[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
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                                  (ii)

  


                            C O N T E N T S

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                                                                   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.
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    \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.
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    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\
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    \3\ Beniston.
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    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\
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    \4\ ``Gore's Defense of Glacier Tourism Trivializes Global Warming 
Debate,'' press release, Science and Environmental Policy Project, 
September 2, 1997.
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    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.










































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