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THE U.S. CLIMATE ACTION PARTNERSHIP REPORT 

HEARING 

BEFORE THE

COMMITTEE ON 

ENVIRONMENT AND PUBLIC WORKS 

UNITED STATES SENATE 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

FEBRUARY 13, 2007 

Printed for the use of the Committee on Environment and Public Works 

( 

Available via the World Wide Web: http://www.access.gpo.gov/congress.senate 
(II) 

COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

BARBARA BOXER, California, Chairman 

MAX BAUCUS, Montana 

JOSEPH I. LIEBERMAN, Connecticut 

THOMAS R. CARPER, Delaware 

HILLARY RODHAM CLINTON, New York 

FRANK R. LAUTENBERG, New Jersey 

BENJAMIN L. CARDIN, Maryland 

BERNARD SANDERS, Vermont 

AMY KLOBUCHAR, Minnesota 

SHELDON WHITEHOUSE, Rhode Island 

JAMES M. INHOFE, Oklahoma 

JOHN W. WARNER, Virginia 

GEORGE V. VOINOVICH, Ohio 

JOHNNY ISAKSON, Georgia 

DAVID VITTER, Louisiana 

JOHN BARRASSO, Wyoming1

LARRY E. CRAIG, Idaho 

LAMAR ALEXANDER, Tennessee 

CHRISTOPHER S. BOND, Missouri 

BETTINA POIRIER, Majority Staff Director and Chief Counsel 

ANDREW WHEELER, Minority Staff Director 

1Note: During the 110th Congress, Senator Craig Thomas, of Wyoming, passed away on June 4, 2007. Senator 

John Barrasso, of Wyoming, joined the committee on 

July 10, 2007. ...................................................................
(III) 

C O N T E N T S 

Page 

FEBRUARY 13, 2007 

OPENING STATEMENTS 

Boxer, Hon. Barbara, U.S. Senator from the State of California ........................ 1 

Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma .................... 3 

WITNESSES 

Darbee, Peter A., Chairman, CEO and President, PG&E Corporation ............... 8 

Prepared statement .......................................................................................... 10 

Responses to additional questions from Senator Inhofe ............................... 14 

Holiday, Chad, Chairman and CEO, E.I. Dupont De Nemours and Company, 

Inc. ......................................................................................................................... 16 

Prepared statement .......................................................................................... 17 

Lash, Jonathan, President, World Resources Institute ........................................ 18 

Prepared statement .......................................................................................... 20 

Elbert, Stephen A., Vice Chairman, BP America, Inc. ......................................... 23 

Prepared statement .......................................................................................... 25 

Book, Kevin, Senior Vice President, Senior Analyst, Friedman, Billings, 

Ramsey and Company, Inc. ................................................................................. 26 

Prepared statement .......................................................................................... 28 

Responses to additional questions from Senator Inhofe ............................... 33 

Smith, Fred L. Jr., President, Competitive Enterprise Institute ........................ 35 

Prepared statement .......................................................................................... 37 

Responses to additional questions from Senator Inhofe ............................... 44 

Hamm, Harold, Chairman of the Board, Chief Executive Office, Continental 

Resources, Inc. ...................................................................................................... 46 

Prepared statement .......................................................................................... 47 

ADDITIONAL MATERIAL 

Statement of Senator Christopher S. Bond, U.S. Senator from the State 

of Missouri ............................................................................................................ 77 

Article, The Washington Post; January 13, 2002, ‘‘Enron Also Courted Democrats; Chairman Pushed Firm’s Agenda With Clinton White House .............. 78 

Reports: 

The Green Lobby Report, By Angela Logomasini .......................................... 81 

European Union, Delegation of the European Commission .......................... 117 

(1) 

THE U.S. CLIMATE ACTION PARTNERSHIP 

REPORT 

TUESDAY, FEBRUARY 13, 2007 

U.S. SENATE, 

COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS, 

Washington, DC. 

The committee met, pursuant to notice, at 10 o’clock a.m. in room 

406, Dirksen Senate Office Building, the Hon. Barbara Boxer 

(chairman of the committee) presiding. 

Present: Senators Boxer, Inhofe, Lautenberg, Carper, Klobuchar, 

Warner, Alexander, Bond, Sanders 

OPENING STATEMENT OF THE HON. BARBARA BOXER, 

U.S. SENATOR FROM THE STATE OF CALIFORNIA 

Senator BOXER. The hearing will come to order. 

Today we will hear from a group of leading corporations and environmental groups who have agreed on a road map for next steps 

to address the global warming challenge. They have banded together to issue ‘‘a call for action’’ on global warming. They have 

concluded that ‘‘we know enough to act’’ on global warming and 

that ‘‘Congress needs to enact legislation as quickly as possible.’’ 

I want to thank all parties for this report and let them know that 

I believe it makes an important contribution to helping solve the 

global warming problem. It is very important to note that this 

group includes some of the world’s largest corporations, such as 

General Electric, DuPont, BP, Caterpillar, Alcoa, and includes key 

energy companies, such as Duke Power, Florida Power and Light, 

and PG&E from my home State of California. These companies 

produce products of all types. They use fuels of all types, including 

coal. And they are committed to being profitable for many years to 

come. 

As the chairman of Duke Power noted on release of the report, 

Duke Power is the third largest user of coal in the United States. 

Yet all these companies agree that we need to act now to enact a 

mandatory program to address global warming. What is more, they 

agree on the targets for reduction, both in the short term and the 

long term. They agree that we need to stabilize worldwide atmospheric concentrations of CO2 at 450 to 550 parts per million. 

Their targets for emissions include reductions of 10 to 30 percent 

from today’s levels within the next 15 years, and a 60 to 80 percent 

reduction from today’s levels by 2050. These targets are consistent 

with what the scientists are telling us. And they are consistent 

with the targets set forth in the Sanders-Boxer bill, as well as 
2 

other bills introduced this Congress, which include cutbacks of 60 

to 80 percent by 2050. 

The companies and groups before us today also made clear that 

by acting now we can help, not hurt, our economy. They say that, 

and I think we have this on a chart, I am not sure, but I think— 

yes, that is it—‘‘Each year we delay action to control emissions increases the risks of unavoidable consequences that could necessitate even steeper reductions in the future, potentially greater economic costs and social disruption.’’ 

The U.S. CAP report also makes the point that we need to enact 

an economy-wide program. As I have often said, I am very proud 

of my home State of California which enacted AB 32, an economywide global warming bill. The California law sets a mandatory cap 

on carbon pollution, including a 25 percent reduction from projected levels by 2020. And the California Governor’s executive order 

includes a target to reduce emissions 80 percent from 1990 levels 

by 2050. Here is bipartisan leadership at its best. 

California is leading the way in combatting global warming. And 

one of the companies here, as I said, Pacific Gas and Electric, has 

helped enormously by working hard to help increase California’s 

energy efficiency, which is one of the highest in the Nation. 

I continue to believe we should approach this problem with hope, 

not fear. I want to repeat that: I continue to believe we should approach this problem with hope, not fear. I am an optimist, and I 

believe we can solve this problem, and that in doing so, we will be 

better for it in every single way. The members of the Climate Action Partnership who are here today agree with this approach. 

They say that ‘‘In our view, the climate change challenge, like 

other challenges our country has confronted in the past, will create 

more economic opportunities than risks for the U.S. economy, and 

that addressing climate change will require innovation and products that drive increased energy efficiency, creating new markets, 

increased U.S. competitiveness, as well as reduced reliance on energy from foreign sources.’’ 

I so appreciate their comments, because I have watched for years 

those naysayers who said, when you act to protect the environment, you hurt the economy. The opposite has been proven. As 

business leaders that successfully compete in national and worldwide markets, these witnesses should know. We must face the challenge of global warming now. It is one of the greatest challenges 

facing our generation. With the help of these groups and businesses, like those in the Climate Action Partnership, with their 

help, this is a challenge we can and will meet. 

Again, I want to say to all of you, I believe when history is written, this will be a turning point, that you stepped forward and saw 

your responsibilities. And it means a great deal to the American 

people, I believe. So I really again want to thank you so much. 

With that, I will give Senator Inhofe such time as he would like 

to take. 

[The prepared statement of Senator Boxer follows:] 
3 

STATEMENT OF SENATOR BARBARA BOXER, U.S. SENATOR FROM

THE STATE OF CALIFORNIA

Today we will hear from a group of leading corporations and environmental 

groups who have agreed on a roadmap for next steps to address the global warming 

challenge. 

They have banded together to issue ‘‘A Call for Action’’ on global warming. They 

have concluded that ‘‘we know enough to act’’ on global warming and that ‘‘Congress 

needs to enact legislation as quickly as possible.’’ 

I want to thank these companies for their report and let them know that I believe 

it makes an important contribution to helping solve the global warming problem. 

This group includes some of the world’s largest corporations, such as General 

Electric, Dupont, BP, Caterpillar, Alcoa, and includes key energy companies such as 

Duke Power, Florida Power and Light and PG&E, from my home State of California. 

These companies produce products of all types, use fuels of all types, including 

coal, and are committed to being profitable for many years to come. As the Chairman of Duke Power noted on release of the report, Duke Power is the third largest 

user of coal in the United States. Yet all these companies agree that we need to 

act now to enact a mandatory program to address global warming. 

What is more, they agree on the targets for reduction, both in the short term and 

the long term. They agree that we need to stabilize world wide atmospheric concentrations of CO2 at 450-550 parts per million. Their targets for emissions include 

reductions of 10-30 percent from today’s levels within the next 15 years and a 60 

percent to 80 percent reduction from today’s levels by 2050. 

These targets are consistent with what the scientists are telling us and they are 

consistent with the targets set forth in the Sanders bill, of which I am co-sponsor, 

as well as other bills introduced in this Congress. 

The companies and groups before us today also make clear that by acting now, 

we can help, not hurt our economy. They say that: 

‘‘Each year we delay action to control emissions increases the risk of unavoidable 

consequences that could necessitate even steeper reductions in the future, at potentially greater economic cost and social disruption.’’ 

The U.S. CAP report also makes the point that we need to enact an economy wide 

program. 

I am very proud of my home State of California, which enacted AB 32, an economy-wide global warming bill. The California law sets a mandatory cap on carbon 

pollution, including a 25 percent reduction from projected levels by 2020 and the 

California Governor’s Executive Order includes a target to reduce emissions 80 percent from 1990 levels by 2050. 

California is leading the way in combating global warming. And one of the companies here, Pacific Gas and Electric, has helped enormously by working hard to help 

increase California’s energy efficiency, which is one of the highest in the Nation. 

I continue to believe we should approach this problem with hope and not fear. I 

am an optimist, and I believe we can solve this problem, and that in doing so, we 

will be better for it in every way. 

The members of the Climate Action Partnership who are here today agree with 

this approach. They say that ‘‘In our view, the climate change challenge, like other 

challenges our country has confronted in the past, will create more economic opportunities than risks for the U.S. economy’’ and that ‘‘addressing climate change will 

require innovation and products that drive increased energy efficiency, creating new 

markets. . . increased U.S. competitiveness, as well as reduced reliance on energy 

from foreign sources.’’ 

As business leaders that successfully compete in national and world-wide markets, they should know. 

We must face the challenge of global warming now. It is one of the great challenges of this generation. With the help groups and businesses like those in the Climate Action Partnership, this is a challenge we can and will meet. 

I look forward to hearing the witnesses’ testimony. 

OPENING STATEMENT OF THE HON. JAMES M. INHOFE, 

U.S. SENATOR FROM THE STATE OF OKLAHOMA 

Senator BOXER. Thank you, Madam Chairman. I appreciate your 

having this hearing today. The issue of climate change has taken 

a larger significance lately, and the subject of the day, mandatory 

carbon cap and trade. More and more companies that wish to profit 
4 

on the backs of consumers are coming out of the woodwork to endorse climate proposals in hopes of forcing customers to buy their 

products or to penalize their competitors. 

Some companies are coming together in an attempt to profit from 

Government intervention where they have failed in the marketplace. Economists call this rent-seeking. But I think the Wall 

Street Journal is right: they are climate profiteers. These companies will gain market share against their competitors, while the 

economy flattens and jobs are sent to China, which in an ironic 

twist of fate will soon become the biggest emitter of CO2, passing 

the United States by 2009. 

Interestingly also about China is that people who are concerned 

about job flight, when you consider we haven’t had a new coal-fired 

generating plant put online in 17 years, and they are cranking out 

one every 3 days, so there is more to come. Most of its victims are 

particularly small businesses that will no longer be able to compete, but the biggest losers won’t be the businesses, but the American consumers. 

And you know, you guys, you all look so solemn right now. This 

is a happy committee hearing isn’t it, Barbara? 

Senator BOXER. Well, for me it is. For you I don’t think so. 

[Laughter.] 

Senator INHOFE. I really do believe, I spent 25 years in the real 

world as a CEO. I know something about how CEOs think. And I 

have wondered quite often, I really have, and I say this in a serious 

vein, would I, if I had the opportunity to make a bunch of money 

and answer to my stockholders, would I come forth and do something that I think is not in the best interests of America? 

The proposal that we are talking about and others like it may 

be written in the form of Government regulatory mandates. But for 

all practical purposes, it is really a regressive tax on the American 

economy, where select powerful companies profited at the expense 

of seniors, the working class and the poor. These groups already 

pay disproportionately more than their monthly budget for energy. 

And this situation will only worsen under proposals like I see 

today. 

Let me be real clear today, because we have to say what it is we 

are talking about, the largest tax increase in the history of America. I want to get some responses from Mr. Book and Mr. Smith 

on this, because in reality, that is what we are talking about, the 

very liberal group that, they came out and they were talking about 

what was the largest tax increase, it was the Omnibus Budget Reconciliation Act of 1993. I can go down and talk about the 10 things 

it did to increase taxes. 

The total amount of taxes increased and the effect on the economy was $32 billion a year. This would be over $300 billion a year. 

So it is a much larger tax increase on the American people. We 

need to say what it is and talk about who is going to be paying 

for it. 

I am told that the rush to do something about global warming 

has gained momentum. But the not so hidden secret is that more 

and more serious scientists and political leaders are voicing their 

discontent with both the hype and the symbolic approaches, that 
5 

masquerade as solutions that are designed more to line the pockets 

of its promoters than accomplish anything. 

Now, when you stop and think about the scientists, and this is 

where you see the sense of panic that is coming from those individuals that all started with the United Nations, to make people believe that man-made gas is responsible for climate change, and you 

see the ones who are aligning, they are very aggressive leaders, 

Claude Allegre was one of the leaders in France, a very liberal socialist in France, he is a geophysicist, well, I am not sure what he 

was, but he is on both the French and the United States Academy 

of Sciences. Claude said, I don’t have his quote here, but he said 

that warming may be due simply to natural variation and the debate appear to be about money. 

Then just last week, this Nir Shariv, he is one of the top astrophysicists in Israel, he is now, and he was on the other side of this 

debate back when it started, back when the United Nations started 

all this stuff 15 years ago, and he is now saying that there is no 

proof of man’s contribution, rather than natural variation. Same 

thing is true with David Bellamy from the U.K., he was one of 

them marching in the streets waving the flags, the dirty old man 

is responsible for climate change. And now he has come around to 

realize that the science flat is not there. 

Then there are political leaders. Prime Minister Steven Harper 

once called the Kyoto Accord a socialist scheme designed to suck 

money out of rich countries. And just last week, and I really enjoyed this, because I know him personally, Czech President Vaklav 

Klaus, made clear his disdain for politics parading for science when 

he said ‘‘Global warming is a false myth and every serious person 

and scientist says so. It is not fair to refer to the United Nations 

panel, the IPCC is not a scientific institution, it is a political body, 

a sort of non-government organization of green flavor.’’ 

This is kind of interesting, because everyone is talking about 

what happened a week ago Friday when they came out with the 

fourth assessment. The fourth assessment isn’t going to be out 

until next may. This was something for the policy. This was not the 

scientists, but the policymakers. 

So anyway, that is what is happening. I guess what I am saying 

is, the science is not settled. I think everybody knows that, and 

since more and more people are coming to the other side, there is 

a level of panic that is setting in. 

They don’t have to agree with my position on the science to question the wisdom of a cap and trade approach. These proposals 

would do little and cost much. Moreover, as White House Spokesman Tony Snow stated last week, there is a carbon cap system in 

place in Europe and we are doing a better job of reducing our emissions here. 

This is kind of interesting. They all jumped in western Europe, 

15 countries signed onto Kyoto. Only 2 of the 15 countries, Sweden 

and Great Britain actually have met their targets. None of the rest 

of them have. So if you take all 15 countries, we have reduced the 

CO2 emissions in this country far more, and we are not even a part 

of the Kyoto thing. Simple fact is that we can’t continue to put 

pressure on demand for natural gas in this country while we curtail the efforts of producers who supply it. 
6 

Now, as Mr. Hamm knows, my State of Oklahoma is an ag State. 

The thing that I hear when I go around, and I am in the State 

every weekend, out in the western part of the State and the southern part of the State and rural Oklahoma, the chief problem that 

they are having right now, my farmers in Oklahoma, is the cost of 

fertilizer. The main thing that has driven the cost up is the price 

of natural gas. We can’t demand significant emission reductions 

while Senators oppose the construction of new nuclear facilities. In 

short, we can’t demand reductions from our fossil fuel sector unless 

these demands can be met. The result can only be further increasing the volatility of natural gas prices, continued and even increased job flight to countries that don’t participate. 

But the biggest cost will be to the consumers who will be forced 

to foot the bill for its climate problems. That is why we have decided to fight for consumers and plan to introduce the Ratepayers 

Protection Act, which is going to be something kind of interesting 

to a lot of utilities. Because I am going to ask them, and this Act 

provides that if this drives the cost up, you can’t pass this on to 

your consumers. 

So finally, I would just say that we know, and I don’t criticize 

people for being here today who are going to make profits by a cap 

and trade system, because you have your board of directors to answer to, and I understand that. 

Thank you, Madam Chairman. 

[The prepared statement of Senator Inhofe follows:] 

STATEMENT OF SENATOR JAMES M. INHOFE, U.S. SENATOR FROM

THE STATE OF OKLAHOMA

Madame Chairman, I appreciate you having this hearing today. The issue of climate change has taken on a larger significance lately. And the subject of the day 

is mandatory carbon cap and trade. More and more, companies that wish to profit 

on the backs of consumers are coming out of the woodwork to endorse climate proposals in the hope of forcing customers to buy their unnecessary products or to penalize their competitors. 

Some companies are coming together in an attempt to profit from Government 

intervention where they have failed in the marketplace. Economists call this rentseeking. But I think the Wall Street Journal was right. They are climate profiteers. 

These companies will gain market-share against their competitors while the economy flattens and jobs are sent to China—which in an ironic twist of fate will soon 

become the biggest emitter of carbon dioxide on the planet. Madame Chairman, not 

all companies have joined the climate profiteers. Most will be its victims, particularly small businesses that will no longer be able to compete. But the biggest losers 

won’t be businesses, but American consumers. 

This proposal and others like it may be written in the form of Government regulatory mandates, but for all practical purposes, it is really a regressive tax on the 

American economy, where select powerful companies profit at the expense of seniors, the working class and the poor. These groups already pay disproportionately 

more of their monthly budget for energy, and this situation will only worsen under 

proposals like we see today. Let me be clear—this is the biggest tax hike in U.S. 

history. 

I am told that the rush to do something about global warming has gained momentum. But the not so hidden secret is that more and more serious scientists and political leaders are voicing their discontent with both the hype and the symbolic approaches that masquerade as solutions that are designed more to line the pockets 

of its promoters than to accomplish anything. 

Among scientists, of course, there is Claude Allegre—the French Socialist, geophysicist, and member of the French and American academies of science—who has 

said that warming may be due simply to natural variation and that this debate appears to be about money. There is also Nir Shariv, one of Israel’s top young astro-
7 

physicists, who says there is no proof of man’s contribution rather than natural variation. 

And then there are the political leaders. Prime Minister Stephen Harper reportedly once called the Kyoto accord a ‘‘socialist scheme’’ designed to suck money out 

of rich countries. And just last week, Czech President Vaclav Klaus made clear his 

disdain for politics parading for science when he said ‘‘Global warming is a false 

myth and every serious person and scientist says so. It is not fair to refer to the 

U.N. panel. IPCC is not a scientific institution: it’s a political body, a sort of nongovernment organization of green flavor. 

You don’t have to agree with my position on the science to question the wisdom 

of the cap and trade approach. These proposals will do little and cost much. Moreover, as White House spokesman Tony Snow stated last week, ‘‘there is a carbon 

cap system in place in Europe, we are doing a better job of reducing emissions here,’’ 

Snow said. 

The simple fact is that we cannot continue to put pressure on demand for natural 

gas in this country while we curtail the efforts of producers to supply it. We cannot 

demand significant emission reductions while Senators oppose the construction of 

new nuclear facilities. In short, we cannot demand reductions from our fossil fuel 

sector unless these demands can be met. 

The result can only be further increases and volatility of natural gas prices, continued and even increased job flight to countries that don’t participate. But the biggest cost will be to consumers, who will be forced to foot the bill for this climate 

chicanery. That is why I have decided to fight for consumers and plan to introduce 

the Ratepayer’s Protection Act, which will protect consumers in regulated States 

from having their rates raised to pay any climate schemes. 

Thank you. 

Senator BOXER. Thanks very much. 

I think it is very clear that the Ranking Member and I disagree 

on whether the science is settled. So just for the record, I believe 

the science is settled. There are always people, when there is a 

breakthrough in science, who continue to say, not true. There are 

still people who say that HIV doesn’t cause AIDS. There are still 

people who say that there is no tie between smoking and cancer. 

So we know that there will always be some naysayers. But what 

I find really interesting and important to note here is that the first 

argument against doing anything about global warming is how bad 

it is going to be for the economy. Now it is, it may be really good 

for some of our companies. 

Senator INHOFE. I think I made that real clear, let’s don’t leave 

it on that note. 

Senator BOXER. I didn’t interrupt. I will be glad to give you some 

time if you want. 

Senator INHOFE. Sure. 

Senator BOXER. So you can’t have it both ways and say it is 

going to destroy American business when you have American business here taking the lead on this. I also think it is quite unfair to 

cast aspersion on people who actually might have come to the decision that there is a need for corporate responsibility here. So I 

think that we should hear from the witnesses whether or not they 

are being motivated because they want to make money from this, 

or they are being motivated by the science and the fact that they 

want to be around, they want their corporations to be around in 

a world that is a predictable world. I think that is the basic question here. As we all come together, if we believe that there are 

going to be adverse impacts that are going to be very costly and 

dangerous for the world, then clearly we may be motivated to make 

sure that we take the steps necessary now so that we can have our 

companies thrive in the future. So I think there are many ways to 

look at this. 
8 

Senator Inhofe, if you would like some time. 

Senator INHOFE. Yes, I think I made it very clear in my opening 

statement that there are some who will make money in doing this 

and I don’t criticize them. I have been trying to make it clear that 

I wish there were more people in the U.S. Senate who had a 25 

or 30 year experience in the real world, and they would understand 

a little bit more about some of the things that are going on up here. 

But there are a lot of people who are going to be paying this 

huge, huge tax. It is going to cost a lot of money. We have some 

witnesses who I think can address that, Madam Chairman. 

On the science thing, the only reason I keep bringing it up, the 

science, is those individuals who are on the other side are coming 

over in droves as they look at the new science. That is it. 

Senator BOXER. OK. We could go on, but we won’t. 

Let’s start with Mr. Darbee and we will work our way through. 

Mr. Darbee, we are very proud to have you here. Why don’t you 

begin? And everyone will get 6 minutes. 

STATEMENT OF PETER A. DARBEE, CHAIRMAN, CEO AND 

PRESIDENT, PG&E CORPORATION 

Mr. DARBEE. On behalf of the PG&E Corporation and the U.S. 

Climate Action Partnership, or U.S. CAP, I would like to thank you 

for the opportunity to be here today. 

PG&E is California’s largest energy provider. Our company is 

also one of the Nation’s cleanest utilities and we are an acknowledged leader in energy efficiency. U.S. CAP is a unique alliance of 

leading companies from diverse sectors of the economy and major 

environmental organizations. Our organization is here because we 

share a view that climate change is the most pressing environmental issue of our time and also because we agree that as the 

world’s largest source of global warming emissions, our country has 

an obligation to lead. 

No other country matches the U.S. in terms of our capital resources and its capacity for innovation. Our economy is the world’s 

locomotive and U.S. CAP believes it is critical to get that engine 

pulling in the right direction on climate change. Toward that end, 

we have outlined an aggressive but entirely achievable set of public 

policy principles in a legislative framework. This morning I will 

talk about three areas in particular: improving energy efficiency; 

developing a smart grid for electricity; and making smart decisions 

about the diversity of the fuels that we use to generate electricity. 

Keep in mind the backdrop is our recommendation favoring a 

program that creates a long-term price signal for carbon by creating a mandatory cap on greenhouse gas emissions, combined with 

a trading program that uses the market to establish that long-term 

price signal and lets companies figure out how best to meet the 

goals. 

Let’s start with energy efficiency. We haven’t even scratched the 

surface of what the Nation can achieve here. A recent McKinsey 

study reported that through energy efficiency we can reduce the 

growth rate of worldwide energy consumption by more than 50 percent over the next 154 years, and we can do it using today’s technology. A major step forward would be Federal action making it 

easier for the country’s utilities to actively promote energy effi-
9 

ciency. PG&E has been doing this for 30 years. We have already 

prevented 125 million tons of greenhouse gas emissions and helped 

California escape the need to build 24 additional large power 

plants. 

During the last 30 years, we and others have seen California per 

capita energy utilization remain flat while in the rest of the United 

States, per capita energy use has risen by 50 percent. The key has 

been a policy called decoupling. It is a simple idea. It works by setting utility revenues at a fixed level sufficient to run the business 

and provide a fair return to investors. 

But it has profound implications, because it means our financial 

health doesn’t depend on selling more energy. We don’t see it as 

a bad thing when customers use less of our product, and that is 

a good thing for the environment. U.S. CAP recommends that Congress incorporate this policy into Federal law or strongly encourage 

more States to do so. We would also like to see stronger national 

energy efficiency codes for buildings, equipment and appliances. By 

setting tough but achievable standards, Congress can help spur 

much-needed investment in new energy efficiency technologies. 

An example of the nexus between energy efficiency and technology advancement is our work with the high-tech industry. 

PG&E worked with Sun Microsystems to develop an incentive program for energy efficient servers, garnering attention from a growing number of other major computing equipment manufacturers. 

We announced the first ever utility financial incentive program to 

support virtualization projects in data centers, which enables customers to consolidate their data centers. One major software firm, 

for example, was able to consolidate workloads from 230 servers 

onto just 13, representing an energy cost savings of more than 

100,000 per year. Rather than burden this company, energy efficiency has created a competitive advantage for it. This same company is now creating a new product based on this approach. 

A second area for action is creating the infrastructure for smart 

energy grid. We can turn the energy grid into an interactive network which in turn would exponentially multiply the options for 

creating efficiencies and using energy more intelligently. We have 

the technologies to do this now. 

For example, PG&E has the largest program in the country to 

install so-called smart meters, that provide for two-way communication between the energy supplier and the customer. This opens 

the door for opportunities like time of use metering that allows for 

informed consumer decisionmaking to efficiently utilize electric 

power or for maximizing the potential benefits of plug-in hybrid vehicles. U.S. CAP would like to see Congress develop tax incentives 

and reform measures that could help advance technology development and capital investment in these areas. 

Finally, I will say a few words about how we can ensure an affordable, reliable and diverse supply of electricity from low greenhouse gas emitting sources, including renewable resources, natural 

gas, nuclear and advanced coal technologies. This is critical to ensuring that we meet our climate change objectives in a way that 

maintains economic growth. One major positive step would be extending Federal production and investment incentives for renewable energy sources for more than 1 year at a time. This would pro-
10 

vide certainty for investors, reduce the costs of technology development and encourage fuller deployment of these clean sources of energy. 

Another major step would be Federal help with developing cleaner conventional power sources, particularly coal. Coal is our most 

abundant domestic resource and we need to support its continued 

use in the context of our greenhouse gas reduction goals. We need 

to accelerate efforts to cost effectively capture and store carbon dioxide. Right now, the technology is expensive and questions remain. The Federal Government can help speed up progress and 

help drive down the cost. Congress should fund at least three largescale development and demonstration programs. The U.S. should 

also set rules for capturing, transporting and storing carbon dioxide 

in order to provide clarity for investors. 

I am an optimist. I personally believe we are going to meet the 

challenges we are talking about today. But as I have said, I am 

also a realist, and I recognize that doing so will be tough. We are 

going to need your continued support and leadership. 

On behalf of PG&E and U.S. CAP, thank you for the opportunity 

to be part of a serious discussion on this very serious issue. We 

look forward to working with you going forward. 

Senator BOXER. Thank you so much, Mr. Darbee. I am very 

proud of your testimony. 

I would ask Senator Carper to introduce our next speaker. 

Senator CARPER. With pleasure. I want to welcome each of our 

witnesses. I think I have had a chance to welcome you all personally. 

It is a special privilege today for me to welcome Chad Holliday 

to the committee. In our church, we like to say that I would rather 

see a sermon than hear a sermon. When it comes to the DuPont 

Company, we see the sermon with respect to the commitment to 

the environment, and to husbanding and preserving our natural resources. They have been providing great leadership from within the 

chemical industry, now they are providing great leadership 

throughout the business community on a whole range of fronts. 

I want to thank Chad for stepping up, I think big time, in helping to form this partnership and to provide a bit of leadership for 

it. I just want to say thank you, welcome. I believe we have 

reached a tipping point with the release of the call for action. We 

have reached a tipping point and I just want to commend each of 

you that are part of that for standing up and speaking out and providing common sense, pragmatic leadership at a time when we 

really need it. 

Chad, welcome, we are delighted that you are here. 

[The prepared statement of Peter A. Darbee follows:] 

STATEMENT OF PETER A. DARBEE, CHAIRMAN, CEO AND PRESIDENT, PG&E 

CORPORATION

Chairman Boxer, Ranking Member Inhofe, and members of the committee, I am 

pleased and honored to appear before you this morning representing both my company, PG&E Corporation, and the U.S. Climate Action Partnership (U.S. CAP). 

PG&E Corporation is an energy holding company headquartered in San Francisco, 

California and is the parent company of Pacific Gas and Electric Company. Pacific 

Gas and Electric Company is California’s largest utility, providing electric and natural gas service to more than 15 million people throughout northern and central 
11 

California. PG&E is a recognized leader in energy efficiency and has among the 

cleanest electric delivery mix of any utility in the country. 

The U.S. Climate Action Partnership, also known as U.S. CAP, is a coalition of 

leading businesses and environmental non-governmental organizations (NGOs), including Alcoa, BP America, Inc., Caterpillar Inc., Duke Energy, DuPont, Environmental Defense, EFL Group, General Electric, Lehman Brothers, Natural Resources 

Defense Council, Pew Center on Global Climate Change, PG&E Corporation, PNM 

Resources, and World Resources Institute. U.S. CAP has come together based on a 

shared understanding that climate change is an urgent issue, and that the United 

States both has a responsibility and opportunity to act now, act aggressively, and 

enact policies to stabilize and reduce greenhouse gas emissions, enhance energy security, and create economic opportunity by developing and deploying new technologies. 

U.S. CAP has recommended a set of public policy principles and a legislative 

framework for Congress and the Administration, which will accomplish these goals. 

We developed this framework and these recommendations by putting the tough 

issues on the table, We challenged each other with hard questions. We debated. And 

we came together to move forward in those areas of common ground, This is difficult 

to do. It takes tenacity. And most of all, it takes mutual respect, humility, patience, 

compromise and a willingness to take the long-term view. 

The members of U.S. CAP are committed to working with Congress and the Administration to do the same. On behalf of PG&E, I want to thank Chairman Boxer 

and the other members of this committee for hearing from the business and environmental communities and other stakeholders on this important issue. I believe that 

this dialogue will help to forge the kind of understanding needed to tackle this challenging issue. 

THE CHALLENGE

As the head of a major energy company—and also as an American and a great 

believer in our Nation’s unique place in the world-I believe the United States has 

a responsibility to be at the forefront of addressing global climate change. 

If you look at U.S. greenhouse gas emissions compared with other nations, the 

level of emissions from sources in the U.S. is vastly disproportionate to our population. Our emissions are higher than those of China and India combined, where the 

population is more than 2.5 billion people. 

If you look at our wealth and prosperity relative to other Nations, it’s clear that 

we can afford to make a difference, and, if you look at our tremendous capacity for 

innovation, it’s clear that we have the human capital to develop the solutions. By 

signaling to the market that we’re serious about making progress on clean energy, 

we can stimulate investment and engage our best and brightest minds in this effort. 

The longer we wait, the costlier the solutions will likely become. On the other 

hand, by acting now, we preserve valuable response options. We narrow the uncertainties. And we avoid the economic and social dislocation of drastic changes later. 

DEVELOPING A RESPONSE

So, in the face of this challenge, where do we start? U.S. CAP has provided a 

roadmap for developing the kind of comprehensive approach that will be necessary 

to address global warming. At the core of the recommendations is a national, mandatory, market-based approach to reducing greenhouse gas emissions—a so-called 

‘cap and trade’ program—that establishes clear short-, medium-, and long term 

goals and unleashes the power of the market to get the job done. In addition, U.S. 

CAP identifies action that should be pursued aggressively in advance of the implementation of a national cap-and-trade program, including a full court press on energy efficiency. 

Taking this approach will create clarity for business; create consistency, by avoiding a State-by-State patchwork of emissions trading markets; create focus for a comprehensive national energy strategy; and allow us to begin to change the U.S. emissions trajectory today. 

OVERVIEW OF U.S. CAP RECOMMENDATIONS

U.S. CAP provides recommendations on all the major components of legislation 

that could be developed to address this challenge, and many of these recommendations are focused on making the U.S. economy more energy efficient than it is today. 

In brief, these recommendations include the following: 

• Policies and measures to facilitate the development and deployment of advanced 

transportation, power generation, and energy efficient technologies; 
12 

• Cost control measures, including the use of greenhouse gas emissions offsets, 

banking, borrowing, a strategic allowance reserve, and preferred allowance allocations; 

• Inventory and registry so that we can identify both the most energy-intensive 

parts 

of our economy and where the most cost-effective reductions can be achieved; 

• Credit for early action, to both recognize actions already taken and encourage 

others to step up today; and 

• Sector-specific policies and measures that complement an economically sound 

cap-and-trade system and create additional incentives to invest in low-GHG approaches in key sectors, including energy efficiency. These measures will be particularly necessary where near-term price signals are insufficient to deploy existing energy-efficient technologies or other market and regulatory barriers exist that impede 

their introduction or utilization. 

In addition to outlining these major recommendations from U.S. CAP, I would 

also like to spend a little time addressing three key elements that provide the foundation for many of the recommendations—the importance of improving energy efficiency, the need to develop a ‘‘smart grid’’ for delivery of electric power to consumers, and the important role that decisions on electric power generation and fuel 

diversity play in the climate change equation. 

ENERGY EFFICIENCY

A recent McKinsey study said that, through energy-efficiency, we could reduce the 

growth rate of worldwide energy consumption by more than 50 percent over the 

next 15 years. And McKinsey said we can do this using the technology we have 

available today. 

A major step toward unleashing this opportunity in the U.S. would be Federal action making it easier for utilities to actively advocate energy efficiency. PG&E has 

been doing 

this for three decades. Our energy efficiency programs, both electric and natural 

gas, have already prevented 125 million tons of greenhouse gas emissions. These 

programs also helped California escape the need to build 24 additional large power 

plants, and they’ve saved customers more than $9 billion. 

And we are doing even more. Between 2006 and the end of 2008, we will invest 

an additional $1 billion in energy efficiency, avoid the need for another 600 

megawatts (MW) of electric power, and save customers another S 1 billion. In fact, 

in 2006, we exceeded our targets and saved more than 160 MW of power and 10 

million therms of natural gas. 

The reason we can do this is that, under State law, our revenues are set at a fixed 

level by regulators. We collect what we need to run the business and provide a fair 

return to investors. Any overruns go back to customers. Any shortfalls are recovered 

Oater. This is known as ‘‘decoupling,’’ and it means our financial health doesn’t depend on selling more energy. It eliminates the financial disincentives that otherwise 

stand in the way of encouraging customers to use less of our products. Experience 

shows that this empowers utilities to become some of the most effective advocates 

for energy efficiency. This is especially true when you package this policy with incentives for utilities. Utilities should be provided an opportunity to earn a return 

on investments that save energy, just as they do when they invest in a new power 

plant, and that earnings opportunity should be tied directly to how well utilities 

help customers reduce their bills. 

A number of states are already moving in this direction. U.S. CAP recommends 

that Congress bring all 50 states on board by either incorporating this policy into 

Federal law or taking steps to strongly encourage states to do so. We also need 

stronger energy efficiency codes for whole buildings, equipment and appliances. 

PG&E has worked for decades to help both State and Federal authorities set better 

energy efficiency standards. Progress at the Federal level has lagged recently, however, and we urgently need to reinvigorate it. And finally, it may be necessary to 

provide incentives for entities to go even further to seek energy savings. 

Aggressive standards and incentive programs are a big reason that per capita energy usage in California has remained flat over the past 30 years, while the rest 

of the Nation has increased its per capita usage by 50 percent. During this time, 

California’s economy has continued to grow at a rate that is equal to or has outpaced the U.S., and was the epicenter of the hi-tech and bio-tech revolutions-with 

many of the market leaders being energy efficiency pioneers themselves. Raising the 

bar at the national level will lead to new investment in next-generation energy efficient technologies and spark growth opportunities in other sectors 
13 

For example, recognizing the intense and persistent energy use of computing 

equipment, airflow management, and power conditioning systems in data centers, 

PG&E worked with Sun Microsystems to develop an incentive program for energyefficient servers, garnering attention from a growing number of other major computing equipment manufacturers, who are also qualifying their premium performance equipment for incentive programs. 

PG&E also announced the first-ever utility financial incentive program to support 

virtualization projects in data centers. Virtualization technology enables customers 

to consolidate their data centers and thereby significantly reduce their energy use. 

One major software firm, for example, was able to consolidate workloads from 230 

servers onto just 13, representing an energy cost savings of more than $100,000 per 

year. This same company is now creating a new product based on this approach. 

Many regions across the U.S. are experiencing new demands for electric infrastructure as data center operators construct new facilities. Data centers can use up 

to 100 times the energy per square foot of typical office space, so efficiency opportunities are significant. We are now working to expand the gains we’ve made, by leading a coalition of U.S. utilities to capture energy efficiency in data centers. Participants include the Northwest Energy Efficiency Alliance, TXU Energy, the New York 

State Energy Research and Development Authority, and NSTAR. 

Our efforts do not stop in the U.S. We recognize that climate change is a global 

problem requiring a global solution. And, while we do not believe that U.S. action 

should be contingent upon global action, we do recognize that in order to make 

progress, all major emitting economies will need to contribute equitably. That is 

why PG&E is working cooperatively with the Natural Resources Defense Council, 

the State of California, and others as part of the U.S.-China Energy Efficiency Alliance. The Alliance works to exchange information and facilitate technology deployment, ultimately helping China reduce the energy intensity of its economy and providing economic opportunity and advantage to those that supply these energy efficient technologies and facilitate best-practice programs. A climate program therefore 

must build off of efforts like this and the Asia-Pacific Partnership in the near term, 

and create additional international linkages going forward. 

And, finally, we are supporting the development and deployment of new energy 

efficient technologies and call on Congress to do the same. We implemented several 

emerging technologies projects in 2006, including integrated day lighting in schools 

and automated demand response controls. These projects set the stage for significant energy savings in the future and for creating economic opportunities for manufacturers and vendors. 

In our State and for our company, energy efficiency is the ‘‘first energy resource.’’ 

That is, before we look to add generation, we see what we can do to reduce demand. 

I believe the U.S. should make energy efficiency the Nation’s first resource as well, 

and U.S. CAP’s recommendations will go a long way toward achieving that. 

SMART GRID

Maximizing the potential for energy efficiency, as well as distributed generation 

and some advanced transportation technologies, will require a ‘‘smarter energy grid, 

one that provides for two-way communication between energy consumers and energy 

providers. PG&E is installing 10 million Smart MetersTM— throughout our service 

area to provide the 

infrastructure that will eventually support these technologies and offer new capabilities. Tax incentives and reform measures will be needed to advance these efforts 

nationally. 

One example of a technology which would benefit from a ‘‘smarter grid is plugin hybrid vehicles (PHEVs). Vehicle-to-grid technologies have the benefit of reducing 

oil use, enhancing the power grid, and reducing greenhouse gas emissions. For example, when the cars are not in use, energy from the batteries could be uploaded 

back to the system, reducing the need for peak power generation. This is important, 

because peak power often comes from the least efficient and least clean resources 

on the grid. And, PHEVs facilitate more efficient use of the electric grid, as these 

vehicles will mainly charge at night, when demand is otherwise low. And, in our 

State, this is also when some of our lowest emitting resources are powering the electric system. 

POWER GENERATION AND FUEL DIVERSITY

In addition to using energy more efficiently, reducing demand, and implementing 

‘‘smart grid.’’ strategies, a significant emphasis and focus of any greenhouse gas reduction program must be on ensuring an affordable, reliable, and diverse supply of 

electricity from low-greenhouse gas (GHG) emitting sources. As with energy effi-
14 

ciency, the latest research suggests we can be doing a lot more with what we have 

available today. 

For example, currently, the U.S. is getting about 9 percent of its electricity from 

renewable sources. Excluding hydroelectricity, that figure is a little more than 2 

percent. A number of states have set targets for increasing the supply of renewable 

energy. 

In California, our target is to deliver 20 percent of our energy from renewable 

sources by the year 2010, excluding large hydroelectric sources. PG&E is on track 

to meet this goal. 

But the Federal Government can make a tremendous contribution here. I believe 

one major positive step would be the extension of production and investment tax incentives for renewable energy sources for more than one year at a time. This would 

provide much-needed certainty for investors, reduce the cost of technology development, and encourage fuller deployment. 

Washington can also play a leading role in researching and developing next-generation renewable power sources. I’m particularly intrigued by solar thermal technology. PG&E is also exploring the possibility of tidal and wave power off the coast 

of California. And, the sooner we can develop a good understanding of their viability, and their relative costs and benefits, the sooner we will be in a position to move 

forward. 

It’s also critical that we implement policies and initiatives to facilitate the development and deployment of lower GHG-emitting conventional power sources. A 

strong place to start would be increasing the efficiency of natural gas fired turbines. 

And, I personally believe we need to facilitate development of both new supplies and 

new infrastructure. For example, biogas from methane digesters is an opportunity 

we are pursuing to supplement natural gas supplies for our customers. Again, Federal investment and policies that support efforts in these areas would be very positive. 

We are also hearing the beginnings of a national conversation about the future 

of nuclear power in our country. The advantages of nuclear power in a carbon-constrained world are considerable and must be acknowledged. But nuclear power also 

faces considerable challenges that must be addressed. It is an option that should 

be on the table. 

Finally, we must address the issues surrounding the use of coal. About 40 states 

rely heavily on coal for their electric power and, nationally, the electricity mix is 

currently more than 50 percent coal. So, it is critical that we accelerate efforts to 

deploy advanced coal technologies that have the capability to cost-effectively capture 

and store carbon dioxide. Right now, carbon capture and storage technology is expensive, and questions remain. I am cautiously optimistic that the challenges facing 

this important fuel source can be addressed. And the Federal Government can help 

us get the answers we need more quickly and help drive down cost. Policy makers 

should fund at least three large-scale development and demonstration programs, to 

account for a diversity of locations, coal types, and storage formations. The U.S. 

should also establish the rules as soon as possible for how carbon dioxide must be 

captured, transported and stored. Without these rules, it will be difficult for investments to be made on the scale necessary to achieve our GHG reduction targets. 

THE TIME IS NOW

Our country has a historic opportunity to change the way we produce and use energy in ways that will lower the threat of climate change and improve our environment. The optimist in Inc is certain that we’re going to achieve this goal over the 

course of the next generation. But the realist in me knows that we can’t take this 

outcome for granted. Achieving it will be a very substantial challenge. And that is 

why we have to come together as pragmatic, responsible participants in this effort. 

On behalf of PG&E and U.S CAP, I want to thank you for the opportunity provided today. I appreciate the commitment of this committee to addressing this critical issue and I pledge my cooperation and support as this committee and Congress 

moves forward. 

Thank you. 

RESPONSES BY PETER A. DARBEE TO ADDITIONAL QUESTIONS FROM SENATOR INHOFE

Question 1. I am aware of at least two reports by financial analysts (Bernstein 

and Citigroup) that identify some utilities that would be winners and losers under 

climate legislation. Both reports reached similar conclusions. In particular, they concluded that companies with non-emitting generation, like nuclear and renewables, 

would get a financial windfall. According to Wall Street analysts, the windfall for 
15 

some utilities would be in the billions of dollars. Would cap-and-trade legislation of 

the nature endorsed by USCAP benefit your company in terns of enhanced revenues 

or reduced costs? 

PG&E Corporation is the parent company of Pacific Gas and Electric Company, 

which provides gas and electric service to more than 15 million people throughout 

northern and central California. Within California’s policy framework, PG&E operates as a regulated utility, and does not complete directly with other energy providers. We do compete on a very limited basis with some municipal utilities within 

the State. 

And, in the event that our company did receive an allowance of emissions allocations under a cap-and-trade program, the economic benefit of those allowances 

would go to our customers, who have already made significant investments in low 

carbon energy sources, energy efficiency and advanced energy solutions. Allowance 

allocations for the benefits of our customers will help to ensure they do not ‘‘pay 

twice’’ for carbon reductions. 

As a regulated utility, the prices we charge, the services we provide, and the profits we earn are all largely determined by California State regulators. They ensure 

that our utility customers receive cost-effective, reliable, and responsible service, 

while providing the opportunity for our shareholders to earn a fair return, and no 

more. PG&E’s commitment to supporting cleaner advanced energy solutions is a value 

we share with our customers and is a fundamental reason why we have been an 

active voice on the issue of climate change for many years. 

Through extensive research and debate on the issue of climate change, we have 

concluded at PG&E that the science is compelling, the risks immense, and the time 

for action is now. 

We will continue to support policies that are consistent with these values and protect the interests of our customers and our State in the process. 

Question 2. I understand that ‘‘early action’’ carbon credits awarded to your company under a cap-and-trade system would likely have a significant market value— 

is that correct? 

Response. Consistent with our answer above, PG&E operates as a regulated utility, and does not complete directly with other energy providers. We do compete on 

a very limited basis with some municipal utilities within the State. In the event 

that our company did receive an allowance of credits for ‘‘early actions’’ taken to reduce emissions as part of a cap-and-trade program, the economics benefits of these 

allowances would go to our customers, who have already made significant investments in low carbon energy sources, energy efficiency and advanced energy solutions. 

As a regulated utility, the prices we charge, the services we provide, and the profits we earn are all largely determined by California State regulations. They ensure 

that utility customers receive cost effective, reliable, and responsible service, while 

providing the opportunity for our shareholders to earn a fair return, and no more. 

Question 3. Have you done any analysis of the financial impact on your company 

of greenhouse gas reduction scenarios? If so, what were the results of that analysis? 

Response. PG&E has benchmarked its emissions, both for generating sources it 

owns and operates, as well as for the total mix of delivered electricity (i.e., owned 

and purchased), against others in our industry. That comparison is available in a 

document laying our PG&E’s position on climate change as well as the steps we are 

taking to mitigate our greenhouse gas emissions. This document can be found on 

our website www.pgecorp.com. We update this comparison annually and publish 

that information in our Corporate Responsibility Report, also available on our 

website. 

We believe that given our current emissions, profile and the investments we are 

making on behalf of our customers in low or zero emitting energy generation, energy 

efficiency, renewable generation and the ‘‘smart grid’’ technology will allow us to 

continue to provide responsive, reliable and cost-effective service to our customers 

under various greenhouse gas reduction scenarios, while at the same time ensuring 

a fair return to our shareholders. 

Question 4. What is your estimate of the percentage of baseload generation that 

can be supplied by solar and wind energy without any threat of disrupting reliability if the grid? 

Response. The amount of baseload generation that can be displaced by renewable 

resources depends on the other generating resources connected to the electric power 

grid. As an example, Denmark generates more than 20 percent of its electric power 

from intermitting resources on its system. Many studies have been done across the 

United States and globally to assess similar integration issues. The Utility Wind In-
16 

tegration Group, for example, published a report on the subject last year, summarizing the results of many of those studies. The link to the study is included here 

and a copy is attached to the submitted response: 

http://www.uwig.org/ewec06gridpresentation.pdf; 

http://www.uwig.org/ewec06gridpaper.pdf 

Studies on integrating intermitting renewable energy resources are also underway 

in California. For example, a project sponsored by the California Energy Commission just released its report. A link to the study is included here and a copy is attached to the submitted response: 

http://www.energy.ca.gov/pier/final—project—report/CEC-500-2007-081.html. 

The California Independent System Operator is also conducting an integration 

study, the results of which are expected to be released later in 2007. 

STATEMENT OF CHAD HOLLIDAY, CHAIRMAN AND CEO, E.I. 

DUPONT DE NEMOURS AND COMPANY, INC. 

Mr. HOLLIDAY. Thank you, Senator Carper, thank you, Chairman 

Boxer, Senator Inhofe for convening this hearing on a very important topic. 

I am pleased to be here today representing DuPont, a 205 year 

old Science company. I am also here as a member of a unique partnership of companies and NGO’s who have reached a consensus on 

action our country should take around the challenge of global climate change. We call this the U.S. Climate Action Partnership. 

DuPont’s environmental approach was shaped when atmospheric 

research on ozone depletion led to phaseout of chlorofluorocarbons, 

or CFCs, through the Montreal Protocol. It was during this period 

DuPont became more aware of the potential business and environmental implications of climate change. 

Since 1991, we have reduced our greenhouse gas emissions by 72 percent globally, and avoided $3 billion of energy costs. We made 

these changes because they earned solid returns for our shareholders and they help the environment. I am here today because 

I am absolutely convinced that Americans and American business 

can do our part to beat this global issue. We must know the rules 

of the road you want us to follow to reduce greenhouse gases. When 

you lay down the law, our universities, our companies, our national 

laboratories and individual citizens will lead the world in finding 

solutions. 

As a catalyst for your process, U.S. CAP has developed five principal themes I will briefly cover. First, clear and strong near-term 

and mid-term goals are important to prepare for the long-term reductions that will be needed. Second, action across the entire U.S. 

economy will be required. However, one size does not fit all. Different approaches and timeframes will be required for different sectors of the economy. 

Third, any solution must be economically sound and harness the 

power of the market. A Federal program should include market 

mechanisms such as cap and trade and additional policies and 

measures such as energy efficiency standards. Fourth, we must 

drive innovation and open up new markets by fighting aggressive 

technology through R&D. This recommendation is in complete harmony with the work the National Academies did for the Senate last 

year called Rising Above the Gathering Storm. 

Five, we need to encourage early action and be fair. By recognizing voluntary actions taken to reduce emissions and addressing 

disproportionate economic impacts that may occur to economic sec-
17 

tors, regions of the country or income groups is very important. 

U.S. CAP has offered detailed recommendations in some areas. In 

other areas, we have offered a range of possibilities without trying 

to specify exact details. My colleague with me today will give you 

more details and recommendations. 

In closing, we do not have all the answers. I am sure you can 

improve on our recommendations. However, I am equally sure 

when we pull together we can deal with global warming and continue to have the world’s leading economy. Thank you very much. 

Senator BOXER. Thank you so much, Mr. Holliday, for that very 

succinct presentation. 

Just for the benefit of members, we are going to go through the 

panel and then in order of arrival, I will go back and forth, I will 

give each member 10 minutes, so you can work in your opening 

statements. Senator Inhofe and I did have our opportunity to do 

that. So that is what we are going to do. 

We are going to continue now hearing from Jonathan Lash, 

President of the World Resources Institute. Welcome. 

[The prepared statement of Chad Holiliday follows:] 

STATEMENT OF CHAD HOLLIDAY, CHAIRMAN AND CEO E.I. DUPONT DE NEMOURS AND

COMPANY, INC

Thank you, Chairman Boxer and Senator Inhofe for convening a hearing today 

on this important topic. I am pleased to be here representing DuPont. I am also 

here as a member of the U.S. Climate Action Partnership (U.S. CAP), a group of 

companies and NGOs who have come together to forge a consensus view regarding 

U.S. action on the challenging issue of climate change. 

At DuPont our goal is sustainable growth, which we define as the creation of 

shareholder and societal value while reducing our environmental footprint along the 

value chains in which we operate. Our sustainable approach to climate change is 

informed, in part, by our experience with chlorofluorocarbons in the 1980s. When 

atmospheric research on ozone depletion led to the Montreal Protocol and an international agreement to phase out the use of CFCs, DuPont led in that effort, and 

used our science to develop better replacement materials. 

In the course of that work DuPont became more aware of the potential business 

and environmental implications of climate change. We believe that the science is 

sufficient to compel prudent action. Since 1991 we have reduced our own greenhouse 

gas emissions by 72 percent globally, and avoided $3 billion in energy costs. By 

2015, we will further reduce our greenhouse gas emissions by 15 percent from a 

base year of 2004. 

DuPont will continue to do its part, using our science to bring new products to 

market that help others reduce their emissions. These sustainable solutions include 

alternative energy sources such as photovoltaic solar cells and next generation 

biofuels, value-adding materials produced from agricultural feedstocks rather than 

petroleum like our DuPontTM Sorona® polymer fiber and biofuels, and energy efficiency aids such as next generation refrigerants and DuPontTM Tyvek®

HomeWrap®. In addition, DuPont made a corporate commitment to acquire at least 

10 percent of our power from renewable energy sources by 2010, and we are already 

more than halfway there. 

While members of U.S. CAP have a range of reasons for joining the coalition, from 

a sense of the strength of the science to a desire for greater business certainty, we 

all believe that there is a leadership role for the U.S. to play in addressing this serious global issue. Prompt action by Congress is needed to enact a market-based program to reduce greenhouse gas emissions that is environmentally effective and economically sustainable. 

Many of our members have already taken extensive voluntary actions to address 

their own greenhouse gas emissions. But voluntary efforts alone will not solve the 

problem—we need sound policy that takes broad, coordinated action across the entire economy. To achieve this, climate protection policy must be coupled with U.S. 

energy policies that result in diverse and adequate low-carbon energy supplies. 

The U.S. CAP principles are built around the following central themes. 
18 

1. Clear and strong near- and mid-term goals are important to prepare us for the 

long term reductions that will be needed. 

2. Action across the entire U.S. economy will be required. However, one size does 

not fit all, and different approaches and timeframes may be required for different 

sectors of the economy. 

3. Any solution must be economically sound, and harness the power of the market. 

A Federal program should include market mechanisms such as cap and trade, and 

additional policies and measures such as energy efficiency standards. 

4. We must drive innovation and open up new markets by funding aggressive 

technology R&D, demonstration and deployment programs. 

5. We need to encourage early action, and be fair, by recognizing voluntary actions 

taken to reduce emissions, and addressing disproportionate economic impacts that 

may occur to economic sectors, regions of the country, or income groups in the early 

years of a program. 

U.S. CAP has offered detailed recommendations in areas where we have been able 

to reach consensus. In some areas we have identified a range of potential policies 

without attempting to specify the ideal approach. My colleagues with me today will 

address these recommendations in greater detail. 

In closing, DuPont has taken these actions and policy positions because they are 

the right things to do, both for business and the environment. We will continue to 

work hard to bring new products and technologies to market that will help address 

the global climate challenge. But business cannot solve the problem alone. Federal 

legislation will help create the marketplace that will drive innovation, economic 

growth, and environmental progress. DuPont is proud to be part of a growing group 

of businesses who believe that it is time for the U.S. to take action on climate 

change. We appreciate this opportunity to exchange views with you, and look forward to working with you to enact effective legislation. 

STATEMENT OF JONATHAN LASH, PRESIDENT, WORLD 

RESOURCES INSTITUTE 

Mr. LASH. Madam Chair, thank you very much. Distinguished 

members of the committee, thank you for the opportunity to speak 

to you this morning about an issue of compelling national and global significance. 

I will follow Mr. Holliday by trying to summarize some of the key 

U.S. Climate Action Partnership recommendations. Our starting 

point is a goal in terms of emissions levels and a goal in terms of 

global concentrations of greenhouse gases. We set a range, 450 to 

500 parts per million, because there is growing evidence that concentrations above those levels would create large-scale adverse impact to human populations, the natural environment and increase 

the risk of unpredictable and abrupt climate change. 

In light of that goal, we recommend a pathway with targets to 

slow, stop and then reverse the growth of U.S. emissions, achieving 

emissions levels between 100 percent and 105 percent of today’s 

levels within 5 years of enactment, between 90 percent and 100 

percent of today’s levels within 10 and between 70 and 90 percent 

of today’s levels within 15 years of enactment. Just to be clear, that 

is a 10 to 30 percent reduction from today’s levels by 2022. 

We suggest a long-term goal of reducing emissions by 60 to 80 

percent by 2050. There are four reasons to outline this pathway of 

steadily declining emissions. First, it is what is necessary to address the problem of global warming. Second, it provides a clear 

road map of future market conditions for companies making choices 

regarding new technologies and products. Third, it will encourage 

investors to support innovative low-carbon technologies. And 

fourth, it will enhance U.S. credibility in seeking international 

agreement, which is crucial. 
19 

Deep cuts in emissions will require fundamental changes in our 

energy systems over a period of decades, and legislation should 

focus on step-wise, cost-effective actions. Since markets play an important role in shaping behavior, we believe there needs to be a 

price for greenhouse gas emissions for all sectors of the economy. 

Our environmental goal and economic objectives can best be accomplished through an economy-wide market-driven system that includes a cap and trade program with specific limits on greenhouse 

gas emissions. 

Cap and trade programs in the past, like the SO2 program that 

Congress enacted in the Clean Air Act amendments in 1990, have 

demonstrated a track record of creating environmental value at an 

acceptable cost. That program was being debated in the Congress. 

There were many who thought the costs of controlling acid rain 

would ruin U.S. competitiveness. It did not, and the CO2 cap and 

trade program will not. 

According to the venture capitalist John Doerr, who endorses cap 

and trade as a solution to global warming, ‘‘The choice is clear. Are 

we going to innovative and prosper or stagnate and suffocate?’’ 

Cap and trade provides both certainty and flexibility. Sources 

can choose whether to make reductions to buy credits. Innovators 

can invest in technology to produce and sell excess credits. Cap and 

trade creates a market that chooses the best solutions. 

Just as a robust market can reduce the costs of reductions, there 

are several other program design features that can also help to reduce cots. One is the establishment of an offsets program, verified 

emissions reductions that are made by companies or farmers or 

other sources of emissions that are not within the cap but can be 

sold to regulated sources. Massachusetts, Oregon and Washington 

already require that power plant operators purchase offsets for a 

portion of their CO2 emissions. The regional greenhouse gas initiative cap and trade program in the northeast will include such an 

offsets program. 

If other control measures are used in climate policy, the U.S. Climate Action Partnership believes that they should be designed to 

first of all enable a long-term price signal that is stable and high 

enough to ensure investment in low and zero emitting technologies; 

second, that ensures the integrity of the emissions cap; third, to 

preserve the market’s effectiveness in driving reductions. 

Possible additional cost control measures might include a safety 

valve, borrowing, a strategic allowance reserve program and preferential allocations, or dedicated funding, technology incentives and 

transition assistance. The emissions allowance allocation system in 

a cap and trade program can be used to help mitigate economic 

transitions costs. Allocations can help regions or groups that are 

relatively more adversely affected by greenhouse gas emission limits and recognize those who have made investments in higher cost, 

low GHG technologies. 

We suggest that a significant portion of allowances could be initially distributed free to capped entities and to economic sectors, 

particularly disadvantaged by a cap, including the possibility of 

funding transition assistance to adversely affected workers and 

communities. Free allocations to the private sector should be 

phased out over a reasonable period of time. 
20 

A word on coal. Coal supplies over 50 percent of our current electricity generation. It will continue to play an important role in the 

future. Policies are needed to speed the transition to low and zero 

emission stationary sources that can cost effectively capture CO2

emissions for geological sequestration. I should note that the U.S. 

CAP didn’t take a position s a group on any particular project, although individual members do have such positions. U.S. CAP also 

recommends moving forward with a fast track of activities and reductions that need not wait for a cap and trade program to begin. 

For example, companies like DuPont that reduce their emissions 

should get early credit for doing so. 

Delay—I have about one paragraph. Delay will increase the costs 

of reductions, but it is important, reductions are important also as 

a stimulus for technologies that will make the U.S. competitive on 

tomorrow’s markets. 

Thank you very much, Madam Chair. 

Senator BOXER. Thank you. 

Next is Steve Elbert, Vice Chair of BP America. Welcome, Mr. 

Elbert. 

[The prepared statement of Jonathan Lash follows:] 

STATEMENT OF JONATHAN LASH, PRESIDENT, WORLD RESOURCES INSTITUTE

Chairman Boxer, distinguished members of the committee, good morning and 

thank you for inviting me to testify about a matter of compelling national and global 

significance. I am Jonathan Lash, President of the World Resources Institute. I appear today both in my capacity as President of WRI and as a partner in the U.S. 

Climate Action Partnership. 

The World Resources Institute provides analysis and builds practical solutions to 

the world’s most urgent environment and development challenges. We work in partnership with scientists, businesses, Governments, and non-governmental organizations in more than seventy countries to provide information, tools and analysis to 

address problems like climate change, and the degradation of ecosystems and their 

capacity to provide for human well-being. 

The United States Climate Action Partnership started from the premise, as Mr. 

Holliday has noted, that we know enough now to know that we need to act on climate change, and that delay will only increase the costs of the action. Since the release of U.S. CAP’s joint ‘‘Call to Action’’ the IPCC has reported its findings based 

on a review of all of the climate science of the last 5 years. As an individual who 

has worked on these issues for several decades, I have to say that report, in its dry 

scientific language, offers as stark a picture of the scale and immediacy of the environmental challenge we face as I have ever seen. 

The 10 companies and four non-profit organizations that make up the U.S. CAP 

partnership reached rapid agreement on the need for an immediate and sustained 

effort to reduce U.S. GHG emissions and change our energy infrastructure. We 

worked hard to develop an interconnected set of recommendations for the general 

structure and key elements of a policy that would implement the six principles described by Mr. Holliday. 

U.S. CAP recommends that legislation be designed consistent with limiting global 

atmospheric concentrations of greenhouse gasses to a level of 450-550 parts per million. There is growing evidence, scientists indicate, that concentrations above those 

levels would create large scale adverse impacts to human populations and the natural environment, and increase the risk of unpredictable and abrupt global changes. 

In light of that goal, we recommend a pathway with targets that slow, stop and 

reverse the growth of U.S. emissions. Specifically, in ‘‘A Call for Action’’ we recommend a mandatory emissions reduction pathway of: 

-Between 100-105 percent of today’s levels within 5 years of rapid enactment 

-Between 90-100 percent of today’s levels within 10 years 

-Between 70-90 percent of today’s levels within 15 years 

So, by 2023, we would have achieved reductions of 10-30 percent. We also recognize that to achieve our long-term goal, we will need to cut emissions by 60-80 percent by 2050. 
21 

There are four reasons why laying out the pathway of steadily declining emissions 

is important: 

• It is what is required to control global warming; 

• It will provide a clear road map of future market conditions for companies making choices regarding new technologies and products; 

• It will encourage investors to support innovative low carbon technologies; 

• It will greatly enhance U.S. credibility in seeking international agreement on 

reductions. 

Figure 1 depicts the U.S. CAP recommended targets and timetables. 

In Figure 2, WRI overlays U.S. CAP targets with legislative proposals under discussion by Congress. U.S. CAP has not reviewed, and does not endorse any specific 

legislative proposal. Figure 2 represents WRI’s analysis alone, and I offer it simply 

as a useful way to understand the importance of long-term goals, and the range of 

outcomes resulting from different proposals. 

Clearly, the emissions reductions that we recommend will require fundamental 

changes in our energy systems over a period of decades. Legislation should focus on 

a step-wise, cost-effective approach—U.S. CAP efforts focused on targets to help set 

us on a course over the next 20-30 years to bring new technologies forward and re-
22 

duce emissions. Harnessing the innovation and entrepreneurial nature of the private sector requires that there be a roadmap and markets open to new technologies. 

Since markets play an important role in shaping behavior, we believe there needs 

to be a price for GHG emissions for all sectors of the economy. 

Our environmental goal and economic objectives can best be accomplished through 

an economy-wide, market driven approach that includes a cap and trade program 

with specific limits on greenhouse gas emissions. To offer the most reduction opportunities, we recommend that the program should cover as much of the economy as 

possible through either an upstream or hybrid program with stationery sources regulated downstream. 

Cap and trade programs like the SO2 program in the Clean Air Act have a demonstrated track record of creating environmental value at acceptable economic cost. 

As the program was being debated in Congress, there were many who thought the 

costs of controlling acid rain would ruin U.S. competitiveness. It did not, and CO2

trading will not. According to venture capitalist John Doerr, who endorses cap and 

trade, ‘‘The choice is clear: Are we going to innovate and prosper, or stagnate and 

suffocate?’’ 

An economy-wide cap and trade program will allow companies to review their options to control greenhouse gas pollution by making process changes, changing fuel, 

or purchasing allowances from other entities that can more cost-effectively cut emissions. This flexibility lowers the cost to the economy, and with a declining cap on 

overall pollution levels, it effectively achieves its environmental goals. For those sectors that are insensitive to price signals or that face market barriers, we recommend 

sector specific policies—my U.S. CAP colleagues will speak more to some of these 

recommendations in a moment. 

Cap-and-trade provides both certainty and flexibility. Sources can choose whether 

to make reductions or buy credits. Innovators can invest in technology to produce 

and sell excess credits. Cap-and-trade creates a market that chooses the best solutions. 

Just as a robust market can reduce costs, there are several other program design 

features that can help do that as well—one is the establishment of an offsets program. These are verified emissions reductions that are made by companies, farmers 

or other sources of emissions not regulated under the cap. The offsets must be real 

reductions that are verifiable, permanent and enforceable. 

Massachusetts, Oregon and Washington already require power plant operators to 

purchase offsets for a portion of their CO2 emissions and the Regional Greenhouse 

Gas Initiative cap and trade program in the Northeast will include an offsets program. Several years ago, WRI offset our emissions by helping a school in Oregon 

invest in a new high efficiency boiler. They had no funds for this upgrade which 

could offer significant emissions reductions. The new boiler reduced their energy 

costs, and we got ‘‘credit’’ for the environmental improvement. This type of program 

can be very cost-effective. 

If other cost control measures are used in climate policy, U.S. CAP believes they 

would need to be designed to: 

-Enable a long-term price signal that is stable and high enough to ensure that 

the investments in low and zero emitting technologies are not undercut. 

-Ensure that the integrity of the emissions cap 

-Preserve the market’s effectiveness in driving reductions, investment and innovation. 

Possible additional cost control measures include, but are not limited to, a safety 

valve, borrowing, strategic allowance reserve program, preferential allocations, dedicated funding, technology incentives and transition assistance. 

An emission allowance allocation system in a cap and trade program can help 

mitigate economic transition costs. Allocations can help the regions or groups relatively more adversely affected by GHG emission limits and recognize those who 

have made investments in higher cost, low-GHG technologies. 

A significant portion of allowances should be initially distributed free to capped 

entities and to economic sectors particularly disadvantaged by a cap, including the 

possibility of funding transition assistance to adversely affected workers and communities. Free allocations to the private sector should be phased out over a reasonable period of time. 

U.S. CAP also recommends moving forward with a fast track of activities and reductions that need not wait for the cap and trade program to begin. For example, 

companies that can reduce their emissions now should get credit for doing so, and 

those that have been leaders to date should receive credit for early action. 

We recommend legislation should establish a national registry no later than the 

end of 2008. In addition, the fast track policy program should establish a program 

that offers credit for early action, support aggressive technology research and devel-
23 

opment, and include policies that discourage new investments in high-emitting facilities and accelerate deployment of zero and low-emitting technologies and energy 

efficiency. We recommend these fast track actions begin within one year of enactment. 

We must act now if we are to preserve all our options for cost-effective greenhouse 

gas reductions and engage the international community. We in the U.S. must take 

the first step by reducing our own emissions. And we hope Congress will urge the 

Administration to re-engage the international community at it discusses post-2012 

policies. International cooperation is necessary, and can also help to improve costeffectiveness, but U.S. action is imperative from both an environmental and political 

perspective. 

Thank you for the opportunity to join you today to share my thoughts and some 

highlights of the U.S. CAP recommendations. 

STATEMENT OF STEPHEN A. ELBERT, VICE CHAIRMAN, BP 

AMERICA, INC. 

Mr. ELBERT. Thank you very much, Madam Chairman, members 

of the committee. Thank you very much for inviting me to participate in this hearing on the U.S. Climate Action Partnership report. 

I am Steve Elbert, Vice Chairman of BP America. I am pleased 

to be here today to express BP’s support for the adoption of a mandatory and national climate change control program. I am going to 

focus my remarks on the important role of technology and policy 

design and the necessity to incorporate mechanisms that fairly address the various components of the transport sector. 

In 1997, BP was the first oil and gas company to urge precautionary action on climate change. Since then, we have been active in addressing climate change through both open discussions on 

policy alternatives as well as through concrete business action. In 

1998, the company set voluntary targets to reduce its own emissions. By 2001, our greenhouse gas emissions were dropped by 10 

percent below our 1990 levels, and we have since continued to improve our emissions performance through energy efficiency projects. 

Our investment in energy efficiency will total approximately $450 million by 2010. That investment has already returned approximately $1.6 billion through the end of 2005 through reduced 

energy costs. We expect to see continued energy and cost savings 

in coming years. Our experience demonstrates that energy efficiency is a cost-effective way of reducing greenhouse gas emissions. 

In addition to focusing on our own emissions we are focusing on 

developing low carbon power. That includes natural gas, hydrogen, 

biofuels, solar and wind technologies. That is why BP is so pleased 

to be a member of this first of a kind partnership of major 

industrials, environmental organizations and Wall Street to call for 

a mandatory climate change program. U.S. CAP’s report, A Call for 

Action, is an important milestone because of the diversity of its 

members who were able to reach a very quick consensus opinion 

recognizing the urgent need to adopt comprehensive climate policy. 

All of us are committed to working with the President, Congress 

and other stakeholders to enact well designed national legislation 

to slow, stop and reverse the growth of greenhouse gas emissions. 

You have already heard from some of my U.S. CAP colleagues 

about many of the areas we have reached consensus on policy principles and recommended actions and frameworks for mandatory national policy. One of those design principles concerns the critical 

role that technology must play to reach the goal of stabilizing at-
24 

mospheric concentrations of carbon dioxide at the 450 to 550 part 

per million by 2050. 

In order to slow carbon emissions in the near term, we must deploy the most cost-effective technologies that are available today to 

improve energy efficiency and reduce emissions. We must also develop new technologies for the longer term to stop and reverse the 

growth of these emissions. For that to happen, we need design policies that stimulate private investment into research, development 

and deployment. We believe this is best accomplished through the 

establishment of a market value for greenhouse gas emissions. 

The U.S. CAP members agree that in addition to developing the 

long-term price signals associated with a carbon price, the parallel 

and complementary policies will be required in the early years to 

stimulate capital investment. A combination of these policies will 

provide the framework necessary for both short-term action using 

existing technologies and the future research and development to 

achieve the so-called game changing technological breakthroughs. 

As the largest oil and gas producer in the United States and one 

of the largest retailers of transportation fuels, BP believes that all 

emitting sectors of the economy, including the transportation sector, both fuels and vehicles, must be included in nay national climate change policy. The U.S. CAP has identified a number of areas 

for consideration and we continue to work on policy options to address this very complex sector. We believe that parallel policies 

that address fuel specifications, vehicle design and customer behavior are necessary to achieve the reductions in emissions in the 

transport sector. BP and the U.S. CAP will continue to work with 

those who are committed to identifying cost-effective environmentally and economically sound solutions. 

We believe that addressing the risks of global climate change is 

good for our customers and good for our shareholders. And we are 

convinced it is possible to develop legislation that will enable us to 

stabilize the climate and meet the energy needs of the country. But 

we need technological innovation to break the link between energy 

consumption and carbon emissions and still maintain strong economic growth. That is why BP is investing $8 billion over the next 

10 years in BP Alternative Energy. We are investing in new solar 

technologies, wind power, hydrogen power and carbon capture with 

sequestration and state-of-the-art gas turbine technology. 

Through these investments, we expect to reduce CO2 emissions 

by 24 million tons by 2015. That is roughly the equivalent of making the city of Chicago carbon free. In addition, we have recently 

announced a $500 million research program to be housed at the 

University of California Berkeley and the University of Illinois. 

This energy biosciences institute will perform ground-breaking research aimed at applying biotechnology to production of new and 

cleaner energy, initially focusing on renewable fuels. This research 

will focus on every aspect of biofuels value chain from feedstocks 

and enzymes to conversion processes and onto new fuels. It will inform the actions of our own biofuels business segment and supplement the partnership we announced last year with DuPont, to introduce a new fuel, biobutanol. 

We believe that strong support from the Government is necessary to spur innovation and that will in turn increase U.S. en-
25 

ergy security and create new opportunities to boost U.S. competitiveness in the world. We look forward to working with the committee and others to help develop the legislation that will make 

this happen. 

Thank you very much, Madam Chairman. I look forward to answering any questions the committee may have. 

Senator BOXER. Thank you very much, Mr. Elbert. 

And now on the other side of this, the next three witnesses, I 

want to welcome Kevin Book, Senior Analyst, Vice President, 

Friedman, Billings, Ramsey and Company. 

[The prepared statement of Stephen A. Elbert follows:] 

STATEMENT OF STEPHEN A. ELBERT, VICE CHAIRMAN, BP AMERICA, INC. 

Madam Chairman, members of the committee, thank you for inviting me to participate in this hearing on the U.S. Climate Action Partnership report. I am Steve 

Elbert, Vice Chairman of BP America Inc. I am pleased to be here today to express 

BP’s support for the adoption of a mandatory and national climate change control 

program. I will focus my remarks on the important role of technology in policy design and the necessity to incorporate mechanisms to fairly address the various components of the transport sector. 

In 1997, BP was the first oil and gas company to urge precautionary action on 

climate change. Since then, we have been active in addressing climate change 

through open discussions on policy alternatives and through business action. In 

1998, the company set voluntary targets to reduce its own emissions. By 2001, our 

GHG emissions were 10 percent below 1990 levels and we have since continued to 

improve our own GHG emissions performance through energy efficiency projects. BP’s investment in energy efficiency will total approximately $450 million by 2010. That investment has already returned approximately $1.6 billion through the 

end of 2005 through reduced energy costs. We expect to see continued energy and 

cost savings in the coming years. As our experience demonstrates, energy efficiency 

is a cost-effective way of reducing greenhouse gas emissions. 

In addition to curbing our own emissions, we are focusing on developing low carbon power, including natural gas, hydrogen, biofuels, solar and wind technologies. 

That is why BP is so pleased to be a member of this first of a kind partnership 

of major industrials, environmental organizations, and Wall Street to call for a mandatory climate change program. U.S. CAP’s report, ‘‘A Call for Action,’’ is an important milestone because of the diversity of its members who were able to reach a consensus opinion recognizing the urgent need to adopt comprehensive climate policy. 

All of us are committed to working with the President, Congress, and all other 

stakeholders to enact well designed national legislation to slow, stop and reverse the 

growth of greenhouse gas emissions. 

You have already heard from some of my U.S. CAP colleagues about many of the 

areas where we have reached consensus on policy principles and recommended actions and frameworks for a mandatory national policy. 

One of those design principles concerns the critical role that technology must play 

to reach the goal of stabilizing atmospheric concentrations of CO2 at 450-500 parts 

per million by 2050. 

In order to slow carbon emissions in the near term, we must deploy the most costeffective technologies that are available today to improve energy efficiency and reduce greenhouse gas emissions, while developing new technologies for the longer 

term to stop and reverse greenhouse gas emissions. 

For that to happen, we need to design policies that stimulate private investment 

into research, development and deployment. We believe this is best achieved 

through the establishment of a market value for GHG emissions. The U.S. CAP 

members agree that in addition to developing the long term price signals associated 

with a carbon price, parallel and complementary policies will be required in the 

early years to stimulate capital investment. 

A combination of these policies will provide the framework necessary for both 

short term action using existing technologies and future research and development 

to achieve game-changing technological breakthroughs. 

As the largest oil and gas producer in the United States, and one of the largest 

retailers of transportation fuels, BP believes that all major emitting sectors of the 

economy, including the transportation sector—both fuels and vehicles—must be included in any national climate change policy. The U.S. CAP has identified a number 
26 

of areas for consideration, and we continue to work on policy options to address this 

complex sector. 

We believe that parallel policies that address fuel specifications, vehicle design, 

and consumer behavior are necessary to achieve reductions of GHG emissions in the 

transport sector. 

BP and the U.S. CAP will continue to work with those who are committed to identifying cost-effective, environmentally and economically sound solutions. 

BP believes that addressing the risks of global climate change is good for our customers and our shareholders, and we are convinced it is possible to design legislation that will enable us to stabilize the climate and meet the energy needs of the 

country. But we need technological innovations to break the link between energy 

consumption and carbon emissions and still maintain strong economic growth. 

That is why BP is investing $8 billion over the next ten years in BP Alternative 

Energy Company. We are investing in new solar technologies, wind power, hydrogen 

power with carbon capture and sequestration and state of the art gas turbine technology. 

Through these investments, BP expects to reduce CO2 emissions by 24 million 

tons per year by 2015. This is equivalent to making the City of Chicago carbon free. 

In addition, we have recently announced a $500 million research program to be 

housed at the University of California Berkeley and the University of Illinois. 

The Energy Biosciences Institute will perform ground-breaking research aimed at 

applying bio-technology to production of new and cleaner energy, initially focusing 

on renewable biofuels. This research will focus on every aspect of the biofuels value 

chain from feedstocks and enzymes to conversion processes and on through to new 

fuels. It will inform the actions of BP’s biofuels business segment and supplement 

the partnership we announced last year with DuPont to introduce a new biofuel— 

biobutanol. 

These investments on our part and the investments of our U.S. CAP colleagues 

are just a start. 

And we believe that strong support from the Government is necessary to spur innovation that will in turn increase U.S. energy security and create new opportunities to boost U.S. competitiveness around the world. 

We look forward to working with the committee and others to help develop legislation that will result in real emission reductions at the lowest achievable cost. 

Thank you again Madam Chairman and I look forward to answering any questions the committee might have. 

STATEMENT OF KEVIN BOOK, SENIOR VICE PRESIDENT, 

SENIOR ANALYST, FRIEDMAN, BILLINGS, RAMSEY AND COMPANY, INC. 

Mr. BOOK. Madam Chairman, Ranking Member Inhofe and distinguished members of the committee, thank you for the privilege 

of contributing to the important discussion here today. The testimony I will provide is my own and does not represent the view of 

Friedman, Billings, Ramsey and Company. I should also point out, 

as an energy policy analyst for Wall Street clients, I don’t take 

sides so much as I try to help them try and figure out what is 

going to happen next. So I appreciate the opportunity to be here 

participating in what is happening next. 

This had led, by the way, to a number of intellectually honest 

discussions about climate change with policymakers, financial investors and corporate managers. In short, the nature of energy investments may present several challenges for policymakers crafting 

climate change mitigation strategies. As an initial act of conservation, I have cut my written testimony down to three and a half 

pages. So I will be happy to respond to any parts of the written 

record as well. 

Senator BOXER. Mr. Book, we will put your full testimony in the 

record, as well as everybody else’s. 

Mr. BOOK. Thank you. 
27 

Energy investments require significant capital outlays over long 

periods of time, pushing financial returns far into the future. The 

prospect of regulatory change can introduce uncertainty that diminishes investors’ perceptions of value. Forcing corporations to 

offer either higher guaranteed returns on debt or larger portions of 

equity ownership in order to secure financing. High capital costs 

can stall investment or crowd out discretionary R&D spending. 

Second, the energy industry is characterized by large numbers 

that can magnify the impact of policy changes. In 2004, the EPA 

reported that U.S. fossil fuel combustion yielded more than 5,600 

terragrams of carbon dioxide equivalent. More than 1,850 

terragrams came from transportation; nearly 2,300 terragrams 

came from power generation. Keeping in mind that a terragram is 

one million metric tons, a fee of even $1 per metric ton across the 

economy would raise gasoline costs by approximately $1.25 billion 

per year and coal-fired power costs by approximately $2 billion per 

year. 

Third, greenhouse gas emissions and economic output are closely 

linked. The sole annual decrease in U.S. greenhouse gas emissions 

during the past 15 years arrived as a result of the September 11th 

tragedies. Emissions fell 1.3 percent as the growth rate of GDP fell 

from 3.7 percent to 0.8 percent. When President Vladmir Putin 

ratified the Kyoto Protocol in November 2004, Russia’s greenhouse 

gas emissions levels had decreased 32 percent since 1990, with the 

collapse of its industrial base. At $10 per metric ton, that meant 

about $10 billion per year in credit sales, an attractive option for 

a $613 billion economy. 

But this wealth transfer ultimately rewards economic contraction, not the choice to reduce conventional energy production and 

increase green energy capacity. 

Fourth, a tax on the end user consumption of greenhouse gas 

emitting fuels would provide the most economically efficient means 

of limiting emissions. But consumption taxes tend to be regressive 

and may negative impact GDP growth. As a result, many policymakers and stakeholders to this debate support market based cap 

and trade programs that offer corporations the flexibility to choose 

between making new capital investments, purchasing emissions 

credits of shutting down. 

This strategy does have some shortcomings. Regulating corporations may mitigate some regressive income effects. But firms are 

still likely to pass through some portion of higher costs to all consumers. This approach could also weaken the price signals that motivate individuals to alter their consumption behaviors. 

Fifth, unless regulated entities can engage in economic technologically viable green behaviors to earn credits for future use or 

sale, the cap in cap and trade becomes a tax on production that 

court hurt producers with thin margins or small cash reserves. 

Carbon dioxide from fossil fuel combustion makes up more than 80 

percent of U.S. greenhouse gas emissions, far exceeding potential 

offsets available to regulated entities from projects that stem emissions of other gases. 

Science may soon make great strides toward secure underground 

carbon dioxide sequestration. But this option is not available to 

U.S. emitters today. 
28 

Sixth, safety valves to protect economic growth could undermine 

emissions market dynamics. Because a safety valve price would 

need to be by definition lower than the projected market price for 

credits under conditions of scarcity. When prices spike, emitters 

would just pay the safety valve price and continue business as 

usual, unless this price is set so high that it forces the consideration of new capital investment in green technologies that offer 

sustainable production cost advantages. 

Seventh, durability could be a concern. In December 2005, when 

Hurricane Katrina drove gas prices above $14 per million British 

thermal units, Massachusetts and Rhode Island stepped back from 

the regional greenhouse gas initiative. In 2012, Canada may face 

a choice of either paying that 1.3 percent of GDP to purchase credits or disable 30 percent of its GDP to meet its Kyoto targets. Investors are likely to be cautious about the possibility that high 

prices could motivate sovereign defection from or delayed implementation of proposed regulations. 

To conclude, enacting an economy-wide cap and trade system too 

far ahead of the commercialization of cost competitive green alternatives may not be the most stable or efficient way to modify energy use behaviors to address global climate change. There may be 

greater value in providing incentives to the U.S. venture capital, 

private equity and capital markets to deliver cost competitive green 

technologies. Alternatively, it may make sense to take an incremental step with a market based regulation of stationary sources, 

similar to the Clean Air Interstate and Mercury rules, so long as 

it also motivates regulated entities to explore emerging carbon capture technologies. 

Last, ongoing discussion may be further informed by an analysis 

of the comparative national and global economic costs of inaction 

and limited action vis-a-vis any comprehensive emissions control 

program. 

Madam Chair, this concludes my prepared testimony. I look forward to any questions. 

Senator BOXER. Thank you, sir. 

Our next speaker is Mr. Fred Smith, President of the Competitive Enterprise Institute. Welcome. 

[The prepared statement of Keven Book follows:] 

STATEMENT OF KEVIN BOOK, SENIOR VICE PRESIDENT, SENIOR ANALYST FRIEDMAN, 

BILLINGS, RAMSEY & COMPANY, INC. 

Thank you, Madam Chairman, Ranking Member Inhofe and distinguished members of the committee for the privilege of contributing to the important discussion 

taking place here today. The testimony I will provide is my own and does not represent the viewpoint of my employer, the Arlington, Virginia-based investment bank 

Friedman, Billings, Ramsey & Company, Inc. 

As an energy policy analyst for Wall Street institutional clients, I evaluate potential investment impacts of Government and regulatory actions for the men and 

women who manage other people’s money. This affords me an opportunity to engage 

financial investors, corporate management teams and policymakers in intellectually 

honest discussions regarding the challenges of balancing environmental stewardship 

with economic growth and national security. 

My testimony today addresses three areas relevant to discussion regarding U.S. 

greenhouse gas emissions reductions: the nature of energy investments; potential 

unintended consequences related to market-based regulatory frameworks; and the 

durability of such frameworks when sovereigns confront serious economic hardship. 
29 

1IPCC methodology represents total emissions in terms of their ‘‘global warming power’’ using 

a standard unit of grams of carbon dioxide equivalency. By this mechanism, methane is 21 times 

more heat-trapping, making one gram of methane equivalent to 21 grams of CO2. Total U.S. 

greenhouse gas emissions in 2004 were 7,074.4 TgCO2E. Source: EPA Inventory of Greenhouse 

Gas Emissions and Sinks, 1990-2004, released April 2006. Table ES-3. 2EIA Electric Power Annual With Data for 2005, updated November 9, 2006. 

3According to EIA Fuel and Energy Source Codes and Emissions Coefficients, burning one 

short ton (2,000 pounds) of anthracite yields 3,852 pounds of carbon dioxide. The ratios are higher for bituminous (4,931 lb/short ton) and lower for subbituminous (3,715 lb/short ton) and lignite (2,791 lb/short ton). The 2:1 ratio offers a convenient back-of-the-envelope estimate for discussion purposes. Note that carbon dioxide values are usually expressed in metric tons (2,200 

pounds). 

I. THE NATURE OF ENERGY INVESTMENTS

Energy investments require significant capital outlays over long periods of time, 

pushing returns for financial investors far into the future. The prospect of significant changes to regulations governing energy sector investments can introduce uncertainty that diminishes investors’ perceptions of value. A dollar today, after all, 

is worth a dollar. A dollar next year is worth less than a dollar today because today’s dollar could earn a year’s interest in a bank account in the meantime. The 

80 percent possibility of a dollar next year is worth still less. 

Financial investors seek returns that outperform industry benchmarks. An investor’s charter or institutional mandate may define the class and type of portfolio assets in which he or she might invest. These choices may vary considerably across 

different firms, funds and asset classes but, whatever the criteria, timeframe or 

style involved, investors generally seek to allocate the capital entrusted to their care 

to the highest-yielding investments among competing alternatives. 

Capital-intensive firms compete for investor dollars to fund their operations. 

When investor perceptions of project value diminish, corporations must offer investors either higher guaranteed returns (in the case of debt) or larger portions of ownership (in the case of equity) in order to secure financing. When securities issuers 

and institutional investors cannot agree, investment may stall. When issuers face 

higher costs of capital for essential investment, it can deter discretionary spending 

on research and development and hurt long-term competitiveness. 

Cost-of-capital concerns are unlikely to be the only reason why a number of emissions-intensive energy and industrial producers have asked Congress to quickly 

enact clear and enduring greenhouse gas emissions controls; by the same token, it 

is reasonable to assume that these concerns do play a role in corporate decisionmaking. 

Other stakeholder communities have called for urgent action on climate change. 

Several environmental advocacy groups warn that recent warming trends may lead 

to irreversible feedback loops unless Governments can slow, stop and reverse global 

anthropogenic emissions in the near term. Still others have suggested that U.S. 

leadership might promote more-rapid uptake of new emissions standards by U.S. 

trading partners, including less-developed economies that are currently exempt from 

the Kyoto Protocol. Leaving aside the question of whether scientific data demand 

a rush to action, the nature of energy investments may present several challenges 

for policymakers considering actions to address climate change. 

First, the energy industry is a world of large numbers and vast quantities that 

can magnify the impact of policy changes. According to 2004 EPA greenhouse gas 

emissions data (the most recent available), U.S. fossil fuel combustion yielded 

5,656.6 TgCO2E (teragrams of carbon dioxide equivalent)1. Of this, 1,860.2 TgCO2E 

came from transportation and 2,290.6 TgCO2E came from electricity generation. The 

corresponding consumption data are also awe-inspiring. Our Nation uses more than 

20 million barrels of oil each day and light-duty vehicles operating on American 

roads consume approximately 140 billion gallons of gasoline each year. Given that 

gasoline combustion yields approximately 20 pounds of CO2 per gallon, these numbers add up quickly, making the annual carbon footprint of U.S. motor gasoline approximately 1,250 TgCO2E. 

This means that an economy-wide $1/metric ton CO2 charge, whether as a tax or 

as a cost of purchasing emissions credits, would increase the cost of gasoline by approximately $1.25 billion per year. Likewise, coal-fired power plants generated approximately two billion megawatt-hours of electricity using approximately one billion tons of coal in 2005.2 Because the combustion of one [short] ton of coal yields 

approximately two metric tons (2,000 kg) of CO2 charging coal-fired generators $1 

per metric ton of CO2 would increase costs by approximately $2 billion per year at 

current consumption levels.3
30 

4These prices could potentially normalize somewhat if USDA early planting reports suggest 

new acreage has come on-stream. 5Inventory of Greenhouse Gas Emissions and Sinks, 1990-2004, released April 2006. Table 

ES-8. 6Source: Bureau of Economic Analysis. 

7U.N. Framework Convention on Climate Change, Highlights from Greenhouse Gas (GHG) 

Emissions Data for 1990-2004 for Annex I Parties, p. 16, released November 2006 Chinese emissions reached 3,222.4 TgCO2E in 2002, making it the world’s second largest source of greenhouse gases. Between 2002 and 2004, automobile ownership rose another 30 percent and, during 

that period, greenhouse gas emissions levels rose to 4,707.3 TgCO2E. 

Second, recent history illustrates how policy changes that appear to modify small 

components of energy use may also meaningfully impact the economics of related 

and supporting industries. The Renewable Fuels Standard established by the Energy Policy Act of 2005 and the corresponding withdrawal of MTBE from the Nation’s fuel supply increased the ethanol content of gasoline from approximately 3 

percent to approximately 4.1 percent over the course of a year, a modest change. 

Although gasoline prices rose dramatically during periods of ethanol scarcity at the 

height of the summer driving season, this effect disappeared by the end of 2006 and 

gasoline prices have resumed their traditional relationship to crude prices and refinery margins. On the other hand, the year-on-year impact on corn prices was much 

starker. Actual corn prices realized by farmers in December 2006 rose to almost $3/ 

bushel, more than a 50 percent increase above year-earlier prices of $1.92/bushel in 

December 2005.4

Third, the growth rates of energy use, greenhouse gas emissions and economic 

output tend to be closely correlated, although developed economies tend to operate 

more efficiently on a per-unit CO2 basis. The U.S. economy currently grows faster 

than the growth rate of its energy use, fossil fuel use and overall greenhouse gas 

emissions (3.0 percent versus 1.2 percent, 1.2 percent and 1.1 percent, respectively).5 On the other hand, the sole year of carbon emissions reductions during the 

past fifteen years arrived as a result of the September 11, 2001 terrorist attacks 

and associated economic losses—annual greenhouse gas emissions fell 1.3 percent 

and the growth rate of GDP fell from 3.7 percent to 0.8 percent6. 

Russia provides an even more marked example. Russian President Vladimir Putin 

ratified the Kyoto Protocol on November 5, 2004, fulfilling the second of two tests 

required under the treaty before its cap-and-trade system acquired the binding force 

of international law: a minimum of 55 countries had to commit to participate and 

the participating countries had to represent at least 55 percent of the world greenhouse gas emissions levels in 1990 (Russian participation contributed 17.4 percent 

of 1990 greenhouse gas emissions towards the cumulative total of nearly 62 percent). According to the U.N., Russian greenhouse gas emissions levels decreased 32 

percent (from 2,974.9 TgCO2E to 1,944.8 TgCO2E) between 1990 and 2004 with the 

collapse of Russia’s industrial economy.7 At a credit price of $10/metric ton of CO2, 

this lost capacity has a potential value of $10 billion per year in emissions credits 

sales, an attractive financial choice for a Nation that generated $613 billion in economic output in 2004. On the other hand, this wealth transfer ultimately rewards 

economic contraction instead of providing an incentive for Russia to reduce its 

‘‘brown’’ (conventional) energy production and increase its ‘‘green’’ energy production. 

In developing economies, income increases can spur greater transportation and 

electricity use of fossil fuels without the declining carbon intensity of GDP demonstrated by the U.S. In the absence of domestic reforms, it appears that China’s 

transportation-related carbon emissions growth will continue to accelerate in the future, once that Nation’s highway system (which essentially doubled in size between 

1990 and 2003, with most of that growth during the final 4 years) expands to support the approximately 600 percent increase in per capita personal income and licensed drivers and more than fourfold growth in motor vehicles over the same period of time. Already, economic expansion has led to tenfold growth in Chinese 

greenhouse gas emissions between 1980 and 2000 and Chinese emissions reached 

3,222.4 TgCO2E in 2002, making it the world’s second largest source of greenhouse 

gases. Between 2002 and 3004, automobile ownership rose another 30 percent and, 

during that period, greenhouse gas emissions levels rose to 4,707.3 TgCO2E. 

Finally, policymakers may wish to consider that Washington timelines are often 

shorter than those that govern energy projects. Congress appropriates money on an 

annual basis and reconvenes every two years. Presidential terms are only 4 years 

long and the Federal Government balances its budget in five-year windows. Even 

the six-year terms of U.S. Senators fall short of the time periods that may be required to approve permits for new refineries (a seven-year story), to produce oil from 
31 

the Arctic National Wildlife Refuge (optimistically, 8 to 10 years) or to fully upgrade 

the efficiency of the U.S. passenger vehicle fleet (potentially 15 to 20 years). 

II. UNINTENDED CONSEQUENCES OF MARKET-BASED SYSTEMS

A tax on the end-user consumption of greenhouse-gas-emitting fuels would provide the most economically efficient means of limiting emissions. The shortcomings 

of this approach have been well documented. Consumption taxes tend to be regressive and, depending on their magnitude, they may negatively impact the growth 

rate of GDP. Significant new taxes also appear politically unviable at the present 

time. In light of these shortcomings, many policymakers and industry stakeholders 

have supported market-based cap-and-trade programs. 

Cap-and-trade programs offer several advantages. In theory, a market-based 

mechanism for emissions reductions will offer corporations the flexibility to choose 

between undertaking new capital investment, purchasing emissions credits from 

cleaner producers or shutting down production entirely. Cap-and-trade systems 

should reward those participants who outperform established targets or meet goals 

ahead of scheduled dates by allowing them to monetize accumulated credits through 

sale to other entities. Imposing a cap-and-trade program is unlikely to provoke an 

adverse capital markets response, either. To the extent that financial investors can 

account for emissions credits or capital projects within their revenue and cost projections, a clearly-defined cap-and-trade trajectory can be factored into long-term equity valuations. 

But cap-and-trade mechanisms also have shortcomings. The architecture of a 

credit-trading system requires policymakers to consider which entities will be regulated, how allowances will be allocated and whether or not to provide for a ‘‘safety 

valve’’ in the event that market prices for credits materially exceed entities’ economically sustainable ability to pay. The Senate Energy and Natural Resources 

Committee treated these topics during its climate summit on April 4, 2006. Testimony offered during that event appeared to suggest regulating mobile sources upstream (at the refinery or extraction site) in order to facilitate implementation and 

stationary sources downstream (at the smokestack) to encourage end-user innovation. 

Although placing the regulatory burden on the shoulders of corporations could 

mitigate regressive effects for low-income consumers, it may not eliminate them entirely: power producers and oil companies are likely to pass through some portion 

of higher costs to the entire consumer population. This approach could weaken the 

price signals that might motivate individuals to alter their consumption behaviors. 

The principle of cap-and-trade is likely to work best under circumstances where 

regulated entities can engage in economic, technologically-viable, green behaviors to 

earn credits for future use or sale, as in the case of the scrubber installations during 

phase I of the Acid Rain Program and, more recently, the hundreds of thousands 

of megawatts of scrubbed capacity planned by U.S. coal-fired power plants in order 

to meet Clean Air Interstate Rule targets. Otherwise, a cap becomes, in practical 

terms, a tax on production that may impose the greatest impact on producers with 

the thinnest margins or the smallest cash reserves. 

Carbon dioxide (CO2) from fossil fuel combustion makes up more than 85 percent 

of U.S. greenhouse gas emissions, far outstripping potential offsets available to regulated entities from projects that stem emissions of gases like landfill methane, or 

PFCs and HFCs from industrial production. Although science may soon make great 

strides towards secure sequestration of CO2 in underground reservoirs, this option 

is not available to U.S. emitters today. Likewise, it may be years or decades before 

the Nation can rely upon predominantly green energy sources that replace today’s 

conventional energy production, like second generation, waste-based biofuels, electric cars powered by hydrogen fuel cells and new electric generating capacity from 

nuclear power plants. 

Several legislative proposals address the challenge of implementing a cap-andtrade system within an economy that depends on today’s industrial technology by 

allocating large blocks of credits to existing emitters in early years and decreasing 

these allocations in subsequent years. This, too, may lead to unintended consequences. During the 1995-1999 first phase of Acid Rain Program sulfur dioxide 

(SO2) credit trading, coal-fired emissions sources in operation prior to 1996 were 

given allowances of 2.5 lb. SO2 per million British thermal units (mmBtu). Although 

the biggest emitters faced the lowest per-Btu cost of retrofitting and quickly 

amassed a bank of 11.65 million emissions allowances (30 percent of total allocation), most power plants east of the Mississippi preferentially turned to a different 

brown mechanism for meeting their targets (switching to lower-sulfur coal from the 

Powder River Basin) instead of the green choice to install flue gas scrubbers. 
32 

The large bank of emissions allowances kept prices low (in the $100-200/allowance 

range) and gave utilities the freedom to delay capital expenditures, but utilities’ 

wait-and-see strategy later exhibited several weaknesses. First, rail dislocations out 

of the Powder River Basin increased effective fuel costs for utilities by driving demand for sulfur credits. Second, when the 2005 Gulf of Mexico (GOM) hurricanes 

disabled a significant proportion of GOM natural gas production, noncommercial 

traders bet that power utilities would need to fall back on high-sulfur coal to generate electricity, bidding the thinly-traded market for sulfur emissions allowances 

up above $1,500 per ton. 

A similar set of challenges could confront a cap-and-trade mechanism that includes a ‘‘safety valve’’ to protect economic growth. Most safety valve proposals 

would enable regulated entities to pay a defined maximum price per metric ton of 

CO2 emitted in the event that credit prices exceed established thresholds. This may 

present a politically appealing compromise, but it could also undermine the market 

dynamics built into a cap-and-trade system because a safety valve price would need 

to be, by definition, lower than the projected market price for emissions allowances 

under conditions of scarcity. When credit prices spike, the expected result would be 

for regulated entities to pay the safety valve price and continue business as usual, 

unless the safety valve price is set high enough to make emitters willing to consider 

new capital investment in green technologies that would offer regulated entities sustainable production cost advantages. 

III. DURABILITY OF REGULATION

The first Kyoto compliance phase officially begins in 2008 and continues through 

2012, although the EU Emissions Trading Scheme began on January 1, 2005 and 

electronic trading of Kyoto Clean Development Mechanism credits is scheduled to 

begin in April of this year. The first phase of the Regional Greenhouse Gas Initiative (RGGI) commences in 2009 and California’s Global Warming Solutions Act requires enforceable greenhouse gas regulation to begin in 2012. As this august body 

and other Federal authorities continue their deliberations on climate change, recent 

events have led some institutional investors to wonder about the durability of existing and proposed climate change regulatory frameworks, particularly once these 

frameworks begin to require emissions cutbacks sufficiently austere to threaten economic sovereignty. 

Canada’s 1990 greenhouse gas emissions totaled 598.9 TgCO2E. The Kyoto Protocol set Canada’s 2012 target at approximately 563 TgCO2E, a 6 percent reduction 

from 1990 levels. 2004 emissions totaled 758.1 TgCO2E, partly as a result of carbonintensive unconventional oil production in Alberta’s tar sands. Evaluating at 2004 

levels, this puts Canada 195.1 TgCO2E behind pace. If Canada’s emissions continue 

to grow as they did between 2000 and 2004 at 1.15 percent per year, 2012 levels 

could reach 854 TgCO2E, widening the gap against the Kyoto target to 290 TgCO2E. 

If emissions allowances rise as high as they did when the EU Emissions Trading 

Scheme market price peaked at approximately $39/metric ton of CO2 in April 2006, 

Canada’s annual compliance cost could exceed $11.3 billion, or about 1.33 percent 

of GDP. This may seem like a bargain compared to actually reducing emissions, 

however. A November 2006 study by the Canadian Manufacturers and Exporters 

lobby projected that reducing Canada’s GHG footprint to meet its target would result in annual compliance costs in 2012 of $255 billion, representing approximately 

30 percent of GDP. 

In December 2005, as the parties to the RGGI prepared to commit to the regional, 

multilateral emissions reduction pact in the wake of Hurricanes Katrina and Rita, 

Massachusetts and Rhode Island decided not to sign the December 15, 2005 Memorandum of Understanding (although both states rejoined the program earlier this 

year). Massachusetts Governor Mitt Romney justified this move at the time by expressing his concern that power utilities could incur unlimited costs if they exceeded 

emissions limits. Massachusetts had plausible grounds for concern: winter was fast 

approaching and natural gas futures were above $14/mmBtu, a situation that 

threatened to markedly increase State reliance on coal-fired power. 

Investors evaluating the share prices of potentially-regulated entities or considering investment in offset projects or secondary-market emissions credits (as noncommercial traders) are likely to be cautious about the possibility that high prices 

could motivate sovereigns to defect from, or delay implementation of, proposed regulatory mechanisms. 

IV. CONCLUSION

An economy-wide, cap-and-trade system to control greenhouse gases that goes into 

force too far ahead of the development and commercialization of cost-competitive 
33 

‘‘green’’ alternatives may not be the most stable or most efficient mechanism by 

which the United States can modify energy use behaviors in order to address global 

climate change. A market mechanism may give emitters and financial investors 

greater flexibility than a system of direct taxation or strict, per-unit regulation, but 

there may be greater value in providing incentives for the United States’ robust venture capital, private equity and capital markets infrastructure to deliver cost-competitive technological solutions to emissions challenges without imposing nationwide 

caps. Alternatively, it may make sense to take an incremental step by enshrining 

in law a market-based regulation of particulates from stationary sources similar to 

the Clean Air Interstate Rule and Clean Air Mercury Rule in a way that gives regulated entities financial motivations to explore emerging carbon capture technologies. 

Last, ongoing discussion may be further informed by analysis of the comparative national and global economic costs of inaction and limited action vis-a-vis the costs of 

any comprehensive emissions control program. 

This concludes my prepared testimony. 

RESPONSES BY KEVIN BOOK TO ADDITIONAL QUESTIONS FROM SENATOR INHOFE

Question 1. Mr. Book can you provide more insight as to who will be the most 

heavily affected subgroups of the U.S. popuations? Proportional to income, what 

population groups spend the most money on energy? 

Response. Senator Inhofe, in general, Americans whith the lowest disposable incomes will be most affected by increases in the price of power. In addition. those 

States with the highest proportions of coal-fired generation will be most affected by 

the imposition of a surcharge for greenhouse gas emissions. The chart on the nect 

page should help explain this relationship. The data represents statewide averages 

for February 2007 (when I appeared before your committee), although the most recently available population numbers are from July 2005. This should not materially 

affect the conclusions. In short, the 10 States highlighted in yellow (AK, CA, IA, 

MA, ME, NJ, NY, OR, RI, VT) are the least affected by GHG costs for generation. 

The 10 States highlighted in blue (AL, HI, IL, KY, MT, NC, ND, TN, WV, WY) are 

the most affected. 
34 

Question 2. I was struck by your testimony that meeting the Kyoto Protocol by 

reducing emissions would cost Canada $255 billion in 2012, or 30 percent of its 

GDP. This is an astounding figure. it underscores not only how difficult carbon reductions are, but also that many Nations will choose instead to simply transfer 

wealth to other countries. What are your thoughts? 

Response. Thank you for your question Senator. My thoughts are four-fold on this 

issue. 

First, it is my personal view that national security is the foundation of economic 

growth. Safe societies produce stable, equitable and fast-growing economics. It is not 

entirely clear that any one Nation can consider its sole contributions to climate 

change or to environmental security as a part of its national security equation unless it is willing to declare war on another to keep seperate environmental and national security. It os also appropriate to consider the goal of national security as the 

first priority of a sovereign Government, which puts that Government potentially in 

conflict with broader, global goals of climate change abatement and remediation. 
35 

Second, there appears to be a wealth effect associated with climate and environmental stewardship. When economies reach acceptably high average levels of wealth 

and acceptably high minimum levels of social welfare, they can afford to slow the 

rate of change in their growth by internalizing the costs of environmental stewardship, as the United States has done under the Clean Air Act. Healthy air, land and 

water supplies preserve economic gains by preventing the erosion of property values 

and minimizing the social costs of illness and resource insufficiency. 

Third, wealth transfers between emitter Nations and recipient Nations may not 

encounter greater stewardship by the emitter Nation, nor greater capacity for the 

private and public sector emitters within that Nation to envest in less-emitting technologies. 

Fourth, wealth transfers may not benefit, and could potentially harm, the recipient Nation. Autonomous distributions of wealth between an economically fast-growing industrialized Nation (e.g. the United States) and a developing, less-deveoped, 

or recently-diminished economy (e.g. sub-Saharan African Nations or several of the 

former States of the Soviet Union) are unlikely to promote a generalized increase 

in social welfare, economic capacity or environmental stewardship in the Nation 

that receives the money unless factors that promote social stability are already in 

place. The benefits of wealth transferred from the industrialized world to the developing world may be more likely to be misappropriated by Nations in the thrall domestic turmoil or sectarian violence. 

STATEMENT OF FRED L. SMITH, JR., PRESIDENT, 

COMPETITIVE ENTERPRISE INSTITUTE 

Mr. SMITH. Thank you, Chairman Boxer, Senator Inhofe, members of the committee. I am Fred Smith, President of the Competitive Enterprise Institute, a pro-market and as you see, not necessarily pro-business always, policy group. 

CEI examines the wisdom of regulatory policy in a wide array of 

issue areas. As my written testimony notes, CEI believes that the 

risk of global warming must be set off against the risk of global 

warming policies. The proposal to create a carbon cartel advanced 

by the Climate Action Partnership is one of those policy risks, a serious one, I believe. 

America normally puts people in jail who create anti-consumer 

cartels. We do not seek to encourage such behavior, nor do we 

grant such cartels legal protection. Affordable energy, the democratization of the elite privileges of the past we believe has been a 

good thing. Cartel-induced price increases we think are not. 

The Climate Action Partnership, an alliance of environmental 

and business groups, has been promoted as an example of responsible leaders seeking to protect our planet. Perhaps. But when 

businessmen seek politically to achieve what they cannot achieve 

in the marketplace, we should all be a bit skeptical. Judge Stiegler, 

the Nobel price winner, often said that businessmen often believe 

that competition, like exercise, is good for other people. 

America has a tradition of economic interest groups cloaking 

their search for monopoly profits under some convenient moral 

clause. The Baptists and Bootlegger paradigm that I document in 

my testimony, that paradigm explains unfortunately much of 

American politics. I think it explains the rationale of the partnership. 

The partnership of course recommend so-called market mechanisms. The creation of a rationing system that would raise the cost 

of carbon based energy benefiting their preference, their products. 

But markets are institutions that freely allow individuals to exchange on a voluntary basis goods and services. In a market, the 
36 

participants determine both the price and the quantity of the good 

or service involved. 

The proposals pushed by the partnership would have the cap, the 

amount of energy we are allowed to use in our daily lives, determined politically. The goal of such politically contrived markets is 

for Government to steer for the business and consumers to row. 

Some free markets. 

Many advising business have argued that further regulation, 

global warming regulation is inevitable, that business must gain a 

seat at the table, they must seek regulatory certainty. There is a 

naivete in all this, what I have sometimes referred to as Lucy and 

the regulatory football. Lucy holds the ball for the business community, but when they get ready to kick it, it slips out of their grasp. 

Business regs, good ones, bad ones, just fix the regulation and let 

us get back to business. It is an admirable goal in its own way, but 

it is very naive. Business it not about certainty. This is a fool’s 

search. 

An example. Some oil and gas businessmen initially imposed ethanol subsidies, believing that these would destroy energy markets. 

But they soon decided that that was too negative and they signed 

off on a 5 billion gallon ethanol mandate. Did this gain them regulatory certainty? Not really. We are now to a 35 billion gallon mandate, and the discussion of the Farm Bill haven’t even begun. 

An even more sobering attempt is provided by the late and unlimited Enron. That firm was a significant and early champion of 

the efforts now going on to create a carbon cartel. Enron had many 

skills, including great expertise in energy trading, an expertise that 

you in California came to experience more directly. Enron lobbied 

hard for the United States to join the EU in rationing carbon based 

energy. Enron thought, then may have well been corrected, that 

their expertise would allow them to dominate the carbon rationing 

market. Monopolies are always popular from those who manage the 

monopoly. 

The internet, incidentally, is filled with conferences and excited 

language by hedge fund managers who seem pretty skeptical of the 

reality of global warming alarmism but boy, are they excited about 

the profit potential of a massive energy rationing market that will 

operate globally. 

Cap and trade, of course, is going to encounter some practical 

problems. Many of you know it, the partnership is certainly aware 

of those. Firms routinely make rational investments which increase 

energy and material efficiency. Those are good things. But should 

such conventional investments receive extra credits? How can we 

distinguish the business as usual investments that are ongoing all 

the time from the new actions sought by the environmentalists? Of 

course, if everyone were above average, a Lake Woebegon world, 

we would have a more efficient economy. But we haven’t found 

ways to do that in education, we are not likely to find ways of 

doing that in the economy as a whole. 

The European game playing experience with this process is worrisome and should worry all members of this committee under the 

CAP program. Because it is very dangerous to turn loose such a political football in the political environment. Hot air credits, one Nation State playing games another Nation State, a cap and trade 
37 

system would stimulate the same kind of political feeding frenzy 

we have seen in Europe, we have seen in the biofuels area. There 

are major causes, we have heard, of rationing energy. Yet there are 

no obvious gains, even if one accepts the alarmist views of global 

warming. No one is proposing any carbon use curtailment that 

would do anything meaningful to reduce the theoretical threat of 

carbon use. The current proposals are all pain, no gain. The carbon 

cartel will profit, consumers and small business will suffer. Why? 

Business should recognize that the suppression of carbon based 

energy is costly. It was after all the shift from renewable fuels, that 

is wood and charcoal, to carbon fuels, coal, oil and natural gas, that 

triggered the explosive economic growth of the last two centuries, 

almost 1,800 percent in the 20th century. But that growth was also 

accompanied, as people have noted, by a slight warming, about .7 

degrees. If that warming had been prevented, how much economic 

growth would we have been willing to sacrifice for that? 

Research to evolve some non-carbon affordable energy source is 

ongoing, nothing yet on the horizon. Nuclear faces political opposition, wind and solar still remain niche energy sources. 

Senator BOXER. Sir, could you wrap it up? 

Mr. SMITH. I will. What we should be doing is considering auctioning off the credits, considering energy taxes, more honest, more 

transparent. But an even better method would be for business to 

stop playing politics and return to its core role of wealth creation. 

A wealthier world will be better able to address the real problems 

of today in the U.S. and the world, and to essentially increase our 

resiliency to address future risk. It will not enrich some special interests. It is that motivation, the enrichment of special interests, 

not civic virtue, that I fear motivate those pushing for the creation 

of a Government-sponsored carbon cartel. Thank you. 

Senator BOXER. Mr. Hamm, you are Chairman and CEO of Continental Resources, Inc. We welcome you. 

[The prepared statement of Fred L. Smith Jr. follows:] 

STATEMENT OF FRED L. SMITH, JR., PRESIDENT, COMPETITIVE ENTERPRISE INSTITUTE

Thank you, Chairman Boxer and members of this committee for inviting me to 

testify today on the Climate Action Partnership’s recent plan titled ‘‘A Call for Action’’ and what it could do to the American economy. I am Fred Smith, President 

of the Competitive Enterprise Institute (CEI), a free-market public policy group focusing on regulatory issues. I am aware that CEI is regarded as a contrarian voice 

on the science of climate change. However, this hearing is not about the science. 

I am here to talk about the economic effects of the Climate Action Partnership’s policy recommendations, and so I am happy for the purposes of this discussion to accept all the scientific arguments behind their proposals. 

By taking that issue off the table, I hope that we can proceed to discuss the economic issue without the obfuscation of wrangling over the science. I also hope that 

members of this committee will recognize that attempts to allege ‘‘climate 

denialism’’ in response to my points are ad hominem attacks not worthy of consideration. 

The theme of my testimony today is that some business leaders joining with environmental pressure groups to promote a policy does not necessarily mean that the 

policy is good for the economy or for the American people. In general, if a company’s 

stance on an issue appears to be too good to be true, it probably is. Strange alliances 

such as these—businesses allying with lobby groups to demand more regulation of 

those businesses—are actually all too common in history, and the motivation is rarely altruism. 

We are all indebted to Professor Bruce Yandle of Clemson University for introducing us to the concept of ‘‘Baptists and Bootleggers.’’ His theory’s name, first elu-
38 

1‘‘Bootleggers and Baptists: The Education of a Regulatory Economist’’, by Bruce Yandle. Regulation, Viewpoint column, 1983 2For more on this see Ross McKitrick’s paper, ‘‘What’s wrong with regulating carbon dioxide 

emissions,’’ available at http://www.cei.org/pdfs/McKitrick.pdf 

cidated in 1983,1 is meant to evoke 19th century laws banning alcohol sales on Sundays. Baptists supported Sunday closing laws for moral and religious reasons, while 

bootleggers were eager to stifle their legal competition. Thus, politicians were able 

to pose as acting to promote public morality, even while taking contributions from 

bootleggers. 

I shall argue, with evidence, that there appears to be something similar going on 

here. The environmental pressure groups active in the Climate Action Partnership 

are the Baptists, providing a moral screen to the Bootleggers, in this case the energy and manufacturing companies. I shall outline how the policies laid out in the 

Partnership’s ‘‘Call for Action’’ actually stand to benefit the companies at cost to the 

economy and consumers. Then I shall reveal how, by their actions and in their own 

words, the Partnership’s commercial members are fully aware of this. Finally, I 

shall demonstrate how this sort of alliance is unfair and inegalitarian and argue 

that, if legislators and businesses really want to change behavior to reduce greenhouse gas emissions, a much different policy instrument should be preferred. 

Before I begin, though, a quick word on the issue of ‘‘regulatory certainty’’: We 

often hear businesses claiming that they are operating in an area of political risk, 

and that legislation on an issue will give them what they call ‘‘regulatory certainty.’’ 

Yet it is well known that Congress cannot bind its successors and that agencies with 

devolved powers make new rules and regulations and alter existing ones all the 

time. It is nave to think that legislation offers regulatory ‘‘certainty.’’ The only certainty is that regulatory costs will grow unpredictably. The risk of proposed legislation is often far less than that of enacted legislation. 

Let us begin by examining the policy at the heart of the Partnership’s plan, the 

regulatory capping and trading of greenhouse gas emissions. Cap and trade, as it 

is known, is often described as market-based, because there is buying and selling 

involved. This is a misnomer. In fact, cap and trade is an ugly combination of two 

of the greatest ills to affect the market economy over the past 200 years—cartelization and central planning.2

The central planning issue should be obvious. The cap of cap and trade is a target 

for emissions set by Government agencies. The knowledge problem, however, rears 

its ugly head. Those agencies never have enough information to set the cap at the 

right level. All economic decisions involve trade-offs and the trade-offs involved in 

restricting greenhouse gas emissions are mighty indeed. 

We have seen an excellent example in the past few weeks. The mandate that 

every gallon of gasoline sold in this country should have a certain amount of ethanol 

added to it has caused a massive increase in the amount of the U.S. corn crop used 

to make ethanol. In turn, this has caused a sharp rise in the price of tortillas in 

Mexico, leading to all sorts of social problems there. Did the legislators consider this 

unintended negative consequence when they passed the law? I don’t think so. Did 

the agencies that administer the program consider it? I very much doubt it. A greenhouse gas cap would have even more negative consequences. To suggest that we can 

account for all of these is to fall into what the Nobel prize-winning economist 

Friedrich Hayek termed the fatal conceit. There will be costs to an emissions cap 

that no one has yet thought of. 

Turning to the expected economics, the figure below represents a loss to the economy under a carbon cap that we can predict. It is a deadweight loss, reflecting an 

unrecoverable reduction in real incomes caused by the cessation of economic activity. That is a cost to the economy that we can measure. 

Yet it is the remaining economic activity that reveals the dark secret of cap and 

trade; it creates a modern-day cartel—a carbon cartel, or what the Wall Street Journal aptly called BigCarbonCap— with all the negative consequences that go with 

cartelization. When emitters are given permits reflecting their right to emit a certain amount of greenhouse gases, those permits represent a scarcity rent: a new, 

artificial scarcity has been created in something people previously did without 

charge. People will pay for this new right, but the money that is used to pay for 

it is not new money. It represents the capitalized value to existing users of the benefits they get from fossil fuels and the other sources of greenhouse gases. It is already 

accounted for in balance sheets, investment portfolios, collateral for loans and so on. 

That value is now extracted from its current use and sent elsewhere instead—into 

the hands of the carbon cartel. 
39 

This is what advocates of this policy refer to as the wealth that such rationing 

would create. However, transferring wealth from some companies and all consumers 

to special interests does not create new wealth. 

As a result of this cartelization, energy costs rise, consumer prices rise, real wages 

fall, and output and employment fall. We know those are the effects of cartels, 

which is why we used to put the people who set up cartels in jail. Yet the Climate 

Action Partnership wants legal blessing for this new cartel. Any legislation enacting 

cap and trade would actually ennoble a new generation of robber barons and provide 

legal protection for their profiteering activities. 

[Note that in the diagram above, the amount of wealth transferred from consumers to cartel members greatly exceeds the overall loss to the economy. Most 

analyses of the Kyoto Protocol, the McCain-Lieberman bills, and other cap-and-trade 

proposals miss this crucial point. EIA analyses, for example, estimate the impacts 

of carbon policies on energy markets and the macro-economy, but not the wealth 

transfer effects. Cartelization reduces overall economic output, to be sure, but consumers take an even bigger hit.] 

We can actually see this process in operation in Europe as we speak. The European Union’s Emissions Trading Scheme has had a rocky first few years. Yet, according to the latest figures from the U.S. Energy Information Administration, its 

prime achievement has been not a reduction in greenhouse gas emissions—European CO2 emissions continue to rise at a faster rate than America’s since Kyoto was 

agreed to in 1997—but an actual increase in energy prices coupled with vastly increased profits for the utilities who benefited from the creation of the European carbon cartel. In Britain and Germany electricity and gas prices leapt by over 60 percent in 2005. 

If that wasn’t enough, another incentive to businesses to support cap and trade 

comes from the way that it can massively add value to otherwise routine efficiency 

savings. Under the Kyoto Protocol, for example, companies in the developing world 

that reduce output of the greenhouse gas HFC-23 are allocated carbon credits representing the amount of carbon dioxide-equivalent that they reduce. In total the 

amount of credits so allocated are worth about $5.9 billion when sold to countries 

that want those credits. Yet reducing HFC-23 is actually a simple process, achieved 

by installing scrubbers at a modest cost. According to a study published in the jour-
40 

3Michael Wara, ‘‘Is the global carbon market working?’’, Nature 445, 595-596 (8 February 

2007) 4Andrew J. Hoffman, Getting Ahead of the Curve: Corporate Strategies That Address Climate 

Change, Pew Center on Global Climate Change, October 2006, p. 72. 5Someone looking at these numbers might conclude that reducing emissions in general, for 

most companies, is going to be cheap—that we can have Kyoto without tears. What the table 

more likely indicates is that Cinergy is an inefficient producer of electric power. The less efficiently a company converts coal to electricity, the cheaper it will be for that company to reduce 

energy-related carbon emissions. 6EIA, Analysis of Senate Amendment 2028, the Climate Stewardship Act of 2003, http:// 

www.eia.doe.gov/oiaf/analysispaper/sacsa/index.html. 

nal Nature last week3, installation of those scrubbers could have been financed by 

loans or grants at a total cost of about $130 million. Thus almost $6 billion has been 

diverted away from other uses into the pockets of industry in the developing world. 

This is a massively inefficient way of achieving modest emissions cuts. Worse, it has 

now become apparent that China is creating HFCs—with 12,000 times the global 

warming potential of CO2—for the purpose of being paid to destroy them under 

Kyoto. This is what such schemes have always created, from the British in India 

offering bounties for poisonous cobras—which led to mass breeding of the creatures—to the modern-day version of that ploy. 

So let us turn to the companies involved in the Climate Action Partnership, beginning with Duke Energy Corporation, which formed in May 2005 when Duke Energy 

merged with Cinergy. An October 2006 study by the Pew Center on Global Climate 

Change includes an eye-opening table on the per-ton cost of Cinergy’s various greenhouse gas emission reduction projects in 2004.4

The table shows that 97 percent of Cinergy’s emission reductions came from efficiency improvements in its overwhelmingly coal-fired electric generating stations. 

Cinergy’s investment of $1.94 million in efficiency upgrades reduced the company’s 

carbon dioxide (CO2) emissions by 349,882 tons. This works out to a cost of $1.11 

per ton of CO2 reduced.5 Suppose Cinergy were awarded early action credits for 

those reductions, Congress enacts Phase I of the McCain-Lieberman Climate Stewardship Act, and CO2-equivalent permits sell for $15 a ton in 2010 and $45 a ton 

in 2025, as estimated by the Energy Information Administration.6 In that case, 

Cinergy would reap a windfall profit of between 1263 percent and 3990 percent, for 

a much smaller cost incurred, that in many of their markets they have already 

passed along to consumers anyway. 
41 

7DuPont Supports Findings by Intergovernmental Panel on Climate Change: Company Calls 

for Action by Government, Business, February 2, 2007, http://onlinepressroom.net/DuPont/ 

NewsReleases/ 8Intergovernmental Panel on Climate Change, Climate Change 2007: The Physical Science 

Basis, Summary for Policymakers, http://www.ipcc.ch/SPM2feb07.pdf 9Partnership for Climate Action, Positive Returns on Greenhouse Gas Investments: The DuPont Experience with Advancing Environmental Goals, December 2002, http://web.archive.org/ 

web/20040405185605/http:/pca-online.org/our—work/docs/GHG—investment—return.pdf 10EIA, Comparison of Global Warming Potentials from the Second and Third Assessment Reports of the Intergovernmental Panel on Climate Change (IPCC), http://www.eia.doe.gov/oiaf/ 

1605/gwp.html. 11The Energy Information Administration estimates that, under Bingaman’s proposal, ‘‘allowance prices rise from just over $3.70 per metric tons CO2-equivalent in 2012 to the safety valve 

price of $14.18 metric tons CO2-equivalent in 2030.’’ EIA, Energy Market and Economic Impacts 

of a Proposal to Reduce Greenhouse Gas Intensity with a Cap and Trade System, January 2007, 

p. vi, http://www.eia.doe.gov/oiaf/servicerpt/bllmss/pdf/sroiaf(2007)01.pdf. 12Hoffman, Getting Ahead of the Curve, p. 90. 13Hoffman, Getting Ahead of the Curve, p. 102. 

Another telling example is DuPont. In a press release7 timed to coincide with publication of the Summary for Policymakers8 of Climate Change 2007, also known as 

the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, 

DuPont called for legislation to curb greenhouse gas emissions, stating: ‘‘We believe 

that voluntary measures, while constructive, are not sufficient to address an issue 

of this magnitude by themselves.’’ 

A document9 that I retrieved courtesy of Archive.org gives us a peek at DuPont’s 

original business strategy vis-a-vis carbon cap-and-trade schemes. Page 2 of the document (‘‘Positive Returns on Greenhouse Gas Investments,’’ Dec. 2002) reports that 

in the late 1990s, DuPont invested $50 million to reduce nitrous oxide emissions 

from production of adipic acid, a chemical used to manufacture nylon. Nitrous oxide 

is a greenhouse gas (GHG) with roughly 310 times the global warming potential of 

carbon dioxide.10

Here’s the key part: 

‘‘By 2000, DuPont had reduced GHG emissions across the company by 63 percent 

from the base year of 1990, for a reduction equally 56.2 million metric tonnes (on 

a CO2-equivalent basis). In a hypothetical market for emission credits, assuming 

that (a) DuPont was awarded a tradable allocation amounting to 90 percent of its 

1990 emissions, and (b) an average market price of $10 per metric tonne of CO2, 

then the GHG reductions as of 2000 have a potential market value of $472 million 

per year—an extraordinary return on investment.’’ 

Extraordinary indeed! Under a mild cap-and-trade program, similar to the one envisioned in Sen. Jeff Bingaman’s draft legislation,11 DuPont would realize more 

than a 900 percent return on investment. 

The Pew Center study notes that in 2004, DuPont sold its nylon business, Invista. 

This removed Invista’s emissions from DuPont’s baseline as well as terminated 

DuPont’s ownership of the related emission reductions. However, the Pew report 

also notes that DuPont, through a manufacturing process, eliminated emissions of 

HFC-23, ‘‘an unintended byproduct from the production of HCFC-22, a common refrigerant.’’12 HFC-23 has 12,000 times the global warming potential of CO2. The 

Pew report does not tell us how many tons of HFC-23 DuPont reduced, or at what 

cost per ton. Perhaps DuPont would be willing to share this information with the 

committee. If so, it would then be a simple matter to calculate how many carbon 

dioxide-equivalent permits DuPont would stand to gain under an early action credit 

program, and how much profit DuPont could clear assuming a market price of a 

mere $10 per ton of CO2 reduced. 

The Pew study also reports that DuPont’s investments in energy efficiency saved 

the company $2 billion since 1990, though it is not clear from the text how much 

of that $2 billion is net savings. In any event, by using energy more efficiently, DuPont reduced its greenhouse gas emissions by 420 million metric tons. That translates into a $4.2 billion windfall if DuPont is awarded credits for early action under 

a future cap-and-trade program, again assuming carbon dioxide allowance prices of 

$10 per ton. 

Next, let’s consider Alcoa. The Pew study notes that although Alcoa, for business 

reasons, invested in energy efficiency, ‘‘the primary focus of Alcoa’s GHG reduction 

efforts thus far rests in reducing perflourocarbon (PFC) emissions through anode effects and increasing the use of recycled materials.’’13 Alcoa has reduced its PFC 

emissions by over 75 percent since 1990. The two types of PFCs—Perflouromethane 

(CF4) and Perflourethane (C2F6)—have 5,700 and 11,900 times the global warming 

potential of CO2, respectively. 
42 

14Kenneth Martcheck, Alcoa, Public Comments on Doe’s Notice of Inquiry on Ways to Enhance the Existing Greenhouse Gas Registry, June 5, 2002, https://ostiweb.osti.gov/pighg/ 

ghga0202.idc. 15For more on this topic, see Statement of Marlo Lewis on S. 388, Committee on Energy and 

Natural Resources, U.S. Senate, April 14, 2005, http://www.cei.org/pdf/4481.pdf. 16Hoffman, Getting Ahead of the Curve, p. 108. 17Hoffman, Getting Ahead of the Curve, p. 109. 18Comment of Brenda Pully, Alcan, Public Comments on Doe’s Notice of Inquiry on Ways to 

Enhance the Existing Greenhouse Gas Registry, June 5, 2002, https://ostiweb.osti.gov/pighg/ 

ghga0202.idc. 

It is cheaper to recycle aluminum than to produce aluminum from virgin materials, due to the immense difference in energy costs. The Pew study notes that ‘‘aluminum produced from recycled materials requires only five percent of the energy 

needed to make primary aluminum,’’ with the result that ‘‘almost 70 percent of the 

aluminum ever produced is still in use today,’’ and the ‘‘amount of aluminum recycled in 2004 equaled the total amount of primary aluminum produced in 1974.’’ In 

other words, recycling aluminum is a big part of what Alcoa and other aluminum 

companies do for a living. 

Nonetheless, Alcoa wants to get emission credits for this ordinary, profit-seeking, 

business activity. Here’s an excerpt from Alcoa’s public comment, in June 2002, on 

the Department of Energy’s proposal to transform the voluntary reporting of greenhouse gas emissions program (VRGGP), established under section 1605(b) of the 

1992 Energy Policy Act, into a program awarding ‘‘transferable credits’’ for voluntary emission reductions: 

‘‘For example, we support an update of section 3.5.6 from your Volume I of Sector 

Specific Issues and Reporting Methodologies’’ related to estimating project effects of 

recycling. This document should be updated and expanded to quantify entity emissions reductions associated with increased recycling and material reuse. From our 

studies, the recycling of materials such as aluminium products can provide significant holistic emissions reductions advantages because aluminium and other metals 

consume less energy to produce than from virgin materials and these recovered metals are durable and can be recycled and reused over and over again.’’14

In the jargon of greenhouse accounting cognoscenti, Alcoa wants windfall profits 

for ‘‘anyway tons’’—credits for doing (or not emitting) what the company would do 

(or would not emit) anyway, for purely economic reasons.15 In short, they want to 

be paid for activities they have already undertaken because they are profitable. The 

Pew study reports that, ‘‘Of greatest concern to Alcoa is climate change legislation 

that does not recognize companies for taking early action. Alcoa seeks the use of 

a 1990 baseline for determining allocations.’’16 committee members may wish to ask 

Alcoa how many transferable credits the company believes it should be awarded on 

account of its recycling activities since 1990, and whether this remains such a pressing matter should Congress prefer instead an energy tax which is far less inefficient? 

The Pew study notes that, ‘‘Unlike Whirlpool, which seeks to retain credits for the 

improvements in energy consumption its products may offer, Alcoa does not lobby 

for gaining credits for emission reductions by users of its products.’’17 Well, bravo 

to that! But the committee should be aware that not all aluminum companies abstain from claiming credit for other people’s emission reductions. For example, Alcan 

Aluminum Corporation, in its public comment on the 1605(b) program, suggested 

that aluminum companies—not automakers or motorists—receive credit for emissions avoided due to the use of aluminum in automobile manufacture. Alcan explained that, ‘‘for each ton of aluminum that displaces the use of steel in a midsize sedan, over the life cycle of that automobile there is a net reduction of 20 tons 

of GHG emissions. These reductions need to be recognized.’’18

Next, let’s consider General Electric. In this case, the business motivation to support Kyoto-style policy has more to do with expanding markets for its products than 

with reaping windfalls for anyway tons. GE is a world leader in manufacturing nuclear reactors, natural gas turbines, wind turbines, and integrated gasification combined cycle technology. The demand for these products will increase much faster in 

a carbon-constrained world. GE wants Governments the world over to grow its business with regulations and mandates. 

Finally, PG&E’s economic interest in a national cap-and-trade program is, I believe, similar. The company’s Web site says that, ‘‘With significant hydro-electric 

and nuclear resources, the CO2 emissions rate for PG&E’s electric-generating operations is now among the lowest of any utility in the country. When factoring in the 

power we purchase from other sources, the emissions rate associated with the electricity we deliver to our customers is approximately 58 percent less than the aver-
43 

19PG&E, Global Climate Change: Risks, Challenges, Opportunities, and a Call to Action, p. 

6, http://www.pgecorp.com/corp—responsibility/pdf/GlobalClimate—06.pdf. 20Paul Georgia, ‘‘Enron sought global warming regulation, not free markets,’’ February 3, 

2002, http://www.cei.org/gencon/019,02898.cfm. 21http://clinton4.nara.gov/PCSD/Members/index.html. 

age among utilities nationwide.’’19 This means that if Congress enacts carbon caps 

on power plant emissions, PG&E will gain an instant competitive advantage over 

power producers that rely more on coal and less on nuclear, hydro, natural gas, or 

wind. PG&E’s national market share will grow not because it lowers its prices, but 

because Congress raised its competitors’ prices. 

If anyone should be in any doubt about the attractiveness to unscrupulous businesses of a Baptist and Bootlegger alliance in favor of cap and trade schemes, let 

us consider the poster child for shady modern business practices, Enron. Enron became one of the biggest corporate boosters of the Kyoto Protocol. Enron was a natural gas distributor, and Kyoto would kill coal-fired electric generation, boosting demand for Enron’s product. Enron’s energy traders also expected to make juicy commissions on the purchase and sale of carbon credits and profits from creating the 

trading markets for those credits. According to an internal Enron memo, Kyoto 

would ‘‘do more to promote Enron’s business than almost any other regulatory initiative outside of restructuring the energy and natural gas industries in Europe and 

the United States.’’20

In addition to all its political lobbying and contributions, Enron became a founding member of the Pew Center on Global Climate Change’s Business Environmental 

Leadership Council, a leading industry group pushing the Kyoto agenda. Enron 

chairman Ken Lay, along with Fred Krupp of Environmental Defense, served on the 

President’s Business Council for Sustainable Development, during the Clinton Administration.21 They also served on the board of the Heinz Center for Science, Economics, and the Environment, along with former Alcoa CEO and Treasury Secretary 

Paul O’Neill. The sort of rent-seeking we see now is nothing new. Yet we should 

recognize that, had Enron’s lobbying efforts succeeded, the United States would 

have ended up with a costly regulatory scheme designed to redistribute wealth from 

the American people to politically powerful special interests like Enron. 

Now, there is a simple way to mitigate somewhat this problem of rent-seeking, 

but I cannot imagine that it would be attractive to the businesses involved in the 

Climate Action Partnership. It involves the auctioning of credits at their initial allocation. Auctions reveal what the bidders know about the prize’s value. Yet those 

who win the auction do so because they bid more than anyone else thinks the item 

is worth. As such, businesses in Europe have argued strenuously against auctions. 

They currently have a free lunch and are unwilling to pay for it. 

Yet even auctioning still involves costs to the economy. A 1997 study by Resources 

for the Future found that even auctioned tradable permits were about five times 

costlier to the economy than implementing a simple carbon tax, even when both systems were designed to achieve the same level of emissions control. 

What the economics of this situation suggest is that, if you are thinking about 

the economy as a whole—and legislators should be—cap and trade is a disastrous 

idea. To an extent, Professor Greg Mankiw of Harvard is right: If we do want to 

do something about the various externalities of fossil fuel use by reducing use of 

those fuels, a carbon tax is the least worst option. Yet, as Mankiw argues, such a 

course of action should also include a reduction of regulations that burden the market. A correctly-priced carbon tax, for instance, should replace all sorts of other 

measures aimed at reducing the externalities of fossil fuel use. A well-designed carbon tax would mean that we had no further need for CAFE regulations, for instance, 

or certain elements of the Clean Air Act. As Tim Harford, author of The Undercover 

Economist, has written: 

[T]he whole point of a green tax is that while we know what we want—lower carbon emissions, fewer accidents, less congestion—we do not know the best way to get 

there. We cannot afford to stop all pollution. The aim is to stop the low-priority activities and not the high-value ones. And the judge of what is really important 

should be each individual, not a posturing politician. The green tax should send the 

same signal to each individual. They can decide for themselves whether or not those 

shooting and fishing weekends are worth the price. 

On the other hand, we should also consider whether we need to pay for the 

externalities. Nobel prize-winning economist Ronald Coase suggests we don’t always 

need to. There may be cheaper ways of obtaining reductions in externalities than 

taxation, such as the development of new technology. Or, as I have argued repeatedly in the context of global warming, building resiliency in society so that the 

externalities become less costly is probably the most cost-effective way of dealing 
44 

with the potential problem. Consider that, for a fraction of the cost of the Kyoto Protocol, we could solve all the major problems that global warming could exacerbate. 

We could feed Africa, provide clean drinking water, reduce malaria to an exceptionally rare disease, and build sea defenses to protect those people of the world who 

live in low-lying areas. All of that now for a fraction of the cost of attempting to 

change the weather in 100 years’ time. 

Such an approach, of course, requires a vibrant economy and a free market. We 

should remember that capitalism at heart is an egalitarian mechanism. That’s why 

it’s the American way. As the renowned economist Joseph Schumpeter wrote over 

half a century ago: 

It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so 

on that are the typical achievements of capitalist production, and not as rule improvements that would mean much to the rich man.μ Queen Elizabeth [the First] 

owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within reach of factory 

girls in return for steadily decreasing amounts of effort. 

Capitalism becomes an engine of inequality when it is distorted by a ruling elite— 

aristocracy in the U.K. or big corporate cartels and their legislative allies in the 

United States. The corporations we see baying for a cap and trade program are out 

to enrich themselves without thought for the poor. For these people, 

environmentalism is the opiate of the masses, keeping them quiet by making them 

think that what’s bad for them is good for the planet. A fair approach, an egalitarian approach, is to let the market work its magic for the good of all, rather than 

stacking the deck to enrich the few. That’s the egalitarian message, that’s the American message, that’s CEI’s message. Thank you. 

RESPONSES BY FRED L. SMITH JR. TO ADDITIONAL QUESTIONS FROM SENATOR INHOFE

Question 1. Environmental special interest groups outspend the oil and gas industry significantly in elections by a factor of at least three to one. I believe the same 

is true for all public policy groups as well. In your estimation, how much money is 

given to those urging immediate action on climate change compared to contributions 

to those groups that advocate caution before leaping? 

Response. CEI probably devotes more resources to climate and energy policy than 

any other group opposed to regulatory climate policy, and our entire budget for all 

programs including environmental risk, technology policy, entrepreneurship, and insurance is about $4 million. The annual budgets of the leading groups promoting 

climate regulation are far bigger. Here is a partial list from Bonner Cohen’s The 

Green Wave: Environmentalism and Its Consequences (Capital Research Center, 

2006, p. 167): 

• National Wildlife Federation, $100,534,318 (2004) 

• Sierra Club, $91,843,757 (2004) 

• Natural Resources Defense Council, $57,303,087 (2004) 

• Environmental Defense, $43,661,043 (2003) 

• Defenders of Wildlife, $25,729,780 (2003) 

• Earthjustice, $21,090,378 (2004) 

• World Resources Institute, $16,179,169 (2003) 

• Greenpeace, $15,913,343 (2004) 

Many pro-Kyoto groups raise significant funds from direct mail and membership 

dues. However, many also receive significant funds from foundations. In this connection, I attach an excerpt (‘‘Resource Rich’’) from a forthcoming doctoral dissertation 

by Angela Logomasini, CEI’s Director of Risk and Environmental Policy. Angela 

notes that, according to the Chronicle of Philanthropy 2005, charitable foundations 

contributed more than a billion dollars to eleven environmental organizations in 

2004. 

According to official Senate records, in 2002, Free Market Environmental groups 

like CEI spent a total of $200,000 on direct lobbying of Congress. In contrast, mainstream environmental groups spent more than $8.6 million on direct lobbying. 

Please see Angela’s Excel document titled ‘‘Direct Lobbying.’’ 

The environmental movement’s substantial resources and lobbying efforts have 

been effective in setting the agenda, framing the debate, enacting legislation, and 

adopting regulations. Angela documents this in her Power Point presentation titled 

‘‘The Green Lobby.’’ 

Feel free to use the information in these attachments, but please cite Angela and 

CEI, as the documents are pre-publication items. 
45 

Question 2. You testified about a dead-weight loss to society from carbon caps. I 

realize some companies may make money, but could you elaborate on how it will 

affect the economy as a whole? 

Response. The most important factor affecting the economic impact of a carbon 

cap is its stringency—how much and how fast carbon dioxide (CO2) emissions are 

to be reduced. In a forthcoming CEI paper, University of Guelph economist Ross 

McKitrick examines the impacts of the caps proposed in the Boxer-Sanders, KerrySnowe, and Lieberman-McCain bills—roughly a 70 percent reduction in U.S. carbon 

emissions by 2050. McKitrick notes that the long-term historic rate of U.S. emissions intensity decline is 1.7 percent annually. He examines the impacts under two 

scenarios: (a) emission intensity continues to decline at the historic rate, and (b) 

emission intensity declines at double the historic rate—i.e., 3.4 percent annually— 

every year from 2012 until 2060. ‘‘Either way,’’ he comments, the implications for 

the U.S. economy are ‘‘sobering.’’ 

If emissions intensity continues to decline at 1.7 percent annually, given projected 

US population growth, holding to the emission caps outlined in the three bills will 

require real GDP per capita to decline between approximately 52 and 77 percent 

between now and 2060, compared to a projected growth of 197 percent under the 

base case. This results in 2060 real average income between 85 percent and 93 percent below what it would be without the legislation. 

If, on the other hand, emissions intensity declines at 3.4 percent annually from 

2012 through 2060, given projected U.S. population growth, holding to the emission 

caps outlined in the three bills will effectively eliminate growth in U.S. real GDP 

per capita. Instead of real average income growing 197 percent by 2060, as in the 

base case, under the three cap-and-trade proposals, real average income will change 

between +13 percent and -46 percent. This results in 2060 real average income between 66 percent and 84 percent below what it would be without the legislation. 

McKitrick then considers what would be required to meet the emission reduction 

targets and maintain 2.2 percent real per capita annual income growth, assuming 

a wildly optimistic 5.1 percent annual rate of emission intensity decline. In that 

case, there would have to be substantial cuts in U.S. population growth. The Lieberman-McCain proposal would allow some growth in population, up to 363 million in 

2030 (compared to 390 million in the base case), but all three caps would require 

population cuts by 2050. Lieberman-McCain would require a population of 355 million, Kerry-Snowe would require 321 million and Sanders-Boxer would require a 

population of 167 million. These are, respectively, 27 percent, 34 percent, and 65 

percent below base case population levels. 

Question 3. How does carbon rationing affect the poor? 

Response. Carbon rationing is regressive, because the poor spend a larger share 

of their income on basic necessities like food, clothing, rent, and energy. The Congressional Budget Office, in its April 25, 2007 report, Trade-offs for Allocating Allowances of CO2 Emissions, clearly states: 

Regardless of how the allowances were distributed, most of the cost of meeting 

a cap on CO2 emissions would be borne by consumers, who would face persistently 

higher prices for products such as electricity and gasoline. Those price increases 

would be regressive in that poorer households would bear a larger burden relative 

to their income than wealthier households would. 

Millions of U.S. families already feel pinched by the high costs of gasoline, electricity, and home heating oil. A cap-and-trade program would push energy prices 

even higher. 

Question 4. Can you discuss further the concept of a cap-and-trade cartel? 

Response. Brian Mannix, a former official in President Carter’s Department of Energy, was the first to call cap-and-trade a ‘‘carbon cartel,’’ in column published by 

the Heartland Institute (http://www.heartland.org/Article.cfm?artId=1063). 

Mannix noted that, as in OPEC, cap-and-trade places a ceiling on energy production, albeit on energy from all fossil fuels, not just oil. Also, as in OPEC, a cap-andtrade program allocates production quota—a.k.a. emission allowances, permits, credits—among the participants. As in OPEC, the value of the quota (credits) comes 

solely from the politically-imposed restriction on supply. And, as in OPEC, the 

scheme transfers wealth from consumers to quota holders. 

One difference between cap-and-trade and OPEC is that more special interests get 

to profit at consumer expense. For example, even if alternative energy companies 

hold no credits, the cap skews the market in their favor. In addition, because emission credits are tradable quota, traders make money from the scheme as well. The 

rent-seeking coalition is huge, as Mannix explains: 

The profits potentially available to the carbon cartel are measured in tens of trillions of dollars. Those profits would take a variety of forms around the world: tax 
46 

revenues to Governments; bribes to government officials; valuable carbon ‘‘credits’’ 

and ‘‘allowances’’ that Governments allocate to favored parties; and many, many 

jobs for diplomats, politicians, regulators, tax collectors, lawyers, and lobbyists. 

Other winners would include the industries that compete with carbon-based fuels: 

hydro-power (mostly Government owned), nuclear (still a long-shot in the U.S.), and 

such ‘‘alternative’’ energy sources as windmills and solar. 

Mannix also explains a chief difficulty in enacting a cap-and-trade program how 

to divide up the booty: 

The carbon cartel’s organizers face a key challenge: how to allocate the spoils in 

a way that produces a winning and sustainable coalition. Right now the Kyoto formula favors Europe over the U.S.; we can expect to see concessions designed to 

bring the U.S. on board. These are likely to be designed specifically to influence U.S. 

politics: Some additional share of the booty will be made available to U.S. companies 

with perceived political influence, or to labor unions—perhaps the coal miners. Further concessions will be needed to bring countries like China and India on board. 

This is what is being negotiated in all those international meetings: not the world’s 

climate, but the division of the carbon cartel’s plunder. 

The bottom line, though, is that cap-and-trade is not win-win but zero-sum. Consumers get fleeced: 

The big losers, of course, will be consumers everywhere. The carbon cartel is 

counting on the fact that the world’s consumers are poorly informed and poorly organized. Right now Bush is their champion and protector, though few of them realize it and he may not fully appreciate it himself. 

Thank you again for inviting me to testify. I hope these answers help the committee with its deliberations. 

STATEMENT OF HAROLD HAMM, CHAIRMAN OF THE BOARD, 

CHIEF EXECUTIVE OFFICE, CONTINENTAL RESOURCES, INC. 

Mr. HAMM. Good morning, Madam Chairman, Senate committee 

members. 

I am the Chairman and CEO of Continental Resources, Inc. I am 

also the Chairman of the 1,700 member Oklahoma Independent Petroleum Association, and immediate past president of the National 

Stripper Well Association. 

Continental is a mid-size independent oil and gas exploration 

and production company. Last year, Continental invested over $300 

million drilling 180 oil and gas wells in the U.S. My professional 

training is in geology and my job is to find oil and gas, which I 

have done successfully for the past 35 years. 

I am concerned about the impact human activities have, not only 

on our plan, but on future generations. As a parent of 5 children, 

grandfather of 10 and the CEO responsible for over 350 employees 

and their families, clearly we should make reasonable efforts to 

keep our air and water free from pollution. While I do not believe 

the science of global warming is proven or settled, energy efficiency 

and cost effective deployment of technologies that emit little or no 

greenhouse gases, such as wind, solar and other renewable energy 

sources are mostly no-brainers. 

Our priority should be consideration of the direct causes of global 

warming and action to correct those conditions which can be affected by mankind. Those conditions include pollution of the world’s 

streams, rivers and oceans, clear-cutting of vast equatorial 

rainforests, denuding of the vegetation across Africa, encroachment 

of deserts in China, Africa and the Middle East and general overpopulation conditions of the world. 

Let’s first talk about the Kyoto Protocol. Only 2 of the original 

15 EU countries will meet their Kyoto Protocol targets. Any policy 

ignoring the fact that developing countries are accelerating their 

CO2 emissions will doom our children to a lower quality of life as 
47 

a result. The Kyoto Protocol will cost the average family of four 

$2,700 per year. Our GDP will flatten and jobs will move overseas. 

Yet CO2 emissions will continue to arise. Then what will our childrens’ sacrifices have been for? 

I strongly disagree with the recommendation for fossil fuel producers to purchase allowances equal to the emissions estimated to 

be released when a fuel is combusted. While characterized as a 

purchase of an allowance, the economics are similar to President 

Clinton’s 1993 Btu tax. Senators from both parties quickly realized 

the high cost the Btu tax would have on the U.S. economy and the 

average American family and that proposal was withdrawn. 

The report noted that care should be taken so that policies do not 

merely push emissions from U.S. facilities to overseas operations. 

The imposition of this Btu tax would have that effect, because domestic oil and gas production activities would be subject to more 

costly greenhouse gas emission regulations than other producing 

countries. 

The domestic oil and gas industry already has higher finding 

costs and producing costs than that of imported oil and gas. The 

use of CAP proposed Btu tax would further disadvantage industry 

and lead to a reduction in domestic oil and gas production. 

Our domestic stripper wells which produce 10 barrels of oil per 

day or less, approximately 1 million barrels per day, and contribute 

20 percent of our total domestic production would be particularly 

impacted. These wells have the highest production costs and lowest 

profit margins yet are the most stable category of production in the 

U.S. with the very shallow decline. That is practically in a stable 

State. 

The U.S. leads the world in eliminating pollution by 50 percent 

reduction in the last 30 years. We have accomplished this while simultaneously growing our economy and stabilizing energy use. 

Through oil patch boom and bust cycles, I have witnessed the devastating, far-reaching impact of job loss on families, and it is not 

something that I nor you should contemplate lightly. Climate legislation that costs the American family businessman and future generations loss of jobs, a lower quality of life and climbing CO2 emissions, despite our best efforts, is not good policy. 

That is my testimony. Thanks. 

[The prepared statement of Harold Hamm follows:] 

STATEMENT OF HAROLD HAMM CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICE, 

CONTINENTAL RESOURCES, INC. 

Good morning Madam Chairman and Senate committee members. My name is 

Harold Hamm. I am the Chairman of the Board and Chief Executive Officer of Continental Resources, Inc. I am also the Chairman of the Board of the Oklahoma Independent Petroleum Association (1,700 members) and immediate past-President of 

the National Stripper Well Association, which represents operators of oil wells only 

capable of producing 10 barrels per day or less. 

Continental Resources is a mid-size independent oil and gas exploration and production company headquartered in Enid, Oklahoma. Last year my Company invested over $300 million drilling 180 oil and gas wells in the United States. My professional training is in geology and my job is to find and develop oil and gas; which 

I have done successfully for the past 35 years. 

I want to first state that I am concerned about the impact our human activities 

have, not only on our planet, but on future generations. As the parent of 5 children, 

grandfather of 10 grandchildren, and the CEO responsible for over 350 employees 

and their families, clearly, we should make reasonable efforts to keep our air and 
48 

water free from pollution. While I do not believe the science of global warming is 

proven or settled, energy efficiency and cost-effective deployment of technologies 

that emit little or no greenhouse gases, such as wind, solar and other renewable energy sources are ‘‘no brainers.’’ 

Let’s first talk about The Kyoto Protocol.Only two of the original 15 EU countries 

will meet their Kyoto Protocol targets. One year after the Protocol was signed, Britain and China’s emissions have steadily been climbing. China’s emissions will 

eclipse America’s carbon emissions in 2009. Any policy that ignores the fact that developing countries are accelerating their CO2 emissions will doom our children to 

a lower quality of life as a result. 

The Climate Change Stewardship Act would cost the American economy 1.3 million jobs according to Wharton Econometric Forecasting Associates. Through many 

boom-and-bust periods in the oil patch, I have witnessed the devastating, far-reaching impact of job losses on a family and it is not something that I, nor should you 

contemplate lightly. 

One recommendation with which I strongly disagree is the requirement for fossil 

fuel producers to purchase allowances equal to the emissions estimated to be released when the fuel is combusted. While characterized as the purchase of an allowance, the economic substance is similar to President Bill Clinton’s BTU Tax proposed in 1993. At that time, Senators from both parties quickly realized the high 

cost the BTU Tax would have on the U.S. economy and on average American families and that proposal was withdrawn. 

The report noted that care should be taken so that policies do not merely push 

emissions from U.S. facilities to overseas operations. The imposition of this BTU 

Tax would have that effect because domestic oil and gas production activities would 

be subject to more costly greenhouse gas emission regulations than other producing 

countries. 

The domestic oil and gas industry already has higher finding and producing costs 

than other countries from which we import oil and gas. The proposed BTU tax 

would further disadvantage the industry and lead to a reduction in domestic oil and 

gas production. 

Our domestic stripper wells (those producing 10 barrels of oil per day) would be 

particularly impacted. These wells have the highest production cost and lowest profit margins. This production is the most stable category of production in the U.S. and 

has a very, very shallow decline and is, in fact, practically in a stable state. Stripper 

wells contribute 20 percent of our domestic production (approximately 1 million barrels per day). 

The ‘‘upstream’’ program recommended by the U.S. CAP which requires fossil fuel 

producers to be covered by allowances that equal the emissions released when the 

fuel is combusted is exactly the type of costly regulation that will devastate the domestic oil and gas industry without having a direct effect on global greenhouse gas 

emissions. 

The Kyoto Protocol will cost the average family of four $2,700 per year. Our GDP 

will flatten and jobs will move overseas, yet CO2 emissions will continue to rise, 

then what will our children’s sacrifices have been for? 

Furthermore, the cap-and-trade approach to reduce greenhouse gas emissions has 

never been implemented on the scale being discussed and could have significant, adverse, and unanticipated effects on the U.S. economy. 

Though experts debate whether global climate change is affected by greenhouse 

gas emissions, we can be certain that allowance systems recommended by U.S. CAP 

will reduce domestic oil and gas production, increase our dependence on foreign 

sources of energy and have high costs to the U.S. economy and average American 

families. 

Our priority should be consideration of the direct causes of global warming and 

action to correct those conditions which can be affected by mankind. Some of those 

conditions include pollution of the world’s streams, rivers, and oceans, clear-cutting 

of the vast Equatorial rain forests, denuding of the vegetation across Africa, encroachment of deserts in China, Africa, and the Middle East, and general over-population conditions of the world. 

The United States continues to be a leader in cutting pollution across the board. 

In the last three decades we have significantly cleaned up our waterways and cut 

air pollution by more than half. We have accomplished this while simultaneously 

growing our economy and increasing energy use. 

Climate legislation that costs the American family, the American businessman, 

and America’s future generations the loss of jobs, a lower quality of life and CO2

emissions that continue to climb is not good policy. 

Senator BOXER. Thank you very much, Mr. Hamm. 
49 

Now we are going to go to Senator Carper, followed by Senator 

Alexander. Each will have 10 minutes. You can incorporate your 

opening statement, whatever you want to do. 

Senator CARPER. Madam Chairman, thank you very, very much. 

To our witnesses, thank you very much again for joining us and 

for your testimony. 

What I would like to do is start off by just reading a sentence 

or two from the conclusion of Mr. Smith’s testimony. Then I am 

going to ask Mr. Darbee, Mr. Holliday and Mr. Elbert just to ponder these words and respond to a question. Here is what Mr. Smith 

said at the end of this testimony: ‘‘The corporations we see baying 

for a cap and trade program are out to enrich themselves without 

thought for the poor. For these people, environmentalism is the opiate of the masses, keeping them quiet by making them think that 

what’s bad for them is good for the planet.’’ 

What brings you here today baying, if you will, for a cap and 

trade program? Are you out to enrich yourselves, your shareholders, at the expense and with no thought for the poor? Mr. 

Darbee? 

Mr. DARBEE. Senator, a cap and trade program does not have 

any impact on the impacts of PG&E and Pacific Gas and Electric 

Company. As I outlined in my presentation, we operate under decoupling. So if we sell more or less electricity, we are indifferent, 

neutral to that. And there is no way that we can make more return 

for our shareholders as a result of the cap and trade program. Our 

return is limited currently to the 11.35 percent allowed by the California Public Utilities Commission. 

Senator CARPER. What is our motivation, personal or corporate, 

for being here today, sir? Spending all this time to put together the 

partnership and to come here, not just today, I know you have been 

here in the Capitol at least two or three times in the last month 

or so. Why? 

Mr. DARBEE. In short, it is to do the right thing, Senator. Two 

years ago when I came into the job of CEO, I asked the question, 

do we have a position on the environment and on climate change. 

The answer is, we have no official position. So we undertook a process of scientific inquiry, where we met with roundtables of scientists. And coming out of that, the senior management team of 

our company and I concluded that yes, the climate is warming. 

Mankind is likely responsible and the need for action is now. 

So out of a belief that this was the right thing to do and the responsible thing, in being a corporate leader, we took this position. 

That is why I have come back three times in the last month to 

Washington to make this point. 

Senator CARPER. Mr. Holliday, let me ask this. What is your motivation? Why all this time and energy are you putting into this endeavor? 

Mr. HOLLIDAY. Senator, with our 15 years’ experience focusing on 

ways to reduce greenhouse gases and have good return for our 

shareholders, we see a large variety of solutions at work. That is 

what we have been doing in our country. We think by understanding the rules of the road and our terminology here in the 

United States, our companies can be leaders. We see a whole suite 

of technologies that can solve these problems. We think the uncer-
50 

tainty of what regulation will do is holding companies back. So we 

are motivated because we think we can actually lead in this and 

our country can lead. 

Senator CARPER. Thank you. Mr. Elbert. 

Mr. ELBERT. I would echo my colleague’s comments as well. BP 

has been involved and concerned about climate change since 1997. 

My motivation, I think, much like the members of the committee, 

I represent a constituency of 36,000 employees and substantially 

more thousands of shareholders. Frankly, this is the direction that 

they have asked us to take. It is the direction that we think from 

a business point of view is the right direction to take. Our own experience with our internal cap and trade program that we put in 

place in 1998 demonstrated to us the value of that type of program. 

It captures the lowest hanging fruit first, so to speak, at the lowest 

cost. It has been good for business. 

Senator CARPER. Mr. Book, I have a question for you. Senator 

Alexander and I and others have worked for several years to craft 

legislation that focuses specifically on one sector, CO2 emissions 

from the utility sector stationary sources. Our legislation also calls 

for reductions in sulfur dioxide emissions, nitrogen oxide and mercury for three of the pollutants, with the exception of mercury, we 

call for a cap and trade approach. 

While I support the notion of an economy-wide approach for reducing, slowing the growth of CO2 emissions, stopping the growth 

of CO2 emissions and reversing the growth of CO2 emissions, I 

think something at least 2 or 3 of you have actually said today, I 

think we have to get started somewhere. And the legislation that 

we have proposed actually seeks to do that. 

I would ask of you, why, and your testimony you seemed to suggest at the end, at least, that the best approach is a sector-specific 

approach, like the one that Senator Alexander and I and others 

have embraced. Why do you think that is maybe the best way to 

proceed at this point in time? 

Mr. BOOK. Senator, the history of the sulfur dioxide cap and 

trade program for acid rain reduction has been, I think all would 

agree, a success, provided flexibility between two different types of 

choices that emitters can make. They could choose whether or not 

they wanted to switch coal or they could decide whether or not they 

wanted to take installation of new capital equipment. 

There is a precedent there. Companies are being regulated in 

that fashion today under the Clean Air Interstate and Mercury 

Rules. It represents probably a tentative step forward with greater 

clarity than the indistinct step of putting a burden on refiners and 

oil companies without knowing whether or not it will change the 

way drivers behave. 

Senator CARPER. Thank you. Mr. Darbee, if I can come back to 

you for a moment. PG&E has worked with Senator Alexander, myself and some of our colleagues for a number of years on the electric sector, which I have just talked about here and with which you 

are familiar, I believe. How would the approach that we have developed help in the context of implementing the U.S. CAP economywide approach? 

Mr. DARBEE. The issue of climate change is a very complex subject, as you know, Senator. I believe when one is dealing with very 
51 

complex subjects, sometimes it is easier to break it down into 

smaller sections, smaller problems. So there is merit in your approach, which is to start with one industry, get that right and then 

focus on another industry. So the U.S. CAP group believes that it 

is appropriate to have an economy-wide program. However, it is 

quite possible that the most effective way to implement that program would be on an industry by industry basis. 

Senator CARPER. All right, thank you. 

Chad, again, one of the central themes of the U.S. CAP is the 

need to address all sectors of the economy. The U.S. CAP approach 

also recognizes that, as we have said here today, one size doesn’t 

fit all. Different timeframes, different approaches may be required 

for different segments of the economy. Let me just ask, what do 

you think is the best approach for industrial and the manufacturing sector? 

Mr. HOLLIDAY. I think very much like the BP example, within 

DuPont, we put in an internal cap and trade type program, which 

allowed the funds to go to the best projects. We saw the creativity 

come out in our people, and then we saw the kind of major improvements we were able to make, like the 72 percent reduction in 

gases. I think it is that approach that works. 

Whether the legislation is passed all at once or in pieces, you 

must decide. I think being able to understand the impacts of legislation in one place on another part of the economy is very important in your final decisions. 

Senator CARPER. Let me follow up if I can. The kind of approach 

that Senator Alexander and I have put forth, what would we need 

to do to get the industrial and the manufacturing sector ready to 

participate in the kind of cap and trade approach that we have proposed and which it looks like you have already implemented at DuPont? 

Mr. HOLLIDAY. I think it is understanding the total legislation 

that will come is important. So if you understand one piece but 

there could be three other pieces, it would create a problem, is critical. That is why I think you could at least envision the total plan. 

What I think you will find is companies will be very much like DuPont, because our employees and our shareholders are asking us to 

take leadership in these areas. I think companies will stand up and 

do that. 

I have seen a change in the last 2 years. I think you might find 

a different response today than you would have two or 3 years ago 

when you first started the legislation. 

Senator CARPER. Thank you. 

Another question, if I could, for Mr. Elbert. Mr. Elbert, as we 

well know, the transportation sector is a huge portion of our carbon 

emissions in the U.S. I think utilities, as I recall, are about 40 percent of the CO2 emissions and I think the transportation sector is 

maybe another 40 percent or so. 

More fuel efficient vehicles clearly is part of the solution. But can 

you tell us about the role of the fuels industry in reducing greenhouse emissions? 

Mr. ELBERT. Sir, I would be happy to. Roughly we would look at 

the transportation sector in three segments. One is the vehicles 

themselves, the other the fuels and the other is just customer be-
52 

havior. We think that there is opportunity for improvement to reduce greenhouse gas in all three of those sectors. 

with regard to the fuels in particular, there are, we believe, 

through technology, newer better fuels that can be developed. I 

think the industry has shown a track record of developing different 

specialized kinds of fuels to meet existing regulation. What we 

have done is take a step forward prior to the regulation and said, 

we can develop different, better fuels. We formed a partnership 

with DuPont to develop just one of those fuels and then we have 

put quite a bit of money into a 10-year program that we think is 

going to unlock quite an exciting new suite of opportunities in the 

realm of biofuels that are both good energy performers in terms of 

how your car operates, as well as being softer on the environment. 

Senator CARPER. My time has expired. I look forward to hearing 

a little bit more today about biobutanol and your partnership in its 

development. 

Senator BOXER. Senator, thank you, because I think those questions were really important to be asked. Thank you. 

We are going to hear from Senator Alexander for 10 minutes, followed by Senator Klobuchar. 

Senator ALEXANDER. Thank you, Madam Chairman. I want to 

thank the witnesses, all of them, for their testimony. It is very 

helpful for us to hear such good arguments on several sides of the 

point. 

Mr. Book, I want to make sure I understand what you said in 

your conclusion. I think I do, but let me go back over it a little bit, 

following up on what Senator Carper said. You say alternatively, 

it may make sense to take an incremental step by enshrining in 

law a market-based regulation of particulates from stationary 

sources similar to the Clean Air Interstate Rule and Clean Air 

Mercury Rule in a way that gives regulated entities financial motivations to explore emerging carbon capture technologies. 

Now, market based, particulates from stationary sources would 

include sulfur, is that right, and nitrogen and carbon as well? 

Mr. BOOK. Those are gases, but yes, they would as well. 

Senator ALEXANDER. And you say similar to the Clean Air Interstate Rule, that is the new rule that EPA Bush Administration put 

in place, which in my opinion is an improvement from a clean air 

point of view over the Clear Skies proposal that the President had 

made. Then you mentioned the mercury rule. Now, the mercury 

rule is, the Administration’s mercury rule is cap and trade, if I am 

not mistaken? 

Mr. BOOK. That is my understanding, yes. 

Senator ALEXANDER. My concern about that is that that leaves 

mercury hot spots, such as the Great Smoky Mountains, where I 

live, mercury is heavier. And then you go on to say, plus financial 

motivations to explore carbon capture technology, which you say is 

not generally available or not available at all in the United States. 

Is that what you said? What is the status of carbon capture technology right now in the United States, the availability of it? 

Mr. BOOK. Senator, I believe there are some important questions 

yet to be answered by science and by the market. The first two of 

these is what happens when you sequester significant amounts of 
53 

gas underground. Can it be stored? Does it escape? Does it have 

geologic impacts that we should be concerned about? 

The second is how much does that cost relative to the next best 

alternative, or other alternatives, including doing nothing. And 

nothing may not be the preferred alternative overall, in the long 

term. But in the near term, particularly financial investors tend to 

be very shy about making investments in technologies that are on 

the leading edge or not ready for prime time. 

Senator ALEXANDER. But I would be correct in saying, the way 

I read it is the way you said it, I think, which is that you suggest 

an alternative might be a bill like the one Senator Carper and I 

have been working on, which doesn’t go the whole way, which says 

we know that coal-fired power plants produce about 40 percent of 

the carbon. We have some experience since 1990 with the cap and 

trade system there. We can learn from that how it might work and 

what the cost to the economy would be of dealing with coal-fired 

power plants. And then based on what we learn there, we can take 

other steps if they seem warranted. Does that seem to you to be 

a reasonable approach without asking you to endorse every provision of a bill we haven’t yet introduced? 

Mr. BOOK. Yes, Senator, it is consistent with what has been suggested in my contact with institutional investors. They are much 

more enthusiastic about technologies that exist today. When they 

are managing your money, you don’t, after all, want them betting 

on stuff that isn’t there yet. 

Senator ALEXANDER. Yes. And Madam Chairman, the legislation 

that Senator Carper and I are working on has, basically adopts the 

standards of the Clean Air Interstate Rule for NOx and SOx, more 

or less. It is a little stronger on mercury and then tries to address 

reasonable steps toward carbon. 

Let me go to Mr. Darbee. I want to ask you about the west, Mr. 

Darbee, as we work on our bill. I understand there are no coal-fired 

power plants in California at all, is that right? 

Mr. DARBEE. I believe that is correct, Senator. A small amount 

of coal-fired power is sent in by transmission lines. 

Senator ALEXANDER. And even though 50 percent of the electricity that the United States uses is produced by coal, none of it 

is, almost none of it is in California? 

Mr. DARBEE. That is correct. 

Senator ALEXANDER. Now, the Bush Administration’s Clean Air 

Interstate Rule that I was just talking about issued in 2005 doesn’t 

apply to the west if I am correct. Am I correct about that? 

Mr. DARBEE. I am not certain, Senator. 

Senator ALEXANDER. Anyone know the answer to that? 

Mr. DARBEE. My understanding is it—— 

Senator ALEXANDER. Well, what I am trying to get to is whether, 

as we work on our bill, it makes a difference to you and to other 

western utilities if the CAIR Act, as it might be put into law, does 

apply to the west? Would it create a problem? What are you doing 

about SOx and NOx in California or so far as you know in other 

parts of the west? Is there just not a problem with it? 

Mr. DARBEE. In California currently, the vast proportion of the 

power is produced by hydro resources, nuclear resources or natural 

gas, which don’t tend to produce SOx and NOx. However, not in our 
54 

territory but in southern California, a not insignificant amount of 

power has been produced by power plants out of State that generate power from coal. So legislation relating to SOx and NOx

would impact on those out of State generating facilities. 

Senator ALEXANDER. Out of State would mean in the west, but 

not in California? 

Mr. DARBEE. That is correct, Senator. 

Senator ALEXANDER. So where, Idaho, Arizona? 

Mr. DARBEE. Arizona, Nevada, Idaho would be exempt. 

Senator ALEXANDER. So what SOx and NOx standards are there 

now for those western coal-fired power plants? 

Mr. DARBEE. I am not certain, Senator, since they relate to out 

of State and I haven’t really become an expert in that area. 

Senator ALEXANDER. OK. Mr. Elbert, I know you’re BP America. 

But BP is very much associated with the establishment of United 

Kingdom emissions trading program and the European Union 

emissions trading scheme. Some say that that EU emissions trading scheme has been a failure. Is that right or is that wrong? 

Mr. ELBERT. I think you would have to ask the folks in the EU 

to comment on that. I would say what it does do is gives us a 

model, it gives us a model to look at for the United States what 

things we think would work and what things would not be appropriate, would not work. 

Senator ALEXANDER. Mr. Elbert, would you think that an approach such as that suggested by Senator Carper and which I discussed with Mr. Book would be a reasonable first step toward dealing with climate change in the United States? 

Mr. ELBERT. Just from what you have described, I would say yes. 

What we are interested in from U.S. CAP and from BP, we are interested in a national program, a mandatory program, one that 

covers all sectors of the economy and one that both sets some short 

term and medium term goals, but has a clear vision for the future. 

We do believe that in the fullness of time, we need to get to a 60 

to 80 percent reduction by 2050. 

So in a sense, any train that is leaving the station, anything that 

is moving us in that direction we are for. We would like to see 

some commitment to the end game. 

Senator ALEXANDER. Mr. Lash, Mr. Holliday, do you have any 

comment on the wisdom or lack of wisdom of taking a first step 

that deals only with carbon from coal-fired power plants as opposed 

to an emissions, economy-wide controls? 

Mr. LASH. Senator, two observations. The SO2 trading program 

was narrow because the range of leading sources of SO2 was relatively narrow. It was possible to focus on a very limited set of 

sources. CO2 is emitted by every part of the economy, not just utilities but also automobile drivers, buildings, manufacturers. So the 

U.S. CPA recommendations were very clear in recommending that 

a pathway be established that for all those sectors gives a signal 

about investment and about the need to make future reductions. 

We did not take a position with respect to any specific proposal 

about where to begin or how to begin, so long as it is part of that 

larger road map that gives both Mr. Holliday and Mr. Elbert clear 

signals about future investment. 
55 

Senator ALEXANDER. I see my time is about up. That is a good 

point. That a good distinction. But I believe it is true that coal-fired 

power plants produced about two-thirds of all the SO2 in our country. 

Mr. LASH. Of the SO2. Senator ALEXANDER. Yes, of the SO2. They didn’t produce it all, 

they produced about two-thirds. And coal-fired power plants 

produce about 40 percent of all the carbon. And the carbon from 

coal-fired power plants is growing at a much more rapid rate, nearly twice as fast as carbon emissions generally. 

Mr. LASH. I believe the utility sector produces 40 percent of carbon. But I don’t think all of that is coal. 

Senator ALEXANDER. Well, the utility sector, nuclear is 20 percent. So it doesn’t produce nay. Hydro is 7, it doesn’t produce any. 

Mr. LASH. Oil and gas, while they produce much less per Btu, 

also produce CO2 emissions. 

Senator ALEXANDER. They do, but they don’t produce as much 

electricity in the United States. 

Mr. LASH. Coal is a little over half the electricity in the United 

States. 

Senator ALEXANDER. Right. Thank you, Madam Chairman. 

Senator BOXER. Senator Alexander, I just wanted to make a 

point before we go to Senator Klobuchar and then Senator Warner. 

My understanding is the Parada bill that passed the California legislature and the Governor signed says that any electricity that is 

imported that is derived from coal has to be clean coal. So right 

now we have entities in California that are not renewing contracts, 

because it is not clean coal. 

So my answer to your question is, and I would have to do more 

research, but the cleaner coal that we have, the cleaner power that 

we get from the utility sector, the better it is for our State. Because 

right now, we are stopping importing that dirty coal. So I think it 

helps us at the end of the day to have a Federal law that address 

clean coal and clean utilities. 

Senator ALEXANDER. Thank you, Madam Chairman. I should say 

out of fairness to Mr. Book’s conclusion, he did emphasize and I 

didn’t very much in my question of him the importance of encouraging technologies to deal with clean coal and other provisions. 

Senator BOXER. Absolutely, thank you. 

Senator Klobuchar, you have 10 minutes, followed by Senator 

Warner, who has 10 minutes. Please proceed. 

Senator KLOBUCHAR. Thank you. I want to thank all the witnesses today, particularly those from the business community involved in the Call for Action that you were willing to come here 

today and talk about your vision and what we can do in a bigger 

way, beyond what we are doing. I especially appreciated the emphasis in the report on the short term and long term goals and the 

cap and trade system and the focus on discussing renewable fuels 

as well. 

I am from Minnesota, the land of 10,000 lakes. Most of them are 

frozen now. But despite that, there is an overwhelming concern in 

our State about global warming. It comes from snowmobilers who 

don’t have enough snow to people who ice fish, who find that year 

by year, it takes longer and longer for them to be able to put their 
56 

fish houses out, to major business who either are based in Minnesota or who have a presence in Minnesota, from Excel Energy to 

General Mills to Target. So I appreciate your business leadership 

in this area. 

This committee, under the leadership of our Chairman, has focused on this, which I appreciate. Other committees I am on, the 

Commerce Committee, had a hearing last week in which we talked 

about the concerns about elevating politics over science. It was a 

bipartisan hearing and I appreciated Mr. Darbee, your talking 

about bringing scientists in. Because there is some concern that we 

haven’t been getting the truth facts out of some of the Government 

scientists. 

I am also on the Agriculture Committee and I am actually preparing to introduce a climate change incentive program as part of 

the Farm bill. So you can keep in mind as you talk about fuels, Mr. 

Elbert, as you were before, the idea here is to promote cellulosic 

ethanol and to create incentives for farmers who want to reduce 

their consumption of fossil energy by using renewable resources to 

have incentives for carbon sequestration practices. Then also to 

provide incentives for farmers to grow perennial grasses and biomass crops that can be made into carbon neutral cellulosic ethanol. 

My first question was just in that area of carbon sequestration 

off of the agriculture area, but into some of the things you talked 

about in the report about carbon sequestration technologies and 

projects and the energy in the power sectors. Could you talk about 

the challenges and opportunities of those types of proposals? 

Mr. LASH. We had very clear agreement among the U.S. CAP 

members that we need to accelerate work on capture and storage 

technologies. That would include investment in pilot plants to demonstrate the technology. That is the first step. Europe is now investing in building several plants. The Department of Energy is 

just in the process of deciding on a first few demonstration plants. 

It is also the recommendation that Congress needs to initiate the 

process of setting the rules that would define the measures for 

safety and reliability in terms of carbon storage, which I believe 

Mr. Book also referred to. Without that set of rules and without the 

initial demonstrations, it is very hard to predict the cost. 

In the long term, there is great optimism that that technology is 

going to be available and play a crucial role. 

Senator KLOBUCHAR. Thank you. I also want to talk a little bit 

about the cap and trade program. I believe that harnessing the 

power of the market through cap and trade is a vital part of the 

solution. Your report talks about two possibilities for a cap and 

trade regime. One is an upstream program that is focused on fossil 

fuel providers or a hybrid program that includes both upstream 

and downstream caps. 

Could you talk a little bit about the debate and dialog about 

those two types of programs and what you see as the key considerations for determining the most effective way to implement cap and 

trade? 

Mr. LASH. Thank you for the question, Senator. To be clear about 

the U.S. CAP recommendation, we didn’t make a call between 

those two. 
57 

Senator KLOBUCHAR. I know. I just was wondering what the debate was. 

Mr. LASH. The advantage with upstream is it is very simple. The 

fewer sources that the cap is applied to, the simpler the administration. The difficulty with upstream is that upstream producers, 

refineries, coal mines, don’t have very much control over how the 

product is used or the technology by which it is used, which means 

they have less capacity to reduce emissions. The further downstream that you push a cap, the more complicated it is to administer, because there are more and more sources included. But the 

better you are able to reach the decisionmakers who control the 

level of emissions, essentially what we were suggesting is that you 

need to find a mix that works relatively effectively at aiming at the 

sources that can make the reductions without making it unmanageable. 

I think Mr. Book pointed out that if you go all the way upstream, 

essentially the cap operates like a tax. It just adds to the tax all 

through the economy. You don’t know how much you will get in 

terms of reductions. 

Senator KLOBUCHAR. Anyone else? 

Mr. HOLLIDAY. I think the key aspect of whichever form of cap 

we have has to preserve the free market. So that would be the criteria we would look at, is to make sure that the creativity of Americans and American business can respond. DuPont does business in 

70 different countries. What we have seen is the ability of the financial system working with the national labs, with companies, we 

can find solutions. If it is too complicated or hard to understand or 

implemented over too long a period of time, I think we will miss 

an opportunity. 

Senator KLOBUCHAR. I was curious, Mr. Elbert, about the figures 

you threw out there, which were quite amazing, about the investment in energy efficiency of $450 million by 2010 and how it has 

already turned approximately $1.6 billion through the end of 2005, 

through reduced energy costs for BP. Could you elaborate on that 

a little bit? 

Mr. ELBERT. I think this is just an example that, in our mind, 

from our own experience, that investments in energy efficiency pay 

big dividends. We invest in making a process more efficient and we 

are rewarded by lower energy costs. We are of course, besides providing energy, we are a very energy-intensive business. To the extent we can reduce the costs of the energy we use, it is good business. 

Mr. SMITH. I think that point is well taken, but of course, you 

can achieve that result much more smoothly with far less administrative costs by essentially imposing a charge on carbon use. If we 

believe carbon use has to be reduced, which certainly many of the 

committee members do, then a tax is a much more direct and honest and transparent way of achieving it. It works this way throughout the whole economy without the micromanagement and the detailed intervention which does not have a good track record around 

the world anywhere. 

Senator KLOBUCHAR. Would anyone like to respond to that? 

Mr. DARBEE. I might add, having been trained as an economist, 

and understanding that there is value in internalizing the exter-
58 

nality, the externality is emitting carbon into the environment, 

that from a theoretical standpoint, a carbon tax is the purest and 

most efficient way to get at that question. We have looked at the 

question of the practical and political realities of that and we understand that a lot of leaders right now are not inclined to implement a significant tax on the economy. Therefore, we felt that a 

cap and trade program would approximate the effect of a carbon 

tax and therefore be both effective and pragmatic in the real world 

and political world we live in. 

Senator KLOBUCHAR. Very good, thank you. 

Senator BOXER. Senator Klobuchar, thank you very much. 

Senator Warner, we are very happy you are here, and you have 

10 minutes, please. 

Senator WARNER. Thank you very much, Madam Chairman. I 

first want to express my appreciation to you for the leadership that 

you have taken on this issue. Together with Senator Carper, who 

has for many years, since the first day you joined this committee, 

it has been a matter of great interest to you. My colleague here 

from Tennessee likewise. 

I am one that I confess to be on a learning curve. But I have 

watched this debate sort of from the sidelines here in the Congress 

as the Government has tried to take some leadership and the scientific community. But I really believe by virtue of what you have 

done, that you are beginning to move this whole concept into the 

big leagues now and you have our attention. Because when I see 

such an extraordinary cross-section of America’s free enterprise 

system together with the environmental groups come and form a 

group like this, you have my attention. Because I know that each 

of you, with the exception of the environmental groups, have to 

deal with stockholders. And the stockholders may be looking at this 

with a wary eye, thinking that maybe it is going to cut into the bottom line and so forth. That is understandable. That is our system. 

But we had a panel here the other day, a magnificent group of 

individuals, going down to very fundamental things about how it 

is affecting the trout in America and our wildlife. It was an enjoyable hearing for those of us that found time to be present. So I 

think we are underway. 

What I would like to ask you first is, I look at this, if I want to 

get back to you, is there a central group that you have set up to 

represent you? Are you going to have somebody in Washington? Because it has been my experience here, I have been here quite a few 

years, unless you have somebody that is really, really on tap and 

responsible to come and give us the best advice your effort might 

be anywhere near as effective. Because I can’t get on the phone and 

call up all of you trying to find somebody. Can you help me a little 

bit on that? 

Mr. LASH. Senator Warner, my colleagues have turned to me to 

respond to that. The group has operated completely by consensus. 

We continue to operate by consensus. We have no executive director. Each of us is represented by our staff. We all have staff here 

in Washington and any of them can respond for the group. 

Senator WARNER. All right. So that is for the time being. It may 

be well be in due course you will have to bring this together. 
59 

Second, is this a closed end fund or an open end fund? Can other 

industries join? 

Mr. HOLLIDAY. Senator, we would welcome other companies and 

industries to join. We think as we started this it was a small 

enough number that we could have the debates and we had extensive debates for almost a year. But we welcome other industries to 

join. 

Senator WARNER. Anybody else want to comment on that ? This 

is freewheeling. Then I will allow our two colleagues at the end to 

comment after I am finished with a series of questions, and then 

you can address any aspect of my line of questions you might wish. 

Mr. SMITH. Just one comment, Senator. 

Senator WARNER. Yes. 

Mr. SMITH. One thing that seems to be lacking in this hearing 

and many hearings is we see a lot of big businesses. We don’t see 

many small businesses which are less prepared to address the regulatory costs of compliance and some of these incredibly complicated things we have heard about. So in some ways I would hope 

that somewhere at some point you might want to have a special 

hearing devoted to the impact on smaller business. 

Senator WARNER. Madam Chairman, I think that is a point well 

taken. I accept that as a very valid, constructive critique of this 

whole subject we have today. 

Let’s go back to the cost to the American taxpayers of these various programs that we have under scrutiny here. How do you justify to your stockholders and then to the American taxpayer when 

the rest of the world seems to be moving at its own pace? It seems 

to me that is where we could be pulled down on this issue, unless 

we all get into the boat and pull on our oars. 

So are you going to take part in this international issue that is 

coming along? Kyoto expires here in a couple of years. I don’t know 

there is much likelihood that we will be a signatory in that brief 

remainder of its life. But at the same time, our Government can’t 

just sit still. We have to plan for the future. Because I believe that 

most of these concepts are going to take a long time to get started. 

But the old bottom line, which you have to address every day, 

is going to begin to talk about it. Mr. Darbee, I see you are eager 

to answer that question. 

Mr. DARBEE. Thank you, Senator. We believe that the United 

States has a unique place in the world as a leader. If you look at 

our carbon emissions, a country of 300 million is emitting more carbon today than all of China and all of India, whose population is 

in the billions. So we contribute a disproportionate amount of carbon into the environment. 

The second thought is that we are among the richest or the richest Nation in the world. But in addition to that, we also have demonstrated a unique track record in innovation. Given all those factors, our proposal would be that the United States step out and 

take a leadership position on this issue. But at the same time, 

what we have done so is turn to others in the world as different 

Senators here have suggested, and really encourage the involvement. Our company has already worked with China on the question of energy efficiency. They have visited our State and our company. We have sent representatives to China and they have ex-
60 

pressed keen interest in energy efficiency, because they recognize 

that they are wasting vast amounts of electricity and power, and 

that not only is that bad for the climate, but it is not good for their 

economy, it is very inefficient. 

So I think that the concern raised, are we going to step out and 

expect others to come with us is a valid one. But given the position 

that I mentioned, that we contribute a disproportionate amount of 

carbon, that we are a very wealthy Nation and that we are very 

good at innovation, if we don’t step out, if we say we are not going 

to take any action until you all move, I think other countries will 

look at us and say, why should we, who are not as wealthy, who 

don’t have the innovative capabilities and all, and who contribute 

less, why should we step out first? 

So I think it is our role as a leader in the world. 

Senator WARNER. All right. Are you going to recommend to the 

Congress maybe a specific piece of legislation? 

Mr. DARBEE. We have not, we as a group as mentioned before, 

U.S. CAP, is not taking a position on any piece of legislation. We 

as a company have, and we supported Assembly Bill 32 in California, and we have supported the Feinstein-Carper bill here in the 

Senate. We have supported the Kappa proposal as well. 

Senator WARNER. Anyone else wish to address any of those 

issues that I raised? Yes, Mr. Holliday. 

Mr. HOLLIDAY. Senator, DuPont does business in 70 countries. So 

we operate under Kyoto today in many countries. So what we see 

is the opportunity to learn from those first attempts and do it much 

better. So I think this is the opportunity we see. 

The second question is around India and China and they are important questions. What I hear from our employees in India and 

China is the U.S. takes leadership. I think then you have the right 

to insist that they follow, w will have the leadership to allow that 

to come forward. But it is an important step to be taken. 

Senator WARNER. These emissions, while we are on China, seem 

to have manifested themselves ever so clearly in China, fortunately 

not to the degree in this country. In other words, you see pictures 

of just the environment being devastated as a consequence of their 

level of emissions. Am I not correct in that? 

Mr. LASH. That is absolutely true, Senator. In fact, for their own 

reasons, to address the immediate problems of pollution and energy 

dependence, the Chinese have taken actions which in fact reduced 

their intensity of CO2 emissions, although they would never say 

that was for climate change reasons. 

Senator WARNER. What about India? Do they have comparable 

problems? 

Mr. LASH. Yes. 

Senator WARNER. Is the manifestation of the pollution as clear 

in India as it is in China? 

Mr. LASH. Just speaking from personal experience, there are cities in China where you can’t go without having lung problems. I 

do not think it is as bad in India. 

Senator WARNER. Thank you very much. Thank you, Madam 

Chairman. 

And good luck. Let’s hope that you augment your ball team and 

get more in. Because the more to come, the more attention you are 
61 

going to get in this old outfit called the Congress. I will tell you 

that. 

Senator BOXER. Senator, thank you so much for that point. I 

want to mention to you, Senator Warner, that in their report, they 

do lay out various options for us to look at. So it is a good document. 

Senator Lautenberg, 10 minutes. 

Senator LAUTENBERG. Thanks, Madam Chairman, for holding 

this hearing. I would like to ask that my full statement be included 

in the record as if read. 

Senator LAUTENBERG. But I do just want to note a couple of 

things, and just to say, we know about the intra-governmental 

panel on climate change report that said, warming of the climate 

system is unequivocal and that human behavior is very likely the 

cause. Just last week, we heard something similar from Exxon 

Mobil, and by the way, Senator Inhofe, I want to just clarify one 

thing. I spent 30 years building a company, even though Senator 

Inhofe says that we don’t have enough people around here who 

have—— 

Senator INHOFE. I still think so. I always acknowledge that you 

are there. There should be more like you and me. I agree. 

Senator LAUTENBERG. Well, I am not sure about you, but—— 

[Laughter.] 

Senator LAUTENBERG. In any event, we are dear friends, for the 

audience, who doesn’t see us fighting in the other rooms. We are, 

and with great respect. 

So when I see a group of CEOs come in and say, hey, we have 

a problem, we want to help clear up this problem, and when I see 

that Exxon just last week, I think, said the appropriate debate is 

not whether the climate is changing but what we should be doing 

about it. The same ExxonMobil, and they are a terrific company, 

but they did spend $16 million between 1998 and 2005 to dispute 

the science that supports global warming. 

Both of these statements say the same thing, so when I listen to 

each of you and your testimonies of value, I do have some differences. Mr. Holliday, you just said something, that in the countries in which you operate that you follow the Kyoto principle. 

What kind of an impairment has it been? Would you not go to a 

country that has signed the Kyoto accord? 

Mr. HOLLIDAY. Absolutely not. What we have found is by applying our technology and getting ahead of the curve and anticipating 

when it is coming in, we can be very successful. So I don’t know 

if a single decision that we have made to not go to a country because of Kyoto. 

Senator LAUTENBERG. By the way, the company I helped found 

is called ADP, Automatic Data Processing. We have 46,000 employees and the longest growth record of any company in America. It 

grew at 10 percent in its profit over the previous year. Longest 

record in history, 43 years in a row. So I have to make sure that 

my dear friend, Senator Inhofe, knows that I wasn’t out there just 

wasting time before I came to the U.S. Senate. 

[Laughter.] 

Senator LAUTENBERG. I had an experience in 1992 in Brazil at 

something called the Earth Summit. Al Gore made a terrific speech 
62 

and we salute the Kyoto Accord, but we don’t want to sign it. I 

think, Mr. Darbee, you said something that struck a chord with 

me, and that is, where is our leadership? We have seen that we 

have lost it in places around the world because of decisions that we 

have made, or didn’t make. We have a responsibility. We practically own the place. So why shouldn’t we go ahead and do it? 

So that brings me to Mr. Smith. And I am curious about a couple 

of things, about your organization. Is yours a membership organization? 

Mr. SMITH. No. 

Senator LAUTENBERG. No? 

Mr. SMITH. No. 

Senator LAUTENBERG. Who is the Competitive Enterprise System? 

Mr. SMITH. We are a pro-market, public—— 

Senator LAUTENBERG. Institute, sorry. 

Mr. SMITH. We are a pro-market, public policy group. We get our 

support from anyone who is willing to tolerate our independence, 

and there are too few of them. 

Senator LAUTENBERG. Well, you are here, and the Institute has 

put out some ads that are fairly significant. They have to be paid 

for, obviously. What kind of revenue does your organization have? 

Mr. SMITH. Our budget is a little less than $4 million. It was about $3.8 million last year. It has grown, we started in 1984. Our 

staff is about 27 now. And the ads, our budget was considerably 

smaller than some of our opponents on the other side. I would say 

we have spent about $50,000 on our ad campaign. That was out of, 

incidentally, general overhead for our organization. 

One little point that was made both by yourself—— 

Senator LAUTENBERG. Well, I don’t want to lose my time. 

Mr. SMITH. I am sorry. But we have signed Kyoto, remember 

this. 

Senator LAUTENBERG. Yes. Well, you say we have signed it. Do 

we fully endorse the—— 

Mr. SMITH. We signed it. We didn’t ratify it. And I think one of 

the things we might want to do is consider ratifying it. 

Senator LAUTENBERG. I am sorry? 

Senator BOXER. As I understand it, President Clinton signed 

Kyoto, right? 

Mr. SMITH. Right. 

Senator BOXER. But President Bush rescinded it, is that correct? 

Mr. SMITH. No, that is not correct. 

Senator LAUTENBERG. It was not ratified. 

Mr. SMITH. It has not been ratified, that is the point. 

Senator LAUTENBERG. So then we are obviously not committed to 

adhering to their principles. 

When I was at this Earth Summit meeting, I approached one of 

the interior ministers of a Latin American country where they are 

regularly burning the Amazon forest. I asked him why they were 

assaulting the environment the way they were with that policy and 

that it was helping to create acid rain and various other problems. 

So he said, well, our farmers have no other way of sustaining 

themselves. So one of our farmers, if he cuts an acre of trees, it is 

enough to sustain his family for life. He said, but one of your chem-
63 

ical workers in a day can help discharge far more in that day than 

the farmer in his lifetime. And therefore, America, if you want us 

to stop burning the forests, then maybe you ought to help us give 

that farmer a way of life, maybe contribute to his well-being. 

And therein to me lies a little bit of a complicated situation. We 

want other people to behave better than we do. I sat in the office 

of the environmental minister in China and he complained about 

our profligate use of fossil fuels and what we were doing. I asked 

him, we were on the 23d floor, I asked him if he could see the 

ground from the office that we were in. Well, he said, it was a bad 

day environmentally and they couldn’t do it. 

So no matter what, we set a terrible example. And so, and Mr. 

Smith, I really, I don’t get your commentary and I don’t know 

whether you make these statements in your advertising that 

Greenland’s glaciers are growing, not melting. But everybody I 

know that has been there says the melt is a very serious threat. 

I have been to the South Pole. Have you had a chance to get down 

there? 

Mr. SMITH. I just came back from Louisiana, but it wasn’t quite 

the South Pole. 

Senator LAUTENBERG. I wish I could help you get to the South 

Pole and spend a few days there and meet with the scientists. 

Mr. SMITH. The point you made about the difference between 

poorer countries and richer countries is a very important one. We 

use a lot of energy, we use a lot of materials. We use them much 

more efficiently in a sense because we are richer and wealthier, we 

are able to do that. The challenge is to bring the energy-poor material parts of the world back to our standards. Because a wealthy, 

technologically adroit country is more resilient, more able to address global warming problems than other ones. 

Senator LAUTENBERG. You had a chance to make your statement 

and this is my turn. 

The question that arises, is regulation necessarily a bad thing, 

I mean, you know, heaven forbid that we didn’t have traffic lights 

and regulate the speed of cars. But just to sum up, it is terrific that 

those of you who head companies are involved in the business 

world but think we ought to do something about these greenhouse 

gases, I read one of you had 10 grandchildren. So do I. 

The last thing I want them to do is be the canaries in the coal 

mine and find out 20 years from now that they are not well. I have 

one grandchild who has asthma. When the environment is not 

good, when it is a smoggy day, that poor kid has a very tough go. 

So we have to look beyond these things. I don’t say cut down on 

profitability. I don’t say penalize people by taking away their jobs. 

Not at all. But there is enough brilliance in our business community, in our scientific community, to solve these problems and to get 

on with it. But if we throw out these objections that have no basis 

in fact, then it doesn’t do anybody any good and we are left standing pat, which is not good. May be good in Las Vegas, it is not good 

here. 

Senator BOXER. Thank you, Senator Lautenberg. 

Senator Bond, we are going to go to you for 10 minutes. And just 

so everyone knows, we will go to Senator Sanders. Then at that 
64 

point, we will make our final questions and comments, and we will 

thank you all for being so patient and being such a good panel. 

Senator Bond, you have 10 minutes. 

Senator BOND. Madam Chair, thank you very much for giving me 

the opportunity. I apologize, we had already scheduled large groups 

of constituents this morning when we got notice of the hearing. I 

apologize for coming late and I apologize to the witnesses. 

I would say first of all, we appreciate your convening this panel 

on the Climate Action Partnership. I would say in reference to the 

discussion about Kyoto, my memory is not great, but I believe after 

Kyoto was negotiated and signed by President Clinton, it came 

back to the United States and I believe I joined with Senator Byrd 

on a resolution saying, do not ratify this agreement because it 

leaves out India and China, the biggest polluters, it imposes unbearable costs. If I recall, the vote was 95 to nothing, or maybe 

97—95 to nothing. Therefore, as we say in the country, that dog 

didn’t hunt. 

I appreciate very much all of you coming here to talk about what 

we can do to improve the environment. We have made tremendous 

gains in the environment in recent years. I commend the leadership of the business community. Your job is to make a profit so you 

can provide good jobs to workers, provide dividends to the retirees 

and others who hold the stock. You make the economy work. 

And when you pursue constructive proposals to lessen emissions 

of all kinds, greenhouse gases among them, you are doing great 

work. 

However, I have some questions when I see members of industry 

and business pursuing goals that are very harmful to other industries but profitable for them. This is not the first time that some 

in industry have shown their support toward carbon caps, for example. Indeed, I think, Madam Chair, if we look back to the Clinton administration meetings with Mr. Ken Lay of Enron over the 

Kyoto treaty, we will see some interesting things. This is a Washington Post article headlined ‘‘Enron Also Courted Democrats: 

Chairman Pushed Firm’s Agenda With Clinton White House.’’ An 

internal Enron memo said that the Kyoto agreement, if implemented, would do more to promote Enron’s business than almost 

any other regulatory initiative outside of restructuring the energy 

and natural gas industries in Europe and the United States. 

That is a pretty clear-cut statement. Everybody knows where 

they are. They went on to describe that an international agreement 

to combat global warming also dovetailed with Enron’s business 

plan. Enron’s officials envisioned a company at the center of a new 

trading system that would curtail the use of coal-fired plants that 

emitted carbon dioxide, while encouraging new investments in gasfired plants and pipelines. Precisely Enron’s line of business. 

The bubble that we mentioned earlier shows why Enron officials 

were so elated. They think that it would promote Enron’s business 

more than any other regulatory initiative. They would profit off the 

pain of other industries and consumers, regulated companies or individuals who are captive to coal and other sources of energy. But 

this example, Madam Chair, shows how companies of all stripes 

sometimes are willing to work for environmental goals, because it 

fits their business model, pads their bottom line and maybe or 
65 

maybe not furthers the environmental goals and the well-being of 

the economy. 

That is why I am not worried as much about what certain companies think about carbon caps, but how vulnerable, poor and middle class communities, especially in my midwestern coal-dependent 

State, are firmly in the cross hairs of carbon cap plans. And we 

know that we are targeted. And we know big railroads still make 

money under any scenario. They pass their costs straight onto 

American families and workers. As we saw in last year’s run-up of 

gasoline prices, even raw materials like oil increased in price to 

record levels. Big oil still made profits selling gasoline. 

Now, some on the committee, and I am not one of them, would 

describe big oil’s profits as ill-gotten windfall profits. They are 

huge, but they are less than the profits in many other sectors. So 

let’s be fair about it: making a profit is what they are there for. 

Indeed, one member of the U.S. CAP partnership testifying here 

today made over $22 billion in profits last year. And who picked 

up the tab to fill those corporate coffers? We as consumers did. 

That is what happens when the cost rises of a basic necessity we 

can’t do without, we might have to pay. We paid when gasoline 

prices went up, we will pay when natural gas prices go up further. 

And that is one of the biggest worries that I have that continue to 

ruin industries, farmers, poor individuals who have to heat with 

natural gas. 

Although Enron did not survive to see the day, the future is clear 

with carbon caps. Less coal, more natural gas demand and higher 

profits from higher prices. That will mean higher prices for heating 

our homes in the winter, higher prices for air conditioning our 

homes in the summer and higher costs for blue collar manufacturing workers supporting their middle class families. Unless of 

course, they happen to be in plastics or other businesses that depend upon natural gas and are forced to move offshore, so they just 

plain lose their jobs, as they have in the past. 

Am I here to blame the companies today? No. I expect you to do 

what you are supposed to do, provide a return to shareholders by 

investing in new technologies and businesses where you will have 

a competitive advantage. But let’s not get that competitive advantage by sticking it to some people who are the least able to handle 

those costs. Make no mistake about what is going on. Some companies will do just fine in a world where energy costs more. But that 

success too often comes at the pain of the poor, the disadvantaged, 

the struggling middle class workers who can least afford higher 

carbon cap prices. 

Please, go forward with nuclear and all the plans you can. But 

don’t saddle the midwest, our workers, our farmers and our poor, 

with outrageously high prices of natural gas caused by carbon caps. 

For a question, Mr. Smith, witnesses here of the regulated utilities claim that carbon caps would not help them. Could you help 

illustrate further how a carbon cap may hurt competitors? 

Mr. SMITH. I think it is quite clear when you look at what is 

going on in Europe now, where we have, as has been pointed out, 

the model example of how our cap and trade system works in general, just pick up any internet writing about the utility industry in 

Europe, the parts of the airline industry in Europe, the British who 
66 

basically rushed in and put severe caps on their industry and then 

recognized that the French and the Germans didn’t. Or parts of the 

industry which got covered and parts didn’t. Parts of the industries, I think it is Spain now rushing around saying, we are OK, 

we bought lots of clean development credits out of somewhere in 

Asia. 

What we are seeing in Europe is a willingness to sign symbolic 

agreements and then when the price tag of those comes into play, 

a lot of fancy footwork to basically pretend that if there was only 

the United States would screw itself to, then we would all be well 

off. Europe is finding it impossible, with higher energy taxes, with 

a much more favorable environment for lowered energy use in the 

United States, to meet their Kyoto pledges. So they are actually increasing CO2 emissions faster than the United States is. 

Senator BOND. They are increasing faster? 

Mr. SMITH. Faster. 

Senator BOND. Why is that happening? Tell me. 

Mr. SMITH. They are lying, basically. Part of it is they didn’t 

cover everything. Their cap did not cover the transportation and 

consumer sector. 

Senator BOND. Well, that is good. 

Mr. SMITH. Well, good, except—— 

Senator BOND. Yes, it is good for the transportation and consumer section. 

Mr. SMITH. I think it is a better thing that carving it across the 

board. But basically Europe has pretended to do things and blamed 

all of their shortfalls on the United States. It is not a good model 

for any place. It is certainly not a good model for the United States. 

Senator BOND. And they are not pushing it, and we are not going 

to get it in China and India, are we? 

Mr. SMITH. I don’t think so. China has now determined that they 

are energy poor and don’t want to stay energy poor. I was at Kyoto 

and the Chinese delegate there said, many of you people in the 

west are telling us to cut down energy use. Remind me of the 

wealthy man in the top hat walking by seeing a little peasant 

warming their food over a little thing and saying, put that fire out, 

you are causing global warming. 

Senator BOND. Thank you very much, Mr. Smith. I have used up 

my time. Thank you, Madam Chair. 

Senator BOXER. Thank you, Senator. We will put into the record 

our research on Europe and whether or not they are meeting the 

goals that is in direct conflict with what you stated, Mr. Smith. 

Tony Blair, when he called a bipartisan group over at the embassy 

was very clear that they are meeting their goals and that they are 

doing really well economically. 

Mr. SMITH. U.K. 

Senator BOXER. We will put that in the record. He spoke for the 

EU. 

[The referenced material can be fond on page 117.] 

Senator BOXER. Senator Sanders, please go ahead. I am going to 

ask Senator Carper to take the gavel. I have a couple of meetings. 

I will be right back. 

Senator SANDERS. Thank you, Madam Chair. I am new to the 

Senate, and what I am learning very quickly is that when you are 
67 

on 5 committees and you have 4 hearings simultaneously, it is a 

little bit difficult to do all the things that you want to do. So I 

apologize for being late. 

As everybody here knows, the International Panel on Climate 

Change released a report very recently, which included work by 

over 1,000 scientists from over 100 countries. They made two 

points very clearly, and they made it very clearly before this committee last week: No. 1, global warming is of course real; No. 2, 

global warming is almost definitely man-made; and further, if we 

do not get a handle on global warming, the results for our country 

and for the world could be catastrophic in terms of increased flooding, increased droughts, rising sea levels, human illness and many 

other impacts which will lower the quality of life for hundreds of 

millions of people. 

So as a result of what is going on in the scientific community, 

Senator Boxer and I introduced legislation that would reduce 

greenhouse gas emissions to 1990 levels by the year 2020, and they 

would lower them to 80 percent of 1990 standards by 2050. Now, 

some people say, well, that is pretty extreme, that is pretty radical. 

But I think the real issue is, what happens to our country and our 

world environmentally and economically if we do not address the 

crisis of global warming. I think one of the good pieces of news is 

that while the political will here in Washington has been significantly behind the American people, it has been lagging, we have 

all kinds of technology out there that are moving rapidly to help 

us address these concerns. We know, I know at least, I can’t speak 

for anybody else, but it is beyond comprehension that the vehicles 

that we drive today, despite huge explosions of technology, give us 

worse mileage per gallon than 20 years ago. How could that possibly be? Huge potential in terms of energy efficient vehicles. 

We know that compact fluorescent bulbs will save us huge 

amounts of greenhouse gas emissions. We know that we are sitting 

just at the cusp of a revolution in terms of solar energy, in terms 

of wind power, in terms of hydrogen. We are making some progress 

in biofuels. We have a long way to go. Geothermal. All of these 

technologies are sitting there waiting to move forward, I think with 

a partnership between the Government and the private sector. 

So my question, and let me start off with Jonathan Lash, whom 

I have known for years and who worked on environmental issues 

in the State of Vermont. Jonathan, nice to see you here. 

Mr. LASH. Thank you. 

Senator SANDERS. My question is a simple one. People talk about 

economic dislocation if we move forward significantly to reduce our 

dependence on fossil fuels. What is the economic implication if we 

do not move forward, and if we do not address the planetary crisis 

of global warming? 

Mr. LASH. Senator, that is of course the key question. I thought 

I would actually cite an unusual authority in responding to this. I 

found a speech that Paul Volcker, the former chairman of the Federal Reserve, gave a week ago, talking about exactly that question. 

He said he didn’t think that the effect of controlling greenhouse 

gases would be that bad for the economy overall, and second, if you 

don’t do it, you can be sure that the economy will go down the 
68 

drain in the next 30 years. He was referring to the impacts that 

the IPCC had described. 

Senator SANDERS. Right. So the issue that we have to look at is 

not just the economic dislocation of what happens if we move forward, but the much more severe economic problems that will result 

if we do not move forward and if this planet faces the kinds of potential disasters that we might. Just looking at Hurricane Katrina 

and that particular disaster. 

I would like to ask Mr. Darbee and perhaps Mr. Holliday, that 

when we talk about economics and attempting to address global 

warming, what kind of immediate job creation opportunities exist 

as well? I am sympathetic to a concept called the New Apollo 

Project, which suggests that we can create hundreds of thousands 

of new jobs as we make our country more energy efficient and as 

we move finally in a serious way toward sustainable energy. Mr. 

Darbee, do you want to take a shot at that? 

Mr. DARBEE. Certainly, Senator. When we looked at the question 

of AB 32 in California, what we saw was that legislation was supported not only by ourselves but also the venture capital community. They are enthusiastic about the investment opportunities. In 

fact, during the last couple of years, because of all the concern on 

energy, investment in the venture capital community in energy has 

really developed very substantially. I have spoken with venture 

capitalists, some of the most renowned on the peninsula about 

solar thermal and what can be done there. The technologies are 

truly exciting. 

One additional point I would make is that when decoupling was 

introduced 30 years ago in California, many people opposed it, particularly in our own company. And it was implemented because it 

represented change and uncertainty. But it has been a tremendous 

success in terms of energy efficiency in California, for the people 

of California. And it has been just fine for our company. 

Second, with respect to acid rain legislation that involved a cap 

and trade program here in the United States, what people were 

concerned about was the impact on jobs and the like. And what 

happened in that instance was, we solved the problem of acid rain 

more quickly than we expected and much more cheaply than we expected, because we unleashed the power of the marketplace. So I 

am optimistic and very much in agreement with you. There may 

be some costs associated with dealing with cap and trade. But the 

cost of not could be catastrophic. 

Senator SANDERS. Would you agree in general that we have tremendous economic opportunities as we break our dependence on 

foreign oil, as we break our dependence on fossil fuels, and we 

move A, to energy efficiency and B, to the new technologies of sustainable energy? 

Mr. DARBEE. Absolutely. And one other that I haven’t mentioned 

is plug-in hybrid vehicles. 

Senator SANDERS. I want you talk about that one. Before you go 

there, I want to ask you a question. Who killed the electric car? I 

saw the movie and I want to know. 

[Laughter.] 

Mr. DARBEE. I can’t answer that question, but what I will say is 

we are exceedingly excited about plug-in hybrid cars. Not only am 
69 

I concerned about the climate, but I am very concerned about energy security here in the United States. The fact remains, with the 

existing capacity, resulting from off-use peak periods and the like, 

that we can support 180 million plug-in hybrid vehicles with the 

capacity, the generating capacity that exists today and is not utilized at night. 

Senator SANDERS. I share your thoughts. But here is my concern. 

Having seen that movie and other things, I don’t want to Detroit 

to be telling us all these wonderful things are going to be happening. You ask these guys when these cars are going to get on the 

market, they are not very clear about that. Oh, the hydrogen car, 

well, we don’t know when it is coming on the market. 

Let me get back to the electric car, which was utilized in California, is that today something that can be useful in helping us address pollution and fossil fuels? 

Mr. DARBEE. Absolutely, yes. What we have seen in California is 

there has been very significant demand for the hybrid vehicles to 

date. And the leap to the plug-in hybrid is not very far at all. We 

understand actually GM is also moving on that front. But clearly, 

Toyota has taken a real leadership role there. And we are looking 

to absolutely take full advantage of the opportunities there. 

Senator SANDERS. Madam Chair, on that note, I have to say, 

what really is incomprehensible to me is that despite the substantial amounts of corporate welfare that Congress has given Detroit, 

we find Toyota and Honda doing a much better job in producing 

energy efficient cars. I think that is unfortunate. 

Mr. Holliday, did you want to respond to the question of what 

kind of economic gains can we make as we move to energy efficiency and breaking our dependence on fossil fuels? 

Mr. HOLLIDAY. Let me talk about one we are experiencing today. 

We go back 25 years, we have 200 gallons of ethanol per acre of 

corn here in the United States. As a result of technology, we are 

at 400 gallons today. When we use the entire corn plant in the efficiencies our scientists have developed, we anticipate 1,000 gallons, 

it is possible. 

So we are creating economic jobs today, this season—— 

Senator SANDERS [continuing]. For farmers who very often need 

that help. 

Mr. HOLLIDAY. Your work will allow us to take the legislation 

forward and get the technology working, we could double again 

where we are. That is the kind of solution we see as possible. 

Senator SANDERS. Madam Chair, I am very happy to say that we 

have States like New Jersey, Illinois, California, who recognize 

what you and I do, that in fact we can move forward boldly, we can 

reverse global warming and we can create in this country a significant number of good quality, good paying jobs as we save the planet. 

Thanks very much, Madam Chairman. 

Senator BOXER. Senator, thank you for your line of questioning. 

I would like to associate myself with your remarks. And that Who 

Killed the Electric Car is worth seeing. Somebody has to explain 

to me why GM had every one of those cars flattened. 

Senator SANDERS. Can we bring those guys in here? That would 

be an interesting hearing. 
70 

Senator BOXER. Actually, it would be interesting. Why don’t you 

give it some thought. Put it together and we’ll maybe let you chair 

it. 

Senator SANDERS. Senator Inhofe, I want to give you 10 minutes, 

because you have asked if you could precede me and then I will 

close it up with my 10 minutes. Please proceed. 

Senator INHOFE. Thank you, Madam Chairman. 

Let me first of all, I recognize, Senator Sanders, you believe what 

you said in your opening remarks in terms of science being settled 

and it is real and all that. And yet you were not here during my 

opening statement. I listed many, many leaders that were leaders 

15 years ago—it has been that long, hasn’t it?—who are now coming around and questioning the science and totally changing their 

position, totally. One was a leader in France, one was a leader in 

the U.K., one was a leader in Israel and in the United States, a 

former founder of Greenpeace International. 

So we have a lot of people who are saying now that the science 

has changed. I recognize you don’t agree with that. But I think you 

guys, I hope that in your private lives, maybe not your corporate 

lives, you look at these things and see that there is certainly a lot 

of doubt about it. As far as IPCC is concerned, I was surprised, 

even though what they came up with was a summary for a policymakers, and it is not the scientists, not the scientists, these guys 

are politicians, they are policymakers, they have already decided 

how, they were the ones who started this thing in the first place. 

And yet they came out at the same time and said that man’s contribution to CO2 or anthropogenic gases is downgraded 25 percent. 

That is IPCC that said that. The United Nations came out with a 

report the same week, saying that the amount of emissions coming 

from livestock is greater than that of all the cars, all the SUVs, all 

the trucks, all the man-made gases. That is there. 

So we look at these things, and the more I hear people say 

hysterically, science is settled, science is settled, science is settled, 

the more I wonder about it. And then you find out why when you 

see people who are coming our direction. 

Let me just say two things, Mr. Darbee, real quickly. I think you 

are wrong in one area, and that is in terms of China. I think you 

said that China, that the United States emits more CO2 than both 

China and India. I don’t think that is correct. They are saying now 

that by 2009, China will pass up the United States as a major 

emitter, and I think in 2012, India will. Would you disagree with 

those two statements? 

Mr. DARBEE. I think both statements are correct, that is in your 

statement, Senator. Currently we produce more CO2, but they are 

projected to surpass us. 

Senator INHOFE. That is correct. Certainly currently that is correct, and I think as you recall in my opening statement, when I 

talked about the problems we are going to have with all the gasfired plants in China, it is going to be even worse. Then I just ask 

just one other question. In the Wall Street Journal, by the way, 

Madam Chairman, I want to ask that the Wall Street Journal article of January 26th of this year, If the Cap Fits, be made a part 

of the record immediately after my opening remarks. 

Senator BOXER. Certainly. 
71 

Senator INHOFE. In that, they single out a number of utilities of 

which PG&E is one. It says, our utilities that have made big bets 

on wind, hydroelectric and nuclear power, so a Kyoto program 

would reward them for simply enacting their business plan and simultaneously sock it to their competitors. Do you disagree with 

that statement? 

Mr. DARBEE. I absolutely do, sir. 

Senator INHOFE. All right, that is fine. I just wanted to see if you 

did. 

Mr. Holliday, I understand your company has historically produced an enormous amount of greenhouse gases, but not CO2, and 

that through various process changes, you have reduced your emissions, well, the report, said, by 72 percent from 1991 levels. I think 

the other report says 60 percent from 1990. That was about the 

same. And I understand that at $10 per ton of CO2 price, credits 

based on that baseline year would have a potential market value 

increase to you of $472 million. Do you disagree with that? 

Mr. HOLLIDAY. I haven’t done the calculations or seen them, sir. 

Senator INHOFE. Well, I think maybe you have and maybe forgot, 

because this is in your report, the PCA, Partnership for Climate 

Action. By 2000, DuPont had reduced greenhouse gas across the 

country by 63 percent. Then it goes into the same analysis of the 

$10. Then it goes on to say if it is $20, it would be a billion dollars. 

You don’t necessarily disagree with that? 

Mr. HOLLIDAY. Sir, we made these steps because they were good 

decisions for our shareholders. 

Senator INHOFE. I was asking the result of these steps, does your company stand to make that much in the event we use $10 or $20, 

the two examples that we gave? 

Mr. HOLLIDAY. Sir, I have not seen those calculations. I am 

sorry, I can’t answer, I will be glad to get back to you. 

Senator INHOFE. Well, let me ask you another thing, too. Some 

of the environmentalists have said that the emitters should be responsible for historic emissions. Do you object to that? Now, be 

careful when you answer, because when we draft this bill, I want 

to be able to say that DuPont is on record by saying that they don’t 

mind going back and having historic emissions as a part of an 

emissions program. 

Mr. HOLLIDAY. I think any particular piece of legislation we have 

to take as entirety, so I couldn’t comment on one phrase without 

knowing its context. 

Senator INHOFE. But you are not saying right today that you 

would oppose historic emissions being included in a formula? 

Mr. HOLLIDAY. I don’t see a basis for looking back, I don’t understand the details of how that would be done, sir. I would be glad 

to look at it with you. 

Senator INHOFE. Well, I don’t know the details, either. But if you 

reduced emissions that much, and you end up paying for having 

had that much before and not getting credit for reducing them, 

that is what we are talking about. 

Mr. Elbert, I understand that BP is the third largest producer of 

solar panels in the world, and you plan to triple sales from 100 

megawatts per year to 300, is that correct, Mr. Elbert? 

Mr. ELBERT. I believe that is correct, yes. 
72 

Senator INHOFE. Would you share with us what your current 

gross revenue is from the sale of solar panels today? 

Mr. ELBERT. I can’t. I would be happy to. I don’t have the number off the top of my head. What I will say about our solar business 

is that we have been in it for 30 years. That business first turned 

to profit 2 years ago. We have been committed to this for a long 

time. We are growing the business at roughly 30 percent per year. 

It is a small base. 

Senator INHOFE. That is fine. I can’t help but thinking, when you 

were testifying about BP, they are already operating in U.K. for a 

great amount of their business and it probably would have some 

benefits to having the rest of the world treated the same as U.K. 

does. 

Mr. Book, first of all, I think that as Mr. Smith, I believe, said, 

that maybe it would be more transparent and maybe it would be 

more honest if we just had a CO2 cap. Frankly, I think it would. 

I would rather do that so people would know just what it is. There 

is no tax increase that is worse than a hidden tax you can’t explain 

to people. What do you think? 

Mr. BOOK. To the extent that there are no ways to generate offsets, there is nothing you can bring to the market to sell, then 

what you are really doing is you are taxing. Now, that doesn’t 

mean that there won’t always not be offsets, and provisions can be 

made to look ahead at when technology catches up. 

Senator INHOFE. You mentioned, I believe, Russia, was it you or 

one of the other witnesses? 

Mr. BOOK. I did, yes. 

Senator INHOFE. All right. I was in Milan, Italy, this is kind of 

interesting, when their economists were saying they do not believe 

in the science in terms of man-made anthropogenic gases causing 

climate change. But they were going to sign onto the Kyoto because, I was in aviation for a long time, flew an airplane around 

the world, went all the way across Siberia. All I could think of, 

hour after hour after hour, all those resources down there and they 

aren’t doing anything with them. Those would all end up as credits, 

wouldn’t they? 

Mr. BOOK. Well, their emissions that don’t have any more 

amount to about a thousand million metric tons. 

Senator INHOFE. And if you put a dollar figure on that for Russia? 

Mr. BOOK. At the peak of the European emissions trading 

scheme prices in April of 2006, you would have about 39. So that 

is about 39,000, that is $39 billion a year in revenue for Russia. 

Senator INHOFE. Mr. Smith, it is pretty clear that—well, let me 

do it this way. In my opening statement I talked about, and I have 

never stated it this way before, but it occurred to me a couple of 

days ago, we looked back and checked and found that what we are 

talking about doing now represents the largest single tax increase 

in the history of America. According to—and I can cite the 

sources—the one prior to this was 1993, the Omnibus Budget Reconciliation Act of 1993, increased, created 36 percent and 39.6, 

rates for individuals, 35 for corporations. It goes on and on. That 

represented a $32 billion hit for our economy. 
73 

This represents at least a $300 billion hit for our economy. 

Would you characterize that as a tax increase? 

Mr. SMITH. Not as a tax increase. If we go the cap and trade 

route, we are doing it in a very dishonest way. If we really believe 

that global warming and carbon emissions are the serious problem 

that people say they are, then we have a duty, I think, to be honest 

with the American people. When Churchill argued that Germany 

was a threat to the world, he didn’t promise us we could change 

a few light bulbs and the world would be OK. He promised blood, 

sweat and tears. I think an honest debate on this would indicate 

there are real costs of global warming on the poor, on small businesses, on the world, and we should be willing to pay those costs 

if we honestly believe this is a serious problem. 

Senator INHOFE. I’d like to extend it for 2 minutes, because I 

wanted to ask Mr. Hamm a question. 

Senator BOXER. Of course. 

Senator INHOFE. I knew you would, and I appreciate it very 

much. 

I still call it a tax increase. We can use our own definitions. 

Mr. Hamm, I can remember probably many, many years ago, I 

was a very small child at that time, but I actually was a tool dresser in a cable tool rig. They don’t use cable tool rigs any more, but 

I know a little bit about the industry and about one individual. His 

name was A.W. Swift, who actually was taxed out of business. I 

went by to see him, this was many year ago, and his cable tool rigs 

were all stacked up. He said, you know, between regulation and 

taxation, I can no longer supply America with the cheap gas that 

I have been doing. 

In your case, I think it was Mr. Book who said that this is a tax 

on production. Do you agree with that? 

Mr. HAMM. Yes. 

Senator INHOFE. How would that affect you? 

Mr. HAMM. Well, it would hurt, especially our stripper wells, 

marginal wells that just barely get by right now. It is a very stable 

form of production. But frankly, additional tax would just plug 

them. Once they are plugged, they are gone forever. 

Senator INHOFE. Yes, people don’t understand that, that you plug 

a well and you can’t just unplug it. I have had a hard time explaining even to members of this committee. It is gone in most cases. 

Mr. HAMM. And in order to avoid pollution, when you plug one, 

you actually have to cement it off. You just can’t afford to go back 

and redo that well. 

Senator INHOFE. Particularly in marginal wells or stripper well 

production. Now, I have also had it stated that if we had all of the 

marginal wells producing today that we have closed down in the 

last 20 years, it would equal more than we are importing from 

Saudi Arabia. Now, I have the documentation for that, so I don’t 

think anyone is going to challenge that. But it does show the contribution that the small stripper well operator is making to the 

overall what I consider to be an energy crisis. 

You testified about how our country rejected Clinton’s Btu tax. 

Yet the costs of his Btu tax were much smaller than the cost of carbon caps. 

Senator BOXER. Senator, you have gone over your time. 
74 

Senator INHOFE. Anyway, we will do our best to keep you, Mr. 

Hamm, in business and making the contribution as you have in the 

past for good, cheap energy for America. Thank you very much for 

what you have done. 

Mr. HAMM. Thank you. 

Senator BOXER. Thank you, Senator. 

So I am going to take the last 10 minutes here and say to Mr. 

Hamm, we will be concerned, whatever we do, that the impacts on 

this economy will not be devastating. And I would say to back that 

up, we ought to look at what Paul Volcker said. I know it was referred to, but I think it is important to read to you what Paul 

Volcker said, who is a very respected economist, I would say, on 

both sides of the aisle. 

He said ‘‘Measures to reduce global warming would not be devastating economically and the United States has been particularly 

delinquent on the issue.’’ He made these comments to the American 

Chamber of Commerce. He said, if we don’t address global warming, he says ‘‘You can be sure the economy will go down the drain 

in the next 30 years.’’ So, wakeup call to those in the business community that are not looking past their next profit and loss report. 

I am an ‘‘old’’ economics major, old in quotes, of course, and I could 

tell you that it doesn’t do you much good in the long run if these 

impacts come true. 

The science is clear. The very scientists from the IPCC were here 

briefing members of this committee. And there is no debate any 

more; 2,500 scientists were involved in that. I am sure when Mr. 

Darbee sat down for his economic roundtable, he would have been 

relieved if there were some people who said, don’t worry, Mr. 

Darbee, just do business as usual, you are cool. But that is not 

what is going on. 

So, reality check, and a check of the long term. And I know, Mr. 

Hamm, you referred in your statement that you are concerned 

about pollution. You have family, and of course, I so respect that. 

So we will figure out a way to get people through this. We have 

done it before. A river was on fire, we passed the Clean Water Act, 

people couldn’t breathe, you saw the air, we passed the Clean Air 

Act, the Safe Drinking Water Act. Business sat there, oh, my goodness, this is going to be the end of the world. 

Remember when we thought about seat belts and air bags and 

how Detroit said, oh, my God, it is the end, seat belts and air bags. 

Now they take credit for seat belts and air bags. 

So I just think we need to be calm about this. I always find it 

amazing when my Ranking Member, who I wish was here, says 

which side are the hysterics coming from. They are not coming 

from my side. We see a problem, we want to solve it. And we want 

to solve it in a way where we are all together, Republicans, Democrats, business, environmentalists, consumers, everyone. 

Volcker said, what may happen to the dollar and what may happen to growth in China or whatever, he said, raising his voice, pale 

into insignificance compared with the question of what happens to 

this planet over the next 30 or 40 years if no action is taken. The 

scientists seem pretty well agreed, he says, that global warming is 

still potentially manageable if we act decisively, beginning now into 
75 

the next decade or so, by taking measures that are technically and 

economically feasible. 

Now, Paul Volcker is not by nature an hysterical person. He is 

an economist. They are far from hysterical. He is looking at the economics of doing nothing versus the economics of doing the right 

thing, and he comes down on the side of doing the right thing, 

things that my colleague, Tom Carper, Senator Alexander are trying to do, Bernie Sanders and I with our bills, we all are trying 

to do the right thing. 

But let me tell you what I think the wrong thing is. The wrong 

thing is to say, yes, we voted 10 years ago against Kyoto. I mean, 

that is a correct fact. But if you don’t follow up with the fact that 

in 2005, we changed position in the Senate and in a very Republican Senate, we had 53 votes to say, there ought to be mandatory, 

market-based limits on emissions of greenhouses gases. Let’s stop 

and reverse the growth of such emissions. 

So just to say we said that 10 years ago and then not say that 

we have responded, we have responded to the changes. 

And just let me say, I very much support free speech. So anyone 

can say anything they want and I would throw myself in front of 

a truck for your right to say it. But don’t use guilt by association 

and say that companies are sitting here today and other people and 

other organizations that are not here today and small businesses 

who may not be here today, don’t compare them with Enron. What 

is that about? 

Mr. Smith did it by innuendo, Senator Bond did it. It is outrageous. Enron, a company so close to President Bush that its CEO 

had a special loving name. They are gone. And a lot of their remnants are in jail, thank goodness for that. 

So don’t use Enron as a way to defame people who support action 

on global warming. I resent it and I will call you on it every time 

you do it. And let me tell you how I will call you on it. It is not 

only the corporations that are here today, some of whom I fight 

with on other matters, but who I praise to the sky today for what 

they are doing. But it is also a huge number of small businesses 

in my home State. The Small Business California, SBCal, all of 

those companies say, yes, we support AB 32 in California, which 

is a tough and stringent bill, like the one Bernie and I have. 

And the people who support that, the American Academy of Pediatrics, American Lung Association, California Nurses Association, 

California Thoracic Society, compare them to Enron? Faith-based 

organizations, California Catholic Conference of Bishops, Interfaith 

Power & Light, Lutheran Office of Public Policy and others, Enron? 

Organized labor, California Nurses, California Federation of Teachers, the firefighters, the State, county and municipal employees, 

the League of Women Voters, and the Republicans for Environmental Protection? Enron? 

Cut it out. If you can’t make an argument, you can’t make an argument. But don’t use guilt by association in a matter of science. 

It is not right. We can disagree with each other without throwing 

around Enron and other demeaning comparisons. It is very disturbing to me. 

Now, I wanted to say to Mr. Elbert of BP, you mentioned your 

big initiative in California and Illinois, which is a $500 million 
76 

biofuels program. It has hit the wires today. It is huge news in my 

State. Thank you for it. 

And I want to ask you something. How can we make sure our 

cars can use those biofuels that you and I think Mr. Holliday are 

also working on? 

Mr. ELBERT. The particular biofuel that DuPont and BP are 

working together on, biobutanol, works quite well in the current internal combustion engine. It is different from ethanol. 

Senator BOXER. How close are we from getting that to market? 

Mr. ELBERT. I will check with my colleague, but I believe our 

plans are to introduce it in 2 years. 

Mr. HOLLIDAY. Yes, we will have some demonstration product by 

the end of this year and we think we will be commercial and competitive by 2010. 

Senator BOXER. So what you need to do then at that point is to 

get those pumps into the stations, is that what we need to do to 

get those pumps available? Will you open up new stations, or will 

you lease? 

Mr. HOLLIDAY. That is the advantage of working with BP, because they have the route to do that. 

Senator BOXER. They can do that in their stations. 

Mr. ELBERT. The benefit of biobutanol is that it doesn’t require 

special pumps. It can be blended directly into the gasoline. 

Senator BOXER. How much greenhouse gas emissions from there? 

What is the cut in it, compared to what you have now? Is it 30 percent less greenhouse? Do you know what it is? 

Mr. ELBERT. No, it is quite less. 

Senator BOXER. I need to know that, if anyone knows that. If we 

could get that in writing to the committee. 

Mr. HOLLIDAY. We will confirm. It is bout 25 percent less. We 

will confirm the exact number. 

Senator BOXER. The last point I want to make is again, getting 

back to the economics hat. I talked about Volcker. Mr. Book, I respected your testimony, I thought it was actually fairly balanced, 

I appreciate it. 

Mr. BOOK. Thank you. 

Senator BOXER. But the Stern review has made some important 

points. And Nicholas Stern, the former chief economist of the World 

Bank, conducted a recent study, October 2006. The principal conclusion is that the overall cause of climate change are equivalent 

to losing at least 5 percent of global GDP each year. In a worst case 

scenario, the loss of 20 percent of global GDP. Based on the report’s findings, he says $1 invested now can save $5 later. The cost of taking action to prevent atmospheric concentrations can be limited to 1 percent of GDP. So it is limited to 

1 percent to save potentially 20 percent. So I am asking you, as an 

economist, do you have reason to doubt Nicholas Stern? Does he 

not bring the proper credentials to the table here? 

Mr. BOOK. Sir Stern’s credentials are absolutely impeccable, and 

of course, he is testifying before another committee today. 

Senator BOXER. Yes. 

Mr. BOOK. My concluding point is to suggest, Madam Chair, is 

that the Stern review is one point of view on the forecasted costs 

of inaction. What probably this august body and other Washington 
77 

organizations can do is look at their own assessments, make their 

own forward looking projects as to what the costs of limited, complete and no action might be, and then make an informed judgment. Because the Stern review is just one perspective. 

Senator BOXER. But you would agree it is best to keep politics 

out of it? In other words, that is why I am so impressed. You want 

to keep politics out of these reviews, don’t you? That is an important point. 

Mr. BOOK. The essence of economic analysis is to make clarifying 

assumptions about what you think something will be worth or 

what you are going to impute the value of some action or interaction to be. That is necessarily subject. 

I would suggest that by having many data points instead of just 

one, you actually reduce some of the subjective risk and you get a 

better spectrum of analysis that gives you a better answer. 

Senator BOXER. Well, I just want to make the point that I am 

not going to shop around until I get an answer I like. I am going 

to go with the most renowned people, and that to me is the most 

important, keep the politics out of it. Because that, we don’t want 

to do that. What I have criticized this Administration for is taking 

the science out of clean air. We had a whole hearing on that. Used 

to be they were right in the front end of the process. Now they 

have been relegated to making a comment at the end. We just have 

to work to keep the science clean. That is very important. 

So let me just say, as I close down this hearing, how impressed 

I am with this panel, all of you. I really appreciated the way you 

approach this. And one of the things I take away from this, as I 

sat back and I turned to Bettina Poitier, our chief here, is that the 

low hanging fruit is right there for us, and it is called energy efficiency. Whether or not you believe like I do and most of us here, 

that there is no question that the science is there or not, energy 

efficiency is the low hanging fruit that is going to help us all in our 

businesses, in our pocketbooks and the rest. 

So we have certain things that we can do pretty quickly here to 

begin to fight back against global warming. At the same time, take 

measures that are going to be beneficial for the American people. 

I just want to thank you all. We will be working closely with you, 

and again, I want to say to the businesses who are here who have 

stepped out on this, when history is written you will be noted in 

a very positive way. 

Thank you very much. Our meeting stands adjourned. 

[Whereupon, at 12:45 p.m., the committee was adjourned.] 

[Additional statements submitted for the record follow.] 

STATEMENT OF SENATOR CHRISTOPHER S. BOND, U.S. SENATOR FROM

THE STATE OF MISSOURI

Thank you, Madame Chairman, for convening this hearing on the United States 

Climate Action Partnership. This is not the first time that industry has worked 

alongside environmentalists. Indeed, this is not even the first time that some in industry have thrown their support toward carbon caps. 

Indeed, we need only think back to Clinton administration meetings with Enron’s 

Ken Lay over Kyoto treaty negotiations. This Washington Post article ‘‘Enron Also 

Courted Democrats: Chairman Pushed Firm’s Agenda With Clinton White House’’ 

chronicled how, ‘‘[i]n a White House meeting in 1997. . . Lay urged President Clinton and Vice President Gore to back a market—based approach to the problem of 
78 

global warming—a strategy that a later Enron memo makes clear would be ‘good 

for Enron stock.’’’ 

In describing how an ‘‘international agreement to combat global warming also 

dovetailed with Enron’s business plan, Enron officials envisioned the company at 

the center of a new trading system. . . [that would] curtail the use of. . . coalfired power plants that emitted. . . carbon dioxide, while encouraging new investments in gas-fired plants and pipelines—precisely Enron’s line of business.’’ 

This text bubble details why Enron officials later expressed elation at the binding 

carbon caps in the Kyoto protocol. According to the Washington Post: 

an internal [Enron] memo said the Kyoto agreement, if implemented, would ‘‘do 

more to promote Enron’s business than almost any other regulatory initiative outside of restructuring the energy and natural gas industries in Europe and the 

United States.’’ 

This example shows how companies of all stripes are willing to work for environmental goals if it fits their business model and pads their bottom line. That is why 

I am not worried as much about what certain companies think about carbon caps, 

but how vulnerable poor and middle-class communities, especially in my Midwestern coal-dependent State, are firmly in the cross-hairs of carbon cap plans. 

Big Oil will still make their money under any scenario. They pass their costs 

straight on to American families and workers. Just look at last year’s run-up in gas 

prices. Even though their raw material, oil, increased in price to record levels, Big 

Oil still made profits selling gasoline. Some on this committee would describe these 

Big Oil profits as ill-gotten windfall profits. Indeed, one member of the U.S. CAP 

partnership testifying here today made over $22 billion in profits last year. 

And who picked up the tab to fill these corporate coffers? You, me and all of us 

as consumers. That is what happens when the cost rises of a basic necessity we cannot do without. We must pay. We paid when gasoline prices went up. We will pay 

when natural gas prices go up further. Although Enron did not survive to see the 

day, the future is clear with carbon caps: less coal, more natural gas demand, and 

higher profits from higher prices. 

That will mean higher prices for heating our homes in the Winter, higher prices 

for air conditioning our homes in the Summer, and higher costs for blue collar manufacturing workers supporting their middle-class families. 

Are the companies here today to be blamed? No, they are doing what they are 

supposed do: provide a return to shareholders by investing in new technologies and 

businesses where they will have a competitive advantage. 

But we cannot mistake what is going on here. Some companies will do just fine 

in a world where energy costs more. But that success will come at the pain of the 

poor, the disadvantaged, the struggling middle-class workers who can least afford 

higher carbon cap prices. 

Thank you. 

ENRON ALSO COURTED DEMOCRATS; CHAIRMAN PUSHED FIRM’S AGENDA WITH

CLINTON WHITE HOUSE

THE WASHINGTON POST, JANUARY 13, 2002 SUNDAY

Democrats are savoring the chance to use embattled Enron Corp.’s Republican 

ties to embarrass the Bush administration at upcoming congressional hearings. But 

Republicans might turn the tables, to some extent at least, because Enron has 

courted and supported prominent Democrats as well. 

According to internal Enron documents and the recollections of former employees, 

Chairman Kenneth L. Lay had the ear of top Democrats in the 1980s and ’90s. He 

and his colleagues used that access to promote the company’s interests with the 

Clinton administration and key congressional Democrats. 

In a White House meeting in August 1997, for example, Lay urged President Clinton and Vice President Gore to back a ‘‘market-based’’ approach to the problem of 

global warming—a strategy that a later Enron memo makes clear would be ‘‘good 

for Enron stock.’’ 

The following February, Lay met with Energy Secretary Federico Pena to urge 

White House action on electricity legislation favored by Enron. Pena ‘‘suggested that 

President Clinton might be motivated [to act] by some key contacts from important 

constituents,’’ according to another Enron memo. 

Taking the cue, Lay, one of 25 business executives on Clinton’s Council on Sustainable Development, wrote to the president the same day. 
79 

Lay and other Enron executives showed a clear preference for Republicans in 

their political giving. Lay personally gave GOP organizations $325,000 during the 

2000 campaign. But the company itself was often more evenhanded. 

The corporation contributed $532,000 in unregulated ‘‘soft money’’ to Democratic 

coffers during the 2000 election, only slightly less than the $623,000 that went to 

GOP groups, according to PoliticalMoneyLine, a Washington research group. 

Enron’s political action committee also gave $10,000 to the New Democrat Network, 

which was co-founded by Senator Joseph I. Lieberman (D-Conn.). Lieberman, the 

Democratic vice presidential nominee that year, now chairs the Senate Government 

Affairs Committee, which is leading an inquiry into Enron’s collapse. 

Several senior Enron officials spent election night at Vice President Gore’s headquarters in Nashville. 

The Center for Responsive Politics estimates that Republicans received 73 percent 

of total donations from Enron, its executives and its employees over the past 12 

years. Still, many of the congressional members soon to investigate Enron—Democrats as well as Republicans—have enjoyed the company’s largess. Enron or its executives have given money to nearly half of all current House members, and to almost three-quarters of the Senators, according to groups monitoring political donations. 

The company backed Charles E. Schumer (D-N.Y.) in his successful 1998 campaign to oust Republican Senator Alfonse D’Amato. Schumer’s views on electricity 

deregulation dovetailed closely with Enron’s. Two years later Schumer, who has advocated deregulation as a way of reducing New York State’s high power costs, coauthored a bill to restructure electricity markets along lines favored by Enron. 

Enron also has supported Senate Energy Committee Chairman Jeff Bingaman (DN.M.), whose State is traversed by a major east-west Enron gas pipeline. 

Former employees say Lay’s friendships with other Democrats were based as 

much on rapport as pragmatism. This group includes former senator Bob Kerrey (DNeb.), whose brief 1992 presidential bid had Lay’s backing, and Senator Evan Bayh 

(D-Ind.), with whom Lay served on the Eli Lilly Co. board of directors in the 1990s. 

He donated to the 1994 campaign of Texas Governor Ann Richards, a Democrat, 

and served on her business council. And it was a Democrat, former Treasury Secretary Robert E. Rubin, who called a Treasury official last November 8 to inquire 

about Enron’s situation shortly before it collapsed. 

As Enron transformed itself from an old-line gas pipeline company into an innovative, risk-taking trader of gas, electricity and more exotic derivatives in the early 

1990s, it needed both Democrats and Republicans to help remove regulatory obstacles. 

‘‘Ken Lay would write letters and pick up the phone to call whoever was needed, 

and the party didn’t matter that much,’’ said one former employee. 

In 1992, a Democratic-controlled Congress approved a major Energy bill that set 

the stage for a new wholesale electricity marketplace. Trading companies such as 

Enron could use the transmission lines of regulated utility companies to sell blocs 

of electricity to private customers. 

In 1994, the Washington-based Export-Import Bank approved a $302 million loan 

to promote Enron’s investment in a power plant in Dabhol, IN. According to a 1997 

article in Time Magazine, Clinton took a personal interest in the project, deputizing 

his chief of staff, Thomas ‘‘Mack’’ McLarty III, to monitor it. McLarty later became 

a paid adviser to Enron. 

A McLarty aide explained yesterday that the White House involvement was part 

of a broader administration effort to help U.S. companies take advantage of new opportunities abroad. 

In 1996, the Federal Energy Regulatory Commission, stocked with Clinton appointees, helped Enron with a series of orders that weakened the monopoly of nuclear and coal-burning utilities. In July of that year, Enron gave $100,000 to the 

Democratic Party. 

The Clinton administration’s interest in an international agreement to combat 

global warming also dovetailed with Enron’s business plans. Enron officials envisioned the company at the center of a new trading system, in which industries 

worldwide could buy and sell credits to emit carbon dioxide as part of a strategy 

to reduce greenhouse gases. Such a system would curtail the use of inefficient coalfired power plants that emitted large amounts of carbon dioxide, while encouraging 

new investments in gas-fired plants and pipelines—precisely Enron’s line of business. 

But the effort faced powerful opposition from auto makers, oil companies and utilities. In early 1997 the Senate unanimously instructed the administration not to 

agree to any carbon-reducing strategy that would harm the U.S. economy. 
80 

On August 4, 1997, Lay and seven other energy executives met with Clinton, 

Gore, Rubin and other top officials at the White House to discuss the U.S. position 

at the upcoming conference on global warming in Kyoto, Japan. Lay, in a memo to 

Enron employees, said there was broad consensus in favor of an emissions-trading 

system. 

Enron officials later expressed elation at the results of the Kyoto conference. An 

internal memo said the Kyoto agreement, if implemented, would ‘‘do more to promote Enron’s business than almost any other regulatory initiative outside of restructuring the energy and natural gas industries in Europe and the United States.’’ 

At Lay’s meeting with Pena on February 20, 1998, he spoke of restructuring the 

U.S. electricity market in ways that would benefit Enron. Lay pressed the administration to propose legislation that would assert Federal authority over a national 

electricity market. 

According to a company version of the meeting, Lay and Pena agreed that a goslow approach to deregulation, advocated by Senate Energy Committee Chairman 

Frank H. Murkowski (R-Alaska), was unacceptable. Pena asked Enron officials to 

keep Energy Department staffers posted on developments in Congress, and solicited 

comments on the administration’s draft of its Comprehensive National Energy 

Strategy, an Enron document said. Lay felt the draft was ‘‘headed in the right direction’’ except for a few points, the document said. 

The 2000 presidential election posed a dilemma for the company, sources say. 

While Lay supported George W. Bush, some officials in Enron’s Houston and Washington offices backed Gore and Lieberman. Lay personally contributed $325,000 in 

soft money to GOP campaign organizations that year, and gave no soft money to 

Democratic groups. After the election, Lay chipped in $100,000 to the Bush inaugural festivities. 

On the eve of the 2000 election, Enron hired a Democratic official from the Treasury Department to run the company’s Washington office. Sources say the move infuriated GOP House leaders, who retaliated by shutting Enron representatives out of 

several key strategy meetings on electricity legislation. 

Hoping to return to the GOP’s good graces, the company in April 2001 hired the 

Washington lobbying firm of Quinn & Gillespie. Its senior partner, Ed Gillespie, had 

been a top campaign adviser to the new president, Bush. 

For the first half of the year, the firm collected $525,000 in fees from Enron, a 

hefty sum but well worth it, according to a former Enron employee. 

‘‘It was Eddie [Gillespie], not Ken Lay, who got us to people in the White House 

and Congress,’’ the employee said. 
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