[Senate Hearing 110-579]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 110-579
 
                 CREATING JOBS WITH CLIMATE SOLUTIONS: 
                    HOW AGRICULTURE AND FORESTRY CAN 
                    HELP LOWER COSTS IN A LOW-CARBON 
                                ECONOMY 

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

                                HEARING

                               before the

SUBCOMMITTEE ON RURAL REVITALIZATION, CONSERVATION, FORESTRY AND CREDIT

                                 of the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION


                               __________

                              MAY 21, 2008

                               __________

                       Printed for the use of the
           Committee on Agriculture, Nutrition, and Forestry


  Available via the World Wide Web: http://www.agriculture.senate.gov

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SUBCOMMITTEE ON RURAL REVITALIZATION, CONSERVATION, FORESTRY AND CREDIT

























                 DEBBIE A. STABENOW, Michigan, Chairman

PATRICK J. LEAHY, Vermont            MICHEAL D. CRAPO, Idaho
MAX BAUCUS, Montana                  RICHARD G. LUGAR, Indiana
BLANCHE L. LINCOLN, Arkansas         THAD COCHRAN, Mississippi
E. BENJAMIN NELSON, Nebraska         MITCH McCONNELL, Kentucky
KEN SALAZAR, Colorado                LINDSEY GRAHAM, South Carolina

                Mark Halverson, Majority Staff Director

                    Jessica L. Williams, Chief Clerk

            Martha Scott Poindexter, Minority Staff Director

                 Vernie Hubert, Minority Chief Counsel

                                  (ii)

  

























                            C O N T E N T S

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                                                                   Page

Hearing(s):

Creating Jobs With Climate Solutions: How Agriculture and 
  Forestry can Help Lower Costs in a Low-Carbon Economy..........     1

                              ----------                              

                        Wednesday, May 21, 2008
                    STATEMENTS PRESENTED BY SENATORS

Stabenow, Hon. Debbie, a U.S. Senator from the State of Michigan.     1
Crapo, Hon. Mike, a U.S. Senator from the State of Idaho.........     2
Klobuchar, Hon. Amy, a U.S. Senator from the State of Minnesota..     5
Salazar, Hon. Ken, a U.S. Senator from the State of Colorado.....     5
                              ----------                              

                               WITNESSES
                                Panel I

Broekhoff, Derik, Senior Associate, World Resources Institute....    16
Corneli, Steven, Vice President, Market and Climate Policy, NRG 
  Energy, Inc....................................................    14
Lubowski, Ruben N., Ph.D., Forest Carbon Economics Fellow, 
  Environmental Defense Fund.....................................    12
Wayburn, Laurie A., President, and Co-Founder, Pacific Forest 
  Trust..........................................................     9
Wittman, Dick, Member, Steering Committee, Agricultural Carbon 
  Market Working Group, and Former President, Pacific Northwest 
  Direct Seed Association........................................     7
                              ----------                              

                                APPENDIX

Prepared Statements:
    Broekhoff, Derik.............................................    36
    Corneli, Steven..............................................    50
    Lubowski, Ruben N............................................    53
    Wayburn, Laurie A............................................    87
    Wittman, Dick................................................   100
Document(s) Submitted for the Record:
``21st Century Agriculture Project'', report issued by Senator 
  Bob Dole and Senator Tom Daschle...............................   104
American Farm Bureau Federation, prepared statement..............   133
American Farmland Trust, prepared statement......................   139
American Soybean Association, prepared statement.................   146
The Business Council for Sustainable Energy......................   149
Coalition for Emission Reduction Projects, ``Effects of Offset 
  Policies on Compliance Costs:''................................   155
The Contribution of Pecan Orchard Agricultural Systems to Carbon 
  Storage and Sequestration......................................   159
National Milk Producers Federation, prepared statement...........   163
The Nicholas Institute for Envoronmental Policy Solutions, 
  ``Harnessing Farms and Forests in the Low-Carbon Economy''.....   168



                 CREATING JOBS WITH CLIMATE SOLUTIONS:
                    HOW AGRICULTURE AND FORESTRY CAN
                    HELP LOWER COSTS IN A LOW-CARBON
                                ECONOMY

                              ----------                              


                        Wednesday, May 21, 2008

                                       U.S. Senate,
                      Subcommittee on Rural Revitalization,
                        Conservation, Forestry, and Credit,
                                  Committee on Agriculture,
                                   Nutrition, and Forestry,
                                                     Washington, DC
    The subcommittee met, pursuant to notice, at 2:33 p.m., in 
room SR-332, Russell Senate Office Building, Hon. Debbie 
Stabenow, Chairman of the Subcommittee, presiding.
    Present: Senators Stabenow, Salazar, Klobuchar, and Crapo.

  STATEMENT OF HON. DEBBIE STABENOW, A U.S. SENATOR FROM THE 
                       STATE OF MICHIGAN

    Senator Stabenow. Well, good afternoon. I am so pleased 
that all of you are here. This is a very important topic, and 
obviously very timely given the discussion that we will be 
having in June on the critical issues around global climate 
change and global warming. And I am very pleased that Senator 
Crapo, the Ranking Member of our Subcommittee, has joined me 
and agreeing to convene this meeting, and we are looking 
forward to some very important information being shared today 
that will help us as we formulate some options going forward 
to, I think, make sure that agriculture and forestry are a part 
of the solution when we look at what we need to be doing 
together.
    I believe we have a responsibility to our children and our 
grandchildren to address the growing climate crisis that we all 
know exists, and agriculture does need a voice in that process, 
as I indicated, as part of the solution.
    We are here today to learn about the role of agriculture in 
reducing greenhouse gases and how we can best incentivize these 
reductions in a cap-and-trade system. One way that the 
agriculture and forestry community can play a role is through 
greenhouse offsets.
    As my colleagues know, offsets are greenhouse gas 
reductions or sequestrations made outside a regulatory cap that 
mitigate other emission sources.
    There are numerous types of activities that could qualify 
for offsets. I know we will talk about many of them today. And 
as the jurisdiction of this Committee suggests, we will focus 
primarily on those within agriculture and forestry. Whether it 
is soil sequestration on croplands, methane capture from dairy 
farms, or sustainable managed forests to prevent deforestation, 
as well as grow more and older trees, there are many 
opportunities to reduce emissions of quality offsets that 
ensure that a ton of carbon reduced is a ton of carbon.
    First and foremost, we need to discuss an offset policy to 
find additional solutions that reduce greenhouse gases. There 
are, however, other benefits to a strong offset policy: 
creation of jobs and economic opportunity, increasing and 
incentivizing new technologies, providing additional 
environmental benefits, and, last but not least, offsets 
provide cost containment.
    Michigan and the Nation stand to benefit from a strong 
offset policy. We are blessed in Michigan not only with a 
strong manufacturing base, but also agriculture and forestry 
are key to our economic success. And I think that we can 
benefit both of those sectors as we look at the issue of 
quality offsets. Bottom line, we need to meet our greenhouse 
gas emission mandates, and we can if we allow this to be a 
policy that is reasonably priced, which, again, goes to the 
question of offsets.
    Offsets allow for significant cost control. Recently, a 
well-respected EPA model analyzed the Lieberman-Warner bill and 
found that viable offsets can drastically diminish the cost of 
carbon both to businesses and to consumers. For example, if we 
do not restrict the amount of verifiable quality offsets in a 
cap-and-trade market, the cost savings to the economy may be as 
much as 71 percent from a program that does not limit quality 
offsets.
    There are also other significant opportunities that come 
from offsets. With proper management, both forestry and 
agriculture could help reduce as much as 25 percent of annual 
U.S. emissions. Currently, agriculture sequesters only 1 
percent of U.S. emissions, but through items we will talk about 
today, we could sequester as much as 10 to 15 percent, which is 
why this hearing is so important.
    So I am hopeful that we can construct a set of policies 
from your recommendations today that encourages as many quality 
and verifiable offsets as possible. That way we can make sure 
that we are transitioning into a new low-carbon economy in a 
way that is economically stable and is one that benefits 
consumers in all parts of our economy.
    I am looking forward to the panelists, and I will introduce 
them in a moment. But let me first turn this over to our 
Ranking Member, and I also want to thank Senator Ken Salazar 
from Colorado for joining us for this very important hearing.
    Senator Crapo.

STATEMENT OF HON. MIKE CRAPO, A U.S. SENATOR FROM THE STATE OF 
                             IDAHO

    Senator Crapo. Thank you very much, Senator Stabenow. I 
appreciate your working with me and your interest in this 
hearing. I think it shows very strong leadership, and I 
appreciate that.
    I also want to thank our witnesses for being here with us 
today to discuss the role of agriculture and forestry in a low-
carbon economy. I especially want to give thanks to Mr. Dick 
Wittman for traveling here from Idaho to participate in the 
hearing. Dick is a member of the Steering Committee on the 
Agricultural Carbon Market Working Group and Past President of 
the Pacific Northwest Direct Seed Association. He is a farmer, 
a rancher, and a forester from Idaho and a leader in the 
agriculture industry on carbon markets. He is also very 
valuable in terms of his depth of experience, being a producer 
who is voluntarily participating in carbon contracts, and I 
value his input and consider him to be an important resource on 
these issues.
    It has been estimated that agriculture and forest land can 
contribute immensely to reductions in greenhouse gas emissions. 
For many in agriculture and forestry, carbon offsets represent 
opportunities to obtain more value out of the land and new land 
management technologies in addition to the possibilities of 
reducing the costs of cap-and-trade programs.
    Agriculture and forestry offsets are already contributing 
financially to some farms and private forestry operations, and 
because of their important functions, farmers and foresters 
must have a voice in the discussion about climate change 
policy. That is why I want to thank you again, Chairman 
Stabenow, for holding this hearing today for this important 
discussion.
    Climate legislation is expected to be considered by the 
full Senate soon, and it is important that we are having this 
dialog today to increase the awareness of agriculture and 
forestry's contributions and to take a careful look at what is 
known so far as to how offsets are working in voluntary markets 
and how projects can be properly verified and monitored.
    Additionally, appropriate attention needs to be paid to 
examine both the positive and the negative effects of mandatory 
cap-and-trade systems on farmers, ranchers, and foresters. I 
commend the work that is being done throughout the agriculture 
and forestry communities to collectively look at the most 
constructive role for agriculture and forestry in this context.
    Many of the witnesses here today have been on the cutting 
edge of that effort and in the cooperative work that is taking 
place on this issue. It is very productive. Congress is on the 
verge of finalizing a new farm bill, and included in that farm 
bill conference report is a provision to require the United 
States Department of Agriculture to create technical 
guidelines, including verification and accounting measures to 
determine environmental services benefits from conservation and 
land management actions. This provision would also direct the 
Department to concentrate first on carbon markets. It is 
important because it would better prepare agriculture to take 
part in the carbon credit markets through a structure led by 
the USDA.
    This provision also adds to the significant mechanisms in 
the farm bill for improving our environment through 
conservation programs. We need to keep these programs in mind 
as models when considering climate initiatives and legislation. 
No Federal policy has contributed more to enhancing our 
environment than the farm bill and the conservation programs 
specifically included in it.
    I continue to believe that incentives rather than mandates 
offer the best way to achieve environmental results on private 
land. For that reason, the role of family farms and private 
forests as offset contributors rather than capped industries 
seem to me to be the most productive approach. It is important 
to make certain, though, that throughout the advancement of any 
legislation pertaining to this issue, it does not turn into a 
mechanism to force certain planting or operating decisions that 
may not be in the best interest or make the best sense for a 
particular agriculture or forestry operation.
    Additionally, it is important that U.S. agriculture sectors 
do not get penalized for environmental management in 
agriculture sectors outside our borders. For instance, the 
United Nations Food and Agriculture Organization cited cattle 
rearing as generating more greenhouse gas emissions than the 
transportation sector. However, in the United States, cattle 
management practices surpassed practices in other countries.
    The livestock industry is a vital part of Idaho's economy. 
In 2007, Idaho's beef and dairy industries provided 57 percent 
of Idaho's overall agricultural receipts with more than $3 
billion. It is important for our national economy to ensure 
that these sectors continue to be successful to maintain these 
industries and the jobs that they produce in the United States.
    I encourage everyone to continue to take a hard and 
realistic look at all the factors, good and bad, that may 
result from a mandatory cap-and-trade system. The effects are 
far too reaching to do otherwise.
    Some have raised the concern that emissions leakage could 
substantially lessen the effects of emissions reductions, and 
it is also important to look at how early actors who are 
already taking steps to reduce emissions will be taken into 
account in the new system. It is also important to examine 
proper measurement, double counting, permanence, and the very 
serious concerns about the impact of cap-and-trade systems on 
agricultural inputs that are already sizable and growing. We 
also need to make certain that as tradable units are developed, 
they are done in metrics that make sense for agriculture.
    For farmers and foresters to be able to assist with 
reducing emissions, they must be able to remain on the land. 
There are legitimate concerns that implementation of the cap-
and-trade system could result in prohibitive increases in input 
costs, such as diesel and fertilizer. Policies should best be 
structured to enable agriculture and forestry to contribute to 
this effort without compromising their ability to thrive.
    I look forward to diving into some of these issues as we 
evaluate the discussion today. And, again, I want to thank all 
of you for coming here, the witnesses, Senator Stabenow for the 
farsightedness in holding this hearing, and good timing as 
well. And I appreciate what I expect we will have in terms of 
our lively discussion today.
    Thank you.
    Senator Stabenow. Well, thank you so much, Senator Crapo, 
and we want to recognize Senator Amy Klobuchar as well, and, 
Senator Salazar, if you would like to take a moment, welcome.

STATEMENT OF HON. KEN SALAZAR, A U.S. SENATOR FROM THE STATE OF 
                            COLORADO

    Senator Salazar. Thank you very much, Senator Stabenow, 
Chairman of the Subcommittee, and Senator Crapo for holding 
this hearing.
    I have a statement that I will just submit for the record, 
but I want to make two comments.
    First, it seems to me that what we did with the farm bill 
in Title IX, Moving Forward with New Energy Opportunities for 
Rural America, was a major step in the right direction. We gave 
the farm bill some real meaning with respect to the energy 
future of America that deals with everything from cellulosic 
ethanol to geothermal to small hydroelectric to small wind and 
a whole host of other things that were in there. And I think 
that is very important. And as we move forward in the climate 
change debate, one of the things that we will be addressing 
again is how we continue to move forward with that clean energy 
frontier.
    One of the aspects of climate change and carbon control 
that we worked on in the Energy Committee for a long time has 
been the concept of carbon capture and sequestration, and, 
unfortunately, we have not been able to move with the 
demonstration projects that we have wanted to move forward with 
on that agenda. In my own State, we had a plan in place that 
would have put together a major IGCC plant that would allow us 
to burn coal and would allow us to sequester the carbon in 
geologic formations.
    As we look at that concept, I think it is also very 
important to understand that those who have sequestered carbon 
for a very long time are, in fact, the farmers and ranchers of 
America, and I think that this hearing gives us an opportunity 
to put the spotlight on how our agriculture and rural 
communities can help us deal with the challenge that we face 
with carbon emissions and climate change.
    So I very much appreciate the hearing. Thank you very much.
    Senator Stabenow. Thank you.
    Senator Klobuchar.

STATEMENT OF HON. AMY KLOBUCHAR, A U.S. SENATOR FROM THE STATE 
                          OF MINNESOTA

    Senator Klobuchar. Well, thank you so much, Madam Chair, 
for holding this hearing. We are both from Midwestern States 
where we have people who not only farm but also people who love 
the outdoors. And I do not just hear about global warming 
anymore from academics. I hear it from hunters in Hibbing, 
Minnesota, who have seen the effects on their wetlands; from 
people who go ice fishing on Leach Lake and are having trouble 
putting their fish houses on; from business leaders up in 
Duluth who have seen the effects on the water levels in Lake 
Superior. And certainly if the projections are correct, no one 
will feel the impact worse than farmers, who may face more 
severe weather, droughts, and storms, and will make their lives 
even more unpredictable.
    But I also believe farming can be part of the solution, and 
that is why I am so glad you held this hearing today. Some of 
the cutting-edge research on the cellulosic ethanol, which 
Senator Salazar referred to, in the farm bill is at the 
University of Minnesota, where they found that we can actually 
produce carbon-negative motor fuel from native prairie grass. 
That is why that section of the farm bill that provides 
incentives for dedicated energy crops is so important.
    There are other ways for farmers to fight global warming, 
too. There is a farmer in northern Minnesota whose name is 
Dennis Haubenschild--that is a good Minnesota name. He tells me 
that his cows pay him three different ways: first, his cows pay 
him with the milk that they produce; second, with the 
electricity that they generate with his methane digester; and, 
third, he sells the offsets to the Chicago Climate Exchange for 
capturing those greenhouse gases. He has a saying, Dennis does: 
``It is only waste if you waste it.'' And it has proven to be 
true.
    I am very excited about the work we are doing in our State 
with wind turbines and biomass gassifiers and all kinds of 
things. The times are changing quickly, both in terms of our 
understanding of global warming and also what we can do to 
fight it. And I am looking forward to hearing from our 
witnesses about what Congress can do to help farmers to 
participate to the maximum extent in clean energy and solutions 
to global warming.
    Thank you, Madam Chairman.
    Senator Stabenow. Thank you, Senator.
    We want to turn to our terrific witnesses, and, Mr. 
Wittman, you have been introduced already by Senator Crapo, but 
I would just welcome you again as a farmer and rancher and 
forester from Idaho, very much a part of creating the 
solutions. We welcome you.
    Laurie Wayburn, who is President and co-founder of the 
Pacific Forest Trust. Laurie is the co-founder of the only 
nonprofit organization solely dedicated to preserving, 
enhancing, and restoring America's private working forests for 
all of our public benefits. With more than 25 years of national 
and international experience in sustainability issues, Ms. 
Wayburn's current focus is advancing the climate benefits of 
forests. She is helping to lead regional and national efforts 
to enact climate change policies that unit conservation and 
management with market-based incentives to reduce carbon 
dioxide emissions. We welcome you.
    Mr. Ruben Lubowski, economist and Forest Carbon Economics 
Fellow at the Environmental Defense Fund, we welcome you as 
well and appreciate your expertise. You are working on the 
Climate and Air Program and the Climate Campaign with a focus 
on developing domestic and international strategies to 
integrate carbon emissions and sinks from forestry, 
agriculture, and land-use change into a U.S. cap-and-trade 
system and a successor treaty to the Kyoto Protocol. From 2002 
through 2007, Mr. Lubowski was an agricultural economist in the 
Resource and Rural Economics Division at the U.S. Department of 
Agriculture's Economic Research Service. That is a mouthful. 
You must have had a big business card on that one.
    [Laughter.]
    Senator Stabenow. So we welcome you.
    Steve Corneli, Vice President of Market and Climate Policy, 
NRG Energy, and you coordinate NRG's positions and strategic 
initiatives related to climate change issues. We welcome you as 
well. Mr. Corneli has previously served as NRG's Vice President 
of Regulatory and Governmental Affairs and Director of 
Regulatory Policy and has been a frequent witness in FERC 
market design proceedings and technical conferences. Prior to 
joining NRG, Mr. Corneli served in the Minnesota Attorney 
General's Office--there you go, Senator Klobuchar--first as a 
utility policy analyst, and subsequently as the manager of the 
office's Utility Consumer Advocate Division, with primary 
responsibility for energy-related legislative affairs. Welcome 
to you as well.
    And Derik Broekhoff, Senior Associate with World Resources 
Institute. Derik helps direct the greenhouse gas protocol team 
at the World Resources Institute and leads WRI's work on the 
design of greenhouse gas emissions trading programs, registry 
systems, and standards for carbon offsets. He is the primary 
author of the WRI WBCSD GHG Protocol for project 
accountability--OK--and has testified before Congress on the 
development of voluntary market carbon offset standards. Prior 
to joining WRI, he worked for 10 years in the fields of energy 
and climate change consulting, where he developed financial and 
economic analytical tools for carbon market forecasting, risk 
management, project evaluation, and business strategy 
development for a wide range of private and public sector 
clients.
    As we can see, we have five wonderful experts here with us 
today. I welcome all of you, and, Mr. Wittman, we will start 
with you.

    STATEMENT OF DICK WITTMAN, MEMBER, STEERING COMMITTEE, 
AGRICULTURAL CARBON MARKET WORKING GROUP, AND FORMER PRESIDENT, 
           PACIFIC NORTHWEST DIRECT SEED ASSOCIATION

    Mr. Wittman. Well, Madam Chairman, Ranking Member Crapo, 
and members of the Committee, I appreciate the opportunity to 
come today and speak about ways that agriculture can help our 
Nation mitigate greenhouse gas emissions in a timely and cost-
effective manner.
    As Senator Crapo already gave my resume, I will not 
reiterate that. But I would summarize by saying; being a 
manager of a crop and livestock and timber-managing operation 
really means, we are``carbon managers''. The more we start 
thinking about the most important resource that we manage 
carbon and it is only through that resource that we do all the 
things we do in the natural resource provider industry, it 
brings to bear what this issue today is all about.
    For the last 3 years, I have been part of a national 
steering group of ag leaders studying carbon markets and 
climate change. On behalf of that group, the Ag Carbon Market 
Working Group, I commend you for looking at cost-effective 
strategies to achieve greenhouse gas emissions.
    Science has proven that ag lands have great potential for 
sequestering carbon. Sequestration is a proven sink that 
offsets the impact of emissions. Analysis by the Pew Center 
indicates that agriculture can provide up to 40 percent of the 
reductions that we are hoping to achieve by 2010 compared to 
1990 levels. Consumers and resource providers have concerns, 
and we cannot discount those concerns as they relate to 
potential negative impacts from a carbon-constrained economy. 
No one wants to face increased costs and uncertainties that 
could derail economic progress. But, in my view, the question 
is: Do we pay now, or do we pay more later? There is a 
continuing increasing cost of ignoring this issue.
    Our working group has studied emissions mitigation 
strategies all across the U.S. and globally. We have learned 
that, with the right incentives and education, there is no 
limit to the technologies and practices that businesses and 
consumers can tap to reduce negative impacts on our climate. 
The organizations that I represent urge you to recognize the 
diverse mitigation options that agriculture can offer. These 
include things like conservation tillage, forestry and 
agroforestry, reducing methane from manure and ricelands, 
precision ag efficiencies, displacing fossil fuel with 
renewable energy and reducing nitrous oxide emissions from 
croplands. Allowing market-based carbon offsets as part of a 
national cap-and-trade program provides both a cost-containment 
measure for emitters and a shock absorber to our economy. A 
cap-and-trade system helps make it profitable for farmers and 
foresters to invest in environmental stewardship.
    As an energy-intensive industry, agriculture is sensitive 
to energy prices. It is in all of our best interests to create 
incentives for transitioning to alternative energy that is both 
affordable and less damaging to our environment. Greenhouse gas 
offsets can play a huge role in creating those incentives.
    The EPA and others have modeled cap-and-trade bills, such 
as Lieberman-Warner, and they have concluded that domestic and 
international offset provisions in Senate bill 2191, capped at 
the 15-percent level, could reduce allowance prices by 93 
percent over what they would be without these offsets. If we 
had unlimited ag offsets, those prices could fall even further. 
EPA has also confirmed that if we have unlimited offsets, this 
will not hamper technological innovation, but will reduce costs 
of the entire cap-and-trade system.
    Many organizations are pursuing or already engaging in 
carbon aggregation services. Soil carbon credits can be 
generated and traded in the greenhouse gas markets with 
absolute confidence. My personal experience bears this out. In 
2002, the Pacific Northwest Direct Seed Association penned one 
of the first contracts in the United States--and, frankly, 
throughout the world--to engage in a voluntary carbon offset 
trade. We contracted with Entergy Corporation in Louisiana to 
direct-seed cropland for 10 years that would sequester 30,000 
tons of CO2.
    Carbon trading has proven that education and incentives 
related to these offsets can result in significant changes in 
farming practices. That is what this hearing is all about. We 
want to change behavior, and those changes in behavior can 
result in both economic viability as well as environmental 
improvement.
    Emissions offsets that the ag sector can provide are high 
quality, they are measurable, and they are verifiable. 
Scientists have studied this for years. Soil carbon 
sequestration also has many benefits that go beyond greenhouse 
gas emissions reductions: It improves air and water quality, 
reduces soil erosion, enhances moisture retention, and improves 
soil productivity.
    A sad fact for our industry is that agriculture has lost 
over half the native organic matter in our farming soils across 
the U.S. over the past 300 years. This has resulted from 
tillage, wind, and water erosion. Practices such as direct 
seeding--or no-till--are reversing this trend. By sequestering 
carbon, we are strengthening soil quality, not further 
degrading it. We are also reducing fossil fuel consumption on 
the farm. No other sector can offer such high-value offsets to 
society at such a low cost.
    As we move to a mandatory greenhouse gas system, buyers 
will demand projects that pass rigorous measurement and 
verification tests. The dairy industry is doing this, as you 
have indicated. Those who say agriculture cannot offer a real 
mitigation solution are simply wrong. U.S. agriculture and 
forestry are some of the only sectors with currently available, 
high-quality, low-cost, verifiable emissions reductions 
technologies.
    Mitigating and solving our climate crisis will not be easy. 
Other world players were initially hesitant to include ag and 
forestry as part of the solution. That was a mistake. They are 
now incorporating ag and forestry as vital components of their 
climate mitigation strategies. Here is an area where the U.S. 
has a unique opportunity to provide an international leadership 
role by crafting reasonable and innovative ways to include ag 
and forestry offsets as part of the total solution. Agriculture 
is ready and we are willing to meet this challenge.
    Because of our conviction that we can mitigate emissions, 
the Ag Carbon Market Working Group has endorsed unlimited 
offset markets. So has a report just released by former 
Majority Leaders Daschle and Dole. On behalf of the Bipartisan 
Policy Center, I would respectfully ask that this report be 
submitted for the record.
    Senator Stabenow. Without objection, it will be.
    [The report can be found on page 104 in the appendix.]
    Thank you again for the chance to speak to you today, and I 
will gladly answer any questions and assist you in crafting 
responsible policies as we move forward.
    [The prepared statement of Mr. Wittman can be found on page 
100 in the appendix.]
    Senator Stabenow. Thank you very much.
    I should mention to the witnesses and members, I think the 
clock was not working for a while, but I think it is on now. So 
if everybody has--there we go. OK. We will ask members to keep 
their comments to 5 minutes, our witnesses, and we have lots of 
questions for you.
    Ms. Wayburn.

  STATEMENT OF LAURIE A. WAYBURN, PRESIDENT, AND CO-FOUNDER, 
                      PACIFIC FOREST TRUST

    Ms. Wayburn. Good afternoon, Chairman Stabenow, Senator 
Crapo, members of the Subcommittee. I would like to thank you, 
as well as everyone else has, for holding this most important 
hearing, for the role that forests and farms can play in 
climate policy is not to be underestimated. I am honored to 
testify on the potential of private working forests in 
addressing the challenge of climate change. We look forward to 
working with you as you integrate the forest and farm sector 
into an economy-wide climate strategy.
    The forests can and should, indeed probably must, play a 
significant role in mitigating climate change. They are an 
essential tool to help address this enormous challenge. Their 
inclusion will enable the most cost-effective, rapid, and 
durable climate gains, which will also catalyze multiple 
additional economic and public benefits from our forests, from 
sustainable clean energy alternatives to ecosystem restoration 
to hundreds of thousands of new sustainable jobs. Harnessing 
the power of our forests and climate policy will harness a key 
competitive advantage of the United States in the burgeoning 
global climate marketplace.
    Taking advantage of our Nation's natural assets, deploying 
their proven capacity--if you will, they are the original 
carbon capture and storage--will help heal our climate. They 
can absorb excess CO2 from the atmosphere and store it safely 
for hundreds to thousands of years, in the forest, in products, 
and in substituting for fossil fuels.
    As you mentioned in your kind introduction, I am President 
of the Pacific Forest Trust, the Nation's leading nonprofit 
organization dedicated to protecting America's private working 
forests for their many public benefits, including climate 
stabilization, and I would suggest, as our prior speaker has, 
that this indeed may be their most important contribution now.
    We own, manage, and conserve working forestlands. We 
directly conserve working forests valued at over $160 million 
and work on millions of acres across the West. But we have also 
been instrumental in advancing the role of forests in 
California's climate change policies, which are the first 
economy-wide in the country; in the Northeast's Regional 
Greenhouse Gas Initiative; in the Western Climate Initiative in 
Washington State; and a number of others. We have worked on 
this issue since 1993.
    So in my remarks today, I will address the potential of 
forests in offsetting and reducing net carbon dioxide emissions 
as well as the lessons learned from our experience in 
California developing climate policy and climate markets, where 
we have, in fact, developed the first State-compliant project 
to meet emissions reductions targets, and we have now sold over 
80,000 tons of emissions reductions into this country's first 
pre-compliance market.
    Our experience shows that forest emissions reduction 
projects are realistic, cost-effective and practical tools. 
They conserve and restore private working forests, they 
economically sustain forest owners, and they ensure the long-
term delivery of public benefits from water to wildlife, as 
well as wood. And in addressing the challenge of climate 
change, we welcome your inclusion of these sectors in order to 
create an effective economy-wide system.
    Very simply, forests absorb and hold CO2 when they grow, 
and they release it when they are converted, lost to 
development, or when they are disturbed. In fact, the United 
States shares this global problem of forest loss and 
degradation that we are now seeing recognized so strongly in 
international negotiations.
    We lose 6,000 acres a day of forest and open space in this 
country. Over 4,000 of those acres are forests. That is 1.5 
million acres of forests a year. Every year, we lose forests 
the size of the State of Delaware. When we lose those, we lose 
all the carbon stocks that they hold and all their future 
sequestration and climate benefits they bring. So we share this 
with the global situation.
    But this problem is also an enormous opportunity for the 
United States, for in the United States we actually have the 
legal structures, the governance, and the science to do 
something about that forest loss today, and to do so in a 
credible, verifiable, and enforceable manner. We can put our 
forests to work today in fighting climate change.
    By doing that, we can reduce net CO2 emissions by tens of 
billions of tons in the next 50 years. Three simple actions--
reducing forest loss, restoring forest carbon banks, and 
reforesting former forests--will bring us those benefits. We 
can measure those in ways that can be very precise, using 
methods that are well accepted and in wide use. And this will 
be based on existing legal institutions and governmental 
systems. This distinguishes us globally.
    My time is running down here, so I am going to switch over 
to showing where we have done this in the State of California.
    In adopting a compliance system with a Cap, California 
integrated forests into that as part of early action measures. 
My organization recently completed the first project that met 
those compliance targets. That is on 2,200 acres in Northern 
California where we are using forest management to both 
conserve and restore the forest carbon banks there.
    We recently sold 60,000 tons of certified emissions 
reductions to Natsource, a leading global emissions and 
renewable energy asset manager, which purchased these--this is 
their first investment in the United States of any sort. They 
purchased these believing that forest offsets are a key policy 
tool in the portfolio of activities to address climate change. 
A number of other purchases have been made as well, such as by 
our Governor and by the Speaker, who wanted to have high-
quality, State-backed emissions reductions.
    But the project is also providing other public benefits: 
sustainable flows of harvest of timber, and the restoration of 
habitat for endangered species, indeed, spotted owls have 
recently been sighted on the property. So we are managing for 
climate, for timber, and for spotted owls. We are adding a net 
asset value, net present value of over $2,000 per acre for this 
landowner, and that is not negligible, and that is 
complementary to sustainable timber.
    So these forest offset projects are an important step in 
developing a robust carbon market. We have received countless 
inquiries for purchasing these emissions reductions and from 
landowners to create these emissions reductions.
    What this shows is that when you have the right policy, the 
market will follow. In looking at Federal cap-and-trade 
legislation, incorporating a system such as in California will 
create the kinds of incentives that private landowners need to 
manage their lands to produce the climate benefits we need to 
address climate change. In doing so, we can provide also 
hundreds of thousands of clean, very green jobs through 
managing our forests for these products.
    In conclusion, I would like to suggest that forests are not 
only a bridge to a low-carbon future, they are a key component 
of a long-term integrated strategy in U.S. climate policy.
    Thank you.
    [The prepared statement of Ms. Wayburn can be found on page 
87 in the appendix.]
    Senator Stabenow. Thank you very much.
    Yes, Dr. Lubowski.

STATEMENT OF RUBEN N. LUBOWSKI, PH.D., FOREST CARBON ECONOMICS 
               FELLOW, ENVIRONMENTAL DEFENSE FUND

    Mr. Lubowski. Good afternoon, Madam Chairwoman and 
distinguished members of the Subcommittee. I greatly appreciate 
the chance to talk with you today about the critical role that 
agriculture and forestry can play in moving our Nation and the 
world to a low-carbon future.
    Last August, I attended a workshop in Des Moines organized 
by the American Farmland Trust, the Farm Foundation, and the 
Natural Resources Defense Council. This event brought together 
27 farmers to share their views on the market opportunities of 
a low-carbon economy. I was struck by a widespread recognition 
of the potential this holds. One participant summed up the mood 
of this meeting by saying, ``Agriculture will be in the carbon-
constrained world. This is one way we can share costs and 
spread societal benefits. Agriculture is a system, and it is 
involved.''
    Overall, the strong message from this meeting was that crop 
and livestock producers want to be engaged in a climate change 
solution, designing its policies and harvesting its benefits. 
These benefits are hard to ignore. Carbon promises to be a 
bumper crop for U.S. agriculture and forestry if we put the 
right policies in place to reward the farming, forestry, and 
ranching practices that reduce greenhouse gas emissions. The 
rewards, according to an analysis of legislation similar to the 
Lieberman-Warner Climate Security Act, could total more than $8 
billion a year for American farmers alone. This is more than 
the value of the entire U.S. wheat crop. So it is not--this is 
a very significant amount.
    My testimony today will cover three key points:
    First, our farms and forests have enormous potential to 
deliver major environmental benefits and provide a crucial form 
of cost control as we move to a low-carbon economy.
    Second, a framework of different quality assurances can 
safeguard the value of investments in carbon-friendly forestry 
and farming practices.
    Last, a system that credits reductions in tropical 
deforestation is a major opportunity to control costs in a cap-
and-trade system, but the chances to do this are literally 
vanishing as we speak. This is an opportunity we cannot afford 
to miss to engage key developing nations in the global effort 
to control greenhouse gases.
    To begin, agriculture and forestry activities have great 
potential to provide cost-effective climate solutions that 
deliver other environmental benefits as well, as we have 
already heard. Our vast rural land base is one of our great 
national assets. Climate-friendly agricultural and forestry 
practices can reduce emissions of gases that cause climate 
change and that can also actually remove these gases from the 
atmosphere. Whether in agriculture, forestry, or rangeland 
management, our rural economies possess tremendous potential 
for growth in a new industry of climate solutions.
    By driving changes in land-use and land management 
practices, markets for offsets can also create substantial 
public benefits in addition to climate change mitigation. For 
example, practices that conserve soils and reduce fertilizer 
inputs would reduce the amount of pollution entering our 
waterways. A well-designed offset program will also provide 
major new opportunities for American entrepreneurship because 
there will be money to be made by finding new and better ways 
to sequester carbon and otherwise reduce emissions from 
uncapped sectors. A well-designed offset program will stimulate 
technical research and business innovation in America's rural 
economies.
    The potential impact of carbon-friendly changes in land-use 
practices also extends far beyond our borders. The destruction 
of forests in the tropics emits massive amounts of carbon 
dioxide, approximately 20 percent of global greenhouse gas 
emissions. This is roughly as much each year as all the CO2 
emitted by all the fossil energy consumed in the United States.
    When forest carbon emissions are included, the third and 
fourth largest emitters of greenhouse gases in the world are 
Indonesia and Brazil, respectively. We have an opportunity to 
reap the benefits of these low-cost, high-value emissions 
reductions through recognition of tropical forest protection 
activities in our own carbon market. It is critical that we 
seize these opportunities not only because of the climate 
benefits, but also because of the tremendous impact agriculture 
and forestry offsets can have on controlling the costs of a 
transition to a low-carbon economy. Offsets broaden the set of 
available options for complying with the requirements of 
climate policy by allowing companies greater flexibility to 
make emissions reductions wherever they are cheapest across 
both the economic and physical landscape.
    Where there is potential to bank allowances for use in 
future periods, in addition, offsets allow companies to buildup 
reserves of low-cost abatement solutions that can serve as a 
buffer against unexpected swings in future allowance prices.
    Agricultural offsets are among the lowest-cost of all the 
land-use options, and several analyses have shown that these 
offsets to be the low-hanging fruit.`` Economic analyses have 
confirmed the cost-mitigating value of both agriculture and 
forestry offsets.
    My second point is our system of quality assurances built 
in to a cap-and-trade program can substantially mitigate 
concerns over offset quality. An offset program can provide 
real reductions in greenhouse gas emissions only if the offsets 
represent real reductions that are measurable, verifiable, and 
enforceable.
    In my written testimony, I describe a two-part framework of 
options to meet the need for quality assurances, both at the 
scale of individual projects and at the level of the overall 
program.
    Firstly, the prime example is right here of all the 
experience that already exists on ensuring quality at the 
project level. This is a manual published last year by Duke's 
Nicholas Institute for Environmental Policy Solutions, along 
with EDF and a panel of highly regarded scientists.
    A range of approaches should also be considered to ensure 
quality while providing market incentives for offsets. For 
example, an enhanced national and regional accounting system 
could be used periodically to compare expected performance from 
a sector's offsets to estimated changes in greenhouse gases 
measured in a national inventory for that sector. In my written 
testimony, I also describe a potential true-up process for the 
forestry sector that could permit the use of improved 
information on changes in land-use practices to assess and, if 
necessary, adjust the parameters of the offset program.
    My final point is that policymakers have a time-limited 
opportunity to simultaneously engage developing nations and 
reap enormous greenhouse gas benefits through market incentives 
to reduce tropical deforestation. My written testimony 
describes the results from a modeling exercise we conducted at 
EDF that shows that inclusion of tropical forest credits can 
substantially reduce the overall cost of a U.S. cap-and-trade 
program similar to the version of S. 2191 that came out of 
Committee. Opening America's carbon market to these 
international forest tons would also create a model for 
engaging developing countries broadly in solving the climate 
problem.
    On the other hand, if the world waits a decade or two to 
create powerful incentives for compensating those who protect 
tropical forests, the forests and the approximately 300 billion 
tons of carbon they contain will already be gone.
    In short, the benefits of domestic agricultural and forest 
offsets, as well as international forest carbon credits, should 
not be overlooked. They offer an immediate opportunity to 
reduce emissions at home and abroad, and with the right rules 
and standards, they can substantially shrink compliance costs 
without compromising the integrity of a strict emissions cap.
    Thank you for your attention. I look forward to your 
questions.
    [The prepared statement of Mr. Lubowski can be found on 
page 53 in the appendix.]
    Senator Stabenow. Thank you very much.
    Mr. Corneli.

STATEMENT OF STEVEN CORNELI, VICE PRESIDENT, MARKET AND CLIMATE 
                    POLICY, NRG ENERGY, INC.

    Mr. Corneli. Thank you. Good afternoon, Chair Stabenow, 
Ranking Member Crapo, Senators. It is wonderful to be here and 
to have this opportunity to talk about offsets, which are 
probably one of the three most critical issues facing 
decisionmakers in designing an effective climate change 
program, the other two, in our view, being the rate of emission 
reductions and the whole question of allocations. These three 
things together will be critical in determining the economic 
impacts and environmental effectiveness of any climate change 
legislation, and agriculture and forestry are very significant 
in the equation because they both contribute large amounts of 
greenhouse gases that are hard to regulate under a cap-and-
trade system and, thus, are ideal candidates for providing 
offsets. And at a personal level, one of the things you did not 
mention in introducing me was that before I moved to Minnesota, 
I spent 12 years managing our family's potato and vegetable 
farm of 700 acres in Wisconsin, and I know firsthand from that 
experience how eager rural America is for the kinds of business 
and environmental opportunities that high-quality offsets can 
create in agriculture and in forestry.
    Now, offsets are also critical for our company as well. We 
are a major power producer. We own and operate 23,000 or so 
megawatts of power plants throughout the Northeast, the South, 
and California. Seven thousand megawatts of those power plants 
are coal-burning power plants, and we are one of the largest 
emitters of CO2 in the United States, probably the seventh 
largest in the power sector. Last year, we emitted 61 million 
metric tons of CO2. We are not particularly proud of that fact, 
but we are proud of providing low-cost, reliable power, and 
coal is part of the equation that makes that possible.
    On our own, we are aggressively working to reduce our own 
carbon emissions by developing new low- and no-carbon power 
plants, including nuclear, wind, and post-combustion and pre-
combustion IGCC carbon capture and sequestration. But these 
kinds of voluntary efforts like we are doing we think are 
simply not enough. Like the other members of USCAP at the table 
here, EDF and WRI, we believe that there has to be a mandatory 
U.S. cap-and-trade system to regulate carbon emissions, and we 
need this as soon as possible to send a market signal for the 
rapid investment in low-carbon technologies across our entire 
economy.
    There are two reasons we are so interested in offsets. 
First, under any cap-and-trade system, we are going to be a 
major buyer of allowances. We favor a bill that would have a 
mix of auction and allocations, like the Lieberman-Warner bill 
does. Under that bill, we would get enough pre-allowances for 
about 46 percent of our emissions and would have to buy the 
rest, about 33 million allowances in the first year. If we can 
buy offsets for less than those allowances, we will buy as many 
as the law allows. That is simply in our own interest to do so.
    But more than our own interest, the basic laws of supply 
and demand mean that the use of ample amounts of offsets, 
because they are anticipated to be less costly than many of the 
emission reductions in the regulated sector, should not only 
lower prices for us but should lower prices for consumers 
throughout the U.S. economy. And this will help protect our 
economy during the transition to low-carbon technologies while 
helping limit climate change. This great potential from offsets 
to make climate change legislation more effective and less 
burdensome to consumers and our economy is the main reason we 
are so excited about offsets. But that can only happen if the 
right things in the policy arena happen. So here are the five 
things that we think are most important.
    The No. 1 issue, probably the most important issue of all, 
is we need climate change legislation now. Just as an example, 
we are trying to buy offsets ahead of time. We can buy them 
through the Regi markets because the rules are established. We 
cannot buy offsets that will qualify under the United States 
cap-and-trade program because those rules do not yet exist. 
Nobody knows what will qualify. Nobody knows how to produce or 
buy those offsets. So we need to get the market rules out there 
in a way that is friendly to business, friendly to the 
environment, and that will unleash innovation in new 
technologies. We feel that the entire carbon-related investment 
scene, whether it is power plants, automobiles, offsets, were 
all frozen in the headlights without clear rules. So that is 
the No. 1 thing.
    Second, there have to be reasonable opportunities for using 
offsets for compliance. As you have heard, various modeling 
exercises suggest that more offsets result in lower prices. We 
think this is critically important, but it is important not to 
ask for too much because, as any farmer knows, too much of a 
good thing can cause the price to crash, and too low of a price 
that could happen perhaps from unlimited offset use would not 
necessarily be in anybody's interest. So it is important to get 
the quantity right and the price right.
    Third, high-quality offsets are critical. We look for 
contractual guarantees that we will not be at risk for offsets 
that fail to meet quality compliance requirements, and that 
means it is in everybody's interest, sellers and buyers, to 
have high-quality offsets.
    We think that there has to be a mix of domestic and 
international offsets. Again, the same modeling from the EPA, 
EIA, and others suggests that domestic offsets alone may not be 
enough to achieve the balance that is needed in terms of price 
and quantity. And high-quality international offsets, 
especially the ones from the reduced deforestation that Dr. 
Lubowski talked about, we think are critically important.
    And, finally, on that note, a mixture of project-based 
offsets and sector-based offsets. Project based offsets--which 
are things that entrepreneurs go out--they put in the methane 
capture in the feedlot in the livestock operations, and they 
sell those offsets to people like us. Those are important. But 
sector-based ones, such as the Government of Brazil reducing 
deforestation in Brazil, or other sectors that cannot easily be 
regulated, also are important.
    So that about sums it up. We need action. We need climate 
change legislation from Congress and signed by the President 
quickly. We need fair rules about offsets. We need ample 
amounts of offsets, and we need clarity in the ability to get 
on with investing.
    Thank you very much.
    [The prepared statement of Mr. Corneli can be found on page 
50 in the appendix.]
    Senator Stabenow. Thank you very much.
    And last, but certainly not least, Mr. Broekhoff.

STATEMENT OF DERIK BROEKHOFF, SENIOR ASSOCIATE, WORLD RESOURCES 
                           INSTITUTE

    Mr. Broekhoff. Thank you, Madam Chair and distinguished 
members of the Subcommittee. Thank you for this opportunity to 
testify about the potential role of agriculture and forestry in 
achieving a low-carbon economy. My comments today are focused 
on the basic requirements for carbon offsets under an emissions 
trading program and how agriculture and forestry projects that 
reduce or sequester greenhouse gas emissions may fare against 
those requirements.
    My own study of the issues suggests that agriculture and 
forestry have an important role to play in lowering the costs 
of mitigating climate change. At the same time, many types of 
agriculture and forestry projects may have a harder time 
meeting the basic criteria for carbon offsets than projects in 
other sectors. It may be more effective to support these kinds 
of projects through methods other than a carbon offset program.
    To understand the issues involved, it is important to 
clearly define the function of a carbon offset in an emissions 
trading system. Fundamentally, a carbon offset is a reduction 
in greenhouse gas emissions that is achieved to compensate for, 
or offset, an increase in emissions at another source. To serve 
this function, carbon offsets need to meet five basic criteria.
    First, carbon offsets must be real. They must reflect a 
complete accounting of a project's effects on emissions. Any 
unintended increases in emissions resulting from a project, or 
leakage, must be fully accounted for.
    Second, carbon offsets must be additional. This means they 
must involve reductions that would not have happened in the 
absence of a carbon offset program.
    Third, carbon offsets must be permanent. Offsets that are 
prone to reversal through fire, harvesting, or other 
disturbances must have measures in place to compensate for when 
this occurs.
    Finally, carbon offsets must be verifiable and they must be 
enforceable.
    The biggest challenge for any carbon offset program is 
finding practical methods to ensure that offsets are real, 
additional, verifiable, permanent, and enforceable. 
Fortunately, a lot of work has been done to develop methods for 
doing so under a variety of programs, both international and 
domestic, some of them already mentioned here today.
    The standards developed under these programs would have to 
be carefully evaluated to determine their compatibility with a 
Federal regulatory offset program, but there is a large body of 
work to build off of. The larger challenge is deciding which 
types of projects to include in a carbon offset program. 
Generally speaking, emission reductions with the lowest 
uncertainty about their quantification and additionality make 
the best offsets. Projects that capture and destroy landfill 
methane, for example, are highly credible because their effects 
can be directly measured, and there is little uncertainty about 
their additionality. Projects that sequester carbon, on the 
other hand, including reforestation, forest management, 
agricultural land management, and avoided deforestation 
projects, can be more challenging. This is because, compared to 
other types of projects, their effects can be more difficult to 
measure; their reference cases can be more difficult to 
establish; they are more prone to leakage; and their emission 
reductions are subject to reversal.
    In most cases, it is possible to compensate for these risks 
and uncertainties. But reducing uncertainty means increasing 
costs. It may be that these added costs can be borne by a 
carbon offset market, but it is also worth considering whether 
the climate benefits of these projects could be achieved in 
ways that avoid all the costs necessary to certify them as 
carbon offsets. If such costs could be avoided, then more 
reductions could be achieved for the same expenditure of 
resources.
    One way to do this would be to encourage projects with high 
quantification uncertainties through a separate program of 
direct payments or other kinds of incentives. Unlike offsets, 
reductions achieved through direct payments, for example, would 
not have to compensate for increased emissions at other sources 
and, therefore, would not have to be subject to the same levels 
of scrutiny in terms of measurement, additionality, leakage, 
and reversibility.
    Further study is needed to determine which types of 
projects might best be encouraged through an offset program and 
which might be better achieved through other methods. In the 
meantime, it makes sense to design policies that keep both 
options open for a variety of emission reduction projects.
    Thank you very much, and I am happy to answer any 
questions.
    [The prepared statement of Mr. Broekhoff can be found on 
page 36 in the appendix.]
    Senator Stabenow. Thank you very much. We appreciate all of 
your testimony.
    Let me first start by really asking a question related to, 
Mr. Broekhoff, what you were saying at the end in terms of 
being able to measure offsets. Obviously, we want to make sure 
that whatever is being done meets the kinds of things you are 
talking about. It is real, it is new, it is additional, it is 
enforceable, permanent, verifiable, and so on. But we have 
heard slightly different things as it relates to forestry and 
reforestation and so on. And so I am wondering if anyone else 
on the panel, if Dr. Lubowski or Ms. Wayburn, you were kind of 
looking over--from the look on your face, I thought maybe there 
was a little different perspective that you had in terms of 
measuring as we talk about reforestation and so on. But I 
wondered if either of you would want to comment about that as 
verifiable offsets, credible offsets.
    Ms. Wayburn. I would agree with Mr. Broekhoff that these 
are key issues that have to be addressed, and I think that 
these have affected how people think about forests and forest 
emission offsets. However, I think we should draw a distinction 
between where those uncertainties really exist and where they 
don't.
    I was suggesting that there is a distinction between what 
we have available in the United States in the way of science 
and systems and good governance that enable the precise 
measurement, that enable the tracking and verification, that 
enable the transparency to be able to quantify forest emissions 
reductions with very high certainty. And, indeed, I would say 
they have to be. The only way we can create offsets that are 
fully tradable is to meet those same standards, and I believe 
we have done that in California, because we are now in a pre-
compliance market.
    I do agree that uncertainties in measurement exist in 
forests that we do not yet understand and that we may wish to 
take a different approach for forests where we cannot measure 
them as accurately as we can in the United States and use those 
systems to help buildup, if you will, to the science and 
institutional credibility and governance that will enable the 
kind of accuracy that we want to see in a full trading market. 
But I believe that we have every capacity in this country to 
meet all of those requirements, and, indeed, in California's 
State legislation, AB 32, which sets a cap, all of those 
requirements--real, additional, permanent, verifiable, and 
enforceable--are required and forests are accepted in that 
regime as offsets through early action.
    Senator Stabenow. Do you believe that it is more difficult 
from an international offset perspective than it is 
domestically as we are looking at forests and offsets?
    Ms. Wayburn. I think we need to do both. This is such a 
critical issue. When we look at the net excess of CO2 in the 
atmosphere today, between 40 and 50 percent of that comes from 
forest loss and degradation. That is both in the tropics and 
here. So we need to do both. I am suggesting that we may want 
to take slightly--we may want to take similar but parallel 
approaches domestically and globally so that domestically we 
have the systems to be fully tradable to meet those offset 
criteria and to do it with all the measurement and verification 
down to the very precise 0.01 statistical accuracy. And, 
globally, we may not be able to meet that, so we might want to 
have a different system that we look at which has a different 
kind of discounting approach globally, where what we are really 
concerned about is not so much that precise measurement on an 
annual basis and verifying it and visiting it, but we are 
using, for example, remote sensing to see if those forests are 
still there or not and we make direct payments annually to 
ensure that; and that as we buildup the science there, we can 
have exactly the same kinds of systems and perhaps that in the 
U.S. can help inform that globally. But I think we need to do 
both.
    Senator Stabenow. Dr. Lubowski, you talked also about 
international--the importance of addressing what is happening 
internationally as well as domestically.
    Mr. Lubowski. Yes, and, generally, we think that 
incorporating international forest credits is a tremendous 
opportunity that should not be missed, and it is an opportunity 
that, you know, we are losing as we speak. So for that reason, 
it is very important to get those greenhouse gas benefits, 
which also, you know, have this potential to offer cost control 
for U.S. companies and in this way also reduce costs for U.S. 
consumers.
    Going back to the monitoring question, I just first of all 
want to concur that absolutely monitoring and verification have 
to be done and are a key part to ensuring the quality of these 
offsets. And, you know, that is essential for having a robust 
market where, you know, producers can get fair value for their 
product and also where the purchasers can have certainty of 
what they are buying.
    You were asking about monitoring in the forestry case 
versus maybe in terms of some other offsets from agriculture, 
and one issue here is that for soil carbon, you really have to 
get into the ground to measure it; whereas, forests can more 
easily be monitored from space.
    I am not a remote-sensing expert, but I have been told that 
there are some ways you can actually get some idea about soil 
carbon from space. But in the forestry case, this is a lot 
easier and a lot more precise.
    So that is one of the reasons why in my testimony we 
discussed this national accounting system and improved national 
inventory with a potential provision for over time, if we are 
not getting all the reduction from the forest sector that we 
expected, there might be some room for a true-up.
    Conversely, you know, we might get more than we expected, 
and then we--you know, we would not have to worry about that. 
But the key is that, you know, we can do the monitoring from 
space and also that it is very important to build a program 
that over time will gather more and more data and more and more 
information and have the flexibility that as we get this data, 
we can then improve the program, refine the protocols, and make 
things better as we go along.
    Senator Stabenow. Thank you.
    To any of the panelists that want to answer, we will be 
having in front of us a very important work product regarding 
global warming coming before the Senate in June, a very 
important piece of legislation, a lot of work, bipartisan and 
so on. What would you--would anyone want to speak to how you 
would improve on this as it relates to offsets? What do you 
think would be the--whether it is the number, whether the 
percentage that is in the bill right now, or the language in 
terms of types of offsets, do you feel that the language--and I 
know we will have a substitute or a manager's amendment. We 
will have to take a look at the final language. But do you feel 
that the language, in terms of offsets and the kinds of things, 
whether it be agriculture or forestlands and so on, are broad 
enough to cover all of the things we are talking about? Or do 
we need to do some work as it relates to the description of the 
offsets as well? But it would be helpful to know any 
suggestions that you would have. Yes, Mr. Corneli.
    Mr. Corneli. Senator, the comments I will make are about 
the bill as it was reported out of EPW. There is certainly a 
lot of uncertainty about what it is going to look like soon. 
But the two areas that we think would be improvements in the 
bill compared to how it was when it came out of EPW would be, 
first, to make it clear that when it comes to offsets, the 15 
percent that was allowed for compliance for international 
credits would instead be clearly specified that those could be 
international offsets--a credit being something like what is 
traded as an emission allowance in the EU, not an offset per 
se. We think that is very important. And that would, in effect, 
convert the bill from 15 percent to 30 percent offsets.
    We also think it is very important that the idea of these 
avoided tropical or avoided international deforestation tons be 
a component of the bill simply because the volume of 
deforestation that is going on tropically--I did some math. I 
think it is 100 square miles a day, roughly, of tropical forest 
that is disappearing and will not come back. It is so huge that 
that is an opportunity that we just cannot lose. It has all 
these other biodiversity and ecological and international 
security benefits.
    And, finally, as a buyer, again, we hate to see some really 
good, cheap stuff go just because people have not figured out 
how to weight it yet. You know, let's keep it in the bin until 
we figure out what the scale is, and then let's start buying it 
pretty quick.
    So we think those are two things that would be fairly 
straightforward and improvements over the bill as it was in 
Committee.
    Senator Stabenow. Thank you.
    Mr. Wittman.
    Mr. Wittman. Well, I would like to add one point on the 
percentage of the offsets that could be coming from the ag and 
forestry sector. We believe that the current number is too low. 
We would like to see unlimited offsets. If this is truly the 
least-cost alternative out there, and we are not looking at 
this as a permanent solution but, rather, a bridge toward the 
future where we can get technology to come up with solutions 
for better energy and other changes in our systems that reduce 
emissions, we would like to see no limits rather than a 15 
percent limit.
    Another area that is very important is the issue of the 
infrastructure you are going to use to implement this. We 
already have a wonderful infrastructure in USDA that can 
provide a delivery system that has--it has been in the business 
of creating standards. It has been in the business of creating 
data. It has data out the front line. One of the issues that I 
see of major concern--and this has happened in the past as we 
have added new programs like EQIP or CSP--is that we give an 
existing organization a new mandate, and we do not give them 
any additional resources. We do not provide the educational 
support so that they can implement that.
    USDA scientists have been studying models for years, and 
our organizations have been working very closely with them in 
testing and refining these models. And there is a huge body of 
work out there. And in reference to the issue of measuring and 
monitoring and verification, we share the concerns of others 
that we must be able to meet the rigor of these rules so that 
they are good quality. But a crude measure of the right thing 
is better than a precise measure of the wrong thing. And you 
are dealing with measuring something that can only be measured 
over long expanses of time, because we have variables in 
rotation systems, we have variations in climate, whether ag 
offsets, whether it is forestry or soil related, can never be 
measured by what happens in 1 year. You have to look at long-
term trends.
    Another issue is we have a tendency to think that all the 
answers to our solutions exist in the United States. There are 
other parts of the world that have been leaders long before us 
in implementing no-till. They have data and research that we 
can buildupon and add to our existing scientific data to get to 
answers as to how to do this measurement process. It is 
available in Europe and South America. You have countries that 
have wholesale adoption of no-till that are leaps and bounds 
ahead of the United States in terms of their percentage of 
adoption.
    Our no-till organizations are interacting through 
international networks to tap that information. So I would 
challenge you in these bills to make sure that we clearly 
define USDA's role in the definition of these standards, and 
particularly in the measurement process, that they be given 
some specific directives. For example, one is no further 
funding for a USDA model until they put that model in laymen's 
language where the user can put their data in without 
converting it to metric information.
    I recognize their need to publish and their scientific 
disciplines, but that industry does not understand today who 
their customer is. No farmer, no politician, no policymaker 
will stand for trying to convert what we produce into metric 
units and taking 3 hours to fill out a data form to test what 
is happening in sequestration.
    So these are the things that I think the bill could really 
improve upon.
    Senator Stabenow. Thank you.
    Anyone else?
    Mr. Lubowski. Thank you. Environmental Defense Fund 
supports the version of the S. 2191 bill that came out of 
Committee, but we think an improvement, as I said before, would 
be to expand the international credit provisions to allow for 
the reduced deforestation tons, and this is very important for 
the reasons that have been already been mentioned, and 
especially because this opportunity is, you know, disappearing 
as we speak. And if we don't take advantage of it, we will end 
up paying for it in two different ways: first, we will pay 
higher costs of complying with our climate legislation today, 
and, second, by not getting Brazil and other countries on a 
path of reducing their deforestation emissions, this 
potentially can make the climate problem worse and have us have 
to pay more in the future to make up for the damage.
    So for these reasons, it is very important to include these 
credits, and I will also add on the monitoring side that Brazil 
right now, through its National Space Agency, has on the 
Internet a website where you can see in real time how 
deforestation is happening across the country. So this can be 
monitored and verified.
    Thank you.
    Senator Stabenow. Thank you.
    Yes, Ms. Wayburn.
    Ms. Wayburn. Well, I recognize that the version of the bill 
that we have seen has changed markedly, so I am not going to 
comment on the bill as it may exist or may not at the moment. 
But I would like to suggest a couple of things.
    We would support unlimited offsets with the proviso that we 
need to have with that integrated accounting between the offset 
sectors and the cap sectors. And I bring this up because one of 
the most effective ways that forests and agriculture can 
contribute here is to providing sustainable alternative energy. 
And if what we are doing in the forest sector is providing this 
woody biomass for energy and eventually for low-carbon 
transportation fuels, and we are valuing those fuels in the 
cap, but we are not valuing their production facilities, if you 
will, the forests and the farms in the cap, we could drive very 
perverse outcomes, because if all we do is value the product 
but not the resource that is producing it, we push for more 
product and we do not have to count for the impact here. And we 
have seen this, unfortunately, in this weakest discussion 
around corn ethanol. When you look at the whole cycle 
accounting, corn ethanol does not pencil out from a carbon 
emissions reduction strategy. And so I think that unlimited 
offsets I would favor, if as noted a moment ago, because I 
think that as we move the market forward domestically in this 
country, particularly because forestry is a global industry, we 
will pull those markets globally as well.
    I believe there is something called ''positive leakage,`` 
which is if I do well by doing the right thing, you may also 
wish to do that, too. And so I think that as we look at trying 
to incorporate unlimited offsets, we need to recognize that we 
need an integrative accounting between the capped and uncapped 
sectors so that we don't have perverse outcomes.
    And the only other item that I would like to suggest is 
that recognizing the urgency of halting deforestation in the 
tropics, we also need to recognize the urgency of harnessing 
America's opportunity to restore our own forest carbon banks. 
The opportunity here, tens of billions of tons in 50 years, an 
average of, say, a billion tons a year, depending upon what 
price that you want to use. That is going to be adding tens of 
billions of dollars into this economy for revitalizing rural 
areas across this country that are forest dependent or creating 
new jobs in energy. That is very powerful, and that will 
generate the kind of support we need in this country to really 
enact effective legislation.
    Senator Stabenow. Thank you.
    Mr. Broekhoff.
    Mr. Broekhoff. Yes, Madam Chair, I would reiterate what Mr. 
Corneli suggested in terms of recognition of international 
carbon credits, and in particular, credits generated under the 
Clean Development Mechanism. This is the largest existing 
regulatory offset program in the world today.
    There have been some criticisms of the CDM, I think some 
reasonable ones, but I think the benefits of the United States 
engaging with the system probably outweigh the risks, and that 
is a change I would like to see.
    If I might take a moment to say a few words about the 
international forest credit notion and, in particular, 
addressing avoided deforestation through offset credits, I 
think, you know, clearly if we look at the issue of climate 
change and how we are going to address it, it is critically 
important to address deforestation globally, not just for 
climate change mitigation but for a whole host of environmental 
concerns. However, if you are looking at an offset crediting 
approach for deforestation, all the kinds of concerns and 
criteria I raised in my testimony come up, I think, writ large, 
in many cases.
    So you have to deal with issues of leakage. If you prevent 
deforestation in Brazil, you don't want it to simply move to 
Peru. And it is a global issue. If you look at timber markets 
today, they are international and global in scope. They rapidly 
respond to shifts in supply and demand.
    So I think a system like that would have to have a very 
high participation rate. You would want participation from 
countries that make up probably 90 percent or more of global 
forest coverage.
    You also need to look at this issue of permanence. If you 
slow rates of deforestation, it does not help if that simply 
delays the point at which all the forests are gone.
    So if you are looking at an offset crediting mechanism, you 
want to make sure that you are crediting against a baseline 
that actually slows, stops, and reverses deforestation. And I 
think that is important when we are looking at what you credit 
against in that kind of system.
    You also have to have effective monitoring and 
verification, and I understand that there are others here who 
are probably more expert on this than I. Talking with my 
colleagues, I know we have good systems for monitoring forest 
coverage. I think there are greater uncertainties in terms of 
measuring the carbon that is actually in the forests, and we 
may have to improve some of that before you can have 
quantification levels up to the level of confidence we want for 
an offset crediting program.
    Finally, you need to have institutions and governments 
capable of actually delivering on avoided deforestation and 
achieving these gains, and doing so in a way that respects 
community rights. And I think to do that you will need some 
capacity-building efforts prior to the implementation of this 
kind of program to get it going.
    So, again, it is critically important to address, but there 
are a number of ducks that I think you need to get in a row 
before this kind of program might be viable as an offset 
program.
    Senator Stabenow. Thank you.
    Mr. Corneli. If I might just----
    Senator Stabenow. Yes, quickly, and then I am going to turn 
to Senator Crapo.
    Mr. Corneli. In the spirit of dialog here between the 
limits, the unlimited, and a lot of ducks to get in a row 
comments here, one idea that may be worth considering in any 
legislation that might help solve all of those issues is to 
create a bank, if you will, or a pool of offsets, an offset 
reserve much like the old soil bank or the original farm 
commodity programs of some time ago, where the idea is to 
really put large amounts of offsets, whether domestic or 
international in a reserve, so they would be delivered, they 
would be realized, the trees would stop being cut down in as 
many of the rainforest countries as possible, while the quality 
and verification issues are being worked out. And that pool, 
instead of being sold to compliance customers like us, people 
who want to buy offsets to turn in instead of allowances, would 
be held in reserve and dumped into the market or injected into 
the market through, say, an auction in response to allowance 
prices getting too high. And as all of you know, one of the big 
concerns about S. 2191 is some of the model runs that show $77 
or $200 allowance prices, well, having a reserve like this not 
of allowances but of actual real offsets whose reductions have 
already taken place could be a way to, A, guarantee 
environmental quality without borrowing from the future; B, 
assure that prices are stable; and, C, solve some of these very 
real problems while providing ample places for domestic and 
international offsets to go and to get paid for.
    So that is a concept that could be worth considering as 
well.
    Senator Stabenow. Right. Thank you very much.
    Senator Crapo.
    Senator Crapo. Thank you very much, Madam Chairman. 
Actually, I think you and I were working off the same list. You 
asked a lot of my questions. But, I still have a lot more.
    First, Mr. Wittman, I would like to ask you, if you know--I 
don't know how thoroughly you have studied the specific text of 
Senate bill 2191. I want to get to the baseline question, 
though. The baseline in S. 2191 is defined as the ''greenhouse 
gas flux or carbon stock that would have occurred in the 
absence of an offset allowance.`` Now, the question I have is 
for a farmer like yourself, who is already engaging in a 
practice that is reducing emissions, such as direct seeding, 
would you be eligible for an allowance or an offset under that 
language.
    Mr. Wittman. The issue is what is the baseline from which 
we are trying to reduce overall emissions. If we are using 1990 
as the starting point and say, okay, by some future point in 
the future, we are going to reduce from 1990, then everything 
that people have done since 1990 should be given recognition.
    The reality is that the concerns about additionality and 
measurement are going to make it very difficult for me to go 
back and market the carbon that I have sequestered since 1990. 
If I have no-tilled my farm every year, I am probably 
sequestering between 0.5 and 0.75 tons of carbon per year. The 
problem with not recognizing that is that you create perverse 
incentives for someone, to be eligible to cash in on carbon 
market opportunity. You create the wrong incentives to 
literally plow up soils, and restart the clock so that you can 
become a good person. That is the last thing we want to create 
in our policy structure.
    So our view on this is that we need to look at the 
continuation of a practice like no-till. Even though you have 
done it for years, every year you still have incremental 
sequestration. There is additional good every year that is 
being added to the pot. It is not done. We have all kinds of 
scientific projections that have said there will be some point 
in the future where we will reach saturation and we will no 
longer sequester more carbon, and if that is the case, then I 
should not be eligible to collect an offset because I am not 
sequestering incremental carbon.
    So it is both the issue of incremental sequestration as 
well as avoided emissions. The minute I turn around and till 
soil, I start emitting. I send CO2 up into the atmosphere. So 
we need to create a policy that encourages not only adoption by 
new people of a practice that works, but avoidance of practices 
that are going backwards.
    Senator Crapo. Thank you. And I know, Ms. Wayburn, you had 
mentioned additionality as an issue, as well as Mr. Broekhoff, 
and probably all of you. But anybody else want to get in on 
this issue right now, Ms. Wayburn.
    Ms. Wayburn. Well, Senator Crapo, one of the approaches--
the approach that we suggested and that has been adopted in 
California is something called ''regulatory additionality.`` 
And what this does is establish a level playing field for 
everybody. You work from what are existing laws in your State 
or, in the absence of law, best management practices in your 
State that are recognized. And whatever you do above what you 
are required to do by law and that you commit to keeping there 
qualifies as additional. And that does several things.
    No. 1, it recognizes early actors, people who have been 
doing an excellent job, and says thank you for doing that we 
will reward you, and other people will then follow. We 
recognize that the law sets a baseline of common behavior. And 
so that concept of additionality can happen in this country 
because we do have a regulatory baseline or a best management 
practices baseline which is widely identified.
    Senator Crapo. Thank you.
    Mr. Broekhoff.
    Mr. Broekhoff. Yes, this issue of additionality is probably 
the most vexing aspect of a carbon offset program and how you 
approach it. To speak about it conceptually, the idea is 
essentially you want total emissions under an emissions cap-
and-trade system to be the same whether you have an offset 
program or whether you don't. When you issue an offset credit, 
that allows emissions from capped sources to go up. So in order 
to keep net emissions the same, you have to give credits to 
reductions that would not have happened if you didn't have a 
carbon offset program. And if you are giving credits for 
reductions that occur from activities that someone was going to 
do anyway, they had been doing for years, it made sense anyway, 
in effect you are undermining the integrity of your emissions 
cap.
    Now, I realize that creates all kinds of difficulties and 
problems, so I think there are some practical ways to approach 
additionality. Regulatory additionality may be one component of 
that. Probably in some cases for some types of projects, you 
need to go beyond just the regulatory piece of it. But it does 
become difficult to give credit, even though that may seem 
unfair, for activities that have been going on for years and 
would likely continue into the future without an offset 
program.
    Senator Crapo. Thank you.
    Anybody else.
    Mr. Lubowski. Thanks. The point about rewarding people that 
are already doing the right thing is important in the sense 
that we definitely don't want to create perverse incentives for 
people that have been doing the right thing now to not do it in 
order to then be able to get credits. So it is very important 
to address this, and there are different ways it could be done, 
including potentially through, you know, using the allowances 
that have been reserved for the agriculture and forest sector, 
and there are other options as well. So this is an important 
issue to deal with.
    In terms of additionality, there are very detailed 
guidelines already developed to deal with incalculate baselines 
for individual projects, you know, depending on the type of 
project and type of activity. In addition to this project level 
work, we think it is very important to do very good monitoring 
and accounting of the overall sector, to get an idea overall 
nationally what we are getting, and then be able to use this 
data to then go back and improve the project level standards 
and protocols.
    In terms of the tropical deforestation, there what we have 
been advocating is for the largest emitting tropical countries, 
there is no indication that deforestation is decreasing. If 
anything, the recent experience shows that it is going up.
    So we have been advocating using historic data on 
deforestation rates over, you know, a historic period and then 
crediting national level reductions below these historic rates 
as our definition of ''additional,`` and especially if you look 
at it at the national scale, you know, you don't have this 
within-country leakage issue. There still is, of course, what 
Mr. Broekhoff alluded to in terms of potential leakage 
internationally. So, you know, the solution to this is getting 
at least the biggest emitting countries on board, you know, and 
creating a process to try to encourage as many other countries 
to join into the program.
    Thank you.
    Senator Crapo. Thank you.
    Mr. Wittman, again, do you and the organizations that you 
have been working with support the allowance of international 
forest carbon credits to be utilized in the United States?
    Mr. Wittman. Do we?
    Senator Crapo. Yes.
    Mr. Wittman. I think our organizations generally would 
support a combination of domestic and international. As a 
massive user of energy and fully aware of the implications to 
fertilizer costs and energy costs, it is important to us and 
the consumers that buy our products to not have economic shocks 
that we can't stand. So as long as international projects are 
verifiable--and I will recognize the Clean Development 
Mechanisms that exist--there are those that say if you are 
going to rely on international projects and they meet those 
standards, those are tougher than many of the things that we 
have existing in the U.S. today.
    So I don't think we should be so concerned about the 
quality of international offsets if they are only allowing 
those to qualify that meet those clean development mechanism 
standards today.
    Senator Crapo. I know an argument has been made that 
international offsets would be less expensive than domestic 
offsets. Is that generally agreed? I see yeses and noes, so 
maybe I ought to ask the question. The question that I am 
getting at is that--I guess there are several issues here to 
weave together. One is if we allow international offsets, 
should they be capped? If they are allowed and if they are 
capped, again, should the domestic offsets be capped similarly, 
or should domestic offsets be treated differently? In the 
context of this question, what kind of an impact on the market 
price allowance would international offsets would cause.
    I know that is a very complex question, but would any of 
the witnesses care to comment on the issue in general and how 
we should approach it?
    Mr. Wittman. I would like to just add to what I said on 
that. There is a real concern that if we just allow people in 
the U.S. to go the cheapest place in the world elsewhere and 
buy low-cost projects, that we will not really affect the 
emissions reductions that we are trying to achieve. It won't be 
painful enough.
    If we have an unlimited cap on domestic offsets, I think we 
are protecting the opportunities for economic investment in the 
U.S. first. And maybe to be conservative, we should have some 
cap on international. But I don't think we should stop with the 
international as long as we make sure that the standards those 
projects have to meet are as rigorous as anything we would do 
in the U.S.
    Senator Crapo. Anybody else want to comment on that, Mr. 
Corneli.
    Mr. Corneli. I think that these are very tricky issues, and 
the insights that are out there, many of them come from 
modeling exercises that make their own assumptions about the 
costs of domestic and international offsets.
    So with the proviso that my view is somewhat informed by 
these models and that they may be wrong, I will go ahead and 
say it looks like the domestic offsets get more expensive more 
quickly than the international ones, and that that means that 
if you were to rely on domestic offsets to moderate prices--and 
I think this is consistent with what Mr. Wittman just said--you 
would see higher prices for allowances, and they could be so 
high that they could--the allowance prices themselves could 
have these effects of causing people to use a lot of natural 
gas instead of coal in power production, driving up the price 
of natural gas for consumers and fertilizer manufacturers.
    So to avoid that problem, it would probably be useful to 
allow a fair number of international offsets, especially the 
ones that are likely to be lower cost, such as the avoided 
deforestation ones, and understanding that those may be more 
expensive in terms of all the risks and transaction costs that 
we really don't know about yet.
    So what that suggests is that if there was a limit on 
domestic offsets, it might not be hit. If there was a limit on 
international offsets, it might be hit. The domestic one might 
not be hit because the market price would not be high enough to 
turn on all of the domestic ones that are available.
    Senator Crapo. I understand.
    Yes, Ms. Wayburn.
    Ms. Wayburn. I think that we just do not know at this 
juncture which is going to be more or less expensive, and I 
think one key reason for that is that, in our experience doing 
these projects, we have what we would call an all-in approach. 
Starting from the beginning, we have paid for the long-term 
security, we have paid for the monitoring, we have all of those 
costs built in from the beginning; whereas, in many of the CDM 
projects and the international projects, the initial costs are 
there, but not the long-term costs. And the question of how 
much transaction cost that will add over time is at this point 
unknown.
    What I would say is that in our experience in selling these 
offsets in a pre-compliance market--so this is where people are 
counting on these to meet their requirements under law--our 
prices are between those of the Chicago Exchange and those in 
Europe. And they are equal or less than those we are seeing on 
CDM.
    Senator Crapo. Thank you.
    Mr. Lubowski, quickly, if you----
    Mr. Lubowski. Yes, quickly. I will just say that it is 
important to note that the version of S. 2191 that came out of 
Committee also has a provision for a Carbon Market Efficiency 
Board that would have various powers, including the power to 
adjust limits on offsets, if appropriate. And some people argue 
that there should be no offsets; some people argue there should 
be unlimited offsets. I think the key thing to keep in mind is 
that we should have a system of checks and balances where you 
have very good data and are able to assess, you know, the 
quality of the offsets over time and have flexibility to, based 
on this real information and good data, determine which offsets 
should be let in, how many should be let in, and be able to 
have flexibility to do this as the data comes online. And--I 
will leave it at that. Thank you.
    Senator Crapo. Thank you.
    Madam Chairman, I do have one more question, if I could ask 
it.
    Senator Stabenow. Yes, you may.
    Senator Crapo. I cannot resist asking this question since 
this is the Forestry Committee. It deals with forest fires, and 
the question is, how do you contemplate that we weave in the 
issue of healthy forests in terms of the context of forest 
fires into this whole debate? And let me just say a few things, 
and I would love to hear statistics or information that any of 
you have, or ideas here. But as I understand it, the record 
forest fires and rangeland fires that we saw last year caused 
immense emissions, in fact, my understanding is the emissions 
caused by these fires far exceed that of any other sources of 
emissions, or at least the transportation sources of emissions 
that we have in this country. So it is a huge emissions source, 
yet there is also a great debate going on as to whether or not 
we should let fires burn or not in terms of the proper 
management practices in our forests. So once again, the way we 
deal with it in the context of global warming raises, to me, a 
phenomenal set of difficult issues.
    I know that is a huge question, but it has got to be one 
that people have struggled with as we deal with this in the 
context of forests.
    Ms. Wayburn, do you want to start out there, or Mr. 
Wittman.
    Mr. Wittman. Go ahead.
    Ms. Wayburn. Well, I think that is an excellent question, 
and it is one that gets more pointed as we look at what climate 
change is predicted to do to forests. And I would like to 
suggest there are several ways to approach it.
    No. 1, the primary incidence of fire is on our public 
lands, not our private lands. And what I was suggesting in my 
remarks is that we focus the market and offsets on private 
lands, not public lands. I think we want to establish a goal 
for public lands that looks at managing these forests for their 
greatest adaptation and resilience in climate change because of 
the increased stress that climate change brings.
    Now, that may, in fact, mean much more management on these 
lands than what we have been experiencing in order to reduce 
those fuel loads, in fact. And so for that long-term 
environmental gain in re-injecting, if you will, resilience 
into these forests, we would have increased management to do 
that.
    On private lands, where the incidence of fire is so much 
smaller, I think what you are looking at is what is your 
insurance system. How do you have--it is really a contractual 
issue, but if I have sold you 100 tons of carbon emissions 
reductions, I have got to guarantee those against all sorts of 
natural risks. And so in our buy-sell agreement, we need to 
have a provision for that, and I can tell you that buyers have 
very, very strong provisions around that.
    So there is a buffer system there that is required. Whether 
it is individually or whether it is pooled, whether it is 
Government-backed, there is a buffer system.
    So I think the question of fire can, in fact, be dealt 
with, and it needs to be dealt with over the long term, and it 
particularly needs to be addressed to our public lands to 
restore resilience and adaptation to these lands.
    Senator Crapo. Thank you. My time has far expired, but, Mr. 
Wittman, if you could be very quick.
    Mr. Wittman. You hit a hot button with me because we manage 
forests, private forests, and we are right next to publicly 
managed forests. We plant almost 9,000 trees every year. We 
selectively log our forests. And when we get done, we have a 
fully stocked forest.
    The role that many of us have here is not only managing 
carbon, but we are trying to educate others on this whole 
issue. One of the challenges we have had is getting people to 
see: ``what products we have to sell in a carbon portfolio 
market?'' Just last week, we were engaged in this debate with 
some foresters. They are interested in getting into carbon 
trading. Their questions are: ``What do we have to sell?'' And 
I said, ``You have three different kinds of products: you have 
reduced-emission products, you have avoided-emission products, 
and you have offsets through sequestration.'' They said, 
``Well, what does that mean?'' Here is what this means.
    A reduced-emissions project would be going to a chipping 
operation and chipping slash piles and sending it to a power 
plant instead of lighting a match and sending that carbon into 
the atmosphere. Now we are producing renewable energy from 
limbs instead of sending this smoke up in the air and doing no 
good at all. That is reduced emissions.
    Avoided emissions is being able to go out and selectively 
log a forest so that when you do have a fire, it burns limited 
residue on the ground, but it does not totally destroy the 
forest, and it does not burn up 8 inches of organic matter and 
turn your ground sterile.
    So once they put language to carbon concepts they can 
understand at the layman level, they start thinking of all the 
things we can do, and I think that is a message that we 
probably have not talked about enough today. We underestimate 
the potential of our American entrepreneur to create solutions.
    If I am allowed to be a prophet for about 30 seconds, I 
will say that the cost of this whole climate change legislation 
will never be as bad as what we think it will be. American 
ingenuity will create solutions that we never imagined. Once we 
educate people on the opportunities and how they can 
participate and we scare them with the threats of how bad the 
costs can be, I think we will see solutions coming out of the 
woodwork that we never would have imagined.
    Senator Crapo. Thank you.
    Senator Stabenow. Thank you very much.
    Senator Klobuchar.
    Senator Klobuchar. Well, thank you much, Madam Chair, and 
thank you to all the witnesses. A lot of the questions have 
been asked, but I will forge ahead.
    You know, I am on the EPW Committee and an original 
cosponsor of the Lieberman-Warner bill, and I feel strongly 
that we should not wait a year to act. I was in Greenland last 
summer and saw the water melting off these humongous icebergs. 
They call it the ''canary in the coal mine of climate change.`` 
And you have laid out some of the arguments that we have heard, 
Mr. Wittman, against the bill, and we know there are always 
changes that we can make to make it better.
    But what I was most interested in was, Mr. Corneli, not 
just because you have a Minnesota connection, but your 
testimony and where you freely said that your company produces 
7,000 megawatts of electricity from coal-fired power plants in 
addition to the natural gas and oil and nuclear plants that you 
operate and that you are the seventh largest emitter of CO2.
    Are people surprised when you go out and speak, are they 
surprised to hear you advocating for climate change 
legislation?
    Mr. Corneli. Not so much anymore.
    [Laughter.]
    Mr. Corneli. We look at this, as many in the utility or 
power industry do, as fundamentally a problem of technology. 
When it is free to put carbon in the air, people will do it. 
You know, why would you not do something that does not cost 
anything when you are making a business decision and your 
competitors are all making business decisions? So we have not 
really had any powerful incentive as an industry or as a 
company to find something else to do that either will not emit 
the carbon or that will capture it and keep it from going into 
the atmosphere.
    Like Mr. Wittman, we think that when there is a price 
signal, and also when there are also other complementary 
policies that will help support the kind of technology 
development we need, that people will very quickly--engineers 
at GE, another member of USCAP, General Electric, by the way; 
at Siemens, another member of USCAP, the companies that make 
this stuff, the companies that build this stuff, and the 
companies that buy it and use it--will all very, very quickly 
figure out how to take the carbon out of things like the power 
sector and how to keep using coal in a way that keeps the 
carbon out of the atmosphere.
    And so we think that that is sort of like we are part of 
the solution--I mean, we are part of the problem. We have to be 
part of the solution. Policies have to change the technology. 
And I think the same thing applies to the offset business. We 
have to get a clear signal to use the forest sinks, the soil 
sinks, the avoided greenhouse gas emissions that cannot easily 
be regulated, get people innovating about those, and the 
answers will come out of the woodwork, and we will be surprised 
at how quickly and effectively we can get there.
    Senator Klobuchar. One of the things I have been noticing, 
you say our country developed the wind technology, but now we 
have been leapfrogged by two or three other countries in terms 
of them getting there first in terms of the number of turbines 
and what they are doing. Could you talk a little bit more--I 
know you talked earlier about the urgency of this and the lost 
investment and kind of the delay that, in fact, what I am 
starting to believe is because the people of this country and 
the entrepreneurs know we are going to do something, they are 
actually holding back until we do something. Is there some 
validity to that?
    Mr. Corneli. I believe there is. It is very hard to sink a 
lot of money--a new power plant costs several billions of 
dollars. A new auto production line probably costs something 
like that. Engineering a new electric battery so that low-
carbon or no-carbon power plants could provide electricity with 
zero carbon to cars, to consumers' cars, so they would not have 
to buy $4 gasoline--those things cost a lot of money, and 
people will hesitate to spend that kind of money until they 
know they can get it back in terms of selling goods and 
services. And so there really is this sort of leashed-up demand 
here.
    I think what we are--you know, there is a lot of fear--
China is the usual sort of suspect--about we are exporting jobs 
to China if we regulate CO2. There is another----
    Senator Klobuchar. And how do you respond to that?
    Mr. Corneli. Well, part of that is that we have to lead in 
figuring out how to do this so cheap that they want to buy it. 
But there is another big risk, which is there are people, there 
are many companies in China figuring out how to make low-carbon 
technologies that they can sell here. And there is a global 
race in terms of decarbonizing, inventing, innovation, and 
America is the greatest economy in the world, the greatest 
source of innovation and creative thinking in the world. As 
soon as we get a market system that will turn that on for 
solving carbon stuff, we will win that race. But if we wait too 
long and other countries get ahead of us in the race to low-
carbon technologies----
    Senator Klobuchar. Thank you.
    Does anyone else want to respond to the China argument that 
we often hear, Mr. Wittman.
    Mr. Wittman. I have a concern, and this is fed to me 
constantly by my children, who are much better educated than I 
am, that we spend too much time blaming China and India for 
being part of the problem when, in fact, we need to look at our 
consumptive patterns in the U.S. and consider the fact that 
India and China simply want to grow the right to build their 
eating habits and standard of living like we have. We are the 
model. And if everybody in this room went through the process 
of doing a carbon footprint and we start studying the impact 
that we have on global resources, I don't think there is a 
single person in here who would not change some behavior 
tomorrow. But the first step in changing or correcting a 
problem is understanding or creating an awareness of how you 
are personally part of that problem, whether you are an 
individual or whether you are a business. We are not going to 
change China's and India's demand for resources. They don't use 
a fraction of what we use yet, and while their growth is 
increasing, the level per person is nowhere close to the United 
States.
    So I agree with the concept that we go back to becoming 
world leaders in crafting solutions, making it so successful 
that they will want to copy us like they have copied everything 
else, and they will follow us in making environmental change.
    Senator Klobuchar. Thank you.
    Mr. Broekhoff.
    Mr. Broekhoff. Just following up on that and turning that 
question a slightly different way, if you look at this question 
of international carbon offsets and the Clean Development 
Mechanism, this is an offset program that clearly we are not 
participating in, but it has already created opportunities for 
U.S. companies in developing countries. The United States is 
actually second only to Japan in terms of being the source of 
technologies that have been deployed in these energy-efficient, 
renewable energy projects in developing countries, including 
China, so that, you know, the benefits and risks can go both 
ways.
    Senator Klobuchar. Thank you. I want to follow up with 
something else, Mr. Broekhoff. In your testimony you talked 
about the problem with measuring how much additional carbon is 
stored in the soil with tree plantings and grass plantings, and 
you said that it is difficult to measure whether it is 
verifiable.
    I know there were provisions in the 2002 farm bill and we 
have some similar provisions in the 2007 farm bill that require 
USDA to study the potential for soil carbon sequestration. 
Could you tell me a little bit about the research that you 
alluded to or the lack of research and where the shortcomings 
are, and what do you see as the highest research priorities 
going forward?
    Mr. Broekhoff. Well, let me try to clarify my argument. I 
am not arguing that we do not have the technology or the 
scientific knowledge to verify with some accuracy the carbon 
that is sequestered in soils or trees. I think you can employ 
methods that do that with a high degree of accuracy. However, 
it is harder to do than it is for certain types of other 
projects that could be used as offsets. So if you are talking 
about landfill methane, for example, you capture methane coming 
out of the landfill and run it through a flare or use it to 
generate electricity, you can measure how much methane you are 
capturing with a flow meter with a high degree of accuracy, and 
at low cost.
    Turn to something like soil carbon sequestration, and the 
methods you use to try to get to that same level of accuracy 
entail a lot more costs, relatively speaking. So it is a 
relative argument.
    And the issue basically boils down to there being more 
kinds of overhead costs like that for many of these kinds of 
agriculture and forestry projects than for other types of 
projects.
    Senator Klobuchar. Thank you.
    Any thoughts on hybrid trees? I visit all 87 counties in my 
State every year, and my most memorable visit to Crookston 
recently was that the highest tree in Crookston was only like 8 
years old or something. It was a hybrid poplar in the back of 
Wendell Peterson's yard.
    And so, Ms. Wayburn, do you have any thoughts on that and 
the development of that and if that is a possibility as we look 
into, you know, more trees and more forests and how we could 
handle these things in terms of the global warming issue?
    Ms. Wayburn. I think agricultural approaches to forestry 
make a lot of sense. But I think at the same time, we want to 
recognize the role of managing our natural forests effectively 
as well, and that those gains perhaps are more sustainable, and 
they are certainly more realizable in the near term.
    I had my hand up just to offer an anecdote of how we can 
positively affect China through what we have done in California 
with forests. Now in Fujian Province in China, they are looking 
at natural forest management as a tool in their own carbon 
emissions reductions as opposed to what they have been looking 
at before, which was a very intensive industrial forest 
management policy, and looking at the net gains that they were 
making in climate through natural forest management and meeting 
their timber and product supply needs. So that was a positive 
leakage example of developing something here and using it and 
having it work in China. So I would support that.
    But the notion of can we use hybrids, can we use genetic 
modifications, can we use fertilizers, all very much more 
agricultural approaches in forestry, I think the answer is yes. 
We just need to look at the total carbon budget and what the 
side effects are. Because if we are going to look at things 
like crop switching, which is what I would suggest hybrid 
poplar might well be, that might make more sense than, for 
example, something like cotton.
    Senator Klobuchar. OK. Any other thoughts?
    [No response.]
    Senator Klobuchar. All right. Well, thank you very much. I 
appreciate it.
    Senator Stabenow. Well, thank you very much to each of our 
panelists. I think we have exhausted our time today, but we 
have learned a lot, and I appreciate very much your comments as 
we explore ways to be able to use offsets in a way that is 
measurable, quality, permanent, all of the things that we have 
talked about today to really be able to allow us to expand upon 
the effectiveness of a cap-and-trade program. And I appreciate 
all of the ideas as well.
    I think it is an exciting time for us. There is a lot of 
work to do. Coming from a State that is not only a great 
agricultural and forestry State, but we are proud of making 
automobiles, you may have heard, and manufacturing. And so 
there are lots of pieces of this.
    And I have to say on a side note that in addition to 
working on this issue and on the farm bill, which is very 
important in terms of the energy and conservation provisions, 
we also have a budget resolution on the floor that we hope to 
be voting on this evening or tomorrow that has a green-collar 
jobs initiative with new dollars in it for advanced battery 
technology and conservation and energy efficiency and other 
areas that are very important, and tax provisions that we have 
been trying very hard to get passed, get passed a filibuster, 
to be able to incentivize a number of different technologies 
that need to be happening.
    Coming from that manufacturing State, I have to say, 
though, just a note on China and our Asian neighbors, and that 
is, they are rushing on technology. When the first Ford Escape 
hybrid was placed into the marketplace--and we are very proud 
of the first hybrid SUV--they could not find a battery in the 
United States. They had to buy it from Japan.
    So the budget resolution that we have that includes an 
aggressive amount of money, new investment in advanced battery 
technology, is critical because China is spending hundreds of 
millions of dollars, as is Japan, as is South Korea, and we 
certainly do not want to be in a position where we go from 
dependence on foreign oil to dependence on foreign technology.
    So I think the rush is on, and in addition to all of the 
issues that deal with what is happening with our forests and 
open spaces, the rush is on for us to act quickly and 
effectively. And we thank you very much for your input.
    [Whereupon, at 4:25 p.m., the Subcommittee was adjourned.]
      
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