.S. Not just U.S. We have memberships in
Europe, Canada, Japan and Sydney, Australia, and, as you can
see, these are large industries and most of the key
manufacturing sectors in this country and elsewhere in the
world.
We have consistently stressed the need to provide legally
binding assurances that voluntary actions to reduce greenhouse
gas emissions will be credited for any future mandatory scheme
adopted by the Government. We believe that such credits should
be granted to those companies that achieve verified reductions
between 1990 and the commencement of any mandatory program.
Senator Chafee. Can everybody in back hear OK? Yes, raise
your hand. OK. No? Put the microphone down a little bit.
Mr. Fay. OK. ICCP last year outlined a series of principles
on credit for early action that we believe could help guide the
legislative and policy process on this issue. There are ten
principles which I have enumerated in my testimony. I thought I
would just highlight a few of these principles.
The first, we do not believe that there should be a limit
placed on the amount of emission reductions on enhancement of
sinks for which early action credit can be earned. If you can
achieve verifiable reductions, you ought to be able to receive
credit for them. The environment knows the benefits.
Second, credit should be granted for action resulting in
verified emissions reductions or enhancement of sinks that
occur between 1990 and the beginning of any official budget
commitment period or mandatory regulatory action, whether or
not these were part of a government sponsor initiative, such as
the Climate Change Action Plan or as one of the permitting
referred to as the Department of Energy, 16.05 (b), Reporting
Permit, and, again, industry can show that they achieved
verifiable emission reductions, whether it was part of an
ongoing government program, they ought to be able to apply for
that to the Government and be credited for that.
Third, we think it's critical that a process is established
to determine and lock in appropriate baselines for emission
reduction activities, including facility operations, product-
based initiatives, as well as enhancement of sinks. This
process should be flexible enough to reflect special
circumstances, including unique consideration relating to
reductions already achieved.
And, fourth, credit programs should be integrated to ensure
consistency and to avoid double counting. This is a big concern
in the environment community, but it's also a large concern in
the industrial community as well, and, in fact, the registry in
New Hampshire that Ken has referred to is an area where we
found that there is a start of an increase of state activity in
this area, and we want to make sure that we don't get into
conflicting principles in terms of registering the credits to
make sure that they are integrated and consistent and that we
aren't counting twice. So those are just a few of the
principles that we've highlighted as part of consideration of
this issue.
In February of this year we sent a letter to each member of
the U.S. Senate urging them to cosponsor your bill, S. 547, the
Credit for Voluntary Reductions Act. We believe the bill is a
credible start in addressing the issue. We've also identified
several issues as part of that bill that we need to continue to
discuss, and we encourage that this hearing is the start of
that process in working with you and your staff on those.
As discussions have progressed, we've also come to the
conclusion that in the current political climate the efforts to
enact credits for early action legislation will be enhanced by
at least identifying a simplified approach or goal so we can
explain to everybody what it is that we're doing here, because
the complexity of the issue quickly gets us into a level of
detail that's going to slow down the legislative process.
The goal of the legislation should be to accomplish, we
think, three things.
One, to provide legal guarantees to any entity that acts
voluntarily to achieve verifiable reductions related to
products, processes or operations, that it will not be
disadvantaged by the future regulatory program to control
greenhouse gas emissions, that should be the first principle.
Second, to provide a mechanism for verifying any actions
that occurred between 1990 and 1999 under either the Energy
Policy Act, Section 16.05 (b), Reporting; or as part of the
Climate Change Action Plan; or, as I said before, any other
activity in which the entity is able to demonstrate verifiable
reductions, and the significance here is we think we need to
separate out the past actions from future actions. Everybody is
getting concerned with the difference between things that have
already occurred versus things that could occur in the future.
And the third goal should be then to provide the mechanism
for prospective actions, which subject to negotiation of
agreement with the Government will produce additional
verifiable reductions.
We believe that S. 547 embodies these three goals. We
believe this program, the intent of this program should be to
encourage experimentation on the part of the Government,
industry and the environmental community and not to constrain
the ability to develop new and creative methods for
implementing and achieving reductions.
While the program may require flexibility in terms of the
precise value of the credit perceived, it should be clear that
the credits exist as a matter of legal right.
In order to ensure an open process, it should also provide
for public participation in the verification procedure, notice
and comments, public disclosure, a future of negotiated
agreements.
Also, we don't believe that the program should limit
government participation by any particular department or
agency. The principles of the bill, similar to the principles
we outlined earlier, could be used by any department, whether
it was the Department of Energy, or agency, the Environmental
Protection Agency or the Department of Agriculture, to craft
verification agreements with individual actors.
Senator Chafee. I'm not quite sure what you're saying
there.
Mr. Fay. We think that the bill should outline----
Senator Chafee. I mean, don't they have to have some
definiteness?
Mr. Fay. Yes.
Senator Chafee. I don't know what sort of shopping, the
Agriculture Department or EPA or Energy Department.
Mr. Fay. No. We think the bill should outline the basis of
the principles for future agreements, but that if you're an
agricultural interest, the principle should be the same no
matter who is doing the implementing, but the president should
be able to authorize the Agriculture Department to enter into
agreements with its farm community or its forest community, the
Energy Department should be able to enter into agreements with
its utilities, but the principle should be the same, the
president should be required to ensure that in all cases that
they're following the same principles in doing that, but that
they--we have this constant comment from our own industry
members, as to whether farm shopping, some industry sectors
work primarily with EPA today, some work primarily with DOE,
some work primarily with the ag department. We don't think it's
necessary to have to put the entire program at any one of those
agencies, but the principle should be the same for each one.
It has been suggested that supporting credit for early
action legislation may unwittingly create support for the Kyoto
Protocol.
Senator Chafee. That's one of the arguments used against
it. It's the camel's nose under the tent, that wicked Kyoto
Protocol is in some way going to be approved if we have credit
for early reduction.
Mr. Fay. And we don't agree with that. The Kyoto Protocol--
--
Senator Chafee. I have difficulty following the train of
thought.
Mr. Fay. Well, as was explained to me by one of your former
colleagues in a meeting recently, is that once industry has
these credits, that they're somehow going to want a mandatory
regulatory program so they can cash their credits in. I haven't
met too many of my industry clients who get so excited about
having something, that they then need to create a regulatory
program, so I think that Kyoto is going to have to stand on its
own. Kyoto was actually a very successful negotiation from the
standpoint of achieving a market-based framework for dealing
with the issue, but it is still an incomplete agreement and
requires a great deal of work on the part of our Government or
other Governments to finish that agreement, whether it's Kyoto
or son of Kyoto or something else. Most industry, in our view,
has recognized that the climate change process, policy process
is moving forward and that the science is enough to be
concerned with.
But many companies have already taken action based on the
framework convention on climate change, which was ratified by
the Senate in 1992. This agreement called for the U.S. to
attempt to stabilize greenhouse gas emissions at the 1990
levels by the year 2000. Those who have acted in good faith or
who have taken action prior to any mandatory program should be
able to receive legally binding assurance that their verified
reductions will be credited, regardless of the underlying basis
for some future regulatory mandate.
I have attached to my testimony the just released report
from the Energy Information Administration of DOE that
summarizes the voluntary actions taken in 1997. These are the
actions reported under Section 16.05 (b), and as you can see
from that report, and I'd ask that it be included as part of
the record here, that they are reporting hundreds of millions
of metric tons of carbon equivalent reductions being reported
by industries from a variety of industry sectors. Similarly,
the Environmental Protection Agency reports annually on the
results of efforts under the President's voluntary climate
change action plan. Clearly, industry is already acting. Now,
with the fear of a future mandatory program, there is something
of a disincentive, which Ken Colburn has referred to, for
acting now until the answer is ascertained as to whether they
will receive credit for those actions.
ICCP believes that the precedent for crediting early action
was established in the 1990 Clear Air Act amendments, when
companies who moved early on sulfur dioxide emission reductions
received additional considerations in the subsequent sulfur
trading program. Relying on this statutory precedent is
important for the climate change issue; however, given the
scope of industries covered and the enormous task of the effort
to be undertaken, we believe that Government should go on
record now by developing a program for creditory action in
advance of the regulatory requirements, not waiting until after
the passage of some omnibus climate change bill here in this
country.
The fact remains that the United States is on record in
support of responsible action to address greenhouse gas
emissions, and many, if not, most in industry now are also on
record of pledging their support, if not for Kyoto, at least
for dealing with the issue.
We have ratified the Framework Convention on Climate
Change. Congress has funded a variety of activities with the
Climate Change Action Plan and other significant programs. It
is not unreasonable to request assurance from the Government
that these activities, whether past or in the future, not place
the voluntary actors in future regulatory jeopardy.
We're prepared to work constructively to arrive at
consensus with other business groups, the environment NGO's,
government officials on a workable voluntary program.
We applaud you, Senator, and cosponsors of S. 547 for a
commendable start, and we look forward to working with you to
ensure a successful conclusion.
Senator Chafee. Well, thank you very much, Mr. Fay. That's
very helpful. I might say you got a little missionary work to
do with Mobile.
Mr. Fay. Not a member.
Senator Chafee. I read with interest the outburst of the
president of Mobile. At the last stockholder's meeting they
had, he indicated that the Kyoto agreement was negotiated by
boy scouts and he's going to fight it all the way. I wouldn't
say that his approach was very helpful. OK. Thank you very
much, Kevin.
Now Dr. Steve Hamburg, Ittleson Associate Professor in
Environmental Studies right here at Brown. Doctor, I appreciate
your coming. The Doctor testified before us in Washington
several times, and he's always done a good job, we appreciate
it.
STATEMENT OF STEVEN HAMBURG, ITTLESON ASSOCIATE PROFESSOR OF
ENVIRONMENTAL STUDIES, BROWN UNIVERSITY
Mr. Hamburg. Thank you. I appreciate the opportunity to
testify again today, and I would also like to welcome you here
at Brown.
Senator Chafee. Thank you.
Mr. Hamburg. It's seldom the Senate comes to you.
Senator Chafee. Well, my grandfather was a Brown graduate,
my father was a Brown graduate, my son was a Brown graduate, so
we're dipped in Brown.
Mr. Hamburg. I should mention, since you mentioned the
IPCC, that I have been involved as a member of the IPCC both in
the second assessment and currently am involved in writing a
special report on land use and land cover change that's trying
to address some of the issues that you are attempting cover in
S. 547. Today I'd like to speak about the overall strengths or
the concept of an early action accrediting program, and then
more specifically about the carbon sequestration aspects of the
bill, which is my area of expertise.
The science underlying climate change and impacts often
baffle people, and, as a result, the issue is often dismissed
out of ignorance rather than knowledge. In particular, the
complexity of the accounting necessary to verify changes in
carbon storage in natural ecosystems all too often leads people
to dismiss the potential of land use changes to reduce the
impacts of the increase in atmospheric concentrations of carbon
dioxide, and I think this is misplaced. We know enough about
the global carbon cycle to be able to predict potential impacts
of energy and land use practices on the rate of increase in
atmospheric carbon dioxide concentrations. What we do not know
is too often the focus of discussions about the carbon cycle
and certainly other aspects of the cycle that require further
elucidation, but this uncertainty is not central to the
viability of the legislation that you propose. The science of
both climate change and carbon cycling is sufficiently well
understood to provide a solid basis for the enactment of the
credit for early action bill. It's important to remember that
the underlying science on which we base our understanding of
the carbon cycle originates not with the debate concerning
climate change, but far earlier with the advent of a series of
professionals from solar culture, oceanography and many others.
Even though it has only been during the last several decades
that a large number of scientists have focused on the carbon
cycle, our underlying understanding is based on scientific
discoveries accumulated for over more than half a century.
S. 547 attempts to encourage energy users and land owners
to think about how they can reduce emissions, while at the same
time serving their own direct interest, and I think that leads
to a very positive outcome.
Since other members of the panel have talked about the
energy side of the bill, I'm going to focus my remaining
remarks on the land use side of the Act.
Tens of thousands of land owners, including some the one
described today by Representative Rabideau, make decisions
every year what to do with their land, should they cut timber,
should they develop, should they use no till agriculture or
simply do nothing. Each of these decisions has an impact on the
carbon cycle, albeit very small. In the aggregate, the impact
of all these decisions could have a significant impact on the
carbon cycle, and, in turn, on the change.
Since there's consensus that we want to encourage America's
land owners to make wise land use decisions and we want to
ensure that we manage these resources sustainably for
generations to come, S. 547 makes a lot of sense. S. 547 can
provide a powerful tool in helping land owners to make
sustainable long-term land use decisions.
As a land owner myself, I often get solicitations
requesting that I cut my forest, selling the timber to
basically fly-by-night companies, and a lot of my neighbors do
that, but I think that with a bit more planning and with
management, we can actually increase the profit to these
individuals and increase the productivity of the land and do
something to mitigate climate change.
Maximizing carbon storage in the land is a very good metric
for examining long-term sustainable management of America's
lands. If we give people an incentive to maximize carbon
storage on their land, what we're doing is encouraging them to
remove resources in a conservative manner. If this bill is
crafted wisely, and, of course, I've included some legislation
as to how I think it can be wisely crafted, we can reduce the
buildup of greenhouse gases in the atmosphere, at the same time
as increasing the use of best management practices, and, even
better yet, we can do that at little cost to the taxpayers.
Some people may be concerned that by conserving carbon we
will be reducing fiber or timber or agricultural production,
but I think it's very unlikely. The value of carbon credits
will not be sufficiently great to get people to take productive
land out of production, but it's very reasonable to expect the
value of carbon credits to be high enough to get people to
manage productive lands a bit more conservatively. S. 547 will
provide people with the potential to get a bit of extra revenue
for managing lands wisely.
All too often we know what we should do but we just don't
quite get around to doing it. The proposed legislation will
help give people a little extra push.
I heard an argument against the bill based on
interpretation of the legislation that assumes that land owners
will be given an opportunity to benefit from intensifying land
management, but this need not be the case. It's not difficult
to write language for inclusion in S. 547 which requires
vigorous carbon accounting, which others have spoke about,
which means that clearing overgrown forests or intensifying
agricultural production will not yield carbon credits.
There are three elements that I would like to see included
in the language with regards to the land use side of the bill.
There needs to be low transaction costs so that most land
owners can participate. The carbon accounting needs to be
correct, as others have spoken about, and there needs to be----
Senator Chafee. When you say low transaction costs, what
does that mean?
Mr. Hamburg. It means that sort of what you have to put in
to comply, what does an average land owner have to do in order
to be able to participate in the program. If it requires that
you go out and measure every tree and dig soil pits and measure
the soil carbon and do lots of things, most people won't get
involved because of the value of the carbon would be too low
relative to the cost of participation, so we need to make it
easy for the land owner to be able to actually participate, and
I can design a program that will do a great job of accounting
for the carbon and no one would participate because the value
of the carbon would be less.
Senator Chafee. You mean you indicate what kind of trees to
grow?
Mr. Hamburg. Just what kind of trees are there. There's
some simple approaches that you can use where you can
characterize the land, and on average calculate the amount of
carbon increase, the net carbon storage fairly accurately
without the land owner actually having to do a lot of work.
Senator Chafee. A deciduous tree must be a lot of different
than an evergreen, the absorption of carbon?
Mr. Hamburg. Yes. They're actually not that different, but
there good ways of estimating that without having to know a
lot, and that's where we can use the forest inventory program
that the US foresters conducts nationally, and we have really
good statistics on which we can base this, and we can,
basically, we can get it right on a national basis, I mean
quite accurate quite easily.
The third element would be a requirement of additionality.
We need to, we have lots of actions we take on the land now.
What we wanted people to do is take additional actions. We
reward them for simply doing what they're already doing, or
which they are not going to change. We're not effecting a net
change in atmospheric carbon.
Keeping those transaction costs low will facilitate greater
participation, particularly amongst small land owners, which
are the bulk of America's land owners. At the same time, we
have to get the carbon counting correct. These two things could
create tension in the way we just talked about, but, in fact, I
think they can be, the legislation can make them compatible. We
need to be comfortable in saying that we're crediting only net
increases in carbon and not simply carbon being fixed through
photosynthesis, and this came up a bit, and, again, in
Representative Rabideau's testimony, and I want to take a
moment to talk about this.
Plants take atmospheric carbon and convert it into organic
compounds through photosynthesis. The annual amount of carbon
that is removed from the atmosphere through photosynthesis is
very large. It's actually an order of magnitude greater than
the emissions from fossil fuels on an annual basis. Yet, almost
all of that photosynthetically fixed carbon is released back
into the atmosphere on an annual basis, so what we're
interested in crediting is the net carbon, the difference
between those two, and it is easy to lose track of what we are
actually after here.
Senator Chafee. What's respiration mean, how is it released
back into the atmosphere?
Mr. Hamburg. You release, you perspire and you're burning
off the food, the carbon and the food back off a
CO2. Trees are doing the same thing as our plants.
So the carbon, the CO2 in the atmosphere is fixed
through photosynthesis into organic compounds, those are
actually burned by the plant or by animals, given off as
CO2. And, in fact, I've seen language that's been
proposed for inclusion in the bill that would net this gross
carbon, not the net carbon. Basically, some would propose a
free lunch. You go out and we give credit for lots of carbon
that is not in any way helping the atmosphere, and so we have
to guard against doing this, and, in fact, I think we can quite
easily.
The third element that I want to see included, or encourage
inclusion in the bill relates to this additionality. We should
reward only increases in net carbon that are attributable to
decisions made after enactment of this bill. Forestry or land
use is a little different than on the energy sector, where
often you lock yourselves into a future as a function of a past
action. We only want, or I would suggest we should only credit
carbon for which the land owner has an option for doing
something else, and we want to encourage them to take the
correct action.
I've attached legislative language that I think meets these
three objectives in an operationally viable and clear manner.
The language is relatively technical, but I believe it's
effective in meeting the criteria.
We have a hundred years of accumulated knowledge in the
forestry profession that I think we can take good advantage of,
as well as a very robust data base that is collected by the
U.S. Forest Service, and I think that we can do all of that.
I think S. 547 can increase wide stewardship over natural
resources while greatly reducing the increase in atmospheric
concentration for carbon dioxide. It's important to get started
on addressing climate change in the proposed legislation, it is
a logical first step, and I would be happy to work with staff
on incorporating the language that I propose. Thank you very
much.
Senator Chafee. Thank you very much, Dr. Hamburg.
OK, Ms. Peggy Fantozzi, Chair, Massachusetts Commission for
Conservation of Soil, Water and Related Resources. Thank you
very much for coming today.
STATEMENT OF PEGGY FANTOZZI, CHAIR, MASSACHUSETTS COMMISSION
FOR CONSERVATION OF SOIL, WATER AND RELATED RESOURCES
Ms. Fantozzi. First, I wanted to thank you for providing us
an opportunity in Rhode Island as opposed to Washington, D.C.
to do this, it's quite a short trip by those standards. And I
also would explain that as Chair of the Massachusetts State
Commission, I am a member of what we call the Conservation
Partnership, and I know that you are aware and your staff of
what that term means. Basically, it means that there's a state
entity, there's a Federal entity, which is the Department of
Agriculture's Natural Resource Conservation Service, and then
there's a local entity, which are conservation districts and
resource conservation development councils, which are volunteer
groups. The Chair of the Massachusetts State Commission has
traditionally been a conservation district volunteer, and I
fill that slot in that manner. I am not a state official, I am
conservation district person who chairs that commission, and
the testimony that I'm giving today will reflect on the
Conservation Partnership, not only Massachusetts, Rhode Island,
New England, but on a national basis, and it will emphasize the
voluntary, you know, your constituents, what we do, how this
will affect the work that we do and make us do better things
all around, hopefully, for the communities that we serve.
I have provided information with my testimony that gives
background on who we are and what we do. I won't necessarily go
into that today, but, just for the record, if those people who
are not familiar with the Conservation Partnership.
For the record, there are more than 3,000 conservation
districts nationally, they are based on a county basis, based
along county lines. There are, also--and they are in every
state and in every territory of the United States. There are
also more than 300 RC&D councils, Resource, Conservation and
Development Councils, they cover most of the United States, and
provided the graphics, the green is where they are and the
yellow is where they are in the process of being, hopefully.
And, as I said, we are not only your constituents, but we are
the voluntary army that tries to link land users, land owners
in the private sector and community-based sectors with services
within state government and within Federal Government, so we
provide a bridge to do the work on the ground and get the
results, I hope.
I have provided written testimony, and I am not going to go
over point by point, because I think I'm in sync with most of
the speakers that have already addressed some of those, but I
would like to emphasize what I didn't really stress in my
written testimony, and that was the need for this bill and the
need for this bill from a practical sense. Right now carbon
sequestration, or the short term that we use in the voluntary
community is carbon storage because people seem to understand
that better.
Senator Chafee. I think that's a better word. I've never
understood why the word ``sequestration'' was used.
Ms. Fantozzi. Because those of us that deal with science or
legislation like flashy terms, those of us that deal on the
ground with the average citizen like the direct term, so I'll
use storage, if I may.
Senator Chafee. All right.
Ms. Fantozzi. In any event, right now it's risky business,
as we see it, and when we talk with land owners and when we
talk with industry. The biggest plus of your bill is that it
takes the risk out of the goodness that can be done, and that
shouldn't be understated. Conservation districts and the
Resource Conservation councils are already doing what you talk
about setting up the mechanism for in the real world. There was
a reference to Oregon. Oregon and Washington, we have RC&D
councils out there that are literally working with utility
companies, with utility company money to establish credits. We
have projects going on in Iowa that also deal with the science
of actually validating what type of land use, what type of best
management practice will yield what amount of carbon storage,
and we're dealing in Montana with the forestry aspect of it,
linking two state programs, as was referenced by Mr. Colburn
from New Hampshire, so we need this because we're doing it.
The other component of your bill that I think is helpful is
that it doesn't set a standard by itself, it just recognizes
the need to set a standard, and it also gives the flexibility
to make that standard appropriate to where you are in the
United States, whether you're in New England or whether you're
in Hawaii or whether you're in Arkansas, I guess would be a
good place to pick. The characteristics of the climate are
almost more important in some instances than the land use, and
so the credit that gets attributed to the land use is
significantly altered by the climate.
I learned from a conference sponsored by the Northeast
Governors Coalition relative to forest impacts of carbon
storage, that our area, New England and the middle Atlantic
state, probably could get more credit per acre than Hawaii or
some of the southern states, and, although that might not seem
like new news to some of the scientific community, there are a
lot of people out there that think southern climates grow
faster, grow more carbon, therefore, you know, would be of more
value. That's not necessarily the case. Your bill allows every
region of the country to understand its own capabilities in
terms of its land use and its vegetative growth patterns and
its land use management practices, and that flexibility is
critical to making the program succeed.
Your bill also will provide a validation of our work and a
recognition of the environmental benefit and stewardship, and
it will provide, I think, a mechanism to develop that third-
party verification system, and I will later get into an area
that you mentioned before, and I don't mean it as a he said/she
said and who said which agency should do what, but some
suggestions relative to that.
I think the bill also recognizes that a strictly regulatory
approach to control emissions and require storage of carbon may
not be the most effective and will not maximize the opportunity
for implementation. I think that the Federal Government, the
agencies, EPA in particular, have set a precedent for saying
this is true through the Clean Water Action Plan and the Clean
Water Act itself, saying, yes, the regulated community can be
controlled to a large degree, but the greater majority of the
land that's critical for this to succeed is held in private
ownership or municipal and state ownership that isn't
regulated, so we need to set a way of getting to those folks,
and this bill allows that and recognizes it.
Further, by being voluntary you don't get into a lot of the
court appeals. I haven't read the case, but I know recently EPA
was in court on the air quality issue and they came out a
little bit short in terms of the legal decision. So we're not
getting into those kind of contests, if you will, with the way
that this bill sets the stage for providing an opportunity to
everyone.
I'm skipping through because I had made some notes, but I
don't want to be repetitious of those comments that were
already made.
I guess one of the cautions that I would put into the
testimony, if I would, that other speakers have alluded to some
limitations on how to apply the credit system, and the two
issues that jumped up to me was by side or by ownership, and I
would suggest to you that I think it would be an error on the
part of the legislation to try to get into either one of those.
Ownership shouldn't be an issue, as was said by some of the
speakers who were there, it's the intent, we want to store
carbon, we don't care who's doing it, and it shouldn't be
penalized by who the land owner is. So ownership of the land I
think is maybe the least important criteria for moving forward
and implementing what you're talking about. Quite frankly, in
my neck of the woods, on Cape Cod and in Massachusetts and in
Rhode Island, municipal and state ownership of forest lands are
primary that I think should be able to take advantage of some
of the revenues and providing some of the storage, so I would
hate to see a limitation be placed on private land. I think it
should be wide open.
The other area of concern in terms of limiting it to size,
I think the sciences out there, I know the Natural Resource
Conservation Service and the Forest Service have established a
way of formulating credit values by land parcel and by land
use, so they can break that down to a small parcels, as well as
expand it up to large parcels. The problem with doing a size
limitation, in my opinion, would be limiting the willingness,
ability or incentive for urban areas to take part in it. Urban
areas, or highly developed areas, like the northeast, don't
have much land. I mean, you can talk about a thousand acres or
5,000 acres in the middle part of the country or the western
part of the country, and it's an easy fix and it's an easy
match, but I would say to you that if downtown Boston could put
two acres into some sort of forested use and would seek some
carbon credit payment for that, I would champion that and say
that it was money wise spent in a location better suited maybe
than 5,000 acres out in Arizona. Not being from Arizona I can
say that, I guess.
Anyway, those would be some of the comments that I would
make in a generic sense.
In terms of the testimony that I provided, I did make some
suggestions, as everyone has, and a couple of them I think are
a little bit different than some of the things that have been
mentioned.
Oh, and if I can go back. Some of the things that I like
that the bill doesn't do is the bill doesn't promote
regulation, it doesn't inhibit private enterprise, and I think
a couple of speakers related to that. It opens the playing
field wide open, so that as we learn more, we can apply it,
whether it's in relation to wetlands, forests or any other kind
of mechanisms for storing some of these carbon gases. It does
not require linkage to existing or proposed international
agreements, it does not restrict private business options, it
does not subsidize commercial interests, and I include farming
as a commercial interest, and it doesn't create an additional
bureaucratic layer.
In terms of maybe improving the bill, I would suggest that
maybe if, in the bill or as a cover to the bill, there was
verbiage that urged the president to recognize a leadership
role for USPA, the NRCS, the Natural Resource Conservation
Service and the Forest Service, to share in setting guidelines
for the voluntary credit system. These agencies should rely on
their internal technical expertise, as well their partnership
capabilities and connection to the private sector, and I think
that that's important to recognize, that these agencies not
only have that technical expertise and already have the data to
support that, but they also have the connection through the
partnership, to districts and to RC&D councils to actually talk
to and get the private sector on board. To recognize the
technical expertise, not only of USDA, but EPA, NOAA, the
Department of Interior, the Department of Energy in development
of regional or state-specific guidelines, and that's very
important, the national guidelines won't apply, they won't hold
up, at least as I've learned about this. Also, to instruct
Federal agencies to revisit their own land management polices
and practices, to encourage minimization of greenhouse gas
emissions and maximize best land use management practices on
Federal lands, as well as any other public lands that receive
Federal dollars, and then recommend to Congress itself that
some additional funding be available for regionally located
demonstration projects that partner greenhouse emitters and
land owners providing carbon storage or carbon sinks and the
Federal technical expertise, to help provide preliminary
scientific baseline information. I do know that the NRCS budget
for fiscal year 2000 actually proposes some additional funds to
do this, but I think if Congress recommended it, there could be
some guidance so as to make sure that these demonstration
projects were all done in all parts of the country, to generate
the data that we need from all parts of the country.
And then in closing, I just, I would take this opportunity
to thank the committee and the office for sponsoring the bill,
for their efforts in bringing this issue forward, and I would
also like to express the sincere appreciation of the
Conservation Partnership here in New England, the east region
and across the Nation, for your, Senator Chafee, support of our
efforts and your constant champion of the environment for its
own safe, as well as for the common good. You and your staff
are to be commended for your relentless efforts to do the right
thing for the common good in a way that makes common sense.
That doesn't happen very often.
I have family ties in Bristol and in a Providence, and,
therefore, I have taken pride in your service to Rhode Island,
but as a resident of Massachusetts, I can tell you that I'm
honored to lay claim to you as a New Englander and as a United
States senator, and as you will no longer in the future be with
us in that role, I just wanted to say thank you.
Senator Chafee. Aren't you nice. Thank you very much. That
was thoughtful of you. I want to thank everybody for their
presentations, which were excellent, and now I've got some
questions that I'll ask.
Dr. Hamburg, it seems like you plant trees and they absorb
the carbon, but then there comes a time when they release the
carbon, and have we made any progress?
Like you, I'm a small land owner. Suppose I want to do the
right thing, what would you recommend, Dr. Hamburg?
Mr. Hamburg. I think----
Senator Chafee. Also, I don't envision that when we get
this regulatory system in effect, that they're going to be
dealing with a small land owner, that Dr. Hamburg's 20 acres,
wherever it is, I think it's more of just a voluntary thing
that you're doing to wrestle with this problem of carbon
dioxide in the atmosphere.
Mr. Hamburg. Well, let's start with the 20 or 30 acres. I
actually think they can be included in the program in the
language that I submitted. What we do is actually create a,
sort of a consortium, a way of coming together, sort of
equivalent to small business owners. You know, the average
small business owner can't participate easily because of the
regulatory framework, but land owners, as the NRCS and other
groups, or the Timberland Owners Association in New Hampshire
and elsewhere, they come together regularly, so I think
actually you could have 20-acre land owners participating quite
effectively without it becoming burdensome on either side.
In terms of land management, New England, it's about how
you cut your forest, do you cut your forest. When you cut it,
do you get a fly-by-night outfit that sort of cuts everything
and leaves a lot of trees lying on the ground that are just
going to rot or do they selectively go in and effectively
remove the timbers so that you're maximizing the usefulness of
what they remove as opposed to having lots of waste.
It actually turns out there's quite a options there, and
that if you talk to state foresters, they're constantly trying
to push their land owners toward that best management practice,
but they have trouble figuring out how to do it, and if you
actually give them an incentive, where you say, well, there's
this program here that is going to accumulate some credits that
may some day be worth something, that may help to push them
toward wise management.
Senator Chafee. OK. Mr. Fay, here is one for you. What are
we going to do about the growth issue when we deal with this?
We're trying to anticipate--what we're trying to do is give
people credit for early reduction, but let's say you're BP,
you're British Petroleum, and you're growing, so that you've
done the right thing, you've come forward, you've made
reductions, but at the same time, because you're growing, you
are producing more CO2, what do we do about that?
Mr. Fay. Until we get to a future regulatory program, it
seems to us that what it requires is for the entity, whether
it's an energy company or a manufacturing entity, to first look
at what their product is and how they might measure their
reductions. One proposal is to have what's referred to as a
rate-based approach, where you measure your emissions per unit
of product manufacturer or per dollar of sale of the company,
and that's one potential. Frankly, we could use some
experimentation on it in this period to determine if it's an
effective way, does it still produce a verified reduction.
Ultimately, when you get to, if there is a hard cap in the
future, we have to figure out how a rate-based approach would
work in that kind of a scheme, but you certainly do not want to
set a system that would artificially cap your ability to grow
because of the need to achieve the climate change reduction
requirements, and so it's a question of trying to find a
creative way to do the accounting for that that produces a
verifiable reduction, but that at the same time also allows the
economic activity to continue.
There are other industries who may not be grown. There are
other industries who may be declining, you have that constant
transition, but right now what's needed is the experience with
the accounting procedure of how you do that, and we think that
the rate-based approach is one method, some type of percent
approach may be another, and I think those are areas that we
should be looking at as we move forward with the bill.
Senator Chafee. We have discovered that the concept is a
wonderful one. You know, obviously I'm for it, of getting
credit for early reduction, but then once you start drafting
your legislation, it gets very complicated, as you know, you've
been helpful in sitting in and giving us a hand, and you get
this whole business of growth that we just discussed. But let
me try this to a couple of the local officials over here.
How would you--I mean what New Hampshire is doing is very
interesting, as they say, the registration bureau, I don't
know, whose department is that under?
Mr. Colburn. The legislation charge is the Department of
Environmental Services.
Senator Chafee. Which is your state Department of
Environmental Management?
Mr. Colburn. It's our EPA.
Senator Chafee. Your EPA. And so that's the way your state
is responding to this global climate change?
Mr. Colburn. Yes. We don't see as much of a conflict with
the multiple agency issue that Mr. Fay mentioned, because,
remember, this is only a registry, we don't have the
opportunity yet to assign credits because we have no authority
to engender credits, so effectively what we're doing is
suggesting that by a source coming in and registering with us,
they gain the ally of the state so that the state stands with
them against any future baseline determinations, which may be
inappropriately low.
Senator Chafee. Mr. Rabideau, I just wanted to say that
there is a lot going on in the area that you're interest in, in
other words, more Federal funding, the Land and Water
Conservation Act is a source of funding in Washington that
we're trying to get moved, dedicated to open space purchases so
that we can give a hand to communities, such as Warwick. I
think, in this particular case I think they looked at that farm
and there's just a limit to how much the city can takeover.
Mr. Rabideau. That's correct, Senator.
Senator Chafee. They've got an outstanding Mayor down
there, so.
Mr. Rabideau. Why do you think I chose Warwick.
Senator Chafee. You looked into it. I will report that the
City of Warwick in the last 5 years has purchased more open
space than in the prior 31 years, so they've done aggressive
campaigning.
Mr. Rabideau. If I could echo one thing, and Ms. Fantozzi
just touched on it very briefly. The Natural Resource
Conservation Service is an arm of the Department of Agriculture
that is uniquely positioned to help with this issue. One of the
things I'm hoping to have our northern district here do is to
acquire some Federal money, if the budget reflects it, to start
to put together a data base of degraded lands in our state,
because it doesn't always have to be a forested land. We have a
number of degraded freshwater wetlands throughout this state,
and if we start, as they're starting in New Hampshire with
their registry, OK, of emitters, my thought here in Rhode
Island is we will start to register the data base of land
that's available that could be effectively changed to assist
with the sequestration rate or the storage rate of carbon in
this state. So, you know, those efforts are important, and I
can't echo enough the importance of a Natural Resource
Conservation Service to this state and to my community.
Ms. Fantozzi. Senator, if I can followup on that. The
Partnership, not just NRCS, first of all, but the point that I
was trying to make in suggesting adding language to the bill to
recognize that the data base that you're talking about exists
within the Partnership across the country, and so it's not
something that needs to be recreated or things like that, there
are systems already out there, and I think part of what I hope
your legislation or direction that it will go in either
verbiage, direct verbiage or attached guidance, is to say let's
not recreate the wheel here, let's use what's available and
recognize what's available to help solve some of these
problems.
Senator Chafee. Now, one of the things that we keep hearing
from the environmental community is that the science of carbon
sequestration isn't well enough developed to rely on in a
program like ours, in other words, you get all kinds of
arguments, some power company, you were mentioning some power
company, they buy 2,000 acres in Guatemala and use that as an
offset and we get into all kinds of discussions back and forth.
I suppose it can be measured more accurately than some of us
think, is that right?
Mr. Hamburg. Yes. I mean, actually, there's very good
procedures for measuring it, verifying it. The biggest issues
are the social ones that are associated, what we refer to as
leakage, so did that activity go somewhere else, and because in
the domestic arena we actually have such a robust inventory
system of our forest, that I think we can deal with that
problem, so that if you protect your 20 acres and let's say
don't cut them, did I cut mine to meet that same demand, and
that becomes an important issue. We can deal with that because
we have a national data base that we collect. The big question
when you go to Costa Rica or to Bolivia or somewhere is knowing
that the fact that you protected that piece of land didn't just
mean the piece next door got cut. I think that we have the know
how to measure it and we have the know how to verify it, and I
think that the environmental community that's subjected is
really a guide for different arguments, that argument is
related to a philosophy that the only way we should deal with
climate change is by solving energy use problems, it's a
philosophical argument, and personally I have not, I've worked
with a lot of environmental communities, seen any evidence that
the carbon accounting is suspect. The bottom line is, I mean
the science is sound, it's a philosophical argument, should you
include land use or should you not purely because they argue
the fossil fuels are the problem. You should solve it with
fossil fuels.
Ms. Fantozzi. Senator, I would like to add to that, that I
agree and that I think defining and measuring the carbon
storage for the emission is much better and scientifically
sound than measuring such things as biodiversity, impacts to
wildlife habitat, and those folks are right up there for, you
know, validating whatever process is there, so I think we're
ready, it's just a question of jumping in and doing it.
Mr. Fay. Senator, let me add to that. We participated in a
lot of discussions over the last 6 months on this topic and
this inordinate fear among some of the environmental community
that they we're going to give something away, and it gets
raised by others in industry, we don't want to see anything
happen, or some inordinate fear that in giving something away,
they may be somehow disadvantaged, the nonaccurate is they
think may be disadvantaged in the feature as well, and we think
the logic for this type of an approach that your bill takes has
to be just the opposite, that, yes, these are very complicated
issues and that the purpose for doing it is to help the
experimentation to develop a mechanism for the point when we
get to, if we get to a mandatory regulatory program, and so
that I think that we would be better off risking getting good
information and good experience with the chance that perhaps,
you know, something might slip through the cracks and somebody
got a credit that maybe they shouldn't have gotten, but that we
got a lot better experience because of it, and that that will
all be taken into account in the future if there is a mandatory
program. I mean, there's no guarantee there's going to be a
mandatory program, and so companies who can't act, people who
can sequester who can't act on the basis now should be
encouraged to act, and we ought to find that if we're going to
have the flexibility, it ought to be in how we make the tent
better, now how we make sure we keep everybody just under such
a tight thumb.
Senator Chafee. Yes, I think you're right. I think you're
right. Well, any other questions?
[No response.]
Senator Chafee. Well, I want to thank everybody for coming,
and we've got your testimony here and your suggestions, and Dr.
Hamburg has told us to do it right. Anybody want to add
anything else? Here's your chance.
Ms. Fantozzi. Just that we would be happy from any source
that we can provide additional information or followup, if you
need it.
Senator Chafee. OK. I do want to say something. Scott
Rabideau mentioned the open space. I think that sometimes we
get discouraged, but there are a lot of good things happening,
well, up in your state, and in connection with open space bond
issues. You might have seen what New Jersey did. New Jersey
had, as I understand it, a billion dollar bond issue for the
purchase of open space. Now, that's what we call stepping up to
the mark. Here in our state we had a series of bond issues on
the local communities, I think we've got 39 local communities
and I think we had them about 10 or 12, and plus a statewide
bond issue, and they all passed, and it isn't something that
just is a legalist at all, everybody believes, and we ought to
do the best we can, and so the statewide bond issue passed by
something like 70 percent, which for any political figure is a
landslide, and we'd all like to record that personally, and the
local bond issue, for instance, in Warwick they had one, and
that passed handsomely, so across the Nation likewise. So good
things are happening, and if we get some dedicated funds out of
this Land and Water Conservation fund, it would be a big step
forward. The administration, as you know, in its budget has
come forward with dealing with open space, and it's very
interesting, traditionally we've always felt that this is
something that the east likes, but the west doesn't. The west
is, there's incredible statistics, something like 40 percent of
Colorado is owned by the Federal Government, or some figure
such as that, and so it goes to those western states, and so
the theory has always been that the last thing in the world
they wanted is the Feds to come in and buy any more land. Well,
it turned out to be true. It turns out that Mayor Boisie, who
is hardly a radical hothead, has supported both these open
space bond issues, because he sees, in his city and the
neighboring hillside, seen urban sprawl that Scott is so
interested in, has taken over and something should be done.
So I want to leave everybody with, on that particular issue
of a sense of upbeatness and optimism, that doesn't mean we can
slack in our efforts, but it does mean that good things are
happening around the country. As far as this legislation goes,
your comments have been very helpful. It is complicated. I'll
say this, it's turned out to be more complicated than I thought
it was. You go out hunting for rabbits and you look down the
hole and there's a bear, but with the help of Kevin and
everybody else around here, we're getting there.
Jimmy, do you want to give us a little report on how far
along the legislation is. This is a staff director of the
Environment of Public Works Committee who has the
responsibility of seeing that this--the man we had in charge of
this is moving to Texas, and I don't know whether it's caused
an effect or not.
Go ahead, Jim.
Mr. Powell. Well, I think during the month of June we're
going to be adding the suggestions that we have here and at
other hearings and try to have a new draft of the bill by the
end of the month to circulate, and I expect that in July the
committee will be having a hearing and trying to report it out
before the August recess, so over the next couple of months the
activity will be pretty intense.
Senator Chafee. OK. Thanks, everybody, for coming. We're
very grateful.
[Whereupon, at 12 noon, the committee was adjourned, to
reconvene at the call of the Chair.]
[Text of S. 547 and additional statements submitted for the
record follow:]
Statement of Scott P. Rabideau, Rhode Island State Representative
Mr. Chairman and members of the Committee on Environment and Public
Works, I cannot tell you what an honor it is to have the opportunity to
testify before this U.S. Senate Committee. As a member of the Rhode
Island General Assembly, I appear before legislative committees on what
seems like a daily basis. But I never imagined that I would 1 day
testify before the U.S. Senate.
The bill that I wish to testify on behalf of is perhaps one of the
most visionary pieces of legislation I have ever come across. In
essence, S. 547 allows U.S. corporations to receive credit for
voluntarily reducing greenhouse gas emissions or increasing the
sequestration of carbon. The ingenuity of this bill is due to the fact
that these credits shall be applied to future laws and regulations. It
is a way for a good corporate citizen to gain recognition and a
potential fiscal reward for reducing carbon emissions. This is
something that many companies have been preparing for in their capital
planning. Should this bill become law, it may well move up the
timetable for such capital spending.
Beyond the credit for voluntary reductions is the truly unique
issue of carbon sequestration. I would like to speak to how I believe
this portion of the bill would positively affect my little state of
Rhode Island.
All land which is undeveloped and vegetated annually sequesters
varying amounts of atmospheric carbon. I will leave the issue of metric
tons of carbon sequestered per acre (or hectare) to the academics that
will surely testify at some point in time on this issue. Suffice to
say, an acre of young, well managed forest in a temperate climate like
Rhode Island's can annually sequester multiple tons of atmospheric
carbon. That's correct, multiple tons of carbon are sequestered by an
acre of forested land. Therefore, it is safe to presume that the
permanent preservation of as little as 100 acres of open space can
sustain a carbon reservoir and avoid creating a carbon source.
I would like to present you with a real world example of how land
can quickly change from reservoir to source. The first picture shown
within this text is an aerial photograph of a section of Warwick, Rhode
Island. This photo clearly depicts a densely populated residential
community, a golf course, and a large tract of undeveloped farmland.
This represents perhaps the last tract of farmland within a radius of
one mile or more. As of this moment, the owner of the property is in
the process of subdividing his farmland to establish a residential
subdivision. If you skip over and review the next photograph, I have
taken the liberty to demonstrate what the property might look like
after the summer of the year 2000. In one short year's time, this
property will go from carbon reservoir to carbon source.
Figure #1 depicts the results of a Brown University study
evaluating Rhode Island's greenhouse gas emissions from 1990-1996.
Residential development was responsible for approximately 18 percent of
the total increase in greenhouse gas emissions during that time period.
In 1999, the enormous demand for housing in Rhode Island has driven up
the value of raw land. To further complicate issues, the schools in
Rhode Island are funded primarily on the local revenues received from
property taxes. The result, landowners are faced with exceptionally
high taxes on their open space parcels, while developers are constantly
dangling large sums of money before them to acquire the properties for
residential housing. It is a no win situation for the environment.
Believe it or not, 55 percent of Rhode Island is currently
forested. That's right, over one half of this state consists of trees.
But that percentage is dwindling rapidly. Therein lies the opportunity
of S. 547.
I believe that corporate America can play a pivotal role in the
preservation of open space in Rhode Island and the entire United
States. The ability to acquire a greenhouse gas credit for the
demonstrated sequestration of atmospheric carbon could well be the
incentive necessary to motivate the boardrooms across America to take
an active role in the management and preservation of the country's
forests. Not only could a company receive a regulatory credit for the
dedication of permanent open space, but also the marketing potential of
the effort could offer a higher profile when targeting today's
environmentally conscious consumer.
I realize that the environmental community will express deep
concern that corporate giants may abuse such a process. Corporations
and their lobbyists will bemoan the fact that there may be a tacit
acknowledgement of the Kyoto Protocol in this bill.
I however applaud the sponsors of this bill and stand firm in a
belief that change, true change in society, does not come from the
actions of a government regulatory, CEO or a multinational corporation,
or even a well meaning environmental organization. A politician with
vision effects true change. We become politicians for many reasons. But
first among them is the desire to improve our state, our country or
even the world. This bill will change the world.
__________
Statement of Kenneth A. Colburn, Director, Air Resources Division, New
Hampshire Department of Environmental Services, Providence, Rhode
Island
Thank you, Mr. Chairman. My name is Kenneth A. Colburn, and I am
the Director of the Air Resources Division of the New Hampshire
Department of Environmental Services (DES). The Department appreciates
this opportunity to address the Committee regarding S. 547, the Credit
for Voluntary Reductions Act of 1999.
In New Hampshire, a state rich in natural resources, our economic
livelihood has long been directly and inextricably linked to the health
of our natural environment. Whether we hark back to the heyday of the
timber and paper industries, or look instead at today's tourism-based
economy and high quality of life, this linkage has remained a constant.
Two other constants have been our state's traditional frugality; and
our stubborn reluctance to control and regulate when equally favorable
outcomes can be achieved by properly encouraging voluntary actions.
Thus it comes as no surprise that we strongly support S. 547, an
initiative that shares these values. S. 547, the Credit for Voluntary
Reductions Act of 1999, would directly benefit both the environment and
the economy, and encourage cost-effective solutions on a voluntary
basis.
S. 547 encourages U.S. entities business, institutions,
governments, etc. to pursue actions that will mitigate the threat of
global climate change. In doing so, they will provide our nation with
other benefits including substantial savings in energy expenditures,
reduced air and water pollution, less waste, better natural resource
management, and enhanced technological competitiveness. Early voluntary
greenhouse gas reduction measures will help to ensure that the legacy
we leave our children and grandchildren is not one of myopic
selfishness and environmental degradation, but one of sustainable
stewardship and respect for our planet. This Act is not about the
science of global climate change, nor is it about the Kyoto Protocol.
It is not about what level of reductions is necessary, or when they
must be accomplished, or what flexible mechanisms should be employed to
achieve them. S. 547 is about reducing uncertainty for U.S. business
and other entities by ensuring that any reductions of greenhouse gas
emissions that they voluntarily undertake are appropriately recognized
and rewarded.
U.S. business and other entities are not making greenhouse gas
reductions largely because of uncertainty about what future regulatory
programs may be imposed in an effort to stabilize atmospheric
concentrations of carbon dioxide and other greenhouse gases. Many are
concerned that, if the example of the Federal Clean Air Act Amendments
of 1990 hold true, action now will not be appropriately recognized, and
will result in increased burdens later. The State of New Hampshire has
had direct experience with this dynamic, inasmuch as the closure of the
Pease Air Force Base in 1989 was not recognized as emission reductions
under the 1990 baseline of the latest Clean Air Act reauthorization.
This dynamic applies even if actions now would yield cost savings,
because the certain benefits today might be outweighed by the as-yet-
unknown costs imposed by the future program. S. 547 will encourage
reductions of greenhouse gases simply by eliminating the potent
disincentive of uncertainty.
How should a credit for early action program be designed? In order
to be most effective, a program to encourage early action must be
simple, flexible, and applicable to a broad array of emissions sources.
At the same time, it needs to reflect sufficient discipline that the
integrity of its credits is never in doubt. A few cornerstones are thus
essential.
First, all reductions must be strictly quantifiable and subject to
third party verification. The integrity of the credits hinges on the
processes by which they are quantified.
Second, reductions should not be limited or tied to a particular
program, a particular economic sector, or a particular greenhouse gas.
Criteria for establishing credible baselines, coupled with appropriate,
broadly applicable quantification and verification methodologies,
should determine what constitutes a verifiable ton, not what carbon
source the reduction came from. In the end, all verified tons no matter
what their source or how they were reduced are equal in the eyes of the
atmosphere.
Some have also suggested that only certain emission reductions
should count, based, for example, on whether they reflect genuine
environmental intent. I would suggest that this approach unconscionably
cripples the vital linkage between economic and environmental well
being that we cherish and seek to encourage. We should be less
concerned with motives, and more concerned with establishing simple,
workable, and effective quantification and verification protocols.
Third, just as there is a variety of ways to reduce greenhouse gas
emissions, a variety of yardsticks for measuring such reductions may be
necessary. Entities should certainly receive credit for absolute
emission reductions below a historical baseline. In other
circumstances, however, percentage reductions from a defined baseline
may be appropriate, or credit for achieving very-low-emission
performance standards. Reductions provided by a manufacturer's products
(e.g., lower emission vehicles) might also be creditable, although we
would need to ensure that they are not double-counted by purchasers.
Fourth, great care should be taken in placing a limit or cap on the
number of credits available under an early reduction program. Though
some upper bound may ultimately be necessary, it must be balanced
against the fact that such limits could reduce the incentive for
entities to participate.
Who should participate? The early credit incentives should apply
across the broadest possible array of participants. In addition to the
traditional industrial and electricity sectors, for example, other
sectors and entities should be allowed and encouraged to participate,
including transportation, residential, commercial and agriculture.
Further, the program should include both carbon sinks and sources,
inasmuch as carbon sequestration may provide significant opportunities
for agricultural and forest products participants such as those
operating in the Northern Forest Lands.
In what may be a relatively unusual suggestion, I would recommend
that states and municipalities also be allowed to participate in an
early emission credit program, both because they generate emissions
themselves, but also because they are often left to implement whatever
it is the Federal Government has decided. Great uncertainty prevails
here as well. In the case of the Acid Rain program, the Federal
Government dealt directly with emission sources. In EPA's proposed NOx
Transport SIP call, states were assigned emission budgets, and thus had
a say in how allocations were made within their borders.
In an effort to reduce such uncertainty for New Hampshire entities,
including the State itself, we have introduced state legislation to
create a state ``registry'' of voluntary greenhouse gas reductions. By
having the State of New Hampshire stand with them under some potential
future regulatory reduction requirements, this bill would protect New
Hampshire companies and other entities by reducing the risk that they
might not receive appropriate credit for greenhouse gas emission
reduction activities they already undertook. This measure has received
bipartisan support in the New Hampshire Legislature, and has been
strongly supported by the state's business community. To date, the bill
has passed the State Senate and has been recommended to the full House
by the relevant policy committee.
Similarly, municipalities should be able to receive credit for
verifiable greenhouse gas reductions. The International Council for
Local Environmental Initiatives (ICLEI), for example, working with 61
(1998 figure) U.S. towns and cities, has reduced greenhouse gas
emissions by 5.4 million tons per year. In achieving these reductions,
incidentally, these ICLEI communities have saved $27.5 million in
energy and fuel costs, and also reduced 7,000 tons of criteria
pollutants. If all verifiable tons are equal, then these towns and
cities should also be credited appropriately. As this example shows,
states and locals have substantial experience and knowledge
infrastructure in achieving cost-saving emissions reductions. I urge
you to tap into that experience in developing S. 547.
In conclusion, S. 547, the Credit for Voluntary Reductions Act of
1999 is a crucial measure to remove existing disincentives to early,
constructive environmental action. By providing legal guarantees that
responsible early actors will receive appropriate credit, it will spur
entities to voluntarily undertake cost-effective, multiply beneficial
strategies that include greenhouse gas reductions. We thus believe that
establishing such an early reduction credit system at this time is in
New Hampshire's best interest, the nation's best interest, and future
generations' best interest, and we urge you to move forward with it
aggressively.
Thank you for the opportunity to assist in the creation of a sound,
responsible, early emission credit program. I hope you will continue to
call on the considerable expertise of state and local governments in
developing this ground-breaking initiative.
__________
Statement of Kevin J. Fay, Executive Director, International Climate
Change Partnership
Good Morning, Mr. Chairman and members of the Committee. My name is
Kevin Fay and I serve as Executive Director of the International
Climate Change Partnership (ICCP), a coalition of U.S. industry
representatives and associations, as well as international
associations, interested in the policy development process with respect
to global climate change. We appreciate the opportunity to appear
before the Committee today on the subject of credit for early action to
voluntarily reduce greenhouse gas emissions.
ICCP was organized in 1991 to provide a forum to address the issue
of global climate change and to be a constructive participant in the
policy debate. We continue to recognize the climate change issue as an
important matter with which governments should be concerned. We are one
of the largest industry coalitions in the world on this issue. A list
of our member companies and associations is attached.
ICCP has consistently stressed the need to provide legally binding
assurances that voluntary actions to reduce greenhouse gas emissions
will be credited in any future mandatory scheme adopted by the
government. Such ``credits'' should be granted to those companies that
achieve verified reductions between 1990 and the commencement of any
mandatory program.
Voluntary efforts to reduce emissions of greenhouse gases now can
slow the rate of growth of emissions and contribute to the longer-term
goal of achieving appropriate greenhouse gas concentration levels. In
circumstances where there is marginal value in an emission reduction
investment, granting credit may provide the incentive for such
investments.
Companies that have already taken action or are contemplating doing
so want to ensure that these contributions are not ignored when a
mandatory phase of emission reductions begins. Failure to recognize
these contributions could unfairly force companies to make reductions
through increasingly more costly options. This would have the perverse
effect of penalizing those companies who act early, while potentially
benefiting competitors who save their least costly reductions to
respond to regulatory mandates.
Industry's aim is to ensure that these early investments that
result in emission reductions are recognized and ``credited.'' Such
credit could be used to offset future obligations that may arise from
any domestic allocation, cap, tax or permit program or sold to parties
unable to meet their obligations in a cost-effective manner.
ICCP has outlined a series of principles on credit for early action
that we believe should guide the legislative and policy process on this
issue.
ICCP Credit for Early Action Principles
Credit for early action programs will require new statutory
authority. Failure to enact a credit program at the Federal level may
stop companies from making commitments now and encourages a patchwork
of inconsistent Federal, state, and local initiatives.
No limit should be placed on the amount of emissions reductions or
enhancement of sinks for which early action credit can be earned.
Credit should be granted for actions resulting in verified
emissions reductions or enhancement of sinks that occur between 1990
and the beginning of any official budget commitment period, whether or
not such actions were part of a government-sponsored voluntary
initiative.
A process should be established to determine and ``lock-in''
appropriate baselines for emission reduction activities including
facility operations, product-based initiatives, and enhancement of
sinks. Such a process should be flexible enough to reflect special
circumstances, including unique considerations related to reductions
already achieved.
Credits granted prior to a first budget commitment period should be
available without discount as offsets against any greenhouse gas
emission allocation, cap, tax, permit, or other requirement to limit or
reduce greenhouse gas emissions that subsequently may be imposed.
Credits granted prior to a first budget commitment period should be
usable in any national emission budget that may be subsequently
imposed. Credits should remain with the earning entity for use at their
discretion.
Emissions reductions or enhancement of sinks produced from
participation in the Clean Development Mechanism, Joint Implementation,
or a domestic emissions trading program should be eligible for early
action credit if they occur prior to a first budget commitment period.
Credits generated from credit for early action programs should be
eligible for emissions trading.
Credit accounts should be updated on an annual basis.
Credit programs should be integrated to ensure consistency and to
avoid ``double counting''.
In February of this year ICCP sent a letter to each member of the
Senate urging them to cosponsor S. 547, the ``Credit for Voluntary
Reductions Act.'' At that time we stated that the bill was a credible
start in addressing the issue of credit for early action, but we also
identified several issues that needed additional discussion and
resolution such as how to address products that use or emit greenhouse
gases and how to deal with growth.
As discussions on this issue have progressed, ICCP has come to the
conclusion that, in the current political climate, efforts to enact
credit for early action legislation would be enhanced by pursuing a
simplified approach. We are currently having discussions with Senate
staff on how to address these issues.
The goal of the legislation should be to accomplish three things:
1.Provide legal guarantees to any entity that acts voluntarily to
achieve verifiable reductions related to products, processes, or
operations, that it will not be disadvantaged by a future regulatory
program to control greenhouse gas emissions.
2.Provide a mechanism for verifying any actions that occurred
between 1990 and 1999, under Energy Policy Act Section 1605 (b), as
part of the U.S. Climate Change Action Plan, or any other activity in
which the entity is able to demonstrate verifiable reductions.
3.Provide a mechanism for prospective actions which, subject to
negotiation of an agreement with the government, produce verifiable
reductions.
We believe that S. 547 embodies these three goals.
With respect to past and future reductions, a series of principles
should be delineated to guide the private sector, other entities, and
government officials to use in both verifying past reductions and
negotiating agreements for future reductions.
The intent of the program should be to encourage experimentation on
the part of government, industry, and the environment community, and
not to constrain the ability to develop new and creative methods for
implementing and achieving verifiable reductions.
While this program may require flexibility in terms of the precise
value of the credited reductions, it should be firm that the credits
exist as a matter of legal right.
In order to ensure an open process, it should also provide for
public participation in the verification procedure, notice and comment,
and public disclosure of future negotiated agreements.
The program should not limit government participation by any
particular department or agency. The principles of the bill could be
used by any department or entity to craft verification agreements.
These principles, in our view, should be consistent with those we have
previously outlined and are found in S. 547.
For purposes of prior acts, the bill should require all those who
seek credits for prior acts to file a request with the government
within 12 months of enactment. The government would be required to
certify the credited reductions within 12 months after submission in a
direct final rule. The direct final rule would be subject to comment
and would take effect unless challenged during the comment period.
It has been suggested that supporting credit for early action
legislation may unwittingly create support for the Kyoto Protocol. We
do not agree. Many companies have already taken action based on the
Framework Convention on Climate Change, which was ratified by the U.S.
Senate in 1992. This agreement called for the United States to attempt
to stabilize its greenhouse gas emissions at their 1990 level by the
year 2000. Those who have acted in good faith or who take action prior
to any mandatory program should receive legally binding assurances that
their verified reductions will be credited, regardless of the
underlying basis for some future regulatory mandate.
The Energy Information Administration of the Department of Energy
just released a report that summarizes voluntary actions taken in 1997.
(Executive Summary is attached.) Similarly, the Environmental
Protection Agency reports annually on the results of efforts under the
voluntary Climate Change Action Plan. These actions amount to hundreds
of millions of metric tons of carbon equivalent emission reductions.
The precedent for crediting early action was established in the
1990 Clean Air Act amendments, when companies who moved early on sulfur
dioxide emissions reductions received additional consideration in the
subsequent sulfur trading program. Relying on this statutory precedent
is important for the climate change issue. However, given the scope of
industries covered and the enormous task to be undertaken, the
government should go on record now by developing the program in advance
of any regulatory requirements.
Climate change presents a complex environmental challenge. The
political and economic concerns raised in attempts to address the issue
are significant both internationally and here in the United States.
Credit for early action discussions can be neutral on whether it
advances or detracts from the Kyoto Protocol.
The fact remains, though, that the United States is on record in
support of responsible action to address greenhouse gas emissions. We
have ratified the Framework Convention on Climate Change. Congress has
funded a variety of activities under the Climate Change Action Plan and
other significant government programs. It is not unreasonable to
request assurance from the government that these activities, whether
past or in the future, not place the voluntary actors in future
regulatory jeopardy.
At this time we are discussing a voluntary and verifiable program.
To the extent that some wish to see much greater detail in this
legislation, to turn the discussion to the design of a pseudo-
regulatory program, we would say that such detail may be unachievable.
We are prepared to work constructively to arrive at a consensus
with other business groups, environment NGO's, and government
officials, on a workable voluntary program.
We applaud Senator Chafee and the cosponsors of S. 547 for a
commendable start. We look forward to working with you to ensure a
successful conclusion.
______
ICCP 1999 Membership List
3M Company
Air Conditioning and Refrigeration Institute
Alliance for Responsible Atmospheric Policy
Alliance for Responsible Environmental Alternatives--Canada
Allied Signal
Association of Home Appliance Manufacturers
Association of International Automobile Manufacturers
Boeing
BP Amoco
Carrier
Dow Chemical
Halliburton Industries
Dupont
Eastman Kodak
Elf Atochem
European Chemical Industry Council (CEFIC)--European
Fluorocarbon Technical Committee (EFCTC) Sector
General Electric
General Motors
Honeywell
Intel Corporation
Intercontinental Energy Corporation
Japan Fluorocarbon Manufacturers Association
Japan Industrial Conference for Ozone Layer Protection
National Electrical Manufacturers Association (NEMA)Polyisocyanurate
Insulation Manufacturers Association
Sun Company
Trane
Trigen Energy Corporation
United Technologies
Vulcan Chemicals
Whirlpool Corporation
York International
__________
Executive Summary, Department of Energy Report [EIA-0608(97)]
The Voluntary Reporting of Greenhouse Gases Program, required by
Section 1605(b) of the Energy Policy Act of 1992, records the results
of voluntary measures to reduce, avoid, or sequester greenhouse gas
emissions. In 1998, 156 U.S. companies and other organizations reported
to the Energy Information Administration that, during 1997, they had
achieved greenhouse gas emission reductions and carbon sequestration
equivalent to 166 million tons of carbon dioxide, or about 2.5 percent
of total U.S. emissions for the year. For the 1,229 emission reduction
projects reported, reductions usually were measured by comparing an
estimate of actual emissions with an estimate of what emissions would
have been had the project not been implemented.
Both the number of projects and the quantity of emission reductions
reported have roughly doubled since 1994, and the number of
organizations participating in the Voluntary Reporting Program has
increased by 44 percent (Table EST). Fifty-six of the organizations
reporting in 1998 provided estimates of emissions and/or emission
reductions for the entire organization. Sixty-five reporters recorded
commitments to take action to reduce emissions in future years, mostly
by the year 2000.
Table ES1. Reporting Indicators for the Voluntary Reporting of
Greenhouse Gases Program. Data Years 1994-1997
For the 56 organizations that estimated their total 1997 emissions,
the combined total was 1.5 billion metric tons carbon dioxide
equivalent, equal to about 23 percent of all U.S. emissions. Forty-nine
of the 56 companies also estimated corporate-wide emission reductions
in addition to (or instead of) the reductions reported for individual
projects. The combined total reduction for the 49 companies was 128
million metric tons carbon dioxide equivalent.
The Voluntary Reporting of Greenhouse Gases Program is used as a
registry by several U.S. Government-sponsored voluntary programs to
limit greenhouse gas emissions, notably the Climate Challenge program
for electric utilities and the Climate Wise program for manufacturers.
Most (71 percent) of the reporters to the Voluntary Reporting Program
were electric utilities, usually participants in the Climate Challenge
program. Nonutility participants included manufacturers such as General
Motors, IBM, Dow, Johnson & Johnson; facilities such as Alcan's Sebree
aluminum plant and Motorola's Austin, Texas, integrated circuit
fabrication plant; a coal company (Peabody Holdings); several operators
and developers of landfill methane recovery projects; a trade
association (the Integrated Waste Services Association); and private
voluntary organizations, such as American Forests.
Some 360 of the projects reported in 1998 were related to the
generation, transmission, or distribution of electricity. Another 273
were related to energy end use, 20 were cogeneration projects, and 62
were transportation projects. The energy-related projects accounted for
about 79 percent of the total 166 million metric tons of emission
reductions reported. The largest reductions were reported for projects
that improved the performance of nuclear power plants.
Public interest in the Voluntary Reporting Program increased in
1998, in part because of growing awareness of climate change issues
inspired by the signing of Kyoto Protocol and in part because of public
interest in the concept of credit for early reductions. In October
1997, the White House announced that it favored offering ``credit for
early reductions'' as a means to limit future U.S. greenhouse gas
emissions. Generally, an early credit program would offer regulatory
credit--in the form of ``carbon allowances'' against a future cap on
greenhouse gas emissions--for organizations that take steps to reduce
their emissions now. Neither ``credits'' nor ``reductions'' were
defined, however, and the exact nature of such a program is a subject
of ongoing debate among policymakers, interest groups, and private
organizations.
__________
Statement of Steven P. Hamburg, Ittleson Associate Professor of
Environmental Studies and Associate Professor of Biology, Brown
University
I very much appreciate the opportunity to appear before you today.
My name is Steven Hamburg, I am a scientist with training as an
ecosystem ecologist and currently hold the Ittleson Associate
Professorship in Environmental Studies here at Brown University.
I would like to testify with regards to Senate bill 547, Credit for
Voluntary Early Action Act. Over the past two decades I have studied
the effects of land-use change on carbon storage in forest ecosystems,
with a particular focus on the old-field forests of New England. I have
participated in the Intergovernmental Panel on Climate Change Second
Assessment as a review team editor focusing on.the ecological impacts
of climate change. I am currently actively involved as a principal lead
author in the writing of the IPCC's special report on land-use/land-
cover change. I have also worked with the Environmental Defense Fund
and Trexler Associates as a consultant on the design of carbon
sequestration projects.
Today, I would like to speak to the overall strengths of the
concept of an early action crediting program, and then more
specifically to the carbon sequestration aspects of the bill. The
science underlying climate change and its impacts often baffle people,
and as a result the issue is often dismissed out of ignorance rather
than knowledge. In particular, the complexity of the accounting
necessary to verify changes in carbon storage in natural ecosystems all
too often leads people to dismiss the potential of land-use changes to
reduce the increase in atmospheric concentrations of carbon dioxide.
We know enough about the global carbon cycle to be able to predict
the potential impacts of energy and land-use practices on the rate of
increase in atmospheric carbon dioxide concentrations. This is not to
say we know everything, but rather that our knowledge is sufficiently
robust to allow us to craft public policy that can have a desired
outcome, such as reducing the rate of increase in the atmospheric
concentrations of carbon dioxide. What we do not know is too often the
focus of discussions about the global carbon cycle, and certainly there
are aspects of the cycle that require further elucidation, but this
uncertainty is not central to the viability of the early action
legislation. The science of both climate change and carbon cycling is
sufficiently well understood to provide a solid basis for the enactment
of the Credit for Voluntary Early Action Act.
Our knowledge about carbon cycling is more than adequate to justify
action on changing patterns of energy use and land-use practices. It is
important to remember that the underlying science on which we base our
understanding of the global carbon cycle originates not with the debate
concerning climate change, but far earlier with the advent of
silviculture and oceanography among many other disciplines. Even though
it has only been during the last several decades that large numbers of
scientists have focused on the carbon cycle, our underlying
understanding is based on scientific discoveries accumulated over more
than a half century.
S. 547 is based on sound science, science that includes the use of
land-use changes to reduce greenhouse gas emissions. The Credit for
Voluntary Early Action Act attempts to encourage energy users and
landowners to think about how they can reduce their emissions while at
the same time serving their own direct interests. The proposed
legislation is designed to reduce the potential penalty involved in
taking action that reduces greenhouse gas emissions. Without such
legislation not only would our country not be recognizing the threat
that climate change poses to our well being, but we would be making the
situation even worse. If corporations and landowners do not know what
year will be used as a baseline for any future domestic greenhouse gas
reductions legislation, then any action to reduce emissions today could
create the need for deeper cuts in the future. This disincentive keeps
people from acting and we need to reverse the situation, S. 547 would
do that. Without this legislation it can be argued that there is
advantage for most companies and land owners to allow emissions to
increase unchecked, as it would effectively position a company or
landowner should mandated cuts come into play. If Congress does not
provide incentives to reduce greenhouse gas emissions, the lack of
incentives could actually accelerate the rate of increase in greenhouse
gas emissions, making any future reductions even more difficult. The
sooner there are incentives for reducing greenhouse gas emissions, the
less need there will be for dramatic reductions later. The proposed act
will make long-term planning viable and economically advantageous,
whether it is in the energy sector or the land-use arena.
Since other members of the panel will be testifying today on the
energy side of the bill I will focus my remaining remarks on the land-
use side of the Act. Tens of thousands of landowners across America
make decisions every year about what to do with land they own. Should
they cut timber, use no-till agriculture or do nothing, let nature run
its course. Each of these decisions has an impact on the global carbon
cycle, albeit very small. In the aggregate the impact of all of these
decisions could have a significant effect on the global carbon cycle.
Since, there is consensus that we want to encourage America's
landowners to make wise land-use decisions, decisions that will insure
the sustainability of our natural resources for generations to come, S.
547 makes a lot of sense. S. 547 could provide a powerful tool toward
helping landowners make sustainable long-term land-use decisions.
As a landowner I get regular solicitations exhorting me to contact
the soliciting company to find out how much the timber on my land is
worth. Many of my neighbors sell their timber in just such a
shortsighted manner. Yet, with a bit more planning and management it
would be possible to increase both the profit of my neighbors and the
productivity of their land. Maximizing carbon storage on the land is a
very good metric for examining long-term sustainable management of
America's lands. If we give people an incentive to maximize carbon
storage on the land, what we are doing is encouraging them to remove
resources in a conservative manner. If this bill if crafted wisely (I
will come back to some proposed language) we can reduce the buildup of
greenhouse gases in the atmosphere at the same time as increasing use
of best management practices, and better yet at little if any cost to
the taxpayers. Some people may be concerned that by conserving carbon
we will be reducing fiber, timber or agricultural production, but that
is very unlikely. The value of carbon credits will not be sufficiently
great to get people to take productive land out of production, but it
is very reasonable to expect the value of carbon credits to be high
enough to get people to manage productive lands a bit more
conservatively. S. 547 would provide people with the potential to get a
bit of extra revenue from managing trends wisely.
All to often we know what we should do, but we just don't quite get
around to doing it. The proposed legislation will help give people a
little extra push. Since, the bill involves only voluntary actions it
does not require people to take actions they do not want to take. I
have heard an argument against the bill based on an interpretation of
the proposed legislation that assumes that landowners would be given
the opportunity to benefit from intensifying land management, but this
need not be the case. It is not difficult to write language for
inclusion in S. 547 which requires rigorous carbon accounting, which
means clearing old growth forest or intensifying agricultural
production will not yield carbon credits.
Specifically I would like to see that the land-use aspects of this
legislation meet three objectives:
a. low transaction costs;
b. carbon correct accounting;
c. a requirement of additionality.
A legislative framework that allows transaction costs to be kept
low will facilitate greater participation, particularly among small
landowners that own the bulk of America's land. At the same time it is
critical that there is carbon correct accounting incorporated in the
bill. These two requirements could create tension, but in fact are
compatible. We need to be comfortable in saying that we are crediting
only net increases in carbon and not simply carbon being fixed though
photosynthesis. This is an important point, so let me take a moment to
explain. Trees take atmospheric carbon and convert it into organic
compounds through the process of photosynthesis. The annual amount of
carbon that is removed from the atmosphere through photosynthesis is
very large, an order of magnitude greater than annual fossil fuel
emissions. Yet, almost all of that photosynthetically fixed carbon is
released back into the atmosphere through respiration, so only a small
amount of net carbon stays on the land. It is the net carbon
sequestered that is potentially creditable. If we credit more than the
amount of net carbon sequestered on the land then we have not
accomplished anything relative to addressing the atmospheric buildup of
greenhouse gases. I have seen proposed language for this bill that
credits gross, not net, carbon.
Since, some of that net carbon is the product of past actions, and
will accumulate with or without this bill, the early action bill should
reward only increases in net carbon that are attributable to decisions
made after the enactment of this bill. We want the bill to encourage
more conservative use of the land, use that will increase the carbon
sequestered on the land.
How do we meet the three criteria I have listed above? I have
attached legislative language that I think meets these three objectives
in an operationally viable and clear manner. The language is relatively
technical, but I believe it is effective in meeting the criteria I
spoke about earlier. On the land-use side we have the advantage of 100
years of accumulated knowledge in the forestry profession that we can
call upon to develop viable measurement approaches to quantifying the
amount of net carbon sequestered. Measuring the amount of carbon in a
tree or in the soil is not magic, but rather straightforward science,
well-established science.
In the language I have given you we have attempted to exploit what
we know in order to establish a system that requires a landowner to
measure a minimal number of variables in the field. We have assumed
that getting it ``right'' on each parcel of land is important, but even
more important is insuring that the aggregate net carbon credited is
accurate. I believe the attached language does just that.
In summary, I believe the Credit for Voluntary Early Action Act can
increase wise stewardship of our natural resources while greatly
reducing the increase in atmospheric concentrations of carbon dioxide.
It is important to get started on addressing climate change and the
proposed legislation is a very logical first step. I would be happy to
work with you or your staff on specific language for inclusion in this
bill. Thank you for the opportunity to testify before you today.
increases in carbon stocks
(A) In general
An early action agreement may provide that a participant shall be
entitled to receive greenhouse gas reduction credit for the net
increase in carbon stocks during the credit period within ecosystems on
land owned by the participant that are additional to that which would
have occurred as a result of current and projected practices in the
absence of this legislation. In the case of permanent protection of
mature primary forest from logging activity after the date of enactment
of this Act, greenhouse gas reduction credits shall be equal to 50
percent (50 percent) of the carbon stock in above and below ground live
biomass, measured at the end of the credit period.
(B) Calculations
d. Additionality. Except for lands on which there is reforestation,
afforestation, or permanent protection from logging activity, the
amount of the carbon stock increase that is considered additional to
that which would have occurred as a result of current and projected
practices in the absence of this legislation shall be determined as the
difference between the net increase in carbon stocks during the credit
period on land owned by the participant and the product of the number
of acres of land owned by the participant and the average per acre
change in carbon stocks during the credit period in similar forests
within the region. If the average per acre change in carbon stocks
during the credit period in similar forests within the region is less
than zero, it shall be regarded as zero for the purpose of this
calculation. For purposes of this analysis regulations promulgated
under section 4(c) shall establish average rates of change of carbon
stocks by forest type, productivity class, age, and region, taking into
account the most recent forest inventory and analysis data. All
analysis of such average rates of change of carbon stocks shall exclude
all submerchantable timber. In the case of reforestation,
afforestation, or permanent protection from logging activity after the
date of enactment of this Act, the full net increase in carbon stocks
during the credit period shall be considered additional to that which
would have occurred as a result of current and projected practices in
the absence of this legislation.
e. Leakage. The net increase in carbon stocks eligible for
greenhouse gas reduction credit shall be calculated by deducting any
leakage of benefits due to related greenhouse gas emissions or reduced
carbon stocks on land not covered by the early action agreement. If an
early action agreement results in a reduction in timber supply, the
amount of the deduction shall be the product of the amount of reduction
in timber supply and the average carbon emissions associated with
supplying similar timber. The deduction for related greenhouse gas
emissions associated with land management practices shall include, but
not be limited to, emissions from fossil fuel consumption, fertilizer
application and land preparation activities deemed significant
according to the rules developed pursuant to Section 4 (C) of this Act.
Leakage of benefits will be assumed to be zero in the case of:
a) Lands on which there is natural regeneration or establishment of
plantations leading to afforestation or reforestation of agricultural
lands in regions where on a net basis the forest type being regenerated
is not being converted to agricultural lands during the credit period.
b) Improved forest management practices that increase carbon stocks
while maintaining production of timber, fiber, and/or energy, as
applicable, from the participant's lands.
c) A demonstration that the rate of increase in carbon stocks in
the forests of the region has increased for the last period for which
such data is available and the aggregate output of all timber, fiber,
and fuel producing mills and facilities in the region has not declined,
subtracting any production which relied on imports of timber or fiber
from outside the region.
d) Permanent protection of forests from logging activity after the
date of enactment of this Act.
(C) Limitations
(1) Coverage
a) Only private lands are eligible to participate in the program
established by this section.
b) Landowners must enroll their entire forest land base to
participate in the program established by this section. Landowners may
exclude lands from enrollment if the dominant use of the property is
ecosystem preservation and there are no timber management activities
occurring on the property. Notwithstanding the preceding sentence, a
participant may enroll preservation lands if it wishes to do so. If
property excluded from consideration under this provision comes under
active timber management it must be included in all future carbon
accounting. If a participant purchases land during the agreement
period, then the net change in carbon stocks on that land must also be
included in the applicable agreement. A participant owns land if it
owns a controlling interest in the timber on the land. Participants may
exclude from enrollment tracts of lands smaller than 50 acres that are
non-contiguous with other land owned by the participant. Changes in
carbon stocks on all lands enrolled need to be included and for those
lands with a net loss of carbon stocks the loss needs to be subtracted
from the creditable gain in carbon stocks calculated under this
section.
c) For landowners undertaking improved forest management practices,
including improved forest management in conjunction with reforestation,
a minimum parcel size of 5,000 acres is required to enroll as an
individual. Otherwise, landowners must pool their lands together with
other landowners for purposes of enrolling in the program. Such
landowner pools must have a minimum enrolled acreage of 5,000 acres.
These requirements for pooling and minimum tract size do not apply to
landowners who enroll lands where no timber harvests will be conducted
during the early action period and where activities will consist of
reforestation on agricultural lands and/or improved agricultural
practices. To enroll in a landowner pool, individual landowners must
enroll all their land into an early action agreement.
d) Rules issued under this Act shall establish the age at which
each forest type described above produces merchantable pulpwood,
sawtimber or other timber products commonly sold by landowners in the
region. Only lands on which the forest is older than this minimum age
will be eligible, except for lands on which reforestation and
afforestation takes place during the early action period. For forest
management units (each not to exceed 100 acres) with multiple tree age
cohorts, for purposes of this act, the age of the forest is the oldest
age cohort representing at least 20 percent of the standing timber.
(2) Durability
a) The participant may elect to count the greenhouse gas reduction
credits accruing from their early action agreement based on the number
of ``ton-years'' that carbon stock increases have been maintained. Each
``ton-year'' will be awarded a fraction of one ton of credit. The
fraction shall be determined, by rule, based on the ratio of the
reduction in greenhouse gas forcing over a 100 year time period as a
function of the period during which a carbon stock increase of one ton
has been maintained, to the reduction in greenhouse gas forcing over a
100 year time period from the permanent avoidance of the emission of
one ton of carbon, taking into account the most recent findings of the
Intergovernmental Panel on Climate Change.
b) If the participant elects not to count the greenhouse gas
reduction credits accruing from their activities in ``ton-years'', the
participant shall receive credit equal to the participant's net
increase in carbon stocks during the credit period, as determined under
this section. Under this election, if at any time after end of the
credit period, and before the land covered by the agreement is
accounted for under a mandatory emissions reduction program, the stock
of 6 carbon on the land covered by the agreement is less than the stock
of carbon at the end of the credit period, the participant shall retire
a number of greenhouse gas reduction credits equal to the difference
between the two amounts.
(3) Land stewardship
a) In order to prevent the establishment of forests in areas that
currently support natural vegetative communities other than forests, no
credits will be granted for afforestation of areas historically not
forested unless those areas have been in cropland since 1990.
b) No credits shall be granted for offsite increases in carbon
stocks including but not limited to those associated with paper and
other wood products and landfills.
c) Credits for carbon stock increases from land-use activities
should encourage wise stewardship of land, including land used in
production of forest and agricultural products, land providing
environmental service or land set aside for the preservation of natural
areas. All lands enrolled in a program for early action carbon credits
must adhere to best management practices as specified on a regional or
state basis by the appropriate Federal or state agency.
(4) No more then 20 percent of the greenhouse gas reduction
credits allocated under this Act shall be awarded
for carbon stock increases under this section.
(D) Monitoring, Reporting and Verification
(1) The rules issued pursuant to section 4(C) shall include
monitoring guidelines that, at a minimum, provide:
a) Tables of estimated greenhouse gas emissions associated with
land management activities that result in a significant indirect
increase in greenhouse gas emissions (e.g. fertilizer production,
herbicide production, fossil fuel consumption).
b) Guidelines that identify all carbon stocks on a participant's
lands that may be decreasing during the credit period. All carbon
stocks that may be decreasing must be monitored. Monitoring of carbon
stocks that are increasing is at the discretion of the participant.
c) Guidelines that ensure accurate and transparent monitoring based
on statistically robust inventory, soil sampling, ecological survey,
and other applicable scientific techniques.
d) Requirements to perform monitoring in the first year of the
early action agreement, the last year of the credit period, and at
least once every 3 years during the credit period. Procedures for
estimating baseline carbon stocks on the participant's lands included
in an early action agreement.
f) Procedures to allow appropriate estimation of carbon stocks
using tables and models derived from USFS Forest Inventory and Analysis
data for the appropriate region, forest type, age, stand management
history, and site productivity for tracts of land included in an early
action agreement.
(2) The rules issued pursuant to section 4.(C). shall include
reporting guidelines that, at a minimum, provide that:
a) Participants shall report claimed net increases in carbon stocks
during the credit period to the appropriate government agency, which
will then evaluate the participants' compliance with the guidelines. If
not in compliance, the participant will be notified and advised what
remedial actions are needed. Participants may not receive greenhouse
gas reduction credits until they are in compliance with the guidelines
issued under this Act.
b) Each participant's report must be supported by a report from a
recognized independent third party auditor. The auditor must verify the
carbon credits using a statistically robust evaluation of a valid
subsample of the participants lands.
(3) Participants who own less than 50,000 acres will be eligible
for monitoring and verification assistance.
definitions
(1) Afforestation.--Conversion of non-forest to forest on lands
that have, historically, not contained forests and did not in 1990.
(2) Reforestation.--Conversion of non-forest to forest on lands
which had, historically, contained forests but which had been converted
to some other use as of 1990.
(3) Carbon Stocks.--Living biomass carbon, dead biomass carbon, and
soil carbon (organic and mineral soils) .
(4) Baseline Carbon Stocks.--the average amount of carbon stocks
(in tons carbon) estimated to be present on a participant's land during
the participant's base period.
(5) Ecosystems.--include above and below-ground living biomass,
soils (organic and mineral), and necromass. Forest.--Land at least 10
percent occupied by forest trees of any size or formerly having had
such tree cover and not currently developed for non-forest use. Lands
developed for non-forest use include areas for crops, improved pasture,
residential, or administrative areas, improved roads of any width, and
adjoining road clearing and powerline clearing of any width. The land
must be a minimum of one acre in area. Roadside, streamside, and
shelterbelt strips of timber must have a crown width of at least 120
feet to qualify as forest land; and unimproved roads, trails, streams,
and clearings within forest areas are classified as forest land if they
are less than 120 feet wide (USDA Forest Service 1972).
(6) Tree.--A woody plant usually having one or more perennial
stems, a more or less definitely formed crown of foliage, and a height
of at least 12 feet at maturity.
(7) Mature primary forest.--
(8) Region.--Region shall be defined by the U.S. Forest Service
Inventory and Analysis survey unit(s) in which the participant's lands
are located.
(9) Ton-year.--One ton-year represents the maintenance of a carbon
stock of one ton for 1 year.
(10) Best management practices.--sustainable land-management
practices that conserve resources while maintaining long-term
productivity.
__________
Statement of Peggy Fantozzi, Chair, Massachusetts Commission for the
Conservation of Soil, Water and Related Resources
I am pleased and honored to be allowed to present testimony in
support of Senate Bill 547, a bill to encourage reduction of greenhouse
gases by providing credit for voluntary mitigation actions. As noted, I
am currently Chair of the Massachusetts State Commission for the
Conservation of Soil, Water and Related Resources. I am also the
immediate past President of the Massachusetts Association of
Conservation Districts and am currently the Massachusetts Director of
the National Association of Conservation Districts, a member of the
Legislative Committee for the National Association of Resource
Conservation and Development Councils and Partnership liaison member of
the United States Department of Agriculture/Natural Resources
Conservation Service Team on Carbon Sequestration. I would emphasize
that my testimony here today reflects my expertise, experience and
ongoing work at state, regional and national levels on behalf of the
Conservation Partnership.
We, the conservation districts are strongly supportive of Senate
Bill 547 and applaud its adoption of a voluntary incentive-based
problem solving approach We, as your constituent based, local
connection to non-regulated and regulated landowners, business
operators and land managers, recognize the value of and need for this
type of approach. The Conservation Partnership consisting of USDA/
Natural Resources Conservation Service (NRC S), state environmental
agencies and local volunteers have been practicing implementation of
best land use practices and delivery of technical assistance throughout
the country for more than 60 years.
Senate Bill 547 as proposed
will diminish the regulatory and financial risk for
voluntary, ``common good'' actions initiated by corporate leaders,
business owners, farmers and foresters. The passage of this bill will
allow industry to put a real value on credits, rather than current
speculative value.
puts the marketplace in the driver's seat to determine
new cost-effective ways to reduce greenhouse gas emission and sequester
more carbon . The passing of this bill will result in a market based/
market driven commodity that has real value to the buyer and to the
seller. Passage of this bill will lessen a governmental role both in
terms of regulation and potential subsidy.
provides direct one for one credit to an entity if it
reduces its aggregate emissions from U.S. sources below the applicable
baseline and/or a one for one credit if an entity increases its net
sequestration above the applicable sequestration baseline. The passage
of this bill would provide investment security and promote a land use
ethic to all involved in the process.
recognizes the need to require that government credits
are issued for verifiable and legitimate actions that contribute to
climate stabilization. The passage of this bill would require
performance standard evaluation based on scientific documentation and
monitoring from credible sources. The Conservation Partnership,
recognizing NRCS for its technical expertise, is ready to serve in this
capacity now as evidenced by the information provided in the
attachments to this testimony and would be the perfect connection given
its existing local delivery system linked to state and Federal
agencies.
recognizes the need and opportunities for domestic and
oversees sequestration activities.
provides the mechanism whereby businesses and landowners
can serve their own economic self-interest while bringing about
environmental improvements and promoting a sustainable land use ethic
for all.
creates opportunities to deal with an existing problem in
a creative and flexible manner. Passage of this bill does not establish
Federal performance standards but allows for local, state and regional
climate (soils, vegetation, rainfall and temperature) characteristics
to be evaluated for credit in the verification process. This is
significant and necessary for state support, recognition of state
efforts to date( like the 1998 Coalition of Northeast Governors
conference) and scientific validation.
This bill does not:
promote regulation
inhibit private enterprise
require linkage to existing or proposed international
agreements
restrict private business options
subsidize commercial interests
create additional bureaucratic layering.
Although we strongly support Senate Bill 547 as proposed, we
believe that it could be significantly improved by inserting language
that specifically:
1) urges the President to:
recognize a leadership role for USDA/NRCS and the Forest
Service to share in setting guidelines for the Voluntary Credit
System. These agencies should rely on their internal technical
expertise as well as their Partnership capabilities and connection
to the private sector;
recognize technical expertise within USDA/NRCS, EPA,
NOAH, DOI/Forest Service, etc in the development of region and/or
state specific guidelines for credit validation, verification and
monitoring;
instruct Federal agencies to revisit their own land
management policies and practices to encourage minimization of
greenhouse gas emissions and maximization of best land use
practices for carbon sequestration on Federal lands as well as
other public lands that receive Federal dollars;
2) recommends Congress to allocate funding for regionally located
Demonstration Projects partnering greenhouse gas emitters, landowners
providing carbon sinks, and Federal technical expertise to provide
preliminary scientific baseline information.
In addition to this direct testimony, I would call your attention
to the attachments provided. Included are letters of support for Senate
Bill 547 from the National Association of Conservation Districts, the
National Association of Resource Conservation and Development Councils
and USDA/Natural Resources Conservation Service, with general
information about the Conservation Partnership also provided.
If you have any questions on any items of my testimony or the
attachments please let me know so that I can provide clarification and
followup. Also if I may be of assistance to you or your staff in
following through with the recommendations made please let me know.
In closing, I would take this opportunity to thank the Committee
and the authors and sponsors of Senate Bill 547 for their efforts in
bringing this issue forward. I would also like to express the sincere
appreciation of the Conservation Partnership here in New England, the
East Region and across the Nation for Senator Chafee's support of our
efforts and his constant championing of the environment for its own
sake as well as for the common good. He and his staff are to be
commended for their relentless efforts to do the right thing for the
common good in a way that makes common sense. I have family ties to
Bristol and Providence and therefore have taken pride in Senator
Chafee's service to Rhode Island but as a resident of Massachusetts I
can tell you that I am honored to lay claim to him as a New Englander
and as a United States Senator. I say thank you for myself, for my
family, for this region and for future generations.
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