[Senate Hearing 109-1103]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 109-1103
 
 THE CURRENT AND FUTURE ROLE OF SCIENCE IN THE ASIA-PACIFIC PARTNERSHIP

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



                                HEARING

                               before the

                 SUBCOMMITTEE ON GLOBAL CLIMATE CHANGE 
                              AND IMPACTS

                                 OF THE

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 5, 2006

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation




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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                     TED STEVENS, Alaska, Chairman
JOHN McCAIN, Arizona                 DANIEL K. INOUYE, Hawaii, Co-
CONRAD BURNS, Montana                    Chairman
TRENT LOTT, Mississippi              JOHN D. ROCKEFELLER IV, West 
KAY BAILEY HUTCHISON, Texas              Virginia
OLYMPIA J. SNOWE, Maine              JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon              BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada                  BARBARA BOXER, California
GEORGE ALLEN, Virginia               BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire        MARIA CANTWELL, Washington
JIM DeMINT, South Carolina           FRANK R. LAUTENBERG, New Jersey
DAVID VITTER, Louisiana              E. BENJAMIN NELSON, Nebraska
                                     MARK PRYOR, Arkansas
             Lisa J. Sutherland, Republican Staff Director
        Christine Drager Kurth, Republican Deputy Staff Director
             Kenneth R. Nahigian, Republican Chief Counsel
   Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
   Samuel E. Whitehorn, Democratic Deputy Staff Director and General 
                                Counsel
             Lila Harper Helms, Democratic Policy Director
                                 ------                                

           SUBCOMMITTEE ON GLOBAL CLIMATE CHANGE AND IMPACTS

DAVID VITTER, Louisiana, Chairman    FRANK R. LAUTENBERG, New Jersey, 
TED STEVENS, Alaska                      Ranking
JOHN McCAIN, Arizona                 JOHN F. KERRY, Massachusetts
OLYMPIA J. SNOWE, Maine


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 5, 2006....................................     1
Statement of Senator Lautenberg..................................     5
    Report, dated February 22, 2004, from Guardian Unlimited--The 
      Observer, entitled, ``Climate Change--Key Findings of the 
      Pentagon Report''..........................................    51
Statement of Senator McCain......................................     2
    Prepared statement...........................................     2
Statement of Senator Stevens.....................................     4
Statement of Senator Vitter......................................     1

                               Witnesses

Connaughton, Hon. James L., Chairman, White House Council on 
  Environmental Quality..........................................     6
    Prepared statement...........................................     9
Doniger, David D., Policy Director, Climate Center, Natural 
  Resources Defense Council......................................    41
    Prepared statement...........................................    43
Montgomery, W. David, Ph.D., Vice President, CRA International...    33
    Prepared statement...........................................    35
Thorning, Dr. Margo, Managing Director, International Council for 
  Capital Formation..............................................    27
    Prepared statement...........................................    28

                                Appendix

Inouye, Hon. Daniel K., U.S. Senator from Hawaii, prepared 
  statement......................................................    55
Written questions submitted to Hon. James L. Connaughton by:
    Hon. Daniel K. Inouye........................................    55
    Hon. Frank R. Lautenberg.....................................    55


 THE CURRENT AND FUTURE ROLE OF SCIENCE IN THE ASIA-PACIFIC PARTNERSHIP

                              ----------                              


                        WEDNESDAY, APRIL 5, 2006

                               U.S. Senate,
         Subcommittee on Global Climate Change and Impacts,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:34 p.m. in 
room SD-562, Dirksen Senate Office Building, Hon. David Vitter, 

Chairman of the Subcommittee, presiding.

            OPENING STATEMENT OF HON. DAVID VITTER, 
                  U.S. SENATOR FROM LOUISIANA

    Senator Vitter. The hearing will come to order.
    I would like to thank Senators Stevens and McCain and 
Chairman Connaughton for being here today for this 
Subcommittee's hearing.
    The topic of our hearing is the current and future role of 
science in the Asia-Pacific Partnership. I called for this 
hearing to learn more about the partnership and how the 
initiative is integrated with an estimated $5 billion in other 
climate-related initiatives the Federal Government undertakes 
annually.
    The Administration announced the partnership last summer, 
and, together with the other nations, met in Australia in 
January of this year to begin the implementation of this 
multilateral initiative. The President requested $52 million in 
his FY07 budget request for this Asia-Pacific Partnership. This 
request includes funds for the Departments of Commerce, State, 
Energy, and the EPA. Each of these agencies is also involved 
with the Climate Change Science Program and the Climate Change 
Technology Program, where, again, we spend significant amounts 
annually.
    I want to thank the Administration for taking on this 
initiative and working strongly on the goals of the 
Partnership. Within the next few years, greenhouse gas 
emissions from developing nations will surpass those of all 
industrialized countries combined. So, this sort of initiative, 
global in nature, is going to be absolutely necessary to 
properly address any of these issues.
    It's my understanding, for instance, that China plans to 
meet its skyrocketing energy demands with nearly 800 coal-fired 
power plants without the benefit of clean coal or gasification 
technologies. Of course, this undermines global efforts to 
reduce greenhouse gas emissions, and certainly confirms the 
wisdom of this sort of partnership, which is global in nature. 
In addition to the mandatory nature of the Kyoto protocol, the 
disparity in the treatment of industrialized versus developing 
nations under Kyoto, in my view, is a fundamental flaw.
    My primary concern here today is to ensure that our 
national climate strategy is a coordinated, productive one. I 
want to ensure that the taxpayers are getting every penny out 
of the Federal investment being made in climate change. And I 
look forward to hearing from our witnesses today to learn more 
on this topic and other recommendations to improve our national 
strategy from the panels today.
    With that, I'd invite the Chairman of the full Committee to 
make any opening statements.
    OK. Senator McCain, you were apparently here first. Why 
don't you make any opening statements----

                STATEMENT OF HON. JOHN McCAIN, 
                   U.S. SENATOR FROM ARIZONA

    Senator McCain. I thank you very much, Mr. Chairman. I 
applaud your efforts to review the role of science in the 
administration's Asia-Pacific Partnership.
    We all recognize that the solution to the climate change 
problems will involve the use of many new technologies. The 
flow of scientific reports concerning the impacts of climate 
change has been continuous and voluminous. It highlights a 
number of critical concerns for people, not only in the Arctic 
region, but for people around the globe.
    As we look to the future, the need for effective adaptation 
strategies and technologies will become greater. It's not 
enough that we do scientific study after study; we've got to 
prepare the country and the world for the onset of more severe 
and damaging impacts of climate change. Thus far, much of the 
attention have been on mitigation. I think we look--got to look 
at adaptation, especially if we continue to fail in our effort 
to mitigate the effects of global warming.
    I recently went to New Orleans to visit, at the invitation 
of the distinguished Chairman, and it's clear that levees alone 
won't do the job. The barrier islands have been dramatically 
decreased, and that has a great deal to do with the effects of 
climate change.
    TIME magazine recently issued a special report on climate 
change. The report highlights the damage that rising global 
temperatures are inflicting on our planet. The damage ranges 
from increased droughts, like the one we're experiencing in 
Arizona, to melting polar caps, melting glaciers, rising sea 
levels, increased forest fires, and species migration. I 
recommend that my colleagues take the opportunity to review and 
consider the implications of the report.
    Mr. Chairman, I'd like my complete statement to be part of 
the record.
    [The prepared statement of Senator McCain follows:]

   Prepared Statement of Hon. John McCain, U.S. Senator from Arizona
    Thank you Mr. Chairman for calling today's hearing. I applaud your 
efforts to review the role of science in the Administration's Asia-
Pacific Partnership. I know that the Administration has placed great 
emphasis on the future on this program.
    I think we all recognize that the solution to the climate change 
problem will involve the use of many new technologies. Though this 
partnership is part of the solution, it alone is not enough.
    Mr. Chairman, the flow of scientific reports concerning the impacts 
of climate change has been continuous and voluminous. It highlights a 
number of critical concerns for people not only in the Arctic region, 
but for people around the globe.
    As we look to the future, the need for effective adaptation 
strategies and technologies will become greater. It's not enough that 
we do scientific study after study. We must also prepare the country 
and the world for the onset of more severe and damaging impacts of 
climate change. Thus far, much of the attention has been on mitigation. 
Now, we must also start to look at adaptation--especially if we 
continue to fail in our effort to mitigate the effects of global 
warming.
    TIME magazine recently issued a special report on climate change. 
The report highlights the damage that rising global temperatures are 
inflicting on our planet. The damage ranges from increased droughts--
much like the one we are experiencing in Arizona, to melting polar 
caps, melting glaciers, rising sea levels, increased forest fires, and 
species migration. I recommend that my colleagues take the opportunity 
to review and consider the implications of the report.
    The cover of the issue shows a polar bear as it tries to negotiate 
what was once solid ice. Because of the disappearing ice floats, many 
polar bears are drowning. The U.S. Fish and Wildlife Service announced 
on February 8, that it has opened the formal process for listing polar 
bears as ``threatened'' under the Endangered Species Act because of 
this phenomenon.
    The TIME article reports that 85 percent of respondents to a recent 
TIME/ABC News/Stanford University poll agree that global warming 
probably is happening, and 87 percent believe the government should 
either encourage or require lowering of power plants emissions. In 
addition, 85 percent think something should be done to get cars to use 
less gasoline.
    This is a huge public outcry for action from our government. Yet, 
the Administration continues to support a voluntary approach. This 
simply will not work, nor will it deliver the type of response needed 
to address this pending environmental catastrophe. I know the climate 
change discussions continue in the Senate. However, discussion alone 
will not get it done. We must have meaningful and effective action.
    As these discussions continue, let me also remind my friends that 
climate change is an environmental problem with economic constraints, 
and not an economic problem with environmental constraints. The climate 
system will respond to reduced greenhouse gas emissions, but not to 
emission intensity ratios.
    Again, Mr. Chairman, I thank you for this hearing today and as you 
can see there are many issues to be discussed. I welcome our witnesses 
here today and look forward to their testimony.

    Senator McCain. And just let me conclude by saying I 
continue to be deeply disappointed at the total lack of 
concrete actions taken by the Administration. Mr. Connaughton, 
I admire your courage for coming here. I talk about studies. 
We'll talk about goals and efforts. You've done nothing, and 
it's disgraceful what you haven't done. And it's disgraceful 
that we are going to lay a very, very serious problem on our 
children because of our failure to address this issue with any 
seriousness whatsoever.
    We'll have witnesses, funded by ExxonMobil and others, who 
will tell you that climate change isn't real, that we don't 
have to worry about it. The fact is that we have done a 
terrible, terrible thing to future generations of Americans 
because of our failure to act in light of overwhelming evidence 
that argues that we act immediately and drastically to try to 
reverse this terrible affliction that our planet is 
experiencing, which, in the view of some, may be approaching 
the point of being irreversible.
    One of my deepest regrets is the failure of the 
Administration to do anything concrete to address this issue, 
besides platitudes and studies.
    I thank you, Mr. Chairman.
    Senator Vitter. Chairman of the full Committee, would you 
like to make an opening statement?

                STATEMENT OF HON. TED STEVENS, 
                    U.S. SENATOR FROM ALASKA

    The Chairman. Mr. Chairman, I thank you. And thank Senator 
McCain for his comments.
    I feel there already is an Asia-Pacific Partnership in the 
International Arctic Research Center. That's being funded now 
by a series of nations. And, certainly, it's headquartered in 
my State, for an obvious reason. Some people have said that 
Alaska is sort of the canary in the mine, as far as the basic 
concept of climate change. And we are experiencing enormous 
change threatening our native villages. I'd like to point out 
that we're working very hard to help people in--that were in 
the path of Rita and Katrina, but we had a near typhoon off of 
our shores up there. We had nine villages almost destroyed, 19 
were very seriously damaged. We're still waiting for the money 
to be allocated. We're still waiting for their help, and it's 
almost--you know, over a year ago that took place.
    I do think that not only should we be helping them, you 
know, to relocate their villages--and most of them live on 
barrier islands, and they're--no longer have access to the 
mainland, in some instances. Their airports are flooding. In 
the event of another disaster of the same type, we wouldn't be 
able to evacuate them if their airports flood, because there 
are no roads out of those places anymore.
    There are a lot of things we should be doing. But I think 
we should take the changes very seriously, and look at the 
causes and effects in our State. I personally showed the 
President a chart yesterday of the difference between Arctic 
Ocean in the 1970s and Arctic Ocean in the 1990s, in terms of 
heat distribution, and it shows very clearly that there has 
been an enormous amount of heat that has entered the Arctic 
Ocean from the Atlantic. And the North--the heat in the North 
Atlantic, which our people believe came from very active 
sunspots, really has a lot to do with this change, but we're 
not spending much time trying to determine, really, is there 
anything we could do about it.
    I do think, Senator, we could do a few more studies to find 
out what really is causing the permafrost to be, you know, less 
thick. And we now know why the Arctic ice cap is shifting 
around; it's because of the currents coming in from the North 
Atlantic.
    But I've got to tell you, Asia-Pacific Partnership, at $52 
million, may be a good deal. I don't know. But I know that 
cutting the money for the International Arctic Research Center, 
cutting the money for the Alaska Volcano Observatory--we've got 
one volcano, as you know, still spewing out, and yet we're not 
going to monitor it anymore? I really think that something has 
to be done to look at the allocation of funds, and really 
support the kind of action that's necessary in order to try 
to--to know more clearly what's going to happen. It's the 
prediction of what's going to happen.
    Yesterday, as I understand it, the Weather Bureau told us 
we should get ready for another series of hurricanes in the 
southern States. Clearly, there's a role for more action than 
we see. And I'm sorry I can't stay and be with you. I would 
have had some specific questions.
    I would urge you to take the time and sit down with a group 
of us and see if there isn't some way that we can get better 
response to what we perceive to be the needs not only of 
research, but also of action to try to prevent any further 
damage to some of those villages, for instance. There's no 
reason why we should not understand that they have a right just 
to have some action taken, just as the people of New Orleans 
and people that lived within the Katrina-affected area do. 
But----
    So, I thank you for your statement. I will read it in full. 
But I share some of my colleagues feelings about this.
    Thank you very much.
    Senator Vitter. Senator Lautenberg is the Ranking Member of 
this Subcommittee. Senator, do you have an opening statement?

            STATEMENT OF HON. FRANK R. LAUTENBERG, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Lautenberg. Thanks, Mr. Chairman.
    I'm pleased that we're having this review right now, 
because the problems are upon us. And at what point we decide 
that there's serious danger, near ahead, that we get going? And 
I'm pleased to see Mr. Connaughton here and have a chance to 
review this together.
    Global warming, which I see as the thing that we want to 
get going about, concerns the whole world, especially concerns 
the States, Mr. Chairman, that you and I represent, and Senator 
Stevens, as well. And our States are threatened by hurricanes 
and rising sea levels, coastal erosion. And in our States, 
tourism and fishing industry make significant contributions to 
the States' economy.
    Now, we've got witnesses here today, distinguished 
witnesses, and I look forward to hearing their views on the 
Asia-Pacific Partnership.
    However, I want to say, at this point, statements about 
global warming from the Administration have to be taken with a 
grain of salt. When George W. Bush was running for President 
the first time, he promised that he would support legislation 
to combat global warming by limiting carbon emissions from 
power plants. Once he took office, the silence fell. And since 
then, the Bush Administration's record on global warming has 
been consistent. Unfortunately, it's been consistently wrong. 
For 5 years, the Administration has dragged its feet on global 
warming, all the while insisting that there was no scientific 
consensus about whether or not action was needed.
    Now, we know that there has been rewriting on scientific 
findings at the White House to insert doubt where there was 
none intended by its authors. But they've censored career 
scientists, prevented them from speaking to the press, talking 
to the public about their views on their areas of expertise. 
They've allowed our Nation's energy policy to be dictated by 
oil, power companies that have the most to gain from being 
allowed to continue emissions of greenhouse gases, while 
shutting out those who have the most to lose; and that is the 
American people.
    They've even tried to block States from taking action to 
reduce vehicle emissions of greenhouse gases. And now the 
American people are being told that voluntary controls of 
greenhouse gases will be sufficient to ward off the effects of 
global warming.
    Mr. Chairman, TIME magazine recently did a cover story 
about global warming. The story makes clear that the debate 
about global warming is over. It is now time for action. 
There's a broad consensus among scientists around the world 
that global warming is occurring, that it's caused by human 
activity. There's also increasing alarm that unless we act 
quickly, it might be too late to avoid catastrophic effects 
from global warming.
    The clock is running. Our window of opportunity to address 
global warming is rapidly closing. The longer we wait to take 
meaningful steps, the more costly these steps will be when we 
finally do take them. And I'm not here to attack the merits of 
working jointly with other countries, absolutely--on developing 
technologies to help reduce emissions of greenhouse gases. 
Certainly, science and technology must play a central role in 
reducing these greenhouse emissions. But we need to seriously 
consider whether the Administration's response to global 
warming even begins to approach what we should be doing about a 
problem that threatens our entire planet.
    And, once again, I really do encourage us to work with 
other countries to see if we can do it. In particular, the 
focus here is on the Pacific area, and it should be, and 
especially listening to what Senator Stevens said about the 
change--the obvious change in temperature. At what point do we 
look outside and see snow disappearing in places, glacier--
Glacier National Park, substantial reduction in the number of 
glaciers; Kilimanjaro, substantial reduction of the snow on top 
of the mountain--at what point do we say, ``Hey, we see it. How 
come we don't believe it?''
    Mr. Chairman, thanks very much for holding this hearing. I 
look forward to hearing from our witness.
    Senator Vitter. Thank you, Senator.
    On the first panel today, we have the Honorable Jim 
Connaughton, Chairman of the Council of Environmental Quality 
at the White House.
    Jim, thanks for being here today, and we appreciate you 
taking the time to come up and testify on the Asia-Pacific 
Partnership.

 STATEMENT OF HON. JAMES L. CONNAUGHTON, CHAIRMAN, WHITE HOUSE 
                COUNCIL ON ENVIRONMENTAL QUALITY

    Mr. Connaughton. Thank you, Mr. Chairman. Thank you, 
Senator Lautenberg, Senator McCain.
    It's my pleasure to be here today to talk about the Asia-
Pacific Partnership, and to talk about it in the context of 
many of the remarks that you just made in your opening 
statements.
    The Asia-Pacific Partnership on Clean Development and 
Climate was announced last year, last summer, and launched in 
January by President Bush and the leaders of Australia, China, 
India, Japan, and South Korea. Now, this is a public-private 
initiative that is establishing an innovative--and, actually, 
first-ever--collaboration of its type for addressing the 
interconnected challenges of assuring economic growth and 
development and poverty eradication in the context of 
addressing three combined goals: energy security, air pollution 
reduction, and mitigating the greenhouse gases associated with 
long-term climate change.
    What I want to do is give you a few essential concepts to 
the partnership, talk a little bit about the mechanics, and 
then just discuss very briefly the budgeting.
    On the essential concepts, first of all, I think it is well 
recognized that strong and growing economies are essential to 
making progress on all of these important issues--security, 
pollution reduction, and climate change--because it's only 
through economic growth that we have the wherewithal, the 
financial resources, to make the investments in the 
transformational energy technologies that produce the results 
that we all desire.
    And, for all three members of the panel that are here right 
now, I think there's raging consensus on forward progress. 
There's raging consensus on the seriousness of these three 
issues and the need for taking action. And so, really, what the 
discussion has to be about is the various ways in which we can 
make substantial progress in the near-term, the mid-term, and 
the long-term.
    Another important theme is this notion of integration. We 
have found that looking at greenhouse gases in isolation is a 
mistake. It's very important to look at the real-term health 
consequences of good old-fashioned air pollution, especially 
from fossil-fuel energy generation, also in the context of each 
of our countries' imperatives of making--ensuring that we have 
security of our energy supply, upon which our livelihoods 
depend.
    A fourth theme, then, is this need--I'm sorry--third theme 
is the need for private-sector engagement. Government doesn't 
make this happen. It is actually a massive investment. We're 
talking about hundreds of billions and trillions of dollars of 
investment by the private sector that is what delivers the 
outcomes that we all share. And we have to engage the private 
sector in a way that is consistent with the way they do 
business in delivering good, clean technologies into not just 
marketplaces such as the U.S. and Japan, but getting them mass-
produced and entered into marketplaces such as China and India.
    And then, fourth, any approach has to be a portfolio 
approach. And, by that, it's a combination of mandatory 
measures, voluntary measures, and partnerships. And I would 
take issue with the characterization of what's occurring here 
or anywhere else in the world as one or the other. That's 
actually a false dichotomy. Each country that is working 
aggressively on this issue of climate change is working 
aggressively through a portfolio of measures, as I described.
    Now, in terms of the mechanics of the Partnership, the 
Partnership is directly in response to Title XVI of the Energy 
Policy Act of 2005 that enjoyed very substantial bipartisan 
support. It called for just this kind of action.
    These six countries represent 50 percent of the world's 
population, 50 percent of the world's economy, and 50 percent 
of the world's fossil-fuel energy use and greenhouse gas 
emissions. It is a very important configuration of countries.
    We are united with our partners in recognizing that this 
requires not just a portfolio of actions, but also a portfolio 
of actors. For example, the United States, we have the 
Departments of State, Energy, Commerce, and the Environmental 
Protection Agency with leading roles in the partnership, but 
they will be supported by departments such as the Department of 
Transportation, the Department of Agriculture, and, most 
importantly, by our financing institutions, such as the Export-
Import Bank and the Asia Development Bank.
    I was pleased to be in Sidney, Australia, for the launch of 
the partnership, which was hosted by Prime Minister Howard. To 
give you a sense of how important it was, China sent their 
number-five official to this discussion. We have found a way to 
engage China, which is something that has been elusive for over 
a decade. And we are working through eight different task 
forces, which are detailed in some length in my written 
testimony--eight task forces that are the ones that matter, the 
big, energy-intensive industry sectors, such as cement, steel, 
power generation, renewable- and distributed-energy generation, 
and, importantly, households and appliances--buildings and 
appliances. These task forces are going to be organized on a 
public-private basis to create the information flows that 
enable us to accelerate market-based investments in technology 
opportunities.
    If you would, Mr. Chairman, I just want to give one example 
of the kind of thing we're talking about, to make it very 
specific.
    In the U.S., over the last 10 years, we have, through a 
great partnership organized by EPA, working with the Department 
of Energy, gone after methane emissions from coal mining, and 
from landfills, and from leaky natural gas production and 
distribution systems. This effort is a profitable enterprise, 
and we've done hundreds of projects, billions of dollars have 
been spent, and we have actually reduced our methane emissions. 
Methane is a safety hazard. It's an air pollutant that 
contributes to ozone. And it's a potent greenhouse gas, 20 
times more powerful than CO2. Now, this has been 
done at a profit, with great success.
    China and India largely don't do this right now. Something 
we can achieve through this partnership is to sit down with the 
leadership of China and India and several of the other 
countries and put on the table the hundreds--and I actually 
think it's thousands--of methane projects that could occur 
tomorrow with existing technology, at a profit. That's just 
something that hasn't happened. And that's what this 
partnership is going to be able to achieve, to put together 
those networks of investors, of technology providers, and 
policymakers, to produce an outcome on that scale.
    We can expect--we have a Methane to Markets Partnership, 
that preceded the Asia-Pacific Partnership, that, when 
successful, will cut greenhouse gas emissions by about 42 
million metric tons. That one program alone is about a tenth of 
what the countries doing Kyoto would achieve if they met their 
targets. So, I just want to give you a sense of the scale of 
what we're talking about, and the nature of what we hope to 
achieve. And that's why the budget is important. These agencies 
need the resources to be able to enable these networks and 
unleash billions of dollars of private-sector investment. 
That's a very good use of taxpayer resources. And it comes out 
of our already substantial $5 billion climate budget.
    So, thank you, Mr. Chairman. Thank you, Senator Lautenberg. 
And I look forward to your questions.
    [The prepared statement of Mr. Connaughton follows:]

      Prepared Statement of Hon. James L. Connaughton, Chairman, 
              White House Council on Environmental Quality
    Mr. Chairman, thank you for inviting me to testify today on the 
Asia-Pacific Partnership on Clean Development and Climate, announced 
last year and launched in January by President Bush and the leaders of 
Australia, China, India, Japan, and South Korea. This public-private 
initiative establishes an innovative collaboration for addressing the 
interconnected challenges of assuring economic growth and development, 
poverty eradication, energy security, pollution reduction, and 
mitigating climate change.
    Shortly before the G8 meeting last year in Gleneagles, Scotland, 
President Bush said:

        The best way to help nations develop while limiting pollution 
        and improving public health is to promote technologies for 
        generating energy that are clean, affordable and secure. Some 
        have suggested the best solution to environmental challenges 
        and climate change is to oppose development and put the world 
        on an energy diet. But at this moment, about two billion people 
        have no access to any form of modern energy. Blocking that 
        access would condemn them to permanent poverty, disease, high 
        infant mortality, polluted water and polluted air.

        We're taking a better approach. In the last 3 years, the United 
        States has launched a series of initiatives 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. The whole world benefits 
        when developing nations have the best and latest energy 
        technologies.\1\
---------------------------------------------------------------------------
    \1\ http://www.whitehouse.gov/news/releases/2005/06/20050630.html.

    Over the past 4 years, the Bush Administration has been building 
the structure of a more constructive, practical and realistic approach 
to international action on clean development and climate change. In 
February 2002, the President announced a comprehensive domestic and 
international strategy for addressing the serious, long-term challenge 
of global climate change through the development and widespread 
deployment of the best of current technologies and transformational new 
ones.\2\ This strategy is producing real results.
---------------------------------------------------------------------------
    \2\ Discussions of these various programs can be found on the 
following websites:
     The White House (http://www.whitehouse.gov/news/releases/2002/02/
climatechange.html);
     Department of Energy (http://www.energy.gov/environment/
climatechange.htm);
     Department of State (http://usinfo.state.gov/gi/global_issues/
climate_change.html);
     Department of Agriculture (http://www.ers.usda.gov/Briefing/
GlobalClimate/); and
      Environmental Protection Agency (http://yosemite.epa.gov/oar/
globalwarming.nsf/content/Climate.html).
---------------------------------------------------------------------------
    In 2002, the President set a national goal of reducing the 
greenhouse gas intensity in the U.S. economy by 18 percent by 2012. We 
are committed to the logical steps of first slowing the growth of 
emissions per unit of GDP and, as the science justifies, stopping and 
then reversing emissions. We have established strong partnerships for 
action with the private sector, through programs such as the Department 
of Energy's Climate VISION program and the Environmental Protection 
Agency's Climate Leaders program. We have taken the lead 
internationally on transformational technology development initiatives 
such as the Hydrogen Fuel Initiative, which will accelerate the future 
of an emissions-free hydrogen transportation system, and FutureGen, a 
project to create the world's first coal-based zero-emissions 
electricity and hydrogen power plant.\3\ Our wide variety of 
technology-based programs are being managed by the Climate Change 
Technology Program through the Department of Energy.
---------------------------------------------------------------------------
    \3\ http://www.fe.doe.gov/programs/powersystems/futuregen/.
---------------------------------------------------------------------------
    Nearly every major provision of the Energy Policy Act of 2005 is 
helping to advance Presidential priorities for cleaner, more efficient, 
and less greenhouse gas-intensive energy systems, including incentives 
for production of wind, geothermal and solar power, consumer tax 
credits for highly fuel-efficient hybrid and clean diesel vehicles, 
clean coal technology, emissions-free nuclear power, and renewable bio-
fuels.
    In addition to voluntary actions and incentives, the President's 
strategy takes advantage of new mandatory efficiency and renewable 
fuels standards in the energy bill. Innovative new fuel economy 
regulations will save 10.7 billion gallons of fuel and include, for the 
first time ever, the largest sport utility vehicles and Hummers.
    And we are moving forward to carry out the President's State of the 
Union vision to break our addiction to foreign oil through new 
technologies and to change the way we power our homes and offices.
    These new domestic programs and authorities will help us maintain 
the steady progress we have made in recent years toward the President's 
greenhouse intensity goal. [Charts 1&2] Between 2000 and 2004, the U.S. 
economy grew 9.6 percent while greenhouse gas emissions increased only 
1.1 percent.\4\,\5\ These reductions come from a combination 
of: (1) desirable improvements in efficiency and deployment of advanced 
energy technologies and practices, (2) a desirable structural expansion 
of our economy to lower-emitting manufacturing and service industries 
and enterprises, (3) the undesirable economic slowdown a few years ago, 
and (4) the undesirable shift of higher-emitting energy intensive 
industries and jobs to other countries with significantly lower energy 
costs. This last factor is problematic enough from the standpoint of 
those who lost jobs. As important, it probably did not produce an 
actual environmental benefit, as the air pollution and greenhouse gases 
emissions simply shifted to the other countries along with the jobs. 
The President's policies are directed at accelerating the results from 
the first two factors, while guarding against the unsustainable or 
false sense of progress associated with the second two factors.
---------------------------------------------------------------------------
    \4\ http://yosemite.epa.gov/oar/globalwarming.nsf/content/ 
ResourceCenterPublicationsGHGEmissionsUSEmissionsInventory2006.html.
    \5\ http://www.bea.gov/bea/dn/home/gdp.htm.
---------------------------------------------------------------------------
    As we seek to reduce our own emissions intensity, other fast 
growing economies of the world have significant opportunities to 
substantially reduce their emissions intensity. In his June 2001 and 
February 2002 climate change policy speeches, President Bush 
highlighted the importance of international cooperation in developing 
an effective and efficient response to the complex and long-term 
challenge of climate change.\6\ The international cooperation and 
investment that Title XVI of the Energy Policy Act of 2005 authorizes 
is essential to ongoing progress globally. Data collected by the Energy 
Information Administration reinforces the importance of continued 
partnership among mature and emerging economies on energy technology 
development and deployment. By 2010, carbon dioxide emissions from 
emerging economies, such as China and India, will surpass those from 
mature market economies like the United States.\7\ [Chart 3]
---------------------------------------------------------------------------
    \6\ http://www.whitehouse.gov/news/releases/2001/06/20010611-2.html 
and&3http://www.whi
tehouse.gov/news/releases/2002/02/20020214-5.html.
    \7\ Energy Information Administration, International Energy 
Outlook, 2005.
---------------------------------------------------------------------------
    That is why, last summer, the Administration introduced our most 
recent and consequential multilateral initiative, the Asia-Pacific 
Partnership for Clean Development and Climate. The six major nations in 
this partnership--Australia, China, India, Japan, South Korea, and the 
United States--account for about half of the world's economy, energy 
use, and greenhouse gas emissions. In announcing the Asia-Pacific 
Partnership on July 27, 2005, President Bush said:

        This new results-oriented partnership will allow our nations to 
        develop and accelerate deployment of cleaner, more efficient 
        energy technologies to meet national pollution reduction, 
        energy security, and climate change concerns in ways that 
        reduce poverty and promote economic development.

    The Partnership's vision statement, which is attached, identifies a 
broad range of near-and longterm technologies and practices that are 
designed to improve energy security, reduce pollution and address the 
long-term challenge of climate change. The Partnership focuses on 
voluntary practical measures to create new investment opportunities, 
build local capacity, and remove barriers to the introduction of 
cleaner, more efficient technologies. It is important to build on 
mutual interests and provide incentives to tackle shared global 
challenges such as climate change effectively.
    We are united with our partners in recognizing that the ingenuity 
and energy of the private sector is crucial to our success in 
addressing these issues over time. This effort cannot succeed without 
strong private sector involvement. The Departments of State, Energy, 
Commerce, the Environmental Protection Agency, and other agencies and 
financing institutions, such as the Export-Import Bank and Asian 
Development Bank, are actively discussing ways of ensuring that the 
private sector is engaged in a meaningful way in the Partnership at 
every stage of its work.
    This past January, I was privileged to join Energy Secretary Sam 
Bodman and Under Secretary of State Paula Dobriansky at the first 
Ministerial meeting of the Partnership in Sydney, Australia. The 
meeting was hosted by Australian Prime Minister John Howard and chaired 
by Australian Foreign Minister Alexander Downer. In addition to 
involving unusually high-ranking government official representation, 
the meeting also included a substantive dialogue with leading CEOs and 
heads of industrial organizations from each country representing some 
of the most significant, energy-intensive and emitting sectors.
    The Ministerial established a Policy and Implementation Committee 
and its first set of Task Forces covering actions in eight areas:

   Cleaner Fossil Energy
   Renewable Energy and Distributed Generation
   Power Generation and Transmission
   Steel
   Aluminum
   Cement
   Coal Mining
   Buildings and Appliance

    Each Task Force has a government Chair and Co-Chair. [Chart 4] The 
United States will chair the Policy and Implementation Committee and 
Chair or Co-Chair three of the Task Forces. Initial details about the 
objectives and work plans for each task force are outlined in the 
accompanying charts. [Charts 5.1-5.8] We anticipate each Task Force to 
consist of two senior government officials and two private sector 
leaders from each country to enable a relatively manageable planning 
and implementation dialogue of about 24 people per Task Force. The 
United States Task Force members include participants from government 
agencies, major companies, and nonprofit organizations.
    In a few weeks, the United States will host the first Task Force 
working meetings. The Task Forces currently vary in their level of 
organization and planning. The aluminum sector, for example, has 
already adopted a Memorandum of Understanding as to how they intend to 
proceed. This is not surprising, as this sector is already well-
organized internationally and involves large multi-national companies. 
On the other hand, sectors such as cement and power generation are 
composed predominantly of domestic companies, that infrequently, if 
ever, have had reason to get together and share management strategies, 
relevant sector goals, best practices, technologies and financing 
arrangements. For many, the Asia-Pacific Partnership will afford the 
first opportunity for such hands-on, senior-level exchanges.
    At the first working group meetings and in the months that follow, 
we expect the Partners to develop a broad portfolio of shared goals and 
objectives. Let me outline a few of my own personal thoughts concerning 
the kinds of deliverables the Task Forces will explore.
    A principal, operational objective of the Partnership is to 
identify profitable technology investment opportunities and outcomes in 
each partner country. While there may be discussion of ``demonstration 
projects'' related to emerging technologies in each sector, we are 
placing a strong emphasis on identifying opportunities for near-term 
outcomes that can be ``mass-produced'' using tried-and-true 
technologies and methods.
    For example, methane capture from coal mining is a well-established 
and highly profitable practice in the United States that nets 
significant benefits in terms of worker safety, harmful pollution 
reduction, and mitigation of a greenhouse gas that is 20 times more 
potent than carbon dioxide. The potential number of such projects in 
several of the other partner countries is quite high. Our partner 
countries also have a strong interest in our substantial experience and 
success in improving the efficiency and capacity of our power 
generation. Out of such discussions should emerge a fairly concrete 
list of information, policy, economic, and regulatory barriers to such 
investment and corresponding actions to address such barriers.
    To give another example, in order to comply with our new Clean Air 
Interstate Rule mandating about a 70 percent reduction in harmful air 
pollution, our power generation utilities are projected to invest about 
$50 billion to install and operate pollution controls and efficiency 
improvements at existing and new plants.\8\ Details of this rule and 
the market it will expand for current and new technologies are largely 
unknown to our partner countries, who may want to replicate it back 
home or produce innovative control technologies that can be marketed to 
our power sector. Similarly, according to recent reports, China has 
announced a commitment to improve the efficiency of its power 
generation by 20 percent by 2010 and to cut the sulfur-dioxide 
emissions from a significant portion of its power plants. This 
remarkably ambitious objective will create another strong market force 
for new investment in technologies and services.
---------------------------------------------------------------------------
    \8\ http://www.epa.gov/cleanairinterstaterule/.
---------------------------------------------------------------------------
    Another opportunity is the prospect of a better, shared inventory 
of each country's capabilities and commitments in key sectors. For 
example, Japan has a highly-evolved, voluntary program of greenhouse 
gas mitigation goal-setting and implementation involving each of its 
major emitting sectors. President Bush's Climate VISION and Climate 
Leaders programs share common elements with the Japanese program.\9\ 
Closer alignment and amplification of these approaches, while ensuring 
their relevance to each country's national circumstances, would be very 
valuable.
---------------------------------------------------------------------------
    \9\ http://www.climatevision.gov/.
---------------------------------------------------------------------------
    Another area of importance is the potential for further development 
of capacity to accurately monitor and measure performance across a 
number of metrics and sectors. While at different points on the 
continuum, each of the six countries is working aggressively to improve 
its ability to track improvements in efficiency, air quality and 
greenhouse gas emissions. Such capacity is essential to ensuring 
integrity, consistency, and cost-effectiveness of results.
    Finally, we are working to ensure the focused and active engagement 
of public and private financing institutions. The operational success 
of this effort should be measured not by how much governments and their 
taxpayers spend on the effort, but on how much new private sector 
investment and financing can be unleashed and accelerated to achieve 
partnership security and environmental performance goals. The U.S. 
Department of Commerce and our Export-Import Bank are already working 
on business plans and trade promotion exchanges focused on Partnership 
priorities. And the head of the Asian Development Bank participated in 
the Ministerial launch of the Partnership in Australia.
    The Asia-Pacific Partnership and our other international 
engagements on climate change center on five key ideas, all of which 
extend from and build on our own experience here in the United States. 
First, a successful 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 cooperative actions. Absent the participation of 
all major emitters, including developing countries, the goal of 
stabilizing GHG concentrations will remain elusive.
    Second, we will make more progress on this issue over time if we 
recognize that climate change goals fall within a broader development 
agenda--one that promotes economic growth, reduces poverty, provides 
access to modern sanitation and clean water, enhances agricultural 
productivity, provides energy security, reduces pollution, and 
mitigates greenhouse gas emissions. Countries do not look at individual 
development goals in a vacuum, and approaches that effectively 
integrate both near- and longer-term goals will yield more benefits 
over time.
    Third, technology is the glue that can bind these development 
objectives together. By promoting not just the development but also the 
wide spread commercialization and use of cleaner and more efficient 
technologies, we can meet a range of diverse development and climate 
objectives simultaneously.
    Fourth, we need to pursue our international efforts in a spirit of 
collaboration, not coercion, and with a true sense of partnership. This 
is especially true in our relations with developing countries, which 
have an imperative to grow their economies and provide for the welfare 
of their citizens. Experience has shown these countries to be quite 
skeptical of climate mitigation approaches that they think will divert 
them from these fundamental goals. It is also true that many of the 
largest greenhouse gas emitters are also among our most significant 
trading partners. They have rapidly advancing--in many cases, world 
class--industries and considerable technical wherewithal. We view 
countries like China and India as responsible partners in our efforts.
    Finally, we need to engage the private sector to be successful. 
While the right kind of government-to-government collaboration can pave 
the way for great progress, we will need to harness the ingenuity, 
resources and vision of the private sector in developing and deploying 
technology.
    The President's FY07 budget calls for $52 million to support the 
work of the Partnership. The request is divided among the Departments 
of State, Energy and Commerce, and the Environmental Protection Agency. 
Other agencies, such as the Departments of Transportation and 
Agriculture, will also be participating. The Partnership is a team 
effort and requires a team budget.
    In addition to the Asia-Pacific Partnership, since 2001, we have 
established a range of partnerships that will address key aspects of 
the climate challenge while also advancing other important 
international objectives. We have established bilateral climate 
partnerships with 15 countries and regional organizations that, 
together with us, comprise some eighty percent of global greenhouse gas 
emissions. These partnerships serve as the umbrella for over 400 
collaborative activities undertaken by U.S. agencies and their partners 
on science, technology and policy issues. Through these partnerships, 
U.S. experts are working with Australia and New Zealand to strengthen 
our capacity to monitor climate in the Pacific; with India to promote 
local-level pollution and energy solutions that will have greenhouse 
gas intensity benefits; with Brazil to promote effective application of 
renewable energy; with Japan and Korea to promote greater integration 
of climate and energy strategies throughout Asia; and with China to 
enhance technical capacity for climate-related decisionmaking.
    In addition to our bilateral partnerships, we have initiated and 
participate in a range of new technology initiatives designed to meet 
climate and clean development goals. Let me briefly highlight a few of 
the most significant partnerships:

   Group on Earth Observations: \10\ 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. 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.\11\ The plan 
        will help coordinate a wide range of environmental monitoring 
        platforms, resources, and networks.
---------------------------------------------------------------------------
    \10\ http://earthobservations.org/.
    \11\ http://iwgeo.ssc.nasa.gov/docs/EOCStrategic_Plan.pdf.

   International Energy Research and Development Partnerships: 
        The Generation IV Nuclear partnership,\12\ the Carbon 
        Sequestration Leadership Forum,\13\ the International 
        Partnership for the Hydrogen Economy,\14\ and ITER.\15\ In the 
        last 4 years, the Administration has engaged in four 
        partnerships that lend new international emphasis to strategic 
        technologies that can make a large contribution to our efforts 
        to reduce greenhouse gas intensity and diversify the global 
        energy portfolio. The State Department is working closely with 
        DOE to engage our partners, and all of these partnerships 
        include key developing countries as full partners in our 
        efforts to advance these important technologies--an important 
        capacity building function that will also serve to promote the 
        growth of global markets.
---------------------------------------------------------------------------
    \12\ http://www.nei.org/index.asp?catnum=3&catid=1215.
    \13\ http://www.cslforum.org/.
    \14\ http://www.iphe.net/.
    \15\ http://www.iter.org/.

   The Methane to Markets Partnership: \16\ This Partnership, 
        launched in November of 2004, 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. At the 
        recent session, the partnership welcomed its seventeenth 
        member, Ecuador, and now represents over 60 percent of global 
        methane emissions. This Partnership includes an extensive 
        project network comprised of 190 private sector, governmental 
        and non-governmental organizations. Methane to Markets 
        currently targets four major methane sources: landfills, 
        underground coal mines, natural gas and oil systems, and animal 
        waste management. By 2015, the Partnership has the potential to 
        deliver 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.
---------------------------------------------------------------------------
    \16\ 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 2005, Canada the 16th member in July 
2005, and Ecuador the 17th member in November 2005.

   World Summit on Sustainable Development Partnerships: \17\ 
        The United States has been at the forefront of efforts to move 
        multilateral bodies toward a practical, results-focused actions 
        centered around partnerships among governments, businesses and 
        other organizations. Among over 20 U.S.-initiated partnerships 
        launched at the 2002 World Summit on Sustainable Development 
        (WSSD) held in Johannesburg, South Africa, the United States 
        established a ``Clean Energy Initiative.'' The Initiative 
        consists of four market-oriented, performance-based 
        partnerships, including:
---------------------------------------------------------------------------
    \17\ http://www.sdp.gov/sdp/initiative/cei/28304.htm.

        -- the Global Village Energy Partnership (GVEP), \18\ an 
        international partnership with over 700 public and private 
        sector partners with a leading role for the U.S. Agency for 
        International Development;
---------------------------------------------------------------------------
    \18\ http://www.sdp.gov/sdp/initiative/cei/44949.htm.

        -- the Partnership for Clean Indoor Air, \19\ led by the 
        Environmental Protection Agency, 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;
---------------------------------------------------------------------------
    \19\ http://www.sdp.gov/sdp/initiative/cei/29808.htm and http://
www.pciaonline.org/.

        -- the Partnership for Clean Fuels and Vehicles, \20\ led by 
        the Environmental Protection Agency, which will help to reduce 
        air pollution in developing countries by promoting the 
        elimination of lead in gasoline and encouraging the adoption of 
        cleaner vehicle technologies; and
---------------------------------------------------------------------------
    \20\ http://www.sdp.gov/sdp/initiative/cei/29809.htm and http://
www.unep.org/pcfv/main/main.htm.

        -- Efficient Energy for Sustainable Development (EESD), \21\ 
        led by the Department of Energy, 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.
---------------------------------------------------------------------------
    \21\ http://www.sdp.gov/sdp/initiative/cei/28304.htm.

    The United States is actively involved in other international 
technology development and deployment partnerships as well, including 
the Renewable Energy and Energy Efficiency Partnership, a WSSD 
partnership initiated by the United Kingdom. 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 
partner countries in REEEP.
    The technology-focused approach that puts climate change in the 
context of broader development goals is finding favor in many parts of 
the world. In July, at the Group of Eight Leaders meeting at 
Gleneagles, President Bush and his counterparts agreed to a Plan of 
Action on Climate Change, Clean Energy and Sustainable Development. 
\22\ The Plan is based on over fifty specific, practical activities, 
mostly focused on technology development and deployment.
---------------------------------------------------------------------------
    \22\ http://usinfo.state.gov/ei/img/assets/4756/
PostG8_Gleneagles_Communique.pdf.
---------------------------------------------------------------------------
    The United States continues to participate in the U.N. Framework 
Convention on Climate Change. The Conference of the Parties (COP) to 
the United Nations Framework Convention on Climate Change held its 11th 
Session in Montreal from November 28 to December 9, 2005. In that 
context, we will continue to highlight the importance of collaborative 
partnerships developing and deploying technologies to meet the long-
term challenge of climate change.
    I thank you for the opportunity to testify. I look forward to 
responding to any questions you may have.













    Senator Vitter. Thank you, Chairman Connaughton.
    I understand you have a number of Federal agencies with you 
today to help answer questions. At this point, maybe it would 
be appropriate for you to introduce those representatives, in 
case any of our questions are directed at them.
    Mr. Connaughton. Thank you, Mr. Chairman.
    I have with me Steve Eule--Steve?--who is the Director of 
the Climate Change Technology Program. I have Joey--and he's--I 
have--and he's from the Department of Energy--I have Joey 
Neuhoff, who's the Director of the Office of Energy and 
Environment, from the Department of Commerce. Joey? I want to 
underline ``Commerce.'' It's very essential that our trade 
promotion activities advance the objectives of this 
partnership. I have Aaron Brickman, from the Office of Energy 
and Environment, from the Department of Commerce. And I have 
Trigg Talley, from the Department of State, the Office of 
Oceans, Environment, and Science.
    Senator Vitter. Great.
    OK, Mr. Chairman. As I said in my opening statement, one of 
the daunting things about this whole issue, when you look at 
it, is what developing countries like China and India plan over 
the next few decades--China, 800 coal-fired power plants, 
without the benefit of clean coal or gasification. Obviously, 
for that to change, this sort of initiative has to be 
meaningful, and there needs to be real buy-in and real 
involvement from countries like that. What is your view, so 
far, about how meaningful that buy-in really is, given that to 
make a difference it's going to have to change some major plans 
that they might otherwise have in the next several decades?
    Mr. Connaughton. Well, let me start with the situation, 
which is, when I started my job, you were looking at the major 
emerging economies' greenhouse gas emissions exceeding ours 
sometime around 2020. Well, the projection now is they will 
exceed the developed world's emission profile by 2010. So, 
that's how fast things are changing there. It's also the case, 
for example, that the air pollution in China today--they 
release as much air pollution today as the U.S. did at its 
peak. And China's economy is only a fraction of our economy. 
And I want to continue to make this point. Air pollution 
matters, as do greenhouse gases.
    So, now to the seriousness. I do think that China is hit--
has hit a turning point, based on my visits there, at very high 
levels. And I think the best indicator of that is, for the 
first time in their 11th 5-year plan, they have made a specific 
commitment that they are formalizing right now. And I think 
it's this. We can confirm this. But they're committed to 
improving the efficiency of their fossil-fuel-fired power 
plants by 20 percent by 2010. And they've made a commitment to 
desulphurize 46 percent of their power plants. That's a big 
deal, for China to say something like that, that publicly.
    I have spoken with the individuals responsible for the 
plan. They are putting in place the mechanisms for moving 
forward. But China is kind of like where America was in the 
mid-1970s. The commitment was there, but the institutions and 
the actions--they're in the formative stage of really pulling 
it off.
    Now, interestingly, China is going to achieve that through 
straight, good, old-fashioned management. They're going to 
mandate a bunch of investments. But they also have some 
regulatory programs that will achieve this, as well. They have 
a program on air pollution that looks a little bit like our New 
Source Review Program. The issue for them is, Does it have 
teeth? And our EPA is working very diligently with them to 
develop the same kind of aggressive monitoring and compliance 
regime in their country that we enjoy in this country.
    So, we're at a turning point, but the proof is in the 
pudding. And this Partnership is going to create a situation of 
joint accountability, and, importantly, joint constructive 
action, going forward. Again, we have found a way--a positive 
platform to advance these initiatives, rather than trying to, 
you know, litigate or negotiate toward some of these outcomes.
    Senator Vitter. Now, there are clearly a number of other 
venues for multilateral global climate change cooperation--the 
G8, the Framework Convention, Methane to Markets, et cetera. 
How does this initiative fit into all that? And give us some 
reassurance that we're just not cluttering, you know, the 
landscape with yet another initiative, when other venues 
already exist.
    Mr. Connaughton. Let me start with the end of your 
question, Mr. Chairman, which is--we need dozens, and, 
ultimately, hundreds, of initiatives like this. And so, we 
can't have too many, in that sense, because as we get to the 
ground level, you know, we have issues in steel, and in 
manufacturing, and we need lots of this kind of activity.
    I would characterize the Asia-Pacific Partnership as now 
being on the leading edge, though. By only having six 
countries, and with focused task-force activities, we can 
actually achieve more, in real terms. By contrast, the Kyoto 
process, there are 189 countries, with climate experts who 
largely don't have operational responsibility for any of the 
outcomes. So, that's a very huge process to try to get a 
conversation going in. Six is a lot easier. And each of these 
task forces will have about 24 people on them. Now, that's the 
kind--with budget and responsibility--that's the kind of 
conversation that we need to replicate more and more.
    In the G8, the task forces--the partnership is perfectly 
consistent with the G8 leaders' agreement that we need to 
address these issues in an integrated way, and the call for 
more work with developed countries--so, it's accomplished that. 
And then, it's--you know, Methane to Markets is a good example, 
where we will achieve some of the Methane to Markets approach 
through the partnership, even as we work with some of our 
European counterparts and counterparts in the southern 
hemisphere on a bilateral basis to achieve methane reductions 
there.
    So, it's a big set of issues to manage, and we're--we have 
an integrated committee in the Administration whose job it is 
to make sure that these pieces are moving in synchronization 
with each other.
    Senator Vitter. OK. I'm somewhat concerned about the amount 
of money we spend in the Federal budget on climate change, and 
what we're getting for it, $5 billion, when you add up 
everything together. That is a major amount of money. I'm not 
sure exactly what we're getting for it is the best investment 
and how coordinated and focused, in an overall way, that effort 
is. Can you talk about that and how the APP fits into that 
overall effort?
    Mr. Connaughton. We have $5 billion. About $2 billion is 
dedicated to climate science. That's as much as the rest of the 
world commits to the issue. The U.S. is a clear leader there. 
And the President's budget is increasingly reflecting the 
priorities that were given to us by the National Academy of 
Sciences and then that have worked their way into our new 10-
year Science Strategic Plan.
    Our Nation never had a Science Strategic Plan before. We 
had a very intensive process, involving more than 1,000 
scientists, to develop that. And now, hopefully working even 
more closely with the Congress, we need to get that $2 billion 
budget better aligned with the priorities that the scientists 
have identified.
    On the technology side, the last 4 years were really about 
new transformational technologies, like hydrogen, very-low- or 
zero-pollution coal. These are technologies that are, you know, 
a few years away.
    I think the conversation in the next--that--and so, this $3 
billion is going toward these very big technology 
opportunities. And so, it's very important to sustain that 
funding. And that is now being done in a very--with a very 
transparent technology plan that some have--some love, some 
have criticism of. But it's an organized plan, for the first 
time.
    The next 4 years, though, from our perspective, has to now 
really look at these near-term or close-to-near-term 
opportunities for investment. You know, it was right to spend 
our time on the longer-term bets to get it moving, but now we 
can look at things like methane, efficiency in power 
generation, these profitable investment streams, and start to 
get some real delivery in results next year, the year after 
that, even as we hope for things like hydrogen, cellulosic 
ethanol, and some of these other items that are in the recent 
energy bill as they come online, you know, a few years hence.
    Senator Vitter. Great.
    Senator Lautenberg?
    Senator Lautenberg. Thanks, Mr. Chairman.
    Mr. Connaughton, I get the sense, listening to you, that 
we're hard at work on trying to make sure that, in the future, 
other nations contribute to the problem--solving the problem of 
greenhouse gases and global warming, the environmental 
pollution. Is it not true that we, in America, 4 percent of the 
population of the world, create about 25 percent of the 
greenhouse gases?
    Mr. Connaughton. I don't have the exact figure. I think 
you're close. Our greenhouse gases are a lower percentage than 
our economic output, but it should not be----
    Senator Lautenberg. Well, you're not representing the 
budget here, you're representing the environmental side. So, I 
understand about the budget, and I understand about business. I 
come out of the corporate world, and all that. I want to get to 
what point in time you think there's a real alarm that ought to 
be sounded. At what point in time do we observe the 
disappearance of species? At what point in time do we see 
countries that are--areas that were constantly under snow and 
ice disappearing in front our eyes and say, ``You know 
what?''--yes, this is a good idea, the partnership, but, at 
what point in time do we, here in America, invest in making 
sure that we do what we can to protect the children of the 
future, my grandchildren and anybody else's grandchildren 
sitting out there? At what point----
    Mr. Connaughton. The point in time----
    Senator Lautenberg.--in time?
    Mr. Connaughton. The point in time, Senator, was 1992, with 
the signing and ratification of the Framework Convention on 
Climate Change, and today, and tomorrow, and in the coming 
decades. The time is now.
    Senator Lautenberg. Yes. So, what is in place now? If we 
can contribute, as we do, to this large volume of greenhouse 
gases--I was in the Brazil once, on a Earth Summit, and I 
talked to an interior minister down there and asked them to 
please help us understand why they're burning the Amazon 
forests. And he said, ``Well, one of our farmers will burn an 
acre of land to sustain his family of four for life. And one of 
your workers in a chemical plant can create that much pollution 
in a single day. If you want us to stop burning the forests, 
then you make a contribution. You sustain this farmer, and 
we'll make sure that for every farmer that you--whose life you 
help improve, that we'll stop burning the forest. That's not 
your territory. It's our territory, and we'll take care of 
ourselves.''
    But I don't see it happening in our country. And when your 
former Chief of Staff edits reports by climate scientists to 
undercut their findings about global warming, did he have the 
technical background? Did he have the authority to redact those 
findings, the ones that were put out by the scientists from 
NASA? Is that the kind of conduct that we salute in our 
country, that if you don't agree with the outcome, change the 
words?
    Mr. Connaughton. Let me take the first question first, and 
then I'll answer the second one.
    Senator Lautenberg. Talking about Phil Cooney, right?
    Mr. Connaughton. Phil Cooney, that's correct.
    Let me answer the first one. In my testimony, I provided an 
extensive discussion of the wide variety of actions that are 
occurring in the context of Federal programs. We have dozens of 
Federal programs, starting in 1992, initiated by the first 
President Bush, new--programs developed new by the Clinton 
Administration, and we have added a whole raft of programs, as 
well, under the Bush Administration. So, we are building this 
portfolio I described.
    Just at Federal facilities alone, Senator, we have the new 
Federal Energy Management Plan. Courtesy of the Congress, the 
Federal Government can now write energy savings contracts. We 
are busily out there doing it. And what that means is, the 
private sector pays to install efficiency equipment at Federal 
Government facilities at no cost to the taxpayer. We share the 
energy savings with the private-sector entity that does it. We 
get a massive improvement in efficiency. We also offset the 
greenhouse gases----
    Senator Lautenberg. Will our air improve? Has there been a 
reduction, as of now, in greenhouse gas? Or is--are the 
reductions in those that were about to occur?
    Mr. Connaughton. Not only are we getting greenhouse gas 
reductions with each new investment in efficiency at Federal 
facilities, but if we stay on track with this plan--and we--
this Administration is dedicated to doing that----
    Senator Lautenberg. How much do the Federal facilities 
contribute to the total emission of greenhouse gas?
    Mr. Connaughton. Let me just give you an example, Senator. 
This program is projected to reduce the greenhouse gas output 
of the Federal Government alone by about 42 million metric 
tons. Let me put that in perspective. The Kyoto process will 
generate about a 500-million-metric-ton reduction. This is 
almost a tenth of that, just from Federal--U.S. Federal 
Government facilities alone, at a net savings to the taxpayer 
and through innovative products being sold by the private 
sector. See, it's these kinds of policies that can produce big-
ticket outcomes. And that's what we're looking at.
    I could go on at length over these----
    Senator Lautenberg. Yes, I know you could.
    Mr. Connaughton.--dozen programs.
    Senator Lautenberg. I know you could. And I----
    Mr. Connaughton. But----
    Senator Lautenberg.--appreciate it, but that's not--want to 
know is, At what point do we say that we've started to gain on 
this? At what point have we slowed the deterioration of the 
atmosphere?
    Mr. Connaughton. The current data, through 2004--so, if you 
take the period from 2000 to 2004--for several reasons, good 
and bad, that I outline in my testimony, the United States has 
slowed the growth of its greenhouse gas emissions 
substantially. The first step is to slow them down.
    Senator Lautenberg. Slowed the growth.
    Mr. Connaughton. Just like we did on air pollution, all the 
way through the 1970s and 1980s.
    Senator Lautenberg. Have we reduced the quantity that's 
being emitted now? If we look at last year and the year before 
and the 5 years before that, have we reduced the quantity of 
greenhouse gases that are being emitted in our country?
    Mr. Connaughton. We have a significant net reduction of 
methane, a significant net reduction of some of the specialty 
gases, like----
    Senator Lautenberg. Carbon?
    Mr. Connaughton.--like PFCs, perfluorocarbons.
    Senator Lautenberg. Carbon?
    Mr. Connaughton. We still have carbon dioxide increasing, 
but it is increasing at a declining rate. That is exactly the 
pathway we want to see. Let me give you the statistics. Our 
economy has grown by about 9.5 percent since 2000, and yet our 
carbon greenhouse gases and the other net greenhouse gases have 
grown only 1.1 percent. That is a very important step, that 
we're able to have economic growth with much fewer greenhouse 
gases.
    Senator Lautenberg. So, the green--the obvious thing is 
that, more than anything else, we want the economic growth.
    Mr. Connaughton. No. We need both, Senator.
    Senator Lautenberg. We need both. But one is outpacing, in 
my view, the thought process and the behavior of our interest 
in controlling the----
    Why were those reports that--the report that was written, 
authored by--what was his name? He's the--no, the scientist 
from NASA--yes--redacted? And why was Mr. Cooney involved in 
changing language? Can you tell me that?
    Senator Vitter. If I can ask for a quick answer on that, 
and then we're going to take a brief recess for some floor 
statements and activity on immigration, and we'll come right 
back, and we can pick it up wherever you leave off, Mr. 
Connaughton.
    Mr. Connaughton. Right, thank you, Mr. Chairman.
    Mr. Cooney was part of a very extensive interagency review 
process that included policy advisors, lawyers, scientists, and 
other officials across the board. The ultimate part of that 
policy process is reviewed by the science officials in charge 
of those documents. Some edits were accepted, some edits were 
rejected. That's true of all of us, including me. And so, we 
have an interactive process. The report went out publicly in 
2003. When it went out, the substance of the report, we didn't 
hear much about it, so it seemed right. And the process of 
editing is a process that occurs all across the Government at 
all levels. Mr. Cooney was an important contributor to that 
process.
    Senator Vitter. We're going to take a quick recess for some 
floor activity on immigration. The leader is making a statement 
that I want to be there for. Senator, do you have more 
questions for Mr. Connaughton, or shall we release him and go 
on to the second panel?
    Senator Lautenberg. I'd like to----
    Senator Vitter. It's completely up to you.
    Senator Lautenberg.--I'd like to continue. How long a----
    Senator Vitter. Shouldn't be that long. I would hope it 
would be less than a half an hour.
    We'll take a recess for----
    Senator Lautenberg. Are you available?
    Mr. Connaughton. I believe so. Let me--half an hour. Yes, I 
have a little time after that.
    Senator Vitter. OK. We'll take a brief recess, and I'll 
return absolutely as quickly as I can.
    Thank you very much.
    [Recess.]
    Senator Vitter. At this time, we'll resume. And I want to 
apologize for keeping you here, apparently for no reason, now, 
in retrospect. So, I'm very sorry for that delay. I'll ask 
Senator Lautenberg, the Ranking Member, to follow up with you 
on any further questions.
    Thank you very much for being here.
    Mr. Connaughton. Thank you, Mr. Chairman. And, again, I 
appreciate your holding this hearing to get more information 
about the actions we're taking. And, in addition to questions 
in writing, I'd be happy to sit down, one-on-one, with any of 
the Members of the Subcommittee, and give them whatever time 
they need to make sure that they are fully educated on these 
consequential activities. They're going to make a real 
difference all around the world.
    Senator Vitter. Great. Thank you very much.
    And now I'd like to invite up our second panel.
    [Pause.]
    Senator Vitter. I want to welcome our second panel. And 
I'll introduce them all, at this time. Dr. Margo Thorning is 
Managing Director of the International Council for Capital 
Formation. Dr. David Montgomery is Vice President of CRA 
International. And we also have Mr. David Doniger, Policy 
Director of the Climate Center with the Natural Resources 
Defense Council.
    Welcome to all of you. And we'll begin with Dr. Thorning.

                STATEMENT OF DR. MARGO THORNING,

            MANAGING DIRECTOR, INTERNATIONAL COUNCIL

                     FOR CAPITAL FORMATION

    Dr. Thorning. Thank you, Mr. Chairman. I appreciate the 
opportunity to submit the statement for this record.
    I'm Margo Thorning, Managing Director of the International 
Council for Capital Formation, a Brussels-based think tank 
whose goal is to promote market-based solutions based on cost-
benefit analysis to address economic and environmental issues. 
The ICCF is an affiliate of the American Council for Capital 
Formation.
    We appreciate the opportunity to comment on the goals of 
the Asia-Pacific Partnership and the positive impact that 
voluntary programs, in contrast to mandatory programs, can have 
in reducing greenhouse gas emissions.
    I think it's useful to take a look at how our allies in 
Europe are doing with their mandatory approach to reducing 
greenhouse gases. The EU's emission trading system covers 
approximately 12,000 emitters, and those are responsible for 
about 40 percent of total greenhouse gas emissions in the EU. 
The European Environmental Agency shows that the EU is not on 
track to meet their Kyoto target. They are expected to be 4 
percent above 1990 levels of emissions, rather than 8 percent 
below, as required by the Kyoto Protocol.
    If you're interested in individual country studies of what 
the economic impact would be of a mandatory system that covered 
all sectors of the EU, those are available at the ICCF's 
website, www.iccfglobal.org.
    The U.S. is actually doing better, in terms of reducing 
emissions intensity, than is the EU. If you take a look at 
Figure 2 in my statement, which I would appreciate being 
submitted for the record, you can see that since--over the 
1997-2003 period, U.S. has reduced its emissions intensity by 
over 12 percent, compared to only 7 percent in the EU. So, with 
our voluntary system, we're actually making more progress in 
reducing emissions intensity, while continuing to grow our 
economy strongly, than is the EU.
    Another issue to think about is, Will mandatory targets 
drive the investment in new energy-efficiency technology that 
will be the key to reducing greenhouse gas emissions? If 
investors are forced to make near-term end-of-pipe solutions to 
curb emissions in the short-run, that will divert resources 
that are needed to focus on long-term spending on R&D. Even--
it's also very difficult for an investor to have confidence in 
a mandatory target. A current government really can't bind a 
future government as to either emission targets or as to 
safety-valve prices.
    Third, the U.S. population is growing. It's expected to 
grow about 20 percent over the next 20 years. In the EU, 
population is not growing much at all. So, even with their 
stagnant population, they're not able to meet their Kyoto 
targets. So, that is something to be considered when looking at 
a mandatory system, as opposed to voluntary.
    I think the focus of the current Administration's policy, 
which is based on incentivizing new technology, is probably the 
most productive way to try to address the potential threat of 
climate change. You might be interested in Table 2 in my 
submission, which compares the EIA--DOE EIA's simulation of a 
high-tech--faster high-tech penetration over the 2020-2030 
period with that of a mandatory cap-and-trade program. The EIA 
data suggests that the voluntary approach, which assumes a 
higher penetration of new tech, actually reduces greenhouse gas 
emissions more than does a mandatory approach, and it has the 
further benefit of increasing GDP and reducing electricity 
prices. So, clearly there's a lot of scope here in the U.S. for 
reducing greenhouse gas emissions, particularly as we 
incentivize new technology.
    How to incentivize it? One positive thing that we might do 
is reduce the cost of capital for new investment. The U.S. has 
a tax code that has much slower capital-cost recovery than most 
other countries. For example, combined heat and power, a U.S. 
investor gets only 29 cents back after 5 years; whereas, a 
Brazilian investor gets 50 cents back, and a Chinese investor 
gets a dollar back. So, their capital costs are lower, because 
they have much more rapid depreciation.
    So, looking at incentivizing investment here in the U.S. 
through those type of positive measures, as well as encouraging 
the type of activities that Chairman Connaughton discussed and 
Dave Montgomery will also discuss, I think, are the positive 
way to reduce greenhouse gases without harming U.S. economic 
growth.
    Thank you, Mr. Chairman.
    [The prepared statement of Dr. Thorning follows:]

     Prepared Statement of Dr. Margo Thorning, Managing Director, 
              International Council for Capital Formation
Introduction
    Mr. Chairman and Members of the Subcommittee, I appreciate the 
opportunity to submit this statement for the record. The International 
Council for Capital Formation is a Brussels-based think tank whose goal 
is to promote market-based solutions cost-benefit analysis to address 
economic and environmental issues. The ICCF is an affiliate of the 
Washington-based American Council for Capital Formation. We appreciate 
the opportunity to comment on the goals of the Asia-Pacific Partnership 
on Clean Development and Climate and positive impact that voluntary 
programs (in contrast to mandatory programs) can have in reducing 
greenhouse gas emissions.
Pros and Cons of Mandatory Approaches to GHG Reduction
    Although there are numerous supporters of mandatory U.S. programs 
to reduce GHGs in the U.S. it is useful to examine the record of our 
allies in the EU in reaching their Kyoto Protocol targets before making 
such a committment:

   Emission Trading in the EU: As U.K. Prime Minister Tony 
        Blair noted in a speech last week, ``I think first of all I 
        should say that Britain is one of the very few countries in the 
        world that will meet its Kyoto targets.'' The main reasons for 
        the U.K. being one of the few countries able to meet its Kyoto 
        target are: (1) that it switched from coal to natural gas power 
        for electricity generation, and (2) DuPont closed a facility 
        that emitted large quantities of GHGs. Other EU countries are 
        not so fortunate and incur significant costs if they try to 
        meet their Kyoto targets. The ETS requires approximately 12,000 
        large industrial emitters and utilities to reduce CO2 emissions 
        (or purchase the right to emit CO2) in accordance with their 
        country's Kyoto Protocol targets.

         The approach to emissions reductions embodied in the EU's 
        sectoral approach has failed to make much of a dent in EU 
        emission growth, but has the potential to make a significant 
        impact on the economies of countries trying to meet their 
        targets. As noted in a recent report by the U.K.'s EEF, an 
        association of engineers and manufacturers, part of the 34 
        percent increase in U.K. electricity prices in 2005 was due to 
        the ETS. The price of the right to emit a ton of carbon reached 
        unexpectedly high levels in 2005, reaching $36 per ton of 
        CO2 ($120 per ton of carbon). Similarly, German 
        climatologist Dr. Gerd Weber states that the ETS has placed 
        additional costs through higher electricity prices on a number 
        of energy intensive companies located in Germany, making 
        production in the EU uncompetitive versus production from 
        outside the EU. Several companies have announced that they will 
        shift production to non-Kyoto countries, taking with them 
        thousands of jobs. Norsk Hydro Aluminum, a Fortune 500 energy 
        and aluminum supplier, closed several production sites in 
        northern Germany because of higher costs related to emissions 
        trading/electricity prices, Dr. Weber notes. The latest data 
        from the European Environmental Agency shows that the ``EU 15'' 
        is expected to be 4 percent above their emissions target in 
        2010, instead of 8 percent below 1990 levels as required under 
        the Kyoto Protocol (see Figure 1). There now appears to be a 
        rift within Europe on climate change policy as Italy and some 
        German industrialists express growing concerns with the impact 
        of the ETS on electricity prices, production costs and 
        competitiveness. The EU's slow economic growth rate (about 1 
        percent annually) and high unemployment (about 10 percent) will 
        only be exacerbated by their ETS.

         It seems very unlikely that EU governments will actually 
        enforce their Kyoto targets because the cost, in terms of 
        reduced GDP and employment, would be political suicide. If the 
        EU actually wanted to reduce its emissions to the Kyoto 
        Protocol target, it would have to use an economy-wide approach 
        and cover all sectors, including transportation and households. 
        Recent macroeconomic analyses of Germany, Spain, U.K., and 
        Italy by the International Council for Capital Formation show 
        that an economy-wide ETS designed to meet the Kyoto targets 
        would reduce these countries' GDP levels and employment 
        significantly in 2010 (see http://www.iccfglobal.org/pdf/
        Country-reports-overview.pdf).

Reducing GHGs: Alternative Approaches

   Mandatory ``Upstream'' and ``downstream'' regulatory 
        approaches: Trying to reduce U.S. emissions through a cap and 
        trade system applied at either ``upstream'' or ``downstream'' 
        is likely to have serious consequences for the U.S. economy, 
        including reduced GDP and increased unemployment rates. For 
        example, various economic models show that the imposition of 
        the Kyoto Protocol would reduce U.S. GDP levels by 1 to 4.2 
        percent annually by 2010 (see Figure 2 at http://www.accf.org/
        pdf/oregontestimonyfinal.pdf). Less stringent emission 
        reduction targets such as those in the McCain, Lieberman, and 
        Bingaman proposals also have negative consequences for the U.S. 
        economy (See Table 1). While the upstream approach is perhaps 
        easier to monitor and enforce because far fewer emitters would 
        be in the system, it suffers from the fact that final consumers 
        won't see much of a direct impact of the energy tax (or permit 
        price) on their energy and fuel bills because those also 
        include the cost of delivering the energy to consumers. On the 
        other hand, if a business owner (say a paint manufacturer) who 
        owns equipment that emits CO2 has to submit an 
        emission allowance for each ton emitted, he will be able to 
        make a careful cost-benefit analysis of when it makes economic 
        sense to replace his capital equipment or make other production 
        related decisions. An obvious question is, if a ``downstream'' 
        system for reducing CO2 emissions is impractical 
        because of the millions of small emitting sources, and an 
        ``upstream'' system results in only attenuated decisionmaking 
        on emissions, how efficient would a cap and trade system be in 
        providing emission decisionmakers with a realistic incentive to 
        efficiently and significantly reduce emissions?

   Mandatory Caps on Emissions will not Drive Innovation: 
        First, caps on emissions are not likely to promote new 
        technology development because caps will force industry to 
        divert resources to near-term, ``end-of-pipe'' solutions rather 
        than promote spending for long-term technology innovations that 
        will enable us to reduce GHGs and increase energy efficiency. 
        An ETS will send exactly the wrong signals to investors because 
        it will create uncertainty about the return on new investment. 
        A mandatory cap would be seen by U.S. investors as just the 
        ``first step'' in a likely series of more stringent targets as 
        policymakers strive to reduce developed country to trajectories 
        suggested by IPCC scenarios. Investors know that a ``safety-
        valve'' price of carbon (designed to create a sense of 
        confidence about future energy costs) can easily be changed. 
        Such uncertainty means that the hurdle rate, which new 
        investments must meet, will be higher (thus less investment 
        will occur) and they will be less willing to invest in the U.S. 
        In addition, investors realize that if a mandatory emission 
        reduction program were established in the U.S., they would be 
        disadvantaged vis-a-vis European companies because the 
        relationship between regulators and business in the EU tends to 
        be more flexible and accommodating than in the U.S. Now is the 
        time to provide incentives for companies to voluntarily 
        undertake additional carbon dioxide intensity reducing 
        investments, not promote a system that raises the risk of any 
        investment in our economy.

         Second, caps on U.S. emission growth are unlikely to succeed 
        unless all the relevant markets exist (in both developed and 
        developing countries) 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 has implemented will fail to spread to other parts of 
        the world and will eventually be replaced with a more practical 
        approach to climate change policy.

         Third, a fixed cap on emissions inevitably collides with U.S. 
        population growth. The EU-15 countries are having difficulty 
        meeting their Kyoto targets and they have negligible population 
        growth. In sharp contrast, U.S. population is projected to grow 
        more than 20 percent over 2002-2025 according to the EIA. More 
        people means more mouths to feed, more houses to warm, more 
        factories to run--all of which require more energy and at least 
        some additional GHG emissions.

Voluntary Approaches to Emission Reduction

   The Role of Economic Growth and Technology in GHG Reduction: 
        Many proponents of the cap and trade system fail to realize 
        that economic growth can have a positive impact on GHG emission 
        reductions. For example, the U.S., with its voluntary approach 
        to emission reductions, has cut its energy intensity by 12.2 
        percent over the 1997-2003 period compared to only 7.6 percent 
        in the EU with its mandatory approach(see Figure 2). Technology 
        development and deployment offers the most efficient and 
        effective way to reduce GHG emissions and a strong economy 
        tends to pull through capital investment faster. Given the 
        extremely long lives of much of the capital stock, the 
        voluntary approach will allow emissions intensity to be reduced 
        in a cost effective way (see Figure 3). There are only two ways 
        to reduce CO2 emissions from fossil fuel use--use 
        less fossil fuel or develop technologies to use energy more 
        efficiently, to capture emissions or to substitute for fossil 
        energy. There is an abundance of economic literature 
        demonstrating the relationship between energy use and economic 
        growth, as well as the negative impacts of curtailing energy 
        use. Long-term, new technologies offer the most promise for 
        affecting GHG emission rates and atmospheric concentration 
        levels. In fact, a new analysis by DOE/EIA (AEO 2006) shows 
        that their High Tech scenario reduces emissions more than does 
        a mandatory reduction in GHG intensity (see Table 2) and has a 
        positive impact on GDP levels and reduces electricity prices.

   Tax Reform Could Reduce Growth of U.S. GHG Emissions: 
        Stimulating the development of various high technology programs 
        can be accelerated through government programs as well as by 
        encouraging private sector investment. Improving the tax 
        treatment of new investment through faster depreciation, 
        investment tax credits, making permanent the 15 percent tax 
        rate on dividends and capital gains received by individuals are 
        positive steps that reduce the cost of capital for investment. 
        ACCF research shows that U.S. companies receive only 29 cents 
        after 5 years through depreciation allowances on each dollar of 
        investment in a combined heat and power facility while a 
        company in China gets $1.04 back and a Brazilian company gets 
        50 cents. Thus, slow capital cost recovery in the U.S. Federal 
        tax code places domestic companies at a disadvantage compared 
        to our trading partners and slows the development and 
        installation of new energy efficient technology.

Conclusion
    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.
    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 can 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.

 Table 1. Economic Impact of McCain/Lieberman  and the Bingaman Proposal
                          on the United States
------------------------------------------------------------------------
                             2010                        2020
                 -------------------------------------------------------
                     McCain/                     McCain/
                    Lieberman     Bingaman      Lieberman     Bingaman
------------------------------------------------------------------------
GDP Falls                 -1.0          -0.2          -1.9          -0.4
Job Losses            -840,000      -230,000    -1,306,000      -326,000
Household                -$725         -$147         -$800         -$164
 Consumption
 Falls
------------------------------------------------------------------------
*State and Federal Tax Receipts Decline.
*Low Income and Elderly Bear Large Burden Due to Higher Energy Costs.


 Table 2: Comparison of EIA High Tech Scenario  with ``Salazar Request''
                         Cap and Trade Scenarios
------------------------------------------------------------------------
                                              2010      2020      2030
------------------------------------------------------------------------
CO2 Emissions From Energy (Million Mt CO2)
        AEO2006 Reference Case                 6,364     7,119     8,114
        AEO2006 Integrated High Technology     6,253     6,734     7,421
        EIA/Salazar Cap-Trade 2                   NA     6,843     7,333
    Change From Reference Case
        AEO2006 Integrated High Technology     (111)     (385)     (693)
        EIA/Salazar Cap-Trade 2                          (276)     (781)
------------------------------------------------------------------------
Real GDP (Billion 2000 Dollars)
        AEO2006 Reference Case                13,043    17,541    23,112
        AEO2006 Integrated High Technology    13,056    17,580    23,152
        EIA/Salazar Cap-Trade 2                   NA    17,522    23,077
    Change From Reference Case
        AEO2006 Integrated High Technology        13        39        40
        EIA/Salazar Cap-Trade 2                           (19)      (35)
    % Change from Reference Case
        AEO2006 Integrated High Technology       0.1       0.2       0.2
        EIA/Salazar Cap-Trade 2                           -0.1      -0.2
------------------------------------------------------------------------
Electricity Prices (Average all users--
 cents per kwh)
        AEO2006 Reference Case                   7.3      7.25      7.51
        AEO2006 Integrated High Technology       7.2      7.03      7.33
        EIA/Salazar Cap-Trade 2                   NA      7.89      8.48
    Change From Reference Case
        AEO2006 Integrated High Technology     (0.1)     (0.2)     (0.2)
        EIA/Salazar Cap-Trade 2                            0.6       1.0
    % Change from Reference Case
        AEO2006 Integrated High Technology      -1.4      -3.0      -2.4
        EIA/Salazar Cap-Trade 2                            8.8      12.9
------------------------------------------------------------------------

                                                                
                                                                
                                                                
                                                                
                                                                
                                                                

    Senator Vitter. Thank you very much, Dr. Thorning.
    Dr. Montgomery?

           STATEMENT OF W. DAVID MONTGOMERY, Ph.D., 
               VICE PRESIDENT, CRA INTERNATIONAL

    Dr. Montgomery. Thank you, Mr. Chairman.
    My name is David Montgomery, and I'm Vice President of CRA 
International, formerly known as Charles River Associates. I'll 
give a brief summary.
    The Asia-Pacific Partnership addresses one of the most 
difficult problems with climate policy, which is how to reduce 
the growth of greenhouse gas emissions from developing 
countries while sustaining or improving their prospects for 
economic growth. I believe those are the only terms on which 
developing countries are willing to enter into discussions of 
climate change.
    Extension of emissions caps and international permit 
trading to developing countries cannot solve this problem, but 
the Asia-Pacific Partnership can. There are large opportunities 
for cost-effective emission reductions in China and India. 
These opportunities exist because of a significant technology 
gap between China and India, on the one hand, and the United 
States and other members of the partnership, on the other.
    China now produces about four times as much greenhouse gas 
emissions per dollar of output as the United States; and India, 
about twice as much. China's carbon intensity has been 
improving over time. But, even taking this into account, I 
conclude that the carbon intensity of new investment in China 
is about twice what it is in the United States. India has not 
shown much improvement for a long time; and so, its carbon 
intensity of new investment is also about twice that of the 
U.S.
    This is the technology gap. If China and India could be 
moved to the level of technology normally in use in the United 
States in the new capital equipment that they're building, that 
change could reduce global emissions over the next decade by an 
amount comparable to what the Kyoto Protocol could have 
accomplished even if it all its signatories, including the 
United States, had adhered to the caps that were proposed 
there.
    And I have placed both some of this analysis and references 
to the research behind it in my prepared statement, which I'd 
like to have submitted for the record.
    This technology gap is largely explained by institutional 
factors in China and India that lead to wasteful use of energy 
and discourage foreign direct investment that would transfer 
technologies used globally to China and India. This can be seen 
readily in Figure 2 of my prepared testimony, which shows that 
energy intensity is closely related to scores on an Index of 
Economic Freedom, which introduces measures of progress in 
different--in institutional reform in different countries 
throughout the world.
    Countries that have created the institutional framework 
required for markets to function efficiently have relatively 
low energy intensity, relatively low carbon emissions per 
dollar of output. That includes the United States and also the 
Asian Tigers, which can be examples to China and India of how 
institutional reform produces both economic growth and lower 
emissions. Countries that have not developed these 
institutions, including China and India, have much higher 
energy intensity.
    Now, what I do I mean by and ``institutional framework,'' 
since this is what I believe the Asia-Pacific Partnership needs 
to address as a major focus? India surveys of the business 
climate identified deficiencies in excessive bureaucracy and 
corruption, deficiencies in the administration of justice, 
large subsidies that encourage wasteful energy use, and the 
collapse of the electricity infrastructure. In China, the list 
is similar, starting with lack of protection for intellectual 
property, an underdeveloped system of property and contract 
law--again, bureaucracy and corruption, and a dominant role for 
state-owned enterprises.
    The partnership starts with a tremendous advantage when it 
addresses institutional reforms of this kind that would 
facilitate technology transfer and reduce greenhouse gas 
emissions, because addressing these institutional factors is 
critical to economic growth in China and India, as well. Both 
countries have begun on the process of institutional reform, 
and the institutional reforms that have taken place thus far 
are responsible for the growth that they have seen, but they 
are going to need a great deal more reform in order to sustain 
their economic growth.
    It's not necessary for the Asia-Pacific Partnership to take 
on every aspect of this immense challenge of creating 
preconditions for growth in China and India. It can focus on 
those reforms that would have the most leverage on energy 
markets and technology transfer. I think this focus on 
institutional reform is built into the charter of the 
Partnership. It's critical that it become the partnership's 
highest priority.
    Without institutional reform, no demonstration project or 
effort to transfer technology is going to have a chance of 
leading to broad technology transfer and diffusion, because the 
hostile economic environment in China and India that now 
prevents even technologies that are in common use in the United 
States from being adopted. With institutional reform, market 
forces can be expected to lead to rapidly improving emissions 
intensity without imposition of emission caps or other costly 
programs on China and India. This is the challenge and the 
opportunity for the Asia-Pacific Partnership.
    Thank you, Mr. Chairman.
    [The prepared statement of Dr. Montgomery follows:]

   Prepared Statement of W. David Montgomery, Ph.D., Vice President, 
                           CRA International
    Mr. Chairman and Members of the Subcommittee:
    Thank you for your invitation to testify in today's hearing. I am 
David Montgomery, and I am Vice President of CRA International, where I 
am co-leader of its global Energy and Environment Practice. This 
testimony is a statement of my own research and opinions, and does not 
represent a position of CRA International.
    I am particularly pleased by this opportunity to testify on ``The 
Role of Science in the Asia-Pacific Partnership.'' I believe, based on 
studies that I and others have conducted over the past few years, that 
the Asia-Pacific Partnership offers an opportunity to define an 
approach to climate change policy that can reconcile the objectives of 
economic growth and environmental improvement for developing countries.
    This testimony is organized in three parts. The first section 
discusses the opportunities that exist for cost-effective emission 
reductions in developing countries, and the role of technology transfer 
and foreign direct investment in taking up these opportunities. The 
second part of my testimony provides the reasons why these 
opportunities exist and discusses why it is critically important that 
policy be designed, as the Asia-Pacific Partnership is, to attack the 
root causes of both poverty and high CO2 emissions in 
developing countries. Those root causes are to be found in economic 
institutions that prevent sustained economic growth and cause wasteful 
energy use. Fundamental reform of economic institutions is required 
before any attempts to reduce the greenhouse gas intensity of 
developing economies can succeed, and that reform can be expected on 
its own to stimulate greater foreign investment and technology 
transfer. The final section of my testimony discusses how the Asia-
Pacific Partnership can realize these key opportunities and suggestions 
on possible ways in which the Partnership could be made more effective.
    My overall conclusion is that the Asia-Pacific Partnership presents 
an opportunity to define a significant new international approach to 
climate policy, one that does not require emission caps or trading to 
achieve reductions in global emissions. Although other countries are 
not willing to admit the failure of the Kyoto Protocol publicly, there 
are very promising signs of interest in the ideas embodied in the Asia-
Pacific Partnership: the use of technology, the role of developing 
countries, and discussions among ``large emitters.'' I therefore 
believe that this is a time when the United States can be engaged in 
international cooperation that moves away from the cap and trade 
approach embodied in the Kyoto Protocol toward a more technology and 
growth oriented approach to the climate problem. The Asia-Pacific 
Partnership provides the foundation for that approach.
I. Opportunity
    I will make three points in regard to the opportunities that exist 
in developing countries.

        1. Globally, the best opportunities for near-term, cost-
        effective reductions in greenhouse gas emissions are in China, 
        India, and other developing countries.

        2. Developing countries are only interested in approaches to 
        reducing their greenhouse gas emissions that will enhance 
        opportunities for economic growth.

        3. Policies that stimulate greater technology transfer and 
        investment in developing countries have the potential to 
        achieve both economic growth and climate policy goals.

    Greenhouse gas emissions are driven by population, income and 
technology. This fundamental relationship is described in an equation 
known as the ``Kaya Identity.'' \1\ It states that
---------------------------------------------------------------------------
    \1\ Y. Kaya, ``Impact of Carbon Dioxide Emission Control on GNP 
Growth: Interpretation of Proposed Scenarios.'' Paper presented to the 
IPCC Energy and Industry Subgroup, Response Strategies Working Group, 
Paris, 1990.


    The first two terms of this equation show that growth in total 
income comes from population growth and growth in per capita income. 
Technology appears in this equation in the third term, which describes 
CO2 per dollar of income. The legitimate aspiration of poor 
countries is to keep per capita income increasing. Population is a 
separate and divisive issue--and in any event is not likely to be 
responsive to policies in the short-run. Since per capita income growth 
and population growth are off the table, this leaves technology--
CO2/($)--as the feasible object for change.
    Technology is critically important because emissions per dollar of 
income are far larger in developing countries than in the United States 
or other industrial countries. This is both a challenge and an 
opportunity. It is a challenge because it is the high emissions 
intensity--and relatively slow or non-existent improvement in emissions 
intensity--that is behind the high rate of growth in developing country 
emissions.
    Opportunities exist because the technology of energy use in 
developing countries embodies far higher emissions per dollar of output 
than does technology used in the United States; this is true of new 
investment in countries like China and India as well as their installed 
base (See Figure 1). The technology embodied in the installed base of 
capital equipment in China produces emissions at about 4 times the rate 
of technology in use in the United States. China's emissions intensity 
is improving rapidly, but even so its new investment embodies 
technology with twice the emissions intensity of new investment in the 
United States. India is making almost no improvement in its emissions 
intensity, with the installed base and new investment having very 
similar emissions intensity. India's new investment also embodies 
technology with twice the emissions intensity of new investment in the 
United States.
    The United States is a good benchmark of technology that is 
economic at today's energy prices, without any additional incentives or 
regulations that would lead to adoption of more costly technologies for 
the purpose of reducing greenhouse gas emissions. Japan's emissions 
intensity is about half that of the United States, so that Japanese 
technology provides a benchmark for more aggressive efforts to reduce 
energy use.


Priorities for Economic Growth
    Developing countries have made it clear that their highest 
priorities are dealing with poverty, disease, famine, unemployment and 
violent conflict,\2\ and that sustained economic growth is a 
prerequisite for dealing with these problems. Therefore, developing 
countries have also made it clear that they will not accept caps on 
their greenhouse emissions and have no interest in becoming part of a 
global emission trading system--at least on terms acceptable to the 
industrial countries. They see these approaches to climate change 
policy as threatening their ability to grow and deal with their more 
pressing problems. Therefore, only approaches to climate policy that 
combine greater economic growth with reductions in emissions intensity 
have any chance of attracting the interest of developing countries.
---------------------------------------------------------------------------
    \2\ The World Summit on Sustainable Development (WSSD) reaffirms 
the need to have balanced economic development, social development and 
environmental protection. It also reaffirms poverty eradication and 
preservation of the environment as the overarching objectives of 
sustainable development (United Nations 2002).
---------------------------------------------------------------------------
The Importance of Technology Transfer
    Technologies that offer lower CO2 intensity have largely 
been developed in the industrial countries. Therefore technology 
transfer, which occurs largely through foreign direct investment, is 
required to replace carbon-intensive technology.
    Technology transfer and increased investment have the potential for 
achieving large reductions in emissions. The potential from bringing 
the emissions intensity of developing countries up to that currently 
associated with new investment in the United States is comparable to 
what could be achieved by the Kyoto Protocol (See Table 1). These are 
near term opportunities, from changing the nature of current investment 
and accelerating replacement of the existing capital stock. Moreover, 
if achieved through transfer of economic technologies it is very likely 
that these emission reductions will be accompanied by economic benefits 
for the countries involved.

     Table 1: Greenhouse Gas Emission Reductions Achievable Through
              Technology Transfer and Increased Investment
------------------------------------------------------------------------
                                                  To 2012      To 2017
                                                  (MMTCE)      (MMTCE)
------------------------------------------------------------------------
Adopt U.S. technology for new investment in           2,600        5,200
 China and India
Adopt U.S. technology with accelerated                4,200        7,700
 replacement in China and India
Adopt continuously improving technology with          5,000        9,800
 accelerated replacement in China and India
EU under Kyoto Protocol (without hot air)               600        1,400
All Annex B countries under Kyoto Protocol            2,800        7,300
 (including U.S. and hot air)
------------------------------------------------------------------------

    The potential emission reductions estimated in Table 1 are derived 
from a study my colleagues and I performed using a model of economic 
growth based on the idea of ``embodied technical progress.'' In the 
first case, we assumed that in 2005 new investment in China and India 
immediately moves to the level of technology observed in the United 
States, and calculate the resulting reduction in cumulative carbon 
emissions through 2012 and 2017. This is the technology transfer case. 
In the second case, we assume that policies to stimulate foreign direct 
investment accelerate the replacement of the oldest capital with new 
equipment, giving even larger savings. In the third case, we assume 
that the new technology continues to improve over time, as it will if 
policies to stimulate R&D into less emissions-intensive technologies 
are also put in place. It can be seen that even the least aggressive of 
these policies has potential for emissions reductions as large as 
possible if all countries (including the U.S.) achieved exactly the 
emission reductions required to meet their Kyoto Protocol targets. This 
is because the technology gap is so large, and because of the large 
share of global emissions that will come from China and India in the 
next few decades.
    It is also important to note that given the large difference 
between emission intensities of China and India and the U.S., and the 
relatively small remaining distance between the U.S. and Japan, most of 
the emission reductions achievable through technology transfer can be 
achieved be moving from current to U.S. technology. Going beyond this 
in the next decade or so, by pushing developing countries to adopt 
technology not currently economic even in the United States, entails 
rapidly increasing costs and smaller emission reductions. \3\
---------------------------------------------------------------------------
    \3\ The potential for emissions reduction through technology 
transfer is discussed in P. Bernstein, W. David Montgomery and S.D. 
Tuladhar, ``Potential for Reducing Carbon Emissions from Non-Annex B 
Countries through Changes in Technology.'' Accepted for publication, 
Energy Economics. 2006.
---------------------------------------------------------------------------
    The difference in technology that accounts for the difference in 
emissions intensity between developing countries and the U.S. will not 
be eliminated without substantially greater technology transfer. That 
technology transfer occurs largely through the mechanism of foreign 
direct investment, as multinational companies bring with them the 
technology they have developed and use in their current markets. The 
combination of technology transfer and FDI is one of the strongest 
engines of growth. But increasing technology transfer and FDI to China 
and India requires removing current defects in their investment 
climate.
II. Causes of High Carbon Intensity and Effective Remedies \4\
---------------------------------------------------------------------------
    \4\ This section is based on W. David Montgomery and Roger Bate. 
``Beyond Kyoto: Real Solutions to Greenhouse Emissions from Developing 
Countries.'' AEI Environmental Policy Outlook, July 1, 2004.
---------------------------------------------------------------------------
    In a highly developed economy such as that of the United States, 
characterized by efficient markets, pricing relatively undistorted by 
government policies or government-owned enterprises, free trade and 
free flows of capital, and strong legal institutions and protection of 
property rights, it is likely that there are few opportunities to 
improve carbon intensity without causing reductions in economic 
performance and income per capita. If technologies offering such 
opportunities exist, market forces and individual economic interest 
will lead to their adoption. This is not the case in many developing 
countries, which have economic systems characterized by a lack of 
incentives for efficient energy use, due to institutional and market 
failures, and an investment climate that discourages foreign investment 
and technology transfer. Remedying these institutional and market 
failures offers the prospect of reconciling economic growth and 
emissions reduction.
Economic Freedom and Emissions Intensity
    The modern literature on economic development emphasizes the role 
of legal, market and governmental institutions in economic development. 
The concept of ``economic freedom'' summarizes a wide variety of 
conditions that are found to be conducive to individual initiative and 
economic growth.\5\ Indices of economic freedom are based on 
comprehensive surveys of conditions around the world. The broad indices 
of economic freedom include specific institutional problems that can 
lead to high carbon intensity:
---------------------------------------------------------------------------
    \5\ Economic Freedom of the World (EFW) index is published by The 
Frasier Institute 
(http://www.freetheworld.com/release.html) and measures the degree to 
which a country is supportive of economic freedom. The EFW summary 
index is constructed from five different policy areas: (i) size of 
government; (ii) legal structure and protection of property rights; 
(iii) access to sound money; (iv) international exchange; and (v) 
regulation. Index of Economic Freedom is published by the Heritage 
Foundation/Wall Street Journal (http://www.heritage.org/research/
features/index/) and reports 10 broad measures of economic freedom for 
161 countries.

   Pricing systems that make efficient technologies 
---------------------------------------------------------------------------
        unprofitable.

   Institutions and policies that make markets inhospitable to 
        foreign investment with world class technology.

        -- Rule of law and protection of intellectual property.
        -- Role of state owned enterprises.
        -- Access to foreign capital.

   Lack of infrastructure, education and skills required for 
        technology.

        
        
    Lack of these components of economic freedom is clearly associated 
with high levels of energy use per dollar of GDP. Figure 2 plots scores 
on the Economic Freedom of the World Index compiled by the Frasier 
Institute against energy use per dollar of GDP, measured at market 
exchange rates.
    Energy intensity is used as a measure because it is directly 
connected to greenhouse gas emissions from energy use. For example, 
three of the countries with the relatively poor scores on economic 
freedom, Russia, China and India, have high energy use and carbon 
emissions per dollar of GDP. At the other end of the scale, countries 
like South Korea, Singapore and Namibia with relatively free economies 
have much lower carbon intensities, similar to that of the United 
States.
    The curved line represents the results of a statistical analysis of 
the association, which shows that about one-third of the variation in 
energy intensity is explained by differences in scores on economic 
freedom. This is an unusually clear relationship for this type of 
cross-sectional data. The literature on economic development also shows 
that the economic freedom index is very closely associated with per 
capita income and rates of economic growth.
    In more recent, unpublished work my colleagues and I have focused 
on specific aspects of the institutional setting that can be expected 
to have a direct effect on either the efficiency of energy use or the 
transfer of economic technologies. This research reveals that both 
China and India have significant institutional shortcomings in such 
areas as the rule of law and administration of justice, protection of 
intellectual property, excessive bureaucracy and corruption, a dominant 
role of state enterprises in the economy, and inadequate 
infrastructure. In both countries, continued economic reform is 
recognized as being necessary to sustain current rates of economic 
growth. We have also found that the same institutional problems are 
directly connected to wasteful energy use, by diminishing or 
eliminating incentives for efficient use of resources, and discourage 
foreign direct investment of the type that leads to effective 
technology transfer.
Design of Policies that Can Be Effective and Engage Developing 
        Countries
    The evidence that high emissions intensity is closely associated 
with fundamental market and institutional failures leads me to conclude 
that the highest priority of the Asia-Pacific Partnership should be to 
facilitate the process of removing market and institutional failures in 
China and India.
    Without remedies for the fundamental institutional problems that 
underlie poor scores for economic freedom, the continuation of two 
unfortunate current conditions can be expected:

   A hostile economic environment in China and India will 
        prevent technology that is introduced through projects that the 
        Partnership might support from spreading throughout the 
        economy.

   Emission caps will remain costly, because without new 
        technology, emission reductions will require diverting 
        resources that could otherwise be used for growth.

    If remedies are found for fundamental institutional problems, two 
kinds of results can be expected:

   Projects that transfer economic technologies will take place 
        without further incentives and will lead to spillover effects 
        and significant emission reductions.

   The root causes of both poverty and high carbon intensity 
        will be addressed together.

    The actions required to create fundamental institutional reform 
must take place within the developing countries themselves, and be 
designed and carried out by their governments, businesses and citizens. 
The Asia-Pacific Partnership includes China and India, the two 
developing countries with the largest current and potential future 
emissions; Korea, an Asian country whose success proves that economic 
freedom leads to growth and lower greenhouse gas emissions; and three 
countries that can be the source of direct investment and technology 
transfer--Australia, Japan and the United States. The great opportunity 
afforded by the Asia-Pacific Partnership is to create a process in 
which all these countries can work together to identify the needs for 
institutional reform in China and India, understand the benefits that 
institutional reform would provide in enhancing economic growth and 
reducing greenhouse gas emissions, and take on appropriate 
responsibilities for bringing about those changes. But to do this, the 
Asia-Pacific Partnership must make institutional reform, not 
identification of specific projects to be funded by donor governments, 
its highest priority.
III. How the Asia-Pacific Partnership Can Support Institutional Reform
    The Partnership starts with a tremendous advantage when it 
addresses institutional reforms that will facilitate technology 
transfer and reduced greenhouse gas emissions, because addressing 
institutional issues is critical to the highest priority of both China 
and India. Moreover, both countries have already begun the process of 
institutional reform, and recognize that their current rates of 
economic growth were made possible by those reforms.
    In the first part of this testimony I have attempted to establish 
that institutional reform should be the highest priority of the Asia-
Pacific Partnership. This conclusion is supported first by evidence of 
a large gap in energy technology between China and India, on one hand, 
and the rest of the Partnership. This evidence comes from data on 
national and, to a limited extent, sectoral energy intensities which 
support inferences about the level of technology embodied in new 
investment. I also drew on research on institutional obstacles to 
economic growth to discuss areas in which China and India lack a 
market-oriented investment climate and other institutions that support 
efficient markets, and described how these deficiencies are likely to 
be causes of the technology gap.
    This analysis provides strong indications that China and India lag 
far behind the U.S., Japan and Australia in technology, even in new 
investment, and that this lag and resulting high levels of greenhouse 
gas emissions are attributable to failings in legal, political and 
market institutions. There is also strong evidence that remedies for 
these failings would contribute to economic growth. However, much more 
detailed understanding of the opportunities for institutional reform 
and improved technology is required as a basis for an action plan, and 
a consensus on such an understanding is required to reach agreement on 
actual steps to be taken by members of the Partnership.
    I believe that this consensus and agreement could be reached if the 
Partnership undertook four steps, that I arrange into two distinct 
phases.
    The first phase would be a research and consensus building process, 
to provide a shared understanding of technological possibilities and 
institutional barriers. The first step in the research and consensus 
phase should be to identify and characterize the investment climate of 
China and India and the potential for emission reductions through 
transfer of technologies that would be economic but for institutional 
failures. This process would take place in working groups with 
participation limited to disinterested experts, representatives of the 
business communities and the APP governments. Achieving consensus 
across stakeholders and countries on the basic facts about the current 
investment climate and the role of FDI in promoting technology transfer 
will go a long way toward developing support for reforms.
    It is critical that businesses who have had direct experience in 
applying state-of-the-art technology and dealing with the institutional 
setting in China and India tell their stories as part of this process. 
The key to success is not an outstanding set of studies by the experts, 
but identification of real-world opportunities and barriers. Private 
sector knowledge of technologies that can make it on their own in the 
global marketplace and experience with institutional obstacles to doing 
profitable business in China and India is the essential foundation of 
this approach.
    The second step would be for the same working groups to develop 
proposals, given the benchmarking exercise of the first step, that 
would accomplish significant changes. These proposals should describe 
specific institutional reforms that would have direct benefits for 
technology transfer and efficient use of energy. Proposals should 
include actions by all parties, so that they are broadly perceived as 
equitable and cooperative. In this step in particular, opinions of 
international businesses on how much change is needed to create a 
receptive investment climate should be taken as a major input.
    The third step would move from working groups to interaction among 
the APP governments to understand the difficulties associated with 
removal of obstacles for technology transfer in particular and 
institutional reform in general, and what each government could 
contribute. The current institutional climate in China and India exists 
for a reason, and how incremental reform can proceed in the face of 
interests that benefit from the status quo must be addressed directly. 
The interaction should identify actions that China and India would be 
willing to see Australia, Japan and the United States undertake to 
encourage, speed and reward the process of institutional reform, as 
well as feasible actions to be undertaken in China and India by their 
respective governments.
    The final phase should be to create an ongoing process in which 
Partnership governments would agree to concrete actions that each would 
take to support institutional reforms and achieve the identified 
benefits for climate and economic growth. This should be designed as a 
pledge and review process, in which each government agrees to undertake 
actions desired by the others and periodically to review whether 
commitments were carried out. Such agreements tend to be self-
enforcing, because any country that fails to abide by a commitment 
faces the credible consequence of losing future benefits.
    Finally, I would suggest that the hardest thing in thinking about 
policies addressing global poverty, oppression and environmental 
progress is to avoid making the best the enemy of the good. Technology 
is a critical issue because there is no economic possibility of 
stabilizing greenhouse gas concentrations without R&D to create 
technology not available today. \6\ In the long term, this technology 
is required to turn around developing country emissions, just as it is 
required to turn around emissions from the industrial world. In the 
long-run, new technology for developing countries is clearly critical. 
R&D to create this technology is therefore also critical, and the 
technology that is economically successful may be different in the 
global South than in the global North.
---------------------------------------------------------------------------
    \6\ M.I. Hoffert et al., ``Advanced Technology Paths to Global 
Climate Stability: Energy for a Greenhouse Planet'' Science, Vol. 298, 
Nov. 1, 2002, p. 981-7.
---------------------------------------------------------------------------
    But right now the huge opportunity is in replacing technology now 
being used in the global South with technology now being used in the 
global North. Therefore, it is extremely important to keep the focus of 
the Asia-Pacific Partnership on bringing about the critical market 
reforms that will lead to greater technology transfer and improvements 
in carbon intensity. Identification of deficiencies in institutions and 
economic freedom in each country should be a key first step, after 
which the members of the Partnership can address mutually supportive 
actions to remove those barriers and improve the flow of investment and 
technology into China and India.

    Senator Vitter. Thank you, Dr. Montgomery.
    And now, Mr. Doniger.

STATEMENT OF DAVID D. DONIGER, POLICY DIRECTOR, CLIMATE CENTER, 
               NATURAL RESOURCES DEFENSE COUNCIL

    Mr. Doniger. Thank you, Senators, for the opportunity to 
testify today on this topic.
    I'm David Doniger. I'm Climate Policy Director at the 
Natural Resources Defense Council. I also served at the 
Environmental Protection Agency in the 1990s, where I helped 
direct Clinton Administration climate policies. I might add 
that I have no support from the Exxon Corporation.
    The Asia-Pacific Partnership is symptomatic of the current 
Administration's failure to take meaningful action to curb 
global warming. The U.S. has limited the terms of engagement 
with other countries to strictly voluntary measures, backed by 
what can only be described as token funding. On these terms, 
the partnership cannot make a difference; it's simply an 
exercise in looking busy.
    Now, time is running out. Most serious climate scientists 
now warn there's a very short window of time to begin serious 
emission reductions to avoid truly dangerous global warming. 
The science debate is over. The National Academy of Sciences 
has concluded that the debate is over, significant emission 
reductions are needed, and delay only makes the job harder. The 
evidence continues to pile up that we're already suffering 
dangerous climate impacts: stronger hurricanes, melting ice 
caps, killer heat waves, and severe droughts.
    Scientists have recently detected accelerated melting of 
the Greenland and West Antarctic ice sheets much faster than 
anyone expected. If either of these ice sheets melts away, sea 
level rise will be more than 20 feet, with utterly disastrous 
implications for Louisiana, Florida, New Jersey, and low-lying 
regions all around the world. There's only a short window of 
time to stop this from happening.
    We have a reasonable chance to avoid this if we can keep 
atmospheric concentrations from rising above 450 parts per 
million. And we can do this only if we stop U.S. emissions 
growth within the next 10 years, and cut emissions by at least 
half over the next 50 years. If the U.S. acts on this scale, 
together with similar cuts by developed countries and limiting 
emissions growth from developing countries, we could keep the 
world from exceeding that 450-part-per-million level.
    So, here is our choice, as indicated in this chart. If we 
start acting soon, and work with other countries for comparable 
actions, we can do this with a realistic, achievable annual 
rate of emission reduction, the green line, something on the 
order of 2.8 percent reduction per year. But if we delay the 
start of these reductions for another 10 years, the job becomes 
much harder, and the rate of reduction that would have to be 
achieved doubles. It's immensely more difficult if we wait.
    Voluntary measures won't work. In 2002, the President 
recommitted the U.S. to stabilizing greenhouse concentrations 
at non-dangerous levels. That's the objective of the treaty his 
father entered into and that we ratified. He says his goal is 
to slow, stop, and reverse emissions growth, but the target 
that he has set, even if it was met, would still cause U.S. 
emissions to rise by 14 percent between 2002 and 2012. That's 
exactly the same rate that grew in the prior 10 years.
    We need mandatory limits. The Senate voted for a mandatory 
market-based limit that would slow, stop, and reverse emissions 
growth last year. State and local governments are leading. Many 
other constituencies are coming on. More than 80 evangelical 
leaders called for mandatory limits earlier this year. And, 
just yesterday, appearing before the Senate Energy Committee, 
some of the largest electric utility suppliers of generating 
equipment and electricity customers called for mandatory 
limits. What they said is, they're making 50-year investments, 
and they need to know what the rules of the road are, because 
they can't make sensible investments without knowing what the 
limits are going to be. Other countries get this, too.
    The problem with the Asia-Pacific Partnership is that the 
United States comes to the table with nothing more than a wish 
to talk about voluntary cooperation. The U.S.--it's not a bad 
idea, in principle, to work with a smaller set of key 
countries. That's what Tony Blair set out to do in a group 
called the ``G8 plus 5,'' with the G8 and China, India, Mexico, 
Brazil, and South Africa. But the U.S. won't play in this 
ballpark. Instead, we're trying to construct our own ballpark, 
with our own rules, for a voluntary-only approach. And this 
isn't going to lead to anything significant.
    The solution lies in embracing the market. But, as the 
companies testified yesterday to the Energy Committee, without 
mandatory limits on emissions, there is no market. So, without 
mandatory limits, the Asia-Pacific Partnership is just theater, 
theater that does not protect the American people from stronger 
hurricanes, heat waves, drought, coastal inundation.
    American business ``gets it.'' American leaders, at the 
State and local level, ``get it.'' A majority of the Senate 
``gets it.'' And our partners and competitors abroad ``get 
it.'' It's time for action at the national level.
    Thank you.
    [The prepared statement of Mr. Doniger follows:]

   Prepared Statement of David D. Doniger, Policy Director, Climate 
               Center, Natural Resources Defense Council
    Thank you for the opportunity to testify today on science and 
policy issues related to the Asia-Pacific Partnership. My name is David 
Doniger, and I am Climate Policy Director at the Natural Resources 
Defense Council (NRDC). NRDC is a national, nonprofit organization of 
scientists, lawyers and environmental specialists dedicated to 
protecting public health and the environment. Founded in 1970, NRDC has 
more than 1.2 million members and online activists nationwide, served 
from offices in New York, Washington, Los Angeles, and San Francisco. I 
have worked for NRDC in two separate stints for nearly 20 years. I also 
served in the Environmental Protection Agency in the 1990s, where I 
helped direct the Clinton Administration's domestic and international 
policy on global warming.
    The Asia Pacific Partnership is symptomatic of the current 
Administration's failure to take meaningful action to curb global 
warming either at home or abroad. The U.S. has limited the terms of 
engagement with the other participating countries to strictly voluntary 
measures and technology cooperation backed by what can only be 
described as token governmental funding. On these terms, the 
Partnership cannot make a difference. It is simply an exercise in 
looking busy while other nations engage in real efforts internationally 
and while business leaders, elected officials, and others work toward 
real policies here at home.
Time Is Running Out
    Most serious climate scientists now warn that there is a very short 
window of time for beginning serious emission reductions if we are to 
avoid truly dangerous greenhouse gas concentrations without severe 
economic impact. The science debate is over. Significant emission 
reductions are needed, and delay only makes the job harder. As the 
National Academy of Sciences recently stated:

        Despite remaining unanswered questions, the scientific 
        understanding of climate change is now sufficiently clear to 
        justify taking steps to reduce the amount of greenhouse gases 
        in the atmosphere. Because carbon dioxide and some other 
        greenhouse gases can remain in the atmosphere for many decades, 
        centuries, or longer, the climate change impacts from 
        concentrations today will likely continue well beyond the 21st 
        century and could potentially accelerate. Failure to implement 
        significant reductions in net greenhouse gases will make the 
        job much harder in the future--both in terms of stabilizing 
        their atmospheric abundances and in terms of experiencing more 
        significant impacts. \1\
---------------------------------------------------------------------------
    \1\ National Academy of Sciences, Understanding and Responding to 
Climate Change: Highlights of National Academies Reports, p. 16 
(October 2005), http://dels.nas.edu/dels/rpt_briefs/climate-
changefinal.pdf.

    The evidence continues to pile up that we are already suffering 
dangerous climate impacts due to the build-up of carbon dioxide that 
has already occurred: stronger hurricanes, melting ice caps, killer 
heat-waves, and severe droughts. Scientists have recently detected 
accelerated melting of the Greenland and West Antarctic ice sheets--
much faster melting than anyone had expected. If either of these ice 
sheets melt away, sea levels will rise more than 20 feet, with utterly 
disastrous implications for Louisiana, Florida, and other low-lying 
regions of the country and around the world.
    There is only a short window of time to stop this from happening. 
Since the start of the industrial revolution, carbon dioxide 
concentrations have risen from about 270 parts per million (ppm) to 
more than 380 ppm today, and global average temperatures have risen by 
more than one degree Fahrenheit over the last century. A growing 
scientific consensus is forming that we face extreme dangers if global 
average temperatures are allowed to increase by more than 3.5 degrees 
Fahrenheit. We have a reasonable chance of staying within this envelope 
if atmospheric CO2 concentrations are kept from exceeding 
450 ppm and then rapidly reduced. We still can stay within this 450 ppm 
target--but only if we stop U.S. emissions growth within the next 5-10 
years and cut emissions by at least half over the next 50 years. U.S. 
action on this scale--together with similar cuts by other developed 
countries and limited emissions growth from developing countries--would 
keep the world within that 450 ppm limit.
    So here is our choice. If we start cutting U.S. emissions soon, and 
work with other developed and developing countries for comparable 
actions, we can stay on the 450 ppm path with a realistic, achievable 
annual rate of emission reductions--one that gradually ramps up to 
about 2.8 percent reduction per year.
    But if we delay a serious start and continue emission growth at or 
near the business-as-usual trajectory for another 10 years, the job 
becomes much harder--the annual emission reduction rate required to 
stay on the 450 ppm path jumps two-fold, to 5.7 percent per year. In 
short, a slow start means a crash finish--the longer emissions growth 
continues, the steeper and more disruptive the cuts required later. 
(See Figure 1.)


Voluntary Measures Won't Work
    The President's ``voluntary'' policy is not working. The inadequacy 
of a voluntary program is plain to see for a growing number of business 
leaders, state and local elected officials, and a majority of the U.S. 
Senate, as well as to nearly all other nations.
    In 2002, President Bush recommitted the United States to 
``stabilization of greenhouse gas concentrations in the atmosphere at a 
level that would prevent dangerous anthropogenic interference with the 
climate system''--the objective of the climate change treaty (the U.N. 
Framework Convention on Climate Change) adopted and ratified by his 
father. The current President said his goal was to ``slow, stop, and 
reverse'' U.S. global warming emissions growth. He set a purely 
voluntary target of reducing the emissions intensity of the U.S. 
economy--the ratio of emissions to GDP--by 18 percent between 2002 and 
2012.
    But emissions intensity is a deceptive measure, because what counts 
for global warming is total emissions. Even if the President's target 
were met (and recent reports indicate that it may not be), total U.S. 
emissions will still increase by 14 percent between 2002 and 2012--
exactly the same rate as they grew in the 1990s. (See Figure 2.)


The Need for Mandatory Limits
    While the Administration clings doggedly to the voluntary fiction, 
most political, civic, and business leaders in the United States are 
moving on. A majority of the Senate voted last year for a Sense of the 
Senate resolution endorsing the need for ``mandatory, market-based 
limits'' that will ``slow, stop, and reverse the growth'' of global 
warming pollution. The resolution affirms that U.S. mandatory action 
can be taken without significant harm to the economy and that such 
action ``will encourage comparable action by other nations that are 
major trading partners and key contributors to global emissions.''
    State and local governments are leading, with mandatory limits on 
power plant emissions in the northeast and in California. California 
and 10 other states have adopted limits on global warming emissions 
from motor vehicles. Many other states have adopted standards to 
increase the percentage of renewable power generation. Stakeholder 
processes to address global warming are underway or in development in a 
growing number of states in all regions of the country.
    The constituency for real action is growing. Earlier this year, 
more than 80 evangelical leaders called for mandatory limits on global 
warming pollution, citing their duty to care for God's creation.
    Just yesterday, appearing before the Senate Energy Committee, some 
of the largest electric utilities, suppliers of generating equipment, 
and electricity customers called for mandatory limits. Huge companies 
such as Duke Energy, Exelon, and GE said that voluntary programs won't 
work and that they need certainty and clear market signals in order to 
make sensible investments in new power plants that will last 50 years. 
Big electricity consumers like Wal-Mart endorsed mandatory limits and 
committed to cut their energy use and emissions through investments in 
energy efficiency and renewable energy.
    They all get it. Voluntary programs and tax incentives are 
insufficient to get these technologies deployed at a sufficient scale 
and speed to avoid a climate catastrophe. The market conditions for 
these new investments will not be created without a limit on CO2 
emissions.
Mandatory Limits Abroad
    Other countries get it too. Not just the Europeans, but developing 
countries as well. In December 2005, more than 180 countries committed 
to new negotiations on mandatory steps to follow and supplement the 
current Kyoto Protocol after 2012. What struck me most was the near 
consensus--save only our own government--on the market logic of 
mandatory requirements. The European Union, of course, has taken the 
tools of emissions trading pioneered in this country and implemented a 
mandatory cap-and-trade program for CO2. China and India now 
understand the market-based framework offers them the potential for new 
flows of capital to finance cleaner energy development--with an obvious 
pay-off for them in terms of cleaning up their awful local pollution 
problems, in addition to reducing their CO2 emissions.
    We need to recognize that key developing countries are also already 
taking actions to reduce their global warming emissions growth. For 
example:

   China's GHG emission intensity has improved due to 
        macroeconomic reforms and energy sector liberalization. China's 
        Eleventh Five-Year Plan, which goes into effect this year, 
        calls for a 20 percent reduction in energy use per unit of GDP 
        by 2010. China's renewables sector is the world's fastest 
        growing, at more than 25 percent annually. China has enacted a 
        new Renewable Energy Law and vowed to meet 15 percent of its 
        energy needs with renewable energy by 2020.\2\
---------------------------------------------------------------------------
    \2\ ``Gov't demands more focus on green energy,'' China Daily (Jan. 
13, 2006).

   China has far surpassed the U.S. fuel efficiency standards 
        for vehicles of all classes. China's new fuel efficiency 
        standards require vehicle classes to achieve on average 34.4 
        mpg by 2005 and 36.7 mpg by 2008 (normalized for the CAFE test 
        cycle). American fuel efficiency standards are calculated using 
        the average fuel use of the entire fleet sold by an automaker. 
        However, in China, as well as Japan, the standards require that 
        each model sold meet the criteria. China's Standardization 
        Administration finalized fuel economy standards for light-duty 
        vehicles--cars and light trucks, including sport utility 
        vehicles (SUVs)--that are up to twenty percent more stringent 
        than U.S. CAFE standards. The standards will save 60 million 
        tons of carbon in 2030, displacing 517 million barrels of oil 
        in that year--equivalent to removing 35 million cars from the 
        road. China's leaders are serious about enforcing the 
        standards--vehicles that don't meet the standards cannot be 
        certified for sale or operation--and intend to broaden them to 
        include heavy duty trucks.\3\
---------------------------------------------------------------------------
    \3\ An and Sauer, Comparison of Passenger Vehicle Fuel Economy and 
GHG Emisson Standards Around the World, Prepared for the Pew Center on 
Global Climate Change, December 2004.

   Brazil's GHG emission intensity levels have risen in recent 
        years because of increased gas use, which increases emissions 
        relative to hydropower, on which Brazil has traditionally 
        relied. However, in the transportation sector Brazil has saved 
        574 million tons of CO2 since 1975 through its 
        development of ethanol, which is roughly 10 percent of Brazil's 
        CO2 emissions over that period.\4\
---------------------------------------------------------------------------
    \4\ Baumert, Herzog, and Pershing, Navigating the Numbers: 
Greenhouse Gases and International Climate Change Agreements, World 
Resources Institute 2005, ISBN: 1-56973-599-9.

    Even though they have already begun to act, other countries (both 
developed and developing) are likely to take U.S. action or inaction 
heavily into account in deciding on their future actions. Our 
leadership is fundamental.
    Chinese and Indian officials are working with the Europeans and 
others on serious steps to make the market-based system work--for 
example, developing limits or benchmarks for emissions in key sectors, 
in order to set the baseline for earning emissions credits that can be 
sold through the marketplace to raise funds for cleaner energy 
development. The stage is set, over the next several years, to develop 
a win-win deal that helps cut emissions, opens markets for firms in 
industrial countries while cutting their domestic compliance costs, and 
draws all key nations into a global effort to prevent global warming.
U.S. on the Sideline, or Worse
    Where does the Asia-Pacific Partnership fit into this? First, in 
principle, it is not a bad idea to work with a smaller set of key 
countries. That is what Prime Minister Tony Blair set out to do last 
year in forming a group known as the ``G8 plus 5''--the major 
industrial nations plus China, India, Mexico, Brazil, and South Africa. 
A consensus on a new market-based agreement among over 20 countries--
including Europe, the U.S., Japan, and those five developing 
countries--would cover the bulk of world emissions and go a long way to 
solving the global warming problem.
    But the U.S. has refused to play ball in this ballpark. Instead, 
the Bush Administration has sought to manufacture another ballpark--
cutting out the Europeans--and run the game on its own rules.
    The results of the AP6 process so far are truly meager. Limited by 
the U.S. ``voluntary only'' approach, the meeting in Australia was 
nothing more than a gabfest about process and no product. The 
participants released a grab bag of announcements about sharing 
technology experiences and agreeing to meet again. The U.S. put a 
measly $50 million on the table--not even enough to build one clean 
electricity plant.
    China, India--and the U.S.--are planning to build hundreds of new 
power plants powered by coal. If nothing is done, these plants will 
emit huge amounts of CO2 for 50 years and foreclose any 
chance to stave off a climate catastrophe. But if we act at home and 
work with them abroad, we can change this future, by investing in a new 
generation of coal plants that dispose of their CO2 
underground, not in the atmosphere, as well as by increasing 
investments in energy efficiency and renewable power. This will not 
happen under the voluntary AP6 as presently structured. We need more 
than that.
    This is not to say that the solution lies in more government 
funding. It does not. The solution lies in embracing the market. But as 
the companies testified yesterday to the Energy Committee, without 
mandatory limits on emissions, there is no market.
    Without mandatory limits, the AP6 is just theater--theater that 
does not meet the interests of China, India, and other countries in 
constructing a real system that fuels cleaner development and cuts 
emissions. And it is theater that does not protect the American people 
from stronger hurricanes, heat-waves, drought, and coastal inundation 
that is coming from global warming.
    If we are to prevent catastrophic global warming, we have to take 
mandatory action--both at home and internationally. No serious 
environmental challenge was ever solved by voluntary action alone. 
American business gets it. American leaders at the state and local 
level get it. Our partners and competitors abroad get it. It's time for 
our national leaders to get it, and to act.

    Senator Vitter. Thank you, Mr. Doniger.
    And, Senator Lautenberg, why don't we start with your 
questions?
    Senator Lautenberg. Thanks very much, Mr. Chairman.
    I am glad to have a chance to see our--talk to our 
witnesses here. I didn't realize that Mr. Connaughton was going 
to be released so quickly, but----
    Senator Vitter. Yes, and I apologize. He had a conflict at 
4 o'clock. And so, I was a little uncertain about your plans, 
so I released him. And he agreed to come back to you 
personally, answer any submitted questions, or do anything we 
would like in the near future.
    Senator Lautenberg. All right. We'll take advantage of his 
offer.
    Mr. Doniger, all of you, I'm glad to see you. I may not 
agree with you, but, nevertheless, the process of trying to 
learn what it is that I see that I shouldn't believe, I'm 
trying to figure that out, but--and when I look at the 
evidence, as I see it--and some of these places are directly 
familiar to me, having been there--Antarctica, for instance. 
I've been down to the South Pole. I wanted to see what our 
scientists at the National Science Foundation were doing. And 
this was about 5 years ago. And it was obvious then that signs 
of problems were starting to manifest themselves. The reduction 
in some of the penguin populations and the melting of 
significant ice caps there. And I was reminded, in my 
conversations with them there, that some 70 percent of the 
world's fresh water lies stored in the ice there, and the--
we've seen places--they've tried to figure out which State the 
size of which the ice floe represents, but they've been coming 
off in States, and I fear that they're going to get to bigger 
and bigger States, not little ones like Rhode Island or New 
Jersey or what have you.
    So, Mr. Doniger, how should we address the challenges? We 
heard that volunteerism is a noble enterprise and that we've 
got time. I don't understand that, that ability to focus 
totally on the future and say that, ``Well, we're working on 
these things that will, in a number of years, bring them into 
the levels that we want.'' But, meanwhile--that's assuming that 
we--many of us won't be here to see whether the test has 
passed, but our children and our grandchildren will be. How do 
we address the challenges posed by increased emissions from 
India and China, after Kyoto? Is the partnership a reasonable 
way to do it? What would you think?
    Mr. Doniger. Well, I believe what we need is a regime with 
mandatory limits that creates a marketplace in which private-
sector capital, not just token governmental funds, have reasons 
to flow to--into the projects and the programs that are going 
to reduce emissions. We heard, earlier, that there are hundreds 
of coal-fired power plants to be built in China and India--and, 
I might add, planned in the books in the United States, as 
well, more than 100. If these power plants are built in the 
conventional manner, without CO2 capture, then we're 
sunk--and I use that verb advisedly--because the only way to 
stave off the melting of Greenland, the melting of the ice 
caps, and many of these other impacts, is to curb global 
emissions on a pattern like this, in my chart, and to do it by 
the middle of the next century. Otherwise, we're sunk. And the 
only way to get the kind of capital moving that would make the 
difference to cause the Chinese, the Indians, and, for that 
matter, the Americans, to build coal gasification plants with 
carbon storage--carbon disposal underground, built into them, 
instead of conventional plants, is if there's a price signal. 
And the price signal can come from putting in a cap and--a 
declining cap, over time.
    If we--many people, including my colleagues to--on this 
panel, will say, ``Well, this is very expensive.'' I would say, 
``It gets more expensive, the longer we put it off.'' And the 
analogy is that if you are trying to stop at a stop sign, you 
cannot wait til the very last minute to jam on the brakes. Your 
forehead will hit the window, and you'll end up in the middle 
of the intersection. And that's the path we're on now. If we 
start putting on the brakes more gently now, we can avoid the 
crash that awaits us.
    Senator Lautenberg. The--did you have a chance to see--it 
was on 60 Minutes the other night--and that was the report that 
was produced by climate scientist James Hansen. And he did 
that--that was based on conversations with NOAA scientists. And 
the redaction that was done--I don't know whether you saw 
that--it was on television, very clear, and I'm sure it's 
available, general distribution. Did you look at it closely 
enough to see that there were things there that startled you, 
in terms of----
    Mr. Doniger. Well, I'm a former government official, and I 
know that there is a review procedure for government reports. 
But I have never seen anything quite like what Mr. Cooney did, 
which is to change the meaning of reports to inject uncertainty 
where science--scientists had made quite definitive 
statements--to try to fuzz it up. And that isn't the way we did 
things, and it isn't the way things should be done.
    Senator Lautenberg. There was a 10-year timeline that was 
mentioned there that said if we don't get moving on this before 
10 years hence, in a serious way, that there was imminent 
danger. And I saw that--the word crossed out. It said ``could 
be'' imminent danger. Well, it's quite a difference.
    Mr. Doniger. Well, and the conclusion that was represented 
in the draft, and that was edited out, was reached without the 
benefit of the most recent science, which tells us that some of 
this melting, of Greenland, for example, is happening at an 
accelerated rate, much faster than was expected. And--but, 
still, Hansen and others are saying if we start to act quickly, 
and we get the--follow the President's own goal, to slow, stop, 
and reverse emissions--if we go beyond the slow part to the 
stop part and the reverse part, and we do it soon enough, we 
can avert this catastrophe. We can keep our cities above water.
    Senator Lautenberg. Thanks very much. I don't want to----
    Mr. Chairman?
    Senator Vitter. OK. Dr. Thorning, you made an interesting 
point in some of your written testimony about industry leaving 
Kyoto Protocol countries for non-Kyoto Protocol countries. Can 
you expand on this point and how we combat that phenomena, in 
terms of a global marketplace?
    Dr. Thorning. I think indications from Europe are that some 
energy-intensive industries that are unable to stay competitive 
with the price of carbon, as it is, in Europe--and I think it 
recently hit about $120-a-metric-ton of carbon for the right to 
emit a ton of carbon--are having to relocate. A major aluminum 
company was forced to shut down some plants in Germany. In the 
U.K., manufacturers are increasingly concerned about the 
increase in electricity prices. It went up about 34 percent in 
the U.K. last year, and a portion of that is due to the 
emission trading system. In the studies that the--our sister 
affiliate, the American Council for Capital Formation, has 
released in years past, we have seen, if the U.S. were to try 
to force emissions down under a mandatory system, there would 
be leakage of our industry-intensive sector of approximately 15 
percent. This was studied by Rich Richels and the late 
Professor Alan Manne, as well as Tom Rutherford, at the 
University of Colorado. And those are all on the ACCF website, 
documenting the leakage that we would experience.
    So, I think my suspicion is that, over time, as there is 
some growth in Europe and as the targets get tighter and 
tighter and harder to meet, they will be looking at approaches 
based more on a voluntary approach, based more on a transfer of 
technology to the developing countries. I think the fact that 
Prime Minister Tony Blair, last week, made a speech, I think, 
in New Zealand, saying that U.K. was one of the very few 
countries that would probably meet its Kyoto target. It was a 
significant statement. He realizes most of the other EU 
countries are way above their Kyoto targets, and have no hope 
of meeting the targets under their mandatory system, because to 
impose taxes high enough to actually meet their Kyoto targets 
would be political suicide.
    So, it seems to me the approach that the current 
Administration is following is the only practical one. If we 
want to do practical things to reduce greenhouse gases, we have 
to do it in a way that doesn't inflict so much economic pain 
that it's unsustainable.
    Senator Vitter. Mr. Doniger?
    Mr. Doniger. May I just quickly respond? Dr. Thorning and I 
have completely different information coming out of Europe. And 
the European emissions trading system is working. The European 
countries are implementing that, even before their Kyoto 
period. So, it's no surprise that they're above the targets 
now. They're on track to develop more policies, and implement 
them, to meet those targets. And these predictions of failure 
all overlook an important mechanism included in the Kyoto 
Treaty, which is the international emissions trading that will 
allow any country which is above its target to purchase credits 
that come from other countries.
    So, the Europeans are on time and under budget. They're 
going to be complying with Kyoto. And it's possible that the 
European countries will think carefully about how far they go, 
in isolation. They want to see the United States shoulder its 
own responsibilities and participate in the system. The Chinese 
are ready to do some things, but not before the United States, 
the world's biggest polluter, takes on a share of its 
responsibilities.
    Senator Vitter. In general, Mr. Doniger, how would you 
address the general concern that if you have a cap system, a 
cap-and-trade system, even in the industrialized West, you're 
going to create movement of industry to non-capped parts of the 
world?
    Mr. Doniger. I think that if we were to adopt a cap in this 
country, that is the fastest way to get important sectors of 
industry in other countries to also take on limits, caps or 
performance standards. In other words--I guess what I'm saying 
is, I wouldn't expect the United States to take on a 50-year 
regime in isolation from other countries, but if the United 
States takes a step forward, the Europeans are already acting, 
the Japanese are already acting, and the Chinese and the 
Indians are signaling that they would be ready to do things, 
too. Taking into account that they start from a much lower 
level of economic development per capita emissions, they would 
be different things, but they would be ready to act. We are the 
key.
    Senator Vitter. OK, I think those are all the questions I 
have.
    Senator you have any wrap-up?
    Senator Lautenberg. No, just, for a moment, Mr. Chairman. 
I'm looking at Kilimanjaro's snow glaciers. They're melting, 
likely to disappear completely, it's said, by 2020. The ice on 
the summit, that was formed more than 11,000 years ago, has 
dwindled by 82 percent over the past century.
    Mr. Doniger--[off mic]--of our Navy about activities that 
they might have to focus on the last half of this current 
century. And that would be to fight off refugees seeking higher 
land coming from countries that are inundated by floods. And 
the predictions made by the report--this was quick work by my 
staffperson here--the predictions made by the report include, 
``Future wars will be fought over the issue of survival, rather 
than religion, ideology, or national honor. By 2007, violent 
storms smash coastal barriers and render large sections of the 
Netherlands uninhabitable.'' They talk about so many places 
here.
    And I'd like to submit this for the record, Mr. Chairman.
    Senator Vitter. Without objection.
    [The information referred to follows:]

          Guardian Unlimited--The Observer, February 22, 2004

          Climate Change--Key Findings of the Pentagon Report

    Future wars will be fought over the issue of survival rather than 
religion, ideology or national honor.
    By 2007 violent storms smash coastal barriers rendering large parts 
of the Netherlands inhabitable. Cities like The Hague are abandoned. In 
California the delta island levees in the Sacramento river area are 
breached, disrupting the aqueduct system transporting water from north 
to south.
    Between 2010 and 2020 Europe is hardest hit by climatic change with 
an average annual temperature drop of 6F. Climate in Britain becomes 
colder and drier as weather patterns begin to resemble Siberia.
    Deaths from war and famine run into the millions until the planet's 
population is reduced by such an extent the Earth can cope.
    Riots and internal conflict tear apart India, South Africa and 
Indonesia.
    Access to water becomes a major battleground. The Nile, Danube and 
Amazon are all mentioned as being high risk.
    A ``significant drop'' in the planet's ability to sustain its 
present population will become apparent over the next 20 years.
    Rich areas like the U.S. and Europe would become ``virtual 
fortresses'' to prevent millions of migrants from entering after being 
forced from land drowned by sea-level rise or no longer able to grow 
crops. Waves of boatpeople pose significant problems.
    Nuclear arms proliferation is inevitable. Japan, South Korea, and 
Germany develop nuclear-weapons capabilities, as do Iran, Egypt and 
North Korea. Israel, China, India and Pakistan also are poised to use 
the bomb.
    By 2010 the U.S. and Europe will experience a third more days with 
peak temperatures above 90+F. Climate becomes an ``economic nuisance'' 
as storms, droughts and hot spells create havoc for farmers.
    More than 400m people in subtropical regions at grave risk.
    Europe will face huge internal struggles as it copes with massive 
numbers of migrants washing up on its shores. Immigrants from 
Scandinavia seek warmer climes to the south. Southern Europe is 
beleaguered by refugees from hard-hit countries in Africa.
    Mega-droughts affect the world's major breadbaskets, including 
America's Midwest, where strong winds bring soil loss.
    China's huge population and food demand make it particularly 
vulnerable. Bangladesh becomes nearly uninhabitable because of a rising 
sea level, which contaminates the inland water supplies.

    Senator Lautenberg. And to ask whether this tipping point--
Dr. Montgomery or Dr. Thorning, do you see any need to hasten 
our pace here and try to get things really underway before it's 
too late, which has been described by Mr. Doniger and others as 
a 10-year cycle?
    Dr. Montgomery. Senator Lautenberg, I think the issue is 
not on the side of the climate science, but the issue is what 
it is possible to do, in what time frame. Even if we accept Mr. 
Doniger's proposal that, in the long-run, we must stabilize 
greenhouse gas emissions at a--greenhouse gas concentration at 
450 parts per million, he's already drawn two ways that we can 
get to that 450-part-per-million concentration goal. The choice 
is what cost we are willing--we incur in choosing to do 
something early to reduce emissions, versus making a choice 
about developing technologies. I think the fact is that 
technologies that can provide sufficient energy at an 
affordable cost with zero carbon emissions, which is what, 
ultimately, it takes to achieve stabilization of 
concentrations, simply do not exist today.
    The difference between the red and the green line that Mr. 
Doniger drew there, between now and 2030, is immensely costly 
because of the lack of those technologies that can provide 
energy with very low carbon emissions at an affordable cost 
today.
    If we devote our resources--instead of trying to find small 
reductions in emissions at high cost today, if we devote those 
resources, developing the breakthrough technologies that can 
provide the energy that we need with zero carbon emissions at 
some point in the future, that other gap between the green line 
and the red line beyond 2030 can be quite affordable. It's a 
matter of cost and a matter of whether we put the resources 
today into developing the technologies that we don't have, that 
are required in order to stabilize greenhouse gas emissions--
greenhouse gas concentrations, or whether we put those 
resources into much more expensive and much smaller reductions 
that are possible today.
    I think that's the choice. It's not a question of whether a 
450- or a 550- or a 750-part-per-million is what we should 
choose. Whichever of those we choose requires to--implies 
stabilization of concentrations. We don't have the technologies 
today that it takes to do that, we do have those technologies 
to make them affordable, then those--then there is nothing 
wrong with that crash reduction later. That's exactly what we 
want to do, which is develop the technology first.
    Analogies to putting on the brakes are completely beside 
the point. We actually have tools for looking at the economics 
of this, and thinking about when technologies can become 
available that let us address the question directly. And they 
all support the notion that the technology development is 
absolutely critical, and dwarfs the emission reductions that 
would be affordable today.
    Senator Lautenberg. Dr. Thorning, do you have any comment 
to make on this?
    Dr. Thorning. I'd just like to add that--kind of backing up 
what Dr. Montgomery said, there was a Department of Energy 
study released by the Energy Information Administration about 4 
or 5 years ago, that looked at that question of early start 
versus late start, and they concluded that the cost of meeting 
a Kyoto target, as well as others, would be reduced if we spent 
the time, early on, trying to develop the technologies, rather 
than beginning to reduce emissions immediately.
    Senator Lautenberg. Your response, Mr. Doniger?
    Mr. Doniger. Well, the truth is that the Federal R&D budget 
for these sorts of things is, if anything, shrinking. And it 
was never big enough, and can't imagine it being big enough, to 
mount an effort on this scale. You have to make it a private-
sector effort. And the private sector is saying, ``We're ready 
to go start building gasification plants. We're ready to start 
doing carbon storage in old oil fields to pump more oil out.'' 
But right now there is a cost gap, because there's no price of 
dealing with carbon. If you give us a cap-and-trade program, a 
mandatory limit, it will signal that that cost gap is either 
gone or going to go away, and it makes sense to make those 
investments.
    There's already one such plant being built by BP and, I 
think, Southern California Edison, in Long Beach. They've 
committed to build this. They're going to have that plant up 
and running and storing carbon underground before the Federal 
FutureGen Program--before the first Federal FutureGen plant.
    So, if the private sector were properly motivated, we could 
get this done a lot faster than with this R&D program, this 
sort of Harry Potter R&D program for which there's no funding.
    Senator Lautenberg. Yes. Well, the question is, How does 
one determine cost? Is cost expressed strictly in dollar 
increments, or is cost expressed in the--perhaps destroying a 
way of life as we currently know it? I assume all of you are 
aware of the fact that an unmentionable, a--it's more than four 
letters, but--the word was not able to be used, and that was 
``nuclear.'' And now there are several applications for nuclear 
plants pending in front of the NRC. And it would have been 
unheard of. And, frankly, I think it's a rather--it's a move, I 
think, induced by desperation, because we're locked into the 
fossil-fuel disappearance, eventually, in any event. So, I 
think things are changing, and the measurement of cost is a 
significant factor, in my view. I look at it from my 
grandchild's--my grandchildren's eyes.
    Thank you very much.
    Thanks, Mr. Chairman.
    Senator Vitter. Thank you very much.
    With that, we'll have some follow-up questions we'll submit 
to you and get your answers for the record.
    Thank you very much for being here and for your 
participation.
    The hearing is adjourned.
    [Whereupon, at 4:35 p.m., the hearing was adjourned.]
                            A P P E N D I X

 Prepared Statement of Hon. Daniel K. Inouye, U.S. Senator from Hawaii
    It is important that we examine the current and future role of 
science in the Asia-Pacific Partnership. Thus far, I am not satisfied 
that this initiative will respond to the concerns of our scientists, 
our citizens, or Congress.
    While it is essential that we work closely and respectfully with 
our Asian Pacific partners, I am surprised at the complete lack of 
connection between the proposed Federal expenditures and any measurable 
goals or achievements that will help us address the very real threats 
of climate change in the Pacific.
    The people who live in these areas, including Hawaii, the U.S. 
territories, and other Pacific island nations, are facing these threats 
already, and the projections indicate further increases in sea level 
rise and ocean warming, spelling disaster for our island economies.
    I urge the Administration to take a hard look at this proposal and 
meet with my constituents to hear their concerns and better understand 
these threats. Only then can Congress provide any support for this 
initiative.
                                 ______
                                 
        Written Questions Submitted by Hon. Daniel K. Inouye to 
                      Hon. James L. Connaughton *
    Question 1. Has the Administration consulted with the Hawaii and 
the Pacific islands representatives on the urgency of concerns about 
impacts of climate change in the Pacific, and discussed establishing 
goals and targets for meaningful action? Please be explicit as to who 
you have met with and what they have asked for.

    Question 2. Why is the United States, but not Japan, or the other 
Asian nations, putting money forward for this? How much can we expect 
from these partners over the next few years?

    Question 3. Since none of the Pacific island nations. or anyone in 
Hawaii that we have spoken to, appear to be involved, how much money 
and time would it take to confer with scientific and climate change 
experts in my state, as well as Pacific island stakeholders, to 
establish scientifically-based standards that will help explain to 
Congress what we can expect from this investment?
                                 ______
                                 
      Written Questions Submitted by Hon. Frank R. Lautenberg to 
                      Hon. James L. Connaughton *
---------------------------------------------------------------------------
    * Response to written questions was not available at the time this 
hearing went to press.
---------------------------------------------------------------------------
    Question 1. Why did prominent government scientists recently tell 
the news media that their access to the press was being controlled and 
that their documents were being edited to suit the Administration's 
political purposes? If there was no problem, why did NASA rewrite their 
policies on this issue?

    Question 2. Is the Administration going to allow California to set 
its own limits on greenhouse gas emissions from vehicles?

    Question 3. Is there any circumstance under which this 
Administration would reconsider its opposition to any mandatory 
controls on greenhouse gases?

                                  
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