[Senate Hearing 110-1229]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 110-1229
 
             EXAMINE AMERICA'S CLIMATE SECURITY ACT OF 2007

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

                                HEARING

                               BEFORE THE

        SUBCOMMITTEE ON PRIVATE SECTOR AND CONSUMER SOLUTIONS TO

                 GLOBAL WARMING AND WILDLIFE PROTECTION

                                 of the

                              COMMITTEE ON

                      ENVIRONMENT AND PUBLIC WORKS

                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 24, 2007

                               __________

  Printed for the use of the Committee on Environment and Public Works


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

                               __________





                  U.S. GOVERNMENT PRINTING OFFICE
73-579                    WASHINGTON : 2013
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001


               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                       ONE HUNDRED TENTH CONGRESS
                             FIRST SESSION

                  BARBARA BOXER, California, Chairman
MAX BAUCUS, Montana                  JAMES M. INHOFE, Oklahoma
JOSEPH I. LIEBERMAN, Connecticut     JOHN W. WARNER, Virginia
THOMAS R. CARPER, Delaware           GEORGE V. VOINOVICH, Ohio
HILLARY RODHAM CLINTON, New York     JOHNNY ISAKSON, Georgia
FRANK R. LAUTENBERG, New Jersey      DAVID VITTER, Louisiana
BENJAMIN L. CARDIN, Maryland         JOHN BARRASSO, Wyoming1
BERNARD SANDERS, Vermont             LARRY E. CRAIG, Idaho
AMY KLOBUCHAR, Minnesota             LAMAR ALEXANDER, Tennessee
SHELDON WHITEHOUSE, Rhode Island     CHRISTOPHER S. BOND, Missouri

       Bettina Poirier, Majority Staff Director and Chief Counsel
                Andrew Wheeler, Minority Staff Director
                              ----------                              
1Note: During the 110th Congress, Senator Craig 
    Thomas, of Wyoming, passed away on June 4, 2007. Senator John 
    Barrasso, of Wyoming, joined the committee on July 10, 2007.
                              ----------                              

 Subcommittee on Private and Consumer Solutions to Global Warming and 
                          Wildlife Protection

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
MAX BAUCUS, Montana                  JOHN W. WARNER, Virginia
FRANK R. LAUTENBERG, New Jersey      JOHN BARRASSO, Wyoming
BERNARD SANDERS, Vermont             JOHNNY ISAKSON, Georgia
BARBARA BOXER, California, (ex       JAMES M. INHOFE, Oklahoma, (ex 
    officio)                             officio)


                            C O N T E N T S

                              ----------                              
                                                                   Page

                            OCTOBER 24, 2007
                           OPENING STATEMENTS

Lieberman, Hon. Joseph I., U.S. Senator from the State of 
  Connecticut....................................................     1
Warner, Hon. John, U.S. Senator from the Commonwealth of Virginia     4
Bond, Hon. Christopher S., U.S. Senator from the State of 
  Missouri.......................................................     7
Alexander, Hon. Lamar, U.S. Senator from the State of Tennessee..     9
Sanders, Hon. Bernard, U.S. Senator from the State of Vermont....    10
Barrasso, Hon. John, U.S. Senator from the State of Wyoming......    12
Carper, Hon. Thomas R., U.S. Senator from the State of Delaware..    14
Craig, Hon. Larry E., U.S. Senator from the State of Idaho.......    16
Baucus, Hon. Max, U.S. Senator from the State of Montana.........    17
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...    20
Whitehouse, Hon. Sheldon, U.S. Senator from the State of Rhode 
  Island.........................................................    23
Voinovich, Hon. George V., U.S. Senator from the State of Ohio...    25
Isakson, Hon. Johnny, U.S. Senator from the State of Georgia.....    27
Cardin, Hon. Benjamin L., U.S. Senator from the State of 
  Maryland, prepared statement...................................   147

                               WITNESSES

Anton, Kevin, President, Alcoa Materials Management..............    29
    Prepared statement...........................................    31
    Responses to additional questions from:
        Senator Cardin...........................................    32
        Senator Inhofe...........................................    33
        Senator Barrasso.........................................    37
Beinecke, Frances, President, Natural Resources Defense Council..    38
    Prepared statement...........................................    41
    Responses to additional questions from:
        Senator Cardin...........................................    51
        Senator Inhofe...........................................    51
        Senator Barrasso.........................................    59
        Senator Lautenberg.......................................    60
        Senator Isakson..........................................    61
Moomaw, William R., Director of The Fletcher School Center For 
  International Environment and Resource Policy, Tufts University    65
    Prepared statement...........................................    68
    Responses to additional questions from:
        Senator Cardin...........................................    73
        Senator Inhofe...........................................    73
        Senator Barrasso.........................................    79
        Senator Lautenberg.......................................    80
Roehm, Will, Vice President, Montana Grain Growers Association...    81
    Prepared statement...........................................    83
    Responses to additional questions from:
        Senator Cardin...........................................    85
        Senator Inhofe...........................................    85
        Senator Barrasso.........................................    93
Cicio, Paul N., President, Industrial Energy Consumers of America    94
    Prepared statement...........................................    96
    Responses to additional questions from:
        Senator Inhofe...........................................   124
        Senator Barrasso.........................................   124

                          ADDITIONAL MATERIAL

Questions about Lieberman-Warner (S. 1291 ``America's Climate 
  Security Act of 2007'').......................................149-155
Letters:
    Various organizations representing million of hunters, 
      anglers, and other conservationists.......................156-191
    European Union Delegation of the European Commission, John 
      Bruton, Ambassador........................................192-198
Policy Brief, The Lieberman-Warner America's Climate Security 
  Act: A Preliminary Assessment of Potential Economic Impacts, 
  Brian C. Murray and Martin T. Ross, October 2007..............199-221
Charts:
    Total Greenhouse Gas Emissions...............................   222
    Allowance Prices.............................................   223
    Real Gross Domestic Product..................................   224
    Electricity Prices...........................................   225
    Coal Capacity by Type Under Proposed Liberman-Warner Bill....   226
    ALCOA, Global Growth Opportunities...........................   227


             EXAMINE AMERICA'S CLIMATE SECURITY ACT OF 2007

                              ----------                              


                      WEDNESDAY, OCTOBER 24, 2007

                               U.S. Senate,
         Committee on Environment and Public Works,
   Subcommittee on Private Sector and Consumer Solutions to
                     Global Warming and Wildlife Protection
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:35 p.m. in 
room 406, Dirksen Senate Office Building, Hon. Joseph I. 
Lieberman (chairman of the subcommittee) presiding.
    Present: Senators Lieberman, Baucus, Carper, Cardin, 
Sanders, Whitehouse, Warner, Voinovich, Isakson, Alexander, 
Craig, Bond, Inhofe and Barrasso.

 STATEMENT OF HON. JOSEPH I. LIEBERMAN, U.S. SENATOR FROM THE 
                      STATE OF CONNECTICUT

    Senator Lieberman. Good afternoon, and thank you all very 
much for being here.
    This, as you know, is a hearing on America's Climate 
Security Act, the legislation that Senator Warner and I 
introduced last week, with Senators Cardin, Casey, Coleman, 
Collins, Dole, Harkin and Klobuchar as original bipartisan 
cosponsors.
    Senator Warner and I began working together on climate 
change earlier this year, shortly after we became chair and 
ranking member, respectively, of this Subcommittee on Climate 
Change. Since then, we have been studying, listening, talking 
and learning a lot.
    On August 2, we released a framework description of the 
climate bill that we proposed to write. That proposal reflected 
what we had learned in the three hearings that we held on the 
climate problem and climate policy in this subcommittee, as 
well as suggestions of more than 150 outside stakeholders and 
more than a dozen U.S. Senators.
    In fact, many of the measures described in our August 
framework proposal were suggested, drafted or introduced by 
Senators Boxer, Lautenberg, Sanders, Carper, Klobuchar, 
Alexander, Bingaman, Specter, Feinstein and McCain. By the time 
we presented our bill formally last week, it included even more 
new ideas and a number of contributions from Senate colleagues.
    Senator Warner and I made a particular effort to hear from 
members of the committee over the 2 months preceding 
introduction. Most of the changes we made after August 2, and 
some were quite significant, came at the suggestion of Senators 
Boxer, Baucus, Lautenberg, Sanders, Alexander and Carper.
    Today, we are holding this public hearing on the bill. Next 
week, the seven members of the subcommittee will consider it, 
mark it up and vote on it. The process I just described 
comprises, in our opinion, the first steps--big ones--but first 
steps in the journey that this legislation will take through 
the Senate. If a majority of this subcommittee's members vote 
in favor of the bill next week, then it will be referred to the 
full Environment and Public Works Committee. There, the 
legislation will, of course, go through another thorough 
vetting, be subject to amendment. I particularly appreciate 
Chairman Boxer's announcement yesterday that the full EPW 
Committee will hold two legislative hearings following our 
subcommittee vote next week.
    So Senator Warner and I, I believe, have moved 
deliberatively and openly, but we have also moved as quickly as 
we can, thoughtfully, because we believe that the problem of 
global warming grows more urgent each day and that the U.S. 
Government has a responsibility to be part of a solution to 
that problem.
    Just take a look at the dramatic satellite pictures of the 
melting polar ice caps that were in the paper the other day and 
you will see with your own eyes one of the many pieces of 
evidence that one can see with one's own eyes today about why 
we must move with a real sense of purpose to get something 
substantial done to avert the worst possible consequences of 
global warming.
    Senator Warner and I feel good about the bill we have 
introduced. If enacted, we are convinced it would achieve the 
greenhouse gas reductions and reduction in global warming that 
we need, and do so without adverse effect on America's economy. 
In fact, we think it will stimulate greater economic growth.
    According to the now-Nobel Prize winning Intergovernmental 
Panel on Climate Change, keeping the atmospheric concentration 
of greenhouse gases below 500 parts per million will avoid a 
high risk of global warming that would cause severe impacts. 
That is the goal.
    The analysis that EPA completed in July of the forerunning 
McCain-Lieberman climate bill found that the reductions in U.S. 
greenhouse gas emissions mandated by that bill would, making 
conservative assumptions about the pace of emissions reductions 
in the rest of the world, keep the concentration of greenhouse 
gases in the atmosphere below that threshold of 500 parts per 
million at the end of this century.
    This bill that I have introduced with Senator Warner has 
mandated emissions reductions which are somewhat greater than 
the McCain-Lieberman bill and would therefore, we are 
confident, keep the concentration of greenhouse gases well 
below the danger level. In other words, it achieves the goal 
that most of the experts tell us we need to have for the 
protection of our environment and, in fact, our way of life.
    Now, what about the economic impact of our legislation? Two 
economic impact analyses have just been completed, one from the 
Nicholas Institute at Duke University and RTI International 
analyzed our August 2 proposal using EPA's model. The other is 
from the Clean Air Task Force and on location used the Energy 
Information Administration's model to analyze the actual 
legislative text that Senator Warner and I have just 
introduced.
    I am very pleased to say that neither analysis shows any 
disruption of robust U.S. economic growth, any sharp increases 
in energy prices, or any jeopardy to the central role of coal 
in this Nation's energy portfolio from our legislation. As good 
as we feel about our bill, Senator Warner and I understand that 
it is unfinished. It is a work in progress, and that it will 
change, hopefully for the better as it works its way through 
the legislative process.
    To cite one example, I am confident that we can improve on 
the section in the bill that enables vulnerable populations in 
different regions of the world to adapt to the negative impacts 
of global warming. That said, I believe our bill is both strong 
and balanced, and that it can and should be adopted in this 
Congress. If it were enacted today, it would be the best 
greenhouse gas cap and trade system on the planet. That is 
exactly what we need it to be to protect our country and our 
people and to become effective leaders in a global response to 
this global challenge.
    [The prepared statement of Senator Lieberman follows:]
     Statement of Hon. Joseph I. Lieberman, U.S. Senator from the 
                          State of Connecticut
    Good afternoon. This is a hearing to examine America's Climate 
Security Act, a bill that Senator Warner and I introduced last week 
with Senators Cardin, Casey, Coleman, Collins, Dole, Harkin, and 
Klobuchar as original, bipartisan cosponsors.
    Senator Warner and I began working together on climate legislation 
early this year--studying, listening, talking. On August 2, we released 
a description of the climate bill that we proposed to write.
    Our proposal reflected what we had learned in the three hearings 
that we held on the climate problem and climate policy in this 
subcommittee, as well as suggestions of more than 150 outside 
stakeholders and more than a dozen U.S. Senators.
    In fact, many of the measures described in our August proposal were 
suggested, drafted, or, in some cases, introduced by Senators Boxer, 
Lautenberg, Sanders, Carper, Klobuchar, Alexander, Bingaman, Specter, 
Feinstein, and McCain.
    By the time we presented our bill last week, it included even more 
ideas and a number of contributions from colleagues.
    Senator Warner and I made a particular effort to hear from members 
of the EPW committee, and especially members of this subcommittee on 
climate change, over the two months preceding introduction.
    Most of the changes we made after August 2--and some were very 
significant--came at the suggestion of Senators Boxer, Baucus, 
Lautenberg, Sanders, Alexander, and Carper.
    Now we are holding a hearing on the bill. Next week, the seven 
members of this subcommittee will vote on it.
    The process I just described comprises the first step in the 
journey that this legislation will take through the Senate. If a 
majority of this subcommittee's members vote in favor of the bill next 
week, then it will be referred to the full Environment and Public Works 
Committee.
    There the legislation will go through another vetting. I appreciate 
Chairman Boxer's intention to hold two full-committee legislative 
hearings, on the Tuesday and Thursday of the week immediately following 
the subcommittee vote.
    So Senator Warner and I are moving deliberatively and openly, but 
we are also moving as quickly as we can, because we believe that the 
problem of global warming grows more urgent each day, and that the U.S. 
government has a responsibility to be part of a solution to that 
problem.
    Just take a look at the dramatic satellite pictures of the melting 
polar ice caps and you will see with your own eyes why we must move 
with a real sense of purpose to get something substantial done.
    Senator Warner and I feel good about the bill we introduced. If 
enacted, we are convinced it would achieve the reductions in greenhouse 
gases and global warming we need, and do so without adverse affect on 
America's economy. In fact, we think it will stimulate greater economic 
growth.
    According to the IPCC, keeping the atmospheric concentration of 
greenhouse gases below 500 ppm will avoid a high-risk of global warming 
that would cause severe impacts. The analysis that EPA completed in 
July of the McCain-Lieberman climate bill found that the reductions in 
U.S. greenhouse gas emissions mandated by that bill would--making 
conservative assumptions about the pace of emissions reductions in the 
rest of the world--keep the concentration of greenhouse gases in the 
atmosphere below 500 parts per million at the end of this century.
    The Lieberman-Warner bill's mandated emissions reductions are 
somewhat greater than the McCain-Lieberman bill, and would keep the 
concentration of greenhouse gas below the danger level.
    Two economic impacts analyses have just been completed. One, from 
the Nicholas Institute at Duke University and RTI International, 
analyzed our August 2 proposal using EPA's model.
    The other, from the Clean Air Task Force and OnLocation, used the 
Energy Information Administration's model to analyze the actual 
legislative text that Senator Warner and I just introduced.
    Neither analysis shows any disruption of robust U.S. economic 
growth, any sharp increases in energy prices, or any jeopardy to the 
central role of coal in this nation's energy portfolio from our 
legislation.
    As good as we feel about our bill, Senator Warner and I understand 
that it is unfinished, and that it will change--hopefully for the 
better--as it works its way through the legislative process.
    To cite one example, I am confident that we can improve the section 
in the bill that enables vulnerable populations in different regions of 
the world to adapt to the negative impacts of global warming.
    That said, I believe our bill is both strong and balanced, and that 
it can and should pass in this Congress. If it were enacted today, it 
would be the best greenhouse gas cap-and-trade system on the planet.
    And that is exactly what we need it to be to protect our country, 
and our people, and to become effective leaders of a global response to 
a global crisis.
    With that, I ask Senator Warner to make an opening statement.

    Senator Lieberman. With that said, I am honored to call on 
Senator Warner, whose support for this measure has quite 
literally made all the difference.
    Senator Warner.

     STATEMENT OF HON. JOHN WARNER, U.S. SENATOR FROM THE 
                    COMMONWEALTH OF VIRGINIA

    Senator Warner. Thank you, Mr. Chairman. I compliment you 
now on the leadership you have shown from the very beginning on 
this bill.
    I thank the full committee chairman, who understandably 
can't be with us today, having returned to California.
    I thank my very good friend, we have shared together the 
committee's experience on this in the Armed Service Committee 
for two decades. You have your differences, but I respect them 
and I hope the fact that we have now reached two more hearings 
with the full committee will in some way meet some of the 
legitimate concerns that you have.
    I just wanted to say in addition, and I will put my 
statement basically in the record, I just don't think the 
United States of America can continue to stay on the sidelines. 
This is football season, and we see a lot of people sitting on 
the bench. We need to get on that field. This is the 
opportunity. Our government is three branches, three coequal 
branches, we proudly refer to it. The Supreme Court has spoken, 
and now it is time for the legislative branch, and I am anxious 
to see that the United States Senate will take the lead and 
that the House, hopefully, will likewise at some early date 
move forward on their initiatives. I think some interesting 
initiatives are being taken on the other side.
    So the executive branch, of course, favors a voluntary 
approach. It is our conscientious belief that we cannot take 
that lead in the world with the voluntary, and therefore we 
have the provisions that I have in this bill with my Chairman.
    I also want to say that hopefully this action that we 
initiate today can culminate in a markup with this 
subcommittee, followed as you say by hearings of the full 
committee and a markup by the full committee such that at the 
time the United Nations Framework Convention on Climate Change, 
the parties meet in Bali in December, they can see a clear 
signal from two of the branches, or at least one and a half 
branches of the United States Government, that action is on its 
way.
    I thank you for acknowledging all of the work that has been 
done by our colleagues. We freely acknowledge, we sat down with 
each and every one of them--Senator Carper can testify to 
that--and pointed out, Senator, the provisions that we liked 
and we wanted to steal from your draft. Is that not correct? Do 
you verify that?
    Senator Carper. [Remarks made off microphone.]
    Senator Warner. Yes, fine. Thank you very much.
    [Laughter.]
    Senator Lieberman. You are under oath. Be careful.
    [Laughter.]
    Senator Warner. Senator Alexander, did we not do the same 
with you? I don't quite hear you.
    Senator Alexander. [Remarks made off microphone.]
    [Laughter.]
    Senator Warner. But we are open 7-11, right, for business 
around here--24 or whatever it is.
    I would like to also point out, I love to look at 
legislative history. President Bush, the first President Bush, 
he broke the logjam on the Clean Air Act by campaigning on the 
issue in 1988. His Administration presented the idea of a cap 
and trade system, one that has worked effectively in the acid 
rain program. My friend and I late last night on the Floor of 
the Senate, Senator Baucus and I reminisced about how both of 
us were active in that and how he specifically, Senator Baucus, 
stepped up and took a leadership role at that time with George 
Mitchell and we got the job done.
    We have an urgent economic situation here with regard to 
our energy situation. I was taken back by the following here 
recently, and that is a power plant sought to get the approval 
of their respective State, in this case the Kansas Department 
of Health and Environment, and they were denied that permit 
simply because they could not, for whatever reason, meet the 
carbon dioxide emissions as a reason for rejecting.
    Now, other plants across America, I am told that 16 some 
plants have just scrapped their plans, coal plants, coal-fired 
plants, and another 76 are on hold. This is why we have to 
move. This is why the Congress must put forth a piece of 
legislation enacted by the President into law so that the 
private sector can move forward with a degree of certainty so 
that they can get the necessary financing and permits and the 
like. So these are some of the reasons I believe it is 
essential to get started now.
    I think that pretty well closes my remarks. I just want to 
thank all the members of the subcommittee who have turned out 
here in force today, and that is the way it should be. 
Colleagues are going to come here and speak to this bill. So at 
this point, I happily yield the floor.
    [The prepared statement of Senator Warner follows:]
         Statement of Hon. John Warner, U.S. Senator from the 
                        Commonwealth of Virginia
    Senator Lieberman, my fellow subcommittee members, and 
distinguished witnesses, I am proud to begin the America's Climate 
Security Act's journey through the legislative process today with this 
subcommittee hearing.
    Senator Lieberman has accurately described the components of the 
bill, so I would like to address the process we have taken and will 
continue to undertake with regard to this bill. We are open 24-7 for 
ideas.
    I recognize the interest my colleagues have in holding additional 
hearings directly related to provisions in our bill. In the interest of 
balancing their interest with my own, shared by Senator Lieberman, in 
moving this bill along, I propose we schedule two full committee 
hearings for the Tuesday and Thursday of the week after the 
subcommittee markup.
    Now, a word on the bill. In brief, it is my view that America 
cannot afford to continue to stay on the sidelines. We need to get on 
the field. Our government has 3 co-equal branches of government, and 
one of these, the judicial branch, has spoken. In April, the United 
States Supreme Court ruled that greenhouse gases are air pollutants. 
The executive branch favors a voluntary approach to reducing greenhouse 
gas emissions. Now is the time for the legislative branch to begin 
movement on a well conceived mandatory greenhouse gas emissions 
reduction program. I am eager to see the Senate take the lead. And I 
look forward to the House proceeding.
    I continue to hope that the Chairman and Ranking Member of the full 
committee will find the time to consider the subcommittee's markup.
    If our full committee completes its markup before the United 
Nations Framework Convention on Climate Change Conference of Parties in 
Bali in December, the U.S. will emerge as a leader. It will send a rare 
signal from 1\1/2\ branches of government.
    In short, I want to see the United States credibly enter the realm 
of world leadership on this issue producing legislative action here at 
home.
    The bill before us relies heavily on the pioneering work done here 
by many. I point to the accomplishments of the first President Bush, as 
he broke the logjam on the Clean Air Act amendments by campaigning on 
the issue in 1988. His Administration presented the idea of a cap and 
trade system, one that has worked effectively in the Acid Rain Program. 
My friend, Senator Baucus helped hone and usher the amendments through 
this body, and today, the success of the Acid Rain Program speaks for 
itself.
    To underscore the urgency of the economic and energy situation 
facing our nation now, one need only look at a recent permit denial for 
a power plant in Kansas. Last week, the Kansas Department of Health and 
Environment cited carbon dioxide emissions as the reason for rejecting 
an air permit for coal-fired power plants.
    Furthermore, nationally, plans for at least 16 plants have been 
scrapped this year with another 76 plans on hold with a very uncertain 
future. This is why Congress needs to move, so the private sector has 
certainty.
    These actions have significant economic impacts.
    How are we going to meet our power needs for economic growth in 
this country if we do not provide the regulatory certainty to enable 
that growth?
    Our country relies on power fueled by our nation's largest natural 
resource: coal. In order to create the certainty needed for further 
investments to occur in the power sector, in order to meet our 
country's growing energy needs, a federal regulatory structure for 
greenhouse gases needs to be enacted.
    I thank the subcommittee members, all of whom Senator Lieberman and 
I met with personally. In the pages of our bill are many of the ideas 
brought to our attention in those meetings. We may not always agree on 
how to address the issue of climate change, but this bill is intended 
to provide the vehicle by which the Senate will work its will on this 
pressing challenge before us.
    I look forward to the continued dialogue and to hearing the views 
of today's witnesses.

    Senator Lieberman. Thank very much, Senator Warner, for 
that excellent statement and for all you have done to bring us 
to this point. Senator Warner and I are accustomed to the very 
autocratic procedures of the Senate Armed Services Committee 
and the Senate Homeland Security Committee where only the chair 
and the ranking member get to give opening statements.
    This is a much more democratic and participatory people's 
committee, so that in the spirit of that at this subcommittee 
hearing we have invited the members of the full Committee. We 
are going to invite every member here in order of arrival on 
the early bird rule to give an opening statement, hopefully of 
not more than five minutes.
    I thought that I would start, Senator Inhofe, by reading a 
brief letter from Chairman Boxer, and then call on you first, 
and then after that we will go to the early bird rule.

    ``Dear Colleagues, today is a very big day for our Committee as we 
take the first step toward enacting a comprehensive bill to ensure that 
the worst ravages of global warming will be averted. Only the raging 
fires in my beautiful home State of California could keep me away from 
what I know will be a spirited and in-depth exchange of ideas 
encompassed in the Lieberman-Warner bill.
    I look forward to being briefed by all of you upon my return. I 
thank you for your expressions of deep concern about the wildfires in 
California. I am sure you are all aware that this is just the first in 
a series of hearings and briefings that the Committee will undertake as 
we move toward markup of this legislation. I hope that each and every 
one of you appreciates the extraordinary work of both the chairman and 
the ranking member of the subcommittee on this bill''--I leave that to 
each of you.
    ``I look forward to moving this legislation along to the full U.S. 
Senate. We cannot leave the issue of global warning burning for another 
generation. It is our responsibility to act now.
    Most sincerely, Barbara Boxer, Chairman.''

    Senator Lieberman. I will enter that in the record.
    Senator Inhofe, I welcome your comments.
    Senator Inhofe. Thank you, Mr. Chairman.
    One of our valuable members, Senator Bond, has some other 
commitments. I would like to defer to him. It is my intention 
to stay here for the entire time of this hearing so I will have 
an opportunity to give mine, even last if it is necessary.
    Senator Lieberman. Fine.
    Senator Bond.

 STATEMENT OF HON. CHRISTOPHER S. BOND, U.S. SENATOR FROM THE 
                       STATE OF MISSOURI

    Senator Bond. Mr. Chairman, I thank Senator Inhofe and I 
thank you, Mr. Chairman and Ranking Member Warner for having 
this legislative hearing to review the provisions of America's 
Climate Security Act.
    As you know, I have previously submitted to you a detailed 
list of concerns for the people of the Midwest, including the 
people of Missouri whom I serve. I will tell you that all those 
concerns remain and they have not been addressed.
    Today, I am going to focus on one particular area. I am 
concerned that this bill fails to protect vulnerable families 
and workers from hardship. The Carbon Market Efficiency Board 
provides no guarantee that millions of people supporting modest 
families across dozens of States will avoid the pain this bill 
will provide.
    Experts agree that capping carbon will increase the cost of 
something no one can afford to do without, and that is energy. 
Families will face pain at the pump, higher home electricity 
and gas bills. Workers in energy-intensive sectors will face 
layoffs, with their jobs going overseas to countries with lower 
energy costs. Hardest hit will be the weak and vulnerable, with 
no extra room in their budget for higher energy costs. The 
poor, the fixed income will suffer.
    Now, I asked if the bill proponents really expect me to go 
back to Missouri and say to these people that I helped create a 
Carbon Market Efficiency Board that will protect them? Even the 
name implies it is less concerned with alleviating suffering 
than ensuring market efficiency. A white paper and associated 
materials by the bill's sponsors say it the cost control board 
is a fashion on the Federal Reserve Board. That is cold comfort 
to the folks back home.
    I do not think there is a progressive advocate alive who 
thinks that the Fed protects or even has in mind the needs of 
the poor or the downtrodden. The Fed is more concerned with 
macro issues such as the stability of credit markets, the size 
of the money supply, inflation and the economy at large.
    A story yesterday in The Wall Street Journal underlined the 
point. It is entitled, More Debtors Use Bankruptcy to Keep 
Homes. We are in the middle of a housing crisis, with millions 
of homeowners suffering with higher mortgage payments, tens of 
thousands are losing their homes to foreclosure. The story 
notes how many homeowners are forced into bankruptcy to save 
their homes.
    Last month, as the Nation's housing slump continued, 
consumer bankruptcy filings increased almost 23 percent, 
representing 69,000 people, and overall consumer bankruptcy 
filings were up 45 percent during the first 9 months of the 
year. I don't see the Federal Reserve solving those problems.
    Of course, we know that there were many months of 
homeowners suffering before the Fed took action, and only then 
it was because the credit markets were seizing up, not because 
of low-income suffering. Even now, distress continues in 
certain sectors of the economy, like home building and 
financials. That is because the Fed does not take action based 
on certain sectors of the economy, certain types of workers or 
families, or certain income levels. The Fed only acts when the 
entire economy is at stake. This is the same standard for 
action by the board proposed in this bill, to avoid 
``significant harm to the economy of the United States.''
    Anything less than significant harm to the entire economy 
produces no cost control or action. So we can expect under the 
Lieberman-Warner bill no action, even if millions of Midwestern 
families are suffering with higher energy bills; no action when 
millions of drivers are hit with more pain at the pump; no 
action when tens of thousands of jobs are lost in energy-
dependent sectors; no action when dozens of States in the 
Midwest, Mountain West and South suffer from higher energy 
prices.
    Gentlemen, I am sorry, that is not good enough for me. I 
believe our vulnerable families and workers deserve real 
protection. They deserve protection they can count on. They 
deserve an automatic trigger, a safety valve at a preset level.
    We could take a stand now and say that pain beyond a 
certain level is unacceptable. That is the right thing to do 
for our weak and vulnerable. I would hope the committee might 
consider that path.
    Thank you very much for your courtesies in allowing me to 
go forward.
    Senator Lieberman. Thanks very much, Senator Bond.
    Going in order of arrival, Senator Alexander.

STATEMENT OF HON. LAMAR ALEXANDER, U.S. SENATOR FROM THE STATE 
                          OF TENNESSEE

    Senator Alexander. Thank you, Mr. Chairman, and my 
congratulations to you and to Senator Warner for your work. Let 
me say, I especially welcome Kevin Anton who is here, who is 
the president of Alcoa Materials Management. They have a big 
headquarters in Knoxville, TN and a big plant in my hometown, 
where my Dad worked. They sent me to school on an Alcoa 
scholarship and they just gave 10,000 acres of land in between 
the Smokies and the Cherokee National Forest. So I am not 
objective about Alcoa and I am glad they are here.
    Mr. Chairman, the question before the Senate is not whether 
to act on climate change or when to act, but how to act. How 
shall we in this Congress begin to reduce greenhouse gas 
emissions with the most certainty, the least complexity, and 
the lowest cost?
    The Lieberman-Warner legislation prefers an economy-wide 
cap and trade approach. I prefer a sector by sector approach, 
that is devising the lowest cost, least complex approach, 
tailored to each of the three largest sectors of the economy 
that produce the most greenhouse gases. That would be 
utilities, transportation, and building efficiency.
    Since 2003, first with Senator Carper and then with Senator 
Lieberman, I have introduced legislation to put a cap on carbon 
emissions. That affects 40 percent of the carbon dioxide and 33 
percent of the greenhouse gases. So as time goes along, I will 
be suggesting that we consider at the same time a sector by 
sector approach, taking those three large sectors, that would 
work on about two thirds of all the carbon. As I understand it, 
the Lieberman-Warner bill would affect about three quarters of 
it.
    I hope our focus during these hearings and debates today 
and in the future we have is, okay, what are we going to do 
about it? We still have some differences of opinion about 
whether there is climate change or how much humans are 
contributing to it, but if we spend all our time on that, we 
won't deal with these questions, and there are some very big 
questions that are difficult to understand that we Senators 
need to take some time on.
    Do we prefer a cap and trade to a carbon tax? I prefer a 
cap and trade. I think it is a Republican idea. It uses the 
market instead of the government, but we ought to discuss that. 
What is the real cost? Senator Bond raised that question. One 
estimate of the forerunner of this legislation by experts 
showed that it would add 25 cents to the gas tax. That is a big 
difference.
    On the other hand, the estimates of the cost of the acid 
rain legislation in 1990 and 1991 were overstated and it cost a 
lot less than most people thought. The upstream cap on 
transportation fuels in the bill that is proposed, that is an 
unusual proposal. I would prefer adding a low carbon fuel 
standard to climate change legislation and intend to broaden my 
utilities legislation to do just that. But that is a choice on 
how we deal with fuel.
    Allocation, Senator Carper and I have argued about 
allocation. It is very complex. This proposal uses historical 
allocation. That is the same thing I use in my utilities bill, 
but then it adds an unusual thing called load serving entity 
output allocation. We need to really make sure we understand 
that.
    Auction, this bill includes nearly one quarter of the 
allowances would be auction. Most auctions I have been to have 
the purpose of getting the highest possible price, and I am 
wondering if this won't add to the cost of this legislation.
    How to spend the money raised by the auction. These are big 
bucks we are potentially talking about, much more than the acid 
rain cap and trade. If we create a fund with billions of 
dollars here, this is the worst place in the world to create a 
fund with billions of dollars because everybody has an idea on 
how to spend it. That is why I think we need to understand why 
we need an auction and why I suggest a sector by sector 
approach might make more sense.
    We need to understand exactly the affect we are going to 
have on natural gas prices so that we don't damage homeowners 
and farmers and our manufacturing. I wonder why we don't go 
ahead with a four pollutant bill such as the one Senator Carper 
and I worked on, and Senator Lieberman and I also worked on. We 
have problems still with sulphur and nitrogen and mercury. If 
we are going to be bold about attacking the problem, let's be 
bold about the solution. In my view in this generation, the 
solution really is aggressive conservation and aggressive 
nuclear power.
    So these are the questions. I want to be a participant in 
developing this bill and I hope I can vote for it. I welcome 
the chance to be here today.
    Thank you.
    Senator Lieberman. Thank you very much, Senator Alexander.
    Next, we go in order of arrival and back and forth between 
the two parties or the three parties, in my case, and the three 
parties in Senator Sanders' case, but either party, you are 
next, Senator Sanders.

STATEMENT OF HON. BERNARD SANDERS, U.S. SENATOR FROM THE STATE 
                           OF VERMONT

    Senator Sanders. Thank you very much. Let me begin by 
congratulating you, Senator Lieberman and Senator Warner and 
your staffs. I know how hard you worked and I really appreciate 
that effort.
    Let me be as blunt as I can in telling you where I am 
coming from on this bill, which deals with an issue that is 
qualitatively different than any other issue that we are 
dealing with in Congress. On most of the issues that we debate, 
what ends up happening is somebody wants to spend $100 million, 
somebody wants to spend $50 million, and we compromise at $75 
million or whatever, and that is the way things are done in a 
democratic society and that is fine.
    Unfortunately today on this issue, we have a qualitatively 
different situation. I wish it wasn't so, but it is. The issue 
is not what I want versus what Senator Warner wants or Senator 
Craig wants. The issue is one of physics and it is one of 
chemistry and what the best scientists in the world believe is 
happening to our planet because of greenhouse gas emissions. It 
is not my view and not your view. It is physics. It is 
chemistry. The issue is what we can do as a Nation, along with 
the international community, to reverse global warming and to 
save this planet from a catastrophic and irreversible damage 
which could impact the lives of billions of people.
    In other words, we are not debating my views or your views. 
We are debating science and public policy. The views that I am 
trying to bring forth to the best of my ability are the views 
of the most knowledgeable scientists in America and in fact the 
world, the people who among other achievements have just 
receive the Nobel Peace Prize.
    Now, let me just go over very briefly some of my major 
concerns about the legislation. First, I understand that 
different experts are analyzing the reductions from all 
provisions of the bill, but it is my view that the 2020 target 
should be at least a 15 percent mandatory under the cap 
reduction from total U.S. emissions in 1990. Many are starting 
to say in fact that we need near-term reductions that are 
significantly higher than that. What scientists will tell you 
is they have under-estimated the problem and we probably have 
to be more aggressive than they thought. Additionally, the 2050 
target should be at least an 80 percent mandatory under the cap 
reduction from total U.S. emissions in 1990.
    In addition to thinking about the reduction targets and 
timelines, we must ensure that the latest science is 
periodically considered and that it informs our ongoing action, 
the so-called look-back process.
    Second, right now, the legislation transitions to 100 
percent auction or public benefit by 2036, over 20 years after 
enactment. The right to pollute should not be given away, at 
least not for so long, and thus I would like to see a 100 
percent auction or public benefit by at the very least the year 
2025.
    Third, the bill as currently drafted allows a firm to get 
15 percent of its reductions from offsets, projects that can be 
difficult to track and quantify, and this concerns me. It 
especially worries me when I consider that the legislation also 
allows another 15 percent of a firm's allowances to be borrowed 
from the future and another 15 percent to come from 
international markets.
    Mr. Chairman, with only a few, with only a few very 
quantifiable exceptions, I would be hesitant to rely on offsets 
to meet our emission reduction goals.
    Fourth, the bad news is that, as all of know, we have a 
major crisis in front of us, but there is some very, very good 
news out there, and that is as a result of exceptional work and 
technology breakthroughs, we now have the tools at our 
fingertips to reverse global warming as we move from fossil 
fuels to energy efficiency and such sustainable energies as 
wind, solar, geothermals, and others. It is out there. It is no 
longer in the minds of scientists. It is there right now. Our 
job is to take advantage of what is there.
    Mr. Chairman, a recent poll entitled A Post Fossil Fuel 
America: Are Americans Ready To Make the Shift, found that 88 
percent of the American people understand that we can move 
forward in a new energy paradigm and that is what we should be 
doing.
    Now, what does this actually mean in real life? Let me just 
tell you what I think. Number one, it means that within 10 
years, we should have at least 10 million solar rooftops 
producing clean, cheap and secure electricity. We could do 
that. It means that we should be building more solar plants. 
Right now, we have only two, with one having just come online. 
We can do a lot, lot better than that. It means that we should 
produce in this country millions of small wind turbines that 
could be used in rural America to provide, on average, 50 
percent of the electricity a household might need in addition 
to large wind projects.
    It means that we should be seriously investing in energy 
efficiency. There is unbelievable potential sitting out there 
at our homes, in our factories as we move away from the 
automobile to mass transit, into a rail system. Our rail system 
is way behind Europe, Japan and even China right now--
tremendous potential out there. By the way, as we do this, we 
can create millions of good paying jobs.
    Mr. Chairman, if we are going to implement these bold 
policies and achieve these aggressive goals, if we are going to 
transform our energy system away from fossil fuels to energy 
efficiency and sustainable energy, the Federal Government will 
have to play a leadership role in moving our Nation forward.
    The Lieberman-Warner bill creates a Climate Change Credit 
Corporation which will administer tens of billions of dollars. 
Mr. Alexander is quite right. We are talking about a huge 
amount of money there in auction proceeds. I am very concerned 
about the structure and accountability of this Climate Change 
Credit Corporation and whether it can accomplish what we need 
to see accomplished in a cost-effective and accountable manner.
    Lastly, it is my view we need the Federal Government to be 
more than a passive grant-maker. We need a Federal entity that 
can be a partner with the private sector, with States and 
localities, and with the non-profit community, an entity that 
has the authority and the flexibility to transform our energy 
future and reverse global warming.
    I look forward to working with you, Mr. Chairman and Mr. 
Warner and everybody else, to create that type of entity we 
need to efficiently and effectively move forward.
    Thank you.
    Senator Lieberman. Thanks, Senator Sanders. You mentioned 
rail transportation. It reminds me, Senator Lautenberg asked me 
to enter into the record his regrets that he can't be here. He 
will try to get here, but he is managing an Amtrak bill on the 
Floor of the Senate.
    Senator Barrasso, you are next.

STATEMENT OF HON. JOHN BARRASSO, U.S. SENATOR FROM THE STATE OF 
                            WYOMING

    Senator Barrasso. Thank you very much, Mr. Chairman.
    Thank you, Senator Warner, as well for your leadership on 
this bill.
    Wherever you find yourself on this issue of climate change 
and energy development, I think we can agree on one important 
dynamic, and that is the marketplace. Change not only awaits 
us, it is banging at the door. Consumers are demanding more and 
more green energy to address the effects of global warming. 
More people now know that a carbon footprint isn't just a kind 
of new running shoe, and reducing carbon has become a mantra, a 
fact in the marketplace which we must recognize.
    Wyoming, the State that I present, is so very blessed with 
many energy resources and has an economy that is based on 
carbon extraction. Because consumer demand leads to public 
policy, the public policy and regulatory actions, either taxing 
carbon, capping carbon, all of these are going to affect my 
home State, perhaps more than any one policy that is on the 
horizon.
    While this debate can't be ignored, it can't be rejected, 
and I believe that Wyoming needs to be and must be at the 
forefront. The bottom line is that our country's energy 
portfolio is headed for change, and that means jobs in Wyoming 
will change. The writing is on the wall regardless of where you 
stand on the issue of climate change.
    I had an old medical professor, his name was Milt Davis, 
and he said, John, you never want to be diagnosed with mural 
dyslexia. I said, what is mural dyslexia? He said, mural 
dyslexia is the inability to read the handwriting on the wall.
    [Laughter.]
    Senator Barrasso. You can harbor doubts about the science, 
but the political and the market realities are under no such 
illusion. The handwriting is on the wall.
    Now, I believe that Wyoming represents a mix of energy 
solutions that will be part of this country's energy future for 
many, many years to come with fewer impacts. We must adapt. We 
must make changes. We must be ready to put our money where our 
best hopes are. But we cannot simply shut off our current 
traditional energy sources.
    Now, I can assure you one of the biggest threats to 
addressing effectively the concerns of climate change would be 
to significantly impede the current domestic production today 
in anticipation of new technologies in the future. We need to 
innovate. We need to prepare for changes, but we need to retain 
our ability to make the power that we need today so that 
companies have the resources they need to develop the clean 
energy technologies that we need for the future.
    I can assure the members of this panel that we in Wyoming 
are learning to use a new vocabulary--carbon capture, carbon 
sequestration, gasification, liquefaction. Innovations and 
Federal investment in each of these issue areas are not only 
vital to Wyoming's future, they are vital to addressing the 
issue of global warming as a Nation.
    Now, I believe we must invest in the new technologies that 
we will need to address the issues of climate change. I don't 
believe we are doing enough in this regard in terms of 
investments and I would like to work with Senators Lieberman 
and Warner to address this issue. What we must guard against is 
making rash policy decisions based on perceived impacts in the 
future using inexact scientific models. It is not a matter of 
whether global warming is occurring. All the best science that 
we now have suggests that it is. It is a matter of whether we 
can accurately predict its effect 25, 50 or even 100 years in 
the future, and whether we are passing appropriate legislation 
today based on such models.
    I would like to work with the committee in determining how 
we are spending Federal money in this regard. We must ensure 
that we have a better understanding of the range of possible 
outcomes of global warming in the future. As Senator Bond and 
Senator Alexander both stated, we must also have a better 
understanding of what we are dealing with before rushing into 
passing legislation that may cost jobs, may raise gasoline 
prices, and may negatively impact family budgets needlessly.
    I look forward to working with both of you, working with 
the other members of the committee to ensure that we develop a 
sound policy and solutions to address this issue.
    Thank you very much, Mr. Chairman.
    Senator Lieberman. Thanks very much, Senator Barrasso. I 
know that Senator Warner and I look forward to working with you 
as well. There is certainly a seat at the table for you. You 
have added a term to the debate, mural dyslexia, which you will 
hear many times during the debate. Occasionally, you will be 
given credit for having used it first, but we will always know 
that you did. Thank you.
    Senator Carper is next.

STATEMENT OF HON. THOMAS R. CARPER, U.S. SENATOR FROM THE STATE 
                          OF DELAWARE

    Senator Carper. Thank you very much, Mr. Chairman.
    I want to join my colleagues in saluting you and Senator 
Warner for helping show the way here. Senator Lieberman has 
been a leader on this front for a long time. I think the 
addition of Senator Warner as your partner just really helps 
make what was an uphill battle something that is doable.
    I have described myself since I came to the Senate about 7 
years ago as a johnny-come-lately on global warming, on climate 
change. I don't feel like a johnny-come-lately anymore. I 
wasn't present at the creation, but I have put a lot of thought 
and time and energy into this, as some of you know. I 
appreciate the chance to visit with you and to share some ideas 
for your consideration. A couple of them made the cut, several 
didn't, and my hope is before we are done some of the rest will 
make the cut, too.
    My focus has been, as several have already suggested, 
including Senator Alexander, my focus has been that Governor 
George Bush had it right. In October 2000, running for 
President, he was in Saginaw, Michigan and he said, we ought to 
reduce emissions from power plants which are major contributors 
of carbon dioxide, sulphur dioxide, nitrogen oxide and mercury. 
He said, we ought to go after all four of them. He got elected 
and changed his mind. The first year in office, he said we 
ought to go after SOx, NOx and mercury, but we will wait until 
another day for CO2.
    I think right here in this room, gosh, earlier this year, 
when the fellow who ran against Governor Bush in 2000 talked 
about the approach we ought to take. The question was do we 
just do an economy-wide bill on climate change, on global 
warming. He said no. He said if we are smart, we will use this 
as an opportunity to also address from the powerplant segment, 
SOx, NOx, and mercury.
    Among the reasons why I think it is important that we do 
that, if you think about it, I don't know how many people died 
last year in this country from exposure to CO2. I 
know that in this country this year, about 25,000 people will 
die from their exposure to fine particle pollution--25,000. I 
don't now how many people, how many babies are going to be born 
this year with the possibility of brain damage from carbon 
dioxide, but I know that this year over 600,000 babies are 
going to be born who are at risk of neurological damage from 
the exposure from the womb, from mom's who have eaten fish with 
mercury in them.
    I think for us to walk away from those problems, those very 
real threats to human health and life, at a time when we could 
actually do it all at once and do it well, is a mistake. There 
is a way--I have argued this for 6 years now--there is a way 
for us to reduce these emissions, to do it in a way that 
doesn't cost consumers an arm and a leg, to do so in a way that 
doesn't put the economy in a tailspin, and for us to not seize 
this opportunity, as we say in Delaware, carpe diem, to seize 
the day, I think we make a grievous mistake.
    I want to conclude, if I may, I have two boys. They are 17 
and 19. Some of you have heard me talk about them before. I 
have heard Senator Warner talk about his children and 
grandchildren. One is in college and one is in high school. 
Some day, 20 or 25 years from now, I don't want them to come 
back to me and say, when we have reached this turning point, 
and frankly the situation of dire prediction for climate change 
and global warming, and what actually turns out is that there 
is a tipping point, and there is no turning back. I don't ever 
want them to turn back and say to me, weren't you in the 
Senate? What did you do about it? What did you do about it to 
try to avert this calamity from affecting all of us? I want to 
be able to look them in the eye and say, I did everything that 
I could; everything that I could to try to make sure that this 
didn't happen, doesn't happen.
    I said that several years ago. I meant it then. I mean it 
today, too. By the same token, I want to make sure that the 
people that I know and you know, too, who suffer from lung 
damage, who have bad health, who are hospitalized today, 
thousands of them across the country, 25,000 are going to die 
because of their exposure. We have to do something about it, 
and we can do something about it.
    All those kids, thank God, hopefully we will never have in 
our family someone who is going to be born with brain damage 
because of the ingestion of mercury by their mom. But a whole 
lot of kids are going to be born this year who have that 
problem that they face. We can do something about it, and we 
need to. I am going to work very hard and doggedly to make sure 
that before we finish with this legislation this year that we 
have included those considerations as well. I hope you will 
join with me.
    Thank you.
    Senator Lieberman. Thank you very much, Senator Carper, for 
that statement. I hope everybody in the room got it when 
Senator Carper said in Delaware they say Carper diem.
    [Laughter.]
    Senator Lieberman. I just wanted to come back to that.
    Senator Carper. Senator, our Latin was never that good in 
Delaware.
    Senator Lieberman. Senator Inhofe, Senator Bond was going 
to be next.
    Senator Inhofe. That is right.
    Senator Lieberman. So why don't you go ahead in this spot?
    Senator Inhofe. I would like to ask--one of our probably 
most knowledgeable members over here does have to leave, that 
is Senator Craig, and I would like to go ahead and defer to 
him.
    Senator Lieberman. Fine.
    Senator Inhofe. I will come back in line again.
    Senator Lieberman. He is next.
    Senator Craig.

 STATEMENT OF HON. LARRY E. CRAIG, U.S. SENATOR FROM THE STATE 
                            OF IDAHO

    Senator Craig. Mr. Chairman, and to Senator Inhofe, ranking 
of the full committee, let me thank you, and Senator Warner.
    I cannot criticize anyone who takes the initiative that you 
gentlemen have obviously taken over an issue of this character 
and of this concern. I disagree with you for a lot of what I 
think are very clear reasons that the marketplace is already 
demonstrating, but I cannot disagree with your intent to try to 
solve a problem.
    Let me suggest that if the marketplace could speak 
politically, and it can't, only we do, then the marketplace 
today would be winning, profoundly winning because America has 
already decided that we will accept nothing but clean forms of 
energy. As a result of that, for every economic unit that has 
been produced out of the last recession, we are one of the 
cleanest nations of the world. We can be cleaner and we must be 
cleaner, but we are substantially cleaner today for the very 
reasons Senator Sanders spoke: technology. Not conforming the 
marketplace, not forming the marketplace, but letting the 
marketplace work through technology.
    In June, something happened that was not supposed to happen 
around here. We were not supposed to be second in emissions of 
greenhouse gas. We were first. We are 25 percent or 26 percent 
of the world economy, so we were big. We were emitters and we 
were never to become second, but we did. We became second to 
China. If this committee and our efforts don't focus on China 
as well as India, as well as our own country, then I am sorry, 
Senator Carper, the tipping point may come, but it will not be 
our fault.
    The technologies that Senator Sanders talks of, that I have 
driven, that others are driving, is what will bring China into 
compliance. They will become clean when the technology allows 
them to. But they will not become clean and send their people 
to a cave with a candle and expect them to survive. The world's 
economy does not function that way.
    I don't believe in the cap and trade schemes. You are 
genius if you have created one that will work. The world has 
already demonstrated that most don't. If you are genius, I will 
study it hard and give you credit for it, Mr. Chairman. Because 
I believe I have changed some. I am now for mandatory CAFE. I 
am for creating a much more robust clean energy market by 2020, 
and putting the money to get there in the right place.
    California today by its own tragedy it is admitting more 
carbon into the atmosphere than it has in decades. This year, 
we will admit more carbon into the atmosphere because we cannot 
create healthy forests and manage them appropriately, and so we 
burned 8 or 10 million acres. If they had not burned, it would 
have been equivalent to taking 12 million automobiles off the 
road.
    Now, we can do better there and we will have greater impact 
there because not only if you stop the forests from burning, 
but you make them young and youthful, they become major 
sequesters of carbon. A climate change bill that does not 
incorporate that, Mr. Chairman, doesn't get it. Sequestration, 
credits for sequestration whether it is in the agricultural 
community, and we are marking up a farm bill today that will do 
that, along with forest stewardship, is going to take us much 
further down the road to being a very clean place.
    How about clean portfolio standards? How about driving our 
utilities toward cleanliness through innovation, but also doing 
exactly what Senator Alexander talked about and what the New 
York Times spoke of when they looked at your bill and said it 
won't work without nuclear.
    So there are a combination of things, Mr. Chairman, that I 
think are so absolutely critical in all of this. Let us not 
damage our economy in the way Senator Bond spoke. Let us look 
at some combinations like Bingaman-Specter, not a bad idea with 
the kind of off ramps that say if you are about to tip the 
economy, you back away a little bit. Trigger it in a way, if 
you are going to create a command and control environment that 
does not command and control us into recession.
    Many of us argued under Kyoto that if we ratified it, it 
would cost us three million jobs. At the bottom of the last 
recession, we had lost three million jobs and we were in 
compliance with Kyoto by emission. That is a fact. So we 
weren't wrong. We were right to walk away from Kyoto.
    The rest of the world did it, but they didn't do anything 
about it. It was politically green to do and they won great 
credits and accomplished little. China went ahead. India went 
ahead. We became cleaner because the consumer and the 
marketplace began to respond.
    Let us move forward crafting carefully something that will 
allow the consumer and the marketplace the kind of response 
that will grow us, not slow us.
    Thank you, Mr. Chairman.
    Senator Lieberman. Thanks very much, Senator Craig. We look 
forward to this discussion continuing. I do want to mention 
that your point about China is well taken. As you may know, 
Senator Warner and I actually embraced a section of the 
Bingaman-Specter bill in this that I think creates some real 
incentives. But this is a topic that we will continue to 
discuss. Thank you.
    Senator Whitehouse is yielding at this point his spot now 
to Senator Baucus, who has to go on to another meeting briefly. 
Senator Baucus is obviously a senior member of the committee 
and of the subcommittee. I thank him very much for stopping by.

 STATEMENT OF HON. MAX BAUCUS, U.S. SENATOR FROM THE STATE OF 
                            MONTANA

    Senator Baucus. Thank you very much, Mr. Chairman. I thank 
Senator Whitehouse, too, for his deference.
    Senators Lieberman and Warner, I thank you. You have done a 
lot of good work here. You are a real credit to your States and 
to the Senate and to the country, in some respects even to the 
world, for all the effort you have undertaken here. You try to 
be balanced and reasonable here, and we thank you for taking 
the time and effort to come up with a bill which I think is 
getting us on a track to make some sense here and get some 
solutions.
    I also thank my fellow Montanan, Will here. Will is a wheat 
farmer in Great Falls, Montana. He is vice president of the 
Montana Grain Growers. I am very happy you are here, Will. I am 
anxiously waiting to hear your thoughts about ag offsets within 
a cap and trade system, and we look forward to your testimony 
here. Thank you so much for taking the time to come here.
    The book of Genesis tells us that the Lord God then took 
the man and settled him in the Garden of Eden to cultivate and 
care for it. Montana has taken God's call to be good stewards 
very seriously. This means that we must address the issue of 
climate change. We cannot be good stewards if we ignore the 
fact that climate change threatens to result in longer 
droughts, more severe wildfire seasons, and no glaciers in 
Glacier Park.
    I believe it is a moral imperative to deal with climate 
change. Indeed, I believe we all have a moral responsibility 
when we leave this place to leave it in as good a shape or 
better shape than we found it for our kids and our grandkids. 
Climate change is certainly a part of that moral imperative.
    That is why I intend to support America's Climate Security 
Act. I believe the bill that Senators Lieberman and Warner have 
crafted represents a reasonable approach to dealing with the 
issue. While I have some outstanding concerns with the bill, I 
am confident that we can work through them.
    On balance, I think the bill strikes a good balance. The 
2050 emissions reductions targets the bill sets align with the 
United States cap recommendations and puts the United States on 
path to be a leader in addressing climate change. The bill also 
includes strong provisions to incentivize the deployment of 
carbon capture and sequestration, which is so important.
    Stopping coal-fired power plants will not stop climate 
change. Clean coal technology will stop climate change. This 
issue is crucial. Even if another coal-fired power plant was 
never built in the United States, China would continue to build 
their coal resources. We must therefore develop carbon capture 
and sequestration technology here so we can use it 
domestically, as well as export it abroad.
    That is why I am pleased that Senators Lieberman and Warner 
have included several provisions to incentivize the deployment 
of carbon capture and sequestration. Their bill sets aside 4 
percent of annual allowances through the year 2035 to go 
towards bonus allowances for power plants that capture and 
sequester their carbon.
    The bill also sets aside 52 percent of auction revenues for 
next generation energy development. Of this amount, 28 percent 
is set aside for developing and deploying carbon capture and 
sequestration.
    America's Climate Security Act also includes the best 
offset provisions of any of the economy-wide cap and trade 
bills. America's farmers and foresters have an important role 
to play in stopping climate change. I am pleased that the bill 
allows regulated entities to satisfy up to 15 percent of their 
allowance obligations to domestic offsets for America's farmers 
and foresters.
    I look forward to continuing to work with Senators 
Lieberman and Warner on ways to improve the bill. Specifically, 
I am concerned about the impact of the cap and trade system on 
rural electric cooperatives. Rural coops provide cost-based 
power to low-income areas that, unlike investor-owned 
utilities, lack the resources to invest in cutting edge 
technology to mitigate their impacts to their members. I also 
want to make sure that the costs to the economy are weighed 
carefully.
    We have a moral imperative to address climate change. 
America's Climate Security Act is a balanced approach to a 
challenging issue. I look forward to working with my 
colleagues, with everyone interested, and I have a hunch most 
everyone is going to be interested in this, the issue is so 
important. I am just very proud to be a part of an effort to 
get on with it.
    Thank you.
    [The prepared statement of Senator Baucus follows:]
Statement of Senator Max Baucus, U.S. Senator from the State of Montana
    Senators Lieberman and Warner, thank you for all of your work on 
this critical issue and for agreeing to hold this hearing to take a 
closer look at the provisions in your bill. I would also like to thank 
all of the witnesses for agreeing to testify and share their 
perspectives on the issue of climate change.
    I am especially excited to have a fellow Montanan here testifying. 
Will Roehm is a third generation wheat farmer from Great Falls, 
Montana. As Vice President of the Montana Grain Growers Association, 
Will is here to highlight the important role of agricultural offsets in 
any cap and trade system. Welcome Will. I look forward to your 
testimony.
    The Book of Genesis tells us that ``The Lord God then took the man 
and settled him in the Garden of Eden to cultivate and care for it.'' 
Montanans take God's call to be good stewards very seriously. This 
means that we must address the issue of climate change. We cannot be 
good stewards if we ignore the fact that climate change threatens to 
result in longer droughts, more severe wildfire seasons, and no 
glaciers in Glacier National Park.
    I believe it is a moral imperative to deal with climate change. 
That is why I intend to support America's Climate Security Act. I 
believe the bill Senators Lieberman and Warner have crafted represents 
a reasonable approach to dealing with the issue.
    While I have some outstanding concerns with the bill, I'm confident 
I can work through those issues with Senators Lieberman and Warner.
    The bill strikes a good balance. The 2050 emissions reductions 
targets the bill sets align with the U.S. CAP recommendations and put 
the U.S. on path to be a leader in addressing climate change. The bill 
also includes strong provisions to incentivise the deployment of carbon 
capture and sequestration.
    Stopping coal fired power plants will not stop climate change; 
clean coal technology will stop climate change. This issue is crucial.
    Even if another coal fired power plant was never built in the 
United States, China would continue to develop their coal resources. We 
must develop carbon capture and sequestration technology here so that 
we can use it domestically, as well as export it abroad.
    That is why I am pleased that Senators Lieberman and Warner have 
included several provisions to incentivise the deployment of carbon 
capture and sequestration. Their bill sets aside 4% of annual 
allowances through 2035 to go towards bonus allowances for power plants 
that capture and sequester their carbon.
    The bill also sets aside 52% of auction revenues for next 
generation energy development. Of this amount 28% is set aside for 
developing and deploying carbon capture and sequestration.
    America's Climate Security Act also includes the best offset 
provisions of any of the economy wide cap and trade bills. America's 
farmers and foresters have an important role to play in stopping 
climate change.
    I am pleased that the bill allows regulated entities to satisfy up 
to 15% of their allowance obligations through domestic offsets from 
America's farmers and foresters.
    I look forward to continuing to work with Senators Lieberman and 
Warner on ways to improve the bill. Specifically, I'm concerned about 
the impact of a cap and trade system on rural electric cooperatives. 
Rural co-ops provide cost based power to low income areas and unlike 
investor owned utilities lack the resources to invest in cutting edge 
technology and to mitigate the impacts to their members. I also want to 
make sure that costs to the economy are weighed carefully.
    We have a moral imperative to address climate change. America's 
Climate Security Act is a balanced approach to a challenging issue. I 
look forward to working with my colleagues keep the process moving 
forward.

    Senator Lieberman. Senator Baucus, thank you very much. I 
want to say first amen to your reading from Genesis. It is 
quite appropriate. Second to thank you for the announcement 
that you just made of your intention to support America's 
Climate Security Act. It is a tremendous boost to our efforts 
to get a real solution passed in this Congress. I can't thank 
you enough. I want to just tell you for myself and John Warner, 
it means a lot to us personally. We look forward to working 
with you. You have the stature in the Senate to play a very 
important role in moving this legislation forward, and 
responding to what you correctly call a moral imperative. So I 
can't thank you enough.
    Senator Warner. May I say, Mr. Chairman, to our good friend 
from Montana, before you arrived, I recited how you were the 
key in the Clean Air Act debate. I remember it. I was in the 
room.
    Senator Baucus. [Remarks made off microphone.]
    Senator Warner. Well, no. The two of us were in there with 
George Mitchell and came up with a little formulation to make 
it work. Now once again, you have stepped forward and we are 
very honored to have you join us.
    Senator Baucus. Well, thank you, Senator. I have very fond 
memories of that year when we worked on the Clean Air Act and 
developed the cap and trade system. It is based upon my 
experience with developments and with the ultimate success of 
cap and trade in that arena that we can certainly build on that 
here. Now, it is much more complicated, clearly, because cap 
and trade back then was sulphur dioxide, nitrous oxides and 
limited to power plants. But it worked, and worked very well. 
Although there are bigger issues here with carbon cap and 
trade, Europeans have had some difficulties. They have made the 
effort. They have tried. You can't blame them for trying. But 
that experience back then that you referred to is quite 
helpful, so thank you.
    Senator Lieberman. Thank you.
    Senator Inhofe, Senator Craig was next, so if you want to 
exercise your rights.
    Senator Baucus. I apologize for having to leave. I have 
something I just have to do.

STATEMENT OF HON. JAMES M. INHOFE, U.S. SENATOR FROM THE STATE 
                          OF OKLAHOMA

    Senator Inhofe. I have been informed by my colleagues that 
they are going to stay here with me for the duration, so we are 
going to get to you guys. Just have patience.
    I have been listening. I have changed my opening statement, 
Mr. Chairman. I have been listening to both sides. I think 
Senator Craig makes a very good observation about China, when 
he talks about the fact that where the problem really is and 
the fact that you, Mr. Chairman, have responded in saying that 
there is something in this bill that will address that. But 
when we talk about having gone 15 years without a new coal-
fired, power generating plant in the United States, and China 
is cranking one out every 3 days, we know there is a problem 
out there. How do we address that?
    I think the Administration in their Asian Pacific 
Partnership Act and now the acceleration of that into other 
areas is something that should be looked at because it 
recognizes that we have problems. There are real pollutants out 
there. CO2 isn't one of them, but we have SOx and 
NOx and mercury. This addresses that, and oh by the way, it 
also lowers CO2. Also, it gets into trade. So I 
think that these are things that should be looked at and I 
think will be looked at and we will discuss during the 
consideration of this bill.
    The fact that, and it was mentioned by someone in opening 
statement, that it is probably a good thing that we did not get 
onto Kyoto at the time that we were all encouraged to do so, 
back a few years ago; that those countries that did, only two 
of the 15 Western European countries have complied with the 
requirements of Kyoto, with the emission requirements. So I 
think that we have done a far better job over here, even though 
we weren't a part of the treaty.
    Now, I was heartened to hear, Mr. Chairman, I know, I 
believe you because you said it, that we are going to be a lot 
more deliberate in considering this than was first announced, 
not by either of you, but by others, in that this goes it is 
far too complicated, as we already have determined from these 
opening statements. So when you consider how long it took us 
for the Clean Air provisions in 1990. I think we had some 60 
witnesses from across the country. During the Clear Skies, we 
heard from dozens of witnesses and had quite a few hearings on 
that. I think that this certainly is legislation that should be 
vetted in every possible way.
    Now, every passing day brings more questions than answers. 
I have here a short preliminary list of questions about the 
rationale of various provisions that request clarification. So 
what I would like to do is make this as a part of the record. 
It is seven pages of questions for you and those who are 
putting this together, so we can perhaps not today, but at a 
later time have the benefit of the answers.
    Senator Lieberman. Without objection, it is part of the 
record.
    [The referenced document follows on page 149.]
    Senator Inhofe. OK, good. I think this bill was released 
only last week, about 6 days ago. I think it was that morning 
that I heard about it and I had a chance to speak on the Floor 
about the bill right after that. So we do need to take more 
time, and that is what we are going to do.
    My concern is also with the fundamental construction of 
this bill. Our Nation is headed for an energy crisis in the 
next few years. Just last week, the North American Electric 
Reliability Corporation announced its annual 2007 long-term 
reliability assessment, and found that unless additional 
resources are brought into service, some areas could fall below 
their target capacity margin within 2 or 3 years. Over the next 
10 years, we are expected to increase our need for electricity 
demand by 18 percent or 135,000 megawatts. Within the same 
timeframe, our committed capacity will grow by only about 8 
percent, or 77,000 megawatts. So I think we need to consider 
that.
    We do not know how expensive the bill is going to be, but 
we intend to find out. We knew pretty well what the McCain-
Lieberman bill would have been. As I said on the Senate Floor, 
the 2050 expected or mandated reductions are even more 
aggressive, it is my understanding, than McCain-Lieberman. So 
probably it would be something more than that. We will have a 
chance to explore that.
    Senator McCain apparently has stated in his statement, in 
his decision not to cosponsor the bill, and I am quoting now, 
he said, ``We can't effectively reduce our emissions without 
including nuclear energy, which is more efficient than the 
technologies in this bill.'' I agree with that. I know that 
Senator Isakson agrees with that because he and I have talked 
about that quite often.
    So Senator McCain and I may differ on the need for climate 
legislation, but his point is hard to ignore. If nuclear is not 
a part of the path forward, then how do we plan to reduce the 
emissions?
    As we will hear in testimony from one of our witnesses 
today, Mr. Paul Cicio, the unfortunate answer is that this bill 
will cause massive fuel switching to natural gas, driving 
industrial users out of the country. This is a great fear that 
I have. We have talked about this, and we have talked about 
this in detail.
    So finally, I would say, Mr. Chairman, that I am glad we 
are considering a bill. We have had some 20 hearings about the 
issue, and I am glad quite frankly that we are not talking 
about science. We have had such a surge of science recently, 
and many of those on the other side of the issue have now come 
over and become skeptics. We want to talk about that, but not 
during today's hearing or during the consideration of this 
bill.
    At its core, the bill, like all cap and trade bills, tries 
to obscure the real cost to our economy, and the number of jobs 
that we will send to China and other countries. I heard 
somebody say earlier that they wouldn't want to have a carbon 
tax. Frankly, I would rather have a carbon tax than a cap and 
trade. At least you know, then, and the public knows just how 
much it is going to cost.
    So I do look forward to our witnesses and to a deliberate 
discussion on your bill.
    Thank you.
    [The prepared statement of Senator Inhofe follows:]
       Statement of Hon. James M. Inhofe, U.S. Senator from the 
                           State of Oklahoma
    Mr. Chairman, I thank you for holding this hearing today on S. 
2191. This is a much needed hearing in what should be the beginning of 
the process of looking at the bill, examining it in-depth, hearing from 
a wide-variety of stakeholders. But that process is getting short-
changed. And the full Senate and the American people will be short-
changed as well.
    Senator Boxer has been reported in the press as saying her goal is 
to complete Committee action on this bill before her trip to Bali. I 
would ask Chairman Boxer to repudiate that idea and publicly state that 
her goal is to get the legislation right, not legislate for a public 
relations deadline.
    When this Committee considered the Clean Air Act Amendment of 1990, 
the subcommittee and full Committee heard from over 60 witnesses from a 
vast cross-section of America during a series of legislative hearings 
examining the bill.
    When we considered Clear Skies, we heard from dozens of witnesses 
examining the bill over a period of 2 years. We conducted staff 
briefings which all Committee staff were invited to participate. We 
obtained analyses from EPA and the Energy Information Administration. 
Even through this, members of this Committee complained EPA hadn't done 
enough analysis to allow them to understand the implications of the 
bill.
    Yet for this bill, the entire extent of the process prior to a 
subcommittee markup is to have one legislative hearing at which only 
one witness with grave concerns is invited. It also appears that the 
full Committee process will be truncated--that there will be an attempt 
to create the appearance of process, but no cooperation in providing 
Committee Members the opportunity to examine the substance of the bill.
    In fact, it appears that no analysis of the massive impacts that 
this bill will impose on the U.S. economy has been conducted. Nor do we 
have an analysis of what this bill will achieve in terms of reducing 
global concentrations and, consequently, global temperatures--in short, 
the benefits. I fear the bill is all pain and no gain.
    Every passing day brings more questions than answers. I have here a 
short preliminary list of questions about the rationale of various 
provisions and requests for clarification, which I request be made part 
of the record. This bill was released only last week, and we have had 
little time to analyze this bill and to hear from stakeholders, who 
themselves are just beginning to understand how it will affect them. I 
hope you will answer these questions and others that will be 
forthcoming before moving forward with a markup.
    My concern is also with the fundamental construction of this bill. 
Our nation is headed for an energy crisis in the next few years. Just 
last week, the North American Electric Reliability Corporation (NERC) 
announced its annual 2007 Long-Term Reliability Assessment, and found 
that unless additional resources are brought into service, some areas 
could fall below their target capacity margins within two or three 
years. Over the next 10 years, we are expected to increase our need for 
electricity demand by 18%--or 135,000 megawatts. Over that same 
timeframe, our committed capacity will grow by only 8%, or 77,000 
megawatts. This bill will worsen the problem.
    We do not know how expensive this bill will be, but we know it will 
cost more than McCain-Lieberman, which itself increases gasoline and 
electricity prices by 22 percent cuts production in 33 out of 35 
sectors of the U.S. economy.
    As Senator McCain's spokesperson, Melissa Shuffield is quoted 
yesterday as saying in an article discussing his decision not to co-
sponsor the bill:
    ``We can't effectively reduce our emissions without including 
nuclear energy, which is more efficient than the technologies in the 
bill.''
    Senator McCain and I may differ on the need for climate 
legislation, but his point is hard to ignore. If nuclear is not part of 
the path forward, how do you plan to reduce emissions?
    As we will hear in testimony from one of our witnesses today, Mr. 
Paul Ciccio, the unfortunate answer is that this bill will cause 
massive fuel switching to natural gas, driving industrial users out of 
the country.
    There are many areas of this bill to criticize, such as the 
creation of what is essentially a new carbon Federal Reserve board 
completely insulated from oversight, the manipulation of its provisions 
to send money to certain states for no real reason other than to gain 
votes, and of course, its completely unrealistic targets and 
timetables. But I do not have time now to go through them all.
    At its core, this bill, like all cap and trade bills, tries to 
obscure the real costs to our economy and the number of jobs we will 
send to China and other countries. And based on the experience of the 
Kyoto Protocol, it will not work. It is a far more honest approach to 
simply propose a tax. Unlike this bill, it would at least work, and 
would be far less harmful to the economy. It may not help companies 
wanting windfall profits, but it would do less harm to American 
families.

    Senator Lieberman. Thanks, Senator Inhofe. I look forward 
to working with you.
    Senator Whitehouse.

  STATEMENT OF HON. SHELDON WHITEHOUSE, U.S. SENATOR FROM THE 
                     STATE OF RHODE ISLAND

    Senator Whitehouse. Thank you, Chairman Lieberman. I 
appreciate being invited to the subcommittee hearing. I want to 
salute you and Senator Warner for your efforts. In particular 
as we go forward, the success of this bill will be highly 
dependent on both the experience and the wisdom that you and 
Senator Warner bring in the ways of the Senate, and the 
enormous affection and high regard and esteem that you enjoy 
among your colleagues, and the fact that you have been willing 
to take those hard-built assets over many years of service and 
put them into the service of this initiative is something that 
I think we are all very grateful for.
    Three quick points about where we are and three quick 
points about where I think we need to go. First, there does 
appear to be scientific virtual unanimity about what the 
problem is and how urgent it is. Just yesterday in this room, 
we had Commissioner Cooper from Tennessee who is the health 
officer for that State report that the National Association of 
State and Territorial Health Officials has come out 
unanimously--every single State--in favor of their recent 
statement on global warming. So certainly among health 
officials, we have unanimity, and I think among most people we 
also do.
    Second, this is an issue, as Senator Sanders said, where 
there is a bar that we must get over. Exactly where that bar is 
we are not sure right now. It is shrouded in some uncertainty. 
We do know that our children and grandchildren will find out if 
we miss it, and it is worth protecting them by erring on the 
side of caution. Particularly with respect to the concern about 
caution about the science, it is worth noting that to the 
extent that there is caution about the science, that is caution 
on both sides of the science. We might well be underestimating 
the damage as likely as overestimating it.
    Again, I think erring on the side of protecting our 
children and our grandchildren is called for. What does that 
mean? The three things I think we need to set as goals going 
forward are serious short-term target reductions, such as those 
that Chairman Boxer and Senator Sanders have in their proposed 
legislation. I am a co-sponsor of it. I think that those are 
wise and perhaps even need to be raised a little bit as 
evidence continues to come in, but they are a good starting 
place.
    Second, we need to make sure that we put forth economic 
signals that do not encourage this kind of pollution. We need 
to make sure that we put forth economic signals that avert the 
well-known tragedy of the commons and that inspire the market 
forces that we all count on to do the right thing, rather than 
the wrong thing. We need to make sure that the system protects 
itself against gamesmanship.
    Third, to the extent that we create revenues out of this 
economic signal, and we likely will, we need to make sure that 
those revenues are invested in the economic changes that we 
need to change to the greener economy and to provide balance 
for those who will bear a disproportionate share of the new 
costs.
    I conclude by saying that it is my view that we should see 
this as an opportunity, that there is enormous economic 
potential and national security benefit to getting this right. 
We can embrace the future, not fear it, if we get this right. 
Ultimately, as I said at the beginning of my remarks, the 
measure of this will be what our children and great- 
grandchildren experience. They will look back on our efforts 
now either with pride or with dismay, and it is the work that 
we will do in the next few months that will determine whether 
we have earned their pride or their dismay.
    I thank both of you for your efforts and for including us 
all in this process.
    Senator Lieberman. Hear, hear. Thank you, Senator 
Whitehouse.
    Before we go to Senator Voinovich and Senator Isakson, 
Senator Warner I think you wanted to speak for just a moment.
    Senator Warner. Thank you, Mr. Chairman, just very briefly. 
Our distinguished ranking member pointed out quite accurately 
and properly the absence of any reference to the essential 
source of nuclear energy in this piece of legislation as it is 
laid before us. Our colleague from Idaho, and we are about to 
hear from our distinguished colleague from Georgia--all of them 
have concerns.
    If I may say with a great sense of modesty, at one time I 
was CEO of an organization that had the largest number of 
nuclear plants. Those were the 5 years, 4 months and 3 days I 
was privileged to be in the Navy Secretariat. At that time, we 
had just under 100 nuclear plants operating mostly at sea, the 
greater majority of course, but nevertheless pilot plants 
ashore.
    I had the privilege of knowing intimately, very well--I met 
with him on a weekly basis--Admiral Rickover. I take a second 
place to no one in recognition of the importance of nuclear 
energy and indeed my State has been a leader.
    I think, Mr. Chairman, I can safely say, with your 
acquiescence, that in the due course of the committee's 
deliberation, that issue will be taken up, but for practical 
reasons at this time we made a decision not to incorporate 
those provisions we had in mind in the bill.
    I thank you.
    Senator Lieberman. Thank you, Senator Warner. You have 
accurately reflected my views as well.
    Senator Voinovich.

 STATEMENT OF HON. GEORGE V. VOINOVICH, U.S. SENATOR FROM THE 
                         STATE OF OHIO

    Senator Voinovich. Thank you, Mr. Chairman, and thank you 
for inviting those of us who are not on this committee to 
testify today, or to listen.
    First of all, I want to acknowledge the fact that what we 
are doing here is going to have a dramatic impact on our 
economy, our environment, and our energy needs. Second of all, 
it is going to, I believe, have enormous impact on the 
environment of the rest of the world. Whatever we do, we better 
do it right.
    I think of this as the cart that is dealing with climate 
change. There is not one horse that is pushing-pulling this. It 
is two horses. The two horses are your concept of cap and 
trade; the other horse is my horse of technology, capturing 
carbon and sequestering it. If we are going to get this right, 
the both of them are going to have to be working together and 
going at the same pace. If we don't, I think that we are not 
going to be successful with this effort.
    I also would like to say that as a former chairman of the 
subcommittee, of clean air, climate change and it was nuclear 
safety, that we held extensive hearings on this type of 
legislation. When we had Clear Skies, if you will recall that 
there was insistence--insistence--by Senators Obama, Carper, 
Baucus and Chafee that we have extensive hearings and that all 
of the legislation be looked at by the EPA and EIA so that we 
would have an analysis of just what impact this was going to 
have.
    I can remember when they did an analysis of the Lieberman-
McCain legislation, which I think you admitted is a less 
stringent predecessor of this legislation, that they concluded 
that reductions in GDP would be on the order of several 
trillion dollars, significantly decreasing household income, 
while significantly increasing energy prices and driving 
businesses overseas.
    But the EPA also pointed out, and I think this is really 
important in terms of the assumptions, that when they made 
those predictions that they underestimated them because in 
their analysis, they assumed that carbon capture and storage 
technologies are widely available at a reasonable cost, which 
they are not. I think that is one of the real issues that is 
going to have to be confronted, and that is, where are we in 
terms of technology in capturing carbon and sequestering it? 
There is a lot of debate out there over where we are at. Is it 
commercially available to us today?
    The other thing that they assumed was a 150 percent 
increase in nuclear power generation will occur within the next 
30 years, which the nuclear industry would readily admit is a 
political and practical impossibility. In fact, Senator Carper 
and I have a strategic plan we put together to try and launch 
the nuclear renaissance. But there is no way that we are going 
to reach some of these assumptions that have been made. So I 
think that it is important that we give consideration to this.
    Last but not least, the whole issue of involving the rest 
of the world in this effort. Now, in your legislation you have 
tried to attempt to deal with what is going to be happening 
around the globe. This chart that I have behind me, Global 
CO2 Concentrations, does an estimate of where we 
would be with your legislation and other legislation. The red 
line at the top is where we would be without any legislation. 
The lines just below it, these lines right here, are the result 
of several of the bills that have been introduced, including 
your piece of legislation.
    If we get all of this--Group I countries, Kyoto, Russia.
    If this doesn't happen, if this happens over here, if this 
doesn't happen, we are here. The fact of the matter is that we 
have to be careful about what we are doing here. Yes, we can do 
a good job for the United States, but at the same time we 
better understand, as other people have more eloquently stated, 
that we have to take into consideration what is happening in 
the world.
    Mr. Chairman, I want you to know that I want to work with 
you, and I will say this, there is only one way that we are 
going to be successful with this, and we haven't done it since 
I have been on this committee and I have been here since 1999. 
That is, we have to understand that we have to harmonize our 
environment, our energy, and our environmental needs, with all 
three of them coming together. Put each other's shoes on, 
figure out how we can work together to do something that is 
really going to make a difference for our country and for the 
world, and deal with your concern about your children and 
grandchildren, as I am concerned about my children and 
grandchildren.
    Senator Lieberman. Thanks, Senator Voinovich.
    Senator Warner and I have exactly the same view. We have a 
difference of opinion with you because we think our bill does 
harmonize those factors, but we will continue to work together. 
Hopefully, we will find a way.
    The panel will be happy to hear that there is only one more 
Senator to speak, but it was certainly worth waiting for.
    Senator Isakson.
    Senator Warner. A very important one.

 STATEMENT OF HON. JOHNNY ISAKSON, U.S. SENATOR FROM THE STATE 
                           OF GEORGIA

    Senator Isakson. I was getting ready to apologize to the 
panel for making them endure one more political speech, but 
this will not be a political speech.
    I first of all want to say the Senate is fortunate that two 
of our most distinguished members have decided to approach this 
issue, and I want to thank both Senator Warner and Senator 
Lieberman for the time they extended to me when they were 
working on this to talk about their interest and what they were 
trying to do.
    I think everybody can see from the testimony--or not 
testimony--the statements that have already been made that 
there is not a person on this committee that is not acutely 
interested in finding a way to move forward in a positive way 
in the best interests of our economy, our environment and our 
people.
    To associate myself with Senator Carper's statement about 
his two boys, I have seven grandchildren and found out last 
week I am getting ready to have an eighth. I have an 
obligation. I tell most people in my political speeches that I 
am at that stage of life where the rest of my life is all about 
making the life for my grandchildren as good as the one I have 
had. I think in a position in the United States Senate, you 
have to think that way when you do everything.
    With that said, I will focus my remarks for a second on 
nuclear energy. Well, no, I am going to skip to one other 
thing.
    I have talked with Dr. Elliot at Penn State, the 
glaciologist, and Dr. Rosing in Denmark. I went to Greenland. I 
have listened to testimony from everybody in Foreign Relations, 
the EU ministers, the environment ministers that were here a 
couple of weeks ago. It is obvious to me that although nobody 
knows for sure the correlation of the increase in carbon or 
isotopes in the sequestered air in Greenland from fossil fuel 
has increased, and that is the only like thing that has been 
happening, along with the escalation of the warming. So carbon 
is a contributor, whether it is the cause or a part of it--big 
part of it, little part of it--nobody knows for sure, but it is 
pretty conclusive that reducing carbon would be good for the 
environment.
    Secondly, from a geopolitical standpoint, it is extremely 
in the best interests of the United States of America to reduce 
dependence on fossil fuels. You can forget about the carbon for 
a minute. Just that alone would change the whole dynamics of 
what is going on in the world today. So I think looking for 
ways to reduce that carbon in the long run and the short run is 
very important.
    I agree entirely with what Senator Voinovich said. I went 
to India with Senator Alexander last year, and was supportive 
of the U.S. civilian nuclear deal with India in large measure 
because of the potential that had to produce the carbon 
reduction that would be coming from that country. Although I 
have read recent news reports of some of the difficulties we 
may or may not be having with that deal, I hope it works 
because it is exemplary of technologies that we can help infuse 
in other parts of the world that are going to be generating 
increasing amounts of carbon, meaning China and India, to help 
reduce them. I think innovation is critical, not just enhancing 
nuclear, but other areas of sequestration of carbon.
    So I am here with an open mind and a willing mind to work 
with the members of the committee. However, for us to deal with 
this subject and to leave off the table a revitalization of the 
U.S. nuclear energy issue is just crazy to me. I know what you 
can do with conservation. I know there are many different 
forms. Senator Alexander made a brilliant speech on the Floor 
of the Senate about wind energy, which is great is 40 States, 
but we just don't happen to have it in Georgia.
    So you have to put every source of alternative sources of 
energy on the table and energize them collectively, and I will 
use the word harmonize them collectively, with your efforts to 
reduce carbon, or you are going to cause an extremely difficult 
situation, maybe one that is even more punitive to our country 
than some of the opponents have said.
    So during the course of the debate, I won't get into the 
details now, but during the course of this debate, I intend to 
focus on doing everything I can do to see to it that we can 
improve the climate in this country and include regulation 
where it is appropriate to stimulate U.S. nuclear energy and 
electric production from nuclear energy. To leave it off the 
table and try and pass mandatory areas of attainment seems to 
me to be foolhardy.
    I will make every effort I can to be a part of this debate 
in a constructive way and see to it that as we seek to meet 
these noble goals, we give American ingenuity and American 
industry all of the tools that they need to be able to do it.
    I thank the chairmen for their time.
    Senator Lieberman. Thank you very much, Senator Isakson, 
for that thoughtful statement. We look forward to working with 
you.
    I apologize to the panel for the delay in turning to you, 
but I must say myself that I am extremely grateful and proud of 
the statements made by the members of the committee. People are 
grappling with this. Generally speaking, people are 
acknowledging that there is a problem here. There may be some 
differences of opinion about how to solve it, but the tone of 
the discussion has been very thoughtful. This is not going to 
be a pitched partisan battle, another one of those. This is 
going to be people wrestling with a problem and trying to fix 
it.
    So I appreciate very much the statements. I hope that I 
have similarly encouraged the panel, and hopefully even 
informed the panel to some extent about the nature of the 
debate here. I thank you very much.
    Senator Warner. Could I just join you in saying we did have 
a very good discussion and excellent attendance.
    Senator Lieberman. Yes.
    Senator Warner. At this point, I have a leg that is telling 
me I have to move to that end.
    Senator Lieberman. All right.
    Senator Warner. Senator Alexander is going to take my seat.
    Senator Lieberman. All right. You will be able to keep an 
eye on me.
    Senator Warner. I just have to get it straight over here.
    Senator Lieberman. OK. You have been great. That leg 
problem has not stopped this man. He came in specifically to go 
onto the Floor of the Senate last Thursday, came out of his bed 
and introduced this bill and then went back home. So John 
Warner cares about this, about his grandchildren.
    I think maybe when the history of this legislation, if we 
can get it passed, is written, it is going to be a lot about 
the grandchildren of Senators and how we measure ourselves by 
what we do for them.
    OK, let's go to the panel. You have up to 10 minutes each, 
a very broadly representative diverse panel. First, we will go 
to Kevin Anton, president of Alcoa Materials Management, which 
apparently has a headquarters in Knoxville, TN.
    Mr. Anton. The beautiful State of Tennessee.
    Senator Lieberman. I couldn't have said it better myself. 
Thank you.
    Mr. Anton.

STATEMENT OF KEVIN ANTON, PRESIDENT, ALCOA MATERIALS MANAGEMENT

    Mr. Anton. Thank you, Mr. Chairman and members of the 
subcommittee, for this opportunity to testify regarding 
America's Climate Security Act of 2007. My name is Kevin Anton 
and I am the president of Materials Management for Alcoa, Inc.
    I am here today to express Alcoa's support of S. 2191, 
America's Climate Security Act of 2007, and of the intention by 
the subcommittee and the full committee to move a climate bill 
to the Senate this year.
    First, a few words about Alcoa. Alcoa is one of the world's 
largest producers of aluminum and alumina. We are active in all 
segments of the industry from refining, mining, smelting, to 
rolling and extrusions. We began in North America, but we can 
now be found in 44 countries with 116,000 employees. We operate 
25 smelters on five continents and nine refineries on four 
continents. Last year, we produced 3.6 million metric tons of 
aluminum and 15.1 million metric tons of alumina, with revenue 
from all operations totaling $30.6 billion.
    In addition, Alcoa is a founding member of the U.S. Climate 
Action Partnership, a coalition of business and leading 
environmental NGOs that is calling on the Federal Government to 
enact quickly strong national legislation to require 
significant reductions of greenhouse gas emissions. Alcoa 
accepts the view of a great majority of scientists that enough 
is known about the science and the environmental impacts of 
climate change for us to take action now.
    Moreover, much of this action must occur in the United 
States, which is the world's largest greenhouse gas emitter, 
producing 24 percent of such emissions. The U.S. needs a 
single, mandatory but flexible climate change program that 
reduces emissions from large stationary sources, transportation 
and energy use in commercial and residential buildings, and put 
us in a realistic position to ask all the major emitting 
nations of the world to contribute their fair share as well.
    We support S. 2191 because we believe an economy-wide cap 
and trade program has to be the core of a comprehensive U.S. 
climate program, and because the Act meets our most important 
criteria in establishing such a program. A cap and trade 
program will guarantee that emissions reduction targets are 
met, while simultaneously generating a price signal that 
stimulates investment and innovation in technologies necessary 
to achieve our environmental goals.
    Unlike traditional command and control regulations, under a 
cap and trade program government sets the environmental goal 
and industry decides how best to achieve it. This is the right 
division of labor. Unlike a tax, a cap and trade program lets 
the market, not the government, set the price.
    The Act also covers the six predominant human-generated 
greenhouse gases, rather than focusing solely on carbon 
dioxide. While most U.S. emissions are in the form of carbon 
dioxide from the combustion of fossil fuels, the non-
CO2 are more potent in their global warming 
potential than CO2 and there are cost-effective and 
in some cases cost-savings opportunities to reduce these 
emissions.
    S. 2191 establishes an ambitious schedule of reductions. It 
is essential to be ambitious here because the science tells us 
we have limited time to head off the worst impacts of climate 
change. We do not have the luxury of time. However, it is 
important that the reduction schedule be achievable since a 
growing economy will provide the basis for the technological 
innovation we will need to solve this problem efficiently.
    Any program must recognize the efforts of companies such as 
ours to reduce emissions voluntarily. Presidents George H.W. 
Bush, Bill Clinton and George W. Bush all asked industry to 
voluntarily reduce greenhouse gas emissions. Alcoa and many 
others stepped forward to answer those calls, a measure of 
leadership that certainly should not be penalized now as we 
make emission reductions mandatory.
    While we are pleased that S. 2191 does recognize those 
reductions, we hope the credit for early action provisions can 
be strengthened during the legislative process. The allocation 
of emissions allowances must be done in a way to ease the 
transition from an economy in which greenhouse gases can be 
emitted for free, to one in which there is a price signal for 
such emissions. This is particularly true for industries who 
will not be able to simply pass these cost on to their 
customers. Using the allocation process this way, we must 
cushion the impact on industry without weakening the 
environmental benefit of the program.
    S. 2191 also complements the private sector investment in a 
vision that will occur as a natural result of the cap and trade 
program with Federal support for development and deployment of 
key climate-friendly technologies. This combination of a market 
push from the Federal technology programs and a market pull 
from the cap and trade program will be the best formula for 
getting these technologies in place.
    The combination of features I have named so far will make 
the program cost-effective and friendly to innovation of new 
technologies we are going to need to tackle this problem. I 
believe we will all be surprised by the sources and the rate of 
innovation this program will unleash. If, however, the program 
ends up costing more than expected, there is the establishment 
of the Independent Carbon Market Efficiency Board to help avoid 
excessive costs.
    Any cost containment mechanism must retain the 
environmental integrity of the cap and trade program. The 
amount of greenhouse gases we emit each year is not as 
important as the total we emit over a number of years. S. 2191 
acknowledges this fact by allowing the Carbon Market Efficiency 
Board in the event of excess costs, to allow more emissions in 
the current year so long as it is paid back in the form of 
emissions reductions in the future. This creates a method for 
dealing with unforeseen economic problems, without destroying 
our ability to achieve our environmental goal.
    Finally, with all these great attributes, are there things 
we believe could be improved in this legislation? Yes. There 
are improvements we would suggest that would put the United 
States in a stronger position in the international climate 
negotiations, and we look forward to offering them to you for 
your consideration as the Act moves through the process. But 
the America's Climate Security Act of 2007 is a strong enough 
start and climate change presents a grave enough threat that we 
cannot afford to let the perfect be the enemy of the good. Let 
us move this bill forward, fix the problems as best we can, and 
finally take our first genuine step to address climate change.
    Thank you and I look forward to your questions.
    [The prepared statement of Mr. Anton follows:]
    Statement of Kevin Anton, President, Alcoa Materials Management
    Mr. Chairman and members of the subcommittee, thank you for this 
opportunity to testify regarding the America's Climate Security Act of 
2007. My name is Kevin Anton, and I am President of Materials 
Management for Alcoa, Inc.
    I am here today to express Alcoa's support of S. 2191, America's 
Climate Security Act of 2007, and of the intention by the subcommittee 
and the full committee to move a climate bill to the Senate this year.
    First, a few words about Alcoa.
    Alcoa is one of the world's largest producers of aluminum and 
alumina. We are active in all segments of the industry--from mining, 
refining and smelting to rolling and extrusions. We began in North 
America, but can now be found in 44 countries with 116,000 employees.
    We operate 25 smelters on 5 continents and 9 refineries on 4 
continents. Last year we produced 3.6 million metric tons of aluminum 
and 15.1 million metric tons of alumina with revenue from all 
operations of $30.6 billion in 2006.
    In addition, Alcoa is a founding member of the U.S. Climate Action 
Partnership, a coalition of business and leading environmental NGOs 
that is calling on the federal government to quickly enact strong 
national legislation to require significant reductions of greenhouse 
gas emissions.
    Alcoa accepts the view of the great majority of scientists that 
enough is known about the science and environmental impacts of climate 
change for us to take action now. Moreover, much of this action must 
occur in the United States, which is the world's largest greenhouse gas 
emitter, producing 24% of such emissions. The United States needs a 
singular mandatory but flexible climate change program that reduces 
emissions from large stationary sources, transportation, and energy use 
in commercial and residential buildings, and puts us in a realistic 
position to ask that all the major emitting nations of the world 
contribute their fair share as well.
    We support S. 2191 because we believe an economy-wide cap-and-trade 
program has to be at the core of a comprehensive U.S. climate program, 
and because the Act meets our most important criteria in establishing 
such a program.
    A cap-and-trade approach will guarantee that emissions reductions 
targets are met while simultaneously generating a price signal that 
stimulates investment and innovation in the technologies necessary to 
achieve our environmental goal. Unlike traditional command-and-control 
regulations, under a cap-and-trade program, government sets the 
environmental goal and industry decides how best to achieve it--which 
is the right division of labor. Unlike a tax, a cap-and-trade program 
lets the market, not the government, set the price.
    The Act also covers the six predominant human-generated greenhouse 
gases, rather then focusing solely on carbon dioxide. While most U.S. 
emissions are in the form of carbon dioxide from the combustion of 
fossil fuels, the non-CO2 gases are more potent in their 
global warming potential than CO2 and there are cost 
effective--and in some case cost saving--opportunities to reduce their 
emissions.
    S. 2191 establishes an ambitious schedule of reductions. It is 
essential to be ambitious here, because science tells us we have 
limited time to head off the worst impacts of climate change. We do not 
have the luxury of time. However, it is also important, that the 
reduction schedule be achievable, since a growing economy will provide 
the basis for the technological innovation we will need to solve this 
problem efficiently.
    Any program must recognize the efforts of companies, such as ours, 
to reduce their emissions voluntarily. Presidents George H.W. Bush, 
Bill Clinton and George W. Bush all asked industry to voluntarily 
reduce greenhouse gas emissions. Alcoa and many others stepped forward 
to answer those calls, a measure of leadership that should certainly 
not be penalized now as we make emissions reduction mandatory. While we 
are pleased S. 2191 does recognize these reductions, we hope the credit 
for early action provisions can be strengthened during the legislative 
process.
    The allocation of emission allowances must be done in such a way as 
to ease the transition from an economy in which greenhouse gases can be 
emitted for free to one in which there is a price signal on such 
emissions. This is particularly true for industrials who will not be 
able to simply pass these costs through to their customers. Using the 
allocation process this way must cushion the impact on industry without 
weakening the environmental benefit of the program.
    S. 2191 also complements the private sector investment and 
innovation that will occur as a natural result of the cap-and-trade 
program with federal support for the development and deployment of key 
climate-friendly technologies. This combination of market ``push'' from 
the federal technology programs, and market ``pull'' from the cap-and-
trade program will be the best formula for getting technologies into 
use.
    The combination of features I have named so far will make the 
program cost effective and friendly to the innovation of new 
technologies we are going to need to tackle this problem. I believe we 
will all be surprised by the sources and rate of innovation this 
program will unleash. If, however, the program ends up costing more 
than expected, there is the establishment of an independent Carbon 
Market Efficiency Board to help avoid excessive costs.
    Any cost-containment mechanism must retain the environmental 
integrity of the cap-and-trade program. The amount of greenhouse gases 
we emit each year is not as important as the total we emit over a 
number of years. S. 2191 acknowledges this fact by allowing the Carbon 
Market Efficiency Board, in the event of excessive costs, to allow more 
emissions in the current year, so long as this is paid back in the form 
of extra emission reductions a few years in the future. This creates a 
method of dealing with unforeseen economic problems, without destroying 
our ability to achieve our environmental goal.
    Finally, with all these great attributes, are there things we 
believe would improve in this legislation? There are improvements we 
would suggest that would put the United States in a stronger position 
in the international climate negotiations, and we look forward to 
offering them for your consideration as the Act moves through the 
process. But the America's Climate Security Act of 2007 is a strong 
enough start, and climate change presents a grave enough threat, that 
we can not afford to let the perfect be the enemy of the good. Let us 
move this bill forward, fix the problems as best as we can, and finally 
take our first genuine step to address climate change.
    Thank you and I look forward to your questions.
                                 ______
                                 
  Responses by Kevin Anton to Additional Questions from Senator Cardin
    Question 1. What measures has Alcoa taken to reduce CO2 
emissions?
    Response. We have installed more precise alumina feeding systems, 
more advanced process control systems and intensive employee training 
to more closely monitor operating conditions in our aluminum smelters. 
These actions dramatically reduce the emission of perfluorocarbons 
(PFCs).

    Question 2. How have those measures impacted Alcoa's 
competitiveness?
    Response. This has had very little impact on our competitiveness

    Question 3. Do you believe that you can meet the steady reduction 
in caps proposed by this bill without any detrimental impact to your 
industry?
    Response. We have several other production technologies in 
development that we believe will allow us to substantially reduce 
emissions from our smelting process. Furthermore, we believe the 
increased use of aluminum in the transportation sector will have a 
substantially positive impact on emissions from mobile sources.

                                 ______
                                 
  Responses by Kevin Anton to Additional Questions from Senator Inhofe
    Question 1. You indicated during testimony that with this bill you 
would receive allowances that would reward you for past actions. Could 
you provide the Subcommittee with the number of allowances you estimate 
your company will receive and the worth of these allowances?
    Response. Alcoa began a program of greenhouse gas emissions 
reductions in 1994 responding to the EPA VIAP program. We are running 
our facilities at about 26% below our 1990 emissions level and expect 
to receive credits for early emissions reductions if a mandatory 
program is enacted. The amount and worth of these credits will depend 
on the legislation.

    Question 2a. Alcoa CEO, Alain Belda, stated on February 16, 2007, 
that world consumption of aluminum is to double by 2020 and that most 
of this boom will come from China, India, Russia, and Brazil. China's 
aluminum consumption alone has increased more than 20 percent in 2006.
    Do you see a relationship between the economic growth of the 
developing world and aluminum production?
    Response. Yes. We see a relationship.

    Question 2b. Do you think the higher energy costs embodied in this 
bill will increase or decrease economic growth in this country?
    Response. If the bill results in substantially higher energy costs 
it could have a negative impact on economic growth.

    Question 3. Will you commit today to purchasing allowances for the 
productions you have moved to these developing countries?
    Response. If necessary.

    Question 4a. On October 1, 2007, EPA released analysis of the 
Bingaman-Specter, McCain-Lieberman, and Kerry-Snowe bills. It showed 
that through the end of this Century, each of these bills would only 
reduce global greenhouse gas concentrations by less than four percent.
    Do you have reason to believe that this bill would be significantly 
different and, are you willing to risk the economic future of this 
country for such an insignificant gain in global concentrations?
    Response. Yes, We believe that this bill has the potential to drive 
meaningful reductions in global greenhouse gases.

    Question 4b. Doesn't EPA's analysis demonstrate that taking 
unilateral action will be ineffective and could even be 
counterproductive since it will accelerate emissions growth in the 
developing nations as we export jobs to their inefficient economies?
    Response. We have not studied EPA's analysis sufficiently, but we 
do not expect to export jobs to inefficient economies.

    Question 5. As EPA's analysis shows, even if the rest of the world 
reduces emissions by more than 10 times that proposed for the U.S., 
global emissions are expected to be higher than today. Isn't this 
relevant as we consider action?
    If the entire developed world took unilateral action to eliminate 
every car, closed every factory and shut down every power plant, 
emissions would still be higher than today within a few decades. Does 
this affect your support of what I believe is unilateral economic 
disarmament?
    Response. No.

    Question 6a. Regarding the overall costs and benefits of the bill:
    Should there be a request made to the Energy Information 
Administration or other federal governmental entity to model the bill?
    Response. Yes.

    Question 6b. Should there be a request for a study by an 
econometric modeling firm?
    Response. Yes.

    Question 7a. For Section 1201: Do you agree with the basis for 
selecting a 2012 cap of 5.2 billion metric tons considering that total 
U.S. greenhouse gas emissions are greater than 7 billion tons? (Section 
1201(d)).
    Response. Yes.

    Question 7b. In terms of emission reductions, what percentage 
should come from fuel switching, and what percentage from installation 
of new or replacement technologies?
    Response. We would hope that the legislation evolves such that both 
of these choices are attractive.

    Question 7c. One oft-repeated approach to emissions reductions is 
to ``slow, stop, and reverse.'' Are the emissions targets chosen 
consistent with this approach?
    Response. Yes.

    Question 8a. For coverage under the bill: Do you agree with 
selecting three out of six sectors of the U.S. economy for coverage 
under the bill?
    Response. We support an economy-wide scope to climate change 
legislation.

    Question 8b. Do you think the three sectors were not covered 
because it would not be cost-effective to include them within the cap?
    Response. We do not know the rationale for sectors included in the 
bill.

    Question 8c. If cost-effectiveness was a criterion, what cost in 
dollars per metric ton should be used as a cutoff?
    Response. We are not economic experts in a position to answer this 
question.

    Question 9a. A ``new entrant'' is defined as a facility that 
commences operation on or after January 1, 2008. (Section 4(19))
    Do you agree with the selecting that date as the cutoff?
    Response. This would depend on the date of enactment of the 
legislation.

    Question 9b. Do you agree with requiring commencement of operations 
instead of commencement of construction as used in the Clean Air Act?
    Response. Yes.

    Question 9c. Has the difference in the number of qualifying 
facilities between these two definitions been evaluated?
    Response. We do not know if this evaluation has been performed.

    Question 10a. For the definition of ``facility'': What do you think 
``any activity . . . at a facility'' means?
    Response. We believe this means any action directly linked to the 
conduct of business for which the facility exists.

    Question 10b. Could this include coal mining operations or the 
transport of coal to a facility via train, truck, barge, etc.?
    Response. These activities could be included in the definition.

    Question 10c. Do you think the definition of ``facility'' to 
include ``any activity or operation'' also includes fugitive emissions 
that are not under the direct control of the facility?
    Response. No.

    Question 11a. Under the bill, allowances can be borrowed for a 
period of up to 5 years. (Section 2302)
    Do you agree with the 5 years as an appropriate time limit?
    Response. Yes.

    Question 11b. Would 6 or more years provide more flexibility for 
sources that find it necessary to borrow allowances?
    Response. Yes.

    Question 11c. What considerations are more important than that 
additional flexibility that necessitate the more restrictive time 
period?
    Response. The urgency to initiate the reduction of GHG emissions.

    Question 11d. Since the allowances become increasingly scarce over 
time, which creates a sliding upward pressure on price, to what degree 
is it anticipated the borrowing mechanism will mitigate allowance price 
increases?
    Response. The borrowing mechanism will mitigate allowance price 
increases

    Question 11e. If future allowance prices exceed market prices for 
current allowances, will this mechanism be effective?
    Response. Yes.

    Question 12. The bill seems to indicate that the interest rate on 
borrowed allowances is 10%. (Section 2302) Should the interest compound 
annually?
    Response. No.

    Question 13a. Under certain conditions, the bill allows covered 
facilities to satisfy up to 15% of its allowance submission requirement 
with allowances or credits from foreign GHG trading markets. (Section 
2501) One of these conditions is that the foreign government's program 
be of ``comparable stringency'' to the U.S. program. (Section 
2502(b)(2)).
    What criteria should EPA use in determining whether the emission 
caps, for example, of another country are ``comparable'' to those of a 
U.S. program?
    Response. We believe the criteria should be negotiated with the 
objective of equal incentive to reduce global emissions.

    Question 13b. Should this ``comparable stringency'' be based on 
regulatory requirements or on compliance?
    Response. We believe that comparability should be based on 
regulatory requirements.

    Question 14a. Under Section 2603, a Carbon Market Efficiency Board 
shall carry out one or more of six ``cost relief measures'' if the 
board determines that the emissions allowance market ``poses a 
significant harm to the economy of the United States.''
    Should the board be empowered under the bill to provide cost relief 
measures if the economy of a region or an individual state faced 
significant economic harm?
    Response. No.

    Question 14b. What criteria should the board use to make a 
significant harm determination?
    Response. Harm should be significant.

    Question 14c. How should the board determine which measures and the 
precise extent of those measures that would be adequate to mitigate 
significant economic harm?
    Response. Such measures should mitigate significant economic harm.

    Question 14d. How should the board coordinate its activities with 
the Federal Reserve board in decision-making to relieve inflationary 
pressures on the economy, and which would be lead as between them in 
decision-making?
    Response. CMEB should have the lead and should coordinate its 
activities with the FR.

    Question 14e. What allowance price is contemplated to pose 
significant risk of harm to the economy?
    Response. A price that would pose a significant risk of harm to the 
economy.

    Question 14f. Is it contemplated that the CMEB will provide the 
same level of certainty for investors in advanced technologies as a tax 
or safety valve?
    Response. Hopefully, it will.

    Question 15a. Section 3402 requires EPA to allocate extra 
allowances to states that enact statewide GHG reduction targets that 
are more stringent than the targets established under the bill.
    What do you think the basis is for providing an explicit inducement 
for states to adopt more stringent requirements?
    Response. We do not believe states should adopt more stringent 
reduction targets.

    Question 15b. Could this lead to inconsistencies among state 
programs that reduce the potential cost-effectiveness of a nationwide 
program?
    Response. Yes.

    Question 15c. What do you think is the basis for an allocation 
level of 2% of the allowances for this purpose?
    Response. We do not know the basis for the stated allocation.

    Question 16. Section 3501 allocates 10% of the allowance account 
annually to load serving entities, which are overseen by state 
regulatory bodies. Section 3503(c)(3) prohibits the exercise of certain 
prerogatives on the part of these state regulatory bodies such as 
requiring the filing of rate cases in order to pass through the credit 
from the sale of allowances. Do you agree with this provision and why/ 
(not)?
    Response. We believe that oversight agencies should have a role in 
determining the treatment of allowances sold by load serving entities.

    Question 17. Title III, Subtitle F provides bonus allowances for 
carbon capture and geological sequestration projects. Section 3604 
limits these bonus allowances to the first 10 years of operation. Do 
you agree with limiting the incentive to 10 years?
    Response. No.

    Question 18a. Title II, Subtitle D states that domestic offsets 
have to be permanent. What exactly does that term mean in terms of 
biologic sequestration?
    Response. We believe that lands established for offsets should be 
permanently managed to capture intended sequestration.
    In your opinion, what are the anticipated impacts to food prices 
associated with providing incentives to farmers to convert cropland to 
grassland or rangeland?
    Response. We have not evaluated this impact.

    Question 18b. What would be the impact of such incentives to 
production of ethanol and the cost of ethanol?
    Response. We have not evaluated this impact.

    Question 19. Section 3903(b) distributes allowances to rural 
electric cooperatives equal to their 2006 emissions. Do you agree with 
giving preferential treatment to rural electric cooperatives?
    Response. No.

    Question 20a. Regarding Section 1103(d): What methods are 
facilities contemplated to employ to determine complete and accurate 
data for the years 2004 through 2007 where no data was collected or 
readily available?
    Response. If no data was collected, it will be impossible to 
determine.

    Question 20b. Also for Section 1103(d), how are facilities that 
currently do not have monitoring systems in place going to be able to 
submit quarterly data starting in 2008?
    Response. The practicality of these dates will be a function of the 
effective date of the legislation.

    Question 20c. Should the $25,000 per day for each violation apply 
to these facilities for these time periods?
    Response. No.

    Question 20d. What is the process, and who should be the authority, 
for determining what constitutes complete and accurate data for these 
time periods?
    Response. We believe it best for the government to decide who and 
how best to evaluate the completeness of emission data.

    Question 21. Based on EPA's 2005 U.S. greenhouse gas inventory, the 
electric generating sector accounted for 46% of the proposed 2012 cap 
level of 5.2 billion metric tons. Between allocations to generators and 
load serving entities, the bill allocates 30% of the total allowances 
to that sector, and reducing the sector's subsequently. Do you agree 
with this differential treatment of the electric sector?
    Response. Yes.

    Question 22. The allowance allocation to electric generating units 
in the first year of the program represents approximately 44% of that 
sector's 2005 emissions based on EPA's inventory. Electric demand is 
anticipated to increase, and reducing emissions by replacing current 
plants with lower or non-emitting plants will take years to achieve. 
Based on this, does the bill contemplate some mechanism, or set of 
mechanisms, whereby emissions will be reduced during this timeframe or 
allowances will be available, or will allowances have to be purchased?
    Response. We cannot determine how utilities will meet this 
requirement.

    Question 23a. Section 3803 allocates 3 percent of allowances to 
projects in other countries for forest carbon activities.
    What should be the projected subsidy to other countries under this 
provision?
    Response. We believe that the allowances should apply to owners of 
projects in other countries, not to those countries.

    Question 23b. China's carbon dioxide emissions now exceed that of 
the United States and are projected to increase. Should China or other 
countries whose emissions eclipse those of the United States in the 
future be eligible for these allocations?
    Response. No.

    Question 24a. Regarding Section 8001: This Section calls for a 
national assessment of carbon dioxide storage capacity. Presumably, 
this assessment would determine whether the U.S. has sufficient 
capacity to geologically sequester the carbon dioxide that would have 
to be captured to comply with the bill. Absent the results of this 
survey which has not been undertaken yet, do you agree with assuming 
the U.S. has adequate storage capacity?
    Response. No, we do not know that such an assumption has been made.

    Question 24b. How do you envision the program addressing the long 
term oversight of the carbon storage sites?
    Response. We expect the regulatory process to address this.

    Question 24c. This Section provides EPA with the legal authority to 
develop a permitting program for carbon storage through the Safe 
Drinking Water Act's Underground Injection Control program. Long term 
monitoring and particularly in the west, property rights, are just two 
of the several issues that will need to taken into consideration under 
any regulatory regime. (i) Is the bill's approach sufficient to address 
these issues? (ii) Should there be a statutory role for the states?
    Response. We have no opinion on this.

    Question 25a. Subtitle G, Section 4702(b)(1)(F) stipulates money is 
available for adaptation activities in accordance with recovery plans 
for threatened and endangered species. Does the bill envision that all 
existing recovery plans will be rewritten to address all climate change 
related effects? If so, will the monies in the adaptation fund be 
available to Fish and Wildlife Service (FWS) to re-write the recovery 
plans or will FWS have to bear that cost from other monies?
    Response. No.

    Question 25b. Within Subtitle G, how does the bill contemplate FWS 
will prioritize species to receive adaptation funds? (i) Is it based on 
their overall threatened or endangered status or the degree to which 
they are affected by climate change? (ii) Are plants and animals not 
affected by climate change eligible for these funds? (iii) How should 
the Department of the Interior distinguish those ecological processes 
that are due to man-made climate change from those that are due to 
normal species development and evolution?
    Response. We assume this provision affects species impacted by 
climate change.
                                 ______
                                 
 Responses by Kevin Anton to Additional Questions from Senator Barrasso
    Question 1. What impact will Lieberman-Warner have on Liquefied 
Natural Gas imports to the U.S.?
    Response. We would like to see an increase in the availability of 
natural gas through domestic production as well as imports.

    Question 2. With increasing demand for energy both in America and 
around the world as a result of increased economic growth, 
technological solutions will be essential for countries to meet their 
energy demands while limiting greenhouse gas emissions. However, there 
are tremendous uncertainties about what technologies will most 
effectively address these issues.
    As Congress continues to examine technological solutions to combat 
climate change, do you believe we have enough information to identify 
which technologies hold promise and therefore warrant investment?
    Response. We believe there are a number of promising new 
technologies and that there is enough information to identify the most 
promising. We also believe that effective legislation, with a market 
driven mechanism to achieve emission reductions will more rapidly 
generate even more new technologies to evaluate and deploy.

    Question 3. What do you think should be Congress' funding 
priorities?
    Response. We do not have an opinion of which technologies Congress 
should fund.

    Question 4. What are the costs to family budgets for middle class 
and low income people of implementing Lieberman-Warner in terms of 
energy bills and gasoline prices in the next five to 10 years?
    Response. We have no more idea on what the impact on family budgets 
will be if Lieberman-Warner is adopted than we do if it is not and 
climate change continues unabated.

    Question 5. In 2050, how much cooler will the planet be if we adopt 
Lieberman-Warner?
    Response. We expect the planet will be cooler in 2050 if Lieberman-
Warner is adopted than if it is not.

    Question 6. Following up on my question during the hearing, could 
you elaborate further regarding whether Alcoa will offshore North 
American jobs if energy prices increase for Alcoa because of the 
Lieberman-Warner bill?
    Response. As evidenced by our investment of over $1 B in U.S. 
operations, we fully expect to maintain our North American operations. 
We do expect to grow additional aluminum production capacity and expect 
most of that growth to occur outside North America regardless of 
Lieberman-Warner.

    Senator Lieberman. Thank you very much, Mr. Anton, for a 
very thoughtful statement. Thanks for your expression of 
support for the Climate Security Act.
    Next is Ms. Frances Beinecke, president of the Natural 
Resources Defense Council, one of America's leading 
environmental groups.
    Ms. Beinecke, thank you.

  STATEMENT OF FRANCES BEINECKE, PRESIDENT, NATURAL RESOURCES 
                        DEFENSE COUNCIL

    Ms. Beinecke. Thank you, Mr. Chairman, for the opportunity 
to testify today regarding America's Climate Security Act. I am 
Frances Beinecke. I am the president of the Natural Resources 
Defense Council. NRDC is a national environmental organization 
of lawyers, scientists and environmental specialists dedicated 
to protecting public health and the environment.
    Founded in 1970, we have over 1.2 million members and 
activists, and we have made curbing global warming our number 
one institutional priority. We have been working with mayors, 
legislators, and governors across the country, and we are a 
founding member of the United States Climate Action 
Partnership, along with Alcoa and many of America's largest 
businesses.
    Chairman Lieberman and Ranking Member Warner, let me 
congratulate you both on the introduction of this very 
important bill on global warming. We view the legislation as a 
strong start on enacting comprehensive global warming 
legislation and look forward to working with you, Chairman 
Boxer, members of the subcommittee and the committee, to report 
legislation to the full U.S. Senate.
    The time for action on global warming is now. Many of you 
have spoken about that already. Every day, we learn more about 
the ways in which global warming is already affecting our 
planet. Chairman Lieberman referenced the article in the 
Washington Post this week indicating that 40 percent of the 
summer ice in the Arctic has melted since 1979, an 
extraordinary amount of melt which really indicates that the 
consequences of disruptive climate are with us now. They are 
not issues for the future.
    Climate scientists have warned us that we must act now to 
begin making serious emission reductions if we are to truly 
avoid the most serious consequences of global warming. Because 
carbon dioxide remains in the atmosphere for so many decades, 
the climate change impacts from today's pollution will last 
well into this century and into the next century as well.
    A growing body of scientific opinion has formed that we 
face extreme dangers if global average temperatures are allowed 
to increase by more than 2 F from today's levels. To prevent 
such increases, we need to halt U.S. emissions growth in the 
next few years, and then cut emissions by as much as 80 percent 
by mid-century.
    The goal is ambitious, but it is achievable. It can be done 
if we start now and reach an annual rate of emissions 
reductions that ramps up to four percent a year. But if we 
delay and the emissions continue to grow on the business-as-
usual trajectory over the next 10 years, the annual emission 
reduction rate that will be required to stay on the path of 450 
parts per million would double to 8 percent per year. As shown 
in this figure, basically a slow start means a crash finish. We 
cannot afford to wait until we are faced with the need to cut 
emissions at that 8 percent rate.
    Waiting also means that billions of dollars will be 
misspent on outmoded technology that will lock in high carbon 
emissions for many decades to come. More than $20 trillion will 
be spent globally on new energy technologies between now and 
2030. How this money is invested over the next decade will 
determine whether we can realistically avoid the worst effects 
of global warming. We do have the solutions. Many of you 
referenced them--cleaner energy sources, new vehicle 
technologies, cleaner industrial processes, and greatly 
enhanced energy efficiency. But right now, we lack the policy 
framework that will incentivize investments in the business 
sector in the right way to get these solutions in place and in 
the hands of consumers.
    America's Climate Security Act is a major step towards 
establishing that framework. We greatly appreciate, Mr. 
Chairman and Senator Warner, the improvements that have been 
made in this bill since the outline first came out in August, 
in particular, increasing the emission reductions required by 
2020 from 10 percent to 15 percent. We believe that sends a 
strong signal that now is the time to invest in clean 
technologies.
    We also appreciate that the bill includes mechanisms to 
manage abatement costs without resorting to the so-called 
safety valve. The fundamental problem with the safety valve is 
it busts the cap without ever making up for the excess 
emissions, as Mr. Anton referenced. We urge you to continue to 
reject the efforts to include a safety valve in this 
legislation and look at alternatives.
    There are many other positive features of your bill, but I 
know time is short, so I just want to identify five areas in 
which we would like to see improvements as you go through this 
process.
    The No. 1, is scientific review of targets. The bill 
requires the National Academy of Sciences to assess whether the 
emission reductions required by the bill are being achieved and 
whether such reductions will be sufficient to avoid dangerous 
global warming. However, there is no provision for adjustments 
of the reduction goals if needed based on the science. So we 
would recommend that the bill should be revised to allow EPA to 
act and take all necessary actions to avoid dangerous global 
warming impacts by requiring additional reductions if the 
science so indicates.
    No. 2, coverage. The bill would cover approximately 75 
percent of U.S. greenhouse gas emissions, thereby reducing 
total greenhouse gas by up to 19 percent by 2020 and 63 percent 
by 2050. Since additional reductions will be needed to keep 
pace with science, coverage of the bill should be increased. 
Senator Sanders and Senator Whitehouse referenced this. This 
could happen, for example, by covering natural gas that is used 
in buildings right now, which is not part of the current 
coverage.
    No. 3, is to incorporate complementary performance 
standards. Performance standards for key sectors are an 
important complement to the cap, and the bill does include 
some, but we would recommend some others. The Sanders-Boxer 
bill contained two complementary performance standards for coal 
plants, which we would encourage you to include in S. 2191.
    The first is a CO2 emissions standard that 
applies to new power investments that would be achievable with 
carbon capture and storage, and is based on a standard already 
used in the State of California.
    The second standard is a low carbon generation obligation 
for coal-based power which would encourage companies to invest 
early in deploying carbon capture and storage technologies, and 
then coal-based electricity generators would have to get some 
of their power or purchase credits equivalent to such power 
from coal-fired power plants that actually capture and dispose 
of the greenhouse gases, thereby spreading the cost of new CCS 
plants throughout the coal-fired generation sector.
    Other complementary policies should also be considered in 
sectors such as transportation and renewables, and we urge 
Congress to act on an energy bill that would include the CAFE 
standards adopted in the Senate bill and the renewable 
electricity standards passed by the House. We also support the 
low carbon fuels standard such as the one included in Senator 
Boxer's advanced clean fuels legislation.
    No. 4, is allocation of allowances. The Lieberman-Warner 
bill devotes substantial allowances to important public 
purposes, but the bill initially provides too many free 
allowances to emitters. Although we appreciate the substantial 
improvements that have been made in this bill since August, 
including eliminating the perpetual free allocation to 
emitters, we still recommend further reducing the starting 
percentage of free allowances to emitters and phasing them out 
faster, within 10 to 15 years of enactment. This will free up 
needed resources for other important purposes.
    No. 5, global warming and national security. One final 
point I would like to make relates to the issue of global 
leadership. The impacts of global warming will be felt to a 
much greater extent by vulnerable communities abroad, 
particularly those in the least developed countries that bear 
the smallest share of responsibility for the global warming 
emissions that we are now faced with.
    In America, per capita we are responsible for many times 
more emissions than people who live in the poorest nations, and 
providing assistance for international adaptation is not only 
the right thing to do, but it is in the national interest. 
Global warming is a destabilizing force that will act against 
our hopes for the advancement of human rights and democracy. It 
will elevate the risk of displacement, famine and poverty, the 
kind of conditions in which violence, oppression and radical 
ideologies can flourish.
    But our motive for helping should not rest solely on 
whether these countries are a security threat, but because it 
is also the right thing to do and because we have a crucial 
opportunity to ameliorate worldwide suffering by assisting 
these nations in adopting more sustainable development paths.
    So Mr. Chairman and Senator Warner, you have stepped 
forward at a key moment in history and we congratulate you for 
your vision, for your courage and for your leadership in this 
profoundly important global issue. Together with the Senators 
here today, with Chairman Boxer and other members of the 
committee, we look forward to working with you and your staff 
as this bill goes through subcommittee so that it can be 
improved and we can get consensus and move this important issue 
forward.
    We look forward to further progress and we stand ready to 
assist you, and I look forward to answering questions later on.
    Thank you.
    [The prepared statement of Ms. Beinecke follows:]
      Statement of Frances Beinecke, President, Natural Resources 
                            Defense Council
    Thank you for the opportunity to testify today regarding America's 
Climate Security Act. My name is Frances Beinecke. I am the President 
of the Natural Resources Defense Council (NRDC). NRDC is a national, 
nonprofit organization of scientists, lawyers and environmental 
specialists dedicated to protecting public health and the environment. 
Founded in 1970, NRDC has more than 1.2 million members and online 
activists nationwide, served from offices in New York, Washington, Los 
Angeles and San Francisco, Chicago and Beijing.
    Chairman Lieberman, and Ranking Member Warner, let me congratulate 
you both on the introduction of your global warming bill, America's 
Climate Security Act. NRDC views your legislation as an important, 
initial step toward enactment of comprehensive global warming 
legislation and we look forward to working closely with you, and the 
other members of the Subcommittee and the Committee, to report 
legislation to the full United States Senate.
    The time for action on global warming has already been delayed too 
long. Every day we learn more about the ways in which global warming is 
already affecting our planet. As described in a full page story in 
Monday's Washington Post, dramatic new satellite pictures show that 
summertime arctic ice has declined by 40 percent since 1979 (Figure 1). 
The UN Intergovernmental Panel on Climate Change (IPCC) found that 11 
of the past 12 years are among the 12 hottest years on record. The 
Greenland and West Antarctic ice sheets are losing mass at accelerating 
rates. Rising sea surface temperatures correlate strongly with 
increases in the number of Category 4 and 5 hurricanes. Increases in 
wildfires, floods and droughts are predicted to occur as global warming 
continues unabated. Our oceans are warming and becoming more acidic. 
Everywhere one looks, the impacts of a disrupted climate are 
confronting us.
[GRAPHIC] [TIFF OMITTED] 73579.001


    The reality of global warming is now a recognized fact throughout 
the world. Earlier this year, the United Nations Intergovernmental 
Panel on Climate Change concluded that warming of the earth is 
``unequivocal'' and that with 90 percent certainty, humans are causing 
most of the observed warming. At about the same time, major businesses, 
including many of the world's largest companies in diverse industry 
sectors, banded together with environmental organizations, including 
NRDC, under the umbrella of the U.S. Climate Action Partnership 
(USCAP), to call for mandatory legislation that would reduce emissions 
by 60-80 percent by 2050. In April, the United States Supreme Court 
ruled that greenhouse gases are air pollutants subject to control under 
the Clean Air Act.
    In the past year, stories about global warming have appeared on the 
covers of Time, Newsweek and Sports Illustrated. And recent polls show 
very high levels of concern about global warming. For instance, a 
recent opinion poll conducted by the Yale University Climate Center 
indicates that 62 percent of Americans believe that life on earth will 
continue without major disruptions, only if society takes immediate and 
drastic action to reduce global warming Finally, just this month, the 
Nobel Peace Prize was awarded jointly to Al Gore and to the IPCC for 
their work on global warming. Global warming has come of age as an 
issue of supreme importance.
    Climate scientists warn us that we must act now to begin making 
serious emission reductions if we are to avoid truly dangerous global 
warming pollution concentrations. Because carbon dioxide and some other 
global warming pollutants can remain in the atmosphere for many 
decades, centuries, or even longer, the climate change impacts from 
pollution released today will continue throughout the 21st century and 
beyond. Failure to pursue significant reductions in global warming 
pollution now will make the job much harder in the future--both the job 
of stabilizing atmospheric pollution concentrations and the job of 
avoiding the worst impacts of a climate gone haywire.
    Since the start of the industrial revolution, carbon dioxide 
concentrations have risen from about 280 parts per million (ppm) to 
more than 380 ppm today, and global average temperatures have risen by 
more than one degree Fahrenheit over the last century. A growing body 
of scientific opinion has formed that we face extreme dangers if global 
average temperatures are allowed to increase by more than 2 degrees 
Fahrenheit from today's levels. We may be able to stay within this 
envelope if atmospheric concentrations of CO2 and other 
global warming gases are kept from exceeding 450 ppm CO2--
equivalent and then rapidly reduced. However, this will require us to 
halt U.S. emissions growth within the next few years and then cut 
emissions by approximately 80% over the next 50 years.
    This goal is ambitious, but achievable. It can be done through an 
annual rate of emissions reductions that ramps up to about a 4% 
reduction per year. (See Figure 2.) But if we delay and emissions 
continue to grow at or near the business-as-usual trajectory for 
another 10 years, the job will become much harder. In such a case, the 
annual emission reduction rate needed to stay on the 450 ppm path would 
double to 8% per year. In short, a slow start means a crash finish, 
with steeper and more disruptive cuts in emissions required for each 
year of delay.

[GRAPHIC] [TIFF OMITTED] 73579.002


    It is critical to recognize that continued investments in old 
technology will ``lock in'' high carbon emissions for many decades to 
come. This is particularly so for the next generation of coal-fired 
power plants. Power plant investments are large and long- lasting. A 
single plant costs around $2 billion and will operate for 60 years or 
more. If we decide to do it, the United States and other nations could 
build and operate new coal plants that return their CO2 to 
the ground instead of polluting the atmosphere. With every month of 
delay we lose a piece of that opportunity and commit ourselves to 60 
years of emissions. The International Energy Agency (IEA) forecasts 
that more than 20 trillion dollars will be spent globally on new energy 
technologies between now and 2030. How this money is invested over the 
next decade, and whether we will have the proper policies in place to 
drive investment into cleaner technologies, which can produce energy 
from zero and low carbon sources, or that can capture and dispose of 
carbon emissions, will determine whether we can realistically avoid the 
worst effects of global warming.
    In short, we have the solutions--cleaner energy sources, new 
vehicle technologies and industrial processes and enhanced energy 
efficiency. We just lack the policy framework to push business 
investments in the right direction and to get these solutions in the 
hands of consumers.
    The Lieberman-Warner bill, America's Climate Security Act (S. 
2191), is a major step towards putting our country on an emissions 
pathway consistent with avoiding extremely dangerous global warming. 
The bill caps and cuts emissions of three sectors--electricity, 
transportation, and industry--that together account for about 75 
percent of U.S. greenhouse gas emissions. It calls for a 15 percent 
reduction in covered emissions by 2020 and for a 70 percent reduction 
in covered emissions by 2050. The bill also includes features to reduce 
emissions from the uncovered sectors, principally a set of energy 
efficiency measures for buildings and key energy-using activities, and 
a ``set-aside'' of allowances from within the cap to encourage emission 
reductions and sequestration in the agriculture and forestry sectors. 
Our calculations indicate that this combination will result in reducing 
total U.S.emissions by approximately 13-19 percent by 2020 and 
approximately 51-63 percent by 2050. In order to assure that we get on, 
and stay on, the necessary emission reduction pathway, NRDC believes 
the coverage of the bill and the total amount of emissions reductions 
should be increased.
    S. 2191 would implement its cap and reductions through an allowance 
trading system. NRDC agrees that--combined with complementary policies, 
some of which are contained in this bill and in other legislation, such 
as the pending energy bill--this is the most effective and efficient 
approach to curbing global warming pollution. As the sponsors are 
aware, a cap and trade system requires attention to how the emissions 
allowances are allocated, and for what purposes. It is important to 
distinguish between the abatement cost of a cap and trade system and 
its distributional implications. The abatement cost will be 
significant, but far less than the cost of inaction. At the same time, 
the value of the pollution allowances created by the law will be much 
higher: some estimates place their value between $30 and $100 billion 
per year.
    NRDC believes these pollution allowances are a public trust. They 
represent permission to use the atmosphere, which belongs to all of us, 
to dispose of global warming pollution. As such, they are not a private 
resource owned by historical emitters and such emitters do not have a 
permanent right to free allowances. The value of the allowances should 
be used for public purposes including promoting clean energy solutions, 
protecting the poor and other consumers, ensuring a just transition for 
workers in affected industries, and preventing human and ecosystem 
impacts both here and abroad, especially where they can lead to 
conflicts and threats to security.
    S. 2191 embraces the principle that these pollution allowances 
should be used for public purposes but it implements the principle too 
slowly. NRDC believes that over the first 25 years of the program the 
bill gives away more allowances to the biggest emitting firms than is 
needed to fully compensate such firms for the effects of their 
compliance obligations on the firms' economic values. The result is 
that there are not enough available to fully meet public needs. As 
discussed more fully below, the allowance allocations in the bill can 
be substantially improved.
    S. 2191 also allows the owner or operator of a covered facility to 
satisfy up to 15 percent of a given year's compliance obligation using 
``offsets'' generated within the United States. These offsets would 
come from activities that are not covered by the emissions cap. The 15 
percent limitation is essential to ensure the integrity of the 
emissions cap in the bill and to spur technology innovation. The total 
amount of offsets allowed should not be increased. In addition, further 
changes to the bill should be made regarding the types of offsets that 
should be allowed and the conditions for such offsets.
    We are pleased to note that the Lieberman/Warner legislation 
includes ``cost containment'' provisions that protect the integrity of 
the emissions cap and preserve incentives for technology innovation. In 
particular, we commend your rejection of the misnamed ``safety valve'' 
concept that would allow the government to print unlimited pollution 
allowances at a set price.
    The fundamental problem with the safety valve is that it breaks the 
cap without ever making up for the excess emissions. Simply put, the 
cap doesn't decline as needed or, worse, keeps growing. ``Safety 
valve'' is actually a misleading name. In boiler design, the role of a 
safety valve is to allow pressures to build within the vessel to 
working levels, well above atmospheric pressure. A safety valve's 
function is to open on the rare occasion when the boiler is pressured 
beyond its safe operating range, to keep it from exploding. In the life 
of a well-run boiler, the safety valve may never open. Imagine, 
however, a boiler designed with a valve set to open just slightly above 
normal atmospheric pressure. The valve would always be open, and the 
boiler would never accomplish any useful work. That is the problem with 
the safety valve design in other legislative proposals. The valve is 
set at such a low level that it is likely to be open virtually all the 
time.
    In addition to breaking the U.S. cap, a safety valve also would 
prevent U.S. participation in international trading systems. If trading 
were allowed between the U.S. and other capped nations, a major 
distortion would occur. Firms in other countries (acting directly or 
through brokers) would seek to purchase U.S. lower-priced allowances. 
Their demand would almost immediately drive the U.S. allowance price to 
the safety valve level, triggering the ``printing'' of more American 
allowances. Foreign demand for newly-minted U.S. safety valve 
allowances would continue until the world price dropped to the same 
level. The net result would be to flood the world market with far more 
allowances--and far less emission reduction--than anticipated.
    Although NRDC believes that the primary and most effective cost 
containment device in any mandatory legislation will be the cap and 
trade system itself, NRDC also supports other means of providing 
flexibility. Banking has long been a feature of cap and trade systems. 
We also support the bill's provisions allowing firms to borrow 
allowances with appropriate interest and payback guarantees. The bill 
includes a further provision, nicknamed the Carbon Fed, based upon a 
proposal developed by Senators Warner, Graham, Lincoln and Landrieu. 
The board created under this provision is charged with monitoring the 
carbon market and is authorized to change the terms of allowance 
borrowing, including the interest rate and the time period for 
repayment. Crucially, however, the Carbon Fed does not have the 
authority to change the cumulative emissions cap. Under such a 
proposal, the environment is protected and cost volatility is 
minimized.
    While S. 2191 provides a solid framework for sound global warming 
legislation, there are some significant areas in which it can and 
should be substantially improved. A more detailed discussion of these 
areas follows:
                         coverage of emissions
    As I mentioned, scientists are telling us that we will need 
reductions in total U.S emissions on the order of 80% by 2050 in order 
to do our proportional part in a global program of preventing 
catastrophic impacts. Our calculations indicate that the bill will 
result in reducing total U.S. emissions by approximately 51-63 percent 
by 2050. In order to ensure that overall reductions keep pace with the 
science, NRDC believes that the bill's coverage should be increased. 
The most important source of emissions that is not covered is the 
commercial and residential use of natural gas.
                      scientific review of targets
    The bill as introduced includes a provision under which the 
National Academy of Sciences would assess the extent to which emissions 
reductions required under the Act are being achieved, and would 
determine whether such reductions are sufficient to avoid dangerous 
global warming. However, unlike the similar provisions of the Sanders/
Boxer legislation, S. 2191 does not authorize the Environmental 
Protection Agency to respond to the NAS assessments and reports by 
adjusting the applicable targets. The bill should be revised to allow 
EPA to take all necessary actions to avoid dangerous global warming by 
requiring additional reductions, including by changing applicable 
targets or through increasing the coverage of the bill.
                  complementary performance standards
    Performance standards for key sectors are an important complement 
to the overarching cap on emissions. The bill recognizes the importance 
of performance standards for building codes and appliance efficiency 
and contains standards for these energy consuming activities. But 
energy producers also need performance standards to avoid 
counterproductive investments in the early years of the program.
    Perhaps the most important performance standard for the production 
sector is for coal-fired electric generation. As I described above, new 
coal plants cost billions of dollars and will operate for 60 years or 
more. It is critical that we stop building new coal plants that release 
all of their carbon dioxide to the air. The bill contains several 
incentive provisions to reward developers who incorporate carbon 
capture and geologic disposal systems for new coal plants. NRDC 
supports such incentives but believes they should be coupled with 
performance standards to assure we do not build more coal plants that 
are uncontrolled for carbon dioxide.
    The Sanders-Boxer bill contains two complementary performance 
standards for coal plants and we recommend the Subcommittee and 
Committee incorporate these concepts into S. 2191. The first standard 
is a CO2 emissions standard that applies to new power 
investments. California enacted such a measure in SB1368 last year. It 
requires new investments for sale of power in California to meet a 
performance standard that is achievable by coal plants using 
CO2 capture.
    The second standard is a low-carbon generation obligation for coal-
based power. Similar in concept to a renewable performance standard, 
the low-carbon generation obligation requires an initially small 
fraction of sales from coal-based power to meet a CO2 
performance standard that is achievable with carbon capture. The 
required fraction of sales would increase gradually over time and the 
obligation would be tradable. Thus, a coal-based generating firm could 
meet the requirement by building a plant with carbon capture, by 
purchasing power generated by another source that meets the standard, 
or by purchasing credits from those who build such plants. This 
approach, when combined with the allowance incentives in S. 2191, has 
the advantage of speeding the deployment of carbon capture systems 
while avoiding the ``first mover penalty.'' Instead of causing the 
first builder of a commercial coal plant with carbon capture to bear 
all of the incremental costs, allowance incentives and the tradable 
low-carbon generation obligation would spread those costs over the 
entire coal-based generation system. With such performance standards 
included, the bill could--at no added cost--prevent construction of new 
uncontrolled coal power plants and free up some of the incentive 
allowances for other purposes.
    Some have argued that key technologies, such as carbon capture and 
storage (CCS) are not yet available or are only available now at 
exorbitant cost. Such arguments are incorrect. All the elements of CCS 
systems are actually in use today. But arguments about what is 
available today, under today's market conditions, fundamentally miss 
the point, because global warming legislation is about setting the 
market conditions for technological progress going forward from today. 
Taking a frozen snapshot of the cost of carbon control technologies 
today is also misleading. Think how wrong such an assessment would have 
been if applied to computer technology at any point in the last thirty 
years. Speed and capacity have increased by orders of magnitude as 
costs plummeted. We now carry more computing power in our cell phones 
than the Apollo astronauts carried to the moon. Once market signals are 
in place, it will be the same for technologies such as carbon capture 
and storage. I attach an Appendix to my testimony prepared by David 
Hawkins, Director of NRDC's Climate Center, which discusses the current 
availability of carbon capture and disposal in detail.
    Other complementary policies should also be considered for sectors 
such as the transportation area. NRDC supports a Low Carbon Fuel 
Standard, which would cut greenhouse gas emissions from fuels by 10% 
from today's levels by 2020 and spur development and use of cellulosic 
ethanol and other low carbon fuels. Senator Boxer's bill, the Advanced 
Clean Fuels Act of 2007, includes a Low Carbon Fuel Standard and we 
would support inclusion of such a performance standard in S. 2191. It 
is also important to note that other ongoing efforts in the Senate, 
such as the Corporate Average Fuel Economy measures included in the 
Senate Energy bill, could lead to substantial reductions in greenhouse 
gas emissions and if enacted, will provide another important complement 
to the provisions in S. 2191.
                                offsets
    America's Climate Security Act allows the owner or operator of a 
covered facility to satisfy up to 15 percent of a given year's 
compliance obligation using ``offsets'' generated within the United 
States. These offsets would come from activities that are not covered 
by the emissions cap.
    While there are many emission reduction activities outside the cap 
that are worth encouraging, many experts have worked for more than 30 
years in an attempt to produce reliable, workable offset programs in 
both the clean air and global warming contexts but there is little 
reason for satisfaction with the results. Even if criteria for 
measurability and enforceability are met, offsets still have the 
potential to break the cap because of difficulties in assuring that 
actions being credited are actually ``additional''--i.e., that they are 
not simply actions that would have taken place anyway in the absence of 
credit.
    The additionality problem is not readily soluble, because it is 
extraordinarily difficult to devise workable rules for determining 
business-as-usual baselines at the project level. In some areas, 
credits may leverage new actions that would not have occurred, with a 
minimum of credit bestowed on ``anyway'' actions. But far more often, 
``anyway'' actions make up a large--even dominant--fraction of the 
reductions credited. If offsets represent even a small percentage of 
``anyway'' tons, climate protection actually moves backwards. A full 
ton is added to the cap in exchange for an action that may represent 
only 0.9 ton of reduction--or worse, 0.1 ton of reduction. With each 
offset, net emissions increase.
    Offsets also can delay key industries' investments in 
transformative technologies that are necessary to meet the declining 
cap. For instance, unlimited availability of offsets could lead 
utilities to build high-emitting coal plants instead of investing in 
efficiency, renewables, or plants equipped with carbon capture and 
storage.
    For these reasons, NRDC has proposed setting aside a portion of the 
allowances from within the cap to incentivize mitigation actions from 
sources, like agriculture, that are outside the cap. Since the 
allowances would come from within the cap, they do not run the risk of 
expanding actual emissions as a result of rewarding this activity. 
Another acceptable approach would be to allow only a limited quantity 
of offsets in the cap-and-trade design.
    The Lieberman/Warner bill takes both approaches. The bill includes 
a ``set aside'' for agricultural reductions which would provide 
allowances from within the cap, and the bill also limits domestic 
offsets from outside the cap to 15 percent of a facility's annual 
compliance obligation.
    NRDC believes that there are some additional changes needed in the 
offset provisions to remove certain types of offsets where 
additionality fundamentally cannot be guaranteed. A number of other 
safeguards need to be strengthened. We will be glad to continue working 
with your staff regarding these provisions.
                        allocation of allowances
    The Lieberman/Warner bill recognizes that allowances can and should 
be used to achieve important public purposes, but the bill provides too 
many allowances for free to emitters in the early years of the program.
    The bill provides allowances for public purposes in two ways:
    (1) auctioned allowances, with the proceeds of the auction going 
for such purposes as climate-friendly technologies, low income energy 
consumers, wildlife adapatation, national security/global warming 
measures and worker training.
    (2) free allowances to electricity consumers, state and tribal 
governments, and U.S. farmers and foresters, for a range of designated 
public purposes.
    But the bill also initially gives 40 percent of the allowances for 
free to emitters in the electric and industrial sectors. These free 
allowances to emitters continue at gradually reduced rates until 2036 
when they are terminated. The amount of allowances that are auctioned 
for public purposes grows from 24 percent in 2012 to 73 percent in 
2036.
    NRDC appreciates the substantial changes that have been made to the 
bill since the bill outline was released in August. These changes 
include eliminating the perpetual free allocation to industrial 
emitters and removing free allowances to oil and coal companies.
    The current bill's allocation to electric power and industrial 
emitters, however, is still much higher than justified under ``hold-
harmless'' principles and will result in windfall profits to the 
shareholders of emitters. For example, an economic analysis by Larry 
Goulder of Stanford University suggests that in an economy-wide 
upstream cap and trade program, only 13% of the allowances will be 
needed to cover the costs that fossil-fuel providers would not be able 
to pass on to their customers. Similar analyses, with similar results, 
have been conducted by Resources for The Future and the Congressional 
Budget Office.
    As a result, NRDC believes that the bill should be improved 
substantially by reducing the starting percentage of free allowances to 
emitters and phasing them out faster--within 10-15 years of enactment. 
This would allow a greater percentage of the allowances to be devoted 
to public purposes from the start and over time. In particular, 
reducing the free allocations to emitters would allow for more 
resources to be directed to states, to low-income consumers in the 
United States, and to the most vulnerable among us, both here and 
abroad.
                       international cooperation
    The bill includes a provision to encourage other nations to join in 
action to reduce greenhouse gas emissions, and to protect American 
businesses and workers from unfair competition if specific nations 
decline to cooperate. Under this provision, the United States would 
seek to negotiate for ``comparable emissions reductions'' from other 
emitting countries within 8 years of enactment. Countries failing to 
make such commitments would be required to submit greenhouse gas 
allowances for certain carbon intensive products. NRDC supports this 
provision, while bearing in mind that the U.S., as the world's greatest 
contributor to the burden of global warming pollution already in the 
atmosphere, needs to show leadership in meeting the global warming 
challenge.
                           adaptation issues
    The sad truth is that if we do our utmost to cut global warming 
pollution starting tomorrow, people, and the sensitive ecosystems we 
depend on, will still suffer serious impacts due to the emissions that 
are already in the air and those ``in the pipeline.'' We must do what 
we can now to ensure that communities and natural ecosystems are best 
prepared to withstand and adapt to ongoing and expected change. To that 
end, NRDC would like to thank Senators Warner and Lieberman for 
inclusion of language establishing an adaptation fund to assist 
Federal, State, and tribal entities to develop and adopt adaptation 
strategies.
    I would also like to mention a bill introduced last week by Senator 
Whitehouse, with Senator Boxer. This bill, the Global Warming Wildlife 
Survival Act, addresses ongoing and expected impacts to our oceans, 
wildlife, and endangered species associated with global warming and 
ocean acidification. We are particularly excited to see that Senators 
Whitehouse and Boxer have elevated the issue of the threats facing our 
ocean ecosystems and resources, calling for the development and 
implementation of a National Ocean, Coastal, and Great Lakes Resiliency 
Strategy and for development of climate change resiliency plans under 
the Coastal Zone Management Act. These are the types of approaches we 
need to ensure that our oceans are as healthy as possible, so that they 
are better able to withstand the adverse effects of warming and 
acidification. We look forward to working with the Committee to 
incorporate these approaches into the final bill.
    Chairman Lieberman and Ranking Member Warner, you have stepped 
forward at a key moment in history and you are to be commended for your 
vision, leadership and courage on this profoundly important issue. 
Together with Chairman Boxer, and the other members of the Committee, 
the work that you and your staff have done on this bill marks an 
important milestone in the movement toward enactment of strong, 
bipartisan global warming legislation. We look forward to further 
progress as your legislation moves through the Subcommittee and the 
full Environment and Public Works Committee, and we at NRDC stand ready 
to assist in anyway possible.
    Thank you for the opportunity to testify and I would be pleased to 
answer any questions that you may have.
                                APPENDIX
                   Is CCD Ready for Broad Deployment?
  David Hawkins, Director, Climate Center, Natural Resources Defense 
                                Council
                        key questions about ccd
    I started studying CCD in detail 10 years ago and the questions I 
had then are those asked today by people new to the subject. Do 
reliable systems exist to capture CO2 from power plants and 
other industrial sources? Where can we put CO2 after we have 
captured it? Will the CO2 stay where we put it or will it 
leak? How much disposal capacity is there? Are CCD systems 
``affordable''? To answer these questions, the Intergovernmental Panel 
on Climate Change (IPCC) decided 4 years ago to prepare a special 
report on the subject. That report was issued in September, 2005 as the 
IPCC Special Report on Carbon Dioxide Capture and Storage. I was 
privileged to serve as a review editor for the report's chapter on 
geologic storage of CO2.
                         co2 capture
    The IPCC special report groups capture or separation of 
CO2 from industrial gases into four categories: post-
combustion; pre-combustion; oxyfuel combustion; and industrial 
separation. I will say a few words about the basics and status of each 
of these approaches. In a conventional pulverized coal power plant, the 
coal is combusted using normal air at atmospheric pressures. This 
combustion process produces a large volume of exhaust gas that contains 
CO2 in large amounts but in low concentrations and low 
pressures. Commercial post-combustion systems exist to capture 
CO2 from such exhaust gases using chemical ``stripping'' 
compounds and they have been applied to very small portions of flue 
gases (tens of thousands of tons from plants that emit several million 
tons of CO2 annually) from a few coal-fired power plants in 
the U.S. that sell the captured CO2 to the food and beverage 
industry. However, industry analysts state that today's systems, based 
on publicly available information, involve much higher costs and energy 
penalties than the principal demonstrated alternative, pre-combustion 
capture.
    New and potentially less expensive post-combustion concepts have 
been evaluated in laboratory tests and some, like ammonia-based capture 
systems, are scheduled for small pilot-scale tests in the next few 
years. Under normal industrial development scenarios, if successful 
such pilot tests would be followed by larger demonstration tests and 
then by commercial-scale tests. These and other approaches should 
continue to be explored. However, unless accelerated by a combination 
of policies, subsidies, and willingness to take increased technical 
risks, such a development program could take one or two decades before 
post-combustion systems would be accepted for broad commercial 
application.
    Pre-combustion capture is applied to coal conversion processes that 
gasify coal rather than combust it in air. In the oxygen-blown 
gasification process coal is heated under pressure with a mixture of 
pure oxygen, producing an energy-rich gas stream consisting mostly of 
hydrogen and carbon monoxide. Coal gasification is widely used in 
industrial processes, such as ammonia and fertilizer production around 
the world. Hundreds of such industrial gasifiers are in operation 
today. In power generation applications as practiced today this 
``syngas'' stream is cleaned of impurities and then burned in a 
combustion turbine to make electricity in a process known as Integrated 
Gasification Combined Cycle or IGCC. In the power generation business, 
IGCC is a relatively recent development--about two decades old and is 
still not widely deployed. There are two IGCC power-only plants 
operating in the U.S. today and about 14 commercial IGCC plants are 
operating globally, with most of the capacity in Europe. In early years 
of operation for power applications a number of IGCC projects 
encountered availability problems but those issues appear to be 
resolved today, with Tampa Electric Company reporting that its IGCC 
plant in Florida is the most dispatched and most economic unit in its 
generating system.
    Commercially demonstrated systems for pre-combustion capture from 
the coal gasification process involve treating the syngas to form a 
mixture of hydrogen and CO2 and then separating the 
CO2, primarily through the use of solvents. These same 
techniques are used in industrial plants to separate CO2 
from natural gas and to make chemicals such as ammonia out of gasified 
coal. However, because CO2 can be released to the air in 
unlimited amounts under today's laws, except in niche applications, 
even plants that separate CO2 do not capture it; rather they 
release it to the atmosphere.
    Notable exceptions include the Dakota Gasification Company plant in 
Beulah, North Dakota, which captures and pipelines more than one 
million tons of CO2 per year from its lignite gasification 
plant to an oil field in Saskatchewan, and ExxonMobil's Shute Creek 
natural gas processing plant in Wyoming, which strips CO2 
from sour gas and pipelines several million tons per year to oil fields 
in Colorado and Wyoming.
    Today's pre-combustion capture approach is not applicable to the 
installed base of conventional pulverized coal in the U.S. and 
elsewhere. However, it is ready today for use with IGCC power plants. 
The oil giant BP has announced an IGCC project with pre- combustion 
CO2 capture at its refinery in Carson, California. When 
operational the project will gasify petroleum coke, a solid fuel that 
resembles coal more than petroleum to make electricity for sale to the 
grid. The captured CO2 will be sold to an oil field operator 
in California to enhance oil recovery. The principal obstacle for broad 
application of pre-combustion capture to new power plants is not 
technical, it is economic: under today's laws it is cheaper to release 
CO2 to the air rather than capturing it. Enacting laws to 
limit CO2 can change this situation, as discussed in my 
testimony.
    While pre-combustion capture from IGCC plants is the approach that 
is ready today for commercial application, it is not the only method 
for CO2 capture that may emerge if laws creating a market 
for CO2 capture are adopted. I have previously mentioned 
post-combustion techniques now being explored. Another approach, known 
as oxyfuel combustion, is also in the early stages of research and 
development. In the oxyfuel process, coal is burned in oxygen rather 
than air and the exhaust gases are recycled to build up CO2 
concentrations to a point where separation at reasonable cost and 
energy penalties may be feasible. Small scale pilot studies for oxyfuel 
processes have been announced. As with post-combustion processes, 
absent an accelerated effort to leapfrog the normal commercialization 
process, it could be one or two decades before such systems might begin 
to be deployed broadly in commercial application.
    Given, the massive amount of new coal capacity scheduled for 
construction in the next two decades, we cannot afford to wait and see 
whether these alternative capture systems prove out, nor do we need to. 
Coal plants in the design process today can employ proven IGCC and pre-
combustion capture systems to reduce their CO2 emissions by 
about 90 percent. Adoption of policies that set a CO2 
performance standard now for such new plants will not anoint IGCC as 
the technological winner since alternative approaches can be employed 
when they are ready. If the alternatives prove superior to IGCC and 
pre- combustion capture, the market will reward them accordingly. As 
discussed in my testimony, adoption of CO2 performance 
standards is a critical step to improve today's capture methods and to 
stimulate development of competing systems.
    I would like to say a few words about so-called ``capture-ready'' 
or ``capture-capable'' coal plants. Some years ago I was under the 
impression that some technologies like IGCC, initially built without 
capture equipment could be properly called ``capture-ready.'' However, 
the implications of the rapid build-out of new coal plants for global 
warming and many conversations with engineers since then have educated 
me to a different view. An IGCC unit built without capture equipment 
can be equipped later with such equipment and at much lower cost than 
attempting to retrofit a conventional pulverized coal plant with 
today's demonstrated post-combustion systems. However, the costs and 
engineering reconfigurations of such an approach are substantial. More 
importantly, we need to begin capturing CO2 from new coal 
plants without delay in order to keep global warming from becoming a 
potentially runaway problem. Given the pace of new coal investments in 
the U.S. and globally, we simply do not have the time to build a coal 
plant today and think about capturing its CO2 down the road.
    Implementation of the Energy Policy Act of 2005 approach to this 
topic needs a review in my opinion. The Act provides significant 
subsidies for coal plants that do not actually capture their 
CO2 but rather merely have carbon ``capture capability.'' 
While the Act limits this term to plants using gasification processes, 
it is not being implemented in a manner that provides a meaningful 
substantive difference between an ordinary IGCC unit and one that 
genuinely has been designed with early integration of CO2 
capture in mind. Further, in its FY2008 budget request, the 
administration seeks appropriations allowing it to provide $9 billion 
in loan guarantees under Title XVII of the Act, including as much as $4 
billion in loans for ``carbon sequestration optimized coal power 
plants.'' The administration request does not define a ``carbon 
sequestration optimized'' coal power plant and it could mean almost 
anything, including, according to some industry representatives, a 
plant that simply leaves physical space for an unidentified black box. 
If that makes a power plant ``capture-ready'' Mr. Chairman, then my 
driveway is ``Ferrari- ready.'' We should not be investing today in 
coal plants at more than a billion dollars apiece with nothing more 
than a hope that some kind of capture system will turn up. We would not 
get on a plane to a destination if the pilot told us there was no 
landing site but options were being researched.
                           geologic disposal
    We have a significant experience base for injecting large amounts 
of CO2 into geologic formations. For several decades oil 
field operators have received high pressure CO2 for 
injection into fields to enhance oil recovery, delivered by pipelines 
spanning as much as several hundred miles. Today in the U.S. a total of 
more than 35 million tons of CO2 are injected annually in 
more than 70 projects. (Unfortunately, due to the lack of any controls 
on CO2 emissions, about 80 per cent of that CO2 
is sources from natural CO2 formations rather than captured 
from industrial sources. Historians will marvel that we persisted so 
long in pulling CO2 out of holes in the ground in order to 
move it hundreds of miles and stick in back in holes at the same time 
we were recognizing the harm being caused by emissions of the same 
molecule from nearby large industrial sources.) In addition to this 
enhanced oil recovery experience, there are several other large 
injection projects in operation or announced. The longest running of 
these, the Sleipner project, began in 1996.
    But the largest of these projects injects on the order of one 
million tons per year of CO2, while a single large coal 
power plant can produce about five million tons per year. And of 
course, our experience with man-made injection projects does not extend 
for the thousand year or more period that we would need to keep 
CO2 in place underground for it to be effective in helping 
to avoid dangerous global warming. Accordingly, the public and 
interested members of the environmental, industry and policy 
communities rightly ask whether we can carry out a large scale 
injection program safely and assure that the injected CO2 
will stay where we put it.
    Let me summarize the findings of the IPCC on the safety and 
efficacy of geologic disposal. In its 2005 report the IPCC concluded 
the following with respect to the question of whether we can safely 
carry out carbon injection operations on the required scale:
    ``With appropriate site selection based on available subsurface 
information, a monitoring programme to detect problems, a regulatory 
system and the appropriate use of remediation methods to stop or 
control CO2 releases if they arise, the local health, safety 
and environment risks of geological storage would be comparable to the 
risks of current activities such as natural gas storage, EOR and deep 
underground disposal of acid gas.''
    The knowledge exists to fulfill all of the conditions the IPCC 
identifies as needed to assure safety. While EPA has authority to 
regulate large scale CO2 injection projects its current 
underground injection control regulations are not designed to require 
the appropriate showings for permitting a facility intended for long-
term retention of large amounts of CO2. With adequate 
resources applied, EPA should be able to make the necessary revisions 
to its rules in two to 3 years. We urge the members of this Committee 
to support legislation to require EPA to undertake this effort this 
year.
    Do we have a basis today for concluding that injected 
CO2 will stay in place for the long periods required to 
prevent its contributing to global warming? The IPCC report concluded 
that we do, stating:
    ``Observations from engineered and natural analogues as well as 
models suggest that the fraction retained in appropriately selected and 
managed geological reservoirs is very likely to exceed 99% over 100 
years and is likely to exceed 99% over 1,000 years.''
    Despite this conclusion by recognized experts there is still reason 
to ask about the implications of imperfect execution of large scale 
injection projects, especially in the early years before we have 
amassed more experience. Is the possibility of imperfect execution 
reason enough to delay application of CO2 capture systems to 
new power plants until we gain such experience from an initial round of 
multi-million ton ``demonstration'' projects? To sketch an answer to 
this question, my colleague Stefan Bachu, a geologist with the Alberta 
Energy and Utilities Board, and I wrote a paper for the Eighth 
International Conference on Greenhouse Gas Control Technologies in June 
2006. The obvious and fundamental point we made is that without 
CO2 capture, new coal plants built during any ``delay and 
research'' period will put 100 per cent of their CO2 into 
the air and may do so for their operating life if they were 
``grandfathered'' from retrofit requirements. Those releases need to be 
compared to hypothetical leaks from early injection sites.
    Our conclusions were that even with extreme, unrealistically high 
hypothetical leakage rates from early injection sites (10% per year), a 
long period to leak detection (5 years) and a prolonged period to 
correct the leak (1 year), a policy that delayed installation of 
CO2 capture at new coal plants to await further research 
would result in cumulative CO2 releases twenty times greater 
than from the hypothetical faulty injection sites, if power plants 
built during the research period were ``grandfathered'' from retrofit 
requirements. If this wave of new coal plants were all required to 
retrofit CO2 capture by no later than 2030, the cumulative 
emissions would still be four times greater than under the no delay 
scenario. I believe that any objective assessment will conclude that 
allowing new coal plants to be built without CO2 capture 
equipment on the ground that we need more large scale injection 
experience will always result in significantly greater CO2 
releases than starting CO2 capture without delay for new 
coal plants now being designed.
    The IPCC also made estimates about global storage capacity for 
CO2 in geologic formations. It concluded as follows:
    ``Available evidence suggests that, worldwide, it is likely that 
there is a technical potential of at least about 2,000 GtCO2 
(545 GtC) of storage capacity in geological formations. There could be 
a much larger potential for geological storage in saline formations, 
but the upper limit estimates are uncertain due to lack of information 
and an agreed methodology.''
    Current CO2 emissions from the world's power plants are 
about 10 Gt (billion metric tons) per year, so the IPCC estimate 
indicates 200 years of capacity if power plant emissions did not 
increase and 100 years capacity if annual emissions doubled.
                                 ______
                                 
         Responses by Frances Beinecke to Additional Questions 
                          from Senator Cardin
    Question 1. Could the impacts of not covering the commercial and 
residential use of natural gas be accounted for by mandated increased 
efficiencies in residential and commercial appliances and heating/
cooling systems?
    Response. NRDC supports the efficiency standards in the bill and 
agrees that such standards can lead to significant reductions in 
greenhouse gas emissions from commercial and residential gas usage. 
Such policies can work effectively in a complementary fashion with a 
cap and trade program to maximize available reductions. However NRDC 
also believes that the coverage of the bill should be increased, in 
particular by including commercial and residential natural gas usage 
within the cap.

    Question 2. If natural gas used in residential and commercial 
settings were covered with a cap, how would that impact homeowners and 
small businesses?
    Response. NRDC believes that if natural gas is covered, the point 
of regulation should be the local distribution company and that 
allowances should also be provided to the local distribution company. 
This would avoid placing a regulatory requirement on individual 
homeowners and small businesses. Local distribution companies should be 
given incentives to help their customers use natural gas more 
efficiently, thus reducing their gas bills.
                                 ______
                                 
      Responses by Frances Beinecke to Additional Questions from 
                             Senator Inhofe
    Question 1a. You mention that this bill has a provision for the 
U.S. to encourage other nations to reduce emissions. But would this 
really have an effect, as China is building a new coal plant every 
three days? Don't you find it troubling that the provisions of the bill 
apply to U.S. companies many years before it applies to China, in 
effect, accelerating the flow of jobs and emissions to China?
    Response. The best way to bring China and India on board is to take 
leadership. We are the world's most powerful economy. We are 
responsible for more of the global warming pollution now in the 
atmosphere than any other country. We have the most technological know-
how. The best way to get global action is to start acting at home, and 
to negotiate reciprocal action from other countries. Simply put, they 
will remain skeptical and reluctant as long as they see this country 
doing nothing and pointing fingers.
    The one thing the U.S. program should not do is condition our own 
action on first achieving formal agreements with developing countries. 
That would put U.S. policy in the hands of the Chinese or Indian 
governments. It would also be seen as finger-pointing by the largest 
emitter with the most capability to act. That would only set back 
progress towards international agreements. We believe the international 
provisions in the bill will be an effective negotiating tool for the 
U.S. to engage productively with these countries to act in the coming 
decade. In the near term we do not believe U.S. industries will be 
competitively disadvantaged. Initially the carbon price will be low and 
in the bill a large number of the allowances are allocated to the 
industrial sector. Furthermore, helping our industries become more 
efficient will make them more competitive in the global market for the 
long term.
    We've done this before. Twenty years ago, industrial nations took 
the lead in a binding treaty to phase-out ozone-depleting CFCs. In just 
3 years, developing countries came on board. Led by China and India, 
they accepted binding limits on their own CFC production. We've marched 
together--developed and developing--ever since, and have already 
eliminated 95% of the ozone-depleting chemicals. China and India agreed 
to a new round of mandatory cuts in ozone-depleting chemicals just this 
past September.
    What's missing on global warming is our leadership. We are the only 
major industrial country that has refused to limit its own emissions. 
It's time to act.

    Question 2. On October 1, 2007, EPA released analysis of the 
Bingaman-Specter, McCain-Lieberman, and Kerry-Snowe bills. It showed 
that through the end of this Century, each of these bills reduce would 
only reduce global greenhouse gas concentrations by less than four 
percent.
    Do you have reason to believe that this bill would be significantly 
different and are you willing to risk the economic future of this 
country for such an insignificant gain in global concentrations?
    Doesn't EPA's analysis demonstrate that taking unilateral action 
will be ineffective and could even be counterproductive since it will 
accelerate emissions growth in the developing nations as we export jobs 
to their inefficient economies?
    Response. EPA's analysis shows that emission reductions similar to 
those in the Lieberman-Warner bill in concert with action by other 
countries would reduce the build up of heat-trapping pollution in the 
atmosphere by more than 200 parts per million.
    The results of recent economic studies, which have analyzed the 
energy costs of several global warming cap and trade bills, actually 
have shown how affordable these climate bills can be for consumers and 
the U.S. economy as a whole, while still significantly cutting our 
global warming pollution. We need to focus on designing global warming 
legislation smartly.
     Establishing a firm pollution cap will spur innovation.
     Trading allows emission reductions to be made at least-
cost.
     Using the value of emission allowances in the public 
interest makes it possible to offset any increases in energy costs for 
low and middle-income consumers.
    The Lieberman-Warner bill includes all of these features. It could 
be improved further by reducing the initial free allocation to emitters 
and speeding the transition to 100% public benefit which would allow 
additional resources to be devoted to helping vulnerable communities at 
home and abroad adapt to the impacts of global warming. This would make 
the bill more fair and more effective in cementing new international 
agreement needed to tackle global warming.
    The EPA analysis finds that reducing global warming pollution will 
have an imperceptible affect on economic output overall. With respect 
to energy prices, changes would be far smaller and less disruptive than 
those consumers have experienced in recent years. There would be modest 
impacts on electricity and gasoline prices, and natural gas prices 
would not be significantly affected. The EPA model projects that the 
price of CO2 allowances would add 23 cents per gallon to the 
price of gasoline. But unlike recent, much larger, price increases, the 
money won't go to OPEC or Exxon. The Lieberman-Warner bill uses most of 
the value of allowances for public benefits, such as paying for rebates 
on more fuel-efficient vehicles, homes, and appliances.
    The Nicholas Institute at Duke has modeled the Lieberman-Warner 
bill using the same model that EPA has used in the past. OnLocation has 
modeled the Lieberman-Warner bill using the EIA model. These studies 
show that the economic effects of the Lieberman-Warner bill would be 
similar to those of S. 280, which has been modeled by both EPA and EIA.

    Question 3. As EPA's analysis shows, even if the rest of the world 
reduces emissions by more than 10 times that proposed for the U.S., 
global emissions are expected to be higher than today. Isn't this 
relevant as we consider action here? In fact, if the entire developed 
world took unilateral action to eliminate every car, closed every 
factory and shut down every power plant, emissions would still be 
higher than today within a few decades. Does this affect your support 
of what I believe is unilateral economic disarmament?
    Response. EPA's analysis shows that emission reductions similar to 
those in the Lieberman-Warner bill in concert with action by other 
countries would reduce the build up of heat-trapping pollution in the 
atmosphere by more than 200 parts per million.
    The results of recent economic studies, which have analyzed the 
energy costs of several global warming cap and trade bills, actually 
have shown how affordable these climate bills can be for consumers and 
the U.S. economy as a whole, while still significantly cutting our 
global warming pollution. We need to focus on designing global warming 
legislation smartly.
     Establishing a firm pollution cap will spur innovation.
     Trading allows emission reductions to be made at least-
cost.
     Using the value of emission allowances in the public 
interest makes it possible to offset any increases in energy costs for 
low and middle-income consumers.
    The Lieberman-Warner bill includes all of these features. It could 
be improved further by reducing the initial free allocation to emitters 
and speeding the transition to 100% public benefit which would allow 
additional resources to be devoted to helping vulnerable communities at 
home and abroad adapt to the impacts of global warming. This would make 
the bill more fair and more effective in cementing new international 
agreement needed to tackle global warming.
    The EPA analysis finds that reducing global warming pollution will 
have an imperceptible affect on economic output overall. With respect 
to energy prices, changes would be far smaller and less disruptive than 
those consumers have experienced in recent years. There would be modest 
impacts on electricity and gasoline prices, and natural gas prices 
would not be significantly affected. The EPA model projects that the 
price of CO2 allowances would add 23 cents per gallon to the 
price of gasoline. But unlike recent, much larger, price increases, the 
money won't go to OPEC or Exxon. The Lieberman-Warner bill uses most of 
the value of allowances for public benefits, such as paying for rebates 
on more fuel-efficient vehicles, homes, and appliances.
    The Nicholas Institute at Duke has modeled the Lieberman-Warner 
bill using the same model that EPA has used in the past. OnLocation has 
modeled the Lieberman-Warner bill using the EIA model. These studies 
show that the economic effects of the Lieberman-Warner bill would be 
similar to those of S. 280, which has been modeled by both EPA and EIA.

    Question 4. Regarding the overall costs and benefits of the bill: 
Should there be a request made to the Energy Information Administration 
or other federal governmental entity to model the bill? Should there be 
a request for a study by an econometric modeling firm?
    Response. EPA's analysis shows that emission reductions similar to 
those in the Lieberman-Warner bill in concert with action by other 
countries would reduce the build up of heat-trapping pollution in the 
atmosphere by more than 200 parts per million.
    The results of recent economic studies, which have analyzed the 
energy costs of several global warming cap and trade bills, actually 
have shown how affordable these climate bills can be for consumers and 
the U.S. economy as a whole, while still significantly cutting our 
global warming pollution. We need to focus on designing global warming 
legislation smartly.
     Establishing a firm pollution cap will spur innovation.
     Trading allows emission reductions to be made at least-
cost.
     Using the value of emission allowances in the public 
interest makes it possible to offset any increases in energy costs for 
low and middle-income consumers.
    The Lieberman-Warner bill includes all of these features. It could 
be improved further by reducing the initial free allocation to emitters 
and speeding the transition to 100% public benefit which would allow 
additional resources to be devoted to helping vulnerable communities at 
home and abroad adapt to the impacts of global warming. This would make 
the bill more fair and more effective in cementing new international 
agreement needed to tackle global warming.
    The EPA analysis finds that reducing global warming pollution will 
have an imperceptible affect on economic output overall. With respect 
to energy prices, changes would be far smaller and less disruptive than 
those consumers have experienced in recent years. There would be modest 
impacts on electricity and gasoline prices, and natural gas prices 
would not be significantly affected. The EPA model projects that the 
price of CO2 allowances would add 23 cents per gallon to the 
price of gasoline. But unlike recent, much larger, price increases, the 
money won't go to OPEC or Exxon. The Lieberman-Warner bill uses most of 
the value of allowances for public benefits, such as paying for rebates 
on more fuel-efficient vehicles, homes, and appliances.
    The Nicholas Institute at Duke has modeled the Lieberman-Warner 
bill using the same model that EPA has used in the past. OnLocation has 
modeled the Lieberman-Warner bill using the EIA model. These studies 
show that the economic effects of the Lieberman-Warner bill would be 
similar to those of S. 280, which has been modeled by both EPA and EIA.

    Question 5. For Section 1201: Do you agree with the basis for 
selecting a 2012 cap of 5.2 billion metric tons considering that total 
U.S greenhouse gas emissions are greater than 7 billion tons? (Section 
1201(d)). In terms of emission reductions, what percentage should come 
from fuel switching, and what percentage from installation of new or 
replacement technologies? One oft-repeated approach to emissions 
reductions is to ``slow, stop, and reverse.'' Are the emissions targets 
chosen consistent with this approach?
    Response. The Lieberman-Warner bill represents a good start. In 
particular, the emission reductions required by 2020 are in line with 
what is needed. There are ways we would like to see the bill improved 
as discussed in my testimony, but we need to move forward on global 
warming legislation now and this bill represents a critical and 
important step in the right direction. Every year we delay more 
CO2 spewing power plants will be built and more 
CO2 will be pumped into the atmosphere. The Lieberman-Warner 
bill is consistent with the need to slow, stop and reverse our global 
warming emissions.
    More than 20 trillion dollars will be spent globally on new energy 
technologies between now and 2030. How this money is invested over the 
next decade will determine whether we can realistically avoid the worst 
effects of global warming.
    We have the solutions--cleaner energy sources, new vehicle 
technologies and industrial processes and enhanced energy efficiency. 
We just lack the policy framework to push business investments in the 
right direction and to get these solutions in the hands of consumers. 
The Lieberman-Warner bill, America's Climate Security Act (S. 2191), is 
a major step towards establishing that framework.

    Question 6. For coverage under the bill: Do you agree with 
selecting three out of six sectors of the U.S. economy for coverage 
under the bill? Do you think the three sectors were not covered because 
it would not be cost-effective to include them within the cap? If cost-
effectiveness was a criterion, what cost in dollars per metric ton 
should be used as a cutoff?
    Response. The Lieberman-Warner bill is a strong bill that can be 
made stronger through three key changes. They are:
     Ensure that the emission reductions keep pace with the 
science through a robust science review every 5 years that reassess the 
targets and timetables in light of the most recent climate research, 
EPA should have the authority based on the conclusions of the review to 
adjust the emission reduction targets as necessary to avoid dangerous 
global warming.
     Increase coverage of the bill's cap to include emissions 
from natural gas used in buildings. NRDC appreciates that the 2020 
target was strengthened from the August 2nd outline. We also appreciate 
the energy efficiency standards and incentives included in the bill. We 
recognize that these energy efficiency measures will help reduce 
emissions in the residential and commercial sectors. In addition, we 
recognize that the allowance set-aside for forest and agriculture 
activities will produce emission reductions in addition to those 
accomplished by the cap. However, it remains a concern that the direct 
emissions of the residential and commercial sectors--some 10 percent of 
total emissions--are not subject to the cap. In addition to the gap in 
emission coverage, this will produce a distortion between electricity 
(whose emissions are covered at the generator) and natural gas.
     Phase out free allocations to emitters faster. NRDC 
appreciates the phasing out of free allocations to industry and the 
electric utilities. But utilities and industry are still allocated much 
more than ``hold harmless'' principles would justify. As a result, 
there are not enough resources available through the auction, state 
allocations, and load serving entities allocations to protect 
consumers, especially low-income consumers, and to provide for 
humanitarian assistance to vulnerable populations affected by global 
warming.
    We also appreciate that the bill includes mechanisms to manage 
abatement costs without resorting to a so-called ``safety valve.'' The 
fundamental problem with the safety valve is that it breaks the cap 
without ever making up for the excess emissions.

    Question 7. A ``new entrant'' is defined as a facility that 
commences operation on or after January 1, 2008. (Section 4(19)) Do you 
agree with the selecting that date as the cutoff? Do you agree with 
requiring commencement of operations instead of commencement of 
construction as used in the Clean Air Act? Has the difference in the 
number of qualifying facilities between these two definitions been 
evaluated?
    Response. We have not evaluated the difference in the number of 
qualifying facilities based on alternative definitions of new entrant 
facilities.

    Question 8. For the definition of ``facility'': What do you think 
``any activity . . . at a facility'' means? Could this include coal 
mining operations or the transport of coal to a facility via train, 
truck, barge, etc.? Do you think the definition of ``facility'' to 
include ``any activity or operation'' also include fugitive emissions 
that are not under the direct control of the facility?
    Response. The Administrator will determine coverage by rule.

    Question 9. Under the bill, allowances can be borrowed for a period 
of up to 5 years. (Section 2302) Do you agree with the 5 years as an 
appropriate time limit? Would 6 or more years provide more flexibility 
for sources that find it necessary to borrow allowances? What 
considerations are more important than that additional flexibility that 
necessitate the more restrictive time period? Since the allowances 
become increasingly scarce over time, which creates a sliding upward 
pressure on price, to what degree is it anticipated the borrowing 
mechanism will mitigate allowance price increases? If future allowance 
prices exceed market prices for current allowances, will this mechanism 
be effective?
    Response. In our estimation, the greatest fear of many in industry 
is that short-run costs will fluctuate unexpectedly, much as natural 
gas prices have spiked in recent years. Setting a long-term declining 
emissions cap opens the door to borrowing emissions allowances from 
future years, using them early in times of unexpected cost pressure, 
and paying them back when short-term spikes recede.
    Other legislative proposals already allow firms to make reductions 
in advance when prices are lower than expected and bank allowances for 
future use. Borrowing opens the opposite possibility.
    Absent borrowing, firms can comply only with current or banked 
allowances. Allowance prices thus reflect the current marginal cost of 
compliance, and that price can spike in response to short-term 
conditions (e.g., a delay in bringing on a new technology, or a surge 
in economic activity). Borrowing would let firms use emissions 
allowances from future years, stabilizing prices against unexpected 
short-term fluctuations. The long-term cap will be maintained, because 
borrowed allowances will be repaid, with interest, by releasing fewer 
emissions later when the short-run pressures are relieved. Together, 
banking and borrowing can stabilize long-term costs and eliminate the 
risk of price spikes while preserving the environmental integrity of 
the long-term caps.
    The combination of a long-term emissions pathway and borrowing has 
a clear advantage over the safety valve because it does not break the 
cap and permanently allow excess emissions. (Proposals allowing 
unlimited ``offsets''--credits for emission reductions not covered by 
the cap--also have the potential to break the cap if credits are 
awarded for actions taking place anyway, a problem endemic to past 
offset programs.)
    Borrowing does need to include certain safeguards. First, there 
needs to be an interest payment pegged to be slightly higher than 
commercial lending rates in order to discourage businesses from 
treating allowance-borrowing as a no-interest alternative to regular 
financing. Second, there need to be appropriate mechanisms to secure 
repayment and guard against defaults. The requirement to repay borrowed 
allowances within 5 years is one such safeguard.

    Question 10. The bill seems to indicate that the interest rate on 
borrowed allowances is 10%. (Section 2302) Should the interest compound 
annually?
    Response. Reference should be section 2303 ``Repayment with 
Interest''? See Answer to Question No. 9. Interest should compound 
annually and could be pegged to 5 percentage points higher than the 
Federal Funds rate, rather than being a fixed number.

    Question 11. Under certain conditions, the bill allows covered 
facilities to satisfy up to 15% of its allowance submission requirement 
with allowances or credits from foreign GHG trading markets. (Section 
2501) One of these conditions is that the foreign government's program 
be of ``comparable stringency'' to the U.S. program. (Section 
2502(b)(2)). What criteria should EPA use in determining whether the 
emission caps, for example, of another country are ``comparable'' to 
those of a U.S program? Should this ``comparable stringency'' be based 
on regulatory requirements or on compliance?
    Response. EPA can establish the criteria for comparable emission 
reductions which could be based on regulatory requirements as well as 
on compliance.

    Question 12. Under Section 2603, a Carbon Market Efficiency Board 
shall carry out one or more of six ``cost relief measures'' if the 
board determines that the emissions allowance market ``poses a 
significant harm to the economy of the United States.'' Should the 
board be empowered under the bill to provide cost relief measures if 
the economy of a region or an individual state faced significant 
economic harm? What criteria should the board use to make a significant 
harm determination? How should the board determine which measures and 
the precise extent of those measures that would be adequate to mitigate 
significant economic harm? How should the board coordinate its 
activities with the Federal Reserve board in decision-making to relieve 
inflationary pressures on the economy, and which would be lead as 
between them in decision-making? What allowance price is contemplated 
to pose significant risk of harm to the economy? Is it contemplated 
that the CMEB will provide the same level of certainty for investors in 
advanced technologies as a tax or safety valve?
    Response. The CMEB will develop criteria and procedures for making 
the determinations it is responsible for, just as the Federal Reserve 
Board has developed criteria and procedures for setting interest rates. 
The CMEB has a great deal of flexibility so that it can respond 
appropriately as more is learned about the carbon market. See response 
A9 regarding the level of economic certainty provided by the CMEB 
through borrowing.

    Question 13. Section 3402 requires EPA to allocate extra allowances 
to states that enact statewide GHG reduction targets that are more 
stringent than the targets established under the bill. What do you 
think the basis is for providing an explicit inducement for states to 
adopt more stringent requirements? Could this lead to inconsistencies 
among state programs that reduce the potential cost-effectiveness of a 
nationwide program? What do you think is the basis for an allocation 
level of 2% of the allowances for this purpose?
    Response. State leadership on global warming has been very 
important both substantively and politically. States should be allowed 
to take effective action to reduce global warming emissions faster than 
the national program if they so chose.

    Question 14. Section 3501 allocates 10% of the allowance account 
annually to load serving entities, which are overseen by state 
regulatory bodies. Section 3503(c)(3) prohibits the exercise of certain 
prerogatives on the part of these state regulatory bodies such as 
requiring the filing of rate cases in order to pass through the credit 
from the sale of allowances. Do you agree with this provision and why/
(not)?
    Response. NRDC supports this provision. Load serving entities are 
required to use the value of allowances allocated to them in the public 
interest to improve energy efficiency and provide rebates to low-income 
consumers. This is appropriate because pollution allowances are a 
public trust. They represent permission to use the atmosphere, which 
belongs to all of us, to dispose of global warming pollution. The 
capacity of the atmosphere to absorb carbon is extremely limited. This 
limited carrying capacity is not a private resource owned by historical 
emitters. Private entities should not have a right to dump harmful 
pollution in the public's atmosphere for free.
    Emissions allowances will be worth tens of billions of dollars per 
year, and their value will increase over the first decades of the 
program as the pollution cap declines. Providing more than a small 
fraction of the allowances for free to pollution sources would give 
their shareholders an enormous and undeserved financial windfall. 
Economics dictate that most firms will raise their prices to reflect 
the market value of these allowances, passing that cost onto consumers 
even if the allowances were received for free.
    For these reasons, NRDC opposes permanent grandfathering of 
emissions allowances to firms based on historical emissions, heat 
input, fuel sales, or other factors. Grandfathering the allowances 
would generate huge windfalls and transfers of wealth. Economists at 
the Congressional Budget Office, Resources for the Future (RFF) and 
other institutions have determined that grandfathering all emissions 
allowances would give the recipient companies an asset worth seven 
times the costs that they could not pass on to energy consumers. Those 
companies would become billions of dollars wealthier at consumer 
expense.
    Stanford University and RFF economist Larry Goulder has shown that 
in an economy-wide upstream cap and trade program, it would require 
only 13% of the allowances to cover the costs that fossil-fuel 
providers would not be able to pass on to consumers.\1\ Dallas Burtraw 
and RFF colleagues have shown similar results for a cap and trade 
program on electricity generators.\2\ The Congressional Budget Office 
has reached the same conclusion.\3\ In the United Kingdom, the 
government has determined that free allocation of allowances to 
electric generators has resulted in windfall profits of over $500 
billion.\4\ Congress should not repeat this mistake.
---------------------------------------------------------------------------
    \1\ Morgenstern et al., ``The Distributional Impacts of Carbon 
Mitigation Policies,'' Issue Brief 02-03 (Resources for the Future, 
Feb. 2002), http://www.rff.org/Documents/RFF-IB-02-03.pdf.
    \2\ Morgenstern et al., supra.
    \3\ See e.g., Terry Dinan, ``Shifting the Cost Burden of a Carbon 
Cap-and-Trade Program,'' (Congressional Budget Office, July 2003); CBO, 
``Issues in the Design of a Cap-and-Trade Program for Carbon 
Emissions,'' (Nov. 25, 2003).
    \4\ House of Commons, Environmental Audit Committee, ``The 
International Problem of Climate Change: UK Leadership in the G8 and 
EU,'' p. 17 (Mar. 16, 2005).
---------------------------------------------------------------------------
    Claims that regulated industries deserve allowances for free ignore 
the fact that they can pass on most program costs to consumers. Even 
compensating them for the limited costs they cannot pass on is really a 
quite extraordinary concept that runs against our deeply rooted legal 
tradition that industry should bear the responsibility for the harms 
done by releasing dangerous pollution. Complying with pollution control 
laws and regulations is part of the cost of doing business. Some of 
this cost can be passed on to consumers. But that portion which cannot 
be passed on is properly absorbed by company shareholders.
    To avoid these windfalls, allowances should be held in trust for 
the public and distributed in ways that will produce public benefits.
    This can be done through an auction, with the revenue dispersed 
according to legislated formulae and criteria, or by distributing the 
allowances themselves according to the same formulae and criteria. In 
either approach, the legislation should provide for a public trustee 
(like the Climate Change Credit Corporation in the Lieberman-Warner 
bill) to administer the allowances.
    The overarching goals should be (1) to keep the cost of the program 
as low as possible for residential, commercial and industrial consumers 
(especially low-income consumers), by encouraging investment in end-use 
energy efficiency measures and by avoiding wealth transfers from 
consumers to upstream entities, and (2) to encourage deployment of the 
technologies needed to significantly reduce emissions in key sectors 
(e.g., mainstreaming carbon capture and disposal in the electric 
sector; retooling the auto industry to produce hybrids and other low-
emitting vehicles; accelerating deployment of sustainable low-carbon 
motor fuels and renewable electricity).

    Question 15. Title III, Subtitle F provides bonus allowances for 
carbon capture and geological sequestration projects. Section 3604 
limits these bonus allowances to the first 10 years of operation. Do 
you agree with limiting the incentive to 10 years?
    Response. The bonus allowance program is intended to jump-start 
carbon capture and storage during the early years of the program. 
Please see the Appendix to my testimony for a more detailed discussion 
of carbon capture and disposal issues.

    Question 16. Title II, Subtitle D states that domestic offsets have 
to be permanent. What exactly does that term mean in terms of biologic 
sequestration? In you opinion, what are the anticipated impacts to food 
prices associated with providing incentives to farmers to convert 
cropland to grassland or rangeland? What would be the impact of such 
incentives to production of ethanol and the cost of ethanol?
    Response. The Lieberman-Warner bill allows covered sources to 
satisfy up to 15 percent of a given year's compliance obligation using 
``offsets'' generated within the United States. These offsets would 
come from activities that are not covered by the emissions cap. The 15 
percent limitation is generous enough to provide a robust market for 
agricultural carbon sequestration. This limit is essential to ensure 
the integrity of the emissions cap in the bill and to spur technology 
innovation. The total amount of offsets allowed should not be 
increased. We also strongly support robust criteria to ensure that the 
offsets are real, additional, verifiable, permanent and enforceable. 
Changes in forest management are very difficult to evaluate against 
these criteria and some forest management practices aimed at earning 
carbon credits could have negative ecological consequences. Hence we 
favor addressing forest management through the allowance set-aside 
program in Title III rather than through offsets.
    Farmers will decide the most economic use of their land among food 
production, biofuels production, and carbon sequestration, and in many 
cases they can achieve multiple objectives simultaneously. Under the 
Lieberman-Warner bill ``permanent'' effectively means that any offset 
allowances generated by biological sequestration must be replaced if 
the carbon sequestration is reversed (e.g. by switching back from no-
till to conventional tillage).

    Question 17. Section 3903(b) distributes allowances to rural 
electric cooperatives equal to their 2006 emissions. Do you agree with 
giving preferential treatment to rural electric cooperatives?
    Response. See Answer to Question #14. In addition, the Sanders-
Boxer bill contains two complementary performance standards for coal 
plants that we support and would pertain to rural electric 
cooperatives.
    The first standard is a CO2 emissions standard that 
applies to new power investments and is based on a standard already in 
place in California.
    The second standard is a low-carbon generation obligation for coal-
based power, which would encourage companies to invest early in 
deploying carbon capture and disposal (CCD) technologies. Coal based 
electricity generators would have to get some of their power (or 
purchase credits equivalent to such power) from coal fired-power plants 
that actually capture and dispose of their greenhouse gases, thereby 
spreading the cost of new CCD plants throughout the coal-fired 
generation sector.

    Question 18. Regarding Section 1103(d): What methods are facilities 
contemplated to employ to determine complete and accurate data for the 
years 2004 through 2007 where no data was collected or readily 
available? Also for Section 1103(d), how are facilities that currently 
do not have monitoring systems in place going to be able to submit 
quarterly data starting in 2008? Should the $25,000 per day for each 
violation apply to these facilities for these time periods? What is the 
process, and who should be the authority, for determining what 
constitutes complete and accurate data for these time periods?
    Response. The Administrator will establish these reporting 
requirements by rule, taking into account widely used reporting 
protocols that have already been developed. Electricity generators 
already report their emissions under provisions of the Clean Air Act. 
Other covered facilities will be able to estimate their baseline 
emissions from fuel consumption and other data that they already 
collect for other purposes.

    Question 19. Based on EPA's 2005 U.S. greenhouse gas inventory, the 
electric generating sector accounted for 46% of the proposed 2012 cap 
level of 5.2 billion metric tons. Between allocations to generators and 
load serving entities, the bill allocates 30% of the total allowances 
to that sector, and reducing the sector's subsequently. Do you agree 
with this differential treatment of the electric sector?
    Response. S. 2191 embraces the principle that pollution allowances 
should be used for public purposes but it implements the principle too 
slowly. NRDC believes that over the first 25 years of the program the 
bill gives away more allowances to the biggest emitting firms than is 
needed to fully compensate such firms for the effects of their 
compliance obligations on the firms' economic value.

    Question 20. The allowance allocation to electric generating units 
in the first year of the program represents approximately 44% of that 
sector's 2005 emissions based on EPA's inventory. Electric demand is 
anticipated to increase, and reducing emissions by replacing current 
plants with lower or non-emitting plants will take years to achieve. 
Based on this, does the bill contemplate some mechanism, or set of 
mechanisms, whereby emissions will be reduced during this timeframe or 
allowances will be available, or will allowances have to be purchased?
    Response. In a market based cap and trade program, emissions 
reductions will occur throughout the system wherever they can be 
achieved at the lowest possible cost. Significant reductions can be 
achieved through conservation, increased energy efficiency, and through 
the use or development of alternative sources of power such as 
renewable energy, use of biomass or use of lower carbon fuels. In 
addition, technologies such as carbon capture and disposal can also be 
used to achieve emission reductions while allowing for increased 
generation of electricity. Purchasing some allowances or offset credits 
may also be part of an individual company's approach to ensuring that 
they have sufficient allowances to cover their actual emissions.

    Question 21. Section 3803 allocates 3 percent of allowances to 
projects in other countries for forest carbon activities. What should 
be the projected subsidy to other countries under this provision? 
China's carbon dioxide emissions now exceed that of the United States 
and are projected to increase. Should China or other countries whose 
emissions eclipse those of the United States in the future be eligible 
for these allocations?
    Response. As noted above, section 3803 allocates 3 percent of the 
emission allowance account for forest carbon activities in countries 
other than the United States. We believe that this program has the 
potential to achieve substantial environmental benefits at low cost.
    Please see the answer to your first question for NRDC's position 
regarding China.

    Question 22. Regarding Section 8001: This Section calls for a 
national assessment of carbon dioxide storage capacity. Presumably, 
this assessment would determine whether the U.S. has sufficient 
capacity to geologically sequester the carbon dioxide that would have 
to be captured to comply with the bill. Absent the results of this 
survey which has not been undertaken yet, do agree with assuming the 
U.S has adequate storage capacity? How do you envision the program 
addressing the long term oversight of the carbon storage sites? This 
Section provides EPA with the legal authority to develop a permitting 
program for carbon storage through the Safe Drinking Water Act's 
Underground Injection Control program. Long term monitoring and 
particularly in the west, property rights, are just two of the several 
issues that will need to taken into consideration under any regulatory 
regime. (i) Is the bill's approach sufficient to address these issues? 
(ii) Should there be a statutory role for the states?
    Response. EPA has recently announced its intention to develop 
regulations addressing the issue of geologic disposal of carbon dioxide 
and we urge EPA to move forward in this regard. Sufficient storage 
capacity does exist both worldwide and in the United States. According 
to a 2006 report by Battelle Labs ``[t]he United States is fortunate to 
have an abundance of theoretical storage potential. Our preliminary and 
ongoing assessment of candidate geologic CO2 storage 
formations reveals that the formations studied to date contain an 
estimated storage capacity of 3,900 GT CO2 within some 230 
candidate geologic storage reservoirs.'' For comparison, U.S. total GHG 
emissions are now about 7 billion tons of CO2 equivalent. In 
short, storage capacity in the U.S. is not a constraint.
    See the Appendix to my testimony for a more detailed discussion of 
these issues, including information regarding worldwide geologic 
disposal capacity.

    Question 23. Subtitle G, Section 4702(b)(1)(F) stipulates money is 
available for adaptation activities in accordance with recovery plans 
for threatened and endangered species. Does the bill envision that all 
existing recovery plans will be rewritten to address all climate change 
related effects? (i) If so, will the monies in the adaptation fund be 
available to Fish and Wildlife Service (FWS) to re-write the recovery 
plans or will FWS have to bear that cost from other monies? Within 
Subtitle G, how does the bill contemplate FWS will prioritize species 
to receive adaptation funds? (i) Is it based on their overall 
threatened or endangered status or the degree to which they are 
affected by climate change? (ii) Are plants and animals not affected by 
climate change eligible for these funds? (iii) How should the 
Department of Interior distinguish those ecological processes that are 
due to man-made climate change from those that due to normal species 
development and evolution?
    Response. The bill would provide needed funding for activities that 
would assist fish and wildlife, their habitat and associated ecological 
processes that are impacted by global warming. The funding for such 
activities is to be used to carry out adaptation activities ``in 
accordance'' with recovery plans for threatened and endangered species 
and other fish and wildlife conservation strategies.
                                 ______
                                 
         Responses by Frances Beinecke to Additional Questions 
                         from Senator Barrasso
    Question 1. What impact will Lieberman-Warner have on Liquefied 
Natural Gas imports to the United States?
    Response. Projections for liquefied natural gas imports are based 
on a number of factors, including overall demand for natural gas, 
manufacturing cycles, weather patterns and issues related to LNG 
terminal siting. Although some increased demand for natural gas is 
projected to occur in the years ahead, the energy efficiency gains 
realized as a result of standards and incentives in the Lieberman/
Warner bill, and more rapid deployment of renewable energy and carbon 
capture and disposal technologies, flowing from the bill's provisions 
for use of allowances and allowance proceeds, are likely to reduce 
growth in natural gas demand in both the short and long-term 
timeframes, compared to business as usual forecasts.

    Question 2. With increasing demand for energy both in America and 
around the world as a result of increased economic growth, 
technological solutions will be essential for countries to meet their 
energy demands while limiting greenhouse gas emissions. However, there 
are tremendous uncertainties about what technologies will most 
effectively address these issues.
    As Congress continues to examine technological solutions to combat 
climate change, do you believe we have enough information to identify 
which technologies hold promise and therefore warrant investment?
    Response. Yes. There are numerous technologies and solutions to 
combat global warming, from increased energy efficiency, to renewable 
energy sources such as wind and solar, vehicle technologies, such as-
plug in hybrid electric vehicles, and technologies such as carbon 
capture and disposal systems for coal fired power plants. However, the 
role of federal policy is not to choose particular technologies but to 
provide a policy framework that creates market opportunities and 
rewards for energy and other products and services that emit little or 
no global warming pollution. A market-based cap and trade system 
combined with performance standards and complementary incentives will 
spur investment in a wide range of profitable, cleaner technologies.

    Question 3. What do you think should be Congress' funding 
priorities?
    Response. With regard to the use of allowances in the Lieberman/
Warner bill, NRDC believes these pollution allowances are a public 
trust. They represent permission to use the atmosphere, which belongs 
to all of us, to dispose of global warming pollution. As such, they are 
not a private resource owned by historical emitters and such emitters 
do not have a permanent right to free allowances. The value of the 
allowances should be used for public purposes including promoting clean 
energy solutions, protecting the poor and other consumers, ensuring a 
just transition for workers in affected industries, and preventing 
human and ecosystem impacts both here and abroad, especially where they 
can lead to conflicts and threats to security.

    Question 4. What are the costs to family budgets for middle class 
and low income people of implementing Lieberman-Warner in terms of 
energy bills and gasoline prices in the next 5 to 10 years?
    Response. The Lieberman/Warner bill would direct substantial 
amounts of allowances to low income energy consumers throughout the 
United States, including 19 percent of the auction allowances, which 
begin at 24 percent of the total allowance pool and rise to 73 percent 
of the total allowance pool. In addition, 10 percent of the allowance 
pool is available to electricity consumers through Load Serving 
Entities and 9 percent to state and tribal governments. These 
allowances can be used to assist in preventing increases in energy 
bills for consumers, while deployment of energy efficient products and 
services can help to lower total energy bills, as has been demonstrated 
in states such as California.

    Question 5. In 2050, how much cooler will the planet be if we adopt 
Lieberman-Warner?
    Response. Because greenhouse gases, such as CO2 , remain 
in the atmosphere for many decades, or longer, we are experiencing the 
effects of warming from greenhouse gases emitted decades ago. That 
warming will continue for decades even if all emissions were halted 
today. However, with leadership action by the United States to cap and 
reduce our emissions, followed by responses in other major emitting 
countries, we can halt global emissions growth and cut global emissions 
in half from today's levels by 2050. This would make it possible to 
limit additional global warming to no more than 2 degrees Fahrenheit, 
compared with expected warming of 4 degrees or more in the absence of 
effective action. This program will enable us to prevent an ever 
escalating increase in temperatures and disruption of our climate.

    Question 6. You mention in your testimony the dangers we face if 
global average temperatures are allowed to increase by more than 2 
degrees Fahrenheit from today's level.
    Does the Lieberman-Warner bill, if enacted, prevent that increase 
of 2 degrees? If not, what fraction of that 2 degrees we need to reduce 
will come from enacting the Lieberman-Warner bill?
    Response. Current science indicates that an atmospheric 
concentration of 450 parts per million CO2 equivalent will 
provide us with approximately a 50% chance of avoiding a 2 degree 
Fahrenheit increase from today's levels. As I mentioned, scientists are 
telling us that we will need reductions in total U.S emissions on the 
order of 80% by 2050 in order to do our proportional part in a global 
program of preventing catastrophic impacts. Our calculations indicate 
that the bill will result in reducing total U.S. emissions by 
approximately 51-63 percent by 2050. Continued review of progress by 
the National Academies of Science combined with authority to make 
additional emission reductions dictated by the science would ensure 
that the Lieberman-Warner bill can serve as the cornerstone of an 
effective strategy to avoid catastrophic disruption of our climate.
                                 ______
                                 
         Responses by Frances Beinecke to Additional Questions 
                        from Senator Lautenberg
    Question 1. You state in your testimony that the targets to reduce 
emissions still need to be strengthened in part because the bill does 
not cover emissions from all sectors. Would including emissions from 
the natural gas sector increase coverage enough to get us on the right 
track?
    Response. NRDC believes the bill should be changed to include 
emissions from the commercial and residential use of natural gas. This 
would be important in gaining additional needed reductions and can be 
done by making local natural gas distribution companies responsible for 
emissions from the natural gas they sell and providing an appropriate 
amount of allowances to such companies to protect consumers and finance 
energy efficiency programs.

    Question 2. The National Resource Defense Council believes the 2020 
target in this legislation may be as low as 13 percent. I believe that 
the short-term target is the most important because it sets us on the 
path to make needed long-term reductions. Does a 13 percent reduction 
by 2020 put us on track to make an 80 percent reduction by 2050 
feasible without a crash finish?
    Response. NRDC estimated that the bill would achieved a reduction 
of 13 to 19 percent by 2020, however this estimate did not account for 
the additional reductions the bill would achieve because it does not 
authorize exemptions within covered sources that EPA assumed in its 
analysis of S. 280. As I said in my testimony, NRDC believes that the 
bill as introduced is a strong start, but that it should be 
strengthened as it moves through Committee.

    Question 3. In your testimony, you argue that legislation should 
move to full auction and away from free permits provided by the 
government sooner than 2035. You also argue that the legislation gives 
away more free permits than many companies will actually need. If those 
two issues are not fixed, what will be the effect on the actual 
emission reductions that are achieved and will it slow the development 
of new technology to reduce emissions?
    Response. The amount of actual reductions to be achieved is based 
on the emission caps in the bill and is not directly affected by the 
allowance allocation provisions. If too many free allowances are given 
to emitters, then fewer will be available for public purposes and for 
the development of new, clean technologies. This would have the effect 
of inappropriately rewarding the shareholders of companies that receive 
excess allowances, while raising the overall cost of the program to 
consumers and society in general.
                               __________
  Response by Frances Beinecke to a Question During the Hearing from 
                            Senator Isakson
    Question. During the hearing you asked for additional information 
on federal subsidies for nuclear power in the context of climate change 
legislation.
    Response. NRDC's overall view is that the most economically 
efficient way to address whether nuclear will remain a significant part 
of our energy future is through a ``carbon cap'' that sets a market 
price on carbon emissions, rather than through additional federal 
``subsidies''.
    While we are not unalterably opposed to new nuclear power plants 
under all circumstances, when compared to the opportunities presented 
by the new generation of renewable energy and end-use efficiency 
technologies, nuclear power has significant drawbacks that have proven 
quite intractable over the decades, and no doubt these issues are 
familiar to you high capital costs, environmental contamination from 
uranium mining and milling, unresolved nuclear waste disposal pathways, 
physical security and proliferation concerns that have been accentuated 
by the threat of terrorism, environmentally harmful dissipation of 
large quantities of reject heat to the local aquatic environment, and 
the continuing small risk of a high-consequence reactor accident.
    At the same time, we also note that nuclear power has enjoyed a 
very long sojourn at the public till while proving itself quite 
resistant to the expected ``learning curve'' phenomenon and mass 
production ``economies of scale'' normally associated with public 
efforts to subsidize market penetration of new technologies, until the 
point at which they become self-propagating in the private marketplace. 
In view of this record, we think the time has come to give pride of 
place to a fast developing suite of simpler, cleaner, more flexible, 
sustainable and universally exportable energy technologies that are not 
burdened with all the excess baggage of nuclear power. That said, given 
the enormity and immediacy of the climate change problem, we do not 
foresee, nor would we welcome nuclear power fading away any time soon, 
but given the aforementioned liabilities, we believe our modest 
expectations for the technology are grounded in reality. We conclude 
that federal low-carbon ``market transformation'' efforts in the 
electricity sector will yield both greater near- and long-term benefits 
if directed toward cutting-edge renewable energy, cogeneration, and 
end-use efficiency technologies.
    To repeat, the strongest tonic for what ails the nuclear industry 
would be a swiftly rising price on carbon emissions. Assuming that 
determined industry and regulatory efforts would yield further 
significant progress in reducing the liabilities I have noted, nuclear 
could conceivably play a constructive future role in replacing existing 
or planned coal-burning capacity in those regions of the U.S. (and 
other countries) that:
    (a) have exhausted the potential for efficiency gains and renewable 
energy available at lesser or equal cost; and
    (b) are environmentally, technologically, and geopolitically suited 
to safely hosting new nuclear power plants.
    Very few if any areas of the world today meet this description--
hence our present reluctance to either forecast or favor an expanding 
role for nuclear in combating climate change.
    For example, the American Southeast is often cited as a region that 
will soon ``need'' the deployment of new nuclear power plants. But it 
is also a region with a poor record in capitalizing on opportunities 
for energy efficiency improvements, from which many thousands of 
megawatts of additional energy services may be extracted at negative or 
low cost to utilities and consumers. Nor can the already overburdened 
fresh water resources of the Southeast easily withstand the additional 
reject heat and evaporative losses from scores of new large base-load 
thermal power plants. There is also a vast untapped regional potential 
for grid-tied distributed photovoltaics that, when brought to scale 
over the next decade may compete effectively with the retail delivered 
cost of new central station nuclear electricity. In short, an 
economically rational and environmentally tolerable expansion of 
nuclear power faces some significant challenges, even in areas that 
historically have been supportive of the technology.
    Stepping back for a moment, as you are probably aware, both the 
U.S. and foreign commercial nuclear industries have received massive 
government support over many decades. In most foreign countries, the 
commercial nuclear fuel cycle is a state-owned, state-run, or heavily 
state-subsidized industry, and indeed most of these industries may be 
fairly characterized as ``state-socialist'' enterprises that are in 
fact arms of their national governments.
    In the U.S. the commercial nuclear power industry has developed 
somewhat more independently, in keeping with the tenets of our economic 
system, but the government role nonetheless has been very substantial, 
and in recent years the distinctions between U.S. private and foreign 
state-supported nuclear industries have been largely eroded through 
mergers, acquisitions and partnerships. Westinghouse was recently 
absorbed by Toshiba, GE's nuclear division is working in partnership 
with Hitachi to build the next generation boiling water reactor, and 
the French state-owned corporation Areva is partnered with 
Constellation Energy while also being a player in its own right in the 
U.S. nuclear marketplace, and is even represented in the U.S. by a 
former U.S. Secretary of Energy.
    Were it not for the U.S. government's willingness beginning in the 
1950's to cap private liability in the event of a serious nuclear 
accident and assume the remaining financial risk, it's probably fair to 
say that there would not be a commercial nuclear industry in the United 
States today. So in this narrow sense, commercial nuclear power in the 
United States has always depended on the standby support of the federal 
treasury for its very existence. But there are other longstanding and 
significant forms of federal subsidization of the nuclear industry, 
both past and present, which are at times difficult to quantify 
precisely in dollar terms, but have been of critical importance to the 
industry's development.
    During the industry's first four decades, for example, nuclear fuel 
was enriched in huge government owned enterprises at Oak Ridge, TN, 
Portsmouth, Ohio, and Paducah, KY that have cost many billions of 
public dollars to construct, operate, decommission, and clean-up. Many 
of these costs were never recouped in the price for enrichment services 
sold to nuclear utilities, and thus represent a longstanding subsidy to 
the nuclear industry. According to the GAO, federal clean-up costs will 
continue until around 2044, by which time taxpayers will have spent on 
the order of $10 billion cleaning-up and decommissioning the first 
generation of uranium enrichment facilities.\1\ Electricity to run 
these plants was supplied under long-term favorable contracts by the 
TVA, another quasi-governmental public power enterprise. Mining and 
concentration of the natural uranium feedstock needed to feed these 
plants has left a huge environmental legacy of radioactive and heavy 
metals pollution in the U.S., Canada, and other nations, much of which 
still remains to be cleaned up, again requiring billions in public 
expenditures over several decades.
---------------------------------------------------------------------------
    \1\ ``URANIUM ENRICHMENT: Decontamination and Decommissioning Fund 
Is Insufficient to Cover Cleanup Costs,'' GAO-04-692, July 2004. Since 
1994, the government's Uranium Enrichment Decontamination and 
Decommissioning Fund has received a total of $9.3 billion, of which 
$5.3 billion (57%) has come from taxpayers, $2.7 billion (29%) has come 
from an assessment on utilities, and the remainder ($1.3 billion) from 
interest earnings on the fund balance. Appropriations from the fund to 
date have totaled $4.9 billion, and the GAO reported in 2004 that 
completing the D&D program would require another $3.5-$5.7 billion 
($6.5 billion in FY 08 dollars) through 2044, of which industry's share 
is likely to be on the order of 30%, based on the present rate of 
assessment. So the taxpayers total estimated share is $5.3 billion + 
(0.7 x $6.5) = $9.85 billion, and GAO considers that even this maximum 
estimate may be low, given the uncosted requirement for long-term 
environmental monitoring at some sites.
---------------------------------------------------------------------------
    In the mid 1990's, the DOE spun off the Portsmouth and Paducah 
plants into a private entity, the U.S. Enrichment Corporation (USEC), 
but kept most of the huge environmental clean-up bill associated with 
these plants for the taxpayers, on the grounds that these plants once 
produced highly enriched material for nuclear weapons and the reactors 
of naval warships. Soon after privatizing USEC, DOE also transferred 
its most advanced centrifuge enrichment technology to the company for a 
small fraction of what it cost the taxpayers to develop it. In a 
similar vein, the Navy's continuing requirement for highly trained and 
carefully screened reactor operators has created a steady stream of 
skilled and screened personnel with much of the background needed to 
operate civilian plants once they leave the service.
    Moreover, a global U.S. and now multinational nuclear power 
industry, freely conducting its activities in the commercial 
marketplace, could not have come into being without--and continues to 
be sustained by--a massive governmental undertaking to ensure the 
nonproliferation of sensitive nuclear materials and technology. Over 
the decades this combined diplomatic, intelligence, export control, 
international safeguards, and physical security effort has cost many 
tens of billions of taxpayer dollars. Without these public 
expenditures, a global nuclear power industry would have posed too 
great a weapons proliferation threat, and would never have been allowed 
to prosper. Even despite such major public efforts to sever the links 
between the civil and military applications of nuclear energy, at some 
basic level these connections are irreducible, creating an enduring 
concern in the minds of many citizens and security experts alike about 
the wisdom of promoting nuclear power as a global solution to climate 
change.
    While the sum total of direct and indirect financial support 
provided by the U.S. government to the nuclear power industry over many 
decades is probably not known with any degree of precision, everyone 
agrees it exceeds $100 billion, and when all the myriad government 
costs of safeguarding the civil nuclear fuels cycle against weapons 
proliferation are included, it exceeds at least $200 billion or 
possibly even as much as $500 billion in current dollars. In June 2005, 
the Congressional Research Service tabulated just direct federal 
research and development expenditures for civil nuclear power and came 
up with the figure of $75 billion through fiscal year 2004, accounting 
for more than half of all DOE energy R&D expenditures, far more than 
any other individual energy technology. [Source: Congressional Research 
Service, CRS-IB10041, June 2005].
    Since 2004 some significant new sources of support have been added 
to this vast historical total, primarily by the Energy Policy Act of 
2005. EPACT includes a 1.8 cent per kilowatt-hour production tax credit 
for energy generated from new nuclear power plants. This credit 
provides up to $125 million per 1,000 MWe of new capacity. Each plant 
is eligible to receive the credit for 8 years, which amounts to a $1 
billion tax credit per 1,000 MWe of new capacity, up to a total of 
6,000 MWe. IRS rules provide that this $6 billion tax credit may be 
distributed among all the reactors that have applied for a combined 
construction and operating license by the end of 2008 and begun 
construction by January 1, 2014.
    EPACT also sought, but as a legal matter did not quite succeed in 
granting the Secretary of Energy independent authority to approve loan 
guarantees for up to 80 percent of the cost of ``innovative 
technologies'' that ``avoid, reduce, or sequester air pollutants or 
anthropogenic emissions of greenhouse gases.'' This definition includes 
new advanced-design nuclear power plants, as well as reduced emissions 
coal technologies and the full gamut of renewable energy technologies.
    At issue in recent months has been whether it is wise, as provided 
in the current Senate energy bill, to strip the House and Senate 
appropriations committees of their obligations under current law to 
specifically limit an agency's annual budget authority for loan 
guarantees. This has become a matter of significant public concern and 
debate between the Senate and the House, which has not passed a similar 
provision. NRDC believes the course of action contemplated for nuclear 
in the current Senate energy bill is both fiscally irresponsible and 
ill-advised as a matter of policy, particularly when DOE has a history 
of insufficient due diligence in the administration of loan guarantees 
and major energy demonstration projects. You may recall that its 
synthetic fuels program from the early 1980's ultimately left taxpayers 
with a bill for billions of dollars to cover defaulted loans.
    EPACT also created another kind of special ``regulatory risk 
insurance'' for those engaged in building new reactors, which is 
intended to offset the costs of unforeseen federal, state, and local 
regulatory delays for as many as six new nuclear reactors built under 
the Nuclear Regulatory Commission's (NRC) new combined construction and 
operating license (COL) process. I am not aware of any other energy 
technology that is covered by taxpayer-paid insurance against the 
financial impacts of U.S. federal and state agencies and courts 
fulfilling their mandates to protect workers, the public, and the 
environment from the health, safety, and environmental impacts posed by 
construction and operation of power plants. This counterweight to the 
risk of potential delays covers 100 percent of the cost of delay for 
the first two new plants, up to $500 million each, and 50 percent of 
the delay costs, up to $250 million each, for the next three plants to 
be built.
    Another DOE program--Nuclear Power 2010--evenly shares the costs 
incurred by the first two ``new-nuclear-build'' consortiums to obtain 
NRC ``Early Site Permits'' and/or Combined Construction-Operating 
Licenses. The taxpayer's share of this effort is likely to exceed $500 
million for the period 2005-2011. No other energy technology that I am 
aware of merits 50/50 cost sharing from the federal government for the 
costs incurred in obtaining the permits necessary to site, build, and 
operate a plant safely.
    In addition to the incentives for new commercial nuclear plant 
construction, the Energy Policy Act of 2005 contains provisions for 
other nuclear programs not directly related to current ``new-build'' 
commercial reactors. These provisions included authorization of over $2 
billion for advanced reactor concepts, nuclear hydrogen production (for 
fueling our transportation system of the future), plant security, 
medical isotopes, and university nuclear engineering programs.
    Our considered view of all this is that the longstanding federal 
effort to boost nuclear power has reached the point of diminishing 
returns, because it has proven very difficult by means of such 
expenditures to affect the fundamental characteristics of nuclear power 
that continue to limit the scope of its application:
     high capital costs;
     large centralized units that have not captured economies 
of scale;
     the use of intrinsically hazardous materials requiring 
high levels of technical competence, radiation safety, and security;
     the very small but nonetheless continuing probability of a 
high consequence nuclear accident;
     the lack of a scientifically credible and politically 
agreed pathway for the long term isolation of spent fuel;
     the continuing possibility of internal sabotage or 
external attack by a new breed of terrorists fully willing to die in 
the attempt, making such attacks very difficult to prepare for or 
defeat;
     the persistent threat of further nuclear weapons 
proliferation as a consequence of the spread of nuclear power 
technology and expertise;
     the vast quantities of reject heat that must be discharged 
into already overheated lakes and rivers, or otherwise dissipated using 
costly air-cooling systems;
     the continuing harmful environmental impacts from the 
mining, milling, and enrichment of uranium;
     the continuing requirement for competent, conscientious, 
and truly independent safety regulation and enforcement, a capacity 
that is in short supply around the world and sometimes even in our own 
country.
    While none of these obstacles are immune to further incremental 
progress, taken together they continue to comprise a significant 
barrier to the further growth of nuclear power. Our view is therefore 
that over the next 20 years, U.S. and indeed foreign public investment 
in energy technology would be better spent on developing and catalyzing 
new markets for decentralized, clean, flexible, and environmentally 
sustainable energy technologies, technologies that can safely find near 
universal application around the world.
    It's not that I believe nuclear power has ``failed''--although I 
can understood why in light of its problems many people take that 
view--but rather that it has not truly succeeded on a level that 
suggests it could or should become the focus of government and private 
investment to combat climate change. We think there are some obvious 
energy technology winners out there, like solar, wind and energy 
efficiency, which, if we're smart, we can build right now to create a 
new energy economy and new high-tech export industries supporting 
American workers.
    Here at home, what nuclear needs most at the present juncture is 
not more federal R&D and subsidies, but a high carbon price that will 
significantly and permanently improve its competitive position relative 
to coal and natural gas. In support of this proposition I note that the 
period of greatest operational improvement and capacity utilization in 
the U.S. nuclear industry, since the mid-1990's, coincides with a 
period of minimal involvement by the federal government in financially 
supporting the activities of the commercial nuclear industry. Instead 
of looking to the federal government, the industry focused on getting 
its own house in order, and as a result made substantial improvements 
in the reliability and cost of its own operations. There may be a 
lesson here suggesting that once again enlarging the federal 
government's role in the industry, as the recent and pending 
legislation would do, may not be the best way to ensure its future 
viability.
    That said, nuclear power's future role also critically depends on 
how our regional and national electricity grids are structured. If we 
take measures that encourage the swift development of a more 
decentralized power system, in which almost any homeowner, condo-
developer, small business, or industrial generator can easily connect 
to their local grid and feed low-carbon power into it, then all new 
sources of non-sustainable centralized base load power, including 
nuclear, could face significant competition, and it is by no means 
foreordained that nuclear will come out on top. Structuring that kind 
of open, level competitive environment is supposed to be what America 
does best, and now climate change has given all of us an urgent reason 
to get on with the task.

    Senator Lieberman. Thank you very much, and we look 
forward, obviously, to continuing to work with you and your 
organization.
    Next, we have Dr. William Moomaw, who is the director of 
the Tufts University Institute for the Environment.
    Doctor, thanks for being here.

STATEMENT OF WILLIAM R. MOOMAW, DIRECTOR OF THE FLETCHER SCHOOL 
CENTER FOR INTERNATIONAL ENVIRONMENT AND RESOURCE POLICY, TUFTS 
                           UNIVERSITY

    Mr. Moomaw. Thank you very much, Senator Lieberman and 
Senator Warner. I want to first congratulate you on bringing 
this legislation forward and to thank you for holding these 
hearings, and to thank the Chair of the full committee, Senator 
Boxer, for her leadership in bringing this issue forward.
    I am Professor William Moomaw. I am a chemist and a policy 
scientist at Tufts University. I have studied the implications 
of climate change over the past 20 years. I served as a lead 
author on the current Intergovernmental Panel on Climate Change 
report and on the two previous ones. I was a coordinating lead 
author of the chapter on the technological and economic 
potential for emissions reduction on energy supply. I have also 
served as the lead author on the carbon dioxide capture and 
storage report.
    As we have all heard and it seems pretty clear, the time to 
act on climate change is now. It is absolutely critical that as 
we choose the path by which the United States will reduce its 
emissions that we carefully protect both the global climate and 
the U.S. economy.
    I would like to just make some comments about particular 
items here. More detailed comments are in my written testimony.
    First of all, the scope and timetable for this is really 
important, and setting a long-term target for 2050 and then 
identifying decreasing specific levels of allowances for each 
year is an excellent way to keep the economy on track as it 
transitions to a sustained low-carbon future. Businesses can 
innovate and plan, as can each citizen.
    It is also important to have a near-term goal, because one 
of the points that not everyone seems to be familiar with is 
that the half life of carbon dioxide in the atmosphere is about 
100 years. So every time I burn a gallon of gas or a gallon of 
heating oil, I put 20 pounds of carbon dioxide in the 
atmosphere, but 100 years from now 10 of those pounds will 
still be here and 200 years from now there will still be 
several pounds of that original carbon dioxide in the 
atmosphere.
    Several independent studies and analyses have suggested 
that keeping concentrations below 450 parts per million would 
be desirable in order to keep the temperature from rising above 
about 3.6 F. I note that the goal here is more like 500 parts 
per million. On the suggestion of a colleague, I took a look at 
the standards for indoor air quality for carbon dioxide. It is 
recommended they be kept below 600 parts per million in indoor 
conditions for comfort. Beyond that, we become uncomfortable 
and the standard is 1,000 parts per million, because that is 
when people start to get drowsy. So the notion that we might 
end up with a sleepy planet if we keep on this track is really 
something we ought to keep in mind. So I would urge the 
committee to consider whether or not the levels of reduction 
are at an appropriate level.
    Let me just say something about the effectiveness of 
intervention points. In order to really meet this goal, we have 
to address both supply and demand, and this legislation does 
that. From the point of view of supply and particularly for 
fuels, it seems to me that the most effective place to do this 
is as far upstream as possible. This is easier to implement. 
There is less bureaucratic rulemaking and the higher up you can 
go, the better you can do. For example, with electric power 
generation, there are, as we have heard, many ways to encourage 
technologies that will reduce emissions. I cite in my testimony 
a study that shows that we could be producing 19 percent of 
current U.S. electricity without adding a single bit of carbon 
dioxide simply by tapping currently wasted energy that is 
available to do so. So there are a lot of things we can do in 
addition to adding new technology in the process.
    One result of my own research that is not reflected in the 
legislation is the tremendous potential for distributed energy, 
combined heat, power and cooling. In fact, the city of Hartford 
is one of the exemplars of just that kind of technology. It is 
a very low cost way to reduce the carbon dioxide because the 
waste heat which is typically one half to two thirds of the 
total energy in the fuel, instead of simply being wasted is 
actually used constructively either for industrial heat, for 
space heating, or in absorption chillers.
    Another advantage is while we focus on supply, more than 
half of our capital investment in this country is in the 
transmission and distribution system, that is wires. Generating 
electricity locally actually does not require us to add any 
extra wires at great cost savings. Anyone who has ever tried to 
site a new transmission line knows that that is not an easy 
thing to do.
    Let me just mention two other points on this. The first is 
how new fossil fuel plants are treated. Let me make the point 
that virtually all of America's old and inefficient fleet of 
existing power plants will be replaced over the next half 
century. The median age of coal plants in the United States is 
over 40 years of age, meaning half are younger and half are 
older. The average efficiency of all those plants is about 32 
percent, and it has not changed since the early 1960s. It is 
quite stunningly low.
    So the question is, how are they to get their allocations 
under this system? While I think it is very good that new plant 
allocations come out of the fixed pot of allocations, it might 
be possible to improve new power plants even more by requiring 
either that they do some form of carbon capture and storage, or 
that they meet higher efficiency standards. It is possible now 
to do coal plants in the mid to high 40 percent efficiency 
range, possibly over 50 percent.
    The second is to make sure that when we talk about carbon 
dioxide capture and storage that we not limit it to the 
traditional notion we will somehow capture it and put it in the 
ground or put it somewhere else. I came across some very 
interesting and promising technology that uses the carbon 
dioxide from power stacks to grow algae. The algae can either 
be just simply stored underground or, since half of its dry 
weight is diesel fuel, and 40 percent of the remainder can be 
turned into ethanol--much more efficiently in terms of land and 
water relative to other biofuel crop--this might be something 
that we should look at. I don't know whether this is going to 
be a great technology option or not. It is being tested on 
power plants in Arizona and in South Africa right now. But I 
would hate to see the legislation drawn or interpreted in a way 
that would exclude a lot of good potential ideas.
    On the demand side, let me just say something about the 
low-hanging fruit. This is mentioned in this bill and it is 
very, very important, building standards and building codes. I 
know Senator Lautenberg has had an interest in this and other 
members of the committee have as well.
    I would like to share a personal experience. My wife and I 
3 years ago decided we wanted to build the most efficient house 
we could. We looked at Energy Star standards. An Energy Star 
house uses 70 percent of the energy of a code built house. The 
house that we have built has just been certified as using less 
than 20 percent of the energy of a code built house. That 
allows us to actually run the house on solar energy in 
Massachusetts right on the Vermont border. The winters are 
still cold, despite global warming, but nevertheless the house 
is there.
    The question I ask is, did this cost the U.S. GDP anything 
for me to build this house? The answer is unfortunately it did, 
because in order to meet the standards we had to buy the 
windows, the doors, and the heat recovery systems from Canada. 
They are not available in the United States. Our solar panels, 
we almost could not buy from an American manufacturer because 
they are all being exported to Europe. The company when we 
finally got them announced it was building its next factory in 
Germany, rather than in the United States, because the demand 
was greater there. So we are losing out on economic 
opportunities by not having a stronger press for these kinds of 
technologies.
    On the allocation of the allowances, giving them away may 
seem like it is free because the treasury doesn't have to print 
dollars for it. On the other hand, these are worth a lot, and 
some estimates suggest they might be worth in the first 10 
years in the range of $50 billion to $100 billion a year. I 
think the question is, does this create a windfall? Does this 
create two classes of companies, those that get them and those 
who don't? We need to really think about how we might best 
channel allowances to address the concerns that were expressed 
about low-income people and the rest.
    Finally, I would just like to say that I think it is very 
important to have this legislation in place when we go to Bali 
in December. It would make a very strong statement about the 
United States and its position.
    Let me just conclude by pointing out that we have been 
through an energy transition like this just 100 years ago. When 
Thomas Edison developed his lamp, the New York Times 
editorialized that it was a clever invention, but it would find 
only limited use and could not compete with cheap gas lamps. By 
1905, 3 percent of U.S. homes had electricity and Henry Ford 
had started producing Model T cars on his assembly line.
    Who could have imagined that by the mid-20th century, 
virtually every American home would have electricity and 
lighting, and that the automobile would redefine American 
lifestyles as suburban living?
    Fast forward to 2005, just under three percent of 
electricity was generated by non-hydro renewable sources. There 
was just a handful of efficient gasoline electric hybrid 
vehicles in the marketplace. Does it seem impossible that by 
mid-21st century, after all existing power stations have been 
replaced and all existing vehicles will have been replaced 
three times over, that a low-carbon future could be a reality 
that is economically viable?
    To achieve such transformation will require forward-looking 
legislation of the type that is being proposed today. I want to 
encourage Senator Lieberman, Senator Warner and other members 
of the committee to work to strengthen this legislation and to 
help create a new low carbon economy for America.
    Thank you very much. I will be glad to answer questions.
    [The prepared statement of Mr. Moomaw follows:]
Statement of William R. Moomaw, Director of The Fletcher School Center 
  For International Environment and Resource Policy, Tufts University
    I wish to thank the chair of this subcommittee, Senator Lieberman, 
and the Ranking Minority Member, Senator Warner, for introducing the 
very comprehensive ``America's Climate Security Act of 2007'' and for 
holding these hearings today. I also wish to thank Senator Boxer, the 
Chair of the full Committee on Environment and Public Works for her 
leadership in moving the issue of climate change forward on the 
legislative agenda.
    I am Prof. William Moomaw. I am a chemist and policy scientist who 
is the Director of The Fletcher School Center For International 
Environment and Resource Policy at Tufts University. I have studied the 
implications of climate change and the options for dealing with it for 
the past 20 years. I have served as a lead author on the current and 
two previous Intergovernmental Panel on Climate Change Assessments and 
was a coordinating lead author examining the technological and economic 
potential to reduce emissions of the 2001 Report. I also served as a 
lead author of the Carbon Dioxide Capture and Storage Special Report.
    As several thousand scientific research papers now demonstrate, and 
as the Intergovernmental Panel on Climate Change has confirmed, the 
earth is getting warmer, and it is with high certainty that a major 
cause is the billions of tons of heat trapping gases poured into the 
atmosphere each year. The United States releases nearly one-quarter of 
these gases, and it is clear that we must choose our strategy for 
reducing those emissions carefully so as to protect both the global 
climate system and the U.S. economy.
    I would like to address briefly the following provisions:
    (1) Scope and timetables
    (2) Effectiveness of regulation points
    (3) Allocation of allowances and other incentives
    (4) Specific policies to effect reductions
    (5) Implementation and Enforcement
    (6) International Implications
    (7) Capturing economic opportunities
    (1) Scope and Timetables.--This legislation recognizes that 
establishing a long-term target with annual benchmarks along the way is 
essential for creating a clear set of expectations. Hence setting a 
target for 2050, and identifying specific levels of allowances for each 
year is the best way to get the economy on track to a sustained low 
carbon future. Businesses can innovate and plan as can each citizen.
    Several independent analyses find that if we are to have a 
reasonable probability of keeping global average temperatures from 
rising more than 3.6 +F (2 +C), above preindustrial levels, it will be 
necessary to keep atmospheric concentrations of carbon dioxide 
equivalents below 450ppm\1\,\2\. To achieve this goal will 
require reducing U.S. emissions by at least 80 percent below current 
levels by mid-century along with comparable aggressive reductions in 
emissions by other nations. This will avoid the most severe impacts of 
global warming on the U.S. economy \3\,\4\. The lower we can 
draw down our emissions, the less we will have to pay for adaptation or 
outright damages from a significantly altered climate.
---------------------------------------------------------------------------
    \1\ M.G.J. den Elzen and M. Meinshausen, 2005 ``Meeting the EU 2 C 
Climate Target: Global and Regional Emission Implications'' Netherlands 
Environmental Assessment Agency
    \2\ Intergovernmental Panel on Climate Change, 4AR, 2007, WG I, 
Chapter 10, p. 791, Cambridge University Press. A slightly different 
formulation is provided by IPCC, ``. . . stabilising atmospheric 
CO2 at 450 ppm, which will likely result in a global 
equilibrium warming of 1.4 C to 3.1 C, with a best guess of about 2.1 
C, would require a reduction of current annual greenhouse gas 
emissions of 52 percent to 90 percent by 2100.''
    \3\ ``The U.S. Economic Impacts of Climate Change and the Costs of 
Inaction'' 2007, The Center of Integrative Environmental Research, 
University of Maryland.
    \4\ Frank Ackerman and Elizabeth Stanton, ``Climate Change--The 
Cost of Inaction'' Global Development and Environment Institute, Tufts 
University, Medford, MA.
---------------------------------------------------------------------------
    ACSA sets a reduction target of 70 percent for 2050 for covered 
sources, which currently represent about three-quarters of total U.S. 
GHG emissions. If emissions in these uncovered sectors increase, or 
even if they decrease at a slower rate than is required for covered 
sources, the level of economy-wide emissions reductions will be less 
than 70 percent in 2050. The legislation utilizes a complex set of 
policies to achieve reductions in these uncovered sectors, and it is 
difficult to estimate whether these policies will be as effective as a 
binding cap in achieving the same level of emissions reductions as in 
the capped sectors.
    I welcome the requirement in ACSA for periodic reports by the 
National Academy of Sciences on the effectiveness of actions taken by 
the U.S. and other major emitting countries, as well as the 
availability and cost of climate-friendly technologies. I believe the 
EPA should be authorized to take appropriate action in response to 
these reports, such as modifying the emissions reduction requirements, 
expanding the scope of coverage, or revising the set of policies and 
incentives aimed at achieving emissions reductions in the uncapped 
sectors. Any such changes should be made through a formal rulemaking 
process; Congress would retain its existing authority under the 
Congressional Review Act to review and if necessary overrule, any such 
changes.
    I would urge this committee to consider increasing the 2050 
emissions reduction target to 80 percent. I would also encourage 
broadening the range of sources that are capped, in particular natural 
gas used for purposes other than electricity generation. The 
legislation regulates all of the known major heat trapping gases, and 
it would be appropriate to add authority for EPA to designate and 
control the release of any other gases that may later be found to have 
significant global warming potential.
    (2) Effectiveness of Intervention Points.--Since energy use is 
diffused throughout the economy, it is important to find the most 
effective points for intervention. For fuels, this is as far upstream 
as possible. Hence addressing electric power generation by encouraging 
the use of low and zero carbon technologies or else removing carbon 
dioxide from the exhaust stream makes the most sense. Data have been 
assembled that demonstrate that an amount of electricity equal to 19 
percent of current U.S. production could be provided from currently 
available waste energy sources without releasing any additional carbon 
dioxide at costs in the range of a few cents per kilowatt hour.\5\
---------------------------------------------------------------------------
    \5\ Owen Bailey and Ernst Worrell, 2005, ``Clean Energy 
Technologies A Preliminary Inventory of the Potential for Electricity 
Generation'' Lawrence Berkeley National Laboratory, LBNL-57451.
---------------------------------------------------------------------------
    One result of my own research that is not reflected in the 
legislation is the potential to reduce emissions by 40 percent or more 
by removing the barriers to distributed energy systems that can provide 
electricity, heating and cooling. These systems can be installed in 
refineries, industrial parks, at universities, hospitals and business 
parks to generate electricity on site. Since typically more than half 
of the fuel energy from the burned fossil fuel is released as heat 
rather than as electricity, one can use that heat at the site for 
industrial purposes, or to provide hot water and space heating and 
cooling. Producing electric power where it is used also dramatically 
reduce the need for additional transmission and distribution wires, but 
any excess production can be sold and exported for use by the power 
utility and its customers. While we usually focus on the generation of 
electric power, approximately 54 percent of our capital investment is 
in the wires and systems that transmit and distribute that power.
    I also have two suggestions for provisions in the legislation. The 
first is how new fossil fuel power plants are treated. Virtually all of 
America's old and inefficient fleet of existing power plants will be 
replaced over the next half century. The question is what will they be 
replaced with? As designed, the legislation allocates allowances for 
the entry of new coal burning power plants from the available number of 
allowances. This is important, but there is an opportunity with new 
plants to obtain even greater emissions reductions. This can be done by 
requiring higher levels of efficiency for new coal and other fossil 
fuel plants, requiring removal of carbon dioxide from the waste stream, 
or requiring the purchase of additional allowances to make new plants 
comparable to lower carbon dioxide emission sources. Without such 
additionality for new fossil power plants, the United States could 
lock-in higher emissions for an additional half-century.
    The second suggestion is to expand the options for carbon dioxide 
removal from power plants and industrial processes. The technology of 
carbon dioxide capture and storage that is currently being considered 
is not the only option. While working on the IPCC Special Report on 
Carbon dioxide Capture and Storage, I learned of a system of biological 
capture of carbon dioxide from power plant stacks by algae that also 
removed large quantities of polluting nitrogen oxides. The algae 
produce over 50 times the biodiesel and ethanol per acre that 
traditional crops can produce with just a few percent of the water. 
These systems can be retrofitted to existing power plants and are being 
tested right now on large gas and coal plants. This process requires no 
transportation or long-term storage of carbon dioxide.\6\ I do not know 
if this technology will be successful or if any other clever options 
will arise, but I would not want to see such options excluded because 
of a restrictive definition of ``carbon dioxide capture and storage.''
---------------------------------------------------------------------------
    \6\ Carbon Dioxide Capture and Storage, 2005, Intergovernmental 
Panel on Climate Change, Special Report, Cambridge University Press.
---------------------------------------------------------------------------
    In trying to lower demand, it is important to set incentives and 
standards further downstream for end users. Based upon the research 
that I have done independently and jointly with expert colleagues in 
evaluations for the Intergovernmental Panel on Climate Change, there 
are several important opportunities that are in the bill, that can be 
strengthened.
    First, the ``low hanging fruit'' on the demand side is in improving 
building efficiency. I know that Senator Lautenberg has taken a strong 
interest in strengthening building codes, which is essential for 
achieving the overall goals of this legislation. My wife and I have 
just constructed a zero net energy home in Massachusetts. According to 
our contractor, building Energy Star homes that use just 70 percent of 
the energy of a code built house cost not a dollar more! Our house has 
received Energy Star certification that it will require less than 20 
percent of the energy of a code built house. While our home cost a bit 
more to construct, the payback period decreases every day oil and other 
energy prices rise. Unfortunately, building our more comfortable, 
healthy house that does not contribute to global warming or our 
excessive dependence on fuels from unstable and hostile regions of the 
world did cost the U.S. GDP. To meet our standards, we had to purchase 
doors, windows, energy-recovery ventilator and waste water heat 
recovery units from Canada, and most of our appliances from Europe. We 
almost could not purchase domestically made solar panels because they 
were all being shipped to Europe where the demand and high valued 
currency made this a more attractive market. In fact the European 
market is so attractive that this American company has announced it is 
building its new factory there instead of here.
    The opportunity for domestic job creation has recently been well 
described by Van Jones, a community organizer in Oakland, CA, as quoted 
in a recent column by Thomas Friedman.\7\ He points out that the more 
we require homes and offices to be more efficient, and require more 
solar panels and wind turbines, the more jobs will be created that can 
not be outsourced. ``You can't take a building you want to weatherize, 
put it on a ship to China and then have them do it and ship it back.'' 
He argues that training of inner city youth to become what he calls 
``green collar'' workers will show them that ``You can make more money 
if you put down that hand gun and pick up a caulk gun. If you can do 
that, you just wiped out a whole bunch of problems.'' He is right. This 
legislation can not only address climate change, but also enhance 
economic opportunities through the Energy Technology Deployment 
provision and create jobs through the Climate Change Worker Training 
program, which appears to be related to the efforts of Senator Sanders 
to increase the number of job opportunities in building a more 
efficient America.
---------------------------------------------------------------------------
    \7\ Thomas Friedman, October 17, 2007, ``The Green Collar 
Solution,'' New York Times.
---------------------------------------------------------------------------
    So my recommendation is to make certain that the provisions for 
improving the performance of buildings through enhanced building codes 
and performance standards be strengthened. Since building to Energy 
Star standards seems to add no cost to construction and reduces energy 
use by 30 percent below building code standards, this could be 
implemented immediately. To be effective requires a program to train 
and certify contractors and building inspectors, and building supply 
industry should be encouraged to make new building technology available 
as soon as possible. I also support a program that would create a kind 
of Energy Extension Service to help homeowners and commercial building 
owners to initiate actions to retrofit their existing building. It is 
also essential that the provision in the bill that assures that states 
retain the right to enact stronger measures for buildings, power plants 
and transportation and that they be rewarded, remain in the final 
legislation.
    (3) Allocation of Allowances and Other Incentives.--The legislation 
distributes many of the allowances based on past emissions, and only 
auctions some of them. While there may be situations where this would 
encourage more rapid reduction of emissions, it is important to 
recognize that this is the same as handing out cash subsidies. 
Allowance may seem free because the Treasury does not print currency to 
issue them. But they are property that is just like a currency. I have 
seen some estimates that awarding allowances rather than auctioning 
them could give away value of the order of $100 billion dollars per 
year for the first 10 years of this program. This includes the 
allocations awarded to new fossil fuel power plant entries to the 
market. It is important to assess the implications of this and to 
decide whether it might not be better to capture more of this value as 
has been done in allocating the communications spectrum by increasing 
the fraction of allowances that are auctioned.
    Specifically, I would encourage the committee to consider reducing 
the free allocation of allowances to the electric generation and 
industry sectors from the current 20 percent each to no more than 10 
percent each, and to phase out such free allocations no later than 
2025. This still would represent extremely generous transition 
assistance to these sectors. The allowances saved should be added to 
the pool allocated to the Climate Change Credit Corporation, to be 
auctioned with the revenues used for the various public purposes 
outlined in the bill.
    Offsets can play a useful role in lowering the cost of making the 
transition to a low carbon economy. The bill tries to assure that 
offsets actually achieve real reductions through a high level of 
certification and verification. I have advised one firm in the 
voluntary offset business and another that is planning to start up, and 
have emphasized the importance of transparency, additionality and 
verifiability of real reductions through offsets. A colleague of mine 
at Tufts University has done a careful analysis of air travel offset 
firms and ranked them. Another analysis was conducted by an 
organization on whose Board I serve. I realize that voluntary off sets 
are not considered in this legislation but refer the Committee to those 
studies to see the potential for using offsets and how to avoid 
problems with them.\8\,\9\ My recommendation is that offsets 
be specifically designated for activities where it is difficult to 
reduce emissions. To assure that real reductions are achieved through 
offsets, the legislation establishes procedures for identifying 
qualifying offsets that would count towards reduction commitments.
---------------------------------------------------------------------------
    \8\ Voluntary Carbon Offsets Portal, Tufts Climate Initiative and 
Stockholm Environment Institute, Tufts University http://www.tufts.edu/
tie/tci/carbonoffsets/ Anja Kollmus and Benjamin Bowell, 2007 
``Voluntary Offsets for Air-Travel Carbon Emissions'', http://
www.tufts.edu/tie/tci/pdf/TCI_Carbon_Offsets_Paper_April-2-07.pdf
    \9\ ``A Consumers Guide to Retail Carbon Offset Providers,'' 2006. 
Clean Air Cool Planet, http://www.cleanair-coolplanet.org/
ConsumersGuidetoCarbonOffsets.pdf
---------------------------------------------------------------------------
    (4) Specific Policies to Effect Reductions.--An important component 
of the proposed legislation is that after setting targets and goals, it 
establishes specific policies to move the economy in the direction of 
lower heat trapping emissions. I have already alluded to the enhanced 
new building code standards that should be complimented by a system of 
enhancing the efficiency of existing buildings and certifying the 
performance of all buildings so that buyers and renters will have 
``truth in energy use.'' The provisions in the legislation for 
improving the efficiency of heating and cooling equipment can be made 
more explicit to include appliances and end use efficiency through 
continuous improvement, and performance based standards. It is useful 
to remember that the standard, large American refrigerator of 1973 used 
4 times as much electricity as today's Energy Star model (which is 10 
percent larger) because of ever-tightening appliance standards. The 
efficiency of this appliance could be doubled again.
    Policies that encourage new technological innovations will assure 
that American products are the best and most desired in the world. 
Including incentives for improved private and public transportation 
systems and the reduction of sprawl will take time to implement, but 
they are essential for reducing our emissions in the long term. 
Rewarding early action is especially important in creating incentives 
for others to act quickly as well. Since the half-life of carbon 
dioxide is approximately a century, it may be useful to give larger 
incentives to actions initiated in the earlier years (before 2020) so 
as to avoid releasing these gases in the near term.
    (5) Implementation and Enforcement.--The legislation has a complex 
set of mechanisms including a Carbon Efficiency Board, domestic and 
international offset credits and the potential for borrowing from 
future emission allowances and paying back with interest. As the 
legislation moves forward, some assessment of the implementation costs 
and ability to enforce all of these provisions might be made. It is 
difficult to assess at this time the ease or difficulty or the relative 
effectiveness of all of these multiple moving parts. Perhaps, there 
could be a built-in assessment process within the provision of the role 
of the NAS to evaluate the different provisions for effectiveness in 
achieving their goals.
    (6) International Implications.--There is understandable concern 
over what action other nations will take to address climate change, and 
what will be the outcome of the negotiations that begin in December in 
Indonesia. Just 15 years ago this month, the United States Senate took 
decisive action to unanimously ratify the UN Framework Convention on 
Climate Change. The convention was signed by President George H.W. Bush 
at the Rio summit, and submitted by him to the Senate for ratification. 
The United States was the fifth nation of what are now 192 nations to 
ratify this important treaty. Among the important provisions of this 
agreement is that industrial nations should lead the way in addressing 
climate change, and should work with developing countries to meet their 
common but differentiated responsibilities'' to do the same. 
Unfortunately, little has been done by any industrial country to 
implement this goal, and as a result most nations have been adding 
increasing amounts of heat trapping greenhouse gases to the atmosphere. 
It is important to our nation's interest as well as to the global 
climate system that the United States enter the discussions in December 
from a position of strength. We will have much more credibility over 
the coming years of negotiation if we have taken the lead to create 
policies that will reduce our emissions of greenhouse gases. This 
action more than any other will encourage developing countries to take 
the issue seriously and work with us to redirect their development away 
from a form that threatens the atmosphere just as we will be doing.
    (7) Capturing Economic Opportunity.--While we cannot expect a free 
ride for this energy transition, it is important to note that economic 
studies are finding that the cost of addressing climate change is in 
the range of 1 percent of GDP. There are many ways to achieve the 3 
percent annual reductions required to meet the emission reduction goals 
needed to keep heat trapping gas concentrations within 450 ppm carbon 
dioxide equivalents.\10\
---------------------------------------------------------------------------
    \10\ Moomaw, W., and L. Johnston. 2008. Mitigation and Adaptation 
Strategies for Global Change. In press http://
www.northeastclimateimpacts.org/pdf/miti/moomaw_and_johnston. pdf
---------------------------------------------------------------------------
    It may also be useful to look to history. The United States has 
undergone a similar energy revolution just 100 years ago. Soon after 
Thomas Edison invented the electric lamp, the New York Times 
editorialized that while it was a clever invention, it would find only 
limited use, and could not compete with cheap gas lamps.
    By 1905, 3 percent of U.S. homes had electricity, and Henry Ford 
started producing Model T cars on his assembly line. Who could have 
imagined then that by the mid-twentieth century virtually every 
American home would have electricity and lighting, and that the 
automobile would redefine American lifestyles as suburban living? Fast 
forward to 2005. Just under 3 percent of electricity was generated by 
non-hydro renewable sources. There were just a handful of efficient 
gasoline-electric hybrid vehicles in the market place. Does it seem so 
impossible that by mid-twenty-first century after all existing power 
stations have been replaced and all existing vehicles will have been 
replaced three times over, that a low carbon future could be a reality 
that is economically viable? To achieve such a transformation will 
require forward-looking legislation of the type that is being proposed 
today.
    I encourage Senator Lieberman and Senator Warner to continue 
strengthening this legislation to address some of the points that I and 
other witnesses have raised so that we can reduce our risks from 
climate change, enhance our economic and national security, strengthen 
our hand internationally and create the New American Economy.
    I wish to thank the Senators for this opportunity, and look forward 
to working with them and other members of this committee to enact 
effective climate protection legislation.
         Response by William Moomaw to an Additional Question 
                          from Senator Cardin
    Question. You suggest that the legislation should encourage the 
development of ``end use efficiencies'' through continually tightening 
appliance standards. Taken alone, how much could implementation of 
these increased efficiency standards decrease emissions?
    Response. Recent studies by DOE and by the American Council for an 
Energy Efficient Economy have found that major appliances account for 
24% of home electricity use, while other miscellaneous appliances 
account for another 14%. These latter devices are projected to double 
in electricity use in the next 20 years. Alternatively, if the 
efficiency of these two categories were to double, electricity use and 
related carbon dioxide emissions would decline from 38% to 19% of home 
electricity use. Lighting accounts for 18% of home electricity use so 
improving lighting efficiency can make even greater inroads since it 
accounts for nearly one-third of all electricity use in the US. More 
importantly, the development of highly efficient appliances of all 
types, including computers, would affect not just homes, but commercial 
operations as well, creating markets and jobs within the U.S. Finally, 
American ingenuity could set the standard for the performance of 
appliances throughout the world, led by U.S. designs and exports.
                                 ______
                                 
Responses by William Moomaw to Additional Questions from Senator Inhofe
    Question 1a. On October 1, 2007, EPA released analysis of the 
Bingaman-Specter, McCain-Lieberman and Kerry--Snowe bills. It showed 
that through the end of this century, each of these bills only reduce 
global greenhouse gas concentrations by less than 4%.
    Do you have reason to believe that this bill would be significantly 
different and are you willing to risk the economic future of this 
country to achieve such an insignificant gain in global concentrations?
    Response. The Lieberman-Warner bill would achieve slightly 
different emissions reductions than the other bills mentioned. 
Scientific studies indicate that to have a reasonable chance of 
preventing temperatures from rising another 2 degrees Fahrenheit, we 
must stabilize atmospheric concentrations globally at 450 ppm 
CO2eq. Other industrialized and developing nations must cut 
emissions, but the U.S., which has double the emissions per capita of 
other industrial nations, must do its part, not only to cut emissions, 
but also to demonstrate leadership for the rest of the world.
    Because the rate of removal of carbon dioxide is so slow, it is 
necessary to reduce industrialized country emissions by about 80% by 
mid-century in order to stay in the range where we are currently.

    Question 1b. Doesn't EPA analysis demonstrate that taking 
unilateral action will be ineffective and could even be 
counterproductive since we will accelerate the emissions growth in the 
developing nations as we export jobs to their inefficient economies?
    Response. Some unilateral efforts can be effective, since the U.S. 
is such a large producer of heat trapping greenhouse gases. In 1977, 
the U.S. unilaterally removed ozone-depleting substances from spray 
cans and global releases dropped by 25%. Eventually, the rest of the 
world followed suit, and we are well on our way to restoring the ozone 
layer. There would be a similar drop in carbon dioxide emissions were 
we to take actions on our own GHG emissions today.
    In my testimony, I also cited two studies that find that not taking 
action will have greater economic costs than will taking action to 
reduce our emissions. I know of no rigorous study that shows either 
that taking such action will accelerate job exports to developing 
countries or that it will lead to increased emissions in those 
countries. I pointed out in my testimony that it is possible to produce 
19% more electric power than we do now without adding any carbon 
dioxide at a very small cost. Reducing energy waste improves American 
competitiveness as reports from the consulting firm, McKinsey and 
Deutsche Bank demonstrate.
    One of the two countries mentioned by the Senator at the hearing 
that will meet its Kyoto target is Germany. Per capita and per dollar 
of GDP emissions are half those of the U.S. and the entire economy is 
much more efficient than is ours. It is interesting that despite 
stringent action to address climate change, Germany is the world's 
largest exporter of economic value through the products that it makes, 
even though its population is only 7% that of China. Note that the U.S. 
steel industry is touting that its emissions are 240% lower than the 
Kyoto target, which I assume they are doing for economic reasons.

    Question 2. As EPA's analysis shows, even if the rest of the world 
reduces emissions by more than 10 times that proposed for the U.S., 
global emissions are expected to be higher than today. Isn't this 
relevant as we consider action here?
    In fact, if the entire developed world took unilateral action to 
eliminate every car, closed every factory and shut down every power 
plant, emissions would still be higher than today within a few decades. 
Does this affect your support of what I believe is unilateral economic 
disarmament?
    Response. Please see response to question 1.

    Question 3a. Regarding the overall costs and benefits of the bill, 
should there be a request made to the Energy Information Administration 
or other federal governmental entity to model the bill?
    Response. It is always useful to model the economic and 
environmental implications of any legislation.

    Question 3b. Regarding the overall costs and benefits of the bill, 
should there be a request made to the Energy Information Administration 
or other federal governmental entity to model the bill, should there be 
a request for a study by an econometric modeling firm?
    Response. This could be done, but the most advanced analyses of 
costs of action and inaction seem to lie with independent research 
institutes and at universities.

    Question 4a. For Section 1201: Do you agree with the basis for 
setting a 2012 cap of 5.2 billion metric tons considering that total 
U.S. greenhouse gas emissions are greater than 7 million tons? (Section 
1201(d)).
    Response. The 2012 emissions reduction target is set at a 2005 
baseline only for the covered sectors.

    Question 4b. In terms of emission reductions, what percentage 
should come from fuel switching, and what percentage from installation 
of new or replacement technologies?
    Response. I believe that it is generally not a good idea to be too 
prescriptive in allocating reductions from different sources, fuels, 
technologies or demand reduction. For example setting standards for 
energy efficiency end use, zero emission technologies including 
renewables, and requiring carbon dioxide capture and storage can help 
to meet goals cost effectively, but setting percentage goals from 
specific options may prove costly. Setting overall goals and 
identifying places for policy interventions that will help to meet 
those goals may be the best strategy.

    Question 4c. One oft-repeated approach to emission reductions is to 
``slow, stop and reverse.'' Are the emission targets chosen consistent 
with this approach?
    Response. Any climate bill should establish emissions reductions 
targets at a level that will help avoid temperature increases that will 
lead to dangerous and expensive impacts. The emissions reduction 
targets in this bill are set at a level that will set us on that path. 
As I stated in my testimony, I believe that the goals set by this 
legislation should be strengthened, and that the exemption of natural 
gas used outside the electric sector may cause distortions.

    Question 5a. For the coverage under the bill: Do you agree with 
selecting three out of six sectors of the U.S. economy for coverage 
under the bill?
    Response. My preference is to include all sectors.

    Question 5b. Do you think the three sectors were not covered 
because it would not be cost-effective to include them within the cap?
    Response. No. As mentioned previously, I believe that including 
non-electric sector natural gas consumption in the cap would be more 
effective and be cost effective.

    Question 5c. If cost effectiveness were a criterion, what cost in 
dollars per metric ton should be used as a cut off?
    Response. I am not an economist. However, there are many ways to 
effect reductions in each sector. Setting overall reduction 
requirements while allowing market mechanisms, such as emissions 
trading, to be used in meeting those requirements in the most cost 
effective manner is a good approach. However, other considerations such 
as national security might cause a less cost effective option to be 
considered.

    Question 6a. A new entrant is defined as a facility that commences 
operation on or after January 1, 2008. (Section 4(19)) Do you agree 
with selecting that date as a cut off?
    Response. An early date has the advantage of capturing more 
potential entrants, and avoiding taking advantage of an opportunity to 
avoid taking action.

    Question 6b. Do you agree with requiring commencement of operations 
instead of commencement of construction as used in the Clean Air Act?
    Response. I do not know which would be better.

    Question 6c. Has the difference in the number of qualifying 
facilities between these two definitions been evaluated?
    Response. I do not know.

    Question 7a. For the definition of ``facility'': What do you think 
``any activity. . . .at a facility'' means?
    Response. I assume it means any activity that produces heat 
trapping greenhouse gases.

    Question 7b. Could this include coal mining operations or the 
transport of coal to a facility by train, truck, barge etc.?
    Response. Given that emissions from fuels used in the industrial 
and transportation sectors are covered under the bill, such activities 
would be included either directly or indirectly.

    Question 7c. Do you think that the definition of ``facility'' to 
include ``any activity or operation'' also includes fugitive emissions 
that are not under the direct control of the facility?
    Response. I do not know.

    Question 8a. Under the bill, allowances can be borrowed for a 
period of up to 5 years, (Section 2302): Do you agree with the 5 years 
as an appropriate time limit?
    Response. Borrowing on an annual basis does introduce flexibility 
to account for unforeseen circumstances. A limit of 5 years to pay it 
back is reasonable for a short-term loan of this type.

    Question 8b. Would 6 or more years provide more flexibility for 
sources that find it necessary to borrow allowances?
    Response. Longer times may provide more flexibility, but they come 
with a potential cost of effectiveness in meeting the goals.

    Question 8c. What considerations are more important than that 
additional flexibility that necessitate the more restrictive time 
period?
    Response. The longer the term, the more likelihood is that it will 
not be paid back, and the goal of the bill will become subverted. There 
may be alternatives to borrowing to address special circumstances.

    Question 8d. Since the allowances become increasingly scarce over 
time, which creates a sliding upward pressure on price, to what degree 
is it anticipated the borrowing mechanism will mitigate allowance price 
increases?
    Response. Each entity will weigh the option of borrowing with 
interest compared to direct reductions or allowance purchases in part 
based on its own expectation of future allowance price rises. The 
availability of the borrowing option may help mitigate allowance price 
spikes, while letting the market determine overall allowance prices.

    Question 8e. If future allowance prices exceed market prices for 
current allowances, will this (borrowing) mechanism be effective?
    Response. Entities will use borrowing to the extent that they 
expect repaying borrowed allowances (with interest) in the future will 
be less costly than submitting current allowances to cover their 
emissions in any given year. Thus, market forces will determine how 
much borrowing takes place.

    Question 9. The bill seems to indicate that the interest rate on 
borrowed allowances is 10%. (Section 2302) Should the interest compound 
annually?
    Response. The bill's approach seems reasonable.

    Question 10a. Under certain conditions, the bill allows covered 
facilities to satisfy up to 15% its allowance submission requirement 
with allowances or credits from foreign GHG trading markets. (Section 
2501) One of these conditions is that the foreign government's program 
be of comparable stringency to the U.S. program (Section 2502 (b)(2)).
    What criteria should EPA use in determining whether the emission 
caps, for example, of another country are comparable to those of a U.S. 
program?
    Response. It is difficult to specify the detailed conditions, but 
the foreign country program should meet the performance standards of 
the U.S. and should not be advantaged by extra subsidies or other 
factors.

    Question 10b. Should this comparable stringency be based on 
regulatory requirements or on compliance?
    Response. Compliance and performance.

    Question 11. Under Section 2603, a Carbon Market Efficiency Board 
shall carry out one of more of six ``cost relief measures'' if the 
board determines that the emissions allowance market ``poses a 
significant harm to the economy of the United States.''
    Response. Note, I do not feel qualified to comment on the 
operations of this Board, and so will not answer any of the subsections 
of this question. I have not read any analysis of how it might work, 
nor have I done any research on this topic myself. If cost containment 
could be effected without compromising emissions reductions, then 
developing an appropriate procedure might be useful.

    Question 12a. Section 3402 requires EPA to allocate extra 
allowances to states that enact statewide GHG reduction targets that 
are more stringent than the targets established under the bill.
    What do you think the basis is for providing an explicit inducement 
for states to adopt more stringent requirements?
    Response. I assume it is to encourage greater reductions in states 
that are working to obtain greater reductions.

    Question 12b. Could this lead to inconsistencies among state 
programs that reduce the potential cost-effectiveness of a national 
program?
    Response. It seems designed to encourage competition among states 
to find more effective means to achieve reductions.

    Question 12c. What do you think is the basis for an allocation 
level of 2% of the allowances for this purpose?
    Response. I have no way of knowing how this was decided, but it is 
a very small portion of the total.

    Question 13. Section 3501 allocates 10% of the allowance account 
annually to load serving entities, which are overseen by state 
regulatory bodies. Section 3503-(3) prohibits the exercise of certain 
prerogatives on the part of the these state regulatory bodies such as 
requiring the filing of rate cases in order to pass through the credit 
from the sale of allowances. Do you agree with this provision and why /
not?
    Response. This provision appears aimed at helping energy consumers, 
through greater energy efficiency and assistance to low-income 
Americans. I am unfamiliar with details of regulated utility law.

    Question 14. TITLE III Subtitle F provides bonus allowances for 
carbon capture and geological sequestration projects. Section 3604 
limits these bonus allowances to the first 10 years of operation. Do 
you agree with limiting incentives to 10 years?
    Response. I assume this provision is aimed at helping commercialize 
this technology during a transition period. In addition to receiving 
bonus allowances, advanced coal and sequestration technologies get 
slightly more than 15% of all auction revenues, the total amount of 
which increases over time as auction revenues grow.

    Question 15a. Title II Subtitle D states that domestic offsets have 
to be permanent. What exactly does that mean in terms of biological 
sequestration?
    Response. If by biological sequestration one means storing carbon 
in biomass of forests, permanent pastures and in soils, then one needs 
to measure this in terms of the total storage in the system. While 
these systems are open and release some carbon as carbon dioxide, they 
are also taking up carbon dioxide on a constant basis. (Note that the 
ocean is likewise a vast reservoir of carbon dioxide, which is also 
dynamic in its storage mechanism). The world's forests and soils 
contain twice the amount of carbon that is found in the atmosphere as 
carbon dioxide even though there is carbon being absorbed and released 
all the time. If the annual inputs and releases are approximately 
equal, then the amount stored is a known and fixed amount. It is 
therefore possible to have reliable and verifiable storage through 
biological sequestration.

    Question 15b. In your opinion, what are the anticipated impacts on 
food prices associated with providing incentives to farmers to convert 
cropland to grassland and rangeland?
    Response. Such conversion is not necessary to store carbon in 
soils. For example, the introduction of ``no till agriculture'' for 
crops has led to increased carbon storage in cropland, lower energy 
use, lower carbon emissions and lower production costs.

    Question 15c. What would be the impact of such incentives to the 
production of ethanol and the cost of ethanol?
    Response. This will depend strongly on the future choice of biofuel 
crops and the technology of converting biomass into modern biofuels. If 
switch grass were used, which has the potential to produce larger 
amounts of ethanol per acre than corn, the opportunities for soil 
storage would likely increase and the cost of bioethanol would 
decrease. It may be that the future lies with algae production, which 
could produce even more fuel per acre than any conventional crop.

    Question 16. Section 3903(b) distributes allowances to rural 
electric cooperatives equal to their 2006 emissions. Do you agree with 
giving preferential treatment to rural electric cooperatives?
    Response. The options are to auction all allowances, or allocate 
all of them or to auction some and allocate some. From a market 
efficiency point of view, full auctioning is the most effective option, 
as it sends the strongest market signal to GHG emitting sectors to find 
lower cost options for emission reductions. However, there are socially 
useful organizations such as rural electric cooperatives and 
municipally owned utilities that could not compete in an auction 
against commercial interests, and I would support reducing the bill's 
free allocation of allowances to all emitting sectors.

    Question 17a. Regarding Section 1103(d):
    What methods are facilities contemplated to employ to determine 
complete and accurate data for the years 2004 through 2007 where no 
data was collected or readily available?
    Response. Corporations, cities and states that have faced this 
problem utilize a combination of fuel bills and some generally accepted 
estimation techniques.

    Question 17b. Also for Section 1103(d), how are facilities that 
currently do not have monitoring systems in place going to be able to 
submit quarterly data starting in 2008?
    Response. Baseline emissions data will be based on fossil fuel 
consumption and the use of other greenhouse gases without need for 
monitoring. All entities should have records of how much fuel they used 
for a given year, using fuel bills.

    Question 17c. Should the $25,000 per day for each violation apply 
to these facilities for these time periods?
    Response. A clear set of incentives and penalties need to be in 
place, and appropriately applied.

    Question 17d. What is the process and who should have the authority 
for determining what constitutes complete and accurate data for these 
time periods?
    Response. Creating a certified auditing office would be essential. 
They would audit the energy records and verify that they were 
accurately reported. This is being done in both public systems such as 
RGGI and in private systems.

    Question 18. Based on EPA's 2005 U.S. greenhouse gas inventory, the 
electric generating sector accounted for 46% of the proposed 2012 cap 
level of 5.2 billion metric tons. Between allocations to generators and 
load serving entities, the bill allocates 30% of the allowances to the 
sector, and reducing the sector's (allowances?) subsequently. Do you 
agree with this differential treatment of the electric sector?
    Response. The EPA 2005 U.S. GHG Inventory indicates that the 
electric utility sector is equivalent to approximately 33% of that 
year's U.S. emissions. The amount of allowances provided directly to 
the electric utility sector and not passed through to benefit consumers 
is 20% of the allowances. Providing this level of free allowances could 
drive down the value of the allowances, thus undermining the market-
based incentives for reducing pollution and investing in clean 
technologies. As noted in my testimony, I would support lower initial 
allocations and a more rapid phase-out of free allocations to both the 
electric generating and industry sectors.

    Question 19. The allowance allocation to electric generating units 
in the first year of the program represents approximately 44% of that 
sector's 2005 emissions based on EPA's inventory. Electric demand is 
anticipated to increase, and reducing emissions by replacing current 
plants with lower or non-emitting plants will take years to achieve. 
Based on this, does the bill contemplate some mechanism, or set of 
mechanisms, whereby emissions will be reduced during this timeframe or 
allowances will be available, or will allowances have to be purchased?
    Response. By incorporating a price in the market for emissions of 
carbon dioxide, the bill will provide an incentive for investment in 
lower-emitting technologies as well as greater energy efficiency by 
end-use consumers. Combined with the bill's incentives for energy 
efficiency investments by load-serving entities and states, it is quite 
possible that overall electric demand could increase at a slower rate, 
or decrease. The potential is huge; the state of California has 
demonstrated that it is indeed possible to hold per capita electricity 
use constant for several decades.

    Question 20. Section 3803 allocates 3 per cent of allowances to 
projects in other countries for forest carbon activities.
    Response. Tropical deforestation currently accounts for 20% of 
global greenhouse gas emissions. A solution for global warming must 
address these emissions. While 3% of the overall allowances is a 
relatively small amount compared to the size of the problem, it is an 
important tool to provide leverage to encourage developing countries to 
participate in mandatory emission reductions. The very first project to 
absorb carbon dioxide from a new coal power plant through reforestation 
in a developing country was initiated in 1989 by a U.S. power plant.

    Question 21a. Regarding Section 8001:
    This section calls for a national assessment of carbon dioxide 
storage capacity. Presumably, this assessment would determine whether 
the U.S. has sufficient capacity to geologically sequester the carbon 
dioxide that would have to be captured to comply with the bill. Absent 
the results of this survey which has not been undertaken yet, do you 
agree with assuming that the U.S. has adequate storage capacity?
    Response. As I indicated in my testimony, we should take a broad 
look at possibilities for capturing carbon dioxide from power plants 
and industrial facilities, and not presume that long-term storage is 
the only option. Having said that, the answer is that significant 
amounts of research have n fact been done and are summarized and cited 
in the IPCC report on ``Carbon Dioxide Capture and Storage.'' A number 
of storage areas are identified for the U.S. in that report that would 
be adequate for many decades.

    Question 21b. How do you envision the program addressing the long-
term oversight of the carbon storage sites?
    Response. One model is to utilize the substantial experience with 
deep well injection of hazardous chemical waste. The more intensive 
proposed structure for long-term management of nuclear waste is also a 
possibility. EPA and other appropriate agencies should have 
responsibility for ensuring such oversight and monitoring, and the 
costs should be borne by those entities operating the storage sites.
    Question 21c(i). This Section provides EPA with the legal authority 
to develop a permitting program for carbon storage through the Safe 
Drinking Water Act's Underground injection Control Program. Long term 
monitoring and particularly in the west, property rights, are just two 
of the several issues that will need to (be) taken into consideration 
under the regulatory regime.
    Is the bill's approach sufficient to address these issues?
    Response. This depends upon the strategy for designing the 
regulations. An examination of how well existing underground injection 
programs have worked would help to decide this matter.

    Question 21c(ii). Should there be a statutory role for the states?
    Response. While EPA has the legal authority, states should 
certainly have input into the process.

    Question 22a. Subtitle G, Section 4702(b)(1)(F) stipulates money is 
available for adaptation activities in accordance with recovery plans 
for threatened and endangered species.
    Does the bill envision that all existing recovery plans will be 
rewritten to address all climate change effects?
    Response. The bill calls for coordinated efforts between multiple 
agencies and between the federal government and the states.
    Question 22a(i). Does the bill envision that all existing recovery 
plans will be rewritten to address all climate change related effects?
    Response. It appears that that the intent is for all recovery plans 
to incorporate knowledge of climate change related effects. It is 
important that the funds be made available to FWS to achieve this goal. 
It appears that the adaptation fund must be made available to implement 
this legislation.

    Question 22b(i). Within Subtitle G, how does the bill contemplate 
FWS will prioritize species to receive adaptation funds?
    Is it based on their overall threatened or endangered status or the 
degree to which they are affected by climate change?
    Response. The details of this type of management should be left to 
the experts in ecosystem and wildlife management.
    Question 22b(ii). Are plants and animals not affected by climate 
change eligible for these funds?
    Response. The management is more likely to be at the ecosystem 
level than at the level of individual species so this distinction is 
not likely to be a practical management issue.
    Question 22b(iii). How should the DOI distinguish those ecological 
processes that are due to man-made climate change from those that (are) 
due to normal species development and evolution?
    Response. Other than bacteria and insects, we are not likely to see 
any evolutionary changes on the time scales being considered here. 
Appropriate research should be able to determine which factors are 
responsible for a species that is becoming endangered.
                                 ______
                                 
         Responses by William Moonmaw to Additional Questions 
                         from Senator Barrasso
    Question 1. What impact will Lieberman-Warner have on Liquefied 
Natural Gas imports to the U.S.?
    Response. As I stated in my testimony, exempting natural gas from 
all sectors other than electric power could cause distortions that 
would increase demand for natural gas that would need to be met with 
increased imports. If the caps extend all the way up at the fuel 
source, such distortions are less likely, and the shifting of demand 
towards natural gas would be reduced.

    Question 2. With increasing demand for energy both in America and 
around the world as a result of increased economic growth, 
technological solutions will be essential for countries to meet their 
energy demands while limiting greenhouse gas emissions. However, there 
are tremendous uncertainties about what technologies will most 
effectively address these issues. As Congress continues to examine 
technological solutions to combat climate change, do you believe we 
have enough information to identify which technologies hold promise and 
therefore warrant investment?
    Response. Yes, I believe that we know enough to get started even if 
we cannot know what will be available in 2050. Any technologies that we 
are likely to use in a major way over the next two decades are already 
here, and the most cost effective are simple things like improving 
building insulation in existing buildings and requiring major upgrades 
in the energy performance of new structures. Buildings being 
constructed today already require 80% less energy for heating and 
cooling than code built structures. This is the case for the home my 
wife and I have just completed, so I know that it can be done. These 
options have very large near term paybacks as has been demonstrated in 
research summarized by the IPCC, and in the climate cost report of the 
accounting firm McKinsey. Removing barriers to distributed power using 
combined heat, power and cooling can make large reductions at low cost. 
I also referred to a study that found that there is enough wasted 
energy in our current system that it is possible to provide 19% of our 
current electricity with no increase in carbon dioxide for a few cents 
per kwh. Finally, there are many options for reducing non-energy 
greenhouse gases. For example the decision by the Montreal Protocol 
parties in September (with U.S. and Chinese endorsement) to accelerate 
the phase out of this chemical thereby not only protecting the ozone 
layer, but reducing future warming by an amount 15 times greater than 
what was called for by the Kyoto Protocol. The U.S. could follow the 
lead of the EU and phase this and other global warming chemicals out 
completely ahead of the treaty requirements. I would be pleased to work 
with you and the Committee if you would like additional information.

    Question 3. What do you think should be Congress' funding 
priorities?
    Response. The use of auction revenues or allocation of allowances 
would be best used for measures that can benefit the climate and the 
public, such as investments in energy efficiency and renewable energy 
technologies, such as solar, wind, geothermal storage and biological 
sequestration, to provide adaptation assistance for vulnerable 
populations at home and internationally, provide economic transition 
assistance for workers in carbon-intensive jobs, and to lower costs for 
low and middle-income energy consumers.

    Question 4. What are the costs to family budgets for middle class 
and low-income people of implementing Lieberman-Warner in terms of 
energy bills and gasoline prices in the next 5 to 10 years?
    Response. This bill would increase the price of fossil-fuel based 
energy sources, but there are specific provisions aimed at reducing 
energy demand and providing support for low and middle-income 
consumers. Experience in California and other states demonstrates that 
effective energy efficiency initiatives can hold down overall energy 
bills even as energy prices increase, by helping consumers consume less 
energy. Increased efficiency standards, whether for new vehicles, 
appliances, or buildings, can also help mitigate the impact of higher 
prices.

    Question 5. In 2050, how much cooler will the planet be if we adopt 
Lieberman-Warner?
    Response. How much the global average temperature will rise depends 
both on the cumulative global emissions out to 2050 and on climate 
sensitivity (the response of the climate system to increased 
atmospheric greenhouse gas concentrations), both of which are subject 
to some uncertainty. However, an analysis by the Union of Concerned 
Scientists (Avoiding Dangerous Climate Change: A Target for U.S. 
Emissions Reductions, UCS 2007), shows that, to have a medium chance of 
staying below a global average temperature increase of 3.6 degrees 
Fahrenheit above pre-industrial levels, atmospheric concentrations of 
greenhouse gases need to be stabilized at 450 ppm CO2eq. To 
meet that goal, the U.S. must cut its emissions at least 80% by 2050, 
other industrialized countries must make deep reductions, and major 
developing nations must also take action to slow and then reduce their 
emissions. The Lieberman-Warner bill sets us on a path to achieve those 
emissions reductions, but must be strengthened by including non-
electric sector natural gas and achieving greater reductions for the 
long-term target. So even under this legislation, the planet will get 
warmer, but its policies will save us from suffering severe disruption 
of the climate system.
                                 ______
                                 
          Responses by William Moomaw to Additional Questions 
                        from Senator Lautenberg
    Question 1. You state in your testimony the need to reduce 
emissions by 80 percent by 2050. What is the significance of this 
target as opposed to a target of 50 or 60 percent? Is it more important 
to have a strong short-term target for 2020 to get us on track for 
future years?
    Response. Substantial scientific evidence indicates that an 
increase in the global average temperature of more than two degrees 
Celsius (C) above pre-industrial levels (i.e., those that existed 
prior to 1860) poses severe risks to natural systems and human health 
and well-being. Sustained warming of this magnitude could, for example, 
result in the extinction of many species and extensive melting of the 
Greenland and West Antarctic ice sheets--causing global sea level to 
rise between 12 and 40 feet over the long term. In light of this 
evidence, policy makers in the European Union have committed their 
countries to a long-term goal of limiting warming to no more than 2 C 
above pre-industrial levels.
    Scientific studies indicate that, to have a medium, or 50/50, 
chance of preventing temperatures from rising above this level, we must 
stabilize the concentration of heat-trapping gases in the atmosphere at 
or below 450 parts per million CO2-equivalent (450 ppm 
CO2eq--a measurement that expresses the concentration of all 
heat-trapping gases in terms of CO2).
    An analysis by the Union of Concerned Scientists (Avoiding 
Dangerous Climate Change: A Target for U.S. Emissions Reductions, UCS 
2007), shows that, even if we assume that developing nations pursue the 
most aggressive reductions that can reasonably be expected of them, the 
world's industrialized nations will have to reduce their emissions an 
average of 70 to 80 percent below 2000 levels by 2050.
    Given that the 450 ppm target only gives us a 50/50 chance of 
avoiding the 3.6 degrees Fahrenheit target and that the United States, 
has historically emitted more than any other nation, reductions here at 
home must be even steeper. In fact, even if we continue to emit more 
than every other industrialized nations, we must cut our emissions by 
at least 80% below 2000 levels by 2050.
    The costs of delay are high. To meet this minimum target, the 
United States must reduce its emissions an average of 4 percent per 
year starting in 2010. If, however, U.S. emissions continue to increase 
until 2020--even on the ``low-growth'' path projected by the Energy 
Information Administration (EIA)--the United States would have to make 
much sharper cuts later: approximately 8 percent per year on average 
from 2020 to 2050, or about double the annual reductions that would be 
required if we started promptly. The earlier we start, the more 
flexibility we will have later.
    Moreover, it is extremely important from a policy standpoint that 
the short-term target send a clear signal to the investment community 
that investments in clean energy technologies will be valuable, and to 
emitting industries that it no longer pays to build high-emitting 
conventional coal-fired power plants.

    Question 2. Do you believe that the denial by the state of Kansas 
of a permit to build a new coal fired power plant is a major 
development regarding the use of coal in the U.S.? What technologies 
currently exist or are in development to reduce emissions from coal-
fired power plants?
    Response. Kansas' denial of the Sunflower Coal Plant marks the 
first time in the U.S. that such a state has denied such a permit 
because of carbon dioxide emissions. Specifically, Roderick L. Bremby, 
secretary of the Kansas Department of Health and Environment, said, ``I 
believe it would be irresponsible to ignore emerging information about 
the contribution of carbon dioxide and other greenhouse gases to 
climate change and the potential harm to our environment and health if 
we do nothing.''
    The implications of this decision are quite significant. It 
indicates the extent to which an ever-growing number of states are 
recognizing that, to protect the health and welfare of their citizens, 
they must take steps to mitigate climate change. Together with the 
prospect of action at the federal level, whether under this president 
and Congress or the next, pressure is mounting on utilities to forego 
investments in new conventional coal plants and instead move towards 
cleaner technologies.
    While cleaner coal technologies such as Integrated Gasification 
Combined Cycle plants already exist, they are more expensive than 
conventional coal plants in the absence of any market price on carbon 
pollution. Combined with carbon capture and storage, such technologies 
offer the potential for greatly reducing emissions from coal. Of 
course, energy efficiency remains the most cost-effective option for 
reducing emissions, and renewable energy technologies are becoming more 
competitive, even without incorporating any price for carbon emissions.

    Senator Lieberman. Thanks, Doctor, very interesting and 
hopeful testimony. I appreciate it.
    We now go to Will Roehm, who is vice president of the 
Montana Grain Growers Association. We appreciate your coming 
out. Obviously in a direct sense, this bill sets up a cap and 
trade system for power plants, transportation and industrial 
sectors of the economy, but it affects almost every other 
sector and person in the economy, including obviously 
agriculture. So your voice at the table is an important one and 
we appreciate your presence.

STATEMENT OF WILL ROEHM, VICE PRESIDENT, MONTANA GRAIN GROWERS 
                          ASSOCIATION

    Mr. Roehm. I thank you for the invitation.
    Mr. Chairman, Ranking Member Warner and members of the 
committee, my name is Will Roehm and I am vice president of the 
Montana Grain Growers Association and a third generation farmer 
from Great Falls, MT.
    On behalf of the National Association of Wheat Growers, I 
would like to commend you, Chairman Lieberman and Senator 
Warner, for developing legislation to control greenhouse gas 
emissions that recognizes the important role that agriculture 
can play in capturing and storing greenhouse gases. I believe 
that your proposed legislation takes an important first step in 
providing the necessary infrastructure for agriculture to be 
recognized for the immediate, cost-effective and real 
greenhouse reductions and offsets our industry can provide.
    The American farmer has long been a careful steward of the 
land and the environment, and contributing to the reduction of 
greenhouse gases is a logical extension of what we see as our 
stewardship responsibility. I can state today that the National 
Association of Wheat Growers, or NAWG, intends to actively 
support your efforts. We look forward to working with you and 
your staff as the process moves forward.
    We are also very supportive of your decision to not require 
farmers to purchase and submit allowances or credits or permits 
for their greenhouse gas emissions. Farmers are not like 
electric utilities and this type of regulation would be very 
disruptive for our producers. I do have to say that we have 
producers that are experimenting with capturing carbon as it 
comes out of the tractor as we are doing our work. So we as an 
entire sector are not just sitting on our laurels. We are 
experimenting with things that 10 years ago we would never have 
thought of. So this is not completely new to our industry.
    We also strongly support your decision to not only invite 
farmers to participate in the offset program, but also to set 
aside what we would hope to be an increasing portion of the 
allowances within the emission allowance account for 
distribution to farmers who undertake new efforts to reduce 
their greenhouse gas emissions and increase the amount of 
carbon they sequester biologically.
    We in agriculture are constantly seeking out value-added 
opportunities and an uninhibited offset market presents just 
such an opportunity. The carbon offset program should generate 
real, measurable and, most importantly, verifiable emission 
reductions or offsets, but should not limit the market's 
ability to utilize agriculture as an important tool to reduce 
greenhouse gas emissions. To that end, one significant 
improvement to your legislation would be to remove the 15 
percent limit that would be applied to the offset market.
    I understand there are some critics who believe agriculture 
offsets should not be allowed because these same critics view 
them as unreliable or difficult to verify. A report 
commissioned by NAWG noted one of the key differences moving 
into a mandatory system will be the need, in fact the demand, 
by buyers to have projects that are able to pass measurement 
and verification tests. In NAWG's role as a potential 
aggregator, we intend to follow the measurement verification 
and monitoring requirement set forth in the field manual put 
out by Duke University Press titled Harnessing Farms and 
Forests in a Low-carbon Economy, commonly referred to as the 
Duke standard. The scientific consensus that supports this work 
should provide answers to those critics that claim agriculture 
offsets are unreliable.
    The potential for agriculture offsets in the United States 
is enormous. The Pew Center for Global Climate Change reported 
that agriculture soils currently sequester approximately 20 
million metric tons per year of carbon. Based on research in 
the field, there is the potential for field soils to sequester 
3 to 10 times more under soil conservation practices. This 
could also provide up to 12 percent to 40 percent of the 
reductions that would be needed for the United States to return 
expected 2010 greenhouse gas emissions to 1990 levels.
    The potential value for producers is also significant. At 
the national level, the market is estimated at $408 million 
annually just for wheat acres alone. Keep in mind that the 
practices that create the carbon crop also increase soil 
fertility, water quality, and wildlife habitat.
    I hope that you will support agriculture offset policies 
that not only allow us to help solve pressing national 
problems, but also generate new revenue streams for 
agriculture. I strongly believe that a market-based system that 
treats carbon as a commodity would spur new technologies and 
generate significant revenue for agricultural practices that 
sequester carbon. However, a key to our ability to fully 
participate in this new market, which could be one of the five 
largest agriculture commodities in the United States, are 
policies that do not limit our ability to participate or cap 
prices.
    In closing, Mr. Chairman, I want to again return to the 
idea that we see our contribution to help reduce greenhouse gas 
levels as part of an ongoing stewardship responsibility 
practice by U.S. agriculture. That responsibility was best 
summed up by one of the great conservation presidents of the 
20th century, Theodore Roosevelt, who in 1910 observed, ``I ask 
nothing of this Nation except that it so behave as each farmer 
here behaves with reference to his own children. That farmer is 
the poor creature who skins the land and leaves it worthless to 
his children. The farmer is a good farmer who, having enabled 
the land to support himself and to provide for the education of 
his children, leaves it to them a little better than he found 
it himself.'' I believe the same thing as a Nation.
    I urge you to adopt policies that create opportunities for 
us to leave the land a little better than we have found it 
ourselves. I have to add that agriculture has been extremely 
good to my family and hopefully my kids' families. It is a 
great industry and I think we have a lot to offer to this 
national issue.
    Thank you for your consideration. I look forward to your 
questions.
    [The prepared statement of Mr. Roehm follows:]
         Statement of Will Roehm, Vice President, Montana Grain
                          Growers Association
    Mr. Chairman, Ranking Member Warner and Members of the Committee:
    My name is Will Roehm, I am Vice President of the Montana Grain 
Growers Association and a third generation wheat farmer from Great 
Falls Montana with my crop selection focusing primarily on winter 
wheat.
    On behalf of the National Association of Wheat Growers and the 
agricultural sector generally, I would like to commend you Chairman 
Lieberman and Senator Warner for developing legislation to control 
greenhouse gas emissions that recognizes the important role that 
agriculture can play in capturing and storing greenhouse gasses.
    I believe your proposed legislation takes an important first step 
in providing the necessary infrastructure for agriculture to be 
recognized for the immediate, cost effective and real greenhouse 
reductions and offsets our industry can provide. The American farmer 
has long been a careful steward of the land and the environment and 
contributing to the reduction of environmentally harmful levels of 
greenhouse gasses is a logical extension of what we see as our 
stewardship responsibilities.
    I can state today that the National Association of Wheat Growers 
intends to actively support your efforts and we look forward to working 
with you and your staff as the process moves forward.
    There are many critics of U.S. farm programs, and while we believe 
many of these criticisms are not well founded and a strong farm safety 
net program is essential to maintaining our ability to stay on and work 
the land, we are also constantly seeking out entrepreneurial value-
added opportunities.
    A robust, uninhibited offset market presents just such an 
opportunity. The carbon offset program should generate real, measurable 
and verifiable emissions reductions or offsets but should not limit the 
market's ability to utilize this important tool to reduce greenhouse 
gas emissions. To that end, one significant improvement to your 
legislation would be to remove the 15% limit that would be applied to 
the offset market.
    I understand there are some critics who believe agriculture offsets 
should not be allowed because they are unreliable or difficult to 
verify.
    The National Association of Wheat Growers (NAWG) Board of Directors 
three weeks ago unanimously voted to move forward with a business plan 
that would establish NAWG as a carbon aggregator. I was a member of our 
Environment and Renewable Resource policy committee that likewise voted 
unanimously to make this recommendation to our Board. A report 
commissioned to provide direction on moving forward with this endeavor 
noted ``Thus, one of the key differences moving into a mandatory 
system, will be the need--in fact the demand by buyers, to have 
projects that are able to pass measurement and verification tests.''
    In moving forward in our role as a potential aggregator, we intend 
to follow the measurement, verification and monitoring requirements set 
forth in the field manual put out by Duke University Press titled 
``Harnessing Farms and Forests in the Low Carbon Economy.'', commonly 
called the ``Duke Standard''. The scientific consensus that supports 
this work should provide answers to those critics that claim 
agricultural offsets are unreliable.
    And the potential for agricultural offsets in the U.S. is enormous. 
The Pew Center for Global Climate Change reported that agricultural 
soils currently sequester approximately 20 million metric tons (MMTC) 
of carbon per year. Based on research in the field, there is the 
potential for soils to sequester 60 to 200 MMTC/yr more under soil 
conservation practices providing 12 to 40% of the reduction that would 
be needed for the U.S. to return expected 2010 greenhouse gas emissions 
to 1990 levels.
    The potential value for producers is also significant. In my state 
of Montana, if one were to assume .45 MMT per acre $15/ton and further 
assume a limited enrollment of 10% of eligible producers we would 
realize a significant market of $3.5 million annually. If half the 
state wheat acres are enrolled at that price, the income would be an 
estimated $18 million. This is not an unreasonable expectation since 
the report notes that 93% of Montana Grain Growers surveyed expressed 
an interest in aggregating their carbon tons with NAWG.
    At the national level, using the same assumptions as above the 
market is valued at $408 million just for wheat alone. Keep in mind 
that the practices that create the carbon crop also increase soil 
fertility, water quality and wildlife habitat.
    It is apparent why agriculture should support, and actively pursue, 
as open and unrestricted greenhouse gas cap and trade market as 
possible. To that end, I would like to offer the following policy 
recommendations:
     Provide adjustment funds to help defray the cost of 
measurement, monitoring and verification.
     Encourage USDA to establish standardized measurement, 
monitoring and verification protocols to determine changes in soil 
carbon for market-based applications;
     Avoid policy that forces agriculture and forestry offsets 
to compete for limited market pools. Create markets that are large 
enough for all verifiable and measurable offsets to come to the market.
     Remove any artificial limits on the potential carbon 
offset market. The carbon offset market should be unlimited.
     Oppose any artificial price cap on carbon. This would have 
the effect of capping the price for carbon credits as well and drive 
away buyers who would treat the price cap as a carbon tax rather than 
offsetting or reducing emissions.
     Support dramatic and immediate expansion of agriculture 
greenhouse gas mitigation research. Expanding the carbon ``crop'' to 
its full potential will mean more research on various practices and 
crops that store carbon more efficiently and knowledge about how best 
to model and measure carbon gains in a cost efficient manner.
    I hope that you will support agricultural offset policies that not 
only allow us to help solve pressing national problems, but also 
generate new revenue streams for agriculture. I strongly believe that a 
market-based system that treats carbon as a commodity would spur new 
technologies and generate significant revenue for agricultural 
practices that sequester carbon. However, a key to our ability to fully 
participate in this new market--which would be one of the five largest 
agricultural commodities in the United States--are policies that do not 
limit our ability to participate or cap prices.
    In closing Mr. Chairman, I want to again return to the idea that we 
see our contribution to help reduce greenhouse gas levels as part of an 
ongoing stewardship responsibility practiced by U.S. agriculture. That 
responsibility was best summed up by one of the great conservation 
President's of the 20th century, Theodore Roosevelt who in 1910 
observed:
    ``I ask nothing of this nation except that it so behave as each 
farmer here behaves with reference to his own children. That farmer is 
a poor creature who skins the land and leaves it worthless to his 
children. The farmer is a good farmer who, having enabled the land to 
support himself and to provide for the education of his children, 
leaves it to them a little better than he found it himself. I believe 
the same thing of a nation.''
    I urge you to adopt policies that create opportunities for us to 
leave the land a little better than we found it ourselves. Thank you 
for your consideration.
                                 ______
                                 
  Response by Will Roehm to an Additional Question from Senator Cardin
    Question. Confidence in any market is a necessary characteristic 
for that market to be successful. One of the biggest concerns for 
farmers and landowners interested in participating in a carbon market 
by providing offsets is ensuring that their efforts are verifiable. 
Businesses need confidence that their emissions are being offset before 
they consider working with agricultural offsets. In the model you 
proposed for an agricultural offset program you would identify the 
National Association of Wheat Growers (NAWG) as a carbon aggregator.
    Would you propose that NAWG also be the verifier of these 
agricultural offsets? Or, in order to increase the confidence of the 
buyers of these offsets, should a third party provide the verification 
of the effectiveness of these offsets?
    Response. While we are still in the process of putting together a 
business plan to structure NAWG's role as a carbon aggregator, you are 
quite correct in pointing out the need to maintain the highest level of 
business confidence. We agree that there should be independent third-
party verification supported by the Duke Standard protocols, which are 
discussed in the next answer.
                                 ______
                                 
  Response by Will Roehm to an Additional Question from Senator Inhofe
    Question. Mr. Roehm, I have found that the carbon offset market is 
not a true solution. The most popular type of offsets, planting trees 
and forests, would take a full century of growth and prosperity to full 
capture the carbon emitted by one car in a year. If you truly see 
global warming as a problem that can be stopped, how can you put your 
support behind a system that is and will remain largely unregulated and 
creates many unintended and undesirable results?
    Response. I would urge you to talk with soil carbon researchers at 
Oklahoma State University as well as the consortium of nine state 
universities who have been researching this issue for the past 5+ years 
through federal funding obtained by Sen. Pat Roberts (R-KS). The group, 
called the Consortium for Agricultural Soils Mitigation of Greenhouse 
Gases (CASMGS) conducts research and analysis about the potential for 
agricultural soil carbon sequestration of greenhouse gases and other 
agricultural-based GHG reductions.
    Members of this consortium are:
     Montana State University
     Kansas State University
     Colorado State University
     Iowa State University
     Michigan State University
     Ohio State University
     University of Nebraska
     Purdue University
     Texas A&M University
     Pacific NW National Laboratory
    For further information about the true potential of agriculture to 
reduce greenhouse gases, I urge you to contact the agronomy departments 
at these fine institutions.
    Agriculture is the currently only known system for rapidly reducing 
emissions through existing technologies. The Pew Center for Global 
Climate Change reported that agricultural soils currently sequester 
approximately 20 million metric tons (MMTC) of carbon per year. Based 
on research in the field, there is the potential for soils to sequester 
60 to 200 MMTC/yr more under soil conservation practices providing 12 
to 40% of the reduction that would be needed for the U.S. to return 
expected 2010 greenhouse gas emissions to 1990 levels.
    Farmers have tested soils for soil organic matter and C content for 
many decades as a measure of soil health and to determine fertilizer 
needs. Numerous scientifically sound methods exist to measure soil 
C,1 and a suite of robust, cost-effective technologies are 
in development. Cost-effective, accurate, rapid means of measuring, 
monitoring and verifying changes in soil C can prepare the agricultural 
sector to participate in C markets through the sale of ``charismatic 
C'' credits.

    Question 2. Many environmentalists continue living a high carbon 
emitting life while feeling good about themselves. Case in point is Al 
Gore, whose total personal energy use is tens to hundreds of times 
about that of the average American, but he claims he is carbon neutral 
simply because he buys offsets. Yet I would not that he still refuses 
to take the personal energy ethics pledge to emit no more than the 
average American. Is this really reducing emission, or does it just 
look good on paper?
    Response. I have no knowledge of former Vice President Gore's 
personal lifestyle. If your concern is whether the offsets market can 
be a real, reliable means of reducing greenhouse gas emissions, then 
you should approve of the policy infrastructure that the Lieberman-
Warner bill establishes, since this is the first bill to set any kind 
of actual standard to the carbon offset market.
    Right now, anyone may claim they are reducing emissions, and as you 
say, ``look good on paper,'' however, if there were an actual offset 
market with the measurement, monitoring and verification protocols 
called for in the Lieberman-Warner bill, this would no longer be a 
problem. For more information on how this measurement system is 
constructed in the bill, I refer you to the ``Duke Standard'' published 
by Duke University Press (copy attached).
    While the National Association of Wheat Growers are still in the 
process of putting together a business plan to structure NAWG's role as 
a carbon aggregator, you are quite correct in pointing out the need to 
maintain the highest level of business confidence and we intend to 
follow best management practices outlined by the scientific community.
    Unlike other techniques of carbon sequestration being considered 
(i.e. oceans), terrestrial sequestration is a proven technique with 
scientific research, measurement, and verification practices in place 
to support its development as a viable sector within the national 
carbon market.
    Key to the success in establishing a profitable with environmental 
integrity will be to find the right balance of modeling and actual 
measurement. Just this year, this issue has seen significant scientific 
consensus in the form of a field manual put out by Duke University 
Press called Harnessing Farms and Forests in the Low-Carbon Economy. 
This work, commonly referred to as ``The Duke Standard,'' outlines and 
provides answers to some of the most difficult agriculture and forest 
sequestration measurement questions. It is worth noting that the 
authors and advisory committee members include top soil scientists and 
agriculture economists from the following institutions:
     Texas A&M University
     Colorado State University
     University of New Hampshire
     Environmental Resources Trust
     Duke University
     Princeton University
     Kansas State University
     Stanford University
     Brown University
     Environmental Defense (editors)

    Because of the scientific consensus that has emerged with this 
work, we now have a clear understanding of verification and monitoring 
requirements that could be developed as part of a mandatory cap-trade 
offset market. A critical first step in the development of a carbon 
aggregation market is project design. Many factors must go into a 
project's development, implementation and ultimate success at 
accurately offsetting GHG emissions in the global marketplace. Some 
questions to consider when designing the project are:
     What types of processes will be used to sequester carbon?
     How many acres will be used in the project? Over what time 
period?
     Is the project an additional sequestration?
    These questions and many others are explored in more detail with 
the Duke Standard manual. To give a brief overview, the following 
figure explains the overall process for producing valid and marketable 
offsets.

[GRAPHIC] [TIFF OMITTED] 73579.003

    Carbon sequestration can be measured in million metric tons of 
carbon (MMTC) which is most often utilized for soil carbon 
sequestration. However, many studies have used million metric tons of 
carbon dioxide (MMTCO2) or million metric tons of carbon 
equivalents (MMTCE) or carbon dioxide equivalents (MMTCO2e), 
which take into account other compounds that contribute to GHG 
emissions (i.e. nitrogen). What is important about these measurements 
is not the difference between them but that in a national carbon market 
system, participants must have a uniform way of quantifying the impact 
of the offsets they buy and sell.
    The research conducted by Duke University in the Duke Standard 
recommends expressing carbon offsets in terms of Global Warming 
Potential (GWP) units. This type of system compares the impact of 
different GHG emissions on the climate over a 100-year period. It 
allows for the differential impact of various greenhouse gases and 
compares those impacts to a standard unit of 1 (for CO2), or 
carbon dioxide equivalents (CO2e). This gives the producer, 
aggregator, verifier, buyer, and seller a unit of measure that is 
comparable to a wide variety of sequestration projects while allowing 
for carbon additionally and potential leakage to be measured and taken 
into account in the projects. The table below presents the global 
warming potentials of the compounds most relevant to land management 
practices, carbon dioxide, methane, and nitrous oxide.

                   100-Year Global Warming Potentials
------------------------------------------------------------------------
                      Gas                         1995 GWP     2001 GWP
------------------------------------------------------------------------
Carbon dioxide................................            1            1
Methane.......................................           21           23
Nitrous oxide.................................          310          296
------------------------------------------------------------------------
*Source: Intergovernmental Panel on Climate Change (1995, 2001)

    Simple conversions can be made to quantify and measure the carbon 
and nitrogen most often measured in soils to these units. The formulas 
for calculating these are presented below:
    (Biomass of C in soil) * [molecular weight of CO2/
molecular weight of C]
    Example: 100 tons of C measured in soil * [44/12] = 367 tons of 
CO2e
    Once measured, it is the verification and aggregation of offsets 
that are the next crucial steps in the process of marketing carbon 
offsets.

    Question 3a. On October 1, 2007, EPA released analysis of the 
Bingaman-Specter, McCain-Lieberman, and Kerry-Snowe bills. It showed 
through the end of this Century, each of these bills reduce would only 
reduce global warming greenhouse gas concentrations by less than four 
percent.
    Do you have reason to believe that this bill would be significantly 
different and are you willing to risk the economic future of this 
country for such an insignificant gain in global concentrations?
    Response. I believe the economic future of our country will remain 
sound particularly if our wheat growers are able to participate in a 
vibrant greenhouse gas emissions cap and trade market.
    Question 3b. Doesn't EPA's analysis demonstrate that taking 
unilateral action will be ineffective and could even be 
counterproductive since it will accelerate emissions growth in the 
developing nations as we export jobs to their inefficient economies?
    A journey of a thousand miles begins with a single step. I have no 
control over what other nations do or do not do. I can only work to 
ensure that U.S. agriculture has a meaningful role to play in whatever 
cap and trade policies our government adopts.

    Question 4. As EPA's analysis shows, even if the rest of the world 
reduces emissions by more than 10 times that proposed for the U.S., 
global emissions are expected to be higher than today. Isn't this 
relevant as we consider action here?
    In fact, if the entire developed world took unilateral action to 
eliminated every car, closed every factory and shut down every power 
plant, emissions would still be higher than today within a few decades. 
Does this affect your support of what I believe is unilateral economic 
disarmament?
    Response. I refer you to my answer above.

    Questions 5a. Regarding the overall costs and benefits of the bill:
    Should there be a request made to the Energy Information 
Administration or other federal governmental entity to model the bill?
    Response. I believe this is a matter for the authors of the 
legislation or other Members of the House or Senate to determine.
    Question 5b. Should there be a request for a study by an 
econometric modeling firm?
    Response. Regarding both sections a and b: I believe this is a 
matter for the authors of the legislation or other Members of the House 
or Senate to determine.

    Question 6a. For Section 1201:
    Do you agree with the basis for selecting a 2012 cap of 5.2 billion 
metric tons considering that total U.S. greenhouse gas emissions are 
greater than 7 billion tons (Section 1201(d)).
    Response. I am interested in the greenhouse gas credit market side 
of this issue and am not qualified to opine on the emissions aspect of 
the issue. This line of questioning is perhaps more appropriately 
focused at agencies such as DOE and EPA who are the experts in terms of 
emissions laws.
    Question 6b. In terms of emission reductions, what percentage 
should come from fuel switching, and what percentage from installation 
of new or replacement technologies?
    Response. I am interested in the greenhouse gas credit market side 
of this issue and am not qualified to opine on the emissions aspect of 
the issue. This line of questioning is perhaps more appropriately 
focused at agencies such as DOE and EPA who are the experts in terms of 
emissions laws.
    Question 6c. One oft-repeated approach to emissions reductions is 
to ``slow, stop, and reverse.'' Are the emissions targets chosen 
consistent with this approach?
    Response. I am interested in the greenhouse gas credit market side 
of this issue and am not qualified to opine on the emissions aspect of 
the issue. This line of questioning is perhaps more appropriately 
focused at agencies such as DOE and EPA who are the experts in terms of 
emissions laws.

    Question 7a. For coverage under the bill:
    Do you agree with selecting three out of six sectors of the U.S. 
economy for coverage under the bill?
    Response. I refer you to my answer above.

    Question 7b. Do you think the three sectors were not covered 
because it would not be cost-effective to include them within the cap?
    Response. I refer you to my answer above.

    Question 7c. If cost-effectiveness was a criterion, what cost in 
dollars per metric ton should be used as a cutoff?
    Response. As a capitalist, I believe that the dollar value per 
metric ton should be determined by a free, open, and unrestricted 
market.

    Question 8a. A ``new entrant'' is defined as a facility that 
commences operation on or after January 1, 2008. (Section 4(19))
    Do you agree with the selecting that date as the cutoff?
    Response. I am not qualified to speak on behalf of the regulated 
community.

    Question 8b. Do you agree with requiring commencement of operation 
instead of commencement of construction as used in the Clean Air Act?
    Response. I am not qualified to speak on behalf of the regulated 
community.

    Question 8c. Has the difference in the number of qualifying 
facilities between these two definitions been evaluated?
    Response. I am not qualified to speak on behalf of the regulated 
community.

    Question 9a. For the definition of ``facility'':
    What do you think ``any activity . . . at a facility'' means?
    Response. I refer to my answer above.

    Question 9b. Could this include coal mining operation or the 
transport of coal to a facility via train, truck, barge, etc.?
    Response. I refer to my answer above.

    Question 9c. Do you think the definition of ``facility'' to include 
``any activity or operation'' also include fugitive emissions that are 
not under the direct control of the facility?
    Response. I refer to my answer above.

    Under the bill, allowances can be borrowed for a period of up to 5 
years. (Section 2302)
    Question 10a. Do you agree with the 5 years as an appropriate time 
limit?
    Response. I refer to my answer above.

    Question 10b. Would 6 or more years provide more flexibility for 
sources that find it necessary to borrow allowances?
    Response. I refer to my answer above.

    Question 10c. What considerations are more important than that 
additional flexibility that necessitate the more restrictive time 
period?
    Response. I refer to my answer above.

    Question 10d. Since the allowances become increasingly scarce over 
time, which creates a sliding upward pressure on price, to what degree 
is it anticipated the borrowing mechanism will mitigate allowance price 
increases?
    Response. I refer to my answer above.

    Question 10e. If future allowance prices exceed market prices for 
current allowances, will this mechanism be effective?
    Response. I refer to my answer above.

    Question 11. The bill seems to indicate that the interest rate on 
borrowed allowances is 10%. (Section 2302) Should the interest compound 
annually?
    Response. I refer to my answer above.

    Question 12a. Under certain conditions, the bill allows covered 
facilities to satisfy up to 15% of its allowance submission requirement 
with allowances or credits from foreign GHG trading markets. (Section 
2501) One of these conditions is that the foreign government's program 
be of ``comparable stringency'' to the U.S. program. (Section 2502 
(b)(2)).
    What criteria should EPA use in determining whether the emission 
caps, for example, of another country are ``comparable'' to those of a 
U.S. program?
    Response. I believe the 15% allowance cap should be removed but 
cannot speak for covered facilities.

    Question 12b. Should this ``comparable stringency'' be based on 
regulatory requirements or on compliance?
    Response. I believe the 15% allowance cap should be removed but 
cannot speak for covered facilities.

    Question 13a. Under Section 2603, a Carbon Market Efficiency Board 
shall carry out one or more of six'' cost relief measures'' if the 
board determines that the emissions allowance market ``poses a 
significant harm to the economy of the United States.''
    Should the board be empowered under the bill to provide cost relief 
measures if the economy of a region or an individual state faced 
significant economic harm?
    Response. I am not qualified to comment on the structure of the 
Carbon Market Efficiency Board.

    Question 13b. What criteria should the board use to make a 
significant harm determination?
    Response. I am not qualified to comment on the structure of the 
Carbon Market Efficiency Board.

    Question 13c. How should the board determine which measures and the 
precise extent of those measures that would be adequate to mitigate 
significant economic harm?
    Response. I am not qualified to comment on the structure of the 
Carbon Market Efficiency Board.

    Question 13d. How should the board coordinate its activities with 
the Federal Reserve board in decision-making to relieve inflationary 
pressures on the economy, and which would be lead as between the in 
decision-making?
    Response. I am not qualified to comment on the structure of the 
Carbon Market Efficiency Board.

    Question 13e. What allowance price is contemplated to pose 
significant risk of harm to the economy?
    Response. I am not qualified to comment on the structure of the 
Carbon Market Efficiency Board.

    Question 13f. Is it contemplated that the CMEB will provide the 
same level of certainty for investors in advanced technologies as a tax 
or safety valve?
    Response. I am not qualified to comment on the structure of the 
Carbon Market Efficiency Board.

    Question 14a. Section 3402 requires EPA to allocate extra 
allowances to states that enact statewide GHG reduction targets that 
are more stringent that the targets established under the bill.
    What do you think the basis is for providing an explicit inducement 
for states to adopt more stringent requirements?
    Response. I am in favor of policies which will create the most 
robust greenhouse gas cap and trade market without interfering with the 
effectiveness of a nationwide program.

    Question 14b. Could this lead to inconsistencies among state 
programs that reduce the potential cost-effectiveness of a nationwide 
program?
    Response. I am in favor of policies which will create the most 
robust greenhouse gas cap and trade market without interfering with the 
effectiveness of a nationwide program.

    Question 14c. What do you think is the basis for an allocation 
level of 2% of the allowances for this purpose?
    Response. I am in favor of policies which will create the most 
robust greenhouse gas cap and trade market without interfering with the 
effectiveness of a nationwide program.

    Question 15. Section 3501 allocates 10% of the allowance account 
annually to load serving entities, which hare overseen by state 
regulatory bodies. Section 3503(c)(3) prohibits the exercise of certain 
prerogatives on the part of these state regulatory bodies such as 
requiring the filing of rate cases in order to pass through the credit 
from the sale of allowances. Do you agree with this provision and why/
(not)?
    Response. I cannot speak on behalf of load serving entities.

    Question 16. Title III, Subtitle F provides bonus allowances for 
carbon capture and geological sequestration projects. Section 3604 
limits these bonus allowances to the first 10 years of operation. Do 
you agree with limiting the inventive to 10 years?
    Response. I am not qualified to answer questions on geologic 
sequestration.

    Question 17a. Title II, Subtitle D states that domestic offsets 
have to be permanent. What exactly does that term mean in terms of 
biological sequestration?
    Response. Permanence, in respect to biological sequestration, is 
guaranteed reduction of atmospheric CO2e. To protect against 
accidental release, for example in the case of a disaster like a forest 
fire, the farmer or forester selling the offset could either guarantee 
the emission reductions through a physical or financial mechanism. For 
example, a farmer could set aside additional land that would sequester 
carbon. Alternatively, a farmer--or even a purchaser of an offset 
allowance could purchase an insurance policy that, in the case of an 
accidental release, would provide funds to replace the amount of 
allowances that the farmer intended to supply.

    Question 17b. In your opinion, what are the anticipated impacts to 
food prices associated with providing incentives to farmers to convert 
cropland to grassland or rangeland?
    Response. I believe these incentives will have a minimal impact on 
wheat prices as compared to world wide weather conditions which are a 
much more significant driver of wheat prices and the fact that even at 
$8 a bushel the cost of wheat makes up less than 10 cents of the cost 
of a loaf of bread.

    Question 17c.What would be the impact of such incentives to 
production of ethanol and the cost of ethanol?
    Response. I believe these incentives will have a minimal impact on 
wheat prices as compared to world wide weather conditions which are a 
much more significant driver of wheat prices and the fact that even at 
$8 a bushel the cost of wheat makes up less than 10 cents of the cost 
of a loaf of bread.

    Question 18. Section 3903(b) distributes allowances to rural 
electric cooperatives equal to their 2006 emissions. Do you agree with 
giving preferential treatment to rural electric cooperatives?
    Response. I cannot speak on behalf of the regulated community.

    Question 19a. Regarding Section 1103(d): What methods are 
facilities contemplated to employ to determine complete and accurate 
data for the years 2004 through 2007 where no data was collected or 
readily available?
    Response. I refer to my answer above.

    Question 19b. Also for Section 1103(d), how are facilities that 
currently do not have monitoring systems in place going to be able to 
submit quarterly data starting in 2008?
    Response. I refer to my answer above.

    Question 19c. Should the $25,000 per day for each violation apply 
to these facilities for these time periods?
    Response. I refer to my answer above.

    Question 19d. What is the process, and who should be the authority, 
for determining what constitutes complete and accurate data for these 
time periods?
    Response. I refer to my answer above.

    Question 20. Based on EPA's 2005 U.S. greenhouse gas inventory, the 
electric generating sector accounted for 46% of the proposed 2012 cap 
level of 5.2 billion metric tons. Between allocations to generators and 
load serving entities, the bill allocates 30% of the total allowances 
to that sector, and reducing the sector's subsequently. Do you agree 
wit this differential treatment of the electric sector?
    Response. I cannot speak on behalf of the electric generating 
sector.

    Question 21. The allowance allocation to electric generating units 
in the first year of the program represents approximately 44% of that 
sectors' 2005 emissions based on EPA's inventory. Electric demand is 
anticipated to increase, and reducing emissions by replacing current 
plants with lower or non-emitting plants will take years to achieve. 
Based on this, does the bill contemplate some mechanism, or set of 
mechanisms, whereby emissions will be reduced during this timeframe or 
allowances will be available, or will allowances have to be purchased?
    Response. I refer to my answer above.

    Question 22a. Section 3803 allocates 3 percent of allowances to 
projects in other countries for forest carbon activities. What should 
be the projected subsidy to other countries under this provision?
    Response. I cannot speak on behalf of forestry activities.

    Question 22b. China's carbon dioxide emissions now exceed that of 
the United Stats and are projected to increase. Should China or other 
countries whose emissions eclipse those of the United States in the 
future be eligible for these allocations?
    Response. I cannot speak on behalf of forestry activities.

    Question 23a. Regarding Section 8001: This Section calls for a 
national assessment of carbon dioxide storage capacity. Presumably, 
this assessment would determine whether the U.S. has sufficient 
capacity to geologically sequester the carbon dioxide that would have 
to be captured to comply with the bill. Absent the results of this 
survey which has not been undertaken yet, do agree with the assuming 
the U.S. has adequate storage capacity?
    Response. I support soil carbon sequestration incentives and a 
robust greenhouse gas cap and trade market. I am not involved in 
underground carbon injection.

    Question 23b. How do you envision the program addressing the long 
term oversight of the carbon storage sites?
    Response. I support soil carbon sequestration incentives and a 
robust greenhouse gas cap and trade market. I am not involved in 
underground carbon injection.

    Question 23c. This Section provides EPA with the legal authority to 
develop a permitting program for carbon storage through the Safe 
Drinking Water Act's Underground Injection Control program. Long term 
monitoring and particularly in the west, property rights, are just tow 
of the several issues that will need to be taken into consideration 
under any regulatory regime.
    Response. I support soil carbon sequestration incentives and a 
robust greenhouse gas cap and trade market. I am not involved in 
underground carbon injection.

    Question 24a. Subtitle G, Section 4702(b)(1)(F) stipulates money is 
available for adaption activities in accordance with recovery plans for 
threatened and endangered species. Does the bill envision that all 
existing recovery plans will be rewritten to address all climate change 
related effects? If so, will the monies in the adaptation fund be 
available to Fish and Wildlife Service (FWS) to re-write the recovery 
plans or will FWS have to bear that cost from other monies?
    Response. I am not familiar with recovery plans for threatened and 
endangered species.

    Question 24b. Within Subtitle G, how does the bill contemplate FWS 
will prioritize species to receive adaptation funds?
    Response. I am not familiar with recovery plans for threatened and 
endangered species.

    Question 24b(i). Is it based on their overall threatened or 
endangered status or the degrees to which the are affected by climate 
change?
    Response. I am not familiar with recovery plans for threatened and 
endangered species.

    Question 24b(ii). Are plants and animals not affected by climate 
change eligible for these funds?
    Response. I am not familiar with recovery plans for threatened and 
endangered species.

    Question 24b(iii). How should the Department of Interior 
distinguish those ecological processes that are due to man-made climate 
change from those that are due to normal species development and 
evolution?
    Response. I am not familiar with recovery plans for threatened and 
endangered species.
                                 ______
                                 
 Responses by Will Roehm to Additional Questions from Senator Barrasso
    Question 1. What impact will Lieberman-Warner have on Liquefied 
Natural Gas imports to the U.S.?
    Response. I am not an analyst of Liquefied Natural Gas imports.

    Question 2. With increasing demand for energy both in America and 
around the world as a result of increased economic growth, 
technological solutions will be essential for countries to meet their 
energy demands while limiting greenhouse gas emissions. However, there 
are tremendous uncertainties about what technologies will most 
effectively address these issues.
    As Congress continues to examine technological solutions to combat 
climate change, do you believe we have enough information to identify 
which technologies hold promise and therefore warrant investment?
    Response. The market has been an effective force to generate 
investment in promising technologies.

    Question 3. What do you think should be Congress' funding 
priorities?
    Response. For agriculture, Congress should consider using some of 
the ``adjustment funds'' suggested to accompany climate legislation to 
help defray the cost of measurement, monitoring and verification 
development.
    Congress should support dramatic and immediate expansion of 
agriculture-GHG mitigation research. Federal funding of this research 
has ended. Expanding the carbon ``crop'' to its full potential will 
mean more research on various practices and crops that store carbon 
more efficiently and knowledge about how best to model and measure 
carbon gains in a cost efficient manner.

    Question 4. What are the costs to family budgets for middle class 
and low income people of implementing Lieberman-Warner in terms of 
energy bills and gasoline prices in the next 5 to 10 years?
    Response. I am not an economist and have no expertise in energy 
prices.

    Question 5. In 2050, how much cooler will the planet be if we adopt 
Lieberman-Warner.
    Response. I am not a climatologist with the expertise to answer 
this question.

    Senator Lieberman. Thanks, Mr. Roehm. You do indeed, and 
thank you for what you do. Don't think that we take for granted 
in Connecticut what you do, what you produce in Montana.
    I know that Senator Warner wants to say something now.
    Senator Warner. Well, last night we had one of our late 
night sessions in the Senate. It gave me an opportunity to re-
read and study each of the statements that these wonderful 
witnesses have put in. I was back off the anteroom of the 
chamber reading your testimony, and along comes my good friend, 
Senator Tester, who is very proud of the fact that he is not 
only a Montanan, but a farmer. I said, look at this. Do you 
know this fellow? He read it through and he took that quote, 
and he said, that witness and that quote, you have my vote on 
this bill. Bang. He walked out.
    [Laughter.]
    Senator Lieberman. Mr. Roehm, you may have helped us with 
two votes today.
    [Laughter.]
    Senator Lieberman. Senator Warner was a little restrained 
in what he just said, because earlier in the day he did a 
dramatic rendition in the voice that he imagined Teddy 
Roosevelt would have used in reciting that series of thoughts. 
It was quite moving actually. I think John may represent the 
Bull Moose Party here in the Senate.
    Mr. Cicio, thank you very much. Paul Cicio is the Executive 
Director of the Industrial Energy Consumers of America. Thanks 
for your patience, and we look forward to your testimony now.

   STATEMENT OF PAUL N. CICIO, PRESIDENT, INDUSTRIAL ENERGY 
                      CONSUMERS OF AMERICA

    Mr. Cicio. Thank you, Senator. It is pretty hard to follow 
that.
    Chairman Lieberman, Ranking Member Warner, members of the 
committee, we are grateful for the opportunity to testify 
before you. I will not pretend to be a climate expert because I 
am not, particularly as it pertains to legislative details. I 
do know a little bit about energy, particularly natural gas and 
electricity markets, some of which I will share with you today.
    IECA is a non-profit, nonpartisan cross-industry trade 
association whose members are exclusively from the 
manufacturing sector. For a variety of reasons, the industrial 
sector emissions, greenhouse gas emissions, are below 1990, 
while all other sectors are on average up 31 percent. It is 
essential that climate change be addressed, and we look forward 
to working with you.
    This legislation is very complex with significant 
implications for our country, the environment and consumers. We 
admit having had great difficulty going through the legislation 
on short notice to prepare for this hearing. Many important 
questions about the cost of this legislation and how it would 
be implemented remain unanswered until the official legislative 
language has been provided, and we look forward to receiving it 
and providing comments.
    In our review, an essential ingredient to reducing absolute 
greenhouse gas emissions is by increasing the supply, the 
affordability and the reliability of low carbon-intensive 
energy. Setting a cap does not remove government or technology 
barriers. We are concerned that this legislation sets a near-
term greenhouse gas cap. It is only 4 years away without the 
supply and without the technology in place.
    We need increased supply of the entire mix of energy 
options, but with technology's help so that less greenhouse gas 
emissions are produced. Importantly, we must increase domestic 
supply of natural gas. We must also help the electric utility 
industry build nuclear plants, develop less carbon-intensive 
electricity from coal using IGCC and carbon capture and storage 
technology, and help renewable energy be more affordable.
    Also, nothing in this legislation would prevent the power 
generation industry from fuel switching from coal to natural 
gas. If this occurred, natural gas and electricity prices would 
rise substantially.
    Lastly, the legislation would not provide a level playing 
field against energy-intensive product importers, who would not 
be burdened by this legislation. It does not achieve global 
reach.
    We have been surprised that this committee has not had 
hearings on the implications that a carbon cap would have on 
our constrained domestic supply of low carbon-intensive energy 
and the implications of electric power generation fuel 
switching from coal to natural gas. The implications on energy 
costs for consumers are enormous as I will detail for you in 
this testimony.
    IECA's, starting point for dealing with climate change 
legislation appears to be very different than that of the 
proposed legislation. We already see high rising energy costs 
that are impacting our competitiveness and our jobs. We know 
that all costs of compliance under this legislation will be 
paid for by us, the consumer. Electricity utility costs will be 
passed through to us, so we pay twice. Homeowners and farmers 
are already suffering from high heating, cooling, 
transportation and fertilizer costs. For example, consumers 
paid $76 billion more in 2006 for natural gas and $65 billion 
more for electricity than they did in 2000.
    The October 20, 2007 Washington Post article compared 
prices from a year ago. It shows that diesel prices are up 29 
percent, fuel oil up 41 percent, gasoline up 47 percent, and 
propane up 61 percent. Natural gas prices have increased 76 
percent since 2000. Yesterday, when I checked the New York 
Mercantile's price of natural gas, it was $6.76 per million. As 
I look at the 2008 NYNEX prices, it is up 16 percent from 
today's level, and I look at the 2009 prices, it is up another 
7 percent on top of that. Senators, prices are moving higher, 
not lower.
    Since 2000, high natural gas prices reduced consumer demand 
for natural gas by a total of 1.9 percent. Residential demand 
is down 12 percent: commercial demand is down 9 percent. 
Industrial demand, mostly through demand destruction, is down 
19 percent since 2000.
    However, the electric power sector increased their demand 
increased by 19 percent. This upward constant growing demand by 
the power sector negated all of the benefits of energy 
efficiency and conservation by us consumers.
    Now, FERC, the Federal Energy Regulatory Commission, says 
electricity prices are rising across the country as a direct 
result of higher demand and price for natural gas by the power 
sector. It is important for you to know that natural gas sets 
the marginal price of electricity. So when natural gas prices 
go up, so does the price of electricity.
    The Electric Power Research Institute, EPRI, said that, and 
this is a quote, ``Even though natural gas is used to produce 
only 20 percent of the electricity, natural gas accounts for 55 
percent of the entire electricity industry's expense.'' Natural 
gas cost is $50 billion out of the $91 billion total.
    Further accelerating our concern is that according to EIA, 
73 percent of all new electric generating capacity built in 
2006 was based on natural gas. EIA's estimate for 2007 jumps up 
to 78 percent, and the 2008 forecast is more of the same. For 
your information, one 500 megawatt gas-fired power plant uses 
the equivalent in natural gas to fuel 842,308 homes. So natural 
gas is going to go either for power generation or it is going 
to heat homes and keep manufacturing plants running.
    If there is anything from this testimony that I hope you 
will remember is this single point. According to the EIA, there 
is 436,991 megawatts of natural gas-fired capacity in the 
United States. Not all of that is being used. If climate change 
legislation, and I am not saying it is your legislation, but if 
climate change legislation provides the economic incentives for 
electric utilities to fuel switch, that capacity would consumer 
an equivalent of 21 trillion cubic feet of natural gas.
    Senators we use a little over 21 trillion cubic feet as an 
entire country. Given this, it is very important that climate 
change policy not incentivize it.
    The potential for fuel switching is accentuated by the 2012 
starting date of the emission cap, and 2012 is only 4 years 
away. This is exactly what happened in Europe with the EU 
emissions trading scheme. I am going to repeat a quote that was 
given by Shell Oil in a Senate Energy and Natural Resources 
Committee hearing on March 26, 2007. Shell said, ``The bulk of 
emission reductions in the EU are made actually by coal to 
natural gas fuel switching in power stations. Any price will 
start to change the dispatch of power plants and start change 
away from coal to natural gas.''
    All of this, of course, would not be a problem if natural 
gas supplies were growing. From 2000 to 2006, production is 
down four percent. Canadian supply has been flat to declining 
since 2000 and supply fell by three percent in 2006. LNG 
imports have increased since 2000, but remain only 2.7 percent 
of our Nation's supply--actually in 2006, LNG imports fell 7.5 
percent.
    A relatively small increase in demand or a small drop in 
production means a lot to the price that every consumer pays. I 
will give you a real life example. When Katrina hit, it took 
out 5 percent of U.S. production for only 5 months. In that 5 
months, the price of natural gas went up and it cost consumers 
$40.8 billion. Consumers paid $40.8 billion more for natural 
gas compared to the same months the previous year, and that was 
only a 5 percent change. A 5 percent increase in demand thru 
fuel switching would have the same effect.
    In conclusion, we are requesting that Congress do not cap 
greenhouse gas emissions until there is an abundant and 
affordable and reliable supply of low carbon energy. Without 
it, the cost to the economy and the cost to consumers we fear, 
will be significant.
    Thank you, Senator.
    [The prepared statement of Mr. Cicio follows:]
       Statement of Paul N. Cicio, President, Industrial Energy 
                          Consumers of America
    Chairman Lieberman, Ranking Member Warner and Committee Members, we 
are grateful for the opportunity to testify before you on this 
important and timely topic.
    As you know, one of the greatest environmental legislative 
accomplishments was the enactment of the Clean Air Act of 1990 which 
took 10 years and passed overwhelmingly with bipartisan support. While 
its complexity is well noted, it pales in complexity to comprehensive 
climate change legislation and its implication to our country's 
economic health and future. Much is at stake and we encourage you to 
take the time to do it right. Doing so will yield the greatest possible 
greenhouse gas (GHG) reductions based on a coherent strategy.
    We are not on opposite sides of the debate. We are in this 
together. IECA member companies support action by Congress to increase 
energy efficiency and lower greenhouse gas emissions (GHG) to reduce 
the threat of climate change. We also support mandatory reporting. IECA 
is concerned about the availability of low GHG emitting energy supply 
and the availability of technology that will be needed given the 
legislation's time table.
    IECA's starting point for dealing with climate legislation appears 
to be very different than that of the proposed legislation. We already 
see high and rising energy costs that are impacting our competitiveness 
and jobs. Homeowners and farmers are suffering from high heating, 
cooling and transportation costs. And, while the cost of this 
legislation is not transparent, home owners, farmers and manufacturers 
will pay for the CO2 auctions and the higher costs of 
natural gas, heating oil, electricity and gasoline. Consumers will pay 
for all of the hidden transaction costs as well because the proposed 
legislation allows non-regulated entities to buy, sell, hold or retire 
carbon allowances. As we have already seen in a number of commodity 
markets, adding financial or other participants to a market 
historically made up of suppliers and users will add volatility and add 
a price premium when that commodity is in short supply. Higher energy 
costs and compliance costs are inflationary which will reduce 
disposable income.
    All consumers are already reeling from high energy prices. 
Consumers paid $76 billion more in 2006 for natural gas and $65 billion 
more for electricity as compared to 2000. The below price comparison 
was featured in a Saturday, October 20, 2007 Washington Post article 
which illustrates how much more consumers are paying for energy since 
last October.


------------------------------------------------------------------------
                      Energy Product                           Change
------------------------------------------------------------------------
Crude oil, WTI............................................         +56%
Diesel....................................................         +39%
Fuel Oil, NY..............................................         +41%
Gasoline, Reg NY..........................................         +47%
Propane, NTET, MB.........................................         +61%
Natural Gas...............................................           --
------------------------------------------------------------------------

    Without EIA economic modeling that uses realistic supply, demand 
and price assumptions, it is impossible to tell how this legislation 
will impact energy costs or the economy. In that regard, it is 
essential that Congress review an article that is attached to our 
testimony entitled ``Betting on Bad Numbers''. The article was written 
by two Penn State professors who prove that the EIA modeling is 
systematically flawed. It is critical this be corrected as soon as 
possible.
                            five key points
    1. The only way for the U.S. and the world to reduce absolute GHG 
emissions is to increase the supply of affordable and reliable low 
carbon intensive energy. The world is growing at a rate of 70 million 
people per year which will increase demand for energy. It is critical 
that this energy be less carbon intensive. This legislation does not 
increase low carbon energy supply. (Ongoing conservation and energy 
efficiency will continue to play an important role.)
    2. No one disagrees that natural gas will play a vital role in the 
U.S. as the ``bridge fuel''. At best, our supply situation is fragile. 
In our opinion, this legislation would accelerate demand for natural 
gas that does not exist.
    3. Nothing in this legislation will prevent the power generation 
industry from fuel switching from coal to natural gas which will 
increase the price of natural gas and electricity from all consumers. 
Cap and trade policy increases the potential for this to occur as it 
did in Europe with the EU ETS (Emissions Trading Scheme).
    4. There are at least three major mandatory options to control GHG 
emissions from carbon intensive industries: cap & trade; carbon taxes; 
and various GHG performance standards. Of these three, in general, cap 
and trade is the least preferred by the industrial sector. A declining 
cap challenges our ability to grow and supply the market with the 
products we produce. We provide products needed for economic growth and 
enabling solutions to reduce GHG emissions for the market. Products 
such as insulation, composite plastics, high performance light weight 
steels and fertilizer to grow crops for biofuels. It is 
counterproductive to limit our output. Doing so drives our production 
facilities offshore and results in job losses.
    5. We are on record that the AEP-IBEW Proposal that is embodied in 
these provisions will not provide a level playing field against energy 
intensive product importers who will not be burdened by this 
legislation. It does not achieve global reach and we stand by our 
analysis, which I would like to provide for the record. This provision 
will not work. If there is any doubt about this, look at the timeline. 
Under the bill, domestic firms will face higher energy prices, 
obligations to acquire allowances, and reduce emissions beginning in 
2012. Our major foreign competitors doing business in the U.S. are not 
required to do anything until 8 years later in 2020. I am no trade 
lawyer, but I understand that to significantly reduce this period of 
time may jeopardize any hope of making the provision WTO-compliant. 
Further, we are concerned that even if the President triggers the 
requirement for importers to obtain allowances from the international 
pool as provided in title VI, that foreign states will simply cross-
subsidize the purchase of allowances. For example, eight of the ten 
largest Chinese steel groups are 100% owned or controlled by the 
Chinese government, while 19 of the 20 largest steel groups are 
majority owned or controlled by the government. Bringing trade cases to 
combat this hidden subsidy would be very difficult and time-consuming.
    One more point deserves your attention. The bill invites the states 
to impose even tougher cap and trade programs than the federal program. 
What mechanism will the states use to prevent putting domestic 
manufacturers at a competitive disadvantage with foreign importers? Can 
states impose allowance requirements on foreign firms? Isn't this a 
federal issue?
    IECA believes the following elements are essential to sound climate 
policy.
     Reduce GHG emissions cost effectively;
     Be transparent in order to achieve clear market signals;
     Not create winners or losers;
     Ensure that U.S. industry is not disadvantaged from 
competing with foreign imports of energy intensive products;
     Recognize that each sector is different and that tailored 
incentives combined with appropriate performance standards can achieve 
maximum GHG reductions at the lowest cost;
     Accelerate technology research, development and deployment 
to lower the carbon intensity of energy; broadens our supply options; 
and position the U.S. as the world's leading provider of low carbon 
intensive energy supply technology.
     Efficient cogeneration of steam and electricity should not 
become disadvantaged.
    For the industrial sector, energy is a significant cost and 
reducing that cost is an important component of competing globally. If 
we fail to reduce energy costs we will fail to compete globally and 
cease to exist. It's just that simple. We compete in a ruthless 
competitive global market and the industrial sector is unique in this 
regard.
    Manufacturers want and need to continually reduce energy 
consumption and it is in our government's interest to work in 
partnership to continue the success we have shown over the last 20 
years.
    Regulating carbon regulates energy consumption and regulating 
energy consumption regulates the economy. This would be a significant 
new responsibility for the EPA. These new responsibilities must be 
examined and delegated with great care.
    America's Climate Security Act of 2007 (ACSA) is a comprehensive 
climate change bill. Even though our sector's GHG emissions are below 
1990, we would find ourselves regulated under this bill and would be 
placed in a competitive disadvantage with our global competitors. The 
bill would require industrials to reduce GHG emissions in our internal 
operations and/or buy allowances through an auction. As we do, capital 
is expended for the purchase of carbon allowances instead of R&D, plant 
expansions or employee benefits.
    We also find ourselves being thrown into the auction pool having to 
compete with electric utilities for allowances. At this point it is not 
clear that the necessary allowances and natural gas will be available 
to allow continued operation of our members' facilities in the United 
States. If the utilities move more electricity production to natural 
gas allowances should be available, but natural gas will not. If 
utilities continue to use coal as a fuel then emission allowances will 
be prohibitively expensive for industrial use.
    Unlike the electric utilities, when IECA members purchase carbon 
allowances, it is a cost that is not recoverable unless global 
competitors raise the price of their products which would allow 
recovery of the costs. If competitors raise prices, the increased price 
becomes increased profit to them. For us, the increased price allows 
cost recovery--not increased profits.
    The industrial sector 2005 GHG emissions are below those of 1990. 
The industrial sector is not the problem for the U.S. emission profile 
now or going forward and should not be placed under a cap as this 
legislation does. Other specific policy measures tailored to our sector 
will be more effective, less costly, without product market distortions 
and loss of jobs. Even if we are not placed under a cap, the industrial 
sector would bear significant increased energy costs that will impact 
our global competitiveness.
    Climate policy by Congress can induce a move of industrial 
production facilities to locations outside the U.S. that provide lower 
costs. Companies have already demonstrated the need to move overseas to 
compete on a global basis. The loss of 3.1 million manufacturing jobs 
or 18 percent since 2000 provides evidence of this fact. Carbon costs 
can have the same effect.
    Cap and trade climate policy rations energy use and without an 
existing abundant supply of low carbon intensive energy will 
significantly impact energy costs and the economy in ways that are 
impossible to predict.
    This is accentuated by the starting date of 2012 and an emissions 
cap at the 2005 level. This is only 4 years away! Few economical 
actions can be taken in this short time frame other than fuel switching 
from coal to natural gas by the electric utility sector. This is 
exactly what happened in Europe with the EU ETS as reported by Garth 
Edwards, Shell Oil, Trading Manager, Environmental Products, London, 
England.
    Mr. Edward's made the following comment during a March 26, 2007 
Senate Committee on Energy & Natural Resources Hearing on European 
Union's Emissions Trading Scheme. He said, ``The bulk of emission 
reductions in the EU are made actually by coal to gas (natural gas) 
fuel switching in power stations. And any price will start to change 
the dispatch of power plants . . . and start change away from coal into 
gas (natural gas).''
    Fuel switching from coal to natural gas would not be a problem if 
it were not for the fact our supply of natural gas is very fragile. 
Production is down 4% since 2000 despite record well completions, 
imports from Canada are down since 2001 and imports of LNG are both 
expensive and unreliable. Utilities have alternatives such as coal, 
renewable and nuclear energy, industrial consumers do not. This 
legislation must require that power generators cannot fuel switch until 
there is better availability.
    One important concern about this legislation and cap & trade in 
general is that it does not necessarily reduce GHG emissions. It 
regulates and adds costs. For example, the EU has not seen a reduction 
in GHG emissions but has seen increased costs of energy. We do know 
that using more low carbon intensive energy will reduce emissions.
    Cap & trade does not increase the supply of low carbon intensive 
energy. Cap & trade does not remove the government or technological 
barriers that will increase domestic supply of natural gas from federal 
lands; increase LNG import capacity; facilitate the construction of the 
Alaska Natural Gas Pipeline; or facilitate the construction of a new 
generation of nuclear plants, IGCC (Integrated Combined Cycle) or 
carbon capture and sequestration. Not one.
    A cap & trade mandate could be implemented and these barriers will 
still be in place which would significantly raise the cost of energy 
for home owners, farmers and manufacturers and accelerate the movement 
of the manufacturing sector out of the U.S.
    Countries do not play fair when it comes to trade. Countries 
subsidize their manufacturing industries in many different ways for 
purposes of job creation and trade currency. Energy is high on the list 
of subsidies. There is little doubt that these same countries will 
provide carbon allowance subsidies. Subsidies are a significant factor 
in developing countries. Even EU countries are doing it today by buying 
carbon offsets through the Clean Development Mechanism and Joint 
Implementation programs.
    In this regard, a suggestion that this subcommittee plans to markup 
this bill without first obtaining a political and technically realistic 
economic analysis and moving through appropriate hearings is troubling. 
The economic consequences of such legislation could be devastating.
    The industrial energy users strongly encourage the committee to 
hold more hearings on this legislation for there are many unanswered 
questions and unknown consequences that need to be examined in greater 
detail. Here are just a few of the areas we believe need to be further 
explored before action is taken on this legislation.
    1. What will be the impact on energy prices, specifically, 
electricity, oil and petroleum products, natural gas and coal for each 
year between 2012 and 2050?
    2. Furthermore, it is imperative that a hearing be held that looks 
at all the ramifications of this legislation on the commodity markets. 
It is well known that use of the commodity markets has soared in the 
last few years. This legislation could result in the creation of a 
market for billions of units with a value in the trillions of dollars. 
What safeguards are needed to prevent another Enron? What percentage of 
those trillions of dollars will be siphoned off by the commodity 
traders and speculators? Should a government trading operation be 
established as the sole venue for trading allowances?
             industrial energy consumers of america (ieca)
    IECA is a 501 (C) (6) national non-profit non-partisan cross-
industry trade association whose membership is exclusively from the 
manufacturing sector and is dedicated exclusively to energy and 
environmental issues. Corporate board members are top energy and 
environmental managers who are leaders in their industry, technical 
experts and strongly committed to energy efficiency and environmental 
progress. Membership companies are from diverse industries which 
include: paper, steel, chemicals, plastics, food processing, industrial 
gases, cement, brewing, construction products, brick, aluminum, 
fertilizer, automotive products and pharmaceutical.
            position on cap and trade policy and legislation
    IECA's objective is to work with Congress to implement policies 
that reduce GHG emissions without loss of manufacturing 
competitiveness. IECA has not taken a position in support or opposition 
to cap and trade as a policy, nor specific legislation that includes 
the policy.
    However, IECA has on numerous occasions communicated to Congress 
the serious concerns such legislation causes the industrial sector. Our 
testimony today will reflect these same and growing concerns about the 
potential impacts.
    Individual industrial companies vary in their views on policy such 
as cap & trade. In general, those who are mostly domestic producers 
exhibit the most concern about cap & trade because it can place them at 
a competitive disadvantage to non-U.S. producers. Other U.S. companies 
with large non-U.S. operations or those who have moved their energy 
intensive operations offshore are less fearful because capping U.S. 
emissions provides a competitive advantage.
                  background on the industrial sector
    There are about 350,000 manufacturing facilities in the U.S. It is 
estimated that about 7,800 facilities would emit 10,000 tons of 
CO2 per year. By itself, regulating the industrial sector 
presents a significant regulatory challenge for the federal government.
    Energy intensive industries include chemicals, plastics, fertilizer 
glass/ceramics, brick, steel, aluminum, pulp and paper, cement, food 
processing and refining. Energy is used as both fuel and feedstock. 
Feedstock means the energy source (natural gas, crude oil) becomes the 
actual product thus there are no GHG emissions. It is for this reason 
that energy used as a feedstock should be exempt. Some industrial 
processes are very electricity intensive.
    The manufacturing sector competes globally in an environment of 
unfair competition. Other countries value their manufacturing sector 
and often subsidize energy costs, provide incentives and otherwise 
protect the manufacturing sector.
    For U.S. energy intensive industries, reducing energy consumption 
per unit of product produced is essential. We either continually reduce 
our energy cost per unit of product or we will cease to be competitive.
    The performance of the manufacturing sector in reducing energy 
consumption and resulting GHG emissions is not new. We already have two 
price signals: energy prices and global competition. Energy is a 
significant cost of competing globally. This is one important reason 
that a less heavy regulatory hand is not needed. Manufacturers want to 
reduce energy consumption and it is to governments' advantage to work 
in partnership to continue this success. This is why the industrial 
sector does not need an additional carbon price signal.
    In many ways, the industrial sector provides the U.S. with a 
significant success story in reducing energy consumption and GHG 
emissions. Total energy consumption by the industrial sector has 
increased only .017% since 1990.
    The industrial sector's total direct and indirect carbon dioxide 
emissions in 2005 are below their 1990 level while GHG emissions from 
the residential sector increased 31.4%; commercial +34.6%; 
transportation +25% and electricity +31.7%. Industrial direct GHG 
emissions decreased by 3.4% and indirect emissions have increased by 
5.4%. In 1990, the industrial sector represented 21% of the U.S. 
emissions and now only 17%.
    The industrial sector has a history of continuous improvement in 
energy efficiency since the 1970's and the first oil embargo. In the 
1990's when natural gas became relatively low cost, many industrial 
sites converted their facilities from coal to natural gas. Low natural 
gas prices also resulted in significant growth in the use of 
cogeneration of steam and power. The pulp and paper industry increased 
its use of biomass as a fuel and also increased its use in cogeneration 
facilities to more efficiently produce both steam and power. These 
combined actions lowered both energy consumption and GHG emissions.
    Since 2000, high energy costs, particularly high natural gas costs 
and now rising electricity prices, have been a significant factor for 
the energy intensive industries. The manufacturing sector has lost 3.1 
million high paying jobs or 18% of the total. To our knowledge, this is 
the first time in U.S. history where we have lost manufacturing jobs 
despite robust economic growth for four straight years. We are fearful 
that if Congress does not increase the availability and affordability 
of domestic energy, more manufacturing plants will move offshore.
    Because U.S. natural gas costs have been, on average, the highest 
in the world and because of Congressional uncertainties regarding 
future supply, investment in U.S. manufacturing plants have been 
extremely low with the exception of energy efficiency projects. There 
have been almost no major energy intensive grass root plants built 
since 2000 and only incremental production increases. Also, high 
natural gas prices are making some cogeneration plants uneconomic and 
these industrial companies are now buying electricity for the grid 
which is more carbon intensive.
    Lastly, the primary manufacturing processes for these industries 
are near their thermal limits. Significant R&D investment is necessary 
to achieve the next generation of processes. In the mean time, 
significant energy efficiency achievements are not anticipated.
IECA recommends the following climate policy options that do not cost 
        consumers anything; present no risk to the economy; provide for 
        increased supply of affordable and reliable low carbon 
        intensive supply of energy; reduces GHG emissions; increases 
        energy security; and increases the competitiveness of the U.S.
     Support mandatory reporting for domestic and non-U.S. 
based companies.
     Increase supply of affordable and reliable low carbon 
intensive energy. Remove government barriers to increased supply of 
natural gas in federal lands and the Outer Continental Shelf; expedite 
the Alaska Natural Gas Pipeline; facilitate approval of LNG import 
terminals; facilitate construction of a new generation of technology 
nuclear plants;
     Accelerate research, development and deployment of carbon 
capture and sequestration for use by coal fired power plants and IGCC 
technology for production of synthetic natural gas, feedstock and 
electricity.
     Take a sector approach. Each sector is different. Tailor 
incentives to accelerate energy efficiency in each sector. Energy 
efficiency is the ``fifth fuel''. It is particularly important to 
include the commercial and residential sectors where demand for 
electricity is soaring.
     The key to improving energy efficiency in the industrial 
sector is capital stock turnover. Tax credits and faster depreciation 
are the best options.
     Facilitate removal of regulatory barriers that impede 
energy efficiency in each sector. Example: New Source Review.
     Pay for the R&D and tax incentives by increasing access to 
the OCS which would produce significant federal revenues and increase 
supply of natural gas.
                         additional information
Natural gas supply is very fragile and demand by the power generation 
        sector is increasing.
    Reserve production capacity is almost non-existent. Inventory 
levels are good right now but can change rapidly based on weather 
conditions. Supply is down 4% since year 2000 despite record well 
completions. Canadian imports are down by 4.9% since 2001. New Gulf of 
Mexico leases will not increase supply for the next 5 years or so. The 
Alaska Natural Gas Pipeline has not shown any progress. LNG remains 
unreliable and a potential new cartel is on the horizon.
    The Rocky Mountain Region has increased its production primarily 
due to EPAct 2005 provisions that have helped to streamline the permit 
process among other provisions. These are the same provisions that are 
slated for repeal under the currently debated energy bill. Increases in 
the Rocky Mountain Region have helped offset production decreases in 
the Gulf of Mexico.
    Demand for natural gas by the power sector continues to increase 
the price for all consumers. Power sector natural gas demand has 
increased 19% since 2000 while other sectors have reduced their demand: 
Residential ^12%; Commercial ^9%; Industrial ^19%.
    Natural gas fired power generation impacts on all consumers. For 
example, a single 500 MW rankine cycle power plant (10,000 Btu/kwh) 
will use the equivalent natural gas volume used to fuel 842,308 homes 
each year.
    Power demand for our limited supply of natural gas is slated to 
increase even more. Proposed 2007 power plants include 16,892 MW that 
are natural gas fired compared to only 1,589 MW for coal and no nuclear 
plants. Based on 2005 EIA information, there is 436,991 MW of natural 
gas fired power capacity in the U.S. If utilized, they would consume 
about 21 trillion cubic feet of natural gas, an amount nearly 
equivalent to our national consumption. Congress must ensure climate 
legislation does not give the power generation sector an incentive to 
use this capacity.
    High natural gas prices are impacting the price of electricity 
across the country. The Electric Power Research Institute said that 
``Even though natural gas is used to produce only 20 percent of the 
electricity, it accounts for 55% of the electric industry's entire fuel 
expense ($50B out of $91B).''
The U.S. cannot grow its economy or sustain the high quality of life 
        that we are accustomed to without greater use of products from 
        the industrial sector. Under a cap, the question is whether the 
        products are produced in the U.S. or in foreign markets. A cap 
        could restrict domestic production of these products; increase 
        imports and GHG emissions from those imports; accelerate 
        manufacturing job loss; increase the U.S. trade deficit and the 
        balance of payments.
    Examples of how energy intensive products are used and are integral 
to the growth of the U.S. economy:
     The aerospace/defense industry uses steel, aluminum, 
plastics and chemicals.
     The air transport industry uses steel, aluminum, plastics 
and chemicals.
     The auto and truck industries use steel, aluminum, 
plastics, chemicals.
     The beverage industry uses aluminum, steel, paper, glass 
and plastic.
     The biotechnology industry uses chemicals.
     The commercial and home building construction industry 
uses brick, steel, aluminum, wood, cement and glass.
     The oil and gas industry uses steel, chemicals, cement.
     The chemical industry uses chemicals, steel, cement and 
glass.
     The computer industry uses plastics, chemicals, and glass.
     The electrical equipment industry uses steel.
     The electric and gas utility sector uses steel and cement.
     The food industry uses fertilizer, chemicals, plastics and 
paper.
     The home furnishing industry uses wood, glass, chemicals.
     The heavy construction industry uses steel and rubber.
     The home appliance industry uses steel, aluminum, glass 
and wood.
     The household products industry uses chemicals, plastic; 
paper, glass.
     The machinery industry uses steel, chemicals and plastics.
     The maritime industry uses steel.
     The packaging industry uses plastics, paper, aluminum and 
steel.
     The paper/forest products industry uses steel and 
chemicals.
     The refining industry uses steel, chemicals and cement.
     The pharmaceutical industry uses chemicals, glass and 
steel.
     Railroads use steel.
     The toiletries/cosmetics industry uses chemicals, 
plastics, paper, and glass.
Industrial sector products are a major solution to reducing GHG 
        emissions. It takes energy to save energy. Our products use 
        energy in the production process but save energy when used by 
        the commercial and retail consumer. Placing a GHG cap on the 
        industrial sector and requiring absolute GHG reductions 
        restricts our ability to increase production of these products 
        in the U.S.
    It takes energy to save energy. For example, insulation can be made 
from glass, plastic or paper, all of which is energy intensive. When 
used to insulate commercial and home buildings, significant amounts of 
energy saved go well beyond the energy to produce the product. Double 
pane windows are another example. Double pane windows use twice the 
amount of glass but save an enormous amount of energy over the life of 
a building. Other examples include light weighting of autos, trucks and 
aircraft. Key solutions are greater use of aluminum, composite plastics 
and different grades of steel. All are energy intensive.
    ``A good example comes from one of our member companies and it's 
`Near Zero-Energy Home' in Paterson, New Jersey. This project 
demonstrates how good chemistry helps make healthy, energy-efficient 
and affordable homes better. Chemistry helps the building materials in 
the near-zero-energy home not only deliver superior thermal insulation, 
but also contributes to the missing performance ingredient--resistance 
to uncontrolled air leakage that can waste up to 40 percent of the 
energy used to heat and cool a home.''
    ``The demonstration project scored an impressive 34 on the HERS 
Index, a tool used by ENERGY STAR to measure a building's energy 
performance, making it 80% more efficient than a typical home. The 
project was the first on the East Coast to receive a Platinum score 
from the U.S. Green Building Council LEED for Homes rating system and 
is currently serving as a model for several hundred homes being built 
in an economically challenged neighborhood in East Parkside, 
Philadelphia.''
    IECA companies have many more examples that can be shared with the 
Congress.
The EU Emissions Trading Scheme (EU ETS) significantly increased the 
        price of electricity from about 34 to 69 euros per kwh or 76%.
    The EU ETS started in January of 2005. The European Commission (EC) 
granted carbon allowances to the electric utilities, in fact, too many 
of them. The utilities priced the market value of these carbon 
allowances into the price of their electricity which increased the 
price of electricity to consumers even though the European Commission 
gave them to the utilities at no charge. The higher the price of carbon 
went up--the higher the electricity prices rose. This raises the 
question of whether U.S. electric utilities will be able to do the same 
thing.
    Prices of electricity in the EU rose from January 2005 to April 
2006 as follows in euros per mwh:


----------------------------------------------------------------------------------------------------------------
                                                       Price in January      Price in April
                       Country                               2005                2006           Percent Change
----------------------------------------------------------------------------------------------------------------
Germany.............................................                 34                  61                +79%
France..............................................                 34                  63                +85%
Netherland..........................................                 38                  51                +34%
Skandanavia.........................................                 25                  51               +104%
UK..................................................                 41                  83               +102%
----------------------------------------------------------------------------------------------------------------

    In this same time period high carbon prices provided an incentive 
for electric utilities to switch from coal to natural gas which 
increased natural gas demand significantly and increased the price of 
natural gas throughout the market for electricity generators but also 
for every home owner, farmer and manufacturer who uses natural gas.
    The high prices of carbon provided an incentive for the utilities 
to fuel switch from coal to natural gas lowering their carbon emissions 
and allowed them to either sell carbon allowances or help them keep 
under their GHG reduction obligation to the European Commission.
    This is consistent with comments by Garth Edwards, Shell Oil, 
Trading Manager, Environmental Products, London, England. Mr. Edward's 
made the following comment during a March 26, 2007 Senate Committee on 
Energy & Natural Resources Hearing on European Union's Emissions 
Trading Scheme. He said, ``The bulk of emission reductions in the EU 
are made actually by coal to gas (natural gas) fuel switching in power 
stations. And any price will start to change the dispatch of power 
plants?and start change away from coal into gas (natural gas).
    There is more to it. Just like in the U.S., natural gas-fueled 
power generation sets the electricity market marginal price. The higher 
the natural gas price goes, the higher the electricity marginal price 
becomes.
    The marginal price of electricity is the last increment of power 
that is needed by the grid to fulfill consumer demand. The price of 
this last increment sets the price of electricity for not just that 
portion of the power, but for all of the power that is sold to 
consumers for a given period of time. If a utility is a low cost 
producer using coal or nuclear, they want to see natural gas prices go 
up and natural gas fired generation setting the marginal price of 
electricity because it increases their profitability. In the U.S. as 
well as in the EU the cost of producing electricity from coal or 
nuclear is significantly below that of natural gas fired generation.
    EU industrial companies report that later, after relatively high 
marginal prices were set, the electric utility industry began to 
maximize coal-based generation with lower costs to maximize profits. 
This would also increase GHG emissions. Please note the electricity 
market in the EU and in the U.S. is not transparent such that anyone 
other that the ISO operators really know what prices are bid by the 
electric utilities or what specific production units were utilized.
    On April 25, 2006, the EC released their report that concluded too 
many allowances were given to the utility sector and the price of 
carbon fell sharply from about 30 to 12 euros per ton. Although 
electricity prices fell, they did not fall as much and later continued 
their upward climb. Interestingly, natural gas demand and prices fell. 
It appears that with lower carbon prices, more money could be made from 
low cost coal generation than selling carbon. There is a strong 
correlation between carbon prices and natural gas demand from fuel 
switching. Higher carbon prices means more demand for natural gas.
    In the October, 2006 timeframe, the Langeled Norwegian natural gas 
pipeline began to deliver supplies to the UK which resulted in lower 
natural gas and electricity prices across the EU. This example further 
illustrates the importance of increased natural gas supply. Greater 
supply means lower prices.
Core industrial sector processes (the processes used to make our 
        products) are near their energy efficiency engineering limits. 
        Significant investment in technology is needed to achieve new 
        technology that will allow significant GHG reductions.
    This legislation does not direct recycled auction income to assist 
the industrial sector in developing such technology and we encourage it 
to do so.
Section 3401 Revenue Decoupling Will Not Promote Industrial Energy 
        Efficiency--Stick to traditional utility rate making.
    Advocates of utility rates based on ``revenue decoupling'' believe 
it will remove economic incentives that work against energy efficiency. 
The rate design for regulated utilities typically rewards utilities for 
selling more power, while energy efficiency projects result in 
decreased power sales. ``Revenue decoupling'' would break--or 
``decouple''--the link between the amount of power sold and the revenue 
(and profit) realized by utilities, thereby supposedly removing the 
economic incentives against energy efficiency. The advocates are wrong.
    Industrial companies have made great strides in improving their 
energy performance and reducing their reliance on fossil fuels. Revenue 
decoupling, however, would penalize future industry energy efficiency 
efforts:
    With decoupling, utilities are supposedly compensated for revenue 
lost when customers' efficiency projects reduce demand. However, 
measurement and verification protocols often cannot distinguish between 
lower sales generated by energy efficiency from other causes. Hence, 
utilities also are often compensated for reduced power sales due to 
factors unrelated to efficiency, such as weather that depresses sales 
or economic downturns, or even customer funded energy efficiency 
projects.
    Because it is difficult to track where savings come from, utilities 
are often simply compensated for lost revenue generally. Industrial 
consumers therefore often lose the financial reward and a primary 
motivator of efficiency projects--reduced energy bills. For example, if 
a manufacturing company installed more efficient boilers in response to 
rising fuel prices, it would purchase less power from its utility, and 
should see lower bills. However, because the utility is to be 
compensated for the lost revenue, that same facility would end up 
paying a higher rate on a lesser level of purchases under decoupling, 
thereby totally undermining the motivation for the investment in the 
energy efficiency project.
    Eight states have established third-party entities whose mission is 
to promote incentives for energy efficiency for industrial and other 
power consumers. If Congress desires a mechanism to promote energy 
efficiency, it should investigate the programs in these states to learn 
more about programs that treat all stakeholders fairly and provide 
incentives--instead of penalties--for industrial users.
It is important that coal stay in the supply mix and compete with other 
        alternative energy sources for power generation. It is both 
        important to help keep the cost of electricity down but it is 
        also an energy security issue. However, the technology, costs, 
        transportation, permitting and liability issues must be 
        resolved before implementation of a cap and trade system for 
        the power generation industry.
    These five critical elements must be achieved before implementation 
of a cap and trade program on the power sector. Without them, the cost 
of electricity will rise unnecessarily.
     CO2 capture technologies must be widely 
deployable.--Current CO2 capture technology is limited to 
small demonstration projects. Commercial scale demonstrations are 
needed to help prove which capture technologies are technically 
feasible, economically sound and available from multiple competitive 
vendors.
     Energy penalties must be reduced.--Current capture 
technologies reduce net energy output by 15-35%. Additional research 
and technology advances are needed to bring down these penalties 
otherwise more new generators will need to be built.
     A dedicated CO2 transportation system must be 
built in areas beyond the current EOR zones/--A new and expanded 
pipeline infrastructure dedicated to transport captured CO2 
must be sited, permitted and constructed to provide ready access by 
power plants.
     CO2 storage permitting & liability must be in 
place.--Suitable geologic storage areas must be identified and tested. 
Once located, these sites need to be permitted for commercial operation 
at federal, state and local levels, and long-term storage liability 
must be assumed by the Federal Government. Pipeline access must be 
assured.
     GHG regulations must be uniform and provide for 
preemption.--The creation of one overriding federal regulatory control 
regime will not only result in enforcement efficiency, it will provide 
business certainty.
                         legislation specifics
     The legislation does not have a safety value, an essential 
element of any cap and trade system.
     The criteria to be used to award any such extra allowances 
to the states, if these are to awarded at all, should be based on how 
the manufacturing industries subject to global competition in that 
state are projected to fare under a cap and trade regime. So presumably 
states whose economies may be jeopardized because they have industries 
at risk, can use the allowances to retain jobs.
     The legislation does not preempt states from establishing 
their own climate programs. In fact, the legislation gives states an 
incentive to establish their own GHG reduction programs with tougher 
reduction targets than at the federal. This leads to higher costs for 
every manufacturer.
     Section 3301 provides credit for early action with a base 
year of 1994. Projects that resulted in GHG reductions that early were 
not done with climate change in mind. We encourage use of 2000.
     Money raised from auctioning should be used to compensate 
industries such that will incur significant ``stranded costs'' when 
certain pieces of equipment are retired before they have lived their 
useful lives.
[GRAPHIC] [TIFF OMITTED] 73579.004

[GRAPHIC] [TIFF OMITTED] 73579.005

[GRAPHIC] [TIFF OMITTED] 73579.006

[GRAPHIC] [TIFF OMITTED] 73579.007

[GRAPHIC] [TIFF OMITTED] 73579.008

[GRAPHIC] [TIFF OMITTED] 73579.009

[GRAPHIC] [TIFF OMITTED] 73579.010

[GRAPHIC] [TIFF OMITTED] 73579.011

[GRAPHIC] [TIFF OMITTED] 73579.012

[GRAPHIC] [TIFF OMITTED] 73579.013

[GRAPHIC] [TIFF OMITTED] 73579.014

[GRAPHIC] [TIFF OMITTED] 73579.015

[GRAPHIC] [TIFF OMITTED] 73579.016

[GRAPHIC] [TIFF OMITTED] 73579.017

[GRAPHIC] [TIFF OMITTED] 73579.018

[GRAPHIC] [TIFF OMITTED] 73579.019

[GRAPHIC] [TIFF OMITTED] 73579.020

[GRAPHIC] [TIFF OMITTED] 73579.021

Response by Paul N. Cicio to an Additional Question from Senator Inhofe
    Question. Based on the discussion on the hearing, is there anything 
else you would like to add?
    Response. In our opinion, all previous EIA or EPA economic analysis 
on climate change legislation does not adequately address the issue of 
electric utility fuel switching from coal to natural gas and the costs 
implications to higher natural gas and electricity prices or the loss 
of resulting manufacturing jobs.
    Much of the concern regarding natural gas supplies for industrial 
consumers is related to the impact legislation with near term emission 
targets will have on the availability of natural gas for manufacturing. 
Between now and 2012 there are few achievable options that will slow 
the electric utility need for natural gas.
    Given forecasted supplies, this added demand by the electric 
utilities can only be obtained from natural gas currently used in the 
manufacturing sector. In 2005 the manufacturing sector used 6.6 
trillion cubic feet (TCF) of natural gas. Short of a significant 
recession, to achieve 2005 emission levels in 2012 the electric utility 
sector will need additional quantities of natural gas that exceed the 
amount used in total by the manufacturing sector. They can do so 
because they can pay any price for natural gas, no matter how high and 
pass the costs onto their ratepayers. This is why we are concerned with 
emission targets which begin before additional supply of natural gas, 
new technologies or other efficiency improvements can be put into 
practice.
    We will not succeed long term at reducing ghg emissions without 
increasing our use of low carbon intensive energy. That being said, it 
is essential that we increase the supply of affordable and reliable low 
carbon intensive energy. A ``ghg cap'' does not increase the supply of 
low carbon intensive energy because government and technology barriers 
prevent these products from getting to the market.
    For example, setting a ghg cap will not increase the supply of 
natural gas from federal lands or waters that is off-limits due to 
Congressional moratorium. GHG caps will not build our Alaska Natural 
Gas Pipeline, increase LNG terminal import capacity or build new 
nuclear plants. We are concerned that we will face ghg reduction 
targets and none of the government or technology barriers will be 
removed in time to provide relief.
    Removing these barriers is essential because it takes long periods 
of time to develop the resources. For example, we have about a 100-year 
supply of natural gas in our offshore areas currently off-limits but 
establishing a new field could take upwards to 5-8 years.
                                 ______
                                 
    Responses by Paul N. Cicio to Additional Questions from Senator 
                                Barrasso
    Question 1. What impact will Lieberman-Warner have on Liquefied 
Natural Gas imports to the U.S.?
    Response. Lieberman-Warner will significantly increase the demand 
for natural gas. We would expect the price of natural gas to rise 
significantly as well. Higher prices will be necessary to attract more 
LNG imports, if supply is available. Availability is not certain. While 
there is ongoing expansion of supply, demand is growing even faster. 
The potential formation of a LNG cartel is concerning.
    LNG imports have increased since 2000 but remain only 2.7% of our 
nation's supply and actually decreased by 7.5% in 2006. Our full import 
capacity has not been utilized in recent years because we have been 
unable to compete in global markets for the LNG. In general, other 
countries regularly buy it away from companies who would bring it to 
U.S. terminals. Country governments have intervened to buy whatever 
quantities are needed at sometimes very high prices to supply their 
country's needs. These same countries are expanding their import 
capacity without the problems we have in the U.S.
    The legislation would place higher demand on LNG because U.S. 
production of natural gas is being constrained by Congressional 
moratoriums. Higher demand above our domestic supply and the quantity 
that is imported from Canada would theoretically be LNG imports. Even 
though there have been dozens of attempts to greatly expand import 
terminal capacity only minor increases have occurred and mostly at 
existing terminals because of NIMBY.
    The investments necessary for building a U.S. receiving terminal 
and the corresponding overseas production terminal are very large and 
take considerable time to move through both the financing and 
construction phases. As we have seen over the past few years it is much 
easier for the United States to import the products produced by IECA 
member companies. This trend will continue for a number of years and as 
the facilities are built or expanded to produce these materials 
overseas jobs are lost in the United States. If LNG facilities are 
later built it is unlikely that the manufacturing jobs lost earlier 
will return to the U.S. This is similar to the situation described by 
Alcoa involving ``stranded energy''.

    Question 2. With increasing demand for energy both in America and 
around the world as a result of increased economic growth, 
technological solutions will be essential for countries to meet their 
energy demands while limiting greenhouse gas emissions. However, there 
are tremendous uncertainties about what technologies will most 
effectively address these issues.
    As Congress continues to examine technological solutions to combat 
climate change, do you believe we have enough information to identify 
which technologies hold promise and therefore warrant investment?
    Response. Important technology solutions do exist and can be very 
helpful in a relatively short period of time. Our favorite is 
industrial gasification. In fact, IECA supports language reported out 
by the Senate Finance Committee on June 27, 2007 that would enhance 
Section 48B industrial gasification (IG) incentives and which would 
provide new incentives for carbon capture and sequestration under 
Section 450. While generally supportive of the Finance Committee's 
gasification proposals, we also suggest below, certain modifications 
that we believe will improve program operations and enhance public 
benefits.
    For the past decade, U.S. environmental and energy policies have 
created new demand for natural gas use particularly in the generation 
of electricity. Tight supplies and the rising demand have resulted in 
natural gas price escalation and volatility with major adverse economic 
consequences to manufacturing. Many U.S. operations have been driven 
overseas to regions such as the Persian Gulf where fuel and feedstock 
prices are low. Section 48B was intended to help U.S. industry 
transition to domestic plentiful and low-cost alternative fuels and 
feedstocks in lieu of natural gas. The Section 48B incentives offer a 
tool to stem the loss of American industrial jobs, enhance our economic 
and national security, and serve domestic and global environmental 
goals.
    From an environmental perspective, IG offers the quickest near-
term, and most cost-effective commercial deployment of carbon capture 
and geologic sequestration (CCS) technology at economic scale. The 
first such plants can be operational within 3 years. From an economic 
perspective, IG with CCS will allow companies to substitute relatively 
inexpensive industrial waste such as wood chips or black liquor in the 
forest products sector, petroleum residues from refineries, or coal, 
for example, in lieu of natural gas.
    Substituting lower-cost feedstock will help U.S. industry succeed 
in a globally competitive economy. Dampening natural gas demand by 
industry, the largest gas consuming sector, will also reduce prices for 
all direct and indirect consumers of natural gas. Because several CCS 
deployments at economic scale are needed to fully commercialize the 
technology, new authority is urgently needed largely as reported by the 
Senate Finance Committee in June of this year (i.e., increase 
investment tax credit ceiling by $1.5 billion, increase the credit rate 
from 20% to 30%, and creation of CO2 production or 
sequestration tax credits, etc.).
    In addition to the increased authority reported by Senate Finance, 
we also have suggestions to improve the original Section 48B provisions 
beyond the Senate Finance Committee-reported amendments (see attached 
list). These suggestions include: (a) transparent, competitive process 
for selecting 48B ITC ``winners;'' (b) doubling Section 815 production 
tax credits to 150,000,000 tons of carbon dioxide emissions captured 
and sequestered (CCS) in deep geologic formations (automatically made 
available to 48B projects); and (c) indemnification of project sponsors 
who participate appropriately in federal incentive programs to test and 
demonstrate these novel carbon sequestration projects. Additionally, we 
recommend SNG and CO2 pipeline incentives.
    We believe that a carefully constructed industrial gasification 
incentives program will accomplish two important goals: diversification 
of energy use to sustain essential and innovative manufacturing sectors 
in the U.S. while lowering prices for all consumers; and development of 
critical environmental performance experience on which to build both an 
informed carbon emissions regulatory program and an accompanying 
liability framework worldwide.
    IECA Supports the following:
    48B Investment Tax Credit
     Support additional $1.5B as reported from Senate Finance 
in June 2007
     Support increased ITC rate from 20% to 30% and accept CCS 
equipment requirement (but link Sec. 48B and Sec. 450) as reported from 
Senate Finance in June, 2007
     Add SNG producers to list of ``eligible entities''
     Add codified DOE role to assure transparent and 
meritorious
       Awards process (operate under procedures similar to 
competitive contract solicitation)
       Closing Agreement process must permit project 
improvements
     Increase eligible investment from $630M to $1B (EPC cost 
increases of 50%)
    Production Tax Credit for CO2 Sequestration (Amendment 
to Sec. 450 as provided in Sec. 815 of Senate Finance Committee-
reported bill)
     Increase cap on PTCs for CCS to 150 million tons (double 
that reported by Senate Finance)
       $10/ton EOR (as in Senate Finance-reported bill)
       $20/ton non-EOR (as in Senate Finance-reported bill)
     Linkage: Amend Senate Finance bill to qualify 48B projects 
automatically for CO2 PTC
    45L--Refined Coal Credit
     Contract volumes of SNG to electricity should qualify for 
refined coal PTC
    CO2 Pipeline Depreciation
     Support accelerated depreciation (7 years) as proposed in 
Senate
     Finance-reported bill June 2007
    CO2 Regulation/Liability
     Expedite permitting for early CCS actors
     ``Hold harmless'' or indemnify PTC recipients from 
liability when ``best efforts'' have been applied
    Federal Loan Guarantees
     Open to industrial gasification (section 1703 (c)), 
including SNG
     Remove program dollar cap for self-pay projects
    Lastly, for a globally competitive manufacturing sector in this 
country the competition for energy between the electric utility and 
manufacturing sectors must be reduced. Utilities have more alternatives 
for producing electricity than manufacturing has for producing its 
products. Nuclear energy and coal need to be a growing component of the 
fuel mix used by utilities to produce electricity. Renewables like wind 
and solar are important also but between their cost, intermittent 
nature and infrastructure requirements leave the energy needs of the 
manufacturing sector at risk for a significant period of time.
    We cannot overemphasize that our concern is energy and feedstock 
supplies over the next 10-year period and the permanent impact this 
will have on U.S. manufacturing. Energy efficiency especially as it 
relates to our existing structures both residential and commercial 
offers the nearest term opportunity to reduce demand on existing energy 
supplies. Business, especially energy intensive business continually 
look at energy efficiency investments, but residential and commercial 
especially leased buildings have a harder time making investments that 
will improve energy efficiency.

    Question 3. What do you think should be Congress' funding 
priorities?
    Response. More can be done to increase the availability and 
affordability of low carbon intensive energy by ``policy decisions'' 
than by funding decisions. (See the answer to Senator Inhofe's question 
above.) With that aside, we offer the following areas.
    (a) Sufficient funding to create an adequate permanent storage 
solution for nuclear waste;
    (b) Much increased incentives for energy efficiency across all 
sectors. Residentials need much larger tax incentives to economically 
justify the cost of energy efficiency improvements. Energy intensive 
manufacturers continue to do what is cost justified. Significant 
hurdles remain where productive capital should be replaced to improve 
energy efficiency. For these types of investments to be justified it 
will take an acceleration of remaining depreciation on capital to be 
retired and faster depreciation on new lower energy consuming 
replacements. Tax incentives are needed to increase use of 
cogeneration, the most energy efficient way of producing energy and 
power. Both the faster depreciation and tax incentives for cogeneration 
and use of waste energy are high priorities;
    (c) Carbon sequestration;
    (d) Electricity transmission infrastructure.

    Question 4. What are the costs to family budgets for middle class 
and low income people of implementing Lieberman-Warner in terms of 
energy bills and gasoline prices in the next 5 to 10 years?
    Response. All direct and indirect costs of the legislation 
eventually get passed onto the consumer.
    MIT completed a report \1\ this summer that concluded the Lieberman 
bill would result in carbon costs of $40/ton in the initial years and 
$160/ton by the time the final cuts were realized in 2050, resulting in 
significant consumer energy cost increases as follows:
---------------------------------------------------------------------------
    \1\ MIT Joint Program on the Science and Policy of Global Change. 
Report No. 146, April 2007.


------------------------------------------------------------------------
                                                  Initial
                                                    Year      Final Year
------------------------------------------------------------------------
Petroleum Products (gasoline/diesel) $/gal....         0.40         1.60
Natural Gas $/MM Btu..........................         2.10         8.40
Electricity  cents/KWH........................          2.5           10
------------------------------------------------------------------------

    Secondly, in our opinion, all previous EIA or EPA economic analysis 
on climate change legislation does not adequately address the issue of 
electric utility fuel switching from coal to natural gas and the costs 
implications to higher natural gas and electricity prices nor the loss 
of resulting manufacturing jobs.
    Lastly, while it is true that many new jobs will be created related 
to energy efficiency and renewable energy, it will be very difficult 
for the country to increase its productivity if the average cost of 
energy increases relative to today. Without increases in productivity 
the country will not be able to improve or possibly maintain its 
current standard of living. That has to translate into a portion of our 
population being worse off than they are today. For all consumers 
direct energy costs will be higher so home utilities and transportation 
costs will go up. The costs of products that contain energy like those 
produced by our members will go up. Imported versions of our products 
could be sold at lower cost if they are produced in parts of the world 
that have lower energy and labor costs than currently exist in the 
United States, which would serve as an offset to some of the direct 
energy cost increases.

    Question 5. In 2050, how much cooler will the planet be if we adopt 
Lieberman-Warner?
    Response. Unilateral action by the United States will not have a 
measurable impact because it does not achieve global reach. The 
legislation's provisions under Title VI will not work and compel 
countries like China to reduce its ghg emissions. Importantly, Title VI 
will not protect U.S. energy intensive industries from unfair 
competition.
    With or without Lieberman-Warner no one knows what the planet's 
temperature will be in 2050. While it may be prudent to minimize 
emissions of greenhouse gases that can only be done if we create 
growing sources of low cost, low or non-emitting energy. Most of the 
products that are manufactured provide efficiency in meeting the needs 
of our population. Larger gains in emission reductions will be obtained 
looking at how we meet those needs than in how we produce individual 
products.

    Senator Lieberman. Thank you. Thanks, Mr. Cicio, I 
appreciate your thoughtful testimony.
    I will now go to a round of questions, 5 minutes per 
Senator. I am going to begin by asking unanimous consent to 
enter six documents into the record that are statements by 
various organizations on the Climate Security Act, and two 
economic estimates of the Act.
    [The referenced documents follow on page 156.]
    Mr. Anton and Ms. Beinecke, to some extent you both 
expressed support for the Climate Security Act in whole or in 
part, and each made some recommendations of how you thought you 
would like it to be changed or improved from your perspective.
    I want to ask you a kind of inverse question, because when 
you are writing a bill, as Senator Warner and I did, you are 
essentially answering questions. Do we include this? Do we 
include this that much? I wanted to ask you each to name one or 
two decisions that if had made differently you wouldn't have 
been able to be supportive of the Climate Security Act.
    Mr. Anton. Mr. Chairman, as we reviewed the bill, the 
number one thing that we focused on and are pleased with is the 
credit for the early adoption. Alcoa plus other companies in 
the aluminum industry recognized this issue years ago and we 
took changes, altered our processes, and resulted in 
significant reductions in greenhouse gases. It is important to 
us that we are not penalized for that early adoption.
    So our support would wane if the early adoption was dropped 
or the auctioning of credits immediately. We need that phase-in 
so we can work on our technology, continue to work on our 
improvements, and be competitive for the long term.
    Senator Lieberman. Interesting.
    Ms. Beinecke.
    Ms. Beinecke. What I was saying is that we would be 
concerned if the caps were any looser. The caps in our view are 
about the minimum that would be required. As we were saying 
earlier, the scientists tell us we need an 80 percent reduction 
by 2050. So beginning down that road is very important.
    The other is that if the phase-out of allowances were any 
slower, between the August version and this version, they 
tightened up, but if they got any looser that would be a 
serious problem for us.
    Senator Lieberman. One of the things we tightened up was 
the cap for 2020. Part of the reason we did that was in a 
meeting we had with the NRDC and other environmental groups, 
that was the one thing you said from our August draft you most 
wanted to see happen. Could you briefly explain why that is so 
important to NRDC?
    Ms. Beinecke. It is very important because getting on the 
right pathway, and if you looked at one of the charts that I 
had up, which showed if you start soon, you can get on the 
right trajectory for emission reductions, but the slower the 
start, the harder it is. So the mid-term cap is very, very 
important. We have the science now that tells us where we need 
to go.
    In response actually to the comments about natural gas, we 
think that the cap and trade program will incentivize new 
technologies, more investment in renewables, and more 
investment in cleaner coal technology. So the sooner we put the 
cap and move forward in that direction, the sooner those 
investments will be made and will be able to transition the 
energy sector to be low carbon.
    Senator Lieberman. Thanks. Good point.
    Dr. Moomaw, in your testimony, you suggested that ``we 
broaden the range of sources that are capped, in particular 
natural gas used for purposes other than electricity 
generation.'' I think that is an intriguing idea, and I want to 
ask you to just say in a moment or two a little bit more about 
the mechanics of how that might work.
    Mr. Moomaw. Well, my concern is that if we exclude an 
entire fossil fuel sector, then we do create a kind of 
imbalance among the fossil fuels in the economy. Despite the 
legitimate concerns about the limited nature of natural gas, we 
know it is not going to last forever, so we are really looking 
at both natural gas and petroleum as kind of an intermediate 
fuel for the next few decades. By 2050, those will not be major 
contributors, in my view, because I don't think there will be 
enough of it available for them to be so.
    If we do put a cap on it, then basically the trading is 
extended over into natural gas. That has the potential, then, 
actually to reduce some of the concerns that everything would 
shift to natural gas, because there is now a market both in 
the--for example, what are the other areas? Well, obviously 
home heating is one such area.
    Senator Lieberman. Right.
    Mr. Moomaw. I assume that one of the reasons that it was 
excluded is we didn't want to put burdens on homeowners and 
small businesses and so forth.
    On the other hand, there are two schools of thought on it. 
One is the one that you have adopted here, which is well we 
just won't make them bear that burden. But I think they are 
going to bear it anyway because the price of natural gas is 
going to go up as we get the fuel switching. So I am not sure 
that excluding it solves that problem.
    Whereas if it is included in the overall cap, then there 
will be incentives to find more efficient ways of using not 
only natural gas, but other substitutes, of going over to the 
demand side. I mean, if every home in America--my building 
contractor told me that to build an Energy Star house that uses 
70 percent of the energy of a code built house--cost his 
customers not one cent more.
    So you know, why don't we push down on that end as well as 
worry about----
    Senator Lieberman. Thank you. I am going to ask our staff 
to continue that conversation with you.
    Mr. Moomaw. OK. I would be glad to.
    Senator Lieberman. I appreciate the idea.
    My time is up.
    Senator Warner.
    Senator Warner. Mr. Chairman, I would like to yield to 
Senator Voinovich, who has a pressing need to depart.
    Senator Lieberman. Very well.
    Senator Voinovich.
    Senator Voinovich. Thank you, Mr. Chairman.
    Mr. Cicio, your testimony indicates that the international 
provisions contained in this legislation will not work in 
providing global reach and protect you as companies from 
energy-intensive imported products. I have some idea of what 
you are talking about because I closely watch the chemical 
industry in this country. Several years ago, we were exporting 
about $9 billion worth of chemicals. Today, we are a net 
importer of chemicals.
    Could you elaborate more on your concern in terms of non-
competitiveness of our country's businesses, as contrasted to, 
say, businesses across the pond?
    Mr. Cicio. The provision that is in the bill will not work. 
We have had lawyers with 30-plus years of trade law experience, 
look at the provisions that you have in the bill. They won't 
work. I will just point to a couple of things. We (U.S. 
manufacturers) would be obligated to begin to reduce ghg 
emissions, starting in 2012. That is only 4 years away. The 
provision calls for obligations from energy-intensive importers 
of product to start in 2020. That is 8 years later. We have 
lost 3.1 million manufacturing jobs in just 6 years, from 2000 
to 2006. With the additional costs of this legislation, we fear 
that more manufacturers will move offshore. To significantly 
reduce the 8 years will violate WTO rules.
    It simply will just not work. We would like to discuss 
alternatives with you, if possible.
    Senator Voinovich. Thank you.
    Mr. Roehm, we received a letter from the National 
Association of Wheat Growers, a 2005 letter. ``Since 2000 when 
natural gas price levels and volatility began to increase, 
agriculture has spoken out at every forum available warning of 
a looming crisis because of public policies that create demand 
for certain energy resources like natural gas, while 
restricting access to supply sources. We have pointed out that 
the only way to solve this problem is to increase supply and 
reduce demand.''
    Further, the letter states, ``While gasoline prices surely 
hurt consumers, the high and volatile natural gas prices affect 
agriculture's ability to produce an abundant food supply. This 
trend cannot continue.''
    Now, as an Ohioan, I am familiar with agriculture. We know 
that the cost of fertilizer has gone up dramatically in terms 
of our people. We know that many fertilizer companies have gone 
out of business because of the high cost of natural gas.
    How do you balance that up against what you testified to 
today in terms of the benefits that you see from sequestration?
    Mr. Roehm. That is a very good question. We still are 
paying historically high fertilizer prices, but I have to say 
that the price of natural gas is actually off of its high, and 
yet we are still paying ultimate high prices in fertilizer. So 
the correlation between natural gas prices and fertilizer 
prices as of today is not correlating in the same direction.
    Yes, natural gas is the primary source of fertilizer and it 
is very dependent on that price. Today, with different crop 
rotations that have been put in by market forces, i.e. a record 
number of corn acres, it has increased the supply of 
fertilizer. So we have more or different aspects of market 
forces affecting the price of fertilizer.
    So I am aware of your concern. We have the same concern. I 
guess we would be favorable to finding any reasonable way of 
increasing supply of natural gas. We understand that it is a 
limited resource also, but the United States pays quite a bit 
more for natural gas than other countries in the world do. So 
there is probably some middle ground to solve that problem.
    Senator Voinovich. I just want to comment and say to you 
that if this causes fuel switching on the part of those people 
that are producing energy in this country to more natural gas, 
I can guarantee you that your cost of fertilizer will go up. As 
Mr. Cicio says, we are going to lose a lot more jobs than we 
already have, and the folks in my city of Cleveland where I 
live are going to see their gas prices that have already 
increased over 300 percent, even go higher because of that. So 
that is a concern that we have with this legislation.
    Mr. Roehm. Well, I have to agree. I mean, it is a concern 
of the ag industry. Fuel and fertilizer are our two highest 
expenses, so this is an issue that we are not taking lightly. 
But I believe that the bigger picture and the whole aspect of 
it has to be looked at. It is a national issue that is being 
discussed and agriculture needs to take a part of it.
    Senator Voinovich. Thank you.
    Senator Lieberman. Thanks, Senator Voinovich.
    Mr. Cicio, I noted your comment that the trade provision 
that we have, a provision to incentivize other countries was 
unworkable. Senator Warner and I took that provision from the 
Bingaman-Specter bill. If it works, we want it to be considered 
the Lieberman-Warner provision. If it doesn't, you should think 
of it as the Bingaman-Specter.
    [Laughter.]
    Senator Lieberman. Senator Sanders.
    Senator Sanders. Thank you very much, Mr. Chairman.
    Dr. Moomaw, you mentioned something interesting, how 100 
years ago people grossly underestimated the potential of how 
electricity could transform our country. I think the same case 
could be made that in 1941 when this country was attacked at 
Pearl Harbor, nobody believed that within a year we could be 
producing the armaments, the planes, the tanks, to defeat 
Nazism and Imperial Japan. In the early 1960s, President 
Kennedy had the audacious dream to say that we could send a men 
to the moon. What a crazy idea that was, which took place a few 
years ago.
    In just the last few years, I have seen things in my State 
and around this country. I have driven a retrofitted Toyota 
Prius that gets 150 miles per gallon. I have talked to people 
who live a few blocks away from here who through solar power 
are producing more electricity in a normal home than they are 
consuming.
    In Vermont, I visited a landfill where methane gas is 
providing electricity to thousands of homes. In Addison County, 
Vermont, a methane digester is converting fertilizer to methane 
gas to electricity for hundreds of homes. In my city of 
Burlington, as a result of some of the actions we took when I 
was the Mayor back in 1989, not 1889. I am not that old.
    [Laughter.]
    Senator Sanders. The city is now consuming less electricity 
than it did back then. In California, per capita I think 
electricity consumption hasn't risen because of energy 
efficiency. I have talked to manufacturers who tell us that 
small wind turbines can be manufactured and the fee is $15,000, 
sold for $15,000 a turbine.
    My question for both Ms. Beinecke and Dr. Moomaw, is, in 
your judgment--I mean, I have been hearing a lot about nuclear 
energy, a lot of problems associated; coal sequestration, no 
one knows quite how to do it. I don't hear a whole lot about 
the potential of solar, the potential of wind, the potential of 
energy efficiency. Would either of you please, or maybe both of 
you comment? Dr. Moomaw, start.
    Mr. Moomaw. Yes. Just for example with regard to buildings. 
I mean, having worked with these experts from around the world 
over a 3-year period, I as struck by the fact that we 
identified several hundred things that could be done in 
buildings to make them more efficient. Basically, buildings in 
the United States today are like leaky buckets, and we can keep 
pouring more water in it, and we can probably fill it up if we 
put enough water in and keep it flowing, but a lot of it is 
just flowing out.
    Senator Sanders. The potential is enormous in terms of----
    Mr. Moomaw. The potential for energy savings is enormous. 
There is no question about it. When it comes to other 
technologies, you mentioned wind and solar power. Over the last 
15 years, they have been growing at a compound average rate of 
over 25 percent a year for 15 years. Wind is now close to 
producing one percent of all the electricity in the world. It 
basically was not even around until the late 1980s.
    A student of mine did an analysis of wind power, and in 
1989 90 percent of all the wind power in the world was in 
California. There was none in Germany. Germany now produces 
more than twice as much as we do.
    Senator Sanders. You made the point--I am sorry to 
interrupt you; my time is limited--that the products that you 
needed to improve your own house are not even manufactured in 
the United States. So when people talk about economic 
dislocation, the potential for us to be producing solar and 
wind technologies is in my view enormous.
    Ms. Beinecke?
    Ms. Beinecke. Yes, I would have to agree with Dr. Moomaw. 
There is tremendous eagerness in this country among the 
business community to get these things going. We have companies 
coming into NRDC literally every day who want to make 
investments in renewables, in efficiency technologies. There is 
tremendous opportunity. What there is not is predictability.
    I think that is where this bill really comes in, where it 
can incentivize and give predictability over a period of time 
so companies are prepared to make the investments. I mean, we 
are all familiar with the production tax credits in the wind 
industry that change every single year. Well, you can't make 
the investment you are going to make if you don't have an 
assured future and policy commitment.
    Senator Sanders. Would you agree that if we put almost a 
small percentage of the kind of subsidies that we have given to 
nuclear and to fossil fuels we could radically change energy in 
America to sustainable energy?
    Ms. Beinecke. I absolutely think so. I mean, to echo Dr. 
Moomaw, I recently got back from a trip to Denmark where 20 
percent of their electricity comes from wind power. There are 
many countries in this world that are getting a significant 
amount of their electricity from renewables because they have a 
cap and trade program, they have a renewable energy standard 
that they have committed to, and they have made it public 
policy.
    I think if we can make it public policy here, I am saying 
there is tremendous eagerness in the business community to get 
going, but they need policies to help them move forward.
    Senator Sanders. Say a brief word on public transportation 
and a new rail system to break our dependency on the automobile 
and what that would do to energy consumption in this country.
    Ms. Beinecke. Well, I think that there is a tremendous need 
both to improve fuels and improve efficiency of cars, but also 
to reduce vehicle miles traveled. The only way to do that is 
through smart growth techniques and also incentivizing more 
public transportation.
    I happen to live in New York City. We have great public 
transportation. People can get everywhere. That is not typical 
across the country, and the more we can make it available, the 
more we will reduce our demand on foreign oil and be able to 
give people alternatives.
    Senator Sanders. Dr. Moomaw, did you want to add anything?
    Mr. Moomaw. The only thing I would add is that in terms of 
inter-city rail, for example, being in the Boston area, I never 
go to New York by either driving or by air anymore. I take the 
train. However, the train by European standards is a little 
pathetic. On the other hand, it is vastly more comfortable and 
you don't have to spend all that time going through all that 
security stuff to get on it.
    Senator Sanders. Right. Absolutely. Let me just conclude, 
Mr. Chairman, by saying that we can create millions of good 
paying jobs as we move toward energy sustainability and energy 
efficiency.
    Thank you.
    Senator Lieberman. Thanks, Senator Sanders.
    Senator Inhofe.
    Senator Inhofe. Thank you, Mr. Chairman.
    First of all, I would think that Senator Barrasso would be 
wondering in his mind why is it, since he is the newest one 
here, why is it we have a hearing where four out of five of the 
witnesses are in support of the legislation and only one would 
be opposed to it, when you have heard it is not quite the same 
ratio up here at this table. But I do understand how that takes 
place, and I am not saying that in a critical vein. But I want 
the record to reflect that. I think that is very important.
    Mr. Anton, let me ask you a question. I have here a 
projection of your company's report on global growth 
opportunities. I see that you envision no new growth or new 
production in America, but do envision many opportunities 
around the globe. I look at this, and I see Ghana, Guinea, 
Saudi Arabia, Vietnam, Madagascar--all around the world, but 
there is not one dot of growth in the United States.
    Now, knowing this, would you say the increased costs of 
production in America would enhance or diminish the likelihood 
of your company moving this production overseas?
    Mr. Anton. First of all, we do have a significant 
manufacturing base in the United States.
    Senator Inhofe. OK. Just answer the question. I am going to 
run out of time.
    Mr. Anton. Yes. We are committed to the United States, and 
in the United States, our strategy is to maintain our share, 
and overseas the biggest driver in the cost of aluminum is the 
cost of electricity. What we do is we try to find pockets--what 
we call stranded electricity--which is available where there 
is----
    Senator Inhofe. That is fine, Mr. Anton. I appreciate that. 
I want to enter into the record this chart, because it shows no 
growth in the United States of America. It shows around the 
world where the growth would be.
    [The referenced document follows on page 227.]
    Senator Inhofe. Now, just yes or no, do you plan on calling 
for a cap and trade in these other countries as well as you are 
calling on for here?
    Mr. Anton. Yes.
    Senator Inhofe. You are. All right.
    I would like to put the chart back up, the EPA chart that 
we looked at earlier, if I can find where my references are. It 
happens that back during the discussion, back during the 
Clinton-Gore Administration, the discussion that took place as 
to whether or not we would be a part of the treaty, Senator 
Gore, or Vice President Gore at that time, had commissioned a 
study. Tom Wiggly, who is a very well known scientist at that 
time, was posed with the question that if all developed nations 
signed onto and complied with the emission requirements of 
Kyoto, how much would that reduce the temperature over a 50-
year period? At that time, it came out with seven one 
hundredths of 1 C.
    Now, this chart here is really very similar to that. I 
would like to ask any of the witnesses--how about you, Mr. 
Roehm? Do you agree that with the costs that we have discussed 
that are associated with this, that this is an ambitious goal 
to have, to try to achieve? About a four percent increase?
    Mr. Roehm. Well, I am going to have to say that I know 
agriculture issues, and that is a scientific-based argument 
that I am not an expert in. I would have to defer to the 
scientists on that topic.
    Senator Inhofe. What do you think, Mr. Cicio? Have you had 
a chance to look at this chart and what do you think about the 
cost of this relative to the benefits?
    Mr. Cicio. I am sorry. I am not really prepared to answer 
that question.
    Senator Inhofe. OK. If I understand correctly from your 
testimony, the only reason power companies don't combust an 
amount equal to our entire national consumption, and we are 
talking about natural gas right now, is that it is currently 
too expensive relative to coal. Is that accurate?
    Mr. Cicio. They dispatch coal but natural gas is used as a 
peaking source of electricity.
    Senator Inhofe. So if we significantly raised the cost of 
burning coal and create powerful incentives to shift to 
powering our electric grid using natural gas, what would be the 
consequences to our industrial base?
    Mr. Cicio. The industrial base is already in a difficult 
competitive situation because the prices of natural gas in the 
United States have been on average the highest in the world. So 
we compete globally, and the high prices puts us at a 
disadvantage and that is why we are losing jobs.
    Senator Inhofe. Would you say where those jobs are likely 
to go? Where are the plants likely to relocate? Like in Alcoa's 
case, will they be shipped to the developing world where they 
have that are shown on this map right here?
    Mr. Cicio. Most certainly. We find that in many places 
around the world, and particularly the developing world, but 
not exclusively, that energy is subsidized to the manufacturing 
sector. Other countries really value the manufacturing sector 
as a place to increase employment and for trade currencies. So 
they subsidize energy and manufacturing in other ways, which 
makes it difficult for U.S.-based operations.
    Senator Inhofe. I think when Mr. Roehm said something about 
the lack of a correlation between the price of natural gas and 
fertilizer, you were shifting a little uncomfortably. Do you 
have any comments to make on that?
    Mr. Cicio. Well, yes, because we have shut down something 
like I think it is 40 percent of all of the fertilizer capacity 
in the United States. So what is happening we are simply 
importing it. There is higher demand for fertilizer, but it is 
being produced in other places around the world, probably in 
processes that would produce it with less energy efficiency had 
it been produced here in the United States.
    Senator Inhofe. Well, I agree with that. I am from 
Oklahoma. That is an Ag State and that is all I hear around is 
the cost of fertilizer as the single greatest increasing cost 
in terms of what their profitability is. It makes me wonder 
about why things are so different in Montana, but I am not 
asking you that question.
    You stated also that the 2012 starting date is not 
reasonable. Would you elaborate a little bit on that?
    Mr. Cicio. A 2012 starting date is too soon and will result 
in fuel switching to natural gas. We are here saying we want 
action by Congress. Actually, we demand action and we have been 
demanding action, saying we need more low cost, low carbon-
intensive energy. We use a lot of natural gas, so we have been 
asking for Congress's help to remove barriers in that regard.
    Senator Inhofe. Such as IGCC, coal and nuclear.
    Mr. Cicio. Sure, more energy alternatives are needed.
    Senator Inhofe. All right.
    Thank you, Mr. Chairman.
    Senator Lieberman. Thank you, Senator Inhofe.
    Senator Cardin, welcome. You are here for the second half 
of the game.
    Senator Cardin. Well, I got here in time to listen to the 
witnesses, rather than my colleagues.
    Senator Lieberman. That was very wise.
    [Laughter.]
    Senator Lieberman. That was not a comment on Mr. Cicio's 
report that there was a deficit in the country in fertilizer.
    [Laughter.]
    Senator Cardin. No, it wasn't.
    Mr. Chairman, I must tell you, I did listen to all five of 
our witnesses here. It just reinforces the decision I made to 
join you and Senator Warner on this bill, because I think this 
bill is well balanced. I think it is a bill that speaks to what 
we need to do as a Nation, not only for the United States, but 
for international leadership.
    It speaks to a concern that I think is universal, 
universally agreed to in America, and that is we need to do 
something about carbon emissions, greenhouse gases. We need to 
do it for our environment. If not for our environment, we need 
to do it for our national security because we are so dependent 
upon imported oil. If not for that, we need to do it for our 
economy because we have such unpredictable pricing of energy 
that companies literally go out of business, as they have in 
Maryland because of the uncertainty of energy supply in my 
State.
    So for any one of those reasons, we need to take action. I 
think this bill is well balanced. I notice that yes, we want to 
have alternative fuels that are available that are better for 
our economy and for our environment. We want to energize 
conservation efforts. It seems to me a cap and trade puts the 
right incentives in to accelerate that. Yes, there might be 
consequences that we cannot fully predict today. The proceeds 
from the auction will give us some financial ability to deal 
with that.
    So I think the authors of this legislation have tried to 
put together a bill that addresses the concerns and does it in 
a way that brings us to where we need to be on a national 
commitment to reduce greenhouse gases.
    So Mr. Chairman, I just want to ask a question to all of 
our witnesses, and that is, if you were sitting where I am 
sitting, and would have a chance to offer amendments to this 
legislation, and I am only given one amendment, what would that 
one amendment be in order to address what you think is 
something that needs to be strengthened or changed in this 
legislation?
    Mr. Roehm. Senator, I will start. I would amend by removing 
the 15 percent cap on ag offsets. Ag offsets could be and 
potentially will be a remedy for some of the fuel switching. If 
we can have an effective cap and trade and using offsets, you 
would not have to switch from coal to natural gas as quickly as 
some suggest.
    Senator Cardin. Thank you.
    Mr. Anton. Senator, I think where Alcoa would be is we 
appreciate that there is some protections to protect energy-
intensive industries in the United States from import 
competition, but we are not sure that those are sufficient 
enough. We are working through the coalition with U.S. cap and 
we expect to be able to make recommendations to the committee 
through that avenue.
    Senator Cardin. I am not sure I totally know where you are 
heading. What are the alternatives you are looking at?
    Mr. Anton. Quite frankly, we don't have clearly delineated 
alternatives yet, but we recognize that as currently crafted, 
it can put the United States at a disadvantage, specifically in 
energy-intensive industries, from imports from outside the 
United States.
    Senator Cardin. I will be very interested to see your 
recommendations in that area.
    Ms. Beinecke. Senator, our number one recommendation, as I 
mentioned in my testimony, would be to ensure that the science 
look-back provision is coupled with authority by EPA to take 
action as the science gets clearer and time goes on to change 
the targets and timetables if that is merited going forward.
    Senator Cardin. I think that is a very good suggestion. We 
are having some fights right now with EPA on some authority 
that we gave them that we thought would have been exercised by 
now, the California waiver being one.
    Ms. Beinecke. We would agree.
    Senator Cardin. The time that they are taking on making 
that decision is just outrageous. I think that it should have 
been granted, and Maryland is directly affected by it because 
we are part of that group. So I agree with your point, but I 
would hope that we would be pretty clear about the changes that 
we need to be where we want to be, and let it be dictated more 
by science, I agree.
    Ms. Beinecke. Thank you.
    Mr. Moomaw. I think the thing that I would encourage the 
most is setting a reduction target by 2050 down to 80 percent, 
rather than where it is, and to move to achieve that by really 
total coverage of the fossil fuel market, and getting those 
gains by strengthening the demand side features of this 
legislation. I think there is a lot to be mined there, a lot of 
energy savings to be mined.
    Senator Cardin. You acted just like a Senator. I said one 
suggestion, and you gave me three.
    Mr. Moomaw. I am sorry.
    [Laughter.]
    Mr. Cicio. Senator, we would recommend that you simply 
delay the cap until there is an abundant supply of low-carbon 
energy, including the technologies to deliver the use of vital 
resources like clean coal and nuclear energy, and affordable 
renewable energy.
    Senator Cardin. I would just respond that I think if we 
were to adopt that approach, we would just delay the 
availability of those sources of energy.
    Thank you, Mr. Chairman.
    Senator Lieberman. Thank you very much, Senator Cardin.
    Senator Barrasso.
    Senator Barrasso. Thank you very much, Mr. Chairman.
    As we are going forward to full committee hearings, I am 
hoping, Mr. Chairman, since local governments that rely on 
fossil fuel extraction in their local communities are 
significantly impacted, if we could possibly include one of 
those folks from a local community to testify.
    Senator Lieberman. It is a good idea. I will mention it to 
Chairman Boxer.
    Senator Barrasso. Thank you very much, Mr. Chairman.
    Mr. Cicio and Mr. Roehm, the Billings newspaper, Associated 
Press article just last week said at least 16 coal-fired power 
plant proposals across the United States have been scrapped in 
recent months, and more than three dozen have been delayed as 
utilities face increasing pressure due to concerns over global 
warming and rising construction costs. It goes on to say, 
combined, the cancelled and delayed projects represent enough 
electricity to power approximately 20 million homes.
    So it seems that one sector of fossil fuels is right now 
contributing less in a Nation where we need all the energy, all 
the sources--the renewables, as well as the fossil fuels.
    Mr. Cicio, could you comment on that and the impact, and 
where that other fuel is going to come? Because I know in my 
community, people want to be able to turn on the lights, have 
it come on, and have it be inexpensive.
    Mr. Cicio. In fact since those plants have been announced 
that they would not be moving forward, there has been a series 
of announcements that natural gas plants are moving forward. So 
that is the immediate response. Electric utilities have 
enormous responsibility to serve the public. They are going to 
build natural gas plants if they can't build coal plants. It is 
reliable. It is low carbon, and it is a great alternative.
    So that is what is happening and what is what will continue 
to happen unless we allow coal to be used.
    Senator Barrasso. Then do you see the technology coming on 
the line, where coal can be used by effective development of 
coal-to-gas, coal-to-liquid technology to allow the prices to 
stay down?
    Mr. Cicio. The technology is coming along very well. I am 
not a scientist or an engineer in this regard, but we do need 
time to get the technology for carbon capture and carbon 
sequestration. We are going to probably need, I understand, 15 
or 20 years to get the technology economical. But the 
technology is moving along fine. IGCC is moving along real 
well, and we have great hopes for its use to produce synthetic 
natural gas, and also as a feedstock, a feedstock for 
fertilizer, feedstock for the chemical industry.
    Senator Barrasso. Mr. Roehm, we talked about wind, and I 
know there was a large wind project that was ready to be built 
in Montana and it recently was rejected. I think there were 
some folks that protested just because of the look of the wind 
turbines. I know in Wyoming, we actually did some tax relief 
for the folks that want to build that, because we are looking 
for all the sources of energy.
    We heard from others testifying that wind could get to a 
point where it is 20 percent of the electricity. Do you have 
any experience of what happened recently in Montana with that 
major--it was supposed to be the largest wind project in the 
country?
    Mr. Roehm. There has been development of wind energy in 
Montana. It is called the Judith Gap project. I think there are 
93 wind turbines that were produced. It is on line.
    You are correct. There was a program or project that was 
cancelled, and that was cancelled because of lack of 
transmission capacity, as simple as that. So other than that, I 
am no more informed on wind energy than what you read in the 
papers.
    Senator Barrasso. Then for the two that are proposing 
additional wind energy, there are issues of siting and then 
transmission. Transmission lines cost about $1 million a mile, 
and usually where the wind is is not right in the large cities 
where the electricity is needed. I know there are some folks 
that are protesting even that very usable and renewable source.
    Any comments on that please?
    Mr. Moomaw. Yes, my comment would be that, you know, we 
faced a similar situation when we began building large hydro 
projects in the 1930s and 1940s and 1950s. There was not a lot 
of population either along the Colorado River or in the Pacific 
Northwest. Yet when we did finally build, we built those dams, 
the Bonneville Project and so forth. I mean, that is where I 
believe Alcoa played a very major role, along with Boeing and 
other companies which made it possible for us to build all of 
the machinery that helped us in the Second World War.
    So I wouldn't say that not having immediate access to the 
transmission lines is disqualifying. I think we have to look at 
it very carefully and decide if we want to put a lot of these 
out, say, in the Great Plains, which has a huge amount of wind, 
then we would need to really back that up by putting the 
transmission lines there to bring it to population and 
industrial centers.
    Senator Barrasso. Thank you.
    This is the last question for Mr. Anton, if energy prices 
increase for Alcoa because of the bill and the questions that 
we have raised, will your company offshore North American jobs 
overseas?
    Mr. Anton. Our goal is to maintain stability and maintain 
our U.S. employment. We obviously can't do that if we are not 
profitable. So as we said before, our goal is to maintain the 
U.S. jobs and grow overseas.
    Senator Barrasso. Thank you, Mr. Chairman.
    Senator Lieberman. Thanks, Senator Barrasso.
    Senator Carper.
    Senator Carper. Thank you, Mr. Chairman.
    To our witnesses, thanks again for being here, for sitting 
through all of our remarks and for sharing your own with us and 
your responses.
    Ms. Beinecke, I said earlier in my statement, I mentioned 
Saginaw, Michigan. It was October of 2000, when then-Governor 
George Bush called for the next Congress to pass legislation, 
sector-specific, focus on power plants, and to reduce sulphur 
dioxide and nitrogen oxide, mercury and CO2 
emissions. Governor Bush became President, as we all know, and 
he offered legislation that they called Clear Skies. I always 
suggested we should replace that with Clearer Skies or Really 
Clear Skies.
    But in any event, that proposal, as you know, had some 
problems. One issue in particular was that the Clear Skies 
failed to include, as we know, CO2 emissions.
    On your Web site--and I don't know how often you look at 
your Web site--but NRDC states, and this is a quote from your 
Web site, it says, ``This is a serious mistake that will have 
serious consequences,'' that is the exclusion of 
CO2. ``If new legislation is passed affecting the 
electric power plant industry, plant owners will use it as a 
blueprint for the type of investments they make in coming 
years. Failing to include reductions in global warming 
pollution in that blueprint now will only raise the cost and 
difficulty of achieving them later.'' That is the quote from 
your Web site.
    Let me just say, I completely agree. I have a similar 
concern that if we move the Lieberman-Warner legislation 
without simultaneously addressing sulphur dioxide, nitrogen 
oxide and mercury pollution from power plants, we will greatly 
hinder our ability to achieve and address those other 
pollutants later on.
    Not long ago, I received a letter--in fact, I suspect some 
of my colleagues did, too--a letter from several environmental 
and health advocacy groups who share this concern. Among the 
folks who signed onto the letter were the American Lung 
Association, the Clean Air Task Force, and the National Parks 
Conservation Association. Their letter stated in part, and this 
again is a quote, ``Climate legislation alone will not 
necessarily result in reduction in power sector nitrogen oxide, 
sulphur dioxide and mercury. We need additional power sector 
reductions to protect public health and the environment. It is 
clear that climate policy alone will not deliver these 
reductions.''
    It is a long windup. Here is the pitch. Ms. Beinecke, does 
the NRDC believe that air pollution from power plants is still 
a problem and that we need to address all four pollutants at 
the same time?
    Ms. Beinecke. Yes, Senator Carper, we do. Clearly, SOx, NOx 
and mercury continue to be a serious problem. They are a public 
health problem in the United States and we applaud your 
leadership and your continuing diligence to call for action on 
those issues.
    We also, as I said earlier, think that carbon emissions, 
global warming pollution, is a serious global problem and needs 
to be addressed also.
    So we look forward to working with you to make sure that 
these things are both addressed in the most effective way 
possible because clearly air pollution is not only a U.S. 
problem, it is a global problem. In fact, lots of pollution 
comes into the United States from other places as well. So we 
look forward to working with you in the future on this. We 
thank you for continuing to bring this up and remind us how 
important these issues are to public health in the country.
    Senator Carper. All right. Thank you.
    Mr. Roehm? Will Roehm?
    Mr. Roehm. Yes?
    Senator Carper. Mr. Roehm, I have really more of a 
statement, than a question. Sometimes we are guilty of that. 
You may have noticed.
    I introduced legislation earlier this year to address 
pollution from power plants and to establish a cap and trade 
program with respect to CO2. The National Wheat 
Growers sent me a supportive letter because they believe that 
our bill, and I think there are a number of cosponsors, 
including the Chairman of our subcommittee, but the Wheat 
Growers were good enough to send a supportive letter because 
they felt that our bill does many of the things that you 
outlined in your recommendations today, such as unlimited 
carbon offset market and funding for agricultural practices 
that sequester or reduce greenhouse gases.
    I believe these are important, and I just want you to know 
that I look forward to, and I don't know if I can speak for 
everybody who has cosponsored our four pollutant bill, but we 
look forward to working with you and other members of the 
agriculture community to make these changes to the Lieberman-
Warner bill. I would welcome any thought that you have in 
response to that comment.
    Mr. Roehm. Well, we appreciate your leadership and we look 
forward to working with you and the entire committee on how 
agriculture can help address this pressing issue.
    Senator Carper. One of the things I just say to my 
colleagues--I have run out of time.
    Senator Lieberman. Oh, go ahead.
    Senator Carper. Are you sure?
    Senator Lieberman. I am not sure, but----
    [Laughter.]
    Senator Carper. Mr. Kevin Anton, Mr. Anton, my son's best 
friend in his Boy Scout Troop is Kevin Anton. He spells it just 
the way you do. They are about to both become Eagle Scouts. We 
are real proud of them both.
    You mentioned in your testimony that you are dissatisfied 
with the early action provisions of the Lieberman-Warner bill. 
An underlying theme in my efforts is to reward those who have 
already stepped up and recognized the need to address global 
warming, which is why I am a little concerned with several 
provisions of the bill that seem to reward what I would term 
inaction instead of those that have been leaders in providing 
action.
    What do you recommend should be changed to improve the 
early action credit provision of the legislation authored by 
Senators Lieberman and Warner?
    Mr. Anton. We are looking for the actions to be recognized 
the earlier back we can go back to as a starting point. The 
aluminum industry, through the voluntary program with the EPA 
that we started in the mid-1990s is when the aluminum industry 
actually woke up to this issue. Since that point in time, we 
have been able to reduce our direct emissions by over 25 
percent.
    Senator Carper. Good for you.
    Mr. Anton. That is what we want to get rewarded for.
    Senator Carper. All right.
    Mr. Chairman, you have been generous. Thanks very much.
    Again, thanks to our panelists.
    Senator Lieberman. Thanks, Senator Carper.
    Senator Warner, Senator Voinovich was next. Would you like 
to go now? We will go to Senator Isakson and then you will wind 
it up.
    Senator Isakson, thanks for hanging in there.
    Senator Isakson. These guys have hung in there, and none of 
them have run to the restroom. I have been twice already.
    [Laughter.]
    Senator Isakson. Let me follow up on two answers to 
questions. I guess having a scientist and a chemist, Dr. 
Moomaw, I will ask you this first. I would assume you would 
agree with Senator Carper in terms of the ideal goal of 
reducing SOx, NOx, mercury, carbon, et cetera, from the 
electric generation.
    Mr. Moomaw. I believe that would be the most cost-effective 
way of doing it because basically if we have to go back a few 
years from now and have to retrofit after we have already spent 
a lot of money to get rid of the three pollutants, and then 
have to retrofit to do the fourth, I think that will be far 
more expensive.
    Senator Isakson. Well, on that point, to the extent that 
you are familiar with the generation of electricity using 
nuclear fuel, would you not agree as compared to coal that we 
would be a quantum leap ahead by generating electric energy 
with nuclear rather than coal, in reduction of all four of 
those?
    Mr. Moomaw. There is no question about it, that it would 
reduce emissions. The question is, of course, the cost and the 
fact we have not solved the waste problem yet. Those are the 
two issues which really need to be addressed.
    Senator Isakson. Right on target. We will get back to that 
in just a second.
    Mr. Anton, when you were answering the question about the 
location of future facilities of Alcoa, I might interject. As a 
businessman, most major American companies as their market 
share matures in a developed country like ours seek to expand 
markets overseas. So I am not looking at that as a negative, 
but you made a very interesting comment when you described why 
you were going, or one of the reasons you were going. I believe 
I heard you say we are going to locations where we have found 
pockets of available energy.
    Mr. Anton. Yes. The term we use in our industry is stranded 
energy, where there are large sources, preferably hydro, of 
electricity and not a significant population or other 
industrial base. It is very similar to what the doctor 
discussed with the BPA. It is the same model that is moving 
around the world.
    Senator Isakson. It is also precisely what Mr. Cicio is 
talking about in terms of what drives American manufacturing 
and American business to invest is reliable, relatively cheap 
and abundant sources of energy, which brings me back to my 
nuclear question, because it is important to expand the mature 
market of the United States of America both from a standpoint 
of jobs and readily available energy. It seems to me like if we 
are going to talk about these very noble goals and important 
things to accomplish and leave out that one singular source 
which addresses both the SOx, NOx, mercury, et cetera, as well 
as the reliability, that we would be making a serious mistake.
    So that was an editorial comment. As Mr. Carper said, we 
are all guilty of doing it.
    My last comment on this is this. Dr. Moomaw made a great 
statement regarding the two questions are disposal of spent 
fuel and cost. If we were to take the nuclear title that exists 
today in the United States of America and our law, and address 
both that issue of storage, as well as financing guarantees and 
arbitration in the process of developing nuclear energy, we 
could make a major impact on both the cost aspect as well as a 
creative look at the storage aspect.
    So I understand both those two challenges of nuclear, but 
they are somewhat handcuffed, solutions to that, by current 
United States law with regard to licensing and authorizing the 
construction of nuclear power plants. That was another 
editorial comment.
    One last thing. Ms. Beinecke, you didn't make any comments 
one way or another. You talked about renewable sources of 
energy and alternatives and the reduction goals. Do you have a 
problem with the use of nuclear energy to accomplish that?
    Ms. Beinecke. Well, as Dr. Moomaw said, we have three 
issues with nuclear power. One is waste. One is security 
issues. The other is having nuclear compete head to head with 
other energy sources. So our view is that the way to address 
whether nuclear is a significant part of the future is through 
the carbon cap that sets a market on carbon, rather than 
through subsidies. It is a mature industry that has been around 
for quite a while, and 20 percent of our power comes from it, 
and we are not supporting subsidies that would further 
incentivize it. We think the incentives need to be in the 
technologies that are not yet mature.
    Senator Isakson. What subsidy are you referring to?
    Ms. Beinecke. In the former Lieberman-McCain bill, there 
were proposed subsidies to incentivize more nuclear plants.
    Senator Isakson. What kind of subsidy was that?
    Ms. Beinecke. I have to ask my crew. Loan guarantees and a 
direct investment subsidy. Why don't I provide answers to you?
    Senator Isakson. I would appreciate that. I think Senator 
Carper wanted to ask me a question.
    Senator Carper. I just wanted to say, I realize there is 
some concerns with respect to nuclear, but there also is great 
potential here as we enter this century. The legislation that 
we had authored and introduced on four pollutants, we actually 
provide incentives for nuclear to try to make sure that we 
don't squander this opportunity. I hope that as this 
legislation moves forward that we will have a chance to revisit 
this.
    Senator Isakson. Thank you, Senator.
    Thank you, Mr. Chairman.
    Senator Lieberman. Thanks, Senator Isakson. You know, my 
recollection is, and I will go back and look at the bill that I 
had with Mr. McCain, is that it was primarily money to 
incentivize the creation of a new generation of nuclear power 
plants. In that bill, it wasn't subsidies. There were subsidies 
in the Energy Policy Act of 2005. That was separate, though.
    Thanks very much.
    Mr. Moomaw. Those primarily were loan guarantees. It really 
didn't go to the utilities because they advocate raising the 
cap. They went to some of the niche providers, if I am not 
mistaken in that. But we will check on that and see.
    Senator Lieberman. I thought Ms. Beinecke's answer was 
interesting, which is that your hope is that the carbon cap 
will create a market incentive that will make nuclear 
attractive because it doesn't emit carbon.
    Ms. Beinecke. I didn't say that exactly. I said that a 
carbon cap would create a market incentive and demonstrate 
whether the nuclear industry would compete head to head with 
other sources.
    Senator Lieberman. OK.
    Ms. Beinecke. I didn't say make it attractive.
    Senator Lieberman. Got it. Maybe I was----
    Mr. Moomaw. Senator Lieberman, it is very interesting in 
this new report that just came out from the Nicholas Institute 
at Duke University.
    Senator Lieberman. Right.
    Mr. Moomaw. It shows that basically without ever mentioning 
nuclear or renewables specifically in your proposed 
legislation, that in fact just looking at this graph, I would 
say by 2050 there is three times as much nuclear simply by 
dealing with the cap, in other words, by setting the cap. 
Renewables are about twice as much as they would be just by 
setting the cap. So there is this, it may seem indirect, but it 
is actually a very powerful incentive for non-carbon emitting--
--
    Senator Lieberman. Once you create a carbon cap.
    Mr. Moomaw. It is the carbon cap that does it.
    Senator Isakson. Mr. Chairman, I don't necessarily disagree 
with that. I understand that. But if the nuclear title and the 
NRC is so encumbered that getting there is not possible, then 
that doesn't do you a whole lot of good. Which is why I am very 
interested in seeing that we modernize the nuclear title as it 
exists.
    Senator Lieberman. Thank you.
    Senator John Warner.
    Senator Warner. Thank you.
    Senator Lieberman. The Senator from Virginia.
    Senator Warner. I appreciate that.
    I would say to my colleagues on this nuclear, I laid the 
foundation. We will address that issue. I will tell you. I want 
to also bring to the attention of all that the United States 
Navy has done a major amount of research in the time that 
elapsed, and it has been almost 20 years since our last 
reactor. We have some new science and new safety measures. Of 
course, the Navy has an extraordinary safety record on nuclear 
energy. So we will get there, I say to my good friend from 
Georgia. It is just that the Chairman and I have some 
considerations we had to take at this time not to put it in.
    But I want to go to my good friend sitting down here at the 
end. I really enjoyed that dissertation about natural gas. Now, 
you noticed I am hobbling around here a little today with this 
old cane that I use on my farm. I broke it out. The last time I 
used it was June, and I was the leader on the Floor to get a 
bill through to put one natural gas drilling 100 miles off the 
shore of Virginia using surface on the ocean fixtures which 
were actually foolproof if a hurricane came along and took the 
rig off. The Floor sent me home beaten, battered, bloody and 
bruised.
    [Laughter.]
    Senator Lieberman. Yes, but that was before you had that 
cane in your hand.
    [Laughter.]
    Senator Warner. Yes. Where were you when I needed you?
    [Laughter.]
    Senator Warner. You know, we really have to come to grips 
with the natural gas thing. I think there will be another day.
    But I was interested in you responding to colleagues' good 
questions. By the way, Mr. Chairman, as you know, I am one of 
the older bulls around here. I am ending up my career here in 
another year or so. I have really not been to a better hearing, 
and I have seen about as many hearings as anybody around the 
United States Senate. This has been a good hearing.
    Sure, the members got a little long-winded in the 
beginning, but that shows the level of interest in this thing. 
The superb response by the panel and written statements, they 
are all in the record fully, are they not?
    Senator Lieberman. Yes.
    Senator Warner. We have allowed that to be put in.
    But you were talking about the international situation, how 
your squads of lawyers with 30 years of experience looked at 
him and said they won't work. Well, I will accept that premise, 
with a question: what will work, in your judgment? To deal with 
question number one in the minds of America, if we move forward 
and some of the other major industrial nations, and leading 
them, of course, is China and India, do not move forward, and 
take more of our jobs and our GNP away from us. While we are 
asleep, they are working night and day to take everything we 
have, both of them, in a competitive way. I am not suggesting 
too much unfairness. What do we do?
    Mr. Cicio. Senator, you are right. This is a very difficult 
issue. The fact is that, as I mentioned earlier, energy costs, 
particularly natural gas, is cheaper in other countries. 
Manufacturing will respond to their shareholders and protect 
their interests by moving where they can grow.
    Senator Warner. But the question is, what do we do if we 
are going to move ahead, which I think is essential. As a 
matter of fact, I am excited about this hearing so much that 
this is my top priority for the next 14 months I am blessed to 
be in this Senate.
    Senator Lieberman. Hear, hear.
    Senator Warner. We are going to get it done. What do we do? 
Do you have a better provision? I really and respectfully say 
show it to us.
    Mr. Cicio. The problem is that foreign countries don't play 
fair. Companies in a lot of places around the world--that my 
companies that my companies compete with--are state-owned or 
partially state-owned. As I said earlier, these countries 
subsidize these companies for a lot of reasons, particularly 
jobs and exports. The hard part is that if they are subsidizing 
energy and providing protective tariffs and such now, when it 
comes to carbon allowances, they are also going to subsidize 
carbon allowances for those companies. I don't know how to get 
around that.
    Senator Warner. All right. That is fair enough.
    I am going to ask Ms. Beinecke. I have followed your 
organization many, many years. As a matter of fact, one of my 
five elections you were determined to whip me and get me out of 
business, but I beat you anyway.
    [Laughter.]
    Ms. Beinecke. I don't think so.
    Senator Warner. I forgot what I had done, but it was 
something.
    Ms. Beinecke. That wasn't us.
    Senator Warner. That was a long time ago.
    What do we do about this foreign issue? We have to address 
it, and your outfit has really spent a lot of time on these 
issues.
    Ms. Beinecke. Yes, Senator Warner. What I think is very 
important is for the United States to really demonstrate 
leadership. We are the largest emitter. We have been for a 
century and we need to show the pathway that will get the world 
there, I think.
    As I mentioned earlier, there is a lot of eagerness and a 
lot of people in the business community who are looking at 
opportunities for the United States to develop the technologies 
and import them. I think it is an opportunity for us to be an 
economic powerhouse in showing the pathway.
    I also think, as I mention in my testimony, that on the 
international side, we have a responsibility as well because I 
think global warming is a serious environmental issue, but it 
is a humanitarian issue also. We have to take responsibility 
for the emissions that we are generating, that Dr. Moomaw said 
will be in the atmosphere for literally centuries to come that 
will have impacts on poor people around the world, and are 
having them now.
    I recently returned from a trip to South Africa, which is a 
brand new democracy struggling with supplying education, 
housing, health care to its citizens, and yet they are 
diverting money to deal with adaptation issues from global 
warming--sea level rise, water shortages, other things.
    So I think on the international issues, the best way to 
deal with it is to provide leadership and to show the pathway 
and encourage other nations to join us as we go forward.
    Senator Warner. Well, we will do that.
    One last little question here to Professor Moomaw. I will 
bet you put on some of your final exams this question. The 
question would be, we hear much about the costs of implementing 
a mandatory cap and trade program. Can you address the cost of 
inaction?
    Mr. Moomaw. That is a great question. I will put it on my 
exam at the end of this term.
    [Laughter.]
    Mr. Moomaw. Yes, in fact there are some really interesting 
new studies, one by the University of Maryland that just came 
out a couple of weeks ago and other analyses which look at the 
cost of inaction. The costs of inaction are high and most of 
these studies conclude that the cost of inaction on climate 
change will be higher than the cost of action.
    I think there is a lot of background information to support 
that. As I said, I have reference to two of those studies in my 
testimony. I could get you more if you are interested.
    Senator Warner. Good. Thank you.
    My time is up. I would ask that among the documents that 
you put into the record that I place in this from the European 
Commission. Some colleagues have asserted their failure in 
dealing with this, and I think this is a good rebuttal piece.
    [The referenced document follows on page 192.]
    Senator Warner. I certainly thank this panel. Wish us well. 
We may have you return for our anniversary a year from now when 
we are about ready to get a final passage.
    Senator Lieberman. Thanks, Senator Warner. To hear you say 
that this is going to be your top priority for the remaining 14 
months of your extraordinary career of service to our Nation is 
going to mean a lot to everybody who cares about seeing this 
done. Your decision to come to the leadership of this effort 
has made every difference. It has made passage of a strong 
climate change bill possible. I just can't say enough.
    Senator Warner. Time out, time out.
    Senator Lieberman. Time out. All right.
    [Laughter.]
    Senator Warner. This is a top priority in between our trips 
regularly to Iraq and Afghanistan.
    Senator Lieberman. Yes, that is true. We have done that, 
too.
    I just want to say a word about John's last question about 
leading. In the best of all worlds, wouldn't it be rational if 
the President of the United States could sit down with the 
President of China and the Prime Minister of India and say, 
colleagues, the United States is going to go first because we 
have been doing this for a long time emitting greenhouse gases, 
but I want your promise that by X date the two of you are going 
to follow.
    It is probably not going to happen, but let's hope that 
without that kind of agreement, that that will be the effect 
when we take action. We are not doing it for them. We are doing 
it for us because our country and our people are going to be 
grievously affected if we don't take the leadership in this 
global effort to stop the warming of the planet.
    I thank you very much. It has been a long hearing. It has 
been constructive. It has been educational. You have helped us 
understand. We have good exchange. I would say for Senator 
Warner and myself that our doors are open for additional 
comments and input. This is, as I said earlier, a work in 
progress.
    We are going to set a deadline for written questions to the 
witnesses. Members sometimes do that. They must be submitted by 
Friday and we are going to ask you for your responses by next 
Tuesday. We intend to go to markup, so-called, consideration of 
this proposal, the America's Climate Security Act next Thursday 
in the subcommittee.
    I thank you very, very much. There has been a real spirit. 
Senator Barrasso happens to be the last one with me here. Your 
statements have been very thoughtful, typical of people coming 
at it in a way from different places of origin, but everybody 
acknowledges there is a problem here. Maybe the problem is so 
serious we are going to figure out how to forget party labels 
and everything else, and just do something right and good for 
the country and even the world.
    So I thank you all.
    The hearing is adjourned.
    [Whereupon, at 5:45 p.m. the committee was adjourned.]
    [Additional material submitted for the record follows.]
      Statement of Hon. Benjamin L. Cardin, U.S. Senator from the 
                           State of Maryland
    Mister Chairman, thank you.
    First of all, let me join the chorus of those congratulating 
Senators Lieberman and Senator Warner for the great work they have done 
in crafting the bill we have before us today.
    I use the word `crafting' to describe their work intentionally.
    The America's Climate Security Act of 2007 represents a combination 
of ideas that are present in a number of other bills that had already 
been introduced. In addition, these Senators met with scores of people 
from inside the Senate and across America in refining the bill from the 
version that they first described earlier this summer.
    Like the good statesmen that they are, Senators Lieberman and 
Warner have drawn upon the good work that others have advanced. They 
are generous in pointing out the provisions that were originally 
drafted by others and giving them due credit.
    But the bill we have today is more than a combination of separate 
elements.
    It is a cohesive piece of legislation that finally give us a solid 
framework to address the most compelling environmental, energy 
independence and national security issue facing our nation.
    The bill requires that greenhouse gas emissions in America be 
slashed to just one-third of 1990 levels by 2050.
    More than half of the emissions allocations under the cap-and-trade 
provisions will be auctioned off to the highest bidder with the 
proceeds being used for a number of public benefits including
     energy assistance for low-income Americans,
     developing new `green' technologies, and
     protecting and restoring natural resource lands such as 
the Chesapeake Bay.
    Importantly, the bill requires the National Academies of Science to 
review the most up-to-date scientific findings every 3 years. This will 
give the Congress and the American people an opportunity to strengthen 
the provisions in the bill in a timely fashion.
    This is a major step forward for all of us who want to act now to 
curb the explosive growth in greenhouse gas emissions. It is 
comprehensive and bi-partisan and everyone agrees that this bill 
represents our best hope of enacting meaningful global warming 
legislation during this Congress.
    I will work to further strengthen this strong bill as it moves 
through the Environment and Public Works Committee and the Senate 
floor. I am a sponsor of S. 309, the Sanders-Boxer global warming bill 
which has more stringent mandatory targets than the America's Climate 
Security Act of 2007.
    I would like to see a greater percentage of the emissions credits 
auctioned off and have those auctions phased in sooner. There are other 
provisions that I hope will be stronger as we go forward.
    Mister Chairman, we have had 20 hearings on global warming.
     We have examined the science in detail.
     We have explored policy options.
     We have heard about the prospects for significant 
employment growth in the so-called `green jobs' sector.
     We have heard from the faith community about the need to 
respect and nurture what God has given us.
     We have heard about the impacts on human health.
     We have seen the impacts of global warming that are 
visible today in Greenland and here in our own Chesapeake Bay.
    I think there are ways in which we can make this strong bill even 
better.
    The time to act is now, however, and I am proud to serve as an 
original cosponsor of the America's Climate Security Act of 2007.
    I look forward to hearing from today's witnesses, and moving this 
legislation quickly to the full Committee and on to the floor of the 
Senate. The people of Maryland and the nation are waiting.
[GRAPHIC] [TIFF OMITTED] 73579.022

[GRAPHIC] [TIFF OMITTED] 73579.023

[GRAPHIC] [TIFF OMITTED] 73579.024

[GRAPHIC] [TIFF OMITTED] 73579.025

[GRAPHIC] [TIFF OMITTED] 73579.026

[GRAPHIC] [TIFF OMITTED] 73579.027

[GRAPHIC] [TIFF OMITTED] 73579.028

[GRAPHIC] [TIFF OMITTED] 73579.029

[GRAPHIC] [TIFF OMITTED] 73579.030

[GRAPHIC] [TIFF OMITTED] 73579.031

[GRAPHIC] [TIFF OMITTED] 73579.032

[GRAPHIC] [TIFF OMITTED] 73579.033

[GRAPHIC] [TIFF OMITTED] 73579.034

[GRAPHIC] [TIFF OMITTED] 73579.035

[GRAPHIC] [TIFF OMITTED] 73579.036

[GRAPHIC] [TIFF OMITTED] 73579.037

[GRAPHIC] [TIFF OMITTED] 73579.038

[GRAPHIC] [TIFF OMITTED] 73579.039

[GRAPHIC] [TIFF OMITTED] 73579.094

[GRAPHIC] [TIFF OMITTED] 73579.040

[GRAPHIC] [TIFF OMITTED] 73579.041

[GRAPHIC] [TIFF OMITTED] 73579.042

[GRAPHIC] [TIFF OMITTED] 73579.043

[GRAPHIC] [TIFF OMITTED] 73579.044

[GRAPHIC] [TIFF OMITTED] 73579.045

[GRAPHIC] [TIFF OMITTED] 73579.046

[GRAPHIC] [TIFF OMITTED] 73579.047

[GRAPHIC] [TIFF OMITTED] 73579.048

[GRAPHIC] [TIFF OMITTED] 73579.049

[GRAPHIC] [TIFF OMITTED] 73579.050

[GRAPHIC] [TIFF OMITTED] 73579.051

[GRAPHIC] [TIFF OMITTED] 73579.052

[GRAPHIC] [TIFF OMITTED] 73579.053

[GRAPHIC] [TIFF OMITTED] 73579.054

[GRAPHIC] [TIFF OMITTED] 73579.055

[GRAPHIC] [TIFF OMITTED] 73579.056

[GRAPHIC] [TIFF OMITTED] 73579.057

[GRAPHIC] [TIFF OMITTED] 73579.058

[GRAPHIC] [TIFF OMITTED] 73579.059

[GRAPHIC] [TIFF OMITTED] 73579.060

[GRAPHIC] [TIFF OMITTED] 73579.061

[GRAPHIC] [TIFF OMITTED] 73579.062

[GRAPHIC] [TIFF OMITTED] 73579.063

[GRAPHIC] [TIFF OMITTED] 73579.087

[GRAPHIC] [TIFF OMITTED] 73579.088

[GRAPHIC] [TIFF OMITTED] 73579.089

[GRAPHIC] [TIFF OMITTED] 73579.090

[GRAPHIC] [TIFF OMITTED] 73579.091

[GRAPHIC] [TIFF OMITTED] 73579.092

[GRAPHIC] [TIFF OMITTED] 73579.093

[GRAPHIC] [TIFF OMITTED] 73579.064

[GRAPHIC] [TIFF OMITTED] 73579.065

[GRAPHIC] [TIFF OMITTED] 73579.066

[GRAPHIC] [TIFF OMITTED] 73579.067

[GRAPHIC] [TIFF OMITTED] 73579.068

[GRAPHIC] [TIFF OMITTED] 73579.069

[GRAPHIC] [TIFF OMITTED] 73579.070

[GRAPHIC] [TIFF OMITTED] 73579.071

[GRAPHIC] [TIFF OMITTED] 73579.072

[GRAPHIC] [TIFF OMITTED] 73579.073

[GRAPHIC] [TIFF OMITTED] 73579.074

[GRAPHIC] [TIFF OMITTED] 73579.075

[GRAPHIC] [TIFF OMITTED] 73579.076

[GRAPHIC] [TIFF OMITTED] 73579.077

[GRAPHIC] [TIFF OMITTED] 73579.078

[GRAPHIC] [TIFF OMITTED] 73579.079

[GRAPHIC] [TIFF OMITTED] 73579.080

[GRAPHIC] [TIFF OMITTED] 73579.081

[GRAPHIC] [TIFF OMITTED] 73579.082

[GRAPHIC] [TIFF OMITTED] 73579.083

[GRAPHIC] [TIFF OMITTED] 73579.084

[GRAPHIC] [TIFF OMITTED] 73579.085

[GRAPHIC] [TIFF OMITTED] 73579.086

[GRAPHIC] [TIFF OMITTED] 73579.095

[GRAPHIC] [TIFF OMITTED] 73579.096

[GRAPHIC] [TIFF OMITTED] 73579.097

[GRAPHIC] [TIFF OMITTED] 73579.098

[GRAPHIC] [TIFF OMITTED] 73579.099

[GRAPHIC] [TIFF OMITTED] 73579.100

  

                                  
