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


,
       CLIMATE CHANGE: INTERNATIONAL ISSUES, ENGAGING DEVELOPING
                               COUNTRIES

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

                                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

                               __________

                             MARCH 27, 2007

                               __________

                           Serial No. 110-26


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov

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                    COMMITTEE ON ENERGY AND COMMERCE

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

                                  (ii)
                 Subcommittee on Energy and Air Quality

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

                           Professional Staff

                     Sue D. Sheridan, Chief Counsel
                  David J. McCarthy, Minority Counsel
                    Margaret Horn, Legislative Clerk
  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Rick Boucher, a Representative in Congress from the 
  Commonwealth of Virginia, opening statement....................     1
Hon. J. Dennis Hastert, a Representative in Congress from the 
  State of Illinois, opening statement...........................     2
Hon. Jane Harman, a Representative in Congress from the State of 
  California, opening statement..................................     3
Hon. John Shimkus, a Representative in Congress from the State of 
  Illinois, opening statement....................................     4
Hon. G. K. Butterfield, a Representative in Congress from the 
  State of North Carolina, opening statement.....................     5
Hon. Joe Barton, a Representative in Congress from the State of 
  Texas, opening statement.......................................     6
    Prepared statement...........................................     7
Hon. Ralph M. Hall, a Representative in Congress from the State 
  of Texas, opening statement....................................     8
Hon. John D. Dingell, a Representative in Congress from the State 
  of Michigan, opening statement.................................     9

                               Witnesses

Annie Petsonk, international counsel, Environmental Defense, 
  Washington, DC.................................................    10
    Prepared statement...........................................    89
Jeffrey Holzschuh, vice chairman, institutional securities, 
  Morgan Stanley, New York, NY...................................    12
    Prepared statement...........................................    56
W. Thomas Stephens, chairman and chief executive officer, Boise 
  Cascade, LLC, Boise, ID........................................    14
    Prepared statement...........................................   133
Jonathan Pershing, director, Climate Energy and Pollution 
  Program, World Resources Institute, Washington, DC.............    16
    Prepared statement...........................................    60
Edward S. Steinfeld, associate professor, Department of Political 
  Science, Massachusetts Institute of Technology, Cambridge, MA..    18
    Prepared statement...........................................   124
Pramit Pal Chaudhuri, Bernard Schwartz Fellow, the Asia Society, 
  New York, NY, and foreign editor, Hindustan Times, New Delhi, 
  India..........................................................    20
    Prepared statement...........................................    52


  CLIMATE CHANGE: INTERNATIONAL ISSUES, ENGAGING DEVELOPING COUNTRIES

                              ----------                              


                        TUESDAY, MARCH 27, 2007

                  House of Representatives,
            Subcommittee on Energy and Air Quality,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:08 a.m., in 
the Rayburn House Office Building, Hon. Rick Boucher, chairman, 
presiding.
    Members present: Representatives Butterfield, Melancon, 
Barrow, Wynn, Harman, Gonzalez, Inslee, Baldwin, Ross, Hooley, 
Matheson, Dingell, Hastert, Hall, Upton, Shimkus, Shadegg, 
Walden, Sullivan, Burgess, and Barton.
    Staff present: Sue Sheridan, Bruce Harris, Lorie Schmidt, 
Chris Treanor, Margaret Horn, David McCarthy, and Matt Johnson.

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

    Mr. Boucher. The subcommittee will come to order. This 
morning, we welcome witnesses who will discuss the 
international component of the U.S. response to the challenge 
of climate change. Shortly following the negotiation of the 
Kyoto Climate Change treaty, the United States Senate, by the 
rare unanimous vote of 98 to nothing, adopted a non-binding 
resolution expressing opposition to the Kyoto Treaty. 
Consequently, that treaty was never presented to the United 
States Senate for ratification.
    Perhaps the major reason for that broad statement of 
opposition in the U.S. Senate was the absence of any obligation 
in the treaty for leading developing nations such as China, 
India, and Brazil to undertake greenhouse gas emissions 
reductions. Why, opponents ask, should the United States assume 
the painful burden of reducing emissions to 1990 levels by the 
year 2010 if the developing world, which accounts for most of 
the growth in greenhouse gas emissions, is assuming no burden 
whatsoever?
    I think a clear message that comes from that experience is 
that for a mandatory greenhouse gas emissions program to 
succeed in the United States, we must include in our 
legislation establishing the program a reliable means of 
assuring meaningful participation by developing nations. I will 
welcome the views of our witnesses this morning on the most 
appropriate way for the United States to obtain that assurance. 
I will also welcome their views on the role that the United 
States should be playing in working with both developed and 
developing countries to structure an international agreement 
relating to greenhouse gas emission control for implementation. 
After the time that the Kyoto Treaty expires, this would be 
implementation in the post-2012 environment.
    The United States should play a lead role in these 
negotiations in my view, and suggestions from our witnesses on 
the best way to encourage United States participation in that 
multi-lateral exercise will be welcome this morning. With those 
comments, I will conclude my opening statement and announce 
that pursuant to the rules of the committee, any Member who 
decides to waive an opening statement will have the time 
allotted for that statement added to that person's question 
period. And I am now pleased to recognize the ranking 
Republican member of our subcommittee, the gentleman from 
Illinois, Mr. Hastert.

 OPENING STATEMENT OF HON. J. DENNIS HASTERT, A REPRESENTATIVE 
             IN CONGRESS FROM THE STATE OF ILLINOIS

    Mr. Hastert. Thank you, Mr. Chairman. Mr. Chairman, once 
again let me commend you on your holding another thought-
provoking hearing. An international perspective on greenhouse 
gas emissions is, in my view, absolutely essential to the 
climate change policy discussions we have been having. We have 
heard a significant amount of testimony over the past month on 
the state of the Earth's climate, causes of climate change, and 
potential consequences.
    We have also learned the important fact that greenhouse gas 
emissions are a global, not a national, issue. Whatever the 
effect a ton of CO\2\ has when it is added to the atmosphere, 
the impact is the same whether it is emitted in the United 
States or China or another part of the globe.
    Today, we will begin to hear directly how other countries 
view the debate over climate change, what kind of international 
commitments that they are likely to make, and whether we can 
rely upon them to meet those commitments. I personally believe 
that one of the most important things the U.S. can do today to 
offset greenhouse gas emissions around the world is to share 
our technology and ingenuity with other nations, particularly 
in underdeveloped and developing countries. That includes 
energy-producing technology such as advanced nuclear, wind, 
solar, hydroelectricity, and zero-emissions coal; alternative 
fuel technologies such as ethanol, biodiesel, and advanced 
biomass; and energy efficiency breakthroughs in manufacturing 
processes, building designs, appliances and vehicles.
    One of the best programs to jumpstart this effort is the 
Asian Pacific Partnership initiated in 2005 by President Bush, 
along with Australia, China, India, Japan, and South Korea. 
These six countries are critical to any effort dealing with the 
Earth's climate because together they count for almost half the 
world's population, primary energy consumption, half the 
world's effort or contribution to CO\2\ emissions, electricity 
generation, and economic activity.
    The Asian Pacific Partnership was created to identify and 
deploy cost-effective technologies that either produce energy 
without greenhouse gas emissions like wind, solar and nuclear, 
or save energy through increases in efficiency.
    Let me take a second and give you an example of how this 
program is working. We know methane is 20 times more potent 
that CO\2\ as a greenhouse gas. By deploying American 
technology to capture methane that is ordinarily vented into 
the atmosphere, a Chinese coal mining concern will reduce 
emissions by 4\1/2\ million tons. That is one entity over 20 
years. Moreover, this project will pay for itself by converting 
the methane gas into 120-megawatts of power. Thus, this project 
makes sense economically and environmentally.
    However, our international efforts in methane capture are 
not confined to the six countries in Asian Pacific Partnership. 
The Methane to Markets Partnership, another U.S.-lead effort 
includes 17 nations and more than 250 private sector 
organizations and projects to advance methane recovery in 
agriculture, landfills, coalfields, and natural gas and oil 
systems.
    Beyond the multinational efforts, what are some of the 
other initiatives that we should be looking at? As a nation and 
global partner, we need to examine what we can do to expand the 
deployment of emission-free generating technologies, like 
advanced wind, solar, and nuclear. Furthermore, we must 
accelerate the research into affordable cellulosic ethanol. And 
finally, because coal is critical to meeting both American and 
global energy needs, let us do more research and development on 
zero-emission coal technology and carbon capture and 
sequestration.
    All these initiatives and other like them have benefits 
that go beyond reducing greenhouse gas emissions. These 
proposals make sense for a variety of reasons, all of which are 
critical to our economic future. They have a demonstratively 
favorable environmental impact. They seek to deploy existing 
technologies as they become available and push new innovations. 
They make economic sense, and they foster long-term economic 
growth and security by reducing our dependence on foreign 
sources of energy.
    Mr. Chairman, again I thank you for holding this important 
hearing. I look forward to the testimony of our witnesses.
    Mr. Boucher. Thank you very much, Mr. Hastert. Calling on 
Members now in order of seniority on the subcommittee who were 
present at the time the hearing convened, the gentlelady from 
California, Ms. Harman, is recognized for 3 minutes.

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

    Ms. Harman. Thank you, Mr. Chairman. Let me apologize in 
advance to you and witnesses for coming in and out of this 
hearing today. Sadly, I have a conflict just down the hall. I 
would however urge witnesses, as I did to one before we 
convened, to be bold, to make certain that in your 5 minutes, 
committee members know what is on your mind, what has worked, 
what hasn't worked, what you feel we might try to do because we 
are all trying to get this right and to move on quickly.
    Climate change is the ultimate diplomatic challenge. 
Emissions reductions at home will make our economy more 
efficient. In the long run, they will also make us more 
prosperous and competitive, but without coordinated global 
action, emissions reductions at home will not solve global 
warming. That is no reason for us to sit on our hands. Never 
have we waited for other countries to show us how to solve 
problems, and we shouldn't wait here. The U.S. should lead the 
way on climate change and exercise leadership to forge a global 
solution.
    Our diplomatic prestige has suffered in recent years for 
reasons well known, but the U.S. still wields extraordinary 
soft power partly as a result of our robust economy. It may 
take years to regain what diplomatic capital we have spent 
since 9/11, but the economic incentives we can offer the 
developing world to follow our lead in reducing CO\2\ emissions 
are still considerable.
    To give just one example, the U.S. is the largest market in 
the world for many consumer goods. Anyone who has been inside a 
Wal-Mart can tell you that, and we will likely be the largest 
carbon market too. So let us make developing nations want to 
sell us carbon credits. That is just one way of making the 
global market work to reduce global warming.
    International agreements like Kyoto are important and 
perhaps we can do better agreements as Al Gore suggested last 
week, but our means of bringing the rest of the world along are 
vast, and we should use our resources to solve climate change 
on our terms. The first step is acting boldly in this 
committee.
    So again, Mr. Chairman, I urge our witnesses to help us be 
bold, be responsible, and be successful in doing our part. I 
yield back the balance of my time.
    Mr. Boucher. Thank you, Ms. Harman. The gentleman from 
Michigan, Mr. Upton, is recognized for 3 minutes.
    Mr. Upton. I will waive.
    Mr. Boucher. The gentleman from Michigan waives.
    The gentleman from Illinois, Mr. Shimkus, is recognized for 
3 minutes.

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

    Mr. Shimkus. Thank you, Mr. Chairman. I want to thank you 
for holding this hearing today and welcome our witnesses. In 
order to understand the long-term ramifications of global 
climate change and decide the best near term course of action, 
we must weigh carefully all sides of the issue.
    Today's hearing will add yet another uncertainty into this 
broad and complicated debate. Just yesterday, Reuters reported 
that Chinese energy data shows that China is about to surpass 
the United States and become the world's biggest carbon 
emitter. But when asked to comment, here is what the Chinese 
had to say. ``These figures are very complicated. We don't have 
an estimate of carbon dioxide for such recent date. Such an 
official, who declined to be named, we have just set in motion 
our national reporting plan, but it will not be done for 2 or 3 
years.''
    This doesn't seem like a comment that would signal that 
China is ready to be a partner of any global initiatives, and 
that would make mandatory the reduction of carbon dioxide. It 
is expected that China will account for more than half the 
global growth in coal supply in demand over the next 25 years.
    At the same time, India gets over half of their energy 
output from coal. The two countries combined are projected to 
account for nearly 70 percent of the world coal demand through 
2030. I remain highly skeptical that China or India would 
follow the U.S. into any implementation of a cap and trade 
program to reduce carbon dioxide emissions that other nations 
would follow.
    We know today that only six of the 120 Kyoto countries are 
meeting their agreement. We also know that China and India, as 
developing nations, are not part of the Kyoto Agreement or any 
other agreement to constrain carbon dioxide emissions. What 
would be the purpose of the United States investing billions in 
unproven scheme to reduce emissions if all projections show 
that the fast growing economies of China and India will surpass 
the U.S. with emissions output, but again show no willingness 
to participate in such a program?
    Why not continue investment in the kinds of programs that 
are working and don't run the risk of burdening economies, 
especially developing economies? China and India are both part 
of the Asian Pacific Partnership on clean development climate, 
and both have made investments in the president's FutureGen 
initiative. The Earth exists in a vacuum, but the people on 
Earth do not. And it is dangerous to worry about one and ignore 
the other.
    Carbon dioxide is a byproduct of jobs, growth, and 
opportunity for average working people. Despite impressive 
gains in American energy efficiency over the past few years, a 
basic reality is that with the technology mix deployed today, 
capping carbon dioxide emissions will restrain economic output, 
jeopardize economic growth, and eliminate people's jobs. Kyoto 
level caps would likely eliminate hundreds of thousands, if not 
millions, of American jobs.
    With that, Mr. Chairman, I yield back my time.
    Mr. Boucher. Thank you very much, Mr. Shimkus. The 
gentleman from Texas, Mr. Gonzalez, is recognized for 3 
minutes. Mr. Gonzalez waives an opening.
    Ms. Hooley from Oregon is recognized for 3 minutes. Ms. 
Hooley waives.
    Mr. Matheson from Utah is recognized for 3 minutes. Mr. 
Matheson is not here. Mr. Butterfield from North Carolina is 
recognized for 3 minutes.

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

    Mr. Butterfield. Thank you, Mr. Chairman. I too want to 
thank you for convening this hearing today. You told us a few 
weeks ago that you were serious about climate change, and you 
are certainly demonstrating that today.
    Mr. Chairman, as we continue these hearings, the 
fundamental question with global warming that we must consider 
is not whether Congress should act, but instead how soon and 
what is the best way for Congress to act. The scientific data 
and evidence demonstrates that climate change is a reality. I 
repeat that. It is a reality, and we must act responsibly by 
taking the necessary steps to curb global warming where it is 
possible.
    Earth was created to endure, but our pollution and 
emissions seem to be causing our planet grave harm. No single 
generation of people holds possession of this Earth, and it 
should not put itself in the position of overly-influencing its 
fate. Earth was created with enough abundance to provide for 
everyone who has lived and for all future generations. Our 
actions and our subsequent inactions could put that abundance 
into jeopardy.
    For many years, people seemed eager to believe that it was 
only important to deal with emissions, pollution, and global 
warming to ensure that the world and our nation would be left a 
better place for our children and grandchildren. Unfortunately, 
however, we are already seeing the troubling effects of climate 
change, and the evidence suggests these problems will soon grow 
far beyond our control unless we act and act quickly.
    We must be faithful and wise stewards because at this 
point, we all know that we have a problem, which could 
substantially affect the way we live our daily lives. It is my 
hope, Mr. Chairman, that we will soon put forward some 
carefully constructed and sound policy, which addresses the 
issue of global warming.
    America is the leading nation in the world, and our actions 
will greatly influence the direction that the rest of the world 
moves on this important issue. I thank all of the panelists for 
being here today. I look forward to their testimony. I started 
reading some of the statements just a few minutes ago. All of 
you bring a very important message that people need to hear. I 
look forward to your testimony and thank each of you for being 
here today. I yield back.
    Mr. Boucher. Thank you, Mr. Butterfield. The gentleman from 
Texas, Mr. Barton, the ranking member of the full committee, is 
recognized for 5 minutes.

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

    Mr. Barton. Well, Mr. Chairman, I am going to give you back 
some of that time. I will put my formal statement in the 
record. I just want to make a few general comments. It is my 
opinion that a citizen of the undeveloped world is not going to 
forgo electrification of their life for some amorphous 
environmental benefit that, if realized, won't be realized for 
far in the future.
    By the same token, I don't think citizens in our country 
are going to willingly give up their jobs to accomplish that 
same amorphous environmental benefit some time in the future. 
When we talk about countries like China, China's coal-fired 
capacity, in 7 months, their additional coal-fired capacity 
will equal the entire coal generation capacity of the State of 
Texas, which has, I believe, the largest base-load coal-fired 
generation system of any State in the country. And in a year, 
China's new coal-fired capacity will equal the entire output of 
the State of Texas.
    The Chinese, who barely pay lip service to the criteria 
pollutants, have stated in no uncertain terms that they have 
absolutely no intention of reducing their CO\2\ emissions any 
time in the foreseeable future. To the extent that we have 
statistics, we know that between 2000 and 2004, China's CO\2\ 
emissions went up 60 percent. During that same timeframe, the 
CO\2\ emissions in the United States went up a little under 2 
percent. It is expected any year now that China's overall CO\2\ 
emissions are going to surpass the United States.
    And for us to sit here and somehow think that the United 
States of America can do something that will morally challenge 
the Chinese, and to a lesser extent the Indians, to follow us, 
is just not common sense. In fact, I think it is the opposite 
of common sense. So I am very interested in what our witnesses 
have to say on this issue, but this issue today, Mr. Chairman, 
is one of the most critical in terms of common sense 
recognition of any proposed solutions. You cannot have a 
legislative package that passes the House of Representatives 
that does not have an enforceable, meaningful mechanism to 
include the developing world and especially the Chinese.
    With that, I yield back.
    [The prepared statement of Mr. Barton follows:]

  Prepared Statement of Hon. Joe Barton, a Representative in Congress 
                        from the State of Texas

    Mr. Chairman, today we begin to look beyond our own borders 
to examine greenhouse gas emissions in other countries.
    Some witnesses today will talk about how American companies 
are helping other countries avoid greenhouse gas emissions. 
Others will recommend that the U.S. use its muscle to get other 
countries to cut back.
    We need a clear picture of what countries are actually 
doing, and are likely to do, with and without our influence.
    We also need to understand countries' ambitions for their 
own people, and how greenhouse gas emissions reduction stacks 
up as a priority.
    Here's one thing I know already: Poor countries don't spend 
money on environmental causes. And here's something else I 
know: If China and India don't reverse their emission trends, 
nothing the United States can do will matter in the long run, 
except to the American taxpayers who have to pay the enormous 
costs.
    Take China. The Chinese are adding coal-fired generation at 
an unprecedented pace. They are said to be starting up another 
500 megawatts of coal-fired power plants every 4 days.
    Compare that to California which made the dramatic 
commitment to turn away from its cheapest source of power, out-
of-state coal-fired power plants. Replacing that power will 
certainly be expensive. Consequences may well be power 
shortages and retail price spikes. Will it make a lasting 
contribution to world reductions of greenhouse gas emissions? 
China will add an equivalent amount of new coal-fired capacity 
in a matter of weeks.
    In my own State of Texas, one company has thrown State 
resource planning into a tailspin. The company had promised, 
then backed away from, construction of 6,000 megawatts of new 
coal generation. Those new plants would have been among the 
cleanest ever built, virtually eliminating emissions of 
criteria pollutants.
    Then they were cancelled, supposedly to reduce greenhouse 
gas emissions. China will produce 6,000 megawatts in 2 months 
and never break a sweat.
    According to a new study by MIT, coal output in China has 
doubled since 2000. Its coal output is now No. 1 in the world 
and more than double the United States.
    Will China make and stick by commitments to reduce 
greenhouse gases? It is highly doubtful.
    The study says that, ``China's energy-related governmental 
bureaucracy is highly fragmented and poorly coordinated.'' 
Also, ``infrastructural issues are being resolved very quickly 
by individuals and organizations operating well below the level 
of national energy corporations.''
    What are some of the results? One is that China doesn't 
even seem to do a good job of controlling criteria pollutants. 
Well under 5 percent of China's coal plants have any sulfur 
dioxide control equipment at all, and apparently for those that 
do have scrubbers, there is not much reason to assume that the 
scrubbers actually operate. Why operate them when there is no 
enforcement and all they do is reduce power output?
    No wonder China has some of the most polluted cities in the 
world. And that pollution won't ease up anytime soon if more 
and more companies choose to move operations to China for the 
cheap power, especially if we in the U.S. increase our own 
costs with a carbon cap.
    Meanwhile, India is also growing its coal consumption and 
expects to surpass the United States by 2020.
    Mr. Chairman, this examination will not slow down our own 
best efforts. Pursuant to the Energy Policy Act of 2005 we are 
providing incentives for next generation alternative 
technologies, atmospheric research, and regulatory reforms that 
open the door for those technologies .
    I think we should look first to build on those efforts in 
EPAct and a few others before we resort to regulating, 
rationing, or taxing CO\2\ emissions.
    Mr. Chairman, I look forward to hearing from our witnesses 
on some of these topics.
                              ----------                              

    Mr. Boucher. Thank you very much, Mr. Barton. The gentleman 
from Louisiana, Mr. Melancon, is recognized for 3 minutes. The 
gentleman waives an opening statement.
    The gentleman from Washington State, Mr. Inslee, is 
recognized for 3 minutes. Mr. Inslee waives.
    Gentlelady from Wisconsin, Ms. Baldwin, is recognized for 3 
minutes. The gentlelady waives.
    Without objection, all of the opening statements will be 
received in the record. The gentleman from Arizona, Mr. 
Shadegg, is recognized for 3 minutes. Mr. Shadegg waives.
    The gentleman from Oregon, Mr. Walden, is recognized for 3 
minutes. Mr. Walden waives.
    The gentleman from Oklahoma, Mr. Sullivan, is recognized. 
Mr. Sullivan waives.
    The gentleman from Mississippi, Mr. Pickering, is 
recognized for 3 minutes. Mr. Pickering waives.
    And the gentleman from Texas, Mr. Hall, is recognized for 3 
minutes.

 OPENING STATEMENT OF HON. RALPH M. HALL, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Hall. Mr. Chairman, I almost waived. I just want to say 
that Mr. Barton is exactly right to lead into this discussion 
with something that all of you know is obvious from watching 
television, reading the paper, and listening to testimony up 
here. There is a war on energy today, outright war on energy. 
And I think the people that are waging that war need to 
remember that energy might keep our kids from having to fight a 
war, if we can solve the energy problem.
    We have to be honest about this, and Mr. Shimkus was also 
right in talking about the vast expenditures of money that it 
takes or the gentleman from North Carolina addressed climate 
change as a reality, and certainly we all know that. And the 
answer is technology and money. I don't believe, as Chairman 
Barton said, that the American people are going to guess that 
$180 billion a year for almost 70 years with no known cure is 
the answer to it. It involves shipping all of our jobs to 
China, the worst polluter in the entire world.
    We just need to get realistic about it. Global warming or 
global freezing or whatever you have without Russia, without 
China, without India, without Mexico, I go on down the line, it 
is just not a possibility. And I say to my friends on the other 
side it isn't going to happen. You might make it happen over 
here in the House, but the Senate is going to work on it. It is 
going to eventually get to a President over there that has some 
opinions about it. And we have enough votes to uphold his veto 
when it happens.
    So let us be realistic about it, and let us tell our 
children that those signs that say no nukes, if we can protect 
nuclear power--and I am a fossil fuel guy, but I want nuclear 
power. I want any kind of a power. Joe Barton gave us about 15 
ways to increase our energy output in the energy bill he passed 
a year and a half ago. That is the answer to it, and I yield 
back my time.
    Mr. Boucher. Thank you very much, Mr. Hall. I thank all of 
the Members for their opening statements, and I particularly 
thank those who chose to waive an opening statement in 
anticipation of questions.
    I want to briefly introduce the members of this panel, and 
then I am going to recognize the gentleman from Michigan, the 
chairman of the full committee, for his opening statement. So 
first, a word of introduction about the members of our panel 
today. Joining us this morning is Annie Petsonk, who is 
international counsel for Environmental Defense. Jeffrey 
Holzschuh is vice chairman of institutional securities for 
Morgan Stanley. Mr. Thomas Stephens is the president and chief 
executive officer of Boise Cascade. Jonathan Pershing is the 
director for Climate and Energy Pollution Program at World 
Resources Institute. Dr. Edward Steinfeld is associate 
professor of political science and co-director for China Energy 
Group, Industrial Performance Center at the Massachusetts 
Institute of Technology. And Mr. Pramit Pal Chaudhuri is a 
Bernard Schwartz Fellow, with the Asia Society in New York, and 
the foreign editor, Hindustan Times of New Delhi. I want to say 
welcome to each of our witnesses, and we will turn to your 
testimony momentarily. But it is now my pleasure to recognize 
the chairman of our full Energy and Commerce Committee, the 
gentleman from Michigan, Mr. Dingell, for 5 minutes.

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

    Mr Dingell. Mr. Chairman, thank you for your great 
courtesy. I want to commend you for this hearing and the fine 
way in which you are leading this subcommittee on a very 
difficult issue.
    The issue today is a very important one. It has percolated 
through every other hearing that the subcommittee has held on 
climate change: the contribution of developing nations to the 
growth in greenhouse concentrations, and their potential role 
in mitigating this environmental threat.
    It is widely understood that without commitments from both 
developed and developing nations to limit greenhouse emissions, 
this global environmental problem cannot be addressed. It is 
also broadly accepted that absent a major effort on the part of 
the United States, large developing countries such as China and 
India are not likely to significantly limit their own rapidly 
rising emission levels.
    What is clear is that we don't know a whole heck of a lot 
about this problem. Now, what is most unclear is how to 
coordinate the two responsibilities we have here. Some 
witnesses at prior hearings have argued that the United States 
has a moral and practical imperative to act unilaterally to 
limit its emissions, whether or not developing countries act in 
parallel within the same time period.
    A number of witnesses predicted that if the United States 
leads, developing countries are likely to follow suit. Other 
witnesses, however, have argued that it would be foolhardy of 
the United States to unilaterally bind itself to emission 
limits and that doing so could cause both jobs and emissions 
problems to migrate to the developing world, thereby harming 
our economy without securing real reductions in global 
emissions. My sense is that people of good conscience are 
looking for practical solutions to the dilemma.
    I was skeptical of the Kyoto Protocol because, to my mind, 
it did not strike a fair or effective balance between the 
developed and developing nations. I hope that the current U.N. 
negotiations will produce a more workable approach in the post-
Kyoto era. I would note that the Senate voted 95 to nothing on 
this particular matter, as my colleagues will remember when 
they passed the Byrd-Hagel resolution on this precise point.
    In any event, in its legislative considerations, Congress 
must find ways to limit emissions from the U.S. that do not 
amount to shifting their origin and American jobs to other 
countries. The subcommittee has heard anecdotal evidence about 
a new openness in China and other developing nations to cleaner 
paths to economic growth. I hope today's hearings will help us 
all to gain a better understanding of what changes are underway 
in developing countries and how the U.S. might align its 
efforts with theirs to mutually address this growing 
environmental concern.
    Again, Mr. Chairman, I thank you for holding this hearing. 
I look forward to the testimony of our witnesses here today, 
and I yield back the balance of my time.
    Mr. Boucher. Thank you very much, Mr. Dingell.
     We will now be pleased to hear from our witnesses, and I 
want to thank each of them for their attendance this morning. 
Without objection, your full opening statement will be made a 
part of our record, and we would welcome your oral summary of 
approximately 5 minutes. And I will simply call on the 
witnesses in the order in which I introduced them. Ms. Petsonk, 
we will happy to begin with you if you are ready.

      STATEMENT OF ANNIE PETSONK, INTERNATIONAL COUNSEL, 
             ENVIRONMENTAL DEFENSE, WASHINGTON, DC

    Ms. Petsonk. Thank you very much, Mr. Chairman. Good 
morning, Chairman Boucher and distinguished members of the 
subcommittee. Good morning, Chairman Dingell. My name is Annie 
Petsonk. I am the international counsel with Environmental 
Defense. My organization is already known to you, so with your 
permission, I would like to go straight to making three points 
about what you can do to engage developing countries in the 
climate challenge.
    Before I make my three points, I just want to note that if 
you cap America's emissions and allow those who cut emissions 
better, cheaper, faster to trade allowance with those who 
can't, you will create what is likely to become the world's 
largest carbon market. Europe's cap and trade market is already 
worth about $25 billion, and its volume is forecasted to double 
next year. If you design it well, America's market will draw 
more investment capital and more entrepreneurial energy into 
the search for low-carbon solutions than any place else in the 
world.
    My first point follows an idea that Representative Harman 
raised. Congress can engage developing countries by offering 
them the carrot of access to our carbon market if they measure, 
report, and reduce their emissions across the board. Currently, 
developing countries can only earn carbon credits for 
scattershot projects on a case-by-case basis. That means their 
slice of the carbon credit business is small. It is only about 
a sixth of the global total.
    Access to our carbon market will be a significant incentive 
that you can offer them in exchange for their emission cuts. A 
good place for Congress to start is with tropical forest 
nations, and we have a slide here showing--you can see some 
bars showing global emissions. The bar all the way on the left-
hand side is the emissions of the United States. We are the 
world's biggest emitter.
    But the bar all the way on the right-hand side, which is 
even bigger, is the emissions from the destruction of rain 
forests around the world. Tropical deforestation emits as much 
carbon dioxide as all the fossil fuel consumed in America. We 
are the world's biggest emitter. China is No. 2. But did you 
know who is No. 3? It is Indonesia. And No. 4? It is Brazil. 70 
percent of those countries' emissions come from deforestation, 
but they cannot earn any credit in the carbon market today for 
reducing those emissions.
    If you open America's carbon market to rainforest countries 
that reduce their national deforestation below a historical 
level, you will create a powerful incentive for them to reduce 
what, for many of them, is their biggest source of emissions. 
Some rainforest countries have already indicated their interest 
in signing up for this approach if you create it.
    That, in turn, is putting competitive pressure on other 
developing countries to figure out how they are going to get 
into our carbon market if you create it. You can heighten that 
pressure on developing countries.
     Today, China and India participate in the carbon market to 
the tune of about $5 billion. In the absence of emission caps, 
it is all in these one off projects. You don't have to accept 
that framework. You can instead design our carbon market so 
that the sooner those countries cap their emissions, the more 
favorable the terms of access to our carbon market they will 
get. That would give them a strong incentive to open their 
entire economies to the kinds of emission reduction investments 
in new technologies, American technologies, the kind of 
technologies that Representative Hastert mentioned, economy-
wide instead of in the individual projects to which the current 
carbon market is now restricted.
    What if even with these carrots developing countries still 
refused to cut emissions? My second point is that you have 
sticks that Congress can deploy. For example, you can design 
our carbon market so that credits from these one-off projects 
in countries that don't cap and cut their emissions are worth 
less in our carbon market. If those countries want their 
credits to trade at par in our market, they will have to cap 
and reduce their total emissions.
    Another stick, one I believe that you heard about last 
week, is a proposal put forward by American Electric Power and 
the International Brotherhood of Electrical Workers to require 
that imports of carbon-intensive products from nations that 
have refused to cap and cut emissions be accompanied by 
emission allowances. The aim of that proposal is to prevent the 
kind of emission shifts and job shifts that Chairman Dingell 
and other members of the subcommittee have referred to. And we 
think that that proposal merits close consideration, and I 
would be happy to talk further with you about that if you have 
questions.
    My last point is that you have the power to lead by 
example. If you create a durable carbon market with enforceable 
mechanisms, one that taps innovation in the service of a safe 
climate, then America can demand that where we lead, others 
should follow. But if you adopt a weak program, other nations 
will too, and that could hurt not only the climate but American 
industry.
    Here is how. Let me give an example. If you load the 
program with safety valves in the form of price controls on 
emissions, our trade competitors will race to do likewise. If, 
for example, you set a price ceiling of, let us say, $15 a ton 
in the U.S. carbon market so that when the price of trade 
allowances hits the ceiling, the Government simply prints more 
allowances for sale at the ceiling price.
    That busts the emissions cap, but let me also tell you it 
undercuts our industry because developing countries are going 
to adopt the same kinds of price controls but they are going to 
set them at much lower levels relative to their economies. If 
we cap ours at $15 a ton, they might cap theirs at $5 a ton. 
Then instead of investing in the kind of low-carbon 
technologies that have been mentioned here, emitters simply 
will buy up allowances in the countries with the cheapest price 
ceilings and emit as much as they want. Who would buy American 
low-carbon clean-coal technology then? I urge you not to take 
this route.
    Let me close by saying your decisions will have an enormous 
influence on the choices developing countries make. I urge you 
to use the carrots and the sticks along with your leadership. 
Thank you.
    [The prepared statement of Ms. Petsonk appears at the 
conclusion of the hearing.]
    Mr. Boucher. Thank you very much, Ms. Petsonk. Mr. 
Holzschuh, we will be happy to hear from you.

STATEMENT OF JEFFREY R. HOLZSCHUH, VICE CHAIRMAN, INSTITUTIONAL 
            SECURITIES, MORGAN STANLEY, NEW YORK, NY

    Mr. Holzschuh. Thank you, Mr. Chairman, and distinguished 
members of the subcommittee. My name is Jeff Holzschuh. I am 
vice chairman of our institutional securities business at 
Morgan Stanley, head of what we call our global power and 
utilities group, and also I chair the firm's environmental 
policy committee. So from three perspectives, I speak to you 
this morning. I hope I can add some useful perspectives on some 
of the developing countries and the steps that they have taken 
to think about reducing greenhouse gas and including how the 
U.S. and other developed nations are impacting this issue.
    As developing countries, particularly China, continue their 
rapid growth trajectories, their energy use and demand, 
including their emissions, have obviously been growing. With 
the global warming increasingly confirmed for the U.N. and IPC 
reports, both the developed and developing world needs to take 
appropriate actions now.
    Morgan Stanley is a leading, global financial firm. I think 
most of you probably have heard of us, but a couple of things 
that we have tried to do, we have committed in excess of $3 
billion of our own capital to begin developing the carbon 
emissions credits, purchasing them, trading them, projects, 
other initiatives related to greenhouse gas over the next few 
years. In addition, we are one of the most active traders of 
environmental commodities, including sulfur dioxide, nitrogen 
oxides, biodiesel, ethanol, and weather derivatives. We also 
work with a variety of our industry clients to craft new and 
innovative approaches to the evolving greenhouse gas concerns 
in this country and globally.
    Internationally, our commodities trading division in 
Europe, for example, has been actively trading EU carbon 
allowances in the new cap and trade regime. It works with 
clients to develop carbon offset projects as well. We believe 
the trend toward more country, regional, and international 
carbon trading is positive, can provide useful incentives and 
structures to help reduce global greenhouse gas emissions in 
the future.
    You have heard extensive analysis on greenhouse in 
testimony, but from our perspective, I wanted to add a couple 
of points. We are very aware of China's potential impact on 
greenhouse gas due to its growing greenhouse emissions, its 
projected energy demand growth over the next 20 years. Since 
1990, China's emissions have risen 77 percent compared to only 
18 percent in the U.S., as recently estimated by the World 
Resource Institute Study.
    Nearly 32 percent of future global energy demand over the 
next 20 years will come from China alone, as estimated by the 
International Energy Agency, McKinsee, and our own research. 
Actually, India and Latin America, in comparison, are only 
projected to account for 12 percent of the future global energy 
demand during that period. The Chinese emissions growth is due 
primarily to its reliance on its abundant coal reserves and 
satisfying those growing energy needs.
    According to the EIA's world energy outlook 2006, China and 
India will account for 80 percent of the incremental increase 
in coal consumption globally between now and 2030. Today, China 
is opening new coal-fired generation plants every 7 to 10 days. 
Currently, the coal-fired plants are inefficient. They consume 
twice as much coal per kilowatt produced, compared to the U.S. 
plants. They lack the anti-pollution stack scrubbers that are 
found on most U.S. plants.
    Other developing countries, such as India, also have 
inefficient plants, and we believe it is our country's best 
interest to enable countries like China to use the best 
available clean coal technologies and help reduce their 
greenhouse gas emissions from this key source in the coming 
years. China is projected to become the world's largest emitter 
of greenhouse gas, and is now preparing a national strategy to 
address climate change and reduce those greenhouse gases. 
Evidence suggests that the approval of this strategy make take 
a couple of years. I think the good news is that they are 
addressing it at the national level; however, we are not naive. 
We think it will be limited or there won't be regulatory 
enforcement mechanisms. They will lag until they can create an 
effective regulatory and enforcement agency.
    An interesting and new twist is the emergence of the 
emissions trading and its potential to help countries like 
China. For example, China failed to meet its goal to reduce its 
sulfur dioxide emissions by 10 percent between 2001 and 2005. 
And instead, emissions increased by 27 percent over the same 
period.
    To address this concern, in August 2006, the Chinese 
Academy of Environmental Planning previewed a new national 
emissions cap and trade program, which if similar to the 
existing U.S. emissions trading program for SO\2\, could be 
very effective in reducing greenhouse gases within China. 
China's emissions cap and trading efforts would be made more 
effective if America creates its own carbon cap and trading 
system to foster emissions reductions.
    This subcommittee has received extensive detailed testimony 
on how that market might be structured. I would only add that 
given the excellent efforts already in setting up an effective 
SO\2\ program that we do have the collective expertise in the 
U.S. to develop an effective cap and trade system. Ideally, we 
need to build from the Europe experience as well.
    We recognize this is an extremely complex subject, but 
encouraging effective regulatory and incentive systems, such as 
carbon trading both in our country and others, would be a key 
part of an effective global approach. Obviously, this is only 
one piece, however, of a comprehensive greenhouse gas emissions 
reduction approach with other actions that are also needed such 
as increasing energy efficiency, promoting the clean 
technologies, assisting in changing consumer behavior to adapt 
and change the energy use in coming years in both developed and 
developing countries.
    For example, Australia's seemingly simple action to hand 
out efficient light bulbs is a small but significant signal, we 
believe, to their citizens to change and adapt their energy use 
behaviors. Ideally the U.S. needs to take a leadership position 
in addressing its own greenhouse gas emissions effectively and 
comprehensively in a large part to encourage, I think, to lead 
and inspire the developing countries, such as China and India, 
to follow our lead and to coordinate their own gas emissions.
    Morgan Stanley is committed to assisting and being a part 
of these efforts and in helping achieve the best outcome for 
the U.S. and globally. And I thank you again for the 
opportunity to share these views.
    [The prepared statement of Mr. Holzschuh appears at the 
conclusion of the hearing.]
    Mr. Boucher. Thank you very much, Mr. Holzschuh. Mr. 
Stephens.

 STATEMENT OF W. THOMAS STEPHENS, CHAIRMAN AND CHIEF EXECUTIVE 
           OFFICER, BOISE CASCADE, L.L.C., BOISE, ID

    Mr. Stephens. Thank you, Mr. Chairman and members of the 
committee. I would like to take some of my 5 minutes to zero in 
on some real people and some communities that are going to be 
significantly influenced and impacted by the actions that are 
being contemplated by Congress. These are people and these are 
communities that are going to be operating at the margin of 
change in terms of climate change legislation and international 
competition.
    I do suggest that while Congress should enact rational, 
constructive, and timely legislation, be very careful to avoid 
creating unintended results. Doing it right, to me, is much 
more important than doing it quickly.
    I don't envy you your challenge. Finding a way to put all 
the pieces of this puzzle together and finding solutions that 
really work is a tremendous task for our Government and for our 
society as a whole.
    I have always believed that the best way to solve complex 
problems is to work backwards from the desired results, and 
very simply the results that I would hope we set our sights on 
is a halt to the increase in greenhouse gas emissions on a 
worldwide basis. The development of and the integration into 
our economy of new technologies that would allow us to conserve 
energy, rebalance our energy sources away from carbon, and, of 
course, sequester carbon back into the Earth.
    While we are working on those outcomes, I suggest that we 
keep some other goals in mind. I hope that whatever steps that 
we take that provide for the mitigation of the inevitable 
inequities, imbalances, and economic dislocations that are 
going to be byproduct of something of this scale. The U.S. 
can't fix this one by ourselves, and we have to assure that 
there are no free riders that grow their standard of living on 
the backs of workers in this country. I have always been a free 
trader. Enhancement of fair trade and market mechanisms has to 
be, to me, a part of the overall design.
    Finally, while we surely need to use market forces and 
economic systems, such as cap and trade, where they are 
appropriate, we have to be careful not to create markets that 
can be abused and can be gained so that we don't actually 
accomplish the results we set out for.
    Today we, as a country, are debating how to take giant 
step, but, to me, a step in the right direction. And as the 
world's economic and innovation leader, I believe it is the 
U.S.'s responsibility to take the lead.
    Now, talking about theory is the easy part. I want to get 
back to hard reality and talk about some of the people I work 
with that are going to be impacted by Congress's decisions. In 
my company, we have to make decisions every day based on 
international competition and energy cost, both of which are 
going to be influenced by what Congress decides in terms of 
climate change.
    Employees at our paper mill in St. Helens, Oregon are 
already fighting for that bill's existence because of the high 
cost of energy and the availability of raw materials in the 
Pacific Northwest. It is ironic that in the middle of the best 
place in the world to grow trees the high cost of fiber and 
energy are threatening the existence of the mill. Our 
competition is no longer just the paper mill in another town, 
but also new ones that are being built in places like Indonesia 
and China.
    Just to give you some perspective, we have 485 employees in 
that mill, and they take home $90,000 a year when you include 
their benefits. The town of St. Helens is 12,000 people. If 
that mill goes down, it is going to be very painful for those 
people and for that community. I can assure you if the cost of 
energy goes up at St. Helens faster than the cost of energy for 
our competition, that mill will go down.
    Now, at the same time, we are not asking for a bailout. We 
are just asking that Congress maintain a level playing field 
and don't make the hole any deeper. If we can keep our market 
share, if we can continue to make paper in St. Helens rather 
than buying it for China, our employees win, our customers are 
better off, and of course, the environment is too.
    There are some other issues related to climate change 
legislation that I don't have enough time to talk about this 
morning, but in another form, I would like to expand on the 
mass confusion that exists around forest management and climate 
change. Suffice it to say that every year forest fires in 
Oregon produce enormous amounts of carbon dioxide, and, in 
fact, some years more carbon dioxide than all other sources 
combined. Letting fertile forest burn, not letting us harvest 
dead trees, and then not providing funding to replant new trees 
is just not good policy.
    Finally, let me wind up by just saying it was technology 
that moved us into such an energy-intensive economy and created 
a standard of living that we enjoy in America. I have high 
hopes that legislation will promote and not hinder the 
development of technology to remediate greenhouse gas at its 
source as well as develop fuel alternatives.
    Innovation and higher productivity are the keys to a 
growing economy and a higher standard of living for the U.S. 
and around the world. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Stephens appears at the 
conclusion of the hearing.]
    Mr. Boucher. Thank you very much, Mr. Stephens. Mr. 
Pershing, we will be happy to hear from you.

 STATEMENT OF JONATHAN PERSHING, DIRECTOR, CLIMATE ENERGY AND 
  POLLUTION PROGRAM, WORLD RESOURCES INSTITUTE, WASHINGTON, DC

    Mr. Pershing. Thank you very much, Mr. Chairman and members 
of the committee. I very much appreciate this opportunity to 
discuss my views and provide some input to your important 
deliberations on the international component of the climate 
change problem. The World Resources Institute is a non-profit, 
non-partisan group that does research and policy analysis on a 
series of global issues, including climate change, ecosystems 
and development, and it is within that framework that I would 
like to offer some comments and some suggestions.
    We work quite extensively internationally, and one of the 
things that is quite apparent is that the climate change 
science is perceived as real internationally. And the reason 
that is important is that it doesn't mean that we are not alone 
in what we can do; all countries are considering action. That 
means India and China as well as the U.S. and Japan.
    The second point is that there is a consensus that we can't 
wait to start. At the moment, our best understanding suggests 
that every time we delay, every moment we delay, means we have 
got to do more later if we want to achieve the same level of 
reductions. The scale of the problem is huge. The best science 
we have got says that if you would like to stabilize at any 
point, at any time, you will need to have massive reductions at 
some point in time on the order of 90 percent below current 
levels.
    To stabilize in the near term means 60 to 80 percent 
reductions by 2050. That is still enough time for massive 
technology shift, but not a lot of time. No single country, no 
single sector, and no single actor is likely to be adequate to 
solve the problem on its own. That means the U.S. can't do it 
by itself, but neither could China, neither could the EU. It 
will require efforts from all countries, from all sectors, 
addressing all greenhouse gases.
    Furthermore, not all countries are the same. If we think 
about applying a standard to all countries that would be the 
same for all countries, we will not make the kind of progress 
that we need. We have to be real and recognize that there are 
real differences between the way countries perform, between 
their national circumstances, and design a policy that is 
adequately flexible to manage that.
     Let me point another number out. If you took the top 15 
emitters in the world, you have 80 percent of global emissions. 
So you actually don't need 150 or 190 countries to solve the 
problem. You need the big countries, and that means we can have 
a different process, perhaps not only a different process but 
including a difference process that manages some of those major 
players. We need to think about that as part of our program.
    I would note that there are a number of solutions that 
would take the self-interests of all countries into account as 
we seek to design those next steps. I would like to offer 
three. The first one is we think about a price, and we already 
have a mechanism to frame a price. That mechanism comes at the 
individual State level, in fact, is beginning to do it. The 
Europeans have begun to do it. The Japanese have begun to do 
it. We are seeing the capacity of prices to influence 
investment decisions, to influence behavior, and to influence 
the long term.
    But in order to move that forward, we have to expand the 
market. And that means bringing other countries on board, and 
that means developing the standards and the references which 
would allow them to participate. I do not myself believe that 
those exist outside of a relatively small set of countries. We 
do not yet have standards in my mind, which would allow us to 
trade with Russia easily. I witness what goes on in the gas 
market, and it is not because they live by contracts that we 
all sign up to. That therefore suggests to me that we have to 
do considerable work to move Russia in the right direction. 
That is around all issues, including standards for carbon as 
well as other trade.
    The second solution: capture the co-benefits. There are 
many, many co-benefits. There are virtually no climate change 
reduction opportunities that do not also involve other things 
that we care about. There are no countries that we are talking 
about here today that are not concerned with energy security. 
We all worry about it. If we can improve efficiency, we will 
improve energy security. We will also reduce greenhouse gas 
emissions. If we can improve rates of deforestation, we will 
decrease greenhouse gas emissions and improve ecosystem 
management as well as reduce the loss of soil.
    We need to find the technologies that do that. We need to 
promote the opportunities that do that, but we can work with 
all the countries we have been talking about in that real way 
to influence that kind of change.
    And finally, we need to think about technology. There are 
very few sets of technologies that will clearly be absolutely 
critical. Dr. Steinfeld will probably talk a little bit about 
the coal issue, but I want to make one point about it. It may 
be the only technology, capture and storage, which has no or 
less obviously a solution for other things besides climate. It 
will slightly increase our energy costs. It will change the 
price that we therefore put on some things that we care deeply 
about.
    But at the end of the day, China's reliance on coal, 
India's reliance on coal, the U.S. reliance on coal requires 
that we take this step. And that with a carbon price, we could 
move it forward, but it will need help. It will need your 
investment and your considered deliberations to promote it much 
more rapidly than we are currently moving. That means to me 
that we need to have a great deal more energy, and 
unfortunately, we won't probably get there adequately. We will 
need some adaptation. We will need some funding to cope with 
the consequences. The climate change we can't avoid, and that 
has got to be part of the puzzle.
    I think in conclusion, we can use the existing four that we 
have got, but the ones that we currently have are not enough. 
We need to put more money into the things that we are doing. We 
need to put more force into the things that we are doing. The 
Asia Pacific Partnership, while a very strong first start, is 
wholly inadequate to the scale of the problem. The Kyoto 
Protocol, a start, inadequate to the scale of the problem. We 
nee do to move all of these things forward if we can succeed. 
Thank you.
    [The prepared statement of Mr. Pershing appears at the 
conclusion of the hearing.]
    Mr. Boucher. Thank you, Dr. Pershing. Dr. Steinfeld.

    STATEMENT OF EDWARD S. STEINFELD, ASSOCIATE PROFESSOR, 
  DEPARTMENT OF POLITICAL SCIENCE, MASSACHUSETTS INSTITUTE OF 
                   TECHNOLOGY, CAMBRIDGE, MA

    Mr. Steinfeld. Mr. Chairman and members of the committee, 
thank you very much for the opportunity to speak today. I am 
Edward Steinfeld. I am a professor of political science and 
political economy at MIT and a specialist on Chinese industrial 
development. In that capacity, I served as one of the principle 
authors of MIT's recently released study on the future of coal 
in a carbon-constrained world.
    The MIT study began with two premises. First that the risks 
of global warming are real and that carbon mitigation efforts 
should move forward. And second, for the foreseeable future, 
coal would be a critical resource for meeting global energy 
needs. Those two premises, taken together, as many people have 
noted already today, placed China dead center in the discussion 
of climate change.
    I won't go over all of the numbers that have already been 
stated and stated quite accurately. China will soon pass the 
United States whether this year or next year, maybe the year 
after--will soon surpass the United States, the world's largest 
emitter of CO\2\. The largest coal-consuming sector China, the 
electric-power generating sector, as others have noted, is 
expanding at a torrid rate. A 500 gigawatt roughly generating 
capacity system in 2004 added 70 gigawatts of generating 
capacity roughly in 2005, and 102 gigawatts of capacity in 
2006, virtually all of that is pulverized coal-fired standard 
power generation. That is an incredible rate of increase, one 
of the most rapid in human history.
    The question though that I would like to address are the 
conditions under which, and the institutional framework under 
which, this very rapid expansion is happening. There are a few 
features of the Chinese system that I would like to point out.
    First, my research suggests it is not the case that this 
expansion is centrally coordinated, coherently coordinated, 
strategically coordinated, whether progressively coordinated or 
regressively coordinated. Rather, the story on the ground is 
that this expansion is happening at a rate far faster than 
central officials in China can grasp and understand. And they 
are scrambling just to get information and to get raw data.
    Second, the decisions that are made regarding this build-
out and their technology decisions and design decisions and 
infrastructure decisions relating to power plants, these are 
highly localized decisions, and decentralized decisions but not 
decentralized institutionally through formal processes, but 
institutionalized in the de facto fashion. The decisions are 
made before the center can really recognize what is going on. 
In fact, power plants in China almost routinely receive 
approval after they are already up and operating, rather than 
before.
    Third, in this environment of ad hoc decision making, of 
self-help, and making due, there are a wide variety of players 
who get involved. Some are commercial players. Some are 
regulatory players. Some are investors. Some are wearing all 
three hats simultaneously and are not exactly sure which role 
they are supposed to be playing, but the ultimately deliver the 
electrons. They deliver the electricity for economic 
development. It is a tough, chaotic environment, not only for 
outsiders to deal with, but for insiders to deal with and 
particularly to regulate.
    So the question then is what does this mean for Chinese 
participation in carbon mitigation efforts? Well, first and 
obviously, to the extent China participates as a system, we 
have to expect that the system will not and cannot turn on a 
dime. It is not the kind of system that can do that. No matter 
what the central dictates happen to be, the system will not 
turn on a dime, and compliance, as it is for virtually all 
regulations in China, compliance will be a problem.
    Second, though, there is some cause for optimism. The first 
point I would like to raise there is some central players in 
China--and, of course, there are debates within the central 
government, as there are in any government. Some central 
players do want change and want it rather desperately. They 
face pressures that are familiar to all of us as has been 
mentioned. Dependence on external energy, resources, 
environmental pressures from their publics, pressures to 
improve competitiveness of industry in their own country, they 
would like to get better regulatory control of the sector. One 
tried and true method of doing this in China has been to 
outsource regulation to external global institutions. The WTO 
excession story in the past is really this kind of story, and 
there are Chinese policy makers who are looking for some kind 
of external agreement or binding factor that they can use to 
drive regulation inside the country.
    The second issue related to that is that there is quite 
surprising to me and interesting to me a certain bottom-up 
pressure from some commercial players, particularly 
manufacturers of power generating components and technologies. 
We see it also on the renewable side. We see it a bit actually 
in the coal industry itself. There are commercial players in 
China who want to push their own government to move toward 
carbon constraints simply to create incentives for these 
commercial producers' own products. Or to put it somewhat 
differently, these producers want to be globally competitive. 
They want to feed products into markets in Europe and North 
America as well, and they feel they can't do that unless their 
domestic market converges in a regulatory sense, in a 
regulatory fashion toward the rest of the world.
    So what is the conclusion? Well, first I can imagine a WTO-
like excession process or a political conversion process inside 
China, but with respect to climate change. Had you asked me in 
the early 1990's would China ever exceed the WTO on the terms 
it did, I would have said absolutely not. Of course, it is a 
criticism of myself, but virtually all of my colleagues who 
study China would have said the same thing. Politics changed, 
and the government then changed its strategy and grasped this 
external institution to push further change in the country.
    But that presumes that there will be some kind of external 
agreement to which these policy entrepreneurs in China can grab 
hold, and that----
    Mr. Boucher. Mr. Steinfeld, if you could wrap up just a few 
minutes.
    Mr. Steinfeld. And the last point is even if China does--
and I predict that it will join and grab hold to an 
international agreement on carbon constraints. Even if it does, 
we will likely see, as we have seen with WTO excession, 
continuing compliance problems as China works to build domestic 
capacity over the long run.
    [The prepared statement of Mr. Steinfeld appears at the 
conclusion of the hearing.]
    Mr. Boucher. Thank you very much, Mr. Steinfeld. Mr. 
Chaudhuri.

STATEMENT OF PRAMIT PAL CHAUDHURI, BERNARD SCHWARTZ FELLOW, THE 
   ASIA SOCIETY, NEW YORK, NY, AND FOREIGN EDITOR, HINDUSTAN 
                    TIMES, NEW DELHI, INDIA

    Mr. Chaudhuri. Thank you. I am a journalist in India who is 
presently on a 1-year fellowship at the Asia Society where I am 
looking at a host of issues relating to India, the United 
States, and India's role in the world in the coming decades.
    The debate in India about global warming is curious because 
domestically, it barely exists. There is no dispute. Very few 
dispute the issue of global warming or its importance, but the 
debate is minimal because there is a general view that the most 
controversial aspect of the debate, which is carbon emission 
limits, simply does not apply to India. When the U.N. 
Intergovernmental Panel on climate change issued its last 
report, my guess would be that of India's 26,000 newspapers, 
barely 1 or 2 percent bothered to put it on page one.
    And there is a reason for this lack of debate because there 
is an overriding consensus within the Indian establishment, the 
political elite, the media, even within the environmental 
movement in India, that the overriding priority for the country 
is rapid economic growth.
    And since carbon emission limits are seen as inimical to 
that growth, they are generally simply ruled out of the debate. 
The late Indian prime minister, Mrs. Indira Gandhi, famously 
said in the 1970's the ultimate polluter is poverty. And it is 
a line that is repeated again and again and again even to this 
day by the prime ministers and the leadership and the media and 
anybody in India who talks about pollution in any way.
    And I suppose everybody knows how poor India is, but I will 
reiterate it because it is so important. India has more poor 
people than sub-Saharan Africa. It has as many as--the 
estimates differ--as many as 300 million people living on a 
dollar a day. If that figure is taken to $2 a day, that figure 
rises to almost 700 million. What we are looking in India right 
now, the economy boom that we have been experiencing in the 
past 10 years, as a recent World Bank study says, for the first 
time, India can actually look at the possibility of eradicating 
poverty, in others word bringing it down to single-digit levels 
within the population in a generation.
    It is very difficult to explain how important this is for 
everybody in India, not just because of the poor but even the 
people at the top. To be able to look at something that we have 
not been able to do for centuries. So even if you were to 
theoretically argue that carbon emission limits might affect 
that growth, it is immediately ruled out because this is 
something that Indians cannot believe that we can possibly 
accomplish, and they are not prepared to threaten it in any 
way.
    This, of course, is why India as well as China declined to 
accept carbon emission limits when they signed the Kyoto 
Protocol. They accepted the global warming was an issue, but 
they were not prepared to sacrifice growth, even theoretically. 
And this is one of the reasons why both India and China, I 
believe, are dragging their heels and are extremely wary of a 
second Kyoto agreement because there seem to be a large number 
of people who argue that this agreement should bring carbon 
emission limits and apply them to India and China.
    This automatically for India and China--well, I won't speak 
on behalf of China, but I will say my impressions on India--
means that you are trying to sacrifice our ability to eradicate 
poverty.
    The U.N. framework convention on climate changes chief 
official, Evo Debower, spoke in Delhi in January, and he put 
his thumb right on this issue. He said I understand this 
perfectly. ``Developing countries fear that the new round of 
climate negotiations would impose on them obligations that 
would hurt their economic growth.'' And because of that, they 
are not prepared to negotiate or they are not prepared to be as 
constructive as they can be. Because of this fear that lies in 
the background of this entire game, the prime minister, who is 
an economist by training, Dr. Manuel Sing, last year in a 
speech on our Government's integrated energy policy, made it 
very clear, 8 percent growth.
    And even if you assume only 8 percent growth--we have grown 
9 percent in the past 2, 3 years--until 2030 would require a 
four to fivefold increase in our energy consumption and 
increase of our electricity capacity from its present 131,000 
megawatts to somewhere between 800,000 to 950,000 megawatts.
    But the linkage is always very clear in all of the 
Government's statements. Energy consumption is directly linked 
to our rapid economic growth. We try to curb the energy 
consumption, and, in fact, the prime minister has repeatedly 
said that is our No. 1 constraint on our future economic 
prospects because our energy production remains far behind the 
rate of the growth of the economy as a whole.
    And Indians look at the figures. We generated in 2005 312 
million metric tons of CO\2\ emissions. We were the fifth 
largest producer, just a notch behind Japan. But per capita--
and I should add when you measure this by per capita, of 
course, it falls dramatically to only two tons per person. And 
it was interesting that it was the Indian environmental 
movement that recommended to the Government back in the 1980's 
that you measure it by per capita because it strengthens your 
negotiations position and puts it in a better perspective.
    So it is not that India is not prepared to do anything 
about carbon emissions. We do look at other things, such as we 
are an active player in carbon trading it has been mentioned. 
The clean development mechanism that work in the U.S., we have 
155 registered projects as of January 2007 and 400 more in the 
pipeline. We are part of the FutureGen project, the hydrogen 
fuel initiative. And somebody mentioned the Asia Pacific 
Partnership on Clean Development.
    So I will quickly summarize to just say that in the long 
term, we are prepared to do something, but again it has to be 
done in a manner that does not affect the economic growth rate 
of the country. This is a not merely political and economic 
issue, it is a moral issue for the Indian political leadership 
as a whole.
    [The prepared statement of Mr. Pal Chaudhuri appears at the 
conclusion of the hearing.]
    Mr. Boucher. Thank you very much, Mr. Chaudhuri. And thank 
you to each of our witnesses for your presentation here this 
morning. The testimony that you have provided is going to be 
extremely helpful to us as later during the course of the 
spring we structure a mandatory program for greenhouse gas 
emissions in the United States. The point was made by members 
of the subcommittee and by witnesses alike that if we are going 
to have a mandatory program here, that does not fundamentally 
injure the U.S. economy, it is essential that we assure 
participation by the larger developing nations.
    I agree with that point. I think our legislation has got to 
make provisions for it. Not only is it a necessity from the 
standpoint of our economy, but I think it is also a political 
necessity. If we are to be successful in passing this 
legislation through the House and the Senate and having 
President Bush sign it into law, and it is our goal to have 
that happen during this 2-year period.
    So let me ask about the best way that we can obtain that 
assurance in our legislation. One approach that has been 
recommended is that we have something in the nature of an off-
ramp so that we would put our program into law. We would 
announce our targets. We would announce the schedule upon which 
those targets would take effect and emission reductions would 
begin. But at the point at which those reductions are scheduled 
to take effect, if we do not at that time have buy-in by the 
developing countries and an assured participation on their part 
with mandatory programs in those countries as well, then our 
program would not take effect. That perhaps is the most direct 
and perhaps Draconian way in which we could assure 
international participation if we are to have a program.
    Some would argue that that approach might be effective. We 
have heard comments from some developing countries that they 
are not willing to undertake programs of their own as long as 
the United States is not committing itself to greenhouse gas 
reductions. Perhaps if we show our good faith in the exercise 
that we intend to do so here, that might encourage developing 
countries to do the same. So I would appreciate your comments 
about the possibility of an off-ramp.
    Now, second, we heard testimony last week from the chief 
executive officer of American Electric Power, Michael Morris. I 
think Ms. Petsonk referred in her testimony to his proposal. It 
is a very interesting one. It essentially says that there would 
be a requirement that the importation of products from 
developing countries that do not have mandatory greenhouse gas 
emission controls be accompanied by an emission credit that 
would be equal to the greenhouse gas emissions attributable to 
the manufacture of that item. And so the importer of that item 
would be required to go into the world market and purchase an 
emissions credit that would be equal to that greenhouse gas 
burden, that burden assigned to that particular item. It is a 
very interesting recommendation, somewhat similar to what I 
think Ms. Petsonk and Mr. Stephens had recommended but not 
exactly the same.
    A couple of questions that I have for you, and I will turn 
my time over to the panel members to respond. Number 1, do you 
think the off-ramp is the best approach? Do you think some sort 
of trade-related approach to this with the requirement somewhat 
similar to Mr. Morris's is the best approach? If it is the 
latter, what about WTO compliance? Are we consistent with our 
WTO obligations with China in particular in the event that we 
have that kind of requirement go into effect? I can imagine a 
challenge being made. So do you think either of those 
approaches is recommendable? If you think that some variation 
of Mr. Morris's proposal is better, tell me what that is. And 
if you have some third way, we would be happy to hear about 
that too. Ms. Petsonk, maybe we could begin with you.
    Ms. Petsonk. Thank you, Mr. Chairman. And I have a standard 
rule. If you catch me using an acronym that you don't 
understand, stop me. If I don't stop, throw a small object at 
me to get me to stop or your gavel.
    Mr. Boucher. I have it back now.
    Ms. Petsonk. OK, thanks. First with regard to the off-ramp 
proposal. When I was a kid, we had a saying if one kid wanted 
to do something and the other kids wouldn't go along, we said 
nobody loves me, everybody hates me, I am going to go eat 
worms. And the problem with eating worms is it doesn't help you 
solve the problem. And in particular, the off-ramp proposal 
could be hurtful to American industry in developing the low-
carbon technologies of the future that are going to be needed 
because that kind of off-ramp could send enormous uncertainty 
into the carbon market without any clear signal for what would 
be the trigger for the off-ramp.
    So let me not say anything further about that and go 
instead to the American Electric Power-International 
Brotherhood of Electrical Workers proposal. It is a very 
interesting proposal. It is attracting significant attention in 
the business community as well as in the labor community.
    I am authorized to say I was talking with a company 
yesterday, which happens to be one of the world's largest 
manufacturers of cement. It is the Holcim Company. You may know 
it. It has substantial operations in North America, and 60 
percent of its operations are in the developing world. And they 
indicated to me that quite independently they have come up with 
a quite similar idea that they are considering proposing in 
Europe. They haven't taken a final decision as to whether to 
propose it. But certainly is it the kind of proposal that one 
would want to coordinate between the United States and Europe 
so that together the markets of the nations that adopt 
emissions caps take the position that energy-intensive goods 
coming in from countries that refuse to cap or cut their 
emissions all face this requirement to submit emissions 
allowances.
    We are looking closely at the WTO aspects of this. I do not 
proclaim myself to be GATTologist, but I am an alumna of the 
U.S. Trade Representative's office. And there is a good 
argument under the--sorry to get technical on you, but you 
asked for it--the GATT 1947 as it was incorporated into the 
GATT 1994 and incorporated into the WTO--that nations have the 
ability to take WTO-inconsistent measures if it is necessary to 
protect their environment if they do so in a way that is non-
discriminatory and if they tried really darn hard to convince 
other countries to do the thing that they needed to protect 
their environment.
    Mr. Boucher. Well, that is a very clear answer.
    Ms. Petsonk. Thanks.
    Mr. Boucher. Let me move on to Mr. Stephens who I am sure 
has some comments. And, Mr. Stephens, if you could be brief. I 
have expired my time unfortunately.
    Mr. Stephens. Yes, I can be brief because the accurate 
answer to your question is I don't know, and I don't think most 
of us know the answer to that question yet. As I said in my 
statements, I have got this conflict that is driving me crazy 
between a free trade enthusiast and understanding that if we 
want to solve this problem, we are going to have to deal with 
the fact that we have markets. If we have them by their 
markets, their carbon sequestration will follow.
    Mr. Boucher. Thank you very much. I would like to hear from 
the other witnesses on this. Perhaps we could have individual 
conversations after the hearing because I would very much 
welcome your views. Mr. Hastert is recognized for 5 minutes.
    Mr. Hastert. I thank the chairman, and to each and every 
witness, I would say that I would probably like to have an 
individual conversation with you because I think there are 
questions out there that we just have a hard time answering. 
For 16 years, I taught high school economics. I never fessed up 
to being an economist, Mr. Steinfeld, but----
    Mr. Steinfeld. Doctor.
    Mr. Hastert. Dr. Steinfeld, that is right. I never fessed 
up to be a doctor either. I got five honorary doctorates, but 
anyway, I did teach economics, and I taught 16 years old 
economics. I had to bring it down to a level where 16 year olds 
could understand it. And if we are going to bring this thing 
down to a level, I guess it would be like all the world players 
sitting around this big poker table, and somebody had to ante 
up. And who is the first guy to ante up? And every time we had 
to ante up, and I just heard the testimonies of some of the 
questions I wrote down. And my question is do these costs get 
passed on to the consumer? And what is your safety level to 
deal with China? What if the U.S. changed the numbers, and we 
stepped up first? Is there any guarantee that China or India or 
anybody else is going to ante up too?
    And the fact is when you ante up, it may cost you jobs. It 
may cost the ability for you to manufacture up in the Northwest 
where you are being challenged already. It may cost your 
consumers more. You go to the Dollar Store. My people go to the 
Dollar Store. Probably a lot of things made at the Dollar Store 
aren't made in this country, but the few things that are made 
in this country, whether it is toothpaste or soap or whatever, 
then all of a sudden we are challenged and our products go up 
to be a $1.15 so they don't qualify for the Dollar Store 
anymore. And foreign products are under that level.
    What happens to your jobs? Our jobs go offshore. They go 
some place else. And how do you persuade--and this is an 
esoteric question--how do you persuade, as Mr. Chaudhuri was 
talking about--a country that has 300 million people in 
absolute poverty that earn a dollar a day, to all of a sudden 
use sophisticated technologies when they are just trying to get 
over the lip of existence?
    And this is the real issues, and I am a market guy too, a 
very free market guy. Always have been. That is where my goals 
are. That is where my legislation has been, and I think that is 
where I would like to pass on a legacy. But the fact is can you 
do this with free-market incentives, or do you have to overlay 
a huge international goal?
     I have dealt with the Chinese over the years and tried to 
talk about ideas of intellectual property. It takes a long time 
to get that done. Transparency. There is always a lot of good 
intentions, but intentions never really translate into product, 
and so I am just asking you how do you do this? I only have 
about a minute and 45 seconds left, so each of you can give me 
a concise, maybe 20-second answer. Mr. Steinfeld, if you can 
squeeze economics into that, what would you say?
    Mr. Steinfeld. Thank you very much for your question.
    Mr. Hastert. That took up 5 seconds, sir.
    Mr. Steinfeld. The first point I would raise is that in the 
last 15 years, Chinese reformers at various levels of the 
system have passed on a variety of costs to their populations. 
The populations have endured a variety of costs on the 
environmental side, on the social equity side, on the 
employment side. And some of those costs have been generated 
simply by growth itself. Some have been generated by China's 
joining things like the WTO. So the notion of China, as a 
system, accepting costs has a certain historical record.
    Then the question is well, why would they do it on carbon? 
Part of the answer there has to do with the idea that China, 
like any economy, is a complicated one. It has producers as 
well as consumers, citizens as well as corporate players. And a 
number of the corporate players have a particularly privileged 
voice in the Government and some of them view carbon 
constraints or other market-focus regulatory interventions as a 
commercial opportunity, particularly if it involves exporting 
and global leadership.
    Mr. Hastert. Ms. Petsonk.
    Ms. Petsonk. I want to pick up on that theme of commercial 
opportunity and give one example. In India and in a number of 
other very poor countries, some of the most popular carbon 
emission reduction projects that are being done for credit now 
are supplying the poorest people with more efficient cook 
stoves to use in their houses so they don't have to cut down as 
many trees. They don't have to breathe as much pollution. These 
stoves are very cheap. The poor people can't afford to buy 
them.
    Microlending carbon banks are essentially loaning the money 
to these very poor people, allowing them to use these very 
efficient cook stoves. It doesn't have to be a fancy technology 
to get very nice emission reductions out of it. And the 
emission credits then can be sold to pay off the loan, maybe 
even with some profit back to the poor people and their village 
so that they can begin to climb up that economic ladder.
    The carbon market, if you create it, can deliver those 
kinds of incentives across poor economies as well as wealthier 
economies very broadly.
    Mr. Hastert. Thank you. And I just want to say in 
conclusion--I know I am over my time--make sure the first guys 
that ante up aren't in the game by themselves. I guess that is 
the process. That is the question, and that is the challenge 
that we have. Thank you.
    Mr. Boucher. Thank you very much, Mr. Hastert, for a very 
thought-provoking series of questions and answers. The 
gentleman from Michigan, the chairman of the full committee, 
Mr. Dingell, is recognized for 5 minutes.
    Mr. Dingell. Mr. Chairman, I thank you. This to Dr. 
Steinfeld. When I was a young fellow, I went to Kyoto, to the 
treaty signing, and we had a big meeting with the Chinese, and 
I said now, are you going to be bound by this? And the Chinese 
said no, we are not. I said well, why are you not going to be 
bound? They said because we are a developing country. I said 
how long is China going to be a developing country? They said 
we are always going to be a developing country. I said that 
means that you are not going to be bound by Kyoto, and you are 
not going to contribute. They said that is right.
    So this again to Dr. Steinfeld. Do you agree with Ms. 
Petsonk and Mr. Stephens that legislation should include 
incentives to ensure that other countries do their fair share 
or suffer their consequence in terms of access to U.S. markets?
    Mr. Steinfeld. I do believe incentives should be included 
in legislation. I will mention that in the WTO story, Chinese 
negotiators also, for 13 years, maintained the position that 
China, as a developing country, should not be held to specific 
standards and they----
    Mr. Dingell. I want to hear more, but I have got a bunch of 
questions that I have got to ask, and I do apologize. Now, Ms. 
Petsonk, this question. Your recommendation about what Congress 
should require, in carbon market access agreements with other 
nations, as a condition for access to our markets is 
intriguing. But I am not clear how this would work; although, I 
happen to very much favor the idea. What would induce other 
countries to sign such agreements? Why do you believe that 
placing conditions on access to U.S. carbon markets provides 
sufficient leverage to induce others to adopt emission caps?
    Ms. Petsonk. First, the size of America's carbon market. 
Some people look at our economy and see very nice emission 
reduction opportunities in many, many places. Other countries 
will want access to that carbon market to try and sell us the 
technologies that they produce, just as we will want our 
technologies to come into that market.
    But second, they will want to sell us emission reduction 
credits that they may be able to earn where it may be able 
cheaper to reduce emissions overseas than it is to reduce 
emissions at home. They will want to sign up to those 
agreements if Congress directs the executive branch to 
negotiate those agreements.
    In my view, the problem with Kyoto was that the resolution 
that so many folks have referred to came too late. Congress 
needs to instruct the executive branch, here are the objectives 
these carbon market access agreements need to reach, and we are 
going to hold you to it.
    Mr. Dingell. I recall, though, the thing that was very 
clear to me was that we would be buying carbon credits from 
places like the former Soviet Union, from China, and they would 
just keep selling these credits to us and manufacturing new 
opportunities for us to buy without conferring any significant 
benefits in terms of reduction of carbon emissions. That is 
obviously something we have got to be very careful of, is it 
not?
    Ms. Petsonk. Exactly, and it is a major flaw in the 
existing framework. The existing framework awards you a carbon 
credit if you reduce emissions below what you would have done 
anyway. Well, let me tell you. If you ask me, Annie, sorry, Ms. 
Petsonk, how many slices of cheesecake were you going to eat 
next week anyway because if you eat less than that, I will give 
you some cheesecake credits that you can sell to somebody else, 
I am going to tell you that I was planning to eat cheesecake 
every day three times a day.
    Those kinds of credits don't produce a real environmental 
benefits, and that is why we favor Congress directing the 
executive branch to negotiate in these carbon market access 
agreements real baselines that hold countries to an absolute 
level of reductions.
    Mr. Dingell. Thank you, ma'am. Now, this question to Dr. 
Pershing. Do you agree with Ms. Petsonk and Mr. Stephens that 
Congress can induce other nations to limit their emissions 
through legislation requiring such action as a precondition for 
access to United States markets?
    Mr. Pershing. I think you could. I am not sure it would be 
so straightforward. The thing you need to focus on really quite 
explicitly is what the rules would look like. At the moment, if 
you take a look at what it would mean to, say, follow a 
structure such as AES's outline, it would require that we have 
full information about how much carbon is in every commodity. 
And we might want to think about where the commodity came from 
and its life-cycle chain.
    So I have an import from aluminum that comes from alumina 
that was smelted in Australia that went into a can that went to 
Japan that went into a product that went to Russia, and then it 
comes back to the U.S. What share am I going to go for? The 
aluminum share from Australia which I am OK with, or the share 
from China which I am worried about. Those kinds of rule-making 
processes will be difficult.
    Mr. Dingell. Now, this to Mr. Holzschuh. Do you agree with 
Dr. Steinfeld's assertion that with respect to emission 
limitations, China's ability to enter into international 
agreements would be on a primarily aspirational basis?
    Mr. Holzschuh. Yes, I stated that I think their enforcement 
and regulatory actions would clearly lag any policy statement 
that they would make. I would just make one other point on this 
issue, which is from the private sector, and Mr. Stephens 
mentioned this, that there are trillions of dollars that need 
to be committed now for us to build the next generation of 
energy in this country, security, things that go with it.
    The difficulty for the executives who are trying to make 
those decisions is the lack of rules or the perception that the 
rules would change midstream. So the off-ramp is particularly 
troubling in that regard, and that is going to be true--China 
has to invest now no matter what. We are trying to make 
business decisions based on shareholders and other things, and 
it is very difficult.
    Mr. Dingell. I agree with you on that point. As my own 
daddy used to say, trust everybody but cut the cards. Thank 
you, Mr. Chairman.
    Mr. Boucher. Thank you very much, Mr. Dingell. I can't see 
whether Mr. Barton is here or not. He is here. The gentleman 
from Texas, Mr. Barton, is recognized for 5 minutes.
    Mr. Barton. If it is a climate change here now, can I not 
be here?
    Mr. Boucher. I knew you were here.
    Mr. Barton. This is actually enjoyable to for me. Shows how 
twisted I am sometimes. I want to thank you, Mr. Chaudhuri, for 
your quote that the ultimate polluter is poverty. I wish we had 
the ability to put that up at all these hearings. Do you agree 
with me that where China and India and the developing world are 
today in terms of their electrification programs, there are 
many similarities to where the United States was in the 1930's 
when we had the TVA Project, the Bonneville Project, and the 
Rural Electrification Administration?
    Mr. Chaudhuri. I think we are actually still far behind 
what the United States was in the 1930's. I think we would be 
looking more at something in the 19th century to see where 
exactly we are in terms of electrification.
    Mr. Barton. But what do you think our political process 
would have--where would Franklin Delano Roosevelt responded if 
the British and the French and the Germans and the Russians in 
the 1930's had somehow tried to co-op us and prevent us from 
electrifying our country in the same of some social 
environmental benefit in the future? How do you think our 
political process would have responded?
    Mr. Chaudhuri. World War II might have been fought on very 
different lines. I think that for an Indian politician, it 
would be suicidal. I should point out that in India, when we go 
to general elections, 50 percent of our members of Parliament 
are tossed out of their seats every election. Antion Compency 
is the single most powerful political force in India.
    Mr. Barton. We felt a little bit of that in this last 
election.
    Mr. Chaudhuri. Indian politicians are terrified of their 
voters because Indian voters are extremely unwilling to listen 
to politicians, especially those who argue something on the 
lines that you are saying that you should take a drop in your 
living standards or even your potential living standards at a 
time when I said 700 million of them are living on $2 a day.
    Mr. Barton. Dr. Steinfeld, your group has just put out a 
paper on coal use recently that has received quite a bit of 
play in the media. I think it is very thoughtful. In order for 
us to get the Chinese and the Indians to adopt some of our 
cleaner technology, I would assume you agree, since you, I 
believe, stated this in your work, that we have to get the cost 
of that down to where it is at least approximately equal to the 
current technology that they are using right now that is not as 
clean. Do you agree with that?
    Mr. Steinfeld. I am not sure that is exactly the point in 
the study. There are tradeoffs that some players in the Chinese 
system seem to be prepared to make for more expensive 
technologies that happen to be cleaner, particularly in certain 
parts of China. The per capita in Shanghai is around the level 
of Portugal, whereas the per capita income of the whole country 
is obviously much lower, maybe $1000 U.S. in many parts of 
China. So in the wealthier areas, there is some willingness to 
trade off.
    Mr. Barton. But if we were to adopt some international 
protocol where the United States would commit itself to making 
our technology available at equal or less cost and subsidize in 
that in some way, that might encourage some of these developing 
nations to use the cleaner technology. If we can get an 
environmental benefit and make it cost effective, then there is 
no reason for them not to use it.
    Mr. Steinfeld. It is conceivable.
    Mr. Barton. OK, Mr. Stephens, you represent the forest 
products industry. Do you think that some of our land use 
programs and carbon seek programs, reforestry programs, do you 
think they could be large enough to actually have an impact? 
Because they certainly could be cost effective in terms of 
doing things to lessen the overall effect of carbon.
    Mr. Stephens. Yes, and I tried to address that in my 
comments. Certainly if we can stop burning the forest down, 
that is a great first step to taking CO\2\ out. And then if we 
can convert biomass into energy--and we do know how to do 
that--I think the science would indicate that wood is pretty 
much carbon neutral.
    Mr. Barton. So those are some programs that actually are 
cost effective and we could adopt and implement immediately?
    Mr. Stephens. Yes, in the bill that you sponsored in 2005, 
I think there is a lot in that bill that would be very helpful 
and not in conflict with what is being discussed today.
    Mr. Barton. With that answer, Mr. Chairman, I am going to 
yield back.
    Mr. Boucher. Thank you very much, Mr. Barton. The 
gentlelady from California, Ms. Harman, is recognized for 5 
minutes.
    Ms. Harman. Thank you, Mr. Chairman. I think this hearing 
is fascinating, and the witnesses have all given us some bold, 
clear ideas, which certainly was my exhortation at the front 
end. I also am impressed that Members on a bipartisan basis are 
very much engaged in seeing if we can figure some of this out, 
and I surely hope that we will be able to do that.
    In my opening comments, I said that we were in a diplomacy 
deficit in the world at the moment. This wasn't limited to 
environmental or energy issues, but I said that we have 
considerable soft power, partly as a result of our robust 
economy, to re-engage the world on these issues. Obviously we 
need a worldwide solution. None of you would disagree with 
that.
    I just wonder if you agree with me that we can overcome our 
diplomacy deficit with our soft economic power if we can figure 
out the right way forward. Does anyone disagree with that? Yes?
    Mr. Pershing. Thank you very much. I think you can overcome 
a great deal of it but not all of it. There is a formal process 
which I think will ultimately be needed, and we need to have 
the formal diplomatic channels that we also use.
    Ms. Harman. I surely agree with that. Does anyone disagree 
with that? Ms. Petsonk?
    Ms. Petsonk. I don't disagree with it. I think that the 
single most important step in this area that the United States 
could take to rectify the diplomacy deficit is to enact a 
clear, enforceable mandatory cap and trade program here.
    Ms. Harman. I heard you on that, and I support that. I know 
that some members on this committee don't, but I support that. 
But we have to get it right. Doing something may not achieve 
anything. I have heard you all say that. OK, changing the 
subject slightly.
    When Vice President Gore was before us last week, he made a 
number of suggestions. One of which was--and I am quoting from 
my notes--that carbon pollution should be priced into the 
economy, not be an externality. Now, obviously if there is a 
market base to cap and trade system, carbon gets a price. But I 
am wondering what you think of this suggestion that Gore made, 
and he was talking about the U.S. economy, but I am also 
wondering whether you think this has some legs for more of an 
international focus.
    Mr. Pershing. It seems to me the answer is yes, and you can 
do it in two ways. The first way is you can create the market 
by countries that want to have the market. The U.S., Europe 
already doing it. My sense is that will create an implicit 
market price for anyone that trades with us. You do not need 
all countries to be in the market to create a global price.
    Ms. Harman. Other comments?
    Mr. Holzschuh. I would just say quickly that any time there 
is not a price on such an issue that is this complex, it seems 
to me that the bid and the ask from a market perspective is so 
wide, it is very difficult to create that market. And so when 
there is an assumption of price, whether it is mandated, open 
market, whatever the mechanism is, my guess is this debate will 
move much more rapidly.
    Mr. Stephens. If I could just comment, I think capital is 
an integral part of solving a problem. It is going to take an 
enormous amount of capital on a worldwide basis to solve the 
problem. Capital is a coward. It runs away from uncertainty, 
and we need to be very clear, and there needs to be a 
reasonable chance to understand the consequences before capital 
is afforded.
    Ms. Harman. Anyone else? Well, I am not going to take all 
my time, Mr. Chairman, but we have a new chairman here. But I 
would just conclude with this. I mean I think you have to be an 
optimist to serve in Congress these days. It is a hardship post 
in both parties. So I am an optimist. I can see huge 
opportunities for U.S. businesses, and some of you have been 
suggesting this, by getting these technologies right and then 
exporting to the world market under a set of standards, 
guidelines, treaties, agreements, that would welcome U.S. 
exports.
    And I have seen that happen in many other industry sectors. 
My district is the aerospace center of California, and the 
export market is the critical part of the health, which we 
need, of our aerospace industry. So I can see this being a huge 
win. Does anyone disagree with that? Fine. Mr. Shadegg 
disagrees. Well, he will get his 5 minutes to rebut very 
shortly. I yield back, Mr. Chairman.
    Mr. Matheson [presiding]. Thank you. The Chair recognizes 
Mr. Upton for 8 minutes.
    Mr. Upton. Well, thank you, Mr. Chairman. I don't know if I 
will use all my 8 minutes. I just want to say that I am an 
optimist too. Maybe that is why I am a Cubs fan, and it is 
preseason, and we have already lost our two starting pitchers 
before the first pitch is thrown.
    But I have to say the international cooperation element of 
this issue is certainly the most complex. That is very clear. 
Dr. Pershing, you made the comment in your testimony that the 
top 15 emitters equal 80 percent of the world's output. We 
know, Mr. Chaudhuri, that India by the year 2020 will equal the 
coal consumption in this country, in the United States. And it 
is headlines like this front page of yesterday's Washington 
Times, China on the brink as the No. 1 polluter. We knew that 
already as well, but there it is for everyone to see.
    And when we go along with the other comments, and, Mr. 
Chaudhuri, you were talking to us about the level of acceptance 
of change by the Indian parliamentarians, by the members of 
Parliament. Dr. Steinfeld, your comment that the Chinese allow 
these two new coal plants to be built virtually every week 
without any rhyme or reason perhaps in terms of regulations in 
terms of emissions. We look at the hard evidence. Mr. 
Holzschuh, when you indicated that instead of, in China, the 
SO\2\ emissions, instead of a reduction of by 10 percent, in 
fact, they went up by 27 percent, so a 37 percent swing.
    And when we think about the test vote that they had on 
Kyoto back in the 1990's when President Clinton was in office, 
it was unanimous of those that were voting because China and 
India were not part of the agreement. And Brazil and Mexico 
weren't part of it either. And that is what gives us all real 
pause in terms of how we are going to go. And I think Chairman 
Boucher made the very accurate point that, in fact, if we do 
embark on something like this, we have got to have an exit ramp 
because we don't want to lose all that we have here and have it 
go overseas with the lack of controls that folks over there 
have.
    Ms. Petsonk, you talked a little bit about having a WTO 
structure. Congressman Hastert talked a little bit about some 
of the problems we have had dealing with the Chinese on a host 
of issues, particularly on intellectual property and 
copyrights. Being able to see a movie the first day that you 
are there before it is almost even out here. I mean a whole 
number of different products that are built there and avoiding 
all of that copyright protection.
    So if we in the Congress begin to look at something, a cap 
and trade, whatever it might be, how is it that we can craft 
something? What ideas do you have specifically that we can in 
fact not only engage these other countries, but actually see 
them follow through with this, what President Reagan said: 
trust but verify. Dr. Pershing?
    Mr. Pershing. Thanks very much. I think that is exactly the 
question, and I think there are not easy answers. But here are 
a couple of thoughts you might think about. The first one is 
that there is, as Annie Petsonk has noted, this issue of the 
price incentive. Let us put that aside for a minute. I think 
you are all considering that. And look at a couple of others 
that might be less immediately----
    Mr. Upton. Well, your example, or someone gave the example 
about the aluminum can. I mean how in the world do we figure 
something like that out?
    Mr. Pershing. There are ways you could figure it out. There 
is a process you could go through. It would take a little 
while. You could make it happen.
    I want to come to two other points that you might 
contemplate as part of your decision-making process. The first 
one is that if you set a price and require countries to do it, 
it requires they have got a domestic commitment already. We 
don't see that from very many places. We are seeing it 
increasing. We don't yet see it adequate to make a constructor 
that we would like to see.
    We do clearly however see very high interest in some other 
things that would make a lot of sense. Energy security debate, 
perhaps, is the paramount one. We share that interest with 
China. We can have a cooperative discussion with them. They are 
importing oil from equally insecure places. That is part of the 
reason that they have driven to have a domestic program on 
automobile efficiency. That is why we are thinking about it. It 
has consistent and competent questions that we can manage 
jointly, which would lead to serious reductions. We should take 
advantage of those as well as this larger carbon price 
discussion.
    Mr. Upton. Mr. Holzschuh.
    Mr. Holzschuh. Unfortunately, I leave the politics to 
someone else. What I would say is markets work here. We have 
seen in Europe the system work. We have seen it work here in 
SO\2\. I think if there is a trading mechanism that can have 
some market-based parameters for which to operate, it will 
stumble at times, but it will work. And I think that it is a 
trust to get the market started, but there is a bunch of 
entrepreneurs, a bunch of people who are willing to commit 
capital around the globe to make it work. And there will be 
enforcers just like the politicians.
    Mr. Upton. Ms. Petsonk.
    Ms. Petsonk. I think that point of Mr. Holzschuh's is very 
important. By creating a cap and trade market, you create 
constituencies of people who want to reduce emissions because 
that creates more markets for their technologies, and also want 
to be sure that the next guy isn't cheating on their emissions 
report.
    Mr. Upton. But how do you do that with China building two 
new coal plants every week?
    Ms. Petsonk. For much of the infrastructure, I believe, and 
I would be interested to hear Dr. Steinfeld's comments on this 
as well. For a lot of the power plants that are currently being 
built in China, the design plans for those are set. That is not 
to say though that there are not very good opportunities to 
come into those plants and improve their efficiency if it can 
be done cost effectively. Having a carbon market price signal 
would make that cost effective, and it would also give actually 
a price signal for innovations in other parts of China's 
economy.
    For example, we have talked a little bit about trees and 
forests. Representative Barton actually asked about land use 
practices that can improve the growing of trees and store more 
carbon in the soil. Those are two things that China is very 
interested in. They have lost a lot of trees. They are now 
embarked on a major program to try to plant and protect trees 
because it is so important for the local environment and local 
communities. And the same in agriculture. They have got to 
improve their agricultural productivity, and they can do that 
by saving more carbon in the soil.
    Mr. Upton. Let me just go to the last minute to Dr. 
Steinfeld, knowing I want him to wear his political science hat 
as well. Well, no, I think he is a political scientist too, 
right? All right, wear them both. How do we get through to the 
Chinese Government? I mean what is your assumptions in terms of 
what may or may not happen?
    Mr. Steinfeld. Over the last decade and a half, generally 
speaking, the way change has happened in China is that in this 
sort of archaic political process, political constituencies 
inside the country arise in a poorly regulated environment. The 
government generally then binds itself to some kind of external 
international agreement to support those constituencies, and 
that international agreement is used as a club to beat away the 
former incumbent constituencies that are there.
    I personally am also a believer in markets and in civil 
society, and I think both of those are viable avenues in China 
and probably the most likely avenues for change that will have 
to in some senses lead the bilateral discussion that goes on. 
So when I am in China, the particularly privileged voice that I 
see operating in that system actually is international capital, 
and that the Morgan Stanleys of the world, the Goldman Sachs of 
the world actually carry a lot of weight. And when markets are 
created and prices are set, I think some of those actors can 
play an incredibly powerful role, an influential role, as with 
environmental and civil society type organizations.
    Mr. Upton. Yield back. My time has expired.
    Mr. Matheson. The Chair recognizes the gentlewoman from 
Oregon, Ms. Hooley, for 8 minutes.
    Ms. Hooley. Thank you, Mr. Chairman, and thanks to all of 
the panelists, and my apologies that I had to leave for a 
while. I had another committee hearing going on at the same 
time.
    Mr. Stephens, thank you for being here and testifying 
today. We have had some companies come in and say this is not 
going to work. We don't really have global climate change. If 
we did a cap and trade system for greenhouse emissions, we 
would go broke. It is not going to work. So what, first of all, 
brought you to the conclusion that Boise Cascade would embrace 
this approach, and you think your company can remain 
competitive under such a system?
    Mr. Stephens. Well, the reason is very simple. I was asked 
by three important stakeholders Boise Cascade, what do you 
stand for? What are your principles with respect to climate 
change? Those three stakeholders were my customers who said if 
we are going to buy your product, tell us about your 
principles. My employees say Tom, what do we stand for? And 
finally, my grandchildren said Papa, what do you stand for? So 
I decided to show up.
    Ms. Hooley. I am going to ask you a couple other questions, 
then I have a question for the whole panel. Right now, we have 
some States enacting some provisions and other States not. I 
know you operate in many States. How much more difficult is it 
for you to deal with the different standards in different 
States versus having some kind of a national standard, or does 
that really make any difference to you?
    Mr. Stephens. It does make a difference. As an example, the 
laws and regulations in Oregon are fundamentally different than 
Washington when it comes to biomass and using spent black 
liquor to generate energy in the paper business. That is very 
confusing, and frankly we have not made some capital decisions 
to use biomass and to move away from other fuels because of 
uncertainty about what are the rules going to be.
    To build a boiler may take me 5 years from engineering to 
installation and startup. It is a long lead time. We are trying 
to anticipate, at this point, what the rules we are going to be 
accountable for are going to be, and they are very different 
across the country.
    Ms. Hooley. And I am interested in biomass. Can you tell me 
what changes in regard to biomass, if any, you would recommend 
to Congress as it relates to the development of the use as an 
energy resource?
    Mr. Stephens. Well, first of all, don't discourage its use. 
As I indicated a while ago, in some States, it is not 
considered a renewable energy source. So clear up the science. 
Make sure we recognize it for what it is.
    Ms. Hooley. OK, and then a question that I have for all the 
panelists. If we went with a cap and trade system, how 
important is it that we lead the way, or does it have to happen 
internationally, or can it happen with our leading the way and 
then trying to, as we figure out how to do this, then working 
with other countries to make sure that they are also doing it? 
I am going to start at that end.
    Mr. Pershing. Thanks very much. I think the answer is we 
would not be leading the way. We are already a follower. There 
is already a market. It is worth about $25 billion. The market 
is part that U.S. companies already play in. They have already 
seen the price in the international context of their 
investments. However, that market doesn't work as well as it 
could. We could make it better. We could make it bigger, and if 
we did that, we would have an enormous impact both on the 
problem and on the way our international systems and our 
international companies can play.
    Ms. Hooley. OK.
    Mr. Holzschuh. I concur. Any market that we have 
established, and there are so many commodity markets that have 
been established in the last 20 years, have taken an incredible 
amount of innovation and technology to get started. What we are 
not seeing is that investment now in that technology, and if 
you are building a plant a week, all the technology is going 
over there. I am very concerned that China will beat us to 
clean coal technology. They will beat us to some of the things 
that, I think, to the extent we had an open market, those 
dollars would be spent here.
    Ms. Hooley. Yes?
    Ms. Petsonk. I agree with the previous speakers.
    Ms. Hooley. OK.
    Mr. Stephens. I agree.
    Mr. Steinfeld. I would just add it is the ambition of some 
Chinese industrial policy makers to ensure that China 
geographically is the locus for introduction of new-to-the-
world technologies, whether it is by foreign companies or 
hopefully for them, by Chinese domestic companies. And some of 
those policy makers see energy as an area where that is going 
to happen, particularly nuclear now, but also renewables and 
clean coal technologies.
    Mr. Chaudhuri. I can't actually speak for the Indian 
government, but I would say that India has no problems with 
carbon trading, whereas I suspect they would fight very 
strongly against anything that brings in a cap on India.
    Ms. Hooley. Another question for all of the panelists. I 
mean we are here to try to make decisions about climate change, 
what are we going to do. If there was one thing you could 
recommend, what would it be? What is the one thing we could do 
that would make a difference?
    Mr. Pershing. Establish a price for greenhouse gases.
    Ms. Hooley. OK.
    Mr. Holzschuh. Create a capital pool to finance the initial 
infrastructure investment in these clean technologies in the 
U.S.
    Ms. Hooley. OK.
    Ms. Petsonk. Establish our carbon market with the way that 
encourages other countries to dock into it and do so quickly.
    Ms. Hooley. OK.
    Mr. Stephens. Realize that we are not going to get it right 
the first time. Probably what comes out of Congress will be 
called the first mistake. There will be a second mistake and a 
third mistake. So it has got to evolve over time. It is really 
tough.
    Ms. Hooley. Thank you.
    Mr. Steinfeld. I will simply express the conclusion from 
the MIT future of coal study. One tangible first step would 
involve demonstration projects of carbon capture and 
sequestration in the United States.
    Ms. Hooley. OK, thank you.
    Mr. Chaudhuri. Find ways and innovative ways to spread 
things like the clean development mechanism and clean 
technologies into the developing countries, but again I would 
say without bringing in carbon emission limits.
    Ms. Hooley. I thank our panelists. You have done a great 
job. Thank you.
    Mr. Matheson. The Chair recognizes Mr. Shimkus for 5 
minutes.
    Mr. Shimkus. Thank you, Mr. Chairman. One thing I like 
about hearings is that you really do get a lot of good 
information. I would encourage those who are in the DC area 
normally come by, as I think Speaker Hastert said, and visit 
with me. I am a skeptic. I can tell you about my regional 
criteria, but it would give us more of a time to be able to 
visit, and I can tell you where my skepticism comes from.
    And so I have a few questions I want to get asked, and then 
if I have time, I may go off on some of the great phrases today 
from the panel. Mr. Steinfeld, I noted in your report, or your 
co-author, the central government officials in China 
acknowledge of the 440,000 megawatt equivalents of generating 
capacity in place at the beginning of 2005, there was about a 
110,000 megawatt of illegal power plants, which never receive 
construction approval by the responsible central government 
agency. Is this a common trend with expansion of power 
generation in China?
    Mr. Steinfeld. Yes, it is.
    Mr. Shimkus. So can we conclude that China has a coherent 
national policy for construction of new power plants?
    Mr. Steinfeld. No.
    Mr. Shimkus. No, good. What would this say to the 
possibility of China contributing in the carbon dioxide 
reduction program?
    Mr. Steinfeld. That is much harder to say since the 
ambition of many policy makers is to move toward a more 
coherent policy, as is true----
    Mr. Shimkus. But the facts of the expansion of generation, 
if the central government is not involved in the citing of 
these plants, that would make it very difficult?
    Mr. Steinfeld. Yes, difficult.
    Mr. Shimkus. At what rate is expansion of coal-fired plants 
happening in China to your best estimate?
    Mr. Steinfeld. Well, the latest numbers released for 2006 
surprised everybody. 102 gigawatts in small capacity was added.
    Mr. Shimkus. We hear reports that a new plant goes up every 
week, and we have mentioned this before. And we can safely 
assume that then, correct? Mr. Chaudhuri, during the first 
hearing on climate change, we learned the German perspective of 
a cap and trade program. It seems coal use is coming back there 
mostly because imported natural gas is so expensive, and that 
is a concern of this nation with our high natural gas prices. 
Is this similar to what is going on in India? And let me just 
follow up. Do you see coal as remaining an inexpensive dominant 
source of power in India?
    Mr. Chaudhuri. Yes, we are already 50 percent coal, and it 
is likely that will, in fact, expand over time. India, like 
most countries, looking at the energy security side, wants to 
reduce its dependence on petrol chemicals because we import all 
of our gas and petrol, virtually 80 percent of it. We have 
large amounts of coal, which we do not tap in any really large 
manner because of the inefficiency of the nationalized coal 
sector. And so coal will almost certainly be king in India and 
will probably expand its role over time.
    Mr. Shimkus. Yes, and that is great. And I want to follow 
up because you mentioned petrol chemicals, and one of my 
obviously favorite subjects is the coal-to-liquid technologies 
and applications. It really is part of this debate, the 
question is India pursuing that? I know China is.
    Mr. Chaudhuri. Yes, I think we have an agreement with South 
Africa, which is one of the world leaders in that technology, 
on working on that. The real problem in India is that, as I 
said, the coal industry has been nationalized for almost 40, 50 
years and therefore is stuck in a rut. And privatization of 
that really is the first step towards it.
    Mr. Shimkus. Great, thank you. And I know China is also, 
and here we are talking about electricity generation. But we 
are talking about fuel use, energy security, big issue here. 
There will be folks in Washington that will not want to accept 
the decrease of imported crude oil by moving to coal liquid 
because of this carbon dioxide issue.
    And I want to read some of these quotes. I thought they 
came through sitting through here the whole time. ``The 
ultimate polluter is poverty.'' Key. ``Capital is a coward.'' I 
agree. I am going to use that. ``The trillions of dollar off-
ramp is particularly troubling.'' That is the amount of--my 
quote that I have been using a lot: the Federal Government 
always over promises and underdelivers.
    So be careful how we in the authorizing committees move a 
bill with the promises of research and development, money being 
paid out, taxes raised to do that, because we won't be there in 
the end. And then what does that do to the capital markets? I 
know what it does because we are dealing with the expansion of 
nuclear power. We are dealing with coal-to-liquid technologies. 
We are dealing with all the aspects that you deal with. I do 
appreciate this panel, and I would encourage you to come visit 
with me. Thank you, Mr. Chairman, I yield back.
    Mr. Boucher [presiding]. OK, thank you. And the Chair will 
recognize himself for 5 minutes. Dr. Pershing, you propose 
several policy solutions in your testimony including rebates 
for some of the proceeds from a trading system to offset 
exporters who are at a competitive disadvantage or allocating 
allowances in a manner that reduces liability. In your opinion, 
what is the best way to level the playing field for various 
U.S. businesses or industrial sectors?
    Mr. Pershing. There are two parts to the question. The 
first one is if you design a domestic system, what would you 
do? The second is as you think about the international linkages 
the domestic system might create, what would you do? And there 
might be slightly different solutions for each of those two 
problems.
    On the domestic side, I think you have a number of 
different choices. The allocation question, I think, is 
certainly one option. My own sense about it, however, is that 
you need to be very careful as you do that because when you do 
allocations to some, you therefore deny it to others, and that 
makes it enormously difficult.
    Congress however is quite good at dealing with financial 
issues and deciding how best to allocate resources. And so if 
you have an auction program in which you auction out your 
permits, you create a set of revenues which you could then 
redistribute to those who are affected or to, in an equitable 
even way, using decision-making processes we have already got.
    On the international side, it is slightly more difficult. 
There the question is going to be who is at risk because of 
competition from overseas, and how do you manage that? There 
are a number of different ways. There are options that could 
deal again with allocation. You allocate more permits to those 
who are at risk.
    There are options that deal with how you deal with the 
financial flows, put it back into those. There are options that 
deal with additional outside the carbon mechanism, other 
benefits like reduced depreciation on things like technology 
development that could bring the long-term cost down.
    So there are many different solutions you could address 
that would exactly solve your problem.
    Mr. Boucher. I appreciate that. Mr. Holzschuh, in your work 
at Morgan Stanley, you note that your commodities trading 
division in Europe has been actively trading carbon allowances. 
If Congress were to choose to go with the trading system, how 
would you suggest that the system be designed in the U.S. to 
improve upon the experience in Europe? How would you structure 
it? What are your thoughts on that?
    Mr. Holzschuh. Well, I would put it in the same box, I 
think, as Mr. Stephens did, which is it was their first try. It 
was a pilot. They are going to revise it this go-round. It was 
restricted primarily to the generators of power in the European 
Union. I think it needs to be broader than that. Has to address 
some other industries.
    To address one of the issues that you just asked of Dr. 
Pershing, it is not going to work globally if we pick industry 
by industry and put all of the burden, for example, on the 
power generators when they are only 40 percent of the emitters. 
We are going to have to spread that out. I think the allocation 
process is difficult. I think there probably should be a 
mixture of allocation and auction, and there may be tax that 
goes with it, maybe all three.
    I think the one piece that probably didn't get enough time 
today that I would just say to you is the investment has to be 
now. It takes 3 to 5 years to build a power plant. We don't 
even have the technology yet on clean coal. We don't have the 
technology on some of the bigger issues. That is something I 
think you could do now, to put some money forth to move those 
technologies, move the formation of a market, and maybe it is a 
test period before it goes live.
    Mr. Boucher. Mr. Chaudhuri, you mentioned that, in response 
to, I think, Congresswoman Hooley, that you would like to see a 
trading system without a cap. Is that correct?
    Mr. Chaudhuri. For India, yes.
    Mr. Chaudhuri. I would assume India would fight for that.
    Mr. Boucher. Can you tell me how, without a cap, how the 
trading system might help accomplish goals of reduction of 
greenhouse gas?
    Mr. Chaudhuri. Well, one of the means that could be done on 
a cap for a growing economy like India or China would be to 
link your cap to your growth rate. So in other words, if your 
economy is growing at 10 percent, your cap keeps rising at a 
certain level so that you essentially try to control that. We 
are part of the carbon trading, though we do it on a firm-to-
firm basis, which I think is something that still should be 
considered as a possibility in carbon trading.
    But basically I think the fundamental principle remains 
that if you are attempting to cap the economies of India and 
China, other than driving India and China closer together, 
which has so far been proved impossible, I would say that there 
will be extremely strong political resistance to the very idea 
that you are trying to restrain India's growth.
    India is one of the few countries in the world that has 
actually seen pro-American sentiment rise in the past 20 years. 
I think in one survey, we are third most pro-American country 
in Asia. You will probably lose a lot of that if you attempt to 
or seem to be trying to restrain India's growth.
    Mr. Boucher. OK, my time is just winding up, so I will 
yield back, and I next recognize Mr. Shadegg for, I believe, 8 
minutes.
    Mr. Shadegg. Thank you, Mr. Chairman, and I want to thank 
all of our witnesses. I would join in the request that any of 
you that have an interest come by and see me and talk about 
your specific concerns in this area. I serve with Mr. Walden on 
the select committee, and we have a lot of work cut out. I am a 
little saddened that today the select committee drew an entire 
cadre of press and accomplished nothing. And this committee has 
had great testimony from you and a great dialogue, and I 
daresay I don't see at least a single--well, there is one 
reporter in the back. We got a few. All right, they are over 
here. OK, great. Well, that room was chock full of cameras. 
Maybe that is the difference.
    I do appreciate all of your input on this topic, and I 
believe that it is at least nice that many of you acknowledged 
how difficult this job is because as I listen to you, I hear it 
as extremely difficult. I see a contrast between Mr. 
Chaudhuri's testimony, which I believe is the real challenge 
here. How, in fact, do we deal with this issue without being 
seen as having imposed the burden on developing nations or more 
importantly on the people in those nations who have every right 
to expect to move forward with their economic life and do well.
     I am going to focus a little bit of my questioning on that 
point, it is nice that we want to do the right thing. How then 
can you do the right thing? Mr. Chaudhuri, I heard testimony 
that just by having a big market, people would participate in 
it. Well, I am inclined to believe that prosperous nations 
might participate in a big market. Can you explain to me how 
you see India being drawn to a large market if the United 
States establishes a mandatory cap and trade program?
    Mr. Chaudhuri. Well, I think the crucial issue for India 
would be the private sector, how do the Indian corporations 
respond to the incentives within that market. I think that one 
of the key problems, and I suspect this is also true for China, 
is that a very large portion of our manufacturing sector is in 
the informal sector. In other words, it is outside the 
government's regulatory vein. I think almost 70 percent of our 
industrial labor force, and sort of a large number of companies 
and factories are simply just not recognized or not known to 
the government.
    These companies cannot participate in the market that you 
are talking about because they will be scared to get stuck in a 
tax net or a regulatory mess as a consequence. And this is 
going to be crucial because in many ways, they are the fastest 
growing segments of the manufacturing site.
    Another crucial problem is that 80 of our carbon emissions 
are linked to energy production, and I am not certain how a 
large number of electricity utilities and so on are going to be 
able to participate. In India, power is subsidized. Like 
kerosene, for example, is subsidized.
    On the other hand, there are huge taxes on petroleum far 
beyond anything that exists in the United States. And how 
exactly a lot of these institutions will be able to participate 
in a global market strikes me right now off the top of my head, 
I really don't know how they would do it.
    So a market would be good because a lot of the larger 
corporations--and that is good because that brings a lot of 
steel and coal industries into play--would be useful. And they 
could seen the benefits if the price incentives are strong 
enough.
    Mr. Shadegg. Mr. Steinfeld, hasn't he just described in 
similar terms the problems you described in China? That is that 
the government doesn't have control of what is going on even, 
for that matter, knowledge of what is going on with regard to a 
good portion of the economy that is producing greenhouse gases?
    Mr. Steinfeld. There are parallels.
    Mr. Shadegg. And your answer to that is that reform groups 
will come along and pressure the Chinese Government to take 
progressive steps?
    Mr. Steinfeld. Not just that, although that is going to be 
a key component. Reform in China has moved forward in fits and 
starts, by reform accelerates and the capacity of the 
government fails to--initially, it lags, fails to catch up. 
Then it catches up. We see that with property rights provisions 
today, we have seen it with some intellectual property rights 
issues, we have seen it with ownership distinctions. Then the 
economy surges forward again and we lose the capacity. It is a 
give and take kind of process.
    Mr. Shadegg. Mr. Stephens, I think you are being extremely 
charitable by acknowledging that we will get it wrong the first 
time, the second time, and the third time. I think I would get 
voted out of office the first time, and the chairman gets voted 
out of office the second time. And I don't know who is left for 
the third time.
    But I am worried about the employees of that mill that you 
discussed at the beginning of your testimony. Since 1997, 136 
pulp and paper mills have closed in the United States with a 
loss of, I am told, 85,000 jobs. And there have been an 
additional 60,000 jobs lost in the wood products industry since 
1997.
    And we heard just a few minutes ago from Mr. Holzschuh that 
in Europe, well, they got it wrong. But they are going to get 
it better this next time. They saw a 67 percent increase in 
electric prices in Europe after establishing their cap and 
trade system. Have you done an estimate of how many more pulp 
plants or how many more wood industry jobs would be lost if we 
make a mistake of that scope?
    Mr. Stephens. No, I haven't done that estimate, but I think 
it is interesting that for most of my 50 years I have been 
around this business, we were exporters. And today, we have 
become importers.
    Mr. Shadegg. And that troubles me very much as well. I have 
another question. I heard a great deal of frustration in your 
voice about not getting biomass right, not getting forest 
policy right, not being able to remove dead trees--big problem 
for us in Arizona--not being able to clean up the floor of the 
forest, new policies now say let forests burn because our 
artificially suppressing fires was a bad idea. But you point 
out in your testimony accurately that allowing for us to burn 
emits massive amounts of CO\2\.
    If we can't get forest policy right, I am concerned that we 
can't get these policies right. And I am concerned that we will 
lose a lot of American jobs in the interim. You have a plant in 
Brazil. I don't want to see more outsourcing of jobs to your 
Brazilian plant.
    You point out in your company's climate change principles 
that over the past 5 years, Boise Cascade has decreased your 
use of purchased fossil fuel paper in your paper mills by 28 
percent while increasing production by nearly 4 percent. That 
is a real step forward in terms of greenhouse gases. You did 
that voluntarily. If we had solid policy on biomass, you would 
be able to do better than that, I would bet, quite 
dramatically. Is that correct?
    Mr. Stephens. Well, the laws of physics do put certain 
limitations on conservation, but yes. But the reason we were 
able to accomplish that is our investors gave us capital. We 
put that capital to work in our mills, and it was an economy 
incentive for us to conserve energy because our cost went down. 
If we ever forget that, we are toast.
    Mr. Shadegg. Well, and I noted your comment earlier when 
you asked give one thing, it is come up with the capital to 
fund the start of this, and I agree with that. Your company's 
principles also state that you are concerned about not pushing 
the jobs offshore. Yet in your testimony, you say well, the way 
to deal with that is to simply stop market access. That is your 
written testimony says don't impose a tariff, as Vice President 
Gore talked about, but simply restrict access.
    I have two problems with that. I am concerned that creates 
a global trade war, No. 1. And second, I think there are smart 
businessmen in India who say fine, I can't sell direct to the 
United States. I will sell to England who will sell to the 
United States. Have you thought those two issues through?
    Mr. Stephens. As I have indicated, it is the Gordian Knot 
that has be to dealt with. It is a fundamental conflict in 
principles with me, but maybe I am just stupid. I haven't 
figured out an alternative.
    Mr. Shadegg. Well, fair enough. Fair answer. Thank you very 
much. Thank all of you.
    Mr. Boucher. Thank you. The Chair recognizes Mr. Inslee for 
8 minutes.
    Mr. Inslee. Thank you. Thanks for your help on this tough 
issue. Listening to you, I had two thoughts I wanted to mention 
before my question. First off, it seems to me if we are going 
to get the developing world to joint us in this quest, there is 
a really a fundamental fact that none of us have talked about 
today. We have had a good time engaging in the American sport 
of bashing China, which is always a good time, I suppose.
    But there is really an important fact that I think we ought 
to at least talk about a little bit this hearing. And that is 
that the per capita emissions of Americans and Chinese are 
radically different. I am looking at charts that are before me 
that shows that a typical citizen of China emits about four 
metric tons of carbon dioxide per year per person. And that is 
how I break it down. We are talking about people not just 
countries. And the average American does about six times that 
much, about 24 metric tons per person. India is about two and a 
half, maybe to three it looks like metric tons. We are about 
eight times that much, or about 24 metric tons per person.
    Now, the reason I note that is that when we go to China and 
India and chastise them for not being as morally pure as 
Americans, it seems to me they might say who are you to talk 
when you are emitting six to eight times as much per person as 
we are. And I think we have to think of a response to that if 
we are going to make any meaningful progress in this regard and 
how we respond to that sort of perception that they will have.
    I don't feel like I am wearing totally the moral white hat 
here telling the Chinese to stop doing any CO\2\ emissions when 
we are doing six times more than they are per person. It is 
difficult to wear the white hat in that circumstance frankly. 
So I think that is something we have to work through and have a 
strategy in that regard.
    The second thing I want to note is listening to you all, 
what I was struck by--and one of the reasons I do not agree 
with this sort of doomsday scenario that if the rest of the 
developing world doesn't follow up to the letter within the 
first 24 hours of us adopting this policy that we are just 
going to abandon our policy. I think that is a really bad 
mistake, and the reason is that the more I listen to you, the 
more it becomes apparent to me that the real goal of our 
domestic policy should be to drive technological development in 
America so we can sell it to India and so we can sell it to 
China.
    And that doomsday scenario would handicap and retard the 
development of these new technologies. I want to sell products 
made in Tacoma, Washington to China, one of which is a clean 
coal technology that allows us to compress CO\2\ at 30 or 40 
percent less cost and make clean coal. I want to sell that to 
China, and if we weaken our cap and trade system, if we shoot 
it in the foot by putting this sort, I will just call it the 
doomsday scenario that we don't play until China does, we will 
retard the ability of these companies to grow.
     Mr. Holzschuh indicated growing a capital pool for these 
companies is absolutely pivotal to the development of this 
export economy for the United States. That is why, if we are 
thinking, I would much rather think about requiring emissions 
price to be paid if some company does not ultimately become 
responsible in this regard.
    So first question. If we were to adopt some type of 
requirement at some point in the future that countries that do 
not do X, that they have to buy emissions credits to make up 
for the fact that their country did not participate. Let us 
assume that we can deal with the WTO issues, and we figure out 
when we should do that. What is the X? What should the X be? 
When we have a country that is one-sixth or one-eighth as we 
are per capita, what is the X? How should we think of that if 
we were to adopt that type of mechanism? That is an open 
question to any of you.
    Ms. Petsonk. It is exactly this kind of question we think 
merits a closer look. One proposal that is in the process of 
being developed is to look at as a gradual thing. I think you 
are exactly right, that countries are not going to spin on a 
dime and simply because we cap emissions, they are going to cap 
emissions.
    They will need time to put their caps in place. It may be 
that during that time period they could still do--you would let 
them come into our market with some carbon trading along the 
lines that Mr. Chaudhuri has talked about where they don't have 
a cap, but they do individual projects that reduce emissions. 
Those are useful projects, but the carbon credits from those 
don't trade at par in our market because the overall country 
doesn't have a cap.
    If over the time the country still refused to either accept 
a cap or reduce their total emissions, then you could look at 
carbon intensive goods from those countries that come into our 
market. If they come in made with a greater amount of carbon 
per kilowatt hour or per barrel of oil or per ton of cement or 
per ton of steel greater than a standard that we set as an 
efficient, reasonable standard, then what they would need to 
purchase in order to get their products into our market would 
be the delta, the difference, between what our standard is on a 
per-ton or whatever basis and how much it took to produce those 
products in their countries.
    Now, I am not saying that for sure that is the answer. I 
just want you to know that that is the kind of answer that some 
companies, multinationals with production facilities around the 
world, are thinking about. Is that helpful?
    Mr. Inslee. Yes.
    Mr. Pershing. I just want to say a couple of different 
things. We were responsible for the data in this particular 
chart, and I think it is extremely important to use this in 
thinking about the next steps. But I would note that this chart 
in some ways is a little bit misleading because what it 
represents is what the national average is. And the national 
average is not where productivity happens or emissions happen.
    And if I look, for example, at the case of China, Dr. 
Steinfeld talked briefly about this in terms of at the high 
end, it is Shanghai. Shanghai does not look like western China. 
At the high end in India, it doesn't look like the rest of 
India. It looks like where the center of populations are, where 
the significant growth is, where enormous capital resides.
    And one of the ways to think about it and what you do with 
these countries is not to so much think about what the average 
is, but think about what you are trying to control. You are 
trying to control the direction of future energy production. 
You are trying to incentivize the kind of investment that would 
make it lower cost and lower emissions based.
    And what you have got is amazingly large pools of capital 
globally that could move in. And if you create it from the 
other end, not the penalty, but the incentive, you may actually 
create the kind of advantages that you want to create.
    Mr. Inslee. Well, just the way I look at this is when I am 
thinking about how to move forward, I am going to judge these 
proposals on how they incentivize and create market 
opportunities for United States technology because I really 
believe that is the way the United States is going to lead the 
world to solving this, as much as even international 
agreements.
    If we can develop these technologies to sell the China and 
India, they will buy them even without a cap perhaps. The key 
is developing those technologies. And if we can come up with a 
solar thermal plant that a son of India, a guy named Vernard 
Kolsa, just who helped Sun Microsystems get started, he just 
bought a solar thermal company. He has renamed it Oster. It was 
an Australian company. He has moved it to the United States. 
They believe they might be able to have market-based grid 
competitive solar thermal energy in the next 5 to 6 years.
    Now, if they can do that, if we can help that company by 
having a cap and trade system here in this country to drive 
capital into those companies, we will sell India this 
technology even if they don't get into this market. Yes?
    Mr. Pershing. One additional thing on that same front is 
that I note that India does in fact have a ministry of 
renewable power. It is the only country in the world that has a 
ministry that is focused explicitly on how you move that 
forward. We can cooperate with a ministry like that and do 
aggressively promoting the technology that we have got in that 
kind of a structure.
    Mr. Inslee. Well, my idea is, since I just found out 
yesterday that the gavel in the U.S. Senate is ivory, a gift 
from the vice president of India, they owe us to buy our 
technology.
    Mr. Boucher. The time of the gentleman has expired. The 
Chair recognizes the gentleman, Mr. Walden, for 8 minutes.
    Mr. Walden. Thank you, Mr. Chairman. Mr. Stephens, I would 
like to dedicate the next 5 minutes so you could read your 
testimony again to the committee, but I won't do that. I 
chaired the Subcommittee on Forest and Forest Health for a 
couple of years when we were in the majority. And we passed in 
the House bipartisan legislation to get at this issue of better 
managing America's forests because, as Brian Baird, my 
colleague from Washington, and I agreed, Americans are going to 
use wood, and that is not a bad thing.
    It is a matter of where we get it. And today, we let 
forests rot and burn in the United States so we can mow down 
rainforests around the world where they lack environmental 
safeguards. And then we wonder why we have some of these 
environmental problems. You referenced in your testimony the 
amount of carbon emissions that are put into the atmosphere by 
forest fires. The B and B fire in central Oregon in 2003 
contributed at least twice as much carbon, among other 
pollutants, into the atmosphere as the entire State of Oregon 
did for 1 year.
    We have so hamstrung the Federal ability to manage our 
forests, to get them back in tune with nature, that when we get 
fire, it is of catastrophic consequences. And then we let the 
trees stand and decay and rot rather than replant and harvest 
those that have some value. And we do it in the name of the 
environment while we happily go and import wood at astronomical 
rates from these foreign countries.
    Now, I guess the question I have for you is is that the way 
that Boise in its former iteration managed its forest lands?
    Mr. Stephens. No, it is not. We managed it as a working 
forest and balanced its economic value with its environmental 
value. I think when we reached the point as recently as, I 
guess, a month ago where a Federal judge has to decide what is 
a dead tree and a live tree and a tree that can be harvested in 
the middle of a fire, that gets very frustrating to the members 
of the forestry service that I visited on that fire walking 
through that burned area. We have essentially handcuffed them 
as professionals from doing their job.
    Now, the logic of it is so silly. If we could harvest that 
tree, we can convert it into a wooden I-joist in Bedford, 
Oregon. We can ship it to China and use it for building homes 
rather than using concrete.
    Mr. Walden. Right.
    Mr. Stephens. And we are carbon neutral. The concrete could 
put carbon into the atmosphere. So when you look at the whole 
picture, when you integrate the whole thing together, we still 
have a lot of problems we need to solve in managing the Federal 
forests. The good news, forests in the U.S. are not that much 
less than they were 100 years ago, and we can make them much 
healthier.
    Mr. Walden. That is true, except they are far less healthy 
than they were 100 years ago. You have 192 million acres of 
Federal forestland subject to catastrophic fire, bug 
infestation, and disease. And we are not doing much about it to 
improve it.
    Now, I am a big advocate of renewable energy too. My 
district is host to one of the only renewable energy centers in 
the country at Oregon Institute of Technology, OIT, down in 
Klamath Falls where they are doing some remarkable work on 
geothermal development as well as other renewables.
    We worked with the Navy to secure a site that may become 
home to a very substantial solar energy development. My 
district is home to an enormous amount of wind, not just 
because I reside there, but because of the winds off the coast 
coming up the Columbia Gorge. And as a result, we are seeing 
literally thousands and thousands of megawatts of new wind 
energy being put into place. And it works well, as you probably 
read in the Washington Post last week, because of the synergy 
that exists with hydrosystem.
    Now, Ms. Petsonk, with all due respect, there is some in 
the environmental community that would take out the dams, that 
opposed us vociferously on our forest health strategies. How do 
we, as a country, get to where we can actually be good managers 
of our Federal lands, use these alternatives renewables. The 
efficiency rate of hydro is like 90 percent. There isn't 
another fuel efficiency out there that is above about 50, I 
think. How can you help us get there?
    Ms. Petsonk. I know my organization has done some work with 
the Confederated Tribes of the Warm Springs Reservation, a 
place I dearly love. And when the Confederated Tribes began to 
look at if there were a price on carbon, how would it change 
their management of forest lands, of water, and also grazing, 
they came up with some very interesting results. They found 
that there would be incentives to restore forests along the 
banks of streams. They would grow carbon by letting the big 
trees get bigger, taking out some of the small trees like you 
are talking about that add to the fire----
    Mr. Walden. And even out, yes. Ladder fuels.
    Ms. Petsonk. That reduces the runoff going into the streams 
to improve stream quality and clarity, and it also makes hydro 
more efficient because there is less siltation so they get a 
carbon benefit out the back end because they get better low-
head hydro going that can displace coal. So once you begin to 
look at this through that prism of carbon, and we are lucky 
that it is carbon. What if it were arsenic? We are lucky it is 
carbon. It has so much to do with so many aspects of daily 
life. I think we will see economic incentives that press toward 
forest restoration.
    Mr. Walden. Right, but the economic incentives, frankly, 
are there absent carbon trading. The problem we have, and the 
tribe supported the legislation we passed in the House. The 
problem we have is that we have hamstrung the management 
ability of our professional forests on Federal ground to do 
exactly that. There are already setbacks on streams, hundreds 
of feet back on each side where you can't harvest, and that is 
understandable.
    What I am talking about though is nearly every thinning 
project out there gets appealed. You get a burn on a Federal 
forest, you will be court 3 years later deciding what size tree 
you can cut, if any, and by then the value is gone. And you 
can't replant and start the sequestration process over. It is a 
terrible mess out there I am telling you.
    And we could do a lot for the atmosphere. I am tired of 
going into my communities that are choked in the summer with 
not only carbon dioxide but also all the other pollutants that, 
in one fire, are doubled, tripled. I have seen reports up to 
six times just in the one fire of what the entire State of 
Oregon emits.
    And so there is a lot of good stuff we could be doing on 
the ground now that would help resolve some of these issues. 
And I just hope that we can look at those as well, how we 
improve nature and work with nature to reduce carbon emissions. 
Certainly there are positives there. And not do these things 
where we rip out the battery, the dams, that are the storage 
unit that make wind energy work and be more reliable. And yet 
there are people that want to do that. And that is real 
troubling.
    And just as a final note, having been on this committee now 
for probably, I guess, 6 years, having gone through the 
Medicare Part D Program, I can't imagine setting up some of the 
cap and trade programs that some witnesses we have had before 
the committee have envisioned, just in terms of the complexity 
and cost and making them work.
    And finally, Dr. Steinfeld, I supported giving China 
excession to the WTO. Do you think they are fully compliant 
today? And would they be under a cap and trade carbon system?
    Mr. Steinfeld. Full compliance is, I think you have a point 
that it just hasn't--and it is an ideal level that--but I do 
think that China, in a few areas, has become more compliant 
than it was. I say that not as an advocate for China, but we 
have seen progress. And that intrigues me, and understanding 
why that progress happens, I think, is a worthwhile endeavor.
    Mr. Walden. OK, thank you.
    Mr. Boucher. Thank you. The Chair recognizes the gentleman 
from Texas, Mr. Gonzalez, for 8 minutes.
    Mr. Gonzalez. Thank you very much. Let me catch my breath 
and apologize to one and all. Dr. Burgess may be treating me in 
a minute.
    Mr. Burgess. Take your time, and then if you need to catch 
your breath----
    Mr. Gonzalez. You see? And that is good medical advice. 
Thank you very much. As a matter of fact, I just came from a 
meeting. My mayor is in town. My county judge is in town. My 
city manager is in town. My chamber of commerce is in town, and 
believe it or not, they really are interested in global 
warming.
    And the reason for that is that our newly planned energy 
plant is--guess what it is. It is coal, and the mix we have 
right now is probably 50 percent coal, 10 percent wind energy. 
I forget what percentage is nuclear, and the rest is natural 
gas. But our big investment is going to be in coal, and that is 
what I want wanted to talk to you about. And I know that some 
of this may have already been covered, and I apologize to you 
for my absence and the fact that I might be repeating a couple 
of things.
    I only have a question or two to the witnesses, and I will 
direct those questions to them in a minute. We have about 12 
new coal-fired plants being built in the United States as we 
speak to come online very soon. We have 40 others that are 
planned. They will come online in the next 5 years. Then the 
predictions are by 2030 we will have 150 more, and that is 
United States alone.
    In the United States, half our energy-producing plants are 
coal fired. China, what is it? 75 percent? I forget. Something 
like that. So nothing is really going to drastically change in 
the immediate future, and so whatever we put in place, I am not 
real sure how we retrofit or what we do. So this cap and trade 
looms large if you know what I mean, and I think that is where 
a lot of our attention, a lot of our energy probably is going 
to be focused as we try to meet some sort of a June date or 
whatever to have something out there for consideration as 
reported of this committee. And as you well know, there is a 
select committee operating out there also on this same subject.
    It has been described before that we should do what we are 
going to do as a nation because it is a moral imperative. Yet 
we have those individuals, and you heard from them today on 
this committee, that truly believe why should we do anything if 
the other nations aren't joining us, if the other don't do 
their part. And that is a good question. Why do you sacrifice 
it all? And I am not real sure that I have that particular 
answer.
    But the question that I am going to pose to Ms. Petsonk and 
then Dr. Steinfeld. If we cannot predict control or influence 
to any appreciable extent, the conduct of other nations, 
whether it is going to be India, whether it is going to be 
China, Indonesia, Brazil, it doesn't matter. To what extent 
should we pay a price as a society in higher costs and such? 
Why should we go it alone? I actually think there is a reason 
why we should still improve on a bad situation, irrespective of 
what we could expect from other countries.
    But you tell me based on your own experience, what do you 
tell the United States? Let us say worst case scenario. The 
other nations don't do a thing. Why should the United States 
move forward? Because the laws we pass will only impact that 
which is within our jurisdiction, the United States of America. 
So I will start with Ms. Petsonk.
    Ms. Petsonk. Thank you, sir. When I first started in this 
field, the only job I could get was in the area of 
international environmental law, and I was a newly minted 
environmental lawyer. And I wasn't interested in international 
stuff because I said there is no global EPA. There is no global 
police force. There is no way to enforce any of this stuff. But 
my supervising attorney said to me you ought to take this job 
because the challenge of international environmental law is 
designing legal frameworks that sovereign nations will want to 
obey.
    That is a very big challenge. You are right. What I have 
tried to do in my testimony is offer up some suggestions for 
both carrots and sticks that Congress could include in 
legislation that would increase the likelihood that our trading 
partners would want to participate. We don't have a way to 
force them to do it. We do have tools that can engage them, and 
we also have tools that can level the playing field if they 
don't. And so those are the tools that I have tried to suggest 
to you.
    I do not have a tool that I can guarantee you will make 
them do what we do, but I can guarantee you that if we don't 
take the first step, they will not.
    Mr. Gonzalez. Dr. Steinfeld.
    Mr. Steinfeld. Speaking personally, I tend not to be 
persuaded as much by the moral arguments as by the simple, 
rational arguments. I view measures to deal with climate change 
as an insurance policy. Insurance policy, in part, regarding 
environmental issues. An insurance policy in part regarding 
resource availability issues or energy availability issues, and 
an insurance policy, in part, involving industrial 
competitiveness and innovation.
    We have a slight advantage in the United States of not 
being at the absolute cutting edge of some of these measures. 
We are slightly following in some areas, but my concern is that 
if we don't play, that other countries, including developing 
countries, will be buying pieces of this insurance policy. And 
by addressing some of the climate change issues, we will be 
inducing innovation or providing centers for innovation in 
their industrial bases, which ultimately will put us in a 
position to buy rather than selling. And I think that is not a 
position we want to be in.
    Mr. Gonzalez. Did you want to add anything?
    Ms. Petsonk. Yes, I would just like to add, you mentioned 
about wind power and coal, and I am certainly familiar with 
some of the decisions facing Texans going forward looking at 
coal and wind. I had the opportunity last year to have lunch 
with the head of wind power in GE, and I asked him is it really 
the case that GE is the largest producer of wind turbines in 
the world. And he said actually, no. And this may not be true, 
but this may not still be true, but at the time it was true. He 
said actually no, the largest producer of wind turbines in the 
world is Denmark.
    I said Denmark, why Denmark? He said well, they figured out 
that if they let farmers generate electrons with wind and sell 
the surplus back to the grid, they would let farmers make money 
doing that. And that very quickly gave an incentive to farmers 
to develop really good wind turbines, and so they have gotten 
that market share. Now, I believe, and maybe Mr. Chaudhuri 
knows a little bit about this as well or maybe Dr. Pershing, 
that India is not far behind in developing wind turbine 
technology.
    And so it is the case that as other nations look at the 
climate change problem, some of them will adopt emissions caps. 
Some of them will do less than that, and they will go into the 
carbon market with individual projects that reduce emissions. 
But if we don't begin to give a price signal for reducing 
carbon in our economy, we are going to end up buying the low-
carbon technologies in the future from other nations.
    Mr. Gonzalez. I have 36 seconds. Does anybody want to add 
anything?
    Mr. Chaudhuri. I will just add onto what Ms. Petsonk 
mentioned. One of India's newest billionaires, in fact, is a 
wind turbine magnate, a dollar millionaire. And he has in fact 
bought a billion dollars overseas investment. He has been 
buying small companies across Europe to master the technology 
of wind turbines, and sure he has got as big a monopoly as he 
can on that.
    Mr. Gonzalez. Well, thank you very much. I yield back.
    Mr. Boucher. Thank you. The Chair recognizes Mr. Burgess 
from Texas for 5 minutes.
    Mr. Burgess. Well, I do want to, following on what Mr. 
Inslee said when he was talking about wanting to export his 
technology from Washington. In Gainesville, Texas, we make some 
of the finest windmill blades known to man. And so we hope that 
the Indian billionaire will buy good, solid Texas blades that 
are made to exacting specifications and don't pick up those 
cheap Brazilian blades because they are only going to break 
when the wind gets strong.
    Dr. Steinfeld, on the MIT coal report, which evaluates 10-
year lag for developing countries to join the greenhouse gas 
reduction regimen, how realistic is it to expect the Chinese to 
be able to conform to that 10-year timeframe. It seems like a 
relatively short amount of time.
    Mr. Steinfeld. In my personal opinion, 10 years, given the 
pace of change in China and this give and take between 
regulatory capacity building and then development, I think 10 
years is a reasonable time to expect the building of compliance 
capabilities.
    Mr. Burgess. What is likely to happen though as far as the 
economy and jobs in China during that 10-year lag?
    Mr. Steinfeld. In my estimate, what we will see is we will 
see a shifting of industrial structure in China, as is already 
happening, increasingly toward services. To some extent, there 
is going to be a response, and we are seeing a bit, to the 
government's mandates to increase energy efficiency. So some 
financial incentives have already been created for internal, 
domestic switching in China out of energy intensive and into 
more valued service intensive industries.
    Mr. Burgess. Mr. Chaudhuri, did I pronounce that correctly?
    Mr. Chaudhuri. That is close enough.
    Mr. Burgess. It would seem that, and we have heard some 
discussion on this, and I apologize also for being late. We are 
doing children's dental care under S-CHIP downstairs in our 
health subcommittee. And I promised I would do no puns about 
picking on problems or flossing over problems. But focusing on 
the cap and trade program and your focus on the economic growth 
in India to alleviate poverty within this generation, so what 
impact will the U.S. implement an economy-wide cap and trade 
regimen, is that likely to have an impact on India?
    Mr. Chaudhuri. If the United States does one unilaterally 
or globally you mean, or imposes something as----
    Mr. Burgess. Assume unilaterally at this point.
    Mr. Chaudhuri. Well, if it is unilaterally, I don't see--it 
would depend on the nature of it in terms, as Ms. Petsonk 
mentioned, whether it allows other countries and companies in 
other countries to tag into that. In that case, it would be 
beneficial. The CDM already are looking at an estimate by the 
UN. The CDM mechanism by 2015 was expecting to issue certified 
emission CRs of about 300 million tons in India alone, which is 
equal to what we produce all of 2005. So if that incentivizes 
us to join into that, then it will be perfect because both 
sides win. It is a win-win situation for both sides.
    If you were to issue it as a trade tariff, there was talk 
about issuing that, I would recommend against it because I 
would essentially run into severe sovereignty issues. At that 
point, it becomes confrontational. India has no problems 
participating, but if you are going to add tariffs, essentially 
what amounts to a tariff, on your goods coming in, outside of 
the fact that I am not certain how in regulatory terms it is 
even feasible in India to work that out, my expectation they 
would then treat it is as WTO is, which is that this has now 
become a sovereignty trade issue and be treated with hostility 
or treated as a difficult negotiations process.
    Mr. Burgess. Thank you. Mr. Holzschuh, on the clean 
development mechanism, referencing that process in regard to 
China, there are some anecdotal stories that there are 
industries in China that are occurring simply to create 
pollution in order to get the credits when they dismantle or 
deactivate those activities. Is that an issue? Is China 
creating a problem just to be able to correct it later on in 
order to sell those credits to, say, European countries?
    Mr. Holzschuh. I am not familiar with the statistics there, 
but I would say it is not just China. When a market is 
developed, there will be people who try to front run, take 
advantage of markets. And as part of that market mechanism, the 
constituents in that market and the regulatory bodies that sit 
above it are going to have to control that. So there is no 
doubt in my mind that people will attempt that. Hopefully the 
policing mechanisms work.
    Mr. Burgess. But we already heard reference of some of the 
difficulties with dealing in a punitive way with trade 
sanctions, and likely that would play a significant role in 
that type of activity if a country elected to go down that 
path. Thank you, Mr. Chairman. I appreciate. I will yield back.
    Mr. Boucher. Thank you, Mr. Burgess. Following the 
subcommittee's usual practice, the hearing record will be left 
open to permit various members of the committee to submit 
additional questions to the witnesses. And we would appreciate 
your written responses and will include them in the record. 
With that, I want to thank you for your time and patience 
participating in the hearing today, and with that, this hearing 
is adjourned.
    [Whereupon, at 10:52 a.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

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