[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
BUSINESS OPPORTUNITIES IN A LOW-CARBON ENERGY ECONOMY
=======================================================================
HEARING
before the
SELECT COMMITTEE ON
ENERGY INDEPENDENCE
AND GLOBAL WARMING
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
OCTOBER 10, 2007
__________
Serial No. 110-13
Printed for the use of the Select Committee on
Energy Independence and Global Warming
globalwarming.house.gov
----------
U.S. GOVERNMENT PRINTING OFFICE
58-147 PDF WASHINGTON : 2010
For sale by the Superintendent of Documents, U.S. Government Printing
Office, http://bookstore.gpo.gov For more information, contact the GPO
Customer Contact Center, U.S. Government Printing Office, Phone
202-512-1800 or 866-512-1800 (toll free), E-mail, [email protected]
SELECT COMMITTEE ON ENERGY INDEPENDENCE
AND GLOBAL WARMING
EDWARD J. MARKEY, Massachusetts, Chairman
EARL BLUMENAUER, Oregon F. JAMES SENSENBRENNER, Jr,
JAY INSLEE, Washington Wisconsin
JOHN B. LARSON, Connecticut Ranking Member
HILDA L. SOLIS, California JOHN B. SHADEGG, Arizona
STEPHANIE HERSETH SANDLIN, GREG WALDEN, Oregon
South Dakota CANDICE S. MILLER, Michigan
EMANUEL CLEAVER, Missouri JOHN SULLIVAN, Oklahoma
JOHN J. HALL, New York MARSHA BLACKBURN, Tennessee
JERRY McNERNEY, California
------
Professional Staff
David Moulton, Staff Director
Aliya Brodsky, Chief Clerk
Thomas Weimer, Minority Staff Director
C O N T E N T S
----------
Page
Hon. Edward J. Markey, a Representative in Congress from the
Commonwealth of Massachusetts, opening statement............... 1
Prepared Statement........................................... 3
Hon. F. James Sensenbrenner, Jr., a Representative in Congress
from the State of Wisconsin, opening statement................. 5
Hon. Earl Blumenauer, a Representative in Congress from the State
of Oregon, opening statement................................... 6
Hon. Jay Inslee, a Representative in Congress from the State of
Washington, opening statement.................................. 6
Hon. John B. Larson, a Representative in Congress from the State
of Connecticut, opening statement.............................. 6
Hon. Emanuel Cleaver II, a Representative in Congress from the
State of Missouri, opening statement........................... 7
Prepared Statement........................................... 8
Hon. Jerry McNerney, a Representative in Congress from the State
of California, opening statement............................... 9
Hon. Candice S. Miller, a Representative in Congress from the
State of Michigan, opening statement........................... 9
Hon. Stephanie Herseth Sandlin, a Representative in Congress from
the State of South Dakota, opening statement................... 10
Witnesses
Mr. Ralph Izzo, Chairman, President and CEO, Public Service
Enterprise Group Incorporated (PSEG), member of the Clean
Energy Group and its Clean Air Policy Initiative............... 10
Prepared Statement........................................... 13
Answers to Submitted Questions............................... 91
Mr. Neil Carson, CEO, Johnson Matthey plc, member of the UK
Corporate Leaders' Group....................................... 29
Prepared Statement........................................... 31
Answers to Submitted Questions............................... 97
Mr. Alain Grisay, CEO, F&C Investments, member of the UK and EU
Corporate Leaders' Groups on Climate Change.................... 61
Prepared Statement........................................... 63
Answers to Submitted Questions............................... 102
Mr. Jonathan Lash, President, World Resources Institute, member
of the U.S. Climate Action Partnership......................... 67
Prepared Statement........................................... 69
Answers to Submitted Questions............................... 106
Submitted Material
Hon. Edward J. Markey, a letter from Prince Charles of Wales,
October 3, 2007................................................ 26
BUSINESS OPPORTUNITIES IN A LOW-CARBON ENERGY ECONOMY
----------
WEDNESDAY, OCTOBER 10, 2007
House of Representatives,
Select Committee on Energy Independence
and Global Warming,
Washington, DC.
The committee met, pursuant to call, at 9:39 a.m. in Room
2172, Rayburn House Office Building, Hon. Edward J. Markey
[chairman of the committee] presiding.
Present: Representatives Markey, Blumenauer, Inslee,
Larson, Herseth Sandlin, Cleaver, McNerney, Sensenbrenner,
Shadegg, Walden and Miller.
The Chairman. If the world is to increase energy security
and avoid the worse impacts of global warming, a large-scale
transition to a low-carbon energy economy will be necessary. To
achieve success, governments, businesses and the public must
work together to increase energy efficiency and the use of
renewable energy and decrease global warming in ways that
maintain economic vitality and create jobs. We must harness the
power and creativity of the global economy to meet the global
energy challenge.
Business leaders, better known for green eye shades than
fondness for granola, are increasingly asking governments
around the world to adopt smart long-term policies that ensure
the true cost of energy and global warming is fully reflected
in economic transactions and capital investment. They are
seeking certainty for business decisions but also the
opportunity to make a buck.
According to the Stern Review of the Economics of Climate
Change, the value of the global environmental market could be
$700 billion as soon as 2010 with the adoption of smart
policies. Companies are already jockeying to gain the most
advantageous position to capitalize on these new opportunities.
Rather than a drain on the economy, energy and global warming
policies can be a boon.
The European Union has adopted ambitious mandates for
increasing energy efficiency and renewable energy use and
decreasing global warming pollution. Instead of hindering the
EU's economy, it is roaring.
As we have seen both in Europe and the United States, smart
regulation drives innovation. In 1975, cars in the United
States averaged just 13.5 miles per gallon. Fuel efficiency
standards pushed the auto industry to innovate, and the fuel
economy of cars rose to the height of 27.5 miles per gallon in
1987.
In the 10 years from 1977 to 1987, U.S. oil imports dropped
from 46.5 percent to 27 percent. Rather than build on that
progress, efficiency standards have remained untouched for 20
years. Our reliance on imported oil has risen to 60 percent
today, and dioxide emissions from the transportation sector now
make up a third of total global warming pollution in this
country.
After years of stagnation, Congress has an opportunity to
move our vehicle fleet into the 21st century by passing a
strong 35 miles per gallon fuel economy standard this fall. By
2030, the fuel economy language in the Senate energy bill would
reduce American oil consumption by 4 million barrels per day,
almost double what we currently import from the Persian Gulf
and reduce global warming pollution by more than 350 million
tons per year. By passing the energy bill that couples this
language with an increase in the renewable fuel standard and
establishing a renewable electricity standard, Congress can
initiate the transformation of a low-carbon energy economy and
make a significant down payment on the reduction of global
warming pollution necessary to save the planet.
The United States and the United Kingdom have been
described as divided by a common language, but, as we will hear
from our witnesses today, business leaders from both countries
are united on the need for energy and global warming policies
that drive innovation and investment towards the creation of a
low-carbon energy economy.
I look forward to their testimony; and I will now recognize
the ranking member of the Select Committee, the gentleman from
Wisconsin, Mr. Sensenbrenner.
[The statement of Mr. Markey follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Sensenbrenner. Thank you very much, Mr. Chairman.
Global warming is a complicated problem that can't be
solved by the United States alone. International partnerships
must be an essential part of any global warming policy, and I
am pleased that today's hearing will feature the perspective of
two CEOs from the United Kingdom who will be able to add some
insight from across the pond.
Technology will be another essential part of any essential
global warming policy, and all four of today's witnesses will
be able to give us more perspective on the technology that
holds the best hope of reducing greenhouse gas emissions.
Because it is clear that there will be a continued demand for
energy from increased economic growth here and around the
world, it is clear that the technological breakthroughs are the
only real way for countries around the world to continue to
meet their energy demands without raising greenhouse gas
output.
While today's witnesses may share some views on technology,
it seems that there are at least some differences between them.
Some investors have different ideas than others about where the
future of technology may go. Some consumers will obviously have
different ideas about what type of cars they want to drive; and
perhaps they won't be the same ideas as government regulators
in Washington, London or other parts of the world. I support
the development of these new technologies; and I want nothing
to stand in their way, especially government mandates.
While I agree with our witnesses that technology needs
substantial further development, I am afraid I don't think
government mandates will get us there. By picking winners and
losers, the government could act to block worthwhile technology
development while advancing substandard technology. It is far
too early for Congress or any government regulators to begin
deciding what technology will be right for our future energy
needs.
Another concern I have with mandates is that it will result
in economic harm. Technological transitions can benefit the
economy, and the Internet is an example of that. However, if
government regulations thrust technology into an economy that
is not yet ready for it, the results will likely be havoc.
I believe that the free market is powerful enough to sort
out the variety of emerging new technologies and integrate them
into the economy without hitting our constituents in the
wallet.
At the end, we all want to see greenhouse gas reductions,
but getting there is not going to be easy. One recent report
from a group called Open Europe shows that European-based
facilities covered by the EU emissions trading scheme have
actually seen an increase in CO2 emissions by 1
percent. While that is not a tremendous increase, it is
certainly not a reduction either; and it goes to show what a
difficult task lies ahead.
And nowhere does this task become more difficult than
dealing with countries like China and India, whose emissions
continue to grow. Already one report puts China's total
emissions ahead of the U.S. Countries like China and India will
need revolutionary technology of their own in order to slow
their emissions growth.
There will be an increasing demand for cutting-edge energy
technology in the United States and Europe, Asia and elsewhere
around the world. So there will clearly be business
opportunities. I am just concerned that if the government gets
into that business, like it has in Europe, the result might not
be the ones we expected or hoped to achieve.
I thank the gentleman and yield back the balance of my
time.
The Chairman. The gentleman's time has expired.
The Chair recognizes the gentleman from Oregon, Mr.
Blumenauer.
Mr. Blumenauer. Thank you, Mr. Chairman.
I am looking forward to the conversation today. The
gentlemen that are represented here today are part of what I
think is perhaps the single most important element we will be
dealing with in climate change and that is the billions of
decisions that are made every day by businesses and consumers
in our country and around the world. I am interested in being
able to explore with them the way that the government can
provide a framework to help advance this, to give stability to
business, to send a signal about where we are going.
I am pleased to represent a community, Portland, Oregon,
where there is a strong commitment to green business
initiatives, sustainable development and trying to have a
regulatory framework for energy, transportation and housing
that helps those pieces work together. I am looking forward to
having this conversation here, and I appreciate your scheduling
the hearing.
The Chairman. Thank you. The gentleman's time is expired.
The Chair recognizes the gentleman from Washington State,
Mr. Inslee.
Mr. Inslee. Thank you. I appreciate the witnesses being
here.
When you think about this, America does well any time there
is a large economic transition, a technological transition.
That has been our forte. It is where we have had our growth.
When there was a transition to aeronautics, we have done very
well. Where there was a transition in the Internet, we have
done very well. And now when we go into a transition to other
than carbon-based fuels we are going to do very well if--if--
the U.S. Congress adopts the free market principles that my
friend, Mr. Sensenbrenner, referred to when it comes to the
limited capacity of the atmosphere to carry CO2. And
that is why I hope that all of us here will work on a cap-and-
trade system that uses the power of the market to drive these
technologies forward once there is a price of carbon associated
with a, quote, market, a free market on the carrying capacity
for CO2; and I look forward to getting that done.
I just want to note that folks have entered this discussion
with fear, and I enter it with amazement at how smart people
are. Every time I turn around, there is a new technology. I
just got a little BlackBerry about a group called Konarka that
is developing a clear, affordable technique for, actually,
clear windows. It is just amazing what is going on out there,
and I look forward to a way to help these folks move forward.
The Chairman. The gentleman's time is expired.
The Chair recognizes the gentleman from Connecticut, Mr.
Larson.
Mr. Larson. Thank you, Mr. Chairman.
Mr. Chairman, like the other members, some here on the
dais, I look forward to the discussion.
I have a keen interest in fuel cell technology, but also I
am interested in the contrast and discussion that exists down
here between a cap-and-trade system and a carbon tax and am
interested in what the panelists have to say about that in
terms of the dynamics, the leverage and how successful they
think, for example, European Union's are. And I want to commend
the chairman again for his efforts in putting this panel
together.
The Chairman. I thank the gentleman.
The Chair recognizes the gentleman from Missouri, Mr.
Cleaver.
Mr. Cleaver. Thank you, Mr. Chairman. Thank you for calling
the hearing.
I would like to express appreciation to our guests for
being here. I am particularly excited about your presence
because of the advancements that we have seen in the EU and, of
course, Chancellor Merkel calling for the need for a global
emissions trading system, and I am certainly interested in
whether or not you think that is practical and workable.
Of course, the issues that we face here are global because
there is no such thing as pollution and greenhouse gases just
settling over parts of the world; and so we look forward to
your statements and the opportunity to become dialogical.
Thank you.
[The prepared statement of Mr. Cleaver follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Thank you. The gentleman's time is expired.
The Chair recognizes the gentleman from California, Mr.
McNerney.
Mr. McNerney. Thank you, Mr. Chairman, for holding this
important hearing; and I thank the panelists, some who have
come from quite a distance to participate.
This is an important topic because it brings in both the
international players and a strong business interest. It is my
strong belief that the solutions to global warming will make us
more prosperous and sustainable. It will create jobs and
enhance international cooperation and understanding. I look at
this as an opportunity to be exploited in making this a better
world. We here in the United States can learn from Europe's
experience and from known business successes.
With that, I look forward to a future of cooperation and
understanding; and I yield back the balance of my time.
The Chairman. I thank the gentleman. The gentleman's time
is expired.
The Chair recognizes the gentlelady from Michigan, Mrs.
Miller.
Mrs. Miller. Thank you, Mr. Chairman. I want to thank you
for holding this hearing.
I certainly want to thank all the witnesses as well for
your attendance today. I am certainly looking forward to
listening to you as you share your expertise.
Coming from Michigan, the home of the domestic auto
industry, I am interested to hear the testimony regarding the
economic impact of legislation on vehicle technology. I do
believe that there may be a number of business opportunities in
a low-carbon economy.
However, as you might imagine, I am also very concerned by
some of the proposals that we should enact legislation to
mandate a low-carbon economy. These proposals are making the
assumption that the low-carbon technologies exist or will exist
in the near future and that, some of these proposals, people
would assume that the reason that these technologies have not
yet been delivered is because businesses do not choose to
develop or integrate them into their business model. And
obviously one of the leading examples of this is in the
domestic auto industry, constantly suggesting that if CAFE
standards were increased or other form of binding legislation
were enacted that the automotive industry would just respond
with technologies to meet these demands. However, the burden
that these regulations would place upon the domestic auto
industry could be very severe, particularly at a time when it
is well known about the decline that is happening, the economic
transition that is happening to the domestic auto industry.
So I would just--as I say, I am very interested to hear
about all of the different expertise on this issue. I think it
is clear what is happening in other countries around the world
where they are investing in R&D and new alternative
technologies, et cetera. At the same time, our country really
looks to the domestic auto industry to do all of the R&D
themselves to work it into their business model and to produce
cars that their customers may not be interested in purchasing.
So I will be very interested to hear your testimony.
I thank you again, Mr. Chairman.
The Chairman. I thank the gentlelady. The gentlelady's time
is expired.
The Chair recognizes the gentlelady from South Dakota, Ms.
Herseth Sandlin.
Ms. Herseth Sandlin. Thank you, Mr. Chairman; and thank you
for holding this very important hearing.
I look forward to hearing from our witnesses today and
exploring with them the business opportunities that do exist
based on their experience and insight in a low-carbon energy
economy. But, more specifically, in representing a rural
district, a farm State, the role that American agriculture and
rural America can play in helping find solutions and what the
business opportunities are in a low-carbon energy economy in
reducing greenhouse gases, what the role of American
agriculture can be, whether it be certain farming practices or
grazing practices, that relate to participation in a cap-and-
trade system, if indeed the United States ultimately adopts
one.
So this is an area, whether it is biofuels, wind and solar,
carbon storage, I look forward to exploring with our witnesses
today; and thank you very much, Mr. Chairman, again for holding
this important hearing.
The Chairman. The gentlelady's time has expired, and all
time for opening statements has expired, so we will now turn to
our very distinguished panel.
I would first like to recognize Ralph Izzo, who is the
Chairman, President and Chief Executive Officer of Public
Service Enterprise Group, Incorporated, since April of 2007.
This is a company which has electric generating capacity in New
Jersey, New York, Pennsylvania, Connecticut, Texas, California,
New Hampshire and Hawaii.
He first joined PSEG in 1992 and has served in a number of
leadership positions in that company. He is trained as a
physicist, and he has also spent time in the offices of Senator
Bill Bradley and New Jersey Governor Tom Kean working on
science and technology policy.
We welcome you, Mr. Izzo. Whenever you are ready, please
begin.
STATEMENT OF RALPH IZZO, CHAIRMAN, PRESIDENT AND CEO, PUBLIC
SERVICE ENTERPRISE GROUP INC.
Mr. Izzo. Thank you. Good morning.
Chairman Markey, Ranking Member Sensenbrenner and members
of the committee, I am honored to appear before you today on
behalf of PSEG.
As the chairman has already told you, PSEG is an energy
services company headquartered in New Jersey. But in addition
to our regulated utility we own and operate competitive
electric generating consisting of coal, natural gas and nuclear
power.
We believe that climate change is the preeminent challenge
of our time, and with it come significant business
opportunities and responsibility. Our company has been a leader
in the effort to limit greenhouse gases for more than 15 years.
Some of the steps we have taken include being the first utility
in the country to sign a pre-Kyoto voluntary greenhouse gas
reduction accord. We voluntarily agreed in 2004 to reduce our
carbon dioxide emissions by 18 percent from 2000 levels by
2008, and we have been a leading advocate for a national
economy-wide cap-and-trade program to reduce greenhouse gas
emissions to 1990 levels by 2020 and 80 percent below current
levels by 2050. We are also improving the efficiency of our own
electric delivery system.
Some initiatives include investing in state-of-the-art
distribution cables and energy efficient transformers, using a
biodiesel fuel blend in our vehicle fleet and replacing 1,300
cars and light trucks with hybrid electrics and retrofitting
450 bucket trucks with electric drives to power the lifts.
Mr. Chairman, if you ask whether climate policies have
influenced our business decisions and whether we think there
are significant opportunities for businesses to participate in
the climate challenge ahead, the answer is a resounding yes. To
do so, PSEG and other companies will need to apply our
expertise in new ways to reduce energy demand, spur development
of renewable resources and develop carbon-free central station
power. In short, we will have to change the way we run our
businesses and enter into a new era of collaboration with State
and Federal policymakers.
Energy efficiency offers one such opportunity, but it will
require a new regulatory compact. These are investments that
can be made right now using existing technology. For example,
in 1970, a typical refrigerator consumed around 2,000 kilowatt
hours of electricity annually. Today, an Energy Star
refrigerator of the same size consumes about one-fifth of that
amount.
The problem is that customers are not making decisions to
invest in energy efficiency opportunities like this
refrigerator. Energy utility companies are uniquely positioned
to change this dynamic by investing in energy saving appliances
and fixtures ourselves and receiving compensation as we do for
investing in pipes and wires.
Consider the fact that utilities engage in millions of
interactions with customers daily and employ a highly skilled
work force that can be engaged to promote efficiency. Also,
utilities can make long-term investments and can assure that
all customers, especially low-income customers, benefit from
energy efficiency.
On the renewable energy front, PSEG has requested State
approval to invest $100 million to finance solar projects in
New Jersey. PSEG proposes to provide loans to solar developers,
making solar energy more accessible and affordable for
households and businesses. We are also anxious to explore
direct investment in solar energy if Congress enacts a
provision in the energy tax package that allows utilities to
claim the investment tax credit available to others at present.
Mr. Chairman, I conclude by saying what you already know.
For the U.S. to meaningfully address climate change, a uniform
national greenhouse gas reduction policy that establishes a
market price for carbon is needed. This will drive development
of new low-carbon technologies. This should be a single,
economy-wide cap-and-trade program and a single greenhouse gas
trading market with consistent emissions reduction targets
across all States.
Congress should take its cue from the 10-State Regional
Greenhouse Gas Initiative and develop a comparable national
program that will render regional programs unnecessary. By
``comparable'' I mean requirements that are at least as
stringent as the so-called Reggie States.
Other key components of a national program should include
transition to a Federal allowance auction over a 10-year period
and using proceeds to fund research and development and low-
income assistance programs. Allocating a portion of allowances
at no cost to electric generators based on an updating output-
based formula, this approach will spur investment in higher
efficiency power plants and provide incentives for investing in
advanced low- and zero-carbon technologies.
Mr. Chairman and members of the committee, thank you again
for the opportunity to participate in these important hearings.
I look forward to your questions.
The Chairman. Thank you, Mr. Izzo, very much.
[The statement of Mr. Izzo follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Before turning to our next two witnesses, who
are members of the Prince of Wales Corporate Leaders Group on
Climate Change, I would like to include in the record a letter
that Prince Charles, the Prince of Wales, has sent to the
Select Committee. Members have a copy of the full letter, which
is in front of them.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chairman. I would like to just read a brief excerpt
from Prince Charles' letter to us. He said:
``I have been following with the greatest attention the
most recent policy evolutions in key industrialized countries.
To secure the future for generations to follow, I hope that the
boldest possible targets can be set, together with the policies
needed to implement them. Otherwise, how can we expect
developing countries such as India and China to take action?
The legally binding targets that will be put in place in the
United Kingdom through the climate change bill, together with
those being put in place in the State of California and steps
being undertaken in numerous other States and cities in the
United States, are evidence of how policymakers in both our
countries are moving to address this problem. A challenge of
the magnitude of climate change requires a coordinated response
based on actions across every sector of society, and the
business community is going to be critical in achieving this.
The companies which are members of my Corporate Leaders Group
are playing a highly strategic role, essentially helping to
create a political space in which effective policies can be
introduced and global progress can be achieved. I very much
hope that the hearing this week will be productive and that
members of my Corporate Leaders Group will be able to work with
members of the Select Committee on Energy Independence and
Global Warming in the future to develop further policy
responses to the most pressing of problems. This brings you my
warmest good wishes. Prince Charles.''
So we thank him for that letter, and we thank the next two
witnesses for coming here today.
I would like to recognize a member of the Management
Committee for the Prince's Business and Environment Program and
the Chief Executive of Johnson Matthey, Neil Carson. He joined
the company in 1980 and has served in a variety of positions
within the company and on the board before becoming CEO in
2004. He is currently the Chairman of the Business Task Force
on Sustainable Consumption and Production.
Mr. Carson, welcome; and whenever you are ready please
begin.
STATEMENT OF NEIL CARSON, CHIEF EXECUTIVE OFFICER, JOHNSON
MATTHEY PLC
Mr. Carson. Chairman Markey, thank you very much and thank
you, members of the Select Committee. This is an important
issue, energy independence and global warming; and I am very
honored to be here to present evidence.
As the chairman stated, my name is Neil Carson. I am Chief
Executive of Johnson Matthey and a member of the Corporate
Leaders Group, which I represent today.
Johnson Matthey is a specialty chemical company. It is
nearly 200 years old. Our core skills are in catalysts, in
pressures metals and in fine chemistry; and our largest
business, as many of you will be aware, is in the business of
auto catalysts, that is, supplying catalysts to the exhaust of
cars. Lately, trucks and buses also have been included in the
legislative framework and other pollution control systems.
Also, we are a developer of fuel cell technology and have been
for many years.
Our business model at Johnson Matthey is to invest in R&D,
to invest in technology; and this we hope will maintain
leadership positions in our markets by continuously improving
the performance of our products and then better servicing our
customers as a result.
I won't go into great detail about the rest of Johnson
Matthey's business, because I think the main points of my
evidence today to you is that both Johnson Matthey and the
Corporate Leaders Group believe that, to address climate change
and energy independence, industry and government need to work
together and that time is of the essence and that our goals can
be met at the same time as growing our economies and growing
prosperity.
The idea is not a new one. The idea to set long-term and
binding legislation, in this case for CO2 emissions,
is a powerful incentive then for industry like ours and others
to invest in technology to find solutions to that issue. And I
have got a classic example, which doesn't really need to be
raised at this meeting, but, of course, California in 1970
realized that its environment was hostile to human life and it
was identified that cars were the culprit. They set demanding
legislation into the future, 5 years ahead, and made it clear
that in order to sell cars in California that legislation would
need to be met. They didn't have very much idea about how the
legislation would be met, nor do I think they cared much. They
didn't choose a technology. They just set the outcome that they
wanted in terms of reduced emissions from vehicles. That was in
1970. And from 1970 to today the population has grown 38
percent in California, the miles traveled has grown 155
percent, GDP has grown 164 percent, but the relevant emissions
have fallen 31 percent. A good example that prosperity can
thrive over the years and that this has been a low-cost
exercise for California.
Now I think we can do the same thing with CO2.
There are many mechanisms. The cap-and-trade mechanism has been
mentioned today. There is, of course, taxation as well as an
option. However, it is done from an industrial perspective the
essence must be to set clear targets for the future and then
not pick a technology, not pick a winner, but to allow business
to find a solution. The solutions will be higher cost than
currently but perhaps not as high cost as clearing up the
mitigating, mitigating for the effects of global warming
looking forward as identified by the Stern Review.
Other issues for electricity generators are carbon capture
and sequestration. These are technically possible, feasible,
but expensive mechanisms. But, again, they can be invested in
because of the cost of future emissions from carbon.
That brings to the end my summary. Climate change is an
urgent issue. With wealth comes responsibility. We should look
after the planet for future generations; and the Corporate
Leaders Group look forward to working with governments, your
government and other governments, to find the solutions.
The Chairman. Thank you, sir, very much.
[The statement of Mr. Carson follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chairman. I would now like to recognize Alain Grisay.
He is Chief Executive of F&C Asset Management. He was also
appointed an Executive Director and a member of the Executive
Committee of Friends Provident on January of 2006. Prior to
joining F&C in April of 2001, Alain Grisay was at JP Morgan for
20 years as a Managing Director responsible for the investment
bank's market client business in Europe.
Mr. Grisay, please begin when you are ready.
STATEMENT OF ALAIN GRISAY, CHIEF EXECUTIVE OFFICER, F&C ASSET
MANAGEMENT, PLC
Mr. Grisay. Mr. Chairman and members of the committee, on
behalf of F&C Management and fellow members of the U.K. and EU
Corporate Leaders Group on climate change, I would like to
thank you for giving me this opportunity to testify before the
congressional Committee on Energy Independence and Global
Warming.
F&C is a leading European asset management company, nearly
140 years old, that serves a wide range of institutional and
retail customers with assets over $200 billion. Our mission is
to deliver competitive investment returns to our clients and to
act on their behalf to ensure that investee companies generate
profits for their shareholders, while ensuring that their
businesses will be around for the long term. We take our role
as active investors very seriously and, in so doing, do not shy
away from taking a strong stand on matters of public policy
where we believe these to be a vital interest to our clients.
Climate change is one such issue.
I have traveled here today from London to share with you
the fruits of our thinking and experience both as an
institution investor and as a business that has played a
leading role in voicing the concerns of business to U.K. and EU
policymakers on climate change.
My message is simple: Business and investors can only play
their part in tackling climate change if government takes
decisive action to make this possible. The costs of moving
forward today in a planned and deliberate way are modest and
will even yield profitable business opportunities for many
innovative companies along the way. These costs are dwarfed by
the costs of inaction when one considers the human, natural and
economic consequences of a business-as-usual approach. In
short, we simply cannot put our heads in the sand.
Most important of all, this problem will not get solved
through market forces alone in the time that we have left to
act, because climate change presents a textbook example of
market failure. This means that voluntary targets won't do.
Business needs a level playing field in order to take on the
financial risks that adequate action on climate change require.
Business will play a pivotal role in marshaling capital to fund
the innovative technologies that will overcome climate change,
but it needs government to set clear long-term rules and
standards.
I have therefore come here to ask you as legislators of the
most powerful nation to play a historical part in this effort.
Only with long-term legislative clarity can investment
companies like mine return to their day jobs and begin the task
of shifting capital on the scale that is needed to transform
the global economy to one that runs on low-carbon energy.
What does this mean in practice? That we investors and the
companies in which we invest need the U.S. Government to,
first, define climate change policy as a top national priority
and set binding national targets that will be translated into
clear, long-term rules, regulations and standards; secondly,
play a leadership role in engaging other national governments
to establish binding global targets and standards; and,
thirdly, to introduce policy instruments, including cap-and-
trade mechanisms, fiscal measures and regulatory standards that
would result in a viable carbon price. So as long as carbon is
valued at zero, capital investments in innovative low-carbon
technologies will remain embryonic and fail to deliver the
economy transformation that is needed.
In conclusion, Mr. Chairman and members of the committee,
we have two choices: We can act now, with the benefit of a bit
of time and planning, thereby enabling business to manage the
transition efficiently and government to cushion the blow for
those affected by the inevitable disruption; or we can act
later and pay a much higher price. There is no third option.
Innovative companies and investors stand ready to act, but we
cannot compromise our economic survival without clear signals
from government that reflect the new economy reality.
I hope that the work of this committee will help you lead
your nation and the community of nations in embracing this
challenge and create the conditions for businesses to play a
vital role in delivering the solutions to climate change. Thank
you very much.
The Chairman. Thank you, Mr. Grisay.
[The statement of Mr. Grisay follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chairman. I would like to now recognize our final
witness, Jonathan Lash. He is President of the World Resources
Institute and a founder of the U.S. Climate Action Partnership.
In 2005, Rolling Stone described him as the environmentalist
who has done the most to bridge the bitter divide between
industry interest and green groups committed to halt global
warming. His long career in State and local government and
environmental organizations as a litigator and a leader is a
testament to this well-deserved description.
We welcome you, Mr. Lash. Whenever you are ready, please
begin.
STATEMENT OF JONATHAN LASH, PRESIDENT, WORLD RESOURCES
INSTITUTE
Mr. Lash. Thank you, Mr. Chairman and members of the
committee.
I appreciate the opportunity to appear before you and
particularly appreciate the energy the committee is putting
into addressing a compellingly important issue for the country,
to develop legislation that will be both in our national
environmental interest and in our national economic interest. I
think that is really our subject today.
My organization, the World Resources Institute, is an
environmental think tank that works on global issues, including
global climate change, and has partnered with businesses for 15
years developing low-carbon alternatives, finding ways for them
to reduce emissions to purchase green power and developing the
accounting protocol which virtually all companies that measure
greenhouse gases now use to measure and report greenhouse gas
emissions.
I am here today on behalf of the United States Climate
Action Partnership, a group that now includes six national
environmental organizations and 27 companies from virtually
every sector, including GE, GM, Ford, Chrysler, Caterpillar;
six utilities, including Duke Energy, the third largest user of
coal in the United States; Dupont, Dow, Pepsi, Rio Tinto, which
is the third largest producer of coal in the United States;
Conoco, John Deere and many others.
The group last January issued a call to action, which,
first of all, emphasized our agreement that climate change is
real, immediate and urgent. In fact, it is proceeding more
quickly than the scientists predicted, with impacts that are
occurring earlier than we expected.
The group, of course, shares the committee's perception
that we must and can address climate change in ways that help
the U.S. economy to move forward and compete when tomorrow's
markets begin to demand low-carbon alternatives. Specifically,
the United States Climate Action Partnership has recommended
that Congress adopt a mandatory economy-wide cap-and-trade
system that slows, stops and then reverses the growth in U.S.
emissions, that achieves 10 to 30 percent reductions within 15
years and 60 to 80 percent reductions by 2050. The group urges
the inclusion of the capacity to use graphics in order to meet
reduction targets and that the policy be complemented by other
policies to accelerate efficiency improvements and advance
technology.
So why? Why are 27 major companies, many of them heavy
energy users and heavy coal users, recommending stringent
action on climate change?
First, they believe we have to act and that it is better to
get started sooner, that delay will be expensive and increase
the eventual cost to them.
Second, they want to compete in tomorrow's markets; and
they believe tomorrow's markets will be demanding low-carbon
technology, services and products. There will be booming
demand. They want to be there to meet that demand.
Third, they are making massive technology investments in
technology that will be in use for 50 years; and they want to
know what the rules will be in the future.
Fourth, they need a carbon price. You have already heard
several times from this panel the importance of a carbon price.
If we want to let the market choose winning technologies, the
market has to have a price signal to be able to do it.
Finally, they want a level playing field. We now have 17
States that represent the majority of the U.S. economy that are
imposing their own carbon restrictions. It is an impossible
environment for multi-national companies to operate in in the
United States.
I would make one quick comment that does not represent the
U.S. Climate Action Partnership findings. Since you are in the
final process of approval of an energy bill, there are
extraordinarily important provisions in the energy bill which
would help both energy security and climate change. Those
include efficiency measures and renewable measures.
But it is important to realize that not all measures that
would improve energy security will help with climate change. An
example is the proposed subsidies for coal to liquids. Since
the process of producing liquid fuel from coal is energy
intensive, it results in far higher GHG emissions than other
liquid fuel alternatives.
Thank you very much, Mr. Chairman. I look forward to your
questions.
The Chairman. Thank you, Mr. Lash, very much.
[The statement of Mr. Lash follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chairman. The Chair will now recognize himself for a
round of questions. We will begin with you Mr. Izzo.
PSEG is primarily a northern company. A couple of weeks
ago, we actually had the Vice-President of the Southern Company
who testified before us. He told us that solar energy would not
work for the Southern Company down in Florida and Georgia. And
yet we hear from you today up in New Jersey and the States
surrounding New Jersey that you are making a massive investment
in solar energy.
And it seems kind of curious, because I think that New
Jersey seniors as they leave New Jersey to go to Florida say
the same thing that Massachusetts seniors say as they leave for
Florida, which is I hate the winters up here; I am going to
Florida. So why is it that you, a northern company, can make
such a massive investment so optimistically in solar energy,
but the Southern Company says that it won't work down there?
Mr. Izzo. Well, I can't talk for the Southern Company. I
can tell you the logic that we put into this.
Solar energy will work in New Jersey. Its estimate,
depending upon assumptions you make, is it would cost anywhere
from $5,000 to $8,000 per kilowatt. That is more expensive than
conventional gas-fired power. So one could take the approach
that, quote, it doesn't work. I would simply say it is more
expensive.
However, that would be looking at only one side of the
equation. Clearly, the benefits of solar are not only in terms
of greenhouse gas reductions but also in terms of traditional
pollutant reductions: NOX, SO2, mercury,
fine particulates. So it is our responsibility, I believe, to
educate consumers that, while there are some places energy
efficiency, where you can improve the environment at a lower
cost, there are other technologies where improving the
environment will result in higher cost, but it will work.
The Chairman. Now, we just voted in the House a standard
that would be national, 11 percent renewable electricity by
2020 and 4 percent from efficiency. Can you meet that up in New
Jersey?
Mr. Izzo. The answer to that is yes. The question that
others will ask is, at what cost? And my response is--that is
for policymakers to decide. We will do it at the least cost
possible.
But to answer your question, Mr. Chairman, yes, we can meet
it. And I think through using utilities we have a lower cost to
capital, more patient capital, longer amortization schedules,
and by removing the investment tax credit exclusion which right
now undermines a utility's ability to invest in that we can do
it at the least cost for customers.
The Chairman. Thank you.
Mr. Carson, we are also debating auto efficiency here in
the United States. Can you bring us up to speed on what is
going on in Europe? What are the standards that are being
debated across the EU?
Mr. Carson. Yes certainly, Chairman. I don't have the
actual numbers to hand, but we talk in Europe about fuel
economy in terms of grams of CO2 per kilometer. I
think the average for the fleet is about 160 grams of
CO2 per kilometer, and I would imagine that relates
to about 40 miles to the gallon. They may be slightly more. I
think that compares to the fuel economy in the U.S. of maybe
20. Again, I don't have those figures to hand, but they are
rough numbers.
The auto makers in Europe have been working to a voluntary
program to reduce their emissions of CO2 for the
fleet, and that has had some success. But, more recently, the
governments have decided they want more success than that and
are pressing the car companies to reduce from 160 to around 140
in a couple of years time and then 120 and ultimately to below
100. So very significant miles per gallon that equates to.
Having made that announcement earlier in the year, the
Frankfort Motor Show, which was in September, it was
interesting to note that every single car company showcased
high-fuel-efficiency vehicles. So these fuel efficiency
vehicles are available.
Of course, it is easy to blame the car companies for
selling vehicles that don't have high efficiency. So the
consumers take some blame here in what they want to purchase. I
accept that point. But the other thing that has happened in
Europe is that there has been a push to diesel vehicles which
are 19 percent more fuel efficient on a like-for-like basis;
and now 50 percent of new car sales in Europe are for diesel
fuel vehicles, up from something like 32 percent 5 years ago.
So quite a dramatic change in the engine type used in Europe.
The Chairman. My time is expired.
The Chair recognizes the gentlelady from Michigan, Mrs.
Miller.
Mrs. Miller. Thank you very much, and I will follow up on
my chairman's comments.
Mr. Carson, as I mentioned to you, coming from the Motor
City, Detroit, Michigan, I obviously have a very large interest
in this; and I appreciate the fact that you are trying to
articulate the differences in what we have as the government
regulation for CAFE standards, as we call them here, and in
Europe, of course, they are voluntary.
I will just make a personal observation. As you travel to
many of the major European cities, whether it is Brussels,
Berlin, Rome or whatever, you see all these buildings that are
practically blackened. We don't have that here, and that
obviously has had an impact. I am not sure how all the
voluntary standards are working there, but I certainly commend
the European automobile industry to be looking at doing these
kind of things as well.
I might ask, if I could, when--and you mentioned in your
comments, Mr. Carson, as well, about that you were heavily
invested in hydrogen fuel cell technologies, et cetera. Perhaps
you could flesh that out a bit for me. How does your company
interact with your government as far as any research and
development dollars either for hydrogen fuel cell or lithium-
ion batteries or some of the various alternative energy
sources?
Mr. Carson. Well, firstly, the comment on the black
buildings, if I may, in Europe. I don't know the cause exactly
of that. But the latest technology which has been driven by
legislation for the emissions of diesel vehicles, it is now
possible to get diesel vehicles to exactly the same emissions
performance as petrol vehicles; and that is for U.S.
legislative limits, too. So I think that the emissions from
diesel and petrol vehicles in the future will actually be the
same, so not a differentiating factor.
The fuel cell business is focused on many applications. The
biggest one in the future we believe will be cars, and we are
stimulated to work on fuel cells by the car companies who
pretty much all have some kind of programs to put fuel cell
engines into vehicles at some stage in the future.
This is quite a long-term issue. I think influential here
has been California in driving towards zero emission vehicles
which the car companies obviously have their eye on.
So our main motivation is to work with our customers. We
are the recipients and grateful to be the recipients of some
government funds in the area of fuel cells, but our main
expense and our main driver is through our desire to develop
products for future generation cars and residential buildings
in collaboration with our customers.
Mrs. Miller. Thank you.
Another difference, of course, between our two continents
is the way that we tax the usage of gasoline, petrol, and a
huge tax burden in the EU which we don't have here, although
there is a lot of talk about using taxes as a way to disincent
driving.
One of the things I think that is very important between
the U.S. and the EU is that we do have an overlay, a mesh of
the regulatory standards between our two economies and that we
don't have any kind of unintended consequences with some of the
various regulatory policies that we have had, as we did with
the Sarbanes-Oxley. Unfortunately, with the financial services
there was an overreaction, I guess, in some ways and we didn't
really talk to our European friends about that. So we want to
make sure in the environmental area that we do so.
If I could ask a question, again to my European friends
here, and we certainly appreciate you coming, I was very
interested in what is happening with the focus of the entire EU
really on the airline industry, although that is apparently
only 3 percent of the emissions as you have interpolated it
there, but yet there is a huge focus in Europe to utilize the
emissions trade. If you could just talk a little bit about
that.
Because I noticed in your written background, Mr. Grisay,
that you were saying the emissions trading scheme really hadn't
delivered on its promise. How is that all working?
Mr. Grisay. Well, that is a very interesting point. It is
certainly one that attracts a lot of attention in the public
and a growing awareness of the public in respect of the
responsibility of airline companies, and you see quite a bit of
lobbying in that respect.
As a fund manager, I can assure you that, for instance, in
the case of the socially responsible funds that we run, and
they happen to be the largest in Europe, we exclude investments
in airline companies for that reason. I think that it is also
linked to a degree to the growing success in alternative public
transportation, in particular fast trains. So this is indeed a
comprehensive review of what the alternatives are and certainly
a growing pressure for greater efficiency. I don't believe
airlines will disappear. I don't believe we should stop flying.
But putting pressure on both airlines and airports for greater
efficiency is certainly the right thing to do.
Mrs. Miller. Thank you. Has my time expired?
The Chairman. Yes, your time has expired.
The Chair recognizes the gentleman from Oregon, Mr.
Blumenauer.
Mr. Blumenauer. Thank you, Mr. Chairman.
Mr. Izzo, in your testimony, you indicate that there is
going to be a paradigm shift that is going to be necessary in
terms of how utilities are regulated to provide some incentives
for reasonable return on energy efficiency. In my community,
our gas company actually was a pioneer in decoupling to
disconnect the rate of return from just the volume of gas. Are
there other specific ideas that occur to you that we should be
considering in terms of changing that regulatory scheme?
Mr. Izzo. Yes. Decoupling is a necessary but not sufficient
condition, to use an old mathematics expression, in that it
holds a utility harmless. But, today, if I invest in a bigger
wire so that more electricity will flow, I can get a return on
that investment. If I subsidize a compact fluorescent light
bulb, I get zero return on that investment. It is strictly what
is known as a pass-through. There is only so much time in a
day, there is only so much management attention I can put to
certain things, and at the end of the day I have to show a
certain amount of earnings growth. So I tend to therefore focus
on the things that produce the profitability that my investors
seek. So what I would encourage is truly putting energy
efficiency on a level playing field with supply options and
allowing you to at least earn returns on energy efficiency.
Mr. Blumenauer. I would welcome some thoughts that you or
any of the other panel members might have in specific ways that
we might adjust the State regulatory scheme. This looks to me
to be one of the real gaps; and I, for one, am willing to
encourage higher rates of return for the types of behaviors we
want. The specifics would be of great interest.
Mr. Blumenauer. Mr. Lash, on page 5 of your testimony you
have these charts here that----
Mr. Lash. The bubble charts.
Mr. Blumenauer. The bubble charts. There is one bubble that
I noticed that was not there, and that is vehicle miles
traveled. We have people, Urban Land Institute, Smart Growth
America, a number of folks who have done an analysis that
suggests that even if the Chairman's CAFE standards are
reached, that the exponential increase in vehicle miles
traveled from outdated regulatory schemes, land-use patterns
and fewer transportation choices for folks will overwhelm any
energy savings.
Do you have any thoughts about that missing bubble and
policy initiatives that might help address that balance?
Mr. Lash. I do. I would make two comments.
First, the explanation of why the bubble isn't there is, in
order to make it readable, we tried to only portray those
policy initiatives that seemed to be immediately before the
Congress. So we put CAFE there because there was an ongoing
debate on CAFE. The same with coal liquids. We didn't see a
proposal that was before the Congress, when we developed it, on
vehicle miles traveled.
You are absolutely right. In fact, the evidence is what has
happened over the last 20 years, the U.S. auto industry has
made spectacular increases in performance and efficiency, but
they have been erased by increased size of the vehicles and by
increased vehicle miles traveled. So our consumption has gone
up. We have not put it into reduced consumption of gasoline.
The recommendations of the United States Climate Action
Partnership include the recognition that any policy on
transportation has to address the technology of the vehicle,
the fuels and vehicle miles traveled. That means a combination
of policies that address alternative transportation means and
getting at some of the land-use issues that tend to force us to
travel long ways to get to work.
Mr. Blumenauer. Mr. Chairman, I would hope that there would
be time in our agenda at some point, actually maybe even a
hearing in Oregon, where we have done some of this work--Mr.
Inslee has some of it in his book--where we could look at some
of the policies that would give people more choices that would
end up reducing vehicle miles traveled.
In our community, because we drive four miles-per-day less
on average than the national average, we are saving hundreds of
thousands of gallons of gasoline and over a billion dollars in
savings to our constituents. I think it is something that would
be a lot of fun to explore, and would love to offer some
suggestions about where to do it.
The Chairman. We will be in Portland, Oregon, before long,
we promise.
Mr. Blumenauer. Thank you, Mr. Chairman.
The Chairman. Thank you.
The gentleman's time has expired. The Chair recognizes the
other gentleman from Oregon, Mr. Walden.
Mr. Walden. And after the Portland hearing, you could come
out to, say, Burns or somewhere and look at great distances
traveled and the need for bigger vehicles. We would like to
take a look at that, because we need to get efficiency in those
as well.
I want to talk--Mr. Izzo, you made a statement, and I just
want to make sure I heard it correctly, that solar power was at
$5,000 a kilowatt hour to $8,000 a kilowatt hour?
Mr. Izzo. Hopefully I did not use the units kilowatt hour.
Mr. Walden. You did.
Mr. Izzo. Okay. Kilowatt. The installed value is $5,000 to
$8,000 per kilowatt installed.
Mr. Walden. Now, could you translate that, as a rate payer,
what is it per kilowatt hour?
Mr. Izzo. Per kilowatt hour, depending upon the amount of
sun and the conditions, but in New Jersey that would be
typically about 70 cents per kilowatt hour, which is quite a
bit more expensive than fossil fuel.
Mr. Walden. And what would the fossil fuel rate be today?
Mr. Izzo. Typically, about 7 cents per kilowatt hour.
Mr. Walden. So about 10 times.
Mr. Izzo. Yeah, some would say that it could be as little
as seven times, but it is many multiple times more expensive.
Mr. Walden. And what is the energy efficiency rating for
solar versus some of these other----
Mr. Izzo. If I am interpreting your question right, in
terms of dollars per ton of CO2 saved, solar would
cost about $500 in New Jersey for a ton of CO2. But
that, then, doesn't account for any of the NOX
savings, SO2 savings, the mercury savings, the
particulate savings.
Mr. Walden. Sure. But what about energy generation
efficiency?
Mr. Izzo. About a 15 percent conversion rate in New Jersey.
Mr. Walden. Okay. Now, I want to make sure you and I are
talking the same talk here, because, like, I am told for hydro
power, which we have a lot of in the Northwest and in other
select areas around the country, we are almost 90 to 100
percent efficient in generation conversion. So are we talking
the same thing here? The solar is what percent?
Mr. Izzo. No, we are not talking the same thing in that
regard.
Mr. Walden. All right.
Mr. Izzo. I was talking about how often the solar energy is
available to be converted into electricity.
Mr. Walden. Right.
Mr. Izzo. I don't know the answer to that question about
the overall efficiency of the solar panel in converting the
sunlight into electricity. We could get that for you. I don't
know that.
Mr. Walden. Okay. We are actually working on a project in
my district that would incorporate at least solar and perhaps
wind on an old military installation. And I am fascinated by
the prospect. We are working with the Air Force to try to work
with the National Guard to try to free up the site with the
State and develop these alternative sites. And I am just
curious as to the efficiencies and the costs and all and how we
can move that one forward.
Mr. Carson, I think, back to the issue of vehicle emissions
and all, it seemed to me, when I was on the Energy and Air
Quality Subcommittee trip to Europe, there was a lot of
discussion we had about the differences in air quality legal
standards in Europe versus the United States, and perhaps we
have a much higher standard under the Clean Air Act than
Europe.
And I am curious if you know about that and what the
differences are, especially as they relate to diesel fuel usage
in Europe and the emissions there and the deaths that are
attributed to that versus here. I think it is about 10 times as
many people die from the dirty air in Europe as here. And we
don't want to go down a path that exports that here, for
example.
Mr. Carson. I think, yeah, the issue you are referring to
is that, in Europe, the strategic decision was made by the
governments to give a different emissions standard to petrol
vehicles than to diesel vehicles.
Mr. Walden. Okay.
Mr. Carson. Different in that it was recognized that diesel
vehicles were much lower emitters of CO2----
Mr. Walden. Sure.
Mr. Carson [continuing]. But they were higher emitters of
other pollutants like NOX and particulates. So
Europe has been tolerant to that issue and had two different
standards for the different vehicles, whereas here in the U.S.
there was no tolerance to that issue. So the standards are the
same, whichever kind of engine is used. And that made the
supply of diesel-engined vehicles in America very difficult----
Mr. Walden. And if you----
Mr. Carson [continuing]. For a number of years until now--
sorry to interrupt you--where the technology has been driven
forward.
Mr. Walden. Right.
Mr. Carson. And now it is possible to meet the same
standards in diesel and petrol engines with more advanced
catalyst technology.
Mr. Walden. Did I hear you say the standards in Europe for
the petrol vehicle are the same as in the United States now for
emissions?
Mr. Carson. Broadly, yes, and they always have been
broadly.
Mr. Walden. So the new standard for diesel in Europe would
pass air quality standards in the United States?
Mr. Carson. It is very hard to do a like-for-like, because
the drive cycles are all so different in Europe. The driving
pattern in Europe is somewhat faster than in the U.S., so the
test is actually different. But broadly, the emissions
standards in 2010 in Europe for both diesel and petrol vehicles
will be pretty much the same as the emission standards in the
toughest States in North America.
Mr. Walden. Thank you.
Thank you, Mr. Chairman.
The Chairman. The gentleman's time has expired. The Chair
recognizes the gentleman from Washington State, Mr. Inslee.
Mr. Inslee. Thank you.
Mr. Lash, I wanted to ask about your suggestions, cap
suggestions about the cap-and-trade system. You testified
that--you suggested that a significant portion of the
allowances be initially distributed free to capped entities and
economic sectors particularly disadvantaged by the cap.
Could you talk about what you think should be that
targeting of those? If we are going to have some free
allocation, you know, how should that be targeted?
Mr. Lash. On behalf of USCAP, I can't tell you very much
more, because, for now, what we have agreed on is the language
you just read outloud. So let me offer some thoughts as an
individual.
There are 20, 25 States in the country whose electrical
utilities are heavily dependent on coal. And any way you look
at it, if we begin to put a price on carbon, the rates will go
up more quickly in those States than the others that have
nuclear, hydro, et cetera. So there is a belief that an
allocation to those utilities for some transitional period will
help ease any price shock.
A second option is to look at earned allocations. So if a
utility proposes, for example, to make a major investment in
carbon capture and storage, free allocations would be one way
that the legislation could reduce the cost, which is another 30
percent or so on the cost of a power plant to set up carbon
capture and storage.
A third option would be to look through the utilities to
the rate payers and try to find some way of equalizing burdens
for rate payers. I personally believe that is quite
complicated.
Mr. Inslee. You went on, ``CAP also suggests the free
allocations be phased out over a reasonable period of time.''
Why? I mean, could you give me the rationale for an auction, I
guess, to begin with?
Mr. Lash. An auction is economically most efficient. You
are assuring that those who make the biggest investment in
reducing CO2 get the biggest economic benefit. So a
covered entity, whether it is an industry or a utility that
makes major investment, for example, in methane to electricity
from a landfill and is essentially operating at zero
CO2 emissions, ought to get a very large benefit.
One way to assure that is to have an auction of credits, and
then they don't have to buy any credits.
A second question is how you use the revenues from the
auction. It gives you a chance to put the revenues back into
programs, as I think Mr. Izzo recommended, to accelerate the
adoption of technology or offset costs to low-income consumers.
Mr. Inslee. And, by the way, we haven't talked about this,
and I agree with you that a huge portion of investment would
come from the private sector, but would any of you like to talk
about the pathetically weak U.S. R&D budget from the Federal
Government, which is one-sixth of what it was on the Apollo
Project? Would any of you like to agree with my assessment on
that?
Thank you. That is unanimous. I will take that.
I want to ask my friends from Europe, if you want to give
us a critique of the cap-and-trade system, maybe the top three
lessons you have learned from your experience. We were in
Europe looking at it, and we drew some conclusions. I would be
interested in yours.
Mr. Grisay. Well, I think that is a very interesting
question. Europe has a trade system in carbon certificates
which did not work at the beginning. And I think we should
learn from that. It did not work because there were simply too
many certificates issued at the beginning. And the reason for
that was that each country was allowed to issue as many
certificates as it felt was necessary. So they all protected
their own industry and issued as many as possible.
So, as a result of that, the price of carbon collapsed, and
it obviously failed to reach the objectives set. The lesson is,
obviously, to be much more restrictive of the level of the
number of certificates to be issued. And I think you can expect
the European Commission, at the end of this year, to set
targets for 2009 that will be a lot more restrictive.
The second observation is that it is probably wrong to let
every national entity decide how many certificates they need to
issue. This should be brought at E.U. level, for obvious
coordination reasons.
And, in fact, that leads to a third lesson, which is
probably to say at some stage, recognizing that the fight
against global climate change is a global fight, one could
envisage a situation where it would be a supranational entity
that would be in charge of issuing carbon certificates. Whether
that is some sort of subset of the U.N., some sort of
equivalent to the World Bank for carbon trade, I leave open to
your own wisdom.
Mr. Inslee. The presidency of that would be determined by
the winner of the World Cup, too.
The Chairman. Thank you.
The gentleman's time has expired. The Chair recognizes the
gentleman from Connecticut, Mr. Larson.
Mr. Larson. I thank the Chairman, and I thank the
panelists.
And I want to continue along this same line of questioning,
having had the fortunate opportunity to travel to Europe with
the Chairman and the Speaker. But my question is a little bit
different. I believe that the best system for us to proceed on
is a carbon tax. I believe that it is more simplified, it is
more direct, and you don't have to have any specific economic
knowledge to implement it. You don't create any new
bureaucracy. Many countries in Europe have utilized it
successfully and are greener and farther ahead.
I understand the pragmatic political applications here in
our own country. You say ``taxes'' and our colleagues on the
other side of the aisle just go into almost apoplectic seizure.
And there isn't, you know, in election years oftentimes the
desire to move forward, albeit I am agnostic with respect to a
cap-and-trade system.
But on an issue as vital as this, as critical as this is to
the Nation and, as Mr. Grisay said, to the globe--and we
project out into the future, and while it is very important for
the United States to step up to the plate and lead the way,
ultimately we are looking at major nations on the verge of
industrial lift-off, like India and China, whose major resource
is carbon, and ironically turn to Western Europe and the United
States and say, ``So, you want to put a cap-and-trade system on
us after you have already put up most of the carbon into the
atmosphere.''
So my question is, isn't it fairer and more direct and more
efficient to go to a system that taxes carbon, taxes something
that we know is bad and know is harmful, and, in return, have
payroll deduction relief for American citizens? Your response?
Mr. Carson. Chairman, can I make a quick comment on that? I
am sure my colleagues will also want to comment.
But I guess the beauty of the cap system is that, in
Europe, the debate has been revolving around how do we keep the
level of CO2 in the atmosphere below a certain
level, be it 550 parts per billion or whatever that level is,
in order to limit the temperature rise of the planet in the
future. And if you have a cap, I guess you have some certainty
that you will get to that.
Mr. Larson. Where is the transparency and the
accountability in that?
Mr. Carson. Well, there could be some calculations done, I
am assuming, that will mean a cap has more bearing on the
outcome than a tax, which I guess, ahead of time, you don't
know how much tax you have to set, and then you don't know the
effect of that tax in reducing CO2 output. Again, I
guess the experts are the governments of Europe who have come
to that decision.
Mr. Grisay. What I would like to add to that is I don't
think any measure taken on its own is going to provide the
right solution. So I think that, if we take a long-term view,
you are probably looking at a mixture of cap and trade, fiscal
and long-term standards.
Now, to comment on the long-term standards, I think it is
really, really important that we provide industry with a long-
term certainty in respect of the standards they will have to
meet, because that will drive them to do the long-term, very
expensive investment that they would be required to do to meet
or beat those standards. And by setting them up front now, we
give our respective industries the opportunity to become market
leaders in those technologies. And that is how we will
basically be able to deal with the threat, the competitive
threat of emerging countries.
The reality is I don't think we can escape the consequences
of climate change. And what looks like moderately embarrassing
or annoying regulations today or taxations today would be very
mild compared to what will be needed in 10-years' time or 15-
years' time if we don't do this. So by pushing it now, by
incentivizing this research now, we give industry the chance to
really become very, very competitive by the time it would be
required.
Mr. Larson. Mr. Lash.
Mr. Lash. As you know, USCAP recommended cap and trade
rather than a tax, although a tax could be included as a
complementary measure to pick up those parts of the economy
that a cap system isn't applied to. The reasons are really the
ones that were just explained by Mr. Grisay, the wish for
certainty as to the level of emissions and the path of reducing
emissions.
I would add one observation, myself. I know, Congressman,
that you have been looking closely at the idea of tax shift,
which is very appealing as a way of improving equity as well as
the environment. Our experience in working with companies for
15 years now has been that price signals don't work as quickly
as they should. I know economists say there are no $10 bills
lying on the floor, but with the companies we have worked with
there have been some, quite a lot. And this is a case where we
need to get the action started from large emitters quickly.
The Chairman. The gentleman's time has expired. The Chair
recognizes the gentleman from Missouri, Mr. Cleaver.
Mr. Cleaver. Thank you, Mr. Chairman.
Mr. Carson, we are, of course, having some debate here over
a carbon tax. And as Mr. Larson mentioned, you know, the word
``tax'' in some quarters is almost reason for civil war. But is
it at all possible for Europe to have one system and the United
States another, considering the fact that we are if not already
a global economy, we are moving almost hourly toward that?
Mr. Carson. I think the important issue is that all the
economies get to do something, and harmonization of that
something is something that ought to follow later. That is my
personal view. We have never had the same system of tax regime
on fuel for cars for a very long period of time. And that has
driven differences in the market. And I understand that, you
know, a tax on fuel is an emotive issue here. It seems it has
been less emotive in Europe over the last 20 years.
So I think if there is a view that we must wait until
everybody is lined up with the same system before implementing
it, then that will take too long, is my personal view. And some
action, just like in Europe with the action on cap and trade,
which wasn't perfect--at least it was a starting point from
which we can build. And I think that ought to be the way we
operate and head toward a global agreement later.
Mr. Cleaver. Do you or Mr. Grisay have any idea of the
estimate of the carbon dioxide output per individual in the
U.K.? I think Germany, for example, is around 11; the United
States is 20.
Mr. Grisay. I think the U.K. has a modest, but nevertheless
frightening, 2 percent contribution to total emissions, so one
reason why the action needs to be lower and not just restricted
to the U.K.
But if I can come back just to what----
Mr. Cleaver. Yes.
Mr. Grisay [continuing]. He was saying a second ago, I
think there are two different objectives in my mind. One is to
get the carbon level down fast across the globe, and that may
imply indeed different approaches on different continents and
different countries.
But there is a second objective, which is to make sure that
industry remains competitive, that we create a growing economy,
that we do create jobs. And that is about making industry
competitive. And that is where I am coming back to making sure
that standards are being set so there is a long-term guidance
as to where industry needs to reach. It would be much more
practical to have similar standards, because, otherwise, those
countries that have the strictest standards are, by definition,
going to be a lot more competitive, going forward.
So I would add a word of warning there. You may take a
different point of view on taxes, but on standards I think it
would be very useful if we had some sort of global approach.
Mr. Cleaver. Thank you.
Just one last question. Mr. Lash, are you at all familiar
with the American Electric Power settlement with the EPA and a
number of other not-for-profit entities?
Mr. Lash. Yes.
Mr. Cleaver. Do you think that settlement, $4.6 billion
over a 10-year period, will have any impact upon corporate
America? I mean, a positive impact, where people recognize that
if you pollute, you are going to have to pay enormously, and
therefore people will move into some kind of compliance without
Government?
Mr. Lash. Congressman, I started working on environmental
issues in Washington about the time that Congressman Markey
arrived in Washington. And I started as a litigator for NRDC,
suing companies because they seemed to just refuse to meet
national standards.
Mr. Cleaver. My kind of lawyer.
Mr. Lash. Yeah. And I have moved to a completely different
approach to these issues. Now I spend half my time working with
the CEOs of big companies. I don't think that is just because I
have, you know, crossed the 60-year-old line. We have seen a
huge change in approach and attitudes from companies, as a new
generation has taken over. They see it as in their commercial
interests to address environmental issues proactively. And I
think that is what gives me hope that we are going to be able
to address the climate change issue.
I do think that the good companies need to be backed up by
EPA, by knowing that if there are companies that violate the
laws, they are going to be penalized. Otherwise, there is
always the risk that a company that is meeting high standards
has to compete with somebody who isn't.
The Chairman. Great.
The gentleman's time has expired. The Chair recognizes the
gentlelady from South Dakota, Ms. Herseth Sandlin.
Ms. Herseth Sandlin. Thank you.
And thank all the witnesses today.
I would like to explore an area that we haven't touched on
yet, and that is agriculture as a participant in a cap-and-
trade system.
And in response to Mr. Inslee's questions, Mr. Grisay, I
think you had a number of helpful observations on what has
worked effectively, maybe what hasn't worked effectively, and
lessons to be learned.
We did come to find, when we traveled earlier this year in
some meetings in London, that agriculture is not a participant
in the European emissions trading system. I, for one, feel
strongly that if the United States adopts a cap-and-trade
system that agriculture must be a participant, and have some
constituents and companies in South Dakota and throughout our
region that are working on appropriate measures for how you
value what grazing or farming techniques and how you measure
those.
The response that I received in the London meeting about
why agriculture isn't part of the European system is sort of
disagreement of how you accurately measure and appropriately
measure. So I am wondering if you would cite that as a lesson
learned and, moving forward, including agriculture.
And, Mr. Lash, if you have any thoughts, as well.
Mr. Grisay. I think it is a very relevant question.
Agriculture, in my mind, should be included. I think the whole
issue about biofuels is really one of first recognizing that
there is probably very substantial potential in that industry,
but that we need to do a better job at understanding the full
life cycle of the development of those products. Because it
appears that the so-called first generation of biofuel products
may not come from sustainable sources, and that we may, in the
course of producing them, either be totally inefficient or
actually cause damage.
So the issue, in my mind, is to be very open-minded toward
agriculture and biofuels, but making sure that we have a number
of new technologies and the so-called second generation of
biofuels, which would come, for instance, from sustainable
lands, probably not from food crop, and probably use mostly
waste land or high-fiber-contained products.
So there is a future there but, again, one that requires
investments and investigation.
Mr. Lash. I was hoping you were going to bring up this
issue. One aspect of it needs to be addressed in whatever
climate change legislation you pass, and that is the question
of whether agriculture can participate as a seller of credits
into a trading system under a cap. It is an opportunity for
farmers and larger-scale operators to make reductions to
sequester carbon and then to get credits for it.
A second--the question of measurement I think we have made
some progress on. The Voluntary Carbon Exchange that operates
in Chicago, Chicago Climate Exchange, has, in fact, done quite
a lot of work on measurement of agricultural offsets so that
they could be included in the CCX system. The USCAP
recommendations would allow agricultural offsets to be
included.
The second set of issues are ones that would be covered in
other legislation relating to the whole issue of biofuels,
technical assistance to the agricultural community, and the
movement from corn-based ethanol to cellulosic ethanol from
waste materials or forest products.
Ms. Herseth Sandlin. Thank you.
And that leads to my other questions, in terms of beyond
biofuels, wind, solar, the health of our forests and enhancing
them as carbon sinks.
But would you agree with me that to achieve the potential
that we have with the renewables of wind and solar, in
particular, but then with biofuels and the flex fuel vehicles
that are being manufactured and getting CAFE credits, but yet
the availability of the fuel not being as comprehensive as we
would like, that, in addition to whatever investments we make
at the Federal Government level and R&D combined with private-
sector investment in technology, that the Federal Government
has to make investments and perhaps impose requirements as it
relates to transmission capability across the country to get
the wind resources from the Great Plains to other parts of the
country, as well as the fuel distribution infrastructure to
make sure that we are achieving both the objectives of energy
security and the positive climate impact?
Mr. Lash. Again, not speaking on behalf of USCAP, because
we haven't addressed this, the transmission issues are very,
very real, particularly because wind power is growing so fast.
I would defer to Mr. Izzo in terms of the specifics of how
best to address that.
Mr. Izzo. We are a firm believer in open access to
transmission; however, not simply designating what type of
supply would get earmarked a slice of that transmission, but
letting the market determine what the best solutions are for
moving power back and forth.
But the specific answer to your question is, yes, there is
clearly a need for transmission infrastructure to move
renewable energy from the places that are more suitable for
siting and building those facilities.
Ms. Herseth Sandlin. Thank you.
And thank you, Mr. Chairman.
The Chairman. The gentlelady's time has expired.
Here is what I would like each of you to do: Give us a 2-
minute summation of what you want the committee to remember as
we are moving forward. We have an energy bill that we are
trying to resolve between the House and the Senate over the
next 6 weeks, which would be the most historic energy bill in
the last 30 years here in the United States.
And subsequent to that, we have an intention to take up the
debate on climate change in terms of a cap-and-trade system or,
as Mr. Larson is saying and Senator Dodd, a carbon tax. But the
Speaker of the House has said that she wants a bill that passes
that has a mandatory cap-and-trade system that reduces our
emissions by 80 percent here in the United States.
So this energy bill is up right now, and hopefully we can
resolve that in the next 6 weeks, and then we will move on.
So let us go in reverse order, give each one of you a 2-
minute summation so that you can tell us how you believe we
should be viewing these issues and your recommendations as to
how we should proceed.
We will begin with you, Mr. Lash.
Mr. Lash. Thank you, Chairman.
I would begin by echoing what you were saying just a moment
ago. The energy bill is a very good first step. The energy
efficiency provisions, the renewable provisions will make a
significant difference for both of the issues mentioned in the
title of this committee. And it is there, it is available, it
is waiting to be passed. It will reduce costs for the country,
ultimately.
Secondly, we should not assume that it isn't possible to
pass strong greenhouse-gas-reduction legislation in this
Congress. I met with Senator Lieberman yesterday. I believe
that the Senate Environment Committee will get a strong bill
out this year, and I think there is a real potential.
The important thing is to keep our eye on the ball, to
remember that we need legislation that gives industry and
investors a long-term road map that we are going to start
reductions and continue reductions over a period of decades, so
that they can make investments in light of those signals.
The Chairman. Thank you, Mr. Lash.
Mr. Grisay.
Mr. Grisay. Thank you, Chairman.
I would just summarize conversations I have had before with
Prime Minister Blair, Brown, and President Barosso on that very
question. And I think the strong message that I would like to
share with you is that there is a need for urgent action. We
just cannot wait. And there are opportunities and risks in
front of us, but the costs of delay are just absolutely
staggering.
And maybe one suggestion there is to see the U.S. Congress
supporting the equivalent to a stern review, as was done in the
U.K., in case there were still people around who had some
doubts.
Practically speaking, I look forward to implementing, as
part of the energy bill, binding regulations. And I would
certainly welcome a mixture of cap and trades, fiscal measures,
and standards for energy efficiency going forward, because I
think all three are necessary for the reasons that we
discussed.
The Chairman. Thank you, Mr. Grisay.
Mr. Carson.
Mr. Carson. Similar message from me, Chairman. Urgent
action required. Not one solution, but very many solutions to
this issue. Some are simple, and some we must be getting on
with right away.
And I am sure business is now getting on with its resource
efficiency issues, because that is going to save money. But the
others that need a technology solution also need to go hand in
hand with a framework for future binding targets, in order that
industry can spend its own money in finding those solutions.
And we and our colleagues are very keen to work together with
governments to try to make that happen sensibly.
The Chairman. Thank you, Mr. Carson.
Mr. Izzo.
Mr. Izzo. With regard to the energy bill before the
Congress now, there are two imperatives that we would identify.
Number one is elimination of the investment tax credit
exclusion for utilities to participate in solar energy so that
we can help develop solar power in a least-cost method. Number
two would be incentives for States to encourage utility
participation in energy efficiency in ways that benefit both
customers and investors.
On the broader issue of the global climate change
legislation, we would argue that a bill with reduction targets
and timetables that are strong enough to obviate the need for
regional and State programs is an imperative. Regional and
State programs will create competitive distortions that could
actually not only raise rates for customers, but result in
environmental degradation through a phenomenon known as
leakage. We have heard already about the importance of
harmonization at the international level and at the E.U. level.
It seems to me that a single national greenhouse-gas-emissions
credit-trading market would be an obvious first place for us to
begin here in the United States.
Thirdly, a fair allocation approach in the electric sector
that acknowledges the investments already made by companies in
cleaner technology and incents those types of investments going
forward.
And lastly, consumer protections in the form of assistance
for low-income customers from any proceeds that are derived
from the auctioning of allowances.
The Chairman. Thank you, Mr. Izzo, very much. And as you
know, much of what you are recommending is in either the House
or the Senate energy bill right now. And we will fight to
maintain that, because I do agree with you that the utility
sector has a huge role to play, and we have to construct a
newer and smarter set of incentives for the utility industry to
fully participate.
And I want to actually tell you this, too, especially our
friends from across the ocean, that the energy bill that we are
considering and we are debating over the next 6 weeks, if the
best elements of it remain intact and are in the final package,
it would meet, by 2030, 40 percent of the United States' goal
to reduce heat-trapping gases that the United States has to do
in order to save our planet--40 percent of our goal.
So, because we are dealing with the electric utility
industry and the automotive sector, buildings, all of the
appliances in our country, combined, that 40-percent number is
something that is very realistic in terms of contribution to
climate change, and I think sets the stage, as Mr. Lash said,
for a more comprehensive climate change bill. But not to
understate what 40 percent means in terms of demonstrating the
resolve that the United States has to deal with these issues
and send a signal to the rest of the world that we no longer
will be the laggard but, rather, a leader in setting standards.
And I think that is a very important statement for us to make.
So this bill that is pending before us is very, very
important. And if we have a 40-percent solution by 2030, I
think that the rest of it will be able to be followed on,
because it will give the utility industry, the automotive
industry and all other sectors a stake, then, in finding a way
to put together a comprehensive cap-and-trade system, which,
ultimately, I think will become a model for the rest of the
world, partnering with the E.U.
So we thank each of our witnesses. We thank Prince Charles
for his contribution to our hearing today.
And, with that, this hearing is adjourned.
[Whereupon, at 11:15 a.m., the committee was adjourned.]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]