[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
      ADDRESSING CLIMATE CHANGE: VIEWS FROM PRIVATE SECTOR PANELS

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

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON ENERGY AND AIR QUALITY

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 13, 2007

                               __________

                            Serial No. 110-4


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov


                    U.S. GOVERNMENT PRINTING OFFICE
35-445                      WASHINGTON : 2007
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001


                    COMMITTEE ON ENERGY AND COMMERCE

                  JOHN D. DINGELL, Michigan, Chairman

HENRY A. WAXMAN, California          JOE BARTON, Texas
EDWARD J. MARKEY, Massachusetts          Ranking Member
RICK BOUCHER, Virginia               RALPH M. HALL, Texas
EDOLPHUS TOWNS, New York             J. DENNIS HASTERT, Illinois
FRANK PALLONE, Jr., New Jersey       FRED UPTON, Michigan
BART GORDON, Tennessee               CLIFF STEARNS, Florida
BOBBY L. RUSH, Illinois              NATHAN DEAL, Georgia
ANNA G. ESHOO, California            ED WHITFIELD, Kentucky
BART STUPAK, Michigan                BARBARA CUBIN, Wyoming
ELIOT L. ENGEL, New York             JOHN SHIMKUS, Illinois
ALBERT R. WYNN, Maryland             HEATHER WILSON, New Mexico
GENE GREEN, Texas                    JOHN SHADEGG, Arizona
DIANA DeGETTE, Colorado              CHARLES W. ``CHIP'' PICKERING,
  Vice Chairman                          Mississippi
LOIS CAPPS, California               VITO FOSSELLA, New York
MIKE DOYLE, Pennsylvania             STEVE BUYER, Indiana
JANE HARMAN, California              GEORGE RADANOVICH, California
TOM ALLEN, Maine                     JOSEPH R. PITTS, Pennsylvania
JAN SCHAKOWSKY, Illinois             MARY BONO, California
HILDA L. SOLIS, California           GREG WALDEN, Oregon
CHARLES A. GONZALEZ, Texas           LEE TERRY, Nebraska
JAY INSLEE, Washington               MIKE FERGUSON, New Jersey
TAMMY BALDWIN, Wisconsin             MIKE ROGERS, Michigan
MIKE ROSS, Arkansas                  SUE MYRICK, North Carolina
DARLENE HOOLEY, Oregon               JOHN SULLIVAN, Oklahoma
ANTHONY D. WEINER, New York          TIM MURPHY, Pennsylvania
JIM MATHESON, Utah                   MICHAEL C. BURGESS, Texas
G.K. BUTTERFIELD, North Carolina     MARSHA BLACKBURN, Tennessee
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
BARON P. HILL, Indiana

                                 ______


                           Professional Staff

               Dennis B. Fitzgibbons, Chief of Staff
                Gregg A. Rothschild, Chief Counsel
                   Sharon E. Davis, Chief Clerk
               Bud Albright, Minority Staff Director

                 Subcommittee on Energy and Air Quality

                    RICK BOUCHER, Virginia, Chairman
CHARLIE MELANCON, Louisiana         J. DENNIS HASTERT, Illinois,
JOHN BARROW, Georgia                   Ranking Member
HENRY A. WAXMAN, California         RALPH M. HALL, Texas
EDWARD J. MARKEY, Massachusetts     FRED UPTON, Michigan
ALBERT R. WYNN, Maryland            ED WHITFIELD, Kentucky
MIKE DOYLE, Pennsylvania            JOHN SHIMKUS, Illinois
JANE HARMAN, California             JOHN B. SHADEGG, Arizona
TOM ALLEN, Maine                    CHARLES W. ``CHIP'' PICKERING, 
CHARLES A. GONZALEZ, Texas             Mississippi
JAY INSLEE, Washington              STEVE BUYER, Indiana
TAMMY BALDWIN, Wisconsin            MARY BONO, California
MIKE ROSS, Arkansas                 GREG WALDEN, Oregon
DARLENE HOOLEY, Oregon              MIKE ROGERS, Michigan
ANTHONY D. WEINER, New York         SUE MYRICK, North Carolina
JIM MATHESON, Utah                  JOHN SULLIVAN, Oklahoma
                                    MICHAEL C. BURGESS, Texas

                                  (ii)


                             C O N T E N T S

                              ----------                              
                                                                   Page
Baldwin, Hon. Tammy, a Representative in Congress from the State 
  of Wisconsin, opening statement................................    16
Barton, Hon. Joe, a Representative in Congress from the State of 
  Texas, opening statement.......................................     6
Boucher, Hon. Rick, a Representative in Congress from the 
  Commonwealth of Virginia, opening statement....................     1
Burgess, Hon. Michael C.Texas, prepared statement................    11
Butterfield, Hon. G.K., a Representative in Congress from the 
  State of North Carolina, opening statement.....................     9
Dingell, Hon. John D., a Representative in Congress from the 
  State of Michigan, opening statement...........................     5
Doyle, Hon. Mike, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................    12
Harman, Hon. Jane, a Representative in Congress from the State of 
  California, opening statement..................................    14
Hooley, Hon. Darlene, a Representative in Congress from the State 
  of Oregon, opening statement...................................    16
Inslee, Hon. Jay, a Representative in Congress from the State of 
  Washington, opening statement..................................    14
Markey, Hon. Edward J., a Representative in Congress from the 
  Commonwealth of Massachusetts, opening statement...............     9
Shimkus, Hon. John, a Representative in Congress from the State 
  of Illinois, opening statement.................................    13
Upton, Hon. Fred, a Representative in Congress from the State of 
  Michigan, opening statement....................................     3
Wynn, Hon. Albert R., a Representative in Congress from the State 
  of Maryland, opening statement.................................    11

                               Witnesses

Claussen, Eileen, president, PEW Center on Global Climate Change, 
  Arlington, VA..................................................    39
    Prepared statement...........................................    83
Krupp, Fred, president, Environmental Defense, New York, NY......    37
    Prepared statement...........................................    82
Rice, John G., vice chairman, General Electric, Washington, DC...    35
    Prepared statement...........................................    70
Rowlan, Steven, general manager, environmental affairs, Nucor 
  Corporation, on behalf of Dan DiMicco, chairman, president, and 
  chief executive officer, Nucor Corporation.....................    40
    Prepared statement...........................................    64
Sharp, Hon. Philip R., president, Resources for the Future, 
  Washington, DC.................................................    18
    Prepared statement...........................................    85
Ulreich, Stefan, consultant/specialist energy policy, EON Energie 
  AG, Berlin, Germany............................................    42
    Prepared statement...........................................    81


      ADDRESSING CLIMATE CHANGE: VIEWS FROM PRIVATE SECTOR PANELS

                              ----------                              


                       TUESDAY, FEBRUARY 13, 2007

                  House of Representatives,
            Subcommittee on Energy and Air Quality,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:00 a.m., in 
room 2322 of the Rayburn House Office Building, Hon. Rick 
Boucher (chairman of the subcommittee) presiding.
    Members present: Representatives Butterfield, Barrow, 
Markey, Wynn, Doyle, Harman, Gonzalez, Inslee, Baldwin, Hooley, 
Matheson, Dingell [ex officio], Upton, Whitfield, Shimkus, 
Myrick, Sullivan, Burgess, Bono, and Barton [ex officio].

  OPENING STATEMENT OF HON. RICK BOUCHER, A REPRESENTATIVE IN 
           CONGRESS FROM THE COMMONWEALTH OF VIRGINIA

    Mr. Boucher. I want to say a word of welcome to all members 
of the subcommittee as this morning we begin the hearing 
process for the 110th Congress.
    Our agenda will largely focus on a multi-faceted strategy 
for promoting domestic sources for transportation fuels and on 
the Congressional response to climate change, the regulatory 
jurisdiction for which lies with this subcommittee.
    We will also oversee the progress of the Department of 
Energy in developing the Yucca Mountain site for high-level 
nuclear waste disposal and we will oversee the implementation 
of, and perhaps make adjustments to, the 2005 Energy Policy 
Act.
    Other matters will be added to the subcommittee's agenda 
and I encourage all members of the subcommittee to share with 
me your priorities and recommendations for either hearings or 
legislation. We will make every effort to accommodate you.
    We will operate in a bipartisan manner. Those who have 
worked with me know that is my practice, and I intend to 
consult Members on both sides of the aisle on the matters that 
will be before us. I will attempt to make all of our 
legislative efforts truly bipartisan.
    This morning we will begin our work with the first in a 
series of hearings on the congressional response to climate 
change. Our hearings will proceed over the next several months 
as we examine every facet of this challenging subject, from the 
state of the science to the views and recommendations of 
industry sectors, scholars and the environmental community.
    We intend to review the experience with cap and trade 
programs generally including what I think most would concede as 
the highly successful SO2 emissions trading program that this 
committee developed and was embodied in the Clean Air 
Amendments of 1990. We will also look at the more recent 
application of cap and trade to greenhouse gas emissions that 
has been employed by the European Union.
    Among our other inquiries will be how emissions allocations 
could be made in a nationwide program, the role of offset, and 
the level and timing of reduction, how to ensure international 
participation including the critical participation by 
developing nations, how to structure Government incentives for 
the development of technologies that can enable the continued 
use of today's fuels including coal in a carbon constrained 
economy, and we will be examining other steps to prevent 
economic dislocation. This is not an exhaustive list of the 
subjects that we intend to examine but I think this list serves 
to underscore the complexity of the task that we have before 
us.
    Let me say that this is not a subject that I personally 
come to with ease. All of Virginia's coal production is in my 
congressional district and coal is the single large industry in 
my district, so perhaps understandably today to date I have 
been a skeptic on the need for a mandatory control program for 
greenhouse gas emissions in the United States.
    But my view is changing as is the view of much of the 
energy industry. The scientific consensus about the extent of 
the human contribution to greenhouse gas accumulation and the 
effect of that accumulation on our future climate appears to be 
deeply solidified.
    Arctic science and extraordinary weather patterns across 
the world suggest that are presently seeing the effects of 
climate change and so I have concluded that the time has 
arrived to write a mandatory climate control regime for 
greenhouse gas emissions. I have consulted closely with 
Chairman Dingell of the full committee in developing an agenda 
for climate change hearings and in reaching a decision to go 
forward with legislation.
    Any bill that we report must have bipartisan support and 
industry support. It must be economy wide and restricted not to 
just certain economic sectors. It should be capable of passage 
not just in the House but also in the Senate with its 60-vote 
barrier and we will seek advice from the administration on the 
measure as it is constructed and hope to have administration 
support in this exercise.
    Our goal will be to develop the same kind of cooperative 
process that enabled the 1990 Clean Air Amendments to pass the 
house without amendment and with a very large bipartisan vote. 
It is going to be a challenging task but it is one that I think 
that working together and with cooperation from interested 
stakeholders that we will be able to achieve.
    In today's hearing, we will receive testimony from private 
sector organizations which have made recommendations both for 
and against mandatory climate change legislation.
    Tomorrow we will hear from the scientific community about 
the state of the science.
    I now have the pleasure of saying a word of welcome to the 
ranking member of this subcommittee and I would note that while 
he is not in attendance this morning because of a recent 
illness from which he is recovering, that we are very honored 
that the ranking member of this subcommittee is the former 
Speaker of the House of Representatives, the gentleman from 
Illinois, Mr. Hastert. We welcome Denny back to the 
subcommittee, and I just want to say, and I hope somebody here 
will tell him I said this, that I personally very much look 
forward to working with him and I know that we will have a 
great bipartisan rapport as we seek to address the subjects 
that come before the subcommittee.
    In his place today I want to say a word of welcome to my 
good friend, the gentleman from Michigan, Mr. Upton, who is 
currently the ranking member of the telecommunications 
subcommittee. I believe that is right.
    Mr. Upton. That is the powerful and influential 
Subcommittee on Telecommunications.
    Mr. Boucher. I am sorry. I got the title wrong, and I 
proudly serve on that subcommittee also. And Mr. Upton is going 
to stand in for Mr. Hastert until such time as he returns to 
the subcommittee. So at this time I am pleased to recognize for 
his opening statement the ranking member of the hearing for 
today, the gentleman from Michigan, Mr. Upton.

   OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Upton. Thank you, Mr. Chairman, and I am sure that 
former Speaker Hastert will receive your kind remarks in good 
stead. He does hope to be here by the end of the week and 
certainly when Congress comes back after its recess after next 
week, and I have to say too that I am sure that all the Members 
on this side of the aisle appreciate your opening statement and 
pledge to work in a bipartisan basis and move this legislation 
to its proper place.
    I want to begin by thanking you and Chairman Dingell for 
the chance to begin our examination of the facts surrounding 
the topic of global climate change. Our side does look forward 
to working with you as well as with Mr. Dingell to better 
understand this very complex subject.
    At the beginning of any effort to legislate an area such as 
this where the problem to be addressed is complicated and not 
necessarily well understood with a number of various 
legislative proposals put forth, they have a potentially 
dramatic consequence on our society and our economy, and I try 
to keep in mind the time-tested precept, first do no harm. The 
phrase is meant to remind a physician that they must first 
consider the possible harm that any action may do to a patient 
before proceeding with their treatment. As we start our series 
of global climate change hearings, I believe that it is in the 
best interest of our communities and our Nation for us to bear 
this prescription in mind.
    While a hearing such as today's that showcases proposed 
legislation that is sure to produce some dramatic moments, I 
would suggest that the committee be better served silver medal 
methodological examination that attempts to answer the numerous 
questions that should precede potential solutions including 
what does the science say, where is there certainty and 
uncertainty regarding the causes and consequence of climate 
change. What steps is our Government currently undertaking to 
examine and address that issue? What steps is the private 
sector currently undertaking? What can be done in terms of 
technological advancement to address climate change, and what 
will the various responses to global climate change cause, not 
only in terms of dollars but in terms of economic 
competitiveness and future expansion?
    Only after we provide answers to those questions should the 
committee begin to weigh proposed solutions. A careful review 
and assessment by Members is further justified when one 
considers that combating global climate change is a trillion 
dollar prospect, a cost that is often borne by U.S. taxpayers. 
The stakes are too high to simply settle on any one legislative 
proposal at this time.
    Today's witnesses are here to promote solutions to global 
climate change that involve placing a fixed limit on U.S. 
carbon emissions, and it is my position that such an approach 
is at best premature. It is extraordinarily risky for the U.S. 
to cap greenhouse gas emissions until we have a better 
understanding of the impact such a policy will have upon 
today's economy and tomorrow economic competitiveness. We 
cannot ignore the fact that a cap and trade system has been 
implemented in Europe as a result of the Kyoto Protocol and we 
will hear in testimony today that experience has been plagued 
by the complexity of significant economic cost. Additionally, 
it has become clear that most European countries, maybe even 
Japan, will not meet their Kyoto targets, so we have to begin 
to question the value of unrealistic caps as a solution to 
climate change.
    As we all know, the Kyoto regime does not include massive 
carbon dioxide emitters such as China and India, and it is 
difficult to imagine a scenario where the U.S. would wish to or 
even could afford to participate in such a regimen that the 
rest of the world doesn't necessarily participate in. So it is 
a fact that the environment derives no benefit if the U.S. 
capped or even eliminated CO\2\ emissions if these emissions 
are simply transferred to other countries like China or India.
    CO\2\ molecules are not labeled ``made in the USA.'' In 
contrast, the two proposals by U.S. CAP and NCEP, we will hear 
testimony from Dan Domico, chairman, president and CEO of the 
Nucor Corporation. He represents the views of the industrial 
energy consumers of America and provides us the perspective of 
America's leading manufacturing industries. I look forward to 
his testimony, his expert opinion on the impact on the U.S. 
manufacturing sector were it to be saddled with tough emission 
limitations.
    In conclusion, I look forward to the exchange of ideas at 
today's hearing, the opportunity to work with you and Chairman 
Dingell, and obviously my ranking member, Mr. Barton, to 
methodically build a hearing record on this very important 
topic, and I yield back my 8 seconds.
    Mr. Boucher. Thank you very much, Mr. Upton, a very timely 
statement. And now I am pleased to recognize for 5 minutes the 
chairman of the Energy and Commerce Committee, the gentleman 
from Michigan, Mr. Dingell.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    The Chairman. Mr. Chairman, thank you. I commend you and 
thank you for calling this important hearing. I am happy indeed 
that this matter will be in your hands and in the hands of this 
distinguished subcommittee because it is a matter of great 
importance.
    I would like to begin by assuring all that this will be a 
matter of great concern to the committee. We will proceed with 
all proper speed and with extraordinary care and diligence to 
present to the Congress a good bill, one which will attract 
work, and as our friends in the medical profession said, first 
do no harm.
    Today we are about to confront a topic that has emerged as 
a central environmental issue of our time. We have before us an 
ambitious goal: to produce legislation that will adequately 
address climate change without causing undue harm to the 
economy of the Nation and the lives of our people. To say that 
this task is difficult qualifies as a vast understatement. To 
say that because it will be difficult we should ignore it or 
not grapple with it qualifies as folly.
    I look forward to the coming months. I am reminded as I do 
so of a sign hanging on an office door proclaiming the 
following: ``Good, fast, cheap, pick any two.'' That is the 
kind of choice that we could face unless we adhere carefully to 
a few guiding principles, those which have guided this 
committee as we have gone through our business in the years 
that I have had the privilege to serve here.
    First we must be thorough. Chairman Boucher and I have laid 
out a comprehensive series of hearings that aim to explore all 
aspects of this complex topic, the scientific views on the 
causes and effects of climate change, the policy options that 
are available to the United States, the consequences of these 
policy options for various segments of our society and how 
those options can fit into a global solution. This week alone 
we will be conducting two hearings and continuing our series of 
regular Friday staff briefings.
    Second, we must work in a nonpartisan and bipartisan 
fashion, and it is my intention that we shall do so. Neither 
party has a monopoly on wisdom, and this is a problem which has 
to be addressed by all of us regardless of our party 
affiliation. It will take all of us working together 
representing the diverse viewpoints of the American people to 
reach a successful conclusion which will address the concerns 
of the American people.
    The Clean Air Act Amendments of 1990 reflected a hard-
fought and difficult negotiation but ultimately resulted in a 
product that passed the House by a margin of 401 to 25.
    Lastly, this committee and those who consider this matter 
must keep an open mind. All policy options will be on the table 
and must be on the table. As the committee learns more about 
the complexity of the issues, certain policy alternatives will 
fall by the wayside. That is the natural order of the 
legislative process. The administration has already signaled 
that it will oppose certain policy options, a position that I 
find to be regrettable. In order to be successful, we must go 
through the facts and to achieve a solid consensus where those 
facts lead us.
    Some of our witnesses today have experiences in reaching 
agreement on this issue. They represent diverse interests 
ranging from environmental groups to heavy industry, yet they 
have worked together to unite behind certain ideas. I look 
forward to learning how their experience may inform ours and 
assist us in our work. As we begin our work, let me finally 
note that this will not be an abstract endeavor or an exercise 
in public relations. This will be an exercise in the 
legislative process and it will be conducted in that fashion 
and it will encompass all that the phrase entails.
    This challenge is difficult but I can think of no committee 
better equipped to meet it. Our committee has proven that it 
can resolve complex and difficult environmental issues and I 
would remind all that the Superfund, Safe Drinking Water Act, 
the Resource Conservation Recovery Act and, as I mentioned 
earlier, the Clean Air Act Amendments of 1990, all the landmark 
environmental statutes and all of which have worked 
magnificently well after the careful intention that this 
committee has given the process and the completion of the work.
    Mr. Chairman, I look forward to working on this hearing. I 
look forward to working very especially with you and I consider 
you to be extraordinarily well qualified to lead this 
subcommittee as it goes about its business in this difficult 
matter.
    I also want to say that I am particularly pleased to be 
working with our good friend and colleague, Mr. Upton from 
Michigan, who will be serving I think with extraordinary 
distinction as the ranking minority member, and my dear friend, 
Chairman Barton, who has a long record of working with me and a 
close friendship which we share and which I look forward to 
using here with his guidance and help to bring about a good 
enactment of worthwhile legislation which will be another 
definitive and proud chapter in this committee's history. We 
have a fine group of Members in this committee. I look forward 
to them working responsibly on this difficult question and I 
look forward to working with them, and I thank you for your 
recognition, Mr. Chairman.
    Mr. Boucher. Thank you very much, Chairman Dingell. Now 
there is recognized for 5 minutes the ranking member of the 
full committee, Mr. Barton from Texas, with whom we all look 
forward to working as the subcommittee's business moves 
forward.
    Mr. Barton. Thank you, Chairman Boucher. It is good to have 
a hearing where you are chairing it. I look forward to working 
with you. I have sat where you sat. Mr. Sharp has sat where you 
sat. I think Mr. Dingell at one time has sat where you sat and 
so you have got plenty of help in the room if you----
    Mr. Boucher. I am going to need it.
    Mr. Barton. We are also appreciative that you have chosen 
this particular hearing to be your maiden voyage, so to speak.

   OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Barton. We have dealt in this room with this 
subcommittee over the years with numerous pieces of 
comprehensive energy legislation, environmental legislation 
including the CAFE, the Clean Air Act, acid rain, electric 
restructuring, and in the last Congress, the comprehensive 
Energy Policy Act. Through it all, most of the people that have 
served on this committee have had four objectives in mind. As 
we look at those issues, we want to keep the lights on, we 
don't want the cost of using the energy to bankrupt us. We want 
to drive wherever we are driving comfortably and conveniently 
in terms of our transportation system. Above all, we want to 
keep our jobs.
    Going forward, these four tasks have never been more 
challenging. We need to grow electricity production in the 
United States by over 50 percent in the next 15 to 20 years 
just to keep up with basic demand of the needs of people who 
work for a living. We need to close the gap between secure oil 
supplies and fuel consumption for cars, trucks and planes. We 
need to make sure that we don't divert our limited supplies of 
domestic natural gas into electricity production unnecessarily 
and away from the homes of people who need it for heating and 
cooking or away from the factories where millions of our people 
work and earn their daily living.
    This last one is especially important to me. Our chemical 
factories and fertilizer factories can't compete for natural 
gas when it goes up in price. When the price goes up, they shut 
down and those jobs move abroad, sometimes forever. So whatever 
legislation this subcommittee considers in this Congress, I am 
going to measure it against the four historical yardsticks that 
we have used in this subcommittee. Does it help or hurt our 
effort to keep the lights on? Does it keep mobility affordable? 
Does it help keep the energy prices down, and most importantly, 
does it cost U.S. jobs?
    I want to welcome back a former Member and an old friend, 
Phil Sharp of Indiana. I want to thank Chairman Boucher for 
inviting him to be the first witness. He is certainly a man of 
integrity and an individual who knows quite a bit about this 
subject before us today.
    It does appear to me, however, that the politics of global 
warming are more important than the policy of global warming, 
so much so that the House is thinking about convening a very 
special kind of committee called the Select Committee. That 
committee, if it is convened, will have neither the 
institutional history nor staff expertise to delve into an 
issue of this complexity. My good friend John Dingell on the 
other side of the dais has appropriately nicknamed it the Fish 
Feather Committee, and I think he is being kind in the use of 
his nomenclature. It is this committee, the Energy and Commerce 
Committee, that has the depth of knowledge and the diversity of 
views based on real-world experience that if we are going to 
legislate, it needs to be before this committee.
    I support the public comments of the subcommittee chairman, 
Mr. Boucher, and the full committee chairman, Mr. Dingell, that 
the Energy and Commerce Committee is the committee of 
jurisdiction and will take a deliberate and serious approach to 
the examination of this important issue. It is a very complex 
issue. The science is complex. The economics are complex. The 
emotions are complex, and obviously the politics are complex. 
It is surrounded by so much smoke and mirrors that it is 
essential, in my opinion, that we establish a real record, a 
detailed and thorough record based on the science, based on the 
facts before we even think about legislation.
    The proposals that are before us today both advocate 
capping America's carbon emissions at a fixed level and then 
provide a trading system to allow companies to purchase or sell 
those emissions credits. The proposals envision that the United 
States capping emissions unilaterally with the hope that such 
an act will inspire other countries such as China and India to 
follow suit. Good luck. That is not going to happen. This cap 
and trade approach has proven unworkable in countries that have 
signed the Kyoto Protocol and it will be unworkable if it is 
tried in the United States. Few participants in the protocol 
are on track to achieve their targets under Kyoto. An 
increasing number of countries are unwilling to strangle their 
own economic growth through stricter carbon caps no matter what 
the politics say.
    Another fundamental flaw with the Kyoto Agreement is the 
exclusion of the developing nations like India and China. China 
is soon to have the distinction of being the largest emitter of 
greenhouse gases in the world and they do not have the 
productivity of the American economy which is currently number 
one in that item. The rationale for letting the developing 
nations off the hook is fairly straightforward. Poor countries 
get off the hook because they need to. Rich countries like the 
United States are better able to absorb the misery when the 
growth slows and the jobs are lost. Well, I am not going to 
tell my people down in Texas that they have to lose their job 
so somebody in India and China can keep their job.
    Mr. Chairman, I am unilaterally opposed, unilaterally, 
unalterably opposed to any mandatory cap and trade system. I 
want to make that perfectly clear right off the bat. And I will 
have an open mind on the issues if we can come to some system--
well, you got to be straight, folks. It is too important. If we 
can come up with something that makes sense economically and is 
based on some of the voluntary approaches that are working in 
the United States, I am open to that. But a mandatory system 
that doesn't meet those four tests, I am not going to support.
    With that, I look forward to working with the people of 
this subcommittee and the full committee and see if we can at a 
minimum create a record that tells what the facts really are on 
this important issue, and I apologize for going over my opening 
statement. Thank you, Mr. Chairman.
    Mr. Boucher. Well, I thank the ranking member for that 
statement and for his open-minded approach to the subject, and 
I assure him that we will work diligently in partnership with 
him to try to make sure that his very fair test is met with 
regard to legislation that we draft in this subcommittee.
    Pursuant to the rules of the committee, members of the 
subcommittee will now be recognized for 3 minutes to make 
individual opening statements, and I would note that under the 
rules, any Member who decides to waive an opening statement 
will then have 3 minutes added to his time for asking questions 
of the witnesses.
    And we will begin Member statements by calling on a person 
who I also want to welcome to the subcommittee. He is the vice 
chair of the subcommittee, and I believe this is the first term 
that he has served on this subcommittee and we are very glad to 
have him here, the gentleman from North Carolina, Mr. 
Butterfield.

OPENING STATEMENT OF HON. G.K. BUTTERFIELD, A REPRESENTATIVE IN 
           CONGRESS FROM THE STATE OF NORTH CAROLINA

    Mr. Butterfield. Thank you very much, Chairman Boucher, to 
the ranking member. Let me first thank you for calling this 
very important hearing today. This is indeed my first 
opportunity to sit on this committee and to participate in 
these very important discussions. I am confident that with your 
leadership and the leadership of the ranking member, we will 
make tremendous strides forward in dealing with climate change. 
It is a subject whose time has come and finally we are ready to 
get serious in a bipartisan way in dealing with this important 
issue.
    There is no doubt in my mind that the issue of global 
climate change will be a defining issue of this Congress and of 
this generation. There has been debate for decades on the 
reason for climate change, and whether the trends we have seen 
over the last 50 years occur naturally. I am confident that the 
science is now conclusive. The Earth is warming, and mankind 
and womankind are to blame. Thousands of the world's best 
scientists including members of the most reversed scientific 
communities agree, and Congress must take action to most us in 
the right direction.
    What remains unclear to me, however, is what legislative 
remedies will produce the right amount of regulation to foster 
a good climate policy as well as a sound business plan. Some 
cap and trade plans will force burdensome and expensive 
requirements onto companies while others offer a more 
responsible, longer-term approach. Some changes in CAFE 
standards will be too immediately for automakers while others, 
I believe, offer a proper timeline and adequate milestones.
    It will not be enough for us to demand that industry alone 
be cleaner. The Federal Government must shoulder some of the 
burden for moving the necessary technology forward through 
research and through development programs and technology 
grants. The origins of our climate change problems are not 
rooted in industry alone nor can the solutions be their 
responsibility alone.
    And so Mr. Chairman, I look forward to the opportunity to 
discuss these issues with our witnesses today. I yield back.
    Mr. Boucher. I thank the gentleman, and recognize now for 3 
minutes the gentlewoman from North Carolina, Mrs. Myrick.
    Mrs. Myrick. Thank you, Mr. Chairman, but I will waive.
    Mr. Boucher. I thank you. The gentleman, Mr. Sullivan, is 
recognized for 3 minutes.
    Mr. Sullivan. I waive.
    Mr. Boucher. OK. Thank you, Mr. Sullivan. And seeing no 
further members of the minority, the chair now recognizes the 
gentleman from Massachusetts, Mr. Markey, for 3 minutes.

OPENING STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN 
        CONGRESS FROM THE COMMONWEALTH OF MASSACHUSETTS

    Mr. Markey. Thank you, Mr. Chairman, very much, and thank 
you for having this hearing.
    In his State of the Union address, President Bush actually 
uttered the words ``serious challenge of global climate 
change.'' Not since Charles Foster Kane whispered the word 
``Rosebud'' on his deathbed at the beginning of the movie 
``Citizen Kane'' has a phrase touched off so much speculation 
about what its author actually meant and what it all signifies.
    Clearly, the political climate has shifted in the debate 
about climate change. We have seen the Bush administration go 
from questioning the science of climate change and questioning 
whether human actions were the cause of climate change to 
having Energy Secretary Bodman declare that ``Human activity is 
contributing to changes in the Earth's climate.'' He added, 
``That issue is no longer up for debate.''
    But if the debate over the reality of global warming and 
the threat it poses to our planet is largely settled due to the 
overwhelming international scientific consensus, the debate 
about what we should do to respond to this threat has only just 
begin.
    Today we will be hearing from two bipartisan private sector 
panels comprised of a diverse mix of electric utilities, labor 
unions, environmentalists, academics, consumers and 
manufacturers. While the details of their proposals differ in 
some respects, most are in agreement on the need for a 
mandatory cap and trade system that would freeze and then 
reduce emissions from carbon and other greenhouse gases known 
to cause global warming. These panels each lay out a pathway 
for our country to be a leader rather than a laggard in cutting 
carbon pollution. Both panels call for cost-effective energy 
efficiency measures such as more fuel-efficient cars and SUVs 
that could significantly reduce the amount of carbon pollution 
we generate, more-energy-efficient green buildings and more-
energy-efficient consumer, commercial and industrial 
appliances. Both call for policies to promote research, 
development and deployment of low- to zero-emitting greenhouse 
gas technologies, many of which are already cost-effective and 
simply sitting on the shelf such as wind power, solar power and 
other renewables.
    In addition, both panels call for action to promote lower 
carbon transportation fuels such as ethanol made not only from 
corn but from corn stocks, grasses and farm waste. If 
Rumpelstiltskin was around today, he wouldn't be turning straw 
into gold, he would be turning it into ethanol. Like 
Rumpelstiltskin, ethanol entrepreneurs are finding ways to turn 
green into gold by developing a low-carbon, domestically 
produced renewable fuel that can power our cars and light our 
homes.
    What is needed to move these technologies forward is a set 
of bold Governmental policies to provide incentives and 
opportunities for these new technologies to meet their full 
potential. According to a recent study, this is all possible.
    I welcome back Chairman Sharp. Phil Sharp was chairman of 
the Energy Subcommittee for 14 years. It is an honor to have 
you back with us again today, Phil, and I yield back the 
balance of my time, Mr. Chairman.
    Mr. Boucher. The chair thanks the gentleman, and recognizes 
for 3 minutes the gentleman from Texas, Mr. Burgess.
    Mr. Burgess. Thank you, Mr. Chairman. I obviously want to 
thank Chairman Dingell for convening this hearing. I will 
submit my statement for the record and save time for questions.
    [The prepared statement of Mr. Burgess follows:]

             Prepared Statement of Hon. Michael C. Burgess

    Thank you Mr. Chairman, for convening this hearing today.
    Speaker Pelosi has set a very ambitious timetable for 
addressing the subject of global warming and global climate 
change. I'd like to applaud you, Mr. Chairman, for your efforts 
to ensure that any legislative solution move through regular 
order and through this committee.
    As you said earlier, this is the first of many hearings on 
the subject and I look forward to hearing from our witnesses.
    But I am a bit puzzled by the order of these hearings. In 
order to make thoughtful, well-informed policy decisions, 
committees hold hearings, where Members can question expert 
witnesses.
    Only after the committee has gathered information, should 
we then begin to evaluate policy proposals.
    Yet our first hearing, this morning, will examine several 
rather complex cap-and-trade programs suggested by independent 
organizations and tomorrow we will turn to a discussion on the 
science.
    I believe it would make a lot more sense to first inform 
ourselves of the facts, and then turn to policy proposals. And 
as we evaluate those policy proposals, we must keep in mind the 
costs to individual Americans and small businesses.
    As we begin this discussion, I would express my serious 
concern about proposals that would exclude India and China, 
particularly when China will soon eclipse the U.S. in terms of 
CO\2\ emissions.
    Again, I thank the witnesses for appearing here today and I 
look forward to their testimony.

    Mr. Boucher. The chair thanks the gentleman, and recognizes 
for 3 minutes the gentleman from Maryland, Mr. Wynn.

OPENING STATEMENT OF HON. ALBERT RUSSELL WYNN, A REPRESENTATIVE 
             IN CONGRESS FROM THE STATE OF MARYLAND

    Mr. Wynn. Thank you, Mr. Chairman. I am very pleased that 
this subcommittee has a proud tradition of sound environmental 
legislation. I am particularly pleased to hear your commitment 
announced today that this subcommittee will pass a mandatory 
climate change regime.
    Some of my colleagues on the other side of the aisle 
mentioned the axiom from the medical profession, ``first do no 
harm.'' But I think it is important as we have this discussion 
today that we distinguish between harm and pain because there 
is another axiom that says ``No pain, no gain.'' If we are 
mature, we have to accept the reality that this process will 
not be painful, we should be under no delusions about that 
fact, and that pain will have to be shared by both industry and 
consumers. At the same time, we also have to recognize that in 
order to move this process forward, we must strike a delicate 
balance between the need to pass climate change legislation and 
a need to preserve jobs in this country.
    I think there are a couple things that we should keep in 
mind. First of all, we must aggressively promote technology 
research and development programs to promote clean energy 
technology such as hydrogen fuel cells, which have zero 
emissions. Second, we must also reward the firms that are 
already acting to reduce emissions and discourage investment in 
high-emitting facilities. Third, we must take the lead in 
addressing global climate change.
    One of the previous speakers indicated that greenhouse 
gases don't carry a ``made in the USA'' label. That is 
certainly true. But it is also true that as the largest 
polluter or contributor of greenhouse gases, we cannot expect 
developing countries to reduce emissions if we don't set the 
standard ourselves. As for China, that is a classic example 
where we do need to set an example but it should be noted that 
China is already working to require 20 percent of its 
electricity to be generated from renewables compared to the 10 
percent that is projected for the United States. China is also 
working to have higher fuel economy standards than the United 
States, which would also adversely affect our auto 
manufacturers in the future.
    I am very excited about the prospect that this subcommittee 
will take up the challenge of climate change. I understand it 
will require sacrifices from all sides but I think under your 
leadership and working in a bipartisan fashion, we can develop 
legislation that will be good for the country but will not harm 
our economic prospects.
    I relinquish the balance of my time.
    Mr. Boucher. The chair thanks the gentleman, and recognizes 
the gentleman from Pennsylvania, Mr. Doyle.

   OPENING STATEMENT OF HON. MIKE DOYLE, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Mr. Doyle. Thank you, Mr. Chairman. I would like to welcome 
our distinguished guests who have come before us to testify 
about what may be the single most important issue that faces 
our current Congress. I am looking forward to hearing their 
recommendations as Congress for the first time begins to 
address the very real and very serious effects that global 
warming will have on all of us.
    While we have figurative light-years to go before we can 
say that we have been able to fully and effectively deal with 
this issue, I think it is important to note that together we 
are all taking the first steps toward reversing the trend that 
is not only unsustainable but may in fact threaten each of the 
inhabitants of our planet if it is allowed to continue, but 
what is important with this hearing and this new commitment of 
the 110th Congress is that we are no longer playing dueling 
scientists where for every expert who says global warming is a 
reality another is brought out to say the science is 
inconclusive. Much like the early years of the Government 
investigation into big tobacco, we have been stuck in a ``he 
said, she said'' type of debate and I for one am ready to move 
forward and start addressing the very real threat that global 
warming poses for all of us.
    I am encouraged to know that many of our panelists feel the 
same way. So what do we do? As I have no doubt each of you will 
testify to, there is no single silver bullet-type action that 
Congress or industry can take to meet this challenge. Instead, 
it must be a combination of Government actions on the policy, 
regulatory, enforcement and research levels along with the deep 
commitment of private industry to become more efficient, burn 
cleaner fuels, capture their emissions and become true stewards 
of our environment, but we cannot do this alone.
    Global warming is just that, a global problem. While 
America must lead the charge to fight it, this is not something 
we can or should do alone. It is critical that we engage our 
neighbors across the globe to ensure that countries such as 
China, India, Germany and Great Britain are free and full 
partners in this challenge.
    I was suggesting to my good friend, Mr. Markey, who is 
going to chair the Speaker's Select Committee on Global 
Warming, that he may want to hold his first two hearings in 
China and India. Their active and full support in finding a 
solution is critical toward ensuring that global warming can be 
slowed, stopped and eventually reversed. With the support of 
the world community, I believe we can meet this challenge. 
Never before has the spirit of American ingenuity been unable 
to meet a challenge that faced our country, and I know the 
spirit will be triumphant again through new technologies, a 
real commitment to efficiency and the development of new 
sources of power, we can achieve the goal.
    I look forward to working with my colleagues on this 
critical matter, and Mr. Chairman, I yield back the balance of 
my time.
    Mr. Boucher. I thank the gentleman, and I am pleased to 
recognize for 3 minutes the gentleman from Illinois, Mr. 
Shimkus.

  OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Mr. Shimkus. Thank you, Mr. Chairman. Perfect timing, so it 
is great to be here.
    We have a couple important principles as we start in this 
debate and many of you know follow what I have been working on 
for many, many years, is we use electricity and we use a lot of 
electricity and we need more supply to have competitive rates, 
to keep our manufacturing base strong and be competitive in the 
world market.
    Having said that, there are concerns, so the real issue is, 
let us look at the science but let us look at a market-based 
approach by which we can stay competitive in the world 
environment, and let us don't undermine the aspect that the 
Kyoto Treaty has been a failure. People aren't complying with 
it. You are keeping Third World countries from being involved 
in that who are the greatest potential abusers of any type of 
system because of their rush to become a modern society.
    I have been involved in a lot of different issues in my 10 
years here in Congress and the focus will be working together 
bringing all parties involved, not highlighting the bad guys 
and then separating them and defining who the good guys are, 
but working in a consensus by which this country continued to 
be the leader on the globe in growth and economic development.
     I am in the minority now. I am going to have to raise my 
voice and make sure that the people who employ our workers of 
this country, that their voices are heard, and that is going to 
be my task at hand in this whole debate. It unfortunate that we 
have to develop a special committee to debate that where we are 
not able to do that within our own committee jurisdiction and I 
hope that we will reclaim that authority through the 
legislative process.
    With that, Mr. Chairman, thank you and I yield back my 
time.
    Mr. Boucher. Thank you very much, Mr. Shimkus, and I am now 
pleased to recognize for 3 minutes the gentlewoman from 
California, Ms. Harman.

  OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Harman. Thank you, Mr. Chairman. I am pleased to be 
back on the committee and I applaud you for your opening 
statement on bipartisanship and your clear call to action.
    Climate change is the challenge of our generation and the 
catastrophe for the generations that follow us. For every day 
we fail to act, the effects of climate change will be a little 
worse and the resources and ingenuity required to fix the 
problem a little greater. By the end of the next decade, I 
believe, we may have blown it.
    Southern California has been ahead of the curve for a long 
time. Automakers in my district pioneered hybrid vehicle 
technology. My house in Venice, California, is solar-powered as 
are others nearby and I and many others drive hybrid cars.
    It is important to understand that reducing emissions of 
greenhouse gases and strengthening our economy is not a zero-
sum game. Both our planet and our economy can win or both can 
lose.
    In August of last year, a U.C. Berkley study showed that 
mandatory reductions in carbon dioxide emissions could produce 
substantial economic growth and substantial job creation. The 
study estimated $60 billion of economic growth and 17,000 new 
jobs by 2020 in California alone, all the result of spurt 
investment in technology and reinvesting saved energy costs.
    I am proud to see my home State of California leading the 
charge in showing the Nation how this can work. We mandated 
emissions caps late last year and I am confident that we will, 
as we often do, set the example for the Nation.
    As we have heard, China and India ought to be having the 
conversation we are having here today but there are other 
countries, especially in Europe, that had that conversation 
some time ago. Time is not on our side. We must show leadership 
and hopefully we will do that in this committee, the committee 
of jurisdiction in the House.
    Thank you, and I yield back.
    Mr. Boucher. I thank the gentlewoman, and I recognize for 3 
minutes the gentleman from Texas, Mr. Gonzalez.
    Mr. Gonzalez. I waive also.
    Mr. Boucher. I thank the gentleman. The gentleman from 
Washington State, Mr. Inslee.

   OPENING STATEMENT OF HON. JAY INSLEE, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF WASHINGTON

    Mr. Inslee. I really think it is our country's destiny to 
really lead the world in finding the technologies to deal with 
global warming. You can't tell me that the people who invented 
the airplane, the light bulb, the Internet, mapped the whole 
human genome, perfected the Internet, are going to stand aside 
and be second-class economies when it comes time to develop 
these technologies, and I think the real fuel, the real 
renewable fuel we are going to use in this revolution, and it 
is going to be a clean-energy revolution, is going to be 
confidence, and we ought to have the confidence that Americans 
have shown historically in dealing with transitions because 
every time there is a technological transition, we make money 
and we are going to do that in this clean-energy revolution.
    You go out to the Nano Solar Company in Palo Alto, 
California, where they are developing a thin cell, photo-otaic 
cell. They will have confidence. You go to the Logen 
Corporation ready to build the first cellulosic plant in Idaho. 
They have confidence. You go to the Solar Heating and Thermal 
Company, a company somebody just moved from Australia to take 
advantage of the good technology we have here. They have 
confidence. You go to the Ramgen Company in Tacoma, Washington, 
that just developed a compressor that could help perfect clean 
coal by reducing compression costs of CO\2\ so we can put it in 
the ground by a factor of 50 percent. All across the country, 
there are companies right now the A-123 Battery Company in 
Massachusetts, which is going to build the first battery for 
our first plug-in hybrids, the Volt that GM is getting ready to 
build.
    We have people who have confidence and this Congress has to 
have confidence in dealing with this issue, and I want to talk 
about a cap and trade system, why that is a measure that is 
founded on confidence. Number 1, it is founded on the 
confidence that we want to make sure these technologies that we 
are inventing get used. We are spending $1 billion on clean 
coal research, research that I fully support, but no one will 
ever build a clean coal plant as long as they can dump their 
CO\2\ into our atmosphere without regulation for free. We have 
got to make sure that they have an incentive to use the 
technologies that our brilliant Americans are inventing.
    And second, I want to talk to some of my Republican 
brethren, those with open minds, and I have there are many 
there on the other side. This is a conservative economic 
principle. It is the conservative economic principle of 
property rights. Everyone in this room has a property right in 
a thin sheet of atmosphere that guards the world to keep us 
from freezing, and if we treat it right will keep us from 
burning up. It is a property right, and no company in America 
should be able to put their garbage, their carbon dioxide on 
our property for free. This is a conservative principle. We are 
protecting with a cap and trade system something that is unique 
in the solar system which is an atmosphere that we share that 
allows human life to flourish in God's creation, and a lot of 
people are talking about creator's care right now and a cap and 
trade system is a meaningful, common-sense way to take care of 
the garden. So for those who consider themselves conservatives, 
I urge them to join us in developing a system that will protect 
the most important property to humankind right now which is 
that thin sheet of atmosphere that we have, and we are going to 
get that job done because we are the folks with the real 
confidence.
    Mr. Boucher. The chair thanks the gentleman, and is pleased 
to recognize a former chairman of this subcommittee, the 
gentleman from Texas, Mr. Hall.
    Mr. Hall. Mr. Chairman, since I have another committee 
hearing, I will waive my right and save time to ask questions. 
I thank you, sir.
    Mr. Boucher. The chair thanks the gentleman and is pleased 
to recognize the gentlewoman from Oregon, Ms. Hooley.

 OPENING STATEMENT OF HON. DARLENE HOOLEY, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Ms. Hooley. Thank you, Mr. Chairman. I want thank all of 
the witnesses for taking time today to appear before this 
committee as we begin our work on what will certainly be the 
most environmental issue addressed by Congress. In fact, 
without sounding too dramatic, this could be the most important 
and difficult environmental issue we are going to face in our 
lifetimes. We can't lose sight that this is not just a U.S. 
problem, this is truly a global issue.
    Due to the inaction of both the administration and Congress 
to engage in this debate for the past 6 years, we have very 
little credibility on climate change within the global 
community. Since the United States is responsible for 25 
percent of all greenhouse gas emissions, we cannot begin to 
address this problem on a global scale unless we lead by 
example. Working towards a global solution for climate change 
is dead in the water without the leadership of the United 
States.
    As our committee begins to work through these tough issues, 
I look forward to hearing from our panels today as they testify 
on the harsh realities of global climate change and the 
innovative and sometimes provocative ways in which they feel 
our country can move forward in a way that will yield positive 
results while keeping us competitive in the global marketplace, 
and I yield back the remainder of my time. Thank you.
    Mr. Boucher. I thank the gentlewoman, and I am pleased to 
recognize the gentleman from Utah, Mr. Matheson.
    Mr. Matheson. I will waive.
    Mr. Boucher. Thank you. The gentleman from Georgia, Mr. 
Barrow.
    Mr. Barrow. Thank you, Mr. Chairman. I can add nothing of 
consequence to the opening statement of the chairman and 
Chairman Dingell and nothing of eloquence to the statement of 
my friend, Mr. Inslee, so I will waive opening statement. Thank 
you.
    Mr. Boucher. The chair thanks the gentleman, and I assure 
you, that will not count against your time. And I am now 
pleased to call on the gentlewoman from Wisconsin, Ms. Baldwin.

  OPENING STATEMENT OF HON. TAMMY BALDWIN, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF WISCONSIN

    Ms. Baldwin. Thank you, Mr. Chairman. Many years ago, a 
Senator from my home State of Wisconsin had a vision. He 
envisioned a world in which our precious oceans and lakes are 
protected, our air is clean to breathe and our planet is placed 
under the proper stewardship for the benefit of future 
generations. Being a wise man, Senator Gaylord Nelson saw that 
everyone around him was observing evidence of environmental 
degradation, everyone, that is, except his fellow Senators who 
in his estimation weren't interested in action. He knew that if 
the environment was to have its place on the political agenda, 
it had to be put there by the people. So he announced that 
there would be a nationwide grass-roots demonstration on behalf 
of the environment. He called it Earth Day. At the time it was 
a gamble but I think well worth the try. No one anticipated the 
level of participation. Over 20 million Americans came out to 
participate. The sheer number got the attention of Gaylord 
Nelson's colleagues in the Senate and it was those voices that 
led to congressional action on some of our most treasured 
environmental laws: the Clean Air Act, the Clean Water Act and 
the Safe Drinking Water Act.
    Mr. Chairman, we sit here over 35 years after the first 
Earth Day and we are again facing a growing threat to our 
environment. Scientists have told us loudly and clearly that 
the Earth is warming at an unprecedented rate, that carbon 
dioxide levels are rising and that human activities are largely 
the cause. But for too long this administration and Congress 
have sat silent. Our Nation has remained the largest consumer 
of electricity, oil and natural gas, all without altering our 
environmental policies. Meanwhile, counties with significantly 
smaller footprints on the world have made incredible advances 
and have improved the quality of the air they breathe, the food 
and water they consume and the lifestyle they lead.
    Fortunately, the American people are once again engaged. As 
they did three decades ago, they are again speaking out at the 
grass-roots level for change, and as we see before us today, we 
now have business leaders and NGOs that have organized 
themselves because they too realize it is time to protect and 
respect our environment and natural resources.
    I am pleased that corporate America has taken steps to 
gather such a unique group on the premise that we can and we 
must make progress on climate change, and by partnering 
together with NGOs like Pew, Environmental Defense and the 
Natural Resources Defense Council, you are saying to the world 
that America is finally ready and willing to take prompt, 
thoughtful, environmentally responsible action.
    It is clear that Wisconsin Senator Gaylord Nelson's legacy 
has extended far beyond Earth Day. I think we are seeing proof 
of that today.
    Thank you, and I yield back the balance of my time.
    Mr. Boucher. I thank the gentlewoman. That completes the 
opening statements by members of the subcommittee.
    We now turn to today's witnesses, and it gives me a great 
deal of pleasure to welcome back to the subcommittee a personal 
friend and someone who certainly is no stranger in this hearing 
room. He is at the present time the chair of the National 
Commission on Energy Policy and testifies on behalf of that 
commission today. He is the president of Resources for the 
Future and he is a former chairman of the predecessor committee 
to this subcommittee, which in those days, as I recall, was the 
Subcommittee on Energy and Power, and in that position he was 
the father of what has been an enormously successful 
legislative effort, the Energy Policy Act of 1992, and so with 
that introduction and a warm word of welcome, Mr. Sharp, we 
will be happy to hear from you, and we will make your written 
statement a part of the record, and ask for a 5-minute summary.

STATEMENT OF HON. PHILIP R. SHARP, PRESIDENT, RESOURCES FOR THE 
                             FUTURE

    Mr. Sharp. Well, thank you, very much Mr. Chairman. I am 
honored to be with you and honored to be with you as you take 
charge of leadership of this subcommittee.
    Just as a historical note, 32 years ago this week, John 
Dingell became chairman of this subcommittee and had his first 
energy hearing. At the time I was a freshman Member which was 
one of hundreds of hearings to follow, as many of you can 
appreciate. Mr. Dingell at that time began consideration of 
President Ford's comprehensive energy bill called the Energy 
Independence Act of 1975. Out of those efforts of that day and 
multiple hearings to follow came landmark energy legislation 
including the Energy Policy and Conservation Act which by the 
way was the beginning of fuel economy standards, was the 
beginning of the Strategic Petroleum Reserve and many other 
item, and ironically, in President Bush's State of the Union 
address on these two policies I just mentioned, he articulated 
the need to increase both. So there has been a long bipartisan 
tradition in this subcommittee and outside of this subcommittee 
in dealing with these issues.
    For the record, I must indicate I am president of Resources 
for the Future, a nonpartisan, non-advocacy organization for 
the last 50 years working on energy and environment issues, and 
while our scholars, some of them are quite busy on designing 
questions relating to cap and trade policy for climate change 
and other climate issues, today I am representing the National 
Commission on Energy Policy where I was the congressional co-
chair. That commission was established in 2002 by the Hewlett 
Foundation. It was to bring together bipartisan representatives 
from business, labor, academia and environmental organizations 
to see if they could come together on some energy policy 
recommendations, which we did to the surprise of myself and 
other people, in 2004, and that included a framework on climate 
change.
    Just very quickly, that package was very broad-based, had 
to do with oil security, electricity markets, new energy 
technology, supply incentives, efficiency incentives and the 
need for critical investment in infrastructure in this country, 
and indeed in 2005 many of you folks were involved it the 2005 
Energy Policy Act which adopted proposals that were in many 
cases supported by that commission.
    When it came to climate change, the commission was 
concerned in 2002-04 time frame with three things. One, the 
importance of getting started, albeit slowly but getting 
started with a mandatory program to retrain the growth of 
carbon and other major greenhouse gas emissions. In those years 
the science still had many questions around it but it was being 
heavily articulated, this was real and we needed to act and the 
commission came to the bipartisan conclusion that it was 
prudent to begin action at that time. As you know, just 2 weeks 
ago the fourth assessment of the Intergovernmental Panel on 
Climate Change came forth with a significantly strengthened 
point of view as to the urgency to the act and to the consensus 
on science on these matters and it reinforces among 
commissioners the view that action now is required.
    The second major concern was the uncertainties about the 
cost to our economy and indeed the world economy, particularly 
to our own, and many commissioners shared a number of their 
views that some of you have articulated about this concern 
about how high can the costs go, do we have any idea. Those are 
legitimate concerns and obviously lead to considerable 
opposition or concern about advancing.
    The third concern of the commission was the imperative over 
time, as articulated by many of you, that the key developing 
nations have to join in at some point. It doesn't have to be 
immediately but it does have to occur at some point if we are 
to be effectively and not simply shift who is making what 
around the world. Of course, a number of advanced countries 
have already begun mandatory programs.
    The basic approach that the commission took was the 
recommendation that we should adopt a lasting, something that 
can last, framework for how to do deal with this question to 
regulate these emissions, a framework that can be adjusted over 
time as we learn more about science, as we learn more about the 
pace of technological innovation, as we learn more about the 
economic impacts, as we learn more whether or not other 
nations, key nations are in fact advancing as we trust they 
must.
    The essential feature of this recommendation, of this 
framework was to say there needs to be a price in our economy 
for the major CO\2\ and other greenhouse gas emissions. This is 
a very conscious and deliberate choice. It is almost taken for 
granted these days of not going the route of command and 
control, in other words, not going the route of the thinking 
that we can regulate tailpipe and smokestack standards and set 
what those technologies are in place by the Government doing 
them as we have done in other aspects of the Clean Air Act but 
rather choosing a market mechanism to maximize the innovation, 
to maximize the number of decision makers that will take action 
within our economy and bring about, we hope, all kinds of good 
results.
    There are obviously two choices when you decide to put a 
price in the marketplace. One is, you could tax these items and 
that will have that effect. We chose primarily for pragmatic 
reasons to say we would go with cap and trade model, as the 
chairman has already indicated after the SO2 acid rain trading 
program which nearly everybody agrees has been highly 
successful.
    A couple words about the cap and trade design, and then I 
will close here quickly. First of all, of course, this is to 
put a cap or a budget for the entire broad-based economy, not 
just for one sector of the economy. Permits then could be 
traded and sold. They will tell marketplace what is the cost of 
emitting CO\2\, for example, but a key feature in our proposal 
which was designed to deal with the political and legitimate 
concerns about, do we know what the costs of this are to the 
economy, is something called the safety valve in which you set 
it in place and you say at a certain point, a certain cost 
point, the Government will sell permits and therefore the costs 
to the economy of a ton of CO\2\ will not rise higher than 
that. You provide certainty on the cost side. Admittedly, it 
does not give you as much certainty on the emissions control 
side but it answers that question. Obviously what you pick and 
how that arises is a critical question.
    We also see this as providing an answer to the problems 
that arose out of the system in Europe, the trading system 
where they had no experience in Europe with this. They were 
trying to pattern after us and they frankly botched it in the 
way in which they designed it but it caused a shoot-up in the 
prices that almost led to political withdrawal of support for 
the program there which they had no experience with, and so 
there were a number of design features they made a mistake on. 
One is, I think we would design it better, but two, I think 
that we would have protection with a safety valve of knowing 
whether or not what are the consequences.
    A third and the last feature I want to just mention of this 
is that the safety valve was designed in our proposal to 
continue to rise so that means the potential costs would rise 
on carbon dioxide. However, after so many years we would just 
automatically flatten it to give Congress a chance to examine 
the question, is China, is India, is Brazil, are the major 
other emitters taking actions that are necessary, in other 
words, an unwillingness to make an open-ended commitment to 
continuing costs in the economy. These features, the safety 
valve and the flattening, are somewhat controversial. There are 
many different approaches one might take to them, and indeed, 
even the commission itself is reviewing the question of the low 
price level that we actually set or the low tolerance level 
that we set for getting started back in 2004.
    One last proposition--Mr. Chairman, I appreciate the 
tolerance on the time--is the fact that we recognize this is 
only the framework for how to regulate the emissions. There 
needs to be supplemental policies, many of you have been 
articulating them, some of them in the 2005 Energy Policy Act, 
to advance technologies in this country and their deployment, 
to get more energy efficiency, to see that we have nuclear 
power, to see that we have coal sequestration ready for us. 
There are multiple additional things that need to be done 
because it is very unlikely that the Congress will or the 
country will tolerate an extremely high price on carbon dioxide 
at the outset or in the near future and therefore we will not 
get all the impacts you need to continue to advance us forward.
    And to close, I simply indicate we and others who have put 
before as is being put before you today are only putting before 
you frameworks. I recognize, and I think most of our 
commissioners recognize, there are lots of tough questions in 
scaling up and designing an effective cap and trade system that 
you will have to do or you will have to delegate to others. 
This is tough work, lots of work that needs to be done. Nobody 
should pretend it is easy. We just think it is very important.
    Mr. Boucher. Thank you very much, Mr. Sharp, and we look 
forward to working with you as we try to design the system that 
meets that high hurdle.
    I gather from your testimony that in your view the European 
Union's experience with cap and trade is mostly a model of how 
not to do it correctly. Would that be a fair statement?
    Mr. Sharp. Well, I am not exactly an expert but we do have 
some scholars who spent a lot of time trying to figure out what 
they did there, but clearly they had an abnormal rise in the 
price of their carbon emissions credits. It has come 
significantly back down but for a while they couldn't even 
figure out why it was. They had information questions they 
didn't how to publish. We had a much more transparent system in 
our SO2 thing which at marketplace needs for people to know how 
high to bid. So they had multiple difficulties. Besides that, 
they adopted a Federal principle, given the fact that the 
European Union is somewhat of a Federal structure, in which 
they let every government take all kinds of variations on the 
theme and it seems to be there were just some inherent 
difficulties there.
    Mr. Boucher. Well, I suppose one question we can ask them 
is, if they had it to do over again, how would they do it 
differently based upon the experience they have had.
    I made reference in my opening statement to my concern 
about coal, and I want to get your advice on this. I think it 
is very important that as we design this system that we assure 
that coal at least keeps its current place in the energy mix. 
Today it occupies about 51 percent of the market for 
electricity generation. The Energy Information Administration 
predicts that over about a 10-year period, coal will grow to a 
larger share, I think the number 56 or 57 percent has been 
mentioned. Is there a way that we can allow not only coal to 
retain its current market but enable it to grow as it is 
currently predicted to grow? And I would assume the answer is, 
that is done through technology. So elaborate a little bit, if 
you would, on first of all, is that possible, and secondly, 
what do we need to do to be able to assure it?
    Let me also add to the question, that it is fundamental not 
just to protect people like the ones I represent in Virginia's 
coal industry although I have to say I care about them a lot. 
It is also fundamental that we do this to prevent even greater 
pressure on natural gas. If coal is abandoned or if there is a 
substantial switch by coal-fired utilities to another source, 
an obvious early candidate would be natural gas, and would 
cause an even further spike and greater volatility in natural 
gas prices to the disadvantage of the entire economy. So I 
think we have to do this for a lot of reasons. Your comments on 
how we could do it effectively.
    Mr. Sharp. Well, first and foremost, let me just say that 
the commission took a point of view, I believe you will find it 
in other proposals we have before us, that coal will be a part 
of our future energy mix. It is not going to in any near time 
be done away with. You are asking at what percentages will be 
under the numbers that are recommended in 2004, and admittedly, 
we are reconsidering whether to make them stiffer. The run on 
that by the Energy Information Agency suggested that coal would 
continue to grow, I forget, for 20, 30 years ahead, what period 
of time. The 20, 30 time frame is what they used. And that that 
would continue, not as rapidly as what is under the business-
as-usual case today. Obviously as you say, one is how 
constrained you are makes a difference, but second of all, as 
you articulated, the technology questions are very important. 
The MIT coal study of future coal is about to come out in a 
couple of weeks. That has some very important recommendations 
for how to advance the sequestration R&D program of the U.S. 
Government so that it is more effective, more quickly ready for 
big scale, and we are talking about a big-scale operation here. 
We already know how to sequester that. It is technically 
possible. We do it in the oil fields and whatnot. But to do it 
on a big scale is what we need so that coal can play or other 
carbon fuels can play in this mix. So it is a combination of 
how to advance the technology, and the commission itself also 
recommended trying to advance sequestration, trying to advance 
IGCC and other advanced technologies. If you just get coal to 
be burned more efficiently, you will automatically do a better 
job on this. So if in China, if in India, if in the United 
States the coal burning we are doing is with higher-efficiency 
technologies, we gain from CO\2\ point of view.
    Mr. Boucher. One final question that I have for in the 
diminishing seconds I have available, one of the big concerns--
and I think a number of Members mentioned this in their opening 
statement--is making sure that if the United States acts with a 
cap and trade program that we get some correspondence with the 
international community and particularly with developing 
nations, and that China, India, Brazil, other major emitters of 
greenhouse gases also begin to take part in the global programs 
to assert controls. There is no way to know today if that is 
going to happen or how quickly that is going to happen, and I 
am wondering about your view as to whether it might make sense 
to have some kind of safety valve built in to the legislation 
that would anticipate international cooperation on this but 
would not have at least the latter phases of a controlled 
program here go into effect in the event that we don't get buy-
in from the developing world. Is that kind of approach 
workable, and do you have any thoughts about it?
    Mr. Sharp. Well, that kind of approach was adopted by the 
commission, not the full out that you have mentioned at some 
point but what I said, that we flatten the requirement, in 
other words, it doesn't continue to grow on the U.S. economy, 
the requirement for constraint unless the Congress determines 
at a future point--you set a date, I forget what we said about 
10 or 15 years out, the other nations are participating and 
then you and others can decide whether or not we really have 
cooperation. That is not the only kind of thing. Of course we 
have to be aggressive leaders internationally and whatnot. It 
is interesting to note, a lot of people are predicting the 
consequences of climate change will be uglier for China than 
they will be for the United States. If that is true, they may 
discover they have incentives that we don't now see to move.
    Mr. Boucher. Thank you very much, Mr. Sharp. The gentleman 
from Michigan, Mr. Upton.
    Mr. Upton. Thank you, Mr. Chairman, and Mr. Sharp, Phil, 
welcome back. I want to just touch on a couple of things. You 
were once chairman of this subcommittee and had a great victory 
I think in the Energy Policy Act of 1992. That was right about 
when I got on the full committee and did not serve on the 
subcommittee then. You have seen some of the challenges that 
the Speaker and others have put out. They want to see 
legislation addressing this issue by I believe June 1. How 
difficult a job will that be knowing that it is literally March 
now?
    Mr. Sharp. Well, Mr. Upton, I have recovered as a 
politician but I haven't totally forgotten about being a 
politician, so I will probably avoid answering that question 
directly. Let me suggest to you----
    Mr. Upton. Give us a straight answer.
    Mr. Sharp. Let me suggest to you----
    Mr. Upton. You are in a much better position to give a 
straight answer now.
    Mr. Sharp. This is tough, and I think it is going to take 
and require a lot of both effort to self-educate and to 
coordinate so I think those will be tough deadlines to meet. 
Now, you can meet those deadlines if you delegate a lot of the 
decisions in here to some Federal agency. That is always an 
easier way to legislate but it defers some of the tough 
decisions. In the 1990 Clean Air Act Amendments on SO2, we of 
course went through the brutal negotiations over how to 
allocate those credits and we set very strict rules that EPA 
had very limited ability to alter. We kept the decisions in 
Congress. If you do that, it will take more time.
    Mr. Upton. Now, when your commission began to look at what 
it had done with Kyoto, of course Kyoto started in 1990. That 
was the baseline levels it started. What would you recommend 
that this committee look at in terms of a benchmark year? 2006?
    Mr. Sharp. We didn't frankly attempt it. We didn't set our 
cap in that manner. We just simply assumed Kyoto was off the 
table for the United States. We were not trying to be with 
Kyoto or against Kyoto. We were just separate from Kyoto. We 
took an entirely different point of view and we set a thing 
that it actually was patterned after the Bush administration in 
hopes that it might entice them to be interested in it of 
setting the cap by using an intensity mark and we wouldn't 
start it until 5 years after the program is adopted. So this 
some of the critics view as a weaker way to proceed but it is 
different, but you have got a key issue to decide which is 
where do you start and what is the baseline you use.
    Mr. Upton. And where did you piece in the mix of nuclear 
power as a component of this legislation?
    Mr. Sharp. Well, in our proposals we articulated the need 
to advance Yucca Mountain to the consideration of the NRC for 
licensing, and of course that is a decision the NRC has to make 
if that meets the safety requirements. We articulated some of 
the things that were commended in the MIT future of nuclear 
power report which said the Federal Government should put 
incentives in place, which you did in fact in 2005 for a new 
generation of plants. We ought to keep a strong R&D program 
going. I think most of our members saw that we could not see a 
future in which we could plan to do significant restrain on 
carbon that simply excluded nuclear power.
    Mr. Upton. And did you look at any number knowing that we 
have about 103 nuclear plants now?
    Mr. Sharp. Again, we did not try in that manner to say 
where each of the wedges would come from. We frankly see the 
marketplace as the critical way to do that. It is why we use a 
price signal to help figure that out.
    Mr. Upton. Last question from me, and that is, as we look 
at the performance of those countries that did sign Kyoto, 
particularly in Europe, I am intrigued by your safety valve 
thought, knowing that of course we have got, as you said, China 
and India as well as Brazil, some other soon-to-be major 
manufacturing counties that are not signatories. At what point, 
you said the safety valve would kick in a number of years 
after----
    Mr. Sharp. No. The safety valve starts with the program and 
we set a figure of $7 per ton of carbon emitted. Most people 
say we were awfully low but that was $7 per ton of carbon, and 
the assumption was that in fact as you began to start this 
under our proposal, you would not even reach the safety valve 
in the first 3 years. It is just a question, but at some point 
you would. That safety valve would automatically raise, as I 
recall, by 5 percent a year so it is on a steady increase, 
meaning that it could potentially rise higher. I don't remember 
the actual dates but 10 years out I think we flatten that and 
say it will no longer rise, which means you are no longer 
allowing costs to go unless Congress decides to go forward 
after it has seen what the rest of the world is doing with 
that.
    Mr. Upton. Thank you.
    Mr. Boucher. Thank you, Mr. Upton. The chair now recognizes 
the chairman of the full committee, the gentleman from 
Michigan, Mr. Dingell, for 5 minutes.
    The Chairman. Mr. Chairman, thank you. I am delighted to 
welcome back our old friend, Mr. Sharp. You have been in this 
room many times on both sides of the table and you served here 
in this Congress and in this committee with extraordinary 
distinction, and I will recall that you were one of the Members 
that I used to look to for leadership advice and guidance and 
help on difficult legislation, and you authored many valuable 
pieces of legislation, particularly in the area of energy and 
clean air. So we are happy to welcome you back, Mr. Sharp.
    Mr. Sharp. Thank you.
    The Chairman. Mr. Sharp, I don't disagree with your 
observation that developing countries are unlikely to act 
first, but the second half of your thesis is that developing 
countries will follow the U.S. if the U.S. unilaterally limits 
its greenhouse gas emissions. This is a very important 
question, because if they do not follow us, then we have the 
problem of having lost some trading cards and the ability to 
procedure their assistance in addressing what is clearly an 
international problem. What are your comments on that?
    Mr. Sharp. Well, I don't disagree. I do not accept the 
notion they will automatically follow. I think what is true is, 
they won't take action if we are not since they see us as----
    The Chairman. I had a meeting at Kyoto with the Chinese 
delegates and they informed me that China was a developing 
nation, would not be bound by Kyoto, would always be a 
developing nation, would never be beyond by Kyoto and that they 
looked to us to be the principal nation which would reduce 
CO\2\ emissions, indicating that they propose to continue, and 
you will note that the Chinese emissions are going to very 
shortly surpass our own. This puts in somewhat of a dilemma, 
does it not?
    Mr. Sharp. Well, it does, Mr. Chairman, but I would just 
suggest that they may find changing their mind on this 
proposition, because I suspect that they had been talking to 
representatives of the U.S. Government at the same time they 
were told the same thing, we were never going to adopt Kyoto, 
we were never going to do it. I don't mean to debate you in 
that regard. I think it takes tough international leadership. I 
think we have to get started but I think we have to provide 
ourselves a way to negotiate over time and to control the 
costs.
    The Chairman. Now, in your comments, you indicate the 
National Commission on Energy Policy may issue updated 
recommendations that strength the 2004 report. On the one hand, 
that could be helpful to the Congress. On the other hand, our 
timetable for action in this matter will be only a few months 
because the Speaker has indicated she wants a bill by the 1st 
of June. Can you give us an appreciation about areas the 
commission may strengthen, and can you tell us when this 
additional work may be completed? How should the committee act 
itself on these matters?
    Mr. Sharp. Well, we don't have a specific timetable. I 
think the commission plans another meeting in March at which 
point that may happen. It has been working on the notion of not 
changing the basic framework of what we have recommended but 
whether or not we would simply recommend different numbers. But 
frankly, I think you folks are quite capable of plugging in 
different numbers and running through the EIA computers and 
seeing at least to the extent we are able to use models what 
they represent and so it is really going to be a difference of 
how fast to ramp this up over time is the question I think 
before the commission.
    The Chairman. Mr. Sharp, you served, as I mentioned, with 
great distinction on this committee and helped us to move 
forward major bills through the legislative process. The 
committee has been, as I have mentioned, given approximately 
until the 1st of June to complete legislation on this matter. 
You have given us an excellent statement, but can you tell us 
first of all what should go into a bill? Second of all, what 
advice can you give us about how to get a bill enacted, in 
other words, how to get from where we are now to the adoption 
of legislation, and if you were still serving on the committee, 
how would you get from policy to legislative language to 
political consensus in the enactment on a topic involving so 
many complex and moving parts?
    Mr. Sharp. Well, what I would have done is asked you, Mr. 
Chairman. That is a hugely tall order, and I have to admit, 
when I was teaching classes at the Kennedy School, I used you 
as a paramount example of a political leader who understood or 
could figure out over time how to get the substance, how to get 
the process and how to get the politics right, and it takes all 
three to do it. June seems awfully tight to accomplish those 
three propositions.
    The Chairman. In other words, my dear friend, you are 
punting.
    Mr. Sharp. I am punting. You have that difficult 
obligation. I find life a lot healthier outside this 
institution.
    The Chairman. Mr. Chairman, I note that I have completed 
with 15 seconds excess. I thank you for your courtesy, and I am 
delighted to welcome back our old friend.
    Mr. Sharp. Thank you, sir.
    Mr. Boucher. Thank you, Mr. Dingell. For 5 minutes, the 
chair recognizes the gentleman from Texas, Mr. Barton.
    Mr. Barton. Thank you, Mr. Chairman. I want to say at the 
outset that throughout these hearings, I am going to be the 
contrarian. I have a fundamental problem in that I still don't 
accept that we have this catastrophic problem. So it is pretty 
hard for me to debate the nuances of proposed solutions before 
we have satisfied to my objections that we really have a 
problem.
    I want to start by putting up on the overhead three or four 
charts just to kind of highlight what I am talking about. This 
first chart is U.S. energy production. The bottom numbers are 
conventional energy resources of natural gas and hydro and 
nuclear and renewables, and that top number is coal. The chart 
within the chart shows the demand for electricity increase 
between 1980 and 2030 in the U.S. economy, and as you can tell, 
we are counting on using a lot of coal. Well, if you burn coal, 
you get CO\2\. Now, we can maybe capture that CO\2\ with the 
FutureGen project. We can liquefy it and somehow do something, 
but basically if you burn coal, you are going to create CO\2\, 
and if you are not going to burn coal because of these cap and 
trade systems that we are talking about today, you have to use 
a lot more nuclear power. In fact, you would have to probably 
triple the number of nuclear power plants that we have, maybe 
quadruple, or you are going to have to have some miracle of 
technology in renewables. It is that simple.
    Go to the next chart. This chart shows the CO\2\ emissions 
on a global basis. The top number is all the world except for 
China, the European economy and the U.S. economy. That red line 
is Chinese emissions of CO\2\. You can see that it is about to 
pass the United States, and by 2015 it is going to pass the 
entire western European economy. You see the U.S. number that 
is the flattest number there. We do have a large number of 
CO\2\ emissions but our emissions are increasing at a much less 
rapid rate than anybody else in the world. So as Mr. Boucher 
has pointed out, if you adopt some cap and trade system on the 
U.S. economy, you are basically doing it for symbolic purposes 
because you are not doing anything about the largest emitter 
soon to be in the world.
    Go to the next chart. This is the vaunted western European 
effort to actually meet the Kyoto accord. You can see that that 
huge economy of Sweden, they have actually done it. In 
Switzerland, they are huge industrial players in the world 
markets. They have also done it. Now, to their credit, United 
Kingdom, which is fairly industrialized, has also done it. The 
Netherlands, France, which is almost totally nuclear, and 
Germany, which truly has a robust economy. None of the other 
economies have done it, and some of them are short as much 25 
percent. The economies that tend to be the shortest like Spain 
are economies that are still growing. When you talk to leaders 
in those countries that haven't done it, with few exceptions, 
at least off the record, most of them tell you they have no 
intention of doing it, not at all. Kyoto in their mind is more 
for symbolism than it is for real environmental purposes.
    Finally, show the last chart. This is something called 
carbon intensity. This is in the U.S. economy. At the top, that 
red line is the growth in gross domestic product in the United 
States economy. We are the world's most efficient economy. We 
are the world's most productive economy. That number going up 
is a good thing. That next line is our emissions. The solid 
line is current trends and the dotted line is if we adopt some 
of the voluntary proposals that President Bush has advocated. 
It is going up but it is going up very slowly so the bottom 
line, if you compare the increase in output with the increase 
in energy or the increase in emissions, that is a measure of 
what is called intensity and that is going down. So what this 
chart shows you is what we are doing is working, is working and 
it is not wrecking our economy.
    Now, here is the dilemma that I have, Mr. Sharp, and the 
members of this committee. My grandfather was born on dry land 
cotton farm in Hill County, Texas, south of Dallas in 1893. He 
didn't have indoor plumbing. He didn't have running water. He 
didn't have electricity. Everything that they ate, they had to 
cultivate, shoot or raise. Now, my son, who was born in 2005, 
lives in a 2,400-square-foot home that is air conditioned in 
the summer, heated in the winter. When he needs to go to the 
doctor or go to daycare or something, he hops in an SUV, in a 
car seat in total comfort and moves to where he needs to go. I 
don't want to go back to 1893. I think my son, who was born in 
2005, has a much preferable lifestyle to my grandfather, who 
was born in 1893. I am not going to sit by and watch our 
economy wrecked because of some utopian goal that there is some 
perfect temperature, maybe 1960 or 1980 or even 2000, and that 
somehow we have the arrogance as men and women of the world 
that we can manage the world's climate.
    With that, Mr. Chairman, I yield back.
    Mr. Boucher. Well, thank you very much, Mr. Barton. I 
always find your comments to be captivating, and I appreciate 
the candor with which they are delivered.
    We are going to have a series of four votes on the floor. I 
think we probably have time for Mr. Butterfield to ask his 
questions and following that we will recess the committee 
pending these votes. The gentleman from North Carolina for 5 
minutes.
    Mr. Butterfield. Thank you, Mr. Chairman. I will make this 
very brief in light of the impending vote. Mr. Sharp, thank you 
very much for coming forward and I enjoyed your testimony. I 
look forward to reading the text of your testimony later this 
evening.
    Mr. Sharp, you testified that we should encourage other 
nations to take action. I think we probably need to do more 
than encourage the other nations but less than demanding the 
other nations to take action. It is imperative that we reach 
out to the world and it is imperative that we succeed. I think 
we all agree on that.
    You have studied and you are an academic on this subject; I 
am not. Have you thought outside of the box and thought of some 
creative things that we could do that we are not discussing to 
get the attention of the world?
    Mr. Sharp. Well, I am probably not the one to ask that 
question but there are a lot of people working on that question 
as to how to engage, how to transfer technology, how to get 
them going. I don't mean to overpreach on the proposal we put 
before you but one of the features of the proposal we put 
before you is a signal to the outside world we will go so but 
only so far and then hopefully that is a piece of and only a 
piece of the leverage that helps tell China, India and others 
you have got to be players here.
    Mr. Butterfield. Now, my friend, Mr. Barton from Texas, 
said a few minutes ago that he is convinced that the other 
nations really don't have an intention of working with us in 
developing a better policy. Have you found that to be true?
    Mr. Sharp. There are a lot of reports that are conflicting 
about Chinese leadership on this question but certainly it is 
no longer a C word in China the way it was 5 or 6 years ago. 
There is lots of discussion of it. There is lots of concern in 
China, we were told, about what happens to the Gobi Desert, 
what happens to major aspects of their geography, their 
agriculture and things if the warming continues. Indeed, as I 
indicated before and I don't purport to be extremely 
knowledgeable about this, lots of people are saying the effects 
could be worse on them. If that is true, they are bound to 
begin to develop some incentive in this and frankly, if they 
want to be world leaders as there is every indication they want 
to be, the rest of the world is going to expect them to belly 
up on major----
    Mr. Butterfield. Have we done anything to measure public 
opinion in China? Do we have any inclination?
    Mr. Sharp. You would have to ask someone else on that.
    Mr. Butterfield. All right. Thank you, Mr. Chairman. I 
yield back.
    Mr. Boucher. The chair thanks the gentleman, and the 
committee stands in recess pending the conclusion of the last 
vote. We will reconvene 5 minutes following the last vote.
    [Recess]
    Mr. Boucher. I recognize the gentleman from Texas, Mr. 
Hall, for his questions and he has a total of 8 minutes.
    Mr. Hall. Mr. Chairman, thank you. I thank Mr. Sharp. Phil, 
good to see you, and I would like for you to know that at least 
partially Mr. Dingell speaks for me. I didn't get to stay here 
and listen to him talk to you but I understand he and I may be 
on the same track on this situation. I want to ask you a few 
questions.
    Mr. Sharp. Sure.
    Mr. Hall. It is good to see you, and you haven't changed at 
all.
    Mr. Sharp. It is good to see you, sir, and you haven't 
either.
    Mr. Hall. The cap and trade proposal was part of the energy 
policy package and they included an increase--you may disagree 
with this--worldwide oil and natural gas production. I guess, 
let me start off by asking you, are you in favor of opening 
Anwar?
    Mr. Sharp. I haven't been in favor of opening Anwar but it 
always struck me that there was a deal to have been made here 
in Congress over the last 20 years, between that and CAFE.
    Mr. Hall. Well, somewhere I figure they would pull the two 
together, you get both of them. Is that right? Is that the 
hope?
    Mr. Sharp. That is a real possibility. The National 
Commission on Energy Policy frankly ducked the question and 
simply did not pick it up although it did talk about trying to 
open up more of the outer continental shelf to production.
    Mr. Hall. The fear really of opening Anwar, if there is 19 
million acres and the bill calls for 2,000 acres, and I have 
heard it said that that would run, that 2,000 acres would run, 
Anwar would be tantamount to saying postage stamp at the end of 
a tennis court and run the whole tennis court.
    Mr. Sharp. Well, sir, you have dealt with that more 
recently than I have. Twenty-five years ago we had hearings in 
the Interior Committee and that is the last time I looked it as 
closely as I would want to, and so I am going to punt and just 
leave it to you and others to work that out.
    Mr. Hall. That is OK. That is a better answer than I get 
from a lot of people. But how about the outer continental 
shelf, opening it to oil and gas production?
    Mr. Sharp. Pardon me?
    Mr. Hall. Outer continental shelf.
    Mr. Sharp. Well, our commission said that we really should 
be looking at what those resources are--I am speaking for this 
broader group now--what those resources are and obviously there 
are considerable natural gas resources in particular which--for 
example, lease 181 which hopefully is going forward and others 
so that our group took the view that should not be all off the 
table. These are important resources and they should be 
examined as a potential supply option.
    Mr. Hall. Well, I think all of us are at least upset, is 
the easiest way to put it, at getting 60 percent of our energy 
from people that don't trust us and could be shot out of the 
saddle almost at any time, and so I can't remember how you were 
on nuclear energy when you were here. Are you in favor of 
nuclear energy?
    Mr. Sharp. Always in favor of nuclear energy. I helped lead 
through the last, the previous time before of reauthorization 
of Price-Anderson Act. Our group that again I am speaking for 
says that we don't see how it could not be part of our future 
and we ought to have incentives to help advance that technology 
and get new power plants.
    Mr. Hall. I am a fossil fuels guy, but I have always been 
in favor of nuclear energy because good, clean nuclear energy 
instead of people standing up there saying ``no nukes,'' you 
might say ``no wars,'' and that is the way to address the young 
people on that issue. Because I go to schools and talk to them 
and ask how many are in favor of nuclear energy. Well, none of 
the teachers are and none of the pupils are and then talk to 
them about what it might to prevent wars, then ask how they 
felt about it. Little kids were for nuclear energy and the 
teachers didn't change much. But I think about 20 percent of 
our energy comes from there now and England lives off of that 
in the North Sea and France lives off it. We could use a lot 
more nuclear thrust, and I think as a fossil-fuel-state guy, I 
think that is giving a little bit.
    And while we are on that situation, are you and your group 
supportive of the nuclear waste depository at Yucca?
    Mr. Sharp. The group said it definitely should go forward 
with NRC with an application being put to NRC, which is still 
waiting for Department of Energy to do that in hopes of 
advancing it. It left open the question for NRC to do the 
judgment. It has to do if it is safe, but certainly that should 
be advanced as well as creating a central interim storage 
facility somewhere in the country to help get the backup that 
is occurring at some of the utilities now managed.
    Mr. Hall. It has been some time since I have been to China 
but the last time I was there they were kicking them off on 
almost every other hill. In your studies, have you run across 
that? What is the present situation with their nuclear thrust?
    Mr. Sharp. I am sorry I can't speak to that. I know they 
are building new nuclear power plants. They are building more 
coal plants relative to the nuclear plants but they are doing 
both and they are doing--because they are aggressively 
electrifying a country that essentially hasn't been 
electrified.
    Mr. Hall. And you mentioned CAFE standards. How high should 
those standards be?
    Mr. Sharp. We did not decide what that should be. We simply 
said that it should be reformed and it should be increased 
significantly. So we didn't do the hard political work you guys 
have to do, which is decide how much.
    Mr. Hall. Let me read you something and you can comment on 
it if you want to. ``A cap and trade approach to controlling 
greenhouse gas emissions has been proven unworkable in 
countries that signed the Kyoto Protocol and it would be 
unworkable in the United States. Such a program's artificially 
high energy costs would cripple the United States manufacturing 
base and suppress the job creation for working American 
families.''
    Mr. Sharp. Well, I think there are two different questions 
there. One is, of course, how vigorous a program you adopt. Our 
organization suggested you start slow. We are not interested in 
imposing massive uncertain costs at the outset so we said start 
slow so we trust that it would not wreck the economy. If 
anything, we are criticized for being too slow.
    The second part of that though is very significant. Has 
anybody successfully run a cap and trade program? Well, we of 
course have in the United States under acid rain but admittedly 
it is a smaller universe than what we are talking about with 
this kind of cap and trade. The European situation, frankly, 
they have had very little experience at it. I think it has been 
less than 2 years that it has actually been in operation and it 
did have the major design flaws and prices rose rapidly about 
the credits but then they came back down and settled down, and 
frankly many people in America that have been involved in the 
creation of our own cap and trade system thought they had 
design flaws to begin with. So to be honest with you, I think 
we would have done a better job if we had designed it here.
    One of the protections that we argue in our proposal 
against that uncertainty whether it works well is the so-called 
safety valve where we cap off how much the cost could possibly 
be by having the safety valve. That is where the Government 
would just continue to sell credits at a certain level so you 
knew the price couldn't go above that for carbon dioxide so 
that if you miscalculated your design of your cap and trade 
system, you wouldn't get stuck with----
    Mr. Hall. Let me ask you a question that Chairman Barton 
may have covered.
    Mr. Sharp. Sure.
    Mr. Hall. How much sense really does it make to even 
discuss a cap and trade program that doesn't include India and 
China, particularly when China is soon going to be the largest 
emitter of carbon dioxide in the world? Really, how sensible is 
it to do that and not take that into full consideration as you 
approach this?
    Mr. Sharp. Well, first of all, I think we do have to take 
that into consideration. I do think that is a serious long-term 
issue. But the question is, should we start now or should we 
wait until we finally get some kind of international agreement 
on it? Our group came to the conclusion we should start now, we 
should start modestly. We should have a safety valve on there, 
and if they did not over time demonstrate they were going to be 
serious about this issue, then we would not remain committed to 
a constant increase in costs here. So we tried to recognize 
that. I don't think this is the only answer to that question 
but that is a long-term, no question about it, issue of what do 
the other nations do.
    Mr. Hall. And the final question is, and I think Mr. 
Dingell brought this out, isn't a hard, cold fact that China 
has told us unequivocally without any question or any doubt 
that they are not going to participate?
    Mr. Sharp. Well, I don't know how hard and unequivocal----
    Mr. Hall. Mr. Dingell was there.
    Mr. Sharp. No, I understand. I think they have articulated 
that. I think our administration articulated that for several 
years to them too so I don't think there is any shock about 
this.
    Mr. Hall. And finally, we had never voted to send anybody 
over to the Kyoto meeting and the Senate had voted 89 or 92 to 
0 on that. Need I say more? Thank you, Phil.
    Mr. Sharp. Usually you have the best stories and the best 
ways of illustrating a point of anybody in this chamber, Mr. 
Chairman. I would address you as Mr. Chairman because you have 
been a----
    Mr. Hall. Well, I get outvoted every time I go over there 
and vote, so----
    Mr. Sharp. Oh, you are used to that.
    Mr. Hall. Thank you, Mr. Chairman.
    Mr. Boucher. Thank you, Mr. Hall. Actually that vote was 98 
to nothing but that was with reference to Kyoto, which is 
something very different than what we are now talking about 
today.
    The chair now recognizes the gentleman from Massachusetts, 
Mr. Markey, for 5 minutes.
    Mr. Markey. Thank you, Mr. Chairman, very much. Welcome 
back, Phil.
    Mr. Sharp. Thank you.
    Mr. Markey. First of all, I completely disagree with Joe 
Barton. I think his approach is a business-as-usual approach, a 
voluntary approach. That approach has not worked. We need to 
institute a process by which there are binding requirements 
that are put in place in order to make sure that the job is 
done. So that is the essence of the debate that we have here, 
and I respect Joe Barton's right to have that view as I do 
Ralph Hall's but I think that science and the politics of the 
issue have now moved to a different place. We are now debating 
over what those terms will be.
    In your report, Phil, your commission calls for a 4 percent 
increase in fuel economy standards. I agree with that. The 
President actually mentioned 4 percent in his State of the 
Union address but when I searched his legislative language I 
could not find anything that was anything more than rhetorical, 
nothing binding. Do you believe that the Congress as it did in 
1975, which actually produced tremendous results by 1987, 
should the mandate be mandatory so that we get the benefit that 
comes from the increase in fuel economy standards not only from 
a global climate change issue but also from an energy 
independence perspective?
    Mr. Sharp. Well, first of all, the commission strongly 
recommended there be a significant increase in CAFE 
requirements, meaning mandatory, and secondly, it did not 
actually set numbers but it argued that it should be----
    Mr. Markey. I think 4 percent is in your----
    Mr. Sharp. I think in the National Commission on Energy 
Policy, you won't find numbers that the group committed to. You 
may also be referring back to the National Academy of Science's 
study of 2001. But the general point is true, whether the 
numbers are a significant increase but also reform. The system 
needs to be changed to modernize it in that process as well.
    Mr. Markey. Do you agree with the statement that it is 
technologically and economically possible to obtain a 4 percent 
a year fuel economy improvement so that we get 35 miles per 
gallon by 2018.
    Mr. Sharp. I am sure it is technologically possible. I 
can't speak to the economics of that. I was on that national 
Academy study in 2001. I have kind of forgotten the data, but 
the one demonstrable fact on that was, without excessive cost 
you could unquestionably adopt technologies that were already 
in place. That was before the view was that the Prius or the 
hybrids was really going to come into the marketplace, which 
they have radically, so there is plenty of opportunity there.
    Mr. Markey. So I am going to introduce legislation that 
calls for 4 percent a year mandatory by 2018 with the reforms 
that are necessary to make the system work better and then 
after 2018 have it be 4 percent but with some discretion. Do 
you think that makes sense as a formula?
    Mr. Sharp. Again, I won't commit to a number, OK, 
especially representing the commission. But the general 
proposition of the Congress taking action and/or the 
administration taking action is certainly one that is totally 
consistent with what the commission is recommending.
    Mr. Markey. And when you look at----
    Mr. Sharp. Which by the way is for both, as you I am sure 
will articulate, but it is both for oil security reasons and 
for climate reasons because you get benefits on both of those 
major goals.
    Mr. Markey. Do you think Europe is now about to take 
tougher actions on global warming? Do you think there is a 
change that is taking place there as well?
    Mr. Sharp. I am not a very good one to address that but I 
am told that they are. I was kind of surprised to see you find 
quite a difference in politics in Great Britain. The new 
conservative party leader is giving the Labor Party that is in 
power that enormous grief over their failure to act more 
aggressively on climate change, which just shows you a 
different kind of politics.
    Mr. Markey. So I think where we are right now is that 
President Bush is saying he wants to reform CAFE but to trust 
him even though he will be out of office before the first set 
of regulations goes into effect, even as he has been opposed to 
any change for the first 6 years that he has been in office, 
and I think that if we are going forward, we have to have a 
guarantee for the energy from an energy independence 
perspective that we are going to reduce by two to 3 million 
barrels a day the amount of oil we import from the Middle East, 
from Venezuela, from other parts of the world. Since we put 70 
percent of all oil that we consume in gasoline tanks, we have 
to look at fuel economy standards. I think it is a central 
issue.
    I thank you, Mr. Chairman.
    Mr. Boucher. Thank you, Mr. Markey. The gentleman from 
Washington State, Mr. Inslee, is recognized for 5 minutes.
    Mr. Inslee. Thank you. We are sure glad to see you here in 
this context. My friend Joe Barton proposed a future for his 
grandkids. He was worried that they would be back chopping 
cotton and wearing overalls and living kind of in the dirt, and 
I want to propose a different vision for his grandkids, just 
think of his grandson for a second and how cap and trade might 
fit into that vision for his grandkids. I see a potential where 
he lives in a 2,400-square-foot home just like he does now but 
he uses 50 percent less energy because it is built through 
green building standards. It uses Microsoft technology to 
coordinate all the appliances. It uses GE heating and air 
conditioning that is 50 percent more efficient, which has been 
achieved in California, by the way. It has already been 
achieved. This is real stuff. He has got Canarca solar panels 
made in Massachusetts to run most of his electrical work but on 
a cloudy day he uses clean electricity that comes one-third 
from solar thermal built by the Lens Two Company, one-third 
from clean coal technology and one-third from the general 
compression technology used to make wind turbines 30 percent 
more efficient, another technology that is coming in line. He 
gets in the car to go to work. It is a plug-in hybrid built by 
General Motors. It is called a Volt. It gets 100 miles to 150 
miles per gallon and it burns cellulosic ethanol with the 
prices lower than gasoline. He plugs it in at night. He gets to 
work. He is working in a building that is 50 percent less 
energy intensive than buildings we are using now because of 
passive solar and the air conditioning systems that we are 
developing, and the name of his company is Barton Energy Export 
Company and their expertise is selling American energy to 
China.
    Now, I think that is a great vision of turning Texas into 
an export center for American technology to China, because I 
will tell you, one way or another China is going to have 
technology and they are going to figure it out one way or 
another, and we ought to be the people selling it to them.
    Now, my view of the cap and trade system is, that will help 
bring that vision to fruition because it will drive and help 
spur investment in these technologies that I am talking about. 
Right now they have to deal with dirty oil. It is cheap because 
they put their garbage in the atmosphere. If we get a cap and 
trade system, it will help these companies to develop that 
vision. I just wonder if you want to comment on that sort of 
view.
    Mr. Sharp. Well, first of all, many of the things you 
articulated are already possible.
    Mr. Inslee. Right.
    Mr. Sharp. They are not universally used in this country 
and the technologies are moving rapidly, which suggests to us 
there is a way to skin this cat without bankrupting or wrecking 
the economy and you identified potential pluses, so I totally 
agree with that general proposition. None of us can know 
exactly how it will work out. The principle the commission 
articulated was to get that market signal for cap and trade 
precisely because it will encourage all kinds of investors and 
all kinds of innovation and all kinds of consumer choices over 
time. However, because we did not recommend and we suspect 
Congress will not adopt a stiff signal for concerns over the 
immediacy of the economy that you also need to supplement that, 
as many of you have articulated, with other kinds of things to 
help advance the technology whether it is coal sequestration or 
nuclear power or energy efficiency or transportation 
efficiency.
    Mr. Inslee. I want to ask you about the safety valve that 
you put into the discussion. I think I understand the 
motivation for it. Why isn't Congress the safety valve? Why 
isn't an alternative approach of establishing standards that 
set signals to the market, which I think are incredibly 
important here, to send signals to Wall Street, the venture 
capitalists, the inventors, the innovators, that they are going 
to have a market because this cap is going to be there. And 
frankly, my concern about a safety valve is, it just weakens 
that message. It just weakens what we are trying to do, which 
is to establish certainty in an investment climate. But we 
always have Congress frankly to change the statute. You can 
understand, we are not putting this into the granite tablets 
that came down from the mountaintop. We have the ability to 
change. Why isn't that an adequate safety valve?
    Mr. Sharp. Well, that is a legitimate point of view that 
Congress is always sitting. In fact, all of what we are talking 
about can be undone by the next Congress at any time it 
technically decides to do that kind of thing, so you are not 
wrong about that. I guess what I would argue is that Wall 
Street and everybody else might find a clear-cut safety valve 
but I am talking about one that escalates so that it actually 
does not make it too cheap. Might find that a more certain 
proposition about where the prices are headed. You might find 
that more attractive, at least politically, if not 
economically. But I think this is a legitimate debate over what 
is the most appropriate way to provide that.
    One of the key things is though what dollar figure you 
ascribe to that, and we admittedly ascribe to a very low dollar 
figure to which the commission is actually reviewing, given the 
new science since the time we did this and given frankly the 
political equation, which is more favorable to taking action.
    Mr. Inslee. I want to show you one slide. Can we put up the 
second slide here, the declining investment in energy R&D? This 
is a slide, if I can just refer you to it. It shows our energy 
R&D Federal investment, on the left showing energy from 1960 to 
2006. You will see we had a spike in the late 1970's, early 
1980's. It has come down less than half of what it was now. In 
the middle graph it shows health investments going up. It has 
gone up by a factor of probably 20 or 30 since 1960. We look at 
on the right research and development in the defense industry 
that has gone up by a factor of, oh, 5 or 6 or 7 during that 
period of time. So looking at these, my take on this is that we 
have this emerging planetary crisis and yet our energy R&D--do 
you have any comments on R&D funds?
    Mr. Sharp. Very rapidly I will just respond, one of the 
things I didn't mention was the commission actually recommended 
almost a doubling of what we spend in R&D, much of it going on 
these climate things but also on other energy things, and it 
would have been paid for by virtue of when you sell credits, 
auction off some of the credits, it would have been enough 
money to cover that so the whole proposal would have been 
rather unusual. But no question about it that while we have 
done lots in R&D, we have got to on a stable, serious way do 
that and so do other nations.
    Mr. Inslee. Thank you.
    Mr. Boucher. The gentleman's time has expired. Phil, thank 
you very much. We enjoyed having you here today and your 
testimony as always was useful, informative, and we will be 
calling you back.
    Mr. Sharp. Well, you are generous, Mr. Chairman. Thank you 
and good luck.
    Mr. Boucher. We look forward to working with you as we 
undertake this process.
    We turn now to our second panel of witnesses, and I will 
say a brief word by way of introduction of each of them as we 
welcome them to the table, and you can please come up to the 
table.
    Mr. John G. Rice is the vice chairman of the General 
Electric Company and the chief executive officer for General 
Electric's infrastructure division, which I understand also is 
responsible for the company's energy business. He is here to 
speak about the company's involvement with the U.S. Climate 
Action Group.
    Mr. Fred Krupp is the president of Environmental Defense. 
He is also here to speak about his organization's involvement 
in U.S. CAP.
    Ms. Eileen Claussen is the president of the Pew Center on 
Global Climate Change and she is here to speak about her 
organization's involvement also with U.S. CAP.
    Mr. Steve Rowlan is the general manager of environmental 
affairs for the Nucor Corporation, and he has graciously agreed 
to step in at the last minute for the chief executive officer 
of Nucor, Dan DiMicco, who I understand was prevented by 
weather from being with us here today, and we look forward to 
his comments on behalf of the industrial energy consumers of 
America.
    We have Dr. Stefan Ulreich. He is an energy policy 
specialist with EON Energie and is here on behalf of the 
Federation of German Industries.
    We welcome each of the witnesses. Each of your prepared 
statements will be made a part of the record, and we would 
welcome 5-minute summaries, and we will be happy, Mr. Rice, to 
begin with you.

  STATEMENT OF JOHN G. RICE, VICE CHAIRMAN, GENERAL ELECTRIC 
                            COMPANY

    Mr. Rice. Thank you, Mr. Chairman. Members of the 
committee, good morning, or good afternoon. We appreciate this 
opportunity to appear before you today.
    As you noted, my name is John Rice. I am vice chairman with 
General Electric Company. At the dawn of the 21st century, 
growing concerns about energy security, availability and 
continuing changes in the world's climate compel us to search 
for better solutions for energy production and consumption. 
Meeting these challenges will require a combination of efforts 
from the public and private sectors coordinated to achieve the 
maximum impact in the shortest period of time.
    GE is at its heart a technology company. We have withstood 
the test of time for 125 years because of our commitment to 
invest in the capabilities to solve problems, meet market needs 
and improve standards of living. We are accelerating these 
efforts and will double our investment in more efficient and 
environmentally responsible technologies to $1.5 billion 
annually by 2010.
    Some people believe that companies like GE are involved in 
environmental activities just to make money. To those people, I 
say that while profit is certainly not our only motive, we 
fully expect that our investment here just like any other will 
deliver a reasonable return to our shareholders. In fact, I 
think the true sustainability both in terms of effort and 
environmental impact can only happen if private sector 
companies achieve risk-reward tradeoffs that are appropriate to 
the significant investments required.
    The foundation for this must include a legal and regulatory 
framework that provides clear, consistent policies and 
incentives applied over a period of many years consistent with 
the long-term nature of these investments. We believe that 
Government policies should support the development and 
deployment of a broad range of power generation and fuel 
choices.
    Today many people seem to be searching for the answer to a 
complex set of questions. GE has been investing in a broad 
range of energy and power generation technologies since Edison 
invented the light bulb and we sell these today to our 
customers around the world. If nothing else, this allows us a 
measure of objectivity when comparing the merits and tradeoffs 
between diverse options like coal, wind and nuclear. For 
different reasons, these and other alternatives can and should 
be part of an energy and environmental future that we are proud 
to leave to our children's children.
    The challenges presented by global climate change demand 
effective collaboration and a combination of efforts across a 
broad spectrum of activities. The adoption of policies that 
establish reliable market pricing mechanisms for carbon and 
other greenhouse gases will stimulate and accelerate research, 
development and deployment of sustainable technologies that 
make a difference.
    The need for clarity and consistency in this area is 
especially critical at this time. Capacity additions are being 
made in the U.S. and around the world with long-term 
implications. In some cases the decision to invest in no- or 
low-carbon-emitting technologies are being deferred, largely 
because the economic or risk-reward models assign no value to 
carbon reduction.
    Coal is frequently discussed in this context as a carbon 
contributor. I would remind its critics that coal is the 
predominant fuel source not just in the U.S. where it is 
slightly over 50 percent but also in China in India where it is 
79 and 68 percent, respectively. Coal will continue to be a 
significant fuel source in these countries and in many other 
parts of the world because of its abundance, it is relatively 
inexpensive and a critical part of many countries' energy 
infrastructure. Continuing technical advancements will allow it 
to be burned more efficiently and with reduced environmental 
impact. Longer term, carbon capture and sequestration will 
become more viable. Support for the development of these 
capabilities must also be part of a responsible regulatory 
framework.
    As I suggested earlier, it is not just about any one fuel 
or power generation source. Many will have to work with ever 
improving efficiency, lower costs and little or no 
environmental impact if we are to have a world where 6 or 7 or 
8 billion people can live in health and prosperity. As the 
cornerstone of responsible regulation, a carbon cap and trade 
system will go a long way to further innovation, help the 
environment and improve the overall effectiveness of the world 
energy system.
    I appreciate the opportunity to be with you today, and we 
look forward to working with this committee to enact 
responsible climate change legislation at the earliest possible 
date.
    [The prepared statement of Mr. Rice appears at the 
conclusion of the hearing.]

   STATEMENT OF FRED KRUPP, PRESIDENT, ENVIRONMENTAL DEFENSE

    Mr. Krupp. Thank you, Mr. Chairman and members of the 
subcommittee. Thank you for the opportunity to testify on 
behalf of the U.S. Climate Action Partnership. My name is Fred 
Krupp. I am president of Environmental Defense.
    Since 1967 we have been linking science, economics and law 
to create innovative, equitable and cost-effective solutions to 
the society's most urgent environmental problems. We have a 
history of working in a very bipartisan way. We worked with the 
current Bush administration, the Clinton administration, the 
previous Bush administration, across party lines and 
particularly on cap and trade systems for sulfur and other 
pollutants.
    I might mention the other mentions of the U.S. Climate 
Action Partnership. They include Alcoa, BP America, 
Caterpillar, Duke Energy, DuPont, ourselves, the FPL Group, 
General Electric, Natural Resources Defense Council, the Pew 
Center on Global Climate Change, PG & E Corporation, P & M 
Resources in New Mexico, and the World Resources Institute.
    I will describe a little bit about what U.S. CAP is 
proposing, which is also outlined in our report. You will 
notice, by the way, that in the report we talk repeatedly about 
rapid enactment of these policies and that is driven in my mind 
by the science. We strongly believe that Congress needs to pass 
serious global warming legislation as quickly as possible if we 
are going to solve this problem. As I look at it, the science 
is unforgiving.
    Here is the overall goal: to cut global warming pollution 
enough to stop its worst impacts and to do it in a way that 
helps our economy and cuts our oil addiction, and here is how 
we get there. We recommend that Congress pass legislation that 
stabilizes global atmospheric greenhouse gas concentrations at 
between 450 and 550 parts per million through a mandatory 
emissions reduction plan with specific steps, specific targets. 
In 5 years emissions should be between 100 and 105 percent of 
today's levels, in 10 years emissions should be at 90 to 100 
percent of today's levels, and by 2050 emissions should be 60 
to 80 percent below current levels.
    Recently we have heard some voices of pessimism declare 
that solving climate change is impossible. In some cases, these 
critics went straight from ``it is not happening'' to ``we 
can't stop it.'' Not only are these critics wrong about current 
technologies, Professors Pakala and Sokolo at Princeton have 
demonstrated there are 15 existing technologies available to 
make the necessary reductions. But I think they are wrong about 
Americans' ability to innovate and win. It is the considered 
judgment of these corporate leaders and environmental experts 
that these cuts will stabilize the climate and are both 
technologically achievable and economically sound.
    The cap and trade policy we chose is the centrist approach. 
The Government leads by setting a goal while giving the private 
sector the flexibility to achieve it in the most efficient and 
profitable way possible, and because we can't afford to leave 
anyone who can contribute to solving this problem behind. The 
program should cover as much of the economy's greenhouse gas 
emissions as possible. We should also use offsets from a range 
of activities such as no-till farming. Offsets can be a very 
powerful transition tool that reduces the overall cost to the 
economy while delivering real environmental results.
    Some have criticized the participation of some of the 
member companies at CAP, that they are just in it to make 
money. To me, that is the power of cap and trade. Market-driven 
solutions and not Government subsidies are what will enhance 
our global competitiveness, boost our economy and get the best 
technologies at the lowest cost. That is the heart of the U.S. 
CAP proposal. A clear, unambiguous signal, a cap and trade 
system, will give the essential green light to investors and 
innovators eager to make money and deliver the best answers.
    As those of you who have participated in the passage of the 
Clean Air Act Amendments know well, the allocation of 
allowances garners much interest. U.S. CAP provides the 
framework. An admission allowance allocation system should seek 
to mitigate the economic transition cost to entities in regions 
that will be relatively more adversely affected and also to 
recognize those who have already made investments in higher 
cost, lower greenhouse gas technologies while simultaneously 
encouraging the transition from older, higher-emitting 
technologies to newer, lower-emitting technologies.
    As we get a cap and trade program up and running, we should 
recognize that companies which have taken early action, 
granting credit for eligible reduction starting from a 
specified date until the mandatory program becomes effective. 
We hope you will also promote aggressive technology research, 
accelerate deployment of zero- and low-emitting technologies as 
well as energy efficiency while discouraging investments in 
high-emitting facilities.
    I thank and commend you, Mr. Chairman and the subcommittee 
for taking on this serious issue. Environment Defense and U.S. 
CAP look forward to working with the subcommittee as you 
continue your work.
    [The prepared statement of Mr. Krupp appears at the 
conclusion of the hearing.]

  STATEMENT OF EILEEN CLAUSSEN, PRESIDENT, THE PEW CENTER ON 
                     GLOBAL CLIMATE CHANGE

    Ms. Claussen. Mr. Chairman and members of the subcommittee, 
thank you for the opportunity to testify on the U.S. Climate 
Action Partnership. My name is Eileen Claussen and I am the 
president of the Pew Center on Global Climate Change.
    As Fred mentioned, the U.S. CAP believes that our 
environmental goal and economic objective can best be 
accomplished through an economy-wide market-driven approach 
that includes a cap and trade program that places specified 
limits on greenhouse gas emissions. This approach will ensure 
emission reduction targets will be met. At the same time, it 
generates a price signal that will stimulate investment and 
innovation in the technologies necessary to achieve our 
environmental goal.
    One issue often raised in discussions of cap and trade 
programs is the projected cost of the policy and how the 
program can be designed to keep costs reasonable. The U.S. CAP 
believes that the most powerful control measure is a robust cap 
and trade program since markets do the best job of controlling 
costs over time.
    If Congress weighs additional cost control measures, we 
would recommend considering which parts of the economy are 
affected, the time duration of the impact and the remedy, the 
implications for international competitiveness, the 
implications for international emissions trading, and how the 
measure affects the price signal necessary to stimulate 
investment and technological innovation. If used, cost control 
measures must be designed to enable a price signal that is 
stable and high enough to drive investment in low- and zero-
emitting technologies including carbon capture and storage, and 
it must respect the integrity of the cap over a multiyear 
period.
    U.S. CAP also believes that measures are needed, at least 
initially, to complement a cap and trade system for new coal-
based energy facilities and other stationary sources, carbon 
capture and storage, transportation and buildings in energy 
efficiency. As you said, Mr. Chairman, coal supplies over 50 
percent of our current electricity generation and will play a 
continuing role in our energy future. Policies are needed to 
speed transition to low- and zero-emission stationary sources 
that can cost-effectively capture CO\2\ emissions for geologic 
sequestration.
    We also recommend that Congress require EPA to promulgate 
regulations to permit long-term geologic sequestration of 
carbon dioxide from stationary sources and provide funding for 
at least three sequestration demonstration projects, each at 
levels equivalent to emissions produced by a large coal-based 
power plant.
    U.S. CAP believes that climate protection legislation must 
achieve substantial greenhouse gas emission reductions from all 
major emitting sectors of the economy including the 
transportation sector. We recommend Congress enact policies to 
reduce greenhouse gas emissions in the transportation sector 
including consideration of policies to promote lower carbon 
transportation fuels, cost-effectively decrease allowable 
greenhouse gas emissions of automobile manufacturers' fleets 
and promote new low-emission vehicles and reduce vehicle miles 
traveled.
    Policies are needed also to realize the full potential of 
energy efficiency. We recommend establishing Federal and State 
policies that align incentives with utilities' business 
interests to aggressively pursue energy efficiency programs and 
promote policies that decouple utility sales and revenues in 
conjunction with requirements for utilities to pursue all cost-
effective energy efficiency savings. Stronger energy efficiency 
codes and standards are needed for whole buildings and for 
equipment and appliances, as are incentives and tax reform 
measures to advance the infrastructure necessary to support new 
smart and highly efficient technologies and distributed 
generation.
    Let me close by discussing the international dimension of 
this issue. The effects of climate change are global as are the 
sources of greenhouse gas emissions. While taking the necessary 
first step of placing limits on our own emissions, Congress 
should strongly urge the administration to safeguard U.S. 
interests by engaging in the international climate negotiations 
with the aim of establishing commitments by all major emitting 
countries. The members of U.S. CAP believe strongly that U.S. 
action to implement mandatory measures and incentives for 
reducing emissions should not be contingent on simultaneous 
action by other countries. Rather, we believe that U.S. 
leadership is essential for establishing an equitable and 
effective international policy framework for robust action by 
all major emitting countries.
    I thank and commend you and the subcommittee for taking on 
this critically important issue. The Pew Center looks forward 
to working with the subcommittee as it continues its work.
    [The prepared statement of Ms. Claussen appears at the 
conclusion of the hearing.]

  STATEMENT OF STEVEN ROWLAN, GENERAL MANAGER, ENVIRONMENTAL 
                   AFFAIRS, NUCOR CORPORATION

    Mr. Rowlan. Thank you for this opportunity to share our 
views about climate change. Our focus must be on the future. 
This means that China, India, Brazil, Russia and other 
developing economies are the linchpins to any effort to address 
this global problem.
    Nucor is one of the country's largest steel producers. 
Steel-making is an energy-intensive industry and any action on 
climate change is likely to affect us directly. A healthy steel 
industry is essential for the national security of the United 
States as well as for our Nation's long-term prosperity. For 
these reasons, Nucor has worked with the Industrial Energy 
Consumers of America, IECA, an organization dedicated to 
finding solutions to America's energy challenges.
    I am here today representing both Nucor and IECA. Nucor is 
the country's single largest recycler. We annually recycle over 
42 billion pounds of steel. We make our steel using electric 
arc furnaces and use less than a third of the energy 
traditional methods need to make a ton of steel. We emit 
roughly 67 percent less carbon-equivalent emissions in our 
processes as well. Overall, the combined U.S. steel industry 
has reduced its process-related carbon-equivalent greenhouse 
gas emissions by 39 percent below 1990 levels, even though we 
make more steel today than we made in 1990. This is five times 
greater than the 7 percent reduction that the Kyoto Protocol 
would have required of the United States, and we are not done.
    We are developing revolutionary ways to make steel that use 
significantly less energy with much lower emissions. We took 
these steps voluntarily and will take more because it makes 
good sense for our business and for the environment. Climate 
change is a global issue that requires a global solution. The 
global solution must include three of the largest economies in 
the world: China, Brazil and India. While we think of these 
economies as developing, they are home to many of the largest, 
most sophisticated manufacturing companies in the world. These 
companies do not lack access to capital nor technology. They do 
not need to be paid to control emissions. The technology to 
reduce their emissions presently does exist.
    For example, China is building the equivalent of an entire 
U.S. steel industry every 2 years. Let me repeat: China is 
building the equivalent of an entire new U.S. steel industry 
every 2 years. Brazil and India are also adding large amounts 
of new steel capacity. A recent study by the Center for Clean 
Air Policy estimates that greenhouse gas emissions by the 
Chinese steel industry will increase by 50 percent by 2010 
while those of India will nearly double in the same time 
period. The International Energy Agency's world energy outlook 
2006 projected that China would surpass the U.S. as the number 
one emitter of greenhouse gases by 2009.
    These counties benefit from the international system of 
commerce and as such they must share in its responsibilities, 
and that includes environmental responsibilities. Unless these 
countries are required to curb their emissions, any measures 
taken by the United States will be ineffective and will be 
counterproductive.
    An effective climate change program must encourage 
innovation and investment while discouraging emissions 
migration and with it the loss of good-paying jobs. Emissions 
migration occurs when manufacturing activities move from the 
United States to countries with much weaker regulation and 
enforcement. The E.U. cap and trade system, for example, has 
led certain European steel makers to shift production to 
countries with no caps on emissions. As a result, the E.U. 
limits have likely caused an increase in worldwide greenhouse 
gas emissions. Moreover, the E.U. system actually rewards the 
biggest emitters because allowances are based on past 
emissions. Since new, efficient producers must buy allowances 
to expand production, it may be economically difficult or even 
impossible for them to enter the market. Had an E.U. system 
been in place in the U.S., efficient steel producers like Nucor 
could not have created the energy-efficient industry we have 
today.
    I urge this subcommittee to examine the E.U. cap and trade 
system carefully to avoid their mistakes, especially as to 
allowance allocation and how the E.U. companies invest in China 
to generate allowances. If the news reports are correct, 
massive E.U. investments have paid China to do things that U.S. 
companies do voluntarily at a fraction of the cost.
    IECA's paper entitled ``Eight Things Congress Should 
Consider before Capping Greenhouse Gas Emissions'' discusses 
their additional concerns, especially natural gas and 
electricity prices. An effective climate change program must 
first focus on developing sources of affordable energy with low 
carbon intensity. But statutory barriers impede the 
construction of new nuclear plants and drilling for new sources 
of natural gas. We will also need more renewable sources--wind, 
solar power, recycling, energy efficiency, demand response, and 
more R&D is needed on our technological responses to climate 
change.
    In conclusion, my biggest fear is that the U.S. 
manufacturers who have already made huge improvements far in 
excess of Kyoto will be subject to tight new emissions limits 
and higher energy prices. Meanwhile, our competitors in China, 
India and elsewhere will be free to produce and emit without 
restriction. If our carbon-intensive industries move offshore, 
the United States will lose even more manufacturing jobs while 
greenhouse gas emissions continue to rise. This is worse than 
doing nothing. A successful climate change strategy must 
control global greenhouse gas emissions while preserving 
American jobs and enhancing the prosperity of our country. In 
reality, cap and trade is a poorly designed tax that 
unnecessarily transfers revenue and jobs offshore.
    Thank you.
    [The prepared statement of Mr. Rowlan appears at the 
conclusion of the hearing.]

  STATEMENT OF STEFAN ULREICH, CONSULTANT/SPECIALIST, ENERGY 
                    POLICY, EON ENERGIE, AG

    Mr. Ulreich. Thank you, Mr. Chairman, ladies and gentlemen. 
Since we talked a lot about the European emissions trading 
scheme, I think it will also be good to share some experiences 
of the system with you. I want to concentrate on four issues 
with respect to this.
    First, the European emissions trading system works 
operationally. Trading is taking place. Second, the emissions 
trading scheme is incentivizing investments into new 
technologies and into new power plants. Third, we already 
talked about the flaws in the system. I want to raise one flaw, 
and that is the problem of time scales. Technology is the 
answer to climate change but it needs some time to develop, and 
there were some errors with respect to this in the E.U. 
emissions trading scheme. And the fourth problem that we have 
heard today, I will also repeat it, a global solution is 
needed, and I will also explain why this can be done with a 
trading system in the easiest way.
    Point No. 1, emissions trades work operationally. Already 
since 2003, emissions allowances were traded in Europe and this 
was done before the legislation was started in 2005, mainly 
because traders wanted to have trading experiences within these 
quantities, within these allowances, and it was also important 
to create the infrastructure to make this trading workable. Not 
only steel producers, chemical plants or power plants are 
taking part in this trading, also banks and insurances, making 
this really a vivid trading place. Today we see a lot of large 
turnovers in this market. We have about 5 million points 
allowances traded each day, which is quite a big surprise, at 
least for those who have looked at these markets a few years 
ago.
    The problem with this market was already mentioned. This 
was this price hike we saw in the year 2005 where prices were 
over 30 euros a ton. This was mainly due to the fact that only 
abatement within the first 3 years of the trading period could 
lead to an effect. The first trading period was defined to be 
between 2005 and 2007. Building new power plants is of course 
no answer because the lead time for a new gas plant is about 3 
years, the lead time for a new coal plant is about 5 years, so 
you cannot do anything of abatement within this 3-year period 
of time. The only thing you can do is switching from a coal 
plant to a gas plant. This has happened to a large extent 
within the E.U. Unfortunately in 2005, the gas prices also had 
a dramatic price hike. This was due to several effects. One 
effect was that the U.K. was in fear of running dry of gas. One 
effect was done by the high oil prices that we saw, and in the 
end, the switching from coal to gas was really expensive and 
therefore the CO\2\ prices increased a lot. Now with more 
relaxing gas prices and also with a more comfortable situation 
on the E.U. allowance balance, the prices of the E.U. 
allowances are going back.
    We have seen already that the time scale is playing a 
crucial role. The emissions trading scheme should incentivize 
new investments and is also doing it. We have already a market 
for allowances for 2008 through 2012, so the next 5 years have 
already shown some price signals, and these price signals also 
leading to the development of new technology and to the 
building up of new power plants with low-emitting properties.
    The E.U. already indicated that after 2012 the story is not 
over. We have a new discussion about the goals. So far the E.U. 
until 2020 we should have abatement for 20 percent. If other 
countries would take place, it would be 30 percent. This kind 
of goal is giving at least the industry some kind of idea what 
can happen and also gives some kind of investment security 
because you can be rather sure that after 2012 we are still to 
abate and to do things like developing technology.
    As I already stated, technology has some own time scales 
and it needs some time to develop. We already heard a lot about 
carbon capture and sequestration today. This is a technology 
traded today. The first steps are done today. Hopefully we have 
a solution within the next 10 years' time but we cannot be sure 
about this. Technology development is no guarantee but that is 
the only way to go. Carbon sequestration is also important for 
us to make our coal reserves further unusable because we in 
Europe still rely on coal. About 50 percent of the German power 
production is done by coal and we cannot to go to any other 
stuff. But to develop the technology we need time and also a 
time frame and a long-term prospective for the carbon problem.
    A global solution is needed, and the E.U. is responsible 
for less than 15 percent of the worldwide carbon emissions. The 
E.U. on its own will not solve the problem. We need the help of 
other countries to solve the problem of carbon and climate 
change. A trading system can be a rather interesting choice for 
establishing a kind of level playing field, mainly because the 
price of carbon can be a global one and so every country has to 
pay the same price for it, whereas if you go for a tax system 
or any other system, the taxes can differ from country to 
country, making this kind of advanced trading system non-
existing.
    I hope that I can share with you some experiences of the 
E.U. trading system. Of course, if you have any further 
questions with respect to this, I am happy to answer. Thank 
you.
    [The prepared statement of Mr. Ulreich appears at the 
conclusion of the hearing.]
    Mr. Boucher. Thank you, Dr. Ulreich, and the chair's thanks 
to all of the panel members for your testimony here today. Let 
me say to our witnesses from the U.S. Climate Change 
Partnership that I am very impressed with your set of 
recommendations and I note among your members among the 10 
companies, two of the major coal-fired electric utilities 
including Duke Energy, which is the third largest coal-fired 
utility in the country, and I think that fact gives your 
recommendations a certain gravity at least with me.
    I want to ask you about international participation. I 
listened, Ms. Claussen, very carefully to what you had to say 
about that, and I will have to say that I would be very 
concerned about a system of mandatory controls, a cap and trade 
program being put into effect in the United States if that 
action here were not replicated at least in some measure in the 
developing world. And so one of the things that has been 
proposed for our consideration by a number of people is that 
any program we put into effect has some safety valves, and one 
of those safety valves might well be relief from our program in 
the event that within a certain period of time we do not have 
participation from the developing world. And I am going to ask 
you for your views on the potential for that kind of safety 
valve being placed in the U.S. program. Ms. Claussen, would you 
like to begin?
    Ms. Claussen. Yes, but let me just clarify that I am going 
to speak as the Pew Center here because U.S. CAP did not get 
into great detail on the international side.
    Mr. Boucher. One way or the other.
    Ms. Claussen. OK, one way or the other. Obviously this has 
to be a global solution. I think everybody recognizes that, and 
the 20 largest emitters account for 85 percent of emissions. 
They all have to be doing something to reduce emissions or 
limit their growth in emissions. So we believe that that is 
absolutely crucial. On the other hand, we do not see those 
countries moving forward to do anything unless the U.S. shows 
that it has a program in place to reduce emissions, and I 
think----
    Mr. Boucher. Let me interrupt you. Don't you think of we 
enacted a program and said this is what we intend to do 
contingent upon the developing countries also agreeing to take 
part and setting some time frames for the effectiveness of our 
program, it obviously would not be effective immediately. It 
would be effective on a target date. Doesn't that send an 
international signal?
    Ms. Claussen. You could do it that way. You could also, in 
my view, start in a modest way, and I think our proposal is 
relatively modest in the early stage, and then work really hard 
to see if you can get everybody to take some action. Let me 
make one other point though on the some action point. I think 
it is important to understand that not everybody is in the same 
place or would do everything in the same way, so I think you 
need a very flexible global framework that lets countries do 
things that are in their own interest just as we would like to 
do them in ways that are in our interest as long as the result 
is the right one. I think that was one of the flaws with Kyoto.
    Mr. Boucher. That is a fair point.
    Ms. Claussen. In other words, everyone has to do the same 
thing in the same way.
    Mr. Boucher. I have one other question for the U.S. CAP 
group. At the present time the Energy Information 
Administration predicts that coal's place in the electricity 
generation market will grow, perhaps over about a three-decade 
time frame to as much as 56 or 57 percent of the total market 
from about 51 percent today. If your recommendations were put 
in place, let us suppose we adopt what you are recommending, is 
there any place within your range of recommended targets and 
time frames that we could expect to see that growth in the coal 
market actually take place, Mr. Krupp?
    Mr. Krupp. Well, let me say, Mr. Chairman, that one of the 
reasons U.S. CAP is for action now is to get a signal sent to 
investors and developers of technology that there will be 
change coming. The longer we wait, the more we put ourselves in 
a position where the change will be very abrupt. Put another 
way, U.S. CAP has talked about this and believes the single-
most important driver to ensure the future of coal is a price 
signal that will accelerate the deployment of these low-carbon 
was to use coals. Mr. Rice may want to add.
    Mr. Boucher. Mr. Rice?
    Mr. Rice. We totally agree with that. As I said in my 
comments, coal's significance is not to be disputed. I don't 
think anyone here debates that point. Predictions as far as the 
future use I think have to take into account other forms of 
energy, what happens with the aging nuclear fleet and how are 
those units replaced, so I think there is a combination of 
things that have to be considered in this complex problem set.
    Mr. Boucher. Thank you. Just a word about carbon 
sequestration. Secretary Bodman testified before the full 
committee last week that the Department now has seven 
partnerships. They will be doing seven test bores with the 
capacity of 1 million tons of carbon per year per project. Ms. 
Claussen, you noted the need to have test bores equal to the 
annual output of a large coal-fired plant. Do you happen to 
know how much that is? If you don't, that is OK. We will learn. 
I assume it is more than a million tons per year.
    Ms. Claussen. I think it is but we can supply it for the 
record. I am sorry.
    Mr. Boucher. Well, just as a point of information, DOE is 
asking for the money to go forward in fiscal year 2008 with 
these seven projects. I then asked Secretary Bodman when he 
thought based on the Department's projected work that carbon 
sequestration would be available and reliable as a technology 
with adequate long-term sequestration, and he said he thought 5 
to 6 years. Do you think that is realistic or is he being 
optimistic when he suggests that?
    Mr. Krupp. I think the technology is viable in that time 
frame. I think one of the things that has to be understood is 
the long-term impact on geologic formations and exactly--and 
pinning down a precise date to confirm that is I think the 
challenge. As I know you understand, you have enhanced oil 
recovery sequestration, you have sequestration in saline 
aquifers. The former is more well understood than the latter so 
there is a lot of additional information, I think, that needs 
to be gathered about sequestration to confirm what happens over 
time.
    Mr. Boucher. At the same time, would you not agree that we 
have to have reliable sequestration at hand before the emission 
caps can actually go into effect? Otherwise the adverse effect 
on coal becomes dramatic.
    Mr. Krupp. One thing, Mr. Chairman, that I would add to 
that is that while----
    Mr. Boucher. I am looking for a yes there hopefully from 
you.
    Mr. Krupp. I just want to point out, Mr. Chairman, that we 
do have reliable sequestration at hand today. Not only are 
there a series of mechanical sequestration projects out there 
and the sooner the legislation passes, the sooner EPA can be 
directed to put in place rules we have called for, but there 
are also on farms across America opportunities waiting to 
happen where farmers can change their farming practices, go to 
no-till agriculture and biologically sequester carbon in the 
soil. I visited a farm in Kansas of 5,000 acres, part of the 
Agrimark cooperative that together owns a million acres. There 
is millions upon millions of acres available to do biological 
sequestration the moment you pass legislation.
    Mr. Boucher. Thank you very much. My time has long expired 
and I apologize to the members for my lengthy questions. At 
this time I would like to call on the ranking member of the 
full committee, Mr. Barton.
    Mr. Barton. Thank you, and I thank Mr. Upton for yielding 
to me so I could do this and then go do some meetings and then 
come back.
    I want to compliment Mr. Inslee. I am told that in his 
remarks he talked about my son's future and that he knew my son 
would have a son that was more efficient and a car that was 
more efficient. I am glad he at least admits my son should have 
a house and a car. We are moving in the right direction there.
    I didn't realize it until Mr. Krupp just spoke but my 
grandfather that I mentioned was an environmentalist ahead of 
his time. He went to no-till agriculture in the 1920's because 
the boll weevils knocked him out and he moved from the farm 
into town and made the mistake of getting into the telephone 
business right before my great-uncle took all the family money 
and went to Mexico and then my grandfather had to tell the 
telephone company to pay off the stockholders of the bank so 
that our name was untarnished in Whitney, Texas. So my 
ancestors were environmentalists ahead of their time.
    Mr. Rice, you mentioned in your testimony that methane is 
21 times more powerful a greenhouse gas emission than CO\2\. 
Now, I am told that the largest emitters of methane in United 
States are cows and that we have a lot of them. Do we need to 
have a cattle reduction program or a methane capture program 
for cows as a part of this effort?
    Mr. Rice. Well, sir, I guess we could have that but what we 
would prefer to have is technology like we do have available, 
reciprocating gas engine technology which can process methane, 
both the methane that is created from cows and the explosive 
and poisonous methane that is produced or generated in a coal 
mine.
    Mr. Barton. Do you know or does any of the panel know the 
ratio of methane emissions versus CO\2\ emissions? I would 
assume CO\2\ overwhelms it but I----
    Mr. Rice. I think so but I don't know.
    Mr. Barton. Again, Mr. Rice, what is a good baseline price 
for electricity retail kilowatt to use in these estimates of 
these various cap and trade programs? What price should we put 
into the equation for the U.S. economy?
    Mr. Rice. Well, from our vantage point, Mr. Barton, we tend 
to look at the cost to produce, and depending on which 
technology you choose, that can range from three or cents a 
kilowatt to seven or eight cents a kilowatt.
    Mr. Barton. But, if you are going to have a cap and trade 
system, you are going to have to have a baseline price and 
ultimately that price has got to be translated into a retail 
price that everybody in this room pays. Now, different regions 
of the country--Mr. Inslee's region is blessed with 
hydroelectric power. His region pays some of the lowest prices 
in the country. I don't know what retail he pays but he 
probably pays retail 5 or 6 cents a kilowatt-hour. Here in 
Virginia, the Dominion, my retail price I paid at my condo in 
Virginia last month was 7 cents. In Texas I paid 13 cents 
because we depend on high-price natural gas right now. Our New 
York friends probably pay about 20 cents in the Northeast. So 
it is a fair question to ask if we are going to have these cap 
and trade systems, there must be some estimate of what the 
baseline price is.
    Mr. Rice. Well, I think that would depend on the price that 
is elected for the target price. What we focus on is the 
offsetting costs and we use the development in technologies 
like coal-fired power generation or natural gas or wind. Today 
the power produced by a wind turbine is half the cost that it 
was 10 years ago and a----
    Mr. Barton. But the truth is, you don't have a number, do 
you?
    Mr. Rice. We didn't get into that level of detail. We 
expect that the cap and trade mechanism will add cost and that 
there will be other offsets.
    Mr. Barton. Dr. Ulreich came all the way from Germany. What 
is your estimate of the cost to the German economy of the cap 
and trade system that has been put in place there? Has it been 
a cost-free transition or has it cost a fair number of Deutsche 
marks or euros?
    Mr. Ulreich. Yes, we still have the euro so the Deutsche 
mark has gone away. But it was a few million euros, of course, 
definitely. There was some kind of virtual cost because the 
allowances were given for free to the companies. Nevertheless, 
by this kind of opportunity, the electricity producers have to 
include it into the power prices and together with the gas 
price hike we saw in the year 2005, it was an increase of the 
wholesale market about 30 to 40 percent of the electricity 
price. Of course, wholesale energy is different than what the 
customer pays because grid fees and other stuff is also coming 
to it. In Germany we have about 20 eurocents a kilowatt-hour so 
even in Texas you are quite cheap.
    Mr. Barton. This is my last question because my time is 
expired. Even having said that, in the real world of power 
generation in Germany, if I heard you correctly, what they have 
done is switch to the extent of building new generation, they 
are building natural gas-fired generation. Is that correct?
    Mr. Ulreich. It is both correct. They are building out new 
gas and they are building out new coal generation.
    Mr. Barton. And doesn't natural gas emit CO\2\?
    Mr. Ulreich. Yes, but half of the hard coal plant and one-
third of the ligmat coal plant.
    Mr. Barton. Thank you, Mr. Chairman.
    Mr. Boucher. Thank you, Mr. Barton. The gentleman from 
North Carolina, Mr. Butterfield for 5 minutes.
    Mr. Butterfield. In my absence, I missed the testimony of 
Mr. Rice. I am sorry about that but I have your written 
testimony and I have been quickly looking through it and it 
appears to be a very comprehensive piece. But let me ask you, 
your testimony seems to suggest that hydrogen--well, your 
article mentions that hydrogen is one of our future methods 
that will change the way we produce energy in this world. Let 
me ask you this. In the short term, you also emphasize the need 
to utilize the world's abundant supply of coal. Do you think 
that energy derived from hydrogen will ever be less expensive 
than energy derived from coal?
    Mr. Rice. Sir, I think the difficulty with hydrogen is 
around the infrastructure and that would depend on the 
investments that were necessary to transport it and store it 
and all of that I think happens over a much longer period of 
time. So really understanding the tradeoffs between coal and 
hydrogen is something that would require in my view a lot of 
further study.
    Mr. Butterfield. Mr. Krupp, let me ask you this. Your plans 
calls for rapid enactment of aggressive policies to stop 
climate change. Many people argue that if drastic policy 
changes are enacted too rapidly, it may place an unfair burden 
on industry and push them either out of the country or out of 
business. Now, please elaborate, if you will, on what you mean 
by rapid enactment, and if you could comment on what you think 
could be done to offset placing undue burden solely on 
industry.
    Mr. Krupp. Thank you, Congressman. By rapid enactment, that 
the signal should be sent rapidly, that whatever program you 
put in place should be done in this session of Congress 
rapidly. I very much appreciate the June 1 target date. But 
what should be in place is a centrist, modest plan the way the 
U.S. CAP has proposed. This is a plan that has the support of 
the 10 businesses and four environmental groups. It is a step-
wise plan with modest goals, just stabilizing emissions within 
5 years or even 5 percent increase as opposed to a steeper 
signal. In terms of what can be done to lower the costs, as Ms. 
Claussen said, the best protection to lower the cost is a 
market system. A cap and trade system will serve to grind down 
costs because innovation will be rewarded, but the broader that 
you place the cap including farmers and foresters and giving 
them the ability to plant trees that soak up carbon and giving 
them credit for changing agricultural practices that soak 
carbon out of the air, those are things that can be done to 
lower the costs.
    Mr. Butterfield. Let me thank all of you for your testimony 
today. I am going to yield back the balance of my time.
    Mr. Boucher. Thank you, Mr. Butterfield. At this time we 
will recognize the ranking member of the subcommittee, Mr. 
Upton, for 5 minutes.
    Mr. Upton. Temporary ranking member.
    Mr. Boucher. Temporary ranking member.
    Mr. Upton. I do have some sad news to report. I just heard 
that our colleague, Mr. Norwood, passed away in the last hour.
    Thank you all for being here for this important panel. Mr. 
Ulreich, I have got a couple questions for you. You indicated 
in your testimony that Germany produces about 50 percent of its 
energy from coal-fired plants, and I think I heard you say that 
with the passage of Kyoto, at least the last couple of years 
your electric energy costs, consumer costs have gone up 
somewhere between 30 and 40 percent. That is wholesale cost? Is 
that right?
    Mr. Ulreich. Wholesale.
    Mr. Upton. So even more retail or is there a cap?
    Mr. Ulreich. Trade fees are also part of the----
    Mr. Upton. But eventually it will catch up?
    Mr. Ulreich. Yes.
    Mr. Upton. Sort of like what they are talking about in 
Virginia here, right? So my question is, I know that France has 
about 90 percent of the energy today, the electricity that they 
consume is nuclear. Where is Germany on the nuclear question?
    Mr. Ulreich. On the nuclear side in Germany it is rather 
sad news also because we have to have a phase-out in France so 
until 2022 the last German nuclear power plant should have been 
switched off. Of course, me and my colleagues are trying to 
give the politicians a different idea on this and to run longer 
on the nuclear power plants. The time where the nuclear phase-
out was concluded was during the time where the Kyoto protocol 
didn't play a major role and so of course we are now saying 
well, now we have different conditions and we should discuss 
again.
    Mr. Upton. I know you are not a representative of the 
German government but do you expect the nuclear question will 
come back now that it is----
    Mr. Ulreich. It is already discussed now and today but of 
course there are always some kind of technical questions and 
politics because our energy minister wants to become chancellor 
of Germany and so this is a crucial point for him to have the 
Green Party on his side.
    Mr. Upton. We will watch with great interest.
    Mr. Rice, when I met you at the beginning of the hearing a 
couple hours ago, we talked very briefly about light bulbs and 
I must say unlike Mr. Inslee, who might think of appliances 
with GE. As a Whirlpool family, my family helped start 
Whirlpool. We think of appliances with Whirlpool and now 
Maytag, not necessarily with GE. But with light bulbs we do 
think about GE. But tell me a little bit about the new light 
bulbs that are out now in terms of the energy savings and where 
we are in terms of manufacturing those and what would be the 
impact if we saw some incentives for a real changeover? I must 
confess, I was part of a group that went to North Korea a 
number of years ago to try and get the six-party talk started 
and was very glad to hear about the news and everywhere we went 
we saw the new, in essence the HD light bulbs that are out 
there. Where are we on that?
    Mr. Rice. Well, they are being manufactured. In fact, we in 
our own plants have initiated a program where over the next 
couple years we will re-lamp 150 or so of our own facilities. 
We have done 40 to this point with the kind of lights that you 
are describing. We have saved about $3\1/2\ million in energy 
costs, thousands of tons of emissions and greenhouse gas 
elimination from that, and it is about a year payback, a little 
over a year cash payback to make these kind of investments. So 
frankly, the technology for that is very promising and it is 
available today.
    Mr. Upton. Thank you. Mr. Rowlan, in your role here this 
afternoon, as we talk about emission caps, we hear about the 
increases in energy costs. What would happen to the U.S. 
economy if our wholesale energy costs went up 30 to 40 percent? 
Describe for me what the economic climate would be if we looked 
at something like that as what happened in Germany in terms of 
the next 3 to 5 years?
    Mr. Rowlan. Well, probably the easiest way to explain that 
is, I was over in Europe and I heard one of the other steel 
makers put a presentation on to us with respect to the impact 
of Kyoto and the E.U. trading program for them, and he said 
that first off, if I remember correctly, their energy costs 
have gone up 40 euros per megawatt and then had dropped down. 
That was roughly a double--or energy costs had gone up two 
times. His environmental costs which he was really the 
purchaser of the allowances and that type of transaction had 
gone up approximately another 10 to 13 euros per ton. So if you 
kind of throw that in there, you are talking potentially $30 to 
$40 a ton on steel or possibly more than that. That is just 
using the numbers that they showed us over there. In an 
industry that is sometimes razor-thin whether you are going to 
make any money or not, that would be tough for us. For other 
industries that are competing with other countries' products 
that are shipped into this country and have a much larger 
carbon footprint and they have to compete with that, and they 
have lower energy costs, we have the higher energy costs, we 
may have lower emissions with it but they have higher emissions 
with their product. That would be devastating for some of their 
industries.
    Mr. Upton. Thank you. I know my time has expired. Thank 
you, Mr. Chairman.
    Mr. Upton. Thank you, Mr. Upton. The gentleman from 
Washington State, Mr. Inslee.
    Mr. Inslee. Thank you. Mr. Rowlan, congratulations on your 
energy efficiency your company has been achieving. It is really 
impressive.
    I want to ask you, Germany has a cap, America does not. 
Have there been any steel mills moved from Germany into the 
United States following application of their cap?
    Mr. Ulreich. As far as I know, not, because of the demand 
for steel is a worldwide one and it is quite good at the moment 
and so there are some price difficulties for our colleagues and 
then certain ways of producing steel. They are still able to 
export and produce in Germany.
    Mr. Inslee. Mr. Rowlan, are you aware of any companies that 
moved from Germany to the United States as a result of 
Germany's cap?
    Mr. Rowlan. I don't know if it as a result of Germany's 
cap. They don't state that as a reason but Tiss and Krepp have 
announced that they are going to build a facility someplace in 
the United States.
    Mr. Inslee. Ms. Claussen, you made a comment about the need 
for three separate sequestrations. Could you elaborate on that? 
I am not sure I know how that relates to Secretary Bodman's 
seven holes they are going to punch. How do those relate to 
each other?
    Ms. Claussen. I am sorry. I don't know exactly how they 
relate either because I didn't have a chance to look at 
Secretary Bodman's testimony, but I will do that and I will try 
to get back to you on the record. I think the bottom line is, 
it is essential that we move as quickly as possible on carbon 
capture and sequestration because we are going to use coal, the 
Chinese are going to use coal, the Indians are going to use 
coal, and we have to have a technology that can deal with the 
carbon emissions. In our view, the largest number of 
sequestration demonstrations using significant amounts, because 
you really want to be able to use it from a coal-fired power 
plant, the better, and the faster you do it the better you are 
going to be in a position to actually start to ratchet down on 
your emission levels.
    Mr. Inslee. Could I ask Mr. Krupp or Ms. Claussen, on the 
issue of grandfathering, Mr. Rowlan talked about if you 
grandfather existing plants, it makes energy of more energy-
efficient plants more difficult who have to then bid into the 
system. What advice did your group come up with in that regard, 
whether there should be grandfathering or not?
    Mr. Krupp. U.S. CAP came up with a general framework that 
you should consider both, who would be disaffected by a cap, 
what the transition costs would be, who is using cleaner fuels. 
The details, Congressman, we left for you. But that is a very 
important question. I don't mean to minimize it and that is 
going to be a very important negotiation.
    Mr. Inslee. So you are suggesting the devil is not just in 
the details, it is in Congress, too? That is an even broader 
indictment.
    Mr. Krupp. Well, from an environmental standpoint, the 
important thing is to have a firm cap. From the standpoint of 
giving incentives to the U.S. consortium exporting these 
technologies, it is important that we have a firm cap. As to 
how you allocate the cap----
    Mr. Inslee. I am just thinking out loud here. Is there a 
reason to grandfather existing polluters other than pragmatism 
and politics of getting something through the Congress? Is 
there any sort of economic reason to do that? I guess the other 
way of asking it, TXU was thinking about building 10 or 12 coal 
plants right now that would not have sequestration technology 
on them, and if they skip in underneath this cap, why should 
they be grandfathered relative to a son of Nucor who might want 
to come in and build a new coal plant and then have to bid for 
it?
    Mr. Krupp. I would only say, Congressman, that it is up to 
you to decide what year the cap goes into effect, what the 
baseline is, and we look to your wise judgment in making that 
decision.
    Mr. Inslee. And I look to you for cover, so thank you very 
much. Thank you. I don't have any more questions.
    Mr. Boucher. Thank you very much, Mr. Inslee. I have one 
additional question and then I will be happy to recognize Mr. 
Barton if he has questions. Dr. Ulreich, I was listening very 
carefully to your comment about what happened to wholesale 
electricity prices when the cap and trade program was put into 
effect at the European Union, and you indicated about a 30 to 
40 percent increase. Mr. Sharp, when he was here earlier today, 
said in his opinion the European cap and trade program had been 
somewhat hastily and improperly designed and that a better 
design would avoid some of the problems that have occurred. Do 
you agree with that, and if you do, what better in particular 
could be done in order to have avoided perhaps those 
significant price spikes?
    Mr. Ulreich. With respect to the price spikes, I think no 
system can avoid these things. If you want to restrict CO\2\, 
it makes the power production of electricity expensive. It 
makes power plants that you have to build as to become in a 
different status of technology, and this is usually more 
expensive and so prices will increase definitely. It is also 
the goal of some environmentalists that they say OK, due to the 
fact that electricity becomes more expensive and then 
incentives for better use, higher efficient use of electricity 
is given and this the way how to reach parts of the country or 
parts of the system that are not covered by the emissions 
trading scheme. What I would make better from the E.U. 
emissions trading scheme is, as I mentioned, the time scales. 
You have to keep in mind that investment cycles, especially in 
the power industry, is quite long. You have 10 to 20 times 
until the power plant really earns money and you have to expect 
this when doing this kind of system, that you give some kind of 
long-term stability and reliability on the system. The second 
point, with grandfathering and all benchmarking and alternative 
schemes and if you are using grandfathering of costs, there 
will be a lot of political debate how to give what amount to 
whom. If you are using benchmarking as a kind of best available 
technology and you are giving some kind of technology 
incentive, on the one hand but this is only possible for 
certain industries. In Germany there is debate because the 
power industry is quite busy to define this kind of benchmark. 
As for the paper industry, it seems not to be possible.
    Mr. Boucher. Has any work on carbon sequestration been 
undertaken in the European Union? Are you familiar with that?
    Mr. Ulreich. Yes. There are a few projects, especially in 
Germany, because we are also burning ligmat to produce 
electricity. There are at the moment two big projects with 
carbon sequestration, and one of them is a rather small entity 
with a 20-megawatt power plant. The other is a bigger one with 
81 megawatts. There are projects in Norway where they pump in 
and store and the CO\2\. There are also some projects in the 
U.K. So there are some things done on this issue.
    Mr. Boucher. Thank you very much. Mr. Barton, do you have 
some additional questions?
    Mr. Barton. I do, but I did ask one round.
    Mr. Boucher. Oh, I am sorry. Mr. Burgess has arrived and I 
did not see him. I am sorry, Mr. Burgess. I will be pleased to 
recognize you for 8 minutes.
    Mr. Burgess. I thank the chairman and I apologize for 
missing so much of the hearing today. We are downstairs trying 
to straighten out the FDA and that is a full-time job as well.
    Let me, if I could, Mr. Ulreich, we were just talking, what 
about the stockpiling and fuel switching concept? What is 
involved with fuel switching?
    Mr. Ulreich. Fuel switching means that you are using a gas 
plant instead of a coal plant, and since gas has power carbon 
intensity than coal, you are abating fuel by producing 
electricity.
    Mr. Burgess. So it would be a modification of a coal-
burning electrical plant to use natural gas?
    Mr. Ulreich. You cannot modify the plants within these kind 
of short times. To modify a plant that can be used both by coal 
and by gas is too expensive and would take some years to build 
up. What we have done in Europe is using the existing power 
plant for the country's weather heads, gas plant and power 
plant in a sufficient quantity and just to switch the 
production from the coal plants to the gas plants.
    Mr. Burgess. But combustion of natural gas is still going 
to release carbon dioxide. Is that correct?
    Mr. Ulreich. Yes, that is right.
    Mr. Burgess. Is that still a problem as far as the overall 
burden of the greenhouse gases in the atmosphere?
    Mr. Ulreich. It is not yet a problem. It will become one. 
Of course, if you want to become a complete carbon-free 
society, then you cannot accept gas plants definitely also but 
if you have the choice between goal and gas, most 
environmentalists prefer gas, but certainly the carbon 
sequestration will also have to apply to gas plants and it will 
take a few years.
    Mr. Burgess. The reason I bring that up is, the chairman 
had us take a CODEL to Denmark, Sweden and Norway last summer 
and in the Norwegian parliament, of course, they rely 
significantly on hydro power but unfortunately it hadn't rained 
in 3 years so they were running low and they produce solid to 
liquefied natural gas that goes into that picture that Mr. 
Markey likes to show with the Norwegian tanker coming in to the 
Fall River port. But they weren't going to build any gas plants 
to supplement their electricity production for the people in 
this coming winter because being signatories to Kyoto, they 
felt they could not do that, so they are actually going to buy 
their power from Denmark which was burning coal which didn't 
make a lot of sense to me, but in a circuitous way I guess they 
were conforming to their Kyoto obligation.
    What about the issue of stockpiling? What is being 
stockpiled?
    Mr. Ulreich. Stockpile--already in 2004 a little bit of 
more of the stuff you wanted to produce and so you have fewer 
emissions in 2005. It is a shift of the production timing.
    Mr. Burgess. Production timing for generation of 
electricity?
    Mr. Ulreich. No. Electricity cannot store. You have to 
produce in the moment that demand is present. But for some 
other industries this kind of stockpiling was possible.
    Mr. Burgess. So are you stockpiling coal or natural gas 
or----
    Mr. Ulreich. Not necessarily. Steel, for example. You can 
stockpile steel, you can stockpile copper or any other products 
and then produce more in these kind of years before.
    Mr. Burgess. So stockpiling of the product and not the 
energy source.
    Mr. Ulreich. Yes.
    Mr. Burgess. Let me ask a question of Mr. Rice. We are 
talking about cap and trade proposals. Do we have any concept 
of how much that is cost every American family to implement 
that?
    Mr. Rice. No, and as I said earlier, we have to do more 
work to determine exactly what the ultimate cost is and over 
what time period and also we would expect that there would be 
cost offsets. I think maybe you were out of the room when I 
mentioned the progress that has been made in helping a number 
of forms of power generation technology become more efficient 
over the years, wind and coal and natural gas, and we would 
expect those improvements to continue and to provide some 
offset to any cost increase that might be caused by a cap and 
trade.
    Mr. Burgess. Does anyone else on the panel have a thought 
on that?
    Mr. Krupp. The only thing I would add, Congressman, is cost 
in part is going to be determined by how you engage and design 
the system. For instance, in the European Union, they have not 
allowed farmers to be part of the solution, and that is one of 
the reasons the cost is higher there than in a smart program 
that I expect you all will design here, because anyone who can 
sequester carbon should be allowed to generate a credit, sell 
it into the market. The more credits that you allow to be 
generated, the lower the cost will be. That is a key flaw in 
the European Union program.
    Mr. Burgess. What type of carbon sequestration are we 
talking about here? Are we talking about pumping it back into 
the Earth's crust or are we talking about growing an oak tree 
that is going to bind carbon for a couple of generations?
    Mr. Krupp. Growing an oak tree, that would be an example. 
Growing forests would be an example, absolutely.
    Mr. Burgess. You talked about farmers so----
    Mr. Krupp. Farmers, specifically going to no-till 
agriculture, so instead of plowing up the land and continuing 
to deplete the carbon in the soil, an increasing number of 
farmers have found for a variety of reasons by drilling a hole 
in the ground and dropping seed in and leaving the organic 
matter, that they actually build carbon up and the scientists 
at Kansas State University and a whole variety of agricultural 
colleges and universities around the country can measure how 
much carbon is being built up so in a good cap and trade 
system, we give those folks the opportunity to be part of the 
solution and it lowers the cost.
    Mr. Burgess. So what are some things that are good carbon 
sequesters? What are the examples of some things that a farmer 
might grow that would be helpful? Are grasslands inherently 
better than forests?
    Mr. Krupp. Well, a variety of crops could go to no-till 
including corn could go to no-till agriculture. There is a 
whole range of crops that can be grown with no-till equipment. 
It also reduces the amount of energy used because instead of 
tilling the land, you are going over with a lighter tractor 
drilling holes. There are other ways that farmers can be 
involved too. Capturing the hog waste in various feed lots, 
getting the methane off that and destroying it. There are a 
whole lot of ways. In a well-designed system, there would be 
economic opportunities for farmers to be part of the solution.
    Mr. Burgess. Ms. Claussen?
    Ms. Claussen. I would like to make a slightly different 
point. There are 30 to 35 companies that have implemented 
voluntary caps on their emissions and I think it is worth 
looking at their experience when you think about an overall 
cap. Of those that have implemented the caps voluntarily, a 
fairly significant number, more than half, have already met 
those caps and they have done it by efficiency.
    Mr. Burgess. So how much we have lowered the Earth's 
temperature?
    Ms. Claussen. Thirty is not a lot compared to the totality 
here. U.S. emissions continue to go up even though a lot of 
very progressive companies have started to limit their 
emissions. My point is a slightly different one and that is 
that most of them have done it by implementing efficiency 
improvements which have actually helped the bottom line rather 
than hurt it, and I think when we think about a cap, you have 
to think about what people will do first. I think the first 
thing they will do is efficiency. Then they are going to look 
at technologies. They are going to look at offsets. So it is 
not all a big cost right away, particularly if your cap and 
trade starts in a fairly modest way and only becomes more 
stringent after there is more new technology.
    Mr. Burgess. Well, I am given to believe that China and 
India would be larger players in this issue. When do we expect 
to see them initiate a cap and trade program?
    Ms. Claussen. Well, I think if the U.S. did something 
domestically and then played a significant role in trying to 
develop a global framework, we actually might see the Chinese 
and the Indians take some serious steps. They are actually 
doing small things now but I think they would take more serious 
steps if we would actually show the way.
    Mr. Burgess. I don't think we should hold our collective 
breath although that would cut down carbon dioxide emissions. 
Thank you, Mr. Chairman. I will yield back.
    Mr. Boucher. Thank you, Mr. Burgess. Mr. Barton, if you 
would like to ask some additional questions, we will be happy 
to recognize you.
    Mr. Barton. I want to, but in the spirit of back and forth, 
I think we ought to give Mr. Inslee first crack.
    Mr. Boucher. That is not a bad idea. You are good at this 
job. You must have had some experience.
    Mr. Barton. I did. You used to tell me that when you say 
right by me.
    Mr. Boucher. Mr. Inslee.
    Mr. Inslee. Well, I would defer to Mr. Barton. He has a 
much tougher argument to argue from.
    Mr. Barton. I just lost a net of 10 votes. I went from five 
votes in the majority to five votes in the minority. My 
argument is the same. The win is much more difficult now.
    Mr. Boucher. Overall it is tougher. I think we all would 
agree. Mr. Inslee?
    Mr. Inslee. I want to ask this issue. I think it is 
actually one of the harder issues about the question of 
Americans moving forward while some of the world is not yet 
moving forward. I think it is a hard issue for us to deal with, 
and I believe that when we move forward, it is going to help us 
drive technological innovation that we will become the 
marketers to the world including to Germany and some great 
technology we are developing here.
    But I think there is a moral obligation here too. When I 
teach my kids--I have three boys who are little rapscallions 
and I taught them not to throw stuff out the window when we are 
driving around, and one time one of my kids said look at all 
that stuff on the side of the road, other people are doing it, 
and I kind of tried to explain to him that old sort of precept 
that there is sort of an individual moral obligation. Now, I 
think it is consistent with American values to say that there 
is an American value of not trashing the planet independent of 
what other people are doing in other countries. There is an 
independent American reason for doing this, that we have an 
obligation to the creator's garden not to trash it, even if 
China and India are a little bit behind us in that regard. Now, 
I do think they will follow over time and it may be more 
difficult for them because they are trying to develop an 
economy. I guess the question I have, is it legitimate, is it 
useful to talk about this issue in those terms? It is just an 
open-ended question to anyone.
    Ms. Claussen. Well, I will take a try. I do think this is 
at least in part a moral and ethical issue. It is true that 
China's emissions are growing but we are the largest emitter 
and even though China's emissions will surpass ours pretty 
soon, the cumulative emissions in the atmosphere are mostly 
ours. So I think in that sense, there is a responsibility to 
reduce emissions. I also think there is an ethical issue with 
respect to future generations because I think we would like to 
leave a world for the future generations that is at least as 
good as the one we inherited and I think it is incumbent upon 
us to do something about this issue because if we do not, we 
will not be in that position of leaving future generations a 
world that is at least as good as ours.
    Mr. Inslee. Mr. Krupp referred to credits for sequestration 
and capturing. There is a company, and I think its name is E3, 
and they have this incredible closed-loop system there, I think 
in Illinois or Michigan. They are generating ethanol and they 
run their ethanol plant on methane captured from the cow 
manure, so they are taking cow manure, creating methane, using 
that to run an ethanol plant, feeding the residual matter from 
the ethanol plant, the leavings of the ethanol production to 
their cows, this incredible closed-loop system. Is that 
something that could be considered a credit in this program?
    Mr. Krupp. Yes, if you design the program right, you should 
have the possibility that low-carbon biofuels would earn 
credits and there is more than one company that is doing that. 
I think there is another one called Prime BioSolutions that I 
am familiar with, so there is more than one way to produce low-
carbon fuels.
    Mr. Inslee. I want to ask Mr. Ulreich, as far as costs, you 
experienced increased electricity prices, and have those come 
down at all since the first launch of this?
    Mr. Ulreich. The year 2005, this price increase on the 
wholesale market was not only due to the fact of carbon 
allowance prices. Carbon allowance price was one important 
effect. The other important effect was the rise of coal prices 
on the market, the rise of oil prices and the rise of gas 
prices. So a few things came together to explain this price 
increase.
    As I stated earlier, if you want to have CO\2\ less intense 
power plants, you have to pay a certain price for it.
    Mr. Inslee. So let me tell you what I personally believe. I 
started writing a book about clean energy about 6 months ago, 
and in the course of that I just ran across all these 
companies--I have noted several today--that are just doing this 
incredible work that I didn't know about 6 months ago and I 
keep learning about them every week. I learned about a company 
that week that has improved compression technology. You can put 
it on top of a turbine, compress air and basically build a 
battery for wind turbine. They think they can increase revenue 
for wind farms by 40, 50 percent. My perspective is that what 
this will do, this cap and trade system, will create an 
economic incentive for the creation of these technologies. When 
these technologies come online, it will diminish if not 
eliminate the increases that we would otherwise see if you 
assume that we had static technology, and all of our worries 
are assuming that technology is frozen, that we are just not 
going to ever invent another technology. I guess the question 
is, is it a realistic assessment in looking at your experience 
over time that we are going to have new technologies that 
decrease the rate of increase we might otherwise experience in 
cost?
    Mr. Ulreich. I think with respect to renewable energy, you 
need a long breath until they become really competitive with 
nowaday power prices. We in Germany have a renewable--and this 
gives really lucrative prices to the producers of wind energy 
and biomass and any other kind of renewable energy but these 
prices are still far away from a market price of electricity 
plus the CO\2\ advantage. So at least for this technology you 
would need a lot of time for some other stuff like carbon 
sequestration when it happens like efficiency gains by power 
plants. The time is now.
    Mr. Inslee. Thank you.
    Mr. Boucher. Thank you, Mr. Inslee. Mr. Barton.
    Mr. Barton. Thank you, Mr. Chairman. I have a couple of 
announcements. On a personal sad note, I have been informed 
that Congressman Norwood, a member of this committee, passed 
away at about 12:45 and we are all praying for his family.
    Also, the Federal Government is shutting down because of an 
ice storm. It is a little bit ironic that we are hearing about 
increasing temperatures and we are shutting our Government down 
because of ice.
    Mr. Boucher. Will the gentleman yield on that point? The 
gentleman is correct, and I was actually going to make this 
announcement after his questions, but in the interest of saying 
this for Mr. Burgess and Mr. Inslee's benefit while you are 
still here, we are going to postpone the hearing we had 
scheduled for the morning. We have already had about half of 
our witnesses for tomorrow call us and tell us that their 
airplane flights have been canceled. And sometimes it is 
actually helpful to have witnesses when you have a hearing to 
listen to what other people have to say. Occasionally it is 
informative, so we are going to wait until we can be assured of 
their attendance. So the hearing we had scheduled for in the 
morning has been postponed. I thank the gentleman.
    Mr. Barton. I am going to ask to be put in the record, as 
soon as the majority staff has seen it, an article that just 
came across my desk this afternoon that scientists at 
University of Colorado and I think University of Seattle have 
announced that their theory about glaciers melting faster in 
Greenland may be a little bit premature. Their latest study 
shows that they did melt faster for the last 2 or 3 years ago 
but it looks like this year they have gone back to their old 
pattern and so we may have jumped the gun on all the melting 
glaciers, at least in Greenland. So there is still some debate 
about some of these subjects.
    I did a back-of-the-envelope estimate based on what Dr. 
Ulreich said about the costs to the German economy. Now, I 
admit this is a back-of-the-envelope estimate. I am tempted to 
say it is as accurate as some of these global warming estimates 
but I won't say that. But my rough back-of-the-envelope 
estimate, if Dr. Ulreich is correct that it costs about 30 to 
40 percent increase in wholesale electricity prices in Germany, 
if that holds for the U.S. economy and if you assume that our 
average retail electricity price which is 10 cents a kilowatt 
hour, the annual cost to the U.S. economy would be about $400 
billion a year. That is not the capital cost, that is the 
annualized cost of compliance at retail. Now, maybe I am off 10 
percent, 20 percent, 50 percent, but I am not off that there is 
not going to be a huge price increase if we adopt any of these 
benign mandatory cap and trade policies.
    So my question to you, Mr. Rowlan, representing a user of 
electricity in the United States, what happens to Nucor if your 
costs go up 40 percent and the cost of your competitors in 
Mexico and China and Brazil, other parts of the world don't go 
up 40 percent?
    Mr. Rowlan. It doesn't take a rocket scientist to figure 
that out, but obviously we are put at a serious competitive 
disadvantage. We are proud of our record of never having to lay 
anybody off. We continue with that but we do idle our plants 
and sag back based on market, so if we can't compete, we can't 
compete. That starts to roll down to the marketplace.
    Mr. Barton. Is there anybody on the panel that says there 
is not going to be a significant cost to the U.S. economy? Ms. 
Claussen?
    Ms. Claussen. Yes. Let me just say this about what Mr. 
Ulreich said first and then get to your question.
    Mr. Barton. He is in the real world.
    Ms. Claussen. I know. I understand. But he also said, and I 
think you were out of the room, that the increase was for more 
than the carbon limits. There were other things that were going 
on at the same time. So just keep that in mind.
    The second thing that I think is worth keeping in mind is 
that Germany is not the U.S. Our economy is different than 
theirs and I don't think you can say because it happened there 
it will necessarily happen over here. And the third thing is 
that----
    Mr. Barton. Are we so much better than them that we can----
    Ms. Claussen. No, we are actually less efficient and I 
think we could probably limit emissions more cheaply because we 
are much less efficient.
    Mr. Barton. We are actually more efficient.
    Ms. Claussen. No, I think not.
    Mr. Barton. I think so.
    Ms. Claussen. Well----
    Mr. Barton. I can prove that.
    Ms. Claussen. I think not.
    Mr. Barton. Unless all the economic statistics that our 
Government puts out are wrong, we are the most productive 
economy in the world. We use 25 percent of the resources, we 
produce 33 percent of the goods and services and we are getting 
better, not worse. I will be happy to do a hearing on that and 
send the chairman a letter, a rule 11 letter, if he wants me 
to.
    Mr. Boucher. Not at the moment. But I am interested in 
hearing Ms. Claussen talk about the difference between Kyoto, 
which was --1990 levels by 2010 and what we are talking about.
    Ms. Claussen. Exactly. That is the third point that I think 
is really important. The decrease that Germany agreed to as 
part of Kyoto was a significant percentage below 1990 levels. 
In the U.S. CAP proposal or even in the NSET proposal, we are 
talking about today's levels, not going down right away either, 
sort of leveling and then going down a little bit. So it is a 
very different kind of trajectory and so I don't think you can 
actually say that they are the same.
    The last point I would make is that when we talk about the 
costs, and I am not saying this is free because I don't think 
it is----
    Mr. Barton. That is progress.
    Ms. Claussen. I never said it was free. I think it is also 
important to consider the cost of not doing anything because if 
the impacts of climate change are as the IPCC is now saying and 
others are now saying and we are actually seeing documented, 
there are actually costs to not doing anything and you should 
weigh those costs against the cost of----
    Mr. Barton. Well, did you see the chart I put up about 
carbon intensity?
    Ms. Claussen. I did.
    Mr. Barton. Do you disagree with that?
    Ms. Claussen. I think that in our GDP, the U.S. emissions 
have gone up more than Europe's. Not that one.
    Mr. Barton. That is not the carbon intensity one. That is 
not it.
    Ms. Claussen. Our carbon intensity has gone down. Our 
overall emissions have gone up because----
    Mr. Barton. We are an increasing emitter. I will grant you 
that. But our line is a lot flatter and our efficiency is 
increasing versus the Europeans, and we can prove that.
    Ms. Claussen. Well, I would love an opportunity to share 
some data.
    Mr. Barton. My time has expired, Mr. Chairman. I want to 
make one final point. We have gotten into the moral realm here, 
which is fair. There is a reason that the Chinese and the 
Indians are increasing their CO\2\ emissions. They are doing it 
because they are trying to give their people a better 
lifestyle, and just as when my grandfather was born in 1893, 
their life on their farm outside of Whitney, Texas, was a 
pretty hardscrabble existence. U.S. industrialized throughout 
the early 20th to mid-20th century and created a much better 
lifestyle for our people that the rest of the world wants to 
emulate. They are using more coal to generate more electricity 
to create a better lifestyle for their citizens, and that is a 
good thing. That is not a bad thing.
    Now, we may need to figure out a way to reduce the amount 
of greenhouse gases. I am not going to say that that is a 
terrible policy goal but for us to sit here and say as the 
gentle lady representing the Pew Foundation that somehow we 
have a moral obligation because we have used or emitted more 
greenhouse gases earlier, I think is a little bit extreme 
because we created a lifestyle that has made us the envy of the 
planet and some of this greenhouse gases were emitted in the 
defense of freedom in World War I and World War II. Had we not 
done that, who knows.
    It is obvious that I have a very intense interest in this 
issue and I am very grateful that my chairman is willing to 
hold these hearings, and I do appreciate all the witnesses and 
I do want to tell my friend from GE, I am glad your company is 
making a profit and I support wind power. There is probably 
more wind power in Texas than anywhere else. I support nuclear 
power. I am glad to see that you stated in your testimony that 
coal had a future. We just need to work on how to do that.
    Mr. Boucher. Thank you very much, Mr. Barton. Mr. Burgess, 
do you have anything further?
    Mr. Burgess. I would just like to acknowledge the presence 
of Mr. Rowlan on the panel. Nucor Steel is a big deal down in 
Denton, Texas, and we appreciate the way the company 
contributes to the economy locally and the way it contributes 
to our university program for developing tomorrow's engineers, 
tomorrow's people who are going to be able to figure these 
problems out, and also acknowledge that I have got a big 
windmill blade manufacturer in my district up in Gainesville, 
Texas, and just urge Mr. Rice not to buy those cheap Brazilian 
blades. Good American-made, union-made blades will be the best 
for wind generation, and I yield back, Mr. Chairman.
    Mr. Boucher. Thank you, Mr. Burgess. And to conclude our 
hearing today, we will recognize the gentleman from Illinois, 
Mr. Shimkus, for 5 minutes.
    Mr. Shimkus. I thank you, Mr. Chairman. My apologies to you 
all for not being present most of the time. I have been 
escorting the president of Lithuania around. Shimkus is 
ethnically Lithuanian, and I have been involved in a lot of the 
issues there, from meeting with Senator Durbin to now just 
leaving a meeting with the Speaker of the House. But it does 
coincide a little bit because the president of Lithuania used 
to be head of region IV EPA. He is a lifelong Chicago resident, 
has done well, gone back home to become the president of 
Lithuania, Vala Damkus.
    Lithuania is a nuclear state. It had a Chernobyl-style 
reactor. It is deactivating that. It is now building a state-
of-art nuclear technology. And you heard some of my opening 
statements. I am about supply. I am not about limitations. And 
so some of the problems I have with my colleagues is, you can't 
get them to say a lot about nuclear power. You just can't.
    So I would like to ask you all while I have you here, what 
do you see the role of nuclear power in this country in the 
next decades to come to the future? Do you support nuclear 
power and the advancement of nuclear power in this country?
    Mr. Rice. We do, and we have a very active nuclear business 
and we are working very hard to try to get the next generation 
technologies installed in the United States. As was pointed out 
earlier, there are just over 100 plants, all of which will come 
offline because of their age at some point over the next 45 or 
50 years, which leads us with a substantial amount of power to 
replace.
    Mr. Shimkus. For the sake of time, let me go to Mr. Krupp.
    Mr. Krupp. Thank you, Congressman. I think there is still 
some serious questions about nuclear power that----
    Mr. Shimkus. So I put you down as a no?
    Mr. Krupp. No, I think if the problem of global warming is 
as serious as we think, then everything has to be on the table, 
so put me down as----
    Mr. Shimkus. As a yes?
    Mr. Krupp. Put me down in the category of let us go on to 
solving the challenge.
    Mr. Shimkus. I have a great example. The chairman when he 
was the ranking member was trying to get panelists to always 
answer in yes or no manner. Mr. Dingell is an expert at that so 
I don't think he would let you off easily as I will let you 
off.
    Yes, ma'am, you are next.
    Ms. Claussen. The Pew Center cannot imagine a world in 
which we deal with global warming without nuclear power.
    Mr. Shimkus. Amen. Mr. Rowlan, bring it on. Mr. Ulreich?
    Mr. Ulreich. I think our company's position is quite clear 
that we have to rely on nuclear power. About half of our 
electricity is produced by nuclear stations. Of course, we 
can't avoid it.
    Mr. Shimkus. And that brings up a lot of policy issues that 
we have to deal with, Yucca Mountain and the ex generation and 
the stuff, so there are big supporters here and this is a big 
aid in this debate.
    Let me ask, especially for U.S. CAP and the IECA about the 
support of clean coal and coal-to-liquid programs. Clean coal 
technologies.
    Mr. Rowlan. We are in favor of anything that puts more 
electric energy into the grid.
    Mr. Shimkus. Have you been following the coal-to-liquid 
debate at all?
    Mr. Rowlan. I haven't followed that personally.
    Mr. Shimkus. It is joined with this because the opponents 
to coal-to-liquid will talk about carbon emissions. If you 
believe in clean coal technology and gasification and coal 
sequestration, that same argument can be made to coal-to-liquid 
technologies which the Germans did in World War II at the end 
of the war and the South Africans do now so----
    Mr. Rowlan. I think the fear that everybody has is that 
there is a technology that everybody says--you get the most 
technologically advanced system out there and you have got some 
that are grandfathered or technologically unadvanced and all of 
a sudden you say everybody else has to cut across the board and 
so the technologically advanced has to buy allowances to shut 
down the one that didn't invest in the technology. I think that 
is a real fear there, that something like that could happen 
under cap and trade.
    Mr. Shimkus. I will tell you that really our Government 
should be applauded at FutureGen proposal and the gasification 
of coal and the sequestration of carbon dioxide as not just a 
model for the United States but something that can be used 
since it is of course a consortium of other countries and other 
corporations. Who has it from U.S. CAP? I am sure you have a 
unified position on this.
    Mr. Krupp. We do actually, that the best way to get carbon 
sequestration up and running is to have a cap so then there is 
incentives to go ahead and do it.
    Mr. Shimkus. So that is a yes for clean coal technology and 
coal-to-liquid applications?
    Mr. Krupp. Coal-to-liquids we did not discuss.
    Mr. Shimkus. Why don't you discuss it and come work with 
us?
    Mr. Krupp. Having a cap on carbon emissions is the most 
constructive way that you can figure out all sorts of new 
technologies to be able to contribute without doing violence to 
the atmosphere.
    Mr. Shimkus. And I know my time is out and I really 
appreciate the chairman for his time. I will say that those of 
us who want to decrease our reliance on imported crude oil are 
going to make a concerted effort in this Congress to move this 
country to coal-to-liquid applications using our great coal 
reserves. I would think it would incumbent upon U.S. CAP 
because it is part of the global warming debate that you engage 
in this, especially with the great, powerful chairman I have 
with me and that we work to find some accommodations so that we 
can move forward in decreasing our reliance on imported crude 
oil and something that is available within the United States.
    So thank you, Mr. Chairman. I yield back.
    Mr. Boucher. Well, thank you very much, Mr. Shimkus. Were 
you referring to me as----
    Mr. Shimkus. I think so.
    Mr. Boucher. Oh, OK. Well, thank you very much. I am 
honored. I thought perhaps you were referring to Chairman 
Dingell.
    Well, let me say thank you to this panel of witnesses. You 
have been very patient----
    Mr. Burgess. Mr. Chairman, if I could just ask one follow-
up question.
    Mr. Boucher. Mr. Burgess.
    Mr. Burgess. I asked Dr. Ulreich, but since we have heard 
from Mr. Shimkus, who is from a coal area, I reside on top of 
the biggest natural gas or one of the biggest natural gas 
formations, the Barnett Shale. What does the U.S. CAP group 
think about natural gas and the carbon emissions from 
combustion of natural gas for generation of electricity? Are we 
going to be able to continue to burn natural gas to provide 
electricity for our citizens or is this something that is also 
going to be clouded in the future?
    Ms. Claussen. It is a significant improvement over coal 
without carbon capture and sequestration. I think in the end 
you might want to figure out, or companies are working on how 
to figure out how to capture and sequester the carbon from gas 
plants as well.
    Mr. Boucher. Thank you very much, Mr. Burgess. We are going 
to adjourn the hearing. I actually have a meeting in my office 
I need to attend. I think for today's purposes we are going to 
let everybody go. I want to thank everyone, and the hearing is 
adjourned.
    [Whereupon, at 2:41 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

    [GRAPHIC] [TIFF OMITTED] T5445.001
    
    [GRAPHIC] [TIFF OMITTED] T5445.002
    
    [GRAPHIC] [TIFF OMITTED] T5445.003
    
    [GRAPHIC] [TIFF OMITTED] T5445.004
    
    [GRAPHIC] [TIFF OMITTED] T5445.005
    
    [GRAPHIC] [TIFF OMITTED] T5445.006
    
    [GRAPHIC] [TIFF OMITTED] T5445.007
    
    [GRAPHIC] [TIFF OMITTED] T5445.008
    
    [GRAPHIC] [TIFF OMITTED] T5445.009
    
    [GRAPHIC] [TIFF OMITTED] T5445.010
    
    [GRAPHIC] [TIFF OMITTED] T5445.011
    
    [GRAPHIC] [TIFF OMITTED] T5445.012
    
    [GRAPHIC] [TIFF OMITTED] T5445.013
    
    [GRAPHIC] [TIFF OMITTED] T5445.014
    
    [GRAPHIC] [TIFF OMITTED] T5445.015
    
    [GRAPHIC] [TIFF OMITTED] T5445.016
    
    [GRAPHIC] [TIFF OMITTED] T5445.017
    
    [GRAPHIC] [TIFF OMITTED] T5445.018
    
                        Statement of Fred Krupp

    Thank you Representative Boucher for your invitation to 
submit testimony.
    Environmental Defense is a leading national nonprofit 
organization representing more than 500,000 members. Since 
1967, we have linked science, economics and law to create 
innovative, equitable and cost-effective solutions to society's 
most urgent environmental problems. Environmental Defense is 
dedicated to protecting the environmental rights of all people, 
including future generations. Among these rights are clean air, 
clean water, healthy food and flourishing ecosystems. We are 
guided by scientific evaluation of environmental problems, and 
the solutions we advocate will be based on science, even when 
it leads in unfamiliar directions.
    Today, I am here on behalf of the US CAP of which 
Environmental Defense is a member.
    I will describe in some detail what US CAP is proposing, 
which is also outlined in our report.
    You will notice, by the way, that in the report we talk 
repeatedly about ``rapid enactment'' of these policies. That is 
driven, in my mind, by the science. We strongly believe 
Congress needs to pass serious global warming legislation as 
quickly as possible if we're going to solve this problem. As I 
look at it, the science of climate change is unforgiving.
    This group has delved into the details and we've arrived at 
a remarkable amount of consensus on a number of important 
details. Normally with a group of big players like this, you 
only get broad themes--but we quickly realized that this 
problem demands some very specific answers. It is a credit to 
the seriousness of my colleagues that we were able to achieve 
agreement on them.
    Here is the overall goal: Cut global warming pollution 
enough to stop the worst impacts. And do it in a way that helps 
our economy and cuts our oil addiction.
    Here is how we get there: We recommend that Congress pass 
legislation that limits global atmospheric greenhouse gas 
concentrations to a level that scientists tell us will minimize 
the worst impacts of climate change on humans and the 
environment. That means concentrations need to be stabilized 
over the long-term at between 450 and 550 parts per million in 
the atmosphere. But we live in the real world and we know you 
can't flip a switch and achieve the reductions tomorrow. We're 
recommending a realistic, step by step approach. That's one of 
the reasons we have to start almost immediately. The longer we 
wait, the harder this is going to be.
    Legislation should focus on what we know can be cost-
effectively achieved over the next 20 to 30 years, while 
putting us on a path for deeper emission reductions by mid-
century.
    We recommend that Congress establish a mandatory emission 
reduction plan that has specific targets:
    In 5 years, emissions should be between 100 and 105 percent 
of today's levels--in other words, no more than 5 percent above 
current levels. We allow for that slight rise at the beginning 
because it takes time to switch over to new technologies and 
fuels.
    In 10 years, emissions should be 90-100 percent of today's 
levels.
    Finally, we are calling for a cut in emissions of 60 to 80 
percent from current levels by 2050.
    It is the considered judgment of these corporate leaders 
and our environmental experts that these cuts are both 
technologically achievable and economically sound. The US CAP 
went into detail as to how we think these goals should be 
achieved.We chose a cap and trade approach because it 
guarantees the pollution cuts we need and generates cash and 
creativity from the private sector. This is the centrist 
approach--government leads by setting a goal, while giving the 
private sector the flexibility to do this in the most efficient 
and profitable way possible. The cap and trade program should 
cover as much of the economy's greenhouse gas emissions as 
possible. We cannot afford to leave behind anyone who can 
contribute to solving this problem. Legislation should also 
allow the use of offsets, from a range of activities such as no 
till farming. Offsets include not only those from agriculture 
but other domestic sources of emissions that are not subject to 
the cap and projects outside the US. Offsets can be a 
tremendously powerful transition tool that reduce the cost 
overall to the economy of any program and deliver real 
environmental results.
    In fact, some have criticized the participation of some of 
the member CAP companies, charging that they are just in it to 
make money. To that I say, that is the power of cap and trade. 
It can align profit and protecting the environment, and it 
reduces the cost to the economy. Market-driven solutions--not 
government subsidies--that enhance our global competitiveness, 
boost our economy,--and--get to the best technologies at the 
lowest cost--that is at the heart of US CAP. A clear, 
unambiguous signal, i.e. a cap and trade system, will give the 
essential green light to the investors and the innovators eager 
to make money and deliver the best answers. Requirements for 
reducing emissions may vary between sectors and should be 
designed to promote sustained economic growth and prompt, 
efficient action in the shortest time reasonable achievable.
    As those of you who participated in the passage of the 
Clean Air Act Amendments know well, the allocation of 
allowances garners much interest. USCAP provides a framework. 
An emission allowance allocation system should seek to mitigate 
economic transition costs to entities and regions of the 
country that will be relatively more adversely affected by 
greenhouse gas limits or have already made investments in 
higher cost low-greenhouse gas technologies, while 
simultaneously encouraging the transition from older, higher-
emitting technologies to newer lower-emitting technologies.
    It will take time to get a cap and trade program up and 
running. We need to reward those firms that have already acted 
to reduce greenhouse gas emissions and encourage other to do so 
while the program is being established. This credit for early 
action should grant credit for eligible reductions starting 
from a specified date until the mandatory program becomes 
effective. Other actions that should be placed on a fast track 
within the overall legislation is an aggressive technology 
research and development program and policies to discourage new 
investments in high-emitting facilities and accelerate 
deployment of zero and low-emitting technologies and energy 
efficiency. None of these are instead of a cap and trade 
program--these are a group of fast track actions that can begin 
within one year of enactment while the cap and trade system is 
put in place.
    As you can see, our recommendations are both comprehensive 
and specific. We believe the time for general principles has 
passed. The time for incremental steps, if it ever existed, has 
passed. Just as the National Academy of Sciences has shown us 
the way on the science, these experienced corporate leaders are 
showing us how to solve this problem and grow our economy--a 
strong cap and trade system is the way forward. Thank you.
                              ----------                              


                      Statement of Eileen Claussen

     Mr. Chairman and members of the subcommittee, thank you 
for the opportunity to testify on the U.S. Climate Action 
Partnership. My name is Eileen Claussen, and I am the President 
of the Pew Center on Global Climate Change.
     The Pew Center on Global Climate Change is a non-profit, 
non-partisan and independent organization dedicated to 
providing credible information, straight answers and innovative 
solutions in the effort to address global climate change. [For 
more on the Pew Center, see www.pewclimate.org] Forty-two major 
companies in the Pew Center's Business Environmental Leadership 
Council (BELC), most included in the Fortune 500, work with the 
Center to educate the public on the risks, challenges and 
solutions to climate change.
     The Pew Center is one of fourteen organizations currently 
belonging to the U.S. Climate Action Partnership (USCAP). On 
January 22, the USCAP announced an interconnected set of 
recommendations for the general structure of climate protection 
legislation that we would urge Congress to enact as quickly as 
possible. Among other things, the USCAP recommends enactment of 
a greenhouse gas cap and trade program, federal technology 
research and development, and policies and measures pertaining 
to specific sectors.
     Allow me to discuss a few specific elements of the climate 
legislation we would recommend.
     Cap and Trade is Essential. The USCAP believes that our 
environmental goal and economic objectives can best be 
accomplished through an economy-wide, market-driven approach 
that includes a cap and trade program that places specified 
limits on GHG emissions. This approach will ensure emission 
reduction targets will be met while simultaneously generating a 
price signal resulting in market incentives that stimulate 
investment and innovation in the technologies that will be 
necessary to achieve our environmental goal. The U.S. climate 
protection program should create a domestic market that will 
establish a uniform price for GHG emissions for all sectors and 
should promote the creation of a global market.
     Cost Control Measures. One issue often raised in 
discussions of cap and trade programs is the projected cost of 
the policy and how the program can be designed to keep costs 
reasonable. Cost control measures are policies designed to 
provide capped entities with greater confidence that their cost 
will be limited. The USCAP believes that the most powerful cost 
control measure is a robust cap and trade program that covers 
multiple greenhouse gases and sectors, and allows offsetting 
reductions from non-capped firms and international sources. The 
cap and trade approach allows for firms that can make 
inexpensive reductions to provide allowances for firms that 
cannot. At the same time, it encourages investment in 
efficiency and innovative technologies. Any additional cost-
control option considered by Congress must ensure the integrity 
of the emissions cap over a multi-year period and preserve the 
market's effectiveness in driving reductions, investment, and 
innovation.
     As policy makers weigh additional cost control options, we 
would recommend that they consider which parts of the economy 
are affected, the time duration of the impact and remedy, 
implications for international competitiveness, the 
implications for international emissions trading, and how the 
measure affects the price signal necessary to stimulate 
investment and technological innovation. Additional cost 
control options could include a safety valve, borrowing, 
strategic allowance reserve, preferential allocations, 
dedicated funding, technology incentives and transition 
assistance. If used, cost control measures must be designed to 
enable a long-term price signal that is stable and high enough 
to drive investment in low- and zero emitting technologies, 
including carbon capture and storage.
     Sector-Specific Policies and Measures. USCAP believes that 
policies and measures are needed to complement an economically 
sound cap and trade system to create additional incentives to 
invest in low-GHG approaches in key sectors. The need and scope 
of sector specific measures will depend on the stringency of 
targets, scope of coverage, and point of regulation in the cap 
and trade program. Some of the sector-specific measures are 
intended to be transitional in nature and should be phased out 
over time. USCAP recommended sector-specific measures for new 
coal-based energy facilities and other stationary sources, 
carbon capture and storage, transportation, and buildings and 
energy efficiency.

     New Coal-Based Energy Facilities and Other Stationary Sources.

    USCAP recognizes that coal supplies over fifty percent of 
our current electricity generation and will play a continuing 
role in our energy future. Policies are needed to speed 
transition to low- and zero emission stationary sources that 
can cost effectively capture CO2 emissions for geologic 
sequestration. We do not take a position as a group on any 
specific project, even though as individual organizations many 
USCAP Members do have such positions.
     Carbon Capture and Storage. USCAP recommends that Congress 
should require EPA to promulgate regulations promptly to permit 
long-term geologic sequestration of carbon dioxide from 
stationary sources. Funding should be provided for at least 
three sequestration demonstration projects in depleted and 
abandoned oil and gas fields and saline aquifers with carbon 
dioxide injection, each at levels equivalent to emissions 
produced by a large coal-based power plant.
     Transportation Sources. USCAP believes that climate 
protection legislation must achieve substantial GHG emission 
reductions from all major emitting sectors of the economy, 
including the transportation sector. We recommend Congress 
enact policies to reduce GHG emissions in the transportation 
sector, including consideration of policies to:
     promote lower-carbon transportation fuels;
     cost-effectively decrease allowable GHG emissions 
of automobile manufacturers' fleets and promote new low-
emissions vehicles, for example with GHG or fuel economy 
performance standards;
     efficiently decrease vehicle miles traveled and 
enhance mass transit and other less carbon-intensive 
transportation alternatives;
     promote better growth planning;
     educate consumers; and
     address emissions from air, rail, and marine 
transport.
     Buildings and Energy Efficiency. USCAP believes that 
policies are needed to realize the full potential of energy 
efficiency as a high priority energy resource and a cost-
effective means of reducing GHG emissions. To achieve this 
objective, we recommend that climate legislation should 
establish federal and state policies that align financial and 
regulatory incentives with utilities' business interests to 
aggressively pursue energy efficiency programs and promote 
policies that ``decouple'' utility sales and revenues in 
conjunction with requirements for utilities to pursue all cost-
effective energy efficiency savings. Stronger energy efficiency 
codes and standards are needed for whole buildings and for 
equipment and appliances, as are incentives and tax reform 
measures to advance the infrastructure necessary to support new 
``smart'' and highly-efficient technologies and distributed 
generation. Finally, the legislation should create separate 
incentives for regulated entities, building owners, and other 
parties not subject to the cap to go even further in producing 
energy efficiency savings.
     Accounting for the Global Dimensions of Climate Change. 
Let me close by discussing the international dimension of this 
issue. The effects of climate change are global, as are the 
sources of GHG emissions. Success will require commitments by 
all of the major emitting countries. Toward this end, the U.S. 
government should become more involved in developing the post-
2012 international arrangements for addressing climate change 
that are now being discussed. So, while taking the necessary 
first step of placing limits on our own emissions, Congress 
should strongly urge the Administration to safeguard U.S. 
interests by engaging in these negotiations with the aim of 
establishing commitments by all major emitting countries. The 
members of USCAP believe strongly that U.S. action to implement 
mandatory measures and incentives for reducing emissions should 
not be contingent on simultaneous action by other countries. 
Rather, we believe that U.S. leadership is essential for 
establishing an equitable and effective international policy 
framework for robust action by all major emitting countries.
     I thank and commend Chairman Boucher and the subcommittee 
for taking on this critically important issue. The Pew Center 
looks forward to working with the subcommittee as it continues 
its work.
                              ----------                              


                      Testimony of Philip R. Sharp

    Good morning Chairman Boucher and members of the 
subcommittee. I am Phil Sharp, president of Resources for the 
Future, a non-partisan, non-advocacy research organization, 
which for 50 years has been dedicated to researching and 
informing policy decisions on important environment, energy, 
and natural resource issues. However, today, I am representing 
the National Commission on Energy Policy, for which I am the 
Congressional Chair. (As requested, further biographical 
information is attached.) The National Commission on Energy 
Policy is a diverse and bipartisan group of energy experts that 
first came together in 2002 and issued a comprehensive set of 
consensus recommendations for U.S. energy policy in December 
2004.\1\
---------------------------------------------------------------------------
    1. The full report can be found at www.energycommission.org.
---------------------------------------------------------------------------
     Our group came to a consensus on a climate policy that 
could put us on a path towards a lower carbon future. This path 
would be economically responsible and would encourage action by 
our major trade partners. But before outlining key elements of 
that approach, let me say a few additional words about the 
Commission itself.
    The Commission was formed in 2002 by the Hewlett Foundation 
with support from several other private, philanthropic 
foundations. The Commission's ideologically and professionally 
diverse 16-member board includes recognized energy experts from 
business, government, academia, and the non-profit sector (see 
attachment). Our final recommendations, which are described in 
our 2004 report, Ending the Energy Stalemate, were informed by 
intense discussions over several years, by dozens of analyses, 
and by extensive outreach to over 200 other groups. Those 
recommendations, I should stress, deal with a comprehensive set 
of energy policy issues including climate change, our nation's 
dependence on oil and the need for increased investment in new 
energy technologies and critical energy infrastructure. As a 
group, however, we recognized from the outset that climate 
change presented one of the central energy challenges of our 
time and so we devoted considerable effort to developing a 
detailed set of recommendations for addressing this issue. A 
short summary of the Commission recommendations on climate 
change is attached at the end of my testimony.
    I should add that Commissioners are very grateful for the 
considerable work and talent of the commission staff, headed by 
Jason Grumet, and I additionally appreciate their preparation 
of this testimony.

                      The Science Points to Action

    After reviewing the science, the Commission decided that a 
mandatory climate program was a prudent response to the risks 
of climate change. This need for action was reinforced two 
weeks ago, when the United Nation's Intergovernmental Panel on 
Climate Change (IPCC) released its latest report assessing the 
last 6 years of climate science research from around the world. 
The report states that evidence of warming ``is unequivocal, as 
is now evident from observations of increases in global average 
air and ocean temperatures, widespread melting of snow and ice, 
and rising global mean sea level.'' The report confirms that 
the current level of carbon dioxide in the atmosphere ``exceeds 
by far the natural range over the last 650,000 years.''
    This increase has already led to warming --11 of the last 
12 years rank among the 12 hottest years on record. The IPCC 
report concludes that if we take no action to reduce emissions, 
there will be twice as much warming over the next two decades 
than if we had stabilized heat-trapping gases at 2000 levels. 
Clearly, we must begin to face this challenge. The costs of 
delay in initiating reductions are likely to be substantial. 
The faster we can get started, the smaller the burden of future 
mitigation and adaptation efforts and the smaller the human 
suffering and long-term environmental damage.

             Elements of an Effective Climate Change Policy

    With the potential risks of climate change no longer in 
doubt, it is imperative that the United States engage this 
issue, act responsibly, and provide leadership. Ours is the 
world's largest economy and it accounts for 25 percent of 
global CO\2\ emissions.\2\
---------------------------------------------------------------------------
    2. Note that although carbon dioxide is the predominant greenhouse 
gas, there are other gases that contribute to climate change. These 
include methane, nitrous oxide, and some industrial fluorinated gases. 
These gases would all be covered in the Commission's climate proposal.
---------------------------------------------------------------------------
     Without our participation and leadership, the rest of the 
world cannot effectively address what could be the most 
difficult and far-reaching environmental problem we have yet 
faced. The Commission believes that the U.S. can best provide 
leadership by adopting approaches that do not significantly 
harm our economy and that encourage other nations to take 
comparable action.
    The Commission spent 2 years reviewing a range of policy 
options on climate change. We became convinced on the basis of 
more than a decade of experience that voluntary approaches 
alone are not adequate. In a competitive market economy, where 
companies are expected to maximize shareholder value, it is 
unrealistic to expect them to invest significant resources 
absent a profit motive. While there are numerous cases where a 
combination of good will, good public relations, and positive 
ulterior motives (like reduced energy bills), create an 
adequate basis to reduce greenhouse gas emissions, these cases 
will remain limited if the financial value of reducing those 
emissions remains zero.
    It is for this reason that the Commission strongly endorsed 
a mandatory program to address climate change.
    What are the critical components of a mandatory approach on 
climate change? First, we believe that the immediate goal 
should be to put in place a policy architecture or framework 
that can last many years and be adjusted as we learn more about 
the evolving science, economic impacts, technological 
developments, and actions of other nations. We must get started 
with a clear signal to investors, consumers, and other nations. 
In the 2004 report, the Commission's specific recommendations 
would have us start slow, moving over a 10-year period to 
reduce the growth rate in emissions. This would be followed by 
a period of preventing further growth in emissions, with an 
ultimate long term goal of getting absolute reductions. In 
light of recent scientific developments and the time that has 
passed since NCEP's 2004 recommendations, the Commission has 
begun evaluating opportunities to strengthen its proposal
    Second, a climate change program should be market-based and 
economy-wide. We are convinced that market-based approaches, 
like the landmark Acid Rain Program, are the most effective way 
to marshal the least cost emissions-reduction options and to 
create powerful technology incentives. Yet, unlike the Acid 
Rain Program, which focused just on the power sector, we 
believe that a climate program should cover the entire economy. 
In contrast to sulfur dioxide, which is primarily emitted by 
the power sector, CO\2\ emissions arise from fossil-fuel 
consumption throughout the economy. It should be noted that a 
climate cap and trade program will be far larger than the acid 
rain model and will involve a host of tough issues. The 
commission has held workshops on these issues, and my 
colleagues at Resources for the Future are doing in-depth 
analysis of them.
    Third, we continue to believe that cost certainty is 
critical to forging the political consensus needed to move 
forward without further delay. To date, debate about the 
economic impact of climate proposals has been characterized by 
intense arguments over whose economic model had the right 
assumptions about technology change, fuel prices, and other 
factors. Different assumptions can produce wildly different 
estimates of the costs of reducing emissions. The safety valve 
feature in our proposal-which would make additional emissions 
allowances available for purchase from the government at a 
predetermined, but steadily escalating price-helps to cut 
through that debate by assuring that the per-ton cost of 
emissions reductions required under the program cannot rise 
above a known level. In other words, even if an economic 
analysis is overly optimistic, the use of a safety valve allows 
Congress to hedge its bet about the ultimate impacts on the 
economy.
    The Commission recognizes that the decision to include a 
``safety-valve'' to cap costs under an emissions trading 
program is highly controversial. It obviously provides greater 
certainty about controlling costs and less certainty about 
controlling emissions. The Commission concluded this was the 
prudent course, emphasizing the critical importance of getting 
a policy in place while addressing the claims of opponents of 
action that costs would be excessive. This approach seems 
particularly appropriate given the recent experience with price 
volatility in the European Emissions Trading Scheme (EU ETS), 
which has illustrated that cost uncertainty can undermine both 
public confidence in the system and long-term investment. 
Although the Commission opted for initially providing greater 
economic reassurance, the group recognized that at some point 
in the future, the need for environmental certainty may 
outweigh the need for cost certainty. Indeed, once there is 
greater international consensus about the ultimate goal of 
emission reduction efforts and about the means necessary to 
achieve that goal it will likely be appropriate to transition 
away from the safety valve toward firm emission caps. The 
Commission also recognizes that other legislative proposals 
provide alternative approaches for containing program costs. We 
welcome further analysis and debate on which mechanisms best 
address the cost and competitiveness concerns that have been 
raised by labor unions, energy-intensive industries, consumer 
groups, and others.
    Fourth, the Commission believes that any successful 
national policy must place considerable emphasis on promoting 
wider international cooperation. By some accounts, China is now 
adding new coal capacity at the rate of one large power plant 
every week to ten days and is set to surpass the United States 
in total carbon emissions as early as 2009.\3\
---------------------------------------------------------------------------
    3. See http://select.nytimes.com/search/restricted/
article?res=F50B12F83A5B0C748CDDA80994DE404482
---------------------------------------------------------------------------
     Though some will argue that this sobering development 
weakens the case for unilateral action by the United States, 
the Commission draws the opposite conclusion. In our view, the 
current trajectory of global emissions instead underscores the 
liabilities of continued paralysis. If one accepts that rapidly 
industrializing countries like China and India are likely to 
accept emissions limits only after the United States and other 
wealthy nations have demonstrated a willingness to take the 
lead, it follows that postponing action will come at a high 
price-not just in terms of U.S. emissions but in terms of 
prolonging business-as-usual trends in other countries. At the 
same time, we continue to believe that once the United States 
takes action, it is imperative that within a reasonable time 
frame our major trade partners and other large emitters follow 
suit. The Commission therefore proposed a 5-year review 
provision, which would link continued tightening of the 
emissions target and further increases in the safety valve 
price to significant action by these countries.
    Fifth, the Commission's emphasis on the necessity of a 
major technology program to spur the development and deployment 
of lower-carbon technologies follows directly from our judgment 
that near-term progress demands a policy with modest initial 
costs. We strongly believe that a combined strategy of market 
signals and robust technology incentives is the most effective 
and least costly way to achieve a meaningful shift from 
business-as-usual trends, while equitably sharing the burden of 
emissions mitigation among shareholders and taxpayers. A 
further critical element of the Commission's approach, 
therefore, is the inclusion of a complementary package of 
public incentives for the accelerated development and early 
deployment of promising low-carbon technologies.
    Sixth, the Commission continues to believe that solutions 
to climate change must be pursued in concert with other 
important energy policy objectives. In fact, one of the 
Commission's founding premises has been that America's energy 
challenges call for a
    comprehensive response-that efforts to address oil security 
or climate change will fail if they do not also include 
complementary policies to promote improved efficiency and 
assure ample, reliable, and affordable energy supplies. Without 
making any attempt to review the full suite of issues and 
recommendations included in our 2004 report, I would like to 
flag four key areas. First, there must be a concerted push to 
improve transportation efficiency and reduce oil demand. The 
Commission's central recommendation in this regard consisted of 
a call for Congress to ``significantly strengthen'' and 
``simultaneously reform'' the existing Corporate Average Fuel 
Economy (CAFE) program. Second, the cheapest, cleanest, and 
quickest response to climate change and security concerns is to 
target energy efficiency. The Commission report endorsed 
strengthening of energy efficiency standards and believes this 
is a critical piece of the solution. Third, the Commission 
noted the importance of nuclear power in our future energy mix, 
and recommended several measures to reduce the obstacles to an 
increased role for this zero-carbon technology. Finally, the 
Commission believes that incentives for advanced coal 
technologies, such as IGCC with geologic sequestration, should 
be a priority as we move forward.

                  Economic Impacts of Mandatory Action

    We are encouraged that economic analysis has allowed us to 
address one of the questions at the heart of the debate over 
climate legislation: Is it possible to take a meaningful first 
step to limit greenhouse gas emissions without harming the 
economy? A 2005 Energy Information Agency (EIA) analysis of the 
Commission proposal demonstrates that the answer is yes. EIA 
found that under the proposal, the overall growth rate of the 
economy during the period of analysis was ``not materially 
altered.'' In a recent analysis of a similar, but somewhat more 
stringent proposal, EIA found that U.S. GDP in 2030 is reduced 
by only one quarter of 1 percent compared to the baseline case. 
This is equal to slowing the rate of economic growth by roughly 
one month over the next 20-plus years.
    To say that greenhouse gas limits can be imposed without 
harming the economy is not to claim that the program is 
costless. Any honest debate will need to acknowledge that there 
are costs and that-as with any public policy intervention-there 
will be winners and losers. For example, according to EIA's 
recent analysis of a proposal similar to the Commission's, 
electricity prices would increase by 11 percent and the growth 
in coal use would be cut in half by 2030. We do not doubt that 
innovative and efficient companies can prosper under a carbon 
mitigation regime. Moreover we believe that the technological 
innovation sparked by a carbon price signal could well produce 
additional non-climate benefits in the long run. In the near 
term, however, the same price signal will impose new costs on 
fossil fuel consumption and reduce the value of carbon-
intensive capital stock. So yes, there will be costs. But as 
always, the real choice is not between some cost and no cost. 
Rather the relevant question is whether the costs of action are 
reasonable and justified when compared to the liabilities of 
inaction. We believe that if a program is designed with the 
elements I've mentioned in my testimony, the answer to this 
question is yes.
    One important economic aspect of a cap and trade program is 
the distributional issue of who gets valuable emissions 
allowances. The Commission's 2004 report established the 
principle that all allowances need not be distributed for free 
to emitting sources. We recommended that a portion of the 
allowances (5-10 percent) should be auctioned, with the 
revenues funding the development and deployment of low carbon 
technologies. Subsequently, Commission staff has given 
additional thought to this issue. This week, they are releasing 
a new staff white paper that outlines an allowance distribution 
approach. A central conclusion of that white paper is that at 
most 50 percent of the emissions allowances initially available 
under a mandatory trading program should be distributed for 
free to private interests, including major energy producing or 
consuming firms. The remaining 50 percent of available 
allowances should be directed to public purposes where those 
purposes could include mitigating impacts on low-income 
consumers; investing in low-carbon energy technologies and end-
use efficiency; creating incentives for agricultural carbon 
sequestration; and reducing the Federal budget deficit and/or 
supporting broader tax reforms.
    Over time, moreover, the proportion of allowances directed 
toward public purposes should continue to increase gradually as 
private entities have an opportunity to adjust to carbon 
regulation. Such an approach would represent a significant 
departure from the allocation model used in the Acid Rain 
Program and in the first phase of the European Union's 
emissions trading program, but would result in a far more 
equitable distribution of burdens across different stakeholders 
in the economy. We are submitting a copy of the NCEP staff's 
new white paper to the Committee with my testimony.
    In conclusion, the message from the Commission is that it 
is time to get started. A delay in action by the U.S. will have 
a multiplicative effect on emissions because it will lead to 
additional delay in engaging China and other countries. These 
countries will be unwilling to act until the world's wealthiest 
and highest emitting country does so. I hope Congress will not 
lose sight of this fact as the inevitable debate about numbers 
and dollars and tons and jobs unfolds in the months to come. A 
war of numbers too easily leads to paralysis. And right now it 
matters less exactly which numbers you choose than that you 
recognize the essential principle at the core of our proposal: 
Strictly voluntary, seemingly costless approaches will not 
enable the marketplace to attach a known value to carbon 
reductions. Only when emission reductions have real value can 
companies justify serious long-term investments in new, low-
carbon energy alternatives and only then will we unleash the 
ingenuity and innovation of the private sector in addressing 
the climate change problem and in developing the clean 
technologies that will be in global demand for decades to come.
    Mr. Chairman, thank you again for this opportunity to 
testify today and for your leadership on this critical issue. 
We hope that the design principles in the Commission proposal 
will be helpful, even as we recognize that ours is not the only 
approach and that there are many worthwhile ideas that the 
Committee will consider as it moves forward. The Commission and 
its staff would be happy to provide assistance to you as the 
Committee moves forward with its important work.

                   NCEP FACT SHEET ON CLIMATE CHANGE

                   Summary of December 2004 Proposal

     The Commission proposes a mandatory, economy-wide 
tradable-permits program designed to slow projected growth in 
greenhouse gas emissions while capping the initial cost of 
reductions at $7 per metric ton of carbon dioxide (CO\2\)-
equivalent.
     The proposed tradable-permits program would go 
into effect in 2010. Thereafter it would be reviewed every 5 
years to assess its efficacy and to determine whether emission 
mitigation efforts by other nations (including major trading 
partners such as China and India), together with evolving 
scientific understanding, warrant adjustments to the U.S. 
program.
     Starting in 2010, the U.S. government would begin 
issuing permits for greenhouse gas emissions. The initial 
quantity of permits issued each year would reflect a 2.4 
percent per year reduction in the emissions intensity of the 
U.S. economy, where emissions intensity is the ratio of 
emissions in tons per dollar of GDP.
     Initial emissions budgets would be calculated well 
in advance, using widely accepted GDP forecasts. The vast 
majority of permits would be distributed at no cost to emitting 
entities, with a small quantity of permits (5 percent at the 
outset) set aside to be auctioned to accommodate new entrants 
and to finance climate-friendly technology appropriations and 
incentives. The quantity of permits auctioned would begin 
increasing gradually in the third year of program 
implementation at a rate of 0.5 percent per year (e.g., to 5.5 
percent of the total permit pool in 2013; 6.0 percent of the 
total permit pool in 2014; etc.) up to a maximum of 10 percent 
of the total permit pool.
     To limit possible costs to the economy, the 
government would sell additional permits at an initial price of 
$7 per metric ton of CO\2\-equivalent. This so-called ``safety 
valve'' price for additional permits would increase by 5 
percent each year in nominal terms, thereby providing a market 
signal for avoided emissions that grows gradually stronger in 
real terms over time.
     Absent adjustment by Congress as a result of the 
first 5-year review in 2015, the Commission recommends that 
targeted greenhouse gas intensity reductions increase to 2.8 
percent per year starting in 2020.
     The Commission proposal is designed to first slow 
emissions growth (over the period from 2010 through 2019), 
before attempting to stop emissions growth starting in 2020. 
Ultimately, emissions will need to decline in absolute terms to 
stabilize greenhouse gas concentrations in the atmosphere. The 
Commission has focused on developing a policy framework that 
can be adapted as science, technologies, and international 
consensus evolve.
     Absent policy action, annual U.S. greenhouse gas 
emissions are expected to grow from 7.8 billion metric tons of 
CO\2\-equivalent in 2010 to 9.1 billion metric tons by 2020--a 
roughly 1.3 billion metric ton increase. Modeling analyses 
suggest that the Commission's proposal would reduce emissions 
in 2020 by approximately 540 million metric tons of CO\2\-
equivalent below this business-as-usual forecast.

                                 
