U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

37–453 PDF 2008

CLIMATE CHANGE: INTERNATIONAL

ISSUES, ENGAGING DEVELOPING

COUNTRIES

HEARING

BEFORE THE

SUBCOMMITTEE ON ENERGY AND AIR QUALITY

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MARCH 27, 2007

Serial No. 110–26

(

Printed for the use of the Committee on Energy and Commerce

energycommerce.house.gov

COMMITTEE ON ENERGY AND COMMERCE

JOHN D. DINGELL, Michigan, Chairman

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, JR., New Jersey

BART GORDON, Tennessee

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

DIANA DEGETTE, Colorado

Vice Chairman

LOIS CAPPS, California

MIKE DOYLE, Pennsylvania

JANE HARMAN, California

TOM ALLEN, Maine

JAN SCHAKOWSKY, Illinois

HILDA L. SOLIS, California

CHARLES A. GONZALEZ, Texas

JAY INSLEE, Washington

TAMMY BALDWIN, Wisconsin

MIKE ROSS, Arkansas

DARLENE HOOLEY, Oregon

ANTHONY D. WEINER, New York

JIM MATHESON, Utah

G.K. BUTTERFIELD, North Carolina

CHARLIE MELANCON, Louisiana

JOHN BARROW, Georgia

BARON P. HILL, Indiana

JOE BARTON, Texas

Ranking Member

RALPH M. HALL, Texas

J. DENNIS HASTERT, Illinois

FRED UPTON, Michigan

CLIFF STEARNS, Florida

NATHAN DEAL, Georgia

ED WHITFIELD, Kentucky

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

SUE WILKINS MYRICK, North Carolina

JOHN SULLIVAN, Oklahoma

TIM MURPHY, Pennsylvania

MICHAEL C. BURGESS, Texas

MARSHA BLACKBURN, Tennessee

PROFESSIONAL STAFF

DENNIS B. FITZGIBBONS, Chief of Staff

GREGG A. ROTHSCHILD, Chief Counsel

SHARON E. DAVIS, Chief Clerk

BUD ALBRIGHT, Minority Staff Director

(II)

(III)

SUBCOMMITTEE ON ENERGY AND AIR QUALITY

RICK BOUCHER, Virginia, Chairman

G.K. BUTTERFIELD, North Carolina

Vice Chairman

CHARLIE MELANCON, Louisiana

JOHN BARROW, Georgia

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

ALBERT R. WYNN, Maryland

MIKE DOYLE, Pennsylvania

JANE HARMAN, California

TOM ALLEN, Maine

CHARLES A. GONZALEZ, Texas

JAY INSLEE, Washington

TAMMY BALDWIN, Wisconsin

MIKE ROSS, Arkansas

DARLENE HOOLEY, Oregon

ANTHONY D. WEINER, New York

JIM MATHESON, Utah

JOHN D. DINGELL, Michigan (ex officio)

J. DENNIS HASTERT, Illinois

Ranking Member

RALPH M. HALL, Texas

FRED UPTON, Michigan

ED WHITFIELD, Kentucky

JOHN SHIMKUS, Illinois

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

STEVE BUYER, Indiana

MARY BONO, California

GREG WALDEN, Oregon

MIKE ROGERS, Michigan

SUE WILKINS MYRICK, North Carolina

JOHN SULLIVAN, Oklahoma

MICHAEL C. BURGESS, Texas

JOE BARTON, Texas (ex officio)

PROFESSIONAL STAFF

SUE D. SHERIDAN, Chief Counsel

DAVID J. MCCARTHY, Minority Counsel

MARGARET HORN, Legislative Clerk

(V)

C O N T E N T S

Page

Hon. Rick Boucher, a Representative in Congress from the Commonwealth

of Virginia, opening statement ............................................................................ 1

Hon. J. Dennis Hastert, a Representative in Congress from the State of

Illinois, opening statement .................................................................................. 2

Hon. Jane Harman, a Representative in Congress from the State of California, opening statement ........................................................................................ 3

Hon. John Shimkus, a Representative in Congress from the State of Illinois,

opening statement ................................................................................................ 4

Hon. G. K. Butterfield, a Representative in Congress from the State of North

Carolina, opening statement ............................................................................... 5

Hon. Joe Barton, a Representative in Congress from the State of Texas,

opening statement ................................................................................................ 6

Prepared statement .......................................................................................... 7

Hon. Ralph M. Hall, a Representative in Congress from the State of Texas,

opening statement ................................................................................................ 8

Hon. John D. Dingell, a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 9

WITNESSES

Annie Petsonk, international counsel, Environmental Defense, Washington,

DC .......................................................................................................................... 10

Prepared statement .......................................................................................... 89

Jeffrey Holzschuh, vice chairman, institutional securities, Morgan Stanley,

New York, NY ...................................................................................................... 12

Prepared statement .......................................................................................... 56

W. Thomas Stephens, chairman and chief executive officer, Boise Cascade,

LLC, Boise, ID ...................................................................................................... 14

Prepared statement .......................................................................................... 133

Jonathan Pershing, director, Climate Energy and Pollution Program, World

Resources Institute, Washington, DC ................................................................. 16

Prepared statement .......................................................................................... 60

Edward S. Steinfeld, associate professor, Department of Political Science,

Massachusetts Institute of Technology, Cambridge, MA .................................. 18

Prepared statement .......................................................................................... 124

Pramit Pal Chaudhuri, Bernard Schwartz Fellow, the Asia Society, New

York, NY, and foreign editor, Hindustan Times, New Delhi, India ................. 20

Prepared statement .......................................................................................... 52

(1)

CLIMATE CHANGE: INTERNATIONAL ISSUES,

ENGAGING DEVELOPING COUNTRIES

TUESDAY, MARCH 27, 2007

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON ENERGY AND AIR QUALITY, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC.

The subcommittee met, pursuant to call, at 10:08 a.m., in the

Rayburn House Office Building, Hon. Rick Boucher, chairman, presiding.

Members present: Representatives Butterfield, Melancon, Barrow, Wynn, Harman, Gonzalez, Inslee, Baldwin, Ross, Hooley,

Matheson, Dingell, Hastert, Hall, Upton, Shimkus, Shadegg, Walden, Sullivan, Burgess, and Barton.

Staff present: Sue Sheridan, Bruce Harris, Lorie Schmidt, Chris

Treanor, Margaret Horn, David McCarthy, and Matt Johnson.

OPENING STATEMENT OF HON. RICK BOUCHER, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH

OF VIRGINIA

Mr. BOUCHER. The subcommittee will come to order. This morning, we welcome witnesses who will discuss the international component of the U.S. response to the challenge of climate change.

Shortly following the negotiation of the Kyoto Climate Change treaty, the United States Senate, by the rare unanimous vote of 98 to

nothing, adopted a non-binding resolution expressing opposition to

the Kyoto Treaty. Consequently, that treaty was never presented

to the United States Senate for ratification.

Perhaps the major reason for that broad statement of opposition

in the U.S. Senate was the absence of any obligation in the treaty

for leading developing nations such as China, India, and Brazil to

undertake greenhouse gas emissions reductions. Why, opponents

ask, should the United States assume the painful burden of reducing emissions to 1990 levels by the year 2010 if the developing

world, which accounts for most of the growth in greenhouse gas

emissions, is assuming no burden whatsoever?

I think a clear message that comes from that experience is that

for a mandatory greenhouse gas emissions program to succeed in

the United States, we must include in our legislation establishing

the program a reliable means of assuring meaningful participation

by developing nations. I will welcome the views of our witnesses

this morning on the most appropriate way for the United States to

obtain that assurance. I will also welcome their views on the role

that the United States should be playing in working with both deVerDate 11-SEP-98 13:21 Oct 20, 2008 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 Q:\DOCS\110-26 SCOM1 PsN: SCOM1
2

veloped and developing countries to structure an international

agreement relating to greenhouse gas emission control for implementation. After the time that the Kyoto Treaty expires, this would

be implementation in the post–2012 environment.

The United States should play a lead role in these negotiations

in my view, and suggestions from our witnesses on the best way

to encourage United States participation in that multi-lateral exercise will be welcome this morning. With those comments, I will conclude my opening statement and announce that pursuant to the

rules of the committee, any Member who decides to waive an opening statement will have the time allotted for that statement added

to that person’s question period. And I am now pleased to recognize

the ranking Republican member of our subcommittee, the gentleman from Illinois, Mr. Hastert.

OPENING STATEMENT OF HON. J. DENNIS HASTERT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Mr. HASTERT. Thank you, Mr. Chairman. Mr. Chairman, once

again let me commend you on your holding another thought-provoking hearing. An international perspective on greenhouse gas

emissions is, in my view, absolutely essential to the climate change

policy discussions we have been having. We have heard a significant amount of testimony over the past month on the state of the

Earth’s climate, causes of climate change, and potential consequences.

We have also learned the important fact that greenhouse gas

emissions are a global, not a national, issue. Whatever the effect

a ton of CO2 has when it is added to the atmosphere, the impact

is the same whether it is emitted in the United States or China or

another part of the globe.

Today, we will begin to hear directly how other countries view

the debate over climate change, what kind of international commitments that they are likely to make, and whether we can rely upon

them to meet those commitments. I personally believe that one of

the most important things the U.S. can do today to offset greenhouse gas emissions around the world is to share our technology

and ingenuity with other nations, particularly in underdeveloped

and developing countries. That includes energy-producing technology such as advanced nuclear, wind, solar, hydroelectricity, and

zero-emissions coal; alternative fuel technologies such as ethanol,

biodiesel, and advanced biomass; and energy efficiency breakthroughs in manufacturing processes, building designs, appliances

and vehicles.

One of the best programs to jumpstart this effort is the Asian Pacific Partnership initiated in 2005 by President Bush, along with

Australia, China, India, Japan, and South Korea. These six countries are critical to any effort dealing with the Earth’s climate because together they count for almost half the world’s population,

primary energy consumption, half the world’s effort or contribution

to CO2 emissions, electricity generation, and economic activity.

The Asian Pacific Partnership was created to identify and deploy

cost-effective technologies that either produce energy without

greenhouse gas emissions like wind, solar and nuclear, or save energy through increases in efficiency.

3

Let me take a second and give you an example of how this program is working. We know methane is 20 times more potent that

CO2 as a greenhouse gas. By deploying American technology to

capture methane that is ordinarily vented into the atmosphere, a

Chinese coal mining concern will reduce emissions by 41⁄2 million

tons. That is one entity over 20 years. Moreover, this project will

pay for itself by converting the methane gas into 120-megawatts of

power. Thus, this project makes sense economically and environmentally.

However, our international efforts in methane capture are not

confined to the six countries in Asian Pacific Partnership. The

Methane to Markets Partnership, another U.S.-lead effort includes

17 nations and more than 250 private sector organizations and

projects to advance methane recovery in agriculture, landfills, coalfields, and natural gas and oil systems.

Beyond the multinational efforts, what are some of the other initiatives that we should be looking at? As a nation and global partner, we need to examine what we can do to expand the deployment

of emission-free generating technologies, like advanced wind, solar,

and nuclear. Furthermore, we must accelerate the research into affordable cellulosic ethanol. And finally, because coal is critical to

meeting both American and global energy needs, let us do more research and development on zero-emission coal technology and carbon capture and sequestration.

All these initiatives and other like them have benefits that go beyond reducing greenhouse gas emissions. These proposals make

sense for a variety of reasons, all of which are critical to our economic future. They have a demonstratively favorable environmental impact. They seek to deploy existing technologies as they

become available and push new innovations. They make economic

sense, and they foster long-term economic growth and security by

reducing our dependence on foreign sources of energy.

Mr. Chairman, again I thank you for holding this important

hearing. I look forward to the testimony of our witnesses.

Mr. BOUCHER. Thank you very much, Mr. Hastert. Calling on

Members now in order of seniority on the subcommittee who were

present at the time the hearing convened, the gentlelady from California, Ms. Harman, is recognized for 3 minutes.

OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. HARMAN. Thank you, Mr. Chairman. Let me apologize in advance to you and witnesses for coming in and out of this hearing

today. Sadly, I have a conflict just down the hall. I would however

urge witnesses, as I did to one before we convened, to be bold, to

make certain that in your 5 minutes, committee members know

what is on your mind, what has worked, what hasn’t worked, what

you feel we might try to do because we are all trying to get this

right and to move on quickly.

Climate change is the ultimate diplomatic challenge. Emissions

reductions at home will make our economy more efficient. In the

long run, they will also make us more prosperous and competitive,

but without coordinated global action, emissions reductions at

home will not solve global warming. That is no reason for us to sit

4

on our hands. Never have we waited for other countries to show

us how to solve problems, and we shouldn’t wait here. The U.S.

should lead the way on climate change and exercise leadership to

forge a global solution.

Our diplomatic prestige has suffered in recent years for reasons

well known, but the U.S. still wields extraordinary soft power partly as a result of our robust economy. It may take years to regain

what diplomatic capital we have spent since 9/11, but the economic

incentives we can offer the developing world to follow our lead in

reducing CO2 emissions are still considerable.

To give just one example, the U.S. is the largest market in the

world for many consumer goods. Anyone who has been inside a

Wal-Mart can tell you that, and we will likely be the largest carbon

market too. So let us make developing nations want to sell us carbon credits. That is just one way of making the global market work

to reduce global warming.

International agreements like Kyoto are important and perhaps

we can do better agreements as Al Gore suggested last week, but

our means of bringing the rest of the world along are vast, and we

should use our resources to solve climate change on our terms. The

first step is acting boldly in this committee.

So again, Mr. Chairman, I urge our witnesses to help us be bold,

be responsible, and be successful in doing our part. I yield back the

balance of my time.

Mr. BOUCHER. Thank you, Ms. Harman. The gentleman from

Michigan, Mr. Upton, is recognized for 3 minutes.

Mr. UPTON. I will waive.

Mr. BOUCHER. The gentleman from Michigan waives.

The gentleman from Illinois, Mr. Shimkus, is recognized for 3

minutes.

OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Mr. SHIMKUS. Thank you, Mr. Chairman. I want to thank you for

holding this hearing today and welcome our witnesses. In order to

understand the long-term ramifications of global climate change

and decide the best near term course of action, we must weigh

carefully all sides of the issue.

Today’s hearing will add yet another uncertainty into this broad

and complicated debate. Just yesterday, Reuters reported that Chinese energy data shows that China is about to surpass the United

States and become the world’s biggest carbon emitter. But when

asked to comment, here is what the Chinese had to say. ‘‘These figures are very complicated. We don’t have an estimate of carbon dioxide for such recent date. Such an official, who declined to be

named, we have just set in motion our national reporting plan, but

it will not be done for 2 or 3 years.’’

This doesn’t seem like a comment that would signal that China

is ready to be a partner of any global initiatives, and that would

make mandatory the reduction of carbon dioxide. It is expected

that China will account for more than half the global growth in

coal supply in demand over the next 25 years.

At the same time, India gets over half of their energy output

from coal. The two countries combined are projected to account for

5

nearly 70 percent of the world coal demand through 2030. I remain

highly skeptical that China or India would follow the U.S. into any

implementation of a cap and trade program to reduce carbon dioxide emissions that other nations would follow.

We know today that only six of the 120 Kyoto countries are meeting their agreement. We also know that China and India, as developing nations, are not part of the Kyoto Agreement or any other

agreement to constrain carbon dioxide emissions. What would be

the purpose of the United States investing billions in unproven

scheme to reduce emissions if all projections show that the fast

growing economies of China and India will surpass the U.S. with

emissions output, but again show no willingness to participate in

such a program?

Why not continue investment in the kinds of programs that are

working and don’t run the risk of burdening economies, especially

developing economies? China and India are both part of the Asian

Pacific Partnership on clean development climate, and both have

made investments in the president’s FutureGen initiative. The

Earth exists in a vacuum, but the people on Earth do not. And it

is dangerous to worry about one and ignore the other.

Carbon dioxide is a byproduct of jobs, growth, and opportunity

for average working people. Despite impressive gains in American

energy efficiency over the past few years, a basic reality is that

with the technology mix deployed today, capping carbon dioxide

emissions will restrain economic output, jeopardize economic

growth, and eliminate people’s jobs. Kyoto level caps would likely

eliminate hundreds of thousands, if not millions, of American jobs.

With that, Mr. Chairman, I yield back my time.

Mr. BOUCHER. Thank you very much, Mr. Shimkus. The gentleman from Texas, Mr. Gonzalez, is recognized for 3 minutes. Mr.

Gonzalez waives an opening.

Ms. Hooley from Oregon is recognized for 3 minutes. Ms. Hooley

waives.

Mr. Matheson from Utah is recognized for 3 minutes. Mr. Matheson is not here. Mr. Butterfield from North Carolina is recognized

for 3 minutes.

OPENING STATEMENT OF HON. G.K. BUTTERFIELD, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH

CAROLINA

Mr. BUTTERFIELD. Thank you, Mr. Chairman. I too want to

thank you for convening this hearing today. You told us a few

weeks ago that you were serious about climate change, and you are

certainly demonstrating that today.

Mr. Chairman, as we continue these hearings, the fundamental

question with global warming that we must consider is not whether

Congress should act, but instead how soon and what is the best

way for Congress to act. The scientific data and evidence demonstrates that climate change is a reality. I repeat that. It is a reality, and we must act responsibly by taking the necessary steps

to curb global warming where it is possible.

Earth was created to endure, but our pollution and emissions

seem to be causing our planet grave harm. No single generation of

people holds possession of this Earth, and it should not put itself

6

in the position of overly-influencing its fate. Earth was created

with enough abundance to provide for everyone who has lived and

for all future generations. Our actions and our subsequent inactions could put that abundance into jeopardy.

For many years, people seemed eager to believe that it was only

important to deal with emissions, pollution, and global warming to

ensure that the world and our nation would be left a better place

for our children and grandchildren. Unfortunately, however, we are

already seeing the troubling effects of climate change, and the evidence suggests these problems will soon grow far beyond our control unless we act and act quickly.

We must be faithful and wise stewards because at this point, we

all know that we have a problem, which could substantially affect

the way we live our daily lives. It is my hope, Mr. Chairman, that

we will soon put forward some carefully constructed and sound policy, which addresses the issue of global warming.

America is the leading nation in the world, and our actions will

greatly influence the direction that the rest of the world moves on

this important issue. I thank all of the panelists for being here

today. I look forward to their testimony. I started reading some of

the statements just a few minutes ago. All of you bring a very important message that people need to hear. I look forward to your

testimony and thank each of you for being here today. I yield back.

Mr. BOUCHER. Thank you, Mr. Butterfield. The gentleman from

Texas, Mr. Barton, the ranking member of the full committee, is

recognized for 5 minutes.

OPENING STATEMENT OF HON. JOE BARTON, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. BARTON. Well, Mr. Chairman, I am going to give you back

some of that time. I will put my formal statement in the record.

I just want to make a few general comments. It is my opinion that

a citizen of the undeveloped world is not going to forgo electrification of their life for some amorphous environmental benefit that, if

realized, won’t be realized for far in the future.

By the same token, I don’t think citizens in our country are going

to willingly give up their jobs to accomplish that same amorphous

environmental benefit some time in the future. When we talk about

countries like China, China’s coal-fired capacity, in 7 months, their

additional coal-fired capacity will equal the entire coal generation

capacity of the State of Texas, which has, I believe, the largest

base-load coal-fired generation system of any State in the country.

And in a year, China’s new coal-fired capacity will equal the entire

output of the State of Texas.

The Chinese, who barely pay lip service to the criteria pollutants,

have stated in no uncertain terms that they have absolutely no intention of reducing their CO2 emissions any time in the foreseeable

future. To the extent that we have statistics, we know that between 2000 and 2004, China’s CO2 emissions went up 60 percent.

During that same timeframe, the CO2 emissions in the United

States went up a little under 2 percent. It is expected any year now

that China’s overall CO2 emissions are going to surpass the United

States.

7

And for us to sit here and somehow think that the United States

of America can do something that will morally challenge the Chinese, and to a lesser extent the Indians, to follow us, is just not

common sense. In fact, I think it is the opposite of common sense.

So I am very interested in what our witnesses have to say on this

issue, but this issue today, Mr. Chairman, is one of the most critical in terms of common sense recognition of any proposed solutions.

You cannot have a legislative package that passes the House of

Representatives that does not have an enforceable, meaningful

mechanism to include the developing world and especially the Chinese.

With that, I yield back.

[The prepared statement of Mr. Barton follows:]

PREPARED STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF TEXAS

Mr. Chairman, today we begin to look beyond our own borders to examine greenhouse gas emissions in other countries.

Some witnesses today will talk about how American companies are helping other

countries avoid greenhouse gas emissions. Others will recommend that the U.S. use

its muscle to get other countries to cut back.

We need a clear picture of what countries are actually doing, and are likely to

do, with and without our influence.

We also need to understand countries’ ambitions for their own people, and how

greenhouse gas emissions reduction stacks up as a priority.

Here’s one thing I know already: Poor countries don’t spend money on environmental causes. And here’s something else I know: If China and India don’t reverse

their emission trends, nothing the United States can do will matter in the long run,

except to the American taxpayers who have to pay the enormous costs.

Take China. The Chinese are adding coal-fired generation at an unprecedented

pace. They are said to be starting up another 500 megawatts of coal-fired power

plants every 4 days.

Compare that to California which made the dramatic commitment to turn away

from its cheapest source of power, out-of-state coal-fired power plants. Replacing

that power will certainly be expensive. Consequences may well be power shortages

and retail price spikes. Will it make a lasting contribution to world reductions of

greenhouse gas emissions? China will add an equivalent amount of new coal-fired

capacity in a matter of weeks.

In my own State of Texas, one company has thrown State resource planning into

a tailspin. The company had promised, then backed away from, construction of 6,000

megawatts of new coal generation. Those new plants would have been among the

cleanest ever built, virtually eliminating emissions of criteria pollutants.

Then they were cancelled, supposedly to reduce greenhouse gas emissions. China

will produce 6,000 megawatts in 2 months and never break a sweat.

According to a new study by MIT, coal output in China has doubled since 2000.

Its coal output is now No. 1 in the world and more than double the United States.

Will China make and stick by commitments to reduce greenhouse gases? It is

highly doubtful.

The study says that, ‘‘China’s energy-related governmental bureaucracy is highly

fragmented and poorly coordinated.’’ Also, ‘‘infrastructural issues are being resolved

very quickly by individuals and organizations operating well below the level of national energy corporations.’’

What are some of the results? One is that China doesn’t even seem to do a good

job of controlling criteria pollutants. Well under 5 percent of China’s coal plants

have any sulfur dioxide control equipment at all, and apparently for those that do

have scrubbers, there is not much reason to assume that the scrubbers actually operate. Why operate them when there is no enforcement and all they do is reduce

power output?

No wonder China has some of the most polluted cities in the world. And that pollution won’t ease up anytime soon if more and more companies choose to move operations to China for the cheap power, especially if we in the U.S. increase our own

costs with a carbon cap.

Meanwhile, India is also growing its coal consumption and expects to surpass the

United States by 2020.

8

Mr. Chairman, this examination will not slow down our own best efforts. Pursuant to the Energy Policy Act of 2005 we are providing incentives for next generation

alternative technologies, atmospheric research, and regulatory reforms that open the

door for those technologies .

I think we should look first to build on those efforts in EPAct and a few others

before we resort to regulating, rationing, or taxing CO2 emissions.

Mr. Chairman, I look forward to hearing from our witnesses on some of these topics.

Mr. BOUCHER. Thank you very much, Mr. Barton. The gentleman

from Louisiana, Mr. Melancon, is recognized for 3 minutes. The

gentleman waives an opening statement.

The gentleman from Washington State, Mr. Inslee, is recognized

for 3 minutes. Mr. Inslee waives.

Gentlelady from Wisconsin, Ms. Baldwin, is recognized for 3 minutes. The gentlelady waives.

Without objection, all of the opening statements will be received

in the record. The gentleman from Arizona, Mr. Shadegg, is recognized for 3 minutes. Mr. Shadegg waives.

The gentleman from Oregon, Mr. Walden, is recognized for 3

minutes. Mr. Walden waives.

The gentleman from Oklahoma, Mr. Sullivan, is recognized. Mr.

Sullivan waives.

The gentleman from Mississippi, Mr. Pickering, is recognized for

3 minutes. Mr. Pickering waives.

And the gentleman from Texas, Mr. Hall, is recognized for 3 minutes.

OPENING STATEMENT OF HON. RALPH M. HALL, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. HALL. Mr. Chairman, I almost waived. I just want to say

that Mr. Barton is exactly right to lead into this discussion with

something that all of you know is obvious from watching television,

reading the paper, and listening to testimony up here. There is a

war on energy today, outright war on energy. And I think the people that are waging that war need to remember that energy might

keep our kids from having to fight a war, if we can solve the energy

problem.

We have to be honest about this, and Mr. Shimkus was also right

in talking about the vast expenditures of money that it takes or the

gentleman from North Carolina addressed climate change as a reality, and certainly we all know that. And the answer is technology

and money. I don’t believe, as Chairman Barton said, that the

American people are going to guess that $180 billion a year for almost 70 years with no known cure is the answer to it. It involves

shipping all of our jobs to China, the worst polluter in the entire

world.

We just need to get realistic about it. Global warming or global

freezing or whatever you have without Russia, without China,

without India, without Mexico, I go on down the line, it is just not

a possibility. And I say to my friends on the other side it isn’t going

to happen. You might make it happen over here in the House, but

the Senate is going to work on it. It is going to eventually get to

a President over there that has some opinions about it. And we

have enough votes to uphold his veto when it happens.

9

So let us be realistic about it, and let us tell our children that

those signs that say no nukes, if we can protect nuclear power—

and I am a fossil fuel guy, but I want nuclear power. I want any

kind of a power. Joe Barton gave us about 15 ways to increase our

energy output in the energy bill he passed a year and a half ago.

That is the answer to it, and I yield back my time.

Mr. BOUCHER. Thank you very much, Mr. Hall. I thank all of the

Members for their opening statements, and I particularly thank

those who chose to waive an opening statement in anticipation of

questions.

I want to briefly introduce the members of this panel, and then

I am going to recognize the gentleman from Michigan, the chairman of the full committee, for his opening statement. So first, a

word of introduction about the members of our panel today. Joining

us this morning is Annie Petsonk, who is international counsel for

Environmental Defense. Jeffrey Holzschuh is vice chairman of institutional securities for Morgan Stanley. Mr. Thomas Stephens is

the president and chief executive officer of Boise Cascade. Jonathan

Pershing is the director for Climate and Energy Pollution Program

at World Resources Institute. Dr. Edward Steinfeld is associate

professor of political science and co-director for China Energy

Group, Industrial Performance Center at the Massachusetts Institute of Technology. And Mr. Pramit Pal Chaudhuri is a Bernard

Schwartz Fellow, with the Asia Society in New York, and the foreign editor, Hindustan Times of New Delhi. I want to say welcome

to each of our witnesses, and we will turn to your testimony momentarily. But it is now my pleasure to recognize the chairman of

our full Energy and Commerce Committee, the gentleman from

Michigan, Mr. Dingell, for 5 minutes.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN

Mr DINGELL. Mr. Chairman, thank you for your great courtesy.

I want to commend you for this hearing and the fine way in which

you are leading this subcommittee on a very difficult issue.

The issue today is a very important one. It has percolated

through every other hearing that the subcommittee has held on climate change: the contribution of developing nations to the growth

in greenhouse concentrations, and their potential role in mitigating

this environmental threat.

It is widely understood that without commitments from both developed and developing nations to limit greenhouse emissions, this

global environmental problem cannot be addressed. It is also broadly accepted that absent a major effort on the part of the United

States, large developing countries such as China and India are not

likely to significantly limit their own rapidly rising emission levels.

What is clear is that we don’t know a whole heck of a lot about

this problem. Now, what is most unclear is how to coordinate the

two responsibilities we have here. Some witnesses at prior hearings

have argued that the United States has a moral and practical imperative to act unilaterally to limit its emissions, whether or not

developing countries act in parallel within the same time period.

10

A number of witnesses predicted that if the United States leads,

developing countries are likely to follow suit. Other witnesses, however, have argued that it would be foolhardy of the United States

to unilaterally bind itself to emission limits and that doing so could

cause both jobs and emissions problems to migrate to the developing world, thereby harming our economy without securing real reductions in global emissions. My sense is that people of good conscience are looking for practical solutions to the dilemma.

I was skeptical of the Kyoto Protocol because, to my mind, it did

not strike a fair or effective balance between the developed and developing nations. I hope that the current U.N. negotiations will

produce a more workable approach in the post-Kyoto era. I would

note that the Senate voted 95 to nothing on this particular matter,

as my colleagues will remember when they passed the Byrd-Hagel

resolution on this precise point.

In any event, in its legislative considerations, Congress must find

ways to limit emissions from the U.S. that do not amount to shifting their origin and American jobs to other countries. The subcommittee has heard anecdotal evidence about a new openness in

China and other developing nations to cleaner paths to economic

growth. I hope today’s hearings will help us all to gain a better understanding of what changes are underway in developing countries

and how the U.S. might align its efforts with theirs to mutually address this growing environmental concern.

Again, Mr. Chairman, I thank you for holding this hearing. I look

forward to the testimony of our witnesses here today, and I yield

back the balance of my time.

Mr. BOUCHER. Thank you very much, Mr. Dingell.

We will now be pleased to hear from our witnesses, and I want

to thank each of them for their attendance this morning. Without

objection, your full opening statement will be made a part of our

record, and we would welcome your oral summary of approximately

5 minutes. And I will simply call on the witnesses in the order in

which I introduced them. Ms. Petsonk, we will happy to begin with

you if you are ready.

STATEMENT OF ANNIE PETSONK, INTERNATIONAL COUNSEL,

ENVIRONMENTAL DEFENSE, WASHINGTON, DC

Ms. PETSONK. Thank you very much, Mr. Chairman. Good morning, Chairman Boucher and distinguished members of the subcommittee. Good morning, Chairman Dingell. My name is Annie

Petsonk. I am the international counsel with Environmental Defense. My organization is already known to you, so with your permission, I would like to go straight to making three points about

what you can do to engage developing countries in the climate challenge.

Before I make my three points, I just want to note that if you

cap America’s emissions and allow those who cut emissions better,

cheaper, faster to trade allowance with those who can’t, you will

create what is likely to become the world’s largest carbon market.

Europe’s cap and trade market is already worth about $25 billion,

and its volume is forecasted to double next year. If you design it

well, America’s market will draw more investment capital and

11

more entrepreneurial energy into the search for low-carbon solutions than any place else in the world.

My first point follows an idea that Representative Harman

raised. Congress can engage developing countries by offering them

the carrot of access to our carbon market if they measure, report,

and reduce their emissions across the board. Currently, developing

countries can only earn carbon credits for scattershot projects on a

case-by-case basis. That means their slice of the carbon credit business is small. It is only about a sixth of the global total.

Access to our carbon market will be a significant incentive that

you can offer them in exchange for their emission cuts. A good

place for Congress to start is with tropical forest nations, and we

have a slide here showing—you can see some bars showing global

emissions. The bar all the way on the left-hand side is the emissions of the United States. We are the world’s biggest emitter.

But the bar all the way on the right-hand side, which is even bigger, is the emissions from the destruction of rain forests around the

world. Tropical deforestation emits as much carbon dioxide as all

the fossil fuel consumed in America. We are the world’s biggest

emitter. China is No. 2. But did you know who is No. 3? It is Indonesia. And No. 4? It is Brazil. 70 percent of those countries’ emissions come from deforestation, but they cannot earn any credit in

the carbon market today for reducing those emissions.

If you open America’s carbon market to rainforest countries that

reduce their national deforestation below a historical level, you will

create a powerful incentive for them to reduce what, for many of

them, is their biggest source of emissions. Some rainforest countries have already indicated their interest in signing up for this approach if you create it.

That, in turn, is putting competitive pressure on other developing

countries to figure out how they are going to get into our carbon

market if you create it. You can heighten that pressure on developing countries.

Today, China and India participate in the carbon market to the

tune of about $5 billion. In the absence of emission caps, it is all

in these one off projects. You don’t have to accept that framework.

You can instead design our carbon market so that the sooner those

countries cap their emissions, the more favorable the terms of access to our carbon market they will get. That would give them a

strong incentive to open their entire economies to the kinds of

emission reduction investments in new technologies, American

technologies, the kind of technologies that Representative Hastert

mentioned, economy-wide instead of in the individual projects to

which the current carbon market is now restricted.

What if even with these carrots developing countries still refused

to cut emissions? My second point is that you have sticks that Congress can deploy. For example, you can design our carbon market

so that credits from these one-off projects in countries that don’t

cap and cut their emissions are worth less in our carbon market.

If those countries want their credits to trade at par in our market,

they will have to cap and reduce their total emissions.

Another stick, one I believe that you heard about last week, is

a proposal put forward by American Electric Power and the International Brotherhood of Electrical Workers to require that imports

12

of carbon-intensive products from nations that have refused to cap

and cut emissions be accompanied by emission allowances. The aim

of that proposal is to prevent the kind of emission shifts and job

shifts that Chairman Dingell and other members of the subcommittee have referred to. And we think that that proposal merits close

consideration, and I would be happy to talk further with you about

that if you have questions.

My last point is that you have the power to lead by example. If

you create a durable carbon market with enforceable mechanisms,

one that taps innovation in the service of a safe climate, then

America can demand that where we lead, others should follow. But

if you adopt a weak program, other nations will too, and that could

hurt not only the climate but American industry.

Here is how. Let me give an example. If you load the program

with safety valves in the form of price controls on emissions, our

trade competitors will race to do likewise. If, for example, you set

a price ceiling of, let us say, $15 a ton in the U.S. carbon market

so that when the price of trade allowances hits the ceiling, the Government simply prints more allowances for sale at the ceiling price.

That busts the emissions cap, but let me also tell you it undercuts our industry because developing countries are going to adopt

the same kinds of price controls but they are going to set them at

much lower levels relative to their economies. If we cap ours at $15

a ton, they might cap theirs at $5 a ton. Then instead of investing

in the kind of low-carbon technologies that have been mentioned

here, emitters simply will buy up allowances in the countries with

the cheapest price ceilings and emit as much as they want. Who

would buy American low-carbon clean-coal technology then? I urge

you not to take this route.

Let me close by saying your decisions will have an enormous influence on the choices developing countries make. I urge you to use

the carrots and the sticks along with your leadership. Thank you.

[The prepared statement of Ms. Petsonk appears at the conclusion of the hearing.]

Mr. BOUCHER. Thank you very much, Ms. Petsonk. Mr.

Holzschuh, we will be happy to hear from you.

STATEMENT OF JEFFREY R. HOLZSCHUH, VICE CHAIRMAN, INSTITUTIONAL SECURITIES, MORGAN STANLEY, NEW YORK,

NY

Mr. HOLZSCHUH. Thank you, Mr. Chairman, and distinguished

members of the subcommittee. My name is Jeff Holzschuh. I am

vice chairman of our institutional securities business at Morgan

Stanley, head of what we call our global power and utilities group,

and also I chair the firm’s environmental policy committee. So from

three perspectives, I speak to you this morning. I hope I can add

some useful perspectives on some of the developing countries and

the steps that they have taken to think about reducing greenhouse

gas and including how the U.S. and other developed nations are

impacting this issue.

As developing countries, particularly China, continue their rapid

growth trajectories, their energy use and demand, including their

emissions, have obviously been growing. With the global warming

increasingly confirmed for the U.N. and IPC reports, both the deVerDate 11-SEP-98 13:21 Oct 20, 2008 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 Q:\DOCS\110-26 SCOM1 PsN: SCOM1
13

veloped and developing world needs to take appropriate actions

now.

Morgan Stanley is a leading, global financial firm. I think most

of you probably have heard of us, but a couple of things that we

have tried to do, we have committed in excess of $3 billion of our

own capital to begin developing the carbon emissions credits, purchasing them, trading them, projects, other initiatives related to

greenhouse gas over the next few years. In addition, we are one of

the most active traders of environmental commodities, including

sulfur dioxide, nitrogen oxides, biodiesel, ethanol, and weather derivatives. We also work with a variety of our industry clients to

craft new and innovative approaches to the evolving greenhouse

gas concerns in this country and globally.

Internationally, our commodities trading division in Europe, for

example, has been actively trading EU carbon allowances in the

new cap and trade regime. It works with clients to develop carbon

offset projects as well. We believe the trend toward more country,

regional, and international carbon trading is positive, can provide

useful incentives and structures to help reduce global greenhouse

gas emissions in the future.

You have heard extensive analysis on greenhouse in testimony,

but from our perspective, I wanted to add a couple of points. We

are very aware of China’s potential impact on greenhouse gas due

to its growing greenhouse emissions, its projected energy demand

growth over the next 20 years. Since 1990, China’s emissions have

risen 77 percent compared to only 18 percent in the U.S., as recently estimated by the World Resource Institute Study.

Nearly 32 percent of future global energy demand over the next

20 years will come from China alone, as estimated by the International Energy Agency, McKinsee, and our own research. Actually, India and Latin America, in comparison, are only projected to

account for 12 percent of the future global energy demand during

that period. The Chinese emissions growth is due primarily to its

reliance on its abundant coal reserves and satisfying those growing

energy needs.

According to the EIA’s world energy outlook 2006, China and

India will account for 80 percent of the incremental increase in coal

consumption globally between now and 2030. Today, China is opening new coal-fired generation plants every 7 to 10 days. Currently,

the coal-fired plants are inefficient. They consume twice as much

coal per kilowatt produced, compared to the U.S. plants. They lack

the anti-pollution stack scrubbers that are found on most U.S.

plants.

Other developing countries, such as India, also have inefficient

plants, and we believe it is our country’s best interest to enable

countries like China to use the best available clean coal technologies and help reduce their greenhouse gas emissions from this

key source in the coming years. China is projected to become the

world’s largest emitter of greenhouse gas, and is now preparing a

national strategy to address climate change and reduce those

greenhouse gases. Evidence suggests that the approval of this

strategy make take a couple of years. I think the good news is that

they are addressing it at the national level; however, we are not

naive. We think it will be limited or there won’t be regulatory enVerDate 11-SEP-98 13:21 Oct 20, 2008 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 Q:\DOCS\110-26 SCOM1 PsN: SCOM1
14

forcement mechanisms. They will lag until they can create an effective regulatory and enforcement agency.

An interesting and new twist is the emergence of the emissions

trading and its potential to help countries like China. For example,

China failed to meet its goal to reduce its sulfur dioxide emissions

by 10 percent between 2001 and 2005. And instead, emissions increased by 27 percent over the same period.

To address this concern, in August 2006, the Chinese Academy

of Environmental Planning previewed a new national emissions

cap and trade program, which if similar to the existing U.S. emissions trading program for SO2, could be very effective in reducing

greenhouse gases within China. China’s emissions cap and trading

efforts would be made more effective if America creates its own carbon cap and trading system to foster emissions reductions.

This subcommittee has received extensive detailed testimony on

how that market might be structured. I would only add that given

the excellent efforts already in setting up an effective SO2 program

that we do have the collective expertise in the U.S. to develop an

effective cap and trade system. Ideally, we need to build from the

Europe experience as well.

We recognize this is an extremely complex subject, but encouraging effective regulatory and incentive systems, such as carbon trading both in our country and others, would be a key part of an effective global approach. Obviously, this is only one piece, however, of

a comprehensive greenhouse gas emissions reduction approach

with other actions that are also needed such as increasing energy

efficiency, promoting the clean technologies, assisting in changing

consumer behavior to adapt and change the energy use in coming

years in both developed and developing countries.

For example, Australia’s seemingly simple action to hand out efficient light bulbs is a small but significant signal, we believe, to

their citizens to change and adapt their energy use behaviors.

Ideally the U.S. needs to take a leadership position in addressing

its own greenhouse gas emissions effectively and comprehensively

in a large part to encourage, I think, to lead and inspire the developing countries, such as China and India, to follow our lead and

to coordinate their own gas emissions.

Morgan Stanley is committed to assisting and being a part of

these efforts and in helping achieve the best outcome for the U.S.

and globally. And I thank you again for the opportunity to share

these views.

[The prepared statement of Mr. Holzschuh appears at the conclusion of the hearing.]

Mr. BOUCHER. Thank you very much, Mr. Holzschuh. Mr. Stephens.

STATEMENT OF W. THOMAS STEPHENS, CHAIRMAN AND

CHIEF EXECUTIVE OFFICER, BOISE CASCADE, L.L.C., BOISE, ID

Mr. STEPHENS. Thank you, Mr. Chairman and members of the

committee. I would like to take some of my 5 minutes to zero in

on some real people and some communities that are going to be significantly influenced and impacted by the actions that are being

contemplated by Congress. These are people and these are commuVerDate 11-SEP-98 13:21 Oct 20, 2008 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 Q:\DOCS\110-26 SCOM1 PsN: SCOM1
15

nities that are going to be operating at the margin of change in

terms of climate change legislation and international competition.

I do suggest that while Congress should enact rational, constructive, and timely legislation, be very careful to avoid creating unintended results. Doing it right, to me, is much more important than

doing it quickly.

I don’t envy you your challenge. Finding a way to put all the

pieces of this puzzle together and finding solutions that really work

is a tremendous task for our Government and for our society as a

whole.

I have always believed that the best way to solve complex problems is to work backwards from the desired results, and very simply the results that I would hope we set our sights on is a halt to

the increase in greenhouse gas emissions on a worldwide basis. The

development of and the integration into our economy of new technologies that would allow us to conserve energy, rebalance our energy sources away from carbon, and, of course, sequester carbon

back into the Earth.

While we are working on those outcomes, I suggest that we keep

some other goals in mind. I hope that whatever steps that we take

that provide for the mitigation of the inevitable inequities, imbalances, and economic dislocations that are going to be byproduct of

something of this scale. The U.S. can’t fix this one by ourselves,

and we have to assure that there are no free riders that grow their

standard of living on the backs of workers in this country. I have

always been a free trader. Enhancement of fair trade and market

mechanisms has to be, to me, a part of the overall design.

Finally, while we surely need to use market forces and economic

systems, such as cap and trade, where they are appropriate, we

have to be careful not to create markets that can be abused and

can be gained so that we don’t actually accomplish the results we

set out for.

Today we, as a country, are debating how to take giant step, but,

to me, a step in the right direction. And as the world’s economic

and innovation leader, I believe it is the U.S.’s responsibility to

take the lead.

Now, talking about theory is the easy part. I want to get back

to hard reality and talk about some of the people I work with that

are going to be impacted by Congress’s decisions. In my company,

we have to make decisions every day based on international competition and energy cost, both of which are going to be influenced

by what Congress decides in terms of climate change.

Employees at our paper mill in St. Helens, Oregon are already

fighting for that bill’s existence because of the high cost of energy

and the availability of raw materials in the Pacific Northwest. It

is ironic that in the middle of the best place in the world to grow

trees the high cost of fiber and energy are threatening the existence of the mill. Our competition is no longer just the paper mill

in another town, but also new ones that are being built in places

like Indonesia and China.

Just to give you some perspective, we have 485 employees in that

mill, and they take home $90,000 a year when you include their

benefits. The town of St. Helens is 12,000 people. If that mill goes

down, it is going to be very painful for those people and for that

16

community. I can assure you if the cost of energy goes up at St.

Helens faster than the cost of energy for our competition, that mill

will go down.

Now, at the same time, we are not asking for a bailout. We are

just asking that Congress maintain a level playing field and don’t

make the hole any deeper. If we can keep our market share, if we

can continue to make paper in St. Helens rather than buying it for

China, our employees win, our customers are better off, and of

course, the environment is too.

There are some other issues related to climate change legislation

that I don’t have enough time to talk about this morning, but in

another form, I would like to expand on the mass confusion that

exists around forest management and climate change. Suffice it to

say that every year forest fires in Oregon produce enormous

amounts of carbon dioxide, and, in fact, some years more carbon dioxide than all other sources combined. Letting fertile forest burn,

not letting us harvest dead trees, and then not providing funding

to replant new trees is just not good policy.

Finally, let me wind up by just saying it was technology that

moved us into such an energy-intensive economy and created a

standard of living that we enjoy in America. I have high hopes that

legislation will promote and not hinder the development of technology to remediate greenhouse gas at its source as well as develop

fuel alternatives.

Innovation and higher productivity are the keys to a growing

economy and a higher standard of living for the U.S. and around

the world. Thank you, Mr. Chairman.

[The prepared statement of Mr. Stephens appears at the conclusion of the hearing.]

Mr. BOUCHER. Thank you very much, Mr. Stephens. Mr. Pershing, we will be happy to hear from you.

STATEMENT OF JONATHAN PERSHING, DIRECTOR, CLIMATE

ENERGY AND POLLUTION PROGRAM, WORLD RESOURCES

INSTITUTE, WASHINGTON, DC

Mr. PERSHING. Thank you very much, Mr. Chairman and members of the committee. I very much appreciate this opportunity to

discuss my views and provide some input to your important deliberations on the international component of the climate change

problem. The World Resources Institute is a non-profit, non-partisan group that does research and policy analysis on a series of

global issues, including climate change, ecosystems and development, and it is within that framework that I would like to offer

some comments and some suggestions.

We work quite extensively internationally, and one of the things

that is quite apparent is that the climate change science is perceived as real internationally. And the reason that is important is

that it doesn’t mean that we are not alone in what we can do; all

countries are considering action. That means India and China as

well as the U.S. and Japan.

The second point is that there is a consensus that we can’t wait

to start. At the moment, our best understanding suggests that

every time we delay, every moment we delay, means we have got

to do more later if we want to achieve the same level of reductions.

17

The scale of the problem is huge. The best science we have got says

that if you would like to stabilize at any point, at any time, you

will need to have massive reductions at some point in time on the

order of 90 percent below current levels.

To stabilize in the near term means 60 to 80 percent reductions

by 2050. That is still enough time for massive technology shift, but

not a lot of time. No single country, no single sector, and no single

actor is likely to be adequate to solve the problem on its own. That

means the U.S. can’t do it by itself, but neither could China, neither could the EU. It will require efforts from all countries, from

all sectors, addressing all greenhouse gases.

Furthermore, not all countries are the same. If we think about

applying a standard to all countries that would be the same for all

countries, we will not make the kind of progress that we need. We

have to be real and recognize that there are real differences between the way countries perform, between their national circumstances, and design a policy that is adequately flexible to manage that.

Let me point another number out. If you took the top 15 emitters

in the world, you have 80 percent of global emissions. So you actually don’t need 150 or 190 countries to solve the problem. You need

the big countries, and that means we can have a different process,

perhaps not only a different process but including a difference process that manages some of those major players. We need to think

about that as part of our program.

I would note that there are a number of solutions that would

take the self-interests of all countries into account as we seek to

design those next steps. I would like to offer three. The first one

is we think about a price, and we already have a mechanism to

frame a price. That mechanism comes at the individual State level,

in fact, is beginning to do it. The Europeans have begun to do it.

The Japanese have begun to do it. We are seeing the capacity of

prices to influence investment decisions, to influence behavior, and

to influence the long term.

But in order to move that forward, we have to expand the market. And that means bringing other countries on board, and that

means developing the standards and the references which would

allow them to participate. I do not myself believe that those exist

outside of a relatively small set of countries. We do not yet have

standards in my mind, which would allow us to trade with Russia

easily. I witness what goes on in the gas market, and it is not because they live by contracts that we all sign up to. That therefore

suggests to me that we have to do considerable work to move Russia in the right direction. That is around all issues, including

standards for carbon as well as other trade.

The second solution: capture the co-benefits. There are many,

many co-benefits. There are virtually no climate change reduction

opportunities that do not also involve other things that we care

about. There are no countries that we are talking about here today

that are not concerned with energy security. We all worry about it.

If we can improve efficiency, we will improve energy security. We

will also reduce greenhouse gas emissions. If we can improve rates

of deforestation, we will decrease greenhouse gas emissions and improve ecosystem management as well as reduce the loss of soil.

18

We need to find the technologies that do that. We need to promote the opportunities that do that, but we can work with all the

countries we have been talking about in that real way to influence

that kind of change.

And finally, we need to think about technology. There are very

few sets of technologies that will clearly be absolutely critical. Dr.

Steinfeld will probably talk a little bit about the coal issue, but I

want to make one point about it. It may be the only technology,

capture and storage, which has no or less obviously a solution for

other things besides climate. It will slightly increase our energy

costs. It will change the price that we therefore put on some things

that we care deeply about.

But at the end of the day, China’s reliance on coal, India’s reliance on coal, the U.S. reliance on coal requires that we take this

step. And that with a carbon price, we could move it forward, but

it will need help. It will need your investment and your considered

deliberations to promote it much more rapidly than we are currently moving. That means to me that we need to have a great deal

more energy, and unfortunately, we won’t probably get there adequately. We will need some adaptation. We will need some funding

to cope with the consequences. The climate change we can’t avoid,

and that has got to be part of the puzzle.

I think in conclusion, we can use the existing four that we have

got, but the ones that we currently have are not enough. We need

to put more money into the things that we are doing. We need to

put more force into the things that we are doing. The Asia Pacific

Partnership, while a very strong first start, is wholly inadequate to

the scale of the problem. The Kyoto Protocol, a start, inadequate

to the scale of the problem. We nee do to move all of these things

forward if we can succeed. Thank you.

[The prepared statement of Mr. Pershing appears at the conclusion of the hearing.]

Mr. BOUCHER. Thank you, Dr. Pershing. Dr. Steinfeld.

STATEMENT OF EDWARD S. STEINFELD, ASSOCIATE PROFESSOR, DEPARTMENT OF POLITICAL SCIENCE, MASSACHUSETTS INSTITUTE OF TECHNOLOGY, CAMBRIDGE, MA

Mr. STEINFELD. Mr. Chairman and members of the committee,

thank you very much for the opportunity to speak today. I am Edward Steinfeld. I am a professor of political science and political

economy at MIT and a specialist on Chinese industrial development. In that capacity, I served as one of the principle authors of

MIT’s recently released study on the future of coal in a carbon-constrained world.

The MIT study began with two premises. First that the risks of

global warming are real and that carbon mitigation efforts should

move forward. And second, for the foreseeable future, coal would be

a critical resource for meeting global energy needs. Those two

premises, taken together, as many people have noted already

today, placed China dead center in the discussion of climate

change.

I won’t go over all of the numbers that have already been stated

and stated quite accurately. China will soon pass the United States

whether this year or next year, maybe the year after—will soon

19

surpass the United States, the world’s largest emitter of CO2. The

largest coal-consuming sector China, the electric-power generating

sector, as others have noted, is expanding at a torrid rate. A 500

gigawatt roughly generating capacity system in 2004 added 70

gigawatts of generating capacity roughly in 2005, and 102

gigawatts of capacity in 2006, virtually all of that is pulverized

coal-fired standard power generation. That is an incredible rate of

increase, one of the most rapid in human history.

The question though that I would like to address are the conditions under which, and the institutional framework under which,

this very rapid expansion is happening. There are a few features

of the Chinese system that I would like to point out.

First, my research suggests it is not the case that this expansion

is centrally coordinated, coherently coordinated, strategically coordinated, whether progressively coordinated or regressively coordinated. Rather, the story on the ground is that this expansion is

happening at a rate far faster than central officials in China can

grasp and understand. And they are scrambling just to get information and to get raw data.

Second, the decisions that are made regarding this build-out and

their technology decisions and design decisions and infrastructure

decisions relating to power plants, these are highly localized decisions, and decentralized decisions but not decentralized institutionally through formal processes, but institutionalized in the de facto

fashion. The decisions are made before the center can really recognize what is going on. In fact, power plants in China almost routinely receive approval after they are already up and operating,

rather than before.

Third, in this environment of ad hoc decision making, of selfhelp, and making due, there are a wide variety of players who get

involved. Some are commercial players. Some are regulatory players. Some are investors. Some are wearing all three hats simultaneously and are not exactly sure which role they are supposed to

be playing, but the ultimately deliver the electrons. They deliver

the electricity for economic development. It is a tough, chaotic environment, not only for outsiders to deal with, but for insiders to deal

with and particularly to regulate.

So the question then is what does this mean for Chinese participation in carbon mitigation efforts? Well, first and obviously, to the

extent China participates as a system, we have to expect that the

system will not and cannot turn on a dime. It is not the kind of

system that can do that. No matter what the central dictates happen to be, the system will not turn on a dime, and compliance, as

it is for virtually all regulations in China, compliance will be a

problem.

Second, though, there is some cause for optimism. The first point

I would like to raise there is some central players in China—and,

of course, there are debates within the central government, as

there are in any government. Some central players do want change

and want it rather desperately. They face pressures that are familiar to all of us as has been mentioned. Dependence on external energy, resources, environmental pressures from their publics, pressures to improve competitiveness of industry in their own country,

they would like to get better regulatory control of the sector. One

20

tried and true method of doing this in China has been to outsource

regulation to external global institutions. The WTO excession story

in the past is really this kind of story, and there are Chinese policy

makers who are looking for some kind of external agreement or

binding factor that they can use to drive regulation inside the country.

The second issue related to that is that there is quite surprising

to me and interesting to me a certain bottom-up pressure from

some commercial players, particularly manufacturers of power generating components and technologies. We see it also on the renewable side. We see it a bit actually in the coal industry itself. There

are commercial players in China who want to push their own government to move toward carbon constraints simply to create incentives for these commercial producers’ own products. Or to put it

somewhat differently, these producers want to be globally competitive. They want to feed products into markets in Europe and North

America as well, and they feel they can’t do that unless their domestic market converges in a regulatory sense, in a regulatory

fashion toward the rest of the world.

So what is the conclusion? Well, first I can imagine a WTO-like

excession process or a political conversion process inside China, but

with respect to climate change. Had you asked me in the early

1990’s would China ever exceed the WTO on the terms it did, I

would have said absolutely not. Of course, it is a criticism of myself, but virtually all of my colleagues who study China would have

said the same thing. Politics changed, and the government then

changed its strategy and grasped this external institution to push

further change in the country.

But that presumes that there will be some kind of external

agreement to which these policy entrepreneurs in China can grab

hold, and that——

Mr. BOUCHER. Mr. Steinfeld, if you could wrap up just a few minutes.

Mr. STEINFELD. And the last point is even if China does—and I

predict that it will join and grab hold to an international agreement on carbon constraints. Even if it does, we will likely see, as

we have seen with WTO excession, continuing compliance problems

as China works to build domestic capacity over the long run.

[The prepared statement of Mr. Steinfeld appears at the conclusion of the hearing.]

Mr. BOUCHER. Thank you very much, Mr. Steinfeld. Mr.

Chaudhuri.

STATEMENT OF PRAMIT PAL CHAUDHURI, BERNARD

SCHWARTZ FELLOW, THE ASIA SOCIETY, NEW YORK, NY,

AND FOREIGN EDITOR, HINDUSTAN TIMES, NEW DELHI,

INDIA

Mr. CHAUDHURI. Thank you. I am a journalist in India who is

presently on a 1-year fellowship at the Asia Society where I am

looking at a host of issues relating to India, the United States, and

India’s role in the world in the coming decades.

The debate in India about global warming is curious because domestically, it barely exists. There is no dispute. Very few dispute

the issue of global warming or its importance, but the debate is

21

minimal because there is a general view that the most controversial aspect of the debate, which is carbon emission limits, simply

does not apply to India. When the U.N. Intergovernmental Panel

on climate change issued its last report, my guess would be that

of India’s 26,000 newspapers, barely 1 or 2 percent bothered to put

it on page one.

And there is a reason for this lack of debate because there is an

overriding consensus within the Indian establishment, the political

elite, the media, even within the environmental movement in

India, that the overriding priority for the country is rapid economic

growth.

And since carbon emission limits are seen as inimical to that

growth, they are generally simply ruled out of the debate. The late

Indian prime minister, Mrs. Indira Gandhi, famously said in the

1970’s the ultimate polluter is poverty. And it is a line that is repeated again and again and again even to this day by the prime

ministers and the leadership and the media and anybody in India

who talks about pollution in any way.

And I suppose everybody knows how poor India is, but I will reiterate it because it is so important. India has more poor people than

sub-Saharan Africa. It has as many as—the estimates differ—as

many as 300 million people living on a dollar a day. If that figure

is taken to $2 a day, that figure rises to almost 700 million. What

we are looking in India right now, the economy boom that we have

been experiencing in the past 10 years, as a recent World Bank

study says, for the first time, India can actually look at the possibility of eradicating poverty, in others word bringing it down to single-digit levels within the population in a generation.

It is very difficult to explain how important this is for everybody

in India, not just because of the poor but even the people at the

top. To be able to look at something that we have not been able

to do for centuries. So even if you were to theoretically argue that

carbon emission limits might affect that growth, it is immediately

ruled out because this is something that Indians cannot believe

that we can possibly accomplish, and they are not prepared to

threaten it in any way.

This, of course, is why India as well as China declined to accept

carbon emission limits when they signed the Kyoto Protocol. They

accepted the global warming was an issue, but they were not prepared to sacrifice growth, even theoretically. And this is one of the

reasons why both India and China, I believe, are dragging their

heels and are extremely wary of a second Kyoto agreement because

there seem to be a large number of people who argue that this

agreement should bring carbon emission limits and apply them to

India and China.

This automatically for India and China—well, I won’t speak on

behalf of China, but I will say my impressions on India—means

that you are trying to sacrifice our ability to eradicate poverty.

The U.N. framework convention on climate changes chief official,

Evo Debower, spoke in Delhi in January, and he put his thumb

right on this issue. He said I understand this perfectly. ‘‘Developing

countries fear that the new round of climate negotiations would impose on them obligations that would hurt their economic growth.’’

And because of that, they are not prepared to negotiate or they are

22

not prepared to be as constructive as they can be. Because of this

fear that lies in the background of this entire game, the prime minister, who is an economist by training, Dr. Manuel Sing, last year

in a speech on our Government’s integrated energy policy, made it

very clear, 8 percent growth.

And even if you assume only 8 percent growth—we have grown

9 percent in the past 2, 3 years—until 2030 would require a four

to fivefold increase in our energy consumption and increase of our

electricity capacity from its present 131,000 megawatts to somewhere between 800,000 to 950,000 megawatts.

But the linkage is always very clear in all of the Government’s

statements. Energy consumption is directly linked to our rapid economic growth. We try to curb the energy consumption, and, in fact,

the prime minister has repeatedly said that is our No. 1 constraint

on our future economic prospects because our energy production remains far behind the rate of the growth of the economy as a whole.

And Indians look at the figures. We generated in 2005 312 million metric tons of CO2 emissions. We were the fifth largest producer, just a notch behind Japan. But per capita—and I should add

when you measure this by per capita, of course, it falls dramatically to only two tons per person. And it was interesting that it was

the Indian environmental movement that recommended to the Government back in the 1980’s that you measure it by per capita because it strengthens your negotiations position and puts it in a better perspective.

So it is not that India is not prepared to do anything about carbon emissions. We do look at other things, such as we are an active

player in carbon trading it has been mentioned. The clean development mechanism that work in the U.S., we have 155 registered

projects as of January 2007 and 400 more in the pipeline. We are

part of the FutureGen project, the hydrogen fuel initiative. And

somebody mentioned the Asia Pacific Partnership on Clean Development.

So I will quickly summarize to just say that in the long term, we

are prepared to do something, but again it has to be done in a

manner that does not affect the economic growth rate of the country. This is a not merely political and economic issue, it is a moral

issue for the Indian political leadership as a whole.

[The prepared statement of Mr. Pal Chaudhuri appears at the

conclusion of the hearing.]

Mr. BOUCHER. Thank you very much, Mr. Chaudhuri. And thank

you to each of our witnesses for your presentation here this morning. The testimony that you have provided is going to be extremely

helpful to us as later during the course of the spring we structure

a mandatory program for greenhouse gas emissions in the United

States. The point was made by members of the subcommittee and

by witnesses alike that if we are going to have a mandatory program here, that does not fundamentally injure the U.S. economy,

it is essential that we assure participation by the larger developing

nations.

I agree with that point. I think our legislation has got to make

provisions for it. Not only is it a necessity from the standpoint of

our economy, but I think it is also a political necessity. If we are

to be successful in passing this legislation through the House and

23

the Senate and having President Bush sign it into law, and it is

our goal to have that happen during this 2-year period.

So let me ask about the best way that we can obtain that assurance in our legislation. One approach that has been recommended

is that we have something in the nature of an off-ramp so that we

would put our program into law. We would announce our targets.

We would announce the schedule upon which those targets would

take effect and emission reductions would begin. But at the point

at which those reductions are scheduled to take effect, if we do not

at that time have buy-in by the developing countries and an assured participation on their part with mandatory programs in

those countries as well, then our program would not take effect.

That perhaps is the most direct and perhaps Draconian way in

which we could assure international participation if we are to have

a program.

Some would argue that that approach might be effective. We

have heard comments from some developing countries that they are

not willing to undertake programs of their own as long as the

United States is not committing itself to greenhouse gas reductions. Perhaps if we show our good faith in the exercise that we intend to do so here, that might encourage developing countries to do

the same. So I would appreciate your comments about the possibility of an off-ramp.

Now, second, we heard testimony last week from the chief executive officer of American Electric Power, Michael Morris. I think Ms.

Petsonk referred in her testimony to his proposal. It is a very interesting one. It essentially says that there would be a requirement

that the importation of products from developing countries that do

not have mandatory greenhouse gas emission controls be accompanied by an emission credit that would be equal to the greenhouse

gas emissions attributable to the manufacture of that item. And so

the importer of that item would be required to go into the world

market and purchase an emissions credit that would be equal to

that greenhouse gas burden, that burden assigned to that particular item. It is a very interesting recommendation, somewhat similar to what I think Ms. Petsonk and Mr. Stephens had recommended but not exactly the same.

A couple of questions that I have for you, and I will turn my time

over to the panel members to respond. Number 1, do you think the

off-ramp is the best approach? Do you think some sort of trade-related approach to this with the requirement somewhat similar to

Mr. Morris’s is the best approach? If it is the latter, what about

WTO compliance? Are we consistent with our WTO obligations

with China in particular in the event that we have that kind of requirement go into effect? I can imagine a challenge being made. So

do you think either of those approaches is recommendable? If you

think that some variation of Mr. Morris’s proposal is better, tell me

what that is. And if you have some third way, we would be happy

to hear about that too. Ms. Petsonk, maybe we could begin with

you.

Ms. PETSONK. Thank you, Mr. Chairman. And I have a standard

rule. If you catch me using an acronym that you don’t understand,

stop me. If I don’t stop, throw a small object at me to get me to

stop or your gavel.

24

Mr. BOUCHER. I have it back now.

Ms. PETSONK. OK, thanks. First with regard to the off-ramp proposal. When I was a kid, we had a saying if one kid wanted to do

something and the other kids wouldn’t go along, we said nobody

loves me, everybody hates me, I am going to go eat worms. And the

problem with eating worms is it doesn’t help you solve the problem.

And in particular, the off-ramp proposal could be hurtful to American industry in developing the low-carbon technologies of the future that are going to be needed because that kind of off-ramp

could send enormous uncertainty into the carbon market without

any clear signal for what would be the trigger for the off-ramp.

So let me not say anything further about that and go instead to

the American Electric Power-International Brotherhood of Electrical Workers proposal. It is a very interesting proposal. It is attracting significant attention in the business community as well as

in the labor community.

I am authorized to say I was talking with a company yesterday,

which happens to be one of the world’s largest manufacturers of cement. It is the Holcim Company. You may know it. It has substantial operations in North America, and 60 percent of its operations

are in the developing world. And they indicated to me that quite

independently they have come up with a quite similar idea that

they are considering proposing in Europe. They haven’t taken a

final decision as to whether to propose it. But certainly is it the

kind of proposal that one would want to coordinate between the

United States and Europe so that together the markets of the nations that adopt emissions caps take the position that energy-intensive goods coming in from countries that refuse to cap or cut their

emissions all face this requirement to submit emissions allowances.

We are looking closely at the WTO aspects of this. I do not proclaim myself to be GATTologist, but I am an alumna of the U.S.

Trade Representative’s office. And there is a good argument under

the—sorry to get technical on you, but you asked for it—the GATT

1947 as it was incorporated into the GATT 1994 and incorporated

into the WTO—that nations have the ability to take WTO-inconsistent measures if it is necessary to protect their environment if

they do so in a way that is non-discriminatory and if they tried

really darn hard to convince other countries to do the thing that

they needed to protect their environment.

Mr. BOUCHER. Well, that is a very clear answer.

Ms. PETSONK. Thanks.

Mr. BOUCHER. Let me move on to Mr. Stephens who I am sure

has some comments. And, Mr. Stephens, if you could be brief. I

have expired my time unfortunately.

Mr. STEPHENS. Yes, I can be brief because the accurate answer

to your question is I don’t know, and I don’t think most of us know

the answer to that question yet. As I said in my statements, I have

got this conflict that is driving me crazy between a free trade enthusiast and understanding that if we want to solve this problem,

we are going to have to deal with the fact that we have markets.

If we have them by their markets, their carbon sequestration will

follow.

Mr. BOUCHER. Thank you very much. I would like to hear from

the other witnesses on this. Perhaps we could have individual conVerDate 11-SEP-98 13:21 Oct 20, 2008 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 Q:\DOCS\110-26 SCOM1 PsN: SCOM1
25

versations after the hearing because I would very much welcome

your views. Mr. Hastert is recognized for 5 minutes.

Mr. HASTERT. I thank the chairman, and to each and every witness, I would say that I would probably like to have an individual

conversation with you because I think there are questions out there

that we just have a hard time answering. For 16 years, I taught

high school economics. I never fessed up to being an economist, Mr.

Steinfeld, but——

Mr. STEINFELD. Doctor.

Mr. HASTERT. Dr. Steinfeld, that is right. I never fessed up to be

a doctor either. I got five honorary doctorates, but anyway, I did

teach economics, and I taught 16 years old economics. I had to

bring it down to a level where 16 year olds could understand it.

And if we are going to bring this thing down to a level, I guess it

would be like all the world players sitting around this big poker

table, and somebody had to ante up. And who is the first guy to

ante up? And every time we had to ante up, and I just heard the

testimonies of some of the questions I wrote down. And my question is do these costs get passed on to the consumer? And what is

your safety level to deal with China? What if the U.S. changed the

numbers, and we stepped up first? Is there any guarantee that

China or India or anybody else is going to ante up too?

And the fact is when you ante up, it may cost you jobs. It may

cost the ability for you to manufacture up in the Northwest where

you are being challenged already. It may cost your consumers

more. You go to the Dollar Store. My people go to the Dollar Store.

Probably a lot of things made at the Dollar Store aren’t made in

this country, but the few things that are made in this country,

whether it is toothpaste or soap or whatever, then all of a sudden

we are challenged and our products go up to be a $1.15 so they

don’t qualify for the Dollar Store anymore. And foreign products

are under that level.

What happens to your jobs? Our jobs go offshore. They go some

place else. And how do you persuade—and this is an esoteric question—how do you persuade, as Mr. Chaudhuri was talking about—

a country that has 300 million people in absolute poverty that earn

a dollar a day, to all of a sudden use sophisticated technologies

when they are just trying to get over the lip of existence?

And this is the real issues, and I am a market guy too, a very

free market guy. Always have been. That is where my goals are.

That is where my legislation has been, and I think that is where

I would like to pass on a legacy. But the fact is can you do this

with free-market incentives, or do you have to overlay a huge international goal?

I have dealt with the Chinese over the years and tried to talk

about ideas of intellectual property. It takes a long time to get that

done. Transparency. There is always a lot of good intentions, but

intentions never really translate into product, and so I am just asking you how do you do this? I only have about a minute and 45

seconds left, so each of you can give me a concise, maybe 20-second

answer. Mr. Steinfeld, if you can squeeze economics into that, what

would you say?

Mr. STEINFELD. Thank you very much for your question.

Mr. HASTERT. That took up 5 seconds, sir.

26

Mr. STEINFELD. The first point I would raise is that in the last

15 years, Chinese reformers at various levels of the system have

passed on a variety of costs to their populations. The populations

have endured a variety of costs on the environmental side, on the

social equity side, on the employment side. And some of those costs

have been generated simply by growth itself. Some have been generated by China’s joining things like the WTO. So the notion of

China, as a system, accepting costs has a certain historical record.

Then the question is well, why would they do it on carbon? Part

of the answer there has to do with the idea that China, like any

economy, is a complicated one. It has producers as well as consumers, citizens as well as corporate players. And a number of the corporate players have a particularly privileged voice in the Government and some of them view carbon constraints or other marketfocus regulatory interventions as a commercial opportunity, particularly if it involves exporting and global leadership.

Mr. HASTERT. Ms. Petsonk.

Ms. PETSONK. I want to pick up on that theme of commercial opportunity and give one example. In India and in a number of other

very poor countries, some of the most popular carbon emission reduction projects that are being done for credit now are supplying

the poorest people with more efficient cook stoves to use in their

houses so they don’t have to cut down as many trees. They don’t

have to breathe as much pollution. These stoves are very cheap.

The poor people can’t afford to buy them.

Microlending carbon banks are essentially loaning the money to

these very poor people, allowing them to use these very efficient

cook stoves. It doesn’t have to be a fancy technology to get very

nice emission reductions out of it. And the emission credits then

can be sold to pay off the loan, maybe even with some profit back

to the poor people and their village so that they can begin to climb

up that economic ladder.

The carbon market, if you create it, can deliver those kinds of incentives across poor economies as well as wealthier economies very

broadly.

Mr. HASTERT. Thank you. And I just want to say in conclusion—

I know I am over my time—make sure the first guys that ante up

aren’t in the game by themselves. I guess that is the process. That

is the question, and that is the challenge that we have. Thank you.

Mr. BOUCHER. Thank you very much, Mr. Hastert, for a very

thought-provoking series of questions and answers. The gentleman

from Michigan, the chairman of the full committee, Mr. Dingell, is

recognized for 5 minutes.

Mr. DINGELL. Mr. Chairman, I thank you. This to Dr. Steinfeld.

When I was a young fellow, I went to Kyoto, to the treaty signing,

and we had a big meeting with the Chinese, and I said now, are

you going to be bound by this? And the Chinese said no, we are

not. I said well, why are you not going to be bound? They said because we are a developing country. I said how long is China going

to be a developing country? They said we are always going to be

a developing country. I said that means that you are not going to

be bound by Kyoto, and you are not going to contribute. They said

that is right.

27

So this again to Dr. Steinfeld. Do you agree with Ms. Petsonk

and Mr. Stephens that legislation should include incentives to ensure that other countries do their fair share or suffer their consequence in terms of access to U.S. markets?

Mr. STEINFELD. I do believe incentives should be included in legislation. I will mention that in the WTO story, Chinese negotiators

also, for 13 years, maintained the position that China, as a developing country, should not be held to specific standards and

they——

Mr. DINGELL. I want to hear more, but I have got a bunch of

questions that I have got to ask, and I do apologize. Now, Ms.

Petsonk, this question. Your recommendation about what Congress

should require, in carbon market access agreements with other nations, as a condition for access to our markets is intriguing. But I

am not clear how this would work; although, I happen to very

much favor the idea. What would induce other countries to sign

such agreements? Why do you believe that placing conditions on access to U.S. carbon markets provides sufficient leverage to induce

others to adopt emission caps?

Ms. PETSONK. First, the size of America’s carbon market. Some

people look at our economy and see very nice emission reduction

opportunities in many, many places. Other countries will want access to that carbon market to try and sell us the technologies that

they produce, just as we will want our technologies to come into

that market.

But second, they will want to sell us emission reduction credits

that they may be able to earn where it may be able cheaper to reduce emissions overseas than it is to reduce emissions at home.

They will want to sign up to those agreements if Congress directs

the executive branch to negotiate those agreements.

In my view, the problem with Kyoto was that the resolution that

so many folks have referred to came too late. Congress needs to instruct the executive branch, here are the objectives these carbon

market access agreements need to reach, and we are going to hold

you to it.

Mr. DINGELL. I recall, though, the thing that was very clear to

me was that we would be buying carbon credits from places like

the former Soviet Union, from China, and they would just keep

selling these credits to us and manufacturing new opportunities for

us to buy without conferring any significant benefits in terms of reduction of carbon emissions. That is obviously something we have

got to be very careful of, is it not?

Ms. PETSONK. Exactly, and it is a major flaw in the existing

framework. The existing framework awards you a carbon credit if

you reduce emissions below what you would have done anyway.

Well, let me tell you. If you ask me, Annie, sorry, Ms. Petsonk, how

many slices of cheesecake were you going to eat next week anyway

because if you eat less than that, I will give you some cheesecake

credits that you can sell to somebody else, I am going to tell you

that I was planning to eat cheesecake every day three times a day.

Those kinds of credits don’t produce a real environmental benefits, and that is why we favor Congress directing the executive

branch to negotiate in these carbon market access agreements real

baselines that hold countries to an absolute level of reductions.

28

Mr. DINGELL. Thank you, ma’am. Now, this question to Dr. Pershing. Do you agree with Ms. Petsonk and Mr. Stephens that Congress can induce other nations to limit their emissions through legislation requiring such action as a precondition for access to United

States markets?

Mr. PERSHING. I think you could. I am not sure it would be so

straightforward. The thing you need to focus on really quite explicitly is what the rules would look like. At the moment, if you take

a look at what it would mean to, say, follow a structure such as

AES’s outline, it would require that we have full information about

how much carbon is in every commodity. And we might want to

think about where the commodity came from and its life-cycle

chain.

So I have an import from aluminum that comes from alumina

that was smelted in Australia that went into a can that went to

Japan that went into a product that went to Russia, and then it

comes back to the U.S. What share am I going to go for? The aluminum share from Australia which I am OK with, or the share

from China which I am worried about. Those kinds of rule-making

processes will be difficult.

Mr. DINGELL. Now, this to Mr. Holzschuh. Do you agree with Dr.

Steinfeld’s assertion that with respect to emission limitations, China’s ability to enter into international agreements would be on a

primarily aspirational basis?

Mr. HOLZSCHUH. Yes, I stated that I think their enforcement and

regulatory actions would clearly lag any policy statement that they

would make. I would just make one other point on this issue, which

is from the private sector, and Mr. Stephens mentioned this, that

there are trillions of dollars that need to be committed now for us

to build the next generation of energy in this country, security,

things that go with it.

The difficulty for the executives who are trying to make those decisions is the lack of rules or the perception that the rules would

change midstream. So the off-ramp is particularly troubling in that

regard, and that is going to be true—China has to invest now no

matter what. We are trying to make business decisions based on

shareholders and other things, and it is very difficult.

Mr. DINGELL. I agree with you on that point. As my own daddy

used to say, trust everybody but cut the cards. Thank you, Mr.

Chairman.

Mr. BOUCHER. Thank you very much, Mr. Dingell. I can’t see

whether Mr. Barton is here or not. He is here. The gentleman from

Texas, Mr. Barton, is recognized for 5 minutes.

Mr. BARTON. If it is a climate change here now, can I not be

here?

Mr. BOUCHER. I knew you were here.

Mr. BARTON. This is actually enjoyable to for me. Shows how

twisted I am sometimes. I want to thank you, Mr. Chaudhuri, for

your quote that the ultimate polluter is poverty. I wish we had the

ability to put that up at all these hearings. Do you agree with me

that where China and India and the developing world are today in

terms of their electrification programs, there are many similarities

to where the United States was in the 1930’s when we had the

29

TVA Project, the Bonneville Project, and the Rural Electrification

Administration?

Mr. CHAUDHURI. I think we are actually still far behind what the

United States was in the 1930’s. I think we would be looking more

at something in the 19th century to see where exactly we are in

terms of electrification.

Mr. BARTON. But what do you think our political process would

have—where would Franklin Delano Roosevelt responded if the

British and the French and the Germans and the Russians in the

1930’s had somehow tried to co-op us and prevent us from electrifying our country in the same of some social environmental benefit

in the future? How do you think our political process would have

responded?

Mr. CHAUDHURI. World War II might have been fought on very

different lines. I think that for an Indian politician, it would be suicidal. I should point out that in India, when we go to general elections, 50 percent of our members of Parliament are tossed out of

their seats every election. Antion Compency is the single most powerful political force in India.

Mr. BARTON. We felt a little bit of that in this last election.

Mr. CHAUDHURI. Indian politicians are terrified of their voters

because Indian voters are extremely unwilling to listen to politicians, especially those who argue something on the lines that you

are saying that you should take a drop in your living standards or

even your potential living standards at a time when I said 700 million of them are living on $2 a day.

Mr. BARTON. Dr. Steinfeld, your group has just put out a paper

on coal use recently that has received quite a bit of play in the

media. I think it is very thoughtful. In order for us to get the Chinese and the Indians to adopt some of our cleaner technology, I

would assume you agree, since you, I believe, stated this in your

work, that we have to get the cost of that down to where it is at

least approximately equal to the current technology that they are

using right now that is not as clean. Do you agree with that?

Mr. STEINFELD. I am not sure that is exactly the point in the

study. There are tradeoffs that some players in the Chinese system

seem to be prepared to make for more expensive technologies that

happen to be cleaner, particularly in certain parts of China. The

per capita in Shanghai is around the level of Portugal, whereas the

per capita income of the whole country is obviously much lower,

maybe $1000 U.S. in many parts of China. So in the wealthier

areas, there is some willingness to trade off.

Mr. BARTON. But if we were to adopt some international protocol

where the United States would commit itself to making our technology available at equal or less cost and subsidize in that in some

way, that might encourage some of these developing nations to use

the cleaner technology. If we can get an environmental benefit and

make it cost effective, then there is no reason for them not to use

it.

Mr. STEINFELD. It is conceivable.

Mr. BARTON. OK, Mr. Stephens, you represent the forest products industry. Do you think that some of our land use programs

and carbon seek programs, reforestry programs, do you think they

could be large enough to actually have an impact? Because they

30

certainly could be cost effective in terms of doing things to lessen

the overall effect of carbon.

Mr. STEPHENS. Yes, and I tried to address that in my comments.

Certainly if we can stop burning the forest down, that is a great

first step to taking CO2 out. And then if we can convert biomass

into energy—and we do know how to do that—I think the science

would indicate that wood is pretty much carbon neutral.

Mr. BARTON. So those are some programs that actually are cost

effective and we could adopt and implement immediately?

Mr. STEPHENS. Yes, in the bill that you sponsored in 2005, I

think there is a lot in that bill that would be very helpful and not

in conflict with what is being discussed today.

Mr. BARTON. With that answer, Mr. Chairman, I am going to

yield back.

Mr. BOUCHER. Thank you very much, Mr. Barton. The gentlelady

from California, Ms. Harman, is recognized for 5 minutes.

Ms. HARMAN. Thank you, Mr. Chairman. I think this hearing is

fascinating, and the witnesses have all given us some bold, clear

ideas, which certainly was my exhortation at the front end. I also

am impressed that Members on a bipartisan basis are very much

engaged in seeing if we can figure some of this out, and I surely

hope that we will be able to do that.

In my opening comments, I said that we were in a diplomacy deficit in the world at the moment. This wasn’t limited to environmental or energy issues, but I said that we have considerable soft

power, partly as a result of our robust economy, to re-engage the

world on these issues. Obviously we need a worldwide solution.

None of you would disagree with that.

I just wonder if you agree with me that we can overcome our diplomacy deficit with our soft economic power if we can figure out

the right way forward. Does anyone disagree with that? Yes?

Mr. PERSHING. Thank you very much. I think you can overcome

a great deal of it but not all of it. There is a formal process which

I think will ultimately be needed, and we need to have the formal

diplomatic channels that we also use.

Ms. HARMAN. I surely agree with that. Does anyone disagree

with that? Ms. Petsonk?

Ms. PETSONK. I don’t disagree with it. I think that the single

most important step in this area that the United States could take

to rectify the diplomacy deficit is to enact a clear, enforceable mandatory cap and trade program here.

Ms. HARMAN. I heard you on that, and I support that. I know

that some members on this committee don’t, but I support that.

But we have to get it right. Doing something may not achieve anything. I have heard you all say that. OK, changing the subject

slightly.

When Vice President Gore was before us last week, he made a

number of suggestions. One of which was—and I am quoting from

my notes—that carbon pollution should be priced into the economy,

not be an externality. Now, obviously if there is a market base to

cap and trade system, carbon gets a price. But I am wondering

what you think of this suggestion that Gore made, and he was talking about the U.S. economy, but I am also wondering whether you

think this has some legs for more of an international focus.

31

Mr. PERSHING. It seems to me the answer is yes, and you can do

it in two ways. The first way is you can create the market by countries that want to have the market. The U.S., Europe already doing

it. My sense is that will create an implicit market price for anyone

that trades with us. You do not need all countries to be in the market to create a global price.

Ms. HARMAN. Other comments?

Mr. HOLZSCHUH. I would just say quickly that any time there is

not a price on such an issue that is this complex, it seems to me

that the bid and the ask from a market perspective is so wide, it

is very difficult to create that market. And so when there is an assumption of price, whether it is mandated, open market, whatever

the mechanism is, my guess is this debate will move much more

rapidly.

Mr. STEPHENS. If I could just comment, I think capital is an integral part of solving a problem. It is going to take an enormous

amount of capital on a worldwide basis to solve the problem. Capital is a coward. It runs away from uncertainty, and we need to be

very clear, and there needs to be a reasonable chance to understand the consequences before capital is afforded.

Ms. HARMAN. Anyone else? Well, I am not going to take all my

time, Mr. Chairman, but we have a new chairman here. But I

would just conclude with this. I mean I think you have to be an

optimist to serve in Congress these days. It is a hardship post in

both parties. So I am an optimist. I can see huge opportunities for

U.S. businesses, and some of you have been suggesting this, by getting these technologies right and then exporting to the world market under a set of standards, guidelines, treaties, agreements, that

would welcome U.S. exports.

And I have seen that happen in many other industry sectors. My

district is the aerospace center of California, and the export market

is the critical part of the health, which we need, of our aerospace

industry. So I can see this being a huge win. Does anyone disagree

with that? Fine. Mr. Shadegg disagrees. Well, he will get his 5 minutes to rebut very shortly. I yield back, Mr. Chairman.

Mr. MATHESON [presiding]. Thank you. The Chair recognizes Mr.

Upton for 8 minutes.

Mr. UPTON. Well, thank you, Mr. Chairman. I don’t know if I will

use all my 8 minutes. I just want to say that I am an optimist too.

Maybe that is why I am a Cubs fan, and it is preseason, and we

have already lost our two starting pitchers before the first pitch is

thrown.

But I have to say the international cooperation element of this

issue is certainly the most complex. That is very clear. Dr. Pershing, you made the comment in your testimony that the top 15

emitters equal 80 percent of the world’s output. We know, Mr.

Chaudhuri, that India by the year 2020 will equal the coal consumption in this country, in the United States. And it is headlines

like this front page of yesterday’s Washington Times, China on the

brink as the No. 1 polluter. We knew that already as well, but

there it is for everyone to see.

And when we go along with the other comments, and, Mr.

Chaudhuri, you were talking to us about the level of acceptance of

change by the Indian parliamentarians, by the members of ParVerDate 11-SEP-98 13:21 Oct 20, 2008 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 Q:\DOCS\110-26 SCOM1 PsN: SCOM1
32

liament. Dr. Steinfeld, your comment that the Chinese allow these

two new coal plants to be built virtually every week without any

rhyme or reason perhaps in terms of regulations in terms of emissions. We look at the hard evidence. Mr. Holzschuh, when you indicated that instead of, in China, the SO2 emissions, instead of a reduction of by 10 percent, in fact, they went up by 27 percent, so

a 37 percent swing.

And when we think about the test vote that they had on Kyoto

back in the 1990’s when President Clinton was in office, it was

unanimous of those that were voting because China and India were

not part of the agreement. And Brazil and Mexico weren’t part of

it either. And that is what gives us all real pause in terms of how

we are going to go. And I think Chairman Boucher made the very

accurate point that, in fact, if we do embark on something like this,

we have got to have an exit ramp because we don’t want to lose

all that we have here and have it go overseas with the lack of controls that folks over there have.

Ms. Petsonk, you talked a little bit about having a WTO structure. Congressman Hastert talked a little bit about some of the

problems we have had dealing with the Chinese on a host of issues,

particularly on intellectual property and copyrights. Being able to

see a movie the first day that you are there before it is almost even

out here. I mean a whole number of different products that are

built there and avoiding all of that copyright protection.

So if we in the Congress begin to look at something, a cap and

trade, whatever it might be, how is it that we can craft something?

What ideas do you have specifically that we can in fact not only

engage these other countries, but actually see them follow through

with this, what President Reagan said: trust but verify. Dr. Pershing?

Mr. PERSHING. Thanks very much. I think that is exactly the

question, and I think there are not easy answers. But here are a

couple of thoughts you might think about. The first one is that

there is, as Annie Petsonk has noted, this issue of the price incentive. Let us put that aside for a minute. I think you are all considering that. And look at a couple of others that might be less immediately——

Mr. UPTON. Well, your example, or someone gave the example

about the aluminum can. I mean how in the world do we figure

something like that out?

Mr. PERSHING. There are ways you could figure it out. There is

a process you could go through. It would take a little while. You

could make it happen.

I want to come to two other points that you might contemplate

as part of your decision-making process. The first one is that if you

set a price and require countries to do it, it requires they have got

a domestic commitment already. We don’t see that from very many

places. We are seeing it increasing. We don’t yet see it adequate

to make a constructor that we would like to see.

We do clearly however see very high interest in some other

things that would make a lot of sense. Energy security debate, perhaps, is the paramount one. We share that interest with China. We

can have a cooperative discussion with them. They are importing

oil from equally insecure places. That is part of the reason that

33

they have driven to have a domestic program on automobile efficiency. That is why we are thinking about it. It has consistent and

competent questions that we can manage jointly, which would lead

to serious reductions. We should take advantage of those as well

as this larger carbon price discussion.

Mr. UPTON. Mr. Holzschuh.

Mr. HOLZSCHUH. Unfortunately, I leave the politics to someone

else. What I would say is markets work here. We have seen in Europe the system work. We have seen it work here in SO2. I think

if there is a trading mechanism that can have some market-based

parameters for which to operate, it will stumble at times, but it

will work. And I think that it is a trust to get the market started,

but there is a bunch of entrepreneurs, a bunch of people who are

willing to commit capital around the globe to make it work. And

there will be enforcers just like the politicians.

Mr. UPTON. Ms. Petsonk.

Ms. PETSONK. I think that point of Mr. Holzschuh’s is very important. By creating a cap and trade market, you create constituencies of people who want to reduce emissions because that creates

more markets for their technologies, and also want to be sure that

the next guy isn’t cheating on their emissions report.

Mr. UPTON. But how do you do that with China building two new

coal plants every week?

Ms. PETSONK. For much of the infrastructure, I believe, and I

would be interested to hear Dr. Steinfeld’s comments on this as

well. For a lot of the power plants that are currently being built

in China, the design plans for those are set. That is not to say

though that there are not very good opportunities to come into

those plants and improve their efficiency if it can be done cost effectively. Having a carbon market price signal would make that

cost effective, and it would also give actually a price signal for innovations in other parts of China’s economy.

For example, we have talked a little bit about trees and forests.

Representative Barton actually asked about land use practices that

can improve the growing of trees and store more carbon in the soil.

Those are two things that China is very interested in. They have

lost a lot of trees. They are now embarked on a major program to

try to plant and protect trees because it is so important for the

local environment and local communities. And the same in agriculture. They have got to improve their agricultural productivity,

and they can do that by saving more carbon in the soil.

Mr. UPTON. Let me just go to the last minute to Dr. Steinfeld,

knowing I want him to wear his political science hat as well. Well,

no, I think he is a political scientist too, right? All right, wear them

both. How do we get through to the Chinese Government? I mean

what is your assumptions in terms of what may or may not happen?

Mr. STEINFELD. Over the last decade and a half, generally speaking, the way change has happened in China is that in this sort of

archaic political process, political constituencies inside the country

arise in a poorly regulated environment. The government generally

then binds itself to some kind of external international agreement

to support those constituencies, and that international agreement

34

is used as a club to beat away the former incumbent constituencies

that are there.

I personally am also a believer in markets and in civil society,

and I think both of those are viable avenues in China and probably

the most likely avenues for change that will have to in some senses

lead the bilateral discussion that goes on. So when I am in China,

the particularly privileged voice that I see operating in that system

actually is international capital, and that the Morgan Stanleys of

the world, the Goldman Sachs of the world actually carry a lot of

weight. And when markets are created and prices are set, I think

some of those actors can play an incredibly powerful role, an influential role, as with environmental and civil society type organizations.

Mr. UPTON. Yield back. My time has expired.

Mr. MATHESON. The Chair recognizes the gentlewoman from Oregon, Ms. Hooley, for 8 minutes.

Ms. HOOLEY. Thank you, Mr. Chairman, and thanks to all of the

panelists, and my apologies that I had to leave for a while. I had

another committee hearing going on at the same time.

Mr. Stephens, thank you for being here and testifying today. We

have had some companies come in and say this is not going to

work. We don’t really have global climate change. If we did a cap

and trade system for greenhouse emissions, we would go broke. It

is not going to work. So what, first of all, brought you to the conclusion that Boise Cascade would embrace this approach, and you

think your company can remain competitive under such a system?

Mr. STEPHENS. Well, the reason is very simple. I was asked by

three important stakeholders Boise Cascade, what do you stand

for? What are your principles with respect to climate change?

Those three stakeholders were my customers who said if we are

going to buy your product, tell us about your principles. My employees say Tom, what do we stand for? And finally, my grandchildren said Papa, what do you stand for? So I decided to show

up.

Ms. HOOLEY. I am going to ask you a couple other questions,

then I have a question for the whole panel. Right now, we have

some States enacting some provisions and other States not. I know

you operate in many States. How much more difficult is it for you

to deal with the different standards in different States versus having some kind of a national standard, or does that really make any

difference to you?

Mr. STEPHENS. It does make a difference. As an example, the

laws and regulations in Oregon are fundamentally different than

Washington when it comes to biomass and using spent black liquor

to generate energy in the paper business. That is very confusing,

and frankly we have not made some capital decisions to use biomass and to move away from other fuels because of uncertainty

about what are the rules going to be.

To build a boiler may take me 5 years from engineering to installation and startup. It is a long lead time. We are trying to anticipate, at this point, what the rules we are going to be accountable

for are going to be, and they are very different across the country.

Ms. HOOLEY. And I am interested in biomass. Can you tell me

what changes in regard to biomass, if any, you would recommend

35

to Congress as it relates to the development of the use as an energy

resource?

Mr. STEPHENS. Well, first of all, don’t discourage its use. As I indicated a while ago, in some States, it is not considered a renewable energy source. So clear up the science. Make sure we recognize

it for what it is.

Ms. HOOLEY. OK, and then a question that I have for all the panelists. If we went with a cap and trade system, how important is

it that we lead the way, or does it have to happen internationally,

or can it happen with our leading the way and then trying to, as

we figure out how to do this, then working with other countries to

make sure that they are also doing it? I am going to start at that

end.

Mr. PERSHING. Thanks very much. I think the answer is we

would not be leading the way. We are already a follower. There is

already a market. It is worth about $25 billion. The market is part

that U.S. companies already play in. They have already seen the

price in the international context of their investments. However,

that market doesn’t work as well as it could. We could make it better. We could make it bigger, and if we did that, we would have

an enormous impact both on the problem and on the way our international systems and our international companies can play.

Ms. HOOLEY. OK.

Mr. HOLZSCHUH. I concur. Any market that we have established,

and there are so many commodity markets that have been established in the last 20 years, have taken an incredible amount of innovation and technology to get started. What we are not seeing is

that investment now in that technology, and if you are building a

plant a week, all the technology is going over there. I am very concerned that China will beat us to clean coal technology. They will

beat us to some of the things that, I think, to the extent we had

an open market, those dollars would be spent here.

Ms. HOOLEY. Yes?

Ms. PETSONK. I agree with the previous speakers.

Ms. HOOLEY. OK.

Mr. STEPHENS. I agree.

Mr. STEINFELD. I would just add it is the ambition of some Chinese industrial policy makers to ensure that China geographically

is the locus for introduction of new-to-the-world technologies,

whether it is by foreign companies or hopefully for them, by Chinese domestic companies. And some of those policy makers see energy as an area where that is going to happen, particularly nuclear

now, but also renewables and clean coal technologies.

Mr. CHAUDHURI. I can’t actually speak for the Indian government, but I would say that India has no problems with carbon

trading, whereas I suspect they would fight very strongly against

anything that brings in a cap on India.

Ms. HOOLEY. Another question for all of the panelists. I mean we

are here to try to make decisions about climate change, what are

we going to do. If there was one thing you could recommend, what

would it be? What is the one thing we could do that would make

a difference?

Mr. PERSHING. Establish a price for greenhouse gases.

Ms. HOOLEY. OK.

36

Mr. HOLZSCHUH. Create a capital pool to finance the initial infrastructure investment in these clean technologies in the U.S.

Ms. HOOLEY. OK.

Ms. PETSONK. Establish our carbon market with the way that encourages other countries to dock into it and do so quickly.

Ms. HOOLEY. OK.

Mr. STEPHENS. Realize that we are not going to get it right the

first time. Probably what comes out of Congress will be called the

first mistake. There will be a second mistake and a third mistake.

So it has got to evolve over time. It is really tough.

Ms. HOOLEY. Thank you.

Mr. STEINFELD. I will simply express the conclusion from the

MIT future of coal study. One tangible first step would involve

demonstration projects of carbon capture and sequestration in the

United States.

Ms. HOOLEY. OK, thank you.

Mr. CHAUDHURI. Find ways and innovative ways to spread things

like the clean development mechanism and clean technologies into

the developing countries, but again I would say without bringing

in carbon emission limits.

Ms. HOOLEY. I thank our panelists. You have done a great job.

Thank you.

Mr. MATHESON. The Chair recognizes Mr. Shimkus for 5 minutes.

Mr. SHIMKUS. Thank you, Mr. Chairman. One thing I like about

hearings is that you really do get a lot of good information. I would

encourage those who are in the DC area normally come by, as I

think Speaker Hastert said, and visit with me. I am a skeptic. I

can tell you about my regional criteria, but it would give us more

of a time to be able to visit, and I can tell you where my skepticism

comes from.

And so I have a few questions I want to get asked, and then if

I have time, I may go off on some of the great phrases today from

the panel. Mr. Steinfeld, I noted in your report, or your co-author,

the central government officials in China acknowledge of the

440,000 megawatt equivalents of generating capacity in place at

the beginning of 2005, there was about a 110,000 megawatt of illegal power plants, which never receive construction approval by the

responsible central government agency. Is this a common trend

with expansion of power generation in China?

Mr. STEINFELD. Yes, it is.

Mr. SHIMKUS. So can we conclude that China has a coherent national policy for construction of new power plants?

Mr. STEINFELD. No.

Mr. SHIMKUS. No, good. What would this say to the possibility of

China contributing in the carbon dioxide reduction program?

Mr. STEINFELD. That is much harder to say since the ambition

of many policy makers is to move toward a more coherent policy,

as is true——

Mr. SHIMKUS. But the facts of the expansion of generation, if the

central government is not involved in the citing of these plants,

that would make it very difficult?

Mr. STEINFELD. Yes, difficult.

37

Mr. SHIMKUS. At what rate is expansion of coal-fired plants happening in China to your best estimate?

Mr. STEINFELD. Well, the latest numbers released for 2006 surprised everybody. 102 gigawatts in small capacity was added.

Mr. SHIMKUS. We hear reports that a new plant goes up every

week, and we have mentioned this before. And we can safely assume that then, correct? Mr. Chaudhuri, during the first hearing

on climate change, we learned the German perspective of a cap and

trade program. It seems coal use is coming back there mostly because imported natural gas is so expensive, and that is a concern

of this nation with our high natural gas prices. Is this similar to

what is going on in India? And let me just follow up. Do you see

coal as remaining an inexpensive dominant source of power in

India?

Mr. CHAUDHURI. Yes, we are already 50 percent coal, and it is

likely that will, in fact, expand over time. India, like most countries, looking at the energy security side, wants to reduce its dependence on petrol chemicals because we import all of our gas and

petrol, virtually 80 percent of it. We have large amounts of coal,

which we do not tap in any really large manner because of the inefficiency of the nationalized coal sector. And so coal will almost certainly be king in India and will probably expand its role over time.

Mr. SHIMKUS. Yes, and that is great. And I want to follow up because you mentioned petrol chemicals, and one of my obviously favorite subjects is the coal-to-liquid technologies and applications. It

really is part of this debate, the question is India pursuing that?

I know China is.

Mr. CHAUDHURI. Yes, I think we have an agreement with South

Africa, which is one of the world leaders in that technology, on

working on that. The real problem in India is that, as I said, the

coal industry has been nationalized for almost 40, 50 years and

therefore is stuck in a rut. And privatization of that really is the

first step towards it.

Mr. SHIMKUS. Great, thank you. And I know China is also, and

here we are talking about electricity generation. But we are talking

about fuel use, energy security, big issue here. There will be folks

in Washington that will not want to accept the decrease of imported crude oil by moving to coal liquid because of this carbon dioxide issue.

And I want to read some of these quotes. I thought they came

through sitting through here the whole time. ‘‘The ultimate polluter is poverty.’’ Key. ‘‘Capital is a coward.’’ I agree. I am going

to use that. ‘‘The trillions of dollar off-ramp is particularly troubling.’’ That is the amount of—my quote that I have been using a

lot: the Federal Government always over promises and underdelivers.

So be careful how we in the authorizing committees move a bill

with the promises of research and development, money being paid

out, taxes raised to do that, because we won’t be there in the end.

And then what does that do to the capital markets? I know what

it does because we are dealing with the expansion of nuclear

power. We are dealing with coal-to-liquid technologies. We are dealing with all the aspects that you deal with. I do appreciate this

38

panel, and I would encourage you to come visit with me. Thank

you, Mr. Chairman, I yield back.

Mr. BOUCHER [presiding]. OK, thank you. And the Chair will recognize himself for 5 minutes. Dr. Pershing, you propose several policy solutions in your testimony including rebates for some of the

proceeds from a trading system to offset exporters who are at a

competitive disadvantage or allocating allowances in a manner that

reduces liability. In your opinion, what is the best way to level the

playing field for various U.S. businesses or industrial sectors?

Mr. PERSHING. There are two parts to the question. The first one

is if you design a domestic system, what would you do? The second

is as you think about the international linkages the domestic system might create, what would you do? And there might be slightly

different solutions for each of those two problems.

On the domestic side, I think you have a number of different

choices. The allocation question, I think, is certainly one option. My

own sense about it, however, is that you need to be very careful

as you do that because when you do allocations to some, you therefore deny it to others, and that makes it enormously difficult.

Congress however is quite good at dealing with financial issues

and deciding how best to allocate resources. And so if you have an

auction program in which you auction out your permits, you create

a set of revenues which you could then redistribute to those who

are affected or to, in an equitable even way, using decision-making

processes we have already got.

On the international side, it is slightly more difficult. There the

question is going to be who is at risk because of competition from

overseas, and how do you manage that? There are a number of different ways. There are options that could deal again with allocation. You allocate more permits to those who are at risk.

There are options that deal with how you deal with the financial

flows, put it back into those. There are options that deal with additional outside the carbon mechanism, other benefits like reduced

depreciation on things like technology development that could

bring the long-term cost down.

So there are many different solutions you could address that

would exactly solve your problem.

Mr. BOUCHER. I appreciate that. Mr. Holzschuh, in your work at

Morgan Stanley, you note that your commodities trading division

in Europe has been actively trading carbon allowances. If Congress

were to choose to go with the trading system, how would you suggest that the system be designed in the U.S. to improve upon the

experience in Europe? How would you structure it? What are your

thoughts on that?

Mr. HOLZSCHUH. Well, I would put it in the same box, I think,

as Mr. Stephens did, which is it was their first try. It was a pilot.

They are going to revise it this go-round. It was restricted primarily to the generators of power in the European Union. I think

it needs to be broader than that. Has to address some other industries.

To address one of the issues that you just asked of Dr. Pershing,

it is not going to work globally if we pick industry by industry and

put all of the burden, for example, on the power generators when

they are only 40 percent of the emitters. We are going to have to

39

spread that out. I think the allocation process is difficult. I think

there probably should be a mixture of allocation and auction, and

there may be tax that goes with it, maybe all three.

I think the one piece that probably didn’t get enough time today

that I would just say to you is the investment has to be now. It

takes 3 to 5 years to build a power plant. We don’t even have the

technology yet on clean coal. We don’t have the technology on some

of the bigger issues. That is something I think you could do now,

to put some money forth to move those technologies, move the formation of a market, and maybe it is a test period before it goes

live.

Mr. BOUCHER. Mr. Chaudhuri, you mentioned that, in response

to, I think, Congresswoman Hooley, that you would like to see a

trading system without a cap. Is that correct?

Mr. CHAUDHURI. For India, yes.

Mr. CHAUDHURI. I would assume India would fight for that.

Mr. BOUCHER. Can you tell me how, without a cap, how the trading system might help accomplish goals of reduction of greenhouse

gas?

Mr. CHAUDHURI. Well, one of the means that could be done on

a cap for a growing economy like India or China would be to link

your cap to your growth rate. So in other words, if your economy

is growing at 10 percent, your cap keeps rising at a certain level

so that you essentially try to control that. We are part of the carbon trading, though we do it on a firm-to-firm basis, which I think

is something that still should be considered as a possibility in carbon trading.

But basically I think the fundamental principle remains that if

you are attempting to cap the economies of India and China, other

than driving India and China closer together, which has so far

been proved impossible, I would say that there will be extremely

strong political resistance to the very idea that you are trying to

restrain India’s growth.

India is one of the few countries in the world that has actually

seen pro-American sentiment rise in the past 20 years. I think in

one survey, we are third most pro-American country in Asia. You

will probably lose a lot of that if you attempt to or seem to be trying to restrain India’s growth.

Mr. BOUCHER. OK, my time is just winding up, so I will yield

back, and I next recognize Mr. Shadegg for, I believe, 8 minutes.

Mr. SHADEGG. Thank you, Mr. Chairman, and I want to thank

all of our witnesses. I would join in the request that any of you

that have an interest come by and see me and talk about your specific concerns in this area. I serve with Mr. Walden on the select

committee, and we have a lot of work cut out. I am a little saddened that today the select committee drew an entire cadre of

press and accomplished nothing. And this committee has had great

testimony from you and a great dialogue, and I daresay I don’t see

at least a single—well, there is one reporter in the back. We got

a few. All right, they are over here. OK, great. Well, that room was

chock full of cameras. Maybe that is the difference.

I do appreciate all of your input on this topic, and I believe that

it is at least nice that many of you acknowledged how difficult this

job is because as I listen to you, I hear it as extremely difficult. I

40

see a contrast between Mr. Chaudhuri’s testimony, which I believe

is the real challenge here. How, in fact, do we deal with this issue

without being seen as having imposed the burden on developing

nations or more importantly on the people in those nations who

have every right to expect to move forward with their economic life

and do well.

I am going to focus a little bit of my questioning on that point,

it is nice that we want to do the right thing. How then can you

do the right thing? Mr. Chaudhuri, I heard testimony that just by

having a big market, people would participate in it. Well, I am inclined to believe that prosperous nations might participate in a big

market. Can you explain to me how you see India being drawn to

a large market if the United States establishes a mandatory cap

and trade program?

Mr. CHAUDHURI. Well, I think the crucial issue for India would

be the private sector, how do the Indian corporations respond to

the incentives within that market. I think that one of the key problems, and I suspect this is also true for China, is that a very large

portion of our manufacturing sector is in the informal sector. In

other words, it is outside the government’s regulatory vein. I think

almost 70 percent of our industrial labor force, and sort of a large

number of companies and factories are simply just not recognized

or not known to the government.

These companies cannot participate in the market that you are

talking about because they will be scared to get stuck in a tax net

or a regulatory mess as a consequence. And this is going to be crucial because in many ways, they are the fastest growing segments

of the manufacturing site.

Another crucial problem is that 80 of our carbon emissions are

linked to energy production, and I am not certain how a large number of electricity utilities and so on are going to be able to participate. In India, power is subsidized. Like kerosene, for example, is

subsidized.

On the other hand, there are huge taxes on petroleum far beyond

anything that exists in the United States. And how exactly a lot

of these institutions will be able to participate in a global market

strikes me right now off the top of my head, I really don’t know

how they would do it.

So a market would be good because a lot of the larger corporations—and that is good because that brings a lot of steel and coal

industries into play—would be useful. And they could seen the benefits if the price incentives are strong enough.

Mr. SHADEGG. Mr. Steinfeld, hasn’t he just described in similar

terms the problems you described in China? That is that the government doesn’t have control of what is going on even, for that

matter, knowledge of what is going on with regard to a good portion of the economy that is producing greenhouse gases?

Mr. STEINFELD. There are parallels.

Mr. SHADEGG. And your answer to that is that reform groups will

come along and pressure the Chinese Government to take progressive steps?

Mr. STEINFELD. Not just that, although that is going to be a key

component. Reform in China has moved forward in fits and starts,

by reform accelerates and the capacity of the government fails to—

41

initially, it lags, fails to catch up. Then it catches up. We see that

with property rights provisions today, we have seen it with some

intellectual property rights issues, we have seen it with ownership

distinctions. Then the economy surges forward again and we lose

the capacity. It is a give and take kind of process.

Mr. SHADEGG. Mr. Stephens, I think you are being extremely

charitable by acknowledging that we will get it wrong the first

time, the second time, and the third time. I think I would get voted

out of office the first time, and the chairman gets voted out of office

the second time. And I don’t know who is left for the third time.

But I am worried about the employees of that mill that you discussed at the beginning of your testimony. Since 1997, 136 pulp

and paper mills have closed in the United States with a loss of, I

am told, 85,000 jobs. And there have been an additional 60,000 jobs

lost in the wood products industry since 1997.

And we heard just a few minutes ago from Mr. Holzschuh that

in Europe, well, they got it wrong. But they are going to get it better this next time. They saw a 67 percent increase in electric prices

in Europe after establishing their cap and trade system. Have you

done an estimate of how many more pulp plants or how many more

wood industry jobs would be lost if we make a mistake of that

scope?

Mr. STEPHENS. No, I haven’t done that estimate, but I think it

is interesting that for most of my 50 years I have been around this

business, we were exporters. And today, we have become importers.

Mr. SHADEGG. And that troubles me very much as well. I have

another question. I heard a great deal of frustration in your voice

about not getting biomass right, not getting forest policy right, not

being able to remove dead trees—big problem for us in Arizona—

not being able to clean up the floor of the forest, new policies now

say let forests burn because our artificially suppressing fires was

a bad idea. But you point out in your testimony accurately that allowing for us to burn emits massive amounts of CO2. If we can’t get forest policy right, I am concerned that we can’t

get these policies right. And I am concerned that we will lose a lot

of American jobs in the interim. You have a plant in Brazil. I don’t

want to see more outsourcing of jobs to your Brazilian plant.

You point out in your company’s climate change principles that

over the past 5 years, Boise Cascade has decreased your use of purchased fossil fuel paper in your paper mills by 28 percent while increasing production by nearly 4 percent. That is a real step forward

in terms of greenhouse gases. You did that voluntarily. If we had

solid policy on biomass, you would be able to do better than that,

I would bet, quite dramatically. Is that correct?

Mr. STEPHENS. Well, the laws of physics do put certain limitations on conservation, but yes. But the reason we were able to accomplish that is our investors gave us capital. We put that capital

to work in our mills, and it was an economy incentive for us to conserve energy because our cost went down. If we ever forget that,

we are toast.

Mr. SHADEGG. Well, and I noted your comment earlier when you

asked give one thing, it is come up with the capital to fund the

start of this, and I agree with that. Your company’s principles also

state that you are concerned about not pushing the jobs offshore.

42

Yet in your testimony, you say well, the way to deal with that is

to simply stop market access. That is your written testimony says

don’t impose a tariff, as Vice President Gore talked about, but simply restrict access.

I have two problems with that. I am concerned that creates a

global trade war, No. 1. And second, I think there are smart businessmen in India who say fine, I can’t sell direct to the United

States. I will sell to England who will sell to the United States.

Have you thought those two issues through?

Mr. STEPHENS. As I have indicated, it is the Gordian Knot that

has be to dealt with. It is a fundamental conflict in principles with

me, but maybe I am just stupid. I haven’t figured out an alternative.

Mr. SHADEGG. Well, fair enough. Fair answer. Thank you very

much. Thank all of you.

Mr. BOUCHER. Thank you. The Chair recognizes Mr. Inslee for 8

minutes.

Mr. INSLEE. Thank you. Thanks for your help on this tough

issue. Listening to you, I had two thoughts I wanted to mention before my question. First off, it seems to me if we are going to get

the developing world to joint us in this quest, there is a really a

fundamental fact that none of us have talked about today. We have

had a good time engaging in the American sport of bashing China,

which is always a good time, I suppose.

But there is really an important fact that I think we ought to at

least talk about a little bit this hearing. And that is that the per

capita emissions of Americans and Chinese are radically different.

I am looking at charts that are before me that shows that a typical

citizen of China emits about four metric tons of carbon dioxide per

year per person. And that is how I break it down. We are talking

about people not just countries. And the average American does

about six times that much, about 24 metric tons per person. India

is about two and a half, maybe to three it looks like metric tons.

We are about eight times that much, or about 24 metric tons per

person.

Now, the reason I note that is that when we go to China and

India and chastise them for not being as morally pure as Americans, it seems to me they might say who are you to talk when you

are emitting six to eight times as much per person as we are. And

I think we have to think of a response to that if we are going to

make any meaningful progress in this regard and how we respond

to that sort of perception that they will have.

I don’t feel like I am wearing totally the moral white hat here

telling the Chinese to stop doing any CO2 emissions when we are

doing six times more than they are per person. It is difficult to

wear the white hat in that circumstance frankly. So I think that

is something we have to work through and have a strategy in that

regard.

The second thing I want to note is listening to you all, what I

was struck by—and one of the reasons I do not agree with this sort

of doomsday scenario that if the rest of the developing world

doesn’t follow up to the letter within the first 24 hours of us adopting this policy that we are just going to abandon our policy. I think

that is a really bad mistake, and the reason is that the more I lisVerDate 11-SEP-98 13:21 Oct 20, 2008 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 Q:\DOCS\110-26 SCOM1 PsN: SCOM1
43

ten to you, the more it becomes apparent to me that the real goal

of our domestic policy should be to drive technological development

in America so we can sell it to India and so we can sell it to China.

And that doomsday scenario would handicap and retard the development of these new technologies. I want to sell products made

in Tacoma, Washington to China, one of which is a clean coal technology that allows us to compress CO2 at 30 or 40 percent less cost

and make clean coal. I want to sell that to China, and if we weaken

our cap and trade system, if we shoot it in the foot by putting this

sort, I will just call it the doomsday scenario that we don’t play

until China does, we will retard the ability of these companies to

grow.

Mr. Holzschuh indicated growing a capital pool for these companies is absolutely pivotal to the development of this export economy

for the United States. That is why, if we are thinking, I would

much rather think about requiring emissions price to be paid if

some company does not ultimately become responsible in this regard.

So first question. If we were to adopt some type of requirement

at some point in the future that countries that do not do X, that

they have to buy emissions credits to make up for the fact that

their country did not participate. Let us assume that we can deal

with the WTO issues, and we figure out when we should do that.

What is the X? What should the X be? When we have a country

that is one-sixth or one-eighth as we are per capita, what is the X?

How should we think of that if we were to adopt that type of mechanism? That is an open question to any of you.

Ms. PETSONK. It is exactly this kind of question we think merits

a closer look. One proposal that is in the process of being developed

is to look at as a gradual thing. I think you are exactly right, that

countries are not going to spin on a dime and simply because we

cap emissions, they are going to cap emissions.

They will need time to put their caps in place. It may be that

during that time period they could still do—you would let them

come into our market with some carbon trading along the lines

that Mr. Chaudhuri has talked about where they don’t have a cap,

but they do individual projects that reduce emissions. Those are

useful projects, but the carbon credits from those don’t trade at par

in our market because the overall country doesn’t have a cap.

If over the time the country still refused to either accept a cap

or reduce their total emissions, then you could look at carbon intensive goods from those countries that come into our market. If they

come in made with a greater amount of carbon per kilowatt hour

or per barrel of oil or per ton of cement or per ton of steel greater

than a standard that we set as an efficient, reasonable standard,

then what they would need to purchase in order to get their products into our market would be the delta, the difference, between

what our standard is on a per-ton or whatever basis and how much

it took to produce those products in their countries.

Now, I am not saying that for sure that is the answer. I just

want you to know that that is the kind of answer that some companies, multinationals with production facilities around the world,

are thinking about. Is that helpful?

Mr. INSLEE. Yes.

44

Mr. PERSHING. I just want to say a couple of different things. We

were responsible for the data in this particular chart, and I think

it is extremely important to use this in thinking about the next

steps. But I would note that this chart in some ways is a little bit

misleading because what it represents is what the national average

is. And the national average is not where productivity happens or

emissions happen.

And if I look, for example, at the case of China, Dr. Steinfeld

talked briefly about this in terms of at the high end, it is Shanghai.

Shanghai does not look like western China. At the high end in

India, it doesn’t look like the rest of India. It looks like where the

center of populations are, where the significant growth is, where

enormous capital resides.

And one of the ways to think about it and what you do with

these countries is not to so much think about what the average is,

but think about what you are trying to control. You are trying to

control the direction of future energy production. You are trying to

incentivize the kind of investment that would make it lower cost

and lower emissions based.

And what you have got is amazingly large pools of capital globally that could move in. And if you create it from the other end,

not the penalty, but the incentive, you may actually create the kind

of advantages that you want to create.

Mr. INSLEE. Well, just the way I look at this is when I am thinking about how to move forward, I am going to judge these proposals

on how they incentivize and create market opportunities for United

States technology because I really believe that is the way the

United States is going to lead the world to solving this, as much

as even international agreements.

If we can develop these technologies to sell the China and India,

they will buy them even without a cap perhaps. The key is developing those technologies. And if we can come up with a solar thermal

plant that a son of India, a guy named Vernard Kolsa, just who

helped Sun Microsystems get started, he just bought a solar thermal company. He has renamed it Oster. It was an Australian company. He has moved it to the United States. They believe they

might be able to have market-based grid competitive solar thermal

energy in the next 5 to 6 years.

Now, if they can do that, if we can help that company by having

a cap and trade system here in this country to drive capital into

those companies, we will sell India this technology even if they

don’t get into this market. Yes?

Mr. PERSHING. One additional thing on that same front is that

I note that India does in fact have a ministry of renewable power.

It is the only country in the world that has a ministry that is focused explicitly on how you move that forward. We can cooperate

with a ministry like that and do aggressively promoting the technology that we have got in that kind of a structure.

Mr. INSLEE. Well, my idea is, since I just found out yesterday

that the gavel in the U.S. Senate is ivory, a gift from the vice president of India, they owe us to buy our technology.

Mr. BOUCHER. The time of the gentleman has expired. The Chair

recognizes the gentleman, Mr. Walden, for 8 minutes.

45

Mr. WALDEN. Thank you, Mr. Chairman. Mr. Stephens, I would

like to dedicate the next 5 minutes so you could read your testimony again to the committee, but I won’t do that. I chaired the

Subcommittee on Forest and Forest Health for a couple of years

when we were in the majority. And we passed in the House bipartisan legislation to get at this issue of better managing America’s

forests because, as Brian Baird, my colleague from Washington,

and I agreed, Americans are going to use wood, and that is not a

bad thing.

It is a matter of where we get it. And today, we let forests rot

and burn in the United States so we can mow down rainforests

around the world where they lack environmental safeguards. And

then we wonder why we have some of these environmental problems. You referenced in your testimony the amount of carbon emissions that are put into the atmosphere by forest fires. The B and

B fire in central Oregon in 2003 contributed at least twice as much

carbon, among other pollutants, into the atmosphere as the entire

State of Oregon did for 1 year.

We have so hamstrung the Federal ability to manage our forests,

to get them back in tune with nature, that when we get fire, it is

of catastrophic consequences. And then we let the trees stand and

decay and rot rather than replant and harvest those that have

some value. And we do it in the name of the environment while we

happily go and import wood at astronomical rates from these foreign countries.

Now, I guess the question I have for you is is that the way that

Boise in its former iteration managed its forest lands?

Mr. STEPHENS. No, it is not. We managed it as a working forest

and balanced its economic value with its environmental value. I

think when we reached the point as recently as, I guess, a month

ago where a Federal judge has to decide what is a dead tree and

a live tree and a tree that can be harvested in the middle of a fire,

that gets very frustrating to the members of the forestry service

that I visited on that fire walking through that burned area. We

have essentially handcuffed them as professionals from doing their

job.

Now, the logic of it is so silly. If we could harvest that tree, we

can convert it into a wooden I-joist in Bedford, Oregon. We can ship

it to China and use it for building homes rather than using concrete.

Mr. WALDEN. Right.

Mr. STEPHENS. And we are carbon neutral. The concrete could

put carbon into the atmosphere. So when you look at the whole picture, when you integrate the whole thing together, we still have a

lot of problems we need to solve in managing the Federal forests.

The good news, forests in the U.S. are not that much less than they

were 100 years ago, and we can make them much healthier.

Mr. WALDEN. That is true, except they are far less healthy than

they were 100 years ago. You have 192 million acres of Federal

forestland subject to catastrophic fire, bug infestation, and disease.

And we are not doing much about it to improve it.

Now, I am a big advocate of renewable energy too. My district

is host to one of the only renewable energy centers in the country

at Oregon Institute of Technology, OIT, down in Klamath Falls

46

where they are doing some remarkable work on geothermal development as well as other renewables.

We worked with the Navy to secure a site that may become home

to a very substantial solar energy development. My district is home

to an enormous amount of wind, not just because I reside there,

but because of the winds off the coast coming up the Columbia

Gorge. And as a result, we are seeing literally thousands and thousands of megawatts of new wind energy being put into place. And

it works well, as you probably read in the Washington Post last

week, because of the synergy that exists with hydrosystem.

Now, Ms. Petsonk, with all due respect, there is some in the environmental community that would take out the dams, that opposed us vociferously on our forest health strategies. How do we,

as a country, get to where we can actually be good managers of our

Federal lands, use these alternatives renewables. The efficiency

rate of hydro is like 90 percent. There isn’t another fuel efficiency

out there that is above about 50, I think. How can you help us get

there?

Ms. PETSONK. I know my organization has done some work with

the Confederated Tribes of the Warm Springs Reservation, a place

I dearly love. And when the Confederated Tribes began to look at

if there were a price on carbon, how would it change their management of forest lands, of water, and also grazing, they came up with

some very interesting results. They found that there would be incentives to restore forests along the banks of streams. They would

grow carbon by letting the big trees get bigger, taking out some of

the small trees like you are talking about that add to the fire——

Mr. WALDEN. And even out, yes. Ladder fuels.

Ms. PETSONK. That reduces the runoff going into the streams to

improve stream quality and clarity, and it also makes hydro more

efficient because there is less siltation so they get a carbon benefit

out the back end because they get better low-head hydro going that

can displace coal. So once you begin to look at this through that

prism of carbon, and we are lucky that it is carbon. What if it were

arsenic? We are lucky it is carbon. It has so much to do with so

many aspects of daily life. I think we will see economic incentives

that press toward forest restoration.

Mr. WALDEN. Right, but the economic incentives, frankly, are

there absent carbon trading. The problem we have, and the tribe

supported the legislation we passed in the House. The problem we

have is that we have hamstrung the management ability of our

professional forests on Federal ground to do exactly that. There are

already setbacks on streams, hundreds of feet back on each side

where you can’t harvest, and that is understandable.

What I am talking about though is nearly every thinning project

out there gets appealed. You get a burn on a Federal forest, you

will be court 3 years later deciding what size tree you can cut, if

any, and by then the value is gone. And you can’t replant and start

the sequestration process over. It is a terrible mess out there I am

telling you.

And we could do a lot for the atmosphere. I am tired of going into

my communities that are choked in the summer with not only carbon dioxide but also all the other pollutants that, in one fire, are

47

doubled, tripled. I have seen reports up to six times just in the one

fire of what the entire State of Oregon emits.

And so there is a lot of good stuff we could be doing on the

ground now that would help resolve some of these issues. And I

just hope that we can look at those as well, how we improve nature

and work with nature to reduce carbon emissions. Certainly there

are positives there. And not do these things where we rip out the

battery, the dams, that are the storage unit that make wind energy

work and be more reliable. And yet there are people that want to

do that. And that is real troubling.

And just as a final note, having been on this committee now for

probably, I guess, 6 years, having gone through the Medicare Part

D Program, I can’t imagine setting up some of the cap and trade

programs that some witnesses we have had before the committee

have envisioned, just in terms of the complexity and cost and making them work.

And finally, Dr. Steinfeld, I supported giving China excession to

the WTO. Do you think they are fully compliant today? And would

they be under a cap and trade carbon system?

Mr. STEINFELD. Full compliance is, I think you have a point that

it just hasn’t—and it is an ideal level that—but I do think that

China, in a few areas, has become more compliant than it was. I

say that not as an advocate for China, but we have seen progress.

And that intrigues me, and understanding why that progress happens, I think, is a worthwhile endeavor.

Mr. WALDEN. OK, thank you.

Mr. BOUCHER. Thank you. The Chair recognizes the gentleman

from Texas, Mr. Gonzalez, for 8 minutes.

Mr. GONZALEZ. Thank you very much. Let me catch my breath

and apologize to one and all. Dr. Burgess may be treating me in

a minute.

Mr. BURGESS. Take your time, and then if you need to catch your

breath——

Mr. GONZALEZ. You see? And that is good medical advice. Thank

you very much. As a matter of fact, I just came from a meeting.

My mayor is in town. My county judge is in town. My city manager

is in town. My chamber of commerce is in town, and believe it or

not, they really are interested in global warming.

And the reason for that is that our newly planned energy plant

is—guess what it is. It is coal, and the mix we have right now is

probably 50 percent coal, 10 percent wind energy. I forget what

percentage is nuclear, and the rest is natural gas. But our big investment is going to be in coal, and that is what I want wanted

to talk to you about. And I know that some of this may have already been covered, and I apologize to you for my absence and the

fact that I might be repeating a couple of things.

I only have a question or two to the witnesses, and I will direct

those questions to them in a minute. We have about 12 new coalfired plants being built in the United States as we speak to come

online very soon. We have 40 others that are planned. They will

come online in the next 5 years. Then the predictions are by 2030

we will have 150 more, and that is United States alone.

In the United States, half our energy-producing plants are coal

fired. China, what is it? 75 percent? I forget. Something like that.

48

So nothing is really going to drastically change in the immediate

future, and so whatever we put in place, I am not real sure how

we retrofit or what we do. So this cap and trade looms large if you

know what I mean, and I think that is where a lot of our attention,

a lot of our energy probably is going to be focused as we try to meet

some sort of a June date or whatever to have something out there

for consideration as reported of this committee. And as you well

know, there is a select committee operating out there also on this

same subject.

It has been described before that we should do what we are going

to do as a nation because it is a moral imperative. Yet we have

those individuals, and you heard from them today on this committee, that truly believe why should we do anything if the other nations aren’t joining us, if the other don’t do their part. And that is

a good question. Why do you sacrifice it all? And I am not real sure

that I have that particular answer.

But the question that I am going to pose to Ms. Petsonk and

then Dr. Steinfeld. If we cannot predict control or influence to any

appreciable extent, the conduct of other nations, whether it is going

to be India, whether it is going to be China, Indonesia, Brazil, it

doesn’t matter. To what extent should we pay a price as a society

in higher costs and such? Why should we go it alone? I actually

think there is a reason why we should still improve on a bad situation, irrespective of what we could expect from other countries.

But you tell me based on your own experience, what do you tell

the United States? Let us say worst case scenario. The other nations don’t do a thing. Why should the United States move forward? Because the laws we pass will only impact that which is

within our jurisdiction, the United States of America. So I will

start with Ms. Petsonk.

Ms. PETSONK. Thank you, sir. When I first started in this field,

the only job I could get was in the area of international environmental law, and I was a newly minted environmental lawyer. And

I wasn’t interested in international stuff because I said there is no

global EPA. There is no global police force. There is no way to enforce any of this stuff. But my supervising attorney said to me you

ought to take this job because the challenge of international environmental law is designing legal frameworks that sovereign nations will want to obey.

That is a very big challenge. You are right. What I have tried

to do in my testimony is offer up some suggestions for both carrots

and sticks that Congress could include in legislation that would increase the likelihood that our trading partners would want to participate. We don’t have a way to force them to do it. We do have

tools that can engage them, and we also have tools that can level

the playing field if they don’t. And so those are the tools that I

have tried to suggest to you.

I do not have a tool that I can guarantee you will make them

do what we do, but I can guarantee you that if we don’t take the

first step, they will not.

Mr. GONZALEZ. Dr. Steinfeld.

Mr. STEINFELD. Speaking personally, I tend not to be persuaded

as much by the moral arguments as by the simple, rational arguments. I view measures to deal with climate change as an insurVerDate 11-SEP-98 13:21 Oct 20, 2008 Jkt 000000 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 Q:\DOCS\110-26 SCOM1 PsN: SCOM1
49

ance policy. Insurance policy, in part, regarding environmental

issues. An insurance policy in part regarding resource availability

issues or energy availability issues, and an insurance policy, in

part, involving industrial competitiveness and innovation.

We have a slight advantage in the United States of not being at

the absolute cutting edge of some of these measures. We are slightly following in some areas, but my concern is that if we don’t play,

that other countries, including developing countries, will be buying

pieces of this insurance policy. And by addressing some of the climate change issues, we will be inducing innovation or providing

centers for innovation in their industrial bases, which ultimately

will put us in a position to buy rather than selling. And I think

that is not a position we want to be in.

Mr. GONZALEZ. Did you want to add anything?

Ms. PETSONK. Yes, I would just like to add, you mentioned about

wind power and coal, and I am certainly familiar with some of the

decisions facing Texans going forward looking at coal and wind. I

had the opportunity last year to have lunch with the head of wind

power in GE, and I asked him is it really the case that GE is the

largest producer of wind turbines in the world. And he said actually, no. And this may not be true, but this may not still be true,

but at the time it was true. He said actually no, the largest producer of wind turbines in the world is Denmark.

I said Denmark, why Denmark? He said well, they figured out

that if they let farmers generate electrons with wind and sell the

surplus back to the grid, they would let farmers make money doing

that. And that very quickly gave an incentive to farmers to develop

really good wind turbines, and so they have gotten that market

share. Now, I believe, and maybe Mr. Chaudhuri knows a little bit

about this as well or maybe Dr. Pershing, that India is not far behind in developing wind turbine technology.

And so it is the case that as other nations look at the climate

change problem, some of them will adopt emissions caps. Some of

them will do less than that, and they will go into the carbon market with individual projects that reduce emissions. But if we don’t

begin to give a price signal for reducing carbon in our economy, we

are going to end up buying the low-carbon technologies in the future from other nations.

Mr. GONZALEZ. I have 36 seconds. Does anybody want to add

anything?

Mr. CHAUDHURI. I will just add onto what Ms. Petsonk mentioned. One of India’s newest billionaires, in fact, is a wind turbine

magnate, a dollar millionaire. And he has in fact bought a billion

dollars overseas investment. He has been buying small companies

across Europe to master the technology of wind turbines, and sure

he has got as big a monopoly as he can on that.

Mr. GONZALEZ. Well, thank you very much. I yield back.

Mr. BOUCHER. Thank you. The Chair recognizes Mr. Burgess

from Texas for 5 minutes.

Mr. BURGESS. Well, I do want to, following on what Mr. Inslee

said when he was talking about wanting to export his technology

from Washington. In Gainesville, Texas, we make some of the finest windmill blades known to man. And so we hope that the Indian

billionaire will buy good, solid Texas blades that are made to exactVerDate 11-SEP-98 13:21 Oct 20, 2008 Jkt 000000 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 Q:\DOCS\110-26 SCOM1 PsN: SCOM1
50

ing specifications and don’t pick up those cheap Brazilian blades

because they are only going to break when the wind gets strong.

Dr. Steinfeld, on the MIT coal report, which evaluates 10-year

lag for developing countries to join the greenhouse gas reduction

regimen, how realistic is it to expect the Chinese to be able to conform to that 10-year timeframe. It seems like a relatively short

amount of time.

Mr. STEINFELD. In my personal opinion, 10 years, given the pace

of change in China and this give and take between regulatory capacity building and then development, I think 10 years is a reasonable time to expect the building of compliance capabilities.

Mr. BURGESS. What is likely to happen though as far as the economy and jobs in China during that 10-year lag?

Mr. STEINFELD. In my estimate, what we will see is we will see

a shifting of industrial structure in China, as is already happening,

increasingly toward services. To some extent, there is going to be

a response, and we are seeing a bit, to the government’s mandates

to increase energy efficiency. So some financial incentives have already been created for internal, domestic switching in China out of

energy intensive and into more valued service intensive industries.

Mr. BURGESS. Mr. Chaudhuri, did I pronounce that correctly?

Mr. CHAUDHURI. That is close enough.

Mr. BURGESS. It would seem that, and we have heard some discussion on this, and I apologize also for being late. We are doing

children’s dental care under S-CHIP downstairs in our health subcommittee. And I promised I would do no puns about picking on

problems or flossing over problems. But focusing on the cap and

trade program and your focus on the economic growth in India to

alleviate poverty within this generation, so what impact will the

U.S. implement an economy-wide cap and trade regimen, is that

likely to have an impact on India?

Mr. CHAUDHURI. If the United States does one unilaterally or

globally you mean, or imposes something as——

Mr. BURGESS. Assume unilaterally at this point.

Mr. CHAUDHURI. Well, if it is unilaterally, I don’t see—it would

depend on the nature of it in terms, as Ms. Petsonk mentioned,

whether it allows other countries and companies in other countries

to tag into that. In that case, it would be beneficial. The CDM already are looking at an estimate by the UN. The CDM mechanism

by 2015 was expecting to issue certified emission CRs of about 300

million tons in India alone, which is equal to what we produce all

of 2005. So if that incentivizes us to join into that, then it will be

perfect because both sides win. It is a win-win situation for both

sides.

If you were to issue it as a trade tariff, there was talk about

issuing that, I would recommend against it because I would essentially run into severe sovereignty issues. At that point, it becomes

confrontational. India has no problems participating, but if you are

going to add tariffs, essentially what amounts to a tariff, on your

goods coming in, outside of the fact that I am not certain how in

regulatory terms it is even feasible in India to work that out, my

expectation they would then treat it is as WTO is, which is that

this has now become a sovereignty trade issue and be treated with

hostility or treated as a difficult negotiations process.

51

Mr. BURGESS. Thank you. Mr. Holzschuh, on the clean development mechanism, referencing that process in regard to China,

there are some anecdotal stories that there are industries in China

that are occurring simply to create pollution in order to get the

credits when they dismantle or deactivate those activities. Is that

an issue? Is China creating a problem just to be able to correct it

later on in order to sell those credits to, say, European countries?

Mr. HOLZSCHUH. I am not familiar with the statistics there, but

I would say it is not just China. When a market is developed, there

will be people who try to front run, take advantage of markets. And

as part of that market mechanism, the constituents in that market

and the regulatory bodies that sit above it are going to have to control that. So there is no doubt in my mind that people will attempt

that. Hopefully the policing mechanisms work.

Mr. BURGESS. But we already heard reference of some of the difficulties with dealing in a punitive way with trade sanctions, and

likely that would play a significant role in that type of activity if

a country elected to go down that path. Thank you, Mr. Chairman.

I appreciate. I will yield back.

Mr. BOUCHER. Thank you, Mr. Burgess. Following the subcommittee’s usual practice, the hearing record will be left open to

permit various members of the committee to submit additional

questions to the witnesses. And we would appreciate your written

responses and will include them in the record. With that, I want

to thank you for your time and patience participating in the hearing today, and with that, this hearing is adjourned.

[Whereupon, at 10:52 a.m., the subcommittee was adjourned.]

[Material submitted for inclusion in the record follows:]

52

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

100

101

102

103

104

105

106

107

108

109

110

111

112

113

114

115

116

117

118

119

120

121

122

123

124

125

126

127

128

129

130

131

132

133

134

135

136

137

138

139

140

141