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



 
                             POLICY OPTIONS
                       TO PREVENT CLIMATE CHANGE

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

                                HEARING

                               before the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 18, 2008

                               __________

                           Serial No. 110-98

                               __________

         Printed for the use of the Committee on Ways and Means



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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York         PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY C. HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
MIKE THOMPSON, California            THOMAS M. REYNOLDS, New York
JOHN B. LARSON, Connecticut          PAUL RYAN, Wisconsin
RAHM EMANUEL, Illinois               ERIC CANTOR, Virginia
EARL BLUMENAUER, Oregon              JOHN LINDER, Georgia
RON KIND, Wisconsin                  DEVIN NUNES, California
BILL PASCRELL JR., New Jersey        PAT TIBERI, Ohio
SHELLEY BERKLEY, Nevada              JON PORTER, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama

             Janice Mays, Chief Counsel and Staff Director

                  Brett Loper, Minority Staff Director

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________
                                                                   Page

Advisory of September 11, 2008, announcing the hearing...........     2

                               WITNESSES

The Honorable Michael Bloomberg, Mayor, City of New York, New 
  York...........................................................    11
Peter R. Orszag, Ph.D., Director, Congressional Budget Office....    16
The Honorable Carol Browner, Principal, The Albright Group LLC...    39
Dallas Burtraw, Ph.D., Senior Fellow, Resources for the Future...    41
Robert E. Lighthizer, Partner and Head of the International Trade 
  Department, Skadden, Arps, Slate, Meagher & Flom LLP...........    60
Timothy J. Regan, Senior Vice President, Corning Incorporated....    70
Gary Clyde Hufbauer, Reginald Jones Senior Fellow, Peterson 
  Institute for International Economics..........................    79

                                 ______

Frank Ackerman, Ph.D., Global Development and Environmental 
  Institute and Stockholm Environment Institute--U.S. Center, 
  Tufts University, Medford, Massachusetts.......................   104
Daniel R. Abbasi, Director, MissionPoint Capital Partners, 
  Norwalk, Connecticut...........................................   123
Jerome Ringo, President, Apollo Alliance, San Francisco, 
  California.....................................................   165
Peter Barnes, Senior Fellow, Tomales Bay Institute, Point Reyes 
  Station, California............................................   169
William W. Millar, President, American Public Transportation 
  Association....................................................   179
David W. Kreutzer, Ph.D., Senior Policy Analyst, The Heritage 
  Foundation.....................................................   187

                       SUBMISSIONS FOR THE RECORD

Accor Services USA, statement....................................   206
Environmental Defense Fund, statement............................   208
Humane Society of the United States and the Humane Society 
  International, statement.......................................   213
Industrial Energy Consumers of America, statement................   215
James Culliton, statement........................................   215
Julian Keniry, statement.........................................   217
Mayor Will Wynn, letter..........................................   218
Robert J. King, P.E., letter.....................................   220
Shawnee Hoover, statement........................................   223
Stephen A. Smith, statement......................................   240
Thank you letter to Congressman Doggett..........................   243
Thomas J. Gibson, statement......................................   244
VPSI, statement..................................................   246


                             POLICY OPTIONS
                       TO PREVENT CLIMATE CHANGE

                              ----------                              


                      THURSDAY, SEPTEMBER 18, 2008

                     U.S. House of Representatives,
                               Committee on Ways and Means,
                                                    Washington, DC.

    The Committee met, pursuant to notice, at 10:35 a.m., in 
room 1100, Longworth House Office Building, Hon. Charles B. 
Rangel (Chairman of the Committee), presiding.
    [The advisory announcing the hearing follows:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                                                CONTACT: (202) 225-5522
FOR IMMEDIATE RELEASE
September 11, 2008
FC-22

                 Chairman Rangel Announces a Hearing on

                Policy Options to Prevent Climate Change

    House Ways and Means Committee Chairman Charles B. Rangel today 
announced the Committee will continue its series of hearings on climate 
change. The next hearing will focus on policy options for reducing 
greenhouse gas emissions. A number of proposals have been referred to 
the Ways and Means Committee in the 110th Congress (e.g., H.R. 2069--
The Save Our Climate Act of 2007 (Rep. Stark), H.R. 6316--The Climate 
MATTERS (Market, Auction, Trust & Trade Emissions Reduction System) Act 
of 2008 (Rep. Doggett), H.R. 3416--The America's Energy Security Trust 
Fund Act of 2007 (Rep. Larson), and H.R. 6186--The Investing in Climate 
Action and Protection Act of 2008 (Rep. Markey)). This hearing will 
take place on Thursday, September 18, 2008, beginning at 10:30 a.m. in 
the main committee hearing room, 1100 Longworth House Office Building.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing. A list of invited 
witnesses will follow.
      

BACKGROUND:

      
    The Committee on Ways and Means has previously heard testimony that 
human greenhouse gas emissions are having an adverse impact on our 
planet's climate. These witnesses testified that the United States 
``must enact and implement a comprehensive national mandatory market-
based program to progressively and significantly reduce U.S. greenhouse 
gas emissions in a manner that contributes to sustained economic 
growth.'' Since that hearing, a number of legislative proposals have 
been introduced in the House of Representatives, and been referred to 
the Ways and Means Committee, that would implement market-based 
programs to reduce greenhouse gas emissions in the United States.
      
    There is bipartisan support for action to address climate change. 
Senior lawmakers on both sides of the aisle have proposed enacting 
mandatory economy-wide cap and trade programs to reduce greenhouse gas 
emissions. Their proposals, like other proposals introduced in the 
110th Congress, would contain revenue measures (e.g., auctions of 
carbon allowances) that are within the jurisdiction of the Committee on 
Ways and Means. In addition, many of the market-based climate change 
proposals include import requirements that are within the Committee's 
jurisdiction. This hearing will mark the beginning of the Committee's 
work on this important issue.
      

FOCUS OF THE HEARING:

      
    The hearing will focus on the policy options that are available for 
reducing greenhouse gas emissions in the United States and will examine 
the design choices presented by these options. In particular, the 
Committee will explore the revenue components of these policy options. 
The Committee will also explore proposals to promote a comprehensive 
global effort to address climate change and to ensure a level 
regulatory playing field for U.S. manufacturers. The hearing will also 
focus on the potential costs that could be imposed on the U.S. economy 
if Congress fails to act to reduce U.S. greenhouse gas emissions and 
the economic growth opportunities that would arise from implementing a 
market-based program to reduce U.S. greenhouse gas emissions.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``110th Congress'' from the menu entitled, ``Committee Hearings'' 
(http://waysandmeans.house.gov/Hearings.asp?congress=18). Select the 
hearing for which you would like to submit, and click on the link 
entitled, ``Click here to provide a submission for the record.'' Once 
you have followed the online instructions, complete all informational 
forms. ATTACH your submission as a Word or WordPerfect document, in 
compliance with the formatting requirements listed below, by close of 
business on Thursday, October 2, 2008. Finally, please note that due to 
the change in House mail policy, the U.S. Capitol Police will refuse 
sealed-package deliveries to all House Office Buildings. For questions, 
or if you encounter technical problems, please call (202) 225-1721.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons, 
and/or organizations on whose behalf the witness appears. A 
supplemental sheet must accompany each submission listing the name, 
company, address, telephone and fax numbers of each witness.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TDD/TTY in advance of the event (four 
business days' notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

    Chairman RANGEL. For our visitors, excluding Members--they 
can take their time--please take seats. Thank you so much.
    This is the first time this Committee is meeting without 
the presence of our beloved colleague, Stephanie Tubbs Jones. 
Before I yield to my friend, Jim McCrery, I think we all can 
agree, especially those of us on the majority side, that she 
was an overwhelming personality, she brought a sense of humor 
during the tensions that we Democrats have, and even when we're 
working together in a bipartisan way. She was a dedicated 
public service pioneer, a history maker, and her memory is 
going to be with this Committee and this Congress and this 
country for a long, long time.
    On this, I would like to yield to Jim McCrery, who has 
expressed a deep fondness and--for her and her memory.
    Mr. MCCRERY. Thank you, Mr. Chairman. Certainly our 
gathering today without our friend, Ms. Tubbs Jones, is not a 
happy occasion. We all came to know her on this Committee as a 
vivacious personality, but a--to put it mildly, an enthusiastic 
advocate for positions that she believed in very strongly. I 
know that all of my colleagues on the Committee share my 
appreciation for her life and her contributions to this 
Committee and to this Congress and to her community and to this 
Nation.
    So, Mr. Chairman, if you don't mind, I would suggest just a 
few moments of silence in her memory before we proceed.
    Chairman RANGEL. I would like to have included in that 
prayer the loss of Vicky Levin, who was the beloved wife of our 
dear friend and my brother, Sandy Levin.
    For those of you who haven't met or traveled with her, then 
you have missed out on one of the most exciting personalities 
and intellectual people that you will meet in life. She was a 
wonderful woman and, for over 50 years, the sweetheart of 
Sandy, and the mother of their four wonderful children. You may 
not have known, but Sandy spent days and weeks at the hospital, 
never, but never, giving up. He is a strong Member, and I hope 
that we would include her memory along with Stephanie, as we 
pause now for a moment of silence.
    [A moment of silence was observed.]
    Chairman RANGEL. Jim McCrery, I hope the witnesses don't 
think we do this often. But this is the last time that we 
expect this year to be meeting as a full Committee.
    After a decade of us hardly knowing each other's names, Jim 
McCrery and I met to decide that, whatever differences that we 
had, it was the Committee, the Congress, and our country that 
should take a priority. We have really worked together, 
succeeded in a lot of issues. But even the Committee Members 
will not know the obstacles that, working together, we have 
overcome to remove the possibility of having a partisan fight.
    Jim, not only are you going to be missed, but I have been 
talking to Members on your side in saying that whatever we lose 
or gain next year, let us try to maintain what you have done. 
It hasn't been easy on your side, and I have had a lot of 
difficulty on my side, because people like to fight, like to 
fight. But we have done a great job under your leadership, and 
we are going to meet formally to express it individually.
    I would like to say, also, happy birthday.
    Mr. MCCRERY. Thank you, Mr. Chairman. Right back at you.
    Chairman RANGEL. Chairman McNulty of Social Security is an 
old friend to us New Yorkers. Not only has he served here, in 
the Congress, but he is an old-time member of the New York 
State Assembly.
    Since the assembly meets in our State capital, in Albany, 
he still visits the capital. I don't know where he intends to 
reside, but it seems to me that even though, formally, he's 
leaving, we should not be too surprised if we find him in the 
Congress and the Committee. Happy birthday to you.
    Mr. MCNULTY. Thank you, Mr. Chairman. I want to thank all 
of the Members and everyone here in Washington for the many 
kindnesses which have been extended to me over the past 20 
years here in Congress, and throughout my 39 years as an 
elected public official, and all the blessings that I have 
received throughout my life. Thank you, Mr. Chairman.
    Chairman RANGEL. Happy birthday to you, as well. Our buddy, 
Jim Ramstad, will be leaving. Representative Weller, 
Representative--well, how many Members in--Lewis will not be 
with us. Well, we can say it's--we can say that we will be 
meeting on Wednesday, we will talk about that.
    Let's get on with the business of the Committee, as we 
attack this very serious problem that our Nation is facing, 
recognizing that there is no Democratic or Republican solution, 
and also knowing that this hearing is not really to find a 
solution, but really to discuss the options.
    As I told Congressman Camp yesterday, that we hope that if 
there are other ideas that this hearing doesn't cover because 
of our lack of sophistication as to exactly what we have to do 
this year, I want the Minority here and the Minority that comes 
back to realize that we will have hearings and try to educate 
ourselves as to how we, as a Congress, Congress and country, 
can tackle this serious problem.
    Now, we get to Mike Bloomberg, who is absolutely bigger 
than life in our city. We are just so proud that he represents 
our city and our country, and in the world, in terms of being 
able to feel the independence of the intellect to do the right 
thing, not politically, but to do the right thing for the 
people, which he has been sworn to serve. I told him this 
morning that he sets an example of what a handsome, 
intelligent, personable billionaire can do, once they make 
their mind up that they're going to be a public servant.
    We hope that this Committee will be able to serve the next 
President with some ideas so that we can hit the ground 
running. We have leadership from the business community that 
recognize that this has to be handled in a bipartisan way. So, 
therefore, we hope that Members on both sides will try to keep 
their leadership, as it relates to their party, out of it as we 
try to see what climate change legislation we can ultimately be 
able to recommend, no matter who is the President of the United 
States.
    We also have to make certain that whatever we do is 
consistent with the World Trade Organization rules. I am 
certain that at the end of these hearings, that we will be 
better informed--and to also remember that while we share 
jurisdiction on this with other Committees, they still will be 
looking to us as providing the leadership on which way the 
Congress goes.
    So, I think our first witness here--my Mayor, isn't it, 
staff? Isn't my Mayor the first witness? Oh, yes.
    Because so many of our Members have worked so hard on this 
issue, I would like to first yield to my partner on this, Jim 
McCrery, to make and to recognize whatever Members he sees fit, 
to let you know that this is not the beginning, but an ongoing 
process that we're just trying to bring there. So, Jim, I 
yield.
    Mr. MCCRERY. Thank you, Mr. Chairman, and I appreciate your 
recognizing and asserting this Committee's jurisdiction over 
this issue. We certainly should play an important role in 
developing policy with respect to this issue and other issues 
that it might affect.
    Last February, we held our first hearing on climate change 
issues. At that time, I suggested that any legislation designed 
to address global climate change should be examined in the 
context of America's need for energy security. On the day of 
that hearing, the average price of a gallon of gasoline in the 
United States was about $2.42. It's now about $3.75. Even 
though global crude oil prices are falling, the devastation 
caused by Hurricane Ike, particularly on our strained refining 
capacity, threatens to push those prices even higher.
    As we listen to today's witnesses, I hope we will keep 
those prices in mind and ask those witnesses and ourselves how 
much higher carbon taxes or cap and trade systems might push 
energy prices in this country.
    We also need to examine how those higher prices translate 
into job losses, both from the contraction of our economy, as 
well as from the movement of manufacturing jobs to countries 
that don't take similar steps to reduce carbon emissions.
    Perhaps just as importantly, we should ask whether those 
higher prices would result in any measurable reductions in any 
global greenhouse gas emissions and global temperatures.
    When considering the answer to those questions, I believe 
we ought to keep in mind how likely it is that other countries 
won't match our actions. China is now recognized as perhaps 
emitting more carbon than the United States. While our 
emissions growth is relatively flat, China's is still going up 
at a pretty good pace, as are emissions from other fast 
expanding economies like India.
    Those countries have made clear they have no intention of 
slowing their economies with restrictions on carbon emissions. 
So, if we raise energy taxes on our manufacturers, they may 
respond by moving their production to countries that do not 
impose such costs. I suppose offshoring manufacturing jobs is 
one way, though, for us to meet new emission targets.
    But if those jobs move to countries who are less carbon 
efficient, then not only have we shipped jobs abroad, we have 
also increased, not decreased, total greenhouse global 
emissions.
    I expect we will hear from witnesses today that climate 
change is a global problem, meaning that a ton of carbon 
emitted in New Delhi has the same effect as one emitted in New 
York. So, cutting carbon emissions at home, while increasing 
them abroad, will not reduce the dangers that many have warned 
us about. In fact, it could exacerbate them.
    Mr. Chairman, as this hearing proceeds, I hope we will ask 
three questions: number one, how much will a carbon reduction 
plan raise energy prices; number two, what damage will it do to 
our economy; and three, how will those changes impact the 
global climate? Together, I think those questions will show the 
deep flaws of carbon taxes and cap and trade, flaws which we 
should not ignore.
    Some might suggest that doing nothing is not an 
alternative. While I would prefer to do something that is 
constructive, if doing something that makes us feel better 
about ourselves comes at the cost of hurting our economy and 
raising greenhouse gas emissions worldwide, I think we are 
better off rejecting cap and trade or carbon taxes.
    So, Mr. Chairman, there is a variety of things I think, 
ultimately, this Committee and others should look at in this 
area of global climate change. We have supported a variety of 
tax changes, for example, to encourage alternative energy and 
conservation. We can look at those and perhaps expand those 
efforts, encourage the research and development to bring about 
further breakthroughs that reduce our reliance on fossil fuels 
without crippling our economy.
    We could also encourage trade and equipment and technology 
that speeds the spread of those advances around the world. Of 
course, we, as you suggested, need to make sure that we do that 
in a WTO-compliant way.
    Mr. Chairman, I will close by noting that there is one 
feature of this issue about which there should be bipartisan 
agreement, and I have already touched on this. This hearing 
should serve notice to the next Congress that so many of the 
issues surrounding a cap and trade system, including the 
allocation of auction revenue and measures designed to mitigate 
the leakage of jobs, are squarely within the expertise and 
jurisdiction of this Committee and its Members.
    I won't be here next year, but I hope all Members will keep 
in mind the importance of this panel's active participation in 
the molding of any climate change legislation that might move 
in the 111th Congress. We have lots of talent on this 
Committee, Mr. Chairman. Both sides, Republicans and Democrats, 
have worked hard to make sure we have some of our brightest and 
best Members take seats on this Committee.
    So, I will look forward to watching next year, as this 
Committee takes a leading role in fashioning whatever policies 
ultimately emerge from the Congress on this issue. Thank you, 
Mr. Chairman.
    Chairman RANGEL. Thank you, Jim. I have been advised by 
staff that several Members on the outside would like to share 
their views and opening remarks. In view of the fact that we 
have so many witnesses and panels, I would encourage you to 
keep your remarks to 2 minutes, and that we will recognize, in 
this order, not necessarily--we will try to find out whether 
any of the other Members would care to speak. But Mr. Stark, 
Mr. Doggett, Mr. Larson, Mr. Blumenthal [sic], and you can 
determine.
    The Chairman yields 2 minutes to Mr. Stark.
    Mr. STARK. I would yield back, Mr. Chairman.
    Chairman RANGEL. Mr. Doggett.
    Mr. DOGGETT. Thank you so much, Mr. Chairman, for advancing 
our efforts to perfect the best possible solution to the global 
warming crisis.
    The science is in, the consensus is clear, that global 
warming is real, and that the consequences are already 
impacting us.
    The cost of inaction is much greater than the cost of a 
well-crafted legislative solution. The cost of continuing to do 
nothing is impacting much more than polar bears. It will start 
hurting consumers where they live, not just in some exotic 
place in a travel magazine. It will hit families in their 
pocketbooks, as they're already reeling from the high price of 
our addiction to fossil fuels. Inaction endangers our health, 
our wealth, and our national security.
    Ninety-two Members of this House, including a majority of 
the Democratic Members of this Committee on Ways and Means, are 
sponsors of H.R. 6316, the Climate Matters Act. It is the first 
cap and trade legislation to receive primary referral to this 
Committee.
    H.R. 6316 places a strong but achievable cap, a limitation 
on greenhouse gas emissions, which can be coordinated in an 
auction, a Treasury-administrated auction, and which will then 
rely on the free market to set a cost on a pollution by the 
ton.
    When we introduce an improved version of this bill in the 
next Congress, I sincerely hope that it will gain bipartisan 
support. But whatever your view on the mechanics of this 
particular bill, Ranking Member McCrery has made clear that we 
should have unanimity in this Committee about our active role 
on this very critical issue.
    As today's witnesses will make clear, transitioning to a 
less carbon-dependent economy will involve the raising of 
hundreds of billions of dollars in new revenue. If we are to 
maintain competitiveness, Americans must be concerned about the 
trade implications of this legislation, particularly those 
countries who initially declined to join the transition to a 
carbon-free economy.
    Revenue and trade are two cornerstones of this Committee's 
responsibility. The Climate Matters bill also addresses a 
third, and that's health care. Instead of massive public 
giveaways or pollute-free cards, the Climate Matters Act would 
auction allowances, and apply the resulting revenues to a 
healthy families fund, to address the health care challenges 
that plague so many American families and businesses.
    The cap and trade bill, as one of our witnesses suggests, 
is also a cap and invest bill investing these auction revenues 
in infrastructure, in industry, in universities with research 
and development, in clean energy, in our workforce.
    Ten States, from Maryland to Maine in the northeast, in the 
west six States--excuse me, seven States--including California 
and four Canadian provinces, are already beginning to 
implement, at the State level, a cap and trade system. Both of 
our Presidential candidates, Republican and Democrat, have 
endorsed a cap and trade system.
    I think it's clear that there is a consensus that we can 
either run the new economy less dependent on fossil fuels, or 
get run over by it. I look forward to working in good will with 
all of those willing to fashion legislative solutions, based on 
good science. I believe that the Climate Matters bill, H.R. 
6316, which the witnesses will be addressing, is a good place 
to begin. Thank you, Mr. Chairman.
    Chairman RANGEL. I thank the gentleman for his contribution 
to this sensitive problem that we face in the country, and I 
recognize Mr. Herger for 2 minutes.
    Mr. HERGER. Thank you, Mr. Chairman. I must express my 
serious concerns with the proposals to address climate trade, 
such as cap and trade, that aim to reduce emissions by 
increasing the cost of energy. Numerous studies that were 
conducted on cap and trade legislation that was debated by the 
Senate a few months ago all concluded that cap and trade would 
have serious negative effects on our economy.
    While the exact numbers differed, all estimates pointed to 
a reduction in GDP, an increase in energy costs, all of this 
occurring under an enormous expansion of the Federal 
Government. At a time when our economy is suffering, and we 
have seen the serious impact rising energy costs have had on 
American families, I don't believe Congress should be 
contemplating further increases in energy costs, and imposing 
even greater financial strain on our country.
    Furthermore, analysis by the EPA shows that even if the 
U.S. significantly reduced its emissions, global emission 
levels will continue to increase rapidly under--major 
developing country emitters also reduce their emissions.
    I am concerned that American citizens will be forced to pay 
higher energy costs, and see their standard of living reduced 
without seeing any improvement in the global level of 
emissions.
    I believe there are better alternatives to the proposals 
being considered before the Committee today, those that 
incentivize energy, innovative technology, without imposing 
costly new burdens on our economy. One way to do that is 
through trade liberalizations of technologies that can help us 
reduce emissions.
    Mr. Chairman, I would ask unanimous consent to enter into 
the record this op ed written by Ambassador Schwab and 
Australian Trade Minister Crean on the need for positive trade 
liberalization efforts to address this climate change.
    Chairman RANGEL. The Chair hears no objection; so ordered.
    [The information follows:]
    Mr. HERGER. Again, Mr. Chairman, I thank you for this 
hearing, but I would think--I would hope that we would take 
very seriously the incredibly negative potential ramifications 
that moving in this direction would pose on our Nation.
    Chairman RANGEL. Thank you for your contribution. The Chair 
now recognizes Mr. Larson for the great work that he has done 
on this issue.
    Mr. LARSON. Thank you, Mr. Chairman, and I want to thank 
the staff and you for putting together this outstanding panel 
and these 14 panelists who will come before the Members of 
Congress.
    I think the question was appropriately raised by Mr. 
McCrery, whether or not we face the ``fierce urgency of now,'' 
as Martin Luther King once ascribed, with respect to our 
environment and global warming and its effects.
    I look forward to the testimony of the panelists, experts 
in their field, to lay out a path forward for us.
    Most importantly, as we go forward, I concur with the 
Members on the other side of the aisle. Let's look at what will 
be revenue-neutral. Let's look at taxing polluters upstream, 
but passing down the benefits downstream to the consumers, 
reducing payroll taxes, and using our creativity and this 
Committee's authority to create a system that will provide the 
opportunity and the innovation and the tax relief that they 
need, as well.
    The question that this Committee will ultimately resolve 
is, what is the best path forward to take? Is there a fierce 
urgency of now to act, or is doing nothing a better way to go? 
If we're going to act, what's the best course? What's in our 
economic interests, and how do we secure it in the most 
feasible, possible, cost-effective manner?
    With that, Mr. Chairman, I thank you.
    Chairman RANGEL. Thank you for your--thank you so much, Mr. 
Larson, for your contribution. The Chair now recognizes 
Congressman Camp.
    Mr. CAMP. Well, thank you, Mr. Chairman, I will be very 
brief. I appreciate you and the Ranking Member asserting the 
Committee's jurisdiction over this issue. But to say that any 
market-based approach to climate change would have significant 
revenue and international trade implications is an 
understatement.
    Let's be clear about what cap and trade would actually do. 
It would dramatically increase energy prices, specifically for 
middle- and low-income consumers, and it would increase costs 
for American manufacturers, and eliminate about half-a-million 
American jobs each year. It would hamper growth in our economy 
for the next several decades, while other nations watch us in 
amusement.
    While we're all interested in new and clean technologies in 
response to higher energy cost and climate change, we must look 
at those in light of the current economic struggles our country 
is facing.
    So, with that, Mr. Chairman, I look forward to the 
testimony today, and I want to thank our witnesses for being 
here, and I yield back the balance of my time.
    Chairman RANGEL. Thank you. The last Member that indicated 
he wanted to share his views on this, is Mr. Blumenauer, who 
has really gained a nationwide attention for his views on this 
sensitive subject. The Chair recognizes him for 2 minutes.
    Mr. BLUMENAUER. Thank you, Mr. Chairman. I appreciate your 
courtesy, and I appreciate the sentiment expressed by our 
Ranking Member about the criticality this has for the mission 
of this Committee. I think it's appropriate that we conclude 
this Congress with our first major hearing with a distinguished 
panel to tie these elements together, because we are in a 
carbon-constrained, water-stressed, energy-short world.
    One of the things that both Presidential candidates agree 
upon is that the United States is going to join the rest of the 
world in trying to be proactive in dealing with climate change 
in the next Administration.
    I have been pleased to work with my friend, Mr. Doggett, on 
one version that gives some choices, that provides, I think, an 
interesting intersection. Mayor Bloomberg has been a leader, 
not just in the revitalization of New York City, but leading 
the charge with Governor Schwarzenegger, Governor Rendell, and 
others, talking about the need to rebuild and renew America.
    Another item critically in the purview of this Committee, 
as we face a trust fund that is going into deficit for the 
first time in history, an opportunity for us to tie these 
elements together, rebuilding and renewing America, dealing 
with the transportation deficit, and the threat from carbon 
pollution.
    There are many options. We have a choice to put these 
pieces together in ways that are revenue-neutral, that actually 
raise revenue for other priorities, or, in fact, could reduce 
burdens for other people, as we seek to end the problems 
associated with carbon pollution.
    But one of the things that is clear--and anybody who reads 
Sir Nicholas Stern's report--I think documents very clearly 
that the costs of our moving forward and doing nothing, the 
risks to that, are tremendously greater than simply the short-
term, immediate steps that are offered by legislation that are 
here.
    I look forward to working with you and the Committee in 
moving these proposals forward.
    Chairman RANGEL. Thank you so much Mr. Bloomberg--
Blumenauer.
    Now, Mayor Bloomberg has to leave us, and so I hope that 
the panel will allow me to call him first. New Yorkers have 
unfairly been challenged with the idea that we have more self 
esteem than we really need. One of the reasons for it is 
because of the outstanding leadership that we have had from our 
Mayor, who has been willing to take the risks, take the 
challenges that may be unpopular, but at the end of the day, 
New York City manages to come out ahead, not only in New York 
and our State, but indeed, throughout the world.
    So, it is a distinct honor for me to be in the position to 
be introducing him, or to really be presenting him, because we 
all are thankful for the thoughtfulness that you have, in what 
can make this a better country.
    So, I know you have to leave, but we welcome you to this 
Committee. Mayor Michael Bloomberg.

 STATEMENT OF THE HONORABLE MICHAEL BLOOMBERG, MAYOR, CITY OF 
                       NEW YORK, NEW YORK

    Mr. BLOOMBERG. Chairman Rangel and Ranking Member McCrery, 
ladies and gentlemen of Congress, thank you for having me.
    I must first put on the record the fact that I am Mayor 
because of Charlie Rangel. Charlie Rangel urged me back in 
about the year 2000 to run for mayor. I always listen to 
Congressman Rangel. I think lots of you would have loved to be 
listening in on the conversation when I called him and said, 
``Charlie, I've got good news and bad news.'' Charlie didn't 
quite understand we had two parties in New York. Actually, we 
don't really have two parties in New York, but we'd like to 
have two parties in New York. Anyway, I am here because of him.
    Thank you, all of you. You are here because you are 
discussing whether or not we should reduce our dependence on 
fossil fuels. I don't think there is any question that we 
should.
    Whether it is energy independence, whether it is pollution, 
whether it is economics, there are lots of reasons that we are 
in a very difficult and bad situation. We are transferring our 
wealth out of this country over to other countries, some of 
which don't have the same values we do, and in fact, fund 
terrorists that try to take away our freedoms. It is a very 
worrisome thing, and something that I am pleased to see you are 
addressing.
    I also think that reducing our dependence on fossil fuels 
will increase our economic efficiency and competitiveness, 
enhance our national security, improve our air quality, promote 
public health, and reduce our impact on global climate change.
    Now, I did listen to Congressman Camp and Herger and 
McCrery talk, and I, too--I am a capitalist. Forbes says I have 
some credentials as a capitalist. But I think that if you take 
a look at the impact of all of these things, they are 
positives, rather than negatives. Rupert Murdoch, who has never 
been known as a tree hugger, and me, from my company, we have 
both said that News Corp and Bloomberg, L.P., are going to be 
carbon neutral. It is a competitive advantage to improve the 
environment.
    I worry about overseas competition, but we are better off 
if we reduce our pollution. You should take a look at the 
Chinese stock markets, both of which the major markets are off 
65 percent this year. A lot of that is because in China they 
understand they have an enormous pollution problem that will 
have devastating effects on their economy.
    So, I am not terribly concerned about what they will do. I 
am concerned to make sure that we don't get in a similar 
situation. I am concerned that we do what is in our own 
interest. We breathe air that is being polluted today. All of 
the arguments that say, down the road, if we stop polluting it 
doesn't matter, because China and India and other countries 
pollute, maybe long-term that's right. I don't agree with it, 
but maybe, long-term, it's right. But we are polluting the air 
that we and our children are breathing right now, right here, 
and we have to do something about this.
    State and local governments have taken the lead, because of 
the inaction of Congress. But I think you have a chance to 
rectify that. In New York City, as you know, we have set as a 
goal for the city itself to reduce by 30 percent by the year 
2017 its pollution, its generation of greenhouse gases. That 
means city-owned buildings, city-owned buses, city-owned police 
cars, fire trucks, those kinds of things. If we do it, we hope 
that we can get the private sector to reduce by 30 percent the 
amount of greenhouse gases that it produces by the year 2030.
    We pursued an aggressive, multi-pronged strategy. We 
stressed conservation, as well as encouraged the use of 
alternative fuels. We are making progress. Today we are 
releasing our annual greenhouse gas inventory. We have done an 
inventory of all of the pollution in New York City, because if 
you can't measure it, you can't work on it.
    The new survey shows that we have reduced our carbon 
footprint by 2\1/2\ percent between 2005 and 2007, thanks 
mainly to milder weather, and two new efficient power plants. 
But, nevertheless, we are going in the right direction. Our 
challenges, however, energy consumption and vehicle traffic, do 
continue to grow faster than our population, and they 
demonstrate why, for State and local efforts to be truly 
effective, they really do have to be matched at a Federal 
level.
    It is a disgrace that Detroit produces cars that are 
phenomenally energy efficient, but only sells them outside of 
the United States. When some people say that overseas they are 
laughing at us because we are talking about improving the 
environment, you go to Western Europe. They are way ahead of 
us, and they dislike us because they don't respect us because 
we're not doing our part.
    Now, if we are going to reduce carbon emissions, we really 
have to use capitalism to do it. I don't think that a managed 
economy would ever do that. We saw managed economies. They were 
called things like the USSR and Communism, and they just didn't 
work. Capitalism does work, but you've got to give an economic 
incentive for people to do things. That's the essence of 
capitalism.
    Yes, Congressman Camp. You will raise energy prices. But 
that's exactly what we should do if we want people to use less. 
That's using the marketplace to achieve a goal that is in 
everybody's interests.
    We have to price carbon at a price where it gives you an 
incentive to go and to find alternative fuels. You can use a 
carbon tax, which is what I prefer, simply because it's more 
straightforward to administer. I don't like taxes any more than 
anybody else, but if you're going to do something, do it 
efficiently. Or, you could use a cap and auction system, which 
would work. Congressman Doggett, you proposed a comprehensive 
cap and auction system on greenhouse gases. I still would 
prefer the tax.
    But in either case, we have to do something to get people 
to use less, and to use it smarter. I think there are four 
quick things that I would like to outline that I think are 
important in your discussions, if and when you come to some 
combination or some decision as to how to use capitalism to 
incent people to be more efficient.
    Incidentally, these things are all good for business. I 
don't know any company that hasn't invested in being more 
environmentally friendly and reducing their energy consumption 
that hasn't benefited greatly to their bottom line. So, we're 
not asking people to do things that aren't in their interests; 
we are asking people to do things that are in their interest, 
and collectively, in our interest.
    The four things are simply the implementation should be 
straightforward. What you have seen overseas when we have tried 
cap and trade systems, if you start giving breaks to people, 
the cost of administering, it starts to get so great that 
society is burdened by the cost. That's a lousy idea. That's 
why I favor the cap and tax. But you could do a cap and trade 
system.
    But you can't have all of the exceptions. You have to have 
a system that gives people the incentive to reduce carbon 
emissions, go to alternative fuels, and one that the public and 
the private sector believes is efficient and is fair.
    Now, second, we want to have--you have to have a uniform 
price. If we start giving particular breaks to certain 
industries, or to certain parts of the country, you just will 
not get this done. All you will create is, I think, a big mess. 
We have to make sure that the amount of--the prices that will 
come out of the amount of carbon credits that you decide to 
make available achieve the purpose of getting companies to 
reduce their emissions, to be more efficient, or to go to 
alternative fuels.
    Third, I think that we have to have some ways to address 
Congressman Camp or Congressman Herger--I'm sorry--one of you 
had mentioned the impact on the economy. You are dead right. 
Having a tax or a fee that reduces carbon emissions by raising 
the cost of energy is a drag on the economy.
    So, rather than create a pinata, where you can just use 
this money for lots of things, using the money to offset that, 
I think, should satisfy your concerns and let us do both 
things.
    Job retraining. We, in this country, our public education 
system is not where it needs to be. Our workers are being left 
out of the future economy. This is a perfect opportunity to do 
that.
    Reduce payroll taxes. I would like to reduce taxes just as 
much as anybody else would. The people that are working and 
paying the payroll taxes are the people that will be hurt. Here 
is a perfect way to transfer the burden from them, who are 
going to pay higher energy prices but now have lower taxes, to 
the producers who are the ones that, in all fairness, because 
of their actions are giving us the opportunity to pollute the 
air that we breathe, and to hurt us long term.
    Last, I think that carbon tariff on nations that don't sign 
up to a global agreement may eventually become a necessity. I 
think we shouldn't think that we can do all of this alone. But 
America is a country that has always led by example. The 
defeatism to say, ``Well, we can't do it because everybody else 
is unwilling to do it,'' isn't where we should be. We should be 
standing up. We should be leading. We should be improving our 
environment.
    It is disappointing to me, as I travel around the world, 
that it is other countries that are investing in new 
technologies, working on alternative fuel sources, retraining 
their workforce. Long term, that's not good for America. I 
think if America said, ``Look, let's go it alone, let's be the 
leader,'' you will find the world wanting to follow us.
    So, I appreciate your concerns. Nobody is more cognizant of 
them than I. But I do think those are ways to address them, and 
I do think this is a serious issue that we have to address now.
    Long term, the global warming, short term, the pollution of 
the air that you and I breath, and the economy, our economy, is 
better if we make it more ecologically pure, whatever the word 
is, because it is--all of these environmental things--are 
stagnating our economy, and preventing us from attracting the 
best and the brightest, rather than raising the costs--rather 
than reducing the cost, they are raising the cost. Thank you.
    [The prepared statement of Mr. Bloomberg follows:]

         Prepared Statement of The Honorable Michael Bloomberg,
                   Mayor, City of New York, New York

    Thank you, Chairman Rangel, and Members of the Committee.
    It's time for our country to reduce our dependence on fossil fuels.
    Doing so will increase our economic efficiency and competitiveness 
. . . enhance our national security . . . improve our air quality . . . 
promote public health . . . and reduce our impact on global climate 
change.
    Many State and local governments are already taking the lead.
    In New York City, we've set a goal of reducing our output of 
greenhouse gases by 30% by the year 2017--even as our population grows 
to an unprecedented 9 million people.
    We're pursuing an aggressive, multi-pronged strategy that stresses 
both conservation and encouraging the use of alternative fuels.
    We're making progress. Today, we're releasing our annual 
``greenhouse gas inventory'' for New York City. It shows that our 
carbon footprint shrank 2.5% between 2005 and 2007, thanks mainly to 
milder weather and two new and more efficient power plants.
    Our biggest challenges, however--energy consumption and vehicle 
traffic--continue to grow faster than our population.
    That demonstrates why, for State and local efforts to be truly 
effective, they must be matched at the Federal level.
    That must start with national policy that puts a price on carbon 
emissions.
    Set such a price--and the market will reduce emissions, by 
providing an incentive to use cleaner fuels, and by leveling the 
playing field for alternative forms of energy.
    Pricing carbon emissions could involve levying a carbon tax, as 
Congressmen Stark and Larson have proposed. This is the approach nearly 
every economist prefers--as do I.
    Or, as others, including Congressman Doggett, have proposed, 
comprehensive ``cap and auction'' systems on greenhouse gas emissions 
could also be effective.
    Any such pricing regimen must be based on four essential 
principles:
    First, implementation should be simple and straightforward.
    The best place to put a price on carbon emissions that exceed a 
legislated cap is ``upstream,'' at the points of fossil fuel 
production, such as coal mines and petroleum refineries.
    This would mean assessing a carbon price at hundreds of locations 
in our Nation, not the many thousands that would have to be monitored 
if the price were to be imposed further downstream in the process of 
using fuels.
    Second, we should ensure a uniform price on carbon emissions that 
is uniformly administered.
    The government's auction of credits must cover 100% of credits. 
Sweetheart deals for the well-connected would distort and undercut the 
process, sowing confusion and mistrust.
    Some industries argue that they will be injured. But they are the 
worst polluters. They have to clean up fastest. Better that than their 
hiring lobbyists to strike deals that would undermine the whole 
process.
    Ensuring price fairness and predictability will also encourage the 
investment in alternative energy sources essential to our Nation's 
future.
    Third, carbon pricing must be accompanied by a commitment to 
revenue neutrality.
    It's been estimated that a Federal auction of carbon credits could 
bring $1.1 trillion into the U.S. Treasury during the first 6 years 
that such a system would be in place.
    If Washington gets to treat this like a revenue pinata, Americans 
will be justifiably repelled, and the cause of reducing our dependence 
on fossil fuels will be tragically set back.
    So Congress should offset the higher costs that consumers will bear 
as a result of carbon pricing with rebates on payroll or other personal 
taxes.
    Fourth, and finally, while a ``carbon tariff'' on nations that 
don't sign on to a global agreement to reduce their emissions may 
eventually become necessary, let's lead by example, and not look for 
excuses to retreat into protectionism.
    Members of the Committee: It's very encouraging to see how rapidly 
the debate on carbon pricing is advancing.
    That's evidenced by this hearing about the best way to design such 
a pricing system.
    The devil, as always, remains in the details. But by employing the 
principles that I've just outlined, I believe we can create a carbon-
pricing system that is fair and forward-looking.

                                 

    Chairman RANGEL. Thank you, Mr. Mayor. Thank you, that you 
rearranged your schedule and you could stay with us longer. 
Again, the policy of this Committee is that our witnesses will 
have 5 minutes to state their views.
    You can see the interest that the panel has, and so 
therefore we expect that Members will also restrict to 5 
minutes, that we can get as much in as possible this morning if 
we can adhere to the 5-minute rule.
    Mr. Orszag, Dr. Orszag, who is the Director of the 
Congressional Budget Office, I think the Congress, Republicans 
and Democrats, have to thank you for the bipartisan research 
that you do for us. We don't always follow it, but it's good to 
know that you are there.
    We know that, as we try to resolve this serious issue and 
fulfill our responsibilities, that we can depend on your office 
for the research and the backups that we need.
    Thank you for being with us. You are recognized for 5 
minutes.

 STATEMENT OF PETER R. ORSZAG, PH.D., DIRECTOR, CONGRESSIONAL 
                         BUDGET OFFICE

    Mr. ORSZAG. Thank you, Mr. Rangel, Mr. McCrery. Climate 
change is one of the world's most pressing long-term problems. 
Some degree of risk exists for the damage to be large and 
potentially even catastrophic.
    Reducing emissions, however, will impose short-term costs 
on the economy. The political system is, arguably, not 
particularly good at dealing with this kind of issue in which 
there are short-term costs required in order to obtain expected 
long-term benefits.
    Analysis suggests, however, that smart policy design can 
significantly reduce the costs involved. In particular, what 
you do with any allowances under a cap and trade program, and 
whether you provide flexibility, not only in terms of where and 
how the reductions occur, but when, can matter a lot, in terms 
of the overall costs of meeting any given climate objective.
    First, the value of the allowances created under any cap 
and trade program would be substantial. CBO estimates that 
under the Lieberman-Warner bill, the aggregate value would be 
more than $100 billion in 2012, and would rise thereafter.
    The question is what the government does with that $100 
billion. Does it give it away, or does it sell the permits and 
use those funds for some other purpose? Just to be clear, you 
can't do both at once.
    Evidence suggests that the economic cost of a 15-percent 
reduction in U.S. emissions might be twice as large if 
policymakers gave the allowances away than if they sold the 
allowances and used the revenue to reduce distortionary taxes 
on either labor or capital.
    Giving the permits away would also create a windfall profit 
for shareholders. Despite what proponents sometimes suggest, 
not prevent--again, not prevent--the price increases that are a 
necessary part of a cap and trade program, and that would 
disproportionately affect low-income people.
    Indeed, one can think of issuing allowances at no cost to 
firms as the equivalent of auctioning the permits, and then 
handing the cash that is raised to the firms themselves. That 
is the way that CBO is scoring proposals to give away permits, 
and that is most consistent with underlying economics involved, 
and I think highlights the windfall profit point.
    In other words, when viewed either from a macroeconomic 
perspective or a distributional one, giving the permits away 
ranks relatively poorly under either criterion.
    A second main way to reduce the economic costs involves 
timing flexibility. A simple cap and trade program provides 
flexibility to firms to reduce emissions where and how they are 
cheapest to do, and that's great.
    But it's also important to recognize the disjuncture 
between the environmental dynamic on climate change and the 
economic one. From an environmental perspective, what matters 
is cumulative emissions, not whether you reduce emissions this 
year or next year. From an economic perspective, however, the 
cost of reducing a ton of emissions this year can vary a lot, 
relative to next year. If you don't take that into account--and 
a very simple cap and trade system, which imposes an aggregate 
cap on emissions each year does not--you unnecessarily raise 
the cost of achieving whatever it is that you want to achieve.
    One can build into cap and trade programs provisions that 
provide this kind of timing flexibility. So, for example, you 
can build in both a ceiling and a floor on prices. You can 
build in banking and borrowing provisions. But it is very 
important to provide that type of flexibility if you want to 
reduce the costs involved, and also to limit the volatility of 
the permit prices, which, for example, in the sulfur dioxide 
program, have been significantly more volatile than stock 
prices.
    Finally, my written testimony discusses the particular 
challenges that energy-intensive sectors, like the steel and 
aluminum industries, could face under a cap and trade program. 
These sectors account for perhaps 15 percent of aggregate U.S. 
energy consumption, and about 5 percent of GDP, and roughly the 
same share of employment.
    They could lose sales to imports from other countries that 
do not impose as aggressive climate regimes if we moved ahead 
with addressing global climate change. That substitution of 
imports would not only hurt our domestic industries, but also 
through the so-called carbon leakage, mitigate any 
environmental benefit.
    There are a variety of proposals that have been put forward 
to try to address these concerns, and my written testimony goes 
through the pros and cons, along with their consistency, or 
potential consistency, with our World Trade Organization 
obligations. Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Orszag follows:]

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    Chairman RANGEL. Thank you, Doctor. Dr. Carol Browner is no 
stranger to this Committee or to the Congress, having been the 
longest serving EPA Director, and one who has concentrated not 
only on the improvement of the environment, which she 
considered a moral obligation for the United States to 
participate in, but also the economic impact of it. So, we know 
that we can depend on your support far beyond the 5 minutes 
that you are sharing with us this morning. Thank you, and 
welcome back.

  STATEMENT OF THE HONORABLE CAROL M. BROWNER, PRINCIPAL, THE 
                       ALBRIGHT GROUP LLC

    Ms. BROWNER. Thank you, Mr. Chairman. It is, indeed, a 
pleasure to be here today. Let me start by congratulating this 
Committee on taking an interest in the issue of climate change. 
I think for those of us who have worked on this issue for the 
better part of the last two decades, we certainly welcome the 
engagement of this Committee. I applaud Congressman Doggett for 
his bill and his leadership on this matter.
    Addressing climate change presents not just challenges, but 
tremendous opportunities, opportunities to rethink our energy 
future, and to move forward on energy independence. Taking 
action now will allow us to avoid the worst climate impacts, 
and can drive the creation of a clean energy economy, in which 
we exchange carbon dependency for greater energy independence 
and new clean energy jobs.
    Not only should we consider the cost of any actions we 
take, we should also consider the cost of inactions. Study 
after study have shown that those costs could be very high.
    There is a recent University of Maryland study looking at 
the impacts of climate change on eight States. The research 
shows that climate change could cost our States billions of 
dollars by mid-century. The study finds that in the Midwest, 
for example, agricultural losses alone may total $10 billion or 
more per year.
    According to another study, if emissions are left 
unchecked, heat-related deaths in southern California could 
increase up to sevenfold; annual rainfall in the West could 
decrease by 15 percent; and along the Gulf coast, sea level 
rise could lead to increased hurricane damages in Louisiana, 
Florida, and Texas.
    I have long believed that comprehensive cap and trade 
auction legislation is the best way to reduce greenhouse gas 
emissions. During my tenure at EPA, we established the acid 
rain cap and trade program, in which businesses buy and sell 
sulphur dioxide allowances that have been granted by the 
government.
    There are two things you should know about this program, in 
addition to the fact that it reduced our SO2 
emissions. First, it has had the highest rate of compliance of 
any program to reduce pollution in the history of EPA. 
Secondly, the cost of achieving those reductions have been 
dramatically lower than the original estimates. The cost of 
compliance have been only 30 percent of what EPA originally 
estimated the cost would be to industry.
    Now, for cap and trade legislation to be successful, I 
think there are a couple of things to be mindful of. For the 
business community--and the mayor spoke to this--we need 
predictability and flexibility. They need to know what is 
expected of them. What are the targets? They need to be clear 
and concise. What are the timeframes over which those targets 
must be met?
    The business community also needs some flexibility. We have 
heard from CBO some ideas. Another idea to consider is banking 
and borrowing. Let the businesses work across a couple of years 
to determine when they can most cost effectively achieve the 
reductions we are asking them to make.
    Finally, the government needs to work efficiently. Each 
agency and department must function as it was designed to do. 
That means Treasury can do what Treasury does well, and EPA 
should do what EPA does well. The traditional work of EPA 
encompasses standard setting and program implementation. The 
work of the Treasury Department includes revenue, collection, 
and allocation. I believe that each of these agencies should be 
tasked appropriately to do what they do best, and to bring 
those shared experiences to bear so that we can create an 
effective program.
    You know, time and time again, when we have set 
environmental standards, there have been naysayers. There have 
been those who have said, ``We can't do it.'' But you know 
what? If we look back over the history of 30 years of 
environmental commitment in this country, what we find is each 
time we do set a standard, we rise to the challenge and we find 
the ingenuity, the innovation, and a more cost effective way of 
achieving that goal, of reducing our pollution and allowing our 
families and our communities to be healthy.
    I want to close by making one note--noting one thing for 
the Committee. I do believe that Congress has to take the 
leadership on this issue. But you should be mindful of the fact 
that last year the Supreme Court found that EPA, under the 
existing Clean Air Act, can, in fact, regulate carbons. So, 
there is authority there. The magnitude of this is such that I 
think Congress should act, but I think it is important to 
remember there is some existing authority.
    Again, Mr. Chairman, thank you for the opportunity, and 
thank you for your interest in this matter.
    [The prepared statement of Ms. Browner follows:]

           Prepared Statement of The Honorable Carol Browner,
                   Principal, The Albright Group LLC

    Thank you, Mr. Chairman and Members of the Committee, for inviting 
me today to speak about one of the greatest environmental, social, and 
economic challenges our country has ever faced--climate change.
    Let me first congratulate the Committee for its engagement on this 
issue. All of us who have been active on the challenge of climate 
change welcome the involvement of the Ways and Means Committee in 
shaping U.S. climate legislation.
    Climate change presents our Nation with a number of great 
challenges, but also a tremendous opportunity. In responding to the 
climate crisis, the United States has the opportunity to rethink our 
energy future and move toward energy independence. Taking action now 
will allow us to avoid the worst climate impacts and will drive the 
creation of a clean energy economy, in which we exchange carbon-
dependency for greater energy independence and new clean energy jobs.
    This transition requires government leadership. And it is in our 
best interests to act now--both economically and environmentally. At 
all levels, the costs of action must be weighed against the great costs 
of inaction. The University of Maryland recently published a study on 
the costs of climate impacts in eight States. The research shows that 
climate change could cost our States billions by mid-century. The study 
finds that in the Midwest, for example, agricultural losses alone may 
total $10 billion per year or more.
    According to another study, heat-related deaths in southern 
California could increase up to sevenfold if emissions go unchecked. 
Annual rainfall in the West could decrease by 15 percent. And along the 
Gulf Coast, sea level rise could lead to increased hurricane damages in 
Louisiana, Florida, and Texas.
    I believe that comprehensive cap and trade legislation is the best 
way to reduce greenhouse gas emissions. By bringing to bear market 
mechanisms, we can address the climate crisis in a cost effective and 
efficient manner.
    For legislation to be successful, we need a couple of things. For 
the business community, predictability and flexibility are paramount. 
That means a predictable market signal, indicating what reductions are 
required and over what time frame. Flexibility could include the option 
to bank and borrow allowances, so that individual companies can meet 
their requirements at the lowest cost possible.
    And for our government to work efficiently, each agency and 
department must function as it was designed to do--that means Treasury 
doing what Treasury does best, and EPA doing what EPA does best. The 
traditional work of EPA encompasses standard setting and program 
implementation. The traditional work of the Treasury Department 
includes revenue collection and allocation. EPA and Treasury should be 
tasked, respectively, with these elements of the climate program. In a 
cap and trade system, EPA can set the standards and ensure compliance, 
and Treasury can manage the revenues from allowance auctions.
    Even conservative estimates of the revenue that would be generated 
from the auctions are in the billions--revenue that can be used to 
offset costs to American families and to invest in a new generation of 
clean energy technologies.
    Time and time again, when the Nation has set a new environmental 
standard, the nay-sayers have warned that it will cost too much; that 
it will impose an enormous economic burden on the American people. But, 
once we have set those standards, American ingenuity and innovation 
have found a solution at a far lower cost than predicted. This is 
because once there is a standard, there is a guaranteed market for new 
technologies, so that businesses are prepared to invest in innovation. 
When Congress banned CFCs, which were damaging our atmosphere, many 
said the ban would mean the end of air conditioning in our cars and 
homes. One company saw a guaranteed market for an alternative and took 
advantage of the opportunity, which reaped them a nice return. American 
businesses have risen to these challenges before, and they will do it 
again; all they need is predictability and flexibility.
    During my tenure at EPA, we established the acid rain program, in 
which businesses trade sulfur dioxide allowances that have been granted 
by the government. This program has the highest rate of compliance of 
any EPA pollution control program, and at a far lower cost than 
predicted. For the acid rain program, the costs of compliance have been 
only 30% of what EPA originally estimated.
    Let me close by reminding the Committee that following the Supreme 
Court's Massachusetts v. EPA decision in 2007, EPA has the authority to 
regulate greenhouse gases under the 1990 Clean Air Act. If EPA does not 
act, it is likely that the Agency will be sued and forced to act. Given 
the magnitude of the problem, and the scale of the solution required, I 
believe it is important that Congress provide national leadership on 
this issue.
    Thank you very much. I will be happy to take your questions.

                                 

    Chairman RANGEL. Thank you, Doctor. We look forward to 
working with you when we settle down to get this thing done.
    We are fortunate enough to have Dr. Dallas Burtraw: author, 
researcher, lecturer, and one who has gained an international 
reputation and expertise in the quality in climate control. 
Thank you for sharing your views with us, and you are 
recognized at this time for 5 minutes.

 STATEMENT OF DALLAS BURTRAW, PH.D., SENIOR FELLOW, RESOURCES 
                         FOR THE FUTURE

    Mr. BURTRAW. Thank you, Mr. Chairman, for the opportunity 
to testify today. I am a senior fellow at Resources for the 
Future, and RFF neither lobbies nor takes positions on specific 
proposals. The views I present today are my own.
    My research leads me to find that the most important aspect 
in designing a cap and trade program is the initial assignment 
of the market value of the allowances. This is even more 
important to the long-run success of climate policy than the 
initial level of the cap.
    The carbon dioxide cap and trade program would constitute 
the greatest creation of government-enforced property rights 
since the 19th century. Depending on the stringency of the cap 
and breadth of the program, it will introduce into the economy 
property rights ranging from $100 billion to $370 billion every 
year, in the form of tradable emissions allowances.
    There is no inherent claim to the property value created 
under this program. Policymakers might frame the decision about 
allocating emission allowances this way.
    Imagine you are implementing a new program that will create 
well over $1 trillion in value in the next decade. Now, how do 
you want to allocate that value? The decision has both 
efficiency and distributional consequences, which brings me to 
my first point: the award of free CO2 emission 
allowances is equivalent to a grant of cash, as we have heard 
before, this morning.
    As such, it does not affect the production decision of 
plant managers. A corollary idea is that, in a competitive 
market, how the emission allowances are initially distributed 
does not affect the price of goods and services in the economy.
    By analogy, if you were buying a house, it would not occur 
to you that its price might depend on whether its previous 
owner had bought or inherited the house. Similarly, the 
managers of firms should be expected to realize the maximum 
possible value for allowances that might be received for free. 
Otherwise, they would have some explaining to do to their 
shareholders.
    The allocation of emissions allowances is likely to involve 
a familiar tradeoff between efficiency and distributional 
outcomes. However, that is not true in considering free 
allocation to shareholders of incumbent firms. Free allocation 
does not perform well on efficiency or distributional grounds. 
Free allocation would not offer the efficiency advantages of 
reducing pre-existing taxes. It is decidedly a regressive 
policy, because the value of the free allowances accrues 
primarily to higher-income households, and creates the 
possibility of windfall profits.
    Also, free allocation directs about 10 percent of the 
allowance value overseas to foreign owners of shareholder 
equity, and that value is not available to any income group in 
the United States.
    Using the allowance value, instead, to reduce the income 
tax or the payroll tax has great appeal to me, as an economist, 
because of the efficiency advantages of lowering taxes on 
labor. Unfortunately, our research indicates this efficiency 
advantage may come out of distributional costs, as lower-income 
households would receive less of the benefit of tax reduction, 
and would bear a relatively larger burden.
    In contrast, too modestly progressive policies would be 
expansion of the earned income tax credit or a cap and dividend 
approach that would return revenue directly to households. The 
dividend approach would also increase taxable income, yielding 
revenue that would approximately offset the increases in costs 
for government under cap and trade. So, budget neutral, in 
other words.
    Assigning a portion of allowance value as investment 
efficiency is also modestly progressive. It would reinforce 
program goals, and lessen the impact of climate policy. 
However, this approach is problematic, because the institutions 
and policies that would be used to achieve this outcome are not 
well specified.
    In my written comments I address special issues in the 
electricity sector, and other important elements of cap and 
trade, including cost management and the protection for 
domestic firms against unfair international competition.
    I want to close by emphasizing that the true crucial 
elements of good design for cap and trade are transparency and 
simplicity, because these attributes reduce risk and inspire 
investor confidence. Climate change is inherently complicated, 
and an uncertain challenge. Climate policy must strive to be 
the opposite, if the voting public is going to embrace a 
national commitment to address the problem.
    Complicated formulas create the perception, deserved or 
not, of favoritism and game rigging that is likely to erode 
public support. Simple tax reform, or even simpler still, 
direct dividends to households, are approaches that would 
provide the most convincing signals to the public that we are 
addressing climate change as a common national initiative.
    We should recognize at the outset that an important part of 
climate policy may be the need to go back to the American 
public in the future for further commitments. When it comes to 
the design of cap and trade, a transparent and simple approach 
is the strongest principle one can cling to for good market 
design, and to make sure the American public understands the 
policy, and understands the national effort to try to solve 
this problem.
    Thank you for the opportunity to testify.
    [The prepared statement of Mr. Burtraw follows:]

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    Chairman RANGEL. Let me thank you for your contribution. I 
just want all of you to know that the Chairman feels awkward 
that we are restricting you to 5 minutes after all of the work 
that you have done, not only in preparing the testimony, but 
all of the knowledge that you have that we really need in order 
to make positive decisions.
    So, do not be surprised if we don't call upon you in a very 
informal way to come and sit around a table to see how we can 
work out the obstacles that are in front of us.
    But I want to thank you, Doctor.
    Our next witness, Robert Lighthizer, is an expert in trade 
and trade policy. Indeed, he has served as a Deputy Trade 
Representative, a U.S. Trade Representative. So, as an expert 
and as an ambassador, we welcome your contribution. You are 
recognized for 5 minutes.

  STATEMENT OF ROBERT E. LIGHTHIZER, PARTNER AND HEAD OF THE 
INTERNATIONAL TRADE DEPARTMENT, SKADDEN, ARPS, SLATE, MEAGHER & 
                            FLOM LLP

    Mr. LIGHTHIZER. Thank you very much, Mr. Chairman. It's a 
pleasure to be here today. I would like to briefly address a 
topic that, in my view, is absolutely central to your 
consideration of climate change legislation. Namely, the 
potential impact on U.S. companies that face significant 
foreign competition, and the steps that Congress might take to 
address those competitiveness concerns.
    It is not my intent to comment on the wisdom of pursuing 
cap and trade programs or other mechanisms that would impose 
new mandatory costs on U.S. producers. The question obviously 
presents significant issues for Congress and for this 
Committee. My remarks are confined to the competitiveness 
challenges that would be presented to American workers and 
companies if new costs and burdens are imposed.
    There should be no mistake. If this issue is not dealt with 
effectively, it will cause grave and perhaps irreversible harm 
to American manufacturers. Equally important, failure in this 
regard will, in all likelihood, undermine the environmental 
consequences of climate legislation.
    The globally competitive industries adding new costs to 
American products will simply lead to the substitution of 
imports from countries with lesser environmental requirements. 
Taking steel as an example, estimates suggest that production 
in places like China and India may be anywhere from two to four 
times CO2 intensive than U.S. production. It is not 
hard to see how disparate climate costs could not only wipe out 
American industries, but could seriously worsen the global 
climate problem at the same time.
    I would like to make three core points. First, there are 
strong arguments that, in enacting climate legislation, the 
United States can, consistent with WTO rules, place the same 
requirements on imports that are placed on domestic production. 
This is not an area of clear precedent. It is always hard to 
predict what the WTO appellate body will do, particularly given 
some of the very troubling decisions we have seen from that 
body.
    But it is my view the better argument is that neutral and 
equal application of regulatory requirements to imports would 
be permissible. Hopefully, this can be done in conjunction with 
a negotiated international agreement that will clarify rules 
and ensure consistent treatment for traded products.
    Second, you should avail yourself of this argument so that, 
consistent with international rules, we can apply any new 
climate burden to imports. We cannot simply ignore this issue, 
and hope for an international agreement down the road, because 
there may be very little left of our basic manufacturing at 
that time.
    Indeed, if Congress concludes that it cannot address the 
competitiveness issue in climate legislation, either for WTO 
reasons or otherwise, it should rethink the entire approach we 
are taking to climate challenge.
    Third, while critical, we should recognize that placing 
equal requirements on imports only addresses part of the 
problem. It does not do anything about exports, or maintaining 
our competitiveness in foreign markets. For that reason, 
proposals that avoid the imposition of new costs on industries 
that face strong global competition--for example, by granting 
sufficient free allowances under a cap and trade system--might 
be optimal and would, at the same time, address both import and 
export sides of the equation.
    To the extent new costs or burdens are placed on domestic 
production, however, it is critical that imports face the same 
requirements, to ensure that we remain competitive in our own 
market.
    In conclusion, the competitiveness issue is not an 
ancillary topic, but goes to the very core of the climate 
debate. There is, in my view, sufficient flexibility in the 
global system and rules to allow Congress to meaningfully 
address this concern. But it will require careful thought and 
work to craft a proposal that both meets WTO requirements, and 
is actually effective in leveling the playing field. Both of 
these are essential objectives.
    Obviously, Congress will want to fashion an approach that 
stands the best chance to satisfy the WTO. But I would caution 
that simply putting in place a fig leaf that purports to 
address the competitiveness challenge, but in fact would not 
create a truly fair playing field, would be the worst option. 
It would hang our workers and companies out to dry, and 
ultimately lead to greater, not fewer, greenhouse gas 
emissions. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Lighthizer follows:]

            Prepared Statement of Mr. Robert E. Lighthizer,
        Partner and Head of the International Trade Department,
              Skadden, Arps, Slate, Meagher & Flom LLP \1\

I. INTRODUCTION

    I am pleased to testify regarding the relationship between climate 
change legislation currently under consideration by Congress and U.S. 
obligations under the Uruguay Round Agreements that established the 
World Trade Organization (``WTO'').
---------------------------------------------------------------------------
    \1\ Mr. Lighthizer is an attorney who leads the International Trade 
Department of Skadden, Arps, Slate, Meagher, and Flom LLP. The views 
expressed here are his own and not necessarily those of his firm.
---------------------------------------------------------------------------
    I would like to say at the outset that I do not intend to comment 
in general on the wisdom of pursuing a cap and trade program or other 
mechanisms that would impose new, mandatory costs on U.S. producers.\2\ 
There are obviously very significant issues in this regard that will 
require consideration by Congress and this Committee. My remarks are 
confined to addressing some of the competitiveness challenges that 
would be presented to American workers and producers if new costs and 
burdens are placed on them, and some of the options available to 
Congress to address those challenges.
---------------------------------------------------------------------------
    \2\ I do briefly discuss below one alternative to a cap and trade 
system, namely a sector-based ``standards'' approach that has been 
advocated by some in industry.
---------------------------------------------------------------------------
    I believe that this is one of the most important issues facing 
Congress with respect to climate change legislation. It is an issue 
that received a great deal of interest in the context of the Senate 
climate debate that occurred earlier this year, and will no doubt 
remain paramount. Put simply, the ability to ensure that domestic 
producers are not placed in an untenable competitive position due to 
burdens under any new climate legislation will be essential to both the 
environmental goals of the legislation and the long-term health of our 
manufacturing sector.
    The importance of competitiveness issues to the success of climate 
change legislation is clear. No other country is so open to imports as 
the United States. Figure 1 below shows that last year our current 
account deficit exceeded $750 billion. While oil imports have been a 
part, Figure 1 shows that our overall deficit is chiefly the result of 
our trade imbalance in nonpetroleum goods. As this fact indicates, U.S. 
manufacturers in a wide range of industries face fierce import 
competition. Under these circumstances, relative changes in costs and/
or economic incentives will invariably lead to the rapid substitution 
of foreign products for domestic products--and consequent severe injury 
to domestic industries. Thus, any measure (including climate change 
legislation) that places significant additional costs on U.S. 
manufacturers without imposing similar costs on imports will plainly 
harm U.S. workers and businesses, put additional pressure on core U.S. 
industries, and lead to a further worsening of our trade deficit.

Figure 1

[GRAPHIC] [TIFF OMITTED] T2201A.039


    The impact of poorly-designed climate legislation will not be 
limited to the loss of jobs and industries in this country. If new 
climate change legislation does not adequately account for the 
international competitiveness issue, it will create an incentive for 
manufacturing to leave the United States and be replaced by production 
in nations that often have far less rigorous environmental standards. 
This will result in higher volumes of greenhouse gas emissions 
worldwide--a result that directly contradicts the goals of climate 
change legislation. As shown in Figure 2 below, using the steel 
industry as an example, the substantially higher greenhouse gas 
intensity of steel production in places like China and India would mean 
that any shift in production to those countries would dramatically 
worsen global levels of CO2.

Figure 2

[GRAPHIC] [TIFF OMITTED] T2201A.040


    Congress should keep this context in mind as it considers how to 
reconcile new climate change legislation with our WTO obligations. In 
light of this background, as well as an analysis of U.S. obligations 
under the WTO agreements, I wish to emphasize several critical points.

      First, it is absolutely imperative that the United States 
take meaningful actions to prevent imports from countries with less 
rigorous standards from undermining the effectiveness of any climate 
change legislation Congress may approve.
      Second, while the WTO agreements and case law provide no 
definitive guidance on these issues, there are sound arguments that the 
United States may place equal requirements on imports to account for 
emissions associated with those products, and to ensure that any new 
climate change legislation does not place U.S. workers and businesses 
at an unfair disadvantage vis-a-vis foreign producers. Hopefully, this 
can be done in conjunction with a negotiated agreement internationally 
that will clarify rules and ensure consistent treatment of traded 
products.
      Third, given the importance of this issue, we should 
clearly avail ourselves of the strong arguments available that the 
United States is permitted to place equal requirements on foreign 
products based upon emissions associated with those products. Indeed, 
if it were concluded that the United States does not have such 
authority, the implications would be profound--and would in my view be 
more than sufficient grounds for Congress to rethink the entire 
approach it is taking to the climate change challenge.
      Finally, we should recognize that placing equal 
requirements on imports only addresses part of the problem. It does 
not, in particular, address concerns that new climate requirements will 
undermine the competitiveness of U.S. products sold in foreign markets. 
For that reason, proposals that, where feasible, address 
competitiveness issues from both an import and export standpoint (e.g., 
by avoiding the imposition of new climate costs on industries facing 
strong global competition) may be optimal, particularly in the absence 
of a global approach to solving climate problems. To the extent new 
requirements are placed on domestic producers, however, it will remain 
critical to ensure that imports are subject to the same requirements--
so as to ensure the viability of U.S. producers in their own market.

II. LEGAL BACKGROUND
    New climate change legislation would potentially implicate U.S. 
obligations under several provisions of the WTO agreements. Although 
there is a great deal of uncertainty in this area of the law, there are 
sound arguments to be made in support of the view that the United 
States is permitted to place the same regulatory burdens on imports 
that are imposed upon domestic products.
    The provisions and standards applicable to a measure that is 
applied to imports will vary significantly depending on whether it 
takes the form of a border measure or an internal measure enforced at 
the border. Article XI of the General Agreement on Tariffs and Trade 
(``GATT'') generally prohibits any measure restricting imports at the 
border (i.e., a border measure) other than normal import duties, taxes, 
or charges. However, a measure that is applied to both imports and the 
like domestic product, even if it acts to restrict imports, is not 
subject to Article XI. Indeed, a note to Article III of the GATT 
expressly provides that

        [a]ny internal tax or other internal charge, or any law, 
        regulation or requirement . . . which applies to an imported 
        product and to the like domestic product and is collected or 
        enforced in the case of the imported product at the time or 
        point of importation, is nevertheless to be regarded as an 
        internal tax or other internal charge, or a law, regulation or 
        requirement . . . and is accordingly subject to the provisions 
        of Article III.

    In other words, a measure that is applied to both an imported 
product at the border and the like domestic product (i.e., an internal 
measure that is enforced at the border) is to be considered under 
Article III of the GATT, rather than Article XI.
    In turn, the ``national treatment'' provisions of Article III:4 of 
the GATT provide that the United States must accord to imported 
products ``treatment no less favourable than that accorded to like 
products of national origin in respect of all laws, regulations and 
requirements affecting their internal sale, offering for sale, 
purchase, transportation, distribution or use.'' Thus, if the United 
States imposes new legal or regulatory requirements on certain 
products, imports of those products must be treated no less favorably 
than like U.S. products. The requirements in question may be enforced 
on imports at the border, but they cannot discriminate against such 
imports. In this regard, the WTO Appellate Body has explained that 
``the purpose of Article III is to ensure that internal measures not be 
applied to imported or domestic products so as to afford protection to 
domestic production. Toward this end, Article III obliges members of 
the WTO to provide equality of competitive conditions for imported 
products in relation to domestic products.'' \3\ Nevertheless, a WTO 
member like the United States may draw distinctions between like 
products without according to imported products less favorable 
treatment than that accorded to domestic products. The key is whether 
there is protection of domestic products in the marketplace.\4\ Indeed, 
the Appellate Body recently stated that it was willing to accept a 
``detrimental effect on a given imported product'' as long as it could 
be ``explained by factors or circumstances unrelated to the foreign 
origin of the product.'' \5\
---------------------------------------------------------------------------
    \3\ WTO Appellate Body Report, Korea--Measures Affecting Imports of 
Fresh, Chilled and Frozen Beef, WT/DS161/AB/R, WT/DS169/AB/R (Dec. 11, 
2000), at para. 135.
    \4\ WTO Appellate Body Report, European Communities--Measures 
Affecting Asbestos and Asbestos-Containing Products, WT/DS135/AB/R 
(Mar. 12, 2001) (``EC--Asbestos (AB)'') at para. 100.
    \5\ WTO Appellate Body Report, Dominican Republic--Cigarettes, WT/
DS302/AB/R (May 19, 2005) (``Dominican Republic--Cigarettes (AB)'') at 
para. 96.
---------------------------------------------------------------------------
    An issue that has been the subject of much debate is whether 
measures that distinguish between products on the basis of their 
process or production methods, rather than the physical characteristics 
of the products themselves, can be found to sufficiently affect the 
products so as to be subject to and upheld under Article III of the 
GATT. Environmental restrictions that focus on the manner of production 
are examples of such process-based measures or ``PPMs.'' In the Tuna-
Dolphin cases, two panels constituted under the former GATT dispute 
settlement system found that measures that conditioned the sale in the 
United States of both domestic and foreign tuna on the adoption of an 
environmentally-friendly fishing technology violated the GATT.\6\ The 
panels found that such process-based regulatory measures fell outside 
the scope of Article III and instead were improper restrictions on 
imports under Article XI of the GATT.\7\
---------------------------------------------------------------------------
    \6\ See United States--Restrictions on Imports of Tuna, 30 ILM 
(1991) 1594; United States--Restrictions on Imports of Tuna, 33 ILM 
(1994) 936.
    \7\ See id.
---------------------------------------------------------------------------
    However, the Tuna-Dolphin decisions were never adopted and, 
therefore, carry no legal weight in the WTO. Moreover, there are good 
reasons to question the basis for the product/process distinction 
created by the Tuna-Dolphin panels. A process-based measure of the type 
most likely to be at issue in the climate debate would appear to 
constitute a measure ``affecting [the] internal sale, offering for 
sale, purchase, transportation, distribution or use'' of the product so 
as to be subject to Article III:4.\8\ While not resolving this issue, 
several decisions issued by the WTO provide a sound basis to argue not 
only that process-based measures are subject to Article III, but also 
that they should be found to satisfy the national treatment standards 
established therein where they are origin-neutral.\9\ Based on the lack 
of legal support for the Tuna-Dolphin decisions and the developments in 
recent cases decided by the WTO, a number of commentators have 
concluded or suggested that the product/process distinction no longer 
has any validity (to the extent that it ever did) and that neutrally-
crafted process-based measures or PPMs could or should be upheld under 
GATT Article III.\10\ This type of analysis should provide adequate 
grounds for Congress to pursue regulatory measures that apply in an 
even-handed manner to both domestically-produced and imported 
products.\11\
---------------------------------------------------------------------------
    \8\ See WTO Panel Report, Mexico--Taxes on Soft Drinks, WT/DS308/R 
(Mar. 23, 2006) at paras. 8.108-8.113 (adopting broad interpretation of 
the nexus required between taxes and other regulatory requirements and 
the products that they affect so as to warrant analysis of such 
measures under GATT Article III:4).
    \9\ See id.; EC--Asbestos (AB) at paras. 100-02, 113-115, 122; 
Dominican Republic--Cigarettes (AB) at paras. 93, 96.
    \10\ See, e.g., Joost Pauwelyn, ``U.S. Federal Climate Policy and 
Competitiveness Concerns: The Limits and Options of International Trade 
Law'' (Nicholas Institute for Environmental Policy Solutions, Duke 
University) (Apr. 2007) at 19-26 (hereinafter ``Pauwelyn''); Robert 
Howse and Elisabeth Tuerk, The EU and the WTO--Legal and Constitutional 
Issues 283, 297-98 (Grainne de Burca et al. eds. 2001); Robert Howse 
and Donald Regan, ``The Product/Process Distinction--An Illusory Basis 
for Disciplining `Unilateralism' in Trade Policy,'' 11(2) Eur. J. Int'l 
Law 249, 252, 254-56, 258-68 (2000); Henry L. Thaggert, ``A Closer Look 
at the Tuna-Dolphin Case: `Like Products' and `Extrajurisdictionality' 
in the Trade and Environment Context'' in 1 Trade & the Environment: 
The Search for Balance 69, 80-81, 83 (James Cameron et al. eds., 1994).
    \11\ I have focused herein on the likely analysis with respect to 
Article III:4, but it should be noted that a climate measure might well 
also be covered by (and defensible under) Article III:2--dealing with 
border adjustment of indirect taxes and other internal charges. Indeed, 
in the event a climate change measure (including, e.g., a requirement 
to submit emissions allowances under a cap and trade program) were 
analyzed as a ``tax'' or ``internal charge,'' the provisions of Article 
III:2 would provide an additional ground to permit the border 
adjustment of such a measure. See, e.g., Pauwelyn at 21-22.
---------------------------------------------------------------------------
Figure 3

[GRAPHIC] [TIFF OMITTED] T2201A.041


    Another issue that may require consideration relates to the so-
called ``most favored nation'' (``MFN'') provisions of Article I of the 
GATT. In this regard, and to the extent a climate regulatory measure 
was applied to imports from some foreign countries but not others 
(e.g., because those countries had in place their own climate 
measures), questions could well arise with respect to compatibility 
with Article I--which prohibits discrimination between imports from 
different countries. Certain arguments might be available under Article 
I to defend application of neutral criteria to exclude countries that 
have in place comparable climate regimes, but this is an uncertain 
area.\12\ Having said that, to the extent country exclusions under a 
climate measure were found to be problematic under Article I, the U.S. 
would have a number of options, including: (i) not excluding any 
foreign countries; (ii) negotiating new rules internationally to allow 
such exclusions; or (iii) simply defending the exclusions based upon 
one of the GATT ``exceptions'' (which are discussed below).\13\
---------------------------------------------------------------------------
    \12\ One consideration would be whether exclusion of certain 
countries might be justified based upon ``like product'' 
considerations. The U.S. might also be able to argue that the standard 
for excluding certain imports is applied in the same way to imports 
from all sources and thus meets MFN requirements.
    \13\ See Pauwelyn at 32-33.
---------------------------------------------------------------------------
    Even if a regulatory measure were found to violate the provisions 
of Articles I, III or XI of the GATT, this violation may be excused by 
one of the exceptions provided for in Article XX of the GATT. In 
particular, Article XX(g) provides an exception for ``measures . . . 
relating to the conservation of exhaustible natural resources if such 
measures are made effective in conjunction with restrictions on 
domestic production or consumption.'' To be entitled to an exception 
under GATT Article XX(g), three conditions must be met:

      First, the resource to be protected must be 
``exhaustible.'' Even a resource that is renewable, such as clean air, 
may be found to be ``exhaustible.'' \14\
---------------------------------------------------------------------------
    \14\ See WTO Appellate Body Report, United States--Import 
Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R (Oct. 
12, 1998) (``US--Shrimp (AB)'') at para. 128; WTO Panel Report, United 
States--Standards for Reformulated and Conventional Gasoline, WT/DS2/R 
(Jan. 29, 1996) at para. 6.37.
---------------------------------------------------------------------------
      Second, the measure at issue must be a measure ``relating 
to'' the conservation of the resource. To satisfy this condition, the 
Appellate Body has suggested there must be a ``substantial'' 
relationship between the measure and the conservation of the resource 
and the means adopted must be ``reasonably related'' to the ends.\15\
---------------------------------------------------------------------------
    \15\ US--Shrimp (AB) at para. 141.
---------------------------------------------------------------------------
      Third, the measure must be ``made effective in 
conjunction with restrictions on domestic production or consumption.'' 
The Appellate Body has said that this requires only ``even-handedness'' 
in the treatment of domestic goods and imports, not ``equality of 
treatment.'' \16\
---------------------------------------------------------------------------
    \16\ See id. at paras. 144-45; WTO Appellate Body Report, United 
States--Standards for Reformulated and Conventional Gasoline, WT/DS2/
AB/R (Apr. 29, 1996) at pp. 20-21.

    In addition to the three conditions that must be met under the 
specific requirements of GATT Article XX(g), a regulatory measure must 
satisfy the introductory clause or ``chapeau'' of Article XX to qualify 
for an exception under that provision. The chapeau of Article XX 
requires that measures not be applied ``in a manner which would 
constitute a means of arbitrary or unjustifiable discrimination between 
countries where the same conditions prevail, or a disguised restriction 
on international trade.'' The WTO Appellate Body has interpreted this 
chapeau to require that an environmental measure be sufficiently 
flexible and take into account the different conditions that may exist 
in different foreign countries.\17\ In addition, the Appellate Body has 
suggested that the country taking a measure must engage in ``serious, 
across-the-board negotiations with the objective of concluding 
bilateral or multilateral agreements'' on the problem that the measure 
is designed to address.\18\ This does not require the actual conclusion 
of an agreement, but that a country make good faith efforts to reach 
agreements with all countries affected.\19\ Finally, according to the 
Appellate Body's analysis, the implementation and administration of a 
measure must comply with principles of ``basic fairness and due 
process.'' \20\
---------------------------------------------------------------------------
    \17\ WTO Appellate Body Report, United States--Import Prohibition 
of Certain Shrimp and Shrimp Products (Implementation Under Article 
21.5 of the Dispute Settlement Understanding), WT/DS58/AB/RW (Oct. 22, 
2001) (``US--Shrimp (Implementation Under Art. 21.5)'') at para. 144.
    \18\ US--Shrimp (AB) at para. 166.
    \19\ Id.; US--Shrimp (Implementation Under Art. 21.5) at paras. 
122-124, 134.
    \20\ US--Shrimp (AB) at para. 181.
---------------------------------------------------------------------------
Figure 4

[GRAPHIC] [TIFF OMITTED] T2201A.042


    Notwithstanding the above analysis, I should caution that it is 
impossible to predict with any certainty in this (as in other) areas 
how the WTO Appellate Body will rule--particularly given the lack of 
clear precedent and the performance of the AB. In fact, I and a number 
of other commentators have been critical of the AB's decisionmaking in 
recent years, noting a tendency to stray from the clear terms and 
intent of the relevant agreements and repeated examples where the AB 
has effectively created new obligations under those agreements. This 
only adds to the uncertainty in assessing likely judicial rulings in 
the climate/environmental area--and offers yet another reason why the 
Committee may, in the future, wish to engage in a thorough review of 
the jurisprudence at the WTO and the adherence of the AB to the proper 
standard of review.

III. INTENSITY-BASED STANDARDS
    Although the climate-change proposals currently receiving the most 
attention involve a cap and trade approach, I want to briefly discuss 
an alternative approach that has been suggested by certain industry 
officials. Under this approach, the U.S. Government would require 
everyone selling in this market--including both domestic and foreign 
producers--to live up to the ``best practices'' and articulated 
standards in terms of the carbon intensity of their manufacturing 
operations. Per-unit standards could be created for particular 
industries/product areas (e.g., iron, steel, aluminum, etc.) that 
result in significant volumes of greenhouse gas emissions. Of course, 
different standards would be employed for different manufacturing 
processes with respect to each product. Such standards could also be 
paired with incentives to encourage producers to develop and implement 
new practices that would further reduce greenhouse gas emissions.\21\
---------------------------------------------------------------------------
    \21\ Yet another alternative approach that could be adopted would 
be to impose a carbon tax on imports that is equivalent to the internal 
cost imposed on domestic products by climate change legislation. Such a 
carbon tax could be defended as a ``border tax adjustment'' that is 
permitted under WTO rules for product-related or indirect taxes (such 
as value-added taxes or sales taxes).
---------------------------------------------------------------------------
    This type of approach would have two major advantages. First, 
because all producers active in this market would be subject to the 
same rules, this approach would give U.S. producers an opportunity to 
compete on even terms with foreign producers. Second, by holding 
producers worldwide to the most rigorous standards, it would exert 
significant downward pressure on greenhouse gas emissions. As our trade 
deficit demonstrates, producers worldwide are eager to ship their goods 
to this country. Congress could use that fact to encourage greener 
production at home and abroad and a level playing field in our market. 
Intensity-based standards would encourage a ``race to the top,'' where 
manufacturers worldwide compete to satisfy our requirements.
    Moreover, there are strong arguments to show that intensity-based 
standards would be consistent with the United States' WTO obligations. 
In this regard, such standards should satisfy the national treatment 
requirements of Article III:4 of the GATT because they would treat 
imported products no less favorably than like domestic products. As an 
initial matter, it could be argued that imported products and domestic 
products that are produced through different manufacturing processes 
and that have different carbon intensities are not like products to 
begin with and that, as a result, there is no violation of national 
treatment if such products are treated differently. But even if they 
are considered like products, intensity-based standards would not 
discriminate against imports. To the contrary, imported products and 
domestic products would be treated exactly the same. Any distinctions 
that would be made between products would be based on the carbon 
intensities of the products. Such distinctions would be unrelated to 
the origin of the products and would not be made to afford protection 
to domestic production. Accordingly, there would be strong arguments 
that this type of approach complies with the requirements of GATT 
Article III:4.
    In any event, even if intensity-based standards were not upheld 
under GATT Article III:4, they could be defended under the exception 
provided in Article XX(g) of the GATT. No concern about the protection 
of the environment is currently considered to be more important 
internationally than the conservation of the Earth's atmosphere through 
the reduction of greenhouse gas emissions and the resultant protection 
of the Earth's climate. In fact, there cannot be any real question that 
the planet's atmosphere is an ``exhaustible natural resource'' in the 
sense of Article XX(g). Intensity-based standards would also clearly 
``relate to'' the conservation of the Earth's atmosphere and related 
climate. By requiring producers to comply with the best practices and 
highest standards for carbon intensity in their respective industries, 
intensity-based standards would reduce greenhouse gas emissions to the 
greatest extent possible and would certainly be ``reasonably related'' 
to that end. And as noted above, the standards would apply equally to 
domestic products and imports so that there clearly would be even-
handedness in the imposition of the restrictions.
    Furthermore, there are good arguments that intensity-based 
standards would satisfy the requirements of the chapeau of Article XX, 
even if one assumes that the specific requirements read into that 
chapeau by the Appellate Body in other litigation apply to this issue. 
The standards would take account of the local conditions in foreign 
countries and would not simply require that foreign countries adopt 
U.S. programs or policies. Foreign countries would be free to adopt any 
programs or policies, and foreign producers would be free to choose 
whatever manufacturing processes or technologies enable them to meet 
the intensity-based standards established by the United States. In 
particular, developing countries and producers in such countries would 
be provided with sufficient flexibility to take whatever steps are 
appropriate to satisfy the U.S. standards. The United States has also 
engaged and is engaging in ``serious, across-the-board negotiations'' 
to reach a multilateral agreement to address the problem of climate 
change. Thus, the United States is actively seeking to resolve this 
issue on an international level. Finally, intensity-based standards 
should unquestionably be applied in a transparent, predictable, and 
nondiscriminatory manner so as to comply with the principles of ``basic 
fairness and due process'' established by Article XX. Thus, intensity-
based standards would present good arguments with respect to the 
necessary elements to be entitled to an exception under Article XX(g) 
of the GATT.

IV. INTERNATIONAL COMPETITIVENESS PROVISIONS IN THE CONTEXT OF CAP AND 
        TRADE LEGISLATION

A. Principles Relating to Effective International Competitiveness 
        Provisions
    Congress currently has before it a number of proposals to use some 
type of cap and trade program to limit greenhouse gas emissions. These 
legislative proposals would, under certain circumstances, require 
importers to obtain allowances to account for emissions associated with 
imported products. I do not today intend to offer specific analyses of 
these legislative proposals. I will say that, while many of these 
proposals appear well-intentioned, much more work remains to be done to 
develop mechanisms that are both efficacious and meet WTO concerns. 
Adopting a competitiveness provision that does not truly address the 
problem and that fails to create a level playing field would be the 
worst possible option--hanging our workers and companies out to dry and 
ultimately leading to greater, not fewer, greenhouse gas emissions 
worldwide.
    Cap and trade legislation designed to cover the entire U.S. economy 
is inherently complex, and ensuring that such legislation does not 
result in a competitive disadvantage for U.S. producers will require 
careful thought and consideration. Nevertheless, there are a number of 
basic principles that should clearly inform any effort to regulate in 
this area, and that would help ensure that the legislation does not 
cause severe injury to the U.S. manufacturing sector and American 
workers. At the very minimum, Congress should make certain that: (1) 
any additional regulatory costs and burdens imposed on domestic 
products under the legislation should be equally borne by imports; (2) 
applicability of competitiveness provisions to imports is not subject 
to discretionary determinations that could undermine such provisions; 
(3) new regulatory requirements (including requirements to obtain 
emission allowances) should be fully applicable to imported products at 
the same time that they are imposed on domestic producers; and (4) 
imports from foreign countries should be fully subject to such 
requirements unless those countries are undertaking truly equivalent 
climate measures.
    The type of provisions that must be avoided include the following:

      Granting broad discretion to exempt foreign countries 
based upon vague and open-ended standards that could let out major 
emitters early in the program;
      Providing discretionary authority to reduce the 
obligation of importers to obtain allowances based on factors that 
would not reduce obligations for domestic producers;
      Delaying the application of requirements to imports until 
some time after new obligations are placed on domestic producers;
      Failing to include adequate provisions to address the 
competitiveness challenges faced by downstream products and that would 
allow such products to compete on a fair footing with imports;
      Including arbitrary exclusions for small-emitting nations 
that could be very difficult to defend under WTO rules;
      Granting more favorable treatment for importers in the 
use of foreign allowances and credits than is provided for domestic 
producers.

    Inclusion of provisions like these will not and should not receive 
support from workers and companies facing competitiveness challenges 
under any new climate legislation.
    Fortunately, there are strong reasons to believe that enhanced and 
meaningful competitiveness provisions--consistent with the principles 
articulated above--could be incorporated into climate legislation 
without violating our WTO obligations.

B. WTO Considerations Relating to Strengthened International 
        Competitiveness Provisions
    Strengthened and effective competitiveness provisions should not 
present any significant additional WTO concerns--and could in fact make 
such legislation more defensible under the WTO by ensuring the most 
equal possible treatment among imports and domestically-produced 
products.
    Again, competitiveness provisions in this regard would likely be 
subject to the national treatment requirements of GATT Article III:4. 
Because strengthened competitiveness provisions as described above 
would not discriminate against imports--but indeed would seek to ensure 
that the same costs and burdens are imposed on both domestic and 
imported products--there are strong grounds to argue that Article III:4 
would be satisfied. Any distinctions that would be made between 
products would be based on the carbon emitted in their production and 
would simply ensure the very equality of treatment between imports and 
domestic products that is sought by GATT Article III:4.
    Cap and trade legislation with effective international 
competitiveness provisions should also be found to satisfy the 
requirements for the exception provided in Article XX(g) of the GATT. 
As established above, the Earth's atmosphere is clearly an 
``exhaustible natural resource'' under Article XX(g). A regulatory 
system that is consistent with the international competitiveness 
principles identified above would ``relate to'' the conservation of 
this ``exhaustible natural resource'' because it would account for 
emissions associated with imports, and would serve a vital role in 
ensuring that the environmental purpose of the bill is not undermined 
through importation of more carbon-intensive products. Moreover, the 
enhanced international competitiveness provisions would comply with the 
third condition of Article XX(g) in ensuring even-handedness in the 
treatment of domestic products and imports.
    The requirements of the chapeau of Article XX--including the 
specific requirements that the Appellate Body has read into the chapeau 
in the context of other litigation--would also likely be met. The 
legislation would be sufficiently flexible in that it would not mandate 
the adoption of any particular system for the reduction of greenhouse 
gas emissions. Both importers and U.S. producers would have similar 
requirements in terms of the need to obtain allowances for the level of 
the carbon emissions associated with their products, and they could 
trade to obtain additional allowances if necessary. This would allow 
producers in developing countries, in particular, to decide for 
themselves what is the most feasible and appropriate way to reduce 
their emissions. Even if a developing country producer decided not to 
reduce emissions, it could still obtain access to the U.S. market 
through the purchase of additional allowances.
    The international negotiations requirement would also likely be 
satisfied here because the United States has engaged and is engaging in 
negotiations to address the problem of climate change on a multilateral 
level. Lastly, any cap and trade system that is adopted could and 
should provide for emission allowances to be administered in a manner 
that complies with ``basic fairness and due process.'' Accordingly, if 
cap and trade legislation is somehow deemed to violate Article III:4 of 
the GATT, solid arguments can be made that such legislation should 
nevertheless be upheld under GATT Article XX(g).

V. CONCLUSION
    In conclusion, the need to fully and effectively address the 
competitiveness issues posed by climate change legislation is clear. 
Without such a resolution, the core policy goals of the legislation in 
terms of environmental protection will be undermined, and U.S. workers 
and the economy will suffer enormous harm. As outlined above, there are 
compelling arguments to find that the WTO system has sufficient 
flexibility to allow Congress to address these concerns and ensure that 
climate measures impact domestic products and imports in an even-handed 
manner. As such, any legislation in this area should ensure that equal 
burdens are placed upon imports and domestic products.

                                 

    Chairman RANGEL. Thank you. At the appropriate time I hope 
Mayor Bloomberg would be able to respond to your observation.
    We have Timothy Regan as our next member. I still think he 
is with Corning. He has had an outstanding background, and we 
look forward to your testimony here, this morning.

 STATEMENT OF TIMOTHY J. REGAN, SENIOR VICE PRESIDENT, CORNING 
                          INCORPORATED

    Mr. REGAN. Thank you, Mr. Chairman. Mr. Chairman, we come 
here to share a unique perspective. Corning is, on the one 
hand, an environmental technology company. We invented the 
materials that have removed billions of tons of harmful 
emissions from multiple sources.
    On the other hand, we're a very, very energy-intensive 
manufacturer. We melt silica, and we cure ceramic, both of 
which use a lot of energy.
    One point I want to make--and I think it's probably already 
been made, but I want to emphasize it--if our trading partners 
were to adopt a cap and trade system like the one that we 
decide to adopt, and they do it simultaneously with us, then I 
wouldn't be here today, taking up your valuable time.
    There are some unintended consequences if we act 
unilaterally, and those unintended consequences are 
characterized in terms of loss of high wage manufacturing in 
the sectors that I represent here today, and they take the form 
of what we call environmental leakage. The world will not 
harmonize. We will probably go first. So, I would urge you to 
take into consideration these unintended consequences as we 
move forward.
    Energy intensive manufacturers are in a difficult position 
under a cap and trade program. It's going to raise prices, as 
we all know, of energy. Energy is an incredible source of the 
cost of production for the industry. In some cases, it's eight 
times higher than it is for manufacturing. We are going to have 
to absorb these costs. Because we operate in world markets, 
it's going to be very hard to pass these costs on.
    So, we are going to be put in a cost price squeeze. So, why 
should you care?
    Well, I think the reason why policymakers should care 
really involves two issues. One is that the industry is 
important, economically. Yes, we are small. But we are a source 
of high-wage employment. In 2006, energy-intensive 
manufacturers on average, paid 51 percent more in compensation 
to our employees than the rest of the economy.
    Another reason we're important is because we're a large 
part, significant part, of the industrial base. We represented 
20 percent of the U.S. manufacturing output in 2006. Another 
thing that is important is we're a large source of productivity 
growth. Over the last 3 years, we generated about 10 percent 
productivity growth, versus 4.6 percent of the economy. So, we 
really do drive real wages, and that's why we can pay more than 
other parts of the economy to our employees.
    The second issue to be concerned about is this whole 
question of environmental leakage, which has already been 
described.
    Now, we think you can devise a cap and trade program that 
will achieve emissions reductions, and at the same time avoid 
some of these adverse consequences. We think it should be 
designed around a couple of principles. Let me share them with 
you.
    First, you have to narrowly identify the eligible sectors 
for compensation under such a program.
    Second, you really want to neutralize for a time period, 
for a transition period, the cost of carbon that is incurred, 
both directly and indirectly, by these eligible sections. 
Directly, we produce emissions, we're going to have to cover 
those emissions. We're going to buy electricity, there is going 
to be an emission cost associated with electricity.
    Third, you need to neutralize the indirect costs of energy 
that the industry is going to absorb, and those need to be 
understood. There is going to be a lot of fuel switching, for 
example, to natural gas. That will drive up the price of 
natural gas. That will then affect the cost of manufacturing 
for companies that use it as a feed stock, or to power our 
furnaces.
    Fourth, the mechanism that you use should affect both 
imports and exports. Energy-intensive manufacturers export--we 
account for about 13 percent of U.S. exports. We have 
manufacturing facilities in the United States that export 100 
percent of their output.
    I want to emphasize that compensation systems don't have to 
be free allowances. They can be in the form of tax rebates, or 
in the form of some assistance for health care costs, et 
cetera. But those kinds of systems, if designed properly, can 
avoid the problems we're talking about, and they can be useful, 
in terms of addressing the competitiveness problem as it 
relates to both exports and imports. I want to emphasize that 
point.
    Now, if you can't develop such a system of compensation, 
because there are all kinds of competing needs--then you need 
to go to border adjustment. If you go to border adjustment, we 
would strongly recommend that you try to minimize your WTO risk 
of challenge, but don't let it become a block.
    Finally, while we understand that all this will be 
temporary, we would caution against premature termination.
    We want to do our part. We are an environmental company. 
We're not afraid to do our part. But we want to help design a 
system that is going to deal with these unintended 
consequences, and we want to work with you to do that. Thank 
you very much.
    [The prepared statement of Mr. Regan follows:]
                Prepared Statement of Timothy J. Regan,
              Senior Vice President, Corning Incorporated

I. Introduction

    Mr. Chairman, it is an honor to appear before you today to speak to 
you about the critical issue of climate change and the policy options 
for addressing it.
    I am a Senior Vice President with Corning Incorporated, a 
manufacturer of critical glass and ceramic components used in a variety 
of high-tech products ranging from fiber optic telecommunications 
systems to environmental control systems and liquid crystal displays 
(``LCDs'') for computer and consumer electronics. We are headquartered 
in Corning, New York, and have facilities in 12 other States.
    While we have been manufacturing in the United States for over 157 
years, we are very much a high-tech company that consistently spends at 
least 10% of our revenue on research, development, and engineering. 
Corning is a four-time winner of the President's Medal of Technology 
for our inventions like fiber optics.
    I am here today to discuss the climate change issue for two 
reasons. First, we are an environmental technology company. We invented 
the ceramic substrate material that is critical to the operation of 
catalytic converters and devices that reduce emissions from diesel 
engines. Since it was first put into use in 1975, our technology has 
removed over 1.5 billion tons of pollution from American skies and 3 
billion tons worldwide.\1\
---------------------------------------------------------------------------
    \1\ See Corning Press Release citing the Manufacturers of Emission 
Control Association (``MECA'') (February 15, 2005), ``.
---------------------------------------------------------------------------
    Second, we are a significant consumer of energy in the forms of 
electricity and natural gas. As such, we will be significantly affected 
by climate change legislation that increases the cost of energy from 
both sources. For example, Census data shows that energy constitutes 17 
percent of the value of shipments for flat glass, which is over eight 
times the average proportion for manufacturing generally in the United 
States.\2\ Fundamentally, we are in the business of melting silica and 
other compounds and curing ceramic, all of which use enormous amounts 
of energy.
---------------------------------------------------------------------------
    \2\ See Figure 1, p. 4, and Annual Survey of Manufacturers: General 
Statistics: Statistics for Industry Groups and Industries, U.S. Census 
Bureau, 2006.
---------------------------------------------------------------------------
    I am not here today to endorse a specific proposal to address the 
climate change problem. Rather, I am here to help you assess the impact 
of a cap and trade system on energy-intensive manufacturing and to 
suggest some principles that you might use in a cap and trade program. 
I believe the debate on cap and trade is still in a formative stage, 
and I commend the Committee for sponsoring this inquiry to examine the 
policy options for moving forward.
    Energy-intensive manufacturing is particularly vulnerable in a cap 
and trade system because:

      such a system will necessarily increase the cost of 
energy as it will create a new cost of carbon that must be absorbed by 
manufacturers directly and indirectly as it is passed downstream to 
them by their energy suppliers;
      energy constitutes a large portion of the cost of 
production for energy-intensive manufacturing like glass, steel, 
ceramics, and chemicals; and
      the competition in energy-intensive manufacturing is 
global in nature making it difficult to pass through the increased cost 
of energy downstream to end users.

    With respect to global competition, I would like to emphasize that 
energy-intensive manufacturing firms face competition in both import 
and export markets. Unfortunately, the debate so far has focused on 
imports. The impact on exports has been largely ignored. Corning and 
many other energy-intensive manufacturers are significant exporters.
    I believe that the policy challenge is to construct a cap and trade 
system that can effectively reduce carbon emissions without causing job 
loss in high-wage manufacturing or ``environmental'' leakage. Such 
leakage occurs when production shifts from the United States, where 
emissions are regulated and energy costs are high, to countries where 
emissions are not regulated and energy costs are low. This outcome is 
undesirable because it would result in the loss of high-wage 
manufacturing jobs and merely shift the geographic source of emissions, 
not reduce them.
    Let me assure the Committee that we are willing to do our part to 
help solve the climate change problem as the United States leads the 
world in adopting effective measures to reduce greenhouse gases. But, 
we believe that special measures should be incorporated into any U.S. 
cap and trade program to address the unintended consequences of job 
loss in energy-intensive manufacturing and environmental leakage that 
could occur unless and until our trading partners implement a 
comparable system of regulation to reduce greenhouse gases. 
Fortunately, a consensus is beginning to evolve on the need for these 
special measures.

II. Energy-Intensive Manufacturing Poses a Unique Challenge
    Energy-intensive manufacturing needs special attention in a cap and 

trade program for three reasons. First, it is a critically important 
segment of the U.S. economy. Second, this sector is particularly 
vulnerable to an increase in energy cost driven by a cap and trade 
system. And third, failure to address special challenges of energy-
intensive manufacturing will lead to the loss of high-wage jobs and 
environmental leakage.
    Energy-intensive manufacturing \3\ is critical to the economy 
because it is a source of high-wage jobs, it represents a large portion 
of the U.S. manufacturing base, and it is a major source of 
productivity growth.
---------------------------------------------------------------------------
    \3\ For the purpose of the analysis contained in this testimony, I 
will use a definition of energy-intensive manufacturing that is 
included in most of the major proposals to date. These include glass, 
ceramics, iron, steel, pulp, paper, cement, rubber, chemicals, and 
aluminum and other nonferrous metals. Appendix A identifies the 
specific industrial codes used by Census to track these industries.
---------------------------------------------------------------------------
    Energy-intensive manufacturing generates high-wage employment that 
is substantially higher than the norm. As indicated in Table 1 below, 
energy-intensive manufacturers provided their employees with average 
wages and benefits at $78,609 for 2006. This is a full 51% higher than 
the U.S. overall average of $51,934 and 16% higher than the average for 
U.S. manufacturing generally at $67,545. Adopting measures in a cap and 
trade system to assist energy-intensive manufacturers will help protect 
these high-wage jobs.

                                Table 1

           Relative Average Annual Compensation for 2004-2006
                      [millions of current dollars]
------------------------------------------------------------------------
                                            2004       2005       2006
------------------------------------------------------------------------
Overall U.S. Average                      $47,885    $49,818    $51,934
------------------------------------------------------------------------
All U.S. Manufacturing Average            $62,682    $64,869    $67,545
------------------------------------------------------------------------
Energy-Intensive Manufacturing Weighted   $73,053    $76,595    $78,609
 Average
------------------------------------------------------------------------
Sources: U.S. Department of Commerce, U.S. Census Bureau, Annual Survey
  of Manufactures, Statistics for Industry Groups and Industries, 2004-
  06. U.S. Manufacturing Total: U.S. Department of Commerce, Bureau of
  Economic Analysis (BEA), Annual Industry Accounts, Gross Domestic
  Product (GDP) by Industry, 2004-06.


    Energy-intensive manufacturing is also critical to the economy 
because it represents a large portion of the American manufacturing 
base. As indicated in Table 2 below, the value added by energy-
intensive manufacturing to the economy in 2006 represents 20% of the 
value added by all U.S. manufacturing. So including measures in a cap 
and trade program to address the challenges of energy-intensive 
manufacturing will help secure a large portion of the American 
manufacturing base and the high-wage jobs associated with it.

                                Table 2

      Relative Industry Value--Added (GDP component) for 2004-2006
                      [millions of current dollars]
------------------------------------------------------------------------
                                    2004          2005          2006
------------------------------------------------------------------------
All U.S. Manufacturing           $2,090,063    $2,167,245    $2,324,545
------------------------------------------------------------------------
Energy-Intensive Manufacturing     $397,112      $433,449      $464,909
------------------------------------------------------------------------
Energy-Intensive Manufacturing          19%           20%           20%
 Share
------------------------------------------------------------------------
Sources: U.S. Department of Commerce, U.S. Census Bureau, Annual Survey
  of Manufactures, Statistics for Industry Groups and Industries, 2004-
  06. U.S. Manufacturing Total: U.S. Department of Commerce, Bureau of
  Economic Analysis (BEA), Annual Industry Accounts, Gross Domestic
  Product (GDP) by Industry, 2004-06.


    Finally, energy-intensive manufacturing is critical to the economy 
because it is an important source of productivity growth. Such growth 
is important because it drives growth in real wages. Table 3 reflects 
the average value added per employee for energy-intensive manufacturing 
relative to the rest of the economy and to manufacturing in general. 
The change in value added per employee is a good measurement of 
relative productivity growth.

                                Table 3

 Relative Average Productivity (value added per employee) for 2004-2006
                            [current dollars]
------------------------------------------------------------------------
                                         2004        2005        2006
------------------------------------------------------------------------
Overall U.S. Average                    $83,989     $88,037     $91,922
------------------------------------------------------------------------
All Manufacturing Average              $152,413    $167,936    $177,485
------------------------------------------------------------------------
Energy-Intensive Manufacturing         $325,304    $362,811    $393,550
 Weight Average
------------------------------------------------------------------------
Sources: U.S. Department of Commerce, U.S. Census Bureau, Annual Survey
  of Manufactures, Statistics for Industry Groups and Industries, 2004-
  06. U.S. Manufacturing Total: U.S. Department of Commerce, Bureau of
  Economic Analysis (BEA), Annual Industry Accounts, Gross Domestic
  Product (GDP) by Industry, 2004-06.


    These data show that productivity growth in energy-intensive 
manufacturing at 10% far exceeds that of the economy overall at 4.6% 
and all manufacturing at 7.9%. In other words, productivity growth in 
energy-intensive manufacturing is over twice that of the economy 
overall. So including measures in a cap and trade program to address 
the problems of energy-intensive manufacturers will help maintain a 
primary source of productivity growth in the economy.
    In addition to being critical to the overall economy, energy-
intensive manufacturing is also very vulnerable to the effects of a cap 
and trade program. I describe below how such a program will likely 
increase both the direct and indirect costs for energy-intensive 
manufacturing. There are many paths through which these costs increases 
will be channeled.
    Unfortunately, energy-intensive manufacturers are very vulnerable 
to these cost increases for two reasons. First, energy is a significant 
portion of their cost of production, a proportion greater than that of 
most sectors of the economy. Second, because energy-intensive 
manufacturers face global competition, they will encounter difficulty 
passing on these increased costs downstream to their customers.
    Figure 1 demonstrates graphically the significance of energy costs 
for energy-intensive manufacturers. On average, such costs represent 5% 
of the value of shipments of energy-intensive manufacturers. This is 
over twice that of other manufacturing at 2%. In certain sectors, the 
difference is even more significant. For example, in the glass sector, 
energy represents 17% of the value of shipments for flat glass 
manufacturing, 15% for glass container manufacturing, and 12% for other 
glassware manufacturing.

[GRAPHIC] [TIFF OMITTED] T2201A.043

    Source: Census Data Annual Survey of Manufactures: General 
Statistics: Statistics for Industry Groups and Industries; 2006 U.S. 
Census Bureau.

    Clearly, the cost of production for energy-intensive manufacturers 
will increase significantly by any increase in energy cost that is 
driven by a cap and trade program.
    These increased costs cannot be easily passed on by energy-
intensive manufacturers downstream to their customers because they face 
competition in both export and import markets. As indicated in Table 4, 
energy-intensive manufacturers depend heavily on export markets. A full 
11% of their output was exported in 2006, a level which is twice that 
for the economy overall. Some of Corning's facilities export nearly 
100% of their output. And energy-intensive manufacturers face import 
competition with imports accounting for 19% of consumption overall. 
Import competition is most apparent in the primary metals sector at 30% 
of consumption.

                                Table 4

                  Export Intensity and Import Share of  Energy-Intensive Manufacturing for 2006
----------------------------------------------------------------------------------------------------------------
                                                                       Export Intensity    Import Share (imports
                                                                      (exports as a % of         as a % of
                                                                           output)              consumption)
----------------------------------------------------------------------------------------------------------------
Nonmetallic Mineral Products                                                          5%                    16%
----------------------------------------------------------------------------------------------------------------
Primary Metals                                                                       10%                    30%
----------------------------------------------------------------------------------------------------------------
Paper Products                                                                        9%                    15%
----------------------------------------------------------------------------------------------------------------
Petroleum and Coal Products                                                           6%                    13%
----------------------------------------------------------------------------------------------------------------
Plastic and Rubber Products                                                          17%                    24%
----------------------------------------------------------------------------------------------------------------
Chemical Products                                                                     9%                    15%
----------------------------------------------------------------------------------------------------------------
All Energy-Intensive Manufacturing                                                   11%                    19%
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis (BEA), Annual Industry Accounts, Annual Input-
  Output (I-O) Accounts, Summary Make and Use Annual I-O Tables, 2006.
* Note: Total consumption = Intermediate consumption + personal consumption.


    Fortunately, a consensus is evolving on the need to address the 
special needs of energy-intensive manufacturing in the context of a cap 
and trade program. Policymakers are beginning to recognize: (1) that 
energy-intensive manufacturing is critical to the economy because it 
generates high-wage jobs, and (2) that it is vulnerable to an increase 
in the cost of energy driven by a cap and trade system. They are 
concerned that this vulnerability will force environment leakage, a 
production shift from the United States, where carbon is regulated and 
energy costs are high, to other geographic regions where carbon is not 
regulated and energy costs are low. Such a shift would hurt the economy 
without improving the environment.
    As a result, many proposals to date include special provisions to 
partially and temporarily compensate energy-intensive manufacturers for 
the significant cost that they must absorb under a cap and trade 
program. These proposals also include temporary border measures to 
assess the cost of carbon on imports of energy-intensive products from 
countries that do not have programs to effectively regulate carbon 
emissions. Generally, the industries affected by these compensation and 
border adjustment mechanisms include glass, ceramics, iron, steel, 
pulp, paper, cement, rubber, chemicals, and aluminum and other 
nonferrous metals.\4\
---------------------------------------------------------------------------
    \4\ Lieberman-Warner (S. 2191), Boxer Substitute (S. 3036), 
Investing in Climate Action and Protection Act (Markey H.R. 6186) and 
Climate MATTERS (Dogget H.R. 6316) all contain provision for transition 
assistance for energy-intensive manufacturing.
---------------------------------------------------------------------------
    Some of our friends in the environmental community have expressed 
support for these proposals. They are appropriately concerned about the 
environmental leakage and job loss in energy-intensive manufacturing 
that could occur under a cap and trade system. And, they have expressed 
support for giving energy-intensive manufacturing facilities some 
direct compensation in the form of ``free allowances'' and for border 
adjustment measures provided that both are temporary, limited, and used 
as a tool to encourage other countries to adopt ``comparable action'' 
to control greenhouse gas emissions.\5\
---------------------------------------------------------------------------
    \5\ Testimony of David D. Doniger, Climate Center Policy Director, 
Natural Resources Defense Council, February 28, 2008, before the 
Committee on Energy and Commerce Subcommittee on Energy and Air 
Quality, p. 11.
---------------------------------------------------------------------------
    The international community also recognizes the special needs of 
energy-intensive manufacturing. In its reform proposal, the European 
Commission notes that, although auctions are the most efficient method 
for allocating allowances, it remains concerned about carbon leakage. 
In the event that a global agreement to control greenhouse gas 
emissions cannot be reached, the Commission recommends that energy 
intensive manufacturers subject to global competition receive up to 100 
percent of allocations for free to avoid job loss and carbon 
leakage.\6\
---------------------------------------------------------------------------
    \6\ Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE 
COUNCIL amending Directive 2003/87/EC so as to improve and extend the 
greenhouse gas emission allowance trading system of the Community, 
Brussels, 23.1.2008 COM(2008) 16 final, 2008/0013 (COD), p. 16.
---------------------------------------------------------------------------
III. Cost Impact of Energy-Intensive Manufacturing
    To design a mechanism to avoid leakage and economic dislocation in 
energy-intensive manufacturing, one must first understand how a cap and 
trade program will likely impact the cost of manufacturing. For the 
purposes of this discussion, I will assume that a cap and trade system 
will be established that reduces greenhouse gas emissions by 60% to 80% 
from 1990 levels by the year 2050.
    Such a system will require firms that emit greenhouse gases, mostly 
CO2, to redeem an allowance for every ``carbon equivalent 
ton'' of emissions. The administrator of the program will issue these 
allowances annually by declining volumes over time so as to force a 
reduction in emissions slowly to the targeted level in 2050.
    A portion of these allowances will be made available to some 
facilities at no cost, but the free allowances will not be sufficient 
to accommodate all of the needs of all facilities. There will be a 
shortfall that must be accommodated by purchasing emission allowances 
in an auction market. The market will set the price of carbon 
emissions.
    Achieving a 60% to 80% reduction below 1990 levels will have a 
significant impact on energy-intensive manufacturers because it will 
require that they absorb both direct and indirect costs associated with 
the cap and trade program. Direct costs will arise from the purchase of 
allowances to cover emissions that a manufacturer produces directly 
from its own processes (e.g., in Corning's case burning natural gas to 
melt silica). This is called the direct cost of carbon. Direct costs 
will also arise from investment in new technology to increase fuel 
efficiency. These direct costs can be easily identified.
    The indirect costs that an energy-intensive manufacturer must 
absorb under a cap and trade system are derived from the increased cost 
of electricity and other energy sources that are driven by the cap and 
trade system. These indirect costs will be driven by four factors:

      the cost associated with allowances that energy suppliers 
(i.e., electricity, natural gas, and fuel oil) will have to purchase in 
the auction market (i.e., the indirect cost of carbon);
      the cost associated with ``fuel switching'' by 
electricity suppliers (i.e., the purchase of higher-cost, lower-carbon 
fuels like natural gas);
      the cost associated with investment by electricity 
suppliers in new technology like carbon capture and sequestration and 
renewable sources; and
      the rising cost of natural gas driven from fuel switching 
upstream that energy-intensive manufacturers must absorb to maintain 
their own operations.

    These indirect costs are more difficult to identify.
    I share this detail for the purpose of demonstrating the myriad 
ways in which energy-intensive manufacturers can be affected by a cap 
and trade system. A mechanism that can effectively contain leakage and 
prevent economic dislocation for energy-intensive manufacturers should 
neutralize these direct and indirect costs. Most proposals that have 
been introduced to date focus solely on the direct and indirect cost of 
carbon, that is, the cost of allowances to cover CO2 
emissions by the manufacturer and its energy suppliers. They do not 
address all of the other indirect costs noted above.

IV. Design Principles

    I do not have a specific proposal to share with the Committee on 
how to address the leakage problem or the challenges that a cap and 
trade system will likely create for energy-intensive manufacturers. 
Rather, I would like to present some design principles that the 
Committee might consider in developing a mechanism for incorporation 
into a cap and trade system to address the leakage problem and the 
challenges of energy-intensive manufacturers. I suggest that you 
consider seven design principles.
    First, the mechanism should clearly identify the types of 
manufacturing facilities or product categories that will be eligible 
for compensation under a cap and trade system. Specifying industry 
sectors in the legislative language would certainly be desirable for 
planning purposes. This has been done in many proposals to date. 
Generally speaking, the proposals have identified glass, ceramics, 
iron, steel, pulp, paper, cement, rubber, chemicals, and aluminum and 
other nonferrous metals. The legislative language should also include a 
set of criteria that the administrator could use to add new sectors and 
product categories.
    Second, the mechanism should neutralize the cost of carbon for 
eligible energy-intensive manufacturing facilities. This can be done by 
allocating enough free allowances to each eligible facility to cover 
all of its direct emissions (i.e., the direct cost of carbon), plus 
enough to cover the net allowance cost of their electricity supplier 
(i.e., the indirect cost of carbon). The net allowance cost is the 
difference between the allowances that the electricity supplier must 
redeem to cover its direct emissions and the free allowances that it is 
granted by the administrator of the program. If electricity suppliers 
do not get enough free allowances, they will have to purchase them on 
the auction market and pass the cost on to their manufacturing 
customers. Calculating the cost of carbon is not difficult for well-
managed firms.
    Most proposals to date use free allowances to partially compensate 
energy-intensive manufacturers for the direct and indirect cost of 
carbon. But this can also be done through a tax rebate or credit 
mechanism. Under such a program, manufacturers would receive a tax 
rebate or credit large enough to offset the cost of carbon that is 
inherent in every unit of output. It can be designed to have about the 
same impact as a system of free allowances, but may be easier to 
administer and may generate more predictable results.
    Third, the mechanism should neutralize the noncarbon indirect costs 
for eligible energy-intensive manufacturing facilities. These costs 
would involve the noncarbon costs that are passed on to the 
manufacturer by its energy suppliers. These noncarbon costs include the 
cost of fuel switching to natural gas by electricity suppliers, as 
described above, and the cost of investment in new technology incurred 
by the electricity suppliers to reduce their carbon footprint. This 
would also include the increased cost of natural gas to the 
manufacturer that arises from fuel switching. Admittedly, identifying 
these costs will be difficult, but they could be significant and, 
therefore, should be accommodated to the maximum extent possible in 
order to fully address the leakage and competitiveness problems.
    Fourth, such a mechanism should address the competitiveness issue 
as it relates to both imports and exports. The debate so far has 
focused almost exclusively on imports. But energy-intensive 
manufacturers are significant exporters. In fact, energy-intensive 
manufacturing accounts for 14% of all U.S. exports. It is unwise to put 
these exports in jeopardy especially in light of the fact that the U.S. 
economy is relying on exports to generate more than one-third of our 
economic growth.\7\
---------------------------------------------------------------------------
    \7\ See Economic Report of the President, Chapter 3, The Causes and 
Consequences of Export Growth, February 2008, p. 79.
---------------------------------------------------------------------------
    Every effort should be made to provide compensation to energy-
intensive manufacturers through free allowances or tax rebates to 
neutralize the direct cost and indirect cost associated with the cap 
and trade program. It is the most efficient way to address the leakage 
and competitiveness problems in the context of a cap and trade system. 
If compensation is adequate, it will prevent leakage and job loss in 
energy-intensive manufacturing. Importantly, it addresses the problems 
as they relate to both competition from imports and competition in 
export markets. It should be noted, however, that competing demands for 
free allowances have made it very difficult to fully compensate energy-
intensive manufacturers for the direct and indirect costs associated 
with cap and trade system. If full compensation is not possible, 
effective border adjustment measures will be necessary.
    Sixth, if border adjustment measures are adopted, the mechanism 
should minimize the risk of the WTO challenge, but the risk of 
challenge should not block action. Experts have testified before 
Congress that a WTO-compliance border adjustment measurement can be 
developed.\8\ I will defer to the legal experts on this question. But 
if there is any doubt, I suggest that the Committee direct U.S. 
negotiators to negotiate arrangements now in the Doha Round to remove 
such doubt.
---------------------------------------------------------------------------
    \8\ See Testimony of Michael G. Morris, Chairman, President, and 
Chief Executive Officer, American Electric Power Before the House 
Energy and Commerce Subcommittee on Energy and Air Quality and attached 
WTO opinion of Sidley Austin LLP, February 28, 2008.
---------------------------------------------------------------------------
    Finally, the mechanism of compensation or border measures to 
address the challenges facing energy-intensive manufacturers should not 
be prematurely terminated. The mechanism will be temporary pending 
adoption by our trading partners of comparable measures to regulate 
greenhouse gases. But those measures should be adopted and implemented 
before the mechanism is terminated. Premature termination could 
generate high-wage job loss and promote leakage.

V. Conclusion
    Energy-intensive manufacturers are particularly vulnerable to an 
increase in energy costs that will no doubt arise from the 
implementation of a cap and trade program. This is due to the fact that 
energy accounts for a large portion of their cost of production, and 
these manufacturers will encounter difficulty passing these increased 
costs on to their customers because energy-intensive manufacturing 
faces competition in both export and import markets.
    A cap and trade program should address the special challenges it 
creates for energy-intensive manufacturers for two reasons. First, they 
are an important source of high-wage employment and economic growth. 
Second, production adjustments that may result from a cap and trade 
program could result in the loss of high-wage jobs and environmental 
leakage. A production shift from the U.S. market, where carbon is 
regulated and energy costs are high, to another region where carbon is 
not regulated and energy costs are low, is neither in our economic 
interest nor in our environmental interest. Indeed, it will hurt the 
economy without improving the environment.
    Fortunately, a consensus is evolving on the need to include 
mechanisms in a cap and trade program to address the special needs of 
energy-intensive manufacturing to avoid high-wage job loss and leakage. 
These measures should neutralize the increased direct and indirect 
costs imposed on energy-intensive manufacturers by a cap and trade 
program. A compensation system of free allowances or tax rebates can 
most efficiently offset these increased costs. If sufficient 
compensation is not possible, border measures that minimize the risk of 
a WTO challenge can be implemented. But these measures should not be 
terminated until our trading partners implement comparable measures to 
regulate greenhouse gases.
    Mr. Chairman, thank you for the opportunity to appear before you.

                                APPENDIX

                                      Table 1:  Energy-Intensive Industries
----------------------------------------------------------------------------------------------------------------
                                                                                                          NAICS
                     Industry                                            Products                         Code
----------------------------------------------------------------------------------------------------------------
Glass                                                                        Flat glass manufacturing    327211
                                                          Other pressed and blown glass and glassware    327212
                                                                                        manufacturing
                                                                        Glass container manufacturing    327213
----------------------------------------------------------------------------------------------------------------
Aluminum                                                                             Alumina refining    331311
                                                                          Primary aluminum production    331312
                                                          Secondary smelting and alloying of aluminum    331314
----------------------------------------------------------------------------------------------------------------
Pulp, Paper, and Paperboard                                                        Pulp Mill Products    322110
  Mills                                                                                   Paper Mills    322121
                                                                             Paperboard Mill Products    322130
----------------------------------------------------------------------------------------------------------------
Iron,Steel,&FerroalloyMills                         Iron and steel mills and ferroalloy manufacturing    331111
----------------------------------------------------------------------------------------------------------------
Cement                                                                           Cement manufacturing    327310
                                                                     Ready-mix concrete manufacturing    327320
----------------------------------------------------------------------------------------------------------------
Industrial Ceramics                                                               Industrial Ceramics    327113
----------------------------------------------------------------------------------------------------------------
Chemicals                                                                                   Chemicals    325
----------------------------------------------------------------------------------------------------------------
Other Nonferrous Metals                               Copper and other nonferrous metal manufacturing    33141
----------------------------------------------------------------------------------------------------------------
Sources: Boxer Amendment S. 3036; U.S. Department of Commerce, U.S. Census Bureau, Annual Survey of
  Manufactures, Statistics for Industry Groups and Industries, 2004-06.


                                 

    Chairman RANGEL. The House soon will be taking votes, but 
we will have the opportunity to listen to our last witness, and 
then may have to take close to a half-hour break. I will just 
advise you of that.
    But Clyde Hufbauer--is it Clyde or Gary?
    Mr. HUFBAUER. Gary.
    Chairman RANGEL. Gary Hufbauer is going to share his views 
with us. He is an expert in taxes and trade, and has done a lot 
of work in this area, lectured and authored. We are so glad 
that you are able to share those views with us. Thank you.

STATEMENT OF GARY CLYDE HUFBAUER, REGINALD JONES SENIOR FELLOW, 
         PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS

    Mr. HUFBAUER. Thanks very much, Mr. Chairman, and Members 
of the Committee. I am delighted that this Committee will be 
asserting its jurisdiction, because it has as its core concern, 
as you noted, the WTO and international trade rules, and I do 
not think that's an area that should be consigned to the 
States.
    Second, the revenue implications are very large, as Peter 
Orszag and many others have noted. I think permits are the same 
as revenue, and they shouldn't just go out the door without the 
surveillance of this Committee. So, I applaud the initiative.
    My institute, the Peterson Institute for International 
Economics, and the World Resources Institute are conducting 
major research in this whole area, and we have published one 
book, another one is coming along, and others will follow.
    As you have noted, the proposals that are before the 
Congress embody two main approaches: carbon taxes and cap and 
trade. But there are also performance standards in the 
discussion. All of these have their advantages and 
disadvantages. But the bottom line is that any of these 
approaches, if serious, will impose very heavy costs on U.S. 
economy, and those costs will be highly concentrated on a few 
industries, as Mr. Regan and Mr. Lighthizer have noted.
    So, this has given rise to the competitiveness concerns 
which have already been mentioned. These competitiveness 
concerns have, really, two dimensions: one, immediate impact on 
particular industries; and second, trying to do something to 
give an incentive to countries like China and India to step up 
to the plate. The bills before Congress have both concerns in 
mind. The logic of some kind of international dimension to the 
bills is, therefore, quite clear.
    I have appended a table to my testimony which shows where 
the carbon intensive manufacturers are coming from, on the 
import side. Not to go into any detail, but you will note that 
most of our carbon-intensive imports come from OECD countries 
which, on average, as Mayor Bloomberg has noted, are cleaner, 
according to various indices and scores, than the United 
States.
    So, we shouldn't think that carbon-intensive goods are all 
coming from China or India, because they are not. The 
statistics are clear.
    The problem of doing things at the border and pressuring 
other countries along the lines that Mr. Regan mentioned is 
that anything we do to other countries they can do to us. We 
could be big losers. Importantly, the world trading system, 
which has been a major source of economic growth in this 
country and the world since the second world war, would be at 
risk.
    I think it's appropriate to remember, in this week 
particularly, that Wall Street crashed first in the Great 
Depression, but Smoot-Hawley came second. A round of trade 
restrictions in the name of climate change could be the Smoot-
Hawley of our times, or the potential Smoot-Hawley.
    Now, turning to the WTO rules as they presently exist, I 
would offer three head notes. One, they were written long ago. 
They were written in a period when climate change was on 
nobody's mind. Second, there have only been very few cases--and 
we summarize them in our forthcoming book--only about six or 
eight cases which have had anything to do with this issue. The 
decisions leave a lot of room for questions to be decided. So, 
the jurisprudence is very scarce.
    With that in mind, our recommendation is for U.S. 
legislation, or the legislation of other major countries, to 
provide a pause before border measures are imposed, a pause for 
a short period of time, 3 or 4 years, to try to negotiate a new 
WTO code that outlines what is permissible, what is not.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Hufbauer follows:]

   Prepared Statement of Gary Clyde Hufbauer, Reginald Jones Senior 
         Fellow, Peterson Institute for International Economics

    Mr. Chairman and Members of the Committee, thank you for inviting 
me to testify. My name is Gary Hufbauer and I am a Senior Fellow at the 
Peterson Institute for International Economics. In May 2008, the 
Peterson Institute and the World Resources Institute jointly published 
a book titled ``Leveling the Carbon Playing Field.'' The book analyzes 
the intersection between greenhouse gas (GHG) emissions, 
competitiveness, and international trade.\1\ Currently, my colleagues 
and I are writing a monograph titled ``Reconciling GHG Limits with the 
Global Trading System,'' which focuses on U.S. climate policy options 
and their consistency with the WTO.\2\ This testimony reflects findings 
from both works.
---------------------------------------------------------------------------
    \1\ Houser, Trevor, Rob Bradley, Britt Childs, Jacob Werksman, and 
Robert Heilmayr. 2008. Leveling the Carbon Playing Field: International 
Competition and U.S. Climate Policy Design. Washington: Peterson 
Institute for International Economics and World Resources Institute.
    \2\ Charnovitz, Steve, Gary Clyde Hufbauer and Jisun Kim. 2008 
(forthcoming). Reconciling GHG Limits with the Global Trading System. 
Washington: Peterson Institute for International Economics.
---------------------------------------------------------------------------
Major Concerns With U.S. Climate Change Legislation
    Facing rising domestic and international pressures, several GHG 
control bills have been introduced in the 110th Congress. The proposals 
embody two main approaches, namely carbon taxes and cap and trade 
systems. Performance standards are a secondary feature of some 
proposals. Each system has its own mix of advantages and disadvantages. 
However, whether the limits take the form of a carbon tax, a cap and 
trade system, performance standards, or some other method, it must be 
emphasized that serious GHG controls will impose heavy costs on the 
U.S. economy, and the costs will be concentrated on a short list of 
GHG-intensive industries and activities. The prospect of heavy costs 
has raised concerns about the competitive position of U.S. producers 
and the ``leakage'' of production and jobs to foreign firms. In the 
absence of parallel international commitments, U.S. measures might 
shift manufacturing activity to China and India, among other countries 
that do not limit GHG emissions. In the end, U.S. controls might make 
no difference to climate change if emissions activity simply migrates 
abroad. To address these concerns, U.S. legislators have drafted 
special provisions in their GHG control bills such as free allocation 
of allowances, special exemptions, and border adjustments that would 
affect both U.S. exports to and imports from countries which do not 
have comparable climate policies.

Questionable Effectiveness of Trade Measures 
    Trade-related rules, such as an emissions allowance requirement 
imposed on foreign producers at the U.S. border, have gained political 
support, both because they address the competitiveness issue and 
because they arguably create incentives for other countries to join in 
combating global warming. The logic of this approach is clear. However, 
it is questionable whether trade measures will achieve the goals 
sought. Indeed, it is quite possible that trade measures, if imposed by 
several major countries, will adversely affect the United States.
    The United States imports carbon-intensive goods largely from 
Canada and the European Union--countries that emit less CO2 
than the United States. China and India, the primary targets of U.S. 
trade measures, are not large suppliers of carbon-intensive exports to 
the United States. In 2005, China accounted for less than 10 percent of 
U.S. carbon-intensive imports except cement: 7 percent of steel 
imports; 3 percent of aluminum imports; 4 percent of paper imports; and 
14 percent of cement imports (Houser et al., 2008, pp. 44-45). Also, 
while China accounted for 32 percent of global steel production, it 
exported only 8 percent of steel produced in 2005, and less than 1 
percent was sold to the U.S. market (Houser et al., 2008, p. 54).
    These statistics imply two things. First, trade measures may not 
provide intended economic relief to domestic industries affected 
adversely by U.S. climate change policy because U.S. firms are 
competing mostly with ``cleaner'' countries; and second, that U.S. 
trade measures may not create substantial leverage to shape climate 
change policies of other countries--particularly China and India.
    In proposed U.S. legislation, trade measures are generally imposed 
on imports unless the trading partner enacts domestic climate policy 
``comparable'' to the U.S. policy. As the trade data mentioned above 
shows, the largest foreign suppliers to the United States of carbon-
intensive goods are countries like Canada and the European Union, and 
these countries emit considerably less carbon than the United States 
either on a national basis or a per capita basis. Moreover, the 
European Union has already enacted more stringent GHG measures than the 
United States, and Canada may soon do the same. ``Comparability'' tests 
imposed by the United States could be turned around by other 
countries--starting with the European Union--to implement similar 
measures against imports from the United States. This sort of 
escalation would damage U.S. industries in the global market.
    Moreover, a round of global trade restrictions, enacted in the name 
of climate change, would interrupt the agenda of trade liberalization 
which has proven enormously successful in boosting world economic 
growth since the Second World War. The damage to the world economy 
would be severe. Recall that trade barriers were a hallmark of the 
Great Depression. Wall Street collapsed first; Smoot-Hawley was passed 
second.

Trade Measures and the WTO
    While the WTO allows member countries great flexibility in adopting 
environmental standards within their territories, the same discretion 
does not apply in their trading relations with other countries. 
Accordingly, trade barriers have the potential to conflict with WTO 
rules. In light of economic history, WTO rules that limit national 
actions should be counted as a blessing.
    To be specific, when GHG trade measures are mixed with mechanisms 
designed to alleviate the burden of emission controls on domestic 
firms, the possibility arises of a collision with WTO rules. The table 
appended to my testimony provides a quick view as to which U.S. climate 
policy options with respect to imports might be justified under 
particular GATT articles. If the United States enacts its own unique 
brand of import bans, border taxes, and comparability mechanisms--
hoping that measures which violate GATT Articles I, III and XI will be 
saved by the exceptions of GATT Article XX--the probable consequence 
will be a drawn-out period of trade skirmishes, possibly escalating to 
trade wars.
    One way to determine whether such trade measures in support of GHG 
emission controls are compatible with WTO agreements is to let the 
dispute settlement process run its course. In the end, a record of 
decided cases will define the contours of WTO obligations. However, 
given the complications and sensitivity of GHG controls, the Appellate 
Body is unlikely to produce clear guidelines for several years. 
Moreover, consigning these decisions to a panel of jurists would put 
tremendous stress on the WTO system, which is already under siege.

Recommendation
    A central issue in designing U.S. climate change policy is how to 
level the playing field internationally. Given uncertainties in their 
effectiveness and possible conflicts with WTO rules, trade measures may 
not offer the best approach. Given the fact that large emitting 
countries--notably China and India--are also under domestic and 
international pressures, the United States might better address 
competitiveness concerns by actively engaging in international 
negotiations. Two forums for international engagement are relevant: 
Copenhagen and WTO.
    At upcoming negotiations in Copenhagen, to be concluded in December 
2009, a post-Kyoto regime is meant to be agreed. Importantly, both the 
United States and China--which are not only the largest sources of GHG 
emissions, but the cause of great concern over the outcome of climate 
negotiations--are expected to join the international regime. While the 
post-Kyoto compact may not reach agreement on uniform international 
standards, engagement of the United States and China will build 
significant momentum which could draw stronger commitments from India 
and other developing countries. In this way, the United States may 
partly address its own competitiveness concerns.
    While the post-Kyoto regime will probably announce new ambitious 
targets for reducing GHG emissions, and commit both developing and 
developed countries to take action, national governments will likely be 
left to their own methods for meeting targets. Under this scenario, 
conflicts due to difference in climate change policies are all but 
certain. Consequently, many cases might be brought to the WTO. Rather 
than consign the crucial decisions to the WTO judicial system, in my 
judgment, key WTO members should attempt to write a new WTO Code of 
Good Practice on GHG rules. The idea is to define more sharply the 
policy space for climate control measures that are consistent with core 
WTO principles, even if a technical violation of WTO law might occur. 
To encourage WTO negotiating efforts along these lines, the United 
States and other important emitting countries should adopt time-limited 
``peace clauses'' into their own climate legislation. The ``peace 
clause'' would suspend the application of border measures or other 
extra-territorial controls for a defined period of time (say 3 years) 
while WTO negotiations are underway.
    Thank you, Mr. Chairman. I will be happy to answer questions.

    [GRAPHIC] [TIFF OMITTED] T2201A.044
    

                                 

    Chairman RANGEL. Those bells mean that the Members here 
will have 15 minutes to vote on the previous question. Then, 
after that, we will have a vote on the rule which will follow 
in 5 minutes, which means that there would be a total of at 
least 20 minutes that we will be absent.
    But, since we do have some time--the Capitol, as you well 
know, is 5 minutes walking--perhaps I will yield my time as 
Chair to my distinguished Mayor to ask, how do you respond to 
the question that moving in the direction that some of us think 
is right, and you do, that it could be the destruction of our 
manufacturing base and the end of our jobs and economy as we 
know it?
    Mr. BLOOMBERG. Mr. Chairman, I am just fascinated by the 
focus on competitiveness based on price. I have always thought 
that any industry or any company that its business model says 
they're going to be the low-price producers is doomed to 
failure. I think we have seen that repeatedly throughout the 
world.
    If you go to China, you will see the failed policy of being 
the low-cost producer. In the eastern part of China they have 
vacant factories, where all the business has moved west, 
because people in western China will work for less than they do 
in eastern China. Business is leaving China and going to 
Bangladesh and Vietnam and Sri Lanka, because people there will 
work for less.
    You will always find somebody working for less. If 
America's competitiveness is going to be based on being the 
low-cost producer, because you have low-cost labor, or you have 
low-cost energy, it's just a failed policy. This country has to 
compete on technology, it has to compete on having the best and 
the brightest. You will only get those people if we improve our 
environment, if we adopt new technologies, if we train our 
workforce.
    One of the great things about reducing pollution through 
cap and auction, or through a carbon tax, is you could use the 
money to do exactly that, to retrain our workforce so that we 
can be competitive down the road. I think, as one of the 
gentlemen pointed out, a lot of the European countries are much 
more energy efficient than we are, and they are able to compete 
with us when it comes to cost.
    The great strength of America is our workforce, and it is 
the regulations we have that ensure quality. You are seeing 
that, the big scandal in China, of this milk contamination. If 
you haven't been reading about it, you should, because it's 
devastating for the Chinese economy. They had the problems with 
lead in toys coming here, and cat food. That destroys their 
markets overseas.
    We have to go and address this issue, and improve the 
environment, and improve the quality of American products. If 
we do that, I think it's good for business. I think there are 
plenty of examples of that.
    Nobody wants to go home and say to their constituents, 
``You're going to have to pay more for something.'' But if you 
explain to them that the value of that is that this country can 
become more competitive, rather than less, that the air they 
breathe is going to be better, then I think the public, the 
American public, is willing to listen to that.
    The time has come for this Committee, both sides of the 
aisle, to pull together and to say, ``We cannot afford to sit 
around and spend another 4 years trying to negotiate with other 
countries overseas. What we have to do is do it by--lead by 
example. Do it here first.'' It's tough enough a political lift 
for us. If you're going to wait for the rest of the world, it's 
just not going to get done. We are the big losers. Thank you 
for giving me the opportunity.
    Chairman RANGEL. Mr. Lighthizer, what do you have to say 
about that?
    Mr. LIGHTHIZER. Well, since we are a major presence in New 
York City, I have to be very careful.
    Mr. BLOOMBERG. That's all right.
    Mr. LIGHTHIZER. Skadden Arps. I would say my argument is 
not that we shouldn't do anything. But I think that it is wrong 
to think that you're going to take the 3 or 4 or 5 or 6 or 7 
million workers, some of whom are in steel mills, and you're 
going to retrain them to design computer chips.
    Right now, they are making the best--taking steel as an 
example--they are making the best product in the world, they're 
making the cheapest in the world. They are competing with the 
entire world, and they're doing pretty well. But to come in 
there and say, ``Look, we're going to add $70, $80, $90 a ton 
to your cost, and not add it to your competitors,'' is, in my 
opinion, a serious mistake, and bad for the economy, and unfair 
to all of those people.
    What I'm saying is, fine, if your judgement is that it's so 
important that we do this, that we clean up the environment--
and it is important to do it--at least do it in a way that is 
sane and it is fair to basic manufacturing. I think you can do 
both, if you do it right. So, I'm not really disagreeing with 
the Mayor.
    All I am saying is it's nice to talk about it all being 
information technology. It's nice to talk about it all being 
financial services. It's great. But in the real world, there 
are millions of people that are working very hard, doing a 
great job, and they shouldn't be penalized because of this 
other objective. You can do it in a way that doesn't penalize 
those people.
    Chairman RANGEL. Thank you. We are going to go to vote, and 
then, when we come back in approximately 20 minutes, I will 
yield to Mr. McCrery, and then the Members will have their 
time.
    I apologize for this interruption, but that's what we're 
here for, to vote.
    [Recess.]
    Chairman RANGEL. The Committee will resume. But I just want 
the panel to know that we have received nothing but accolades 
as to the quality of the testimony and the timeliness of the 
Congress making certain that we moved on this before we left.
    So, collectively, I want to thank you and yield to my 
friend, Jim McCrery.
    Mr. MCCRERY. Thank you, Mr. Chairman. I certainly share 
with those from whom you have heard giving accolades about the 
panel. Your testimony was excellent, and we look forward to 
continuing to work with you, as we go through this issue in the 
days to come.
    I was actually pleased that there was so much back and 
forth discussion about some of the things I mentioned in my 
opening statement, primarily the impact on the economy, the 
impact on jobs in this country, and particularly on those 
energy-intensive industries. I know that a couple of you--or 
several of you--in your written testimony, actually outlined 
some possible approaches to mitigating the adverse impacts on 
those industries.
    I just wonder if you might go over orally before the 
Committee, some of those possibilities, and tell us what traps 
there may be, if you will, in pursuing some of those 
possibilities, whether it's WTO or tax policy, or whatever. Dr. 
Orszag, will you start?
    Mr. ORSZAG. Sure. My written testimony discusses two broad 
approaches. There are others. The first involves transitional 
assistance.
    So, for example, if you had a cap and trade program, 
handing out some of the permits to the affected sectors and 
firms, and in particular, and the important part, is tying that 
to what they do. So, saying, ``You get these for free, but you 
must basically continue producing,'' because without that tie, 
they're--just giving them a permit won't necessarily get what 
you want.
    The second broad approach involves border adjustments, 
which we have already heard some about, which would involve 
imposing some sort of requirement on imports that are coming in 
in those sectors to obtain a permit. On that latter point, 
there is a--there are issues involving our World Trade 
Organization obligations.
    Relevant to this Committee is that one line of defense 
involves articles two and three under the WTO, which speaks 
about a tax. So it would raise the issue of the degree to which 
a cap and trade is the same as a tax, another of which is 
applicable under article 20. I think--my understanding, 
although there are lawyers here who can speak to it more 
professionally than I--is that that appears to be a more 
auspicious avenue for the border adjustment system that may be 
part of any cap and trade system.
    Mr. MCCRERY. Yes. Dr. Burtraw.
    Mr. BURTRAW. I would just like to add to that that I guess 
there is a third approach, which is some kind of performance 
standard.
    The problem with the border tax adjustment is that if we 
were using a tax in the U.S., it would make some sense under 
WTO. But if we're using cap and trade in the U.S., then you 
have this problem of what is the adjustment that's being made, 
how do you calibrate that? Is it to the value of emission 
allowances last year, or yesterday? This is a--these volatile 
prices in a market opens the door for litigation under the WTO.
    The approach I favor is the first one Dr. Orszag mentioned, 
which is free allocation of allowances. You heard me earlier 
speak strongly against free allocation. This is a different 
kind of free allocation that occurred under the SO2 
program, where there was a one-time grandfathering of 
allowances. Instead, as Dr. Orszag emphasized, it would be an 
output-based allocation, and it would be updated on an annual 
basis, tied to value added and economic activity.
    So, if Corning continues to keep jobs on shore, then it 
would continue to earn a free allocation, and the level of that 
allocation would be benchmarked to best practice in the 
industry. That way, Corning has an incentive to continue to try 
to remove emissions in its production activities, but it would 
not be placed in unfair competition in either its import or 
export markets, because it wouldn't be having to pay for 
emission allowances, at least up to that level that is best 
practice in the industry.
    But this would have to be revisited on an ongoing basis. 
When that competition goes away, there should be a Federal 
agency charged with developing criteria to measure the level of 
foreign competition. When that competition goes away, this 
subsidy should go away.
    Mr. MCCRERY. Tim, what do you think about that approach?
    Mr. REGAN. I have no problem with it at all. You don't want 
to create some sort of a windfall for manufacturers. You want 
to design something that's going to secure their 
competitiveness in the United States. So, making some sort of a 
condition on maintaining your operation in the United States 
strikes me as quite legitimate.
    I also think that that approach of using those kinds of 
allowances would help on the export side, because we would be 
able to maintain our competitiveness without having to worry 
about some sort of an export subsidy to offset the cost of 
carbon. Expert subsides give to real serious WTO issues.
    So, you know, the idea of using allowances as we just 
described strikes me as a good way to deal with the export 
problem.
    Mr. MCCRERY. Thank you. Mr. Chairman, my time has expired. 
But thank you very much for your contributions. I would have 
liked to have gotten Mr. Lighthizer's comments on the WTO 
problems, but somebody else may get to that. Thank you.
    Chairman RANGEL. The Chairman would like to recognize the 
Chairman of the Subcommittee on Trade, whose expertise we're 
going to rely on to see how this affects our ability to be 
competitive.
    Mr. LEVIN. Thank you so much, Mr. Chairman, and thank you, 
all of you, for coming.
    You know, as I listened to your testimony, it struck me 
that there remains a basic issue that we have to resolve, and I 
hope we do that in the coming months, and that is the basic 
question of whether global warming presents a serious, severe 
challenge, or does it not.
    I am often surprised about how the lines fall on this, in 
trying to understand. Those who have been in denial, 
reluctantly perhaps now agreeing a bit, and those of us who 
have felt for some time that it is, indeed, a deep challenge, 
if it is, for those of us who have been working for alternative 
fuel measures, we can't believe that it will provide enough of 
an answer soon enough.
    As to trade policy and the article 1, 2, 3, 11, 20, there 
seem to be ways to put together a system that would meet the 
requirements. If not, we're in negotiations. To simply say that 
it will--to endanger liberalization, Mr. Hufbauer-- we know 
each other well--I think assumes that global warming isn't 
enough of a challenge that we cannot maintain trade 
liberalization and address a serious problem.
    If I might say so, I don't think it helps to bring up the 
ghost of Smoot-Hawley. We are well beyond that. In terms of the 
competitiveness, people who have been working on this are 
sensitive to it. Many who are saying we've got to do something 
about global warming, it's a severe challenge, have been 
leading the effort to try to help make us competitive and to 
maintain jobs in this country.
    So, we've got to face up to the issue, is this global 
warming issue a very serious, severe challenge, or is it not?
    I think, Carol, you have talked a lot about this. I don't 
know whom to ask, but one of you--all of you--just describe 
briefly, what do we face?
    Ms. BROWNER. Well, I think it is probably the greatest 
environmental challenge of our time. The consequences of 
inaction are, in many instances, things that cannot be 
corrected.
    For example, sea level rise. Once we start to experience 
the consequences of sea level rise, the reality of sea level 
rise, there is not an engineer in the world who can help us 
drop the sea. I mean, this is a hard issue because we're asking 
people to take significant action before we can actually see, 
feel, and touch all of the consequences.
    Mr. LEVIN. Some of it we have touched already.
    Ms. BROWNER. Some of it we've touched already. The other 
thing I think that's really important to note about the 
scientists, the climate scientists, when they have predicted 
what the consequences will be, and as we've started to realize 
some of those consequences, all of their predictions have been 
on the lower end than what the reality is.
    So, we didn't understand, for example, that there would be 
feedback loops, and so that with ice melting, it would be more 
complicated than simply the icebergs melting.
    So, you know, it's--I don't know that--none of us are 
scientists here, and I don't want to say anything on behalf of 
other people, but you know, you have never, ever, in the 
history of the world, had agreement like we have among the 
scientists on what the consequences are going to be, and how 
severe they will be, and the need for action sooner, rather 
than later.
    Mr. LEVIN. Dr. Orszag, you were shaking----
    Mr. ORSZAG. I would agree with that. I would just say in a 
sense we are conducting a very significant experiment with the 
globe without a backup plan, and without, you know, the ability 
to rerun the experiment if things turn out poorly.
    We are running a very significant, long-term risk, and the 
question is how we buy insurance to reduce that risk.
    Mr. LEVIN. Thank you.
    Chairman RANGEL. Thank you. The Chair recognizes the 
distinguished Member of the minority, Mr. Herger.
    Mr. HERGER. Thank you, Mr. Chairman, and our witnesses. 
Incredibly important issue that we're dealing with, working 
with. I believe it's considered important by everyone.
    I don't think it's a case that, for the first time in the 
2\1/2\, 3 billion year history of the Earth, that we're seeing 
climate change, because we continually see climate change. I 
think what's important is that we're not unjustly hastening 
that.
    I think what is important is that there is a right way, and 
a positive way to deal with this. I think there is a wrong way 
and a negative way to be dealing with this. I think we have 
heard some testimony on--having to do with that.
    I would like to just add, from a report that I have here, a 
study that was done. I believe Mr. Reagan mentioned the 
unintended consequences that we can have of our actions. So 
often, we learn the hard way of this. Smoot-Hawley was brought 
up. Unintended consequences to our actions to solve something. 
We need to be thinking very carefully what we do, that we--
those who don't learn from history are doomed to repeat it. 
Hopefully, we won't do that because we will think it through.
    One of these unintended consequences, a study that was done 
by the American Council for Capital Formation, estimates just 
in my State of California, in just 11 years, if the cap and 
trade proposal of the Lieberman-Warner were to go in, an 
estimated as many as 195,000 jobs lost, just in California in 
the next 11 years. And 10 years beyond that, by 2030, as many 
as 449,000, almost 450,000 jobs lost. Again, unintended 
consequences.
    So, what we do, we want to do in a positive way. I believe 
there is many positive things we can do.
    I would like to mention that--I mentioned in my--noted in 
my opening statement about trade liberalization is an important 
tool to reduce greenhouse gas emission, both here and in the 
United States and abroad. For that reason, Mr. Brady and I have 
introduced the Green Export Enhancement Act of 2008. This bill 
provides the United States Trade Representative with the 
authority to negotiate the elimination of tariffs on 
environmentally friendly technology.
    This is a positive way that we can engage our international 
partners in an effort to reduce greenhouse gas emissions. The 
removal of these trade barriers will support the export of 
cutting edge technology, developed and manufactured by American 
workers. It will also speed the adoption of technology that 
developing countries would need if they're going to reduce 
their greenhouse gas emissions.
    This bill is a positive step in engaging our international 
partners, addressing concerns about climate change, and does 
not impose significant increases in energy prices on the 
American family, particularly at a time when the American 
family is hurting, when we're in an economic downturn.
    I would like to hear from our witnesses today as to whether 
or not they support trade liberalization and environmental 
technology.
    Why don't we start with you, Mr. Hufbauer, and just move 
across?
    Mr. HUFBAUER. Absolutely. This should be done. The reason 
we haven't reached an agreement on this very constructive 
approach in the WTO is that the U.S. has taken ethanol out of 
the package. It's very simple. You don't put ethanol in, as the 
U.S. environmental contribution, no package.
    Now, I am not a big ethanol fan, in terms of saving 
CO2, but I think we at least should include ethanol 
in the talks.
    Mr. HERGER. So, you support it. Mr. Regan.
    Mr. REGAN. Sure. We actually do it. We manufacture 
environmental control devices, and we export them. Matter of 
fact, we have a plant in Blacksburg that makes the core of a 
catalytic converter, and 70 percent of its output is exported.
    We have a plant in Corning, New York, that manufactures 
diesel particulate filters for diesel cars, 100 percent of its 
output is exported to Europe. So, yes, we love to export. To 
the extent that you can eliminate barriers to our exports, we 
would appreciate it.
    Mr. HERGER. Thank you.
    Chairman RANGEL. Thank you so much. The Chairman has been 
informed that Mr. Lighthizer and Administrator Browner will not 
be able to stay; they have to leave earlier. But I hope that 
both of you will receive questions from Members of the 
Committee and respond in writing. Any Member that would want to 
direct questions to them do so in writing.
    At this time, I would like to yield 5 minutes to the 
distinguished doctor on our Committee, Jim McDermott.
    Dr. MCDERMOTT. Thank you, Mr. Chairman. Often in the United 
States, we fail to learn from what the rest of the world is 
doing. Europe has done this cap and trade business. I would 
like to hear from you what they did right, what they did wrong, 
what they did with the money.
    There has been a suggestion we should perhaps use some of 
the money for education, or for health care, or whatever. I 
would like to hear what the European experience has been, so 
that we don't have to recreate the wheel if it's already been 
discovered and working so well somewhere else.
    Ms. BROWNER. I think it is worth looking at what Europe has 
done, and there are some important things to learn. Probably 
the most important thing we can learn is why they ended up in a 
situation where they created a windfall profit for the electric 
utility sector.
    In essence, what they did is they were giving away the 
credits, but they were allowing the utilities to pass on 100 
percent of the cost. So, they were, you know, sort of paying 
utilities to do what they needed to do, but of course, allowing 
costs to be passed on to the consumer, and that created a 
windfall. We certainly want to avoid that, I think, in any 
program that we structure.
    I am not aware about what they actually spent the money on. 
Someone else may know that.
    Mr. ORSZAG. Well, again, since they actually gave away most 
of the permits, there wasn't actually money to be spent. As 
they're moving into the next phase, and there will be more 
auction, there will be a larger component that's auctioned, 
there will be, sort of, questions about how that revenue would 
be used then.
    The other thing that I think is important to highlight, and 
that I understand is an issue under the RGGI, the regional 
initiative that's underway, is you have to be really careful 
about how you set the initial targets. Because if you project 
targets that are--or caps that are--very high, relative to what 
the base line turns out to be, you wind up with very, very low 
permit prices, and not much constraint coming from the cap, 
itself.
    That is more of a sort of technical forecasting question.
    Dr. MCDERMOTT. Did their idea--excuse me, go ahead.
    Mr. BURTRAW. Well, I just would like to add two other 
things. You know, agreeing with what I have learned so far 
about lessons learned from the EU, one is that the Europeans 
themselves have learned this lesson.
    After investigations in the UK, Germany, Netherlands, and 
elsewhere, the European Commission has proposed--and it looks 
like it's going to be adopted--that, beginning in 2013, there 
will be 100 percent auction of allowances for the power sector, 
and phasing in 100 percent auction for the rest of the affected 
sources over the next decade.
    The second thing that they learned sorely after the first 
phase is they had no banking in between phase one and phase 
two. So, even though, as Dr. Orszag just mentioned, there was 
sort of what they call over-allocation, the cap was kind of 
slack in the first phase, there still would have been an 
incentive to reduce emissions if companies had had the ability 
to bank allowances into the future, because then there would 
have been reward for early auction. But instead, what happened 
is that those allowances took--went right to zero, because 
there were too many of them.
    You have heard--there is a variety of arguments that we've 
offered up today for why the ability to bank, giving you inter-
temporal flexibility, is really key to industry to help 
industry plan for the future. It's really key for the economy, 
because it smooths the impact of the program on the economy. 
So, that's a critical element.
    Dr. MCDERMOTT. Has there been any thought about companies 
that have already done things somehow being able to benefit by 
this plan in the future?
    I mean, while we dither here in Congress, there are 
businesses out there making decisions right now. Their--I mean, 
I can at least see why they might say, ``Look, could you put 
retroactively the date as of X date, if we did something after 
January 1, 2006,'' or 2007, or something----
    Ms. BROWNER. I think----
    Mr. ORSZAG. Could I note that's only--oh, sorry, go--just--
that's only an issue if you're giving the permits away. If 
firms have to buy the permits, then the reward to that past 
action is they won't have to buy as many.
    Dr. MCDERMOTT. Okay, excuse me. You have already----
    Ms. BROWNER. Economists always say it better than former 
regulators.
    Dr. MCDERMOTT. Well, I have, then, this question of the use 
of the money. Since we're going to auction--we all agree that 
the Europeans made the mistake of giving it away, and now 
they're going to auction it. So, they're going to be in the 
same place we will start from, I presume.
    There will be some money from this auction. Where should it 
go? I mean, is health care a public good that we should think 
about in this country, since we have a problem in trying to 
finance a health care reform of some sort, or is there some 
other place that you think makes more sense?
    Some people have talked about retraining, and that may be 
it, but----
    Ms. BROWNER. You know, obviously, this is a--what you, as 
Members of this Committee and Congress will get to do, is 
decide where to spend the money. I would encourage you to think 
about helping low-income families, less fortunate people, deal 
with some of the costs. I think we all agree there will be 
increased energy costs, for example. So, perhaps something 
through the earned income tax credit, some vehicle for helping 
to offset the increase in energy costs that would inevitably 
hit certain parts of--you know, certain families in our country 
harder.
    Dr. MCDERMOTT. Yes, go ahead.
    Mr. BURTRAW. I agree. This is why they pay you the big 
bucks, to make this decision. So, I want to offer just a couple 
of principles on how to think about it. I argued earlier for 
simplicity and transparency about that.
    I think it is necessary for the American public to see that 
there is a link to what happens to this revenue. Now, whether--
if it goes to health care, there is an argument to be made for 
that. If it goes to tax reform, there is an argument to be made 
for that. If it goes to dividends right back to households, 
that's another way that they would see immediately that the 
costs that they're paying through higher energy bills, they're 
seeing back through some kind of regular dividend from the 
government.
    Whatever you do on any of those choices, I think the public 
needs to feel like they own this program, and they are 
participating in this program. Because we don't know now for 
sure, but it's possible over the next decade we're going to go 
back to the American public and ask them to do more. There has 
to be a sense that this is a national effort.
    If there is just too many threads here, and the money gets 
carved up in a lot of different ways, two bad things happen. 
One is you lose that simplicity, and the public doesn't have a 
sense of owning or participating in this together. Second, it 
puts the United States behind the eight ball with respect to 
Copenhagen in 2009. Because at the end of 2009, there is going 
to be international conventions in Copenhagen. If the U.S. 
could do something before then, it could move us out front on 
the international stage.
    If you can resolve what to do with all this money in a 
complicated way before then, that would be kind of a surprise 
to me, but a simple approach, maybe something could be done at 
the beginning of the next Congress, I don't know.
    Dr. MCDERMOTT. I have made the proposal for the stimulus 
package for gasoline stamps. That is some way to mitigate the 
additional cost that people are spending on gasoline. That is 
also a way that I suppose you could help low-income families, 
either through the oil heat that they would have to buy, or the 
gasoline.
    These ideas, do they make sense? Are they the kind of 
transparency that you're talking about?
    Mr. ORSZAG. I guess I will be a little bit of a contrarian. 
I think one thing one needs to be careful about is you can 
provide assistance to low-income households. But if you tie 
that to their consumption of energy--so, for example, a gas 
stamp--you're undermining part of the incentive to become more 
energy efficient for those households, also, as opposed to 
something like the earned income tax credit, or just a simple 
cash injection that will still, at the margin, give them some 
incentive, like other households, to be more energy efficient, 
to the extent that they can.
    Dr. MCDERMOTT. The idea being, if you give them a gas 
stamp, they will buy gasoline and drive to work, rather than 
take the bus, which would be a more efficient way.
    Mr. ORSZAG. That may be one manifestation, right.
    Dr. MCDERMOTT. Okay. Yes?
    Mr. BURTRAW. There are other proposals out there that have 
some logic. For example, free allocation to electricity 
consumers through allocation to local distribution companies. 
The virtue here is that it would soften the change in 
electricity prices, which is politically attractive, but it has 
the same downfall that Dr. Orszag mentions in the electricity 
sector.
    It lowers the cost of electricity consumption, and it makes 
it so that you're going to have to get more emission reductions 
from natural gas. Or, if you drive a car, in that case you 
might be concerned about it. Or, if you heat your home you 
might be concerned about it, you know, with natural gas. But if 
you're an industrial facility and you're buying natural gas, 
you might be concerned about the fact that natural gas prices 
are going to go up, and that allowance prices are going to go 
up.
    Our modeling suggests that free allocation to the 
electricity sector would raise allowance prices by about 15 
percent. So, that's a cost that has shifted to other sectors of 
the economy.
    Earlier today we heard this idea--I think the Mayor was the 
one who mentioned--the law of one price is what we really want 
to strive for here, treating all sectors of the economy 
equally.
    Dr. MCDERMOTT. One of the things some of us in the 
northwest worry about is we already have hydro, and we've got a 
whole lot of wind. So we're wondering exactly how this is all 
going to work for us. But I yield back the balance of my time.
    Chairman RANGEL. The chair is pleased to recognize Mr. Camp 
for 5 minutes.
    Mr. CAMP. Well, thank you very much, Mr. Chairman. You 
know, at its core, from what I have heard today, cap and trade 
proposals are designed, really, to increase energy costs, which 
will result in increased production costs for those who 
generate energy.
    Dr. Orszag, in your Senate testimony--and I quote--you 
said, ``Price increases would be essential to the success of a 
cap and trade program.''
    Now, these increased costs are then passed along and placed 
primarily on energy-intensive manufacturers. Obviously, being 
from Michigan, most people think I am referring to automobiles, 
but really new manufacturers--and I'm thinking of, in my 
district, the crystal solar wafers that are manufactured for 
the solar industry is now the single most energy-intensive user 
in the State of Michigan. It's a very intensive energy user. 
Yet, it would be penalized under this sort of proposal.
    So, Dr. Orszag, on page 15 of your testimony today you 
point out that energy-intensive manufacturing would experience 
a decline in sales, employment, and profits, as a result of a 
cap on carbon emissions.
    Now--and I note the National Association of Manufacturers 
has done a study, and they look at my home State of Michigan 
and say that as many as 120,000 jobs would be lost by 2030. 
Given what our State has been through, that's a significant 
concern.
    Also, by 2030 we could see disposable household income drop 
as much as $7,000 per family. Prices of gasoline would increase 
between 72 and 141 percent by that same date. Michigan 
residents would pay between 112 and 160 percent more for 
natural gas by 2030.
    So, my question to you is, with dramatic increases in 
energy inputs, combined with the world's highest effective 
corporate tax rate in the United States, won't cap and trade 
incentives--won't cap and trade incentivize more American 
companies to leave the United States and set up operations 
offshore? Has CBO done an analysis of the potential offshoring 
effects of a cap and trade policy?
    Mr. ORSZAG. First, let me just say, as I noted not only in 
the Senate Finance testimony, but also just with respect to 
this Committee in today's testimony, price increases are an 
essential part of having a cap and trade program work. That 
price signal is crucial.
    I think some of the numbers that were cited with regard to 
particular estimates for particular pieces of legislation may 
be somewhat exaggerated. But there is a cost to reducing the 
risk associated with global climate change.
    We have not done an analysis of the degree to which U.S. 
corporate activity would shift to other countries, but as--
especially with regard to these energy-intensive industries, 
which are a small share of the total economy, but nonetheless 
are a part of the economy, there would be some shifting, even 
under the kinds of approaches that have been put forward for 
border adjustments, and what have you.
    The question is the magnitude. Most of the analysis that I 
have seen suggests, especially from the macroeconomic 
perspective, that would be somewhat limited, and certainly 
somewhat smaller than the numbers you were suggesting, but 
still part of what is going to have to happen here.
    Mr. CAMP. All right. I have a question for anyone who would 
like to answer, not just for Dr. Orszag.
    Obviously, we are looking at policy options today, not 
whether it be carbon taxes or cap and trade. Many of those 
presume that the path--as you mentioned, in response to my 
question--to reduce greenhouse gas emissions is to raise the 
cost of energy. Are there any ways to reduce these emissions 
without raising the cost of energy?
    I would put this open to anyone who would like to answer.
    Mr. ORSZAG. Can I?
    Mr. CAMP. Yes.
    Mr. ORSZAG. I will just very quickly say prices are part of 
it. But I also think it's very important--I feel like we need 
much more psychology 101 in public policy, and maybe a little 
less economics 101. So, pricing those are important.
    But, for example, evidence suggests that for consumers, 
it's not just the price signal, but even things about--there is 
this experiment that's been done with a little glowing thing 
that glows red or green, depending on whether you're more 
energy intensive or less energy intensive than your neighbors, 
and that significantly affects behavior. There are lots of 
interventions that are not direct price signals that can affect 
what people do.
    Mr. CAMP. All right.
    Ms. BROWNER. You obviously could use a traditional command 
and control regulatory scheme. You could set a standard, a 
pollution standard, a greenhouse gas standard.
    The downside of that is you will lose the efficiencies that 
can come in a trading program. You know, I go back to the acid 
rain example. Now, acid rain was one pollutant; it was not all 
sectors of the economy. So, it's not a perfect example.
    But the fact that the cost of compliance was so 
dramatically lower than what even EPA had predicted--the 
industry costs predictions were much higher than EPA's--I think 
demonstrates that you will find some efficiencies in a trading 
regime that you will not find in a traditional command and 
control regulatory. You could certainly go down that path, but 
I think it will end up being much more expensive.
    Mr. CAMP. Okay. Thank you very much. Thank you, Mr. 
Chairman.
    Chairman RANGEL. The Chair will recognize Mr. Doggett.
    Mr. DOGGETT. Thank you very much. I believe that each of 
you made a contribution to our effort this morning. I 
particularly took note of Dr. Orszag's comments that the 
danger, the potential harm to our country that we're facing 
here can be termed ``catastrophic.''
    There are some people who continue to feel that they can 
come up with every excuse in the book to avoid doing anything. 
There are others that, like those on our panel, who have really 
offered constructive suggestions for how we can improve the cap 
and trade proposal before the Committee. My focus is on that.
    I believe that the Climate Matters bill that we have 
introduced addresses each of the four critical issues that 
Mayor Bloomberg talked about. I am pleased to hear you testify 
that this approach of pollute-free cards, or pollution stamps, 
that that's a real mistake. That is, despite the significant 
progress that was made in the Senate this year, the Lieberman-
Warner bill tended to favor, a little too heavily. I think we 
need to tighten up the provisions in Climate Matters on that, 
and recognize the great cost of using pollution-free permits.
    Competitiveness. This is clearly something that we can 
benefit from, additional input from Mr. Reagan and others, to 
assure that we're competitive.
    Indeed, every alternative idea that has been advanced by my 
Republican colleagues is in the Climate Matters bill already. 
It's just that the Climate Matters bill does more than that, 
and recognizes that it can't be all benefit and no limitation, 
and that unless you put in place some limit on greenhouse gas 
pollution, it won't work, and it's never worked in the history 
of the world, that--if it's all benefit and there is no 
limitation in the marketplace.
    It is true that there may be some additional cost. Now, 
fortunately, on the one issue that Mr. McCrery offered at the 
beginning, the concern that all of us have about the rising 
price of gasoline, fortunately we have a definitive study on 
what the effect of cap and trade will be on gasoline, and that 
is from the Bush Administration. They put out an Administration 
statement during the Lieberman-Warner debate, and they came up 
with a precise figure.
    They tell us that, over the next 20 years, consumers can 
expect, as a result of a cap and trade system, to have to pay 
$.03 a gallon more per year over the next 20 years. Well, of 
course, under the policies of this Administration, many 
Americans find themselves paying more than $.03 a gallon 
overnight. I think that's a reasonable price to pay.
    The study that was just referenced, from the National 
Association of Manufacturers, unfortunately is so unrealistic 
it--in some of its categories, it's almost 500 percent higher 
than the Bush Administration on what the effect of cap and 
trade will be.
    So, there are people of good will that want to look at the 
cost and the benefits. We need to understand that we're not 
looking at what will be the cost under a cap and trade system 
versus today. No, we have to weigh the cost of a cap and trade 
system versus the cost of the do-nothing, catastrophic global 
warming alternative. That's the proper comparison. That's not--
that is what organizations like NAM have not done, to weigh 
what the alternative costs are.
    I would ask Administrator Browner if you would comment on--
you currently refer to yourself from your regulatory days, but 
I believe your current work is advising businesses about how to 
deal with these issues. What I have noticed is, not only are 
the States and the cities way ahead of the Congress, but the 
business community is way ahead of--and they need the certainty 
now, before they make investment, to know what the rules will 
be on greenhouse gas emissions. They don't have that.
    From your standpoint, as a--from your perspective, not only 
as a former EPA administrator, but as a business consultant, 
tell us about what--whether the costs do, in fact--of global 
warming--pose more problems to business than--in our economy 
than not--than having a cap and trade system, and tell us about 
the need for certainty of businesses, and finally, that if we 
don't act promptly, that each year we delay it becomes a self-
fulfilling prophecy, because all you can do then are Draconian 
costly approaches, rather than having the flexibility if we 
start immediately.
    Ms. BROWNER. First of all, lots of businesses are doing----
    Chairman RANGEL. I hate to interrupt, but we do have a 
problem here. Soon we will have to leave for approximately 30 
minutes or more to vote. I am not asking this panel to stay 
until we come back for questioning.
    We have two, four, six, seven Members here now. I am asking 
unanimous consent that they restrict themselves to 2 minutes. 
If the vote is delayed, we will come back again and pick up 
whatever time that we do have. But in view of that, again, I 
would ask the Members to really expect to get their answers in 
writing.
    At this time I would recognize, on the Republican side, Mr. 
Weller for 2 minutes.
    Mr. WELLER. Thank you, Mr. Chairman, and I will be to the 
point.
    I do want to note my good friend from Texas, my classmate, 
noted that the price of gasoline in his State would go up about 
$.03 a gallon based on the Lieberman-Warner bill. Actually, the 
statement of Administration policy from the White House said it 
would go up $.53. So, that----
    Mr. DOGGETT. Over 20 years, though, Jerry.
    Mr. WELLER. So--but you said $.03.
    Mr. DOGGETT. It's $.03 per year over that period.
    Mr. WELLER. So, Mr. Chairman, I just ask unanimous consent 
that that statement of Administration policy be inserted into 
the record at this point, if I could, please.
    Chairman RANGEL. The Chair hears no objection.
    [The information follows:]
    Mr. WELLER. Mr. Chairman, time is limited, and this is an 
important subject, but I would just note, you know, one of my 
disappointments this year is, while this is an important 
hearing, there has been a subject which is so very important in 
this hemisphere which we have not had a hearing on, and that is 
the U.S.-Colombia trade promotion agreement.
    Of course, Colombia not only is considered the U.S.'s most 
trusted ally and partner in Latin America----
    Chairman RANGEL. We are so limited in time, are you going 
to connect Colombia with this issue?
    Mr. WELLER. Yes. And--but I have 2 minutes, Mr. Chairman, 
and I do want to be brief.
    I just have some copies, some editorials in support of the 
trade agreement, urging that Congress vote on this trade 
agreement. I just ask unanimous consent to enter them into the 
record as well, Mr. Chairman.
    Chairman RANGEL. Without objection.
    [The information follows:]
    Mr. WELLER. Thank you. I just want to comment, Mr. 
Chairman, that, you know, since this trade agreement was signed 
by President Uribe and President Bush, that over $1 billion in 
tariffs have been levied on U.S. products.
    Chairman RANGEL. I really don't see, if you know how 
restricted the time is, how relevant----
    Mr. WELLER. Mr. Chairman, out of due respect, I have 2 
minutes, and I was just using it as I feel is appropriate.
    Now, the economy grew 3.3 percent this last quarter, 90 
percent of that growth was based on exports. As we are looking 
at this coming week, and rushing a stimulus package to the 
floor without hearings, without action in this Committee, it 
appears that we are ignoring what has actually proven to grow 
this economy in the last quarter, which is expanded trade.
    That $1 billion in tariffs that was levied on U.S. 
products, Illinois corn and Illinois soybeans, Illinois-
manufactured construction equipment, has cost jobs. This trade 
agreement was in place, eliminating those tariffs. That's $1 
billion worth of products that could have been bought----
    Chairman RANGEL. The gentleman's time has expired.
    Mr. WELLER. Thank you----
    Chairman RANGEL. The Chair would like to recognize Mr. 
Pomeroy for 2 minutes.
    Mr. POMEROY. Mr. Chairman, I would--if trade is on the 
table, I would certainly like to talk about the catastrophic 
week we are having on Wall Street as a direct result of this 
Administration's utter incompetent handling of the economy, but 
that doesn't have to do with the topic at issue, so I won't 
mention that. I will get to the issue at hand.
    [Laughter.]
    Mr. POMEROY. I want to thank you for this hearing, Mr. 
Chairman, because I believe, as we looked at the environment, 
and what we're doing relative to this issue, undoubtedly there 
is one tax strategy discussed after another. This is the 
jurisdiction of tax policy in this Congress. So, it's going to 
be vitally important to essentially stake out our jurisdiction. 
It's going to be central to this issue, and I look forward to 
working on it.
    A couple of speakers have talked about predictability, 
flexibility, as kind of the central components to this 
strategy. I would add a third: Viability.
    I am anxious, representing 800 years of lignite coal at 
present usage, that we leap into some regimen that either 
excludes coal, and therefore doesn't fully contemplate the 
astounding costs consumers would carry if we somehow diminish 
the most abundant and affordable energy resource we have in the 
country. Or, on the other hand, we impose on this fuel source 
standards that they technologically cannot meet.
    I am very interested, but happy to cosponsor the Carbon 
Reduction Bridge Act, a fee that would be assessed and, on the 
other hand, would fund research to get us to the point where 
we're looking at carbon sequestration and other strategies to 
deal with CO2 issues and the burning of coal.
    The final point I would make is it isn't just about the 800 
years of supply we have in North Dakota. The fuel sources of 
China and India, and much of the developing world, are low-rank 
coal. When we develop strategies to deal with CO2 
emissions of low-rank coal for our country, we cause the 
technological breakthrough that's going to allow friends in the 
other parts of the world that are going to have to be with us 
on this the very strategies they're going to need, as well.
    Thank you, Mr. Chairman, I yield back.
    Chairman RANGEL. The distinguished gentleman from Georgia, 
Mr. Linder, is recognized for 2 minutes.
    Mr. LINDER. Thank you, Mr. Chairman. Do any of the four of 
you question any of the science behind the theory that humans 
are causing global warming? Anyone want to take a shot at that?
    [No response.]
    Mr. LINDER. The science is sound? Mr. Orszag, Dr. Orszag, 
maybe you can tell me. What is the optimum temperature the 
planet should be at?
    Mr. ORSZAG. I cannot give you the optimum temperature. I 
will relay--and I am not a physical scientist or a 
climatologist, I'm an economist, but I will relay the 
professional opinion that the course that we are on involves 
significant risks, i.e. that the temperature would be higher 
than we would ideally want it to be--the mean temperature, and 
that's not even the main concern.
    Mr. LINDER. Do you know that the temperature for the last 
10 years has been below the temperature average for the last 
3,000 years? Are you aware of that?
    Mr. ORSZAG. There are fluctuations that occur for a variety 
of reasons.
    Mr. LINDER. Have you seen the petition signed by 31,000 
scientists, 9,000 who have Ph.D.'s in the science, 22,000 with 
masters in science, that take issue with this theory? Have you 
seen that?
    Mr. ORSZAG. I haven't seen that. I would again say on this 
issue, relative to others, I think there is a stronger and 
broader consensus among professional scientists than on 
anything else I have seen.
    Mr. LINDER. Well, science is not a democracy.
    Mr. ORSZAG. No, it's not.
    Mr. LINDER. One of the great deniers of all time was 
Galileo. So, you have to go by some observations. We can tell 
you for a fact that the 22 climate models do not accurately 
reflect observed temperatures. That's been proven.
    So, the climate modelers say, ``Well, maybe your facts are 
wrong.'' Climate modeling is a rather recent science. We're 
talking about making a huge, huge increase in cost to 
consumers, based on that theory that no one has ever--a theory. 
I think we ought to take a look at the science first, and then 
make our big decision. Thank you.
    Chairman RANGEL. Mr. Kind is recognized for 2 minutes.
    Mr. KIND. Thank you, Mr. Chairman, and I want to thank the 
panels for your testimony. I know you have been patient, it's 
been a long stay already.
    But let me just highlight a point of fact that I discovered 
over the August recess. I took the recess as an opportunity to 
travel throughout western Wisconsin to visit all the companies 
that are involved in some form of alternative and renewable 
energy development, or high efficiency manufacturing products.
    I stopped off at a train manufacturing company, which is 
the largest employer in my district, high efficiency heating 
and cooling units, asked them what the impact of a cap and 
trade system in the United States would be, and they said sales 
would fly off the shelf, and they would be adding jobs to the 
company.
    I visited solar, geothermal, wind companies in the 
district, too, and asked them the impact of cap and trade on 
their business. They said they're going to be able to expand, 
and they're not going to be able to keep up with the orders 
that would be coming in. So, the point I'm making, then, even 
with the ongoing controversy with the science behind global 
warming, a lot of this just makes good business sense for the 
American economy.
    I have read studies--and this is where I want to ask the 
panel if you have seen studies, too--on the impact of job 
creation if we moved to an energy-based system with more 
investment and more reliance on alternative, renewable, clean 
technology, clean energy sources, as opposed to staying 
dependant on a carbon-based energy system that we have today.
    One study that I showed, it's three to five times more 
good-paying jobs in the renewable field as we would get in 
carbon-based production in this country.
    Does anyone else have any information? Mr. Orszag.
    Mr. ORSZAG. There clearly are sectors that would benefit--
--
    Chairman RANGEL. The response has to be limited to 20 
seconds.
    Mr. ORSZAG. Yes, it will be really short. Benefit--there 
are sectors that would benefit. The overall impact, at least in 
the short run, however, will be some costs. We have to figure 
out whether we are willing to pay that cost.
    Mr. KIND. Okay, thank you.
    Chairman RANGEL. The Chair recognizes Mr. Ryan for 2 
minutes.
    Mr. RYAN. All right, 2 minutes. Did Gary leave, Hufbauer? 
Did he--okay.
    Dr. Orszag, I will stick with you, then. You came to the 
Budget Committee and went through your report that you released 
in February, titled, ``Policy Options for Reducing 
CO2 Emissions,'' in which you stated that when 
targeting long-term reductions and greenhouse gas emissions, 
``A tax could be set at a rate that could meet that target, and 
at a lower cost than a comparable cap.''
    I--this was a very good report, by the way, I encourage 
people to read this. Specifically, you reported that the net 
benefits of a tax could be roughly five times greater than the 
net benefits of an inflexible cap. Let's put aside the 
arguments of the science for a second, and just think about 
this from the purpose of economics.
    Is it--given that cap and trade gives us a theoretical 
certainty of reductions, never mind the fact that those might 
not be achieved, isn't a tax far more economically efficient, 
with respect to job displacement and competitiveness, given 
that you can border adjust taxes, than a cap and trade regime?
    Mr. ORSZAG. Yes. A simple cap and trade regime. You can 
make cap and trade more similar, or increase its efficiency 
through things like banking and borrowing, or price--a ceiling, 
floor on prices.
    Mr. RYAN. The more we complicate things, I would argue--and 
I am watching my clock, Chairman--and I wanted to ask Gary, 
but--we can invite all these WTO problems through the cap and 
trade approach.
    The fear that I have is--you know, I don't like the cap and 
trade bill at all, but the fear I have is we're going to set up 
a revenue spending machine up here. One point two trillion 
dollars, I think, is your 10-year score of Warner-Lieberman, 
which is the revenues that come here, and we're going to 
reallocate that in Washington? Take that out of the economy?
    It is best if we leave all of this back in the economy. 
From an economics standpoint, if we're going to do this--which, 
I caution against it--if we're going to do this, keeping it in 
the economy through the tax system, we don't have the WTO 
problems, we don't have the economic dislocation problem, and 
yet we still send the kinds of price signals against carbon 
that people want to send.
    My time is up. Thank you, Chairman.
    Chairman RANGEL. Mr. Pascrell.
    Mr. PASCRELL. Thank you, Mr. Chairman. Mr. Chairman, I've 
been a long critic of many of the trade agreements, and I'm 
sorry Mr. Hufbauer had to leave. There are certain countries I 
anticipate will attempt to bypass our greenhouse emission 
regulations. The fact is that when countries who are also 
guilty of contributing high quantities of greenhouse emissions 
are allowed to skirt the rules, the impact is felt back here at 
home.
    How do we level the field, internationally? The large 
emitting countries like China and India, they're also under 
domestic and international pressures. The United States might 
better address competitiveness concerns by actively engaging in 
international negotiations.
    Here is my question to anyone on the panel. Knowing that 
China, India, and Brazil are not signatories and operate 
without any regulation of greenhouse gas emissions for the most 
part, what's your stance on the imposition of a safety valve on 
the price per ton of carbon to ensure that American 
manufacturing remains globally competitive?
    Who would like to take a shot at that? Dr. Burtraw.
    Mr. BURTRAW. The introduction of a safety valve which 
serves as a price ceiling is probably one of the most important 
mechanisms to manage potential cost and cost disruptions from 
cap and trade programs.
    But it has been also quite criticized, because the way it 
has been suggested in previous legislation, it would be 
immediately binding. It would, essentially, determine the 
price. It provides a sort of a disincentive for investment in 
new technologies.
    So, a much preferable approach would be--as Dr. Orszag 
mentioned earlier--would be a ceiling, as well as a floor; a 
floor, simply taking the form of a reserve price in an auction. 
That way, if prices were to fall, as occurred in the EU, for 
example, and this is a part of the REGI auction that's 
occurring, the regional greenhouse gas----
    Mr. PASCRELL. How do you think----
    Mr. BURTRAW. Those allowances are not put into the market. 
That brings back up the price of allowances----
    Mr. PASCRELL. Just quickly, how do you think this is going 
to affect our trade negotiations with other countries, if 
this--if we're trying to level the field at the same time?
    Let's say we have a ceiling, let's say we have a floor. How 
do we do that?
    Mr. BURTRAW. No, you're right. The EU has been very 
concerned about the possibility that the U.S. would introduce a 
safety valve, because they do not have one in their program.
    But instead, what they do is administratively adjust their 
program on a--revisiting it in different phases. So, they have 
a safety valve of their own, you just see it behind closed 
doors.
    Mr. PASCRELL. Thank you.
    Chairman RANGEL. The Chair recognizes Mr. Nunes. He's not 
here? Mr. Tiberi.
    Mr. TIBERI. Thank you, Mr. Chairman. My congressional 
district over the last 8 months has lost five manufacturers who 
have announced that they are leaving central Ohio. Three are 
moving to other States in the United States, and two are moving 
to countries that have no emission requirements and don't plan 
to.
    The question to the three of you--and, Tim, I will start 
with you--is isn't a better way of going about this to protect 
our manufacturing? One analysis in our State of Ohio is that by 
2030 we will lose 140,000 manufacturing jobs, we will have none 
left. Isn't a better way of doing this creating incentives for 
manufacturers, in terms of a playing field, to reduce 
emissions?
    Mr. REGAN. I think that's why I was leaning toward this 
notion of some sort of an allowance system that would give 
energy-intensive manufactures assistance to try to deal with 
the problems associated with the costs we have to absorb, and 
our inability to pass them on.
    Mr. TIBERI. Thank you.
    Mr. REGAN. So, that's where I am.
    Mr. TIBERI. Go ahead.
    Mr. BURTRAW. No, I agree. Exactly. That's correct. I think 
it's a major concern, but I think----
    Mr. LIGHTHIZER. Well, I agree it's a major concern also, 
and I think it's one of the reasons why you have to look at the 
competitiveness side of this so closely.
    Because the fact is, we're going to exacerbate that trend 
that's going on right now if we don't make sure that people in 
China and other places that are bringing products to the United 
States bear the same burden that we do on the cost of carbon.
    Mr. TIBERI. Thank you. I yield back, Mr. Chairman.
    Chairman RANGEL. The Chairman recognizes the gentleman from 
Alabama, Mr. Davis.
    Mr. DAVIS. Thank you, Mr. Chairman. Given the time 
constraints, I am going to use my 2 minutes in making an 
observation, and then invite a very quick response from perhaps 
one of you all.
    This is the concern that I have, was I want to make sure 
that I underscore that the concerns about cap and trade are, 
frankly, not divided along party lines. You know, someone 
casually listening to this hearing might assume that 
Republicans are in one place, and Democrats are in another.
    While I don't endorse Mr. Lender's comments about the 
science, I would endorse some of the comments that have been 
made on the other side of the aisle about the impacts of cap 
and trade. Let me briefly summarize them.
    I have three sets of concerns. One concern is because we 
know that particular industries are going to be disadvantaged--
steel, heavy duty manufacturing, pulp and paper, forestry--we 
can predict that those kinds of industries will be 
disproportionately disadvantaged, well, that means two things.
    First of all, those industries, of course, are not spread 
evenly across the country. They are disproportionately located 
in the American South and the American Midwest.
    Another thing that we know is that those particular 
industries have all borne the brunt of a lot of changes we have 
had in global markets in the last decade. We know that all 
those industries are affected by anti-competitive conduct 
abroad from the Chinese and others.
    Third of all, we know that, frankly, those kinds of heavy 
duty manufacturing industries have been the traditional 
conveyor belt for people who may not be college educated, but 
who want to earn a middle-class income.
    I have another set of concerns within those. My State is a 
classic example of one that has two economies. There is a part 
of Alabama that is a modern information technology, financial 
services, health care-driven economy that, frankly, doesn't 
care a whole lot about this debate. But there is another part 
of it that is conventional, heavy duty manufacturing, 
automobiles, forestry, pulp and paper.
    I am concerned that if we're not careful about the way we 
do this, we will get more segmentation of the economy in States 
like Alabama, more parts of the State faring poorly because of 
these changes, other parts of the State unaffected.
    Mr. Lighthizer, can you speak to this concern about, if we 
do this wrong, our driving and creating more wage inequality in 
this economy and more class inequality in this economy?
    Mr. LIGHTHIZER. Yes, I would be happy to. I think the sense 
of my testimony was that we really have to get this part of it 
right. If we don't, there are enormous amounts of problems that 
we're going to create. One of them is this problem that you 
alluded to, which is that we are going in the direction of 
having--we are getting rid of all the conveyor belts to middle-
class status for people, and we're going to find ourselves 
losing the kind of good, middle-class jobs that we need in this 
country.
    I think it is possible to get it right. But, candidly, most 
of the proposals out there need some change. But I think it's a 
fundamental problem.
    The first question really is what Mr. Levin asked, which 
is, ``Do we have a problem?'' If you agree with that, then, in 
my judgement at least, yours is the most important second 
problem. Can we do this in a way that doesn't really alter our 
economy and our society, ultimately, in a negative way?
    Chairman RANGEL. Well, Mr. Davis, you certainly were 
timely.
    Let me tell this panel that we recognize that we have not 
come anywhere close to resolving this problem. But I do hope 
that when we do start next year, you will make yourselves 
available in a more informal manner, where you're not 
restricted to 5 minutes, but you will be able to share with us 
and compete in your thinking, so that we can make the best 
possible decision for our country, and indeed, the planet.
    I want to thank you for your patience with us. We thank 
this panel.
    For the next panel, we will be on the floor for at least a 
half-hour. We recognize you haven't had a chance to eat. So, if 
we can reconvene at 2:15, I think that could fit in as to what 
we would like to do here.
    So, thank you so much for your patience with us, but we are 
controlled by the votes on the floor. We stand in recess.
    [Recess.]
    Chairman RANGEL. Here again, let me say publicly what I 
have said to you privately. The awkwardness of our 
parliamentary system causes us to have to leave the hearing 
rooms to vote, because that's what we're here for.
    But I want to assure you that this problem is so complex, 
that when the Committee--assuming we can convince the new 
President to give us the priority which we on the Committee 
believes this deserves--I was telling them earlier that this 
room will be converted into a room with Members, Republican and 
Democrat, sitting with you as we walk through this, so that at 
the end of the day, you won't have to ask what's in the bill, 
and to see whether you can support it.
    We need your support, your expertise to be out there, 
Republicans and Democrats, to say not what's good for our 
party, but what's good for our country, and what's good for the 
planet. So, we are going to take advantage of the expertise, 
but also to give you the opportunity, not just to say what we 
should be doing, but to be a part of putting it together.
    I really believe that next year we can start brand new 
initiatives, things expire, and we can really be proud and 
lucky that we are participants in it.
    So, Mr. Ackerman, thank you so much, and all of you, for 
your patience. We will start with your testimony as the Members 
come in. Thank you, I knew you would be here.

  STATEMENT OF FRANK ACKERMAN, PH.D., GLOBAL DEVELOPMENT AND 
 ENVIRONMENTAL INSTITUTE AND STOCKHOLM ENVIRONMENT INSTITUTE--
     U.S. CENTER, TUFTS UNIVERSITY, MEDFORD, MASSACHUSETTS

    Mr. ACKERMAN. Thank you, Mr. Chairman, and Members of the 
Committee, for inviting me here to testify on this important 
topic.
    The issue of climate change is particularly timely now, 
because there has been a shift away from a debate about the 
science. The world has, essentially, decided about the science 
at this point. As the science debate is reaching closure, the 
economics debate is still wide open.
    Climate change is happening. It is threatening our future 
well-being. But how much can we afford to do about it? The most 
powerful argument for inaction today is that the cost of 
reducing emissions would somehow be intolerable. The damage to 
the economy, it is alleged, would be worse than the problem we 
are trying to solve.
    This argument, I believe, is wrong on two counts. It 
exaggerates the cost of reducing emissions, and it understates 
the harm that will occur if we continue to do little or nothing 
about the problem. That second point is what I'm mainly going 
to talk about.
    But briefly, on the first point, on the cost of reducing 
emissions, the two best studies I have seen, Nicholas Stern's 
very detailed study for the British government, and the recent 
studies by McKinsey and Company, the international consulting 
firm that has been studying it, both estimate that what we need 
to spend, total package worldwide, is about 1 percent of world 
output for quite a few years, for some decades to come, in 
order to reduce emissions to a safe level.
    Without having researched it myself, I take that as a good 
estimate. My research says that the cost of inaction for the 
United States, where we have just a partial estimate, are going 
to be much greater than that.
    We estimated just four categories of the cost of inaction, 
the cost of increased hurricane damages as hurricanes become 
more intense as water and air get warmer, the cost of sea level 
rise, as the seas rise and threaten more coastal properties, 
the increased energy system costs, as increased air 
conditioning costs rise rapidly throughout the country, only 
partially offset by reduced heating costs in the northern 
States. Finally, the huge costs of water supply, as hotter and 
dryer conditions in the already dry States of the south and 
southwest cause huge new costs to maintain water supply, likely 
losses to irrigated agriculture, and so forth.
    These four categories, this partial estimate of the cost of 
inaction, is already above 1 percent of GDP at the beginning of 
the century, rises to 1.5 percent of GDP by the end of the 
century, and will keep on rising beyond that.
    I would emphasize that it's a very partial account. There 
are many other categories: health costs, agriculture costs, 
losses of tourism and so forth, which are not included in that, 
which would make the true numbers even larger.
    I will briefly mention two other studies of the cost of 
inaction we did. We did one looking at Florida, in specific, 
one of the States that is most vulnerable, where all of these 
costs loom much larger, the expected losses of tourism revenue 
as the conditions that draw people to Florida now are 
undermined really cuts a hole in the economy that the losses to 
Florida could exceed 5 percent of that State's income by the 
end of the century--again, for a very partial accounting of the 
costs--and continue rising.
    The data allowed us to map what would be the effects of 27 
inches of sea level rise in Florida. The written testimony 
describes that, shows a map, 9 percent of the State, 1.5 
million people's homes under water at high tide by about 2060, 
huge number of facilities and property lost.
    Finally, we did a study of some of the Caribbean islands, 
some of the parts of the world that are much more sensitive 
even than the most sensitive States, like Florida. Huge losses, 
some economies likely to be wiped out by hurricane damages, 
losses of tourism, and so forth.
    This is not only a humanitarian issue for us, this is a 
likely source of a huge increased flood of refugees. If you are 
driven out of your home in the Caribbean by increasingly stormy 
and difficult conditions that have destroyed your local 
economy, where are you going to move to that's a little colder 
and a little richer? My guess is they are coming here.
    So, the climate change, for all of those reasons, for the 
flood of refugees it could create, for the costs, the ones I 
have been able to enumerate, which are large enough, as well as 
the many others that I have not enumerated, the costs of 
inaction, even a partial accounting of the cost of inaction, is 
much greater than the cost of action, and will continue to rise 
into the future.
    These costs are detailed in the testimony which contains 
links to the original studies. We are not just talking about 
numbers getting larger as the economy grows. These are 
expressed as percentages of the economy. So, it is that the 
economy will be growing throughout the century, the damages 
from climate change will be growing even faster, they will be 
growing to be a larger and larger percentage. If we do nothing 
about it, they will continue to get worse, as time goes on.
    As other witnesses have said, doing something about climate 
change is expensive. Doing nothing about it is much more 
expensive. It's not too hard to pick which one to choose.
    [The prepared statement of Mr. Ackerman follows:]

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    Chairman RANGEL. Thank you, Mr. Ackerman. We are pleased to 
have Daniel Abbasi, who is the Senior Director with 
MissionPoint Capital Partners, and also is--runs one of the 
first and largest private equity funds exclusively focused on 
financing the transition to a low-carbon economy.
    We thank you, that you have taken time to share your views 
with us today.

 STATEMENT OF DANIEL R. ABBASI, DIRECTOR, MISSIONPOINT CAPITAL 
                 PARTNERS, NORWALK, CONNECTICUT

    Mr. ABBASI. Thank you, Chairman Rangel and Members of the 
Committee. My name is Dan Abbasi, and I am a Senior Director 
with MissionPoint Capital Partners. As the Chairman just said, 
we are exclusively focused on financing the transition to a 
low-carbon economy.
    I appreciate the invitation to testify to the Committee 
today, and would ask that my written testimony be submitted 
into the record.
    Chairman RANGEL. Without objection.
    Mr. ABBASI. MissionPoint's portfolio includes solar, wind, 
smart metering, geothermal, carbon finance, and other low-
carbon companies, as well as companies that cut emissions and 
optimize traditional power plants.
    Our main message to the Committee today is this. Our 
country now has a profound opportunity before it: To lead the 
most strategic economic transformation of the 21st century, a 
massive retooling of the global system of energy production, 
distribution, and use, one that will cut our exposure to fossil 
fuel price volatility, and achieve long-term energy security, 
one that will create a more efficient and globally competitive 
industrial base, one that will generate hundreds of thousands 
of jobs, just when we need them the most, and finally, and not 
least, tackle the fundamental economic threat of unabated 
climate change.
    But we are truly at risk of squandering this opportunity. 
We have the capital and the talent, but it's mobile. There is a 
fierce global competition underway to attract them. Here, in 
the U.S., we are still missing that one critical ingredient, 
and that is a long-term, stable, comprehensive policy 
framework.
    So, we respectfully offer three recommendations to the 
Committee, and related recommendations.
    First, it is time for Congress to remedy a glaring market 
failure, an externality, and put a price on carbon.
    Second, a well designed cap and trade policy is our 
preferred mechanism, not a carbon tax.
    Third, 75 percent or more of the allowances in the cap and 
trade policy ought to be auctioned, and a quarter or more of 
the proceeds used to fund a supplementary package of policies 
that will stimulate faster adoption of low-carbon solutions 
than a carbon price alone would.
    As we have heard today, some contend that a carbon price 
will harm our economy. We have heard a lot of discussions of 
the cost of inaction. Mr. Ackerman mentioned the Stern report, 
but didn't--I didn't hear the number 5 to 20 times, which is 
the multiple by which Nicholas Stern, in his authoritative 
study, estimated the cost of inaction would exceed the cost of 
action. As Mr. Ackerman and others have pointed out, these are 
real economic costs to real industries.
    So, you know, I just ask, are we really going to risk our 
future and miss this profound opportunity, based on fictitious 
accounting?
    We have also discussed the risk to international 
competitiveness. From our vantage point in the market, the real 
competitiveness threat is that if we don't price carbon we will 
lose the opportunity to develop this sector here, in the United 
States, and be an export leader. Instead, we will end up buying 
these solutions abroad.
    Take Germany. Not a real sunny place. To Mayor Bloomberg's 
point, not known for its low-cost labor. Their stable feed-in 
tariff policy has produced the largest installed base of solar 
power generation in the world, five times more than we have in 
the United States. They are manufacturing much of their solar 
cells at home. They have 20 percent market share, and 42,000 
jobs to show for it, and are now even enticing away the next 
generation producers, U.S. companies, thin film solar power 
companies, to set up their facilities there, in Germany.
    We have a meager 7 percent share today, and we should 
incentivize those companies to stay here, at home, and keep 
those high-tech jobs here, at home.
    But I want to underscore that the new clean energy jobs 
won't only be for the cutting-edge companies and the genius 
innovators. With the right policy spurring adoption, each clean 
energy innovation creates a ripple effect, creates--job-
intensive supply chains sprout up, new installations companies, 
parts companies, service companies.
    We love--MissionPoint loves--our own tech innovators in our 
portfolio, companies like Aminex. But some of our fastest-
growing companies, like SunEdison, Hannon Armstrong, UpWind, 
are service innovators. They figure out ways and new business 
models to make it easier for customers to finance and adopt 
these low-carbon solutions, and to get the most energy 
productivity out of them.
    So, why do we favor a cap and trade over carbon tax? Three 
basic reasons: it's the only way to predictably hit our 
emissions target; it lets us trade around the emission 
reduction burden to the least cost source; and third, it will 
do the most, we are convinced, to unleash American 
entrepreneurship and inventiveness.
    Some object that the administrative costs of the cap and 
trade will be too high. We simply don't agree. The private 
sector does know how to do this, we can do this. Many 
companies, including our own APX, are already competing to 
provide the tools, the registry infrastructure, the offset 
protocols, and others to support a cap and trade and keep costs 
low.
    As with the carbon tax, if you auction most of the 
allowances, you will have a lot of revenue available for other 
purposes, to reduce distortionary taxes, consumer impacts, and 
fund other supportive policies.
    In the written testimony we lay out over a dozen of these, 
each intended to supplement the carbon price by reinforcing 
carbon weighting in our national policy framework. I will 
quickly mention just a couple.
    We would encourage you to extend the R&D tax credit, but 
some of the carbon auction revenue should be used to provide a 
higher rate for low carbon, or R&D.
    Second, create a new tax credit to accelerate smart meter 
roll-out that will motivate and empower consumers to do 
efficiency upgrades. One of our companies, Trillian Networks, 
makes and deploys these meters, and aims to unlock our 
country's vast reserve of untapped efficiency.
    Finally, create new tax credits for rail and intermobile 
infrastructure, so that we can move freight from highways to 
rail, where they emit, literally, one-seventh per ton mile of 
the emissions.
    So, Congress does need to act to supply this framework now. 
We can get it done together with you. Otherwise, we are going 
to lose the momentum that we have built in the market.
    Thank you very much.
    [The prepared statement of Mr. Abbasi follows:]

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    Chairman RANGEL. Thank you for your contribution. Now we 
will hear from Jerome Ringo, who is a clean air and clean 
energy advocate, and environmentalist for many years, and has 
contributed to the United Nations.
    You came all the way from California to be with us, didn't 
you?
    Mr. RINGO. Actually, Louisiana.
    Chairman RANGEL. Louisiana?
    Mr. RINGO. My office is in San Francisco, but I live in 
Louisiana.
    Chairman RANGEL. Well, thank you so much for sharing your 
views with us, Mr. Ringo.

  STATEMENT OF JEROME RINGO, PRESIDENT, APOLLO ALLIANCE, SAN 
                     FRANCISCO, CALIFORNIA

    Mr. RINGO. Thank you very much, Mr. Chairman and Members of 
the Committee, for the invitation.
    This is a time of daunting challenges and yet boundless 
opportunity. We, at the Apollo Alliance, recognize the 
challenges, challenges like foreign oil dependency. It puts our 
national security and economic future at risk.
    We recognize the price of energy, as it skyrockets, as 
American families struggle, poor people in particular, who have 
to make a decision between a gallon of gas or a gallon of milk.
    We recognize the growing threats of global warming in this 
economy, and the environmental and human costs, in particular 
the hurricanes of the Gulf region. As I mentioned, I'm from 
Louisiana. I just returned back from evacuating from Hurricane 
Ike, 2 weeks ago evacuating from Hurricane Gustav, evacuating 
from Hurricane Katrina, evacuating from Hurricane Rita, all the 
result of intensive storms because of the warm waters of the 
Gulf of Mexico, which is like adding steroids to those storms: 
a result of global warming.
    If we don't do anything, we don't create any opportunities 
just as described, and we remain stuck in the status quo.
    The opportunities that are recognized by the Apollo 
Alliance is that we have developed a new Apollo program, and 
it's a comprehensive, 10-year, $500 billion investment strategy 
to move America to climate stability, energy security, and 
economic prosperity.
    The new Apollo program invests in energy efficiency, 
conservation, clean fuels, rapid transit, next generation 
vehicles, and advance manufacturing, smart growth, and millions 
of made-in-America jobs, 5 million jobs, to be exact.
    We believe that Congress should support a major public 
investment in clean energy economy. One way to do that is a cap 
and invest, a policy that auctions off permits like legislation 
sponsored by Representative Markey and Representative Doggett.
    An emissions permit auction is estimated to raise between 
$50 billion and $300 billion per year to invest in a new clean 
energy economy. This money should be used to aid new 
technologies and enter the mass market and develop green-collar 
jobs, a strong demand. It should be used to insure that these 
technologies are manufactured domestically. This money should 
be invested in the domestic workforce, so that we have the 
skills needed in manufacturing, design, installation, 
maintenance, and science.
    It should be invested in such projects such as a 21st 
century power grid, a world class transit system, fixing 
America's transportation infrastructure, rebuilding and 
retooling America's manufacturers in research and development, 
all of which will create jobs.
    The investment should be made with an eye toward aiding 
workers and industry in a transition, and helping communities 
that have been disproportionately affected by the old energy 
economy, to lift them out of poverty. For example, the 
provisions of the workforce assistance at 4 percent in 
Congressman Doggett's Climate Matters Act is a good start.
    A cap and trade investment with an auction of permits can 
be a win-win-win, and it can help curb global warming. It can 
provide energy security, and stimulate the economy while 
leveling the playing field for those that have been victims of 
that disproportionate impact.
    As cap and invest policy is sweet, it can be bitter, too. 
If emission trading permits are given to companies instead of 
auctioning them off, then we make rich companies richer. Exxon 
Mobile made $40.6 billion in 2007, which is three times the 
profit of Microsoft, four times the profit of Wal-Mart, while 
people in America still lost their jobs.
    We are more likely to build a new energy future with good 
jobs for working Americans if we ensure any new energy policy 
is an investment strategy, as well as a regulatory strategy. 
Thank you very much.
    [The prepared statement of Mr. Ringo follows:]

             Prepared Statement of Jerome Ringo, President,
               Apollo Alliance, San Francisco, California

    Chairman Rangel and Members of the Committee, thank you for 
inviting me here today to talk about an issue of crucial importance to 
our Nation's future.
    For Americans this is a time of daunting challenges and boundless 
opportunities. We have become more and more dependent on foreign oil, 
putting our national security and economic future at risk. We have seen 
the price of energy skyrocket as American families struggle to make 
ends meet--choosing between a gallon of gas and a gallon of milk. And 
we have seen the growing threat of climate instability and all its 
economic, environmental and human costs.
    The food lines and emerging FEMA failures of Hurricane Ike remind 
us of the threat that became a reality as Hurricane Katrina pounded our 
shores. She provided a stark reminder that America faces not only a 
climate crisis, but a crisis of economic inequality as well.
    But fortunately our energy, climate and economic crises also 
present tremendous opportunity. The Apollo Alliance offers a unique 
perspective on the issue before this Committee, ``cap and trade,'' or 
as we like to call it ``cap and invest.'' As a coalition of labor 
unions, businesses, environmentalists, and community advocates, we 
believe our Nation can and must achieve a triple bottom line: Energy 
security, climate stability and broadly shared economic prosperity. My 
goal today is to illustrate how a strong ``cap and invest'' program can 
help us achieve these goals.
    The Apollo Alliance's new policy agenda, The New Apollo Program, 
recognizes that great challenges bring with them great opportunity. We 
say no to business as usual and yes to a new path that will build a 
clean energy economy that creates millions of jobs--high-quality jobs 
that actually pay decent wages and support families. We say yes to a 
climate stability agenda that also strengthens national security. The 
economic potential, we believe, will be directly proportionate at a 
factor of almost 5 to the level of public investment. The Apollo 
Alliance estimates that an ambitious $500 billion in Federal spending 
over 10 years would create over 5 million jobs. This includes a broad 
range of activities such as building efficiency, renewable energy 
investments, smart growth, advanced grid technology, research and 
development initiatives and a ``cap and invest'' program.
    Before I illustrate how a ``cap and invest'' program can be a 
stimulus toward a new clean energy economy, I'd like to first explain 
what we mean by the green-collar economy, how we got here and where we 
go from here.
    What are green-collar jobs? Green-collar jobs are well-paid, career 
track jobs that contribute directly to preserving or enhancing 
environmental quality. They run the gamut from low-skill, entry-level 
positions to high-skill, higher-paid jobs, and include opportunities 
for advancement in both skills and wages.
    Green-collar jobs tend to be local. Building retrofits, solar panel 
repairs, transit line construction--these jobs can't be outsourced. 
Most of these jobs are in industries that already exist, but that are 
just now getting involved in the green economy because of policy 
changes and public commitments to energy efficiency, renewable energy, 
and transportation.
    Green-collar jobs are here and growing and exist in many of the 
States of this Committee's Members.
    The Renewable Energy Trust reports that the clean energy sector in 
Congressman Neal's State of Massachusetts provides over 14,000 jobs and 
will soon be the 10th largest sector in the State. And a new report by 
the Political Economy Research Institute at the University of 
Massachusetts, Amherst says that investment in energy efficiency 
retrofits, a smart electrical transmission grid, rapid transit and 
renewable energy will yield 42,530 jobs.
    Most of us know, as do the Congressmen Doggett, Johnson and Brady, 
that wind energy is going to be bigger in Texas than anywhere else, but 
did you also know that the University of Texas predicts an additional 
123,000 new high-wage jobs by 2020 if Texas moves aggressively toward 
solar power?
    Environment California predicts that by meeting California's 
Renewable Portfolio Standard goal of 20% by 2010--119,000 person-years 
of employment will be created at an average salary of $40,000. And 
there are two measures on November's ballot that would raise the 
Portfolio Standard.
    The clean energy economy is present in Pennsylvania, Michigan, 
Tennessee, Oregon, Florida and nearly every State in the union. As 
mentioned above, a $50 billion a year investment over 10 years will 
lead to the creation of 5 million jobs--jobs like the one held by Eric 
Chamberlain, a fifth generation native of Rock Port, Missouri. Rock 
Port was the first town in the Nation to meet all of its energy needs 
from wind. Chamberlain manages the wind farm operations for the town-
owned utility. When he started working part-time at Loess Hills Wind 
Farm in 2006, he was one of four employees, now there are 30. That 
might not seem like a big number, but in Rock Port--a town of 1,300, 
it's significant.
    The potential of the clean energy economy is evident. What's not 
evident is whether we have the human capital or the political will to 
make it happen. In 2005, a National Association of Manufacturers study 
found that 90 percent of survey respondents expect a moderate to severe 
shortage of qualified, skilled employees like machinists and 
technicians. And the National Renewable Energy Lab concurs that a 
shortage of skilled labor is a large obstacle to an economy with strong 
renewable energy and energy efficiency industries. Even more important 
are the policies that create the demand for these products that in turn 
create the demand for workers. If we don't pass the Production Tax 
Credit and Investment Tax Credit, over 116,000 U.S. workers will lose 
their jobs within a year, and we'll lose nearly $19 billion in 
investment, according to a February 2008 study by Navigant Consulting 
for the American Wind Energy Association and the Solar Energy 
Industries Association.
    Congress can foster the growth of the clean energy sector by 
focusing on specific measures needed to create green-collar jobs. Only 
by ensuring that all Americans come out winners will we build enough 
public support to do what must be done on the scale necessary to boost 
the economy, stabilize the climate and achieve energy independence.
    We need a major public investment in the clean energy economy. One 
way to gather the funds we need for that investment is for the U.S. to 
enact a ``cap and invest'' policy that auctions off permits, in the 
same way they are auctioned in legislation sponsored by Representatives 
Markey (D-MA) and Doggett (D-TX). At Apollo, we think a ``cap and 
invest'' policy should accomplish two major goals.
    First, it has to set clear limits on carbon emissions, so that we 
can dramatically lower our national carbon footprint. This will send a 
powerful market stimulus and begin to shift our entire energy economy 
toward low-carbon technologies. Second, it needs to raise significant 
levels of public funding to reinvest in the new energy future, while 
ensuring these funds are not siphoned off for wasteful pork barrel 
projects.
    A cap on carbon emissions would establish certainty in the rate of 
emission reductions necessary for climate stabilization. Emissions 
reductions would be achieved by reducing the number of carbon permits 
sold or allocated to the market each year. Trading these permits would 
allow the market to achieve carbon reductions at the lowest cost. 
Emissions permits should be auctioned off to energy-intensive 
industries and power producers to generate substantial public funding--
estimated by the Congressional Budget Office to be between $50 billion 
to $300 billion per year--to invest in the new clean energy economy. 
The money would be managed by a new Clean Energy Investment 
Corporation.
    Administering such a fund should achieve three objectives. First, 
it should continuously bring new technologies to the mass market. 
Green-collar jobs will develop amidst strong demand. Second, it should 
ensure that these technologies are manufactured domestically. Third, it 
should invest in the domestic workforce so 
that we have the skills needed in manufacturing, design, installation, 
maintenance and science. The money should be invested in such projects 
such as a 21st century power grid, a world-class transit system, fixing 
America's transportation infrastructure, rebuilding and re-tooling 
American manufacturers and research and development. The investments 
should be made with an eye towards aiding workers and industries in 
transition and helping communities that have been disproportionately 
affected by the old energy economy to lift them out of poverty. 
Congressman Doggett's Climate MATTERS Act includes such provisions and 
I support its goals. For example, I support the provision for workers 
assistance at 4%. I think that is a good start, but I would like to see 
more money allocated to workers and low-income communities.
    If done as just described, a ``cap and invest'' with an auction of 
permits can be a win, win, win--it can help stabilize the climate, 
provide energy security and stimulate the economy while leveling the 
playing field for those that have been disproportionately left out of 
the process.
    As a ``cap and invest'' policy is sweet, it can be bitter, too. If 
emissions trading permits are given to companies instead of auctioning 
them off, then we make rich companies richer. Exxon Mobil made $40.6 
billion in 2007, which was three times the profit of Microsoft and four 
times the profit of Wal-Mart. In the meantime people lost jobs. This is 
the wrong way and a lost opportunity, not only to foster the market for 
clean energy and revolutionize our economy (and lose the potential 
described above,) but also to assist workers and families caught in the 
transition and to lift those that have been disproportionately affected 
by a petroleum-based energy economy.
    Also, the European Union implemented a ``cap and trade'' program 
that gave away permits. Not only have emissions not been reduced, but 
the E.U. didn't raise funds to reinvest in R&D, infrastructure or its 
people.
    Other solutions that have been proposed are based upon a carbon 
tax. While we applaud the efforts of Representative Stark (D-CA) and 
Larson (D-CT) for taking action, we prefer a cap on emissions. A cap 
sends a strong signal to the market that there is a limit on emissions 
that will stay the same even as demand grows. The limit on emissions 
will be a factor in the business decisions of those deciding whether to 
invest in a new power plant or a new wind farm. It might make them 
think twice if they have to pay more and more for carbon each year that 
goes by. Taxes don't do that and they can be passed on to consumers.
    If I leave you with one message today, it is this: We're more 
likely to build a new energy future with good, green-collar jobs for 
working Americans if we ensure any new energy policy is an investment 
strategy as well as a regulatory strategy.
    We have called on the ``can do'' spirit of the original Apollo 
program in our Alliance's name because we believe the American people 
are once again ready for a great challenge. Energy will be the 
transformative issue of our generation.
    The challenge for congressional leaders today will be to ensure 
that we all get there together: working men and women alongside 
industry, environmentalists, and our national security community.
    We're confident this great Nation can get the job done; we're 
confident we can get there with your leadership.
    Thank you.

                                 

    Chairman RANGEL. Thank you. Peter Barnes, author, a former 
journalist, and a former expert in this area, we welcome your 
presence.

     STATEMENT OF PETER BARNES, SENIOR FELLOW, TOMALES BAY 
           INSTITUTE, POINT REYES STATION, CALIFORNIA

    Mr. BARNES. Thank you very much, Mr. Chairman, Members of 
the Committee.
    I want to recommend to you today a form of carbon capping 
called cap and dividend. It was briefly mentioned this morning, 
and I want to speak a little bit more about it now.
    If you're going to do a carbon cap, as opposed to a tax, I 
think cap and dividend is the simplest, fairest, and most 
effective way to design that cap and trade system. It lets us 
reduce carbon emissions to the levels that scientists are 
calling for, without reducing the purchasing power of American 
families or expanding the size of government.
    Cap and dividend has three steps: First, cap the carbon 
supply, economy-wide; second, auction 100 percent of the 
permits; and third, return 100 percent of the auction proceeds 
to the American people in the form of taxable monthly 
dividends. Let me briefly explain a bit more about these steps.
    The cap, ideally, is an upstream cap, that is, a cap on 
carbon suppliers, rather than carbon emitters. The reason for 
that is that it's much simpler to administer, and you catch all 
the carbon in the economy. You can administer the cap by 
requiring the first sellers of oil, coal, and natural gas--
which are the same companies that you would apply a carbon tax 
to, if you were doing a carbon tax--to buy permits equal to the 
carbon content of your fuels.
    Once a year, these companies would true up and pay a 
penalty if they don't own enough permits, and that's it. No 
other businesses would need permits, no smoke stacks would need 
to be monitored, no bureaucracy would be needed to check up on 
everybody. So, that's the cap.
    Second, of course, as everybody, I think, has said here, 
you would auction the permits, not give them away.
    Third, the bigger question here is what to do with the 
auction revenue. This proposal says wire that money directly 
into people's bank accounts--or debit card accounts, if they 
don't have bank accounts--every month, just like Social 
Security. A precedent for this is the Alaska Permanent Fund, 
which takes the revenue from State oil leases in Alaska and 
pays equal dividends to every resident up there. So, this is 
kind of like a revenue neutral carbon tax. It's just structured 
a little differently.
    Now, I know there are Members of this Committee who would 
like to spend the auction revenue on a variety of good things. 
So, let me say why I think it's better to give the money back 
to the people.
    The number one reason for giving the money back is that the 
money actually comes from people's pockets in a regressive way. 
Even though it's the fossil fuel companies that are buying 
these permits, they pass the costs on to consumers. As the CBO 
has shown, these higher costs will hit low-income and middle-
class families quite hard. So, giving the money back protects 
these families, and protects consumer buying power, which is 70 
percent of our economy. As we're in a recession, it's pretty 
important to protect that.
    The number two reason for giving the money back, I would 
say, is political. As I don't need to remind you, rising energy 
prices are an explosive political issue. A carbon cap will 
raise energy prices further, not just once, but for decades. 
So, the potential for political backlash is enormous.
    Unless you build pocketbook protection into the design of a 
carbon cap from the get-go, A, it probably won't pass Congress 
in the first place, but more importantly, it certainly won't 
survive long enough to do the job that we need it to do.
    There are a few other advantages that I would mention. One 
is that cap and dividend is simple enough that you can explain 
it to your constituents.
    The last point I would make is that--which was mentioned 
earlier today--is the virtue of simplicity. The Lieberman-
Warner bill, which recently died in the Senate, tried to do too 
many things in one package. It was both a carbon cap and a 
massive spending bill, as you know, that allocated trillions of 
dollars over 40 years.
    A better approach, I think, is to focus on getting a good 
carbon cap, a cap that is simple, effective, and popular, 
something that could get bipartisan support, and conceivably 
even pass next year, with a new President.
    Once you have a cap like that, I think lots of other things 
will follow. More things do need to be done. But the point I am 
making is separate the cap from a lot of the other things that 
need to be done, and make the cap politically appealing and 
durable. Thank you.
    [The prepared statement of Mr. Barnes follows:]

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    Chairman RANGEL. Very interesting view. Now, the President 
of the American Public Transportation Association, Bill Millar, 
will express his views on transportation being such a large 
part of the problem. Share with us your suggestions toward a 
solution.

  STATEMENT OF WILLIAM W. MILLAR, PRESIDENT, AMERICAN PUBLIC 
                   TRANSPORTATION ASSOCIATION

    Mr. MILLAR. Thank you, Mr. Chairman, Mr. McCrery, Members 
of the Committee. I do appreciate the opportunity to appear 
before you on behalf of the 1,500 members of the American 
Public Transportation Association.
    As Congress considers legislation to reduce greenhouse gas 
emissions, a climate bill must work to reduce transportation-
related emissions. The transportation sector produces 
approximately one-third of all the CO2 emissions in 
the U.S., and the transportation sector is the fastest-growing 
source of greenhouse gas emissions.
    Now, there is three widely held options for how to do this. 
The first is to make our cars and trucks more fuel efficient. 
The second is to use alternative energy sources that release 
less CO2. The third is to provide more travel 
options that allow Americans to leave their cars behind. All 
three are important, but I will focus on the third one, 
providing Americans travel options and, more specifically, the 
importance of public transportation in reducing greenhouse gas 
emissions.
    Now, you may have seen the figures recently from the 
Federal Highway Administration, that highway travel has 
declined in recent months. But with 100 million more Americans 
expected over the next 40 years, it's believed that the future 
growth in vehicle miles of travel will erase the emissions 
savings that the recent increase in cafe standards and new low-
carbon fuels will provide.
    We cannot wait on future vehicle improvements and unproven 
clean fuel sources alone to address transportation emissions. 
The sooner we address the problem of climate change, our 
chances for success are so much better.
    Now, public transportation investment, land use policies, 
and tax incentives that promote energy efficient compact 
development and better transportation choices such as public 
transportation, encouragement of walking and bicycling, are 
proven ways to reduce emissions.
    For example, the more than 10 billion trips that Americans 
took on public transportation last year already reduced 
CO2 emissions by more than 37 million metric tons in 
the United States. They did this directly, and through reducing 
highway congestion and supporting more energy efficient land 
use.
    I want to compliment several Members of this Committee for 
their early efforts to promote these kinds of solutions, 
particularly Representative Doggett and Representative 
Blumenauer, and other cosponsors of the Climate Matters Act are 
to be commended for their proposal, which would use auction 
revenue from a cap and trade system to increase public 
transportation investment, so that we could reduce 
transportation-related emissions.
    Now, let me put the emissions savings from public transit 
into some perspective. Consider a typical household, two adults 
work outside the home. In America, it's more likely that each 
of them will drive their own car their own way. Commuting each 
day, let's say a total round trip of about 20 miles a day. If 
just one of those two people changes his or her habit to using 
public transportation, the annual CO2 emissions from 
that household will fall by about 2 metric tons, equal to about 
10 percent.
    So, the simple act of one of them starting to commute by 
transit--take the bus, take the train--will reduce it by about 
10 percent. Now, this is greater savings than if that same 
household were to: install compact fluorescent lights, 
certainly a good thing to do; weatherize their home, another 
good thing to do; replace that old refrigerator with an Energy 
Star appliance. If they do all three of those things, they 
haven't yet equaled the energy savings from simply one person 
commuting by public transit.
    Now, let's suppose that person finds out public transit 
works pretty good for them, and they decide maybe they can sell 
that second car and don't need that so much, take public 
transit, walk more, ride a bike when they can. At this point, 
the household saves 30 percent of their household carbon 
footprint.
    Thirty percent of their household carbon footprint is more 
than if the house could do without electricity--and I don't 
know very many Americans that would be willing to do without 
electricity. My point is, public transportation can make a big, 
big difference in this effort.
    Now, besides the greenhouse savings, you get enormous fuel 
savings from these same actions. Transit riders are already 
saving over 4.2 billion gallons of gasoline each year. This is 
three times the amount of petroleum we import from a country 
like Kuwait, for example.
    Investing in public transportation strengthens our economy. 
The Federal Government tells us for every billion dollars 
invested in transportation infrastructure, about 35,000 jobs 
are created. Since the Congress has long ago established the 
policy of ``Buy America,'' when we purchase buses or rail cars 
with Federal aid, this is investment that goes in American 
jobs. The assemblies are done in America with components 
produced largely in America.
    In recent years, transit systems have begun buying large 
numbers of hybrid-powered buses, natural gas-powered buses. The 
sales from these buses have put thousands of American workers 
into new green-collar jobs, jobs that cannot be sent overseas.
    Better public transit service is one of the quickest ways 
that Americans can avoid that high cost of fuel. So, I would 
encourage more investment in this area.
    I thank the Committee for the work you did to save the 
high- 
way trust fund recently. Chairman Rangel sponsored that bill, 
and we thank you, sir. That bought us a little bit of time to 
consider the bigger issues of how we finance transportation 
beyond the usual sources. We are certainly going to need to 
look to cap and trade.
    I know my time has expired, there is much more I could say, 
and I will look forward to answering your questions. Thank you 
very much, Mr. Chairman.
    [The prepared statement of Mr. Millar follows:]

                Prepared Statement of William W. Millar,
         President, American Public Transportation Association

    Chairman Rangel, Ranking Member McCrery and distinguished Members 
of the Committee, on behalf of the American Public Transportation 
Association (APTA) I thank you for the opportunity to testify today. As 
the Congress considers strategies to reduce the emission of greenhouse 
gases, it must address the challenge of reducing transportation-related 
emissions.
    Our Nation's transportation sector produces one-third of all carbon 
dioxide (CO2) emissions in the U.S., and unfortunately 
transportation is the fastest-growing source of domestic greenhouse gas 
emissions.

[GRAPHIC] [TIFF OMITTED] T2201A.109


    Source: Energy Information Administration (EIA), Emissions of 
Greenhouse Gases in the United States, http://www.eia.doe.gov/oiaf/
1605/ggrpt/flowchart.html.

    Approximately 85 percent of transportation sector emissions are 
related to the surface transportation system. To reduce these emissions 
there are three widely accepted options: First, we can make our cars 
and trucks more fuel efficient; second, we can use alternative sources 
of energy that release fewer greenhouse gases when consumed or 
produced; and third, we can provide more travel options that allow 
Americans to leave their cars behind. While we need to undertake all of 
these options, for the purpose of this hearing I will focus principally 
on the importance of the last option.
    To prevent potentially catastrophic increases in average global 
temperatures, the scientific community has determined that the 
emissions of all greenhouse gases must be reduced by as much as 85 
percent below 2000 levels by 2050.\1\ Achieving emissions reductions on 
this scale in the transportation sector will not be easy. Current 
research indicates that future growth in private motorized vehicle 
travel in the next 30 years could negate the emission savings from the 
recent changes in Corporate Average Fuel Economy (CAFE) standards and 
the low-carbon fuel requirements contained in the Energy Independence 
and Security Act of 2007 (P.L. 110-140).\2\ Stated simply, this means 
that for the United States to achieve reductions in transportation 
emissions on the scale required to limit the potentially disastrous 
effects of global warming, we must offer Americans more travel choices. 
We cannot rely alone on future vehicle improvements and unproven clean 
fuel sources to address transportation emissions. The sooner we begin 
to address the problem of climate change, our chances for success are 
better. Americans need more travel choices that allow them to preserve 
the mobility they have come to expect and reduce their individual 
carbon footprint. Public transportation can help reduce greenhouse gas 
emissions. It can do it now, and it can do it by expanding mobility 
choices.
---------------------------------------------------------------------------
    \1\ Intergovernmental Panel on Climate Change (United Nations and 
World Meteorological Organization), ``Summary for Policymakers, Climate 
Change 2007: The Physical Science Basis. Contribution of Working Group 
I to the Fourth Assessment Report of the IPCC,'' February 2007.
    \2\ Urban Land Institute, ``Growing Cooler: The Evidence on Urban 
Development and Climate Change,'' Don Chen, Reid Ewing and Steve 
Winkelman, January 2008.

[GRAPHIC] [TIFF OMITTED] T2201A.110

    VMT = Vehicle Miles Traveled;
    Source: Urban Land Institute, ``Growing Cooler: The Evidence on 
Urban Development and Climate Change.''

The Role of Public Transportation, Energy Efficient Land Use, and 
        Improved Transportation Choices in Reducing Emissions
    Public transportation investment, energy efficient land-use 
policies and other strategies that promote transportation choices are 
proven ways to reduce emissions from the transportation sector. Public 
transportation use currently reduces CO2 emission by more 
than 37 million metric tonnes every year in the United States by 
reducing travel and congestion on roadways and supporting more 
efficient land use patterns.\3\ Those who choose to ride public 
transportation reduce their carbon footprint and conserve energy by 
eliminating travel that would have otherwise been made in a private 
vehicle, and even the length of vehicle trips is considerably shorter 
for households that live near transit. In fact, households within close 
proximity of public transportation drive an average of 4,400 fewer 
miles annually than those with no access to public transportation. 
Unfortunately, only 54 percent of American households have access to 
any public transportation services according to U.S. Census data, and 
Americans can't use what they don't have.
---------------------------------------------------------------------------
    \3\ ICF International, ``The Broader Connection between Public 
Transportation, Energy Conservation and Greenhouse Gas Reductions,'' 
February 2008.
---------------------------------------------------------------------------
    How do we unleash the power of public transportation to reduce 
greenhouse gas emissions? To begin, the Federal Government must do its 
part to expand transit availability and promote energy efficient land-
use patterns and transit-oriented development. Efficient land use, 
combined with good transit service, particularly fixed guideway 
service--subway, light rail, commuter rail, streetcar and bus rapid 
transit--produces results far beyond the immediate benefit of increased 
use of public transportation. Efficient land use has the potential to 
significantly change the way we live and travel, reducing our 
individual carbon footprints while preserving and enhancing our 
mobility. Higher densities allow for closer proximity of housing, 
employment and retail, reducing driving distances and enabling 
communities to plan for and support alternative travel options. In many 
central business districts, trips taken for shopping, dining or other 
noncommuting purposes are often made on foot--even by those who drive 
to work.
    Allow me to put the emissions savings from transit into 
perspective. Consider a typical two-adult, two-car household where both 
adults commute separately by car. If just one person in the household 
switches a 20-mile total round trip commute to existing public 
transportation, his or her annual CO2 emissions will fall by 
4,800 pounds per year, equal to a 10 percent reduction in all 
greenhouse gases produced by members of the household. If the entire 
household chooses to eliminate one of its cars and take public 
transportation, walk or ride a bicycle instead of driving for most of 
its trips, a savings of up to 30 percent of carbon dioxide emissions 
can be realized. This is more CO2 savings than if that 
household went without electricity.

[GRAPHIC] [TIFF OMITTED] T2201A.111

    Source: Science Applications International Corporation (SAIC), 
``Public Transportation's Contribution to U.S. Greenhouse Gas 
Reduction,'' September 2007.

The Many Benefits of Public Transportation Investment
    While my testimony today has focused on the emissions reductions 
benefits associated with public transportation use, it is important to 
point out that public transportation provides enormous benefits beyond 
it contribution to improving the environment. In particular, public 
transportation investment by the Federal Government offers unique 
benefits that cannot be measured solely in terms of emissions 
reductions. Among its many benefits:

  Public transportation helps Americans escape the high cost of 
gasoline, and it promotes energy independence.

    Providing Americans more access to public transportation not only 
reduces greenhouse gas emissions, it also frees individuals and 
families from the heavy burden of high gasoline prices. On average, a 
transit user saves more than $9,500 per year by taking public 
transportation instead of driving based on today's gas prices. These 
savings are important not only for individuals and families, they are 
important when we consider the urgent need for the United States to 
attain energy independence. Transit use already saves the U.S. 4.2 
billion gallons of gasoline each year, the equivalent of more than 11 
million gallons per day. That amount of savings is equivalent to oil 
refined from 102 supertanker loads, or more than three times the amount 
of oil we import from Kuwait each year.\4\
---------------------------------------------------------------------------
    \4\ ICF, 2008.

  Public transportation contributes to the growth of a strong 
---------------------------------------------------------------------------
economy.

    For every $1 billion in Federal investment in transportation 
infrastructure, the U.S. Department of Transportation estimates that 
approximately 35,000 jobs are created. Federal investment in public 
transportation also greatly supports American manufacturing jobs. Every 
transit bus or rail car that is purchased with Federal assistance is 
assembled domestically and comprised of components that are produced 
primarily in the United States, in accordance with ``Buy America'' 
policies established by Congress. In recent years, transit systems have 
increased their procurement of clean and alternative fueled buses, 
including diesel-electric hybrid buses and compressed and liquid 
natural gas (CNG and LNG) buses. The rapid growth in sales of these 
vehicles has put thousands of workers into new ``green-collar'' jobs 
that cannot be sent overseas.
    According to researchers at Cambridge Systematics, it is estimated 
that every $10 million in capital investment in public transportation 
yields $30 million in increased business sales, and that every $10 
million in operating investment in public transportation yields $32 
million in increased business sales. Further, every $1 taxpayers invest 
in public transportation generates $6 in economic returns.\5\
---------------------------------------------------------------------------
    \5\ Cambridge Systematics, ``Public Transportation and the Nation's 
Economy,'' October 1999.

---------------------------------------------------------------------------
  Public transportation reduces traffic congestion.

    Traffic congestion results in lost time and wasted fuel. According 
to the Texas Transportation Institute report, congestion cost America 
$78 billion in lost time and productivity in 2005. Public 
transportation saved 541 million hours in travel time and 340 million 
gallons of fuel. Without public transportation, congestion costs faced 
by American motorists that year would have been $10.2 billion 
higher.\6\
---------------------------------------------------------------------------
    \6\ Texas Transportation Institute, 2007 Annual Urban Mobility 
Report, September 2007.
---------------------------------------------------------------------------
    These are simply a few of the many benefits that public 
transportation investment and use provide. Many more benefits could be 
detailed: Transit also provides important public health benefits--its 
service produces 95 percent less carbon monoxide and 90 percent less in 
volatile organic compounds than private vehicles; transit improves 
safety--fatality rates for travel on public transportation vehicles are 
about 1/25th that of private passenger vehicles; and transit offers 
vital mobility to older Americans and persons with disabilities. Each 
of these benefits are important, and deserves attention, but possibly a 
more pressing issue is that U.S. transit providers cannot meet the 
current demand for their services.
Current Investment Fails to Meet Demand for Transit Services
    The greatest challenge facing public transportation today is 
meeting the record-breaking demand for transit services. We have 
witnessed sweeping changes in American travel patterns in 2008 in 
response to rising fuel prices, and public transportation is playing a 
key role in helping individuals escape the heavy burden of $4 a gallon 
gasoline while preserving the mobility we have all come to expect. In 
the second quarter of 2008 as the price of gasoline rose steadily, 
Americans took more than 2.8 billion trips on public transportation 
vehicles. This is almost 140 million more trips than last year for the 
same time period or 1.5 million more each day. As ridership has 
increased, transit services across the country are operating at 
capacity during peak travel times. Transit providers are struggling to 
maintain the quality of their physical infrastructure and the 
reliability of their service. Eighty-five percent of public transit 
systems report capacity problems, and 39 percent report turning 
passengers away because of capacity issues, according to a new 
nationwide survey of 115 transit systems of all sizes across the Nation 
recently conducted by APTA.\7\
---------------------------------------------------------------------------
    \7\ APTA, ``Rising Fuel Costs: Impacts on Transit Ridership and 
Agency Operations--Survey Results,'' September 2008.
---------------------------------------------------------------------------
    It should be noted that transit ridership has been growing robustly 
in recent years. Last year, 10.3 billion trips were taken on U.S. 
public transportation--the highest number of trips taken in 50 years. 
Public transportation use rose 32 percent between 1995 and 2007, a 
figure that is more than double the growth rate of the population (13 
percent) and up substantially over the growth rate for the vehicle 
miles traveled (VMT) on our Nation's highways (24 percent) for that 
same period. In fact, in recent months growth in transit ridership has 
accelerated while use of our highways has fallen. Transit ridership 
grew by more than 5.2 percent in the second quarter of 2008, while the 
Federal Highway Administration (FHWA) has reported that the vehicle 
miles traveled on our Nation's roads declined by 3.3 percent.
    Despite the growth of the Federal transit program, Federal funding 
has not kept up with the growing needs or inflation. U.S. transit 
systems need nearly $60 billion a year in capital investment to improve 
and maintain transit infrastructure at a rate that would allow 
ridership to double in 20 years. The Federal Government traditionally 
provided approximately 50 percent of the capital investment in transit, 
but that share has shrunk. In 2006, the most recent year reported, the 
Federal Government provided 43.6 percent. As we move ahead, the Federal 
Government needs to invest upwards of $30 billion a year to support 
vibrant transit service across the Nation, significantly more than the 
$10 billion a year that it currently provides.

[GRAPHIC] [TIFF OMITTED] T2201A.112

    Source: Cambridge Systematics, ``State and National Public 
Transportation Needs Analysis,'' 2008.

    As this Committee knows, the resources of the Federal Highway Trust 
Fund are being exhausted rapidly. APTA strongly supported the trust 
fund ``fix'' that Chairman Rangel sponsored and President Bush signed 
into law this week. That legislation remedies the short-term crisis 
facing the Federal Highway Trust Fund without damaging the Mass Transit 
Account of the Trust Fund, but it does not address the larger issue of 
underinvestment in our Nation's surface transportation system, 
particularly underinvestment in public transportation. Congress now has 
more time, but not much time, to address the long term funding need as 
the current Federal-aid highway and public transportation programs 
expire in 1 year on September 30, 2009.
    When Congress develops a new surface transportation authorization 
bill, we urge this Committee to finance an aggressive program that 
provides no less than $123 billion in Federal public transportation 
investment over 6 years and restores the purchasing power of the 
Federal motor fuel tax. There has been no increase in the motor fuel 
tax since 1993, and inflation has steadily eroded the purchasing power 
of the revenues that go into the highway trust fund. The effects of 
inflation have been compounded in recent years by steep increases in 
the cost of construction materials. According to the Associated General 
Contractors of America (AGC), the cost of supplies for transportation 
infrastructure construction have increased 77 percent in the past 5 
years, a much faster rate of growth than the consumer price index (CPI) 
which increased 19 percent.
    For the Federal Government to begin to invest upwards of $30 
billion a year in public transportation, the Congress will need to look 
to new sources of revenue, and given the contributions of public 
transportation to reducing emissions, climate change legislation should 
be one potential source.
APTA Recommendations for Federal Climate Change Legislation

  Use revenues from Federal climate change legislation to 
expand public transportation service across the Nation.

    As Congress develops climate change legislation, it must move to 
protect, preserve, and most importantly expand public transportation 
service across the Nation. To achieve the increases in transit 
ridership that will significantly reduce greenhouse gas emissions from 
the transportation sector, climate change legislation must begin to 
address the $45.9 billion annual capital funding shortfall for public 
transportation. Revenues from the auction or sale of emissions 
allowances under a ``cap and trade'' program or forms of revenue from 
an emission reduction program should be used to supplement--not 
substitute--funding provided through the Federal highway and public 
transportation authorization legislation.

  Increase the availability of fixed guideway transit--subway, 
light rail, commuter rail, streetcar and bus rapid transit--which is 
essential to creating energy efficient land-use patterns that reduce 
greenhouse gas emissions.

    Fixed guideway transit investments are essential to creating energy 
efficient land use patterns which produce greenhouse gas emission 
savings far beyond the immediate benefit of increased public 
transportation use. These investments have the potential to 
significantly improve the way we live and travel, reducing our 
individual carbon footprints while preserving and enhancing our 
mobility. Experience has shown that once fixed guideway transit 
investments are committed and station locations set, the private sector 
will build transit-oriented developments which produce dramatic 
reductions in vehicle travel and transportation-related emissions.

  Promote energy efficient technology in public transportation 
systems to increase the already substantial CO2 savings from 
transit.

    Climate change legislation should encourage new investment in 
energy efficient technology that can increase the annual CO2 
savings from current public transportation services. Federal support 
for such investment would speed the deployment of advanced 
technologies, increasing CO2 savings and simultaneously 
reducing the cost of transit operations, thereby freeing up resources 
to support expanded service. These investments would also put more 
Americans to work in new ``green-collar'' jobs because all transit 
vehicles purchased with Federal resources are manufactured 
domestically.

  Support local, regional and State efforts to increase 
mobility while reducing emissions from the transportation sector.

    As part of a comprehensive strategy to reduce greenhouse gas 
emissions, APTA supports the creation of a new source of funding for 
local, regional and State governments to advance mobility in ways that 
reduce the need for motorized vehicle travel. New funding could be 
linked to new performance-based goals and planning efforts that will 
capture maximum emission savings through the energy efficient land-use 
patterns, expanded transit availability and transit-oriented 
development. A new pool of funds at the regional and local level, when 
combined with a significant new investment in dedicated funding for 
public transportation infrastructure and operations, would offer 
communities the full complement of tools they need to fight congestion 
and expand mobility while simultaneously reducing greenhouse gas 
emissions from the transportation sector.

  Equalize and expand tax benefits for public transportation 
riders.

    Finally, while understanding that the focus of this hearing is on 
global warming legislation, I would be remiss if I did not mention two 
legislative proposals under this Committee's jurisdiction that would 
increase transit ridership. H.R. 1475, the ``Commuter Benefits Equity 
Act,'' introduced by Representative James McGovern, would increase the 
transit benefit offered under section 132(f) of the Tax Code to $215/
month, the same level as parking. A Transit Cooperative Research 
Program study found that employee transit and vanpool ridership 
generally increases by 10-50 percent at worksites after the commute 
benefit program is introduced. Similarly, H.R. 6030, the ``Commuter Act 
of 2008,'' introduced by Representative Mark Kirk, would establish a 
small tax credit for those employers who subsidize their employees 
commutes on public transportation. These two legislative proposals are 
cost effective remedies to increasing transit ridership and reducing 
greenhouse gas emissions, and I would urge this Committee to take 
action on these proposals as soon as possible.
Conclusion
    Mr. Chairman, APTA applauds the attention of this Committee to the 
pressing issue of climate change, and we thank you for considering the 
contribution of public transportation toward reducing greenhouse gas 
emissions from the transportation sector. We look forward to working 
with the Committee as it explores these issues further in the months 
ahead.

                                 

    Chairman RANGEL. We will be looking forward to working with 
you, because we need your ideas, especially in transportation, 
public transportation.
    Now we will hear from Dr. Kreutzer of The Heritage 
Foundation. We look forward to your testimony.

 STATEMENT OF DAVID W. KREUTZER, PH.D., SENIOR POLICY ANALYST, 
                    THE HERITAGE FOUNDATION

    Mr. KREUTZER. Mr. Chairman, I want to thank you and the 
other Members for this opportunity to address you on the topic 
of climate change. My name is David Kreutzer, I am the Senior 
Policy Analyst in Energy Economics and Climate Change at The 
Heritage Foundation. The views I express in this testimony are 
my own, and should not be construed as representing any 
official position of The Heritage Foundation.
    What is the problem with carbon dioxide, or CO2? 
Carbon dioxide is not a toxin, it is not directly harmful to 
human health, and it is not projected to become so, even 
without legislative or regulatory action. CO2 is 
fundamental to all known forms of life. Indeed, studies show 
that increased CO2 levels are beneficial for crop 
production.
    However, higher CO2 levels are expected to have 
negative effects, due to temperature increases that some 
predict will be brought on by these higher levels. If the 
negative effects of CO2 increases outweigh the 
positive, the question becomes, what are the benefits of 
limiting CO2 emissions, and how do these benefits 
compare to the costs?
    Some have made estimates of all the damage that global 
warming will do, and preset them as the benefit of reducing 
CO2 emissions by some amount. Often called ``The 
cost of doing nothing,'' this approach has two fatal flaws. 
First, the estimate costs, such as the property damage from 
higher sea levels or crop loss from drought, are based on a 
world that is richer, in large part, because of the energy use 
that supposedly causes the projected sea level rise or drought.
    The sea level rise affects more expensive buildings, and 
the drought reduces crops that are worth more because the world 
is richer. That is, the cost of doing nothing is an impossible 
cost to avoid, since the magnitude of the damage depends on the 
much richer world that energy use will create.
    Using similar logic, I could consider my $6 per day Metro 
commuting expense the cost of work, and then estimate I would 
be $120 per month richer if I didn't go to work. Of course, 
that would be a silly exercise.
    The second fatal flaw occurs when the total estimated cost 
of global warming is compared to the cost of reducing a small, 
often insignificant portion of that warming. Sticking with the 
previous analogy, it would be comparing the $120 per month 
commuting cost to the salary lost by staying home 1 day per 
month. The lost day's salary needs to be compared to the $6 
saved from not commuting 1 day, not to the whole month's 
commuting cost.
    So it is with proposals for carbon tax or a cap and trade 
scheme. We need to look at the cost of these proposals, in 
light of what difference the proposals make.
    None of the proposed cap and trade schemes or carbon taxes, 
or any program that I have seen will entirely eliminate 
predicted climate change, regardless of the assumptions, the 
models, computers, or theories used. There are still going to 
be some emissions of CO2. We will not cut it all.
    As documented in our report, which is attached, we find 
that a cap and trade program like Senate Bill 2191, the 
Lieberman-Warner bill, will, in just the first 19 years--which 
is as far as our analytical models could go--in the first 19 
years, reduce overall employment--overall employment--by up to 
900,000 jobs in some of those years, reduce manufacturing 
employment by nearly 3 million jobs.
    Again, in just 19 years, reduce gross domestic product by 
nearly $5 trillion, after adjusting for inflation. Of course, 
as has been mentioned, energy prices will go up. For example, 
gasoline will go up $1 a gallon above what it otherwise would 
have been.
    These losses occur after consumers, workers, and businesses 
have adjusted as well as they can to the higher energy costs. 
Household energy prices rise, even though consumers will have 
switched to smaller cars, live in more energy-efficient houses, 
and make greater use of public transit. Job and income losses 
occur, even though firms will have adopted more energy-
efficient technologies and processes.
    In addition, cap and trade proposals include well-
intentioned provisions to protect domestic industries. 
Unfortunately, these provisions promised to create unwieldy 
bureaucracies, trade tensions, and the possibility of damaging 
trade wars.
    How much difference will all this make to world 
temperatures? Depressingly little.
    The environmental gain for all the costs is unlikely to 
exceed a fraction of a degree by the end of this century. The 
Environmental Protection Agency analyzed the impact of a 60 
percent cut in CO2 emissions, and found that it 
would reduce concentrations of CO2 by about 25 parts 
per million. This would lead to a temperature drop of about .1 
to .2 degrees centigrade.
    The EPA did outline a scenario that would cut temperatures 
by a more significant 1 to 2 degrees, but this scenario 
required the developing world, including India and China, to 
reduce emissions to a level that would be equivalent to a 90 to 
95 percent cut for us. We cannot expect these countries to 
condemn themselves to such income-killing reductions. So, we 
are back to the .1 or .2 degrees saved.
    In sum, the cap and trade proposals impose significant 
costs for very little change in global warming. I am done.
    [The prepared statement of Mr. Kreutzer follows:]

            Prepared Statement of David W. Kreutzer, Ph.D.,
             Senior Policy Analyst, The Heritage Foundation

    My name is David Kreutzer. I am the Senior Policy Analyst in Energy 
Economics and Climate Change at The Heritage Foundation. The views I 
express in this testimony are my own, and should not be construed as 
representing any official position of The Heritage Foundation.
    Mr. Chairman, I want to thank you and the other Members for this 
opportunity to address you on the topic of climate change.
What Is the Problem With Carbon Dioxide (CO2)?
    Carbon dioxide is not a toxin, is not directly harmful to human 
health, and is not projected to become so--even without legislative or 
regulatory action. CO2 is fundamental to all known forms of 
life. Indeed, studies show that increased CO2 levels are 
beneficial for crop production.
    However, higher CO2 levels are expected to have negative 
effects due to temperature increases that some predict will be brought 
on by these higher levels. If the negative effects of CO2 
increases outweigh the positive, the question becomes: What are the 
benefits of limiting CO2 emissions and how do these benefits 
compare to the costs?

Costs and Benefits
    Some have made estimates of all the damage that global warming will 
do and present them as the benefit of reducing CO2 
emissions. Often called ``the cost of doing nothing,'' this approach 
has two fatal flaws.\1\ First, the estimated costs (such as the 
property damage from higher sea levels or crop loss from drought) are 
based on a world that is richer, in large part, because of the energy 
use that supposedly causes the projected sea-level rise or drought. The 
sea-level rise affects more expensive buildings, and the drought 
reduces crops that are worth more per bushel because the world is 
richer.
---------------------------------------------------------------------------
    \1\ For instance see: Frank Ackerman, et al., ``The Cost of Climate 
Change: What We'll Pay if Global Warming Continues Unchecked,'' 2008, 
Natural Resources Defense Council. Accessed on September 7, 2008 at: 
http://www.nrdc.org/globalwarming/cost/cost.pdf.
---------------------------------------------------------------------------
    That is, the ``cost of doing nothing'' is an impossible cost to 
avoid since the magnitude of the damage depends on the much richer 
world that energy use will create. Using similar logic I could consider 
my 6-dollars-per-day Metro commuting expense ``the cost of work'' and 
estimate I would be $120 per month richer if I didn't go to work. It is 
a silly exercise.
    The second fatal flaw occurs when the total estimated cost of 
global warming is compared to the cost of reducing a small, often 
insignificant, portion of that warming. Sticking with the previous 
analogy, it would be comparing the $120 per month commuting cost to the 
salary lost by staying home 1 day per month. The lost day's salary 
needs to be compared to the 6 dollars saved, not to the whole month's 
commuting cost.
    So it is with proposals for a carbon tax or a cap and trade scheme. 
We need to look at the cost of these proposals in light of what 
difference these proposals make. None of the proposals will entirely 
eliminate predicted climate change regardless of the assumptions, 
models, computers or theories used.
The Costs
    The typical cap and trade proposal seeks to reduce CO2 
emissions by 60 percent to 80 percent by 2050 where the comparison year 
is usually 2005. The Center for Data Analysis at The Heritage 
Foundation did an analysis of the costs of meeting the goals of the 
Lieberman-Warner bill, S. 2191, this past spring. The report on this 
analysis is attached.\2\
---------------------------------------------------------------------------
    \2\ William W. Beach, et al., ``The Economic Cost of the Lieberman-
Warner Climate Change Legislation,'' Center for Data Analysis Report 
#08-02. http://www.heritage.org/Research/Energy andEnvironment/upload/
cda_0802.pdf.
---------------------------------------------------------------------------
    Our analytical models are not suited to making projections beyond 
2030. Nevertheless, the costs of S. 2191 just in the first 19 years 
were eye-opening. The estimated aggregate losses to Gross Domestic 
Product (GDP), adjusted for inflation, are $4.8 trillion. By 2029, the 
job losses in the manufacturing sector will be nearly 3 million. This 
is over and above the significant manufacturing job losses that most 
economists predict will occur even in the absence of global warming 
legislation.
    Some of the workers forced out of manufacturing will find 
employment in the service sector but overall the economy loses jobs. In 
some years this overall job loss exceeds 900,000.
    Eighty-five percent of our energy use today is based on 
CO2 emitting fossil fuels. The ability to switch to non-
CO2-emitting energy sources over the next 20 years is 
limited and expensive. Therefore, significant cuts in CO2 
emissions require significant cuts in energy use.
    The cap and trade schemes, as well as carbon taxes, limit emissions 
by making energy more expensive. In addition to having a direct impact 
on consumers' budgets for gasoline, heating oil and natural gas, these 
higher energy costs force cutbacks on the production side of the 
economy and lead to lower output and income.
    These losses occur after consumers, workers and businesses have 
adjusted as well as they can to the higher energy costs. Household 
energy prices rise 29 percent above the business as usual prices, even 
though consumers will have switched to smaller cars, live in more 
energy efficient houses and make greater use of public transit.
    Production drops even though firms will have adopted more energy 
efficient technologies and processes. To reiterate, the trillions of 
dollars of lost GDP and the hundreds of thousands of lost jobs occur 
even after homes and businesses have made the switch to greener ways of 
doing things. The hoped-for green-job gain is a mirage.
    Cap and trade programs frequently include provisions to protect 
domestic industries from competition with firms in countries that 
haven't adopted similarly costly mechanisms for reducing 
CO2. While the intent is certainly understandable, the 
provisions create the possibility of a protectionist wolf in global 
warming clothes.
    While the theory of this trade-protection makes sense, putting it 
into operation is a bureaucratic nightmare. Every product from every 
country will need to be judged for how much of an advantage it may have 
due to different carbon-cutting regimes. Since different countries can 
have different approaches and since different manufacturers can use 
different technologies and processes, assigning an offsetting 
CO2 tariff will necessarily involve arbitrary decisions. The 
potential for a trade war is very real.
    Note: Current law already has many provisions for curtailing 
CO2 emissions. They range from local renewable-fuel mandates 
to increased nationwide Corporate Average Fuel Economy (CAFE) standards 
to subsidies for ethanol production. While the reductions in 
CO2 emissions are included, the considerable cost of these 
programs is not included in our analysis. This is because the costs are 
attributable to existing legislation and will occur even without 
additional laws or regulations. Of course, if they were included, job 
and GDP loss totals would be even higher.

The Gain
    Analysis by the Environmental Protection Agency (EPA) shows that a 
60 percent reduction in CO2 emissions by 2050 will reduce 
CO2 concentrations by only 25 ppm in 2095. This reduction 
would affect world temperatures by 0.1 to 0.2 degrees C. In other 
words, it makes virtually no difference.
    Some argue that if the United States adopted a sufficiently severe 
cap on CO2 emissions that would induce the rest of the world 
to do the same. The same EPA analysis runs through just such a scenario 
and finds with the ``leadership'' effect the drop in CO2 
concentrations are larger--perhaps enough to reduce world temperature 
by 1-2 degrees C.
    However, the assumptions made to achieve even this reduction are 
entirely unrealistic. It is assumed that our leadership causes the 
developed world to reduce their emissions by 50 percent by 2050 and 
that the developing world would cut its emissions to the 2000 level by 
2035.
    Seeing what that means for just two countries, India and China, 
illustrates how unlikely it will be to meet that goal.
    In 2000, China's CO2 emissions per capita were about 2 
tons per year. In India the 2000 per capita emissions were barely above 
1 ton per year. Currently the U.S. emits about 20 tons. With no 
population growth, a 70 percent cut would bring us down to about 6 tons 
per capita per year. Expecting China and India to cut back to levels 
that are \1/3\ or \1/6\ of ours is unrealistic. Even holding them to 
our limit of 6 tons per capita would cause their emissions to grow more 
than enough to offset our 70 percent cut. The rest of the developing 
world would be no more inclined to abide by similarly stringent limits.

The Tax
    Implementing a cap and trade program to cut emissions by 70 percent 
creates a transfer within the United States that is equivalent to taxes 
on the order of $250 billion to $300 billion per year, just for the 
years 2012 to 2030. This takes the purchasing power from the households 
and turns it over to the Federal Government or to whomever it assigns 
the rights to permits for emissions (allowances). This would be one of 
the largest taxes in the economy--almost twice as large as the highway 
use taxes.
Conclusion
    The legislation analyzed seeks to cut CO2 emissions by 
70 percent. This cut will have little impact on global temperatures but 
even the 30 percent cut that we analyzed will reduce incomes, raise 
taxes and destroy jobs. The true comparison is trillions of dollars in 
lost income and hundreds of thousands of lost jobs vs. a fraction of a 
degree change in average world temperature 85 years from now.

                               __________
    The Heritage Foundation is a public policy, research, and 
educational organization operating under Section 501(C)(3). It is 
privately supported, and receives no funds from any government at any 
level, nor does it perform any government or other contract work.
    The Heritage Foundation is the most broadly supported think tank in 
the United States. During 2007, it had nearly 330,000 individual, 
foundation, and corporate supporters representing every State in the 
U.S. Its 2007 income came from the following sources:

    Individuals
                                        46%
    Foundations
                                        22%
    Corporations
                                         3%
    Investment Income
                                        28%
    Publication Sales and Other
                                         0%

    The top five corporate givers provided The Heritage Foundation with 
1.8% of its 2007 income. The Heritage Foundation's books are audited 
annually by the national accounting firm of McGladrey & Pullen. A list 
of major donors is available from The Heritage Foundation upon request.
    Members of The Heritage Foundation staff testify as individuals 
discussing their own independent research. The views expressed are 
their own, and do not reflect an institutional position for The 
Heritage Foundation or its board of trustees.

                                 

    Chairman RANGEL. Thank you. Before I ask Mr. McCrery to 
kick off the questions for the Committee here, we are very 
anxious to make certain that we have prepared a way to give 
this some type of priority for the next Administration.
    We have an unusual situation, where both of our candidates 
are supporting cap and trade. But in listening to most of the 
testimony today, I find that I may be facing next year, if 
McCain is not the President, some type of a split along party 
lines--for sincere beliefs, not because of polarization--but 
because of differences in thought as to the damage that would 
happen to our country and the planet if we don't do anything, 
and seemingly, from the questions I heard from the minority, a 
concern about moving forward could possibly wreck our economy 
and the manufacturing industry.
    My question is, in a very generic way, as you go out 
selling your position, is there a tendency that one party or 
the other is more solid in support of your position? I hesitate 
to ask Heritage Foundation, because I am afraid I would know 
the answer there, just because of who is doing the research.
    But I will start with you. Do you find many Democrats 
supporting your position, as you speak and write and discuss 
this?
    Mr. KREUTZER. We have not been invited by many Democrats to 
brief them.
    Chairman RANGEL. I see.
    Mr. KREUTZER. So, I don't know what they support.
    Chairman RANGEL. Well, that takes--well, it's probably the 
reputation of the Foundation, rather than the scientists out 
there.
    Generally speaking, has anyone felt that the concern is 
bipartisan? Can I get a--yes?
    Mr. BARNES. Yes. I would say, with regard to a revenue-
neutral cap and dividend, that it has support on both sides of 
the aisle. It appeals to liberals, because it protects low-
income families, and middle-class families, and it also has 
appealed to conservatives, because it's revenue-neutral and 
it's market-based.
    So, in the Senate, for example, when Lieberman-Warner was 
being debated, Senator Corker introduced an amendment, which 
was essentially to give all the money back to the people, on a 
per capita basis.
    I would also mention that in Alaska, Governor Palin 
recently increased the taxes on the oil companies, and 
distributed that revenue in the form of a $1,200 dividend to 
all Alaskans. This is an addition to the regular dividend that 
they get from the permanent fund, in order to offset the higher 
energy prices there.
    So, I think this approach does have that appeal that cuts 
across----
    Chairman RANGEL. Your approach?
    Mr. BARNES. Yes.
    Chairman RANGEL. Yes.
    Mr. BARNES [continuing]. Cuts across party lines.
    Chairman RANGEL. Others have any comment to make?
    Mr. ABBASI. We would be pleased to provide you with polling 
that I have seen over the last few years that has shown that 
there is a partisan gap, a significant partisan gap, on this 
issue. Unfortunately, a higher proportion of Democrats have 
been concerned about it, and urging government action, than 
Republicans.
    Our firm, MissionPoint, is bipartisan. And, we're prepared 
and anxious to work with Members from both sides of the aisle 
to fashion a solution that will work. We need champions on both 
sides. We would be able to supply you with some polling data 
that we have seen that supports what you are saying about a 
partisan gap.
    Chairman RANGEL. Well, these meetings--not to say it's 
unfortunately--but many people are just not educated on looking 
at this on both sides. But we do know that it's a serious 
problem, and that we may both have to make compromises.
    But I am pleased to see that, the way the testimony is 
coming, the questions are coming from the Committee, and we may 
not have the problem that I guessed we might.
    Let me yield to Mr. McCrery.
    Mr. MCCRERY. Thank you, Mr. Chairman. Were all of you here 
earlier today for the first panel? You heard their testimony 
and our questions?
    I was actually--I was telling the Chairman, I was actually 
pleased that there seemed to be somewhat of a consensus among 
the panel that there were, indeed, some pitfalls, if you will, 
of a cap and trade approach to global climate change. They 
seemed interested, and anxious, even, to come up with ways to 
address those pitfalls, particularly, I guess, with respect to 
energy-intensive industries here, in the United States.
    I was just wondering if you all share the--what I believe 
was the conclusion of the first panel, that yes, we do need to 
take some measures within the cap and trade structure to 
address the potential loss of jobs and energy intensive 
industries here, in the United States. You can just go down the 
line, if you would like.
    Mr. ACKERMAN. I think that we certainly need to look at 
what the real job effects will be. I think that there have been 
wildly differing estimates. We have heard so many times in the 
past that one environmental proposal or another will cause 
humongous job losses, we need to look very closely at what's 
the basis for that being projected, once again.
    There are groups, like coal miners, who certainly will be 
affected by any effective carbon policy. We need to look at the 
compensation of them, whether that's through the cap and trade 
program, or not.
    I also wouldn't say that the cap and trade program is the 
only thing we need to do. The point of my testimony is that 
it's urgent to get going on carbon reduction, whether through 
this method or through some other.
    Mr. MCCRERY. Thank you.
    Mr. ABBASI. My understanding is that the average energy 
cost, the proportion of the average manufacturing company's 
overall cost structure that is energy is about 2 percent. But 
it is higher for a handful of industries, and that for those 
industries, in some of the pending legislation like the 
Lieberman-Warner bill, there is a proposed adjustment: A 
requirement that an importer would surrender an allowance for 
imported goods, on a one-to-one basis for carbon content. This 
would be intended to level the playing field if we have a cap, 
and we are importing from an uncapped country.
    There is also a provision in that bill that says that the 
adjustment would have to account for the different 
developmental levels of the country from which we're importing. 
In prior testimony I gave to the Select Committee on Energy 
Independence and Global Warming in April, we proposed a way to 
think about a formula like that, which would be an adjusted 
kind of index that would account for emissions per capita, as 
well as emissions per unit of GDP.
    Our emissions per capita, of course, are much higher than, 
for example, China's, but their emissions per unit of GDP, as I 
think was pointed out earlier, is significantly higher, I think 
four to five times. So, some sort of index that would basically 
allow the surrender of less than a one-for-one allowance for an 
import from that country, based on allowing developing 
countries additional head room to grow is a model that we 
believe would be fair. It would reflect the fact that, at this 
point of the cumulative emissions in the atmosphere, the United 
States accounts for about 30 percent.
    So, I think it's fair and equitable to say that we in the 
U.S. need to take the first step. It is also important to 
recognize the competitiveness impacts you're talking about. But 
if we're going to have a requirement like that at the border, 
let's adjust it in a fair way to allow some of that development 
head room.
    Mr. MCCRERY. Good. Thank you.
    Mr. RINGO. Representative Artur Davis this morning, of 
Alabama, brought up a very interesting point and an interesting 
concern about an industry in particular in his State that might 
fall vulnerable to a cap and trade system.
    At the Apollo Alliance, we believe that if the overall 
moneys that are going to be generated from such a system are 
properly reinvested in training, in making sure that the 
playing field is level for those people that have been 
disproportionately impacted, the impact would be a lot less, 
with respect to the loss of jobs.
    If we invest in training people for this new green economy, 
if we invest in training people for these new green jobs, those 
that lose their jobs will gain new jobs, new training. That's 
why Apollo Alliance is a huge alliance, and we are engaged very 
much with the labor community, with the conservation community, 
because we believe that this whole 10-year, $500 billion 
investment strategy that we are promoting is a win-win-win-win 
for all Americans.
    Now, I am sure that there will be some casualties along the 
way. But I believe that, with proper management of the program, 
that those numbers would be minimized.
    Mr. MCCRERY. Mr. Chairman, my time is expired. I didn't get 
to hear from everybody on the panel, but I think--I don't hear 
any dissonance there, particularly, so I am pleased that we are 
all at least looking to try to create a system that does not 
unduly harm the economy, and destroy jobs.
    Mr. DOGGETT [Presiding]. Thank you, Mr. McCrery. I ask for 
your advice in trying to perfect the Climate Matters bill 
before turning to Mr. Herger for his questions to you.
    Let me begin with you, Mr. Abbasi, because I am pleased 
about your response to Mr. McCrery about the bipartisan nature 
of this. You know, we talk about the Lieberman-Warner bill. 
Certainly Senator Warner, a distinguished conservative 
Republican whose career has been built around national 
security, recognizing the security implications of this, I 
want, as I said at the outset in introducing my bill, to have 
strong bipartisan participation in it. But at the same time, 
much like the science, we can't wait until we get 100 percent 
of the scientists, including those who may work for industries 
who have a stake in doing nothing, to come aboard, because the 
needs are so great to move now.
    Let me ask you if, based on your experience, you believe we 
are already beginning to lose competitiveness and lose some 
jobs as a result of not moving forward on climate change. An 
aspect of that that Ms. Browner did not have a chance to 
respond on, whether the uncertainty that business has about 
what might or might not happen, how comprehensive a cap and 
trade bill will be, if that is affecting investment, and where 
people choose to invest now.
    Mr. ABBASI. Thank you, Mr. Doggett, and thank you for your 
leadership in introducing that very important bill. We look 
forward to working with you on it.
    Yes. Our belief, from our experience in the market, is 
that, in fact, the other countries--I am going to talk about 
Europe for a moment--have provided a much more conducive 
environment for clean energy companies.
    We founded our firm with a strong U.S. focus, but we are 
going to be opening an office in London, and we are doing due 
diligence right now on transactions in Europe. There is a 
strategic understanding of how big this opportunity is in 
Europe. Obviously, they have launched the European trading 
system for carbon, and they also have very, very supportive 
regimes to directly stimulate renewable energy in a number of 
countries.
    I mentioned Germany earlier. Let me say that what's so 
difficult to watch, what's painful to watch, is that a number 
of the most innovative companies are originally from the United 
States. So, I mentioned that Europe--Germany has a large 
installed base of solar power using the traditional 
crystallline and silicon flat plate technology. But thin film 
is the next generation, thin film technologies.
    So, companies like First Solar, which are U.S. companies, 
are now out, installing their manufacturing facilities--again, 
high-tech manufacturing--in other countries. First Solar plans 
to build 1,100 megawatts worth of production capacity by 2009. 
That's a lot of solar. It accounts for about $864 million in 
investment. And 87 percent of that is going to be in Germany 
and in Malaysia.
    So, we see an instance where, again, companies with 
original U.S. technology, next generation technology, are 
moving their production facilities abroad. We should be 
bringing those jobs here, home.
    Mr. DOGGETT. Thank you. Mr. Barnes, the cap and divided 
approach that you suggest certainly does have the advantage of 
simplicity. As you know, in the legislation that I introduced, 
I envision some income transfer, especially to those Americans 
at the bottom of the economic scale who will face the greatest 
burden here, as they will face the greatest burden if we don't 
resolve climate change.
    That's not the only thing that I do with the auction 
revenues, and one of the areas that I focus on is health care. 
Is health care a way of providing a direct benefit of the type 
that you envision, even though it's not necessarily putting a 
check in the mail?
    Mr. BARNES. Yes, I think health care meets the test, if you 
will, that the auction revenues be used for a public benefit 
that is basically universal, and that particularly benefits 
low- and middle-income families.
    So, I would say I would be very sympathetic to some of it 
being used for health care. But I would caution not to take 
that too far. The moment you start doing this, that, and the 
other thing, I think you then run into the whole Lieberman-
Warner sort of sandpit.
    Mr. DOGGETT. Thank you. Mr. Ringo, we have already heard in 
testimony from others about the danger of seeing jobs go 
overseas. The type of jobs that would be created under a cap 
and trade system, which put a premium on clean energy and 
energy efficiency, how likely is it that those kind of jobs 
will ever be exported abroad?
    Mr. RINGO. Well, I think that if we invest in America, 
invest within our communities, we have programs, we have 
legislation being passed in our State legislatures around the 
country, 27 States have passed renewable portfolio standards 
that are requiring that a certain amount of energy in those 
States be produced, be alternative energy.
    For example, in the State of Pennsylvania, where Gamesa 
came in from Spain, brought those jobs into Pennsylvania 
because of that portfolio standard, and created 1,000 jobs. 
Those are homegrown jobs. Many of those people were people that 
were laid off from the steel industry.
    I met a gentleman at the Democratic Convention recently who 
was a laid off steel worker who was rehired by Gamesa when 
Gamesa moved into Pennsylvania. Those are jobs that are going 
to be homegrown. With proper investment and subsidizing some of 
these companies, to encourage them to invest in alternative 
energy, it can really stimulate the economies at home, and 
guarantee that those jobs remain within our communities.
    Mr. DOGGETT. Dr. Ackerman, your study, the written study 
you had, tends to focus on the cost of inaction that will 
result from weather changes, primarily. Are there not also--and 
you refer to some of these in your oral testimony--a long list 
of changes and costs that will occur, such as on health care, 
that would be in addition to the cost that you outline in your 
written testimony.
    Mr. ACKERMAN. That is right. I emphasized in writing, 
particularly, that this is a partial accounting of the cost of 
inaction. There will be increased health care costs, as weather 
extremes are obviously bad for health--there are a number of 
studies of that.
    There will be worse effects on agriculture. More and more 
research has undermined what people believed 10 or 15 years 
ago, that warmer weather would be good for crop yields. It's 
increasingly not supported by recent research. Stormier and 
hotter conditions, and drier conditions in a lot of places 
would be bad for agriculture.
    The tourism effects which we were able to estimate for 
Florida, but not for the country as a whole, certainly outdoor 
activities that are dependent on the weather, like tourism, 
will be devastated by some of the changes that are being looked 
at.
    The list goes on and on. How do you value the changes to 
parks, to wilderness areas, natural ecosystems? There are many, 
many costs which are not included in the kind of estimates I 
produced.
    Mr. DOGGETT. Finally, you opened your testimony by saying 
that there was broad consensus on the science that we have.
    Mr. ACKERMAN. Yes.
    Mr. DOGGETT. We know it's not universal, from the questions 
that Mr. Linder asked earlier, and that we are never going to 
get 100 percent agreement on science. Maybe even people still 
debating about tobacco and its effect on health.
    But tell me, as it relates to the economics, do you 
perceive that there is, if not a total consensus, a growing 
view among economists that the cost of a properly designed 
response to climate change is less than the cost of inaction on 
climate change?
    Mr. ACKERMAN. I don't think we have reached the level of 
consensus that scientists have, where--what I've said about the 
climate debate is that science is I think it's something like 
3,000 to 5 now. We are not at that level, but there is a steady 
movement in economics, there are more and more people who have 
moved that way.
    The Stern review, Sir Nicholas Stern, who is one of the 
most prominent members of the British government in these 
areas, and formerly Chief Economist at the World Trade 
Organization, that study was really path-breaking, in 
suggesting that conventional economic calculations showed that 
the worldwide costs of inaction, are very large, much greater 
than my U.S. estimates: Worldwide, 5 to 20 times the cost of 
action. That has certainly moved the debate quite a ways.
    Mr. DOGGETT. Mr. Millar, thank you for your comments about 
the bill. I think Mr. Blumenauer will have a few more questions 
about infrastructure. Mr. Herger.
    Mr. HERGER. Thank you very much. I am enjoying our 
panelists, I appreciate each of you.
    Again, I would like to bring back the perspective that it 
was just 30--let's see, 38 years ago, in 1975, the headline of 
Newsweek Magazine was global cooling. Just a year before that, 
the headline on Time was, in 1974, global cooling. We know we 
have gone through several ice ages, we know that we are--you 
know, it's not like we don't ever change here. We do. So, I 
think it's very important we have everything in perspective.
    Now, the fact that we have all of what we're doing, 
obviously, we have to have an effect on the environment. I 
think whatever we do, we need to do where we don't overact and 
bankrupt our society at the same time. I think that, hopefully, 
that is the balance, Mr. Chairman, that we are going to have 
with this very important hearing that we are having today.
    So, again, getting around to the cost of this, knowing that 
we are now being surpassed, and not just by a little bit, but 
overwhelmingly surpassed here in the years to come by China and 
the greenhouse gases they're going to be emitting, and India 
and others, that we not cut off our nose to spite our face, 
that we be involved.
    But, you know, I get the feeling, just listening, that boy, 
we have to somehow think we can do it all here, shoulder all 
the expenses, for what might end up being, as the doctor over 
here indicated, might be just a half a percent of climate 
change, perhaps.
    So, again, I don't want to throw a damp towel on this, but 
I certainly hope and pray we have this in perspective. Just 
getting around to the cost, the cost that, at a time when our 
economy is down, when we're looking at doing what we can do, 
and knowing, particularly this Committee, Ways and Means, that 
we have entitlement cost problems ahead of us--Social Security, 
Medicare--I mean, these costs are something we need to be 
considering in putting them in the perspective, and whether or 
not we should be doing it in a way where we use a carrot and 
not a big, huge stick.
    I so much am hearing this big, huge stick that's being 
promoted by so many, and that, quite frankly, more than a 
little bit concerns me, and I think concerns many, and should 
concern many.
    With that in mind, I would like to ask a question of our 
panelists, that reducing these greenhouse gas emissions by the 
amount that is required in House bills H.R. 6186 and 6316 is 
going to be very expensive.
    In June of this year, the United Nations International 
Energy Agency estimated that allowance prices need to be at 
least $180 per ton. This was their estimate, which is more than 
four times the prices in the EU today, more than four times 
what they are paying. An IEA Executive Director stated that, 
``Costs are going to be very steep.''
    Just how high do energy prices have to get to reduce 
greenhouse gas emissions by the amount in these House bills? I 
would be interested to hear estimates from our panelists. Dr. 
Ackerman.
    Mr. ACKERMAN. I would like to respond to a couple of 
things.
    Mr. HERGER. Please.
    Mr. ACKERMAN. I don't have a number in my pocket for that 
last question. The question about the global cooling estimates 
from the 1970s, there used to be a lot more pollution in the 
air, and some of that pollution actually blocked some of the 
sunlight, so that it--this is not just a change in whims, this 
is a change in the science. We used to put a lot of crud that 
came out of the coal plants into the air, and that somewhat 
cooled the atmosphere down.
    It also made people sick and killed forests and killed fish 
much more quickly than climate change does, so it was a big 
step forward for human and environmental health, to adopt the 
Clean Air Act, and take that stuff out of the air. The 
consequence of taking it out of the air is that it took away 
this perverse way in which we were slowing down global warming, 
so that that--you know, it's actually progress in dealing with 
acid rain that has led to that shift that you mentioned.
    In terms of how much will it cost, I would--I noticed I was 
mentioned in Mr. Kreutzer's testimony--I would take exception 
to the way he used my numbers there, and particularly to this 
estimate that we would get only this tiny percentage reduction 
in the temperatures. That's if only the U.S. reduces emission, 
and nobody else does.
    This is a global problem. The U.S., China, and Europe, each 
in round numbers, account for one-fifth of it, and the rest of 
the world for the other two-fifths. There is no possibility of 
a solution without cooperation, and it makes no sense at all to 
quote these numbers, based on the U.S. acting alone.
    I will tell you, having spoken a little bit about this 
internationally, there is going to be no world solution without 
the U.S. taking a lead. It has been embarrassing to talk about 
this issue in Europe lately, because no matter what research 
you come there with, they only have one question for Americans, 
which is, ``What are you thinking of, not doing anything about 
this? Why isn't the Bush Administration doing something about 
it?'' There is only so many times you can say, ``Well, I don't 
speak for the Bush Administration,'' without feeling a little 
embarrassed for your country, and not taking action.
    Mr. KREUTZER. Yes, I would like to talk about the costs. 
First of all, we are sometimes portrayed as being to the right 
and having extreme numbers. There is a table on page 14 of our 
report that shows where our estimates of the allowance costs 
come in, compared to other people who have done similar sorts 
of estimates.
    In 2030, our high end is $88 per ton of carbon dioxide. 
MIT, hardly a bastion of conservative thought, came in at $101. 
These are good ways to gauge where we fit in the mainstream of 
estimates of the cost of carbon dioxide restrictions. The EPA, 
their estimates were $83. Charles River Associates, a 
consulting firm, is $112. The much maligned and undeservedly 
maligned National Association of Manufacturers reports $85 to 
$227. The $227, which is the number you keep hearing, was with 
no offsets. That was a technicality. The Energy Information 
Administration had a range of $61 to $156 per ton. So, we are 
not in some extreme exaggerated position in estimating what the 
costs will be to the economy.
    As far as the damage--the help done to CO2 
levels, how much temperature change there will be, yes, we 
could talk about bringing it around 2 degrees, if you get India 
to cut back to one ton per capita and no population growth by 
2035. They simply won't do that. We will be having six. China 
will have to cut back to two. That was what the EPA estimated.
    So, this is--and if you're going to talk about the cost of 
the whole world cutting back, we need to look at the cost to 
their economies, as well. You can't say, ``Well, here is what 
it costs the U.S. to cut back 70 percent, and here is the 
benefit we get, it's only a tenth of a degree,'' and you say, 
``Well, the rest of the world has to cut back, too.'' Well, 
let's look at how much they're going to have to spend.
    Mr. DOGGETT. Thank you. Mr. Larson.
    Mr. LARSON. Thank you, Chairman Rangel, again, for putting 
this together. I thank the panelists for their forbearance, 
especially Mr. Abbasi, whom I know from my home State of 
Connecticut, and the great work that you have done, and the 
book that was prefaced by the ``fierce urgency of now,'' 
quoting Dr. Martin Luther King, and how important that is.
    The significance of this hearing, in as much as I think 
it's relatively clear--and certainly I respect people who 
dispute the science. We have people that don't believe in 
evolution. We have differences of opinion that exist in the 
U.S. Congress, and you have to allow for that respect and 
tolerance within the Committee process, as we do all across the 
United States.
    But to--really, it comes down to a category of doing 
nothing, or doing something. I applaud my colleagues on this 
Committee, Lloyd Doggett and others, who have put forward 
legislation that deals with this issue. I also have put forward 
a proposal, along with Peter Stark and George Miller and Jim 
McDermott of this Committee. I serve with Mr. Blumenauer on a 
Speaker's Select Committee on Climate Change, Global Warming, 
and Energy Independence.
    Mr. Sensenbrenner, in that Committee, says, ``Look, whether 
you call it cap and trade, or whether you call it a carbon tax, 
we're going to call it a tax. We are opposed to taxes, period, 
end of tape, end of discussion. That's how we're going to frame 
this issue.''
    So, we ought to be clear that, from the outset, that's how 
this issue is going to be framed if you don't favor doing 
something about it now. If you don't believe that there is the 
fierce urgency of now, and you don't believe in the science, 
then the opposition will be, ``This is a tax, and we're against 
taxes.''
    So, once we get that issue decided, then you have to look 
at, well, you have a difference of opinion upon how we best 
solve this problem. I believe--and we just came from hearings 
today, meetings with regard to everything that's happening in 
the economy today. What the American public wants is us to 
level with them. None of them like taxes. I thought Mr. 
Bloomberg this morning was eloquent. Nobody likes to be taxed. 
But what are the problems that we face, and then level with us 
forthrightly about what we have to do.
    So, to indicate to them--and, Mr. Barnes, I thought your 
proposal was interesting, as well--about taxing polluters 
upstream, so that there is a downstream benefit directly to the 
people, as in ``We, the people,'' is the only way, if you put 
the science aside for a moment, that you can basically come to 
bipartisan agreement, in terms of this issue of taxation and 
money flowing back to the people who, surely, everyone agrees, 
will be impacted.
    With regard to tariffs, and intensified industry, I thought 
those were excellent points, and again, commend the Chairman, 
because this is how you flesh out concepts and ideas of this 
nature.
    I am a firm believer that what we have to do is level with 
the people and be unafraid about--and talk to them directly 
about--what it costs, and what we're going to have to do to 
achieve these goals, and what it means to them, their 
grandchildren, and our children, and the consequences of that, 
and then lay it out in a manner as succinctly and as clearly as 
we can, so that they understand those ramifications.
    Now, what we give back to them, I believe, has to be direct 
relief for the consumer. Other ideas you can entertain. My 
concern with cap and trade is how we explain about these 
auctions that take place, and what happens at an auction, and 
how is it set up, and what will that bureaucracy do.
    When you have a system that's already set up to deliver 
money directly back to the people, how can we--why isn't it--as 
Paul Volcker, as Alan Greenspan, as Al Gore, as Bill Bradley, 
and you can go down the list of economists and others have 
said--``Send the money directly back to the people, by way of 
payroll deduction.'' Join people in an effort that will 
preserve the environment that has a direct efficient way of 
getting the cost back.
    Your response, from the panel?
    Mr. RINGO. When you talk about getting it back to the 
people, as I mentioned earlier, I live and am from Louisiana, 
close to the State of Alabama. Louisiana is a State where oil 
and gas is king. One-third of the domestic oil supply comes off 
of our coast of Louisiana.
    After Katrina hit in 2005 and Rita hit in 2005, and the two 
storms that have recently hit, people before that time were not 
talking about climate change. Many didn't believe that climate 
change was real, because oil and gas was king, and that was 
just not an issue to discuss. I was in a shelter last week, 
evacuated from Hurricane Ike. The conversation in the shelter 
was--and these are people who are industry workers, and 
families of industry workers--were saying, ``We've got a real 
problem out there with this global warming, because every storm 
that hits the Gulf of Mexico is a four or five.''
    Now, it is costing us in a big way, because of a lack of 
action. We have gone through several decades of missed 
opportunity in dealing with issues of global warming, and what 
have you.
    Some people, as I oftentimes say, in Louisiana we suffer 
from category five storms and there are folks up here in D.C. 
and around the country who have been suffering from category 
five denial about global warming. But now people along the 
coast are waking up because they see the impacts. Now they are 
saying, ``Do something, and do something now.''
    We have gone through these decades of missed opportunity. 
Now we're in a decade of last opportunity, because we've got to 
fix it. People now, along Louisiana, in Texas, are not thinking 
about the bail-out of AIG right now. We're in the middle of 
hurricane season. We're just halfway. They're just concerned 
about the next storm, and the fact that, if it hits the Gulf, 
it will probably be a four or five, and the impact will unfold 
as you have seen.
    So, there is a sense of urgency down there, for sure, on do 
something about it, and do something about it now. At the same 
time, the majority of the people that are crying out, many of 
which are poor people who have already suffered the 
disproportionate impact by being the folks that live closest to 
the fence line of those industries----
    Mr. LARSON. So, would they prefer a direct tax back to them 
from the revenues that are generated?
    Mr. RINGO. If it is reinvested in their community to be a 
pathway out of poverty----
    Mr. LARSON. I am talking about them personally, lowering 
their payroll taxes.
    Mr. RINGO. I am sorry, sir. I didn't hear that.
    Mr. LARSON. Lowering their payroll taxes directly to them.
    Mr. DOGGETT. The Chairman is back, and I think Mr. 
Blumenauer is next.
    Mr. LARSON. Thank you.
    Mr. BLUMENAUER. Thank you. I appreciate your patience with 
this. I have found this to be extraordinarily interesting.
    I have enjoyed working with Mr. Doggett on his proposal, 
although frankly, I have cosponsored Mr. Larson's. I am 
agnostic, in terms of how we deal with a price for carbon 
pollution, and being able to have some resources to redirect 
for the economic revitalization that you talked about. But 
Lloyd is right, I have some modest interest in this larger 
question of infrastructure.
    We think about, in the short term, what is going to happen 
for water, in terms of supply, water development, protection, 
water treatment: extraordinarily expensive for systems that are 
already inadequate in much of America--72,000 miles of water 
main and sewer pipe over 80 years of age right now.
    Problems of electric transmission, grid reliability, being 
able to get some of this alternative energy out from some of 
the remote areas of wind turbines, for instance, to the grid, 
being able to use some of the technology that I know we're 
developing to help people do a more efficient job, just in 
their own household.
    Disaster--and I appreciate Mr. Ringo's reference to that--
what we pay for the recovery from disaster, from prevention. 
This--it's gone up sixfold in the last three decades, and the 
loss from disaster is skyrocketing. All the indications are 
that it's going to get worse.
    Last, but not least, transportation, what we're going to do 
to retrofit, to expand, to have a new fleet, to have new 
choices, new options, is not a cheap proposition. But it has 
embedded in it economic opportunities that are very 
substantial.
    This comes at a time when our Chairman is going to have 
lots of people knocking at his door next term. We have the 
Highway Trust Fund that is going into deficit for the first 
time in history.
    There are more people with their mouth open and their hand 
out for all sorts of schemes that are going to have to be paid 
for, as well as these notions of renewing and rebuilding.
    I wonder if Mr. Millar, Mr. Abbasi, Mr. Ringo, if you could 
comment briefly--and this will be my last question, and I will 
be quiet--just about the merits and the opportunities of making 
some strategic investment in being able to not just meet our 
climate challenges, but just kind of hold the country together 
with the challenges that Dr. Ackerman is talking about, in 
terms of the stresses we're going to be facing with extreme 
weather events, change in temperature, rise in sea level.
    Mr. MILLAR. The opportunities are certainly great, and I 
tried, in my testimony, to give a sample, across the board. 
While this hearing is specifically about greenhouse gas 
emissions and climate change, how we choose to solve that 
problem will have impact in so many other areas.
    So, for example, in transportation policy, thinking about 
expanding the opportunity for choice to more Americans. The 
Census Bureau tells us that only about half the households in 
America have any choice at all, in terms of public 
transportation available. If we give people the choice, recent 
history has shown us if it's a good choice they will use it. We 
are seeing record growth in the use of public transit.
    The interesting thing to me is it's not just in the big 
cities. In fact, two of the top three growth areas we're seeing 
are in communities of less than 100,000 and 100,000 to 500,000. 
Generally those are communities with not well developed public 
transit. It shows Americans are hungry for choice, and choice 
requires investment.
    Mr. ABBASI. I want to commend you, Congressman Blumenauer, 
on your smart growth initiative. You know, you reference the 
importance of infrastructure. We will need less infrastructure, 
in terms of roads, if we're smarter in how we locate our homes.
    One idea we promote in the testimony--it's similar to 
something you proposed is a location efficient mortgage, which 
provides a bonus for mortgages on homes that are located in a 
high density area that will cut down on our transportation 
need.
    I want to mention one other example of infrastructure: 
smart meters. I don't know if anyone here has ever actually 
tried to decipher their electricity bill, but it's very hard to 
understand the impact of the choices you make in your home on 
your energy bill, let alone to read and understand what's in 
that bill. Smart meters offer us an opportunity to, once and 
for all, understand that, to have an in-home display, where we 
can see the electricity usage of our various appliances.
    Mr. BLUMENAUER. In real time?
    Mr. ABBASI. In real time. There is good evidence that, when 
you do this, people make better, more informed choices--they 
will upgrade, they will invest in efficiency.
    So, when we think about using some of those auction 
revenues, let's incentivize things like that, because that will 
allow you to actually see the new carbon price signal when we 
have one and respond to it.
    Mr. BLUMENAUER. Thank you very much.
    Mr. ABBASI. I will just give one other statistic. The 
average electricity bill in America was about the same in 2005 
as it was in 1990, even though electricity prices were up about 
24 percent. What that indicates is that we do get more 
efficient, and people do respond over time. So, prices and 
bills are different.
    Mr. DOGGETT. Thank you. Mr. Pascrell.
    Mr. PASCRELL. Thank you, Mr. Chairman.
    Mr. Millar, most of us are advocates for public investment 
in transportation, public transportation. In my--in New Jersey, 
high gas prices are turning commuters to New Jersey Transit 
Commuter Rail Service.
    As you point out in your written testimony, public 
transportation use reduces carbon dioxide emissions by more 
than 37 million metric tons every year in the United States. Am 
I quoting you accurately?
    Mr. MILLAR. Yes, sir, you are.
    Mr. PASCRELL. Well, then before I ask you this series of 
questions, let me ask Mr. Kreutzer this question.
    Mr. KREUTZER. Okay.
    Mr. PASCRELL. What do you think, since only 54 percent of 
American households use public--mass transportation--do you 
think that this is a wise thing to do, in reducing the amount 
of emissions? Very briefly, do you think this is wise, or is 
this cost foolish?
    Mr. KREUTZER. It depends a whole lot on where you do it. I 
live in Arlington, I take transportation, the Metro. It makes a 
whole lot of sense there. I would be willing to pay more if 
they could have some more cars so I could sit down on occasion.
    But I also lived in Dayton, Virginia, an old order 
Mennonite hub. We had horse and buggies. You could have put a 
subway at every one of their houses, they wouldn't have taken 
it.
    Mr. PASCRELL. But you wouldn't object, therefore, to public 
investment into the kinds of things that you could accept?
    Mr. KREUTZER. As with any public investment, I think I 
would want to look at the cost, versus the benefit.
    Mr. PASCRELL. Well, we all would.
    Mr. KREUTZER. Right.
    Mr. PASCRELL. I don't think anybody on this panel or 
anybody on this side of the table would simply, you know, 
spend, regardless of what the outcomes would be. We want to 
make sure it's effective and efficient.
    Mr. Millar, what policy options do you suggest for fully 
incorporating public transit into the United States climate 
change strategy?
    Mr. MILLAR. We recommend several things. First, we think it 
is reasonable to take some of the revenue that would be 
generated by cap and trade and invest back in public 
transportation.
    We believe that there ought to be national goals set, and 
each sector ought to have a responsibility for its piece of 
that, and public transit would have its piece, as to what we 
could do.
    We believe that certain policies--for example, tax policies 
under the jurisdiction of this Committee--which today favor 
energy-inefficient public transportation, at least ought to be 
equalized so that an employer, for example, that wants to 
encourage his or her employees to use public transit can at 
least get the same help from the government as if they provide 
parking to the employees. So, we think there is a series of 
things there.
    We think giving incentives to communities, so that 
communities and States will invest more in public transit and 
will have an interest in how they control their land use to get 
more energy-efficient transit-useful land use, such as 
Arlington, Virginia chose to do some 25 years ago, and now 
receives enormous benefit for the decisions made then. Those 
are examples, sir.
    Mr. PASCRELL. Just very briefly, the expansion of the 
compressed natural gas buses nationwide, what else can we do to 
promote this technology?
    Mr. MILLAR. I think there are several things there, first 
to realize that already about 25 percent of our bus fleet is 
alternately powered with clean fuel. That compares with, what, 
1, 2, 3 percent of the automobile fleet.
    We could certainly provide additional funds and incentives 
to transit systems to replace their aging fleets more quickly, 
for example, change the amount of local match that's required. 
There is a whole series of things that could be done there. All 
would turn over our fleet much more quickly.
    Mr. PASCRELL. All of these are going to necessitate some 
public investment.
    Mr. MILLAR. Yes, sir. I believe so.
    Mr. PASCRELL. We have to find the money someplace.
    Mr. MILLAR. Yes, sir.
    Mr. PASCRELL. Thank you, Mr. Chairman.
    Mr. DOGGETT. Thank you. Mr. Davis.
    Mr. DAVIS. Mr. Chairman, thank you. I have time for, 
really, just three observations. The first one, I don't buy the 
Republican arguments on the science. You could take all the 
science that the Bush Administration has rejected, and make 
from it a whole new ecosystem and a whole new globe, and fill 
it up with new species. So, I am not too enthusiastic about 
their scientific interpretations.
    Point number two, I do think this side of the aisle, which 
I see as the more progressive side of the American political 
debate, has to be cautious about one premise. A lot of the 
arguments that we have made in the context of cap and trade 
policy sounds something like this. They say, ``Well, there will 
be short-term costs, disproportionate costs to some parts of 
the population, but there are significant gains, and those 
gains will be for the common good.''
    We certainly don't like that argument on this side of the 
aisle when it comes to tax policy. You could make a point that 
President Bush's 2001 and 2003 tax cuts were very good for 
people whose income rests primarily on dividends and capital 
gains, but we don't like the thrust of those policies, because 
it's left us more unequal as a society, and made the Tax Code 
more regressive.
    Most of us on this side of the aisle don't like an 
unfettered trade policy with no labor and environmental 
standards, even though some could say unfettered trade benefits 
certain multi-national corporations, and it's probably for the 
common good. So, just as we resist those kinds of arguments in 
the context of trade, as we resist them in the context of tax 
policy, I think we have to be appropriately dubious in the 
context of environmental policy.
    My third point, I have no doubt that we can fashion short-
term, wealth-transferred policies to cushion the impact of cap 
and trade legislation. I don't doubt that. But this is what I 
do wonder about.
    If we do this in the wrong way, and the consequence of 
doing it in the wrong way is that communities that are very 
dependent on heavy duty manufacturing fall even further behind, 
and the employees of those industries find their skills 
outmoded for the work that's available, a short-term wealth 
transfer or reduction on your FICA taxes means nothing if you 
don't have a job, or if you're not employable.
    So, I think we have to be unusually attentive to the fact 
that the very industries and sectors of the country who are 
most likely to be displaced are the ones that have already 
borne the brunt of 10 years of unfettered globalization, and a 
wide variety of other policies.
    Dr. Ackerman, are you trying to jump in?
    Mr. ACKERMAN. Yes. Precisely on that point, I certainly 
think that those communities need to be protected. But I think 
there is something missing in the whole discussion of 
competitiveness here. We are talking about it as if cost 
increases are the only things that affect competitiveness, and 
a little more cost increase is unbearable for our economy.
    Now, you could make a case that the most competitive 
economies in the world today have some of the highest costs. 
Germany is often the world's leading exporter in many recent 
years. Ten percent of all world exports come from Germany, a 
country with higher wages than we have, higher energy costs, 
and stricter environmental regulations.
    They are doing something there that is making people buy 
their products that isn't about cutting their costs.
    Mr. DAVIS. Here is the only cautionary note I would sound 
about that. Take coal and steel as two examples.
    Mr. ACKERMAN. Yes.
    Mr. DAVIS. If you push up the cost of coal and steel 
production too much, they don't just engage in an economic 
recalibration of what they do, they sometimes close their 
plants.
    Mr. ACKERMAN. Yes. But Germany and Japan, which has costs 
similar to ours, labor costs similar to ours, energy costs 
higher than ours, they have both made the transition to selling 
manufactured goods to the world.
    People are not buying Toyotas because they're made with 
low-cost wages. People are not buying German machine goods 
because they're made with low-cost wages. So, instead of 
looking over our shoulders at a competition with China to cut 
wages, which we will never win, we should look over the other 
shoulder at the competition with Germany and Japan to sell the 
high-tech manufacturers of the future.
    As several people have mentioned, we are in danger of 
losing solar power, the new energy technology industries, to 
Germany as well, not to somebody who has lower costs. We're in 
danger of losing those industries to a country that has higher 
energy and labor costs than----
    Mr. DAVIS. Well, let me just stop you with my final 30 
seconds----
    Mr. ACKERMAN. Sure.
    Mr. DAVIS [continuing]. And say this. As this Committee 
tries to figure out how to fashion policy that can actually be 
sold in real time to the voters, ergo our constituents, I think 
we have to make sure that we are offering them not some long-
term gain----
    Mr. ACKERMAN. Yes.
    Mr. DAVIS [continuing]. Not some intermediate-term gain, 
but some short-term, immediate-term insulation. Otherwise, they 
won't be supportive of what we do.
    Mr. ACKERMAN. Right.
    Mr. DAVIS. We will see a divide between the elites and the 
people we represent, and that won't be helpful, either.
    Mr. ACKERMAN. No, I think we need to figure out some--I 
don't know how they do it. I think we need to figure out what's 
the secret of high-cost competitiveness.
    Mr. DAVIS. Thank you, Mr. Chairman.
    Chairman RANGEL. On behalf of the full Committee, 
Republicans and Democrats, I want to thank this panel for the 
high quality of testimony that you have given to us. I am going 
to accept your testimony merely as appetizers, because the main 
event comes next year. I do hope that you would be made 
available, no matter which side--which approach that you're 
taking, so that we can meet together.
    As I was talking with Mr. Doggett, this is a matter that 
we're going to have to go to the Chief Executive Offices, 
because it's not an issue for lobbyists to be--we're talking 
about the country and the world, and so we need those people 
who have a concern for it.
    So, I want to thank you so much for your testimony. We will 
be in touch, and I'm so sorry for the lateness in the hour, but 
it certainly was worth it for us to hear your expert testimony.
    [Whereupon, at 4:29 p.m., the hearing was adjourned.]
    [Submissions for the Record follow:]

                    Statement of Accor Services USA

    Accor Services USA is the leading provider of tax-free commuter 
benefit solutions in the U.S., and we have made it our mission to make 
tax-free commuter benefits a staple in employee benefits packages 
throughout the American workplace to encourage the use of public 
transportation and therefore contribute to help protect the 
environment.
    Public transportation is one way Americans can reduce their carbon 
footprint. It is our understanding the primary focus of this hearing, 
is on legislation which would develop a ``cap and trade'' program. This 
type of program certainly has merit, but we urge Congress to also 
examine ways to reduce emissions from the transportation sector. Mobile 
source emissions make up roughly \1/3\ of all emissions. Global Warming 
legislation needs to recognize this point and should take steps to 
promote alternate modes of transportation; including public 
transportation, and there are actions that this Committee can and 
should take to this end.
    Accor Services USA promotes the use of public transportation to 
prevent climate change and promote global sustainability through our 
employer group, third-party administrator and transportation authority 
programs. Accor facilitates the transit use of over 300,000 people in 
the U.S. saving them and their employers over $129 million in payroll 
and commuting costs in addition to over $340 million in gasoline per 
year and over 8,730,000 pounds of carbon every single day. That adds up 
to 2,095,200,000 pounds of carbon this year, the equivalent of over 
327,000 tons of waste recycled instead of landfill or over 24 million 
tree seedlings grown for 10 years.
    We maintain statistics for our clients nationwide showing the 
current status as a baseline and also showing the improvements and 
impacts of new legislation. These statistics are impressive, but there 
is room for growth within our employer base. We urge Congress to 
include the following provisions in a Climate Change package in order 
to ensure that more Americans utilize public transportation as a way to 
reduce their carbon footprint.

  Establish a Pilot Program Where Companies Can Earn Credit for 
the Amount of Carbon They Conserve Through Employee Transit Benefit 
Programs

    Accor urges Congress to provide an incentive for private sector 
companies to subsidize their employees' transit trips through the 
transportation fringe benefit. This incentive can come in the form of 
credits that can be applied to other aspects of the company's business 
activities or can be sold to companies who exceed their targeted carbon 
emissions. By including such a provision Congress will be providing the 
private sector with an incentive to initiate transit benefit programs, 
which will ultimately result in less congestion in U.S. cities, better 
air quality, and a reduction in mobile emissions.
    Accor works with its clients to track and monitor how many pounds 
of carbon are being conserved using precise modeling and tracking 
software. Recently, we were approached by a client company with over 
130,000 U.S. employees who were commuting to work every day. This 
company already has a commuter benefits program in place, and through 
that program over 2,300 employees utilized public transportation. By 
utilizing EPA and U.S. Census Bureau statistics around average commutes 
we were able to help this employer quantify the savings that those 
employees represented in terms of emissions and saved gasoline. Through 
its commuters, this company was saving the equivalent of:

      Over 3,000 gallons of gasoline each day.
      Over 828,000 gallons of gas each year.
      Over 66,000 pounds of carbon each day.
      Over 16 million pounds of carbon each year
      16 million pounds of carbon is the equivalent of saving:

        Carbon emissions from over 16,900 barrels of oil being 
consumed.
        Carbon emissions from the electricity use of over 900 
homes for a year.
        Carbon sequestered by 186,824 tree seedlings grown for 
10 years.
        Carbon sequestered annually by 50.8 acres of forest 
prevented from deforestation.

    Based on the results of our calculations, this company has now 
decided to move forward with an aggressive program to increase employee 
participation in its commuter benefit, so that employees are better 
able to access the tax savings in this time of rising fuel costs; and 
so that the company may better support its environmental initiatives.
    With this technology, we are able to monitor and track exactly how 
much carbon is being reduced. This information can be verified by EPA 
and other entities so that the accuracy of data satisfies the need for 
accurate and dependable substantiation. We are confident that if a cap 
and trade program were to include a provision that would help them earn 
credit for their employee trip reduction, more companies would get 
engaged.

  Establish Parity Between the Parking and Transit Portions of 
the Transportation Fringe Benefit

    Section 132(f) of the Internal Revenue Code provides employees and 
employers with a transportation fringe benefit. Currently the monthly 
cap for the benefit is $220/month for parking and $115/month for 
transit. The disparity between the two benefit levels creates a 
financial incentive for Americans to drive to work. Many times, those 
Americans with transit commutes which cost over $115/month are those 
who travel the furthest distance and emit the most carbon. Accor urges 
Congress to establish parity between parking and transit. Congressman 
McGovern (D-MA), has introduced legislation to this effect, (H.R. 
1475), additionally, we understand that one legislative proposal calls 
for parity to be established at $200/month, creating a revenue positive 
proposal. Accor urges Congress to include this proposal in the Global 
Warming legislation, or at its earliest convenience.

  Set-Aside Proceeds From ``Cap and Trade'' for Transit

    With one-third of all carbon emissions stemming from the 
transportation sector, it would be prudent for Congress to set-aside a 
portion of the proceeds generated from a cap and trade program for the 
expansion of mass transportation. Additionally, a portion of these 
funds should be dedicated to the marketing and promotion of mass 
transportation. The capital needs of transit systems are overwhelming, 
and should be addressed, but we would urge Congress to recognize that 
these funds should not only go toward expanding transit into areas that 
are not currently served by mass transit, but funds should also be 
spent to better market and provide outreach where transit is already 
available.
    Accor is grateful for the opportunity to submit written testimony 
and looks forward to working with this Committee as the process moves 
forward.

                                 

                Statement of Environmental Defense Fund

    I am pleased to submit the attached statement from Environmental 
Defense Fund to be entered into the record for the September 18 hearing 
on climate change. We encourage the Ways and Means Committee to 
continue to delve into this critically important issue and urge you to 
make a cap on greenhouse gas emissions a high priority for 2009.
    There is no time for delay. The U.S. needs to move quickly and 
aggressively to spur economic and job growth, increase our energy 
independence, and stabilize our climate. A strong emissions cap with 
aggressive near- and long-term reduction targets would provide 
investors, innovators, and businesses with the reliable, long-term 
demand for low-carbon solutions they'll need to make that 
transformation a reality. Two climate bills that have been referred to 
your Committee--the Climate MATTERs Act (H.R. 6316) and Investing in 
Climate Action and Protection Act (H.R. 6186)--reflect the needed level 
of reductions.
    Importantly, the U.S. can achieve these reductions while 
maintaining robust economic growth in the U.S. As the attached 
statement details, several independent studies conducted by highly 
respected groups in government and academia share a key finding: That 
the overall impact of climate policy on the U.S. economy will be small.
    We thank you for holding the hearing and look forward to working 
with you to develop an environmentally and economically sound solution 
early in the 111th Congress.

            Sincerely,

                                                  Nathaniel Keohane
                           Director of Economic Policy and Analysis
                                         Environmental Defense Fund

                               __________

What Will it Cost to Protect Ourselves From Global Warming? The Impacts 
   On the U.S. Economy of a Cap and Trade Policy for Greenhouse Gas 
                               Emissions

[GRAPHIC] [TIFF OMITTED] T2201A.113


Nathaniel Keohane, Ph.D.
Peter Goldmark

Executive Summary

    Important parts of the world are acting to reduce the greenhouse 
gases that cause global warming, and the United States is now debating 
whether to join that process. This paper examines the potential impact 
of a cap on greenhouse gases on the U.S. economy as a whole and on 
American families.
    What will it cost to protect ourselves against the potentially 
catastrophic consequences of global warming? Advocates of action 
anticipate minimal costs. Those who want to do nothing sometimes assert 
that carbon cuts will ``bankrupt the economy.'' Who is right?
    This paper conducts the broadest assessment to date of the impacts 
on the U.S. economy of capping greenhouse gases. This report 
synthesizes the findings of several state-of-the-art economic models, 
and arrives at a strong conclusion:
    The United States can enjoy robust economic growth over the next 
several decades while making ambitious reductions in greenhouse gas 
emissions. If we put a cap and trade policy in place soon, we can 
achieve substantial cuts in greenhouse gas emissions without 
significant adverse consequences to the economy. And in the long run, 
the coming low-carbon economy can provide the foundation for sustained 
American economic growth and prosperity.
    But for such a policy to be truly affordable, we must act now. 
Delay will greatly increase the economic cost of making the necessary 
emissions reductions, and will risk locking in irreversible climate 
change. And delay will put the United States further behind the rest of 
the world in the race to invent and produce the next generation of 
energy technologies.

What Makes Our Analysis Different_Relying On a Range of Forecasts

    We surveyed eight policy scenarios analyzed by five highly 
respected, transparent, and peer-reviewed economic modeling groups in 
government and academia: The Energy Information Agency (EIA), Research 
Triangle Institute (RTI), Harvard (the IGEM model), the Massachusetts 
Institute of Technology (MIT), and Pacific Northwest National 
Laboratories (PNNL). None of these models is perfect, as no economic 
model can be. A particular challenge for models is predicting the 
course and pace of technological innovation--a key economic driver in 
the transition to a low-carbon economy.
    Advocates have cherry-picked the largest or smallest numbers from 
one or another of these models to support their positions. But sweeping 
conclusions based on a single model cannot be trusted. Judiciously 
using a range of current models, however, can inform the policy debate 
in useful ways.

Ambitious Climate Policy Is Affordable

    While these models take different approaches to representing the 
U.S. economy, they share one basic conclusion: The overall impact of 
climate policy on the U.S. economy will be small.

      The U.S. economy has averaged nearly 3% growth per year 
in the postwar period, and is projected to continue at nearly that 
pace. The projected median impact on that annual growth of capping 
greenhouse gases is three-hundredths of a percentage point (0.03%).
      The U.S. economy is projected to nearly double in size 
between now and the year 2030. In that year, the median forecasted cost 
to the U.S. economy of capping greenhouse gas emissions is only 0.58%.
      The projected impact on GDP can be thought of this way: 
Under business as usual, the total output of the U.S. economy is 
projected to reach $26 trillion in January 2030. With a cap on 
greenhouse gases, the economy will get there by April.

      In present-value terms, the median projected impact of 
climate policy on U.S. GDP is less than one-half of 1 percent for the 
period 2010-2030, and under three-quarters of 1 percent through the 
middle of the century.

      The range of differences among models about the future 
size of the economy overwhelms the impact that any of them projects 
from a cap on carbon; in 
other words, even under varying assumptions, the impact of climate 
policy is small. The models vary by as much as 10% in their estimates 
of what economic output will be in 2030--17 times the estimated 0.58% 
cost of capping greenhouse gases.

[GRAPHIC] [TIFF OMITTED] T2201A.114


    Importantly, none of these models takes into account the damages 
from allowing global warming to build up unchecked and the value of 
avoiding them. That is, they look at only one side of the ledger: the 
costs of acting, not the benefits. These ``costs'' of reducing 
emissions actually represent an investment that will pay enormous 
dividends--by creating a low-carbon economy filled with new 
opportunity, and by ensuring a livable planet for generations to come.

A Cap On Greenhouse Gases Will Not Adversely Affect Employment In the 
        American Economy

      The overall impact of climate policy on employment, 
according to government projections, will be very small--a cumulative 
reduction of less than one-twentieth of 1 percent (0.05%) over the next 
two decades, relative to business as usual. That forecast, moreover, 
considers only current sectors of the economy; by its nature, economic 
modeling cannot anticipate the emergence of entirely new sectors--and 
the associated jobs--that will arise in the low-carbon economy.

      The manufacturing sector has a high level of job 
turnover--over 10% of all manufacturing jobs are either created or 
destroyed every 3 months. By comparison, the impact of capping 
greenhouse gases on manufacturing employment will be tiny--a cumulative 
effect of only a few percentage points over more than two decades. And 
this is the sector expected to be affected most by a cap on greenhouse 
gases.

[GRAPHIC] [TIFF OMITTED] T2201A.115


      Of course, no one whose job is lost is comforted by the 
fact that he or she is one of relatively few affected. The broader 
trend of job erosion in the manufacturing sector can neither be 
reversed nor eased significantly by climate policy--precisely because 
the effects of such policy are so small. Dealing with volatility in 
this sector will remain the province of other aspects of American 
economic and social policy.
         For the average American family, the cost of capping 
greenhouse gases will amount to less than 1% of household budgets over 
the next two decades.

      Stated as a fraction of household income, capping 
greenhouse gases will cost families less than a penny on the dollar. 
This is much less than what Americans already spend in their household 
budgets to protect themselves and their families. By comparison, more 
than 3 cents of every dollar already goes to insurance; nearly 4 cents 
goes to national defense; and 10 cents goes to Social Security.

The Effects of Capping Greenhouse Gases On Household Energy Bills Will 
        Be Modest, and Are Much Smaller Than the Fluctuations That 
        American Families Already Live With

    Household impacts will be most pronounced in the area of energy 
prices because of our dependence on fossil fuels. Importantly, energy 
prices are accounted for in the overall impacts described above. But 
even taken in isolation, the projected effects of climate policy on 
household energy spending are modest.

      Home energy bills are projected to rise by only a few 
dollars a month over the next two decades, relative to business as 
usual, taking into account effects on prices and corresponding shifts 
in household consumption. And the fact that the overall costs of 
capping greenhouse gases will be so modest means that we can easily 
afford programs to offset the burden of these increased costs on low-
income households.

      Price fluctuations due to supply bottlenecks and Mideast 
politics are recurring consequences of relying heavily on imported 
hydrocarbon fuels. Recent run-ups in the price of gasoline at the pump 
and in the price of home heating oil and natural gas are several times 
larger than the predicted effects of capping greenhouse gases.

      By the same token, the uncertainty about what gasoline 
prices (or other energy prices) will be two decades from now dwarfs the 
estimated impact from climate policy. For example, one study projects 
that a cap on greenhouse gases would add about 15% (35 cents a gallon) 
to the price of gasoline in 2030 relative to business as usual. This is 
much smaller than the uncertainty surrounding any estimate of gasoline 
prices that far in the future. This conclusion is in line with other 
assessments: The median forecast for the studies discussed here is an 
increase of 13% by the year 2030.

[GRAPHIC] [TIFF OMITTED] T2201A.116


If We Act Now, a Cap and Trade Policy Can Provide the Basis for 
        Continued U.S. Economic Leadership

    In the longer term, the transition to a low-carbon economy may 
offer the United States a comparative advantage in a highly competitive 
world. A look back at the history of the U.S. economy since World War 
II teaches a number of lessons:

      American ingenuity and innovation have achieved 
challenges of much greater magnitude before. The mobilization for World 
War II involved a complete transformation of the U.S. economy in just 2 
years. If we do not waste our scarcest resource--time--we can make the 
transition to a low-carbon economy without adverse macroeconomic 
impacts.

      Technological change is the engine of progress in the 
American economy. We emerged as the world's economic superpower in the 
last century by leading every economic revolution--from mass production 
to aviation to semiconductors and the Internet. Our continued 
prosperity in the new millennium depends on leading the next 
transformation: The emergence of a low-carbon economy.

      But innovation does not just happen: It responds to the 
basic economic drivers of demand and price. A hard, long-term cap on 
carbon emissions will provide the market signals necessary to spark 
innovation and unleash the kinds of powerful market forces that 
propelled our economy in the postwar period. A failure to stimulate 
innovation through a carbon cap will cede leadership in the low-carbon 
economy to others.
                               __________
    Environmental Defense Fund is dedicated to protecting the 
environmental rights of all people, including the right to clean air, 
clean water, healthy food and flourishing ecosystems. Guided by 
science, we work to create practical solutions that win lasting 
political, economic and social support because they are nonpartisan, 
cost-effective, and fair.

    This report is available at www.edf.org/climatecosts.

     2008 Environmental Defense Fund; Cover photo: istockphoto.

                                 
        Statement of Humane Society of the United States and the
                      Humane Society International

    The Humane Society of the United States (HSUS), the Nation's 
largest animal protection organization representing 10.5 million 
supporters, and Humane Society International (HSI), the international 
arm of HSUS, submit the following comments to the House of 
Representatives Committee on Ways and Means.
    HSUS and HSI are encouraged that the Committee on Ways and Means 
recognizes the need for policy mitigation strategies that will reduce 
and stabilize greenhouse gas (GHG) emissions from industry, 
agriculture, and transportation in the United States. However, we are 
troubled by many of the existing proposals--including H.R. 2069 (The 
Save Our Climate Act of 2007), H.R. 6316 (The Climate MATTERS Act of 
2008), H.R. 3416 (America's Energy Security Trust Fund Act of 2007), 
and H.R. 6186 (The Investing in Climate Action and Protection Act of 
2008)--as very few, if any, take into account farm animal production, 
despite its contribution to GHGs.
    The United Nations Food and Agriculture Organization (FAO) has 
found that the farm animal sector contributes 18% of total GHGs, which 
is more than the entire transportation sector, including cars, trucks, 
airplanes, and ships.\1\ Every step of meat, egg, and milk production--
including the land use changes for feed crop production and grazing 
land, the manufacture of fertilizers and pesticides for feed crops, the 
transportation of live animals and animal products, and the management 
of farm animal manure--contributes to GHG emissions. Fertilizer 
production for soy and corn crops for farm animal feed alone 
contributes some 41 million tonnes of carbon dioxide annually.\2\
---------------------------------------------------------------------------
    \1\ Steinfeld H, Gerber P, Wassenaar T, Castel V, Rosales M, and de 
Haan C. 2006. Livestock's long shadow: Environmental issues and 
options. Food and Agriculture Organization of the United Nations, p. 
xxi.
    \2\ Ibid, p. 86.
---------------------------------------------------------------------------
    Conversely, more sustainable and higher welfare animal production 
practices, including pasture-raised systems, can help mitigate the 
effects of climate change by helping to sequester carbon in the soil, 
reducing deforestation for soy and other feed crop production, and 
eliminating the need for artificial sources of fertilizer.
    Furthermore, the manufacture of biofuels from both animal waste and 
animal fat has the potential to encourage unsustainable animal 
agriculture practices. On farms raising both plants and animals, manure 
is typically a very efficient and available source of nutrients for 
crops, often eliminating the need for any artificial fertilizers. On 
factory farms, however, the huge quantity of waste produced makes it 
nearly impossible for the manure to be utilized as fertilizer on nearby 
cropland, a problem made worse by beef, chicken, egg, and dairy 
operations increasingly being sited far from where crops are grown. 
Storage of manure in lagoons can also contribute to water pollution and 
harmful air emissions, according to a Government Accountability Office 
(GAO) report released in September 2008.\3\
---------------------------------------------------------------------------
    \3\ U.S. Government Accountability Office (GAO). 2008. Concentrated 
animal feeding operations. EPA needs more information and a clearly 
defined strategy to protect air and water quality from pollutants of 
concern. September 2008. GAO-008-944.
---------------------------------------------------------------------------
    As a result, Smithfield, Tyson Foods, and many other animal 
agribusinesses are looking for ways to profit from the 500 million tons 
of manure generated annually by industrial farm animal production 
operations.\4\ The cost of installing digesters and biogas recovery 
equipment can be extremely expensive, and many of these systems are 
supported by government subsidies and tend to only be profitable at 
large-scale industrial facilities.\5\
---------------------------------------------------------------------------
    \4\ U.S. Environmental Protection Agency. 2003. National Pollutant 
Discharge Elimination System permit regulation and effluent limitation 
guidelines and standards for concentrated animal feeding operations 
(CAFOs); final rule. February 12. Federal Register 68(29):7176, 7180.
    \5\ U.S. Environmental Protection Agency. 2007. EPA helps farmers 
turn livestock waste into wealth. January 18. http://yosemite.epa.gov/
opa/admpress.nsf/756fc9115d0af011852572a000655 93e/
c9f1eb2189c4600d852572670065a77d!OpenDocument. Accessed April 23, 2008.
---------------------------------------------------------------------------
    Installing anaerobic digesters can require significant investment 
depending on the type of system used. As a result, some States have 
grant and subsidy programs that offset the cost of installation. 
However, digesters work best on large factory farms that have ``stable, 
year-round manure production,'' not smaller scale farms that lack the 
necessary infrastructure to collect at least half of that manure every 
day.\6\
---------------------------------------------------------------------------
    \6\ U.S. Environmental Protection Agency. Managing manure with 
biogas recovery systems, improved performance at competitive costs. The 
Agstar Program, p. 5.
---------------------------------------------------------------------------
    Additionally, the funding of anaerobic digesters through the EPA 
AgStar program for industrialized animal production operations in the 
United States and the use of the Clean Development Mechanism (CDM) of 
the Kyoto Protocol to fund installation of anaerobic digesters in 
developing countries may actually encourage the growth of factory farms 
internationally, which will further exacerbate environmental challenges 
and animal welfare assaults.
    There is also concern that the use of market-based carbon offsets 
or carbon trading mechanisms could do more harm than good. Many 
environmental organizations are wary of supporting projects in the 
developing world, such as planting trees to offset the carbon emissions 
from air travel and other activities. Unless there are strict 
regulations and compliance mechanisms in place, such programs could 
support fast-growing tree plantations for the timber industry, for 
example, that do very little to sequester carbon or mitigate climate 
change. A better approach is to steer carbon trading toward projects 
that actually keep wild forests intact and support conservation of 
species, including gorillas and other endangered animals indigenous to 
forest ecosystems, such as those supported by the United Nations 
Environment Programme Great Ape Survival Project (GRASP).\7\
---------------------------------------------------------------------------
    \7\ United Nations Environment Programme (UNEP). Great Ape Survival 
Project (GRASP) http://www.unep.org/GRASP/. Accessed September 2008.
---------------------------------------------------------------------------
    In addition, ethanol production may actually contribute more GHGs 
than fossil fuel-based energy.\8\ The ethanol industry is also selling 
ethanol co-products, including distiller's grains (DGs), a waste or co-
product of dry mill ethanol production, in an attempt to create a 
symbiotic relationship between industrial animal agriculture and the 
biofuel industry.\9,\ \10\
---------------------------------------------------------------------------
    \8\ Searchinger T, Heimlich R, Houghton R, Dong F, Elobeid A, 
Fabiosa J, Tokgoz S, Hayes D, and Yu T. 2008. Use of U.S. Croplands for 
Biofuels Increases Greenhouse Gases Through Emissions from Land Use 
Change. Science, 319. 5867: 1238-40.
    \9\ Biofuels can help the livestock sector. 2008. Farmers Guardian. 
March 13, 2008. http://www.farmersguardian.com/
story.asp?sectioncode=1&storycode=17019. Accessed March 20, 2008.
    \10\ Lardy G. 2008. Biodiesel benefits for cattle producers: 
Feeding byproducts of biodiesel production. Executive Summary. p. 1.
---------------------------------------------------------------------------
    Recycling ethanol co-products, however, is not always healthy for 
animals or humans. Research from the University of Kansas in 2007 
suggests that cattle who are fed DGs have a higher likelihood of 
harboring E. coli O157 in their hindgut, or colon.\11\ While the 
pathogen doesn't harm cattle, it remains the leading cause of kidney 
failure among previously healthy children and kills dozens of Americans 
a year.\12\
---------------------------------------------------------------------------
    \11\ M.E. Jacob, J.T. Fox, J.S. Drouillard, D.G. Renter, T.G. 
Nagaraja. 2008. Effects of dried distillers' grain on fecal prevalence 
and growth of Escherichia coli O157 in batch culture fermentations from 
cattle. Applied and Environmental Microbiology, 74. 1:38-43.
    \12\ National Institutes of Health. 2005. Foodborne diseases. 
National Institute of Allergy and Infectious Disease fact sheet. 
February. www3.niaid.nih.gov/healthscience/healthtopics/ecoli/
Complications.htm. Accessed September 26, 2008.
---------------------------------------------------------------------------
    Given the importance of animal agriculture both in contributing to 
and mitigating climate change, it is crucial that any climate change 
policy or laws enacted by the United States take farm animal production 
practices into account. While there may be concern regarding the 
expense of encouraging farmers to transition away from industrial, low-
welfare \13\ animal agriculture practices, including rearing animals in 
fossil fuel-intensive confined animal feeding operations (CAFOs), the 
long-term social, environmental, economic, and public health benefits 
of more sustainable, higher-welfare systems outweigh any short-term 
financial input.\14\ As well, public opinion polls consistently show 
that U.S. consumers are concerned not only about food safety and 
environmental integrity, but also the welfare of animals raised for 
meat, eggs, and milk, and have expressed a willingness to pay premium 
prices for higher welfare and organic products.\15,\ \16\
---------------------------------------------------------------------------
    \13\ See The Humane Society of the United States. An HSUS Report: 
the welfare of intensively confined animals in battery cages, gestation 
crates, and veal crates. http://www.hsus.org/web-files/PDF/farm/hsus-
the-welfare-of-intensively-confined-animals.pdf.
    \14\ National Commission on Industrial Farm Animal Production. 
2008. Putting meat on the table: Industrial farm animal production in 
America. A report of the Pew Commission on industrial farm animal 
production. Executive summary, p. 51-5. http://www.ncifap.org/_images/
PCIFAPSmry.pdf. Accessed September 24, 2008.
    \15\ 
Technomic survey. 2007. Cited in MeatingPlace. Q and A Animal kingdom. M
ay 2007. p. 23.
    \16\ Harris Interactive. 2007. Large majorities see organic food as 
safer, better for the environment and healthier--but also more 
expensive. Harris Poll #97, October 8, 2007. http://
www.harrisinteractive.com/harris_poll/index.asp?PID=813.
---------------------------------------------------------------------------
    Communities also benefit from less ground and surface water 
pollution when factory farms are not located nearby.\17\ Public health 
is also jeopardized--asthma, diarrhea, headaches, and sore throats are 
all more common among neighbors who live close to factory farms.\18\ As 
a result, the American Public Health Association has recommended a 
moratorium on construction of new CAFOs.\19\ Furthermore, the 
prestigious Pew Commission on Industrial Farm Animal Production has 
recommended, in addition to phasing out intensive animal confinement 
practices such as battery cages, sow gestation crates, and veal crates, 
phasing out the use of antibiotics in animal agriculture because of 
concern about antibiotic resistance.\20\
---------------------------------------------------------------------------
    \17\ U.S. Environmental Protection Agency. 2003. National Pollutant 
Discharge Elimination System permit regulation and effluent limitation 
guidelines and standards for concentrated animal feeding operations 
(CAFOs); final rule. February 12. Federal Register 68(29):7176, 7237.
    \18\ U.S. Environmental Protection Agency, Office of Water. 2001. 
Environmental assessment of proposed revisions to the National 
Pollutant Discharge Elimination System regulation and the effluent 
guidelines for concentrated animal feeding operations. www.epa.gov/
waterscience/guide/cafo/pdf/EnvAssessPt1of2.pdf. Accessed September 24, 
2008.
    \19\ American Public Health Association. 2003. Precautionary 
moratorium on new concentrated animal feeding operations (CAFOs). 
September 24, 2008. http://www.apha.org/advocacy/policy/policysearch/
default.htm?id=1243. Accessed September 24, 2008.
    \20\ National Commission on Industrial Farm Animal Production. 
2008. Putting meat on the table: Industrial farm animal production in 
America. A report of the Pew Commission on industrial farm animal 
production. Executive summary, p. 21-22. http://www.ncifap.org/_images/
PCIFAPSmry.pdf. Accessed September 24, 2008.
---------------------------------------------------------------------------
    In consideration of the competition concerns raised, HSUS and HSI 
strongly believe that the United States must participate in an 
international agreement, where all major emitting countries commit to 
following the same rules. This lessens the potential for the United 
States to have higher costs or for U.S. products to be uncompetitive 
with products from another country, as all signatories to the agreement 
will be obliged to follow a similar climate change mitigation scheme.

                                 
          Statement of Industrial Energy Consumers of America

    The Industrial Energy Consumers of America (IECA) is a trade 
association whose membership are exclusively large energy intensive 
consuming companies with representation from every sector, has firmly 
concluded that because they compete globally on both exports and 
imports; and if the U.S. regulates ghg emissions using a cap and trade 
policy approach, it will be critically important that energy intensive 
consuming industries be provided free emission allowances to cover the 
resulting increase in both direct and indirect costs. If not, their 
competitiveness will be at risk and will unfortunately result in their 
movement to countries that have lower energy and compliance costs. It 
is a matter of economic survival.
    There are several policy options beside cap and trade to regulate 
ghg emissions that vary greatly in effectiveness and cost. Regardless 
of the choice, it is essential that the `border adjustment' issue avoid 
throwing the energy intensive manufacturing companies into a legal 
morass with the WTO. This is not only expensive and time consuming but 
adds tremendous uncertainties that will negatively impact companies and 
entire industrial sectors.
    Climate change and the policies necessary to avoid and reduce 
greenhouse gas emissions is a top priority for IECA. We welcome the 
opportunity to work with you and the Committee to fashion a regulatory 
system that is cost effective in reducing ghg emissions. We know 
something about reducing ghg emissions. The industrial sector's ghg 
emissions are at 1990 levels while the residential, commercial, 
transportation and power sectors emission have all increased by over 30 
percent.

                               __________
    The Industrial Energy Consumers of America is an association of 
leading manufacturing companies with $500 billion in annual sales and 
with more than 850,000 employees nationwide. It is an organization 
created to promote the interests of manufacturing companies for which 
the availability, use and cost of energy, power or feedstock play a 
significant role in their ability to compete in domestic and world 
markets. IECA membership represents a diverse set of industries 
including: plastics, cement, paper, food processing, brick, chemicals, 
fertilizer, insulation, steel, glass, industrial gases, pharmaceutical, 
aluminum and brewing.

                                 
                      Statement of James Culliton

    Thank you for the opportunity to provide a statement regarding the 
issue before you. My name is James Culliton; I am affiliated with no 
group and have no financial interest in the matter at hand.
    Having read the written testimony as submitted on September 18, 
2008, it is apparent that my comments lack the pedigree and meticulous 
investment in research and citations evidenced by most of that 
testimony. Yet, I believe my comments are salient to the issue.
    If some variant of cap and trade is passed, I have several 
concerns.
    First, how would Federal carbon permits be integrated into existing 
State, regional and post-2012 carbon trading schemes? Arbitrage is not 
a mere possibility, it is a certainty, unless structurally mitigated 
through thoughtful design. If the overuse of derivatives has rendered 
it difficult to valuate a company, imagine how emissions trading of 
pollution credits in multiple markets will render actual reduction 
difficult to gauge.
    Second, in the retail electricity context, should utility 
shareholders or ratepayers benefit from emissions reductions? These 
reductions will trace back to effective demand-side management, 
increasing use of renewable generation, as well as pollution control 
device installation. If there is profit realized from the sale of 
emissions credits, it should be distributed to the ratepayers, who 
would have reduced their consumption and paid for the construction/
operation of renewable generation and pollution control devices. The 
utility shareholders are already able to earn a return of their capital 
investment plus a return on the latter two; they should not realize a 
double return in the form of any emissions credit trading profits.
    Third, although a 100% auction with a floor and a ceiling should be 
used, if allocation is the chosen means to distribute credits (or a 
hybrid auction-allocation as in the current Boxer bill), allocations 
should not be given away. The regressive impact of this granting of a 
property right would be disastrous. Kyoto punted on the initial 
valuation question: The price to pollute was set at zero. In broad 
terms, an emission credit allocation masks the true cost of a 
particular enterprise. If the true costs of doing business are not 
reflected in an enterprise's end-product, the market is shielded from 
price signals that might otherwise operate to reward an enterprise that 
pollutes less. In other words, allocating credits prevents a market 
from rewarding efficient production. If there is no reward for reducing 
emissions, there is little chance an enterprise would put itself at a 
competitive disadvantage. Assuming pollution efficiencies are otherwise 
desired (perhaps to boost a marketing campaign), the price of each 
credit would fall proportionately, even in a trading market where the 
supply of credits is limited. The SO2 system anticipated 
this and devalued future credits incrementally; apparently, Kyoto did 
not. This general point is compounded when, as in Kyoto, the initial 
allocation of credits exceeds the absolute number of credits needed. 
Certainly, the collapse of many former Soviet-bloc industries is 
partially to blame, as it created a glut of credits. Our national 
push--evidenced in Renewable Portfolio Standards at the State level--
toward renewable generation and increased demand-side management could 
create a similar glut. The banking of credits (particularly when their 
carried-over value is undepreciated) and imprecise initial calculation 
of actual numbers to allocate is even more troubling on a going-forward 
basis.
    Respectfully, I believe the best available option would be an 
upstream carbon tax, distributed across sectors evenly, with the 
proceeds to be distributed on a pro-rata basis to taxpayers (after 
monitoring/enforcement monies are removed). To combat any resulting 
import and export competitive disadvantages, an import tax or export 
credit could be handled at the Customs office in question. If this 
structure creates a problem with international trade group compliance, 
fix the trade group rules to recognize a carbon exception. The issue is 
really not insurmountable. The only real problem with a tax structure 
is that it reduces the emitters ability to choose when to reduce 
emissions. The other side of the when coin is that it fosters 
innovation and technological advance more quickly--thereby addressing 
the underlying problem of excess carbon dioxide in the atmosphere 
faster. A tax also has the advantage that it could be ratcheted up or 
down on a yearly basis to address any unintended effects. A cap and 
trade does not have such flexibility, especially if banking is 
permitted. Finally, assuming the U.S. participates in the next phase of 
a global cap and trade, if a tax is established, the emitters who 
reduce would be well-positioned to capitalize in the global emissions 
market. Since the baseline for emissions would be set at pre-2008 
levels, the U.S. emitter who reduces would in essence receive a double 
reward for designing and implementing efficiencies: Through lowering 
its domestic tax liability (thereby either raising net profits or 
gaining competitive market-share advantages) and gaining more credits 
faster on the global emissions market.

                                 
                       Statement of Julian Keniry

    Thank you, Chairman Rangel and Ranking Member McCrery, for hosting 
this important hearing on policy options to address climate change. 
Since 1936, the National Wildlife Federation has advocated for wildlife 
habitat and protection, environmental education, and conservation of 
our public lands. The Federation has over 4 million members and 
supporters and 48 affiliate organizations across the country. We have a 
robust climate change policy solutions campaign, and I am here today to 
talk with you about one important aspect of our multi-faceted program, 
climate change education. I direct the Federation's Campus Ecology 
Program, which supports student and faculty efforts to help reduce the 
carbon footprint on college campuses and to promote sustainability 
curricula at universities.
    We commend you for holding this important hearing and for 
considering legislation to support strong reductions in greenhouse gas 
emissions to put America on the path to a clean energy future. We can 
work together to create a new energy economy that protects wildlife, 
creates new green jobs, provides strong green education programs, and 
ensures a thriving economy. As you consider policy options to curb 
climate change, we urge you to support policies that will help wildlife 
adapt to global warming and support comprehensive global warming 
education to prepare citizens for the opportunities of the new energy 
economy. We strongly believe that auction proceeds from a cap and trade 
climate security act should remain dedicated to climate change 
solutions.
    We also recognize the efforts of Congressmen Markey and Honda who 
have introduced legislation to advance climate change education. While 
the language included in Congressman Doggett's H.R. 6316 is a step in 
the right direction, we must do more and we must act quickly to ensure 
the public moves beyond mere awareness of global warming as a problem 
to a strong understanding of the causes of global warming and what they 
can do to find solutions.
    The Federation's research shows that a dramatic investment in 
climate change education is needed to ensure sufficient emissions 
reductions to stop global warming and to prepare the next generation 
for our new clean energy economy. The recent spotlight has focused on 
how our new economy will create millions of ``green''-collar jobs, but 
much less attention has been paid to what is needed to prepare our 
Nation's young people for these rewarding new careers. In August 2008, 
we released, Campus Environment 2008: A National Report Card on 
Sustainablity in Higher Education. This report contains some surprises. 
It shows that many positive changes are occurring on U.S. campuses, 
especially in the greening of campus operations. There are no surprises 
there. But unexpectedly, the amount of sustainability-related education 
offered on campuses did not increase since our 2001 study and may have 
even declined. In short, the curriculum is not keeping pace with the 
greening of campus operations and faculty are lagging behind their 
staff and administrator peers in fostering sustainability education. 
This is cause for deep concern.
    The National Wildlife Federation's report reflects the Nation's 
largest survey created to gauge campus leadership for sustainability--
with more than 1,060 participating schools--and demonstrates how our 
learning hubs integrate green programs into day-to-day operations such 
as transportation, landscaping, energy conservation, and waste 
reduction. But schools fall behind when it comes to providing students 
with the academic preparation needed to face environmental challenges 
and seize the opportunities of the future. Our results show that, in 
the past 8 years, sustainability-related education offerings and 
recruitment programs have declined, as have faculty conducting 
environmental and sustainability research.
    Our 2001 to 2008 comparison of the curricular and academic 
dimensions of sustainability shows little infusion of sustainability 
concepts across disciplines, very few campuses requiring sustainability 
courses for all students, and low levels of support for faculty 
development on climate change and other sustainability topics. Students 
studying subjects such as engineering, business, health sciences and 
teacher education--disciplines crucial to our Nation's ability to 
create a sustainable economy--receive relatively little exposure to 
sustainability concepts and courses. Just over half of colleges and 
universities now either offer an undergraduate minor or major in 
environmental and sustainability studies, down from two-thirds in 2001. 
In 7 years, no significant gains in educating students on 
sustainability have been made despite the growing depth of the global 
warming challenge and what it means to future professions and their 
related disciplines.
    Yet, America and the world are in the midst of revolutionary 
change. In just the past few years, the threat of global warming has 
shifted in the United States from a distant worry to a present and 
intense national public conversation. Business leaders and policymakers 
are responding with new proposals every day amidst shifting markets. 
These shifts are challenging the American education system, especially 
higher education, to keep pace and ultimately lead in the realm of 
environment and sustainability.
    Two things are certain. First and foremost, we have never before 
had an environmental challenge on such an immense scale as to force 
modern society to remake itself. America will require a new energy 
economy and needs an educated workforce to get started on that right 
away. Second, addressing this problem and shaping a more sustainable, 
low-carbon society will require new thinking supported by new 
technology, design, businesses, financing, consumer behaviors and 
career paths. That is where education comes in. It plays important 
roles by both being part of a changing world and also actively shaping 
the future direction of that world.
    American higher education has risen to past challenges--and has the 
people and the resources already in place to meet today's challenges 
head-on. It produces 30 percent of the world's scientists and a 
remarkably large percentage of the world's business, diplomatic and 
government leaders. Higher education leaders have always been clear 
that successful development of human talent and globally-competitive 
skills provide the United States with the many critical opportunities 
and advantages.
    The men and women, who in 20 or fewer years, will lead our 
businesses, educational institutions and government agencies are in 
school now. We need to offer them the kind of academic and professional 
preparation that will ready them to envision and create a different 
kind of world. It will be a world which has new and cleaner forms of 
energy production, transportation, agriculture, natural resource 
management, health care, scientific research, micro and macro 
businesses, and other essential technological advances. To achieve this 
at the speed required will call for serious new support including a 
reevaluation of how we educate every degree candidate from architecture 
and engineering to accounting and even teaching itself.
    Elevating education for sustainability will require new levels of 
incentives for higher education and, in particular, support for 
faculty. College and universities need to have the means to provide 
faculty with time to network with other faculty and to redesign their 
course work. They also need the proper incentives to establish and 
track objectives for sustainability education across all disciplines 
and to foster interdisciplinary research and teamwork among faculty, 
students and staff within and among campuses and with their larger 
communities. With the passage of the Higher Education Sustainability 
Act provisions in August 2008, which was championed by Congressman 
Blumenauer, we have taken a step in the right direction on 
sustainability education. We must, however, act quickly to appropriate 
significant funding to support climate change education at all levels.
    We need to prepare students entering college as well. In addition 
to higher education, we need to support comprehensive global warming 
education in our elementary and secondary academic development, 
vocational and school-to-work programs, professional training and re-
training, and broad consumer education.
    As a Nation, the United States has a rich tradition of excellence 
in education, especially higher education. But we are witnessing 
national and global changes that pose new challenges and opportunities 
for higher education leadership. This Report Card tells us there is a 
widening gap between where American higher education actually is on 
teaching and learning for sustainability and where it should be. Our 
national assessment findings serve as a warning. If we are unable to 
bridge the gap in student education for sustainability, we miss vast 
needs and opportunities. Our findings also point to the need to 
incorporate global warming education throughout our public education 
programs from elementary and secondary schools, to vocational schools, 
to professional training, and general consumer education. With a 
greater focus on making the transition and given adequate human and 
financial resources, we can bring our public education systems to speed 
and help shape a brighter and more sustainable future.
    We therefore urge the Committee to include strong allocations for a 
comprehensive global warming education policy platform in its climate 
security legislation. We applaud your work in holding this important 
hearing. Thank you for your time and consideration.

                                 

Dear Chairman Rangel and Members of the Committee,

    I'm writing in support of Congressman Doggett's Climate MATTERS Act 
and to urge the Committee to pass this legislation and give it an 
opportunity for debate by the full House. While several worthy bills 
have been filed in the House and Senate addressing the critical and 
immediate challenge of climate change, H.R. 6316 contains certain 
elements that are unique and which merit careful consideration. In this 
respect, I would like to highlight the following elements of the 
Climate MATTERS Act:

     Allocation and Distribution of Emission Allowances--Of the 
several greenhouse gas (GHG) cap and trade bills filed in the House and 
Senate, the approach to allowance allocation/distribution taken in H.R. 
6316 does the best job of allowing unfettered market forces to drive 
GHG emission reductions. The success of any cap and trade GHG regime 
depends primarily on providing clear and undistorted price signals to 
the marketplace, internalizing the true costs of GHG emissions and 
providing economic incentive for investment in clean energy 
alternatives. In contrast to other legislative approaches that would 
hand out the bulk of GHG emission allowances under a free allocation 
system and take decades to transition to an auctioning system, H.R. 
6316 begins in 2012 with 85% of allowances being distributed through 
auctions and phases to full auctioning in a relatively short 5 years. 
Clearly, this is the approach that puts the fullest faith in free 
market forces, the greatest trust in the innovative capacity of 
American business and the highest level of confidence in the wisdom of 
the consumer. Likewise, auctioning helps eliminate the manipulation and 
jockeying for windfall profits that we have already seen regulated 
entities engage in as free allocation systems have been developed and 
proposed.

     Cost Relief Measures--H.R. 6316 recognizes the potential 
for unacceptable short-term risk to the U.S. economy that could be 
realized if the price for emission allowances rises too high too 
quickly. To this end, Sec. 9933 allows for cost relief measures that 
still maintain the integrity of the overall program. Certain other 
legislative approaches merely cap the price of emission allowances or 
allow for the unrestricted release of additional allowances when 
trading prices reach a certain point. This, of course, distorts price 
signals, undermines the market forces upon which a cap and trade regime 
depends, reduces the corresponding incentive for investment in clean 
energy alternatives and threatens our ability to achieve the intended 
reductions in GHG emissions. H.R. 6316 instead allows for an increase 
to limits on foreign allowances and offset credits--thus ensuring that 
a temporary dampening of price signals is accompanied by a 
theoretically equal reduction or sequestration of GHG emissions.

     Global Cooperation--H.R. 6316 creatively and even-handedly 
resolves ongoing concerns about Federal regulation of GHG emissions 
potentially placing U.S. businesses at a competitive disadvantage vis-
a-vis producers from countries that do not have comparable GHG regimes 
in place. The bill does so through its international reserve allowance 
provisions and, through Sec. 111(a)(7), appropriately accommodates the 
intent of our WTO agreements and obligations by allocating proceeds to 
climate change mitigation programs serving disadvantaged communities in 
WTO participant nations.

     Early Action Account--Another somewhat unique element of 
the Climate MATTERS Act is its recognition of early action taken by 
regulated entities to voluntarily reduce greenhouse gas emissions prior 
to the implementation of a regulatory mandate to do so. The city of 
Austin, and in particular its municipally owned and operated electric 
utility, Austin Energy, are widely acknowledged as national leaders on 
energy efficiency, demand side management, development of renewable 
energy resources and deployment of advanced clean energy technologies. 
Likewise, we are now implementing a voluntary carbon cap and reduction 
plan at Austin Energy which will, in part, involve the voluntary 
purchase and retirement of carbon offset credits. We have implemented 
the above strategies because our citizens believe we should play a role 
and pay our fair share in the cost of protecting the environment and 
natural resources on which we all depend. And we are not alone in this. 
Scores of cities and regulated entities have implemented similar 
measures in part due to a shared sense of social and environmental 
responsibility. Under most of the climate change legislation that has 
been filed, however, regulated entities are not given credit for these 
actions--even though the climate protection benefits of the actions are 
measurable and verifiable, and even though the actions have resulted in 
reductions of GHG emissions that would otherwise be trapped 
atmospherically and would be contributing to the mounting problem which 
we all now face. In Sec. 9512 and Sec. 331, the Climate MATTERS Act 
takes an important step toward fairness in distributing the burden of 
paying for climate protection by crediting regulated entities for 
voluntary GHG emission reduction activities taken between 1994 and 
2012.
    As mentioned, the city of Austin has taken extraordinary steps to 
voluntarily reduce GHG emissions coming from our municipal and utility 
operations. We have also begun to implement municipal code changes that 
will help reduce GHG emissions throughout the community. Highlights of 
those measures include:

     Adoption of the Austin Climate Protection Plan, which is 
intended to make all municipal fleets, facilities and operations carbon 
neutral by 2020.
     In less than 2 years, conversion of more than half of our 
4,000+ municipal fleet of vehicles and heavy equipment to biofuels and 
hybrid technology.
     Approximately 700 megawatts of efficiency savings at 
Austin Energy in the past 25 years, and a plan to achieve an additional 
700 megawatts of savings by 2020.
     A doubling of our renewable energy generation from 6 
percent 2 years ago to almost 12 percent today. A recent contract for 
the largest renewable biomass power plant in the Nation that will bring 
our renewable portfolio to 18 percent by 2012. And a plan to produce 30 
percent of our electricity from renewable sources by 2020.
     Nationally leading building codes that will make all new 
single-family homes in Austin zero energy capable by 2015.
     Implementation of land-use policies to encourage dense, 
mixed-use, walkable and transit-friendly development that will help 
reduce vehicle miles traveled.

    As the Mayor of Austin, I'm privileged to act as Chairman of the 
Board for Austin Energy. Likewise, I serve as Chair of the Energy 
Committee for the U.S. Conference of Mayors. In these roles, I've had 
the opportunity to study and learn a great deal about energy policy, 
and I've had the challenge of implementing climate protection policy at 
the local level.
    In Austin, we've made great progress, and--at the risk of 
immodesty--I believe we serve as a national model and an indispensable 
city in this regard. Indeed, in the face of Federal inaction on this 
issue, it has been left to local governments to lead the way. The fact 
of the matter, however, is that our local efforts will always fall 
short of the GHG reductions the united global scientific community 
tells us we need to make.
    In Austin, for example, more than half of our community carbon 
footprint comes from vehicle emissions. Yet, we have neither the 
ability nor the authority to regulate transportation fuels and vehicle 
emission standards. We can eliminate GHG emissions from our municipal 
operations, and we can meet our electric load growth through efficiency 
and renewables--as we're doing. But in the fastest growing big city in 
the fastest growing State in the Nation, we will always lose ground due 
to increased vehicle emissions.
    This is just one example of the need we have locally for strong 
Federal leadership to reverse course and avoid the worst of the impacts 
of global climate change. We can not do it alone. As I write, Austin is 
hosting thousands of evacuees from Hurricane Ike--just as we did for 
Hurricanes Katrina and Rita. It is a stark and heartbreaking reminder 
of the realities we'll continue to face if the United States does not 
step up and take its rightful role as a world leader on this issue.
    With that in mind, I would ask you to listen to the scientists who 
uniformly tell us of the targets we need to reach, listen to the 
economists who advise us on the most efficient and equitable tools for 
meeting those marks, and give thoughtful consideration to your 
respected colleagues, such as Congressman Doggett, who propose vehicles 
that embody the best of those ideas.

            Sincerely,
                                                          Will Wynn
                                                              Mayor

                                 

Dear Congressman Doggett,

    I have read the materials about your proposed Climate Matters Act, 
and while I am not an expert on the topic of emissions auctions and 
some of the other elements of the very ambitious legislation, I do know 
something about the clean energy alternatives we will have to 
transition to, in order to meet your goals. We all miss the days of 
gasoline under a dollar a gallon, but the good news is that if we make 
a commitment to reduce CO2, as well as other emissions, 
Americans can find a way to make a business out of it. Although some 
people are frightened by the prospects of the changes ahead, I think it 
will be like what happens in the forest when an old tree finally falls: 
Many new saplings have a chance at their spot in the sun, and an 
explosion of growth takes place.
    Your program appears to allow emission sources three options:

     First, they can reduce their own emissions, using a wide 
variety of clean energy or environmental technologies and strategies, 
only limited by our creativity;
     Second, they can purchase emissions allowances, and your 
bill reinvests a portion to support clean energy and environmental 
programs, and training;
     Third, they can purchase credits or allowances from others 
with opportunities to reduce emissions themselves, or help others 
reduce their emissions.

    Each of these options allow innovation to take place within a 
market environment, where the most cost-effective solutions can rise to 
the surface. This is an important element of the plan, if I understand 
your strategy correctly, because we need to be sure we don't get in the 
way of some of the options which seem ready to replace the status quo. 
We have a mind-boggling array of technology emerging to make us more 
efficient at everything we do. We have only begun to tap the potential 
of renewable resources. And, there are still some tricks up our sleeves 
to make the old fossil fuels less troubling.
    Naturally the first thing to do when you find yourself in a hole is 
stop digging. And, the most cost-effective strategy we can all turn to 
in order to reduce emissions is efficiency, in a variety of forms. The 
city of Austin just adopted a process for rating the energy efficiency 
of every home at the time of sale, and we have been working with Texas 
A&M's Energy System's Lab on producing a web-based energy scoring 
system that will be adopted for a voluntary labeling program statewide. 
We are working with the Texas Workforce Commission and the Texas 
Foundation for Innovative Communities to develop curriculum to meet the 
training needs for energy auditors and building science educated 
technicians, which we expect to explode. Austin is the birthplace of 
the green builder movement, and you probably know our old friend Clark 
Wilson, once a large tract-home builder, has reentered the business as 
GreenBuildersInc.com, building some of the most energy efficient homes 
anywhere. I could go on. It is an exciting time.
    Smart energy technology is the widely-used term for simply bringing 
our utilities, and our use of utilities, into the digital age, but it 
too holds out the promise of capturing huge efficiencies. All the Texas 
utilities are undertaking a systematic mass deployment of digital 
electric meters and we are piloting two-way communicating thermostats 
in the urban areas, and e-Radio energy broadcasts directly to new 
thermostats with FM receivers. We predict that demand response will 
replace the last 5 percent of peak generation by 2015. One of our 
clients have developed the intelligence through long research that 
allows them, using available market data and a simple communicating 
thermostat, to determine the thermal performance of a building, 
identify homes that need energy improvements, or help the occupants 
modify their behavior to significantly lower their bills. The same 
intelligence alone allows this firm to improve the energy reduction 
associated with a demand response program by 10 to 15%.
    Austin is moving toward an integrated system of advanced meters, 
but you might be surprised to know that Bluebonnet Cooperative may have 
the most complete system in the State at the moment. I was visiting 
with the General Manager today, Mark Rose, who has every customer on a 
communicating meter, and the system is integrated so that the customer 
services call center can talk to a customer while reading his/her meter 
on the spot. The next move will be toward time-of-use pricing signals 
and enabling greater control over their energy use for his customers, 
but notice it comes with increased customer service!
    Here at Good Company Associates we are working with a coalition of 
utilities and technology companies to accelerate the adoption of 
standardized home area network equipment and controls. We have just 
made patent filings for a service platform that would allow premise 
owners to access their home or business controls remotely, or authorize 
a third party provider to do so on their behalf. I plan to live long 
enough to see this come to pass.
    By the way automated reading of gas and water meters is also 
following on the coattails of the electric systems, but additional 
technologies are emerging to identify leaks in gas and water systems 
that will save huge amounts of energy.
    We are also working with a newly patented system for thermal 
storage, applicable to smaller buildings including single family homes, 
which is being developed here in Texas. And, just down the road this 
side of San Antonio, a client of ours is developing electric drive 
systems for electric cars and electric/gas hybrids, and onboard idle 
reduction equipment for large transport vehicles.
    Many people will point out that we can't ``save our way out of the 
energy crisis,'' and that is certainly true, but it will make it a lot 
easier for us to maintain higher lifestyles with the renewable energy 
resources we have. I'm proud to have helped develop our first Texas 
commercial wind farm in 1995, and to know that the State has now 
surpassed every other State in wind capacity installed. Our new $5 
billion commitment to building transmission to the windy areas of West 
Texas will make way for at least a doubling of the capacity here, and 
also open the way for development of solar systems in those desert 
areas that can share the transmission lines, because the wind seems to 
blow least when the sun shines the brightest there. These developments 
are driving a tremendous wealth to West Texas landowners. Texas was 
just chosen for one of two sites for national wind turbine component 
testing, and we are working to help assure a cluster of related 
businesses grow up around this important new center. In addition, we 
are currently undertaking a significant multi-client study of large-
scale energy storage, and how it might complement this explosion of 
resource projects in Texas. With so many salt dome storage sites 
holding natural gas or chemicals in the State today, we have the know-
how and technology to develop compressed air energy storage as well.
    I'm surprised by how few people know that only about 9,000 feet 
under most of East Texas the Earth reaches temperatures over 250 
degrees Fahrenheit. And, the entire Texas-Louisiana coastline is a geo-
pressurized zone that has pockets of substantial reserves of 
pressurized steam, often found in conjunction with natural gas. We have 
drilled so many holes in the ground down here that it is the most 
studied and best understood geology in the country. In past years, the 
U.S. Department of Energy spent about $140 million to explore this, but 
found (in 1990) that the cost of production would not support 
competitive pricing--which at the time was about $1.20 per Mcf for gas 
and 2 cents per kWh for electricity at wholesale! Today things look 
quite differently. In the U.S. alone over 100 new geothermal power 
projects are on the drawing boards or under construction. Texas has yet 
to announce its first project (about 80% of the U.S. capacity is in 
California), but the UT Bureau of Economic Geology estimated years ago 
that we could provide almost 30% of the State's current power from this 
resource, and I think that was conservative. We know how to develop 
underground resources better than anyone in the world and there are at 
least two companies in Houston that can build the above ground plant 
for this resource. We predict geothermal is the next big renewable 
resource.
    One of our clients just inked a deal with Austin Energy for a 20 
year contract to provide 100 MW of wood fired biomass energy to the 
city, and let me tell you the county judge of Nacogdoches came to town 
just to testify for the contract's acceptance. A lot of paper mills 
have shut down in that part of East Texas and this project is going to 
put a lot of woodland owners and loggers in the black again, with long-
term supply contracts. We know of two more projects under development 
already.
    I know I'm leaving a lot of good folks out of my rambling coverage 
of the exciting new saplings struggling for the light, but before I 
stop I want to point out that there are some pretty creative people 
trying to figure out how to use the high quality fossil resources we 
have, while limiting the impact. The folks at Skyonics, here in Austin, 
have developed a chemistry process that was being tested at the Fayette 
coal plants. I'm not a chemist, but they basically bubble the coal 
emissions through their chemical plant and separate out all the 
emissions. The process removes most of the carbon dioxide, turning it 
into sodium bicarbonate (baking soda), and even results in a net 
production of hydrogen. I talked to the then President of what is now 
Luminant, and asked him if the fact that it could consume about 25% of 
the power plant energy to accomplish this feat was exorbitant, and he 
said that this is about what all the various options seem to require, 
whether on the front end or the back. So it isn't that we can't get 
there, even with coal, it's just a question of what is the most cost 
effective.
    The biggest challenge ahead of us is that we are in the process of 
doubling the number of people that work in the energy business. It 
might not always look like the energy business, like the home area 
network Geek Squad, but it will all be related to helping us save or 
generate more, cleaner energy. Efficiency replaces the consumption of 
fuel with labor and capital equipment. Smart energy technologies 
replace energy consumption with intelligence. Renewables replace the 
consumption of stocks of high qualify fossil fuels with labor and more 
distributed but sustainable resource flows.
    Beating climate change could be the stimulus for a tremendous 
technology and economic development response, and I can see the 
outlines of it already. Let the future come. Thank you for your 
leadership.

            Best regards,

                                               Robert J. King, P.E.
                                                          President
                                            Good Company Associates

                                 
                      Statement of Shawnee Hoover

    Mr. Chairman and Members of the Committee, thank you for your 
efforts to explore policy options to address and regulate global 
warming pollution. Friends of the Earth was founded nearly 40 years ago 
and is a national environmental organization with more than 2 million 
members and supporters worldwide. Friends of the Earth U.S. is a 
founding member of Friends of the Earth International--a network of 
member organizations in 70 countries. It is the mission of Friends of 
the Earth to create a more healthy and just world. In serving its 
mission to protect people and the environment, it is notable to mention 
that Friends of the Earth has been working on tax, trade and finance 
policy since the early 1980s.

Role for Ways and Means Committee
    It is highly appropriate that the House Ways and Means Committee 
take a serious interest in the regulation of carbon pollution. 
Irrespective of which committee holds primary jurisdiction over climate 
legislation, the House Ways and Means Committee, by way of its unique 
jurisdiction areas, will play a critical role in helping our Nation 
achieve aggressive greenhouse gas (GHG) reduction targets.\1\ In 
consideration of a Federal climate policy, we submit several policy 
suggestions for the Committee to consider that include the Tax Code, 
protecting American families and uses of complementary policies. We 
also highlight potential pitfalls to be considered in a cap and trade 
program and encourage the Committee to support positive international 
engagement toward a global climate agreement.
---------------------------------------------------------------------------
    \1\ The term greenhouse gases (GHG) or GHG pollution is used 
interchangeably with global warming pollution, and carbon pollution.
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Decarbonizing the Tax Code
    With the impeding climate and energy crisis, we need to move 
rapidly to reform the old purposes of energy tax preferences that 
primarily benefit fossil fuels. The Tax Code will be an essential tool 
to help guide our economy in a carbon-constrained world. With oil 
prices hovering around $100 a barrel and companies like ExxonMobil 
posting the highest profits in history, there is no reason to continue 
subsidizing oil and gas companies. Several bills have already been 
introduced that would begin the process of purging oil and gas tax 
breaks from the Tax Code.
    Minimizing the global warming impact of the Tax Code will be an 
essential component to any climate legislation. This is done primarily 
by eliminating subsidies for the production and use of carbon intensive 
technologies and fuels (also referred to ``decarbonizing the Tax 
Code''), while expanding incentives that encourage scaling up renewable 
forms of energy, conservation, and energy efficiency.
    The first step in decarbonizing the Tax Code involves assessing the 
actual impacts of the Tax Code on global warming pollution. The House 
Ways and Means Committee is already taking steps to determine the 
footprint of the Tax Code. We thank the Committee for its ongoing 
advocacy for a Carbon Audit of the Tax Code.\2\ If signed into law and 
funded, this audit could importantly inform the Committee's efforts in 
designing future global warming policy.
---------------------------------------------------------------------------
    \2\ The Carbon Audit of the Tax Code was included in sec. 14001 of 
H.R. 3221, the Renewable Energy and Energy Conservation Tax Act of 
2007, and authorized the National Academy of Sciences to undertake the 
audit.
---------------------------------------------------------------------------
    While we await the completion of this audit, there are a number of 
explicit energy tax preferences, breaks, and credits in the Tax Code 
that encourage the use of fossil fuels that can be immediately 
addressed. By Friends of the Earth's last count in July 2008, there are 
dozens of incentives in the Federal Tax Code (some relatively known, 
others hidden) that directly reward fossil fuel use and energy waste 
costing at least $32.9 billion through 2013.\3\ For instance, the 
report took a quick look at the Joint Committee of Taxation's annual 
revenue expenditure report and found 12 tax preferences given to the 
oil and gas industry worth approximately $23.2 billion over 5 years.
---------------------------------------------------------------------------
    \3\ ``Big Oil, Bigger Giveaways: An analysis of $32.9 billion in 
tax breaks, subsidies and other handouts the oil and gas industry will 
receive by 2013.'' Friends of the Earth. July 2008. http://www.foe.org/
pdf/FoE_Oil_Giveaway_Analysis_2008.pdf.
---------------------------------------------------------------------------
    Other, more subtle, preferences in the Tax Code that encourage 
wasteful energy use can also be found. In the housing market, the 
Federal mortgage interest deduction for first homes allows home buyers 
to deduct interest from the first $1 million of the cost of their home. 
With median house prices at approximately $203,000 the deduction 
subsidizes the purchases of oversized homes with oversized energy 
needs.\4\ There is also a Federal mortgage deduction allowed for the 
purchase of a second home.
---------------------------------------------------------------------------
    \4\ ``Existing-Home Sales Slide on Tight Mortgage Availability.'' 
National Association of Realtors. September 24, 2008. http://
www.realtor.org/press_room/news_releases/2008/ehs_tight 
_mortgage_slide.
---------------------------------------------------------------------------
    There has been some effort by the Committee to use the Tax Code in 
the automobile sector toward reducing our Nation's use of oil. The Tax 
Code includes a 1970's era tax on ``gas guzzling'' automakers that 
produce inefficient passenger vehicles. Yet, there exists a glaring 
loophole in the ``gas guzzler'' tax that exempts sports utility 
vehicles (SUVs) and other light trucks from the tax. This loophole 
should be closed as it, in part, undermines the penalty in the Tax Code 
and causes more SUVs to be bought and sold.
    Ideally, the carbon audit of the Tax Code will find all the carbon 
leaks, or areas where high carbon use is rewarded rather than 
discouraged. The mortgage interest deduction and the ``gas guzzler'' 
loophole are just two examples of tax preferences that at first blush 
do not appear related to energy but which, in reality, have enormous 
impacts on our energy use--and certainly there are more.
    As we take care of the carbon leaks by decarbonizing the Tax Code, 
Congress has the opportunity to reinforce and increase many of the tax 
credits meant to make our economy energy efficient and shift our energy 
consumption away from fossil fuels. This should include finally 
adopting a long-term renewal of the Section 45 renewable energy tax 
credit. It is our hope that this credit will no longer be needed after 
roughly 10 years. But until that time, wind energy development needs 
help through the Tax Code to level the regulatory and financial playing 
field that heavily favors traditional sources of energy. Additional 
incentives, such as for hybrid vehicles that push the envelope of fuel 
economy and incentives for technologies that increase energy 
efficiency, could and should also be adopted by way of the Tax Code.
    Finally, there seems to be wide agreement that perhaps the greatest 
step the United States could take to reduce our carbon emissions and 
increase our efficient use of energy is to place a price on carbon. In 
that vein, it is time that Congress, the American public and energy and 
environmental advocates seriously consider the various uses and 
benefits of a carbon tax or fee on all carbon intensive fuels, or on 
specific carbon intensive uses like gasoline. Members of the Ways and 
Means Committee have already introduced H.R. 2069, the Save Our Climate 
Act of 2007 sponsored by Reps. Stark and McDermott and H.R. 3416, 
America's Energy Security Trust Fund Act of 2007 sponsored by Rep. 
Larson. These bills both utilize the Tax Code to create a tax on 
carbon.

Protecting America's Families
    In assessing the best policy options to address global warming it 
is critical that our Nation's most vulnerable populations be held 
harmless from both the impacts of climate change and the impacts of 
higher prices for energy and basic goods and services. For reasons 
Members of Congress know well, we must take special care not to allow 
the transition to a clean energy economy to cause severe hardship to 
hard-working Americans. The mechanisms used to protect the purchasing 
power of lower-income households and our investments made to pull these 
communities out of poverty will make all the difference.
    In its analysis of the distributional impacts of carbon policy 
designs, the Congressional Budget Office (CBO) noted that lower-income 
households spend a higher percentage of their income on energy costs 
than the rest of the population and suffer disproportionately from a 
rise in the costs of energy and basic necessities.\5\ In a recent 
analysis, the CBO illustrated this point by estimating that a 15 
percent cut in global warming pollution would increase the costs of 
households in the lowest quintile by 3.3 percent of their average 
income, and only 1.7 percent for households in the highest quintile.\6\
---------------------------------------------------------------------------
    \5\ ``Who Gains and Who Pays Under Carbon-Allowance Trading? The 
Distributional Effects of Alternative Policy Designs,'' Congressional 
Budget Office, June 2000. http://www.cbo.gov/doc.cfm?index=2104.
    \6\ ``Trade-Offs in Allocating Allowances for CO2 
Emissions,'' Congressional Budget Office, April 25, 2007. http://
www.cbo.gov/ftpdocs/80xx/doc8027/04-25-Cap_Trade.pdf.
---------------------------------------------------------------------------
    Fortunately, many in Congress recognize the need to address global 
warming without increasing poverty and hardship on vulnerable 
households through effective policy tools, as evidenced by both the 
Climate MATTERS Act (H.R. 6316) and iCAP (H.R. 6186). It is paramount 
in any climate bill design that (1) a sufficient amount of resources is 
designated specifically for low- and moderate-income households, (2) 
rebates or similar income recycling is delivered fairly and through 
effective delivery mechanisms, and (3) additional investments focus on 
revitalizing lower-income communities toward decreasing carbon 
dependence and increasing job opportunities.

Devote Sufficient Resources to Low- and Moderate-Income Households
    It is important that any climate policy is not just efficient, but 
fair as well. There are both moral and political reasons for this. 
Fairness has always been a cornerstone principle of the American 
polity. Fairness in a climate policy also has clear political merits. 
As the authors of a policy paper for the Pew Center on Global Climate 
Change rightly stated, ``Even the most cost-effective program design 
may be unacceptable if its costs are distributed in such a way that is 
perceived to be unfair.'' \7\ Such insight could apply both to 
auctioning all the permits in a cap and trade program as well as to 
providing a safety net for low- and moderate-income families. A climate 
policy can and should be designed in a way that does not increase 
poverty levels and that is not regressive--that is, in a way that does 
not disproportionately burden lower-income households. The aim is not 
just to protect those who are already living near or below the Federal 
poverty line (typically the bottom income quintile)--but to provide a 
safety net also for the 40 percent of all households that make up the 
moderate-income and lower-income scale of middle class families. They 
too will face decreases in their purchasing power. Congressman Markey's 
iCAP bill is a good example of the resources needed to provide a 
sufficient safety net for vulnerable households.
---------------------------------------------------------------------------
    \7\ Nordhaus, Robert and Kyle Danish, ``Designing a mandatory 
greenhouse gas reduction program for the U.S.,'' Pew Center on Global 
Climate Change, May 2003.
---------------------------------------------------------------------------
    Lastly, while it is important to offset increases in home energy 
costs, that alone will not suffice as home energy costs are just a part 
of the total consumer costs of a cap on carbon pollution. According to 
the Center for Budget and Policy Priorities (CBPP), a majority of such 
costs will come from transportation, and energy-sensitive goods and 
services. CBPP calculates that home energy costs will account for less 
than half (45 percent) of the impacts on the budgets of the lowest 
income households (Figure 1).

        Figure 1: Impacts of a Carbon Cap on the Budgets of Low-
                           Income Households

[GRAPHIC] [TIFF OMITTED] T2201A.117

Utilize Effective Delivery Mechanisms to Offset Costs
    The delivery mechanisms used to offset the impacts on low- and 
moderate-income households will in large part determine the 
effectiveness of any climate policy. The aim should be to use a range 
of delivery mechanisms that will compensate the highest portion 
possible of the target population. Uses of the Tax Code, such as 
assisting low wage workers through the Earned Income Tax Credit (EITC) 
are essential. The Tax Code alone will not reach the majority of 
those in need who may be unemployed, underemployed, disabled, or 
retired and do not file taxes. Other efficient delivery mechanisms 
include: electronic benefit transfer (EBT) systems used by State 
assistance agencies to provide food stamps and Medicare benefits; the 
Low Income Home Energy Assistance Program (LIHEAP); and the 
Weatherization Assistance Program.
    A climate policy must also recognize that low- and moderate-income 
households will require immediate income protections as well as longer-
term cost mitigation strategies. The delivery mechanisms described 
above can efficiently and effectively return lost purchasing power to 
households. Longer-term cost mitigation strategies include making 
lower-income households more energy efficient, either through 
efficiency programs overseen by the State or provided by the 
Weatherization Assistance Program.

Avoid Cash Grants to Investor-Owned Local Distribution Companies
    Some Members tend to favor the concept of giving Federal grants 
directly to Local Distribution Companies (LDCs), or utilities, to 
distribute to low-income families through efficiency programs. Friends 
of the Earth finds this approach riddled with problems. Many advocates 
for lower-income energy consumers oppose direct Federal grants or 
funding of local utilities in order to establish or increase low-income 
energy efficiency programs.
    While some LDC demand-reduction strategies may be able to provide 
efficiency services through longer-term weatherization programs, such 
an approach is not a substitute for immediate relief provided by 
Federal rebates delivered through proven and effective mechanisms. 
Weatherization programs take time and are an uncertain mechanism for 
ensuring that lower-income households are cushioned from increased 
energy-related costs. They would likely fail to account for price 
impacts that fall outside utility costs alone. According to the CBPP, 
LDCs may also miss large numbers of target households, including ``the 
significant share of low-income households who do not pay utility bills 
directly because the bills are paid by their landlords (and reflected 
in their rents). Many other low-income households will fall through the 
cracks since most utility companies cannot easily identify which of 
their consumers have low incomes (other than households facing shut-
offs).'' \8\ Overall, a direct consumer rebate delivered through 
effective mechanisms, such as the EITC and EBT, and that takes into 
account additional factors, such as rural/urban location and region of 
residence, is a much more fair way to provide immediate relief to 
lower-income households.\9\
---------------------------------------------------------------------------
    \8\ ``Low-income provisions of the Boxer substitute to Lieberman-
Warner,'' Center for Budget and Policy Priorities, May 30, 2008.
    \9\ For more on varying cost impacts, see: Eisenberg, Joel F., 
``The Impact of Carbon Control on Electricity and Gasoline Expenditures 
of Low-Income Households,'' Oak Ridge National Laboratory, April 2008. 
http://weatherization.ornl.gov/pdf/CON-504.pdf.
---------------------------------------------------------------------------
    It should also be noted that direct Federal grants to investor-
owned LDCs would be unprecedented. The established U.S. framework for 
funding LDC efficiency programs, under the oversight of State 
regulators and agencies, has been achieved without any publicly funded 
grants directly to LDCs.\10\ In 2007, more than 300 major investor-
owned local utilities, both gas and electric, spent nearly $361 million 
on low- and moderate-income efficiency programs in 43 States.\11\ The 
funding was collected from ratepayers according to rate schedules 
established by State regulatory commissions or, in a few States such as 
California, Wisconsin, and Nebraska, funded by utility fees mandated by 
their State legislatures.\12\
---------------------------------------------------------------------------
    \10\ Personal communication with Meg Power, Senior Policy Advisor, 
National Community Action Foundation, September 2008.
    \11\ Two sets of State reports provide annual data. The State 
supplement report of the HHS Office of Energy Assistance catalogs the 
value of non-Federal contributions to low-income energy programs 
coordinated with State LIHEAP and weatherization programs and offers 
some details on LDC initiatives. http://liheap.ncat.org/Supplements/
2007/supplement07.htm. The National Association for State Community 
Services Programs also collects annual reports of non-Federal funding 
that supplements the States' weatherization program. http://
www.waptac.org/sp.asp?id=9014.
    \12\ Personal communication with Meg Power, Senior Policy Advisor, 
National Community Action Foundation, September 2008.
---------------------------------------------------------------------------
    The wide range of program designs approved by regulators and 
legislators over the past 25 years have together produced usage and 
cost reductions without direct grants. Low-income programs are subject 
to cost effectiveness tests and most are managed so that they are a 
benefit to the utility, its ratepayers and the public in numerous ways. 
Those include peak load reduction, slowing the demand for building new 
generating capacity, decreasing bad debt write-offs, and customer 
service costs. When emission reductions can be quantified, those 
benefits will also accrue to the utility.\13\ There is a wide variation 
among the initiatives and their cost-effectiveness. Evaluations of LDC 
initiatives have demonstrated that those that are delivered in 
coordination with and by the State weatherization program delivery 
system have the best outcomes. The established financing and oversight 
framework for these investments can provide ample guidance for future 
State initiatives.\14\
---------------------------------------------------------------------------
    \13\ Ibid.
    \14\ Kushler, Martin (Ph.D.), Dan York, Ph.D. and Patti White. 
``American Council for an Energy-Efficient Economy. Meeting Essential 
Needs: The Results of a National Search for Exemplary Utility-Funded 
Low-Income Energy Efficiency Programs,'' September 2005. The report 
summarizes common characteristics which include close coordination with 
weatherization assistance and other State low-income programs and 
vigilant monitoring and results measurement. Program features offer 
guidance on best practices. For a list of such studies see: http://
www.opportunitystudies.org/repository/File/energy _ affordability/
Energy _ Program _ Evaluation _List.pdf.
---------------------------------------------------------------------------
Focus on Revitalizing and Retrofitting Lower-Income Communities
    Low- and moderate-income households have a greater risk of being 
permanently harmed by climate change-related impacts, such as fierce 
storms, floods, droughts and fires, than higher-income households. The 
reason for this is twofold. First, they are typically located in 
economically depressed areas that lack the resources to invest in 
adequate disaster preparedness or to provide sufficient disaster 
relief. Second, because they have lower incomes and occupy older homes 
in communities with aging commercial and public buildings and 
equipment, they and their communities lack the capital to upgrade 
(Figure 2). These populations also suffer disproportionately from 
cancer, asthma and other respiratory ailments likely due to their close 
proximity to power plants, toxic waste dump sites and other results of 
our current pollution-based economy.\15\
---------------------------------------------------------------------------
    \15\ Hoerner, Andrew and Nia Robinson. ``Climate of Change, African 
Americans, Climate Change, and a Just Climate Policy for the U.S.,'' 
Environmental Justice and Climate Change Initiative, July 2008. http://
www.ejcc.org/climateofchange/index.html.
---------------------------------------------------------------------------
 Figure 2:  Changes in Bottom Quintile Incomes Compared to Energy Costs

[GRAPHIC] [TIFF OMITTED] T2201A.118

    Policies can and should be designed to offset the impacts of 
capping carbon on vulnerable households using effective policy tools 
and strategies. The incomes of the bottom quintile, like those of 
moderate-income households, have not increased as fast as the prices of 
energy. These households, which include families of low-wage workers, 
have seen a steady decline in their purchasing power and have severe 
trouble meeting their basic needs.

    In general, low-income households use less energy and cause fewer 
GHG emissions. Yet, the intensity of energy use and carbon emissions is 
greatest in these homes and communities. Therefore, these communities 
offer the most opportunity for lower intensity of emissions and change.
    It is critical that a strategy to protect lower-income households 
and communities include separate, additional funds and strategies to 
help both lift them out of poverty and a high dependence on fossil 
fuels. To help build the resilience of these communities to the impacts 
of climate change and to help transition our Nation to a clean energy 
economy, they need and deserve a focused access to ``green-collar'' 
jobs and skills training. Because they often receive government 
assistance, lower-income communities are prime candidates for 
weatherization and renewable energy retrofits, carbon-reducing green 
building incentives and standards, new and better access to public 
transportation and carpooling programs, and new job opportunities and 
training. Most importantly, a focus on revitalizing and retrofitting 
lower-income communities can help increase skills and wages that will 
serve to provide a pathway from poverty to economic self-sufficiency 
and strengthen the middle class.

Cap and Trade Program: Importance of Auctions and Complementary 
        Policies
    While there may be a role for a cap and trade program in a Federal 
approach to reducing U.S. global warming pollution, the design of such 
a program must be approached with fairness, prudence and caution. In 
considering the design of such a program, one of the most critical 
considerations is how the pollution permits (sometimes referred to as 
allowances) will be distributed. Additionally, proper attention should 
be paid to which emissions may be better captured outside a carbon 
trading program, and the ability to provide proper oversight over the 
various parts of a cap and trade program. Many proposals coming before 
Congress treat a cap and trade (or carbon trading program) as the only 
or most important tool to reduce GHG emissions. Such an approach is not 
the only possibility however. For example, the design of California's 
global warming law, AB32, is likely to rely on carbon trading for only 
one-fourth of its overall emissions reductions.\16\ The majority of 
California's emissions reductions are expected to come from 
complementary policies, performance standards and other strategies 
outside the carbon trading.
---------------------------------------------------------------------------
    \16\ Under AB32, carbon trading is supposed to reduce GHG emissions 
by 35 million megatons of CO2e (mmtco2e). Other 
recommended strategies are aimed to reduce emissions by 112 
mmtco2e. See: Climate Change Draft Scoping Plan, June 2008. 
Discussion Draft pursuant to AB32, pages 17-18, http://www.arb.ca.gov/
cc/scopingplan/document/draftscopingplan.pdf.
---------------------------------------------------------------------------
Importance of 100 Percent Auctioning of Pollution Permits
    A tremendous debate is occurring in Congress around the potential 
method of distribution of pollution permits in a Federal cap and trade 
program. There are two options for how the government distributes 
pollution permits created by a cap and trade program--it can either 
give them away to polluters for free, also known as ``grandfathering,'' 
or it can auction them.
    The results of this debate will ultimately define the success or 
failure of efforts to regulate global warming emissions under a cap and 
trade program. Auctioning pollution permits would help ensure that the 
implementation of global warming legislation is done in an equitable 
way consistent with the ``polluter pays principle.'' Failing to auction 
permits would hinder the government's ability to collect revenue to 
protect low- and moderate-income households and to ensure that the 
United States maintains its commitments to fund international 
adaptation and clean energy transfers to developing countries.
    Auctioning permits would also be better for the economy. The CBO 
cites studies that find that auctioning permits would be 2-3 times less 
costly to the economy and could provide a net gain to the economy if 
the revenue was used to reduce individual income taxes.\17\
---------------------------------------------------------------------------
    \17\ ``Trade-Offs in Allocating Allowances for CO2 
Emissions,'' Congressional Budget Office, 
April 25, 2007. http://www.cbo.gov/ftpdocs/80xx/doc8027/04-25-
Cap_Trade.pdf.
---------------------------------------------------------------------------
Climate Equity
    Efforts to create a cap and trade program will create winners and 
losers in the marketplace and amongst energy consumers. Any policies 
aimed at reducing global warming pollution will inevitably have an 
upward effect on energy prices. This will occur whether pollution 
permits are auctioned or not. Under a cap and trade program, according 
to the CBO, ``If the government wanted to provide the same level of 
services without increasing the budget deficit, it would have to either 
raise taxes or use part of the value of the allowances to cover the 
changes in Federal outlays and revenues.'' \18\
---------------------------------------------------------------------------
    \18\ Ibid.
---------------------------------------------------------------------------
    In the interest of fairness and equity, taxpayers would not be 
getting a fair deal if pollution permits were given freely to 
polluters. Robert N. Stavins of The Brookings Institute put it this 
way: ``In a competitive market the benefits of free allowances 
generally accrue only to their recipients, increasing their 
profitability or wealth, and generally do not benefit the consumers, 
suppliers, or employees of those recipients. Hence, although the cost 
of allowance requirements can be expected to ripple through the 
economy, the benefits of free allocations will not.'' \19\
---------------------------------------------------------------------------
    \19\ Stavins, Robert N. ``A U.S. Cap and Trade System to Address 
Global Climate Change.'' The Brookings Institute, October 2007. http://
www.brookings.edu//media/Files/rc/papers/2007/10 climate_stavins/
10_climate_stavins.pdf.
---------------------------------------------------------------------------
    When permits are auctioned the government collects revenue and can 
redirect those funds back to energy consumers to lessen the burden of 
increased costs. Additionally, revenue could be directed toward 
investments in renewable energy research to help the energy transition 
away from fossil fuels, and to assist developing countries to battle 
the global climate crisis and reduce their own emissions. If permits 
are given for free, energy prices will rise but the government does not 
collect any funds to aid our Nation's transition to a clean energy 
economy.
    A common misconception is that companies that receive free 
pollution permits will not pass the cost onto consumers in the form of 
higher prices. Such thinking is false. According to economist Jim 
Barrett, President of Redefining Progress, a public policy economic 
think tank, ``While it is a common understanding that auctioned permits 
will result in higher energy and other product prices much the same way 
that an equivalent fee on carbon emissions would, it is often 
erroneously assumed that free permit allocations will not. . . . This 
reasoning is incorrect. Cap and trade systems increase energy and 
product prices because of the scarcity they introduce. That scarcity is 
what drives the price increases, not the method of permit 
distribution.'' \20\
---------------------------------------------------------------------------
    \20\ Barrett, James, Ph.D. ``True Cost of Free Pollution Permits: A 
Redefining Progress Issue Brief.'' Redefining Progress, February 2008. 
http://www.rprogress.org/publications/2008/True%20 
Cost%20Issue%20Brief%2002-08.pdf.
---------------------------------------------------------------------------
    The CBO added this explaination, ``Although producers would not 
bear out-of-pocket costs for allowances they were given, using those 
allowances would create an `opportunity cost' because it would mean 
foregoing the income that they could earn by selling the allowances. 
Producers would pass that opportunity cost on to their customers in the 
same way they would pass along actual expenses.'' \21\
---------------------------------------------------------------------------
    \21\ ``Trade-Offs in Allocating Allowances for CO2 
Emissions,'' Congressional Budget Office, 
April 25, 2007. http://www.cbo.gov/ftpdocs/80xx/doc8027/04-25-
Cap_Trade.pdf.
---------------------------------------------------------------------------
    Such impacts were witnessed first hand during the first phase of 
the European Trading System (ETS) where the majority of pollution 
permits were given to polluters for free. Instead of using the value of 
the permits to lower prices, the companies continued to pass the costs 
on to energy consumers and in the process gained windfall profits.\22\
---------------------------------------------------------------------------
    \22\ ``EU ETS Phase II--The potential and scale of windfall profits 
in the power sector.'' Point Carbon Advisory Services, March 2008.
---------------------------------------------------------------------------
Polluter Pays Principle
    The principle of making polluters pay for their pollution is a long 
held principle in environmental protection and regulation. This has the 
economic impacts of forcing polluters to ``internalize'' their 
pollution costs, which incentivizes them to adopt new processes and 
technologies to eliminate these additional costs. The concept is 
simple, air is a public resource that polluters should not be allowed 
to use and compromise free of charge or without consequence. 
Grandfathering polluters with free permits actually rewards them for 
their previous harmful activities with windfall profits.
    Economists strongly warn against the impacts of giving permits away 
for free. According to economist Jim Barrett, ``Even under mild 
assumptions, free permit distributions would represent the largest 
windfall distribution of wealth in this country's history. Households, 
businesses and industrial energy consumers will transfer their wealth 
to the owners of energy producing companies, already among the richest 
corporations in the world.'' \23\
---------------------------------------------------------------------------
    \23\ Barrett, James, Ph.D. ``True Cost of Free Pollution Permits: A 
Redefining Progress Issue Brief.'' Redefining Progress, February 2008. 
http://www.rprogress.org/publications/2008/True%20 
Cost%20Issue%20Brief%2002-08.pdf.
---------------------------------------------------------------------------
    The CBO concurs, ``Giving away allowances could yield windfall 
profits for the producers that received them by effectively 
transferring income from consumers to firms' owners and shareholders.'' 
\24\ In congressional testimony to the Select Committee on Energy 
Independence and Global Warming, Robert Greenstein, President of the 
Center on Budget and Policy Priorities, stated, ``If companies receive 
allowances for free, they will still be able to charge the higher 
price--they will be able to charge what the market will bear--and will 
reap what CBO has termed ``windfall profits.'' \25\
---------------------------------------------------------------------------
    \24\ ``Trade-Offs in Allocating Allowances for CO2 
Emissions,'' Congressional Budget Office, 
April 25, 2007. http://www.cbo.gov/ftpdocs/80xx/doc8027/04-25-
Cap_Trade.pdf.
    \25\ Greenstein, Robert. Testimony for Hearing on ``Cap, Auction, 
and Trade: Auctions and Revenue Recycling under Carbon Cap and Trade.'' 
January 23, 2008. http://globalwarming. house.gov/tools/assets/files/
0321.pdf.
---------------------------------------------------------------------------
    Lastly, auctioning 100 percent of pollution permits created under a 
cap and trade program allows the market, and not the government, to 
determine winners and losers. If Congress gives pollution permits away 
for free it opens the door to a political slippery slope of intense 
lobbying that plays to the strengths of the polluting industry over the 
public benefit.

Complementary Policies: Transportation and International Forests
    The transportation sector is a prime example within our economy 
where, as described below, a complementary policy would be more 
effective than carbon trading at reducing emissions.
    Reducing emissions in the U.S. transportation sector is integral to 
climate policy. Currently, nearly one-third of total U.S. GHG emissions 
originate from the transportation sector, making it the Nation's 
largest end-use source (Figure 3).\26\ Transportation is also the 
Nation's fastest growing source of U.S. GHG emissions, accounting for 
47 percent of the net increase in total U.S. emissions between 1990 and 
2003.\27\ In order to meet and preferably exceed the targets that the 
Intergovernmental Panel on Climate Change (IPCC) has identified as 
necessary to avoid the worst impacts of global warming, it is 
imperative to achieve significant GHG reductions in the transportation 
sector. Failing to make substantial emissions reductions from 
transportation means that additional reductions will have to be made up 
by other sectors of the economy if we are to meet overall emissions 
reduction targets. This will increase costs on other economic sectors 
such as electricity producers or industry. Moreover, failing to address 
transportation sector emissions will drive up the cost of making these 
reductions in the future.\28\
---------------------------------------------------------------------------
    \26\ U.S. EPA Inventory of U.S. Greenhouse Gas Emissions and Sinks: 
1990-2005.
    \27\ U.S. EPA, accessed at http://www.epa.gov/omswww/climate/
index.htm on 9/3/08.
    \28\ Gallagher, et. al. Policy Options for Reducing Oil Consumption 
and Greenhouse-Gas Emissions from the U.S. Transportation Sector. John 
F. Kennedy School of Government, Harvard University, 2007.

[GRAPHIC] [TIFF OMITTED] T2201A.119


    As Congress debates the implementation of a cap and trade program 
for reducing GHG emissions across the economy, it is important to 
evaluate how best to achieve GHG reductions in the transportation 
sector. Cap and trade can provide a powerful tool for achieving GHG 
reductions in some areas of the economy. However, a growing number of 
transportation and climate change experts are concluding that we should 
not expect a cap and trade policy to bring about efficient GHG 
emissions reductions in the transportation sector.\29\ As such, 
complementary policies are needed to accomplish this goal, especially 
in the long run.\30\ It is therefore important for the Committee to 
evaluate the inclusion of a set of complementary transportation 
policies in addition to carbon trading.
---------------------------------------------------------------------------
    \29\ Greene, David L., Ph.D. Oak Ridge National Laboratory. 
Testimony to the Senate Environment and Public Works Committee, June 
2008.
    \30\ Ibid.
---------------------------------------------------------------------------
    Congress has already pursued several important complementary 
policies in the transportation sector in an effort to reduce oil 
consumption, GHG emissions, and air pollution, as well as saving 
consumers money on gasoline. These include raising vehicle efficiency 
standards through Corporate Average Fuel Economy (CAFE) regulations and 
low-carbon fuel standards (LCFS).
    The policies for developing our surface transportation 
infrastructure in the U.S. are not designed to take into account GHG 
emissions. Transportation spending is largely focused on roads and 
highways, and the majority of travel in the U.S. is by personal 
vehicle, which is among the least efficient passenger and freight 
transportation modes. As a result, 81 percent of transportation GHG 
emissions (equaling nearly a quarter of total U.S. GHG emissions) are 
due to gasoline consumption--62 percent from personal vehicles, and 19 
percent from freight trucks.\31\ Current trends dictate that these 
numbers will rise in coming decades and double by the year 2030.\32\
---------------------------------------------------------------------------
    \31\ U.S. EPA Inventory of U.S. Greenhouse Gas Emissions and Sinks: 
1990-2003.
    \32\ U.S. Department of Energy/Energy Information Agency (USDOE/
EIA): Annual Energy Outlook, 2007. The trend between 1977 and 2001 has 
been an increase in driving rates--measured in vehicle-miles traveled 
(VMT). While the U.S. population increased by 30 percent, driving rates 
grew by 151 percent. In this same period, trips per capita, average 
trip lengths, and the proportion of drivers travelling alone all 
increased to varying degrees. See Polzin, Steven, ``The Case for 
Moderate Growth in Vehicle Miles of Travel,'' 2006.
---------------------------------------------------------------------------
    This projected increase will have a significant increase on 
transportation sector GHG emissions. Additional emissions resulting 
from the projected increase in driving rates will overwhelm the 
emissions reductions expected from new vehicle efficiency standards 
requiring the U.S. auto fleet to average 35 miles per gallon by the 
year 2020 and the required 10 percent reduction in the carbon content 
of vehicle fuels mandated by the 2007 Energy Independence and Security 
Act (H.R. 6). In other words, projected increases in driving rates will 
result in a net increase of total GHG emissions from the transportation 
sector despite projected emissions reductions from both CAFE and the 
LCFS. Ignoring increasing driving rates will push overall 
transportation sector GHG emissions 26 percent greater than 1990 levels 
in 2030 (Figure 4).\33\
---------------------------------------------------------------------------
    \33\ Winkelman, Steve. Center for Clean Air Policy.
---------------------------------------------------------------------------
  Figure 4:  Transportation Sector CO2 Emissions Forecast 
                               2005-2030

[GRAPHIC] [TIFF OMITTED] T2201A.120


    In this graph, the dark blue line represents transportation sector 
GHG emissions, the light blue line represents emissions in 1990, and 
the orange line shows the approximate path of reductions needed to 
achieve IPCC recommendations. The purple line shows a 10% reduction in 
fuel carbon content, the green line shows an increase to a 35 mpg CAFE 
standard and the red line shows projected VMT. Each of these three 
lines influence the dark blue GHG trend. The graph shows that the GHG 
reductions achieved from CAFE and low-carbon fuels will be negated by 
rising VMT.
    The problem underscoring the trend in America's increased oil use 
in the transportation sector is largely due to a lack of alternative 
transportation options, inefficient land use and development patterns, 
and inadequate traffic management.\34\ This has led transportation and 
climate policy experts to conclude that we should not expect the small 
increase in gasoline prices from a Federal cap and trade program 
($0.037 annually or $1.40 cumulatively through 2050) to bring about an 
efficient reduction in driving rates and transportation sector GHG 
emissions.\35,\ \36\ Complementary transportation infrastructure and 
land-use policies are needed to accomplish this goal, especially in the 
long run.\37\ A recent survey of decade's worth of data confirms that 
such complementary policies can have a significant impact on travel 
behavior in the U.S. in a way that reduces transportation sector 
emissions. Given the right incentives and legitimate alternatives, 
Americans will choose to drive less.\38\
---------------------------------------------------------------------------
    \34\ Ewing, Reid, Pendall, Rolf, and Chen, Don. Measuring Sprawl 
and It's Impact. 2002.
    \35\ EPA Analysis of the Lieberman-Warner Climate Security Act of 
2008 (S. 2191) in 110th Congress. 2008.
    \36\ Greene, David L., Ph.D. Oak Ridge National Laboratory. 
Testimony to the Senate Environment and Public Works Committee, June 
2008.
    \37\ Ibid.
    \38\ Ewing, Reid, et al. Growing Cooler: The Evidence on Urban 
Development and Climate Change. 2007.
---------------------------------------------------------------------------
    Public transportation and other mass transportation modes, such as 
passenger rail, are shown to make significant contributions toward GHG 
emissions reductions. According to the Science Applications 
International Corporation (SAIC), in 2005, public transportation 
reduced carbon emissions by 6.9 million metric tons.\39\ This includes 
both emissions reductions from reduced driving rates and reduced 
traffic congestion. There is great potential for further emission 
reductions; according to the same SAIC report. A single commuter can 
reduce their CO2 emissions by an average of 20 pounds per 
day, or more than 4,800 pounds annually, by commuting on public 
transportation instead of driving.\40\ At the local level, this means 
developing transit systems such as light rail, commuter rail, and rapid 
bus service. For longer-distance intercity travel, especially for trips 
between 50 and 500 miles, passenger rail, such as the service provided 
by Amtrak and several State departments of transportation, is an 
energy-efficient option that can help reduce the GHG emissions of long-
distance travel.
---------------------------------------------------------------------------
    \39\ Davis, Todd and Monica Hale. ``Public Transportation's 
Contribution to U.S. Greenhouse Gas Reduction.'' SAIC. September 2007.
    \40\ Ibid.
---------------------------------------------------------------------------
    A U.S. climate policy that includes a complementary policy that 
sets forth increased alternative transportation options, efficient land 
use and development patterns, and better traffic and road management 
could yield a profound reduction in transportation sector emissions 
when aggregated nationwide. Such a policy will reduce the burden on 
other sectors to make up for the emissions increases in the 
transportation sector and ultimately make it more likely that we meet 
our Nation's economy-wide reduction targets.

International Forest Protection Through Policy Coherence
    Deforestation and forest degradation is a major source of 
greenhouse gas emissions, accounting for nearly 20 percent of emissions 
globally. The growing rate of forest loss also threatens the world's 
biodiversity and imperils the 1.6 billion people who are dependent on 
forests for their livelihoods. A new global interest in addressing 
climate change, and a particular interest in reducing emissions from 
deforestation and degradation, provides an important opportunity to 
address the real need for improved forest governance structures, while 
simultaneously conserving biodiversity and safeguarding the rights of 
the indigenous peoples' and other forest dependent communities.
    At the Bali 2007 Conference of the Parties to the UN Framework 
Convention on Climate Change (UNFCCC), reducing emissions from 
deforestation was a major topic of discussion. Developing policy 
options to reduce emissions from deforestation and degradation was also 
included as a key component of the Bali Action Plan, which consists of 
multiple decisions necessary to secure emissions reductions in global 
climate negotiations. Assistance from the United States for this sort 
of initiative will be critical in moving towards a global agreement. 
While some are demanding the dubious use of international forest offset 
projects to qualify for domestic emissions reductions, others are 
arguing that an international fund under the UNFCCC, in support of 
global agreement on climate change, would be a more secure and 
equitable way to achieve reductions.
    To be true, effective and just, any mechanism to reduce emissions 
from deforestation and degradation must. To best get at the 
deforestation problem through funding is to (1) prioritize the 
development of coherent national policy frameworks and law enforcement 
(2) must address the underlying drivers of deforestation; and achieve 
policy coherence in consuming countries and (3) safeguard and enhance 
the land tenure and other of local communities; as well as ensure that 
indigenous and traditional forest-dwelling peoples play a central role 
in forest management.
    To promote effective governance, funds should support national, 
regional and local governments in recipient countries in enacting and 
enforcing comprehensive national forest policies. Further, the central 
role of indigenous and traditional forest dwelling peoples, including 
land tenure rights, should be clearly recognized. Large areas of 
forested land are under management of indigenous peoples who do not yet 
have legal title to their ancestral lands, and securing clear land 
tenure rights is vital in ensuring responsible management of these 
forests. Because indigenous peoples who hold secure land tenure for 
their lands effectively manage their forests sustainably, securing land 
tenure has proven a highly cost-effective tool in achieving emissions 
reduction. Systematic monitoring programs and verification programs, 
not enabling carbon offsets schemes, will also be critical for forest-
rich countries to effectively engage in international climate 
agreements.
    Illegal logging and associated trade are both indicators of and 
perpetuators of poor forest governance. In particular, the U.S. Forest 
Service is well suited to assist in the implementation of the recently 
passed Lacey Act, which by prohibiting the import and trade of 
illegally sourced timber and wood products, uses the U.S. market and 
legal leverage to support better enforcement, governance and supply 
chain reform in global wood markets.

International Forest Offsets As Part of a Cap and Trade Program Not An 
        Option
    Global deforestation accounts for 20 percent of global GHG 
emissions, and therefore many are looking to the preservation or 
restoration of forests as a prime area of achieving the U.S.'s emission 
reduction targets. Yet, using international forest offsets as a way to 
meet domestic reductions targets may be a red herring as they remain a 
dubious mechanism to achieve verifiable and permanent reductions. While 
international offsets would provide an out for reducing emissions here 
at home, avoiding emissions reductions at home is likely to avoid the 
fundamental changes necessary to deliver emissions reductions to keep 
us from facing climate catastrophe.
    International forest offset projects suffer from similarly 
problematic structural design concerns in meeting their criteria, such 
as ensuring reductions are additional, real, and permanent, as do non-
forest project based offsets. Significant technical issues plague the 
forest offset market, including the capacity to adequately assess and 
monitor actual emissions reductions from deforestation, even using 
remote sensing techniques, as well as concerns over whether emissions 
reductions activities in forest areas can in reality be permanent.
    The inclusion of international forest carbon offsets as a U.S. 
climate mitigation strategy will potentially exploit the cheapest 
emissions reductions projects available to developing countries in 
their very own country. According to recent studies, 500 million tons 
of carbon dioxide emissions could be offset in tropical rainforests at 
roughly $2 per ton--well under the projected prices for carbon credits 
in a cap and trade system.\41\ If industrialized countries buy all of 
these cheap credits to count as their own domestic emissions 
reductions, it leaves very little opportunity for those developing 
countries to meet the international pressures for them to implement 
climate mitigation policies of their own in a cost-effective manner. 
Indeed, it will leave those developing countries with only the most 
expensive mitigation options. The sovereignty of host nations is also 
under question due to the liability constraints of potential future 
emissions.
---------------------------------------------------------------------------
    \41\ Rainforest conservation could offset 500m tons of 
CO2 emissions at $2/ton. Mongabay, July 24, 2008. http://
www.climateark.org/shared/reader/
welcome.aspx?linkid=103671&keybold=forest 
%20carbon%20avoided%20deforestation.
---------------------------------------------------------------------------
    Additionally, unrelated to emissions reductions, many offset 
projects have created or exacerbated existing social and environmental 
problems. For example, plantation projects have created water 
pollution, and projects to capture methane gas from landfills have not 
addressed the toxic pollutants generated by the landfill.
    The Plantar Project in Minais Gerais, Brazil, demonstrates how 
projects may generate social and environmental problems unrelated to 
carbon reductions. As described by the Institute for Policy Studies 
Sustainable Energy and Economy Network:
    In 2002 Plantar, an iron foundry company with operations in Brazil, 
threatened to switch from burning charcoal to coal in order to increase 
capacity at its pig iron operations. This would have significantly 
increased their greenhouse emissions, so the World Bank rushed in with 
carbon financing to help Plantar expand the eucalyptus plantations that 
provide the company's charcoal.
    The impact of the expanding eucalyptus farms has been devastating 
to the nearby village of Sao Jose do Buriti. Concerned residents were 
joined by Brazilian NGOs, churches, social movements and unions to halt 
World Bank finance of the project in 2002 and 2003. Today residents 
have witnessed the water table dropping, the disappearance of 
biodiversity and medicinal plants, and the application of herbicides 
and pesticides to timber plantations that have killed local farmers' 
subsistence crops and poisoned streams. Perhaps more seriously, groups 
allege that Plantar pressured local residents to sign letters of 
support for the project or forfeit employment at the plantations.\42\
---------------------------------------------------------------------------
    \42\ Redman, Janet. ``World Bank: Climate Profiteer,'' Institute 
for Policy Studies. April 2008.
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Over-Reliance on a Cap and Trade Program: Lessons From the Credit 
        Crisis
    To effectively address climate change, the United States needs 
robust domestic emissions reductions targets and policies that send the 
correct signals to change industry behavior and produce real emissions 
reductions. The implementation of a cap and trade program is viewed by 
many as a way to use the market to achieve these reductions, but over-
reliance on a cap and trade program to solve climate change raises a 
number of concerns, particularly in terms of the monitoring, 
evaluation, and verification of carbon credits in a global market.
    Our Nation is currently facing an historic financial crisis that 
can provide us with a cautionary tale about a cap and trade program. 
The subprime mortgage crisis, which underpins the current banking and 
investment crisis, emerged from a failure of market checks and 
balances.
    Banks bundled together high-risk and lower-risk mortgages into 
packages that were then bought, re-bundled and re-sold many times over. 
This created bundles of promised revenues that were increasingly 
difficult to track. When it became clear that a significant portion of 
the loans were bad, the whole system began to unravel, affecting 
everyone in the banking and investment system connected to these 
bundled mortgages, including average Americans with savings accounts 
and retirement savings, and turning a subprime mortgage problem into a 
systemwide credit crisis.
    Unfortunately, the Federal cap and trade proposals put forth so far 
would create a system that poses almost identical challenges as those 
in the breakdown of the mortgage-lending industry:
Could emissions reductions lead to subprime carbon assets?
    The subprime mortgage crisis was generated by questionable loans. A 
cap and trade program could face similar questions in terms of 
emissions reductions associated with carbon offset credits, which are 
likely to be tradable on open carbon markets. For offset projects to 
work, they need to result in a decrease in the amount of carbon 
pollution emitted. For example, retrofitting an industrial plant to be 
more energy efficient, or replacing an aging coal-fired power plant 
with wind power, creates GHG reductions that can be measured with 
relative accuracy and verified, thus resulting in legitimate credits. 
But not all offset projects clearly lead to emission reductions.
    Some of the most visible carbon offset scandals to date have 
centered around international offset credits, including forest-related 
carbon reduction schemes, where trees have been planted to store 
carbon, only to die a few years later; the construction of large, 
environmentally destructive dams, where builders who were going to 
construct the dams anyway claimed ``new'' emissions reductions; and HFC 
(a chemical byproduct of refrigerant production) destruction projects, 
where factories purposely created these very potent greenhouse gas 
chemicals just so they could destroy them and make money off of the 
credits.
    In particular, proving the ``additionality'' of offset projects, 
arguing that project would be impossible to do without the additional 
revenues provided by carbon credits, is very difficult. (Offset 
projects must prove that they are additional in order to be issued 
credits by the Kyoto Protocol's Clean Development Mechanism.) But 
according to a recent study of international offsets by leading 
researchers at Stanford University, ``offset schemes are unable to 
determine reliably whether credits are issued for activities that would 
have happened anyway.'' \43\
---------------------------------------------------------------------------
    \43\ Wara, Michael W. and Victor, David G. ``A Realistic Policy on 
International Carbon Offsets.'' Program on Energy and Sustainable 
Development, Working Paper #74: April 2008. http://iis-b. stanford.edu/
pubs/22157/WP74_final_final.pdf.
---------------------------------------------------------------------------
    As carbon traders develop derivatives products, which are based on 
promises to deliver carbon credits at a future date for a specified 
price, a real risk of ``subprime carbon'' (carbon assets that fail to 
deliver, called ``junk carbon'' by traders) emerges. Given the 
potentially huge size of the carbon trading market, and the increasing 
complexity of carbon derivatives, the risk of subprime carbon contagion 
is a real possibility, particularly if the current credit crisis fails 
to spur fundamental regulation of the financial market.
Could an onset of unscrupulous intermediaries be avoided?
    The subprime crisis was exacerbated by the proliferation of 
mortgage brokers and other middlemen who provided questionable, if not 
unscrupulous, services. In the past decade, the seemingly limitless 
appetite for mortgage lending and mortgage-backed securities fueled a 
dangerous deterioration in lending standards. Since carbon is predicted 
to ``be the world's biggest commodity market, and it could be the 
world's biggest market overall,'' \44\ a speculative carbon bubble 
could similarly spur the development of subprime carbon assets.
---------------------------------------------------------------------------
    \44\ Kanter, James, ``Carbon trading: Where greed is green,'' 
International Herald Tribune, 20 June 2007.
---------------------------------------------------------------------------
    Like mortgage brokers approving ``ninja loans'' (loans to borrowers 
with no income, job, or assets), unscrupulous intermediaries may 
overpromise on offset projects by selling future credits based on 
projects that do not yet exist, are not additional, or which simply do 
not deliver the promised GHG reductions. If the Wall Street financiers 
continue employing the ``originate and distribute'' strategy (in which 
banks offload their risks to investors in the secondary markets), banks 
and intermediaries will still pursue lucrative fee-based business with 
little regard to the risks they are passing onto investors.
Can asset valuation be properly determined?
    ``Innovative'' financial engineering characterized the credit 
crisis, where complex financial instruments were created that made it 
very difficult to determine the actual value of assets. Credit rating 
agencies, which were supposed to be providing rigorous assessments of 
mortgage-backed securities, could not analyze thousands of individual 
mortgages, and thus relied on financial models, which were ultimately 
flawed.
    As secondary carbon markets grow, spawning the creation of new 
derivatives and structured products, rating agencies and analysts will 
face similar asset valuation challenges. Analyzing the quality of 
underlying carbon offset projects will be as, if not more, difficult 
than analyzing mortgages, and may be even less suited to modeling.
Will conflicts of interest be prevented?
    After the Enron accounting scandal of 2001 some new regulations 
were issued to reduce conflicts of interest. For example, today 
accounting firms have separated their auditing and consulting 
functions, and in June 2008 the Securities and Exchange Commission 
issued new rules to reduce conflicts of interest among credit ratings 
agencies. However, conflicts of interest still exist, both in the 
broader financial sector and in the carbon finance market.
    For example, similar to how credit rating agencies helped design 
complex structured finance products and rated them, consulting firms 
which offer advice on developing carbon offset projects may also earn 
fees for verifying emissions reductions from projects. Banks which own 
equity stakes in carbon offset projects may also be carbon brokers or 
sector analysts, creating a temptation to bid up carbon prices to 
increase the value of their own carbon assets. Such conflicts of 
interest compromise the integrity of the carbon markets, from both a 
financial and environmental perspective.

The Need for U.S. Leadership in Negotiating an International Climate 
        Deal
    The policies pursued by the United States will be critical to 
solving the greatest challenge facing the world today--global climate 
change. Global warming is an issue that will have serious impacts not 
only on the environment, but also on global economies, poverty and the 
pursuit of sustainable development as laid out in the U.N. Millennium 
Development Goals (MDGs).\45\ The costs of establishing a program to 
reduce and reverse global warming pollution now will pale in comparison 
to the cost of not aggressively addressing the problem.
---------------------------------------------------------------------------
    \45\ For more on MDGs, see: http://www.un.org/millenniumgoals/.
---------------------------------------------------------------------------
    A global effort to address climate change will require a 
fundamental transformation of our economies and with jurisdiction over 
U.S. trade policies and international commerce, the House Ways and 
Means Committee will be an integral player to the development of 
policies that will either promote or hamper proactive international 
engagement on global warming. With greater responsibility for global 
warming and greater capacity to address the problem, the United States 
can show great leadership by offering assistance to developing 
countries to both deal with climate change impacts and reverse the 
causes of global warming.
    Around the world, climate change is already impacting the daily 
lives of the world's most vulnerable people. Facing more intense 
storms, drought, disruption of water and food supplies, and increased 
rates of disease, impoverished communities bear a disproportionate 
burden of these impacts, despite the fact that they are the least 
responsible for creating them and the least able to cope with the 
effects. Global warming is likely to exacerbate international 
competition and conflict over water and other natural resources, and 
result in displaced peoples, mass migrations and increased poverty--
particularly in the Global South. Moreover, with the potential for the 
conflict generated by climate impacts, it is in the national interest 
of the United States to assist developing countries with the climate 
crisis.
    For an effective global deal to be reached, the United States will 
need to offer assistance to developing countries to adapt to climate 
change and cut their GHG emissions. To avoid catastrophic climate 
impacts, developing countries will need to utilize clean technologies, 
including leapfrogging to cleaner energy sources and ensure the 
protection of standing forests. But developing countries, which are 
less historically responsible for climate change and which often have 
smaller budgets and larger populations than developed countries, cannot 
afford by themselves the costs of transforming to clean energy 
economies without compromising the provision of basic services, such as 
water, sanitation, and basic education.
    Developing countries are already taking many steps on their own to 
both address climate impacts and to shift to cleaner energy. The United 
States can support these efforts and secure a global deal by being 
proactive in aggressively reducing its GHG emissions and by offering 
financing and technology transfer opportunities to developing countries 
for adaptation needs, clean energy, and forest protection.

The Principle of Common But Differentiated Responsibilities
    Signed and ratified by 192 countries, the Convention on Climate 
Change set an overall framework for intergovernmental efforts to tackle 
the challenge posed by climate change. According to the Convention, 
enacted in 1994, party governments ``gather and share information on 
greenhouse gas emissions, national policies and best practices, launch 
national strategies for addressing greenhouse gas emissions and 
adapting to expected impacts, including the provision of financial and 
technological support to developing countries, and cooperate in 
preparing for adaptation to the impacts of climate change.'' \46\
---------------------------------------------------------------------------
    \46\ http://unfccc.int/essential_background/convention/items/
2627.php.
---------------------------------------------------------------------------
    The principle of common but differentiated responsibilities and 
respective capacities is a fundamental principle underpinning the 
UNFCCC, to which the United States is a party. It is also an underlying 
principle that underpins the international negotiations on a global 
climate deal already underway with an agreement expected to be reached 
in December 2009. This principle acknowledges differences in historic 
emissions, economic capacity to act, and the right to sustainable 
development. As a party to the UNFCCC, under the principle of common 
but differentiated responsibilities, the United States is obligated to 
reduce its GHG emissions, and provide financial support to developing 
countries to adapt to climate change impacts, receive transfers of 
clean technology, and to reduce their GHG emissions.\47\
---------------------------------------------------------------------------
    \47\ Article 4 Commitments of the UNFCCC. http://unfccc.int/
essential_background/convention/background/items/1362.php.
---------------------------------------------------------------------------
    The United States and other industrialized countries are 
historically responsible for global warming at greater levels than 
other countries. For example, G8 countries, which represent 13.5 
percent of the global population, are historically responsible for over 
62 percent of the greenhouse gases currently in the atmosphere. These 
countries, which include the United States, continue to emit some 39 
percent of today's global warming pollution.\48\ Per capita emissions 
in specific countries also demonstrate varying levels of 
responsibility. For example, in 2000, each person in the United States 
emitted 15.2 times as much carbon as each person in India and 34.7 
times as each person in Malawi.\49\
---------------------------------------------------------------------------
    \48\ WWF International, Position Paper, ``G8 Summit 2008 in 
Japan,'' June 2008.
    \49\ Figures for greenhouse gas emissions come from the World 
Resources Institute's Climate Analysis Indicators Tool, http://
cait.wri.org/.
---------------------------------------------------------------------------
    Different countries likewise have differing abilities of economic 
capacity to respond to global warming. In 2004, the gross domestic 
product (GDP) per capita in the U.S. was $36,451; in India, $2,851; and 
in Malawi, $591.\50\ Based on this measurement, the average person in 
the U.S. has 12.7 times as much economic output as a person in India 
and 61.6 times that of a person in Malawi. In aggregate, the U.S. has a 
much greater capacity to respond to global warming than most other 
countries in the world.
---------------------------------------------------------------------------
    \50\ Ibid.
---------------------------------------------------------------------------
    This combination of responsibility and capacity means that the 
United States has more of an obligation and is more able to help 
developing countries both adapt to climate change and reduce emissions. 
This is an understood piece of the international negotiations under the 
UNFCCC. The United States could promote a global deal by offering 
financing and technology transfer for adaptation and mitigation efforts 
in developing countries by using ``carrots'' rather than ``sticks.''
Mitigation Actions in Exchange for Technology Transfer and Financing
    Currently under the UNFCCC negotiations, nationally appropriate 
mitigation actions on the part of non-Annex I (developing) countries 
are contingent on the provision of financial resources, technology 
transfer, and capacity by Annex I (industrialized) countries. For 
obvious reasons, the first priority of developing, non-Annex I 
countries is sustainable development. In this spirit, the United States 
is expected to offer financing in the key areas of adaptation (the 
ability of a country to respond to and build resilience to the impacts 
of global warming), the transfer of renewable energy technologies that 
build the capacity in-country to develop in a low-carbon fashion, and 
funding for forest protection as part of the U.S. commitment in 
exchange for nationally appropriate developing country climate 
mitigation efforts.
    Funding from the U.S. for international climate activities should 
be made through multilateral mechanisms under the UNFCCC for 
adaptation, clean technology, and forests. Making contributions to 
these mechanisms would be a show of good faith on the part of the U.S. 
and would facilitate international cooperation. Contribution to these 
funds will also strengthen international negotiations. Qualification of 
countries for financing and clean technology transfer should follow 
decisions made under the UNFCCC.

Transfer of Clean Technology to Developing Countries
    It is in the interest of all countries to have developing countries 
leapfrog dirty energy sources on their path to development and move 
directly toward clean energy economies that allow for both economic 
growth and increased energy access. Developing countries need 
assistance in transitioning to clean energy pathways so that 
governments will not have to choose between low-carbon renewable energy 
and poverty alleviation. For a global deal to be reached, the United 
States will need to make commitments both within U.S. policy and under 
the UN climate convention to finance transfers of clean technologies to 
developing countries.
    The World Bank estimates that the incremental costs to deploy clean 
energy technologies in just the power sectors of developing countries 
would require $30 billion annually.\51\
---------------------------------------------------------------------------
    \51\ ``A World of Difference in Energy Access,'' World Bank Group, 
May 9, 2007. http://web. worldbank.org / WBSITE / EXTERNAL / NEWS / 
0,,contentMDK : 21328449menuPK : 34457pagePK: 
34370piPK:34424theSitePK:4607,00.html.
---------------------------------------------------------------------------
    The G77 and China (representing 130 developing countries) have 
explicitly supported a multilateral technology financing mechanism 
under the authority of the UNFCCC. The establishment of a financing 
mechanism for technology under the UNFCCC--both for mitigation and 
adaptation--was a major focus at UN climate change talks in Bonn, 
Germany in early June 2008, with a number of governments putting 
forward proposals. Under Article 4.3 of the UNFCCC, developed countries 
are obliged to provide finance and technology to developing countries 
to meet their full incremental costs of taking action to address 
climate change. Article 4.7 says that developing countries' actions 
depend on the extent to which developed countries meet their technology 
and finance commitments. The G77 and China reiterated in Bonn that any 
funds by developed countries outside the UNFCCC cannot be counted as 
meeting their commitments. This, in turn, means the United States and 
other industrialized countries cannot hold developing countries to 
their qualified obligations to reduce GHG emissions. It also means that 
should U.S. funds be directed to mechanisms outside the UNFCCC, the 
U.S. would then have to make additional, parallel contributions to the 
UNFCCC to meet its own obligations.
    Developing countries, including China and India, were unambiguous 
in Bonn that they do not see the World Bank's Climate Investment Funds 
as a good faith effort or as a show of international good will. Many in 
the Global South see the establishment of the World Bank's Climate 
Investment Funds as a donor-driven process that lacks meaningful 
consultation and undermines the UN process.
    Further, a strong definition of clean, renewable energy is 
essential to ensure that it is both renewable and effective in reducing 
GHG emissions. The World Bank does not define what it means by clean 
energy. Friends of the Earth supports a definition of international 
clean technology that includes renewable energy, such as wind, solar 
photovoltaic, solar thermal, sustainably-sourced biomass, up to 10 MW 
hydropower, wave, tidal and geothermal. Clean and renewable energy 
technologies do not include those perpetuate GHG emissions, such as 
coal (including the unproven techniques of carbon capture and 
sequestration of coal plants), oil, natural gas, and unconventional 
fossil fuels such as tar sands, oil shale, and coal-to-liquids; 
hydropower over 10 MW; and those that produce fissile materials, such 
as plutonium-239 or uranium-233, in the course of their operation.
    Scarce, public clean energy funding should be used to drive down 
the price of renewable energy to make it cost-competitive with 
artificially cheap coal and further, to provide clean energy to the 1.6 
billion impoverished people in the world who still lack access to 
electricity. Modern coal technologies do not need public assistance--
they are already fundable through private investment, with improved 
energy efficiencies paying for themselves in short time periods.
    There is also a serious opportunity cost presented by investing 
scarce climate funding toward technologies that have not been proven to 
work or will not come on line in the near future, such as carbon 
capture and storage (CCS). Using funds for CCS-readiness (as the World 
Bank CTF document describes) would be counterproductive, as it would 
lock in high emission coal plants in the hope of future mitigation that 
may never be achieved, or may be achieved after catastrophic climate 
change has already occurred.
    To re-engage with the international community, generate good will, 
and be effective in combating climate change, Congress should 
proactively support an International Clean Technology Fund under the 
authority of the UNFCCC. This presents the United States with an 
important opportunity--after long delay--to show real leadership in the 
global effort to address climate change and help break the impasse of 
mistrust and finger pointing at international climate negotiations.

International Adaptation to Global Warming Impacts
    As the IPCC has made clear, the world's poorest people--those least 
responsible for the climate crisis--will be hurt the most by the 
immediate and long-term impacts of global warming. For example, the 
IPCC finds that up to 250 million people in Africa are projected to be 
exposed to an increase in water stress due to climate change, and in 
some countries, yields from rain-fed agriculture could be reduced by up 
to 50 percent by 2020. As the IPCC notes, ``this would further 
adversely affect food security and exacerbate malnutrition.'' As a 
result of these and other climate impacts, climate change will be one 
of the central drivers of global poverty in the 21st century.
    The UN Development Program (UNDP) estimates that $86 billion a year 
by 2015 will be necessary globally to meet adaptation needs.\52\ The 
United States and other wealthy countries have the ability to help 
developing countries finance adaptation, which would allow them to 
continue to combat poverty while at the same time addressing climate 
change. The United States is responsible for nearly a quarter of the 
pollution that causes global warming, with 23 percent of cumulative 
global emissions from the consumption of fossil fuels for the period of 
1990 to 2005. These metrics alone suggest that the United States could 
be responsible for between 20 and 40 percent of the global funding 
necessary to address international adaptation, or between 23 and 40 
percent of the $86 billion UNDP says is needed.
---------------------------------------------------------------------------
    \52\ United Nations Human Development Report, 2007/2008, http://
hdr.undp.org/en/reports/ global/hdr2007-2008/.
---------------------------------------------------------------------------
    Several international funds have been created under the United 
Nations Framework Convention on Climate Change (UNFCCC) to address 
adaptation needs:
    The Least Developed Countries Fund (LDCF) and the Special Climate 
Change Fund (SCCF) are already administering funding for adaptation-
related projects, although they are significantly under-funded. LDCF 
funds have been used to support the development and implementation of 
national adaptation programs of action (NAPAs), which have been 
completed by 32 countries and are underway in a number of others. The 
NAPAs, which are designed to build upon existing coping strategies at 
the grassroots level and emphasize community-level input, provide a 
framework for least developed countries to identify, prioritize, and 
address adaptation needs.\53\
---------------------------------------------------------------------------
    \53\ http://unfccc.int/adaptation/napas/items/2679.php.
---------------------------------------------------------------------------
    The Adaptation Fund, which was operationalized at the UNFCCC 
negotiations in late 2007, is likely to be the primary fund for 
adaptation moving forward. The governance and structure of the fund are 
improved over previous funds. For example, the Adaptation Fund Board 
includes majority representation from recipient governments. The 
Adaptation Fund will receive 2 percent of proceeds from international 
trading of carbon emissions under the clean development mechanism, 
although the Fund will also require additional sources of funding to be 
effective.\54\
---------------------------------------------------------------------------
    \54\ http://unfccc.int/cooperation_and_support/financial_mechanism/
items/3659.php.
---------------------------------------------------------------------------
    Any domestic or international delivery mechanisms of climate 
assistance must ensure transparency, accountability, and community 
participation to effectively deliver adaptation funds and be seen as 
credibly contributing to a global climate negotiation. To do this, such 
funds should be transmitted via a UNFCCC-established fund.

International Trade
    In putting a price on carbon, concerns have arisen in the United 
States about the potential impact of increased cost on U.S. 
manufacturing sectors. Imposing a carbon tariff, or border tax 
adjustment, on GHG-intensive goods was first proposed by Europe as a 
means to entice the United States to join an international agreement. 
It has now gained currency in the United States primarily as a 
mechanism to address concerns about China's growing emissions. Imposing 
special measures on imports from countries has been pitched as an 
appropriate means to level the playing field for U.S. industries 
competing with countries that are not participating in an international 
climate agreement or not undertaking adequate climate change mitigation 
measures.
    The use of border tax adjustments (BTAs) must be evaluated based on 
their overall effectiveness, their role in reducing emissions 
internationally, as well as their ability to protect U.S. consumers and 
businesses. However, there are questions raised around the three main 
objectives that BTAs are to satisfy: (1) prevent a potential decline in 
output from U.S. manufacturers facing higher cost from new domestic 
climate mitigation policies; (2) prevent the displacement of U.S. 
manufacturing to new locales where GHG intensity of production is 
allowed to be higher, resulting in increased emissions; and (3) 
incentivize participation in a multilateral climate mitigation 
agreement for those countries hoping to gain or maintain market share 
in the United States.
    The largest share of carbon-intensive imports into the United 
States originates in Canada, followed by Europe. In comparison, China's 
share is comparatively small. Because Canada and Europe, as well as 
many developing countries, are on average cleaner than U.S. production, 
then implementing BTAs could likely put U.S. manufacturing at a 
competitive disadvantage, and thus fail to meet their primary 
objective.
    Advocates for imposing a carbon tariff on carbon intensive goods at 
the border claim that it will force developing countries to the 
bargaining table. It must be re-stated however that China, the source 
of much of the concern in the U.S. climate policy debate, is 
productively engaged in multilateral negotiations under the UNFCCC to 
achieve a global deal on climate. China is also already taking 
aggressive action to curb emissions, including a renewable energy 
standard and a reduction in national energy intensity. Such progress in 
China should damper arguments that U.S. industry will move there to 
avoid carbon regulation. Further, because Chinese exports to the U.S. 
make up such a small fraction of Chinese production, BTAs are unlikely 
to function as useful leverage in compelling China to take on binding 
emissions targets.
    Given the clear international momentum building up toward the 
UNFCCC Conference of the Parties (COP)15 in Copenhagen, scheduled for 
December 2009, all efforts should be focused on reaching an ambitious 
global agreement that tackles the climate crisis in both an effective 
and fair manner to both U.S. consumers and the international community. 
International cooperation is the best route for progressively 
eliminating environmental and climate dumping and a ``race to the 
bottom'' in environmental standards and regulations. Bold leadership by 
the United States is welcomed and encouraged by the international 
community and may be the single best ``carrot'' to entice other 
countries to join a robust and effective multilateral agreement under 
the UNFCCC.

RECOMMENDATIONS

    Decarbonize the Tax Code--Remove and redirect subsidies that 
encourage wasteful energy use and the use and production of fossil 
fuels. Friends of the Earth finds that at least $32.2 billion could be 
freed up through a decarbonization of the Tax Code that could be 
applied to activities that encourage the efficient use and production 
of clean energy.

    Protect American Families--Adopt policy options that provide (1) a 
sufficient amount of resources is designated specifically for low- and 
moderate-income households, (2) rebates or similar income recycling is 
delivered fairly and through effective delivery mechanisms, and (3) 
additional investments focus on revitalizing lower-income communities 
toward decreasing carbon dependence and increasing job opportunities. 
This should be accomplished while avoiding cash grants to investor-
owned Local Distribution Companies (LDCs).

    Consideration of a Cap and Trade Program--Economists agree that any 
consideration of a Federal cap and trade program should start with an 
adherence to auctioning all the pollution permits rather than give them 
away for free. A cap and trade program need not be the only approach 
used to reduce GHG emissions. Complementary policies outside a carbon 
trading program can be better mechanisms to capture emissions from some 
sources, such as transportation or international deforestation. 
International offset projects present special problems under a cap and 
trade program, particularly with forests, and should be avoided.

    Approach Cap and Trade Program with Caution and Prudence--The 
current credit crisis in the United States provides a cautionary tale 
to heavy reliance on a carbon trading system. The design of 
California's global warming law, AB32, may provide a model of sorts, as 
California is likely to rely on carbon trading for only one-forth of 
its overall emissions reductions.

    Support Bold U.S. Leadership to Reach An Effective Global Climate 
Deal--The United States needs to offer substantial financial and 
technical assistance to developing countries in the areas of 
international adaptation and clean technology transfer before 
developing countries are forced to commit to reducing their GHG 
emissions.

                                 
                     Statement of Stephen A. Smith

    My name is Stephen Smith. I am the Executive Director of the 
Southern Alliance for Clean Energy (SACE). Since 1985, SACE has been 
working on behalf of citizens in the Southeast to promote responsible 
energy choices that create global warming solutions and ensure clean, 
safe and healthy communities throughout the Southeast.
    SACE applauds the work you have done to promote effective climate 
change legislation and pledges to work with you and your staff to 
ensure the bill ultimately adopted by Congress embraces the most 
effective and responsible approach to reducing greenhouse gas 
emissions.
    In this testimony, I would like to focus on one particular and 
critical aspect of a well-designed cap and trade program for carbon 
emissions--the need to auction 100 percent of the credits immediately. 
As this testimony will demonstrate, auctioning all the credits is a 
critical predicate to ensuring the environmental, economic and 
political success of a carbon cap and trade program.
Unprecedented Resources at Stake
    The science of pollution mitigation has advanced significantly 
since Congress enacted the first cap and trade program to address the 
problem of acid rain back in 1990.
    In the 18 years that followed, study after economic study lends 
critical support to the idea that a properly constructed cap and trade 
program must auction 100 percent of the carbon credits. Anything less 
than 100 percent auctions would needlessly increase the cost of the 
program to the economy and consumers, while potentially resulting in 
windfall profits for shareholders and executives of electric utility 
companies and other industries.
    Under a cap and trade program, a carbon credit authorizes the 
holder to emit one metric ton of carbon dioxide, or its equivalent, per 
year. These credits will be extremely valuable--eventually generating 
hundreds of billions of dollars in revenue each year--and they 
represent an important resource in our Nation's efforts to address 
global warming.
    As CBO Director Orszag testified in April 2008 before the Senate 
Finance Committee:
    On the basis of a review of the existing literature and the range 
of CO2 policies now being debated, CBO estimated that by 
2020, the value of those allowances could total between $50 billion and 
$300 billion annually (in 2006 dollars). The actual value would depend 
on various factors, including the stringency of the cap (which would 
need to grow tighter over the years to keep CO2 from 
continuing to accumulate), the possibility of offsetting CO2 
emissions though carbon sequestration or international allowance 
trading, and other features of the specific policy that was selected. 
On April 10, 2008, CBO estimated that the value of the allowances 
created under S. 2191 (America's Climate Security Act) would be roughly 
$145 billion once the proposed program took effect in 2012; in 
subsequent years, the aggregate value of the allowances would be even 
greater.
    The cumulative value of these credits over the life of the program 
is simply unprecedented and any decision on the allocation of these 
resources should be made only after extensive examination of their 
potential utility. Properly structured, these revenues could be used to 
help families with their energy bills and to speed the development of 
important renewable energy and energy efficiency technologies.
    Many of the leading climate change bills before Congress, however, 
would give a majority of the carbon credits away. For example, the 
legislation the Senate considered earlier this summer--America's 
Climate Security Act--would auction just 26.5 percent of the credits at 
the start of the program. Many of the remaining 73.5 percent of the 
credits would be allocated for free to industries with a history of 
emitting greenhouse gases. Later in the program's lifetime, this 
legislation would still allocate more than a quarter of the credits for 
free. Other major climate change bills in Congress allocate credits in 
a similar fashion.
    We caution the Committee from adopting this approach. It will 
needlessly increase the economic cost of reducing our greenhouse gas 
emissions and undermine the ability of future Congresses to assist low-
income families and other vulnerable communities.

No Windfalls for Polluting Industries
    Utilities and other greenhouse gas emitting industries argue that 
Congress should allocate some or all of the credits to them for free to 
minimize the energy costs they pass on to their ratepayers. For 
example, in testimony before the Senate Environment and Public Works 
Committee on June 28, 2007, Jim Rogers, the Chairman of Duke Energy,\1\ 
stated:
---------------------------------------------------------------------------
    \1\ Warned makes it sound like what he's saying needs to be heeded; 
far from it.

          Consumers should not be penalized for fuel choices that were 
        made 40-plus years ago. Areas of the country facing the largest 
        increases in electricity rates due to climate change policy 
        also represent the Nation's industrial heartland. How 
        allowances are allocated will directly impact the cost of 
---------------------------------------------------------------------------
        electricity and the prices these consumers pay.

    This argument is simply inaccurate. Gifting billions of dollars in 
pollution credits to utilities will not lower energy bills for 
ratepayers because the marginal cost of abating a unit of greenhouse 
gas is the same regardless of whether a firm buys the permits or is 
allocated the permit for free. As the Congressional Budget Office 
observed in their testimony before the Senate Energy and Natural 
Resources Committee in May:

          By attaching a cost to CO2 emissions, a cap and 
        trade program would thus lead to price increases for energy and 
        energy-intensive goods and services. Such price increases would 
        stem from the restriction on emissions and would occur 
        regardless of whether the government sold emission allowances 
        or gave them away. Indeed, the price increases would be 
        essential to the success of a cap and trade program because 
        they would be the most important mechanism through which 
        businesses and households were encouraged to make investments 
        and change their behavior to reduce CO2 emissions.

    Further, the CBO notes:

          Giving all or most of the allowances to energy producers to 
        offset the potential losses of investors in those industries--
        as was done in the cap and trade program for sulfur dioxide 
        emissions--would also exacerbate the regressivity of the price 
        increases. On average, the value of the CO2 
        allowances that producers received would more than compensate 
        them for any decline in profits caused by a drop in demand for 
        energy and energy-intensive goods and services. As a result, 
        the companies that received allowances could experience 
        windfall profits.

    Harvard Economist Greg Mankiw accurately points out that freely 
allocating carbon credits to polluting industries is nothing more than 
corporate welfare.
    To understand why this is the case, consider a utility that is 
given credits equal to its historic level of carbon emissions, as many 
utilities have suggested should happen. How will that allocation affect 
the utility's behavior? Very little, as it turns out.
    If the utility has a history of emitting 100 tons of carbon dioxide 
or equivalent per year and is given 100 credits that can be used to 
emit one ton of carbon each, the utility considers options for reducing 
its carbon emissions and determines that the cost of reducing its 
emissions from 100 to 99 tons is $10. If each credit is worth $15 
dollars, then the utility will spend the $10 to reduce its carbon 
emissions by one ton, sell the credit, making its shareholders $5 in 
the transaction. The utility will continue to reduce its emissions and 
sell its credits until the cost of reducing another ton of carbon 
emissions is equal to the market value of the credit. If the cost of 
reducing emissions from 60 to 59 tons is equal to $15, then the utility 
will stop there. In the end, it uses 60 credits and sells 40.
    Now consider the case where the utility is given zero credits, and 
has to buy them in order to continue operations. Once again, the 
utility will have to balance the cost of credits verses the cost of 
reducing its carbon emissions. In this case, the utility will buy 
credits until the $15 cost of buying a credit is equal to the cost of 
reducing the next ton of carbon emissions. Here, the utility buys 60 
credits, and invests in mitigation technologies to reduce the other 40 
tons of carbon.
    The important point here is that the firm's behavior is the same 
regardless of whether it is given the credits or it has to buy them 
like everybody else. In both cases, the utility produces the same 
amount of electricity as well as carbon. And ratepayers will face 
similar costs.

What About Costs to Industry?
    In recent years, considerable research has gone into assessing what 
level of credit allocation is necessary to ``compensate'' the owners of 
utilities and other industries for losses associated with a carbon cap 
and trade program. One study found that allocating between 9 and 21 
percent of the credits under the Kyoto Protocol would be sufficient to 
offset the agreement's costs to energy and electricity producers.
    Other studies, however, found the regulatory regime of a cap and 
trade program without auctions could increase the opportunity for 
profits by affected industries. As Resources for the Future noted in a 
2002 study:

          By compelling fossil fuel suppliers to restrict their 
        outputs, the government effectively causes firms to behave like 
        a cartel, leading to higher prices and the potential for excess 
        profit. To the extent that the environmental policy enables 
        firms to retain these rents--such is the case under 
        CO2 policy involving freely offered tradable 
        permits--the firms can make considerably higher profit under 
        regulation than in its absence.

    Wall Street apparently agrees. The Wall Street investment firm of 
Bernstein Research reported earlier this year its analysis of the 
potential impact of a cap and trade program on utility industry 
financials. The title of the report--``U.S. Utilities: Unregulated 
Generators' Profits Could Surge Under Senate Bills to Cap 
CO2 Emissions''--reflects its findings that implementing a 
cap and trade program could increase profits for some utilities. As the 
report notes:

          If the U.S., in implementing its own cap and trade regime for 
        GHG emissions, also allocates allowances for free, we can 
        expect unregulated power generators in this country to behave 
        similarly, passing through the value of allowances consumed to 
        wholesale power prices. And as these generators will bear no 
        offsetting cost, their earnings can be expected to increase 
        materially.

    Whatever the costs or benefits to industry, the more pertinent 
question to ask is simply this: If a cap and trade program affects 
everyone--energy consumers and producers alike--why should polluting 
industries alone get compensated?
    Global warming affects everyone. No industry should be given 
special status and protected from the responsibilities that the rest of 
us will face.

Economic Efficiency and Low-Income Families
    Effectively addressing climate change will impose a certain level 
of costs on the economy. The question before Congress is how to best 
structure a cap and trade program to minimize the impact to the economy 
while helping low-income families and other energy consumers most 
vulnerable to changes in energy prices. The answer to this question, 
again, is to auction the credits and use the revenues raised to reduce 
the program's overall cost to the economy.
    The CBO estimated that giving away credits under a cap and trade 
program would cost nearly twice as much than if the credits were 
auctioned and the revenues used to cut taxes. Who would bear the 
additional costs of giving away credits to polluting industries?
    Of the four allowance-allocation and revenue recycling scenarios 
that CBO analyzed, the share of policy costs borne by households in the 
lowest-income quintile would be largest if the government gave 
allowances away and used the revenue received . . . to reduce corporate 
taxes.
    Further, the CBO noted in their June 17th letter to Senate Energy 
and Natural Resources Committee Chairman Bingaman that lawmakers have 
several options for assisting those most effected by increased energy 
costs, including collecting the resources from the auction of carbon 
credits and issuing rebate checks to households across the United 
States. The CBO noted that:

          Lawmakers could choose to offset the price increases 
        experienced by low- and moderate-income households by providing 
        for the sale of some or all of the CO2 emission 
        allowances and using a portion of the revenues to compensate 
        such households. For example, the Congressional Budget Office 
        (CBO) found that lower-income households could be financially 
        better off as a result of a cap and trade program (compared 
        with no program--and without consideration of any benefit in 
        terms of reduced risk of damage from climate change) if the 
        government chose to sell the allowances and used the revenues 
        to pay an equal lump-sum rebate to each household in the United 
        States. In that case, the size of the rebate would be larger 
        than the average increase in low-income households' spending on 
        energy-intensive goods.

    Different studies may suggest different optimal options, but they 
are universal in finding that the free allocation of credits to 
industry produces the worst outcome, both for the economy as a whole 
and for at-risk populations. Freely allocating credits needlessly 
surrenders resources that could be used to ensure the best outcome for 
the economy and low-income families.

Auction, Not Allocation
    Congress should auction all credits under a cap and trade program 
and use those resources to assist ratepayers with their energy costs 
while investing in the development of critical technologies necessary 
to speed the future reduction of greenhouse gas emissions.
    Such an approach represents the surest means of meeting emission 
targets in the most equitable and economically efficient manner. 
Anything less is simply corporate welfare to those industries that have 
contributed the most to climate change.
    I thank the Committee for holding this hearing and for advocating 
solutions to global warming. SACE looks forward to working with the 
Committee to produce the most effective climate change legislation 
possible. Southern Alliance for Clean Energy (SACE) is a nonprofit, 
nonpartisan organization that promotes responsible energy choices that 
create global warming solutions and ensure clean, safe and healthy 
communities throughout the Southeast.
    Since 1985 SACE has been working on behalf of citizens in the 
Southeast to provide independent analysis of the energy supply system 
in the region, help State utility commissions evaluate proposed energy 
projects, work with State and local governments to develop new programs 
to improve the energy efficiency of government facilities and vehicles, 
and support the siting and development of clean, renewable energy 
sources in our region.
    SACE has been a leading voice for energy reform protecting our 
communities and our region's natural resources for more than 20 years 
with offices and staff throughout the Southeast.

                                 

Dear Congressman Doggett,

    On behalf of our organizations, we write to applaud your efforts to 
build support for strong congressional action to address global 
warming.
    Your commitment to science-based emissions reduction targets, 
auctioning allowances, addressing global warming's impacts on natural 
resources, and advancing an international global climate deal by 
funding international adaptation for at-risk countries is essential. We 
look forward to working with you to ensure that a climate bill will 
serve as the economic engine to repower America by investing in clean 
energy research and development and energy efficiency, creating green-
collar jobs, and saving millions of dollars for American families.
    We appreciate the leadership and debate you are inspiring with the 
introduction of the Climate MATTERS Act. Interest in the bill 
encouraged the House Ways and Means Committee to hold a well-attended, 
robust hearing this month and as such deepened the Committee's 
investigation into policy options to solve global warming. Our groups 
recognize that the House Ways and Means Committee, with its unique 
areas of jurisdiction, will play an important role in helping our 
Nation to achieve strong, science-based reduction targets through the 
Tax Code and other means, while also ensuring that American families 
and workers are adequately protected from undue hardship.
    Thanks to your efforts to educate your colleagues, nearly 100 
Members have already shown that they fundamentally agree that our 
Nation needs long-term solutions to our energy problem and that those 
solutions go hand in hand with solving global warming.

            Sincerely,
                                                    Andrew Fahlund,
                   Vice President for Conservation, American Rivers

                                                      Sarah Saylor,
                           Legislative Representative, Earthjustice

                                                      Emily Figdor,
       Federal Global Warming Program Director, Environment America

                                                    Shawnee Hoover,
                         Legislative Director, Friends of the Earth

                                                      Kate Smolski,
    Sr. Legislative Coordinator, Global Warming Campaign Greenpeace

                                                     Justin Tatham,
      Assistant Director of Government Relations, National Audubon 
                                                            Society

                                                       Bob Gruenig,
       Senior Policy Analyst, National Tribal Environmental Council

                                                      David Waskow,
                     Climate Change Program Director, Oxfam America

                                                     Will Callaway,
         Legislative Director, Physicians for Social Responsibility

                                                     Dave Hamilton,
            Director of the Climate and Energy Program, Sierra Club

                                              Jennifer S. Rennicks,
        Federal Policy Director, Southern Alliance for Clean Energy

                                                     David Moulton,
    Federal Global Warming Program Director, The Wilderness Society

                                                       Lexi Shultz,
    Deputy Director, Climate Program, Union of Concerned Scientists

                                 
                     Statement of Thomas J. Gibson

    On behalf of the members of the American Iron and Steel Institute, 
it is my pleasure to submit to you our written testimony in response to 
the hearing the Committee recently held entitled ``Policy Options to 
Prevent Climate Change.''
    We believe the most important principle for successfully addressing 
climate change is this: It is a global problem that can only be 
addressed effectively on a global basis. If your Committee is guided by 
this principle, we are confident any resulting legislation will have 
two desirable outcomes: It will actually lower CO2 emissions 
globally and it will do so without lessening the competitiveness of 
U.S. manufacturers in the global marketplace.
    The steel industry in the U.S. has the lowest energy consumption 
per ton of production and the lowest CO2 emissions per ton 
of production in the world. Production of steel in the U.S. versus 
other parts of the world is therefore good for the environment.
    The enactment of any CO2 reduction legislation in the 
United States that does not incorporate or provide for similar measures 
being taken by other major steel producing nations such as China, on a 
contemporary timeline, will alter our competitiveness verses global 
steelmakers. We must hold foreign manufacturers to comparable 
standards, or else we will risk our own manufacturing jobs and economic 
health, while at the same time making our planet's atmosphere worse, 
not better.
    There are many activities proceeding in parallel with your 
deliberations that all address in some way a ``global solution to a 
global problem.'' We offer the following two points for your 
consideration.

      The steel industry worldwide is working on a Global Steel 
Sectoral Approach to climate change under the auspices of the 
International Iron and Steel Institute. It is an agreement that will 
obligate major steel producers, including those in Brazil, Russia, 
India and China, to reduce CO2 emissions. It is the type of 
agreement that has the potential to lower global CO2 
emissions without creating market distortions. It is being presented to 
UNFCCC negotiators in Poland in December 2009 as a model for post-Kyoto 
policy. We believe governments should look to the Global Steel Sectoral 
Approach to inform their own public policy initiatives.
      In the absence of a successful Global Steel Sectoral 
Approach that avoids distortions in the marketplace, legislators must 
be prepared to address competitiveness impacts as an essential 
component of domestic climate change policies. For example, prior 
legislative efforts have included various ``competitiveness 
provisions.'' We believe that any competitiveness provision should 
impose the same cost obligations on imports that are imposed on 
domestic producers, for example by border adjustment measures; by 
requiring foreign and domestic firms to begin buying allowances in the 
same timeframe; by subjecting imports to the same requirement to obtain 
and submit allowances for greenhouse gas emissions; and by eliminating 
the Administration's discretion to waive the requirements on foreign 
manufacturers.

    Our overarching point remains: Climate change is a global problem 
that can only be addressed effectively on a global basis. We urge 
Congress to ensure any climate legislation involves our major trading 
partners so that it will lower CO2 emissions globally 
without lessening the competitiveness of U.S. manufacturers in the 
global marketplace.
Background--Steel Industry Leadership
    The American steel industry is part of the solution in this debate, 
not the problem. We are the most energy efficient steel industry in the 
world and we have the data to prove it. We not only beat the Kyoto 
targets 11 years early, we are already accomplishing on our own what 
the various cap and trade proposals seek to do for the entire economy. 
The domestic industry, largely through recycling and investments in new 
technology, has reduced energy use per ton of steel shipped by over 40% 
over the past 25 years. Specifically, reductions in energy intensity 
per ton of 
steel shipped between 1990 and 2006 exceeded 29% (a detailed chart appea
rs below).

[GRAPHIC] [TIFF OMITTED] T2201A.121


    Because of our advances over the last two decades, the state-of-
the-art processes and technologies we operate today are highly 
optimized. This means that in order to continue to make reductions in 
energy use, new technologies and new processes are required. We are 
currently researching, in collaboration with the rest of the global 
steel industry, the next generation of iron and steelmaking 
technologies that will drastically reduce or eliminate CO2 
emissions. Such new ``breakthrough technologies'' will be developed and 
deployed over the next 15-20 years and any legislated CO2 
reduction timeline should recognize when these technologies will be 
commercially available.
    The steel industry has and is developing new types of steel 
products that lead the way in reducing the greenhouse gas emissions of 
our customers, for example, through the design of automobiles using 
advanced high strength steels which permit much lower vehicle weights 
and require much less fuel, all while maintaining vehicle safety. Use 
of certain steel products results in more efficient buildings and 
infrastructure and is integral in pressure vessels for electrical power 
generation and energy transportation. Fighting global warming will 
require significant amounts of new steel products.

Background--Energy Supply
    The cost of energy is sure to rise, not just for steel, but for the 
entire economy. Unfortunately, lack of a coherent energy policy has not 
been addressed in any of the current pending climate legislation. We 
need increased energy supply and greener energy, both of which have 
immediate benefits in reducing the CO2 footprint of all 
manufacturers. Obviously, if U.S. energy costs continue upwards 
unabated, this will only increase the likelihood that foreign 
manufacturers, who have access to affordable energy, will capture U.S. 
jobs and domestic market share, and consequently increase greenhouse 
gas emissions.

Background--Cap and Trade
    We still have grave doubts generally about how well cap and trade 
can address climate change. Cap and trade worked reasonably well on the 
acid rain problem. The climate change issue is quite different. With 
climate change we have major technological gaps, the need for global 
reach, the presence of foreign competitors and no guaranteed ability 
for regulatory cost pass-through.
    Congress has under consideration a number of proposals to address 
climate change through a cap and trade regime. While the 
competitiveness provisions contained within these bills are well 
intentioned, much work remains in order to craft proposals that 
actually will result in addressing the global issue of climate change 
and meet WTO muster. Adopting a competitiveness provision that proves 
to be ineffective or WTO-illegal, will fail to create a level playing 
field and result in a significant loss of high-paying and highly valued 
jobs.
    Thank you for your time and consideration. We recognize the 
enormous challenge that faces the Committee as it seeks to develop 
responsible climate change legislation. Please be assured as the 
Committee moves forward it will have the full cooperation of our 
industry as a technical resource to be called on at any time. We look 
forward to working with you on this critical issue.

                                 
                           Statement of VPSI
          Climate Change Legislation_``A three legged stool''

    Much of the debate and discussion regarding climate change 
legislation has focused on how to develop a `cap and trade' system 
which would create caps on the amount of carbon that can be emitted in 
the air, while establishing a market for industry to buy and sell the 
right to emit carbon. While potentially effective, a `cap and trade' 
system would only have a direct impact on stationary source emissions. 
Mobile source emissions, primarily emissions from personal and freight 
transport, would widely be unaffected by a cap and trade system.
    Transportation sources accounted for approximately 29 percent of 
total U.S. greenhouse gas emissions in 2006. Transportation is also the 
fastest-growing source of U.S. GHGs, accounting for 47 percent of the 
net increase in total U.S. emissions since 1990 and is also the largest 
end-use source of CO2, which is the most prevalent 
greenhouse gas.\1\
---------------------------------------------------------------------------
    \1\ Greenhouse Gas Emissions from the U.S. Transportation Sector 
1990-2003; U.S. EPA, 2006.
---------------------------------------------------------------------------
    Climate change legislation designed to only manage stationary 
source emissions through a cap and trade system would be incomplete. In 
order to deal with the issue of climate change, VPSI urges Congress to 
pass comprehensive global warming legislation which attacks the problem 
by reducing both mobile and stationary source emissions.
    Specifically, a comprehensive global warming legislative package 
should include:

      A Cap and Trade scheme;
      Clean fuels legislation; and
      Cost effective polices and programs to promote a 
reduction in vehicle miles traveled (VMT).

    While understanding that this Committee does not deal with every 
aspect of the legislation, for the purpose of this hearing, VPSI will 
highlight some of the items that this Committee can include in a global 
warming package.
    Furthermore, VMT reduction will not only help reduce carbon 
emissions, but it also reduces congestion, and helps conserve fuel. So 
as this Committee acts on other important pieces of legislation, VPSI 
would kindly remind the Committee that many of these initiatives can, 
and should, be passed as soon as possible. We'd like to begin by 
briefly introducing VPSI and vanpooling.

Vanpooling and VPSI--Background
    VPSI is the Nation's largest vanpool service provider with nearly 
5,000 vanpools serving commuters in more than sixty (60) metropolitan 
areas and three (3) statewide programs (Hawaii, Michigan and Vermont). 
VPSI vanpools remove 1.8 million tons of carbon each day \2\ from the 
atmosphere, leading to a reduction of 457 million tons of carbon each 
year \3\ (see calculations below). Nationally, there are 12,000 
vanpools removing 1.1 billion tons of carbon each year.\4\
---------------------------------------------------------------------------
    \2\ Calculation: (50K cars  50 miles/day  22 mpg 
 19.4 tons CO2) - (5K vanpools  50 mi/day 
 13 mpg  19.4 tons CO2) = 1.8 million tons 
CO2 reduced.
    \3\ Calculation: 1.8 million tons CO2 reduced  
250 workdays per year = 457 million tons CO2 reduced.
    \4\ Calculation: (120K cars  50 mi/day  22 mpg  
19.4 tons CO2  250 workdays/yr) - (12K vanpools 
 50 mi/day  13 mpg  19.4 tons CO2 
 250 workdays/yr) = 1.1 billion tons CO2 reduced.
---------------------------------------------------------------------------
    What is a vanpool? In short, a vanpool is simply a large carpool. 
Generally speaking, a vanpool is created when 6-15 people who typically 
work at the same company or common location will decide to commute 
together. This group will pick one person to be the volunteer driver 
and one-to-three alternate drivers. This group will then contract for 
the use of a nine to fifteen passenger vehicle on a ``30-day, pay-as-
you-go'' basis through a vanpool service provider.
    VPSI and other vanpool providers work with large employers, 
transportation management associations, metropolitan planning 
organizations, and other public entities to market and organize 
vanpools.

    Figure 1--Vanpooling Is the Most Cost Effective Mode of Public 
                             Transportation

[GRAPHIC] [TIFF OMITTED] T2201A.122


    Vanpooling is not exclusive to large metropolitan areas, in fact, 
much of the growth vanpooling has experienced over the past several 
years has occurred in small metropolitan areas and in rural markets 
where commuters often travel more than 50 miles each day to get to and 
from their work location.
    As Congress works to put together climate change legislation, VPSI 
urges Congress to include provisions which would lead to a reduction in 
vehicle miles traveled.
    VPSI calls upon Congress to take the following actions as a part of 
comprehensive climate change legislation:

      Reinstate the Vanpool Investment Tax Credit.

      Include the tax provisions included in the Transportation 
and Housing Choices for Gas Price Relief Act of 2008 (H.R. 6495).

      Set-aside cap and trade proceeds for transit, vanpooling, 
and other VMT reducing strategies.

      Include legislative provisions creating equity between 
the parking and transit benefits associated with section 132(f) (H.R. 
1475), and establish a tax credit for employers who subsidize their 
employees alternative commutes (H.R. 6030).

    These legislative remedies are not a silver bullet, but should be 
one part of the overall solution. Additionally, it should be noted that 
beyond a reduction in carbon emissions, VMT reductions also help 
conserve energy and reduce congestion. As such, VPSI would urge 
Congress to pass these provisions if another appropriate opportunity 
presents itself.

Reinstate the Vanpool Investment Tax Credit

    Under the Federal Energy Tax Act of 1978, a 10 percent investment 
tax credit was approved for employers who established vanpools. To 
qualify for the credit, the van was required to have a seating capacity 
of at least eight, excluding the driver, have a 3-year useful life, be 
used 80 percent of the time for vanpooling, and be put into service by 
January 1, 1986.
    From 1975 to 1985 over 24,000 commuter vanpools were placed into 
service. Large employers, e.g. 3M, Conoco, Texaco, Pennzoil, Arco, 
Hartford Insurance, Schering Plough, Boeing, Aramco, Arizona Public 
Service, TVA, Chrysler, Cargill, Northrop, Shell, Ford, and McDonnell 
Douglas, acquired fleets of vans to transport their employees to and 
from work.
    The vanpool investment tax credit expired in 1986 and was not 
extended. VPSI urges Congress to reinstate the 10% ITC, but also 
include private vanpool service companies in eligibility. (They didn't 
exist from 1978 to 1985, except in 5 or 6 urban areas. Now these 
private vanpool service companies serve commuters in more than 60 U.S. 
cities).
    Based upon historical trends and increasing demand, VPSI projects 
that if such legislative policy was enacted, vanpool use could double 
over the next four (4) years. Such growth would lead to new emission 
reductions of 1.1 billion tons of carbon per year at an estimated 
total cost of $36 million over the 4-year period, or $122/ton of 
carbon. (See Table 1).
    Additionally, a reinstated 10% vanpool investment tax credit would 
be three times more effective at reducing CO2 emissions, 
would reduce peak hour VMT in commute traffic by a factor of 10, and 
would have less than half the impact to the Treasury than the current 
tax credit for the purchase of hybrid vehicles. (See Figure 2).


   Table 1--Cost to U.S. Budget of Investment Tax Credit FY '10-FY '13
------------------------------------------------------------------------
 
------------------------------------------------------------------------
 
Target = 24,000 vanpools           Typical large commuter van = $30,000
 
Current fleet = 12,000                       Value of 10% ITC = $3,000
 
Growth = 12,000 vanpools              Impact on Treasury = $36,000,000
                                              ($3,000  12,000)
------------------------------------------------------------------------

         Figure 2--Cost to U.S. Treasury Hybrid vs. Vanpool ITC

[GRAPHIC] [TIFF OMITTED] T2201A.123

      Figure 3--Impact of ITC Reinstatement on Domestic Automakers

[GRAPHIC] [TIFF OMITTED] T2201A.124


    Finally, an investment tax credit is also good for domestic 
automakers. Vanpools typically use nine (9) to fifteen (15) passenger 
vehicles. Currently, only domestic automakers produce these larger 
passenger vehicles. The proposed policy change would mean an additional 
$440 million in sales for domestic automakers over the next 4 years. 
(See Table 4).

Include the tax provisions included in the Transportation and Housing 
Choices for Gas Price Relief Act of 2008 (H.R. 6495)

    The Transportation and Housing Choices for Gas Price Relief Act of 
2008 (H.R. 6495), as introduced by Congressman Blumenauer (D-OR) is a 
comprehensive piece of legislation aimed at providing commuters with 
options from the high price of gas. While the direct focus of this 
legislation is relief from the pain at the pump, a secondary focus is 
to reduce the amount of greenhouse gases that are emitted into the air. 
VPSI urges the Ways and Means Committee to act on the relevant sections 
of this legislation that affect the Tax Code and are under this 
Committee's jurisdictions. Specifically:

      Section 7 `Credit for Teleworking'--which would provide a 
tax credit of up to $400 a year for qualified teleworking expenses.
      Section 8 `Transportation Fringe Benefit to Bicycle 
Commuters'--which would expand the transportation fringe benefit under 
section 132(f) of the Code to those who commute to work via bicycle. 
The provision sets a cap of $50/month.
      Section 9 `Increased Uniform Dollar Limitation for All 
Types of Fringe Benefits'--which would create parity between the 
parking and transit portions of the transportation fringe benefit.
      Section 11 `Eligibility of Self-Employed Individuals to 
Receive Certain Transit Benefits'--which would allow the self employed 
to take advantage of the transit benefit under section 132(f) of the 
Tax Code.
      Section 12 `Parking Cash-Out Programs'--which would 
require any employer who subsidizes or offers pre-tax parking benefits 
to also offer parking cash-out programs. Parking cash-out is a term 
used when employers offer employees cash in lieu of parking to 
encourage employees to use transit or other forms of transportation.
      Section 13 `Vanpool Credit'--which would reinstitute a 
tax credit as described earlier in our testimony.

    These legislative proposals are cost effective measures that will 
encourage more Americans to utilize alternative forms of 
transportation, thus driving less and emitting less carbon into the 
atmosphere.

Set-aside cap and trade proceeds for transit, vanpooling, and other VMT 
reducing strategies

    According to the Environmental Protection Agency nearly one-third 
of all greenhouse gas emissions come from the transportation sector. As 
Congress puts together a cap and trade system, VPSI strongly recommends 
that no less then 10% of the funds generated from the cap and trade 
system be dedicated to mass transit and VMT reducing strategies. VPSI 
recommends that when putting together the details of such a program 
that it recognizes all the stakeholders who play a role in 
transportation and can play a role in reducing VMT including employers, 
local and regional planning bodies, transportation management 
associations, and private providers of public transportation. Funneling 
resources to existing Federal Highway and Federal Transit formulas 
alone may not inspire the type of change that is required to meet the 
goals of this legislation. VPSI recommends that the funding be 
apportioned in a way that guarantees it is used in an efficient way to 
reduce VMT and carbon emissions.
    Additionally, provided that a cap and trade program would not 
produce proceeds for several years, VPSI recommends that the 
legislation include provisions that would allow public and private 
transportation agencies to bond against the promise of cap and trade 
proceeds in order to begin early action programs.

Include legislative provisions creating equity between the parking and 
transit benefits associated with section 132(f) (H.R. 1475), and 
establish a tax credit for employers who subsidize their employees 
alternative commutes (H.R. 6030)

    Finally, comprehensive climate change legislation should include 
provisions that increases transit ridership nationwide. There are two 
ways that this can be accomplished. First, the Ways and Means Committee 
should include legislation offered by Congressman McGovern (D-MA) which 
would establish parity between the parking and transit portions of the 
transportation fringe benefit. This would end the current financial 
incentive to drive to work that exists in the Tax Code. Additionally, 
including this provision would mean that those Americans with the 
longest commutes, and thus are driving the most and emitting the most 
carbon during their daily commute would now be covered by the transit 
benefit and would have an incentive to stop driving to work. One 
version of the legislation offered by Congressman McGovern would 
increase the cap on the transit benefit from $115/month to $200/month 
while slightly reducing the parking portion from $220/month to $200/
month. In this version, the legislation is revenue positive by $143 
million over 10 years.\5\
---------------------------------------------------------------------------
    \5\ According to a Joint Committee on Taxation letter to 
Congressman McGovern, June 19th, 2007.
---------------------------------------------------------------------------
    Secondly, this Committee should include legislation offered by 
Congressman Kirk (R-IL), H.R. 6030, which would create a tax credit for 
employers who subsidize their employees' commutes. Multiple studies 
have shown that when an employer pays for their employees' commute as a 
part of their benefit package, transit ridership and use of alternative 
transportation modes increases dramatically. More and more American 
businesses recognize the role they can play in the fight against global 
warming. As a part of that fight, employers are ready and willing to 
become more involved in their employees commutes. As such, the Federal 
Government can help inspire more companies to become engaged by 
offering a small tax credit. The cost of such credit would be minimal 
compared to the outcomes.

Conclusion
    The recommendations outlined here today are only a few of the many 
legislative remedies that can help reduce carbon emissions, and fight 
global warming. VPSI recommends this Committee and the whole of 
Congress study all of these remedies and include anything and 
everything that can have a positive benefit.
    If you have any questions, please contact Jon Martz, Vice President 
of Government Affairs at (248) 597-3519 or Jason Pavluchuk at (202) 
285-6414. We look forward to working with this Committee as the process 
unfolds.

                                 
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