**Testimony of Karan Bhatia**

**Vice President and Senior Counsel**

**General Electric Company**

**before the**

**Committee on Energy and Natural Resources**

**United States Senate**

**June 25, 2008**

**on**

**CLEANER Energy Deployment in Emerging Economies**

# Introduction

On behalf of General Electric, I'm pleased to join you for this hearing
on the deployment of cleaner energy technologies in response to the
challenge of climate change. A key element in this effort will be
engaging the world's emerging economies, which account for an
increasingly large share of the world's economy and greenhouse gas
emissions. My testimony today will focus on steps the United States can
take to assist in the reduction of those emissions through the use of
cleaner energy technologies. We recommend: 1) broad U.S. engagement to
provide assistance to help developing nations establish public policies
to incentivize cleaner energy technologies; 2) U.S. participation in
multilateral funds or other mechanisms to provide direct financial
support to offset the higher costs for cleaner energy technology; 3)
continued protection of intellectual property rights as necessary to
advance the development of technology; 4) elimination of trade barriers,
including tariffs, to cleaner energy technologies; and 5) coordinated
promotion of cleaner energy exports. Action in each of these areas will
support the partnership between government and industry that is
essential to solve the global climate challenge.

**OVERVIEW**

The International Energy Agency report, "Energy Technology Perspectives
2008," provides a carefully documented analysis for the United States
Senate to consider. The IEA's conclusions are that much of the
technology to address climate change currently exists, but that that low
and zero emission technology is currently more expensive than the
alternatives and that achieving a 50 percent reduction in greenhouse gas
emissions by 2050 will require considerable additional research,
development and demonstration. General Electric agrees with each of
these findings.

Climate change is one of the most compelling challenges facing the world
today. This threat requires a concerted response from both governments
and the private sector. Governments must provide a stable, long-term
regulatory framework to reduce greenhouse gas emissions. To play our
part in developing such a framework, GE is a founding member of the U.S.
Climate Action Partnership (USCAP), which supports U.S. cap and trade
legislation to achieve significant reductions of greenhouse gas
emissions. GE is also a founding member of the International Clean
Energy Alliance (ICE Alliance), which supports global programs to
promote the deployment of U.S. cleaner energy technology.

The private sector also has a critical role to play. Given the right
policy and legal framework, the private sector must make the investments
and develop the business models that allow for a successful
transformation to low carbon economies. It is GE's belief that this
alignment of government and private sector interests and actions is the
most -- if not the only -- effective way of addressing climate change.
The result can be a true public-private partnership on a vast scale, in
which private individuals and companies race to find innovative
solutions, without the bottlenecks that can come with
government-directed planning.

Through our Ecomagination initiative, GE is committed to making those
investments. We will sell \$20 billion of our Ecomagination products and
services in 2009. Each of those products and services is significantly
more efficient or lower emitting than traditional products. Our
Ecomagination products include wind turbines, coal gasification
projects, advanced nuclear power plants, energy efficient lighting, and
the world's most efficient aircraft engines, locomotives and gas
turbines. We recently announced the purchase of a thin film solar
photovoltaic company to allow us to grow in the solar power area as
well.

Just as importantly, we are investing in innovative technologies to
break through to higher efficiencies and lower costs for the future. Our
R&D for zero or lower emission and higher energy efficiency products and
services reached \$1.1 billion in 2007 and will increase to \$1.5
billion by 2010.

U.S. greenhouse gas legislation is critically important because the
United States represents approximately 20% of world greenhouse gas
emissions. At the same time, China alone now emits more greenhouse gases
than the United States, and emissions rates in emerging economies are
growing far more rapidly than U.S. emissions. The deployment of lower
emissions technologies in those economies is therefore essential to any
effective response to climate change. The United States has the
opportunity to export many of the needed products, services and
technologies, providing benefits to both the recipient countries and to
our own economy.

A further challenge to be addressed is the need to combat inflation in
commodity prices. Many renewable and cleaner energy technologies rely on
materials whose costs have soared in recent years because of increased
demand. While the high price of oil encourages use of renewables, the
high prices of carbon steel, aluminum, copper, and other materials pose
an increasing challenge for the competitiveness of cleaner sources of
energy. Developing countries that a year ago would have struggled to pay
the higher price for cleaner technologies now find themselves facing a
far greater challenge because of commodity inflation.

The solution around high commodity inflation is the same as the solution
to our wider energy challenges: innovation and efficiency. Right now GE,
supported by the renewable energy production tax credit (PTC), is
developing more efficient wind turbines that can produce more
electricity without increasing the amount of commodity inputs required.
GE also is working on finding additional materials that can be
substituted for high-priced commodities without sacrificing
effectiveness. These innovations, and others in the future, will help
combat high inflation in commodities and will work to keep the costs of
cleaner technologies within reach of developing economies.

# Policies to Promote Cleaner Energy Deployment

While GE is firmly committed to developing lower-emissions,
higher-efficiency products, we do face deployment challenges. These
deployment challenges exist because traditional, higher emission
technologies generally offer the lowest cost option. In developing
economies, in particular, company decision makers have been
understandably unwilling to pay for greenhouse gas reduction benefits,
and governments have not wished to require such expenditures for cleaner
and lower emitting technologies.

In international climate change negotiations, emerging economies have
argued that the developed world has emitted most of the gases that are
now causing climate change and should therefore bear the cost of
reducing those emissions. In that context, some have even suggested
mandatory transfers of cleaner technologies from the developed to the
developing world. This is a fundamentally misguided concept that would
immeasurably set back global efforts to combat climate change. It does,
however, reflect the widespread recognition of the need for, and
economic challenges associated with, cleaner energy technology
deployment around the world.

Commercial mechanisms are highly efficient at ensuring the deployment of
technology through the sale of products and services and through
technology licensing. Yet for developing countries there are many
competing demands on the capital available for investment, of which
paying for cleaner but currently more expensive energy technologies is
but only one. Moreover, developing countries feel little obligation to
shoulder this additional cost, particularly when the United States
itself has no national greenhouse gas legislation.

Absent the participation of the emerging economies, it is difficult to
envision an effective solution to the global problem. It is therefore
incumbent on the United States and other developed economies to offer
constructive solutions to facilitate the deployment of cleaner
technologies in the developing world. A comprehensive approach should
include policy development assistance, funding for technology
deployment, intellectual property protection, removal of trade barriers,
and export promotion. Such a combination of initiatives will be
essential to support the transition of emerging countries to a climate
response program.

##  **Policy Development Assistance**

Cleaner energy solutions will be deployed when their recognized benefits
to the owner exceed their cost to the owner by more than that of other
energy sources. Because of the higher costs for cleaner energy
technologies, public policies to provide incentives generally are
required in order to make cleaner energy alternatives attractive. In the
United States, for instance, the wind PTC has proven indispensable to
the commercial development of wind farms. In years when the PTC has
expired, wind project development has almost stopped in this country,
and when it has been maintained for several consecutive years, wind
development growth has accelerated.

As its top priority the United States should renew its own renewable
incentive programs, particularly the renewable energy production tax
credit. Doing so will assure a robust industry in the U.S. capable of
offering advanced technology products to the world. Simultaneously, the
United States should provide advice and assistance to developing
countries in the creation and implementation of effective cleaner
technology deployment incentives. Two models for this activity are the
Asia-Pacific Partnership on Clean Development and Climate,[^1] under
which renewable and distributed generation policy ideas are being
shared, and the U.S.-China Strategic Economic Dialogue,[^2] under which
the United States will help China adopt a NOX emission trading program.

The ultimate goal should be to help develop a range of policies that
work effectively together and are compatible with U.S. law and
regulations so that they fit into an international emissions reduction
program. The U.S. has a significant opportunity to lead by example and
share the knowledge gained through the implementation of successful
programs to spur innovative technology that increases energy efficiency
and reduces emissions.

##  **Funding for Technology Deployment in Emerging Economies**

As the IEA report makes clear, the scale of required investment could be
in the range of \$400 billion to \$1 trillion per year through 2050.
That is a scope of investment beyond government capability. However,
government funds and financing on a scale in the tens of billions of
dollars can pave the way for private investment by demonstrating new
technologies and achieving initial economies of scale and experience.

At their June 13-14 meeting in Japan, G8 Finance Ministers called for
the establishment of climate investment funds to help combat climate
change in developing countries.[^3] The ministers stated their
commitment to "helping developing countries address climate change in a
way consistent with the development needs of their people." President
Bush has asked for \$400 million in FY 2009 as the initial U.S.
contribution to one such fund, the Clean Technology Fund (CTF), and is
seeking authorization for the U.S. to commit \$2 billion to this
multilateral fund over the next three years. The goal is for the CTF to
reach up to \$10 billion over the next three years, to be used to help
developing countries in meeting the higher costs of deploying cleaner
energy technologies.

These types of international funds offer a means to buy down the cost
differential between existing technologies and cleaner alternatives. In
GE's view, these efforts will be most effective if such funds follow
four principles:

1.  ***Technology Neutrality***

The funds should be open to all types of technologies and projects
having an impact on CO2 and methane emission reductions. Given the
magnitude of the challenge, the fund should be available to all
technologies that have shown the potential to reduce, capture and/or
store greenhouse gas emissions.

2.  ***Leveraging Funding***

The majority of the funds should be utilized to maximum effect by
leveraging funding from other sources and should include:

-   Premium payment cover for loan guarantees from Export Credit
    Agencies (ECAs), political risk insurance or credit insurance to
    backstop local companies' credit, thus allowing leverage of the Fund
    with commercial money; and

-   Grants, including interest rate buy-downs, to offset higher costs of
    cleaner energy.

3.  ***Usability***

To ensure steady project implementation, the fund should act in a
transparent manner on transactions brought to it by recipient countries
and/or the private sector. Starting points for the approval process
could be private sector bank and ECA procedures, as opposed to the
processes used for specialized funds such as the Global Environment
Facility. The Congress should also consider ensuring that the proportion
of suppliers on funded projects reflects the contribution of the
individual donor countries.

# 

# *Eligibility Criteria*

The fund administrators should evaluate proposals on several factors,
including the following:

-   Lowest cost per ton of carbon reduction;

-   Total amount of potential carbon emission reduction;

-   Reduction in emissions of other pollutants (SO2, NOX, particulates,
    mercury);

-   Efficient use of water; and

-   Removal of tariffs that would constitute a barrier to the
    introduction of technology imports.

> Long term, high impact projects (such as low or zero emission baseload
> power plants) as well as shorter turn-around projects, should be
> considered on an equal basis under these criteria.

##  **Intellectual Property Rights Protection**

GE is convinced that further research and development, along with the
economies of scale that can be realized by widespread deployment of
existing technologies, are necessary to reduce the costs of addressing
climate change. The IEA report makes clear that much of the technology
to address climate change exists today, but public acceptance of those
technologies will be far easier if there is little or no cost penalty
associated with their adoption. For that reason, we should embrace all
measures that promote innovation, foremost of which is the intellectual
property right protection system, which has fostered two centuries of
innovation in the United States. Forcing the transfer of technology
outside of normal commercial activity would stall the engine of
innovation just when it is most needed.

At the same time, we should emphasize that the benefits of intellectual
property protection are global. The United States, China and India are
all centers of research activity. The next generation of GE patents on
technologies to address climate change will be held by scientists in our
facilities in Shanghai and Bangalore along with their colleagues in
Niskayuna, New York.

It is also important to recognize that intellectual property right
protection does not only promote the initial innovation. It also
encourages commercial deployment of existing technologies. Companies
will be careful to avoid licensing technology or even selling products
to customers in countries where those customers could reverse engineer,
take and use the intellectual property rights.

Rigorous intellectual property rights protection should be a condition
of eligibility for participation in funding or other programs to promote
cleaner technology deployment in emerging economies.

#  Trade Barrier Elimination

In looking for ways to accelerate the deployment of cleaner
technologies, one mechanism immediately available to governments is to
eliminate customs duties (tariffs) and other trade barriers to
environmentally friendly goods and services. The United States and the
European Union have proposed such an initiative in the World Trade
Organization. Tariffs on wind turbines and components in most countries
are in the 2.5 to 10 percent range. The United States is at 2.5 percent.
These tariffs represent an additional cost that governments impose on
the types of projects on which they are simultaneously offering
incentives to support. GE supports the tariff elimination proposed by
the United States and the European Union. Eliminating such barriers will
help to cut project costs and improve the rate of technology deployment.

**Export Promotion**

The potential market for the global clean energy industry over the next
two decades has been estimated at more than \$30 trillion. Realizing the
promise of this market requires the coordination among U.S. government
agency programs and the strong support of policy makers. U.S. government
export promotion activities will support business decisions to expand
U.S. investments in cleaner energy technology production, creating U.S.
jobs, a cleaner and more efficient array of energy options for our own
domestic energy future, and an opportunity to expand and retain
workforce in this critical industry.

A substantial, focused U.S. government effort to promote exports of
cleaner and renewable energy goods and services is required. We applaud
efforts made by the Departments of Commerce, Energy and State in this
area thus far, and urge that they be expanded and coordinated. The
cleaner energy export programs established in the Energy Independence
and Security Act of 2007 should be a core piece of the overall strategy.
These include the International Clean and Efficient Energy Technologies
and Investment in Global Energy Markets and International Clean Energy
programs.[^4] These programs are critical to position U.S. companies to
provide services and manufactured goods and deserved to be fully funded.

**CONCLUSION**

Meeting global energy needs in a carbon constrained world is a challenge
that can only be met by a combination of technology provided by industry
and sound public policies that promote the deployment of cleaner energy
technologies around the world. The United States is in a position to
lead by example through the establishment and continuation of domestic
policies to promote technology development and deployment, such as the
renewable energy production tax credit. The United States also must take
a leadership role in the creation and implementation of multilateral
mechanisms, including investment funds, to address the barriers that
today prevent the widespread use of existing cleaner energy technology.
This effort should include assistance to emerging economies in
fashioning appropriate public policies to support the introduction of
new technologies, including incentives, reduction of trade barriers, and
protection of intellectual property rights, and funding for U.S.
government clean energy export promotion programs.

[^1]: For additional information, see:
    <http://www.asiapacificpartnership.org/>.

[^2]: For additional information, see:
    <http://www.ustreas.gov/initiatives/us-china/>.

[^3]: *See* <http://www.mof.go.jp/english/if/su080614a.pdf>*.*

[^4]: *See* <http://thomas.loc.gov/cgi-bin/bdquery/z?d110:h.r.00006>: