[Senate Hearing 109-1016]
[From the U.S. Government Publishing Office]



                                                     S. Hrg. 109-1016
 
 KYOTO PROTOCOL: ASSESSING THE STATUS OF EFFORTS TO REDUCE GREENHOUSE 
                                 GASES

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


                                HEARING

                               before the

               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 5, 2005

                               __________

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




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               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                  JAMES M. INHOFE, Oklahoma, Chairman
JOHN W. WARNER, Virginia             JAMES M. JEFFORDS, Vermont
CHRISTOPHER S. BOND, Missouri        MAX BAUCUS, Montana
GEORGE V. VOINOVICH, Ohio            JOSEPH I. LIEBERMAN, Connecticut
LINCOLN CHAFEE, Rhode Island         BARBARA BOXER, California
LISA MURKOWSKI, Alaska               THOMAS R. CARPER, Delaware
JOHN THUNE, South Dakota             HILLARY RODHAM CLINTON, New York
JIM DeMINT, South Carolina           FRANK R. LAUTENBERG, New Jersey
JOHNNY ISAKSON, Georgia              BARACK OBAMA, Illinois
DAVID VITTER, Louisiana
                Andrew Wheeler, Majority Staff Director
                 Ken Connolly, Minority Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page

                            OCTOBER 5, 2005
                           OPENING STATEMENTS

Carper, Hon. Thomas R., U.S. Senator from the State of Delaware..    16
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...     1
Isakson, Hon. Johnny, U.S. Senator from the State of Georgia, 
  prepared statement.............................................   119
Jeffords, Hon. James M., U.S. Senator from the State of Vermont..     4
Murkowski, Hon. Lisa, U.S. Senator from the State of Alaska......    18
Obama, Hon. Barack, U.S. Senator from the State of Illinois......    20
Voinovich, Hon. George V., U.S. Senator from the State of Ohio...     6

                               WITNESSES

Grubb, Dr. Michael, Chief Economist, the Carbon Trust, Senior 
  Research Associate, Faculty of Economics, Cambridge University, 
  and Visiting Professor of Climate Change and Energy Policy, 
  Imperial College, London.......................................    50
    Prepared statement...........................................   217
    Position paper, The Economics of Greenhouse Gas Mitigation...   222
Lawson of Blaby, Lord Nigel, House of Lords, United Kingdom......    45
    Prepared statement...........................................   119
    Responses to questions from Senator Jeffords.................   122
    Position paper, Piece on Climate Change for Prospect.........   122
    Report, House of Lords Select Committee on Economic Affairs..   126
Thorning, Margo, Ph.D., Senior Vice President and Chief 
  Economist, American Council for Capital Formation..............    48
    Prepared statement...........................................   211
    Responses to questions from:
        Senator Jeffords.........................................   215
        Senator Obama............................................   217
    Analysis, The Kyoto Protocol: Impact on EU Emissions and 
      Competitiveness............................................    66
Watson, Dr. Harlan L., Senior Climate Negotiator and Special 
  Representative, Bureau of Oceans and International 
  Environmental and Scientific Affairs, U.S. Department of State.    21
    Prepared statement...........................................    69
    Responses to questions from:
        Senator Lautenberg.......................................    79
        Senator Obama............................................    79
    Budget Table from the OMB Fiscal Year 2006 Report to Congress 
      on Federal Climate Change Expenditures.....................    81
    Report, European Environment Agency..........................    82

                          ADDITIONAL MATERIAL

Letter to Hon. James M. Inhofe from John Bruton, European Union 
  Ambassador, submitted by Senator Jeffords......................    26


 KYOTO PROTOCOL: ASSESSING THE STATUS OF EFFORTS TO REDUCE GREENHOUSE 
                                 GASES

                              ----------                              


                       WEDNESDAY, OCTOBER 5, 2005

                               U.S. Senate,
         Committee on Environment and Public Works,
                                            Washington, DC.
    The committee met, pursuant to notice, at 2:30 p.m. in room 
406, Dirksen Senate Building, Hon. James M. Inhofe (chairman of 
the committee) presiding.
    Present: Senators Inhofe, Voinovich, Murkowski, Thune, 
DeMint, Isakson, Jeffords, Carper, and Obama.
    Senator Inhofe. We will come to order.
    We always start on time, even when some of our members are 
a little bit late. I have been informed that on our side, we 
are going to have a pretty good showing, and I don't know, 
Senator Jeffords, about how many you will be having.

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

    This committee today will examine the Kyoto Protocol and 
the status of the efforts to reduce greenhouse gases. This 
subject is relevant to policy discussions here in the United 
States.
    Shortly after the Protocol came into force in February 16, 
the President stated, ``the Kyoto debate is beyond us, as far 
as I'm concerned.'' Nevertheless, some policymakers continue to 
clamor for the United States to join in the Kyoto agreement or 
in creating a follow-on to Kyoto. Perhaps more importantly, the 
Kyoto framework forms the basis of several legislative 
proposals to mandate unilateral cuts in carbon dioxide 
emissions in the United States.
    If our Nation were to follow Europe down this path it has 
chosen, we should understand whether their efforts are working 
or not. And they are not.
    Let me be clear at the outset. I believe the countries that 
have ratified the Kyoto Protocol are wasting their economic 
resources, because the science does not justify it. 
Anthropogenic climate change is, I have characterized, is 
perhaps the greatest hoax ever perpetrated on the American 
people. Even if humans were causing global warming--and we are 
not--but even if we were, Kyoto would do nothing to avert it.
    At most, Kyoto is projected to reduced temperature growth 
by only 0.07 degrees Celsius by 2050, which is negligible. And 
again, that is assuming anthropogenic global warming is 
happening and also that parties were meeting their targets. But 
of course, we will find out, as we know already, that they are 
not meeting their targets.
    I will not mince words: the Kyoto Protocol is a failure and 
the basic approach it embodies is a failure. The European Union 
was the primary champion of the Protocol as the best approach 
to deal with global warming. Yet all but two of the original 15 
European Union countries, as well as Canada and Japan, will 
fail to meet their emissions reductions targets. In fact, some 
countries are increasing the emissions by more than 40 to 50 
percent as these charts show.
    Canada, for instance, has a Kyoto target of 6 percent below 
1990 levels. But as of 2003, it was already 24 percent above 
1990 levels and is projected to be up at least 45 percent in 
2010. Meanwhile, New Zealand, which had thought it would have 
surplus credits of 54 million tons instead will have a credit 
deficit of 36 tons, including the National Party to call for an 
immediate formal review of the country's participation in 
Kyoto.
    Serious questions are being raised not only by critics, but 
by government agencies that support the Kyoto Protocol. As the 
European Environment Agency stated in a release in June: 
``Modest total greenhouse gas emission reductions since 1990 
were the result of a combination of one-off structural changes 
and specific policies and measures. Since 2000, CO2 
emissions in the [original 15 EU countries] have been rising. 
On present policies, this rise will continue after 2010 with a 
projected overall 14 percent rise above 1990 levels by 2030.''
    Some have dismissed these problems by suggesting that these 
countries would be able to meet their targets by adopting 
aggressive additional measures. But that ignores economic 
realities. Europeans are complaining about the high cost of 
gasoline. Businesses are complaining as well. For instance, on 
June 28, the International Federation of Industrial Energy 
Consumers wrote that the EU emissions trading scheme has caused 
systemic problems with serious negative consequences to the 
economy and markets. It hinders competition, but does not 
provide clear incentives to reduce carbon dioxide.
    These problems have not gone unnoticed at the political 
level. On September 15, in speaking of the Kyoto Protocol and 
efforts to reduce emissions, Prime Minister Tony Blair stated 
that, ``we have got to start from the brutal honesty about the 
politics of how we deal with it. The truth is no country is 
going to cut its growth or consumption substantially in light 
of a long-term environmental problem.''
    This and other comments he made that day have caused quite 
a bit of hand-wringing in the environmental community and some 
have tried to say his comments were out of context, but they 
were not. I have his full comments here and I am entering them 
into the record at this time.
    [Committee: please provide the referenced document.]
    Senator Inhofe. Prime Minister Blair had it right. 
Countries will not sacrifice their economies, and now when 
reality is setting in, they are demonstrating that fact. 
Clearly, Kyoto's approach to capping the economy by capping 
carbon is not working.
    I am looking forward to hearing the testimony of our 
witnesses today. On the first panel we have Dr. Harlan Watson. 
Why don't you just step up to the table, Dr. Watson. He is the 
chief negotiator for climate issues in the United States.
    On the second panel, we are joined by Lord Nigel Lawson, 
who I have had a great deal of respect for for quite some time. 
We certainly will be looking forward to your testimony, Lord 
Lawson. He has a distinguished career in the British Government 
and co-authored the House of Lords report that calls for far 
more scrutiny in climate decisions in many respects.
    Also appearing is Dr. Margo Thorning, an economist with the 
American Council for Capital Formation and Professor Michael 
Grubb of the Imperial College of London. We thank all of you 
for coming today.
    I am going to ask our members to confine opening comments 
to about 6 minutes, and we recognize Senator Jeffords.
    [The prepared statement of Senator Inhofe follows:]
Prepared Statement of Hon. James M. Inhofe, Chairman, U.S. Senator from 
                         the State of Oklahoma
    The committee today will examine the Kyoto Protocol and status of 
efforts to reduce greenhouse gases. This subject is relevant to policy 
discussions here in the United States.
    Shortly after the Kyoto Protocol came into force on February 16th, 
the President stated that ``the Kyoto debate is beyond us, as far as 
I'm concerned.'' Nevertheless, some policymakers continue to clamor for 
the United States to join in Kyoto or in creating a follow-on to Kyoto. 
Perhaps more importantly, the Kyoto framework forms the basis of 
several legislative proposals to mandate unilateral cuts in carbon 
dioxide emissions in the United States. If our nation were to follow 
Europe down the path it has chosen, we should understand whether their 
efforts are working or not. And they are not.
    Let me be clear at the outset. I believe the countries that have 
ratified the Kyoto Protocol are wasting their economic resources 
because the science does not justify it--anthropogenic climate change 
is the world's greatest hoax. Even if humans were causing global 
warming--and we are not--but even if we were, Kyoto would do nothing to 
avert it. At most, Kyoto is projected to reduce temperature growth by 
0.07 degrees Celsius by 2050, which is negligible--and again, that's 
assuming anthropogenic global warming is happening. And also that 
parties were meeting their targets. But they will not meet their 
targets.
    I will not mince words--the Kyoto Protocol is a failure. And the 
basic approach it embodies is a failure. The European Union was the 
primary champion of the Protocol as the best approach to deal with 
global warming. Yet all but two of the original 15 European Union 
countries, as well as Canada and Japan, will fail to meet their 
emission reduction targets. In fact, some countries are increasing 
emissions by more than 40 or 50 percent, as these charts show.
    Canada, for instance, has a Kyoto target of 6 percent below 1990 
levels. But as of 2003, it was already 24 percent above 1990 levels and 
is projected to be up at least 45 percent in 2010. Meanwhile, New 
Zealand, which had thought it would have surplus credits of 54 million 
tons instead will have a credit deficit of 36 tons, leading the 
National Party to call for an immediate formal review of the country's 
participation in Kyoto.
    Serious questions are being raised not only by critics, but by 
government agencies that support the Kyoto Protocol. As the European 
Environment Agency stated in a release in June:

        ``Modest total greenhouse gas emission reductions since 1990 
        were the result of a combination of one-off structural changes 
        and specific policies and measures. Since 2000, CO2 emissions 
        in the [original 15 EU countries] have been rising. On present 
        policies, this rise will continue after 2010 with a projected 
        overall 14% rise above 1990 levels by 2030.''

    Some have dismissed these problems by suggesting that these 
countries would be able to meet their targets by adopting aggressive 
additional measures. But that ignores economic realities. Europeans are 
complaining about the high cost of gasoline. Businesses are complaining 
as well. For instance, on June 28th, the International Federation of 
Industrial Energy Consumers wrote that the EU emissions trading scheme 
has caused systemic problems with serious negative consequences to the 
economy and markets. It hinders competition, but does not provide clear 
incentives to reduce carbon dioxide.
    These problems have not gone unnoticed at the political level. On 
September 15th, in speaking of the Kyoto Protocol and efforts to reduce 
emissions, Prime Minister Tony Blair stated that--and I quote--

        ``we have got to start from the brutal honesty about the 
        politics of how we deal with it. The truth is no country is 
        going to cut its growth or consumption substantially in light 
        of a long-term environmental problem.''

    This and other comments he made that day have caused quite a bit of 
hand-wringing in the environmental community and some have tried to say 
his comments were out of context, but they were not. I have his full 
comments here and am entering his full comments into the record.
    Prime Minister Blair had it right. Countries will not sacrifice 
their economies, and now when reality is setting in, they are 
demonstrating that fact. Clearly, Kyoto's approach to capping the 
economy by capping carbon is not working.
    I am looking forward to hearing the testimony of our witnesses 
today. On the first panel is Dr. Harlan Watson, the chief negotiator 
for climate issues for the United States. On the second panel, we are 
joined by Lord Nigel Lawson, who has had a distinguished career in the 
British government and who co-authored a House of Lords report that 
calls for far more scrutiny in climate decisions in many respects. Also 
appearing is Dr. Margo Thorning, an economist with the American Council 
for Capital Formation, and Professor Michael Grubb of the Imperial 
College London. Thank you all for coming to testify today.

          OPENING STATEMENT OF HON. JAMES M. JEFFORDS,
             U.S. SENATOR FROM THE STATE OF VERMONT

    Senator Jeffords. Thank you, Mr. Chairman. I want to extend 
a welcome to the witnesses, two of whom have traveled across 
the Atlantic to share their views with us. We appreciate the 
time you have taken to appear today, very much.
    Today's hearing tracks the progress that other nations are 
making to meet the requirements of the Kyoto Protocol which 
entered into force last February. We are taking this testimony 
despite the fact that the United States is still not a party to 
the agreement. The Protocol imposes limits on emissions of 
greenhouse gases that scientists blame for increasing world 
temperatures.
    The Administration decided to abandon the protocol and any 
serious international negotiations on this matter in March 
2001. Rather than taking testimony about what other countries 
are doing to implement the Kyoto agreement, we should be 
finding ways that the United States can join the international 
community.
    Other countries are left to wonder why the Nation that 
contributes the most greenhouse gas emissions to the global 
atmosphere refuses to accept responsibility for these 
emissions. But if Kyoto was the wrong solution for the United 
States, we should find away to cooperate with the international 
community so our country can be a player in efforts to 
stabilize the world's climate.
    As we will hear from witnesses today, while the 
international community builds and expands its own carbon 
markets, American businesses are missing out on new 
technologies and jobs. That is why several U.S. States have 
been developing their own carbon markets, despite the lack of 
national leadership.
    This hearing is not about whether the United States should 
consider its decision, or reconsider its decision, not to join 
Kyoto. We have missed that boat for now. It is my hope this 
hearing will provide insights about the actions we can take to 
unleash the power of the American marketplace and allow our 
companies to fully compete in the alternative energy, energy 
efficiency and carbon markets. We need to join the nations that 
have made the decision to address global climate change if we 
are to see benefits for our health or economy in our 
environment.
    On the event of the Kyoto Protocol entering into force, a 
White House spokesman stated that the United States has made an 
unprecedented commitment to reduce the growth of greenhouse gas 
emissions in a way that continues to grow our economy. However, 
we have to see evidence of that commitment. And as we all know, 
actions speak louder than words.
    I look forward to hearing more from the Administration's 
witnesses about the current actions taken by the United States 
to reduce greenhouse gas emissions. It would be my hope that 
this hearing would prompt us to craft legislation that imposes 
credible deadlines to cap and reduce our Nation's sizable and 
growing contribution to greenhouse gases.
    For my part, I have already introduced the Clean Power Act 
of 2005. I also introduced the Renewable Portfolio Standard Act 
of 2005 and the Electric Reliability Security Act of 2005, two 
bills designed to use our resources more effectively.
    Thank you, Mr. Chairman, and I look forward to hearing from 
the witnesses.
    [The prepared statement of Senator Jeffords follows:]
  Prepared Statement of Hon. James M. Jeffords, U.S. Senator from the
                            State of Vermont
    Thank you Mr. Chairman, I want to extend a welcome to the 
witnesses, two of whom have traveled across the Atlantic to share their 
views with us. We appreciate the time they have taken to appear before 
us today.
    Today's hearing tracks the progress that other nations are making 
to meet the requirements of the Kyoto Protocol, which entered into 
force this past February. We are taking this testimony, despite the 
fact that the United States is not a party to this agreement. The 
Protocol imposes limits on emissions of greenhouse gases that 
scientists blame for increasing world temperatures. The Administration 
decided to abandon the Protocol and any serious international 
negotiations on the matter in March 2001.
    Rather than taking testimony about what other countries are doing 
to implement the Kyoto agreement, we should be finding ways that the 
U.S. could join the international community. Other countries are left 
to wonder why the nation that contributes the most greenhouse gas 
emissions to the global atmosphere refuses to accept responsibility for 
those emissions. Even if Kyoto was the wrong solution for the U.S., we 
should find a way to cooperate with the international community so our 
country can be a player in efforts to stabilize the world's climate.
    As we will hear from witnesses today, while the international 
community builds and expands its own carbon markets, American 
businesses are missing out on new technologies and jobs. That's why 
several U.S. states have been developing their own carbon markets, 
despite the lack of national leadership.
    This hearing is not about whether the U.S. should reconsider its 
decision not to join Kyoto. We have missed that boat for now. It is my 
hope this hearing will provide insights about the actions we can take 
to unleash the power of the American marketplace, and allow our 
companies to fully compete in the alternative energy, energy efficiency 
and carbon markets. We need to join the nations that have made the 
decision to address global climate change if we are to see benefits for 
our health, our economy, and our environment.
    On the eve of the Kyoto Protocol entering into force, a White House 
spokesman stated that the United States has made an unprecedented 
commitment to reduce the growth of greenhouse gas emissions in a way 
that continues to grow our economy. However, we have yet to see 
evidence of that commitment, and as we all know, actions speak louder 
than words. I look forward to hearing more from the Administration's 
witness about the current actions taken by the U.S. to reduce 
greenhouse gas emissions.
    It would be my hope that this hearing would prompt us to craft 
legislation that imposes credible deadlines to cap and reduce our 
nation's sizeable and growing contribution of greenhouse gases. For my 
part, I have already introduced the Clean Power Act of 2005. I also 
introduced the Renewable Portfolio Standard Act of 2005 and the 
Electric Reliability Security Act of 2005, two bills designed to use 
our resources more efficiently.
    Thank you, again, Mr. Chairman, and I look forward to hearing from 
the witnesses.

    Senator Inhofe. Thank you, Senator Jeffords.
    I don't want to put the pressure on you, Senator Voinovich, 
but I told both Dr. Watson and Lord Lawson that you probably 
know more about air issues than any member of the U.S. Senate.
    Senator Voinovich.

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

    Senator Voinovich. Thank you, Mr. Chairman.
    I would like to say that you know more about climate change 
than any member of the U.S. Senate and I expect that one of 
these days you are going to write a book on the subject.
    I welcome our witnesses, especially Lord Nigel Lawson and 
Professor Michael Grubb, who have traveled from Britain to 
testify before us today. We really appreciate your attendance 
and we look forward to hearing from you.
    As chairman of the Clean Air, Climate Change and Nuclear 
Safety Subcommittee, I feel it is my responsibility to put this 
hearing into context with what the United States is doing to 
address the issue of climate change. Our Nation is often 
attacked for not doing anything. But this criticism is not 
warranted.
    First, I believe the Bush administration is taking action 
on many fronts. I would like to share a litany of those that 
will be in my statement that I would like to have submitted to 
the record, for my distinguished colleague from Vermont.
    President Bush has established a national policy to reduce 
the greenhouse gas intensity of our economy by 18 percent over 
the next 10 years. The Administration will have spent over $20 
billion by the end of 2005 for climate change activities, 
including extensive technology and source programs, more than 
any other nation. Additionally, it is a little known fact that 
the United States is by far the largest contributor to 
activities under the United Nations' Framework Convention on 
Climate Change and the Inter-Governmental Panel on Climate 
Change. Since I do not have time to go into everything, I will, 
as I say, insert this record into the record.
    Second, Congress recently passed and the President signed 
an energy bill that deals with climate change in several ways. 
It provides research and development funding for long term zero 
or low emitting greenhouse gas technologies. These include fuel 
cells, hydrogen fuels and coal gasification. The bill includes 
intensive provisions to increase energy efficiency and 
conservation. It also promotes the growth of nuclear power, 
which is emissions-free power.
    Third, on top of all these initiatives, I worked with 
Senator Chuck Hagel and Mark Pryor to include an amendment 
specifically on climate change in the Energy bill. Our 
amendment, which passed by a vote of 66 to 29, and was enacted 
as part of the Energy bill, promotes the adoption of 
technologies that reduce greenhouse gas intensity both 
domestically and internationally, and directs the Department of 
State to work with developing countries.
    This amendment addresses one of the main weakness of the 
Kyoto Protocol. I recently visited China and saw first-hand 
that their involvement in any initiative is critical as they 
are planning to build a substantial number of new coal-fired 
power plants. As a developed economy, we are willing to do our 
part, the United States. But if other nations increase their 
emissions exponentially, what have we gained?
    I have also spoken with British Prime Minister Tony Blair 
in London and most recently at a breakfast he hosted at their 
embassy, which brings me to my fourth point. I recommended that 
he sit down with President Bush and the world's top emitters to 
work out something realistic, because the Kyoto Protocol will 
not work. I was pleased that the G8 leaders, including Prime 
Minister Blair and President Bush, agreed this summer to a plan 
of action on climate change, clean energy and sustainable 
development, to speed the development and deployment of clean 
energy technologies.
    Furthermore, the United States recently joined with 
Australia, China, India, Japan, and South Korea to create a new 
Asia Pacific partnership on clean development, energy security 
and climate change. These are exactly the kinds of initiatives 
that we need to be promoting.
    The fact of the matter is, our Nation continues to take 
comprehensive action, both domestically and internationally, to 
address climate change. Again, I am glad that we are holding 
this hearing, Mr. Chairman. I look forward to hearing from our 
witnesses.
    [The prepared statement of Senator Voinovich follows with a 
referenced supporting document:]
 Prepared Statement of Hon. George V. Voinovich, U.S. Senator from the 
                             State of Ohio
    Mr. Chairman, thank you for holding this hearing. I welcome our 
witnesses, especially Lord Nigel Lawson and Professor Michael Grubb, 
who have traveled from Britain to testify before us today. Thank you 
for your attendance, and I look forward to hearing from you.
    As chairman of the Clean Air, Climate Change, and Nuclear Safety 
Subcommittee, I feel that it is my responsibility to put this hearing 
into context with what the U.S. is doing to address the issue of 
climate change. Our nation is often attacked for not doing anything--
but this criticism is not warranted.
    First, this Administration is taking action on many fronts. 
President Bush has established a national policy to reduce the 
greenhouse gas intensity of our economy by 18 percent over the next 10 
years. The Administration will have spent over $20 billion by the end 
of 2005 for climate change activities, including extensive technology 
and science programs--more than any other nation!
    Additionally, it is a little known fact that the United States is 
by far the largest contributor to activities under the United Nations 
Framework Convention on Climate Change and the Intergovernmental Panel 
on Climate Change. Since I do not have time to go into everything, I 
will insert into the record a summary of these many activities.
    Second, Congress recently passed and the President signed an energy 
bill that deals with climate change in several ways. It provides 
research and development funding for long-term, zero, or low emitting 
greenhouse gas technologies. These include fuel cells, hydrogen fuels, 
and coal gasification. The bill includes extensive provisions to 
increase energy efficiency and conservation. It also promotes the 
growth of nuclear power, which is emissions-free power.
    Third, on top of all of these initiatives, I worked with Senators 
Chuck Hagel and Mark Pryor to include an amendment specifically on 
climate change. Our amendment passed by a vote of 66 to 29 and was 
enacted as part of the energy bill. It promotes the adoption of 
technologies that reduce greenhouse gas intensity both domestically and 
internationally and directs the Department of State to work with 
developing countries.
    This amendment addresses one of the main weaknesses of the Kyoto 
Protocol. I recently visited China and saw firsthand that their 
involvement in any initiative is critical as they are planning to build 
a substantial amount of new coal-fired power plants. As a developed 
economy, we are willing to do our part, but if other nations increase 
their emissions exponentially, what have we gained?
    I have also spoken with British Prime Minister Tony Blair in London 
and most recently at a breakfast he hosted at their embassy--which 
brings me to my fourth point. I recommended that he sit down with 
President Bush and the world's top emitters to work out something 
realistic because the Kyoto Protocol will not work.
    I was pleased that the G-8 Leaders--including Prime Minister Blair 
and President Bush--agreed this summer to a Plan of Action on Climate 
Change, Clean Energy, and Sustainable Development to speed the 
development and deployment of clean energy technologies. Furthermore, 
the United States recently joined with Australia, China, India, Japan, 
and South Korea to create a new Asia-Pacific partnership on clean 
development, energy security, and climate change. These are exactly the 
kinds of initiatives that we need to be promoting.
    The fact of the matter is that our nation continues to take 
comprehensive action both domestically and internationally to address 
climate change.
    Mr. Chairman, I again thank you for holding this hearing and look 
forward to hearing from our witnesses.
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    Senator Inhofe. Thank you, Senator Voinovich.
    Senator Carper.

          OPENING STATEMENT OF HON. THOMAS R. CARPER,
            U.S. SENATOR FROM THE STATE OF DELAWARE

    Senator Carper. Thanks, Mr. Chairman.
    Dr. Watson, welcome. We look forward to hearing from you 
and the other witnesses today.
    I would just say to my colleagues and to our witnesses, I 
believe the Senate rightly rejected the Kyoto Protocol in 1997, 
because it called for what I think were unrealistic cuts over 
an unrealistic timeframe. I personally liken the Kyoto Accord 
to one of us driving down a road at 60 miles an hour in our 
car, and trying to put the car in reverse. If you have ever 
tried that, it doesn't work.
    What makes a whole lot more sense is to, as we all know, 
slow the car down, stop the car and then put the car in 
reverse. That is really the approach that I and others, I 
believe, have advocated for reducing the growth of 
CO2 emissions: slow the growth of CO2 
emissions, stop the growth of CO2 emissions and then 
reduce CO2 emissions. In the near future, I hope we 
can actually start talking about what we can do and focus a bit 
less on what we cannot do.
    When it comes to climate change, I think there is some good 
news and there is some bad news. First the bad news, the bad 
news is that the Earth is warming, climate change is real and 
human beings are the primary cause. What is even worse is that 
it is turning out not to be a 100-year issue or even a 50-year 
issue. I believe we are seeing the effects of global warming 
today.
    Just this month, another sobering report was released. In 
this case it was NASA, along with researchers from the 
University of Colorado and the University of Washington. They 
released the latest data showing that during the summer of 
2005, the polar ice cap in the Arctic Ocean shrank to its 
smallest size I believe in over a century. At the current rate 
of decline, these researchers predict that sea ice in the 
Arctic will melt entirely by the year 2060.
    The effects of this trend are not likely to be pleasant. As 
the Earth's temperature increases, the extra heat energy in the 
atmosphere could trigger even greater extremes of heat and 
drought, of storms, of wind and rain, and sometimes of even 
more intense cold.
    Now for the good news. We can do something about it. We can 
begin reducing the growth of greenhouse gas emissions and still 
grow our economy. Forward thinking business has already started 
to realize that doing something proactive on global warming 
represents an opportunity to enhance their bottom line. More 
American businesses are coming to realize that controls on 
carbon dioxide emissions are becoming necessary. They are 
saying it makes sense to take small steps now to avoid bigger 
problems later.
    In addition, many companies are realizing that addressing 
climate change now is having a positive impact on their bottom 
lines. Let me just give you a couple of examples. In May, 2005, 
General Electric committed to reducing their carbon emissions 
by simultaneously moving to double revenue from carbon friendly 
technologies and products to $20 billion within 5 years.
    Last week, IBM announced that by reducing more than 1 
million tons of greenhouse gas emissions, they saved $115 
million. Wayne Balter, the vice president for corporate and 
environmental affairs and product safety there at IBM said, 
these are his words: ``While some assume that cutting 
CO2 emission costs money, we found just the 
opposite. Addressing climate change makes business sense.''
    The Dupont Company meanwhile has reduced their greenhouse 
gas emissions by more than 60 percent. They believe they have 
saved the company some $2 billion.
    These and others companies have shown that reducing our 
greenhouse gas emissions is both profitable and possible. I 
believe it is time to take the next step. It is time for the 
Federal Government to get in the game. On June 22, the Senate 
adopted a Senate Resolution as part of the Energy bill. The 
resolution called on Congress to enact a mandatory, market-
based climate change program. Some of you know Senators Chafee, 
Gregg, Alexander, and I have proposed just such a program for 
the utility sector in our bill that we introduced in the last 
two Congresses. It is a modest and achievable approach that has 
been endorsed by a number of utility companies.
    If I could conclude with one sentence, Mr. Chairman, and 
then I'm done, what do you think?
    Senator Inhofe. I think it's all right.
    Senator Carper. Thanks.
    Our approach would slow down carbon dioxide emissions from 
power plants at 2006 levels and 2009, and it would then require 
power plants to reduce their emissions to 2001 levels by 2012. 
Thank you very much.
    [The prepared statement of Senator Carper follows:]
   Prepared Statement of Hon. Thomas R. Carper, U.S. Senator from the
                           State of Delaware
    This Senate rightly rejected the Kyoto Protocol in 1997 because it 
called for unrealistic cuts over an unrealistic timeframe.
    I liken the Kyoto Accord to one of us driving down the road at 60 
miles an hour and immediately putting our car in reverse. Obviously, we 
can't do that and expect good results.
    What we can do is slow down the car, eventually bring it to a stop, 
and then put the car in reverse. That's the approach I have advocated 
for. Slow the growth of CO2 emissions. Stop the growth of CO2 
emissions.
    And, after doing that, reduce CO2 emissions.
    I hope in the near future we can start talking about what we can 
do, not what we can't do.
    When it comes to climate change, I have some good news, and I have 
some bad news.
    First, the bad news.
    The earth is warming. Climate change is real, and we are the 
primary cause.
    What's even worse news, is that this is turning out not to be a 100 
year issue, or a 50 year issue. We are seeing the effects of global 
warming, today.
    Just this month, another sobering report was released. NASA along 
with researchers from the University of Colorado and the University of 
Washington released the latest data showing that during the summer of 
2005 the polar ice cap in the Artic Ocean shrank to its smallest size 
in over a century.
    At the current rate of decline, they predict the sea ice in the 
Arctic will melt entirely by 2060.
    The effects of these trends could be catastrophic. As the earth's 
temperature increases, the extra heat energy in the atmosphere could 
trigger even greater extremes of heat and drought, of storms and wind 
and rain and even sometimes of more intense cold.
    Now for the good news.
    We can do something about it. We can begin reducing our greenhouse 
gas emissions, and still grow our economy.
    Forward thinking businesses have already started to realize that 
doing something proactive on global warming represents an opportunity 
to enhance their bottom line.
    More American businesses are coming to realize that controls on 
carbon dioxide emissions are becoming necessary. They're saying it 
makes sense to take small steps now to avoid bigger problems later.
    In addition, many companies are realizing that addressing climate 
change now is having a positive impact on their bottom line. Let me 
give you a few examples.
    In May 2005, General Electric committed to reducing their carbon 
emissions while simultaneously moving to double revenue from carbon-
friendly technologies and products--to $20 billion within five years.
    Last week, IBM announced that by reducing more that 1 million tons 
of greenhouse gas emissions, they saved $115 million. Wayne Balta, vice 
president for corporate environmental affairs and product safety at IBM 
said: ``While some assume that cutting CO2 emissions costs 
businesses money, we have found just the opposite. Addressing climate 
change makes business sense,'' DuPont Corporation reduced their 
greenhouse gas emissions by more than 60 percent, and SAVED the company 
$2 billion.
    These and many other companies have shown that reducing our 
greenhouse gas emissions is possible and profitable.
    It's time to take the next step. It is time for the federal 
government to get in the game.
    On June 22nd, the Senate adopted a Sense of the Senate Resolution 
as part of the Energy bill.
    The resolution called on Congress to enact a mandatory, market-
based climate change program.
    I, along with Senators Chafee, Gregg, and Alexander have proposed 
just such a program for the utility sector in our bill the Clean Air 
Planning Act. It is a modest and achievable approach that has been 
endorsed by a number of utility companies.
    Our approach would slow down carbon dioxide emissions from power 
plants at 2006 levels in 2009. It would than require power plants to 
reduce their emissions to 2001 levels by 2012.
    And by allowing these reductions to be achieved through offsets, it 
will be very affordable.
    We've seen the states show leadership on this issue, and begin 
developing regional climate action plans.
    We've seen forward looking companies like DuPont, IBM, and General 
Electric show leadership and vision and develop a business plan for 
operating in a carbon constrained economy.
    What we haven't seen is leadership from the federal government. 
While we continue to do nothing, our international competitors are 
preparing for the future. While we provide no direction to our 
businesses, foreign companies are already developing new technologies.
    Therefore, I urge my colleagues to support a mandatory, market-
based approach to reducing our country's greenhouse gas emissions. As 
members of the U.S. Senate we have a responsibility to lead.

    Senator Inhofe. Thank you, Senator Carper. And I do 
apologize you weren't in when I announced we are trying to stay 
within our time to give maximum time to our witnesses who came 
all this way today.
    Senator Carper. Thanks, Mr. Chairman.
    Senator Inhofe. Senator Murkowski.

           OPENING STATEMENT OF HON. LISA MURKOWSKI,
             U.S. SENATOR FROM THE STATE OF ALASKA

    Senator Murkowski. Thank you, Mr. Chairman. I hope that I 
do not exceed my time.
    I do want to thank you for continuing this series on 
climate change, a very important discussion that we have had 
here and that needs to be continued. I too want to welcome 
those that will be testifying this afternoon and those that 
have come from so far away to participate with us.
    I wish we didn't have so many conflicting things this 
afternoon. I won't be able to stay for the full hearing. But 
again, I do appreciate the opportunity to focus on this issue.
    When we talk about the status of our efforts to reduce 
emissions and focus on the Kyoto Protocol, I really appreciate 
what Senator Voinovich has said, and focusing on what the 
United States has done as we attempt to reduce our emissions. 
We have done that not as a signatory to Kyoto, but we have done 
that because it is the right thing to do.
    Regardless of where you stand on Kyoto, I think that as we 
look at it now, most everyone is saying, and I think even some 
of the Protocol's very staunch supporters, that there needs to 
be a new approach taken. The Kyoto Protocol has simply not 
worked, and it is because most of the world's largest emitters 
of the greenhouse gases, including China, India and South 
Korea, were exempt from the requirements of the Protocol. It 
was rejected by the United States and Australia. And many of 
the nations participating in Kyoto are nowhere close to meeting 
the treaty's targets.
    We know that in order to meet or to reach Kyoto's goals, 
that in terms of the actions that will be taken, and Senator 
Carper, you have mentioned this, you just can't shove it into 
reverse going 60. There is an effort that needs to be made, a 
slowing, before you can reverse gears like that. We must be 
aware of what is happening within the economy.
    So in going forward on a post-Kyoto solution, and Mr. 
Chairman, you mentioned Tony Blair, and I believe you did as 
well, Senator Voinovich, I too will invoke his name in a 
comment that he made. His statement was, ``What countries will 
do is work together to develop the science and technology. 
There's no way that we're going to tackle this problem unless 
we develop the science and the technology to do it.''
    And again, it was mentioned, the United States has entered 
into a recent agreement with Australia, China, India, Japan, 
and South Korea. This agreement is a pro-growth response to 
climate change that focuses on the innovative technologies and 
the sharing of these technologies between nations to truly help 
reduce greenhouse gas emissions. When you consider that China 
and India emit twice as much CO2 per GDP than the 
United States, we are hopeful that we will see some results.
    So I hope to join those who have advocated strongly with 
Kyoto, that they will now join with us in perhaps a more 
realistic approach to climate change, utilizing the technology. 
This technology and the innovation is really going to be the 
way that we change, the way that the world produces and uses 
energy.
    So I look forward to the comments from those this afternoon 
and again, thank you, Mr. Chairman.
    [The prepared statement of Senator Murkowski follows:]
    Senator Inhofe. Thank you, Senator Murkowski. That is 
exactly what this hearing is all about.
    Senator Obama.

            OPENING STATEMENT OF HON. BARACK OBAMA,
            U.S. SENATOR FROM THE STATE OF ILLINOIS

    Senator Obama. Thank you, Mr. Chairman.
    We very much appreciate your holding this hearing. I think 
it can be a productive way for us to all focus on what I 
consider to be a very significant problem.
    I think that it is unfortunate that the issue of Kyoto 
Protocol has been conflated all too often in the debate with 
the issue of greenhouse gases. Because I view these two issues 
as somewhat separate. There has been, unfortunately, I think, 
some resistance and foot-dragging on the part of not just this 
Administration but the United States generally about the 
significance and potential severity of greenhouse gas emissions 
and their effects on climate change.
    I am one who believes that in fact the science is not in 
dispute, that we may not know all the details of how it is 
proceeding and how rapidly some of the adverse effects may be. 
But what's clear is that our atmosphere and the temperatures 
around the globe are changing. I think Senator Murkowksi 
probably knows this better than anybody, because she is seeing 
it in her backyard.
    So my hope in this hearing will be to get some sense from 
the Administration that there is a sufficiently strong 
acknowledgement that this is in fact a problem and that we feel 
some urgency about addressing the problem, particularly since 
we are the single largest emitter of greenhouse gases and 
consume a disproportionate share of the world's energy.
    The Kyoto Protocol was one effort to deal with this. I 
think it was a valiant effort in the sense that at a time when 
more of the science was still in dispute, people were 
farsighted enough to recognize that we needed to come up with 
some sort of international response to it.
    I actually share the view of a number of my colleagues 
here, Republican and Democrat, that an agreement that was 
unevenly applied did not project forward the enormous energy 
utilization and potential emissions from countries like China 
and India. And that did not set out the sorts of meaningful and 
achievable targets required to make a real difference, probably 
was not the best way to go.
    So from this hearing, what I hope to learn is not only how 
has the objectives in the Kyoto Protocol been achieved, but 
also what kinds of alternatives are we presenting that will 
allow for us to participate with other countries to address 
this problem in the future in a constructive way.
    I will just close, Mr. Chairman, by saying, though, that I 
do hope that this Administration takes leadership in this 
process and is not an idle bystander. I hope that our primary 
response as a country is not simply to try to study the problem 
more to death, or to think that voluntary initiatives by the 
private sector alone are somehow going to achieve the important 
goals that need to be achieved.
    Thank you, Mr. Chairman.
    Senator Inhofe. Thank you, Senator Obama.
    It should be obvious now to our distinguished panel, both 
the first panel and the three visitors we have for the second 
panel, that there is a difference of opinion on this side of 
the table. When I became Chairman of this committee, I made an 
effort to see where the science was. You could certainly 
persuasively argue that the science is not there, but certainly 
is not settled, whether you are talking about the Oregon 
Petition or the Heidelberg Accord or the Smithsonian-Harvard 
Review or any of the rest of them. Certainly that doubt is 
there.
    But one doubt that is not there is the cost of complying to 
some type of mandated emissions reductions. The Horton 
Econometrics Survey made it very clear what it would cost the 
United States or other countries, which we will hear from 
today.
    So with that, I would say any other members coming in will 
have to forego any other opening statements. We will now turn 
to our panel. Dr. Watson, take whatever time you would like, 7 
or 8 minutes, if that would do it. And your entire statement 
will be entered into the record.

 STATEMENT OF DR. HARLAN L. WATSON, SENIOR CLIMATE NEGOTIATOR 
AND SPECIAL REPRESENTATIVE, BUREAU OF OCEANS AND INTERNATIONAL 
 ENVIRONMENTAL AND SCIENTIFIC AFFAIRS, U.S. DEPARTMENT OF STATE

    Dr. Watson. Thank you very much, Mr. Chairman, members of 
the committee. It is a pleasure for me to be here. In fact, it 
is a real honor for me to be here today.
    I will try to summarize the testimony, I won't read all 15 
pages. It sounds as though perhaps Senator Voinovich has stolen 
my thunder by his submission. I appreciate your warm comments, 
Senator.
    In February 2002, President Bush reaffirmed America's 
commitment to United Nations Framework Convention on Climate 
Change and its ultimate objective, which is stabilization of 
atmospheric greenhouse gas concentrations at a level that 
prevents dangerous human interference with the climate system.
    But he also made clear in that same statement that he would 
not commit the United States to the Kyoto Protocol that would 
have cost, according to some estimates at that time, the U.S. 
economy up to some $400 billion annually and some 4.9 million 
jobs. I know there are a lot of different studies and numbers 
thrown out there. But I would agree with you, Mr. Chairman, 
that it would certainly be costly to our economy.
    Addressing the global climate change challenge will require 
a sustained global effort over many generations. The President 
has established a robust and flexible climate change policy, 
with four elements that harness the power of markets and 
technological innovation, that also maintains economic growth 
and that encourages global participation.
    These four elements are first, implementing near-term 
voluntary, incentive-based, and mandatory policies and measures 
to slow the greenhouse emissions growth. Second is to advance 
our understanding of climate science. Third is accelerating our 
climate change technology development and deployment, and 
fourth is promoting international collaboration.
    With respect to the first element, in February 2002, 
President Bush did set out an ambitious national goal to reduce 
the U.S. economy's greenhouse gas intensity, that is, our 
emissions per unit economic output, by 18 percent by 2012, a 
goal if which achieved is estimated to reduce by more than 1.8 
billion metric tons of carbon dioxide equivalent relative to 
where we would be under the 14 percent business-as-usual 
projection of our Energy Information Administration.
    Flexibility, which is the hallmark of the intensity 
approach, is especially important when confronted with the many 
uncertainties surrounding climate change--uncertainties 
suggesting a measured response that concentrates first--and I 
pick up on Senator Carper's comments--first the importance of 
slowing the emissions growth before trying to stop and 
eventually reversing it.
    Unlike the Kyoto approach, an intensity type of goal can 
encourage reductions of greenhouse gas emissions without 
risking adverse economic consequences, which would jeopardize 
our ability to invest in long term scientific and technological 
solutions.
    Now, Energy Information Administration analyses suggest we 
are ahead of schedule in meeting the President's goal, and 
indeed, our performance over the first 3 years of the Bush 
administration ranks high compared to that of other developed 
countries while at the same time we have substantially grown 
our economy, as well as our population.
    The second and third elements of the President's policy are 
advancing climate change science and technology. The U.S. 
Climate Change Science Program, with a fiscal year 2006 budget 
request of nearly $1.9 billion, has taken on some of the most 
challenging questions in climate science.
    The climate change technology program, which was created to 
coordinate and privatize the Federal Government's fiscal year 
2006 request of nearly $3 billion in climate related technology 
research, development, demonstration and deployment in a suite 
of technologies, a broad potpourri of technologies including 
energy efficiency and renewable energy, hydrogen, carbon 
capture and sequestration, clean coal and nuclear fission and 
fusion. These are technologies that, which if successfully 
developed, can put us on a path to ensuring access to clean, 
affordable energy over the longer term, while basically 
dramatically reducing our greenhouse gas emissions profile over 
that time.
    The deployment of these technologies in developing 
countries like China and India can make a huge difference in 
altering the global energy picture.
    Turning to the fourth element, promoting international 
collaboration, I would emphasize that President Bush has 
repeatedly highlighted its importance in developing an 
effective and efficient global response to the complex and long 
term challenge of climate change, which does require developing 
country participation.
    We believe the most effective way to engage developing 
countries is to focus not solely on greenhouse gas emissions, 
but rather on a broader development agenda that promotes 
economic growth, reduces poverty, provides access to modern 
sanitation, enhances agriculture productivity, provides energy 
security, reduces pollution and mitigates greenhouse gas 
emissions.
    Under President Bush's leadership, the United States has 
brought together key nations, both Kyoto and non-Kyoto parties, 
both developed and developing countries, in well-designed 
multilateral and bilateral initiatives, collaborations that are 
focused on producing practical results to achieve these ends.
    These collaborations, such as the Asia-Pacific Partnership 
on Clean Development and Climate, as was mentioned earlier, the 
Carbon Sequestration Leadership Forum, which we hope will lead 
to the development of zero emissions coal-fired power plants; 
the International Partnership for the Hydrogen Economy; the 
Generation IV International Forum, aimed at developing a new 
generation of nuclear reactors; the Methane to Markets 
Partnership; ITER, the fusion project which is to be built in 
France over the coming decade; the Clean Energy Initiative, 
which we initiated at the World Summit on Sustainable 
Development in Johannesburg in 2002; and the Group on Earth 
Observations.
    And in addition, our 15 now bilateral and regional 
partnerships encompassing over 400 collaborative activities 
mirror the main strategic thrusts of our domestic research 
programs, while addressing complementary concerns, such as 
energy security, climate change and environmental stewardship.
    Mr. Chairman and members of the committee, I hope my 
testimony this afternoon, and particularly my submitted 
testimony, conveys a sense of the vast extent and breadth to 
which the United States is working to address global climate 
change and transforming the way the world produces and consumes 
energy over the next generation and beyond. That is why we are 
leading many global efforts to advance the science as well as 
to develop and deploy breakthrough transformational 
technologies.
    Thank you for this opportunity to testify before the 
committee, Mr. Chairman, and I look forward to responding to 
your questions.
    Senator Inhofe. Thank you, Dr. Watson.
    We will begin a 5-minute round of questioning. Most likely 
we will only get to one for this panel.
    Dr. Watson, you used the figures of how many billions of 
dollars it would cost and all that. I think sometimes it is 
meaningful to bring it down a little closer to home. It works 
out to in the neighborhood of $2,715 per family of four, 
according to the Horton Econometrics. Does that sound like it's 
very far off?
    Dr. Watson. I've seen those numbers, yes, it's very much in 
the ballpark that I have seen, sir.
    Senator Inhofe. Dr. Watson, how many of the European Union 
countries look like they are on track to meet the Kyoto 
targets? You might hold up that blue chart?
    Dr. Watson. I think probably the best gauge of that is a 
report which was issued by the European Environment Agency, 
this is from December 2004. It made projections for the first 
Kyoto period, both progress by the EU, the European Union and 
its Member States. I would be happy to submit a copy for the 
record, if you would like, sir. [See copy on page 207.]
    Senator Inhofe. Is that similar to this chart up here?
    Dr. Watson. I am assuming probably the numbers came out of 
there, yes, that's very similar.
    Basically, if I could just summarize what their results 
are, again, this is a December 21, 2004 report, which again is 
based on 2002 data and I did note, I believe, that Ambassador 
Bruton, the EU Ambassador, had provided, some updated figures 
from 2003. But again, this is based on 2002 emissions data.
    This report says that only two EU countries, the United 
Kingdom and Sweden, now anticipate meeting 2010 Kyoto targets 
purely through existing domestic policy and measures, with 
Germany being close. I want to emphasize, you see, right there, 
Germany is minus 20 percent, and Germany's target under the 
European Union, the 15 members of the European Union at that 
time, their target was minus 21 percent. So they are very 
close.
    Finland, France, Greece, and Ireland project they can meet 
their targets with additional domestic policies and measures 
currently being planned. Austria, Belgium, Luxembourg, and the 
Netherlands project achieving their targets by 2010 by a 
combination of additional domestic policies and measures and 
the use of the Kyoto mechanisms, such as the Clean Development 
Mechanism, Joint Implementation, and emissions trading.
    Finally, they named four Member States, Denmark, Italy, 
Portugal, and Spain, who were not on track at the time of this 
report and do not project to reach their targets with a 
combination of additional domestic policies and measures and 
use of the Kyoto mechanisms. That is almost literally a quote 
out of that report.
    I might note also, Senator, that the recent figures that 
were provided to you in the Ambassador's letter were based upon 
a subsequent report, a May 27, 2005 report, which was submitted 
to the Secretariat of the United Nations Framework Convention 
on Climate Change. This is the annual emissions report which is 
required by all the developed country parties. They actually 
indicated for most of the European Union countries, at least 
among the 15 of the 25, emissions have grown over the last 
period from 2002 to 2003, which again would make these targets 
more difficult to attain.
    Senator Inhofe. Dr. Watson, I will wait and ask the next 
panel the question, it is my understanding that the way Germany 
got to where it is, they had a rather abrupt cessation of coal-
powered plants. But we will ask the next panel that.
    Looking at the process of Kyoto, do you realistically think 
that a process of targets and time lines would ever be embraced 
by the very large developing nations, India, China and others?
    Dr. Watson. No. Particularly China and India have made it 
very clear that their focus is on economic development and 
poverty reduction. They will not, certainly not, I don't 
believe in my lifetime, and I hope to live to be older, that 
they will be willing to take on specific targets and 
timetables. They are very, very willing to talk about, and they 
are very concerned about environmental issues. They are 
obviously willing to talk in the context of a broad development 
agenda, which gives them multiple benefits, while also 
addressing greenhouse gases. This is the context that we have 
been able to engage both China and India and a number of the 
other developing countries.
    Senator Inhofe. My time has expired, but I would agree with 
that. One of the problems you have when you look at this is 
that you have so many countries whose major thrust is on the 
economy. They are trying to grow. Africa, I have spent a lot of 
time in Africa, and I think we have made our position as the 
U.S. Senate very clear by a vote of 95 to nothing that we would 
reject an approach that would treat developing countries 
differently from developed nations.
    Senator Jeffords.
    Senator Jeffords. Yes, Mr. Chairman. Before I begin my 
questions, I want to ask consent to submit a letter to you that 
I received yesterday from the European Union Ambassador John 
Bruton to the record. In this letter, the Ambassador details 
the EU's greenhouse gas emissions are currently 2.9 percent 
below the 1990 levels.
    Senator Inhofe. Without objection, so ordered.
    [The referenced document follows:]
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    Senator Jeffords. Mr. Watson, you have outlined the 
Administration's current and prospective policies to address 
climate change. For a point of comparison, how much money did 
the United States spend in fiscal year 2005 to address climate 
change?
    Dr. Watson. I believe the current estimate is $5.2 billion. 
I will get the exact figures and exact breakout for you, 
though, Mr. Chairman. [See figures on page 81.]
    Senator Jeffords. How much reduction was achieved?
    Dr. Watson. Our emissions actually were, I can tell you 
what we have achieved in the period of 2000 to 2003, our 
overall greenhouse gas emissions are approximately eight-tenths 
of a percent below year 2000 and 2003. So we have achieved 
emissions reductions. There are a lot of reasons for that, 
obviously.
    Senator Jeffords. That was one-tenth of a percent?
    Dr. Watson. Eight-tenths of a percent, yes.
    Senator Jeffords. Much has been made, and other witnesses 
will testify later in the hearing about the potential economic 
impact of Kyoto on participating nations. Yet these nations 
have taken on these risks to alleviate the devastating effects 
of climate change.
    I know you have participated in all the recent negotiation 
meetings. Do you have a sense about how the Kyoto 
implementation has affected economic growth, poverty, energy 
security and pollution reduction objectives among participating 
countries?
    Dr. Watson. Well, we really don't get into those 
discussions within those negotiating sessions. I believe it's 
hard to sort out what the impact of those implementing Kyoto is 
versus those that are not. Because basically, it is too soon to 
tell. As a matter of fact, even though the Protocol entered 
into force on February 16 of this year, the actual real 
implementation will not occur until decisions are taken at the 
next Conference of the Parties' meeting in Montreal. There are 
still some 19 outstanding decisions to be made before the full 
implementation of the Protocol itself.
    So I think it's too soon to tell, sir.
    Senator Jeffords. Thank you. While the Energy Policy Act of 
2005 promotes the development, demonstration and 
commercialization of innovative technologies, it protects 
information from public disclosure for 5 years. Since 80 
percent or more of the costs of developing these is taxpayer 
funded, would you support the wider, quicker dissemination and 
adoption of new energy efficient and carbon capture 
technologies, and do you think that that would help your 
negotiating efforts with developing countries?
    Dr. Watson. I am really not qualified to comment on this, 
but let me just say that what we are doing within the context 
of our initiatives, such as the Carbon Sequestration, 
Leadership Forum and our International Partnership for the 
Hydrogen Economy, to give you two examples. When members come 
forward with a project and to have a project, for example, 
endorsed by the Carbon Sequestration Leadership Forum, or the 
IPHE, it must be supported by two or more members of the 
partnership and the results of that work, which comes out of 
the project, are made available to all the other members 
within.
    Obviously, the closer you get to the development world, 
there are going to be intellectual property issues, which will 
need to be handled on a case-by-case basis. But we certainly 
share the philosophy that obviously the sharing of information, 
particularly at the basic research side, is very important.
    Senator Jeffords. Well, the Energy Policy Act of 2005 
promotes the development, demonstration and commercialization 
of innovative technologies. It protects information from public 
disclosure for 5 years.
    Since 80 percent or more of the costs of developing these 
technologies is taxpayer funded, would you support the wider, 
quicker dissemination and adoption?
    Dr. Watson. Yes. As I say, sir, we are very much, when we 
are dealing with basic research and say, on the basic research 
side, we fully support, obviously, the sharing of information. 
As I say, when we get more into the applied end of research, we 
do have to deal with intellectual property issues.
    Once again, I am really not qualified to take a position on 
that right now. I would be happy to respond for the record, 
however.
    Senator Jeffords. Thank you very much.
    Senator Inhofe. Thank you, Senator Jeffords.
    Senator Voinovich.
    Senator Voinovich. Dr. Watson, we recently had a debate on 
the Senate floor about mercury emissions from power plants. As 
you know, the President has recommended a 70 percent reduction 
in mercury emissions, the first country to come forward and 
initiate such a program.
    At the time we debated this, I think many of my colleagues 
and the public did not understand that mercury pollution is a 
global issue and that it can travel hundreds and thousands of 
miles. In fact, from 1990 to 1999, EPA estimates that U.S. 
emissions of mercury were reduced by nearly half, which have 
been completely offset by increases in emissions from Asia.
    I think this is very similar to the issue of climate 
change. During the last several years before this committee, we 
have been trying to deal with an emissions bill or pollution 
bill, whatever you want to call it. Senator Jeffords had a bill 
in a couple of years ago, and I fought it because part of the 
reason, one of the things they wanted to do was cap greenhouse 
emissions. The President's Clear Skies Legislation, which I co-
sponsored, fell on the rocks because many of the members of 
this committee wanted us to cap greenhouse emissions.
    The argument that we made at the time is that in terms of 
technology that is available today that it would be penny-wise 
and pound-foolish; i.e. if we would cap greenhouse gases, it 
would drive up our energy costs, which are already 
astronomical, 600 percent of natural gas, we have the highest 
natural gas costs today in the country, electric rates are 
skyrocketing. My argument is, and I guess maybe it is a little 
bit narrow, because I come from Ohio, and we are a 
manufacturing State. We have seen thousands of jobs leave our 
State because of high energy costs. In some instances, they 
have gone to China.
    So we have shut down our manufacturing in this country by 
unrealistic goals in greenhouse emissions and moved the jobs 
overseas, and the question you have to ask yourself is, what 
have we done to improve greenhouse gas emission in the world 
today? I would like you to comment on that in terms of what you 
see from your vantage point.
    Dr. Watson. I appreciate your comments, I am certainly 
concerned. My wife is a native of Ohio, Senator, and we visit 
there quite often.
    You are absolutely right, that is obviously one of the 
concerns that we had and obviously the U.S. Senate had in its 
debate in 1997, that we would just spur the movement of jobs 
overseas. The pollution is not going to go away, it is a global 
issue, whether it's mercury or carbon dioxide or whatever.
    Senator Voinovich. And by the way, many of the countries 
those jobs are going to don't have the environmental policies 
in place that we have here in the United States.
    Dr. Watson. That is absolutely correct. That is one of the 
reasons, of course, we are investing lots and lots of Federal 
money, along with a great partnership with the private sector, 
on trying to develop our carbon capture and storage. I am sure 
you have heard of a FutureGen project, which the Department of 
Energy has proposed, to demonstrate a zero emission coal-fired 
plant by later in the decade.
    We are pleased that that is moving ahead. We have lots of 
technical work to do on it. As you say, the technology is not 
there currently to address greenhouse gas emissions from coal. 
We know that coal is a vital part of our country's energy mix. 
It is typically some 55 percent of our electricity production 
and higher, I know, in Ohio. We are working very hard on 
developing that technology and making it economical, sir.
    Senator Voinovich. I must say to you that we did pass a 
decent Energy bill. But I am at the point that I think we need 
a second declaration of independence, and that is energy 
independence. I think we rely far too much on foreign sources 
of energy for this country. If we don't wake up very quickly 
and have some kind of a Sputnik-like commitment to doing 
something about this problem that we are going to hurt our 
economic competitiveness, and it will hurt our national 
security.
    I would hope that some thought is being given to that now. 
You have again the global picture. But I think we are in 
jeopardy today, and I would hope that some folks over in the 
Administration are giving some serious thought to what we can 
do to make that happen.
    Dr. Watson. Yes, sir.
    Senator Inhofe. Thank you, Senator Voinovich.
    Senator Carper.
    Senator Carper. There are one or two things that Senator 
Voinovich and I do not agree on. What he just said, there is a 
lot we do agree on, we agree a lot more than we disagree. But 
what he just said about energy independence, I could not agree 
more. Our reliance on foreign oil, the way it boosts our 
enormous and growing Federal trade deficit is unsustainable and 
deplorable.
    Around here, Dr. Watson, we have a way of characterizing 
budget cuts that I want to share with you. When someone wants 
to deter or discourage the rest of us from adopting a reduction 
in spending, or a reduction in the growth of spending, they 
will describe a cut, say it's like an 18 percent cut in a 
particular program, spending for a program.
    When you actually look at the amendment or whatever is 
being suggested, it's not an 18 percent, well, we'll say it is 
a $100 million program, 18 percent cut, they will suggest it is 
reducing the spending to $82 million instead of $100. But when 
you actually looking at the amendments being proposed, it is a 
cut below what the program would otherwise grow to, given 
changes in population and inflation and so forth. So it's not 
really an 18 percent growth.
    I just want to understand, if you can just explain, simply 
and clearly for me, the 18 percent reduction that I think you 
talked about in CO2 emissions, is that an outright 
reduction of 18 percent or is it, are we talking about an 18 
percent reduction in the growth of emissions? Which is it?
    Dr. Watson. We are talking about an 18 percent reduction in 
greenhouse gas intensity. It still means a growth in emissions. 
The latest projections that I have seen anyway from the Energy 
Information Administration would indicate that if we did not, 
if we followed their business-as-usual path, we normally expect 
some improvement in greenhouse gas intensity just through 
normal technological improvements, it would be 14 percent 
through 2012. The President has said we want to do better than 
that, 18 percent.
    What that basically amounts to is, rather than our 
emissions by 2012 being 34 percent above 1990, they will be 
some 27 percent above 1990. So yes, our emissions are still 
growing, but again, it is a bending of the curve, it is a 
slowing down that you referred to in your opening statement. 
One can argue whether it is slowing down fast enough, but it is 
slowing down.
    Senator Carper. What I would like to get to is, I was 
writing out some notes here trying to do a little bit of 
calculation to try to figure out if we were to continue the 
rate of reduction of growth that you have described here, when 
would we get to the point, going back to my earlier example of, 
slow the car, stop the car, put the car in reverse, when would 
we get to the point, given the approach that we are taking 
here, where we would actually see growth in CO2 
emissions stopped under this approach?
    Dr. Watson. What needs to happen, we need to get new 
technology and better technology into the marketplace, so that 
basically, we really need to make sure that our improvement in 
efficiency is matching our economic growth, so there is a net 
zero there. Hopefully we can bend that over to get to the stop 
and then to reverse.
    We are not there, our improvement right now in intensity is 
something on the order of, it has been a little over 2 percent, 
2.3 percent in the latest figure. But our economy is still 
growing at 3 plus percent, which is good. So we need to figure 
out ways to boost the productivity and efficiency of our 
economy. We are working on that.
    Senator Carper. What I'm trying to get at is a number. When 
is the year, when do you think, just roughly, is the year that 
we are going to be able to say, the car has stopped, or in this 
case, the rate of growth has stopped.
    Dr. Watson. Well, to a certain extent, Senator, we have 
stopped the car over the period of 2000 to 2003. We stopped the 
car. In fact, over the period of 2000 to 2003, as I mentioned 
earlier, our absolute greenhouse gas emissions have decreased 
by .8 percent.
    But there are a lot of reasons and we don't know if we can 
maintain that. A lot is going to depend on various factors: How 
fast is our economy going to grow, how fast do we get new 
technologies out there, are we going to have a warm summer, are 
we going to have a cold winter, and so on. So there are a lot 
of variables.
    We have stopped it temporarily, but I cannot guarantee that 
it will continue. We just don't know yet.
    Senator Carper. A lot of times I talk to people and we talk 
about trying to reach certain goals, and I ask them, how do you 
measure success. How do we measure success with respect to the 
goal that we might be discussing? How should we measure success 
with regard to alleviating and reducing the threat of global 
warming?
    Dr. Watson. It is relatively easy to measure success by the 
President's measure. We know what our greenhouse gas emissions 
are in any given year, and report those to the United Nations 
every April. We know what our GDP growth is, so we can do the 
simple arithmetic and measure the progress toward meeting the 
President's 18 percent reduction goal over the period to 2012.
    Senator Carper. I think my time has expired. Thanks, Mr. 
Chairman.
    Senator Inhofe. Thank you, Senator Carper.
    Senator Thune.
    Senator Thune. Thank you, Mr. Chairman. I want to thank you 
for holding the hearing on the Kyoto Protocol. It is not an 
issue that I hear a lot about in my home State of South Dakota. 
In fact, it is probably the furthest thing from a lot of the 
minds of some parts of western South Dakota today, because they 
woke up to snow.
    Given that, I am very much looking forward to hearing the 
testimony of our witnesses do want to make clear that I support 
the concept of dealing with global climate change with 
flexibility. I believe our policy measures in this area ought 
to include many of the incentives and voluntary programs that I 
think will help us make progress toward our goal. So I 
appreciate your having the hearing today, Mr. Chairman. I think 
it is an important subject for us to be discussing.
    I would ask, I guess, one question of our witness, Dr. 
Watson, and that is, with respect to the goals that you have 
and the 18 percent reduction in the intensity over the course 
of the next several years, we have had an opportunity up here 
enacted on in this committee, or at least voted on, I should 
say, Clear Skies Initiative, which would implement some policy 
changes and put some goals in place for sulfur and nitrates and 
mercury and some other things.
    I guess my question would be, how would that change if we 
were to adopt or implement the policy that is included in the 
Clear Skies Initiative help us achieve some of those goals, and 
does that accelerate our ability to reach those goals? We 
unfortunately didn't have the votes on this committee to report 
that to the Senate floor. But I am hopeful that eventually we 
will be able to get that done, because I think it's important.
    Dr. Watson. I appreciate that. I know that the Council on 
Environmental Quality Chairman, Jim Connaughton, has been very 
interested in this, and I believe has tasked out a study on the 
contribution that the passage of Clear Skies can make. We know 
it is going to have a positive impact on our greenhouse gas 
emissions profile, it is going to lead to more efficient use of 
coal, more efficient generation of electricity.
    That ought to have the co-benefit of also reducing our 
greenhouse gas emissions. I can't give you an exact figure on 
that now, but I do believe a study is underway.
    Senator Thune. And that is data, though, at some point when 
the study is completed, that we would have access to?
    Dr. Watson. Absolutely, sir.
    Senator Thune. Again, I appreciate your answer to that, and 
Mr. Chairman, I would suggest that hopefully we will be able to 
jump start that initiative at some point. I know that there is 
a lot of interest in the subject and different views and 
approaches about how best to achieve these goals. But I think 
that was definitely a step in the right direction. I think if 
we are able to implement some of those policy changes, I would 
be anxious to see if that changes the schedule in terms of 
reaching the ultimate goal.
    But it seems to me at least that that really was a good 
piece of legislation and I hope that eventually we will be able 
to get the votes on this committee to bring it to the floor 
where we can have a good debate about it.
    I yield back the balance of my time.
    Senator Inhofe. Thank you, Senator Thune. That is a huge 
step in the right direction. We are talking about 70 percent 
mandated reductions in SOx, NOx and 
mercury. No other president has ever suggested something like 
that.
    Senator Obama.
    Senator Obama. Thank you, Mr. Chairman.
    Dr. Watson, I know you are not a scientist, and the purpose 
of this hearing is not to rehash all the arguments about 
whether or not climate change is happening or is a problem or 
it is not. But it just strikes me that the only way we can 
intelligently assess our approach and the Kyoto Protocol 
approach is to determine how urgent of a crisis is this. If it 
is not a major crisis, then the Kyoto Protocol makes no sense 
and all these countries that are involved are engaging in a 
great deal of fuss and trouble for no reason. If it is a 
problem, then that means that maybe we are a little slow on the 
uptake.
    So I guess I am just trying to figure out, what is the 
Administration's position right now, just in terms of how much 
of a problem this is? Is climate change, from the perspective 
of the Administration, a significant problem, not just to the 
world, but to the United States in particular?
    Dr. Watson. Yes, the President has made that clear, I 
believe going back to his first address on climate change, back 
in June, as I recall, June 11, 2001. He recognizes that climate 
change is an important issue, an important problem, an 
important matter of concern. He certainly hears it from his 
colleagues as he travels and he engages with leaders around the 
world. We have responded I think robustly----
    Senator Obama. I don't mean to interrupt you, but before we 
establish the response, I just want to be clear, I want to make 
sure on the record. From the Administration's position, the 
science indicates that in fact climate change is occurring at a 
fairly rapid rate that has some sort of potential adverse 
consequences in terms of ice caps melting or the fluctuations 
in ocean temperatures, changing weather patterns, is that the 
Administration's position now or not?
    Dr. Watson. I am going to repeat what the President most 
recently said in June, I believe, when he addressed the 
subject. We know the average global mean temperature is 
increasing. We know that man, human actions, are increasing 
greenhouse gas concentrations in the atmosphere. There is no 
doubt, there is no scientific doubt about that. That is 
associated obviously with warming. So there is a human 
contribution to that.
    But many uncertainties still remain, Senator.
    Senator Obama. Absolutely. I am not disputing that there 
may be differences of opinion in terms of how fast this is 
happening, how much greenhouse emissions are contribution to 
this process rather than other factors external to human 
behavior. But there is an acknowledgement by the President that 
in fact this is a problem?
    Dr. Watson. Yes.
    Senator Obama. OK. The only reason I wanted to establish 
that for the record is that is at times sort of a first 
principal issue that ends up being disputed in this committee.
    And if in fact the Administration didn't think it was a 
problem, then even all the stuff that you're doing here 
wouldn't make much sense, it would be a big waste of money, 
wouldn't it?
    Dr. Watson. That's true.
    Senator Obama. Second question that I guess I have is, if 
it is a problem, did I understand correctly that the 
President's goal set up an 18 percent reduction in greenhouse 
gas emission intensity, but that if we did nothing at all that 
the intensity would have decreased by 14 percent anyway?
    Dr. Watson. That is the projection by the Energy 
Information Administration, yes, sir.
    Senator Obama. So all these efforts that are outlined in 
your briefing are resulting in a 4 percent improvement in the 
intensity levels of our greenhouse gas emission intensities 
although the actual emission of greenhouse gases is increasing?
    Dr. Watson. Well, actually, as I said, we have had a very 
short time to measure this. We are actually a bit ahead of 
schedule on meeting the President's goal and we are hoping to 
actually do better than that. But yes, that is correct.
    Senator Obama. I guess I'm just curious then, what 
practical impact is a 4 percent improvement in intensity 
levels? What does that mean in the sense that, as I understand 
it, the Kyoto Protocol standards that had been set up called 
for actual reductions and we have got, for example, Sweden, I'm 
not saying this is a model we should emulate or can emulate, 
but they reduced their actual emissions by 3 percent from 1990 
levels.
    Dr. Watson. Yes.
    Senator Obama. So I guess I'm sort of comparing apples and 
oranges here. What's intensity versus reductions of actual 
emissions and how can we measure whether these efforts are 
worthwhile at all if all we're doing is simply reducing 
intensity levels as opposed to the emissions themselves?
    Dr. Watson. I will just refer you back to, I think Senator 
Carper's opening comment, the importance of not slamming on the 
brakes but trying to reduce the growth. This is part of the 
effort. We are doing better than business-as-usual, which is 
this President's goal. It will amount to a significant, over 
the cumulative 2002 to 2012 time period we are talking about 
1.8 billion metric tons of carbon dioxide equivalent that will 
not be released to the atmosphere.
    Senator Obama. That sounds like a big number, but I guess I 
just don't know what it means.
    Dr. Watson. It's pretty big.
    Senator Obama. I'm sorry, am I out of time, Mr. Chairman?
    Dr. Watson. Just to give you an idea, we're emitting about 
6.9 billion metric tons of CO2 equivalent annually.
    Senator Obama. OK. Thank you, Mr. Chairman.
    Senator Inhofe. Thank you, Senator Obama.
    Senator DeMint.
    Senator DeMint. Thank you, Mr. Chairman, and Dr. Watson, I 
apologize for being a little late.
    Just a couple of questions. Watching this from a distance 
and not having been real involved with a lot of the Kyoto 
debate, the statistics, my concern just as an American 
businessman in the context of us being competitive as a Nation, 
the cost of doing business, being competitive with the rest of 
the world, that perhaps some of the motivation for the 
participants are not just environmental.
    My question to you is are the Kyoto targets fair, and why 
is it that the European Union targets are so much less costly 
than the United States, Canada and Japan. They appear to be, 
and maybe you could first of all say, are they. Are the targets 
fair, and would the United States be paying an unfair share of 
the burden?
    Dr. Watson. Fairness is a bit of a value judgment. It's not 
clear whether things are fair or unfair. It was something that 
was agreed to in the previous Administration. I don't want to 
characterize it as fair or unfair. I think it was something 
that people thought at that time, the people in charge honestly 
thought that the United States had a chance of doing. So I 
don't want to cast any doubts on the motives of particular 
targets.
    But the reality was, it was a very difficult target for the 
United States. We have a growing population. Just take during 
the 1990s, for example, our population's growth rate was 3.7 
times that of Japan and 3 times that of Europe. Our economy 
grew at a much greater pace than either Japan or Europe, 
something like 1.7 times for Japan and a similar, maybe 1.5 
times that of Europe's GDP growth.
    So we had a lot of factors at work which ultimately, of 
course, made a target just impossible to meet. A lot, very much 
depends on natural and national circumstances. I don't want to 
get into particularly Europe's situation, we have certainly one 
of the world's experts, Professor Grubb who is very learned in 
this area.
    But it was mentioned earlier, we did have the situation 
where in the United Kingdom where Prime Minister Thatcher 
liberalized the electricity market that led to basically the 
collapse of the coal industry. There happened to be plentiful 
North Sea gas, so you had enormous reductions occurring because 
of that. Germany of course, you had the reunification of East 
and West Germany, which led to an economic restructuring, which 
led to a lot of emissions decrease overall in Germany.
    So you just have these circumstances, and a lot really 
depends on national circumstances. If I could fault the 
process, again, I think there were not enough economic studies 
done on what would be the impact. If we agree to something, 
what do we really know this is going to cost us?
    Senator DeMint. Just another quick question. Kyoto aside, 
are American businesses working closely with the Administration 
to voluntarily reduce emissions? That question may have already 
been asked, but if it hasn't, just enlighten me a little bit.
    Dr. Watson. I appreciate that, and I have given you a 
fairly extensive list of activities in my written testimony, 
which I did submit for the record, Senator. But yes, we are 
pleased the President has challenged business to step up to the 
plate, and they have. We are very pleased that they have.
    For example, we have a number of new programs which have 
been initiated in this Administration. One is the so-called 
Climate VISION Program, which is a Department of Energy program 
engaging literally hundreds of businesses in 14 different 
sectors. Of course, we have also our Business Roundtable 
involved in that effort. It covers some 40 to 45 percent of all 
U.S. emissions.
    And we are working through trade associations and companies 
in those trade associations that are making specific 
commitments to if not absolutely reduce their greenhouse gas 
emissions to slow their growth from what they otherwise would 
be. Our Environmental Protection Agency has initiated, back in 
February of 2002, as a matter of fact, a very innovative 
program called Climate Leaders, which now has some 70 members, 
some of the largest corporations. In fact, we heard some 
examples, I think Dupont, General Electric, IBM and others that 
are members of that and made substantial reductions in their 
absolute emissions profile.
    We have something called the SmartWay Transport 
Partnership, which is also an EPA program, involving our 
freight companies. So business has responded in a large manner. 
We hope that they will continue to respond and meet those 
commitments. We are very pleased with their progress so far.
    Senator DeMint. Thank you, Dr. Watson.
    Mr. Chairman, I think I'm out of time, so I yield back.
    Senator Inhofe. Thank you, Senator DeMint. Senator Isakson.
    Senator Isakson. Thank you, Mr. Chairman.
    I am late, and I apologize. So as not to ask a redundant 
question, I will submit them for the record. However, I did 
have the opportunity to read part of your testimony while I was 
sitting here, and I wanted to ask you one question, if I could.
    There is a statement in your written testimony that over 80 
percent of the current global anthropogenic greenhouse gas 
emissions are energy related. And although there are arguments 
over how much, a tripling of global demand by the year 2100 is 
not unimaginable.
    Do you have any estimate of where that tripling will come 
from around the world? Has it been analyzed to see where that 
amount is going to come from?
    Dr. Watson. Yes, there are numerous studies out there and 
forecasts out there and a lot depends on the assumptions being 
made. But I think almost, if I could characterize--and I'm sure 
Professor Grubb can help with this, perhaps if I get this 
wrong, and correct it in the next panel--basically you're going 
to see a large growth, obviously, in the large developing 
countries, China, with 1.3 billion people, Indian, going on 1.1 
billion people and growing.
    So that is roughly a third of the world's population. So 
you are clearly going to see large growth in that area, the 
whole Asia region.
    I think most of the projections of growth in the developed 
countries, in Europe and even the United States are somewhat 
robust. And of course, we have to remember that we have some 2 
billion people without access to modern energy services. So if 
we really are able to get energy services to the third of the 
world's population that does not have them right now, that 
would again lead to a huge demand and potential growth in 
energy.
    That is the basis of the forecast that it might be tripling 
by the end of the century.
    Senator Isakson. That was my assumption, that certainly in 
the remainder of this century, which most of it is left, that 
most of the demand is going to come from other parts of the 
world, because we are so developed. It seems, on this whole 
greenhouse gases, and I am not by any means an expert, but one 
of the reasons we are burning so much natural gas right now is 
because we got out of the coal business because of its 
contribution to greenhouse gases, is that right?
    Dr. Watson. I think we got out of the coal business, as I 
understand, because of straight economics--that is my 
understanding of the situation, in the 1990s. We did build very 
little coal because, quite frankly, natural gas was the 
cheapest.
    Senator Isakson. The worm has turned.
    Dr. Watson. Yes, the worm has turned now. That is correct, 
Senator.
    Senator Isakson. But I think, and Senator Carper knows a 
lot more about this than I do, but I think the contribution of 
coal to the carbon in the atmosphere is a major allegation of 
the greenhouse gas, is that not correct?
    So my guess is I am taking more time than I should have, 
but the whole point I am getting to, your next statement in 
here talks about cost effective technology development, you 
didn't say this, those were your words, my words, is the only 
way that you can reduce the increase of greenhouse gases while 
meeting the demand of a tripling of energy, is that correct?
    Dr. Watson. That is certainly what we believe, Senator, 
yes.
    Senator Isakson. So we should be doing everything we can as 
Members of the U.S. Senate to promote incentives for cost 
effective technology developments and a broad based development 
of energy resources, both renewable as well as nuclear as well 
as coal gasification. That's the best way, rather than 
penalties, to solve that problem.
    Dr. Watson. We certainly believe that. And we certainly 
believe the U.S. Senate and Congress made a great contribution 
to that effort in the passage of the Energy bill.
    Senator Isakson. It took us a long time to get it, 11 
years, I think, but a great effort. And that was my point, and 
Mr. Chairman, I yield back.
    Senator Inhofe. Thank you, Senator Isakson.
    Dr. Watson, thank you very much for your time and your 
excellent testimony. We will excuse you at this time and ask 
for the second panel to come forward.
    We previously introduced the panel, but Lord Nigel Lawson 
is here from the House of Lords. We are delighted to have you. 
Dr. Margo Thorning, Senior Vice President and Chief Economist, 
American Council for Capital Formation, and Professor Michael 
Grubb, the Department of Environmental Science and Technology, 
the Imperial College of London. We are delighted to have all 
three of you here.
    We would like to ask you to make an attempt to restrict 
your opening remarks to 6 or 7 minutes and your entire 
statement of course will be made a part of the record.
    Lord Lawson, we will begin with you.

            STATEMENT OF LORD NIGEL LAWSON OF BLABY,
                 HOUSE OF LORDS, UNITED KINGDOM

    Lord Lawson. Mr. Chairman and gentlemen, Senators, thank 
you very much indeed for your invitation. I am greatly honored 
to appear before you.
    Let me tell you, since I am not a local figure, perhaps by 
way of background who I am. I am a member of the House of 
Lords, as you mentioned. I was a member of the Economic Affairs 
Committee for the House of Lords which produced the report on 
the economics of climate change, which is the reason I assume 
that you have asked me here today.
    I might point out about that report that it was an all-
party committee and the report was unanimous. We didn't have 
any votes, it was unanimously agreed by the conservative 
members, the labor members and the liberal members.
    Just to put my cards on the table, my only business 
interest is that I am chairman of a private company called 
Central Europe Trust Company, which is engaged in advisory work 
and private equity in what Secretary Rumsfeld has called the 
New Europe, the former communist countries of Central and 
Eastern Europe.
    Before entering the House of Lords in 1992, I was for many 
years a member of the House of Commons. During my time in the 
House of Commons I served as a senior government minister in 
all three of Prime Minister Thatcher's administrations. To be 
precise, from 1979 until 1981, I was financial secretary to the 
treasury. From 1981 to 1983, I was energy secretary. And from 
1983 to 1989, I was chancellor of the exchequer, which is the 
quaint name that we give for treasury secretary.
    Therefore, I have come to know Washington quite well, 
having visited in the past quite frequently to see my opposite 
numbers from four, in fact, American administrations, the end 
of the Carter administration, both Reagan administrations and 
the beginning of the Bush Sr. administration. And of course, 
meetings of the International Monetary Fund and what used to be 
known in my days as the G5, ministerial meetings of the G5.
    But this is the first time that I have the honor of 
appearing before the Senate, or really having anything much to 
do with the Senate. So it's a new experience for me, and at my 
time of life, new experiences are few and far between. So I am 
particularly grateful to you for giving me this opportunity.
    I don't want to encroach on your time, particularly. I 
would obviously direct you to this report, which I think you've 
all received and I hope some of you in your busy lives have had 
time to read it. Also, the very brief written testimony which I 
have provided you.
    I just want to say one or two things, principally by way of 
explanation, why it is a bit odd that I should be giving 
evidence on this issue. I actually came very late, some time 
before this report, but nevertheless in my life very late to 
the issue of climate change. I had always assumed, 
unthinkingly, as many people do, that this is a scientific 
issue. I am no scientist, and I have no pretensions to being a 
scientist.
    I have, of course, as a minister, been frequently called 
upon, as all ministers and all governments are called upon to 
do, to take decisions on the basis of expert advice, whether it 
is scientific advice or other kinds of expert advice. I have 
some experience at assessing that sort of advice, but I make no 
pretensions to being a scientist or a scientific expert.
    I was drawn to it because I then came belatedly to realize 
that this was even more of an economic issue than it is a 
scientific issue. I think that the science, as far as I can 
understand it, is very clear, that growth of carbon dioxide 
emissions or other kinds of greenhouse gas emissions, that is 
overwhelmingly the most important in terms of volume.
    Growth in carbon dioxide emissions does enhance the 
greenhouse effect. That does, other things being equal, lead to 
a warming of global temperatures. Other things being equal, of 
course, is necessary to say, but it throws up a whole lot of 
questions, which I don't have the competence to go into. Also, 
I think it is clear that as economic growth continues, other 
things being equal, again, these emissions are going to 
increase.
    So there is a problem there, but its magnitude is extremely 
difficult. Nevertheless, it is a problem and it has to be 
addressed.
    Now, how should it be addressed? It is a curious thing that 
the world's governments, certainly the British government and 
most of the world's governments have done is something which I 
can't believe would have happened just like that in my time, is 
that the provision of advice to government has been outsourced. 
It has been outsourced to the Intergovernmental Panel on 
Climate Change. Now, it is perfectly true that this is a global 
issue. Nevertheless, the more you look at the operations of the 
IPCC, the more doubts I think you are bound to have about the 
objectivity and rigor of that advice.
    Therefore, I think it is essential, and this is one of the 
recommendations we made in our report, that certainly the 
British government and I think all governments make their own 
independent assessment on a matter as important as this, of 
what is likely to happen on the scientific and on the economic 
side. This should be under lead of the treasury, which has no 
departmental axe to grind.
    I am glad to say that one of the consequences of our 
recommendations is that indeed in the United Kingdom, an inter-
departmental working group has now been set up, which wasn't 
the case before, under the leadership of the treasury, but 
including all interested departments, to make just this sort of 
estimate.
    Now, what are you trying to look at? Well, one of the 
things you are trying to look at of course is the scale of the 
problem. This is not a scientific matter, primarily, obviously 
science comes into it. But basically what are trying to guess 
or make an estimate of is what is likely to be the rate of 
world economic growth over the next 100 years, and second, what 
is going to be the energy intensity of that growth.
    The curious thing about the IPCC's estimates, which is a 
persistent upward bias, that doesn't mean to say their 
scenarios can't happen, but there is a clear upward bias in 
what they are saying. The project not merely a heroic rate of 
growth, particularly in the developing countries, so that for 
example, at the end of this century, and I hope this will 
happen, but the fact that all their scenarios do this, by the 
end of the century, living standards in the developing world 
are projected to be substantially higher than they are in the 
United States or the United Kingdom today.
    I hope that will be so. But it is a pretty heroic 
assumption. And all their scenarios are posited on that.
    Second, energy intensity. It is established that over the 
past 40 years, the energy intensity of economic growth has 
steadily declined. That is not surprising. First of all, the 
efficiency, economies develop by greater efficiency in all 
factors of production, greater efficiency in the use of labor, 
greater efficiency in the use of land and greater efficiency in 
the use of energy.
    Second, there is a tendency in the world, which is likely 
to continue, for a shift in the balance from manufacturing to 
services. Of course, service industries are much less energy-
intensive. They use energy, but they are much less energy-
intensive than manufacturing is.
    And yet, if you look at the IPCC's scenarios, every single 
one of them, without any explanation, assumes an abrupt 
reversal of that trend. The various scenarios show either a 
significant increase in energy intensity over the next 100 
years or a even as far as a doubling of energy intensity over 
the rate of growth of carbon dioxide emissions over the next 
100 years.
    But anyhow, the question then is, and this is again an 
economic question, not a scientific question, OK, we have a 
problem, we are not sure about its magnitude, but we certainly 
have a problem or we might, and we need to take out an 
insurance policy, we need to be prudent, we need to be careful. 
There might well be a problem, what do we do about it? What is 
the most cost effective way of dealing with it?
    In sum, just to conclude, there are two ways of doing that, 
and I think both are necessary. One is adaptation. That kicks 
in much, much earlier. Because Kyoto is not going to have any 
effect at all, that is accepted. An adaptation, that is to say, 
taking measures to bolster defenses, taking measures to improve 
strains of crops which will cope better with a warmer climate 
if that happens, and so on across the board.
    And mitigation. Mitigation not by Kyoto. There is an 
economic reason. Not only have we seen on the figures already 
produced, Mr. Chairman, that the Kyoto targets are not going to 
be reached, and even if they are reached, they are not going to 
do anything about global warming.
    But there is the so-called free rider problem, classic in 
economics. That is to say, if you have a public good, a 
collective good, not having an excessive world global 
temperature, then the market is not going to solve the problem. 
We do this with defense, we have the market providing our 
national defense. The government has to step in, the government 
has to make sure that everybody pays through their taxes for 
our national defense and provides defense.
    But there is no world government. The way in which we deal 
with public good on the national level cannot work on the 
global level. Any country which is particularly zealous in 
meeting its targets is going to lose out eventually. So we need 
something where there is possibly a benefit. Investing, 
government supporting investment in technology has been 
discussed. There the incentive works the other way, because a 
country or a company that has this technological breakthrough 
will benefit competitively.
    So that goes with the grain, whereas Kyoto goes against the 
grain. It's not going to happen. The sooner we get off that 
track, the better.
    Senator Inhofe. Thank you, Lord Lawson.
    I would say to Dr. Thorning and Professor Grubb, feel free 
to go over your time, because we want to give you equal time.
    Dr. Thorning.

 STATEMENT OF MARGO THORNING, PH.D., SENIOR VICE PRESIDENT AND 
    CHIEF ECONOMIST, AMERICAN COUNCIL FOR CAPITAL FORMATION

    Dr. Thorning. Thank you, Mr. Chairman, members of the 
committee. I very much appreciate the chance to appear before 
this committee. I would just like to make maybe points and then 
hopefully there will be some time for questions and answers.
    To reiterate the point that Dr. Watson made, the fact is 
that the European Union's 15 original members, are not on track 
to meet their emission reductions. As figure one in my 
testimony (that I would like to be included in the record) 
shows, countries like Spain are approximately 33 percent, 
projected to be 33 percent above their Kyoto target in 2010, 
according to the European Environmental Agency. Denmark, 37 
percent above, Austria, even though Austria has a lot of 
hydropower, still 22 percent above, given the existing 
measures.
    In fact, the UK, which is one of the two countries supposed 
to meet their target, and I think for the UK it is a 12\1/2\ 
percent reduction, they may meet that target, they certainly 
won't meet their 20 percent aspirational reduction by 2010. But 
Cambridge Econometrics, a UK consulting firm, has shown that by 
2015, UK emissions will be approximately 3\1/2\ to 4 percent 
above 2010 levels. So UK emissions will, under current 
measures, continue to rise. And to hold them to the Kyoto level 
after 2010, that would require much higher emission trading 
fees. So that issue is something to think about. Even the two 
countries that are on track may not be able to hold to their 
Kyoto levels post-2010 because of economic growth.
    The second point I would like to make is that there are 
very significant GDP and employment effects from forcing 
emissions, forcing energy use down. When accurate models are 
chosen and used, when for example, macroeconomic models are 
used to analyze the impact of sharp increases in energy prices, 
or emission trading fees to drive down energy use, we see very 
significant impacts on countries' GDP levels, as well as 
employment levels. These studies are on the ACCF global Web 
site, that is the Brussels-based affiliate of the American 
Council for Capital Formation. We have studies on five major EU 
countries, detailing the negative consequences.
    For example, in 2010, if Spain had to meet their emission 
target, their Kyoto target, their GDP would be approximately 
4.8 percent below the baseline forecast, and employment, I 
think about 800,000 fewer jobs. So there are real consequences. 
What has made a difference, I think, in some policymakers' 
thinking in the EU is that groups like the ICCF have been 
showcasing good, credible research with good, credible 
macroeconomic models, not energy sectoral models, such as DG 
Environment uses, to point out there are real costs for trying 
to meet these very stringent targets.
    The third point I would like to make is that in the EU, the 
emission trading system is beginning to bite. Figure 3 in my 
testimony shows that the energy prices are rising fairly 
sharply since the imposition of the emission trading system. 
Part of that is due, not all of it, certainly, but part of it 
due to the cost of buying the right to emit a ton of carbon. So 
the emission trading system is raising energy prices, which of 
course will tend to slow growth and reduce employment.
    The fourth point I would like to make is that an 
international trading system, which many proponents of the 
Kyoto Protocol are advocating, is not likely to be an effective 
way of reducing emissions. First, for an international trading 
system to work, investors have to believe that the price of 
emission credits will stay high. It has to be high enough to 
justify the initial investment in the R&D to come up with 
alternative technologies.
    And second, they have to believe that that price will hold. 
Given what we've seen about, for example, in the European 
Union, their stability pact, which requires that countries keep 
their deficit at 3 percent or less of GDP, and of course, many 
of the major EU economies are not doing that, and there is no 
enforcement of that.
    So if in the EU they can't even force their own member 
states to hit these targets that were mandated by the stability 
pact, think about trying to get an international organization 
like the U.N. to enforce emission targets made, let's say, in 
2005, by the Chinese government in 2020. Think about how we 
would enforce the agreement if the Chinese government decided 
that target conflicted with the needs of their economy.
    So enforcing the property rights that investors would need 
to make these kinds of investments through an international 
trading regime is fraught with difficulty.
    To conclude, the question of how to move forward in a 
productive way on climate change, which is of course an 
important issue, very important issue, although the Copenhagen 
Consensus that was released last year, which brought together a 
dozen or so top Nobel prize winning economists, listed the 
world's most critical problem, not climate change, but in fact 
HIV/AIDS and the lack of sanitation and clean water in the 
developing world. I think climate change was way down, like 
twelfth or something, in their list of where the world should 
put its resources.
    Nonetheless, climate change is an important issue, and if 
we want to address it, I think a more fruitful approach would 
be, as Dr. Watson outlined in his excellent testimony, 
encouraging the technology development and transfer through 
partnerships, through the Asia Pacific Partnership, encouraging 
the use of nuclear power, and in the United States in 
particular, looking at our tax code. The U.S. tax code doesn't 
treat investment of all types very favorably.
    We have a high capital cost for all types of new 
investment, and for example, some of the work that the ACCF has 
produced, and I have testified on, shows that the capital cost 
recovery, for example, for combined heat and power, after 5 
years, a U.S. company gets only 29 cents back on the dollar 
after 5 years. But in China, an investor would get $1.04 back, 
and in Germany 50 cents back.
    So we have real slow capital cost recovery and we have high 
corporate tax rates. We now have higher corporate tax rates 
than the EU average. And of course, many developing countries 
also have lower tax rates.
    So in the United States, not only can we move ahead on the 
technology side, through many of the international agreements 
that we have adopted, but we do need to take a hard look at the 
tax code and see if there aren't ways to incentivize the kind 
of spending that will help us reduce emissions intensity.
    And last, I would like to point out that the United States 
has reduced its emissions intensity at twice the rate of the 
European Union. We have reduced our emissions intensity over 
the past decade by 17 percent. The EU has only reduced its 
emissions intensity by 7 percent, and part of that is due to 
our faster economic growth, pulling through the cleaner, less-
emitting capital stock more rapidly.
    Thank you, Mr. Chairman.
    Senator Inhofe. Thank you, Dr. Thorning.
    Professor Grubb.

  STATEMENT OF DR. MICHAEL GRUBB, CHIEF ECONOMIST, THE CARBON 
    TRUST, SENIOR RESEARCH ASSOCIATE, FACULTY OF ECONOMICS, 
CAMBRIDGE UNIVERSITY, AND VISITING PROFESSOR OF CLIMATE CHANGE 
          AND ENERGY POLICY, IMPERIAL COLLEGE, LONDON

    Dr. Grubb. Thank you very much, Chairman and Senators. I am 
quite honored to be here. Thank you for the invitation.
    Perhaps I should start by updating you on my affiliation. I 
am Chief Economist for an organization called the Carbon Trust, 
which is a legally independent government-funded company that 
assists UK business in implementing carbon reductions and 
implementing low carbon technologies. That is a half-time post 
that I combine with positions both at the Cambridge Economics 
Department at Cambridge University and a visiting professorship 
at Imperial. My background is in the academic research side.
    A couple of opening comments on the context. First, I am 
sure that all of you will, and following Lord Lawson's 
comments, the have experience not to judge the full state of 
debate in another country just from any one report or one 
presentation of that. I could call your attention to a number 
of other reports by the House of Lords' Science and Technology 
Committee, the House of Commons Environmental Audit Committee, 
others that have come out this year, which broadly support the 
government's policies, support Kyoto. A major complaint is they 
think the actions should be stronger. But as in any healthy 
democracy, there is a good debate around the issues.
    I would add I find the tone of the comments perhaps about 
IPCC a little surprising, simply in the sense that the report 
itself does say the IPCC publications, as a whole, contains 
``some of the most valuable summary information of what we know 
about climate change, the standards employed are clearly very 
high.'' But I do not wish to get involved in a discussion here 
about the IPCC. I'm sure like any institution or indeed any 
agreement it is never perfect and certainly needs to be 
improved. I do share the conclusions of Lord Lawson's committee 
that a stronger influence from economists in this issue and in 
the IPCC debate would be welcome.
    I think the main thrust of issues before this inquiry 
appear really to be around claims first that, if I can 
caricature it, that Europe is all talk and no action on this 
issue and is simply not on a track to deliver anything serious 
or to comply. The other is that it is implementing costly 
measures severely hurting its economy.
    I am not actually sure how those two statements can be 
logically consistent. I do believe that neither are actually 
true. The EU Ambassador here has written a letter that I 
believe Senator Jeffords referred to setting out in some detail 
the policy instruments employed in the European Union and the 
compliance strategy thereof.
    Now, I am an independent witness. I am not here to 
represent any government view on the UK or European position. 
What I would actually like to do in the remainder of my 
comments is to say that I think to understand what is going on 
in Europe. I would like to illustrate it with respect to the 
issue of low carbon technology. Because I think almost every 
Senator here has mentioned the importance of low carbon 
technology. It is crucial for solving this problem.
    I am not sure that any European government would disagree. 
Nor would they disagree that economic growth is absolutely 
crucial as well, from all respects.
    But what I do want to do is to set down five points about 
this technology in relation to business and also drawing upon a 
piece published in the Financial Times this morning jointly 
with the chief executive at the Carbon Trust, Tom Delay, no 
relation, I believe.
    [Laughter.]
    Dr. Grubb. The five key points on technology. First, the 
need to learn from history. That history leads me to be very 
cautious about the idea that government should solve this 
problem by throwing taxpayers' money at very large R&D 
programs. Both of our countries have had frankly very expensive 
failures when we've tried this.
    R&D is obviously crucial, but I think it is market-based 
innovation that is really required to deliver. One needs the 
private sector investment and innovation skills in this. 
Second, from a business perspective, innovation is an ongoing 
and dynamic process. It responds to incentives, it builds upon 
established technologies, develops, improves, expands scale. 
There are actually a huge variety of low carbon technologies 
already available, more efficient vehicles, buildings, 
appliances, better production process controls as well as smart 
combustion and renewable sources.
    For example, in my testimony I have appended a presentation 
I gave at Columbia and gone through charts relating to 
technology issues and the economics of diffusion of low carbon 
technologies that are with us now. Drawing directly on the 
Carbon Trust experience, we spent about 25 million pounds, 
about $40 million last year. We estimate that the Carbon Trust 
clients co-invested something between $120 million to $220 
million, U.S. terms. And the net benefits of that were between 
$400 million and $700 million.
    That's not a bad business. It's a payback rate on energy 
efficiency programs of between 2 and 4 years.
    That reflects the broader UK experience, that actually 
emission reductions have been consistent and accompanied with 
good economic news. You will be familiar with the fact that UK 
greenhouse gas emissions have gone down substantially. They are 
now around 12 percent below 1990 levels. The UK economy grew 37 
percent in that period. In intensity terms, the UK economy 
improved over that period by more than 40 percent. Over the 10-
year period within that, the period of the U.S. goal, the UK 
intensity improvements was over 30 percent.
    That's really frankly, I should say in part, thanks to 
Maggie Thatcher. It was the privatization of industries, the 
getting rid of industries that had become bloated and 
inefficient, and the privatization of the energy industries 
with introduction of competition and natural gas. Not climate 
policy, per se, but economic gains that were associated with 
emission reductions. In that sense, the UK already had slowed 
and stopped greenhouse gas emissions by about 1990. The 
challenge we see is to maintain the descent of the emissions in 
absolute terms.
    Third, in this context and from a business perspective, I 
think national emission targets give business a sense of where 
the ship is going and emissions cap and trade systems actually 
give bankable value to emissions reductions. So it is a package 
that gives a beacon to private investment in both cost 
effective and emerging technologies.
    The limitations of a purely voluntary approach are such 
that a group of senior CEOs recently wrote to Tony Blair and 
said, if we are going to deliver more, it needs to be bankable 
and we need government to set the regulations that make those 
initiatives work in the bankable sense.
    Fourth, I mentioned emission cap and trade. I do believe 
that's necessary. I do not believe it's sufficient. Both our 
countries over the years have failed to extract the full value 
of our government research and development. Commercialization 
is the real challenge. Innovation is a long, costly chain. 
There are lots of things, again, in my presentation, covered 
that needs to be done, not only from the push side, but also 
the market pull side, to help industries pull technologies 
through the innovation chain.
    Fifth and finally, let me just say, the powerhouse of 
innovation is in the rich, industrialized countries and the 
global diffusion of low carbon technologies to developing 
countries will be largely driven through multinationals and 
foreign investment. In that sense, my final comment is that the 
clean development mechanism of Kyoto is very important as a 
diffusion method for clean technologies.
    Let us remember, it is the gap between national targets and 
delivery domestically that drives the need for credits under 
the CDM. If countries delivered their targets domestically, 
there would be no foreign investment in helping to clean up 
developing countries under the Kyoto system. But I know of no 
country that is planning to, in a sense, break this investment 
elastic that ties them to their Kyoto targets.
    Thank you very much.
    Senator Inhofe. Thank you, Professor Grubb.
    You partially approached a question that I asked of Dr. 
Watson when I observed that it was my understanding that this 
transition from coal-fired plants to natural gas was 
accountable for a lot of the reduction in emissions. I kind of 
wanted to get an idea in my mind as to how much would that be, 
50 percent, or what percentage that might be, No. 1.
    And No. 2, if that's the case, isn't that pretty much 
behind us now and how is that going to affect the future? In 
other words, you have already taken that reduction.
    And oh, by the way, these will be 6-minute rounds, and then 
afterwards, if someone wants to stay, we will maybe stay for a 
couple more minutes.
    Any comments on that?
    Dr. Grubb. Yes. No question, it is a very important part of 
the story. It has helped to give us a more balanced energy mix. 
Generally, the move to gas in power generation is considered to 
contribute between a third and a half of the overall UK 
emission reductions. Obviously with gas prices in the last 
couple of years, it has reversed some of that, and hence some 
of the data to which Harlan Watson referred.
    Senator Inhofe. Do you all agree with that?
    Lord Lawson. Yes, that is absolutely right, Mr. Chairman. 
You are also right that that is now behind us, because that 
great shift which occurred as a result of the privatization 
undertaken by the government of which I was a member, that has 
happened. It is finished. There is nothing further to go there.
    If I may just add very briefly, and I will try and be very 
brief, I welcome the fact that Tony Blair has now publicly 
conceded that Kyoto is not going to work and that there is 
going to be no successor agreement of that kind. That is quite 
important, because when he gave evidence to our committee, and 
incidentally, if you read the report you will see it is 
severely critical of the IPCC process, documented reasons for 
that.
    But when he gave evidence, he said, and I am sure he's 
right, that the existing Kyoto accord, even if it were accepted 
by everybody, is not going to lead to any dilution in 
temperature. But this is the important point, he said it will 
lead to further agreements of that kind. That's pie in the sky. 
There is not going to be. It is quite clear, anyhow, that India 
and China are not going to sign up to this.
    And it is also clear that the only Kyoto sanction is a 
complete Alice in Wonderland sanction. It is a sanction that if 
you don't attain your targets, and most countries are not going 
to, and it may well be even for the reason you have just 
indicated the United Kingdom doesn't, I don't know, that if you 
don't attain it, then you will have to have a stiffer regime 
next time around.
    As I say, this is just Alice in Wonderland. It's totally 
unrealistic. And of course, the cost of this route is massive. 
That is why even if it were politically workable, which it is 
not, it would not be cost effective.
    Senator Inhofe. Yes, one last thought on that, Dr. 
Thorning.
    Dr. Thorning. I would just like to take a moment to respond 
to something Dr. Grubb said about the inconsistency of saying 
that the European Union is imposing very costly regimes to curb 
emissions. An emission trading system, which affects I think 
only 9,000 to 12,000 industrial plants is not going to curb 
emissions adequately across the EU, because households and 
transport and so forth are not included.
    So I didn't say that the European Union was actually 
imposing the measures on its economy to bring down emissions. I 
said if they did, our econometric work shows that it would be 
very costly. An important thing for our friends in Europe to 
understand is that here in the United States, we have a whole 
different system. If our industry signed up to meet the mission 
targets under the Kyoto Protocol, we would be sued and forced 
to meet those targets.
    In the EU, that's not the case. Meeting, for example, with 
regulators in Brussels a couple of years ago, I said to someone 
in DG industry, well, what will happen if your industries don't 
meet their targets in 2010? He said, we'll give them more time. 
So we have a whole different regulatory regime here. And to 
expect the United States to sign up to something that we would 
be forced and compelled to meet and impose, as our Department 
of Energy found, perhaps a 3.8 percent reduction in the level 
of GDP in 2010, when our friends in Europe would not be forced 
to actually impose the kinds of costs on their own economies is 
just unrealistic.
    Dr. Grubb. May I add a final point on that?
    Senator Inhofe. Make it real quick, because this is running 
out of time here.
    Dr. Grubb. Simply that those industrial facilities account 
for 46 percent of European emissions, and the penalty for non-
compliance is 40 euros a ton in the pilot period, and 100 euros 
a ton in the Kyoto period.
    Senator Inhofe. Thank you, Professor Grubb.
    Lord Lawson, in the report of the Select Committee on 
Economic Affairs that you were very much involved in, I noticed 
that there is some discussion of the Michael Mann so-called 
hockey stick approach. Could you comment on why a controversy 
over a single study was highlighted and why it matters so much 
that the science underlying the study is right or wrong?
    Lord Lawson. That is a good question, Mr. Chairman. I think 
there are two reasons why we highlighted that, as you say.
    The first is that it has achieved, what I think, iconic 
status, this hockey stick thing, which shows this sort of flat 
temperature from the year 1000 AD to 1860 when records began. 
Then a very period, as you can see on the short, when records 
existed, and then a projection of a huge increase for the 
future.
    It is very suggestive. In fact, when you look at it 
carefully, I think it is fairly widely agreed now that the law 
of this straight line is a myth. There is ample evidence, which 
is even accepted by many people on the other side of the 
debate, that for example, there was a pronounced medieval 
warming period around about the 14th century which in many 
expert's view, I am not a climate expert, led to warmer 
temperatures than we have today. There was a little ice age 
around about the end of the 18th century, very early 19th 
century. So there have been fluctuations.
    Also, you have seen this recorded, during the recorded 
period. There hasn't been a straight line upward, even though 
emissions have been going up. It went up then down then up 
again. So this very persuasive, apparently persuasive and 
iconic chart is extremely doubtful.
    But the second reason because, you are right, what we are 
concerned about is the future. So why do we worry about the 
past? It is a symptom of how the IPCC works. Michael Mann's 
findings have been challenged very robustly by other climate 
experts, experts over this period. In fact, there are very few, 
there are some others, but very few who would agree with this.
    These challenges, very coherent, very well researched 
challenges, have been put to the IPCC, which after all, first 
published this in 2001. And the IPCC has neither rebutted any 
of these challenges nor is it prepared to entertain them. There 
is no scientific objectivity about that in my book. So I think 
it is a good microcosm, a good snapshot of the problems that we 
have with the IPCC.
    Senator Inhofe. And I would actually go further to say that 
McKittrick and McIntyre and others not just challenged but 
refuted the science.
    Also, I see Dr. Watson is still here. While I can't ask him 
a question on this panel, I would only observe a question he 
was asked about, doesn't the Administration agree with the 
increased temperatures at this time, he said yes, but let's 
keep in mind that during the medieval warming period, 
temperatures were actually higher than they are now. These 
fluctuations have gone back and forth and have nothing to do 
with anthropogenic gases.
    I am sorry, Senator Jeffords, I went a little over my time, 
feel free to do the same thing. That doesn't go for you, 
Senator Carper.
    [Laughter.]
    Senator Jeffords. Lord Lawson, the House of Lords report is 
critical of the Intergovernmental Panel on Climate Change for 
their lack of monetary comparisons between the costs to control 
greenhouse gases and the benefits. With 56 nations ratifying 
the Kyoto Protocol, won't the results of their implementations 
and efforts yield valuable information upon the cost and the 
benefits, and how should such implementation data be collected 
and used, or how could it be collected and used, and what other 
approach should be taken to look at the costs and benefits of 
controlling greenhouse gases?
    Lord Lawson. Senator, if I may answer your question in a 
slightly oblique way, it may be that if the signatories to the 
Kyoto agreement carry out what they have pledged themselves to 
do, that indeed we will discover what the costs are. I think we 
will discover that they are very great indeed.
    But normally, before embarking on a policy, it is wise to 
make your best estimate of the costs in advance. Because if the 
cost is prohibitive, then you don't want to go down that route.
    And that is why one of our recommendations is that the 
British government should come clean, it may need more work by 
the British treasury, but it should come clean with the people, 
which it has not yet done, precisely what the costs of what is 
official government policy still despite what Prime Minister 
Blair said in New York last month. I hope there will be a 
change, but the policy is still allegiance to Kyoto.
    Then it should tell the public openly, OK, this is our 
policy and this will be our best estimate of the costs. It 
hasn't done that, and we suggest that it should, costs in terms 
of increased energy prices, which would need to go far higher 
than we see at the present time, and costs in terms of reduced 
economic growth, which is of course important, incidentally, 
not just for the United Kingdom, but perhaps even more so for 
the developing world.
    So these costs need to be spelled out before one can take a 
view, not, let's do this and see from experience what the costs 
turn out to be.
    Senator Jeffords. The House of Lords July report says that 
it is ``far better at government-set goals and the price 
signals to achieve that goal, leaving the market to select the 
technologies and the rate of diffusion through the economy.'' 
Isn't that what the Kyoto Protocol sets out to do?
    Lord Lawson. What we had in mind, Senator, was that the 
present policy of the British government is to fix on one 
particular renewable source of energy, wind power, and to 
subsidize that and to support that very substantially. We felt 
that yes, there are a whole lot of ranges of ways, 
technological ways of reducing carbon emissions.
    We have heard a lot to talk about them today, carbon 
sequestration, various renewable sources, there is also nuclear 
power, of course, a whole range. And that it is far more 
sensible for the government, rather than trying to pick one 
particular winner and to support that heavily, to increase--
because in all of our countries there is a governmental 
research project. This is nothing new, to have a form of 
assistance to companies to engage in these areas of research in 
whatever form of technology they believe is most likely to 
bring profitable results.
    Senator Jeffords. Dr. Thorning, the northeastern and 
Pacific Northwest regions of this country are developing 
climate change programs. Twenty-one Fortune 500 companies 
joined the Business Environmental Leadership Council to address 
climate change.
    How do you think these States and companies are moving to 
address climate change in the absence of a concerted U.S. 
effort? Won't the actions of these States provide important 
information about costs and benefits to addressing climate 
change that could help the United States?
    Dr. Thorning. I'm glad you asked that question, because the 
American Council for Capital Formation has done a substantial 
amount of research on what it would cost the northeastern 
States, for example, to meet the New England Governors Plan, 
which requires emission reductions by 2010, I think down to 
approximately 10 percent below current levels, and then get on 
a trajectory to reduce emissions by 60 to 70 percent below 1990 
levels by 2050.
    On the ACCF Web site is an econometric analysis by Charles 
River Associates and also another firm which shows that the 
costs to these States, for example, if the nine New England 
States were to embark on a plan to reduce emissions, they would 
face significantly slower economic growth than the other States 
that didn't participate and also face significantly lower 
employment levels. I believe we have also analyzed the NCEP 
plan, and that is on our Web site. That too shows less impact 
than the New England Governors Plan, because it doesn't require 
emissions as steep.
    So while the States are talking about moving in that 
direction, oh, and by the way, we also have analysis on some 
other States, in particular Oregon and Washington State and so 
forth of emission reduction targets. While the States are 
discussing that, to my knowledge, they have not imposed the 
sort of legislation that would actually force down energy use 
in their States.
    For example, Maine had been discussing joining the New 
England Governors Plan, but their legislature enacted a bill 
this year requiring the use of cost benefit analysis before any 
future environmental polices are imposed. That bill was signed 
into law in May.
    So I think States are going to be taking a hard look before 
they impose additional costs on their citizens and on their 
industry to meet a Kyoto-type target, particularly as they 
learn that their efforts, given the global nature of the 
climate change challenge, will mean almost nothing in terms of 
reducing global concentrations of CO2. So while 
there is a lot of talk, I'm not sure there is a lot of action 
in terms of actually enacting legislation. I would invite 
everyone to look at the ACCF State by State analyses. I think 
we have maybe 30 States analyzed.
    Senator Jeffords. Thank you very much.
    Dr. Grubb, you testified that the UK companies invested 
$120 million to $220 million on energy-saving efforts that 
resulted in $400 million to $700 million in savings. Do you 
think there are still more energy-saving efforts companies can 
invest in or have gains ready to be realized?
    Dr. Grubb. First, let me clarify that figure was about the 
Carbon Trust's own programs on energy efficiency. The Carbon 
Trust was set up jointly between government and industry to 
help UK deliver cost effective emission reductions and to build 
a low carbon industry technology sector.
    There are many other, both policy instruments and 
initiatives in the UK, including perhaps most significantly in 
terms of overall delivery the fact that the government in 2000 
introduced the climate change levy, which is a tax on energy. 
It reduced corresponding the tax on labor and reached a set of 
agreements with heavy energy users. They set the emission 
targets in return for a rebate on that climate change levy.
    Those companies have also substantially over-delivered on 
their targets. They have essentially found that once they had a 
serious look, they could deliver more than they thought they 
could in terms of efficiency and improvements.
    Overall, we have estimated the total incentive value of the 
UK policy instruments at about $2 billion a year, incentives 
toward low carbon investments. And the UK energy white paper 
estimates that the savings from energy efficiency overall, 
savings potential amounts to several billion pounds. I think 
that would correspond with our experience at the Carbon Trust.
    Senator Jeffords. Thank you.
    Senator Inhofe. Thank you, Senator Jeffords.
    Senator Voinovich.
    Senator Voinovich. Thank you, Mr. Chairman.
    Dr. Thorning, I am tickled to hear what you just said about 
the northeastern States and Maine and cost benefits. One of the 
bills I introduced when I first came to the Senate was to ask 
for cost benefit on our air regs. We were able to get it on 
water, but for some reason, we haven't been able to get it on 
air regs. The reason is because they said that doing that 
wouldn't lend itself to really cleaning up our air, that that 
ought to be not taken into consideration.
    There is a disconnect in this country, I think, about our 
environmental policies and our economy. Our clean air 
regulations and laws have put us in a situation today where our 
natural gas costs are the highest in the world. We have lost 
over 100,000 jobs in the chemical industry. We have seen 
fertilizer costs go up dramatically. We have seen companies 
that produce fertilizer go out of business. And people who live 
in areas where I live, in Cleveland, Ohio, have seen their 
energy costs, their natural gas costs go up over 100 percent, 
which has been just terrible on those that are poor and on the 
elderly.
    It seems to me that we have missed the boat in this country 
somewhere in terms of harmonizing our environmental, our energy 
and our economy. I would like you to comment on just what 
impact you believe this has had on where we are in terms of our 
competitiveness in the global marketplace. And in spite of it, 
we are doing better than some of the other countries. But the 
fact is that this has had a major impact on our economy.
    Last but not least, if we went to cap and trade on 
greenhouse emissions, what impact do you think that would have 
on further exacerbating an almost intolerable situation in this 
country for our businesses and for those that are the least of 
our brothers and sisters?
    Dr. Thorning. Thank you, Senator. Let me take the last part 
of your question first. The research which again is on the ACCF 
Web site from a variety of good modeling firms and from our own 
Department of Energy shows very clearly when you use either a 
macroeconomic model or a general equilibrium model, which is 
designed to measure the impact on economy over 20, 30, 40 years 
of changes in energy prices, a variety of independent research 
shows that if we impose cap and trade, including some of the 
new work I mentioned on the State level, we would face GDP 
levels anywhere from 2 to close to 4 percent less by 2010 than 
what we have now.
    In terms of overall dollar amount, we might have as much as 
$400 billion less GDP in 2010, if we imposed that sort of 
situation. Bear in mind, every time you reduce GDP by a dollar, 
the Government gets less tax revenue. So it would mean negative 
impact on Federal budget receipts and spending policies and so 
forth, if we slow growth under a cap and trade sort of system 
or impose the taxes on industry sufficiently high and 
households and transport to force down emission use. It would 
be undoubtedly a negative impact.
    That is the reason, of course, the Senate had that 
information before the Kyoto Protocol. In 1997, our Members of 
Congress understood the economics of policies to curb emissions 
along the lines of the Kyoto Protocol.
    Now, back to your first point about the negative impact 
that high energy prices are having, it is undoubtedly true that 
we could have done a better job over the last decade of 
improving our sources of supply and probably policies to 
promote conservation. One problem right now, which I know you 
are acutely aware of, is our lack of refinery capacity to try 
to do something to bring down high gasoline prices.
    Part of the reason we don't have more refineries is our 
environmental regulations have been so burdensome, so difficult 
that companies have simply abandoned the hope of doing much to 
put in place new facilities. The only reason they are doing as 
well as they have is they have managed, I think, to get more 
out of existing physical refineries.
    But again, clearly if we do not manage to address the 
United State's growing energy needs, and by the way, another 
factor which I don't think was mentioned is that our population 
is growing about nine times faster than is the EU population. 
So we naturally have to have more energy for job growth, for 
taking kids to school, for all sorts of purposes.
    So we really do have to focus on expanding our supply of 
energy. I am hoping that nuclear power will be given more 
consideration, that we will some new build in nuclear 
facilities. Obviously we need to increase where we can 
pipelines and refinery capacity. And of course coal, clean coal 
has to be there, too.
    Senator Voinovich. You would be interested to know that the 
chairman of this committee and I are co-sponsoring a piece of 
legislation that is going to encourage the building of at least 
one new refinery in this country. We haven't built one for 30 
years because of our environmental policies and our red tape 
and the NIMBY, not in my backyard.
    The other thing that we tried to do in the Energy bill was 
to provide some incentives to move forward. I would be 
interested in your comment, have you observed or have you 
reviewed those provisions in the Energy bill? I would be 
interested in your opinion.
    And last, do you think it's time for us to sit down and 
talk about having a declaration of independence in terms of 
energy?
    Dr. Thorning. Well, I'm not an expert on the Energy bill. I 
know there are probably many people in this room who are. But I 
think many of the provisions that are in there to incentivize, 
for example, some of the faster depreciation for pipelines, for 
example, there are some very helpful provisions in the Energy 
bill.
    But as I said earlier, I think we need to go farther in 
terms of the tax code to try to lower the cost of capital for 
all types of new investment and particularly for energy 
investment. What was the second part of your question?
    Senator Voinovich. The second part is that at this stage of 
the game, if you look at those incentives that are in the 
Energy bill, should we----
    Dr. Thorning. Oh, energy independence.
    Senator Voinovich. Independence, and review where we're at, 
and try to make some kind of a national commitment to becoming 
less reliant on foreign sources of energy.
    Dr. Thorning. As attractive as it would be to be 
independent of outside sources, I am not sure that in the next 
20, 30 years that's very realistic. I think we are going to be, 
until we move away from combustion engines, I think we are 
going to be dependent on foreign oil. We can perhaps try to 
mitigate that, as people respond to higher price signals and 
move toward more efficient means of transport.
    But I don't think it would be possible to be totally 
independent in the foreseeable future.
    Senator Voinovich. I'm not suggesting that. I'm talking 
about a long range plan to move toward more energy 
independence. For example, back in 1973, when we had those 
awful lines, we were 34 percent reliant on foreign oil. Today 
we are up to about 68 or 70 percent. The world is a lot more 
unstable, or less stable today than it was then.
    Dr. Thorning. Clearly, if we were able to have access to 
more offshore sites, if we were able to be drilling for oil in 
places that right now we can't, that would certainly help 
reduce dependence on foreign oil. And of course, our coal 
supply is so large and it may be that in due course we will be 
able to do more in terms of making that a very clean source of 
energy. Then with nuclear power, I think we are about 20 
percent nuclear right now for our electricity production. That 
could increase.
    So there could be a variety of ways over the long term to 
move toward energy independence. But again, I think we need to 
take a look at our tax code, which gives the U.S. investor a 
very high capital cost for new investment, compared to 
competitors around the world. And of course, environmental regs 
need to be made less cumbersome, so that they don't preclude 
good new sources of energy.
    Senator Voinovich. And you don't think the provisions in 
the Energy bill go far enough in terms of encouraging private 
sector investment? It does deal with tax incentives.
    Dr. Thorning. I think it's a good start. But I don't think 
it's broad enough. I think it's a good start. But there are 
many types of investments whose tax lives weren't changed. Also 
the corporate tax rate has not been lowered. As I said, it's 
now quite high compared to our competitors.
    So those two factors give our competitors a high cost of 
capital.
    Senator Voinovich. I would be very interested, and I'm sure 
the committee would, in fact we will put it into the record if 
you will suggest what we need to do to get this investment that 
we need.
    Dr. Thorning. I would be happy to. Thank you.
    Senator Inhofe. Thank you, Senator Voinovich.
    Senator Carper.
    Senator Carper. Thank you, Mr. Chairman.
    To each of our witnesses, welcome. We are grateful for your 
presence and for your testimony. Lord Lawson, I was sitting 
here when you were sort of going through your testimony. I was 
wondering, who in the United States has had the kind of 
portfolio that you have as a cabinet secretary. That is an 
impressive array of responsibilities. Thank you very much for 
coming a long way to be here with us today.
    I just want to say again, Senator Voinovich, I think he is 
onto something with this energy independence. It is not just, I 
know there is coal in the ground, we certainly have the 
opportunity and I think the obligation to find better ways. We 
have the technology to burn it, we have the technology to burn 
it clearly. We simply need to invest and do it.
    With respect to nuclear, I think I am encouraged to see 
Generation Next, progress toward building the next generation 
of nuclear power plants. I think that is needed and is sound.
    I would also remind us that down south, in Brazil, I don't 
know what the percentage is now but they meet a large and 
growing percentage of the fuel needs for their cars, trucks and 
vans out of the things they grow in their fields, whether it is 
sugar cane or corn or soybeans or what all. It's plain that we 
can do that in that regard and we are endeavoring to do that.
    I want to ask a question, too, if I could, of Professor 
Grubb. Dr. Thorning, when I was listening to your testimony, at 
first I wasn't sure I heard you right, but then I believe when 
I went back and looked at your testimony, I think I understood 
you to say that the adoption of a cap and trade approach with 
respect to global warming would lead to, I think you said a 2 
to 4 percent drop in GDP by 2010. I think that's what you said. 
Looking at your testimony, apparently it is what you said.
    Let me just say to Professor Grubb, any comments that you 
might have, any observations you might have on that assertion?
    Dr. Grubb. Yes. I have to say I simply don't recognize the 
numbers put forward here.
    Senator Carper. Say that again, just a little louder.
    Dr. Grubb. I simply don't recognize the numbers put forward 
here. I don't see them correlating with anything that I've seen 
published in the serious academic literature. I don't think 
I've seen any government assessments of numbers like these. The 
EU letter, I believe, put forward its assessment.
    And certainly the statement in Dr. Thorning's testimony 
that fully macroeconomic models always produce higher numbers 
than the kind of model the European Commission was using is 
simply wrong. Those models can produce all kinds of results, 
depending on exactly how one designs them.
    I do note with interest that she herself referred to one of 
the major UK models. She referred to the Cambridge Econometrics 
results. So it may be of interest to say of the Cambridge 
Econometrics studies, that one of the interesting things in it 
is that it predicts that as a consequence of climate policies, 
UK employment would be increased. In fact, GDP, under a number 
of their control scenarios, increases slightly. Both are pretty 
small, the jobs increase is between 5,000 and 50,000 extra 
jobs.
    Essentially the key question to ask about any of these 
macroeconomic models when they affect an economic instrument 
is, what is happening to the money? Economists have long said 
economic instruments are the efficient way to deal with this 
kind of problem. They raise the costs of things, they allow the 
market to respond in what seems the most efficient way.
    But they raise money. And as far as I can see, almost the 
only way of running a model that generates more than a percent 
of GDP loss is the model runs that I have seen which simply 
take the money from those instruments and throw it into the 
sea. It does not go anywhere in the models.
    Those are key questions. In the Cambridge econometrics 
model what actually happens is they raise the energy price and 
they reduce the employment costs, the taxes on national 
insurance. That reduces the cost of labor supply to companies. 
And that leads to a small positive boost to employment, which 
also feeds through to a slight boost in GDP. I don't want to 
exaggerate those effects, the specific functions can be 
debated, etc. You could easily run macro models which will 
produce a loss in GDP, I don't deny that for a moment.
    But the key thing is, no government in my knowledge raises 
tax money and then throw it out of the economy. It goes 
somewhere. And if the model does not tell you what's happening 
to that money, it will give you a fundamentally misleading 
result.
    I think the only other circumstance in which I've seen 
models produce the kind of numbers that Margo Thorning is 
talking about, and to which Harlan Watson also referred, is if 
they actually impose emission targets as a draconian, sudden 
cutback. My understanding is that the U.S. Energy Information 
Administration 4 percent GDP loss came from a scenario in which 
effectively the United States did nothing until 2005. It was 
then forced to cut 30 percent, to achieve its scheduled target 
within the space of 3 years.
    Now, I have no problem in agreeing that that produces a 
massive macroeconomic shock to any economy. I think it would be 
a ridiculous way for any country to approach climate change. As 
you said, the key is slow, stop--I believe we've already 
achieved that far in a number of the leading European 
economies--and reverse. I think the more one defers the 
mechanisms that introduce regulations that really start that 
process, the greater the risk of being faced with a big shock 
if the science actually turns really nasty on us.
    Senator Carper. Let me ask maybe one more question before 
my time expires. We have had, as we have tried to develop a 
comprehensive four pollutant or four emission bill here dealing 
with sulfur dioxide, nitrogen oxide, mercury and 
CO2, we have had a lot of discussions with the 
private sector. We have asked them, particularly the utility 
companies, to come in and to talk with us about how, if they 
were in our shoes, how would they go about reducing emissions 
of all four, but especially CO2.
    I don't know to what extent you have relied on businesses 
in the UK to help develop your own compliance agenda, but I 
presume you have, and I would just ask, have you, because it 
could be a model for us.
    Dr. Grubb. Certainly the evolution of policy in the UK has 
been really interesting in this respect. It goes back again to 
Mrs. Thatcher. She set up the Advisory Council on Business and 
Environment that has been a very constructive dialog between 
government and business, stretching back to 1990. That has 
helped to design and craft the regulatory instruments that are 
in place.
    And as part of that, I should say also led to the creation 
of the Carbon Trust, which was a joint deal between British 
government and industry to help British industry deal with this 
problem cost effectively and to develop the carbon technology 
industries that we believe is going to be a place where the UK 
can make money in the future.
    Senator Carper. I would just say in closing, really to my 
colleagues as much as anyone, I cited three companies earlier, 
IBM, GE and Dupont as companies that have decided to reduce 
CO2 emissions rather significantly. It is really 
part of their business plan as a company. They are not doing it 
to lose money. They believe you can do good and do well at the 
same time.
    I think they are onto something. I think they are onto 
something. Again, our thanks to each of you. Thanks so much for 
being here today, and Mr. Chairman, thanks for that extra 2 
minutes.
    Senator Inhofe. Take another two.
    Senator Carper. I yield my extra 2 minutes to Mr. Isakson.
    Senator Inhofe. All right, thank you, Senator Carper, very 
much.
    Senator Isakson. Thank you, Senator Carper, I appreciate 
it.
    Dr. Thorning, what does emission intensity mean? What is a 
good definition for emission intensity?
    Dr. Thorning. The definition, as I understand it, it's the 
amount of energy used to produce a dollar of output or a euro 
of output.
    Senator Isakson. On your chart that you showed us earlier 
that's in your printed materials, those countries in the UK, 
have all of them ratified and signed the Kyoto Protocol?
    Dr. Thorning. As I understand it, it's the government that 
would sign the treaty, not----
    Senator Isakson. But are all of them attempting to meet the 
2010 standards under the Protocol?
    Dr. Thorning. In the UK?
    Senator Isakson. Yes. In the EU.
    Dr. Thorning. In the EU, they all are attempting to meet 
these targets, yes.
    Senator Isakson. The reason I ask the question is you said, 
I think, and please correct me if I am wrong, that the United 
States has reduced emission intensity by 17 percent and over 
the same period of time the EU had reduced it by 7 percent, is 
that correct?
    Dr. Thorning. Over the 1992 to 2002 period, our energy 
information data shows that the United States has reduced 
emissions intensity almost 17 percent compared to about 7 
percent in the EU.
    Senator Isakson. So I guess my point, I am sorry Senator 
Carper left, because it was kind of going to ratify something 
he said, so is it reasonable for me to presume then that the 
United States that has not ratified the treaty is exceeding 
what would be the goals of the treaty, I guess in part, at a 
faster rate than are those that are signers to the treaty?
    Dr. Thorning. We are reducing our rate of growth, as Dr. 
Watson testified. Our emissions are still growing, but the 
emissions intensity per dollar of output is being reduced very 
much faster than is the case in Europe. Given our much faster 
population growth, it would be difficult for us right now to 
absolutely stop growth and emissions. But we are certainly 
doing a credible job in terms of energy intensity, and as Dr. 
Watson said, are on track to meet the Administration's goal.
    Senator Isakson. I am going to give Dr. Grubb--he either 
has to leave or he really wants to chime in here, one of the 
two, but before I recognize him, back to Senator Carper's 
statement, and I would add that in my State, Southern Company 
has established the same self-imposed goals in terms of 
reductions, that obviously if that analogy is a correct 
analogy, which I'm sure it is, the U.S. companies on their own, 
I think because of our Congress and our country's emphasis on 
clean air, is doing a pretty good job of lowering that.
    Now, with that said, Professor Grubb?
    Dr. Grubb. Thank you very much. I should say I very rarely 
venture to question a number when I don't have the exact data 
in front of me. I don't know that----
    Senator Isakson. We do it all the time, so you just feel 
free.
    [Laughter.]
    Dr. Grubb. I simply do not understand how the 7 percent 
figure can possibly be true. EU emissions were more or less 
static, declined slightly over the period considered. I can 
assure you the European economy grew by more than 7 percent 
during that period. Therefore, I just do not see how only a 7 
percent reduction in emissions intensity would be possible.
    Senator Isakson. I think her statement was the emission 
intensity in the United States was 17 and in Europe, the EU, it 
was 7.
    Dr. Thorning. Reduction in emissions intensity per dollar 
of output.
    Senator Isakson. Per dollar of output, right.
    One night I would love to take the two of you to dinner and 
watch you debate that subject. It would be interesting.
    Dr. Thorning. I'll send you the spreadsheet we used.
    Senator Isakson. Good.
    Professor, let me ask you a question. I love your all's 
accents----
    [Laughter.]
    Senator Isakson. I guess I gave away where I'm from when I 
said you all, but Lord Lawson and Professor Grubb have 
beautiful accents. The only problem with them is, sometimes you 
start listening more to what it sounds like they are saying 
than what they are saying.
    [Laughter.]
    Senator Isakson. So let me ask you a question. It sounded 
like to me that you were saying, in part of your testimony, you 
were saying that you greatly preferred market-based solutions 
to really solve the problems of carbon emissions, clean air, 
all of that. Is that correct?
    Dr. Grubb. Yes. I think an appropriate mix of policies is 
needed, but market-based solutions are very much the grounding 
of an efficient policy.
    Senator Isakson. And you referred to Maggie Thatcher's 
period of privatization and private enterprise empowerment, I 
guess is what it was, as being a part of that. And then I 
thought I heard you say, a reference to doing that through 
impositions of targets and penalties. Did I hear that right? 
What did you say?
    Dr. Grubb. To an economist, a market-based solution to an 
environmental is using an economic instrument to address the 
pollution, so that rather than, say, mandating the technology 
that companies have to use, you say, either we're going to tax 
this pollution so it becomes more expensive and you, the 
company, choose how best to respond to that, or you say we're 
going to cap the emissions and set up a trading market in the 
allowed emissions, so that we will reach an equilibrium price 
and the companies who think they can do it more efficiently can 
do more and sell the allowances to others. That's what I mean 
by market-based solutions.
    Senator Isakson. Thank you. What do you have to say about 
that, Lord Lawson?
    Lord Lawson. I would differ slightly, Senator. I think that 
a system which begins by setting arbitrary caps, and advocating 
the different countries, is not a market-based system. You 
can't call that a market-based system, because the setting of 
the caps is entirely an arbitrary fiat.
    The second thing I would say is that there is no question 
in any recommendation in the House of Lords report, nor any 
recommendation I would make, that we should mandate what 
technologies businesses and companies use. What I suggested, 
what the report suggested, is so far from that, which the 
government in the UK has hitherto done, by going bingo for wind 
energy, is to have a research budget which will allow companies 
to investigate all forms of reductions in carbon in the 
production of energy, whether it's cleaner conventional energy, 
whether it's unconventional energy, whatever.
    Explore them all and decide which they feel makes the most 
business sense, is the most likely to become profitable within 
a reasonable period of time. That is much closer, I think, to a 
genuine market approach.
    The only other thing that I would say if I may is that 
believing as I do in the marketplace, I hope that the United 
States will not go along the road of a protectionist energy 
policy, which one of your colleagues suggested might be wise. I 
think it would be profoundly unwise, it would not be in the 
interest of the United States. I think it would certainly not 
be in the interest of the world economy, where globalization, 
the extinction of the market across borders to a greater extent 
than has ever happened before has proved to be extremely 
beneficial. We don't want to roll back from that, in my 
judgment, in any way.
    Senator Isakson. Thank you very much. Thanks to all the 
panelists.
    Senator Inhofe. Thank you, Senator Isakson.
    I noticed during the very articulate and somewhat lengthy 
answer, Professor Grubb, that you had to Senator Carper's 
question, that Dr. Thorning, you were making a lot of notes. Is 
there anything you would like to share with us from the notes 
you were taking?
    Dr. Thorning. Yes, thank you very much, Senator. I would 
like to correct a possible misinterpretation of the testimony I 
submitted. What our results show when we analyzed economic 
impact of the Kyoto Protocol on Germany, UK, Netherlands, 
Spain, Italy is that those particular countries, if they 
actually imposed the taxes high enough to force down energy, 
would experience GDP levels of, in the case of Spain, 4.8 
percent less in 2010 than under the baseline forecast.
    Now, in these simulations we did recycle the revenue in 
terms of personal tax cuts, so the money didn't go into a black 
hole. These simulations, which were done in 2002 and 2003, 
assumed the United States was not participating. So there was 
obviously some leakage of jobs outside the EU.
    But the numbers were not for the global economy, as Senator 
Carper said. It was simply for the five countries we modeled. 
Perhaps I might submit this paper for the record, which is a 
document with the detailed country results.
    Senator Inhofe. Without objection, that will be made a part 
of the record.
    [The referenced document follows:]
The Kyoto Protocol: Impact on EU Emissions and Competitiveness by Margo 
                            Thorning, Ph.D.
                           executive summary
    EU Not Meeting Emission Targets: The original 15 members of the 
European Union are projected to be 7% above the 1990 emission levels by 
2010. Data from the European Environmental Agency show that only Sweden 
and the UK are likely to meet their Kyoto targets. Spain, Denmark and 
Portugal are projected to be 25% to 35% above their targets in 2010. EU 
policymakers are beginning to worry about the additional steps required 
to meet the targets, including impact of emission trading schemes on 
industry.
    GDP and Employment Effects of Emission Reduction Targets: An 
accurate portrayal of the costs of complying with GHG emissions 
reduction targets depends largely on choosing an economic model that 
captures all the short- and medium-term costs of adjusting to higher 
energy prices or regulatory mandates on the economy as a whole. When 
macroeconomic models are used to measure Kyoto's effects on the EU, the 
impacts are greater 0.5 to 5 percent less GDP in 2010 than under the 
baseline forecast. The Global Insight simulations also show job losses 
in 2010 ranging from 51,000 in Italy to 800,000 in Spain.
    The Impact of the Emission Trading System on EU Electricity Prices: 
Although the ETS has only been in operation for a short time, 
electricity prices in the EU are rising. EU electricity prices are 
closely tracking the cost of the emissions trading permits. While some 
of the increases in electricity prices are doubtless due to rising 
global energy prices, part of the 31% rise in power can be attributed 
to higher prices for the right to emit a ton of CO2.
    Effectiveness of an International Emission Trading System: Emission 
trading will work only if all the relevant markets exist and operate 
effectively; all the important actions by the private sector have to be 
motivated by price expectations far in the future. The international 
framework for climate policy that has been created under the UNFCCC and 
the Kyoto Protocol cannot create confidence for investors because 
sovereign nations have different needs and values.
    Conclusion: Near-term GHG emission reductions in the developed 
countries should not take priority over maintaining the strong economic 
growth necessary to keeping the U.S. one of the key engines for global 
economic growth.

    Dr. Thorning. And second, the number that DG Environment 
has used for many years, Margo Walstrom, the previous 
commissioner of DG Environment, often was publicly quoted as 
saying that their models showed that imposing the Kyoto 
Protocol on the EU would cost only .12 percent of GDP. That's 
using their primus model which is an industry sector model.
    I think that's one reason EU policymakers did not ask 
questions the real cost of these policies that they signed up 
to, because they were given information that was not based on 
an appropriate model, appropriate to answer the question of 
what does it cost to force down energy use.
    Another study which I cited in my testimony was done by DG 
Research for DG Environment in Brussels about 2 years ago, and 
their simulations showed that if the EU got on track to reduce 
emissions, the Kyoto Protocol and then a tighter target in a 
post-2012 period, their own numbers showed a reduction in EU 
GDP of 1.3 percent a year by 2030. So they too are beginning to 
in some of their work show rather significant costs for 
emission reduction targets.
    Finally, the point that Michael Grubb made about the U.S. 
numbers, the EIA numbers of 3.8 percent, or 4.0, 3.8 percent 
reduction in GDP by 2010, if the United States had signed up to 
the Kyoto Protocol, the EIA did another study which hasn't been 
so much noted showing that the cost to the United States would 
have been even greater had we started earlier. So starting 
earlier would not have, according to EIA, have materially, it 
would have actually made our situation worse, because our 
economy would have been less strong and we would have slowed 
our growth even sooner.
    So I just wanted to mention that there is, there would have 
been no bonus to us had we embarked quickly in, say, 2000 on 
forcing energy taxes up high enough to reduce emissions.
    Senator Inhofe. When you mentioned Margo Walstrom, I was 
reminded of a quite I use quite often, I have that on the easel 
up there, you might glance at it.
    Senator Isakson, do you have any other questions for the 
panel, since it's down to you and me?
    Senator Isakson. No, thank you, Mr. Chairman.
    Senator Inhofe. All right. Why don't I do this. I would 
like to, I don't think we've ever, since I've chaired this 
committee, had a more distinguished panel, and that includes 
panel one, I might also say, Dr. Watson. If there is anything 
that you would like to say as a last parting thought, we will 
start with you, Professor Grubb. I would also include you, Dr. 
Watson, if there is any other last comment you would like to 
make also, feel free to do so.
    Professor Grubb?
    Dr. Grubb. Thank you for the opportunity.
    Perhaps the only other thing that I would add in relating 
to some comments that have come up during the whole session, 
since the session is about Kyoto and compliance and what you 
are doing, etc., I did just want to underline the distinction 
that as set out, I think also in the European Commission's 
letter, European countries are in varied states and are taking 
varied strategies toward Kyoto compliance.
    Some, like the UK, intend to deliver virtually the whole 
lot domestically. The majority intend to actually make a 
significant contribution through the use of the flexibility 
mechanisms as very much designed and built into the treaty that 
involves foreign investment. But I still don't see that any EU 
country or the EU as a whole is not going to comply.
    And with respect to the references to Tony Blair and his 
comments, the British government has made it very clear, 
including a ministerial statement, that does not represent a 
backing away from Kyoto or the UK's commitment to Kyoto. It is 
simply saying, this is a big and complicated problem. We are 
willing to look at all kinds of options going forward in the 
next round.
    But Tony Blair himself in that very same address referred 
to the need to build markets for these technologies. And that 
is really what this whole process, I think, needs to be about.
    Senator Inhofe. Thank you, Professor Grubb.
    Dr. Thorning.
    Dr. Thorning. I would just like to say that climate change 
is obviously, as we all recognize, a global problem and there 
will be many ways to approach emission reductions and 
alterative technologies. But we have to keep in mind climate 
change is not the world's worst problem. There are many others, 
as obviously the Copenhagen Consensus came up with. Governments 
have need for strong economic growth to fund a variety of 
programs, not the least of which is fighting terrorism, I 
think.
    So we need to balance how we spend our money. If we slow 
our economic growth here in the United States unnecessarily 
through near term targets, we will certainly be less able to be 
a powerhouse for economic growth and for leadership in a 
variety of areas. So I think the approach the Administration is 
advocating is the only practical, sensible approach to move 
forward.
    Senator Inhofe. Thank you. I know your council, you said 
something that I thought was interesting in your opening 
remarks, when you talked about capital recovery being so low in 
the United States, mostly due to our taxation system. I would 
like to see any paper you have on that. That might be helpful 
to us.
    Dr. Thorning. I would be delighted to submit that to you.
    Senator Inhofe. Please do, for the record.
    Lord Lawson.
    Lord Lawson. I will say very little, I am extremely 
grateful to you, I must say again, for your having given me the 
opportunity to come here and meet you and answer some of your 
questions to the best of my ability.
    I would just first of all echo one of the things that Dr. 
Thorning said, and that is, we must not be obsessed with this 
problem. Not because there isn't a problem, but because as she 
said, there are a number of other more, certainly arguably more 
imminent problems, which the world has to grapple with. Nuclear 
proliferation is one. International terrorism is another, and 
these two of course can lead to a very ugly way.
    The question also of humanitarian aid to the world's 
poorest is another important matter for the world's economy. I 
think that there is a real danger in Europe, it's not the case 
in the United States, but there's a real danger in Europe of 
there being, for various reasons, an obsession with this 
particular issue, which, as I tried to suggest, can be more 
sensibly be met and dealt with in a different way which is more 
cost effective and which is likely to give more time for 
technologies to develop.
    Because technology doesn't stand still. And we can't 
predict how it's going to develop. But I think all history 
shows that it is going to develop in some areas faster than 
others, and we don't know which.
    Therefore, tackling in a more cost effective way at the 
present time, developing measures to adapt, adaptation is 
tremendously important. It will buy time and enable us both 
better to meet these other threats as the world as a whole and 
also better to develop the sort of technological means of 
mitigating that I think everybody in this room accepts is of 
first importance.
    Senator Inhofe. Thank you, Lord Lawson. Both you and Dr. 
Thorning mentioned how obsessed we are. Well, this is 
Washington, DC. We live obsession every day. I have made some 
speeches on the floor and reflected that many of those who are 
so obsessed with global warming today were equally obsessed 
with the new ice age that was coming in 1978. So that was a 
point well made.
    Dr. Watson, did you have anything final comments to make?
    Dr. Watson. I just wanted to thank you, Mr. Chairman, 
express my appreciation for appearing before the committee. I 
think you did an outstanding job, and the members of the 
committee, on airing the issues. I think we've had a very good 
exchange here.
    I obviously would like to echo, the comments by Lord Lawson 
and Dr. Thorning, about the importance of keeping things in 
perspective. And once again emphasize, again, we believe that 
the way to engage developing countries is to put climate change 
in a broader context so that we're addressing multiple issues 
that are of importance to them--economic growth, reducing 
poverty, etc., as I said. I believe that's the only sensible 
way you're really going to engage them.
    Thank you, sir.
    Senator Inhofe. Thank you very much, Dr. Watson and thank 
all of you for coming. I know you've come a long way. It was 
immensely helpful and I thank you so much for being here.
    We are adjourned.
    [Whereupon, at 5:18 p.m., the subcommittee was adjourned.]
    [Additional statements submitted for the record follow:]
 Prepared Statement of Dr. Harlan L. Watson, Senior Climate Negotiator 
    and Special Representative, Bureau of Oceans and International 
     Environmental and Scientific Affairs, U.S. Department of State
    Mr. Chairman and Members of the Committee, thank you for the 
opportunity to appear before you today to discuss the Kyoto Protocol 
and assess efforts to reduce greenhouse gases. I would like to begin 
with a discussion of the Bush Administration's overall climate change 
policy, including a description of our broad international engagement 
in carrying this policy forward. Finally, I would like to touch upon 
U.S. expectations at the Eleventh Session of the Conference of the 
Parties (COP 11) to the UN Framework Convention on Climate Change 
(UNFCCC).
                 president bush's climate change policy
    As a Party to the UNFCCC, the United States shares with many other 
countries its ultimate objective: stabilization of greenhouse gas 
concentrations in the atmosphere at a level that prevents dangerous 
human-induced interference with the climate system. In February 2002, 
President Bush reaffirmed America's commitment to the Framework 
Convention and its central goal, while also making clear that he could 
not commit the U.S. to the Kyoto Protocol that would have cost the U.S. 
economy up to $400 billion dollars and 4.9 million jobs.\1\
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    \1\ http://www.whitehouse.gov/news/releases/2002/02/20020214-
5.html.
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    Addressing the challenge of global climate change will require a 
sustained, long-term commitment by all nations over many generations. 
To this end, the President has established a robust and flexible 
climate change policy that harnesses the power of markets and 
technological innovation, maintains economic growth, and encourages 
global participation. Major elements of this approach include 
implementing near-term policies and measures to slow the growth in 
greenhouse gas emissions, advancing climate change science, 
accelerating climate change technology development, and promoting 
international collaboration.
Near-Term Policies and Measures to Slow the Growth in Greenhouse Gas 
        Emissions
    Although climate change is a complex and long-term challenge, the 
Bush administration recognizes that there are cost-effective steps we 
can take now. In February 2002, President Bush set an ambitious 
national goal to reduce the greenhouse gas intensity (emissions per 
unit of economic output) of the U.S. economy by 18 percent by 2012, 
which represents about a 29 percent improvement in the ``business-as-
usual'' rate of change of 14 percent projected by the Energy 
Information Administration (EIA) over this period.\2\ The 
Administration estimated that its 18 percent intensity improvement goal 
will reduce cumulative emissions by more than 1,833 million metric tons 
of carbon dioxide equivalent by 2012,\3\ and recent EIA projections 
suggest that achieving the 18 percent goal will reduce emissions by 366 
million metric tons of carbon dioxide equivalent in 2012 alone.\2\
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    \2\ Energy Information Administration (EIA). 2005. Annual energy 
outlook 2005: with projections to 2025, DOE/EIA-0383(2005). Washington, 
DC: U.S. Department of Energy, p. 55. 
(http://www.eia.doe.gov/oiaf/aeo/index.html)
    \3\ http://www.whitehouse.gov/news/releases/2002/02/20020214.html.
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    A hallmark of the intensity approach is flexibility, an especially 
important consideration when confronted with the many uncertainties 
surrounding climate change. These uncertainties suggest that a measured 
response is required that concentrates first on slowing emissions 
growth before trying to stop and eventually reverse it. A greenhouse 
gas emissions intensity goal can encourage reductions without risking 
economic consequences that could jeopardize our ability to invest in 
long-run scientific and technological solutions.
    To this end, the Administration has developed an array of policy 
measures, including voluntary programs and financial incentives.
    In setting the 18 percent decade goal, President Bush issued a 
challenge to the private sector to do its part. The President's call 
resonated with business, which has responded positively through its 
participation in a number of new voluntary programs, including DOE's 
Climate VISION program and EPA's Climate Leaders and SmartWay Transport 
Partnership programs:

     Climate VISION (Voluntary Innovative Sector Initiatives: 
Opportunities Now) \4\: In February 2003, the Federal Government and 
industry organizations representing thousands of companies from 12 
energy-intensive economic sectors (since expanded to 14) and The 
Business Roundtable also joined in a voluntary partnership known as 
Climate VISION. Climate VISION is unique in that it focuses on economic 
sectors, not specific companies, with each industry association making 
a commitment on behalf of its members to reduce greenhouse gas 
emissions intensity. These Climate VISION partners, which include some 
of the largest companies in America, represent a broad range of 
industry sectors--oil and gas, electricity generation, coal and mineral 
production and mining, manufacturing (automobiles, cement, iron and 
steel, magnesium, aluminum, chemicals, and semiconductors), railroads, 
and forestry products--accounting for about 40 to 45 percent of total 
U.S. greenhouse gas emissions. Four Federal agencies participate in the 
program: DOE (lead), Department of Agriculture (USDA), Department of 
Transportation (DOT), and the Environmental Protection Agency (EPA).
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    \4\ http://www.climatevision.gov/.
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     Climate Leaders\5\: Climate Leaders, established in February 
2002, is an EPA partnership encouraging individual companies to develop 
long-term, comprehensive climate change strategies. Under this program, 
partners set corporate-wide greenhouse gas reduction goals and 
inventory their emissions to measure progress. By reporting inventory 
data to EPA, partners create a lasting record of their accomplishments 
and also identify themselves as corporate environmental leaders, 
strategically positioned to address climate change policy issues. 
Seventy-one major companies from diverse industries representing 8 
percent of U.S. emissions are now participating.
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    \5\ http://www.epa.gov/climateleaders/.
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     SmartWay Transport Partnership\6\: Launched in February 2004, the 
SmartWay Transport Partnership is designed to reduce fuel consumption 
and emissions by encouraging shippers and carriers to improve the 
overall environmental performance of the freight delivery system. 
Currently, 225 companies have joined SmartWay, including 170 Trucking 
Carriers, 25 Shippers, 7 Shipper/Carriers, 8 Railroads, 7 logistics 
companies and 8 Affiliates. Based on the actions taken by these 
partners to date, EPA projects savings of at least 175 million gallons 
of fuel by the year 2007.
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    \6\ http://www.epa.gov/smartway/.

    Further, the USDA is using its conservation programs to provide an 
incentive for actions that increase carbon sequestration. Under the 
Farm Security and Rural Investment Act of 2002, the U.S. will invest 
about $40 billion over 10 years for conservation measures on its farms 
and forest lands--including measures that will enhance the natural 
storage of carbon.
    DOE is also pursuing many energy supply technologies with 
comparatively low or zero carbon dioxide emissions profiles, such as 
solar, wind, bioenergy, and combined heat and power. In addition, the 
Bush Administration also has increased fuel economy standards for new 
light trucks and sport utility vehicles by 1.5 miles per gallon over 
the next three model years, and a new round of standards was proposed 
on August 23.\7\
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    \7\ http://www.nhtsa.gov/portal/site/nhtsa/template.MAXIMIZE/
    menuitem.f2217bee37fb302f6d7c121046108a0c/
    ?javax.portlet.tpst=1e51531b2220b0f8ea14201046108a0c_ws_MX&javax.por
tlet.prp_
    1e51531b2220b0f8ea14201046108a0c_viewID=detail_
    view&javax.portlet.begCacheTok=token&javax.portlet.endCacheTok=token
&
    itemID=d674acd2593e5010VgnVCM1000002c567798RCRD&overrideViewName=Pre
ssRelease.
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    These and other initiatives may be contributing to greenhouse gas 
emission intensity reductions that we have seen already. The 
President's 18 percent ten-year goal represents an average annual rate 
of 1.8 percent. According to Energy Information Administration's (EIA) 
Emissions of Greenhouse Gases in the United States 2003 report\8\, the 
greenhouse gas intensity was 2.3 percent lower in 2003 than in 2002, 
and a June 2005 EIA flash estimate of energy-related carbon emissions--
which account for over four fifths of total greenhouse gas emissions--
suggests an improvement in carbon dioxide emissions intensity of 2.6 
percent in 2004\9\. Overall, then, the Nation appears to be ahead of 
schedule in meeting the President's goal.
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    \8\ http://www.eia.doe.gov/oiaf/1605/ggrpt/pdf/057303.pdf, p. 15.
    \9\ http://www.eia.doe.gov/neic/press/press257.html.
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Advancing Climate Change Science
    In May 2001, President Bush commissioned the National Academies 
National Research Council (NRC) to examine the state of our knowledge 
and understanding of climate change science. The NRC's report makes 
clear that there are still important gaps in our knowledge.\10\
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    \10\ National Research Council. 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. (http://www.nap.edu/catalog/10139.html).
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    Based on the resulting NRC report and the Administration's ongoing 
climate science planning activity, President Bush created a new 
cabinet-level management committee (the Committee on Climate Change 
Science and Technology Integration) in February 2002 to oversee climate 
change science and technology activities. The President's direction 
resulted in the creation of the U.S. Climate Change Science Program 
(CCSP), combining the existing U.S. Global Change Research Program 
(USGCRP) and the Climate Change Research Initiative (CCRI), as well as 
the creation of the Climate Change Technology Program (CCTP).
    The Climate Change Science Program (CCSP) \11\ integrates the 
federal research on global change and climate change across thirteen 
federal agencies (the National Science Foundation (NSF), the Department 
of Commerce, the DOE, EPA, the National Aeronautics and Space 
Administration (NASA), the Department of State, the Department of 
Interior, the Department of Agriculture, the Department of Health and 
Human Services, the Department of Transportation, the Department of 
Defense, U.S. Agency for International Development, and the Smithsonian 
Institution) and overseen by the Office of Science and Technology 
Policy, the Council on Environmental Quality, the National Economic 
Council and the Office of Management and Budget. The Administration 
requested $1.9 billion for CCSP in FY 2006.
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    \11\ http://www.climatescience.gov.
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    In July 2003, CCSP released its Strategic Plan for the U.S. Climate 
Change Science Program\12\, the first comprehensive update of a 
national plan for climate and global change research since the original 
U.S. Global Change Research Program strategy was issued at the 
inception of the program in 1990. The plan is organized around five 
goals: (1) improving our knowledge of climate history and variability; 
(2) improving our ability to quantify factors that affect climate; (3) 
reducing uncertainty in climate projections; (4) improving our 
understanding of the sensitivity and adaptability of ecosystems and 
human systems to climate change; and (5) exploring uses and identifying 
limits of knowledge to manage risks and opportunities. A review of the 
CCSP plan by the NRC, which concluded that it ``articulates a guiding 
vision, is appropriately ambitious, and is broad in scope,'' shows the 
Administration is on the right track.\13\
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    \12\ http://www.climatescience.gov/Library/stratplan2003/final/
default.htm.
    \13\ National Research Council. 2004. Implementing Climate and 
Global Change Research: A Review of the Final U.S. Climate Change 
Science Program Strategic Plan, Committee to Review the U.S. Climate 
Change Science Program Strategic Plan, National Research Council, 
National Academy Press, Washington, D.C., p. 1 (http://books.nap.edu/
catalog/10635.html).
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    Twenty-one Synthesis and Assessment Products are identified in the 
Strategic Plan in fulfillment of Section 106 of the 1990 Global 
Research Act to be produced through 2007. These reports are designed to 
address a full range of science questions and evaluate options for 
response that are of the greatest relevance to decision and policy 
makers and planners. The products are intended to provide the best 
possible state of science information, developed by a diverse group of 
climate experts, for the decision community.
    Since CCSP was created in 2002, the program has successfully 
integrated a wide range of research, climate science priorities of the 
thirteen CCSP agencies. CCSP has taken on some of the most challenging 
questions in climate science and is developing products to convey the 
most advanced state of knowledge to be used by federal, state and local 
decision makers, resource managers, the science community, the media, 
and the general public.
    CCSP will hold a public workshop on November 14-16 in Arlington, 
VA. The CCSP Workshop will address the capability of climate science to 
inform decision-making and will serve as a forum to address the 
progress and future plans regarding CCSP's three decision-support 
deliverables as described above. The Workshop will provide an 
opportunity for scientists and user communities to discuss decision-
maker needs and future application of scientific information on climate 
variability and change, as well as discussion on expected outcomes of 
CCSP's research and assessment activities that are necessary for sound 
resource management, adaptive planning and policy.
Accelerating Climate Change Technology Development
    While acting to slow the pace of greenhouse gas emissions intensity 
in the near term, the Administration is laying a strong technological 
foundation to develop realistic mitigation options to meet energy 
security and climate change objectives.
    The Bush Administration is moving ahead on advanced technology 
options that have the potential to substantially reduce, avoid, or 
sequester future greenhouse gas emissions. Over 80 percent of current 
global anthropogenic greenhouse gas emissions are energy related, and 
although projections vary considerably, a tripling of global energy 
demand by 2100 is not unimaginable. Therefore, to provide the energy 
necessary for continued economic growth while we reduce greenhouse gas 
emissions, we may have to develop and deploy cost-effective 
technologies that alter the way we produce and use energy.
    The Climate Change Technology Program (CCTP) \14\ was created to 
coordinate and prioritize the Federal Government's climate-related 
technology research, development, demonstration, and deployment (RDD&D) 
activities, for which the Administration has requested $2.865 billion 
in FY 2006. Title XVI of the Energy Policy Act of 2005 authorizes CCTP 
within the Department of Energy (DOE).
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    \14\ http://www.climatetechnology.gov/.
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    Using various analytical tools, CCTP is assessing different 
technology options and their potential contributions to reducing 
greenhouse gas emissions. Given the tremendous capital investment in 
existing energy systems, the desired transformation of our global 
energy system may take decades or more to implement fully. A robust 
RDD&D effort can make advanced technologies available sooner rather 
than later and can accelerate modernization of capital stock at lower 
cost and with greater flexibility.
    On August 5, Energy Secretary Bodman, who currently chairs the 
President's Cabinet Committee on Climate Change Science and Technology 
Integration, released the CCTP Vision and Framework for our forthcoming 
draft Strategic Plan.\15\ CCTP's strategic vision has six complementary 
goals: (1) reducing emissions from energy use and infrastructure; (2) 
reducing emissions from energy supply; (3) capturing and sequestering 
carbon dioxide; (4) reducing emissions of other greenhouse gases; (5) 
measuring and monitoring emissions; and (6) bolstering the 
contributions of basic science. The DOE also released for public review 
and comment the larger CCTP Strategic Plan on September 22.\16\
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    \15\ http://www.climatetechnology.gov/vision2005/index.htm.
    \16\ http://www.climatetechnology.gov/stratplan/draft/index.htm.
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    The Administration continues strong investment in many strategic 
technology areas. As the President's National Energy Policy requires, 
the strategic technology efforts with respect to energy production and 
distribution focus on ensuring environmental soundness, as well as 
dependability and affordability.

     Energy Efficiency and Renewable Energy: Energy efficiency is the 
single largest investment area under CCTP and it provides tremendous 
short-term potential to reduce energy use and greenhouse gas emissions. 
Renewable energy includes a range of different technologies that can 
play an important role in reducing greenhouse gas emissions. The United 
States invests significant resources in wind, solar photovoltaics, 
geothermal, and biomass technologies. Many of these technologies have 
made considerable progress in price competitiveness, but there remain 
opportunities to reduce manufacturing, operating, and maintenance costs 
of many of these technologies.
     Hydrogen: President Bush announced his Hydrogen Fuel 
Initiative\17\ in his 2003 State of the Union Address. The goal is to 
work closely with the private sector to accelerate our transition to a 
hydrogen economy, on both the technology of hydrogen fuel cells and a 
fueling infrastructure. The President's Hydrogen Fuel Initiative and 
the FreedomCAR Partnership\18\ which was launched in 2002 will provide 
$1.7 billion through 2008 to develop hydrogen-powered fuel cells, 
hydrogen production and infrastructure technologies, and advanced 
automotive technologies, with the goal of commercializing fuel-cell 
vehicles by 2020.\19\
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    \17\ http://www.hydrogen.gov/president.html.
    \18\ http://www.eere.energy.gov/vehiclesandfuels/.
    \19\ Much of the funding dedicated to the Hydrogen Fuel Initiative 
is accounted for within other technology areas here.
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     Carbon Sequestration: Carbon capture and sequestration is a 
central element of CCTP's strategy because for the foreseeable future, 
fossil fuels will continue to be the world's most reliable and lowest-
cost form of energy. A realistic approach is to find ways to capture 
and store the carbon dioxide produced when these fuels are used. DOE's 
core Carbon Sequestration Program\20\ emphasizes technologies that 
capture carbon dioxide from large point sources and store it in 
geologic formations. In 2003, DOE launched a nationwide network of 
seven Regional Carbon Sequestration Partnerships\21\, involving State 
agencies, universities, and the private sector, to determine the best 
approaches for sequestration in each geographic region represented and 
to examine regulatory and infrastructure needs. On June 9th of this 
year, Secretary of Energy Bodman announced a major expansion of the 
Regional Partnerships program\22\.
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    \20\ http://www.fe.doe.gov/programs/sequestration/index.html.
    \21\ http://www.fe.doe.gov/programs/sequestration/partnerships/.
    \22\ http://www.energy.gov/engine/content.do?PUBLIC_
    ID=18031&BT_CODE=PR_PRESSRELEASES&TT_CODE=PRESSRELEASE.
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     Coal-Fired, Near-Zero-Emissions Power Generation: The United 
States has vast reserves of coal, and about half of its electricity is 
generated from this fuel. Advanced coal-based power and fuels, 
therefore, is an area of special interest from both an energy security 
and climate change perspective. The Coal Research Initiative (CRI) 
consists of research, development, and demonstration of coal-related 
technologies that will improve coal's competitiveness in future energy 
supply markets. The Clean Coal Power Initiative (CCPI) \23\, within the 
CRI, is a cost-shared program between the government and industry to 
demonstrate emerging technologies in coal-based power generation and to 
accelerate their commercialization. A major initiative under CCPI is 
the FutureGen project\24\, a 10-year, $1 billion government industry 
cost-shared effort to design, build, and operate the world's first 
near-zero atmospheric emissions coal-fired power plant. This project, 
which cuts across many CCTP strategic areas, will incorporate the 
latest technologies in carbon sequestration, oxygen and hydrogen 
separation membranes, turbines, fuel cells, and coal-to-hydrogen 
gasification. Through the CRI, clean coal can remain part of a diverse, 
secure energy portfolio well into the future.
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    \23\ http://www.fe.doe.gov/programs/powersystems/cleancoal/
index.html.
    \24\ http://www.fe.doe.gov/programs/powersystems/futuregen/
index.html.
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     Nuclear Fission: Concerns over resource availability, energy 
security, and air quality as well as climate change suggest a larger 
role for nuclear power as an energy supply choice. While current 
generations of nuclear energy systems are adequate in many markets 
today, new construction of advanced light-water reactors in the near 
term and of even more advanced systems in the longer term can broaden 
opportunities for nuclear energy, both in industrialized and developing 
countries. The Nuclear Power 2010 program\25\ is working with industry 
to demonstrate the Nuclear Regulatory Commission's new licensing 
process, while the Generation IV Nuclear Energy Systems Initiative\26\ 
is investigating the more advanced reactor and fuel cycle systems that 
represent a significant leap in economic performance, safety, and 
proliferation-resistance. One promising system being developed under 
the Nuclear Hydrogen Initiative\27\ would pair very-high-temperature 
reactor technology with advanced hydrogen production capabilities that 
could produce both electricity and hydrogen on a scale to meet 
transportation needs. Complementing these programs is the Advanced Fuel 
Cycle Initiative\28\, which is developing advanced, proliferation 
resistant nuclear fuel technologies that can improve the fuel cycle, 
reduce costs, and increase the safety of handling nuclear wastes.
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    \25\ http://www.ne.doe.gov/NucPwr2010/NucPwr2010.html.
    \26\ http://www.ne.doe.gov/infosheets/geni.pdf.
    \27\ http://www.ne.doe.gov/infosheets/hydrogen.pdf.
    \28\ http://www.ne.doe.gov/infosheets/afci.pdf.
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     Fusion: Fusion energy is a potential major new source of energy 
that, if successfully developed, could be used to produce electricity 
and possibly hydrogen. Fusion has features that make it is an 
attractive option from both an environmental and safety perspective. 
However, the technical hurdles of fusion energy are very high, and with 
a commercialization objective of 2050, its impact would not be felt 
until the second half of the century, if at all. Nevertheless, the 
promise of fusion energy is simply too great to ignore.

    Advances in these and other technology areas in the CCTP portfolio 
could put us on a path to ensuring access to clean, affordable energy 
supplies while dramatically reducing the greenhouse gas profile of our 
economy over the long term. Moreover, the deployment of cleaner energy 
technologies in developing economies like China and India can make a 
huge difference in altering the future global energy picture.
Promoting International Collaboration
    President Bush--in both his June 2001 and February 2002 climate 
change policy speeches--highlighted the importance of international 
cooperation in developing an effective and efficient global response to 
the complex and long-term challenge of climate change.\29\
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    \29\ http://www.whitehouse.gov/news/releases/2001/06/20010611-
2.html and
    http://www.whitehouse.gov/news/releases/2002/02/20020214-5.html.
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    Any effective international response to climate change requires 
developing country participation, which includes both near-term efforts 
to slow the growth in emissions and longer-term efforts to build 
capacity for future cooperation. Central to achieving global 
cooperation to address climate change will be the participation of 
developing countries.
    The Bush Administration believes that the most effective way to 
engage developing countries is to focus not solely on greenhouse gas 
emissions, but rather on a broader development agenda that promotes 
economic growth, reduces poverty, provides access to modern sanitation, 
enhances agricultural productivity, provides energy security, reduces 
pollution, and mitigates greenhouse gas emissions.
    The Administration also believes that well-designed multilateral 
collaborations focused on achieving practical results can accelerate 
development and commercialization of new technologies and advance 
climate change science. In particular, under President Bush's 
leadership, the United States has brought together key nations to 
tackle jointly some tough energy challenges. These multilateral 
collaborations mirror the main strategic thrusts of our domestic 
technology research programs, and they address a number of 
complementary energy concerns, such as energy security, climate change, 
and environmental stewardship. Another characteristic of the 
collaborations is that they include as partners Kyoto countries, non-
Kyoto countries, industrialized countries, developing countries, and 
countries with economies in transition.

     Asia-Pacific Partnership for Clean Development and Climate\30\: 
In July 2005, Deputy Secretary of State Zoellick announced plans to 
create the Asia-Pacific Partnership for Clean Development and Climate 
to focus on voluntary practical measures to create new investment 
opportunities, build local capacity, and remove barriers to the 
introduction of clean, more efficient technologies.\31\ The partnership 
is designed to help each country meet nationally designed strategies 
for improving energy security, reducing pollution, and addressing the 
long-term challenge of climate change. We view the partnership as a 
complement, not an alternative, to the UN Framework Convention on 
Climate Change. It is critically important to be able to build on 
mutual interests and incentives to tackle global challenges 
effectively. The six countries that currently comprise this partnership 
represent about half of the world's economy, population, energy use and 
greenhouse gas emissions. We are actively engaging with our Partners 
toward a formal launch early next year.
---------------------------------------------------------------------------
    \30\ Partners include Australia, China, India, Japan and South 
Korea and the United States. Fact sheet at http://www.whitehouse.gov/
news/releases/2005/07/20050727-11.html.
    \31\ http://www.state.gov/s/d/rem/50326.htm.
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     Methane to Markets Partnership\32\: Launched in November of last 
year, the Methane to Markets Partnership, led on the U.S. side by EPA, 
now includes 16 partner countries. This Partnership is an international 
initiative that focuses on advancing cost-effective, near-term methane 
recovery and use as a clean energy source to enhance economic growth, 
promote energy security, improve the environment, and reduce greenhouse 
gases. Initially, the Partnership will target three major methane 
sources: landfills, underground coal mines, and natural gas and oil 
systems. The Partnership has the potential to deliver by 2015 annual 
reductions in methane emissions of up to 50 million metric tons of 
carbon equivalent or recovery of 500 billion cubic feet of natural gas. 
When fully achieved, these results could lead to stabilized or even 
declining levels of global atmospheric concentrations of methane.
---------------------------------------------------------------------------
    \32\ http://www.epa.gov/methanetomarkets/ and http://
www.methanetomarkets.org/. Founding Methane to Markets member 
governments include the United States, Argentina, Australia, Brazil, 
China, Colombia, India, Italy, Japan, Mexico, Nigeria, Russian 
Federation, Ukraine, and the United Kingdom. The Republic of Korea 
became the 15th member in June and Canada the 16th member in July.
---------------------------------------------------------------------------
     International Partnership for the Hydrogen Economy (IPHE) \33\: 
Recognizing the common interest in hydrogen research that many 
countries share, the United States called for an international hydrogen 
partnership in April 2003, and in November 2003, representatives from 
15 national governments and the European Commission gathered in 
Washington to launch IPHE. IPHE provides a vehicle to organize, 
coordinate, and leverage multinational hydrogen research programs that 
advance the transition to a global hydrogen economy. It reviews the 
progress of collaborative projects, identifies promising directions for 
research, and provides technical assessments for policy decisions. IPHE 
also will develop common recommendations for internationally-recognized 
standards and safety protocols to speed market penetration of hydrogen 
technologies. Through IPHE, the U.S. has assisted Brazil and China in 
developing hydrogen roadmaps.
---------------------------------------------------------------------------
    \33\ http://www.iphe.net/. Founding IPHE members include the United 
States, Australia, Brazil, Canada, China, European Commission, France, 
Germany, Iceland, India, Italy, Japan, Norway, Republic of Korea, 
Russia, and the United Kingdom. New Zealand became the 17th member in 
January 2005.
---------------------------------------------------------------------------
     Carbon Sequestration Leadership Forum (CSLF) \34\: CSLF is a 
U.S.-launched initiative that was established formally at a ministerial 
meeting held in Washington, D.C., in June 2003. CSLF is a multilateral 
initiative that provides a framework for international collaboration on 
sequestration technologies. The Forum's main focus is assisting the 
development of technologies to separate, capture, transport, and store 
carbon dioxide safely over the long term, making carbon sequestration 
technologies broadly available internationally, and addressing wider 
issues, such as regulation and policy, relating to carbon capture and 
storage. In addition to these activities, CSLF members and other 
interested nations are invited to participate in the FutureGen clean 
coal project.
---------------------------------------------------------------------------
    \34\ http://www.cslforum.org/. CSLF members include the United 
States, Australia, Brazil, Canada, China, Colombia, Denmark, European 
Commission, France, Germany, India, Italy, Japan, Mexico, Netherlands, 
Norway, Republic of Korea, Russian Federation, South Africa, and the 
United Kingdom.
---------------------------------------------------------------------------
     Generation IV International Forum (GIF) \35\: In 2002, nine 
countries and Euratom joined together with the United States to charter 
GIF, a multilateral collaboration whose goal is to develop the fourth 
generation of advanced, economical, safe, and proliferation-resistant 
nuclear systems that can be adopted commercially no later than 2030. A 
technology roadmap developed by the GIF and DOE's Nuclear Energy 
Research Advisory Committee in 2003 identified six technologies as 
candidates for future designs. Based on the Roadmap, GIF countries are 
jointly preparing a collaborative research program to develop and 
demonstrate the projects.
---------------------------------------------------------------------------
    \35\ http://gen-iv.ne.doe.gov/. GIF members include the United 
States, Argentina, Brazil, Canada, Euratom, France, Japan, Republic of 
Korea, South Africa, Switzerland, and the United Kingdom.
---------------------------------------------------------------------------
     ITER\36\: In January 2003, President Bush announced that the 
United States was joining the negotiations for the construction and 
operation of the international fusion experiment known as ITER.\37\ If 
successful, this multi-billion-dollar research project will advance 
progress toward producing clean, renewable, commercially--available 
fusion energy by the middle of the century. It was recently agreed that 
the experimental reactor will be sited in Cadarache, France.
---------------------------------------------------------------------------
    \36\ ITER member countries include the United States, China, 
European Union, Japan, Russian Federation, and the Republic of Korea.
    \37\ http://www.whitehouse.gov/news/releases/2003/01/20030130-
18.html.
---------------------------------------------------------------------------
    Regional and Bilateral Activities: Since 2001, the United States 
has established 15 climate partnerships with key countries and regional 
organizations that, together with the United States, account for almost 
80 percent of global greenhouse gas emissions.\38\ These partnerships 
encompass over 400 individual activities, and successful joint projects 
have been initiated in areas such as climate change research and 
science, climate observation systems, clean and advanced energy 
technologies, carbon capture, storage and sequestration, and policy 
approaches to reducing greenhouse gas emissions.
---------------------------------------------------------------------------
    \38\ Partners include Australia, Brazil, Canada, China, Central 
America (Belize, Costa Rica, El Salvador, Guatemala, Honduras, 
Nicaragua, and Panama), European Union, Germany, India, Italy, Japan, 
Mexico, New Zealand, Republic of Korea, Russian Federation, and South 
Africa.

     Clean Energy Initiative\39\: At the 2002 World Summit on 
Sustainable Development (WSSD) held in Johannesburg, South Africa, the 
United States launched a ``Clean Energy Initiative,'' whose mission is 
to bring together governments, international organizations, industry 
and civil society in partnerships to alleviate poverty and spur 
economic growth in the developing world by modernizing energy services. 
The Initiative consists of four market-oriented, performance-based 
partnerships:
---------------------------------------------------------------------------
    \39\ http://www.sdp.gov/sdp/initiative/cei/28304.htm.

         Global Village Energy Partnership (GVEP) \40\ is an 
        international partnership with over 700 public and private 
        sector partners including the World Bank, UNDP, and leading 
        energy companies. The U.S. implementation of GVEP, led by the 
        U.S. Agency for International Development, is a 10-year 
        initiative that seeks to increase access to modern energy 
        services for those in developing countries in a manner that 
        enhances economic and social development and reduces poverty.
---------------------------------------------------------------------------
    \40\ http://www.sdp.gov/sdp/initiative/cei/44949.htm.
---------------------------------------------------------------------------
         Partnership for Clean Indoor Air\41\, led by EPA, which is 
        addressing the increased environmental health risk faced by 
        more than 2 billion people in the developing world who burn 
        traditional biomass fuels indoors for cooking and heating.
---------------------------------------------------------------------------
    \41\ http://www.sdp.gov/sdp/initiative/cei/29808.htm and http://
www.pciaonline.org/.
---------------------------------------------------------------------------
         Partnership for Clean Fuels and Vehicles\42\, which is 
        helping to reduce vehicular air pollution in developing 
        countries by promoting the elimination of lead in gasoline and 
        encouraging the adoption of cleaner vehicle technologies; and
---------------------------------------------------------------------------
    \42\ http://www.sdp.gov/sdp/initiative/cei/29809.htm and
    http://www.unep.org/pcfv/main/main.htm.
---------------------------------------------------------------------------
         Efficient Energy for Sustainable Development (EESD) \43\, led 
        by DOE, which aims to improve the productivity and efficiency 
        of energy systems, while reducing pollution and waste, saving 
        money and improving reliability through less energy intensive 
        products, more energy efficient processes and production 
        modernization.
---------------------------------------------------------------------------
    \43\ http://www.sdp.gov/sdp/initiative/cei/28304.htm.

     Renewable Energy and Energy Efficiency Partnership (REEEP): Also 
formed at the 2002 WSSD, the Renewable Energy and Energy Efficiency 
Partnership (REEEP) seeks to accelerate and expand the global market 
for renewable energy and energy efficiency technologies. As the world's 
largest producer and consumer of renewable energy, and with more 
renewable energy generation capacity than Germany, Denmark, Sweden, 
France, Italy, and the United Kingdom combined, the United States is 
one of 17 countries who are partners in REEEP. The United States also 
actively participated in the Renewables 2004 conference sponsored by 
the German Government in June 2004, and submitted five action items 
intended to provide specific technology plans and cost targets for 
renewable energy technologies using solar, biomass, wind, and 
geothermal resources.
     Renewable Energy Policy Network for the 21st Century (REN21) 
\44\: REN21 is a global policy network, which connects governments, 
international institutions and organizations, partnerships and 
initiatives and other stakeholders on the political level with those 
``on the ground,'' aimed at providing a forum for international 
leadership on renewable energy. Its goal is to allow the rapid 
expansion of renewable energies in developing and industrial countries 
by bolstering policy development and decisionmaking on sub-national, 
national and international levels. The United States serves as one of 
the 11 governments serving on REN2l's Steering Committee.
---------------------------------------------------------------------------
    \44\ http://www.ren21.net/.
---------------------------------------------------------------------------
     Group on Earth Observations\45\: Of particular importance is the 
need for a broad global observation system to support measurements of 
climate variables. On July 31, 2003, the United States hosted 33 
nations--including many developing nations--at the inaugural Earth 
Observation Summit (EOS), out of which came a commitment to establish 
an intergovernmental, comprehensive, coordinated, and sustained Earth 
observation system. While the use and benefits of these observations 
are extensive, the climate applications of the data collected by the 
system include the use of the data to create better climate models, to 
improve our knowledge of the behavior of carbon dioxide and aerosols in 
the atmosphere, and to develop strategies for carbon sequestration. The 
United States was instrumental in drafting a ten-year implementation 
plan for a Global Earth Observation System of Systems, which was 
approved by 55 nations and the European Commission at the 3rd EOS 
summit in Brussels in February 2005. The United States also released 
its contribution through the Strategic Plan for the U.S. Integrated 
Earth Observing System in April 2005.\46\ The plan will help coordinate 
a wide range of environmental monitoring platforms, resources, and 
networks.
---------------------------------------------------------------------------
    \45\ http://earthobservations.org/.
    \46\ http://iwgeo.sse.nasa.gov/docs/EOCStrategic_Plan.pdf.

    Other examples of our engagement across the globe in advancing 
climate change science and addressing greenhouse gas emissions include 
our participation in the Intergovernmental Panel on Climate Change 
(IPCC), the Global Environment Facility (GEF) and activities under the 
---------------------------------------------------------------------------
Tropical Forest Conservation Act.

     Intergovernmental Panel on Climate Change (IPCC) \47\: The IPCC 
was established by the World Meteorological Organization (WMO) and the 
United Nations Environment Programme (UNEP) in 1988 to assess 
scientific, technical and socio-economic information relevant for the 
understanding of climate change, its potential impacts and options for 
adaptation and mitigation. It is open to all Members of the United 
Nations and of WMO. The United States has played an active role in the 
IPCC since its establishment and has provided more of its funding than 
any other nation. Dr. Susan Solomon, a senior scientist at the National 
Oceanic and Atmospheric Administration's Aeronomy Laboratory in 
Boulder, Colorado, serves as co-chair of the IPCC Working Group I, 
which is assessing the scientific basis of climate change. The United 
States hosts the Working Group's Technical Support Unit and hundreds of 
U.S. scientists are participating in the preparation of the IPCC's 
Fourth Assessment Report, which is due to be completed in 2007.
---------------------------------------------------------------------------
    \47\ http://www.ipcc.ch/.
---------------------------------------------------------------------------
     Global Environment Facility (GEF) \48\: The GEF is the financial 
mechanism under the UN Framework Convention on Climate Change. It 
focuses on innovative and generally small scale projects and funds only 
the incremental costs involved in producing global environmental 
benefits. The GEF has committed about $5.4 billion to date, leveraging 
over $17 billion from other sources, including the private sector, 
international development banks and organizations, governments, NGOs 
and bilateral agencies. It has designed and initiated nearly 1,600 
investment and capacity building projects that are now being 
implemented by developing countries with the help of ten agencies, 
including the UN Development Program and the International Fund for 
Agricultural Development. The GEF has also provided nearly 5,000 small 
grants directly to NGOs and community groups in over 70 countries. U.S. 
contributions will fund solely technology transfer and capacity 
building in developing countries.
---------------------------------------------------------------------------
    \48\ http://www.gefweb.org/.
---------------------------------------------------------------------------
     Tropical Forest Conservation Act\49\: Many of our international 
activities also help to promote the biological sequestration of carbon 
dioxide, an important tool for addressing climate change that can have 
benefits both for conservation and climate change. The Tropical Forest 
Conservation Act (TFCA) offers eligible developing countries 
opportunities to reduce concessional debt owed to the United States 
while generating local currency funds to support programs to conserve 
tropical forests. Since 1998, the United States has concluded nine TFCA 
agreements with eight countries that will generate more than $95 
million for tropical forest conservation over the next 10-25 years. 
Three U.S.-based international NGOs (The Nature Conservancy, the World 
Wildlife Fund and Conservation International) contributed approximately 
$7.5 million to six of the nine agreements, thereby increasing the 
amount of debt we were able to treat. In FY 2006, the Administration 
has requested a total of approximately $100 million for certain debt 
restructuring programs. These programs include bilateral Heavily 
Indebted Poor Countries (HIPC) and poorest country debt reduction, 
contributions to the HIPC Trust Fund and TFCA debt reduction.
---------------------------------------------------------------------------
    \49\ http://www.usaid.gov/our_work/environment/forestry/
intro_tfca.html. TFCA agreements have been concluded with Bangladesh, 
Belize, Colombia, El Salvador, Jamaica, Panama (two agreements), Peru 
and the Philippines.
---------------------------------------------------------------------------
   eleventh session of the conference of the parties (cop 11) to the 
                                 unfccc
    The Conference of the Parties (COP) to the United Nations Framework 
Convention on Climate Change will hold its 11th Session in Montreal 
from November 28 to December 9, 2005. Under Secretary of State for 
Democracy and Global Affairs Paula J. Dobriansky will head the U.S. 
delegation to this meeting. As the Kyoto Protocol entered into force on 
February 16 of this year, the Montreal meeting will also be the first 
``meeting of the Parties (MOP)'' under that instrument.
    While the COP and the MOP will take separate decisions, reflecting 
the different legal instruments involved and the different membership 
in these two bodies, there will be a joint ``High Level Segment'' from 
December 7-9. It is likely that statements of ministers and other heads 
of delegation will take up a good portion of the time, rather than the 
more interactive and successful roundtables that characterized the High 
Level Segments of COP 9 in Milan in 2003 and COP 10 in Buenos Aires in 
2004. In addition, there will be a heavy workload under the MOP as the 
Parties to that instrument seek to adopt the ``Marrakech Accords'' and 
other decisions to begin implementing the Kyoto Protocol.
    We intend to work constructively within the COP framework and to 
carry forward our positive message, as we have in the last two COPs, 
and anticipate that it will have increased resonance as a result of the 
positive G-8 outcomes and the positive response to the approach of our 
Asia Pacific Partnership. At those previous COPs, we have highlighted 
all that the United States is doing with respect to science and 
technology, and with respect to our domestic actions and international 
partnerships related to climate change.
                           concluding remarks
    Mr. Chairman and Members of the Committee, I hope that my testimony 
this afternoon conveys a sense of the vast extent to which the United 
States is working to reduce greenhouse gas intensity, promote energy 
efficient technologies and advance climate science, while also placing 
primary importance on supporting economic growth and prosperity.
    We see economic growth, reducing poverty, providing access to 
modern sanitation, enhancing agricultural productivity, providing 
energy security, reducing pollution, and addressing the climate change 
problem, as integrally related. Meeting the challenge of the expected 
future growth in global energy demand and reducing greenhouse gas 
emissions will require a transformation in the way the world produces 
and consumes energy over the next generation and beyond. This is why we 
are leading global efforts to develop and deploy breakthrough 
technologies for both the developed and developing world.
    I thank you for this opportunity to testify before this Committee. 
I look forward to responding to any questions you may have.
                                 ______
                                 
      Response by Dr. Harlan Watson to an Additional Question from
                           Senator Lautenberg
    Question 1. What historical evidence leads you to believe that 
reliance on a voluntary approach to reducing greenhouse emissions will 
result in reductions sufficient to forestall continued global warming?
    Response. Given that the global warming experienced since the 
beginning of the industrial age is a combination of natural and human-
induced factors, it is not clear any approach--whether mandatory or 
voluntary--will result in reductions sufficient to forestall continued 
global warming.
    However, given the U.S. experience with a large number of voluntary 
programs, such as EPA's Climate Leaders and DOE's Climate VISION 
programs, which covers some 40-45 percent of total U.S. emissions, we 
are optimistic that these can result in substantial reductions in the 
growth of greenhouse gas emissions--and in many cases to absolute 
reductions in such emissions--while maintaining economic growth. The 
EPA Climate Leaders website at http://www.epa.gov/climateleaders/ and 
the Climate VISION website at http://www.climatevision.gov/ and the 
accompanying links contain a wealth of information on the actions of 
individual companies and sectors and the progress they are making. 
EPA's voluntary methane partnership programs--the AgSTAR (see http://
www.epa.gov/agstar/), Coalbed Methane Outreach (see http://www.epa.gov/
cmop/), Natural Gas STAR (see http://www.epa.gov/gasstar/), and 
Landfill Methane Outreach (see http://www.epa.gov/lmop/)--helped 
achieve absolute reductions in U.S. methane emissions of 10.0 percent 
below 1990 levels in 2003.
                                 ______
                                 
      Responses by Dr. Harlan Watson to Additional Questions from
                             Senator Obama
    Question 1. Next winter, in 2006, the world will discuss the next 
steps beyond the 2012 Kyoto deadline. If either China or India 
indicates a willingness to negotiate commitments would the 
Administration consider signing a future treaty?
    Response. Under Article 9.3 of the Kyoto Protocol, Kyoto Parties 
are obligated to begin discussions this year on the second phase of the 
Protocol after the first compliance period ends in 2012. China and 
India, like the vast majority of Parties to the Kyoto Protocol, are 
classified as developing countries and thus are exempt from all 
emissions reductions requirements. Whether or not China or India might 
indicate a willingness in these new negotiations to take on emissions 
reduction commitments for themselves, is, of course, hypothetical. For 
the United States, we oppose any policy that would achieve reductions 
by putting Americans out of work, or by simply shifting emissions from 
one state to another, or from the United States to another country. 
Like us, developing countries are unlikely to join in approaches that 
foreclose their own economic growth and development.
    We would note that to date China and India have been resolute and 
crystal clear in indicating that they do not support applying to 
themselves a target-and-timetable approach to greenhouse gas emissions 
imposed through the UN process--an approach they consider to be a 
threat to the economic growth that is crucial in solving their more 
immediate problems of poverty alleviation and development. Pushing for 
these countries to take on binding emissions reductions under a new 
climate change agreement would undermine U.S. efforts to engage them in 
cooperative approaches that are consistent with their aspirations to 
achieve prosperity and well-being for their people.
    Outside the context of targets, we have found through our bilateral 
and regional partnerships, countries like China and India are willing 
and even eager to address these issues, especially where meeting 
climate change goals also advances more immediate social and economic 
objectives, such as economic development, poverty reduction, access to 
modern sanitation, enhanced agricultural productivity, energy security, 
pollution reduction, and greenhouse gas emissions mitigation.

    Question 2. Under the Protocol, countries can achieve their 
commitments through means other than reducing their own emissions. For 
example, they can partner with developing countries to transfer 
environmentally friendly technology. With regard to developing 
countries, what options are most promising for curtailing future 
emissions?
    Response. Because developing countries have different national 
resource endowments there is no single option that addresses their 
needs. In the last three years, the United States has launched a series 
of bilateral and multilateral initiatives--such as the Carbon 
Sequestration Leadership Forum, the International Partnership for a 
Hydrogen Economy, the Methane to Markets Partnership, and the World 
Summit on Sustainable Development Partnerships--to help developing 
countries adopt new energy sources, from cleaner use of coal to 
hydrogen vehicles, to solar and wind power, to the production of clean-
burning methane, to less-polluting power plants. And we continue to 
look for more opportunities to deepen our partnerships with developing 
nations, and will soon be launching our most ambitious partnership 
agreement yet, the Asia Pacific Partnership for Clean Development and 
Climate. The countries that make up this Partnership--Australia, China, 
India, Japan, South Korea, and the United States--account for about 
half of the world's population, economic output, energy use, and 
greenhouse gas emissions. The whole world benefits when developing 
nations have the best and latest energy technologies.

    Question 3. When calculating whether the United States should 
ratify the Kyoto Protocol, did the Administration factor in the costs 
of increased droughts, wildfires, and flooding, as well as the 
corresponding crop and property losses?
    Response. No. The Energy Information Agency, an independent 
statistical and analytical agency in the U.S. Department of Energy, 
conducted the most extensive analyses of the cost to the United States 
of meeting a Kyoto target in an October 1998 study entitled Impacts of 
the Kyoto Protocol on U.S. Energy Markets and Economic Activity.\1\ 
That study analyzed impacts of the Protocol on U.S. energy use, prices, 
and the general economy in the 2008-2012 time frame, when the United 
States under the Kyoto Protocol was to reach an average level of net 
greenhouse gas emissions 7 percent lower than they were in 1990. It is 
not possible to link specific droughts, etc. to climate change, and 
thereby to estimate costs avoided from specific emissions reduction 
policies.
---------------------------------------------------------------------------
    \1\ A copy of the complete study is available at http://
www.eia.doe.gov/oiaf/kyoto/pdf/sroiaf9803.pdf.

    Question 4. If not, should these costs be calculated in any future 
decision of whether the United States should be involved in similar 
international protocols in the future?
    Response. A cost-benefit analysis of any similar international 
protocol should take into account both the costs of meeting the 
requirements of the protocol as well as the value of the benefits that 
will be derived from the protocol--similar to a cost-benefit analysis 
that might be applied to any government program.
    The standard criterion for deciding whether a government program 
can be justified on economic principles is net present value--the 
discounted monetized value of expected net benefits (i.e., benefits 
minus costs). Net present value is computed by assigning monetary 
values to benefits and costs, discounting future benefits and costs 
using an appropriate discount rate, and subtracting the sum total of 
discounted costs from the sum total of discounted benefits. Programs 
with positive net present value increase social resources and are 
generally preferred. Programs with negative net present value should 
generally be avoided.

    Question 5. During the question and answer period following your 
testimony, you stated that the President believes global climate change 
is an important issue and that human actions are contributing to an 
increase in greenhouse gas concentrations in the atmosphere. What steps 
is the Administration willing to take to convince the skeptics here in 
Congress that the problem is real and that mankind, including the 
United States, must take action to reduce greenhouse gas levels?
    Response. President Bush has addressed the important issue of 
global climate change on many occasions--including, most recently in 
his November 16, 2005 speech in Kyoto, Japan, in his June 30, 2005 
speech just prior to the G8 meeting in Gleneagles, Scotland, in his 
February 21, 2005 speech in Brussels and in two major climate change 
policy addresses on June 11, 2001 and February 14, 2002, when the 
President set a national goal of reducing the greenhouse gas intensity 
of the U.S. economy 18 percent 2012.
    The U.S. budget devoted to climate change--more than $5 billion 
annually and by far the largest in the world--as well as the many 
actions we are taking both domestically and internationally, which were 
elaborated in my written testimony of October 5, 2005 to the Committee 
demonstrate our resolve.
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    Prepared Statement of Hon. Johnny Isakson, U.S. Senator from the
                            State of Georgia
    Thank you Mr. Chairman:
    Thank you for holding this hearing. This is an opportunity for us 
to discuss the progress, if any, that has been made by the countries 
that have ratified Kyoto.
    I have found that some are reconsidering their early ardent 
advocacy for the Kyoto Protocol. In fact, at this year's Association of 
South East Asian Nations regional summit, the Asia-Pacific Partnership 
on Clean Development and Climate was announced. It brings together 
Australia, China, India, Japan, South Korea and the United States, 
which together account for nearly half of the world's greenhouse gas 
emissions.
    The partnership's vision statement speaks of:

     developing, deploying and transferring existing and emerging 
clean technology
     exploring technologies such as clean coal, nuclear power and 
carbon capture
     involving the private sector.

    Missing, in stark contrast to the Kyoto Protocol, is any mention of 
mandatory reduction targets for greenhouse gas emissions. Although the 
statement says the partnership would not replace the Kyoto process, the 
implication at the July announcement was clear in my mind: here was an 
alternative model through which countries could combat climate change 
without risking the economic pain that is inflicted on them by the 
onerous Kyoto protocol.
    Even just last month, British Prime Minister Tony Blair who has in 
the past supported the Kyoto concept, indicated a possible change of 
mind. To quote him: ``Probably I'm changing my thinking about this in 
the past two or three years.'' He further went on to extol the 
importance of technology in curbing emissions.
    I look forward to hearing from our witnesses their views on the 
international community's progress on Kyoto.
    Thank you, Mr. Chairman.
                               __________
   Prepared Statement of Lord Nigel Lawson of Blaby, House of Lords,
                             United Kingdom
    Ladies and Gentlemen of the Committee
    I am grateful for your invitation to testify before you today. I am 
aware that you have been provided with the Report of the House of Lords 
Select Committee on Economic Affairs on The Economics of Climate Change 
in advance of these proceedings, so I intend simply to summarise our 
key findings and to provide some commentary of my own.
    By way of background, the Economic Affairs Committee is one of the 
four permanent investigative committees of the House of Lords, and 
fulfils one of the major roles of our second chamber as a forum of 
independent expertise and review of all UK government activity. It is 
composed of members of all three main political parties. Its climate 
change report, which was agreed unanimously, was published on 6 July 
2005, just ahead of the G8 summit at Gleneagles in Scotland.
    In summary, the Committee concluded that:

     The Government should give the UK Treasury a more extensive role, 
both in examining the costs and benefits of climate change policy and 
presenting them to the public, and also in the work of the 
Intergovernmental Panel on Climate Change (IPCC);
     There are concerns about the objectivity of the IPCC process, and 
the influence of political considerations in its findings;
     There are significant doubts about the IPCC's scenarios, in 
particular the high emissions scenarios, and the Government should 
press it to change its approach;
     Positive aspects of global warming have been played down in the 
IPCC reports: the IPCC needs to reflect in a more balanced way the 
costs and benefits of climate change;
     The Government should press the IPCC for better estimates of the 
monetary costs of global warming damage and for explicit monetary 
comparisons between the costs of measures to control warming and their 
benefits;
     A more balanced approach to the relative merits of adaptation and 
mitigation is needed, with far more attention paid to adaptation 
measures;
     UK energy and climate change policy appears to be based on 
dubious assumptions about the roles of renewable energy and energy 
efficiency, and the costs to the UK of achieving its objectives have 
been poorly documented, and the Government, with much stronger Treasury 
involvement, should review and substantiate the cost estimates involved 
and convey them in transparent form to the public;
     Current UK nuclear power capacity should be retained;
     International negotiations on climate change reduction will prove 
ineffective because of the preoccupation with setting emissions 
targets. The Kyoto Protocol makes little difference to rates of 
warming, and has a naive compliance mechanism which can only deter 
countries from signing up to subsequent tighter emissions targets. Any 
future Protocols might be more fruitfully based on agreements on 
technology and its diffusion.

    I cannot of course speak for the Committee as a whole, but my own 
understanding of the issue is clear:

     The IPCC's consistent refusal to entertain any dissent, however 
well researched, which challenges its assumptions, is profoundly 
unscientific;
     Although its now famous ``hockey stick'' chart of temperatures 
over the last millennium, which inter alia featured prominently in the 
UK Government's 2003 Energy White Paper, is almost certainly a myth, 
the IPCC refuses to entertain any challenge to it;
     The IPCC's scenarios exercise, which incidentally incorporates a 
demonstrably fallacious method of inter-country economic comparisons, 
manifests a persistent upward bias in the likely amount of carbon 
dioxide emissions over the next hundred years. For example, a 
combination of steadily increasing energy efficiency and the growth of 
the less energy-intensive service economy has led to a steadily 
declining rate of growth of carbon dioxide emissions over the past 40 
years: all the IPCC's scenarios unaccountably assume an abrupt reversal 
of this established trend.

    So why is the IPCC so adamant that it will not revisit its 
conclusions?
    It may be that they are so profoundly concerned about the perils of 
global warming that the darkest possible picture is painted in order to 
secure urgent action.
    There may also be the inevitable institutional characteristic of 
making the problem more serious than it is in order to command greater 
attention. This too may be a consequence of the way research funding is 
administered--it is a cold, isolated world for the climate change 
contrarian in the modern scientific community.
    Whichever reason--and I suspect it may be both--the IPCC's 
absolutist position is unhelpful. The world faces a number of other, 
and arguably more imminent, challenges and competing claims on 
resources: the threats from nuclear proliferation and international 
terrorism, and the need for humanitarian aid for the world's poorest, 
are obvious examples. Choices always have to be made, and they need to 
be based on rational assessment.
    So far as climate change is concerned, I am not qualified to 
pronounce on the science. While it seems clear to me, as a layman, 
that--other things being equal--increasing carbon dioxide emissions 
will, in time, warm the planet, I note that the science of climate 
change is uncertain and that reputable scientists hold greatly 
differing views about the rate at which such warming is likely to 
occur--which in any case is not simply a matter of the science: it 
depends just as much on the likely rate of future economic growth and 
the pattern and nature of that growth.
    The key question, which is not a matter for scientists at all, is 
what should be done about such global warming as may occur.

     There are two possible approaches, which are not of course 
mutually exclusive: mitigation, that is, seeking to stabilize and if 
possible reduce the amount of carbon dioxide in the atmosphere, and 
adaptation, that is to accept that the climate may well be warming, and 
to take action to counter any harmful consequences that may flow from 
this.
     The IPCC and its acolytes make only the most perfunctory 
acknowledgment of adaptation. Their estimates of the damage from global 
warming are based on the assumption that very little adaptation occurs, 
and focus almost exclusively on the need for mitigation. In my view, 
however, the most important conclusion of the House of Lords report is 
that adaptation needs to take centre stage.
     Numerous studies have shown that adaptation is the more cost-
effective option, which is hardly surprising. Not only is that the way 
in which we normally come to terms with climatic vagaries, but there 
are benefits as well as costs from global warming. There are, of 
course, regional variations: in northern Europe, for example, including 
Britain, for the rest of this century the benefits are likely to exceed 
the costs, whereas for the tropics the reverse is the case. But 
adaptation, which implies pocketing the benefits while acting to 
diminish the costs, has obvious attractions.
     The four principal costs potentially involved in global warming 
are damage to agriculture and food production, water shortage, coastal 
flooding (as sea levels rise), and--allegedly--malaria:

         In the case of agriculture, adaptation, much of which will 
        occur autonomously, that is, without the need for government 
        action, would consist of cultivating areas which have hitherto 
        been too cold to be economic and, in other cases, switching to 
        crops better suited to warmer climates.
         In the case of water shortage, there is massive wastage of 
        water at the present time, and ample scope for water 
        conservation measures which incidentally would also help on the 
        farming front.
         The most serious likely cost is that caused by coastal 
        flooding of low-lying areas, where government action is clearly 
        required, in the form of the construction of effective sea 
        defences--as the Dutch, incidentally, put in place more than 
        500 years ago. With modern technology this becomes an 
        admittedly expensive but nonetheless highly cost-effective 
        option.
         Finally, as to malaria--which leading malaria experts, whom 
        the IPCC was careful to exclude from its deliberations, argue 
        is in any event unrelated to temperature, noting that the 
        disease was endemic in Europe until the 17th century--the means 
        of combating if not eradicating this scourge are well 
        established.

     By contrast, the Kyoto and emissions caps and targets approach 
seems a most unattractive option:

         Even if the existing Kyoto targets were attained they would 
        make little if any difference to the predicted rate of global 
        warming. Kyoto's importance is presented as a first step to 
        other, stiffer future agreements. But this is pie in the sky.
         The developing countries, including major contributors to 
        future carbon dioxide emissions such as China and India are--
        and are determined to remain--outside the process.
         Since the only sanction against non-compliance with Kyoto 
        (which is likely to be widespread) is even stricter targets in 
        any successor agreement, the realism of this approach is even 
        harder to detect.
         In addition, even if targets were achievable, the cost of 
        reaching them would be horrendous. Essentially, it would work 
        by raising the cost of carbon-based energy to the point where 
        carbon-free energy sources, and other carbon saving measures, 
        become economic. For Kyoto-style mitigation to be seriously 
        effective, it would involve a substantially greater rise in 
        energy prices than anything we have yet seen despite recent 
        spikes.
         The real cost of this approach is not so much dearer energy 
        as the reduced rate of world economic growth which this would 
        imply. It is far from self evident, not least for the 
        developing countries, that over the next hundred years a poorer 
        but cooler world is to be preferred to a richer but warmer one. 
        Nor should it be overlooked that the Kyoto strategy requires 
        the present and next generation to sacrifice their living 
        standards in order to benefit more distant generations who are 
        projected in any event to be considerably better off.

     Mitigation can however, be a desirable complement to adaptation. 
Far better than the Kyoto approach is additional support for research 
into reduced carbon technologies of all kinds, thus bringing forward 
the time when at least some of these technologies may become economic. 
A nation which performs relatively well in terms of cutting back 
emissions is bound to lose out competitively whereas a nation which 
achieves a technological breakthrough is likely to benefit 
competitively.

    In conclusion, I believe that the IPCC process is so flawed, and 
the institution, it has to be said, so closed to reason, that it would 
be far better to thank it for the work it has done, close it down, and 
transfer all future international collaboration on the issue of climate 
change, where the economic dimension is clearly of the first 
importance, to the established Bretton Woods institutions.
    It is profoundly important that all governments, most importantly 
their Treasury departments, make their own independent and rigorous 
economic analysis of the issue. At the time the Lords committee was 
taking evidence this, for whatever reason, had not happened in the UK. 
I very much hope that, following our report, it will.
    We appear to have entered a new age of unreason, which threatens to 
be as economically harmful as it is profoundly disquieting. It must not 
be allowed to prevail.
                                 ______
                                 
       Responses by Lord Nigel Lawson to Follow Up Questions from
                            Senator Jeffords
    Question 1. To make clear for the record, did you appear before the 
Committee to testify on behalf of the British government? If not, in 
what capacity did you appear?
    Response. I no more testified on behalf of the British government 
than Senator Jeffords represented the United States administration. I 
appeared before the Committee because I was invited to do so, and it 
would have been discourteous to have declined. As I made clear in my 
opening statement at the hearing on 5 October, I did so in my capacity 
as a member of the House of Lords Select Committee on Economic Affairs, 
which published its Report on The Economics of Climate Change on 5 
July. This is an all-party committee, and its Report was unanimous. The 
Committee's members bring to bear a wide range of experience and 
expertise; and, as I told your Committee on 5 July, my own includes a 
decade as a senior British government Minister, from 1979 to 1989--to 
be precise, as Financial Secretary to the Treasury 1979-1981, Energy 
Secretary 1981-1983, and Chancellor of the Exchequer (equivalent to 
your Treasury Secretary) 1983-1989.

    Question 2. You are critical of the Intergovernmental Panel on 
Climate Change for not looking at how nations might work together to 
prepare for adaptation and mitigation of the inevitability of climate 
change. What steps are you recommending the IPCC take?
    Response. Chapter 9 of the House of Lords Committee's report, which 
I submitted as a background document to my own written testimony, 
contains its unanimously agreed conclusions and recommendations. Those 
which concern the IPCC may be found in particular in paragraphs 145, 
154, 158, 159, 161, 162, 168, 169, 170, and 174. In my opinion these 
are the minimum steps the IPCC needs to take; and, if it does not do 
so, it would--as I submitted in my written testimony to your 
committee--``be far better to thank it for the work it has done, close 
it down, and transfer all future international collaboration on the 
issue of climate change, where the economic dimension is clearly of the 
first importance, to the established Bretton Woods institution''.

    Question 3. The House of Lords July Report says that it is ``far 
better that government sets the goal and the price signals to achieve 
that goal, leaving the market to select the technologies and their rate 
of diffusion through the economy.'' Isn't that what the Kyoto Protocol 
sets out to do? Does not the cap and trade program move those 
participating countries in that direction? If not, what other policy 
would be effective at sending a clear signal to the private sector?
    Response. The House of Lords Report's criticism of governments 
selecting which technologies to back was explicitly aimed at the UK's 
approach in its White Paper on energy policy of picking winners--
basically wind power and energy efficiency. That is quite different 
from a possible international agreement on the development of low-
carbon technologies and their diffusion, which would be based on 
supporting those low carbon technologies the energy industry was 
prepared to back with its own money in the light of market criteria. I 
set out the severe drawbacks of the Kyoto/cap and trade approach in my 
written testimony, and it would be otiose to repeat them here.

    Question 4. Developed nations have benefited the most from the 
burning of fossil fuels but the low-lying areas likely to be flooded as 
a result of climate change are likely to be poor communities and the 
developing world. You advocate construction as an effective defense. 
Who should bear the costs of this construction and why?
    Response. The cost should be borne partly by the developing 
countries themselves (whose GDP per head of population by the end of 
this century will, according to the IPCC's scenarios, be higher than 
that of the developed world today) and partly by the developed nations, 
through earmarking a significant proportion of their overseas aid 
budgets to this specific purpose. The relative size of these two 
components should vary according to the specific circumstances of each 
developing country concerned.

    Question 5. You refer to numerous studies showing adaptation is a 
more cost-effective option. Are these peer-reviewed studies? Will you 
provide copies of these studies for the record?
    Response. I would refer the Committee to the substantial paper by 
Dr. Indur Goklany, entitled ``A Climate Policy for the Short and Medium 
Term: Stabilization or Adaptation'', published in the journal Energy & 
Environment, volume 16, no 3 & 4, 2005.
                                 ______
                                 
         Position Paper, Piece on Climate Change for Prospect,
                          by Lord Nigel Lawson
    Nothing could better illustrate the intellectual bankruptcy of what 
might be termed the climate change establishment than Dr. Michael 
Grubb's September Prospect essay ``Stick to the Target''. He is clearly 
outraged by the fact that, in July, the House of Lords Select Committee 
on Economic Affairs published a report, ``The Economics of Climate 
Change'', which had the temerity to express considerable scepticism 
about both the reliability of the IPCC process--the Intergovernmental 
Panel on Climate Change, set up under the auspices of the United 
Nations to inform and advise governments on what is clearly a global 
issue--and the desirability of the Kyoto/emissions targets approach to 
tackling the problem.
    Although a member of that Committee, whose report was agreed 
unanimously (those who are interested in it would do better to read it 
than rely on Dr. Grubb's travesty), I cannot speak for the Committee as 
a whole. But my own understanding of the issue is clear.
    The IPCC story, which appears to have been swallowed hook, line and 
sinker by most governments, not least our own, is essentially as 
follows. Over the past millennium, from 1000 AD, the world's mean 
temperature scarcely changed at all until around 1860, when direct 
records first began. Since then it has risen (not steadily, in fact: 
there was a period of cooling between 1945 and 1965) by an 
unprecedented 0.6 degrees centigrade. This can only be due to the 
simultaneous growth in the amount of carbon dioxide in the atmosphere 
as a result of industrialisation, which warms the planet by the so-
called greenhouse effect. Unless something is done about it, this 
warming is set to continue, and probably to accelerate, as world 
economic growth continues apace, and with it carbon dioxide emissions. 
On this basis, a range of possible scenarios can be produced, showing 
further increases in world temperature ranging from 1.7 degrees to 6.1 
degrees by the end of the present century, with dire consequences on a 
number of fronts. The only solution is to cut back on carbon dioxide 
emissions as much and as soon as possible, and the best way to do this 
is by the Kyoto process of internationally agreed emissions targets.
    While there is little doubt that carbon dioxide emissions, other 
things being equal, do warm the atmosphere--although reputable climate 
scientists differ over how much they warm it--every other aspect of the 
IPCC story is seriously flawed.
    First, the history. The ``hockey-stick'' chart of temperatures over 
the past millennium (so-called because the constant temperature over 
the long period up to 1860 resembles the straight handle and the 
subsequent rise the curved blade), which featured prominently in the 
Government's 2003 energy white paper, is almost certainly a myth. There 
is, for example, ample evidence of a warm period--warmer than today--in 
the middle ages and of a very cold period around 1800. Historical 
treeline studies--showing how far up mountains trees are able to grow 
at different times, which is clearly correlated with climate change--
confirm this variation. This would not matter very much, merely 
indicating that the climate fluctuates all the time and that the 
present warming phase is by no means without precedent, were it not for 
the IPCC's consistent refusal to entertain any dissent, however well-
reseached, over the issue since it first published the ``hockey-stick'' 
chart in 2001--a profoundly unscientific attitude which is all too 
characteristic of that body.
    Next, the scenarios. It is of course hard, to say the least, to 
form a view of the likely rate of world economic growth over the next 
hundred years; but it is striking that all the IPCC scenarios--which 
incidentally are based on a demonstrably fallacious method of inter-
country economic comparisons--incorporate a heart-warmingly rapid rate 
of growth in the developing world, so that by the end of the century 
income per head in the developing world is well above what it is in the 
rich world today. This may happen--I hope it does--but it is clear that 
the IPCC scenarios do not capture the true range of realistically 
possible outcomes.
    This upward bias is further compounded by the translation from 
economic growth to growth in carbon dioxide emissions. The recent 
historical record shows a steady decline in this rate of growth, from 
2.3% a year over the past 40 years, to 1.6% a year over the past 30 
years, to 1.3% a year over the past 20 years, to 1.2% a year over the 
past 10 years. This should not be surprising. In the first place, 
economic progress is a story of increasing efficiency in the use of all 
factors of production. In the case of labour this is customarily 
referred to as growth in productivity, but precisely the same applies 
to land and energy. Secondly, the pattern of world economic growth has 
been changing, with services, which are less energy-intensive, growing 
faster than manufacturing, which is more so.
    What is surprising, however, is the IPCC's assumption, without 
offering any evidence, that this trend will now be reversed. Its six 
scenarios for the 21st century are based on an annual rate of growth in 
carbon dioxide emissions ranging from 1.4% a year (appreciably greater, 
rather than less, than in the recent past) to 2.3% a year (almost 
double the rate of the recent past). Once again, although the future is 
inevitably uncertain, it is clear that the IPCC scenarios do not 
capture the true range of plausible futures. And of course this upward 
bias feeds directly into an upward bias in projected climate change.
    There are two possible reasons why this should be so, and why the 
IPCC is so adamant that it will not revisit its assumptions; and they 
are not incompatible: both may be true. The first is that those 
involved in the exercise are so profoundly concerned about the perils 
of global warming, and the risk of governments deferring the action 
they believe is needed, that the scarier the outlook they can produce 
the better. The second is a characteristic of any institution looking 
into any problem: the more serious the problem can be made to appear, 
the more important the institution and its personnel become and the 
more attention they can command.
    But however understandable, this is not helpful in a world of 
limited resources where there are many other problems jostling for 
attention and the devotion of additional resources: to take just two 
examples, dealing with the more imminent dangers posed by Islamic 
terrorism and by nuclear proliferation--and by the possible interaction 
between them. Humanitarian aid to the world's poorest is another 
obvious candidate for more resources.
    At the margin, choices have to be made, and it is essential they 
are made on the basis of the most rational assessments we can achieve.
    Which brings us to the question of what is to be done about such 
global warming as is likely to occur. There are two possible 
approaches, which are not of course mutually exclusive: mitigation, 
that is, seeking to stabilize and if possible reduce the amount of 
carbon dioxide in the atmosphere, and adaptation, that is to accept 
that the climate may well be warming, and to take action to counter any 
harmful consequences that may flow from this. The IPCC and its acolytes 
make only the most perfunctory acknowledgment of adaptation, base their 
estimates of the damage from global warming on the assumption that very 
little adaptation occurs, and focus almost exclusively on the need for 
mitigation. By contrast, perhaps the most important conclusion of the 
House of Lords report (a conclusion not even addressed by Dr. Grubb in 
his Prospect attack) is that adaptation needs to take centre stage.
    Numerous studies have shown that adaptation is the more cost-
effective option, which is hardly surprising. Not only is that the way 
in which we normally come to terms with climatic vagaries, but (a fact 
which the IPCC does its best to play down) there are benefits as well 
as costs from global warming. There are, of course, regional 
variations: in northern Europe, for example, including Britain, for the 
rest of this century the benefits are likely to exceed the costs, 
whereas for the tropics the reverse is the case. But adaptation, which 
implies pocketing the benefits while acting to diminish the costs, has 
obvious attractions.
    The four principal costs potentially involved in global warming are 
damage to agriculture and food production, water shortage, coastal 
flooding (as sea levels rise), and--allegedly--malaria. In the case of 
agriculture, adaptation, much of which will occur autonomously, that 
is, without the need for government action, would consist of 
cultivating areas which have hitherto been too cold to be economic and, 
in other cases, switching to crops better suited to warmer climates. In 
the case of water shortage, there is massive wastage of water at the 
present time, and ample scope for water conservation measures--which 
incidentally would also help on the farming front.
    The most serious likely cost is that caused by coastal flooding of 
low-lying areas, where government action is clearly required, in the 
form of the construction of effective sea defences--as the Dutch, 
incidentally, put in place more than 500 years ago. With modem 
technology this becomes an admittedly expensive but nonetheless highly 
cost-effective option. Finally, as to malaria--which leading malaria 
experts, whom the IPCC was careful to exclude from its deliberations, 
argue is in any event unrelated to temperature, noting that the disease 
was endemic in Europe until the 17th century--the means of combating if 
not eradicating this scourge are well established.
    By contrast, the Kyoto/emissions targets approach seems a most 
unattractive option. Even Dr. Grubb admitted, in his evidence to the 
House of Lords committee, that even if the existing Kyoto targets were 
attained they would make little if any difference to the rate of global 
warming: Kyoto's importance for him was as a first step to other, 
stiffer, such agreements. But this is pie in the sky. The developing 
countries, including major contributors to future carbon dioxide 
emissions such as China and India are--and are determined to remain--
outside the process, while the United States, the biggest emitter of 
all, has declined to ratify the treaty. Moreover, since the only 
sanction against non-compliance with Kyoto (which is likely to be 
widespread) is even stricter targets in any successor agreement, the 
realism of this approach is even harder to detect.
    This is no bad thing, since the cost of going the emissions targets 
route, if it were effective, would be horrendous. Essentially, it would 
work by raising the cost of carbon-based energy to the point where 
carbon-free energy sources, and other carbon saving measures, become 
economic. Given that only last month the present Chancellor of the 
Exchequer told the annual TUC Conference that the recent rise in oil 
prices was a global problem requiring a global solution, and called on 
the oil-producing nations to reduce their prices, there seems to be 
some lack of coherence in the Government's approach. For Kyoto-style 
mitigation, to be seriously effective, involves a substantially greater 
rise in energy prices than anything we have yet seen--although the 
Government's energy white paper was curiously silent about this.
    But the real cost of this approach is not so much dearer energy as 
the reduced rate of world economic growth which this would imply. It is 
far from self evident, not least for the developing countries, that 
over the next hundred years a poorer but cooler world is to be 
preferred to a richer but warmer one. Nor should be overlooked that the 
Kyoto strategy requires the present and next generation to sacrifice 
their living standards in order to benefit more distant generations who 
are projected in any event to be considerably better off.
     To the extent that mitigation is a desirable complement to 
adaptation, far better than the Kyoto approach is additional support 
for research into reduced carbon technologies of all kinds, thus 
bringing forward the time when at least some of these technologies may 
become economic. At least this goes with the grain. Whereas a nation 
which performs relatively well in terms of cutting back emissions is 
bound to lose out competitively, a nation which achieves a 
technological breakthrough is likely to benefit competitively.
    The IPCC process is so flawed, and the institution, it has to be 
said, so closed to reason, that it would be far better to thank it for 
the work it has done, close it down, and transfer all future 
international collaboration on the issue of climate change, where the 
economic dimension is clearly of the first importance, to the 
established Bretton Woods institutions. Meanwhile, whether this happens 
or not, it is imperative that in this country the Treasury becomes 
fully involved in all this. In my time as Chancellor, it would have 
been unthinkable, on a matter as important as climate change, for the 
Treasury not to have made its own independent and rigorous economic 
analysis of the issue. At the time the Lords committee was taking 
evidence this, for whatever reason, had not happened. I very much hope 
that, following our report, it will.
    But the IPCC's apparent determination to suppress or ignore 
dissenting views and reasoned criticism, which has become little short 
of a scandal, is part of a wider problem.
    It is, I suspect, no accident that it is in Europe that climate 
change absolutism has found the most fertile soil. In part this no 
doubt reflects the widespread European distaste for President Bush--the 
great Kyoto non-signer--and all he stands for. But much more 
fundamental, I believe, is the fact that it is Europe that has become 
the most secular society in the world, where the traditional religions 
have the weakest popular hold. Yet people still feel the need for the 
comfort and higher values that the transcendent certainties of religion 
can provide; and it is what might be termed the quasi-religion of 
greenery in general and the climate change issue in particular which 
has filled the vacuum, with reasoned questioning of its mantras 
regarded as a form of blasphemy.
    We have recently seen a further example of this in the widespread 
assumption that the Mexican gulf coast hurricanes, Katrina and Rita, 
are a consequence of global warming--a punishment, it is implied, for 
our heedless materialism and disregard of the planet. One wonders, in 
that case, what caused the region's worst recorded hurricane, which 
devastated Galveston in 1900. In fact, the balance of scientific 
opinion is that there is no convincing evidence that the further 
climate change which is feared might occur over the coming decades will 
lead to an increased incidence and severity of hurricanes, let alone 
the modest degree of warming that we have seen so far.
    In primitive societies it was customary for extreme weather events 
to be explained as punishment from the gods for the sins of the people. 
Little, it seems, has changed.
    As Dick Taverne has pointed out, we appear to have entered a new 
age of unreason, which threatens to be as economically harmful as it is 
profoundly disquieting. It must not be allowed to prevail.
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Prepared Statement of Margo Thorning, Ph.D., Senior Vice President and 
        Chief Economist, American Council for Capital Formation
                              introduction
    Mr. Chairman and Members of the Committee, I appreciate the 
opportunity to present this testimony before the Senate Environment and 
Public Works Committee
    The American Council for Capital Formation represents a broad 
cross-section of the American business community, including the 
manufacturing and financial sectors, Fortune 500 companies and smaller 
firms, investors, and associations from all sectors of the economy. Our 
distinguished board of directors includes cabinet members from prior 
Republican and Democratic Administrations, former Members of Congress, 
prominent business leaders, and public finance and environmental policy 
experts.
    The ACCF is celebrating nearly 30 years of leadership in advocating 
tax, regulatory, environmental, and trade policies to increase U.S. 
economic growth and environmental quality.
                               background
    The European Union has a target of an 8% reduction from the 1990 
base-year level for the Kyoto Protocol's 2008-2012 commitment period. 
To assist in meeting its target, the EU has put in place an emissions 
cap and trade system (ETS) covering carbon dioxide emissions for 
selected large industry and utility sectors.
       where does europe stand on actually complying with kyoto?
    The original 15 members of the European Union are projected to be 
7% above the 1990 emission levels by 2010. Data from the European 
Environmental Agency show that only Sweden and the UK are likely to 
meet their Kyoto targets. (See Figure 1.) Spain, Denmark and Portugal 
are projected to be 25% to 35% above their targets in 2010. EU 
policymakers are beginning to worry about the additional steps required 
to meet the targets, including impact of emission trading schemes on 
industry. They realize they cannot reconcile goals of increased EU 
industrial competitiveness as well as tighter future targets for GHG 
emission reductions. UK Prime Minister Terry Blair said on September 
15, 2005 at the Clinton Global Initiative, ``The truth is no country is 
going to cut its growth or consumption substantially in the light of a 
long-term environmental problem. To be honest, I don't think people are 
going, at least in the short term, to start negotiating another major 
treaty like Kyoto.''
     measuring the economic impact of the kyoto protocol on the eu:
     GDP and Employment Effects

    As studies by the International Council for Capital Formation 
(ICCF) illustrate, an accurate portrayal of the costs of complying with 
GHG emissions reduction targets depends largely on choosing an economic 
model that captures all the short- and medium-term costs of adjusting 
to higher energy prices or regulatory mandates on the economy as a 
whole. (See ``Economic and Modeling of Climate Change Policy'' at 
www.iccfglobal.org.)

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    For example, some economic models such as the PRIMES model used by 
the EU environmental agencies are designed only for measuring sectoral 
effects, not economy wide effects. PRIMES is primarily designed to show 
the effect of policy changes on energy markets. It can calculate the 
direct cost implications of reduced energy use but not the economy-wide 
impact on gross domestic product (GDP), employment, investment, etc. 
Thus, the results of this model, which show a reduction of only 0.12% 
in GDP to the EU in 2010 from complying with the Kyoto Protocol, are 
not an accurate measure of the total costs to EU households, 
businesses, the economy, and government. (See Figure 2.) These sectoral 
models underestimate the negative economic effects by a factor of 10 to 
15 times (0.12 vs. 1.5 to 2.0). Such reliance on results from PRIMES 
has led EU officials, industry, and households to believe that the 
costs of achieving the Kyoto Protocol's targets and the further cuts 
planned for the second and subsequent commitment periods will be 
relatively small. However, as the study ``ACROPOLIS,'' released by DG 
Research of the European Commission in September 2003 noted, the 
tighter targets that are being discussed under the second commitment 
period could reduce GDP by 1.3% annually by 2030.
    Even general equilibrium models, which measure ``big picture'' 
impacts on an economy after it has had time to adjust (over 30 to 40 
years) to higher energy prices, show GDP losses of about 1 percent per 
year under Kyoto, which are an order of magnitude greater than PRIMES. 
(See Figure 2.) Even though general equilibrium models look at a period 
of time much longer than the Kyoto timetable, their results more 
accurately reflect the consequences of curbing emissions than does a 
sectoral model like PRIMES. General equilibrium models reflect the full 
economic impact of reducing emissions, not just the impact on the 
energy sector. Given their long time frame, general equilibrium models 
are unable to capture short-term adjustment costs and therefore 
probably underestimate near term impacts. Despite that fact, they still 
indicate that the economic impact of meeting Kyoto and post-Kyoto 
emissions targets will have an economic impact far greater than PRIMES.

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    Macroeconomic models provide an assessment of the overall economic 
costs of meeting emission targets where the short-term, frictional cost 
of adjustment is included. These models, which U.S. scholars and 
climate policy modelers began using in the early 1990s to measure the 
impact of Kyoto on the U.S. economy, quantify the impact on employment, 
investment, budget receipts, and GDP growth when an economy is 
``shocked'' by having to make quick changes in its capital stock, 
production processes, lifestyles, etc. Results of macroeconomic models 
show that Kyoto would have negative effects on the U.S. economy in the 
range of 1.5 percent to about 4 percent of GDP in 2010.
    When macroeconomic models are used to measure Kyoto's effects on 
the EU, the impacts are greater 0.5 to 5 percent less GDP in 2010--than 
those derived from sectoral models like PRIMES. For some countries like 
Spain, the GDP loss due to reduced energy use will be severe Spanish 
GDP in 2010 is estimated to be about 4.8 percent smaller than under the 
baseline forecast. (See Figure 2.).
    Employment in the EU would also be negatively affected by the 
imposition of an emission trading system with carbon prices high enough 
to force down energy use. The Global Insight simulations show job 
losses in 2010 ranging from 51,000 in Italy to 800,000 in Spain. (See 
www.iccfglobal.org.)

     The Impact of the Emission Trading System: Impact on Electricity 
Prices

    The European Union's Emission Trading System (ETS) was established 
in 2003. The goal was to implement a policy that was both cost-
effective and operated in a similar way across the whole EU market, to 
reduce emissions of carbon dioxide and potentially other greenhouse 
gases, both to comply with the EU's commitments to 2012 under the Kyoto 
Protocol and to achieve further emission reductions thereafter.\1\
---------------------------------------------------------------------------
    \1\ Ofgem, ``Emission Trading: Impacts on Electricity Consumers,'' 
February, 2005.
---------------------------------------------------------------------------
    The first Phase of the ETS will run from 2005-2007, and Phase 2 
will coincide with the commitment period of the Kyoto Protocol, 2008-
2012. Subsequent phases will be of five-years duration.
    The ETS applies to installations throughout the 25 Member States of 
the EU that engage in the following activities and are above a 
specified size: combustion installations (most importantly for power 
generation, but excluding municipal and hazardous waste incineration), 
mineral oil refineries, coke ovens, steel manufacturing, and production 
of cement, lime, glass and glass fibre, ceramics and pulp and paper. It 
has been estimated that the ETS will apply to 9,200 to 12,000 
installations that are responsible for about 46% of EU carbon dioxide 
emissions. The Directive also provides for other sectors (perhaps 
chemicals, aluminum and aviation) and gases to be included in Phase 2 
at the discretion of Member States.
    Although the ETS has only been in operation for a short time, 
electricity prices in the EU are rising, as shown in Figure 3. EU 
electricity prices are closely tracking the cost of the emissions 
trading permits. While some of the increases in electricity prices are 
doubtless due to rising global energy prices, part of the 31% rise in 
power can be attributed to higher prices for the right to emit a ton of 
CO2.

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  could an international emission trading system function effectively?
    Many Kyoto proponents want to see the EU's ETS system spread to the 
rest of the world. However, as a new study by Dr. David Montgomery of 
CRA International shows, a global emission trading system is not 
workable.\2\ Emission trading will work only if all the relevant 
markets exist and operate effectively; all the important actions by the 
private sector have to be motivated by price expectations far in the 
future. Creating that motivation requires that emission trading 
establish not only current but future prices, and create a confident 
expectation that those prices will be high enough to justify the 
current R&D and investment expenditures required to make a difference. 
This requires that clear, enforceable property rights in emissions be 
defined far into the future so that emission rates for 2030, for 
example, can be traded today in confidence that they will be valid and 
enforceable on that future date. The international framework for 
climate policy that has been created under the UNFCCC and the Kyoto 
Protocol cannot create that confidence for investors because sovereign 
nations have different needs and values. Therefore, it seems likely 
that the ETS system which the EU is trying to implement will fail to 
spread to other parts of the world and will eventually be replaced with 
a more practical approach to climate change policy. Several provisions 
of the 2005 Energy bill should have a positive impact on climate 
change. The new Asia-Pacific Partnership for Clean Development and 
Climate should also play a key role in transferring new technology to 
developing countries and help provide the practical assistance that is 
needed for a global approach to emission reduction.
---------------------------------------------------------------------------
    \2\ International Council for Capital Formation: Climate Change 
Policy And Economic Growth: A Way Forward to Ensure Both; page 65-79. 
April 2005 (see www.iccfglobal.org).
---------------------------------------------------------------------------
                              conclusions
    There are many urgent global problems such as lack of food, 
sanitation and potable water that are daily imposing hardship and death 
on the world's least fortunate citizens. Energy use and economic growth 
go hand in hand, so helping the developing world improve access to 
cleaner, more abundant energy should be our focus. Near-term GHG 
emission reductions in the developed countries should not take priority 
over maintaining the strong economic growth necessary to keeping the 
U.S. one of the key engines for global economic growth. Establishing a 
mandatory cap and trade system in the U.S. would impede, not promote, 
U.S. progress in reducing emissions intensity. U.S. climate change 
policies should continue to strive to reduce energy intensity as the 
capital stock is replaced over the business cycle and to develop new, 
cost-effective technologies for alternative energy production and 
conservation and encourage the spread of economic freedom in the 
developing world. This approach is likely to be much more productive 
than having the U.S. adopt an ETS and thereby sacrifice economic well-
being and job growth with little or no long-term impact on global GHG 
emissions.
                                 ______
                                 
        Responses by Margo Thorning to Follow Up Questions from
                            Senator Jeffords
    Question 1. What would be the appropriate economic incentives for 
companies to develop cost-effective carbon capture technologies?
    Response. The private sector is the U.S. is currently developing 
way to capture carbon. Some oil and gas companies, for example, are 
able to ship the CO2 produced when oil and gas are extracted for 
injection in to old wells in order to enhance production. In this case, 
the market is providing the economic incentive to capture the carbon. 
Additional incentives to develop carbon capture technology could be 
provided by more favorable tax treatment for these investments. The 
U.S. lags behind many of its international competitors in capital cost 
recovery for energy and pollution control equipment. For example, after 
5 years a U.S. investor recovers only 65.8 percent of his investment in 
a scrubber compared to 105 percent in China, 100 percent in Taiwan and 
80 percent in Japan. Slow U.S. capital cost recovery raises the cost of 
capital and impedes investment in cleaner, more efficient energy 
equipment and hinders the achievement of environmental goals.
    In addition to the ongoing efforts of the private sector to develop 
technologies to sequester and capture carbon, the U.S. government has 
budgeted about $3 billion per year for its Climate Change Technology 
Program, including research on carbon capture and sequestration. In 
2003, DOE initiated a nationwide network of regional Carbon 
Sequestration Partnerships involving State agencies, universities, and 
the private sector.

    Question 2. I know you have looked at the economics of the 
implementation of carbon control. What, in your view, are the most 
informative peer-reviewed studies that have been done on the economic 
impacts of a cap and trade program for CO2?
    Response. The most informative analyses make use of either 
macroeconomic models which are designed to capture the near term 
effects of curbing energy use or general equilibrium models which 
capture the long run (30-40 years) effects of policies to curb energy 
use. Other useful studies make use of cost-benefit analysis to evaluate 
the appropriate policy decisions to address climate change. Among the 
peer reviewed studies for the U.S. are those by Professors Willian 
Nordhaus, Thomas Rutherford, Alan Manne, and Dr. David Montgomery and 
Dr. Brian Fisher (see sources in my testimony of July 18, 2001 before 
the Governmental Affairs Committee of the U.S. Senate, the link is 
http://www.accf.org/pdf/TestSenFin701.pdf). Other useful analyses, 
while not peer-reviewed have been released by the U.S. Department of 
Energy's Energy Information Administration, and by the macroeconomic 
forecasting firm, Global Insight Inc. (formerly DRI-WEFA).

    Question 3. I want to ask a question about the role the market can 
play in addressing climate change. If the increasing price of carbon 
intensive goods does not encourage manufacturers to seize market forces 
and develop less carbon intensive goods, as we are now seeing, is there 
a role for government to see that the market does so?
    Response. In my view, the policies put in place by the Bush 
Administration to encourage reductions in energy intensity (energy used 
per dollar of GDP) will be more effective than government mandates or a 
cap and trade system for reducing the growth in emissions. For example, 
most of the original 15 EU members are projected to substantially 
exceed their Kyoto Protocol targets in 2010. In contrast, U.S. emission 
intensity has fallen by 16.9 percent over the 1992-2002 period compared 
to only 9.3 percent in the EU. Our faster economic growth (over 3 
percent per year compared to 1 percent in the EU) allows for faster 
replacement of the capital stock and faster reductions in emission 
intensity.

    Question 4. If not by having developed nations, which reaped the 
benefits of carbon intensive energy for the last hundred years, lead 
the charge for developing new technologies to reduce carbon emissions, 
then how would you propose we as a nation encourage China, India and 
other developing nations reduce their carbon emissions?
    Response. According to an analysis by the Canadian Fraser 
Institute, countries which rank high on their index of Economic Freedom 
also grow more rapidly. Economic freedom is defined as protection of 
property rights and contracts, openness of internal markets, overall 
share of output absorbed by government, political freedom and lack of 
import restrictions and lack of subsidies through state run 
enterprises. New research by David Montgomery of CRAI, Inc. shows that 
countries which rank high in terms of economic freedom use much less 
energy per dollar of output than countries ranking low on the index of 
economic freedom (see link to my power point presentation, slide #11 
http://www.iccfglobal.org/pdf/ICCF-Slovenia-Oct2005.pdf).

    Question 5. In your June 24th letter to the editor in the 
Washington Post, you wrote, ``If economic freedom and economic growth 
could be accelerated in developing countries, emissions intensity would 
decline as countries get richer and able to adopt cleaner energy 
technologies.'' If wealthy developed nations fail to take action to 
curb greenhouse gases through use of innovative technologies, why would 
you think that developing nations would make such a different choice?
    Response. Research shows that as countries grow and develop, 
environmental quality may at first decline. However as GDP per capita 
rises, gradually environmental quality rises, water and air become 
cleaner and other measures of environmental quality improve. As noted 
in my response to question number 3, emission intensity is slowing 
faster in the U.S. than in the EU. Developed country emission growth is 
slowing; in fact U.S. CO2 emissions actually fell by 0.3 percent from 
2000 to 2003 even though U.S. population grew by 8.6 million during 
that time. As developing countries grow, they are likely to choose less 
emitting, more energy efficient technologies so as to improve air 
quality. For example, China plans to build 40 new nuclear power plants 
over the next 20 years.

    Question 6. You conclude that near-term greenhouse gas emissions 
reductions should not take priority over U.S. economic growth. Will 
there ever be a time when you think reducing greenhouse gases should 
take precedent? What peer reviewed scientific evidence do you have that 
limiting gas emissions today will have little or no long-term impact on 
global greenhouse gas emissions?
    Response. Studies cited by Bjorn Lomborg in his book ``The 
Skeptical Environmentalist (2001)'' shows that even if Annex I 
countries met their Kyoto Protocol targets the temperature in the year 
2100 would be only 0.5C lower than under a business as usual scenario. 
Because of the long life of CO2 in the atmosphere and the projected 
growth of emission in developing countries it is not a cost-effective 
strategy to impose near term targets and timetables on developed 
countries. Instead the focus needs to be on promoting strong economic 
growth to enable countries to invest in less emitting energy and 
manufacturing and transport technologies. Promoting economic growth 
will also enable countries to adapt more easily to possible changes in 
temperature, no matter what the underlying cause.

    Question 7. Specifically, which provisions of the Energy Policy Act 
of 2005 will lead to reduce carbon emissions?
    Response. The tax incentives in the Energy Policy Act of 2005 (9.2 
billion over the 2005-2015 period) for renewable energy, nuclear power, 
clean coal facilities, energy transmission, conservation and 
alternative motor vehicle and fuels would all help to reduce carbon 
emissions. In addition, provisions in Title XVI, Subtitle B will help 
DOE identify technology options which could reduce GHGs and are 
suitable for transfer to developing countries.
                                 ______
                                 
Response by Margo Thorning to an Additional Question from Senator Obama
    Question 1. At the end of your written testimony, you conclude that 
rather than risk harm to the economy from reducing greenhouse gas 
emissions, it would be better to keep the U.S. as a key engine for 
global economic growth. That engine can then be used to spur 
development of clean energy in developing countries. If global climate 
change is having any hand in African drought and subsequent death from 
famine, does your view of U.S. responsibility for speeding up 
reductions in our greenhouse gas emissions change despite the possible 
risks to the economy?
    Response. Adopting caps on U.S. carbon emission will do very little 
to reduce the growth in man made CO2 emissions as developing country 
emissions from China, India, Brazil and other countries will soon 
outstrip those of the developed world. In addition, CO2 stays in the 
atmosphere for approximately 100 years so reducing CO2 concentrations 
is a very long term proposition. The tragedy of poverty and famine in 
Africa is best addressed through promoting economic freedom and 
reducing government corruption so that economic growth and improved 
living standards will occur. Policies which impose caps on U.S. carbon 
emissions will only slow our own economic growth, thus making it harder 
for the U.S. to provide funds and technical support for the world's 
poor.
                               __________
  Prepared Statement of Professor Michael Grubb, Chief Economist, the 
    Carbon Trust, Senior Research Associate, Faculty of Economics, 
  Cambridge University, and Visiting Professor of Climate Change and 
                Energy Policy, Imperial College, London
    My name is Michael Grubb. I am Chief Economist of the UK Carbon 
Trust, an independent company funded by the UK government with turnover 
approaching US$150m/yr, established jointly between UK government and 
industry in 2001. The aim of the Carbon Trust is to help UK business 
and public sector implement CO2 emission reductions cost-effectively 
and to develop a competitive low carbon industry technology sector.
    My post is half time, which I combine with academic research 
through a post at the Faculty of Economics at Cambridge University, and 
a Visiting Professorship at Imperial College, where I was Professor of 
Climate Change and Energy Policy before joining the Carbon Trust. I am 
also editor-in-chief of the Climate Policy journal.
    In this testimony I set out some key points in relation to the UK's 
delivery of its emission targets and the design of the Kyoto Protocol, 
and append a presentation that I gave yesterday to the Columbia 
University School of International and Public Affairs.
    This submission contains the following components: key points about 
the emissions context for the Kyoto Protocol; implementation policies 
and prospects; observations about the economics of implementation of 
carbon management and low-carbon technology; and a concluding section 
that summarises my points in relation to what appear to some ``common 
myths'' about the Protocol.
1. The global emissions context
    Policy on climate change is set in a context of large divergence of 
emissions between countries. This is illustrated in Chart 9 in the 
attached presentation, which shows the global distribution of CO2 
emissions in terms of three major indices: emissions per capita (height 
of each block); population (width of each block); and total emissions 
(product of population and emissions per capita = area of block).
    Per capita emissions in the industrialized countries are typically 
as much as ten times the average in developing countries, particularly 
Africa and the Indian subcontinent. This is one of the reasons why 
industrialized countries accepted the responsibility for leading 
climate change efforts in the UNFCCC and subsequent Kyoto negotiations: 
unless they can control their own high emissions there is little 
prospect of controlling emissions from developing countries that start 
from a very much lower base.\1\ There are also large differences among 
the industrialized countries, with per capita emissions in the EU and 
Japan at about half the levels in the United States and Australia.
---------------------------------------------------------------------------
    \1\ Article 4.2 of the UNFCCC commits industrialised countries to 
adopt `policies and measures that will demonstrate that developed 
countries are taking the lead in modifying longer-term trends in 
anthropogenic emissions consistent with the objective of the 
Convention', with the initial `aim' of returning their emissions of 
CO2 and other greenhouse gases to 1990 levels. This became 
the focus of attention in the years immediately after the Convention 
and the failure of key industrialised countries to move in this 
direction was a principal reason why Kyoto moved to binding commitments 
focused on the industrialised countries.
---------------------------------------------------------------------------
    The main aim of the Kyoto Protocol is to contain emissions of the 
main greenhouse gases in ways that reflect underlying national 
differences in emissions, wealth and capacity, following the main 
principles agreed in the UN Framework Convention on Climate Change 
(UNFCCC). These include the need for evolutionary approaches and the 
principle of `common but differentiated' responsibilities, including 
leadership by the richer and higher emitting industrialised countries. 
Following the agreed negotiating mandate,\2\ in Kyoto the countries 
that took on quantified commitments for the first period (2008-12) are 
the industrialised countries as listed in Annex I to the Treaty, which 
correspond roughly to those with per-capita emissions in 1990 of two 
tonnes Carbon per capita (2tC/cap) or higher--the `Other EIT' 
[Economies in Transition] category and all to the left of it in the 
Chart.
---------------------------------------------------------------------------
    \2\ The COP 1 meeting agreed that the UNFCCC commitments were 
inadequate, and consequently to `begin a process to enable it to take 
appropriate action for the period beyond 2000, including the 
strengthening of the commitments of Annex 1 Parties, i.e. the 
industrialized world', to (a) `elaborate policies and measures'; and 
(b) `set quantified limitation and reduction objectives within 
specified time-frames, such as 2005, 2010 and 2020. It was agreed that 
these negotiations `should not introduce new commitments for developing 
countries', but should enhance the implementation of their existing 
commitments under the UNFCCC. Thus were launched the intensive 
negotiations that finally culminated in Kyoto.
---------------------------------------------------------------------------
    At the same time, the currently low emissions and large population 
of the developing countries indicates the huge potential for global 
emissions growth, if and as their emissions climb towards anything like 
levels in the industrialized world. The Kyoto negotiations were marked 
by big tensions on this issue. In the final agreement, in addition to 
the provisions on national reporting and technology transfer, the Clean 
Development Mechanism is intended to provide a mechanism to start 
reigning in the rapid growth of developing country emissions without 
these countries themselves bearing the costs. The intent is that 
developing countries will engage more over time, in subsequent 
negotiation rounds, if and as the richer countries fulfil their 
commitments.
2. Current implementation policies and prospects
    I shall speak in relation to policies principally in the UK, where 
a variety of instruments have been in place since about the year 2000 
in the context of the UK Climate Change Programme (HMG, 2000), more 
recently complemented by the European Emissions Trading Scheme. At the 
core of the programme is a set of measures to encourage investment in 
established low carbon technologies, particularly relating to energy 
efficiency, combined with increased government expenditure along the 
`innovation chain' of low carbon energy technologies. Already by FY 
2002-3 these efforts amounted to a diverse set of instruments with a 
total incentive value for low carbon-related investments of around 
US$2bn.
    The UK has generally found emissions reductions to be associated 
with positive economic developments. UK emissions reduced substantially 
during the 1990s as a result of privatisation in energy-consuming 
industries, that helped to boost their efficiency, and liberalisation 
of the UK electricity and gas systems that included a ``dash for gas''. 
It is estimated that this accounted for about half of the total 
observed reductions in UK CO2 emissions. Sharply rising gas prices in 
the most recent years have reversed the trend towards natural gas in 
power production and resulted in a slight increase in CO2 emissions.
    A number of the measures indicated have continued to expand, and 
the government is currently conducting a major review. The Carbon 
Trust, for which I work half time, has steadily expanded its operations 
in relation to both energy efficiency and low carbon technology 
investments.
                   the economics of energy efficiency
    Technical assessments systematically show a potential for reducing 
both emissions and costs; the UK Energy White Paper estimates that the 
UK economy could save several billion pounds through increased energy 
efficiency (see appended presentation). Many barriers impede corporate 
take-up of this potential (Charts 13-15).
    Part of the Carbon Trust's remit is to help companies deliver these 
efficiency improvements, and our experience confirms the potential for 
reducing both emissions and costs. In FY 2004-5 the Carbon Trust spent 
L26m (c.US$40m) on its carbon management programmes, we estimate that 
our clients co-invested L80m-L130m (c.US$120-220m), and the value of 
the energy savings to these companies was L280m-L430m (c. US$400-
US$700). [Chart 16] The Carbon Trust continues to get strong and 
growing market interest and our budget is targeted to increase to about 
L110m (c. US$180m) annually over the next three years.
    Companies in the Climate Change Agreements--the agreements with 
energy intensive sectors to deliver quantified emission reductions in 
return for rebates on the UK Climate Change Levy--have generally over-
delivered on their targets, in part because they found more 
opportunities for cost-effective savings than originally anticipated.
    These measures, together with other measures in the UK climate 
change programme and the introduction of the European Emissions Trading 
Scheme, mean that the UK is on track to over-achieve its Kyoto target 
of reducing greenhouse gas emissions to 12.5% below 1990 levels, and 
will profit from doing so.
                         technology investment
    Low carbon technology and innovation are essential to delivering 
long term, deep emission reductions. Most of the technologies that 
competitively use and supply energy today have matured in the private 
sector, and this is likely to be true in the future.
    Based on Carbon Trust experience and developments in the empirical 
economics innovation, I offer four broad observations about low carbon 
technology from a business perspective.
    First, innovation, to business, is not a dream for future decades 
but a continuous process of constantly evolving, improving and selling 
new products. From this perspective, calls for massive government R&D 
and technology transfer programmes are inadequate answers to an ill-
defined question about delivering ``low carbon technology''. The idea 
that low carbon technologies are all things for tomorrow is a myth that 
does not reflect reality. There are many products and services designed 
for efficiency that could bear the label ``low carbon'' right now. 
There are efficient cars, appliances, buildings and even renewable 
energy sources growing both their sales and market share. The challenge 
is to accelerate their uptake in a world where consumers are aware of 
climate change but not ready to buy something on the basis of it. This 
not only reduces emissions directly, but also gives confidence to the 
private sector that low-carbon innovations will more quickly find 
markets--and hence rewards. Energy efficiency standards, trading and 
fiscal schemes that reward the adoption of more efficient, lower-
emitting technologies, are an important part of the technology story.
    Second, measures that place a price on carbon, like the EU 
emissions trading system for implementing Kyoto, are an essential part 
of a low-carbon technology strategy. Robustly implemented, cap-and-
trade systems provide the beacon for deeper private sector innovation 
and investment, and also deter investment in carbon-intensive 
innovation and capital stock which could prove extremely expensive to 
reverse as governments respond more strongly to the mounting impacts of 
climate change over time.
    Third, although such measures are necessary they are not 
sufficient. The barriers to deeper innovation are large, particularly 
when the price signal is so uncertain partly because of the lack of 
international consensus even on the fact that it is needed. Technology 
innovation takes a long time as good research becomes a good idea, a 
proven concept and finally a commercial technology. These earlier 
stages do not require just R&D, but a whole chain of support to help 
build businesses out of bright ideas, so as to help technologies bridge 
the `valley of death' that has previously impeded our countries from 
securing the fruits of R&D. Financial support, test centres, field 
trials and precommercial markets developed through a variety of policy 
mechanisms all have a role to play.
    Fourth, for the crucial global dimension, it is important to 
recognise that most innovation occurs in a handful of major industrial 
powers and is diffused globally through investment by multinational 
companies. The calls for global R&D and technology transfer programmes 
thus miss the point. The key is to ensure that energy innovation in 
those major powerhouses--national and corporate--is supported by 
domestic market incentives, is in a low carbon direction, and is then 
projected internationally by incentive systems that reward low-carbon 
investors in developing countries. Kyoto's Clean Development Mechanism 
seeks to do just that (though much must be done to make the CDM more 
attractive to business), and future expansion of cap-and-trade type 
targets and associated domestic policies over time would do the job 
still better.
    The world will spend many trillions of dollars on energy provision 
over the next few decades: expenditure that will determine both the 
scale of climate change and the energy technology systems that will 
dominate the rest of the Century. At present much of that investment is 
flowing towards new and innovative ways of making the climate problem 
worse, by accessing ever more difficult sources of carbon and 
transforming them into useful energy. Low carbon technology offers the 
solution to climate change, but the question is about incentives. From 
a business perspective, it is wholly erroneous to suggest that the best 
way to deliver low carbon technologies is to avoid--or even abandon, 
where now adopted--the very policies that can make investing in them 
strategically worthwhile.
                           the kyoto protocol
The Kyoto Protocol has four main elements:

     it states that the way to solve the climate problem is for 
countries to negotiate quantified, binding limits on their overall 
greenhouse gas emissions, sequentially over time as the uncertainties 
reduce and they gain experience;
     these commitments are embedded in a variety of flexible market-
based instruments like emissions trading, to make them as efficient as 
possible;
     the Treaty specifies the first round of limits, on emissions 
during 2008-12 for the industrialised countries that had already agreed 
in the original Convention to take the first specific steps;
     it has various provisions to bring in the rest of the world, 
including the `Clean Development Mechanism' under which industrialised 
countries can gain emission credits for investments that reduce 
emissions in developing countries.

    Like any agreement, it is far from perfect. But in defining 
commitments in terms of the outcome (emissions, on as wide a gas basis 
as practical, rather than trying to mandate specific technologies, 
policies, or measures); and in building in an unprecedented array of 
economics instruments with global reach, it is a Treaty probably more 
strongly influenced by economic reasoning than any other in history 
save those specifically related to trade and investment. Indeed, the 
Protocol's flexibility mechanisms were largely designed by US 
economists.
    These flexibilities are crucial to understanding the compliance 
strategies of EU Member States. Most EU Member States do not intend to 
deliver all their targets domestically. The majority will fall short in 
domestic delivery, and will comply through use of the Protocol's 
flexibility mechanisms.
    Most crucially, these mechanism include the Clean Development 
Mechanism, which generates emission reduction credits for investment in 
projects that help developing countries to adopt a cleaner course of 
development. The bigger the gap between domestic delivery and a 
country's Kyoto target, the more it will need to invest through the CDM 
and associated flexibility mechanisms in order to comply. To put it 
more bluntly, the Kyoto Protocol is only effective in helping 
developing countries to develop more cleanly to the extent that 
industrialised countries fall short of delivering their targets 
domestically; and this was built into the design of the Protocol and 
its first period targets. EU Member States have already set aside 
several billion Euros to help fund their compliance with the Kyoto 
Protocol in this way.
    In effect, the design of the Kyoto Protocol ties countries to their 
targets with the elastic of international investment requirements to 
cover any gap. I have seen no evidence that any European country 
intends to defy international law by cutting this elastic.
    To conclude, it appears to me that there are several 
misunderstandings about the nature of the Kyoto Protocol and I wish to 
close by setting out my perspective on these:

    1. Environmental Effectiveness. The Kyoto Protocol provides the 
framework for a dynamic, evolving regime, with the current set of 
emission targets for the first commitment period being only the first 
step in a much longer term process of tackling climate change. The 
Protocol establishes a structure of rolling commitment periods, with 
agreement that negotiations on second period commitments (intended for 
2013-2017) will start by 2005. The current first period emission 
targets are intended to meet the Convention requirement that 
industrialised countries should demonstrate that they are taking the 
lead by modifying their emission trends; they were never intended to 
provide the definitive solution to climate change. Much greater 
emission reductions will be needed to stabilize atmospheric 
concentrations of GHGs. The Protocol offers a structure through which 
to achieve this, by gradually ``ratcheting up'' the Protocol and its 
resulting environmental effectiveness. A similar approach was used in 
the ozone regime, where the Montreal Protocol's initial CFC emission 
target of a 50% cut was far from being environmentally effective, but 
was progressively tightened over time to greatly increase the treaty's 
environmental impact.
    2. Developing country involvement. The Kyoto Protocol is very much 
a global agreement, and so is the Framework Convention on which it is 
based. All parties, including developing countries, have a general 
commitment to adopt climate change mitigation policies and to report on 
the action they are taking. The Kyoto Protocol also establishes the 
Clean Development Mechanism (CDM) to promote globally sustainable 
development, especially through partnership with the private sector. By 
ratifying the Convention, its 185 parties agreed that establishing 
quantified commitments for countries in earlier stages of development 
would be premature and inequitable, as well as impractical, given the 
huge uncertainties in their emissions data, growth trends and 
governance. However, there is a clear understanding that, as 
industrialized countries take the lead in moving their economies onto a 
less carbon intensive path, the developing countries will follow. This 
understanding is built into the Protocol, which stipulates that its 
overall ``adequacy'' must be reviewed no more than two years after it 
enters into force. Along with the above-mentioned requirement for 
negotiations on second commitment period targets, the issue of 
deepening developing country commitments will be on the agenda.
    3. Kyoto is a flexible agreement with feasible commitments. The 
Kyoto targets were negotiated as a package along with the various 
flexibilities in the agreement, including the market-based mechanisms 
of joint implementation, the CDM and emissions trading, as well as 
carbon sinks, multiple gases and a five-year commitment period, all of 
which the US fought hard to get agreed in the Protocol. These 
flexibilities make compliance feasible even for countries that have 
taken little domestic action so far and are facing a large gap between 
domestic emissions and their Kyoto `assigned amounts', providing they 
undertake appropriate investments through the mechanisms.
    4. The costs of meeting the Protocol's targets are modest. I have 
testified to UK experience. The IPCC reported results from global 
modeling studies of the costs for complying with Kyoto to be in the 
range 0.1 to 1.1% of GDP, with full emissions trading but without other 
Kyoto flexibilities (multiple gases, sinks, or CDM), which would 
further lower costs. This equates to between 0.01 and 0.1% reduced 
annual GDP growth rate in the richest countries of the world, far 
smaller than the standard uncertainties in economic growth projections 
that governments routinely use as the basis for policy making. The IPCC 
also notes that poor climate change policies to implement the 
Protocol's targets could raise costs, whilst smart implementation (e.g. 
that harnesses cost-effective efficiency improvements, co-benefits, and 
`double dividends' from shifting taxation) would lower them; some 
European studies even show net economic benefits.
    5. Kyoto is a carefully-crafted and integrated package developed 
over many years of global negotiations. As with any multilateral 
agreement, different parties place value on different provisions. Most 
developing countries were already unhappy with what they saw as weak 
targets in the Protocol; weaken them still further and the prospects 
for enticing developing countries into a global regime of quantified 
commitments will grow ever more distant. And as noted, it is the 
targets themselves that drive the Protocol's international mechanisms.

    Kyoto is neither perfect, nor comprehensive; what global agreement 
ever is? But it offers a credible structure to solve the problem. It 
has survived because no-one has yet come up with an overall more 
plausible, or more efficient, basic approach to international agreement 
that can effectively limit emissions and expand over time as the 
seriousness of the problem becomes more apparent.
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