    [Senate Hearing 106-150]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 106-150

                        CREDIT FOR EARLY REDUCTIONS ACT

    =======================================================================

                                    HEARINGS

                                   BEFORE THE

                                  COMMITTEE ON
                          ENVIRONMENT AND PUBLIC WORKS
                              UNITED STATES SENATE

                           ONE HUNDRED SIXTH CONGRESS

                                 FIRST SESSION

                                       ON

                                     S. 547

     A BILL TO AUTHORIZE THE PRESIDENT TO ENTER INTO AGREEMENTS TO PROVIDE
      REGULATORY CREDIT FOR VOLUNTARY EARLY ACTION TO MITIGATE POTENTIAL
              ENVIRONMENTAL IMPACTS FROM GREENHOUSE GAS EMISSIONS

                                   __________

                         MARCH 24, 1999--WASHINGTON, DC

                     JUNE 3, 1999--PROVIDENCE, RHODE ISLAND

                                   __________

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

                                    --------

                       U.S. GOVERNMENT PRINTING OFFICE
    59-381 CC                  WASHINGTON : 1999
    _______________________________________________________________________
                For sale by the U.S. Government Printing Office
    Superintendent of Documents, Congressional Sales Office, Washington DC
                                     20402

                   COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                           one hundred sixth congress
                     JOHN H. CHAFEE, Rhode Island, Chairman
    JOHN W. WARNER, Virginia             MAX BAUCUS, Montana
    ROBERT SMITH, New Hampshire          DANIEL PATRICK MOYNIHAN, New York
    JAMES M. INHOFE, Oklahoma            FRANK R. LAUTENBERG, New Jersey
    CRAIG THOMAS, Wyoming                HARRY REID, Nevada
    CHRISTOPHER S. BOND, Missouri        BOB GRAHAM, Florida
    GEORGE V. VOINOVICH, Ohio            JOSEPH I. LIEBERMAN, Connecticut
    MICHAEL D. CRAPO, Idaho              BARBARA BOXER, California
    ROBERT F. BENNETT, Utah              RON WYDEN, Oregon
    KAY BAILEY HUTCHISON, Texas
                         Jimmie Powell, Staff Director
                   J. Thomas Sliter, Minority Staff Director
                                     ------

                                      (ii)

                                C O N T E N T S

                                  ----------
                                                                       Page

                                 MARCH 24, 1999
                               OPENING STATEMENTS

    Baucus, Hon. Max, U.S. Senator from the State of Montana.........     3
        Letter, response to article on global warming, Mark F. Meier.     4
    Chafee, Hon. John H., U.S. Senator from the State of Rhode Island     1
    Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...     5
        Article, Behavior of World's Glaciers Fails to Prove Global
          Warming Theory.............................................     5
    Lieberman, Hon. Joseph I., U.S. Senator from the State of
      Connecticut....................................................    10
    Thomas, Hon. Craig, U.S. Senator from the State of Wyoming.......    12
    Voinovich, Hon. George V., U.S. Senator from the State of Ohio...     2

                                   WITNESSES

    Claussen, Eileen, Executive Director, Pew Center on Global
      Climate Change.................................................    13
        Prepared statement...........................................    47
    Keating, Raymond, Chief Economist, Small Business Survival
      Committee......................................................    33
        Prepared statement...........................................    65
        Testimony before House Small Business Committee, June 1998...    38
    Landgren, Dale, Vice President for Business Planning, Wisconsin
      Electric Power Company.........................................    16
        Prepared statement...........................................    50
    Nelson, Tia, Deputy Director, Climate Change Program, The Nature
      Conservancy....................................................    19
        Prepared statement...........................................    58
    Passacantando, John, Executive Director, Ozone Action............    31
        Prepared statement...........................................    62
    Sandor, Richard, Chief Executive Officer, Environmental Financial
      Products.......................................................    17
        Article, Creating a Market for Carbon Emissions..............    54
        Prepared statement...........................................    53
                                     ------

                     JUNE 3, 1999--PROVIDENCE, RHODE ISLAND
                               OPENING STATEMENT

    Chafee, Hon. John H., U.S. Senator from the State of Rhode Island    69

                                   WITNESSES

    Colburn, Ken, Director, Air Resources Division, New Hampshire
      Department of Environmental Services...........................    73
        Prepared statement...........................................    97
    Fantozzi, Peggy, Chair, Massachusetts Commission for Conservation
      of Soil, Water and Related Resources...........................    84
        Prepared statement...........................................   108
    Fay, Kevin, Executive Director, International Climate Change
      Partnership....................................................    76
        Executive summary, Department of Energy Report...............   102
        Membership list, ICCP........................................   101
        Prepared statement...........................................    99
    Hamburg, Steven, Ittleson Associate Professor of Environmental
      Studies, Brown University, Providence, RI......................    81
        Prepared statement...........................................   102
    Rabideau, Hon. Scott P., Rhode Island House of Representatives...    71
        Prepared statement...........................................    93

                              ADDITIONAL MATERIAL

    Text of S. 547, Credit for Early Reductions Act..................   110

                      CREDIT FOR VOLUNTARY REDUCTIONS ACT

                                  ----------

                           WEDNESDAY, MARCH 24, 1999

                                           U.S. Senate,
                     Committee on Environment and Public Works,
                                                        Washington, DC.
        The committee met, pursuant to notice, at 9:30 a.m. in room
    406, Senate Dirksen Building, Hon. John Chafee (chairman of the
    committee) presiding.
        Present: Senators Chafee, Voinovich, Inhofe, Baucus,
    Lieberman, Thomas, and Wyden.

               OPENING STATEMENT OF HON. JOHN H. CHAFEE,
              U.S. SENATOR FROM THE STATE OF RHODE ISLAND

        Senator Chafee. I want to welcome everyone this morning.
    This is a meeting of the full Committee on the Environment and
    Public Works on the subject of credit for voluntary greenhouse
    gas mitigation. In other words, credit for early reductions.
        Today's hearing has been called to receive testimony on
    voluntary greenhouse gas mitigation projects performed by U.S.
    firms.
        Specifically, we hope to learn more about the challenges
    set by official policy and technical issues surrounding the
    proposed crediting of these voluntary reductions.
        It sounds simple, the range from governmental to
    certification of legitimate, voluntary--just remember the word
    ``voluntary'' is all through here--emission reductions.
    Companies that have taken, or are interested in taking
    voluntary steps to reduce or sequester greenhouse gases, have
    come to Congress to secure legal assurance that such actions
    would be taken in the event the U.S. decides to establish a
    regulatory program.
        Why shouldn't the government provide a safe haven for
    entities that decided to move forward voluntarily to improve
    the efficiency of generating and delivering electricity, for
    example, or to increase the use of renewables, or to manage
    forests and crop lands in a sustainable way, or manufacture new
    consumer products that would require less power to function?
        As a general principle, not too many are opposed to this.
    But there are a few who contend that this kind of endeavor is
    pointless without the imposition of regulations, without the
    ratification of the Kyoto Protocol and its cap on emissions.
    This isn't true. Just ask the leading decisionmakers in
    industry what they would pay for certainty. That is what we are
    seeking here, legal certainty that their self-determined cost,
    their voluntary cost to lower greenhouse gas outputs, will not
    put their organization at a disadvantage relative to
    competitors who have done nothing in the event that at some
    time in the future there should be regulatory requirements for
    reduction.
        I am the first to admit that there are legitimate and tough
    policy issues that are going to require our careful attention.
    To ensure both the environmental and economic integrity of this
    program we must assure that government credits are issued only
    for verifiable actions that can contribute to climate
    stabilization.
        The alternative to this path, of what we are suggesting,
    the alternative is to do nothing. To do nothing to protect
    business, to do nothing to create incentives, to do nothing to
    begin dealing with what could turn out to be a substantial
    environmental and economic problem.
        Senator Voinovich, do you have some comments you would like
    to make?

            OPENING STATEMENT OF HON. GEORGE V. VOINOVICH,
                  U.S. SENATOR FROM THE STATE OF OHIO

        Senator Voinovich. Yes, I would, Mr. Chairman. First of
    all, I want to thank you for conducting this hearing today to
    discuss how to create incentives and remove barriers to
    companies that voluntarily attempt to clean up gas emissions.
        As you know, I signed on as an original cosponsor of your
    Credit for Voluntary Reductions Act, Senate Bill 547. I believe
    it is a good starting point for discussions on how to give
    credit to companies that are trying to invest in opportunities
    to reduce or sequester greenhouse gas emissions.
        I look forward to working with you to address the concerns
    that have been raised about the specifics in the bill. Again, I
    commend you and Senators Baucus and Lieberman and others for
    taking the lead on this important issue.
        As Governor of Ohio, I challenged the top 100 companies
    that released toxic wastes to join our Prevention First Program
    to develop comprehensive pollution prevention plans. This is
    one of the programs that I am most proud of because the
    response was overwhelming. Think of this: More than 160
    companies joined this voluntary program. These companies have
    already reduced 651,000 tons of hazardous wastes, 229,000 tons
    of solid wastes and 135 million pounds of toxic release
    inventory wastes. They are good actors and we have honored them
    every year.
        One of the things I worry about, however, is that they are
    doing these things voluntarily and at some point the Federal
    Government may come in with stringent regulations to make them
    reduce their wastes from their current base line. I think we
    should reward companies that act voluntarily, and that is what
    I believe we are trying to do under Senator Chafee's bill.
        I think the purpose of providing a credit program is to
    remove uncertainty for companies that initiate voluntary
    greenhouse gas mitigation projects. Currently companies are
    uncertain how their efforts will be treated if there is a
    future regulatory program to reduce greenhouse gas emissions.
        For instance, if regulations were put in place in the
    future, companies that reduced their emissions now need
    assurances that they would receive credit for their actions.
    Otherwise, they might be forced to make additional and most
    costly reductions while companies that did not act early on
    make their target at lower cost. This scenario penalizes
    companies that took the initiate to reduce their emissions
    early on and puts them at a competitive disadvantage to those
    that did.
        As you know, during the 105th Congress the Senate voted 95-
    0 that the U.S. should not be a signature to any protocol that
    would result in serious harm to the U.S. economy or require
    companies to limit or reduce emission unless such an agreement
    also requires developing countries to limit or reduce emissions
    within the compliance period.
        I strongly agree with this rationale. I would not put the
    United States in an economic or competitive disadvantage with
    other countries that are not required to reduce emissions as
    well.
        I do believe that creating a credit system--and I think
    this is important, Mr. Chairman--for voluntary reductions means
    that we are not trying to implement what some people would
    allege in the 1997 Kyoto Protocol, or some other regulatory
    measure prior to Senate ratification.
        We are trying to create a voluntary program that creates
    incentives and reduces uncertainty in the future for companies
    that are good citizens to act now to reduce their emissions. I
    believe that if business is willing to voluntarily invest in
    measures that reduce greenhouse gases and protect our forests
    and agriculture, then Congress should put in place a framework
    that rewards those actions.
        Thank you.
        Senator Chafee. Well, I certainly agree with that statement
    and I thank you for it.
        Senator Baucus?

                 OPENING STATEMENT OF HON. MAX BAUCUS,
                 U.S. SENATOR FROM THE STATE OF MONTANA

        Senator Baucus. Thank you very much, Mr. Chairman.
        Mr. Chairman, this hearing is about how the free markets
    can help us face the challenge of climate change. Some people
    think these gases are not a problem; they would rather do
    nothing. But personally, I have heard from a lot of experts and
    scientists and I am convinced that the continued growth in the
    emissions of greenhouse gases is a risk with potentially
    serious consequences, like changes in growing seasons, violent
    weather extremes, melting glaciers.
        I believe it is prudent to take common sense steps now to
    deal with this question. That is why I think this hearing is
    very important. If we get it right, we can use the marketplace
    to harness people's ingenuity and reduce greenhouse gases. We
    got it right when we set up the sulfur allowance trading System
    in the Clean Air Act. That works better, more efficiently than
    anyone expected.
        There is no guarantee this kind of approach will work with
    greenhouse gases, but it might. If we design it right it will
    be like an insurance policy. It won't cost much. But it will
    help to protect our economy and the environment.
        A lot of discussion thus far has focused on manufacturing
    companies, utilities. But the agriculture and forestry sectors
    could well benefit from this approach as well. It could
    generate credits and income by removing carbon from the
    atmosphere and blocking it up to the soils and trees.
        Today's witnesses can help us define the concept of credit
    trading so it can work for everyone, not just for big,
    sophisticated companies. It can also tell us about what kind of
    information we will need to make sure we get real reductions.
        So thank you very much, Mr. Chairman, for your leadership.
    And Senator Lieberman, for your leadership as a sponsor of this
    bill, and Senator Mack and Senator Voinovich, you are starting
    us on the path of positive constructive steps to be taken. We
    will do our very best to begin to take significant steps to
    reduce the threat of climate change.
        [A letter submitted by Senator Baucus commenting on the
    article submitted by Senator Inhofe follows:]
                             University of Colorado at Boulder,
                       Institute of Arctic and Alpine Research,
                                              1560 30th Street,
                                                Campus Box 450,
                           Boulder, Colorado 80309-0450, July 12, 1999.

    Hon. Max Baucus,
    U.S. Senate,
    Dirkson Senate Office Building,
    Washington, DC 20510.

        Dear Senator Baucus: In late May I was asked by a member of your
    staff to comment on testimony Senator Inhofe entered into the record,
    which was based in part on a newsletter article, ``Behavior of World's
    Glaciers Fails to Prove Global Warming Theory,'' by John Carlisle. The
    Carlisle article is misleading and contains errors, and Senator
    Inhofe's testimony also is not entirely correct.
        One problem with Senator Inhofe's view is that a small number of
    scientists have come out against the prevailing view of global warming
    in the climatological community. Many of these 'contrarians' have high
    scientific credentials, although I only know of three who are
    recognized climatologists. They are articulate, well supported, and
    deliver a message some persons wish to hear. Thus these few people
    effectively mask a near universal scientific consensus. My experience
    with the 1995 IPCC Scientific Assessment (I was a Lead Author of the
    sea-level change chapter) demonstrated that this study had a remarkable
    scientific consensus. Yes, there are particular items that are not yet
    completely understood, but these do not negate the firm statistical
    conclusions based on observational data. Yes, that we cannot prove that
    the current warming is due to human action, but we can prove that
    global warming is occurring and that it is very unlikely to be caused
    by natural climate variability (see Nature, vol. 399, 10 June 1999, p.
    569-572). If you haven't seen it, take a look at Jerry Mahlman's
    seminal paper on the degrees of uncertainty in our knowledge of global
    warming (Science, vol. 278, 21 Nov. 1997, p. 1416-1417).
        The Carlisle article, from the National Center for Public Policy
    Research, is based in part on a press release from the Langhein
    Memorial Lecture I gave at the May, 1998, Annual Meeting of the
    American Geophysical Union. There are serious mix-statements in the
    Carlisle article. For instance, he suggests that the response times of
    glaciers are long so that they are not reacting to current climate
    change. The actual response time of glaciers in our observational suite
    ranges from 1 to 100 years or so; to claim that they are
    ``remembering'' the Medieval Warm Period 1000 years ago is ludicrous.
    Although these small glaciers mav rake up only 6 percent of the ice on
    Earth, they cycle more water from the atmosphere to the ocean per year
    than do the major ice sheets, contrary to what Carlisle indicates.
        Vice-President Gore was correct in his comments on the glaciers of
    Glacier National Park. Anyone can look at the numerous topographic maps
    of Grinnell Glacier and note the striking shrinkage, and it is easy to
    extrapolate that shrinkage to its disappearance in the next century. I
    am glad that Carl Key has made a more definitive and authoritative
    study of that issue. Of course a few examples from Montana do not make
    a global conclusion. I showed, however, in my Langbein Lecture and in a
    subsequent USGCRP seminar last July in the Dirksen Building that this
    shrinkage is, in fact, a near-global phenomena.
        Please let me know if I can supply any more information.
                Sincerely yours,
        Mark F. Meier, Professor Emeritus, Geological Sciences,
                                                     Fellow of INSTAAR.
        Senator Chafee. Thank you very much, Senator.
        Senator Inhofe?

              OPENING STATEMENT OF HON. JAMES M. INHOFE,
                U.S. SENATOR FROM THE STATE OF OKLAHOMA

        Senator Inhofe. Thank you, Mr. Chairman. I am glad you are
    having this hearing before you are finalizing all the details
    in your legislation. I hope you have other opportunities to
    hear from people during the course of this. The way you
    normally conduct things, I am sure we will. I do applaud your
    efforts at the introduction of the voluntary program. I look
    forward to working with you. I do have a number of concerns.
        First, the question of global warming is far from certain.
    In our hearings of this committee last year we heard from
    leading scientists who did not agree on on whether there is
    global warming, much less what the cause might be.
        In addition, since the treaty was negotiated, a number of
    scientists disagreeing with the Clinton-Gore administration
    conclusions has far outnumbered those who agree. I want to
    submit for the record a copy of an article that explains the
    relationship between the world's glaciers and global warming
    theory by John Carlyle of the National Center for Public Policy
    Research. It explains quite clearly why the Vice President's
    claims at Glacier National Park in Montana 2 years ago were
    completely wrong.
        [The referenced article follows:]
               [From the National Policy Analysis, February 1999]
       Behavior of World's Glaciers Fails to Prove Global Warming Theory
                               (by John Carlisle)
        Global warming theory proponents have resorted to the politics of
    fear to drive their point home. They argue that man-made greenhouse
    gases are already causing the world's glaciers to melt, causing sea
    levels to rise and threatening humanity with a multitude of economic
    and environmental calamities. A recent Smithsonian Institution exhibit
    on climate change, for instance, included a depiction of the Washington
    Monument partially submerged in the Atlantic Ocean, leaving visitors
    with the distinct impression that we must reduce greenhouse gas
    emissions now if we want our descendants to be able to visit the famous
    monument. But such scenarios belong in the realm of science fiction,
    not science fact.
    Glaciers Are Inaccurate Barometers of Climate Change
        Global warming theorists argue that examples of receding glaciers,
    primarily those located in the mid-latitude regions of the planet,
    provide evidence that climate change caused by human activities is
    underway. But glaciers are poor barometers of global climate change.
        Glaciers are influenced by a variety of local and regional natural
    phenomena that scientists do not fully comprehend. Besides temperature
    changes, glaciers also respond to changes in the amount and type of
    precipitation, changes in sea level and changes in ocean circulation
    patterns. \1\ As a result, glaciers do not necessarily advance during
    colder weather and retreat during warmer weather.
    ---------------------------------------------------------------------------
        \1\ Dr. Martin Beniston, ``Climatic Change and its Consequences for
    Mountain Regions,'' Institute of Geography, University of Fribourg,
    Switzerland, 1996.
    ---------------------------------------------------------------------------
        A major obstacle to linking glacial behavior to global warming is
    that mountain glaciers, the types of glaciers found in places like
    Switzerland and the United States, are especially difficult to
    understand due to the complex topography of mountain areas.
    Furthermore, Global Climate Circulation Models (GCMs) used by global
    warming theory proponents to forecast future climate, including the
    climate's effect on glaciers, have been notoriously inaccurate. NASA
    scientist James Hansen, the man who helped ignite the global warming
    debate in the United States in the late 1 980's, admitted last year
    that it was impossible to come up with reliable climate models because
    there is too much about the climate that scientists don't understand.
    \2\
    ---------------------------------------------------------------------------
        \2\ ``NASA's Hansen Recants on Warming,'' Electricity Daily,
    November 19, 1998.
    ---------------------------------------------------------------------------
        Those same inaccurate GCMs have been even less reliable when it
    comes to assessing the impact of warming on mountain glaciers.
    According to Professor Martin Beniston of the Institute of Geography at
    the University of Fribourg, Switzerland, ``Numerous climatological
    details of mountains are overlooked by the climate models.'' This makes
    it difficult to predict the consequences of global warming on glaciers.
    Beniston says it is ``difficult to estimate the exact response of
    glaciers to global warming, because glacier dynamics are influenced by
    numerous factors other than climate, even though temperature and
    cloudiness may be the dominant controlling factors. According to the
    size, exposure and altitude of glaciers, different response times can
    be expected for the same climatic forcing.''
        That may explain why there are several Swiss glaciers that are
    advancing even though Switzerland has experienced a decade of mild
    winters, warmer summers and less rainfall. \3\
    ---------------------------------------------------------------------------
        \3\ Beniston.
    ---------------------------------------------------------------------------
        Other scientists agree that it is unwise to look to glaciers for
    evidence of global warming. Keith Echelmeyer, a glaciologist at the
    University of Alaska's Geophysical Institute, says, ``To make a case
    that glaciers are retreating, and that the problem is global warming,
    is very hard to do. . . The physics are very complex. There is much
    more involved than just the climate response.'' Echelmeyer points out
    that in Alaska there are large glaciers advancing in the very same
    areas where others are retreating. \4\
    ---------------------------------------------------------------------------
        \4\ ``Gore's Defense of Glacier Tourism Trivializes Global Warming
    Debate,'' press release, Science and Environmental Policy Project,
    September 2, 1997.
    ---------------------------------------------------------------------------
        Dr. Richard Alley of Pennsylvania State University agrees that the
    response of glaciers to global temperatures can be difficult to
    predict. ``Glaciers do odd things sometimes,'' observes Alley. ``They
    flow fast, then slow down. . . You could anthropomorphize [apply human
    characteristics to] them and say they have a mind of their own.''
        Vice President Al Gore would have done well to remember this point
    before he held a major press conference in 1997 announcing that the
    century-long retreat of the Grinnel Glacier in Montana's Glacier
    National Park was caused by global warming.
        Size appears to be one of the most significant determinants in the
    response time of glaciers to climate change. Basically, the larger a
    glacier, the longer it takes to be affected by climate change. For
    example, it would take a polar ice sheet 10,000-100,000 years to
    respond to any global warming that might be occurring now. A large
    mountain glacier would take 1,000 to 10,000 years to respond to warming
    today, while a small mountain glacier would take 100 to 1,000 years to
    respond. \5\ Thus, one explanation for some glaciers retreating today
    is that they are responding to natural warming that occurred either
    during the Medieval Warm Period in the 11th century or to an even
    warmer period that occurred 6,000 years ago.
    ---------------------------------------------------------------------------
        \5\ ``How Do Glaciers Deal With Environmental Change?'' article
    downloaded January 21, 1999 from the GLACIER web site of the National
    Science Foundation at http://www.glacier.rice.edu/land/5--
    glaciersandtheir2.html.
    ---------------------------------------------------------------------------
        Global warming theory proponents point to the retreat of glaciers
    in the mid-latitude regions of the planet areas where the United
    States, Europe and Africa are located--as evidence of human-induced
    global warming. As mentioned above, these mid-latitude glaciers cannot
    be used as reliable indicators of global climate change given that they
    are affected by a complex mixture of local and regional phenomena. By
    focusing so much attention on these glaciers, however, one gets the
    distinct impression that global warming theory proponents are
    deliberately picking glaciers to analyze that support their thesis that
    global warming is underway while ignoring those glaciers that don't
    support their theory.
        In May 1998, for example, scientists at the University of Colorado
    at Boulder released a study purporting to show that glaciers are in
    headlong retreat due to global warming. According to one of the study's
    authors, Professor Mark Meter: ``In the last century, there has been a
    significant decrease in the area and volume of glaciers, especially at
    mid- and low-latitudes. . . The disappearance of glacier ice is more
    pronounced than we previously had thought.'' To support this claim,
    Meier noted that Africa's Mount Kenya had lost 92 percent of its mass
    over the last 100 years while Spain's glaciers had fallen in number
    from 27 in 1980 to just 13 today. \6\
    ---------------------------------------------------------------------------
        \6\ ``World's Glaciers Continue to Shrink,'' press release,
    University of Colorado at Boulder, May 26, 1998.
    ---------------------------------------------------------------------------
        Because glaciers respond to a variety of phenomena and glaciers in
    warmer regions tend to be more susceptible to these phenomena, it is
    unwise to point to a loss of ice volume in vulnerable mid-latitude
    glaciers to draw ambitious conclusions about alleged warming worldwide.
        More important, any melting of mid-latitude glaciers that has
    occurred has had little effect on sea levels. This is because mid-
    latitude glaciers represent a mere 6 percent of the world's total ice
    mass while Antarctica and Greenland glaciers represent the other 94
    percent of the ice mass. As even the University of Colorado study
    noted, there is no evidence that the glacial ice sheets in Antarctica
    and Greenland are melting. Nevertheless, the study suggested that
    alleged melting of the mid-latitude ice was enough to cause a major sea
    level increase because the water from mid-latitude glaciers would be
    ``recycled more quickly'' than water from polar glaciers. \7\ This
    conclusion is suspect, however, since some of the glaciers in the mid-
    latitude region are advancing and glaciers currently in retreat could
    very easily start advancing again. The fact that mid-latitude glaciers
    are not uniformly retreating coupled with the fact that they represent
    only 6 percent of the world's glacial ice strongly argues against the
    claim that these glaciers are contributing to a rise in sea level. If
    there is going to be any major sea level increase, it is going to have
    to come from the melting of the Antarctica and Greenland ice sheets.
    ---------------------------------------------------------------------------
        \7\ Ibid.
    ---------------------------------------------------------------------------
    Antarctica
        Although the Colorado study did not allege that the Antarctic ice
    sheets are in retreat, other global warming proponents have made such
    claims. This is understandable from their perspective since a
    theoretical meltdown of the world's ice caps has the potential to scare
    the public into supporting major reductions in greenhouse gas
    emissions.
        According to the West Antarctic Ice Sheet Study, a project of the
    National Science Foundation, if all of the world's ice melted, the sea
    level would rise by 235 feet. \8\ NOVA, the Corporation for Public
    Broadcasting's science program, estimates that the melting of the
    Antarctic ice sheets alone would raise the oceans by 187 feet. One
    hundred 70 feet of this rise would be caused by the melting of the East
    Antarctic Ice Sheet while just 17 feet of this rise would be caused by
    melting of the West Antarctic Ice Sheet. But the East Antarctic Ice
    Sheet is considered stable and not threatened by warming because it
    rests on land above sea level, making any significant sea level rise
    unlikely. \9\ The West Antarctic Ice Sheet, however, has attracted the
    attention of global warming theory proponents because it rests mostly
    below sea level where it is allegedly more sensitive to any global
    warming that may occur. \10\ The balance of scientific evidence
    suggests that the West Antarctic Ice Sheet isn't melting either.
    ---------------------------------------------------------------------------
        \8\ ``What is the West Antarctic Ice Sheet,'' article downloaded
    January 19, 1999 from the GLACIER web site of the National Science
    Foundation at http://www.glacier.rice.edu/misc.whatisglacier.html.
        \9\ ``Water World,'' NOVA Online, Warnings From the Ice, downloaded
    January 19, 1999 from http://www.pbs.org/wabh/nova/warnings/
    waterworld/.
        \10\ ``What is the West Antarctic Ice Sheet,'' article downloaded
    January 19, 1999 from the GLACIER website of the National Science
    Foundation at http://www.glaciers.rice.edu/misc.whatisglacier.html.
    ---------------------------------------------------------------------------
        To begin with, the Antarctic is extremely cold with a high average
    temperature of just -56 degrees F. Even if the Antarctic temperatures
    did rise a few degrees, they wouldn't be high enough to melt the
    glaciers as the temperatures would still be well below -87 degrees F
    below--freezing. The latest GCMs predict warming of just 1-3 degrees F
    by 2100, still leaving the Antarctic bitterly cold. Furthermore, the
    Antarctic ice sheet is very large, and thus it takes a long time for
    the ice sheet to respond to warming. For instance, it would take the
    West Antarctic Ice Sheet 50,000 years to react to any warming that may
    be occurring now--so the world is not in any imminent danger of a
    catastrophic flood. \11\
    ---------------------------------------------------------------------------
        \11\ Ibid.
    ---------------------------------------------------------------------------
        So what does the scientific evidence say about a human-induced
    shrinking of the Antarctic today?
        In December 1998, an international team of scientists announced
    that after analyzing 5 years of satellite radar measurements, they
    concluded that the West Antarctic Ice Sheet is not melting rapidly. The
    scientists determined that the West Antarctic Ice Sheet has actually
    been stable for the last 100 years--precisely when global warming
    theory proponents insist human-induced warming should have been causing
    the glaciers to retreat. Dr. C.K Shum, an Ohio State University
    professor who participated in the study, said that while the team
    assumed that global warming was underway, they found no evidence that
    this purported warming was affecting the Antarctic ice sheet. \12\
    ---------------------------------------------------------------------------
        \12\ ``West Antarctic Ice Sheet Not In Jeopardy,'' Environmental
    News Network, December 1, 1998.
    ---------------------------------------------------------------------------
        In October 1998, the British Antarctic Survey also announced that
    it had found no evidence of global warming on the continent. The study
    noted that it did find 3-4 degrees F of warming on the Antarctic
    Peninsula over the last 50 years, but that there was no evidence that
    this localized warming was the result of global warming. The scientists
    believed it more likely that the origins of the warming ``could be
    found in regional mechanisms.''
        The survey also analyzed the behavior of two major ice shelves, the
    Ross and Filchner-Ronne shelves, for any retreat. Again, the study
    concluded that ``it is no longer clear that the small warming that is
    predicted to result from anthropogenic emissions of greenhouse gases is
    likely to cause a retreat'' of those ice shelves. On the more
    vulnerable West Antarctic Ice Sheet, scientists likewise concluded that
    the ``dramatic vision of a rapid collapse of the West Antarctic Ice
    Sheet resulting from atmospheric warming is becoming less acceptable.''
    \13\
    ---------------------------------------------------------------------------
        \13\ ``Antarctica: Climate Change and Sea Level,'' Ice and Climate
    Division, British Antarctic Survey, Cambridge, UK, October 1998.
    ---------------------------------------------------------------------------
        The Antarctic Cooperative Research Centre, a scientific union of
    the Australian Antarctic Division, the Bureau of Meteorology, the
    Australian Geological Survey Organization, and the University of
    Tasmania, released a position statement in April 1997 announcing that
    it is ``very unlikely'' that the Antarctic ice sheet will melt enough
    to cause a significant rise in sea level. Even more interesting, the
    report stated that over the next one to two centuries, ``it is probable
    that greater snowfall on Antarctica'' will outweigh any loss of ice due
    to warmer ocean water--thus causing the Antarctic ice sheet to expand.
    \14\
    ---------------------------------------------------------------------------
        \14\ ``Global Change, Antarctica and Sea Level,'' Position
    Statement, Antarctica Research Centre, April 1997.
    ---------------------------------------------------------------------------
        The prospect that the Antarctic ice sheet is expanding was also
    noted by the British Antarctic Survey. The British scientists concluded
    that it is possible that the Antarctic expansion was actually
    counteracting a rise in sea level. \15\ Indeed, many other scientists
    have concluded that even if the world continues to get warmer, whether
    human-induced or naturally, the Antarctic ice sheet would grow because
    warming increases the amount of precipitation which leads to increased
    snowfall in the polar regions.
    ---------------------------------------------------------------------------
        \15\ ``Antarctica: Climate Change and Sea Level,'' Ice and Climate
    Division, British Antarctic Survey, Cambridge, UK, October 1998.
    ---------------------------------------------------------------------------
        Indeed, it seems that historically the Antarctic glaciers have
    frequently expanded during warm conditions. A study by E.W. Domack,
    A.J.T. Jull and S. Nakao on the history of glacial expansions in
    Antarctica found that over the past 10,000 years, several glaciers
    expanded during conditions that were a lot warmer than today.
        This uncomfortable fact has not escaped the attention of
    environmentalists, some of whom are now arguing that glacial expansion
    supports the global warming theory. Greenpeace's Climate Impacts Data
    base now cites the Domack study in an effort to link the expansion of
    the Antarctic ice cap with man-made global warming. The summation of
    the study notes that ``the new data suggest strongly that Antarctica's
    response to future warming will be an increase in mass balance.'' \16\
    Of course, now they can't claim that the sea level is rising since
    expansion lowers the level. Nevertheless, environmental groups still
    make contradictory claims about apocalyptic sea level rises in their
    haste to mobilize public opinion to stop greenhouse gas emissions.
    ---------------------------------------------------------------------------
        \16\ Advance of East Antarctic Outlet Glaciers during the
    Hypsithermal,'' E.W. Domack, A.J.T. Jull and S. Nakao, Summary
    downloaded January 6, 1999 from Greenpeace Climate Impacts Data base,
    http://193.67.176.1/climate/database/records/zgpz0774.html.
    ---------------------------------------------------------------------------
    Greenland
        Like the Antarctic, the Greenland ice sheets show no evidence of
    receding due to alleged global warming. The record shows that the
    Arctic region where Greenland is located is cooling despite the fact
    that, under global warming models, it should be the first area of the
    planet to show significant temperature increases. According to these
    models, the polar regions should have warmed 2-5 degrees F since 1940.
    But between 1955 and 1990, the Arctic cooled by 1 degree F and
    Greenland's glaciers actually expanded. According to the scientific
    journal Geophysical Research Letters, the West Greenland Ice Sheet, the
    largest mass of polar ice in the Northern Hemisphere, has thickened by
    up to seven feet since 1980. \17\
    ---------------------------------------------------------------------------
        \17\ Patrick Michaels, ``Post Fans Administration's Pre-Kyoto
    Fires,'' World Climate Report, December 13, 1997.
    ---------------------------------------------------------------------------
        Furthermore, some scientists believe that atmospheric circulation,
    not temperature, has been the greatest influence on the accumulation of
    snow and ice in central Greenland for the past 18,000 years. In an
    article that appeared in Nature magazine in 1995, the authors explained
    that changes in the way storms move across the island play the key role
    in how glaciers will thicken or recede. \18\
    ---------------------------------------------------------------------------
        \18\ ``Dominant Influence of Atmospheric Circulation on Snow
    Accumulation in Greenland over the Past 18,000 Years,'' W.R. Kapsner
    et. al., Summary downloaded on January 21, 1999 from the web site of
    the Global Change Research Information Office at http://www.gcrio.org/
    ASPEN/AGCI-ABS/orig/444.html.
    ---------------------------------------------------------------------------
    Conclusion
        There is no indication that the world's glaciers are melting
    significantly due to global warming and, thus, there is little to fear
    from sea level rises in coming decades. Proponents of the global
    warming theory have been irresponsible in attempting to use glaciers as
    barometers of global temperatures since glaciers respond to a range of
    natural phenomena that have nothing to do with global temperature
    changes. In addition, the advance of the Antarctic and Greenland
    glaciers, which contain more than 90 percent of the world's glacial
    ice, completely contradicts previous predictions that warming would
    cause these glaciers to retreat. Far from providing scientific proof of
    global warming, the behavior of glaciers represents yet another
    powerful indictment of the already controversial global warming theory.
        Senator Inhofe. However, Mr. Chairman, I understand your
    bill is not tied directly to the Kyoto Treaty, but instead will
    create an early credit program in case the treaty or any other
    greenhouse gas regulation should become effective in the
    future. I have two major issues with the proposed bill and I am
    anxious to see how we can address those during the markup of
    this bill.
        First of all, I agree with the comments of Senator
    Voinovich concerning the 95 to nothing vote that we took on the
    Floor. I just come to a different conclusion as a result of
    that. I think we may be sending a message to an administration
    who has said, ``We don't care if you don't ratify this treaty.
    We are going to go on anyway and implement it by executive
    order or by legislation.''
        I don't want this to be sent as a signal of agreement with
    that philosophy.
        My second major concern is that we not provide EPA with the
    authority to list CO2 as a criteria pollutant. The
    EPA General Counsel issued a paper last year claiming they
    currently have the authority under the Clean Air Act, although
    the paper was roundly dismissed by environmental attorneys
    everywhere, my concern is that the bill would provide the
    agency with a stronger argument that should only be debated and
    considered by Congress in the context of the Clean Air Act
    reauthorization.
        So, I want to stress that although I do not support your
    bill at this time I am looking forward to working with you to
    address the concerns that I have. Thank you.
        Senator Chafee. Thank you very much, Senator. You have
    legitimate concerns that, as we noted earlier, we have not done
    the science part of this, but I look forward to your continued
    interest in this and see if we can't come up with something
    that is mutually acceptable. The key word, I think, throughout
    all of this is it is voluntary. We are not pushing anybody into
    doing anything.
        Senator Lieberman.

            OPENING STATEMENT OF HON. JOSEPH I. LIEBERMAN,
               U.S. SENATOR FROM THE STATE OF CONNECTICUT

        Senator Lieberman. Thank you, Mr. Chairman, for holding
    this hearing and thank you for the active leadership role that
    you have taken, characteristically in encouraging us to deal
    with this difficult but very important problem.
        Last October I was proud to join with you and Senator Mack
    in introducing the Credit for Early Action legislation in the
    Senate for the first time. Since then there has been active
    debate about the concept and policy choices involved in this
    new approach to climate change. Now, I am very pleased at the
    number of original cosponsors on the Credit for Voluntary Early
    Action Act which we introduced in this Session has grown to
    twelve, six Republicans and six Democrats.
        I think that the number of original cosponsors has grown
    because people have concluded that you don't have to have
    reached a final judgment on whether global warming and climate
    change is real to support the Credit for Voluntary Early Action
    proposal. In fact, this proposal embraces and builds on two of
    the most significant trends in environmental protections in our
    country over the last decade.
        The first is the introduction of market incentives through
    law to encourage environmental protection by the private
    sector. The second is the extraordinary embrace by large
    segments of the private sector of an environmental ethic. Some
    of the most significant steps forward in environmental
    protection in recent times have come as a result of judgments
    by individual companies and their leadership to be good
    environmental citizens. This measure intends to built on those
    two developments, and in doing so to break what might otherwise
    be a legislative logjam here in Congress on this problem.
        My own conclusions are that global warming is real and that
    climate change is happening and that the sooner we begin to
    act, the sooner we will deflect the alarming upward trend of
    our own American greenhouse gas emissions. The sooner we begin
    to act the sooner we can turn the problem of climate change
    into an opportunity to use one of our most valuable resources,
    which is American ingenuity, to help us sustain our economy
    that is vibrant and growing while we make our air healthier to
    breathe and safer to live in.
        Early actions to address climate change enjoy the distinct
    environmental and economic advantages of achieving near term
    greenhouse gas emission reductions while extending the period
    of time in which our companies and communities can innovate to
    maximize efficiency and minimize the cost of protecting the
    environment.
        Time is a factor here. Between 1990 when nations of the
    world agreed we should attempt to stabilize greenhouse gas
    emission levels, and 1997, our own greenhouse gas emissions
    increased 11 percent according to the EPA. The U.S. Energy
    Information Administration predicts if we continue to pursue a
    status quo business as usual path, America's contribution to
    global greenhouse gas pollution will almost double by 2020 to
    145 percent of 1990 levels. Since greenhouse gases remain in
    the atmosphere for generations, the longer we wait to reduce
    our emissions, the more drastic, I fear, our future our future
    efforts will have to be to deal with this problem.
        The scientists have spoken in a way that, to me, is
    compelling, more than 2,500 of them, the best of them worldwide
    have concluded that the trend of increases in the temperature
    is likely to increase, so that our own earth's temperature will
    go up between two to six degrees in the next century, which
    would have grave impact for not only our global environment,
    but for life as we know it.
        While it is difficult to link specific weather events to
    global climate change, the extreme weather we have seen in the
    past year is consistent with what scientists have told us under
    current models of global warming. Underscoring the importance
    of confronting this problem, the American Geophysical Union, a
    professional society comprised of 35,000 geoscientists,
    recently stated ``The present understanding of the earth's
    climate system provides a compelling basis for legitimate
    public concern over increased concentration of greenhouse
    gases.''
        Today we have an opportunity, whatever one thinks about the
    science I have just quoted, to discuss the concept of credit
    for voluntary early action. I think the hearing provides us a
    great opportunity to learn from one another as we discuss the
    arguments for and against providing these credits.
        I look forward, therefore, to the witnesses and to the
    discussion.
        [The prepared statement of Senator Lieberman follows:]
      Statement of Hon. Joseph I. Lieberman, U.S. Senator from Connecticut
        Thank you, Mr. Chairman, for holding this hearing and for taking an
    active leadership role on this difficult but important issue. Since
    last October, when I joined with you and Senator Mack in introducing
    credit for early action legislation in the Senate for the first time,
    there has been active debate about the concept and policy choices
    involved Ems new idea. The number of original cosponsors on the Credit
    for Voluntary Early Action Act, which we recently reintroduced in this
    session, has grown to 12--6 Republicans and 6 Democrats. While we may
    not all agree on the extent of the problem of global climate change, we
    all support the use of market mechanisms to solve environmental
    problems and I want to encourage the environmental ethic that is
    developing in industry.
        The sooner we begin to act, the sooner we turn the challenge of
    climate change into an opportunity to use one of our most valuable
    resources--American ingenuity--to help us sustain an economy that is
    vibrant, growing and sustainable, while we make our air healthier to
    breath and safer to live in. Early actions to address climate change
    enjoy the distinct environmental and economic advantages of achieving
    near-term greenhouse gas emissions reductions while extending the
    period of time in which our companies and communities can innovate to
    maximize efficiency and minimize costs of protecting the environment.
        Time is a relevant factor in the debate about global warming.
    Between 1990, when nations of the world agreed we should attempt to
    stabilize greenhouse gas emissions levels, and 1997, U.S. greenhouse
    gas emissions increased 11 percent according to the EPA. The U.S.
    Energy Information Administration predicts that if we continue to
    pursue a ``business as usual path,'' our contribution to global
    greenhouse gas pollution will nearly double by 2020 to 145 percent of
    1990 levels. Since greenhouse gases remain in the atmosphere for
    generations, the longer we wait to reduce our emissions, the more
    drastic and difficult our future efforts will have to be to address the
    problem.
        Greenhouse gas pollution is a major and growing problem. Emissions
    of greenhouse gases, due in substantial part to the combustion of
    fossil fuels, are causing greenhouse concentrations in the atmosphere
    to rise faster and higher than they would naturally. More than 2,500 of
    the world's best scientific and technical experts have concluded that
    this trend is likely to increase the Earth's temperature by 2-6 degrees
    in the 21st Century with serious impacts on the global environment.
        While it is difficult to link specific weather events to global
    climate change, the extreme weather we have seen in the past year is
    consistent with what scientists predict under current models of global
    warming. Last year in our country, severe drought in the South and West
    had devastating effects on agricultural production. Wildfires in
    Florida consumed roughly .5 million acres burning timber, worth more
    than $300 million. Flooding in Texas and Mexico claimed lives and
    devastated communities. Record temperatures in Texas were so high that
    sections of Interstate Highway 35 melted.
        Underscoring the importance of confronting the problem of climate
    change, the American Geophysical Union, a professional society
    comprised of 35,000 geoscientists, recently stated that ``present
    understanding of the Earth climate system provides a compelling basis
    for legitimate public concern--over . . . increased concentrations of
    greenhouse gases.''
        Since we introduced this voluntary early action bill, climate
    change discussions have heated up and many stakeholders have expressed
    their desire to constructively participate in this important debate.
    Big businesses such as BP/Amoco, Shell, Lockheed Martin, and United
    Technologies are finding ways to contribute solutions by improving
    energy efficiency and reducing emissions. Communities are also showing
    leadership. For example, the International Council for Local
    Environmental Initiatives has helped more than 48 American cities and
    counties that are committed to climate change protection, to undertake
    local action plans to achieve voluntary emissions reduction goals. Part
    of our responsibility as legislators is to make sure that we recognize
    and encourage these acts of good environmental citizenship. We must not
    inadvertently discourage or penalize early actions that are good for
    companies, communities, and the environment.
        I hope that our panels today will focus not on the science of
    climate change nor on the specifics of our legislation but on the
    concept of crediting voluntary early actions to control U.S. greenhouse
    gas emissions. This hearing provides an opportunity to learn from one
    another as we discuss the arguments for and against providing credits
    to those who take voluntary early actions to address climate change.
    This discussion should pave the way for improving our bill so that it
    delivers on the promise embodied in the idea of credit for voluntary
    early action to break the current legislative stalemate on this
    increasingly critical global environmental problem. I look forward to
    hearing from our witnesses. Thank you.
        Senator Chafee. Thank you, Senator. Those are good points
    you made. I think there is a sense of urgency here and the
    longer we wait the more difficult the situation gets.
        Senator Thomas?

                OPENING STATEMENT OF HON. CRAIG THOMAS,
                 U.S. SENATOR FROM THE STATE OF WYOMING

        Senator Thomas. Thank you, sir. I do think voluntary
    reduction of greenhouse gases, of course, is an honorable goal.
    We ought to be doing that, looking at that. Voluntary emissions
    for the sake of credit makes me a little uneasy. I am not sure
    how that works, as a matter of fact, and so I am anxious to
    know more about it. As you know, in the Kyoto arrangement, we
    would have to have a reduction under that of 31 percent. We are
    about 4 percent of the world's population and we produce about
    25 percent of the world's products. So it is not unusual that
    we have a unique situation.
        We are having a hearing over in the Energy Committee on the
    impacts of Kyoto. I think that would be interesting for all of
    you to listen.
        So, I don't think the goals of economic growth and
    environmental protection have to be mutually exclusive. I am
    not certain about this plan leading to credits. So I am anxious
    to hear more. In the electric industry in the past I would say
    it has not been a great producer.
        Senator Chafee. Well, thank you, Senator. I am glad that
    you are doing that in the Energy Committee. The more attention
    we get with this the better. Trying to devise this credit
    system is not easy. This involves a lot of challenges, what
    happens to the normal growth that is going to occur for these
    companies. So the more the merrier, as far as I am concerned. I
    am glad the committee is taking an interest in this subject
    that I think is so terribly important.
        Now we will start with our first witness, Ms. Eileen
    Claussen, Executive Director of the Pew Center on Global
    Climate Change. Welcome, Ms. Claussen. There is no trap door
    there, but if you can keep it within 5 minutes or close to
    that, it would be helpful.

    STATEMENT OF EILEEN CLAUSSEN, EXECUTIVE DIRECTOR, PEW CENTER ON
                         GLOBAL CLIMATE CHANGE

        Ms. Claussen. I will do my best.
        Mr. Chairman, Senator Baucus and members of the committee,
    thank you for your invitation to testify this morning on
    voluntary efforts to reduce greenhouse gas emissions. The Pew
    Center on Global Climate Change was founded in the belief that
    our generation's challenge will be to address global climate
    change while sustaining a growing global economy. And there is
    no better place for us to begin than with early action to
    reduce greenhouse gas emissions.
        Mr. Chairman, throughout your career you have been at the
    forefront of the movement to protect and enhance our Nation's
    environment. Your recent decision to retire from the Senate at
    the end of your current term represents a profound loss to the
    Senate and to our country. It will also be a profound loss in
    the field of global climate change where leadership will be
    vitally needed, and where your vision and pragmatism will be
    sorely missed.
        Senator Chafee. Thank you very much for those kind
    comments. I appreciate it.
        Ms. Claussen. My time is going faster here.
        Senator Chafee. I will give you time off for my comments.
    And if you want to add some more, go to it.
        Ms. Claussen. I am the Executive Director of the Pew Center
    on Global Climate Change, an organization founded by the Pew
    Charitable Trusts to work constructively on the climate change
    issue and to forge a consensus for action.
        The Pew Center and its Business Environmental Leadership
    Council were established in May 198. We formed the Business
    Environmental Leadership Council because we believe that the
    business community is ready and willing to provide the impetus
    to move forward on the issue of climate change. The Council
    consists of over 20 of the Nation's and the world's largest
    corporations. Together their annual revenues total more than
    $550 billion.
        Mr. Chairman, we do not believe that action on climate
    change should be delayed until we are satisfied with the
    progress that has been made on this issue internationally.
    Instead, we believe that companies can and should take concrete
    steps now in the U.S. and abroad to assess their opportunities
    for emission reductions and establish and meet emission
    reduction objectives.
        Perhaps some examples of company efforts would be
    instructive. BP Amoco, for example, has established a target to
    reduce its greenhouse gas emissions by 10 percent from the 1990
    baseline by 2010. These reductions will be measured using
    established protocols and will be verified by external
    observers.
        America Electric Power has implemented climate challenge
    programs with a total cumulative effect of avoiding
    approximately 10 million tons of carbon dioxide that would
    otherwise have been emitted into the atmosphere.
        United Technologies, by 2007, will reduce its energy and
    water consumption per dollar of sales by 25 percent below 1997
    levels, with approximately the same reductions in emissions
    that cause climate change.
        The DuPont Company will, by 2000, cut its annual global
    greenhouse gas emissions by about 45 percent below 1991 levels.
    Shell International aims to reduce greenhouse gas emissions by
    10 percent below 1990 levels by 2002. Since 1990 Baxter
    International has reduced the global warming impact of its
    emissions by 81 percent. In 1995, Entergy committed to
    eliminating over four million tons of carbon dioxide emissions
    per year through the year 2000.
        Regardless of the outcome of negotiations on an
    international climate change agreement, the members of the
    Business Council will continue to move forward because they
    believe that this is a serious issue that demands a serious
    response.
        We do expect that at some time in the future the United
    States will ratify a climate change treaty that includes a
    commitment to reduce emissions of greenhouse gases. So, while
    our companies are already taking voluntary actions to reduce
    their emissions, they also want to be sure that they will
    receive credit for these actions under any future climate
    change treaty, particularly since many of these actions are and
    were taken at the request of the U.S. Government to fulfill the
    goal of the Framework Convention on Climate Change.
        But the issue is not primarily one of getting credit or
    providing incentives to act early. The key issue is one of
    eliminating disincentives: voluntary action, in the absence of
    credit, can work to the disadvantage of companies who act early
    to reduce their emissions. It is clearly not in our interest
    for companies that do the right thing by voluntarily attempting
    to slow the rate of greenhouse gases entering our atmosphere to
    be penalized and economically harmed for their efforts.
        Solving this problem requires leadership from the Congress.
    An analysis undertaken by the Pew Center and published in
    October 1998 finds that Federal agencies do not have sufficient
    legal authority to provide the certainty that firms need to
    make significant early investments.
        So while the Pew Center doesn't take a position on the
    merits of any particular bill, we believe there are a number of
    issues that must be addressed in a legislative framework. We
    would like to stress the following:
        First, credit should only be provided for actions that are
    real and verifiable. This means that reductions must be
    measured and monitored using standardized measurement
    techniques. Any system that is adopted should reward virtuous
    actors, not those who engage in sham or paper reductions, or
    who ``game'' and manipulate the system. There can be no
    effective credit or early action program if we are not
    committed to establishing a robust and vigorous monitoring and
    verification effort.
        Two, the program should be simple and flexible.
    Participation in a system of credit for early action would be
    voluntary, but it is in our collective interest to encourage as
    many businesses as possible to reduce their emissions.
    Companies and sectors that are experiencing high growth must be
    accommodated as must those who produce products, be they
    appliances or autos, that use significant quantities of energy.
    We must also keep transaction costs to a minimum, so that the
    costs of participation do not exceed the benefits to the
    participants.
        Three, the legislative framework should not prejudge the
    future national implementation scheme. We are not at a point
    now where we can predict the design of the program that will be
    implemented in the United States to meet a future international
    obligation. So no system of credit for early action should
    prejudge the scheme that might be used.
        Four, domestic action should be the primary emphasis, but
    verifiable international projects should be included. For
    example, international projects that earn credits for
    reductions achieved after the year 2000 under the Clean
    Development Mechanism should be incorporated into an early
    action crediting scheme. The small number of projects already
    accepted into the U.S. Initiative on Joint Implementation that
    achieve reductions prior to 2000 should also be recognized if
    they meet rigorous monitoring and verification standards.
        Five, the legislative framework should not over-mortgage a
    possible U.S. greenhouse gas allocation. The Kyoto Protocol, in
    its current form, does not contain any incentive to act early.
    As long as this remains a feature of a possible future
    international control regime credits allocated for early
    domestic reductions would have to come out of any U.S.
    allocation granted under a treaty. Allocating too many credits
    early could increase the difficulty of complying with a
    regulatory regime. On the other hand, removing the
    disincentives for early action is an early action objective of
    an early action program. The design of the program should
    balance these two objectives, perhaps through the establishment
    of appropriate baselines.
        The Pew Center and its Business Environmental Leadership
    Council believe climate change is serious business and that
    early action is smart business. And the Pew Center and the
    Business Environmental Leadership Council are not alone. A
    national survey taken this weekend showed that among those with
    an opinion on early action, establishing a legal framework is
    favored by a ratio of four to one.
        Thank you very much, Mr. Chairman.
        Senator Chafee. Thank you very much, Ms. Claussen.
        We will hear from all the witnesses and then we will come
    back with questions.
        Senator Chafee. Our next witness is Mr. Dale Landgren, Vice
    President for business Planning, Wisconsin Electric Power
    Company. Mr. Landgren, we welcome you here.

        STATEMENT OF DALE LANDGREN, VICE PRESIDENT FOR BUSINESS
               PLANNING, WISCONSIN ELECTRIC POWER COMPANY

        Mr. Landgren. Thank you. Mr. Chairman and members of the
    committee, I am Dale Landgren from Wisconsin Electric Power
    Company in Milwaukee, Wisconsin. Mr. Chairman, let me begin by
    commending you for your leadership on this issue and for
    beginning the important dialog that we are having today.
        I appreciate the opportunity to appear before you today to
    express Wisconsin Electric's support for the concept of credit
    for early and voluntary greenhouse gas reduction actions and to
    encourage Congress to enact legislation that establishes a
    program to provide credit to companies that undertake voluntary
    actions to reduce greenhouse gas emissions.
        We do not believe that support for this concept binds us or
    binds you as Senators to support the Kyoto Protocol or any
    other greenhouse gas action. We view a credit for early action
    program simply as an insurance policy in the event that
    greenhouse gas reductions are required. Congress should view
    credit for early action in the same way as an insurance policy,
    where there is zero cost for the premium.
        Wisconsin Electric is acting now because: first, we want
    the experience to determine what works and what doesn't; our
    customers want us to be environmentally sound and sensitive; we
    have been successful as a trader in the sulfur dioxide market,
    and believe that we can be as successful and prosperous under a
    greenhouse gas trading regime; and finally, we want to be good
    corporate citizens.
        We are working to develop strategies that integrate
    environmental, economic, and energy goals to assure that the
    energy industry has as many options as possible, including non-
    emitting nuclear power, to meet any potential greenhouse gas
    reduction goals.
        The business reasons for early action are driven by our
    assessment of the high probability that some controls will be
    placed on greenhouse gas emissions in the next 10 years. Plus,
    if we can identify and get experience in low-cost ways to
    reduce greenhouse gases, our company will be better positioned
    in the long run.
        The short-run cost of this strategy to us is the out-of-
    pocket dollars we spend on early action with no contribution to
    the bottom line. The biggest risk for this strategy is that we
    will not be given credit for these actions and this has two
    negatives that you need to understand. First, we will need to
    spend the money twice and second, we will spend more because
    the inexpensive opportunities will have been lost.
        Currently there is no legal framework regarding the
    treatment of early greenhouse gas reductions or credit for
    these early actions. This uncertainty is inhibiting companies
    from investing in greenhouse gas reduction activities and
    projects. We have been proactive in implementing greenhouse gas
    reduction strategies through a variety of programs such as
    joint implementation projects, a very successful green pricing
    program and participation in the Climate Challenge program.
        Wisconsin Electric is a partner in two joint implementation
    projects. We helped fund a coal-to-gas repowering project in
    the City of Decin in the Czech Republic and a carbon
    sequestration project in Belize in Central America. Our Energy
    for Tomorrow Green Pricing Program is the largest and most
    successful of its kind in the country. We are participating in
    the Department of Energy's voluntary Climate Challenge program,
    the world's most successful voluntary greenhouse gas reduction
    effort. The programs we are involved in are outlined in more
    detail in my written statement.
        Any credit for early action program should include a number
    of basic principles, such as credit to companies that made
    commitments under the voluntary Climate Challenge program and
    under the United States Initiative on Joint Implementation. I
    agree with Ms. Claussen that these commitments need to be
    verified. We call this ``real credits for real reductions.'' We
    would include a certification process that provides clear and
    consistent standards for determining early reduction credits.
    Such standards would prohibit double-counting of the emission
    reductions: that is, crediting of the same emission reductions
    to multiple parties.
        We would also include provisions that adjust the
    displacement of emissions, which is also known as leakage, as a
    necessary component of the integrity of the program. Other
    recommended principles are outlined in more detail in my
    written statement.
        In conclusion, Wisconsin Electric has undertaken and wants
    to continue to pursue opportunities to voluntarily reduce
    greenhouse gas emissions through low and no-cost strategies.
    However, the lack of assurance that credit will be provided for
    our voluntary actions to reduce greenhouse gas emissions causes
    us to be reluctant to pursue additional reduction activities.
        Congress should enact legislation to establish a credit for
    early and voluntary greenhouse gas reduction program to provide
    the assurance we need in the event that greenhouse gas
    reductions are required.
        Mr. Chairman, thank you again for the opportunity to appear
    before you today.
        Senator Chafee. Well, thank you very much, Mr. Landgren.
        Now we will hear from Dr. Richard Sandor, Chief Executive
    Officer, Environmental Financial Products.

         STATEMENT OF RICHARD SANDOR, CHIEF EXECUTIVE OFFICER,
                    ENVIRONMENTAL FINANCIAL PRODUCTS

        Mr. Sandor. Thank you very much, Mr. Chairman. It is a
    privilege to be here before this committee. I would like to add
    my praise to the other members of the panel for your great work
    in this effort.
        Environmental Financial Products is a small investment bank
    that specializes in inventing, launching and trading new
    products. We have been involved in the mortgage-backed
    securities business, in financial futures, inventing those, in
    insurance derivatives, catastrophe derivatives, and the
    (SO2) market.
        I got involved in the environmental trading business in
    1990, writing a paper for a public interest group in Ohio to
    advocate market-based solutions to environmental problems.
    During that time I worked and chaired the Clean Air committee
    of the Chicago Board of Trade and led the effort to partner up
    with the EPA, ultimately acting in the business, doing the
    first registered trade, trading options on SO2
    allowances with Wisconsin Electric in the early 1990's,
    financing utilities and being an active participant in the
    market.
        At the outset of the market there were tremendous
    skepticism whether this would work. Many argued it would not be
    possible to ``commodicize'' the environmental good: ``The
    prices will be high.'' In fact, the median was estimated to be
    $600 a ton. Throughout six auctions at the Chicago Board of
    Trade, however, we have averaged $118 per ton as opposed to
    $600. We are 40 percent ahead of schedule in cutting emissions,
    and we are at 10 to 20 percent of the cost that Congress had
    predicted.
        Senator Chafee. I must say, Doctor, we remember that.
    Senator Baucus, I believe, was chairman of the committee at the
    time. We foresaw the day when those tradings would be up there
    on the list. There would be hog bellies and next there would be
    tradings.
        Mr.Sandor. That is what we are hoping for, greenhouse gases
    right next to soybeans. Let me explain our position on that. We
    have been involved--and I think your efforts for early action
    are actually the start, the beginning of the end of climate
    change problems as we know them. I think this committee's
    efforts are unambiguously that important.
        We, for the last 9 years, have been working on greenhouse
    gases in the private sector. We have clients today such as the
    country of Costa Rica that we work with on AIJ, landfill gas
    collection projects, coal bed methane, major U.S. electricity
    generating companies, as well as agriculture and farm
    interests. There is an inchoate market already starting in
    greenhouse gases. We need the framework from all of you to get
    it started, just as the Internet needed the URLs and the other
    infrastructures. This is aside from Kyoto.
        I am here, in contrast to my fellow members who are
    speaking about the industrial area, to emphasize what Senator
    Baucus said, the role of U.S. agriculture. I had the privilege
    in 1973 of serving as vice president and chief economist of the
    Chicago Board of Trade. Many of you will now remember that was
    the year of the Arab oil embargo, $4 corn, $10 soybeans, and in
    fact, the end of the western world as we knew it because of
    problems associated with inflation.
        American agriculture found 50 million acres. That came into
    production once you put the price up on the board. That was
    critical. We have 450 million acres in agriculture, 550 million
    in forestry. If we just take the 300 million that we have, put
    best management practices in, we could generate 200 million
    tons of carbon credits, another 100 million from forestry,
    without even stretching it, all of that could be thrown in the
    pot in a private trade system.
        Why is that important? In fact, Charles River Associates,
    Wharton Econometrics, Bob Stavins at Harvard, a number of
    economists think that carbon is worth $200 a ton. Given that,
    American agriculture could have $60 billion in net income if
    those forecasts are right. I don't believe those forecasts. I
    think it is going to be $10 or $20 a ton. I think it is going
    to be a small percentage. But nevertheless it is going to
    provide a new stream of income for American agriculture.
        Remember, whether you mine the soil or fossil fuels, you
    put carbon into the air. We have taken out 40 percent of the
    sequestered carbon since the turn of the century when we plowed
    up the prairies. We have an opportunity to put it back and to
    incentivize the farm sector to do it.
        So, what I am hoping is that all of you will take a look at
    the area of American agriculture and forestry and make sure
    they are included in such a program.
        Let me conclude with a few statements.
        Senator Chafee. Yes, they can come in if they want to come
    in.
        Mr. Sandor. If they want to come in. But give them the
    opportunity. Make sure soil sequestration and sinks are part of
    the effort to voluntarily comply or to voluntarily participate
    in any bargaining.
        In conclusion, I agree with my colleagues that it is very,
    very simple. The steps are simple. No. 1, you need a
    homogeneous commodity that is fungible.
        No. 2, very importantly, tradeability, that is voluntary
    credit, we must talk about transferability of ownership and the
    ability to trade and know each other on a voluntary basis.
        No. 3, monitoring and verification are critical drivers. I
    do believe that a voluntary program with the proper
    infrastructure will unleash the American agriculture's
    productivity and the capital market's ability to design and
    efficiently trade carbon permits. Thank you.
        Senator Chafee. Thank you very much, Doctor.
        Our next witness is Ms. Tia Nelson, Deputy Director,
    Climate Change Program, of the Nature Conservancy.
        Ms. Nelson?

       STATEMENT OF TIA NELSON, DEPUTY DIRECTOR, CLIMATE CHANGE
                    PROGRAM, THE NATURE CONSERVANCY

        Ms. Nelson. Good morning, Mr. Chairman. The Nature
    Conservancy is happy to be here today to discuss the concept of
    credit for voluntary early action and to share with you the
    Nature Conservancy's experience in developing carbon
    sequestration projects. We believe that a well-crafted early
    action bill could be a critical and cost-effective step
    encouraging companies to act now to help reduce greenhouse
    gases while achieving other important environmental benefits.
        In particular, the Conservancy urges that any credit for
    early action legislation include scientifically valid, credible
    carbon sequestration provisions to provide adequate incentives
    for projects which slow or reverse the pace of deforestation,
    encourage better forestry and agricultural management
    practices.
        I am sure you know, Mr. Chairman, that over 20 percent of
    the annual greenhouse gas emissions today are attributable to
    land use change and forestry activities, not to the
    agricultural sector. This is an important component of any
    climate change program, in our view.
        The Conservancy believes the carbon sequestration project,
    properly designed, can achieve real and measurable greenhouse
    gas benefits while also protecting biodiversity and enhancing
    sustainable growth, which after all is our mission.
        Our experience in developing and helping implement carbon
    sequestration projects has convinced us that we can meet the
    technical challenges of demonstrating and quantifying carbon
    sequestration benefits. Projects we have developed to slow the
    release of carbon dioxide and to enhance the so-called carbon
    sinks are protecting some of the most important natural areas
    in the world, sequestering millions of tons of carbon dioxide,
    and in a cost-effective manner, and helping local communities
    develop their economies in a sustainable way.
        We are doing these projects in partnership with other
    conservation organizations and industry. Government action to
    provide these companies with clear incentives in this area, in
    our view, could have a dramatic positive effect on greenhouse
    gas mitigation as well as associated environmental benefits to
    society including biodiversity and watershed protection,
    sustainable development, sustainable agriculture, et cetera.
        I would briefly like to tell you a little of our project
    experience to help illuminate what we believe the potential of
    this type of incentive mechanism could be. Our first project
    was in the country of Belize with substantial support from
    Wisconsin Energy that is appearing on this panel with me today.
    In 1994 Wisconsin Energy and the Nature Conservancy discussed
    the idea of undertaking a project which could demonstrate the
    potential forest conservation and sustainable management as a
    greenhouse gas mitigation strategy.
        Our simple goal was to develop a model which balanced
    carbon sequestration, biodiversity and sustainable development
    benefits in a cost-effective way.
        Subsequent to Wisconsin Electric Company coming to the
    Nature Conservancy, Cinergy of Ohio, Detroit Edison of
    Michigan, the PacifiCorp of Oregon, and Utilitree Carbon
    Company, which is a consortium of over 64 utility companies in
    the United States, provided the Conservancy and its Belizean
    partner the money necessary to purchase an imminently
    threatened parcel of unique tropical rain forest, provided
    funding for small scale sustainable forestry, a project
    certified under the Forest Stewardship Council principles and
    supported community education programs. We provided local jobs
    and income for local people.
        We have protected forests and we have had a net positive
    impact on the environment. We are very excited about these
    types of opportunities.
        Our second project, the largest of its kind in the world,
    was done with support from American Electric Power, PacifiCorp
    again, and BP Amoco. It was in Bolivia. We retired some
    forestry concessions, established an endowment for the now
    largest national park in the world, funded rehabilitation of a
    local school, all this with industry money. We funded a local
    health facility.
        Senator Chafee. Is this the Bolivian thing?
        Ms. Nelson. Yes, sir. The local health facility provided
    regular doctor visits to the community, funding for capital and
    local communities for sustainable development, orchid
    propagation, sustainable palmetto harvest. The multitude of
    benefits from this project, beyond the climate change benefits,
    are enormous. Estimated carbon benefits are over 15 million
    tons, just over 3 years. Just to give you a perspective, that
    is equal to the lifetime emissions of 850,000 automobiles.
        Both of these projects include the most rigorous monitoring
    verification methodologies currently in use today. They were
    developed for us by Winrock International Institute for
    Agricultural Development, a nonprofit out of Arkansas. They are
    peer-reviewed, field-based methodologies. They have proven to
    us that it is possible to measure and quantify the carbon
    benefits of forest protection management.
        Our work to encourage additional companies to get involved
    in these types of projects, domestically and internationally,
    in the forestry sector and in the agriculture sector, has led
    us to conclude that without clear incentives from government
    and assurances that their investments will be recognized under
    a future crediting program, this type of activity will be quite
    limited.
        Since I am running out of time I will move quickly, if I
    could, to a set of recommendations which we would like to make
    to the committee as they contemplate this mechanism. As I have
    noted, the Conservancy strongly favors the inclusion of carbon
    sequestration provisions in any early action program.
        We do encourage the legislators to move carefully in
    developing these provisions so as to create valid and
    measurable benefits and to avoid the creation of any kind of
    perverse incentive.
        There are four principles we would like the committee to
    keep in mind. All projects, we believe, should be subject to
    rigorous monitoring and verification and transparent reporting.
    Credits for forest projects should take into account the
    potential for the displacement of their benefits, the so called
    ``leakage'' problem. And these should be addressed in project
    design.
        Carbon sequestration provisions under any early action bill
    should be awarded for additional changes in land management
    above and beyond current practices. There should be no credit
    in cases where landowners are clearing land and establishing
    monocultured tree plantations. A proper carbon accounting
    system would not allow that anyway, in our view. Credit should
    not be awarded for business as usual scenarios.
        Last, we believe that international projects accepted under
    the USIJI program, which meet the subsequent legislative
    criteria considered by this body, should be eligible for early
    action.
        With these principles we think the carbon sequestration
    projects can play an important role in any early action
    program.
        Thank you, sir, for your leadership and the opportunity to
    testify today.
        Senator Chafee. Well, thank you, Ms. Nelson. There is no
    question but that Wisconsin Power has certainly been a good
    citizen. What is the reaction in a country like Belize when you
    make these tremendous purchases and in effect it is going to
    remain in forest as opposed to being deforested and then
    subsequently raising soybeans or something to that effect? What
    do the people of Belize think about that?
        Ms. Nelson. Increasingly, it is the Conservancy's
    experience, and we are after all an international organization
    with a number of activities abroad, the developing countries in
    which the Conservancy has been working for some years on
    protected areas, management strategies, these developing
    countries have come to view--particularly in Latin America
    which is the area of my experience so I will try to stick to
    that--they have come to view this mechanism as a fascinating
    opportunity to do something that we have struggled to do for
    many, many years, in essence to value an environmental service,
    and by doing so, provide a greater incentive to protect and
    manage a forest than to clear it and convert it to other non-
    sustainable purposes.
        In our view and in the view of the partners with whom we
    work in developing countries, it is one of the promising
    conservation tools we have ever had.
        Senator Chafee. Well, I have had the experience of going to
    Belize as a tourist, and the reason we went there was because
    of what you described in your testimony here, places with
    romantic names like Gallon Jug.
        Ms. Nelson. I came from there last week, as a matter of
    fact. The Belizeans are quite proud of the visitors they
    attract with their natural resources.
        Senator Chafee. Well, you say hello to everybody in Gallon
    Jug.
        Ms. Nelson. I will do that for you, sir. Now that you are
    retiring maybe you will have some extra time and you can go and
    relax down there.
        Senator Chafee. All right. Well, I certainly would like to
    go back.
        Ms. Claussen, there have been some suggestions that this is
    a dark plot by these large companies such as you represent or
    that are part of your coalition. Somehow through inexplicable
    ways they are going to make out like bandits and it is really a
    big profit scheme that translates into their bottom line. Have
    you heard those charges and what is your answer?
        Ms. Claussen. Yes, I have. I think there are lots of
    different kinds of motivations that make these companies do
    some of the things that we think they ought to be doing. I
    think, first of all, many of them, in fact all of the ones
    affiliated with the Pew Center accept the views of the
    scientists that this is a serious problem and that they ought
    to be doing something about it. All of these companies believe
    that companies have a really strong role to play here and that
    they themselves should take actions. I don't think there is any
    question that there is a motivation here stemming from the
    science and environmental impacts.
        I think they believe that taking action will give them a
    seat at the table when policies are developed and give them an
    opportunity to talk about what they think makes sense. So, I
    think that is in there as well.
        Obviously, these companies are in business to make money. I
    think some of them think that at least parts of their business
    could be more profitable under some climate change regime. But
    what I think really motivates them on early action is that they
    don't want to be penalized. They want to be able to do some
    things that they think are important. They want to do what they
    are asked, but they certainly don't want to incur a penalty.
        Senator Chafee. I certainly have not objection to any
    company making some money. I certainly understand their concern
    that they take these steps now, and obviously the steps they
    take in the beginning, with the low-hanging fruit, the easy
    ones. Then if there comes a subsequent starting point that
    delays, they don't get the early starting point but a later
    starting point, it makes it very difficult for them. The
    competition is starting at zero whereas they are starting at
    minus 30 or whatever it is. Their reductions are going to be
    much harder to obtain. So I can perfectly well understand their
    concerns.
        Senator Baucus, do you have some questions?
        Senator Baucus. Thank you, Mr. Chairman.
        Ms. Claussen, one question I have is how do you get a lot
    of American companies to participate? I am thinking of small
    business now. There are many more small business enterprises
    than there are big business. I can see big business finding an
    economic opportunity here, you know, like Westinghouse. You
    know, it makes sense. But most companies don't have the size,
    don't have the sophistication, the research capabilities. What
    is the opportunity for small business in credit for early
    action?
        Ms. Claussen. It seems to me that small business has
    opportunities just like big business does. I think by and large
    small business understands less about how this whole thing will
    work, even what the climate change problem is.
        Senator Baucus. Could you give us an example? Say a small
    grocery store or a print shop or an accounting firm. You know,
    not a utility.
        Ms. Claussen. I mean based on long years of working in this
    field, it seems to me that there are always efficiency
    improvements that people don't take advantage of because they
    don't think about them. So I think there are always those.
        In terms of carbon emissions, there are also opportunities
    to switch fuel. So, I think small business will have
    opportunities. The issue is whether they can take advantage of
    them, whether they know how to do it and whether the system
    that you eventually, I hope, agree on gives them something that
    is simple enough so that they don't need a large staff and a
    lot of people to help them understand the intricacies.
        So the challenge is really, I think, to make it possible
    for them to take advantage of opportunities that exist.
        Mr. Landgren. Senator, could I just add to that to
    enlighten?
        Senator Baucus. Yes.
        Mr. Landgren. As I mentioned in my testimony, Wisconsin
    Electric has a very large green pricing program. Most of those
    have always been focused on residential customers. We are now
    trying to target small business because we do know that there
    are some small businesses that would like to do something to
    assist the environment.
        Today, green power in the Midwest costs more than our
    regular power does. So, if we asked them to sign up for our
    green pricing and we allowed them to purchase 25 percent of
    their use, 50 percent of their use, or all of it that will come
    from a green source, they will pay more for that.
        If we were able to have you folks give credit for early
    action, there could be a procedure by which those small
    businesses could also receive that credit for early action;
    whether or not it was a negotiated split between us and them or
    if we just decided that it was appropriate for them to get all
    of that.
        So, another way in which small business could participate,
    and we know that they want.
        Senator Baucus. Other than a reduction in their power bill,
    what else could they do? Examples for small business, you know,
    so that they could have some ownership, be part of all of this,
    and ways to provide incentive, to think of new ways to do
    things. I just think that most small businessmen will see this
    as a--``well, it is interesting, but what can I do?''
        Ms. Claussen. Yes, but you could do anything, from changing
    your lighting to changing your insulation. I mean, there is a
    whole spectrum. Thirty-five percent of greenhouse gas emissions
    come from buildings. I mean all of these small businesses are
    in buildings. There is lots of opportunity.
        Senator Baucus. But how are you going to measure that and
    get a credit for it, I mean a small company?
        Ms. Claussen. Well, you can. Actually you can.
        Mr. Landgren. It has been measured in the SO2
    program. Utilities were allowed, for verifiable energy
    efficiency improvements, to obtain additional SO2
    credits. The U.S. Government did a very good job of insisting
    on strict verification, but my company along with others were
    able to prove that we had real reductions and we received real
    SO2 credits for those reductions.
        Those efficiency improvements came from small businesses
    and residential customers.
        Mr. Sandor. Senator, if we consider farmers or small farms
    as small business people, I think there is an enormous
    opportunity there in the sequestration level. It is relatively
    easy to monitor. We have been in touch with several major----
        Senator Baucus. I was interested in your figures. They are
    massive, I mean 450 million--what were your figures on forestry
    and agriculture?
        Mr. Sandor. I thought about 300 million tons. I have used
    numbers from Rattan Lal at Ohio State. He has estimated that
    the carbon sequestration with low-till or no-till practices,
    plus biomass fuels can generate half of that.
        Senator Baucus. So that is in addition to what agriculture
    now sequesters?
        Mr. Sandor. Yes, just by switching.
        Senator Baucus. By switching? That is it?
        Mr. Sandor. That is it. And that doesn't speak to new soil
    cover.
        Senator Baucus. What is the most cost-effective switch?
        Mr. Sandor. To low-till or no-till agriculture, where you
    don't deep plow.
        Senator Baucus. So what percent of that 300 million is
    that?
        Mr. Sandor. That is 100 million tons.
        Senator Baucus. That is a third. So, one-third would be no-
    till, low-till?
        Mr. Sandor. Yes.
        Senator Baucus. I am just curious. How much has
    deforestation of the world, you know, since the Middle Ages,
    contributed? I mean, you go across Europe and there are no
    trees anymore. In the eastern United States there aren't any
    trees any more. I'm just curious.
        Ms. Nelson. There are two figures that I can refer to, both
    the World Resources Institute, Inter-governmental Panel on
    Climate Change, and others have looked at this question. On an
    annual basis, estimates are that more than 20 percent of
    CO2 emissions today, on an annual basis, are
    attributable to deforestation, principally in the tropics, in
    land use change.
        Historically, WRI just recently released a report which I
    found quite interesting, that sought to estimate emissions
    attributable to deforestation and land use change since the
    beginning of the industrial age until now. That number exceeded
    30 percent. So, over 30 percent of the problem historically has
    been attributed to deforestation.
        Right now on an annual basis it is a little bit more than
    20 percent.
        Senator Baucus. How much does the ocean sequester?
        Ms. Nelson. I don't understand the ocean cycle.
        Senator Baucus. Does anybody here understand it? Do you
    want to take a stab?
        Ms. Nelson. No.
        Senator Baucus. Well, that is an interesting question. If
    nobody understands it----
        Ms. Nelson. Well, lots of people do; just not me. I would
    rather not speak to it. It is part of the carbon cycle. It is
    complicated. It both releases carbon dioxide, takes in carbon,
    cycles through coral reefs and other complicated chemical
    processes that I dare not venture to. I will stick with my
    expertise which is forests.
        Senator Baucus. OK. Well, my time is up. Thank you.
        Senator Chafee. Senator Wyden.
        Senator Wyden. Thank you, Mr. Chairman. Mr. Chairman, I
    want to commend you and Senator Baucus for, I think, extremely
    important work. I am very pleased to be a sponsor of this
    legislation and look forward to working closely with you and
    Max so we can get it passed in a bipartisan way.
        I will tell you, however, that I am very troubled as I
    listen to this panel, that so much of the discussion is about
    forestry actions that remove carbon from the atmosphere, so
    much of the discussion involves projects that are located
    overseas. I feel very strongly about trying to take sensible
    steps to deal with forestry issues in Belize, Ms. Nelson, but I
    care about Bend, Oregon as well.
        We have to do some things there as well, both from the
    standpoint of the environment, protecting habitat and
    watersheds, as well as steps that are going to help promote
    jobs in rural communities. We have a crisis in our rural
    economy, and yet all of this discussion seems to focus on
    forestry overseas rather than a lot of the forestry concerns in
    this country.
        For example, if we were to do nothing else but to plant
    trees on the millions of unforested conservation reserve lands
    in our country and to help some of the private landowners who
    are willing to put conservation easements on their private
    lands, by paying some of the upfront costs we would be taking
    steps in our country that would deal with the kind of early
    action that we are talking about with respect to forestry as
    well as creating jobs in the rural West.
        Yet, I hear virtually no discussion of this. All the major
    projects seem to involve forestry overseas. My question to you,
    Ms. Nelson--I see the gentleman at the other end is raising his
    hand and gyrating frantically as well----
        Ms. Nelson. That is Dr. Sandor, yes.
        Senator Wyden. Do you share my view of the enormous
    potential for domestic reductions in our country, and if so,
    what can we do as this debate goes forward to make sure that we
    think about people, say in the rural west of this country who I
    think very much would like to be part of this solution in a way
    that would help our environment and protect jobs.
        Ms. Nelson?
        Ms. Nelson. Thank you, Senator. That is a good question. I
    have a couple of comments. I do share your view that there is
    enormous domestic potential, if done right. I think one of the
    reasons the first pilot projects were abroad would speak very
    well to the issue before you today. There were clear rules. The
    U.S. Initiative on Joint Implementation has guidelines and
    criteria on how to meet a test of additionality and what
    leakage is and how to establish your baseline.
        It has a process for approving and accepting these projects
    into a U.S. Government reporting mechanism. There is greater
    certainty and understanding of the operational guidelines and
    criteria necessary to demonstrate the validity of this
    mechanism under the USIJI guidelines, a voluntary program
    established by this government after the conference of the
    parties in Berlin several years ago.
        There are no rules or guidelines for domestic projects.
    Nobody is quite sure what to do and what would count. Properly
    designed, we believe there is enormous potential both in the
    forestry and the agriculture sector in the United States to
    incentivize additional activities above and beyond what is
    going on now that will provide that benefit.
        To date, these pilot projects have taken place abroad
    because there was a clear set of rules, for one. They were
    cost-effective experiments. And I only just want to add in the
    interest of sharing one fact with you, the greenhouse gas
    benefits of our projects in Belize know no boundaries.
    Greenhouse gases, after all, are global pollutants. So, the
    benefit from a greenhouse gas standpoint is one that we feel
    here domestically as well.
        But your point is well taken as regards to forestry
    activities at home and I think that if this body would provide
    some clear guidelines and rules and do it in a credible way,
    you would see an enormous amount of activity in that area and I
    think that would be good.
        Senator Wyden. I want to let your associate comment. Your
    point is well taken as well. I will tell you, when you go to
    the rural West and you see all these people, you know, hurting.
    These are people who have been left out of this economic
    transformation. They do not own Microsoft stock. They are not
    going to be able to run a biotechnology company. We have to
    make sure that they have an economic future as well.
        As I said, I think your point is well taken. If we tell
    them, gee, you know, the priorities are overseas, the
    priorities are in Belize, that is not going to cut it with
    them. So we are going to be anxious to work with you.
        As you know, I am about to introduce a comprehensive bill
    and we have asked for your organization's input and others. Let
    us not create a situation where we pit Belize against Bend,
    Oregon because there are a lot of folks in Bend, Oregon, in the
    rural West.
        Senator Baucus and I both have huge sections of the rural
    West where folks are really hurting. We have to get them into
    this equation as well. Suffice it to say, when you do the
    benefits, as you say, are worldwide. But they have special
    ramifications for the people who give Senator Baucus and I an
    election certificate.
        Ms. Nelson. Absolutely.
        Mr. Sandor. Well, I couldn't agree more with you. I just
    had the privilege to be in Missoula, Montana last week with the
    Montana Carbon Coalition. It is precisely the problem that
    there are no credits voluntarily created and no standards for
    those folks to reforest. There are Indian reservations. There
    is wide-open rural poverty where tree planting could be an
    enormous source of revenue.
        We have 145 million acres of forests that are now grazed.
    That could be theoretically reforested. At a recent
    presentation that we made at the National Conservation Reserve
    Program in San Diego a lot of ranchers asked me, ``How can I
    switch from this grazing? The land is not too productive. Can
    you somehow help me certify it?''
        At 2 tons sequestration per year for 60 years, which can be
    gotten out of some projects using any of the leading forecasts,
    it is a far better use of that land to reforest than to keep it
    idle in either the CRP Program or to have it poorly grazed.
        I don't get it. I feel like I am Tom Hanks in the movie,
    ``Big.'' We are not paying any attention to monitor
    certification of forest sequestration in the U.S. The West, I
    think, has enormous opportunities and I think the Deep South--
    we were looking at a project in Mississippi the same way.
        We are involved in doing this, but we have no signal from
    all of you that there is a certification process. We are not
    asking you to do anything more than help us certify that and
    make it tradable so it can be easily transferred. So, if you
    can help us out that way, I think that is of enormous value.
        Mr. Landgren. Could I just add briefly, and maybe it is an
    oversight on our part, but Wisconsin Electric has actually
    spent more time and money working with organizations like the
    Nature Conservancy in Wisconsin, doing things to either donate
    land or to purchase land and to safe it and restore it and use
    the proper land management techniques that Ms. Nelson referred
    to.
        Again, what we are looking at is in the U.S. many of the
    opportunities are reforestation. In places like Belize, it is a
    massive opportunity at a much lower cost to save the rain
    forest before it is chopped down and then you have to work to
    restore it. So it is a matter of priorities, but we would also
    support the fact that there is much that can be done in this
    country.
        Senator Wyden. My time is up. Your testimony has been very
    good. Hopefully, it will give some impetus as we go forward
    with this legislation and come up with these standards.
        I will tell you, I am just struck at how this country talks
    about spending billions of dollars on various technologies and
    whiz bang gadgets to deal with this global climate problem and
    we have got a much cheaper solution in front of us.
        You have issued a challenge to this committee and to the
    Congress to get in place some sensible kinds of standards. We
    will make sure that that will be part of the legislation that I
    introduce and we will look forward to having your comments on
    how to do it right.
        I am pleased to join Chairman Chafee and Senator Baucus in
    support of their bill. I yield back.
        Senator Chafee. Thank you very much. Dr. Sandor, I have
    just one question here that troubles me. I don't know how you
    deal--I can understand Amoco and British Petroleum and
    companies like DuPont, companies that are part of Ms.
    Claussen's coalition. I can understand that we can institute
    some kind of a system whereby we start here and if they reduce
    they get credits for going below the area.
        In the next panel there will be folks representing small
    businesses. You were talking about farms, for example. Let us
    just say methane gas that is being produced there. But could
    you envision some kind of a system that seems like such a leap
    that farms would have a target ascribed to them? Let us say I
    have a fairly prosperous family farm. I have 300 milkers in a
    dairy farm. I am not sure the American public is going to
    countenance having a system whereby somebody is going to come
    to my farm and tell me that I have to reduce the CO2
    gases.
        Mr. Sandor. I would hope that the committee would not get
    hung up on the accuracy of measurement to make a market
    successful. In 1848 the Chicago Board of Trade graded grain and
    came up with standards. There were no microscopes. They had
    protein content, infestation. We traded mortgage-backed
    securities with houses in Rhode Island and houses in California
    and houses in Chicago and Madison and we managed to homogenize
    them and come up with a certificate.
        Rating agencies rate department stores in Chicago as junk
    bonds along with the countries of Belize and the capital
    markets manage to trade them. We trade credit card receivables.
    We trade silver ounce bars that are deliverable on our world's
    exchanges here in America that have a 10 percent variance. Yet,
    we are the envy of the world.
        There are mechanical means of measurement. We did some work
    with Jet Propulsion Laboratory that can now estimate biomass
    within a 10 percent tolerance, very much similar to what a bond
    market does. We know that 9 percent of the U.S. carbon
    emissions are from methane. We know 3 percent of the 9 percent
    is from animals. We know that there are 100 million cattle and
    150 hogs and pigs on feed. That is 250 million. We can take the
    average methane emission per animal.
        These numbers, we don't have to get it exactly right. This
    is our first job. I think all of us working together is not to
    design your first plane as a 747. OK? You know, Orville and
    Wilbur flew for 56 seconds and that was a big deal.
        Financial inventions, industrial inventions start with
    small and simple bases. I have watched the capital markets in
    almost every different area and I think if you get it close
    enough you can get a trading instrument that will be
    acceptable. You over-collateralize. You can in fact do that.
        We have FCIC people out there in the field. They take a
    look and rate farmers for crop insurance. They are visiting. It
    is a very successful program. We have all the USDA districts,
    the Conservation Reserve Program.
        I would only hope that this committee would not reinvent
    the wheel. Take a look at what is out there. Get it close
    enough so that we can have a voluntary pilot market, and I
    think the private sector will take care of the rest.
        Senator Baucus. I take it that essentially you four are
    saying that even though the Kyoto Treaty has not been ratified,
    let alone submitted, which would set caps, that you feel as a
    matter of faith that the time is going to come, sometime
    relatively soon, when the world will recognize the need,
    including developing countries, to sign a treaty. You, as a
    matter of faith, want to get ahead and get credit for thinking
    ahead and for being wise, omnipresent, and all those things.
        Is that basically it? I mean, do you advise Congress to
    pass this bill prior to the treaty or not? How would it work
    without caps? How could you set a value on the amount of
    greenhouse gases without caps? There are no caps because there
    is no treaty.
        So, I guess I am asking two questions. Do we proceed, in
    your judgment, irrespective of the treaty, proceed in passing
    this legislation? And second, are you saying, well, I don't
    know if you want to pass the bill, but we are taking a certain
    amount of early action because we think that the time is going
    to come fairly quickly?
        The question I have is why pass this bill when there are no
    caps? How do you quantify the amounts traded when there are no
    caps?
        Mr. Sandor. I will take a first jump at it and then I hope
    that, if you will forgive me, if I can excuse myself. Today
    happens to be, fortuitously, the seventh annual auction at the
    Chicago Board of Trade of SO2 and I must go host it.
    So, quickly, I would say, one, I believe that caps are coming
    somewhere in the world. I would like us to be able to export
    our reductions. If they come in Ireland or Australia----
        Senator Baucus. The caps are coming?
        Mr. Sandor. Not necessarily in the United States; in other
    jurisdictions. I think that British Petroleum, if it cleans up
    and registers, and Amoco, and reduces here, it might want to
    use it in another jurisdiction.
        Senator Baucus. Why will caps come in another jurisdiction
    when there is no agreement on caps in other countries?
        Mr. Sandor. I have been going to a lot of other countries
    around the world. We are talking to Canada and we are advising
    them on an emissions trading system, our company is. I think
    they will have a cap independent of what happens
    internationally. England is looking at it. The International
    Petroleum Exchange has a greenhouse gas program.
        Senator Baucus. Ms. Claussen, could you answer that,
    please?
        Ms. Claussen. Yes. First of all, let me say that I think
    that some form of binding commitments are inevitable, globally.
    I mean inevitable for the United States, and for the rest of
    the world, including the developing countries. I do think that
    some countries may move forward faster than we in dealing with
    a cap. I think that is certainly true for some countries in
    Europe which I think will go ahead and ratify the Kyoto
    Protocol.
        Even if the treaty doesn't enter into force, they will, as
    a domestic matter, impose caps. So I think there is some truth
    in what was said down at the end of the table here.
        Senator Baucus. So you advise what?
        Ms. Claussen. I think it is very important for the Congress
    to pass some legislation that grants credit for early action. I
    think that is one way for us to get moving and for our
    emissions path to move in a more reasonable way.
        Senator Baucus. Even though we don't know what the value
    is?
        Ms. Claussen. Even though we don't know what the value is.
        Mr. Sandor. Senator Baucus, could I answer one last
    question? We in fact trade the largest commodities in the world
    with no caps. Those are called currencies. Any central bank can
    print as much as it wants and the market doesn't have a problem
    and hasn't had a problem in trading it. So we could trade it
    and put a value on it even though there is no cap. It might
    have a depreciated value relative to it, if it did have a cap.
        But the markets can handle it. They have handled hyper-
    inflated currencies, traded them all.
        Senator Baucus. That is true, but there are only a few
    institutions who can print money, whereas in this case we are
    talking about a multitude of entities who could emit greenhouse
    gases. So that is a huge difference, frankly.
        Mr. Sandor. That is a difference. But I think that there is
    an argument that could be made. I would hope that you would
    offer credit for early action.
        Senator Baucus. I appreciate that. Thank you.
        Mr. Landgren?
        Mr. Landgren. I would just respond, No. 1, my company does
    believe in the inevitability that there will be some kind of
    regulation on greenhouse gases. But the point I tried to make
    in my testimony was that if you believe otherwise, this is
    really a zero cost to the government, other than the minor
    costs of verification and monitoring. In return for that you
    are getting a lot of companies being willing to invest money to
    do good things like improve the efficiency of the American work
    place and to save rainforests.
        Senator Baucus. I am just asking these questions to try to
    force us to think more clearly, frankly, so we can move more
    definitely and less pie in the sky. That is why I am asking
    these questions.
        Mr. Landgren. So we would support this bill--not this bill
    because again we are not necessarily here supporting this
    bill--but this concept going forward ahead of a treaty.
        Senator Baucus. Thank you very much.
        Senator Chafee. Also, I would stress the point that you
    have made, Mr. Landgren, in your testimony where you talk
    about--and you others have likewise--that there is a certain
    value that comes from certainty.
        In your statement you say: ``We do not believe we do not
    believe this support binds us to support the Kyoto Protocol. We
    view credit for early action simply as an insurance policy in
    the event that domestic or international programs to reduce
    greenhouse emissions is implemented, Congress should view the
    credit for early action in the same way, as an insurance
    policy.''
        Well, thank you all very much for your testimony. Ms.
    Nelson, please give our regards to your Dad.
        Ms. Nelson. Thank you very much. I will.
        Senator Chafee. I served here with him.
        Ms. Nelson. I will have dinner with him tonight. I will
    tell him you asked about him.
        Senator Chafee. Please do. That is very, very nice. Thank
    you.
        Would the next panel come forward? That will consist of Mr.
    John Passacantando, and Mr. Raymond Keating.
        Gentlemen, if you will take your seats, we will be glad to
    hear from you. Why don't we start with you, Mr. Passacantando?
    We look forward to your testimony.
        Mr. Passacantando is the Executive Director of Ozone
    Action.

      STATEMENT OF JOHN PASSACANTANDO, EXECUTIVE DIRECTOR, OZONE
                                 ACTION

        Mr. Passacantando. Thank you. Senator Chafee, thank you for
    the invitation to be here today. I am John Passacantando,
    Executive Director of Ozone Action, a nonprofit organization
    dedicated to building a public constituency for leadership to
    address global warming.
        We are here to talk about the concept of early action. I
    want to emphatically state that we support this concept. Even
    before the Kyoto Protocol was agreed upon, Ozone Action was
    promoting the importance of early emissions reductions. By
    promoting measures to get industry to voluntarily reduce their
    missions, you can foster the type of paradigm shift that
    encourages leadership by the industries that will dominate in
    the 21st century.
        Unfortunately, as currently written, S. 547 does not do
    this. In fact, in our eyes it is a Band-Aid approach that may
    ultimately be counterproductive.
        A doctor, when treating a patient with high cholesterol
    will likely prescribe medication, but no responsible doctor
    would limit that treatment to medication. He would insist that
    the patient address the source of the cholesterol problem. To
    do anything less would be irresponsible.
        In many ways our climate shows the symptoms of an ailing
    patient. Scientists around the world recognize that glaciers
    are retreating, ice caps thinning, our seas are rising, violent
    storms increasing and rising temperatures are breaking records
    that go back to the Middle Ages.
        S. 547 would be like giving the sick patient a pill without
    addressing the source of the problem. It is imperative that any
    bill focus on the source of global warming, the escalating
    emissions of greenhouse gases from the burning of fossil fuels.
        Our country's history of strong environmental regulation
    and economic prosperity is the clearest indicator that properly
    crafted regulations can provide incentives for the innovations
    that drive our markets.
        Michael Porter, Harvard Business School professor and
    former member of President Reagan's Commission on Industrial
    Competitiveness, has written in his most recent book that ``The
    data clearly show that the costs of addressing environmental
    regulations can be minimized, if not eliminated, through
    innovations that deliver other competitive benefits.''
        Like Porter, I do not come at these issues purely as an
    environmental advocate. My background is on Wall Street. I
    spent 8 years of my career in decidedly non-environmental
    roles. For a majority of that period I worked for Jude
    Wanniski, the high priest of supply side economics. I believe
    in the careful use of government intervention and remain as
    suspicious of corporate welfare as any conservative.
        The history of environmental regulation in the U.S. is one
    of the government raising environmental standards, usually over
    the strong objections of the effected industries, only to have
    those standards met by creative innovations that come in at a
    fraction of the initially projected costs or even as new profit
    centers for these industries.
        The Clean Air Act, removing lead from gasoline, phasing out
    ozone-depleting chemicals, these are just a few examples of
    regulations that have spurred innovations. The fight against
    global warming is no different from these other efforts. It is
    just larger. Overall, S. 547 fails to promote the better angels
    of our industrial base. Instead of promoting innovation, the
    bill rewards our biggest polluters, even if they have made no
    changes whatsoever.
        It also has the potential to preempt real emissions
    reductions just as a mandate is emerging from the American
    people who are increasingly concerned about global warming.
        There are several key flaws of the bill that the committee
    should be aware of as it assesses its merits. First, it allows
    blanket crediting of unverified reductions claimed under the
    Department of Energy's (1605(b)) program, some going back
    almost 10 years.
        This loophole sacrifices environmental integrity and
    threatens America's ability to meet our commitment under the
    Kyoto Protocol.
        Second, this bill also would provide incentives for
    increasing our dependence on nuclear power.
        To further subsidize this uncompetitive industry in the
    name of global warming would exacerbate an existing problem.
    Nuclear energy may not emit carbon dioxide, but it is
    unacceptable to trade one environmental threat for another.
        Third, the bill diverts attention from sorely needed
    domestic pollution prevention and rewards vague and
    unverifiable overseas projects.
        Fourth, as for all aspects of this or any bill on global
    warming, the science must drive the policy. Carbon absorbing
    sinks projects must be left out of the early credit discussion,
    at least until the international scientific body completes its
    study next year and defines the way sinks will be dealt with
    under the Kyoto Protocol.
        There are a number of other flaws, some of which were
    outlined in my submitted testimony. Many of them have been
    described in a memo circulated as a legislative analysis
    offered by a majority of the members of the environmental
    community.
        If this bill becomes law, any future efforts to lower
    industrial emissions may be met with the cry of ``I already
    gave at the office.'' Passing the bill as a means to combat
    global warming would be like a doctor combating a patient's
    high cholesterol by giving him a pill and then treating him to
    a steak and fries dinner. Our global climate deserves better.
        Thank you again for the opportunity to share our concerns
    with you about this bill. We stand ready to help you in any way
    possible.
        Senator Chafee. Well, thank you very much. That is why we
    are having this hearing, to find out some of the challenges and
    difficulties you envision. I have always felt that this is
    very, very difficult. The concept is readily understandable.
    Why shouldn't somebody get credit if subsequently some caps or
    regulatory levels are imposed? It is voluntary. Absent some
    legislation such as this, there is certainly no incentive for
    any company to make the effort, unless it is because they are
    just plain good citizens.
        So, Mr. Keating, your testimony comes from the Small
    Business Survival Committee.

     STATEMENT OF RAYMOND KEATING, CHIEF ECONOMIST, SMALL BUSINESS
                           SURVIVAL COMMITTEE

        Mr. Keating. Thank you, Mr. Chairman. As a side note, I
    also worked for Jude Wanniski once, and I hope you won't hold
    that against me.
        I am Raymond Keating, Chief Economist for the Small
    Business Survival Committee. SBSC is a nonpartisan, nonprofit,
    small business advocacy group, with more than 50,000 members
    across the Nation. SBSC opposes the Kyoto Protocol on Climate
    Change for a variety of reasons, including the significant
    costs it would impose on small businesses, consumers and the
    U.S. economy in general, as well as the global competitive
    disadvantage U.S. small businesses would suffer.
        Unlike others here today, obviously we have been asked to
    discuss formal recognition or crediting of voluntary greenhouse
    gas mitigation activities.
        First, we need to understand or come to agree on what these
    credits would be used for. Obviously the credits would only
    have meaning and value under the Kyoto Protocol or some similar
    regulatory regime which would implement an emissions ``cap and
    trade'' system. Otherwise the entire early credit endeavor
    would be pointless. Therefore, we must take a look at how
    emissions trading would likely work, and what problems it
    presents.
        The Kyoto Protocol would require dramatic reductions in
    energy usage. One method for reducing energy consumption and
    emissions would be an emissions trading program whereby the
    government would cap emissions and then ration or auction off
    credits equivalent to certain levels of emissions.
        I think we need to understand that trading emission credits
    is really another regulatory system, shifting around, maybe
    with some flexibility, but shifting around massive government-
    imposed costs. The bottom line is that the government would
    place severe restrictions on CO2 emissions and
    therefore on energy consumption and, quite frankly, economic
    activity.
        Many problems exist with such a system. It is costly and
    stealthy. Like other forms of regulation, in fact the costs
    would remain largely a mystery to consumers, but nonetheless
    they would be paying in the form of increased cost, lost GDP
    and lost jobs.
        The most daunting problem with an emissions trading
    regulatory system is compliance. In summary, countless dollars
    would be spent in pursuit of, quite frankly, what we see as an
    impossible compliance goal.
        Administration of this treaty would require monitoring all
    sources of emissions, and comparing those results with
    permissible credit amounts. Stationary sources would be bad
    enough. Think of the number of businesses, nonprofit and
    governmental facilities that would be under surveillance. But
    remember there are more than 200 million more vehicles in use
    in the United States today.
        Now, take this scenario and apply it internationally. The
    complexity, costs and extent of government intrusiveness grow
    exponentially in pursuit of this compliance. If this treaty is
    meant to be taken seriously, the developing nations eventually
    must be brought into the fold.
        An exclusion for developing nations would provide them with
    a tremendous economic advantage, allowing them to attract
    industries, businesses and jobs away from nations forced to
    impose significant costs under the treaty. Obviously, this
    cannot stand.
        But what would happen if the developing nations are placed
    under some sort of Global Warming Treaty emissions caps? If
    imposed and somehow enforced, limiting emissions in such
    nations, we would argue, would sentence millions of people to
    permanent poverty.
        Under emissions trading smaller enterprises would be at a
    distinct disadvantage as bidding raises the price of credits.
    As is the case with other forms of regulation, these added
    costs will hit smaller ventures harder. Many small businesses
    operate under the slimmest of margins, and simply would be
    unable to play the credits game.
        As it stands now, most small businesses find it daunting to
    comply with the hundreds of laws and regulations required under
    all levels of government. In addition, basic business matters
    require their hour-by-hour, day-to-day attention.
        The credits game will be viewed by most as being the domain
    of big business, or be construed as some complex and vague
    program that offers no or little current quantifiable benefit
    in running their day-to-day operations. In addition, the high
    risk nature of smaller, entrepreneurial firms require the
    opportunity, at least the possibility, of making substantial
    returns.
        The Kyoto Treaty and emissions trading raise costs, and
    therefore reduce potential returns, which means that many
    start-up, innovative, potentially high-growth enterprises would
    be nipped in the bud.
        Indeed, it certainly does not take an active imagination to
    see mature, entrenched large enterprises gaining a clear
    advantage over smaller businesses under an emissions trading
    regulatory system. Large firms with greater ability--including
    the necessary capital--to survive the added cost of playing the
    credits game will actually face reduced competition from
    smaller upstarts who will not survive.
        Having noted the many problems with emissions trading, it
    becomes obvious that any kind of early action to reduce
    emissions--so-called ``voluntary'' or not--manages to only make
    matters worse. For example, the Federal Government would most
    likely enter into early implementation agreements with large
    established businesses who have the legal expertise, the
    technical abilities, and discretionary capital to undertake
    early actions.
        Since there would only be so many credits to go around
    under the Kyoto Protocol, or a national cap as part of,
    perhaps, a domestic program, those who do not participate in
    the early actions would suffer accordingly. Small and mid-sized
    businesses would bear a heavy burden.
        Politics, no doubt, would play a major part in this early
    implementation program. Those with political connections and
    lobbying clout would have the clear advantage when it comes to
    entering into early implementation agreements at the expense of
    the non-politically connected, i.e., smaller enterprises.
        Even if so-called ``pooling'' is allowed, its usefulness
    would be quite limited. For example, established businesses
    would have absolutely no incentive to pool with other firms.
    Why would they? For the rest, the costs or organizing in terms
    of dollars, time, personnel, education et cetera would be
    formidable.
        Also, mature businesses in predictable industries would
    more easily participate in early implementation than would
    small, high-growth businesses in new, dynamic and far less
    predictable industries.
        Credits for early implementation would establish a strong
    special-interest group favoring Kyoto implementation or a
    comparable domestic regulatory program. I believe this would
    effectively split some of the business community in its
    opposition to the Kyoto Protocol, pitting many large companies
    with special interests in seeing the treaty and its trading
    system become reality, against a far more dispersed opposition
    overwhelmingly populated by small and mid-sized firms.
        Especially from the small business perspective, early
    action credits are a bad deal. The economics of the Kyoto
    Protocol, or a similar program, including its emissions trading
    scheme, are dismal. In our view, Congress should not be looking
    for ways to advance Kyoto and its attendant implementation
    systems, but instead should be stating quite clearly that it
    will not ratify this costly, misguided, and highly dubious
    treaty.
        Once again, thank you for allowing me to testify. I would
    be glad to answer any of your questions.
        Senator Chafee. Well, Mr. Keating, you seem to base your
    presentation on the fact that the chances are good that the
    Kyoto Protocol will be implemented. That is not the basis for
    this, from my point of view anyway. There may be something
    coming along and there may not. What we want to do is assure
    that this legislation--and it is very difficult to draw this
    legislation, as you pointed out--the thrust of it is that the
    companies, small or large, that make efforts now to reduce
    emissions will get credit for it. What is the matter with that?
    By the way, it is voluntary. In your statement you are pretty
    concerned about what is going on here. If it is strictly
    voluntary, what is the problem?
        Mr. Keating. Well, whatever your intentions may be, I think
    this legislation sends a clear message that Kyoto is coming or
    something like Kyoto is coming and that this is laying the
    groundwork for it, quite frankly. We hear they are setting up a
    group that will be advocating the advancement of the treaty.
        So, all signals from legislation such as this are that
    Kyoto is coming or something very similar is coming.
        Now, in terms of voluntary actions, that is great. Every
    business can make their own decisions on whatever they would
    like to do. I would argue that most businesses make such
    investments to increase their efficiency and help their bottom
    line. Fantastic. More power to them. They are going to gain
    benefits from that as are consumers in the marketplace.
        The question is whether those investments should
    necessarily be counted toward a system that is leading us,
    taking us down the road to increased regulation on all
    business. I would argue that that is not a good idea. It takes
    us further down the road to a treaty that is costly. I would be
    glad to submit for the record my testimony when I testified on
    this treaty last year over in the House. I went through stacks
    and stacks of economic analysis and studies. This is going to
    be quite costly. There is no way of getting around it.
        The trading system might be more flexible, but this type of
    regulation which this legislation envisions happening, one day
    is going to be quite costly. So, obviously, we are going to
    oppose any kind of measure that advances something like this
    that is going to hurt the small business community and the
    economy overall.
        Senator Chafee. It seems to me that there is a fundamental
    question here that we all have to answer. That is, are we
    concerned about global warming? Is there a problem? Now, if you
    conclude that there is no problem, then this is all hogwash.
    What do we care about how much CO2 is emitted or
    methane or any of the greenhouse gases?
        If we think there is a problem and we are convinced through
    the science that this is serious business, then our steps to do
    something about it, and I don't really know what that might be,
    but it seems to me to take the attitude--if you assume, as I
    do, that there is a problem here, that global warming is
    serious business, then you try to do something about it. It may
    not be perfect, but at least you try.
        But your attitude, I assume, is that there is no problem,
    that the science does not indicate that the earth is gradually
    warming through man's activities. I assume that that is the
    position you take.
        Mr. Keating. We are certainly not climate scientists at
    SBSC, but in terms of what I have looked at in the literature,
    it is often being presented as a complete unified opinion in
    the science community that global warming is happening.
        I would disagree. Again I will go back to the testimony I
    gave last year that shows that there is large disagreement in
    the scientific community over this. There is no majority
    opinion, I don't think you can find anywhere that this is
    seriously happening and it is being caused by man. So you are
    right. You have to get back to the fundamentals here as to
    whether these mighty costs that will be imposed on the economy,
    consumers, and businesses make any sense in terms of what we
    are trying to accomplish.
        We certainly have serious, to be gentle, questions about
    the existence of global warning and the science behind it. So,
    yes, I think that is the fundamental issue that everybody has
    to wrestle with.
        Senator Chafee. I think you are not quite accurate in
    stating that the majority view--you know, we have all read
    these opinions of climate scientists. Are they unanimous? No. I
    suspect it would be pretty hard to find any unanimity from a
    whole bunch of scientists. But the evidence is pretty
    overwhelming. There have been samples that they have taken in
    the Antarctic and so forth. It is not going to be 100 percent,
    that is for sure.
        Mr. Keating. I don't even think you need to get to 100
    percent. This is from my testimony from last year. Jethrow
    Hickey did an article in late 1997 in Inside Magazine, laying
    down a few facts that I think a lot of people are not aware of.
    For example, only 13 percent of the scientists polled by
    Greenpeace believe that there will be catastrophic consequences
    if consumption remains at present levels. A recent Gallup poll
    of members of the American Geophysical Society and
    Meteorological Society found that just 17 percent believe that
    greenhouse gas emissions have been responsible for global
    warming. Citizens for a Sound Economy found that 89 percent of
    scientists they polled believe that, ``current science is
    unable to isolate and measure variations in local
    temperatures'' caused by humans. The United Nations surveyed
    400 scientists and they did not agree that ``global warming is
    a process that is caused by greenhouse gas emissions.''
        So, I would argue that. There are two scientists from the
    Oregon Institute of Science and Medicine that argue with the
    science as well. Just based on that, I think it is pretty clear
    that we hear a lot about, you know, this is an insurance
    policy, but this is a mighty, mighty expensive insurance policy
    for something that we don't know is going on, that we don't
    know what may be causing it, quite frankly.
        I don't think it is an insurance policy. It is a much more
    dangerous game than that for our economy and for our way of
    life.
        Senator Chafee. Well, I think it behooves us to have some
    hearings here on the science. I suspect no matter who we come
    up with there will be those who disbelieve. We are all familiar
    with that.
        I think we know here in the Senate that there are polls and
    polls, Gallup polls and so forth have been taken of various
    groups. I would hope we have an opportunity to have them in
    here and let us go at it. I am sure when we finish--I am not
    sure everybody will be convinced one way or the other.
        Mr. Passacantando, do you have some thoughts on this issue?
        Mr. Passacantando. Well, I would report that essentially
    with scientists--and the one thing I can tell you is that it is
    remarkable and it is overwhelming the number of scientists, the
    number of legitimate climate scientists who have spoken out and
    encouraged leadership by Congress, by the United States in
    addressing global warming.
        The IPCC, in assessing the work of thousands of scientists,
    says there is a human fingerprint on global climate. We were
    involved in pulling together 2,400 scientists who signed a
    statement written by George Woodwell, of Woods Hole Research
    Institute, and John Holdren at Harvard, which urged U.S.
    leadership in global warming.
        Additionally, The Union of Concerned Scientists had a
    similar statement, signed by 1,500 scientists from all around
    the world. You rarely see this kind of unanimity on any threat,
    if ever. At least not since the nuclear threat. Rare is it to
    have this many scientists speaking out with a political voice,
    urging leadership.
        It really comes down to asking the question, can you find a
    scientist who at this stage would say, ``There should be no
    concern with the excess amount of carbon dioxide that human
    behavior, human action has put into the atmosphere?'' You would
    have to look under rocks. You could not find a scientist, in my
    opinion, who would actually say it. Maybe two or three in the
    entire world would say it is good for us.
        Senator Chafee. I will tell you what we would like to do. I
    would like to get a copy of the testimony that you gave last
    year over at the House. I would appreciate if you would send us
    a copy of that. I would just like to check out some of the
    references that you mentioned.
        Mr. Keating. I will make sure that it gets over here. My
    copy has scribble on it. I will get you a clean copy.
        [The referenced material follows:]
     Testimony of Raymond Keating Chief Economist Small Business Survival
      Committee before the House Committee on Small Business, June 4, 1998
        On behalf of the Small Business Survival Committee (SBSC) and its
    more than 40,000 members across the nation, I appreciate the
    opportunity to offer the following comments regarding the potential
    impact of the Kyoto Protocol, or ``Global Warming Treaty,'' agreed to
    this past December by the Clinton Administration in Kyoto, Japan.
        SBSC is an advocacy and information organization that supports
    policies which promote the survival and growth of the entrepreneurial
    sector of our economy.
        As I will more fully explain in a moment, SBSC opposes the Global
    Warming Treaty for several reasons, but primarily due to the crushing
    costs that would be imposed on businesses of all sizes and in
    practically all industries, as well as on consumers and the economy in
    general. As most studies of the Global Warming Treaty indicate--whether
    performed by private industry or by the Clinton Administration itself--
    this treaty will be an indiscriminate killer of businesses and jobs.
    And this will be the case no matter what the means utilized to reduce
    so-called ``greenhouse gas emissions''--primarily CO2--that
    is, whether through higher taxes, increased regulations, an emissions
    ``cap and trade'' system, or some combination of these options.
        Like other Americans, we also have other concerns about this
    treaty, such as national security implications, the fact that it is
    based on, to be generous, debatable science, the exclusion of
    ``developing'' nations, the foreign aid and transfer of wealth
    implications among nations, as well as the often secretive and at times
    misleading methods used by the Clinton Administration in seeking to
    advance its global climate policies.
                                   background
        Make no mistake, government-imposed costs inflict considerable harm
    on smaller enterprises.
        Small businesses often operate on tight margins, struggling to stay
    alive month to month and year to year. This is perhaps best illustrated
    by the fact that more than half of new businesses fail or reorganize
    within 5 years, as noted by the U.S. Small Business Administration
    (SBA).
        At the same time, however, small businesses have long proven to be
    the wellspring of innovation, invention and job creation in our
    economy. In any given year, smaller businesses also account from
    anywhere from two-thirds to more than 100 percent (large firms often
    shed more jobs than they create) of net job creation. So, these high-
    risk ventures are critical to the economy.
        Unfortunately, increased government-imposed costs weigh heavily
    around the necks of entrepreneurs. For example, according to an SBA
    study, the annual per employee costs of Federal regulations range from
    $2,979 for businesses with 500 or more employees to $5,195 for
    businesses with 20 to 499 employees to $5,532 for businesses with fewer
    than 20 employees. Regulatory economist Thomas Hopkins estimates that
    the real costs of Federal regulations are expected to rise by more than
    30 percent between 1988 and 2000.
        Starting up and investing in businesses are high-risk ventures. If
    government imposes weighty taxes and regulations, then fewer
    enterprises will be created, fewer will survive, and job creation will
    wane.
        If implemented, the Kyoto Protocol would guarantee that
    governmental burdens on entrepreneurs--indeed, on businesses of all
    sizes--would continue to rise, thereby damaging economic growth and job
    creation.
                              questionable science
        When it comes to global warming, a major question persists: Does it
    make sense from either an economic or environmental viewpoint to impose
    weighty costs (as will be illustrated later) given the current state of
    science on the issue?
        While we at SBSC are not climate scientists, a general review of
    the literature and results of various polls show that a scientific
    consensus on the existence of global warming and its potential effects
    simply does not exist.
        For example, according to ground-level measurements, the earth's
    average temperature has increased by 0.5C over the past 100 years.
    However, much, if not all of that increase occurred before 1940.
    Meanwhile, satellite measurements indicate no warming trend over the
    past two decades, but a slight cooling.
        Meanwhile, in the December 15, 1997 issue of Insight magazine,
    reporter Jennifer Hickey noted the following findings:
          Only 13 percent of scientists polled by Greenpeace
    believe that there will be catastrophic consequences if consumption
    remains at present levels.
          A recent Gallup Poll of members of the American
    Geophysical Society and the Meteorological Society found that just 17
    percent believe that greenhouse-gas emission have been responsible for
    global warming.
          Citizens for a Sound Economy found that 89 percent of the
    scientists they polled agreed that ``current science is unable to
    isolate and measure variations in global temperatures'' caused by
    humans.
          The United Nations' Climate Change Bulletin surveyed 400
    climate scientists and found they could not agree that ``global warming
    is a process that is already under way.''
        In addition, S. Fred Singer, an atmospheric physicist and president
    of the Science & Environmental Policy Project, noted the following in
    the May 5, 1998 Washington Times (``Scientists Add to Heat Over Global
    Warming''):
        ``The Global Warming Treaty and its shaky science are under attack
    by the largest group of scientists ever. A petition, initiated by the
    Oregon Institute of Science and Medicine and endorsed by more than
    15,000 scientists, urged President Clinton not to sign the Climate
    protocol negotiated in Kyoto, Japan, last December.''
        ``The 15,000-plus signers, about two-thirds of whom hold advanced
    academic degrees, question the uncertain science underlying the
    protocol, noting it does not agree with atmospheric data.''
        Singer goes on in his article to also note how some top proponents
    of global warming--including the National Academy of Sciences--were
    warning of a drastic cooling of earth temperatures in the 1970's.
        Writing in The Wall Street Journal on December 4, 1997 (``Science
    Has Spoken: Global Warming Is a Myth''), Arthur Robinson and Zachary
    Robinson, chemists at the Oregon Institute of Science and Medicine,
    simply declare:
        ``The global warming hypothesis . . . is no longer tenable.
    Scientists have been able to test it carefully, and it does not hold
    up. During the past 50 years, as atmospheric carbon dioxide levels have
    risen, scientists have made precise measurements of atmospheric
    temperature. These measurements have definitively shown that major
    atmospheric greenhouse warming of the atmosphere is not occurring and
    is unlikely ever to occur.
        ``The temperature of the atmosphere fluctuates over a wide range,
    the result of solar activity and other influences. During the past
    3,000 years, there have been five extended periods when it was
    distinctly warmer than today. One of the two coldest periods, known as
    the Little Ice Age, occurred 300 years ago. Atmospheric temperatures
    have been rising from that low for the past 300 years, but remain below
    the 3,000-year average.''
        In contrast, the myth that the scientific has arrived at a
    consensus on global warming is supposedly buttressed by a letter
    circulated by a group called Ozone Action and signed by 2,600
    scientific experts. However, an analysis by Citizens for a Sound
    Economy indicates that less than 10 percent of signees possess
    expertise in any scientific discipline related to climate science.
        Also, it is quite interesting that Janet Yellen, chairwoman of
    President Clinton's Council of Economic Advisers, has raised the issue
    regarding the ``futility'' of econometric models to predict the
    future--specifically, ``the economic impacts of a given climate change
    policy''--but the Administration raises no questions about models
    predicting future climate changes. Meanwhile, Frances B. Smith reports
    in the September 1997 issue of Consumers' Research Magazine that ``as
    computer models are adjusted and new data are incorporated, the
    predicted temperature rise has gotten smaller and smaller--from about
    SC over the next century to the current prediction of less than 2C.''
              the exclusion of developing nations and foreign aid
        In the November-December 1997 issue of Foreign Affairs, Thomas C.
    Schelling, a Distinguished Professor of Economics and Public Affairs at
    the University of Maryland, and a believer in the potential woes of
    global warming, acknowledged the following: ``Any costs of mitigating
    climate change during the coming decades will surely be borne by the
    high-income countries.'' He continued: ``Any action combating global
    warming will be, intended or not, a foreign aid program.''
        Therefore, problems with the Kyoto Protocol are two-fold. First,
    ``developing'' countries are not required to reduce their ``greenhouse-
    gas'' emissions, and therefore, businesses in those nations will avoid
    the draconian costs heaped onto the backs of U.S. firms. These ``Third
    World'' companies will possess clear cost advantages in international
    markets, hurting U.S. exports, as well as advantages in U.S. markets
    themselves, cutting consumption of domestically produced goods and
    services by U.S. consumers.
        Under this treaty, U.S. industry also will possess the perverse
    incentives to move manufacturing facilities--and therefore jobs--to
    these nations. (Environmentally, one has to ask whether this makes any
    sense, given the fact that these nations will be jacking up their
    CO2 emissions considerably one way or another?) However,
    small firms rarely, if ever, shift their operations overseas, and will
    therefore bear a heavy burden under the global warming treaty here at
    home.
        Salt is rubbed into these U.S. economic wounds by the fact that
    under any kind of international system of CO2 credits (a
    system approved in Kyoto but in no way detailed) the U.S. will wind up
    sending resources to other nations in a kind of foreign aid payment.
                             administration tactics
        Another concern regarding the Kyoto Protocol has been the Clinton
    Administration's tactics in advancing their agenda. For example, in
    order to reach an agreement in Kyoto, Administration negotiators set a
    dangerous precedent regarding national sovereignty and security. The
    Center for Security Policy explains in a December 15, 1997 Perspective
    (``The Senate Must Insist on an Early Vote on the Kyoto Treaty''):
        ``. . . the GCCT [Global Climate Change Treaty] sets a totally
    unacceptable precedent that must be repudiated at once. According to
    The Washington Times, in order to get agreement on Al Gore's treaty,
    the U.S. delegation was obliged to abandon 'its plan to exempt U.S.
    military training and overseas operations from fuel cutbacks that would
    be needed for the United States to reach its target.'' The Times goes
    on to report that, 'In the draft treaty, only overseas actions approved
    by the United Nations would remain exempt as would training and combat
    in international waters.'''
        My SBSC colleague, Christopher Homer, noted in recent congressional
    testimony another worry, i.e., that the Clinton Administration might
    not wait for Senate approval before implementing the Global Warming
    Treaty:
        ``Recently uncovered internal EPA documents disclose that as far
    back as 1994 the Administration began cataloging ways to reduce
    'greenhouse gases.' As the documents also show, the effort expressly
    was to focus on those efforts most likely not requiring legislative
    approval. Included among the recommendations are a shocking assortment
    of big government dream programs: 1) a 50 cent per gallon additional
    gas tax, to be implemented without congressional approval under Section
    232 of the Trade Expansion Act of 1962 (estimated cost to motorists-$47
    billion in the year 2000 alone); 2) seven individual energy taxes,
    including a carbon tax, 'greenhouse tax,' and the failed Btu tax; 3)
    ways to encourage an increase in state taxes to fund the highway Trust
    Fund, to 'fully price roads,' at an estimated cost per household of
    $400 per year, 4) further auto emission reduction requirements; 5)
    increased fees on automobile inspection and maintenance.''
        Another issue is the Administration's cavalier treatment of U.S.
    Senate concerns. In July 1997, the U.S. Senate had expressed unanimous
    approval (95-0) of the ``Byrd/Hager Resolution,'' which expressed the
    Senate's position that the Administration should neither sign a treaty,
    nor send one to the Senate for ratification if such a treaty would a)
    harm the U.S. economy, or b) not include binding commitments by
    ``developing countries'' to reduce greenhouse gases. The Administration
    then promised the Senate ``meaningful participation'' from developing
    nations currently exempt from the treaty. However, in mid-May at the
    Birmingham Summit of the G-8, the Administration signed a communique
    stating, ``We look forward to increasing participation from developing
    countries, which are likely to be most affected by climate change and
    whose share of emissions is growing. We will work together with
    developing countries to achieve voluntary efforts and commitments,
    appropriate to their national circumstances and development needs.''
        Finally, Janet Yellen, chairwoman of the White House Council of
    Economic Advisors, claims that a new Administration study shows the
    Kyoto protocol having only ``modest'' impacts on the U.S. economy and
    jobs. However, while the Administration is reportedly using this
    analysis to negotiate with developing nations in order to get them to
    ``meaningfully participate'' in the Global Warming Treaty, this
    information is not being released to the American public for
    evaluation. This, despite the fact that the Administration promised the
    Congress and the American public a full economic impact analysis on
    reduced greenhouse gas emissions to 1990 levels a year prior to the
    Kyoto negotiations. Now, of course, emissions are to drop to 7 percent
    below 1990 levels, but still no economic analysis.
        As a result, SBSC filed a Freedom of Information Act request with
    the Council of Economic Advisors on May 18 for any and all of the
    economic analysis developed, utilized and cited by the Clinton
    Administration in the context of the Kyoto Protocol. The American
    public has a right to know what taxpayer-financed economic studies
    conclude and why top advisors at the White House were and are so
    divided on the issue of the Global Warming Treaty.
                                     costs
        Still, as a small business group, SBSC's primary concerns grow from
    the massive costs that would have to be imposed on businesses,
    consumers, and the economy in order to implement the Kyoto Protocol.
    And even if such costs were imposed, it is highly doubtful that
    emissions reduction goals could ever actually be met.
        In his aforementioned November-December 1997 Foreign Affairs
    article, Professor Thomas C. Schelling of the University of Maryland
    exhibited incredible cavalierness regarding the costs of dealing with
    global warming by offering a declaration that only could be made by a
    cloistered ideologue: ``Slowing global warming is a political problem.
    The cost will be relatively low: a few trillion dollars over the next
    30 or 40 years. . . '' Of course, those lost trillions of dollars in
    GDP across the globe translate into lost businesses, jobs, consumer
    goods for adults and children, and continued or increased poverty for
    many.
        At least one can say that Schelling is honest. Proponents of the
    Global Warming Treaty must be aware of the costs that would be
    inflicted, but, like Schelling, they cannot really care all that much.
    For the United States, the cost of emission reductions will be
    particularly brutal because, as Professor Richard Cooper points out in
    the March-April issue of Foreign Affairs, emissions are expected to
    grow by 30 percent between 1990 and 2010. That means, given the
    Administration's Kyoto pledge that U.S. emissions would be decreased to
    7 percent below 1990 levels by 2012, the U.S. will have to reduce
    emissions by almost 40 percent.
        Indeed, most studies attempting to access the impact of the Global
    Warming Treaty--whether performed by private industry or by the Clinton
    Administration itself--indicate this treaty will be an indiscriminate
    killer of businesses and jobs. And this will be the case no matter what
    the means utilized to reduce so-called ``greenhouse gas emissions''--
    primarily CO2--that is, whether through higher taxes,
    increased regulations, an emissions ``cap and trade'' system, or some
    combination of these options.
        Taxes. The most often cited tax that would be implemented in order
    to reduce energy consumption and therefore ``greenhouse gas'' emissions
    is a carbon tax.
        The administration of such a tax is fairly simple-boosting its
    appeal to those advocating tax increase--as it would be levied at the
    wholesale level on fossil fuels based on carbon content. However, it is
    not necessarily efficient in terms of controlling CO2
    emission because different uses of fuel produce different emission
    levels. Yet, the costs would be massive.
        Emissions ``Cap and Trade'' System. Another method for reducing
    energy consumption and emissions would be a CO2 trading
    program which would require the purchase of CO2 credits in
    order to maintain current or possibly expand emissions. In a 1994
    document, the EPA noted the troubles facing an overt energy tax, and
    then cynically noted the following about a ``cap and trade'' system:
    ``A cap would likely not be as unpopular as a tax, since people are
    generally less familiar with the concept.''
        The administration of such a tradable credit system would be nearly
    impossible both domestically and internationally. In an October 1997
    study for the Center for the Study of American Business, Frank Reuter
    notes:
        Even within a single nation, administering a tradable emission
    permit policy would be difficult and expensive. It would involve
    monitoring the emissions of greenhouse gases from all sources,
    comparing the measured emissions with the amounts authorized for
    individual sources by the permits that they possess after all trading
    has been completed, and enforcing compliance with the terms of their
    permits by sources that have discharged excess emissions. These tasks
    would be exacting even if greenhouse gases were released only from
    stationary sources.
        ``A substantial portion of CO2 emissions, however, is
    discharged from mobile sources. The administrative feasibility and
    cost-effectiveness of applying emission permits to mobile sources are
    doubtful. More than 200 million motor vehicles are currently registered
    in the United States alone. . . . ``Moreover, administering the
    implementation of an emission permit policy would be even more
    difficult if the permits were tradable internationally. Different
    nations perceive different risks from prospective climate change, and
    face different domestic issues that are competing for their scarce
    resources and attention. . . .
        ``As a result, negotiating suitable inducements to achieve
    universal participation in such a policy among a group of sovereign
    nations and establishing adequate international sanctions to ensure
    uniform compliance with the policy by all nations would be arduous
    tasks. Obtaining full cooperation among developing nations would be
    particularly daunting. Yet, such cooperation is essential to coherent
    policy.''
        Bottom line, the purchase of such tradable credits will raise costs
    to businesses, consumers and the economy. Auctioning off such credits
    assures that the ``cap and trade'' system carries the same costs as
    straightforward taxes, with the same detrimental economic effects.
        Smaller businesses would be at a distinct disadvantage under such a
    scheme as bidding--perhaps international bidding--raised the price of
    credits. Particularly perverse, such a system could have the effect of
    protecting entrenched businesses by jacking up costs for smaller and
    new enterprises. Indeed, many businesses would not come into existence
    at all due to higher energy costs.
        In addition, manufacturers exposed to international competition at
    home and in foreign markets--which most are today--would suffer due to
    lower energy costs in developing nations.
        Estimating the Economic Costs. A wide range of studies show
    tremendous losses in output and jobs resulting from the Global Warming
    Treaty. For example:
        WEFA (formerly Wharton Economic Forecasting Associates) analyzed
    the potential economic impact of reducing U.S. carbon emissions to 1990
    levels by 2010. They found the following:
          Lost GDP, just in the year 2010, would equal $227 billion
    (in 1992 dollars).
          ``On a per person or per household basis, the cost of
    adopting the Administration's carbon abatement policy results in a real
    GDP loss by 2010 of $838 per person and $2,061 per household.
    Cumulatively, for the period 2001 to 2020, the loss of aggregate income
    (real GDP) per household would average almost $30,000 (in 1996).''
          Steep price increases would be felt by both consumers and
    businesses. For example, consumer's would face price increases of 55
    percent on home heating oil by 2010, and 79 percent by 2020; 50 percent
    on natural gas by 2010, and 79 percent by 2020; 48 percent on
    electricity by 2010, and 71 percent by 2020; 36 percent on motor
    gasoline by 2010, and 65 percent by 2020 (translating in an additional
    44 cents per gallon by 2010, and 65 cents by 2020).
          Commercial establishments would see price hikes of 74
    percent on distillate fuel oil by 2010, and 106 percent by 2020; 58
    percent on natural gas by 2010, and 90 percent by 2020; and 52 percent
    on electricity by 2010, and 77 percent by 2020.
          Industrial facilities would witness price increases of
    139 percent on residual fuel oil by 2010, and 200 percent by 2020; 91
    percent on natural gas by 2010, and 132 percent by 2020; and 73 percent
    on electricity by 2010, and 101 percent by 2020.
          Trucking and rail would see a 42 percent increase in the
    price of diesel by 2010, and 61 percent by 2020 (translating into 51
    cents per gallon by 2010, and 76 cents by 2020).
        A May 1998 report by CONSAD Research Corporation (``The Kyoto
    Protocol: A Flawed Treaty Puts America at Risk'') estimated that the
    Kyoto Protocol would devastate the U.S. economy. Specifically:
          By 2010, employment losses would range between 1.6
    million and 3.1 million. Lost output in 2010 would register between $
    178 billion and $316 billion (in 1995 dollars).
          The analysis estimates job and output losses by state and
    region as well. For example, regionally, by 2010, New England could
    lose up to 133,000 jobs and $12.5 billion in output (again, in 1995
    dollars); the Mid-Atlantic states up to 400,000 jobs and $39.8 billion
    in output; East North Central 524,000 jobs and $49.9 billion in output;
    West North Central 184,000 jobs and $17.8 billion in output; South
    Atlantic 533,000 and $45.4 billion in output; East South Central
    180,000 jobs and $19 billion in output; West South Central 523,000 jobs
    and $65.2 billion in output; Mountain 201,000 jobs and $20.8 billion in
    output; Pacific Contiguous 522,000 jobs and $45.2 billion in output;
    and Pacific Noncontiguous 24,000 lost jobs and $2.3 billion in lost
    output.
          Also, the study estimates lost jobs and output by
    industry sectors. By 2010, manufacturing could see as many as 695,000
    lost jobs and $137 billion in lost output; mining 260,000 jobs and
    $47.6 billion in output; construction 117,000 jobs and $9.3 billion in
    output; finance, insurance and real estate 180,000 jobs and $22.8
    billion in output; trade 738,000 jobs and $47.9 billion in output;
    services 1,118,000 jobs and $41.9 billion; and agriculture/forestry/
    fishing services 30,000 jobs and $533 million in output. Also,
    transportation and public utilities would be estimated to actually gain
    11,000 jobs, but still lose $9.9 billion in output.
        In March 1998, the American Petroleum Institute (API) released a
    blunt and alarming report assessing the costs of reaching the Kyoto
    Protocol goal of reducing U.S. ``greenhouse gas'' emissions to 7
    percent below 1990 levels by 2008-2012. API senior economist Ronald A.
    Sutherland notes in ``Achieving the Kyoto Protocol: An Analysis of
    Policy Options,'' ``If the U.S. were to achieve this target by the year
    2010, carbon emission would have to decline by 2.32 percent per year
    from the year 2000, instead of increasing by 1.5 percent per year as in
    the [Energy Information Administration's] Reference Case projection.''
        The author shows that altering the carbon/energy ratio or the
    development of new technologies will not come close to being enough to
    reduce carbon emissions. Indeed, continued economic growth and capital
    stock renewal will ensure that carbon levels continue rising.
        The author notes only two avenues that will allow the U.S. to meet
    its Kyoto Protocol goals: ``A decline in GDP of about 4 percent per
    year would reduce the demand for energy and thereby carbon emissions
    sufficient to achieve the Kyoto target. Alternatively, an increase in
    the price of energy of about 12 percent per year for a 10-year period
    also would achieve the Kyoto target.''
        He concludes: ``Either of these changes would impose unacceptable
    costs on the American economy.'' To say the least. According to these
    estimates, in effect, an extended U.S. economic depression would be
    necessary in order to meet Kyoto Protocol goals.
        A DRI-McGraw Hill study by Dr. Lawrence Horowitz found the
    following:
          A $100 per ton carbon tax could lower emission levels
    close to 1990 levels by 2010 and would cost the economy $203 billion
    annually in lost output;
          A $200 per ton carbon tax would be required to reduce
    emissions below 1990 levels, and would cost the economy $350 billion in
    lost products and services;
          Annual job losses from 1995 to 2010 under a $100 per ton
    carbon tax would hit 520,000, and would leap to 1.1 million annually
    under a $200 per ton carbon tax;
          Gasoline prices could jump by as much as 60 cents per
    gallon, and electricity costs could increase by 50 percent, and home
    heating oil by 50-100 percent.
        Resources Data International Inc. (RDI) was retained last year by
    Peabody Holding Company Inc., reportedly the world's largest private
    coal producer, to study the economic impact of a new global warming
    treaty. RDI estimated that a $100 per ton carbon tax imposed in order
    to reduce CO2 emissions to 1990 levels would:
          Limit the annual growth rate in the supply of electricity
    between 1995 and 2015 to 0.83 percent from a projected 1.45 percent;
          Place up to $ 1.314 trillion, or 14 percent of GDP, at
    risk in 2010 and up to $16.823 trillion cumulatively from 2005 to 2015.
        RDI estimates that any kind of CO2 trading program would
    mimic the effects of a tax, with the Federal Government collecting at
    least $133 billion annually.
        As the Heritage Foundation notes in a recent report (``The Road to
    Kyoto'' by Angela Antonelli, Brett D. Schaefer and Alex Annett, October
    1997), the U.S. Department of Energy had the Argonne National
    Laboratory perform a study on the Kyoto Protocol under consideration.
    In February 1997, the study found that it would cause:
          20 to 30 percent of the basic chemical industry to move
    to developing countries within 15 or 20 years;
          All primary aluminum smelters to close by 2010;
          A 30 percent decline in the number of steel producers at
    a cost of 100,000 jobs;
          Domestic paper production to be displaced by imports;
          A 20 percent reduction in the output of petroleum
    refiners; and??
          The closing of between 23 percent and 35 percent of the
    cement industry, which is significant because many cement plants are
    major employers in small communities.
        However, as noted above, recent statements by the Chairwoman of the
    White House's Council of Economic Advisers, Janet Yellen, claim a
    ``modest'' impact on the economy. J.T. Young, chief economist for the
    Republican Policy Committee in the U.S. Senate, explained the woes of
    Ms. Yellen's assertions in a recent Washington Times article (``Kyoto
    Treaty's Ultimate Costs,'' May 11,1998):
        ``. . . hyperbolic assumptions allowed Mrs. Yellen to give the
    lowest estimate of the Kyoto agreement's costs ever released [in March
    4, 1998 congressional testimony]. 'Our overall assessment is that the
    economic cost to the United States will be modest; an emissions price
    in the range of $14 to $23 per ton of carbon equivalent. This
    translates into an increase in gasoline prices of 3 to 4 percent (or
    around 4 to 6 cents per gallon).'
        ``Strangely enough, the administration is known to have done three
    recent studies of the economic costs arising from lowering greenhouse
    gas emissions just to the 1990 level: the Interagency Analytical Team
    (IAT) estimate done in June 1997; the Department of Energy (DOE)
    estimate done by five of its laboratories (the Five lab Study) in
    September 1997; and the estimate by the Energy Information
    Administration (EIA) of DOE done in October 1997.
        ``All three studies were conducted by the administration within the
    last year. In contrast to Mrs. Yellen's statement, all three provide a
    detailed list of assumptions and calculations on which their estimates
    are based. All three also assume less emissions reduction-only to 1990
    levels, not 7 percent below it. Yet all three assume anywhere from
    double (the Five lab Study) to nine times (EIA study) the cost cited by
    Mrs. Yellen.''
        Frederick H. Reuter notes in his study for the Center for the Study
    of American Business (``Framing a Coherent Climate Change Policy,''
    October 1997) that ``estimates from standard, multi-industry
    econometric models indicate that stabilizing annual CO2
    emissions at their 1990 levels by 2010 will reduce GDP by 0.2 to 0.7
    percent and will decrease total employment by 900,000'' by 2005. In
    addition, Reuter finds:
        ``Although the proposed economic incentive mechanisms would
    encourage firms to undertake pertinent technological research and
    development, they also would reduce firms' net revenues. The decline in
    net revenues would diminish firms' ability to fund research,
    development, and implementation of new technologies. Thus, on balance,
    the economic incentive mechanisms may impede crucial technological
    advancement instead of stimulating it.''
        A 1997 study by Gary W. Yohe for the American Council for Capital
    Formation found that reducing CO2 emissions to 1990 levels
    by 2010 would:
          cause a 1 percent cut in the nation's annual rate of GDP
    growth rate;
          cut real annual wages and income by 5 percent;
          reduce fuel oil/coal consumption by 25 percent overall;
          cut electricity consumption by 20 percent overall; and??
          reduce vehicle purchases by 3 percent overall.
        In a chapter in the 1997 book The Costs of Kyoto, edited by
    Jonathan Adler and published by the Competitive Enterprise Institute,
    W. David Montgomery offers a chapter based on a study by Charles River
    Associates, which found that if emissions from OECD countries were to
    be reduced to 1990 levels by 2010 and maintained at that level through
    2030, then:
          combined OECD GDP would decline by an estimated 2.8
    percent in 2030;
          U.S. GDP in 2030 would fall by better than 3 percent.
        In a report for the Center for the Study of American Business,
    Christopher Douglass and Murray Weidenbaum note the following possible
    perverse effects from a global warming treaty that excludes developing
    nations (``The Quiet Reversal of U.S. Global Climate Change Policy,''
    November 1996):
        ``Whichever means of curtailing carbon emissions is used, limiting
    emissions will degrade living standards. Moreover, if a carbon tax fell
    solely on industrialized nations and not on developing nations, as is
    currently the plan in every protocol before the Framework Convention,
    total worldwide greenhouse gas emissions would be likely to rise, not
    fall. If emission reduction standards become law in industrialized
    nations, total consumption of carbon-emitting goods will fall.
        Thus, the price of goods such as oil is likely to substantially
    decline on the world market. However, the lower prices of these goods
    would encourage poorer developing countries--with much less fuel
    efficient technology--to increase their use of fossil fuels, resulting
    in a net increase in greenhouse gas emissions.''
        Douglass and Weidenbaum also note interesting results from another
    study examining impact that economic growth has on carbon emissions:
        ``A study by Douglas Holtz-Eakin and Thomas Selden of Syracuse
    University finds that the marginal propensity to emit carbon shrinks as
    economies grow and develop. According to their report, if economies
    continue to grow at their present rates, the annual emissions growth
    will fall from its 1955-87 average of 3.2 percent a year to 1.8 percent
    annually for the period 1990-2025. Thus, any efforts which limit
    economic growth unwittingly slow down progress toward carbon emissions
    reduction.''
        The Coalition for Vehicle Choice has noted that various economic
    studies on the impact of a global warming treaty predict price
    increases at the gas pump of up to 60 cents per gallon. The Coalition
    has noted:
        ``Annually, U.S. cars and light trucks are driven more than 2
    trillion miles, getting an average of 17 miles per gallon. A 50-cent
    hike in gas prices could therefore skyrocket the price of driving by
    $66 billion. On an individual basis, every licensed driver in America
    could face a $381 increase in the cost of driving.''
        The Washington Times reported the following on October 4, 1997
    regarding Administration plans for complying with a global warming
    treaty:
        ``Administration documents show it is considering phased-in fees
    ranging from $25 to $100 per ton of carbon in fuels such as coal, oil
    and gas. The fees would raise gasoline prices by as much as 25 cents
    per gallon and add hundreds of dollars a year to the average
    homeowner's heating and electricity bills, analysts say.''
        At a conference of financial analysts sponsored by the Edison
    Electric Institute, Todd Myers, a senior consultant at Resources Data
    International Inc., noted that U.S. electric utilities may be forced to
    close some 58 coal-fired power plants due to more stringent Federal air
    pollution standards (as reported by Reuters on May 15, 1998). If the
    U.S. signs on to the Global Climate Treaty, compliance would force the
    closure of even more plants. In such a case, Myers declared: ``You are
    cutting 50 percent of coal-fired generation according to the Kyoto
    accord.'' He warned that resulting cuts in coal-fired generation and
    the boost in the demand for natural gas could add a 10 percent premium
    on electricity prices by 2010.
        In the November 3, 1997 Forbes (``Bill and Al's Global Warming
    Circus'' by Ronald Bailey), the following chart provided a summary of
    the major economic forecasts regarding a reduction in ``greenhouse
    gas'' emissions.
        Note that only one study out of the ten cited called for emission
    levels to come in below 1990 levels, when in reality the Kyoto Protocol
    calls for U.S. emission levels to be 7 percent below 1990 levels. Also,
    each study may be optimistic in terms of the total amount emissions
    need to be cut, as emissions may have to be reduced by as much as 40
    percent below baseline levels. Therefore, these dismal scenarios for
    the U.S. economy will become even more dire.
        And make no mistake, all industry sectors and businesses--from
    home-based businesses to the largest U.S. corporations--will be
    adversely impacted.
        For example, for argument sake, let's cut the prestigious WEFA
    firm's estimates in half.
        Under such a scenario, by 2010, home-based businesses will still be
    confronted by a 27 percent increase in home heating oil costs, a 25
    percent hike in natural gas, a 24 percent increase in electricity
    costs, and a price hike of 22 cents at the gas pump.
        As for commercial establishments, price hikes on distillate fuel
    oil would register 37 percent, 29 percent for natural gas, and 26
    percent on electricity.
        Industrial facilities would be confronted by price increases of 70
    percent on residual fuel oil, 46 percent on natural gas, and 37 percent
    on electricity.
        Trucking and rail firms would face a 21 percent increase in the
    price of diesel (translating into 51 cents per gallon)--all half of
    WEFA's estimates.
        Absolutely no businesses will escape these costs and their economic
    fallout; many will not survive; and countless will never come into
    existence. Imagine the devastation, for example, wrought on truckers,
    delivery companies and cab drivers due to higher diesel and gas prices;
    bakeries, grocery stores, and delis due to higher electricity costs;
    and small manufacturers due to across-the-board higher fuel costs. The
    damage to the economy and devastating job losses should be obvious to
    all.
        However, no good reason exists to believe that WEFA's, estimates--
    or any of the others above--need to be cut at all. In fact, the
    American Petroleum Institute's projects that in order to reach Kyoto
    Protocol emission goals would require either a decline in GDP of about
    4 percent per year or an energy price hike of about 12 percent per year
    for a 10-year period. These numbers are frightening and compelling.
        Resulting Deaths. Of course, even more sobering than lost
    businesses and jobs are the possibility of lost lives if officials
    decide to boost CAFE standards. Again, Frances B. Smith explains:
        ``Most critically, climate change policies will have a lethal
    effect on people. They will kill more people through raising the
    Federal Corporate Average Fuel Economy (CAFE) mandate for cars from
    27.5 mph to 45 mph--a proposal pushed by several environmental groups.
    President Clinton recently one-upped this by promising to triple auto
    fuel efficiency over the next few years.
        ``But the human cost of CAFE is already too high; CAFE causes
    manufacturers to downsize cars in size and weight to meet the Federal
    standard for their fleets, and smaller cars are much less safe than
    large cars in crashes.
        ``According to a 1989 Harvard-Brookings study by Bob Crandall and
    John Graham, the current CAFE standard causes nearly 2,000 to 4,000
    additional traffic deaths per year. If the standard were raised to 40
    mph, a 1992 study by Graham estimated, there would be an even greater
    increase in highway deaths--resulting in a total of 3,800 to 5,800
    fatalities each year. Each day, from 10 to 16 people would die
    unnecessarily.''
        In conclusion, I leave you with this thought offered by Cornell
    University political scientist Jeremy Rabkin as quoted in the December
    15, 1997 Wall Street Journal (``Shanghaied in Kyoto''): ``One way or
    another, the climate control system means a global plan for reducing
    energy consumption or, in other words, a scheme for rationing energy
    use. If the world can have global governance to ration energy--the
    lifeblood of modern economies--what might global governance not
    attempt. Indeed.
        The Kyoto Protocol choices are clear: devastate U.S. businesses,
    consumers and the economy because of a dubious theory; or allow
    entrepreneurs to flourish and innovate, create jobs, boost the economy,
    and thereby aid, rather than hinder, environmental health.
        Thank you for this opportunity to address the Kyoto Protocol, or
    ``Global Warming Treaty.'' I look forward to answering any of your
    questions.
        Senator Chafee. That would be helpful. Thank you.
        Mr. Keating. One of the things I wanted to say is, there
    are strong feelings on both sides of this issue right now. What
    makes sense, I think, would be to have a greater exploration of
    the science by the Senate, by Congress in general, as well as
    the costs involved. We always have to remember that.
        There has been talk by some folks about the opportunities
    here. We'll have a trading system set up, and therefore, we
    will be additional opportunities in the economy.
        As an economist, I warn you about the opportunity costs for
    those resources. Investors and other people in the marketplace
    otherwise would be deciding where those resources would go to
    ultimately please consumers rather than where regulators think
    they should go.
        So, I would say that all sides of this, the science and the
    economics have to be explored in far greater detail before we
    step forward on something of this magnitude.
        Senator Chafee. Well, I am not so sure that we have to have
    every detail in place before we get this legislation, which is
    a voluntary piece of legislation, enacted. Also, I think it is
    terribly important when we talk about costs involved in doing
    something, that we also pay attention to costs involved if we
    don't do something.
        In this case if indeed polar ice caps are melting and
    glaciers, if sea level is rising, then there are costs
    involved, not only if we do nothing. To do something is better
    than to do nothing.
        Well, I want to thank you both very much for coming. We
    appreciate it. This is a subject that we will spend more time
    on and it is a subject, as I have indicated, is important to me
    personally and many members of this committee. Thank you very
    much.
        [Whereupon, at 11:18 a.m., the committee adjourned, to
    reconvene at the call of the Chair.]
        [Additional statements submitted for the record follow:]

      Statement of Eileen Claussen, Executive Director, The Pew Center on
                             Global Climate Change
        Mr. Chairman, Senator Baucus, and members of the Committee, thank
    you for your invitation to testify this morning on voluntary efforts to
    reduce greenhouse gas emissions. The Pew Center on Global Climate
    Change was founded in the belief that our generation's challenge will
    be to address global climate change while sustaining a growing global
    economy. To ensure that future generations enjoy a healthy environment
    and sound economy, it is imperative that we address the issue of
    climate change. And there is no better place for us to begin than with
    early action to reduce greenhouse gas emissions.
        Mr. Chairman, throughout your career, you have been at the
    forefront of the movement to protect and enhance our nation's
    environment and natural resources. Your recent decision to retire from
    the Senate at the end of your current term represents a profound loss
    to the Senate and to our country. It will also be a profound loss in
    the field of climate change where leadership will be vitally needed,
    and where your vision and pragmatism will be sorely missed.
        I am the Executive Director of the Pew Center on Global Climate
    Change, an organization founded by the Pew Charitable Trusts to work
    constructively on the climate change issue and to put forward
    meaningful and credible information and analyses to help us forge a
    consensus for action. The Pew Center and its Business Environmental
    Leadership Council were established in May 1998. While Council members
    serve as active participants and advisors to the Pew Center, we do not
    accept financial contributions from these or any other corporations. We
    formed the Business Environmental Leadership Council because we believe
    that the business community is ready and willing to provide the impetus
    to move forward on the issue of climate change. The Council consists of
    over 20 of the nation's and world's largest corporations. Together, the
    annual revenues of these companies total more than $550 billion
    dollars. Total employment for the companies is well over 1 1/2 million
    people.
        The Pew Center and its Business Council accept the views of most
    scientists that enough is known about the science and environmental
    impacts of climate change for us to begin to take actions to address
    the problem. We recognize that the concentration of greenhouse gases is
    steadily increasing, and that these gases will remain in our atmosphere
    for many years--in some cases, for thousands of years. The current
    scientific consensus indicates that greenhouse gases generated by human
    activities could increase the temperature of the earth's atmosphere by
    1.8 to 6 degrees Fahrenheit over the next 100 years with potentially
    serious impacts on the global environment.
        Concern over changes occurring to the earth's climate led to United
    States' ratification of the Rio Framework Convention on Climate Change
    in 1992. This Convention calls upon our nation to voluntarily reduce
    our emissions of greenhouse gases to 1990 levels by the year 2000. We
    will not come close to meeting our obligations under the Rio
    Convention, nor will many of the other industrialized nations who
    accepted the same voluntary target. And while we debate the reasons for
    our failure to meet our Rio obligations, our emissions continue to
    increase, and the global concentrations of greenhouse gases continue on
    their inexorable upward path.
        For this reason, we do not believe that action on climate change
    should be delayed until we are satisfied with the progress that has
    been made on this issue internationally. Instead, we believe that
    companies can and should take concrete steps now in the U.S. and abroad
    to assess their opportunities for emission reductions and establish and
    meet emission reduction objectives.
        The companies of the Pew Business Environmental Leadership Council
    support the view that they should act now, not later. Perhaps some
    examples of current company efforts would be instructive. BP Amoco, for
    example, has established a target to reduce its greenhouse gas
    emissions by 10 percent from a 1990 baseline by 2010. These reductions
    will be measured using established protocols and will be verified by
    external observers. BP Amoco has also created a pilot project for
    internal emissions trading. This allows individual business units to
    find the lowest cost way of meeting the companywide target. At this
    stage, 12 business units are involved in this internal trading program,
    and five trades have occurred. The program will expand to include all
    the activities of BP Amoco over the next 18 months.
        Another of our companies, American Electric Power (AEP), has
    implemented Climate Challenge programs that fall into four main
    categories: improvements in the efficiency of generating and delivering
    electricity; increasing the use and output of its nonfossil fuel
    plants; establishing energy conservation programs at AEP facilities and
    for its customers; and sequestering carbon in forests. The total
    cumulative effect of these actions will be the avoidance of
    approximately 10 million tons of carbon dioxide that would otherwise
    have been emitted into the atmosphere.
        In one of the more innovative programs designed to reduce carbon
    emissions, AEP joined with BP Amoco, The Nature Conservancy, PacifiCorp
    and the Bolivian Friends of Nature Foundation to establish the Noel
    Kempff Mercado Climate Action Project in December 1996. The primary
    goal of this project is to preserve threatened tropical forests in the
    Province of Santa Cruz, Bolivia, thereby protecting its rich biological
    diversity and reducing releases of carbon dioxide into the atmosphere.
    The Noel Kempff Mercado Climate Action Project was approved by the US
    Initiative on Joint Implementation in December 1996.
        Other ambitious examples from Business Council companies include
    the program of United Technologies which will, by 2007, reduce its
    energy and water consumption per dollar of sales by 25 percent below
    1997 levels, with approximately the same reduction in emissions that
    cause climate change. This program is global in scope, covering 229
    facilities in 36 countries, including 96 in the U.S. DuPont will, by
    2000, cut its annual global greenhouse gas emissions by about 45
    percent below 1991 levels. Shell International aims to reduce
    greenhouse gas emissions by 10 percent below 1990 levels by 2002. Since
    1990 Baxter International has reduced the global warming impact of its
    emissions by 81 percent. Baxter also has a goal to improve their energy
    efficiency 10 percent per unit of production by the year 2005, based on
    1996 levels of production. In 1995, Entergy committed to eliminating
    over four million tons of carbon dioxide emissions per year through
    2000.
        Regardless of the outcome of negotiations on an international
    climate change agreement, the members of the Business Council will
    continue to move forward, because they believe that this is a serious
    issue that demands a serious response. These programs will include
    internal audits of their emissions, the establishment of baselines, and
    the implementation of programs to reduce their greenhouse gas
    emissions.
        The Pew Center recognizes that the nations of the world unanimously
    adopted the Kyoto Protocol and that this Protocol has already been
    signed by 84 countries. We believe that this Protocol represents a
    first step. But we also believe that more must be done to fully design
    and implement the market-based mechanisms that were adopted in
    principle in the Protocol. Further, the present Protocol does not
    ensure the participation of many important countries, and this omission
    must be remedied if we are to meet our environmental and economic
    objectives. However, we do not know when this will occur.
        But we do expect that at some point in the future, the United
    States will ratify a climate change treaty that includes a binding
    commitment to reduce emissions of greenhouse gases. And while our
    companies are already taking voluntary actions to reduce their
    emissions, they also want to ensure that they will receive credit for
    these actions under any future climate change treaty, particularly
    since many of these actions are and were undertaken at the request of
    the U.S. Government to fulfill the goal of the Framework Convention on
    Climate Change.
        But the issue is not primarily one of getting credit or providing
    incentives to act early. The key issue is one of eliminating
    disincentives: voluntary action, in the absence of credit, can work to
    the disadvantage of companies who act early to reduce their emissions.
    It is clearly not in our interest for companies that do the right thing
    by voluntarily attempting to slow the rate of greenhouse gases entering
    our atmosphere to be penalized and economically harmed for their
    efforts.
        How could this happen? It is because companies typically delay the
    most expensive steps until the most cost effective options have been
    undertaken. Consider the following scenario. One company acts early,
    and begins by first making the most cost effective reductions. Its
    competitor does nothing, and continues to emit greenhouse gases. After
    a number of years, a binding treaty is ratified by the United States.
    Both companies are now asked to make the same level of reductions.
    However, if the company who acted early has not received credit for its
    reductions, its emissions baseline will be set at its new lower level,
    and it will be required to make additional and more costly
    expenditures. The competitor, who did nothing, can now meet its
    emissions target with lower cost reductions, resulting in a competitive
    advantage. The company who acted early is penalized. And for that
    reason, many companies may choose not to act early and voluntarily.
    Without credit for early action, there is a disincentive to act before
    rules are in place. Thus credit for early action is not just an issue
    of providing incentives for early emission reductions. It also removes
    the disincentives that penalize companies that recognize and work to
    ameliorate the threat that greenhouse gases pose to our atmosphere.
        Solving this problem requires leadership from Congress. An analysis
    undertaken by the Pew Center and published in October 1998 finds that
    Federal agencies do not have sufficient legal authority to provide the
    certainty that firms need to make significant early investments.
    Congress must provide the legislative framework to remove the
    disincentives to early action. Such a legislative framework would also
    demonstrate that the United States takes its commitments under the
    Framework Convention seriously, and that we, as the Nation with the
    world's highest emissions, are committed to addressing the problem of
    climate change.
        While the Center does not take a position on the merits of any
    particular bill, we believe there are a number of issues that must be
    addressed in such a legislative framework. We would like to stress the
    following:
          Credits should only be provided for actions that are real
    and verifiable. Verifiability means that reductions must be measured
    and monitored using standardized measurement techniques. Any system
    that is adopted should reward virtuous actors--not those who engage in
    sham or paper reductions, or who ``game'' and manipulate the system.
    Paper reductions could occur if companies are allowed to count the same
    reduction twice, or to report a reduction at one facility, while
    transferring the production--and the emissions--to another facility.
    There can be no effective credit for early action program if we are not
    committed to establishing a robust and rigorous monitoring and
    verification effort.
          The program should be simple and flexible. Participation
    in a system of credit for early action would be voluntary, but it is in
    our collective interest to be inclusive, so that many businesses are
    encouraged to mitigate and reduce their emissions. Companies in sectors
    that are experiencing high growth must be accommodated as must those
    who produce products, be they autos or appliances, that use significant
    quantities of energy. We must also keep transaction costs to a minimum,
    so that the costs of participation do not exceed the benefits to the
    participants.
          The legislative framework should not prejudge the future
    national implementation scheme. We are not at a point now where we can
    predict the design of the program that will be implemented in the
    United States to meet a future international obligation. Any system for
    credit for early voluntary action should therefore be designed to
    operate within the framework of any likely domestic regulatory or tax
    program that might be fashioned to control domestic greenhouse gas
    emissions. It should also be accompanied by, and integrated into, a set
    of policies that stimulate early action, including fiscal policies and
    funding for research and development.
          Domestic action should be the primary emphasis, but
    verifiable international projects should be included. The framework
    should focus primarily on domestic early action, but should also
    consider provisions related to international actions that comply with
    accepted international standards. International projects may earn
    credits for reductions achieved after the year 2000 under the Clean
    Development Mechanism. These should clearly be incorporated into any
    early action crediting framework. The small number of projects already
    accepted into the U.S. Initiative on Joint Implementation that achieved
    reductions prior to 2000, and meet rigorous standards for verification
    and monitoring, should also be recognized.
          The legislative framework should not over-mortgage the
    U.S. greenhouse gas allocation. The Kyoto Protocol, in its current
    form, does not contain any incentives to act early. As long as this
    remains a feature of a future international control regime, credits
    allocated for early domestic reductions will have to come out of any
    U.S. allocation granted under a treaty. Therefore, careful
    consideration needs to be given to the impact of an early credit
    program on the availability of credits to those who choose not to
    participate in the early action initiative. Allocating too many credits
    too early could significantly increase the difficulty of complying with
    a regulatory regime. On the other hand, removing the disincentives for
    early action is the objective of an early action program. The design of
    the program should balance these two objectives, perhaps through the
    establishment of reasonable baselines.
        The Pew Center and its Business Environmental Leadership Council
    believe climate change is serious business, and that early action is
    smart business. Our effort is founded on the belief that enough is
    known about the science and environmental impacts of climate change for
    us to take action now to address its consequences. Awarding credit for
    early action is an important first step in what we believe will be a
    long and intense effort.
                                   __________
      Statement of Dale A. Landgren, Assistant Vice President of Business
                   Planning, Wisconsin Electric Power Company
        Mr. Chairman and Members of the Committee: Good morning. My name is
    Dale Landgren. I am Assistant Vice President of Business Planning for
    Wisconsin Electric Power Company. I appreciate the opportunity to
    appear before you today to express Wisconsin Electric's support for the
    concept of credit for early and voluntary greenhouse gas reduction
    actions, and to encourage Congress to enact legislation that
    establishes a program to provide credit to companies that undertake
    voluntary actions to reduce greenhouse gas emissions.
        Wisconsin Electric, a subsidiary of Wisconsin Energy Corporation,
    is headquartered in Milwaukee. Wisconsin Electric provides electricity,
    natural gas and/or steam service to approximately 2.3 million people in
    a 12,000 square mile service area which includes southeastern Wisconsin
    (including the Milwaukee area), the Appleton area, the Prairie du Chien
    area, and in northeastern Wisconsin and Michigan's Upper Peninsula. Our
    electric energy mix is 67 percent coal, 24 percent nuclear, 2 percent
    renewable including hydro, 1 percent natural gas/oil and 6 percent
    purchased power.
        Mr. Chairman, let me commend you for your leadership on this issue,
    and for holding this hearing and beginning a dialog. As I stated
    earlier, I am here today to express my company's support for the
    concept of credit for early action. We do not believe this support
    binds us to support the Kyoto Protocol or any other greenhouse gas
    action. We view a credit for early action program simply as an
    insurance policy in the event that a domestic or international program
    to reduce greenhouse gas emissions is implemented. Congress should view
    the credit for early action concept in the same way . . . as an
    insurance policy where there is zero cost for the premium.
        Wisconsin Electric is a strong proponent of options and flexibility
    based on business strategies--rather than political strategies--to
    address the global climate change issue in the context of modernizing
    the energy industry.
        Clearly there are strong positions on both sides of the climate
    change debate. Finding common ground on the issues and reaching
    consensus on a policy solution will be a very difficult task, at best.
    Wisconsin Electric could enter the debate on whether or not the climate
    is changing and what should be done. But, instead of focusing on
    reasons why we should oppose the Kyoto Protocol or a possible climate
    change mandate, Wisconsin Electric is trying to find ways that we can
    prosper from any climate change policy. While we are not advocating
    such a policy, based on a number of issues including the environmental
    regulation trend and the public perception on the climate change issue,
    we do believe there will be a future mandate to reduce greenhouse
    gases. I don't wish to debate this point; I am simply stating my
    company's belief. As a result of this belief, we are acting now to
    position ourselves to prosper in the future. We are undertaking
    voluntary greenhouse gas reduction measures for the following reasons:
          Experience--We are experimenting now to determine what
    works and what doesn't. Acting now gives us invaluable experience for
    the future.
          Customers--We are responding to our customers' desire to
    be an environmentally sound company. Their interest in a clean
    environment and their willingness to personally get involved is
    evidenced by our successful green pricing program.
          Trading--We have had a very successful experience as a
    trader of sulfur dioxide credits and believe we can be as successful
    and prosperous under a future trading regime for greenhouse gases.
    Profit--We are working now to determine how to be profitable in the
    future if greenhouse gas emissions reductions are required. Corporate
    Citizenship--Wisconsin Electric pledges environmental accountability
    and includes environmental factors as an integral part of our planning
    and operating decisions.
        Wisconsin Electric has a longstanding commitment to the environment
    as part of our business strategy. Despite the scientific uncertainty
    surrounding the climate change issue, we believe it is appropriate to
    start moving toward stabilization, then reduction of greenhouse gases.
    At a minimum, we should explore and expand low- and no-cost strategies
    to reduce, avoid or sequester greenhouse gas emissions. We believe it
    is important to develop reasonable solutions to address the climate
    change issue in the context of modernizing the energy industry. Thus,
    we are working to develop strategies that integrate environmental,
    economic and energy goals, and assure that the energy industry has as
    many options as possible--including non-emitting nuclear power--to meet
    any potential greenhouse gas reduction goals.
        Currently, there is no legal framework regarding the treatment of
    early greenhouse gas reductions or credit for these early actions. This
    uncertainty is inhibiting companies from investing in greenhouse gas
    reduction activities and projects. Wisconsin Electric supports
    establishment of a program that guarantees credit that can be applied
    against a future requirement . . . should there be one. Appropriate
    credit for these early actions is necessary to account for the
    investments that have already been made. Disallowing these credits puts
    the ``good actors'' at an economic disadvantage in attempting to meet
    any future potential greenhouse gas limits since the next tier of
    options is more costly than options available to companies that choose
    to wait for mandates. In addition, impending competition in the
    electric utility industry increases the importance of making sound
    strategic investment decisions now.
        Wisconsin Electric is an active participant in ongoing efforts to
    address the climate change issue. Through our efforts, we lead by
    example, proactively implementing greenhouse gas reduction strategies
    through a variety of programs such as carbon sequestration and coal-to-
    gas repowering projects, a successful green pricing program and
    participation in the Climate Challenge program. Wisconsin Electric has
    undertaken and continues to pursue voluntary efforts to reduce
    greenhouse gas emissions. We should be given credit for these actions
    and not be penalized for our good deeds in any subsequent climate
    program.
        A brief summary of our voluntary efforts to reduce greenhouse gas
    emissions follows.
    Joint Implementation (JI) Projects
        Wisconsin Electric is a partner in two projects approved by the
    United States Initiative on Joint Implementation (USIJI). The USIJI
    encourages U.S. private-sector investment and innovation in developing
    and disseminating technologies and procedures to reduce or sequester
    greenhouse gas emissions; promotes cost-effective projects that
    encourage technology cooperation and sustainable development projects
    in developing countries and emerging economies; and promotes a broad
    range of projects to test and evaluate methodologies for measuring,
    tracking and verifying costs and benefits of JI projects. The JI
    concept was introduced in 1992 during the negotiations leading up to
    the Rio Earth Summit.
        Joint implementation projects involve a collaborative effort
    between entities from two or more countries to mitigate greenhouse gas
    emissions. This approach enables these entities to achieve greenhouse
    gas reductions at a lower cost than would otherwise be possible. JI
    projects can take the form of emission reduction efforts (e.g., energy
    efficiency or renewable energy) or can involve protection and
    enhancement of greenhouse gas sinks (e.g., forests, grass lands, or
    coral reefs).
        Wisconsin Electric has supported the JI concept since its
    introduction. In 1994, we submitted two proposals in the first round of
    the USIJI solicitation. Of the 30 proposals submitted, both of our
    projects were among the seven approved. Our projects demonstrate the
    two types of greenhouse gas mitigation strategies I previously
    discussed:
        Decin Project--The Decin Project is an energy efficiency/emission
    reduction project that involves the replacement of inefficient, highly
    polluting district heating boilers at the Bynov District Heating Plant
    with high efficiency, natural gas-fired internal combustion engines. An
    important strategy in reducing greenhouse gas emission in the face of
    growing demand for energy is to produce and use energy as efficiently
    as possible.
        The Decin Project is a partnership with the City of Decin in the
    Czech Republic, Wisconsin Electric and two other U.S. energy companies.
    Development of the project was coordinated by the Center for Clean Air
    Policy. Each energy company partner provided to the City of Decin an
    interest-free loan, which enabled the City to secure the additional
    required financing from sources within the Czech Republic.
        The project was developed in response to the local need for air
    quality improvement coupled with the global goal of reducing greenhouse
    gas emissions. Through the energy efficiency improvements and the
    switch to natural gas, carbon dioxide emissions are reduced by about
    8,000 metric tons annually, along with reductions in nitrogen oxides,
    sulfur dioxide, particulates and ozone emissions, and reductions in
    energy consumption of over 30 percent.
        The Decin Project is a first-of-its-kind joint implementation pilot
    project, which serves as a model for other efforts. The project has
    encouraged the Czech government to become increasingly involved in
    domestic and international global climate issues. And while the City of
    Decin was keenly interested in improving local air quality and reducing
    air emissions, it was only through development of this project that
    they learned of the opportunity to achieve these goals through focusing
    on greenhouse gas emissions. Bynov plant operators use state-of-the-art
    equipment and provide educational opportunities and experience for
    other communities interested in improving air quality. It also
    demonstrates the ability of voluntary partnerships in market-based
    initiatives to accomplish environmental goals cost-effectively.
        Rio Bravo Project--The Rio Bravo Project is a carbon sequestration
    project that consists of two components: the purchase and protection of
    endangered tropical forests in Belize, Central America; and development
    and implementation of a sustainable forestry management program that
    will increase the total pool of sequestered carbon in a 120,000 acre
    area. The size of the original project has been more than doubled due
    to the recent acquisition of an additional parcel of contiguous land.
    Wisconsin Electric played a significant role in accomplishing this
    expansion.
        The Rio Bravo Carbon Sequestration Project is a partnership with
    Programme for Belize (PfB), The Nature Conservancy, Wisconsin Electric,
    and several other energy companies. Development of the project was
    coordinated by Wisconsin Electric.
        The forest land purchased as part of the project was threatened by
    imminent conversion to intensive agricultural land. By retaining the
    parcel in its native forest cover and combining its acreage with
    adjoining forested lands, an area large enough to implement a
    sustainable forestry program has been created. Retaining the forest
    cover and natural habitat it provides also satisfies the need to
    conserve the region's biodiversity.
        The Rio Bravo project will realize carbon benefits over 40-plus
    years of 2.4 million tons of carbon. Through its management and
    preservation aspects, the project has many direct and indirect benefits
    to the people and natural resources of Belize.
        Although some have suggested that forestry initiatives be
    discounted as a climate change mitigation strategy, our efforts in Rio
    Bravo prove that measurable and verifiable results can be demonstrated
    and documented.
        We believe that all types of JI projects--including energy
    efficiency, carbon sequestration and renewable energy--should receive
    full credit, including credit for early actions.
        While we are aware that there are new opportunities for investments
    and participation in joint implementation projects, the lack of
    certainty over credit for early action causes us some reluctance to
    pursue these opportunities.
    ``Energy for Tomorrow'' Renewable Energy Program
        Green pricing of electricity is a concept that allows individual
    consumers to vote on the environment with their purchase of
    electricity. With approximately 8,500 green pricing subscribers,
    Wisconsin Electric's ``Energy for Tomorrow'' renewable energy program
    is the largest and most successful of its kind in this country. Since
    its inception, the program has offset CO2 emissions by over
    40,000 tons.
        The program was launched in 1996 in response to increased customer
    interest in reducing dependence on fossil fuels like coal and natural
    gas and a growing public awareness of the benefits of using renewable
    resources to generate electricity. This voluntary program allows our
    customers to personally and positively impact the environment by
    electing to purchase electricity generated from renewable resources.
    Power for the Energy for Tomorrow program comes from a combination of
    biomass and hydroelectric facilities. This year we are building two
    utility scale wind turbines that will be on line by the end of June,
    and we are evaluating opportunities for additional sources of renewable
    based generation.
        One aim of the Energy for Tomorrow program is to help expand the
    market for renewables, which will prompt more investment and
    technological developments that will further decrease the costs.
    Climate Challenge Program
        As a participant in the U.S. Department of Energy's (DOE) voluntary
    Climate Challenge Program, Wisconsin Electric has successfully
    implemented a wide range of climate change initiatives. The Climate
    Challenge program, established in 1994,is a joint, voluntary
    partnership of the electric utility industry and the DOE to reduce,
    avoid or sequester greenhouse gas emissions. The Climate Challenge
    Program is the world's most successful voluntary greenhouse gas
    reduction initiative.
        As one of the original 30 electric utilities that signed a Climate
    Challenge Participation Accord with DOE in 1995, Wisconsin Electric
    agreed to cut annual greenhouse gas emissions by 16 percent from what
    would occur absent these actions. We will achieve a cumulative total of
    10-14 million tons of voluntary reductions between 1995 and 2000.
        Our commitment calls for using a broad array of approaches to
    reduce greenhouse gases, including innovative energy efficiency
    measures, beneficial ash use, carbon sequestration and alternative
    fuels. In addition to the initiatives I have already described, a few
    examples of our projects and actions include:
          Providing demand-side management (DSM)programs to assist
    customers in using electrical and natural gas energy more efficiently.
          Improving energy efficiency at all fossil fuel power
    plants, maintaining hydroelectric operations and improving output and
    net capacity at our Point Beach Nuclear Plant.
          Developing or supporting cost-effective waste-to-energy
    projects through such activities as purchasing electricity generated
    from landfill gas. Maximizing utilization of our fly ash by actively
    seeking opportunities to market ash for use in other products primarily
    within the construction industry.
          Providing assistance in the conversion of motor vehicles
    to dual fuel (Compressed Natural Gas/gasoline) capability. Reducing
    transmission and distribution system line losses by such actions as
    upgrading low voltage lines to higher voltages and improving operating
    equipment.
        We are well-positioned to meet our Climate Challenge Participation
    Accord commitments, and have implemented many promising approaches for
    carbon dioxide reductions and mitigation that can be replicated across
    industry sectors and across international borders.
    Credit for Early Action--Basic Principles
        Following the Rio Earth Summit in 1992, Wisconsin Electric
    anticipated proposals for greenhouse gas limits and began investing in
    voluntary greenhouse gas reduction programs.
        Providing credit for these early actions is appropriate and
    necessary to account for the investments that have already been made.
    As I mentioned earlier, Wisconsin Electric supports the concept of
    credit for early actions in the event that a domestic or international
    program to reduce greenhouse gas emissions is implemented.
        Wisconsin Electric believes that any program to provide credit for
    early action should include the following:
        Credit to companies that made commitments under the voluntary
    Climate Challenge Program and under the United States Initiative on
    Joint Implementation program. A certification process that provides
    clear and consistent standards for determining early reduction credits;
    such standards should prohibit double counting of emissions reductions
    (crediting of the same emission reduction to multiple parties).
    Allowance for the use of third party verification firms, at a company's
    option, to certify reductions. Provisions that address displacement of
    emissions (a.k.a. ``leakage'') as a necessary component to ensure the
    integrity of the program.
          A simple mechanism to account for changes of ownership,
    and provisions that establish baselines for new sources that want to
    participate in the credit for early action program. Annual accounting
    for credits earned to better facilitate the formation of a viable
    market for emission reductions.
    Conclusion
        As I stated earlier, Wisconsin Electric believes it is appropriate
    to start moving toward stabilization, then reduction of greenhouse
    gases. We have undertaken and continue to pursue opportunities to
    voluntarily reduce greenhouse gas emissions through low- and no-cost
    strategies. We believe this is the right thing to do. However, the lack
    of assurance that credit will be provided for our voluntary actions to
    reduce greenhouse gas emissions causes us to be reluctant to pursue
    additional reduction activities.
        Wisconsin Electric believes that if a program to reduce greenhouse
    gas emissions is implemented either nationally or internationally, then
    we should not be penalized for the early, voluntary actions that we
    have undertaken. Congress should enact legislation to establish a
    credit for early and voluntary greenhouse gas reduction program to
    provide the assurance we need in the event that a greenhouse gas
    mitigation program is implemented.
        Mr. Chairman, thank you again for the opportunity to appear before
    you today.
                                   __________
     Statement of Richard L. Sandor, Chairman and Chief Executive Officer,
                      Environmental Financial Products LLC
        Mr. Chairman, thank you for inviting our participation in today's
    hearing. Our company, Environmental Financial Products, is a small
    business dedicated to designing, launching and trading new market
    mechanisms. We have had some success with new financial and
    agricultural markets, and over the past 10 years we have had the
    privilege of helping the U.S. sulfur dioxide allowance market take root
    and succeed.
        While a serving as a director of the Chicago Board of Trade, I
    encouraged the exchange to support the SO2 emission
    allowance market. The EPA ultimately selected the CBOT to administer
    its annual allowance auctions. The results of the seventh auction were
    announced today in Chicago today. The success of that program truly
    represents a milestone in environmental and financial history. It gave
    us faster-than-required pollution cuts at far lower cost than
    predicted. This success has been realized despite the predictions of
    the naysayers. We were told the sulfur program would never work. We
    heard: ``. . . it's too complicated, it will cost too much, its too
    hard to measure, utilities don't know how to trade, where will the
    price data come from?'' Despite this huge success, those of us who
    believe we can harness a market to protect against global climate
    change are now hearing the same protests. People have not learned the
    lesson: never sell short America's entrepreneurial ingenuity.
        The success of emissions trading is further proof that the private
    sector brings forth enormous creativity in solving social problems if
    we introduce a profit motive and a price signal. The Credit for
    Voluntary Early Actions bill offers just the sort of signal that will
    unleash the creativity and innovation needed to prevent, at low cost,
    the economic damage that sudden climate changes threaten to bring.
        In anticipation of opportunities to export credits for greenhouse
    gas cuts, we have been working with a wide range of businesses, most of
    them small ones, that are eager to act for the good for the environment
    while doing well for themselves. We work with farmers and foresters,
    with entrepreneurs who collect landfill and coalbed methane to produce
    electricity, and with large electric power companies. All these
    businesses are prepared to cut and capture even more greenhouse gas
    emissions if we give them a signal. These businesses are ready to take
    action, and they view the emerging international carbon credit market
    as a new business line. It is not just the producers of carbon credits
    who will gain. We will see a wide range of new opportunities for small
    businesses in the fields of new energy efficiency technologies, remote
    sensing, carbon certification, soil testing, project finance and
    trading. Credit for Voluntary Early Actions is the positive signal
    needed to unleash this new economic sector.
        By getting us moving sooner, we can further cut the cost of the
    global climate insurance policy that the public wants. My company's
    high-end estimate of the cost of cutting net GHG emissions 7 percent
    below 1990 yield a cost to the U.S. comparable to raising gasoline
    prices by a nickel per gallon. If we implement the proposed
    legislation, we will stimulate early action and innovation, which will
    help us realize the even lower costs that we believe a trading system
    will produce.
        Of course, these low costs do not take into account the wide range
    of additional environmental benefits that emerge from cutting and
    capturing greenhouse gases. We are likely to also realize improved air
    quality in our cities, making it easier for children with asthma to
    enjoy the outdoor activities most of us take for granted. Expanding our
    forests will give more families a chance to enjoy hunting and hiking.
    Fishermen win because no-till farming and capturing carbon through
    grass and tree plantings will improve water quality in our rivers and
    lakes. The benefits that hunters, hikers and fishermen bring to small
    businesses in our rural economies are enormous.Mr. Chairman, thank you
    again. We encourage the Committee to contribute to a safer future for
    the planet and cleaner future for our country by moving this bill
    forward.
                                     ______

     Creating a Market for Carbon Emissions: Opportunities for U.S. Farmers
                   (By Richard L. Sandor and Jerry R. Skees)
        Reducing greenhouse gases has become a major international
    objective. While the international community debates the Kyoto
    protocol, a number of countries have already announced that they will
    reduce greenhouse gases. The November 1998 Buenos Aires meeting on the
    Kyoto Protocol helped advance the trading approach as one means for
    reducing greenhouse gases. Since carbon dioxide is a major greenhouse
    gas, creating a market for carbon emissions is under consideration.
    Should such a market evolve, U.S. farmers could be big winners.
        Even though some in the scientific community do not believe carbon
    emissions contribute to global warming,
        eryone agrees carbon emissions are increasing rapidly. Since it is
    possible that carbon emissions increase the likelihood of significant
    climate change, a market should be at the top of the list of policy
    options to cost-effectively manage emissions. In effect, a carbon
    trading system may be cheap insurance against potentially large
    societal problems.
    Sulfur Emissions Trading Paves the Way
        Emission allowance trading is a straightforward concept that is
    already operational on a national scale. The U.S. sulfur dioxide
    emissions market provides a good example. Congress placed an overall
    restriction on power plant emissions nationwide, effectively allowing
    power plants to comply by either 1) investing in cleaner fuels or
    pollution control technologies or 2) buying extra emissions rights from
    another power plant that made extraordinary emission cuts. Buying
    excess rights from a more efficient power plant allows the older and
    less efficient plant to meet its obligations at lower cost to
    consumers. In short, trading emissions permits allows industry to meet
    emissions goals in a least cost way.
        Title IV of the 1990 Clean Air Act Amendments cleared the way for
    trading sulfur emissions among 110 power plants. During the debate on
    this legislation, experts estimated that these emission rights would
    command a very high premium. Some initial estimates ran as high as
    $1500 per ton. Hahn and May report several pre-1992 estimates of
    forecasted per ton prices for sulfur emission allowances, ranging from
    $309 (Resource Data International) to $981 (United Mine Workers). In
    1998, the Chicago Board of Trade (CBOT) auctioned off a large number of
    allowances at an average price of $115. Carlson et. al. argue that many
    factors, in addition to trading of emissions rights, created low prices
    of sulfur emission allowances: improved technologies for burning low
    sulfur coal, improvements in electrical generating efficiency, and
    lower fuel costs.
        Evaluations of the sulfur emissions trading program suggest that it
    has been a success. By 1998 actual sulfur emissions averaged 30 percent
    below the allowable level. There has also been steady growth in the
    interutility trading of allowances from 700,000 tons in 1995 to 2.8
    million in 1997. The full effects of the trading have not been realized
    as the market is still adjusting to this new innovation. Carlson et.
    al. estimate that this innovation will save $784 million annually
    beginning in the year 2000. Further, they estimate the net cost of the
    cap and trade system is 43 percent of the estimated costs under a
    command and control system.
    The Potential of Carbon Trades for U.S. Agriculture
        If a market evolves for greenhouse gas emissions, those who are now
    contributing to carbon emissions may be willing to pay others to
    sequester carbon (remove it from the atmosphere) as a permanent offset
    to emissions, or as a means of buying time to invest in technologies
    needed to reduce emissions. When sequestering carbon costs less than
    reducing carbon emissions, the carbon market would provide a more
    efficient solution. Firms would likely use a combination of reductions
    in emissions and offsets with carbon trades.
        A market would also motivate technological improvements to both
    sequester carbon and reduce emissions. For example, if prices signal
    farmers to sequester additional carbon, the market would respond with
    new technologies. Price incentives would encourage bioengineering
    plants that more efficiently and effectively sequester carbon. Most
    soil organic carbon is in the upper meter of soil. Could plants with
    deeper roots sequester more carbon to deeper levels?
        The agricultural sector provides a number of effective alternatives
    for sequestering carbon. Forests and cropland offer the most promise. A
    large number of solutions will be needed to offset the increase in
    carbon emissions, and a market offers the best way to orchestrate them.
    Agronomists (Lal et. al) estimate the overall potential for carbon
    sequestration using U.S. cropland at 120-270 million metric tons of
    carbon per year (MMTC/yr). Around 100 MMTC/yr would come from increased
    use of Best Management Practices (BMPs). The remainder comes largely
    from acreage conversion and biofuels. Worldwide carbon emissions are
    growing by about 3,000 MMTC/yr. The U.S. emissions target under the
    Kyoto protocol is roughly 600 MMTC/yr below the level projected by 2010
    under current trends. Thus, U.S. cropland could be used to reduce the
    projected annual world increase in carbon by about 7 percent, or about
    30 percent of the U.S. share under the Kyoto protocol.
        Most soils have a capacity for sequestering additional carbon.
    Tilling the soil, however, releases carbon into the atmosphere. Lal et
    al. report that Corn Belt soils likely have about 61 percent of the
    carbon that was present in 1907. Minimum and no-till systems can
    sequester more carbon. In 1997, about 37 percent of the arable land in
    the U.S. was under conservation tillage. Lal et. al estimate that using
    more BMPs (primarily reduced and minimum tillage systems) could
    sequester 5000 MMTC in cropland soils over the next 50 years. That
    converts to 100 MMTC/yr via wider use of BMPs, while other options
    offer the possibility of up to an additional 100 MMTC/yr.
        Estimates of the value of carbon emissions allowances range from
    $15 per ton (Council of Economic Advisers)
        $348 per ton (Energy Information Administration). Based on early
    market signals, Environmental Financial Products is using market values
    between $20 and $30 per ton of carbon. Without a market to trade carbon
    emissions, the lower prices (and the lower mitigation cost to society)
    will not be possible.
        Using the low-end estimates of $20 to $30 per ton, paying farmers
    to sequester 200 MMTC/yr could add $4 to $6 billion of gross income to
    the farm economy--and possibly up to 10 percent of typical net farm
    income. The market for carbon could be a major supplement to the
    Conservation Reserve Program and, if managed properly, opportunities in
    the international carbon market could soften farm income cycles by
    taking land out of crop production and putting it into conservation
    uses when relative prices favor carbon sequestering over food
    production.
        BMP's increase the agronomic productivity of U.S. cropland, reduce
    soil erosion, and improve water quality and wildlife habitat. Thus,
    BMP's help both the global and local environments. The local benefits
    are consistent with the goals of the much discussed 'green support
    payments' (Lynch and Smith). However, rather than using taxpayer
    dollars, this green support payment could evolve in a marketplace with
    more diligent monitoring and enforcement. Paying farmers to sequester
    carbon will heighten the stakes for verification that farmers make
    changes in their farming practices or that they are actually
    sequestering more carbon. Lal et. al. estimate the long-term nutrient
    value of an additional ton of soil organic carbon at $200. A ton of
    soil organic carbon can be added in 4-5 years. In 4-5 years the value
    of some of the country's most productive farmland could increase 10 to
    15 percent. In summary, a carbon market could increase both income and
    net worth in the farming community by 10 percent or more.
        Leading scientists expect that climate change brought about by
    increased greenhouse gases may bring more extreme droughts and floods.
    Thus, American farmers can not only sell a new ``crop'' in the
    international environmental service market, but also help solve, at
    least in a marginal way, long-term weather problems affecting farming.
    Implementing a Carbon Emissions Allowance Trading Program
        A number of factors must be considered when designing a market for
    carbon emissions. In contrast to the sulfur market, carbon emission
    sources are less concentrated. In addition, sulfur could be reduced
    only by cutting emissions. A carbon market, on the other hand, may work
    through both outright reductions and sequestration. Considerable care
    must be taken to assure that incentives do not encourage farmers or
    others to change the baseline used to reward additional carbon
    sequestered. For example, in the short run a farmer or forester could
    release more carbon via changed practices so that they are ready to
    gain more when trading begins.
        Low-cost systems to measure carbon in the soils are becoming more
    feasible. As the market develops, new technologies should emerge to
    make this task economically feasible. Lal et. al have provided
    estimates of the existing soil organic carbon for the lower 48 states,
    but improved estimates are needed. The existing base of carbon needs to
    be mapped. Only additional tons of carbon that are added to the
    baseline should be eligible for the market.
        While many will get bogged down worrying about monitoring how much
    additional carbon is sequestered on an individual field, there are more
    effective means for monitoring and verification. Consider the
    opportunity for farmer cooperatives, grain merchandizers, biotech
    firms, and almost any agribusiness. Any of these firms could become a
    wholesaler for carbon sequestering. Estimates of the amount of carbon
    actually in the soil on an individual parcel may be flawed. However,
    the error likely has typical statistical properties and conventional
    statistics apply--estimating many individual parcels and aggregating
    them into one measurement will improve the estimate considerably. The
    agribusiness firm would be responsible for monitoring the individual
    farmers, possibly with some advisory role from USDA on adoption of
    BMPs. Under this system farmers could be rewarded for adopting BMPs and
    the agribusiness firm would be rewarded based on estimates of actual
    carbon sequestered.
        Sandor, a student of the history of markets, has been heavily
    involved in inventing a number of new markets. He postulates a simple
    seven-stage process for market development:
          a structural economic change that creates a demand for
    new services; the creation of uniform standards for a commodity or
    security; the development of a legal instrument which provides evidence
    of ownership; the development of informal spot markets (for immediate
    delivery) and forward markets (non-standardized agreements for future
    delivery) in commodities and securities where ``receipts'' of ownership
    are traded; the emergence of securities and commodities exchanges; the
    creation of organized futures markets (standardized contracts for
    future delivery on organized exchanges) and options markets (rights but
    not guarantees for future delivery) in commodities and securities; and
    (7) the proliferation of over-the-counter markets (p.2).
        Based on this experience, Sandor develops recommendations for
    implementing an international pilot program for carbon emissions
    trading. An international pilot is in keeping with the Kyoto protocol
    which, during the first phase, puts the burden on developed economies.
    With trading, those in developed countries would also have the option
    of involving developing countries by funding low-cost emission
    reduction projects and by helping developing countries finance their
    efforts to prevent destruction of existing forests.
        An effective carbon emissions market must have a clearly defined
    tradable commodity for greenhouse gas emissions--the standard measure
    to be traded must be agreed. An oversight body is needed, along with
    emissions baselines and clearly specified allocation and monitoring
    procedures. Once these standards are in place, existing exchanges and
    trading systems can be used to facilitate trades. Widely accepted
    standards will increase the credibility of the trades and help
    standardize the legal mechanics more quickly. All of these steps will
    lower the transaction costs in the new market.
        With standardization and use of existing exchanges and trading
    systems, a carbon emissions market is very feasible. If we can trade
    corn on the Chicago Board of Trade, we can trade carbon. A system of
    quotes, hedging, and options will evolve. The market for carbon trades
    is, if fact, already evolving (Sandor). Niagara Mohawk (an electric
    power company in New York) and Arizona Public Service completed a swap
    of carbon offsets for sulfur dioxide emission allowances in 1996.
    Environmental Financial Products purchased rainforest protection carbon
    offsets from the Republic of Costa Rica in 1997. A subsequent 1.1
    million acre program also includes assurance from the Costa Rican
    government that the area will be placed in a national preserve. In
    1998, the Japan-based Sumitomo began converting coal-fired electric
    power plants in Russia to natural gas to earn carbon offsets.
        The road to price discovery is being built. A market for carbon
    reduction services is now emerging. Carbon markets are being designed
    in the United Kingdom on the International Petroleum Exchange and in
    Australia at the Sydney Futures Exchange. Major companies such as
    United Technologies, British Petroleum and Royal Dutch Shell have also
    committed to large and early reductions in their own greenhouse gas
    emissions. Therefore, regardless of whether the U.S. approves the
    treaty, firms in other countries may soon be willing to pay American
    farmers to sequester carbon. U.S. action to limit net carbon emissions
    would help make the benefits and incentives to U.S. agriculture even
    greater.
        Carbon trading is feasible. The prospects of a market will increase
    this feasibility as new investments are made in technologies and
    research needed to monitor and standardize carbon measurement. Active
    trading of carbon could prove an inexpensive insurance policy against
    the unknown problems that may emerge because of the rapid increase in
    global carbon emissions. An effective and efficient market-based
    solution will become even more important as governments around the
    world tighten restrictions on carbon emissions. U.S. farmers are well-
    positioned to help in sequestering more carbon. While helping to clean
    up the air, the benefits to the sector could be substantial. Farm
    income and land values should both increase. Local soil, water, and
    wildlife should benefit. All the while, carbon trading could also make
    the sector more resilient to other forces that have persistently
    created cycles in farm income through a market-based CRP program.
        For more information:

        Carlson, Curtis, Dallas Burtraw, Maureen Cropper, and Karen L.
    Palmer. Sulfur Dioxide Controls by Electric Utilities: What are the
    Gains from Trade? Resources for the Future Discussion Paper, July
    1998:98-44.
        Energy Information Administration. What Does the Kyoto Protocol
    Mean to U.S. Energy Markets and the U.S. Economy. October, 1998.
        Money to Burn? The Economist. 344(1997): 86.
        Hahn, Robert W., and Carol A. May, The Behavior of the Allowance
    Market: Theory and Evidence, The Electricity Journal, March 1994, 7:2,
    28-37.
        Lal, R., J.M. Kimble, R.F. Follett, and C.V. Cole. The Potential of
    U.S. Cropland to Sequester Carbon and Mitigate the Greenhouse Effect.
    Ann Arbor: Sleeping Bear Press, 1998.
        Lynch, Sarah and Katherine R. Smith. Lean, Mean and Green--
    Designing Farm Support Programs in a New Era. Policy Studies Program
    Report No. 3, Henry A. Wallace Institute For Alternative Agriculture,
    December 1994.
        Sandor, Richard L. The Role of the United States in International
    Environmental Policy. Presentation to the White House Conference on
    Climate Change. Washington, DC. 6 Oct. 1997.
        Walsh, Michael J. Potential for Derivative Instruments on Sulfur
    Dioxide Emission Reduction Credits, Derivatives Quarterly, Vol. 1, No.
    1, pp. 1-8, Fall 1994.
        Dr. Richard Sandor is CEO of Environmental Financial Products,
    L.L.C. and Dr. Jerry Skees is professor of agricultural economics, at
    the University of Kentucky.
        This article emerged from two presentations by Dr. Richard Sandor.
    First, at Monsanto in St. Louis, Mo. and then at the University of
    Kentucky (UK) as the fall seminar of Gamma Sigma Delta. Dr. Sandor
    expresses his appreciation to Dr. Bruno Alesii, agronomic systems
    manager at Monsanto, and Dean Oran Little of the College of
    Agriculture, University of Kentucky. Both authors are also grateful for
    reviews of this article provided by Dr. Craig Infanger, Dr. Barry.
                                   __________
     Statement of Tia Nelson, Deputy Director, Climate Change Program, The
                               Nature Conservancy
        My name is Tia Nelson. I am Deputy Director of the Climate Change
    Program at The Nature Conservancy. The Nature Conservancy is a non-
    profit conservation organization founded in 1951. The Conservancy's
    mission is to protect rare and endangered plants, animals, and natural
    communities that represent the diversity of life on Earth by protecting
    the lands and waters they need to survive. Throughout its history, the
    Conservancy has protected more than 10 million acres of land in North
    America and millions more in Latin America, Asia, and the Pacific. The
    Nature Conservancy owns or manages approximately 2 million acres in the
    United States, comprising the largest system of private nature
    preserves in the world. Although it is known primarily as the
    organization that buys land to create nature preserves, the Conservancy
    also engages in many other conservation activities such as purchasing
    or holding conservation easements, working with private landowners to
    improve land management practices, and working with local communities
    to help them determine their environmental future. Internationally we
    work with in-country conservation partners, local governments,
    multilateral institutions, U.S. Government agencies, and private sector
    firms to foster support for conservation and develop additional sources
    of funding. The Conservancy has more than 900,000 members and has at
    least one office in every state and in many other countries.
        I am happy to be here today to discuss the concept of credit for
    voluntary early action and the Conservancy's experience in developing
    carbon sequestration projects as a climate change mitigation strategy.
    We believe that a well crafted early action bill can be a critical and
    cost effective step in the process of slowing the buildup of greenhouse
    gases in the atmosphere while achieving other important societal
    benefits. In particular, the Conservancy hopes that any early action
    legislation will contain scientifically valid, credible carbon
    sequestration provisions that will provide incentives for projects
    which slow or reverse the pace of deforestation of sensitive
    environmental areas in both the U.S and abroad, and encourage better
    forestry and agricultural management practices.Deforestation and land
    degradation account for more than 20 percent of the annual greenhouse
    gas emissions and thus is an important component of any effort to
    address the threats of climate change. We believe that carbon
    sequestration, properly designed, can achieve real and measurable
    greenhouse gas benefits while protecting biodiversity and enhancing
    sustainable development. There are also important opportunities in the
    agricultural sector. Dr. Rattan Lal, a leading expert of soil science
    at Ohio State University, states that 116 million tons of carbon is
    released into the atmosphere each year from conventional agricultural
    activities in the U.S. Through better soil conservation practices such
    as reduced tillage, we have the potential to conserve substantial
    amounts of soil carbon, and reward farmers for good agricultural
    practices. We commend Senator Chafee and his co-sponsors for
    introducing legislation to start the process of creating these
    incentives.
        The Conservancy's experience with carbon sequestration projects,
    funded voluntarily by private companies, has shown us the potential
    inherent in this mechanism. Our experience in developing and helping
    implement these types of projects has convinced us that we can meet the
    technical challenges of demonstrating and quantifying carbon
    sequestration benefits. Projects developed by the Conservancy to slow
    the release of carbon dioxide and enhance carbon reserves into the
    atmosphere are protecting two of the most important natural areas in
    the world, sequestering over 20 millions tons of carbon in a cost-
    effective manner and helping local communities develop their economies
    in a sustainable way. Governmental action to provide companies with
    clear incentives in this area could have dramatic positive results for
    greenhouse gas reductions and mitigation as well as other environmental
    benefits by encouraging more of these types of investments.
        I would like tell you about several of our projects in order to
    help you understand the potential that we believe could lie in well-
    crafted incentives for carbon sequestration projects. Our first project
    is in the country of Belize and was carried out with significant
    support from Wisconsin Energy, a company that is represented here
    today. Wisconsin Energy approached The Nature Conservancy in 1994 with
    the idea of undertaking a project that would demonstrate the potential
    of forest conservation and sustainable forest management to address the
    buildup of greenhouse gases. Both the company and The Conservancy were
    aware that, according to experts such as the World Resources Institute,
    forests act as both a source of CO2 emissions and also as an
    important carbon ``sink'', absorbing atmospheric CO2
    concentrations through the process of photosynthesis and storing it as
    biomass--both above and below ground. The volume of carbon stored by
    forestland increases as the volume of biomass increases.
        The Conservancy has long sought the protection of the rainforests
    of central and western Belize for conservation activities. This is one
    of the world's hotspots of biodiversity. These forests are home to 70
    different mammals (including several cat species like the jaguar and
    howler monkeys), 340 species of birds (many of which spend their
    summers in the U.S) and 240 different species of trees. Unfortunately,
    these forests are being bulldozed, burned and converted to agricultural
    fields in many areas. The result is a significant emission of carbon
    dioxide into the atmosphere as well as a tremendous loss of
    biodiversity.
        In 1995, a 14,000-acre parcel of rainforest was put up for sale by
    a local land owner. The leading bidder was a local farm interest that
    intended to use the land for soybean production. Instead, Wisconsin
    Energy and other companies--Cinergy, Detroit Edison, PacifiCorp, and
    Utilitree Carbon Company--gave the Conservancy and its Belizean
    partner, Programme for Belize, $2.6 million. With this funding
    Programme for Belize was able to purchase the land and set aside
    funding for its management. Special care was taken to ensure that the
    potential for ``leakage'' of benefits was adequately addressed through
    project design. Funding also allowed for a small-scale sustainable
    forestry operation, certified by the Forest Stewardship Council, as
    well as community education programs. This provided jobs and income for
    the local population. In 1998, with additional funding from Wisconsin
    Energy and Suncor, a Canadian oil company, the Conservancy and
    Programme for Belize were able to purchase an additional parcel of land
    and add it to the holdings managed under the carbon sequestration
    project. In all, $5.6 million has been generated for this project. This
    would not have been possible without investments from companies seeking
    to demonstrate the validity of this mechanism through the U.S.
    government's initiative on Joint Implementation. Our estimate is that,
    if the area purchased had been converted to agriculture instead of
    maintained as an intact forest, the additional carbon dioxide released
    into the atmosphere and the decrease in carbon stored would total 2.4
    million tons over the next 40 years. This estimate is based on an
    analysis undertaken by the Winrock International Institute for
    Agricultural Development, a non-profit organization with considerable
    expertise in carbon measurement. Winrock was retained to develop a
    system to measure the greenhouse gas benefits of the project. The
    monitoring protocol involved the use of permanent sample plots in which
    carbon from soil, trees and leaves is measured and analyzed in
    laboratories. Thus, the actual carbon sequestered by the project, which
    is registered with the U.S. Initiative on Joint Implementation, is
    backed by a scientifically rigorous measurement system.
        Our second and largest project to-date is the Noel Kempff Climate
    Action Project in Bolivia. This $10 million project, supported by
    American Electric Power, PacifiCorp, and BP Amoco, has been used to
    retire forestry concessions in one of the most biologically diverse
    areas in Latin America. This allowed the Bolivian government to double
    the size of the Noel Kempff National Park, a long-time goal. While much
    of the rainforest in Bolivia has been destroyed by unsustainable
    forestry practices, Noel Kempff has now been expanded by 1.5 million
    acres and is protected by one of the best-funded management programs in
    the region. In addition to funding the retirement of forestry
    concessions and the establishment of a permanent endowment for the
    park, funding also has been used to rehabilitate a local school and
    health facility and to provide capital to local communities for
    sustainable economic development projects.
        The carbon sequestered by the project has been estimated using
    scientifically rigorous methodology developed by Winrock. Of the $10
    million project budget, nearly $2 million is for monitoring and
    verification of greenhouse gas benefits. Our current estimate is that
    the project will reduce, avoid or mitigate 15 million tons of carbon in
    the next 30 years. This amount is equal to the lifetime emissions of
    approximately 850,000 cars. These estimates will be verified
    periodically over the life of the project by on-the-ground measurement.
    The project and its monitoring and verification protocol is viewed as
    an important model in demonstrating scientifically valid carbon
    measurements.
        In addition to these two projects, The Nature Conservancy is
    working closely with other companies to encourage support for other
    carbon sequestration projects domestically and internationally that can
    help achieve climate change mitigation and conservation benefits. We
    know from these discussions that many companies are hesitant to commit
    to this kind of investment without assurances that these investments
    will be recognized. It is important to remember that the size of these
    investments vastly exceeds traditional corporate giving for
    conservation purposes and that the companies which have been involved
    to date have done so in an effort to help develop new cost-effective
    mechanisms for climate mitigation. They have been leading by doing.
        We believe the potential to expand this mechanism to slow the
    buildup of greenhouse gases, preserve carbon sinks and simultaneously
    achieve conservation goals will not be achieved unless the U.S.
    Government offers some incentives and clear guidelines to companies
    prepared to act now. Without clear rules, companies which have acted
    responsibly and made investments in slowing the buildup of greenhouse
    gases will be treated the same as those which ignored the problem. We
    believe this would be a mistake, and a lost opportunity.
        As I have noted earlier, the Conservancy strongly favors the
    inclusion of carbon sequestration provisions in any early action
    program. We do encourage legislators to move carefully in creating such
    provisions so as to create measurable greenhouse gas benefits and
    improvements in the ways in which lands are managed and to avoid the
    creation of perverse incentives that might have a counter-productive
    impact. Some principals we think the committee should keep in mind are:
          All projects should be subjected to rigorous monitoring
    and verification and transparent reporting.
          Credits for forest conservation should take into account
    potential displacement of these benefits to other areas, to ensure that
    ``leakage'' is addressed.
          Carbon sequestration provisions under early action should
    be awarded for additional changes in land management above and beyond
    current practices. There should be no credit in cases where landowners
    deforest land and then engage in tree planting. Neither should credits
    be accrued for business as usual scenarios.
          International projects screened by the joint
    implementation program should be eligible for early action credits. The
    key sources of emissions from the land use sector stem from
    deforestation of the tropics. Companies should have an incentive to
    help address this issue.
        With these principles, we believe that carbon sequestration
    projects can play an important role in an early action program. We
    thank you for the opportunity to present our views here and look
    forward to providing the committee with whatever assistance we can as
    it continues its work.

                                   __________
                 Statement of John Passacantando, Ozone Action
        Senator Chafee, Senator Baucus, and members of the Committee, Thank
    you for the invitation to be here today. My name is John Passacantando,
    Executive Director of Ozone Action. Ozone Action is a 6-year-old non-
    profit organization dedicated to working on the atmospheric threats of
    global warming and ozone depletion. Our mission is one of public
    education, spreading the word on the science of global warming, and
    helping to build the public constituency for leadership to address
    these global threats.
        Facing the threat of global warming, this Committee must decide
    whether to address the root of the problem or simply to treat its
    symptoms. I am here today to challenge this Committee to do the former
    by passing a bill that will start U.S. industries on a path to greater
    efficiency, less pollution, and put the U.S. in a leadership role as
    the key exporters of the new and exciting energy efficient technologies
    that are beginning to emerge. I am also here to warn you against taking
    the Band-Aid approach to global warming that S. 547 now presents.
        Any doctor, when treating a patient with high cholesterol, will
    likely prescribe some type of medication. But no responsible doctor
    would limit his treatment to just medication. He would insist that the
    patient address the source of his cholesterol problem by changing his
    eating and exercise habits. To do anything less would be not only
    irresponsible, but obviously dangerous to the patient's health. It is
    widely recognized that one of the inherent dangers in our ever-
    advancing medical technologies is the belief that there will always be
    some pill, whether it is for cholesterol, dieting, blood pressure, or
    otherwise that will solve our problem so that we won't have to change
    our habits.
        In many ways, our global climate shows the symptoms of an ailing
    patient. Scientists around the world recognize that our glaciers are
    retreating, our ice caps are thinning, our seas our rising, our violent
    storms increasing, and rising temperatures are breaking records that go
    back to the middle ages. To pass S. 547 as it currently stands would be
    like giving this sick patient a pill without addressing the source of
    the problem--escalating emissions of CO2 from the burning of
    fossil fuels. Just as it would have been irresponsible for the doctor
    in the cholesterol analogy to send his patient off without changing the
    habits that caused his problem, it would be irresponsible for this
    Committee to pass a bill that allows companies to continue increasing
    their emissions while being rewarded for everything from creating tree
    plantations to unverifiable, self-reported projects almost a decade
    old.
        Our country's history of strong environmental regulation and
    economic prosperity is the clearest indicator that properly crafted
    regulations can provide incentives for the innovations that drive our
    markets. Michael Porter, Harvard Business School professor and former
    member of President Reagan's Commission on Industrial Competitiveness
    notes in his most recent book that ``the data clearly show that the
    costs of addressing environmental regulations can be minimized, if not
    eliminated, through innovation that delivers other competitive
    benefits.'' He goes on to suggest that we should ``focus, then, on
    relaxing the tradeoff between environmental protection and
    competitiveness by encouraging innovation and resource productivity.''
        Like Porter, I do not come at these issues purely as an
    environmental advocate. While it is my duty as the leader of an
    environmental organization that focuses on atmospheric protection to
    speak as one, my background is in business, economics and Wall Street.
    I spent 8 years of my career in decidedly non-environmental roles, and
    for a majority of that period, working for Jude Wanniski, the high
    priest of supply side economics. That is to say, I believe in a very
    careful use of government intervention, and am as suspicious of
    corporate welfare as any conservative.
        The history of environmental legislation in the United States is
    one of the government continually raising environmental standards,
    usually over the strong objections of the affected industries, only to
    have those standards met by creative innovations that come in at a
    fraction of the initially projected costs or even as new profit centers
    for these industries. The Clean Air Act, removing lead from gasoline,
    phasing out ozone depleting chemicals are just a few of the examples.
        The fight against global warming is no different than these other
    efforts--it's just larger. Cheap and abundant fossil fuels have been
    important to our economic growth. But so have intelligence, technology
    and innovation. The most recalcitrant companies are still fighting even
    the thought that human actions may be contributing to global warming.
    Meanwhile, the most innovative companies are investing in highly
    efficient technologies for cars, buildings and homes.
        Overall, S. 547 is a failure in that it does not promote innovation
    and resource productivity. Instead, the bill rewards our biggest
    polluting companies even if they make no changes whatsoever. It also
    has the potential to preempt real emissions reductions, just as a
    mandate is emerging from the American people, increasingly concerned
    about global warming.
        Specific flaws with S. 547 include:
        1605(b) credits: The bill allows for the issuing of emissions
    credits for past voluntary emissions reductions reported to the
    Department of Energy (1605(b)). These projects simply cannot be given
    credit without a tight screen to rule out unverifiable projects
    (according to the General Accounting Office, more than 1,800 claims
    under 1605(b) during 1994-1996 have at best a ``moderate'' level of
    accuracy) those with negative environmental impacts or those that would
    have taken place anyway in the course of normal business. Perhaps more
    importantly, these unverifiable 1605(b) credits could completely offset
    emissions reductions targets adopted by the U.S., (credits claimed
    under just 2 years of 1605(b) reporting represent 80 percent of U.S.
    emissions reductions requirement). Furthermore, according to the
    nonprofit National Environmental Trust, just a handful of companies
    reporting under 1605(b) could potentially get credits worth $11 billion
    for questionable global warming pollution reduction cuts.
        A great example of the flawed accounting within the 1605(b) program
    is in a submission from General Motors. GM filed for 1605(b) credits
    for reduced emissions of their portion in the U.S. vehicle fleet.
    Twenty-five percent of the reductions GM claimed came not from
    efficiency improvements, but simply because they didn't sell as many
    cars and trucks--their fleet diminished. Awarding credits for lost
    market share amounts to no more than corporate welfare, a handout to
    big business.
        Nuclear incentives: Sen. Wyden, in his letter supporting the bill,
    eloquently outlined many of the problems that are embedded in the bill
    as presently drafted. He drew specific attention to the incentives this
    bill could provide for increased use of nuclear power and the
    inadequacy of many of the 1605(b) reported projects. For example, 60
    percent of Southern Company's 1605(b) projects are nuclear plant
    upgrades and increased output from nuclear plants. To further subsidize
    this moribund industry in the name of global warming, would exacerbate
    an existing problem, and one the American public has resoundingly
    rejected. While nuclear energy does not omit carbon, it is unacceptable
    to trade one environmental threat for another.
        International projects: By allowing for the granting of credits for
    overseas greenhouse gas abatement efforts, this bill diverts the focus
    from innovative investments at home where they are most needed. It
    instead relies on difficult-to-measure efforts in the developing world,
    many of which these companies are undertaking as profitable business
    investments anyway. In addition, there is great potential to corrupt
    the international negotiation process, as it will be done ahead of the
    global effort to create the framework for cooperation within the Kyoto
    Protocol. For example, S. 547 allows a double standard in which U.S.
    corporations can get credit for reducing emissions overseas but do not
    get penalized for increasing emissions overseas.
        Sinks: Carbon absorbing ``sinks'' projects should be left out of
    the early credit discussion at least until the international scientific
    body, the Intergovernmental Panel on Climate Change completes its study
    in the year 2000 and defines the way sinks will be dealt with under the
    Kyoto Protocol. The science must drive the policy, not the other way
    around. Any U.S. credits for such actions promised prior to that report
    have great potential to set false expectations for companies or even to
    put the U.S. in a position of advocating a less rigorous accounting for
    these projects. If you can find a way to protect our forests and stop
    global warming, terrific. But if you are encouraging polluters to
    offset their emissions by putting their own fences around existing
    forests or for planting tree plantations destined for the paper mill,
    then the bill has no environmental integrity. Regardless, to ensure
    environmental integrity, policy decisions must be based on scientific
    decisions that are not yet available.
        Additionally, as sinks are related to agriculture, it is one thing
    to promote no regrets measures to insure sustainable farming practices
    designed, in part, to buildup the organic matter in the soils--a
    process which helps the soil hold more carbon dioxide. However, it is
    troublesome if false hopes are created that companies will be able to
    offset their emissions through a change in practices in the
    agricultural sector. In our opinion, including soil-based sinks could
    create false hopes and the potential for greater backlash down the road
    if the international community decides not to include soils in the
    Kyoto Protocol. There are so many other benefits of soil conservation
    and other sustainable agricultural practices; there must be a better
    way to provide incentives for this behavior.
        There are other flaws as well. Among them are: any early action
    program must be capped to provide security that the credits given out
    prior to a Kyoto Protocol compliance period do not overwhelm and
    obviate any action during that period; instances where more than one
    entity might claim credit for the very same action must be avoided; and
    a static baseline as presently stipulated in the bill is not aggressive
    enough. A steadily declining baseline target would both encourage real
    progress and weed out and discourage business-as-usual emissions
    reductions.
        Until these flaws are fixed, any future efforts to lower industrial
    emissions of greenhouse gases will be met with the cry of ``I already
    gave at the office.'' Passing the bill before you as a means to combat
    global warming is like a doctor combating a patient's high cholesterol
    by giving him a pill and then treating him to a steak and fries dinner.
    Our global climate deserves better treatment.
        In 1960, President Kennedy said, ``It is time for a new generation
    of leadership, to cope with new problems and new opportunities. For
    there is a new world to be won.'' His words are as true today as they
    were almost 40 years ago. Today's new world will not be won if we cling
    to old technologies at the expense of our environment and fail to
    promote the innovations our companies need to be competitive
    internationally. The challenge before this Committee is to pass a bill
    that will address the source of global warming so that the US will
    continue to lead tomorrow as we have led in the past in both
    environmental protection and economic strength.
                                   __________
       Statement of Raymond J. Keating, Chief Economist, Small Business
                               Survival Committee
        Thank you Mr. Chairman and Members of the Committee for the
    opportunity to testify today. I am Raymond J. Keating, chief economist
    for the Small Business Survival Committee (SBSC). SBSC is a
    nonpartisan, nonprofit small business advocacy group with more than
    50,000 members across the nation.
        As explained in many of our publications, articles and in previous
    congressional testimony, SBSC opposes the Kyoto Protocol to the United
    Nations Framework Convention on Climate Change for a variety of
    reasons, including, and primarily due to, the significant costs it
    would impose on small businesses, consumers and the U.S. economy in
    general, as well as the competitive disadvantage U.S. small businesses
    would face versus exempted international businesses in most other
    countries.
        As noted in the invitation letter for this hearing to SBSC from the
    Committee Chairman and Ranking Minority Member, what we have been asked
    to specifically address today are the issues related to ``formal
    recognition or crediting of voluntary greenhouse gas mitigation
    activities.'' These fundamental issues, for example, are raised by the
    proposed ``Credit for Voluntary Reductions Act'' (S. 547).
        First, we need to understand, or come to agree on what these
    credits would be used for. Obviously, the credits would only have
    meaning and value under the Kyoto Protocol or some similar regulatory
    regime which would implement an emissions ``cap and trade'' system.
    Otherwise, the entire early credit endeavor would be pointless.
    Therefore, we must take a look at how emissions trading would likely
    work, and what problems it presents.
        Under the Kyoto Protocol, the U.S. would be obliged to reduce so-
    called greenhouse gas emissions mainly CO2 to 7 percent
    below 1990 levels by 2012. That would require dramatic reductions in
    energy usage. One method for reducing energy consumption and emissions
    would be an emissions trading program whereby the government would cap
    emissions, and then ration or auction off credits equivalent to certain
    levels of emissions. (Under S. 547, for example, a ``greenhouse gas
    reduction credit'' means an authorization to emit 1 metric ton of
    greenhouse gas.) The credits would be tradable. For example, nations or
    companies seeking to maintain current or expand emissions would buy
    credits from nations or companies cutting their emissions and not
    needing the credits.
        U.S. Assistant Secretary of State Melinda Kimble, a top climate
    negotiator, told Reuters (October 21, 1998), ``In the United States,
    first and foremost domestic action is going to be a trading system.''
        Trading emission credits is called a market-based system, but in
    fact, it has very little to do with markets. It is merely another
    regulatory system for shifting around massive government-imposed costs.
    The government would place severe restrictions on CO2
    emissions and therefore on energy consumption and economic activity
    then implement a kind of shell game to shift around and attempt to hide
    the enormous costs.
        Massive problems exist with such a system.
          Costly and Stealthy. A ``cap and trade'' system does the
    same amount of damage to small businesses, consumers and the economy as
    do overt energy taxes, but in a dangerously stealthy manner. In a 1994
    document, the Environmental Protection Agency reportedly noted the
    problems facing an overt energy tax, and then cynically declared: ``A
    cap would likely not be as unpopular as a tax, since people are
    generally less familiar with the concept.'' Like other forms of
    regulation, the exact costs would remain largely a mystery to
    consumers, but nonetheless they would be paying in the form of
    increased costs, lost GDP, and lost jobs.
          Impossible Enforcement. The most daunting problem with an
    emissions trading regulatory system is compliance. In summary,
    countless dollars would be spent in pursuit of an impossible compliance
    goal.
        Administration of this treaty would require monitoring all sources
    of emissions, and comparing those results with permissible credit
    amounts. Environmental bureaucrats would have to monitor both
    stationary and mobile sources of emissions. Stationary sources would be
    bad enough think of the number of business, nonprofit and governmental
    facilities that would be under surveillance but remember there are more
    than 200 million motor vehicles in use in the U.S. today.
        Now, take this scenario, and apply it internationally. The
    complexity, costs and extent of government intrusiveness grow
    exponentially. After all, the U.S. cannot even successfully monitor
    chemical and nuclear weapons activities in Iraq, never mind global
    monitoring of practically all economic activity. This would require
    either a massive international environmental policelike force sticking
    their noses into private-sector and public-sector ventures nation by
    nation, or extensive domestic regulation under the assumption that each
    nation will be equally faithful and efficient in their monitoring
    activities. Either route is naive and costly, but be sure that our
    Environmental Protection Agency our likely Kyoto Protocol regulator
    will be the most aggressive enforcer.
          Developing Nations. If this treaty is meant to be taken
    seriously, then developing nations eventually must be brought into the
    fold. Currently, developing nations are excluded from emissions caps.
        An exclusion for developing nations would provide them with a
    tremendous economic advantage, allowing them to attract industries,
    businesses and jobs away from nations forced to impose draconian costs
    under the treaty. Obviously, this cannot stand.
        But what would happen if developing nations are placed under the
    Global Warming Treaty emissions caps? Imagine the insurmountable
    obstacles involved in monitoring emissions in many Third World nations
    where it can be a formidable task just to feed the populace. If imposed
    and somehow enforced, limiting emissions in such nations would sentence
    millions of people to permanent poverty.
          Small Business at a Disadvantage. Under emissions
    trading, smaller enterprises would be at a distinct disadvantage as
    bidding domestically and/or internationally raises the price of
    credits. As is the case with other forms of regulation, these added
    costs will hit smaller ventures hardest. Many small businesses operate
    on the slimmest of margins, and simply would be unable to play the
    credits game. As it stands now, most small businesses find it daunting
    to comply with the hundreds of laws and regulations required under all
    levels of government. In addition, basic business matters require their
    hour-by-hour, day-to-day attention.
        The credits game will be viewed by most as being the domain of big
    business, or be construed as some complex and vague program that offers
    no or little current quantifiable benefit in running their day-to-day
    operations. In addition, the high-risk nature of smaller,
    entrepreneurial firms require the opportunity to make substantial
    returns.
        The Kyoto treaty and emissions trading raise costs, and therefore
    reduce potential returns, which means that many startups, innovative,
    potentially high-growth enterprises would be nipped in the bud.
        Indeed, it certainly does not take an active imagination to see
    mature, entrenched large enterprises gaining a clear advantage over
    smaller businesses under an emissions trading regulatory system. For
    large firms with greater ability including the necessary capital to
    survive the added costs of playing the credits game will actually face
    reduced competition from smaller upstarts who will not survive.
        Trading emission credits merely would shift the costs of the Kyoto
    Protocol around, but certainly would not make them disappear. The
    economic costs and dislocations promise to be severe.
        Having noted the many problems with emissions trading, it becomes
    obvious that any kind of early action to reduce emissions so-called
    ``voluntary'' or not of such a system manages to only make matters
    worse. For example:
          The Federal Government would most likely enter into early
    implementation agreements with large, established businesses who have
    the legal expertise, technical abilities, and discretionary capital to
    undertake early actions. This level of resources would naturally give
    an advantage to big business to become ``volunteers'' in an early
    action program. And since there would only be so many credits to go
    around under the Kyoto Protocol or a national cap as part of a domestic
    program, those who did not participate in early actions would suffer
    accordingly. Small and mid-sized businesses would bear a heavy burden
    in 2008 and beyond.
          Politics no doubt would play a major part of this early
    implementation program. For example, S. 547 would authorize ``the
    President to enter into binding agreements under which entities
    operating in the United States will receive credit, usable in any
    future domestic program that requires mitigation of greenhouse gas
    emissions, for voluntary mitigation actions taken before the end of the
    credit period.''
        Those with political connections and lobbying clout would have the
    clear advantage when it comes to entering into early implementation
    agreements, at the expense of the non-politically connected, i.e.,
    smaller enterprises. Even if so-called ``pooling'' is allowed whereby a
    group of participants act as one participant for purposes of early
    action its usefulness would be quite limited. For example, established,
    politically connected businesses would have absolutely no incentives to
    pool with other firms. Why would they? For the rest, the costs of
    organizing in terms of dollars, time, personnel, education, etc. would
    be formidable.
        As noted earlier, most business owners struggle day after day for
    long hours to keep their business going, or hopefully growing
    constantly assessing the best way to serve their customers, to keep
    their employees productive and happy, and to project where their market
    is headed. These are the folks that will not have the ability to play
    the politics of credits for early action, and they then will be the
    ones most savaged by the costs of the Kyoto Protocol, or any other
    domestic initiative to reduce greenhouse emissions, or another domestic
    regulatory regime developed to manage, monitor and attempt to reduce
    emissions.
          Mature businesses in predictable industries would more
    easily participate in early implementation than would small, high-
    growth businesses in new, dynamic and far less predictable industries.
    None of us really know what the new businesses and industries of
    tomorrow will be. But we do know that under a credit for early action
    plan, they will be especially hurt, as they obviously cannot take
    advantage of early action.
          Credits for early implementation would establish a strong
    special-interest group favoring Kyoto implementation or a comparable
    domestic regulatory program. Credits potentially worth untold millions
    of dollars would act as powerful incentives to push and lobby for
    treaty ratification, or some type of regulatory structure that would
    give value to such credits. In other words, without a program to give
    value to such credits they would be worthless. I believe this would
    effectively split some of the business community in its opposition to
    the Kyoto Protocol pitting many large companies with a special interest
    in seeing the treaty and its trading scheme become reality, against a
    far more dispersed opposition overwhelmingly populated by small and
    mid-sized firms. Already, whatever ruptures that exist in the business
    community over whether the Kyoto Protocol should be implemented or not
    are largely based on whether certain industry sectors believe they can
    take advantage of the new regulatory structure. For example, it is no
    surprise that we see renewable energy companies and large corporations
    with vast natural gas reserves cheerfully supporting Kyoto or a similar
    domestic version of it.
        Emissions caps on nations effectively are caps on economic growth.
    As entrepreneurs try to startup and grow businesses, they will be at a
    severe disadvantage in securing credits in a highly political system,
    and then will be hurt as the prices of domestically and/or
    internationally traded credits rise. Naturally, there is a tradeoff
    between risks and potential rewards. The higher costs resulting from
    the Kyoto Protocol would mean reduced rewards, and therefore, less risk
    taking. Less risk taking means slower economic growth and reduced job
    creation.
        Especially from the small business perspective, early action
    credits are a bad deal. The economics of the Kyoto Protocol or a
    similar program, including its emissions trading scheme, are dismal.
    Congress should not be looking for ways to advance Kyoto and its
    attendant implementation schemes, but instead should be stating quite
    clearly that it will not ratify this costly, misguided, and highly
    dubious treaty.
        As a final point, it is well worth noting the increasing energy
    efficiency in the United States brought about mainly by businesses and
    entrepreneurs without any such draconian measures along the lines of a
    Kyoto Protocol. For example, between 1970 and 1996, total energy
    consumption increased by 41 percent, while our economy more than
    doubled in real terms over the same period. Indeed, the private sector
    possesses every incentive to become more and more efficient in terms of
    energy usage.
        Once again, thank you for allowing me to testify today, and I would
    be glad to answer any of your questions.

                      CREDIT FOR VOLUNTARY REDUCTIONS ACT

                                  ----------

                             THURSDAY, JUNE 3, 1999

                                           U.S. Senate,
                     Committee on Environment and Public Works,
                                              Providence, Rhode Island.
        The committee met, pursuant to notice, at 10:30 a.m. at
    Faunce House, Brown University, Providence, Rhode Island, Hon.
    John H. Chafee (chairman of the committee) presiding.
        Present: Senator Chafee.

               OPENING STATEMENT OF HON. JOHN H. CHAFEE,
              U.S. SENATOR FROM THE STATE OF RHODE ISLAND

        Senator Chafee. The subject we're gathered to hear about
    this morning, climate change caused by human activity and what
    to do about it, is very controversial. The science is
    challenging because we're considering the long-term future of a
    global system that involves interactions of atmosphere, oceans,
    forests and human society, and the politics is challenging
    because the US Government has signed a far-reaching treaty, the
    Kyoto Protocol of 1997, that is, regrettably, strongly opposed
    by much of US industry. I had the privilege of being at that
    Kyoto gathering in 1997.
        The uncertainty and controversy seemed daunting, but it's
    important, it seems to me, that we struggle with this issue. If
    we are headed in the direction most scientists predict we're
    headed in, we can't afford to put off starting solutions until
    the day when all our questions are completely answered. If we
    wait around until everything is absolutely clear, no
    controversy, it may be well too late. Some things are certain,
    we know that greenhouse gases trap heat in the atmosphere. We
    know that greenhouse gasses exist naturally and are cycled
    through oceans and forests. From the ice cores taken from
    glaciers we've been able to examine the concentration of
    atmospheric carbon dioxide, an important greenhouse gas over
    the past 400,000 years. Now, that's a long time, 400,000 years.
    We know that increases in carbon dioxide have always been
    associated with increases in temperature over that period.
        In 1995, an organization of 2,500 scientists formed the
    intergovernmental panel on climate change, IPCC, that's a term
    we'll hear frequently today and in the continuing study of this
    matter, and this group of scientists, 2,500 of them, the IPCC
    issued a report summarizing the evidence gathered over the past
    100 years on the greenhouse effects of carbon dioxide and other
    gases. They concluded there's a small but discernible human
    influence on global climate, and they warned that this impact
    may be gathering momentous. The concentration of carbon dioxide
    in the atmosphere has steadily increased over the past 200
    years. The earth is warmed by one degree Fahrenheit over the
    past hundred years. It may warm another two to six degrees
    Fahrenheit over the next 100 years. Now, those are incredible
    statistics. That would be the fastest increase in temperature
    experienced by the species now comprising life on earth.
    Whether the complex ecosystems that are involved evolved over
    eons can adapt successfully, the change is so rapid, in other
    words, two to six degrees change in Fahrenheit in 100 years,
    can we adjust to that? It's the most important unanswered
    question. But we humans will face challenges as well. For
    instance, IPCC predicts that sea levels may rise an additional
    \1/2\ to 3 \1/2\ feet in that 100-year period. All of us in
    Rhode Island can appreciate the significance of a result like
    that, an increase in sea levels of \1/2\ to 3 \1/2\ feet.
        The bill we're considering, S. 547, this morning makes only
    the modest beginnings on this large problem. It would encourage
    voluntary reductions in greenhouse gas emissions by U.S.
    industries by promising those industries credits for the
    reductions they took if a mandatory program is ever adopted. In
    other words, the legislation we have says if you--we don't have
    any mandatory statute on the books yet about having to reduce
    greenhouse emissions, but some companies are willing to do it,
    and if voluntarily they want to do it, reduce their greenhouse
    emission, if subsequently legislation is enacted requiring such
    reductions, then the companies that have made the reductions
    prior thereto will get credit for it, and they're doing it
    voluntarily and they deserve credit for it. Now, this is a
    modest start, but getting a start is very important.
        Carbon dioxide accumulates in the atmosphere. From the
    perspective of climate, the ton of carbon dioxide that we
    voluntarily avoid emitting today is just as important as the
    ton that may eventually be prevented by the Kyoto Protocol of
    some other mandatory program.
        It may be many years before our political system responds
    to the threat of climate change in any meaningful way. When it
    does, and I, for one, am convinced that we must change our
    course, the reductions that have been accumulated year after
    year from this modest beginning will pay big dividends, and the
    companies that take advantage of this opportunity will realize
    much lower compliance costs because they had a longer period to
    adjust their business practices.
        Now, even this modest beginning, you say who can object to
    that, it's voluntary, you get credit later on if you make the
    reductions, who can complain. Well, welcome to Washington. Even
    this modest beginning is not without its controversy. Everyone
    salutes the concept of giving credit for voluntary reductions,
    but, indeed, there are devils in the details. What Government
    agency should run the program? How do we ensure that our
    accounting methods only count real reductions in greenhouse
    gases? How do we recognize projects like reforestation or
    preservation that sequester carbon rather than reduce
    emissions? Should foreign investments count? Should we give
    credit to the reductions that have been made since the Rio
    Treaty was signed in 1982? How far back do we go?
        We've got a distinguished group of witnesses to wade into
    this controversy and help us answer these questions.
        We all appreciate the time and thought that's evident in
    their written statements and welcome the opportunity to hear
    from them.
        Now I want to express my appreciation for all the witnesses
    coming, some of considerable distance. Mr. Fay came from
    Washington, Mr. Colburn came from New Hampshire, Mr. Rabideau
    came from the northern part of the state. Dr. Hamburg is here.
    Let me see where Ms.--oh, you're from Massachusetts, that's
    right. So we are grateful for all of you to come, being here.
        We'll start with the Honorable Scott Rabideau, who is a
    member of the Rhode Island House of Representatives. Scott, why
    don't you go first.

      STATEMENT OF HON. SCOTT P. RABIDEAU, RHODE ISLAND HOUSE OF
                            REPRESENTATIVES

        Mr. Rabideau. Thank you, Senator. And, first and foremost,
    I want to thank you and your staff for giving me the
    opportunity to testify here today. You know as a legislator I
    often have the opportunity to testify, but never in my wildest
    dreams did I think I would be on the record for a U.S. Senate
    Committee, so I thank you for that.
        It is also interesting that you chose to have the
    politician go first. We have quite a distinguished panel of
    people here testifying before your committee, these people
    probably know a lot more about the concepts that we're talking
    about than I do, but what I think I bring to this panel is a
    local political view on how a bill of this magnitude can have
    far-reaching impacts, not only here in Rhode Island, but across
    the country, when politicians and local legislators get a hold
    of this bill and understand just exactly what this bill will
    do.
        As you stated in your summation, you know, the ingenuity of
    this bill is the fact that it gives credit for reductions in
    carbon emissions prior to any regulations being in place, and I
    think that is a fantastic process. It is an incentive for
    Corporate America. We all like to participate in our mutual
    funds today, and sometimes we put money into aggressive funds,
    where we're not quite sure if they're going to be extremely
    productive funds or if we're going to lose a little money, but
    corporations are the same way, they can utilize some of their
    capital spending. Corporate profits are at record levels right
    now. They can utilize some of their corporate spendings today
    to make those reductions as a hedge fund against possible
    regulations in the future, and I think that's imperative.
        Beyond voluntary credit for reductions, one of the things
    that interest me the most, and I think has the most potential
    to impact Rhode Island, is the fact that you are giving credit
    for carbon sequestration.
        Senator Chafee. Why don't you tell them what sequestration
    means? That's a big term that we'll be hearing a lot of today.
        Mr. Rabideau. Would you like me to tell it?
        Senator Chafee. Yes.
        Mr. Rabideau. Very good. All undeveloped and vegetated
    space has the ability to sequester atmospheric carbon. Plants
    take in carbon dioxide and fix that carbon dioxide within the
    plant itself, they give off oxygen, so the carbon is taken out
    of the atmosphere and fixed in a plant. If this were a wooden
    table, which it probably isn't, and I banged on it, that's
    sequestered carbon, the wood in this table is sequestered
    carbon, and as long as we don't burn the wood, we take it out
    of the atmosphere and kept in it in an earth state where it is
    not a greenhouse gas, and that's carbon sequestration.
        Your bill allows companies to take credit for carbon
    sequestration on a per ton basis, and this isn't an
    unprecedented thing. From what I've been able to gather, in
    Oregon, for example, the Oregon Climate Trust worked with a
    local power producer to allow that producer to, when they were
    trying to cite the facility through the local and Federal
    regulations, they were allowed to create a sequestered
    landscape as part of their emissions standards, so they were
    allowed a certain level of emissions as long as they took care
    of this sequestered landscape for a fixed period of time. The
    Oregon Climate Trust is taking the initiative to monitor that
    landscape on every 10 years to prove that the amount of
    sequestered carbon that they thought they were going to get is
    actually occurring, or disproven, but those are the type of
    studies that are taking place right now, and I think, on a
    local level, it had the potential to just reap great rewards
    for states.
        I brought a picture, am I'm going to describe it for you,
    Senator. I know you probably like aerial photographs. This is
    an aerial photograph for Warwick, Rhode Island. What we're
    looking at here is, this is Route 117, this is the Valley
    Country Club up in this area. The West Warwick/Warwick line is
    right in here. This is a real world case, Senator. You can see
    the development around the area. This is a very densely
    populated portion of our state. Residential development all to
    the west, commercial development on Route 2 all to the east.
    There's one lonely track of farmland left here, and I'll
    highlight it in blue for you so you can see it. The farmer
    right now is faced with the problem of having to pay the taxes.
    The farmer is currently in the process of developing this land.
    So, in all likelihood, if I bring you an aerial photograph of
    this in the year 2000, the end of the year 2000, you won't see
    this farmland. What you're going to see are these homes. If
    there were a mechanism in place for Corporate America to
    participate in the preservation and management of open space,
    this might not have to be developed, because at this point in
    time this farmland, because it's pasture, may not sequester
    that much carbon; however, if a reforestation plan were put in
    place over a period of 20 to 30 years with the help of U.S.
    Generation, or Ocean State Power, or Powell Edison, for that
    matter, we could probably have the Natural Resource
    Conservation Service work with these farmers, come up with a
    figure of how much carbon could be sequestered over that time,
    then we can approach these corporations and say, you get your
    credit if you help this state with open space. It's a unique
    concept, and I think it bears looking into.
        I mean, you know, Senator, that in my profession I'm a
    wetlands biologist, and had anybody thought in 1972, when the
    Federal Government passed the Clean Water Act, that wetlands
    were going to be such a huge issue. Today, the Federal
    Government has allowed people to work in wetlands only if they
    demonstrate that there is a mitigation of impact.
        When the Senators and the Congressmen worked with that bill
    in 1972, they faced the same problems you're facing with this
    bill today, with business and industry, but I think that
    everybody recognizes in 1999 the importance of protecting
    wetlands. Businesses, industries, farmers, land owners alike,
    they all now understand the value of those ecosystems. I think
    the same thing is going to happen here. Your vision in
    providing us with this bill today and your colleagues who
    cosponsored it with you is such that in the future, 20 years
    from now, we will be dealing with corporations and not just
    public money, in maintaining over space for the people in our
    state and in our country. That piece of property right there
    next year will go from the carbon reservoir to a carbon source.
    My hope is that if your bill passes and I can take legislation
    on the state level that will mimic it, in the 21st Century we
    will be stopping things like that and helping farmers preserve
    their land through the carbon sequestration process, and I
    thank you for the opportunity.
        Senator Chafee. Thank you very much, Representative
    Rabideau. That's very, very helpful.
        I thought what we would do is hear from each of the
    witnesses and then we'll have questions for the group gathered
    here.
        Now we're going to hear from Ken Colburn, Director, Air
    Resources Division of the New Hampshire Department of
    Environmental Services.
        Mr. Colburn?

    STATEMENT OF KEN COLBURN, DIRECTOR, AIR RESOURCES DIVISION, NEW
             HAMPSHIRE DEPARTMENT OF ENVIRONMENTAL SERVICES

        Mr. Colburn. Thank you, Senator Chafee. I'm pleased to be
    with you. I should add that I also serve as chair of the Global
    Warning Committee for Staff at the National Association of Air
    Directors.
        In those capacities, I'm pleased to have the opportunity to
    address you today relative to S. 547, the credits for early
    reductions, Voluntary Reductions Act of 1999. In doing so, I'm
    mindful of the fact that S. 547 is only one of a number of
    environmental leadership initiatives that you and your staff at
    EPW has brought forward over the years. I think that your
    timing is going to leave some significant shoes to fill,
    Senator.
        I'm also in a comfortable situation here as an
    environmental regulator. It's usually the case that I'm between
    the legislature and the business community, so I'm on familiar
    ground.
        In New Hampshire, our economic livelihood has long been
    directly linked to the health of our natural environment,
    whether you harp back to the hay days of the paper and timber
    industries or look today toward our tourism-based economy and
    quality of life attractiveness. This linkage has remained a
    constant. Two other constants have been our State's traditional
    parsimoniousness and frugality and our stubborn reluctance to
    control and regulate, when outcomes equally good, outcomes can
    be achieved through properly encouraged voluntary action. Thus,
    it comes as no surprise, I'm sure, that we strongly support S.
    547, a measure that shares these values. S. 547 would directly
    benefit both the economy and the environment and promote
    innovative, cost effective solutions on a voluntary basis.
        S. 547 encourages U.S. entities, businesses, institutions,
    governments, etc., to pursue actions that will mitigate the
    threat of global climate change. In doing so, that will provide
    our Nation with other benefits as well, including substantial
    savings in energy expenditures, reduced air and water
    pollution, less waste, better natural resource management and
    enhanced technological competitiveness. Early voluntary
    greenhouse gas reduction measures will help ensure that the
    legacy we leave our children is not one of myopic selfishness
    and environmental degradation, but rather one of sustainable
    stewardship and respect for our planet. This Act is not about
    the science of global climate change, it's not about the Kyoto
    Protocol, it's not about what level of reductions are necessary
    or how much they will cost or through what flexible mechanisms
    they should be approved. S. 547 is about reducing uncertainty
    for U.S. businesses and other entities by ensuring that any
    reductions of greenhouse gas emissions that they undertake
    voluntarily will be appropriately recognized and credited.
        U.S. businesses and other entities are reluctant to make
    such reductions at this point because of uncertainty about
    future regulatory programs that may be imposed on them to
    mitigate atmospheric concentrations of carbon dioxide and other
    greenhouse gases. Many are concerned that if the example of the
    Federal Clean Air Act amendments of 1990 holds true, that
    actions now will not be appropriately recognized and lead to
    increased burdens later on. The State of New Hampshire has had
    direct experience with this dynamic, inasmuch as the closure of
    the Pease Air Force Base in 1989 was not recognized as an
    emission reduction under the 1990 baseline in those amendments.
    This dynamic applies even if actions would yield cost savings,
    because the known benefits of today might be outweighed by the
    as yet unknown costs under a future program, and this isn't
    just a theoretical concern. Anytime an American company
    refrains from making itself more cost competitive, our Nation's
    competitive advantage suffers as well. S. 547 will encourage
    reduction of greenhouse gases and greater competitiveness by
    eliminating the potent disincentive of uncertainty.
        How should a credit for early action program be designed? I
    think Mr. Fay and Mr. Hamburg and Ms. Fantozzi will go into
    greater detail on that, so in the interest of time, I will only
    leap over a couple of cornerstones that I think are important.
        First, the reductions must be strictly quantifiable and
    verifiable, subject to third-party verification.
        Second, they should not be limited to any particular
    program, particular carbon source, economic sector or even a
    particular greenhouse gas.
        Some have suggested, for example, that only certain
    emission restrictions should count, based, for example, on
    whether they reflect genuine environmental intent. I would
    suggest that this approach irresponsibly cripples the vital
    linkage between economic and environmental well-being that we
    cherish and are trying to foster. It also introduces more
    lawyers into the process rather than engineers who are actually
    going to make the reductions. We should be less concerned with
    motives and more concerned with getting tons out of the air.
        Third, just as there are a variety of ways to reduce
    greenhouse gas emissions, we may need to employ a variety of
    yardsticks for measuring them.
        And, fourth, great care I think should be taken in limiting
    the number of credits available because we might, similarly,
    limit the incentives available to folks who would participate
    in the program. I understand that may be necessary ultimately,
    but we should do so only with care.
        Similarly, who should these entities be? Who should the
    participants be? They should--these incentives should apply
    across the broadest possible array of participants. I think S.
    547 at this point does encompass that, and it also includes, as
    Representative Rabideau has mentioned, sequestration of carbon
    sources and sinks, not only one. That's important for us in
    north country state that have the opportunity to sequester
    additional carbon, such as those companies operating in the
    northern forestlands.
        I'm particularly pleased that states and municipalities are
    allowed to participate in the early emission credits program
    envisioned by S. 547, both because they generate emissions
    themselves, who are also users, but also because we're
    typically left to implement whatever it is the Federal
    Government decides to do. Great uncertainty prevails here as
    well. In the case of the acid rain program, for example, the
    Federal Government, through EPA, dealt directly with emission
    sources. States have no role at all. In EPA's proposed NOx
    Transport SIP call, states were assigned emissions budgets,
    and, thus, did have a say in how these budgets were allocated.
        Since most multiple environmental benefits, including
    significant reductions in the criteria pollutants and toxic air
    contaminants already regulated by states will accompany
    harmonized approaches to reducing greenhouse gases, the sooner
    states have more certainty and clarity about their future role,
    the better.
        In an effort to reduce such uncertainty for New Hampshire
    entities, including the state itself, we've introduced
    legislation to create a state registry of voluntary greenhouse
    gas reduction. That bill, as it was introduced, is attached to
    the handouts. I can, with your forbearance, read the pertinent
    part. In order to help protect the interest of New Hampshire
    sources and the State's economy under a future Federal
    regulatory scheme relating to greenhouse gas emissions and to
    help encourage the voluntary reduction of greenhouse gas
    emissions by New Hampshire sources, the Department shall
    establish and administer a mechanism whereby sources of
    greenhouse gas emissions may record and register early
    voluntary greenhouse gas emission reductions made after 1990.
    The purpose of this registry shall be to help sources establish
    a baseline against which any future Federal greenhouse gas
    emission requirements may apply. I'm sure that----
        Senator Chafee. That's rather unique, isn't it? I wonder if
    any other state has done anything like that.
        Mr. Colburn. Not to my knowledge, Senator.
        Senator Chafee. State registry.
        Mr. Colburn. But I think that--I hope at least that many
    will. The bill at this point has been supported by our State
    Business Association and a letter to that effect is also in the
    packet. It was introduced in and has passed in our State Senate
    and has gone from the Policy Committee of the House to the
    floor of the House with a recommendation of ours to pass. So
    it's in pretty good shape at this point.
        Besides states and municipalities similarly look forward to
    the opportunity to earn credits, the International Council for
    Local Environmental Initiatives, ICLEI, has worked with over 60
    American towns and cities, and in doing so has reduced
    greenhouse gas emissions by almost 5 \1/2\ million tons of
    carbon equivalent per year. In doing so, incidentally, they've
    saved almost $30 million a year in energy costs and have
    reduced thousands of tons of criteria pollutants.
        As this example shows, states and locals have substantial
    experience and knowledge infrastructure in achieving cost
    effective, cost savings emission reduction. I urge you to tap
    into that experience in developing S. 547.
        In conclusion, S. 547 and the Credit for Voluntary
    Reductions Act of 1999, is a crucial measure to remove existing
    disincentives to early constructive environmental action. By
    providing legal guarantees that responsible early actors will
    receive appropriate credit, S. 547 will spur entities to
    voluntarily undertake cost-effective, multiply beneficial
    strategies that include greenhouse gas reduction and economic
    competitiveness. We thus believe that establishing such an
    early reduction credit system at this time is in New
    Hampshire's best interest, in the Nation's best interest and
    future generations' best interest, and we urge you to move
    forward with it aggressively.
        Thank you for the opportunity to assist in the creation of
    a sound, responsible early credits program, and I hope you'll
    call on the considerable expertise of states and local
    governments as you refine this groundbreaking initiative.
        Senator Chafee. Thank you, Mr. Colburn.
        Now, Mr. Kevin Fay, who is the executive director of
    International Climate Change Partnership. Mr. Fay came up from
    Washington. We appreciate that. Why don't you proceed, Mr. Fay?

       STATEMENT OF KEVIN FAY, EXECUTIVE DIRECTOR, INTERNATIONAL
                       CLIMATE CHANGE PARTNERSHIP

        Mr. Fay. Thank you, Senator. I appreciate the opportunity
    to appear before you today. It's also a good opportunity, I
    appreciate the opportunity to come back to my home here in the
    State of Rhode Island.
        I guess as the industry representative here I'm going to be
    burdened with representing the left, the middle and the right
    based on your comments at the beginning. I'll do my best.
        The International Climate Change Partnership is a coalition
    of U.S. industry representatives and associations, as well as
    the international associations, interested in the policy
    development process with respect to global climate change.
        We appreciate the opportunity to appear before you today
    and commend you for holding this hearing on this increasingly
    important topic.
        ICCP, as in contrast to IPCC, was organized in 1991 to
    provide an industry forum to address this issue and to be a
    constructive participant in the policy debate. We continue to
    recognize the climate change issue as an important matter which
    the Government should and are concerned, and we are one of, if
    not, the largest industry coalition in the world focused
    exclusively on this issue. A list of our member companies and
    our associations is attached to our testimony.
        Senator Chafee. You're not just U.S.?
        Mr. Fay. Not just U.S. Not just U.S. We have memberships in
    Europe, Canada, Japan and Sydney, Australia, and, as you can
    see, these are large industries and most of the key
    manufacturing sectors in this country and elsewhere in the
    world.
        We have consistently stressed the need to provide legally
    binding assurances that voluntary actions to reduce greenhouse
    gas emissions will be credited for any future mandatory scheme
    adopted by the Government. We believe that such credits should
    be granted to those companies that achieve verified reductions
    between 1990 and the commencement of any mandatory program.
        Senator Chafee. Can everybody in back hear OK? Yes, raise
    your hand. OK. No? Put the microphone down a little bit.
        Mr. Fay. OK. ICCP last year outlined a series of principles
    on credit for early action that we believe could help guide the
    legislative and policy process on this issue. There are ten
    principles which I have enumerated in my testimony. I thought I
    would just highlight a few of these principles.
        The first, we do not believe that there should be a limit
    placed on the amount of emission reductions on enhancement of
    sinks for which early action credit can be earned. If you can
    achieve verifiable reductions, you ought to be able to receive
    credit for them. The environment knows the benefits.
        Second, credit should be granted for action resulting in
    verified emissions reductions or enhancement of sinks that
    occur between 1990 and the beginning of any official budget
    commitment period or mandatory regulatory action, whether or
    not these were part of a government sponsor initiative, such as
    the Climate Change Action Plan or as one of the permitting
    referred to as the Department of Energy, 16.05 (b), Reporting
    Permit, and, again, industry can show that they achieved
    verifiable emission reductions, whether it was part of an
    ongoing government program, they ought to be able to apply for
    that to the Government and be credited for that.
        Third, we think it's critical that a process is established
    to determine and lock in appropriate baselines for emission
    reduction activities, including facility operations, product-
    based initiatives, as well as enhancement of sinks. This
    process should be flexible enough to reflect special
    circumstances, including unique consideration relating to
    reductions already achieved.
        And, fourth, credit programs should be integrated to ensure
    consistency and to avoid double counting. This is a big concern
    in the environment community, but it's also a large concern in
    the industrial community as well, and, in fact, the registry in
    New Hampshire that Ken has referred to is an area where we
    found that there is a start of an increase of state activity in
    this area, and we want to make sure that we don't get into
    conflicting principles in terms of registering the credits to
    make sure that they are integrated and consistent and that we
    aren't counting twice. So those are just a few of the
    principles that we've highlighted as part of consideration of
    this issue.
        In February of this year we sent a letter to each member of
    the U.S. Senate urging them to cosponsor your bill, S. 547, the
    Credit for Voluntary Reductions Act. We believe the bill is a
    credible start in addressing the issue. We've also identified
    several issues as part of that bill that we need to continue to
    discuss, and we encourage that this hearing is the start of
    that process in working with you and your staff on those.
        As discussions have progressed, we've also come to the
    conclusion that in the current political climate the efforts to
    enact credits for early action legislation will be enhanced by
    at least identifying a simplified approach or goal so we can
    explain to everybody what it is that we're doing here, because
    the complexity of the issue quickly gets us into a level of
    detail that's going to slow down the legislative process.
        The goal of the legislation should be to accomplish, we
    think, three things.
        One, to provide legal guarantees to any entity that acts
    voluntarily to achieve verifiable reductions related to
    products, processes or operations, that it will not be
    disadvantaged by the future regulatory program to control
    greenhouse gas emissions, that should be the first principle.
        Second, to provide a mechanism for verifying any actions
    that occurred between 1990 and 1999 under either the Energy
    Policy Act, Section 16.05 (b), Reporting; or as part of the
    Climate Change Action Plan; or, as I said before, any other
    activity in which the entity is able to demonstrate verifiable
    reductions, and the significance here is we think we need to
    separate out the past actions from future actions. Everybody is
    getting concerned with the difference between things that have
    already occurred versus things that could occur in the future.
        And the third goal should be then to provide the mechanism
    for prospective actions, which subject to negotiation of
    agreement with the Government will produce additional
    verifiable reductions.
        We believe that S. 547 embodies these three goals. We
    believe this program, the intent of this program should be to
    encourage experimentation on the part of the Government,
    industry and the environmental community and not to constrain
    the ability to develop new and creative methods for
    implementing and achieving reductions.
        While the program may require flexibility in terms of the
    precise value of the credit perceived, it should be clear that
    the credits exist as a matter of legal right.
        In order to ensure an open process, it should also provide
    for public participation in the verification procedure, notice
    and comments, public disclosure, a future of negotiated
    agreements.
        Also, we don't believe that the program should limit
    government participation by any particular department or
    agency. The principles of the bill, similar to the principles
    we outlined earlier, could be used by any department, whether
    it was the Department of Energy, or agency, the Environmental
    Protection Agency or the Department of Agriculture, to craft
    verification agreements with individual actors.
        Senator Chafee. I'm not quite sure what you're saying
    there.
        Mr. Fay. We think that the bill should outline----
        Senator Chafee. I mean, don't they have to have some
    definiteness?
        Mr. Fay. Yes.
        Senator Chafee. I don't know what sort of shopping, the
    Agriculture Department or EPA or Energy Department.
        Mr. Fay. No. We think the bill should outline the basis of
    the principles for future agreements, but that if you're an
    agricultural interest, the principle should be the same no
    matter who is doing the implementing, but the president should
    be able to authorize the Agriculture Department to enter into
    agreements with its farm community or its forest community, the
    Energy Department should be able to enter into agreements with
    its utilities, but the principle should be the same, the
    president should be required to ensure that in all cases that
    they're following the same principles in doing that, but that
    they--we have this constant comment from our own industry
    members, as to whether farm shopping, some industry sectors
    work primarily with EPA today, some work primarily with DOE,
    some work primarily with the ag department. We don't think it's
    necessary to have to put the entire program at any one of those
    agencies, but the principle should be the same for each one.
        It has been suggested that supporting credit for early
    action legislation may unwittingly create support for the Kyoto
    Protocol.
        Senator Chafee. That's one of the arguments used against
    it. It's the camel's nose under the tent, that wicked Kyoto
    Protocol is in some way going to be approved if we have credit
    for early reduction.
        Mr. Fay. And we don't agree with that. The Kyoto Protocol--
    --
        Senator Chafee. I have difficulty following the train of
    thought.
        Mr. Fay. Well, as was explained to me by one of your former
    colleagues in a meeting recently, is that once industry has
    these credits, that they're somehow going to want a mandatory
    regulatory program so they can cash their credits in. I haven't
    met too many of my industry clients who get so excited about
    having something, that they then need to create a regulatory
    program, so I think that Kyoto is going to have to stand on its
    own. Kyoto was actually a very successful negotiation from the
    standpoint of achieving a market-based framework for dealing
    with the issue, but it is still an incomplete agreement and
    requires a great deal of work on the part of our Government or
    other Governments to finish that agreement, whether it's Kyoto
    or son of Kyoto or something else. Most industry, in our view,
    has recognized that the climate change process, policy process
    is moving forward and that the science is enough to be
    concerned with.
        But many companies have already taken action based on the
    framework convention on climate change, which was ratified by
    the Senate in 1992. This agreement called for the U.S. to
    attempt to stabilize greenhouse gas emissions at the 1990
    levels by the year 2000. Those who have acted in good faith or
    who have taken action prior to any mandatory program should be
    able to receive legally binding assurance that their verified
    reductions will be credited, regardless of the underlying basis
    for some future regulatory mandate.
        I have attached to my testimony the just released report
    from the Energy Information Administration of DOE that
    summarizes the voluntary actions taken in 1997. These are the
    actions reported under Section 16.05 (b), and as you can see
    from that report, and I'd ask that it be included as part of
    the record here, that they are reporting hundreds of millions
    of metric tons of carbon equivalent reductions being reported
    by industries from a variety of industry sectors. Similarly,
    the Environmental Protection Agency reports annually on the
    results of efforts under the President's voluntary climate
    change action plan. Clearly, industry is already acting. Now,
    with the fear of a future mandatory program, there is something
    of a disincentive, which Ken Colburn has referred to, for
    acting now until the answer is ascertained as to whether they
    will receive credit for those actions.
        ICCP believes that the precedent for crediting early action
    was established in the 1990 Clear Air Act amendments, when
    companies who moved early on sulfur dioxide emission reductions
    received additional considerations in the subsequent sulfur
    trading program. Relying on this statutory precedent is
    important for the climate change issue; however, given the
    scope of industries covered and the enormous task of the effort
    to be undertaken, we believe that Government should go on
    record now by developing a program for creditory action in
    advance of the regulatory requirements, not waiting until after
    the passage of some omnibus climate change bill here in this
    country.
        The fact remains that the United States is on record in
    support of responsible action to address greenhouse gas
    emissions, and many, if not, most in industry now are also on
    record of pledging their support, if not for Kyoto, at least
    for dealing with the issue.
        We have ratified the Framework Convention on Climate
    Change. Congress has funded a variety of activities with the
    Climate Change Action Plan and other significant programs. It
    is not unreasonable to request assurance from the Government
    that these activities, whether past or in the future, not place
    the voluntary actors in future regulatory jeopardy.
        We're prepared to work constructively to arrive at
    consensus with other business groups, the environment NGO's,
    government officials on a workable voluntary program.
        We applaud you, Senator, and cosponsors of S. 547 for a
    commendable start, and we look forward to working with you to
    ensure a successful conclusion.
        Senator Chafee. Well, thank you very much, Mr. Fay. That's
    very helpful. I might say you got a little missionary work to
    do with Mobile.
        Mr. Fay. Not a member.
        Senator Chafee. I read with interest the outburst of the
    president of Mobile. At the last stockholder's meeting they
    had, he indicated that the Kyoto agreement was negotiated by
    boy scouts and he's going to fight it all the way. I wouldn't
    say that his approach was very helpful. OK. Thank you very
    much, Kevin.
        Now Dr. Steve Hamburg, Ittleson Associate Professor in
    Environmental Studies right here at Brown. Doctor, I appreciate
    your coming. The Doctor testified before us in Washington
    several times, and he's always done a good job, we appreciate
    it.

     STATEMENT OF STEVEN HAMBURG, ITTLESON ASSOCIATE PROFESSOR OF
                ENVIRONMENTAL STUDIES, BROWN UNIVERSITY

        Mr. Hamburg. Thank you. I appreciate the opportunity to
    testify again today, and I would also like to welcome you here
    at Brown.
        Senator Chafee. Thank you.
        Mr. Hamburg. It's seldom the Senate comes to you.
        Senator Chafee. Well, my grandfather was a Brown graduate,
    my father was a Brown graduate, my son was a Brown graduate, so
    we're dipped in Brown.
        Mr. Hamburg. I should mention, since you mentioned the
    IPCC, that I have been involved as a member of the IPCC both in
    the second assessment and currently am involved in writing a
    special report on land use and land cover change that's trying
    to address some of the issues that you are attempting cover in
    S. 547. Today I'd like to speak about the overall strengths or
    the concept of an early action accrediting program, and then
    more specifically about the carbon sequestration aspects of the
    bill, which is my area of expertise.
        The science underlying climate change and impacts often
    baffle people, and, as a result, the issue is often dismissed
    out of ignorance rather than knowledge. In particular, the
    complexity of the accounting necessary to verify changes in
    carbon storage in natural ecosystems all too often leads people
    to dismiss the potential of land use changes to reduce the
    impacts of the increase in atmospheric concentrations of carbon
    dioxide, and I think this is misplaced. We know enough about
    the global carbon cycle to be able to predict potential impacts
    of energy and land use practices on the rate of increase in
    atmospheric carbon dioxide concentrations. What we do not know
    is too often the focus of discussions about the carbon cycle
    and certainly other aspects of the cycle that require further
    elucidation, but this uncertainty is not central to the
    viability of the legislation that you propose. The science of
    both climate change and carbon cycling is sufficiently well
    understood to provide a solid basis for the enactment of the
    credit for early action bill. It's important to remember that
    the underlying science on which we base our understanding of
    the carbon cycle originates not with the debate concerning
    climate change, but far earlier with the advent of a series of
    professionals from solar culture, oceanography and many others.
    Even though it has only been during the last several decades
    that a large number of scientists have focused on the carbon
    cycle, our underlying understanding is based on scientific
    discoveries accumulated for over more than half a century.
        S. 547 attempts to encourage energy users and land owners
    to think about how they can reduce emissions, while at the same
    time serving their own direct interest, and I think that leads
    to a very positive outcome.
        Since other members of the panel have talked about the
    energy side of the bill, I'm going to focus my remaining
    remarks on the land use side of the Act.
        Tens of thousands of land owners, including some the one
    described today by Representative Rabideau, make decisions
    every year what to do with their land, should they cut timber,
    should they develop, should they use no till agriculture or
    simply do nothing. Each of these decisions has an impact on the
    carbon cycle, albeit very small. In the aggregate, the impact
    of all these decisions could have a significant impact on the
    carbon cycle, and, in turn, on the change.
        Since there's consensus that we want to encourage America's
    land owners to make wise land use decisions and we want to
    ensure that we manage these resources sustainably for
    generations to come, S. 547 makes a lot of sense. S. 547 can
    provide a powerful tool in helping land owners to make
    sustainable long-term land use decisions.
        As a land owner myself, I often get solicitations
    requesting that I cut my forest, selling the timber to
    basically fly-by-night companies, and a lot of my neighbors do
    that, but I think that with a bit more planning and with
    management, we can actually increase the profit to these
    individuals and increase the productivity of the land and do
    something to mitigate climate change.
        Maximizing carbon storage in the land is a very good metric
    for examining long-term sustainable management of America's
    lands. If we give people an incentive to maximize carbon
    storage on their land, what we're doing is encouraging them to
    remove resources in a conservative manner. If this bill is
    crafted wisely, and, of course, I've included some legislation
    as to how I think it can be wisely crafted, we can reduce the
    buildup of greenhouse gases in the atmosphere, at the same time
    as increasing the use of best management practices, and, even
    better yet, we can do that at little cost to the taxpayers.
        Some people may be concerned that by conserving carbon we
    will be reducing fiber or timber or agricultural production,
    but I think it's very unlikely. The value of carbon credits
    will not be sufficiently great to get people to take productive
    land out of production, but it's very reasonable to expect the
    value of carbon credits to be high enough to get people to
    manage productive lands a bit more conservatively. S. 547 will
    provide people with the potential to get a bit of extra revenue
    for managing lands wisely.
        All too often we know what we should do but we just don't
    quite get around to doing it. The proposed legislation will
    help give people a little extra push.
        I heard an argument against the bill based on
    interpretation of the legislation that assumes that land owners
    will be given an opportunity to benefit from intensifying land
    management, but this need not be the case. It's not difficult
    to write language for inclusion in S. 547 which requires
    vigorous carbon accounting, which others have spoke about,
    which means that clearing overgrown forests or intensifying
    agricultural production will not yield carbon credits.
        There are three elements that I would like to see included
    in the language with regards to the land use side of the bill.
    There needs to be low transaction costs so that most land
    owners can participate. The carbon accounting needs to be
    correct, as others have spoken about, and there needs to be----
        Senator Chafee. When you say low transaction costs, what
    does that mean?
        Mr. Hamburg. It means that sort of what you have to put in
    to comply, what does an average land owner have to do in order
    to be able to participate in the program. If it requires that
    you go out and measure every tree and dig soil pits and measure
    the soil carbon and do lots of things, most people won't get
    involved because of the value of the carbon would be too low
    relative to the cost of participation, so we need to make it
    easy for the land owner to be able to actually participate, and
    I can design a program that will do a great job of accounting
    for the carbon and no one would participate because the value
    of the carbon would be less.
        Senator Chafee. You mean you indicate what kind of trees to
    grow?
        Mr. Hamburg. Just what kind of trees are there. There's
    some simple approaches that you can use where you can
    characterize the land, and on average calculate the amount of
    carbon increase, the net carbon storage fairly accurately
    without the land owner actually having to do a lot of work.
        Senator Chafee. A deciduous tree must be a lot of different
    than an evergreen, the absorption of carbon?
        Mr. Hamburg. Yes. They're actually not that different, but
    there good ways of estimating that without having to know a
    lot, and that's where we can use the forest inventory program
    that the US foresters conducts nationally, and we have really
    good statistics on which we can base this, and we can,
    basically, we can get it right on a national basis, I mean
    quite accurate quite easily.
        The third element would be a requirement of additionality.
    We need to, we have lots of actions we take on the land now.
    What we wanted people to do is take additional actions. We
    reward them for simply doing what they're already doing, or
    which they are not going to change. We're not effecting a net
    change in atmospheric carbon.
        Keeping those transaction costs low will facilitate greater
    participation, particularly amongst small land owners, which
    are the bulk of America's land owners. At the same time, we
    have to get the carbon counting correct. These two things could
    create tension in the way we just talked about, but, in fact, I
    think they can be, the legislation can make them compatible. We
    need to be comfortable in saying that we're crediting only net
    increases in carbon and not simply carbon being fixed through
    photosynthesis, and this came up a bit, and, again, in
    Representative Rabideau's testimony, and I want to take a
    moment to talk about this.
        Plants take atmospheric carbon and convert it into organic
    compounds through photosynthesis. The annual amount of carbon
    that is removed from the atmosphere through photosynthesis is
    very large. It's actually an order of magnitude greater than
    the emissions from fossil fuels on an annual basis. Yet, almost
    all of that photosynthetically fixed carbon is released back
    into the atmosphere on an annual basis, so what we're
    interested in crediting is the net carbon, the difference
    between those two, and it is easy to lose track of what we are
    actually after here.
        Senator Chafee. What's respiration mean, how is it released
    back into the atmosphere?
        Mr. Hamburg. You release, you perspire and you're burning
    off the food, the carbon and the food back off a
    CO2. Trees are doing the same thing as our plants.
    So the carbon, the CO2 in the atmosphere is fixed
    through photosynthesis into organic compounds, those are
    actually burned by the plant or by animals, given off as
    CO2. And, in fact, I've seen language that's been
    proposed for inclusion in the bill that would net this gross
    carbon, not the net carbon. Basically, some would propose a
    free lunch. You go out and we give credit for lots of carbon
    that is not in any way helping the atmosphere, and so we have
    to guard against doing this, and, in fact, I think we can quite
    easily.
        The third element that I want to see included, or encourage
    inclusion in the bill relates to this additionality. We should
    reward only increases in net carbon that are attributable to
    decisions made after enactment of this bill. Forestry or land
    use is a little different than on the energy sector, where
    often you lock yourselves into a future as a function of a past
    action. We only want, or I would suggest we should only credit
    carbon for which the land owner has an option for doing
    something else, and we want to encourage them to take the
    correct action.
        I've attached legislative language that I think meets these
    three objectives in an operationally viable and clear manner.
    The language is relatively technical, but I believe it's
    effective in meeting the criteria.
        We have a hundred years of accumulated knowledge in the
    forestry profession that I think we can take good advantage of,
    as well as a very robust data base that is collected by the
    U.S. Forest Service, and I think that we can do all of that.
        I think S. 547 can increase wide stewardship over natural
    resources while greatly reducing the increase in atmospheric
    concentration for carbon dioxide. It's important to get started
    on addressing climate change in the proposed legislation, it is
    a logical first step, and I would be happy to work with staff
    on incorporating the language that I propose. Thank you very
    much.
        Senator Chafee. Thank you very much, Dr. Hamburg.
        OK, Ms. Peggy Fantozzi, Chair, Massachusetts Commission for
    Conservation of Soil, Water and Related Resources. Thank you
    very much for coming today.

     STATEMENT OF PEGGY FANTOZZI, CHAIR, MASSACHUSETTS COMMISSION
         FOR CONSERVATION OF SOIL, WATER AND RELATED RESOURCES

        Ms. Fantozzi. First, I wanted to thank you for providing us
    an opportunity in Rhode Island as opposed to Washington, D.C.
    to do this, it's quite a short trip by those standards. And I
    also would explain that as Chair of the Massachusetts State
    Commission, I am a member of what we call the Conservation
    Partnership, and I know that you are aware and your staff of
    what that term means. Basically, it means that there's a state
    entity, there's a Federal entity, which is the Department of
    Agriculture's Natural Resource Conservation Service, and then
    there's a local entity, which are conservation districts and
    resource conservation development councils, which are volunteer
    groups. The Chair of the Massachusetts State Commission has
    traditionally been a conservation district volunteer, and I
    fill that slot in that manner. I am not a state official, I am
    conservation district person who chairs that commission, and
    the testimony that I'm giving today will reflect on the
    Conservation Partnership, not only Massachusetts, Rhode Island,
    New England, but on a national basis, and it will emphasize the
    voluntary, you know, your constituents, what we do, how this
    will affect the work that we do and make us do better things
    all around, hopefully, for the communities that we serve.
        I have provided information with my testimony that gives
    background on who we are and what we do. I won't necessarily go
    into that today, but, just for the record, if those people who
    are not familiar with the Conservation Partnership.
        For the record, there are more than 3,000 conservation
    districts nationally, they are based on a county basis, based
    along county lines. There are, also--and they are in every
    state and in every territory of the United States. There are
    also more than 300 RC&D councils, Resource, Conservation and
    Development Councils, they cover most of the United States, and
    provided the graphics, the green is where they are and the
    yellow is where they are in the process of being, hopefully.
    And, as I said, we are not only your constituents, but we are
    the voluntary army that tries to link land users, land owners
    in the private sector and community-based sectors with services
    within state government and within Federal Government, so we
    provide a bridge to do the work on the ground and get the
    results, I hope.
        I have provided written testimony, and I am not going to go
    over point by point, because I think I'm in sync with most of
    the speakers that have already addressed some of those, but I
    would like to emphasize what I didn't really stress in my
    written testimony, and that was the need for this bill and the
    need for this bill from a practical sense. Right now carbon
    sequestration, or the short term that we use in the voluntary
    community is carbon storage because people seem to understand
    that better.
        Senator Chafee. I think that's a better word. I've never
    understood why the word ``sequestration'' was used.
        Ms. Fantozzi. Because those of us that deal with science or
    legislation like flashy terms, those of us that deal on the
    ground with the average citizen like the direct term, so I'll
    use storage, if I may.
        Senator Chafee. All right.
        Ms. Fantozzi. In any event, right now it's risky business,
    as we see it, and when we talk with land owners and when we
    talk with industry. The biggest plus of your bill is that it
    takes the risk out of the goodness that can be done, and that
    shouldn't be understated. Conservation districts and the
    Resource Conservation councils are already doing what you talk
    about setting up the mechanism for in the real world. There was
    a reference to Oregon. Oregon and Washington, we have RC&D
    councils out there that are literally working with utility
    companies, with utility company money to establish credits. We
    have projects going on in Iowa that also deal with the science
    of actually validating what type of land use, what type of best
    management practice will yield what amount of carbon storage,
    and we're dealing in Montana with the forestry aspect of it,
    linking two state programs, as was referenced by Mr. Colburn
    from New Hampshire, so we need this because we're doing it.
        The other component of your bill that I think is helpful is
    that it doesn't set a standard by itself, it just recognizes
    the need to set a standard, and it also gives the flexibility
    to make that standard appropriate to where you are in the
    United States, whether you're in New England or whether you're
    in Hawaii or whether you're in Arkansas, I guess would be a
    good place to pick. The characteristics of the climate are
    almost more important in some instances than the land use, and
    so the credit that gets attributed to the land use is
    significantly altered by the climate.
        I learned from a conference sponsored by the Northeast
    Governors Coalition relative to forest impacts of carbon
    storage, that our area, New England and the middle Atlantic
    state, probably could get more credit per acre than Hawaii or
    some of the southern states, and, although that might not seem
    like new news to some of the scientific community, there are a
    lot of people out there that think southern climates grow
    faster, grow more carbon, therefore, you know, would be of more
    value. That's not necessarily the case. Your bill allows every
    region of the country to understand its own capabilities in
    terms of its land use and its vegetative growth patterns and
    its land use management practices, and that flexibility is
    critical to making the program succeed.
        Your bill also will provide a validation of our work and a
    recognition of the environmental benefit and stewardship, and
    it will provide, I think, a mechanism to develop that third-
    party verification system, and I will later get into an area
    that you mentioned before, and I don't mean it as a he said/she
    said and who said which agency should do what, but some
    suggestions relative to that.
        I think the bill also recognizes that a strictly regulatory
    approach to control emissions and require storage of carbon may
    not be the most effective and will not maximize the opportunity
    for implementation. I think that the Federal Government, the
    agencies, EPA in particular, have set a precedent for saying
    this is true through the Clean Water Action Plan and the Clean
    Water Act itself, saying, yes, the regulated community can be
    controlled to a large degree, but the greater majority of the
    land that's critical for this to succeed is held in private
    ownership or municipal and state ownership that isn't
    regulated, so we need to set a way of getting to those folks,
    and this bill allows that and recognizes it.
        Further, by being voluntary you don't get into a lot of the
    court appeals. I haven't read the case, but I know recently EPA
    was in court on the air quality issue and they came out a
    little bit short in terms of the legal decision. So we're not
    getting into those kind of contests, if you will, with the way
    that this bill sets the stage for providing an opportunity to
    everyone.
        I'm skipping through because I had made some notes, but I
    don't want to be repetitious of those comments that were
    already made.
        I guess one of the cautions that I would put into the
    testimony, if I would, that other speakers have alluded to some
    limitations on how to apply the credit system, and the two
    issues that jumped up to me was by side or by ownership, and I
    would suggest to you that I think it would be an error on the
    part of the legislation to try to get into either one of those.
    Ownership shouldn't be an issue, as was said by some of the
    speakers who were there, it's the intent, we want to store
    carbon, we don't care who's doing it, and it shouldn't be
    penalized by who the land owner is. So ownership of the land I
    think is maybe the least important criteria for moving forward
    and implementing what you're talking about. Quite frankly, in
    my neck of the woods, on Cape Cod and in Massachusetts and in
    Rhode Island, municipal and state ownership of forest lands are
    primary that I think should be able to take advantage of some
    of the revenues and providing some of the storage, so I would
    hate to see a limitation be placed on private land. I think it
    should be wide open.
        The other area of concern in terms of limiting it to size,
    I think the sciences out there, I know the Natural Resource
    Conservation Service and the Forest Service have established a
    way of formulating credit values by land parcel and by land
    use, so they can break that down to a small parcels, as well as
    expand it up to large parcels. The problem with doing a size
    limitation, in my opinion, would be limiting the willingness,
    ability or incentive for urban areas to take part in it. Urban
    areas, or highly developed areas, like the northeast, don't
    have much land. I mean, you can talk about a thousand acres or
    5,000 acres in the middle part of the country or the western
    part of the country, and it's an easy fix and it's an easy
    match, but I would say to you that if downtown Boston could put
    two acres into some sort of forested use and would seek some
    carbon credit payment for that, I would champion that and say
    that it was money wise spent in a location better suited maybe
    than 5,000 acres out in Arizona. Not being from Arizona I can
    say that, I guess.
        Anyway, those would be some of the comments that I would
    make in a generic sense.
        In terms of the testimony that I provided, I did make some
    suggestions, as everyone has, and a couple of them I think are
    a little bit different than some of the things that have been
    mentioned.
        Oh, and if I can go back. Some of the things that I like
    that the bill doesn't do is the bill doesn't promote
    regulation, it doesn't inhibit private enterprise, and I think
    a couple of speakers related to that. It opens the playing
    field wide open, so that as we learn more, we can apply it,
    whether it's in relation to wetlands, forests or any other kind
    of mechanisms for storing some of these carbon gases. It does
    not require linkage to existing or proposed international
    agreements, it does not restrict private business options, it
    does not subsidize commercial interests, and I include farming
    as a commercial interest, and it doesn't create an additional
    bureaucratic layer.
        In terms of maybe improving the bill, I would suggest that
    maybe if, in the bill or as a cover to the bill, there was
    verbiage that urged the president to recognize a leadership
    role for USPA, the NRCS, the Natural Resource Conservation
    Service and the Forest Service, to share in setting guidelines
    for the voluntary credit system. These agencies should rely on
    their internal technical expertise, as well their partnership
    capabilities and connection to the private sector, and I think
    that that's important to recognize, that these agencies not
    only have that technical expertise and already have the data to
    support that, but they also have the connection through the
    partnership, to districts and to RC&D councils to actually talk
    to and get the private sector on board. To recognize the
    technical expertise, not only of USDA, but EPA, NOAA, the
    Department of Interior, the Department of Energy in development
    of regional or state-specific guidelines, and that's very
    important, the national guidelines won't apply, they won't hold
    up, at least as I've learned about this. Also, to instruct
    Federal agencies to revisit their own land management polices
    and practices, to encourage minimization of greenhouse gas
    emissions and maximize best land use management practices on
    Federal lands, as well as any other public lands that receive
    Federal dollars, and then recommend to Congress itself that
    some additional funding be available for regionally located
    demonstration projects that partner greenhouse emitters and
    land owners providing carbon storage or carbon sinks and the
    Federal technical expertise, to help provide preliminary
    scientific baseline information. I do know that the NRCS budget
    for fiscal year 2000 actually proposes some additional funds to
    do this, but I think if Congress recommended it, there could be
    some guidance so as to make sure that these demonstration
    projects were all done in all parts of the country, to generate
    the data that we need from all parts of the country.
        And then in closing, I just, I would take this opportunity
    to thank the committee and the office for sponsoring the bill,
    for their efforts in bringing this issue forward, and I would
    also like to express the sincere appreciation of the
    Conservation Partnership here in New England, the east region
    and across the Nation, for your, Senator Chafee, support of our
    efforts and your constant champion of the environment for its
    own safe, as well as for the common good. You and your staff
    are to be commended for your relentless efforts to do the right
    thing for the common good in a way that makes common sense.
    That doesn't happen very often.
        I have family ties in Bristol and in a Providence, and,
    therefore, I have taken pride in your service to Rhode Island,
    but as a resident of Massachusetts, I can tell you that I'm
    honored to lay claim to you as a New Englander and as a United
    States senator, and as you will no longer in the future be with
    us in that role, I just wanted to say thank you.
        Senator Chafee. Aren't you nice. Thank you very much. That
    was thoughtful of you. I want to thank everybody for their
    presentations, which were excellent, and now I've got some
    questions that I'll ask.
        Dr. Hamburg, it seems like you plant trees and they absorb
    the carbon, but then there comes a time when they release the
    carbon, and have we made any progress?
        Like you, I'm a small land owner. Suppose I want to do the
    right thing, what would you recommend, Dr. Hamburg?
        Mr. Hamburg. I think----
        Senator Chafee. Also, I don't envision that when we get
    this regulatory system in effect, that they're going to be
    dealing with a small land owner, that Dr. Hamburg's 20 acres,
    wherever it is, I think it's more of just a voluntary thing
    that you're doing to wrestle with this problem of carbon
    dioxide in the atmosphere.
        Mr. Hamburg. Well, let's start with the 20 or 30 acres. I
    actually think they can be included in the program in the
    language that I submitted. What we do is actually create a,
    sort of a consortium, a way of coming together, sort of
    equivalent to small business owners. You know, the average
    small business owner can't participate easily because of the
    regulatory framework, but land owners, as the NRCS and other
    groups, or the Timberland Owners Association in New Hampshire
    and elsewhere, they come together regularly, so I think
    actually you could have 20-acre land owners participating quite
    effectively without it becoming burdensome on either side.
        In terms of land management, New England, it's about how
    you cut your forest, do you cut your forest. When you cut it,
    do you get a fly-by-night outfit that sort of cuts everything
    and leaves a lot of trees lying on the ground that are just
    going to rot or do they selectively go in and effectively
    remove the timbers so that you're maximizing the usefulness of
    what they remove as opposed to having lots of waste.
        It actually turns out there's quite a options there, and
    that if you talk to state foresters, they're constantly trying
    to push their land owners toward that best management practice,
    but they have trouble figuring out how to do it, and if you
    actually give them an incentive, where you say, well, there's
    this program here that is going to accumulate some credits that
    may some day be worth something, that may help to push them
    toward wise management.
        Senator Chafee. OK. Mr. Fay, here is one for you. What are
    we going to do about the growth issue when we deal with this?
    We're trying to anticipate--what we're trying to do is give
    people credit for early reduction, but let's say you're BP,
    you're British Petroleum, and you're growing, so that you've
    done the right thing, you've come forward, you've made
    reductions, but at the same time, because you're growing, you
    are producing more CO2, what do we do about that?
        Mr. Fay. Until we get to a future regulatory program, it
    seems to us that what it requires is for the entity, whether
    it's an energy company or a manufacturing entity, to first look
    at what their product is and how they might measure their
    reductions. One proposal is to have what's referred to as a
    rate-based approach, where you measure your emissions per unit
    of product manufacturer or per dollar of sale of the company,
    and that's one potential. Frankly, we could use some
    experimentation on it in this period to determine if it's an
    effective way, does it still produce a verified reduction.
    Ultimately, when you get to, if there is a hard cap in the
    future, we have to figure out how a rate-based approach would
    work in that kind of a scheme, but you certainly do not want to
    set a system that would artificially cap your ability to grow
    because of the need to achieve the climate change reduction
    requirements, and so it's a question of trying to find a
    creative way to do the accounting for that that produces a
    verifiable reduction, but that at the same time also allows the
    economic activity to continue.
        There are other industries who may not be grown. There are
    other industries who may be declining, you have that constant
    transition, but right now what's needed is the experience with
    the accounting procedure of how you do that, and we think that
    the rate-based approach is one method, some type of percent
    approach may be another, and I think those are areas that we
    should be looking at as we move forward with the bill.
        Senator Chafee. We have discovered that the concept is a
    wonderful one. You know, obviously I'm for it, of getting
    credit for early reduction, but then once you start drafting
    your legislation, it gets very complicated, as you know, you've
    been helpful in sitting in and giving us a hand, and you get
    this whole business of growth that we just discussed. But let
    me try this to a couple of the local officials over here.
        How would you--I mean what New Hampshire is doing is very
    interesting, as they say, the registration bureau, I don't
    know, whose department is that under?
        Mr. Colburn. The legislation charge is the Department of
    Environmental Services.
        Senator Chafee. Which is your state Department of
    Environmental Management?
        Mr. Colburn. It's our EPA.
        Senator Chafee. Your EPA. And so that's the way your state
    is responding to this global climate change?
        Mr. Colburn. Yes. We don't see as much of a conflict with
    the multiple agency issue that Mr. Fay mentioned, because,
    remember, this is only a registry, we don't have the
    opportunity yet to assign credits because we have no authority
    to engender credits, so effectively what we're doing is
    suggesting that by a source coming in and registering with us,
    they gain the ally of the state so that the state stands with
    them against any future baseline determinations, which may be
    inappropriately low.
        Senator Chafee. Mr. Rabideau, I just wanted to say that
    there is a lot going on in the area that you're interest in, in
    other words, more Federal funding, the Land and Water
    Conservation Act is a source of funding in Washington that
    we're trying to get moved, dedicated to open space purchases so
    that we can give a hand to communities, such as Warwick. I
    think, in this particular case I think they looked at that farm
    and there's just a limit to how much the city can takeover.
        Mr. Rabideau. That's correct, Senator.
        Senator Chafee. They've got an outstanding Mayor down
    there, so.
        Mr. Rabideau. Why do you think I chose Warwick.
        Senator Chafee. You looked into it. I will report that the
    City of Warwick in the last 5 years has purchased more open
    space than in the prior 31 years, so they've done aggressive
    campaigning.
        Mr. Rabideau. If I could echo one thing, and Ms. Fantozzi
    just touched on it very briefly. The Natural Resource
    Conservation Service is an arm of the Department of Agriculture
    that is uniquely positioned to help with this issue. One of the
    things I'm hoping to have our northern district here do is to
    acquire some Federal money, if the budget reflects it, to start
    to put together a data base of degraded lands in our state,
    because it doesn't always have to be a forested land. We have a
    number of degraded freshwater wetlands throughout this state,
    and if we start, as they're starting in New Hampshire with
    their registry, OK, of emitters, my thought here in Rhode
    Island is we will start to register the data base of land
    that's available that could be effectively changed to assist
    with the sequestration rate or the storage rate of carbon in
    this state. So, you know, those efforts are important, and I
    can't echo enough the importance of a Natural Resource
    Conservation Service to this state and to my community.
        Ms. Fantozzi. Senator, if I can followup on that. The
    Partnership, not just NRCS, first of all, but the point that I
    was trying to make in suggesting adding language to the bill to
    recognize that the data base that you're talking about exists
    within the Partnership across the country, and so it's not
    something that needs to be recreated or things like that, there
    are systems already out there, and I think part of what I hope
    your legislation or direction that it will go in either
    verbiage, direct verbiage or attached guidance, is to say let's
    not recreate the wheel here, let's use what's available and
    recognize what's available to help solve some of these
    problems.
        Senator Chafee. Now, one of the things that we keep hearing
    from the environmental community is that the science of carbon
    sequestration isn't well enough developed to rely on in a
    program like ours, in other words, you get all kinds of
    arguments, some power company, you were mentioning some power
    company, they buy 2,000 acres in Guatemala and use that as an
    offset and we get into all kinds of discussions back and forth.
    I suppose it can be measured more accurately than some of us
    think, is that right?
        Mr. Hamburg. Yes. I mean, actually, there's very good
    procedures for measuring it, verifying it. The biggest issues
    are the social ones that are associated, what we refer to as
    leakage, so did that activity go somewhere else, and because in
    the domestic arena we actually have such a robust inventory
    system of our forest, that I think we can deal with that
    problem, so that if you protect your 20 acres and let's say
    don't cut them, did I cut mine to meet that same demand, and
    that becomes an important issue. We can deal with that because
    we have a national data base that we collect. The big question
    when you go to Costa Rica or to Bolivia or somewhere is knowing
    that the fact that you protected that piece of land didn't just
    mean the piece next door got cut. I think that we have the know
    how to measure it and we have the know how to verify it, and I
    think that the environmental community that's subjected is
    really a guide for different arguments, that argument is
    related to a philosophy that the only way we should deal with
    climate change is by solving energy use problems, it's a
    philosophical argument, and personally I have not, I've worked
    with a lot of environmental communities, seen any evidence that
    the carbon accounting is suspect. The bottom line is, I mean
    the science is sound, it's a philosophical argument, should you
    include land use or should you not purely because they argue
    the fossil fuels are the problem. You should solve it with
    fossil fuels.
        Ms. Fantozzi. Senator, I would like to add to that, that I
    agree and that I think defining and measuring the carbon
    storage for the emission is much better and scientifically
    sound than measuring such things as biodiversity, impacts to
    wildlife habitat, and those folks are right up there for, you
    know, validating whatever process is there, so I think we're
    ready, it's just a question of jumping in and doing it.
        Mr. Fay. Senator, let me add to that. We participated in a
    lot of discussions over the last 6 months on this topic and
    this inordinate fear among some of the environmental community
    that they we're going to give something away, and it gets
    raised by others in industry, we don't want to see anything
    happen, or some inordinate fear that in giving something away,
    they may be somehow disadvantaged, the nonaccurate is they
    think may be disadvantaged in the feature as well, and we think
    the logic for this type of an approach that your bill takes has
    to be just the opposite, that, yes, these are very complicated
    issues and that the purpose for doing it is to help the
    experimentation to develop a mechanism for the point when we
    get to, if we get to a mandatory regulatory program, and so
    that I think that we would be better off risking getting good
    information and good experience with the chance that perhaps,
    you know, something might slip through the cracks and somebody
    got a credit that maybe they shouldn't have gotten, but that we
    got a lot better experience because of it, and that that will
    all be taken into account in the future if there is a mandatory
    program. I mean, there's no guarantee there's going to be a
    mandatory program, and so companies who can't act, people who
    can sequester who can't act on the basis now should be
    encouraged to act, and we ought to find that if we're going to
    have the flexibility, it ought to be in how we make the tent
    better, now how we make sure we keep everybody just under such
    a tight thumb.
        Senator Chafee. Yes, I think you're right. I think you're
    right. Well, any other questions?
        [No response.]
        Senator Chafee. Well, I want to thank everybody for coming,
    and we've got your testimony here and your suggestions, and Dr.
    Hamburg has told us to do it right. Anybody want to add
    anything else? Here's your chance.
        Ms. Fantozzi. Just that we would be happy from any source
    that we can provide additional information or followup, if you
    need it.
        Senator Chafee. OK. I do want to say something. Scott
    Rabideau mentioned the open space. I think that sometimes we
    get discouraged, but there are a lot of good things happening,
    well, up in your state, and in connection with open space bond
    issues. You might have seen what New Jersey did. New Jersey
    had, as I understand it, a billion dollar bond issue for the
    purchase of open space. Now, that's what we call stepping up to
    the mark. Here in our state we had a series of bond issues on
    the local communities, I think we've got 39 local communities
    and I think we had them about 10 or 12, and plus a statewide
    bond issue, and they all passed, and it isn't something that
    just is a legalist at all, everybody believes, and we ought to
    do the best we can, and so the statewide bond issue passed by
    something like 70 percent, which for any political figure is a
    landslide, and we'd all like to record that personally, and the
    local bond issue, for instance, in Warwick they had one, and
    that passed handsomely, so across the Nation likewise. So good
    things are happening, and if we get some dedicated funds out of
    this Land and Water Conservation fund, it would be a big step
    forward. The administration, as you know, in its budget has
    come forward with dealing with open space, and it's very
    interesting, traditionally we've always felt that this is
    something that the east likes, but the west doesn't. The west
    is, there's incredible statistics, something like 40 percent of
    Colorado is owned by the Federal Government, or some figure
    such as that, and so it goes to those western states, and so
    the theory has always been that the last thing in the world
    they wanted is the Feds to come in and buy any more land. Well,
    it turned out to be true. It turns out that Mayor Boisie, who
    is hardly a radical hothead, has supported both these open
    space bond issues, because he sees, in his city and the
    neighboring hillside, seen urban sprawl that Scott is so
    interested in, has taken over and something should be done.
        So I want to leave everybody with, on that particular issue
    of a sense of upbeatness and optimism, that doesn't mean we can
    slack in our efforts, but it does mean that good things are
    happening around the country. As far as this legislation goes,
    your comments have been very helpful. It is complicated. I'll
    say this, it's turned out to be more complicated than I thought
    it was. You go out hunting for rabbits and you look down the
    hole and there's a bear, but with the help of Kevin and
    everybody else around here, we're getting there.
        Jimmy, do you want to give us a little report on how far
    along the legislation is. This is a staff director of the
    Environment of Public Works Committee who has the
    responsibility of seeing that this--the man we had in charge of
    this is moving to Texas, and I don't know whether it's caused
    an effect or not.
        Go ahead, Jim.
        Mr. Powell. Well, I think during the month of June we're
    going to be adding the suggestions that we have here and at
    other hearings and try to have a new draft of the bill by the
    end of the month to circulate, and I expect that in July the
    committee will be having a hearing and trying to report it out
    before the August recess, so over the next couple of months the
    activity will be pretty intense.
        Senator Chafee. OK. Thanks, everybody, for coming. We're
    very grateful.
        [Whereupon, at 12 noon, the committee was adjourned, to
    reconvene at the call of the Chair.]
        [Text of S. 547 and additional statements submitted for the
    record follow:]
       Statement of Scott P. Rabideau, Rhode Island State Representative
        Mr. Chairman and members of the Committee on Environment and Public
    Works, I cannot tell you what an honor it is to have the opportunity to
    testify before this U.S. Senate Committee. As a member of the Rhode
    Island General Assembly, I appear before legislative committees on what
    seems like a daily basis. But I never imagined that I would 1 day
    testify before the U.S. Senate.
        The bill that I wish to testify on behalf of is perhaps one of the
    most visionary pieces of legislation I have ever come across. In
    essence, S. 547 allows U.S. corporations to receive credit for
    voluntarily reducing greenhouse gas emissions or increasing the
    sequestration of carbon. The ingenuity of this bill is due to the fact
    that these credits shall be applied to future laws and regulations. It
    is a way for a good corporate citizen to gain recognition and a
    potential fiscal reward for reducing carbon emissions. This is
    something that many companies have been preparing for in their capital
    planning. Should this bill become law, it may well move up the
    timetable for such capital spending.
        Beyond the credit for voluntary reductions is the truly unique
    issue of carbon sequestration. I would like to speak to how I believe
    this portion of the bill would positively affect my little state of
    Rhode Island.
        All land which is undeveloped and vegetated annually sequesters
    varying amounts of atmospheric carbon. I will leave the issue of metric
    tons of carbon sequestered per acre (or hectare) to the academics that
    will surely testify at some point in time on this issue. Suffice to
    say, an acre of young, well managed forest in a temperate climate like
    Rhode Island's can annually sequester multiple tons of atmospheric
    carbon. That's correct, multiple tons of carbon are sequestered by an
    acre of forested land. Therefore, it is safe to presume that the
    permanent preservation of as little as 100 acres of open space can
    sustain a carbon reservoir and avoid creating a carbon source.
        I would like to present you with a real world example of how land
    can quickly change from reservoir to source. The first picture shown
    within this text is an aerial photograph of a section of Warwick, Rhode
    Island. This photo clearly depicts a densely populated residential
    community, a golf course, and a large tract of undeveloped farmland.
    This represents perhaps the last tract of farmland within a radius of
    one mile or more. As of this moment, the owner of the property is in
    the process of subdividing his farmland to establish a residential
    subdivision. If you skip over and review the next photograph, I have
    taken the liberty to demonstrate what the property might look like
    after the summer of the year 2000. In one short year's time, this
    property will go from carbon reservoir to carbon source.
        Figure #1 depicts the results of a Brown University study
    evaluating Rhode Island's greenhouse gas emissions from 1990-1996.
    Residential development was responsible for approximately 18 percent of
    the total increase in greenhouse gas emissions during that time period.
    In 1999, the enormous demand for housing in Rhode Island has driven up
    the value of raw land. To further complicate issues, the schools in
    Rhode Island are funded primarily on the local revenues received from
    property taxes. The result, landowners are faced with exceptionally
    high taxes on their open space parcels, while developers are constantly
    dangling large sums of money before them to acquire the properties for
    residential housing. It is a no win situation for the environment.
        Believe it or not, 55 percent of Rhode Island is currently
    forested. That's right, over one half of this state consists of trees.
    But that percentage is dwindling rapidly. Therein lies the opportunity
    of S. 547.
        I believe that corporate America can play a pivotal role in the
    preservation of open space in Rhode Island and the entire United
    States. The ability to acquire a greenhouse gas credit for the
    demonstrated sequestration of atmospheric carbon could well be the
    incentive necessary to motivate the boardrooms across America to take
    an active role in the management and preservation of the country's
    forests. Not only could a company receive a regulatory credit for the
    dedication of permanent open space, but also the marketing potential of
    the effort could offer a higher profile when targeting today's
    environmentally conscious consumer.
        I realize that the environmental community will express deep
    concern that corporate giants may abuse such a process. Corporations
    and their lobbyists will bemoan the fact that there may be a tacit
    acknowledgement of the Kyoto Protocol in this bill.
        I however applaud the sponsors of this bill and stand firm in a
    belief that change, true change in society, does not come from the
    actions of a government regulatory, CEO or a multinational corporation,
    or even a well meaning environmental organization. A politician with
    vision effects true change. We become politicians for many reasons. But
    first among them is the desire to improve our state, our country or
    even the world. This bill will change the world.

                                   __________
    Statement of Kenneth A. Colburn, Director, Air Resources Division, New
       Hampshire Department of Environmental Services, Providence, Rhode
                                     Island
        Thank you, Mr. Chairman. My name is Kenneth A. Colburn, and I am
    the Director of the Air Resources Division of the New Hampshire
    Department of Environmental Services (DES). The Department appreciates
    this opportunity to address the Committee regarding S. 547, the Credit
    for Voluntary Reductions Act of 1999.
        In New Hampshire, a state rich in natural resources, our economic
    livelihood has long been directly and inextricably linked to the health
    of our natural environment. Whether we hark back to the heyday of the
    timber and paper industries, or look instead at today's tourism-based
    economy and high quality of life, this linkage has remained a constant.
    Two other constants have been our state's traditional frugality; and
    our stubborn reluctance to control and regulate when equally favorable
    outcomes can be achieved by properly encouraging voluntary actions.
    Thus it comes as no surprise that we strongly support S. 547, an
    initiative that shares these values. S. 547, the Credit for Voluntary
    Reductions Act of 1999, would directly benefit both the environment and
    the economy, and encourage cost-effective solutions on a voluntary
    basis.
        S. 547 encourages U.S. entities business, institutions,
    governments, etc. to pursue actions that will mitigate the threat of
    global climate change. In doing so, they will provide our nation with
    other benefits including substantial savings in energy expenditures,
    reduced air and water pollution, less waste, better natural resource
    management, and enhanced technological competitiveness. Early voluntary
    greenhouse gas reduction measures will help to ensure that the legacy
    we leave our children and grandchildren is not one of myopic
    selfishness and environmental degradation, but one of sustainable
    stewardship and respect for our planet. This Act is not about the
    science of global climate change, nor is it about the Kyoto Protocol.
    It is not about what level of reductions is necessary, or when they
    must be accomplished, or what flexible mechanisms should be employed to
    achieve them. S. 547 is about reducing uncertainty for U.S. business
    and other entities by ensuring that any reductions of greenhouse gas
    emissions that they voluntarily undertake are appropriately recognized
    and rewarded.
        U.S. business and other entities are not making greenhouse gas
    reductions largely because of uncertainty about what future regulatory
    programs may be imposed in an effort to stabilize atmospheric
    concentrations of carbon dioxide and other greenhouse gases. Many are
    concerned that, if the example of the Federal Clean Air Act Amendments
    of 1990 hold true, action now will not be appropriately recognized, and
    will result in increased burdens later. The State of New Hampshire has
    had direct experience with this dynamic, inasmuch as the closure of the
    Pease Air Force Base in 1989 was not recognized as emission reductions
    under the 1990 baseline of the latest Clean Air Act reauthorization.
    This dynamic applies even if actions now would yield cost savings,
    because the certain benefits today might be outweighed by the as-yet-
    unknown costs imposed by the future program. S. 547 will encourage
    reductions of greenhouse gases simply by eliminating the potent
    disincentive of uncertainty.
        How should a credit for early action program be designed? In order
    to be most effective, a program to encourage early action must be
    simple, flexible, and applicable to a broad array of emissions sources.
    At the same time, it needs to reflect sufficient discipline that the
    integrity of its credits is never in doubt. A few cornerstones are thus
    essential.
        First, all reductions must be strictly quantifiable and subject to
    third party verification. The integrity of the credits hinges on the
    processes by which they are quantified.
        Second, reductions should not be limited or tied to a particular
    program, a particular economic sector, or a particular greenhouse gas.
    Criteria for establishing credible baselines, coupled with appropriate,
    broadly applicable quantification and verification methodologies,
    should determine what constitutes a verifiable ton, not what carbon
    source the reduction came from. In the end, all verified tons no matter
    what their source or how they were reduced are equal in the eyes of the
    atmosphere.
        Some have also suggested that only certain emission reductions
    should count, based, for example, on whether they reflect genuine
    environmental intent. I would suggest that this approach unconscionably
    cripples the vital linkage between economic and environmental well
    being that we cherish and seek to encourage. We should be less
    concerned with motives, and more concerned with establishing simple,
    workable, and effective quantification and verification protocols.
        Third, just as there is a variety of ways to reduce greenhouse gas
    emissions, a variety of yardsticks for measuring such reductions may be
    necessary. Entities should certainly receive credit for absolute
    emission reductions below a historical baseline. In other
    circumstances, however, percentage reductions from a defined baseline
    may be appropriate, or credit for achieving very-low-emission
    performance standards. Reductions provided by a manufacturer's products
    (e.g., lower emission vehicles) might also be creditable, although we
    would need to ensure that they are not double-counted by purchasers.
        Fourth, great care should be taken in placing a limit or cap on the
    number of credits available under an early reduction program. Though
    some upper bound may ultimately be necessary, it must be balanced
    against the fact that such limits could reduce the incentive for
    entities to participate.
        Who should participate? The early credit incentives should apply
    across the broadest possible array of participants. In addition to the
    traditional industrial and electricity sectors, for example, other
    sectors and entities should be allowed and encouraged to participate,
    including transportation, residential, commercial and agriculture.
    Further, the program should include both carbon sinks and sources,
    inasmuch as carbon sequestration may provide significant opportunities
    for agricultural and forest products participants such as those
    operating in the Northern Forest Lands.
        In what may be a relatively unusual suggestion, I would recommend
    that states and municipalities also be allowed to participate in an
    early emission credit program, both because they generate emissions
    themselves, but also because they are often left to implement whatever
    it is the Federal Government has decided. Great uncertainty prevails
    here as well. In the case of the Acid Rain program, the Federal
    Government dealt directly with emission sources. In EPA's proposed NOx
    Transport SIP call, states were assigned emission budgets, and thus had
    a say in how allocations were made within their borders.
        In an effort to reduce such uncertainty for New Hampshire entities,
    including the State itself, we have introduced state legislation to
    create a state ``registry'' of voluntary greenhouse gas reductions. By
    having the State of New Hampshire stand with them under some potential
    future regulatory reduction requirements, this bill would protect New
    Hampshire companies and other entities by reducing the risk that they
    might not receive appropriate credit for greenhouse gas emission
    reduction activities they already undertook. This measure has received
    bipartisan support in the New Hampshire Legislature, and has been
    strongly supported by the state's business community. To date, the bill
    has passed the State Senate and has been recommended to the full House
    by the relevant policy committee.
        Similarly, municipalities should be able to receive credit for
    verifiable greenhouse gas reductions. The International Council for
    Local Environmental Initiatives (ICLEI), for example, working with 61
    (1998 figure) U.S. towns and cities, has reduced greenhouse gas
    emissions by 5.4 million tons per year. In achieving these reductions,
    incidentally, these ICLEI communities have saved $27.5 million in
    energy and fuel costs, and also reduced 7,000 tons of criteria
    pollutants. If all verifiable tons are equal, then these towns and
    cities should also be credited appropriately. As this example shows,
    states and locals have substantial experience and knowledge
    infrastructure in achieving cost-saving emissions reductions. I urge
    you to tap into that experience in developing S. 547.
        In conclusion, S. 547, the Credit for Voluntary Reductions Act of
    1999 is a crucial measure to remove existing disincentives to early,
    constructive environmental action. By providing legal guarantees that
    responsible early actors will receive appropriate credit, it will spur
    entities to voluntarily undertake cost-effective, multiply beneficial
    strategies that include greenhouse gas reductions. We thus believe that
    establishing such an early reduction credit system at this time is in
    New Hampshire's best interest, the nation's best interest, and future
    generations' best interest, and we urge you to move forward with it
    aggressively.
        Thank you for the opportunity to assist in the creation of a sound,
    responsible, early emission credit program. I hope you will continue to
    call on the considerable expertise of state and local governments in
    developing this ground-breaking initiative.
                                   __________
     Statement of Kevin J. Fay, Executive Director, International Climate
                               Change Partnership
        Good Morning, Mr. Chairman and members of the Committee. My name is
    Kevin Fay and I serve as Executive Director of the International
    Climate Change Partnership (ICCP), a coalition of U.S. industry
    representatives and associations, as well as international
    associations, interested in the policy development process with respect
    to global climate change. We appreciate the opportunity to appear
    before the Committee today on the subject of credit for early action to
    voluntarily reduce greenhouse gas emissions.
        ICCP was organized in 1991 to provide a forum to address the issue
    of global climate change and to be a constructive participant in the
    policy debate. We continue to recognize the climate change issue as an
    important matter with which governments should be concerned. We are one
    of the largest industry coalitions in the world on this issue. A list
    of our member companies and associations is attached.
        ICCP has consistently stressed the need to provide legally binding
    assurances that voluntary actions to reduce greenhouse gas emissions
    will be credited in any future mandatory scheme adopted by the
    government. Such ``credits'' should be granted to those companies that
    achieve verified reductions between 1990 and the commencement of any
    mandatory program.
        Voluntary efforts to reduce emissions of greenhouse gases now can
    slow the rate of growth of emissions and contribute to the longer-term
    goal of achieving appropriate greenhouse gas concentration levels. In
    circumstances where there is marginal value in an emission reduction
    investment, granting credit may provide the incentive for such
    investments.
        Companies that have already taken action or are contemplating doing
    so want to ensure that these contributions are not ignored when a
    mandatory phase of emission reductions begins. Failure to recognize
    these contributions could unfairly force companies to make reductions
    through increasingly more costly options. This would have the perverse
    effect of penalizing those companies who act early, while potentially
    benefiting competitors who save their least costly reductions to
    respond to regulatory mandates.
        Industry's aim is to ensure that these early investments that
    result in emission reductions are recognized and ``credited.'' Such
    credit could be used to offset future obligations that may arise from
    any domestic allocation, cap, tax or permit program or sold to parties
    unable to meet their obligations in a cost-effective manner.
        ICCP has outlined a series of principles on credit for early action
    that we believe should guide the legislative and policy process on this
    issue.
    ICCP Credit for Early Action Principles
        Credit for early action programs will require new statutory
    authority. Failure to enact a credit program at the Federal level may
    stop companies from making commitments now and encourages a patchwork
    of inconsistent Federal, state, and local initiatives.
        No limit should be placed on the amount of emissions reductions or
    enhancement of sinks for which early action credit can be earned.
        Credit should be granted for actions resulting in verified
    emissions reductions or enhancement of sinks that occur between 1990
    and the beginning of any official budget commitment period, whether or
    not such actions were part of a government-sponsored voluntary
    initiative.
        A process should be established to determine and ``lock-in''
    appropriate baselines for emission reduction activities including
    facility operations, product-based initiatives, and enhancement of
    sinks. Such a process should be flexible enough to reflect special
    circumstances, including unique considerations related to reductions
    already achieved.
        Credits granted prior to a first budget commitment period should be
    available without discount as offsets against any greenhouse gas
    emission allocation, cap, tax, permit, or other requirement to limit or
    reduce greenhouse gas emissions that subsequently may be imposed.
        Credits granted prior to a first budget commitment period should be
    usable in any national emission budget that may be subsequently
    imposed. Credits should remain with the earning entity for use at their
    discretion.
        Emissions reductions or enhancement of sinks produced from
    participation in the Clean Development Mechanism, Joint Implementation,
    or a domestic emissions trading program should be eligible for early
    action credit if they occur prior to a first budget commitment period.
        Credits generated from credit for early action programs should be
    eligible for emissions trading.
        Credit accounts should be updated on an annual basis.
        Credit programs should be integrated to ensure consistency and to
    avoid ``double counting''.
        In February of this year ICCP sent a letter to each member of the
    Senate urging them to cosponsor S. 547, the ``Credit for Voluntary
    Reductions Act.'' At that time we stated that the bill was a credible
    start in addressing the issue of credit for early action, but we also
    identified several issues that needed additional discussion and
    resolution such as how to address products that use or emit greenhouse
    gases and how to deal with growth.
        As discussions on this issue have progressed, ICCP has come to the
    conclusion that, in the current political climate, efforts to enact
    credit for early action legislation would be enhanced by pursuing a
    simplified approach. We are currently having discussions with Senate
    staff on how to address these issues.
        The goal of the legislation should be to accomplish three things:
        1.Provide legal guarantees to any entity that acts voluntarily to
    achieve verifiable reductions related to products, processes, or
    operations, that it will not be disadvantaged by a future regulatory
    program to control greenhouse gas emissions.
        2.Provide a mechanism for verifying any actions that occurred
    between 1990 and 1999, under Energy Policy Act Section 1605 (b), as
    part of the U.S. Climate Change Action Plan, or any other activity in
    which the entity is able to demonstrate verifiable reductions.
        3.Provide a mechanism for prospective actions which, subject to
    negotiation of an agreement with the government, produce verifiable
    reductions.
        We believe that S. 547 embodies these three goals.
        With respect to past and future reductions, a series of principles
    should be delineated to guide the private sector, other entities, and
    government officials to use in both verifying past reductions and
    negotiating agreements for future reductions.
        The intent of the program should be to encourage experimentation on
    the part of government, industry, and the environment community, and
    not to constrain the ability to develop new and creative methods for
    implementing and achieving verifiable reductions.
        While this program may require flexibility in terms of the precise
    value of the credited reductions, it should be firm that the credits
    exist as a matter of legal right.
        In order to ensure an open process, it should also provide for
    public participation in the verification procedure, notice and comment,
    and public disclosure of future negotiated agreements.
        The program should not limit government participation by any
    particular department or agency. The principles of the bill could be
    used by any department or entity to craft verification agreements.
    These principles, in our view, should be consistent with those we have
    previously outlined and are found in S. 547.
        For purposes of prior acts, the bill should require all those who
    seek credits for prior acts to file a request with the government
    within 12 months of enactment. The government would be required to
    certify the credited reductions within 12 months after submission in a
    direct final rule. The direct final rule would be subject to comment
    and would take effect unless challenged during the comment period.
        It has been suggested that supporting credit for early action
    legislation may unwittingly create support for the Kyoto Protocol. We
    do not agree. Many companies have already taken action based on the
    Framework Convention on Climate Change, which was ratified by the U.S.
    Senate in 1992. This agreement called for the United States to attempt
    to stabilize its greenhouse gas emissions at their 1990 level by the
    year 2000. Those who have acted in good faith or who take action prior
    to any mandatory program should receive legally binding assurances that
    their verified reductions will be credited, regardless of the
    underlying basis for some future regulatory mandate.
        The Energy Information Administration of the Department of Energy
    just released a report that summarizes voluntary actions taken in 1997.
    (Executive Summary is attached.) Similarly, the Environmental
    Protection Agency reports annually on the results of efforts under the
    voluntary Climate Change Action Plan. These actions amount to hundreds
    of millions of metric tons of carbon equivalent emission reductions.
        The precedent for crediting early action was established in the
    1990 Clean Air Act amendments, when companies who moved early on sulfur
    dioxide emissions reductions received additional consideration in the
    subsequent sulfur trading program. Relying on this statutory precedent
    is important for the climate change issue. However, given the scope of
    industries covered and the enormous task to be undertaken, the
    government should go on record now by developing the program in advance
    of any regulatory requirements.
        Climate change presents a complex environmental challenge. The
    political and economic concerns raised in attempts to address the issue
    are significant both internationally and here in the United States.
    Credit for early action discussions can be neutral on whether it
    advances or detracts from the Kyoto Protocol.
        The fact remains, though, that the United States is on record in
    support of responsible action to address greenhouse gas emissions. We
    have ratified the Framework Convention on Climate Change. Congress has
    funded a variety of activities under the Climate Change Action Plan and
    other significant government programs. It is not unreasonable to
    request assurance from the government that these activities, whether
    past or in the future, not place the voluntary actors in future
    regulatory jeopardy.
        At this time we are discussing a voluntary and verifiable program.
    To the extent that some wish to see much greater detail in this
    legislation, to turn the discussion to the design of a pseudo-
    regulatory program, we would say that such detail may be unachievable.
        We are prepared to work constructively to arrive at a consensus
    with other business groups, environment NGO's, and government
    officials, on a workable voluntary program.
        We applaud Senator Chafee and the cosponsors of S. 547 for a
    commendable start. We look forward to working with you to ensure a
    successful conclusion.
                                     ______

                           ICCP 1999 Membership List
    3M Company
    Air Conditioning and Refrigeration Institute
    Alliance for Responsible Atmospheric Policy
    Alliance for Responsible Environmental Alternatives--Canada
    Allied Signal
    Association of Home Appliance Manufacturers
    Association of International Automobile Manufacturers
    Boeing
    BP Amoco
    Carrier
    Dow Chemical
    Halliburton Industries
    Dupont
    Eastman Kodak
    Elf Atochem
    European Chemical Industry Council (CEFIC)--European
    Fluorocarbon Technical Committee (EFCTC) Sector
    General Electric
    General Motors
    Honeywell
    Intel Corporation
    Intercontinental Energy Corporation
    Japan Fluorocarbon Manufacturers Association
    Japan Industrial Conference for Ozone Layer Protection
    National Electrical Manufacturers Association (NEMA)Polyisocyanurate
    Insulation Manufacturers Association
    Sun Company
    Trane
    Trigen Energy Corporation
    United Technologies
    Vulcan Chemicals
    Whirlpool Corporation
    York International
                                   __________
         Executive Summary, Department of Energy Report [EIA-0608(97)]
        The Voluntary Reporting of Greenhouse Gases Program, required by
    Section 1605(b) of the Energy Policy Act of 1992, records the results
    of voluntary measures to reduce, avoid, or sequester greenhouse gas
    emissions. In 1998, 156 U.S. companies and other organizations reported
    to the Energy Information Administration that, during 1997, they had
    achieved greenhouse gas emission reductions and carbon sequestration
    equivalent to 166 million tons of carbon dioxide, or about 2.5 percent
    of total U.S. emissions for the year. For the 1,229 emission reduction
    projects reported, reductions usually were measured by comparing an
    estimate of actual emissions with an estimate of what emissions would
    have been had the project not been implemented.
        Both the number of projects and the quantity of emission reductions
    reported have roughly doubled since 1994, and the number of
    organizations participating in the Voluntary Reporting Program has
    increased by 44 percent (Table EST). Fifty-six of the organizations
    reporting in 1998 provided estimates of emissions and/or emission
    reductions for the entire organization. Sixty-five reporters recorded
    commitments to take action to reduce emissions in future years, mostly
    by the year 2000.
    Table ES1. Reporting Indicators for the Voluntary Reporting of
            Greenhouse Gases Program. Data Years 1994-1997
        For the 56 organizations that estimated their total 1997 emissions,
    the combined total was 1.5 billion metric tons carbon dioxide
    equivalent, equal to about 23 percent of all U.S. emissions. Forty-nine
    of the 56 companies also estimated corporate-wide emission reductions
    in addition to (or instead of) the reductions reported for individual
    projects. The combined total reduction for the 49 companies was 128
    million metric tons carbon dioxide equivalent.
        The Voluntary Reporting of Greenhouse Gases Program is used as a
    registry by several U.S. Government-sponsored voluntary programs to
    limit greenhouse gas emissions, notably the Climate Challenge program
    for electric utilities and the Climate Wise program for manufacturers.
    Most (71 percent) of the reporters to the Voluntary Reporting Program
    were electric utilities, usually participants in the Climate Challenge
    program. Nonutility participants included manufacturers such as General
    Motors, IBM, Dow, Johnson & Johnson; facilities such as Alcan's Sebree
    aluminum plant and Motorola's Austin, Texas, integrated circuit
    fabrication plant; a coal company (Peabody Holdings); several operators
    and developers of landfill methane recovery projects; a trade
    association (the Integrated Waste Services Association); and private
    voluntary organizations, such as American Forests.
        Some 360 of the projects reported in 1998 were related to the
    generation, transmission, or distribution of electricity. Another 273
    were related to energy end use, 20 were cogeneration projects, and 62
    were transportation projects. The energy-related projects accounted for
    about 79 percent of the total 166 million metric tons of emission
    reductions reported. The largest reductions were reported for projects
    that improved the performance of nuclear power plants.
        Public interest in the Voluntary Reporting Program increased in
    1998, in part because of growing awareness of climate change issues
    inspired by the signing of Kyoto Protocol and in part because of public
    interest in the concept of credit for early reductions. In October
    1997, the White House announced that it favored offering ``credit for
    early reductions'' as a means to limit future U.S. greenhouse gas
    emissions. Generally, an early credit program would offer regulatory
    credit--in the form of ``carbon allowances'' against a future cap on
    greenhouse gas emissions--for organizations that take steps to reduce
    their emissions now. Neither ``credits'' nor ``reductions'' were
    defined, however, and the exact nature of such a program is a subject
    of ongoing debate among policymakers, interest groups, and private
    organizations.
                                   __________
        Statement of Steven P. Hamburg, Ittleson Associate Professor of
        Environmental Studies and Associate Professor of Biology, Brown
                                   University
        I very much appreciate the opportunity to appear before you today.
    My name is Steven Hamburg, I am a scientist with training as an
    ecosystem ecologist and currently hold the Ittleson Associate
    Professorship in Environmental Studies here at Brown University.
        I would like to testify with regards to Senate bill 547, Credit for
    Voluntary Early Action Act. Over the past two decades I have studied
    the effects of land-use change on carbon storage in forest ecosystems,
    with a particular focus on the old-field forests of New England. I have
    participated in the Intergovernmental Panel on Climate Change Second
    Assessment as a review team editor focusing on.the ecological impacts
    of climate change. I am currently actively involved as a principal lead
    author in the writing of the IPCC's special report on land-use/land-
    cover change. I have also worked with the Environmental Defense Fund
    and Trexler Associates as a consultant on the design of carbon
    sequestration projects.
        Today, I would like to speak to the overall strengths of the
    concept of an early action crediting program, and then more
    specifically to the carbon sequestration aspects of the bill. The
    science underlying climate change and its impacts often baffle people,
    and as a result the issue is often dismissed out of ignorance rather
    than knowledge. In particular, the complexity of the accounting
    necessary to verify changes in carbon storage in natural ecosystems all
    too often leads people to dismiss the potential of land-use changes to
    reduce the increase in atmospheric concentrations of carbon dioxide.
        We know enough about the global carbon cycle to be able to predict
    the potential impacts of energy and land-use practices on the rate of
    increase in atmospheric carbon dioxide concentrations. This is not to
    say we know everything, but rather that our knowledge is sufficiently
    robust to allow us to craft public policy that can have a desired
    outcome, such as reducing the rate of increase in the atmospheric
    concentrations of carbon dioxide. What we do not know is too often the
    focus of discussions about the global carbon cycle, and certainly there
    are aspects of the cycle that require further elucidation, but this
    uncertainty is not central to the viability of the early action
    legislation. The science of both climate change and carbon cycling is
    sufficiently well understood to provide a solid basis for the enactment
    of the Credit for Voluntary Early Action Act.
        Our knowledge about carbon cycling is more than adequate to justify
    action on changing patterns of energy use and land-use practices. It is
    important to remember that the underlying science on which we base our
    understanding of the global carbon cycle originates not with the debate
    concerning climate change, but far earlier with the advent of
    silviculture and oceanography among many other disciplines. Even though
    it has only been during the last several decades that large numbers of
    scientists have focused on the carbon cycle, our underlying
    understanding is based on scientific discoveries accumulated over more
    than a half century.
        S. 547 is based on sound science, science that includes the use of
    land-use changes to reduce greenhouse gas emissions. The Credit for
    Voluntary Early Action Act attempts to encourage energy users and
    landowners to think about how they can reduce their emissions while at
    the same time serving their own direct interests. The proposed
    legislation is designed to reduce the potential penalty involved in
    taking action that reduces greenhouse gas emissions. Without such
    legislation not only would our country not be recognizing the threat
    that climate change poses to our well being, but we would be making the
    situation even worse. If corporations and landowners do not know what
    year will be used as a baseline for any future domestic greenhouse gas
    reductions legislation, then any action to reduce emissions today could
    create the need for deeper cuts in the future. This disincentive keeps
    people from acting and we need to reverse the situation, S. 547 would
    do that. Without this legislation it can be argued that there is
    advantage for most companies and land owners to allow emissions to
    increase unchecked, as it would effectively position a company or
    landowner should mandated cuts come into play. If Congress does not
    provide incentives to reduce greenhouse gas emissions, the lack of
    incentives could actually accelerate the rate of increase in greenhouse
    gas emissions, making any future reductions even more difficult. The
    sooner there are incentives for reducing greenhouse gas emissions, the
    less need there will be for dramatic reductions later. The proposed act
    will make long-term planning viable and economically advantageous,
    whether it is in the energy sector or the land-use arena.
        Since other members of the panel will be testifying today on the
    energy side of the bill I will focus my remaining remarks on the land-
    use side of the Act. Tens of thousands of landowners across America
    make decisions every year about what to do with land they own. Should
    they cut timber, use no-till agriculture or do nothing, let nature run
    its course. Each of these decisions has an impact on the global carbon
    cycle, albeit very small. In the aggregate the impact of all of these
    decisions could have a significant effect on the global carbon cycle.
    Since, there is consensus that we want to encourage America's
    landowners to make wise land-use decisions, decisions that will insure
    the sustainability of our natural resources for generations to come, S.
    547 makes a lot of sense. S. 547 could provide a powerful tool toward
    helping landowners make sustainable long-term land-use decisions.
        As a landowner I get regular solicitations exhorting me to contact
    the soliciting company to find out how much the timber on my land is
    worth. Many of my neighbors sell their timber in just such a
    shortsighted manner. Yet, with a bit more planning and management it
    would be possible to increase both the profit of my neighbors and the
    productivity of their land. Maximizing carbon storage on the land is a
    very good metric for examining long-term sustainable management of
    America's lands. If we give people an incentive to maximize carbon
    storage on the land, what we are doing is encouraging them to remove
    resources in a conservative manner. If this bill if crafted wisely (I
    will come back to some proposed language) we can reduce the buildup of
    greenhouse gases in the atmosphere at the same time as increasing use
    of best management practices, and better yet at little if any cost to
    the taxpayers. Some people may be concerned that by conserving carbon
    we will be reducing fiber, timber or agricultural production, but that
    is very unlikely. The value of carbon credits will not be sufficiently
    great to get people to take productive land out of production, but it
    is very reasonable to expect the value of carbon credits to be high
    enough to get people to manage productive lands a bit more
    conservatively. S. 547 would provide people with the potential to get a
    bit of extra revenue from managing trends wisely.
        All to often we know what we should do, but we just don't quite get
    around to doing it. The proposed legislation will help give people a
    little extra push. Since, the bill involves only voluntary actions it
    does not require people to take actions they do not want to take. I
    have heard an argument against the bill based on an interpretation of
    the proposed legislation that assumes that landowners would be given
    the opportunity to benefit from intensifying land management, but this
    need not be the case. It is not difficult to write language for
    inclusion in S. 547 which requires rigorous carbon accounting, which
    means clearing old growth forest or intensifying agricultural
    production will not yield carbon credits.
        Specifically I would like to see that the land-use aspects of this
    legislation meet three objectives:
        a. low transaction costs;
        b. carbon correct accounting;
        c. a requirement of additionality.
        A legislative framework that allows transaction costs to be kept
    low will facilitate greater participation, particularly among small
    landowners that own the bulk of America's land. At the same time it is
    critical that there is carbon correct accounting incorporated in the
    bill. These two requirements could create tension, but in fact are
    compatible. We need to be comfortable in saying that we are crediting
    only net increases in carbon and not simply carbon being fixed though
    photosynthesis. This is an important point, so let me take a moment to
    explain. Trees take atmospheric carbon and convert it into organic
    compounds through the process of photosynthesis. The annual amount of
    carbon that is removed from the atmosphere through photosynthesis is
    very large, an order of magnitude greater than annual fossil fuel
    emissions. Yet, almost all of that photosynthetically fixed carbon is
    released back into the atmosphere through respiration, so only a small
    amount of net carbon stays on the land. It is the net carbon
    sequestered that is potentially creditable. If we credit more than the
    amount of net carbon sequestered on the land then we have not
    accomplished anything relative to addressing the atmospheric buildup of
    greenhouse gases. I have seen proposed language for this bill that
    credits gross, not net, carbon.
        Since, some of that net carbon is the product of past actions, and
    will accumulate with or without this bill, the early action bill should
    reward only increases in net carbon that are attributable to decisions
    made after the enactment of this bill. We want the bill to encourage
    more conservative use of the land, use that will increase the carbon
    sequestered on the land.
        How do we meet the three criteria I have listed above? I have
    attached legislative language that I think meets these three objectives
    in an operationally viable and clear manner. The language is relatively
    technical, but I believe it is effective in meeting the criteria I
    spoke about earlier. On the land-use side we have the advantage of 100
    years of accumulated knowledge in the forestry profession that we can
    call upon to develop viable measurement approaches to quantifying the
    amount of net carbon sequestered. Measuring the amount of carbon in a
    tree or in the soil is not magic, but rather straightforward science,
    well-established science.
        In the language I have given you we have attempted to exploit what
    we know in order to establish a system that requires a landowner to
    measure a minimal number of variables in the field. We have assumed
    that getting it ``right'' on each parcel of land is important, but even
    more important is insuring that the aggregate net carbon credited is
    accurate. I believe the attached language does just that.
        In summary, I believe the Credit for Voluntary Early Action Act can
    increase wise stewardship of our natural resources while greatly
    reducing the increase in atmospheric concentrations of carbon dioxide.
    It is important to get started on addressing climate change and the
    proposed legislation is a very logical first step. I would be happy to
    work with you or your staff on specific language for inclusion in this
    bill. Thank you for the opportunity to testify before you today.
                           increases in carbon stocks
    (A) In general
        An early action agreement may provide that a participant shall be
    entitled to receive greenhouse gas reduction credit for the net
    increase in carbon stocks during the credit period within ecosystems on
    land owned by the participant that are additional to that which would
    have occurred as a result of current and projected practices in the
    absence of this legislation. In the case of permanent protection of
    mature primary forest from logging activity after the date of enactment
    of this Act, greenhouse gas reduction credits shall be equal to 50
    percent (50 percent) of the carbon stock in above and below ground live
    biomass, measured at the end of the credit period.
    (B) Calculations
        d. Additionality. Except for lands on which there is reforestation,
    afforestation, or permanent protection from logging activity, the
    amount of the carbon stock increase that is considered additional to
    that which would have occurred as a result of current and projected
    practices in the absence of this legislation shall be determined as the
    difference between the net increase in carbon stocks during the credit
    period on land owned by the participant and the product of the number
    of acres of land owned by the participant and the average per acre
    change in carbon stocks during the credit period in similar forests
    within the region. If the average per acre change in carbon stocks
    during the credit period in similar forests within the region is less
    than zero, it shall be regarded as zero for the purpose of this
    calculation. For purposes of this analysis regulations promulgated
    under section 4(c) shall establish average rates of change of carbon
    stocks by forest type, productivity class, age, and region, taking into
    account the most recent forest inventory and analysis data. All
    analysis of such average rates of change of carbon stocks shall exclude
    all submerchantable timber. In the case of reforestation,
    afforestation, or permanent protection from logging activity after the
    date of enactment of this Act, the full net increase in carbon stocks
    during the credit period shall be considered additional to that which
    would have occurred as a result of current and projected practices in
    the absence of this legislation.
        e. Leakage. The net increase in carbon stocks eligible for
    greenhouse gas reduction credit shall be calculated by deducting any
    leakage of benefits due to related greenhouse gas emissions or reduced
    carbon stocks on land not covered by the early action agreement. If an
    early action agreement results in a reduction in timber supply, the
    amount of the deduction shall be the product of the amount of reduction
    in timber supply and the average carbon emissions associated with
    supplying similar timber. The deduction for related greenhouse gas
    emissions associated with land management practices shall include, but
    not be limited to, emissions from fossil fuel consumption, fertilizer
    application and land preparation activities deemed significant
    according to the rules developed pursuant to Section 4 (C) of this Act.
        Leakage of benefits will be assumed to be zero in the case of:

        a) Lands on which there is natural regeneration or establishment of
    plantations leading to afforestation or reforestation of agricultural
    lands in regions where on a net basis the forest type being regenerated
    is not being converted to agricultural lands during the credit period.
        b) Improved forest management practices that increase carbon stocks
    while maintaining production of timber, fiber, and/or energy, as
    applicable, from the participant's lands.
        c) A demonstration that the rate of increase in carbon stocks in
    the forests of the region has increased for the last period for which
    such data is available and the aggregate output of all timber, fiber,
    and fuel producing mills and facilities in the region has not declined,
    subtracting any production which relied on imports of timber or fiber
    from outside the region.
        d) Permanent protection of forests from logging activity after the
    date of enactment of this Act.
    (C) Limitations
                (1) Coverage
        a) Only private lands are eligible to participate in the program
    established by this section.
        b) Landowners must enroll their entire forest land base to
    participate in the program established by this section. Landowners may
    exclude lands from enrollment if the dominant use of the property is
    ecosystem preservation and there are no timber management activities
    occurring on the property. Notwithstanding the preceding sentence, a
    participant may enroll preservation lands if it wishes to do so. If
    property excluded from consideration under this provision comes under
    active timber management it must be included in all future carbon
    accounting. If a participant purchases land during the agreement
    period, then the net change in carbon stocks on that land must also be
    included in the applicable agreement. A participant owns land if it
    owns a controlling interest in the timber on the land. Participants may
    exclude from enrollment tracts of lands smaller than 50 acres that are
    non-contiguous with other land owned by the participant. Changes in
    carbon stocks on all lands enrolled need to be included and for those
    lands with a net loss of carbon stocks the loss needs to be subtracted
    from the creditable gain in carbon stocks calculated under this
    section.
        c) For landowners undertaking improved forest management practices,
    including improved forest management in conjunction with reforestation,
    a minimum parcel size of 5,000 acres is required to enroll as an
    individual. Otherwise, landowners must pool their lands together with
    other landowners for purposes of enrolling in the program. Such
    landowner pools must have a minimum enrolled acreage of 5,000 acres.
    These requirements for pooling and minimum tract size do not apply to
    landowners who enroll lands where no timber harvests will be conducted
    during the early action period and where activities will consist of
    reforestation on agricultural lands and/or improved agricultural
    practices. To enroll in a landowner pool, individual landowners must
    enroll all their land into an early action agreement.
        d) Rules issued under this Act shall establish the age at which
    each forest type described above produces merchantable pulpwood,
    sawtimber or other timber products commonly sold by landowners in the
    region. Only lands on which the forest is older than this minimum age
    will be eligible, except for lands on which reforestation and
    afforestation takes place during the early action period. For forest
    management units (each not to exceed 100 acres) with multiple tree age
    cohorts, for purposes of this act, the age of the forest is the oldest
    age cohort representing at least 20 percent of the standing timber.
                (2) Durability
        a) The participant may elect to count the greenhouse gas reduction
    credits accruing from their early action agreement based on the number
    of ``ton-years'' that carbon stock increases have been maintained. Each
    ``ton-year'' will be awarded a fraction of one ton of credit. The
    fraction shall be determined, by rule, based on the ratio of the
    reduction in greenhouse gas forcing over a 100 year time period as a
    function of the period during which a carbon stock increase of one ton
    has been maintained, to the reduction in greenhouse gas forcing over a
    100 year time period from the permanent avoidance of the emission of
    one ton of carbon, taking into account the most recent findings of the
    Intergovernmental Panel on Climate Change.
        b) If the participant elects not to count the greenhouse gas
    reduction credits accruing from their activities in ``ton-years'', the
    participant shall receive credit equal to the participant's net
    increase in carbon stocks during the credit period, as determined under
    this section. Under this election, if at any time after end of the
    credit period, and before the land covered by the agreement is
    accounted for under a mandatory emissions reduction program, the stock
    of 6 carbon on the land covered by the agreement is less than the stock
    of carbon at the end of the credit period, the participant shall retire
    a number of greenhouse gas reduction credits equal to the difference
    between the two amounts.
                (3) Land stewardship
        a) In order to prevent the establishment of forests in areas that
    currently support natural vegetative communities other than forests, no
    credits will be granted for afforestation of areas historically not
    forested unless those areas have been in cropland since 1990.
        b) No credits shall be granted for offsite increases in carbon
    stocks including but not limited to those associated with paper and
    other wood products and landfills.
        c) Credits for carbon stock increases from land-use activities
    should encourage wise stewardship of land, including land used in
    production of forest and agricultural products, land providing
    environmental service or land set aside for the preservation of natural
    areas. All lands enrolled in a program for early action carbon credits
    must adhere to best management practices as specified on a regional or
    state basis by the appropriate Federal or state agency.
                (4) No more then 20 percent of the greenhouse gas reduction
                        credits allocated under this Act shall be awarded
                        for carbon stock increases under this section.
    (D) Monitoring, Reporting and Verification
        (1) The rules issued pursuant to section 4(C) shall include
    monitoring guidelines that, at a minimum, provide:

        a) Tables of estimated greenhouse gas emissions associated with
    land management activities that result in a significant indirect
    increase in greenhouse gas emissions (e.g. fertilizer production,
    herbicide production, fossil fuel consumption).
        b) Guidelines that identify all carbon stocks on a participant's
    lands that may be decreasing during the credit period. All carbon
    stocks that may be decreasing must be monitored. Monitoring of carbon
    stocks that are increasing is at the discretion of the participant.
        c) Guidelines that ensure accurate and transparent monitoring based
    on statistically robust inventory, soil sampling, ecological survey,
    and other applicable scientific techniques.
        d) Requirements to perform monitoring in the first year of the
    early action agreement, the last year of the credit period, and at
    least once every 3 years during the credit period. Procedures for
    estimating baseline carbon stocks on the participant's lands included
    in an early action agreement.
        f) Procedures to allow appropriate estimation of carbon stocks
    using tables and models derived from USFS Forest Inventory and Analysis
    data for the appropriate region, forest type, age, stand management
    history, and site productivity for tracts of land included in an early
    action agreement.

        (2) The rules issued pursuant to section 4.(C). shall include
    reporting guidelines that, at a minimum, provide that:

        a) Participants shall report claimed net increases in carbon stocks
    during the credit period to the appropriate government agency, which
    will then evaluate the participants' compliance with the guidelines. If
    not in compliance, the participant will be notified and advised what
    remedial actions are needed. Participants may not receive greenhouse
    gas reduction credits until they are in compliance with the guidelines
    issued under this Act.
        b) Each participant's report must be supported by a report from a
    recognized independent third party auditor. The auditor must verify the
    carbon credits using a statistically robust evaluation of a valid
    subsample of the participants lands.
        (3) Participants who own less than 50,000 acres will be eligible
    for monitoring and verification assistance.
                                  definitions
        (1) Afforestation.--Conversion of non-forest to forest on lands
    that have, historically, not contained forests and did not in 1990.
        (2) Reforestation.--Conversion of non-forest to forest on lands
    which had, historically, contained forests but which had been converted
    to some other use as of 1990.
        (3) Carbon Stocks.--Living biomass carbon, dead biomass carbon, and
    soil carbon (organic and mineral soils) .
        (4) Baseline Carbon Stocks.--the average amount of carbon stocks
    (in tons carbon) estimated to be present on a participant's land during
    the participant's base period.
        (5) Ecosystems.--include above and below-ground living biomass,
    soils (organic and mineral), and necromass. Forest.--Land at least 10
    percent occupied by forest trees of any size or formerly having had
    such tree cover and not currently developed for non-forest use. Lands
    developed for non-forest use include areas for crops, improved pasture,
    residential, or administrative areas, improved roads of any width, and
    adjoining road clearing and powerline clearing of any width. The land
    must be a minimum of one acre in area. Roadside, streamside, and
    shelterbelt strips of timber must have a crown width of at least 120
    feet to qualify as forest land; and unimproved roads, trails, streams,
    and clearings within forest areas are classified as forest land if they
    are less than 120 feet wide (USDA Forest Service 1972).
        (6) Tree.--A woody plant usually having one or more perennial
    stems, a more or less definitely formed crown of foliage, and a height
    of at least 12 feet at maturity.
        (7) Mature primary forest.--
        (8) Region.--Region shall be defined by the U.S. Forest Service
    Inventory and Analysis survey unit(s) in which the participant's lands
    are located.
        (9) Ton-year.--One ton-year represents the maintenance of a carbon
    stock of one ton for 1 year.
        (10) Best management practices.--sustainable land-management
    practices that conserve resources while maintaining long-term
    productivity.
                                   __________
     Statement of Peggy Fantozzi, Chair, Massachusetts Commission for the
               Conservation of Soil, Water and Related Resources
        I am pleased and honored to be allowed to present testimony in
    support of Senate Bill 547, a bill to encourage reduction of greenhouse
    gases by providing credit for voluntary mitigation actions. As noted, I
    am currently Chair of the Massachusetts State Commission for the
    Conservation of Soil, Water and Related Resources. I am also the
    immediate past President of the Massachusetts Association of
    Conservation Districts and am currently the Massachusetts Director of
    the National Association of Conservation Districts, a member of the
    Legislative Committee for the National Association of Resource
    Conservation and Development Councils and Partnership liaison member of
    the United States Department of Agriculture/Natural Resources
    Conservation Service Team on Carbon Sequestration. I would emphasize
    that my testimony here today reflects my expertise, experience and
    ongoing work at state, regional and national levels on behalf of the
    Conservation Partnership.
        We, the conservation districts are strongly supportive of Senate
    Bill 547 and applaud its adoption of a voluntary incentive-based
    problem solving approach We, as your constituent based, local
    connection to non-regulated and regulated landowners, business
    operators and land managers, recognize the value of and need for this
    type of approach. The Conservation Partnership consisting of USDA/
    Natural Resources Conservation Service (NRC S), state environmental
    agencies and local volunteers have been practicing implementation of
    best land use practices and delivery of technical assistance throughout
    the country for more than 60 years.
    Senate Bill 547 as proposed
          will diminish the regulatory and financial risk for
    voluntary, ``common good'' actions initiated by corporate leaders,
    business owners, farmers and foresters. The passage of this bill will
    allow industry to put a real value on credits, rather than current
    speculative value.
          puts the marketplace in the driver's seat to determine
    new cost-effective ways to reduce greenhouse gas emission and sequester
    more carbon . The passing of this bill will result in a market based/
    market driven commodity that has real value to the buyer and to the
    seller. Passage of this bill will lessen a governmental role both in
    terms of regulation and potential subsidy.
          provides direct one for one credit to an entity if it
    reduces its aggregate emissions from U.S. sources below the applicable
    baseline and/or a one for one credit if an entity increases its net
    sequestration above the applicable sequestration baseline. The passage
    of this bill would provide investment security and promote a land use
    ethic to all involved in the process.
          recognizes the need to require that government credits
    are issued for verifiable and legitimate actions that contribute to
    climate stabilization. The passage of this bill would require
    performance standard evaluation based on scientific documentation and
    monitoring from credible sources. The Conservation Partnership,
    recognizing NRCS for its technical expertise, is ready to serve in this
    capacity now as evidenced by the information provided in the
    attachments to this testimony and would be the perfect connection given
    its existing local delivery system linked to state and Federal
    agencies.
          recognizes the need and opportunities for domestic and
    oversees sequestration activities.
          provides the mechanism whereby businesses and landowners
    can serve their own economic self-interest while bringing about
    environmental improvements and promoting a sustainable land use ethic
    for all.
          creates opportunities to deal with an existing problem in
    a creative and flexible manner. Passage of this bill does not establish
    Federal performance standards but allows for local, state and regional
    climate (soils, vegetation, rainfall and temperature) characteristics
    to be evaluated for credit in the verification process. This is
    significant and necessary for state support, recognition of state
    efforts to date( like the 1998 Coalition of Northeast Governors
    conference) and scientific validation.
        This bill does not:

          promote regulation
          inhibit private enterprise
          require linkage to existing or proposed international
    agreements
          restrict private business options
          subsidize commercial interests
          create additional bureaucratic layering.

        Although we strongly support Senate Bill 547 as proposed, we
    believe that it could be significantly improved by inserting language
    that specifically:
        1) urges the President to:
          recognize a leadership role for USDA/NRCS and the Forest
        Service to share in setting guidelines for the Voluntary Credit
        System. These agencies should rely on their internal technical
        expertise as well as their Partnership capabilities and connection
        to the private sector;
          recognize technical expertise within USDA/NRCS, EPA,
        NOAH, DOI/Forest Service, etc in the development of region and/or
        state specific guidelines for credit validation, verification and
        monitoring;
          instruct Federal agencies to revisit their own land
        management policies and practices to encourage minimization of
        greenhouse gas emissions and maximization of best land use
        practices for carbon sequestration on Federal lands as well as
        other public lands that receive Federal dollars;

        2) recommends Congress to allocate funding for regionally located
    Demonstration Projects partnering greenhouse gas emitters, landowners
    providing carbon sinks, and Federal technical expertise to provide
    preliminary scientific baseline information.
        In addition to this direct testimony, I would call your attention
    to the attachments provided. Included are letters of support for Senate
    Bill 547 from the National Association of Conservation Districts, the
    National Association of Resource Conservation and Development Councils
    and USDA/Natural Resources Conservation Service, with general
    information about the Conservation Partnership also provided.
        If you have any questions on any items of my testimony or the
    attachments please let me know so that I can provide clarification and
    followup. Also if I may be of assistance to you or your staff in
    following through with the recommendations made please let me know.
        In closing, I would take this opportunity to thank the Committee
    and the authors and sponsors of Senate Bill 547 for their efforts in
    bringing this issue forward. I would also like to express the sincere
    appreciation of the Conservation Partnership here in New England, the
    East Region and across the Nation for Senator Chafee's support of our
    efforts and his constant championing of the environment for its own
    sake as well as for the common good. He and his staff are to be
    commended for their relentless efforts to do the right thing for the
    common good in a way that makes common sense. I have family ties to
    Bristol and Providence and therefore have taken pride in Senator
    Chafee's service to Rhode Island but as a resident of Massachusetts I
    can tell you that I am honored to lay claim to him as a New Englander
    and as a United States Senator. I say thank you for myself, for my
    family, for this region and for future generations.

                                       -