[Senate Hearing 107-670]
[From the U.S. Government Publishing Office]
S. Hrg. 107-670
CLIMATE CHANGE TECHNOLOGY AND
POLICY OPTIONS
=======================================================================
HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
JULY 10, 2001
__________
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
ERNEST F. HOLLINGS, South Carolina, Chairman
DANIEL K. INOUYE, Hawaii JOHN McCAIN, Arizona
JOHN D. ROCKEFELLER IV, West TED STEVENS, Alaska
Virginia CONRAD BURNS, Montana
JOHN F. KERRY, Massachusetts TRENT LOTT, Mississippi
JOHN B. BREAUX, Louisiana KAY BAILEY HUTCHISON, Texas
BYRON L. DORGAN, North Dakota OLYMPIA J. SNOWE, Maine
RON WYDEN, Oregon SAM BROWNBACK, Kansas
MAX CLELAND, Georgia GORDON SMITH, Oregon
BARBARA BOXER, California PETER G. FITZGERALD, Illinois
JOHN EDWARDS, North Carolina JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri GEORGE ALLEN, Virginia
BILL NELSON, Florida
Kevin D. Kayes, Democratic Staff Director
Moses Boyd, Democratic Chief Counsel
Mark Buse, Republican Staff Director
Ann Choiniere, Republican General Counsel
C O N T E N T S
----------
Page
Hearing held on July 10, 2001.................................... 1
Statement of Senator Brownback................................... 156
Prepared statement........................................... 160
Statement of Senator Kerry....................................... 1
Prepared statement........................................... 4
Statement of Senator McCain...................................... 5
Prepared statement........................................... 6
Statement of Senator Snowe....................................... 29
Prepared statement........................................... 30
Witnesses
Cassidy, Frank, President and Chief Operating Officer, PSEG Power
LLC............................................................ 139
Prepared statement........................................... 141
Claussen, Eileen, President, Pew Center on Global Climate Change. 127
Prepared statement........................................... 129
Duffy, Dennis J., Vice President of Regulatory Affairs, Energy
Management, Inc................................................ 48
Prepared statement........................................... 50
Evans, Dr. David L., Assistant Administrator, Oceanic and
Atmospheric Research, National Oceanic & Atmospheric
Administration................................................. 6
Prepared statement........................................... 10
German, John, Manager, Environment and Energy Analyses, Product
Regulatory Office, American Honda Motor Company, Inc........... 80
Prepared statement........................................... 82
Hawkins, David G., Director, Natural Resources Defense Council,
Climate Center................................................. 131
Prepared statement........................................... 133
Kammen, Dr. Daniel M., Professor of Energy and Society, Energy
and Resources Group, and Professor of Nuclear Engineering,
University of California....................................... 56
Prepared statement........................................... 58
Koetz, Maureen, Director of Environmental Policy and Programs,
Nuclear Energy Institute....................................... 41
Prepared statement........................................... 43
Miller, William T., President, International Fuel Cells.......... 32
Prepared statement........................................... 34
Sandor, Dr. Richard L., Chairman and CEO, Environmental Financial
Products LLC................................................... 104
Prepared statement........................................... 105
Appendix
Coleman, William C., President and Chief Executive Officer,
Hancock Natural Resource Group, prepared statement............. 196
The Pacific Forest Trust, prepared statement..................... 197
Response to written questions submitted by Hon. Ernest F.
Hollings to:
Eileen Claussen.............................................. 164
Dr. David L. Evans........................................... 169
David G. Hawkins............................................. 177
Daniel M. Kammen............................................. 179
William T. Miller............................................ 189
Response to question asked at hearing by Hon. John McCain to:
Dr. David L. Evans........................................... 172
Response to written questions submitted by Hon. John McCain to:
Frank Cassidy................................................ 163
Eileen Claussen.............................................. 166
Dennis J. Duffy.............................................. 167
Dr. David L. Evans........................................... 172
David G. Hawkins............................................. 178
Daniel M. Kammen............................................. 183
Maureen Koetz................................................ 184
William T. Miller............................................ 190
Dr. Richard L. Sandor........................................ 195
Response to written questions submitted by Hon. Olympia J. Snowe
to:
Dr. David L. Evans........................................... 174
William T. Miller............................................ 191
CLIMATE CHANGE TECHNOLOGY AND
POLICY OPTIONS
----------
TUESDAY, JULY 10, 2001
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met at 9:30 a.m., in room SR-253, Russell
Senate Office Building, Hon. John F. Kerry, presiding.
OPENING STATEMENT OF HON. JOHN F. KERRY,
U.S. SENATOR FROM MASSACHUSETTS
Senator Kerry. The hearing will come to order, which it
appears to already have done brilliantly.
Good morning everybody, and welcome to this full Committee
hearing of the Commerce, Science, and Transportation Committee.
I would like to thank Chairman Hollings and Ranking Member
McCain for calling the hearing and heading us off in the
direction that we will move today, and I would like to put that
in a context if I can just for a moment.
For many years now, we on this Committee have held hearings
on the issue of global warming starting around 1990, 1991. Then
Senator Gore joined me to begin the early inquiries into global
climate change. A number of us traveled to Rio de Janeiro for
the Earth Summit in 1992 where the original framework
convention on climate change was passed, which was obviously a
voluntary framework, but which established that this is a
serious problem and that we need to deal with it.
Here we are now in the next century, the next millennium,
2001, and regrettably some have been still content to just
debate the science. This hearing is specifically geared towards
building on the hearings that then Chairman McCain held earlier
in the year to move us beyond that debate. Today's hearing
focuses on the technologies and policies that can help us to
mitigate the threat of climate change.
And while obviously we will still focus on some of the
science--and clearly the underlying science remains an
important concern of the Committee because we have to use that
science in making judgments about what technologies make the
most sense or what the results may be--this does mark a very
significant shift in the focus of this Committee from science
to solutions.
Over the past year as I mentioned, Senator McCain held a
series of hearings that included some of the top scientists of
the world, and not surprisingly, the record of those hearings
paralleled the findings of the National Academy of Science's
report released in June on the science of climate change. That
report, which follows on the heels of similar findings of the
Intergovernmental Panel on Climate Change's report and dozens
of other individual studies, concluded that greenhouse gases
are accumulating in the Earth's atmosphere as a result of human
activities, that air and ocean temperatures are rising and are
expected to rise further, and that human activities, mainly
burning fossil fuels and deforestation, are a contributing
factor.
So this Committee will not ignore the science of climate
change, because that obviously drives our agenda. But it is
important that we try to move now to constructively considering
the options that other countries have already moved to and that
seem to become more compelling.
Let me state for the record that the Department of State
and the White House were invited to testify before the
Committee today, but declined to do so. I wrote both Secretary
Powell and Chief of Staff Card late last week, when we heard
that they had decided against testifying, in hopes that they
would reconsider. Obviously they did not, and I am very pleased
to have Dr. Evans, who is a very respected career scientist
from NOAA here to represent the Department of Commerce, and I
appreciate your doing so, and I appreciate your testimony,
which I read just before coming in here.
But I do regret that other officials have not come to share
with us their views at this point about what possibilities may
exist. This is not a political exercise; this is a policy
exercise, one that we are engaged in inquisitively. We are
trying to find solutions, as are other people, and it is
helpful for the country to have a dialog about this so we can
all understand the options better.
I thought this was our chance, two weeks before the next
meeting of the parties of the conference, to try to help come
to some decision about where we proceed post-Kyoto, that it
might have been a good opportunity to be able to have some of
that discussion. We have been told that the Administration has
committed significant resources at the highest levels of
Government to assess this issue. National Security Advisor
Condoleezza Rice has described the effort as so intense as to
be unprecedented.
The Commerce Committee has demonstrated, through Senator
McCain's earlier efforts this year and prior to that, a serious
commitment to understanding the science of climate change and
also to recognizing our jurisdiction over important laws and
programs relevant to this issue, ranging from the basic
scientific research to auto efficiency standards, to
technological research, development and deployment. So I regret
that we can't have as full a discussion, but I hope we will be
able to proceed to follow up on that sometime in the near
future.
Let me emphasize what this hearing is about. I don't
approach this with a preconceived determination as to what the
order of priorities is for how we proceed. I am not sure any
member of this Committee could or would dare to do so today.
What we do want to try to do is lay out on the table some of
the technologies and policies that make climate change not an
intractable problem, but rather an opportunity and a moment
where we could conceivably help our economy and not hurt it, as
well as implement good environmental policy at the same time.
Clearly, to address climate change the United States and
the world have to move from polluting technologies to
sustainable technologies. I don't propose that we immediately
stop burning coal, oil and natural gas in order to respond to
this problem, nor do I know any other person of common sense
who suggests that. It is not an option. I recognize we have to
build an additional pipeline and we need to continue to drill.
We are stuck, to a certain degree.
But there are many, many things that all of us understand
are available as options that could move us much more rapidly,
much more affirmatively and proactively, toward the adoption of
those sustainable policies in ways that are the least
intrusive, most efficient, and least cost--approaches that
could wind up being synergistic with our economic interests,
rather than counterproductive.
So those are the options that we are interested in looking
at. It is interesting to note, in that vein, that our economy
today is twice as energy-efficient as it was in 1973, which
means that producing a single unit of GDP today requires half
the energy that it required in 1973. We have doubled, during
that period of time, the efficiency of America's automobiles,
thanks to the CAFE program. We save 3 million barrels of oil
daily and more than 20 billion annually by building safer, more
highly reliable quality cars.
The sale of efficient compact fluorescent lamps increased
fivefold from 1990 to 1999. American steel mills are 25 percent
more efficient today, and paper and pulp production is nearly
30 percent more efficient than 30 years ago. Many people
believe that there are incentives such as tax incentives,
grants, various kinds of technological transfer programs, and
other mechanisms we could use to excite and rapidly accelerate
our capacity to augment those kinds of gains.
In fact, energy efficiency is misunderstood by many people.
Conservation means turning off the lights or using less fuel,
but energy efficiency means achieving the same output, the same
consequence with less, and we have proven over the last 20
years that we have the ability as a country to do that.
We will hear today from people who will talk about many
different technologies that are right on the borderline of
being able to become economically viable, which could have a
profound impact on America's contribution to the entire issue
of climate change, and that is the purpose of today's hearing.
There are many of us who believe we are moving far too slowly,
that we have not really adopted as a national enterprise the
effort to prove our bona fides in this area.
Many of the technologies that could help us do that are
already in the marketplace, and the challenge is to increase
their use, including cogeneration, wind power, solar, methane,
biomass, hydrogen fuel cells, more efficient cars and
appliances. Others are technologically proven, but have yet to
gain a commercial foothold. And still others remain on the
drawing board, and while they have tremendous potential, that
potential will only be achieved if we pursue them with the same
kind of intensity and investment that we have pursued in space
exploration, communications, and medicine.
I believe, and others share the belief, that the burden is
on us to create the push and pull of incentives and mandates
that will move these technologies to the marketplace faster.
[The prepared statement of Senator Kerry follows:]
Prepared Statement of Hon. John F. Kerry,
U.S. Senator from Massachusetts
I want to thank Chairman Hollings and Ranking Member McCain for
holding this hearing. To begin, I'd like to put this hearing into
context. Today's hearing focuses on the technologies and policies that
can help us mitigate the threat of climate change. While we will focus
some on the science and while the underlying science remains an
important concern of this Committee, today marks a significant shift in
our focus from the science to the solutions of climate change.
Over the past year, Senator McCain--as Chairman of this Committee--
held a series of hearings that included some of the top scientists in
the world. Not surprisingly, the record of those hearings parallels the
findings of the National Academy's of Sciences report released in June
on the science of climate change. That report--which follows on the
heels of similar findings of the Intergovernmental Panel on Climate
Change's report and dozens of other individual studies--concluded that
greenhouse gases are accumulating in the Earth's atmosphere as a result
of human activities; that air and ocean temperatures are rising and are
expected to rise further; and that human activities, mainly burning
fossil fuels and deforestation, are a contributing factor.
This Committee is by no means ignoring the science of climate
change--the science is what is driving this Committee's agenda in
regard to climate change--and that is why, after four hearings that
together create a compelling argument for action, we are now
investigating the technologies and policies that can reduce greenhouse
gas emissions. It is an important step, and I'm glad to see the
Committee take it.
Second, I want the record to show that the Department of State and
the White House were invited to testify before the Committee today but
declined to do so. I wrote both Secretary Powell and Chief of Staff
Card late last week when I heard that the Administration had decided
against testifying in hopes that they would reconsider. Obviously, they
did not. While I'm pleased to have Dr. Evans, a respected career
scientist from NOAA here to represent the Department of Commerce, I
regret that senior officials from the State Department, Commerce
Department, and the White House are not here today.
I want to be clear that while I have differences with
Administration's approach to this issue, I am not here to assail the
Bush Administration. Today was a chance for the Administration to set
forth its approach to climate change, which is not an unreasonable
request. The Administration has told us that it has committed
significant resources at the highest levels of government to assessing
climate change--National Security Advisor Condoleezza Rice has
described this effort as so intense as to be unprecedented. The
Commerce Committee has demonstrated a commitment to understanding the
science of climate change over past several years. The Committee has
jurisdiction over several laws and programs important to the issue--
ranging from basic scientific research to auto efficiency standards to
technological research, development and deployment. It seems to me that
the Administration might have welcomed the opportunity to come before
the Committee and discuss the policies that it believes this nation
should enact. It seems to me that today is lost opportunity for the
Administration.
Lastly, today's hearing will bring forth some of the technologies
and policies that, I believe, make climate change not an intractable
problem, but a challenge to be understood and addressed, and, as
importantly, an economic opportunity. To address climate change,
America and the world must move from polluting technologies to
sustainable technologies. I don't propose that we immediately stop
burning coal, oil and natural gas to address climate change or other
environmental issues. Instead, I advocate a gradual transition from
heavily-polluting energy to clean energy at a pace that is
technologically viable and economically beneficial. I advocate that we
do this in the most efficient, least cost manner and that we address
the real world economic realities associated with any technological
shift. Today, we are moving far too slowly with almost no recognition
of the environmental implications of our pollution and with no purpose
to incite the necessary technological innovation. Some of these
technologies are already in the marketplace and the challenge is to
increase their use--they include cogeneration, wind power, solar,
methane, biomass, hydrogen fuel cells and more efficient cars and
appliances. Others are technologically proven but have yet to gain a
commercial foothold. And still others remain on the drawing board, and
while they have tremendous potential, that potential can only be
achieved if we pursue them with the same kind of intensity and
investment we have placed in space exploration, communications and
medicine. I believe that the burden is on us to create the push and
pull of incentives and mandates that will move these technologies into
the marketplace for the benefit of our economy and our environment.
Thank you.
Senator Kerry. Senator McCain.
STATEMENT OF HON. JOHN McCAIN,
U.S. SENATOR FROM ARIZONA
Senator McCain. Thank you, Senator Kerry, for continuing
this series of hearings on this very, very important topic. I
think that each study, each new expert on this issue reveals
the urgency and compelling aspect of this problem of climate
change in America. Based upon previous hearings, you, I and
others have been working on legislation to address many of the
options, and hopefully in the near future, we can join together
with a joint bipartisan piece of legislation that I think would
at least make some progress, towards addressing this issue.
I look forward to hearing about the status of several
technologies which can lead to significant emissions
reductions. I recognize the solutions to the problems will
require increased investments in many different areas, and
today's second panel certainly represents a diversity of
technologies. Some of these technologies, such as wind and
nuclear power, have been around for many years. These
technologies possess tremendous abilities to reduce the amount
of carbon dioxide in the atmosphere while playing a major role
in the future energy production and utilization needs of the
country.
Many of these technologies will allow the Nation to become
more energy efficient and will conserve precious natural
resources. I think the information the second panel will
provide us with is critically important as we deliberate on how
to increase energy supplies to meet our future energy needs,
while taking important measures to protect the environment.
Mr. Chairman, in the recent National Academy report,
Climate Change Science and Analysis of Some Key Questions, it
was stated that--and I quote--``National policy decisions made
now and in the longer term future will influence the extent of
any damage suffered by vulnerable human populations and
ecosystems later in this century.''
The report further states--and I quote--``There is
considerable uncertainty in current understanding of how the
climate system varies naturally and reacts to emissions of
greenhouse gases and aerosols.''
These statements by the Academy put the upcoming policy
decisions into the proper perspective along with the need for
additional research. As we in the Senate continue to debate the
policy issues, it is pleasing to see that industry has started
to take initiatives of their own to address these problems. I
look forward to hearing about their voluntary activities and
their impact on the economies.
I feel it is important we fully explore all policy options,
including mandatory emission reductions, before proceeding with
any final and definitive position. The issue of climate change
is an important one, and the Committee should be very informed
about the latest developments. It is also an issue that we need
to take some action on.
And I thank you, Senator Kerry, not only for this hearing,
but your continued and many years of involvement in this issue.
I thank the Chairman.
Senator Kerry. Thank you very much, Senator McCain.
[The prepared statement of Senator McCain follows:]
Prepared Statement of Hon. John McCain,
U.S. Senator from Arizona
First of all, let me thank Senator Kerry for continuing this series
of hearings on this very important topic. I think that today's hearing
is an appropriate one considering the fact that several Members are
currently considering several options for legislation. Based upon
previous hearings, I have been working on legislation to address many
of these options and plan to introduce a bill in the near future.
I look forward to hearing about the status of several technologies
which can lead to significant emission reductions. I recognize that the
solution to this problem will require increased investments in many
different areas. Today's second panel certainly represents a diversity
of technologies. Some of these technologies, such as wind and nuclear
power, have been around for many years. These technologies possess
tremendous abilities to reduce the amount of carbon dioxide in the
atmosphere while playing a major role in the future energy production
and utilization needs of the country. Many of these technologies will
allow the Nation to become more energy efficient and will conserve
precious natural resources. This is critically important as we
deliberate on how to increase energy supplies to meet our future energy
needs while taking important measures to protect the environment.
In the recent National Academy Report, ``Climate Change Science: An
Analysis of Some Key Questions,'' it was stated that ``national policy
decisions made now and in the longer-term future will influence the
extent of any damage suffered by vulnerable human populations and
ecosystems later in this century.'' The report further states that
``there is considerable uncertainty in current understanding of how the
climate system varies naturally and reacts to emissions of greenhouse
gases and aerosols.'' These statements by the Academy put the upcoming
policy decisions into the proper perspective along with the need for
additional research.
As we in the Senate continue to debate the policy issues, it is
pleasing to see that industry has started to take initiatives of their
own to address these problems. I look forward to hearing about their
voluntary activities and their impact on the economy.
I feel that it is important we fully explore all policy options,
including mandatory emission reductions, before proceeding with any
final and definitive position. This issue of climate change is a very
important one and the Committee should be very informed about the
latest developments surrounding it. It is also an issue that we need to
take action upon.
Again, I thank you Senator Kerry for holding this hearing and
welcome all of our witnesses here today.
Senator Kerry. Dr. Evans, thank you very much for joining
us today. We look forward to your testimony. If I can state, as
is our norm, your full testimony will be placed in the record
as if read in full. If you could summarize, that will give us
more time to explore possibilities with you. Thank you very
much.
STATEMENT OF DR. DAVID L. EVANS, ASSISTANT
ADMINISTRATOR, OCEANIC AND ATMOSPHERIC RESEARCH,
NATIONAL OCEANIC & ATMOSPHERIC ADMINISTRATION
Dr. Evans. Thank you very much, Mr. Chairman. As you know,
I am David Evans. I am Assistant Administrator of the National
Oceanic and Atmospheric Administration's Office of Oceanic and
Atmospheric Research, and I am here today to discuss global
climate change, how the Department of Commerce is working to
improve our understanding, and the Department's programs to
advance technologies which may help mitigate climate change.
The information I will present to you is based primarily on
the 2001 report of the Intergovernmental Panel on Climate
Change (IPCC) and the recent National Academy report that both
you and Senator McCain have referred to.
But before addressing those findings, there are two
fundamental points that really are quite worthy of note, and
they have been known for quite some time. The first one is that
the natural greenhouse effect is real. It is an essential
component of the planet's climate process. A small percentage,
about 2 percent of the atmosphere, is and has long been
composed of greenhouse gases, water vapor, carbon dioxide,
ozone, methane, and these effectively prevent part of the heat
radiated by the Earth's surface from otherwise escaping into
space.
The global system responds to this trapped heat with a
climate that is warmer on average than it would be otherwise
without the presence of these gases and, indeed, supports life
as we have come to appreciate it.
In addition, some greenhouse gases are increasing in the
atmosphere because of human activities, and are increasingly
trapping more heat. Direct atmospheric measurements made over
the past 40 years have documented the steady growth in the
atmospheric abundance of carbon dioxide. Ice core measurements
using air bubbles trapped within layers of accumulating snow
show that atmospheric carbon dioxide has increased by more than
30 percent over the industrial era compared with the preceding
750 years. The predominant cause of this increase in carbon
dioxide is the combustion of fossil fuels and the burning of
forests.
Particles or aerosols in the atmosphere resulting from
human activities can also affect climate. Some aerosol types,
such as sulfate aerosols, act in the opposite sense to
greenhouse gases and cause a cooling of the climate system,
while others, like soot, act in the same sense and warm the
climate. In summary, emissions of greenhouse gases and aerosols
due to human activities continue to alter the atmosphere in
ways that are expected to affect the climate.
Moving on to the more recent findings, there is a growing
set of observations that yields a collective picture of a
warming world over the past century. The global average surface
temperature has increased over the 20th Century by between 0.4
and 0.8 degrees centigrade. The average temperature increase in
the Northern Hemisphere over the 20th Century is likely to have
been the largest of any century during the past thousand years.
Other observed changes are consistent with this warming.
There has been widespread retreat of mountain glaciers in non-
polar regions. Snow cover and ice extent have decreased. The
global average sea level has risen between 10 and 20
centimeters, and that is consistent with a warmer ocean,
occupying more space just due to thermal expansion of sea
water.
There is new and stronger evidence that most of the warming
over the last 50 years is attributable to human activities.
Since the IPCC assessment in 1995, there is now a longer and
more closely scrutinized temperature record. Climate models
have improved significantly since the last assessment, and
recent analyses have compared surface temperatures measured
over the last 140 years to those simulated by the models.
Both natural climate change agents, such as variations in
solar output and episodic explosive volcanic eruptions, and
human agents, greenhouse gases and fine particles, have been
included in the models. The best agreement between the
observations and the model simulations over the last 140 years
is found when both the human-related and the natural climate
change agents are included. Further model simulations indicate
that warming over the past century is very likely not to be due
to natural variability alone.
Scenarios of future human activities indicate continued
changes in atmospheric composition through the 21st Century.
The amount of greenhouse gases and aerosols over the next 100
years cannot be predicted with high confidence, since future
emissions will depend on many diverse factors, including world
population, the economies, technology development, human
choices, and they are not uniquely quantifiable.
Based on scenarios covering a range of those factors, the
resulting projection for global temperature increase by the
year 2100 ranges from 1.3 to 5.6 degrees C. or about 2\1/2\ to
10 degrees Fahrenheit. Such a projected rate of warming would
be much larger than the observed 20th Century changes. The
corresponding projected change in sea level would be between 10
and 100 centimeters, between about 3\1/2\ and 35 inches.
Finally, greenhouse warming could be reversed only very
slowly. This is because of the slow rate of removal from the
atmosphere of greenhouse gases, a period of centuries, and
because of the slow response of the ocean to thermal changes.
Global average temperature increases and rising sea level are
projected to continue for hundreds of years after stabilization
of greenhouse gas concentrations, owing to the long time
scales.
The IPCC report stresses a critical role of the oceans in
understanding the Earth's climate system due to sea water's
capacity to store and transport large amounts of heat.
Scientists have recently published a study using newly
available data to prepare analysis of ocean warming over the
last 50 years. The global volume mean temperature increase in
the upper 300 meters was about three-tenths of a degree
Centigrade, and just to sort of give you a scale for that, the
U.S. consumption of electricity for something like 17,000
years, so it is a very significant amount of energy.
Two recent computer modeling studies have found that model
increases in the ocean heat were comparable to that which was
observed only when the effects of greenhouse gases and other
forcings were included.
The White House requested that the National Academy of
Sciences prepare a study to assist in identifying the areas of
climate change science where there are greatest certainties and
uncertainties and give views on whether there were any
substantive differences between the IPCC reports and the IPCC
summaries.
The National Academy of Science reported on June 6 with a
study entitled, Climate Change Science: An Answer to Some Key
Questions, and that summary states that, ``Greenhouse gases are
accumulating in the Earth's atmosphere as a result of human
activities, causing surface air temperatures and subsurface
ocean temperatures to rise. Temperatures are, in fact, rising.
The changes observed over the last several decades are likely
mostly due to human activities, but we cannot rule out that
some significant part of these changes are also a reflection of
the natural variability.''
And it goes on to say, ``Because there is considerable
uncertainty in the current understanding of how the climate
system varies naturally and reacts to the emissions of
greenhouses gases and aerosols, current estimates of the
magnitude of future warming should be regarded as tentative and
subject to future adjustments, either upward or downward.''
To address this uncertainty, the President has directed a
Cabinet-level review of U.S. climate change policy. Based on
their findings, the President in his June 11 remarks committed
his Administration to increased investments in climate science.
He announced the establishment of U.S. climate Change Research
Initiative to study areas of uncertainty and identify areas
where investments are crucial.
The President directed the Secretary of Commerce, working
with other agencies, to set priorities for additional
investments in climate change research, review such
investments, and provide coordination amongst Federal agencies.
He pledged to fully fund high-priority areas for climate change
science over the next 5 years and provide resources to build
climate-observing systems in developing countries, and to
encourage other developed nations to match our commitment. That
review process has begun, and we expect the results to be
reflected in the President's fiscal 2003 budget submission to
Congress.
In addition to better understanding of the science, we will
need to advance our technology to deal with climate change. Due
to the long lifetime of CO2 in the atmosphere,
stabilizing concentrations means that we must ultimately end up
with much lower net emissions.
The long-term objective, the stabilized greenhouse
concentrations in the atmosphere, can be addressed in two ways:
first by reducing the emissions of greenhouse gases; second by
means of capturing and sequestering gases, either at the source
or after they have been released into the atmosphere.
There are significant climate change technology programs at
many Federal agencies, including notably the Department of
Energy, Environmental Protection Agency, and the Department of
Agriculture. However, within the Department of Commerce, a NIST
advanced technology program has funded research into
technologies aimed at reducing emissions--that is the first one
of those strategies--and improving energy efficiency, and
increasing the use of low-carbon fuels.
Similarly, the Manufacturing Extension Partnership helps
manufacturers reduce their dependencies on fossil fuels and the
use of ozone-depleting substances. Other agencies are working
on capture and sequestration issues, on that side of the
problem.
While the development of these and other technologies is
crucial, we should recognize that the apparent change in
climate that we have seen over the last 100 years has taken,
indeed, 100 years to present themselves. Stabilizing the
climate will take comparable time periods. It is not
unreasonable to expect that the technology of the world in 100
years will be as different today as today's is from 100 years
ago. At NOAA, we will pursue better science to inform the
decisions as we proceed along.
Thank you very much for the opportunity to come and talk
about the science, Mr. Chairman. I would be happy to answer any
of your questions.
[The prepared statement of Dr. Evans follows:]
Prepared Statement of Dr. David L. Evans, Assistant Administrator,
Oceanic and Atmospheric Research, National Oceanic & Atmospheric
Administration
Good morning, Mr. Chairman and members of the Committee. I am David
Evans, Assistant Administrator of the Office of Oceanic and Atmospheric
Research. NOAA Research is one of five line offices within the National
Oceanic and Atmospheric Administration (NOAA) of the Department of
Commerce. I have been invited to discuss the Administration's position
on climate change, how the Department is working to improve our
understanding of climate, and the Department's programs that may
advance technologies which may mitigate climate change.
NOAA is the agency within the Department of Commerce tasked with
developing much of the ongoing research on climate change and climate
variability and has made major contributions to the understanding of
the Earth's climate system. We work in partnership with other federal
agencies, scientific organizations, and universities to generate the
most accurate and reliable science that we can present on this issue.
In recent years, we have worked to identify gaps in our knowledge and
capabilities and to determine the impacts that climate change may have
on society and the environment. While our role in climate change is
non-regulatory, our scientific information is relied upon by policy
makers in government and industry, including those in the United States
and other countries.
The information I will present to you today is based on a number of
findings and mainly represents the state of the science, and the
Administration's policies as set forth in the initial report of the
Climate Change Review. With respect to the science, I will refer
primarily to the set of findings of the 2001 report of the
Intergovernmental Panel on Climate Change (IPCC) and the National
Academy of Sciences (NAS) June 6, 2001 report, ``Climate Change
Science: Analysis of Some Key Questions.''
For more than a decade, NOAA scientists have been involved in
various national and international scientific assessments. These
include National Academy of Science studies, World Meteorological
Organization/United Nations Environment Programme (WMO/UNEP) reports on
the scientific understanding of the ozone layer and IPCC climate change
science assessments. In the recently concluded IPCC scientific
assessment, four of our scientists served as lead authors, and three of
our scientists served as coordinating lead authors on the Technical
Summary of the Working Group I Report of the IPCC: Change 2001: The
Scientific Basis, and the Chapter on Observed Climate Variability and
Change; the Chapter on Atmospheric Chemistry and Greenhouse Gases; the
Chapter on Aerosols, Their Direct and Indirect Effects; the Chapter on
Radiative Forcing of Climate Change; and the Chapter on the Projections
of Future Climate Change. The Summary was formally approved in detail
and accepted along with the underlying assessment report at the IPCC
Working Group I Plenary session in January 2001.
The IPCC assessment took almost three years to prepare and
represents the work of more than 100 scientific authors worldwide. It
is based on the scientific literature, and was carefully scrutinized by
hundreds of scientific peers through an extensive peer review process.
The independent NAS report was requested by the administration, and was
a consensus report compiled by a 11-member panel of leading U.S.
climate scientists, including a mix of scientists who have been
skeptical about some findings of the IPCC and other assessments on
climate change. The NAS panel attempted to better articulate levels of
scientific confidence and caveats than the IPCC Summary for Policy
Makers.
Before addressing the findings of both reports, two fundamental
points are worthy of note. These have been long-known, are very well
understood, and have been deeply underscored in all previous reports
and other such scientific summaries.
The natural ``greenhouse'' effect is real, and is an essential
component of the planet's climate process. A small percentage (roughly
2%) of the atmosphere is, and long has been, composed of greenhouse
gases (water vapor, carbon dioxide, ozone and methane). These
effectively prevent part of the heat radiated by the Earth's surface
from otherwise escaping to space. The global system responds to this
trapped heat with a climate that is warmer, on the average, than it
would be otherwise without the presence of these gases.
In addition to the natural greenhouse effect above, there is a
change underway in the greenhouse radiation balance, namely:
Some greenhouse gases are increasing in the atmosphere because
of human activities and increasingly trapping more heat. Direct
atmospheric measurements made over the past 40-plus years have
documented the steady growth in the atmospheric abundance of carbon
dioxide. In addition to these direct real-time measurements, ice cores
have revealed the atmospheric carbon dioxide concentrations of the
distant past. Measurements using air bubbles trapped within layers of
accumulating snow show that atmospheric carbon dioxide has increased by
more than 30% over the Industrial Era (since 1750), compared to the
relatively constant abundance that it had over the preceding 750 years
of the past millennium. The predominant cause of this increase in
carbon dioxide is the combustion of fossil fuels and the burning of
forests. Further, methane abundance has doubled over the Industrial
Era. Other heat-trapping gases are also increasing as a result of human
activities. However, we are unable to state with certainty the rate at
which the globe will warm or what effect that will have on society or
the environment.
The increase in greenhouse gas concentrations in the atmosphere
implies a positive radiative forcing, i.e., a tendency to warm the
climate system. Particles (or aerosols) in the atmosphere resulting
from human activities can also affect climate. Aerosols vary
considerably by region. Some aerosol types act in a sense opposite to
the greenhouse gases and cause a negative forcing or cooling of the
climate system (e.g., sulfate aerosol), while others act in the same
sense and warm the climate (e.g., soot). In contrast to the long-lived
nature of carbon dioxide (centuries), aerosols are short-lived and
removed from the lower atmosphere relatively quickly (within a few
days). Therefore, aerosols exert a long-term forcing on climate only
because their emissions continue each year.
In summary, emissions of greenhouse gases and aerosols due to human
activities continue to alter the atmosphere in ways that are expected
to affect the climate. There are also natural factors which exert a
forcing of climate, e.g., changes in the Sun's energy output and short-
lived (about 1 to 2 years) aerosols in the stratosphere following
episodic and explosive volcanic eruptions. Both reports evaluated the
state of the knowledge and assessed the level of scientific
understanding of each forcing. The level of understanding and the
forcing estimate in the case of the greenhouse gases are greater than
for other forcing agents.
What do these changes in the forcing agents mean for changes in the
climate system? What climate changes have been observed? How well are
the causes of those changes understood? Namely, what are changes due to
natural factors, and what are changes due to the greenhouse-gas
increases? And, what does this understanding potentially imply about
the climate of the future?
These questions bear directly on the scientific points that you
have asked me to address today. In doing so, findings emerging from
both the recent IPCC and NAS climate change science reports with
respect to measurements, analyses of climate change to date, and
projections of climate change will be summarized.
There is a growing set of observations that yields a
collective picture of a warming world over the past century. The
global-average surface temperature has increased over the 20th century
by 0.4 to 0.8+ C [NAS, p.16]. The average temperature increase in the
Northern Hemisphere over the 20th century is likely to have been the
largest of any century during the past 1,000 years, based on ``proxy''
data (and their uncertainties) from tree rings, corals, ice cores, and
historical records. Other observed changes are consistent with this
warming. There has been a widespread retreat of mountain glaciers in
non-polar regions. Snow cover and ice extent have decreased. The
global-average sea level has risen between 10 to 20 centimeters, which
is consistent with a warmer ocean occupying more space because of the
thermal expansion of sea water and loss of land ice. The NAS report
also found that at least part of the rapid warming of the Northern
Hemisphere during the first part of the 20th century was of natural
origin.
There is new and stronger evidence that most of the warming
observed over the last 50 years is attributable to human activities.
The 1995 IPCC climate-science assessment report concluded: ``The
balance of evidence suggests a discernible human influence on global
climate.'' There is now a longer and more closely scrutinized observed
temperature record. Climate models have evolved and improved
significantly since the last assessment. Although many of the sources
of uncertainty identified in 1995 still remain to some degree, new
evidence and improved understanding support the updated conclusion.
Namely, recent analyses have compared the surface temperatures measured
over the last 140 years to those simulated by mathematical models of
the climate system, thereby evaluating the degree to which human
influences can be detected. Both natural climate-change agents (solar
variation and episodic, explosive volcanic eruptions) and human-related
agents (greenhouse gases and fine particles) were included. The natural
climate-change agents alone do not explain the warming in the second
half of the 20th century.
Scenarios of future human activities indicate continued
changes in atmospheric composition throughout the 21st century. The
atmospheric abundances of greenhouse gases and aerosols over the next
100 years cannot be predicted with high confidence, since the future
emissions of these species will depend on many diverse factors, e.g.,
world population, economies, technologies, and human choices, which are
not uniquely specifiable. Rather, the IPCC assessment aimed at
establishing a set of scenarios of greenhouse gas and aerosol
abundances, with each based on a picture of what the world plausibly
could be over the 21st century. Based on these scenarios and the
estimated uncertainties in climate models, the resulting projection for
the global average temperature increase by the year 2100 ranges from
1.3 to 5.6 degrees Celsius. Such a projected rate of warming would be
much larger than the observed 20th-century changes and would very
likely be without precedent during at least the last 10,000 years. The
corresponding projected increase in global sea level by the end of this
century ranges from 9 to 88 centimeters. Uncertainties in the
understanding of some climate processes make it more difficult to
project meaningfully the corresponding changes in regional climate. The
NAS report agrees with this projection but notes that future climate
change will depend on what technological developments may allow
reductions of greenhouse gas emissions.
Finally, I would like to relate a basic scientific aspect that has
been underscored with very high confidence in all of the IPCC climate-
science assessment reports (1990, 1995, and 2001). It is repeated here
because it is a key (perhaps ``the'' key) aspect of a greenhouse-gas-
induced climate change:
A greenhouse-gas warming could be reversed only very slowly.
This quasi-irreversibility arises because of the slow rate of removal
(centuries) from the atmosphere of many of the greenhouse gases and
because of the slow response of the oceans to thermal changes (NAS, p.
10). For example, several centuries after carbon dioxide emissions
occur, about a quarter of the increase in the atmospheric
concentrations caused by these emissions is projected to still be in
the atmosphere. Additionally, global average temperature increases and
rising sea level are projected to continue for hundreds of years after
a stabilization of greenhouse gas concentrations (including a
stabilization at today's abundances), owing to the long timescales
(centuries) on which the deep ocean adjusts to climate change.
Both reports stress the critical role of the oceans in
understanding the Earth's climate system due to the seawater's capacity
to store and transport large amounts of heat. While the first study to
conclude that the global radiative balance of the Earth system requires
heat transport from the tropics to the poles was published almost a
century ago, identifying the mechanisms by which heat is transported
remains a central problem of climate research. Because of its large
specific heat capacity and mass, the world ocean can store large
amounts of heat and remove this heat from direct contact with the
atmosphere for long periods of time. Studies of ocean subsurface
temperature variability were limited due mostly to the lack of data.
About 25 years ago, programs were initiated to provide measurements of
upper ocean temperature, and for the past 10 years there has been an
increase in the amount of historical upper ocean thermal data
available. Levitus et al. have used these data to prepare yearly,
gridded objective analyses for the period of 1960 to 1990. With the use
of the World Atlas Database 1998 temperature anomaly fields were
prepared. These analyses lead to the quantification of the interannual-
to-decadal variability of the heat content (mean temperature) of the
world ocean from the surface through 3000-meter depth for the period
1948 to 1998. The mean temperature of the ocean increased by 2x10\23\
joules, representing a volume mean warming of 0.06+ C. This corresponds
to a warming rate of 0.3 watt per meter squared (per unit area of
Earth's surface). Substantial changes in heat content occurred in the
300- to 1000-meter layers of each ocean and in depths greater than 1000
meters in the North Atlantic. The global volume mean temperature
increase for the 0- to 300-meter was 0.31+ C. Two studies by U.S.
scientists (Levitus et al. and Barnett et al.) attempted to address the
causes of the world ocean warming using computer model simulations.
These studies were published in the April 13, 2001 issue of the
journal of Science. Both studies found that the model simulated
increase in ocean heat content were comparable to the observed increase
only when the effects of greenhouse gases and other forcings were
included. The findings further reported that it is unlikely that the
observed increases result from random fluctuations of the climate
system. The long-term increase requires a sustained warming, such as
would be expected from increasing concentrations of atmospheric
greenhouse gases. However, this assessment depends upon how well the
models simulate the internal variability of the ocean system on time
scales of 40 to 50 years.
The NAS study titled ``Climate Change Science--An Analysis of Some
Key Questions'' was released on June 6 and originated from a White
House request to inform the Administration's ongoing review of U.S.
climate change policy. In particular, the Administration asked for
``assistance in identifying the areas in the science of climate change
where there are the greatest certainties and uncertainties,'' and views
on ``whether there are any substantive differences between the IPCC
reports and the IPCC summaries.''
The NAS Committee generally agreed with the assessment of human-
caused climate change presented in the IPCC Working Group I (WG I)
scientific report, but aimed at articulating more clearly the remaining
uncertainties. The NAS report summary states: ``Greenhouse gases are
accumulating in earth's atmosphere as a result of human activities,
causing surface air temperatures and subsurface ocean temperatures to
rise. Temperatures, are in fact, rising. The changes observed over the
last several decades are likely mostly due to human activities, but we
cannot rule out that some significant part of these changes are also a
reflection of natural variability.'' Importantly, the report observes:
``Because there is considerable uncertainty in current understanding of
how the climate system varies naturally and reacts to emissions of
greenhouse gases and aerosols, current estimates of the magnitude of
future warming should be regarded as tentative and subject to future
adjustments (either upward or downward).''
To address this uncertainty, the President has directed the
Cabinet-level review of U.S. climate change policy. Based on the
Cabinet's initial findings, the President in his June 11 remarks
committed his Administration to invest in climate science. He announced
the establishment of the U.S. Climate Change Research Initiative to
study areas of uncertainty and to identify areas where investments are
critical. He directed the ``Secretary of Commerce, working with other
agencies, to set priorities for additional investments in climate
change research, review such investments, and to provide coordination
amongst federal agencies. We will fully fund high-priority areas for
climate change science over the next five years. We'll also provide
resources to build climate observation systems in developing countries
and encourage other developed nations to match our American
commitment.''
I would like to underscore that we will use the descriptions of the
uncertainties identified in the NAS report as the basis for development
of U.S. research in climate. Cited areas of uncertainty include:
Feedbacks in the climate system that determine the magnitude
and rate of temperature increases
Future usage of fossil fuels
How much carbon is sequestered on land and in the ocean
Details of regional climate change
Natural variability of climate, and the direct and indirect
effects of aerosols
We have convened an interagency working groups to develop a science
plan to reduce the areas of uncertainties.
There is a great deal of concern as to what are the CO2
emissions from various countries, and what scientists are finding about
what level of CO2 reductions are needed to stabilize
concentrations in the atmosphere. According to the most recent data
from the Carbon Dioxide Information Analysis Center at the Department
of Energy's Oak Ridge National Laboratory, countries with the highest
CO2 emissions are: the United States, with 1.49 billion tons
of carbon emissions a year; China, with 0.91 billion tons; Russia, with
0.39 billion tons; Japan, with 0.32 billion tons; India, with 0.28
billion tons; Germany, with 0.23 billion tons; the United Kingdom, with
0.14 billion tons; and Canada, with 0.13 billion tons.
Ultimately, due to the long lifetime of CO2 in the
atmosphere to stabilize concentrations we must make progress on net
emissions. To achieve this goal, technological advances must be made.
Technology will continue to play an important role in reducing
greenhouse gas emissions and controlling costs of climate change
mitigation. The long-term objective--to stabilize greenhouse
concentrations in the atmosphere--can be addressed in two ways: first,
by reducing emissions of greenhouse gases; and second, by means of
capturing and sequestering gases, either at the source or after they
have been released into the atmosphere.
There are significant climate change technology programs at many
federal agencies, including notably the Department of Energy, the
Environmental Protection Agency, and the Department of Agriculture. I
will confine myself to discussion of programs at the Department of
Commerce. In the past, the Department of Commerce NIST Advanced
Technology Program has funded research into technologies aimed at
improving energy efficiency, and increasing the use of low carbon
fuels. Similarly, the Manufacturing Extension Partnership helps
manufacturers to reduce their dependencies on fossil fuels and use of
ozone depleting substances. The NIST Measurements and Standards
Laboratory Program also provides the measurement science and data to
support climate change studies as well as calibration services relating
to atmospheric measurements. These activities contribute to the science
base for understanding the behavior of industrial chemicals in the
environment, evaluation of environmentally benign chemical
alternatives, and measurement techniques for key environmental species
in the atmosphere.
In closing, we have outlined a significant number of items that
challenge our existing understanding, and we will be placing special
emphasis on them in the future. We look forward to continuing to work
with you on these issues. Thank you again for the invitation to appear
today. I hope that this summary has been useful. I would be happy to
address any questions.
Sources of cited information:
Levitus, S., J.I. Antonov, J. Wang, T.L. Delworth, K.W. Dixon, and A.J.
Broccoli. Anthropogenic Warming of Earth's Climate System. Science
292: 267-270 (2001).
Levitus, S., J.I. Antonov, T.B. Boyer, and C. Stephens. Warming of the
World Ocean. Science 287: 2225-2229 (2000).
Rossby, C. The Atmosphere and the Sea in Motion. Rockefeller Institute.
1959.
Committee on the Science of Climate Change. Climate Change Science: An
Analysis of Some Key Questions. National Academy Press: Washington,
D.C. 2001. 28 p.
Summary for Policy Makers, Climate Change 2001: The Scientific Basis.
Summary for Policymakers and Technical Summary of the Working Group
I Report. Cambridge University Press, 98 pp. Also available at
http://www.ipcc.ch. The full report will be available this summer.
Parallel IPCC reports:
Climate Change 2001: Impacts, Adaptation and Vulnerability--
Contribution of Working Group II to the Intergovernmental Panel on
Climate Change (IPCC) Third Assessment Report.
Climate Change 2001: Mitigation--Contribution of Working Group III to
the Intergovernmental Panel on Climate Change (IPCC) Third
Assessment Report.
IPCC, 2000: IPCC Special Report on Emissions Scenarios. Cambridge
University Press.
Senator Kerry. Let me begin just by, if I can, putting on
the record a little bit of your background. How long have you
been at this?
Dr. Evans. How long have I been at this?
Senator Kerry. Yes.
Dr. Evans. Well, I have been at NOAA for a little over 8
years. Prior to that, I managed the physical oceanography
program, large-scale ocean program, for the Office of Naval
Research and dealt with the ocean part of climate from the Navy
point of view for about 6 years, and prior to that, I was at
the University of Rhode Island as an oceanographer, looking at
large-scale phenomena for about 15 years. Pretty long time by
now.
Senator Kerry. So you have had a lot of experience
following the entire evolution of this issue itself.
Dr. Evans. That is right.
Senator Kerry. And you are deeply immersed in it.
Dr. Evans. That is right.
Senator Kerry. Now, based on your experience as a
scientist, you have made a judgment here which I think is very
important, and I want to just explore for a moment. You said
toward the end of your testimony, ``Ultimately due to the long
lifetime of CO2 in the atmosphere, to stabilize
concentrations, we must make progress on net emissions.''
Correct?
Dr. Evans. That is correct.
Senator Kerry. So it is your conclusion that based on all
of the science to date, and based on our knowledge of our
contribution from a human level, that we are forced to find a
way to reduce the net emissions.
Dr. Evans. I think that is certainly going to be the case.
The alternative would be to continue to accumulate CO2
in the atmosphere at whatever rate and take the consequences of
that.
Senator Kerry. And that is unacceptable in your judgment as
a scientist.
Dr. Evans. Well, I didn't say that it was unacceptable. I
said that the consequence of not getting to a very low emission
rate would be continued accumulation of CO2, and
that would probably lead to continued changes of the sort that
we have seen. The acceptability or not, I think, has to do with
how we want to live on the planet. It is not strictly a
scientific question.
Senator Kerry. Fair enough. But applying your common sense
to what we have observed already in terms of consequences,
would you deem those consequences acceptable from a policy
point of view?
Dr. Evans. Well, this is going to get us down a slippery
slope, I am afraid, Senator. NOAA's position and role in all of
these activities really has been to try to present the science
as clearly as we can to those folks who are in a position to
make the policy determinations. NOAA doesn't really offer any
regulation or any management specifically on the policies.
Senator Kerry. Well, let me just ask you. Leaving NOAA
aside, talk to me as Dr. Evans, you know, family man, American
citizen. What do you think?
Dr. Evans. I think that if we continue to accumulate
CO2 in the atmosphere, we will continue to see
warming of the Earth's climate, change in the Earth's climate.
I think that we understand very little about what the
consequences of that will be. We are much more confident in
looking at the record of what we have done so far and seeing
the changes that have occurred so far, which are modest,
detectable for sure but modest, and we are far less confident
about what the consequences of those changes will be in the
future.
You know, we can certainly expect warming to continue, but
whether there would be dramatic changes and what those impacts
would be, our science for understanding that is far less well
developed.
Senator Kerry. Now, accepting, as I do, that some of the
models with respect to what happens where, when and how are
still in the developmental stages, we are still struggling with
those to some degree. But we are not struggling with the notion
that there are observable impacts as a result of warming,
ranging from ice pack melting, glacier melting, more violent
weather, other kinds of things that people have observed. Is
that correct?
Dr. Evans. Well, ice pack melting, glacial melting, those
changes are certainly consistent with a warming climate. I am
not sure that the evidence is actually in, in changes in
violent weather, to be perfectly honest. I think there is
really quite a lot of controversy, and there is far less
certainty about the impacts on what you call weather as opposed
to the overall climate. But we certainly are seeing impacts. I
believe that.
Senator Kerry. And do you accept, as some have set forth,
that the range of consequences is not simply the increased
warming itself, but other things that happen to crops, to
forest migration, to spread of disease, to drought, to water
supply? There are more complicated consequences that certainly
wise people would make some precautionary judgments about,
would they not?
Dr. Evans. I think that there are a range of consequences
of the sort that you outlined that are certainly possible in a
warmer world. They don't take place in a uniform sense. You
know, it is not that any of those phenomena would take place
everywhere.
One of the things that we have learned is that as the
climate changes, as the world warms, if you will, we will see
changes that are more pronounced of one sort or another in
different regions. It might be that one part of the country or
one continent becomes warmer and another part becomes wetter or
drier. Unfortunately, that is the very point where our science
begins to provide us with less confidence in our projections.
When we run the climate models, we get increased
differences in discrepancies among those models as we look at
finer resolution geographically, so that an effort to
scientifically assess what the consequences will be, in the
northwest or the southeast part of this country, we are less
certain there.
Senator Kerry. Well, I completely agree with that, and I
think that is part of what makes it difficult, but--the ``but''
is--it is irreversible.
Dr. Evans. It will take a very long time to change. We have
taken a long time to warm things up now, and I wouldn't say
that it is necessarily irreversible. You know, there are
natural processes that do remove CO2 from the
atmosphere. It is just that the time scales associated with the
change are very long.
Senator Kerry. Can you name a natural process that will
reverse the rise of sea level?
Dr. Evans. If the climate were to cool, then you would see
a reverse of that, in the same way that we have warmed it, so
if CO2 were removed from the atmosphere by
processes, vegetation processes or continued absorption in the
ocean, for example, processes that take a very long time, then
you could see a decrease in the concentration of carbon dioxide
in the atmosphere, a gradual cooling, and a slow reversal of
those processes. The thing that is so striking about it,
though, is that these are phenomena that have got time scales
in centuries, in fact.
Senator Kerry. And that is what makes it more compelling,
because at the moment there is no public policy in any country
anywhere in the world that is stimulating or exciting that
reversibility, is there?
Dr. Evans. Not that I am aware of.
Senator Kerry. So, in fact, that is what puts on the table
this question of what steps are available to us that might or
might not make sense at this point in time. Now, measuring
those, do you at this point in time offer this Committee and
the policymakers of the administration any set of steps or
priorities that you think make the most sense in order of
priority that we should be thinking about adopting?
Dr. Evans. There have been a wide range of possibilities
offered, and just taking a look at what you probably will get
to hear in the next two panels of your hearing today, I think
you will probably see a lot of those explored. My personal
expertise is really in how the ocean works and how the ocean
and the atmosphere work together, and so one of the things, I
think, scientists need to be prepared to do is to explore in
their models and with their understanding about the way the
world works what the potential consequences are of the options
that are offered, whether they are economic options or
technical options, technological options.
When some of those options are put forward, then we need to
build tools which are very poorly developed right now to
explore how those options would actually play out in the
physical environment, so that people would have an ability to
make a rational choice among the various options that might be
in front of them.
Senator Kerry. Are there any that you particularly, just
speaking again scientifically, are excited about, that would
have the best effect in terms of the net zero emissions or net
additional emissions?
Dr. Evans. Do I have a favorite? I would be hard-pressed to
have a favorite, I think. If we can figure out some way to deal
with some sort of capture and sequestration programs, I think
that those are probably going to be helpful somewhere along the
line. We have large amounts of fossil fuel still available, and
as you mentioned in your opening comments, we can anticipate
using them for some time to come. And so if we can develop some
technologies that help us reduce the amount of CO2
that we put into the atmosphere as we extract energy from those
fuels, I think that would probably have some great benefit.
Senator Kerry. One of the greatest natural sequestration
efforts comes from the ocean itself. Correct?
Dr. Evans. That is correct.
Senator Kerry. And there is a huge amount of CO2
that is contained within the ocean, in effect stored in the
ocean.
Dr. Evans. That is right.
Senator Kerry. But we don't know what the saturation point
is with respect to ocean storage, do we?
Dr. Evans. No, we don't.
Senator Kerry. So it is possible that at some point in
time, we could reach that saturation point, and all of a
sudden, you have an overload on the rest of the planet. It is
possible; I am not saying it will happen. But we don't know the
answer, do we?
Dr. Evans. We certainly don't know the answer. That is
right.
Senator Kerry. So you could conceivably have reached the
point where the oceans in effect, have swallowed up as much
CO2 as they are capable of, and then it starts being
released in the atmosphere with a much more devastating,
rolling impact with further consequences for global warming
itself. No?
Dr. Evans. That is possible. Yes.
Senator Kerry. Given the possibility of that, what does
that say to us in your judgment from a policy point of view? I
mean, if we are sitting here saying, ``Well, gee whiz,'' we are
kind of indolently rolling along here without any knowledge of
when we reach this point. Is there a danger in that? Should we
be taking more radical steps to avoid whatever might be
uncontrollable at the outside of that curve?
Dr. Evans. That is a very difficult question to answer from
a scientific perspective. How much weight you want to put on
the possibility of an extreme event of whatever sort and
admittedly rare, or an event that you have difficulty assigning
the probability to and how much action you would like to take
to provide insurance against that, I think.
Unfortunately, one of the areas of climate change science
that has been studied a lot recently and where there has been
recent new attention placed has been trying to look at the
changes in extreme events. What is the probability of making a
dramatic change in the ocean's circulation that would
significantly affect climate over a short period of time? We
know that historically things like that have occurred. We have
seen them in the climate record, but we don't understand the
physics enough to know what triggers them.
So it would be very difficult for me to tell you, you know,
in a probabilistic way whether putting CO2 in the
ocean or some other kind of proposed solution might trigger
those events. That is an area of active research where I hope
science can make a real contribution in the near term.
Senator Kerry. I have just a couple more questions, and
then I will turn it over to Senator McCain and come back. The
administration, through National Security Advisor Rice, has
said that, ``I would dare say, dare challenge you to find a
situation in which you have had so many high-ranking people,
sitting there week after week after week, understanding the
challenge that we face in global climate change, everybody from
the Vice President, the Secretary of State, Secretary of
Interior, Secretary of Agriculture. It has been quite something
to see all of these people grappling with this issue.''
Have you been at these meetings, Doctor?
Dr. Evans. I have been to some of those meetings. Yes.
Senator Kerry. How many Cabinet-level meetings have there
been on this?
Dr. Evans. I would be hard-pressed to count. Over a period
of a couple of months, the Cabinet was meeting probably at
least weekly on the subject.
Senator Kerry. And can you share with us, so that we get a
sense of how this is working, who is actually in charge of this
policy?
Dr. Evans. Who is charge well, the Cabinet is meeting as--
--
Senator Kerry. No. Who would be in charge of the global
warming policy itself? Is it Administrator Whitman? Is it the
Vice President? Is it the Secretary of Commerce?
Dr. Evans. I am not aware that any individual has been
designated as the lead for climate change policy. The Cabinet
has been meeting, I would say, sort of as a committee of the
whole, receiving briefings from experts on a whole--on a wide
range of subjects, ranging from science to policy options, to
economic considerations, a wide variety of things, and spent a
lot of time in deliberation there. But to the best of my
knowledge, no individual person has been identified as the
principal spokesman as yet.
Senator Kerry. And in a matter of days, the talks resume at
COP-6 in Bonn. Has the U.S. at this point, to your knowledge,
developed a plan for those talks and what we will do with
respect to the next steps of Kyoto?
Dr. Evans. The simple answer is, I don't know. I haven't
been party to those discussions. I know that discussions have
been going on over the last couple of weeks to develop a
negotiating position, but I haven't been a participant in those
discussions.
Senator Kerry. If you were to be presented with a plan that
essentially set out the following: No. 1, set greenhouse gas
emission targets and timetables to try to achieve significant
emission reductions; use flexible compliance mechanisms and
more efficient technology to reduce the economic impacts on
business; make significant investments in tax incentive and R&D
for new technologies; and then give early credit for near-term
actions to cut emissions--in other words if somebody cuts them,
and they do it more rapidly, they would get additional credit
as an added incentive to taking that kind of action; ensure
participation of developing countries as part of that solution;
institute market-based trading systems, both domestically and
internationally; and utilize sequestration, is that a fair
outline of a sensible approach, in your judgment, to what we
might consider?
Dr. Evans. I think that all of those items are elements
that have been discussed. I think that they have probably all
been presented in combinations, one or some together.
Senator Kerry. Is there any one of them that doesn't make
sense to you or that has problems?
Dr. Evans. You know, most of those are not essentially
scientific questions. I mean, one of the things that I would
like to be able to do, to be honest, is to have the tools
available so that if we had a menu of options or menu of
approaches such as you just outlined with some details behind
it, we would actually be able to evaluate and tell you
scientifically what we could expect the world to look like
under a scenario like that, given a range of accomplishments.
But we don't have the tools to do that right now, and so it
is very difficult to make a scientifically informed judgment as
to whether that list of admittedly plausible-sounding things
that one might do, in fact, would get us to a particular goal
or would achieve a particular purpose.
Senator Kerry. Well, if you want to stick, then,
exclusively to science-based, we can pursue the policy part
later, but let me come back quickly to the science. As a
scientist, are there not also benefits of reducing emissions
beyond simply global warming?
Dr. Evans. Yes. That is particularly true for a number of
the species. For example, I mentioned in my testimony that
soot, black carbon, if you will, a byproduct of burning, has a
positive greenhouse effect, that causes warming. It also
represents a health hazard. And so if we were to take actions
that reduced soot or particulate matter in the atmosphere, we
would all realize some health benefits from that.
I should point out that it is a two-sided issue, however.
It is not ever quite as simple as it seems. Sulfate aerosol
particles, as I mentioned, which are produced largely by
burning sulfur-containing fuels, coal in particular, form
particles in the atmosphere which actually reflect incoming
radiation, and so sulfur, sulfates, tend to have a cooling
effect from the climate perspective, and that cooling effect,
of course, acts in opposition to the greenhouse warming.
Nevertheless, we have got a vigorous program to try and
reduce sulfates in the atmosphere exactly because of the health
benefits or the secondary benefits that you mentioned, so that
some of these issues play both ways. Tropospheric ozone is
another example.
Senator Kerry. Well, it actually plays a third way, because
as the author of part of the Clean Air Act that dealt with acid
rain, nobody I know is proposing to put additional sulfates in
the air in order to induce cooling.
Dr. Evans. That is right.
Senator Kerry. Because we have an acid rain problem as well
as a particulate problem.
Dr. Evans. Exactly.
Senator Kerry. So that is not exactly a positive counter to
the problem of global warming.
Dr. Evans. No. It is positive only in the sense that those
particles provide a negative cooling influence relative to
greenhouse warming.
Senator Kerry. Agreed.
Dr. Evans. Anyone would suggest that we reverse our plan on
sulfates.
Senator Kerry. So, in effect, if you are looking for a net
positive impact on human beings and on the planet, you want to
reduce both.
Dr. Evans. Absolutely.
Senator Kerry. OK. Thank you.
Senator McCain.
Senator McCain. Dr. Evans, let's talk about, just for a
second, observable impacts. Glaciers melting, coral reefs
dying--what percent of the coral reefs in the oceans of the
world are dying, in your estimation?
Dr. Evans. Let me see if there is someone here with me that
actually knows that number.
[Pause.]
Dr. Evans. We will have to get back to you with a number on
that. [Refer to Appendix.] There have been a number of numbers
published. It is significant. A number of folks have published
studies showing that apparent warming has led to coral
bleaching which may, indeed, be leading to the death of quite a
large number of reefs, but I don't know that number right now.
Senator McCain. And, I mean, to state the obvious, when the
coral reefs die, the beginning of the food chain is eliminated,
and that has incredible impacts over time on marine life.
Throughout Antarctic, holes--large lakes are appearing. Isn't
that true?
Dr. Evans. Yes. There are waters appearing. That is right.
Senator McCain. I guess there is a long list of observable
impacts.
Dr. Evans. That is correct.
Senator McCain. That, to me, is very troubling, and I
understand that sometimes these observable impacts are
exaggerated by media coverage, et cetera, but it seems to me
there is a rather long list of observable impacts which should
lend some urgency to at least modest action.
Now, Senator Kerry just quoted some statement that there
have been many, many high-level meetings in the White House,
and you said you have attended some of these. And by the way, I
am very appreciative that you are here.
I also am not appreciative, Mr. Chairman, of other members
of the administration. If this issue is, as you just described
in the National Security Advisor's statement, as compelling,
perhaps they should share some of those views with the Congress
and this Committee which has oversight, since any meaningful
remedy is going to require legislative action. I hope that you
will get a better response in future hearings to your
invitations.
But we are very grateful you are here, Dr. Evans. So you
have this long list of observable impacts. It seems to me that
would impel us to at least some modest action to begin with. Do
you have any recommendations as to what immediate action we
could take?
Dr. Evans. I think, to be honest, the people in my business
are not of a single mind about what sort of actions to take.
The scientists take a look at the way the world changes and
there are lots of natural variability in the system as well.
Many of the phenomena which are consistent with global warming
are also consistent with natural variability in the climate
system, and we are just beginning to learn.
So, once you get beyond that level of understanding, I
don't think that there really is what you would call a
consensus about what to do next. Should we look at automobiles?
Should we look at power plants? Should we impose mandatory
standards? Should we have voluntary programs? I don't think
scientists are necessarily the right group to ask about what
one should do in that regard.
Senator Kerry. Would the Senator yield just for one moment?
Senator McCain. Sure.
Senator Kerry. But the critical point you make in your
testimony, which you underline, is that we have to make
progress on net emissions.
Dr. Evans. I think that if we don't make progress on net
emissions, we are going to continue to accumulate CO2
in the atmosphere and we are going to see an accumulation and
perhaps acceleration of the effects that you are talking about.
I believe that is true.
Senator McCain. Well, first of all, in previous testimony,
the body of scientific opinion is--and please correct me if I
am wrong here--that there is global warming. It just depends--
it is the end of that curve that goes on since the beginning of
time, and it depends on whether you believe that there is a
high end of global warming or a low end of global warming, but
all of it is higher than ever observed before. Is that correct?
Dr. Evans. Absolutely correct. Yes, sir.
Senator McCain. OK. So now we have a body of scientific
opinion that agrees that climate change--let's call it climate
change--is a reality. The debate is not whether it is
happening. The debate is the extent of it. Is that an accurate
statement?
Dr. Evans. I think the debate is even more sharply focused
than that. There are two components: how much of what has
happened as part of some natural system of the Earth and how
much is anthropogenic, and there is consensus that at least a
significant amount of it is caused by human beings.
But the real problem is: Given what we have now, what is a
reasonable projection for the future, because you are asking
the scientists to project into an area scientifically where, in
fact, they don't have any data or they don't have any
experience. That curve that you are referring to, if one
projects it into the future, one is sort of leaping off into an
area where there really aren't any data to substantiate it
right now, and you are depending upon the models that we have
of the way the physical world works in a way that, quite
frankly, stresses them.
And so I think you are right in saying that there isn't
doubt about what has happened so far. I don't think that there
is doubt that some degree of that will continue to happen in
the future.
Senator McCain. Which?
Dr. Evans.--But the degree to which it happens in the
future which is very important is not known very well.
Senator McCain. And just a few years ago, there was not
this basic unanimity of opinion, was there?
Dr. Evans. That is correct. I think the consensus is much
stronger right now than five years ago. That is correct.
Senator McCain. With every study, we are gathering in a
larger and larger body of scientific opinion.
Dr. Evans. That is correct.
Senator McCain. All right. Then could I just finally get
back to the Chairman's comment. You do agree that net emissions
is an issue that must be addressed.
Dr. Evans. I think that that is true. If we are not going
to continue that trend, then I think we are going to have to
deal with emissions. Is that correct?
Senator McCain. How do we do that?
Dr. Evans. At that point, you sort of begin to move
personally beyond my area of expertise. There are a lot of
things that people have mentioned. Mr. Kerry mentioned the list
of topics there which could contribute to reducing emissions,
but the trade-offs on those topics, which one or ones of them
do you want to use, how strongly do you want to apply it, when
do you want to do it, those really become more social and
economic decisions than scientific decisions.
Like I said, I would like the science to be able to support
a discussion of those options by telling you what the world
might look like under a range of scenarios that you would put
together by exercising those options. That would be the right
role for science to play in this. A choice as to which option
to use, though, unfortunately, gentlemen, you are going to have
a much harder job than the scientists have had so far in trying
to sort through that.
Senator McCain. Is that effort underway, to get some
scientific opinion as to what would happen under various
options?
Dr. Evans. Yes. People are working on those scenarios now.
That work is underway. I think it is an area that we are going
to need to accelerate to some degree.
Senator McCain. In a collective fashion, is your
organization involved in that?
Dr. Evans. We have just begun working on that. We have had
a significant activity, as you know, in climate modeling and
modeling the physical climate, and we have a growing program,
an evolving program, that begins to understand the impacts and
provide the tools for doing that kind of interactive modeling
that we are going to need to develop.
Senator McCain. Well, I thank you, Dr. Evans.
I know you have other witnesses, but, Mr. Chairman, I guess
the question is not only how we act but when do we act. How
long do you wait for this body of scientific opinion to be
unanimous? You and I can find witnesses who will disagree that
there is any global warming of any kind. We have had them
before the Committee, but I think that if you look at the
historical perspective of scientific studies, there is a larger
and larger body of opinion that this is reality. Climate change
is a reality.
And then the question, I think, that faces all of us--and
the scientific community has to be involved, Dr. Evans--is what
actions we will take and when. And I am not sure, Mr. Chairman,
if we should wait until every scientist in America agrees that
this is a serious and almost unprecedented challenge. I thank
you, Mr. Chairman.
I thank you, Dr. Evans.
Senator Kerry. Well, Senator McCain, thank you very much,
and I thank you for your leadership when you were chairman in
pulling together a very important scientific baseline, on which
this Committee can base some judgments.
Let me say personally in answer to the question you posed
generically: I am sure that we should not wait, and the reason
I am sure that we should not wait is that there are other
benefits. We are getting trapped in the wrong debate here, and
as we listen to the President and the administration say,
``Well, we are studying this,'' we are, in fact, being misled,
because the President is not just studying this. The President
has, in fact, taken actions. He has reneged on a campaign
promise on CO2 emissions. That is an action; that is
a positive action that runs counter to some of the steps we
might have taken.
He has declared the Kyoto Treaty dead, not replacing it
with a different alternative, not saying how he could fix it,
just declared it dead. That is an action. That is an
affirmative action that has a negative consequence on doing
something about this.
The President has proposed an energy plan that will
increase emissions by 35 percent, directly contrary to what you
have said here in your testimony today, that we must have a
policy of no net emissions. That is a affirmative step he has
taken, not a study, an affirmative step that runs directly
contrary to the efforts to do what we are trying to figure out
here today.
We have a tax plan on the table--now signed into law--that
has reduced the options of giving incentives to create fuel-
efficient vehicles, to create all kinds of other options that
we might have with respect to this. Now, that is an affirmative
step. It is a declaration of a priority. And so I will just
make it very clear that we are not simply studying. We have had
a series of proposals made to the Congress and to the country
that are directly flying in the face of all of the scientific
evidence and of the alarm that Senator McCain just signaled,
and that is the concern of many of us here.
The debate should not be over just whether we can predict
all of the consequences of what is going to happen
scientifically. We know that enough is happening that is
negative already, and we know that if you extrapolate that out
into the future as you have, we can't continue to add to it. We
know that the consequences are negative, so we could at least
begin to take some modest steps that might begin to deal with
that.
An example: We are back down to 1980 levels in the fuel
efficiency standards of our vehicles, while other countries are
moving ahead and being more affirmative in trying to reduce
their emissions. So there are many things that we could do as a
matter of good health policy, for instance.
In 1973 when many of us remember waiting in fuel lines for
hours, we were 35 percent dependent on foreign oil. Today we
are about 55 percent dependent, and we are about to head into
the 60's. Wouldn't it be wonderful if the United States of
America were, indeed, independent in terms of our energy base
today? And think of what the consequences could be for peace in
the Middle East, for not having to perhaps fight another war as
we have already fought one in the last 12 years on the subject
of oil, if we were to move to that kind of independence.
So there are, in fact, very compelling reasons: health,
asthma among children, lung disease, cancer, countless numbers
of security reasons--matters of the human condition that should
be compelling us to move in this alternative direction. And I
wonder, Dr. Evans, if you don't accept the notion that those
are compelling options that ought to be on the table?
Dr. Evans. I think that probably all of those options are
on the table. As I indicated earlier, I did attend some of the
meetings, and I think quite a few of those options are on the
table. I think that lots of them are under discussion right
now.
As I tried to indicate before, my particular expertise is
on the science side, and basically that is what I have been
asked to comment on, and I have tried to indicate, those areas
where the science could help choose among those options, to try
and deal with some of the issues that you have raised there.
Senator Kerry. Well, actually, both Senator McCain and I
tried to ask you what options you might pursue, and you said,
Well, that is not really the job of the scientist.
Dr. Evans. No. I think that the job of the scientist is to
try and evaluate those options when they are posed at this
point. What would be the consequences of----
Senator Kerry. Well, what would be the consequence of a
mandatory target for emissions reduction? That is what I asked
you. I gave you the plan. I laid it out. That was my first
question to you. What would be the consequence of a greenhouse
gas emission target and a timetable to achieve significant
emissions reductions at a specific future date?
Dr. Evans. One would assume, from a scientific point of
view, that one would end up with somewhat lower carbon dioxide
or at least a decreased rate of increase of carbon dioxide in
the atmosphere, but the other consequences of that, economic
consequences or what the consequences would be in other aspects
of our daily lives, frankly I don't know.
Senator Kerry. But from a scientific point of view, would
that goal be a salutary one?
Dr. Evans. Salutary?
Senator Kerry. Would it be one we would want to achieve?
Dr. Evans. It would be a goal that would lead to less
carbon dioxide in the atmosphere.
Senator Kerry. And is that better?
Dr. Evans. Better? It would----
Senator Kerry. Is that desirable? Pick any word you want
that says whether or not that is something we ought to try to
do.
Dr. Evans. I think at some level the answer is yes, because
at the extreme of greatly increased carbon dioxide
concentrations, I think that the answer would be that we
wouldn't want to go there, but where along the continuum from
where we are now to more is desirable, good, safe, to use a
word that was in the climate treaty, for example, I think is
really an open question right now. It is not one to which we
actually have an answer.
Senator Kerry. Would it be a smart policy to adopt a
national effort to increase all available beneficial
sequestration methods, like increased forest acreage, less
deforestation? Would that help reduce CO2?
Dr. Evans. Possibly. I mean, I don't know.
Senator Kerry. What do you mean by ``possibly''?
Dr. Evans. I don't know what the trade-offs would be. I
don't know what you would stop doing in order to increase
forests. I don't know what--you know, whether you would need
other kinds of fertilization. There is a whole range of issues
associated with pretty much any of those, and I guess what I
was suggesting is rather than trying to offer a kind of a
general answer off the top of my head about any particular
policy, I think that those are exactly the kinds of things that
really warrant some pretty careful investigation. What are the
consequences of doing one thing versus another? What are the
costs of doing one thing versus another? How would they play
together, and what would be the overall impact on carbon
dioxide in the atmosphere?
Senator Kerry. But isn't----
Dr. Evans. You know, but to get there----
Senator Kerry. But isn't that specifically one of the
options? Didn't we have significantly more forests on this
planet in the last centuries?
Dr. Evans. Yes.
Senator Kerry. And didn't we do pretty well? I mean, was
that negative? Did we seek to cut the forests because it was a
bad idea?
Dr. Evans. I don't know how to answer that, sir. I don't
think we cut the forests because it was a bad idea. I think we
cut the forests to do things with the lumber, to clear the land
for agriculture, to make paper. There is a variety of reasons
for having cut the forests.
Senator Kerry. Well, I understand that, but aren't we now
specifically talking about sequestration through increased
planting?
Dr. Evans. Yes.
Senator Kerry. I mean, we are actually talking about
counting forests----
Dr. Evans. Yes.
Senator Kerry.--as part of the sinks?
Dr. Evans. Yes.
Senator Kerry. And those sinks are, in fact, what we are
seeking as a means of sequestering carbon dioxide.
Dr. Evans. Yes.
Senator Kerry. So planting them is a benefit. I don't know
why we have to struggle to get to that.
Dr. Evans. Well, the planting is certainly a benefit, over
some period of time, and the question honestly in the case of
forests is, what is the period of time, because once the trees
start growing, if you cut them down, what do you do with the
carbon that has been sequestered there. It is not a permanent
solution.
Senator Kerry. But we are doing that right now. We are
cutting them down without even counting it.
Dr. Evans. Yes.
Senator Kerry. I think the point is made.
Senator Ensign.
Senator Ensign. Thank you, Mr. Chairman.
I just had kind of a couple of general overall questions,
because I have spent a lot of time with this issue--we have an
institution in Nevada called the Desert Research Institute.
They do a lot on atmospheric studies and have a lot of
scientists out there that have been studying a lot of
climatological changes.
Some of my discussions with them--and I would maybe like
you to comment on some of these--are studying climate in
general over time, seems to me, to be a difficult prospect at
best. Some of the things they talk to me about, are studying
some of the densities of glaciers and the various things that
they have tried to do over time to be able to tell whether
there has been changes in global temperatures, but it also
seems that it is difficult in that it is not a closed system.
In other words, it is not like you are taking like in our
old chemistry experiments that we have got a little styrofoam
cup and we have got a thermometer and we can measure that as
almost a closed system. It is not like you have the Earth and a
thermometer, and so you are measuring a closed system.
Depending on where you are taking the temperatures--are you
taking them all in the cities? We know that the more populated
that you get in a city and obviously the more emissions that
you have in that city, at that particular place, you may have
an increased temperature, but it also varies in various parts
of the globe.
So I guess I would just like your overall comments about
the difficulty in studying that, and what are the implications
on setting policy because of those difficulties?
Dr. Evans. Well, you have raised a number of issues
associated with how you measure temperature, for example. There
has been a lot of discussion in the scientific literature about
that. You referred, in particular, to the so-called heat island
effect from cities. These are phenomena which are, I think,
becoming rather well understood. The heat island effect in
cities and looking at the historical records is something that
is known and to a large degree has been corrected in our
assessment of temperature change.
There have been the usual scientific discourse back and
forth on whether your correction is better than his, and vice
versa, but I think that the basic sense of the long-term
temperature record right now, collected from a variety of
means, instrumental means, thermometers, if you will, for the
last 150 years, proxy records and tree rings and ice cores and
a wide variety of other methods for much longer periods than
that have really achieved a large degree of consensus in the
scientific community, so this basic question of whether it is
getting warmer or not, or what does the basic pattern of
temperature change look like, I personally don't think has a
huge degree of controversy associated with.
Yes. There are people with different opinions, and I won't
say that this is a consensus view or unanimous view. But it is
one that, I think, represents a strong sense of what the
scientific community believes, those measurement problems
notwithstanding.
Now, you do highlight the need, though, for a real
observing system if we want to know what is going on, if we
want to better initialize our climate models to understand the
future, if we want to have a better understanding of the way
the world systems work so we can separate natural variability
from warming induced by the things we have put in the
atmosphere, having a robust, global climate monitoring system
is very important.
There have been a number of plans offered from doing that.
We derive some data these days from satellites. There is a
long-term instrumental record. There are a variety of
organizations worldwide that have proposed systems for doing
that, and we are making progress in implementing these
worldwide observing systems. We probably need to accelerate
that progress for the future.
But to answer your specific question, I think that there is
a good sense in the scientific community that a number of those
issues that you raised are ones that have been addressed and
where we still find a significant record of warming.
Senator Ensign. The things that I have read in my
literature and my discussions have been that there is not
unanimity among scientists. Hopefully, there is never
unanimity, because----
Dr. Evans. Right.
Senator Ensign.--then we are not questioning in the way
that we should question in science. But given that, there is a
fairly strong consensus that there has been an increase in the
temperature of the planet in the last 100 years. Can you just
comment on how significant that temperature increase, how much
has been induced, and what percentage of that has been induced
by humans, or have we been able to determine that, and how
significant it is compared to natural increases or decreases in
temperature, especially when we are dealing with geologic time?
Dr. Evans. Well, when you are dealing with geologic time,
of course, you can look back through the Ice Ages or the age of
the dinosaurs, and you will find climates for the Earth which
are very different than the one that sustains our livelihoods
right now. So I am not sure that that is really helpful. The
Earth certainly has had a variety of different climates in its
history. There is no doubt about that.
But the temperature changes that we have seen in the last
150 years, let's say, basically since the Industrial
Revolution, really are unprecedented in the record of, say,
1000 years prior to that, and other properties associated with
the temperature fluctuation are probably not really detected or
are separate from the kinds of variability, natural
variability, that we would expect to see in the system going
back even 10,000 years. So it is quite significant, the changes
that we have seen in the last--certainly over the course of the
20th Century.
And the body of scientific evidence suggests that at least
a large fraction of that change is due to the increase of
greenhouse gases that we have observed. The best that is
measured or the way that we get our arms around that most
accurately is by taking the models that we have that capture
all of the physics and chemistry that we know, and running
those models with a variety of scenarios; that is, include the
greenhouse gases, exclude the greenhouse gases, include the
sulfates or the particles that come from volcanic eruptions,
changes in solar variability, the sulfates that increased and
then decreased as a consequence of our actions in the
atmosphere.
And what we find is that we get the best agreement with the
measured temperature record over the last 150 years, when all
of those factors, including the man-caused increases in
greenhouse gases are included in those models.
Senator Ensign. The question, though, that you didn't
answer was: When we are looking at the percent of man-caused
versus natural--you mentioned solar. From what I understand,
the changes on the sun can be incredibly significant as far as
what happens on the Earth, not only temperature-wise, but
obviously as far as all kinds of electromagnetic activity and
radiation and the various things that can happen here.
And the reason that I am asking the question is I think it
is important for policymakers to understand, you know, how big
of an impact are we making in the negative to our planet
temperature-wise or environmentally, so that if we make
changes, how significant of changes can we make percentage-wise
as far as will we really make any difference by the policy,
because when you are doing any of these, you do have to take
costs into account? You have to take into account a lot of
other things. So it would be nice if we at least had some kind
of a handle on this.
Dr. Evans. Well, like I said, we have good measurements of
a lot of the sorts of natural variability in the system over
the last few decades. We have good measurements, for example,
of solar input and solar variability over the last 30 years
while we have been flying satellites and have good global
measurements of those data.
Those kinds of variabilities are included in the models.
They have an impact, but solar variability, quite frankly, is
rather small. There are other impacts due to variations in the
sun. As you know, NOAA does operate the Space Environment
Center that monitors solar activity and provides warnings and
forecasts of solar events, which can have impacts on all sorts
of aspects of daily life, changes in the electric grid and
health and safety of astronauts and satellites. There is a wide
range of potential impacts of the solar variability on the
Earth.
We have actually been monitoring solar variability through
the last two or three solar cycles, including that kind of
measured variability, and the sun doesn't begin to account for
the kinds of changes in temperature that we have seen.
Now, in looking at the two bursts of change, if you will,
in temperature, the early part of the 20th Century and the
latter part of the 20th Century, more of the temperature change
can be ascribed to some of these naturally occurring factors,
but the changes that we have seen over the last 50 years don't
seem to be accounted for that way.
Senator Kerry. Thank you very much, Senator.
Senator Snowe. We are going to move to the next panel right
after Senator Snowe.
STATEMENT OF HON. OLYMPIA J. SNOWE,
U.S. SENATOR FROM MAINE
Senator Snowe. Yes. Thank you, Mr. Chairman, and I will be
very brief.
But, Dr. Evans, based on what we know--and obviously we
have a significant body of work with respect to climate change
and how it is affecting our world in which we live--do you
think that we can make some policy changes right now to effect
global warming and climate change? I mean, how long do we
have--how far do we have to go and how long do we have to take
before we can initiate policy changes?
Dr. Evans. That is a very difficult question. We have taken
about 150 years in practical terms over the industrial
Revolution to sort of get where we are now. The climate system
responds rather slowly. We know that we are going to see
increased warming in the oceans. Even if we were to reduce
emissions dramatically right now, we are going to continue to
see ocean warming, because the processes are very long and
slow.
That means that actions that we take will have consequences
over a long period of time. It also suggests that dramatically
taken actions are not likely to produce dramatically evident
results, and so I think that we have time to take a look, to
consider what we need to do carefully, but we do need to
recognize that the consequences of our actions or inactions
have very long time constants associated with them.
Senator Snowe. But we know that human activity obviously
has a significant impact on climate change. For example, why
not take steps, like closing the loophole on CAFE standards for
SUVs? Knowing that SUVs contribute significantly to carbon
dioxide emissions, far more than passenger cars. That is a step
that we know could help in improving the atmosphere. So why not
take that kind of step? Would the administration be supportive
of that initiative?
Dr. Evans. Senator Snowe, I have tried to confine most of
my answers as best as I have been able to.
Senator Snowe. Well, let me ask you----
Dr. Evans. Try and understand the scientific impact of what
is happening. If we were to take any steps that reduced the
emissions of CO2, that would probably have a
mitigating effect or a slowing effect on the kinds of change
that we are attributing to the accumulation of CO2.
Senator Snowe. So transportation obviously is a significant
contributor.
Dr. Evans. That is correct.
Senator Snowe. OK. So then obviously it could have an
impact. And, Mr. Chairman, I would even recommend that this
Committee have a hearing on closing the CAFE standards loophole
on SUVs, because I do believe that it could have a major
effect. In fact, if we implemented a standard of 27.5 miles per
gallon, we could reduce carbon dioxide emissions by more than
200 million tons every year. I think that has a significant
effect and a significant result.
I think the time has come to take policy steps that will
have an impact, however incremental they might be. But the fact
is we have to begin to take steps. I think the National Academy
of Science report on the effectiveness of CAFE standards is a
wake-up call for where we are today. So I would hope that the
administration, beyond looking to further studies, should also
be considering what steps can be taken, what legislative
measures could be taken, so that we can begin to address this
perilous issue when it comes to our environment.
Senator Kerry. Senator Snowe, thank you very much. Let me
just say that Senator McCain and Senator Hollings and I are
putting together legislation right now, even as we speak. It
will be ready in a few days, and we will be proceeding forward
on that as well as several other initiatives.
[The prepared statement of Senator Snowe follows:]
Prepared Statement of Hon. Olympia J. Snowe, U.S. Senator from Maine
Thank you, Mr. Chairman, and thank you for holding this hearing
today, as this is an appropriate follow up to the climate change
hearings Ranking Member McCain has held both in the 106th Congress and
in the 107th, the latest being this past May. This Committee does have
a large responsibility in the oversight of the climate change issue and
I'm pleased to see that responsibility being exercised.
In Senator McCain's hearings, we heard from renowned scientists
with varying opinions on global warming, and just weeks ago, and at the
President's request, a well respected and balanced panel of U.S.
scientists came out with a report that there is strong evidence that
warming over the past 50 years is attributable to human activities, and
significant increases in global temperatures and sea level can be
projected. I believe this National Academy of Science Report is the
wake up call for many who have not yet gotten engaged in the issue of
climate change as we now have a growing collective picture of a warming
world over the past century. Climate change is a perilous environmental
problem that deserves to be addressed on both the domestic and
international level.
It appears clear that regional climate changes, particularly
temperature changes, are affecting physical and biological systems.
Many human systems, the scientists say, are sensitive to climate
change, and the potential for large scale and possibly irreversible
impacts pose risks that have yet to be quantified. We must recognize
that those around the globe with the least resources have the least
capacity to adapt and are the most vulnerable to these changing climate
processes.
The United States had a large part in the development of a climate
change convention treaty at the ``Earth Summit'' in Rio de Janeiro in
1992. President George H. W. Bush went on to sign the UNFCCC Treaty and
it was unanimously ratified by the U.S. Senate. I believe Congress'
prudent response to climate change is to work for the adoption a
portfolio of clear and concise U.S. actions aimed at mitigation,
adaptation, and research as the issue is one with unique long-term
effects involving complex interactions between climatic, environmental,
economic, political, institutional, social and technological processes.
As one of the many pieces we can consider, I would like to suggest
support for a simple change--the Feinstein-Snowe bill that closes the
SUV loophole by raising the fuel efficiency, or CAFE, standards for
``light truck'' vehicles to meet those expected of passenger vehicles.
The overall fuel economy of new cars and trucks sold in America, after
improving slightly a year ago, has dropped back to the lowest levels
since 1980, mainly because of the lower fuel efficiency standards
currently set for the popular SUVs and minivans.
It is estimated that fixing the SUV loophole will save one million
barrels of oil a day, reduce oil imports by 10 percent, cut America's
trade deficit--oil deficits are the largest of this--save consumers
money at the gas pump, and provide healthier and cleaner air benefits,
and, very importantly, prevent more than 200 million tons of carbon
dioxide--the major greenhouse gas connected to global warming--from
going into the atmosphere. This legislation is under the jurisdiction
of the Commerce Committee and I urge the Chair to hold a hearing on the
Feinstein-Snowe bill.
I have asked the Administration for support of the SUV loophole
bill as one way to move toward reducing our carbon dioxide emissions,
and I look forward to hearing about what the Administration's
strategies are as we work through the domestic and international issues
relating to climate change.
Thank you, Mr. Chairman.
Senator Dorgan.
Senator Dorgan. Mr. Chairman, I was delayed, so I will
defer questioning. I have read Dr. Evans' statement. Thank you
very much for appearing, and I will be here for the next panel.
Senator Kerry. Thank you.
Senator Stevens.
Senator Stevens. No. Thank you.
Senator Kerry. Dr. Evans, thank you very, very much. The
only thing I would conclude by saying is that, as you have
pointed out, the slowness of response is a compelling reason to
think about some of the things like Senator Snowe and others
have suggested. I gather the half-life of existing
CO2, where we are right now is about 70, 80 years.
Dr. Evans. That is about right. Yes.
Senator Kerry. So what we have already put out there is
going to continue to do the current rate of damage for the next
70 years, no matter what we do, unless you and others discover
some means of reversing, i.e., of rapid sequestration that
takes CO2 out of the atmosphere. Is that correct?
Dr. Evans. That is a fair assessment. Yes.
Senator Kerry. So it might even make more compelling the
notion that even without knowing fully what those consequences
are, we who make policy ought to be more thoughtful about being
precautionary and trying to avoid catastrophe.
Dr. Evans. I think that those of you who make policy at
this point have some very difficult challenges in front of you.
I think that you have got potentially very significant
decisions to make, and I am afraid that in the science
community, we are not giving you all the tools that I wish that
we were to help make those decisions earlier.
Senator Kerry. Well, this is a great segue into the next
panel. I don't find it as economically challenging or policy
challenging as some people suggest. There are some wonderful
technologies already out there. There are things that we can do
that create whole new sectors of our economy, countless numbers
of jobs, huge new opportunities, all of which can take us down
a different road. So I don't think we have to view this as a
difficult challenge.
The Japanese automobile manufacturers and others are moving
rapidly to provide hybrid automobiles, to get up to 75, 80
miles per gallon very quickly. I suppose the most significant
question is why we are always the last ones to move in these
directions, but I think the opportunities are there, and that
is what we are going to explore in the next panel.
Thank you, Dr. Evans, very much for being here.
Dr. Evans. Thank you.
Senator Kerry. If I could invite the next panel to move up
as rapidly as possible, we will begin right away with Dr.
Kammen, and then Mr. German, Mr. Miller, Mr. Duffy, and Ms.
Koetz.
Oh, I apologize. We have a plane problem I wasn't aware of,
so Mr. Miller, if you would lead off. I understand you have a
flight you have to get, and I apologize for any delay on that.
STATEMENT OF WILLIAM T. MILLER, PRESIDENT, INTERNATIONAL FUEL
CELLS
Mr. Miller. Thank you, Mr. Chairman. I am president of
International Fuel Cells, which is a subsidiary of United
Technologies Corporation. I appreciate the opportunity today to
testify regarding the role of fuel cells in addressing climate
change.
Fuel cells are an important climate change technology,
because when fueled with hydrogen, they do not produce any
carbon dioxide emissions. When fueled by natural gas, fuel
cells produce substantially less carbon dioxide emissions than
other technologies. IFC has a long history in fuel cells. We
have produced the fuel cells for every U.S. manned space
mission since 1966, including the space shuttle. These fuel
cells produce the electricity for the orbiter when it is in
space and all the drinking water for the astronauts.
IFC is also the only company in the world currently
producing a commercially available fuel cell. That unit, the
PC25TM, produces 200 kilowatts of electric power,
which is enough to power roughly 150 homes. Currently these
units power schools, hospitals, military installations, data
processing centers, and other facilities.
Fuel cells are electro-chemical devices that combine
hydrogen and oxygen to create electricity. This is a single
fuel cell, capable of generating one-third of a kilowatt of
electricity. You put hydrogen in the orifices on the end,
oxygen from air under these orifices, and you produce
electricity, water, and heat. This produces a third of a
kilowatt. If you need more, you just stack one on top of
another to produce more kilowatts.
Fuel cells do not use combustion to produce electricity,
and it is that combustion that creates NOX, which is
responsible for smog, and SOX, which is responsible
for acid rain. When pure hydrogen is the fuel source, fuel
cells produce no harmful emissions at all, including no carbon
dioxide, which is the primary manmade greenhouse gas involved
in global warming.
Because hydrogen is not yet readily available as a fuel, we
use fuel processors to reform commonly available hydrocarbon
such as natural gas into hydrogen fuel for the fuel cell. When
running on these hydrocarbons, fuel cells do produce carbon
dioxide, but substantially less carbon dioxide, once again,
than other means of electricity generation.
IFC has sold more than 220 fuel cell power plants to
customers in 16 countries on five continents. Examples of
installations range from the police station in New York City's
Central Park to hospitals in several states, and to the main
postal facility in Anchorage, Alaska. We have 32 PC25s
operating in states represented by Senators on this Committee.
Our total fleet of PC25 power plants has accumulated more
than 4.2 million hours of combined operation. They operate day
or night, regardless of weather. Our installed base of PC25s
has already prevented nearly 800 million pounds of carbon
dioxide emissions and more than 14\1/2\ million pounds of
NOX and SOX compared with typical U.S.
combustion-based power plants. The U.S. Environmental
Protection Agency recognized IFC last year with a climate
protection award because of this achievement.
Building on this success, we are now developing fuel cell
technology for residential and transportation applications. IFC
is currently developing a 5-kilowatt unit for homes and small
buildings. We expect to begin marketing these devices in 2003.
For the transportation market, IFC is working with a number
of car and bus manufacturers to develop fuel cell vehicles. Our
zero emission hydrogen fuel cells now power four Hyundai SUVs.
These vehicles are the world's first zero emissions SUVs and
get the gasoline equivalent of 50 to 60 miles per gallon.
We have also developed fuel processors capable of taking
pump-grade gasoline and reforming it, and using it to power a
fuel cell. Such technology will allow fuel cell vehicles to use
the existing gasoline infrastructure until a hydrogen
infrastructure is in place.
Cars, buses and trucks now represent about one-third of
carbon dioxide emissions in the United States. By developing
the necessary hydrogen infrastructure and fuel cell vehicles,
we can take ground transportation out of the climate change
debate.
But there is still one major barrier to the introduction of
fuel cells for these various applications, and that is cost.
IFC and other fuel cell companies are now developing new fuel
cells, like the one I showed you earlier, that are smaller,
lighter, and cheaper to produce than the ones presently in
manufacturing. This new technology, along with higher
production volume, should help us to reduce the cost of fuel
cell power plants by two-thirds from today to 2003, so from
$4,500 a kilowatt today to $1,500 a kilowatt in 2003, and the
cost of fuel cell power plants will trend down even further
beyond that. If we achieve the goal of automotive production,
costs may decline to as low as $50 a kilowatt.
In conclusion, let me say that fuel cells are already
helping to reduce carbon dioxide emissions today. Further
commercialization of this technology will produce not only
climate change benefits but improved air quality, independence
from foreign oil, and technology leadership for the United
States.
I look forward to working with you, Mr. Chairman, members
of the Committee, and other interested parties, to accelerate
the commercialization of fuel cell technology. And I would be
happy to answer your questions later. Thank you.
Senator Kerry. Mr. Miller, thank you very much. Thank you
also for hitting the timing right on the button. It is helpful
to all of us. Do you have time to stay through the other
testimonies for questions?
Mr. Miller. I will stay through.
Senator Kerry. You are able to?
Mr. Miller. Yes.
Senator Kerry. That would be very helpful. Thank you for
doing that.
[The prepared statement of Mr. Miller follows:]
Prepared Statement of William T. Miller, President,
International Fuel Cells
Good morning. My name is William Miller. I'm the President of
International Fuel Cells (IFC), a subsidiary of United Technologies
Corporation (UTC). UTC is based in Hartford, Connecticut and provides a
broad range of high-technology products and support services to the
building systems and aerospace industries. UTC's products include
Carrier air conditioners, Otis elevators and escalators, Pratt &
Whitney jet engines, Sikorsky helicopters, Hamilton Sundstrand
aerospace systems and fuel cells by International Fuel Cells.
IFC has a long history in fuel cells. We've produced the fuel cells
for every U.S. manned space mission since 1966, including the Space
Shuttle. These fuel cells produce the electricity for the orbiter when
it is in space and all the drinking water for the astronauts. IFC is
also the only company in the world currently producing a commercially
available fuel cell power plant. That unit, the PC25TM,
produces 200 kilowatts, which is enough to power roughly 150 homes.
Currently, these units power schools, hospitals, military
installations, data processing centers and other facilities.
Fuel cell technology is a reality today in space and commercial/
industrial applications. By the end of this decade it will also power
homes, cars, trucks and buses.
Fuel cells offer great potential for addressing climate change.
Current fuel cell technology using hydrocarbon feed stocks produces 60%
more electricity per pound of carbon dioxide emissions than the average
US combustion based power generating system. Using hydrogen as the fuel
will enable us to eliminate CO2 emissions from the fuel cell
power plant's operation.
Unlike other environmentally favorable solutions such as solar or
wind power, fuel cells can be used as a continuous source of base
power--independent of time-of-day or weather--for critical facilities,
thereby offloading demand and providing independence from the grid.
Fuel Cell Description
Fuel cells are an electrochemical device that combines hydrogen and
oxygen to produce electricity, with only water and heat as the by-
products. Fuel cells do not use combustion to create electricity. It is
combustion that creates NOX, which is responsible for smog,
and SOX, which is responsible for acid rain.
IFC History and Current Fuel Cell Applications
International Fuel Cells is the world leader in fuel cell
production and development for commercial, transportation, residential
and space applications. IFC is the sole supplier of fuel cells for U.S.
manned space missions and is the only company in the world producing a
commercial fuel cell system, the PC25TM power plant.
IFC's headquarters, research and development, and manufacturing
facilities are located in South Windsor, Connecticut, and cover more
than 350,000 square feet. IFC employs some 750 engineers, researchers,
managers and production workers.
Since 1966, IFC fuel cells have provided electrical power, as well
as drinking water, for more than 250 astronauts on all of the United
States' manned space flights. Each space shuttle mission carries three
IFC 12-kilowatt fuel cell units. These units have accumulated more than
81,000 hours of fuel cell operating experience.
IFC is also the only company in the world currently producing a
commercially available fuel cell power plant. That unit, the PC25,
produces 200 kilowatts, which is enough to power roughly 150 homes. IFC
has delivered more than 220 PC25s to customers in 16 countries and five
continents.
This PC25 fleet of fuel cells has accumulated more than 4 million
hours of operational experience in a range of operating environments.
The PC25 system requires only routine maintenance and has a life of
40,000 hours, or five years, before a major overhaul is required. IFC
has 32 PC25s operating in states represented by Senators on the
Commerce, Science and Transportation Committee.
IFC is now developing fuel cell technology for residential/light
commercial and transportation applications, including buses, fleet
vehicles and cars.
Environmental and Climate Change Benefits of Fuel Cells
When pure hydrogen is the fuel source, fuel cells produce no
harmful emissions--no carbon dioxide, which is the primary man-made
greenhouse gas involved in global warming and no NOX or
SOX, the pollutants that cause smog and acid rain.
Hydrogen is not yet readily available as a fuel. Because of this,
fuel cell power plants incorporate fuel processors to reform commonly
available hydrocarbons such as natural gas, propane, or methane from
waste water treatment plants into hydrogen fuel.
Even when running on these hydrocarbons, IFC's fuel cells are still
very climate friendly and efficient. They produce 60% more electricity
per pound of carbon dioxide emission than the average US combustion
based power generating system.
IFC'S installed base of PC25 power plants has already prevented
nearly 800 million pounds of CO2 emissions and more than
14.5 million pounds of NOX and SOX compared with
typical US combustion-based power plants. The U.S. Environmental
Protection Agency recognized IFC last year with a Climate Protection
Award in recognition of these accomplishments.
Fuel Cells are More Efficient Energy Producers
Fuel cells, because they do not use combustion, are significantly
more efficient, meaning they produce more energy from the same amount
of fuel
For example, in the ``electricity-only'' mode of operation, IFC's
PC25 unit achieves approximately 40% efficiency. However, fuel cells
are generally installed at the point of use, so the waste heat from the
fuel cell can be used for such things as space heating. This is known
as co-generation. When used in co-generation applications, the PC25 can
reach efficiencies as high as 87%.
Fuel Cells for Distributed Generation
Distributed generation is increasingly being recognized as one way
to address both the need to reduce the demand on the current electric
distribution system and to provide assured power at facilities such as
data centers where uninterruptible power is a requirement.
As our society increases its reliance on sophisticated computer
systems, very short power interruptions can have profound economic
consequences. In 1996 the Electric Power Research Institute reported
that US businesses lose $29 billion annually from computer failures due
to power outages and lost productivity.
Locating distributed generation assets at the point of use also
eliminates transmission line losses that can run as high as 15%.
Fuel cells are an excellent distributed power asset because they
are clean, quiet and small enough to provide power at the point of use.
For example, two IFC PC25s are located inside the Conde Nast skyscraper
at Four Times Square in New York City.
IFC's PC25s are used in a number of installations in this capacity.
Some examples:
The Central Park Police Station in New York City uses a PC25
to provide all the power for the facility on a ``24-7'' basis
completely independent of the grid.
In Rhode Island, a PC25 system provides power for the South
County Hospital. The installation supplies base load electrical
and thermal energy to the hospital where it helps ensure clean,
reliable power for sensitive medical equipment and systems such
as CAT scanners, monitors, analyzers, and laboratory test
equipment. If there is a grid outage, the PC25 automatically
operates as an independent system, continuing to power critical
loads at the hospital. Heat from the installation provides
energy for space heating, increasing the fuel cell's overall
efficiency.
The largest commercial fuel cell system in the world is
currently operating at a U.S. Postal Service mail-processing
center facility in Anchorage, Alaska. The PC25 units operate in
parallel to the grid and are owned and operated by the local
utility. The fuel cells can either provide power to the U.S.
Postal Service or provide power back to the grid. If the grid
fails, a near instantaneous switching system automatically
disconnects the grid and allows the fuel cells to provide
uninterrupted power.
One of IFC's installations at the First National Bank of
Omaha involves four fuel cells as the major component of an
integrated assured power system that is meeting customer
requirements for 99.9999% reliability.
A number of schools and colleges in Massachusetts, New York
and New Jersey have purchased fuel cells to ensure clean,
efficient, and reliable power for data processing and computer
operations, provide basic electricity and heating needs as well
as use the units as a teaching tool for students. For example,
Cape Cod Community College expects its fuel cell to help save
the college about $54,000 of the $185,000 in energy costs each
year. This fuel cell power plant installation is part of a
comprehensive energy savings performance contract agreement
being implemented by NORESCO.
As these examples illustrate, fuel cells are very flexible in
meeting customers' power requirements for base load, assured power,
emergency back up and co-generation. In addition, fuel cells are being
used in grid connected, grid independent and grid parallel
applications.
Renewable Energy
Fuel cells are already using renewable energy sources.
IFC and the US Environmental Protection Agency (EPA) collaborated
in the early 1990s on a greenhouse gas mitigation program that
continues to bear fruit today. Initial efforts targeted landfills and
the development of gas cleanup systems that enable fuel cells to use
waste methane to generate electricity and resulted in the issuance of
several patents jointly held by EPA and IFC. These systems avoid the
use of fossil fuels as the fuel source.
Follow-on work has focused on anaerobic digester off-gases (ADGs)
from wastewater treatment facilities. This technology has been
implemented successfully at PC25 installations in Yonkers, New York;
Calabasas, California; Boston, Massachusetts; and Portland, Oregon as
well as Cologne, Germany and Tokyo, Japan.
Residential and Light Commercial Fuel Cell Application
IFC, along with several other companies, is currently pursuing
residential and light commercial fuel cell applications for homes and
businesses using next-generation proton exchange membrane (PEM) fuel
cell technology.
IFC is drawing on its experience in commercial programs to develop
a five-kilowatt PEM fuel cell system suitable for homes and small
commercial buildings. IFC is teaming up with its sister UTC unit
Carrier Corp., the world's largest maker of air conditioners, as well
as Toshiba Corp. of Japan and Buderus Heiztechnik of Germany on this
effort.
IFC is currently testing residential power plants and plans to have
residential fuel cell units commercially available in 2003. Initial
markets will include off-grid residential (an estimated 150,000
Americans live off the grid today), telecommunications providers who
need assured power for cell towers and public buildings such as fire
stations that required assured power.
Transportation Fuel Cell Applications
In the transportation arena, IFC is aggressively developing quiet,
highly efficient ambient-pressure PEM fuel cells and gasoline
reformation technology for automobiles, heavy-duty trucks and bus
applications. Fuel reforming technology allows fuel cells to operate on
pump gasoline.
IFC is currently working with major automobile manufacturers,
including BMW and Hyundai and with the U.S. Department of Energy on
development and demonstration programs for automobiles.
Last year, for example, IFC replaced the internal combustion engine
in a Hyundai Santa Fe Sport Utility Vehicle with its zero emission
Series 300 75-kilowatt hydrogen powered fuel cell. This vehicle was
featured at the grand opening ceremony of the California Fuel Cell
Partnership on November 1, 2000. This is the world's first zero
emission SUV and gets the gasoline equivalent of 50 to 60 miles per
gallon. Pure water vapor is the only by-product of this fuel cell power
system. Hyundai and IFC have put two fuel cell powered Santa Fe's into
driving service in California.
The IFC vehicle power plant is quiet and efficient. It's unique
because it uses a near ambient pressure system, which substantially
increases its efficiency. Other transportation fuel cells require a
compressor, which is a parasitic drain on the system because it uses
part of the electricity produced by the fuel cell.
The IFC system has fewer parts, which translates into lower costs
for the consumer and is smaller and hence easier to put in a car. To
date, we have demonstrated the following capabilities with the IFC/
Hyundai Santa Fe fuel cell vehicle:
Performs with undetectable noise levels;
Achieves maximum power output of 75 kW and a top speed in
excess of 70 mph;
Fills the vehicle's fuel tank with hydrogen to a pressure of
roughly 3,000 psi in less than 3 minutes; and
No infringement on passenger or cargo space.
In addition, IFC has also developed fuel cell auxiliary power units
(APUs) that can power all the electronic components of a car thus
removing this heavy power demand from the engine. In 1999, BMW
demonstrated at the Frankfurt Auto Show a Series-7 vehicle featuring a
5-kilowatt hydrogen IFC fuel cell that powered the onboard electrical
systems and air conditioning. During the two-week exhibition, we used
the APU to run the car's lights and radio continuously without the
engine running.
For buses, IFC has teamed with Thor Industries, the largest mid-
size bus builder in North America and Irisbus, one of the largest
European bus manufacturers, to build fuel cell powered zero emission
transit buses. These prototype vehicles will take to the road this
year.
Hydrogen Future
Fuel cells are already beginning to bring forth the clean,
renewable, hydrogen future.
Some examples:
IFC's hydrogen fuel cells have been used in space
applications since 1966.
IFC operated a 200-kilowatt fuel cell unit in Germany
running on hydrogen.
BMW has incorporated a hydrogen fuel cell auxiliary power
unit into a Series 700 automobile.
IFC has installed hydrogen-powered fuel cells into four
Hyundai Santa Fe sports utility vehicles.
IFC is developing hydrogen fuel cell buses with US and
European partners.
Buses and fleet vehicles, since they return to a central location
each day, are a near term opportunity to create the necessary hydrogen
infrastructure including production, distribution and storage
capability.
Meanwhile, a number of companies are making substantial progress on
hydrogen production and storage. Ultimately, the vision is to produce
hydrogen for diverse fuel cell applications through the use of
renewable energy such as hydroelectric, solar and wind power.
Challenges
The cost of fuel cells has been one of the greatest impediments to
their commercial use. However, the costs have been reduced dramatically
in the past two decades. The space shuttle fuel cells, developed in the
late 1970s, cost roughly $600,000 per kW. The PC25 commercial
stationary unit, which was developed in the early 1990, has an
installed cost today of $4,500 per kilowatt.
IFC and other fuel cell companies are now developing new fuel cells
that are smaller, lighter and cheaper to produce. This new technology,
along with higher production volume, should help reduce the cost of
fuel cell power plants by two-thirds by 2003, from $4,500 a kilowatt to
$1,500. The cost of fuel cells will continue to trend down. If we
achieve the goal of automotive production, the cost may decline to as
low as $50 per kilowatt.
Government Actions
There are a number of things the federal government can do to help
accelerate the commercialization of fuel cell technology. These include
providing financial incentives, eliminating regulatory barriers,
funding government purchases and demonstration programs and continuing
the nation's commitment to hydrogen research and development.
Summary
Fuel cell technology represents an important component of the
solution to climate change. This technology is already reducing carbon
dioxide emissions and using methane as a fuel source. By the end of the
decade, fuel cells will power homes, cars, trucks, buses and
businesses. Widespread commercialization of fuel cells and
establishment of the necessary hydrogen infrastructure will enable a
wide spectrum of energy applications to eliminate their emissions of
greenhouse gases without sacrificing our standard of living. Fuel cells
powered by hydrogen that is produced using renewable energy is the
long-term vision, and substantial progress has already been made. We
look forward to working with Members of the Senate Commerce Committee
and other stakeholders to ensure this vision becomes a reality.
Thank you, Mr. Chairman.
Senator Kerry. Do you have an order you want to proceed in,
or, Mr. Koetz, why don't you go next, and then we will run down
the table to Mr. Duffy, Mr. Kammen, Mr. German.
STATEMENT OF MAUREEN KOETZ, DIRECTOR OF ENVIRONMENTAL POLICY
AND PROGRAMS, NUCLEAR ENERGY INSTITUTE
Ms. Koetz. Thank you, Mr. Chairman, members of the
Committee. On behalf of NEI's over 270 member companies
representing a multi-billion-dollar industry operating in
almost every state in the nation, I am pleased to be here to
discuss the role of nuclear technology in mitigating the
potential harmful effects of climate change.
As the old industrial economy transitions into the new
digital economy, one thing has remained certain. The backbone
of sound economic policy is effective energy policy. As
President Bush pointed out in his speech announcing the new
national energy policy, our history was built on energy that
was abundant and affordable and reliable. So, too, will be this
nation's energy future. NEI agrees, and we are delighted to be
here among many of the emerging and advanced technologies
needed for that energy future.
The challenges of providing abundant, affordable, and
reliable energy have historically relied on technological
advancements to secure supplies and avoid and minimize
environmental degradation. Baseload fission electricity
production is a successful example of advanced clean energy
technology that is good for the environment, supplants foreign
fuel sources, and manages economic risks that can result from
price or supply fluctuations.
Nuclear energy was first recognized as an emission control
technology for both conventional air pollutants and greenhouse
gases in the 1950's and 1960's. Since then, its dual capability
to provide secure, reliable baseload supply with minimal
environmental impact has made nuclear energy the backbone of an
energy system that is not only abundant, reliable, and
affordable, but cleaner and more environmentally friendly as
well.
As we look to ways to effectively control our greenhouse
gas emissions, nuclear electricity will once again play a key
role. In his recent address on climate change, President Bush
made a critical observation regarding the path forward on
climate change, and he stated--and I quote--``There are only
two ways to stabilize concentration of greenhouse gases. One is
to avoid emitting them in the first place. The other is to try
to capture them after they are created.''
Avoiding emissions is our specialty. In the year 2000
alone, generating with nuclear plants in lieu of baseload
alternatives avoided 174 million metric tons of carbon-
equivalent emissions. And just to sort of scale that to what
Mr. Miller just told you in terms of the capability of fuel
cells, that is actually 1 trillion pounds of CO2.
Give you something to shoot for.
Without this critical contribution, the difference between
current U.S. greenhouse gas emission levels and our 1990
baseline established in the framework convention on climate
change would double. And just to give you some idea, too, since
1973, the total avoided emissions from using nuclear power are
over 2 billion metric tons of carbon, and again that is
approaching 6 billion tons of CO2.
The value of avoiding emissions is not uniquely known and
understood by U.S. leadership. On the contrary, our trading
partners and competitors fully intend to take advantage of
concentrated, large-scale nuclear energy sources to meet their
objectives for climate change abatement. Japan has announced
plans to build nuclear plants to meet emission targets. The
United Kingdom is re-evaluating its nuclear energy program, and
Finland is planning a new plant for the European Union grid.
Even Germany, long thought to be on a glide path to nuclear
phase-out, has effectively postponed any potential plant
retirements until well after the timeframe to meet its targets
under the Kyoto protocol.
In all, the approximately 150 nuclear plants in Western
Europe will be a key technology used by the EU to meet global
climate goals without compromising economic growth, and the
same is true for the Pacific Rim as well as advanced developing
countries like Brazil and South Africa.
In sum, as we tackle the issue of climate change, the
United States cannot afford to lose its leadership in advanced
nuclear energy. Our designs have been developed to provide even
greater safety, improve production efficiencies and additional
cost reductions. We employ members of our communities in high-
paying jobs, contribute to a tax base that pays for education
and municipal services, and we support other economic
activities that help grow and improve the standard of living
for more and more Americans.
And just to play Ms. Snowe's point about transportation,
just to give you an idea, the New York City subway uses 1.8
billion kilowatts of electricity annually. Without large-scale
baseload generation, those kinds of transportation programs
that are in and of themselves an emission control program,
cannot run.
Right now many nuclear plants in the United States make
electricity for little more than a penny a kilowatt, and that
includes the costs of eliminating greenhouse gases and other
conventional pollutants. As we recognize our responsibilities
to the world community to support sustainable economic
development, our investment in nuclear technologies continues
to pay dividends. For example, using uranium for electricity in
the developed world slows the depletion of limited global
energy resources that are needed in developing countries.
Emission-free baseload electricity will continue to be the
backbone of our energy and environmental policies, Mr.
Chairman, supporting our sustained economic growth and
protecting resources for future generations. The nuclear
industry looks forward to working with you and all the parties
engaged in climate change, so that we can use the best of our
technology wisely and well to mitigate greenhouse gas emissions
without undermining the American way of life.
I thank you, and I would be happy to answer your questions.
Senator Kerry. Thank you very much. Am I pronouncing your
name correctly?
Ms. Koetz. Koetz, sir.
Senator Kerry. Koetz. I was correct then. Good. Thank you.
[The prepared statement of Ms. Koetz follows:]
Prepared Statement of Maureen Koetz, Director of Environmental Policy
and Programs, Nuclear Energy Institute
Mr. Chairman, ranking members, and distinguished members of the
Committee, I am Maureen Koetz, director of environmental policy and
programs for the Nuclear Energy Institute (NEI). As with other air
quality issues we have faced, the potential for climate change is
challenging our ingenuity and our markets to devise, enhance and
support technologies that avoid or mitigate man-made emissions of
greenhouse gases. Foremost among these is a robust, safe nuclear energy
industry, able to prevent these emissions while preserving the
affordable electricity system that is the foundation for America's
commercial success and future economic growth.
On behalf of its more than 270 members, NEI acknowledges and
appreciates congressional support for the industry, which has helped
bring nuclear energy to the renaissance we see today. In developing
public policy for the nuclear industry, NEI represents a broad spectrum
of interests from every U.S. utility that operates a nuclear power
plant, nuclear fuel cycle companies, suppliers, engineering and
consulting firms, national research laboratories, manufacturers of
radiopharmaceuticals, universities, labor unions and law firms. The
jobs, tax base and economic value the industry represents comprise a
vital segment of our energy infrastructure, as well as American
communities and families whose welfare and well-being derive from the
construction, maintenance and operation of this nation's commercial
nuclear power plants.
I am pleased to testify before this Committee regarding the role of
our country's 103 nuclear electric generating units in protecting the
environment from many potential adverse effects--including climate
change--while providing 20 percent of our nation's electricity. The
unique ability of nuclear-generated electricity to provide both energy
security and protect the environment makes it one of the most important
risk management tools available to minimize the adverse economic and
environmental impacts from foreign fuel supply limitations and
disruptions, energy price fluctuations, or environmental dispatch
limits that can threaten U.S. growth and prosperity.
The growing importance of an adequate climate change response is
causing energy supply and emission control issues to again converge as
they did in the 1960s and 1970s. Effective climate change action will
require a comprehensive energy policy that uses all forms of energy,
particularly electricity generation, to their full potential and
advantage. The national energy policy formulated by President Bush
provides a positive framework to accomplish this goal by supporting the
expansion of emission-free technologies--including nuclear
electricity--to ensure adequate electricity supplies while mitigating
the potential for climate change. Additionally, Sens. Bingaman and
Murkowski this year have sponsored separate comprehensive energy bills
that call for an expanded nuclear energy industry. Sen. Domenici has
sponsored stand-alone legislation intended not merely to protect
nuclear energy's vital role in our nation's energy portfolio, but to
ensure that role continues to grow to help meet the nation's increasing
electricity demand--and doing so while avoiding the emission of harmful
greenhouse gases.
Emission Avoidance: A Key Policy Tool
In his recent address on climate change, President Bush made a
critical observation regarding the path forward on climate change,
stating: ``There are only two ways to stabilize concentration of
greenhouse gases. One is to avoid emitting them in the first place; the
other is to try to capture them after they're created.'' This framework
builds on our historical success with combining pollution avoidance and
end-of-the-pipe controls in addressing other potentially harmful air
emissions from power generation.
As early as 1969, the Department of the Interior listed increased
use of nuclear energy as one of 11 methods to control sulfur dioxide
emissions. Since then, the advent of nuclear energy has been a major
component of achieving domestic air quality goals. For example, from
1975 to 1990, making electricity in nuclear plants instead of fossil-
fueled alternatives avoided more tons of nitrogen oxide than were
eliminated through controls under the Clean Air Act. In 2000 alone,
nuclear plants avoided more than 4 million tons of sulfur dioxide,
nearly 2 million tons of nitrogen oxides, and 174 million metric tons
of carbon equivalent. In the absence of current nuclear production, the
difference between current U.S. greenhouse gas emission levels and our
1990 baseline established in the Framework Convention on Climate Change
would double.
As the president correctly points out, future efforts to control
greenhouse gases will require our continued investment in emission-free
technologies of all kinds, but particularly nuclear plants because of
their sizable electric output, minimal environmental impact and siting
capability near load demand. To fully understand the vital role of
emission avoidance, one need only look at the success of voluntary
emission reduction programs to date. With approximately half the units
reporting so far, nuclear plants are the single largest contributor to
voluntary greenhouse gas emission reductions (40 percent of the
program) under the Department of Energy's 1605(b) program (established
under the 1992 Energy Policy Act).
Growth Through Efficiency and Safety
In the face of public opposition to alternative fossil options that
would have increased air pollution, construction of the first
commercial nuclear reactor began at Shippingport, Pa., near Pittsburgh,
in 1955. Since that first plant, nuclear energy has evolved into a
reliable, affordable and essential baseload electricity technology with
an unparalleled safety record.
In 2000, nuclear plants generated a record 754 billion kilowatt-
hours of electricity, 25 billion kilowatt-hours more than the previous
year and 178 billion kilowatt-hours more than in 1990. Last year's
record performance capped the best decade in the industry's history.
The average production cost of electricity generated by nuclear power
plants during 1999 was 1.83 cents per kilowatt-hour, the lowest of all
fuel sources. And improved production was matched with ever-improving
safety.
The dramatic increase in electricity generation by America's
nuclear plants is also one of the most successful energy efficiency
programs of the past decade. Output increases are equivalent to adding
22, 1000-megawatt power plants to our nation's electricity grid,
without the environmental disruptions and impacts that would have
occurred if new facilities had been brought on line to meet these
needs. Although the lack of new nuclear construction since the 1980s
often is identified as a sign of industry stagnation, in fact, the more
efficient operation of existing nuclear electric generating facilities
has been an environmentally beneficial alternative for making
additional electricity.
Plant uprates, improved maintenance, reduced outage times and
safety improvements will continue to provide higher operating
efficiency and additional electricity output from existing power
plants. But these increases are finite, limited to the maximum capacity
of each reactor. To meet future demands of an electricity-hungry
digital economy--especially if carbon mitigation efforts limit some
options--some electric companies are beginning to examine the market
for new nuclear plants. Advances in renewable generation, distributed
sources such as fuel cells, and continued conservation will all improve
our competitive energy/environmental position. But these advances will
not displace the continued need for baseload sources as part of
providing secure energy supplies that meet the 99.9999 percent
reliability rating needed in the future.
In addition, bulk users will continue to need bulk electricity
supply that mitigates environmental impact, a product these alternative
sources may not be able to provide. For example, the New York City
subway uses 1.8 billion kilowatt-hours of electricity annually. Mass
transit is necessary to mitigate air quality impacts, including
increased greenhouse gas emissions, from carbon-based mobile sources.
Other environmental protection systems, such as wastewater treatment
and water purification, also require bulk electricity to serve the
large, urban populations where 80 percent of Americans now live--not to
mention to help meet electrical demands of a concentrated population.
Continued use and expansion of nuclear electricity works in tandem with
other advanced technologies to meet the range of market needs for
energy that can also avoid or mitigate impacts such as global warming.
An Unrivaled Waste Management Record
Nuclear energy facilities, like other electricity sources, have
waste streams and byproducts that must be managed safely. The
environmental policies and practices at nuclear energy plants are
unique in having avoided or prevented significant harmful impacts on
the environment since the start of the commercial nuclear industry more
than 40 years ago. Effective waste avoidance, minimization and
management practices have successfully prevented or mitigated adverse
impacts on water, land, habitat, species and air from releases or
emissions in the production of nuclear electricity, some of which have
already been discussed in detail above. Throughout the nuclear
electricity production process, the small volumes of waste byproducts
actually created are treated and released, or carefully contained,
packaged and safely stored.
The safe handling and storage of used nuclear fuel is one of the
most successful solid waste management programs in the industrial
sector. Used fuel rods are stored in contained, steel-lined pools or in
robust stainless steel containers at limited-access reactor sites.
As a result of improved process efficiencies, the average volume of
waste generated at nuclear energy plants has decreased significantly in
the past two decades. The high-level radioactive material in used fuel
rods totals less than 20 metric tons per nuclear plant each year. The
trillions of kilowatt-hours of nuclear electricity generated over more
than 40 years have produced about 38,000 metric tons of used fuel rods.
These rods, if stacked together, would fill a football field to a depth
of a little more than four yards. Although this is an astonishingly
small residual volume of used fuel from the production of all of the
nation's nuclear electricity over the past 40 years, and although it is
fully accounted for and very safely separated from the environment, its
removal to a central repository has caused considerable angst. It is
helpful to keep this very small disposal issue in perspective. For each
one ton of this used fuel, 345,000 metric tons of greenhouse gas,
dispersed to the atmosphere, were avoided. Surely, seen in this light,
the completion of Congress' resolve for the disposal of used fuel
enacted in 1982 is clearly in the nation's environmental interest and
will encourage expanded use of nuclear energy.
Although U.S. policy originally envisioned recycling reactor fuel
to separate out small volumes of waste and reuse the remaining fuel,
prior administrations chose instead to dispose of the fuel after only
one use in a deep geologic repository, leading to the site
characterization project at Yucca Mountain. Research continues to
develop improved processes for recycling used fuel--a policy option
that will provide strategic fuel reserves that can increase the future
contribution of nuclear electricity to sustainable development--but it
is imperative that the United States keep its program for a federal
repository program on track toward a presidential decision in 2001. The
Yucca Mountain program is key to effective climate policy for two
reasons. First, cost-effective operation of nuclear plants requires a
centralized, permanent site to continue the environmentally preferable
practice of isolated storage for used fuel. Second, nations around the
world will use emission-free electricity from nuclear plants as part of
their climate change mitigation strategies. As the world leader in
nuclear technology, the United States must also be the world leader in
effective, long-term management of used fuel.
The Future
U.S. electricity demand grew by 2.2 percent a year on average
during the 1990s and by 2.6 percent in 2000. Even if demand grows by a
modest 1.8 percent annually over the next two decades, the nation will
need nearly 400,000 megawatts of new electric generating capacity,
according to the U.S. Energy Information Administration. That figure
takes into account replacement of retired capacity. This capacity is
the equivalent of building about 800 new mid-size (500-megawatt) power
plants in the next 20 years, which amounts to roughly 40 plants per
year.
Currently, more than one-third of U.S. electricity production is
from emission-free sources. In order simply to maintain that
percentage--and the contribution to air quality and greenhouse gas
abatement it represents--the current nuclear fleet must increase by 50
percent. To meet that challenge, the nuclear industry has established a
goal of 50,000 megawatts of new nuclear power plant construction by the
year 2020.
Meeting this goal will require effective energy policies that
promote adequate supply, a balanced fuel portfolio, and the advancement
of clean technologies. We believe those policies should include the
following actions:
Preserve U.S. Global Leadership in Nuclear Science and
Technology Through Adequate R&D Funding
The President's Council of Advisors on Science and Technology
(PCAST) has said that the government is not doing all it can in nuclear
energy research and development. The reason, said the council, is that
``the public has been lulled into a sense of complacency by a
combination of low energy prices and little sense of the connection
between energy and the larger economic, environmental and security
issues that people do care very much about.''\1\ In its 1999 report,
PCAST noted that its recommendation for nuclear R&D funding by the year
2003 ($120 million) would merely return the U.S. level of effort to
that of 1995.\2\
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\1\ Federal Energy Research and Development for the Challenges of
the 21st Century, Report of the Energy Research and Development Panel
of the President's Council of Advisors on Science and Technology, Page
ES-31, November 1997.
\2\ November 1997 PCAST Report, Page ES-5.
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The Nuclear Energy Research Initiative (NERI) and Nuclear Energy
Plant Optimization (NEPO) research programs should be funded at levels
double the administration's 2001 budget request. These programs are
designed to produce generic improvements that reduce capital and
operating costs for both current reactors and advanced reactor designs
available for new nuclear plant construction. Funding also is important
for the Energy Department's University Support Program, which helps
maintain research reactors and enhances educational programs in nuclear
science and technology at our nation's colleges and universities,
thereby encouraging a steady stream of new entrants into the nuclear
industry workforce.
In comparison to other electricity-generating sources, nuclear
energy unequivocally is the most economical federal research and
development investment. In 2000, the federal government spent six cents
on nuclear energy R&D for every megawatt-hour ($.06/MWh) of electricity
generated at nuclear power plants. By comparison, solar photovoltaics
received more than 1,300 times that amount per megawatt-hour ($81.79/
MWh). Obtaining a fair share of R&D funding is essential for the
expanded use of nuclear energy.
Level the Electricity Competition Playing Field
In recent years, state and federal initiatives have accelerated the
transition to a competitive electricity market. As companies prepare to
do business in this new market, the unbundling of their products and
services will require a re-examination of costs and allocation of value
to activities that previously were not valued. Congress can enact
several legislative initiatives that remove unnecessary impediments to
nuclear power and pave the way for sensible, market-based business
decisions that will preserve and extend the operation of today's
nuclear power plants.
First, Congress should eliminate unnecessary requirements that may
prevent effective ownership transactions in a competitive market.
Consolidated ownership of nuclear plants allows for economies of scale
in operations, maintenance, outage planning and administration. These
transactions can further improve safety because ownership and operating
responsibility will be consolidated in the hands of large companies
with the financial and management resources to operate the plant at the
highest possible levels of safety and reliability. Resulting cost
savings encourage continued plant operation by reducing the operating
costs of plants when operated as part of a larger nuclear organization.
Policy changes are important to remove potential barriers to permitting
otherwise economical plant consolidations, including revision of
Section 468A of the Internal Revenue Code, which addresses the tax
treatment of nuclear decommissioning trust funds.
In addition, public policy incentives to encourage carbon abatement
or avoidance technologies must be equally applied, whether they are
production and/or investment tax credits to address climate change,
access to market-based pollution control mechanisms, or access to
favorable financing and other funding mechanisms. The importance of
nuclear energy to clean air and carbon abatement is one of the
previously unvalued services that must be recognized to prevent
competitive disadvantage and position nuclear power plants to continue
their crucial environmental contribution.
Any plausible strategy to mitigate greenhouse gas emissions will
require an expanded use of nuclear energy in the United States and
around the world. Equal treatment in these market and incentive
programs will allow new nuclear plants to effectively compete with
alternative forms of generation, extending nuclear energy's unique
ability to provide energy security and environmental protection.
Assure Adequate Funding for the Repository Program at Yucca
Mountain
Since 1983, consumers of nuclear-generated electricity have paid
one-tenth of a cent per kilowatt-hour into the Nuclear Waste Fund--a
fund solely intended to finance the federal government's used fuel
management program. The fund, which has collected about $17 billion,
has a balance of about $10 billion--and it's growing at about a $1
billion a year. Still, obtaining appropriations from the fund for the
Yucca Mountain project between now and 2010--the year it is estimated
the facility would be ready for operation--could be significantly
challenging because of budgetary rules. The fund initially was intended
as an off-budget account, but subsequent congressional laws introduced
appropriations caps and other budgetary restrictions. The result has
been a perennial failure by Congress to appropriate enough money from
the Nuclear Waste Fund to meet the Energy Department's annual budget
request, undercutting the Yucca Mountain project.
DOE has requested $445 million for fiscal year 2002 work on the
Yucca Mountain project. The House of Representatives endorsed the
recommendation of its Appropriations Committee, approving $443 million.
We encourage the members of this Committee and the Senate to do the
same, facilitating the opening of the Yucca Mountain repository in
2010.
Extend Self-Insurance Pooling Under the Price-Anderson Act
The public has $9.5 billion of insurance protection in the event of
a nuclear reactor accident. The nuclear reactor operators--not the
public or the federal government--pay for this insurance. This utility
self-insurance pool was first established in 1957, when Congress passed
the Price-Anderson Act. The act provides an umbrella of no-fault
insurance protection for the public and ensures that money will be
immediately available to pay liability claims that could result from a
major nuclear accident. Price-Anderson most recently was amended in
1988, and the deadline for reauthorization is 2002.
In a 1998 report to Congress, the NRC recommended that the act be
extended for an additional 10 years. DOE also has recommended that
Congress approve an extension of the Price-Anderson law. Both agencies
recommended reauthorization with minimal change. The nuclear industry
strongly supports the reauthorization of the Price-Anderson Act for an
indefinite period.
Conclusion
One of the most prominent environmental protection advancements in
the industrial sector has been the increased reliance on domestically
available nuclear energy to power our fast-growing digital economy
while improving air quality. The United States leads the world in the
development and application of nuclear technology. The economic value
of this export market is substantial, bringing high-paying jobs and
revenues to many areas around the country that participate in nuclear
power production.
Congress should not lose sight of this important energy security
and clean air resource, and policymakers should employ a strategy that
maximizes nuclear energy's potential to power our economy and address
climate change. Working together for national security and public
sector needs, the nuclear energy industry and the federal government
can ensure that emission-free electricity will continue to help meet
our nation's public policy goals regarding energy production and
environmental protection for workers, consumers, businesses, and urban
dwellers looking to protect their quality of life and their
environment.
Thank you for giving me this opportunity to share the industry's
perspective on climate change and technological development issues the
Committee is focusing on at this hearing.
Senator Kerry. Mr. Duffy.
STATEMENT OF DENNIS J. DUFFY, VICE PRESIDENT OF REGULATORY
AFFAIRS, ENERGY MANAGEMENT, INC.
Mr. Duffy. Thank you. I appreciate this opportunity to
address the Committee regarding the role of wind energy in
establishing a balanced environmental and energy policy.
My name is Dennis Duffy, vice president of regulatory
affairs for Energy Management, Inc., or EMI. EMI is a privately
held company with 25 years of experience in the energy
business. As our name implies, our original business was
advising industrial energy users as to the conservation and
optimal use of their energy resources. We subsequently focused
on the development and operation of major electrical generation
facilities, and over the past decade, raised a billion dollars
in project capital, and developed, owned, and operated some of
the most efficient gas-fired combined cycle plants in the
United States.
As of the end of last year, however, EMI sold all of its
fossil-fueled units and is now focusing exclusively upon the
development of wind energy facilities. As indicated by this
shift in our energy market segment and the associated
commitment of our own capital, we are confident that wind
energy technology has now advanced to the point where it is
proven reliable and can play a much more meaningful role in our
national environmental and energy policy.
As an initial matter, the environmental benefits of wind
generation are striking. As the Committee is no doubt aware,
the combustion of fossil fuels for the production of
electricity is one of the most important factors affecting air
quality throughout the nation. While fossil fuels will
certainly remain a large portion of our national energy
portfolio, the important point is that, as of today, renewable
technologies have developed to the point where much more
substantial portions of our energy needs can be met without the
combustion of fossil fuels.
By way of example, we are currently developing an
approximately 400-megawatt wind generation facility located off
Massachusetts that would each year offset the combustion of
either 85 million gallons of oil or 500,000 tons of coal that
would be required to produce an equivalent amount of
electricity utilizing traditional combustion technologies.
Further, today's wind projects can be designed and sited in a
manner that is environmentally sensitive and compatible with
existing land and marine uses.
An important point here is that wind generation is often a
nonexclusive land use, so, for example, wind units can often be
located on operating farms and ranches without disturbing the
current operation, so farmers can go ahead, continue their
operation, but do so with an incremental revenue stream which
really has no adverse effect on their operations.
Wind energy also furthers the important energy policy
objective of diversification of supply and reduce dependence on
imported fuel. Diversification of supply is important to both
maintaining price stability and to get to the continued
reliability of electrical service. As experience over the last
year has taught us all, electricity prices are directly linked
to the often volatile and unregulated pricing of fossil fuels.
In this regard, the addition of substantial amounts of wind-
generated electricity to supply portfolios would provide a
valuable hedge against fuel price spikes and effectively
mitigate the volatility of the energy markets.
Further, the current state of regulatory affairs has
induced the overwhelming majority of new plants constructed to
utilize a single fuel, natural gas, a growing dependence, which
has caused some market managers serious reliability concerns.
Additional wind units would also cause consumers in
deregulated power market pools to see substantial reductions in
their overall power cost, a point which is often not--
misapprehended. All sellers in these deregulated pools are paid
the same clearing price, which reflects the marginal, primarily
fuel, cost of the last generating unit dispatched in any given
hour. Each pool prioritizes and dispatches its generating units
in economic merit order for the lowest to highest marginal cost
bids, until sufficient units are dispatched to meet overall
customer demand, and with the last and most expensive unit
dispatched, setting the clearing price for the entire pool.
The key point is that because wind units have a marginal
cost of close to zero, they will displace higher marginal cost
units that might have otherwise set the clearing price and
thereby placed downward pressure on pool clearing prices in
every hour of every day. Because the resulting reductions in
clearing prices are then applied to the entire volume of
electricity traded in the spot market of the pool, there is a
multiplier savings effect so that the cost of supporting wind
industry development results in far greater cost savings to the
consuming public.
The bottom line is that in deregulated power pools where
the clearing prices are driven by marginal costs, you can spend
more to support wind energy and still substantially reduce the
overall power costs to the public.
Obviously the degree to which wind energy can be relied
upon to further the foregoing policies depends on the
performance of the underlying technology. In this regard,
reference to the worldwide growth of wind energy confirms that
the technology has advanced to the point where it is not only
proven reliable but also a leading source of new generation in
the global market. The American Wind Energy Association
recently summarized as follows: ``Total worldwide wind capacity
today is approximately 17,000 megawatts. Wind energy was the
world's fastest growing energy source during most of the
1990's, expanding at annual rates ranging from 25 to 35
percent. In the year 2000, about 3,500 megawatts of new wind
capacity, close to a $4 billion investment, was installed
around the world.''
Although the technology has been proven in the field, I
think it is important and I will close briefly to note that the
technology is still a developing technology in this country and
is still needing various market and regulatory supports, most
important being the extension of the production tax credit.
Now, I know--there seems to be bipartisan support for the
extension. It is critical from our perspective that that
extension be for a period of not less than 5 years.
What is driving that is that there is such a demand for
wind turbines throughout the world, the manufacturers are hard-
pressed to assure delivery within the 3-year window, so it is a
good technology. It is proven in the field. It is reliable, but
we still need the economic incentives, and most importantly the
production tax credit.
Thank you. I am available for questions.
Senator Kerry. Mr. Duffy, thank you very, very much.
[The prepared statement of Mr. Duffy follows:]
Prepared Statement of Dennis J. Duffy, Vice President of Regulatory
Affairs, Energy Management, Inc.
1. Introduction
I appreciate this opportunity to address the Senate Commerce
Committee regarding the role of wind energy in establishing balanced
environmental and energy policy. I am Dennis J. Duffy, Vice President
of Regulatory Affairs of Energy Management, Inc. (``EMI''). EMI is a
privately-held company with twenty-five years of experience in the
energy business. As our name implies, our original business was
advising industrial energy users as to the conservation and optimal use
of energy resources. We subsequently focused on the development and
operation of major electrical generation facilities and, over the past
decade, raised $1 billion in project capital and developed some of the
most efficient gas-fired plants operating in the United States. As of
December of 2000, however, EMI has sold all of its fossil-fueled units
and is now focusing exclusively upon wind energy development. As
indicated by this shift in energy market segment (and the associated
commitment of our capital), we are confident that wind energy
technology has now advanced to the point where it is proven and
reliable and can play a much more meaningful role in our national
environmental and energy policy.
2. Benefits of Wind Energy
A. Environmental Benefits
As an initial matter, the environmental benefits of wind generation
are striking. As the Committee is no doubt aware, the combustion of
fossil fuels for the production of electricity is one of the most
important factors affecting air quality throughout the nation. While
fossil fuels will certainly remain an integral part of our national
energy portfolio, the important point is that, as of today, renewable
technologies have developed to the point where substantial portions of
our energy needs can be met without the combustion of fossil fuels or
the environmental issues associated with nuclear power. By way of
example, we are currently developing an approximately 400 megawatt wind
facility to be located five miles off the coast of Massachusetts that
would each year offset the combustion of (i) 85,000,000 gallons of oil
or (ii) 500,000 tons of coal that would be required to produce an
equivalent amount of electricity utilizing traditional technologies.
Further, today's wind projects can be designed and sited in a manner
that is environmentally sensitive and compatible with existing land and
marine uses.
B. Diversification Benefits
Wind energy also furthers the important energy policy objectives of
diversification of supply and reduced dependence upon imported fuel.
Diversification of supply is important to both maintaining price
stability and to the continued reliability of electrical service. As
experiences over the last year have taught us, electricity prices are
directly linked to the often volatile and unregulated pricing of fossil
fuels. In this regard, the addition of substantial amounts of wind-
generated electricity to supply portfolios would provide a valuable
hedge against fuel price spikes and effectively mitigate the volatility
of the energy markets. Further, the current state of regulatory affairs
has induced the overwhelming majority of new plant construction to
utilize a single fuel--natural gas, a growing dependence which has
caused market managers serious concern.\1\ The inclusion of significant
portions of wind generation in future supply portfolios mitigates these
reliability concerns, while at the same time mitigating electric price
volatility.
---------------------------------------------------------------------------
\1\ For example, the Independent System Operator of New England
(``ISO-NE'') released a report earlier this year noting its serious
concern over this potential over-reliance upon a single source of fuel
whose deliverability has not been fully assured.
---------------------------------------------------------------------------
C. Overall Consumer Cost Savings
Additional wind units would also cause consumers in deregulated
power pools to see substantial reductions in their overall power costs.
All sellers into these pools are paid the same ``clearing price''
reflecting the marginal (i.e., primarily fuel) cost of the last
generating unit dispatched in any given hour. Each pool prioritizes and
dispatches its generating units in ``economic merit'' order, from the
lowest to highest marginal cost bids, until sufficient units are
dispatched to meet customer demand, with the last/most expensive unit
dispatched setting the clearing price for the entire pool. The key
point is that because wind units have a marginal cost of zero, they
will displace higher marginal cost units from the economic dispatch and
thereby place downward pressure on pool clearing prices in every hour
of every day. Because the resulting reductions in clearing prices are
then applied to the entire volume of electricity trading in the pool,
there is a multiplier savings effect, so that costs of supporting wind
industry development result in far greater cost savings to the
consuming public. The bottom line is that, in deregulated power pools,
you can spend more for wind energy and still substantially reduce
overall power costs to the public.
3. The Proven Performance of Today's Wind Technology
Obviously, the degree to which wind energy may be relied upon to
further the foregoing policy objectives depends upon the performance of
the underlying technology. In this regard, reference to the world-wide
growth of wind energy confirms that the technology has advanced to the
point where it is not only proven and reliable, but also a leading
source of new generation in the global market. The American Wind Energy
Association (``AWEA'') recently summarized the global acceptance and
implementation of wind power in the following matter:
Total worldwide wind capacity today is approximately 17,000 mw,
enough to generate about 34 billion kilowatt-hours of
electricity each year. This is about the same amount of
electricity as 5 million average California households
(containing 12.5 million people) use. Wind energy was the
world's fastest-growing energy source during most of the
1990's, expanding at annual rates ranging from 25% to 35%. In
2000, about 3,500 mw of new wind capacity (close to a $4
billion investment) was installed around the world, but only 53
mw of that total, or little more than 1% was installed in the
U.S.
This world-wide growth in wind power is shown in graphic form on
Attachments 1 and 2 hereto. Also notable is the marked trend in the
European markets towards offshore wind facilities, of which more than
3,000 mw are now under development, as indicated on Attachments 3 and
4, with a representative project shown in Attachment 5.
This international growth in wind generation provides a practical
validation of today's wind turbine technology. Indeed, Denmark now
obtains approximately 20% of its power from wind resources and northern
portions of Germany have achieved even higher concentrations.
Importantly, the European experience has also demonstrated that utility
systems can operate in a safe and reliable manner with concentrations
of wind resources far in excess than those now existing in the United
States. With respect to the potential for wind energy in the United
States, AWEA has stated as follows:
The leading [US] states in terms of installed wind capacity are
California (1,646 mw), Minnesota (272 mw), Iowa (242 mw) and
Texas (188 mw). US wind potential is enormous--many times the
amount installed. California's potential, for example, is
conservatively estimated at 5,000 mw of wind capacity. Other
western states have much larger potential--e.g., Wyoming has
more than ten times California's. The U.S. is, quite literally,
a ``Saudi Arabia of wind,'' with vast resources throughout the
Plain States.
* * *
AWEA expects as much as 2,000 mw of new wind capacity to be
installed in the U.S. this year.
4. Policy Issues for Wind Energy
Notwithstanding the proven performance of wind technology, further
inroads into the U.S. market still require a degree of market and
regulatory support. Most important is the extension of the Production
Tax Credit (``PTC''), which currently provides an income tax credit for
the production of electricity from qualified wind energy facilities.
While I am happy to note that there is bipartisan support for an
extension of the PTC, some proposals would provide only a three year
extension, whereas others propose a five year extension. It is
extremely important to the wind industry that the PTC extension be for
a period of not less than five years. The global demand for new wind
turbines has created substantial doubt as to the ability of
manufacturers to produce, deliver and install new units within a three-
year window. Thus, a PTC extension of at least five years is necessary
in order to accommodate limited production capabilities.
Another policy initiative important to the growth of the wind
industry in the U.S. market are Renewables Portfolios Standards
(``RPSs''), a ``minimum content requirement'' specifying that a certain
percentage of electric supply portfolios must be obtained from
renewable energy resources (wind, solar, and others), either through
direct purchase of electricity or the indirect purchase of ``green
credits'' or certificates. Several states have included such RPS
requirements as part of their electric utility restructuring
legislation. Texas, for example, has set a RPS requirement of 2,000 mw
of new renewable energy generation by the year 2009, and one-half of
such amount (1,000 mw) will be met by wind generation that will be in
service by the end of this year. Massachusetts similarly included an
RPS requirement in its electric restructuring legislation, which
requires that 10% of all retail supply portfolios be supplied from
renewable resources by 2010. We believe that such requirements are a
sound policy tool to ensure that the public benefits of renewable power
are not frustrated by the established order in the electric industry,
and would strongly support initiatives for a RPS requirement as a
matter of Federal policy.
Finally, we believe that it is important to encourage utilities to
consider long-term purchases of renewable energy as part of their
overall portfolio planning. While some restructuring plans encouraged
utilities to rely primarily or exclusively upon short-term purchases,
experience has shown the undue volatility that can result. Further,
long-term pricing more fully recognizes the competitive value of wind
energy and its ability to provide an economic hedge against market
volatility through pricing that can remain fixed irrespective of fuel
prices.
5. Conclusion
In closing, I wish to reinforce our conclusion, based upon our
experience in the energy business and of the current state of
technology, that wind energy is a proven and reliable option that can
play a much greater role in the nation's environmental and energy
policies. While the environmental benefits of clean and renewable
generation are obvious, wind energy would have the additional benefits
of (i) reducing overall customer costs, (ii) mitigating fuel-driven
price spikes and (iii) improving system reliability through
diversification of supply and reduced reliance upon imported fuels.
Although wind technology has been validated in the global arena, it
remains a developing industry in the U.S. which requires both market
and regulatory support in order to make the inroads into the
established market that would further the national interests of
environmental and energy policy.
Thank you.
Attachment 1
World Growth of Wind Power
----------------------------------------------------------------------------------------------------------------
Wind Power \1\ All electricity
------------------- Annual Generation
Capacity \2\ Annual
Generation Year Capacity Energy Growth -------------------- Growth %
GW TWh % of Capacity Energy of TWh
TWh GW TWh
----------------------------------------------------------------------------------------------------------------
1996 6.07 12.23 -- (3,159) (13,613) (IEA '00)
----------------------------------------------------------------------------------------------------------------
1997 7.64 15.39 25.8% 3,221 13,949 2.8%
----------------------------------------------------------------------------------------------------------------
1998 10.15 21.25 38.1% 3,298 14,340 2.8%
----------------------------------------------------------------------------------------------------------------
1999 13.93 28.18 32.6% 3,377 14,741 2.8%
----------------------------------------------------------------------------------------------------------------
2000 18.43 37.30 32.0% 3,458 15,153 2.8%
----------------------------------------------------------------------------------------------------------------
2010 145.0 355.68 4,386 19,989
----------------------------------------------------------------------------------------------------------------
Average Annual growth 1996 through 2000 27.2% 2.8%
----------------------------------------------------------------------------------------------------------------
Source: BTM Consult ApS--March 2001.
\1\ World Market Update, BTM-C (Chapter 2 & 4); 2) IEA World Energy Outlook 2000--General Projection.
Attachment 2
World Share of Wind Power
------------------------------------------------------------------------
Electricity Wind
Electricity form all Power's
gen. by gen. share of
Generation Technology Year: Wind Power Technologies the worlds
(BTM-C) TWh (inc. Wind) Electricity
IEA TWh Generation
------------------------------------------------------------------------
1996 12.23 13,613 0.08%
------------------------------------------------------------------------
1997 15.39 13,949 0.11%
------------------------------------------------------------------------
1998 21.25 14,340 0.15%
------------------------------------------------------------------------
1999 28.18 14,741 0.19%
------------------------------------------------------------------------
2000 37.30 15,153 0.25%
------------------------------------------------------------------------
2010 (est.) 355.68 19,989 1.78%
------------------------------------------------------------------------
Source: BTM Consult ApS--March 2001: World Figures: IEA World Energy
Outlook 2000.
Attachment 3
World Share of Wind Power
----------------------------------------------------------------------------------------------------------------
Identified offshore Wind Power Projects in Europe by country MW--
Country of location: Identification capacity planned to be installed
of projects/sites: Year: ------------------------------------------------------------------
Belgium Denmark Germany Ireland Netherlands Sweden UK
----------------------------------------------------------------------------------------------------------------
Stengrunden (SE) 2001 10
----------------------------------------------------------------------------------------------------------------
Horns Rev (DK) 2002 160
----------------------------------------------------------------------------------------------------------------
Hakefjorden (SE) 2002 44
----------------------------------------------------------------------------------------------------------------
Klasfjorden (SE) 2002 42
----------------------------------------------------------------------------------------------------------------
Rostock (GE) 2002 60
----------------------------------------------------------------------------------------------------------------
Rodsand (DK) 2003 150
----------------------------------------------------------------------------------------------------------------
Laeso (DK) 2003 150
----------------------------------------------------------------------------------------------------------------
Lillgrund (SE) 2003 72
----------------------------------------------------------------------------------------------------------------
Gros. Vogels. GEO (GE) 2003 80
----------------------------------------------------------------------------------------------------------------
Lubeck (SKY) (GE) 2004 100
----------------------------------------------------------------------------------------------------------------
NOVEM (NL) N. Shore 2003 100
----------------------------------------------------------------------------------------------------------------
Electrabel (BE) 2004 100
----------------------------------------------------------------------------------------------------------------
Dublin Bay (IR) 2003-4 240
----------------------------------------------------------------------------------------------------------------
Scroby Sands (UK) 2002-3 76
----------------------------------------------------------------------------------------------------------------
E-Connection (NL) 2003 240
----------------------------------------------------------------------------------------------------------------
PNE, Borkum (GE) 2004 60
----------------------------------------------------------------------------------------------------------------
Two Projects in UK (UK) 2004-5 260
----------------------------------------------------------------------------------------------------------------
Eirtricity (Arklow) (IR) 2005 500
----------------------------------------------------------------------------------------------------------------
Omo Stalgrund (DK) 2005 150
----------------------------------------------------------------------------------------------------------------
Helgoland I (GE) 500
----------------------------------------------------------------------------------------------------------------
Total by Country (MW) 100 610 800 740 340 168 336
----------------------------------------------------------------------------------------------------------------
Source: BTM Consult ApS--March 2001.
Attachment 4
Status of Planned Offshore Projects
Attachment 5
Senator Kerry. Mr. Kammen.
STATEMENT OF DR. DANIEL M. KAMMEN, PROFESSOR OF
ENERGY AND SOCIETY, ENERGY AND RESOURCES GROUP, AND PROFESSOR
OF NUCLEAR ENGINEERING, UNIVERSITY OF CALIFORNIA
Dr. Kammen. Thanks very much for having us speak today. I
am Daniel Kammen, and I am a professor of energy and society in
the University of California at Berkeley. I am also professor
of nuclear engineering and director of the Renewable and
Appropriate Energy Laboratory.
And what you have heard in the previous testimonies are a
number of technologies that are showing market entrance and
great potential, and I want to just summarize a couple of key
things, and that we are right now in a take-off phase, where a
variety of renewables are playing a significant role, but they
need a marketplace to be balanced out. And so my testimony
details but let me summarize three simple and very clear truths
about this.
One is that the U.S. could meet and exceed the Kyoto or
other obligations or other targets for climate protection and
do that at an economic benefit, not a cost, and I will come
back to that at the very end. That is a critical feature that
has now been recognized in a variety of recent studies.
The next feature is that research and development for
renewable energy alternatives has been on a 25-year roller
coaster, and we see funding levels that go up, programs cut and
then added to and cut and added to in ways that have been
incredibly inefficient. A critical thing is to not pick
individual winners, not say, We are going to bank all of our
money on a given technology, but to support portfolios that
allow a variety of low-carbon and no-carbon energy systems to
become part of the mix.
And the third feature is that this technology push needs to
be coupled with clear market pull, and so building markets for
cleaner technologies is the third and critical piece of what we
are looking at, and we are seeing some significant
opportunities now, and one of the most disappointing things we
have seen in the current roller coaster over funding and over
the current national energy policy plan has been that a lot of
the lessons about how to use energy efficiency and renewables
most effectively are not being utilized in the market.
I am going to say a few words about each of these. Our R&D
path has been, as I said, a bizarre roller coaster, with these
increases and decreases. The uncertainty in energy markets has
also meant that energy companies and industry in general has
invested very small amounts of their returns back into R&D. The
energy sector in general in the U.S. puts something like of a
quarter of a percent of their profits back into R&D.
Pharmaceuticals and other areas that I would argue are a little
more healthy are investing more like 10 or 15 percent of their
revenues back into R&D, so we have got a sector which because
of policy, ambiguity, and unclear directions has not performed
the way that it might have.
Despite that, we have seen a variety of advances, and if we
pick those winners and work for those, both for stationary
power plants and for vehicles, as Senator Snowe had mentioned,
we have a variety of things that could dramatically improve
what we see coming on.
The other last feature of the R&D story is that it has
proved to be a dramatically good investment. Investments made
in energy efficiency, in wind turbines, in photovoltaics have
all been programs that when you cost them out, have had
dramatic economic benefits, not in costs, and one of the big
claims about the climate debate has been that this is an area
where if we do something to reduce greenhouse gas emission, it
will come at a cost. And, in fact, a variety of studies are now
indicating that we can do all these things and make money at
the same time.
The next feature is to look at markets. Currently in the
markets, we dramatically subsidize the fossil fuel industry. We
subsidize those technologies that are already mature to an
overwhelming degree. Oil and gas and coal receive the lion's
share of Federal subsidies for energy programs, which doesn't
make economic sense, let alone environmental sense, because
right now we have emerging opportunities in fuel cells, in
wind, in photovoltaics, in a variety of things, in biomass.
Those are the areas where we can much more effectively spend
Federal dollars and marry Federal programs with state programs.
Another feature of that is that the market entry for new
clean air technologies has been particularly difficult. The
California energy debacle has been one that has highlighted the
degree to which new clean options are prevented from entering
the market, because the economic rules have been ones that
largely benefit existing technologies and don't pave the way
for these new clean options to come on line.
One critical piece of this providing markets for clean
energy would be to enact a renewables portfolio standard, which
is the way to use markets correctly. It is a way to set targets
for how much clean energy we want to see in the market and then
to let market forces pick and choose between winners, and that
is a way to utilize the competitive feature of industry within
markets but not to have a market that is biased against new
entrants, and it doesn't make any sense that we haven't pushed
harder on that.
In the last 106th Congress, there was a bill on the table,
Senate Bill 1369, that looked at renewables portfolio standard.
That is a critical piece of what we might do down the line.
The other piece of this is that we have seen from a variety
of systems, from energy-efficient lighting to getting some wind
capacity on line, to looking at R&D development in the
photovoltaic sector, that the industry can respond dramatically
to these challenges if given a reasonable timetable to put this
into place, and every year and every month that we delay right
now in acting on climate change, we make it more difficult and
costly for industry to act.
It would make a great deal of sense to set clear standards
for renewables portfolio in our energy mix and also for
improving the efficiency of lighting and to reduce some of the
inefficient technologies we have in the market right now.
The estimates that have come out of a variety of studies in
our laboratory from the national labs, from the International
Project for Sustainable Energy Paths have all concluded that if
we tackled the Kyoto targets, we could do that at a cost of
around 30 billion a year, but at reduced energy expenditures of
more than 45 billion a year, economic benefits from those
reduced energy expenditures of more than 40 billion, and
reduced environmental damage from around 5 billion, so we could
be making dramatic amounts of money if we put policies into
effect that supported a broad range of renewables and got them
much more firmly entrenched in the market, and in fact, doing
that at this economic benefit.
The U.S. has also fallen behind in a variety of areas. Our
wind production and our photovoltaic production are now
slipping behind European and Asian nations. That makes no
sense, because this is an area of tremendous economic growth
potential.
Let me just say thank you for the chance to appear today,
and I would be happy to discuss any of those policies at more
length later on.
[The prepared statement of Dr. Kammen follows:]
Prepared Statement of Dr. Daniel M. Kammen, Professor of Energy and
Society, Energy and Resources Group, and Professor of Nuclear
Engineering, University of California
Introduction: the Emerging Critical Role of Renewable Energy and Energy
Efficiency
Mr. Chairman and members of the Committee, thank you for this
opportunity to appear before you today to provide testimony on how
renewable energy and energy efficiency technologies can address climate
change. My name is Daniel Kammen, and I am Professor of Energy and
Society in the Energy and Resources Group and in the Department of
Nuclear Engineering, as well as Director of the Renewable and
Appropriate Energy Laboratory (RAEL) at the University of California,
Berkeley.\1\ I am pleased to be able to present information on how to
utilize the many important advances in renewable energy and energy
efficiency technology, economics, and management for the formulation of
a strong national climate change mitigation policy. This critical
initiative is long overdue, and is particularly relevant today. The
recent release of the IPCC Third Assessment Report \2\ as well as the
analysis by the National Academy of Sciences on climate change science
\3\ both conclude that climate change is real and needs to be addressed
now. The clean energy technology options and policies I will discuss
are needed to address the challenge of global environmental
sustainability. Despite dramatic technical and economic advances, we
have seen far too little R&D, and too few incentives and sustained
programs to build markets for renewable energy technologies and energy
efficiency programs. We stand today at a critical juncture where clean,
low-carbon, energy choices make both economic and environmental sense,
and where policy action can place us on a path to a clean energy
future.
There is a growing understanding that an effective climate
mitigation policy is also a responsible energy policy. I am concerned
that the current crisis mentality pervading the discussions of energy
issues in the country has fostered an ill-founded rush for ``quick
fix'' solutions that, while politically expedient, will ultimately do
the country more harm than good from both a climate change and an
energy policy perspective. California's energy crisis has focused
attention and raised fundamental questions about regional and national
energy strategies. Rising demand suggests the need for new energy
supplies. However, there is a wide range of options for achieving
supply and demand balance, and some of these options have not been
given adequate attention. It is clear that an energy policy weighted
towards increasing the supply of traditional forms of energy will do
little to decrease our greenhouse gas (GHG) emissions and will create a
host of other environmental, health and national security problems.
In the last decade the case for renewable energy has become
compelling economically, socially, and environmentally. For many years
renewables were seen as environmentally and socially attractive options
that at best occupied niche markets due to barriers of cost and
available infrastructure. That situation has dramatically changed.
Renewable energy resources and technologies--notably solar, wind,
small-scale hydro, and biomass based energy, as well as advanced energy
conversion devices such as fuel cells--have undergone a true revolution
in technological innovation, cost improvements, and in our
understanding and analysis of appropriate applications.\4\ There are
now a number of energy sources, conversion technologies, and
applications, where renewable energy options are either equal, or
better, in price and services provided than are prevailing fossil fuel
technologies. For example, in a number of settings in industrialized
nations, wind energy is now the least cost option across all energy
technologies with the added benefit of being quick to install and bring
on-line, as well as being modular. In fact, some farmers in the Midwest
have found that they can generate more income per hectare from the
electricity generated by a wind turbine on their land than from their
crop or ranching proceeds. Furthermore, photovoltaic panels and solar
hot water heaters placed on buildings across America can: dramatically
shave peak-power demands; produce a healthier living environment; and
increase our energy supply while managing our energy demand.
The potential for renewable energy technologies and energy
efficiency to have a significant role in protecting our climate as well
as our energy future is an example of the type of energy options that
demand far greater examination and commitment to implementation than we
have seen to date. And so, I am particularly pleased Mr. Chairman that
you are holding this hearing to discuss how we can effectively and
efficiently bring these technologies to market.
Energy Policy Recommendations
Increase Federal R&D Funding for Renewable Energy and Energy
Efficiency Technologies
Federal investment in renewable energy and energy efficient
technologies has been sparse and erratic, with each year producing an
appropriations battle that is often lost. A combination of a federal
program for steadily increasing funding and active political leadership
would transform the clean energy sector from a good idea to a pillar of
the new economy.
Provide Tax Incentives for Companies that Develop and Use
Renewable Energy and Energy Efficiency Technologies
Support for the production and further development of renewable
fuels, all found domestically, would have a greater long-term effect on
the energy system than any expansion of fossil-fuel capacity, with
major health and environmental benefits as an added bonus. We should
extend the existing production tax credits (PTC) for electricity
generated from windpower and closed loop biomass for five years. Also,
this production credit should be expanded to include electricity
produced by open loop biomass (i.e., agricultural and forestry residues
but excluding municipal solid waste), solar energy, geothermal energy,
and landfill gas. The same credit should be provided to closed loop
biomass co-fired with coal, and a smaller credit (one cent per kWh)
should be provided for electricity from open-loop biomass co-fired with
coal. These provisions (in part or full) are included in the Murkowski-
Lott (S. 389) bill, Bingaman-Daschle bill (S. 596), Grassley bill (S.
530), Reid bill (S. 249), Dorgan bill (S. 94), Collins bill (S. 188),
Filner bill (HR 269), Foley bill (HR 876), Herger-Matsui bill (HR
1657), and Dunn bill (HR 1677). I also support a minimum of a 15
percent investment tax credit for residential solar electric and water
heating systems. This proposal was introduced by Senator Allard (S.
465) and Representative Hayworth (HR 2076). It also is included in the
Murkowski-Lott (S. 389) bill. In addition, I support a 30 percent
investment tax credit being proposed for small (75 kW and below)
windpower systems as in the Bingaman-Daschle (S. 596) bill.
Improved Federal Standards for Vehicle Fuel Economy and
Increased Incentives for High Fuel Economy Vehicles
We need to first remove the separate fuel economy standards for
cars and light trucks (i.e., close the light truck `loophole' as
proposed in S. 804 by Senators Feinstein and Snowe and H.R. 1815 by
Rep. Olver). I then believe that a 40 mpg combined car and light truck
fuel economy standard could be accomplished in the 2008 to 2012
timeframe with negligible net cost. I support the tax credits of up to
$5,000 for hybrid electric vehicles, up to $6,000 for battery electric
vehicles, and $8,000 for fuel cell vehicles, and an incentive scheme
for energy-use performance that rewards both fuel savings and lower
emissions, as proposed in the CLEAR Act, S. 760, introduced by Senators
Hatch, Rockefeller, and Jeffords, and its companion bill (H.R. 1864)
introduced by Rep. Camp.
A Federal Renewable Portfolio Standard (RPS) to Help Build
Renewable Energy Markets
I support a 20 percent RPS by 2020. A number of studies indicate
that this would result in renewable energy development in every region
of the country with most coming from wind, biomass, and geothermal
sources. A transparent and properly constructed federal standard is
needed to set a clear target for industry research, development, and
market growth. I recommend a renewable energy component of 2 percent in
2002, growing to 10 percent in 2010 and 20 percent by 2020 that would
include wind, biomass, geothermal, solar, and landfill gas. This
standard is similar to the one proposed by Senators Jeffords and
Lieberman in the 106th Congress (S. 1369).
Federal Standards and Credits to Support Distributed Small-
Scale Energy Generation and Cogeneration (CHP)
Small scale distributed electricity generation has several
advantages over traditional central-station utility service, including
reducing line losses, deferring the need for new transmission capacity
and substation upgrades, providing voltage support, and reducing the
demand for spinning reserve capacity. In addition, locating generating
equipment close to the end use allows waste heat to be utilized to meet
heating and hot water demands, significantly boosting overall system
efficiency. I support at least a 10 percent investment tax credit and
seven-year depreciation period for renewable energy systems or combined
heat and power systems with an overall efficiency of at least 60-70
percent depending on system size. Similar proposals are included in the
Murkowski-Lott energy bill (S. 389), the Bingaman-Daschle energy bill
(S. 596), as well as bills targeted to CHP promotion introduced by Rep.
Wilson (H.R. 1045) and Rep. Quinn (H.R. 1945).
Enact New and Strengthen Current Efficiency Standards for
Buildings, Equipment, and Appliances
Significant advances in heating and cooling systems, motor and
appliance efficiency have been made in recent years, but more
improvements are technologically possible and economically feasible. A
clear federal statement of desired improvements in system efficiency is
needed to remove uncertainty and reduce the economic costs of
implementing these changes. Under such a federal mandate, efficiency
standards for equipment and appliances could be steadily increased,
helping to expand the market share of existing high efficiency systems.
Institute a National Public Benefits Fund
I recommend a public benefits fund which could be financed through
a $0.002/kWh charge on all electricity sales. Such a fund could match
state funds to assist in continuing or expanding energy efficiency,
low-income services, the deployment of renewables, research and
development, as well as public purpose programs the costs of which have
traditionally been incorporated into electricity rates by regulated
utilities.
Renewable Energy
Conventional energy sources based on oil, coal, and natural gas
have proven to be highly effective drivers of economic progress, but at
the same time highly damaging to the environment and to human health.
These traditional fossil fuel-based energy sources are facing
increasing pressure on a host of environmental fronts, with perhaps the
most serious being the looming threat of climate change and the need to
set GHG emission targets. It is now clear that any effort to maintain
atmospheric CO2 concentrations below even doubled pre-
industrial levels \5\ cannot be accomplished in an oil and coal-
dominated global economy, barring radical and problematic carbon
sequestration efforts.
The potential of renewable energy sources is enormous as they can
in principle meet many times the world's energy demand. Renewable
energy sources such as biomass, wind, solar, hydropower, and geothermal
can provide sustainable energy services while meeting the challenges of
energy security, diversity, and regional needs as well as global
environmental quality. A transition to a renewable-intensive energy
economy is now possible given the consistent progress in cost and
performance of renewable energy technologies, new methods for managing
distributed energy generation, and a transformation of the
transportation system. Costs of solar and wind power systems have
dropped substantially in the past 30 years, and continue to decline,
while the price of oil and gas continue to fluctuate. In fact, fossil
fuel and renewable energy prices are heading in opposite directions
when social and environmental costs are included. Furthermore, the
economic and policy mechanisms needed to support the widespread
dissemination of renewable energy systems have also rapidly evolved.
Financial markets are awakening to the future growth potential of
renewable and other new energy technologies, and this is a harbinger of
fully competitive renewable energy systems.
In addition, renewable energy systems are ideal components of a
decentralized power system that can result in lower capital and
environmental costs and improved opportunities for highly efficient
cogeneration (combined heat and power) systems. As an alternative to
customary centralized power plants, renewable systems based on
photovoltaic (PV) arrays, windmills, biomass or small hydropower, can
be mass-produced ``energy appliances'' capable of being manufactured at
low cost and tailored to meet specific energy loads and service
conditions. These systems can have dramatically reduced as well as
widely dispersed environmental impacts, rather than larger, more
centralized impacts that in some cases are serious contributors to
ambient air pollution and acid rain. This evolution of our ability to
meet energy needs with clean sources is only in its infancy, and
policies that reward R&D, power generation from clean sources, and a
leveling of the playing-field with existing power providers are all
critical components of a sound energy strategy.
Recent Progress in Renewable Energy System Cost and Performance
There has been significant progress in cost reductions made by wind
and PV systems, while biomass, geothermal, and solar thermal
technologies are also experiencing significant cost reductions. In
general, renewable energy systems are characterized by low or no fuel
costs, although operation and maintenance (O&M) costs can be
considerable. It is important to note, however, that O&M costs for all
new technologies are generally high, and can fall rapidly with
increasing familiarity and operational experience. Renewable energy
systems such as photovoltaics contain far fewer mechanically active
parts than comparable fossil fuel combustion systems, and therefore are
likely in the long-term to be less costly to maintain. Figure 1
presents U.S. DOE projections for the levelized costs of electricity
production from these same renewable energy technologies, from 1997 to
2030.\6\
Given these potential cost reductions, recent analyses have shown
that additional generating capacity from wind and solar energy can be
added at low incremental costs relative to additions of fossil fuel-
based generation. The economic case for renewables looks even better
when environmental costs are considered along with capital and
operating costs. As shown in Figure 2, geothermal and wind can be
competitive with modern combined-cycle power plants, and geothermal,
wind, and biomass all have lower total costs than advanced coal-fired
plants, once approximate environmental costs are included.
The remarkable difference between the setting for renewable energy
today, relative to the past 30 years, is that renewable and other clean
energy technologies are now becoming economically competitive, and the
push to develop them is no longer being driven solely by environmental
concerns. With regard to prospects for investing in companies
developing clean energy resources, Merrill Lynch's Robin Batchelor
recently stated:
``This is not an ethical investment opportunity, it's a
straightforward business opportunity.''
Mr. Batchelor also noted that the traditional energy sector has
lacked appeal to investors in recent years because of heavy regulation,
low growth, and a tendency to be cyclical. He has identified 300
companies worldwide whose aim is to develop wind, solar, and wave power
technologies and to advance capabilities in energy storage,
conservation, and on-site power generation. Over the past decade the
U.S. has lost its leadership position in the development and production
of many clean energy systems--notably wind and solar energy--due to
lack of support for innovative new companies and the signals that U.S.
energy markets are biased against new entrants. With an expanding
global energy market, this is precisely the wrong time not to support
the clean energy industry, which could become a world-leading industry
akin to that of U.S. semi-conductors and computer systems.
Despite their recent success, renewable energy sources have
historically had a difficult time breaking into markets that have been
dominated by traditional, large-scale, fossil fuel-based systems. This
is partly because renewable and other new energy technologies are only
now being mass produced, and have previously had high capital costs
relative to more conventional systems, but also because coal, oil, and
gas-powered systems have benefited from a range of subsidies over the
years. These include military expenditures to protect oil exploration
and production interests overseas, the costs of railway construction
that have enabled economical delivery of coal to power plants, and a
wide range of subsidies such as tax breaks.
One argument used to limit the attention paid to renewable energy
systems has been the intermittent nature of some sources, such as wind
and solar. A solution to this problem is to develop diversified systems
that maximize the contribution of renewable energy sources but that
also uses clean natural gas and/or biomass-based power generation to
provide base-load power. In fact, this greatest disappointment in the
response to the California energy crisis and in the Administration's
recent National Energy Policy Plan has been the focus on expanding the
gas supply without any attention to the economic and security benefits
of building a diverse energy system. The Administration's plan would
add one to two new power plants, many gas-fired, a week for the next
several years, making us far more dependent on gas than we were on oil
even at the height of the OPEC crisis in the 1970s.
In essence, renewable energy technologies face a similar situation
confronting any new technology that attempts to dislodge an entrenched
technology. For many years, we have been ``locked-in'' to a suite of
fossil fuel and nuclear-based technologies, and many of our secondary
systems and networks have been designed and constructed to accommodate
only these sources. Particularly in the absence of targeted policy
interventions (discussed below), we will likely remain locked-in to
existing technologies, even if the benefits of technology switching
overwhelm the costs.
Level the Playing Field for Renewables: Public and Private Sector
Investments and Market Transformations
As shown in Figure 2, renewable energy technologies are
characterized by low environmental costs. In an ideal world, this would
aid them in competing with conventional technologies, but of course
many of these environmental costs are ``externalities'' that are not
reflected in market prices. Only in certain areas and for certain
pollutants do these environmental costs enter the picture, and clearly
further internalizing these costs would benefit the spread of
renewables. The international effort to limit the growth of greenhouse
emissions through the Kyoto Protocol may lead to some form of carbon-
based tax, and this could prove to be an enormous boon to renewable
energy industries. However, any proposed carbon-based taxation scheme
continues to face stiff political opposition in the U.S. Perhaps more
likely, concern about particulate matter emission and ozone formation
from fossil-fuel power plants will lead to expensive mitigation
efforts, and this would help to tip the balance toward cleaner
renewable systems.
There are two principal rationales for government support of
research and development (R&D) to develop renewables and other clean
energy technologies. First, conventional energy prices generally do not
reflect the social cost of pollution. This provides the rationale,
based on a well-accepted economic argument, to subsidize R&D for
alternatives to polluting fossil fuels. Second, private firms are
generally unable to appropriate all the benefits of their R&D
investments. Consequently, the social rate of return for R&D exceeds
available private returns, and firms therefore do not invest enough in
R&D to maximize social welfare. Thus, innovation ``spillover'' among
clean energy firms is a form of positive externality that justifies
public R&D investment. These provide compelling arguments for public
funding of Market Transformation Programs (MTPs) that subsidize demand
for some clean energy technologies in order to help commercialize them.
A principal motivation for considering MTPs is inherent in the
production process itself. When a new technology is first introduced it
is invariably more expensive than established substitutes. There is,
however, a clear tendency for the unit cost of manufactured goods to
fall as a function of cumulative production experience. Cost reductions
are typically very rapid at first, but taper off as the industry
matures. This relationship is called an `experience curve' when it
accounts for all production costs, and it can be described by a
progress ratio where unit costs fall by a certain percent with every
doubling of cumulative production. Gas turbines, photovoltaic cells and
wind turbines have both exhibited the expected price-production
relationship, with costs falling roughly 20 percent for each doubling
of the number of units produced (Figure 3).
If firms retain the benefits of their own production experience
they have an incentive to consider experience effects when deciding how
much to produce. Consequently, they will ``forward-price,'' producing
at a loss initially to bring down their costs and thereby maximize
profit over the entire production period.
In practice, however, the benefits of production experience often
spill over to competitor firms, causing private firms to under-invest
in bringing new products down the experience curve. Among other
channels, experience spillovers could result from hiring competitors'
employees, reverse engineering rivals' products, informal contacts
among employees of rival firms, or even industrial espionage. Strong
experience effects therefore imply that output is less than the
socially efficient level. MTPs can improve social welfare by correcting
the output shortfall associated with these experience effects.\7\
This suggests a role for MTPs in national and international
technology policies. MTPs are best limited to emerging technologies
with steep industry experience curves, a high probability of major
long-term market penetration once subsidies are removed, and price
elastic demand. The condition that they be clean technologies mitigates
the risk of poor MTP performance by adding the value of displaced
environmental externalities. The recent technical and economic advances
seen for a range of renewable energy products make them ideal
candidates for support through market transformation programs, and I
strongly urge federal action to reward the early production and use of
clean energy technologies. Finally, as with energy R&D policy, public
agencies should invest in a portfolio of new clean energy technologies
in order to reduce overall MTP program performance risk through
diversification.
Energy Efficiency
To adequately address climate change we must decrease our
dependence on fossil fuels and increase our use of clean renewable
systems as well as cut energy waste and improve energy efficiency. What
the U.S. wastes simply in the production of electricity (24
quadrillion BTUs annually) is more energy than is used by the entire
Japanese economy for all end uses. According to DOE's recent
Interlaboratory Working Group study, Scenarios for a Clean Energy
Future,\8\ cost effective end-use technologies could reduce electricity
consumption by 1,000 billion kWh by 2020, which would almost entirely
offset business as usual projected growth in electricity use. This
level of savings would reduce U.S. carbon emissions by approximately
300 million metric tons of carbon compared to a business-as-usual
scenario.
There is often confusion about the definition of energy efficiency
and energy conservation that is important to clarify. Energy efficiency
means improving equipment and systems to get the same output (e.g.,
miles traveled or widgets produced) but with less energy input. Energy
conservation means reducing energy use, and at times may mean reducing
the services received. Examples of energy conservation include changing
thermostat settings, reducing lighting levels, and driving less. To the
extent energy conservation eliminates waste it is generally desirable.
For example, many commercial buildings are excessively lit and over
air-conditioned, wasting large amounts of energy without providing any
useful service.
Energy efficiency has been the single greatest asset in improving
the U.S. energy economy. Based on data from the Energy Information
Administration (EIA), U.S. primary energy use per capita in 2000 was
almost identical to that in 1973, while over the same period economic
output (GDP) per capita increased 74 percent. Between 1996 and 2000,
GDP increased 19 percent while primary energy use increased just 5
percent. In addition, national energy intensity (energy use per unit of
GDP) fell 42 percent between 1973 and 2000. About 60 percent of this
decline is attributable to real energy efficiency improvements and
about one-quarter is due to structural changes and fuel switching.
These statistics clearly indicate that energy use and GDP do not have
to grow or decline in lock step with each other, but rather that GDP
can increase while energy use does not.
If the United States had not dramatically reduced its energy
intensity over the past 27 years, consumers and businesses would have
spent at least $430 billion more on energy purchases in 2000. Energy
efficiency improvements have contributed a great deal to our nation's
economic growth and increased standard of living over the past 25
years, and there continues to be much potential for energy efficiency
increases in the decades to come. It certainly represents the best
short-term option for addressing today's environmental and energy
concerns. The U.S. Department of Energy (DOE) estimates that increasing
energy efficiency throughout the economy could cut national energy use
by 10 percent or more in 2010 and about 20 percent in 2020, with net
economic benefits for consumers and businesses. The American Council
for an Energy-Efficient Economy (ACEEE) estimates that adopting a
comprehensive set of policies for advancing energy efficiency could
lower national energy use by as much as 18 percent in 2010 and 33
percent in 2020, and do so cost-effectively. Many of these changes can
be accomplished at negative cost, while others can be realized for only
a few cents per kWh, far less than the cost delivered by new power
plants.
Increasing the efficiency of our homes, appliances, vehicles,
businesses, and industries must be an important part of a sound
national energy and climate change policy. Increasing energy efficiency
reduces energy waste without forcing consumers to cut back on energy
services or amenities, lowers U.S. GHG emissions; saves consumers and
businesses money since the energy savings more than pay for any
increase in first cost, reduces the risk of energy shortages, reduces
energy imports, and reduces air pollution. Furthermore, increasing
energy efficiency does not present a trade-off between enhancing
national security and energy reliability on the one hand and protecting
the environment on the other, as do a number of energy supply options.
Increasing energy efficiency is a ``win-win'' strategy from the
perspective of economic growth, national security, reliability, and
environmental protection.
Interested consumers--both residential and commercial--lack access
to information on energy efficient options. Such market barriers to
energy efficiency technologies exist and will continue to persist if we
do not invest in tax and market incentives to encourage their
implementation in all sectors of our economy.
Climate Change Policy
With proper policy support, investments in renewable energy and
energy efficiency can increasingly be justified based on economic
arguments alone. At the same time, the U.S. is currently squandering a
critical opportunity to provide global environmental leadership that is
also good business. The need for leadership on the global climate issue
has become particularly apparent with President Bush's recent rejection
of the Kyoto Protocol. Domestic political opposition to U.S. leadership
in this area has been based on outdated views of the science and
economics of climate change. First the science is now widely accepted
and, second several recent comprehensive analyses have shown that while
the costs of inaction on global warming can be catastrophic the
economic benefits of innovative actions to reduce the health and
environmental impacts of energy use can be substantial. This represents
the classic `win-win' scenario. Unfortunately, significant action on
climate change mitigation is in jeopardy unless the administration
returns to the promise made by President Bush to take steps to control
our nation's greenhouse gas emissions. I applaud the Chairman and
ranking member on this Committee and others in the Senate for their
attempts to do just that.
The U.S. can reduce GHG emissions while improving our economic
efficiency, creating jobs and saving consumers money, maintaining our
technological leadership, and achieving other environmental benefits.
Policies to encourage the extensive development and deployment of
renewable energy and energy efficiency technologies are a critical part
of this equation.
I strongly support the recent bills introduced in Congress to
reduce pollutant emissions from electricity generation by Senators
Jeffords and Lieberman (S.556) and Representatives Boehlert and Waxman
(H.R. 1256). This legislation contained provisions that addressed the
environmental impact and competitive distortions created by the
patchwork of unequal and inadequate standards that currently apply to
electric power plants nationwide. The bill puts a national cap on
emissions from power plants of nitrogen oxides, sulfur oxides, mercury,
and carbon dioxide, and allows market-oriented mechanisms such as
emissions trading to meet the reduction requirements. The reductions in
carbon dioxide would bring emissions levels back to 1990 levels by
2007, the same level implied by the non-binding targets of the Rio
Treaty of 1992, as ratified by the U.S. Senate. Our analysis indicates
that if implemented in an expedient but planned process, consistent
with these legislative beginnings, that the costs would likely be
dwarfed by the resulting benefits of industrial innovation.9,10
Legislation that controls the four major power plant
pollutants in an integrated package will help reduce regulatory
uncertainties for electric generators and will be less costly than
separate programs for each pollutant. Integrated control encourages
system-wide efficiency improvements and increased utilization of
cleaner fuels. And while voluntary action by American companies is an
attractive option to consider, in the last ten years voluntary actions
have failed to reduce carbon dioxide emissions in the U.S. Instead,
emissions have increased by 15.5 percent since 1990 and continue to
increase. The EIA recently released data showing a substantial increase
in U.S. carbon dioxide emissions in 2000 of 2.7 percent from the
preceding year, with the annual average since 1990 being 1.5 percent.
This demonstrates the need for mandatory emissions reductions now and
shows that solutions will be more costly and difficult if we continue
to stall.
Last December an EIA analysis concluded that such mandatory carbon
dioxide caps would cause a large increase in future electricity prices
that President Bush then used as a justification for abandoning his
campaign promise to regulate carbon emissions from utilities. A more
recent analysis by EPA uses the same model but instead allows for the
use of advanced technologies to reduce emissions, which are more likely
to emerge under tighter emission constraints, as opposed to using the
standard reference case of today's technologies as the original
analysis did. The re-estimation finds that this simple adjustment
substantially decreases the projected price increases.\11\ Furthermore,
as will now be discussed, if additional policies for encouraging the
development and use of renewable and energy efficiency technologies to
reduce GHG emissions are included in the analysis, the average consumer
electricity price will then be comparable to business as usual
projections.
Policy Options for Renewable Energy and Energy Efficiency Technology
Development
I firmly believe that the ultimate solutions to cost-effectively
reducing our GHG emissions must be based on private sector investment
bolstered by well-targeted government R&D and incentives for emerging
clean energy technologies. This must be coupled with policies that open
markets to new clean generating capacity. We now have the opportunity
to build a sustainable energy future by engaging and stimulating the
tremendous innovative and entrepreneurial capacity of the U.S. private
sector. To accomplish this, we must pursue policies that guarantee a
stable and predictable economic environment for advancing clean energy
technologies. This can be further bolstered by market incentives to
reward actions that further the public good.
With these thoughts in mind, I present several options that will
start us down a path of GHG reductions while at the same time creating
a sustainable, economic and environmentally sound U.S. energy policy.
1) Increase federal R&D funding for renewable energy and energy
efficiency technologies
To date, federal investment in renewable energy and energy
efficient technologies has been sparse and erratic, with each year
producing an appropriations battle that is often lost. The resulting
financial and policy uncertainty discourages effective energy
technology development and deployment in the marketplace.\12\ With
energy now a clear national priority, and I hope climate change quickly
becoming one, funding for the U.S. DOE's Energy Efficiency and
Renewable Energy Program must be substantially and systematically
increased. The realization that R&D funding provides a critical driver
to economic growth has resulted in important commitments in Congress,
particularly in the life sciences, to double R&D funding in five to ten
years. The same return on investment exists in the energy sector, but
it has not been translated into increased R&D funding for new renewable
and energy efficiency technologies. If the U.S. expects to be a world
leader in this industry, as it is in the biomedical and high-tech
sectors, such investments in renewable energy and energy efficiency are
essential.
DOE recently documented 20 of its most successful energy efficiency
projects as having saved the nation 5.5 quadrillion BTUs of energy.
This is worth about $30 billion in avoided expenses, mostly over the
last decade, with a cost to tax payers of only $712 million, less than
3 percent of the energy bill savings so far. Study after study
concludes that spending of taxpayer's money on energy efficiency R&D
has been a very sound investment.13,14 The Bush
Administration's initially proposed deep cuts in their FY2002 budget
for DOE's renewable energy and energy efficiency programs must be
reversed and turned into budget increases. Such cuts would harm
existing public-private partnerships as well as the R&D at the national
labs and elsewhere. Thankfully, some of these cuts are being restored
to current funding levels, in current appropriations bills. This
budgetary roller-coaster harms all investments, sends mixed signals to
industry, and as a result is the least efficient form of both energy
and financial policy. In order to address climate change seriously we
must at a minimum double this funding in the next five years (a 15-20
percent increase per year), as was recommended by PCAST.\15\
Federal funding and leadership for renewable energy and energy
efficiency projects has resulted in a small number of notable
successes, such as the EPA's Energy Star and Green Lights Programs that
has now been emulated in a number of countries. For example, 15 percent
of the public sector building space in the country has now signed up
for Energy Star Buildings Program and saved more than 21 billion kWh of
energy in 1999 or about 4.4 million metric tons of carbon, resulting in
$1.6 billion in energy bill savings according to EPA. Despite these
achievements, funding in this area has been both scant, and so uneven
that private sector involvement has actually been discouraged. By
increasing funding for these EPA programs their scope could be
considerably expanded resulting in substantially greater savings.
A combination of a federal program for steadily increasing funding
for clean energy and energy efficiency R&D and active political
leadership would transform the clean energy sector from a good idea to
a pillar of the new economy. In particular, promising technologies such
as fuel cells deserve special attention. Fuel cell development is
attracting significant public and private funding and offers the
promise of being a keystone technology for the ultimate transition from
natural gas, petroleum, and coal energy to a renewable and hydrogen
based energy economy.
2) Provide tax incentives for companies and individuals that develop
and use renewable energy and energy efficiency technologies
The R&D tax credit has proven remarkably effective and popular with
private industry, so much so that there is a strong consensus in both
Congress and the Administration to make this credit permanent. In
addition to this support of private sector R&D, an increased tax
incentive for R&D investment in renewable and energy efficiency
technologies is exactly the type of well-targeted federal policy that
is needed. To compliment this further, tax incentives directed toward
those who use the technologies would provide the `demand pull' to
accelerate the technology transfer process and rate of market
development. The U.S. has largely lost its position as the global
leader in energy innovation, resulting in the loss of jobs and earning
potential for U.S. companies precisely at the time when the
international market for clean energy technologies is booming. Our
domestic industries as well as the global energy economy would both
benefit directly and significantly from a clear commitment to U.S.
clean energy leadership.
Currently, Federal tax expenditures have an unequal distribution
across primary energy sources, distorting the market in favor of many
conventional energy technologies. The dollar apportionment of
expenditures, including income and excise tax credits as well as direct
subsidies (such as the Renewable Energy Production Incentive) does not
reflect the market distribution of fuels nor does it encourage the
establishment of a market niche for disadvantaged emerging
technologies. For example, renewable fuels make up four percent of the
U.S. primary energy supply, and yet receive only one percent of Federal
tax expenditures and direct expenditures combined (see table below).
This does not include the Alcohol Fuels Excise Tax, directed towards
ethanol production. The largest single tax credit in 1999 was the
Alternative Fuel Production Credit,\16\ which totaled over one billion
dollars. This income tax credit was designed to reduce dependence on
foreign energy imports by encouraging the production of gas, coal, and
oil from non-conventional sources (such as tight gas formations and
coalbed methane) found within the United States. However, support for
the production and further development of renewable fuels, all found
domestically, would have a greater long-term effect on the energy
system than any expansion of fossil-fuel capacity, with major health
and environmental benefits as an added bonus.
----------------------------------------------------------------------------------------------------------------
PRIMARY ENERGY SUPPLY DIRECT EXPENDITURES
1998 CONSUMPTION and TAX EXPENDITURES
------------------------ (1999)
FUEL SOURCE VALUE ---------------------
(quads, VALUE
quadrillion PERCENT (million PERCENT
BTU) $)
----------------------------------------------------------------------------------------------------------------
Oil 36.57 40% 263 16%
----------------------------------------------------------------------------------------------------------------
Natural Gas 21.84 24% 1,048 64%
Alternative Fuels Credit (1,030)
----------------------------------------------------------------------------------------------------------------
Coal 21.62 24% 85 5%
----------------------------------------------------------------------------------------------------------------
Oil, Gas, Coal Combined 205 12%
----------------------------------------------------------------------------------------------------------------
Nuclear 7.16 8% 0 --
----------------------------------------------------------------------------------------------------------------
Renewables 3.48 4% 19 1%
----------------------------------------------------------------------------------------------------------------
Electricity 40 2%
----------------------------------------------------------------------------------------------------------------
Total 90.67 100% 1,660 100%
----------------------------------------------------------------------------------------------------------------
Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 1999: Primary
Energy, (Washington, DC: DOE, 1999).
3) Improve federal standards for vehicle fuel economy and increase
incentives for high fuel economy vehicles
New vehicles types based on hybrid gasoline-electric and fuel cell-
electric power systems are now being produced in commercial (gasoline
hybrid) and prototype (fuel cell) quantities. These vehicles are
combining high-efficiency AC induction or permanent magnet electric
motors with revolutionary power systems to produce a new generation of
motor vehicles that are vastly more efficient than today's simple cycle
combustion systems. The potential for future hybrid and fuel cell
vehicles to achieve up to 100 miles per gallon is believed to be both
technically and economically viable in the near-term, and with
continued commitments from industry, only clear federal guidelines and
support are needed to move from planning to reality. In the longer
term, fuel cell vehicles running directly on hydrogen promise to allow
motor vehicle use with very low fuel-cycle emissions, and again better
government and industry coordination and cooperation over the next ten
years could do much to hasten the development of this promising
technology.
The improvements in fuel economy that these new vehicle types offer
will help to slow growth in petroleum demand, reducing our oil import
dependency and trade deficit. While the Partnership for a New
Generation of Vehicles helped to generate some vehicle technology
advances, an increase in the Corporate Average Fuel Economy (CAFE)
standard, which has been stagnant for 12 years now, is required to
provide an incentive for companies to bring these new vehicles types
rapidly to market. Tax credits and incentives are an important
complement to raising CAFE, but I do not believe that they alone can
accomplish the key goal of simultaneously stimulating production of
high fuel economy vehicles and provide strong incentives for consumers
to purchase them.
Now, after five years of Congressional bans, studies on the
potential for increases in CAFE standards to cost-effectively reduce
petroleum demand are now underway by the Department of Transportation
and the National Academy of Sciences. These studies, with results
expected later this summer, will help to suggest optimal levels of
increased standards, given the costs and benefits of higher fuel
economy, as well as phase-in schedules that will protect the
competitive interests of domestic automakers.
In the meantime, other recent analyses of the costs and benefits of
providing higher fuel economy motor vehicles have been conducted by the
Union of Concerned Scientists,17,18 MIT,\19\ OTA,\20\ and
Oak Ridge National Lab/ACEEE.\21\ These studies have generally
concluded that with longer-term technologies, motor vehicle fuel
economy can be raised to 45 mpg for cars for $500 to $1,700 per vehicle
retail price increase,\22\ and to 30 mpg for light trucks for $800 to
$1,400 per vehicle retail price increase.\23\ These improvements could
be the basis for a new combined fuel economy standard of 40 mpg, which
could be instituted after first removing the separate fuel economy
standards for cars and light trucks (i.e. closing the light truck
`loophole' as proposed in S. 804 by Senators Feinstein and Snowe and
H.R. 1815 by Rep. Olver). I believe the 40 mpg combined car and light
truck standard could be accomplished in the 2008 to 2012 timeframe with
negligible net cost once fuel savings are factored in, given adequate
lead time for the auto industry to re-tool for this new generation of
vehicles.
I also strongly support tax credits for hybrid electric vehicles,
battery electric vehicles, and fuel cell vehicles. These funds could in
principle be raised through a revision of the archaic `gas guzzler'
tax, which does not apply to a significant percentage of the light duty
car and truck fleet. The tax penalty and tax credit in combination
could be a revenue-neutral `fee-bate' scheme, similar to one recently
proposed in California, that would simultaneously send two strong price
signals rewarding economical vehicles (particularly those using
advanced drive systems) and penalizing uneconomical ones. Furthermore,
this would help jump start introduction and purchase of the most
innovative, fuel-efficient technologies. However the incentives are
designed, they should be based primarily on energy-use performance and
ideally provide both fuel savings and lower emissions. I support the
CLEAR Act, S. 760, introduced by Senators Hatch, Rockefeller, and
Jeffords, and the companion bill (H.R. 1864) introduced by Rep. Camp.
4) Establish a federal Renewable Portfolio Standard (RPS) to help build
renewable energy markets
The RPS is a renewable energy content standard, akin to efficiency
standards for vehicles and appliances that have proven successful in
the past. A gradually increasing RPS provides the most economically
efficient way of ensuring that a growing proportion of electricity
sales are provided by renewable energy, and is designed to integrate
renewables into the marketplace in the most cost-effective fashion. In
this manner, the market picks the winning and losing technologies and
projects, not administrators. With all the discussion and hype about
market forces, a RPS provides the one true means to use market forces
most effectively. I recommend a renewable energy component of 2 percent
in 2002, growing to 10 percent in 2010 and 20 percent by 2020 that
would include wind, biomass, geothermal, solar, and landfill gas. A
number of studies indicate that this 20 percent in 2020 level of an RPS
is broadly good for business and can readily be achieved.24,25
This standard is similar to the one proposed by Senators Jeffords and
Lieberman in the 106th Congress (S. 1369). This bill has not been
reintroduced nor has any other RPS legislation been introduced in this
Congress yet. States that decide to pursue more aggressive goals--many
of which make economic and environmental sense--could be rewarded
through an additional federal incentive program. To achieve compliance
a federal RPS should use market dynamics to stimulate innovation
through an active trading program of renewable energy credits.
Renewable credit trading is analogous to the sulfur allowance trading
system established in the Clean Air Act. Like emissions trading, it is
designed to be administratively simple and to increase flexibility and
decrease the cost of compliance with the standard. Electricity
suppliers can generate renewable electricity themselves, purchase
renewable electricity and credits from generators, or buy credits in a
secondary trading market. The coal, oil, natural gas, and nuclear power
industries are mature; yet continue to receive considerable government
subsidies. Moreover, the market price of fossil and nuclear energy does
not include the cost of the damage they cause to the environment and
human health. Conversely, the market does not give a value to the
environmental and social benefits of renewables. Without the RPS or a
similar mechanism, many renewables will not be able to compete in an
increasingly competitive electricity market focused on producing power
at the lowest direct cost. The RPS is designed to deliver renewables
that are most ready for the market. Additional policies are still
needed to support emerging renewable technologies, like photovoltaics,
that have enormous potential to eventually become commercially
competitive through targeted investment incentives. Smart investors
typically acquire a portfolio of stocks and bonds to reduce risk.
Including renewables in America's power supply portfolio would do the
same by protecting consumers from fossil fuel price shocks and supply
shortages. A properly designed RPS will also establish a viable market
for the long-term development of America's renewable energy industries,
creating jobs at home and export opportunities abroad.
The RPS is the surest market based approach for securing the public
benefits of renewables while supplying the greatest amount of clean
power for the lowest price. It creates an ongoing incentive to drive
down costs by providing a dependable and predictable market, which has
been lacking in this country. The RPS will reduce renewable energy
costs by:
Providing a revenue stream that will enable manufacturers
and developers to obtain reasonable cost financing and make
investments in expanding capacity to meet an expanding
renewable energy market.
Allowing economies of scale in manufacturing, installation,
operation and maintenance of renewable energy facilities.
Promoting vigorous competition among renewable energy
developers and technologies to meet the standard at the lowest
cost.
Inducing development of renewables in the regions of the
country where they are the most cost-effective, while avoiding
expensive long-distance transmission, by allowing national
renewable energy credit trading.
Reducing transaction costs, by enabling suppliers to buy
credits and avoid having to negotiate many small contracts with
individual renewable energy projects.
Analysis of the 20 percent RPS target in 2020 that I strongly
support would result in renewable energy development in every region of
the country with most coming from wind, biomass, and geothermal
sources. In particular, the Plains, Western, and Mid-Atlantic States
would generate more than 20 percent of their electricity from
renewables as shown in Figure 4. Electricity prices are projected to
fall 13 percent between 1997 and 2020 under this RPS. While this is not
as much as the projected 18 percent decrease under business-as-usual
without an RPS, it is nonetheless a substantial decrease and has
additional nation-wide environmental and health benefits (see Figure
5).\26\ This increase in renewable energy would also reduce some of the
projected rise in natural gas prices for all gas consumers by 5 percent
in 2020 again saving households money who heat with natural gas.
Texas has been a leader in developing and implementing a successful
RPS that then Governor Bush signed into law in 1999. The Texas law
requires electricity companies to supply 2,000 MW of new renewable
resources by 2009. The state may meet this goal by the end of 2002,
seven years early. The RPS has also been signed into law in Arizona,
Connecticut, Maine, Massachusetts, Nevada, New Jersey, New Mexico,
Pennsylvania, and Wisconsin. Minnesota and Iowa also have minimum
renewables requirements similar to an RPS. Bills with the RPS are also
pending in several states. Variations in the details of these programs
have kept them from being overly successful. A clear and properly
constructed federal standard would correct these problems, and set a
clear target for industry research, development, and market growth.\27\
5) Institute federal standards needed to support distributed small-
scale energy generation and cogeneration (CHP)
Small scale distributed electricity generation has several
advantages over traditional central-station utility service.
Distributed generation reduces energy losses incurred by sending
electricity through an extensive transmission and distribution network
(often an 8-10 percent loss of energy), defers the need for new
transmission capacity and substation upgrades, provides voltage
support, and reduces the demand for spinning reserve capacity. In
addition, the location of generating equipment close to the end use
allows waste heat to be utilized to meet heating and hot water demands,
significantly boosting overall system efficiency.
Distributed generation has faced several barriers in the
marketplace, most notably from complicated and expensive utility
interconnection requirements. These barriers have led to a push for
national safety and power quality standards, currently being finalized
by the Institute of Electrical and Electronics Engineers (IEEE).
Although adoption of these standards would significantly decrease the
economic burden on manufacturers, installers, and customers, the
utilities are allowed discretion in adopting or rejecting these
standards. Therefore, a Federal mandate to require utilities to accept
these standards, along with tax incentives for utilities and customers
who use distributed generation systems would ease their acceptance into
the marketplace.
While all distributed generation systems have the advantage of
lower line losses, there is large variability in the overall
efficiencies of the systems based on system type and installation. It
is important to design credits based on overall efficiency and offset
emissions compared to central station generation. This is accomplished
by giving highest priority to renewable systems or fossil fuel systems
that utilize waste heat through combined heat and power designs. While
a distributed generation system may achieve 35-45 percent electrical
efficiency, the addition of heat utilization can raise overall
efficiency to 80 percent. U.S. CHP capacity in 1999 totaled 52,800 MW
of power, but the estimated potential is several times this. Industrial
CHP potential is estimated to be 88,000 MW, the largest sectors being
in the chemicals and paper industries. Commercial CHP potential is
estimated to be 75,000 MW, with education, health care, and office
building applications making up the most significant percentages \28\
(see Figure 6). This tremendous resource has the advantage of
offsetting separate electric and fossil fuel heating systems, but CHP
applications are only feasible through the use of onsite distributed
electricity generation.
I support at least a 10 percent investment tax credit and seven-
year depreciation period for renewable energy systems or combined heat
and power systems with an overall efficiency of at least 60-70 percent
depending on system size. This proposal is similar to one included in
the Murkowski-Lott energy bill (S. 389), the Bingaman-Daschle energy
bill (S. 596), as well as bills targeted to CHP promotion introduced by
Rep. Wilson (H.R. 1045) and Rep. Quinn (H.R. 1945). It is important to
note again that these measures would be most effective coupled with
mandated utility interconnection requirements.
The U.S. should pursue a policy of not only net-metered energy use,
but also real-time pricing where homeowners, businesses, and industry
can all participate fully in supplying their excess power generation
into the market. Homes with solar photovoltaic, wind, or fuel-cell
systems should be able to sell their excess energy. Opening the energy
supply markets to local generation will provide strong, economically
sound, signals to the utilities, the Qualifying Facilities, and
homeowners that the energy market is fair, accessible, and one where
clean energy generation will be rewarded. The investment in the grid,
largely in the form of upgrades to local sub-stations, will lead to
further energy efficiency benefits as an added bonus. Federal
leadership and standards are needed to guide this transformation.
6) Enact new and strengthen existing efficiency standards on buildings,
equipment, and appliances
Buildings, appliance, and equipment standards are an important
strategy for promoting energy efficiency. Tax credits, while important,
do not necessarily remove the market barriers that prevent clean energy
technologies from spreading throughout the marketplace. Minimum
efficiency standards were adopted by President Reagan in 1987, and then
expanded under President Bush in 1992, because market barriers
inhibited the purchase of efficient appliances and equipment. These
barriers include lack of awareness, rush purchases when an existing
appliance breaks down, and purchases by builders and landlords. Figure
7 shows how federal standards dramatically increased the market share
of highly efficient magnet ballasts used for lighting.
Significant advances in heating and cooling system, motor, and
appliance efficiency, have been made in recent years, but more
improvements are technologically possible and economically feasible. A
clear federal statement of desired improvements in system efficiency is
needed to remove uncertainty and reduce the economic costs of
implementing these changes. Under such a federal mandate, efficiency
standards for equipment and appliances could be gradually increased,
helping to expand the market share of existing high efficiency
systems.\29\
Historically, building, appliance, and equipment standards have
proven to be one of the federal government's most effective energy-
saving programs. Analyses by DOE and others indicate that in 2000,
appliance and equipment efficiency standards saved 1.2 quadrillion BTUs
of energy (1.3 percent of U.S. electric use) and reduced consumer
energy bills by approximately $9 billion with energy bill savings far
exceeding any increase in product cost. By 2020, standards already
enacted will save 4.3 quadrillion BTU/year (3.5 percent of projected
U.S. energy use), and reduce peak electric demand by 120,000 MW (more
than a 10 percent reduction). ACEEE estimates that energy would be
reduced in 2020 by 1.0 quadrillion BTU by quickly adopting higher
standards for equipment currently covered under federal laws, such as
central air-conditioners and heat pumps, and by adopting new standards
for equipment not covered, such as torchiere (halogen) light fixtures,
commercial refrigerators and reduction of appliance's standby power
consumption (see Figure 8 for standby power used by today's
televisions). This is nearly a 1 percent reduction in projected U.S.
energy use, resulting in a savings of nearly 20 million metric tons of
carbon. Consumers and businesses would see their energy bills decline
by approximately $7 billion per year by 2020. Additional savings can be
achieved by future updates and expansions to the appliance standards
program; the savings estimated here just apply to actions that can be
taken in the next few years.
7) Institute a National Public Benefits Fund based on revenue collected
from a national, competitively neutral wires charge
Electric utilities have historically funded programs to encourage
the development of a host of clean energy technologies. Unfortunately,
increasing competition and deregulation have led utilities to cut these
discretionary expenditures in the last several years. Total utility
spending on demand side management programs fell more than 50 percent
from 1993 to 1999. Lack of investment in the future has been a hallmark
of utility `planning' in face of deregulation, and needs to be reversed
through rewards (such as tax incentives) for companies that re-invest
profits and invigorate the power sector.\30\ I recommend a national
public benefits fund which could be funded through a $0.002/kWh charge.
This concept and amount were put forth in bills sponsored by Senator
Jeffords (S. 1369) and Rep. Pallone (H.R. 2569) in the last Congress
and in the Bingaman-Daschle energy bill (S. 597). Furthermore, there
should be federal matching of state funds. The funds could be used for
programs promoting:
R&D
Low-cost financing or financing guarantees
Grants, production incentives, or buy-downs for project
costs
Infrastructure development
Development of uniform standards for siting, permitting, and
connection with the electrical grid
Education of the public on the benefits and costs of clean
energy technologies and efficiency
Incentives, such as rebates, to help establish markets for
new products
Installation, operation, and maintenance of renewable energy
and energy efficient technologies
Cost and Benefit Analysis of Clean Energy Policies on Electricity
Generation
I agree wholeheartedly with the findings of the Union of Concerned
Scientists' report, Clean Energy Blueprint: A Smarter National Energy
Policy for Today and the Future,\31\ which examines the costs,
environmental impacts, and effects on fossil fuel prices and consumer
energy bills of a package of clean energy polices. These policies
include: incentives for consumers to purchase more efficient
appliances; stricter energy codes for buildings; residential and
commercial building retrofits; voluntary programs with industry to
reduce energy use meaningfully; a RPS requiring electricity providers
to obtain 20 percent of their supplies from renewables power sources by
2020 using tradable renewable energy credits; an expanded production
tax credit to include all renewables; and a public benefits fund funded
through a $0.002/kWh charge to customers.
This analysis is based on the Energy Information Administrations
National Energy Modeling Systems (NEMS) with modifications used in the
Interlaboratory Working Group's study to accurately account for the
growth and costs of the renewable and energy efficiency technologies
modeled. Under the business-as-usual scenario the nation is expected to
increase its reliance on coal and natural gas to meet strong growth in
electricity use of 42 percent by 2020 as shown in Figure 9. To meet
this demand it is estimated that 1,300 300-MW power plants would need
to be built with electricity generation from non-hydro renewables
increasing from 2 percent today to only 2.4 percent of total generation
in 2020. This amounts to a policy of energy and economic stagnation.
If, on the other hand, the set of clean energy polices listed above are
implemented energy efficiency and renewables will meet a much larger
share of our future energy needs with energy efficiency measures almost
completely offsetting the projected business-as-usual growth in
electricity (Figure 10). Unlike the Bush-Cheney energy plan, this clean
energy strategy plan builds energy security for the U.S. by supporting
energy diversity and domestic supplies. The result is a large decrease
in emissions from the utilities sector compared to business-as-usual
projections with declines continuing beyond 2020. Figure 11 compares
the projected power plant carbon dioxide reductions with the level
proposed by the Senator Jeffords' and Representative Waxman's 4-
pollutant power plant emission reduction bills (S. 556 and H.R. 1256).
Through a steady shift to clean energy production, the requirements of
these bills would not be difficult or expensive to meet, and if
anything are expected to increase U.S. economic activity.
Finally the more efficient use of energy and the switch from fossil
fuels to renewable energy sources saves consumers money by decreasing
energy use in homes, businesses, and industry. This results in price
drops for natural gas, as shown in Figure 12, and reduced household
electricity bills from business-as-usual predictions (Figure 13), while
average consumer prices are about the same. One of the greatest
advantages that energy efficiency and renewable energy sources offer
over new power plants, transmission lines, and pipelines is the ability
to deploy these technologies very quickly. We can begin to deploy these
technologies now and so reap the benefits all that much sooner.\32\
CO2 emission reductions will also have a `clean cascade'
effect on the economy since many other pollutants are emitted in
concert with carbon from fossil fuel use.
A range of studies are all coming to the conclusion that simple but
sustained standards and investments in a clean energy economy are not
only possible but would be highly beneficial to our nation's future
prosperity.\33\ A recent analysis of the whole economy shows that we
can easily meet Kyoto type targets with a net increase of 1 percent in
the Nation's GDP 2020.\34\ The types of energy efficiency and renewable
technologies and policies described here have already proven successful
and cost-effective at the national and state level. I argue that this
is even more reason to increase their support. Figure 14 shows how a
combination of readily available options can be used to meet the Kyoto
Protocol targets. This type of strategy would cost-effectively enable
us to meet goals of GHG emission reductions\35\ while providing a
sustainable clean energy future.
Conclusions
We stand at a critical point in the energy, economic, and
environmental evolution of the United States. Renewable energy and
energy efficiency are now not only affordable, but their use will also
open new areas of innovation and technological and economic leadership
for the U.S., if we choose to embrace these options. Creating
opportunities and--critically--a fair market place for a clean energy
economy requires leadership and vision. The tools to implement this
evolution are now well known, and are listed in the previous section. I
look forward to the opportunity to work with you to put these cost-
effective measures into effect.
Biographical Sketch: Daniel M. Kammen
Daniel M. Kammen received his undergraduate degree physics from
Cornell University 1984, and his Masters (1986) and Doctorate (1988)
degrees in physics, from Harvard University. He was a Bantrell &
Weizmann Postdoctoral Fellow at the California Institute of Technology,
and then a lecturer in the Department of Physics at Harvard University.
From 1992-1998 Kammen was on the faculty of the Woodrow Wilson School
of Public and International Affairs at Princeton University, where he
was Chair of the Science, Technology and Environmental Policy Program.
Kammen is now Professor of Energy and Society in the Energy and
Resources Group (ERG), and in the Department of Nuclear Engineering at
the University of California, Berkeley. At Berkeley Kammen is the
founding director of the Renewable and Appropriate Energy Laboratory
(http://socrates.berkeley.edu/rael), and is campus representative to
the University of California Energy Institute. He has been a Lecturer
in Physics and Natural Science at the University of Nairobi.
Kammen's research centers on the science, engineering, economics
and policy aspects of energy management, and dissemination of renewable
energy systems. He also works on the health and environmental impacts
of energy generation and use; rural resource management, including
issues of gender and ethnicity; international R&D policy, climate
change; and energy forecasting and risk analysis. He is the author of
over 110 journal publications, a book on environmental, technological,
and health risks (Should We Risk It?, Princeton University Press, 1999)
and numerous reports on renewable energy and development. Kammen
received the 1993 21st Century Earth Award and is a Fellow of the American Physical Society. He is a Permanent Fellow of the African Academy of
Sciences. For information of any of these activities and for copies of Professor Kammen's writings, see http://socrates.berkeley.edu/dkammen.
Figure 1. Levelized cost of electricity forecast for renewable energy
technologies (U.S. DOE, 1997)
Figure 2. Actual electricity costs in year 2000
Source: Ottinger, R. L. et al. (1991) Environmental Costs of
Electricity (Oceana Publications, Inc: New York); U.S. Department of
Energy (2000), Annual Energy Outlook 2000, DOE/EIA-0383(00), Energy
Information Administration, Washington, D. C., December; U.S. DOE,
1997.
Figure 3. Progress ratios (experience curves) for photovoltaics,
windmills, and gas turbines
Source: IIASA/WEC (1995) Global Energy Perspectives to 2050 and Beyond
(Laxenburg, Austria and London, UK).
Figure 4. Renewable energy generation in the U.S. by region for a RPS
with a 20 percent target in 2020 (Clemmer, 1999)
Figure 5. Average monthly electricity bill for typical non-electric
heating household
Source: Nogee, A., Clemmer, S., Paulos, B., and Haddad, B. (1999)
``Powerful Solutions: 7 Ways to Switch America to Renewable Energy,''
Union of Concerned Scientists, January.
Figure 6. CHP growth potential within several sectors of the economy
(ACEEE, 2001)
Figure 7. Market Share of efficient magnetic ballasts for lighting
(Interlaboratory Working Group, 2000)
Figure 8. Standby power consumption for a selection of 365 televisions
Source: K. Rosen, LBNL, US DOE, 1999.
Figure 9. Electricity Deregulation under business as usual * (Clemmer,
2001)
Figure 10. Energy generation with the implementation of various
renewable energy and energy efficient policy options *
(Clemmer, 2001)
Figure 11. Power plant carbon dioxide emissions (Clemmer, 2001)
Figure 12. Natural gas prices (national average)* (Clemmer, 2001)
Figure 13. Typical household electricity bill (Clemmer, 2001)
Figure 14. Potential carbon reductions from energy efficiency and
renewable energy measures
Source: Energy Foundation, 2001.
ENDNOTES
1. The Renewable and Appropriate Energy Laboratory: URL http://
socrates.berkeley.edu/rael
2. IPCC (Intergovernmental Panel on Climate Change) (2001) Climate
Change 2001: The Scientific Basis, January.
3. National Research Council (NRC) (2001) ``Climate Change Science:
An Analysis of Some Key Questions,'' Committee on the Science of
Climate Change, National Research Council, National Academy Press,
Washington, DC.
4. Herzog, A.V., Lipman, T.E., and Kammen, D.M. (2001) ``Energy
Resource Science and Technology Issues in Sustainable Development:
Renewable Energy Sources,'' in, OUR FRAGILE WORLD: Challenges and
Opportunities for Sustainable Development, forerunner to the
Encyclopedia of Life Support Systems (EOLSS), (UNESCO-EOLSS
Secretariat, EOLSS Publishers Co. Ltd.).
5. IPCCi, op. cit.
6. U.S. Department of Energy (1997) Renewable Energy Technology
Characterizations, Topical Report Prepared by U.S. DOE Office of
Utility Technologies and EPRI, TR-109496, December.
7. Duke, R. D., and Kammen, D. M. (1999), ``The economics of energy
market transformation initiatives,'' The Energy Journal, 20: 15-64.
8. Interlaboratory Working Group (2000) Scenarios for a Clean
Energy Future (Oak Ridge, TN; Oak Ridge National Laboratory and
Berkeley, CA; Lawrence Berkeley National Laboratory), ORNL/CON-476 and
LBNL-44029.
9. Kinzig, A. P. and Kammen, D. M. (1998) ``National trajectories
of carbon emissions: Analysis of proposals to foster the transition to
low-carbon economies,'' Global Environmental Change, 8 (3), pages 183-
208.
10. Krause, F., DeCanio, S, and Baer, P. (2001) ``Cutting Carbon
Emissions at a Profit: Opportunities for the U.S.,'' (International
Project for Sustainable Energy Paths: El Cerrito, CA), May.
11. Personal communication, S. Laitner, EPA Office of Atmospheric
Programs, Washington, DC, 2001.
12. Margolis and Kammen, op. cit.
13. President's Committee of Advisors on Science and Technology
(PCAST) (1997) Federal Energy Research and Development for the
Challenges of the Twenty-First Century (Washington, D.C. OSTP).
14. Krause, F. et al., 2001, op cit.
15. PCAST, op cit.
16. Established by the Windfall Profit Tax Act of 1980. Tax credit
is $3 per barrel of oil equivalent produced, and phases out when the
price of oil rises to $29.50 per barrel (1979 dollars).
17. Mark, J. (1999) ``Greener SUVs: A Blueprint for Cleaner, More
Efficient Light Trucks,'' Union of Concerned Scientists.
18. David J. Friedman, Jason Mark, Patricia Monahan, Carl Nash, and
Clarence Ditlow (2001) Drilling in Detroit: Tapping Automaker Ingenuity
to Build Safe and Efficient Automobiles, U. of Concerned Scientists,
Cambridge, MA.
19. Malcolm A. Weiss, John B. Heywood, Elisabeth M. Drake, Andreas
Schafer, and Felix F. AuYeung (2000) ``On the Road in 2020: A lifecycle
analysis of new automobile technologies,'' Energy Laboratory,
Massachusetts Institute of Technology, MIT EL 00-003, Cambridge,
October.
20. Office of Technology Assessment (1995) Advanced Vehicle
Technology: Visions of a Super-Efficient Family Car, OTA-ETI-638,
Office of Technology Assessment, U.S. Congress, Washington, D.C.,
September.
21. David L. Greene and John Decicco (2000) ``Engineering-Economic
Analyses of Automotive Fuel Economy Potential In The United States,''
Annual Rev. Energy Environ. 25: 477-536.
22. Greene, D.L. and DeCicco J., op cit.
23. Interlaboratory Working Group, op cit.
24. Clemmer, S.L., Nogee, A., and Brower, M. (1999) ``A Powerful
Opportunity: Making Renewable Electricity the Standard,'' Union of
Concerned Scientists, January.
25. PCAST, op cit.
26. Clemmer, S., Nogee, A, and Brower M. (1999) ``A Powerful
Opportunity; Making Renewable Electricity the Standard,'' Union of
Concerned Scientists, January.
27. Rader, N. (2000) ``Getting it Right and Wrong in the States,''
Windpower Monthly, pp. 42-47, April.
28. Dixon, R. K. (2001) Office of Power Technologies, U.S.
Department of Energy, Second International CHP Symposium, Amsterdam,
Netherlands, May.
29. Clemmer, S.L., Donovan, D., Nogee, A. (2001), ``Clean Energy
Blueprint: A Smarter National Energy Policy for Today and the Future,
Phase I'' Union of Concerned Scientists and Tellus Institute, June.
30. Margolis and Kammen, op cit;
31. Clemmer, S.L., Donovan, D., Nogee, A., op c it.
32. Kinzig and Kammen, op cit.
33. Interlaboratory Working Group, op cit.
34. Krause, F., et al, op cit.
35. Baer, P., Harte, J., Haya, B., Herzog, A.V., Holdren, J.,
Hultman, N.E., Kammen, D.M., Norgaard, R.B., and Raymond, L. (2000)
``Equity and Greenhouse Gas Responsibility,'' Science, 289, page 2287.
Senator Kerry. Thank you very much. We will, Mr. Kammen.
Mr. German.
STATEMENT OF JOHN GERMAN, MANAGER, ENVIRONMENT AND ENERGY
ANALYSES, PRODUCT REGULATORY OFFICE, AMERICAN HONDA MOTOR
COMPANY, INC.
Mr. German. My name is John German. I am the manager of
environmental energy analyses in the product regulatory office
for American Honda Motor Company.
I appreciate the opportunity to testify this morning on
near, mid-, and long-term technological opportunities for
increased motor vehicle fuel efficiency. I will summarize my
prepared statement and ask that the full statement be printed
in the hearing record.
Senator Kerry. It will be printed in the record.
Mr. German. There is a popular misconception that vehicle
manufacturers have not introduced fuel-efficient technology
since the mid-1980's. The basis of this belief is that car and
light-truck CAFE have remained constant for the last 15 years.
The fact is, however, that there has been a substantial amount
of efficiency technology introduced during this period,
including lock-up torque converters, port fuel injection, and
four-valve-per-cylinder technologies.
However, this new technology has been employed to respond
to vehicle attributes demanded by the marketplace rather than
to increase fuel economy. Over the past two decades, consumers
have insisted on such features as enhanced performance, luxury
and safety, and greater utility. As reflected in my prepared
statement, even though vehicle weight increased 12 percent from
1987 to 2000, the zero to 60 acceleration time decreased by 22
percent from 1981 to 2000. This is because average horsepower
increased by more than 70 percent.
The bottom line is that it is these other attributes, not
fuel economy, that influence customer decisions in the
marketplace. We calculate that if these technologies had been
used solely for fuel economy instead of performance and other
attributes, if the current car fleet were still at 1981
performance weight and transmission levels, then passenger CAFE
would be almost 36 miles per gallon, rather than the current
level of 28.1. Since 1987, technology has gone into the fleet
that could have improved fuel economy by almost 1.5 percent per
year if it had not gone to other attributes demanded by the
market. Thus, while fuel economy did not increase, the fuel
efficiency of the vehicles did.
We see four pathways to improve fuel efficiency in the
future. First, in the near term, we believe that the 1.5
percent efficiency improvement from conventional technology
could continue into the future. There are a number of
technologies that are just beginning to penetrate the market,
including direct injection gasoline engines, five-speed
automatic and six-speed manual transmissions, continuously
variable transmissions, cylinder cut-off during light-load
operation, and idle-off features.
Honda, for example, has been aggressive in incorporating
fuel-efficient variable valve timing in almost 60 percent of
our 2000 model year vehicles. Other manufacturers are beginning
to utilize this technology as well. However, for this level of
fuel economy improvement to continue, it would require that all
benefits of these new technologies be applied to fuel economy
and not the other vehicle attributes such as comfort,
convenience, and performance.
Second, use of materials for weight and strength
optimization, measures to reduce friction and accessory losses,
and aerodynamic designs can be effective in both the near and
the long-term. Many of these approaches to fuel efficiency were
incorporated in our new Acura seven-passenger sport utility,
the MPX, which has the highest fuel economy in its class. They
are also used extensively in the Honda Insight, which attained
68 miles per gallon highway and 61 miles per gallon city.
While I will discuss the hybrid system in this vehicle in a
moment, I simply want to point out that 30 percent of the
enhanced fuel economy of the Insight is attributable to body
technologies, such as an all-aluminum body and low rolling
resistance tires.
Third, over the next five to fifteen years, we believe the
most promising opportunities will come through hybrid
technology, vehicles which employ two power sources. There are
currently two such vehicles sold in the U.S. today, the Honda
Insight and the Toyota Prius. There are some basic operating
characteristics that help shape the design of any hybrid
system. The primary demands on horsepower and torque occur
while accelerating and climbing grades. Minimal power is needed
to maintain a vehicle's speed while cruising on a level road.
By using an electric motor to provide a power boost to the
engine when needed, a smaller, more fuel-efficient gasoline
engine can be used.
In addition, the electric motor can be used to capture
energy that would normally be lost during deceleration and
braking. This energy can then be used to recharge the battery.
One of the attributes of hybrids is that they run on gasoline
and do not require a new refueling infrastructure. Moreover,
hybrids do not need to be plugged in for recharging; they
recharge themselves.
A number of manufacturers have announced their intentions
to introduce hybrid vehicles over the next few years. We
believe that a good hybrid system will give a 20 to 40 percent
improvement in fuel economy. While a number of challenges
remain before we will see high levels of hybrid penetration in
the marketplace, there is no greater challenge than cost.
Hybrid systems are not cheap. While manufacturers are
understandably reluctant to discuss cost, hybrids could cost
several thousand dollars more than the equivalent conventional
gasoline vehicle. With fuel costs so inexpensive in the U.S.
relative to Japan and Europe, it is likely that hybrid sales
will increase more quickly there than in the U.S.
In the long-term, the most promising technology appears to
be fuel cell vehicles. Fuel cell vehicles run on hydrogen gas.
The only emission is water. Honda's work currently focuses on
direct hydrogen fuel cell vehicles in which hydrogen is carried
on board the vehicle in highly compressed form and is used to
make electric energy to power the vehicle. Other manufacturers
are working with reformers which convert a fuel like gasoline
or methanol into hydrogen on board the vehicle.
While we have been making good progress in our work, major
hurdles remain. Reformers are expensive, take up a lot of room
in the vehicle, and are slow to warm up and respond to
transient driving conditions. They reduce the efficiency of the
vehicle, both because of the energy needed for the reforming
process and because the resulting fuel stream is not pure
hydrogen. For compressed hydrogen fuel cell vehicles, in
addition to significant technological challenges, there would
also be the need for a new refueling infrastructure.
While fuel cell technology is promising, we must be
realistic in our expectations. We do not anticipate seeing a
consumer fuel cell vehicle market for at least one or two
decades, and we must be forever mindful of our experience with
battery electric vehicles. A decade or so ago, we all thought
battery electric vehicles were the future, but the battery
technology simply never evolved to the point we expected. The
best battery electric vehicles out there today have a range of
up to only 100 miles, take three to 8 hours to recharge, and
cost tens of thousands of dollars for the batteries alone, and
there are no technological breakthroughs on the horizon.
Mr. Chairman, I think there is much that technology can do
to achieve enhanced fuel efficiency, but we must be realistic
about the pace of technology and the hurdles that we will
encounter along the way. Also manufacturers can sell only what
consumers are willing to buy. Absent programs or marketplace
conditions that stimulate demand or provide incentives, the
manufacturers' challenge will be to increase fuel efficiency
without sacrificing the performance, safety, convenience, and
comfort that customers demand.
Thank you. I would be happy to answer any questions.
[The prepared statement of Mr. German follows:]
Prepared Statement of John German, Manager, Environment and Energy
Analyses, Product Regulatory Office, American Honda Motor Company, Inc.
Good morning, my name is John German, Manager, Environment and
Energy Analyses, Product Regulatory Office, American Honda Motor Co.,
Inc. Honda appreciates the opportunity to appear before the Senate
Commerce, Science and Transportation Committee to discuss automotive
fuel efficiency with a focus on technology.
The environmental challenge is one that Honda has long embraced.
Honda products have always focused on the most efficient use of
resources. It has been a part of Honda's culture from the beginning. To
quote our founder, Mr. Honda, in 1974, ``I cannot overstress the
importance of continuing to cope with the pollution problem.'' We
believe that we must think about more than just the products we make.
We think about the people who use them and the world in which we live.
We believe that it is our responsibility, as a manufacturer of these
products, to do all we can to reduce the pollutants that are created
from the use of products that we produce.
Conventional Technology
There is a popular misconception that vehicle manufacturers have
not introduced fuel efficient technology since the mid-80s. This is
understandable, as the car and light truck CAFE have remained constant
for the last 15 years (and the combined fleet has gone down due to
increasing light truck market penetration), as shown in Figure 1.
However, there has been a substantial amount of efficiency technology
introduced in this time period. Some examples for the entire car and
light truck fleet from EPA's 2000 Fuel Economy Trends are shown in
Figure 2.
Figure 1
Figure 2
However, this new technology has been employed more to respond to
vehicle attributes demanded by the marketplace than to increase fuel
economy. Over the past two decades consumers have insisted on such
features as enhanced performance, luxury, utility, and safety, without
decreasing fuel economy. Figure 3 shows the changes in vehicle weight,
performance, and proportion of automatic transmissions since 1980 in
the passenger car fleet. Even though weight increased by 12% from 1987
to 2000, the 0-60 time decreased by 22% from 1981 to 2000. This is
because average horsepower increased by over 70% from 1982 (99 hp) to
2000 (170 hp). In addition, the proportion of manual transmissions,
which are much more fuel efficient than automatic transmissions,
decreased from 32% in 1980 to 14% in 2000.
Figure 3
It is clear that technology has been used for vehicle attributes
which consumers have demanded or value more highly than fuel economy.
Figure 4 compares the actual fuel economy for cars to what the fuel
economy would have been if the technology were used solely for fuel
economy instead of performance and other attributes. If the current car
fleet were still at 1981 performance, weight, and transmission levels,
the passenger car CAFE would be almost 36 mpg instead of the current
level of 28.1 mpg. The trend is particularly pronounced since 1987.
From 1987 to 2000, technology has gone into the fleet at a rate that
could have improved fuel economy by about 1.5% per year, if it had not
gone to other attributes demanded by the marketplace.
Figure 4
There is no reason why this technology trend of improved efficiency
(as opposed to fuel economy) should not continue. Many of the
technologies in the 2000 fleet, such as 4-valve per cylinder, have not
yet spread throughout the entire fleet (although Honda vehicles have
been virtually 100% 4-valve per cylinder since 1988). In addition,
several new technologies that will have significant efficiency benefits
are just beginning to penetrate the fleet. One technology pioneered by
Honda is variable valve timing. While Honda used variable valve timing
in almost 60% of our 2000 vehicles, penetration in the other
manufacturers' fleets is only a percent or two. Other technologies that
have recently been introduced or for which at least one manufacturer
has announced plans to introduce include:
Direct injection gasoline engines (only announced for Europe
and Japan to date)
5-speed automatic and 6-speed manual transmissions
Continuously variable transmissions (works like an
automatic, but more efficient)
Lightweight materials
Low rolling resistance tires
Improved aerodynamics
Cylinder cut-off during light-load operation (for example,
an 8-cylinder engine shuts off 4 cylinders during cruise
conditions)
Idle-off (the engine stops at idle)
Technologies are continuously being incorporated into vehicles.
However, consumer's sense of value usually puts fuel efficiency near
the bottom of their list. The dilemma facing manufacturers is that
customers may not value putting in these technologies just to improve
fuel economy.
Gasoline-Electric Hybrids
The competitive technologies that I have just described will be
integrated in vehicle fleets in the relative near term. The most
promising technology on the mid-term horizon (5-15 years) are hybrid
vehicles--vehicles which employ two power sources. The two hybrid
vehicles recently introduced in the US, the Honda Insight and the
Toyota Prius, both use innovative hybrid techniques. There are some
basic operating characteristics that help shape the design of any
hybrid system. The greatest demands on horsepower and torque occur
while accelerating and climbing grades. Minimal power is needed to
maintain a vehicle's speed while cruising on a level road. By using an
electric motor to provide a power boost to the engine when appropriate,
a smaller, more fuel-efficient gasoline engine can be used. In
addition, the motor can be used to capture energy that would normally
be lost during deceleration and braking and use this energy to recharge
the battery. This process is referred to as ``regenerative braking.''
These vehicles do not need to be plugged in. Finally, the powerful
electric motor can restart the engine far quicker than a conventional
starter motor and with minimal emission impact, allowing the engine to
be shut off at idle.
Honda's Integrated Motor Assist (IMA) relies primarily on a small
gasoline motor and is supplemented by a high torque, high efficiency DC
brushless motor located between the engine and the transmission.\1\
This 10 kW motor is only 60 mm (2.4") thick and is connected directly
to the engine's crankshaft. It supplies up to 36 ft-lb. of torque
during acceleration and acts as a generator during deceleration to
recharge the battery pack. This is a simple, elegant method to package
a parallel hybrid system and minimizes the weight increase.
---------------------------------------------------------------------------
\1\ ``Development of Integrated Motor Assist Hybrid System,'' K.
Aoki et al, Honda, June, 2000, SAE paper # 2000-01-2059.
Toyota's hybrid system combines both series and parallel
systems.\2\ The Prius powertrain is based on the parallel type.
However, to optimize the engine's operation point, it allows series-
like operation with a separate generator.
---------------------------------------------------------------------------
\2\ Prius information is based upon October, 1999 Presentation by
Dave Hermance of Toyota, ``Toyota Hybrid System Concept and
Technologies.''
---------------------------------------------------------------------------
Both models use relatively small battery packs. The Insight's NiMH
battery pack is rated at about 1 kW-hr of storage and only weighs about
22 kg (48 pounds). The battery pack on the Prius is larger, but is
still no more than twice the size of the Insight's. These lightweight
battery packs help to maintain in-use performance and efficiency while
maintaining most of the hybrid system benefits. The larger motor and
battery on the Prius also allow limited acceleration and cruise at
light loads on electricity only.
Both the Insight and the Prius incorporate substantial engine
efficiency improvements, in addition to the downsizing allowed by the
hybrid system. The Prius uses a low friction, Atkinson cycle 1.5L
engine. The Atkinson cycle uses a longer expansion stroke to extract
more energy from the combustion process to boost efficiency.
The Insight engine incorporates a number of different strategies to
improve efficiency. The engine has Honda's variable valve technology,
which boosts peak horsepower and allows even more engine downsizing.
The 1.0L, 3-cylinder engine also incorporates lean-burn operation, low
friction, and lightweight technologies to maximize fuel efficiency.
Despite the small engine size, the Insight can sustain good performance
with a depleted battery, due to the high power/weight from the VTEC
engine.
What is especially interesting about the Insight and Prius
comparison is that very different powertrain technologies were used to
achieve similar efficiency goals. One important lesson is that the
different types of hybrid systems have reasonably similar environmental
performance. The new continuously variable transmission (CVT) Insight
is rated as a SULEV. There are an infinite number of ways to combine
hybrid components to create a practical hybrid electric vehicle.
Both the Insight and the Prius have achieved impressive fuel
economy improvements. The manual transmission Insight has the highest
fuel economy label values ever for a gasoline vehicle, 61 mpg city and
68 highway. The CVT Insight is rated at a slightly lower level. While
much of the high fuel efficiency is attributable to the hybrid engine,
other fuel efficient technologies, such as aerodynamic design and
strategic use of lightweight materials were incorporated into the
Insight as well. The Prius values are 52 mpg city and 45 highway.
Projections have also been made for prototype or future hybrid
designs. Table 1 compares the manufacturer claims for the prototype
vehicles to the production values for the Insight and Prius. It should
be noted that Table 1 presents CAFE values, instead of fuel economy
label values.\3\
---------------------------------------------------------------------------
\3\ EPA discounts the city test by 10% and the highway by 22% when
calculating fuel economy values, so the combined FE based upon the
label values discussed in the last paragraph is about 15% lower than
the CAFE values in Table 1.
Table 1: Hybrid Vehicle Comparison
------------------------------------------------------------------------
% improvement
CAFE mpg **
------------------------------------------------------------------------
Commercial Honda Insight 76 91%
------------------------------------------------------------------------
Commercial Toyota Prius 58 50%
------------------------------------------------------------------------
Prototype Ford Escape SUV 40 40-70%
------------------------------------------------------------------------
Prototype Dodge Durango SUV 19 20%
------------------------------------------------------------------------
Prototype GM SUV 35 20%
------------------------------------------------------------------------
Prototype GM full-size pickup 20 15%
------------------------------------------------------------------------
Prototype Ford Prodigy--PNGV 70* 155%
diesel
------------------------------------------------------------------------
Prototype DC ESX3--PNGV diesel 72* 162%
------------------------------------------------------------------------
Prototype GM Precept--PNGV diesel 80* 191%
------------------------------------------------------------------------
* Gasoline-equivalent mpg.
** Baseline for Escape is 24 mpg (V6) to 29 mpg (4-cyl).
Baseline for PNGV is 28 mpg (based on typical midsize car).
While it is easy to overlook because of the large efficiency
benefits, hybrids also offer some potential emission reductions. The
lower fuel consumption directly reduces upstream emissions from
gasoline production and distribution. If the higher efficiency is used
to increase range, evaporative emissions from refueling are reduced.
Future potential for hybrid powerplant applications and volume sales
Hybrids have a number of positive features that are desired by
customers. They use gasoline (or diesel fuel); thus there are no
concerns about creating a new infrastructure to support fueling. The
customer benefits from lower fuel costs, extended range, and fewer
trips to the gas station. Hybrids have good synergy with other fuel
economy technologies and even help reduce emissions. Equally important,
there is little impact on how the vehicle operates. The vehicles drive
and operate similar to conventional vehicles.
Recent announcements from a number of manufacturers indicate that
hybrid systems are being considered across a very broad vehicle
spectrum. Toyota has announced production of a hybrid electric minivan
for the Japanese market.\4\ Honda recently announced a hybrid version
of the Civic 4-door sedan that will be sold in the US beginning in
spring 2002. Ford has announced plans to put a hybrid system into a
2003 model year Escape, a small SUV.\5\ DaimlerChrysler will offer a
hybrid in its Durango SUV sometime in 2003.\6\ General Motors is
already selling hybrid bus systems and plans to sell hybrid versions of
its full-size pickup truck and the forthcoming Saturn VUE SUV in
2004.\7\ There appears to be no inherent limitation on the use of
hybrid systems, as long as packaging, weight, and cost issues can be
managed.
---------------------------------------------------------------------------
\4\ ``Toyota sees a hybrid future,'' Autoweek, October 30, 2000
\5\ Ford Motor Co. press releases, January 10, 2000 and April 7,
2000
\6\ Associated Press article by Justin Hyde, October 25, 2000
\7\ General Motors Co. press release, January 9, 2001
---------------------------------------------------------------------------
While there have been tremendous strides in hybrid technology,
there remain some packaging issues such as finding space for the motor,
battery pack, and power electronics, as well as some additional weight.
However, these issues are secondary compared to the cost issue.
Unfortunately, hybrid systems are not cheap. Manufacturers are
understandably reluctant to discuss the cost of their hybrid systems,
so it is difficult to determine a realistic cost. Initially, hybrids
also have high development costs spread over relatively low sales.
DaimlerChrysler has said the hybrid Durango will cost about $3000 more
than the standard model.\8\ Peugeot-Citroen recently stated that they
``. . . have set a target of making the cost of stepping up to hybrid
power no greater than the amount motorists are now prepared to pay for
the switch from petrol to diesel.'' \9\ Ford stated that the hybrid is
expected to add about $3000 to the price of the Escape,\10\ although it
should be noted that a Ford engineer recently stated that the $3000
price increment will not cover all of their costs.\11\
---------------------------------------------------------------------------
\8\ Associated Press article by Justin Hyde, October 25, 2000
\9\ Parallel hybrid project director Emmanuel Combes of PSA in
August, 2000 issue of Global Automotive Network.
\10\ Ford Motor Co. press release, January 10, 2000
\11\ Ford Escape Chief Engineer, comments during May 18, 2001
edition of PBS Science Friday
---------------------------------------------------------------------------
To put the cost issue into context, let's take a look at what
customers might be willing to pay in exchange for the fuel savings,
both in the US and overseas. To do this, we need to make a few
assumptions. The most critical is customer discounting of fuel savings.
It is generally understood that most customers in the US only consider
the first four years of fuel savings, plus they heavily discount even
these four years. This is roughly equivalent to assuming that customers
only value the fuel savings from the first 50,000 miles. For lack of
information, the same 50,000 mile assumption is used for overseas
customers (who drive less per year but may value the fuel savings
more).
Estimates were made for three different size vehicles, small cars,
midsize cars, and large trucks. Three estimates were also made for the
hybrid benefits, as the improvements listed in Table 2 range from 15%
to 196%. Of course, most of the vehicles in Table 1 include factors
that go well beyond the impact of the hybrid system itself, such as
weight and load reduction, engine efficiency improvements, and
dieselization. A reasonable factor for just the hybrid system and
corresponding engine size reduction is probably about 30-40% over
combined cycles. Sensitivity cases of 20% (for very mild hybrids) and
80% (for hybrids combined with moderate engine and load improvements)
are also shown in Table 2.
The final factor is fuel cost. Table 2 lists two cases: $1.50/
gallon (US) and $4.00/gallon (Europe and Japan). The formula used to
calculate the fuel savings in Table 2 is:
Table 2: Customer Value of Hybrid Fuel Savings (savings for the first
50,000 miles)
------------------------------------------------------------------------
Small car Midsize car Large truck
FE increase Fuel cost --------------------------------------
40 mpg 27 mpg 16 mpg
------------------------------------------------------------------------
20% $1.50/gal $313 $463 $781
------------------------------------------------------------------------
$4.00/gal $833 $1,235 $2,083
------------------------------------------------------------------------
40% $1.50/gal $536 $794 $1,339
------------------------------------------------------------------------
$4.00/gal $1,429 $2,116 $3,571
------------------------------------------------------------------------
80% $1.50/gal $833 $1,235 $2,083
------------------------------------------------------------------------
$4.00/gal $2,222 $3,292 $5,556
------------------------------------------------------------------------
The results are sobering. From a societal view, the fuel savings
over the full life of the vehicle (which are about three times the
values in Table 2), would likely justify the approximately $3000 cost
of hybrid systems. However, the typical customer would not make up the
incremental cost of $3000 by the fuel savings, especially in the US. In
Japan and Europe, there may be a substantial market for hybrids even at
a cost of $3000, due to the higher fuel prices. If the hybrid cost
could be reduced to $1500 or $2000, the majority of customers in Japan
and Europe might be willing to purchase a hybrid vehicle.
Even in the US, there are customers who, because they drive a lot
or value the benefits more highly, will be willing to pay a $3000
premium for a hybrid vehicle. However, it is clear that hybrids will
not break into the mainstream market in the US unless the cost of
hybrid systems comes down and/or some sort of market assistance or
incentive program is adopted.
Over the next five to ten years, we are likely to see a gradual
increase in hybrid sales in the US. While the approximately $3000 cost
increment in 2003 is too high for the mass market in the US, enough
customers will desire the features to keep the market growing. In
addition, hybrid sales are likely to increase much faster in Europe and
Japan, due to their much higher fuel costs. This will lead to higher
volume production and further development, both of which will reduce
cost worldwide. Sales in the US will continue to increase as the costs
come down.
But there is a broader message here for US policymakers. All of the
technology improvements that can be made are incremental and have a
financial cost. Absent marketplace signals as well, progress on
achieving higher fuel efficiency in the marketplace may be slower than
we may desire.
Fuel Cells
Fuel cells are the most promising mid- to long-term option.
Hydrogen fuel cells have virtually no emissions and are extremely
efficient. Large-scale production of hydrogen would probably use
natural gas, which would reduce our dependence on fossil fuels. Even
longer term, we may be able to produce hydrogen using solar energy or
biomass fuels.
However, there remain a lot of issues to resolve before fuel cell
vehicles become commercially viable. Cost and size must be drastically
reduced and on-board hydrogen storage density must be significantly
improved. Durability must also be proved. Even after all these problems
are solved, there are still infrastructure issues for fueling systems
to resolve. Thus, fuel cells will be a long time in development.
There also are some serious concerns about on-board reformers for
creating hydrogen. Reformers are the hardware that converts fuel like
natural gas or methane, to hydrogen. These reformers are expensive,
take up valuable space in the vehicle, and are slow to warm up and
respond to transient driving conditions. In addition, they reduce the
efficiency of the vehicle, both because of the energy needed for the
reforming process and because the resulting fuel stream is not pure
hydrogen. The dilution of the fuel stream requires a larger fuel cell
stack to maintain the same performance, increasing weight, size, and
cost of the system. In fact, recent research has concluded that fuel
cells with on-board reformers may not be more efficient than a good
gasoline hybrid.\12\
---------------------------------------------------------------------------
\12\ ``On the Road in 2020,'' M. Weiss, J. Heywood, E. Drake, A.
Schafer, and F. AuYeung, Massachusetts Institute of Technology, October
2000.
---------------------------------------------------------------------------
Honda's current research efforts are focused on direct hydrogen
fuel cell vehicles. These are not yet ready for the public, not ready
for ``numbers,'' not ready to help fill requirements for zero emission
vehicles. There is much work to be done--our focus is to see if we can
stimulate progress on R&D for hydrogen production ideas and toward
infrastructure concepts and development. But even if all of the
technological and infrastructure obstacles can be overcome, we are
still one to two decades away from serious commercial introduction.
However Honda is serious about this technology because it holds promise
for environmentally sound transportation.
Electric Vehicles
While we are optimistic about the prospects of fuel cell vehicles,
our experience with battery electric cars must serve as a warning. A
decade ago, we all thought battery electric vehicles were the wave of
the future. They promised emission-free, potentially renewable mobility
with the performance of conventional internal combustion engines. So
confident was California in the technology that the state required all
major manufacturers to sell battery electric vehicles for 10% of their
California sales.
Unfortunately, the battery technology did not evolve as we all had
hoped or expected. Today's batteries--even the most sophisticated--are
heavy, expensive (tens of thousands of dollars per vehicle at
production levels), have poor capacity (100 miles at best) and take 3
to 8 hours to charge. Moreover, there is nothing on the horizon that
will make these vehicles acceptable in the marketplace. While
California stubbornly clings to the hope that battery EVs will evolve
(although it will now require these vehicles to constitute 2% of sales)
they simply will not meet our expectations as an alternative to the
internal combustion engine. I offer this experience as a caution that
policymakers cannot get too far ahead of the technology. Sometimes what
we expect simply does not occur.
But there is also another lesson to be learned from our experience
with electric vehicles. Market-forcing regulation should remain
technologically neutral. California's zero emission vehicle mandate
essentially requires manufacturers to sell electric vehicles--vehicles
which very few consumers will want. In response to the California
mandate, there will be a flood of golf cart type electric vehicles
hitting the California market--which technically comply with the
mandate but whose real contribution to air quality will be very mild at
best. If there is to be regulation, it should be in the form of
realistic performance standards which leave to the ingenuity of
industry the opportunity to explore, develop or market technologies
that are practical, perform as required and are economical.
Customer Preference
Honda believes it has a duty to be a responsible member of society
and to help preserve the global environment. Honda is committed to
contributing to mitigation of greenhouse gas emissions through
technological progress. We believe it is our responsibility to develop
and offer efficient products in the market. We have been an industry
leader in introducing such products and will continue to do so.
However, unless the customer becomes an integral participant in the
process of reducing greenhouse gases, market acceptance of these
products will be limited. Programs will be far more effective if they
include government and customers, not just industry. The industry can
provide a ``pull'' by providing products desired by the consumer. But,
we cannot push customers into buying vehicles they do not want.
Government programs to stimulate demand, provide incentives, and
educate the customer could dramatically affect acceptance of new
technologies and market penetration.
Thank you for this opportunity to testify. I would be pleased
answer any questions you may have.
Senator Kerry. Thank you very much, Mr. German. It is very
interesting, and we do want to come back to a number of those
things.
Mr. Miller, picking up on what Dr. Kammen said about the
market, that you have to create the market balance, et cetera,
here you are. The fuel cells work in a limited fashion. We know
that you have small power generation capacity. Is there an
expectation that this could become a source of larger power
capacity?
Mr. Miller. Mr. Chairman, we definitely think that is true.
The one thing that is preventing that from becoming more
ubiquitous, let's say, in the economy is the cost. Our cost
today is $4,500 a kilowatt. Our new technology, which will be
out in less than 2 years, is one-tenth the size and one-tenth
the weight of the current technology, and we think we can
dramatically reduce the cost and make it economical for more
people to buy these for home use, for building use, ultimately
for automobile use. It would certainly help--we have been
helped historically by government incentives, and certainly
future government incentives would help from the standpoint of
increasing volume and therefore driving down costs even faster.
Senator Kerry. Which is the bigger problem as a restraint
on your penetration of the marketplace? Is it the cost, or is
it the technological problem?
Mr. Miller. I would say it is cost, because today we have
fuel cells that will operate 5 years continuously. They get
extremely good efficiency. In other words, they convert most of
the energy and the natural gas into electricity or usable heat.
And so our fuel cells today are very reliable.
Senator Kerry. So you are saying your cost is $4,500 a
kilowatt.
Mr. Miller. Right.
Senator Kerry. The kilowatt, competitive cost is what?
About $1,000?
Mr. Miller. $1,000 to $1,500, we start getting into being
economical, and that is why this new type of fuel cell, which
is one-tenth the size and weight, gives us the promise that
within 24 months, we will be down to that $1,500 kilowatt
level.
Senator Kerry. And begin to become competitive.
Mr. Miller. Begin to become competitive.
Senator Kerry. Now, how does that compare to what Mr.
German was talking about in terms of the fuel for the
automobile itself? Is that the same?
Mr. Miller. OK. A car--to become economical in a car, we
are going to have to get down to $50 a kilowatt. Now, that
seems like a long way, but I would tell you that there are
probably six or seven auto makers, spending in excess of $100
million a year on fuel cell vehicles, because they think that
that can be accomplished over time. Now, we see that occurring
toward the end of this decade, but as was indicated earlier, it
may be a little longer, it might be a little sooner.
Senator Kerry. Now, what do you think we either could or
should do--and if the two mix, terrific--to facilitate the kind
of market pull that Dr. Kammen was talking about?
Mr. Miller. Well, there are bills in Congress today, co-
sponsored by a number of members of your Committee, to give
fuel cell tax credits for residential and stationary fuel cells
starting next year. That would be an initial one.
The second issue which I think is important is that buses
are one of the main pollutants in inner cities, and they also
obviously emit tremendous amounts of carbon dioxide. Buses may
be the first transportation market which comes about, because
whereas with cars, you have the whole infrastructure to change,
buses come home every night, and if you put a hydrogen fueling
station at those few bus terminals, you could have hydrogen
fuel cell buses in the 2005 timeframe.
And what we have been recommending from a government
standpoint is a program to test fuel cell buses and to prove to
transit agencies that they are reliable. And there have been a
number of----
Senator Kerry. What is the resistance to that?
Mr. Miller. Transit bus companies, their No. 1 criteria is
reliability, and they are very reluctant to try a new
technology until it has been proven out. And so that is why we
need a couple of programs in a couple of cities to show them
that fuel cell vehicles are just as reliable as diesel and
gasoline buses, and they have the added advantage they are much
more fuel-efficient. They will get many times----
Senator Kerry. So you could provide a fleet of those how
quickly?
Mr. Miller. Well, we have buses right now. We have one that
will enter commercial service in Turin, Italy, this year. We
are partnered with Iris bus, which is basically Fiat over
there, to demonstrate a vehicle in commercial service over----
Senator Kerry. One vehicle.
Mr. Miller. Pardon?
Senator Kerry. One vehicle.
Mr. Miller. A large transit bus. We are also working with
Thor Industries, which is a U.S. company, and we will have one
fuel cell bus on the road also beginning next year.
Senator Kerry. If we were to create a pilot program that
tried to designate a specific community, either for school
buses or for transit buses, how fast could the supply of buses
be made available?
Mr. Miller. We could have those--I think we could have
buses available for a demonstration program like that by the
end of next year.
Senator Kerry. And what we are talking about is a vehicle
which has literally zero emissions, zero, no NOX----
Mr. Miller. Fueled by hydrogen----
Senator Kerry.--no SOX, fueled by hydrogen.
Hydrogen, incidentally, is it not about 80 percent of the
matter here on Earth?
Mr. Miller. I am not sure of the exact percentage, but
obviously water, you know, has--hydrogen as the main----
Senator Kerry. So it is ample in terms of supply and
potential; plus, you can create it.
Mr. Miller. Yes. We can also reform hydrocarbons which
separate the hydrogen atoms from the carbon atoms and actually
produce hydrogen that way. That is what we do with our natural
gas PC25s today.
Senator Kerry. Now, Dr. Kammen, pick up on that. What do
you think we should and could do that would have a positive
impact in helping to expand the market?
Dr. Kammen. Well, certainly. I mean, the key lesson that
the more product turnover cycles you get, the better. The more
generations of vehicles you build, the more efficient they get,
the lower the cost comes down.
A couple of things one could do right off----
Senator Kerry. But how do we get to the point where----
Dr. Kammen. Right.
Senator Kerry. Mr. German referred to the consumer here.
The consumer wants that acceleration, zero to 60, wants the
comfort--I mean, there are certain things that the marketplace
is automatically responding to. Now, in Europe, the prices of
fuel are higher, so you have had a marketplace response as a
consequence. Nobody here in the Congress is going to advocate a
higher fuel price, so how do we deal with this in those
circumstances?
Dr. Kammen. Well, it is interesting. I mean, Mr. German
mentioned the degree that we have seen vehicles improve quite a
bit, but a lot has gone into performance, not into efficiency.
If we (a) close the SUV loophole standard on the CAFE standard
and if we raise the overall CAFE standards, those would send a
strong signal to companies that some of that R&D effort should
go back into these more efficient vehicles that would get the
costs down.
We could also institute tax credits for hybrid vehicles,
for fuel cell vehicles, and those would have an important
effect, because those would tell companies----
Senator Kerry. We actually have a bill. Senator Rockefeller
and I and others are hoping we could actually pass that here.
Dr. Kammen. That is what I am hoping as well, and that
really does set the clear standard for industry, that it is an
area worth investing in, because the market is going to be
there for a while. That is what I mentioned before, that
building markets for these clean technologies is a critical
thing. In the past, markets have come and gone, and there has
been individual programs, but setting standards like the CAFE
is one way to really focus that effort on those technologies.
Senator Kerry. Mr. Miller, what would have the greatest
impact, the fastest impact on you, beyond the pilot project
here? If we wanted to accelerate the creation of a vehicle that
has no emissions, how could we do that as rapidly as possible?
Mr. Miller. Well, I think the tax credit bill which you
referred to is an important part of that, but I would also say
once again the fuel cell cost target is very low for
transportation, and what would help the industry drive down the
cost is to start also working the stationary fuel cell supports
and incentives, because that is the first initial application.
We think for stationary you will see fuel cells in buildings
and homes in 2003. So if we can increase the demand for those
products, that will drive the cost curve down and help us get
toward that $50 a kilowatt number that we need to achieve to be
competitive with the internal combustion engine.
Senator Kerry. Now, each of you heard the discussion with
the first panel where we were talking about the requirements to
try to reduce our net emissions. It is obvious, is it not, that
if this country rapidly began to adopt the technologies you
have talked about, you could have a fairly painless movement
very rapidly to a more responsible position, would you not?
Mr. Miller. I would agree.
Dr. Kammen. I certainly agree. And, in fact, the issue, I
think, is really delay, because the longer we wait, the harder
it is for companies to make those changes, and the earlier that
we put in standards like more efficient vehicles, like carbon
targets, those are the ways to really get companies to make
those investments in this area, and those have paid off. We
have seen companies consistently making money by investing in
clean technologies, despite a lot of earlier rhetoric that
these energy-efficient technologies are, in fact, costly. They
are, in fact, not.
The more we invest in them, like with compact fluorescent
lighting, the Federal program, the green lights program, paid
dramatic dividends back and transformed the lighting of the
country, and those kinds of programs have a big effect.
Mr. Duffy. Senator, I would also concur, and I would like
to reference an example as to how quickly markets will respond
to the right incentives, and that is the renewable portfolio
standard, or RPS as it was referred to earlier, that was
established by Texas several years ago, and in many respects,
it is the national model for people who want to see the
competitive development of renewable fuel.
Texas had an RPS requirement for 2,000 new megawatts of
renewable energy generation to be in service by the year 2009.
One-half of that amount, 1,000 megawatts, will be met by wind
generation that will be placed in service by the end of this
year, so the technology is ready, and with the right market
incentives, the industry will respond.
Ms. Koetz. Senator, if I may, there is another aspect to
all of this market penetration that I think might be useful.
Most of the technologies you see here sitting at the table are
almost zero-emitting. The problem is that none of our systems
for accounting for emissions take into account a zero emitter.
If you never make the emissions to begin with, you never get on
the books; you are never part of a static baseline for--that is
measured, that somebody wants to measure reductions off of, so
you essentially wind up in a category that has now become known
as ``anyway tons.'' You were sort of going to do that anyway,
and in many respects, being zero-emitting is thought of as just
almost an accident of design rather than as a positive public
output.
So if there is one other thing--and that also translates
into some of the numbers you are hearing here. 1,000 to $1,500
a kilowatt is the price for combustion fuels, and those
combustion fuels do not have to make the additional investment
it takes to go all the way to zero-emitting. So we are aiming
for targets that don't include the cost of getting this
additional public value that we say we want to get.
Senator Kerry. And obviously that needs to be reflected in
the equation. I understand. I agree with you.
It is also part of what we need to do as we cost out these
issues. Whenever we are thrown the costs of doing something in
the economic analysis, we are always given a cost that is very
one-sided. We never have the costs factored in for the cleanup,
for the damage, for the disease, for all the other negative
sides. We often don't weigh that balance. Dr. Kammen, that is
why you are saying there is a $45 billion upside. Am I correct?
Dr. Kammen. It is even more than that. I mean, that is the
direct upside. If you instituted these energy efficiency and
lower cost fuels, you get that, but you also get an economic
stimulus, because that fossil fuel cost is essentially like the
national debt. That is money we are paying and not getting
something out of. If we invest in these clean technologies, we
generate new markets. We then see an additional effect on the
market.
And what is interesting is that is now a very robust
result. As I said in the testimony, there is national lab
studies. Our research group at Berkeley has seen some of that.
There are independent groups who have all, coming along, seen
different programs that they would support, that overall the
more investment in energy efficiency and renewables that we
see, the better economic stimulus we see. So it is having the
exact opposite effect as the detractors have been claiming for
many years.
Senator Kerry. Let me document that by saying that in 1980,
the end of the Carter administration, after the initial
investments of the 1970's in response to the 1973 crisis, we
were the world's leader in photovoltaics and renewables. We
started the Energy Institute in Colorado. Tenured professors
left positions to go out there and help feed this engine, and
then the Reagan administration came in, didn't believe in that
kind of market support or intervention, and completely gutted
the program. We lost the lead in both technologies to Germany
and Japan, if I am correct, and not to mention, discarded our
leadership overall in that field.
So the consequences are enormous in these fields when you
make these choices. In Massachusetts during that same
timeframe, the fastest growing sector of the Massachusetts
economy, notwithstanding our extraordinary presence in
education, in health care, in financial services, in defense
technology, in bio technology, and other technologies, the
fastest growing sector of the Massachusetts economy was
environment companies that were growing as a consequence of
those incentives that were created, and we had a job base going
from 50,000 up to about 75,000 people.
The brakes were put on, as several of you mentioned
earlier, and progress kind of ground to a halt because we
weren't consistent and sustained in our commitment. I believe
too much is being made of the difficulties of this transition
personally. We are the world's greatest technological leader
and creator on the planet. If we would unleash our
technological capacity to pursue some of these things, the
market responds: ``Build it and they will come.'' If we will do
this, we can quickly lower the current dependencies that we are
all so concerned about.
Now, I am not going to say it is going to happen overnight.
Obviously, I understand the difficulties. There are regulatory
issues we have to work through; there are liability issues that
we have to work through. I think many of us on our side of the
aisle who have been very supportive of some of those efforts
need to be very thoughtful about the changes and approaches we
need to think about in the context of the regulatory schemes.
There are many of these things that could get out there today
that can't because of the heavy-handedness of the regulatory
process itself and other kinds of issues, and I think we have
to be really thoughtful about how we come at that.
On the topic of wind energy--and then I want to defer to
Senator Ensign who has been very patient. Mr. Duffy, how many
countries are using wind today as a major source of energy?
Mr. Duffy. I am going to have to get back to you with a
number on that, Senator, but I think it is safe to say that
throughout Europe, it is being relied upon as one of the
primary new sources, as new construction is being placed into
service. And as I mentioned before, the number from the AWEA
study, $4 billion investment last year. I mean, it is--we also
see it as--we try to develop plants in the United States. We
see the impact of how well accepted and proven it is in Europe
by the backlog that is quickly building up to get wind turbines
in service within a reasonable period of time.
So globally there is no question it is one of the leading
sources and particularly one of the leading new sources. What
we need to do is just take the additional steps so we can
expand that into this country.
Senator Kerry. And just very quickly, Ms. Koetz, obviously
nuclear is zero emission, and its record is stronger in many
regards than many people have acknowledged. On the other hand,
there are two very significant issues that still stand out
there, and maybe you would share with us what progress has been
made and what one might look forward to there. One is the waste
issue, and the other is the safety concerns that people have
had. Do you just want to comment quickly on both of those?
Ms. Koetz. I will do that. Thank you, sir. First of all, I
will go to safety. We have had an ever-increasing safety record
such that we are one of the safest ways to produce power in the
world right now. In addition, we see a direct correlation
between safety improvements and economic enhancement. We have
many plants, as I mentioned, making electricity for just over a
penny a kilowatt. Those are the same plants with the best
safety records, so we do not see any need to sacrifice safety
or otherwise fail to live up to our own imposed safety
standards in order to get improved economic performance, and we
intend to see more plants going forward on that correlation as
well.
As to the--and if you don't mind, I am going to call it the
so-called waste issue, sir, because one of the most important
things we deal with here in global climate change is dealing
with our greenhouse gas emissions as we approach
sustainability.
And, frankly, we have always understood that our processed
uranium fuel stocks were reusable at some point in time. We
also understood that this was valuable material that we needed
to take care of, so in many respects, although it has been
labeled waste because of some of the policies we have pursued,
in fact, this is a secondary raw material.
And before I get to the details of what we have been doing,
I think it is important to put it in context. We make about 40
million tons of hazardous waste every year in the United
States. We have 40,000 tons of used nuclear fuel from 50 years
of making carbon-free, sulfur-free, nitrogen-free electricity.
That material would cover roughly the size of football field to
about 15 or 16 feet.
There is no denying that this is potentially dangerous
material that must be very effectively managed. However, the
good news is it has been very effectively managed. There are no
Superfund sites at commercial nuclear power plants. There are
no RCRA corrective actions going on commercial nuclear power
plants. We have always done the right thing with this material
from the get-go. And because of that, we have not had any
adverse environmental impacts from this material. it has been
what I would call the poster child for effective waste
management for the last 45 years.
We have had a program in place for the last decade or so to
create a centralized repository for this material.
Unfortunately from Mr. Ensign's standpoint, that is now in
Nevada. This does replicate what has been the systemic solid
waste management programs followed by the United States over
the last several decades. You identify your hazardous waste at
the end of a process. You secure it. You package it, and you
transport it to a centrally located facility where it can be
better managed than it would be in dispersed facilities.
We are tracking every other waste management program we
have. Unfortunately, this does create significant political
issues, and we understand that. At the same time----
Senator Kerry. Fortunately for Mr. Ensign and for Nevada,
Harry Reid is in the majority, and it is not going to happen,
so----
Ms. Koetz. Yes. Well, we understand that. But fortunately
for this country, the onsite facilities are doing such a good
job managing that material that if we either do not eventually
use Yucca Mountain or we come up with a different recycling
technology, such as separation and recycling technologies,
which are under research and development now. The best thing to
do frankly for sustainable development in many ways is to reuse
this material more effectively. We think that we must be very
careful not to presume two things. First, we can't assume that
the current handling situation is inadequate; it is really
quite adequate for what we will need to do to make decisions in
policy space over the next several decades. And, second, we
can't assume static technological development in this area. I
mean, we are going to get better at using this material.
Senator Kerry. Well, thank you. That was an articulate
answer, and I appreciate it.
Senator Ensign.
Senator Ensign. Thank you, Mr. Chairman.
I want to followup on that line of questioning. And, Ms.
Koetz, I was actually excited about especially your last couple
of comments that you made, and I would like you to comment in
general. We now have Yucca Mountain out there that is--I think
originally was supposed to cost somewhere around $15 billion,
and now the GAO, I think their latest cost estimate was $58
billion. And some of the scientists think that it could go as
high as $75 billion, which by the way, would be the most
expensive construction project in the history of the world.
Senator Kerry. Puts the Big Dig to shame.
Ms. Koetz. Maybe we could call it Big Dig II.
Senator Kerry. Please don't.
Senator Ensign. The bottom line, the reason I wanted to
mention the cost, because when you are mentioning kilowatt
hours, Mr. Kammen, when you were talking about taking total
costs in, if you figured a $60 billion cost to that, what does
that take your kilowatt hours to, when you put--do you have
that figure?
Ms. Koetz. I don't know if we have done that. Now, right
now, as most of you know, we are adding a mill to the price of
nuclear electricities, and that is being put in a fund. That
fund is already far in excess of what we anticipate being able
to spend over the next several decades. My estimation would be,
to be honest with you, Senator, that if we continue to pay the
mill in, we would have enough money to pay for the repository,
even if it got to $60 billion. I couldn't tell you that
definitively.
Senator Ensign. I was going to say, that is not my
understanding of what the GAO--GAO, that was the purpose of
their report.
Ms. Koetz. I apologize. I haven't seen the report.
Senator Ensign. Their report basically was saying that the
taxpayer is going to end up holding the bag. The reason I bring
that up also is not just to--you know, I don't want to get into
a tit for tat on any of that. But if, as you said, the sites
are handling it adequately at this point--obviously we don't
have some national crisis with nuclear waste right now.
Dry cask storage, which a few of the sites are doing
currently--and that is happening around the world as well. Dry
cask storage, I understand, you know, maybe is a $2 billion,
maybe $3 billion type of--we don't have the transportation
problems. We don't have a lot of those types of things. If we
went to something like dry cask storage onsite--and I know the
biggest problem that you have with dry cask storage is not from
your industry's point of view; it is the states' point of view,
is getting the sites licensed for dry cask storage.
But if the states would do that--and we are looking at a
country-wide policy, because I think that nuclear power is part
of the answer for the global warming and some of the things
that we are talking about in this hearing today. I just don't
think it is part of the solution if we don't deal with the
economic problem.
But the--if we go to onsite dry cask storage, which is far
cheaper, doesn't that, in fact, make nuclear power more viable
from an economic standpoint and therefore help us in the future
as far as the environment is concerned?
Ms. Koetz. Well, Senator Ensign, the first thing we would
have to do is examine whether it truly is cheaper, if you will,
to have dry cask storage at the facilities. Yes. You are
correct in the actual cost of putting the facilities up. But
then we are put in the position of having to maintain those
separately funded facilities with proper security and proper
other costly items to maintain them very effectively as a
repository for this kind of material.
So in the long term, although the initial perhaps capital
costs of the facility would be a little bit less, from a long-
term perspective, it is not cost-effective to have separate
facilities for this material, no more than it would be cost-
effective not to have a centralized hazardous waste landfill
under RCRA in a state or a locality where you centrally moved
your other hazardous byproducts that we make all the time, just
like you are not going to keep computers which contain lead in
various dispersed municipal landfills. We are going to
eventually have to consolidate them in well-run, centrally
located, secure facilities.
So I think you can't just look at an initial capital cost
situation. You have to have the much longer term costs in mind.
Senator Ensign. Well, and speaking of some of those longer
term costs, when we are looking at recycling technology,
separation, recycling, whether it is accelerated or
transmutation accelerator technology or the reprocessing that
several countries are doing--I understand that Japan is
building a new reprocessing plant, one of the most modern in
the world.
We are looking at those types of technology. I mean, we
understand--we cannot separate politics from any of this, and
transportation is one of the most difficult parts of any of
this. And so if you are looking at the total cost, we also have
to look at political costs. I just want the industry to keep in
mind that because of transportation, if we can look at onsite
dry cask storage as the alternative right now, looking at the
long-term future, because I believe that recycling this waste
is very, very important thing to do and looking at new
technologies. It seems to me that the overall benefits, if we
can do onsite dry cask storage, as we develop the technology,
we won't have to transport it, and then transport it again.
Ms. Koetz. There is a very interesting climate change
connection to what you are saying. One of the things we want to
do the most for climate change, not just in this country but
around the world, is to engage in successful technology
transfer. And interestingly enough, nuclear, again, represents
a 30- or 40-year history of very successful technology transfer
to the rest of the world, mostly in the form of research
reactors. And that research reactor fuel has been coming back
into this country and been transported to centrally located
places on government facilities in this particular instance for
years as well.
So I agree with you that while transportation is a
difficult political issue, it is also a successful
transportation, scientific and climate change issue, because we
have been transporting spent nuclear fuel around this country
for decades now very, very safely. So I agree with you. We try
to take all of those costs, political and technical, into
account. But we also hopefully can take some of the realities
into account as well.
Senator Ensign. Mr. Chairman, could I ask a couple other
questions to the other witnesses? Obviously this is kind of a
big issue to us, but I was--I had some other questions of the
other witnesses.
Mr. Kammen, you were talking about, you know, fossil fuels,
and one of the things you said about fossil fuels being
subsidized, one of the things you didn't mention is how we
subsidize them militarily, and that is a fairly significant
cost.
Dr. Kammen. I agree.
Senator Ensign. Yes, from the military standpoint. But I
was also--there was something that you said about the
Government not choosing winners and losers, and I think that
that is so important, because we do get messed up. It seems
historically what we have learned is when we try to say that,
Here is what you are going to do, and therefore, these are the
winners and losers, even when we are trying to do something
laudatory like clean up the environment.
I think a really good example is what California did with
the MTBE situation, and this is the technology you will use to
clean up the air, and, oh, yes, by the way, it does hurt the
groundwater. And I think that when we get into situations where
we skew the marketplace, we could end up with the most
inefficient technology. Could you just further comment on how
we make the marketplace determine the winners and losers, not
Government and some, you know, favorite senator's program or
whatever determine the marketplace.
Dr. Kammen. Right. That has been a real challenge, and
partially the subsidies that are already on board for existing
technologies make it hard to open those new markets up. That
has been part of the story.
And the other one, as you say, there has been a number of
programs in the past, syn fuels, clean coal. I would argue some
of the subsidies that went into nuclear, et cetera, have been
ones that were technology-specific, and that hasn't worked very
well. I would argue that we are now in a new era, in the sense
that many of these renewables are market-competitive or just on
the edge right now, and so we can actually use those market
tools much more effectively.
The renewables portfolio standard is one that I think does
exactly that. It calls for a certain amount of renewable energy
in the mix, and it lets the market then look at those options.
And the UK has had an interesting experience with their non-
fossil fuel obligation, the NFFO. Texas, as was mentioned, has
had a very interesting plan that is basically 8 years ahead of
schedule.
Those types of programs where you say, We are going to set
and stick with a standard, whether it is an approved CAFE
standard--and I, for example, support a quite highly increased
one, 40 miles a gallon over about a decade--or one with a
certain fraction of clean energy in the mix. Two percent, for
example, next year is the standard for RPS, which I would ramp
up to 10 percent in the year 2010 to 20 percent in 2020.
Those set these clear targets and let the market then
select technologies and don't make it a pork or a favorite
technology program. And that has been a very important way to
do things, and that has been a discovery the last 10 years of
programs, a number of them supported by Department of Energy,
so I would agree.
Mr. German. I would just like to say that Honda also
definitely supports Senator Ensign's comments about not
choosing winners and losers. We are faced with a great example
of that right now with the California mandate and electric
vehicles, which is a real problem for us, so Honda is very
supportive of performance requirements.
Senator Ensign. Mr. German, I actually had--just to follow
that up with Honda's, I think, very impressive environmental
record as far as the type of vehicles that they build, but you
mentioned before what Americans are choosing to drive, and I
think that the difficulty in all of this is that when you are
thinking about--I know certainly when I am thinking about my
family--I have a wife and three small children, and I want
something big around them, and it might smash another small
car, but I know that they are going to be safer in it.
[Laughter]
And, you know, I mean, everybody looks at these things kind
of selfishly. We have three small kids, and when you have three
small kids, you don't want a little car because of something
called space, and between small children on a trip, it is
important.
But how do we get--why doesn't Honda it seems to have
built--and you mentioned some of the technologies and some of
these high-fuel vehicles or better gas mileage. If it is
possible, why aren't the car manufacturers today, Honda and
others, making the larger SUVs that just have higher gas
mileage? I mean, if we set as--and we close the loophole, is it
possible to meet those standards and still give Americans what
they want? Is that possible? And if it is possible, why aren't
we doing it now?
Mr. German. You can certainly close some of the loophole.
Honda is traditionally cautious about moving into new markets,
and we are behind most of the manufacturers on light trucks,
but the recent example is our Acura sport utility, the MPX,
which is seven-passenger. It has much more interior volume than
a Ford Explorer. It also gets much better fuel economy, because
we have incorporated a lot of our fuel-efficient technologies
into it.
Honda has a philosophy of being an environmentally
conscious company and being a technology leader, and we try to
bake this into all of our products. And I can't speak for the
other manufacturers.
Senator Ensign. Mr. Kammen.
Dr. Kammen. An interesting feature on that point is that
when innovation is directed in these ways, you find that there
are impressive benefits. So, for example, over the last five or
6 years, we have seen an increase in the number of different
types of air bags, side impact, a whole variety of features
that have improved safety. Now, it doesn't solve the problem of
three kids and a long drive issue, but it does do the safety
things.
And so if you couple in--say, we want to see more efficient
vehicles, but vehicles will sell better that are safer, those
are the kinds of signals that work together to meet the market-
based targets that you are saying, because I certainly think
that we could see much more innovation along these lines and
convert more of that percent-and-a-half increase in efficiency
that Mr. German mentioned into this area.
Mr. German. I mean, it is just a question of how much you
want to spend and the lead time involved.
Senator Ensign. Mr. Miller, just one last thing for you, as
far as the fuel cells. I think it is kind of interesting. I
forget where I was reading the article. I think it might have
been Time magazine, and they were talking about fuel cells, and
they were using New York City--they were saying that fuel cells
in the future may be the PC answer--not politically correct,
but computer PC--answer to our power problems, because one of
the biggest problems--and we certainly face this in the Western
United States--is transmission.
Getting new transmission lines approved are incredibly
difficult, and this actually may be a place where, you know, a
big part of the cost in the future for power plants is going to
have to be looked as transmission lines, and if you can, in a
local area, use at least as far as a new part of the power
grid--certainly California doesn't want, you know, new power
plants, new power lines, anything being built. It would seem to
me that they should be focusing on technology like the fuel
cells.
Mr. Miller. Yes. I think that is a good analogy between
mainframe computers and large power generating stations, and
PCs and fuel cells. Fuel cells will be distributed power, at
homes or in buildings, and will not need as much transmission
capacity as presently exists in the United States and around
the world. I agree with that.
Senator Ensign. And, Mr. Chairman, just my last comment on
this. I think it is interesting that we are hearing that new
technology is a big part, it looks like, to our answers, and I
certainly believe it is to our answers, if we focus that new
technology in the right way, to our environmental concerns. But
it is also funny that if you look at every one of our--or
almost every one of our states, we tax cars, new cars, higher
than we tax old cars, and yet new cars produce less pollution.
There was an op ed in our paper today, and it was kind of
an interesting--I had never really thought about that before,
but we penalize people for being more environmentally friendly
today, and maybe it is a policy that we need to look at in the
future. Thank you, Mr. Chairman.
Senator Kerry. I think that is a good observation, and I
concur completely. I think we learned a number of years ago
about the winner/losers issue. We don't want to pick them. We
want to create a framework within which people can make their
own choices, and capital will move thoughtfully and rapidly in
a certain direction. But which particular technology comes out
of it, I think the marketplace can often make that decision
itself better.
Mr. Duffy. Senator, I would like to confirm that. Just by
way of example, we mentioned a major Massachusetts wind project
we are working on. We are doing that for the specific reason
that Massachusetts has always, similar to Texas, adopted an RPS
standard where they have specific guidelines of percentages,
ramping up to 10 percent, for which a number of renewable
technologies would be eligible. It could be solar; it could be
hydro; it could be wind. We are going forward on the basis of
that structure, putting our capital at risk. We know there's
others out there, and it is up to the market to see who is
actually able to pull the projects off.
Senator Kerry. Absolutely. Obviously the competition is
healthy, and presumably there will be several different niches
and technologies out there that are in the range, but I think
it is helpful for us to try to create the framework to attract
that.
I am particularly grateful to all of you. Some of you
traveled long distances, and this is very helpful to the
Committee. We are going to leave the record open for colleagues
who may want to submit some questions in writing over the
course of the next 10 days, and I appreciate very much you
taking time to be here.
We do have another panel, so I would like to switch panels,
if we can, as quick as possible.
[Pause.]
Senator Kerry. Dr. Sandor, you have a flight that you are
going to try to get to, and it is out of Dulles, so we are
going to lead off with you, and if we have any questions, we
will focus in on them.
STATEMENT OF DR. RICHARD L. SANDOR, CHAIRMAN AND CEO,
ENVIRONMENTAL FINANCIAL PRODUCTS LLC
Dr. Sandor. Thank you for the courtesy, Senator. It is a
pleasure to be here to talk about a subject which I think is
very, very exciting, and that is market-based solutions to
environmental problems.
I am chairman of the board and CEO of a small company
called Environmental Financial Products, and a visiting scholar
at Northwestern University. We professionally design, develop
and participate in new markets, and our experience has gone
from financial futures in the 1970's to insurance derivatives,
hurricane index bonds, earthquake bonds, climate derivatives,
and most recently in the SO2 program which, I know,
Senator, you were a key figure in.
In the SO2 program, we think there is a model
that serves very well any inquiry into carbon and carbon
trading. As you are well aware, in the late 1980's people
talked about $1,500 or $1,800 a ton as the cost of abating
SO2 emissions. As early as 1992, the median levels
were $600. At nine auctions at the Chicago Board of Trade since
its inception, the costs were roughly $130 a ton, 20 percent of
the forecasted levels.
I think we need to get into the practicalities and less
talking and more action to really inform the debate. If, in
fact, the cost of reducing global warming is very, very low,
policy-makers need to have that fact, and the best way to
uncover this cost is through practical experience.
We have been involved in carbon markets since Rio in 1992
at Kyoto and The Hague and we are now talking about a pilot
trading program. A year and a half ago, we approached the Joyce
Foundation, which is a billion-dollar Midwest foundation to see
if they would fund the feasibility of developing a climate
exchange within the Midwest area (Wisconsin, Minnesota, Iowa,
Illinois, Indiana, Michigan, and Ohio).
We undertook that feasibility study. We looked at the size
of that particular region, which has roughly $2 trillion GDP.
It would rank as the fourth largest country in the world if it
were separate entity. It has a broad array of industry,
agriculture, forestry, manufacturing, and energy industries.
The results suggest that there is, indeed, a possibility
that we could develop a market that had balance and included a
wide variety of constituents and a voluntary cap which
corporations would take on and ultimately implement through
trading. It would include carbon sequestration in agriculture
and forestry, landfill gas, wind, and other renewable energy.
At the end of the study, we formed an advisory group, and
that advisory group includes former members of the Senate, the
House, former governors, Republicans, Democrats, deans at Yale
and Northwestern, the former Undersecretary General of the U.N.
who was the lead organizer of the Rio summit. We have
scientists, the former mayor of Rio de Janeiro and a forestry--
sustainable forestry expert. So we were advised by a lot of
talented people.
We took it to the field about 3 months ago, and the
critical test was: Could you get companies to agree to a
voluntary cap, and could you get a broad enough constituency to
build a consensus, to develop a market, and could you buildup
the monitoring protocols, the verification, the registry.
We had a target, Senator, of five companies. We had hoped
to get a couple of utilities, some large agricultural
producers, and a landfill gas operator who would help us with
these protocols, enough to get a mini-market. Well, we were
dead wrong. We ended up with 33 major companies, eight
utilities that constitute 20 percent of the total emissions in
the Midwest. They range from WEPCO and Cinergy, Midwest
Generation, Exelon, PG&E.
We found out the forestry companies were interested as
well, including International Paper, Mead, Temple-Inland. We
also went to some of the largest corporates in the region. BP,
Ford, DuPont, all have joined; Zapco, Waste Management, a wide
variety of alternative energy sources, and heavy manufacturers.
As a matter of fact, the market capitalization of the companies
that are helping us in the design process and have joined the
Chicago Climate Exchange is roughly $425 billion. So we have
some serious interest.
In the farming sector, we have four farmer cooperatives,
including the Iowa Farm Bureau Federation, which has 80,000
members, who farm 25 million acres, which is 85 percent of all
of the farms in the state of Iowa.
We are entering the second stage now. We think that there
is practicality in this. The companies have agreed to consider
a pilot stage emission reduction of 5 percent from 1999 levels,
to be phased in from 2002 to 2005. When we complete this market
design study, we will begin implementation and trading.
Senator, in conclusion, there are a couple of things which
I would like to mention. We need some help at the legislative
level. There is a role for early reduction credits and for
early action legislation. We need some help with the registry.
We need some help in monitoring and verification of soil
carbon, and we need some research in those areas. We think if
that happens, we will move along.
And, finally, the carbon market is ongoing. Today we are
privileged to close a trade between Nuon, one of the largest
utilities in Europe, and a New Jersey electric utility for
300,000 tons of carbon, so we have actually been trading
already in an over-the-counter market.
Thank you very much.
[The prepared statement of Dr. Sandor follows:]
Prepared Statement of Dr. Richard L. Sandor, Chairman and CEO,
Environmental Financial Products LLC
Feasibility and Initial Architecture of a Voluntary Midwest Greenhouse
Gas Reduction and Trading Market
Context
The debate over appropriate actions to address the risks arising
from changes in the Earth's climate--the ``greenhouse effect''--suffers
from two major information gaps. The first is a lack of consensus
regarding the damages that could occur to the environment without
action to reduce greenhouse gas (GHG) emissions. The scientific process
may not precisely predict the nature and implications of climate
changes that would occur if society does not make significant changes
in energy and land use patterns associated with higher levels of GHG
emissions. That is, the costs of inaction and the benefits of taking
mitigation actions are uncertain.
The second information gap is lack of understanding of the monetary
costs associated with undertaking mitigation to reduce greenhouse
gasses. The absence of hard, proven data on greenhouse gas mitigation
costs reduces the quality of the climate policy debate.
The nature of the implied cost-benefit analysis underlying the
climate debate suggests that for any particular level of benefits
accruing from action to mitigate climate change, a high cost of
mitigation will lead policy makers to take less action. If mitigation
costs are proven to be low, it appears policy makers would support
stronger action to address climate change. At this time, however, we
lack the data for realizing the costs involved in pursuing climate
mitigation actions.
The ultimate objective of the proposed Chicago Climate Exchange is
to generate price information that provides a valid indication of the
cost of mitigating greenhouse gases. By closing the information gap on
mitigation costs, society and policymakers will be far better prepared
to identify and implement optimal policies for managing the risks
associated with climate change.
Overview and Methodology
This report presents a feasibility analysis and initial
architecture for a voluntary pilot greenhouse gas emissions trading
program that would be launched in the Midwest and expanded over time.
The objectives of the pilot program--hereafter called the Chicago
Climate Exchange (CCX)--are:
Proof of concept:
demonstrate the ability to cut and trade greenhouse gases in
a market system involving multiple industrial sectors,
mitigation options and countries;
initiate greenhouse gas reductions through a modest size but
scalable program;
form a basis of experience and learning for participants;
introduce a phased, efficient process for achieving
additional GHG reductions in the future.
Price discovery:
provide realistic information signaling the cost of
mitigating greenhouse gases;
enhance the quality of climate policy decision-making by
providing hard data on mitigation costs to the public and
policymakers.
The strategy used to assess the feasibility of a pilot GHG market
relied on several research methodologies. A theoretical economic
assessment accompanied by quantified data guided the structure of the
study. The proposed market architecture was influenced by lessons from
other successful emissions, financial, and commodity markets. The
successful USEPA SO2 emissions trading program to reduce
acid rain served as a model for the design of key elements of the
Chicago Climate Exchange.
The research is a continuing work in progress. The next step of the
process is to incorporate industry input to refine the initial proposed
market terms and conditions. This process will yield a working
prototype for which an attempt to build a consensus will be initiated.
That consensus design would represent a functional architecture for the
first phase of a market. Implementing the proposed market design and
incorporating lessons from practical experience are core elements of
the program.
Market Architecture and Participants: Theory and Design
The negative effects caused by the release of greenhouse gases is
currently not priced. Consumers and businesses do not fully take
account of such effects in their economic decision-making because there
is no price on the use of the atmosphere. The goal of the proposed
pilot greenhouse gas trading program is to establish the market for
discovering the price for reducing emissions. The core steps are to
limit overall consumption of the atmosphere (GHG emissions) and
establish trading in instruments that allow participants to find the
most cost-effective methods for staying within a target emission limit.
The market price of those instruments will represent a value signal
that should stimulate new and creative emission reduction strategies
and technologies. Emissions trading is a proven tool that works with
and harnesses the inventive capabilities of business.
Various market architecture design options were considered. A
market could include emission limits taken by fossil fuel producers and
processors--the ``upstream'' entities in the carbon emissions cycle--or
by major ``downstream'' sources that burn fossil fuels, such as
electric power generators, factories, and transport firms. An
``intermediary'' level approach could focus on firms that produce
energy consuming devices, such as automobiles, or other intermediaries
such as fuel distributors. Based on responsiveness (the ability of
participants to directly cut emissions), administrative costs and
existence of successful precedents, the recommended approach is a
predominantly ``downstream'' approach. Accordingly, the research
findings suggest the CCX should aim to include participation by large
emission sources at the downstream level (e.g. power plants,
refineries, factories, vehicle fleets).
In order to incorporate other mitigation projects that add to the
flexibility of the market (and which are gaining international
recognition as valid projects), the proposed design would also allow
crediting for a range of offset projects that encourage micro-level GHG
mitigation actions.
Reflecting international consensus and successful precedent, the
items to be traded in the pilot market--GHG emission allowances and
offsets--are instruments representing one ton of carbon dioxide
(CO2) or their equivalent (CO2e). For every ton
of CO2 emitted, a participating emission source must
relinquish one allowance or offset.
Potential For A Market Initiated in the U.S. Midwest
The Midwest represents a microcosm of the U.S. The region's economy
is as large as the economies of the United Kingdom (U.K.) and the
Netherlands combined and has annual GHG emissions equal to those of the
U.K. plus France (1.375 billion tons CO2). The region's
industrial diversity--including a broad range of energy, heavy
manufacturing, transport, agriculture, pharmaceuticals, electronics and
forestry--make it well-suited as a starting point for a robust and
representative greenhouse gas emissions trading market.
The feasibility analysis suggested a hypothetical target market
covering 20% of all Midwest emissions. The scale of such a market and
the proposed GHG mitigation goals are summarized in Table A. The Table
portrays a proposed GHG reduction schedule calling for emissions in the
first year of a pilot market, 2002, to be 2% below 1999 levels (the
baseline year) and falling a further 1% each year from 2003 through
2005.
Table A. Scale of a Hypothetical Midwest GHG Market and Mitigation During 2002-2005
(in million metric tons CO2 equivalent)
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Estimated Midwest 1999 emissions 1,375
----------------------------------------------------------------------------------------------------------------
1999 emissions of a hypothetical 20% coverage market 275
----------------------------------------------------------------------------------------------------------------
Cumulative baseline emissions during 2002-2005 under for the 20% coverage scenario 1,100
----------------------------------------------------------------------------------------------------------------
Cumulative 2002-2005 CCX emissions target for hypothetical 20% coverage program (2% 1,061.5
below 1999 levels during 2002, 3% below 1999 in 2003, 4% below in 2004, 5% below in
2005)
----------------------------------------------------------------------------------------------------------------
Four-year Mitigation Demand (baseline emissions--target) 38.5 mil. tons CO2e
----------------------------------------------------------------------------------------------------------------
The hypothetical 20% coverage Midwest market appears to provide
sufficient scale for a pilot market that could be representative of a
larger market. Total emissions covered in such a market would equal the
emissions of Scandinavia (Denmark, Finland, Norway and Sweden) and
would be more than double the emissions covered in the successful
internal GHG market operated by BP-Amoco. While broad coverage is an
ultimate goal, the main benefits of a pilot--proof of concept and price
discovery--can be realized with a modest size but a diverse set of
participants.
Proposed Market Architecture and Mechanics
Table B summarizes the core elements of the proposed market
architecture.
Table B. Indicative Term Sheet Market Architecture for the Chicago Climate Exchange
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Geographic Coverage 2002: emission sources and projects in seven Midwest states
(IA, IL, IN, MI, MN, OH, WI), offsets accepted from projects
in Brazil;
----------------------------------------------------------------------------------------------------------------
Greenhouse Gases Covered Carbon dioxide, methane and all other targeted GHGs
----------------------------------------------------------------------------------------------------------------
Emission Reduction Targets 2002: 2% below 1999 levels, falling 1% per year through 2005
----------------------------------------------------------------------------------------------------------------
Industries and Firms Targeted Primarily ``downstream'' participants: power plants,
refineries, factories, vehicle fleets; approximately 100
firms initially targeted; individual entities or operating
groups must produce over 250,000 tons CO2e to become a
participating emission source
----------------------------------------------------------------------------------------------------------------
Tradable Instruments Fully interchangeable emission allowances (original issue)
and offsets produced by targeted mitigation projects
----------------------------------------------------------------------------------------------------------------
Eligible Offset Projects --Carbon sequestration in forests and domestic soils
--Renewable energy systems activated after 1998
--Methane destruction in agriculture, landfills and coalbeds
--Offset projects must be over 100,000 tons CO2e; smaller
offset projects must aggregate reductions to meet the
requirement
----------------------------------------------------------------------------------------------------------------
Annual Public 2% of issued allowances withheld and auctioned in ``spot''
Auctions and ``forward'' auctions, proceeds returned pro rata
----------------------------------------------------------------------------------------------------------------
Central Registry Central database to record and transfer allowances and
offsets; interfaces with emissions database and trading
platform
----------------------------------------------------------------------------------------------------------------
Trading Mechanisms Standardized CCX Electronic Market, private contracting
----------------------------------------------------------------------------------------------------------------
Trade Documentation Uniform documentation provided to facilitate trade
----------------------------------------------------------------------------------------------------------------
Accounting and Tax Issues Accounting guidance suggested by generally accepted
accounting principles; precedent exists for U.S. tax
treatment
----------------------------------------------------------------------------------------------------------------
Market Governance Self-governing structure to oversee rules, monitoring and
trade
----------------------------------------------------------------------------------------------------------------
The following summarizes the mechanics of the proposed system:
1. Participating emission sources agree to the prescribed
emission limits and standardized emissions monitoring and
reporting rules.
2. Participating emission sources receive a four-year stream of
emission allowances equal to their target emission level.
3. Emission offsets may be generated by independently verified
GHG mitigation projects.
4. Starting in 2002, annual allowances and offset holdings must
cover annual emissions.
5. Participants can comply by cutting their own emissions or
purchasing emission allowances from those who make extra
emission cuts or from offset projects.
6. Failure to fulfill commitments triggers automatic non-
compliance penalties.
7. Periodic auctions and organized trading will reveal market
prices.
Tradable emission allowances and offsets exist and are transferred
as records in a publicly accessible computerized tracking system called
the Registry. Each unit is assigned a unique identification number. A
variety of best-practice methods for measuring or calculating GHG
emissions will be applied, including continuous emissions monitoring,
fuel records and mass balance calculations. Methods for addressing new
entrants and facilities and partial ownership of emission sources have
been proposed but need further refinement based on industry input.
Emission offsets reflect mitigation actions generated by individual
projects undertaken by entities not qualified to be emission sources
(generate less than 250,000 tons CO2e emissions reductions
per year). When possible, standard rules and conservative reference
emission values can be used to determine offset project effectiveness.
Offsets are earned by undertaking specified mitigation projects that
must be independently verified. Multiple small offset projects will be
grouped into 100,000 ton pools. Offset projects must follow
standardized registration, reporting and verification processes. This
design feature is intended to produce fungible instruments that will be
recognized in other emerging carbon markets.
Examples of eligible offset projects include:
Carbon sequestration from forest expansion, and domestic no-
till agricultural soils and agricultural tree and grass
plantings;
Electric power generated by wind, solar and geothermal
systems;
Methane capture and destruction (e.g. from agricultural
waste, landfills and coal mines).
Selected categories of offsets can be implemented in Brazil. This
feature allows the pilot market participants to develop expertise on
issues associated with cross-border transactions, including the
opportunity to develop trading across differing legal and regulatory
systems. Brazil also represents a natural location as it has extensive
linkages to many Midwest businesses, presents a variety of low-cost
mitigation opportunities, and its policymakers are actively preparing
for the international carbon market.
Annual auctions of emission allowances will be held to help
stimulate the market and publicly reveal prices. To complement private
contracting, an electronic mechanism for hosting CCX trading will
provide a central location that facilitates trading and publicly
reveals price information. Several existing trading systems will be
considered for use in the CCX market. Trading will be encouraged by
provision of uniform trade documentation and by listing standardized
spot and forward contracts on the CCX electronic market.
Market Administration Issues, Public Policy Context
Administration of the CCX market by an efficient, corporate style
governance system, with an elected Board of Directors and a strong
Chief Executive, is recommended. The rules structure and decisions of
the governing body should be codified through a Rulebook. Under the
guidance of the Board and the Rulebook, a professional staff should be
responsible for making most operational decisions and managing outside
vendors. In order to assure the market incorporates current best
practices, several expert advisory committees will be convened,
including committees on rules and enforcement; market operations and
technical specifications; and emissions and project monitoring,
verification and audits.
The capabilities of various service providers who might construct
and/or operate an emissions and emissions trading registry were
examined. Discussions have been held with Environmental Resources
Trust, Epotec, PricewaterhouseCoopers and the Emissions Trading Group
in the U.K. Each group offers potentially attractive features that will
be further examined. EFP has also worked to build links to other
emerging GHG markets (e.g. the UK), multilateral organizations,
national governments, corporations, non-governmental organizations and
financial and commodity exchanges.
Professional research on the accounting and tax issues associated
with participating in the CCX was conducted under subcontract by
PricewaterhouseCoopers LLP. An extensive body of guidance on both
accounting and tax issues associated with emissions trading has been
established in the U.S. Preliminary indicative guidance is provided on
proper accounting and income tax treatment for issues associated with
enrollment in the market, trading, swaps, auctions and participation
costs.
A variety of legislative proposals have provided further indication
that participation in CCX will help position participants to
intelligently influence and benefit from possible future regulations.
Legislative proposals to require reductions in power plant CO2
emissions, and to assist or reward farm and forest carbon
sequestration, could introduce a policy environment that provides
competitive advantages to CCX participants.
Industry Outreach, Response
In order to identify potential CCX participants, a database
containing salient information on major Midwest emission sources was
assembled and screened based on various criteria. Many Midwest
businesses have already initiated climate change programs, and some
industries, including the electric power industry, are already involved
in emissions trading. Approximately 100 companies met the screening
criteria. Additional screening identified forty firms that received
first-round invitations to participate in forming the market. Sectors
represented in this list include: electric power, auto manufacturers,
petroleum refining, transport, pharmaceuticals, forest and paper,
chemical manufacturers, and computers and telecommunications.
The broad outreach program also involved development of a CCX
website and brochures, thirty conference presentations in eight
countries, ten pieces of print media coverage, four electronic media
events, and three EFP-authored publications featuring CCX.
Thirteen entities recognized as leaders in their industries
provided a positive response to the first round of invitations to
participate in CCX. Each entity signed a letter indicating their intent
to help form the CCX rules and, if the rules are consistent with their
objectives, to participate in the CCX market. Included are major
manufacturers such as DuPont and Ford Motor Company, leading
diversified energy companies such as Cinergy and Calpine, major
international financial entities such as Swiss Re, agricultural
businesses such as Growmark and Agriliance, and Zahren Alternative
Power, a leading landfill gas energy company. Appendix A provides a
brief description of the entities from which a positive response to the
first round of invitations has been received to date.
High-Level CCX Advisory Board
A high-level Advisory Board has been formed to receive strategic
input from top world experts from the environmental, business, academic
and policy-making communities. Members of the Board include
internationally recognized environmental leaders such as Maurice Strong
and Israel Klabin, former governors of U.S. states (James Thompson and
David Boren), and individuals who have served in senior positions in
major businesses and academic institutions, such as Donald Jacobs and
Jeffrey Garten. The dignitaries serving on this Board can help inform
corporate and governmental decision-makers and contribute to the
formation of a robust group of CCX market participants. Appendix B
provides a brief biographical summary of each of the individuals who
have agreed to serve on the CCX Advisory Board.
Next Steps
The report constitutes an initialization of a market architecture.
It is the first step of an iterative process to be used in defining and
implementing a pilot market. The next step is to build consensus on the
initial architecture by further incorporating industry input through a
Technical Committee comprised of experts, including representatives of
the entities identified in Appendix A. The subsequent step will be
preparation and launch of the first phase of the pilot market. Further
iteration will involve refinement of market operations based on actual
experience with the market, and expansion to allow increased
participation and broader geographic coverage.
Detailed discussions with participants and service providers will
be undertaken in order to identify a consensus on the market
architecture and implementation plan. This effort will aim to finalize
emission baselines, targets, timetables, as well as rules on emissions
monitoring, non-compliance penalties, new entrants, and jointly owned
facilities. Proposed rules must be finalized for emission offset
standards, mechanics of aggregating offsets and project verification. A
simultaneous effort can be undertaken to select vendors for the
registry and trading platform, and to enroll project verifiers. The
consensus market design will be codified in the CCX Rulebook, which
will also establish the responsibilities and operating procedures of
the CCX governance structure.
Pre-launch preparation of the market will entail official
enrollment of participating emission sources, activation of the
Registry, and placing emission allowances in the accounts of
participants. Launch of the market will require initiation of the
emission monitoring and reporting procedures, accepting applications
from offset projects, and activation of the electronic trading
mechanism.
Operation of the market during the first year will include
execution of the first auction, acceptance of quarterly emission
monitoring reports, issuance first-year offsets based on independent
verification reports, and the compliance ``true-up'' subsequent to year
end. A process for expanding the market will be established in order to
allow for orderly growth of participation.
Appendix A
Entities that have given early indication of their intent to
participate in the CCX market design process
DuPont: DuPont is a manufacturer of diverse products that deliver
science-based solutions that make a difference in people's lives in
food and nutrition; health care; apparel; home and construction;
electronics; and transportation. Founded in 1802, the company operates
in 70 countries and has 93,000 employees. DuPont's stated core values
reflect a commitment to safety, health and the environment; integrity
and high ethical standards; and treating people with fairness and
respect.
Ford Motor Company: Ford Motor Company is one of the world's
largest automobile manufacturers and marketers. Its brands include
Ford, Mercury, Lincoln, Volvo, Jaguar, Land Rover, Aston Martin and
TH!NK. The Company and its subsidiaries also engage in other
businesses, including financing and renting vehicles and equipment.
Hertz Corp., a Ford subsidiary, operates a car rental business, as well
as an industrial and construction equipment rental business. Ford's
philosophy is that its operations, products and services should
accomplish their functions in a manner that takes responsibility for
protection of health and the environment.
Alliant Energy: Alliant Energy Corporation is a growing energy-
service provider with both domestic and international operations.
Headquartered in Madison, WI, Alliant Energy provides electric, natural
gas, water and steam services to more than two million customers
worldwide. Alliant Energy Resources Inc., the home of the company's
non-regulated businesses, has operations and investments throughout the
United States, as well as Australia, Brazil, China, Mexico and New
Zealand.
Cinergy Corp.: Based in Cincinnati, Ohio, Cinergy Corp. is one of
the leading diversified energy companies in the U.S. Its largest
operating companies, The Cincinnati Gas & Electric Company (Ohio),
Union Light, Heat & Power (Kentucky), Lawrenceburg Gas (Indiana), and
PSI Energy, Inc. (Indiana), serve more than 1.5 million electric
customers and 500,000 gas customers located in a 25,000-square-mile
service territory encompassing portions of Indiana, Ohio and Kentucky.
The interconnections of Cinergy's Midwestern transmission assets give
it access to 37 percent of the total U.S. energy consumption.
Calpine: Headquartered in San Jose, CA, Calpine has an energy
portfolio comprised of 50 energy centers, with net ownership capacity
of 5,900 megawatts. Located in key power markets throughout the United
States, these centers produce enough energy to meet the electrical
needs of close to six million households. Calpine was ranked 25th among
FORTUNE magazine's 100 fastest growing companies and it was recently
ranked by Business Week as the 3rd best performing stock in the S&P
500.
Energy company ``X'' (for the time being this company wishes to not
make public its intent to participate in CCX): With regional offices
from coast to coast, this company is one of the nation's leading
competitive power producers, has natural gas facilities that connect
major producing regions to some of the fastest-growing markets in North
America, and operates one of the top energy trading businesses in the
country.
Swiss Re New Markets: Swiss Re is one of the world's largest
reinsurance firms. It also owns primary insurance companies in numerous
companies. Swiss Re New Markets brings together Swiss Re Group's
expertise in alternative risk transfer and risk financing. Swiss Re New
Markets staff includes more than 550 professionals from investment
banking, corporate finance, insurance and reinsurance. From locations
in Zurich, New York and London, these specialists combine capital
market instruments with finite and conventional reinsurance to produce
integrated risk management and financial management solutions for large
corporations and insurers.
Growmark: The GROWMARK System is a federated farmer cooperative
network based out of Bloomington, IL. GROWMARK holds ownership in five
interregional farmer cooperatives to ensure a stable and competitive
supply of agricultural raw materials, needed services, and research.
Agriliance: Agriliance is a partnership of agricultural producer-
owners, local cooperatives and regional cooperatives. Agriliance offers
crop nutrients, crop protection products, seeds, information
management, and crop technical services to producers and ranchers in
all 50 states as well as Canada and Mexico. They have sales and
marketing offices in St. Paul, Minn., and Kansas City, Mo. Agriliance,
LLC was formed on February 3, 2000, as an agronomy marketing joint
venture between Cenex Harvest States Cooperatives, Farmland Industries,
Inc. and Land O'Lakes, Inc.
IGF Insurance Company: IGF Insurance Company is the fifth-largest
crop insurance company. IGF serves businesses in 48 states and
maintains eight service offices nationwide. IGF prides itself in
developing niche products for farmers' risk management needs.
Iowa Farm Bureau Federation: Farm Bureau is an independent,
nongovernmental, voluntary organization of farm and ranch families
united with the freedom to analyze their problems and formulate action
to achieve educational improvement, economic opportunity, and social
advancement and, thereby, to promote the national well-being. Farm
Bureau is local, statewide, national and international in its scope and
influence and is nonpartisan, nonsectarian and nonsecret in character.
National Council of Farmer Cooperatives: NCFC's mission is to
protect the public policy environment in which farmer-owned cooperative
businesses operate, promote their economic well-being, and provide
leadership in cooperative education. NCFC remains the only organization
serving exclusively as the national representative and advocate for
America's farmer-owned cooperative businesses.
ZAPCO: Zahren Alternative Power Corporation (ZAPCO) is among the
largest and most respected developers of Landfill Gas (LFG) projects in
the United States. Through predecessor subsidiaries and affiliates,
including the former Energy Tactics, Inc., ZAPCO has been engaged,
since 1981, in the development, financing, and operation of a large and
diverse group of LFG-based projects, including waste-to-energy
electricity systems.
Appendix B
Biographies of the Advisory Board
David Boren, has been President of The University of Oklahoma since
1994. Under Mr. Boren's leadership, the University has emerged as a
recognized ``pacesetter in American public higher education,'' with
twenty major new programs initiated in the Arts, Honors College,
International Programs and innovative programs to enhance faculty-
student relations. Mr. Boren formerly served as a three-term U.S.
Senator, where he was Chairman of the Senate Select Committee on
Intelligence and a member of the Agriculture Committee. Mr. Boren, a
Rhodes scholar, served as a member of the Yale University Board of
Directors from 1988 to 1997. Prior to becoming Senator, Mr. Boren
served as Governor of Oklahoma and in the state legislature.
Ernst Brugger is Founding Partner and Chairman of Brugger Hanser &
Partner Ltd. in Switzerland, a business consulting firm with
international experience and range. He is also a professor at the
University of Zurich, chairman and member of the board of various
companies and a member of the International Committee of the Red Cross
(ICRC). Dr. Brugger serves as Chairman of the Board of Directors of
Sustainable Performance Group, an investment and risk management
company which invests in pioneering and leading companies which have
taken up the cause of sustainable business
Jeffrey E. Garten is Dean of the Yale School of Management.
Formerly Garten served as undersecretary of commerce for international
trade in the first Clinton Administration. He also held senior economic
posts in the Ford and Carter administrations. From 1979-1992 he was a
managing director first at Lehman Brothers, where he oversaw the firm's
Asian investment banking activities from Tokyo, and then at the
Blackstone Group. Currently Dr. Garten writes a monthly columnist for
Business Week. His latest book is ``The Mind of the CEO'' (2001).
Donald P. Jacobs is Dean of the Kellogg Graduate School of
Management and its Gaylord Freeman Distinguished Professor of Banking.
Under his leadership, the Kellogg School has become a leader in the
field of business and finance and is consistently ranked as one of the
top five business schools in the United States. Dean Jacobs is a former
Chairman of the Board of Amtrak (1975-1979) and currently serves on
several corporate boards. His work on banking, corporate governance and
international finance has been published in many scholarly journals and
he holds several honorary degrees and professional awards.
Dennis Jennings is the Global Risk Management Solutions Leader for
PricewaterhouseCoopers' (PwC) Global Energy and Mining Industry
Practice. Mr. Jennings previously served as the Dallas/Fort Worth
Energy Industry Market Leader; Co-Chairman of the U.S. Oil and Gas
Industry Program; and on Steering Committee of the International Energy
Practice. His responsibilities have included leading PwC's global risk
management practice for the energy and mining industry, providing
financial advice and performing due diligence reviews on numerous
merger, acquisitions and divestiture efforts by major international
corporations.
Joseph P. Kennedy II is Chairman and President of Boston-based
Citizens Energy Group. Before returning to Citizens Energy, Mr. Kennedy
represented the 8th Congressional District of Massachusetts in the U.S.
House of Representatives for 12 years. Mr. Kennedy founded the non-
profit company in 1979 to provide low-cost heating oil to the poor and
elderly. Under his leadership, Citizens grew to encompass seven
separate companies, including the largest energy conservation firm in
the U.S. Mr. Kennedy also advises and serves on the boards of several
companies in the energy, telecommunications, and health care
industries. Mr. Kennedy is the son of the late U.S. Sen. Robert F.
Kennedy.
Israel Klabin is the president of the Brazilian Foundation for
Sustainable Development, a major Brazilian non-governmental
organization devoted to issues of environmental and sustainable
development policy. Mr. Klabin is the former chairman of Klabin SA, one
of the largest forestry companies in Latin America. He is a former
mayor of Rio de Janeiro and was one of the main Brazilian organizers of
the United Nations Conference on the Environment (Rio 92). He is also
actively involved in several philanthropical activities.
Bill Kurtis has had a distinguished career in broadcasting for over
30 years, as a news anchor in Chicago and later of the national CBS
Morning News. He started his own company, Kurtis Productions, when he
returned to Chicago in the mid 1980's and currently hosts shows on the
Arts and Entertainment network. Mr. Kurtis is involved in The National
Science Explorers Program, Electronic Field Trips and the Electronic
Long Distance Learning Network, all aimed at teaching children about
science. Mr. Kurtis and his shows have been the recipients of several
awards. He serves on the board of directors of organizations devoted to
natural history and the environment, including the National Park
Foundation, the Nature Conservancy and the Kansas State Historical
Society.
Thomas E. Lovejoy, is a world-renowned tropical and conservation
biologist. Dr. Lovejoy is generally credited with having brought the
tropical forest problem to the fore as a public issue. In 1987, he was
appointed Assistant Secretary for Environmental and External Affairs
for the Smithsonian Institution and is Counselor to the Smithsonian's
Secretary for Biodiversity and Environmental Affairs. Dr. Lovejoy is
also Chief Biodiversity Advisor to the President of the World Bank.
From 1989 to 1992, he served on the President's Council of Advisors in
Science and Technology (PCAST), and acted as scientific adviser to the
Executive Director of the United Nations Environment Programme (1994-
97). He was the World Wildlife Fund's Executive Vice President from
1985 to 1987. Dr. Lovejoy is the author of numerous articles and books.
David Moran is vice president of ventures for the Electronic
Publishing group of Dow Jones & Company and president of Dow Jones
Indexes. Mr. Moran is also President of Dow Jones Indexes, which
includes all Dow Jones indexes for countries, regions, sectors and
industry groups as well as the world index. He is also chairman of Dow
Jones Sustainability Group Index GmbH. Prior to joining Dow Jones, Mr.
Moran was an associate with Patterson, Belknap, Webb & Tyler, a New
York City law firm, from 1979 to 1985.
Les Rosenthal is a former Chairman of the Chicago Board of Trade
(CBOT) and a principal of Rosenthal Collins, a leading Chicago-based
commodities and futures trading firm. During his time as member of the
Board and Chairman of the CBOT, Mr. Rosenthal was instrumental in
advancing the cause of new and innovative exchange-traded products such
as Treasury Bond futures and insurance derivatives.
Maurice Strong is a former Secretary General of the 1992 United
Nations Conference on Environment and Development (the Rio Earth
Summit) and Under-Secretary General of the United Nations. He is
currently the Chairman of the Earth Council, a non-governmental
organization dedicated to the cause of sustainable development. In June
of 1995, he was named Senior Advisor to the President of the World
Bank. From December 1992 until December 1995, Mr. Strong was Chairman
and Chief Executive Officer of Ontario Hydro, one of North America's
largest utilities. Mr. Strong is an advisor to the United Nations, and
has been a director and/or officer of a number of Canadian, U.S. and
international corporations.
James R. Thompson is a former four-term Governor of Illinois and
currently a managing partner of Winston and Strawn. During his last
term as Governor, Mr. Thompson was involved in the implementation of
the sulfur dioxide (SO2) market created by the 1990 Clean
Air Act. During his last term as Governor he was the Head of the Global
Climate Change Task Force at the National Governors' Association (1988-
1989). Governor Thompson is also a director of the Chicago Board of
Trade (CBOT).
Brian Williamson is the Chairman of the London International
Financial Futures and Options Exchange (LIFFE), one of the world's
largest exchanges. Mr. Williamson has been involved in trading
financial futures for almost three decades in London, New York and
Chicago. He held senior executive positions for prominent trading firms
and was a member of the International Advisory Board of the Nasdaq
Stock Market, becoming Chairman in 1996. He was also Governor-at-Large
of the National Association of Securities Dealers in Washington DC.
(1995-1998).
Corporate giants to aid design of US carbon market
Dr. Richard L. Sandor
Environmental Finance--June 2001
As the US enters a major debate on energy use and endeavours to
develop a policy to reduce carbon dioxide (CO2) emissions, a
project taking shape in the upper Midwest is poised to test market-
based solutions to global warming.
The size, diversity, and volume of emissions (1.375 billion tons of
CO2 per year) from this region--Illinois, Indiana, Iowa,
Michigan, Minnesota, Ohio and Wisconsin--make it well-suited as a
starting point for a robust and representative greenhouse gas (GHG)
emissions trading market expandable to include all of North America.
The region's economic output of $2 trillion is equal to that of the UK
and the Netherlands combined. A diverse group of major firms has
indicated their intent to participate in the design phase of a
voluntary pilot trading market for the region, the Chicago Climate
Exchange (CCX--see Table 1).
1. Companies participating in the design phase of the CCX
Agriliance National Council
Alliant Energy of Farmer
Calpine Cooperatives
Carr Futures/Credit Agricole Indosuez NiSource
Cinergy ORMAT
DuPont Pinnacle West
Ford Motor Company Capital
GROWMARK PG&E National
IGF Insurance Energy Group
International Paper STMicroelectronics
Iowa Farm Bureau Federation Suncor Energy
IT Group Swiss Re
Midwest Generation Temple-Inland
The Nature
Conservancy
Wisconsin Energy
ZAPCO
A study of such a market suggests a goal of reducing participants'
GHG emissions by 5% below 1999 levels over five years. The feasibility
study for the CCX was funded by the Chicago-based Joyce Foundation
through a special Millennium Initiative grant to the Kellogg Graduate
School of Management at Northwestern University. According to Joyce
Foundation president Paula DiPerna, ``the CCX would represent a major
step forward while an appropriate regulatory framework for greenhouse
gases evolves. A regional success on a global challenge like climate
change could be transformational. Because of its variety of economic
activities, including its strong agricultural sector, the Midwest is
the perfect place to begin demonstrating the regional-global
interface.''
Trading will help reduce GHG emissions cost-effectively and offer
new opportunities for environment-based income for farmers, foresters
and renewable energy firms.
A high-level advisory board consisting of academic, business,
environmental and public sector leaders has been formed with the
objective of gathering strategic input (see Table 2).
2. Advisory board members
David Boren President of The University of
Oklahoma; former US Senator and
Governor of Oklahoma
Ernst Brugger Founding Partner and Chairman of
Brugger Hanser & Partners
Jeffrey E. Garten Dean of Yale School of Management
Lucien Y. Bronicki Chairman of ORMAT International
Donald P. Jacobs Dean, Kellogg Graduate School of
Management, Northwestern University
Dennis Jennings Global Risk Management Solutions
Leader, PricewaterhouseCoopers
Jonathan Lash President, World Resources Institute
Joseph P. Kennedy II Chairman and President of Boston-
based Citizens Energy Group; former
US Congressman
Israel Klabin President of the Brazilian
Foundation for Sustainable
Development
Bill Kurtis National broadcaster, host of Arts&
Entertainment cable TV show
Thomas E. Lovejoy Chief Biodiversity Advisor to the
President of the World Bank
David Moran President of Dow Jones Indexes
Les Rosenthal Former Chairman, Chicago Board of
Trade; principal, Rosenthal Collins
Maurice Strong Chairman of the Earth Council,
former UN Under-Secretary General
James R. Thompson Former four-term Gov. of Illinois
Brian Williamson Chairman, London International
Financial Futures and Options
Exchange (LIFFE)
The notion of trading carbon emissions has long been debated, but
the proposed CCX offers the first test of the concept on a scale that
has global potential.
As proposed, the exchange could:
demonstrate that GHG emissions trading can achieve real
reductions in emissions across multiple business sectors;
help discover the price of reducing GHG emissions; and
develop the frameworks, for monitoring emissions,
determining offsets and conducting trades, needed for a
successful market.
The study proposes starting the market in the seven Midwest states,
including emission offset projects in Brazil, and expanding overtime to
include all of the US, Canada and Mexico. Participating companies would
be issued tradable emission allowances. Emitting firms would commit to
a phased schedule for reducing their emissions by 5% by 2005.They could
then either cut their emissions directly, buy allowances from companies
that have achieved surplus reductions, or buy credits from agricultural
or other offset projects. Potential offset projects would include
renewable energy systems and the capture and use of agricultural and
landfill methane. Offsets could also be generated by carbon
sequestration projects such as forest expansion and conservation soil
management, which remove CO2 from the atmosphere (see Table
3).
3. Proposed market architecture for the Chicago Climate Exchange
Geographic coverage 2002: emission sources and projects
in seven Midwest states; 2003-05:
emission sources and projects in
US, Canada and Mexico; Offsets also
accepted from projects in Brazil
for both periods.
Greenhouse gases Carbon dioxide, methane and all
covered other targeted GHGs
Emission reduction 2002: 2% below 1999 levels, falling
targets 1% per year through 2005
Industries and firms targeted Primarily ``downstream''
participants: power plants,
refineries, factories, forestry,
vehicle fleets; 40 firms initially
targeted. Individual entities or co-
operating groups of entities must
have emissions exceeding 250,000
tons CO2e in 1999 to become a
participating emission source.
Tradable instruments Fully interchangeable emission
allowances (original issue) and
offsets produced by targeted
mitigation projects
Eligible offset projects A. Carbon sequestration in forests
and domestic soils; B. Renewable
energy systems; C. Methane
destruction in agriculture,
landfills and coalbeds Offsets must
be aggregated into pools of 100,000
tons CO2e per year; Projects placed
into service after 1 January 1999
can qualify.
Emissions/project Direct measurement (eg CEMs); fuel
monitoring flows/emission factors; carbon
sequestration: standard tables,
case-specific estimates, direct
measurement.
Provisions for new Allowance allocations reflect best
facilities technology emission rates
Annual public auctions 2% of issued allowances withheld and
auctioned in ``spot'' and
``forward'' auctions, proceeds
returned pro rata
Central registry Central database to record and
transfer allowances and offsets;
interfaces with emissions database
and trading platform
Trading mechanisms Standardised CCX Electronic Market,
private contracting
Trade documentation Uniform documentation provided to
facilitate trade
Accounting and tax issues Accounting guidance suggested by
generally accepted accounting
principles; precedent exists for US
tax treatment
Market governance Self-governing structure to oversee
rules, monitoring and trade
The commitment from the advisory committee and the participating
companies is to be commended. Their input in the design phase will help
formulate the final rules and procedures for the CCX and determine if
this regional programme can shape the beginning of a global solution to
climate change.
Richard Sandor is chief executive of Environmental Financial
Products. He would like to thank Dr. Michael Walsh, Alice LeBlanc,
Rafael Marques, and Scott Baron for their invaluable support and
intellectual contributions to this feasibility study. With special
thanks to the Joyce Foundation and Paula DiPerna, Margaret O'Dell, Mary
O'Connell and James Seidita for making all this possible.
The case for coal
Dr. Richard L. Sandor
Environmental Finance--March 2001
Discussions of coal as a viable energy source of the future usually
end with cries of concern about its environmental impact. However,
these discussions take a different tack when a generating company of
the 21st century considers the many factors that affect the cost of
producing power. These include the choice of fuel, changes in
technology that alter emissions, and the costs of offsetting carbon
dioxide (CO2), sulphur dioxide (SO2) and other
pollutants. Those in the power business who make informed investment
decisions and are environmentally concerned should question the premise
that, under all conditions, coal is dead.
Many have long considered coal the least desirable fossil fuel
because of its environmental impact. It causes acid rain and
contributes to global warming. Some concluded that nothing could
improve its status. Then came the US Clean Air Act Amendments of 1990.
Emissions trading and the economic viability of low sulphur coal,
sulphur scrubbing, and nitrogen oxide (NOX) controls have
altered the belief that the only way to eliminate acid rain is to
reject coal as an energy source. But this offered only a temporary
respite in the belief that coal was dead. Low gas prices bolstered the
argument that there was a clean and cost-effective alternative to coal.
After an extended bull market in gas prices, however, and an energy
crisis in California, things are changing. Power plant investment
decisions are far more complex today and must account for the costs
associated with environmental compliance.
Under what conditions might coal-fired generation remain attractive
in the face of strict environmental constraints? To answer this
question, we examined the economics of new power plant construction in
a manner that creates a special new class of hypothetical power plants:
the emission-neutral plant. We assume a new power plant must fully
offset its emissions of SO2, NOX and CO2
via assumed cap-and-trade systems. Analysis of the emission-neutral
plant reveals some interesting and surprising conclusions about fuel
choice and environmental costs.
For example, assume a utility must choose among the following
alternative investments for a new power plant: coal; gas combined cycle
(CC); gas combustion turbine (CT); wind; and solar. Assume the features
of each plant reflect the most efficient and clean technologies that
are commercially available.\1\ The coal and CC plants are run as
baseload units (i.e. they produce 85% and 80% of potential annual
production, respectively). The GT plant runs at peak demand with a low
capacity factor (15%). The wind and solar plants are smaller in
capacity and are assumed to operate at 30% of capacity.
---------------------------------------------------------------------------
\1\ Analyzing Electric Power Generation under the CAAA, Office of
Air and Radiation; US EPA, March 1998
---------------------------------------------------------------------------
We assume a natural gas cost of $4.00/million BTU and a coal cost
of $1.21/million BTU, (today's prices). Table 1 presents the assumed
prices for emission allowances.
Table 1. Environmental compliance cost ($/ton)
------------------------------------------------------------------------
Commodity Price
------------------------------------------------------------------------
CO2 $5, $10
SO2 $160
NOX $1,500
------------------------------------------------------------------------
SO2 and NOX figures reflect market prices. CO2 price based on
projections and early trading experience
The emission rates for each plant type (presented in Table 2)
reflect a coal plant that uses low-NOX burners and selective
catalytic reduction technologies to control NOX (and
mercury), and has wet limestone SO2 scrubbing (95%
effectiveness). The CC gas plant also uses low-NOX burners
and selective catalytic reduction technologies to control NOX
while the CT plant uses steam injection.
Table 2. Emission rates of newly built power plants (lbs/MMBtu)
------------------------------------------------------------------------
Plant type CO2 SO2 NOX
------------------------------------------------------------------------
Coal 207 0.08 0.1
Gas 117 0 0.024
Wind/solar 0 0 0
------------------------------------------------------------------------
Source: Clean Coal Technology Compendium, EPA, DOE
Table 3 presents the capital and operating/maintenance costs
reported in the March 1998 EPA study cited in footnote 1. Capital costs
are spread evenly over 20 years. The fifth column shows the total cost
per megawatt hour of electricity produced by each emission neutral
plant assuming a CO2 price of $5/ton. The last three columns
indicate which plant type can produce power at the lowest cost for
various CO2 prices (including $0/ton).
Table 3. Cost estimates for emission-neutral power plants ($/MWh)
----------------------------------------------------------------------------------------------------------------
Levelised
capital O&M costs Total Total Rank Rank Rank
cost: (variable fuel cost 1 2 3
Plant type over 20 and price ($/Mwh) (CO2 (CO2 (CO2
yrs ($/ fixed) ($/ (CO2 = $5) = $0) = $5) =
Mwh) ($/Mwh) Mwh)* $10)
----------------------------------------------------------------------------------------------------------------
Wind (50MW) 19 10 -- 29 2 1 1
Coal (400MW) 9 7 11 34 1 2 2
Gas CC (400MW) 4 4 27 37 3 3 2
Gas CT (80MW) 14 2 44 64 4 4 3
Solar 77 3 -- 80 5 5 4
(5MW)
----------------------------------------------------------------------------------------------------------------
* Coal price = $1.21/million BTU (about $25/short ton), gas price = $4/million BTU.
Includes CO2, SO2, NOX costs (see table 2).
The costs for operating a coal unit and a CC are approximately equal at $10/ton CO2.
The chart shows power generation costs ($/MWh) for each of the five
plant types for various CO2 prices, assuming gas prices of
$4.00/million BTU. Under our fuel price assumptions, total production
costs at an emission-neutral coal-fired plant are below those of a CC
gas plant when CO2 prices are below $10/ton.
In another scenario we find that a $5.00 gas price makes a new
emission-neutral coal plant less costly than a CC gas plant if CO2
prices are below $21. Conversely, a $3.00 gas price would make a CC gas
plant the cheapest option. Naturally, volatility of gas prices
increases the riskiness of gas plants.
In the hypothetical scenario of emission neutrality for new fossil-
fuelled power plants, wind-power is the least-cost option. But, while
new technologies are making wind power cost-competitive, even without
comprehensive emission offset requirements for fossil plants, it may
not be feasible to meet demand growth exclusively with wind facilities.
Their production is inherently variable and they are not feasible in
all locations. At the best sites, however, wind plants can be expected
to achieve a capacity factor of over 30%, which reduces the cost per
hour of generation.\2\
---------------------------------------------------------------------------
\2\ American Wind Energy Association
---------------------------------------------------------------------------
In essence, power generators in the 21st century face indifference
curves when choosing to build new power plants. Various combinations of
fuel prices, emissions prices (and rules) and technologies will yield
identical costs of production. A clean-burning gas plant facing high
gas prices may have no cost advantage over a coal plant that faces low
fuel costs but high environmental costs. Fully-offset coal plants can
be the least-cost option in locations such as the western US (eg
Montana) where power plants can be built right on top of abundant coal
reserves.
New coal-fired plants are a viable option under some circumstances,
even when their emissions are fully offset. It is also clear that the
choice among alternative plant types is quite complex. For example, our
model assumes technology is constant and does not include emissions
associated with coal extraction.
With US public policy encouraging reliance on domestic energy and
sophisticated private sector investment decisions, we may see more
coal-fired power plants in the near future.
Richard Sandor is chairman and chief executive of Environmental
Financial Products.
Native Americans sell carbon credits from forestry project
David Robson
Sustainable Forestry Management (SFM), a London-based company which
invests in forestry projects with environmental and social benefits,
has agreed to buy greenhouse gas (GHG) emission reductions equivalent
to almost 48,000 tons of carbon dioxide from native Americans in
Montana.
SFM is paying the Confederated Salish and Kootenai tribes an
undisclosed amount to reforest 100 hectares of their Montana
reservation that was hit by forest fires in 1994. In return, the tribes
have undertaken to maintain the forest for 100 years and to pass on the
associated GHG offsets or `carbon credits' to SFM for 80 years,
explains Michael Walsh, senior vice-president of Chicago-based
Environmental Financial Products, which arranged the deal.
The transaction was co-ordinated by the Montana Offset Coalition,
an organization which is helping farmers and foresters participate in
the emerging carbon markets.
The quantity of GHG offsets is based on conservative growth
assumptions, says Walsh, and the deal will also help improve soil
quality while providing a revenue stream for local communities, notes
SFM.
``This first project will set the stage for a process that will
help fund chronically underfunded tribal reforestation projects
throughout the west and start the ball rolling on market-based
solutions to global warming,'' says Tom Corse, supervisory forester for
the Confederated Salish and Kootenai tribes.
U.S. Landfill Concern, Ontario Utility Agree to Swap Gas-Emission
Rights
Peter A. McKay
Staff Reporter of The Wall Street Journal--October 26, 1999
An American landfill company and a Canadian power-generation
concern will announce today what experts describe as the largest
exchange to date of rights to emit ozone-depleting gases.
Such rights are effectively off-exchange pollution futures.
Officials from both sides said Ontario Power Generation Inc. has
bought from Zahren Alternative Power Corp. the rights to emit 2.5
million tons of carbon dioxide--roughly the equivalent released by
550,000 cars in one year.
An adviser to the deal said the total value was less than $25
million--a per-ton rate well below that charged in previous emissions-
rights sales.
The deal was structured as a private exchange because it comes
before a global treaty is in place for governments to formally
recognize such international emissions deals. The companies and their
advisers said that in part they wanted to set a precedent for the
fledgling ``greenhouse-gas'' trade, hoping it would demonstrate the
need for little regulation to require industry to combat global
warming.
``We're hoping this will jump-start the thinking on how to initiate
a more formalized process,'' said Bernie Zahren, president and chief
executive of the Avon, Conn., company that bears his name.
Mr. Zahren's firm removes methane gas from landfills, mostly in the
Northeast U.S. He said that in the deal, Ontario Power essentially
bought the right to 119,000 tons of that methane in exchange for 2.5
million tons of carbon dioxide. That compound is the international
standard for measuring reductions of greenhouse gases that many
scientists believe contribute to global warming.
The actual emissions cuts will be reviewed by
PricewaterhouseCoopers LLP, said Richard Sandor, chairman of
Environmental Financial Products, a Chicago consulting firm that
advised both sides.
The deal comes at least nine years ahead of a timetable set by the
Kyoto Protocol, a treaty named for the Japanese city where it was
negotiated, which will require 37 industrialized nations to reduce
greenhouse-gas emissions beginning in 2008.
The treaty hasn't been ratified by the U.S. Senate, nor has it
approved a separate congressional bill that would give credit to
companies that reduce emissions ahead of schedule, said Andrew Hoffman,
a Boston University professor who has studied the trading of emissions
credits.
``What you've got here is basically a demonstration product,'' Mr.
Hoffman said. ``There are some big questions in creating a global
trading system, and this deal seems to be orchestrated to address a lot
of them.''
That is exactly what Mr. Sandor said he intended the deal to do. A
former vice chairman of the Chicago Board of Trade, he said he hopes to
establish an exchange-traded market for carbon-dioxide credits similar
to one that exists for sulfur dioxide, which is blamed for acid rain.
He estimated that market is valued at about $3 billion.
``We have a whole new avenue that's being opened to us as air and
water become scarcer,'' Mr. Sandor said. ``Essentially we have to
ration them, or the planet's going to be one big barbecue. And the best
way to do that is through the free market, not the government dictating
where all the emissions are going to be.''
Mr. Hoffman, however, said developing countries could be left
behind in such a scenario, because their businesses and governments are
less accustomed to U.S.-style financial products such as the emissions
derivatives Mr. Sandor envisions.
``Ever since Kyoto, developing countries have been worrying that
America and other big countries will just buy their way out of the
limitations,'' Mr. Hoffman said. ``If they have to go through a period
of adjustment just to figure out how to trade the credits, maybe that
would mean being left behind.''
Greenhouse Gas Emissions Trading Market Emerges in Chicago
Environment News Service
CHICAGO, Illinois, May 30, 2001 (ENS)--The world's first emissions
trading market for greenhouse gases is materializing in Chicago. A
diverse group of 25 large corporations and nonprofit organizations has
agreed to participate in the design phase of a voluntary pilot trading
market, the Chicago Climate Exchange.
The project is spearheaded by Dr. Richard Sandor, CEO of Chicago
based Environmental Financial Products, who is known for developing
innovative commodity and environmental markets and has designed
revolutionary market mechanisms for environmental protection programs.
Sandor said today that the results of a feasibility study he
conducted to test interest in the Chicago Climate Exchange show that a
voluntary pilot market starting in seven midwestern states, ``is
feasible and can be expanded over time.''
``The widespread corporate interest in preparing rules and
regulations for this voluntary market affirms the private sector's
demand for flexible, market based mechanisms to address climate
change,'' Sandor said.
Sandor is a visiting scholar at the Kellogg Graduate School of
Management at Northwestern University. The feasibility study was funded
by the Chicago based Joyce Foundation through a $347,000 Millennium
Initiative grant.
The idea of trading carbon emissions has been debated for at least
a decade, but the proposed Chicago Climate Exchange offers the first
test of the concept on a scale that has global potential.
The Midwest is a promising location for starting the market because
of its 20 percent share of the U.S. economy and greenhouse gas
emissions, its mix of manufacturing, transport, energy, agriculture and
forestry sectors, and its extensive international linkages.
Dr. Sandor's study suggests a goal of reducing participants'
emissions of six greenhouse gases, including carbon dioxide, by five
percent below 1999 levels over five years. These emissions, created by
the combustion of coal, oil and gas, are linked by most scientists to
climate change.
This market based approach may be particularly attractive to U.S.
corporations after President George W. Bush announced in March that
U.S. would not participate in the international agreement governing the
emission of these six greenhouse gases known as the Kyoto Protocol.
``Most of the actions needed to begin reducing the risk of climate
change will have to be undertaken by the private sector, so a market
developed by a private association can be an important part of the
overall solution,'' said Sandor.
Trading would help reduce greenhouse emissions in a cost effective
manner and offers new opportunities for environment based income for
farmers, foresters and renewable energy firms.
As proposed, the Chicago Climate Exchange could demonstrate that
greenhouse gas trading can achieve real reductions in emissions across
different business sectors. It could help discover the price of
reducing greenhouse gases.
It would develop the standard frameworks for monitoring emissions,
determining offsets and conducting trades needed for a successful
market.
Sandor's study proposes starting the market in seven Midwest
states--Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio and
Wisconsin--including emission offset projects in Brazil, and expanding
over time.
Participating companies would be issued tradable emission
allowances. Emitting firms would commit to a phased schedule for
reducing their emissions five percent by 2005.
They could then either directly cut their emissions, or buy
allowances from companies that have achieved surplus reductions. Or the
market traders could buy credits from agricultural or other projects
that produce power without emissions or offset greenhouse gases by
holding them out of the atmosphere.
Potential offset projects include renewable energy systems, such as
wind and solar power, and capture and use of agricultural and landfill
methane. Offsets can also be generated by carbon sequestration projects
such as forest expansion and conservation soil management, which remove
carbon dioxide from the atmosphere.
Twenty-five companies and non-profits have agreed to participate in
the market design phase, including manufacturers, electric utilties,
agricultural cooperatives, and conservation groups.
The participants include Ford, DuPont, Suncor Energy, The Nature
Conservancy, STMicroelectronics, Temple-Inland, International Paper,
the Iowa Farm Bureau Federation, Alliant Energy, Calpine, Cinergy,
NiSource, PG&E National Energy Group, Wisconsin Energy, ZAPCO,
Agriliance and GROWMARK. (A complete list can be found below.)
An advisory board consisting of academic, business, environmental
and public sector leaders has been formed with the objective of
gathering strategic input.
Board members include Maurice Strong, former under-secretary
general of the United Nations who led the 1992 Earth Summit in Rio de
Janeiro; James Thompson, a former four term governor of Illinois;
Jonathan Lash, president of the World Resources Institute, a non-profit
research organization based in Washington, DC; Joseph P. Kennedy II,
chairman and president of the Boston based Citizens Energy Group; Dr.
Thomas Lovejoy, a world renowned tropical and conservation biologist,
and Israel Klabin, president of the non-governmental Brazilian
Foundation for Sustainable Development. (A complete list is given
below.)
``The Chicago Climate Exchange would represent a major step forward
while an appropriate regulatory framework for greenhouse gases
evolves,'' said Joyce Foundation president Paula DiPerna. ``A regional
success on a global challenge like climate change could be
transformational. Because of its variety of economic activities,
including its strong agricultural sector, the Midwest is the perfect
place to begin demonstrating the regional-global interface.''
The Joyce Foundation has a tradition of catalyzing new ideas, said
DiPerna, who acted as vice president of international affairs for the
late oceanographer and conservationist Jacques Cousteau.
DiPerna says Dr. Sandor's interest in the trading approach to
environmental problems is what attracted the support of the Joyce
Foundation.
``He, being a trader par excellence, said we have to discover the
price at which greenhouse gas emissions credits will trade,'' DiPerna
told ENS. ``The way to do that is to try it and see. We never know if
it will work until we try. Now that we know we have enough players in
the game, the game will start as early as next year.''
The Joyce Foundation is now considering a request to be involved in
the second phase of the Chicago Climate Exchange--the phase that would
launch the trading.
DiPerna and Sandor believe that a representative carbon trading
market can yield lessons that may be relevant for economies worldwide
for the next century.
``The beauty of this emissions trading mechanism is that it's both
practical and philosophical,'' DiPerna said. ``We must solve the
problem in a practical manner and retain the philosophical value that
motivates us all.''
Companies Participating in the Design Phase of the Chicago Climate
Exchange
Agriliance: Agriliance is a partnership of agricultural producer-
owners, local cooperatives and regional cooperatives. Agriliance offers
crop nutrients, crop protection products, seeds, information
management, and crop technical services to producers and ranchers in
all 50 states as well as Canada and Mexico.
Alliant Energy: Alliant Energy Corporation is a growing energy
service provider with both domestic and international operations.
Headquartered in Madison, Wisconsin, Alliant Energy provides electric,
natural gas, water and steam services to more than two million
customers worldwide. Alliant Energy Resources Inc., the home of the
company's non-regulated businesses, has operations and investments in
the United States, Australia, Brazil, China, Mexico and New Zealand.
Calpine: Headquartered in San Jose, California, Calpine has an
energy portfolio comprised of 50 energy centers, with net ownership
capacity of 5,900 megawatts, enough energy to meet the electrical needs
of close to six million households. Calpine was ranked 25th among
``Fortune'' magazine's 100 fastest growing companies and it was
recently ranked by ``Business Week'' as the 3rd best performing stock
in the S&P 500.
Carr Futures/Credit Agricole Indosuez: Carr Futures, a subsidiary
of Credit Agricole Indosuez, is a global institutional brokerage firm
headquartered in Chicago. Carr holds memberships on all major futures
and equity markets worldwide, and consistently ranks among the largest
futures brokerage firms in the world.
Cinergy Corporation: Based in Cincinnati, Ohio, Cinergy is a
diversified energy company. Its largest operating companies, The
Cincinnati Gas & Electric Company of Ohio, Union Light, Heat & Power of
Kentucky, Lawrenceburg Gas of Indiana, and PSI Energy, Inc. of Indiana,
serve more than 1.5 million electric customers and 500,000 gas
customers. The interconnections of Cinergy's Midwestern transmission
assets give it access to 37 percent of the total U.S. energy
consumption.
DuPont: DuPont is a science company, delivering science based
solutions in the areas of food and nutrition, health care, apparel,
home and construction, electronics, and transportation. Founded in
1802, the company operates in 70 countries and has 93,000 employees.
Ford Motor Company: Ford is the world's second largest automotive
company. Its Automotive operations include: Ford, Mercury and TH!NK
brands; wholly owned subsidiaries Volvo, Jaguar, Aston Martin and Land
Rover; Mazda (33 percent ownership); and Quality Care and Kwik-Fit.
Ford Financial Services, providing automotive financing and other
services, and The Hertz Corporation, providing car rental services, are
the other major components of Ford Motor Company.
GROWMARK, Inc.: GROWMARK, headquartered in Bloomington, Illinois,
is a federated regional cooperative that provides agriculture related
products and services in Illinois, Iowa, Wisconsin and Ontario, Canada.
FS brand farm supplies and services are marketed to farmers in these
areas by nearly 100 GROWMARK member cooperatives.
IGF Insurance Company: IGF is the fifth largest crop insurance
company serving farmers in 46 states from eight service offices
nationwide. IGF develops niche products for farmers' risk management
needs.
International Paper: With over 12 million acres of land managed in
the United States alone, International Paper is one of the world's
largest private landowners. International IP has global businesses in
paper and paper distribution, packaging, building materials and other
forest products.
Iowa Farm Bureau Federation: The Iowa Farm Bureau is a federation
of 100 county Farm Bureaus in Iowa. Founded in 1918, it now takes in
more than 154,000 member families. Legislative, educational and service
programs are provided to help farm families prosper and improve their
quality of life. An independent, non-governmental organization, the
federation is local, statewide, national and international in scope and
is nonpartisan, nonsectarian and nonsecret in character.
IT Group, Inc.: The IT Group is a provider of consulting,
engineering and construction, remediation and facilities management
services through its group of highly specialized companies. Its broad
range of services includes the identification of contaminants in soil,
air and water and the design and execution of remedial solutions.
Midwest Generation: Headquartered in Chicago, Midwest Generation, a
subsidiary of Edison Mission Energy, owns 13 electricity generating
units in Illinois and Pennsylvania with a generating capacity of over
11,400 megawatts, enough power for more than 13 million homes. Midwest
Generation sells wholesale power in competitive electricity markets.
The company is undertaking a major program to reduce emissions from its
coal fired plants.
National Council of Farmer Cooperatives (NCFC): NCFC is the only
organization serving exclusively as the national representative and
advocate for America's farmer owned cooperative businesses. It aims to
protect the public policy environment in which farmer owned cooperative
businesses operate, promote their economic well being, and provide
leadership in cooperative education.
NiSource Inc.: NiSource is a holding company with headquarters in
Merrillville, Indiana, whose operating companies engage in all phases
of the natural gas and electric business from exploration and
production to transmission, storage and distribution of natural gas, as
well as electric generation, transmission and distribution. Its
companies provide service to 3.6 million customers from the Gulf of
Mexico through the Midwest to New England.
ORMAT: ORMAT is the world leader in distributed reliable remote
microturbine power units, also known as Closed Cycle Vapor Turbo
Generators. ORMAT's operations use locally available heat sources,
including steam and hot water generated by geothermal sources,
industrial waste heat, solar energy, biomass, and low grade fuels.
Pinnacle West Capital Corp.: Based in Phoenix, Arizona, Pinnacle
West is the parent company of APS and Pinnacle West Energy. APS is
Arizona's oldest and largest electric utility, serving more than
857,000 customers, and Pinnacle West Energy is the company's
unregulated wholesale generating subsidiary. Among the utilities listed
in the S&P 500, Pinnacle West is ranked in the top 10 percent for
environmental performance by an international investment advisory firm.
``Fortune'' magazine ranks the company in the top 10 percent for total
shareholder return over the last five years.
PG&E National Energy Group: Headquartered in Bethesda, Maryland,
PG&E National Energy Group develops, owns and operates electric
generating and gas pipeline facilities and provides energy trading,
marketing and risk management services in North America. The National
Energy Group operates power production facilities with a capacity of
about 7,000 megawatts, with another 10,000 megawatts under development,
and more than 1,300 miles of natural gas transmission pipeline with a
capacity of 2.7 billion cubic feet per day. PG&E National Energy Group
is not the same company as Pacific Gas and Electric Company, the
California utility, and is not regulated by the California Public
Utilities Comission.
STMicroelectronics: STMicroelectronics is the world's third largest
independent semiconductor company. Shares in the company are traded on
the New York Stock Exchange, on Euronext Paris and on the Milan Stock
Exchange. The company designs, develops, manufactures and markets a
broad range of semiconductor integrated circuits and devices used in a
wide variety of microelectronic applications, including
telecommunications systems, computer systems, consumer products,
automotive products and industrial automation and control systems. In
2000, the company's net revenues were $7.8 billion and net earnings
were $1.45 billion.
Suncor Energy, Inc.: Suncor is a Canadian integrated energy company
that explores for, acquires, produces, and markets crude oil and
natural gas, refines crude oil, and markets petroleum and petrochemical
products. Suncor has three principal business units: Oil Sands,
Exploration and Production, and Sunoco.
Swiss Re: Founded in 1863 in Zurich, Switzerland, Swiss Re is the
world's second largest reinsurer, with roughly 9,000 employees and
gross premiums in 2000 of US$15.3 billion. Standard & Poor's gives the
company its AAA rating; Moody's rates it Aaa. From over 70 offices in
30 countries, Swiss Re offers insurers and corporates classic
(re)insurance covers, alternative risk transfer instruments, and
supplementary services for comprehensive risk management.
Temple-Inland Inc.: A diversified forestry, forest products and
financial services company, the three main operating divisions of
Temple-Inland include a paper group, which manufactures corrugated
packaging products; a building products group, which manufactures a
wide range of building products and manages the Company's forest
resources consisting of approximately 2.2 million acres of timberland
in Texas, Louisiana, Georgia and Alabama; and the financial services
group, which consists of savings bank, mortgage banking, real estate,
and insurance brokerage activities.
The Nature Conservancy: A nonprofit organization founded in 1951,
The Nature Conservancy is the world's largest private international
conservation group taking in over one million members. The conservancy
has protected over 12,089,000 acres of land in the United States.
Wisconsin Energy Corporation: Headquartered in Milwaukee,
Wisconsin, Wisconsin Energy Corp. is an $8.4 billion holding company
with a portfolio of subsidiaries engaged in electric generation;
electric, gas, steam and water distribution; pump manufacturing and
other non-utility businesses. The corporation's utilities subsidiaries
serve more than one million electric and 950,000 natural gas customers
in Wisconsin and Michigan's Upper Peninsula.
ZAPCO: Zahren Alternative Power Corporation (ZAPCO) is among the
largest developers of landfill gas projects in the United States. ZAPCO
develops, finances, and operates waste-to-energy electricity systems,
and has executed international trades of greenhouse gas reductions
involving over two million tons CO2 equivalent. ZAPCO
operates 10 of its 27 landfill gas projects in the Midwest.
Chicago Climate Exchange Advisory Board Members
David Boren is the president of the University of Oklahoma. He
served as a member of the Oklahoma House of Representatives (1967-
1975), Governor of Oklahoma (1975-1977) and as a U.S. Senator (1979-
1994). Senator Boren was the longest serving chairman of the Senate's
Select Committee on Intelligence. Boren was educated at Yale and
attended Oxford University as a Rhodes Scholar and earned a law degree
from the University of Oklahoma College of Law.
Lucien Bronicki is the chairman of Ormat International, an Israeli
company in the field of innovative technology solutions to geothermal
power plants, power generation from industrial waste heat, and solar
energy projects. Chairman of Ormat since he founded the company in
1965, Bronicki chairs the World Energy Council's Israeli National
Committee, is a member of the Executive Committee of the Weizmann
Institute of Science, and member of the board of Ben Gurion University.
Ernst Brugger is founding partner and chairman of Brugger Hanser &
Partner Ltd. in Switzerland, a business consulting firm with
international experience and range. He is also a professor at the
University of Zurich, chairman and member of the board of various
companies and a member of the International Committee of the Red Cross
(ICRC). Dr. Brugger serves as chairman of the Board of Directors of
Sustainable Performance Group, an investment and risk management
company which invests in pioneering companies which have taken up the
cause of sustainable business.
Jeffrey Garten is Dean of the Yale School of Management. Formerly,
Garten served as undersecretary of commerce for international trade in
the first Clinton administration and has held senior economic posts in
the Ford and Carter administrations. From 1979 to 1992 he was a
managing director first at Lehman Brothers, where he oversaw the firm's
Asian investment banking activities from Tokyo, and then at the
Blackstone Group. Currently Dr. Garten writes a monthly column for
``Business Week'' magazine. His latest book, ``The Mind of the CEO,''
was published this year.
Donald Jacobs is dean of the Kellogg Graduate School of Management
and its Gaylord Freeman Distinguished Professor of Banking. Jacobs is a
former chairman of the board of Amtrak and currently serves on several
corporate boards. His work on banking, corporate governance and
international finance has been published in many scholarly journals and
he holds several honorary degrees and professional awards.
Dennis Jennings is the global risk management solutions leader for
PricewaterhouseCoopers' global energy and mining industry practice.
Jennings previously served as the Dallas/Fort Worth energy industry
market leader, co-chairman of the U.S. oil and gas industry program,
and on the steering committee of the international energy practice. He
handles PwC's global risk management practice for the energy and mining
industry, providing financial advice and performing due diligence
reviews on merger, acquisitions and divestiture efforts by major
international corporations.
Joseph P. Kennedy II is chairman and president of Boston based
Citizens Energy Group, a non-profit company he founded in 1979 to
provide low-cost heating oil to the poor and elderly. Before returning
to Citizens Energy, Kennedy represented the 8th Congressional District
of Massachusetts in the U.S. House of Representatives for 12 years.
Citizens now encompasses seven separate companies, including the
largest energy conservation firm in the U.S. Kennedy advises and serves
on the boards of companies in the energy, telecommunications, and
health care industries. He is the son of the late U.S. Senator and
Attorney General Robert Kennedy.
Israel Klabin is the president of the Brazilian Foundation for
Sustainable Development, a Brazilian non-governmental organization
devoted to issues of environmental and sustainable development policy.
He is the former chairman of Klabin SA, one of the largest forestry
companies in Latin America. A former mayor of Rio de Janeiro, Klabin
was one of the main Brazilian organizers of the 1992 United Nations
Conference on the Environment in Rio de Janeiro.
Bill Kurtis has been a broadcaster for over 30 years, as a news
anchor in Chicago and on the national CBS Morning News. He founded
Kurtis Productions when he returned to Chicago in the mid-1980s and now
hosts shows on the Arts and Entertainment network. Kurtis is involved
in The National Science Explorers Program, Electronic Field Trips and
the Electronic Long Distance Learning Network, and serves on the board
of directors of the National Park Foundation, and the Nature
Conservancy.
Jonathan Lash is president of the World Resources Institute, a
Washington, DC based non-governmental organization. From 1993 until
1999, Lash served as co-chair of the President's Council on Sustainable
Development, a group of government, business, labor, civil rights, and
environmental leaders that developed recommendations for national
strategies to promote sustainable development. From 1987 to 1991, he
headed the Vermont Agency of Natural Resources, having served the
previous two years as Vermont's Commissioner of Environmental
Conservation.
Thomas Lovejoy, is a world renowned tropical and conservation
biologist and author generally credited with having brought the
tropical forest problem to the fore as a public issue. In 1987, he was
appointed assistant secretary for environmental and external affairs
for the Smithsonian Institution and is counselor to the Smithsonian's
secretary for biodiversity and environmental affairs. Dr. Lovejoy is
also chief biodiversity advisor to the president of the World Bank.
From 1989 to 1992, he served on the President's Council of Advisors in
Science and Technology, and acted as scientific adviser to the
executive director of the United Nations Environment Programme from
1994 to 1997.
David Moran is vice president of ventures for the Electronic
Publishing group of Dow Jones & Company and president of Dow Jones
Indexes. He is president of Dow Jones Indexes, which includes all Dow
Jones indexes for countries, regions, sectors and industry groups as
well as the world index. He is also chairman of Dow Jones
Sustainability Group Index GmbH.
Les Rosenthal is a former chairman of the Chicago Board of Trade
and a principal of Rosenthal Collins, a Chicago based commodities and
futures trading firm. He has been instrumental in advancing the cause
of innovative exchange traded products such as Treasury Bond futures
and insurance derivatives.
Maurice Strong is a former secretary general of the 1992 United
Nations Conference on Environment and Development, the Rio Earth
Summit, and under-secretary general of the United Nations. He is
currently the chairman of the Earth Council, a non-governmental
organization dedicated to the cause of sustainable development. In June
of 1995, he was named senior advisor to the president of the World
Bank. From 1992 to 1995, Strong was chairman and CEO of Ontario Hydro,
one of North America's largest utilities.
James Thompson is a former four term governor of Illinois and
currently a managing partner of Winston and Strawn. During his last
term as governor, Thompson was involved in the implementation of the
sulfur dioxide (SO2) market created by the 1990 Clean Air
Act and headed the Global Climate Change Task Force at the National
Governors' Association. He is a director of the Chicago Board of Trade.
Brian Williamson is the chairman of the London International
Financial Futures and Options Exchange, one of the world's largest
exchanges. He has been involved in trading financial futures for almost
three decades in London, New York and Chicago. He held senior executive
positions for prominent trading firms and was a member of the
International Advisory Board of the Nasdaq Stock Market, becoming
Chairman in 1996. He was also governor-at-large of the National
Association of Securities Dealers in Washington, DC from 1995 to 1998.
Senator Kerry. Thank you very much, Dr. Sandor.
Ms. Claussen.
STATEMENT OF EILEEN CLAUSSEN, PRESIDENT, PEW CENTER ON GLOBAL
CLIMATE CHANGE
Ms. Claussen. My name is Eileen Claussen, and I am the
president of the Pew Center on Global Climate Change.
The Pew Center on Global Climate Change is a nonprofit,
nonpartisan, and independent organization, dedicated to
providing credible information, straight answers, and
innovative solutions in the effort to address climate change.
Thirty-six major companies in the Pew Center's Business
Environmental Leadership Council, most included in the Fortune
500, work with the Center to advance public policy and educate
themselves and the public on the risks, challenges, and
solutions to climate change.
Mr. Chairman, I would like to emphasize two points for you
today. First, it is our view that the long-term reductions of
greenhouse gas emissions needed to truly address global climate
change can only be achieved through a comprehensive and binding
strategy.
Second, we believe the steps we take to reduce greenhouse
gas emissions, especially those promoting the development and
use of energy-efficient technologies, will help U.S. industry
compete in the international marketplace. Reducing emissions to
the levels necessary to prevent serious climate disruption will
take decades, because it will essentially require a new
industrial revolution, one enabling the broad introduction of
low carbon technologies to power a growing global economy.
Much as some would like to believe otherwise, it will be
extraordinarily difficult, if not impossible, to muster the
kind of global sustained effort that is needed without the
force of legally binding commitments. There is little incentive
for any country or any company to undertake real action unless
ultimately all do and are in some manner held accountable.
Markets, of course, will be instrumental in mobilizing the
necessary resources and know-how. Market-based strategies such
as emissions trading, will also help deliver emission
reductions at the lowest possible costs, but markets could move
us in the right direction only if they are given the right
signals. In the United States, these signals have neither been
fully given nor fully accepted.
Three decades of experience fighting pollution in the U.S.
have taught us a great deal about what works best. In general,
the most cost-effective approaches allow emitters flexibility
to decide how best to meet a given, binding emissions limit,
provide early direction so targets can be anticipated and
factored into major capital and investment decisions, and
employ market mechanisms such as emissions trading to achieve
reductions where they cost least.
To ease the transition from established ways of doing
business, targets should be realistic and achievable. What is
important is that they be strong enough to spur real action and
to encourage investment in development of the technology and
infrastructure needed to achieve the long-term objectives.
A good first step is to get our house in order by
immediately requiring accurate measurement, tracking, and
reporting of greenhouse gas emissions. In addition, the
Government could enter into voluntary enforceable agreements
with companies or sectors willing to commit to significant
reductions.
While such efforts could help get the United States on
track, the long-term emission reductions needed can be achieved
only with a more comprehensive and binding strategy.
Alternative approaches should be closely studied and the
results publicly debated. But much of the analysis thus far
suggests that a cap-and-trade system, which sets an overall cap
on emissions and establishes a market in carbon credits, can
provide the private sector the flexibility and incentive to
achieve emission reductions at the least possible costs.
As I mentioned earlier, there will be important side
benefits to many of these measures. The steps we take to reduce
greenhouse gas emissions will help U.S. companies compete in
the international marketplace. Improving energy efficiency, for
example, makes for good business as well as good economic
policy. In key energy-intensive or import-sensitive sectors,
energy costs can make or break companies.
ALCOA, for example, has reduced the electricity required to
produce a ton of aluminum by 20 percent over the last 20 years,
but almost all companies can benefit from aggressive energy-
efficiency measures, and many of the best companies already
have. IBM saved nearly $50 million in energy bills in the year
2000 alone. Despite the association of energy conservation with
the so-called soft path, it is striking the extent to which
hard-driving, profitable companies focus on high-tech lighting
upgrades, smart systems that precisely match energy
availability to energy needs, and new motors.
But energy efficiency is more than a cost reduction
strategy. It is also a business opportunity, both here and
abroad. Companies like Whirlpool and Maytag focus on producing
high efficiency consumer appliances. Toyota recently introduced
the Prius, a high-efficiency hybrid electric vehicle.
Two billion people in the world do not yet have access to
electricity. Twice as many do not have access to cars, let
alone SUVs. Efficiently meeting the world's exploding demand
for power and transportation services is a key business
strategy for many companies. Global investment in energy
between 1990 and 2020 will total some $30 trillion in 1992
dollars.
The number of motor vehicles worldwide is expected to be
816 million by 2010 with enormous growth expected in developing
countries where vehicle ownership rates are now quite low. The
lure of this market has led a company like ABB, for example, to
focus on alternative energy and small-scale distributed power
generation, including wind farms, fuel cells, and combined heat
and power plants using miniature gas turbines.
In closing, Mr. Chairman, as we address climate change, we
will learn as a nation what businesses are already finding,
that opportunities and co-benefits abound, that meeting this
challenge will not bankrupt our economy but will make it more
competitive, and the sooner we move to address it, the better
it will be, both for the environment and our economy.
Thank you.
[The prepared statement of Ms. Claussen follows:]
Prepared Statement of Eileen Claussen, President,
Pew Center on Global Climate Change
Mr. Chairman and members of the committee, thank you for this
opportunity to testify on climate change policy. My name is Eileen
Claussen, and I am the President of the Pew Center on Global Climate
Change.
The Pew Center on Global Climate Change is a non-profit, non-
partisan and independent organization dedicated to providing credible
information, straight answers and innovative solutions in the effort to
address global climate change. Thirty-six major companies in the Pew
Center's Business Environmental Leadership Council, most included in
the Fortune 500, work with the Center to educate the public on the
risks, challenges and solutions to climate change. The BELC companies
do not contribute financially to the Center.
Mr. Chairman, I would like to emphasize two points for you today.
First, it is our view that the long-term reductions of greenhouse gas
emissions needed to truly address global climate change can only be
achieved through a comprehensive and binding strategy. Second, we
believe the steps we take to reduce greenhouse gas emissions--
especially those promoting the development and use of energy efficient
technologies--will help U.S. industry compete in the international
marketplace.
In assessing how the United States can or should proceed to reduce
greenhouse gas emissions domestically and, in turn, internationally, it
is important to recognize certain defining characteristics of the
climate challenge, and what they imply for the effort required to meet
it. First, climate change is truly a global challenge: Averting the
worst consequences of global warming ultimately requires action by all
major emitting nations.
Second, it is a long-term challenge. Reducing emissions to the
levels necessary to prevent serious climate disruption will take many
decades because it essentially requires a new industrial revolution--
one enabling the broad introduction of low-carbon technologies to power
a growing global economy.
Much as some would like to believe otherwise, it will be
extraordinarily difficult if not impossible to muster the kind of
global, sustained effort that is needed without the force of legally
binding commitments. There is little incentive for any country--or any
company--to undertake real action unless, ultimately, all do, and are
in some manner held accountable. Markets, of course, will be
instrumental in mobilizing the necessary resources and know-how;
market-based strategies such as emissions trading will also help
deliver emissions reductions at the lowest possible cost. But markets
can move us in the right direction only if they are given the right
signals. In the United States, those signals have been neither fully
given nor fully accepted.
So what would constitute an effective domestic program to reduce
greenhouse gas emissions? To date, efforts to reduce U.S. emissions
have been limited almost exclusively to voluntary activities at the
federal, state, local, and corporate level. Spurred on by the United
Nations Framework Convention on Climate Change, to which the United
States is a party, a number of these efforts have resulted in
significant emission reductions. For example some companies on our
Business Environmental Leadership Council have cut emissions by 10
percent or more from 1990 levels. DuPont has cut its greenhouse gas
emissions by 45 percent from 1990 levels. Shell is on track to hit 10
percent by next year (2002).
However, while technology has decreased the energy intensity of
products and processes over the last 50 years, the efficiency has been
outpaced by increased demand driven by economic expansion, population
growth, and changing consumer preferences. In the aggregate, voluntary
efforts have not ended overall growth in U.S. emissions. Indeed, U.S.
emissions have grown approximately 12 percent over the past decade. The
lesson here is clear: voluntary programs can make a contribution, but
will not, on their own, be enough.
What will? To effectively address climate change, we need to lower
carbon intensity, become more energy efficient, promote carbon
sequestration, and find ways to limit emissions of non-CO2
gases. This will require fundamentally new technologies, as well as
dramatic improvements in existing ones. New, less carbon-intensive ways
of producing, distributing and using energy will be essential. The
redesign of industrial processes, consumer products and agricultural
technologies and practices will also be critical. These changes can be
introduced over decades as we turn over our existing capital stocks and
establish new infrastructure. But we must begin making investments,
building institutions, and implementing policies now.
Three decades of experience fighting pollution in the United States
have taught us a great deal about what works best. In general, the most
cost-effective approaches allow emitters flexibility to decide how best
to meet a given, binding emissions limit; provide early direction so
targets can be anticipated and factored into major capital and
investment decisions; and employ market mechanisms, such as emissions
trading, to achieve reductions where they cost least. To ease the
transition from established ways of doing business, targets should be
realistic and achievable. What is important is that they be strong
enough to spur real action and to encourage investment in development
of the technology and infrastructure needed to achieve the long-term
objective.
A good first step is to get our house in order by immediately
requiring accurate measurement, tracking and reporting of greenhouse
gas emissions. Current efforts lack rigorous reporting standards and
verification requirements. Public disclosure of the reported data,
similar to what is required for certain pollutants under the federal
Toxic Release Inventory (TRI) program, would encourage companies to
hunt for ways to reduce their greenhouse emissions.
There are other ways we can and should spur companies to act ahead
of any mandatory requirements. One is for the government to enter into
voluntary enforceable agreements with companies or sectors willing to
commit to significant reductions--either in process emissions, or those
from the use of products they make (e.g. automobiles or washing
machines). In exchange for its commitment to cut emissions, a company
or sector should be guaranteed that it would not be bound by subsequent
mandates for greenhouse gas controls over the same time period. A
similar approach could encourage companies, particularly in the
electric utility sector, to cut carbon emissions as they undertake air
pollution reductions required by existing law--a more cost-effective
way to achieve multiple environmental objectives.
While such efforts can help get the United States on track, the
long-term emission reductions needed can be achieved only with a far
more comprehensive--and binding--strategy. Alternative approaches
should be closely studied, and the results publicly debated. But much
of the analysis thus far suggests that a ``cap-and-trade'' system--
which sets an overall cap on emissions and establishes a market in
carbon credits--can provide the private sector the flexibility and
incentive to achieve emission reductions at the least possible cost. As
yet, we do not believe that we have economic models that can accurately
predict the long-term costs and benefits of a serious climate strategy.
However, the best analyses to date suggest that, with the use of
rational strategies, the costs are reasonable, particularly when
weighed against the serious and significant costs of not acting.
Also, as I mentioned earlier, there will be important side benefits
to many of these measures. The steps we take to reduce greenhouse gas
emissions will help U.S. companies compete in the international
marketplace. Improving energy efficiency for example, makes good
business sense, as well as good economic policy.
Efficiency can mean new kinds of light bulbs that provide better
light, waste less energy, and save money over their lifetimes. It can
mean new industrial process designs that use less energy, produce more
valuable products and produce less waste. It can mean superconductors
that dramatically cut electricity transmission losses. Efficiency is
not just a short-term solution; it is also a long-term solution. Both
the electricity system and the automobile waste most of the energy they
produce. In fact, we waste so much energy that the potential for long-
term savings is huge.
The California energy crisis has focused all our attention on the
critical role that energy plays in U.S. competitiveness. Annual U.S.
economy-wide energy expenditures--approximately $567 billion in 1997--
are comparable to the total annual federal government consumption and
investment expenditures ($538.7 billion in 1997; note that this
excludes transfer payments, for example, under entitlement programs).
Our increasing dependence on imported oil--we now import over half of
the oil we use--has a major impact on our balance of payments, and
makes us vulnerable to price volatility in the world oil market. Thus
improving energy efficiency means reducing energy bills, freeing up our
nation's resources for other activities, and increasing energy
security.
The U.S. electricity system wastes two-thirds of the energy it
produces--in the form of waste heat at power plants, and energy losses
from power lines. Available combined heat and power technologies could
recapture most of the power plant losses in a usable form. Distributed
generation (power plants located near the point of electricity use) and
new kinds of conductors (and ultimately superconductors) could
dramatically reduce the distribution and transmission losses that now
waste 9 percent of gross electric generation.
Similarly, cars and trucks waste 85% of the energy in each gallon
of gasoline. Thus the potential to improve fuel economy with advanced
technologies is huge. For example, new materials can reduce vehicle
mass and thus the energy required for acceleration. Regenerative
braking can recapture energy lost during deceleration. Advanced tires
can cut rolling resistance.
In key energy-intensive or import-sensitive sectors, energy costs
can make or break companies. Alcoa, for example, has reduced the
electricity required to produce a ton of aluminum by 20% over the last
20 years. But almost all companies can benefit from aggressive energy
efficiency measures; and many of the best companies already have. IBM
saved $14.8 million in energy bills in the year 2000 alone. Despite the
association of energy conservation with the so-called ``soft'' path, it
is striking the extent to which hard-driving, profitable companies
focus on high-tech lighting upgrades, ``smart'' systems that precisely
match energy availability to energy needs, and new motors.
But energy efficiency is more than a cost-reduction strategy, it is
also a business opportunity, both here and abroad. Companies like
Whirlpool and Maytag focus on producing high-efficiency consumer
appliances. Toyota recently introduced the Prius, a high efficiency
hybrid electric vehicle. Two billion people in the world do not yet
have access to electricity; twice as many do not have access to cars
(let alone SUVs). Efficiently meeting the world's exploding demand for
power and transportation services is a key business strategy for many
companies. Global investment in energy between 1990 and 2020 will total
some $30 trillion in 1992 dollars. The number of motor vehicles
worldwide is expected to be 816 million by 2010, with enormous growth
expected in developing countries where vehicle ownership rates are now
quite low. The lure of this market has led ABB, for example, to focus
on alternative energy and small-scale distributed power generation,
including wind farms, fuel cells, and combined heat and power plants
using miniature gas turbines. United Technologies' International Fuel
Cells subsidiary produces the world's only commercial fuel cell power
plants.
In closing, Mr. Chairman, as we address climate change, we will
learn as a nation what businesses are already finding--that
opportunities and co-benefits abound, that meeting this challenge will
not bankrupt our economy, but will make it more competitive. And the
sooner we move to address it, the better it will be for both the
environment and our economy. Thank you.
Senator Kerry. Thank you very much, Ms. Claussen.
Mr. Hawkins.
STATEMENT OF DAVID G. HAWKINS, DIRECTOR, NATURAL RESOURCES
DEFENSE COUNCIL, CLIMATE CENTER
Mr. Hawkins. Thank you, Mr. Chairman. Good afternoon.
Let me make these points. First, today CO2
concentrations in the atmosphere are greater than they have
been in 400,000 years. We have done this by taking 75 million
years' worth of stored carbon and returning it to the
atmosphere at about 100,000 times faster than it was stored.
Second, unless we cut emissions, CO2
concentrations will keep on going up.
Third, to reduce the risks of climate change, we have to
stabilize CO2 concentrations, and the higher our
stabilization targets are, the greater the risks there are.
Without cuts, CO2 will go up somewhere between two
times and five times preindustrial levels during the next
century. They may double before a child born today is eligible
for Social Security.
Fourth, once we release CO2, it is up in the
atmosphere for a long time. If we put 1,000 tons in the
atmosphere today, a hundred years from now, 400 tons of it are
still there. A thousand years from now, 150 tons of it are
still there.
Now, these facts mean that delay in taking action is going
to cost us more than taking that action now. By failing to cut
emissions, we fail to slow the increasing momentum that leads
to increasing concentrations that leads to increasing climate
risks. And we make it much more difficult to reach any
particular stabilization goal. In fact, today we are in danger
of passing reasonable stabilization goals and eliminating
options for stabilization at lower concentrations for ourselves
and for future generations.
Estimates by the Pacific Northwest Labs indicate that to
preserve the stabilization goal of 350 parts per million
(roughly 30 percent above preindustrial levels), we would have
to be cutting global emissions today; not increasing them but
cutting them. To preserve the 450 part per million scenario, we
would have to be successful in cutting global emissions from
business as usual, starting no later than 2007, and for 550, no
later than 2013. Now, 2013 may seem like a long way from now.
It is in terms of congressional terms or even senatorial terms.
But it is not in terms of achieving a real reduction in global
emissions.
To cut global emissions 12 years from now, it requires
additional research and development, private sector decisions
to invest billions of dollars, corporate decisions to deploy
those resources, and then actually doing the design work and
getting it in the field. You have to start today to accomplish
those results. And, unfortunately, we are not starting today.
But fortunately we have a range of policy options before us
that would send the right signal. Let me just list some that
are pending before Congress, and I mention them in my
testimony.
First, the four-pollutant bill for electric generation:
caps on pollutants in accord with what previous witnesses have
described. This is Senate Bill 556, sponsored by yourself, by
Senator Snowe, and others. This can be complemented with a
renewable portfolio standard and a public benefits fund in
order to help reduce overall emissions in the electric sector,
including carbon emissions.
In the vehicle sector, close the SUV loophole and adopt
increases in the CAFE standards to the 40-mile-per-gallon.
Second, we support the CLEAR Act which provides tax incentives
for high-technology vehicles. These programs would also produce
substantial cuts from business as usual in the motor vehicle
sector.
In the building sector, S. 207 provides tax incentives for
buildings. Buildings consume more than a third of the energy in
our economy. They are tremendous sources of waste in our
economy. We don't get benefits from that wasted energy. We get
pollution. We get higher energy bills. We can cut those bills.
We can cut the pollution, and we can do it cost-effectively,
but we need to deal with market barriers, and the tax
incentives in S. 207 would do that.
And finally let me just mention that integrated policies
can have tremendous power to deliver benefits, both
economically and in terms of pollution reduction, including
global warming pollution reduction. This is exemplified in the
Clean Energy Futures report that the five labs of the
Department of Energy published last November. That report
really does show the power of integrated policies that consist
of caps on pollution, tax incentives, performance standards,
and voluntary agreements.
Now, the suite of measures that these five labs analyzed in
that study showed that you could cut carbon emissions from
business as usual by the year 2020 by 30 percent, and that you
could produce energy bill savings of over $100 billion a year
at the same time, as well as cutting conventional pollutants by
about 50 percent. These are benefits you get by having an
integrated set of policies, ones that support one another in a
complementary fashion.
Finally, let me just close by saying that the critical
policy need today is to adopt measures that send a clear signal
to the private sector that the Government is serious about the
issue of climate change. That signal needs to convince the
private sector that cutting carbon is good business. If you
send that signal, you will harness the private sector's
energies. If you don't send that signal, you will send the
signal that has been sent for the last 10 years: which is,
``The Government is not serious about it,'' and then the
private sector will sit by and wait until the Government is
serious.
Thank you.
[The prepared statement of Mr. Hawkins follows:]
Prepared Statement of David G. Hawkins, Director, Natural Resources
Defense Council, Climate Center
My name is David Hawkins, and I am the Director of the Climate
Center at the Natural Resources Defense Council. I appreciate the
opportunity to appear before you today on the issues of policies to
combat the threat posed by climate change or global warming. The
Natural Resources Defense Council is a national, non-profit
organization of scientists, lawyers, and environmental specialists,
dedicated to protecting public health and the environment. Founded in
1970, NRDC serves more than 500,000 members from offices in New York,
Washington, Los Angeles, and San Francisco.
My message today is a simple one: the United States should no
longer delay the adoption of effective policies to limit emissions of
carbon dioxide and other greenhouse gas pollution. Nearly a decade ago,
the U.S. and more than 100 other countries ratified a global climate
change treaty that should have spurred adoption of serious policies to
combat global warming. Instead, we have had a decade of delay, during
which U.S. greenhouse emissions have increased by about 14%. Rather
than adopt meaningful policies that would have sent an effective signal
to the private sector that constraining carbon emissions was a sound
course for business planning, we have relied on voluntary pledge
programs that have been effective only in communicating to business
leaders that the government is not yet serious about limiting global
warming pollution.
Mr. Chairman, the first rule for getting out of a hole is to stop
digging. Every year that we delay adoption of real global warming
policies, we dig ourselves deeper and make our ultimate response
programs more costly, disruptive, and risky. The United States is
better positioned than any other country in the world to lead the way
in showing that economic progress can go hand in hand with controlling
global warming pollution. The time for us to exercise that leadership
is now.
Global warming is a problem that becomes more difficult to manage
the longer we wait to start. Let's review some basic information.
Starting about 300 million years ago, for a period spanning about 75
million years, our planet transferred, through geologic processes, vast
amounts of carbon from the atmosphere and living organisms to immense
underground reserves, producing what we call fossil fuels. Estimates
are that some 5 trillion tonnes of carbon were stored in this way.
Imagine a 75 million year video documenting the removal of 5 trillion
tonnes of material from our global living room and its storage in a
remote subterranean repository. Now, imagine running this video in
reverse and at hyper speed. That is what we have been doing for the
past 150 years.
Since the Industrial Revolution, we have been putting these immense
underground carbon stores back into the atmosphere by burning these
fuels and we are doing so at ever increasing speed. At current
consumption rates, we put back in the air each year about 100,000 years
of stored carbon. In the last 150 years we have put about 290 billion
tonnes (gigatonnes or Gt) into the air. Amidst the claimed
uncertainties about the climate change phenomenon, there is no dispute
that these emissions have caused significant increases in atmospheric
concentrations of CO2. Today's CO2 levels are
about 370 parts per million (ppm), about 30% higher than the pre-
industrial level of 280 ppm.
Nor is there any dispute that continued emissions of CO2
from fossil burning will cause concentrations to go still higher. The
latest forecasts for global carbon emissions in the 21st century are
sobering. The IPCC's most recent report estimates emissions of between
1000 and 2100 Gt of carbon in the next 100 years--or about 3 to 7 times
more than we released in the last 150 years. With cumulative emissions
in these ranges, atmospheric CO2 would build up to between
540 and 970 ppm by the year 2100 and continue to increase unless
emissions were cut. Several of the plausible emission scenarios would
lead to doubled CO2 concentrations before a child born today
would be eligible for social security.
A final undisputed fact is that once a certain atmospheric
concentration is reached, it cannot be significantly reduced for
hundreds of years, no matter how drastic a ``response program''
policymakers decide to put in place. Unfortunately, carbon dioxide's
lifetime in the atmosphere is a long one: of each 1000 tons we emit
today, 400 of those tons will still be in the air 100 years from now
and 150 tons will remain 1000 years from now. So the bed we are making
is a procrustean one that we and generations to come must lie on.
As a result of fossil fuel combustion, we already have increased
atmospheric CO2 to levels greater than ``at any time during
the past 400,000 years,'' notes the recent National Academy of Sciences
report to President Bush. And we are on a path to dramatically higher
concentrations in the coming decades. The policy questions this
Committee and this Congress must address are whether and when to act to
reduce the buildup of CO2 concentrations in the atmosphere.
In NRDC's view the answers are, yes we must act and we should start
now.
Yet for more than a decade, fossil-fuel dependent industries have
vehemently opposed policies to limit global warming pollution and
governments, including the U.S. government, have declined to adopt such
policies. One can explain the position of the industrial opponents as
driven by the narrow interests of their current business plans but what
explains the compliant position of governments, which should show at
least some signs of support for the broader public interest. One
explanation is the influence of money on politics and enactment of the
McCain-Feingold legislation would be a salutary development. A second
explanation is that legislators and executive branch officials believe
that we can wait until the emergence of greater consensus on the
detailed nature of the threats we face from global warming and that
acting later will reduce the costs of a response program compared to
acting now. NRDC believes this basic assumption--that later is
cheaper--is simply wrong.
The basic fact is that further delay in adopting effective policies
forecloses options for us and for our children. Further delay will
increase the costs of achieving stable atmospheric concentrations at
levels less than double or even triple the concentrations under which
human societies have evolved. How important is it for us to preserve
the option to stabilize greenhouse gas concentrations at these lower
levels? The policy dilemma is that we may not know the answers in a
manner convincing to all for decades to come. Yet if we delay policy
action until we have amassed a more comprehensive and detailed body of
evidence of the full range of damages that a changed climate will
bring, the planet's growing emissions will have made stabilizing
concentrations at levels anywhere near today's levels very much more
expensive, if not impossible.
Each year of delay in developing an effective global response
program brings us closer to the point of no-return when we lose the
ability to limit the increase in greenhouse gas concentrations to lower
levels. By failing to act, we are passing these points of no-return
without even understanding what we are giving up for ourselves and our
descendants. As I mentioned, pre-industrialization levels of CO2
did not exceed 280 ppm and we are now at 370 ppm, the highest level in
400,000 years. Because the way CO2 builds up in the
atmosphere is well understood, we can determine the cumulative
emissions during the next century that allow us to stabilize the
atmosphere at various levels, such as 350, 450, 550, 650, or even 750
ppm and experts have done these calculations. The most recent IPCC
report summarizes these 21st century emission budgets as follows:
--------------------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------
Stabilization target (ppm) 350 450 550 650 750
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cumulative emissions in 21st century (GtC) 280 630 960 1150 1300
--------------------------------------------------------------------------------------------------------------------------------------------------------
The same report forecasts cumulative global emissions during this
period, in the absence of effective global warming policies, to range
from 1000 to 2100 Gt of carbon. While many members of Congress don't
fancy themselves expert in global warming, most have a good
understanding of budget fundamentals. In budget terms we are spending
at a rate that far exceeds what we can afford if we learn we need to
stabilize CO2 concentrations in the 350 to 550 ppm range. At
first glance, these numbers may suggest we still have lots of time to
study this issue but consider that to keep the next hundred years'
emissions under 300 Gt we would need to cut today's global emissions
immediately by more than 60% and keep them there while the world grows
in population and affluence. Or we might pursue the cut more gradually
but then we must achieve even deeper cuts later to stay within the same
budget. While this example is for the 350 ppm option, the same dynamic
exists for each of the higher stabilization targets: the longer we
delay adoption of policies that limit business as usual growth in
emissions, the deeper the cuts the planet must achieve to hit any
stabilization target. And if we delay too long, each successive
stabilization target becomes impossible to achieve.
Dr. James E. Edmonds of the Department of Energy's Pacific
Northwest National Laboratory and colleagues have estimated least-
abatement cost schedules for reducing emissions to meet these
stabilization targets. He points out that these schedules require
global emissions to drop below business as usual paths in the very near
future. Here is a summary of this information as he presented it to the
Senate Energy Committee on June 28, 2001:
----------------------------------------------------------------------------------------------------------------
CO2 Concentration (ppmv) 350 450 550 650 750
----------------------------------------------------------------------------------------------------------------
Maximum Global CO2 Emissions (billions of tonnes carbon per year) 8.5 9.5 11.2 12.9 14.0
----------------------------------------------------------------------------------------------------------------
Year in which Global Emissions Must Break from Present Trends Today 2007 2013 2018 2023
----------------------------------------------------------------------------------------------------------------
As can be seen, for the lower targets, the dates for achieving
significant global emission reductions are upon us now and the dates
for preserving even the higher targets are very close. To appreciate
that these dates do not allow time for further delay in adopting
policies, consider the sequence of events that must occur to actually
succeed in reducing global emissions. Clear public policies must be
debated and adopted, not just in the U.S. but in other countries too.
The private sector must develop strategies for response to those
policies. The strategies must be translated into specific investment
decisions needed to carry out the strategies, most likely involving
additional development work for certain technologies. The investment
decisions must be followed with detailed engineering and planning work.
And this work must be followed by deployment of lower-carbon
technologies in the field on a sufficient scale to actually reduce
global emissions below current forecasted increases. Thus, to reduce
global emissions by dates like 2007-2020, we must start today with
adoption of effective policies.
Stated another way, further delay in adopting policies to limit
global warming pollution means we are discarding the options of
stabilizing concentrations at levels closer to the lower end of the
range of targets. I cannot prove today that stabilizing CO2
at 350 ppm is essential for our well-being. But I think it is self-
evident that it is not responsible to eliminate this option without any
assurance that we can live well with the resulting future. As the
National Academy of Sciences panel noted in its report to President
Bush, ``risk increases with increases in both the rate and the
magnitude of climate change.'' By committing ourselves to ever-higher
CO2 concentrations, we are committing to higher rates and
magnitudes of climate change for our descendants and ourselves.
Fortunately, there are no technical or economic impediments to
adopting policies today that will restore U.S. leadership on fighting
global warming and send important signals to the private sector and to
other countries that the time for effective action has arrived.
Congress has before it a number of major legislative initiatives that
will address the principal sources of global warming pollution in the
U.S. in a way that will stimulate the new technology that is essential
to meeting the challenges of limiting these emissions during the
remainder of this century.
Near-term Domestic Policies to Address Global Warming
A. Comprehensive Power Plant Clean-up Legislation
NRDC supports comprehensive legislation to reduce all four major
pollutants from electric generation--sulfur oxides, nitrogen oxides,
mercury and carbon dioxide. Electric generation is responsible for 40%
of total U.S. CO2 emissions. We have the technology to make
significant reductions in CO2 from this sector through a
combination of efficiency measures on the supply and the demand side,
and through increased reliance on cleaner fuels. Enactment of a cap and
trade program for CO2 from the electric sector would produce
the needed market signal to all the players in the electric production
and consumption sectors that there is value in reducing carbon
emissions. The bipartisan bill, S. 556, the ``Clean Power Act,''
sponsored by Senators Kerry, Lieberman, Collins, Jeffords and Snowe
would accomplish this objective and NRDC strongly supports it.
Complementary policies to reduce emissions from electric generation
include renewable portfolio standards proposed in the last Congress in
S. 1369, to facilitate the deployment of renewable energy resources, a
public benefits fund as proposed in last year's S. 1369 and this year's
S. 597, to promote continued investments in demand side management
programs and net metering provisions (as found in both bills), to
promote clean and efficient distributed generation.
B. Policies to Reduce Petroleum Dependence and Protect the Environment
and Public Health
1. Close the Light Truck Loophole and Raise Fuel Economy Standards to
40 Miles per Gallon
Incentives for advanced technology vehicles will be most effective
if enacted in combination with updated fuel economy standards. This can
be accomplished in two steps. First, congress should quickly eliminate
the light truck loophole in the current fuel economy standards. The
share of new vehicles that are classified as light trucks (SUVs,
minivans, and pickups) has increased dramatically from 20 percent of
sales when the CAFE law was first enacted in 1975 to nearly 50 percent
of the market today. Yet the vast majority of vehicles currently
regulated as light trucks are in fact used in exactly the same way as
passenger cars. EPA recognized the need to eliminate the light truck
loophole in its Tier II tailpipe standards beginning in 2004. Congress
should follow this lead and eliminate the light truck loophole in fuel
economy regulations in the same time frame. Congress should raise the
overall fuel economy standard for the entire light vehicle fleet over a
longer time period. A recent report by the Union of Concerned
Scientists shows that the fleet average efficiency could be increased
to 40 miles per gallon (mpg) by 2012 and 55 miles per gallon by 2020.
The 40 mpg standard could be achieved through incremental improvements
to vehicles with conventional drive trains, although hybrid and fuel
cell vehicles would likely contribute to achieving this efficiency
level. The 55 mpg standard could be most easily achieved by applying
hybrid technology throughout the vehicle fleet.\1\
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\1\ Union of Concerned Scientists, Drilling in Detroit: Tapping
Automaker Ingenuity to Build Safe and Efficient Automobiles. (June
2001). Available from http://www.ucsusa.org/
---------------------------------------------------------------------------
Congress should also set standards for replacement tires. It is a
little known fact that auto manufacturers use highly-efficient tires to
comply with current CAFE requirements, but comparable tires are not
available to the consumers as replacements. Congress should require
replacement tires to meet the same specifications as those sold on new
cars. This measure alone would save over 70% more oil than is likely to
be found if drilling were permitted in the Arctic National Wildlife
Refuge.
2. Pass the CLEAR Act: Tax Incentives for Advanced Technology Vehicles
and Alternative Fuels
The CLEAR Act (S. 760) provides a comprehensive set of performance-
based tax incentives to accelerate the commercialization of advanced
technology vehicles and alternative fuels. This bill is a major advance
over previous vehicle tax credit proposals because it is the first
proposal to link publicly-funded incentives directly to the public
benefits provided by the vehicles that get the incentive, in this case
the amount of petroleum and carbon dioxide displaced. This is
accomplished by linking the amount of the tax credit it offers in part
to the actual fuel economy of the qualifying vehicles. The bill also
includes important provisions to ensure that public support only goes
to truly advanced vehicles that reduce local air pollution as well as
global warming pollution and petroleum consumption.
The policy advances incorporated into CLEAR reflect the collective
advice of a unique coalition of environmental advocates and automakers.
Public interest organizations that have joined NRDC in endorsing the
CLEAR Act include the Union of Concerned Scientists, Environmental
Defense, the American Council for an Energy-Efficient Economy, the
Ecology Center of Ann Arbor, Michigan and the Michigan Environmental
Council.
3. Establish Incentives to Promote Smart Growth Development Patterns
Gasoline use also can be reduced by directing real estate
development away from urban sprawl and toward ``smart growth.'' Smart-
growth suburbs reduce the need to drive by 30 percent or more, cutting
household expenditures on transportation.\2\ An important incentive for
smart growth is to establish mortgage qualification rules that
recognize the increased affordability of homes that have low
transportation costs because they are located in areas with good access
to public transportation.
---------------------------------------------------------------------------
\2\ David Goldstein, ``Mortgages Can Remove the Incentive for
Sprawl,'' Earthword: The Journal of Environmental and Social
Responsibility, Issue #4.
---------------------------------------------------------------------------
4. Modify the Ethanol Tax Credit to Make it Performance-Based
The largest incentive currently going to alternative fuels is the
excise tax credit provided for ethanol. Unfortunately, the
environmental benefits generated by this tax credit are limited because
it does not currently incorporate performance criteria. Most ethanol is
currently produced from corn and requires high levels of chemical and
fossil fuel inputs that are almost as great as those for conventional
gasoline over the full fuel cycle of production and use. The existing
tax incentive for ethanol could be made much more effective by linking
the amount of the credit to the net reduction in global warming
pollution or fossil fuel consumption achieved by the ethanol producer.
This would encourage ethanol producers to shift to less energy
intensive feedstocks, such as agricultural wastes and perennial crops,
and to improve the efficiency of their conversion processes.
C. Benefits of a Comprehensive Policies to Promote Advanced Technology
Vehicles and Alternative Fuels
The economic and environmental benefits of enacting the
comprehensive set of policies described here would be profound. EPA
estimates that the average light truck on the road today produces 164
pounds of smog-forming pollution (hydrocarbons plus nitrogen oxides)
and 8.0 tons of global warming pollution in traveling 14,000 miles each
year. This does not include upstream emissions associated with
producing the fuel, which would add about 11 pounds of smog-forming
pollution and 2 tons of global warming pollution, bring the totals to
175 pounds of smog-forming pollution and 10 tons of global warming
pollution. Conventional new vehicles are substantially cleaner than
this average with respect to smog-forming pollution, but have roughly
the same fuel economy and therefore the same global warming pollution
emissions as the vehicle existing vehicle it is likely to replace. For
example, a vehicle meeting the National Low Emission Vehicle standard
would emit only 12 pounds of smog-forming pollution from its tailpipe,
but upstream emissions would still add 11 pounds, bringing its total
impact to 23 pounds of smog-forming pollution and 10 tons of global
warming pollution. In contrast, a hybrid vehicle qualifying for a $3000
tax credit under the CLEAR Act would emit less than 1 pound of smog-
forming pollution from its tailpipe and would use only half as much
fuel. As a result, its total impact would be only 6 pounds of smog-
forming pollution and 5 tons of global warming pollution.
Aggregating from the vehicle level to the fleet level, the Union of
Concerned Scientist (UCS) estimates that the combination of tax
incentives and higher fuel economy standards advocated here would save
540 million barrels of oil in the year 2010, reduce upstream smog-
forming pollution by 320 million pounds, and reduce global warming
pollution by 273 million tons. By 2020 the savings would be even more
dramatic: 1.8 billion barrels of oil, 1000 pounds of smog-forming
pollution, and 890 million tons of global warming pollution. All of
these benefits would be achieved while saving consumers billions of
dollars: nearly $10 billion in 2010 and $28 billion in 2020 according
to UCS.
D. Legislation to Provide Energy-Efficiency Incentives for the
Buildings Sector
The performance based approach adopted in the CLEAR Act should also
be applied to the design of tax incentives to promote efficiency in
other energy using sectors of our economy. For example, ``The Energy-
efficient Buildings Incentives Act'' (S. 207), introduced by Sens.
Robert Smith (R-N.H.) and Diane Feinstein (D-Calif.), would provide tax
breaks for building energy-efficient commercial buildings, schools,
rental housing and new homes, cutting their energy needs by 30 percent
to 50 percent. It also would provide tax incentives for the purchase of
energy-efficient air conditioners, heating and cooling systems, and
solar water heating and photovoltaic systems.
S. 207 provides tax incentives for energy efficiency in buildings.
Buildings are an often-overlooked source of energy waste. They consume
over a third of U.S. energy use and account for about a third of total
air pollution in the United States. Energy use in buildings can be cut
in half or better using cost-effective technologies that are available
to those consumers that are willing to search them out.
But in practice most of those technologies simply are not options
for energy users, whether consumers or businesses, because they are too
hard to find. Economic incentives can cause the entire chain of
production and consumption, from the manufacturer to the contractor or
vendor to the consumer, to accept new technologies rapidly. In the few
cases where utility programs have been consistent enough across the
country and long-lasting enough, new products have been introduced that
have become or will become the most common product in the marketplace,
with reductions in energy use of 30%-60%.
Examples include:
Refrigerators, where, new products that are available this
year consume less than a quarter of the energy of their smaller
and less feature-laden counterparts 30 years ago. The last step
forward, saving 30%, resulted from a coordinated incentive
program, the Super Efficient Refrigerator Program (SERP), which
was sponsored by utilities with the advice of the U.S.
Environmental Protection Agency.
Clothes washers, where some 10% of the market now provides
cleaner clothes at a reduction in energy use of 60% or more.
This gain in efficiency resulted from a program organized by
the Consortium for Energy Efficiency (CEE) and supported by
Energy Star. New standards adopted by the Department of
Energy--and supported by the manufacturers--will bring all of
the market to this level by 2007.
Fluorescent lighting systems, where new technologies that
also will be required by manufacturer-supported federal
standards will reduce lighting energy consumption by 30%
compared to mid-70's practice while improving the performance
of the lighting system.
The policies embodied in S. 207 are built on success stories like
these.
Manufacturers have pointed out that in order to introduce new
technologies that cost more and that are perceived to be risky, they
need the assurance that the same product can be sold throughout the
country and that the financial incentives will be available for enough
time to make it worth investing in production. S. 207 does this by
providing nationally uniform performance targets for buildings and
equipment that will be eligible for tax incentives for 6 full years.
It's worth mentioning that S. 207 and other policies improving
efficiency of electricity and natural gas use have immediate benefits
for consumers and the economy. Let's start with the problem of electric
reliability. Not only in California and the West, but in other parts of
the country, we are facing the risk of electrical blackouts and/or
excessively high electricity prices this summer and next. Regions that
are confronting these problems are trying to move forward aggressively
both on energy efficiency programs and on power plant construction. But
the lead times for most actions on the supply side are far too long to
provide a solution. And demand-side approaches attempted on a state-by-
state level are much less effective than coordinated national
activities.
Here, S. 207 could be a critical piece of a national solution. Air
conditioners, for example, represent about 30% of summertime peak
electric loads. Air conditioners that use a third less power can be
purchased today, but they are not produced in large enough quantities
to make a difference to peak load. If incentives are made available,
manufacturers could begin to mass-produce these products in a matter of
months, not years. Mass production and increased competition for tax
incentives will drive prices sharply lower, so the incentives will be
self-sustaining in the long-term. And with 5 million air conditioners
being sold every year, a sudden increase in energy efficiency could
have a significant effect in balancing electricity supply and demand
even after less than a year.
Another peak power efficiency measure with a very short lead time
is installing energy-efficient lighting systems--either new or
retrofit--in commercial buildings. Some 15% of electrical peak power
results from lighting in commercial buildings. Efficient installations,
such as those NRDC designed and installed in our own four offices, can
cut peak power demand by over two-thirds while improving lighting
quality. Lighting systems are designed and installed with a lead time
of months, so incentives for efficient lightings as provided in S. 207
could begin to mitigate electric reliability problems as soon as next
summer.
The second major new problem is the skyrocketing cost of natural
gas, which caused heating bills throughout the country to increase last
winter. Improved energy efficiency can cut gas use for the major uses--
heating and water heating--by 30%-50%. Much of this potential could be
achieved in the short term, because water heaters need replacement
about every ten years, and are the second largest user of natural gas
in a typical household (and largest gas user in households living in
efficient homes or in warm areas).
These types of quick-acting incentives help consumers in two
different ways: first, they provide new choices that are not now
available in practice for families and businesses that want to cut
their own energy costs while obtaining tax relief. But they also help
the non-participants, because reduced demand cuts prices for everyone.
E. Benefits of Integrated Policies to Promote Efficiency, Renewable
Energy and Limit Carbon Emissions
The beneficial impacts of policies like those described above are
magnified when assembled into an integrated program that combines
incentives for energy efficiency and renewable energy and explicit
measures to limit carbon emissions. An example of such an integrated
program can be found in the November 2000, Department of Energy Report,
``Scenarios for a Clean Energy Future.'' The policies described in the
Clean Energy Future report include greatly expanded research and
development funding for energy efficiency and renewable energy
breakthroughs, a renewable energy portfolio standard, incentives for
renewable energy production and suites of performance standards and
incentives for the vehicles, buildings, and industrial sectors. DOE's
report forecasts that together, these policies would avoid the need for
construction of over 60 percent of the nation's base-case predicted
need for new electric power plants over the next 20 years. The policies
also would lower Americans' electric bills by over $120 billion per
year, cut CO2 pollution by one-third, and slash emissions of
other pollutants in half. These policies are not the imaginings of
wild-eyed dreamers. In many cases they amount to expanding programs
that have proven to work well already: cap and trade emissions
programs; tax incentives; appliance standards; targeted research and
development programs; and well-structured voluntary performance
commitment programs. Adoption of such programs now is feasible and we
urge members of the Committee to lend their support to early enactment
of each of these measures.
Senator Kerry. Thank you very much, Mr. Hawkins.
Mr. Cassidy.
STATEMENT OF FRANK CASSIDY, PRESIDENT AND CHIEF
OPERATING OFFICER, PSEG POWER LLC
Mr. Cassidy. Thank you, Mr. Chairman, Senator.
I am pleased and honored to appear before you this
afternoon to represent my company, Public Service Enterprise
Group, and our coalition, the Clean Energy Group. The Clean
Energy Group members are Consolidated Edison, KeySpan Energy,
Northeast Utilities, Conectiv, Exelon, PG&E National Energy
Group, Sempra Energy, as well as my own company, PSEG.
Members of our coalition share a number of significant
attributes and principles. We operate and are developing power
plants in almost every region of the United States. We operate
coal, gas, and oil-fired fossil fuel generating plants and
nuclear-powered facilities. We believe in responsible
environmental stewardship. We are committed to working
cooperatively with the environmental community, Government, and
other stakeholders to promote adoption of progressive policies
that provide meaningful environmental improvements on an
economically sound and sustainable basis.
There is no question that the issues of environmental
policy, climate change, and carbon dioxide reductions present
tremendous challenges to our industry. Members of our coalition
share the view that the scientific evidence on climate change
has progressed to the point where prudent action on reducing
greenhouse gas emissions is warranted. We also share the
concerns expressed by Members of Congress, President Bush, and
members of his administration about the necessity of
maintaining a secure, diverse, reliable, and affordable
electric energy supply.
We believe we can make progress on reducing carbon dioxide
and other greenhouse gas emissions without bankrupting the
economy or eliminating coal as a viable fuel supply. One of the
key questions I and my industry colleagues confront is how best
to accommodate the requirement for environmental improvements
as we make business decisions that involve billions of dollars
and affect the lives and livelihoods of hundreds of thousands
of investors and employees.
The Clean Energy Group believes the best way to provide
business certainty on which to base these decisions is through
an integrated environmental strategy and a multi-pollutant
approach that includes carbon. The Clean Energy Group has
developed a legislative proposal that would deliver significant
reductions in power plant emissions of nitrogen oxide, sulfur
dioxide, and mercury, and implement mandatory carbon dioxide
reductions in a manner that will not compromise the
reliability, fuel diversity, or affordability of the nation's
energy supply.
The legislation calls for mandatory emission caps to be
achieved on established timetables and use of emissions trading
and other cost-effective market-based compliance techniques
that will allow industry to meet the emission caps efficiently
and at low cost.
I have attached a copy of the Clean Energy Group's
legislative proposal to my written testimony, and we look
forward to discussing it with interested members and staff at
any time. We believe the legislation will provide real and
significant environmental benefits. However, there is also a
strong business rationale for an integrated approach and for
establishing a clear policy on carbon reductions now.
Our industry needs to know now what the future
environmental requirements will be in terms of the amount of
reductions and the timetable. The issue boils down to one of
business certainty for both the electric power industry and the
capital markets we turn to for financing of new generation
projects.
We don't want to confront a situation in which we are
forced to waste or put at risk large-scale investments
predicated on one set of assumptions, only to have the rules
changed a few years down the road. Our view is that the best
and most prudent course of action and the one that will foster
investment in new energy technologies and the electric energy
infrastructure our country needs is a comprehensive program
that establishes clear, unambiguous environmental targets and
timetables over the next 15 years.
We also believe that such a program should be mandatory. If
a goal is to provide business certainty, our view is that only
a mandatory program in which all participants in the electric
generating industry are required to internalize the cost of
making necessary reductions will work. This is especially
relevant in the highly competitive wholesale power market in
which even small cost differentials can provide a material
competitive advantage for those who choose not to participate
in a voluntary program.
Again, I am honored by the opportunity to make this
statement on behalf of my company and the Clean Energy Group,
and I would be happy to respond to your questions.
[The prepared statement of Mr. Cassidy follows:]
Prepared Statement of Frank Cassidy, President and Chief Operating
Officer, PSEG Power LLC
Mr. Chairman and Members of the Committee, I am pleased and honored
to appear before you this morning to represent my company, Public
Service Enterprise Group Incorporated (PSEG), and our coalition, the
Clean Energy Group.
PSEG is a diversified energy holding company based in New Jersey
with assets and operations overseas as well as in the United States.
The company, I head is PSEG Power, a subsidiary of PSEG, and an
independent power producer and energy trading company. We have more
than 17,000 megawatts of electric generating capacity in operation,
construction, or advanced development and our energy trading business
is the 15th largest by volume in the country. PSEG's other subsidiaries
include Public Service Electric and Gas Company (PSE&G), one of the
nation's largest combined electric and gas utilities, and PSEG Global
which develops and operates energy production and distribution
facilities internationally.
The Clean Energy Group members are Consolidated Edison Company,
KeySpan Energy, Northeast Utilities, Conectiv, Exelon Corporation,
Northeast Utilities, PG&E National Energy Group, Sempra Energy, and my
company, PSEG.
Members of coalition share a number of significant attributes and
principles:
We operate and are developing power plants in almost every
region of the United States.
We operate coal, gas, and oil-fired fossil-fueled generating
plants and nuclear-powered facilities.
We believe in responsible environmental stewardship.
We are committed to working cooperatively with the
environmental community, government, and other stakeholders to
promote adoption of progressive policies that provide
meaningful environmental improvements on an economically sound
and sustainable basis.
There is no question the issues of environmental policy, climate
change and carbon dioxide reductions present tremendous challenges to
our industry. Members of our coalition share the view that the
scientific evidence on climate change has progressed to the point where
prudent action on reducing greenhouse gas emissions is warranted. We
also share the concerns expressed by Members of Congress, President
Bush, and members of his Administration about the necessity of
maintaining a secure, diverse, reliable, and affordable electric energy
supply.
We believe we can make progress on reducing carbon dioxide and
other greenhouse gas emissions without bankrupting the economy or
eliminating coal as a viable fuel supply.
Our industry is in the process of fundamental change. My company,
PSEG Power, was created just about two years ago as a result of these
changes. We own and operate generating facilities that were formerly
part of an integrated, regulated utility in New Jersey. We are now one
of the largest unregulated independent power producers in the U.S. with
an aggressive growth plan that involves entering new markets and
building new facilities.
One of the key questions I and my industry colleagues confront is
how best to accommodate the requirement for environmental improvements
as we make business decisions that involve billions of dollars and
affect the lives and livelihoods of hundreds of thousands of investors
and employees.
The Clean Energy Group believes the best way to provide the
business certainty on which to base these decisions is through an
integrated environmental strategy and a multi-pollutant approach that
includes carbon.
The Clean Energy Group has developed a legislative proposal that
would deliver significant reductions in power plant emissions of
nitrogen oxide, sulfur dioxide, and mercury, and implement mandatory
carbon dioxide reductions in a manner that will not compromise the
reliability, fuel-source diversity, or affordability of the nation's
electric energy supply.
The legislation calls for mandatory emissions caps to be achieved
on established timetables and use of emissions trading and other cost-
effective, market-based compliance techniques that will allow industry
to meet the emissions caps efficiently and at low cost.
I've attached a copy of the Clean Energy Group's legislative
proposal to my written testimony. We would look forward to discussing
it with interested Members and staff at any time.
We believe the legislation will provide real and significant
environmental benefits. However, there also is a strong business
rationale for an integrated approach and for establishing a clear
policy on carbon reductions now.
Our industry needs to know now what the future environmental
requirements will be in terms of the amount of reductions and the
timetable.
The issue boils down to one of business certainty for both the
electric power industry and the capital markets we turn to for
financing of new generating projects. We don't want to confront a
situation in which we are forced to waste or put at risk large-scale
investments predicated on one set of requirements only to have the
rules changed a few years down the road.
Our view is that the best and most prudent course of action--and
the one that will foster investment in new energy technologies and the
electric energy infrastructure our country needs--is a comprehensive,
program that establishes a clear, unambiguous environmental targets and
timetables over the next fifteen years.
We also believe such a program should be mandatory.
Clean Energy Group companies have participated in a number of
voluntary programs in the past that helped developed emissions trading
protocols for ozone precursor pollutants. These programs have been
useful tools for the industry. However, if a goal is to provide
business certainty, our view is that only a mandatory program in which
all participants in the electric generating industry are required to
internalize the cost of making necessary reductions will work. This is
especially relevant in the highly competitive wholesale power market in
which even small cost differentials can provide a material competitive
advantage for those who choose not to participate in a voluntary
program.
Again, I am honored by the opportunity to make this statement on
behalf of my company and the Clean Energy Group. We look forward to
working with Congress and the Administration to craft the policies
under which our industry will make substantial environmental progress
while it fulfills its mission of providing a secure, reliable, and
affordable supply of electric energy. I would be happy to respond to
your questions.
CLEAN ENERGY GROUP'S LEGISLATIVE PROPOSAL
107TH CONGRESS
1st Session
Bill Number
To establish a national uniform multiple air pollutant regulatory
program for the electric power generation sector
IN THE HOUSE OF REPRESENTATIVES or
THE SENATE OF THE UNITED STATES
Date Introduced
Sponsor(s)
Referred to Name of Committee
_______________________________________________________________________
A BILL
To establish a national uniform multiple air pollutant regulatory
program for the electric power generation sector
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled
SECTION 1. SHORT TITLE; TABLE OF CONTENTS
(a) SHORT TITLE--This Act may be cited as the Integrated Air
Quality Planning Act.
(b) TABLE OF CONTENTS--
Section 1. Short Title; Table of Contents
Section 2. Findings and Purpose
Section 3. Definitions
Section 4. National Pollutant Tonnage Caps
Section 5. Implementation: Sulfur Dioxide (SO2) Program
Revisions
Section 6. Implementation: Nitrogen Oxides (NOX) and
Mercury Allowance Trading Programs
Section 7. Implementation: Carbon Dioxide (CO2)
Allowance Trading Program
Section 8. New Source Review Program Revisions
Section 9. Savings Provisions
SECTION 2. FINDINGS AND PURPOSE
(a) FINDINGS--Congress finds that--
(1) fossil fuel-fired power plants, consisting of plants
fueled by coal, fuel oil, and natural gas, produce nearly two-
thirds of the electricity generated in the United States;
(2) fossil-fuel fired power plants account for approximately
two-thirds of the total SO2 emissions, one-third of
total NOX emissions, one-third of total CO2
emissions and are a leading source of anthropogenic mercury
emissions in the U.S.;
(3) many generating units have been exempt from emissions
limitations applicable to new units based on the expectation
that over time these units would be retired or updated with new
pollution control equipment. However, many of these units
continue to operate and emit at relatively high rates;
(4) pollution from existing power plants can be reduced
effectively through adoption of modern technologies and
practices;
(5) the electricity industry is being restructured with the
objective of providing lower electricity rates and higher
quality services to consumers;
(6) the full benefits of competition will not be realized if
environmental impact costs are not uniformly internalized;
(7) the ability of power plant owners to effectively plan for
the future is impeded by the uncertainties surrounding future
environmental regulatory requirements that are imposed
inefficiently on a piecemeal basis.
(b) PURPOSES--The purposes of this Act are--
(1) to protect and preserve the environment and safeguard
health by ensuring that substantial emissions reductions are
achieved at fossil fuel-fired generating facilities;
(2) to greatly reduce the quantities of mercury,
CO2, SO2, and NOX entering the
environment from the combustion of fossil fuels;
(3) to internalize the cost of protecting the values of
public health, air, land and water quality in the context of a
competitive market in electricity;
(4) to assure fair competition among participants in the
market in electric power that will result from fully
restructuring the electric industry;
(5) to provide a period of environmental regulatory stability
for owners/operators of electric generating facilities for
improved management of existing assets and new capital
investments;
(6) to achieve emissions reductions from electric generating
facilities in a cost-effective manner.
SECTION 3. DEFINITIONS
(1) Act--``Act'' means the Integrated Air Quality Planning
Act.
(2) Administrator--``Administrator'' means the Administrator
of the U.S. Environmental Protection Agency.
(3) Affected unit, for the purpose of the tonnage caps in
Section 4 and the emission reduction program provisions under
Sections 5, 6 and 7, shall have the following meaning--
(a) With respect to SO2, the term
``affected unit'' has the same meaning as in Section
402 of the Clean Air Act.
(b) With respect to mercury, the term ``affected
unit'' means a coal-fired electric generating facility
with a nameplate capacity greater than 25 megawatts
that uses a combustion device primarily to generate
electricity for sale, and with respect to NOX
and CO2, the term ``affected unit'' means a
fossil fuel-fired electric generating facility with a
nameplate capacity greater than 25 megawatts that uses
a combustion device primarily to generate electricity
for sale, including any unit that--
(i) co-generates steam and electricity if it
supplies more than one-third of its potential
capacity and more than 25 megawatts of
electrical output to the electric power grid;
(ii) serves a closed district heating and
cooling system that, on an aggregate basis,
supplies more than one-third of its potential
capacity and more than 25 megawatts of
electrical output to the electric grid.
(4) Allowance--The term ``allowance'' means an authorization
allocated by the Administrator under this Act to authorize
emissions during or after a specified calendar year, as
follows--
(a) NOX allowance shall mean an
authorization to emit one ton of NOX;
(b) SO2 allowance is defined at paragraph
5(b) of this Act;
(c) CO2 allowance shall mean an
authorization to emit one ton of CO2;
(d) Mercury allowance shall mean an authorization to
emit one pound of mercury.
(5) Eligible electric power generating unit--The term
``eligible electric power generating unit'' means incremental
increases in generation (in megawatt hours) relative to 1990
levels produced by nuclear generating units, and generation
produced by renewable energy sources, as defined herein.
(6) Greenhouse gas--The term ``greenhouse gas'' or ``GHG''
means (a) carbon dioxide, (b) methane, (c) nitrous oxide, (d)
hydroflourocarbons, (e) perflourocarbons and (f) sulfur
hexaflouride.
(7) New unit--For the purpose of the allocation provisions
under Sections 6 and 7, the term ``new unit'' means an affected
unit that has not operated for a sufficient period of time
following commencement of operation to receive allocations
under the following provisions of this Act--
(a) paragraph 6(c)(1) for the NOX and
mercury provisions, and
(b) paragraph 7(c)(1) for the CO2
provisions.
(8) Renewable energy or renewable energy sources--The term
``renewable energy'' or ``renewable energy sources'' means
electricity generated from wind, organic waste (excluding
incinerated municipal solid waste), biomass (including
anaerobic digestion from farm systems and landfill gas
recovery), hydroelectric, geothermal, solar thermal,
photovoltaic, fuel cells and other sources, all as designated
by rule by the Administrator.
(9) Sequestration--The term ``sequestration'' means the
action of sequestering carbon, either through enhancing natural
sinks (e.g., afforestation), or by capturing the CO2
emitted from fossil fuel based energy systems and storing it in
geologic formations or the deep ocean, or converting it to
benign solid materials through biological or chemical
processes.
SECTION 4. NATIONAL POLLUTANT TONNAGE CAPS
A new Title XII is added to the Clean Air Act entitled ``National
Pollutant Caps for the Electric Generating Sector'' comprised of the
following provisions--
(a) NITROGEN OXIDES (NOX)
(1) Annual Tonnage Cap--Effective January 1, 2008, the annual
tonnage cap for emissions of nitrogen oxides from affected
units in the continental U.S. shall be 2.11 million tons.
(b) SULFUR DIOXIDE (SO2)
(1) Annual Tonnage Cap--Effective January 1, 2008, the annual
tonnage cap for emissions of sulfur dioxide from affected units
in the continental U.S. shall be 4.45 million tons.
(c) CARBON DIOXIDE (CO2)
(1) Annual Tonnage Cap--
(A) From January 1, 2008 until December 31, 2011, the
annual tonnage cap for emissions of CO2 from
affected units in the U.S. shall be the amount of
emissions emitted from electric generating facilities
in calendar year 2000, as determined by the
Administrator.
(B) On and after January 1, 2012, the annual tonnage
cap for emissions of CO2 from affected units
shall be 1.925 billion tons.
(d) MERCURY
(1) Annual Tonnage Cap--
(A) For calendar years 2008-2011 (inclusive), the
annual tonnage cap for emissions of mercury from coal-
fired generating units in the continental U.S. shall
equal a 50 percent reduction from baseline mercury
emission levels, as determined by the Administrator.
(B) For calendar year 2012, and each year thereafter,
the annual tonnage cap for mercury shall equal a 70 to
90 percent reduction from baseline mercury emission
levels, the exact percentage reduction to be determined
by the Administrator by January 1, 2004 based on the
best scientific data available at the time.
(e) REVIEW OF POLLUTANT CAPS
(1) The pollutant tonnage caps established under paragraphs
4(a), 4(b), 4(c) and 4(d) shall remain in effect until [insert
date 15 years from date of enactment ].
(2) Not later than [insert date thirteen years from date of
enactment] the Administrator shall determine, based on air
quality and cost considerations, whether one or more of the
national pollutant caps should be revised.
(3) If, based on the assessment conducted in accordance with
paragraph 4(e)(2), it is determined by the Administrator that
no revisions to any of the pollutant caps are warranted, a
notice of this determination, and the supporting rationale,
shall be published in the Federal Register.
(4) If, based on the assessment conducted in accordance with
paragraph 4(e)(2), it is determined by the Administrator that
revisions to one or more of the national pollutant caps are
warranted, a proposed rulemaking reflecting such revisions
shall be published in the Federal Register no later than
[insert date 13 years and 6 months from date of enactment]. A
final rulemaking shall be promulgated no later than [insert
date fourteen years from date of enactment] and the revisions
to the pollutant cap(s) shall become effective no later than
[insert date fifteen years from date of enactment].
(5) Determinations made under this paragraph by the
Administrator shall remain in effect for another 15-year
period, wherein the review cycle established under this
paragraph shall be repeated (i.e., EPA will determine if the
caps need to be adjusted again by December 31, 2027; if not,
the determination shall be noticed in the Federal Register; if
so, a proposed rule shall be published by June 30, 2028; etc.).
(6) Notwithstanding the national pollutant caps established
pursuant to this section, emissions from individual sources may
be ordered reduced by federal or state authorities to address
local air quality problems.
SECTION 5. IMPLEMENTATION: SULFUR DIOXIDE REDUCTION PROGRAM REVISIONS
(a) REGULATIONS--Not later than January 1, 2004, the Administrator
shall promulgate revisions to its regulations implementing Title IV of
the Clean Air Act as deemed necessary to implement the provisions of
this section.
Section 402 of the Clean Air Act is amended by striking paragraph (3)
thereof and inserting the following--
(b) ALLOWANCE--the term ``allowance'' means an authorization,
allocated to an affected unit by the Administrator under this title, to
emit, during or after a specified calendar year--
(1) in the case of allowances allocated for calendar years
1995 through 2007, one ton of sulfur dioxide; and
(2) in the case of allowances allocated for calendar year
2008, and each year thereafter, an amount of SO2
determined by the Administrator and set forth in the
regulations promulgated pursuant to paragraph 5(a) that is
consistent with the new national sulfur dioxide tonnage cap
established under paragraph 4(b)(1).
SECTION 6. IMPLEMENTATION: NITROGEN OXIDES AND MERCURY ALLOWANCE
TRADING PROGRAMS
The Clean Air Act is amended by striking Section 407. A new Title XIII
is added to the Clean Air Act, entitled ``Nitrogen Oxides and Mercury
Allowance Reduction Program for the Electric Utility Sector'' comprised
of the following provisions--
(a) REGULATIONS--Not later than January 1, 2004, the Administrator
shall promulgate regulations establishing an allowance trading program
for NOX and an allowance trading program for mercury for
affected units in the continental U.S. Such regulations shall establish
the allowance system prescribed under this section, including, but not
limited to, the allocation, issuance recording, tracking, transfer and
use of allowances, and the public availability of all such information
that is not confidential. These regulations shall also establish the
requirements governing affected unit compliance with allowance limits,
the monitoring and reporting of emissions and the provisions for excess
emission penalties.
(b) NEW UNIT RESERVES--The Administrator shall establish through
rulemaking a reserve of NOX and of mercury allowances set
aside for use by new affected units.
(1) The Administrator in consultation with the Department of
Energy shall determine the size of the new unit reserves based
upon projections of generation output for new affected units--
(A) not later than June 30, 2004, the new unit
reserves for 2008 through 2012;
(B) not later than June 30, every five years
thereafter, the new unit reserves for the next five-
year control period.
(c) NOX AND MERCURY BUDGETS AND ALLOWANCE ALLOCATIONS
(1) Distribution to affected units
(A) NOX allowances shall be distributed to
affected units--
(i) not later than December 31, 2004, for
calendar year 2008;
(ii) by December 31 of each calendar year
after 2004, for the year that begins 36 months
thereafter.
(B) Subject to paragraph 6(b), the Administrator
shall distribute NOX allowances to affected
units on a generation output basis in accordance with
the following formula--
1.5 lbs NOX/megawatt hour,
multiplied by the affected unit's highest
calendar year net electricity generation (in
megawatt hours during the most recent three-
year period, on a rolling annual basis),
divided by 2000 lbs/ton.
(C) Subject to paragraph 6(b), the Administrator
shall distribute mercury allowances to affected units
on a generation output basis in accordance with the
following formula--
[0.0000227 lbs mercury/megawatthour, multiplied
by the affected unit's highest calendar year
net electricity generation (in megawatt hours
during the most recent 3 year period, on a
rolling annual basis).]
If total allocations based on this formula exceed or
fall short of the applicable caps specified in Section
4 minus the new unit reserves for that year,
allocations to affected units will be adjusted on a pro
rata basis to equal the applicable caps specified in
Section 4.
(D) An allowance shall not be considered a property
right. Notwithstanding any other provision of law, the
Administrator may terminate or limit an allowance.
(E) A distribution of allowances by the Administrator
under paragraph 6(c)(1) shall not be subject to
judicial review.
(2) Distribution to new affected units--
(A) The Administrator shall promulgate regulations
that establish a methodology for distributing
allowances to new affected units.
(B) The number of allowances available to a new unit
shall be based on actual generation output times the
permitted emission rate.
(d) NOX AND MERCURY ALLOWANCE TRANSFER SYSTEM
(1) Use of Allowances--The regulations promulgated pursuant
to this section shall--
(A) prohibit the use (but not the transfer in
accordance with paragraph 6(d)) of any allowance before
the calendar year for which the allowance is allocated;
(B) provide that unused allowances may be carried
forward and added to allowances allocated for
subsequent years;
(C) provide that such allowances may be transferred
by the person to whom allocated or to any other person.
Any person to whom such allowances have been
transferred may use the allowances in the control
period for which the allowances were allocated or in a
subsequent control period to demonstrate compliance
with paragraph (6)(e)(i) or may transfer such
allowances to any other person for such purposes.
(2) Certification of Transfer--A transfer of an allowance
shall not be effective until a written certification of the
transfer, authorized by a responsible official of the person
making the transfer, is received and recorded by the
Administrator.
(3) Permit Requirements--An allowance allocation or transfer
shall, upon recording by the Administrator, be considered a
part of each unit's operating permit requirements, without a
requirement for any further permit review or revision.
(e) COMPLIANCE AND ENFORCEMENT--
(1) Compliance With Allowance Limits--For each calendar year
beginning after December 31, 2007, the operator of each
affected unit shall surrender to the Administrator a number of
allowances for NOX equal to the total tons of
NOX emitted by that unit during the calendar year,
and a number of allowances for mercury equal to the total
pounds of mercury emitted by that unit during the calendar
year.
(2) Monitoring System--The Administrator shall promulgate
regulations requiring the accurate monitoring of the quantities
of NOX and mercury that are emitted at each affected
unit.
(3) Reporting--
(A) In general--Not less than quarterly, the owner or
operator of an affected unit shall submit NOX
and mercury monitoring reports to the Administrator.
(B) Authorization--Each report required under
paragraph 6(e)(3)(A) shall be authorized by a
responsible official of the affected unit, who shall
certify the accuracy of the report.
(C) Public Reporting--The Administrator shall make
available to the public, through one or more published
reports and one or more forms of electronic media,
unit-specific emission data for each affected unit for
NOX and mercury.
(4) Excess Emissions--The owner or operator of any affected
unit that emits NOX or mercury in excess of the
allowances the owner or operator holds for use for the unit for
the calendar year shall be liable for the payment of an excess
emissions penalty, and shall be liable to offset the excess
emissions by an equal amount in the following calendar year or
such other period as the Administrator shall prescribe. The
excess emissions penalty for NOX shall be calculated
on the basis of the number of tons emitted in excess of the
total number of allowances held, multiplied by $5,000, indexed
by inflation under rules promulgated by the Administrator. The
excess emissions penalty for mercury shall be calculated on the
basis of the number of pounds emitted in excess of the total
number of allowances held, multiplied by $10,000, indexed by
inflation under rules promulgated by the Administrator.
SECTION 7. IMPLEMENTATION: CO2 ALLOWANCE TRADING SYSTEM
A new Title XIV is added to the Clean Air Act entitled ``Greenhouse Gas
Reduction Program for the Electric Utility Sector'' comprised of the
following provisions--
(a) REGULATIONS--Not later than January 1, 2004, the Administrator
shall promulgate regulations establishing a CO2 allowance
trading program for affected units and eligible electric power
generating units operating in the U.S. Such regulations shall establish
the allowance system prescribed under this section, including, but not
limited to, the allocation, generation, issuance recording, tracking,
transfer and use of CO2 allowances, and the public
availability of all such information that is not confidential. These
regulations shall also establish the requirements governing affected
unit compliance with allowance limits, the monitoring and reporting of
emissions and the provisions for excess emission penalties. In
addition, the regulations adopted by the Administrator under this
section shall establish standards, guidelines and procedures governing
the creation, certification and use of additional allowances requested
under the flexibility mechanism provisions of paragraph 7(d) of this
Act.
(b) NEW UNIT RESERVE--The Administrator shall establish through
rulemaking a reserve of CO2 allowances set aside for use by
new affected units.
(1) The Administrator in consultation with the Department of
Energy shall determine the size of the new unit reserve based
upon projections of generation output for new affected units--
(A) not later than June 30, 2004, the new unit
reserve for 2008 through 2012;
(B) not later than June 30, every five years
thereafter, the new unit reserve for the next five-year
control period.
(c) CO2 BUDGETS AND ALLOWANCE ALLOCATION
(1) Distribution of CO2 allowances
(A) CO2 allowances shall be distributed--
(i) not later than December 31, 2004, for
calendar year 2008;
(ii) by December 31 of each calendar year
after 2004, for the year that begins 36 months
thereafter.
(B) The Administrator shall distribute CO2
allowances to affected units and eligible electric
power generating units in proportion to each such
unit's share of the total electric power generation
attributable to the generation of affected units and
eligible electric power generating units. The
distribution shall not exceed the CO2
tonnage budget established in paragraph (4)(c) minus
the new unit reserve established under paragraph
(7)(b).
----------------------------------------------------------------------------------------------------------------
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Alternative allocation option:
(B) The Administrator shall distribute CO2 allowances to affected units and non-fossil fired generating units
serving the grid, including accepted energy efficiency projects that reduce electricity demand from the grid.
CO2 allowances shall be distributed in proportion to each unit's or projects' share of the total electric power
generation and, in the case of energy efficiency projects, accepted energy efficiency projects' contribution to
reductions in electricity demand. The distribution shall not exceed the CO2 tonnage budget established in
paragraph (4)(c) minus the new unit reserve established under paragraph (7)(b).
For this section, the term ``accepted energy efficiency project'' means any end use energy efficiency projects
as defined by the Independent Review Board as referenced in subsection (d) of this section.
----------------------------------------------------------------------------------------------------------------
(C) In determining a unit's share of total electric
power generation, the Administrator shall consider the
unit's highest utilization level, in megawatt hours,
during the most recent three-year period, on a rolling
annual basis.
(D) A CO2 allowance shall not be
considered a property right. Notwithstanding any other
provision of law, the Administrator may terminate or
limit a CO2 allowance.
(E) A distribution of CO2 allowances by
the Administrator under paragraph 7(c)(1) shall not be
subject to judicial review.
(2) Distribution to new affected units--
(A) The Administrator shall promulgate regulations
that establish a methodology for distributing CO2
allowances to new affected units.
(B) The amount of CO2 allowances available
to a new unit shall be based on actual generation
output times the permitted emission rate.
(d) COMPLIANCE FLEXIBILITY MECHANISMS
(1) Independent Review Board--An Independent Review Board
shall be established to assist EPA's implementation of the
flexibility mechanisms provided for under this section.
Requirements related to the creation, composition, duties,
responsibilities and other aspects of the Independent Review
Board shall be included in the regulations developed by the
Administrator under paragraph (7)(a).
(A) The Board shall be comprised of 11 members--one
representative of EPA (who shall also serve as
chairperson of the Board), one representative from the
Department of Energy, three representatives from state
government, three representatives from the electric
generating sector and three representatives from the
environmental community. The Review Board shall report
to the Administrator, who shall provide staff and other
resources to the Board as necessary. The Administrator
will respond promptly to requests for support.
(B) The Board shall promulgate guidelines for
certifying the additional allowances. The guidelines
shall be promulgated by (i) January 1, 2003 for
allowances generated pursuant to paragraph C(i) below,
and (ii) January 1, 2005 for allowances generated
pursuant to paragraph C(ii). The Board shall be
responsible for periodically updating these guidelines
as appropriate.
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Placeholder: Pending the outcome of analysis of the economic impacts of the unconstrained creation of off-site
and off-sector allowances, CEG will determine whether there should be language placing constraints in this
section.
----------------------------------------------------------------------------------------------------------------
(C) The Board shall be responsible for certifying
additional allowances requested, pursuant to the
following--
(i) For actions completed on or after January
1, 1990 and prior to January 1, 2008,
allowances for early action, limited to 10
percent of the tonnage cap of 1.925 billion
tons established in Section 4, will be granted
for the following types of projects--
(a) domestic and international
projects that effectively sequester
carbon;
(b) projects reported under Section
1605 of the Energy Policy Act of 1992;
(c) domestic and international
projects that reduce greenhouse gas
emissions.
(ii) For actions completed on or after
January 1, 2008, allowances will be granted for
the following types of projects--
(a) domestic and international
projects that effectively sequester
carbon;
(b) CO2 reductions from
greenhouse gas sources not meeting the
definition of an affected unit.
(iii) For CO2 reductions achieved
from investments in new renewable energy
projects and for investments in energy
efficiency projects, allowances will be granted
according to the following guidelines--
(a) Between January 1, 2002 and
December 31, 2007, one allowance shall
be granted to applicants for every $15
invested in a certified new renewable
energy project or efficiency project.
(b) Between January 1, 2007 and
December 31, 2014, one allowance shall
be granted to applicants for every $25
invested in a certified new renewable
energy project or energy efficiency
project.
(c) No CO2 allowances will
be granted for investments made in
renewable energy projects or energy
efficiency projects after December 31,
2014.
(2) The Issuance and Use of Allowances
(A) The Administrator shall make available allowances
to projects that receive certification by the
Independent Review Board. The allowance shall be in
addition to the tonnage budget set forth in paragraph
4(c).
(B) The regulations promulgated pursuant to paragraph
7(a) shall allow sources to purchase and use CO2
allowances that are traded under other domestic or
internationally recognized CO2 reduction
program and to use these allowances as a compliance
option for the domestic program created by this Act.
(e) CO2 ALLOWANCE TRANSFER
(1) Use of CO2 Allowances--The regulations
promulgated pursuant to this section shall--
(A) prohibit the use (but not the transfer in
accordance with paragraph 7(e)(2)) of any CO2
allowance allocated by the Administrator before the
calendar year for which the CO2 allowance is
allocated;
(B) provide that unused CO2 allowances
allocated by the Administrator may be carried forward
and added to CO2 allowances allocated for
subsequent years;
(C) provide that such allowances may be transferred
by the person to whom allocated or by any other person.
Any person to whom such allowances have been
transferred may use the allowances in the control
period for which the allowances were allocated or in a
subsequent control period to demonstrate compliance
with paragraph (7)(f)(2), or may transfer such
allowances to any other person for such purposes;
(D) provide that allowances originally allocated and
transferred pursuant to this section may be transferred
into any other market-based CO2 emissions
trading program approved by the President and
implemented pursuant to regulations developed by the
Administrator or other federal agency.
(2) Certification of Transfer--A transfer of a CO2
allowance shall not be effective until a written certification
of the transfer, authorized by a responsible official of the
person making the transfer, is received and recorded by the
Administrator.
(3) Permit Requirements--A CO2 allowance
allocation or transfer to an affected unit shall, upon
recording by the Administrator, be considered a part of each
affected unit's operating permit requirements, without a
requirement for any further permit review or revision.
(f) COMPLIANCE AND ENFORCEMENT--
(1) Compliance with the CO2 cap can be achieved as
follows--
(A) From 2008 through 2014 inclusive, compliance may
be demonstrated though the use of CO2
allowances distributed under paragraph 7(c) or 7(d).
(B) After 2014, compliance may be demonstrated though
the use of CO2 allowances distributed under
paragraph 7(c), or any internationally recognized
flexibility mechanisms in place at the time.
(2) Compliance With Allowance Limits--For each calendar year
beginning after December 31, 2007, the operator of each
affected unit shall surrender to the Administrator a number of
allowances for CO2 equal to the total tons of
CO2 emitted by that unit during the calendar year.
(3) Monitoring System--The Administrator shall promulgate
regulations requiring the accurate monitoring of the quantity
of CO2 that is emitted at each affected unit.
(4) Reporting--
(A) In general--Not less than quarterly, the owner or
operator of an affected unit shall submit a report on
CO2 emissions from the unit.
(B) Authorization--Each report required under
paragraph (A) shall be authorized by a responsible
official of the generating unit, who shall certify the
accuracy of the report.
(C) Public Reporting--The Administrator shall make
available to the public, through one or more published
reports and one or more forms of electronic media,
CO2 emissions data for each affected unit.
(5) Excess Emissions--The owner or operator of any affected
unit that emits CO2 in excess of the allowances the
owner or operator holds for use for the unit for the calendar
year shall be liable for the payment of an excess emissions
penalty, and shall be liable to offset the excess emissions by
an equal amount in the following calendar year or such other
period as the Administrator shall prescribe. The excess
emissions penalty shall be calculated on the basis of the
number of tons emitted in excess of the total number of
allowances held, multiplied by $100, indexed by inflation under
rules promulgated by the Administrator.
SECTION 8. NEW SOURCE REVIEW PROGRAM REVISIONS
Section 165 of the Clean Air Act is amended by the following--
The Administrator shall promulgate revisions to its New Source Review
(NSR) regulations, including its Prevention of Significant
Deterioration (PSD) requirements.
(a) The regulations shall revise the NSR/PSD applicability criteria
for affected units under either Section 4(a) or (b) such that--
(1) Physical changes or changes in the method of operation at
affected units shall not be subject to the NSR/PSD regulations
and are not subject to EPA approval if--
(A) the project does not meet the definition of the
term ``reconstruction'' as defined in 40 CFR 60.15, or
(B) the project does not result in an increase of the
affected unit's emission rate on a lbs/megawatt hour
basis.
(2) Projects that do not meet the criteria set forth in
paragraph 8(a)(1) shall be subject to the existing NSR/PSD
applicability provisions and general requirements.
(b) The regulations shall continue to apply NSR/PSD to proposed new
units, with the following changes--
(1) New sources locating in non-attainment areas shall not be
required to obtain emission offsets.
(2) The definition of ``Lowest Achievable Emission Rate
(LAER)'' technology shall be revised to allow costs to be
considered in the determination of what constitutes LAER, such
that new sources will not be required to install LAER
technology if the cost exceeds a threshold amount (in dollars
per ton) to be determined by the Administrator. This LAER cost
threshold amount may not be less than twice the amount of the
BACT cost guideline.
SECTION 9. SAVINGS PROVISIONS
Except as specifically provided herein, nothing in this section--
(1) affects the permitting, monitoring and enforcement
obligations of the Administrator under the Clean Air Act (42
U.S.C. 7401 et seq.) and the remedies provided thereunder;
(2) affects the requirements and liabilities of an affected
facility under the Clean Air Act;
(3) requires a change in, affects, or limits any state law
regulating electric utility rates or charges, including
prudency review under state law; or
(4) precludes a state or political subdivision of a state
from adopting and enforcing any requirement for the control or
abatement of air pollution, except that a state or political
subdivision may not adopt or enforce any emission standard or
limitation that is less stringent than the requirements imposed
under the Clean Air Act.
Senator Kerry. Well, thank you very much. I want to thank
all four of you. We had some very helpful and very important
testimony, each point of view contributing significantly to the
way in which we could start to think about this constructively.
Mr. Cassidy, let me just ask you quickly since you just
finished. Vice President Cheney has said that we need to build
1,300 electric power plants over the next 20 years. Yet last
year the Department of Energy reported that energy efficiency
in renewable power sources could meet 60 percent of the
nation's need for new power plants.
What is PSEG's view with respect to these differing points
of view? What is your view?
Mr. Cassidy. I can't, in my head, Mr. Chairman, do the math
as between whether 60 percent of requirements can be met by
renewables and efficiency in new power plants. I would say, as
you said earlier today, that an approach that is going to work
has to emphasize new technology, efficiency standards, and the
construction of new environmentally efficient plants replacing
older inefficient plants.
Senator Kerry. Well, is PSEG diversifying into renewable
power?
Mr. Cassidy. We are always on the lookout for new
investments that make sense. We have done quite a bit of work
on landfill and natural gas projects in the state of New
Jersey. Other members of our coalition have made similar
investments.
Senator Kerry. What was your reaction to the preceding
panel, to both the fuel cells and wind power discussions?
Mr. Cassidy. My reaction is that they are--that both wind
power and fuel cells will need to be a part of solving the
carbon problem that we are trying to solve. I don't believe
that efficiency and renewables alone can be the total solution.
Senator Kerry. Mr. Hawkins, what is your reaction to that?
Mr. Hawkins. Well, I think the administration is really a
prisoner of its own assumptions. They started with adding up
the current supply, and then they looked at forecasts of what
future demand for total energy might be--and then the next step
they took was where they went wrong. Basically you can fill
that gap between supply and demand with either clean resources
or dirty resources, and they basically assumed that it was all
going to have to be filled with conventional dirty resources,
more fossil, more nuclear, and they didn't look at the option
of filling as much of that gap with clean resources.
The analysis that did look at the clean resource option was
the Clean Energy Futures report by the Department of Energy,
and what that analysis indicated (using the metric that Vice
President Cheney uses of 1,300 power plants)--it indicated that
of those 1,300 power plants, 600 could be avoided by improving
efficiency, so that you would get the same energy services, but
you wouldn't need to build as many power plants to deliver
those energy services.
Two hundred additional of those power plants would be
fueled by renewable resources rather than fossil resources. It
is that difference in approach that produces a different
result. You can start by filling up the gap with dirty
resources and then say, Oh, let's add something in on
efficiency and renewables, so that we can say we have a
balanced package, or whether you prioritize it the other way
and say, OK, let's see how much we can deliver with the
cleanest resources first, and then meet remaining needs with
the dirtier resources.
Senator Kerry. And when you talk about those 200 renewable
plants, is that based on current rate of deployment of existing
technology, or is that looking down the road?
Mr. Hawkins. No. That is based on the adoption of policies
that would develop additional renewal resources, create tax
incentives, create performance objectives, and otherwise
provide more incentives for efficiency and renewable energy. It
is also influenced by the adoption of policies that would
provide an economic reward for renewable energy resources,
specifically caps on carbon emissions in the electric sector.
If you put a cap on carbon emissions from the electric
sector, as Frank Cassidy has indicated, you send a signal to
the market. You make it economically more attractive at the
margin for a power plant developer to build a power plant that
runs on renewable energy rather than one that runs on fossil
energy, because the renewable fuel power plant won't have to
get carbon permits from the market.
Senator Kerry. Now, with respect to what you heard in the
discussion I had with Dr. Evans at the very beginning, he made
a point of separating what he can recommend in the context of
the realities of the science, versus making a policy judgment.
What is it that compels you, based on the science you've seen,
to make the judgment you make that you need to move
authoritatively to deal with this now?
Mr. Hawkins. Well, it is this momentum of the system, the
fact that we are inevitably and irretrievably building up
carbon concentrations in the atmosphere. We know those
increased carbon dioxide concentrations are linked to
increasingly higher risks of climate change. We know that those
potential climate changes are ones that haven't been
experienced in the evolutionary history of the living systems
that surround all of us. They certainly haven't been
experienced in the history of human societies that have
developed, and we know that we are sticking ourselves and our
children with the consequences of those things.
So from a standpoint of prudent behavior, if we don't
understand the magnitude of the harm that we may be inflicting
and we know that we are creating centuries' worth of harm by
continuing on this current pace, we are leaving behind options
to reduce the risk. Our current approach is a gamble and that
is a winning strategy only if you are sure you are going to
win. You know, if you have got a flip of the coin, if you want
to maximize your income, if you are sure you are going to win,
you bet all your assets on heads. And if you are sure it is
going to be heads, but that is only a winning strategy if you
are sure it is heads.
Now, is there reason to believe the effects of increasing
carbon dioxide concentrations will be trivial or beneficial? We
have no basis for believing that at all, and we shouldn't be
betting our economies on that assumption.
Senator Kerry. Well, isn't it, in fact, more than that. You
do not have a basis for not knowing it won't be beneficial, but
you have a basis for knowing it is, in fact, going to be
negative, isn't it?
Mr. Hawkins. All of the plausible information is that these
will be harmful effects. All of the analyses that have been
done say that the higher probability outcome of these increased
concentrations is to produce climate changes that are not going
to be beneficial to the planet as a whole, are going to be
highly detrimental to lots of places, lots of ecosystems, lots
of people. Unfortunately, the poorest people in the world may
suffer the most, because they are least able to adapt and
because they are living in fairly extreme circumstances to
begin with.
So, yes. All of these factors point to the need for action
to reduce emissions. My attempt was to be extremely generous to
the other side's premises in answering your question.
Senator Kerry. I see. In other words, you are just leaving
it out there. Fair enough. I understand. I want to ask Ms.
Claussen the same thing, but let me just ask you very quickly,
Mr. Hawkins, before I do. In reading the energy policy of
President Bush, he suggests the answer is in voluntary action,
noting that the carbon intensity of the U.S. economy, quote,
``declined 15 percent during the 1990's.'' And I don't
understand that. Last year, U.S. carbon emissions increased 2.7
percent in that 1 year alone. Can you address that discrepancy?
Mr. Hawkins. The rate of carbon emissions per unit of gross
national product went down modestly during the last decade.
Unfortunately, the atmosphere really doesn't care about that.
What the atmosphere cares about is the tons of emissions, and
the tons of emissions went up by 16 percent.
Senator Kerry. So in other words, a game is being played
essentially in the way in which it is being reported.
Mr. Hawkins. Yes. The relevant environmental statistic is
how much did the tons of pollution go up, and the tons of
carbon pollution from the U.S. economy went up by 16 percent.
Senator Kerry. Ms. Claussen, did you want to comment on the
previous question asked? If you didn't, I do have a question I
wanted to ask you.
Ms. Claussen. I did, because I thought David Hawkins was
being so conservative. I think if you look at the results of
the Intergovernmental Panel on Climate Change, if you look at
the report from the National Academy that the President asked
for, if you look at all the reports that we have done using, I
think, some of the best scientists in this country, looking at
environmental impacts in this country, I think there is no
question that we are talking about something that will have
negative environmental impacts, whether it is sea level rise or
ecosystem destruction or effects on water resources or effects
on agriculture.
And I think it is not only prudent but it is really
important that we figure out how to reduce our emissions of
greenhouse gases and how to sequester those that we do put up
there, and I think we should use every tool that we can.
Whether it is energy efficiency or it is new technologies or it
is new less-carbon-intensive power plants or whether it is
carbon sequestration, it seems to me that all the tools in the
tool box are ones that ought to be used.
Senator Kerry. Now, can you share with the Committee--you
have been a leader in trying to bring corporate leaders, CEOs,
to the table, and, we keep being given, I think, a false
presentation of this entire problem, suggesting such draconian
negative impacts on business and the economy, et cetera.
But on the other hand, you have corporations and industry
leaders who have come together with you to take action as part
of the Pew Center's Business Environmental Leadership Council.
Thirty-three of the largest and most successful U.S.
corporations have stated that the Kyoto agreement is a first
step in addressing climate change, and, in fact, more must be
done.
What is it that your corporations see? Maybe you would say
who they are, what are they seeing, and why do they feel
compelled to move, while others are somehow trying to avoid
this and go in a different direction?
Just share your experience with us.
Ms. Claussen. Sure. let me first say that--I am happy to
say that it is now 36 rather than 33, because I think we are
continuing to add companies who share the view that the science
is sufficient to take some action, and----
Senator Kerry. What kind of companies? What are you talking
about?
Ms. Claussen. Well, let me give you some ideas. I mean, we
have got aluminum companies like ALCOA. We have electric
generators like American Electric Power and Cinergy and Pacific
Gas and Electric and Wisconsin Energy. We have got aircraft
companies like Boeing, United Technologies and Lockheed-Martin.
We have got cement companies like Holnam and California
Portland Cement Co. We have got forest products companies like
Georgia Pacific and Weyerhauser; appliance companies like
Whirlpool and Maytag, Intel and IBM. So, I mean, it is a real
range among these 36. We cover almost all sectors. We have even
got a diesel engine manufacturer, Cummins, and obviously DuPont
and companies like that.
It is a real mix, and I think they have come together, one,
because they think there is sufficient science; two, because
they think they can do something about it, and 16 of these
companies have already set internal targets to reduce their
emissions and put in place programs to do it, and because they
think there is a real need for public policy to help move this
in the right direction.
And I think if you look at what they are doing, these are
not foolish companies. These are companies who are in business
to make a profit, who want to look ahead to what the world is
going to be like in ten or twenty or thirty years from now, and
who want to be there with the new technologies and the new
systems, and who are trying everything out right now as they
get ready for this, because they think it is something that has
to be done.
And so, I mean, sure there are companies who are on the
other side of this. I mean, we have got some oil companies, but
there are oil companies who have a different point of view. I
think these are the most forward-looking companies, and I think
most of those who are, quote, on the other side, end of quote,
are sort of worried about what happens to them tomorrow, and
there are legitimate issues about what happens to them
tomorrow. If you are a coal company, you may wonder.
But I have to say that we have now got a big mining
company, a global mining company, with substantial coal
resources in the United States, and they think this is a
serious problem, that something needs to be done, and they
agree with us that we need some kind of a mandatory program,
and so even companies who mine coal, let alone burn it, because
we have got some of those, too, believe that something has to
be done here.
Senator Kerry. Dr. Sandor, you have been waiting patiently.
Dr. Sandor. Yes. To make one point, the purpose of a market
is really to help you understand the winners and losers and not
to pick them. That is the whole purpose of the debate. The
question of renewables is very easy to answer once you price
carbon. For example, at the low end of the scale of current
forecasts, that is, as low as $20 per ton carbon, you change
the dynamics, and you would probably get rid of all the
landfill methane leakage in the United States.
Some economists are saying carbon prices may be $200 a ton.
At $200 a ton, you basically would turn the U.S. agricultural
sector entirely into sequestration and add $60 billion in net
farm income. The best step we can take is to implement and to
get those numbers. The actors can take advantage of the
investment opportunities. We could avoid policies which
subsidize a particular technology because the market will,
indeed, reveal to you what farmers should be doing, what solar
power companies should be doing.
And with all due respect, comments about support for action
on global warming can really be implemented much better by
joining an exchange, putting a cap-and-trade system in place,
and executing and informing the debate, and that is the
critical part. There is far too much talk about the subject and
no action. The action and activity of markets will bring you
the information that one needs to make the decisions.
So I just don't get it. We talk about it. I think the
companies that have bought into the climate exchange are going
to do something. They are actually going to do it. They are not
going to say, ``We worry about global warming.'' They are going
to talk and implement. Those that join are going to do
something and take a positive action. The talk doesn't help us
in the debate. We have got to become numerate and not just
literate.
Senator Kerry. Senator Brownback.
STATEMENT OF HON. SAM BROWNBACK,
U.S. SENATOR FROM KANSAS
Senator Brownback. That is, I think, an excellent comment,
Dr. Sandor. One of our former colleagues that was here has
commented to me previously that until we find a way to measure
something, we don't really know how to change it. We have got
to be able to put a quantifiable figure on it, and then we can
move from that point in time. And I think that is a good way of
looking at it.
As I understand the panel, if I have heard your testimony
correct, you all support some sort of trading system--and from
that, then, to a cap-and-trading system. Is that correct? Dr.
Sandor, in particular, I want to understand this. Is that your
position, that you feel like we should have a mandatory,
federally set capping system, then the trade from that?
Dr. Sandor. Yes. The system that we have implemented is a
cap-and-trade system.
Senator Brownback. OK. So everybody on the panel does
support some form of cap-and-trade type of system. Dr. Sandor,
to move your concept forward, what sort of Federal actions
would be required? You would have to set a cap and then I
presume some form of measurement where there is a definable
measurement that is traded, or can the marketplace establish
that?
Dr. Sandor. The Chicago Climate Exchange is voluntary, so
in the absence of a mandated cap, there is a significant amount
of help that you can give us. You can give us an allowance
tracking system; measurement help for companies in the
industrial sector; the power sector; and in the soil
sequestration. Anything that will facilitate the measurement
process and develop an inventory level of emissions and offsets
and how they occur wil help the market.
You can help us in terms of distributing educational
information to the agricultural community. For example, options
for changes in tillage practices and how they impact soil
sequestration, so we can take advantage and add another crop
for farmers.
You can, in fact, help support education and work on
verification. Things like the Jet Propulsion Laboratory, which
is doing flyovers with radar and other technologies to measure
forests with satellite sensing systems. All these are new
technologies, by the way, which are exportable. I think it is
amusing that we have been involved in three carbon trades. One
is a reforestation project of the Salish and Kootenai tribes in
Montana. Another is landfill gases throughout the United
States, and a third one is the Nuon trade. In all cases,
American companies exported their environmental services and
credits abroad. I find that an interesting anecdotal note.
So you could give us the verification skills, the
monitoring skills, the tracking, and most importantly, you can
give companies who trade some baseline protection, that is,
credit for early action. This, to me, is a key driver, and so--
--
Senator Brownback. Let's expand that. By credit for early
action, you are saying that if they take action now, they will
be given credit for this, under any sort of regime that
follows.
Dr. Sandor. Yes.
Senator Brownback. National or international.
Dr. Sandor. Yes. And these companies now are drivers. they
are motivated to join this exchange for several reasons. One of
them, there are great states like Massachusetts that are
already implementing a cap-and-trade program, so there will be
state efforts. And in the West, there are also some efforts.
There is a Danish program. There is a UK program coming next
year. All of the companies that may comply as multi-nationals
should be protected or given credit for any action they take
now, in spite of the fact that there is no mandate, so we can
encourage them to continue to do this.
Senator Brownback. Mr. Hawkins, if we could, or any other
panelist if you would like to respond to this, it seems to me
if we go toward a cap-and-trade type system, that it answers a
lot of the questions that you have put forward of moving us
toward renewables and carbon sequestration, because you put an
environmental cost onto carbon. It seems to me, rather than
going through a number of tax credits, that you are just better
off putting in place a market mechanism here, and letting the
market then sort those factors out.
How would you respond to that?
Mr. Hawkins. Well, I think I would respond that there
unfortunately is often a difference between the theoretical
ideal and what Congress is actually able to legislate, and my
hunch is that this Congress is probably not going to legislate
a cap at a level that is going to be sufficient to send a
signal to all sectors of the economy, that this is a serious
effort. I certainly hope that this Congress will do so, but I
think that we need a more robust and diverse portfolio approach
politically to this question.
There are a number of techniques which can enjoy broad
support in Congress that would apply differently to different
sectors, and I think that is the principal value of moving
forward with some tax incentive programs, with some sector-
specific programs like the CAFE standards for the vehicle
sector, and with a cap-and-trade program for the electric
sector. It is a mix of strategies. It allows members to mix and
match in terms of their own policy preferences and needs, and
still gets the job done. It ain't perfect; it ain't the
theoretical ideal, but that doesn't often happen in this town.
Senator Brownback. What if you are able to put forward, Mr.
Hawkins or Ms. Claussen, a system where you were able to just
simply bank greenhouse gas credits? Something that could get
through in your more practical model of Congress, a system of
allowing companies to take credit for early action at this
point in time?
Ms. Claussen. Let me try to answer that a little bit. I
think that is a very important first step, because some of
these companies have actually started to do some really
terrific things, and I think it is really important that they
not be penalized for the things that they have done. In fact,
you want them to continue doing it, and you want others to do
it as well, so putting in some kind of baseline protection,
some kind of recognition for what they have done, some kind of
credit for early action, I think, is really important.
But in the end, I think what you need is some combination
of carrots and sticks. I think you do need some incentives to
move the technology. I think you do want to have some kind of a
mandatory cap. I don't think it has to be that stringent when
you are getting started. I think you can put something in place
that starts to send the right signals and that gradually over
time becomes more and more stringent.
So, you know, the idea of voluntary versus mandatory--
mandatory doesn't mean so stringent that it breaks the bank. It
just means something that is real and something that is spread
across the country, not just in a few people who actually
choose to do it. So I am sort of favorably inclined toward
something that maybe is relatively modest, but something that
sort of puts in place the right things to get us moving. And I
think once we start moving, we will find that we can really
move pretty fast and pretty far.
Senator Brownback. Dr. Sandor, you wanted to respond.
Dr. Sandor. Yes. I would respectfully disagree with the
comments about a variety of regulatory approaches and this
body's ability to pass legislation. I have a great deal of
faith in this body, the Senate's ability to do it. I think the
SO2 program is a perfect example. The same sorts of
criticisms were leveled at it. It wasn't stringent; it only had
100-plus facilities; it was terrible; it was a camel, which is
a horse designed by a committee; it wasn't ever going to fly,
and it wasn't going to work.
This past year, the total cost of the program--and it is in
its second, more stringent phase, as Ms. Claussen indicated,
which was supposed to be the back-breaker of U.S. industry,
cost $2 billion per year, and the reduced medical costs
associated with lung disease alone were $12-$40 billion per
year. This was called a terrible program that the Senate
designed; some said it would never work, but now we know all of
the social benefits are there, and all of the economics are
there. So please keep at it, gentlemen.
Senator Brownback. Yes, Mr. Hawkins.
Mr. Hawkins. I wanted to followup to your earlier question,
but first let me be sure to say that I was one of the strong
supporters of the 1990 acid rain legislation, both on its
introduction and its passage, and I think it has----
Senator Brownback. You picked a good horse.
Mr. Hawkins. It has been a great success. On the question
of the early action credits, I want to flag a concern that
adopting an early action credit policy without a cap invites
strategic game-playing. It invites the kind of problems we have
seen with the existing registry of the Department of Energy,
the 1605(b) program where people basically create their own
baselines to maximize the number of credits in their account.
This in turn can establish, in effect, a lien on future policy
decisions, because you have all these entitlement holders, and
you haven't made a policy to actually limit carbon emissions.
The dynamic changes in the right direction if you have an
early action credit policy combined with a cap. So, for
example, if we adopt--if we enact S. 556, the cap program for
power plants, it doesn't impose immediate caps on the power
sector. The caps kick in some years down the road. But there
may be some entities in the sector that want to move sooner and
are able to move sooner. They should get credit for doing so,
but those are going to be real tons, because they know they are
going to be accountable in the cap system, so you avoid the
problem of ``play money'' credits that you create if you have
an early action credit scheme and no cap.
Senator Brownback. That is a good comment.
Mr. Cassidy.
Mr. Cassidy. I just reinforce Ms. Claussen's comment that a
mandatory system doesn't have to be a straightjacket. Our own
legislative proposal features steadily more stringent caps and
steadily less flexible trading and incentive mechanisms, and we
think that is the approach that makes for the most efficient
and effective implementation.
Senator Brownback. Mr. Chairman, I want to thank you for
holding the hearing and particularly for this panel. I think
there are a number of things that can be agreed upon and that
we can move forward on. I don't think we can do the whole
thing. I don't think we should do the whole thing at once, but
I think there are some pretty sensible mechanisms.
I have visited one place in Brazil earlier this year where
a group of companies and environmental groups purchased nearly
75,000 acres of land to reforest for carbon benefits. This is a
beautiful project that they are working on, good local input.
Some of these things, I think, can really solve a couple of
problems and they amount to a no-regrets policy. I am not sure
if somebody in an earlier panel mentioned that, but I think
there are some steps that can be made that make good sense.
There is no regret on this, regardless of how things move
on forward, and you create some business certainty out here for
people that Mr. Cassidy and others represent that need that in
long-term planning, need a 20-year horizon to be able to know
if the type of investment they are taking is going to be stable
or if it is going to be undercut by changes in laws that could
occur. I think those involve some form of trading system and
some form of banking system, where we can figure out what is a
carbon credit.
Mr. Hawkins' point, I think, is a valid one. People just
kind of create on their own types of carbon credits for down
the road, and say, ``Well, I have got 20 of my carbon credits;
how many do you have of yours?'' Instead, we can create a
standardized carbon credit, and that probably, Dr. Sandor,
would help enormously in your market mechanisms as well, even
if we did that simple step this year. And I think there would
be a broad base of support for that so I think there are a
number of items there we can move foward.
I am appreciative of this panel and appreciative of your
leadership in working on the topic.
[The prepared statement of Senator Brownback follows:]
Prepared Statement of Hon. Sam Brownback,
U.S. Senator from Kansas
Mr. Chairman--I thank you for calling this hearing to investigate
the new technologies on the horizon that will help us deal with the
significant problem of global climate change. I commend the positive
approach this hearing is taking in looking for solutions--areas of
agreement, rather than focusing on that which divides us. I know of the
chair's personal interest and commitment to this issue and I thank him
for this opportunity.
The issue of global climate change has been controversial as long
as its been an issue. Is the Earth's climate changing to a less
hospitable place to live? At what rate is this change occurring? Is
mankind responsible for some or a large part? How can you solve a
problem that is global and involves the changing one of the basic
economic engines of most economies--a cheap and abundant energy supply?
How do we engage developing countries who will soon surpass the U.S. as
largest greenhouse gas emitters?
Invariably, there are more questions than answers to this
complicated issue. But, just because there are difficult and sometimes
incomplete answers, does not mean we should continue to avoid the
questions. We need to find ways to address this problem that avoid the
traditional approach to environmental problems of assigning winners and
losers. There are numerous promising technologies and new uses for old
measures--such as conservation and carbon sequestration, that can bring
progress forward without inflicting economic burdens. It is certainly
more flashy to cast this problem in terms of all or nothing solutions--
but that is never how true progress is achieved.
Some of my colleagues are pushing for more research. I agree, this
is a needed piece of the puzzle. But we can and should do more than
that. We should be encouraging an aggressive investment in new cleaner
technologies--which will, over time, create the economic means for us
to tackle this problem in a more complete way than merely imposing
punishing controls. But if we are to avoid arbitrary caps and burdens
to industry, then industry must step forward and address the growing
concerns posed by greenhouse gases. I am pleased that in my work on
this issue, I have met with numerous companies who have accepted this
challenge--specifically American Electric Power and BP have done
pioneering work in finding cost effective ways to bring down or offset
emissions.
I look forward to hearing more about the technological approaches
being pursued and ways in which this body can assist in bringing these
promises to fruition.
Senator Kerry. Well, Senator Brownback, I thank you very
much, and I know you have been interested in this, and you have
traveled to a number of the meetings, and it is going to be
important to have your participation in it, and I certainly
look forward to trying to do that.
I do think, if you listened to Dr. Evans who spoke on
behalf of the administration, I presume, because he was the
only witness we could get here from them, his testimony made it
very clear that we have got to have a policy of no net
emissions at some point. And every panelist has essentially
agreed that the goal here is to try to get to a point where the
science says unequivocally, that you can't keep adding CO2
to the atmosphere.
The second panel presented a very interesting set of
possibilities for ways in which you can avoid some of the
hysteria that has surrounded this so-called debate. There are
draconian pictures drawn that are just not what we face when
you look at some of the things happening in the marketplace
already, when you look at some of the technologies that are
readily available, when you look at the narrowing down of the
cost per kilowatt hour between what is dirty and what is clean.
It is so close at this point in some regards that shame on us
if we don't find a way to try to not pick a particular
technology, but to create a framework where the marketplace is
going to be able to decide which one of those works best and
how.
I do think that Ms. Claussen's point about some kind of
target is very realistic. None of us want to create a draconian
outcome here that requires something unrealistic or has
implications that can't be enforced or that disadvantages the
United States relative to what others are being asked to do or
are doing. But I think most people are looking at some
potential goals and targets here that could at least create a
mind-set, send a message that would establish our bona fides
with respect to the others that we are trying to negotiate with
and create a global partnership with in this effort.
And I think that it would have a profound impact on the
marketplace, so that without ever getting draconian, we could
excite the marketplace to recognize how serious it is. I mean,
Ms. Claussen has these 36 companies--Intel, IBM is moving,
ALCOA is moving, Polaroid. I mean, these are New York Stock
Exchange major companies in the U.S. constellation of corporate
excellence, and I think given their participation, what you
would send to the rest of the marketplace is a message that
could perhaps obviate Congress having to get its tentacles too
much involved here.
So I think there are great possibilities, and I certainly
look forward to working with you, Senator Brownback, Senator
McCain, Senator Hagel, and others, and see if we couldn't come
up with something reasonable, which I think would do us all
credit.
I am particularly grateful to everyone on this panel for
your extra patience in hanging in here, and the quality of the
testimony here today, I think, speaks for itself. But I thank
you on behalf of the Committee for sharing with us these
important thoughts.
And the record will remain open for the 10-days that I
suggested, and with that, we stand adjourned. Thank you.
[Whereupon, at 1 p.m., the hearing was adjourned.]
A P P E N D I X
Response to Written Questions Submitted by Hon. John McCain to
Frank Cassidy
Question 1. You stated that your group of companies does not want to
confront a situation in which you are forced to waste or put at risk
large scale investments predicated on one set of requirements only to
have the rules changed a few years down the road. For many older,
existing facilities this is their concern about going to a mandatory
system for carbon dioxide reductions today. What would you tell them to
ease their fears about a mandatory system?
Answer. The only way to provide assurance that just such a scenario
doesn't take place is by including mandatory requirements for carbon
dioxide reductions in an integrated, comprehensive approach to power
plant environmental performance. Including mandatory carbon controls in
such a program will provide the industry with regulatory certainty on
which to base decisions about investment in new facilities as well as
how and whether to modify existing generating capacity.
The electric power industry has made considerable improvement in
its environmental performance since the Clean Air Act became law 30
years ago. However, most of the improvements have resulted from
regulations implemented on a pollutant-by-pollutant basis. The key
public policy question is how best to deliver substantial additional
emissions reductions necessary to protect public health at a time when
continued supplies of safe, reliable, and affordable electric energy
require considerable investment to rebuild an aging energy
infrastructure.
It's my view that our industry and the capital markets on which we
depend will respond more favorably to the certainty provided by an
integrated approach than continuation of a piecemeal, pollutant-by-
pollutant regulatory agenda. A multi-pollutant strategy with firm
emissions caps will create a more stable environment for capital
investment by providing long-term certainty about what the future
demands on the industry will be in terms of environmental performance.
Companies will be better able to develop strategies and justify
investment in new and existing electric generating capacity with a
clear understanding of future compliance obligations.
Question 2. Your proposed legislation for a mandatory cap involves
timetables for implementation. How important are these timetables for
the overall success of the effort?
Answer. I think it's very important from both the standpoint of
environmental management and business certainty to establish clear and
unambiguous requirements for the amount of emissions reductions and a
timetable for delivering the reductions. I want to know what the
targets are and when I have to meet them in order to develop a coherent
action plan. And I also want to know that my competitors are obligated
to meet the same set of requirements.
The timetables called for in the proposed legislation, in concert
with predictable and reasonable emissions reductions targets and
flexible and cost-effective compliance mechanisms, will deliver the
benefits associated with reductions in the four targeted pollutants on
an economically sound and sustainable basis.
I fully understand the concerns about the cost impact of making the
reductions in the prescribed timetables called for in the legislation
and the potential impact on the future of coal-fired electric
generating capacity. I believe very strongly that continued use of coal
for electricity generation is critical for maintaining fuel diversity,
minimizing volatility in electricity prices, and protecting long-term
energy security.
I also believe very strongly that the proposed legislation will not
compromise the use of coal as an electric generating fuel, and in fact,
the regulatory certainty and compliance flexibility called for in the
legislation, will reduce barriers to investment in new, clean electric
generation sources including coal.
Recent studies conducted by the Energy Information Administration
and the EPA provide evidence that new power plant emissions
requirements for nitrogen oxide, sulfur dioxide, and mercury would not
significantly affect electricity prices or displace existing coal-fired
generation. The flexibility mechanisms and timetables for meeting
carbon dioxide requirements included in the proposed legislation
supports continued operation of existing coal-fired capacity as well as
deployment of new technologies including advanced coal-generation
technologies.
This issue is critical to evaluating the policy options and
benefits associated with an integrated multi-pollution approach. The
Clean Energy Group is close to completing an economic analysis of the
costs associated with complying with the proposed legislation, and the
preliminary results are encouraging. I would be pleased to provide the
report to Senator McCain, other Committee Members, and appropriate
staff when the analysis is completed, and would welcome the opportunity
to meet with Senators and their staffs to discuss our analysis.
Question 3. The President has said he will pursue a voluntary approach
at this time. What are your concerns from an environmental perspective
with this decision?
Answer. A voluntary program, no matter how attractive, will allow
certain companies to avoid internalizing the cost of carbon, placing
those that ``volunteer'' at a competitive disadvantage relative to
those who choose to continue to sit on the sideline. In a highly
competitive wholesale power generation market, even small cost
differentials can make a material difference, almost guaranteeing a
race to the bottom.
I am hard-pressed to think of what ``incentives'' might be offered
(including New Source Review flexibility) which would compensate a
company like ours for taking a limitation on carbon in the absence of
an industry-wide commitment. We'd be doing a disservice to federal
policymakers if we ignored or understated this point.
We have been faithful participants in the U.S. Department of
Energy's 1605b process from its inception; PSEG was, in fact, the first
utility company in the nation to volunteer. Industry experience with
this program, however, does little to engender confidence in the
efficacy of voluntary approaches. I think most people recognize that
the 1605b inventory of reductions is grossly inflated and fraught with
inconsistencies in accounting, baseline measurements, and other
measurement parameters.
The single greatest motivator for participation in a voluntary
carbon program would be assurance that competitors in the wholesale
generation market are also participants. As I have stated, we remain
highly skeptical that a voluntary program can be crafted to achieve
both real greenhouse gas reductions and 100% participation by our
industry. This skepticism is part of what motivates us to continue to
advocate a reasonable, mandatory greenhouse gas reduction program in
the context of a four-pollutant/NSR reform legislative package for our
industry.
______
Response to Written Questions Submitted by Hon. Ernest F. Hollings to
Eileen Claussen
Economic Benefits of Renewables Energy
Question 1. Ms. Claussen, a few years ago Ross Gelbspan made the
following statements on the potential economic benefits to the US of
investment in renewables.
``While the climate crisis contains staggering destructive
potential, it also contain an extraordinary opportunity to expand the
wealth and stability of the global economy.''
``In a very few years the renewables industry could eclipse high
technology as potentially the most powerful engine of the global
economy.''
Do you agree?
Answer. I disagree that this will happen within a few years. Most
analysts believe that ``greenhouse-friendly'' technologies such as
nuclear, solar, wind, biomass, hydro, and conservation will continue to
improve and achieve larger market shares in the future. But an energy
revolution will take time: it has taken on average a century for the
global market share of every major energy technology--from wood to coal
to oil--to rise from 1 percent to 50 percent of global consumption.
Question 2. What are the other economic benefits to the US of reducing
emissions through technology?
Answer. Prominent economists such as Robert Solow have noted the
importance of technological change as the major long-term determinant
of continued increases in the standard of living.
Specific to greenhouse gas emissions, technological change can: (1)
make carbon-based fuels less expensive (e.g., through improvement in
the efficiency of fossil fuel extraction); (2) affect the overall rate
of growth of the economy through improvements in labor productivity;
(3) increase the rate of improvement in alternatives to carbon-emitting
energy technologies; (4) increase the rate of improvement in the
efficiency with which carbon-based fuels are used.
Question 3. Are there trade export opportunities that we are missing
under the current approach articulated by President Bush and the
Administration's Energy Policy?
Answer. Yes, I think so. The Administration's energy policy does
not provide sufficient support for innovative clean energy
technologies. The World Energy Council estimates that global investment
in energy between 1990 and 2020 will be about $30 trillion in 1992
dollars. Two billion people in the world now lack access to
electricity; and the developing world faces enormous environmental
challenges. This presents enormous opportunities to export innovative
clean energy technologies that can help the developing world
``leapfrog'' past some of the less efficient technological investments
in the developed world. If U.S. companies develop these technologies
here at home, and receive the support that they need in terms of
research and development, and other domestic policies that encourage
innovation, U.S. businesses and workers will reap the benefits of this
huge export market. This will in turn enhance the long-term markets for
other U.S. exports by building the energy basis for sustainable
economic prosperity in other countries.
Question 4. Ms. Claussen, you say that the science is telling us we
need to reduce greenhouse gas emissions over the long term, and that to
do this we need ``a new industrial revolution'' that will involve
introducing low-carbon energy efficiency technologies to the global
economy. I am all in favor of improving U.S. competitiveness, but I see
that many of the companies you represent have--in service of this
``global economy''--sent may U.S. jobs overseas.
How will this industrial revolution help build U.S. jobs and
improve U.S. exports?
Answer. See previous response.
Question 5. How far behind other countries is the U.S. in developing
these technologies?
Answer. It is hard to say. The United States is ahead in some areas
and behind in others. For example, U.S. energy companies have a
significant market share of highly efficient gas-fired power plants
worldwide. On the other hand, U.S. auto companies have focused
innovative efforts on producing large and powerful, but fuel-
inefficient vehicles, and are behind foreign manufacturers in producing
highly efficient and hybrid-electric vehicles. United States companies
face strong competition from European and Japanese companies in solar
photovoltaic (PV) technologies.
Question 6. How do we ensure that U.S. technologies are on the leading
edge and that jobs stay in the US over the long term--do your companies
have a commitment to supporting US technologies?
Answer. We need a two-pronged approach. First, we need to promote a
domestic market for these technologies through government policies,
such as tax credits, efficiency standards, labeling, and federal
procurement. The domestic market is key to a domestic industry's
success in developing export markets. In other countries where gasoline
is taxed heavily and is thus relatively expensive, consumers demand
more efficient vehicles. Most of the U.S. solar photovoltaic industry's
markets are now outside the United States, where the industry faces
strong competition from European and Japanese manufacturers. The
fastest growing market segment is for applications that connect
directly into the electricity grid in Europe and Japan, both of which
are promoting these applications through government policies.
Second, we need to increase energy R&D funding, through public-
private partnerships and tax credits, based on a dedicated funding
source. A sustained effort over many years is needed. This means that
we must begin making investments and implementing policies now. It
means we must develop institutions and funding mechanisms that will
stand the test of time. It means that we must take a portfolio
management approach--casting the net broadly for technology options,
investing most heavily in the most promising approaches, and shifting
our priorities over time as we learn what works and what doesn't, both
in the research laboratory and in the marketplace.
The government has an important role in marshalling public
resources, establishing goals and performance criteria, and providing
incentives. But in the end, it is non-governmental innovators--
scientists in search of knowledge, businesses in search of profits,
non-governmental organizations in search of societal benefits--who will
find most of the technological solutions.
The companies associated with the Pew Center have a huge presence
in the United States, and would like to continue to prosper here.
However, the greater the divergence between the United States market
and that of the rest of the world, the more difficult it becomes for
them to compete successfully both here and abroad.
______
Response to Written Questions Submitted by Hon. John McCain to
Eileen Claussen
Question 1. What would it mean to U.S. competitiveness if the rest of
the world signs the Kyoto agreement without the U.S. and thereby
establishing key International environmental regulations?
Answer. In the short-run, the lack of U.S. action on climate change
(and lack of participation in the Kyoto process) may appear a
competitive advantage for companies here not having to operate under
emissions caps. However, any short-term advantage will not be
sustainable as the global marketplace moves toward more efficient, low-
carbon technologies. Companies operating in areas governed by
greenhouse gas (GHG) reduction requirements will likely be at the
forefront of developing these technologies that can ultimately be
exported to the rest of the world, and will be ahead of the curve in
buying and selling emissions credits. Further, by leaving the design of
the international trading system to others, we are missing
opportunities to structure it to the advantage of U.S. companies. The
uncertainty regarding future GHG restrictions will also make it
difficult for United States companies to make important investment
decisions, and they will need to operate under very different regimes
here and abroad. Finally, the possibility of boycotts for U.S. products
grows over time if the U.S. chooses not to participate in a global
approach to addressing climate change.
Question 2. Do you feel that voluntary trading systems will fail
without any eventual mandatory emission caps?
Answer. To date, efforts to limit GHG emissions in the United
States have been limited almost exclusively to voluntary activities.
Though some voluntary efforts have been successful, these reductions in
GHGs have been more than offset by increased emissions associated with
economic and population growth, resulting in overall growth in U.S. GHG
emissions (an increase of 12 percent over the past decade). Voluntary
programs can make an important contribution to a domestic climate
change program, and can provide valuable experience for designing
future mandatory efforts, but they cannot stimulate the broad
engagement that will be required to achieve the level of emissions
reductions necessary to stabilize the global climate.
Because a voluntary trading program does not have the certainty
associated with it that a government program would, and because it
would not require participation of all important sectors, it remains
unclear how such nascent programs could relate to an eventual domestic
and/or international trading system. A voluntary trading approach
cannot realize the full environmental and economic benefits of a fully
integrated, economy-wide (or even better, an international) GHG market.
Ultimately, an effective and affordable emissions reduction program
must couple mandatory GHG reductions with technology development and
market mechanisms.
Question 3. Can you comment on whether increasing energy efficiency
often means increasing costs, at least initially, and whether US
industries are willing to make that initial investment?
Answer. There are many ways in which U.S. companies can begin to
increase their energy efficiency with practices that require very
minimal investment and earn much greater savings. For example, United
Technologies Corporation--one of the Pew Center's Business
Environmental Leadership Council (BELC) companies--made an investment
in $5,000 for computer labels that resulted in an annual savings of
more than $225,000 at one facility simply by reminding employees to
turn off their computers at night. Also, the EPA's Energy Star program
has resulted in U.S. greenhouse gas reductions in the year 2000
equivalent to taking ten million cars off the road. 864 billion pounds
of carbon dioxide emissions have been prevented due to Energy Star
commitments to date, with cumulative energy bill savings of $60 billion
through 2010.
Of course, more significant and permanent reductions will require
greater investment, but announcing a policy and allowing time for
capital stock to turnover to more efficient technologies will be key to
ensuring that transformation to a lower-carbon economy is done in a
cost-effective manner. Certainly, providing emissions trading
opportunities also allows for the most-efficient reductions to take
place first.
Many U.S. industries are already willing to make investments in
more efficient and climate-friendly technologies and practices. The 36
members of the BELC are evidence of that commitment--not only through
reducing their own on-site energy use, but also in making more
efficient products and appliances. For example, in 2000, 91 percent of
IBM personal computers and 100 percent of monitors qualified for the
EPA Energy Star label. Through its new silicon-on-insulator technology,
IBM has increased the performance of computer chips by about one-third
while using up to three times less power. Likewise, Intel has developed
a technology that allows PCs to run more efficiently while reducing
energy use by 60 percent. Total energy saved from this technology will
reduce carbon emissions at Intel by 19.5 million metric tons over the
next five years. (See the Pew Center website, http://
www.pewclimate.org, for more information on BELC company initiatives.)
Question 4. You have stated that efforts to reduce U.S. emissions have
been reduced to voluntary efforts. Mr. Hawkins does not seem to support
voluntary efforts. In your opinion, how helpful are voluntary programs,
such as the Chicago Climate Exchange, in reducing greenhouse gas
emissions?
Answer. As mentioned above, voluntary programs can make important
contributions to a domestic climate change program. To date, however,
voluntary programs have not been sufficient to curb or stabilize U.S.
greenhouse gas emissions. Internal emissions trading programs such as
those initiated by BP and DuPont and inter-company pilot trading
programs serve as useful laboratories and are obtaining early and cost-
effective GHG reductions. However, such programs are not a substitute
for a domestic economy-wide program that would have the backing of the
federal government and yield significant and verifiable emissions
reductions across all sectors.
Question 5. You state that U.S. companies will find the production of
energy efficient products to be a business opportunity. Yet, in the
last panel, Mr. German seemed to say that there was not a large
consumer demand for efficient technologies. Is there global demand for
energy efficient technologies, and what can U.S. firms do to stimulate
this demand?
Answer. As EPA Administrator Christine Todd Whitman said in a
recent press release regarding the Energy Star program's expansion into
Canada, ``Energy efficiency, through technology and innovation will be
crucial to our energy security, as well as our quality of life, in the
21st century.'' (July 19, 2001, see http://www.epa.gov.) Demand for
Energy Star-labeled products and buildings has grown. For example, by
December of 1996, over 200 Energy Star homes had been built; by
December of 2000, over 24,000 of these homes had been constructed. One
way firms can stimulate demand in energy efficient products is through
implementing education and product advertisement programs that
demonstrate the annual energy cost savings of using more efficient
appliances and other products.
The Pew Center's research has found that government can aid in
expanding this market through incentives aimed at product
manufacturers. Coupled with product efficiency standards, labeling
requirements, and efforts to train appliance salesmen, builders, etc.,
the market for efficient products could indeed be a lively and vigorous
one.
______
Response to Written Questions Submitted by Hon. John McCain to
Dennis J. Duffy
Question 1. Who are the leading countries in the utilization of wind
power? Where does the U.S. stand relative to these countries?
Answer. Currently, the leading countries in aggregate installed
wind power are Germany (6,107 mw), Spain (2,836 mw), United States
(2,610 mw), Denmark (2,341 mw), India (1,220 mw) and the Netherlands
(473 mw). World Market Update, BTM Consult Aps. With respect to wind
power as a percentage of overall supply, however, the U.S. is well
behind many other nations. Denmark, which is half the size of Indiana,
has nearly as much wind energy installed as the entire U.S., and wind
currently supplies more than 15 percent of its electricity needs.
Germany, which is half the size of Texas, has over 2,000 more megawatts
of installed wind energy than the entire U.S. Further, the rate of
annual growth (1999-2000) in wind energy for the U.S. (6.8%), falls
well behind the growth rates of many nations of the industrialized
world, such as Germany (37.5%), Spain (56.6%), the United Kingdom
(17.4%), Denmark (34.7%), Italy (53%) and China (34.4%). Id. The
relative volumes and growth trends for the past decade are set forth in
the following graph:
Question 2. You mention in your written statement that wind units have
a marginal cost of zero. Can you explain this further?
Answer. ``Marginal cost'' refers to the additional costs incurred
in the production of a specific increment of a commodity, which would
not otherwise have been incurred. In the electricity business, the
marginal costs of production for most technologies consists primarily
of the cost of fuel consumed in the process of generation, as well as
any incremental O&M costs that would not have been incurred had the
generation facility not been dispatched. In contrast to traditional
combustion technologies, wind generation has ``marginal costs'' of
close to zero, since there is no fuel costs and only insignificant O&M
costs associated with any incremental production.
It is this ability of wind power to generate electricity without
marginal costs that would cause consumers in deregulated power pools to
see substantial reductions in their overall power costs. All sellers
into these deregulated pools are paid the same ``clearing price''
reflecting the marginal costs of the last (and highest marginal cost)
generating unit dispatched in any hour. The underlying theory is that
overall efficiencies are achieved by dispatching pool resources
according to their marginal costs in ``economic merit'' order, from the
lowest to highest marginal costs. Because wind units have a marginal
cost of zero, they are among the first units dispatched in every hour,
with the result being that other units with higher marginal costs that
would otherwise have been dispatched and set the clearing price are
displaced from the economic dispatch and are not run. The clearing
price for the entire pool is thus set by a unit with a lower marginal
cost bid than would otherwise been the case. Because the resulting
reduction in clearing prices is then applied to the entire volume of
electricity traded in the pool, there is a multiplier savings effect,
such that amounts extended to support a relatively small volume of wind
power results in far greater costs savings through the reduction of
generally applicable clearing prices.
Question 3. If wind power is as cost effective as you have stated, why
are government subsidies so vital?
Answer. Although the cost per kilowatthour of wind energy has been
reduced substantially in recent years, the capital cost of wind
generation remains at a level where the growth of the U.S. wind
industry still requires economic and regulatory market support. It must
also be noted that the capital cost of wind generation (and hence the
degree of support required) varies greatly amongst regions of the
country, with such differential driven largely by varying transmission
and construction costs and wind quality. In the Northeast, for example,
the viable development of wind resources of substantial scale is
limited to areas in mountainous terrain or offshore, both of which
involve substantial construction challenges, as well as the requirement
of new transmission lines in order to interconnect and deliver
electricity to customer load centers. In any event, it is our belief
that the relatively high capital costs of wind facilities would make
them economically infeasible in most scenarios in the U.S. market
absent continuing market support.
This is not to imply, however, that support for the wind industry
would cause the public to pay any more for its power. To the contrary
(and as noted in the response above), the price for power in
deregulated pools is driven solely by bids reflecting the marginal
costs of the last unit dispatched in any interval, such that
initiatives to support the capital costs of relatively small volumes of
wind generation are offset many times over by the resulting suppression
of the energy prices applicable to the entire volumes traded within the
respective pools. I also note that the European nations that have taken
the lead in wind development have done so with continuing market
supports.
Question 4. Why are utilities not considering long-term purchases of
renewable energy as part of their overall portfolio planning?
Answer. When most regions of the country undertook deregulation of
their electricity markets, there was a common presumption that
traditional utilities would continue to sell electricity at retail at a
far lesser degree than had formerly been the case. The belief was that,
upon the opening of deregulated markets, the bulk of retail customers
would migrate to retail sales provided by competitive marketers
unaffiliated with the traditional utilities. Thus, in many regions, the
continuing role of utilities in retail sales was to be a ``last
resort'' supplier, with rates reflecting current (i.e., short-term)
market prices which would serve as a benchmark against which
competitive suppliers would propose sales to the public. Indeed, in
some regions utilities were required to make all of their wholesale
purchases in the spot markets and numerous jurisdictions still require
utilities to make most of their wholesale purchases for durations of
one year or less. Thus, many traditional utilities are reluctant to,
and some cases precluded from, proposals for longer-term sales from
wind generators, even if it can be demonstrated that such generation,
through its lack of any marginal costs, would lead to substantial
overall reductions in the price of electricity in the associated power
pool.
Although competitive marketers are not so limited by regulatory
policy, many are similarly reluctant to enter into long-term contracts
for wind power, a reluctance which may be explained in part by
uncertainties as to long-term regulatory policies and market
conditions. In any event, the reluctance of purchasers to entertain
long-term arrangements is a serious problem, for which the requirement
of stated renewable portfolio standards (``RPS'') percentages are an
important market support structure. Such long-term RPS requirements are
particularly important, since short-term pricing does not capture the
full economic value of the economic hedge against fuel price volatility
provided by wind energy.
Question 5. One constant criticism of wind power has been the
reliability of the technology. However, Dr. Kammen has described a
revolution in this technology. What recent developments have there been
to improve wind technology?
Answer. Improved design of mechanical and electrical components has
proven to be a major factor in augmenting performance, increasing
turbine lifetime and reliability, and reducing cost. Structural
engineers are today designing turbines that are both stronger and
lighter in weight than their predecessors. They perform better, and
they cost less to produce because they use fewer materials than heavier
structures. These new designs reduce stress by flexing, rather then
rigidly withstanding harmful loads such as those caused by turbulence.
Likewise, engineers have developed new, flexible mechanical components,
such as teetered hubs, which reduce these loads by allowing the rotor
to pivot away from turbulent winds and thus relieve stress. Electrical
components such as generators continue to improve dramatically. For
example, some new turbines come equipped with variable-speed generators
(and drives) with power electronics. Other advances include a low-speed
generator that will eliminate the need for a mechanical gearbox,
reducing costs accordingly.
Engineers at NREL and Sandia National Laboratories located in
Albuquerque, New Mexico, have also developed a series of computer
programs for designing state-of-the-art wind turbines. Using these
programs, turbine designers can test new design ideas using
sophisticated computer systems to model how they will perform and hold
up under operating stresses before building expensive hardware. These
codes lie at the heart of modern technological innovation, especially
for using new lightweight materials.
______
Response to Written Questions Submitted by Hon. Ernest F. Hollings to
Dr. David L. Evans
Question 1. Dr. Evans, how well are we monitoring our carbon emissions?
Answer.
Carbon emissions from various sources (industrial,
transportation, agriculture, forestry, etc.) are monitored and
estimated by different methods. The accuracy of these estimates
varies by sector. U.S. aggregate greenhouse gas emissions are
estimated by both the Environmental Protection Agency (EPA) and
the Department of Energy's Energy Information Administration
(EIA). Under an interagency agreement, the EIA, provides energy
and energy-related carbon dioxide emission estimates to the
EPA. EPA uses these data, as well as estimates of methane,
nitrous oxide and halogenated substances emissions, to compile
the official U.S. inventory of greenhouse gases submitted under
the UN Framework Convention on Climate Change in EPA's
publication, ``Inventory of U.S. Greenhouse Gas Emissions and
Sinks.'' The information is available on the EPA website:
http://www.epa.gov/globalwarming/emissions/national/index.html.
EPA also receives highly accurate carbon dioxide emissions data
from continuous emissions monitors directly from electric
utilities as required under Title V of the Clean Air Act.
EIA, as required by Section 1605(a) of the Energy Policy
Act, also compiles annual estimates of greenhouse gases (carbon
dioxide, methane, nitrous oxide and halogenated substances).
These estimates can be found in EIA's publication ``Emissions
of Greenhouse Gases in the United States,'' and the information
is provided by EIA on their website: http://www.eia.doe.gov/
oiaf/1605/ggrpt/index.html.
The net effect of these emissions on the atmosphere can be
monitored through atmospheric measurements. NOAA operates a
global atmospheric carbon dioxide and methane monitoring
program, collecting air samples from about 50 sites. This
allows the determination of how much carbon dioxide remains in
the atmosphere each year. When atmospheric carbon dioxide
changes are compared with data on annual emissions, a composite
estimate can be made (by subtraction) of how much carbon has
been taken up by the oceans, plants, and soils. Since samples
can only be collected once per week at present, and since the
number of measurement sites is currently limited, the temporal
and spatial resolution of such measurements is at best annual
and global with resolution of the two hemispheres possible. In
order to accurately monitor the atmospheric effect of carbon
emissions on a regional basis, the number of measurement sites
would have to be increased considerably.
Question 2. How can we engage in ``Carbon Management'' through limits,
targets, early action, or credits if we don't know where our carbon is
going?
Answer. NOAA is currently working to estimate how much carbon is
going into the oceans and how much is going into the terrestrial
biosphere (trees, plants and soils as a single entity) globally on an
annual basis. However, the present atmospheric measurement network is
adequate to do this partitioning only on a hemispheric basis. Regional
data are currently derived primarily from inventories and mapping
conducted by other agencies, such as the U.S. Department of Agriculture
(USDA), the U.S. Geological Survey (USGS), and the National Aeronautics
and Space Administration (NASA). The federal agencies of the U.S.
Global Change Research Program (USGCRP) are working together through
the U.S. Carbon Cycle Science plan to develop methods and tools that
will improve the accuracy and effectiveness of carbon measurement and
monitoring.
Question 3. What role could the Department of Commerce--NIST, NOAA,
Commercial Services, International Trade Administration--play in the
following domestic or international carbon management areas: (1)
monitoring and adaptive management; (2) verification; (3) registry; (4)
coordination; (5) trading; and (6) technology transfer?
Answer. NIST measurements and standards laboratories can play a
central role in carbon management, specifically in the area of carbon
monitoring. The proper NIST role would be to work with climate change
experts in determining the proper measurements for carbon monitoring,
to work with policy experts to determine the most effective monitoring
network for total U.S. Carbon Emissions Management, work with national
and international organizations and measurement experts in developing
accurate and cost-effective measurement standards that support the U.S.
interests and assure global acceptance of U.S. carbon monitoring
results, to develop a nation-wide monitoring strategy and system and to
work with state and local authorities to implement a cost-effective
carbon monitoring system. NIST could play a continuing role in
measurement quality assurance and conformity assessment throughout the
United States.
ITA can advance U.S. objectives regarding carbon management and
climate change by actively facilitating international trade of
environmental technologies goods and services and attendant technology
transfer. ITA works on behalf of U.S. environmental technologies
providers and supports multilateral and bilateral liberalization of
environmental technology trade, improved protection of intellectual
property rights, as well as bilateral environmental technology
cooperation. ITA also provides the full range of trade development and
trade promotion services to U.S. environmental technology providers.
NOAA also has a strong role in global monitoring of greenhouse
gases, particularly those involved in the carbon cycle. NOAA's Climate
Monitoring and Diagnostics Laboratory makes ongoing discrete
measurements from land and sea surface sites and aircraft, and
continuous measurements from baseline observatories and tall towers.
These measurements document the spatial and temporal distributions of
carbon cycle gases and provide essential constraints to our
understanding of the global carbon cycle. The measurement program
includes air samples collected approximately weekly from a globally
distributed network of sites. We also develop several products and
services to make this information available to the public.
In addition, many U.S. climate change activities in developing
countries and economies in transition are undertaken by USAID.
Therefore, Commerce has worked with USAID, as well as with EPA and
other agencies, to share information and coordinate efforts where
appropriate.
Question 4. What role do you see the Advanced Technology Program and
NIST as a whole playing in the development of new energy efficient
technologies and advancing technologies to support renewable energies?
Answer. Facilitating the development and advancement of new
technologies is at the core of the NIST mission. NIST sees an
increasing demand for improved measurements, as well as the
characterization of new energy efficient technologies, and technologies
that support renewable energy. The development, acceptance, and usage
of new technologies will not happen without the underpinning
measurements that facilitate the selection and application of new
materials, demonstrate their fit for purpose, or demonstrate increased
energy efficiency or other advantages, such as reduced emissions.
The NIST Measurements and Standards Laboratories provide this
critical measurement infrastructure. For example, NIST is making
significant contributions to the acceptance and use of alternative
refrigerants to replace the ozone-depleting chlorofluorocarbons. The
NIST program is comprehensive and includes: industrial consultation on
exploratory materials and newly commercialized fluids; thermophysical
measurements and critical data evaluation; theoretical modeling;
establishment and promulgation of international standards; and
dissemination of the critical data to the private sector. This data is
fundamental to the design of efficient refrigeration systems and is
used by industries worldwide.
As further examples, NIST's work on the properties of advanced
ceramics is aimed at the development of very high efficiency combustion
engines; work on materials for solid-state lighting systems is aimed at
developing next-generation energy-efficient lighting; development of
standard reference data on the thermodynamics of bioprocessing that are
critical for engineering biocatalytic processes used in manufacturing
with renewable and/or more environmentally-friendly resources; and
collaborations with our industrial partners on advanced fuel cell
design will help develop cleaner, more fuel efficient vehicles. NIST
and Advanced Technology Program (ATP) are participating in the Biomass
R&D Board, a technical advisory committee of the Biomass Research and
Development Advisory Committee, with the USDA, DOE, EPA, and other
agencies, that was enacted under The Biomass Research and Development
Act of 2000 and Executive Order 13134: Developing and Promoting
Biobased Products and Bioenergy of 1999.
The NIST Advanced Technology Program cost-shares research in
advanced technologies across several sectors that directly and
indirectly impact energy efficiency and global climate change. The
Advanced Technology Program directly impacts energy efficiency by
funding projects focused on reduced fuel consumption, the development
of alternative sources of energy, and more efficient processes for
current energy technologies. For example, under an Advanced Technology
Program project, Cargill-Dow LLC developed critical process technology
that permitted them to recently launch a new $200M manufacturing
facility to convert corn into plastics for consumer items. In FY 2000,
thirty-five projects directly related to energy production or storage
were part of ATP's active portfolio--the outlays totaled $30M.
The Advanced Technology Program funds projects that have a
significant secondary impact on energy efficiency and environmental
emissions, for example, through improved or alternative manufacturing
processes and equipment in the chemical and transportation sectors.
These secondary technologies include: sensors, software for industrial
design and process control, composites, super alloys, hard coats for
machine tools, catalysts, and refrigeration. For example, BalaDyne
Corporation developed a vibration control technology to enable mass
balancing of high-speed machining tools which could in turn enable
companies to increase the quality and precision of parts for
automobiles and other products, thereby improving downstream energy
efficiency.
Industry feedback indicates that an increasing need for new
technologies applied to energy efficiency and renewable energy will
drive future investment opportunities in the Advanced Technology
Program.
Question 5. Would you not agree that NIST's Advanced Technology Program
would be the best vehicle to create and promote these innovative
partnerships between science and industry?
Answer. The NIST Advanced Technology Program cost-shares high-risk
research in public-private partnerships and accelerates the development
of new technologies to generate widespread benefits for the Nation. One
of the Advanced Technology Program's missions is to support and
facilitate partnerships with the private sector, universities, non-
profit organizations, and other Federal agencies. The Advanced
Technology Program also has a long history of working synergistically
with the mission-oriented agencies of the Federal government in areas
where ATP can support high-risk applied research efforts that are
either not within the mission of the other agencies or, though high
risk, could enable later research by the mission agencies.
______
Response to Question Asked at Hearing by Hon. John McCain to
Dr. David L. Evans
Question. What percent of the coral reefs in the oceans of the world
are dying, in your estimation?
Answer. Dr. Donna Turgeon, a marine ecologist with the NOAA
National Ocean Service, has just completed a draft report, ``The Health
of US Coral Reef Ecosystems: 2001,'' that is now under review with over
100 U.S. managers and scientists. According to Dr. Turgeon's report,
``. . . [t]he scientific evidence is regarding worldwide degradation of
coral reefs over the past decade . . . 36% of all reefs globally were
classified as threatened by over exploitation, 30% by coastal
development, 22% by inland pollution and erosion, and 12% by marine
pollution. When these threats were combined, 58% of the world's reefs
are potentially threatened by human activity ranging from coastal
development and destructive fishing practices to over exploitation of
resources, marine pollution, and runoff from inland deforestation and
farming. [A]bout 10% of the world's coral reefs may already have
degraded beyond recovery and another 30% are likely to decline
seriously within the next 20 years. Further, the Global Coral Reef
Monitoring Network (2000) reported coral reefs have continued to
decline since its 1998 report. An estimated 27% of the world's reefs
have been effectively lost, with the largest single cause being an
extensive climate-related coral bleaching event in 1998.''
______
Response to Written Questions Submitted by Hon. John McCain to
Dr. David L. Evans
Question 1. Recent National Academy of Science recommendations include
the establishment of a National Climate Service which would focus on
the weather monitoring as opposed to weather predicting. Can you
highlight the distinction between weather monitoring and predictions?
Also, how would a National Climate Service differ from the National
Weather Service?
Answer. Most of our current observing systems were designed to
provide input into forecasting daily weather events, i.e., storms,
temperature and rainfall extremes. These systems are designed to
monitor daily large environmental changes. As the data needs are more
immediate in nature, new instruments that are brought online may not be
calibrated to collect data consistent with older tools for long-term
observations. Climate applications require data sets that document
small changes in the environment occurring over seasons to decades,
i.e., monitoring how the planet is changing. This places a premium on
accuracy and consistency over time. Climate observation needs special
data sets not needed for weather forecasts. The changing forcing of the
planet by changes in greenhouse gases, aerosols, and solar radiation
requires that well-calibrated observing systems for these be
established.
The primary use of weather information is in the protection of
lives and property. On seasonal to decadal timescales climate
information is used for economic and long-range disaster planning,
e.g., will there be more storms, what are the heating/cooling
requirements this next season, will there be a drought, how to manage
water resources, what crops to plant, etc. Climate forecast models also
require a more interdisciplinary basis than is needed for weather
forecasts in order to accurately incorporate factors such as chemical
processes, carbon cycles, ocean dynamics, changes in land cover and
surface albedo, and hydrologic processes. On multi-decadal to
centennial timescales, climate information is input for policy
decisions by governments and the private sector: how large should
emission reductions be; what new energy technologies should be invested
in; what are the societal threats; and what carbon sequestration
strategies might be pursued.
The different customer bases, e.g., economic and policy vs.
protection of life and property, plus the need for new types of global
observations and higher standards and uses for weather data, argue for
the establishment of a Climate Service. Climate forecasts models also
have to include more interdisciplinary physics, i.e., chemistry,
interactive carbon cycles, global ocean dynamics, than are needed for
weather forecasts. The need to run multi-decadal to centennial
forecasts requires supercomputer resources that rival or exceed those
needed for weather forecasts.
However, there are advantages to have a Climate Service closely
linked to the National Weather Service (NWS). The Weather Service
provides much of the data infrastructure. The forecast dissemination
infrastructure of the NWS can be leveraged to provide links to the user
communities. The modeling advances from each can be leveraged to make
improvements to both kinds of forecasts.
Question 2. Do you feel that climate-related technologies are being
efficiently transferred from the government sponsored research programs
into the market place such that their real potential may be fully
realized?
Answer. NOAA's climate-related activities are predominantly in the
areas of research, observation and modeling. Technological advances
have improved our climate observation systems. Computer simulation is
one of the most important components of a comprehensive climate
research program. The climate research community has made significant
progress over the past 20 years, continuing the development and
application of climate models. Efforts are planned within the U.S.
modeling structure to more fully support the delivery of products
critical for making climate simulation and prediction more usable and
applicable to the broader research, assessment and policy communities.
As noted in the National Academy of Science report Climate Change
Science: An Analysis of Some Key Questions, future climate change will
depend on technological developments that may allow reductions of
greenhouse gas emissions or the capturing and sequestering of these
gases. However, technology transfer activities related to greenhouse
gases are found primarily at other federal agencies, including the DOE,
EPA, and USDA. Within the Department of Commerce, the NIST Advanced
Technology Program has funded research into technologies aimed at
improving energy efficiency and increasing the use of low carbon fuels.
Federal programs within EPA and DOE promote greenhouse gas reductions
through the development of cleaner, more efficient technologies for
electricity generation and transmission. Internationally, USAID
undertakes programs to help disseminate these clean technologies to
developing country markets through pilot demonstration projects and
structural reform initiatives. The Department of Energy's Carbon
Sequestration Program, which focuses on ways to capture greenhouse
gases and either store them or recycle them into useful products, has
evolved into larger scale partnerships with private research
institutions, industries, and universities sharing a major portion of
the research costs. The private co-sponsors of these projects
contribute an average of 40 percent of the total project costs, well
above the Department's minimum requirement of 20 percent. This
significant cost share will help ensure that climate related
technologies are efficiently transferred into the market place.
Question 3. The President has requested the Secretary of Commerce to
set priorities for additional investments in climate change research,
to review such investments, and to maximize coordination among federal
agencies. Can you comment on how those responsibilities may be
distributed within the Department?
Answer. A well-coordinated interagency and interdisciplinary
approach is critical for setting appropriate priorities and for
addressing the complex issues of climate change research. The Secretary
of Commerce is reviewing existing programs and developing
recommendations for the President. Environmental data collection
related to climate change research is a part of NOAA's mission. NIST is
responsible for the national standards of measurements used by outside
agencies to study some elements of climate change. Together, these two
agencies provide critical components needed to effectively study and
understand climate change in an interagency environment.
As with the other global change-related research carried out by the
U.S. government, the resulting activity may also include additional
Federal agencies, including those that currently participated in the
U.S. Global Change Research Program.
Question 4. Do you feel that the uncertainties in the science discussed
in the National Academy report on Climate Change is sufficient to
justify waiting to take legislative action?
Answer. The scientific uncertainties identified by the National
Academy have not in any way discouraged a strong national policy
response to climate change, but have instead informed and directed the
response appropriately toward enhanced scientific and technology
research, development and application. The ongoing cabinet-level review
of this important long-term policy challenge may result in additional
policy options for legislation, in addition to the substantial measures
announced by the President on June 11. Working closely with the
Congress, the Administration will propose any new legislation that may
be needed to implement the President's initiatives, when the
interagency reviews and recommendations are completed.
Question 5. How has the ATP contributed to climate change research? How
much funding has been spent in this area?
Answer. ATP's historical commitments in the generation and storage
of electrical power and in environmental technologies total over $180M
in high-risk enabling research projects. These technologies will
directly impact energy efficiency and global climate change through
reduced fuel consumption, development of alternative sources of energy,
and more efficient processes for current energy technologies. In FY
2000, thirty-five projects directly related to energy production or
storage were part of ATP's active portfolio--the outlays totaled $30M.
The areas of research include oil and gas, batteries and super-
capacitors, energy conservation, wind and solar, fuel cells, and motors
and generators.
In addition, other ATP projects will have indirect impacts on
energy and the environment as their technologies become distributed
into manufacturing and other energy-intensive sectors. These technology
development activities include high risk research in sensors, software
for industrial design and process control, composites, alloys, hard
coatings for tools, catalysts and biocatalysts, chemical separations,
and refrigeration. Together, these additional technology developments
will significantly increase the energy efficiency and reduce the
emissions of manufacturing in the chemicals, materials, and
transportation sectors.
______
Response to Written Questions Submitted by Hon. Olympia J. Snowe to
Dr. David L. Evans
Question 1. NOAA has recorded a rise in sea temperatures. Presuming
that this trend continues and is accompanied by an elevation of sea
level, how is NOAA planning for such an occurrence? Are various NOAA
programs for fisheries and coastal zone management incorporating this
information into both short- and long-term planning and management
processes?
Answer. According to the Intergovernmental Panel on Climate Change
(IPCC), there has been a 10-20 cm rise in sea level over the last
century globally. NOAA is responsible for maintaining the National
Water Level Observation Network (NWLON) at approximately 190 stations
around the U.S. coasts. The long-term measurements collected as part of
NOAA's NWLON help provide the basis through which the rate of sea level
rise can be determined.
NOAA has been active in assessing the potential impacts of sea
level rise on the U.S., examining the potential for erosion, wetland
habitat loss, and increased vulnerability of coastal regions to storm
surge as a result of sea level rise.
The National Marine Fisheries Service (NMFS) has been involved in
studying the potential impacts of global climate change on fisheries
since the early 1990s. NMFS scientists co-chaired and co-authored the
Fisheries Chapter of the 1995 IPCC Volume. The IPCC provides a status
of global climate change research every five years. The volumes are
compiled by teams of international scientists and broadly reviewed by
the scientific community. NMFS also prepared a compilation volume on
polar climate change impacts drawn from the 1995 IPCC volumes. By the
very nature of the polar regions, impacts on fisheries were a
significant portion of the work. NMFS scientists were technical
reviewers of the recent 2001 IPCC volumes that updated the 1995 volume,
but from a regional perspective. Similarly, NMFS provided technical
review and comments on the recent National Assessment of climate change
impacts coordinated by the USGCRP.
NMFS has maintained sections of headquarters and field websites
focused on the potential impacts of climate change and the existing
research that contributes to this understanding. An initiative has been
developed to work with coastal communities to determine their concerns
about impacts of climate change on their economies, ecology, and way of
life. The initial regional workshops would serve as a coordinated
discussion to make the most recent information about climate change
available to communities but also to ensure that future research by
NMFS would be directed toward the expressed needs of our
constituencies. While funding has not been identified to implement the
full initiative, NMFS scientists have been working with the private
sector to begin the efforts using private funding from competitive
proposals. The Steering Committee is working with staff at local
universities and calling on expertise across disciplines to help guide
the discussions. NMFS' contribution will be to provide personnel,
scientific expertise and contacts, and other in-kind services. The
first workshop is being organized in Maine to look at the best
estimates of climate change impacts on Maine fisheries and economies,
to identify potential responses, and to determine if existing
situations could be used as case studies to design innovative solutions
that could provide guidance for communities in a changing climate
scenario. NFMS is also working with other parts of NOAA and the U.S.
Fish and Wildlife Service to investigate how data on sea level rise and
associated alterations of coastal habitat can be used to guide habitat
protection and restoration efforts.
Finally, NMFS scientists participate on a variety of committees and
review processes to ensure that climate change impacts on fisheries and
on coastal economies dependent upon marine fish and their habitat are
addressed in ongoing research and assessments.
Question 2. How would an integrated network of ocean observatories aid
NOAA's climate change research and modeling capabilities? What would be
required to create such a network?
Answer. The integrated global ocean observing system for climate
consists of in situ (fixed platforms [moorings and flux reference
sites]; profiling floats; submarine cables; drifting buoys; shipboard
[research and voluntary] observations such as expendable
bathythermograph observations, thermosalinographs, and atmospheric
observations, including precipitation; repeat oceanographic sections;
and sea level gauges) and remotely sensed observations (satellite
altimetry and scatterometry; coastal radars). It also includes
satellite communications to transmit these data; support of shipboard
operations; development of a real-time data management system; and the
development of basic techniques to assimilate these data.
The overall ocean observing system should provide a four-
dimensional (i.e., include spatial and temporal data) description of
the oceanic variables of climatic and societal relevance. Fixed-point
observations are required to resolve the variability associated with
processes such as biological productivity relative to the carbon cycle,
ocean bottom biogeochemical cycles; and air-sea interactions. Moorings
are uniquely suited for sampling dynamic areas of the ocean such as
high latitude regions and the deep ocean during adverse weather
conditions. Fixed-point observations from moorings and observatories
are an essential element of the required observing system because:
they are uniquely suited for sampling two dimensions (depth
and time), thus complementing other components of the observing
system (satellites, drifting buoys, Argo floats, high frequency
radars in coastal regions, etc.). They resolve temporal
variability and are capable of sampling the entire water
column, including the ocean bottom;
fixed-point observations are the only approach for resolving
multidisciplinary variability and processes such as biological
productivity and the cycle of CO2, ocean bottom
processes, and air-sea interactions; and
moorings are uniquely suited for sampling critical or
adverse regions or periods such as boundary current regions,
the deep ocean, and observations during storm seasons.
The observatory system would be multidisciplinary in nature,
providing physical, meteorological, chemical, biological and
geophysical time-series observations. The data would be publically
available as soon as received and quality-controlled by the owner/
operator. An international science team would provide guidance,
coordination, outreach, and oversight for the implementation, data
management, and capacity building. The initial implementation would
consist of all operating sites (e.g., Bermuda Atlantic Timer Series,
Tropical Atmosphere-Ocean Array, etc.) and those planned to be
established within five years, subject to evaluation in terms of the
qualifying criteria by the science team. This would initiate a pilot
phase approximately five years in duration. During this pilot phase,
the international science team and those that deploy and maintain sites
will:
identify gaps in the system and encourage filling those
gaps;
develop new technology for sensors and moorings;
address implementation of the more challenging sites of
critical importance, including multi-community and multi-
national efforts;
identify products and end users and establish routine
provision of data from the sites to users;
establish capacity building programs to enable participation
in the observatory system;
review all operating sites after five years, accept the ones
proven useful into the longer-term system, add new sites for a
new trial phase;
complete the deployment of the global array using the new
capabilities developed and reviews conducted; and
work toward a transition to operational status.
An international effort is underway to develop the global array.
Sites throughout the world's oceans, some already in operation, have
been identified for potential implementation based on critical oceanic
regions for climate purposes and ecosystem observations. International
partners are evaluating their potential roles in implementing these
sites.
Question 3. Should the Administration have a designated Office of
Climate Change within the White House? Would this help to coordinate
the science and the policy for U.S. climate change activities through
the various departments and agencies involved?
Answer. In April, President Bush convened a cabinet-level policy
review of this serious, long-term issue. That group has met many times
to hear from leading experts on the issue and developed initial policy
recommendations that the President announced on June 11. Specifically,
the President announced the U.S. Climate Change Research Initiative and
the National Climate Change Technology Initiative that will produce
focused, prioritized and coordinated plans for federal scientific
research in the next five years and significantly enhance research,
development and deployment of advanced energy and sequestration
technologies. Our success in developing those technologies will
determine how effectively we can reduce the projected growth in
greenhouse gases in the United States and internationally. The cabinet-
level review group has continued to meet and plans to continue to do so
in the near future, in order to continue evaluating additional national
and international policy options to address climate change.
This ongoing cabinet-level policy review, along with the
initiatives President Bush has announced to date, demonstrate that he
recognizes the seriousness of climate change issues and that a
coordinated response to these issues will have continuing high
prioritization within the Administration. Within the Executive Office
of the President, the Office of Science and Technology Policy and the
Council on Environmental Quality provide ongoing coordination for
program planning and implementation of climate change research,
monitoring and technology activities at the interagency level. It is
therefore unclear that creation of a designated Office of Climate
Change within the White House would result in better coordination of
U.S. climate change science and policy.
Question 4. How should any climate change policy be coordinated with
the Energy Policy Development Group?
Answer. The President's high-level climate change working group has
overlapping membership with the Energy Policy Development Group, which
ensures coordination and consistency between the Administration's
energy and climate change policies. In fact, the May 2001 report of the
National Energy Policy Development Group specifically recognized the
linkage between the policies, addressing the policy challenge of
climate change directly in chapters 3 and 8. In chapter 3, for example,
the report states: ``Scientists continue to learn more about global
climate change, its causes, potential impacts, and possible solutions.
The United States recognizes the seriousness of this global issue as
scientists attempt to learn more about climate change... .The United
States has reduced greenhouse gas emissions by promoting energy
efficiency and the broader use of renewable energy through a wide range
of public-private partnership programs. These programs save energy, cut
energy bills, enhance economic growth, and reduce emissions of
conventional air pollutants as well as greenhouse gases. Industry and
the federal government are researching various new technologies that
will reduce greenhouse gas emissions or sequester those emissions, in
geologic formations, oceans and elsewhere.''
And in chapter 8, the NEPD Group recommended ``that the President
direct federal agencies to support continued research into global
climate change; continue efforts to identify environmentally and cost-
effective ways to use market mechanisms and incentives; continue
development of new technologies; and cooperate with allies, including
through international processes, to develop technologies, market-based
incentives, and other innovative approaches to address the issue of
global climate change.'' Importantly, in chapter 8, the NEPD affirmed
that ``the President is committed to addressing the issue of global
climate change in a manner that protects our environment and economy.''
Question 5. Are there current attempts at the President's Cabinet level
and at the White House Office for Science and Technology Policy to
coordinate both energy and climate change policies for both domestic
and international environmental and energy strategies? If so, how is
this being carried out and by whom?
Answer. The President's high-level climate change working group has
overlapping membership with the Energy Policy Development Group, which
should facilitate coordination between energy policy and climate change
policy.
______
Response to Written Questions Submitted by Hon. Ernest F. Hollings to
David G. Hawkins
Questions. Mr. Hawkins, the Bush Administration appears to be looking
at ocean ``sequestration'' of carbon as a solution to the climate
change and greenhouse gas emissions problem. Some have suggested that
carbon could be taken up by increasing primary production of the
oceans. Others have proposed that carbon be ``buried'' below the mixing
zone of the oceans. This sounds a little like ocean ``disposal'' to
me--but maybe I'm missing something.
``What is your understanding of the sophistication of this
technology?
``How much can we rely on these technologies as a permanent
way of taking carbon out of the atmosphere? How much carbon can
oceans absorb?
``The oceans have warmed substantially all over the world in
the past 50 years. What would putting carbon into the oceans do
to ocean temperatures?''
Answers. NRDC opposes the use of the oceans as disposal sites for
carbon dioxide for a number of reasons. Science is still in the early
stages of understanding the details of ocean ecosystems. Consequently,
we have no idea what might be the ecosystem implications of large scale
disposal of CO2 into the oceans. Second, because we have
only limited understanding of the movement of currents through the
oceans of the world, we do not have a robust basis to conclude that
disposal of CO2 into oceans would keep those gases out of
the atmosphere even for hundreds of years.
With respect to the effect of CO2 disposal on ocean
temperature, there would likely be some highly localized cooling of
surrounding waters in zones where liquefied CO2 is disposed.
A more important temperature effect is that as warming penetrates the
deep ocean, the capacity of the ocean to hold CO2 is
reduced, resulting in release of CO2 back to the atmosphere.
There is another fundamental flaw in using the ocean as a disposal
site. For any given amount of carbon in the biosphere, the total carbon
will be partitioned between four major areas: the atmosphere, soils,
forests and other vegetation, and the ocean. Absent continued increases
in emissions from human activities, the carbon in the biosphere would
equilibrate over thousands to tens of thousands of years based on the
relative concentrations of CO2 in the ocean and the
atmosphere. If we continue to take carbon from the biologically
isolated reserves of fossil fuels and ``dispose'' of it in the ocean,
we will unavoidably increase the long-term concentration of CO2
in the atmosphere because the resulting higher concentrations of
CO2 in the ocean will increase the concentrations at which
the atmosphere and the ocean equilibrate. More CO2 in the
ocean means more CO2 in the atmosphere as the ocean-
atmosphere interface approaches equilibrium.
A final point worth noting is that most if not all forms of ocean
disposal would violate the London Dumping Convention.
In contrast to ocean disposal, deep geological injection of
CO2 may hold promise as a technique for true long-term
storage of significant amounts of greenhouse gases. Much evaluation
work on the physical integrity of potential storage sites remains to be
done but if pursued as one element of a portfolio of strategies to
combat climate change, geologic storage may prove important as a
bridging technique while world energy systems evolve to zero or minimal
carbon options. Geological storage should not be regarded as a
substitute for the critical work of improving the efficiency of energy
production and use and increasing the penetration of renewable energy
resources. But geologic storage may hold promise as a supplement to
efficiency and renewable energy programs.
______
Response to Written Questions Submitted by Hon. John McCain to
David G. Hawkins
Question 1. What value or weight does the NRDC give to economic impact
in its decision to support immediate action on the emissions reductions
of carbon dioxide?
Answer. NRDC places great weight on the issue of the economic
impacts of strategies to reduce carbon dioxide. We recognize that if
policymakers believe that efforts to take action now to reduce carbon
dioxide will be economically ruinous, they will resist taking action.
We support action now because we believe that very substantial cuts in
carbon dioxide will be required over the long term and to minimize both
compliance costs and risks to the environment over the long term it is
critical to send an unmistakable signal to the private sector now that
carbon mitigation must be incorporated into investment and business
planning decisions.
We believe that the more sound analyses show that the costs of
taking action now to achieve limited but significant cuts in carbon,
such as those called for the 1997 Kyoto Protocol to the Framework
Convention on Climate Change, can be achieved without harming the US
economy. Indeed, the Department of Energy's ``Clean Energy Futures''
study, released in November 2000, shows that an integrated program of
caps on carbon emissions combined with policies to enhance reliance on
renewable energy sources and programs to improve efficiency of energy
production and use can cut carbon emissions dramatically and lower
Americans' total energy bills by more than $100 billion per year.
In addition, we believe that establishing a requirement to reduce
carbon emissions, when combined with appropriate flexible compliance
mechanisms, will unleash massive cost minimizing innovations in the
private sector as it seeks to find least cost ways to meet the carbon
reduction obligation. The experience of the 1990 acid rain program
crafted by the first President Bush is instructive. That program, which
capped SO2 emissions from the electric generating industry
at levels about 50% below historic highs, was also opposed as being too
costly to adopt when it was proposed. Estimates were made by industry
and government studies that SO2 allowances might cost more
than $1000 per ton. Once enacted, however, the law stimulated efforts
in industry to find least-cost compliance options and the result was a
range of prices below $100 per ton for much of the program's first
decade and still now below $200 per ton.
Initial cost estimates for new programs are always high because the
regulated community does not set its best and brightest minds to work
figuring out how to minimize compliance costs until the programs become
a reality.
Question 2. You have stated some disdain for voluntary pledge to reduce
emissions in your testimony. What do you think about voluntary carbon
exchange systems, such as the Chicago Climate Exchange? Do you believe
that these type of programs can be helpful in reducing greenhouse gas
emissions''
Answer. Institutions like the Chicago Climate Exchange (CCX) are
helpful in developing and testing the mechanisms that are likely to be
relied on extensively in domestic and international programs to reduce
greenhouse gas emissions. Under a program that caps emissions and
allows participants to exchange or trade emissions to meet their
obligations, there will be a need for efficient systems to register
offers and carry out trading transactions. CCX can help develop and
test such systems.
In addition, as with other pilot programs, CCX provides a forum for
firms that decide to volunteer with an opportunity to gain experience
not just with internal efforts to reduce greenhouse gas emissions but
with real world operation of a sophisticated trading system for such
gases.
While CCX may be successful in creating a pilot market for
greenhouse gas trading, it is important to keep in mind that the market
is the means to an objective, not the objective itself. In this case,
the objective is to achieve significant reductions in greenhouse gas
emissions. CCX can provide a vehicle for carrying out the objective but
it cannot provide the motivation for a sufficient number of actors to
use the vehicle.
For markets to sustain themselves, there must be a scarcity of the
goods that are trading in the market. As long as greenhouse gas
emitters can release their emissions to the atmosphere without cost to
the emitter, there will be a sharp limit on the number of firms that
will be willing to commit to a reduction in their emissions and pay a
cost for not meeting that commitment.
Public policy action is needed to create a robust market in
greenhouse gases that can accomplish a significant reduction in
emissions. By capping allowable greenhouse gas emissions from the
important emitting sectors of the economy, Congress can create the
market conditions of a scarce (and therefore valuable) resource that a
voluntary system cannot create.
Bills like S. 556, The Clean Power Act of 2001, would cap carbon
dioxide and other major air pollutant emissions from the electric
generating sector in a manner similar to the successful acid rain
provisions of the 1990 Clean Air Act amendments. Under S.556 a market
for trading carbon dioxide emissions would rapidly emerge and in
contrast to a voluntary program, large-scale participation and
effectiveness in achieving the objective of reducing emissions by a
targeted amount would be assured.
Thus, the benefits of programs like CCX will be enhanced by policy
actions to establish limits on the amount of greenhouse gases that can
be freely emitted.
Question 3. An earlier panel discussed different types of renewable
energy resources that can be used to reduce greenhouse gas emissions.
Based on your studies, which resources show the most promise for
widespread adoption and effective greenhouse gas reduction?
Answer. NRDC believes that increased reliance on renewable energy
sources is an essential component of an effective strategy to reduce
emissions of greenhouse gases, in particular carbon dioxide. Solar
technologies and wind power, as well as biomass energy sources all have
the promise to become a much larger part of the U.S. energy mix and
NRDC supports efforts to break down market barriers to greater
penetration of these resources. One important barrier is that the
market does not value today the fact that these technologies do not
contribute to the buildup of greenhouse gases in the atmosphere. This
market barrier could be removed by adopting caps on emissions of
greenhouse gases from the energy sector, such as S.556 would do.
Integrating caps with policies to accelerate the expansion of available
and affordable renewable resources would lower the overall costs of
complying with the caps. Accordingly, NRDC supports an integrated
policy suite of emission caps, a renewable portfolio standard, and a
public benefits fund that would provide financial resources for greater
reliance on efficiency and renewable energy sources.
Question 4. Some industry representatives have argued that caps on
emissions will create reduced productivity, economic hardship, and
increased unemployment. What is your response to these concerns?''
Answer. As I noted in my answer to question 1, when new policies
are being debated, Congress is typically confronted with estimates that
the policies will be ruinously expensive. History has demonstrated that
the actual expense of implementing reform programs is usually
significantly less than pre-enactment estimates for the very good
reason that the entities whose behavior is changed under the reform
program do not make significant efforts to minimize the costs of
compliance until the policymakers have decided to adopt the reforms.
The current failure of the Congress and the administration to move
forward with effective policies to require mandatory reductions in
greenhouse gas emissions will encourage a ``wait and see'' attitude
among many firms as long as this indecision persists. NRDC hopes that
Congress will act soon to adopt greenhouse gas reduction programs. We
are confident that the response of the private sector to adoption of
such programs will be to dramatically expand the attention and
resources it devotes to minimizing the costs of reducing greenhouse
gases.
There is ample evidence that it is technically feasible to achieve
major reductions of greenhouse gas emissions from key sectors like
electric generators and motor vehicles without harm to the U.S.
economy. As noted above, the Clean Energy Futures study by DOE
concluded that an integrated policy set of emission caps, renewable
energy programs, and advanced supply and demand-side efficiency
programs can reduce consumers' energy bills by over $100 billion per
year and cut carbon dioxide emissions by 30% from business as usual
forecasts.
______
Response to Written Questions Submitted by Hon. Ernest F. Hollings to
Dr. Daniel M. Kammen
Benefits to the U.S. Economy from Technology Development
Question 1. What kinds of technologies are our best bet for technology
transfer and export advancement over the next 10 years.
Answer. Changes in the economies of both developed and developing
nations over the next decade are likely to only accelerate the trends
of: (1) the need for far greater flexibility in the security of energy
services; (2) the need for energy services tailored to fit the needs of
individual businesses, homes, and vehicles. Renewable energy systems--
notably solar photovoltaic and solar thermal systems, windmills,
biomass energy systems, and fuel cells--are each technologies that meet
these demands (1 & 2, above). It is particularly important for energy
systems to be able to deliver energy at any scale, from less than a
mega-watt (MW) to 10 MW or more reliably, and at least cost. The tragic
attacks on both the Pentagon and the World Trade Center among other
things illustrate the need for energy security, and quality in a
distributed, often stand-alone fashion. Each of the renewable energy
systems listed above can meet these conditions, and provide modular
energy services that fit the needs of emerging markets in both
developing and developed nations. Further, these are precisely what
emerging distributed generation systems in the U.S. will need to move
towards a clean, low-cost energy system. At present the U. S is lagging
nations such as Japan (PV), Denmark and Germany (Wind), and Canada
(Fuel Cells) in developing and commercializing these technologies each
of which saw their initial development phase take place in the United
States. Added material on the decline of R&D support for this critical
emerging clean energy market can be found in two recent papers I co-
authored with my doctoral student Robert Margolis (Margolis and Kammen
1999, 2001).
Margolis, R. M. and Kammen, D. M. (2001) ``Energy R&D and Innovation:
Challenges and Opportunities'' in Schneider, S, A Rosencranz, and
J. Niles, editors A Reader in Climate Change Policy (Island Press:
Washington, DC).
Margolis, R. and Kammen, D. M. (1999) ``Underinvestment: The energy
technology and R&D policy challenge,'' Science, 285, 690-692. WWW:
http://socrates.
berkeley.edu/rael/Margolis&Kammen-Science-R&D.pdf
Question 2. What role will an international agreement on emissions
reduction play--will it hurt or help the US ability to take a lead role
in these technologies.
Answer. Contrary to some of the claims about the Kyoto Protocol
(and now the Bonn Compromise), recent analysis indicates that by taking
a leadership position on the prevention of global warming, the U.S.
will benefit financially. The lack of support for the global warming
treaty that the current U.S. administration has shown is therefore
particularly troubling.
A range of studies are all coming to the conclusion that simple but
sustained standards and investments in a clean energy economy are not
only possible but would be highly beneficial to our nation's future
prosperity.i A recent analysis of the whole economy shows
that we can easily meet Kyoto type targets with a net increase of 1
percent in the Nation's GDP 2020.ii The types of energy
efficiency and renewable technologies and policies described here have
already proven successful and cost-effective at the national and state
level. I argue that this is even more reason to increase their support.
Figure 14 in my testimony shows how a combination of readily available
options can be used to meet the Kyoto Protocol targets. This type of
strategy would cost-effectively enable us to meet goals of GHG emission
reductions while providing a sustainable clean energy future.
---------------------------------------------------------------------------
i Interlaboratory Working Group.
ii Krause, F., et al, op cit.
Krause, F., DeCanio, S, and Baer, P. (2001) ``Cutting Carbon Emissions
at a Profit: Opportunities for the U.S.,'' (International Project
---------------------------------------------------------------------------
for Sustainable Energy Paths: El Cerrito, CA), May.
Question 3. Should we be using programs in the Department of Commerce
like the Commercial Service to start exporting our existing
technologies overseas?
Answer. As discussed in my testimony, we have decades of experience
that market support and expansion through a combination of `technology
push' (i.e. support for R&D) and `demand pull' (i.e. domestic and
overseas technology education and market support) provide the best
recipe for economic expansion. Clean energy technologies are no
exception, and, in fact, show far larger returns on the investment than
do older technologies such as fossil-fuels. In a recent paper, I detail
the benefits that the U.S. has achieved through this sort of integrated
technology policy in the energy efficiency as well as the renewable
energy sector (Duke and Kammen, 1999). The Department of Commerce, as
well as US AID and the Department of Energy as well as the U.S. EPA all
provide opportunities to support clean energy market expansion. In the
past these efforts have been scattered, and often uncoordinated. I
recommend that an Office of Clean Energy Commerce be established to
utilize the changing technology base as well as the latest economic and
policy measures to help the U.S. recapture its leadership role in this
area.
Duke, R. D., and Kammen, D. M. (1999) ``The economics of energy market
transformation initiatives,'' The Energy Journal, 20 (4), 15-64.
WWW: http://socrates.
berkeley.edu/dkammen/dukekammen.pdf
Question 4. What do we need to do to get our R&D investment out to the
market?
Answer. Certainly a key part of making effective R&D investments is
also supporting `demand pull' policies, as indicated in the response
the question above. The other key issue, however, is to demonstrate a
sustained commitment and support for clean energy technologies. As
detailed in Margolis and Kammen (1999) as well as in my written
testimony, federal support for R&D has been episodic, consisting of
`boom and bust' cycles. Research, development and dissemination,
however, requires time to bring new ideas to market, and to overcome
barriers in both the initial technology and in market economics. This
can best be accomplished by demonstrating to the investors in new
areas--such as renewable energy--that R&D and market support will not
evaporate in the next budget cycle.
Margolis, R. and Kammen, D. M. (1999) ``Underinvestment: The energy
technology and R&D policy challenge,'' Science, 285, 690-692. WWW:
http://socrates.
berkeley.edu/rael/Margolis&Kammen-Science-R&D.pdf
NIST Role in Efficiency Standards
Question 5. What can NIST do to help the renewables and energy
efficiency sector.
Answer. The greatest barrier that renewable energy and energy
efficiency technologies face is simply that of barriers to enter the
commercial energy market in the form of subsidies for fossil fuels.
Coal, oil, gas, and nuclear energy all have very large subsidies,
either through direct support, or through implicit subsidies in U.S.
infrastructure, military actions, or political support. These are not
always unreasonable, but they prevent our energy economy from becoming
diverse, secure, and innovative. The following table, from my written
testimony, highlights the degree of support for the fossil fuel and
nuclear industry at the expense of other technologies, such as
renewables.
NIST could play a significant role in evening this economic
`playing field.' Currently, few standards exist that explicitly reward
clean air, human and environmental health. Several studies, for
example, have found that the direct health impacts of coal burning
rival the traditional economic cost of coal (i.e. doubling the 3-5
cents/kilowatt hour cost of electricity from coal. NIST could examine
the set of metrics it uses and make recommendations for energy
generation technologies that meet these standards. Regional air
quality, greenhouse gases, air and watershed protection, and energy
security through efficient use of energy could all be measures that
NIST recommends and measures. Instituting these measures would
significantly level the playing field while providing direct economic
and health benefits to the U.S.
----------------------------------------------------------------------------------------------------------------
PRIMARY ENERGY SUPPLY DIRECT EXPENDITURES
1998 CONSUMPTION and TAX EXPENDITURES
------------------------ (1999)
FUEL SOURCE VALUE ---------------------
(quads, VALUE
quadrillion PERCENT (million PERCENT
BTU) $)
----------------------------------------------------------------------------------------------------------------
Oil 36.57 40% 263 16%
----------------------------------------------------------------------------------------------------------------
Natural Gas 21.84 24% 1,048 64%
Alternative Fuels Credit (1,030)
----------------------------------------------------------------------------------------------------------------
Coal 21.62 24% 85 5%
----------------------------------------------------------------------------------------------------------------
Oil, Gas, Coal Combined 205 12%
----------------------------------------------------------------------------------------------------------------
Nuclear 7.16 8% 0 --
----------------------------------------------------------------------------------------------------------------
Renewables 3.48 4% 19 1%
----------------------------------------------------------------------------------------------------------------
Electricity 40 2%
----------------------------------------------------------------------------------------------------------------
Total 90.67 100% 1,660 100%
----------------------------------------------------------------------------------------------------------------
Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 1999: Primary
Energy, (Washington, DC: DOE, 1999).
Question 6. How can they (NIST) assist other agencies, whether state or
federal in improving our energy efficiency and increasing the
availability of renewable energy to consumers.
Answer. There is a great deal that can be done to work across
agencies to expand the role of clean energy in our society. Energy
efficiency and environmental standards, if written to challenge the
industry and encourage innovation provide the best, market based, means
to clean-up our energy mix. The California `Zero Emission Vehicle'
(ZEV) Mandate both accelerated the development of hybrid, fuel-cell,
and battery-powered vehicles, but also rapidly accelerated the
automotive industry around the world to produce far cleaner internal
combustion engines. Thus, a clear, aggressive standard provided better
existing technology and accelerated the development of a new industry.
As discussed in my written testimony, a Renewable Portfolio
Standard (RPS) provides one of the best means to use the market to spur
a larger clean energy component in our energy mix. An RPS is
legislation which places an ``obligation'' on all sellers of power to
the retail market to demonstrate through ownership of ``renewable
energy credits'' that they have supported the production of a certain
amount of electricity from qualifying renewable sources. These credits
can come from either their own renewable power generating facilities,
buying renewable power from other sources, or simply buying renewable
energy credits. A renewable energy credit represents the environmental
value of the kilowatt-hours generated from renewables, with the market
price set through the flexible trading of these credits. The purpose of
the RPS is to open the markets to clean energy production by ensuring
the swift penetration of renewable energy into competitive electricity
markets so as to bring down the costs until such a purchase obligation
is no longer necessary.
An RPS has now been signed into law by at least 10 states: Arizona,
Connecticut, Maine, Massachusetts, Nevada, New Jersey, New Mexico,
Pennsylvania, Texas, and Wisconsin. Minnesota and Iowa also have a
minimum renewables requirement similar to an RPS. Bills that include an
RPS are pending in several other states. Although 12 States is a good
start it is difficult to determine how many will ultimately pass
comprehensive and effective RPS laws. If the number of states remain
small then the U.S. will ultimately miss or greatly delay the
opportunity to build a sizable market for renewables. Only with a
healthy and significant renewable energy market can this industry
become commercially viable, so that we may all benefit from the energy
security and environmental quality that renewable energy can provide.
A national market for clean energy will have a dramatic impact on
driving down the costs of renewable energy technologies and moving
these technologies fully into the marketplace. A patchwork of state
policies would simply not be able to achieve this goal. In addition,
state RPS policies have so far differed substantially from each other.
This could cause significant market inefficiencies negating the cost
savings that a more comprehensive, streamlined, market-based federal
RPS package would give.
Second, not every state program is set up effectively. A successful
RPS requires several critical components. These include:
The obligation to buy renewables must apply equally to all
sellers of electricity
There must be a system of tradable renewable energy credits
this will achieve the renewables goal at least cost
Demand must outstrip supply by setting the obligation at
either the level of existing renewables, increasing it from
that point; or by excluding existing renewables; or by using
separate tiers for existing and new renewables
The obligation must rise gradually and predictably to ensure
a stable market
Stiff penalties must be imposed on market players that do
not comply with the obligation to buy renewables; the penalty
must significantly exceed the cost of compliance
Requirements for new renewables should begin at least two
years after all regulations are final to allow time for
competition among all potential suppliers
The RPS must be long term, continuing until renewable kWh
prices drop to competitive market levels at which point the RPS
will sunset
Qualifying renewables must be limited to those that need
market support (i.e., not large hydropower) and meet certain
clean environmental criteria
There must be flexibility for meeting the obligation, with a
limited period for making up shortfalls, a system of credit
banking, and an exemption provision for the case of extreme
events.
If any of these above criteria are not properly detailed in RPS
legislation then the program will likely be either ineffective or
operate suboptimally. To date, except for Texas, each of the states
mentioned above have left out some number of these critical elements
and consequently their RPS programs are not proving as successful as
they should be at encouraging renewables growth. Such a track record is
worrisome if an RPS is to promote the level of renewable energy growth
that we need in this country to achieve a sustainable clean energy
future.
It is for these reasons that I strongly recommend the
implementation of a federal RPS that incorporates at a minimum all the
elements listed above.
An RPS represents one of the best uses of true market forces, where
policy sets the standard but economic competition is used to meet that
target. The many economic, environmental, health, and social benefits
of clean energy generation makes this a natural area for federal
legislative action.
NIST, working with the Department of Energy and the U. S EPA and
Department of Commerce could, as indicated above, set clear standards
for a clean energy component, and work to certify and support the
development of new renewable energy technologies.
______
Response to Written Questions Submitted by Hon. John McCain to
Dr. Daniel M. Kammen
Question 1. You mentioned in your written statement that some of the
options for achieving energy supply and demand balance have not been
given adequate attention. What are some of those options.
Answer. A number of policies are available to increase the supply
of renewable energy. Among the most logical to support are: (1) a
Renewable Energy Portfolio Standard, RPS, (as discussed above); (2)
consistent cost accounting across technologies that reflect the true
social cost of energy, including the health, security, and
environmental impacts.
(1) As indicated in my testimony, an RPS (for example 10% in 2010,
rising to 20% in 2020) takes advantage of market forces to open
historically biased energy markets to competition, while at the same
time putting a premium on clean energy. This makes economic, security,
and environmental sense.
(2) Consistent accounting, involving the life-cycle costs of
different energy options, has not been practiced in the past, yet
provide the best mechanism for inter-technology comparisons between
both fossil-fuel and alternative energy technologies.
Question 2. Does your industry use some standard evaluation metric such
as kilowatt hour per dollar invested, whereby we can evaluate their
different technologies on a common basis.
Answer. As indicated above (item 2) consistent comparisons between
energy technologies has not been widely practiced, largely due to: (1)
the hidden subsidies inherent in many fossil fuel as well as nuclear
energy technologies; and (2) the lack of accounting for so-called
`externalities' of air and water quality, health, and energy security
(import dependence). A national study--conducted by the National
Academy or by an inter-agency team, could provide the basis to provide
the sort of consistent measurement metric that you describe. I strongly
support such an initiative.
Question 3. In your testimony, you state that the current focus on
energy issues has, ``fostered an ill-founded rush for `quick fix'
solutions that `will ultimately do the country more harm than good'.''
Could you please explain how concerns about an energy crisis can end up
actually hurting efforts to study renewable energy sources?
Answer. There are two aspects of the current `energy crisis' that
have ironically discouraged investment in clean energy options:
(1) In the rush to address the energy crisis, expansion of gas-
fired electricity capacity has been pushed by a number of political
figures. Over 90% of new power plants planned in the Western U.S., for
example, are set to be gas fired. This represents a huge over-
investment in a single energy source, both on economic and energy
security grounds. This expansion of gas-fired generation locks-in one
technology, possibly for decades, and crowds out renewable energy
technologies, even those that are lower cost on a life-cycle basis.
This is bad economics and bad policy. Energy diversity is the most
critically needed change in the energy economy.
(2) The U.S. energy R&D budget is relatively small given the
central role of energy to the U.S. economy. Over-emphasis on energy
sector--such as gas--restricts the support available for R&D in other
areas. We have seen this time and time again in U.S. energy policy
(see, for example, Margolis and Kammen, 1999). A logical, and
economically prudent, approach, would be to use the sort of market-
based approach to diversity the energy mix that could be achieved with
an aggressive Renewable Energy Portfolio Standard (RPS) that I describe
in my written testimony, or through the sort of life-cycle cost
accounting and comparisons discussed above.
Margolis, R. and Kammen, D. M. (1999) ``Underinvestment: The energy
technology and R&D policy challenge,'' Science, 285, 690-692. WWW:
http://socrates.
berkeley.edu/rael/Margolis&Kammen-Science-R&D.pdf.
Question 4. Your testimony highlights a recent revolution in the cost
and technologies for renewable energy resources. Could you please
explain the factors that created this revolution?
Answer. The last decade has seen dramatic decreases in cost, and
increases in performance, of solar, wind, and biomass energy
technologies, as well as in hybrid vehicles, energy efficient lighting
and fuel cells. In each case, a mixture of technology push and demand
pull policies has created the opportunity and facilitated market growth
for a new, clean technology. In the U.S. and overseas, in fact, we have
seen that a combination of `technology push' (i.e. support for R&D) and
`demand pull' (i.e. domestic and overseas technology education and
market support) provide the best recipe for economic expansion. Clean
energy technologies are no exception, and, in fact, show far larger
returns on the investment than do older technologies such as fossil-
fuels. In a recent paper, I detail the benefits that the U.S. has
achieved through this sort of integrated technology policy in the
energy efficiency as well as the renewable energy sector (Duke and
Kammen, 1999).
Duke, R. D., and Kammen, D. M. (1999) ``The economics of energy market
transformation initiatives,'' The Energy Journal, 20 (4), 15-64.
WWW: http://socrates.
berkeley.edu/dkammen/dukekammen.pdf.
______
Response to Written Questions Submitted by Hon. John McCain to
Maureen Koetz
Question 1. If a favorable decision is reached on the long-term storage
of spent fuel at Yucca Mountain, what would that mean for the nuclear
industry?
Answer. The Nuclear Energy Institute agrees with the views of
Nuclear Regulatory Commission Chairman Richard Merserve that ``purely
from a technical perspective, . . . the establishment of a disposal
site need not be a precondition for new construction.'' NEI also holds
the view that establishment of a used fuel repository is not a
precondition for increased output from existing facilities, completion
of partially constructed facilities for future operation, or plant
relicensing. Several facilities have already been issued 20-year
extensions on their licenses, and during the 1990's, the increased
output from existing nuclear facilities was the equivalent of building
22 new 1000-megawatt reactors and running them at 90 percent capacity.
Neither enhancement of nuclear operations created an adverse effect on
our ability to manage used fuel.
Ongoing nuclear fuel management practices represent one of the most
successful solid waste management systems ever implemented for an
industrial process involving hazardous material, and these successful
efforts will continue through on-site pool and dry cask storage while a
long-term geologic repository is made ready. However, the industry also
believes that a centralized repository to hold used fuel and other by-
product nuclear materials must proceed with all deliberate speed. Since
1983, American electricity consumers have committed almost $18 billion
to the Nuclear Waste Fund specifically to finance the federal
management of used fuel, including $458 million by the ratepayers of
Arizona. The Fund has a balance of about $10 billion, which must be
made available for facility construction and operation.
Nuclear plant owners and operators are currently unfairly
disadvantaged by the failure of the federal government to meet its
obligations under the Nuclear Waste Policy Act to begin removal of used
fuel from commercial facilities by 1998. These utilities and their
customers have paid for a centralized facility, yet continue to have to
pay for on-site storage as well. As competition develops in the
electricity market, forcing double payments of this kind act as a
hidden tax by the federal government on one of the cleanest forms of
electricity available, distorting the market, and potentially
undermining our future contribution to meeting environmental goals like
managing the risk of climate change.
The Federal government's failure to meet its obligation could also
expose a fundamental hypocrisy in our support for environmental
protection goals and principles. All our waste management laws and
programs are based on the premise that hazardous material should only
remain on a production site long enough to be accumulated, packaged,
and manifested--it should then be brought to a centralized facility
where it can be best treated, stored or disposed of. For every other
hazardous material handled in the United States, centralized facilities
(usually designated as hazardous waste landfills) are open and
operating in order to best protect the environment. In some cases,
keeping hazardous material on a production site in excess of 90 days
constitutes a violation of federal law. These other hazardous materials
are routinely transported on public roads through populated areas in
containers far less robust that those used to transport spent fuel. Our
waste management programs should not have two inconsistent systems for
managing hazardous materials simply to satisfy political preferences at
the expense of effective environmental protection.
The failure to complete and open a hazardous materials center for
used radioactive fuel creates uncertainty in the future development of
nuclear plants, threatens continued operation if states act politically
to limit onsite storage, and undermines effective management of all
hazardous materials nationwide. It also casts an unnecessary shadow on
the single most effective technology available for eliminating
greenhouse gas emissions that also supports economic growth. And
although not a direct issue for commercial plant operation, the absence
of a long-term disposal site can interfere with meeting cleanup
deadlines at weapons complex facilities.
A favorable decision at Yucca Mountain would mean electricity
consumers would finally get what they paid for, but more importantly,
our nation would have a complete program that ensures environmental and
health protection in the management of used fuel and other radioactive
materials. It will also support the continued availability of a major
tool to maintain our air quality.
Question 2. Can you comment on the status of standardized reactor
designs? Is there a need for additional research?
Answer. The United States has always been the world leader in
nuclear technologies. The industry has been working to set the stage
for construction of new advanced design nuclear plants that will have
more automatic safety systems and will be even more reliable and
economical.
The NRC already has certified three such designs. Two units using a
design by General Electric have been built and are setting world-class
performance records in Japan, while others of this design are under
construction in Japan and Taiwan. A variation of another certified
design is being developed in Korea.
There are three additional reactor designs that are being studied
for possible future use. The Pebble Bed Modular Reactor is currently
undergoing feasibility studies in South Africa, and Westinghouse is
determining whether to proceed with formal NRC review of its AP-1000
concept--a larger-scaled version of the already approved AP 600. In
addition, General Atomics is considering commercialization of a gas-
cooled reactor being developed that uses plutonium fuel from stockpiles
of Russian weapons.
Beyond advanced reactor designs, industry executives have come
together--contributing personnel, funding and guidance--to develop a
plan that will mark a clear path for new nuclear plant orders. This
plan for the future considers safety standards and objectives; NRC
licensing requirements; policy and legislative implications; capital
investment needs and changing business conditions. This effort is tied
to the nuclear industry goal of building 50,000 megawatts of new
capacity by the year 2020 in support of efforts to protect air quality
and curb greenhouse gas emissions while maintaining a reliable
electricity supply. Notably, developing 50,000 megawatts of new nuclear
will only hold constant our current level of 30 percent emission-free
electricity to support current and future emission control goals.
The ability to bring new nuclear plants to market in a timely
manner must be demonstrated, however. The licensing process for future
plants was laid out in the 1992 Energy Policy Act and has the potential
to correct problems of the past. In particular, it allows for early
resolution of safety and siting issues, and ample opportunities for
public involvement, well in advance of large capital investments. There
is a role for the Federal Government in assuring that the first-time
implementation of this process does, in fact, meet the intent of
Congress and the needs of the industry, regulators, and the public.
Experience with certification of the three existing advanced reactor
designs has shown the effectiveness of DOE-industry cost sharing. A
similar effort to demonstrate the siting and plant licensing process
would resolve many open questions and expedite business decisions to
order new nuclear plants.
Research will remain key to achieving these goals. The United
States Government has a right to be proud of its long history
supporting scientific research and development. A key part of U.S.
success in the world economy is the result of technical advancements
that were translated into commercial applications to advance our
knowledge, standards of living, longevity, protection of the
environment, and support democratic and free market principles around
the world. For these reasons, we should always support research to
advance technology and the human condition. In the case of nuclear
electricity, advanced reactors, improved fuel designs, and operational
enhancements all stem from research and development. Continuing this
effort is one of the recommendations on future R&D by the President's
Committee of Advisors on Science and Technology (PCAST).
Our nation's research in nuclear energy has paid dividends in many
categories for over four decades. Past research investment has improved
safety, reliability, fuel and operational efficiency, and proliferation
resistance at commercial electricity plants. Nuclear research also
supports our weapons programs to promote national security, reduce
nuclear proliferation, and improve waste management practices at
defense nuclear sites. Advanced designs are needed in international
markets, creating trade and technology transfer benefits for both the
United States and emerging economies in need of safe, environmentally
sound electricity production.
But perhaps the largest dividend paid by nuclear research has been
clean air. On an annual basis, generating electricity from nuclear
reactors instead of alternative baseload sources prevents or avoids
over 4 million tons of sulfur dioxide emissions, 2 million tons of
nitrogen oxide emissions, 174 million tons of carbon (or 1 trillion
pounds of carbon dioxide), particulate matter and mercury. This benefit
cannot be duplicated or replaced. To maintain the contribution from
this secure, emission-free source, developing advanced, standardized
reactor designs for the immediate- and long-term must remain a key
component of the energy/environmental policy of the United States over
the next several decades. Research should not only continue, but
expand.
Question 3. You have testified that U.S. policy originally envisioned
recycling reactor fuel to separate out small volumes of waste, and that
research continues on recycling fuel. Could you please describe the
status of this research, when a program for recycling reactor fuel
might be implemented, and how greatly a recycling program would reduce
nuclear waste?
Answer. President Bush's National Energy Policy proposes to
reconsider the option to recycle nuclear fuel. In 1977, President Jimmy
Carter effectively banned civil reprocessing indefinitely in the United
States to discourage other countries from similar programs, but this
policy failed. President Ronald Reagan lifted the ban on commercial
reprocessing in 1981, but by that time, abundant uranium resources had
been found, the cost of recycled fuel far exceeded the cost of new
fuel, and projections of uranium demand were falling due to plant
cancellations. World uranium supplies are currently estimated to last
175 years without accounting for further exploration of anticipated
reserves. However, growing electricity needs around the world,
especially for cleaner fuel supplies, may lead to an increased rate of
use for new fuel.
Ensuring sustainable development--coupled with the need to conserve
fossil alternatives, such as gas, that supply other industrial and
residential applications--may requiring more use of recycled as well as
new uranium fuel in the long-term. According to British Nuclear Fuels,
Ltd, a recycling company in Britain, 97% of fuel can be recycled and
each ton reused saves about 100,000 barrels of oil. Recycling could
increase the energy extracted from nuclear fuel by factors of 10-100,
while at the same time reducing the volume of residual wastes that
would eventually have to be stored in geologic repositories.
Two major areas of research are currently ongoing to improve the
fuel recycling processes: electrometallurgical/pyroprocessing
technology at Argonne National Laboratory, that would separate usable
fuel material from wastes without producing weapons-usable plutonium;
and transmutation of waste products to reduce residual radioactivity.
Both are still in very preliminary stages of research.
However, the potential advantages of fuel recycling must be
balanced against the overall economics of the fuel cycle, and the
safety, radioactive emission, and proliferation potential inherent in
fuel recycling technology. NEI strongly believes that the commercial
nuclear fuel cycle should not create an unacceptable future
proliferation risk. Advanced recycling technology may improve upon the
proliferation resistance of the once-through commercial nuclear fuel
cycle and further reduce the potential for diversion of nuclear
materials for non-peaceful purposes. Innovations and improvements
developed in the United States can improve recycling processes in
countries where recycled fuel is used. However, in both once-through or
recycled fuel systems, a geologic repository will be needed to provide
a safe storage and disposal facility as part of the nuclear waste
management system.
According to the Nuclear Energy Agency (NEA) in Paris, the concept
of separation and transmutation of radioactive waste products should be
explored and has the potential to contribute to the improved management
of radioactive waste by reducing the proportion of long-lived isotopes
it contains. Again, NEA is clear that it should not be considered as an
alternative to deep geological disposal, and should not be presented as
such. In addition, recycled materials will always create a certain
amount of residue that can only be managed in a long-term repository.
So irrespective of whether fuel recycling is pursued, geologic storage
capability is always necessary.
Is the commercial industry prepared to deal with the security concerns
surrounding the reprocessing of spent fuel?
Answer. Fuel recycling would only occur in the United States when
economical to do so for electricity ratepayers. If recycled fuel were
to be used, all the facilities used in the recycling process would be
scrutinized and licensed by the Nuclear Regulatory Commission with all
necessary safeguards in place. Experience with fuel recycling in France
and Great Britain has demonstrated that a safe and proliferation-
resistant system is both possible and successful.
Question 4. What levels of operations efficiency have been achieved by
the nuclear industry to increase production at existing plants? How
much more can be achieved?
Answer. The 103 nuclear plants in the United States produced 755
billion kilowatt hours in 2000, 20 percent of the nation's electricity.
Since 1980, the capacity factor (or efficiency rate of plant
utilization) has increased from 57 to 89.6 percent. Since 1990, the
increased output at nuclear facilities has been the equivalent of
building 22 additional 1000 megawatt plants with no significant adverse
impacts to the environment (please see attached charts). This increase
satisfied 22 percent of the growth in U.S. electricity demand over that
time period.
It is expected that anywhere from 10-12,000 additional megawatts of
output are still available from existing plants through additional
operation efficiencies and capacity uprates.
Question 5. One of the public's major concerns about nuclear energy is
safety, especially after Three-Mile Island, Chernobyl, and recent
problems at Japanese nuclear facilities. Could you briefly describe
what safety precautions are taken by American nuclear reactor operators
to ensure safety in the United States?
Answer. Safety is ensured at nuclear power plants in the United
States according to four interlocking steps:
1. extensive government regulations have been established to
protect the public,
2. nuclear plants are built according to designs that meet
the regulations,
3. owners are required to operate the plants according to
approved specifications and abide by strict controls on
changing the designs, and
4. regulators monitor operations and compliance with
regulations through resident inspectors stationed at every
site.
Multiple redundant safety systems. Nuclear plants are designed
according to a ``defense in depth'' philosophy that requires redundant,
diverse, reliable safety systems. Two or more safety systems perform
key functions independently, such that, if one fails, there is always
another to back it up, providing continuous protection.
Highly reliable automated safety systems. A nuclear plant has
numerous built-in sensors to watch temperature, pressure, water level,
and other indicators important to safety. The sensors are connected to
control and protection systems that adjust or shut down the plant,
immediately and automatically, when pre-set safety parameters are
approached or breached.
Physical barriers safely contain radiation and provide emergency
protection. Beginning with the nuclear fuel itself, fuel pellets are
ceramic, locking inside the radioactive byproducts of the fission
reaction. Three physical barriers are engineered to provide formidable
defense-in-depth against the uncontrolled release of radiation. First,
the fuel pellets are sealed inside rods made of special metal designed
to contain fission products. Next, the fuel rod assemblies are
contained within a large, thick steel reactor vessel. Lastly, the
reactor vessel and extensive safety and steam generation equipment are
enclosed, in turn, in a massive, reinforced steel and concrete
structure, the ``containment,'' whose walls are three to four feet
thick. The containment ensures that the Chernobyl accident of 1986 a
substantial radiation leak could not occur in the United States.
Multiple controls on the chain reaction. Control rods present in
the reactor are adjusted to regulate the reaction by absorbing
neutrons. In addition, the water level inside the reactor also
moderates the reaction. Water ordinarily facilitates the reaction, but
the greater the reaction and the greater the heat produced, the more
water is turned to steam, leaving less to promote the reaction. In this
way, the reaction is automatically moderated. Moreover, if the water
were ever lost, multiple emergency cooling systems would activate to
make up the water loss and keep the reactor from overheating.
Long-term maintenance for plant safety. Nuclear plant owners are
continually implementing ``life cycle management,'' a long-term plan
for maintaining the plant's systems, structures, and components in good
working order. Preventive maintenance consists of routine, scheduled
activities to keep a plant's safety as well as non-safety equipment
running or capable of functioning if needed. With more than 35 years of
experience, plant operators have learned how systems wear and can
refurbish or replace the vast majority before they fail. Corrective
maintenance is performed on equipment that fails routine testing,
breaks down during operation, or does not perform adequately. When the
operation of an important component degrades or fails, plant operators
conduct detailed, root-cause analyses, take corrective action, and
share the lessons learned with all other plant operators throughout the
industry and with regulators.
Plant fire protection receives special focus. Consistent with the
``defense in depth'' safety philosophy, there are multiple approaches
to fire protection at a nuclear plant. Prevention programs, such as
administrative procedures, inspections, and employee training, ensure
the safe control of combustible materials and ignition sources.
Detection and suppression systems and trained personnel are ready to
control and extinguish quickly any fire that might occur. Plant design,
intended to minimize the effect of fires on essential functions,
specifies some combination of combustible-free separation, fire
barrier, and fire detection and suppression systems between one set of
systems and its back-up set.
Industry-wide personnel training program for safe plant operation.
Through the Institute of Nuclear Power Operations (INPO), the nuclear
energy industry maintains a comprehensive system of training and
qualification for all key positions at nuclear power plants. Workers
involved in operations, maintenance, and other technical areas undergo
periodic training and assessment. INPO developed industry-wide training
and qualification guidelines and established procedures and criteria
for training program accreditation. The National Academy for Nuclear
Training integrates and standardizes the training efforts of INPO and
all U.S. nuclear plant owners and operators. Each plant training
program must renew its accreditation every four years. In addition, the
NRC routinely monitors plant training programs and administers initial
licensing examinations for plant operators.
Plant security protects against sabotage. Plant security resources
and procedures are designed to prevent a hypothetical intrusion
involving a paramilitary force armed with automatic weapons and
explosives. Security measures include physical barriers and illuminated
isolation zones; well-trained and well-equipped guards; surveillance
and patrols of the perimeter fence; search of all entering vehicles and
persons; intrusion detection aids, such as closed-circuit television
and alarm devices; bullet-resisting barriers to critical areas; a
contingency reaction force; coordinated emergency plans with off-site
police, fire, and emergency management organizations; and regular
drills and periodic procedural reviews. Employees undergo a variety of
tests and record checks before obtaining various levels of security
clearance, which is controlled by electronic key cards. Employees with
unescorted access are subject to continual behavioral observation
programs.
Technical Specifications, which are part of the operating license,
place limits on how long key portions of safety systems can be out of
service before the plant must be shutdown. In addition, technical
specifications also require extensive surveillance tests at specified
intervals to ensure that key safety systems are capable of performing
their intended safety functions.
Reactor Oversight Process is an extensive performance monitoring
program conducted by the NRC to ensure that licensees are performing to
high standards of safety in seven key areas: minimizing initiating
events, ensuring safety systems are capable of performing their
function; ensuring the barriers to radionuclide release are maintained;
establishing an effective emergency plan capability; controlling public
radiation exposures from routine operations are maintained well within
Federal standards; ensuring occupational radiation exposure is
minimized and ensuring strict security measures are maintained. The
baseline program includes approximately 2500 NRC inspection hours at
each facility per year. The process considers the safety significance
of identified performance issues and precipitates increased inspection
activity based on the safety significance until the performance issue
is corrected.
______
Response to Written Questions Submitted by Hon. Ernest F. Hollings to
William T. Miller
Question 1. What are the current limiting factors for producing
hydrogen?
Answer. Hydrogen production from fossil fuels is not an issue.
Hydrogen for International Fuel Cells' (IFC) installed base of 220
stationary 200 kW PC25TM fuel cell power plants is derived
from hydrocarbon feedstocks such as natural gas, propane and methane by
using proprietary fuel processing technology.
For mobile fuel cell applications, IFC is working with the
Department of Energy to develop fuel-processing capability onboard the
automobile. This will enable vehicles to use pump grade gasoline in
combination with fuel cells as a transition strategy until the
necessary hydrogen infrastructure is in place.
Ultimately, the most cost-effective and environmentally sound
approach is to fuel the vehicle directly with hydrogen and avoid
carrying fuel-processing capability onboard the vehicle. This would
require introduction of on-site fuel processors with hydrogen storage
and dispensing capability. IFC believes that transit buses and
government and private fleet vehicles offer the strategic path for
deployment of the necessary hydrogen infrastructure since these
vehicles return to a central location each day.
In the long term, to achieve the maximum environmental benefit of
fuel cells, we need to develop technology that can produce hydrogen
from renewable energy sources instead of fossil fuels for stationary
and mobile fuel cell applications.
Question 2. Where could Congress direct our efforts to support
increasing the supply of hydrogen?
Answer. In general, Congress can help increase the supply of
hydrogen by providing funding for hydrogen research programs that
reduce fuel cell manufacturing costs and improve performance and
efficiency. Funding for small fleet demonstrations is also necessary to
document the operability, durability and viability of fuel cell powered
vehicles.
Hydrogen fleet vehicle demonstration and development programs in
both the government (including the military) and private sector could
also be used to stimulate the market for hydrogen through government
procurement of fleet vehicles powered by hydrogen. In addition, there's
an important role for Congress in helping to educate the public
concerning the safe use of hydrogen and the development of necessary
codes and technical standards.
Legislation currently pending before the Senate addresses these
needed programs. The Energy Independence Act of 2001 (S. 883) includes
provisions that would create hydrogen fuel cell demonstration programs
for commercial, residential and transportation applications including
buses. In addition, S. 883 provides grants for state and local
governments to deploy fuel cell technology and directs the federal
purchase of fuel cells for stationary use and development of plans for
deployment of fuel cells in federal vehicle fleets.
The Hydrogen Future Act (S. 1053) also provides a roadmap for
needed hydrogen research, development and demonstration initiatives.
Section 9 of S. 1053 lays out a strategy for the establishment of
hydrogen power parks that integrates the use of stationary and mobile
fuel cells. Under this concept, hydrogen fueled fuel cell power plants
would be installed and generate electricity until the market for
hydrogen vehicles matures.
In addition, Congress can provide incentives to the hydrogen
producers as fuel cell vehicle deployment becomes imminent to encourage
the expansion of hydrogen production capacity and retail distribution
outlets.
Question 3. Is using hydrogen as a fuel source such a high-cost option
that it will never make sense on a large-scale? Alternately, are
current fuel sources ``good enough,'' especially when compared to other
types of power production?
Answer. Hydrogen is not a high cost fuel option. In recent
analyses, conducted by a study team at Directed Technologies
Incorporated, it was shown that for fuel cell vehicles hydrogen is the
least cost fuel option when compared with gasoline and methanol. The
cost of hydrogen use was calculated to be ``about 2.6 cents/mile.'' The
study, sponsored by the U.S. Department of Energy and the Ford Motor
Company, is reported in the ``International Journal of Hydrogen
Energy'' 25 (2000) pages 551-567.
The study also concluded that hydrogen is the preferred fuel in
terms of:
1) Least infrastructure cost per vehicle. Specifically the
authors note: ``Gasoline was projected to require the greatest
infrastructure cost in the form of relatively expensive and
complex onboard fuel processor systems that have a capacity
factor of less than 1%.''
2) Greatest greenhouse gas reduction;
3) Near elimination of oil consumption; and,
4) Achieving a sustainable energy future for the
transportation sector since hydrogen can be produced from wind,
photovoltaic, solar thermal, hydroelectric, biomass or
municipal solid waste sources.
______
Response to Written Questions Submitted by Hon. John McCain to
William T. Miller
Question 1. You mentioned that fuel cell technology produces 60% more
electricity per pound of carbon dioxide emitted than the average U.S.
combustion based power-generating system. How does fuel cell technology
compare to some of the other technologies discussed here today?
Answer. Attached is a chart (Attachment A) that shows the
comparison of fuel cells versus various technologies including the
average U.S. fossil fuel plant, microturbines and combined cycle gas
turbines. Nuclear, solar and wind technologies produce no carbon
dioxide emissions, but are not applicable to the diverse applications
that fuel cells can serve including distributed generation capability
for residential and commercial power requirements as well as powering
cars, trucks and buses. In addition, fuel cells can operate regardless
of time of day or weather conditions and have no significant hazardous
disposal issues. In fact, fuel cells can compliment wind, solar and
nuclear technologies through a hydrogen storage mechanism.
Question 2. What is the most limiting barrier to the widespread
commercialization of fuel cells? Are there regulatory barriers which
the government can address?
Answer. The cost of fuel cells has been one of the greatest
impediments to their commercial use. However, the costs have been
reduced dramatically in the past two decades. The space shuttle fuel
cells, developed in the late 1970s by International Fuel Cells (IFC),
cost roughly $600,000 per kW. IFC's PC25 commercial stationary unit,
which was developed in the early 1990s, has an installed cost today of
$4,500 per kilowatt.
IFC and other fuel cell companies are now developing new fuel cells
that are smaller, lighter and cheaper to produce. This new technology,
along with higher production volume, should help reduce the cost of
fuel cell power plants by two-thirds by 2003, from $4,500 a kilowatt to
$1,500. Legislation proposed in the 107th Congress (S. 828/H.R. 1275)
to provide a $1,000 per kilowatt tax credit for stationary fuel cells
is a critical strategy for helping to reduce costs and thereby increase
volume which will accelerate the commercialization of fuel cell
technology.
In addition there are a number of regulatory barriers faced by fuel
cells as a distributed generation technology that need to be overcome.
IFC recommends that the federal government:
Adopt a common technical standard for interconnection of
small power generation devices to the U.S. utility system based
on the Institute for Electrical and Electronic Engineers'
(IEEE) 1547 recommendation.
Establish streamlined procedures and appropriate exemptions
for smaller sized fuel cell units.
Minimize the competitive impact of exit fees and stand-by
charges.
Standardize user fees for Independent Power Producers (IPPS)
in the same geographic region.
Require states to ensure that the ``buy'' and ``sell'' rates
of power are the same for any given time of day or year.
Question 3. You have highlighted a number of examples of research to
put fuel cell technology into cars, such as the IFC/Hyundai Santa Fe
vehicle. When do you believe that fuel cell technology will be ready
for widespread use in automobiles? What will be the added cost to
consumers of buying cars with fuel cell technology?
Answer. We believe fuel cells will be widely available for personal
automobiles by the end of the decade.
The ultimate goal is to ensure that consumers see no initial
purchase price or operating characteristic differences between the cars
they operate today and fuel cell powered vehicles. In order to achieve
this goal, the fuel cell power plant must cost less than $50 per
kilowatt. The achievement of this goal is the challenge we face.
______
Response to Written Questions Submitted by Hon. Olympia J. Snowe to
William T. Miller
Question 1. Other than cost, what barriers must fuel cells overcome to
increase their usage?
Answer. In addition to the cost barriers, there are a number of
regulatory challenges faced by fuel cells as a distributed generation
technology that need to be overcome. IFC recommends that the federal
government:
Adopt a common technical standard for interconnection of
small power generation devices to the U.S. utility system based
on the Institute for Electrical and Electronic Engineers'
(IEEE) 1547 recommendation.
Establish streamlined procedures and appropriate exemptions
for smaller sized fuel cell units.
Minimize the competitive impact of exit fees and stand-by
charges.
Standardize user fees for Independent Power Producers (IPPS)
in the same geographic region.
Require states to ensure that the ``buy'' and ``sell'' rates
of power are the same for any given time of day or year.
Question 2. Besides a tax credit, what other methods would you
recommend to provide economic incentives for fuel cell use?
Answer. IFC supports enactment of a five-year $1,000 per kilowatt
tax credit up to one third of the cost of the equipment for stationary
fuel cells. (See Attachments B and C for details.) This will enable
homeowners and business property owners to invest in the technology,
increase volumes and bring costs down to accelerate the
commercialization of fuel cell technology. In addition, financial
incentives are needed for non-tax paying entities such as federal and
municipal government facilities, schools and non-profit organizations.
IFC supports continuation and expansion of the existing DOD/DOE fuel
cell buydown grant program for public sector and non-profit
organization investment in fuel cell technology as outlined in
Attachment D. An $18 million FY 2002 DOD appropriation is being sought
for this initiative as indicated in the attachment.
Attachment A
Attachment B
Why Should Congress and the Administration Support a Stationary Fuel
Cell Tax Credit?
Overview
A fuel cell is a device that uses any hydrogen-rich fuel to
generate electricity and thermal energy through an electrochemical
process at high efficiency and near zero emissions. Fuel cell
developers, component suppliers, utilities and other parties with an
interest in clean distributed generation technology are working
together to enact tax credit legislation that will accelerate
commercialization of a wide range of fuel cell technologies.
Credit Description
The $1000 per kilowatt credit will be applicable for purchasers of
all types and sizes of stationary fuel cell systems. It will be
available for five years, January 1, 2002-December 31, 2006, at which
point fuel cell manufacturers should be able to produce a product at
market entry cost. The credit does not specify input fuels,
applications or system sizes so a diverse group of customers can take
short-term advantage of the credit to deploy a wide range of fuel cell
equipment.
Why is a fuel cell tax credit necessary?
A credit will allow access to fuel cells by more customers
NOW when there is a grave need for reliable power in many parts
of the country.
A credit will speed market introduction of fuel cell
systems.
A credit will create an incentive for prospective customers,
thus increasing volume and reducing manufacturing costs. As
with any new technology, price per unit decreases as volume of
production increases.
A credit will speed the development of a manufacturing base
of component and sub-system suppliers.
Benefits of Speeding Market Introduction through Tax Legislation
Because fuel cell systems operate without combustion, they
are one of the cleanest means of generating electricity.
While energy efficiency varies among the different fuel cell
technologies, fuel cells are one of the most energy efficient
means of converting fossil and renewable fuels into electricity
developed to date.
Fuel cell systems can provide very reliable, uninterruptible
power. For example, fuel cells in an integrated power supply
system can deliver ``six nines'' or 99.9999% reliability. Thus
fuel cells are very attractive for applications that are highly
sensitive to power grid transmission problems such as
distortions or power interruptions.
As a distributed generation technology, fuel cells address
the immediate need for secure and adequate energy supplies,
while reducing grid demand and increasing grid flexibility.
Installation of fuel cell systems provides consumer choice
in fuel selection and permits siting in remote locations that
are ``off grid.''
Fuel cell systems can be used by electric utilities to fill
load pockets when and where new large-scale power plants are
impractical or cannot be sited.
Fuel cell systems, as a distributed generation resource,
avoid costly and environmentally problematic installation of
transmission and distribution systems.
Cost
The five-year budgetary impact of the credit is less than $500
million.
Attachment C
Key Elements of a Fuel Cell Tax Credit for Stationary Applications
Overview
The goal of the stationary fuel cell tax credit is to create an
incentive for the purchase of fuel cells for residential and commercial
use. The prompt deployment of such equipment will generate
environmental benefits, provide a reliable source of power for
homeowners and businesses, reduce our nation's dependence on foreign
oil supplies, help commercialize clean technology, enhance U.S.
technology leadership and create economic benefits for the nation.
Fuel cell tax credit proposals should be designed to benefit a wide
range of potential fuel cell customers and manufacturers. They should
therefore be all-inclusive without discriminating between different
kilowatt sized units, type of technology, application, fuel source or
other criteria. Efforts should be made to keep the proposals as simple
as possible to aid in effective implementation. In addition, the
proposals should strike a balance between ensuring the level of tax
credit provided represents a meaningful incentive that will stimulate
purchase and deployment of the technology while minimizing the
budgetary impact.
The following are specific elements suggested for consideration and
inclusion:
Coverage
U.S. business and residential taxpayers that purchase fuel cell
systems for stationary commercial and residential applications should
be eligible for the credit.
Basis for credit
The credit should be based on a ``per kilowatt'' approach with no
distinction made for the size of unit.
Access to credit
No allocation of credit should be made to specific categories of
fuel cells on an annual or total basis.
Fuel Source
No premium or penalty should be imposed based on the fuel source.
Definition of stationary fuel cell power plant
The term `fuel cell power plant' should be defined as ``an
integrated system comprised of a fuel cell stack assembly, and
associated balance of plant components that converts a fuel into
electricity using electrochemical means.''
Co-generation
No co-generation requirement should be imposed since not all fuel
cell technologies offer an effective option for co-generation.
Efficiency
No efficiency criteria should be imposed. Fuel cell systems in the
early stages of development, such as residential sized units, cannot
predict the efficiency level at this time. Establishing arbitrary
efficiency criteria could exclude early models for this important
application, which are exactly the units that require incentives.
Efficiency levels will vary based on whether proton exchange membrane,
phosphoric acid, solid oxide or molten carbonate fuel cell technology
is used. Designing fuel cell systems to maximize efficiency may require
tradeoffs resulting in more complicated, higher cost, less fuel
flexible and less durable units.
Floor/ceiling
No minimum or maximum kilowatt size criteria should be imposed.
Amount of Credit
$1,000 per kW for all qualifying fuel cell power plants. A five-
year program with a $500 million budgetary impact is proposed.
Duration
1/1/02-12/31/06.
Attachment D
The Stationary Fuel Cell Incentive Program
Background
The Departments of Defense (DoD) and Energy (DOE) have
cooperatively supported the development and commercialization of
domestic stationary fuel cell systems since 1996. In 1995 Congress
appropriated funds for the DoD Office of the Assistant Secretary for
Economic Security for a competitive, cost-shared, near-term Climate
Change Fuel Cell Program (H.R. 103-747).
The Program grants funds to fuel cell power plant buyers to reduce
the high initial cost of early production systems, providing up to
$1,000 per kilowatt of power plant capacity not to exceed one-third of
total program costs, inclusive of capital cost, installation and pre-
commercial operation. For the program's six years, the grant program
significantly aided commercialization of the first generation of fuel
cell systems as intended by the Congress.
Benefits of the Program
The fuel cell grant program has expedited market introduction of
early fuel cell systems. Production quantities are low and first time
costs (e.g. engineering, manufacturing facilities, tooling) are high,
yielding high early unit capital costs. The grant program has
facilitated an increase in manufacturing quantities thereby reducing
unit cost and enabling early adopters to participate in demonstrations
and field trials. Lastly, federal participation in fuel cell
demonstrations and field trials has encouraged, in some cases,
supplemental support from state agencies or electric utilities, further
reducing costs. In virtually all cases, fuel cell projects would not be
possible without the grant program support.
Requested Action
$18 million in FY 2002 funding is being sought for the fuel cell
grant program at $1,000 per kW capacity. This level of funding is
needed to support the growing number of fuel cell technologies and
manufacturers that are bringing new fuel cell products to market. The
criteria used to select applications for a program grant should be
identical to that used in the last year of the program's operation.
The key criteria include, but are not limited to: demonstration by
applicant of a commitment to purchase and use fuel cell power plants
with a rated capacity of at least 1 kW; power plants purchased before
September, 2000 are not eligible; grants awarded consistent with the
amount of funding available; applicants must comply with all National
Environmental Policy Act and other applicable regulatory requirements;
signed contract within 60 calendar days of being notified of award
required; first payment to applicant (70%) made after applicant submits
a signed factory or site acceptance test form; second payment (30%)
dispersed after receipt of acceptable report covering a year of fuel
cell operation; applicants cannot be fuel cell vendors, manufacturers
or developers; priority given to projects using DoD installations; all
fuel cell technologies are eligible; no restrictions on fuel type;
applicant's fuel cell vendor must offer commercial warranty for one
calendar year of operation; and, it is desirable to select for award a
group of projects representing diverse sizes, applications, fuels and
locations.
Anticipated Program Benefits
Presently there are several fuel cell technologies completing
advanced development and nearing commercial readiness. Over a dozen
U.S. fuel cell manufacturers will field products that qualify for
program grants. The fuel cell grant program has enjoyed bipartisan
Congressional support for many years. Continuation of this initiative
will benefit the nation by accelerating deployment of environmentally
benign, reliable, distributed generation technologies to provide needed
new electricity capacity.
______
Response to Written Questions Submitted by Hon. John McCain to
Dr. Richard L. Sandor
Question 1. You mentioned that the Chicago Climate Exchange will focus
on downstream sources of carbon dioxide emissions. How does this
approach compare with other trading systems?
Answer. Various market architecture design options were considered
in our research study. A market could include emission limits taken by
fossil fuel producers and processors--the ``upstream'' entities in the
carbon emissions cycle--or by major ``downstream'' sources that burn
fossil fuels, such as electric power generators, factories, and
transport firms. An ``intermediary'' level approach could focus on
firms that produce energy consuming devices, such as automobiles, or
other intermediaries such as fuel distributors. Based on responsiveness
(the ability of participants to directly cut emissions), administrative
costs and existence of successful precedents, the recommended approach
is a predominantly ``downstream'' approach. Accordingly, the research
findings suggest the CCX should aim to include participation by large
emission sources at the downstream level (e.g. power plants,
refineries, factories, vehicle fleets).
Question 2. Can you discuss some the non compliance penalties for the
participants in your exchange?
Answer. We are discussing with this issue with the participating
companies. While we believe it will be critically important to
establish clear consequences if a participating company does meet its
commitments, the nature of a pilot market allows us to consider a
variety of options.
Question 3. How important are mandatory emissions reductions to the
future of the Chicago Climate Exchange?
Answer. The effectiveness of the market, and realization of its
environmental objectives, depends critically on the voluntary
acceptance of specified emission reduction objectives. Action by a
government authority to mandate reductions is not necessary for the
Chicago Climate Exchange to realize its objectives.
Question 4. You have mentioned the need for a registry and best
practices for measuring and calculating emissions. Can a government
support registry and standardized methods for measuring and reporting
emissions help both your trading exchange and others like it?
Answer. Yes, both these sorts of efforts can help.
Question 5. In order to join the Chicago Climate Exchange, a company
must meet requirements to cut its 1999 levels. Have any members of the
Chicago Climate Exchange expressed concerns that reductions in
emissions might hurt the economic well-being of the companies, or lead
to reduced profits and unemployed workers?
Answer. No, we have not heard these concerns voiced in discussions
with industry.
Question 6. The Chicago Climate Exchange program will exist until 2005.
What will your plans be after it has ended? Do you intend to extend or
enlarge the program?
Answer. We expect to enlarge the program over time, and, at this
time, we would expect to extend the program past the 2005 timeframe.
Enlargement to allow participation throughout the NAFTA region (U.S.,
Canada and Mexico), and to allow offsets from mitigation projects in
additional developing countries, is anticipated.
Question 7. One important aspect of the Chicago Climate Exchange is its
emissions registry. Could you briefly explain how it will work, and how
that you will ensure that companies comply with it?
Answer. The registry records holdings and transfers of emission
allowances and offsets, and these data will be matched with emissions
data that are reported by the participants. Like all aspects of the
Chicago Climate Exchange, we intend for the program to govern itself in
a manner analogous to the various existing self-regulatory
organizations (SROs) such as commodity futures exchanges. This
mechanism would provide procedures for addressing instances when
members fail to meet the commitments taken upon becoming a member.
______
Prepared Statement of William C. Coleman, President and Chief Executive
Officer, Hancock Natural Resource Group
Key Principles for Carbon Sequestration Component of a U.S. National
Climate Change Action Registry Design
A. General Points
1. The registry should create confidence in the business
community that any legally registered credits will apply
against any subsequent national regulation of carbon dioxide
emissions
2. The registry should create a standardized definition and
measures for ensuring that all tons of carbon dioxide whether
from sequestration, certified reductions or other offsets are
treating as equal and exchangeable.
3. The registry should be voluntary, but should create limits
on what types offsets and credits will be included in the
registry.
4. For carbon sequestration, the concepts of additionality,
permanence and leakage should be addressed.
B. Specific Points
1. Modular design, with standards established for each
module. For Sinks the modules could be:
i. Reforestation
ii. Agricultural soil sequestration
iii. Extending carbon sequestration in existing
forests
iv. Conservation of forests with documented threats
of deforestation
2. Each form of offset should have sufficient rigour in its
definition, baseline, measurement accuracy, inventory control,
and verification to be fungible. In other words a tonne of any
form of sequestration must meet a threshold which makes it the
same as any other tonne.
3. Addresses permanence by linkage of credits to pools or
entities that can demonstrate the rights or ownership of carbon
in the areas having been used as the basis for registration.
This means that an entity who wishes to produce carbon credits
from forests, must have some demonstration of unique ownership,
and carries the ongoing responsibility for those credits. While
the total stock of carbon can vary from place to place the sum
of the carbon stocks, minus any baseline stocks, must be
protected or offsets purchased.
4. Addresses sustainable development by having the
endorsement of the government in the country where the project
is located.
5. Addresses additionality as follows:
i. For reforestation, must provide air photos to
demonstrate that the area was cleared land, under non-
forest land use before reforestation
ii. For agricultural soil sequestration, must
demonstrate statistically the soil carbon content to a
depth of 1 m. Credits are provided only for
statistically demonstrated increases.
iii. For existing forests, must identify the land
area concerned and present a statistically robust
estimate of carbon stocks.
iv. For conserving forests threatened by
deforestation, this must be substantially documented,
independently reviewed on a case by case basis,
endorsed by the national and/or sub-national government
authorities and then protected. In these areas, the
issue of leakage must be specifically addressed. If
ever in the future the forests are cleared or otherwise
impacted these credits must be fully bought out of the
system. These forests are the most difficult to
integrate into the system, as they are based on some
intangible decisions. These forests must also address
the issue of leakage, where protecting one area simply
leads to accelerated deforestation elsewhere.
6. Baseline year: This should be 1990, or point of project
commencement. Where land use change is occurring, the year 1990
should be used to prevent clearing and reforesting of forest
being eligible for crediting
7. Definition of product. A standard based on an
Environmental Management System or Total Quality Management
System can be used for each form of sequestration credit. These
systems require documentation of policies, planning, inventory,
modelling, continuous improvement systems, etc. They can be the
basis of verification and auditing of carbon stocks.
8. The product is a tonne of sequestration, vintaged by the
year in which it is activated, and serialized. The tonnes are
certified by the registry based on independent verification of
the estimates by accredited third parties.
9. The registry must list serial numbers of tonnes, by
vintage years, and additionally indicate the land base
associated with those tonnes. It should encourage pooling, by
also ensure that the linkage between which tonnes link to which
land pool is clear. It should also provide for extinguishment
of the tonnes in emissions trading, `green product' promotions,
or other purposes.
10. The governance of the system should be based on a
steering committee of government, business, academics and
conservation movement specialists in this area. The steering
committee would endorse the standards for each module, would
accredit verifiers, would accredit carbon pool managers, would
oversee registry operations, would resolve disputes, and would
approve policies for ongoing auditing of the carbon stocks in
the registry. The steering committee could be appointed by the
Secretary of Commerce or another government figure.
11. Ultimately the register should include both emissions and
all forms of offsets in a fully fungible system that would
underpin regulation and/or trading.
12. Entities placing offsets into the registry, must also be
accredited by the steering committee. The key criteria would be
expertise, systems, financial solvency, and good character.
13. In the event that a carbon pool manager became bankrupt,
the registry would immediately take control of the carbon
rights associated with the pool.
14. The ultimate accountability for the carbon stocks and the
credits is with the carbon pool manager. Any decision by the
steering committee, subject to appeal, can require the carbon
pool manager to make good on carbon stock shortfalls, or
provide additional documentation or reverification of the
carbon stocks at any time.
15. The steering committee, subject to government approval,
may also enter into bi-lateral arrangements with carbon pools
in other countries or with international carbon pools, assuming
accounting, verification, documentation and third party
government endorsement.
16. In the event that the government changes rules or
standards in a way that impacts negatively on the carbon pool
managers, compensation will be payable.
17. The operation of the registry will be funded by
government for a five year trial period, and then the registry
will fund its own operations by a fee for registration of new
credits.
______
Prepared Statement of The Pacific Forest Trust
The Pacific Forest Trust (PFT) commends Chairman Hollings and the
members of the Commerce, Science and Transportation Committee for
addressing the extremely important topic of climate change and policy
options to address this growing problem. A variety of actions may be
taken to ameliorate global warming, and PFT believes that U.S. forests
can and should play a role in this process, as their management and
loss contribute to the problem. An effective way that forests may
contribute to the solution is in the context of a carbon market.
PFT is a problem-solving nonprofit organization dedicated to the
nationwide preservation of privately owned productive forestlands
through, among other things, the use of market-based conservation
incentives. We collaborate with forest landowners, forest managers,
policymakers and the public to ensure that private, working \1\ forests
are preserved and sustained for all the values that they provide. We
support and recommend the establishment of a carbon trading market that
includes the forestry sector. Such a market would reward forest
landowners for the climate service that their forests provide and
encourage owners to keep their forests as forests.
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\1\ Working forests are those that undergo harvest and
regeneration.
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Background
Between 1982 and 1997, the United States lost over 21.5 million
acres of private forestlands to other uses. In California alone, over
60,000 acres of forestland were lost annually to non-forest uses
between 1992 and 1997. During the same timeframe, Georgia lost almost
60,000 acres of private forestland annually. Similar statistics are
reflected among privately owned forestland in the most productive
timber areas of the United States. While approximately 22 million acres
of forestland have been replanted, these forests are much younger than
the forestland being lost, and have negative or lower carbon stocks
than the forests which were lost.
Over the years, the average age of working forestlands has also
become increasingly younger. In large part, this decline in age is due
to the increasing need to generate economic returns on shorter and
shorter harvest and regeneration cycles. For example, in the Pacific
Northwest, the average age of harvest of commercial species has
declined from 80 to 40 years and less.
These trends of permanent forest loss and declining forest age
signify that the forestlands of the U.S. are a declining carbon sink
and contribute significantly to the release of carbon dioxide into the
atmosphere. Therefore, they are also contributing to global warming, as
carbon dioxide is a greenhouse gas. Forests absorb carbon dioxide from
the atmosphere and store it as carbon in their biomass. When forests
are converted to other uses, the carbon stored in the forest biomass,
is released into the atmosphere both immediately and over time. Thus,
the growing loss of private forestland means that declining amounts of
carbon are being stored on the ground and significant amounts of carbon
are being released into the atmosphere. Even carbon stores in wood
products are released over time through decay at an average rate of 2%
annually. Likewise, the declining average age of harvest rotations
means that less carbon is being stored in forests than in the past, as
older forests store more carbon than younger forests. While younger
forests may, on average, grow at faster rates than older forests, older
forests have greater stocks, storing more carbon per acre than younger
ones.
The Benefits of a Forest Carbon Market in the United States
The establishment of a forest carbon market would create the
private financial incentive to conserve forests and prevent carbon
loss. A carbon market, whether voluntary or established through
regulation, would monetize the carbon stored in forest biomass, as
other carbon dioxide emission sectors would seek to meet their emission
reduction goals through the purchase of emission offsets or carbon
``credits'' from entities that are able to provide these credits.
Private forest landowners can accommodate buyers by selling their
forest carbon stores as credits to buyers and maintaining these forest
carbon stores over time. This will ensure forest conservation and
stewardship. The added carbon value to forestland thus creates a new
forest economy.
The inclusion of the forestry sector in a carbon trading market
must be done with the right rules, so that real positive impacts are
achieved in the atmosphere and on the ground. To ensure the quality of
``credits'' derived from such actions, a standardized carbon accounting
system must be adopted. Such ``generally accepted accounting
principles,'' similar to GAAP used by American business, should use
annual debits and credits and adjust appropriately for risk. The
establishment of broadly accepted rules governing the accounting system
will also help ensure that credits developed in the U.S. will be
accepted in other carbon markets. Such rules should include the
following:
Additionality: Carbon sequestration gains must be additional
to those that would have accrued from conventional, or
``business-as-usual'' forest management. This assures net gains
in forest carbon stores.
Permanence: To earn credits in the carbon accounting system,
forests must be managed for the permanent sequestration of
carbon. This ensures that tons stored today are not released
again and that forest loss is not simply delayed for a time.
Verifiability: The forest carbon accounting system must be
accurate and must ensure timely third-party verification of
forest carbon gains and losses. Without this, carbon credits
will lack credibility.
Co-benefits: Forest carbon projects must avoid environmental
harm and result in environmental and social co-benefits, such
as habitat restoration, biodiversity enhancement, watershed
protection and sustainable timber economies. Natural forest
management achieves these co-benefits and should be credited,
as should reforestation of previously cleared forest areas. On
the other hand, since the conversion of non-forest native
ecosystems, i.e., wetlands or grasslands, to forest plantations
results in loss of other critical environmental values, this
activity should not be eligible for credit.
While there has been a growing awareness of the role that forests
in the tropics may play in forest carbon transactions, it should be
emphasized that such transactions are very feasible in the United
States. In fact domestic transactions offer greater security as there
is generally more scientific and legal certainty in the United States
than there is abroad.
PFT's recent sale of forest carbon credits to the Green Mountain
Energy Company is an illustration of a cost-effective and
scientifically credible forest carbon transaction in the U.S. Last
fall, Green Mountain purchased carbon credits secured by PFT's
forestland conservation easements so that they could offset half of
their annual operational carbon dioxide emissions. These credits are
the result of forest management practices that exceed business as usual
practices (i.e. federal state and local land use laws and regulations)
and thus, achieve real results in the atmosphere and on the ground.
These credits are also permanent, as they represent the permanent
storage of additional forest carbon, secured legally by a perpetual
conservation easement.
PFT acts as a third party verifier, as we monitor the forestland
easements to ensure that landowners comply with the easement terms and
forest carbon stores are additional and permanent. Our monitoring of
the easement is based on sound science and reassures Green Mountain of
the credibility of their emissions reductions.
A forest carbon market would not only create a new forest economy,
but it would also achieve multiple conservation co-benefits. As more
forest is preserved and grows older, forest biodiversity is enhanced--
making forests more resilient. In addition, older preserved forests
provide habitat for endangered species and enhance water quality.
Forest landowners would be encouraged to provide these additional
conservation benefits if they received an economic benefit in return,
and a carbon market can provide such dividends.
Thank you for the opportunity to submit this testimony, and we hope
to continue informing this process so that the benefits of a forest
carbon market may be realized.