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62–201 2011

POLICY OPTIONS 

TO PREVENT CLIMATE CHANGE 

HEARING 

BEFORE THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 18, 2008 

Serial No. 110–98 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

CHARLES B. RANGEL, New York, Chairman 

FORTNEY PETE STARK, California 

SANDER M. LEVIN, Michigan 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

RAHM EMANUEL, Illinois 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL JR., New Jersey 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

CHRIS VAN HOLLEN, Maryland 

KENDRICK MEEK, Florida 

ALLYSON Y. SCHWARTZ, Pennsylvania 

ARTUR DAVIS, Alabama 

JIM MCCRERY, Louisiana 

WALLY HERGER, California 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

SAM JOHNSON, Texas 

PHIL ENGLISH, Pennsylvania 

JERRY WELLER, Illinois 

KENNY C. HULSHOF, Missouri 

RON LEWIS, Kentucky 

KEVIN BRADY, Texas 

THOMAS M. REYNOLDS, New York 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

DEVIN NUNES, California 

PAT TIBERI, Ohio 

JON PORTER, Nevada 

Janice Mays, Chief Counsel and Staff Director 

Brett Loper, Minority Staff Director 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 


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C O N T E N T S 

Page 

Advisory of September 11, 2008, announcing the hearing ................................... 2 

WITNESSES 

The Honorable Michael Bloomberg, Mayor, City of New York, New York ......... 11 

Peter R. Orszag, Ph.D., Director, Congressional Budget Office ........................... 16 

The Honorable Carol Browner, Principal, The Albright Group LLC .................. 39 

Dallas Burtraw, Ph.D., Senior Fellow, Resources for the Future ........................ 41 

Robert E. Lighthizer, Partner and Head of the International Trade Department, Skadden, Arps, Slate, Meagher & Flom LLP .......................................... 60 

Timothy J. Regan, Senior Vice President, Corning Incorporated ........................ 70 

Gary Clyde Hufbauer, Reginald Jones Senior Fellow, Peterson Institute for 

International Economics ...................................................................................... 79 

Frank Ackerman, Ph.D., Global Development and Environmental Institute 

and Stockholm Environment Institute—U.S. Center, Tufts University, Medford, Massachusetts ............................................................................................. 104 

Daniel R. Abbasi, Director, MissionPoint Capital Partners, Norwalk, Connecticut .................................................................................................................. 123 

Jerome Ringo, President, Apollo Alliance, San Francisco, California ................. 165 

Peter Barnes, Senior Fellow, Tomales Bay Institute, Point Reyes Station, 

California .............................................................................................................. 169 

William W. Millar, President, American Public Transportation Association ..... 179 

David W. Kreutzer, Ph.D., Senior Policy Analyst, The Heritage Foundation .... 187 

SUBMISSIONS FOR THE RECORD 

Accor Services USA, statement .............................................................................. 206 

Environmental Defense Fund, statement .............................................................. 208 

Humane Society of the United States and the Humane Society International, 

statement .............................................................................................................. 213 

Industrial Energy Consumers of America, statement .......................................... 215 

James Culliton, statement ...................................................................................... 215 

Julian Keniry, statement ........................................................................................ 217 

Mayor Will Wynn, letter ......................................................................................... 218 

Robert J. King, P.E., letter ..................................................................................... 220 

Shawnee Hoover, statement ................................................................................... 223 

Stephen A. Smith, statement .................................................................................. 240 

Thank you letter to Congressman Doggett ............................................................ 243 

Thomas J. Gibson, statement ................................................................................. 244 

VPSI, statement ....................................................................................................... 246 


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POLICY OPTIONS 

TO PREVENT CLIMATE CHANGE 

THURSDAY, SEPTEMBER 18, 2008 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:35 a.m., in room 

1100, Longworth House Office Building, Hon. Charles B. Rangel 

(Chairman of the Committee), presiding. 

[The advisory announcing the hearing follows:] 


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ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–5522 

September 11, 2008 

FC–22 

Chairman Rangel Announces a Hearing on 

Policy Options to Prevent Climate Change 

House Ways and Means Committee Chairman Charles B. Rangel today announced the Committee will continue its series of hearings on climate change. The 

next hearing will focus on policy options for reducing greenhouse gas emissions. A 

number of proposals have been referred to the Ways and Means Committee in the 

110th Congress (e.g., H.R. 2069—The Save Our Climate Act of 2007 (Rep. Stark), 

H.R. 6316—The Climate MATTERS (Market, Auction, Trust & Trade Emissions Reduction System) Act of 2008 (Rep. Doggett), H.R. 3416—The America’s Energy Security Trust Fund Act of 2007 (Rep. Larson), and H.R. 6186—The Investing in Climate 

Action and Protection Act of 2008 (Rep. Markey)). This hearing will take place 

on Thursday, September 18, 2008, beginning at 10:30 a.m. in the main committee hearing room, 1100 Longworth House Office Building. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from invited witnesses only. However, any individual or organization 

not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing. A 

list of invited witnesses will follow. 

BACKGROUND: 

The Committee on Ways and Means has previously heard testimony that human 

greenhouse gas emissions are having an adverse impact on our planet’s climate. 

These witnesses testified that the United States ‘‘must enact and implement a comprehensive national mandatory market-based program to progressively and significantly reduce U.S. greenhouse gas emissions in a manner that contributes to sustained economic growth.’’ Since that hearing, a number of legislative proposals have 

been introduced in the House of Representatives, and been referred to the Ways and 

Means Committee, that would implement market-based programs to reduce greenhouse gas emissions in the United States. 

There is bipartisan support for action to address climate change. Senior lawmakers on both sides of the aisle have proposed enacting mandatory economy-wide 

cap and trade programs to reduce greenhouse gas emissions. Their proposals, like 

other proposals introduced in the 110th Congress, would contain revenue measures 

(e.g., auctions of carbon allowances) that are within the jurisdiction of the Committee on Ways and Means. In addition, many of the market-based climate change 

proposals include import requirements that are within the Committee’s jurisdiction. 

This hearing will mark the beginning of the Committee’s work on this important 

issue. 

FOCUS OF THE HEARING: 

The hearing will focus on the policy options that are available for reducing greenhouse gas emissions in the United States and will examine the design choices presented by these options. In particular, the Committee will explore the revenue components of these policy options. The Committee will also explore proposals to promote a comprehensive global effort to address climate change and to ensure a level 

regulatory playing field for U.S. manufacturers. The hearing will also focus on the 

potential costs that could be imposed on the U.S. economy if Congress fails to act 

to reduce U.S. greenhouse gas emissions and the economic growth opportunities 

that would arise from implementing a market-based program to reduce U.S. greenhouse gas emissions. 


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DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘110th Congress’’ from the menu entitled, 

‘‘Committee Hearings’’ (http://waysandmeans.house.gov/Hearings.asp?congress=18). 

Select the hearing for which you would like to submit, and click on the link entitled, 

‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, complete all informational forms. ATTACH your submission as a 

Word or WordPerfect document, in compliance with the formatting requirements 

listed below, by close of business on Thursday, October 2, 2008. Finally, please 

note that due to the change in House mail policy, the U.S. Capitol Police will refuse 

sealed-package deliveries to all House Office Buildings. For questions, or if you encounter technical problems, please call (202) 225–1721. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. 

The Committee will not alter the content of your submission, but we reserve the right to format 

it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response 

to a request for written comments must conform to the guidelines listed below. Any submission 

or supplementary item not in compliance with these guidelines will not be printed, but will be 

maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons, and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone and fax numbers of each witness. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://waysandmeans.house.gov. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TDD/TTY in advance of the event (four business days’ notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

f 

Chairman RANGEL. For our visitors, excluding Members—they 

can take their time—please take seats. Thank you so much. 

This is the first time this Committee is meeting without the presence of our beloved colleague, Stephanie Tubbs Jones. Before I 

yield to my friend, Jim McCrery, I think we all can agree, especially those of us on the majority side, that she was an overwhelming personality, she brought a sense of humor during the 

tensions that we Democrats have, and even when we’re working together in a bipartisan way. She was a dedicated public service pioneer, a history maker, and her memory is going to be with this 

Committee and this Congress and this country for a long, long 

time. 


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On this, I would like to yield to Jim McCrery, who has expressed 

a deep fondness and—for her and her memory. 

Mr. MCCRERY. Thank you, Mr. Chairman. Certainly our gathering today without our friend, Ms. Tubbs Jones, is not a happy occasion. We all came to know her on this Committee as a vivacious 

personality, but a—to put it mildly, an enthusiastic advocate for 

positions that she believed in very strongly. I know that all of my 

colleagues on the Committee share my appreciation for her life and 

her contributions to this Committee and to this Congress and to 

her community and to this Nation. 

So, Mr. Chairman, if you don’t mind, I would suggest just a few 

moments of silence in her memory before we proceed. 

Chairman RANGEL. I would like to have included in that prayer 

the loss of Vicky Levin, who was the beloved wife of our dear friend 

and my brother, Sandy Levin. 

For those of you who haven’t met or traveled with her, then you 

have missed out on one of the most exciting personalities and intellectual people that you will meet in life. She was a wonderful 

woman and, for over 50 years, the sweetheart of Sandy, and the 

mother of their four wonderful children. You may not have known, 

but Sandy spent days and weeks at the hospital, never, but never, 

giving up. He is a strong Member, and I hope that we would include her memory along with Stephanie, as we pause now for a moment of silence. 

[A moment of silence was observed.] 

Chairman RANGEL. Jim McCrery, I hope the witnesses don’t 

think we do this often. But this is the last time that we expect this 

year to be meeting as a full Committee. 

After a decade of us hardly knowing each other’s names, Jim 

McCrery and I met to decide that, whatever differences that we 

had, it was the Committee, the Congress, and our country that 

should take a priority. We have really worked together, succeeded 

in a lot of issues. But even the Committee Members will not know 

the obstacles that, working together, we have overcome to remove 

the possibility of having a partisan fight. 

Jim, not only are you going to be missed, but I have been talking 

to Members on your side in saying that whatever we lose or gain 

next year, let us try to maintain what you have done. It hasn’t 

been easy on your side, and I have had a lot of difficulty on my 

side, because people like to fight, like to fight. But we have done 

a great job under your leadership, and we are going to meet formally to express it individually. 

I would like to say, also, happy birthday. 

Mr. MCCRERY. Thank you, Mr. Chairman. Right back at you. 

Chairman RANGEL. Chairman McNulty of Social Security is an 

old friend to us New Yorkers. Not only has he served here, in the 

Congress, but he is an old-time member of the New York State Assembly. 

Since the assembly meets in our State capital, in Albany, he still 

visits the capital. I don’t know where he intends to reside, but it 

seems to me that even though, formally, he’s leaving, we should not 

be too surprised if we find him in the Congress and the Committee. 

Happy birthday to you. 


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Mr. MCNULTY. Thank you, Mr. Chairman. I want to thank all 

of the Members and everyone here in Washington for the many 

kindnesses which have been extended to me over the past 20 years 

here in Congress, and throughout my 39 years as an elected public 

official, and all the blessings that I have received throughout my 

life. Thank you, Mr. Chairman. 

Chairman RANGEL. Happy birthday to you, as well. Our buddy, 

Jim Ramstad, will be leaving. Representative Weller, Representative—well, how many Members in—Lewis will not be with us. Well, 

we can say it’s—we can say that we will be meeting on Wednesday, 

we will talk about that. 

Let’s get on with the business of the Committee, as we attack 

this very serious problem that our Nation is facing, recognizing 

that there is no Democratic or Republican solution, and also knowing that this hearing is not really to find a solution, but really to 

discuss the options. 

As I told Congressman Camp yesterday, that we hope that if 

there are other ideas that this hearing doesn’t cover because of our 

lack of sophistication as to exactly what we have to do this year, 

I want the Minority here and the Minority that comes back to realize that we will have hearings and try to educate ourselves as to 

how we, as a Congress, Congress and country, can tackle this serious problem. 

Now, we get to Mike Bloomberg, who is absolutely bigger than 

life in our city. We are just so proud that he represents our city 

and our country, and in the world, in terms of being able to feel 

the independence of the intellect to do the right thing, not politically, but to do the right thing for the people, which he has been 

sworn to serve. I told him this morning that he sets an example 

of what a handsome, intelligent, personable billionaire can do, once 

they make their mind up that they’re going to be a public servant. 

We hope that this Committee will be able to serve the next President with some ideas so that we can hit the ground running. We 

have leadership from the business community that recognize that 

this has to be handled in a bipartisan way. So, therefore, we hope 

that Members on both sides will try to keep their leadership, as it 

relates to their party, out of it as we try to see what climate change 

legislation we can ultimately be able to recommend, no matter who 

is the President of the United States. 

We also have to make certain that whatever we do is consistent 

with the World Trade Organization rules. I am certain that at the 

end of these hearings, that we will be better informed—and to also 

remember that while we share jurisdiction on this with other Committees, they still will be looking to us as providing the leadership 

on which way the Congress goes. 

So, I think our first witness here—my Mayor, isn’t it, staff? Isn’t 

my Mayor the first witness? Oh, yes. 

Because so many of our Members have worked so hard on this 

issue, I would like to first yield to my partner on this, Jim 

McCrery, to make and to recognize whatever Members he sees fit, 

to let you know that this is not the beginning, but an ongoing process that we’re just trying to bring there. So, Jim, I yield. 

Mr. MCCRERY. Thank you, Mr. Chairman, and I appreciate 

your recognizing and asserting this Committee’s jurisdiction over 


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this issue. We certainly should play an important role in developing policy with respect to this issue and other issues that it 

might affect. 

Last February, we held our first hearing on climate change 

issues. At that time, I suggested that any legislation designed to 

address global climate change should be examined in the context 

of America’s need for energy security. On the day of that hearing, 

the average price of a gallon of gasoline in the United States was 

about $2.42. It’s now about $3.75. Even though global crude oil 

prices are falling, the devastation caused by Hurricane Ike, particularly on our strained refining capacity, threatens to push those 

prices even higher. 

As we listen to today’s witnesses, I hope we will keep those 

prices in mind and ask those witnesses and ourselves how much 

higher carbon taxes or cap and trade systems might push energy 

prices in this country. 

We also need to examine how those higher prices translate into 

job losses, both from the contraction of our economy, as well as 

from the movement of manufacturing jobs to countries that don’t 

take similar steps to reduce carbon emissions. 

Perhaps just as importantly, we should ask whether those higher 

prices would result in any measurable reductions in any global 

greenhouse gas emissions and global temperatures. 

When considering the answer to those questions, I believe we 

ought to keep in mind how likely it is that other countries won’t 

match our actions. China is now recognized as perhaps emitting 

more carbon than the United States. While our emissions growth 

is relatively flat, China’s is still going up at a pretty good pace, as 

are emissions from other fast expanding economies like India. 

Those countries have made clear they have no intention of slowing their economies with restrictions on carbon emissions. So, if we 

raise energy taxes on our manufacturers, they may respond by 

moving their production to countries that do not impose such costs. 

I suppose offshoring manufacturing jobs is one way, though, for us 

to meet new emission targets. 

But if those jobs move to countries who are less carbon efficient, 

then not only have we shipped jobs abroad, we have also increased, 

not decreased, total greenhouse global emissions. 

I expect we will hear from witnesses today that climate change 

is a global problem, meaning that a ton of carbon emitted in New 

Delhi has the same effect as one emitted in New York. So, cutting 

carbon emissions at home, while increasing them abroad, will not 

reduce the dangers that many have warned us about. In fact, it 

could exacerbate them. 

Mr. Chairman, as this hearing proceeds, I hope we will ask three 

questions: number one, how much will a carbon reduction plan 

raise energy prices; number two, what damage will it do to our 

economy; and three, how will those changes impact the global climate? Together, I think those questions will show the deep flaws 

of carbon taxes and cap and trade, flaws which we should not ignore. 

Some might suggest that doing nothing is not an alternative. 

While I would prefer to do something that is constructive, if doing 

something that makes us feel better about ourselves comes at the 


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cost of hurting our economy and raising greenhouse gas emissions 

worldwide, I think we are better off rejecting cap and trade or carbon taxes. 

So, Mr. Chairman, there is a variety of things I think, ultimately, 

this Committee and others should look at in this area of global climate change. We have supported a variety of tax changes, for example, to encourage alternative energy and conservation. We can 

look at those and perhaps expand those efforts, encourage the research and development to bring about further breakthroughs that 

reduce our reliance on fossil fuels without crippling our economy. 

We could also encourage trade and equipment and technology 

that speeds the spread of those advances around the world. Of 

course, we, as you suggested, need to make sure that we do that 

in a WTO-compliant way. 

Mr. Chairman, I will close by noting that there is one feature of 

this issue about which there should be bipartisan agreement, and 

I have already touched on this. This hearing should serve notice to 

the next Congress that so many of the issues surrounding a cap 

and trade system, including the allocation of auction revenue and 

measures designed to mitigate the leakage of jobs, are squarely 

within the expertise and jurisdiction of this Committee and its 

Members. 

I won’t be here next year, but I hope all Members will keep in 

mind the importance of this panel’s active participation in the 

molding of any climate change legislation that might move in the 

111th Congress. We have lots of talent on this Committee, Mr. 

Chairman. Both sides, Republicans and Democrats, have worked 

hard to make sure we have some of our brightest and best Members take seats on this Committee. 

So, I will look forward to watching next year, as this Committee 

takes a leading role in fashioning whatever policies ultimately 

emerge from the Congress on this issue. Thank you, Mr. Chairman. 

Chairman RANGEL. Thank you, Jim. I have been advised by 

staff that several Members on the outside would like to share their 

views and opening remarks. In view of the fact that we have so 

many witnesses and panels, I would encourage you to keep your remarks to 2 minutes, and that we will recognize, in this order, not 

necessarily—we will try to find out whether any of the other Members would care to speak. But Mr. Stark, Mr. Doggett, Mr. Larson, 

Mr. Blumenthal [sic], and you can determine. 

The Chairman yields 2 minutes to Mr. Stark. 

Mr. STARK. I would yield back, Mr. Chairman. 

Chairman RANGEL. Mr. Doggett. 

Mr. DOGGETT. Thank you so much, Mr. Chairman, for advancing our efforts to perfect the best possible solution to the global 

warming crisis. 

The science is in, the consensus is clear, that global warming is 

real, and that the consequences are already impacting us. 

The cost of inaction is much greater than the cost of a well-crafted legislative solution. The cost of continuing to do nothing is impacting much more than polar bears. It will start hurting consumers where they live, not just in some exotic place in a travel 

magazine. It will hit families in their pocketbooks, as they’re alVerDate Nov 24 2008 14:33 Mar 17, 2011 Jkt 062201 PO 00000 Frm 00011 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\62201.XXX APPS06 PsN: 62201

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ready reeling from the high price of our addiction to fossil fuels. Inaction endangers our health, our wealth, and our national security. 

Ninety-two Members of this House, including a majority of the 

Democratic Members of this Committee on Ways and Means, are 

sponsors of H.R. 6316, the Climate Matters Act. It is the first cap 

and trade legislation to receive primary referral to this Committee. 

H.R. 6316 places a strong but achievable cap, a limitation on 

greenhouse gas emissions, which can be coordinated in an auction, 

a Treasury-administrated auction, and which will then rely on the 

free market to set a cost on a pollution by the ton. 

When we introduce an improved version of this bill in the next 

Congress, I sincerely hope that it will gain bipartisan support. But 

whatever your view on the mechanics of this particular bill, Ranking Member McCrery has made clear that we should have unanimity in this Committee about our active role on this very critical 

issue. 

As today’s witnesses will make clear, transitioning to a less carbon-dependent economy will involve the raising of hundreds of billions of dollars in new revenue. If we are to maintain competitiveness, Americans must be concerned about the trade implications of 

this legislation, particularly those countries who initially declined 

to join the transition to a carbon-free economy. 

Revenue and trade are two cornerstones of this Committee’s responsibility. The Climate Matters bill also addresses a third, and 

that’s health care. Instead of massive public giveaways or pollutefree cards, the Climate Matters Act would auction allowances, and 

apply the resulting revenues to a healthy families fund, to address 

the health care challenges that plague so many American families 

and businesses. 

The cap and trade bill, as one of our witnesses suggests, is also 

a cap and invest bill investing these auction revenues in infrastructure, in industry, in universities with research and development, in 

clean energy, in our workforce. 

Ten States, from Maryland to Maine in the northeast, in the 

west six States—excuse me, seven States—including California and 

four Canadian provinces, are already beginning to implement, at 

the State level, a cap and trade system. Both of our Presidential 

candidates, Republican and Democrat, have endorsed a cap and 

trade system. 

I think it’s clear that there is a consensus that we can either run 

the new economy less dependent on fossil fuels, or get run over by 

it. I look forward to working in good will with all of those willing 

to fashion legislative solutions, based on good science. I believe that 

the Climate Matters bill, H.R. 6316, which the witnesses will be 

addressing, is a good place to begin. Thank you, Mr. Chairman. 

Chairman RANGEL. I thank the gentleman for his contribution 

to this sensitive problem that we face in the country, and I recognize Mr. Herger for 2 minutes. 

Mr. HERGER. Thank you, Mr. Chairman. I must express my serious concerns with the proposals to address climate trade, such as 

cap and trade, that aim to reduce emissions by increasing the cost 

of energy. Numerous studies that were conducted on cap and trade 

legislation that was debated by the Senate a few months ago all 


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concluded that cap and trade would have serious negative effects 

on our economy. 

While the exact numbers differed, all estimates pointed to a reduction in GDP, an increase in energy costs, all of this occurring 

under an enormous expansion of the Federal Government. At a 

time when our economy is suffering, and we have seen the serious 

impact rising energy costs have had on American families, I don’t 

believe Congress should be contemplating further increases in energy costs, and imposing even greater financial strain on our country. 

Furthermore, analysis by the EPA shows that even if the U.S. 

significantly reduced its emissions, global emission levels will continue to increase rapidly under—major developing country emitters 

also reduce their emissions. 

I am concerned that American citizens will be forced to pay higher energy costs, and see their standard of living reduced without 

seeing any improvement in the global level of emissions. 

I believe there are better alternatives to the proposals being considered before the Committee today, those that incentivize energy, 

innovative technology, without imposing costly new burdens on our 

economy. One way to do that is through trade liberalizations of 

technologies that can help us reduce emissions. 

Mr. Chairman, I would ask unanimous consent to enter into the 

record this op ed written by Ambassador Schwab and Australian 

Trade Minister Crean on the need for positive trade liberalization 

efforts to address this climate change. 

Chairman RANGEL. The Chair hears no objection; so ordered. 

[The information follows:] 

Mr. HERGER. Again, Mr. Chairman, I thank you for this hearing, but I would think—I would hope that we would take very seriously the incredibly negative potential ramifications that moving in 

this direction would pose on our Nation. 

Chairman RANGEL. Thank you for your contribution. The Chair 

now recognizes Mr. Larson for the great work that he has done on 

this issue. 

Mr. LARSON. Thank you, Mr. Chairman, and I want to thank 

the staff and you for putting together this outstanding panel and 

these 14 panelists who will come before the Members of Congress. 

I think the question was appropriately raised by Mr. McCrery, 

whether or not we face the ‘‘fierce urgency of now,’’ as Martin Luther King once ascribed, with respect to our environment and global warming and its effects. 

I look forward to the testimony of the panelists, experts in their 

field, to lay out a path forward for us. 

Most importantly, as we go forward, I concur with the Members 

on the other side of the aisle. Let’s look at what will be revenueneutral. Let’s look at taxing polluters upstream, but passing down 

the benefits downstream to the consumers, reducing payroll taxes, 

and using our creativity and this Committee’s authority to create 

a system that will provide the opportunity and the innovation and 

the tax relief that they need, as well. 

The question that this Committee will ultimately resolve is, what 

is the best path forward to take? Is there a fierce urgency of now 

to act, or is doing nothing a better way to go? If we’re going to act, 


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what’s the best course? What’s in our economic interests, and how 

do we secure it in the most feasible, possible, cost-effective manner? 

With that, Mr. Chairman, I thank you. 

Chairman RANGEL. Thank you for your—thank you so much, 

Mr. Larson, for your contribution. The Chair now recognizes Congressman Camp. 

Mr. CAMP. Well, thank you, Mr. Chairman, I will be very brief. 

I appreciate you and the Ranking Member asserting the Committee’s jurisdiction over this issue. But to say that any market-based 

approach to climate change would have significant revenue and 

international trade implications is an understatement. 

Let’s be clear about what cap and trade would actually do. It 

would dramatically increase energy prices, specifically for middleand low-income consumers, and it would increase costs for American manufacturers, and eliminate about half-a-million American 

jobs each year. It would hamper growth in our economy for the 

next several decades, while other nations watch us in amusement. 

While we’re all interested in new and clean technologies in response to higher energy cost and climate change, we must look at 

those in light of the current economic struggles our country is facing. 

So, with that, Mr. Chairman, I look forward to the testimony 

today, and I want to thank our witnesses for being here, and I yield 

back the balance of my time. 

Chairman RANGEL. Thank you. The last Member that indicated 

he wanted to share his views on this, is Mr. Blumenauer, who has 

really gained a nationwide attention for his views on this sensitive 

subject. The Chair recognizes him for 2 minutes. 

Mr. BLUMENAUER. Thank you, Mr. Chairman. I appreciate 

your courtesy, and I appreciate the sentiment expressed by our 

Ranking Member about the criticality this has for the mission of 

this Committee. I think it’s appropriate that we conclude this Congress with our first major hearing with a distinguished panel to tie 

these elements together, because we are in a carbon-constrained, 

water-stressed, energy-short world. 

One of the things that both Presidential candidates agree upon 

is that the United States is going to join the rest of the world in 

trying to be proactive in dealing with climate change in the next 

Administration. 

I have been pleased to work with my friend, Mr. Doggett, on one 

version that gives some choices, that provides, I think, an interesting intersection. Mayor Bloomberg has been a leader, not just in 

the revitalization of New York City, but leading the charge with 

Governor Schwarzenegger, Governor Rendell, and others, talking 

about the need to rebuild and renew America. 

Another item critically in the purview of this Committee, as we 

face a trust fund that is going into deficit for the first time in history, an opportunity for us to tie these elements together, rebuilding and renewing America, dealing with the transportation deficit, 

and the threat from carbon pollution. 

There are many options. We have a choice to put these pieces together in ways that are revenue-neutral, that actually raise revenue for other priorities, or, in fact, could reduce burdens for other 


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people, as we seek to end the problems associated with carbon pollution. 

But one of the things that is clear—and anybody who reads Sir 

Nicholas Stern’s report—I think documents very clearly that the 

costs of our moving forward and doing nothing, the risks to that, 

are tremendously greater than simply the short-term, immediate 

steps that are offered by legislation that are here. 

I look forward to working with you and the Committee in moving 

these proposals forward. 

Chairman RANGEL. Thank you so much Mr. Bloomberg— 

Blumenauer. 

Now, Mayor Bloomberg has to leave us, and so I hope that the 

panel will allow me to call him first. New Yorkers have unfairly 

been challenged with the idea that we have more self esteem than 

we really need. One of the reasons for it is because of the outstanding leadership that we have had from our Mayor, who has 

been willing to take the risks, take the challenges that may be unpopular, but at the end of the day, New York City manages to come 

out ahead, not only in New York and our State, but indeed, 

throughout the world. 

So, it is a distinct honor for me to be in the position to be introducing him, or to really be presenting him, because we all are 

thankful for the thoughtfulness that you have, in what can make 

this a better country. 

So, I know you have to leave, but we welcome you to this Committee. Mayor Michael Bloomberg. 

STATEMENT OF THE HONORABLE MICHAEL BLOOMBERG, 

MAYOR, CITY OF NEW YORK, NEW YORK 

Mr. BLOOMBERG. Chairman Rangel and Ranking Member 

McCrery, ladies and gentlemen of Congress, thank you for having 

me. 

I must first put on the record the fact that I am Mayor because 

of Charlie Rangel. Charlie Rangel urged me back in about the year 

2000 to run for mayor. I always listen to Congressman Rangel. I 

think lots of you would have loved to be listening in on the conversation when I called him and said, ‘‘Charlie, I’ve got good news 

and bad news.’’ Charlie didn’t quite understand we had two parties 

in New York. Actually, we don’t really have two parties in New 

York, but we’d like to have two parties in New York. Anyway, I am 

here because of him. 

Thank you, all of you. You are here because you are discussing 

whether or not we should reduce our dependence on fossil fuels. I 

don’t think there is any question that we should. 

Whether it is energy independence, whether it is pollution, 

whether it is economics, there are lots of reasons that we are in 

a very difficult and bad situation. We are transferring our wealth 

out of this country over to other countries, some of which don’t 

have the same values we do, and in fact, fund terrorists that try 

to take away our freedoms. It is a very worrisome thing, and something that I am pleased to see you are addressing. 

I also think that reducing our dependence on fossil fuels will increase our economic efficiency and competitiveness, enhance our 


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national security, improve our air quality, promote public health, 

and reduce our impact on global climate change. 

Now, I did listen to Congressman Camp and Herger and 

McCrery talk, and I, too—I am a capitalist. Forbes says I have 

some credentials as a capitalist. But I think that if you take a look 

at the impact of all of these things, they are positives, rather than 

negatives. Rupert Murdoch, who has never been known as a tree 

hugger, and me, from my company, we have both said that News 

Corp and Bloomberg, L.P., are going to be carbon neutral. It is a 

competitive advantage to improve the environment. 

I worry about overseas competition, but we are better off if we 

reduce our pollution. You should take a look at the Chinese stock 

markets, both of which the major markets are off 65 percent this 

year. A lot of that is because in China they understand they have 

an enormous pollution problem that will have devastating effects 

on their economy. 

So, I am not terribly concerned about what they will do. I am 

concerned to make sure that we don’t get in a similar situation. I 

am concerned that we do what is in our own interest. We breathe 

air that is being polluted today. All of the arguments that say, 

down the road, if we stop polluting it doesn’t matter, because China 

and India and other countries pollute, maybe long-term that’s 

right. I don’t agree with it, but maybe, long-term, it’s right. But we 

are polluting the air that we and our children are breathing right 

now, right here, and we have to do something about this. 

State and local governments have taken the lead, because of the 

inaction of Congress. But I think you have a chance to rectify that. 

In New York City, as you know, we have set as a goal for the city 

itself to reduce by 30 percent by the year 2017 its pollution, its 

generation of greenhouse gases. That means city-owned buildings, 

city-owned buses, city-owned police cars, fire trucks, those kinds of 

things. If we do it, we hope that we can get the private sector to 

reduce by 30 percent the amount of greenhouse gases that it produces by the year 2030. 

We pursued an aggressive, multi-pronged strategy. We stressed 

conservation, as well as encouraged the use of alternative fuels. We 

are making progress. Today we are releasing our annual greenhouse gas inventory. We have done an inventory of all of the pollution in New York City, because if you can’t measure it, you can’t 

work on it. 

The new survey shows that we have reduced our carbon footprint 

by 21⁄2 percent between 2005 and 2007, thanks mainly to milder 

weather, and two new efficient power plants. But, nevertheless, we 

are going in the right direction. Our challenges, however, energy 

consumption and vehicle traffic, do continue to grow faster than 

our population, and they demonstrate why, for State and local efforts to be truly effective, they really do have to be matched at a 

Federal level. 

It is a disgrace that Detroit produces cars that are phenomenally 

energy efficient, but only sells them outside of the United States. 

When some people say that overseas they are laughing at us because we are talking about improving the environment, you go to 

Western Europe. They are way ahead of us, and they dislike us because they don’t respect us because we’re not doing our part. 


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Now, if we are going to reduce carbon emissions, we really have 

to use capitalism to do it. I don’t think that a managed economy 

would ever do that. We saw managed economies. They were called 

things like the USSR and Communism, and they just didn’t work. 

Capitalism does work, but you’ve got to give an economic incentive 

for people to do things. That’s the essence of capitalism. 

Yes, Congressman Camp. You will raise energy prices. But that’s 

exactly what we should do if we want people to use less. That’s 

using the marketplace to achieve a goal that is in everybody’s interests. 

We have to price carbon at a price where it gives you an incentive to go and to find alternative fuels. You can use a carbon tax, 

which is what I prefer, simply because it’s more straightforward to 

administer. I don’t like taxes any more than anybody else, but if 

you’re going to do something, do it efficiently. Or, you could use a 

cap and auction system, which would work. Congressman Doggett, 

you proposed a comprehensive cap and auction system on greenhouse gases. I still would prefer the tax. 

But in either case, we have to do something to get people to use 

less, and to use it smarter. I think there are four quick things that 

I would like to outline that I think are important in your discussions, if and when you come to some combination or some decision 

as to how to use capitalism to incent people to be more efficient. 

Incidentally, these things are all good for business. I don’t know 

any company that hasn’t invested in being more environmentally 

friendly and reducing their energy consumption that hasn’t benefited greatly to their bottom line. So, we’re not asking people to do 

things that aren’t in their interests; we are asking people to do 

things that are in their interest, and collectively, in our interest. 

The four things are simply the implementation should be 

straightforward. What you have seen overseas when we have tried 

cap and trade systems, if you start giving breaks to people, the cost 

of administering, it starts to get so great that society is burdened 

by the cost. That’s a lousy idea. That’s why I favor the cap and tax. 

But you could do a cap and trade system. 

But you can’t have all of the exceptions. You have to have a system that gives people the incentive to reduce carbon emissions, go 

to alternative fuels, and one that the public and the private sector 

believes is efficient and is fair. 

Now, second, we want to have—you have to have a uniform 

price. If we start giving particular breaks to certain industries, or 

to certain parts of the country, you just will not get this done. All 

you will create is, I think, a big mess. We have to make sure that 

the amount of—the prices that will come out of the amount of carbon credits that you decide to make available achieve the purpose 

of getting companies to reduce their emissions, to be more efficient, 

or to go to alternative fuels. 

Third, I think that we have to have some ways to address Congressman Camp or Congressman Herger—I’m sorry—one of you 

had mentioned the impact on the economy. You are dead right. 

Having a tax or a fee that reduces carbon emissions by raising the 

cost of energy is a drag on the economy. 


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So, rather than create a pinata, where you can just use this 

money for lots of things, using the money to offset that, I think, 

should satisfy your concerns and let us do both things. 

Job retraining. We, in this country, our public education system 

is not where it needs to be. Our workers are being left out of the 

future economy. This is a perfect opportunity to do that. 

Reduce payroll taxes. I would like to reduce taxes just as much 

as anybody else would. The people that are working and paying the 

payroll taxes are the people that will be hurt. Here is a perfect way 

to transfer the burden from them, who are going to pay higher energy prices but now have lower taxes, to the producers who are the 

ones that, in all fairness, because of their actions are giving us the 

opportunity to pollute the air that we breathe, and to hurt us long 

term. 

Last, I think that carbon tariff on nations that don’t sign up to 

a global agreement may eventually become a necessity. I think we 

shouldn’t think that we can do all of this alone. But America is a 

country that has always led by example. The defeatism to say, 

‘‘Well, we can’t do it because everybody else is unwilling to do it,’’ 

isn’t where we should be. We should be standing up. We should be 

leading. We should be improving our environment. 

It is disappointing to me, as I travel around the world, that it 

is other countries that are investing in new technologies, working 

on alternative fuel sources, retraining their workforce. Long term, 

that’s not good for America. I think if America said, ‘‘Look, let’s go 

it alone, let’s be the leader,’’ you will find the world wanting to follow us. 

So, I appreciate your concerns. Nobody is more cognizant of them 

than I. But I do think those are ways to address them, and I do 

think this is a serious issue that we have to address now. 

Long term, the global warming, short term, the pollution of the 

air that you and I breath, and the economy, our economy, is better 

if we make it more ecologically pure, whatever the word is, because 

it is—all of these environmental things—are stagnating our economy, and preventing us from attracting the best and the brightest, 

rather than raising the costs—rather than reducing the cost, they 

are raising the cost. Thank you. 

[The prepared statement of Mr. Bloomberg follows:] 

Prepared Statement of The Honorable Michael Bloomberg, 

Mayor, City of New York, New York 

Thank you, Chairman Rangel, and Members of the Committee. 

It’s time for our country to reduce our dependence on fossil fuels. 

Doing so will increase our economic efficiency and competitiveness . . . enhance our 

national security . . . improve our air quality . . . promote public health . . . and reduce 

our impact on global climate change. 

Many State and local governments are already taking the lead. 

In New York City, we’ve set a goal of reducing our output of greenhouse gases 

by 30% by the year 2017—even as our population grows to an unprecedented 9 million people. 

We’re pursuing an aggressive, multi-pronged strategy that stresses both conservation and encouraging the use of alternative fuels. 

We’re making progress. Today, we’re releasing our annual ‘‘greenhouse gas inventory’’ for New York City. It shows that our carbon footprint shrank 2.5% between 

2005 and 2007, thanks mainly to milder weather and two new and more efficient 

power plants. 

Our biggest challenges, however—energy consumption and vehicle traffic—continue to grow faster than our population. 


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That demonstrates why, for State and local efforts to be truly effective, they must 

be matched at the Federal level. 

That must start with national policy that puts a price on carbon emissions. 

Set such a price—and the market will reduce emissions, by providing an incentive 

to use cleaner fuels, and by leveling the playing field for alternative forms of energy. 

Pricing carbon emissions could involve levying a carbon tax, as Congressmen 

Stark and Larson have proposed. This is the approach nearly every economist prefers—as do I. 

Or, as others, including Congressman Doggett, have proposed, comprehensive ‘‘cap 

and auction’’ systems on greenhouse gas emissions could also be effective. 

Any such pricing regimen must be based on four essential principles: 

First, implementation should be simple and straightforward. 

The best place to put a price on carbon emissions that exceed a legislated cap is 

‘‘upstream,’’ at the points of fossil fuel production, such as coal mines and petroleum 

refineries. 

This would mean assessing a carbon price at hundreds of locations in our Nation, 

not the many thousands that would have to be monitored if the price were to be 

imposed further downstream in the process of using fuels. 

Second, we should ensure a uniform price on carbon emissions that is uniformly 

administered. 

The government’s auction of credits must cover 100% of credits. Sweetheart deals 

for the well-connected would distort and undercut the process, sowing confusion and 

mistrust. 

Some industries argue that they will be injured. But they are the worst polluters. 

They have to clean up fastest. Better that than their hiring lobbyists to strike deals 

that would undermine the whole process. 

Ensuring price fairness and predictability will also encourage the investment in 

alternative energy sources essential to our Nation’s future. 

Third, carbon pricing must be accompanied by a commitment to revenue neutrality. 

It’s been estimated that a Federal auction of carbon credits could bring $1.1 trillion into the U.S. Treasury during the first 6 years that such a system would be 

in place. 

If Washington gets to treat this like a revenue pin ̃ ata, Americans will be justifiably repelled, and the cause of reducing our dependence on fossil fuels will be tragically set back. 

So Congress should offset the higher costs that consumers will bear as a result 

of carbon pricing with rebates on payroll or other personal taxes. 

Fourth, and finally, while a ‘‘carbon tariff’’ on nations that don’t sign on to a global agreement to reduce their emissions may eventually become necessary, let’s lead 

by example, and not look for excuses to retreat into protectionism. 

Members of the Committee: It’s very encouraging to see how rapidly the debate 

on carbon pricing is advancing. 

That’s evidenced by this hearing about the best way to design such a pricing system. 

The devil, as always, remains in the details. But by employing the principles that 

I’ve just outlined, I believe we can create a carbon-pricing system that is fair and 

forward-looking. 

f 

Chairman RANGEL. Thank you, Mr. Mayor. Thank you, that 

you rearranged your schedule and you could stay with us longer. 

Again, the policy of this Committee is that our witnesses will have 

5 minutes to state their views. 

You can see the interest that the panel has, and so therefore we 

expect that Members will also restrict to 5 minutes, that we can 

get as much in as possible this morning if we can adhere to the 

5-minute rule. 

Mr. Orszag, Dr. Orszag, who is the Director of the Congressional 

Budget Office, I think the Congress, Republicans and Democrats, 

have to thank you for the bipartisan research that you do for us. 

We don’t always follow it, but it’s good to know that you are there. 


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We know that, as we try to resolve this serious issue and fulfill 

our responsibilities, that we can depend on your office for the research and the backups that we need. 

Thank you for being with us. You are recognized for 5 minutes. 

STATEMENT OF PETER R. ORSZAG, PH.D., DIRECTOR, 

CONGRESSIONAL BUDGET OFFICE 

Mr. ORSZAG. Thank you, Mr. Rangel, Mr. McCrery. Climate 

change is one of the world’s most pressing long-term problems. 

Some degree of risk exists for the damage to be large and potentially even catastrophic. 

Reducing emissions, however, will impose short-term costs on the 

economy. The political system is, arguably, not particularly good at 

dealing with this kind of issue in which there are short-term costs 

required in order to obtain expected long-term benefits. 

Analysis suggests, however, that smart policy design can significantly reduce the costs involved. In particular, what you do with 

any allowances under a cap and trade program, and whether you 

provide flexibility, not only in terms of where and how the reductions occur, but when, can matter a lot, in terms of the overall 

costs of meeting any given climate objective. 

First, the value of the allowances created under any cap and 

trade program would be substantial. CBO estimates that under the 

Lieberman-Warner bill, the aggregate value would be more than 

$100 billion in 2012, and would rise thereafter. 

The question is what the government does with that $100 billion. 

Does it give it away, or does it sell the permits and use those funds 

for some other purpose? Just to be clear, you can’t do both at once. 

Evidence suggests that the economic cost of a 15-percent reduction in U.S. emissions might be twice as large if policymakers gave 

the allowances away than if they sold the allowances and used the 

revenue to reduce distortionary taxes on either labor or capital. 

Giving the permits away would also create a windfall profit for 

shareholders. Despite what proponents sometimes suggest, not prevent—again, not prevent—the price increases that are a necessary 

part of a cap and trade program, and that would disproportionately 

affect low-income people. 

Indeed, one can think of issuing allowances at no cost to firms 

as the equivalent of auctioning the permits, and then handing the 

cash that is raised to the firms themselves. That is the way that 

CBO is scoring proposals to give away permits, and that is most 

consistent with underlying economics involved, and I think highlights the windfall profit point. 

In other words, when viewed either from a macroeconomic perspective or a distributional one, giving the permits away ranks relatively poorly under either criterion. 

A second main way to reduce the economic costs involves timing 

flexibility. A simple cap and trade program provides flexibility to 

firms to reduce emissions where and how they are cheapest to do, 

and that’s great. 

But it’s also important to recognize the disjuncture between the 

environmental dynamic on climate change and the economic one. 

From an environmental perspective, what matters is cumulative 

emissions, not whether you reduce emissions this year or next year. 


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From an economic perspective, however, the cost of reducing a ton 

of emissions this year can vary a lot, relative to next year. If you 

don’t take that into account—and a very simple cap and trade system, which imposes an aggregate cap on emissions each year does 

not—you unnecessarily raise the cost of achieving whatever it is 

that you want to achieve. 

One can build into cap and trade programs provisions that provide this kind of timing flexibility. So, for example, you can build 

in both a ceiling and a floor on prices. You can build in banking 

and borrowing provisions. But it is very important to provide that 

type of flexibility if you want to reduce the costs involved, and also 

to limit the volatility of the permit prices, which, for example, in 

the sulfur dioxide program, have been significantly more volatile 

than stock prices. 

Finally, my written testimony discusses the particular challenges 

that energy-intensive sectors, like the steel and aluminum industries, could face under a cap and trade program. These sectors account for perhaps 15 percent of aggregate U.S. energy consumption, 

and about 5 percent of GDP, and roughly the same share of employment. 

They could lose sales to imports from other countries that do not 

impose as aggressive climate regimes if we moved ahead with addressing global climate change. That substitution of imports would 

not only hurt our domestic industries, but also through the socalled carbon leakage, mitigate any environmental benefit. 

There are a variety of proposals that have been put forward to 

try to address these concerns, and my written testimony goes 

through the pros and cons, along with their consistency, or potential consistency, with our World Trade Organization obligations. 

Thank you very much, Mr. Chairman. 

[The prepared statement of Mr. Orszag follows:] 


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Chairman RANGEL. Thank you, Doctor. Dr. Carol Browner is no 

stranger to this Committee or to the Congress, having been the 

longest serving EPA Director, and one who has concentrated not 

only on the improvement of the environment, which she considered 

a moral obligation for the United States to participate in, but also 

the economic impact of it. So, we know that we can depend on your 

support far beyond the 5 minutes that you are sharing with us this 

morning. Thank you, and welcome back. 

STATEMENT OF THE HONORABLE CAROL M. BROWNER, 

PRINCIPAL, THE ALBRIGHT GROUP LLC 

Ms. BROWNER. Thank you, Mr. Chairman. It is, indeed, a 

pleasure to be here today. Let me start by congratulating this Committee on taking an interest in the issue of climate change. I think 

for those of us who have worked on this issue for the better part 

of the last two decades, we certainly welcome the engagement of 

this Committee. I applaud Congressman Doggett for his bill and 

his leadership on this matter. 

Addressing climate change presents not just challenges, but tremendous opportunities, opportunities to rethink our energy future, 

and to move forward on energy independence. Taking action now 

will allow us to avoid the worst climate impacts, and can drive the 

creation of a clean energy economy, in which we exchange carbon 

dependency for greater energy independence and new clean energy 

jobs. 

Not only should we consider the cost of any actions we take, we 

should also consider the cost of inactions. Study after study have 

shown that those costs could be very high. 

There is a recent University of Maryland study looking at the impacts of climate change on eight States. The research shows that 

climate change could cost our States billions of dollars by mid-century. The study finds that in the Midwest, for example, agricultural 

losses alone may total $10 billion or more per year. 

According to another study, if emissions are left unchecked, heatrelated deaths in southern California could increase up to sevenfold; annual rainfall in the West could decrease by 15 percent; and 

along the Gulf coast, sea level rise could lead to increased hurricane damages in Louisiana, Florida, and Texas. 

I have long believed that comprehensive cap and trade auction 

legislation is the best way to reduce greenhouse gas emissions. 

During my tenure at EPA, we established the acid rain cap and 

trade program, in which businesses buy and sell sulphur dioxide allowances that have been granted by the government. 

There are two things you should know about this program, in addition to the fact that it reduced our SO2 emissions. First, it has 

had the highest rate of compliance of any program to reduce pollution in the history of EPA. Secondly, the cost of achieving those reductions have been dramatically lower than the original estimates. 

The cost of compliance have been only 30 percent of what EPA 

originally estimated the cost would be to industry. 

Now, for cap and trade legislation to be successful, I think there 

are a couple of things to be mindful of. For the business community—and the mayor spoke to this—we need predictability and 

flexibility. They need to know what is expected of them. What are 


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the targets? They need to be clear and concise. What are the timeframes over which those targets must be met? 

The business community also needs some flexibility. We have 

heard from CBO some ideas. Another idea to consider is banking 

and borrowing. Let the businesses work across a couple of years to 

determine when they can most cost effectively achieve the reductions we are asking them to make. 

Finally, the government needs to work efficiently. Each agency 

and department must function as it was designed to do. That 

means Treasury can do what Treasury does well, and EPA should 

do what EPA does well. The traditional work of EPA encompasses 

standard setting and program implementation. The work of the 

Treasury Department includes revenue, collection, and allocation. I 

believe that each of these agencies should be tasked appropriately 

to do what they do best, and to bring those shared experiences to 

bear so that we can create an effective program. 

You know, time and time again, when we have set environmental 

standards, there have been naysayers. There have been those who 

have said, ‘‘We can’t do it.’’ But you know what? If we look back 

over the history of 30 years of environmental commitment in this 

country, what we find is each time we do set a standard, we rise 

to the challenge and we find the ingenuity, the innovation, and a 

more cost effective way of achieving that goal, of reducing our pollution and allowing our families and our communities to be 

healthy. 

I want to close by making one note—noting one thing for the 

Committee. I do believe that Congress has to take the leadership 

on this issue. But you should be mindful of the fact that last year 

the Supreme Court found that EPA, under the existing Clean Air 

Act, can, in fact, regulate carbons. So, there is authority there. The 

magnitude of this is such that I think Congress should act, but I 

think it is important to remember there is some existing authority. 

Again, Mr. Chairman, thank you for the opportunity, and thank 

you for your interest in this matter. 

[The prepared statement of Ms. Browner follows:] 

Prepared Statement of The Honorable Carol Browner, 

Principal, The Albright Group LLC 

Thank you, Mr. Chairman and Members of the Committee, for inviting me today 

to speak about one of the greatest environmental, social, and economic challenges 

our country has ever faced—climate change. 

Let me first congratulate the Committee for its engagement on this issue. All of 

us who have been active on the challenge of climate change welcome the involvement of the Ways and Means Committee in shaping U.S. climate legislation. 

Climate change presents our Nation with a number of great challenges, but also 

a tremendous opportunity. In responding to the climate crisis, the United States has 

the opportunity to rethink our energy future and move toward energy independence. 

Taking action now will allow us to avoid the worst climate impacts and will drive 

the creation of a clean energy economy, in which we exchange carbon-dependency 

for greater energy independence and new clean energy jobs. 

This transition requires government leadership. And it is in our best interests to 

act now—both economically and environmentally. At all levels, the costs of action 

must be weighed against the great costs of inaction. The University of Maryland recently published a study on the costs of climate impacts in eight States. The research shows that climate change could cost our States billions by mid-century. The 

study finds that in the Midwest, for example, agricultural losses alone may total $10 

billion per year or more. 


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According to another study, heat-related deaths in southern California could increase up to sevenfold if emissions go unchecked. Annual rainfall in the West could 

decrease by 15 percent. And along the Gulf Coast, sea level rise could lead to increased hurricane damages in Louisiana, Florida, and Texas. 

I believe that comprehensive cap and trade legislation is the best way to reduce 

greenhouse gas emissions. By bringing to bear market mechanisms, we can address 

the climate crisis in a cost effective and efficient manner. 

For legislation to be successful, we need a couple of things. For the business community, predictability and flexibility are paramount. That means a predictable market signal, indicating what reductions are required and over what time frame. Flexibility could include the option to bank and borrow allowances, so that individual 

companies can meet their requirements at the lowest cost possible. 

And for our government to work efficiently, each agency and department must 

function as it was designed to do—that means Treasury doing what Treasury does 

best, and EPA doing what EPA does best. The traditional work of EPA encompasses 

standard setting and program implementation. The traditional work of the Treasury 

Department includes revenue collection and allocation. EPA and Treasury should be 

tasked, respectively, with these elements of the climate program. In a cap and trade 

system, EPA can set the standards and ensure compliance, and Treasury can manage the revenues from allowance auctions. 

Even conservative estimates of the revenue that would be generated from the auctions are in the billions—revenue that can be used to offset costs to American families and to invest in a new generation of clean energy technologies. 

Time and time again, when the Nation has set a new environmental standard, 

the nay-sayers have warned that it will cost too much; that it will impose an enormous economic burden on the American people. But, once we have set those standards, American ingenuity and innovation have found a solution at a far lower cost 

than predicted. This is because once there is a standard, there is a guaranteed market for new technologies, so that businesses are prepared to invest in innovation. 

When Congress banned CFCs, which were damaging our atmosphere, many said the 

ban would mean the end of air conditioning in our cars and homes. One company 

saw a guaranteed market for an alternative and took advantage of the opportunity, 

which reaped them a nice return. American businesses have risen to these challenges before, and they will do it again; all they need is predictability and flexibility. 

During my tenure at EPA, we established the acid rain program, in which businesses trade sulfur dioxide allowances that have been granted by the government. 

This program has the highest rate of compliance of any EPA pollution control program, and at a far lower cost than predicted. For the acid rain program, the costs 

of compliance have been only 30% of what EPA originally estimated. 

Let me close by reminding the Committee that following the Supreme Court’s 

Massachusetts v. EPA decision in 2007, EPA has the authority to regulate greenhouse gases under the 1990 Clean Air Act. If EPA does not act, it is likely that the 

Agency will be sued and forced to act. Given the magnitude of the problem, and the 

scale of the solution required, I believe it is important that Congress provide national leadership on this issue. 

Thank you very much. I will be happy to take your questions. 

f 

Chairman RANGEL. Thank you, Doctor. We look forward to 

working with you when we settle down to get this thing done. 

We are fortunate enough to have Dr. Dallas Burtraw: author, researcher, lecturer, and one who has gained an international reputation and expertise in the quality in climate control. Thank you for 

sharing your views with us, and you are recognized at this time for 

5 minutes. 

STATEMENT OF DALLAS BURTRAW, PH.D., SENIOR FELLOW, 

RESOURCES FOR THE FUTURE 

Mr. BURTRAW. Thank you, Mr. Chairman, for the opportunity 

to testify today. I am a senior fellow at Resources for the Future, 

and RFF neither lobbies nor takes positions on specific proposals. 

The views I present today are my own. 


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My research leads me to find that the most important aspect in 

designing a cap and trade program is the initial assignment of the 

market value of the allowances. This is even more important to the 

long-run success of climate policy than the initial level of the cap. 

The carbon dioxide cap and trade program would constitute the 

greatest creation of government-enforced property rights since the 

19th century. Depending on the stringency of the cap and breadth 

of the program, it will introduce into the economy property rights 

ranging from $100 billion to $370 billion every year, in the form 

of tradable emissions allowances. 

There is no inherent claim to the property value created under 

this program. Policymakers might frame the decision about allocating emission allowances this way. 

Imagine you are implementing a new program that will create well over $1 trillion in value in the next decade. Now, how do you 

want to allocate that value? The decision has both efficiency and 

distributional consequences, which brings me to my first point: the 

award of free CO2 emission allowances is equivalent to a grant of 

cash, as we have heard before, this morning. 

As such, it does not affect the production decision of plant managers. A corollary idea is that, in a competitive market, how the 

emission allowances are initially distributed does not affect the 

price of goods and services in the economy. 

By analogy, if you were buying a house, it would not occur to you 

that its price might depend on whether its previous owner had 

bought or inherited the house. Similarly, the managers of firms 

should be expected to realize the maximum possible value for allowances that might be received for free. Otherwise, they would 

have some explaining to do to their shareholders. 

The allocation of emissions allowances is likely to involve a familiar tradeoff between efficiency and distributional outcomes. 

However, that is not true in considering free allocation to shareholders of incumbent firms. Free allocation does not perform well 

on efficiency or distributional grounds. Free allocation would not 

offer the efficiency advantages of reducing pre-existing taxes. It is 

decidedly a regressive policy, because the value of the free allowances accrues primarily to higher-income households, and creates 

the possibility of windfall profits. 

Also, free allocation directs about 10 percent of the allowance 

value overseas to foreign owners of shareholder equity, and that 

value is not available to any income group in the United States. 

Using the allowance value, instead, to reduce the income tax or 

the payroll tax has great appeal to me, as an economist, because 

of the efficiency advantages of lowering taxes on labor. Unfortunately, our research indicates this efficiency advantage may come 

out of distributional costs, as lower-income households would receive less of the benefit of tax reduction, and would bear a relatively larger burden. 

In contrast, too modestly progressive policies would be expansion 

of the earned income tax credit or a cap and dividend approach 

that would return revenue directly to households. The dividend approach would also increase taxable income, yielding revenue that 

would approximately offset the increases in costs for government 

under cap and trade. So, budget neutral, in other words. 


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Assigning a portion of allowance value as investment efficiency 

is also modestly progressive. It would reinforce program goals, and 

lessen the impact of climate policy. However, this approach is problematic, because the institutions and policies that would be used to 

achieve this outcome are not well specified. 

In my written comments I address special issues in the electricity sector, and other important elements of cap and trade, including cost management and the protection for domestic firms 

against unfair international competition. 

I want to close by emphasizing that the true crucial elements of 

good design for cap and trade are transparency and simplicity, because these attributes reduce risk and inspire investor confidence. 

Climate change is inherently complicated, and an uncertain challenge. Climate policy must strive to be the opposite, if the voting 

public is going to embrace a national commitment to address the 

problem. 

Complicated formulas create the perception, deserved or not, of 

favoritism and game rigging that is likely to erode public support. 

Simple tax reform, or even simpler still, direct dividends to households, are approaches that would provide the most convincing signals to the public that we are addressing climate change as a common national initiative. 

We should recognize at the outset that an important part of climate policy may be the need to go back to the American public in 

the future for further commitments. When it comes to the design 

of cap and trade, a transparent and simple approach is the strongest principle one can cling to for good market design, and to make 

sure the American public understands the policy, and understands 

the national effort to try to solve this problem. 

Thank you for the opportunity to testify. 

[The prepared statement of Mr. Burtraw follows:] 


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Chairman RANGEL. Let me thank you for your contribution. I 

just want all of you to know that the Chairman feels awkward that 

we are restricting you to 5 minutes after all of the work that you 

have done, not only in preparing the testimony, but all of the 

knowledge that you have that we really need in order to make positive decisions. 

So, do not be surprised if we don’t call upon you in a very informal way to come and sit around a table to see how we can work 

out the obstacles that are in front of us. 

But I want to thank you, Doctor. 

Our next witness, Robert Lighthizer, is an expert in trade and 

trade policy. Indeed, he has served as a Deputy Trade Representative, a U.S. Trade Representative. So, as an expert and as an ambassador, we welcome your contribution. You are recognized for 5 

minutes. 

STATEMENT OF ROBERT E. LIGHTHIZER, PARTNER AND HEAD 

OF THE INTERNATIONAL TRADE DEPARTMENT, SKADDEN, 

ARPS, SLATE, MEAGHER & FLOM LLP 

Mr. LIGHTHIZER. Thank you very much, Mr. Chairman. It’s a 

pleasure to be here today. I would like to briefly address a topic 

that, in my view, is absolutely central to your consideration of climate change legislation. Namely, the potential impact on U.S. companies that face significant foreign competition, and the steps that 

Congress might take to address those competitiveness concerns. 

It is not my intent to comment on the wisdom of pursuing cap 

and trade programs or other mechanisms that would impose new 

mandatory costs on U.S. producers. The question obviously presents significant issues for Congress and for this Committee. My 

remarks are confined to the competitiveness challenges that would 

be presented to American workers and companies if new costs and 

burdens are imposed. 

There should be no mistake. If this issue is not dealt with effectively, it will cause grave and perhaps irreversible harm to American manufacturers. Equally important, failure in this regard will, 

in all likelihood, undermine the environmental consequences of climate legislation. 

The globally competitive industries adding new costs to American 

products will simply lead to the substitution of imports from countries with lesser environmental requirements. Taking steel as an 

example, estimates suggest that production in places like China 

and India may be anywhere from two to four times CO2 intensive 

than U.S. production. It is not hard to see how disparate climate 

costs could not only wipe out American industries, but could seriously worsen the global climate problem at the same time. 

I would like to make three core points. First, there are strong arguments that, in enacting climate legislation, the United States 

can, consistent with WTO rules, place the same requirements on 

imports that are placed on domestic production. This is not an area 

of clear precedent. It is always hard to predict what the WTO appellate body will do, particularly given some of the very troubling 

decisions we have seen from that body. 

But it is my view the better argument is that neutral and equal 

application of regulatory requirements to imports would be permisVerDate Nov 24 2008 14:33 Mar 17, 2011 Jkt 062201 PO 00000 Frm 00064 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\62201.XXX APPS06 PsN: 62201

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1Mr. Lighthizer is an attorney who leads the International Trade Department of Skadden, 

Arps, Slate, Meagher, and Flom LLP. The views expressed here are his own and not necessarily 

those of his firm. 2 I do briefly discuss below one alternative to a cap and trade system, namely a sector-based 

‘‘standards’’ approach that has been advocated by some in industry. 

sible. Hopefully, this can be done in conjunction with a negotiated 

international agreement that will clarify rules and ensure consistent treatment for traded products. 

Second, you should avail yourself of this argument so that, consistent with international rules, we can apply any new climate burden to imports. We cannot simply ignore this issue, and hope for 

an international agreement down the road, because there may be 

very little left of our basic manufacturing at that time. 

Indeed, if Congress concludes that it cannot address the competitiveness issue in climate legislation, either for WTO reasons or otherwise, it should rethink the entire approach we are taking to climate challenge. 

Third, while critical, we should recognize that placing equal requirements on imports only addresses part of the problem. It does 

not do anything about exports, or maintaining our competitiveness 

in foreign markets. For that reason, proposals that avoid the imposition of new costs on industries that face strong global competition—for example, by granting sufficient free allowances under a 

cap and trade system—might be optimal and would, at the same 

time, address both import and export sides of the equation. 

To the extent new costs or burdens are placed on domestic production, however, it is critical that imports face the same requirements, to ensure that we remain competitive in our own market. 

In conclusion, the competitiveness issue is not an ancillary topic, 

but goes to the very core of the climate debate. There is, in my 

view, sufficient flexibility in the global system and rules to allow 

Congress to meaningfully address this concern. But it will require 

careful thought and work to craft a proposal that both meets WTO 

requirements, and is actually effective in leveling the playing field. 

Both of these are essential objectives. 

Obviously, Congress will want to fashion an approach that 

stands the best chance to satisfy the WTO. But I would caution 

that simply putting in place a fig leaf that purports to address the 

competitiveness challenge, but in fact would not create a truly fair 

playing field, would be the worst option. It would hang our workers 

and companies out to dry, and ultimately lead to greater, not 

fewer, greenhouse gas emissions. Thank you, Mr. Chairman. 

[The prepared statement of Mr. Lighthizer follows:] 

Prepared Statement of Mr. Robert E. Lighthizer, 

Partner and Head of the International Trade Department, 

Skadden, Arps, Slate, Meagher & Flom LLP 1

I. INTRODUCTION 

I am pleased to testify regarding the relationship between climate change legislation currently under consideration by Congress and U.S. obligations under the Uruguay Round Agreements that established the World Trade Organization (‘‘WTO’’). 

I would like to say at the outset that I do not intend to comment in general on 

the wisdom of pursuing a cap and trade program or other mechanisms that would 

impose new, mandatory costs on U.S. producers.2 There are obviously very significant issues in this regard that will require consideration by Congress and this Committee. My remarks are confined to addressing some of the competitiveness chalVerDate Nov 24 2008 14:33 Mar 17, 2011 Jkt 062201 PO 00000 Frm 00065 Fmt 6633 Sfmt 6621 I:\WAYS\OUT\62201.XXX APPS06 PsN: 62201

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lenges that would be presented to American workers and producers if new costs and 

burdens are placed on them, and some of the options available to Congress to address those challenges. 

I believe that this is one of the most important issues facing Congress with respect to climate change legislation. It is an issue that received a great deal of interest in the context of the Senate climate debate that occurred earlier this year, and 

will no doubt remain paramount. Put simply, the ability to ensure that domestic 

producers are not placed in an untenable competitive position due to burdens under 

any new climate legislation will be essential to both the environmental goals of the 

legislation and the long-term health of our manufacturing sector. 

The importance of competitiveness issues to the success of climate change legislation is clear. No other country is so open to imports as the United States. Figure 

1 below shows that last year our current account deficit exceeded $750 billion. While 

oil imports have been a part, Figure 1 shows that our overall deficit is chiefly the 

result of our trade imbalance in nonpetroleum goods. As this fact indicates, U.S. 

manufacturers in a wide range of industries face fierce import competition. Under 

these circumstances, relative changes in costs and/or economic incentives will invariably lead to the rapid substitution of foreign products for domestic products—and 

consequent severe injury to domestic industries. Thus, any measure (including climate change legislation) that places significant additional costs on U.S. manufacturers without imposing similar costs on imports will plainly harm U.S. workers and 

businesses, put additional pressure on core U.S. industries, and lead to a further 

worsening of our trade deficit. 

Figure 1 

The impact of poorly-designed climate legislation will not be limited to the loss 

of jobs and industries in this country. If new climate change legislation does not 

adequately account for the international competitiveness issue, it will create an incentive for manufacturing to leave the United States and be replaced by production 

in nations that often have far less rigorous environmental standards. This will result in higher volumes of greenhouse gas emissions worldwide—a result that directly contradicts the goals of climate change legislation. As shown in Figure 2 

below, using the steel industry as an example, the substantially higher greenhouse 

gas intensity of steel production in places like China and India would mean that 

any shift in production to those countries would dramatically worsen global levels 

of CO2. 


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Figure 2 

Congress should keep this context in mind as it considers how to reconcile new 

climate change legislation with our WTO obligations. In light of this background, 

as well as an analysis of U.S. obligations under the WTO agreements, I wish to emphasize several critical points. 

• First, it is absolutely imperative that the United States take meaningful actions 

to prevent imports from countries with less rigorous standards from undermining the effectiveness of any climate change legislation Congress may approve. 

• Second, while the WTO agreements and case law provide no definitive guidance 

on these issues, there are sound arguments that the United States may place 

equal requirements on imports to account for emissions associated with those 

products, and to ensure that any new climate change legislation does not place 

U.S. workers and businesses at an unfair disadvantage vis-a-vis foreign producers. Hopefully, this can be done in conjunction with a negotiated agreement 

internationally that will clarify rules and ensure consistent treatment of traded 

products. 

• Third, given the importance of this issue, we should clearly avail ourselves of 

the strong arguments available that the United States is permitted to place 

equal requirements on foreign products based upon emissions associated with 

those products. Indeed, if it were concluded that the United States does not 

have such authority, the implications would be profound—and would in my 

view be more than sufficient grounds for Congress to rethink the entire approach it is taking to the climate change challenge. 

• Finally, we should recognize that placing equal requirements on imports only 

addresses part of the problem. It does not, in particular, address concerns that 

new climate requirements will undermine the competitiveness of U.S. products 

sold in foreign markets. For that reason, proposals that, where feasible, address 

competitiveness issues from both an import and export standpoint (e.g., by 

avoiding the imposition of new climate costs on industries facing strong global 

competition) may be optimal, particularly in the absence of a global approach 

to solving climate problems. To the extent new requirements are placed on domestic producers, however, it will remain critical to ensure that imports are 

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3WTO Appellate Body Report, Korea—Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WT/DS161/AB/R, WT/DS169/AB/R (Dec. 11, 2000), at para. 135. 4WTO Appellate Body Report, European Communities—Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/AB/R (Mar. 12, 2001) (‘‘EC—Asbestos (AB)’’) at para. 100. 5WTO Appellate Body Report, Dominican Republic—Cigarettes, WT/DS302/AB/R (May 19, 

2005) (‘‘Dominican Republic—Cigarettes (AB)’’) at para. 96. 6See United States—Restrictions on Imports of Tuna, 30 ILM (1991) 1594; United States—Restrictions on Imports of Tuna, 33 ILM (1994) 936. 7See id. 

II. LEGAL BACKGROUND 

New climate change legislation would potentially implicate U.S. obligations under 

several provisions of the WTO agreements. Although there is a great deal of uncertainty in this area of the law, there are sound arguments to be made in support 

of the view that the United States is permitted to place the same regulatory burdens on imports that are imposed upon domestic products. 

The provisions and standards applicable to a measure that is applied to imports 

will vary significantly depending on whether it takes the form of a border measure 

or an internal measure enforced at the border. Article XI of the General Agreement 

on Tariffs and Trade (‘‘GATT’’) generally prohibits any measure restricting imports 

at the border (i.e., a border measure) other than normal import duties, taxes, or 

charges. However, a measure that is applied to both imports and the like domestic 

product, even if it acts to restrict imports, is not subject to Article XI. Indeed, a note 

to Article III of the GATT expressly provides that 

[a]ny internal tax or other internal charge, or any law, regulation or requirement . . . which applies to an imported product and to the like domestic 

product and is collected or enforced in the case of the imported product at 

the time or point of importation, is nevertheless to be regarded as an internal tax or other internal charge, or a law, regulation or requirement . . . and 

is accordingly subject to the provisions of Article III. 

In other words, a measure that is applied to both an imported product at the border and the like domestic product (i.e., an internal measure that is enforced at the 

border) is to be considered under Article III of the GATT, rather than Article XI. 

In turn, the ‘‘national treatment’’ provisions of Article III:4 of the GATT provide 

that the United States must accord to imported products ‘‘treatment no less 

favourable than that accorded to like products of national origin in respect of all 

laws, regulations and requirements affecting their internal sale, offering for sale, 

purchase, transportation, distribution or use.’’ Thus, if the United States imposes 

new legal or regulatory requirements on certain products, imports of those products 

must be treated no less favorably than like U.S. products. The requirements in 

question may be enforced on imports at the border, but they cannot discriminate 

against such imports. In this regard, the WTO Appellate Body has explained that 

‘‘the purpose of Article III is to ensure that internal measures not be applied to imported or domestic products so as to afford protection to domestic production. Toward this end, Article III obliges members of the WTO to provide equality of competitive conditions for imported products in relation to domestic products.’’ 3 Nevertheless, a WTO member like the United States may draw distinctions between like 

products without according to imported products less favorable treatment than that 

accorded to domestic products. The key is whether there is protection of domestic 

products in the marketplace.4 Indeed, the Appellate Body recently stated that it was 

willing to accept a ‘‘detrimental effect on a given imported product’’ as long as it 

could be ‘‘explained by factors or circumstances unrelated to the foreign origin of the 

product.’’ 5

An issue that has been the subject of much debate is whether measures that distinguish between products on the basis of their process or production methods, rather than the physical characteristics of the products themselves, can be found to sufficiently affect the products so as to be subject to and upheld under Article III of 

the GATT. Environmental restrictions that focus on the manner of production are 

examples of such process-based measures or ‘‘PPMs.’’ In the Tuna-Dolphin cases, 

two panels constituted under the former GATT dispute settlement system found 

that measures that conditioned the sale in the United States of both domestic and 

foreign tuna on the adoption of an environmentally-friendly fishing technology violated the GATT.6 The panels found that such process-based regulatory measures fell 

outside the scope of Article III and instead were improper restrictions on imports 

under Article XI of the GATT.7

However, the Tuna-Dolphin decisions were never adopted and, therefore, carry no 

legal weight in the WTO. Moreover, there are good reasons to question the basis 


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8See WTO Panel Report, Mexico—Taxes on Soft Drinks, WT/DS308/R (Mar. 23, 2006) at paras. 

8.108–8.113 (adopting broad interpretation of the nexus required between taxes and other regulatory requirements and the products that they affect so as to warrant analysis of such measures under GATT Article III:4). 9See id.; EC—Asbestos (AB) at paras. 100–02, 113–115, 122; Dominican Republic—Cigarettes 

(AB) at paras. 93, 96. 10See, e.g., Joost Pauwelyn, ‘‘U.S. Federal Climate Policy and Competitiveness Concerns: The 

Limits and Options of International Trade Law’’ (Nicholas Institute for Environmental Policy 

Solutions, Duke University) (Apr. 2007) at 19–26 (hereinafter ‘‘Pauwelyn’’); Robert Howse and 

Elisabeth Tuerk, The EU and the WTO—Legal and Constitutional Issues 283, 297–98 (Grainne 

de Burca et al. eds. 2001); Robert Howse and Donald Regan, ‘‘The Product/Process Distinction— 

An Illusory Basis for Disciplining ‘Unilateralism’ in Trade Policy,’’ 11(2) Eur. J. Int’l Law 249, 

252, 254–56, 258–68 (2000); Henry L. Thaggert, ‘‘A Closer Look at the Tuna-Dolphin Case: ‘Like 

Products’ and ‘Extrajurisdictionality’ in the Trade and Environment Context’’ in 1 Trade & the 

Environment: The Search for Balance 69, 80–81, 83 (James Cameron et al. eds., 1994). 11 I have focused herein on the likely analysis with respect to Article III:4, but it should be 

noted that a climate measure might well also be covered by (and defensible under) Article 

III:2—dealing with border adjustment of indirect taxes and other internal charges. Indeed, in 

the event a climate change measure (including, e.g., a requirement to submit emissions allowances under a cap and trade program) were analyzed as a ‘‘tax’’ or ‘‘internal charge,’’ the provisions of Article III:2 would provide an additional ground to permit the border adjustment of such 

a measure. See, e.g., Pauwelyn at 21–22. 12One consideration would be whether exclusion of certain countries might be justified based 

upon ‘‘like product’’ considerations. The U.S. might also be able to argue that the standard for 

excluding certain imports is applied in the same way to imports from all sources and thus meets 

MFN requirements. 

for the product/process distinction created by the Tuna-Dolphin panels. A processbased measure of the type most likely to be at issue in the climate debate would 

appear to constitute a measure ‘‘affecting [the] internal sale, offering for sale, purchase, transportation, distribution or use’’ of the product so as to be subject to Article III:4.8 While not resolving this issue, several decisions issued by the WTO provide a sound basis to argue not only that process-based measures are subject to Article III, but also that they should be found to satisfy the national treatment standards established therein where they are origin-neutral.9 Based on the lack of legal 

support for the Tuna-Dolphin decisions and the developments in recent cases decided by the WTO, a number of commentators have concluded or suggested that the 

product/process distinction no longer has any validity (to the extent that it ever did) 

and that neutrally-crafted process-based measures or PPMs could or should be 

upheld under GATT Article III.10 This type of analysis should provide adequate 

grounds for Congress to pursue regulatory measures that apply in an even-handed 

manner to both domestically-produced and imported products.11

Figure 3 

Another issue that may require consideration relates to the so-called ‘‘most favored nation’’ (‘‘MFN’’) provisions of Article I of the GATT. In this regard, and to 

the extent a climate regulatory measure was applied to imports from some foreign 

countries but not others (e.g., because those countries had in place their own climate 

measures), questions could well arise with respect to compatibility with Article I— 

which prohibits discrimination between imports from different countries. Certain arguments might be available under Article I to defend application of neutral criteria 

to exclude countries that have in place comparable climate regimes, but this is an 

uncertain area.12 Having said that, to the extent country exclusions under a climate 

measure were found to be problematic under Article I, the U.S. would have a number of options, including: (i) not excluding any foreign countries; (ii) negotiating new 


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13See Pauwelyn at 32–33. 14See WTO Appellate Body Report, United States—Import Prohibition of Certain Shrimp and 

Shrimp Products, WT/DS58/AB/R (Oct. 12, 1998) (‘‘US—Shrimp (AB)’’) at para. 128; WTO Panel 

Report, United States—Standards for Reformulated and Conventional Gasoline, WT/DS2/R (Jan. 

29, 1996) at para. 6.37. 15 US—Shrimp (AB) at para. 141. 16See id. at paras. 144–45; WTO Appellate Body Report, United States—Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R (Apr. 29, 1996) at pp. 20–21. 17WTO Appellate Body Report, United States—Import Prohibition of Certain Shrimp and 

Shrimp Products (Implementation Under Article 21.5 of the Dispute Settlement Understanding), 

WT/DS58/AB/RW (Oct. 22, 2001) (‘‘US—Shrimp (Implementation Under Art. 21.5)’’) at para. 144. 18 US—Shrimp (AB) at para. 166. 19 Id.; US—Shrimp (Implementation Under Art. 21.5) at paras. 122–124, 134. 20 US—Shrimp (AB) at para. 181. 

rules internationally to allow such exclusions; or (iii) simply defending the exclusions based upon one of the GATT ‘‘exceptions’’ (which are discussed below).13

Even if a regulatory measure were found to violate the provisions of Articles I, 

III or XI of the GATT, this violation may be excused by one of the exceptions provided for in Article XX of the GATT. In particular, Article XX(g) provides an exception for ‘‘measures . . . relating to the conservation of exhaustible natural resources 

if such measures are made effective in conjunction with restrictions on domestic production or consumption.’’ To be entitled to an exception under GATT Article XX(g), 

three conditions must be met: 

• First, the resource to be protected must be ‘‘exhaustible.’’ Even a resource that 

is renewable, such as clean air, may be found to be ‘‘exhaustible.’’ 14

• Second, the measure at issue must be a measure ‘‘relating to’’ the conservation 

of the resource. To satisfy this condition, the Appellate Body has suggested 

there must be a ‘‘substantial’’ relationship between the measure and the conservation of the resource and the means adopted must be ‘‘reasonably related’’ 

to the ends.15

• Third, the measure must be ‘‘made effective in conjunction with restrictions on 

domestic production or consumption.’’ The Appellate Body has said that this requires only ‘‘even-handedness’’ in the treatment of domestic goods and imports, 

not ‘‘equality of treatment.’’ 16

In addition to the three conditions that must be met under the specific requirements of GATT Article XX(g), a regulatory measure must satisfy the introductory 

clause or ‘‘chapeau’’ of Article XX to qualify for an exception under that provision. 

The chapeau of Article XX requires that measures not be applied ‘‘in a manner 

which would constitute a means of arbitrary or unjustifiable discrimination between 

countries where the same conditions prevail, or a disguised restriction on international trade.’’ The WTO Appellate Body has interpreted this chapeau to require 

that an environmental measure be sufficiently flexible and take into account the different conditions that may exist in different foreign countries.17 In addition, the Appellate Body has suggested that the country taking a measure must engage in ‘‘serious, across-the-board negotiations with the objective of concluding bilateral or multilateral agreements’’ on the problem that the measure is designed to address.18 This 

does not require the actual conclusion of an agreement, but that a country make 

good faith efforts to reach agreements with all countries affected.19 Finally, according to the Appellate Body’s analysis, the implementation and administration of a 

measure must comply with principles of ‘‘basic fairness and due process.’’ 20


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21 Yet another alternative approach that could be adopted would be to impose a carbon tax 

on imports that is equivalent to the internal cost imposed on domestic products by climate 

change legislation. Such a carbon tax could be defended as a ‘‘border tax adjustment’’ that is 

permitted under WTO rules for product-related or indirect taxes (such as value-added taxes or 

sales taxes). 

Figure 4 

Notwithstanding the above analysis, I should caution that it is impossible to predict with any certainty in this (as in other) areas how the WTO Appellate Body will 

rule—particularly given the lack of clear precedent and the performance of the AB. 

In fact, I and a number of other commentators have been critical of the AB’s decisionmaking in recent years, noting a tendency to stray from the clear terms and intent of the relevant agreements and repeated examples where the AB has effectively 

created new obligations under those agreements. This only adds to the uncertainty 

in assessing likely judicial rulings in the climate/environmental area—and offers yet 

another reason why the Committee may, in the future, wish to engage in a thorough 

review of the jurisprudence at the WTO and the adherence of the AB to the proper 

standard of review. 

III. INTENSITY-BASED STANDARDS 

Although the climate-change proposals currently receiving the most attention involve a cap and trade approach, I want to briefly discuss an alternative approach 

that has been suggested by certain industry officials. Under this approach, the U.S. 

Government would require everyone selling in this market—including both domestic 

and foreign producers—to live up to the ‘‘best practices’’ and articulated standards 

in terms of the carbon intensity of their manufacturing operations. Per-unit standards could be created for particular industries/product areas (e.g., iron, steel, aluminum, etc.) that result in significant volumes of greenhouse gas emissions. Of 

course, different standards would be employed for different manufacturing processes 

with respect to each product. Such standards could also be paired with incentives 

to encourage producers to develop and implement new practices that would further 

reduce greenhouse gas emissions.21

This type of approach would have two major advantages. First, because all producers active in this market would be subject to the same rules, this approach 

would give U.S. producers an opportunity to compete on even terms with foreign 

producers. Second, by holding producers worldwide to the most rigorous standards, 


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it would exert significant downward pressure on greenhouse gas emissions. As our 

trade deficit demonstrates, producers worldwide are eager to ship their goods to this 

country. Congress could use that fact to encourage greener production at home and 

abroad and a level playing field in our market. Intensity-based standards would encourage a ‘‘race to the top,’’ where manufacturers worldwide compete to satisfy our 

requirements. 

Moreover, there are strong arguments to show that intensity-based standards 

would be consistent with the United States’ WTO obligations. In this regard, such 

standards should satisfy the national treatment requirements of Article III:4 of the 

GATT because they would treat imported products no less favorably than like domestic products. As an initial matter, it could be argued that imported products and 

domestic products that are produced through different manufacturing processes and 

that have different carbon intensities are not like products to begin with and that, 

as a result, there is no violation of national treatment if such products are treated 

differently. But even if they are considered like products, intensity-based standards 

would not discriminate against imports. To the contrary, imported products and domestic products would be treated exactly the same. Any distinctions that would be 

made between products would be based on the carbon intensities of the products. 

Such distinctions would be unrelated to the origin of the products and would not 

be made to afford protection to domestic production. Accordingly, there would be 

strong arguments that this type of approach complies with the requirements of 

GATT Article III:4. 

In any event, even if intensity-based standards were not upheld under GATT Article III:4, they could be defended under the exception provided in Article XX(g) of 

the GATT. No concern about the protection of the environment is currently considered to be more important internationally than the conservation of the Earth’s atmosphere through the reduction of greenhouse gas emissions and the resultant protection of the Earth’s climate. In fact, there cannot be any real question that the 

planet’s atmosphere is an ‘‘exhaustible natural resource’’ in the sense of Article 

XX(g). Intensity-based standards would also clearly ‘‘relate to’’ the conservation of 

the Earth’s atmosphere and related climate. By requiring producers to comply with 

the best practices and highest standards for carbon intensity in their respective industries, intensity-based standards would reduce greenhouse gas emissions to the 

greatest extent possible and would certainly be ‘‘reasonably related’’ to that end. 

And as noted above, the standards would apply equally to domestic products and 

imports so that there clearly would be even-handedness in the imposition of the restrictions. 

Furthermore, there are good arguments that intensity-based standards would satisfy the requirements of the chapeau of Article XX, even if one assumes that the 

specific requirements read into that chapeau by the Appellate Body in other litigation apply to this issue. The standards would take account of the local conditions 

in foreign countries and would not simply require that foreign countries adopt U.S. 

programs or policies. Foreign countries would be free to adopt any programs or policies, and foreign producers would be free to choose whatever manufacturing processes or technologies enable them to meet the intensity-based standards established 

by the United States. In particular, developing countries and producers in such 

countries would be provided with sufficient flexibility to take whatever steps are appropriate to satisfy the U.S. standards. The United States has also engaged and is 

engaging in ‘‘serious, across-the-board negotiations’’ to reach a multilateral agreement to address the problem of climate change. Thus, the United States is actively 

seeking to resolve this issue on an international level. Finally, intensity-based 

standards should unquestionably be applied in a transparent, predictable, and nondiscriminatory manner so as to comply with the principles of ‘‘basic fairness and due 

process’’ established by Article XX. Thus, intensity-based standards would present 

good arguments with respect to the necessary elements to be entitled to an exception under Article XX(g) of the GATT. 

IV. INTERNATIONAL COMPETITIVENESS PROVISIONS IN THE CONTEXT OF CAP AND TRADE LEGISLATION 

A. Principles Relating to Effective International Competitiveness Provisions 

Congress currently has before it a number of proposals to use some type of cap 

and trade program to limit greenhouse gas emissions. These legislative proposals 

would, under certain circumstances, require importers to obtain allowances to account for emissions associated with imported products. I do not today intend to offer 

specific analyses of these legislative proposals. I will say that, while many of these 

proposals appear well-intentioned, much more work remains to be done to develop 

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tiveness provision that does not truly address the problem and that fails to create 

a level playing field would be the worst possible option—hanging our workers and 

companies out to dry and ultimately leading to greater, not fewer, greenhouse gas 

emissions worldwide. 

Cap and trade legislation designed to cover the entire U.S. economy is inherently 

complex, and ensuring that such legislation does not result in a competitive disadvantage for U.S. producers will require careful thought and consideration. Nevertheless, there are a number of basic principles that should clearly inform any effort 

to regulate in this area, and that would help ensure that the legislation does not 

cause severe injury to the U.S. manufacturing sector and American workers. At the 

very minimum, Congress should make certain that: (1) any additional regulatory 

costs and burdens imposed on domestic products under the legislation should be 

equally borne by imports; (2) applicability of competitiveness provisions to imports 

is not subject to discretionary determinations that could undermine such provisions; 

(3) new regulatory requirements (including requirements to obtain emission allowances) should be fully applicable to imported products at the same time that they 

are imposed on domestic producers; and (4) imports from foreign countries should 

be fully subject to such requirements unless those countries are undertaking truly 

equivalent climate measures. 

The type of provisions that must be avoided include the following: 

• Granting broad discretion to exempt foreign countries based upon vague and 

open-ended standards that could let out major emitters early in the program; 

• Providing discretionary authority to reduce the obligation of importers to obtain 

allowances based on factors that would not reduce obligations for domestic producers; 

• Delaying the application of requirements to imports until some time after new 

obligations are placed on domestic producers; 

• Failing to include adequate provisions to address the competitiveness challenges 

faced by downstream products and that would allow such products to compete 

on a fair footing with imports; 

• Including arbitrary exclusions for small-emitting nations that could be very difficult to defend under WTO rules; 

• Granting more favorable treatment for importers in the use of foreign allowances and credits than is provided for domestic producers. 

Inclusion of provisions like these will not and should not receive support from 

workers and companies facing competitiveness challenges under any new climate 

legislation. 

Fortunately, there are strong reasons to believe that enhanced and meaningful 

competitiveness provisions—consistent with the principles articulated above—could 

be incorporated into climate legislation without violating our WTO obligations. 

B. WTO Considerations Relating to Strengthened International Competitiveness Provisions 

Strengthened and effective competitiveness provisions should not present any significant additional WTO concerns—and could in fact make such legislation more defensible under the WTO by ensuring the most equal possible treatment among imports and domestically-produced products. 

Again, competitiveness provisions in this regard would likely be subject to the national treatment requirements of GATT Article III:4. Because strengthened competitiveness provisions as described above would not discriminate against imports—but 

indeed would seek to ensure that the same costs and burdens are imposed on both 

domestic and imported products—there are strong grounds to argue that Article 

III:4 would be satisfied. Any distinctions that would be made between products 

would be based on the carbon emitted in their production and would simply ensure 

the very equality of treatment between imports and domestic products that is 

sought by GATT Article III:4. 

Cap and trade legislation with effective international competitiveness provisions 

should also be found to satisfy the requirements for the exception provided in Article XX(g) of the GATT. As established above, the Earth’s atmosphere is clearly an 

‘‘exhaustible natural resource’’ under Article XX(g). A regulatory system that is consistent with the international competitiveness principles identified above would ‘‘relate to’’ the conservation of this ‘‘exhaustible natural resource’’ because it would account for emissions associated with imports, and would serve a vital role in ensuring 

that the environmental purpose of the bill is not undermined through importation 

of more carbon-intensive products. Moreover, the enhanced international competitiveness provisions would comply with the third condition of Article XX(g) in ensuring even-handedness in the treatment of domestic products and imports. 


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The requirements of the chapeau of Article XX—including the specific requirements that the Appellate Body has read into the chapeau in the context of other 

litigation—would also likely be met. The legislation would be sufficiently flexible in 

that it would not mandate the adoption of any particular system for the reduction 

of greenhouse gas emissions. Both importers and U.S. producers would have similar 

requirements in terms of the need to obtain allowances for the level of the carbon 

emissions associated with their products, and they could trade to obtain additional 

allowances if necessary. This would allow producers in developing countries, in particular, to decide for themselves what is the most feasible and appropriate way to 

reduce their emissions. Even if a developing country producer decided not to reduce 

emissions, it could still obtain access to the U.S. market through the purchase of 

additional allowances. 

The international negotiations requirement would also likely be satisfied here because the United States has engaged and is engaging in negotiations to address the 

problem of climate change on a multilateral level. Lastly, any cap and trade system 

that is adopted could and should provide for emission allowances to be administered 

in a manner that complies with ‘‘basic fairness and due process.’’ Accordingly, if cap 

and trade legislation is somehow deemed to violate Article III:4 of the GATT, solid 

arguments can be made that such legislation should nevertheless be upheld under 

GATT Article XX(g). 

V. CONCLUSION 

In conclusion, the need to fully and effectively address the competitiveness issues 

posed by climate change legislation is clear. Without such a resolution, the core policy goals of the legislation in terms of environmental protection will be undermined, 

and U.S. workers and the economy will suffer enormous harm. As outlined above, 

there are compelling arguments to find that the WTO system has sufficient flexibility to allow Congress to address these concerns and ensure that climate measures 

impact domestic products and imports in an even-handed manner. As such, any legislation in this area should ensure that equal burdens are placed upon imports and 

domestic products. 

f 

Chairman RANGEL. Thank you. At the appropriate time I hope 

Mayor Bloomberg would be able to respond to your observation. 

We have Timothy Regan as our next member. I still think he is 

with Corning. He has had an outstanding background, and we look 

forward to your testimony here, this morning. 

STATEMENT OF TIMOTHY J. REGAN, SENIOR VICE PRESIDENT, 

CORNING INCORPORATED 

Mr. REGAN. Thank you, Mr. Chairman. Mr. Chairman, we come 

here to share a unique perspective. Corning is, on the one hand, 

an environmental technology company. We invented the materials 

that have removed billions of tons of harmful emissions from multiple sources. 

On the other hand, we’re a very, very energy-intensive manufacturer. We melt silica, and we cure ceramic, both of which use a lot 

of energy. 

One point I want to make—and I think it’s probably already been 

made, but I want to emphasize it—if our trading partners were to 

adopt a cap and trade system like the one that we decide to adopt, 

and they do it simultaneously with us, then I wouldn’t be here 

today, taking up your valuable time. 

There are some unintended consequences if we act unilaterally, 

and those unintended consequences are characterized in terms of 

loss of high wage manufacturing in the sectors that I represent 

here today, and they take the form of what we call environmental 

leakage. The world will not harmonize. We will probably go first. 


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So, I would urge you to take into consideration these unintended 

consequences as we move forward. 

Energy intensive manufacturers are in a difficult position under 

a cap and trade program. It’s going to raise prices, as we all know, 

of energy. Energy is an incredible source of the cost of production 

for the industry. In some cases, it’s eight times higher than it is 

for manufacturing. We are going to have to absorb these costs. Because we operate in world markets, it’s going to be very hard to 

pass these costs on. 

So, we are going to be put in a cost price squeeze. So, why should 

you care? 

Well, I think the reason why policymakers should care really involves two issues. One is that the industry is important, economically. Yes, we are small. But we are a source of high-wage employment. In 2006, energy-intensive manufacturers on average, paid 51 

percent more in compensation to our employees than the rest of the 

economy. 

Another reason we’re important is because we’re a large part, 

significant part, of the industrial base. We represented 20 percent 

of the U.S. manufacturing output in 2006. Another thing that is 

important is we’re a large source of productivity growth. Over the 

last 3 years, we generated about 10 percent productivity growth, 

versus 4.6 percent of the economy. So, we really do drive real 

wages, and that’s why we can pay more than other parts of the 

economy to our employees. 

The second issue to be concerned about is this whole question of 

environmental leakage, which has already been described. 

Now, we think you can devise a cap and trade program that will 

achieve emissions reductions, and at the same time avoid some of 

these adverse consequences. We think it should be designed around 

a couple of principles. Let me share them with you. 

First, you have to narrowly identify the eligible sectors for compensation under such a program. 

Second, you really want to neutralize for a time period, for a 

transition period, the cost of carbon that is incurred, both directly 

and indirectly, by these eligible sections. Directly, we produce emissions, we’re going to have to cover those emissions. We’re going to 

buy electricity, there is going to be an emission cost associated with 

electricity. 

Third, you need to neutralize the indirect costs of energy that the 

industry is going to absorb, and those need to be understood. There 

is going to be a lot of fuel switching, for example, to natural gas. 

That will drive up the price of natural gas. That will then affect 

the cost of manufacturing for companies that use it as a feed stock, 

or to power our furnaces. 

Fourth, the mechanism that you use should affect both imports 

and exports. Energy-intensive manufacturers export—we account 

for about 13 percent of U.S. exports. We have manufacturing facilities in the United States that export 100 percent of their output. 

I want to emphasize that compensation systems don’t have to be 

free allowances. They can be in the form of tax rebates, or in the 

form of some assistance for health care costs, et cetera. But those 

kinds of systems, if designed properly, can avoid the problems 

we’re talking about, and they can be useful, in terms of addressing 


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1See Corning Press Release citing the Manufacturers of Emission Control Association 

(‘‘MECA’’) (February 15, 2005), ‘‘<http://www.corning.com/environmentaltechnologies/mediacenter/press-releases/2005021501.aspx>. 2See Figure 1, p. 4, and Annual Survey of Manufacturers: General Statistics: Statistics for 

Industry Groups and Industries, U.S. Census Bureau, 2006. 

the competitiveness problem as it relates to both exports and imports. I want to emphasize that point. 

Now, if you can’t develop such a system of compensation, because 

there are all kinds of competing needs—then you need to go to border adjustment. If you go to border adjustment, we would strongly 

recommend that you try to minimize your WTO risk of challenge, 

but don’t let it become a block. 

Finally, while we understand that all this will be temporary, we 

would caution against premature termination. 

We want to do our part. We are an environmental company. 

We’re not afraid to do our part. But we want to help design a system that is going to deal with these unintended consequences, and 

we want to work with you to do that. Thank you very much. 

[The prepared statement of Mr. Regan follows:] 

Prepared Statement of Timothy J. Regan, 

Senior Vice President, Corning Incorporated 

I. Introduction 

Mr. Chairman, it is an honor to appear before you today to speak to you about 

the critical issue of climate change and the policy options for addressing it. 

I am a Senior Vice President with Corning Incorporated, a manufacturer of critical glass and ceramic components used in a variety of high-tech products ranging 

from fiber optic telecommunications systems to environmental control systems and 

liquid crystal displays (‘‘LCDs’’) for computer and consumer electronics. We are 

headquartered in Corning, New York, and have facilities in 12 other States. 

While we have been manufacturing in the United States for over 157 years, we 

are very much a high-tech company that consistently spends at least 10% of our revenue on research, development, and engineering. Corning is a four-time winner of 

the President’s Medal of Technology for our inventions like fiber optics. 

I am here today to discuss the climate change issue for two reasons. First, we are 

an environmental technology company. We invented the ceramic substrate material 

that is critical to the operation of catalytic converters and devices that reduce emissions from diesel engines. Since it was first put into use in 1975, our technology has 

removed over 1.5 billion tons of pollution from American skies and 3 billion tons 

worldwide.1

Second, we are a significant consumer of energy in the forms of electricity and 

natural gas. As such, we will be significantly affected by climate change legislation 

that increases the cost of energy from both sources. For example, Census data shows 

that energy constitutes 17 percent of the value of shipments for flat glass, which 

is over eight times the average proportion for manufacturing generally in the United 

States.2 Fundamentally, we are in the business of melting silica and other compounds and curing ceramic, all of which use enormous amounts of energy. 

I am not here today to endorse a specific proposal to address the climate change 

problem. Rather, I am here to help you assess the impact of a cap and trade system 

on energy-intensive manufacturing and to suggest some principles that you might 

use in a cap and trade program. I believe the debate on cap and trade is still in 

a formative stage, and I commend the Committee for sponsoring this inquiry to examine the policy options for moving forward. 

Energy-intensive manufacturing is particularly vulnerable in a cap and trade system because: 

• such a system will necessarily increase the cost of energy as it will create a new 

cost of carbon that must be absorbed by manufacturers directly and indirectly 

as it is passed downstream to them by their energy suppliers; 

• energy constitutes a large portion of the cost of production for energy-intensive 

manufacturing like glass, steel, ceramics, and chemicals; and 


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3For the purpose of the analysis contained in this testimony, I will use a definition of energyintensive manufacturing that is included in most of the major proposals to date. These include 

glass, ceramics, iron, steel, pulp, paper, cement, rubber, chemicals, and aluminum and other 

nonferrous metals. Appendix A identifies the specific industrial codes used by Census to track 

these industries. 

• the competition in energy-intensive manufacturing is global in nature making 

it difficult to pass through the increased cost of energy downstream to end 

users. 

With respect to global competition, I would like to emphasize that energy-intensive manufacturing firms face competition in both import and export markets. Unfortunately, the debate so far has focused on imports. The impact on exports has 

been largely ignored. Corning and many other energy-intensive manufacturers are 

significant exporters. 

I believe that the policy challenge is to construct a cap and trade system that can 

effectively reduce carbon emissions without causing job loss in high-wage manufacturing or ‘‘environmental’’ leakage. Such leakage occurs when production shifts from 

the United States, where emissions are regulated and energy costs are high, to 

countries where emissions are not regulated and energy costs are low. This outcome 

is undesirable because it would result in the loss of high-wage manufacturing jobs 

and merely shift the geographic source of emissions, not reduce them. 

Let me assure the Committee that we are willing to do our part to help solve the 

climate change problem as the United States leads the world in adopting effective 

measures to reduce greenhouse gases. But, we believe that special measures should 

be incorporated into any U.S. cap and trade program to address the unintended consequences of job loss in energy-intensive manufacturing and environmental leakage 

that could occur unless and until our trading partners implement a comparable system of regulation to reduce greenhouse gases. Fortunately, a consensus is beginning 

to evolve on the need for these special measures. 

II. Energy-Intensive Manufacturing Poses a Unique Challenge 

Energy-intensive manufacturing needs special attention in a cap and trade program for three reasons. First, it is a critically important segment of the U.S. economy. Second, this sector is particularly vulnerable to an increase in energy cost driven by a cap and trade system. And third, failure to address special challenges of 

energy-intensive manufacturing will lead to the loss of high-wage jobs and environmental leakage. 

Energy-intensive manufacturing 3 is critical to the economy because it is a source 

of high-wage jobs, it represents a large portion of the U.S. manufacturing base, and 

it is a major source of productivity growth. 

Energy-intensive manufacturing generates high-wage employment that is substantially higher than the norm. As indicated in Table 1 below, energy-intensive 

manufacturers provided their employees with average wages and benefits at $78,609 

for 2006. This is a full 51% higher than the U.S. overall average of $51,934 and 

16% higher than the average for U.S. manufacturing generally at $67,545. Adopting 

measures in a cap and trade system to assist energy-intensive manufacturers will 

help protect these high-wage jobs. 

Table 1 

Relative Average Annual Compensation for 2004–2006 

[millions of current dollars] 

2004 2005 2006 

Overall U.S. Average $47,885 $49,818 $51,934 

All U.S. Manufacturing Average $62,682 $64,869 $67,545 

Energy-Intensive Manufacturing Weighted Average $73,053 $76,595 $78,609 

Sources: U.S. Department of Commerce, U.S. Census Bureau, Annual Survey of Manufactures, Statistics for 

Industry Groups and Industries, 2004–06. U.S. Manufacturing Total: U.S. Department of Commerce, Bureau of 

Economic Analysis (BEA), Annual Industry Accounts, Gross Domestic Product (GDP) by Industry, 2004–06. 

Energy-intensive manufacturing is also critical to the economy because it represents a large portion of the American manufacturing base. As indicated in Table 

2 below, the value added by energy-intensive manufacturing to the economy in 2006 

represents 20% of the value added by all U.S. manufacturing. So including measVerDate Nov 24 2008 14:33 Mar 17, 2011 Jkt 062201 PO 00000 Frm 00077 Fmt 6633 Sfmt 6621 I:\WAYS\OUT\62201.XXX APPS06 PsN: 62201

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ures in a cap and trade program to address the challenges of energy-intensive manufacturing will help secure a large portion of the American manufacturing base and 

the high-wage jobs associated with it. 

Table 2 

Relative Industry Value—Added (GDP component) for 2004–2006 

[millions of current dollars] 

2004 2005 2006 

All U.S. Manufacturing $2,090,063 $2,167,245 $2,324,545 

Energy-Intensive Manufacturing $397,112 $433,449 $464,909 

Energy-Intensive Manufacturing Share 19% 20% 20% 

Sources: U.S. Department of Commerce, U.S. Census Bureau, Annual Survey of Manufactures, Statistics for 

Industry Groups and Industries, 2004–06. U.S. Manufacturing Total: U.S. Department of Commerce, Bureau of 

Economic Analysis (BEA), Annual Industry Accounts, Gross Domestic Product (GDP) by Industry, 2004–06. 

Finally, energy-intensive manufacturing is critical to the economy because it is an 

important source of productivity growth. Such growth is important because it drives 

growth in real wages. Table 3 reflects the average value added per employee for energy-intensive manufacturing relative to the rest of the economy and to manufacturing in general. The change in value added per employee is a good measurement 

of relative productivity growth. 

Table 3 

Relative Average Productivity (value added per employee) for 2004–2006 

[current dollars] 

2004 2005 2006 

Overall U.S. Average $83,989 $88,037 $91,922 

All Manufacturing Average $152,413 $167,936 $177,485 

Energy-Intensive Manufacturing Weight Average $325,304 $362,811 $393,550 

Sources: U.S. Department of Commerce, U.S. Census Bureau, Annual Survey of Manufactures, Statistics for 

Industry Groups and Industries, 2004–06. U.S. Manufacturing Total: U.S. Department of Commerce, Bureau of 

Economic Analysis (BEA), Annual Industry Accounts, Gross Domestic Product (GDP) by Industry, 2004–06. 

These data show that productivity growth in energy-intensive manufacturing at 

10% far exceeds that of the economy overall at 4.6% and all manufacturing at 7.9%. 

In other words, productivity growth in energy-intensive manufacturing is over twice 

that of the economy overall. So including measures in a cap and trade program to 

address the problems of energy-intensive manufacturers will help maintain a primary source of productivity growth in the economy. 

In addition to being critical to the overall economy, energy-intensive manufacturing is also very vulnerable to the effects of a cap and trade program. I describe 

below how such a program will likely increase both the direct and indirect costs for 

energy-intensive manufacturing. There are many paths through which these costs 

increases will be channeled. 

Unfortunately, energy-intensive manufacturers are very vulnerable to these cost 

increases for two reasons. First, energy is a significant portion of their cost of production, a proportion greater than that of most sectors of the economy. Second, because energy-intensive manufacturers face global competition, they will encounter 

difficulty passing on these increased costs downstream to their customers. 

Figure 1 demonstrates graphically the significance of energy costs for energy-intensive manufacturers. On average, such costs represent 5% of the value of shipments of energy-intensive manufacturers. This is over twice that of other manufacturing at 2%. In certain sectors, the difference is even more significant. For example, in the glass sector, energy represents 17% of the value of shipments for flat 

glass manufacturing, 15% for glass container manufacturing, and 12% for other 

glassware manufacturing. 


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Source: Census Data Annual Survey of Manufactures: General Statistics: Statistics for Industry Groups and Industries; 2006 U.S. Census Bureau. 

Clearly, the cost of production for energy-intensive manufacturers will increase 

significantly by any increase in energy cost that is driven by a cap and trade program. 

These increased costs cannot be easily passed on by energy-intensive manufacturers downstream to their customers because they face competition in both export and 

import markets. As indicated in Table 4, energy-intensive manufacturers depend 

heavily on export markets. A full 11% of their output was exported in 2006, a level 

which is twice that for the economy overall. Some of Corning’s facilities export nearly 100% of their output. And energy-intensive manufacturers face import competition with imports accounting for 19% of consumption overall. Import competition is 

most apparent in the primary metals sector at 30% of consumption. 

Table 4 

Export Intensity and Import Share of 

Energy-Intensive Manufacturing for 2006 

Export Intensity 

(exports as a % of 

output) 

Import Share 

(imports as a % of 

consumption) 

Nonmetallic Mineral Products 5% 16% 

Primary Metals 10% 30% 

Paper Products 9% 15% 

Petroleum and Coal Products 6% 13% 

Plastic and Rubber Products 17% 24% 

Chemical Products 9% 15% 

All Energy-Intensive Manufacturing 11% 19% 

Source: U.S. Department of Commerce, Bureau of Economic Analysis (BEA), Annual Industry Accounts, Annual Input-Output (I–O) Accounts, Summary Make and Use Annual I–O Tables, 2006. 

* Note: Total consumption = Intermediate consumption + personal consumption. 

Fortunately, a consensus is evolving on the need to address the special needs of 

energy-intensive manufacturing in the context of a cap and trade program. Policymakers are beginning to recognize: (1) that energy-intensive manufacturing is critical to the economy because it generates high-wage jobs, and (2) that it is vulnerable 

to an increase in the cost of energy driven by a cap and trade system. They are concerned that this vulnerability will force environment leakage, a production shift 

from the United States, where carbon is regulated and energy costs are high, to 


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4Lieberman-Warner (S. 2191), Boxer Substitute (S. 3036), Investing in Climate Action and 

Protection Act (Markey H.R. 6186) and Climate MATTERS (Dogget H.R. 6316) all contain provision for transition assistance for energy-intensive manufacturing. 5Testimony of David D. Doniger, Climate Center Policy Director, Natural Resources Defense 

Council, February 28, 2008, before the Committee on Energy and Commerce Subcommittee on 

Energy and Air Quality, p. 11. 6Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission allowance trading system of the Community, Brussels, 23.1.2008 COM(2008) 16 final, 2008/0013 

(COD), p. 16. 

other geographic regions where carbon is not regulated and energy costs are low. 

Such a shift would hurt the economy without improving the environment. 

As a result, many proposals to date include special provisions to partially and 

temporarily compensate energy-intensive manufacturers for the significant cost that 

they must absorb under a cap and trade program. These proposals also include temporary border measures to assess the cost of carbon on imports of energy-intensive 

products from countries that do not have programs to effectively regulate carbon 

emissions. Generally, the industries affected by these compensation and border adjustment mechanisms include glass, ceramics, iron, steel, pulp, paper, cement, rubber, chemicals, and aluminum and other nonferrous metals.4

Some of our friends in the environmental community have expressed support for 

these proposals. They are appropriately concerned about the environmental leakage 

and job loss in energy-intensive manufacturing that could occur under a cap and 

trade system. And, they have expressed support for giving energy-intensive manufacturing facilities some direct compensation in the form of ‘‘free allowances’’ and 

for border adjustment measures provided that both are temporary, limited, and used 

as a tool to encourage other countries to adopt ‘‘comparable action’’ to control greenhouse gas emissions.5

The international community also recognizes the special needs of energy-intensive 

manufacturing. In its reform proposal, the European Commission notes that, although auctions are the most efficient method for allocating allowances, it remains 

concerned about carbon leakage. In the event that a global agreement to control 

greenhouse gas emissions cannot be reached, the Commission recommends that energy intensive manufacturers subject to global competition receive up to 100 percent 

of allocations for free to avoid job loss and carbon leakage.6

III. Cost Impact of Energy-Intensive Manufacturing 

To design a mechanism to avoid leakage and economic dislocation in energy-intensive manufacturing, one must first understand how a cap and trade program will 

likely impact the cost of manufacturing. For the purposes of this discussion, I will 

assume that a cap and trade system will be established that reduces greenhouse gas 

emissions by 60% to 80% from 1990 levels by the year 2050. 

Such a system will require firms that emit greenhouse gases, mostly CO2, to redeem an allowance for every ‘‘carbon equivalent ton’’ of emissions. The administrator of the program will issue these allowances annually by declining volumes over 

time so as to force a reduction in emissions slowly to the targeted level in 2050. 

A portion of these allowances will be made available to some facilities at no cost, 

but the free allowances will not be sufficient to accommodate all of the needs of all 

facilities. There will be a shortfall that must be accommodated by purchasing emission allowances in an auction market. The market will set the price of carbon emissions. 

Achieving a 60% to 80% reduction below 1990 levels will have a significant impact 

on energy-intensive manufacturers because it will require that they absorb both direct and indirect costs associated with the cap and trade program. Direct costs will 

arise from the purchase of allowances to cover emissions that a manufacturer produces directly from its own processes (e.g., in Corning’s case burning natural gas 

to melt silica). This is called the direct cost of carbon. Direct costs will also arise 

from investment in new technology to increase fuel efficiency. These direct costs can 

be easily identified. 

The indirect costs that an energy-intensive manufacturer must absorb under a cap 

and trade system are derived from the increased cost of electricity and other energy 

sources that are driven by the cap and trade system. These indirect costs will be 

driven by four factors: 

• the cost associated with allowances that energy suppliers (i.e., electricity, natural gas, and fuel oil) will have to purchase in the auction market (i.e., the indirect cost of carbon); 


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• the cost associated with ‘‘fuel switching’’ by electricity suppliers (i.e., the purchase of higher-cost, lower-carbon fuels like natural gas); 

• the cost associated with investment by electricity suppliers in new technology 

like carbon capture and sequestration and renewable sources; and 

• the rising cost of natural gas driven from fuel switching upstream that energyintensive manufacturers must absorb to maintain their own operations. 

These indirect costs are more difficult to identify. 

I share this detail for the purpose of demonstrating the myriad ways in which energy-intensive manufacturers can be affected by a cap and trade system. A mechanism that can effectively contain leakage and prevent economic dislocation for energy-intensive manufacturers should neutralize these direct and indirect costs. Most 

proposals that have been introduced to date focus solely on the direct and indirect 

cost of carbon, that is, the cost of allowances to cover CO2 emissions by the manufacturer and its energy suppliers. They do not address all of the other indirect costs 

noted above. 

IV. Design Principles 

I do not have a specific proposal to share with the Committee on how to address 

the leakage problem or the challenges that a cap and trade system will likely create 

for energy-intensive manufacturers. Rather, I would like to present some design 

principles that the Committee might consider in developing a mechanism for incorporation into a cap and trade system to address the leakage problem and the challenges of energy-intensive manufacturers. I suggest that you consider seven design 

principles. 

First, the mechanism should clearly identify the types of manufacturing facilities 

or product categories that will be eligible for compensation under a cap and trade 

system. Specifying industry sectors in the legislative language would certainly be 

desirable for planning purposes. This has been done in many proposals to date. Generally speaking, the proposals have identified glass, ceramics, iron, steel, pulp, 

paper, cement, rubber, chemicals, and aluminum and other nonferrous metals. The 

legislative language should also include a set of criteria that the administrator could 

use to add new sectors and product categories. 

Second, the mechanism should neutralize the cost of carbon for eligible energyintensive manufacturing facilities. This can be done by allocating enough free allowances to each eligible facility to cover all of its direct emissions (i.e., the direct cost 

of carbon), plus enough to cover the net allowance cost of their electricity supplier 

(i.e., the indirect cost of carbon). The net allowance cost is the difference between 

the allowances that the electricity supplier must redeem to cover its direct emissions 

and the free allowances that it is granted by the administrator of the program. If 

electricity suppliers do not get enough free allowances, they will have to purchase 

them on the auction market and pass the cost on to their manufacturing customers. 

Calculating the cost of carbon is not difficult for well-managed firms. 

Most proposals to date use free allowances to partially compensate energy-intensive manufacturers for the direct and indirect cost of carbon. But this can also be 

done through a tax rebate or credit mechanism. Under such a program, manufacturers would receive a tax rebate or credit large enough to offset the cost of carbon 

that is inherent in every unit of output. It can be designed to have about the same 

impact as a system of free allowances, but may be easier to administer and may 

generate more predictable results. 

Third, the mechanism should neutralize the noncarbon indirect costs for eligible 

energy-intensive manufacturing facilities. These costs would involve the noncarbon 

costs that are passed on to the manufacturer by its energy suppliers. These noncarbon costs include the cost of fuel switching to natural gas by electricity suppliers, 

as described above, and the cost of investment in new technology incurred by the 

electricity suppliers to reduce their carbon footprint. This would also include the increased cost of natural gas to the manufacturer that arises from fuel switching. Admittedly, identifying these costs will be difficult, but they could be significant and, 

therefore, should be accommodated to the maximum extent possible in order to fully 

address the leakage and competitiveness problems. 

Fourth, such a mechanism should address the competitiveness issue as it relates 

to both imports and exports. The debate so far has focused almost exclusively on 

imports. But energy-intensive manufacturers are significant exporters. In fact, energy-intensive manufacturing accounts for 14% of all U.S. exports. It is unwise to 


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7See Economic Report of the President, Chapter 3, The Causes and Consequences of Export 

Growth, February 2008, p. 79. 8See Testimony of Michael G. Morris, Chairman, President, and Chief Executive Officer, 

American Electric Power Before the House Energy and Commerce Subcommittee on Energy and 

Air Quality and attached WTO opinion of Sidley Austin LLP, February 28, 2008. 

put these exports in jeopardy especially in light of the fact that the U.S. economy 

is relying on exports to generate more than one-third of our economic growth.7

Every effort should be made to provide compensation to energy-intensive manufacturers through free allowances or tax rebates to neutralize the direct cost and 

indirect cost associated with the cap and trade program. It is the most efficient way 

to address the leakage and competitiveness problems in the context of a cap and 

trade system. If compensation is adequate, it will prevent leakage and job loss in 

energy-intensive manufacturing. Importantly, it addresses the problems as they relate to both competition from imports and competition in export markets. It should 

be noted, however, that competing demands for free allowances have made it very 

difficult to fully compensate energy-intensive manufacturers for the direct and indirect costs associated with cap and trade system. If full compensation is not possible, 

effective border adjustment measures will be necessary. 

Sixth, if border adjustment measures are adopted, the mechanism should minimize the risk of the WTO challenge, but the risk of challenge should not block action. Experts have testified before Congress that a WTO-compliance border adjustment measurement can be developed.8 I will defer to the legal experts on this question. But if there is any doubt, I suggest that the Committee direct U.S. negotiators 

to negotiate arrangements now in the Doha Round to remove such doubt. 

Finally, the mechanism of compensation or border measures to address the challenges facing energy-intensive manufacturers should not be prematurely terminated. 

The mechanism will be temporary pending adoption by our trading partners of comparable measures to regulate greenhouse gases. But those measures should be 

adopted and implemented before the mechanism is terminated. Premature termination could generate high-wage job loss and promote leakage. 

V. Conclusion 

Energy-intensive manufacturers are particularly vulnerable to an increase in energy costs that will no doubt arise from the implementation of a cap and trade program. This is due to the fact that energy accounts for a large portion of their cost 

of production, and these manufacturers will encounter difficulty passing these increased costs on to their customers because energy-intensive manufacturing faces 

competition in both export and import markets. 

A cap and trade program should address the special challenges it creates for energy-intensive manufacturers for two reasons. First, they are an important source 

of high-wage employment and economic growth. Second, production adjustments 

that may result from a cap and trade program could result in the loss of high-wage 

jobs and environmental leakage. A production shift from the U.S. market, where 

carbon is regulated and energy costs are high, to another region where carbon is 

not regulated and energy costs are low, is neither in our economic interest nor in 

our environmental interest. Indeed, it will hurt the economy without improving the 

environment. 

Fortunately, a consensus is evolving on the need to include mechanisms in a cap 

and trade program to address the special needs of energy-intensive manufacturing 

to avoid high-wage job loss and leakage. These measures should neutralize the increased direct and indirect costs imposed on energy-intensive manufacturers by a 

cap and trade program. A compensation system of free allowances or tax rebates can 

most efficiently offset these increased costs. If sufficient compensation is not possible, border measures that minimize the risk of a WTO challenge can be implemented. But these measures should not be terminated until our trading partners 

implement comparable measures to regulate greenhouse gases. 

Mr. Chairman, thank you for the opportunity to appear before you. 


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APPENDIX 

Table 1: Energy-Intensive Industries 

Industry Products 

NAICS 

Code 

Glass Flat glass manufacturing 

Other pressed and blown glass and glassware 

manufacturing 

Glass container manufacturing 

327211 

327212 

327213 

Aluminum Alumina refining 

Primary aluminum production 

Secondary smelting and alloying of aluminum 

331311 

331312 

331314 

Pulp, Paper, and Paperboard Pulp Mill Products 322110 

Mills Paper Mills 

Paperboard Mill Products 

322121 

322130 

Iron, Steel, & Ferroalloy Mills Iron and steel mills and ferroalloy manufacturing 331111 

Cement Cement manufacturing 

Ready-mix concrete manufacturing 

327310 

327320 

Industrial Ceramics Industrial Ceramics 327113 

Chemicals Chemicals 325

Other Nonferrous Metals Copper and other nonferrous metal manufacturing 33141

Sources: Boxer Amendment S. 3036; U.S. Department of Commerce, U.S. Census Bureau, Annual Survey of 

Manufactures, Statistics for Industry Groups and Industries, 2004–06. 

f 

Chairman RANGEL. The House soon will be taking votes, but we 

will have the opportunity to listen to our last witness, and then 

may have to take close to a half-hour break. I will just advise you 

of that. 

But Clyde Hufbauer—is it Clyde or Gary? 

Mr. HUFBAUER. Gary. 

Chairman RANGEL. Gary Hufbauer is going to share his views 

with us. He is an expert in taxes and trade, and has done a lot of 

work in this area, lectured and authored. We are so glad that you 

are able to share those views with us. Thank you. 

STATEMENT OF GARY CLYDE HUFBAUER, REGINALD JONES 

SENIOR FELLOW, PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS 

Mr. HUFBAUER. Thanks very much, Mr. Chairman, and Members of the Committee. I am delighted that this Committee will be 

asserting its jurisdiction, because it has as its core concern, as you 

noted, the WTO and international trade rules, and I do not think 

that’s an area that should be consigned to the States. 

Second, the revenue implications are very large, as Peter Orszag 

and many others have noted. I think permits are the same as revenue, and they shouldn’t just go out the door without the surveillance of this Committee. So, I applaud the initiative. 

My institute, the Peterson Institute for International Economics, 

and the World Resources Institute are conducting major research 

in this whole area, and we have published one book, another one 

is coming along, and others will follow. 


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As you have noted, the proposals that are before the Congress 

embody two main approaches: carbon taxes and cap and trade. But 

there are also performance standards in the discussion. All of these 

have their advantages and disadvantages. But the bottom line is 

that any of these approaches, if serious, will impose very heavy 

costs on U.S. economy, and those costs will be highly concentrated 

on a few industries, as Mr. Regan and Mr. Lighthizer have noted. 

So, this has given rise to the competitiveness concerns which 

have already been mentioned. These competitiveness concerns 

have, really, two dimensions: one, immediate impact on particular 

industries; and second, trying to do something to give an incentive 

to countries like China and India to step up to the plate. The bills 

before Congress have both concerns in mind. The logic of some kind 

of international dimension to the bills is, therefore, quite clear. 

I have appended a table to my testimony which shows where the 

carbon intensive manufacturers are coming from, on the import 

side. Not to go into any detail, but you will note that most of our 

carbon-intensive imports come from OECD countries which, on average, as Mayor Bloomberg has noted, are cleaner, according to 

various indices and scores, than the United States. 

So, we shouldn’t think that carbon-intensive goods are all coming 

from China or India, because they are not. The statistics are clear. 

The problem of doing things at the border and pressuring other 

countries along the lines that Mr. Regan mentioned is that anything we do to other countries they can do to us. We could be big 

losers. Importantly, the world trading system, which has been a 

major source of economic growth in this country and the world 

since the second world war, would be at risk. 

I think it’s appropriate to remember, in this week particularly, 

that Wall Street crashed first in the Great Depression, but SmootHawley came second. A round of trade restrictions in the name of 

climate change could be the Smoot-Hawley of our times, or the potential Smoot-Hawley. 

Now, turning to the WTO rules as they presently exist, I would 

offer three head notes. One, they were written long ago. They were 

written in a period when climate change was on nobody’s mind. 

Second, there have only been very few cases—and we summarize 

them in our forthcoming book—only about six or eight cases which 

have had anything to do with this issue. The decisions leave a lot 

of room for questions to be decided. So, the jurisprudence is very 

scarce. 

With that in mind, our recommendation is for U.S. legislation, or 

the legislation of other major countries, to provide a pause before 

border measures are imposed, a pause for a short period of time, 

3 or 4 years, to try to negotiate a new WTO code that outlines what 

is permissible, what is not. 

Thank you very much, Mr. Chairman. 

[The prepared statement of Mr. Hufbauer follows:] 

Prepared Statement of Gary Clyde Hufbauer, Reginald Jones Senior 

Fellow, Peterson Institute for International Economics 

Mr. Chairman and Members of the Committee, thank you for inviting me to testify. My name is Gary Hufbauer and I am a Senior Fellow at the Peterson Institute 

for International Economics. In May 2008, the Peterson Institute and the World Resources Institute jointly published a book titled ‘‘Leveling the Carbon Playing Field.’’ 


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1 Houser, Trevor, Rob Bradley, Britt Childs, Jacob Werksman, and Robert Heilmayr. 2008. 

Leveling the Carbon Playing Field: International Competition and U.S. Climate Policy Design. Washington: Peterson Institute for International Economics and World Resources Institute. 2 Charnovitz, Steve, Gary Clyde Hufbauer and Jisun Kim. 2008 (forthcoming). Reconciling 

GHG Limits with the Global Trading System. Washington: Peterson Institute for International 

Economics. 

The book analyzes the intersection between greenhouse gas (GHG) emissions, competitiveness, and international trade.1 Currently, my colleagues and I are writing 

a monograph titled ‘‘Reconciling GHG Limits with the Global Trading System,’’ 

which focuses on U.S. climate policy options and their consistency with the WTO.2

This testimony reflects findings from both works. 

Major Concerns With U.S. Climate Change Legislation 

Facing rising domestic and international pressures, several GHG control bills 

have been introduced in the 110th Congress. The proposals embody two main approaches, namely carbon taxes and cap and trade systems. Performance standards 

are a secondary feature of some proposals. Each system has its own mix of advantages and disadvantages. However, whether the limits take the form of a carbon tax, 

a cap and trade system, performance standards, or some other method, it must be 

emphasized that serious GHG controls will impose heavy costs on the U.S. economy, 

and the costs will be concentrated on a short list of GHG-intensive industries and 

activities. The prospect of heavy costs has raised concerns about the competitive position of U.S. producers and the ‘‘leakage’’ of production and jobs to foreign firms. 

In the absence of parallel international commitments, U.S. measures might shift 

manufacturing activity to China and India, among other countries that do not limit 

GHG emissions. In the end, U.S. controls might make no difference to climate 

change if emissions activity simply migrates abroad. To address these concerns, U.S. 

legislators have drafted special provisions in their GHG control bills such as free 

allocation of allowances, special exemptions, and border adjustments that would affect both U.S. exports to and imports from countries which do not have comparable 

climate policies. 

Questionable Effectiveness of Trade Measures 

Trade-related rules, such as an emissions allowance requirement imposed on foreign producers at the U.S. border, have gained political support, both because they 

address the competitiveness issue and because they arguably create incentives for 

other countries to join in combating global warming. The logic of this approach is 

clear. However, it is questionable whether trade measures will achieve the goals 

sought. Indeed, it is quite possible that trade measures, if imposed by several major 

countries, will adversely affect the United States. 

The United States imports carbon-intensive goods largely from Canada and the 

European Union—countries that emit less CO2 than the United States. China and 

India, the primary targets of U.S. trade measures, are not large suppliers of carbonintensive exports to the United States. In 2005, China accounted for less than 10 

percent of U.S. carbon-intensive imports except cement: 7 percent of steel imports; 

3 percent of aluminum imports; 4 percent of paper imports; and 14 percent of cement imports (Houser et al., 2008, pp. 44–45). Also, while China accounted for 32 

percent of global steel production, it exported only 8 percent of steel produced in 

2005, and less than 1 percent was sold to the U.S. market (Houser et al., 2008, p. 

54). 

These statistics imply two things. First, trade measures may not provide intended 

economic relief to domestic industries affected adversely by U.S. climate change policy because U.S. firms are competing mostly with ‘‘cleaner’’ countries; and second, 

that U.S. trade measures may not create substantial leverage to shape climate 

change policies of other countries—particularly China and India. 

In proposed U.S. legislation, trade measures are generally imposed on imports unless the trading partner enacts domestic climate policy ‘‘comparable’’ to the U.S. policy. As the trade data mentioned above shows, the largest foreign suppliers to the 

United States of carbon-intensive goods are countries like Canada and the European 

Union, and these countries emit considerably less carbon than the United States either on a national basis or a per capita basis. Moreover, the European Union has 

already enacted more stringent GHG measures than the United States, and Canada 

may soon do the same. ‘‘Comparability’’ tests imposed by the United States could 

be turned around by other countries—starting with the European Union—to implement similar measures against imports from the United States. This sort of escalation would damage U.S. industries in the global market. 

Moreover, a round of global trade restrictions, enacted in the name of climate 

change, would interrupt the agenda of trade liberalization which has proven enorVerDate Nov 24 2008 14:33 Mar 17, 2011 Jkt 062201 PO 00000 Frm 00085 Fmt 6633 Sfmt 6621 I:\WAYS\OUT\62201.XXX APPS06 PsN: 62201

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mously successful in boosting world economic growth since the Second World War. 

The damage to the world economy would be severe. Recall that trade barriers were 

a hallmark of the Great Depression. Wall Street collapsed first; Smoot-Hawley was 

passed second. 

Trade Measures and the WTO 

While the WTO allows member countries great flexibility in adopting environmental standards within their territories, the same discretion does not apply in 

their trading relations with other countries. Accordingly, trade barriers have the potential to conflict with WTO rules. In light of economic history, WTO rules that limit 

national actions should be counted as a blessing. 

To be specific, when GHG trade measures are mixed with mechanisms designed 

to alleviate the burden of emission controls on domestic firms, the possibility arises 

of a collision with WTO rules. The table appended to my testimony provides a quick 

view as to which U.S. climate policy options with respect to imports might be justified under particular GATT articles. If the United States enacts its own unique 

brand of import bans, border taxes, and comparability mechanisms—hoping that 

measures which violate GATT Articles I, III and XI will be saved by the exceptions 

of GATT Article XX—the probable consequence will be a drawn-out period of trade 

skirmishes, possibly escalating to trade wars. 

One way to determine whether such trade measures in support of GHG emission 

controls are compatible with WTO agreements is to let the dispute settlement process run its course. In the end, a record of decided cases will define the contours of 

WTO obligations. However, given the complications and sensitivity of GHG controls, 

the Appellate Body is unlikely to produce clear guidelines for several years. Moreover, consigning these decisions to a panel of jurists would put tremendous stress 

on the WTO system, which is already under siege. 

Recommendation 

A central issue in designing U.S. climate change policy is how to level the playing 

field internationally. Given uncertainties in their effectiveness and possible conflicts 

with WTO rules, trade measures may not offer the best approach. Given the fact 

that large emitting countries—notably China and India—are also under domestic 

and international pressures, the United States might better address competitiveness 

concerns by actively engaging in international negotiations. Two forums for international engagement are relevant: Copenhagen and WTO. 

At upcoming negotiations in Copenhagen, to be concluded in December 2009, a 

post-Kyoto regime is meant to be agreed. Importantly, both the United States and 

China—which are not only the largest sources of GHG emissions, but the cause of 

great concern over the outcome of climate negotiations—are expected to join the 

international regime. While the post-Kyoto compact may not reach agreement on 

uniform international standards, engagement of the United States and China will 

build significant momentum which could draw stronger commitments from India 

and other developing countries. In this way, the United States may partly address 

its own competitiveness concerns. 

While the post-Kyoto regime will probably announce new ambitious targets for reducing GHG emissions, and commit both developing and developed countries to take 

action, national governments will likely be left to their own methods for meeting 

targets. Under this scenario, conflicts due to difference in climate change policies 

are all but certain. Consequently, many cases might be brought to the WTO. Rather 

than consign the crucial decisions to the WTO judicial system, in my judgment, key 

WTO members should attempt to write a new WTO Code of Good Practice on GHG 

rules. The idea is to define more sharply the policy space for climate control measures that are consistent with core WTO principles, even if a technical violation of 

WTO law might occur. To encourage WTO negotiating efforts along these lines, the 

United States and other important emitting countries should adopt time-limited 

‘‘peace clauses’’ into their own climate legislation. The ‘‘peace clause’’ would suspend 

the application of border measures or other extra-territorial controls for a defined 

period of time (say 3 years) while WTO negotiations are underway. 

Thank you, Mr. Chairman. I will be happy to answer questions. 


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Chairman RANGEL. Those bells mean that the Members here 

will have 15 minutes to vote on the previous question. Then, after 

that, we will have a vote on the rule which will follow in 5 minutes, 

which means that there would be a total of at least 20 minutes 

that we will be absent. 

But, since we do have some time—the Capitol, as you well know, 

is 5 minutes walking—perhaps I will yield my time as Chair to my 

distinguished Mayor to ask, how do you respond to the question 

that moving in the direction that some of us think is right, and you 

do, that it could be the destruction of our manufacturing base and 

the end of our jobs and economy as we know it? 

Mr. BLOOMBERG. Mr. Chairman, I am just fascinated by the 

focus on competitiveness based on price. I have always thought 

that any industry or any company that its business model says 

they’re going to be the low-price producers is doomed to failure. I 

think we have seen that repeatedly throughout the world. 

If you go to China, you will see the failed policy of being the lowcost producer. In the eastern part of China they have vacant factories, where all the business has moved west, because people in 

western China will work for less than they do in eastern China. 

Business is leaving China and going to Bangladesh and Vietnam 

and Sri Lanka, because people there will work for less. 

You will always find somebody working for less. If America’s 

competitiveness is going to be based on being the low-cost producer, 

because you have low-cost labor, or you have low-cost energy, it’s 

just a failed policy. This country has to compete on technology, it 

has to compete on having the best and the brightest. You will only 

get those people if we improve our environment, if we adopt new 

technologies, if we train our workforce. 

One of the great things about reducing pollution through cap and 

auction, or through a carbon tax, is you could use the money to do 

exactly that, to retrain our workforce so that we can be competitive 

down the road. I think, as one of the gentlemen pointed out, a lot 

of the European countries are much more energy efficient than we 

are, and they are able to compete with us when it comes to cost. 

The great strength of America is our workforce, and it is the regulations we have that ensure quality. You are seeing that, the big 

scandal in China, of this milk contamination. If you haven’t been 

reading about it, you should, because it’s devastating for the Chinese economy. They had the problems with lead in toys coming 

here, and cat food. That destroys their markets overseas. 

We have to go and address this issue, and improve the environment, and improve the quality of American products. If we do that, 

I think it’s good for business. I think there are plenty of examples 

of that. 

Nobody wants to go home and say to their constituents, ‘‘You’re 

going to have to pay more for something.’’ But if you explain to 

them that the value of that is that this country can become more 

competitive, rather than less, that the air they breathe is going to 

be better, then I think the public, the American public, is willing 

to listen to that. 

The time has come for this Committee, both sides of the aisle, 

to pull together and to say, ‘‘We cannot afford to sit around and 

spend another 4 years trying to negotiate with other countries 


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overseas. What we have to do is do it by—lead by example. Do it 

here first.’’ It’s tough enough a political lift for us. If you’re going 

to wait for the rest of the world, it’s just not going to get done. We 

are the big losers. Thank you for giving me the opportunity. 

Chairman RANGEL. Mr. Lighthizer, what do you have to say 

about that? 

Mr. LIGHTHIZER. Well, since we are a major presence in New 

York City, I have to be very careful. 

Mr. BLOOMBERG. That’s all right. 

Mr. LIGHTHIZER. Skadden Arps. I would say my argument is 

not that we shouldn’t do anything. But I think that it is wrong to 

think that you’re going to take the 3 or 4 or 5 or 6 or 7 million 

workers, some of whom are in steel mills, and you’re going to retrain them to design computer chips. 

Right now, they are making the best—taking steel as an example—they are making the best product in the world, they’re making 

the cheapest in the world. They are competing with the entire 

world, and they’re doing pretty well. But to come in there and say, 

‘‘Look, we’re going to add $70, $80, $90 a ton to your cost, and not 

add it to your competitors,’’ is, in my opinion, a serious mistake, 

and bad for the economy, and unfair to all of those people. 

What I’m saying is, fine, if your judgement is that it’s so important that we do this, that we clean up the environment—and it is 

important to do it—at least do it in a way that is sane and it is 

fair to basic manufacturing. I think you can do both, if you do it 

right. So, I’m not really disagreeing with the Mayor. 

All I am saying is it’s nice to talk about it all being information 

technology. It’s nice to talk about it all being financial services. It’s 

great. But in the real world, there are millions of people that are 

working very hard, doing a great job, and they shouldn’t be penalized because of this other objective. You can do it in a way that 

doesn’t penalize those people. 

Chairman RANGEL. Thank you. We are going to go to vote, and 

then, when we come back in approximately 20 minutes, I will yield 

to Mr. McCrery, and then the Members will have their time. 

I apologize for this interruption, but that’s what we’re here for, 

to vote. 

[Recess.] 

Chairman RANGEL. The Committee will resume. But I just 

want the panel to know that we have received nothing but accolades as to the quality of the testimony and the timeliness of the 

Congress making certain that we moved on this before we left. 

So, collectively, I want to thank you and yield to my friend, Jim 

McCrery. 

Mr. MCCRERY. Thank you, Mr. Chairman. I certainly share 

with those from whom you have heard giving accolades about the 

panel. Your testimony was excellent, and we look forward to continuing to work with you, as we go through this issue in the days 

to come. 

I was actually pleased that there was so much back and forth 

discussion about some of the things I mentioned in my opening 

statement, primarily the impact on the economy, the impact on jobs 

in this country, and particularly on those energy-intensive industries. I know that a couple of you—or several of you—in your writVerDate Nov 24 2008 14:33 Mar 17, 2011 Jkt 062201 PO 00000 Frm 00089 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\62201.XXX APPS06 PsN: 62201

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ten testimony, actually outlined some possible approaches to mitigating the adverse impacts on those industries. 

I just wonder if you might go over orally before the Committee, 

some of those possibilities, and tell us what traps there may be, if 

you will, in pursuing some of those possibilities, whether it’s WTO 

or tax policy, or whatever. Dr. Orszag, will you start? 

Mr. ORSZAG. Sure. My written testimony discusses two broad 

approaches. There are others. The first involves transitional assistance. 

So, for example, if you had a cap and trade program, handing out 

some of the permits to the affected sectors and firms, and in particular, and the important part, is tying that to what they do. So, 

saying, ‘‘You get these for free, but you must basically continue 

producing,’’ because without that tie, they’re—just giving them a 

permit won’t necessarily get what you want. 

The second broad approach involves border adjustments, which 

we have already heard some about, which would involve imposing 

some sort of requirement on imports that are coming in in those 

sectors to obtain a permit. On that latter point, there is a—there 

are issues involving our World Trade Organization obligations. 

Relevant to this Committee is that one line of defense involves 

articles two and three under the WTO, which speaks about a tax. 

So it would raise the issue of the degree to which a cap and trade 

is the same as a tax, another of which is applicable under article 

20. I think—my understanding, although there are lawyers here 

who can speak to it more professionally than I—is that that appears to be a more auspicious avenue for the border adjustment 

system that may be part of any cap and trade system. 

Mr. MCCRERY. Yes. Dr. Burtraw. 

Mr. BURTRAW. I would just like to add to that that I guess 

there is a third approach, which is some kind of performance 

standard. 

The problem with the border tax adjustment is that if we were 

using a tax in the U.S., it would make some sense under WTO. But 

if we’re using cap and trade in the U.S., then you have this problem of what is the adjustment that’s being made, how do you calibrate that? Is it to the value of emission allowances last year, or 

yesterday? This is a—these volatile prices in a market opens the 

door for litigation under the WTO. 

The approach I favor is the first one Dr. Orszag mentioned, 

which is free allocation of allowances. You heard me earlier speak 

strongly against free allocation. This is a different kind of free allocation that occurred under the SO2 program, where there was a 

one-time grandfathering of allowances. Instead, as Dr. Orszag emphasized, it would be an output-based allocation, and it would be 

updated on an annual basis, tied to value added and economic activity. 

So, if Corning continues to keep jobs on shore, then it would continue to earn a free allocation, and the level of that allocation 

would be benchmarked to best practice in the industry. That way, 

Corning has an incentive to continue to try to remove emissions in 

its production activities, but it would not be placed in unfair competition in either its import or export markets, because it wouldn’t 


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be having to pay for emission allowances, at least up to that level 

that is best practice in the industry. 

But this would have to be revisited on an ongoing basis. When 

that competition goes away, there should be a Federal agency 

charged with developing criteria to measure the level of foreign 

competition. When that competition goes away, this subsidy should 

go away. 

Mr. MCCRERY. Tim, what do you think about that approach? 

Mr. REGAN. I have no problem with it at all. You don’t want to 

create some sort of a windfall for manufacturers. You want to design something that’s going to secure their competitiveness in the 

United States. So, making some sort of a condition on maintaining 

your operation in the United States strikes me as quite legitimate. 

I also think that that approach of using those kinds of allowances 

would help on the export side, because we would be able to maintain our competitiveness without having to worry about some sort 

of an export subsidy to offset the cost of carbon. Expert subsides 

give to real serious WTO issues. 

So, you know, the idea of using allowances as we just described 

strikes me as a good way to deal with the export problem. 

Mr. MCCRERY. Thank you. Mr. Chairman, my time has expired. 

But thank you very much for your contributions. I would have 

liked to have gotten Mr. Lighthizer’s comments on the WTO problems, but somebody else may get to that. Thank you. 

Chairman RANGEL. The Chairman would like to recognize the 

Chairman of the Subcommittee on Trade, whose expertise we’re 

going to rely on to see how this affects our ability to be competitive. 

Mr. LEVIN. Thank you so much, Mr. Chairman, and thank you, 

all of you, for coming. 

You know, as I listened to your testimony, it struck me that 

there remains a basic issue that we have to resolve, and I hope we 

do that in the coming months, and that is the basic question of 

whether global warming presents a serious, severe challenge, or 

does it not. 

I am often surprised about how the lines fall on this, in trying 

to understand. Those who have been in denial, reluctantly perhaps 

now agreeing a bit, and those of us who have felt for some time 

that it is, indeed, a deep challenge, if it is, for those of us who have 

been working for alternative fuel measures, we can’t believe that 

it will provide enough of an answer soon enough. 

As to trade policy and the article 1, 2, 3, 11, 20, there seem to 

be ways to put together a system that would meet the requirements. If not, we’re in negotiations. To simply say that it will—to 

endanger liberalization, Mr. Hufbauer— we know each other well— 

I think assumes that global warming isn’t enough of a challenge 

that we cannot maintain trade liberalization and address a serious 

problem. 

If I might say so, I don’t think it helps to bring up the ghost of 

Smoot-Hawley. We are well beyond that. In terms of the competitiveness, people who have been working on this are sensitive to it. 

Many who are saying we’ve got to do something about global warming, it’s a severe challenge, have been leading the effort to try to 

help make us competitive and to maintain jobs in this country. 


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So, we’ve got to face up to the issue, is this global warming issue 

a very serious, severe challenge, or is it not? 

I think, Carol, you have talked a lot about this. I don’t know 

whom to ask, but one of you—all of you—just describe briefly, what 

do we face? 

Ms. BROWNER. Well, I think it is probably the greatest environmental challenge of our time. The consequences of inaction are, in 

many instances, things that cannot be corrected. 

For example, sea level rise. Once we start to experience the consequences of sea level rise, the reality of sea level rise, there is not 

an engineer in the world who can help us drop the sea. I mean, 

this is a hard issue because we’re asking people to take significant 

action before we can actually see, feel, and touch all of the consequences. 

Mr. LEVIN. Some of it we have touched already. 

Ms. BROWNER. Some of it we’ve touched already. The other 

thing I think that’s really important to note about the scientists, 

the climate scientists, when they have predicted what the consequences will be, and as we’ve started to realize some of those consequences, all of their predictions have been on the lower end than 

what the reality is. 

So, we didn’t understand, for example, that there would be feedback loops, and so that with ice melting, it would be more complicated than simply the icebergs melting. 

So, you know, it’s—I don’t know that—none of us are scientists 

here, and I don’t want to say anything on behalf of other people, 

but you know, you have never, ever, in the history of the world, 

had agreement like we have among the scientists on what the consequences are going to be, and how severe they will be, and the 

need for action sooner, rather than later. 

Mr. LEVIN. Dr. Orszag, you were shaking—— 

Mr. ORSZAG. I would agree with that. I would just say in a 

sense we are conducting a very significant experiment with the 

globe without a backup plan, and without, you know, the ability to 

rerun the experiment if things turn out poorly. 

We are running a very significant, long-term risk, and the question is how we buy insurance to reduce that risk. 

Mr. LEVIN. Thank you. 

Chairman RANGEL. Thank you. The Chair recognizes the distinguished Member of the minority, Mr. Herger. 

Mr. HERGER. Thank you, Mr. Chairman, and our witnesses. Incredibly important issue that we’re dealing with, working with. I 

believe it’s considered important by everyone. 

I don’t think it’s a case that, for the first time in the 21⁄2, 3 billion year history of the Earth, that we’re seeing climate change, because we continually see climate change. I think what’s important 

is that we’re not unjustly hastening that. 

I think what is important is that there is a right way, and a positive way to deal with this. I think there is a wrong way and a negative way to be dealing with this. I think we have heard some testimony on—having to do with that. 

I would like to just add, from a report that I have here, a study 

that was done. I believe Mr. Reagan mentioned the unintended 

consequences that we can have of our actions. So often, we learn 


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the hard way of this. Smoot-Hawley was brought up. Unintended 

consequences to our actions to solve something. We need to be 

thinking very carefully what we do, that we—those who don’t learn 

from history are doomed to repeat it. Hopefully, we won’t do that 

because we will think it through. 

One of these unintended consequences, a study that was done by 

the American Council for Capital Formation, estimates just in my 

State of California, in just 11 years, if the cap and trade proposal 

of the Lieberman-Warner were to go in, an estimated as many as 

195,000 jobs lost, just in California in the next 11 years. And 10 

years beyond that, by 2030, as many as 449,000, almost 450,000 

jobs lost. Again, unintended consequences. 

So, what we do, we want to do in a positive way. I believe there 

is many positive things we can do. 

I would like to mention that—I mentioned in my—noted in my 

opening statement about trade liberalization is an important tool 

to reduce greenhouse gas emission, both here and in the United 

States and abroad. For that reason, Mr. Brady and I have introduced the Green Export Enhancement Act of 2008. This bill provides the United States Trade Representative with the authority to 

negotiate the elimination of tariffs on environmentally friendly 

technology. 

This is a positive way that we can engage our international partners in an effort to reduce greenhouse gas emissions. The removal 

of these trade barriers will support the export of cutting edge technology, developed and manufactured by American workers. It will 

also speed the adoption of technology that developing countries 

would need if they’re going to reduce their greenhouse gas emissions. 

This bill is a positive step in engaging our international partners, 

addressing concerns about climate change, and does not impose significant increases in energy prices on the American family, particularly at a time when the American family is hurting, when we’re 

in an economic downturn. 

I would like to hear from our witnesses today as to whether or 

not they support trade liberalization and environmental technology. 

Why don’t we start with you, Mr. Hufbauer, and just move 

across? 

Mr. HUFBAUER. Absolutely. This should be done. The reason 

we haven’t reached an agreement on this very constructive approach in the WTO is that the U.S. has taken ethanol out of the 

package. It’s very simple. You don’t put ethanol in, as the U.S. environmental contribution, no package. 

Now, I am not a big ethanol fan, in terms of saving CO2, but I 

think we at least should include ethanol in the talks. 

Mr. HERGER. So, you support it. Mr. Regan. 

Mr. REGAN. Sure. We actually do it. We manufacture environmental control devices, and we export them. Matter of fact, we 

have a plant in Blacksburg that makes the core of a catalytic converter, and 70 percent of its output is exported. 

We have a plant in Corning, New York, that manufactures diesel 

particulate filters for diesel cars, 100 percent of its output is exported to Europe. So, yes, we love to export. To the extent that you 

can eliminate barriers to our exports, we would appreciate it. 


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Mr. HERGER. Thank you. 

Chairman RANGEL. Thank you so much. The Chairman has 

been informed that Mr. Lighthizer and Administrator Browner will 

not be able to stay; they have to leave earlier. But I hope that both 

of you will receive questions from Members of the Committee and 

respond in writing. Any Member that would want to direct questions to them do so in writing. 

At this time, I would like to yield 5 minutes to the distinguished 

doctor on our Committee, Jim McDermott. 

Dr. MCDERMOTT. Thank you, Mr. Chairman. Often in the 

United States, we fail to learn from what the rest of the world is 

doing. Europe has done this cap and trade business. I would like 

to hear from you what they did right, what they did wrong, what 

they did with the money. 

There has been a suggestion we should perhaps use some of the 

money for education, or for health care, or whatever. I would like 

to hear what the European experience has been, so that we don’t 

have to recreate the wheel if it’s already been discovered and working so well somewhere else. 

Ms. BROWNER. I think it is worth looking at what Europe has 

done, and there are some important things to learn. Probably the 

most important thing we can learn is why they ended up in a situation where they created a windfall profit for the electric utility 

sector. 

In essence, what they did is they were giving away the credits, 

but they were allowing the utilities to pass on 100 percent of the 

cost. So, they were, you know, sort of paying utilities to do what 

they needed to do, but of course, allowing costs to be passed on to 

the consumer, and that created a windfall. We certainly want to 

avoid that, I think, in any program that we structure. 

I am not aware about what they actually spent the money on. 

Someone else may know that. 

Mr. ORSZAG. Well, again, since they actually gave away most of 

the permits, there wasn’t actually money to be spent. As they’re 

moving into the next phase, and there will be more auction, there 

will be a larger component that’s auctioned, there will be, sort of, 

questions about how that revenue would be used then. 

The other thing that I think is important to highlight, and that 

I understand is an issue under the RGGI, the regional initiative 

that’s underway, is you have to be really careful about how you set 

the initial targets. Because if you project targets that are—or caps 

that are—very high, relative to what the base line turns out to be, 

you wind up with very, very low permit prices, and not much constraint coming from the cap, itself. 

That is more of a sort of technical forecasting question. 

Dr. MCDERMOTT. Did their idea—excuse me, go ahead. 

Mr. BURTRAW. Well, I just would like to add two other things. 

You know, agreeing with what I have learned so far about lessons 

learned from the EU, one is that the Europeans themselves have 

learned this lesson. 

After investigations in the UK, Germany, Netherlands, and elsewhere, the European Commission has proposed—and it looks like 

it’s going to be adopted—that, beginning in 2013, there will be 100 

percent auction of allowances for the power sector, and phasing in 


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100 percent auction for the rest of the affected sources over the 

next decade. 

The second thing that they learned sorely after the first phase 

is they had no banking in between phase one and phase two. So, 

even though, as Dr. Orszag just mentioned, there was sort of what 

they call over-allocation, the cap was kind of slack in the first 

phase, there still would have been an incentive to reduce emissions 

if companies had had the ability to bank allowances into the future, because then there would have been reward for early auction. 

But instead, what happened is that those allowances took—went 

right to zero, because there were too many of them. 

You have heard—there is a variety of arguments that we’ve offered up today for why the ability to bank, giving you inter-temporal flexibility, is really key to industry to help industry plan for 

the future. It’s really key for the economy, because it smooths the 

impact of the program on the economy. So, that’s a critical element. 

Dr. MCDERMOTT. Has there been any thought about companies 

that have already done things somehow being able to benefit by 

this plan in the future? 

I mean, while we dither here in Congress, there are businesses 

out there making decisions right now. Their—I mean, I can at least 

see why they might say, ‘‘Look, could you put retroactively the date 

as of X date, if we did something after January 1, 2006,’’ or 2007, 

or something—— 

Ms. BROWNER. I think—— 

Mr. ORSZAG. Could I note that’s only—oh, sorry, go—just— 

that’s only an issue if you’re giving the permits away. If firms have 

to buy the permits, then the reward to that past action is they 

won’t have to buy as many. 

Dr. MCDERMOTT. Okay, excuse me. You have already—— 

Ms. BROWNER. Economists always say it better than former 

regulators. 

Dr. MCDERMOTT. Well, I have, then, this question of the use 

of the money. Since we’re going to auction—we all agree that the 

Europeans made the mistake of giving it away, and now they’re 

going to auction it. So, they’re going to be in the same place we will 

start from, I presume. 

There will be some money from this auction. Where should it go? 

I mean, is health care a public good that we should think about in 

this country, since we have a problem in trying to finance a health 

care reform of some sort, or is there some other place that you 

think makes more sense? 

Some people have talked about retraining, and that may be it, 

but—— 

Ms. BROWNER. You know, obviously, this is a—what you, as 

Members of this Committee and Congress will get to do, is decide 

where to spend the money. I would encourage you to think about 

helping low-income families, less fortunate people, deal with some 

of the costs. I think we all agree there will be increased energy 

costs, for example. So, perhaps something through the earned income tax credit, some vehicle for helping to offset the increase in 

energy costs that would inevitably hit certain parts of—you know, 

certain families in our country harder. 

Dr. MCDERMOTT. Yes, go ahead. 


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Mr. BURTRAW. I agree. This is why they pay you the big bucks, 

to make this decision. So, I want to offer just a couple of principles 

on how to think about it. I argued earlier for simplicity and transparency about that. 

I think it is necessary for the American public to see that there 

is a link to what happens to this revenue. Now, whether—if it goes 

to health care, there is an argument to be made for that. If it goes 

to tax reform, there is an argument to be made for that. If it goes 

to dividends right back to households, that’s another way that they 

would see immediately that the costs that they’re paying through 

higher energy bills, they’re seeing back through some kind of regular dividend from the government. 

Whatever you do on any of those choices, I think the public needs 

to feel like they own this program, and they are participating in 

this program. Because we don’t know now for sure, but it’s possible 

over the next decade we’re going to go back to the American public 

and ask them to do more. There has to be a sense that this is a 

national effort. 

If there is just too many threads here, and the money gets carved 

up in a lot of different ways, two bad things happen. One is you 

lose that simplicity, and the public doesn’t have a sense of owning 

or participating in this together. Second, it puts the United States 

behind the eight ball with respect to Copenhagen in 2009. Because 

at the end of 2009, there is going to be international conventions 

in Copenhagen. If the U.S. could do something before then, it could 

move us out front on the international stage. 

If you can resolve what to do with all this money in a complicated way before then, that would be kind of a surprise to me, 

but a simple approach, maybe something could be done at the beginning of the next Congress, I don’t know. 

Dr. MCDERMOTT. I have made the proposal for the stimulus 

package for gasoline stamps. That is some way to mitigate the additional cost that people are spending on gasoline. That is also a 

way that I suppose you could help low-income families, either 

through the oil heat that they would have to buy, or the gasoline. 

These ideas, do they make sense? Are they the kind of transparency that you’re talking about? 

Mr. ORSZAG. I guess I will be a little bit of a contrarian. I think 

one thing one needs to be careful about is you can provide assistance to low-income households. But if you tie that to their consumption of energy—so, for example, a gas stamp—you’re undermining part of the incentive to become more energy efficient for 

those households, also, as opposed to something like the earned income tax credit, or just a simple cash injection that will still, at the 

margin, give them some incentive, like other households, to be 

more energy efficient, to the extent that they can. 

Dr. MCDERMOTT. The idea being, if you give them a gas stamp, 

they will buy gasoline and drive to work, rather than take the bus, 

which would be a more efficient way. 

Mr. ORSZAG. That may be one manifestation, right. 

Dr. MCDERMOTT. Okay. Yes? 

Mr. BURTRAW. There are other proposals out there that have 

some logic. For example, free allocation to electricity consumers 

through allocation to local distribution companies. The virtue here 


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is that it would soften the change in electricity prices, which is politically attractive, but it has the same downfall that Dr. Orszag 

mentions in the electricity sector. 

It lowers the cost of electricity consumption, and it makes it so 

that you’re going to have to get more emission reductions from natural gas. Or, if you drive a car, in that case you might be concerned 

about it. Or, if you heat your home you might be concerned about 

it, you know, with natural gas. But if you’re an industrial facility 

and you’re buying natural gas, you might be concerned about the 

fact that natural gas prices are going to go up, and that allowance 

prices are going to go up. 

Our modeling suggests that free allocation to the electricity sector would raise allowance prices by about 15 percent. So, that’s a 

cost that has shifted to other sectors of the economy. 

Earlier today we heard this idea—I think the Mayor was the one 

who mentioned—the law of one price is what we really want to 

strive for here, treating all sectors of the economy equally. 

Dr. MCDERMOTT. One of the things some of us in the northwest worry about is we already have hydro, and we’ve got a whole 

lot of wind. So we’re wondering exactly how this is all going to 

work for us. But I yield back the balance of my time. 

Chairman RANGEL. The chair is pleased to recognize Mr. Camp 

for 5 minutes. 

Mr. CAMP. Well, thank you very much, Mr. Chairman. You 

know, at its core, from what I have heard today, cap and trade proposals are designed, really, to increase energy costs, which will result in increased production costs for those who generate energy. 

Dr. Orszag, in your Senate testimony—and I quote—you said, 

‘‘Price increases would be essential to the success of a cap and 

trade program.’’ 

Now, these increased costs are then passed along and placed primarily on energy-intensive manufacturers. Obviously, being from 

Michigan, most people think I am referring to automobiles, but 

really new manufacturers—and I’m thinking of, in my district, the 

crystal solar wafers that are manufactured for the solar industry 

is now the single most energy-intensive user in the State of Michigan. It’s a very intensive energy user. Yet, it would be penalized 

under this sort of proposal. 

So, Dr. Orszag, on page 15 of your testimony today you point out 

that energy-intensive manufacturing would experience a decline in 

sales, employment, and profits, as a result of a cap on carbon emissions. 

Now—and I note the National Association of Manufacturers has 

done a study, and they look at my home State of Michigan and say 

that as many as 120,000 jobs would be lost by 2030. Given what 

our State has been through, that’s a significant concern. 

Also, by 2030 we could see disposable household income drop as 

much as $7,000 per family. Prices of gasoline would increase between 72 and 141 percent by that same date. Michigan residents 

would pay between 112 and 160 percent more for natural gas by 

2030. 

So, my question to you is, with dramatic increases in energy inputs, combined with the world’s highest effective corporate tax rate 

in the United States, won’t cap and trade incentives—won’t cap 


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and trade incentivize more American companies to leave the 

United States and set up operations offshore? Has CBO done an 

analysis of the potential offshoring effects of a cap and trade policy? 

Mr. ORSZAG. First, let me just say, as I noted not only in the 

Senate Finance testimony, but also just with respect to this Committee in today’s testimony, price increases are an essential part of 

having a cap and trade program work. That price signal is crucial. 

I think some of the numbers that were cited with regard to particular estimates for particular pieces of legislation may be somewhat exaggerated. But there is a cost to reducing the risk associated with global climate change. 

We have not done an analysis of the degree to which U.S. corporate activity would shift to other countries, but as—especially 

with regard to these energy-intensive industries, which are a small 

share of the total economy, but nonetheless are a part of the economy, there would be some shifting, even under the kinds of approaches that have been put forward for border adjustments, and 

what have you. 

The question is the magnitude. Most of the analysis that I have 

seen suggests, especially from the macroeconomic perspective, that 

would be somewhat limited, and certainly somewhat smaller than 

the numbers you were suggesting, but still part of what is going 

to have to happen here. 

Mr. CAMP. All right. I have a question for anyone who would 

like to answer, not just for Dr. Orszag. 

Obviously, we are looking at policy options today, not whether it 

be carbon taxes or cap and trade. Many of those presume that the 

path—as you mentioned, in response to my question—to reduce 

greenhouse gas emissions is to raise the cost of energy. Are there 

any ways to reduce these emissions without raising the cost of energy? 

I would put this open to anyone who would like to answer. 

Mr. ORSZAG. Can I? 

Mr. CAMP. Yes. 

Mr. ORSZAG. I will just very quickly say prices are part of it. 

But I also think it’s very important—I feel like we need much more 

psychology 101 in public policy, and maybe a little less economics 

101. So, pricing those are important. 

But, for example, evidence suggests that for consumers, it’s not 

just the price signal, but even things about—there is this experiment that’s been done with a little glowing thing that glows red or 

green, depending on whether you’re more energy intensive or less 

energy intensive than your neighbors, and that significantly affects 

behavior. There are lots of interventions that are not direct price 

signals that can affect what people do. 

Mr. CAMP. All right. 

Ms. BROWNER. You obviously could use a traditional command 

and control regulatory scheme. You could set a standard, a pollution standard, a greenhouse gas standard. 

The downside of that is you will lose the efficiencies that can 

come in a trading program. You know, I go back to the acid rain 

example. Now, acid rain was one pollutant; it was not all sectors 

of the economy. So, it’s not a perfect example. 


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But the fact that the cost of compliance was so dramatically 

lower than what even EPA had predicted—the industry costs predictions were much higher than EPA’s—I think demonstrates that 

you will find some efficiencies in a trading regime that you will not 

find in a traditional command and control regulatory. You could 

certainly go down that path, but I think it will end up being much 

more expensive. 

Mr. CAMP. Okay. Thank you very much. Thank you, Mr. Chairman. 

Chairman RANGEL. The Chair will recognize Mr. Doggett. 

Mr. DOGGETT. Thank you very much. I believe that each of you 

made a contribution to our effort this morning. I particularly took 

note of Dr. Orszag’s comments that the danger, the potential harm 

to our country that we’re facing here can be termed ‘‘catastrophic.’’ 

There are some people who continue to feel that they can come 

up with every excuse in the book to avoid doing anything. There 

are others that, like those on our panel, who have really offered 

constructive suggestions for how we can improve the cap and trade 

proposal before the Committee. My focus is on that. 

I believe that the Climate Matters bill that we have introduced 

addresses each of the four critical issues that Mayor Bloomberg 

talked about. I am pleased to hear you testify that this approach 

of pollute-free cards, or pollution stamps, that that’s a real mistake. 

That is, despite the significant progress that was made in the Senate this year, the Lieberman-Warner bill tended to favor, a little 

too heavily. I think we need to tighten up the provisions in Climate 

Matters on that, and recognize the great cost of using pollution-free 

permits. 

Competitiveness. This is clearly something that we can benefit 

from, additional input from Mr. Reagan and others, to assure that 

we’re competitive. 

Indeed, every alternative idea that has been advanced by my Republican colleagues is in the Climate Matters bill already. It’s just 

that the Climate Matters bill does more than that, and recognizes 

that it can’t be all benefit and no limitation, and that unless you 

put in place some limit on greenhouse gas pollution, it won’t work, 

and it’s never worked in the history of the world, that—if it’s all 

benefit and there is no limitation in the marketplace. 

It is true that there may be some additional cost. Now, fortunately, on the one issue that Mr. McCrery offered at the beginning, 

the concern that all of us have about the rising price of gasoline, 

fortunately we have a definitive study on what the effect of cap and 

trade will be on gasoline, and that is from the Bush Administration. They put out an Administration statement during the 

Lieberman-Warner debate, and they came up with a precise figure. 

They tell us that, over the next 20 years, consumers can expect, 

as a result of a cap and trade system, to have to pay $.03 a gallon 

more per year over the next 20 years. Well, of course, under the 

policies of this Administration, many Americans find themselves 

paying more than $.03 a gallon overnight. I think that’s a reasonable price to pay. 

The study that was just referenced, from the National Association of Manufacturers, unfortunately is so unrealistic it—in some 


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of its categories, it’s almost 500 percent higher than the Bush Administration on what the effect of cap and trade will be. 

So, there are people of good will that want to look at the cost and 

the benefits. We need to understand that we’re not looking at what 

will be the cost under a cap and trade system versus today. No, we 

have to weigh the cost of a cap and trade system versus the cost 

of the do-nothing, catastrophic global warming alternative. That’s 

the proper comparison. That’s not—that is what organizations like 

NAM have not done, to weigh what the alternative costs are. 

I would ask Administrator Browner if you would comment on— 

you currently refer to yourself from your regulatory days, but I believe your current work is advising businesses about how to deal 

with these issues. What I have noticed is, not only are the States 

and the cities way ahead of the Congress, but the business community is way ahead of—and they need the certainty now, before they 

make investment, to know what the rules will be on greenhouse 

gas emissions. They don’t have that. 

From your standpoint, as a—from your perspective, not only as 

a former EPA administrator, but as a business consultant, tell us 

about what—whether the costs do, in fact—of global warming— 

pose more problems to business than—in our economy than not— 

than having a cap and trade system, and tell us about the need for 

certainty of businesses, and finally, that if we don’t act promptly, 

that each year we delay it becomes a self-fulfilling prophecy, because all you can do then are Draconian costly approaches, rather 

than having the flexibility if we start immediately. 

Ms. BROWNER. First of all, lots of businesses are doing—— 

Chairman RANGEL. I hate to interrupt, but we do have a problem here. Soon we will have to leave for approximately 30 minutes 

or more to vote. I am not asking this panel to stay until we come 

back for questioning. 

We have two, four, six, seven Members here now. I am asking 

unanimous consent that they restrict themselves to 2 minutes. If 

the vote is delayed, we will come back again and pick up whatever 

time that we do have. But in view of that, again, I would ask the 

Members to really expect to get their answers in writing. 

At this time I would recognize, on the Republican side, Mr. 

Weller for 2 minutes. 

Mr. WELLER. Thank you, Mr. Chairman, and I will be to the 

point. 

I do want to note my good friend from Texas, my classmate, 

noted that the price of gasoline in his State would go up about $.03 

a gallon based on the Lieberman-Warner bill. Actually, the statement of Administration policy from the White House said it would 

go up $.53. So, that—— 

Mr. DOGGETT. Over 20 years, though, Jerry. 

Mr. WELLER. So—but you said $.03. 

Mr. DOGGETT. It’s $.03 per year over that period. 

Mr. WELLER. So, Mr. Chairman, I just ask unanimous consent 

that that statement of Administration policy be inserted into the 

record at this point, if I could, please. 

Chairman RANGEL. The Chair hears no objection. 

[The information follows:] 


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Mr. WELLER. Mr. Chairman, time is limited, and this is an important subject, but I would just note, you know, one of my disappointments this year is, while this is an important hearing, there 

has been a subject which is so very important in this hemisphere 

which we have not had a hearing on, and that is the U.S.-Colombia 

trade promotion agreement. 

Of course, Colombia not only is considered the U.S.’s most trusted ally and partner in Latin America—— 

Chairman RANGEL. We are so limited in time, are you going to 

connect Colombia with this issue? 

Mr. WELLER. Yes. And—but I have 2 minutes, Mr. Chairman, 

and I do want to be brief. 

I just have some copies, some editorials in support of the trade 

agreement, urging that Congress vote on this trade agreement. I 

just ask unanimous consent to enter them into the record as well, 

Mr. Chairman. 

Chairman RANGEL. Without objection. 

[The information follows:] 

Mr. WELLER. Thank you. I just want to comment, Mr. Chairman, that, you know, since this trade agreement was signed by 

President Uribe and President Bush, that over $1 billion in tariffs 

have been levied on U.S. products. 

Chairman RANGEL. I really don’t see, if you know how restricted the time is, how relevant—— 

Mr. WELLER. Mr. Chairman, out of due respect, I have 2 minutes, and I was just using it as I feel is appropriate. 

Now, the economy grew 3.3 percent this last quarter, 90 percent 

of that growth was based on exports. As we are looking at this coming week, and rushing a stimulus package to the floor without 

hearings, without action in this Committee, it appears that we are 

ignoring what has actually proven to grow this economy in the last 

quarter, which is expanded trade. 

That $1 billion in tariffs that was levied on U.S. products, Illinois 

corn and Illinois soybeans, Illinois-manufactured construction 

equipment, has cost jobs. This trade agreement was in place, eliminating those tariffs. That’s $1 billion worth of products that could 

have been bought—— 

Chairman RANGEL. The gentleman’s time has expired. 

Mr. WELLER. Thank you—— 

Chairman RANGEL. The Chair would like to recognize Mr. Pomeroy for 2 minutes. 

Mr. POMEROY. Mr. Chairman, I would—if trade is on the table, 

I would certainly like to talk about the catastrophic week we are 

having on Wall Street as a direct result of this Administration’s 

utter incompetent handling of the economy, but that doesn’t have 

to do with the topic at issue, so I won’t mention that. I will get to 

the issue at hand. 

[Laughter.] 

Mr. POMEROY. I want to thank you for this hearing, Mr. Chairman, because I believe, as we looked at the environment, and what 

we’re doing relative to this issue, undoubtedly there is one tax 

strategy discussed after another. This is the jurisdiction of tax policy in this Congress. So, it’s going to be vitally important to essenVerDate Nov 24 2008 14:33 Mar 17, 2011 Jkt 062201 PO 00000 Frm 00101 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\62201.XXX APPS06 PsN: 62201

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tially stake out our jurisdiction. It’s going to be central to this 

issue, and I look forward to working on it. 

A couple of speakers have talked about predictability, flexibility, 

as kind of the central components to this strategy. I would add a 

third: Viability. 

I am anxious, representing 800 years of lignite coal at present 

usage, that we leap into some regimen that either excludes coal, 

and therefore doesn’t fully contemplate the astounding costs consumers would carry if we somehow diminish the most abundant 

and affordable energy resource we have in the country. Or, on the 

other hand, we impose on this fuel source standards that they technologically cannot meet. 

I am very interested, but happy to cosponsor the Carbon Reduction Bridge Act, a fee that would be assessed and, on the other 

hand, would fund research to get us to the point where we’re looking at carbon sequestration and other strategies to deal with CO2

issues and the burning of coal. 

The final point I would make is it isn’t just about the 800 years 

of supply we have in North Dakota. The fuel sources of China and 

India, and much of the developing world, are low-rank coal. When 

we develop strategies to deal with CO2 emissions of low-rank coal 

for our country, we cause the technological breakthrough that’s 

going to allow friends in the other parts of the world that are going 

to have to be with us on this the very strategies they’re going to 

need, as well. 

Thank you, Mr. Chairman, I yield back. 

Chairman RANGEL. The distinguished gentleman from Georgia, 

Mr. Linder, is recognized for 2 minutes. 

Mr. LINDER. Thank you, Mr. Chairman. Do any of the four of 

you question any of the science behind the theory that humans are 

causing global warming? Anyone want to take a shot at that? 

[No response.] 

Mr. LINDER. The science is sound? Mr. Orszag, Dr. Orszag, 

maybe you can tell me. What is the optimum temperature the planet should be at? 

Mr. ORSZAG. I cannot give you the optimum temperature. I will 

relay—and I am not a physical scientist or a climatologist, I’m an 

economist, but I will relay the professional opinion that the course 

that we are on involves significant risks, i.e. that the temperature 

would be higher than we would ideally want it to be—the mean 

temperature, and that’s not even the main concern. 

Mr. LINDER. Do you know that the temperature for the last 10 

years has been below the temperature average for the last 3,000 

years? Are you aware of that? 

Mr. ORSZAG. There are fluctuations that occur for a variety of 

reasons. 

Mr. LINDER. Have you seen the petition signed by 31,000 scientists, 9,000 who have Ph.D.’s in the science, 22,000 with masters 

in science, that take issue with this theory? Have you seen that? 

Mr. ORSZAG. I haven’t seen that. I would again say on this 

issue, relative to others, I think there is a stronger and broader 

consensus among professional scientists than on anything else I 

have seen. 

Mr. LINDER. Well, science is not a democracy. 


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Mr. ORSZAG. No, it’s not. 

Mr. LINDER. One of the great deniers of all time was Galileo. 

So, you have to go by some observations. We can tell you for a fact 

that the 22 climate models do not accurately reflect observed temperatures. That’s been proven. 

So, the climate modelers say, ‘‘Well, maybe your facts are wrong.’’ 

Climate modeling is a rather recent science. We’re talking about 

making a huge, huge increase in cost to consumers, based on that 

theory that no one has ever—a theory. I think we ought to take a 

look at the science first, and then make our big decision. Thank 

you. 

Chairman RANGEL. Mr. Kind is recognized for 2 minutes. 

Mr. KIND. Thank you, Mr. Chairman, and I want to thank the 

panels for your testimony. I know you have been patient, it’s been 

a long stay already. 

But let me just highlight a point of fact that I discovered over 

the August recess. I took the recess as an opportunity to travel 

throughout western Wisconsin to visit all the companies that are 

involved in some form of alternative and renewable energy development, or high efficiency manufacturing products. 

I stopped off at a train manufacturing company, which is the 

largest employer in my district, high efficiency heating and cooling 

units, asked them what the impact of a cap and trade system in 

the United States would be, and they said sales would fly off the 

shelf, and they would be adding jobs to the company. 

I visited solar, geothermal, wind companies in the district, too, 

and asked them the impact of cap and trade on their business. 

They said they’re going to be able to expand, and they’re not going 

to be able to keep up with the orders that would be coming in. So, 

the point I’m making, then, even with the ongoing controversy with 

the science behind global warming, a lot of this just makes good 

business sense for the American economy. 

I have read studies—and this is where I want to ask the panel 

if you have seen studies, too—on the impact of job creation if we 

moved to an energy-based system with more investment and more 

reliance on alternative, renewable, clean technology, clean energy 

sources, as opposed to staying dependant on a carbon-based energy 

system that we have today. 

One study that I showed, it’s three to five times more good-paying jobs in the renewable field as we would get in carbon-based 

production in this country. 

Does anyone else have any information? Mr. Orszag. 

Mr. ORSZAG. There clearly are sectors that would benefit—— 

Chairman RANGEL. The response has to be limited to 20 seconds. 

Mr. ORSZAG. Yes, it will be really short. Benefit—there are sectors that would benefit. The overall impact, at least in the short 

run, however, will be some costs. We have to figure out whether 

we are willing to pay that cost. 

Mr. KIND. Okay, thank you. 

Chairman RANGEL. The Chair recognizes Mr. Ryan for 2 minutes. 

Mr. RYAN. All right, 2 minutes. Did Gary leave, Hufbauer? Did 

he—okay. 


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Dr. Orszag, I will stick with you, then. You came to the Budget 

Committee and went through your report that you released in February, titled, ‘‘Policy Options for Reducing CO2 Emissions,’’ in 

which you stated that when targeting long-term reductions and 

greenhouse gas emissions, ‘‘A tax could be set at a rate that could 

meet that target, and at a lower cost than a comparable cap.’’ 

I—this was a very good report, by the way, I encourage people 

to read this. Specifically, you reported that the net benefits of a tax 

could be roughly five times greater than the net benefits of an inflexible cap. Let’s put aside the arguments of the science for a second, and just think about this from the purpose of economics. 

Is it—given that cap and trade gives us a theoretical certainty 

of reductions, never mind the fact that those might not be 

achieved, isn’t a tax far more economically efficient, with respect to 

job displacement and competitiveness, given that you can border 

adjust taxes, than a cap and trade regime? 

Mr. ORSZAG. Yes. A simple cap and trade regime. You can make 

cap and trade more similar, or increase its efficiency through 

things like banking and borrowing, or price—a ceiling, floor on 

prices. 

Mr. RYAN. The more we complicate things, I would argue—and 

I am watching my clock, Chairman—and I wanted to ask Gary, 

but—we can invite all these WTO problems through the cap and 

trade approach. 

The fear that I have is—you know, I don’t like the cap and trade 

bill at all, but the fear I have is we’re going to set up a revenue 

spending machine up here. One point two trillion dollars, I think, 

is your 10-year score of Warner-Lieberman, which is the revenues 

that come here, and we’re going to reallocate that in Washington? 

Take that out of the economy? 

It is best if we leave all of this back in the economy. From an 

economics standpoint, if we’re going to do this—which, I caution 

against it—if we’re going to do this, keeping it in the economy 

through the tax system, we don’t have the WTO problems, we don’t 

have the economic dislocation problem, and yet we still send the 

kinds of price signals against carbon that people want to send. 

My time is up. Thank you, Chairman. 

Chairman RANGEL. Mr. Pascrell. 

Mr. PASCRELL. Thank you, Mr. Chairman. Mr. Chairman, I’ve 

been a long critic of many of the trade agreements, and I’m sorry 

Mr. Hufbauer had to leave. There are certain countries I anticipate 

will attempt to bypass our greenhouse emission regulations. The 

fact is that when countries who are also guilty of contributing high 

quantities of greenhouse emissions are allowed to skirt the rules, 

the impact is felt back here at home. 

How do we level the field, internationally? The large emitting 

countries like China and India, they’re also under domestic and 

international pressures. The United States might better address 

competitiveness concerns by actively engaging in international negotiations. 

Here is my question to anyone on the panel. Knowing that 

China, India, and Brazil are not signatories and operate without 

any regulation of greenhouse gas emissions for the most part, 

what’s your stance on the imposition of a safety valve on the price 


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per ton of carbon to ensure that American manufacturing remains 

globally competitive? 

Who would like to take a shot at that? Dr. Burtraw. 

Mr. BURTRAW. The introduction of a safety valve which serves 

as a price ceiling is probably one of the most important mechanisms to manage potential cost and cost disruptions from cap and 

trade programs. 

But it has been also quite criticized, because the way it has been 

suggested in previous legislation, it would be immediately binding. 

It would, essentially, determine the price. It provides a sort of a 

disincentive for investment in new technologies. 

So, a much preferable approach would be—as Dr. Orszag mentioned earlier—would be a ceiling, as well as a floor; a floor, simply 

taking the form of a reserve price in an auction. That way, if prices 

were to fall, as occurred in the EU, for example, and this is a part 

of the REGI auction that’s occurring, the regional greenhouse 

gas—— 

Mr. PASCRELL. How do you think—— 

Mr. BURTRAW. Those allowances are not put into the market. 

That brings back up the price of allowances—— 

Mr. PASCRELL. Just quickly, how do you think this is going to 

affect our trade negotiations with other countries, if this—if we’re 

trying to level the field at the same time? 

Let’s say we have a ceiling, let’s say we have a floor. How do we 

do that? 

Mr. BURTRAW. No, you’re right. The EU has been very concerned about the possibility that the U.S. would introduce a safety 

valve, because they do not have one in their program. 

But instead, what they do is administratively adjust their program on a—revisiting it in different phases. So, they have a safety 

valve of their own, you just see it behind closed doors. 

Mr. PASCRELL. Thank you. 

Chairman RANGEL. The Chair recognizes Mr. Nunes. He’s not 

here? Mr. Tiberi. 

Mr. TIBERI. Thank you, Mr. Chairman. My congressional district over the last 8 months has lost five manufacturers who have 

announced that they are leaving central Ohio. Three are moving to 

other States in the United States, and two are moving to countries 

that have no emission requirements and don’t plan to. 

The question to the three of you—and, Tim, I will start with 

you—is isn’t a better way of going about this to protect our manufacturing? One analysis in our State of Ohio is that by 2030 we will 

lose 140,000 manufacturing jobs, we will have none left. Isn’t a better way of doing this creating incentives for manufacturers, in 

terms of a playing field, to reduce emissions? 

Mr. REGAN. I think that’s why I was leaning toward this notion 

of some sort of an allowance system that would give energy-intensive manufactures assistance to try to deal with the problems associated with the costs we have to absorb, and our inability to pass 

them on. 

Mr. TIBERI. Thank you. 

Mr. REGAN. So, that’s where I am. 

Mr. TIBERI. Go ahead. 


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Mr. BURTRAW. No, I agree. Exactly. That’s correct. I think it’s 

a major concern, but I think—— 

Mr. LIGHTHIZER. Well, I agree it’s a major concern also, and 

I think it’s one of the reasons why you have to look at the competitiveness side of this so closely. 

Because the fact is, we’re going to exacerbate that trend that’s 

going on right now if we don’t make sure that people in China and 

other places that are bringing products to the United States bear 

the same burden that we do on the cost of carbon. 

Mr. TIBERI. Thank you. I yield back, Mr. Chairman. 

Chairman RANGEL. The Chairman recognizes the gentleman 

from Alabama, Mr. Davis. 

Mr. DAVIS. Thank you, Mr. Chairman. Given the time constraints, I am going to use my 2 minutes in making an observation, 

and then invite a very quick response from perhaps one of you all. 

This is the concern that I have, was I want to make sure that 

I underscore that the concerns about cap and trade are, frankly, 

not divided along party lines. You know, someone casually listening 

to this hearing might assume that Republicans are in one place, 

and Democrats are in another. 

While I don’t endorse Mr. Lender’s comments about the science, 

I would endorse some of the comments that have been made on the 

other side of the aisle about the impacts of cap and trade. Let me 

briefly summarize them. 

I have three sets of concerns. One concern is because we know 

that particular industries are going to be disadvantaged—steel, 

heavy duty manufacturing, pulp and paper, forestry—we can predict that those kinds of industries will be disproportionately disadvantaged, well, that means two things. 

First of all, those industries, of course, are not spread evenly 

across the country. They are disproportionately located in the 

American South and the American Midwest. 

Another thing that we know is that those particular industries 

have all borne the brunt of a lot of changes we have had in global 

markets in the last decade. We know that all those industries are 

affected by anti-competitive conduct abroad from the Chinese and 

others. 

Third of all, we know that, frankly, those kinds of heavy duty 

manufacturing industries have been the traditional conveyor belt 

for people who may not be college educated, but who want to earn 

a middle-class income. 

I have another set of concerns within those. My State is a classic 

example of one that has two economies. There is a part of Alabama 

that is a modern information technology, financial services, health 

care-driven economy that, frankly, doesn’t care a whole lot about 

this debate. But there is another part of it that is conventional, 

heavy duty manufacturing, automobiles, forestry, pulp and paper. 

I am concerned that if we’re not careful about the way we do 

this, we will get more segmentation of the economy in States like 

Alabama, more parts of the State faring poorly because of these 

changes, other parts of the State unaffected. 

Mr. Lighthizer, can you speak to this concern about, if we do this 

wrong, our driving and creating more wage inequality in this economy and more class inequality in this economy? 


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Mr. LIGHTHIZER. Yes, I would be happy to. I think the sense 

of my testimony was that we really have to get this part of it right. 

If we don’t, there are enormous amounts of problems that we’re 

going to create. One of them is this problem that you alluded to, 

which is that we are going in the direction of having—we are getting rid of all the conveyor belts to middle-class status for people, 

and we’re going to find ourselves losing the kind of good, middleclass jobs that we need in this country. 

I think it is possible to get it right. But, candidly, most of the 

proposals out there need some change. But I think it’s a fundamental problem. 

The first question really is what Mr. Levin asked, which is, ‘‘Do 

we have a problem?’’ If you agree with that, then, in my judgement 

at least, yours is the most important second problem. Can we do 

this in a way that doesn’t really alter our economy and our society, 

ultimately, in a negative way? 

Chairman RANGEL. Well, Mr. Davis, you certainly were timely. 

Let me tell this panel that we recognize that we have not come 

anywhere close to resolving this problem. But I do hope that when 

we do start next year, you will make yourselves available in a more 

informal manner, where you’re not restricted to 5 minutes, but you 

will be able to share with us and compete in your thinking, so that 

we can make the best possible decision for our country, and indeed, 

the planet. 

I want to thank you for your patience with us. We thank this 

panel. 

For the next panel, we will be on the floor for at least a halfhour. We recognize you haven’t had a chance to eat. So, if we can 

reconvene at 2:15, I think that could fit in as to what we would 

like to do here. 

So, thank you so much for your patience with us, but we are controlled by the votes on the floor. We stand in recess. 

[Recess.] 

Chairman RANGEL. Here again, let me say publicly what I have 

said to you privately. The awkwardness of our parliamentary system causes us to have to leave the hearing rooms to vote, because 

that’s what we’re here for. 

But I want to assure you that this problem is so complex, that 

when the Committee—assuming we can convince the new President to give us the priority which we on the Committee believes 

this deserves—I was telling them earlier that this room will be converted into a room with Members, Republican and Democrat, sitting with you as we walk through this, so that at the end of the 

day, you won’t have to ask what’s in the bill, and to see whether 

you can support it. 

We need your support, your expertise to be out there, Republicans and Democrats, to say not what’s good for our party, but 

what’s good for our country, and what’s good for the planet. So, we 

are going to take advantage of the expertise, but also to give you 

the opportunity, not just to say what we should be doing, but to 

be a part of putting it together. 

I really believe that next year we can start brand new initiatives, 

things expire, and we can really be proud and lucky that we are 

participants in it. 


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So, Mr. Ackerman, thank you so much, and all of you, for your 

patience. We will start with your testimony as the Members come 

in. Thank you, I knew you would be here. 

STATEMENT OF FRANK ACKERMAN, PH.D., GLOBAL DEVELOPMENT AND ENVIRONMENTAL INSTITUTE AND STOCKHOLM 

ENVIRONMENT INSTITUTE—U.S. CENTER, TUFTS UNIVERSITY, MEDFORD, MASSACHUSETTS 

Mr. ACKERMAN. Thank you, Mr. Chairman, and Members of 

the Committee, for inviting me here to testify on this important 

topic. 

The issue of climate change is particularly timely now, because 

there has been a shift away from a debate about the science. The 

world has, essentially, decided about the science at this point. As 

the science debate is reaching closure, the economics debate is still 

wide open. 

Climate change is happening. It is threatening our future wellbeing. But how much can we afford to do about it? The most powerful argument for inaction today is that the cost of reducing emissions would somehow be intolerable. The damage to the economy, 

it is alleged, would be worse than the problem we are trying to 

solve. 

This argument, I believe, is wrong on two counts. It exaggerates 

the cost of reducing emissions, and it understates the harm that 

will occur if we continue to do little or nothing about the problem. 

That second point is what I’m mainly going to talk about. 

But briefly, on the first point, on the cost of reducing emissions, 

the two best studies I have seen, Nicholas Stern’s very detailed 

study for the British government, and the recent studies by 

McKinsey and Company, the international consulting firm that has 

been studying it, both estimate that what we need to spend, total 

package worldwide, is about 1 percent of world output for quite a 

few years, for some decades to come, in order to reduce emissions 

to a safe level. 

Without having researched it myself, I take that as a good estimate. My research says that the cost of inaction for the United 

States, where we have just a partial estimate, are going to be much 

greater than that. 

We estimated just four categories of the cost of inaction, the cost 

of increased hurricane damages as hurricanes become more intense 

as water and air get warmer, the cost of sea level rise, as the seas 

rise and threaten more coastal properties, the increased energy system costs, as increased air conditioning costs rise rapidly throughout the country, only partially offset by reduced heating costs in 

the northern States. Finally, the huge costs of water supply, as hotter and dryer conditions in the already dry States of the south and 

southwest cause huge new costs to maintain water supply, likely 

losses to irrigated agriculture, and so forth. 

These four categories, this partial estimate of the cost of inaction, 

is already above 1 percent of GDP at the beginning of the century, 

rises to 1.5 percent of GDP by the end of the century, and will keep 

on rising beyond that. 

I would emphasize that it’s a very partial account. There are 

many other categories: health costs, agriculture costs, losses of 


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tourism and so forth, which are not included in that, which would 

make the true numbers even larger. 

I will briefly mention two other studies of the cost of inaction we 

did. We did one looking at Florida, in specific, one of the States 

that is most vulnerable, where all of these costs loom much larger, 

the expected losses of tourism revenue as the conditions that draw 

people to Florida now are undermined really cuts a hole in the 

economy that the losses to Florida could exceed 5 percent of that 

State’s income by the end of the century—again, for a very partial 

accounting of the costs—and continue rising. 

The data allowed us to map what would be the effects of 27 

inches of sea level rise in Florida. The written testimony describes 

that, shows a map, 9 percent of the State, 1.5 million people’s 

homes under water at high tide by about 2060, huge number of facilities and property lost. 

Finally, we did a study of some of the Caribbean islands, some 

of the parts of the world that are much more sensitive even than 

the most sensitive States, like Florida. Huge losses, some economies likely to be wiped out by hurricane damages, losses of tourism, and so forth. 

This is not only a humanitarian issue for us, this is a likely 

source of a huge increased flood of refugees. If you are driven out 

of your home in the Caribbean by increasingly stormy and difficult 

conditions that have destroyed your local economy, where are you 

going to move to that’s a little colder and a little richer? My guess 

is they are coming here. 

So, the climate change, for all of those reasons, for the flood of 

refugees it could create, for the costs, the ones I have been able to 

enumerate, which are large enough, as well as the many others 

that I have not enumerated, the costs of inaction, even a partial 

accounting of the cost of inaction, is much greater than the cost of 

action, and will continue to rise into the future. 

These costs are detailed in the testimony which contains links to 

the original studies. We are not just talking about numbers getting 

larger as the economy grows. These are expressed as percentages 

of the economy. So, it is that the economy will be growing throughout the century, the damages from climate change will be growing 

even faster, they will be growing to be a larger and larger percentage. If we do nothing about it, they will continue to get worse, as 

time goes on. 

As other witnesses have said, doing something about climate 

change is expensive. Doing nothing about it is much more expensive. It’s not too hard to pick which one to choose. 

[The prepared statement of Mr. Ackerman follows:] 


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Chairman RANGEL. Thank you, Mr. Ackerman. We are pleased 

to have Daniel Abbasi, who is the Senior Director with 

MissionPoint Capital Partners, and also is—runs one of the first 

and largest private equity funds exclusively focused on financing 

the transition to a low-carbon economy. 

We thank you, that you have taken time to share your views 

with us today. 

STATEMENT OF DANIEL R. ABBASI, DIRECTOR, MISSIONPOINT 

CAPITAL PARTNERS, NORWALK, CONNECTICUT 

Mr. ABBASI. Thank you, Chairman Rangel and Members of the 

Committee. My name is Dan Abbasi, and I am a Senior Director 

with MissionPoint Capital Partners. As the Chairman just said, we 

are exclusively focused on financing the transition to a low-carbon 

economy. 

I appreciate the invitation to testify to the Committee today, and 

would ask that my written testimony be submitted into the record. 

Chairman RANGEL. Without objection. 

Mr. ABBASI. MissionPoint’s portfolio includes solar, wind, smart 

metering, geothermal, carbon finance, and other low-carbon companies, as well as companies that cut emissions and optimize traditional power plants. 

Our main message to the Committee today is this. Our country 

now has a profound opportunity before it: To lead the most strategic economic transformation of the 21st century, a massive retooling of the global system of energy production, distribution, and use, 

one that will cut our exposure to fossil fuel price volatility, and 

achieve long-term energy security, one that will create a more efficient and globally competitive industrial base, one that will generate hundreds of thousands of jobs, just when we need them the 

most, and finally, and not least, tackle the fundamental economic 

threat of unabated climate change. 

But we are truly at risk of squandering this opportunity. We 

have the capital and the talent, but it’s mobile. There is a fierce 

global competition underway to attract them. Here, in the U.S., we 

are still missing that one critical ingredient, and that is a longterm, stable, comprehensive policy framework. 

So, we respectfully offer three recommendations to the Committee, and related recommendations. 

First, it is time for Congress to remedy a glaring market failure, 

an externality, and put a price on carbon. 

Second, a well designed cap and trade policy is our preferred 

mechanism, not a carbon tax. 

Third, 75 percent or more of the allowances in the cap and trade 

policy ought to be auctioned, and a quarter or more of the proceeds 

used to fund a supplementary package of policies that will stimulate faster adoption of low-carbon solutions than a carbon price 

alone would. 

As we have heard today, some contend that a carbon price will 

harm our economy. We have heard a lot of discussions of the cost 

of inaction. Mr. Ackerman mentioned the Stern report, but didn’t— 

I didn’t hear the number 5 to 20 times, which is the multiple by 

which Nicholas Stern, in his authoritative study, estimated the cost 

of inaction would exceed the cost of action. As Mr. Ackerman and 


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others have pointed out, these are real economic costs to real industries. 

So, you know, I just ask, are we really going to risk our future 

and miss this profound opportunity, based on fictitious accounting? 

We have also discussed the risk to international competitiveness. 

From our vantage point in the market, the real competitiveness 

threat is that if we don’t price carbon we will lose the opportunity 

to develop this sector here, in the United States, and be an export 

leader. Instead, we will end up buying these solutions abroad. 

Take Germany. Not a real sunny place. To Mayor Bloomberg’s 

point, not known for its low-cost labor. Their stable feed-in tariff 

policy has produced the largest installed base of solar power generation in the world, five times more than we have in the United 

States. They are manufacturing much of their solar cells at home. 

They have 20 percent market share, and 42,000 jobs to show for 

it, and are now even enticing away the next generation producers, 

U.S. companies, thin film solar power companies, to set up their facilities there, in Germany. 

We have a meager 7 percent share today, and we should 

incentivize those companies to stay here, at home, and keep those 

high-tech jobs here, at home. 

But I want to underscore that the new clean energy jobs won’t 

only be for the cutting-edge companies and the genius innovators. 

With the right policy spurring adoption, each clean energy innovation creates a ripple effect, creates—job-intensive supply chains 

sprout up, new installations companies, parts companies, service 

companies. 

We love—MissionPoint loves—our own tech innovators in our 

portfolio, companies like Aminex. But some of our fastest-growing 

companies, like SunEdison, Hannon Armstrong, UpWind, are service innovators. They figure out ways and new business models to 

make it easier for customers to finance and adopt these low-carbon 

solutions, and to get the most energy productivity out of them. 

So, why do we favor a cap and trade over carbon tax? Three basic 

reasons: it’s the only way to predictably hit our emissions target; 

it lets us trade around the emission reduction burden to the least 

cost source; and third, it will do the most, we are convinced, to unleash American entrepreneurship and inventiveness. 

Some object that the administrative costs of the cap and trade 

will be too high. We simply don’t agree. The private sector does 

know how to do this, we can do this. Many companies, including 

our own APX, are already competing to provide the tools, the registry infrastructure, the offset protocols, and others to support a 

cap and trade and keep costs low. 

As with the carbon tax, if you auction most of the allowances, 

you will have a lot of revenue available for other purposes, to reduce distortionary taxes, consumer impacts, and fund other supportive policies. 

In the written testimony we lay out over a dozen of these, each 

intended to supplement the carbon price by reinforcing carbon 

weighting in our national policy framework. I will quickly mention 

just a couple. 


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We would encourage you to extend the R&D tax credit, but some 

of the carbon auction revenue should be used to provide a higher 

rate for low carbon, or R&D. 

Second, create a new tax credit to accelerate smart meter rollout that will motivate and empower consumers to do efficiency upgrades. One of our companies, Trillian Networks, makes and deploys these meters, and aims to unlock our country’s vast reserve 

of untapped efficiency. 

Finally, create new tax credits for rail and intermobile infrastructure, so that we can move freight from highways to rail, where 

they emit, literally, one-seventh per ton mile of the emissions. 

So, Congress does need to act to supply this framework now. We 

can get it done together with you. Otherwise, we are going to lose 

the momentum that we have built in the market. 

Thank you very much. 

[The prepared statement of Mr. Abbasi follows:] 


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Chairman RANGEL. Thank you for your contribution. Now we 

will hear from Jerome Ringo, who is a clean air and clean energy 

advocate, and environmentalist for many years, and has contributed to the United Nations. 

You came all the way from California to be with us, didn’t you? 

Mr. RINGO. Actually, Louisiana. 

Chairman RANGEL. Louisiana? 

Mr. RINGO. My office is in San Francisco, but I live in Louisiana. 

Chairman RANGEL. Well, thank you so much for sharing your 

views with us, Mr. Ringo. 

STATEMENT OF JEROME RINGO, PRESIDENT, APOLLO 

ALLIANCE, SAN FRANCISCO, CALIFORNIA 

Mr. RINGO. Thank you very much, Mr. Chairman and Members 

of the Committee, for the invitation. 

This is a time of daunting challenges and yet boundless opportunity. We, at the Apollo Alliance, recognize the challenges, challenges like foreign oil dependency. It puts our national security and 

economic future at risk. 

We recognize the price of energy, as it skyrockets, as American 

families struggle, poor people in particular, who have to make a decision between a gallon of gas or a gallon of milk. 

We recognize the growing threats of global warming in this economy, and the environmental and human costs, in particular the 

hurricanes of the Gulf region. As I mentioned, I’m from Louisiana. 

I just returned back from evacuating from Hurricane Ike, 2 weeks 

ago evacuating from Hurricane Gustav, evacuating from Hurricane 

Katrina, evacuating from Hurricane Rita, all the result of intensive 

storms because of the warm waters of the Gulf of Mexico, which 

is like adding steroids to those storms: a result of global warming. 

If we don’t do anything, we don’t create any opportunities just as 

described, and we remain stuck in the status quo. 

The opportunities that are recognized by the Apollo Alliance is 

that we have developed a new Apollo program, and it’s a comprehensive, 10-year, $500 billion investment strategy to move 

America to climate stability, energy security, and economic prosperity. 

The new Apollo program invests in energy efficiency, conservation, clean fuels, rapid transit, next generation vehicles, and advance manufacturing, smart growth, and millions of made-in-America jobs, 5 million jobs, to be exact. 

We believe that Congress should support a major public investment in clean energy economy. One way to do that is a cap and 

invest, a policy that auctions off permits like legislation sponsored 

by Representative Markey and Representative Doggett. 

An emissions permit auction is estimated to raise between $50 

billion and $300 billion per year to invest in a new clean energy 

economy. This money should be used to aid new technologies and 

enter the mass market and develop green-collar jobs, a strong demand. It should be used to insure that these technologies are manufactured domestically. This money should be invested in the domestic workforce, so that we have the skills needed in manufacturing, design, installation, maintenance, and science. 


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It should be invested in such projects such as a 21st century 

power grid, a world class transit system, fixing America’s transportation infrastructure, rebuilding and retooling America’s manufacturers in research and development, all of which will create jobs. 

The investment should be made with an eye toward aiding workers and industry in a transition, and helping communities that 

have been disproportionately affected by the old energy economy, 

to lift them out of poverty. For example, the provisions of the workforce assistance at 4 percent in Congressman Doggett’s Climate 

Matters Act is a good start. 

A cap and trade investment with an auction of permits can be 

a win-win-win, and it can help curb global warming. It can provide 

energy security, and stimulate the economy while leveling the playing field for those that have been victims of that disproportionate 

impact. 

As cap and invest policy is sweet, it can be bitter, too. If emission 

trading permits are given to companies instead of auctioning them 

off, then we make rich companies richer. Exxon Mobile made $40.6 

billion in 2007, which is three times the profit of Microsoft, four 

times the profit of Wal-Mart, while people in America still lost 

their jobs. 

We are more likely to build a new energy future with good jobs 

for working Americans if we ensure any new energy policy is an 

investment strategy, as well as a regulatory strategy. Thank you 

very much. 

[The prepared statement of Mr. Ringo follows:] 

Prepared Statement of Jerome Ringo, President, 

Apollo Alliance, San Francisco, California 

Chairman Rangel and Members of the Committee, thank you for inviting me here 

today to talk about an issue of crucial importance to our Nation’s future. 

For Americans this is a time of daunting challenges and boundless opportunities. 

We have become more and more dependent on foreign oil, putting our national security and economic future at risk. We have seen the price of energy skyrocket as 

American families struggle to make ends meet—choosing between a gallon of gas 

and a gallon of milk. And we have seen the growing threat of climate instability 

and all its economic, environmental and human costs. 

The food lines and emerging FEMA failures of Hurricane Ike remind us of the 

threat that became a reality as Hurricane Katrina pounded our shores. She provided a stark reminder that America faces not only a climate crisis, but a crisis of 

economic inequality as well. 

But fortunately our energy, climate and economic crises also present tremendous 

opportunity. The Apollo Alliance offers a unique perspective on the issue before this 

Committee, ‘‘cap and trade,’’ or as we like to call it ‘‘cap and invest.’’ As a coalition 

of labor unions, businesses, environmentalists, and community advocates, we believe 

our Nation can and must achieve a triple bottom line: Energy security, climate stability and broadly shared economic prosperity. My goal today is to illustrate how a 

strong ‘‘cap and invest’’ program can help us achieve these goals. 

The Apollo Alliance’s new policy agenda, The New Apollo Program, recognizes that 

great challenges bring with them great opportunity. We say no to business as usual 

and yes to a new path that will build a clean energy economy that creates millions 

of jobs—high-quality jobs that actually pay decent wages and support families. We 

say yes to a climate stability agenda that also strengthens national security. The 

economic potential, we believe, will be directly proportionate at a factor of almost 

5 to the level of public investment. The Apollo Alliance estimates that an ambitious 

$500 billion in Federal spending over 10 years would create over 5 million jobs. This 

includes a broad range of activities such as building efficiency, renewable energy investments, smart growth, advanced grid technology, research and development initiatives and a ‘‘cap and invest’’ program. 


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Before I illustrate how a ‘‘cap and invest’’ program can be a stimulus toward a 

new clean energy economy, I’d like to first explain what we mean by the green-collar 

economy, how we got here and where we go from here. 

What are green-collar jobs? Green-collar jobs are well-paid, career track jobs that 

contribute directly to preserving or enhancing environmental quality. They run the 

gamut from low-skill, entry-level positions to high-skill, higher-paid jobs, and include opportunities for advancement in both skills and wages. 

Green-collar jobs tend to be local. Building retrofits, solar panel repairs, transit 

line construction—these jobs can’t be outsourced. Most of these jobs are in industries that already exist, but that are just now getting involved in the green economy 

because of policy changes and public commitments to energy efficiency, renewable 

energy, and transportation. 

Green-collar jobs are here and growing and exist in many of the States of this 

Committee’s Members. 

The Renewable Energy Trust reports that the clean energy sector in Congressman 

Neal’s State of Massachusetts provides over 14,000 jobs and will soon be the 10th 

largest sector in the State. And a new report by the Political Economy Research Institute at the University of Massachusetts, Amherst says that investment in energy 

efficiency retrofits, a smart electrical transmission grid, rapid transit and renewable 

energy will yield 42,530 jobs. 

Most of us know, as do the Congressmen Doggett, Johnson and Brady, that wind 

energy is going to be bigger in Texas than anywhere else, but did you also know 

that the University of Texas predicts an additional 123,000 new high-wage jobs by 

2020 if Texas moves aggressively toward solar power? 

Environment California predicts that by meeting California’s Renewable Portfolio 

Standard goal of 20% by 2010—119,000 person-years of employment will be created 

at an average salary of $40,000. And there are two measures on November’s ballot 

that would raise the Portfolio Standard. 

The clean energy economy is present in Pennsylvania, Michigan, Tennessee, Or- egon, Florida and nearly every State in the union. As mentioned above, a $50 billion 

a year investment over 10 years will lead to the creation of 5 million jobs—jobs like 

the one held by Eric Chamberlain, a fifth generation native of Rock Port, Missouri. 

Rock Port was the first town in the Nation to meet all of its energy needs from 

wind. Chamberlain manages the wind farm operations for the town-owned utility. 

When he started working part-time at Loess Hills Wind Farm in 2006, he was one 

of four employees, now there are 30. That might not seem like a big number, but 

in Rock Port—a town of 1,300, it’s significant. 

The potential of the clean energy economy is evident. What’s not evident is whether we have the human capital or the political will to make it happen. In 2005, a 

National Association of Manufacturers study found that 90 percent of survey respondents expect a moderate to severe shortage of qualified, skilled employees like 

machinists and technicians. And the National Renewable Energy Lab concurs that 

a shortage of skilled labor is a large obstacle to an economy with strong renewable 

energy and energy efficiency industries. Even more important are the policies that 

create the demand for these products that in turn create the demand for workers. 

If we don’t pass the Production Tax Credit and Investment Tax Credit, over 116,000 

U.S. workers will lose their jobs within a year, and we’ll lose nearly $19 billion in 

investment, according to a February 2008 study by Navigant Consulting for the 

American Wind Energy Association and the Solar Energy Industries Association. 

Congress can foster the growth of the clean energy sector by focusing on specific 

measures needed to create green-collar jobs. Only by ensuring that all Americans 

come out winners will we build enough public support to do what must be done on 

the scale necessary to boost the economy, stabilize the climate and achieve energy 

independence. 

We need a major public investment in the clean energy economy. One way to 

gather the funds we need for that investment is for the U.S. to enact a ‘‘cap and 

invest’’ policy that auctions off permits, in the same way they are auctioned in legislation sponsored by Representatives Markey (D–MA) and Doggett (D–TX). At Apollo, 

we think a ‘‘cap and invest’’ policy should accomplish two major goals. 

First, it has to set clear limits on carbon emissions, so that we can dramatically 

lower our national carbon footprint. This will send a powerful market stimulus and 

begin to shift our entire energy economy toward low-carbon technologies. Second, it 

needs to raise significant levels of public funding to reinvest in the new energy future, while ensuring these funds are not siphoned off for wasteful pork barrel 

projects. 

A cap on carbon emissions would establish certainty in the rate of emission reductions necessary for climate stabilization. Emissions reductions would be achieved by 

reducing the number of carbon permits sold or allocated to the market each year. 


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Trading these permits would allow the market to achieve carbon reductions at the 

lowest cost. Emissions permits should be auctioned off to energy-intensive industries 

and power producers to generate substantial public funding—estimated by the Congressional Budget Office to be between $50 billion to $300 billion per year—to invest 

in the new clean energy economy. The money would be managed by a new Clean 

Energy Investment Corporation. 

Administering such a fund should achieve three objectives. First, it should 

continuously bring new technologies to the mass market. Green-collar jobs will 

develop amidst strong demand. Second, it should ensure that these technologies are 

manufactured domestically. Third, it should invest in the domestic workforce so 

that we have the skills needed in manufacturing, design, installation, maintenance 

and science. The money should be invested in such projects such as a 21st century 

power grid, a world-class transit system, fixing America’s transportation infrastructure, rebuilding and re-tooling American manufacturers and research and development. The investments should be made with an eye towards aiding workers and industries in transition and helping communities that have been disproportionately affected by the old energy economy to lift them out of poverty. Congressman Doggett’s 

Climate MATTERS Act includes such provisions and I support its goals. For example, I support the provision for workers assistance at 4%. I think that is a good 

start, but I would like to see more money allocated to workers and low-income communities. 

If done as just described, a ‘‘cap and invest’’ with an auction of permits can be 

a win, win, win—it can help stabilize the climate, provide energy security and stimulate the economy while leveling the playing field for those that have been disproportionately left out of the process. 

As a ‘‘cap and invest’’ policy is sweet, it can be bitter, too. If emissions trading 

permits are given to companies instead of auctioning them off, then we make rich 

companies richer. Exxon Mobil made $40.6 billion in 2007, which was three times 

the profit of Microsoft and four times the profit of Wal-Mart. In the meantime people lost jobs. This is the wrong way and a lost opportunity, not only to foster the 

market for clean energy and revolutionize our economy (and lose the potential described above,) but also to assist workers and families caught in the transition and 

to lift those that have been disproportionately affected by a petroleum-based energy 

economy. 

Also, the European Union implemented a ‘‘cap and trade’’ program that gave away 

permits. Not only have emissions not been reduced, but the E.U. didn’t raise funds 

to reinvest in R&D, infrastructure or its people. 

Other solutions that have been proposed are based upon a carbon tax. While we 

applaud the efforts of Representative Stark (D–CA) and Larson (D–CT) for taking 

action, we prefer a cap on emissions. A cap sends a strong signal to the market that 

there is a limit on emissions that will stay the same even as demand grows. The 

limit on emissions will be a factor in the business decisions of those deciding whether to invest in a new power plant or a new wind farm. It might make them think 

twice if they have to pay more and more for carbon each year that goes by. Taxes 

don’t do that and they can be passed on to consumers. 

If I leave you with one message today, it is this: We’re more likely to build a new 

energy future with good, green-collar jobs for working Americans if we ensure any 

new energy policy is an investment strategy as well as a regulatory strategy. 

We have called on the ‘‘can do’’ spirit of the original Apollo program in our Alliance’s name because we believe the American people are once again ready for a 

great challenge. Energy will be the transformative issue of our generation. 

The challenge for congressional leaders today will be to ensure that we all get 

there together: working men and women alongside industry, environmentalists, and 

our national security community. 

We’re confident this great Nation can get the job done; we’re confident we can get 

there with your leadership. 

Thank you. 

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Chairman RANGEL. Thank you. Peter Barnes, author, a former 

journalist, and a former expert in this area, we welcome your presence. 


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STATEMENT OF PETER BARNES, SENIOR FELLOW, TOMALES 

BAY INSTITUTE, POINT REYES STATION, CALIFORNIA 

Mr. BARNES. Thank you very much, Mr. Chairman, Members of 

the Committee. 

I want to recommend to you today a form of carbon capping 

called cap and dividend. It was briefly mentioned this morning, and 

I want to speak a little bit more about it now. 

If you’re going to do a carbon cap, as opposed to a tax, I think 

cap and dividend is the simplest, fairest, and most effective way to 

design that cap and trade system. It lets us reduce carbon emissions to the levels that scientists are calling for, without reducing 

the purchasing power of American families or expanding the size 

of government. 

Cap and dividend has three steps: First, cap the carbon supply, 

economy-wide; second, auction 100 percent of the permits; and 

third, return 100 percent of the auction proceeds to the American 

people in the form of taxable monthly dividends. Let me briefly explain a bit more about these steps. 

The cap, ideally, is an upstream cap, that is, a cap on carbon 

suppliers, rather than carbon emitters. The reason for that is that 

it’s much simpler to administer, and you catch all the carbon in the 

economy. You can administer the cap by requiring the first sellers 

of oil, coal, and natural gas—which are the same companies that 

you would apply a carbon tax to, if you were doing a carbon tax— 

to buy permits equal to the carbon content of your fuels. 

Once a year, these companies would true up and pay a penalty 

if they don’t own enough permits, and that’s it. No other businesses 

would need permits, no smoke stacks would need to be monitored, 

no bureaucracy would be needed to check up on everybody. So, 

that’s the cap. 

Second, of course, as everybody, I think, has said here, you would 

auction the permits, not give them away. 

Third, the bigger question here is what to do with the auction 

revenue. This proposal says wire that money directly into people’s 

bank accounts—or debit card accounts, if they don’t have bank accounts—every month, just like Social Security. A precedent for this 

is the Alaska Permanent Fund, which takes the revenue from State 

oil leases in Alaska and pays equal dividends to every resident up 

there. So, this is kind of like a revenue neutral carbon tax. It’s just 

structured a little differently. 

Now, I know there are Members of this Committee who would 

like to spend the auction revenue on a variety of good things. So, 

let me say why I think it’s better to give the money back to the 

people. 

The number one reason for giving the money back is that the 

money actually comes from people’s pockets in a regressive way. 

Even though it’s the fossil fuel companies that are buying these 

permits, they pass the costs on to consumers. As the CBO has 

shown, these higher costs will hit low-income and middle-class families quite hard. So, giving the money back protects these families, 

and protects consumer buying power, which is 70 percent of our 

economy. As we’re in a recession, it’s pretty important to protect 

that. 


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The number two reason for giving the money back, I would say, 

is political. As I don’t need to remind you, rising energy prices are 

an explosive political issue. A carbon cap will raise energy prices 

further, not just once, but for decades. So, the potential for political 

backlash is enormous. 

Unless you build pocketbook protection into the design of a carbon cap from the get-go, A, it probably won’t pass Congress in the 

first place, but more importantly, it certainly won’t survive long 

enough to do the job that we need it to do. 

There are a few other advantages that I would mention. One is 

that cap and dividend is simple enough that you can explain it to 

your constituents. 

The last point I would make is that—which was mentioned earlier today—is the virtue of simplicity. The Lieberman-Warner bill, 

which recently died in the Senate, tried to do too many things in 

one package. It was both a carbon cap and a massive spending bill, 

as you know, that allocated trillions of dollars over 40 years. 

A better approach, I think, is to focus on getting a good carbon 

cap, a cap that is simple, effective, and popular, something that 

could get bipartisan support, and conceivably even pass next year, 

with a new President. 

Once you have a cap like that, I think lots of other things will 

follow. More things do need to be done. But the point I am making 

is separate the cap from a lot of the other things that need to be 

done, and make the cap politically appealing and durable. Thank 

you. 

[The prepared statement of Mr. Barnes follows:] 


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f 


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Chairman RANGEL. Very interesting view. Now, the President 

of the American Public Transportation Association, Bill Millar, will 

express his views on transportation being such a large part of the 

problem. Share with us your suggestions toward a solution. 

STATEMENT OF WILLIAM W. MILLAR, PRESIDENT, AMERICAN 

PUBLIC TRANSPORTATION ASSOCIATION 

Mr. MILLAR. Thank you, Mr. Chairman, Mr. McCrery, Members 

of the Committee. I do appreciate the opportunity to appear before 

you on behalf of the 1,500 members of the American Public Transportation Association. 

As Congress considers legislation to reduce greenhouse gas emissions, a climate bill must work to reduce transportation-related 

emissions. The transportation sector produces approximately onethird of all the CO2 emissions in the U.S., and the transportation 

sector is the fastest-growing source of greenhouse gas emissions. 

Now, there is three widely held options for how to do this. The 

first is to make our cars and trucks more fuel efficient. The second 

is to use alternative energy sources that release less CO2. The third 

is to provide more travel options that allow Americans to leave 

their cars behind. All three are important, but I will focus on the 

third one, providing Americans travel options and, more specifically, the importance of public transportation in reducing greenhouse gas emissions. 

Now, you may have seen the figures recently from the Federal 

Highway Administration, that highway travel has declined in recent months. But with 100 million more Americans expected over 

the next 40 years, it’s believed that the future growth in vehicle 

miles of travel will erase the emissions savings that the recent increase in cafe ́ standards and new low-carbon fuels will provide. 

We cannot wait on future vehicle improvements and unproven 

clean fuel sources alone to address transportation emissions. The 

sooner we address the problem of climate change, our chances for 

success are so much better. 

Now, public transportation investment, land use policies, and tax 

incentives that promote energy efficient compact development and 

better transportation choices such as public transportation, encouragement of walking and bicycling, are proven ways to reduce emissions. 

For example, the more than 10 billion trips that Americans took 

on public transportation last year already reduced CO2 emissions 

by more than 37 million metric tons in the United States. They did 

this directly, and through reducing highway congestion and supporting more energy efficient land use. 

I want to compliment several Members of this Committee for 

their early efforts to promote these kinds of solutions, particularly 

Representative Doggett and Representative Blumenauer, and other 

cosponsors of the Climate Matters Act are to be commended for 

their proposal, which would use auction revenue from a cap and 

trade system to increase public transportation investment, so that 

we could reduce transportation-related emissions. 

Now, let me put the emissions savings from public transit into 

some perspective. Consider a typical household, two adults work 

outside the home. In America, it’s more likely that each of them 


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will drive their own car their own way. Commuting each day, let’s 

say a total round trip of about 20 miles a day. If just one of those 

two people changes his or her habit to using public transportation, 

the annual CO2 emissions from that household will fall by about 

2 metric tons, equal to about 10 percent. 

So, the simple act of one of them starting to commute by transit—take the bus, take the train—will reduce it by about 10 percent. Now, this is greater savings than if that same household were 

to: install compact fluorescent lights, certainly a good thing to do; 

weatherize their home, another good thing to do; replace that old 

refrigerator with an Energy Star appliance. If they do all three of 

those things, they haven’t yet equaled the energy savings from simply one person commuting by public transit. 

Now, let’s suppose that person finds out public transit works 

pretty good for them, and they decide maybe they can sell that second car and don’t need that so much, take public transit, walk 

more, ride a bike when they can. At this point, the household saves 

30 percent of their household carbon footprint. 

Thirty percent of their household carbon footprint is more than 

if the house could do without electricity—and I don’t know very 

many Americans that would be willing to do without electricity. My 

point is, public transportation can make a big, big difference in this 

effort. 

Now, besides the greenhouse savings, you get enormous fuel savings from these same actions. Transit riders are already saving 

over 4.2 billion gallons of gasoline each year. This is three times 

the amount of petroleum we import from a country like Kuwait, for 

example. 

Investing in public transportation strengthens our economy. The 

Federal Government tells us for every billion dollars invested in 

transportation infrastructure, about 35,000 jobs are created. Since 

the Congress has long ago established the policy of ‘‘Buy America,’’ 

when we purchase buses or rail cars with Federal aid, this is investment that goes in American jobs. The assemblies are done in 

America with components produced largely in America. 

In recent years, transit systems have begun buying large numbers of hybrid-powered buses, natural gas-powered buses. The sales 

from these buses have put thousands of American workers into 

new green-collar jobs, jobs that cannot be sent overseas. 

Better public transit service is one of the quickest ways that 

Americans can avoid that high cost of fuel. So, I would encourage 

more investment in this area. 

I thank the Committee for the work you did to save the highway trust fund recently. Chairman Rangel sponsored that bill, and 

we thank you, sir. That bought us a little bit of time to consider 

the bigger issues of how we finance transportation beyond the 

usual sources. We are certainly going to need to look to cap and 

trade. 

I know my time has expired, there is much more I could say, and 

I will look forward to answering your questions. Thank you very 

much, Mr. Chairman. 

[The prepared statement of Mr. Millar follows:] 


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1 Intergovernmental Panel on Climate Change (United Nations and World Meteorological Organization), ‘‘Summary for Policymakers, Climate Change 2007: The Physical Science Basis. 

Contribution of Working Group I to the Fourth Assessment Report of the IPCC,’’ February 2007. 2 Urban Land Institute, ‘‘Growing Cooler: The Evidence on Urban Development and Climate 

Change,’’ Don Chen, Reid Ewing and Steve Winkelman, January 2008. 

Prepared Statement of William W. Millar, 

President, American Public Transportation Association 

Chairman Rangel, Ranking Member McCrery and distinguished Members of the 

Committee, on behalf of the American Public Transportation Association (APTA) I 

thank you for the opportunity to testify today. As the Congress considers strategies 

to reduce the emission of greenhouse gases, it must address the challenge of reducing transportation-related emissions. 

Our Nation’s transportation sector produces one-third of all carbon dioxide (CO2) 

emissions in the U.S., and unfortunately transportation is the fastest-growing 

source of domestic greenhouse gas emissions. 

Source: Energy Information Administration (EIA), Emissions of Greenhouse Gases in the 

United States, http://www.eia.doe.gov/oiaf/1605/ggrpt/flowchart.html. 

Approximately 85 percent of transportation sector emissions are related to the 

surface transportation system. To reduce these emissions there are three widely accepted options: First, we can make our cars and trucks more fuel efficient; second, 

we can use alternative sources of energy that release fewer greenhouse gases when 

consumed or produced; and third, we can provide more travel options that allow 

Americans to leave their cars behind. While we need to undertake all of these options, for the purpose of this hearing I will focus principally on the importance of 

the last option. 

To prevent potentially catastrophic increases in average global temperatures, the 

scientific community has determined that the emissions of all greenhouse gases 

must be reduced by as much as 85 percent below 2000 levels by 2050.1 Achieving 

emissions reductions on this scale in the transportation sector will not be easy. Current research indicates that future growth in private motorized vehicle travel in the 

next 30 years could negate the emission savings from the recent changes in Corporate Average Fuel Economy (CAFE) standards and the low-carbon fuel requirements contained in the Energy Independence and Security Act of 2007 (P.L. 110– 

140).2 Stated simply, this means that for the United States to achieve reductions 

in transportation emissions on the scale required to limit the potentially disastrous 

effects of global warming, we must offer Americans more travel choices. We cannot 

rely alone on future vehicle improvements and unproven clean fuel sources to adVerDate Nov 24 2008 14:33 Mar 17, 2011 Jkt 062201 PO 00000 Frm 00185 Fmt 6633 Sfmt 6621 I:\WAYS\OUT\62201.XXX APPS06 PsN: 62201

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3 ICF International, ‘‘The Broader Connection between Public Transportation, Energy Conservation and Greenhouse Gas Reductions,’’ February 2008. 

dress transportation emissions. The sooner we begin to address the problem of climate change, our chances for success are better. Americans need more travel choices 

that allow them to preserve the mobility they have come to expect and reduce their 

individual carbon footprint. Public transportation can help reduce greenhouse gas 

emissions. It can do it now, and it can do it by expanding mobility choices. 

VMT = Vehicle Miles Traveled; 

Source: Urban Land Institute, ‘‘Growing Cooler: The Evidence on Urban Development and Climate Change.’’ 

The Role of Public Transportation, Energy Efficient Land Use, and Improved Transportation Choices in Reducing Emissions 

Public transportation investment, energy efficient land-use policies and other 

strategies that promote transportation choices are proven ways to reduce emissions 

from the transportation sector. Public transportation use currently reduces CO2

emission by more than 37 million metric tonnes every year in the United States 

by reducing travel and congestion on roadways and supporting more efficient land 

use patterns.3 Those who choose to ride public transportation reduce their carbon 

footprint and conserve energy by eliminating travel that would have otherwise been 

made in a private vehicle, and even the length of vehicle trips is considerably shorter for households that live near transit. In fact, households within close proximity 

of public transportation drive an average of 4,400 fewer miles annually than those 

with no access to public transportation. Unfortunately, only 54 percent of American 

households have access to any public transportation services according to U.S. Census data, and Americans can’t use what they don’t have. 


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How do we unleash the power of public transportation to reduce greenhouse gas 

emissions? To begin, the Federal Government must do its part to expand transit 

availability and promote energy efficient land-use patterns and transit-oriented development. Efficient land use, combined with good transit service, particularly fixed 

guideway service—subway, light rail, commuter rail, streetcar and bus rapid transit—produces results far beyond the immediate benefit of increased use of public 

transportation. Efficient land use has the potential to significantly change the way 

we live and travel, reducing our individual carbon footprints while preserving and 

enhancing our mobility. Higher densities allow for closer proximity of housing, employment and retail, reducing driving distances and enabling communities to plan 

for and support alternative travel options. In many central business districts, trips 

taken for shopping, dining or other noncommuting purposes are often made on 

foot—even by those who drive to work. 

Allow me to put the emissions savings from transit into perspective. Consider a 

typical two-adult, two-car household where both adults commute separately by car. 

If just one person in the household switches a 20-mile total round trip commute to 

existing public transportation, his or her annual CO2 emissions will fall by 4,800 

pounds per year, equal to a 10 percent reduction in all greenhouse gases produced 

by members of the household. If the entire household chooses to eliminate one of 

its cars and take public transportation, walk or ride a bicycle instead of driving for 

most of its trips, a savings of up to 30 percent of carbon dioxide emissions can be 

realized. This is more CO2 savings than if that household went without electricity. 

Source: Science Applications International Corporation (SAIC), ‘‘Public Transportation’s Contribution to U.S. Greenhouse Gas Reduction,’’ September 2007. 

The Many Benefits of Public Transportation Investment 

While my testimony today has focused on the emissions reductions benefits associated with public transportation use, it is important to point out that public transportation provides enormous benefits beyond it contribution to improving the environment. In particular, public transportation investment by the Federal Government offers unique benefits that cannot be measured solely in terms of emissions 

reductions. Among its many benefits: 


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4 ICF, 2008. 

5 Cambridge Systematics, ‘‘Public Transportation and the Nation’s Economy,’’ October 1999. 

6Texas Transportation Institute, 2007 Annual Urban Mobility Report, September 2007. 

• Public transportation helps Americans escape the high cost of gasoline, 

and it promotes energy independence. 

Providing Americans more access to public transportation not only reduces greenhouse gas emissions, it also frees individuals and families from the heavy burden 

of high gasoline prices. On average, a transit user saves more than $9,500 per year 

by taking public transportation instead of driving based on today’s gas prices. These 

savings are important not only for individuals and families, they are important 

when we consider the urgent need for the United States to attain energy independence. Transit use already saves the U.S. 4.2 billion gallons of gasoline each year, 

the equivalent of more than 11 million gallons per day. That amount of savings is 

equivalent to oil refined from 102 supertanker loads, or more than three times the 

amount of oil we import from Kuwait each year.4

• Public transportation contributes to the growth of a strong economy. 

For every $1 billion in Federal investment in transportation infrastructure, the 

U.S. Department of Transportation estimates that approximately 35,000 jobs are 

created. Federal investment in public transportation also greatly supports American 

manufacturing jobs. Every transit bus or rail car that is purchased with Federal assistance is assembled domestically and comprised of components that are produced 

primarily in the United States, in accordance with ‘‘Buy America’’ policies established by Congress. In recent years, transit systems have increased their procurement of clean and alternative fueled buses, including diesel-electric hybrid buses 

and compressed and liquid natural gas (CNG and LNG) buses. The rapid growth 

in sales of these vehicles has put thousands of workers into new ‘‘green-collar’’ jobs 

that cannot be sent overseas. 

According to researchers at Cambridge Systematics, it is estimated that every $10 

million in capital investment in public transportation yields $30 million in increased 

business sales, and that every $10 million in operating investment in public transportation yields $32 million in increased business sales. Further, every $1 taxpayers 

invest in public transportation generates $6 in economic returns.5

• Public transportation reduces traffic congestion. 

Traffic congestion results in lost time and wasted fuel. According to the Texas 

Transportation Institute report, congestion cost America $78 billion in lost time and 

productivity in 2005. Public transportation saved 541 million hours in travel time 

and 340 million gallons of fuel. Without public transportation, congestion costs faced 

by American motorists that year would have been $10.2 billion higher.6

These are simply a few of the many benefits that public transportation investment 

and use provide. Many more benefits could be detailed: Transit also provides important public health benefits—its service produces 95 percent less carbon monoxide 

and 90 percent less in volatile organic compounds than private vehicles; transit improves safety—fatality rates for travel on public transportation vehicles are about 

1/25th that of private passenger vehicles; and transit offers vital mobility to older 

Americans and persons with disabilities. Each of these benefits are important, and 

deserves attention, but possibly a more pressing issue is that U.S. transit providers 

cannot meet the current demand for their services. 

Current Investment Fails to Meet Demand for Transit Services 

The greatest challenge facing public transportation today is meeting the recordbreaking demand for transit services. We have witnessed sweeping changes in 

American travel patterns in 2008 in response to rising fuel prices, and public transportation is playing a key role in helping individuals escape the heavy burden of 

$4 a gallon gasoline while preserving the mobility we have all come to expect. In 

the second quarter of 2008 as the price of gasoline rose steadily, Americans took 

more than 2.8 billion trips on public transportation vehicles. This is almost 140 million more trips than last year for the same time period or 1.5 million more each 

day. As ridership has increased, transit services across the country are operating 

at capacity during peak travel times. Transit providers are struggling to maintain 

the quality of their physical infrastructure and the reliability of their service. 

Eighty-five percent of public transit systems report capacity problems, and 39 percent report turning passengers away because of capacity issues, according to a new 


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7 APTA, ‘‘Rising Fuel Costs: Impacts on Transit Ridership and Agency Operations—Survey Results,’’ September 2008. 

nationwide survey of 115 transit systems of all sizes across the Nation recently conducted by APTA.7

It should be noted that transit ridership has been growing robustly in recent 

years. Last year, 10.3 billion trips were taken on U.S. public transportation—the 

highest number of trips taken in 50 years. Public transportation use rose 32 percent 

between 1995 and 2007, a figure that is more than double the growth rate of the 

population (13 percent) and up substantially over the growth rate for the vehicle 

miles traveled (VMT) on our Nation’s highways (24 percent) for that same period. 

In fact, in recent months growth in transit ridership has accelerated while use of 

our highways has fallen. Transit ridership grew by more than 5.2 percent in the second quarter of 2008, while the Federal Highway Administration (FHWA) has reported that the vehicle miles traveled on our Nation’s roads declined by 3.3 percent. 

Despite the growth of the Federal transit program, Federal funding has not kept up with the growing needs or inflation. U.S. transit systems need nearly $60 billion 

a year in capital investment to improve and maintain transit infrastructure at a 

rate that would allow ridership to double in 20 years. The Federal Government traditionally provided approximately 50 percent of the capital investment in transit, 

but that share has shrunk. In 2006, the most recent year reported, the Federal Government provided 43.6 percent. As we move ahead, the Federal Government needs 

to invest upwards of $30 billion a year to support vibrant transit service across the 

Nation, significantly more than the $10 billion a year that it currently provides. 

Source: Cambridge Systematics, ‘‘State and National Public Transportation Needs Analysis,’’ 

2008. 

As this Committee knows, the resources of the Federal Highway Trust Fund are 

being exhausted rapidly. APTA strongly supported the trust fund ‘‘fix’’ that Chairman Rangel sponsored and President Bush signed into law this week. That legislation remedies the short-term crisis facing the Federal Highway Trust Fund without 

damaging the Mass Transit Account of the Trust Fund, but it does not address the 

larger issue of underinvestment in our Nation’s surface transportation system, parVerDate Nov 24 2008 14:33 Mar 17, 2011 Jkt 062201 PO 00000 Frm 00189 Fmt 6633 Sfmt 6621 I:\WAYS\OUT\62201.XXX APPS06 PsN: 62201

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ticularly underinvestment in public transportation. Congress now has more time, 

but not much time, to address the long term funding need as the current Federalaid highway and public transportation programs expire in 1 year on September 30, 

2009. 

When Congress develops a new surface transportation authorization bill, we urge 

this Committee to finance an aggressive program that provides no less than $123 

billion in Federal public transportation investment over 6 years and restores the 

purchasing power of the Federal motor fuel tax. There has been no increase in the 

motor fuel tax since 1993, and inflation has steadily eroded the purchasing power 

of the revenues that go into the highway trust fund. The effects of inflation have 

been compounded in recent years by steep increases in the cost of construction materials. According to the Associated General Contractors of America (AGC), the cost 

of supplies for transportation infrastructure construction have increased 77 percent 

in the past 5 years, a much faster rate of growth than the consumer price index 

(CPI) which increased 19 percent. 

For the Federal Government to begin to invest upwards of $30 billion a year in 

public transportation, the Congress will need to look to new sources of revenue, and 

given the contributions of public transportation to reducing emissions, climate 

change legislation should be one potential source. 

APTA Recommendations for Federal Climate Change Legislation 

• Use revenues from Federal climate change legislation to expand public 

transportation service across the Nation. 

As Congress develops climate change legislation, it must move to protect, preserve, and most importantly expand public transportation service across the Nation. 

To achieve the increases in transit ridership that will significantly reduce greenhouse gas emissions from the transportation sector, climate change legislation must 

begin to address the $45.9 billion annual capital funding shortfall for public transportation. Revenues from the auction or sale of emissions allowances under a ‘‘cap 

and trade’’ program or forms of revenue from an emission reduction program should 

be used to supplement—not substitute—funding provided through the Federal highway and public transportation authorization legislation. 

• Increase the availability of fixed guideway transit—subway, light rail, 

commuter rail, streetcar and bus rapid transit—which is essential to creating energy efficient land-use patterns that reduce greenhouse gas emissions. 

Fixed guideway transit investments are essential to creating energy efficient land 

use patterns which produce greenhouse gas emission savings far beyond the immediate benefit of increased public transportation use. These investments have the potential to significantly improve the way we live and travel, reducing our individual 

carbon footprints while preserving and enhancing our mobility. Experience has 

shown that once fixed guideway transit investments are committed and station locations set, the private sector will build transit-oriented developments which produce 

dramatic reductions in vehicle travel and transportation-related emissions. 

• Promote energy efficient technology in public transportation systems to 

increase the already substantial CO2 savings from transit. 

Climate change legislation should encourage new investment in energy efficient 

technology that can increase the annual CO2 savings from current public transportation services. Federal support for such investment would speed the deployment of 

advanced technologies, increasing CO2 savings and simultaneously reducing the cost 

of transit operations, thereby freeing up resources to support expanded service. 

These investments would also put more Americans to work in new ‘‘green-collar’’ 

jobs because all transit vehicles purchased with Federal resources are manufactured 

domestically. 

• Support local, regional and State efforts to increase mobility while reducing emissions from the transportation sector. 

As part of a comprehensive strategy to reduce greenhouse gas emissions, APTA 

supports the creation of a new source of funding for local, regional and State governments to advance mobility in ways that reduce the need for motorized vehicle travel. 

New funding could be linked to new performance-based goals and planning efforts 

that will capture maximum emission savings through the energy efficient land-use 

patterns, expanded transit availability and transit-oriented development. A new 

pool of funds at the regional and local level, when combined with a significant new 

investment in dedicated funding for public transportation infrastructure and operVerDate Nov 24 2008 14:33 Mar 17, 2011 Jkt 062201 PO 00000 Frm 00190 Fmt 6633 Sfmt 6621 I:\WAYS\OUT\62201.XXX APPS06 PsN: 62201

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ations, would offer communities the full complement of tools they need to fight congestion and expand mobility while simultaneously reducing greenhouse gas emissions from the transportation sector. 

• Equalize and expand tax benefits for public transportation riders. 

Finally, while understanding that the focus of this hearing is on global warming 

legislation, I would be remiss if I did not mention two legislative proposals under 

this Committee’s jurisdiction that would increase transit ridership. H.R. 1475, the 

‘‘Commuter Benefits Equity Act,’’ introduced by Representative James McGovern, 

would increase the transit benefit offered under section 132(f) of the Tax Code to 

$215/month, the same level as parking. A Transit Cooperative Research Program 

study found that employee transit and vanpool ridership generally increases by 10– 

50 percent at worksites after the commute benefit program is introduced. Similarly, 

H.R. 6030, the ‘‘Commuter Act of 2008,’’ introduced by Representative Mark Kirk, 

would establish a small tax credit for those employers who subsidize their employees commutes on public transportation. These two legislative proposals are cost effective remedies to increasing transit ridership and reducing greenhouse gas emissions, and I would urge this Committee to take action on these proposals as soon 

as possible. 

Conclusion 

Mr. Chairman, APTA applauds the attention of this Committee to the pressing 

issue of climate change, and we thank you for considering the contribution of public 

transportation toward reducing greenhouse gas emissions from the transportation 

sector. We look forward to working with the Committee as it explores these issues 

further in the months ahead. 

f 

Chairman RANGEL. We will be looking forward to working with 

you, because we need your ideas, especially in transportation, public transportation. 

Now we will hear from Dr. Kreutzer of The Heritage Foundation. 

We look forward to your testimony. 

STATEMENT OF DAVID W. KREUTZER, PH.D., SENIOR POLICY 

ANALYST, THE HERITAGE FOUNDATION 

Mr. KREUTZER. Mr. Chairman, I want to thank you and the 

other Members for this opportunity to address you on the topic of 

climate change. My name is David Kreutzer, I am the Senior Policy 

Analyst in Energy Economics and Climate Change at The Heritage 

Foundation. The views I express in this testimony are my own, and 

should not be construed as representing any official position of The 

Heritage Foundation. 

What is the problem with carbon dioxide, or CO2? Carbon dioxide 

is not a toxin, it is not directly harmful to human health, and it 

is not projected to become so, even without legislative or regulatory 

action. CO2 is fundamental to all known forms of life. Indeed, studies show that increased CO2 levels are beneficial for crop production. 

However, higher CO2 levels are expected to have negative effects, 

due to temperature increases that some predict will be brought on 

by these higher levels. If the negative effects of CO2 increases outweigh the positive, the question becomes, what are the benefits of 

limiting CO2 emissions, and how do these benefits compare to the 

costs? 

Some have made estimates of all the damage that global warming will do, and preset them as the benefit of reducing CO2 emissions by some amount. Often called ‘‘The cost of doing nothing,’’ 

this approach has two fatal flaws. First, the estimate costs, such 


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as the property damage from higher sea levels or crop loss from 

drought, are based on a world that is richer, in large part, because 

of the energy use that supposedly causes the projected sea level 

rise or drought. 

The sea level rise affects more expensive buildings, and the 

drought reduces crops that are worth more because the world is 

richer. That is, the cost of doing nothing is an impossible cost to 

avoid, since the magnitude of the damage depends on the much 

richer world that energy use will create. Using similar logic, I could consider my $6 per day Metro commuting expense the cost of work, and then estimate I would be 

$120 per month richer if I didn’t go to work. Of course, that would 

be a silly exercise. 

The second fatal flaw occurs when the total estimated cost of 

global warming is compared to the cost of reducing a small, often 

insignificant portion of that warming. Sticking with the previous 

analogy, it would be comparing the $120 per month commuting 

cost to the salary lost by staying home 1 day per month. The lost 

day’s salary needs to be compared to the $6 saved from not commuting 1 day, not to the whole month’s commuting cost. 

So it is with proposals for carbon tax or a cap and trade scheme. 

We need to look at the cost of these proposals, in light of what difference the proposals make. 

None of the proposed cap and trade schemes or carbon taxes, or 

any program that I have seen will entirely eliminate predicted climate change, regardless of the assumptions, the models, computers, or theories used. There are still going to be some emissions 

of CO2. We will not cut it all. 

As documented in our report, which is attached, we find that a 

cap and trade program like Senate Bill 2191, the Lieberman-Warner bill, will, in just the first 19 years—which is as far as our analytical models could go—in the first 19 years, reduce overall employment—overall employment—by up to 900,000 jobs in some of 

those years, reduce manufacturing employment by nearly 3 million 

jobs. 

Again, in just 19 years, reduce gross domestic product by nearly 

$5 trillion, after adjusting for inflation. Of course, as has been mentioned, energy prices will go up. For example, gasoline will go up 

$1 a gallon above what it otherwise would have been. 

These losses occur after consumers, workers, and businesses 

have adjusted as well as they can to the higher energy costs. 

Household energy prices rise, even though consumers will have 

switched to smaller cars, live in more energy-efficient houses, and 

make greater use of public transit. Job and income losses occur, 

even though firms will have adopted more energy-efficient technologies and processes. 

In addition, cap and trade proposals include well-intentioned provisions to protect domestic industries. Unfortunately, these provisions promised to create unwieldy bureaucracies, trade tensions, 

and the possibility of damaging trade wars. 

How much difference will all this make to world temperatures? 

Depressingly little. 

The environmental gain for all the costs is unlikely to exceed a 

fraction of a degree by the end of this century. The Environmental 


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1For instance see: Frank Ackerman, et al., ‘‘The Cost of Climate Change: What We’ll Pay if 

Global Warming Continues Unchecked,’’ 2008, Natural Resources Defense Council. Accessed on 

September 7, 2008 at: http://www.nrdc.org/globalwarming/cost/cost.pdf. 

Protection Agency analyzed the impact of a 60 percent cut in CO2

emissions, and found that it would reduce concentrations of CO2 by 

about 25 parts per million. This would lead to a temperature drop 

of about .1 to .2 degrees centigrade. 

The EPA did outline a scenario that would cut temperatures by 

a more significant 1 to 2 degrees, but this scenario required the developing world, including India and China, to reduce emissions to 

a level that would be equivalent to a 90 to 95 percent cut for us. 

We cannot expect these countries to condemn themselves to such 

income-killing reductions. So, we are back to the .1 or .2 degrees 

saved. 

In sum, the cap and trade proposals impose significant costs for 

very little change in global warming. I am done. 

[The prepared statement of Mr. Kreutzer follows:] 

Prepared Statement of David W. Kreutzer, Ph.D., 

Senior Policy Analyst, The Heritage Foundation 

My name is David Kreutzer. I am the Senior Policy Analyst in Energy Economics 

and Climate Change at The Heritage Foundation. The views I express in this testimony are my own, and should not be construed as representing any official position 

of The Heritage Foundation. 

Mr. Chairman, I want to thank you and the other Members for this opportunity 

to address you on the topic of climate change. 

What Is the Problem With Carbon Dioxide (CO2)? 

Carbon dioxide is not a toxin, is not directly harmful to human health, and is not 

projected to become so—even without legislative or regulatory action. CO2 is fundamental to all known forms of life. Indeed, studies show that increased CO2 levels 

are beneficial for crop production. 

However, higher CO2 levels are expected to have negative effects due to temperature increases that some predict will be brought on by these higher levels. If the 

negative effects of CO2 increases outweigh the positive, the question becomes: What 

are the benefits of limiting CO2 emissions and how do these benefits compare to the 

costs? 

Costs and Benefits 

Some have made estimates of all the damage that global warming will do and 

present them as the benefit of reducing CO2 emissions. Often called ‘‘the cost of 

doing nothing,’’ this approach has two fatal flaws.1 First, the estimated costs (such 

as the property damage from higher sea levels or crop loss from drought) are based 

on a world that is richer, in large part, because of the energy use that supposedly 

causes the projected sea-level rise or drought. The sea-level rise affects more expensive buildings, and the drought reduces crops that are worth more per bushel because the world is richer. 

That is, the ‘‘cost of doing nothing’’ is an impossible cost to avoid since the magnitude of the damage depends on the much richer world that energy use will create. 

Using similar logic I could consider my 6-dollars-per-day Metro commuting expense 

‘‘the cost of work’’ and estimate I would be $120 per month richer if I didn’t go to 

work. It is a silly exercise. 

The second fatal flaw occurs when the total estimated cost of global warming is 

compared to the cost of reducing a small, often insignificant, portion of that warming. Sticking with the previous analogy, it would be comparing the $120 per month 

commuting cost to the salary lost by staying home 1 day per month. The lost day’s 

salary needs to be compared to the 6 dollars saved, not to the whole month’s commuting cost. 

So it is with proposals for a carbon tax or a cap and trade scheme. We need to 

look at the cost of these proposals in light of what difference these proposals make. 

None of the proposals will entirely eliminate predicted climate change regardless of 

the assumptions, models, computers or theories used. 


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2William W. Beach, et al., ‘‘The Economic Cost of the Lieberman-Warner Climate Change Legislation,’’ Center for Data Analysis Report #08–02. http://www.heritage.org/Research/Energy 

andEnvironment/upload/cdal0802.pdf. 

The Costs 

The typical cap and trade proposal seeks to reduce CO2 emissions by 60 percent 

to 80 percent by 2050 where the comparison year is usually 2005. The Center for 

Data Analysis at The Heritage Foundation did an analysis of the costs of meeting 

the goals of the Lieberman-Warner bill, S. 2191, this past spring. The report on this 

analysis is attached.2

Our analytical models are not suited to making projections beyond 2030. Nevertheless, the costs of S. 2191 just in the first 19 years were eye-opening. The estimated aggregate losses to Gross Domestic Product (GDP), adjusted for inflation, are 

$4.8 trillion. By 2029, the job losses in the manufacturing sector will be nearly 3 

million. This is over and above the significant manufacturing job losses that most 

economists predict will occur even in the absence of global warming legislation. 

Some of the workers forced out of manufacturing will find employment in the 

service sector but overall the economy loses jobs. In some years this overall job loss 

exceeds 900,000. 

Eighty-five percent of our energy use today is based on CO2 emitting fossil fuels. 

The ability to switch to non-CO2-emitting energy sources over the next 20 years is 

limited and expensive. Therefore, significant cuts in CO2 emissions require significant cuts in energy use. 

The cap and trade schemes, as well as carbon taxes, limit emissions by making 

energy more expensive. In addition to having a direct impact on consumers’ budgets 

for gasoline, heating oil and natural gas, these higher energy costs force cutbacks 

on the production side of the economy and lead to lower output and income. 

These losses occur after consumers, workers and businesses have adjusted as well 

as they can to the higher energy costs. Household energy prices rise 29 percent 

above the business as usual prices, even though consumers will have switched to 

smaller cars, live in more energy efficient houses and make greater use of public 

transit. 

Production drops even though firms will have adopted more energy efficient technologies and processes. To reiterate, the trillions of dollars of lost GDP and the hundreds of thousands of lost jobs occur even after homes and businesses have made 

the switch to greener ways of doing things. The hoped-for green-job gain is a mirage. 

Cap and trade programs frequently include provisions to protect domestic industries from competition with firms in countries that haven’t adopted similarly costly 

mechanisms for reducing CO2. While the intent is certainly understandable, the provisions create the possibility of a protectionist wolf in global warming clothes. 

While the theory of this trade-protection makes sense, putting it into operation 

is a bureaucratic nightmare. Every product from every country will need to be 

judged for how much of an advantage it may have due to different carbon-cutting 

regimes. Since different countries can have different approaches and since different 

manufacturers can use different technologies and processes, assigning an offsetting 

CO2 tariff will necessarily involve arbitrary decisions. The potential for a trade war 

is very real. 

Note: Current law already has many provisions for curtailing CO2 emissions. They 

range from local renewable-fuel mandates to increased nationwide Corporate Average Fuel Economy (CAFE) standards to subsidies for ethanol production. While the 

reductions in CO2 emissions are included, the considerable cost of these programs 

is not included in our analysis. This is because the costs are attributable to existing 

legislation and will occur even without additional laws or regulations. Of course, if 

they were included, job and GDP loss totals would be even higher. 

The Gain 

Analysis by the Environmental Protection Agency (EPA) shows that a 60 percent 

reduction in CO2 emissions by 2050 will reduce CO2 concentrations by only 25 ppm 

in 2095. This reduction would affect world temperatures by 0.1 to 0.2 degrees C. 

In other words, it makes virtually no difference. 

Some argue that if the United States adopted a sufficiently severe cap on CO2

emissions that would induce the rest of the world to do the same. The same EPA 

analysis runs through just such a scenario and finds with the ‘‘leadership’’ effect the 

drop in CO2 concentrations are larger—perhaps enough to reduce world temperature 

by 1–2 degrees C. 

However, the assumptions made to achieve even this reduction are entirely unrealistic. It is assumed that our leadership causes the developed world to reduce their 


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emissions by 50 percent by 2050 and that the developing world would cut its emissions to the 2000 level by 2035. 

Seeing what that means for just two countries, India and China, illustrates how 

unlikely it will be to meet that goal. 

In 2000, China’s CO2 emissions per capita were about 2 tons per year. In India 

the 2000 per capita emissions were barely above 1 ton per year. Currently the U.S. 

emits about 20 tons. With no population growth, a 70 percent cut would bring us 

down to about 6 tons per capita per year. Expecting China and India to cut back 

to levels that are 1⁄3 or 1⁄6 of ours is unrealistic. Even holding them to our limit of 

6 tons per capita would cause their emissions to grow more than enough to offset 

our 70 percent cut. The rest of the developing world would be no more inclined to 

abide by similarly stringent limits. 

The Tax 

Implementing a cap and trade program to cut emissions by 70 percent creates a 

transfer within the United States that is equivalent to taxes on the order of $250 

billion to $300 billion per year, just for the years 2012 to 2030. This takes the purchasing power from the households and turns it over to the Federal Government or 

to whomever it assigns the rights to permits for emissions (allowances). This would 

be one of the largest taxes in the economy—almost twice as large as the highway 

use taxes. 

Conclusion 

The legislation analyzed seeks to cut CO2 emissions by 70 percent. This cut will 

have little impact on global temperatures but even the 30 percent cut that we analyzed will reduce incomes, raise taxes and destroy jobs. The true comparison is trillions of dollars in lost income and hundreds of thousands of lost jobs vs. a fraction 

of a degree change in average world temperature 85 years from now. 

The Heritage Foundation is a public policy, research, and educational organization operating under Section 501(C)(3). It is privately supported, and receives no 

funds from any government at any level, nor does it perform any government or 

other contract work. 

The Heritage Foundation is the most broadly supported think tank in the United 

States. During 2007, it had nearly 330,000 individual, foundation, and corporate 

supporters representing every State in the U.S. Its 2007 income came from the following sources: 

Individuals 46% 

Foundations 22% 

Corporations 3% 

Investment Income 28% 

Publication Sales and Other 0% 

The top five corporate givers provided The Heritage Foundation with 1.8% of its 

2007 income. The Heritage Foundation’s books are audited annually by the national 

accounting firm of McGladrey & Pullen. A list of major donors is available from The 

Heritage Foundation upon request. 

Members of The Heritage Foundation staff testify as individuals discussing their 

own independent research. The views expressed are their own, and do not reflect 

an institutional position for The Heritage Foundation or its board of trustees. 

f 

Chairman RANGEL. Thank you. Before I ask Mr. McCrery to 

kick off the questions for the Committee here, we are very anxious 

to make certain that we have prepared a way to give this some 

type of priority for the next Administration. 

We have an unusual situation, where both of our candidates are 

supporting cap and trade. But in listening to most of the testimony 

today, I find that I may be facing next year, if McCain is not the 

President, some type of a split along party lines—for sincere beliefs, not because of polarization—but because of differences in 

thought as to the damage that would happen to our country and 

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tions I heard from the minority, a concern about moving forward 

could possibly wreck our economy and the manufacturing industry. 

My question is, in a very generic way, as you go out selling your 

position, is there a tendency that one party or the other is more 

solid in support of your position? I hesitate to ask Heritage Foundation, because I am afraid I would know the answer there, just 

because of who is doing the research. 

But I will start with you. Do you find many Democrats supporting your position, as you speak and write and discuss this? 

Mr. KREUTZER. We have not been invited by many Democrats 

to brief them. 

Chairman RANGEL. I see. 

Mr. KREUTZER. So, I don’t know what they support. 

Chairman RANGEL. Well, that takes—well, it’s probably the 

reputation of the Foundation, rather than the scientists out there. 

Generally speaking, has anyone felt that the concern is bipartisan? Can I get a—yes? 

Mr. BARNES. Yes. I would say, with regard to a revenue-neutral 

cap and dividend, that it has support on both sides of the aisle. It 

appeals to liberals, because it protects low-income families, and 

middle-class families, and it also has appealed to conservatives, because it’s revenue-neutral and it’s market-based. 

So, in the Senate, for example, when Lieberman-Warner was 

being debated, Senator Corker introduced an amendment, which 

was essentially to give all the money back to the people, on a per 

capita basis. 

I would also mention that in Alaska, Governor Palin recently increased the taxes on the oil companies, and distributed that revenue in the form of a $1,200 dividend to all Alaskans. This is an 

addition to the regular dividend that they get from the permanent 

fund, in order to offset the higher energy prices there. 

So, I think this approach does have that appeal that cuts 

across—— 

Chairman RANGEL. Your approach? 

Mr. BARNES. Yes. 

Chairman RANGEL. Yes. 

Mr. BARNES [continuing]. Cuts across party lines. 

Chairman RANGEL. Others have any comment to make? 

Mr. ABBASI. We would be pleased to provide you with polling 

that I have seen over the last few years that has shown that there 

is a partisan gap, a significant partisan gap, on this issue. Unfortunately, a higher proportion of Democrats have been concerned 

about it, and urging government action, than Republicans. 

Our firm, MissionPoint, is bipartisan. And, we’re prepared and 

anxious to work with Members from both sides of the aisle to fashion a solution that will work. We need champions on both sides. We 

would be able to supply you with some polling data that we have 

seen that supports what you are saying about a partisan gap. 

Chairman RANGEL. Well, these meetings—not to say it’s unfortunately—but many people are just not educated on looking at this 

on both sides. But we do know that it’s a serious problem, and that 

we may both have to make compromises. 


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But I am pleased to see that, the way the testimony is coming, 

the questions are coming from the Committee, and we may not 

have the problem that I guessed we might. 

Let me yield to Mr. McCrery. 

Mr. MCCRERY. Thank you, Mr. Chairman. Were all of you here 

earlier today for the first panel? You heard their testimony and our 

questions? 

I was actually—I was telling the Chairman, I was actually 

pleased that there seemed to be somewhat of a consensus among 

the panel that there were, indeed, some pitfalls, if you will, of a cap 

and trade approach to global climate change. They seemed interested, and anxious, even, to come up with ways to address those 

pitfalls, particularly, I guess, with respect to energy-intensive industries here, in the United States. 

I was just wondering if you all share the—what I believe was the 

conclusion of the first panel, that yes, we do need to take some 

measures within the cap and trade structure to address the potential loss of jobs and energy intensive industries here, in the United 

States. You can just go down the line, if you would like. 

Mr. ACKERMAN. I think that we certainly need to look at what 

the real job effects will be. I think that there have been wildly differing estimates. We have heard so many times in the past that 

one environmental proposal or another will cause humongous job 

losses, we need to look very closely at what’s the basis for that 

being projected, once again. 

There are groups, like coal miners, who certainly will be affected 

by any effective carbon policy. We need to look at the compensation 

of them, whether that’s through the cap and trade program, or not. 

I also wouldn’t say that the cap and trade program is the only 

thing we need to do. The point of my testimony is that it’s urgent 

to get going on carbon reduction, whether through this method or 

through some other. 

Mr. MCCRERY. Thank you. 

Mr. ABBASI. My understanding is that the average energy cost, 

the proportion of the average manufacturing company’s overall cost 

structure that is energy is about 2 percent. But it is higher for a 

handful of industries, and that for those industries, in some of the 

pending legislation like the Lieberman-Warner bill, there is a proposed adjustment: A requirement that an importer would surrender an allowance for imported goods, on a one-to-one basis for 

carbon content. This would be intended to level the playing field if 

we have a cap, and we are importing from an uncapped country. 

There is also a provision in that bill that says that the adjustment would have to account for the different developmental levels 

of the country from which we’re importing. In prior testimony I 

gave to the Select Committee on Energy Independence and Global 

Warming in April, we proposed a way to think about a formula like 

that, which would be an adjusted kind of index that would account 

for emissions per capita, as well as emissions per unit of GDP. 

Our emissions per capita, of course, are much higher than, for 

example, China’s, but their emissions per unit of GDP, as I think 

was pointed out earlier, is significantly higher, I think four to five 

times. So, some sort of index that would basically allow the surrender of less than a one-for-one allowance for an import from that 


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country, based on allowing developing countries additional head 

room to grow is a model that we believe would be fair. It would reflect the fact that, at this point of the cumulative emissions in the 

atmosphere, the United States accounts for about 30 percent. 

So, I think it’s fair and equitable to say that we in the U.S. need 

to take the first step. It is also important to recognize the competitiveness impacts you’re talking about. But if we’re going to have a 

requirement like that at the border, let’s adjust it in a fair way to 

allow some of that development head room. 

Mr. MCCRERY. Good. Thank you. 

Mr. RINGO. Representative Artur Davis this morning, of Alabama, brought up a very interesting point and an interesting concern about an industry in particular in his State that might fall 

vulnerable to a cap and trade system. 

At the Apollo Alliance, we believe that if the overall moneys that 

are going to be generated from such a system are properly reinvested in training, in making sure that the playing field is level for 

those people that have been disproportionately impacted, the impact would be a lot less, with respect to the loss of jobs. 

If we invest in training people for this new green economy, if we 

invest in training people for these new green jobs, those that lose 

their jobs will gain new jobs, new training. That’s why Apollo Alliance is a huge alliance, and we are engaged very much with the 

labor community, with the conservation community, because we believe that this whole 10-year, $500 billion investment strategy that 

we are promoting is a win-win-win-win for all Americans. 

Now, I am sure that there will be some casualties along the way. 

But I believe that, with proper management of the program, that 

those numbers would be minimized. 

Mr. MCCRERY. Mr. Chairman, my time is expired. I didn’t get 

to hear from everybody on the panel, but I think—I don’t hear any 

dissonance there, particularly, so I am pleased that we are all at 

least looking to try to create a system that does not unduly harm 

the economy, and destroy jobs. 

Mr. DOGGETT [Presiding]. Thank you, Mr. McCrery. I ask for 

your advice in trying to perfect the Climate Matters bill before 

turning to Mr. Herger for his questions to you. 

Let me begin with you, Mr. Abbasi, because I am pleased about 

your response to Mr. McCrery about the bipartisan nature of this. 

You know, we talk about the Lieberman-Warner bill. Certainly 

Senator Warner, a distinguished conservative Republican whose career has been built around national security, recognizing the security implications of this, I want, as I said at the outset in introducing my bill, to have strong bipartisan participation in it. But at 

the same time, much like the science, we can’t wait until we get 

100 percent of the scientists, including those who may work for industries who have a stake in doing nothing, to come aboard, because the needs are so great to move now. 

Let me ask you if, based on your experience, you believe we are 

already beginning to lose competitiveness and lose some jobs as a 

result of not moving forward on climate change. An aspect of that 

that Ms. Browner did not have a chance to respond on, whether the 

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pen, how comprehensive a cap and trade bill will be, if that is affecting investment, and where people choose to invest now. 

Mr. ABBASI. Thank you, Mr. Doggett, and thank you for your 

leadership in introducing that very important bill. We look forward 

to working with you on it. 

Yes. Our belief, from our experience in the market, is that, in 

fact, the other countries—I am going to talk about Europe for a moment—have provided a much more conducive environment for 

clean energy companies. 

We founded our firm with a strong U.S. focus, but we are going 

to be opening an office in London, and we are doing due diligence 

right now on transactions in Europe. There is a strategic understanding of how big this opportunity is in Europe. Obviously, they 

have launched the European trading system for carbon, and they 

also have very, very supportive regimes to directly stimulate renewable energy in a number of countries. 

I mentioned Germany earlier. Let me say that what’s so difficult 

to watch, what’s painful to watch, is that a number of the most innovative companies are originally from the United States. So, I 

mentioned that Europe—Germany has a large installed base of 

solar power using the traditional crystallline and silicon flat plate 

technology. But thin film is the next generation, thin film technologies. 

So, companies like First Solar, which are U.S. companies, are 

now out, installing their manufacturing facilities—again, high-tech 

manufacturing—in other countries. First Solar plans to build 1,100 

megawatts worth of production capacity by 2009. That’s a lot of 

solar. It accounts for about $864 million in investment. And 87 percent of that is going to be in Germany and in Malaysia. 

So, we see an instance where, again, companies with original 

U.S. technology, next generation technology, are moving their production facilities abroad. We should be bringing those jobs here, 

home. 

Mr. DOGGETT. Thank you. Mr. Barnes, the cap and divided approach that you suggest certainly does have the advantage of simplicity. As you know, in the legislation that I introduced, I envision 

some income transfer, especially to those Americans at the bottom 

of the economic scale who will face the greatest burden here, as 

they will face the greatest burden if we don’t resolve climate 

change. 

That’s not the only thing that I do with the auction revenues, 

and one of the areas that I focus on is health care. Is health care 

a way of providing a direct benefit of the type that you envision, 

even though it’s not necessarily putting a check in the mail? 

Mr. BARNES. Yes, I think health care meets the test, if you will, 

that the auction revenues be used for a public benefit that is basically universal, and that particularly benefits low- and middle-income families. 

So, I would say I would be very sympathetic to some of it being 

used for health care. But I would caution not to take that too far. 

The moment you start doing this, that, and the other thing, I think 

you then run into the whole Lieberman-Warner sort of sandpit. 

Mr. DOGGETT. Thank you. Mr. Ringo, we have already heard in 

testimony from others about the danger of seeing jobs go overseas. 


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The type of jobs that would be created under a cap and trade system, which put a premium on clean energy and energy efficiency, 

how likely is it that those kind of jobs will ever be exported abroad? 

Mr. RINGO. Well, I think that if we invest in America, invest 

within our communities, we have programs, we have legislation 

being passed in our State legislatures around the country, 27 

States have passed renewable portfolio standards that are requiring that a certain amount of energy in those States be produced, 

be alternative energy. 

For example, in the State of Pennsylvania, where Gamesa came 

in from Spain, brought those jobs into Pennsylvania because of that 

portfolio standard, and created 1,000 jobs. Those are homegrown 

jobs. Many of those people were people that were laid off from the 

steel industry. 

I met a gentleman at the Democratic Convention recently who 

was a laid off steel worker who was rehired by Gamesa when 

Gamesa moved into Pennsylvania. Those are jobs that are going to 

be homegrown. With proper investment and subsidizing some of 

these companies, to encourage them to invest in alternative energy, 

it can really stimulate the economies at home, and guarantee that 

those jobs remain within our communities. 

Mr. DOGGETT. Dr. Ackerman, your study, the written study you 

had, tends to focus on the cost of inaction that will result from 

weather changes, primarily. Are there not also—and you refer to 

some of these in your oral testimony—a long list of changes and 

costs that will occur, such as on health care, that would be in addition to the cost that you outline in your written testimony. 

Mr. ACKERMAN. That is right. I emphasized in writing, particularly, that this is a partial accounting of the cost of inaction. There 

will be increased health care costs, as weather extremes are obviously bad for health—there are a number of studies of that. 

There will be worse effects on agriculture. More and more research has undermined what people believed 10 or 15 years ago, 

that warmer weather would be good for crop yields. It’s increasingly not supported by recent research. Stormier and hotter conditions, and drier conditions in a lot of places would be bad for agriculture. 

The tourism effects which we were able to estimate for Florida, 

but not for the country as a whole, certainly outdoor activities that 

are dependent on the weather, like tourism, will be devastated by 

some of the changes that are being looked at. 

The list goes on and on. How do you value the changes to parks, 

to wilderness areas, natural ecosystems? There are many, many 

costs which are not included in the kind of estimates I produced. 

Mr. DOGGETT. Finally, you opened your testimony by saying 

that there was broad consensus on the science that we have. 

Mr. ACKERMAN. Yes. 

Mr. DOGGETT. We know it’s not universal, from the questions 

that Mr. Linder asked earlier, and that we are never going to get 

100 percent agreement on science. Maybe even people still debating 

about tobacco and its effect on health. 

But tell me, as it relates to the economics, do you perceive that 

there is, if not a total consensus, a growing view among economists 


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that the cost of a properly designed response to climate change is 

less than the cost of inaction on climate change? 

Mr. ACKERMAN. I don’t think we have reached the level of consensus that scientists have, where—what I’ve said about the climate debate is that science is I think it’s something like 3,000 to 

5 now. We are not at that level, but there is a steady movement 

in economics, there are more and more people who have moved 

that way. 

The Stern review, Sir Nicholas Stern, who is one of the most 

prominent members of the British government in these areas, and 

formerly Chief Economist at the World Trade Organization, that 

study was really path-breaking, in suggesting that conventional 

economic calculations showed that the worldwide costs of inaction, 

are very large, much greater than my U.S. estimates: Worldwide, 

5 to 20 times the cost of action. That has certainly moved the debate quite a ways. 

Mr. DOGGETT. Mr. Millar, thank you for your comments about 

the bill. I think Mr. Blumenauer will have a few more questions 

about infrastructure. Mr. Herger. 

Mr. HERGER. Thank you very much. I am enjoying our panelists, I appreciate each of you. 

Again, I would like to bring back the perspective that it was just 

30—let’s see, 38 years ago, in 1975, the headline of Newsweek 

Magazine was global cooling. Just a year before that, the headline 

on Time was, in 1974, global cooling. We know we have gone 

through several ice ages, we know that we are—you know, it’s not 

like we don’t ever change here. We do. So, I think it’s very important we have everything in perspective. 

Now, the fact that we have all of what we’re doing, obviously, we 

have to have an effect on the environment. I think whatever we do, 

we need to do where we don’t overact and bankrupt our society at 

the same time. I think that, hopefully, that is the balance, Mr. 

Chairman, that we are going to have with this very important 

hearing that we are having today. 

So, again, getting around to the cost of this, knowing that we are 

now being surpassed, and not just by a little bit, but overwhelmingly surpassed here in the years to come by China and the greenhouse gases they’re going to be emitting, and India and others, that 

we not cut off our nose to spite our face, that we be involved. 

But, you know, I get the feeling, just listening, that boy, we have 

to somehow think we can do it all here, shoulder all the expenses, 

for what might end up being, as the doctor over here indicated, 

might be just a half a percent of climate change, perhaps. 

So, again, I don’t want to throw a damp towel on this, but I certainly hope and pray we have this in perspective. Just getting 

around to the cost, the cost that, at a time when our economy is 

down, when we’re looking at doing what we can do, and knowing, 

particularly this Committee, Ways and Means, that we have entitlement cost problems ahead of us—Social Security, Medicare—I 

mean, these costs are something we need to be considering in putting them in the perspective, and whether or not we should be 

doing it in a way where we use a carrot and not a big, huge stick. 


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I so much am hearing this big, huge stick that’s being promoted 

by so many, and that, quite frankly, more than a little bit concerns 

me, and I think concerns many, and should concern many. 

With that in mind, I would like to ask a question of our panelists, that reducing these greenhouse gas emissions by the amount 

that is required in House bills H.R. 6186 and 6316 is going to be 

very expensive. 

In June of this year, the United Nations International Energy 

Agency estimated that allowance prices need to be at least $180 

per ton. This was their estimate, which is more than four times the 

prices in the EU today, more than four times what they are paying. 

An IEA Executive Director stated that, ‘‘Costs are going to be very 

steep.’’ 

Just how high do energy prices have to get to reduce greenhouse 

gas emissions by the amount in these House bills? I would be interested to hear estimates from our panelists. Dr. Ackerman. 

Mr. ACKERMAN. I would like to respond to a couple of things. 

Mr. HERGER. Please. 

Mr. ACKERMAN. I don’t have a number in my pocket for that 

last question. The question about the global cooling estimates from 

the 1970s, there used to be a lot more pollution in the air, and 

some of that pollution actually blocked some of the sunlight, so 

that it—this is not just a change in whims, this is a change in the 

science. We used to put a lot of crud that came out of the coal 

plants into the air, and that somewhat cooled the atmosphere 

down. 

It also made people sick and killed forests and killed fish much 

more quickly than climate change does, so it was a big step forward 

for human and environmental health, to adopt the Clean Air Act, 

and take that stuff out of the air. The consequence of taking it out 

of the air is that it took away this perverse way in which we were 

slowing down global warming, so that that—you know, it’s actually 

progress in dealing with acid rain that has led to that shift that 

you mentioned. 

In terms of how much will it cost, I would—I noticed I was mentioned in Mr. Kreutzer’s testimony—I would take exception to the 

way he used my numbers there, and particularly to this estimate 

that we would get only this tiny percentage reduction in the temperatures. That’s if only the U.S. reduces emission, and nobody else 

does. 

This is a global problem. The U.S., China, and Europe, each in 

round numbers, account for one-fifth of it, and the rest of the world 

for the other two-fifths. There is no possibility of a solution without 

cooperation, and it makes no sense at all to quote these numbers, 

based on the U.S. acting alone. 

I will tell you, having spoken a little bit about this internationally, there is going to be no world solution without the U.S. taking 

a lead. It has been embarrassing to talk about this issue in Europe 

lately, because no matter what research you come there with, they 

only have one question for Americans, which is, ‘‘What are you 

thinking of, not doing anything about this? Why isn’t the Bush Administration doing something about it?’’ There is only so many 

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tion,’’ without feeling a little embarrassed for your country, and not 

taking action. 

Mr. KREUTZER. Yes, I would like to talk about the costs. First 

of all, we are sometimes portrayed as being to the right and having 

extreme numbers. There is a table on page 14 of our report that 

shows where our estimates of the allowance costs come in, compared to other people who have done similar sorts of estimates. In 2030, our high end is $88 per ton of carbon dioxide. MIT, hardly a bastion of conservative thought, came in at $101. These 

are good ways to gauge where we fit in the mainstream of estimates of the cost of carbon dioxide restrictions. The EPA, their estimates were $83. Charles River Associates, a consulting firm, is 

$112. The much maligned and undeservedly maligned National Association of Manufacturers reports $85 to $227. The $227, which is 

the number you keep hearing, was with no offsets. That was a 

technicality. The Energy Information Administration had a range 

of $61 to $156 per ton. So, we are not in some extreme exaggerated 

position in estimating what the costs will be to the economy. 

As far as the damage—the help done to CO2 levels, how much 

temperature change there will be, yes, we could talk about bringing 

it around 2 degrees, if you get India to cut back to one ton per capita and no population growth by 2035. They simply won’t do that. 

We will be having six. China will have to cut back to two. That was 

what the EPA estimated. 

So, this is—and if you’re going to talk about the cost of the whole 

world cutting back, we need to look at the cost to their economies, 

as well. You can’t say, ‘‘Well, here is what it costs the U.S. to cut 

back 70 percent, and here is the benefit we get, it’s only a tenth 

of a degree,’’ and you say, ‘‘Well, the rest of the world has to cut 

back, too.’’ Well, let’s look at how much they’re going to have to 

spend. 

Mr. DOGGETT. Thank you. Mr. Larson. 

Mr. LARSON. Thank you, Chairman Rangel, again, for putting 

this together. I thank the panelists for their forbearance, especially 

Mr. Abbasi, whom I know from my home State of Connecticut, and 

the great work that you have done, and the book that was prefaced 

by the ‘‘fierce urgency of now,’’ quoting Dr. Martin Luther King, 

and how important that is. 

The significance of this hearing, in as much as I think it’s relatively clear—and certainly I respect people who dispute the 

science. We have people that don’t believe in evolution. We have 

differences of opinion that exist in the U.S. Congress, and you have 

to allow for that respect and tolerance within the Committee process, as we do all across the United States. 

But to—really, it comes down to a category of doing nothing, or 

doing something. I applaud my colleagues on this Committee, Lloyd 

Doggett and others, who have put forward legislation that deals 

with this issue. I also have put forward a proposal, along with 

Peter Stark and George Miller and Jim McDermott of this Committee. I serve with Mr. Blumenauer on a Speaker’s Select Committee on Climate Change, Global Warming, and Energy Independence. 

Mr. Sensenbrenner, in that Committee, says, ‘‘Look, whether you 

call it cap and trade, or whether you call it a carbon tax, we’re 


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going to call it a tax. We are opposed to taxes, period, end of tape, 

end of discussion. That’s how we’re going to frame this issue.’’ 

So, we ought to be clear that, from the outset, that’s how this 

issue is going to be framed if you don’t favor doing something about 

it now. If you don’t believe that there is the fierce urgency of now, 

and you don’t believe in the science, then the opposition will be, 

‘‘This is a tax, and we’re against taxes.’’ 

So, once we get that issue decided, then you have to look at, well, 

you have a difference of opinion upon how we best solve this problem. I believe—and we just came from hearings today, meetings 

with regard to everything that’s happening in the economy today. 

What the American public wants is us to level with them. None of 

them like taxes. I thought Mr. Bloomberg this morning was eloquent. Nobody likes to be taxed. But what are the problems that 

we face, and then level with us forthrightly about what we have 

to do. 

So, to indicate to them—and, Mr. Barnes, I thought your proposal was interesting, as well—about taxing polluters upstream, so 

that there is a downstream benefit directly to the people, as in 

‘‘We, the people,’’ is the only way, if you put the science aside for 

a moment, that you can basically come to bipartisan agreement, in 

terms of this issue of taxation and money flowing back to the people who, surely, everyone agrees, will be impacted. 

With regard to tariffs, and intensified industry, I thought those 

were excellent points, and again, commend the Chairman, because 

this is how you flesh out concepts and ideas of this nature. 

I am a firm believer that what we have to do is level with the 

people and be unafraid about—and talk to them directly about— 

what it costs, and what we’re going to have to do to achieve these 

goals, and what it means to them, their grandchildren, and our 

children, and the consequences of that, and then lay it out in a 

manner as succinctly and as clearly as we can, so that they understand those ramifications. 

Now, what we give back to them, I believe, has to be direct relief 

for the consumer. Other ideas you can entertain. My concern with 

cap and trade is how we explain about these auctions that take 

place, and what happens at an auction, and how is it set up, and 

what will that bureaucracy do. 

When you have a system that’s already set up to deliver money 

directly back to the people, how can we—why isn’t it—as Paul 

Volcker, as Alan Greenspan, as Al Gore, as Bill Bradley, and you 

can go down the list of economists and others have said—‘‘Send the 

money directly back to the people, by way of payroll deduction.’’ 

Join people in an effort that will preserve the environment that has 

a direct efficient way of getting the cost back. 

Your response, from the panel? 

Mr. RINGO. When you talk about getting it back to the people, 

as I mentioned earlier, I live and am from Louisiana, close to the 

State of Alabama. Louisiana is a State where oil and gas is king. 

One-third of the domestic oil supply comes off of our coast of Louisiana. 

After Katrina hit in 2005 and Rita hit in 2005, and the two 

storms that have recently hit, people before that time were not 

talking about climate change. Many didn’t believe that climate 


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change was real, because oil and gas was king, and that was just 

not an issue to discuss. I was in a shelter last week, evacuated 

from Hurricane Ike. The conversation in the shelter was—and 

these are people who are industry workers, and families of industry 

workers—were saying, ‘‘We’ve got a real problem out there with 

this global warming, because every storm that hits the Gulf of 

Mexico is a four or five.’’ 

Now, it is costing us in a big way, because of a lack of action. 

We have gone through several decades of missed opportunity in 

dealing with issues of global warming, and what have you. 

Some people, as I oftentimes say, in Louisiana we suffer from 

category five storms and there are folks up here in D.C. and 

around the country who have been suffering from category five denial about global warming. But now people along the coast are 

waking up because they see the impacts. Now they are saying, ‘‘Do 

something, and do something now.’’ 

We have gone through these decades of missed opportunity. Now 

we’re in a decade of last opportunity, because we’ve got to fix it. 

People now, along Louisiana, in Texas, are not thinking about the 

bail-out of AIG right now. We’re in the middle of hurricane season. 

We’re just halfway. They’re just concerned about the next storm, 

and the fact that, if it hits the Gulf, it will probably be a four or 

five, and the impact will unfold as you have seen. 

So, there is a sense of urgency down there, for sure, on do something about it, and do something about it now. At the same time, 

the majority of the people that are crying out, many of which are 

poor people who have already suffered the disproportionate impact 

by being the folks that live closest to the fence line of those industries—— 

Mr. LARSON. So, would they prefer a direct tax back to them 

from the revenues that are generated? 

Mr. RINGO. If it is reinvested in their community to be a pathway out of poverty—— 

Mr. LARSON. I am talking about them personally, lowering their 

payroll taxes. 

Mr. RINGO. I am sorry, sir. I didn’t hear that. 

Mr. LARSON. Lowering their payroll taxes directly to them. 

Mr. DOGGETT. The Chairman is back, and I think Mr. 

Blumenauer is next. 

Mr. LARSON. Thank you. 

Mr. BLUMENAUER. Thank you. I appreciate your patience with 

this. I have found this to be extraordinarily interesting. 

I have enjoyed working with Mr. Doggett on his proposal, although frankly, I have cosponsored Mr. Larson’s. I am agnostic, in 

terms of how we deal with a price for carbon pollution, and being 

able to have some resources to redirect for the economic revitalization that you talked about. But Lloyd is right, I have some modest 

interest in this larger question of infrastructure. 

We think about, in the short term, what is going to happen for 

water, in terms of supply, water development, protection, water 

treatment: extraordinarily expensive for systems that are already 

inadequate in much of America—72,000 miles of water main and 

sewer pipe over 80 years of age right now. 


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Problems of electric transmission, grid reliability, being able to 

get some of this alternative energy out from some of the remote 

areas of wind turbines, for instance, to the grid, being able to use 

some of the technology that I know we’re developing to help people 

do a more efficient job, just in their own household. 

Disaster—and I appreciate Mr. Ringo’s reference to that—what 

we pay for the recovery from disaster, from prevention. This—it’s 

gone up sixfold in the last three decades, and the loss from disaster 

is skyrocketing. All the indications are that it’s going to get worse. 

Last, but not least, transportation, what we’re going to do to retrofit, to expand, to have a new fleet, to have new choices, new options, is not a cheap proposition. But it has embedded in it economic opportunities that are very substantial. 

This comes at a time when our Chairman is going to have lots 

of people knocking at his door next term. We have the Highway 

Trust Fund that is going into deficit for the first time in history. 

There are more people with their mouth open and their hand out 

for all sorts of schemes that are going to have to be paid for, as 

well as these notions of renewing and rebuilding. 

I wonder if Mr. Millar, Mr. Abbasi, Mr. Ringo, if you could comment briefly—and this will be my last question, and I will be 

quiet—just about the merits and the opportunities of making some 

strategic investment in being able to not just meet our climate 

challenges, but just kind of hold the country together with the challenges that Dr. Ackerman is talking about, in terms of the stresses 

we’re going to be facing with extreme weather events, change in 

temperature, rise in sea level. 

Mr. MILLAR. The opportunities are certainly great, and I tried, 

in my testimony, to give a sample, across the board. While this 

hearing is specifically about greenhouse gas emissions and climate 

change, how we choose to solve that problem will have impact in 

so many other areas. 

So, for example, in transportation policy, thinking about expanding the opportunity for choice to more Americans. The Census Bureau tells us that only about half the households in America have 

any choice at all, in terms of public transportation available. If we 

give people the choice, recent history has shown us if it’s a good 

choice they will use it. We are seeing record growth in the use of 

public transit. 

The interesting thing to me is it’s not just in the big cities. In 

fact, two of the top three growth areas we’re seeing are in communities of less than 100,000 and 100,000 to 500,000. Generally those 

are communities with not well developed public transit. It shows 

Americans are hungry for choice, and choice requires investment. 

Mr. ABBASI. I want to commend you, Congressman Blumenauer, 

on your smart growth initiative. You know, you reference the importance of infrastructure. We will need less infrastructure, in 

terms of roads, if we’re smarter in how we locate our homes. 

One idea we promote in the testimony—it’s similar to something 

you proposed is a location efficient mortgage, which provides a 

bonus for mortgages on homes that are located in a high density 

area that will cut down on our transportation need. 

I want to mention one other example of infrastructure: smart meters. I don’t know if anyone here has ever actually tried to decipher 


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their electricity bill, but it’s very hard to understand the impact of 

the choices you make in your home on your energy bill, let alone 

to read and understand what’s in that bill. Smart meters offer us 

an opportunity to, once and for all, understand that, to have an inhome display, where we can see the electricity usage of our various 

appliances. 

Mr. BLUMENAUER. In real time? 

Mr. ABBASI. In real time. There is good evidence that, when you 

do this, people make better, more informed choices—they will upgrade, they will invest in efficiency. 

So, when we think about using some of those auction revenues, 

let’s incentivize things like that, because that will allow you to actually see the new carbon price signal when we have one and respond to it. 

Mr. BLUMENAUER. Thank you very much. 

Mr. ABBASI. I will just give one other statistic. The average 

electricity bill in America was about the same in 2005 as it was 

in 1990, even though electricity prices were up about 24 percent. 

What that indicates is that we do get more efficient, and people do 

respond over time. So, prices and bills are different. 

Mr. DOGGETT. Thank you. Mr. Pascrell. 

Mr. PASCRELL. Thank you, Mr. Chairman. 

Mr. Millar, most of us are advocates for public investment in 

transportation, public transportation. In my—in New Jersey, high 

gas prices are turning commuters to New Jersey Transit Commuter 

Rail Service. 

As you point out in your written testimony, public transportation 

use reduces carbon dioxide emissions by more than 37 million metric tons every year in the United States. Am I quoting you accurately? 

Mr. MILLAR. Yes, sir, you are. 

Mr. PASCRELL. Well, then before I ask you this series of questions, let me ask Mr. Kreutzer this question. 

Mr. KREUTZER. Okay. 

Mr. PASCRELL. What do you think, since only 54 percent of 

American households use public—mass transportation—do you 

think that this is a wise thing to do, in reducing the amount of 

emissions? Very briefly, do you think this is wise, or is this cost 

foolish? 

Mr. KREUTZER. It depends a whole lot on where you do it. I live 

in Arlington, I take transportation, the Metro. It makes a whole lot 

of sense there. I would be willing to pay more if they could have 

some more cars so I could sit down on occasion. 

But I also lived in Dayton, Virginia, an old order Mennonite hub. 

We had horse and buggies. You could have put a subway at every 

one of their houses, they wouldn’t have taken it. 

Mr. PASCRELL. But you wouldn’t object, therefore, to public investment into the kinds of things that you could accept? 

Mr. KREUTZER. As with any public investment, I think I would 

want to look at the cost, versus the benefit. 

Mr. PASCRELL. Well, we all would. 

Mr. KREUTZER. Right. 

Mr. PASCRELL. I don’t think anybody on this panel or anybody 

on this side of the table would simply, you know, spend, regardless 


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of what the outcomes would be. We want to make sure it’s effective 

and efficient. 

Mr. Millar, what policy options do you suggest for fully incorporating public transit into the United States climate change strategy? 

Mr. MILLAR. We recommend several things. First, we think it 

is reasonable to take some of the revenue that would be generated 

by cap and trade and invest back in public transportation. 

We believe that there ought to be national goals set, and each 

sector ought to have a responsibility for its piece of that, and public 

transit would have its piece, as to what we could do. 

We believe that certain policies—for example, tax policies under 

the jurisdiction of this Committee—which today favor energy-inefficient public transportation, at least ought to be equalized so that 

an employer, for example, that wants to encourage his or her employees to use public transit can at least get the same help from 

the government as if they provide parking to the employees. So, we 

think there is a series of things there. 

We think giving incentives to communities, so that communities 

and States will invest more in public transit and will have an interest in how they control their land use to get more energy-efficient transit-useful land use, such as Arlington, Virginia chose to 

do some 25 years ago, and now receives enormous benefit for the 

decisions made then. Those are examples, sir. 

Mr. PASCRELL. Just very briefly, the expansion of the compressed natural gas buses nationwide, what else can we do to promote this technology? 

Mr. MILLAR. I think there are several things there, first to realize that already about 25 percent of our bus fleet is alternately 

powered with clean fuel. That compares with, what, 1, 2, 3 percent 

of the automobile fleet. 

We could certainly provide additional funds and incentives to 

transit systems to replace their aging fleets more quickly, for example, change the amount of local match that’s required. There is a 

whole series of things that could be done there. All would turn over 

our fleet much more quickly. 

Mr. PASCRELL. All of these are going to necessitate some public 

investment. 

Mr. MILLAR. Yes, sir. I believe so. 

Mr. PASCRELL. We have to find the money someplace. 

Mr. MILLAR. Yes, sir. 

Mr. PASCRELL. Thank you, Mr. Chairman. 

Mr. DOGGETT. Thank you. Mr. Davis. 

Mr. DAVIS. Mr. Chairman, thank you. I have time for, really, 

just three observations. The first one, I don’t buy the Republican 

arguments on the science. You could take all the science that the 

Bush Administration has rejected, and make from it a whole new 

ecosystem and a whole new globe, and fill it up with new species. 

So, I am not too enthusiastic about their scientific interpretations. 

Point number two, I do think this side of the aisle, which I see 

as the more progressive side of the American political debate, has 

to be cautious about one premise. A lot of the arguments that we 

have made in the context of cap and trade policy sounds something 

like this. They say, ‘‘Well, there will be short-term costs, disproporVerDate Nov 24 2008 14:33 Mar 17, 2011 Jkt 062201 PO 00000 Frm 00208 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\62201.XXX APPS06 PsN: 62201

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tionate costs to some parts of the population, but there are significant gains, and those gains will be for the common good.’’ 

We certainly don’t like that argument on this side of the aisle 

when it comes to tax policy. You could make a point that President 

Bush’s 2001 and 2003 tax cuts were very good for people whose income rests primarily on dividends and capital gains, but we don’t 

like the thrust of those policies, because it’s left us more unequal 

as a society, and made the Tax Code more regressive. 

Most of us on this side of the aisle don’t like an unfettered trade 

policy with no labor and environmental standards, even though 

some could say unfettered trade benefits certain multi-national corporations, and it’s probably for the common good. So, just as we resist those kinds of arguments in the context of trade, as we resist 

them in the context of tax policy, I think we have to be appropriately dubious in the context of environmental policy. 

My third point, I have no doubt that we can fashion short-term, 

wealth-transferred policies to cushion the impact of cap and trade 

legislation. I don’t doubt that. But this is what I do wonder about. 

If we do this in the wrong way, and the consequence of doing it 

in the wrong way is that communities that are very dependent on 

heavy duty manufacturing fall even further behind, and the employees of those industries find their skills outmoded for the work 

that’s available, a short-term wealth transfer or reduction on your 

FICA taxes means nothing if you don’t have a job, or if you’re not 

employable. 

So, I think we have to be unusually attentive to the fact that the 

very industries and sectors of the country who are most likely to 

be displaced are the ones that have already borne the brunt of 10 

years of unfettered globalization, and a wide variety of other policies. 

Dr. Ackerman, are you trying to jump in? 

Mr. ACKERMAN. Yes. Precisely on that point, I certainly think 

that those communities need to be protected. But I think there is 

something missing in the whole discussion of competitiveness here. 

We are talking about it as if cost increases are the only things that 

affect competitiveness, and a little more cost increase is unbearable 

for our economy. 

Now, you could make a case that the most competitive economies 

in the world today have some of the highest costs. Germany is 

often the world’s leading exporter in many recent years. Ten percent of all world exports come from Germany, a country with higher wages than we have, higher energy costs, and stricter environmental regulations. 

They are doing something there that is making people buy their 

products that isn’t about cutting their costs. 

Mr. DAVIS. Here is the only cautionary note I would sound 

about that. Take coal and steel as two examples. 

Mr. ACKERMAN. Yes. 

Mr. DAVIS. If you push up the cost of coal and steel production 

too much, they don’t just engage in an economic recalibration of 

what they do, they sometimes close their plants. 

Mr. ACKERMAN. Yes. But Germany and Japan, which has costs 

similar to ours, labor costs similar to ours, energy costs higher than 


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ours, they have both made the transition to selling manufactured 

goods to the world. 

People are not buying Toyotas because they’re made with lowcost wages. People are not buying German machine goods because 

they’re made with low-cost wages. So, instead of looking over our 

shoulders at a competition with China to cut wages, which we will 

never win, we should look over the other shoulder at the competition with Germany and Japan to sell the high-tech manufacturers 

of the future. 

As several people have mentioned, we are in danger of losing 

solar power, the new energy technology industries, to Germany as 

well, not to somebody who has lower costs. We’re in danger of losing those industries to a country that has higher energy and labor 

costs than—— 

Mr. DAVIS. Well, let me just stop you with my final 30 seconds—— 

Mr. ACKERMAN. Sure. 

Mr. DAVIS [continuing]. And say this. As this Committee tries 

to figure out how to fashion policy that can actually be sold in real 

time to the voters, ergo our constituents, I think we have to make 

sure that we are offering them not some long-term gain—— 

Mr. ACKERMAN. Yes. 

Mr. DAVIS [continuing]. Not some intermediate-term gain, but 

some short-term, immediate-term insulation. Otherwise, they won’t 

be supportive of what we do. 

Mr. ACKERMAN. Right. 

Mr. DAVIS. We will see a divide between the elites and the people we represent, and that won’t be helpful, either. 

Mr. ACKERMAN. No, I think we need to figure out some—I 

don’t know how they do it. I think we need to figure out what’s the 

secret of high-cost competitiveness. 

Mr. DAVIS. Thank you, Mr. Chairman. 

Chairman RANGEL. On behalf of the full Committee, Republicans and Democrats, I want to thank this panel for the high quality of testimony that you have given to us. I am going to accept 

your testimony merely as appetizers, because the main event comes 

next year. I do hope that you would be made available, no matter 

which side—which approach that you’re taking, so that we can 

meet together. 

As I was talking with Mr. Doggett, this is a matter that we’re 

going to have to go to the Chief Executive Offices, because it’s not 

an issue for lobbyists to be—we’re talking about the country and 

the world, and so we need those people who have a concern for it. 

So, I want to thank you so much for your testimony. We will be 

in touch, and I’m so sorry for the lateness in the hour, but it certainly was worth it for us to hear your expert testimony. 

[Whereupon, at 4:29 p.m., the hearing was adjourned.] 

[Submissions for the Record follow:] 

Statement of Accor Services USA 

Accor Services USA is the leading provider of tax-free commuter benefit solutions 

in the U.S., and we have made it our mission to make tax-free commuter benefits 

a staple in employee benefits packages throughout the American workplace to encourage the use of public transportation and therefore contribute to help protect the 

environment. 


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Public transportation is one way Americans can reduce their carbon footprint. It 

is our understanding the primary focus of this hearing, is on legislation which would 

develop a ‘‘cap and trade’’ program. This type of program certainly has merit, but 

we urge Congress to also examine ways to reduce emissions from the transportation 

sector. Mobile source emissions make up roughly 1⁄3 of all emissions. Global Warming legislation needs to recognize this point and should take steps to promote alternate modes of transportation; including public transportation, and there are actions 

that this Committee can and should take to this end. 

Accor Services USA promotes the use of public transportation to prevent climate 

change and promote global sustainability through our employer group, third-party 

administrator and transportation authority programs. Accor facilitates the transit 

use of over 300,000 people in the U.S. saving them and their employers over $129 

million in payroll and commuting costs in addition to over $340 million in gasoline 

per year and over 8,730,000 pounds of carbon every single day. That adds up to 

2,095,200,000 pounds of carbon this year, the equivalent of over 327,000 tons of 

waste recycled instead of landfill or over 24 million tree seedlings grown for 10 

years. 

We maintain statistics for our clients nationwide showing the current status as 

a baseline and also showing the improvements and impacts of new legislation. These 

statistics are impressive, but there is room for growth within our employer base. We 

urge Congress to include the following provisions in a Climate Change package in 

order to ensure that more Americans utilize public transportation as a way to reduce their carbon footprint. 

• Establish a Pilot Program Where Companies Can Earn Credit for the Amount of 

Carbon They Conserve Through Employee Transit Benefit Programs 

Accor urges Congress to provide an incentive for private sector companies to subsidize their employees’ transit trips through the transportation fringe benefit. This 

incentive can come in the form of credits that can be applied to other aspects of the 

company’s business activities or can be sold to companies who exceed their targeted 

carbon emissions. By including such a provision Congress will be providing the private sector with an incentive to initiate transit benefit programs, which will ultimately result in less congestion in U.S. cities, better air quality, and a reduction 

in mobile emissions. 

Accor works with its clients to track and monitor how many pounds of carbon are 

being conserved using precise modeling and tracking software. Recently, we were 

approached by a client company with over 130,000 U.S. employees who were commuting to work every day. This company already has a commuter benefits program 

in place, and through that program over 2,300 employees utilized public transportation. By utilizing EPA and U.S. Census Bureau statistics around average commutes we were able to help this employer quantify the savings that those employees 

represented in terms of emissions and saved gasoline. Through its commuters, this 

company was saving the equivalent of: 

• Over 3,000 gallons of gasoline each day. 

• Over 828,000 gallons of gas each year. 

• Over 66,000 pounds of carbon each day. 

• Over 16 million pounds of carbon each year 

• 16 million pounds of carbon is the equivalent of saving: 

• Carbon emissions from over 16,900 barrels of oil being consumed. 

• Carbon emissions from the electricity use of over 900 homes for a year. 

• Carbon sequestered by 186,824 tree seedlings grown for 10 years. 

• Carbon sequestered annually by 50.8 acres of forest prevented from deforestation. 

Based on the results of our calculations, this company has now decided to move 

forward with an aggressive program to increase employee participation in its commuter benefit, so that employees are better able to access the tax savings in this 

time of rising fuel costs; and so that the company may better support its environmental initiatives. 

With this technology, we are able to monitor and track exactly how much carbon 

is being reduced. This information can be verified by EPA and other entities so that 

the accuracy of data satisfies the need for accurate and dependable substantiation. 

We are confident that if a cap and trade program were to include a provision that 

would help them earn credit for their employee trip reduction, more companies 

would get engaged. 


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• Establish Parity Between the Parking and Transit Portions of the Transportation 

Fringe Benefit 

Section 132(f) of the Internal Revenue Code provides employees and employers 

with a transportation fringe benefit. Currently the monthly cap for the benefit is 

$220/month for parking and $115/month for transit. The disparity between the two 

benefit levels creates a financial incentive for Americans to drive to work. Many 

times, those Americans with transit commutes which cost over $115/month are 

those who travel the furthest distance and emit the most carbon. Accor urges Congress to establish parity between parking and transit. Congressman McGovern (D– 

MA), has introduced legislation to this effect, (H.R. 1475), additionally, we understand that one legislative proposal calls for parity to be established at $200/month, 

creating a revenue positive proposal. Accor urges Congress to include this proposal 

in the Global Warming legislation, or at its earliest convenience. 

• Set-Aside Proceeds From ‘‘Cap and Trade’’ for Transit 

With one-third of all carbon emissions stemming from the transportation sector, 

it would be prudent for Congress to set-aside a portion of the proceeds generated 

from a cap and trade program for the expansion of mass transportation. Additionally, a portion of these funds should be dedicated to the marketing and promotion 

of mass transportation. The capital needs of transit systems are overwhelming, and 

should be addressed, but we would urge Congress to recognize that these funds 

should not only go toward expanding transit into areas that are not currently served 

by mass transit, but funds should also be spent to better market and provide outreach where transit is already available. 

Accor is grateful for the opportunity to submit written testimony and looks forward to working with this Committee as the process moves forward. 

f 

Statement of Environmental Defense Fund 

I am pleased to submit the attached statement from Environmental Defense Fund 

to be entered into the record for the September 18 hearing on climate change. We 

encourage the Ways and Means Committee to continue to delve into this critically 

important issue and urge you to make a cap on greenhouse gas emissions a high 

priority for 2009. 

There is no time for delay. The U.S. needs to move quickly and aggressively to 

spur economic and job growth, increase our energy independence, and stabilize our 

climate. A strong emissions cap with aggressive near- and long-term reduction targets would provide investors, innovators, and businesses with the reliable, long-term 

demand for low-carbon solutions they’ll need to make that transformation a reality. 

Two climate bills that have been referred to your Committee—the Climate MATTERs Act (H.R. 6316) and Investing in Climate Action and Protection Act (H.R. 

6186)—reflect the needed level of reductions. 

Importantly, the U.S. can achieve these reductions while maintaining robust economic growth in the U.S. As the attached statement details, several independent 

studies conducted by highly respected groups in government and academia share a 

key finding: That the overall impact of climate policy on the U.S. economy will be 

small. 

We thank you for holding the hearing and look forward to working with you to 

develop an environmentally and economically sound solution early in the 111th Congress. 

Sincerely, 

Nathaniel Keohane 

Director of Economic Policy and Analysis 

Environmental Defense Fund 


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What Will it Cost to Protect Ourselves From Global Warming? The Impacts 

On the U.S. Economy of a Cap and Trade Policy for Greenhouse Gas 

Emissions 

Nathaniel Keohane, Ph.D. 

Peter Goldmark 

Executive Summary 

Important parts of the world are acting to reduce the greenhouse gases that cause 

global warming, and the United States is now debating whether to join that process. 

This paper examines the potential impact of a cap on greenhouse gases on the U.S. 

economy as a whole and on American families. 

What will it cost to protect ourselves against the potentially catastrophic consequences of global warming? Advocates of action anticipate minimal costs. Those 

who want to do nothing sometimes assert that carbon cuts will ‘‘bankrupt the economy.’’ Who is right? 

This paper conducts the broadest assessment to date of the impacts on the U.S. 

economy of capping greenhouse gases. This report synthesizes the findings of several state-of-the-art economic models, and arrives at a strong conclusion: 

The United States can enjoy robust economic growth over the next several decades while making ambitious reductions in greenhouse gas emissions. If we put a 

cap and trade policy in place soon, we can achieve substantial cuts in greenhouse 

gas emissions without significant adverse consequences to the economy. And in the 

long run, the coming low-carbon economy can provide the foundation for sustained 

American economic growth and prosperity. 

But for such a policy to be truly affordable, we must act now. Delay will greatly 

increase the economic cost of making the necessary emissions reductions, and will 

risk locking in irreversible climate change. And delay will put the United States further behind the rest of the world in the race to invent and produce the next generation of energy technologies. 

What Makes Our Analysis Different—Relying On a Range of Forecasts 

We surveyed eight policy scenarios analyzed by five highly respected, transparent, 

and peer-reviewed economic modeling groups in government and academia: The Energy Information Agency (EIA), Research Triangle Institute (RTI), Harvard (the 

IGEM model), the Massachusetts Institute of Technology (MIT), and Pacific Northwest National Laboratories (PNNL). None of these models is perfect, as no economic 

model can be. A particular challenge for models is predicting the course and pace 

of technological innovation—a key economic driver in the transition to a low-carbon 

economy. 

Advocates have cherry-picked the largest or smallest numbers from one or another of these models to support their positions. But sweeping conclusions based on 

a single model cannot be trusted. Judiciously using a range of current models, however, can inform the policy debate in useful ways. 

Ambitious Climate Policy Is Affordable 

While these models take different approaches to representing the U.S. economy, 

they share one basic conclusion: The overall impact of climate policy on the U.S. 

economy will be small. 

• The U.S. economy has averaged nearly 3% growth per year in the postwar period, and is projected to continue at nearly that pace. The projected median impact on that annual growth of capping greenhouse gases is three-hundredths of 

a percentage point (0.03%). 

• The U.S. economy is projected to nearly double in size between now and the 

year 2030. In that year, the median forecasted cost to the U.S. economy of capping greenhouse gas emissions is only 0.58%. 


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• The projected impact on GDP can be thought of this way: Under business as 

usual, the total output of the U.S. economy is projected to reach $26 trillion in 

January 2030. With a cap on greenhouse gases, the economy will get there by 

April. 

• In present-value terms, the median projected impact of climate policy on U.S. 

GDP is less than one-half of 1 percent for the period 2010–2030, and under 

three-quarters of 1 percent through the middle of the century. 

• The range of differences among models about the future size of the economy 

overwhelms the impact that any of them projects from a cap on carbon; in 

other words, even under varying assumptions, the impact of climate policy is 

small. The models vary by as much as 10% in their estimates of what economic 

output will be in 2030—17 times the estimated 0.58% cost of capping greenhouse gases. 

Importantly, none of these models takes into account the damages from allowing 

global warming to build up unchecked and the value of avoiding them. That is, they 

look at only one side of the ledger: the costs of acting, not the benefits. These ‘‘costs’’ 

of reducing emissions actually represent an investment that will pay enormous dividends—by creating a low-carbon economy filled with new opportunity, and by ensuring a livable planet for generations to come. 

A Cap On Greenhouse Gases Will Not Adversely Affect Employment In the 

American Economy 

• The overall impact of climate policy on employment, according to government 

projections, will be very small—a cumulative reduction of less than one-twentieth of 1 percent (0.05%) over the next two decades, relative to business as 

usual. That forecast, moreover, considers only current sectors of the economy; 

by its nature, economic modeling cannot anticipate the emergence of entirely 

new sectors—and the associated jobs—that will arise in the low-carbon economy. 

• The manufacturing sector has a high level of job turnover—over 10% of all manufacturing jobs are either created or destroyed every 3 months. By comparison, 

the impact of capping greenhouse gases on manufacturing employment will be 

tiny—a cumulative effect of only a few percentage points over more than two 

decades. And this is the sector expected to be affected most by a cap on greenhouse gases. 


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• Of course, no one whose job is lost is comforted by the fact that he or she is 

one of relatively few affected. The broader trend of job erosion in the manufacturing sector can neither be reversed nor eased significantly by climate policy— 

precisely because the effects of such policy are so small. Dealing with volatility 

in this sector will remain the province of other aspects of American economic 

and social policy. 

For the average American family, the cost of capping greenhouse gases will 

amount to less than 1% of household budgets over the next two decades. 

• Stated as a fraction of household income, capping greenhouse gases will cost 

families less than a penny on the dollar. This is much less than what Americans already spend in their household budgets to protect themselves and their 

families. By comparison, more than 3 cents of every dollar already goes to insurance; nearly 4 cents goes to national defense; and 10 cents goes to Social Security. 

The Effects of Capping Greenhouse Gases On Household Energy Bills Will Be 

Modest, and Are Much Smaller Than the Fluctuations That American 

Families Already Live With 

Household impacts will be most pronounced in the area of energy prices because 

of our dependence on fossil fuels. Importantly, energy prices are accounted for in 

the overall impacts described above. But even taken in isolation, the projected effects of climate policy on household energy spending are modest. 

• Home energy bills are projected to rise by only a few dollars a month over the 

next two decades, relative to business as usual, taking into account effects on 

prices and corresponding shifts in household consumption. And the fact that the 

overall costs of capping greenhouse gases will be so modest means that we can 

easily afford programs to offset the burden of these increased costs on low-income households. 

• Price fluctuations due to supply bottlenecks and Mideast politics are recurring 

consequences of relying heavily on imported hydrocarbon fuels. Recent run-ups 

in the price of gasoline at the pump and in the price of home heating oil and 

natural gas are several times larger than the predicted effects of capping greenhouse gases. 

• By the same token, the uncertainty about what gasoline prices (or other energy 

prices) will be two decades from now dwarfs the estimated impact from climate 

policy. For example, one study projects that a cap on greenhouse gases would 

add about 15% (35 cents a gallon) to the price of gasoline in 2030 relative to 

business as usual. This is much smaller than the uncertainty surrounding any 

estimate of gasoline prices that far in the future. This conclusion is in line with 

other assessments: The median forecast for the studies discussed here is an increase of 13% by the year 2030. 


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If We Act Now, a Cap and Trade Policy Can Provide the Basis for Continued 

U.S. Economic Leadership 

In the longer term, the transition to a low-carbon economy may offer the United 

States a comparative advantage in a highly competitive world. A look back at the 

history of the U.S. economy since World War II teaches a number of lessons: 

• American ingenuity and innovation have achieved challenges of much greater 

magnitude before. The mobilization for World War II involved a complete transformation of the U.S. economy in just 2 years. If we do not waste our scarcest 

resource—time—we can make the transition to a low-carbon economy without 

adverse macroeconomic impacts. 

• Technological change is the engine of progress in the American economy. We 

emerged as the world’s economic superpower in the last century by leading 

every economic revolution—from mass production to aviation to semiconductors 

and the Internet. Our continued prosperity in the new millennium depends on 

leading the next transformation: The emergence of a low-carbon economy. 

• But innovation does not just happen: It responds to the basic economic drivers 

of demand and price. A hard, long-term cap on carbon emissions will provide 

the market signals necessary to spark innovation and unleash the kinds of powerful market forces that propelled our economy in the postwar period. A failure 

to stimulate innovation through a carbon cap will cede leadership in the lowcarbon economy to others. 

Environmental Defense Fund is dedicated to protecting the environmental rights 

of all people, including the right to clean air, clean water, healthy food and flourishing ecosystems. Guided by science, we work to create practical solutions that win 

lasting political, economic and social support because they are nonpartisan, cost-effective, and fair. 

This report is available at www.edf.org/climatecosts. 

© 2008 Environmental Defense Fund; Cover photo: istockphoto

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1Steinfeld H, Gerber P, Wassenaar T, Castel V, Rosales M, and de Haan C. 2006. Livestock’s 

long shadow: Environmental issues and options. Food and Agriculture Organization of the 

United Nations, p. xxi. 2 Ibid, p. 86. 

3 U.S. Government Accountability Office (GAO). 2008. Concentrated animal feeding operations. 

EPA needs more information and a clearly defined strategy to protect air and water quality from 

pollutants of concern. September 2008. GAO–008–944. 4 U.S. Environmental Protection Agency. 2003. National Pollutant Discharge Elimination System permit regulation and effluent limitation guidelines and standards for concentrated animal 

feeding operations (CAFOs); final rule. February 12. Federal Register 68(29):7176, 7180. 5 U.S. Environmental Protection Agency. 2007. EPA helps farmers turn livestock waste into 

wealth. January 18. http://yosemite.epa.gov/opa/admpress.nsf/756fc9115d0af011852572a000655 

93e/c9f1eb2189c4600d852572670065a77d!OpenDocument. Accessed April 23, 2008. 6 U.S. Environmental Protection Agency. Managing manure with biogas recovery systems, improved performance at competitive costs. The Agstar Program, p. 5. 

Statement of Humane Society of the United States and the 

Humane Society International 

The Humane Society of the United States (HSUS), the Nation’s largest animal 

protection organization representing 10.5 million supporters, and Humane Society 

International (HSI), the international arm of HSUS, submit the following comments 

to the House of Representatives Committee on Ways and Means. 

HSUS and HSI are encouraged that the Committee on Ways and Means recognizes the need for policy mitigation strategies that will reduce and stabilize greenhouse gas (GHG) emissions from industry, agriculture, and transportation in the 

United States. However, we are troubled by many of the existing proposals—including H.R. 2069 (The Save Our Climate Act of 2007), H.R. 6316 (The Climate MATTERS Act of 2008), H.R. 3416 (America’s Energy Security Trust Fund Act of 2007), 

and H.R. 6186 (The Investing in Climate Action and Protection Act of 2008)—as 

very few, if any, take into account farm animal production, despite its contribution 

to GHGs. 

The United Nations Food and Agriculture Organization (FAO) has found that the 

farm animal sector contributes 18% of total GHGs, which is more than the entire 

transportation sector, including cars, trucks, airplanes, and ships.1 Every step of 

meat, egg, and milk production—including the land use changes for feed crop production and grazing land, the manufacture of fertilizers and pesticides for feed 

crops, the transportation of live animals and animal products, and the management 

of farm animal manure—contributes to GHG emissions. Fertilizer production for soy 

and corn crops for farm animal feed alone contributes some 41 million tonnes of carbon dioxide annually.2

Conversely, more sustainable and higher welfare animal production practices, including pasture-raised systems, can help mitigate the effects of climate change by 

helping to sequester carbon in the soil, reducing deforestation for soy and other feed 

crop production, and eliminating the need for artificial sources of fertilizer. 

Furthermore, the manufacture of biofuels from both animal waste and animal fat 

has the potential to encourage unsustainable animal agriculture practices. On farms 

raising both plants and animals, manure is typically a very efficient and available 

source of nutrients for crops, often eliminating the need for any artificial fertilizers. 

On factory farms, however, the huge quantity of waste produced makes it nearly 

impossible for the manure to be utilized as fertilizer on nearby cropland, a problem 

made worse by beef, chicken, egg, and dairy operations increasingly being sited far 

from where crops are grown. Storage of manure in lagoons can also contribute to 

water pollution and harmful air emissions, according to a Government Accountability Office (GAO) report released in September 2008.3

As a result, Smithfield, Tyson Foods, and many other animal agribusinesses are 

looking for ways to profit from the 500 million tons of manure generated annually 

by industrial farm animal production operations.4 The cost of installing digesters 

and biogas recovery equipment can be extremely expensive, and many of these systems are supported by government subsidies and tend to only be profitable at largescale industrial facilities.5

Installing anaerobic digesters can require significant investment depending on the 

type of system used. As a result, some States have grant and subsidy programs that 

offset the cost of installation. However, digesters work best on large factory farms 

that have ‘‘stable, year-round manure production,’’ not smaller scale farms that lack 

the necessary infrastructure to collect at least half of that manure every day.6

Additionally, the funding of anaerobic digesters through the EPA AgStar program 

for industrialized animal production operations in the United States and the use of 

the Clean Development Mechanism (CDM) of the Kyoto Protocol to fund installation 

of anaerobic digesters in developing countries may actually encourage the growth 


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7 United Nations Environment Programme (UNEP). Great Ape Survival Project (GRASP) 

http://www.unep.org/GRASP/. Accessed September 2008. 8Searchinger T, Heimlich R, Houghton R, Dong F, Elobeid A, Fabiosa J, Tokgoz S, Hayes D, 

and Yu T. 2008. Use of U.S. Croplands for Biofuels Increases Greenhouse Gases Through Emissions from Land Use Change. Science, 319. 5867: 1238–40. 9 Biofuels can help the livestock sector. 2008. Farmers Guardian. March 13, 2008. http:// 

www.farmersguardian.com/story.asp?sectioncode=1&storycode=17019. Accessed March 20, 2008. 10Lardy G. 2008. Biodiesel benefits for cattle producers: Feeding byproducts of biodiesel production. Executive Summary. p. 1. 11M.E. Jacob, J.T. Fox, J.S. Drouillard, D.G. Renter, T.G. Nagaraja. 2008. Effects of dried distillers’ grain on fecal prevalence and growth of Escherichia coli O157 in batch culture fermentations from cattle. Applied and Environmental Microbiology, 74. 1:38–43. 12 National Institutes of Health. 2005. Foodborne diseases. National Institute of Allergy and 

Infectious Disease fact sheet. February. www3.niaid.nih.gov/healthscience/healthtopics/ecoli/ 

Complications.htm. Accessed September 26, 2008. 13See The Humane Society of the United States. An HSUS Report: the welfare of intensively 

confined animals in battery cages, gestation crates, and veal crates. http://www.hsus.org/webfiles/PDF/farm/hsus-the-welfare-of-intensively-confined-animals.pdf. 14 National Commission on Industrial Farm Animal Production. 2008. Putting meat on the 

table: Industrial farm animal production in America. A report of the Pew Commission on industrial farm animal production. Executive summary, p. 51–5. http://www.ncifap.org/limages/ 

PCIFAPSmry.pdf. Accessed September 24, 2008. 15Technomic survey. 2007. Cited in MeatingPlace. Q and A Animal kingdom. May 2007. p. 23. 16 Harris Interactive. 2007. Large majorities see organic food as safer, better for the environment and healthier—but also more expensive. Harris Poll #97, October 8, 2007. http:// 

www.harrisinteractive.com/harrislpoll/index.asp?PID=813. 17 U.S. Environmental Protection Agency. 2003. National Pollutant Discharge Elimination System permit regulation and effluent limitation guidelines and standards for concentrated animal 

feeding operations (CAFOs); final rule. February 12. Federal Register 68(29):7176, 7237. 

of factory farms internationally, which will further exacerbate environmental challenges and animal welfare assaults. 

There is also concern that the use of market-based carbon offsets or carbon trading mechanisms could do more harm than good. Many environmental organizations 

are wary of supporting projects in the developing world, such as planting trees to 

offset the carbon emissions from air travel and other activities. Unless there are 

strict regulations and compliance mechanisms in place, such programs could support 

fast-growing tree plantations for the timber industry, for example, that do very little 

to sequester carbon or mitigate climate change. A better approach is to steer carbon 

trading toward projects that actually keep wild forests intact and support conservation of species, including gorillas and other endangered animals indigenous to forest 

ecosystems, such as those supported by the United Nations Environment Programme Great Ape Survival Project (GRASP).7

In addition, ethanol production may actually contribute more GHGs than fossil 

fuel-based energy.8 The ethanol industry is also selling ethanol co-products, including distiller’s grains (DGs), a waste or co-product of dry mill ethanol production, in 

an attempt to create a symbiotic relationship between industrial animal agriculture 

and the biofuel industry.9, 10

Recycling ethanol co-products, however, is not always healthy for animals or humans. Research from the University of Kansas in 2007 suggests that cattle who are 

fed DGs have a higher likelihood of harboring E. coli O157 in their hindgut, or 

colon.11 While the pathogen doesn’t harm cattle, it remains the leading cause of kidney failure among previously healthy children and kills dozens of Americans a 

year.12

Given the importance of animal agriculture both in contributing to and mitigating 

climate change, it is crucial that any climate change policy or laws enacted by the 

United States take farm animal production practices into account. While there may 

be concern regarding the expense of encouraging farmers to transition away from 

industrial, low-welfare 13 animal agriculture practices, including rearing animals in 

fossil fuel-intensive confined animal feeding operations (CAFOs), the long-term social, environmental, economic, and public health benefits of more sustainable, higher-welfare systems outweigh any short-term financial input.14 As well, public opinion polls consistently show that U.S. consumers are concerned not only about food 

safety and environmental integrity, but also the welfare of animals raised for meat, 

eggs, and milk, and have expressed a willingness to pay premium prices for higher 

welfare and organic products.15, 16

Communities also benefit from less ground and surface water pollution when factory farms are not located nearby.17 Public health is also jeopardized—asthma, diarrhea, headaches, and sore throats are all more common among neighbors who live 


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18 U.S. Environmental Protection Agency, Office of Water. 2001. Environmental assessment of 

proposed revisions to the National Pollutant Discharge Elimination System regulation and the 

effluent guidelines for concentrated animal feeding operations. www.epa.gov/waterscience/guide/ 

cafo/pdf/EnvAssessPt1of2.pdf. Accessed September 24, 2008. 19 American Public Health Association. 2003. Precautionary moratorium on new concentrated 

animal feeding operations (CAFOs). September 24, 2008. http://www.apha.org/advocacy/policy/ 

policysearch/default.htm?id=1243. Accessed September 24, 2008. 20 National Commission on Industrial Farm Animal Production. 2008. Putting meat on the 

table: Industrial farm animal production in America. A report of the Pew Commission on industrial farm animal production. Executive summary, p. 21–22. http://www.ncifap.org/limages/ 

PCIFAPSmry.pdf. Accessed September 24, 2008. 

close to factory farms.18 As a result, the American Public Health Association has 

recommended a moratorium on construction of new CAFOs.19 Furthermore, the 

prestigious Pew Commission on Industrial Farm Animal Production has recommended, in addition to phasing out intensive animal confinement practices such 

as battery cages, sow gestation crates, and veal crates, phasing out the use of antibiotics in animal agriculture because of concern about antibiotic resistance.20

In consideration of the competition concerns raised, HSUS and HSI strongly believe that the United States must participate in an international agreement, where 

all major emitting countries commit to following the same rules. This lessens the 

potential for the United States to have higher costs or for U.S. products to be uncompetitive with products from another country, as all signatories to the agreement 

will be obliged to follow a similar climate change mitigation scheme. 

f 

Statement of Industrial Energy Consumers of America 

The Industrial Energy Consumers of America (IECA) is a trade association whose 

membership are exclusively large energy intensive consuming companies with representation from every sector, has firmly concluded that because they compete globally on both exports and imports; and if the U.S. regulates ghg emissions using a 

cap and trade policy approach, it will be critically important that energy intensive 

consuming industries be provided free emission allowances to cover the resulting increase in both direct and indirect costs. If not, their competitiveness will be at risk 

and will unfortunately result in their movement to countries that have lower energy 

and compliance costs. It is a matter of economic survival. 

There are several policy options beside cap and trade to regulate ghg emissions 

that vary greatly in effectiveness and cost. Regardless of the choice, it is essential 

that the ‘border adjustment’ issue avoid throwing the energy intensive manufacturing companies into a legal morass with the WTO. This is not only expensive and 

time consuming but adds tremendous uncertainties that will negatively impact companies and entire industrial sectors. 

Climate change and the policies necessary to avoid and reduce greenhouse gas 

emissions is a top priority for IECA. We welcome the opportunity to work with you 

and the Committee to fashion a regulatory system that is cost effective in reducing 

ghg emissions. We know something about reducing ghg emissions. The industrial 

sector’s ghg emissions are at 1990 levels while the residential, commercial, transportation and power sectors emission have all increased by over 30 percent. 

The Industrial Energy Consumers of America is an association of leading manufacturing companies with $500 billion in annual sales and with more than 850,000 

employees nationwide. It is an organization created to promote the interests of manufacturing companies for which the availability, use and cost of energy, power or 

feedstock play a significant role in their ability to compete in domestic and world 

markets. IECA membership represents a diverse set of industries including: plastics, cement, paper, food processing, brick, chemicals, fertilizer, insulation, steel, 

glass, industrial gases, pharmaceutical, aluminum and brewing. 

f 

Statement of James Culliton 

Thank you for the opportunity to provide a statement regarding the issue before 

you. My name is James Culliton; I am affiliated with no group and have no financial 

interest in the matter at hand. 


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Having read the written testimony as submitted on September 18, 2008, it is apparent that my comments lack the pedigree and meticulous investment in research 

and citations evidenced by most of that testimony. Yet, I believe my comments are 

salient to the issue. 

If some variant of cap and trade is passed, I have several concerns. 

First, how would Federal carbon permits be integrated into existing State, regional and post-2012 carbon trading schemes? Arbitrage is not a mere possibility, 

it is a certainty, unless structurally mitigated through thoughtful design. If the 

overuse of derivatives has rendered it difficult to valuate a company, imagine how 

emissions trading of pollution credits in multiple markets will render actual reduction difficult to gauge. 

Second, in the retail electricity context, should utility shareholders or ratepayers 

benefit from emissions reductions? These reductions will trace back to effective demand-side management, increasing use of renewable generation, as well as pollution 

control device installation. If there is profit realized from the sale of emissions credits, it should be distributed to the ratepayers, who would have reduced their consumption and paid for the construction/operation of renewable generation and pollution control devices. The utility shareholders are already able to earn a return of 

their capital investment plus a return on the latter two; they should not realize a 

double return in the form of any emissions credit trading profits. 

Third, although a 100% auction with a floor and a ceiling should be used, if allocation is the chosen means to distribute credits (or a hybrid auction-allocation as in 

the current Boxer bill), allocations should not be given away. The regressive impact 

of this granting of a property right would be disastrous. Kyoto punted on the initial 

valuation question: The price to pollute was set at zero. In broad terms, an emission 

credit allocation masks the true cost of a particular enterprise. If the true costs of 

doing business are not reflected in an enterprise’s end-product, the market is shielded from price signals that might otherwise operate to reward an enterprise that pollutes less. In other words, allocating credits prevents a market from rewarding efficient production. If there is no reward for reducing emissions, there is little chance 

an enterprise would put itself at a competitive disadvantage. Assuming pollution efficiencies are otherwise desired (perhaps to boost a marketing campaign), the price 

of each credit would fall proportionately, even in a trading market where the supply 

of credits is limited. The SO2 system anticipated this and devalued future credits 

incrementally; apparently, Kyoto did not. This general point is compounded when, 

as in Kyoto, the initial allocation of credits exceeds the absolute number of credits 

needed. Certainly, the collapse of many former Soviet-bloc industries is partially to 

blame, as it created a glut of credits. Our national push—evidenced in Renewable 

Portfolio Standards at the State level—toward renewable generation and increased 

demand-side management could create a similar glut. The banking of credits (particularly when their carried-over value is undepreciated) and imprecise initial calculation of actual numbers to allocate is even more troubling on a going-forward 

basis. 

Respectfully, I believe the best available option would be an upstream carbon tax, 

distributed across sectors evenly, with the proceeds to be distributed on a pro-rata 

basis to taxpayers (after monitoring/enforcement monies are removed). To combat 

any resulting import and export competitive disadvantages, an import tax or export 

credit could be handled at the Customs office in question. If this structure creates 

a problem with international trade group compliance, fix the trade group rules to 

recognize a carbon exception. The issue is really not insurmountable. The only real 

problem with a tax structure is that it reduces the emitters ability to choose when 

to reduce emissions. The other side of the when coin is that it fosters innovation 

and technological advance more quickly—thereby addressing the underlying problem of excess carbon dioxide in the atmosphere faster. A tax also has the advantage 

that it could be ratcheted up or down on a yearly basis to address any unintended 

effects. A cap and trade does not have such flexibility, especially if banking is permitted. Finally, assuming the U.S. participates in the next phase of a global cap and 

trade, if a tax is established, the emitters who reduce would be well-positioned to 

capitalize in the global emissions market. Since the baseline for emissions would be 

set at pre-2008 levels, the U.S. emitter who reduces would in essence receive a double reward for designing and implementing efficiencies: Through lowering its domestic tax liability (thereby either raising net profits or gaining competitive marketshare advantages) and gaining more credits faster on the global emissions market. 

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Statement of Julian Keniry 

Thank you, Chairman Rangel and Ranking Member McCrery, for hosting this important hearing on policy options to address climate change. Since 1936, the National Wildlife Federation has advocated for wildlife habitat and protection, environmental education, and conservation of our public lands. The Federation has over 4 

million members and supporters and 48 affiliate organizations across the country. 

We have a robust climate change policy solutions campaign, and I am here today 

to talk with you about one important aspect of our multi-faceted program, climate 

change education. I direct the Federation’s Campus Ecology Program, which supports student and faculty efforts to help reduce the carbon footprint on college campuses and to promote sustainability curricula at universities. 

We commend you for holding this important hearing and for considering legislation to support strong reductions in greenhouse gas emissions to put America on the 

path to a clean energy future. We can work together to create a new energy economy that protects wildlife, creates new green jobs, provides strong green education 

programs, and ensures a thriving economy. As you consider policy options to curb 

climate change, we urge you to support policies that will help wildlife adapt to global warming and support comprehensive global warming education to prepare citizens for the opportunities of the new energy economy. We strongly believe that auction proceeds from a cap and trade climate security act should remain dedicated to 

climate change solutions. 

We also recognize the efforts of Congressmen Markey and Honda who have introduced legislation to advance climate change education. While the language included 

in Congressman Doggett’s H.R. 6316 is a step in the right direction, we must do 

more and we must act quickly to ensure the public moves beyond mere awareness 

of global warming as a problem to a strong understanding of the causes of global 

warming and what they can do to find solutions. 

The Federation’s research shows that a dramatic investment in climate change 

education is needed to ensure sufficient emissions reductions to stop global warming 

and to prepare the next generation for our new clean energy economy. The recent 

spotlight has focused on how our new economy will create millions of ‘‘green’’-collar 

jobs, but much less attention has been paid to what is needed to prepare our Nation’s young people for these rewarding new careers. In August 2008, we released, 

Campus Environment 2008: A National Report Card on Sustainablity in Higher 

Education. This report contains some surprises. It shows that many positive 

changes are occurring on U.S. campuses, especially in the greening of campus operations. There are no surprises there. But unexpectedly, the amount of sustainability-related education offered on campuses did not increase since our 2001 study 

and may have even declined. In short, the curriculum is not keeping pace with the 

greening of campus operations and faculty are lagging behind their staff and administrator peers in fostering sustainability education. This is cause for deep concern. 

The National Wildlife Federation’s report reflects the Nation’s largest survey created to gauge campus leadership for sustainability—with more than 1,060 participating schools—and demonstrates how our learning hubs integrate green programs 

into day-to-day operations such as transportation, landscaping, energy conservation, 

and waste reduction. But schools fall behind when it comes to providing students 

with the academic preparation needed to face environmental challenges and seize 

the opportunities of the future. Our results show that, in the past 8 years, sustainability-related education offerings and recruitment programs have declined, as have 

faculty conducting environmental and sustainability research. 

Our 2001 to 2008 comparison of the curricular and academic dimensions of sustainability shows little infusion of sustainability concepts across disciplines, very 

few campuses requiring sustainability courses for all students, and low levels of support for faculty development on climate change and other sustainability topics. Students studying subjects such as engineering, business, health sciences and teacher 

education—disciplines crucial to our Nation’s ability to create a sustainable economy—receive relatively little exposure to sustainability concepts and courses. Just 

over half of colleges and universities now either offer an undergraduate minor or 

major in environmental and sustainability studies, down from two-thirds in 2001. 

In 7 years, no significant gains in educating students on sustainability have been 

made despite the growing depth of the global warming challenge and what it means 

to future professions and their related disciplines. 

Yet, America and the world are in the midst of revolutionary change. In just the 

past few years, the threat of global warming has shifted in the United States from 

a distant worry to a present and intense national public conversation. Business 

leaders and policymakers are responding with new proposals every day amidst shifting markets. These shifts are challenging the American education system, especially 


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higher education, to keep pace and ultimately lead in the realm of environment and 

sustainability. 

Two things are certain. First and foremost, we have never before had an environmental challenge on such an immense scale as to force modern society to remake 

itself. America will require a new energy economy and needs an educated workforce 

to get started on that right away. Second, addressing this problem and shaping a 

more sustainable, low-carbon society will require new thinking supported by new 

technology, design, businesses, financing, consumer behaviors and career paths. 

That is where education comes in. It plays important roles by both being part of 

a changing world and also actively shaping the future direction of that world. 

American higher education has risen to past challenges—and has the people and 

the resources already in place to meet today’s challenges head-on. It produces 30 

percent of the world’s scientists and a remarkably large percentage of the world’s 

business, diplomatic and government leaders. Higher education leaders have always 

been clear that successful development of human talent and globally-competitive 

skills provide the United States with the many critical opportunities and advantages. 

The men and women, who in 20 or fewer years, will lead our businesses, educational institutions and government agencies are in school now. We need to offer 

them the kind of academic and professional preparation that will ready them to envision and create a different kind of world. It will be a world which has new and 

cleaner forms of energy production, transportation, agriculture, natural resource 

management, health care, scientific research, micro and macro businesses, and other 

essential technological advances. To achieve this at the speed required will call for 

serious new support including a reevaluation of how we educate every degree candidate from architecture and engineering to accounting and even teaching itself. 

Elevating education for sustainability will require new levels of incentives for 

higher education and, in particular, support for faculty. College and universities 

need to have the means to provide faculty with time to network with other faculty 

and to redesign their course work. They also need the proper incentives to establish 

and track objectives for sustainability education across all disciplines and to foster 

interdisciplinary research and teamwork among faculty, students and staff within 

and among campuses and with their larger communities. With the passage of the 

Higher Education Sustainability Act provisions in August 2008, which was championed by Congressman Blumenauer, we have taken a step in the right direction 

on sustainability education. We must, however, act quickly to appropriate significant funding to support climate change education at all levels. 

We need to prepare students entering college as well. In addition to higher education, we need to support comprehensive global warming education in our elementary and secondary academic development, vocational and school-to-work programs, 

professional training and re-training, and broad consumer education. 

As a Nation, the United States has a rich tradition of excellence in education, especially higher education. But we are witnessing national and global changes that 

pose new challenges and opportunities for higher education leadership. This Report 

Card tells us there is a widening gap between where American higher education actually is on teaching and learning for sustainability and where it should be. Our 

national assessment findings serve as a warning. If we are unable to bridge the gap 

in student education for sustainability, we miss vast needs and opportunities. Our 

findings also point to the need to incorporate global warming education throughout 

our public education programs from elementary and secondary schools, to vocational 

schools, to professional training, and general consumer education. With a greater 

focus on making the transition and given adequate human and financial resources, 

we can bring our public education systems to speed and help shape a brighter and 

more sustainable future. 

We therefore urge the Committee to include strong allocations for a comprehensive global warming education policy platform in its climate security legislation. We 

applaud your work in holding this important hearing. Thank you for your time and 

consideration. 

f 

Dear Chairman Rangel and Members of the Committee, 

I’m writing in support of Congressman Doggett’s Climate MATTERS Act and to 

urge the Committee to pass this legislation and give it an opportunity for debate 

by the full House. While several worthy bills have been filed in the House and Senate addressing the critical and immediate challenge of climate change, H.R. 6316 

contains certain elements that are unique and which merit careful consideration. In 


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this respect, I would like to highlight the following elements of the Climate MATTERS Act: 

• Allocation and Distribution of Emission Allowances—Of the several greenhouse 

gas (GHG) cap and trade bills filed in the House and Senate, the approach to allowance allocation/distribution taken in H.R. 6316 does the best job of allowing unfettered market forces to drive GHG emission reductions. The success of any cap and 

trade GHG regime depends primarily on providing clear and undistorted price signals to the marketplace, internalizing the true costs of GHG emissions and providing economic incentive for investment in clean energy alternatives. In contrast 

to other legislative approaches that would hand out the bulk of GHG emission allowances under a free allocation system and take decades to transition to an auctioning system, H.R. 6316 begins in 2012 with 85% of allowances being distributed 

through auctions and phases to full auctioning in a relatively short 5 years. Clearly, 

this is the approach that puts the fullest faith in free market forces, the greatest 

trust in the innovative capacity of American business and the highest level of confidence in the wisdom of the consumer. Likewise, auctioning helps eliminate the manipulation and jockeying for windfall profits that we have already seen regulated 

entities engage in as free allocation systems have been developed and proposed. 

• Cost Relief Measures—H.R. 6316 recognizes the potential for unacceptable 

short-term risk to the U.S. economy that could be realized if the price for emission 

allowances rises too high too quickly. To this end, Sec. 9933 allows for cost relief 

measures that still maintain the integrity of the overall program. Certain other legislative approaches merely cap the price of emission allowances or allow for the unrestricted release of additional allowances when trading prices reach a certain point. 

This, of course, distorts price signals, undermines the market forces upon which a 

cap and trade regime depends, reduces the corresponding incentive for investment 

in clean energy alternatives and threatens our ability to achieve the intended reductions in GHG emissions. H.R. 6316 instead allows for an increase to limits on foreign allowances and offset credits—thus ensuring that a temporary dampening of 

price signals is accompanied by a theoretically equal reduction or sequestration of 

GHG emissions. 

• Global Cooperation—H.R. 6316 creatively and even-handedly resolves ongoing 

concerns about Federal regulation of GHG emissions potentially placing U.S. businesses at a competitive disadvantage vis-a`-vis producers from countries that do not 

have comparable GHG regimes in place. The bill does so through its international 

reserve allowance provisions and, through Sec. 111(a)(7), appropriately accommodates the intent of our WTO agreements and obligations by allocating proceeds to 

climate change mitigation programs serving disadvantaged communities in WTO 

participant nations. 

• Early Action Account—Another somewhat unique element of the Climate MATTERS Act is its recognition of early action taken by regulated entities to voluntarily 

reduce greenhouse gas emissions prior to the implementation of a regulatory mandate to do so. The city of Austin, and in particular its municipally owned and operated electric utility, Austin Energy, are widely acknowledged as national leaders on 

energy efficiency, demand side management, development of renewable energy resources and deployment of advanced clean energy technologies. Likewise, we are 

now implementing a voluntary carbon cap and reduction plan at Austin Energy 

which will, in part, involve the voluntary purchase and retirement of carbon offset 

credits. We have implemented the above strategies because our citizens believe we 

should play a role and pay our fair share in the cost of protecting the environment 

and natural resources on which we all depend. And we are not alone in this. Scores 

of cities and regulated entities have implemented similar measures in part due to 

a shared sense of social and environmental responsibility. Under most of the climate 

change legislation that has been filed, however, regulated entities are not given 

credit for these actions—even though the climate protection benefits of the actions 

are measurable and verifiable, and even though the actions have resulted in reductions of GHG emissions that would otherwise be trapped atmospherically and would 

be contributing to the mounting problem which we all now face. In Sec. 9512 and 

Sec. 331, the Climate MATTERS Act takes an important step toward fairness in distributing the burden of paying for climate protection by crediting regulated entities 

for voluntary GHG emission reduction activities taken between 1994 and 2012. 

As mentioned, the city of Austin has taken extraordinary steps to voluntarily reduce GHG emissions coming from our municipal and utility operations. We have 

also begun to implement municipal code changes that will help reduce GHG emissions throughout the community. Highlights of those measures include: 


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• Adoption of the Austin Climate Protection Plan, which is intended to make all 

municipal fleets, facilities and operations carbon neutral by 2020. 

• In less than 2 years, conversion of more than half of our 4,000+ municipal fleet 

of vehicles and heavy equipment to biofuels and hybrid technology. 

• Approximately 700 megawatts of efficiency savings at Austin Energy in the past 

25 years, and a plan to achieve an additional 700 megawatts of savings by 2020. 

• A doubling of our renewable energy generation from 6 percent 2 years ago to 

almost 12 percent today. A recent contract for the largest renewable biomass power 

plant in the Nation that will bring our renewable portfolio to 18 percent by 2012. 

And a plan to produce 30 percent of our electricity from renewable sources by 2020. 

• Nationally leading building codes that will make all new single-family homes 

in Austin zero energy capable by 2015. 

• Implementation of land-use policies to encourage dense, mixed-use, walkable 

and transit-friendly development that will help reduce vehicle miles traveled. 

As the Mayor of Austin, I’m privileged to act as Chairman of the Board for Austin 

Energy. Likewise, I serve as Chair of the Energy Committee for the U.S. Conference 

of Mayors. In these roles, I’ve had the opportunity to study and learn a great deal 

about energy policy, and I’ve had the challenge of implementing climate protection 

policy at the local level. 

In Austin, we’ve made great progress, and—at the risk of immodesty—I believe 

we serve as a national model and an indispensable city in this regard. Indeed, in 

the face of Federal inaction on this issue, it has been left to local governments to 

lead the way. The fact of the matter, however, is that our local efforts will always 

fall short of the GHG reductions the united global scientific community tells us we 

need to make. 

In Austin, for example, more than half of our community carbon footprint comes 

from vehicle emissions. Yet, we have neither the ability nor the authority to regulate transportation fuels and vehicle emission standards. We can eliminate GHG 

emissions from our municipal operations, and we can meet our electric load growth 

through efficiency and renewables—as we’re doing. But in the fastest growing big 

city in the fastest growing State in the Nation, we will always lose ground due to 

increased vehicle emissions. 

This is just one example of the need we have locally for strong Federal leadership 

to reverse course and avoid the worst of the impacts of global climate change. We 

can not do it alone. As I write, Austin is hosting thousands of evacuees from Hurricane Ike—just as we did for Hurricanes Katrina and Rita. It is a stark and heartbreaking reminder of the realities we’ll continue to face if the United States does 

not step up and take its rightful role as a world leader on this issue. 

With that in mind, I would ask you to listen to the scientists who uniformly tell 

us of the targets we need to reach, listen to the economists who advise us on the 

most efficient and equitable tools for meeting those marks, and give thoughtful consideration to your respected colleagues, such as Congressman Doggett, who propose 

vehicles that embody the best of those ideas. 

Sincerely, 

Will Wynn 

f 

Mayor 

Dear Congressman Doggett, 

I have read the materials about your proposed Climate Matters Act, and while 

I am not an expert on the topic of emissions auctions and some of the other elements of the very ambitious legislation, I do know something about the clean energy 

alternatives we will have to transition to, in order to meet your goals. We all miss 

the days of gasoline under a dollar a gallon, but the good news is that if we make 

a commitment to reduce CO2, as well as other emissions, Americans can find a way 

to make a business out of it. Although some people are frightened by the prospects 

of the changes ahead, I think it will be like what happens in the forest when an 

old tree finally falls: Many new saplings have a chance at their spot in the sun, and 

an explosion of growth takes place. 

Your program appears to allow emission sources three options: 

• First, they can reduce their own emissions, using a wide variety of clean energy 

or environmental technologies and strategies, only limited by our creativity; 

• Second, they can purchase emissions allowances, and your bill reinvests a portion to support clean energy and environmental programs, and training; 


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• Third, they can purchase credits or allowances from others with opportunities 

to reduce emissions themselves, or help others reduce their emissions. 

Each of these options allow innovation to take place within a market environment, where the most cost-effective solutions can rise to the surface. This is an important element of the plan, if I understand your strategy correctly, because we 

need to be sure we don’t get in the way of some of the options which seem ready 

to replace the status quo. We have a mind-boggling array of technology emerging 

to make us more efficient at everything we do. We have only begun to tap the potential of renewable resources. And, there are still some tricks up our sleeves to make 

the old fossil fuels less troubling. 

Naturally the first thing to do when you find yourself in a hole is stop digging. 

And, the most cost-effective strategy we can all turn to in order to reduce emissions 

is efficiency, in a variety of forms. The city of Austin just adopted a process for rating the energy efficiency of every home at the time of sale, and we have been working with Texas A&M’s Energy System’s Lab on producing a web-based energy scoring system that will be adopted for a voluntary labeling program statewide. We are 

working with the Texas Workforce Commission and the Texas Foundation for Innovative Communities to develop curriculum to meet the training needs for energy 

auditors and building science educated technicians, which we expect to explode. 

Austin is the birthplace of the green builder movement, and you probably know our 

old friend Clark Wilson, once a large tract-home builder, has reentered the business 

as GreenBuildersInc.com, building some of the most energy efficient homes anywhere. I could go on. It is an exciting time. 

Smart energy technology is the widely-used term for simply bringing our utilities, 

and our use of utilities, into the digital age, but it too holds out the promise of capturing huge efficiencies. All the Texas utilities are undertaking a systematic mass 

deployment of digital electric meters and we are piloting two-way communicating 

thermostats in the urban areas, and e-Radio energy broadcasts directly to new thermostats with FM receivers. We predict that demand response will replace the last 

5 percent of peak generation by 2015. One of our clients have developed the intelligence through long research that allows them, using available market data and 

a simple communicating thermostat, to determine the thermal performance of a 

building, identify homes that need energy improvements, or help the occupants modify their behavior to significantly lower their bills. The same intelligence alone allows this firm to improve the energy reduction associated with a demand response 

program by 10 to 15%. 

Austin is moving toward an integrated system of advanced meters, but you might 

be surprised to know that Bluebonnet Cooperative may have the most complete system in the State at the moment. I was visiting with the General Manager today, 

Mark Rose, who has every customer on a communicating meter, and the system is 

integrated so that the customer services call center can talk to a customer while 

reading his/her meter on the spot. The next move will be toward time-of-use pricing 

signals and enabling greater control over their energy use for his customers, but notice it comes with increased customer service! 

Here at Good Company Associates we are working with a coalition of utilities and 

technology companies to accelerate the adoption of standardized home area network 

equipment and controls. We have just made patent filings for a service platform 

that would allow premise owners to access their home or business controls remotely, 

or authorize a third party provider to do so on their behalf. I plan to live long 

enough to see this come to pass. 

By the way automated reading of gas and water meters is also following on the 

coattails of the electric systems, but additional technologies are emerging to identify 

leaks in gas and water systems that will save huge amounts of energy. 

We are also working with a newly patented system for thermal storage, applicable 

to smaller buildings including single family homes, which is being developed here 

in Texas. And, just down the road this side of San Antonio, a client of ours is developing electric drive systems for electric cars and electric/gas hybrids, and onboard 

idle reduction equipment for large transport vehicles. 

Many people will point out that we can’t ‘‘save our way out of the energy crisis,’’ 

and that is certainly true, but it will make it a lot easier for us to maintain higher 

lifestyles with the renewable energy resources we have. I’m proud to have helped 

develop our first Texas commercial wind farm in 1995, and to know that the State 

has now surpassed every other State in wind capacity installed. Our new $5 billion 

commitment to building transmission to the windy areas of West Texas will make 

way for at least a doubling of the capacity here, and also open the way for development of solar systems in those desert areas that can share the transmission lines, 

because the wind seems to blow least when the sun shines the brightest there. 


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These developments are driving a tremendous wealth to West Texas landowners. 

Texas was just chosen for one of two sites for national wind turbine component testing, and we are working to help assure a cluster of related businesses grow up 

around this important new center. In addition, we are currently undertaking a significant multi-client study of large-scale energy storage, and how it might complement this explosion of resource projects in Texas. With so many salt dome storage sites holding natural gas or chemicals in the State today, we have the knowhow and technology to develop compressed air energy storage as well. 

I’m surprised by how few people know that only about 9,000 feet under most of 

East Texas the Earth reaches temperatures over 250 degrees Fahrenheit. And, the 

entire Texas-Louisiana coastline is a geo-pressurized zone that has pockets of substantial reserves of pressurized steam, often found in conjunction with natural gas. 

We have drilled so many holes in the ground down here that it is the most studied 

and best understood geology in the country. In past years, the U.S. Department of 

Energy spent about $140 million to explore this, but found (in 1990) that the cost 

of production would not support competitive pricing—which at the time was about 

$1.20 per Mcf for gas and 2 cents per kWh for electricity at wholesale! Today things 

look quite differently. In the U.S. alone over 100 new geothermal power projects are 

on the drawing boards or under construction. Texas has yet to announce its first 

project (about 80% of the U.S. capacity is in California), but the UT Bureau of Economic Geology estimated years ago that we could provide almost 30% of the State’s 

current power from this resource, and I think that was conservative. We know how 

to develop underground resources better than anyone in the world and there are at 

least two companies in Houston that can build the above ground plant for this resource. We predict geothermal is the next big renewable resource. 

One of our clients just inked a deal with Austin Energy for a 20 year contract 

to provide 100 MW of wood fired biomass energy to the city, and let me tell you 

the county judge of Nacogdoches came to town just to testify for the contract’s acceptance. A lot of paper mills have shut down in that part of East Texas and this 

project is going to put a lot of woodland owners and loggers in the black again, with 

long-term supply contracts. We know of two more projects under development already. 

I know I’m leaving a lot of good folks out of my rambling coverage of the exciting 

new saplings struggling for the light, but before I stop I want to point out that there 

are some pretty creative people trying to figure out how to use the high quality fossil resources we have, while limiting the impact. The folks at Skyonics, here in Austin, have developed a chemistry process that was being tested at the Fayette coal 

plants. I’m not a chemist, but they basically bubble the coal emissions through their 

chemical plant and separate out all the emissions. The process removes most of the 

carbon dioxide, turning it into sodium bicarbonate (baking soda), and even results 

in a net production of hydrogen. I talked to the then President of what is now 

Luminant, and asked him if the fact that it could consume about 25% of the power 

plant energy to accomplish this feat was exorbitant, and he said that this is about 

what all the various options seem to require, whether on the front end or the back. 

So it isn’t that we can’t get there, even with coal, it’s just a question of what is the 

most cost effective. 

The biggest challenge ahead of us is that we are in the process of doubling the 

number of people that work in the energy business. It might not always look like 

the energy business, like the home area network Geek Squad, but it will all be related to helping us save or generate more, cleaner energy. Efficiency replaces the 

consumption of fuel with labor and capital equipment. Smart energy technologies replace energy consumption with intelligence. Renewables replace the consumption of 

stocks of high qualify fossil fuels with labor and more distributed but sustainable 

resource flows. 

Beating climate change could be the stimulus for a tremendous technology and 

economic development response, and I can see the outlines of it already. Let the future come. Thank you for your leadership. 

Best regards, 

Robert J. King, P.E. 

President 

f 

Good Company Associates 


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1The term greenhouse gases (GHG) or GHG pollution is used interchangeably with global 

warming pollution, and carbon pollution. 2The Carbon Audit of the Tax Code was included in sec. 14001 of H.R. 3221, the Renewable 

Energy and Energy Conservation Tax Act of 2007, and authorized the National Academy of 

Sciences to undertake the audit. 3 ‘‘Big Oil, Bigger Giveaways: An analysis of $32.9 billion in tax breaks, subsidies and other 

handouts the oil and gas industry will receive by 2013.’’ Friends of the Earth. July 2008. http:// 

www.foe.org/pdf/FoElOillGiveawaylAnalysisl2008.pdf. 4 ‘‘Existing-Home Sales Slide on Tight Mortgage Availability.’’ National Association of Realtors. September 24, 2008. http://www.realtor.org/presslroom/newslreleases/2008/ehsltight 

lmortgagelslide. 

Statement of Shawnee Hoover 

Mr. Chairman and Members of the Committee, thank you for your efforts to explore policy options to address and regulate global warming pollution. Friends of the 

Earth was founded nearly 40 years ago and is a national environmental organization with more than 2 million members and supporters worldwide. Friends of the 

Earth U.S. is a founding member of Friends of the Earth International—a network 

of member organizations in 70 countries. It is the mission of Friends of the Earth 

to create a more healthy and just world. In serving its mission to protect people and 

the environment, it is notable to mention that Friends of the Earth has been working on tax, trade and finance policy since the early 1980s. 

Role for Ways and Means Committee 

It is highly appropriate that the House Ways and Means Committee take a serious interest in the regulation of carbon pollution. Irrespective of which committee 

holds primary jurisdiction over climate legislation, the House Ways and Means 

Committee, by way of its unique jurisdiction areas, will play a critical role in helping our Nation achieve aggressive greenhouse gas (GHG) reduction targets.1 In consideration of a Federal climate policy, we submit several policy suggestions for the 

Committee to consider that include the Tax Code, protecting American families and 

uses of complementary policies. We also highlight potential pitfalls to be considered 

in a cap and trade program and encourage the Committee to support positive international engagement toward a global climate agreement. 

Decarbonizing the Tax Code 

With the impeding climate and energy crisis, we need to move rapidly to reform 

the old purposes of energy tax preferences that primarily benefit fossil fuels. The 

Tax Code will be an essential tool to help guide our economy in a carbon-constrained 

world. With oil prices hovering around $100 a barrel and companies like 

ExxonMobil posting the highest profits in history, there is no reason to continue 

subsidizing oil and gas companies. Several bills have already been introduced that 

would begin the process of purging oil and gas tax breaks from the Tax Code. 

Minimizing the global warming impact of the Tax Code will be an essential component to any climate legislation. This is done primarily by eliminating subsidies 

for the production and use of carbon intensive technologies and fuels (also referred 

to ‘‘decarbonizing the Tax Code’’), while expanding incentives that encourage scaling 

up renewable forms of energy, conservation, and energy efficiency. 

The first step in decarbonizing the Tax Code involves assessing the actual impacts 

of the Tax Code on global warming pollution. The House Ways and Means Committee is already taking steps to determine the footprint of the Tax Code. We thank 

the Committee for its ongoing advocacy for a Carbon Audit of the Tax Code.2 If 

signed into law and funded, this audit could importantly inform the Committee’s efforts in designing future global warming policy. 

While we await the completion of this audit, there are a number of explicit energy 

tax preferences, breaks, and credits in the Tax Code that encourage the use of fossil 

fuels that can be immediately addressed. By Friends of the Earth’s last count in 

July 2008, there are dozens of incentives in the Federal Tax Code (some relatively 

known, others hidden) that directly reward fossil fuel use and energy waste costing 

at least $32.9 billion through 2013.3 For instance, the report took a quick look at 

the Joint Committee of Taxation’s annual revenue expenditure report and found 12 

tax preferences given to the oil and gas industry worth approximately $23.2 billion 

over 5 years. 

Other, more subtle, preferences in the Tax Code that encourage wasteful energy 

use can also be found. In the housing market, the Federal mortgage interest deduction for first homes allows home buyers to deduct interest from the first $1 million 

of the cost of their home. With median house prices at approximately $203,000 the 

deduction subsidizes the purchases of oversized homes with oversized energy needs.4


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5 ‘‘Who Gains and Who Pays Under Carbon-Allowance Trading? The Distributional Effects of 

Alternative Policy Designs,’’ Congressional Budget Office, June 2000. http://www.cbo.gov/ 

doc.cfm?index=2104. 6 ‘‘Trade-Offs in Allocating Allowances for CO2 Emissions,’’ Congressional Budget Office, April 

25, 2007. http://www.cbo.gov/ftpdocs/80xx/doc8027/04-25-CaplTrade.pdf. 

There is also a Federal mortgage deduction allowed for the purchase of a second 

home. 

There has been some effort by the Committee to use the Tax Code in the automobile sector toward reducing our Nation’s use of oil. The Tax Code includes a 

1970’s era tax on ‘‘gas guzzling’’ automakers that produce inefficient passenger vehicles. Yet, there exists a glaring loophole in the ‘‘gas guzzler’’ tax that exempts sports 

utility vehicles (SUVs) and other light trucks from the tax. This loophole should be 

closed as it, in part, undermines the penalty in the Tax Code and causes more SUVs 

to be bought and sold. 

Ideally, the carbon audit of the Tax Code will find all the carbon leaks, or areas 

where high carbon use is rewarded rather than discouraged. The mortgage interest 

deduction and the ‘‘gas guzzler’’ loophole are just two examples of tax preferences 

that at first blush do not appear related to energy but which, in reality, have enormous impacts on our energy use—and certainly there are more. 

As we take care of the carbon leaks by decarbonizing the Tax Code, Congress has 

the opportunity to reinforce and increase many of the tax credits meant to make 

our economy energy efficient and shift our energy consumption away from fossil 

fuels. This should include finally adopting a long-term renewal of the Section 45 renewable energy tax credit. It is our hope that this credit will no longer be needed 

after roughly 10 years. But until that time, wind energy development needs help 

through the Tax Code to level the regulatory and financial playing field that heavily 

favors traditional sources of energy. Additional incentives, such as for hybrid vehicles that push the envelope of fuel economy and incentives for technologies that increase energy efficiency, could and should also be adopted by way of the Tax Code. 

Finally, there seems to be wide agreement that perhaps the greatest step the 

United States could take to reduce our carbon emissions and increase our efficient 

use of energy is to place a price on carbon. In that vein, it is time that Congress, 

the American public and energy and environmental advocates seriously consider the 

various uses and benefits of a carbon tax or fee on all carbon intensive fuels, or on 

specific carbon intensive uses like gasoline. Members of the Ways and Means Committee have already introduced H.R. 2069, the Save Our Climate Act of 2007 sponsored by Reps. Stark and McDermott and H.R. 3416, America’s Energy Security 

Trust Fund Act of 2007 sponsored by Rep. Larson. These bills both utilize the Tax 

Code to create a tax on carbon. 

Protecting America’s Families 

In assessing the best policy options to address global warming it is critical that 

our Nation’s most vulnerable populations be held harmless from both the impacts 

of climate change and the impacts of higher prices for energy and basic goods and 

services. For reasons Members of Congress know well, we must take special care 

not to allow the transition to a clean energy economy to cause severe hardship to 

hard-working Americans. The mechanisms used to protect the purchasing power of 

lower-income households and our investments made to pull these communities out 

of poverty will make all the difference. 

In its analysis of the distributional impacts of carbon policy designs, the Congressional Budget Office (CBO) noted that lower-income households spend a higher percentage of their income on energy costs than the rest of the population and suffer 

disproportionately from a rise in the costs of energy and basic necessities.5 In a recent analysis, the CBO illustrated this point by estimating that a 15 percent cut 

in global warming pollution would increase the costs of households in the lowest 

quintile by 3.3 percent of their average income, and only 1.7 percent for households 

in the highest quintile.6

Fortunately, many in Congress recognize the need to address global warming 

without increasing poverty and hardship on vulnerable households through effective 

policy tools, as evidenced by both the Climate MATTERS Act (H.R. 6316) and iCAP 

(H.R. 6186). It is paramount in any climate bill design that (1) a sufficient amount 

of resources is designated specifically for low- and moderate-income households, (2) 

rebates or similar income recycling is delivered fairly and through effective delivery 

mechanisms, and (3) additional investments focus on revitalizing lower-income communities toward decreasing carbon dependence and increasing job opportunities. 


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7 Nordhaus, Robert and Kyle Danish, ‘‘Designing a mandatory greenhouse gas reduction program for the U.S.,’’ Pew Center on Global Climate Change, May 2003. 

Devote Sufficient Resources to Low- and Moderate-Income Households 

It is important that any climate policy is not just efficient, but fair as well. There 

are both moral and political reasons for this. Fairness has always been a cornerstone principle of the American polity. Fairness in a climate policy also has clear 

political merits. As the authors of a policy paper for the Pew Center on Global Climate Change rightly stated, ‘‘Even the most cost-effective program design may be 

unacceptable if its costs are distributed in such a way that is perceived to be unfair.’’ 7 Such insight could apply both to auctioning all the permits in a cap and 

trade program as well as to providing a safety net for low- and moderate-income 

families. A climate policy can and should be designed in a way that does not increase poverty levels and that is not regressive—that is, in a way that does not disproportionately burden lower-income households. The aim is not just to protect 

those who are already living near or below the Federal poverty line (typically the 

bottom income quintile)—but to provide a safety net also for the 40 percent of all 

households that make up the moderate-income and lower-income scale of middle 

class families. They too will face decreases in their purchasing power. Congressman 

Markey’s iCAP bill is a good example of the resources needed to provide a sufficient 

safety net for vulnerable households. 

Lastly, while it is important to offset increases in home energy costs, that alone 

will not suffice as home energy costs are just a part of the total consumer costs of 

a cap on carbon pollution. According to the Center for Budget and Policy Priorities 

(CBPP), a majority of such costs will come from transportation, and energy-sensitive 

goods and services. CBPP calculates that home energy costs will account for less 

than half (45 percent) of the impacts on the budgets of the lowest income households 

(Figure 1). 

Figure 1: Impacts of a Carbon Cap on the Budgets of Low-Income Households 

Utilize Effective Delivery Mechanisms to Offset Costs 

The delivery mechanisms used to offset the impacts on low- and moderate-income 

households will in large part determine the effectiveness of any climate policy. The 

aim should be to use a range of delivery mechanisms that will compensate the highest portion possible of the target population. Uses of the Tax Code, such as assisting 

low wage workers through the Earned Income Tax Credit (EITC) are essential. The 

Tax Code alone will not reach the majority of those in need who may be unemployed, 


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8 ‘‘Low-income provisions of the Boxer substitute to Lieberman-Warner,’’ Center for Budget 

and Policy Priorities, May 30, 2008. 9For more on varying cost impacts, see: Eisenberg, Joel F., ‘‘The Impact of Carbon Control 

on Electricity and Gasoline Expenditures of Low-Income Households,’’ Oak Ridge National Laboratory, April 2008. http://weatherization.ornl.gov/pdf/CON-504.pdf. 10Personal communication with Meg Power, Senior Policy Advisor, National Community Action Foundation, September 2008. 11Two sets of State reports provide annual data. The State supplement report of the HHS 

Office of Energy Assistance catalogs the value of non-Federal contributions to low-income energy 

programs coordinated with State LIHEAP and weatherization programs and offers some details 

on LDC initiatives. http://liheap.ncat.org/Supplements/2007/supplement07.htm. The National Association for State Community Services Programs also collects annual reports of non-Federal 

funding that supplements the States’ weatherization program. http://www.waptac.org/ 

sp.asp?id=9014. 12Personal communication with Meg Power, Senior Policy Advisor, National Community Action Foundation, September 2008. 13 Ibid. 

underemployed, disabled, or retired and do not file taxes. Other efficient delivery 

mechanisms include: electronic benefit transfer (EBT) systems used by State assistance agencies to provide food stamps and Medicare benefits; the Low Income Home 

Energy Assistance Program (LIHEAP); and the Weatherization Assistance Program. 

A climate policy must also recognize that low- and moderate-income households 

will require immediate income protections as well as longer-term cost mitigation 

strategies. The delivery mechanisms described above can efficiently and effectively 

return lost purchasing power to households. Longer-term cost mitigation strategies 

include making lower-income households more energy efficient, either through efficiency programs overseen by the State or provided by the Weatherization Assistance 

Program. 

Avoid Cash Grants to Investor-Owned Local Distribution Companies 

Some Members tend to favor the concept of giving Federal grants directly to Local 

Distribution Companies (LDCs), or utilities, to distribute to low-income families 

through efficiency programs. Friends of the Earth finds this approach riddled with 

problems. Many advocates for lower-income energy consumers oppose direct Federal 

grants or funding of local utilities in order to establish or increase low-income energy efficiency programs. 

While some LDC demand-reduction strategies may be able to provide efficiency 

services through longer-term weatherization programs, such an approach is not a 

substitute for immediate relief provided by Federal rebates delivered through proven and effective mechanisms. Weatherization programs take time and are an uncertain mechanism for ensuring that lower-income households are cushioned from increased energy-related costs. They would likely fail to account for price impacts that 

fall outside utility costs alone. According to the CBPP, LDCs may also miss large 

numbers of target households, including ‘‘the significant share of low-income households who do not pay utility bills directly because the bills are paid by their landlords (and reflected in their rents). Many other low-income households will fall 

through the cracks since most utility companies cannot easily identify which of their 

consumers have low incomes (other than households facing shut-offs).’’ 8 Overall, a 

direct consumer rebate delivered through effective mechanisms, such as the EITC 

and EBT, and that takes into account additional factors, such as rural/urban location and region of residence, is a much more fair way to provide immediate relief 

to lower-income households.9

It should also be noted that direct Federal grants to investor-owned LDCs would 

be unprecedented. The established U.S. framework for funding LDC efficiency programs, under the oversight of State regulators and agencies, has been achieved 

without any publicly funded grants directly to LDCs.10 In 2007, more than 300 

major investor-owned local utilities, both gas and electric, spent nearly $361 million 

on low- and moderate-income efficiency programs in 43 States.11 The funding was 

collected from ratepayers according to rate schedules established by State regulatory 

commissions or, in a few States such as California, Wisconsin, and Nebraska, funded by utility fees mandated by their State legislatures.12

The wide range of program designs approved by regulators and legislators over 

the past 25 years have together produced usage and cost reductions without direct 

grants. Low-income programs are subject to cost effectiveness tests and most are 

managed so that they are a benefit to the utility, its ratepayers and the public in 

numerous ways. Those include peak load reduction, slowing the demand for building 

new generating capacity, decreasing bad debt write-offs, and customer service costs. 

When emission reductions can be quantified, those benefits will also accrue to the 

utility.13 There is a wide variation among the initiatives and their cost-effectiveness. 


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14Kushler, Martin (Ph.D.), Dan York, Ph.D. and Patti White. ‘‘American Council for an Energy-Efficient Economy. Meeting Essential Needs: The Results of a National Search for Exemplary Utility-Funded Low-Income Energy Efficiency Programs,’’ September 2005. The report 

summarizes common characteristics which include close coordination with weatherization assistance and other State low-income programs and vigilant monitoring and results measurement. 

Program features offer guidance on best practices. For a list of such studies see: http:// 

www.opportunitystudies.org/repository/File/energylaffordability/EnergylProgramlEvaluation 

lList.pdf. 

15 Hoerner, Andrew and Nia Robinson. ‘‘Climate of Change, African Americans, Climate 

Change, and a Just Climate Policy for the U.S.,’’ Environmental Justice and Climate Change 

Initiative, July 2008. http://www.ejcc.org/climateofchange/index.html. 

Evaluations of LDC initiatives have demonstrated that those that are delivered in 

coordination with and by the State weatherization program delivery system have 

the best outcomes. The established financing and oversight framework for these investments can provide ample guidance for future State initiatives.14

Focus on Revitalizing and Retrofitting Lower-Income Communities 

Low- and moderate-income households have a greater risk of being permanently 

harmed by climate change-related impacts, such as fierce storms, floods, droughts 

and fires, than higher-income households. The reason for this is twofold. First, they 

are typically located in economically depressed areas that lack the resources to invest in adequate disaster preparedness or to provide sufficient disaster relief. Second, because they have lower incomes and occupy older homes in communities with 

aging commercial and public buildings and equipment, they and their communities 

lack the capital to upgrade (Figure 2). These populations also suffer disproportionately from cancer, asthma and other respiratory ailments likely due to their close 

proximity to power plants, toxic waste dump sites and other results of our current 

pollution-based economy.15

Figure 2: Changes in Bottom Quintile Incomes Compared to Energy Costs 

Policies can and should be designed to offset the impacts of capping carbon on vulnerable 

households using effective policy tools and strategies. The incomes of the bottom quintile, like 

those of moderate-income households, have not increased as fast as the prices of energy. These 

households, which include families of low-wage workers, have seen a steady decline in their purchasing power and have severe trouble meeting their basic needs. 

In general, low-income households use less energy and cause fewer GHG emissions. Yet, the intensity of energy use and carbon emissions is greatest in these 

homes and communities. Therefore, these communities offer the most opportunity 

for lower intensity of emissions and change. 

It is critical that a strategy to protect lower-income households and communities 

include separate, additional funds and strategies to help both lift them out of poverty and a high dependence on fossil fuels. To help build the resilience of these communities to the impacts of climate change and to help transition our Nation to a 

clean energy economy, they need and deserve a focused access to ‘‘green-collar’’ jobs 


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16 Under AB32, carbon trading is supposed to reduce GHG emissions by 35 million megatons 

of CO2e (mmtco2e). Other recommended strategies are aimed to reduce emissions by 112 

mmtco2e. See: Climate Change Draft Scoping Plan, June 2008. Discussion Draft pursuant to 

AB32, pages 17–18, http://www.arb.ca.gov/cc/scopingplan/document/draftscopingplan.pdf. 17 ‘‘Trade-Offs in Allocating Allowances for CO2 Emissions,’’ Congressional Budget Office, 

April 25, 2007. http://www.cbo.gov/ftpdocs/80xx/doc8027/04-25-CaplTrade.pdf. 18 Ibid. 19Stavins, Robert N. ‘‘A U.S. Cap and Trade System to Address Global Climate Change.’’ The 

Brookings Institute, October 2007. http://www.brookings.edu/∼/media/Files/rc/papers/2007/10 

climatelstavins/10lclimatelstavins.pdf. 

and skills training. Because they often receive government assistance, lower-income 

communities are prime candidates for weatherization and renewable energy retrofits, carbon-reducing green building incentives and standards, new and better access 

to public transportation and carpooling programs, and new job opportunities and 

training. Most importantly, a focus on revitalizing and retrofitting lower-income 

communities can help increase skills and wages that will serve to provide a pathway 

from poverty to economic self-sufficiency and strengthen the middle class. 

Cap and Trade Program: Importance of Auctions and Complementary 

Policies 

While there may be a role for a cap and trade program in a Federal approach 

to reducing U.S. global warming pollution, the design of such a program must be 

approached with fairness, prudence and caution. In considering the design of such 

a program, one of the most critical considerations is how the pollution permits 

(sometimes referred to as allowances) will be distributed. Additionally, proper attention should be paid to which emissions may be better captured outside a carbon 

trading program, and the ability to provide proper oversight over the various parts 

of a cap and trade program. Many proposals coming before Congress treat a cap and 

trade (or carbon trading program) as the only or most important tool to reduce GHG 

emissions. Such an approach is not the only possibility however. For example, the 

design of California’s global warming law, AB32, is likely to rely on carbon trading 

for only one-fourth of its overall emissions reductions.16 The majority of California’s 

emissions reductions are expected to come from complementary policies, performance standards and other strategies outside the carbon trading. 

Importance of 100 Percent Auctioning of Pollution Permits 

A tremendous debate is occurring in Congress around the potential method of distribution of pollution permits in a Federal cap and trade program. There are two 

options for how the government distributes pollution permits created by a cap and 

trade program—it can either give them away to polluters for free, also known as 

‘‘grandfathering,’’ or it can auction them. 

The results of this debate will ultimately define the success or failure of efforts 

to regulate global warming emissions under a cap and trade program. Auctioning 

pollution permits would help ensure that the implementation of global warming legislation is done in an equitable way consistent with the ‘‘polluter pays principle.’’ 

Failing to auction permits would hinder the government’s ability to collect revenue 

to protect low- and moderate-income households and to ensure that the United 

States maintains its commitments to fund international adaptation and clean energy transfers to developing countries. 

Auctioning permits would also be better for the economy. The CBO cites studies 

that find that auctioning permits would be 2–3 times less costly to the economy and 

could provide a net gain to the economy if the revenue was used to reduce individual 

income taxes.17

Climate Equity 

Efforts to create a cap and trade program will create winners and losers in the 

marketplace and amongst energy consumers. Any policies aimed at reducing global 

warming pollution will inevitably have an upward effect on energy prices. This will 

occur whether pollution permits are auctioned or not. Under a cap and trade program, according to the CBO, ‘‘If the government wanted to provide the same level 

of services without increasing the budget deficit, it would have to either raise taxes 

or use part of the value of the allowances to cover the changes in Federal outlays 

and revenues.’’ 18

In the interest of fairness and equity, taxpayers would not be getting a fair deal 

if pollution permits were given freely to polluters. Robert N. Stavins of The Brookings Institute put it this way: ‘‘In a competitive market the benefits of free allowances generally accrue only to their recipients, increasing their profitability or 

wealth, and generally do not benefit the consumers, suppliers, or employees of those 

recipients. Hence, although the cost of allowance requirements can be expected to 

ripple through the economy, the benefits of free allocations will not.’’ 19


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20 Barrett, James, Ph.D. ‘‘True Cost of Free Pollution Permits: A Redefining Progress Issue 

Brief.’’ Redefining Progress, February 2008. http://www.rprogress.org/publications/2008/True%20 

Cost%20Issue%20Brief%2002–08.pdf. 21 ‘‘Trade-Offs in Allocating Allowances for CO2 Emissions,’’ Congressional Budget Office, 

April 25, 2007. http://www.cbo.gov/ftpdocs/80xx/doc8027/04–25–CaplTrade.pdf. 22 ‘‘EU ETS Phase II—The potential and scale of windfall profits in the power sector.’’ Point 

Carbon Advisory Services, March 2008. 23 Barrett, James, Ph.D. ‘‘True Cost of Free Pollution Permits: A Redefining Progress Issue 

Brief.’’ Redefining Progress, February 2008. http://www.rprogress.org/publications/2008/True%20 

Cost%20Issue%20Brief%2002–08.pdf. 24 ‘‘Trade-Offs in Allocating Allowances for CO2 Emissions,’’ Congressional Budget Office, 

April 25, 2007. http://www.cbo.gov/ftpdocs/80xx/doc8027/04–25–CaplTrade.pdf. 25Greenstein, Robert. Testimony for Hearing on ‘‘Cap, Auction, and Trade: Auctions and Revenue Recycling under Carbon Cap and Trade.’’ January 23, 2008. http://globalwarming. 

house.gov/tools/assets/files/0321.pdf. 

When permits are auctioned the government collects revenue and can redirect 

those funds back to energy consumers to lessen the burden of increased costs. Additionally, revenue could be directed toward investments in renewable energy research 

to help the energy transition away from fossil fuels, and to assist developing countries to battle the global climate crisis and reduce their own emissions. If permits 

are given for free, energy prices will rise but the government does not collect any 

funds to aid our Nation’s transition to a clean energy economy. 

A common misconception is that companies that receive free pollution permits will 

not pass the cost onto consumers in the form of higher prices. Such thinking is false. 

According to economist Jim Barrett, President of Redefining Progress, a public policy economic think tank, ‘‘While it is a common understanding that auctioned permits will result in higher energy and other product prices much the same way that 

an equivalent fee on carbon emissions would, it is often erroneously assumed that 

free permit allocations will not. . . . This reasoning is incorrect. Cap and trade systems increase energy and product prices because of the scarcity they introduce. That 

scarcity is what drives the price increases, not the method of permit distribution.’’ 20

The CBO added this explaination, ‘‘Although producers would not bear out-ofpocket costs for allowances they were given, using those allowances would create an 

‘opportunity cost’ because it would mean foregoing the income that they could earn 

by selling the allowances. Producers would pass that opportunity cost on to their 

customers in the same way they would pass along actual expenses.’’ 21

Such impacts were witnessed first hand during the first phase of the European 

Trading System (ETS) where the majority of pollution permits were given to polluters for free. Instead of using the value of the permits to lower prices, the companies continued to pass the costs on to energy consumers and in the process gained 

windfall profits.22

Polluter Pays Principle 

The principle of making polluters pay for their pollution is a long held principle 

in environmental protection and regulation. This has the economic impacts of forcing polluters to ‘‘internalize’’ their pollution costs, which incentivizes them to adopt 

new processes and technologies to eliminate these additional costs. The concept is 

simple, air is a public resource that polluters should not be allowed to use and compromise free of charge or without consequence. Grandfathering polluters with free 

permits actually rewards them for their previous harmful activities with windfall 

profits. 

Economists strongly warn against the impacts of giving permits away for free. According to economist Jim Barrett, ‘‘Even under mild assumptions, free permit distributions would represent the largest windfall distribution of wealth in this country’s history. Households, businesses and industrial energy consumers will transfer 

their wealth to the owners of energy producing companies, already among the richest corporations in the world.’’ 23

The CBO concurs, ‘‘Giving away allowances could yield windfall profits for the 

producers that received them by effectively transferring income from consumers to 

firms’ owners and shareholders.’’ 24 In congressional testimony to the Select Committee on Energy Independence and Global Warming, Robert Greenstein, President 

of the Center on Budget and Policy Priorities, stated, ‘‘If companies receive allowances for free, they will still be able to charge the higher price—they will be able 

to charge what the market will bear—and will reap what CBO has termed ‘‘windfall 

profits.’’ 25

Lastly, auctioning 100 percent of pollution permits created under a cap and trade 

program allows the market, and not the government, to determine winners and losers. If Congress gives pollution permits away for free it opens the door to a political 


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26 U.S. EPA Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990–2005. 27 U.S. EPA, accessed at http://www.epa.gov/omswww/climate/index.htm on 9/3/08. 28Gallagher, et. al. Policy Options for Reducing Oil Consumption and Greenhouse-Gas Emissions from the U.S. Transportation Sector. John F. Kennedy School of Government, Harvard 

University, 2007. 29Greene, David L., Ph.D. Oak Ridge National Laboratory. Testimony to the Senate Environment and Public Works Committee, June 2008. 30 Ibid. 

slippery slope of intense lobbying that plays to the strengths of the polluting industry over the public benefit. 

Complementary Policies: Transportation and International Forests 

The transportation sector is a prime example within our economy where, as described below, a complementary policy would be more effective than carbon trading 

at reducing emissions. 

Reducing emissions in the U.S. transportation sector is integral to climate policy. 

Currently, nearly one-third of total U.S. GHG emissions originate from the transportation sector, making it the Nation’s largest end-use source (Figure 3).26 Transportation is also the Nation’s fastest growing source of U.S. GHG emissions, accounting 

for 47 percent of the net increase in total U.S. emissions between 1990 and 2003.27

In order to meet and preferably exceed the targets that the Intergovernmental 

Panel on Climate Change (IPCC) has identified as necessary to avoid the worst impacts of global warming, it is imperative to achieve significant GHG reductions in 

the transportation sector. Failing to make substantial emissions reductions from 

transportation means that additional reductions will have to be made up by other 

sectors of the economy if we are to meet overall emissions reduction targets. This 

will increase costs on other economic sectors such as electricity producers or industry. Moreover, failing to address transportation sector emissions will drive up the 

cost of making these reductions in the future.28

As Congress debates the implementation of a cap and trade program for reducing 

GHG emissions across the economy, it is important to evaluate how best to achieve 

GHG reductions in the transportation sector. Cap and trade can provide a powerful 

tool for achieving GHG reductions in some areas of the economy. However, a growing number of transportation and climate change experts are concluding that we 

should not expect a cap and trade policy to bring about efficient GHG emissions reductions in the transportation sector.29 As such, complementary policies are needed 

to accomplish this goal, especially in the long run.30 It is therefore important for 


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31 U.S. EPA Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990–2003. 32 U.S. Department of Energy/Energy Information Agency (USDOE/EIA): Annual Energy Outlook, 2007. The trend between 1977 and 2001 has been an increase in driving rates—measured 

in vehicle-miles traveled (VMT). While the U.S. population increased by 30 percent, driving 

rates grew by 151 percent. In this same period, trips per capita, average trip lengths, and the 

proportion of drivers travelling alone all increased to varying degrees. See Polzin, Steven, ‘‘The 

Case for Moderate Growth in Vehicle Miles of Travel,’’ 2006. 33Winkelman, Steve. Center for Clean Air Policy. 

the Committee to evaluate the inclusion of a set of complementary transportation 

policies in addition to carbon trading. 

Congress has already pursued several important complementary policies in the 

transportation sector in an effort to reduce oil consumption, GHG emissions, and air 

pollution, as well as saving consumers money on gasoline. These include raising vehicle efficiency standards through Corporate Average Fuel Economy (CAFE) 

regulations and low-carbon fuel standards (LCFS). 

The policies for developing our surface transportation infrastructure in the U.S. 

are not designed to take into account GHG emissions. Transportation spending is 

largely focused on roads and highways, and the majority of travel in the U.S. is by 

personal vehicle, which is among the least efficient passenger and freight transportation modes. As a result, 81 percent of transportation GHG emissions (equaling 

nearly a quarter of total U.S. GHG emissions) are due to gasoline consumption— 

62 percent from personal vehicles, and 19 percent from freight trucks.31 Current 

trends dictate that these numbers will rise in coming decades and double by the 

year 2030.32

This projected increase will have a significant increase on transportation sector 

GHG emissions. Additional emissions resulting from the projected increase in driving rates will overwhelm the emissions reductions expected from new vehicle efficiency standards requiring the U.S. auto fleet to average 35 miles per gallon by the 

year 2020 and the required 10 percent reduction in the carbon content of vehicle 

fuels mandated by the 2007 Energy Independence and Security Act (H.R. 6). In 

other words, projected increases in driving rates will result in a net increase of total 

GHG emissions from the transportation sector despite projected emissions reductions from both CAFE and the LCFS. Ignoring increasing driving rates will push 

overall transportation sector GHG emissions 26 percent greater than 1990 levels in 

2030 (Figure 4).33

Figure 4: Transportation Sector CO2 Emissions Forecast 2005–2030 

In this graph, the dark blue line represents transportation sector GHG emissions, 

the light blue line represents emissions in 1990, and the orange line shows the approximate path of reductions needed to achieve IPCC recommendations. The purple 

line shows a 10% reduction in fuel carbon content, the green line shows an increase 

to a 35 mpg CAFE standard and the red line shows projected VMT. Each of these 


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34 Ewing, Reid, Pendall, Rolf, and Chen, Don. Measuring Sprawl and It’s Impact. 2002. 35 EPA Analysis of the Lieberman-Warner Climate Security Act of 2008 (S. 2191) in 110th 

Congress. 2008. 36Greene, David L., Ph.D. Oak Ridge National Laboratory. Testimony to the Senate Environment and Public Works Committee, June 2008. 37 Ibid. 38 Ewing, Reid, et al. Growing Cooler: The Evidence on Urban Development and Climate 

Change. 2007. 39Davis, Todd and Monica Hale. ‘‘Public Transportation’s Contribution to U.S. Greenhouse 

Gas Reduction.’’ SAIC. September 2007. 40 Ibid. 

three lines influence the dark blue GHG trend. The graph shows that the GHG reductions achieved from CAFE and low-carbon fuels will be negated by rising VMT. 

The problem underscoring the trend in America’s increased oil use in the transportation sector is largely due to a lack of alternative transportation options, inefficient land use and development patterns, and inadequate traffic management.34

This has led transportation and climate policy experts to conclude that we should 

not expect the small increase in gasoline prices from a Federal cap and trade program (∼$0.037 annually or $1.40 cumulatively through 2050) to bring about an efficient reduction in driving rates and transportation sector GHG emissions.35, 36 Complementary transportation infrastructure and land-use policies are needed to accomplish this goal, especially in the long run.37 A recent survey of decade’s worth of 

data confirms that such complementary policies can have a significant impact on 

travel behavior in the U.S. in a way that reduces transportation sector emissions. 

Given the right incentives and legitimate alternatives, Americans will choose to 

drive less.38

Public transportation and other mass transportation modes, such as passenger 

rail, are shown to make significant contributions toward GHG emissions reductions. 

According to the Science Applications International Corporation (SAIC), in 2005, 

public transportation reduced carbon emissions by 6.9 million metric tons.39 This includes both emissions reductions from reduced driving rates and reduced traffic congestion. There is great potential for further emission reductions; according to the 

same SAIC report. A single commuter can reduce their CO2 emissions by an average 

of 20 pounds per day, or more than 4,800 pounds annually, by commuting on public 

transportation instead of driving.40 At the local level, this means developing transit 

systems such as light rail, commuter rail, and rapid bus service. For longer-distance 

intercity travel, especially for trips between 50 and 500 miles, passenger rail, such 

as the service provided by Amtrak and several State departments of transportation, 

is an energy-efficient option that can help reduce the GHG emissions of long-distance travel. 

A U.S. climate policy that includes a complementary policy that sets forth increased alternative transportation options, efficient land use and development patterns, and better traffic and road management could yield a profound reduction in 

transportation sector emissions when aggregated nationwide. Such a policy will reduce the burden on other sectors to make up for the emissions increases in the 

transportation sector and ultimately make it more likely that we meet our Nation’s 

economy-wide reduction targets. 

International Forest Protection Through Policy Coherence 

Deforestation and forest degradation is a major source of greenhouse gas emissions, accounting for nearly 20 percent of emissions globally. The growing rate of 

forest loss also threatens the world’s biodiversity and imperils the 1.6 billion people 

who are dependent on forests for their livelihoods. A new global interest in addressing climate change, and a particular interest in reducing emissions from deforestation and degradation, provides an important opportunity to address the real need 

for improved forest governance structures, while simultaneously conserving biodiversity and safeguarding the rights of the indigenous peoples’ and other forest dependent communities. 

At the Bali 2007 Conference of the Parties to the UN Framework Convention on 

Climate Change (UNFCCC), reducing emissions from deforestation was a major 

topic of discussion. Developing policy options to reduce emissions from deforestation 

and degradation was also included as a key component of the Bali Action Plan, 

which consists of multiple decisions necessary to secure emissions reductions in 

global climate negotiations. Assistance from the United States for this sort of initiative will be critical in moving towards a global agreement. While some are demanding the dubious use of international forest offset projects to qualify for domestic 

emissions reductions, others are arguing that an international fund under the 


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41 Rainforest conservation could offset 500m tons of CO2 emissions at $2/ton. Mongabay, July 

24, 2008. http://www.climateark.org/shared/reader/welcome.aspx?linkid=103671&keybold=forest 

%20carbon%20avoided%20deforestation. 

UNFCCC, in support of global agreement on climate change, would be a more secure and equitable way to achieve reductions. 

To be true, effective and just, any mechanism to reduce emissions from deforestation and degradation must. To best get at the deforestation problem through funding is to (1) prioritize the development of coherent national policy frameworks and 

law enforcement (2) must address the underlying drivers of deforestation; and 

achieve policy coherence in consuming countries and (3) safeguard and enhance the 

land tenure and other of local communities; as well as ensure that indigenous and 

traditional forest-dwelling peoples play a central role in forest management. 

To promote effective governance, funds should support national, regional and local 

governments in recipient countries in enacting and enforcing comprehensive national forest policies. Further, the central role of indigenous and traditional forest 

dwelling peoples, including land tenure rights, should be clearly recognized. Large 

areas of forested land are under management of indigenous peoples who do not yet 

have legal title to their ancestral lands, and securing clear land tenure rights is 

vital in ensuring responsible management of these forests. Because indigenous peoples who hold secure land tenure for their lands effectively manage their forests 

sustainably, securing land tenure has proven a highly cost-effective tool in achieving 

emissions reduction. Systematic monitoring programs and verification programs, not 

enabling carbon offsets schemes, will also be critical for forest-rich countries to effectively engage in international climate agreements. 

Illegal logging and associated trade are both indicators of and perpetuators of poor 

forest governance. In particular, the U.S. Forest Service is well suited to assist in 

the implementation of the recently passed Lacey Act, which by prohibiting the import and trade of illegally sourced timber and wood products, uses the U.S. market 

and legal leverage to support better enforcement, governance and supply chain reform in global wood markets. 

International Forest Offsets As Part of a Cap and Trade Program Not An 

Option 

Global deforestation accounts for 20 percent of global GHG emissions, and therefore many are looking to the preservation or restoration of forests as a prime area 

of achieving the U.S.’s emission reduction targets. Yet, using international forest offsets as a way to meet domestic reductions targets may be a red herring as they remain a dubious mechanism to achieve verifiable and permanent reductions. While 

international offsets would provide an out for reducing emissions here at home, 

avoiding emissions reductions at home is likely to avoid the fundamental changes 

necessary to deliver emissions reductions to keep us from facing climate catastrophe. 

International forest offset projects suffer from similarly problematic structural design concerns in meeting their criteria, such as ensuring reductions are additional, 

real, and permanent, as do non-forest project based offsets. Significant technical 

issues plague the forest offset market, including the capacity to adequately assess 

and monitor actual emissions reductions from deforestation, even using remote sensing techniques, as well as concerns over whether emissions reductions activities in 

forest areas can in reality be permanent. 

The inclusion of international forest carbon offsets as a U.S. climate mitigation 

strategy will potentially exploit the cheapest emissions reductions projects available 

to developing countries in their very own country. According to recent studies, 500 

million tons of carbon dioxide emissions could be offset in tropical rainforests at 

roughly $2 per ton—well under the projected prices for carbon credits in a cap and 

trade system.41 If industrialized countries buy all of these cheap credits to count as 

their own domestic emissions reductions, it leaves very little opportunity for those 

developing countries to meet the international pressures for them to implement climate mitigation policies of their own in a cost-effective manner. Indeed, it will leave 

those developing countries with only the most expensive mitigation options. The sovereignty of host nations is also under question due to the liability constraints of potential future emissions. 

Additionally, unrelated to emissions reductions, many offset projects have created 

or exacerbated existing social and environmental problems. For example, plantation 

projects have created water pollution, and projects to capture methane gas from 

landfills have not addressed the toxic pollutants generated by the landfill. 

The Plantar Project in Minais Gerais, Brazil, demonstrates how projects may generate social and environmental problems unrelated to carbon reductions. As deVerDate Nov 24 2008 14:33 Mar 17, 2011 Jkt 062201 PO 00000 Frm 00237 Fmt 6633 Sfmt 6621 I:\WAYS\OUT\62201.XXX APPS06 PsN: 62201

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42 Redman, Janet. ‘‘World Bank: Climate Profiteer,’’ Institute for Policy Studies. April 2008. 

scribed by the Institute for Policy Studies Sustainable Energy and Economy Network: 

In 2002 Plantar, an iron foundry company with operations in Brazil, threatened 

to switch from burning charcoal to coal in order to increase capacity at its pig iron 

operations. This would have significantly increased their greenhouse emissions, so 

the World Bank rushed in with carbon financing to help Plantar expand the eucalyptus plantations that provide the company’s charcoal. 

The impact of the expanding eucalyptus farms has been devastating to the nearby 

village of Sao Jose do Buriti. Concerned residents were joined by Brazilian NGOs, 

churches, social movements and unions to halt World Bank finance of the project 

in 2002 and 2003. Today residents have witnessed the water table dropping, the disappearance of biodiversity and medicinal plants, and the application of herbicides 

and pesticides to timber plantations that have killed local farmers’ subsistence crops 

and poisoned streams. Perhaps more seriously, groups allege that Plantar pressured 

local residents to sign letters of support for the project or forfeit employment at the 

plantations.42

Over-Reliance on a Cap and Trade Program: Lessons From the Credit 

Crisis 

To effectively address climate change, the United States needs robust domestic 

emissions reductions targets and policies that send the correct signals to change industry behavior and produce real emissions reductions. The implementation of a cap 

and trade program is viewed by many as a way to use the market to achieve these 

reductions, but over-reliance on a cap and trade program to solve climate change 

raises a number of concerns, particularly in terms of the monitoring, evaluation, and 

verification of carbon credits in a global market. 

Our Nation is currently facing an historic financial crisis that can provide us with 

a cautionary tale about a cap and trade program. The subprime mortgage crisis, 

which underpins the current banking and investment crisis, emerged from a failure 

of market checks and balances. 

Banks bundled together high-risk and lower-risk mortgages into packages that 

were then bought, re-bundled and re-sold many times over. This created bundles of 

promised revenues that were increasingly difficult to track. When it became clear 

that a significant portion of the loans were bad, the whole system began to unravel, 

affecting everyone in the banking and investment system connected to these bundled mortgages, including average Americans with savings accounts and retirement 

savings, and turning a subprime mortgage problem into a systemwide credit crisis. 

Unfortunately, the Federal cap and trade proposals put forth so far would create 

a system that poses almost identical challenges as those in the breakdown of the 

mortgage-lending industry: 

Could emissions reductions lead to subprime carbon assets? 

The subprime mortgage crisis was generated by questionable loans. A cap and 

trade program could face similar questions in terms of emissions reductions associated with carbon offset credits, which are likely to be tradable on open carbon markets. For offset projects to work, they need to result in a decrease in the amount 

of carbon pollution emitted. For example, retrofitting an industrial plant to be more 

energy efficient, or replacing an aging coal-fired power plant with wind power, creates GHG reductions that can be measured with relative accuracy and verified, thus 

resulting in legitimate credits. But not all offset projects clearly lead to emission reductions. 

Some of the most visible carbon offset scandals to date have centered around 

international offset credits, including forest-related carbon reduction schemes, where 

trees have been planted to store carbon, only to die a few years later; the construction of large, environmentally destructive dams, where builders who were going to 

construct the dams anyway claimed ‘‘new’’ emissions reductions; and HFC (a chemical byproduct of refrigerant production) destruction projects, where factories purposely created these very potent greenhouse gas chemicals just so they could destroy 

them and make money off of the credits. 

In particular, proving the ‘‘additionality’’ of offset projects, arguing that project 

would be impossible to do without the additional revenues provided by carbon credits, is very difficult. (Offset projects must prove that they are additional in order 

to be issued credits by the Kyoto Protocol’s Clean Development Mechanism.) But according to a recent study of international offsets by leading researchers at Stanford 


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43Wara, Michael W. and Victor, David G. ‘‘A Realistic Policy on International Carbon Offsets.’’ 

Program on Energy and Sustainable Development, Working Paper #74: April 2008. http://iis-b. 

stanford.edu/pubs/22157/WP74lfinallfinal.pdf. 44Kanter, James, ‘‘Carbon trading: Where greed is green,’’ International Herald Tribune, 20 

June 2007. 

University, ‘‘offset schemes are unable to determine reliably whether credits are 

issued for activities that would have happened anyway.’’ 43

As carbon traders develop derivatives products, which are based on promises to 

deliver carbon credits at a future date for a specified price, a real risk of ‘‘subprime 

carbon’’ (carbon assets that fail to deliver, called ‘‘junk carbon’’ by traders) emerges. 

Given the potentially huge size of the carbon trading market, and the increasing 

complexity of carbon derivatives, the risk of subprime carbon contagion is a real possibility, particularly if the current credit crisis fails to spur fundamental regulation 

of the financial market. 

Could an onset of unscrupulous intermediaries be avoided? 

The subprime crisis was exacerbated by the proliferation of mortgage brokers and 

other middlemen who provided questionable, if not unscrupulous, services. In the 

past decade, the seemingly limitless appetite for mortgage lending and mortgagebacked securities fueled a dangerous deterioration in lending standards. Since carbon is predicted to ‘‘be the world’s biggest commodity market, and it could be the 

world’s biggest market overall,’’ 44 a speculative carbon bubble could similarly spur 

the development of subprime carbon assets. 

Like mortgage brokers approving ‘‘ninja loans’’ (loans to borrowers with no income, job, or assets), unscrupulous intermediaries may overpromise on offset 

projects by selling future credits based on projects that do not yet exist, are not additional, or which simply do not deliver the promised GHG reductions. If the Wall 

Street financiers continue employing the ‘‘originate and distribute’’ strategy (in 

which banks offload their risks to investors in the secondary markets), banks and 

intermediaries will still pursue lucrative fee-based business with little regard to the 

risks they are passing onto investors. 

Can asset valuation be properly determined? 

‘‘Innovative’’ financial engineering characterized the credit crisis, where complex 

financial instruments were created that made it very difficult to determine the actual value of assets. Credit rating agencies, which were supposed to be providing 

rigorous assessments of mortgage-backed securities, could not analyze thousands of 

individual mortgages, and thus relied on financial models, which were ultimately 

flawed. 

As secondary carbon markets grow, spawning the creation of new derivatives and 

structured products, rating agencies and analysts will face similar asset valuation 

challenges. Analyzing the quality of underlying carbon offset projects will be as, if 

not more, difficult than analyzing mortgages, and may be even less suited to modeling. 

Will conflicts of interest be prevented? 

After the Enron accounting scandal of 2001 some new regulations were issued to 

reduce conflicts of interest. For example, today accounting firms have separated 

their auditing and consulting functions, and in June 2008 the Securities and Exchange Commission issued new rules to reduce conflicts of interest among credit ratings agencies. However, conflicts of interest still exist, both in the broader financial 

sector and in the carbon finance market. 

For example, similar to how credit rating agencies helped design complex structured finance products and rated them, consulting firms which offer advice on developing carbon offset projects may also earn fees for verifying emissions reductions 

from projects. Banks which own equity stakes in carbon offset projects may also be 

carbon brokers or sector analysts, creating a temptation to bid up carbon prices to 

increase the value of their own carbon assets. Such conflicts of interest compromise 

the integrity of the carbon markets, from both a financial and environmental perspective. 

The Need for U.S. Leadership in Negotiating an International Climate Deal 

The policies pursued by the United States will be critical to solving the greatest 

challenge facing the world today—global climate change. Global warming is an issue 

that will have serious impacts not only on the environment, but also on global 

economies, poverty and the pursuit of sustainable development as laid out in the 


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45For more on MDGs, see: http://www.un.org/millenniumgoals/. 46http://unfccc.int/essentiallbackground/convention/items/2627.php. 47 Article 4 Commitments of the UNFCCC. http://unfccc.int/essentiallbackground/convention/ 

background/items/1362.php. 48WWF International, Position Paper, ‘‘G8 Summit 2008 in Japan,’’ June 2008. 

U.N. Millennium Development Goals (MDGs).45 The costs of establishing a program 

to reduce and reverse global warming pollution now will pale in comparison to the 

cost of not aggressively addressing the problem. 

A global effort to address climate change will require a fundamental transformation of our economies and with jurisdiction over U.S. trade policies and international commerce, the House Ways and Means Committee will be an integral player to the development of policies that will either promote or hamper proactive international engagement on global warming. With greater responsibility for global 

warming and greater capacity to address the problem, the United States can show 

great leadership by offering assistance to developing countries to both deal with climate change impacts and reverse the causes of global warming. 

Around the world, climate change is already impacting the daily lives of the 

world’s most vulnerable people. Facing more intense storms, drought, disruption of 

water and food supplies, and increased rates of disease, impoverished communities 

bear a disproportionate burden of these impacts, despite the fact that they are the 

least responsible for creating them and the least able to cope with the effects. Global 

warming is likely to exacerbate international competition and conflict over water 

and other natural resources, and result in displaced peoples, mass migrations and 

increased poverty—particularly in the Global South. Moreover, with the potential 

for the conflict generated by climate impacts, it is in the national interest of the 

United States to assist developing countries with the climate crisis. 

For an effective global deal to be reached, the United States will need to offer assistance to developing countries to adapt to climate change and cut their GHG emissions. To avoid catastrophic climate impacts, developing countries will need to utilize clean technologies, including leapfrogging to cleaner energy sources and ensure 

the protection of standing forests. But developing countries, which are less historically responsible for climate change and which often have smaller budgets and larger populations than developed countries, cannot afford by themselves the costs of 

transforming to clean energy economies without compromising the provision of basic 

services, such as water, sanitation, and basic education. 

Developing countries are already taking many steps on their own to both address 

climate impacts and to shift to cleaner energy. The United States can support these 

efforts and secure a global deal by being proactive in aggressively reducing its GHG 

emissions and by offering financing and technology transfer opportunities to developing countries for adaptation needs, clean energy, and forest protection. 

The Principle of Common But Differentiated Responsibilities 

Signed and ratified by 192 countries, the Convention on Climate Change set an 

overall framework for intergovernmental efforts to tackle the challenge posed by climate change. According to the Convention, enacted in 1994, party governments 

‘‘gather and share information on greenhouse gas emissions, national policies and 

best practices, launch national strategies for addressing greenhouse gas emissions 

and adapting to expected impacts, including the provision of financial and technological support to developing countries, and cooperate in preparing for adaptation 

to the impacts of climate change.’’ 46

The principle of common but differentiated responsibilities and respective capacities is a fundamental principle underpinning the UNFCCC, to which the United 

States is a party. It is also an underlying principle that underpins the international 

negotiations on a global climate deal already underway with an agreement expected 

to be reached in December 2009. This principle acknowledges differences in historic 

emissions, economic capacity to act, and the right to sustainable development. As 

a party to the UNFCCC, under the principle of common but differentiated responsibilities, the United States is obligated to reduce its GHG emissions, and provide 

financial support to developing countries to adapt to climate change impacts, receive 

transfers of clean technology, and to reduce their GHG emissions.47

The United States and other industrialized countries are historically responsible 

for global warming at greater levels than other countries. For example, G8 countries, which represent 13.5 percent of the global population, are historically responsible for over 62 percent of the greenhouse gases currently in the atmosphere. These 

countries, which include the United States, continue to emit some 39 percent of today’s global warming pollution.48 Per capita emissions in specific countries also 

demonstrate varying levels of responsibility. For example, in 2000, each person in 


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49Figures for greenhouse gas emissions come from the World Resources Institute’s Climate 

Analysis Indicators Tool, http://cait.wri.org/. 50 Ibid. 51 ‘‘A World of Difference in Energy Access,’’ World Bank Group, May 9, 2007. http://web. 

worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:21328449∼menuPK:34457∼pagePK: 

34370∼piPK:34424∼theSitePK:4607,00.html. 

the United States emitted 15.2 times as much carbon as each person in India and 

34.7 times as each person in Malawi.49

Different countries likewise have differing abilities of economic capacity to respond to global warming. In 2004, the gross domestic product (GDP) per capita in 

the U.S. was $36,451; in India, $2,851; and in Malawi, $591.50 Based on this measurement, the average person in the U.S. has 12.7 times as much economic output 

as a person in India and 61.6 times that of a person in Malawi. In aggregate, the 

U.S. has a much greater capacity to respond to global warming than most other 

countries in the world. 

This combination of responsibility and capacity means that the United States has 

more of an obligation and is more able to help developing countries both adapt to 

climate change and reduce emissions. This is an understood piece of the international negotiations under the UNFCCC. The United States could promote a global 

deal by offering financing and technology transfer for adaptation and mitigation efforts in developing countries by using ‘‘carrots’’ rather than ‘‘sticks.’’ 

Mitigation Actions in Exchange for Technology Transfer and Financing 

Currently under the UNFCCC negotiations, nationally appropriate mitigation actions on the part of non-Annex I (developing) countries are contingent on the provision of financial resources, technology transfer, and capacity by Annex I (industrialized) countries. For obvious reasons, the first priority of developing, non-Annex I 

countries is sustainable development. In this spirit, the United States is expected 

to offer financing in the key areas of adaptation (the ability of a country to respond 

to and build resilience to the impacts of global warming), the transfer of renewable 

energy technologies that build the capacity in-country to develop in a low-carbon 

fashion, and funding for forest protection as part of the U.S. commitment in exchange for nationally appropriate developing country climate mitigation efforts. 

Funding from the U.S. for international climate activities should be made through 

multilateral mechanisms under the UNFCCC for adaptation, clean technology, and 

forests. Making contributions to these mechanisms would be a show of good faith 

on the part of the U.S. and would facilitate international cooperation. Contribution 

to these funds will also strengthen international negotiations. Qualification of countries for financing and clean technology transfer should follow decisions made under 

the UNFCCC. 

Transfer of Clean Technology to Developing Countries 

It is in the interest of all countries to have developing countries leapfrog dirty energy sources on their path to development and move directly toward clean energy 

economies that allow for both economic growth and increased energy access. Developing countries need assistance in transitioning to clean energy pathways so that 

governments will not have to choose between low-carbon renewable energy and poverty alleviation. For a global deal to be reached, the United States will need to make 

commitments both within U.S. policy and under the UN climate convention to finance transfers of clean technologies to developing countries. 

The World Bank estimates that the incremental costs to deploy clean energy technologies in just the power sectors of developing countries would require $30 billion 

annually.51

The G77 and China (representing 130 developing countries) have explicitly supported a multilateral technology financing mechanism under the authority of the 

UNFCCC. The establishment of a financing mechanism for technology under the 

UNFCCC—both for mitigation and adaptation—was a major focus at UN climate 

change talks in Bonn, Germany in early June 2008, with a number of governments 

putting forward proposals. Under Article 4.3 of the UNFCCC, developed countries 

are obliged to provide finance and technology to developing countries to meet their 

full incremental costs of taking action to address climate change. Article 4.7 says 

that developing countries’ actions depend on the extent to which developed countries 

meet their technology and finance commitments. The G77 and China reiterated in 

Bonn that any funds by developed countries outside the UNFCCC cannot be counted 

as meeting their commitments. This, in turn, means the United States and other 

industrialized countries cannot hold developing countries to their qualified obligations to reduce GHG emissions. It also means that should U.S. funds be directed 


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52 United Nations Human Development Report, 2007/2008, http://hdr.undp.org/en/reports/ 

global/hdr2007-2008/. 

to mechanisms outside the UNFCCC, the U.S. would then have to make additional, 

parallel contributions to the UNFCCC to meet its own obligations. 

Developing countries, including China and India, were unambiguous in Bonn that 

they do not see the World Bank’s Climate Investment Funds as a good faith effort 

or as a show of international good will. Many in the Global South see the establishment of the World Bank’s Climate Investment Funds as a donor-driven process that 

lacks meaningful consultation and undermines the UN process. 

Further, a strong definition of clean, renewable energy is essential to ensure that 

it is both renewable and effective in reducing GHG emissions. The World Bank does 

not define what it means by clean energy. Friends of the Earth supports a definition 

of international clean technology that includes renewable energy, such as wind, 

solar photovoltaic, solar thermal, sustainably-sourced biomass, up to 10 MW hydropower, wave, tidal and geothermal. Clean and renewable energy technologies do not 

include those perpetuate GHG emissions, such as coal (including the unproven techniques of carbon capture and sequestration of coal plants), oil, natural gas, and unconventional fossil fuels such as tar sands, oil shale, and coal-to-liquids; hydropower 

over 10 MW; and those that produce fissile materials, such as plutonium-239 or uranium-233, in the course of their operation. 

Scarce, public clean energy funding should be used to drive down the price of renewable energy to make it cost-competitive with artificially cheap coal and further, 

to provide clean energy to the 1.6 billion impoverished people in the world who still 

lack access to electricity. Modern coal technologies do not need public assistance— 

they are already fundable through private investment, with improved energy efficiencies paying for themselves in short time periods. 

There is also a serious opportunity cost presented by investing scarce climate 

funding toward technologies that have not been proven to work or will not come on 

line in the near future, such as carbon capture and storage (CCS). Using funds for 

CCS-readiness (as the World Bank CTF document describes) would be counterproductive, as it would lock in high emission coal plants in the hope of future mitigation that may never be achieved, or may be achieved after catastrophic climate 

change has already occurred. 

To re-engage with the international community, generate good will, and be effective in combating climate change, Congress should proactively support an International Clean Technology Fund under the authority of the UNFCCC. This presents 

the United States with an important opportunity—after long delay—to show real 

leadership in the global effort to address climate change and help break the impasse 

of mistrust and finger pointing at international climate negotiations. 

International Adaptation to Global Warming Impacts 

As the IPCC has made clear, the world’s poorest people—those least responsible 

for the climate crisis—will be hurt the most by the immediate and long-term impacts of global warming. For example, the IPCC finds that up to 250 million people 

in Africa are projected to be exposed to an increase in water stress due to climate 

change, and in some countries, yields from rain-fed agriculture could be reduced by 

up to 50 percent by 2020. As the IPCC notes, ‘‘this would further adversely affect 

food security and exacerbate malnutrition.’’ As a result of these and other climate 

impacts, climate change will be one of the central drivers of global poverty in the 

21st century. 

The UN Development Program (UNDP) estimates that $86 billion a year by 2015 

will be necessary globally to meet adaptation needs.52 The United States and other 

wealthy countries have the ability to help developing countries finance adaptation, 

which would allow them to continue to combat poverty while at the same time addressing climate change. The United States is responsible for nearly a quarter of 

the pollution that causes global warming, with 23 percent of cumulative global emissions from the consumption of fossil fuels for the period of 1990 to 2005. These 

metrics alone suggest that the United States could be responsible for between 20 

and 40 percent of the global funding necessary to address international adaptation, 

or between 23 and 40 percent of the $86 billion UNDP says is needed. 

Several international funds have been created under the United Nations Framework Convention on Climate Change (UNFCCC) to address adaptation needs: 

The Least Developed Countries Fund (LDCF) and the Special Climate Change 

Fund (SCCF) are already administering funding for adaptation-related projects, although they are significantly under-funded. LDCF funds have been used to support 

the development and implementation of national adaptation programs of action 

(NAPAs), which have been completed by 32 countries and are underway in a numVerDate Nov 24 2008 14:33 Mar 17, 2011 Jkt 062201 PO 00000 Frm 00242 Fmt 6633 Sfmt 6621 I:\WAYS\OUT\62201.XXX APPS06 PsN: 62201

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53http://unfccc.int/adaptation/napas/items/2679.php. 54http://unfccc.int/cooperationlandlsupport/financiallmechanism/items/3659.php. 

ber of others. The NAPAs, which are designed to build upon existing coping strategies at the grassroots level and emphasize community-level input, provide a framework for least developed countries to identify, prioritize, and address adaptation 

needs.53

The Adaptation Fund, which was operationalized at the UNFCCC negotiations in 

late 2007, is likely to be the primary fund for adaptation moving forward. The governance and structure of the fund are improved over previous funds. For example, 

the Adaptation Fund Board includes majority representation from recipient governments. The Adaptation Fund will receive 2 percent of proceeds from international 

trading of carbon emissions under the clean development mechanism, although the 

Fund will also require additional sources of funding to be effective.54

Any domestic or international delivery mechanisms of climate assistance must ensure transparency, accountability, and community participation to effectively deliver 

adaptation funds and be seen as credibly contributing to a global climate negotiation. To do this, such funds should be transmitted via a UNFCCC-established fund. 

International Trade 

In putting a price on carbon, concerns have arisen in the United States about the 

potential impact of increased cost on U.S. manufacturing sectors. Imposing a carbon 

tariff, or border tax adjustment, on GHG-intensive goods was first proposed by Europe as a means to entice the United States to join an international agreement. It 

has now gained currency in the United States primarily as a mechanism to address 

concerns about China’s growing emissions. Imposing special measures on imports 

from countries has been pitched as an appropriate means to level the playing field 

for U.S. industries competing with countries that are not participating in an international climate agreement or not undertaking adequate climate change mitigation 

measures. 

The use of border tax adjustments (BTAs) must be evaluated based on their overall effectiveness, their role in reducing emissions internationally, as well as their 

ability to protect U.S. consumers and businesses. However, there are questions 

raised around the three main objectives that BTAs are to satisfy: (1) prevent a potential decline in output from U.S. manufacturers facing higher cost from new domestic climate mitigation policies; (2) prevent the displacement of U.S. manufacturing to new locales where GHG intensity of production is allowed to be higher, 

resulting in increased emissions; and (3) incentivize participation in a multilateral 

climate mitigation agreement for those countries hoping to gain or maintain market 

share in the United States. 

The largest share of carbon-intensive imports into the United States originates in 

Canada, followed by Europe. In comparison, China’s share is comparatively small. 

Because Canada and Europe, as well as many developing countries, are on average 

cleaner than U.S. production, then implementing BTAs could likely put U.S. manufacturing at a competitive disadvantage, and thus fail to meet their primary objective. 

Advocates for imposing a carbon tariff on carbon intensive goods at the border 

claim that it will force developing countries to the bargaining table. It must be restated however that China, the source of much of the concern in the U.S. climate 

policy debate, is productively engaged in multilateral negotiations under the 

UNFCCC to achieve a global deal on climate. China is also already taking aggressive action to curb emissions, including a renewable energy standard and a reduction in national energy intensity. Such progress in China should damper arguments 

that U.S. industry will move there to avoid carbon regulation. Further, because Chinese exports to the U.S. make up such a small fraction of Chinese production, BTAs 

are unlikely to function as useful leverage in compelling China to take on binding 

emissions targets. 

Given the clear international momentum building up toward the UNFCCC Conference of the Parties (COP)15 in Copenhagen, scheduled for December 2009, all efforts should be focused on reaching an ambitious global agreement that tackles the 

climate crisis in both an effective and fair manner to both U.S. consumers and the 

international community. International cooperation is the best route for progressively eliminating environmental and climate dumping and a ‘‘race to the bottom’’ 

in environmental standards and regulations. Bold leadership by the United States 

is welcomed and encouraged by the international community and may be the single 

best ‘‘carrot’’ to entice other countries to join a robust and effective multilateral 

agreement under the UNFCCC. 


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RECOMMENDATIONS 

Decarbonize the Tax Code—Remove and redirect subsidies that encourage 

wasteful energy use and the use and production of fossil fuels. Friends of the Earth 

finds that at least $32.2 billion could be freed up through a decarbonization of the 

Tax Code that could be applied to activities that encourage the efficient use and production of clean energy. 

Protect American Families—Adopt policy options that provide (1) a sufficient 

amount of resources is designated specifically for low- and moderate-income households, (2) rebates or similar income recycling is delivered fairly and through effective delivery mechanisms, and (3) additional investments focus on revitalizing 

lower-income communities toward decreasing carbon dependence and increasing job 

opportunities. This should be accomplished while avoiding cash grants to investorowned Local Distribution Companies (LDCs). 

Consideration of a Cap and Trade Program—Economists agree that any consideration of a Federal cap and trade program should start with an adherence to 

auctioning all the pollution permits rather than give them away for free. A cap and 

trade program need not be the only approach used to reduce GHG emissions. Complementary policies outside a carbon trading program can be better mechanisms to 

capture emissions from some sources, such as transportation or international deforestation. International offset projects present special problems under a cap and 

trade program, particularly with forests, and should be avoided. 

Approach Cap and Trade Program with Caution and Prudence—The current credit crisis in the United States provides a cautionary tale to heavy reliance 

on a carbon trading system. The design of California’s global warming law, AB32, 

may provide a model of sorts, as California is likely to rely on carbon trading for 

only one-forth of its overall emissions reductions. 

Support Bold U.S. Leadership to Reach An Effective Global Climate 

Deal—The United States needs to offer substantial financial and technical assistance to developing countries in the areas of international adaptation and clean technology transfer before developing countries are forced to commit to reducing their 

GHG emissions. 

f 

Statement of Stephen A. Smith 

My name is Stephen Smith. I am the Executive Director of the Southern Alliance 

for Clean Energy (SACE). Since 1985, SACE has been working on behalf of citizens 

in the Southeast to promote responsible energy choices that create global warming 

solutions and ensure clean, safe and healthy communities throughout the Southeast. 

SACE applauds the work you have done to promote effective climate change legislation and pledges to work with you and your staff to ensure the bill ultimately 

adopted by Congress embraces the most effective and responsible approach to reducing greenhouse gas emissions. 

In this testimony, I would like to focus on one particular and critical aspect of 

a well-designed cap and trade program for carbon emissions—the need to auction 

100 percent of the credits immediately. As this testimony will demonstrate, auctioning all the credits is a critical predicate to ensuring the environmental, economic 

and political success of a carbon cap and trade program. 

Unprecedented Resources at Stake 

The science of pollution mitigation has advanced significantly since Congress enacted the first cap and trade program to address the problem of acid rain back in 

1990. 

In the 18 years that followed, study after economic study lends critical support 

to the idea that a properly constructed cap and trade program must auction 100 percent of the carbon credits. Anything less than 100 percent auctions would needlessly 

increase the cost of the program to the economy and consumers, while potentially 

resulting in windfall profits for shareholders and executives of electric utility companies and other industries. 

Under a cap and trade program, a carbon credit authorizes the holder to emit one 

metric ton of carbon dioxide, or its equivalent, per year. These credits will be extremely valuable—eventually generating hundreds of billions of dollars in revenue 

each year—and they represent an important resource in our Nation’s efforts to address global warming. 


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1Warned makes it sound like what he’s saying needs to be heeded; far from it. 

As CBO Director Orszag testified in April 2008 before the Senate Finance Committee: 

On the basis of a review of the existing literature and the range of CO2 policies 

now being debated, CBO estimated that by 2020, the value of those allowances could 

total between $50 billion and $300 billion annually (in 2006 dollars). The actual 

value would depend on various factors, including the stringency of the cap (which 

would need to grow tighter over the years to keep CO2 from continuing to accumulate), the possibility of offsetting CO2 emissions though carbon sequestration or 

international allowance trading, and other features of the specific policy that was 

selected. On April 10, 2008, CBO estimated that the value of the allowances created 

under S. 2191 (America’s Climate Security Act) would be roughly $145 billion once 

the proposed program took effect in 2012; in subsequent years, the aggregate value 

of the allowances would be even greater. 

The cumulative value of these credits over the life of the program is simply unprecedented and any decision on the allocation of these resources should be made 

only after extensive examination of their potential utility. Properly structured, these 

revenues could be used to help families with their energy bills and to speed the development of important renewable energy and energy efficiency technologies. 

Many of the leading climate change bills before Congress, however, would give a 

majority of the carbon credits away. For example, the legislation the Senate considered earlier this summer—America’s Climate Security Act—would auction just 26.5 

percent of the credits at the start of the program. Many of the remaining 73.5 percent of the credits would be allocated for free to industries with a history of emitting 

greenhouse gases. Later in the program’s lifetime, this legislation would still allocate more than a quarter of the credits for free. Other major climate change bills 

in Congress allocate credits in a similar fashion. 

We caution the Committee from adopting this approach. It will needlessly increase the economic cost of reducing our greenhouse gas emissions and undermine 

the ability of future Congresses to assist low-income families and other vulnerable 

communities. 

No Windfalls for Polluting Industries 

Utilities and other greenhouse gas emitting industries argue that Congress should 

allocate some or all of the credits to them for free to minimize the energy costs they 

pass on to their ratepayers. For example, in testimony before the Senate Environment and Public Works Committee on June 28, 2007, Jim Rogers, the Chairman of 

Duke Energy,1 stated: 

Consumers should not be penalized for fuel choices that were made 40- 

plus years ago. Areas of the country facing the largest increases in electricity rates due to climate change policy also represent the Nation’s industrial heartland. How allowances are allocated will directly impact the cost 

of electricity and the prices these consumers pay. 

This argument is simply inaccurate. Gifting billions of dollars in pollution credits 

to utilities will not lower energy bills for ratepayers because the marginal cost of 

abating a unit of greenhouse gas is the same regardless of whether a firm buys the 

permits or is allocated the permit for free. As the Congressional Budget Office observed in their testimony before the Senate Energy and Natural Resources Committee in May: 

By attaching a cost to CO2 emissions, a cap and trade program would 

thus lead to price increases for energy and energy-intensive goods and services. Such price increases would stem from the restriction on emissions and 

would occur regardless of whether the government sold emission allowances 

or gave them away. Indeed, the price increases would be essential to the 

success of a cap and trade program because they would be the most important mechanism through which businesses and households were encouraged 

to make investments and change their behavior to reduce CO2 emissions. 

Further, the CBO notes: 

Giving all or most of the allowances to energy producers to offset the potential losses of investors in those industries—as was done in the cap and 

trade program for sulfur dioxide emissions—would also exacerbate the 

regressivity of the price increases. On average, the value of the CO2 allowances that producers received would more than compensate them for any 

decline in profits caused by a drop in demand for energy and energy-intensive goods and services. As a result, the companies that received allowances 

could experience windfall profits. 


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Harvard Economist Greg Mankiw accurately points out that freely allocating carbon credits to polluting industries is nothing more than corporate welfare. 

To understand why this is the case, consider a utility that is given credits equal 

to its historic level of carbon emissions, as many utilities have suggested should 

happen. How will that allocation affect the utility’s behavior? Very little, as it turns 

out. 

If the utility has a history of emitting 100 tons of carbon dioxide or equivalent 

per year and is given 100 credits that can be used to emit one ton of carbon each, 

the utility considers options for reducing its carbon emissions and determines that 

the cost of reducing its emissions from 100 to 99 tons is $10. If each credit is worth 

$15 dollars, then the utility will spend the $10 to reduce its carbon emissions by 

one ton, sell the credit, making its shareholders $5 in the transaction. The utility 

will continue to reduce its emissions and sell its credits until the cost of reducing 

another ton of carbon emissions is equal to the market value of the credit. If the 

cost of reducing emissions from 60 to 59 tons is equal to $15, then the utility will 

stop there. In the end, it uses 60 credits and sells 40. 

Now consider the case where the utility is given zero credits, and has to buy them 

in order to continue operations. Once again, the utility will have to balance the cost 

of credits verses the cost of reducing its carbon emissions. In this case, the utility 

will buy credits until the $15 cost of buying a credit is equal to the cost of reducing 

the next ton of carbon emissions. Here, the utility buys 60 credits, and invests in 

mitigation technologies to reduce the other 40 tons of carbon. 

The important point here is that the firm’s behavior is the same regardless of 

whether it is given the credits or it has to buy them like everybody else. In both 

cases, the utility produces the same amount of electricity as well as carbon. And 

ratepayers will face similar costs. 

What About Costs to Industry? 

In recent years, considerable research has gone into assessing what level of credit 

allocation is necessary to ‘‘compensate’’ the owners of utilities and other industries 

for losses associated with a carbon cap and trade program. One study found that 

allocating between 9 and 21 percent of the credits under the Kyoto Protocol would 

be sufficient to offset the agreement’s costs to energy and electricity producers. 

Other studies, however, found the regulatory regime of a cap and trade program 

without auctions could increase the opportunity for profits by affected industries. As 

Resources for the Future noted in a 2002 study: 

By compelling fossil fuel suppliers to restrict their outputs, the government effectively causes firms to behave like a cartel, leading to higher 

prices and the potential for excess profit. To the extent that the environmental policy enables firms to retain these rents—such is the case under 

CO2 policy involving freely offered tradable permits—the firms can make 

considerably higher profit under regulation than in its absence. 

Wall Street apparently agrees. The Wall Street investment firm of Bernstein Research reported earlier this year its analysis of the potential impact of a cap and 

trade program on utility industry financials. The title of the report—‘‘U.S. Utilities: 

Unregulated Generators’ Profits Could Surge Under Senate Bills to Cap CO2 Emissions’’—reflects its findings that implementing a cap and trade program could increase profits for some utilities. As the report notes: 

If the U.S., in implementing its own cap and trade regime for GHG emissions, also allocates allowances for free, we can expect unregulated power 

generators in this country to behave similarly, passing through the value 

of allowances consumed to wholesale power prices. And as these generators 

will bear no offsetting cost, their earnings can be expected to increase materially. 

Whatever the costs or benefits to industry, the more pertinent question to ask is 

simply this: If a cap and trade program affects everyone—energy consumers and 

producers alike—why should polluting industries alone get compensated? 

Global warming affects everyone. No industry should be given special status and 

protected from the responsibilities that the rest of us will face. 

Economic Efficiency and Low-Income Families 

Effectively addressing climate change will impose a certain level of costs on the 

economy. The question before Congress is how to best structure a cap and trade program to minimize the impact to the economy while helping low-income families and 

other energy consumers most vulnerable to changes in energy prices. The answer 

to this question, again, is to auction the credits and use the revenues raised to reduce the program’s overall cost to the economy. 


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The CBO estimated that giving away credits under a cap and trade program 

would cost nearly twice as much than if the credits were auctioned and the revenues 

used to cut taxes. Who would bear the additional costs of giving away credits to polluting industries? 

Of the four allowance-allocation and revenue recycling scenarios that CBO analyzed, the share of policy costs borne by households in the lowest-income quintile 

would be largest if the government gave allowances away and used the revenue received . . . to reduce corporate taxes. 

Further, the CBO noted in their June 17th letter to Senate Energy and Natural 

Resources Committee Chairman Bingaman that lawmakers have several options for 

assisting those most effected by increased energy costs, including collecting the resources from the auction of carbon credits and issuing rebate checks to households 

across the United States. The CBO noted that: 

Lawmakers could choose to offset the price increases experienced by lowand moderate-income households by providing for the sale of some or all of 

the CO2 emission allowances and using a portion of the revenues to compensate such households. For example, the Congressional Budget Office 

(CBO) found that lower-income households could be financially better off as 

a result of a cap and trade program (compared with no program—and without consideration of any benefit in terms of reduced risk of damage from 

climate change) if the government chose to sell the allowances and used the 

revenues to pay an equal lump-sum rebate to each household in the United 

States. In that case, the size of the rebate would be larger than the average 

increase in low-income households’ spending on energy-intensive goods. 

Different studies may suggest different optimal options, but they are universal in 

finding that the free allocation of credits to industry produces the worst outcome, 

both for the economy as a whole and for at-risk populations. Freely allocating credits needlessly surrenders resources that could be used to ensure the best outcome 

for the economy and low-income families. 

Auction, Not Allocation 

Congress should auction all credits under a cap and trade program and use those 

resources to assist ratepayers with their energy costs while investing in the development of critical technologies necessary to speed the future reduction of greenhouse 

gas emissions. 

Such an approach represents the surest means of meeting emission targets in the 

most equitable and economically efficient manner. Anything less is simply corporate 

welfare to those industries that have contributed the most to climate change. 

I thank the Committee for holding this hearing and for advocating solutions to 

global warming. SACE looks forward to working with the Committee to produce the 

most effective climate change legislation possible. Southern Alliance for Clean Energy (SACE) is a nonprofit, nonpartisan organization that promotes responsible energy choices that create global warming solutions and ensure clean, safe and 

healthy communities throughout the Southeast. 

Since 1985 SACE has been working on behalf of citizens in the Southeast to provide independent analysis of the energy supply system in the region, help State utility commissions evaluate proposed energy projects, work with State and local governments to develop new programs to improve the energy efficiency of government 

facilities and vehicles, and support the siting and development of clean, renewable 

energy sources in our region. 

SACE has been a leading voice for energy reform protecting our communities and 

our region’s natural resources for more than 20 years with offices and staff throughout the Southeast. 

f 

Dear Congressman Doggett, 

On behalf of our organizations, we write to applaud your efforts to build support 

for strong congressional action to address global warming. 

Your commitment to science-based emissions reduction targets, auctioning allowances, addressing global warming’s impacts on natural resources, and advancing an 

international global climate deal by funding international adaptation for at-risk 

countries is essential. We look forward to working with you to ensure that a climate 

bill will serve as the economic engine to repower America by investing in clean energy research and development and energy efficiency, creating green-collar jobs, and 

saving millions of dollars for American families. 

We appreciate the leadership and debate you are inspiring with the introduction 

of the Climate MATTERS Act. Interest in the bill encouraged the House Ways and 


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Means Committee to hold a well-attended, robust hearing this month and as such 

deepened the Committee’s investigation into policy options to solve global warming. 

Our groups recognize that the House Ways and Means Committee, with its unique 

areas of jurisdiction, will play an important role in helping our Nation to achieve 

strong, science-based reduction targets through the Tax Code and other means, 

while also ensuring that American families and workers are adequately protected 

from undue hardship. 

Thanks to your efforts to educate your colleagues, nearly 100 Members have already shown that they fundamentally agree that our Nation needs long-term solutions to our energy problem and that those solutions go hand in hand with solving 

global warming. 

Sincerely, 

Andrew Fahlund, 

Vice President for Conservation, American Rivers 

Sarah Saylor, 

Legislative Representative, Earthjustice 

Emily Figdor, 

Federal Global Warming Program Director, Environment America 

Shawnee Hoover, 

Legislative Director, Friends of the Earth 

Kate Smolski, 

Sr. Legislative Coordinator, Global Warming Campaign Greenpeace 

Justin Tatham, 

Assistant Director of Government Relations, National Audubon Society 

Bob Gruenig, 

Senior Policy Analyst, National Tribal Environmental Council 

David Waskow, 

Climate Change Program Director, Oxfam America 

Will Callaway, 

Legislative Director, Physicians for Social Responsibility 

Dave Hamilton, 

Director of the Climate and Energy Program, Sierra Club 

Jennifer S. Rennicks, 

Federal Policy Director, Southern Alliance for Clean Energy 

David Moulton, 

Federal Global Warming Program Director, The Wilderness Society 

Lexi Shultz, 

Deputy Director, Climate Program, Union of Concerned Scientists 

f 

Statement of Thomas J. Gibson 

On behalf of the members of the American Iron and Steel Institute, it is my pleasure to submit to you our written testimony in response to the hearing the Committee recently held entitled ‘‘Policy Options to Prevent Climate Change.’’ 

We believe the most important principle for successfully addressing climate 

change is this: It is a global problem that can only be addressed effectively on a 

global basis. If your Committee is guided by this principle, we are confident any resulting legislation will have two desirable outcomes: It will actually lower CO2 emissions globally and it will do so without lessening the competitiveness of U.S. manufacturers in the global marketplace. 

The steel industry in the U.S. has the lowest energy consumption per ton of production and the lowest CO2 emissions per ton of production in the world. Production 

of steel in the U.S. versus other parts of the world is therefore good for the environment. 

The enactment of any CO2 reduction legislation in the United States that does 

not incorporate or provide for similar measures being taken by other major steel 

producing nations such as China, on a contemporary timeline, will alter our competitiveness verses global steelmakers. We must hold foreign manufacturers to comparable standards, or else we will risk our own manufacturing jobs and economic 

health, while at the same time making our planet’s atmosphere worse, not better. 


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There are many activities proceeding in parallel with your deliberations that all 

address in some way a ‘‘global solution to a global problem.’’ We offer the following 

two points for your consideration. 

• The steel industry worldwide is working on a Global Steel Sectoral Approach 

to climate change under the auspices of the International Iron and Steel Institute. It is an agreement that will obligate major steel producers, including those 

in Brazil, Russia, India and China, to reduce CO2 emissions. It is the type of 

agreement that has the potential to lower global CO2 emissions without creating market distortions. It is being presented to UNFCCC negotiators in Poland in December 2009 as a model for post-Kyoto policy. We believe governments should look to the Global Steel Sectoral Approach to inform their own 

public policy initiatives. 

• In the absence of a successful Global Steel Sectoral Approach that avoids distortions in the marketplace, legislators must be prepared to address competitiveness impacts as an essential component of domestic climate change policies. For 

example, prior legislative efforts have included various ‘‘competitiveness provisions.’’ We believe that any competitiveness provision should impose the same 

cost obligations on imports that are imposed on domestic producers, for example 

by border adjustment measures; by requiring foreign and domestic firms to 

begin buying allowances in the same timeframe; by subjecting imports to the 

same requirement to obtain and submit allowances for greenhouse gas emissions; and by eliminating the Administration’s discretion to waive the requirements on foreign manufacturers. 

Our overarching point remains: Climate change is a global problem that can only 

be addressed effectively on a global basis. We urge Congress to ensure any climate 

legislation involves our major trading partners so that it will lower CO2 emissions 

globally without lessening the competitiveness of U.S. manufacturers in the global 

marketplace. 

Background—Steel Industry Leadership 

The American steel industry is part of the solution in this debate, not the problem. We are the most energy efficient steel industry in the world and we have the 

data to prove it. We not only beat the Kyoto targets 11 years early, we are already 

accomplishing on our own what the various cap and trade proposals seek to do for 

the entire economy. The domestic industry, largely through recycling and investments in new technology, has reduced energy use per ton of steel shipped by over 

40% over the past 25 years. Specifically, reductions in energy intensity per ton of 

steel shipped between 1990 and 2006 exceeded 29% (a detailed chart appears below). 

Because of our advances over the last two decades, the state-of-the-art processes 

and technologies we operate today are highly optimized. This means that in order 

to continue to make reductions in energy use, new technologies and new processes 

are required. We are currently researching, in collaboration with the rest of the 

global steel industry, the next generation of iron and steelmaking technologies that 

will drastically reduce or eliminate CO2 emissions. Such new ‘‘breakthrough techVerDate Nov 24 2008 14:33 Mar 17, 2011 Jkt 062201 PO 00000 Frm 00249 Fmt 6633 Sfmt 6621 I:\WAYS\OUT\62201.XXX APPS06 PsN: 62201

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1Greenhouse Gas Emissions from the U.S. Transportation Sector 1990–2003; U.S. EPA, 2006. 

nologies’’ will be developed and deployed over the next 15–20 years and any legislated CO2 reduction timeline should recognize when these technologies will be commercially available. 

The steel industry has and is developing new types of steel products that lead the 

way in reducing the greenhouse gas emissions of our customers, for example, 

through the design of automobiles using advanced high strength steels which permit 

much lower vehicle weights and require much less fuel, all while maintaining vehicle safety. Use of certain steel products results in more efficient buildings and infrastructure and is integral in pressure vessels for electrical power generation and energy transportation. Fighting global warming will require significant amounts of 

new steel products. 

Background—Energy Supply 

The cost of energy is sure to rise, not just for steel, but for the entire economy. 

Unfortunately, lack of a coherent energy policy has not been addressed in any of 

the current pending climate legislation. We need increased energy supply and 

greener energy, both of which have immediate benefits in reducing the CO2 footprint 

of all manufacturers. Obviously, if U.S. energy costs continue upwards unabated, 

this will only increase the likelihood that foreign manufacturers, who have access 

to affordable energy, will capture U.S. jobs and domestic market share, and consequently increase greenhouse gas emissions. 

Background—Cap and Trade 

We still have grave doubts generally about how well cap and trade can address 

climate change. Cap and trade worked reasonably well on the acid rain problem. 

The climate change issue is quite different. With climate change we have major 

technological gaps, the need for global reach, the presence of foreign competitors and 

no guaranteed ability for regulatory cost pass-through. 

Congress has under consideration a number of proposals to address climate 

change through a cap and trade regime. While the competitiveness provisions contained within these bills are well intentioned, much work remains in order to craft 

proposals that actually will result in addressing the global issue of climate change 

and meet WTO muster. Adopting a competitiveness provision that proves to be ineffective or WTO-illegal, will fail to create a level playing field and result in a significant loss of high-paying and highly valued jobs. 

Thank you for your time and consideration. We recognize the enormous challenge 

that faces the Committee as it seeks to develop responsible climate change legislation. Please be assured as the Committee moves forward it will have the full cooperation of our industry as a technical resource to be called on at any time. We 

look forward to working with you on this critical issue. 

f 

Statement of VPSI 

Climate Change Legislation—‘‘A three legged stool’’ 

Much of the debate and discussion regarding climate change legislation has focused on how to develop a ‘cap and trade’ system which would create caps on the 

amount of carbon that can be emitted in the air, while establishing a market for 

industry to buy and sell the right to emit carbon. While potentially effective, a ‘cap 

and trade’ system would only have a direct impact on stationary source emissions. 

Mobile source emissions, primarily emissions from personal and freight transport, 

would widely be unaffected by a cap and trade system. 

Transportation sources accounted for approximately 29 percent of total U.S. 

greenhouse gas emissions in 2006. Transportation is also the fastest-growing source 

of U.S. GHGs, accounting for 47 percent of the net increase in total U.S. emissions 

since 1990 and is also the largest end-use source of CO2, which is the most prevalent greenhouse gas.1

Climate change legislation designed to only manage stationary source emissions 

through a cap and trade system would be incomplete. In order to deal with the issue 

of climate change, VPSI urges Congress to pass comprehensive global warming legislation which attacks the problem by reducing both mobile and stationary source 

emissions. 

Specifically, a comprehensive global warming legislative package should include: 

• A Cap and Trade scheme; 


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2 Calculation: (50K cars × 50 miles/day ÷ 22 mpg × 19.4 tons CO2) ¥ (5K vanpools × 50 mi/ 

day ÷ 13 mpg × 19.4 tons CO2) = ∼1.8 million tons CO2 reduced. 3 Calculation: ∼1.8 million tons CO2 reduced × 250 workdays per year = ∼457 million tons CO2

reduced. 4 Calculation: (120K cars × 50 mi/day ÷ 22 mpg × 19.4 tons CO2 × 250 workdays/yr) ¥ (12K 

vanpools × 50 mi/day ÷ 13 mpg × 19.4 tons CO2 × 250 workdays/yr) = ∼1.1 billion tons CO2 reduced. 

• Clean fuels legislation; and • Cost effective polices and programs to promote a reduction in vehicle miles traveled (VMT). 

While understanding that this Committee does not deal with every aspect of the 

legislation, for the purpose of this hearing, VPSI will highlight some of the items 

that this Committee can include in a global warming package. 

Furthermore, VMT reduction will not only help reduce carbon emissions, but it 

also reduces congestion, and helps conserve fuel. So as this Committee acts on other 

important pieces of legislation, VPSI would kindly remind the Committee that many 

of these initiatives can, and should, be passed as soon as possible. We’d like to begin 

by briefly introducing VPSI and vanpooling. 

Vanpooling and VPSI—Background 

VPSI is the Nation’s largest vanpool service provider with nearly 5,000 vanpools 

serving commuters in more than sixty (60) metropolitan areas and three (3) statewide programs (Hawaii, Michigan and Vermont). VPSI vanpools remove ∼1.8 million 

tons of carbon each day 2 from the atmosphere, leading to a reduction of ∼457 million tons of carbon each year 3 (see calculations below). Nationally, there are ∼12,000 

vanpools removing ∼1.1 billion tons of carbon each year.4

What is a vanpool? In short, a vanpool is simply a large carpool. Generally speaking, a vanpool is created when 6–15 people who typically work at the same company 

or common location will decide to commute together. This group will pick one person 

to be the volunteer driver and one-to-three alternate drivers. This group will then 

contract for the use of a nine to fifteen passenger vehicle on a ‘‘30-day, pay-as-yougo’’ basis through a vanpool service provider. 

VPSI and other vanpool providers work with large employers, transportation management associations, metropolitan planning organizations, and other public entities 

to market and organize vanpools. 

Figure 1—Vanpooling Is the Most Cost Effective Mode of Public 

Transportation 


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Vanpooling is not exclusive to large metropolitan areas, in fact, much of the 

growth vanpooling has experienced over the past several years has occurred in small 

metropolitan areas and in rural markets where commuters often travel more than 

50 miles each day to get to and from their work location. 

As Congress works to put together climate change legislation, VPSI urges Congress to include provisions which would lead to a reduction in vehicle miles traveled. 

VPSI calls upon Congress to take the following actions as a part of comprehensive 

climate change legislation: 

• Reinstate the Vanpool Investment Tax Credit. 

• Include the tax provisions included in the Transportation and Housing Choices 

for Gas Price Relief Act of 2008 (H.R. 6495). 

• Set-aside cap and trade proceeds for transit, vanpooling, and other VMT reducing strategies. 

• Include legislative provisions creating equity between the parking and transit 

benefits associated with section 132(f) (H.R. 1475), and establish a tax credit for 

employers who subsidize their employees alternative commutes (H.R. 6030). 

These legislative remedies are not a silver bullet, but should be one part of the 

overall solution. Additionally, it should be noted that beyond a reduction in carbon 

emissions, VMT reductions also help conserve energy and reduce congestion. As 

such, VPSI would urge Congress to pass these provisions if another appropriate opportunity presents itself. 

Reinstate the Vanpool Investment Tax Credit 

Under the Federal Energy Tax Act of 1978, a 10 percent investment tax credit 

was approved for employers who established vanpools. To qualify for the credit, the 

van was required to have a seating capacity of at least eight, excluding the driver, 

have a 3-year useful life, be used 80 percent of the time for vanpooling, and be put 

into service by January 1, 1986. 

From 1975 to 1985 over 24,000 commuter vanpools were placed into service. Large 

employers, e.g. 3M, Conoco, Texaco, Pennzoil, Arco, Hartford Insurance, Schering 

Plough, Boeing, Aramco, Arizona Public Service, TVA, Chrysler, Cargill, Northrop, 

Shell, Ford, and McDonnell Douglas, acquired fleets of vans to transport their employees to and from work. 

The vanpool investment tax credit expired in 1986 and was not extended. VPSI 

urges Congress to reinstate the 10% ITC, but also include private vanpool service 

companies in eligibility. (They didn’t exist from 1978 to 1985, except in 5 or 6 urban 

areas. Now these private vanpool service companies serve commuters in more than 

60 U.S. cities). 

Based upon historical trends and increasing demand, VPSI projects that if such 

legislative policy was enacted, vanpool use could double over the next four (4) years. 

Such growth would lead to new emission reductions of ∼1.1 billion tons of carbon 

per year at an estimated total cost of $36 million over the 4-year period, or ∼$122/ 

ton of carbon. (See Table 1). 

Additionally, a reinstated 10% vanpool investment tax credit would be three times 

more effective at reducing CO2 emissions, would reduce peak hour VMT in commute 

traffic by a factor of 10, and would have less than half the impact to the Treasury 

than the current tax credit for the purchase of hybrid vehicles. (See Figure 2). 

Table 1—Cost to U.S. Budget of Investment Tax Credit FY ’10–FY ’13 

Target = 24,000 vanpools Typical large commuter van = $30,000 

Current fleet = ∼12,000 Value of 10% ITC = $3,000 

Growth = ∼12,000 vanpools Impact on Treasury = $36,000,000 

($3,000 μ 12,000) 


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Figure 2—Cost to U.S. Treasury Hybrid vs. Vanpool ITC 

Figure 3—Impact of ITC Reinstatement on Domestic Automakers 

Finally, an investment tax credit is also good for domestic automakers. Vanpools 

typically use nine (9) to fifteen (15) passenger vehicles. Currently, only domestic 

automakers produce these larger passenger vehicles. The proposed policy change 

would mean an additional $440 million in sales for domestic automakers over the 

next 4 years. (See Table 4). 


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Include the tax provisions included in the Transportation and Housing Choices for 

Gas Price Relief Act of 2008 (H.R. 6495) 

The Transportation and Housing Choices for Gas Price Relief Act of 2008 (H.R. 

6495), as introduced by Congressman Blumenauer (D–OR) is a comprehensive piece 

of legislation aimed at providing commuters with options from the high price of gas. 

While the direct focus of this legislation is relief from the pain at the pump, a secondary focus is to reduce the amount of greenhouse gases that are emitted into the 

air. VPSI urges the Ways and Means Committee to act on the relevant sections of 

this legislation that affect the Tax Code and are under this Committee’s jurisdictions. Specifically: 

• Section 7 ‘Credit for Teleworking’—which would provide a tax credit of up to 

$400 a year for qualified teleworking expenses. 

• Section 8 ‘Transportation Fringe Benefit to Bicycle Commuters’—which would 

expand the transportation fringe benefit under section 132(f) of the Code to 

those who commute to work via bicycle. The provision sets a cap of $50/month. 

• Section 9 ‘Increased Uniform Dollar Limitation for All Types of Fringe Benefits’—which would create parity between the parking and transit portions of the 

transportation fringe benefit. 

• Section 11 ‘Eligibility of Self-Employed Individuals to Receive Certain Transit 

Benefits’—which would allow the self employed to take advantage of the transit 

benefit under section 132(f) of the Tax Code. 

• Section 12 ‘Parking Cash-Out Programs’—which would require any employer 

who subsidizes or offers pre-tax parking benefits to also offer parking cash-out 

programs. Parking cash-out is a term used when employers offer employees 

cash in lieu of parking to encourage employees to use transit or other forms of 

transportation. 

• Section 13 ‘Vanpool Credit’—which would reinstitute a tax credit as described 

earlier in our testimony. 

These legislative proposals are cost effective measures that will encourage more 

Americans to utilize alternative forms of transportation, thus driving less and emitting less carbon into the atmosphere. 

Set-aside cap and trade proceeds for transit, vanpooling, and other VMT reducing 

strategies 

According to the Environmental Protection Agency nearly one-third of all greenhouse gas emissions come from the transportation sector. As Congress puts together 

a cap and trade system, VPSI strongly recommends that no less then 10% of the 

funds generated from the cap and trade system be dedicated to mass transit and 

VMT reducing strategies. VPSI recommends that when putting together the details 

of such a program that it recognizes all the stakeholders who play a role in transportation and can play a role in reducing VMT including employers, local and regional planning bodies, transportation management associations, and private providers of public transportation. Funneling resources to existing Federal Highway 

and Federal Transit formulas alone may not inspire the type of change that is required to meet the goals of this legislation. VPSI recommends that the funding be 

apportioned in a way that guarantees it is used in an efficient way to reduce VMT 

and carbon emissions. 

Additionally, provided that a cap and trade program would not produce proceeds 

for several years, VPSI recommends that the legislation include provisions that 

would allow public and private transportation agencies to bond against the promise 

of cap and trade proceeds in order to begin early action programs. 

Include legislative provisions creating equity between the parking and transit benefits associated with section 132(f) (H.R. 1475), and establish a tax credit for employers who subsidize their employees alternative commutes (H.R. 6030) 

Finally, comprehensive climate change legislation should include provisions that 

increases transit ridership nationwide. There are two ways that this can be accomplished. First, the Ways and Means Committee should include legislation offered by 

Congressman McGovern (D–MA) which would establish parity between the parking 

and transit portions of the transportation fringe benefit. This would end the current 

financial incentive to drive to work that exists in the Tax Code. Additionally, including this provision would mean that those Americans with the longest commutes, and 

thus are driving the most and emitting the most carbon during their daily commute 

would now be covered by the transit benefit and would have an incentive to stop 

driving to work. One version of the legislation offered by Congressman McGovern 

would increase the cap on the transit benefit from $115/month to $200/month while 


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5 According to a Joint Committee on Taxation letter to Congressman McGovern, June 19th, 

2007. 

slightly reducing the parking portion from $220/month to $200/month. In this 

version, the legislation is revenue positive by $143 million over 10 years.5

Secondly, this Committee should include legislation offered by Congressman Kirk 

(R–IL), H.R. 6030, which would create a tax credit for employers who subsidize their 

employees’ commutes. Multiple studies have shown that when an employer pays for 

their employees’ commute as a part of their benefit package, transit ridership and 

use of alternative transportation modes increases dramatically. More and more 

American businesses recognize the role they can play in the fight against global 

warming. As a part of that fight, employers are ready and willing to become more 

involved in their employees commutes. As such, the Federal Government can help 

inspire more companies to become engaged by offering a small tax credit. The cost 

of such credit would be minimal compared to the outcomes. 

Conclusion 

The recommendations outlined here today are only a few of the many legislative 

remedies that can help reduce carbon emissions, and fight global warming. VPSI 

recommends this Committee and the whole of Congress study all of these remedies 

and include anything and everything that can have a positive benefit. 

If you have any questions, please contact Jon Martz, Vice President of Government Affairs at (248) 597–3519 or Jason Pavluchuk at (202) 285–6414. We look forward to working with this Committee as the process unfolds. 

Æ 


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