[Senate Hearing 111-80]
[From the U.S. Government Publishing Office]



                                                         S. Hrg. 111-80
 
  CHALLENGES AND OPPORTUNITIES FOR U.S.-CHINA COOPERATION ON CLIMATE 
                                 CHANGE

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



                                HEARING

                               BEFORE THE



                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              JUNE 4, 2009

                               __________

       Printed for the use of the Committee on Foreign Relations


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
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                COMMITTEE ON FOREIGN RELATIONS         

             JOHN F. KERRY, Massachusetts, Chairman        
CHRISTOPHER J. DODD, Connecticut     RICHARD G. LUGAR, Indiana
RUSSELL D. FEINGOLD, Wisconsin       Republican Leader designee
BARBARA BOXER, California            BOB CORKER, Tennessee
ROBERT MENENDEZ, New Jersey          JOHNNY ISAKSON, Georgia
BENJAMIN L. CARDIN, Maryland         JAMES E. RISCH, Idaho
ROBERT P. CASEY, Jr., Pennsylvania   JIM DeMINT, South Carolina
JIM WEBB, Virginia                   JOHN BARRASSO, Wyoming
JEANNE SHAHEEN, New Hampshire        ROGER F. WICKER, Mississippi
EDWARD E. KAUFMAN, Delaware
KIRSTEN E. GILLIBRAND, New York
                  David McKean, Staff Director        
        Kenneth A. Myers, Jr., Republican Staff Director        

                              (ii)        


                            C O N T E N T S

                              ----------                              
                                                                   Page

Chandler, William, senior associate and director of the Energy 
  and Climate Program, Carnegie Endowment for International 
  Peace, Washington, DC..........................................    20
    Prepared statement...........................................    22
    Responses to questions submitted for the record by Senator 
      Barbara Boxer..............................................    44
Economy, Elizabeth, C.V. Starr Senior Fellow and director for 
  Asia Studies, Council on Foreign Relations, New York, NY.......    11
    Prepared statement...........................................    15
    Responses to questions submitted for the record by Senator 
      Barbara Boxer..............................................    48
Kerry, Hon. John F., U.S. Senator from Massachusetts, opening 
  statement......................................................     1
Lieberthal, Kenneth, visiting fellow in foreign policy, Brookings 
  Institution, Washington, DC....................................     6
    Prepared statement...........................................     9
    Responses to questions submitted for the record by Senator 
      Barbara Boxer..............................................    45
Lugar, Hon. Richard G., U.S. Senator from Indiana................     4

              Additional Material Submitted for the Record

Boxer, Hon. Barbara, U.S. Senator from California, prepared 
  statement......................................................    44

                                 (iii)


  CHALLENGES AND OPPORTUNITIES FOR U.S.-CHINA COOPERATION ON CLIMATE 
                                 CHANGE

                              ----------                              


                         THURSDAY, JUNE 4, 2009

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:01 a.m., in 
room SD-419, Dirksen Senate Office Building, Hon. John F. Kerry 
(chairman of the committee) presiding.
    Present: Senators Kerry, Cardin, Casey, and Lugar.

  OPENING STATEMENT OF HON. JOHN F. KERRY, U.S. SENATOR FROM 
                         MASSACHUSETTS

    The Chairman. The hearing will come to order. Thank you for 
joining us today.
    Delegates from 192 nations are going to be spending the 
rest of this year doing the vital work of crafting a global 
climate change treaty to be negotiated in Copenhagen this 
December. But, make no mistake, those 190-plus nations are 
inevitably going to be taking their queues from just two 
nations.
    The reality is that a robust American partnership with 
China will do more than anything else to ensure a successful 
global response to the urgent threat of climate change. America 
is the world's largest historical emitter of greenhouse gases 
that cause climate change. And China recently passed us to 
become the world's No. 1 current emitter. So, together we are, 
today, responsible for nearly half of all global climate 
greenhouse gas emissions.
    Obviously, the full extent of our responsibility goes well 
beyond the numbers. Our words and our actions will set the 
tone. And Washington and Beijing have a unique opportunity here 
to be able to lead. Either we're going to create the necessary 
momentum right now--June, July, August, September--leading into 
Copenhagen to galvanize a legitimate global response or we 
truly risk a global catastrophe.
    Last week, I visited China to assess where that country 
currently stands on climate change and what the realities of 
their position are. And it's interesting, because I've been 
engaged with the Chinese on this topic for almost 20 years now, 
going back to Rio, the original Earth Summit in 1992, and 
really it was a kind of one-way discussion for about 15 of 
those 20 years, where you could sit with Chinese delegations, 
but there wasn't much feedback, there wasn't much engagement, 
there wasn't much discussion, and frankly, there wasn't much 
happening on the positive side in China itself. That has 
changed dramatically, I might say, over the course of the last 
years. And both in Bali as well as in Poznan, I met with 
Minister Xie, their lead negotiator on climate change, as I did 
meet with him last week in Beijing, and it is striking the 
degree to which they are energized, enthusiastic, embracing new 
technologies, setting goals and standards, and moving 
aggressively in a new direction.
    Last week, I met with top Chinese political leaders, energy 
executives, scientists, students, and environmentalists, and 
what I heard was, in fact, very encouraging. Now, words are 
words; I understand that. And I'm meeting today with Todd Stern 
and John Holdren and others to discuss how we translate the 
words into specific actions. But the fact is that the Chinese 
decisionmakers insisted to me, repeatedly, that China grasps 
the urgency of this problem. People who, a few short years ago, 
were not even willing to entertain this discussion are now 
unequivocal. China is eager to embrace low-carbon development 
pathways and is ready to be, in their words, a positive, 
constructive force in Copenhagen and in the negotiations, going 
forward.
    My message to the Chinese was very direct, simply that 
America understands that we have an obligation to lead, as the 
historical largest emitter, but that China needs to understand, 
point blank, that if America went to zero tomorrow, China has 
the ability to obliterate every gain we make unless it is also 
part of the solution, as well as other developing countries. 
And so, the message is clear. America is no more likely to 
enter into a legally binding global solution in 2009 than it 
was back in the 1990s, when we debated Kyoto, unless China is 
part of the solution and unless there is a global solution in 
the making through the Copenhagen process. I might add, that 
this can be achieved by filling out the already-adopted 
language of U.N. process, which refers to ``common, but 
differentiated, responsibilities,'' and, most importantly, 
filling out the three words that came out of the Bali and 
Poznan process, that emissions reductions must be ``measurable, 
reportable, and verifiable,'' MRV, as it is referred to in the 
negotiating process.
    The Chinese are beginning to realize that addressing 
climate change and pursuing sustainable energy policies is very 
much in their own national interest. China's ballooning growth 
has resulted in a resource dependency that comes with very real 
strategic costs. In a sense, China and the United States find 
themselves in a similar kind of strategic box. Both of us have 
increasing economic demand, increasing power-production demand, 
and both of us are predominantly dependent on foreign sources 
of fuel. So, to the degree that we both move aggressively to 
create bioalternative, renewable, wind, solar, clean coal, et 
cetera, we are significantly advantaged, because we both have 
significant supplies of coal and an ability to burn it, 
providing that it is clean.
    Of course, the costs of environmental devastation are also 
being felt in more than strategic terms for China. Air 
pollution causes the premature deaths of 750,000 Chinese people 
every year. Farmers are experiencing declining crop yields 
right now. And scientists are now warning that the Himalayan 
glaciers, which supply water to almost a billion people, could 
disappear completely by 2035. Everyone I spoke to recognized 
these risks.
    So, it's time to retire, once and for all, the old outdated 
stereotype and myth that China doesn't care at all and China 
won't act. They do care, and they are acting. They may not 
embrace exactly the same schedule immediately that we do, but I 
believe that if you give those concepts of ``verifiable, 
measurable, reportable'' the life that they can be given, we 
are going to see very significant emissions reductions from 
China. And I'm willing to bet any of my colleagues in the 
United States Senate that if we don't get our act together 
significantly over the course of the next few years, we're 
going to be chasing China, 4 or 5 years from now, because 
that's the rate that they are moving at.
    I had the pleasure of riding on a 200-mile-an-hour bullet 
train from Beijing to Tianjin, steel on steel. Nancy Pelosi was 
also there. We met one evening and chatted, and she had the 
pleasure of riding on a 300-mile-an-hour Shanghai maglev train 
from the airport to downtown. Folks, those are cars that are 
off the road and people who move in a low carbon footprint 
lifestyle, and our Acela train has yet to be able to go more 
than 18 miles of the entire way to New York at 150 miles an 
hour.
    So, the challenge is pretty clear to me. The old train in 
Beijing took 8 hours, and it ran on diesel. The new one takes 
29 minutes. And in the next 4 years, China will extend its 
high-speed rail system by 38 percent.
    Earlier this year, while America spent $80 billion in green 
stimulus measures, the largest such investment in our history, 
China invested $200 billion. In the past few years, China has 
tripled its wind energy-usage targets and quintupled its solar 
energy-use targets for 2020. They set an energy intensity 
reduction target of 20 percent by 2020, and they are already 
moving ahead of that in certain sectors of their economy, and 
they've surprised themselves at the ease and rapidity with 
which they were able to do it.
    China has actually begun dynamiting--blowing up--some of 
its small dirty coal plants, because they're so inefficient, 
and replacing them with new technology and newer plants. But, 
as China builds and expands its industrial base, we obviously 
can't expect them to simply dynamite dirty sources of energy; 
we need to ensure that China starts building clean. Both 
countries have a great deal to gain from bilateral cooperation 
to develop and deploy clean energy sources. We have the chance 
to commercialize some of the most promising technologies and 
make clean energy advances that can literally be 
transformational.
    I raised these issues with Chinese Vice Premier Li Keqiang, 
and he was enthusiastic, literally saying, ``Let's do it. Why 
don't you get the names of those businesses to our people and 
we'll work together and see if we can start to joint venture 
and specifically describe how we could proceed forward.''
    So, the opportunity for Mr. Stern and the State Department 
team is immense, and we should collaborate on multiple 
demonstration projects of near-to-market clean-energy 
technology, from solar to thermal to carbon capture and 
storage. We should combine forces in driving toward next-
generation battery and electric-vehicle technology. I might 
add, China has already set a daunting goal; daunting both with 
respect to the challenge of doing it, but also with respect to 
us, because they are setting out to be the world's No. 1 
electric-car manufacturer. And at a time when we see the woes 
of Detroit, we ought to take a message from that and, likewise, 
get our act together.
    Most importantly, we need to inspire the 1.6 billion 
Americans and Chinese to take ownership of this challenge and 
prove to the world that we can rise and meet it together.
    Now, make no mistake, bilateral cooperation with China is 
not an alternative to the global treaty process. On the 
contrary, it is an essential component of the larger effort. 
Our two countries, representing more than 40 percent of the 
emissions globally, have stood aside from this effort for too 
long, and now it falls to us to take the helm. And if we lead, 
if we prove our ability to be able to reach agreement on many 
of these issues in these next few weeks, that will have a 
profound impact on the negotiating positions and the capacity 
to move much more easily in Copenhagen.
    We're very fortunate to have with us today a respected 
panel of experts. Ken Lieberthal served as senior director for 
Asia on the National Security Council under President Clinton 
and is a visiting fellow at the Brookings Institution. 
Elizabeth Economy is a senior fellow and director for Asia 
studies at the Council of Foreign Relations. And Bill Chandler 
is director of the Energy and Climate Program at the Carnegie 
Endowment for International Peace.
    Let me just comment on one other thing we mark today also. 
Today is also the 20th anniversary marking the violent 
crackdown against democracy advocates in Beijing's Tiananmen 
Square and in dozens of other cities over China, and it would 
be inappropriate to simply gather here today and talk about the 
relationship with China without mentioning that and remembering 
the sacrifice of those who lost their lives in pursuit of 
greater freedom.
    Obviously, much remains to be done in that regard, and, as 
we continue to build a closer relationship with China, it's 
important for us to continue to urge the Chinese to unleash the 
dynamism of the Chinese people through further political 
liberalization and strengthening the rule of law and making 
government fully accountable to the people. And I think that 
China's success in that endeavor is also of profound interest 
to our relationship and to the United States.
    My visit last week confirmed for me China's indispensable 
role in tackling a host of international problems, from the 
global financial crisis to the subject of today's hearing. And 
I look forward to growing this relationship. It is perhaps the 
most important bilateral relationship on the planet today, and 
there's much that we need to do with respect to nuclear 
proliferation, North Korea, as well as the other issues I've 
mentioned.
    Senator Lugar.

 STATEMENT OF HON. RICHARD G. LUGAR, U.S. SENATOR FROM INDIANA

    Senator Lugar. Well, thank you very much, Mr. Chairman. I 
congratulate you on your trip to China, your diplomacy; 
likewise, your survival at 200 miles an hour----
    [Laughter.]
    Senator Lugar [continuing]. In addition to the Speaker of 
the House's feat.
    Let me just say, I join you also in welcoming our 
distinguished panel, and we look forward to discussing the 
subject with you.
    As the chairman has pointed out, China's actions are 
critical to the success of any global effort to meaningfully 
reduce carbon emissions. Not only is China the largest source 
of greenhouse gases, its negotiating position is influential on 
the G77 developing nations and others. Chinese responses to 
climate change and to global negotiations on the subject have 
already been complex and sometimes contradictory. The words and 
actions of Chinese leaders indicate that they see climate 
change as a risk to the stability and development of their 
country.
    And yet, this focus on stability also reduces China's 
willingness to limit carbon usage in ways that might impede 
economic growth. China has demonstrated a strong appetite for 
developing and deploying cleaner energy technologies, including 
solar and wind energy systems, yet it continues to build coal-
fired powerplants at a rapid rate. It has issued forward-
looking regulations and mileage standards designed to produce a 
greener economy, yet it remains unclear whether China will 
develop the capacity to effectively implement its new 
regulations, or even whether it can accurately measure their 
impact.
    China has productively discussed some climate change issues 
in bilateral negotiations, yet it is association with the G77 
that routinely engages in strident rhetoric that blames the 
West for climate change and supports counterproductive policy 
demands, such as having consumers in the West pay for the 
carbon content of products they buy from China.
    China's position on climate change is more than a 
diplomatic problem for the United States. The American domestic 
debate on this issue will be profoundly influenced by 
perceptions of China's willingness to set aside doctrinaire 
positions and to agree on steps to limit greenhouse gas 
emissions.
    China's status as a nondemocratic nation which lacks the 
checks and balances provided by a free press and other 
democratic institutions will complicate the verification of any 
climate change agreement. Moreover, the fundamental trends in 
China toward industrialization, urbanization, higher standards 
of living will have far more impact on the growth of emissions 
than government policy.
    Now, a starting point for our discussion is what can 
realistically be achieved through bilateral talks with the 
Chinese Government. In my judgment, there is no doubt that such 
talks should be pursued, probably in a format that can include, 
not just energy and climate, but also economic, security, and 
other issues.
    Even apart from climate change concerns, our Nation has a 
strong interest in improving our communications with Beijing 
and making progress on common interests. I appreciate the 
diplomatic efforts already undertaken by the Obama 
administration, and especially the efforts of our chairman, 
John Kerry. As I have mentioned in past hearings, it is 
critical that the American people have a much clearer picture 
of the overall elements of the climate change problem and the 
administration's strategy in structuring a potential agreement. 
American participation in any global climate agreement is 
likely to bring profound changes to the American economy and 
culture that require the achievement of much greater consensus 
than we now have. Absent a reasonable consensus on how we 
structure our response and what sacrifices we have to make, 
implementations of a climate change policy is far more likely 
to be ineffective, economically damaging, and divisive if we do 
not have a common consensus.
    Part of this understanding involves how American efforts on 
climate change fit into global efforts. And the overall volume 
of greenhouse gases released by China, India, other rapidly 
developing countries, is expected to continue to grow, under 
almost any scenario. If this is the case, the American people 
will require much greater confidence than mitigation steps 
taken by the United States and other developed nations, 
combined with commitments by China and other developing nations 
to slow the growth of their greenhouse gases, will finally 
produce a meaningful result.
    I thank the chairman again for calling the hearing, and we 
look forward to the insights of our witnesses.
    The Chairman. Thank you very much, Senator Lugar. And thank 
you for your personal comments. And I appreciate the questions 
you've raised, and, needless to say, they've got to be answered 
as we go forward.
    Mr. Lieberthal, if you would lead off, and then Elizabeth, 
and we'll just go down the line.
    Thanks.

  STATEMENT OF KENNETH LIEBERTHAL, VISITING FELLOW IN FOREIGN 
         POLICY, BROOKINGS INSTITUTION, WASHINGTON, DC

    Mr. Lieberthal. Thank you, Mr. Chairman, Senator Lugar. I 
appreciate the opportunity to comment on the critical issues of 
challenges and opportunities for United States-China 
cooperation on climate change.
    China's rate of growth of carbon emissions, especially 
since 2002, has been extremely steep, and pollution problems in 
China, I think, are rightly viewed as severe. Most Americans 
seem to believe that China is, therefore, ignoring its carbon 
emissions while pursuing all-out economic growth.
    But, as you just explained, Mr. Chairman, the reality is 
that the leaders in Beijing have adopted serious measures to 
bring growth in carbon emissions under control, even as they 
have tried to maintain rapid overall expansion of GDP.
    To engage effectively with the Chinese and achieve the best 
outcomes on carbon emissions with them, it is important to have 
a realistic understanding both of the reasons their emissions 
are growing so rapidly and of the types of efforts they're 
making. It is critical for the United States and China to find 
ways to work as effectively as possible to reduce overall 
greenhouse gas emissions, and this requires reality-based 
approaches by each side toward the other.
    Why are China's greenhouse gas emissions increasing so 
rapidly? Fundamental to the answer is that, first, China's 
economy is based overwhelmingly on coal. And second, China 
retains many of the problems of a developing country.
    Coal currently provides about 70 percent of China's energy, 
and there is no serious alternative to coal for many years to 
come. Without development and deployment of technology to 
reduce coal's carbon footprint, the future looks grim for 
China's carbon emissions, and this, I believe, provides a major 
area for potential United States-China cooperation.
    China describes itself as a developing country, and it's 
more than half right. It makes sense to envision China as a 
group of relatively developed islands with a cumulative 
population of over 400 million people that are scattered around 
in a sea of over 800 million people who live very much in 
developing-country conditions. The interaction between the 
developed areas and the developing regions is pervasive, and it 
affects every dimension of economic, social, and political life 
in China. Every Chinese leader views the developing part of the 
country as a constant and pressing reality.
    One of the results of this developing-country context is 
that China encounters more fundamental problems regarding human 
capital, infrastructure, social malaise, and technical 
capabilities than most of us appreciate. Put simply, China's 
leaders lack the institutional and technical capabilities to 
achieve many of the improved energy outcomes that they seek. 
Indeed, the issue of capacity-building is critically important 
for China's future outcomes in the clean energy and climate 
change arenas and provides a major area of potential United 
States-China cooperation.
    Another reality of China's developing-country context is 
that Beijing is also focused on managing perhaps the greatest 
migratory flow in human history as urbanization proceeds on an 
almost unimaginable scale. Since 1992, nearly 200 million 
Chinese have shifted from rural to urban life, and the current 
pace of migration of about 15 million people per year moving 
into the cities is likely to continue for another 15 to 20 
years. The resulting requirements for new power generation, 
building construction, transportation, education, health 
services, and so forth means that, effectively, China has to 
build urban infrastructure and create urban jobs for a new, 
relatively poor city of 1.25 million people every month, and 
that will likely continue for the better part of the next two 
decades.
    The key industries that support the related infrastructure 
development--cement, steel, petrochemicals, power, and 
aluminum--have been among the fastest growing industries in 
China over the past half decade and are also the most important 
sources of greenhouse gas emissions.
    In addition, as more Chinese achieve higher incomes, they 
want comfortable transportation, including private cars. Many 
are also upgrading their homes, making them larger, and filling 
them with appliances. Carbon emissions growth reflects, 
therefore, extremely fundamental forces in China's development.
    China's leaders also have competing environmental concerns, 
especially focused on water distribution and quality, and on 
extremely severe air pollution, and those divert serious 
resources from attacking the issue of carbon emissions.
    In sum, while visits to Beijing or other major coastal 
cities may create the impression that China's a relatively 
developed country, the reality is far different. The 
underdeveloped parts of China have a population nearly three 
times the size of our own population, and that population's 
needs and capabilities inevitably shape major outcomes in 
China.
    None of the above should be interpreted as indicating that 
controlling greenhouse gas emissions is not on Beijing's 
priority list. That would be very far from the truth, as China 
sees itself as one of the countries most vulnerable to damage 
from climate change. In fact, when you look at the policies and 
programs already in place, they are very impressive, and they 
are constantly growing. Even the following short list of key 
official targets, every one of them backed up by substantial 
commitments of resources, suggests the reality that China's 
taking these issues very seriously.
    The targets include seeking a 20-percent reduction in 
energy intensity for all of GDP during the 11th 5-year plan, 
from 2006 to 2010. According to Chinese authorities, meeting 
this target will reduce total carbon emissions by roughly 1 
billion tons of CO2 over the course of the plan, as against a 
business-as-usual model.
    Adopting the target of having renewable fuels account for 
10 percent of China's total energy consumption by 2010, and 15 
percent by 2020. As part of this, there are major programs and 
mandates in solar, wind, nuclear, and hydro, and there is much 
work being done on biofuels.
    Taking serious measures to reduce the emissions from coal-
fired power generation facilities, including shutting down 
small-scale plants and deploying, on a large scale, the most 
advanced technologies on all new coal-fired plants.
    Investing over $88 billion in ultra-high-voltage 
transmission-smart grid projects by 2020. And there are other 
targets on various additional measures in electric vehicles, 
mass transmit, electrified trains for freight-hauling, and so 
forth.
    The bottom line is that China faces enormous pressures via 
urbanization and other aspects of development to continue 
massive creation of infrastructure. It takes reduction of 
greenhouse gas emissions, as against a business-as-usual model, 
extremely seriously. And it has more problems, in terms of lack 
of capacity, than is true for developed countries.
    There are serious implications for the United States and 
China, and for Copenhagen, in the above remarks. These include, 
first, United States-China cooperation on clean energy can be 
in both of our interests. We have many complementary 
capabilities, but such cooperation has to be based on the trust 
that grows out of realistic understandings of each other's 
actions, problems, worries, capabilities, and goals. That 
trust, I believe, is not yet there.
    Second, at Copenhagen, China should be pushed hard to 
accept targets for greenhouse gas emissions that require major 
efforts for them to achieve, with full verification 
requirements. But China will, in my judgment, not accept caps 
at this point, as it does not see how it can actually cap 
emissions growth in the face of ongoing urbanization and other 
demands. Beijing does not accept international obligations that 
it does not think it is capable of meeting.
    And finally, the United States and China should work to 
develop a major clean energy partnership. Achieving such a 
partnership will provide new momentum for the Copenhagen 
effort.
    I hope these comments are helpful. I look forward to your 
questions.
    Thank you, sir.
    [The prepared statement of Mr. Lieberthal follows:]

    Prepared Statement of Kenneth Lieberthal, Visiting Fellow, the 
Brookings Institution, Professor of Political Science and Professor of 
          Business Administration, the University of Michigan

    Mr. Chairman and members of the Foreign Relations Committee. Thank 
you for giving me the opportunity to comment on the critical issue of 
``Challenges and Opportunities for United States-China Cooperation on 
Climate Change.''
    China's rate of growth of carbon emissions, especially since 2002, 
has been extremely steep, and pollution problems in China are rightly 
viewed as very sobering. Most Americans seem to believe that China is 
therefore ignoring its carbon emissions while pursuing all-out economic 
growth.
    But the reality is that the leaders in Beijing have adopted serious 
measures to bring growth in carbon emissions under control, even as 
they try to maintain rapid overall expansion of GDP. To engage 
effectively with the Chinese and achieve the best outcomes on carbon 
emissions with them, it is important to have a realistic understanding 
both of the reasons their emissions are growing so rapidly and of the 
types of efforts they are making. It is critical that the United States 
and China find ways to work as effectively as possible to reduce 
overall greenhouse gas emissions, and this requires reality-based 
approaches by each side toward the other.
    First, why are China's greenhouse gas emissions increasing so 
rapidly? Fundamental to the answer is that: One, China's economy is 
based overwhelmingly on coal; and two, China retains many of the 
problems of a developing country.
    Coal currently provides about 70 percent of China's energy, and 
there is no serious alternative to coal for many decades to come. 
Without development and deployment of technology to reduce coal's 
carbon footprint, the future looks grim for China's carbon emissions. 
This provides a major area for potential United States-China 
cooperation.
    China always describes itself as a developing country, and it is 
more than half right. It makes sense to envision China as a group of 
relatively developed islands with a cumulative population of over 400 
million people that are scattered around in a sea of over 800 million 
people who live very much in developing country conditions. The 
interaction between the developed areas and the developing regions is 
pervasive and affects every dimension of economic, social, and 
political life. Every Chinese leader views the developing part of the 
country as a constant and pressing reality.
    One of the results of this developing country context is that China 
encounters more fundamental problems regarding human capital, 
infrastructure, social malaise, and technical capabilities than most of 
us appreciate. Put simply, China's leaders lack the institutional and 
technical capabilities to achieve many of the improved energy outcomes 
that they seek. Indeed, the issue of capacity-building is critically 
important for China's future outcomes in the clean energy and climate 
change arenas and provides a major area of potential United States-
China cooperation.
    Another reality of China's developing country context is that 
Beijing is also focused on managing perhaps the greatest migratory flow 
in human history as urbanization proceeds on an almost unimaginable 
scale. Since 1992, nearly 200 million Chinese have shifted from rural 
to urban life, and the current pace of migration of about 15 million 
people per year moving into cities is likely to continue for another 
15-20 years.
    The resulting requirements for new power generation, building 
construction, transportation, education, health services, etc., means 
that, effectively, China has to build urban infrastructure and create 
urban jobs for a new, relatively poor city of 1.25 million people every 
month, and that will likely continue for the better part of the next 
two decades. The key industries that support the related infrastructure 
development--cement, steel, petrochemicals, power, and aluminum--have 
been among the fastest-growing industries in China over the past half 
decade and are also the most important sources of greenhouse gas 
emissions. In addition, as more Chinese achieve higher incomes, they 
want comfortable transportation, including private cars. Many also are 
upgrading their homes--making them larger and filling them with 
appliances. Carbon emissions growth reflects, therefore, extremely 
fundamental forces in China's development.
    China's leaders also have competing environmental concerns, 
especially focused on water distribution and quality and on extremely 
severe air pollution, that divert serious resources from attacking the 
issue of carbon emissions.
    In sum, while visits to Beijing or other major coastal areas may 
create the impression that China is a relatively developed country, the 
reality is far different. The underdeveloped parts of China have a 
population nearly three times the size of ours, and that population's 
needs and capabilities inevitably shape major outcomes in China.
    None of the above should be interpreted as indicating that 
controlling greenhouse gas emissions is not on Beijing's priority list. 
That would be very far from the truth, as China sees itself as one of 
the countries most vulnerable to damage from climate change. In fact, 
when you look at the policies and programs already in place, they are 
very impressive--and they are constantly growing. Even the following 
short list of key official targets--every one backed up by substantial 
commitments of resources--suggests the reality that China is taking 
these issues very seriously. China is:

   Seeking a 20-percent reduction in energy intensity for all 
        GDP during the 11th 5-year plan, which covers 2006-2010.\1\ 
        According to Chinese authorities, total carbon emissions would 
        decline by roughly a billion tons of CO2 over the course of the 
        plan as against a ``business as usual'' (BAU) model, if this 
        target were fully met. At present, progress toward the target 
        is behind schedule, but the gap between targets and performance 
        is closing.
---------------------------------------------------------------------------
    \1\ ``The Energy Development Plan for the 11th Five-Year Period,'' 
the National Development and Reform Council (NDRC), Government of the 
People's Republic of China, April 2007. Available at: http://
www.ccchina.gov.cn/WebSite/CCChina/UpFile/File186.pdf.
---------------------------------------------------------------------------
   Adopting the target of having renewable fuels account for 10 
        percent of China's total energy consumption by 2010 and 15 
        percent by 2020.\2\ As part of this:
---------------------------------------------------------------------------
    \2\ ``The Medium and Long-Term Development Plan for Renewable 
Energy,'' the National Development and Reform Council (NDRC), 
Government of the Peoples' Republic of China, August 2007. Available 
at: http://www.ccchina.gov.cn/WebSite/CCChina/UpFile/2007/
20079583745145.pdf. China passed a renewable energy law in 2006. In 
2007 renewables accounted for 8.5% of China's energy production.

     Establishing major programs to improve technology in solar 
            and wind power. China has rapidly become the world's 
            leading producer of solar panels, although solar power's 
            installed generating capacity is to increase to only 
            300,000 kW in 2010. For wind power, tax breaks and other 
            forms of government support are already in place as of 
            2008. The installed generating capacity of wind power is to 
            increase from 1.26 million kW in 2005 to 10 million kW in 
            the year 2010.\3\
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    \3\ ``The Renewable Energy Development Plan for the 11th Five-Year 
Period,'' NDRC, PRC. March 2008. Available at: www.ccchina.gov.cn/
WebSite/CCChina/UpFile/File186.pdf.
---------------------------------------------------------------------------
     Enhancing China's hydropower generation (despite the fact 
            that the country already has the greatest concentration of 
            hydropower facilities in the world). The installed 
            hydropower generating capacity is to increase from 117 
            million kW in 2005 to 190 million kW in 2010 \4\ and will 
            provide 6.8 percent \5\ of the country's anticipated energy 
            consumption in the latter year.
---------------------------------------------------------------------------
    \4\ ``The Renewable Energy Development Plan for the 11th Five-year 
Period,'' ibid.
    \5\ ``The Energy Development Plan for the 11th Five-Year Period.''

   Taking serious measures to reduce the emissions from highly 
        polluting power-generation facilities. Coal remains king in 
        China, and about 70 percent of power still comes from coal-
        fired plants. Over the past 5 years China has built the 
        equivalent of America's entire coal power generation system. 
        These plants will stay on line for another 30-50 years while 60 
        percent of U.S. coal-fired powerplants will be over 50 years 
        old by 2025. The technologies involved in generating power in 
        these new plants are thus very important. Fortunately, China is 
        building many of these plants to be relatively clean \6\ and is 
        investing in development and deployment of clean coal 
        technologies.\7\ Despite these measures, specific problems 
        often result in emissions far above the level that would be 
        anticipated from plant technology alone. This is the unintended 
        result of economic pressures at the powerplant level that lead 
        many operators to purchase and burn low-quality coal that 
        undermines the efficiency capabilities of the advanced 
        technologies in their plants.\8\
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    \6\ Government regulations now require that: New plants be 
synchronously equipped with flue gas desulfurization (FGD) technology 
before 2010; existing plants begin to be retrofitted with FGD 
technology before 2010; all plants meet SO2 requirements before 2015; 
and new plants set aside space for future flue gas denitrification 
equipment installations. New power-generation units are equipped with 
low-NOX burners, and many existing units have been 
retrofitted with this technology: Zhao, Lifeng and Gallagher, Kelly 
Sims, ``Research, Development, Demonstration, and Early Development 
Policies for Advanced-Coal Technology in China,'' Energy Policy, Vol. 
35, 2007, 6467-6477.
    \7\ This includes, for example, substantial work on direct 
hydrogenation of coal, with production starting up in the Inner 
Mongolian Autonomous Region in 2008. Beijing is also focusing on coal 
gasification and is constructing 35 plants using this technique.
    \8\ Edward S. Steinfeld, Richard K. Lester, and Edward A. 
Cunningham, ``Greener Plants, Grayer Skies? A Report from the Front 
Lines of China'sEnergy Sector'' (Cambridge, Mass.: China Energy Group, 
MIT Industrial Performance Center, August 2008).
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   Aggressively expanding nuclear power capabilities, with a 
        target of building nine new generators in the next 2 years and 
        at least 30 over the coming decade. Nuclear is slated to 
        provide 5 percent of China's total installed power-generating 
        capacity by 2020.\9\ There have been recent suggestions that 
        the nuclear output target has been raised from 40 GW to 70 GW 
        by 2020.\10\
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    \9\ ``The Nuclear Industry Development Plan for the 11th Five-Year 
Period,'' the Commission of Science, Technology, and Industry for 
National Defense (COSTIND), the Peoples' Republic of China, August 
2006. Available at: http://www.caea.gov.cn/n602669/n602673/n602687/
n607857/appendix/200741310370.doc ``China Ups Targeted Nuclear Power 
Share From 4% to 5% for 2020,'' Xinhua News, August 5, 2008. Available 
at: http://news.xinhuanet.com/english/2008-08/05/content_8967806.htm.
    \10\ China Daily, November 19, 2008: http://www.chinadaily.com.cn/
bizchina/2008-11/06/content_7180851.htm.
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   Investing over 600 billion RMB ($88 billion) on ultra-high 
        voltage transmission projects by 2020. The installed capacity 
        of China's clean energy will be increased to 579 billion kW 
        when the smart grid is completed by 2020.\11\
---------------------------------------------------------------------------
    \11\ China Daily (May 29, 2009).

    The bottom line is that China faces enormous pressures via 
urbanization and other aspects of development to continue massive 
creation of infrastructure, it takes reduction of greenhouse gas 
emissions as against a BAU model extremely seriously, and it has more 
problems in terms of lack of capacity monitoring and other needs for 
high quality efforts than is true for developed countries.
    There are serious implications for the United States and for 
Copenhagen in the above comments. These include \12\:
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    \12\ For a fuller explanation of potential avenues of future United 
States-China cooperation to address climate change, see: Kenneth 
Lieberthal and David Sandalow, ``Overcoming Obstacles to United States-
China Cooperation on Climate Change'' (Washington: The Brookings 
Institution John L. Thornton China Center, 2009), available in .pdf at 
www.brookings.edu.
---------------------------------------------------------------------------
   There are numerous areas in which United States-China 
        cooperation on clean energy can be in both our interests. We 
        have many complementary capabilities. But such cooperation has 
        to be based on the trust that grows out of realistic 
        understanding of each other's actions, problems, worries, 
        capabilities, and goals. That trust is not yet there.
   At Copenhagen, China should be pushed hard to accept targets 
        for greenhouse gas emissions that require major efforts to 
        achieve. Beijing should also accept full verification 
        requirements, which include transparency, clear metrics, etc. 
        But China will, in my judgment, not accept caps at this point. 
        It does not see how it can possibly actually cap emissions 
        growth, given the ongoing urbanization and other developments 
        noted above, and Beijing does not accept international 
        obligations that it does not think it is capable of meeting. 
        Chinese quantitative obligations are, therefore, likely to 
        focus on improvements in energy intensity per unit of GDP, 
        perhaps bolstered by some sectoral requirements, along with 
        targets on use of renewables. China cannot avoid an overall cap 
        on carbon emissions indefinitely, but it is not in a position 
        realistically to accept a cap at Copenhagen.
   The United States and China should work to develop a major 
        clean energy partnership. Achieving such a partnership will 
        provide new momentum to the Copenhagen effort. It will 
        demonstrate that the United States and China are serious about 
        improving their records on clean energy. It inherently will 
        also highlight that, despite the differences in principle that 
        separate the industrialized from the developing countries over 
        responsibilities for greenhouse gas emissions, the most 
        important developed and most important developing country can 
        find significant ways to work together. But a United States-
        China clean energy partnership and the Copenhagen effort should 
        be developed separately, as the negotiating framework for the 
        latter is far more complicated than that for the former. Close 
        linkage, therefore, may complicate both issues.

    The Chairman. They are, indeed, very helpful, thank you.
    Ms. Economy.

 STATEMENT OF ELIZABETH ECONOMY, C.V. STARR SENIOR FELLOW AND 
 DIRECTOR FOR ASIA STUDIES, COUNCIL ON FOREIGN RELATIONS, NEW 
                            YORK, NY

    Ms. Economy. Thank you very much, Mr. Chairman and Senator 
Lugar. It is a pleasure to be here to have the opportunity to 
discuss how the United States and China can best work together 
to address the challenge of global climate change.
    Within this very broad mandate, I was asked to talk about 
two specific issues this morning. First, how can the United 
States help support measuring, reporting, and verification in 
China? And second, what might be some of the priorities for a 
clean energy partnership between our two countries?
    In terms of MRV, these are, of course, the very building 
blocks of an effective domestic climate program for China, as 
well as China's commitment to a robust international regime. 
China is still at a very nascent stage of capacity in these 
areas. The central government, for example, has called for the 
provinces to develop their own climate action plans, but many 
of these provinces have very little idea about how to proceed, 
other than to copy blindly what Beijing has already issued. I 
think this offers some real opportunities for United State-
China cooperation.
    First, we can begin by helping the provinces to develop 
inventories of their greenhouse gas emissions. We can assist 
China with both the technology and the methodology, from ground 
sampling for methane emissions from rice production to 
advanced-stage continuous emissions monitoring. It's not going 
to be easy. Beijing has many strictures on information 
transmission, not only to its foreign partners, but also within 
the government. But this is an essential first step for any 
real commitment that China might be willing to sign on to.
    Second, I think we have the opportunity to work with 
Chinese companies to begin to develop a registry of their 
greenhouse gas emissions and mitigation measures. I think this 
is an important resource for China and for Chinese companies as 
the country moves toward a time when it will have to assume a 
cap on its emissions, and perhaps it will eventually adopt a 
cap-and-trade system. Some Chinese companies, mostly those with 
ambitions to be global leaders, are already moving in this 
direction. I sit on a board of a Chinese group that scorecards 
multinational and Chinese companies on their sustainability 
initiatives. Two years ago, we only had a multinational 
scorecard; this year we had two dozen Chinese companies that 
wanted to be evaluated; and, of those, I would say five or six 
actually had greenhouse gas mitigation measures listed as part 
of their sustainability initiatives. Their initiatives were not 
systematic, systemic, or comprehensive in any way, and 
certainly the number of companies in China that is undertaking 
these kinds of efforts is still small. But I do think, here in 
the United States, we have extensive experience with this, and 
we can begin to share this expertise on a company-to-company 
basis. Again, this is very important as China moves toward a 
true carbon commitment and a capped emission system.
    Third, and in some ways most difficult, is verification. 
There are few incentives within China's political system to 
enforce environment-related laws and regulations. Even when 
Chinese factories and powerplants have pollution-control 
equipment, they often don't use it, or they may use it only 
when the inspectors appear. There is very poor data collection, 
transmission, and transparency at every level of the Chinese 
system, and the incentive is often to hide negative 
information. We saw this in the runup to the Olympics, when the 
Beijing city government simply moved the air-pollution 
monitoring equipment from one part of the city to another in 
order to put forth better air-quality statistics than were 
actually there.
    So, I think that this effort to help China develop a more 
transparent, accountable, and rule-based system will be a long 
process, but an absolutely critical one. California is 
beginning an initiative that is going to try to address some of 
this problem. It has a climate governance partnership that it's 
trying to establish with a number of provinces, in which 
members of different parts of the bureaucracy at the local 
level will form climate action task forces, and to encourage 
information-sharing and transparency and accountability at the 
local level. Again, this is going to be a very long process, 
but it is an absolutely essential one.
    The second area I was asked to discuss was what the 
priorities might be for a clean energy partnership between the 
United States and China. As Ken was indicating, the partnership 
needs to look ahead over the next 10 to 20 years at the 
profound changes, both within China and in terms of China's 
role abroad, and structure the partnership in that context. 
Within China, this means working closely with the Chinese 
Government as it is transforming the country from a rural- to 
an urban-based society. Ken mentioned they plan to urbanize 400 
million people between 2000 and 2030. Significantly, urban 
residents use 3\1/2\ times more energy than their rural 
counterparts. With this as our future, I think we need to be 
looking at partnerships that focus on alternative energy 
vehicles. We already have an ecopartnership on this issue under 
the Strategic Economic Dialogue between Chang'an Motors and 
Ford Motor Company and the cities of Denver and Chongqing. We 
should be looking aggressively at what's taking place with that 
initiative, seeing what the obstacles are, what the 
opportunities are, and whether this is something that can be 
replicated throughout other parts of China. If it's not 
working, how do we revise it?
    Another priority for both our countries would be capacity-
building for the enforcement of energy-efficient building 
codes, as well as the deployment of new building materials. 
Half of all new building space in the world is going up in 
China. We are missing an enormous opportunity right now. 
Currently China is at about a
5-percent compliance rate with their own energy building 
efficiency codes.
    Ken also mentioned energy-efficient appliances. This may 
sound insignificant, but if you imagine about 800 million more 
people using air-conditioners and dishwashers and refrigerators 
and televisions, you begin to get the picture that this is 
going to be quite a significant source of new energy use within 
the country. I recently spoke with a major retailer in China 
who told me that energy-efficient appliances make up only 1 
percent of their appliance sales in China. There's a lot of 
work to be done in terms of promoting an Energy STAR rating 
system within China, and educating the Chinese consumer about 
such standards.
    Last on this point, there's a lot of discussion about 
technology transfer, joint R&D, and making clean-coal 
technologies in China commercially viable. These are all very 
important, and I think there are a lot of already very 
interesting partnerships emerging.
    Before I came to provide this testimony, I spoke with a 
friend of mine, Patrick Jenevein, who heads a wind power 
company based in Texas and has a joint venture in China. The 
company makes the blades for wind turbines, and it just 
received $300 million in financing from the parent company of 
his Chinese joint-venture partner to develop wind farms here in 
the United States. Forty percent of the components will be made 
here and 60 percent of the components will be made in China. 
This is the kind of partnership and development that we want to 
see happen, and we need to think through how to do that on a 
larger scale.
    Still, I think it's important to remember that technology 
doesn't matter unless the political and economic systems are 
there to support it. When I speak with United States companies, 
what they talk about in their dealings with China is contract 
sanctity, enforcement, and certainty of regulation. That all 
takes us back to governance and capacity-building.
    Finally, I mentioned that the partnership ought to address 
the profound changes in China's role abroad. Something not very 
many people have been thinking about is how China's drive for 
resources--timber commodities, food crops, oil, and gas--has 
brought tens of thousands of Chinese companies to Africa, Latin 
America, Southeast Asia, along with millions of Chinese 
workers, with very little to no environmental supervision. 
China is now the largest importer of timber in the world and 
the largest importer of illegally logged timber in the world. 
It is contributing to rampant deforestation in places as far 
flung as Cambodia, Myanmar, Mozambique, Russia, and Indonesia. 
Even as China is undertaking positive climate mitigation 
efforts with its forest program within its own borders, it is 
contributing to the opposite in many countries abroad.
    Again, I think that as we think through a climate 
partnership with China, it ought to be in the context of a 
global sustainability program that would encourage China, the 
United States, and developing countries to discuss the actions 
of Chinese multinationals abroad.
    The Chairman. Would you say it's contributing to the 
opposite; is that just by virtue of demand?
    Ms. Economy. It's contributing by chopping down all the 
old-growth forests.
    The Chairman. Right.
    Ms. Economy. There are many areas in which the United 
States and China can cooperate on global climate change. And 
from my perspective, as my remarks have indicated, the most 
important is building capacity and transparency, official 
accountability, and the rule of law. I think these are the 
essential elements of a Chinese system that's going to be able 
to deliver not only on its promises for global climate change, 
but also on issues like intellectual property rights, or as 
Senator Kerry mentioned--and I think it's important to remember 
today, on June 4--for the protection of individual rights and 
freedoms.
    Thank you.
    [The prepared statement of Ms. Economy follows:]

 Prepared Statement of Elizabeth Economy, C.V. Starr Senior Fellow and 
 Director for Asia Studies, Council on Foreign Relations, New York, NY

    Chairman Kerry and distinguished members of the committee, I am 
delighted to have the opportunity to discuss China's efforts to address 
climate change and the prospects for United States-China cooperation on 
this critical issue.
                            i. introduction
    China's climate policy is driven by the belief, widely shared 
within the government elite, that a lower carbon economy will be good 
for economic modernization, that there is money to be made through the 
development and sale of climate-related technologies, and that domestic 
energy security depends in part on expanding the role of renewable 
energy resources at home. When useful, China's leaders also link 
climate change mitigation to domestic environmental concerns such as 
air quality and flood prevention.
    Many in China also appreciate the serious challenges the country 
will face if the global climate is not stabilized: An estimated 37 
percent decline in agricultural output of three of the country's four 
major grains by 2050; rising sea levels that threaten hundreds of 
millions along China's wealthy coastal region; and increasing 
desertification that already plagues more than 20 percent of the 
country. In interviews, farmers in rural China will often attribute 
their poor land quality and growing water scarcity to climate change. 
Nonetheless, few within China's elite discuss climate change with a 
sense of urgency; the priorities remain continued rapid economic growth 
and social stability. To the extent that these priorities coincide with 
addressing climate change, China's leaders are enthusiastic about 
moving forward to address this global challenge.
    Within these parameters, the range of initiatives that China has 
undertaken to mitigate its contribution to global climate change is 
vast. In fact, the number of actors in China now engaged in climate-
related activities has exploded over the past several years. Beijing 
issues top-down targets for energy efficiency and provides subsidies 
for research and development on climate-related technologies, while 
local officials in China become climate entrepreneurs, actively seeking 
partnerships with cities abroad or bidding for their cities or 
provinces to become experimental low-carbon zones. Some of China's best 
known companies, such as Haier, Lenovo and Baoshan Iron and Steel have 
also begun to publicize their efforts to reduce their carbon footprint. 
One voice still largely missing in China's climate discussions, 
however, is that of Chinese environmental NGOs, who, with a few 
exceptions, remain focused exclusively on domestic environmental 
concerns.
          ii. the landscape of china's climate initiatives \1\
    Many of China's Greenhouse Gas (GHG) reduction efforts have been 
highly publicized and are well-known. These efforts include: Reducing 
energy intensity (energy consumption per unit of GDP) by 20 percent 
during 2006-2010; increasing the role of renewable energy within the 
primary energy mix to 10 percent by 2010 and 15 percent by 2020; a top 
1,000 program to improve the energy efficiency of the top 1,000 energy 
consuming enterprises in nine sectors (iron and steel, nonferrous 
metal, chemicals, petroleum/petrochemicals, construction material, 
textiles, paper, coal mining and power generation); a fuel consumption 
tax on gasoline of 1 rmb per litre; \2\ replacing and adding to the 
country's stock of coal-fired powerplants with more efficient models; 
and a massive afforestation program that has raised the level of forest 
coverage in the country from approximately 12 percent in 1998 to 18 
percent in 2009.
---------------------------------------------------------------------------
    \1\ The number of climate-related initiatives underway in China--as 
a result of central and local government, as well as international 
effort--is far too great to detail. This represents a sampling of some 
of the broadest and most highly publicized of China's GHG reduction 
efforts.
    \2\ Testimony of Barbara A. Finamore before the select committee on 
Energy Independence and Global Warming, United States House of 
Representatives (March 4, 2009).
---------------------------------------------------------------------------
    New targets and policy initiatives are also announced with striking 
frequency. For example, the government has discussed more than tripling 
its wind-power generating capacity to 100 GW by 2020 from its previous 
target of 30GW; floated a proposal for a 40-percent Renewable 
Electricity Standard by 2050; pushed forward new rules on compulsory 
green procurement for local governments; and raised the possibility of 
a carbon tax and a carbon trading regime at some undisclosed time in 
the future.
    China is also actively investing in new technologies that will help 
slow the rate of growth of the country's GHG contribution. It has 
announced a US$1.5 billion research subsidy for automakers to improve 
their electric vehicle technology. (China's leaders have called for 
500,000 ``new energy'' vehicles, such as hybrids and electric vehicles, 
to be produced this year. Shenzhen is reportedly already establishing 
twenty 220-volt charging pillars in office and residential areas. 
According to one international consulting firm, Frost and Sullivan, it 
will take a minimum of 10 years for China to transition to electric 
vehicles.) State-owned power developer China Huaneng Group has 
announced that it will pursue the development of technologies to 
capture and sequester carbon (CCS) with the assistance of the ADB and 
the Chinese Government.\3\ Shenhua Group is also pursuing CCS 
technology in conjunction with its planned coal-to-liquid fuels plant 
in Inner Mongolia. Moreover, powerplant efficiency technology may soon 
also make its way from China to the United States. In April 2009, Xi'an 
Thermal Power Research Institute, a subsidiary of Huaneng, signed a 
preliminary agreement to supply Houston-based Future Fuels with a two-
stage pulverized coal pressure gasification technology for an IGCC 
plant to be built in Schuylkill, PA, in 2010.
---------------------------------------------------------------------------
    \3\ ``Green Hops: New Renewable Energy Targets, More Carbon Tax 
Chatter, Singapore-Nanjing Eco-city Announced,'' Green Leap Forward 
blog (May 8, 2009). http://greenleapforward.com/2009/05/08/green-hops-
new-renewable-energy-targets.
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    China has also become the test bed for the rest of the world's GHG 
reduction efforts, technology development and transfer, and capacity-
building. Forty-two percent of the world's Clean Development Mechanism 
projects under the auspices of the Kyoto framework are in China. These 
projects have helped China expand its wind power capacity, develop 
coalbed methane capture projects, and provided a profit of several 
billion dollars for the Chinese Government. (The windfall is slated for 
a green technology fund.) The international community is also actively 
pursuing ecocity or province partnerships (e.g., the European Union 
with Jilin, Chongqing and Guangdong, Singapore with Tianjin and 
California with Jiangsu). While these partnerships are not yet well 
defined, they all will likely embrace both capacity-building for the 
Chinese Government as well as the development of industries that will 
serve a low carbon economy (e.g., producing wind turbines). Certainly, 
the private sector, including multinationals and international NGOs are 
all deeply engaged in climate-related activities in China: BP has a 
clean energy research center at Qinghua University in Beijing, Wal-Mart 
has launched a campaign to reduce significantly the energy used by its 
stores and factories; the Natural Resources Defense Council is working 
to promote energy-efficient buildings and demand-side management; and 
the Environmental Defense Fund has a pilot project to help reduce GHG 
emissions from the agricultural sector.
                       iii. the challenges ahead
    Despite the commitment of China's leaders and the rest of the world 
to move the country aggressively to a low carbon economy, however, the 
rate and nature of China's economic growth suggest that without 
significant new investment and international assistance, the country 
will fall well short of what it needs to do to help stabilize the 
global climate.\4\ Part of the challenge is related simply to the 
magnitude of the task at hand. Under a business as usual scenario, the 
International Energy Agency estimates that China's energy-related CO2 
emissions will be twice that of the United States by 2030. If China 
succeeds in meeting its target of reducing its energy intensity by 20 
percent by 2010, it will avoid emitting approximately 1.5 billion tons 
of CO2, the greatest contribution to GHG reduction currently underway 
in the world.\5\ Yet despite this effort, China is on track to 
overwhelm the global effort to address climate change. In 2006, China 
added 90 GW of coal-fired power capacity--enough to emit over 500 
million tons of CO2 per year for 40 years \6\; by comparison, the 
European Union's entire Kyoto reduction commitment is 300 million tons 
of CO2.\7\
---------------------------------------------------------------------------
    \4\ The Tyndall center, for example, argues that China's energy 
portfolio will need to be 60 percent renewable by 2050 to stabilize the 
climate. The McKinsey report's baseline scenario for China's GHG 
emissions, in which China doubles its carbon emissions from 2005 by 
2030, necessitates that China has 100GW of wind generating capacity by 
2030. In its abatement scenario, however, in which China limits the 
growth of its carbon emissions to 10 percent above 2005 levels by 2030, 
McKinsey suggests that China would need 300GW of wind generating 
capacity.
    \5\ ``Coal and Climate Change Facts,'' Pew Center on Global Climate 
Change. http://www.pewclimate.org/global-warming-basics/coalfacts.cfm.
    \6\ Statement of Stephen Chu, Director, Lawrence Berkeley National 
Laboratory, before the U.S. Senate Committee on Finance (March 27, 
2007).
    \7\ ``Fact Sheet: China Emerging as New Leader in Clean Energy 
Policies,'' The China Sustainable Energy Program. http://
www.efchina.org/FNewsroom.do?act=detail&newsTypeld=1&id=107.
---------------------------------------------------------------------------
    Beyond the sheer magnitude of the problem at hand, China's GHG 
reduction efforts are greatly complicated by emerging trends in the 
pattern of economic development, competing priorities within China's 
political system, and weak capacity for monitoring and enforcement. An 
effective climate program in China will need to address these issues.
Emerging Trends in Economic Development
   Urbanization--China plans to urbanize 400 million people 
        during 2000-2030. This will translate into significant growth 
        in energy demand: Urban residents use 3.5 times more energy 
        than rural Chinese. China already is building two billion 
        square meters of floor space each year, half the world's total. 
        Lighting, heating and appliance use will all add to China's 
        energy bill: Despite efforts by retailers and by the Chinese 
        Government to promote the use of energy efficient appliances, 
        one major retail chain reports that only 1-2 percent of the 
        appliances they have sold over the past quarter qualify as 
        energy efficient.
   Transportation--China's transportation sector is exploding. 
        Its fuel economy standards (36mpg) are significantly higher 
        than those in the United States (30mpg in 2010), but passenger 
        car sales in 2008 were just shy of those in the United States: 
        6.76 million compared to 6.79 million; and this year China is 
        on track to surpass the United States in car sales.\8\ In April 
        alone, China sold 1.15 million cars. By 2020-25, it is 
        anticipated that China will have more cars on its roads than 
        the United States.
---------------------------------------------------------------------------
    \8\ ``US LDV Sales Down 35.5% in December, 18% for the Year,'' 
Green Car Congress (January 5, 2009). http://www.greencarcongress.com/
2009/02/us-ldv-sales-fa.html.&
---------------------------------------------------------------------------
   Increasing population--After decades of an aging and largely 
        stable population, China may well experience some significant 
        population growth. Children of one-child families who marry 
        each other are permitted to have two children. Particularly in 
        urban areas, where family planning has been strictly enforced, 
        virtually all children 27 years old and younger are only 
        children. The potential for a population boomlet should be 
        incorporated into future climate scenarios.
   China Going Global--China's going out strategy has 
        encouraged thousands of Chinese enterprises to exploit natural 
        resources in Africa, Latin America, and Southeast Asia, often 
        with devastating environmental consequences for the local 
        environments. China's global logging practices are particularly 
        relevant to climate change. Although China has a significant 
        afforestation program at home, its companies often log 
        indiscriminately abroad. China has become the largest importer 
        of timber in the world, half of which is estimated to be 
        illegally logged. A global sustainable forestry program should 
        be part of China's portfolio of climate activities.
In Competing Priorities, the Economy Wins
   China's ``Green'' Fiscal Stimulus Package--China has 
        received significant international acclaim for its ``green'' 
        fiscal stimulus package. Both HSBC and the World Resources 
        Institute claimed that slightly under 40 percent of the package 
        is green (included in this was $98.65 billion for railroad 
        construction; $70 billion for electric grid construction; 
        $51.15 billion for water and wastewater treatment plants; and 
        $1.5 billion for low-carbon vehicles). Yet as the Shanghai-
        based lawyer, Charles McElwee, has pointed out, ``It is 
        admirable that China is building more railroads and more grid 
        infrastructure, but to suggest that with these investments 
        China is engaging in a major shift of the focus of its economy 
        to a sustainable one is far fetched. China is building more 
        railroads to move more products. There is nothing in China's 
        stimulus package that will prevent it from more than doubling 
        its 2005 carbon emissions by 2030.'' \9\ According to Vice-
        Minister Li Ganjie of China's Ministry of Environmental 
        Protection, during the first quarter of 2009, only 10 percent 
        of the 230 billion yuan (US$30 billion) of central government 
        funds for the stimulus package targeted environmental 
        protection, energy efficiency or emissions control.\10\
---------------------------------------------------------------------------
    \9\ ``Fast & Loose,'' China Environmental Law blog (April 21, 
2009). http://www.china
environmentallaw.com/2009/04/21/fast-loose/.
    \10\ Jing Fu, ``Local Governments May Ignore Standards,'' China 
Daily (April 27, 2009).
---------------------------------------------------------------------------
   Economic Growth vs. Environmental Protection--In the midst 
        of the global economic slowdown, Chinese environment officials 
        have expressed serious concern as to whether provincial and 
        local governments are ignoring environmental standards. In the 
        rush to launch investment projects, over 150 large-scale 
        infrastructure projects have been subjected to a ``green 
        passage'' process, which is a highly abbreviated environmental 
        impact assessment process. In addition, provincial and local 
        governments in a number of regions have ignored the 
        accountability system that links government officials 
        performance to energy saving and emissions control to their 
        careers.\11\
---------------------------------------------------------------------------
    \11\ Jing Fu, op. cit.
---------------------------------------------------------------------------
The Capacity Challenge
   Compliance--Compliance with environmental laws and 
        regulations is a longstanding challenge in China. China's top 
        environmental lawyer, Wang Canfa, estimates that only 10 
        percent of China's environmental regulations and laws are 
        actually implemented. In 2006, for example, compliance with 
        building energy efficiency standards was roughly 5 percent. A 
        recent MIT study that surveyed 85 coal-fired powerplants 
        discovered that although many plants installed state-of-the-art 
        desulfurization control technology, they did not appear to be 
        operating the equipment.\12\ Moreover, when companies are 
        penalized for failing to comply with environmental laws or 
        regulations, the central government reports that it collects 
        only 30 percent of the fees. As the United States considers how 
        best to assist China in moving aggressively to combat climate 
        change, building in effective monitoring and compliance 
        incentives and constraints will be essential.
---------------------------------------------------------------------------
    \12\ Steinfeld, E.S., et al., ``Greener Plants, Grayer Skies?'' A 
report from the front lines of China's Energy Sector, Energy Policy 
(2009).
---------------------------------------------------------------------------
   Weak Overall Monitoring Capacity--Although China has 
        administrative measures for pollution monitoring in place, the 
        guidelines provide no specific rules for monitoring or 
        sanctions for failing to do so. According to Renmin University 
        Professor Song Guojian, there are no documents detailing how 
        many times per year a factory must be monitored. As a result, 
        there is no assurance that a Chinese facility will remain in 
        compliance on a sustained basis. Factories might well use their 
        pollution control equipment or monitor their emissions only 
        when there are inspectors present.\13\
---------------------------------------------------------------------------
    \13\ ``An Assessment of Environmental Regulation of the Steel 
Industry in China,'' Alliance for American Manufacturing (March 2009), 
p. 32-33.
---------------------------------------------------------------------------
   Underdeveloped Climate Modeling Capacity--Despite over 15 
        years of experience in climate modeling in China, significant 
        barriers to best modeling practices remain. According to one 
        Chinese analyst, climate modeling is controlled by a few 
        analysts who do not necessarily have the most expertise. The 
        sensitivity of greenhouse gas emission-related issues also has 
        undermined the integrity of some climate research projects. In 
        October 2008, for example, the Chinese Academy of Sciences 
        released a report projecting that China's national GHG 
        emissions may more than double within the next two decades, but 
        they failed to report the current level of emissions. There are 
        also concerns that the global financial crisis will undermine 
        funding for climate modeling in China from the West, which has 
        been a significant source of support in the past.\14\
---------------------------------------------------------------------------
    \14\ Jianjun Tu, ``Future Prospects of China's Policy on Climate 
Change,'' China Brief, Vol. 9, Iss. 1, (January 12, 2009).
---------------------------------------------------------------------------
 iv. how can the united states accelerate the positive trends in china?
    Critical to the success of the international community in meeting 
the challenge of global climate change is helping China forge a new 
developmental path. As one European analyst has noted, the United 
States and the rest of the world need China to do more than any other 
country in terms of deviating from business as usual.
    This will not be cheap. McKinsey & Company estimates that to 
realize its abatement scenario for China (a 10-percent increase in 
carbon emissions in 2030 over 2005 levels) will require that China 
spend on average between US$195-$260 billion annually in incremental 
capital investment over the next 20 years. Of these investments, 
McKinsey estimates that one-third will have positive economic returns, 
one-third will have a slight-to-moderate economic cost, and one-third 
of the technologies will have a substantial economic cost associated 
with them.\15\
---------------------------------------------------------------------------
    \15\ McKinsey & Company, ``China's Green Revolution'' (February 
2009), p. 10.
---------------------------------------------------------------------------
    It will also not be easy. United States-China cooperation on 
climate change will not be a panacea for all the other difficulties in 
the relationship, no matter how much we would like it to be so. Climate 
change is already laden with very challenging political and economic 
dynamics both within China and between China and the United States. 
Moreover, unlike China's WTO accession, which raised many similar 
issues of sovereignty, verification, and compliance, intellectual 
property rights, and China's relative economic status, there is no one 
in China that has yet stepped up to seize global climate change as his/
her issue and to shepherd it through the bureaucracy in the manner of 
former Chinese Premier Zhu Rongji.
    With that said, it is nonetheless imperative for the United States 
to step up to the plate. A number of organizations and experts have 
already weighed in with specific recommendations for high profile 
cooperative projects such as CCS joint research and development, smart 
grid technology and deployment, assisting in China's monitoring 
capacity, promoting building energy efficiency, etc.\16\ All of these 
are critically important avenues for cooperation.
---------------------------------------------------------------------------
    \16\ These include ``Common Challenge, Collaborative Response: A 
Roadmap for US-China Cooperation on Energy and Climate Change,'' Asia 
Society and Pew Center on Global Climate Change (January 2009); 
``Overcoming Obstacles to U.S.-China Cooperation on Climate Change,'' 
Brookings Institution (January 2009); and ``Strengthening US-China 
Climate Change and Energy Engagement: Recommendations for Leaders and 
Policymakers in the US and China,'' Natural Resources Defense Council 
(February 2009).
---------------------------------------------------------------------------
    Equally important, however, is thinking through the political 
context of how best the United States can affect China's climate change 
path.

   Lead by Example--Although China will find its own path to a 
        low carbon economy, the United States has the opportunity to 
        demonstrate how it can be done, whether through best urban 
        planning practices, the rapid development and spread of energy 
        efficient building codes and new building materials, the 
        development of alternative fuel vehicles and/or the rapid 
        deployment of renewable energy and smart grid technology. The 
        United States will have no credibility in pushing China to 
        forge a new path if we, ourselves, are not already well down 
        that road. Moreover, we will lose a critical opportunity for 
        our own environmental and economic future if we do not seize 
        this moment to develop our own clean energy economy.
   Help Transform China's Urbanization Process--While most 
        international attention has been focused on the role of heavy 
        industry and the power generation sector in China's 
        contribution to climate change, the urbanization of 400 million 
        Chinese by 2030 will have a profound impact on China's energy 
        use patterns. Energy efficient buildings (including new 
        building materials) and appliances, electric cars, renewable, 
        smart urban planning should be top priorities for United 
        States-China collaboration. These partnerships, which may 
        develop into ecocity or province/state partnerships should 
        target first off China's national environmental model cities 
        (about 10 percent of China's 660 cities) because the leaders 
        and businesses in these cities have a proven track record of 
        commitment to environmental protection in their cities. 
        Similarly, companies that are members of China's Green 
        Companies Program have begun to develop a track record of 
        running their businesses in more efficient and environmentally 
        sound ways. These should be the first candidates for joint 
        projects.
   Listen to the Chinese--China knows what it needs and what it 
        can deliver. Do the Chinese place a priority on assistance with 
        their monitoring capacity for example? Understanding the 
        priority issues for China will prevent the United States from 
        squandering valuable financial and human capital trying to push 
        against a closed door. For example, in a previous United 
        States-China Strategic Economic Dialogue, the Chinese have 
        stressed the importance of water scarcity, watershed 
        management, etc. Helping China conserve and make more efficient 
        use of its water is a critical aspect of climate adaptation, 
        and will affect China's future agricultural opportunities as 
        well as address growing concerns throughout South and Central 
        Asia over China's river diversion efforts in the Qinghai 
        Tibetan plateau as the glaciers in the region melt.
   Buildup from the Strategic Economic Dialogue--The United 
        States should avoid the temptation to think it must create an 
        entirely new structure for cooperation with the Chinese on 
        energy and environment issues. The SED has outlined many 
        important climate-related issues and initiated some 
        collaborative public/private projects, such as a partnership on 
        electric cars and grid management. Cooperating with China is 
        difficult and time consuming. The United States should take 
        advantage of the foundation that has already been established.
   Conduct an Off-the-Record ``lessons-learned and where-to-
        from-here'' summit with U.S. NGOs and Businesses--Many NGOs and 
        multinationals have well over a decade of experience working 
        with China on environmental and energy issues related to 
        climate change. Their experience should be tapped to understand 
        what works, what doesn't and why. They will also be the United 
        States Government's emissaries for much of the climate 
        partnership work that is eventually established with China.
   Coordinate with Japan and the European Union--Japan and the 
        European Union already have extensive cooperation with China on 
        climate issues either underway or in development. The United 
        States should not waste its time and energy duplicating or 
        undermining others' efforts. We should develop at least loosely 
        coordinated strategy to help move China much more aggressively 
        to a low carbon economy. This coordination should extend to 
        developing frameworks of assistance for other large developing 
        country emitters such as India and Brazil.

    The Chairman. Thank you very much, Ms. Economy.
    Mr. Chandler.

STATEMENT OF WILLIAM CHANDLER, SENIOR ASSOCIATE AND DIRECTOR OF 
    THE ENERGY AND CLIMATE PROGRAM, CARNEGIE ENDOWMENT FOR 
              INTERNATIONAL PEACE, WASHINGTON, DC

    Mr. Chandler. Thank you, Mr. Chairman, Senator Lugar. I 
very much appreciate being included in this important session.
    I'm happy to say I agree with everything you both said in 
your opening statements. And, Senator Kerry, I agree with you 
that, as your visit demonstrated last week, we have, now, a 
historic opportunity to make a climate deal with China that 
will make a big difference. If we succeed, we can protect the 
global environment. If we fail, we will suffer grave damage to 
our coastal cities, our energy, food, and water supplies, and 
the majesty of our parks and wildlands. If we succeed, we'll 
also create American jobs and American businesses.
    Why do we have this historic opportunity now? Three 
important reasons: Newly energized leadership in the United 
States; and second, it's clear that China recognizes the 
importance, as you said, of responding to the threat of climate 
change; and, third, because of efforts on both sides to discuss 
the important elements of how we can cooperate, I think we are 
beginning to make some progress.
    Over the past couple of years, American and Chinese 
experts, with the support of this committee, I'm happy to say--
and I want to thank you for the staff time and the support the 
committee has provided to these Track II discussions--they have 
helped get past what Senator Lugar described as an important 
problem of the public presentation of China's position, versus 
what is said in private. So, in moving beyond the camera lights 
and trying to get out of the glare of the lights, we hoped we 
could arrive at a consensus on the kinds of things that would 
make a difference.
    The Chinese delegation reciprocated our expressions of 
interest with enthusiasm and placed Minister Xie Zhenhua at the 
head of these discussions, and he, as China's chief global 
climate negotiator, made an important contribution.
    The three areas on which we felt we came away with 
consensus, in which we should begin our cooperation, included 
the following things: First, rapid deployment of energy 
efficiency technologies to achieve quick wins in reducing 
greenhouse gas emissions. And in that area, building capacity--
human capacity, particularly at the provincial level, as Liz 
said, is a top priority.
    Second, joint research and development, both on low carbon 
automobiles, transportation, and coal-fired powerplants. A 
mechanism something like what we did in Russia at the end of 
the cold war with the Civilian Research and Development 
Foundation, where we have joint funding with both United States 
and Chinese support, might be a good mechanism to pursue those 
kinds of R&D approaches.
    And third, collaboration--again, to the extent that we can, 
in frank and honest discussions--to reach a global deal in 
which both the United States and China can participate.
    I think they--the Chinese side clearly wants to work with 
the United States in these areas. And if they do, we can 
implement scenarios such as those produced by the Energy 
Research Institute, which is the leading think tank in China, 
as a part of the National Development and Reform Commission, in 
which they suggest that what China can do--on a different 
schedule from ourselves, but on an important and compressed 
schedule--reducing growth in emissions over the next decade or 
so, to half the rate of growth of the economy, and then from 
that level, making an absolute reduction in emissions by the 
middle of the century. If we can get on such a trajectory, we 
have a serious chance of achieving an atmospheric concentration 
below 500 parts per million, which many of us think is really 
crucial.
    Cooperation in science and technology is going to be vital 
for China, but it's not enough. China needs the benefit of our 
experience in using market mechanisms to achieve environmental 
goals. And we would urge this committee and the Chinese 
Government to consider the following policy changes that might 
make a big difference: No. 1, encouraging investment in more 
efficient industry and buildings; two, providing tax holidays 
and easing foreign exchange and foreign investment restrictions 
on clean energy companies and services; and three, making it 
easier for banks and the financial system in China to do risk-
based lending for clean energy projects. These are things we 
sometimes take for granted, but they don't work very well, and 
they contribute to barriers that frustrate American clean 
energy companies trying to do business in China.
    Our own top priority should be--again, in an asymmetric 
way, but an important thing to show to China that we are 
serious--is to enact cap-and-trade legislation to control our 
own greenhouse gases. And the draft legislation in the House of 
Representatives has already made a strong impression on China 
that we are serious.
    As Ken and Liz both said, I agree we should recognize the 
strenuous efforts China has already made. It frustrates the 
Chinese to think that many people outside the country don't get 
how hard it has been for them to take serious efforts to close 
down, not just powerplants, but many old, inefficient 
industries. I go to China once a month, and I see it every time 
I go. There are many old factories closed down, and new 
standards imposed on the new modern systems.
    So, we can ask China to take further action, not 
necessarily to cap their emissions in the short term, but to 
set ambitious emissions targets with verifiable and enforceable 
measures to achieve them.
    The Chinese are practical. If we make it in their interest 
to work with us, they will do so. Just to reiterate, I think 
it's important that, first, we show leadership, and if we do, 
then the rhetoric of the G77 countries--that it's all our fault 
and all our responsibility--loses its power.
    The Chinese Government accepts the science and threat of 
climate change, and I believe they will work with us.
    Thank you.
    [The prepared statement of Mr. Chandler follows:]

 Prepared Statement of William Chandler, Director, Energy and Climate, 
   Carnegie Endowment for International Peace, President, Transition 
                         Energy, Washington, DC

    The United States has a historic opportunity to forge a climate 
partnership with China as a result of the convergence of new climate 
leadership in the United States, China's recognition of the serious 
threat that climate change represents for its future, and the hard work 
of specialists and leaders in both countries to make climate change 
cooperation a reality.
    Together, China and the United States produce 40 percent of global 
greenhouse gas emissions. Their actions to curb or expand energy 
consumption will determine whether efforts to stop climate change 
succeed or fail. If these two nations act to curb emissions, the rest 
of the world can more easily coalesce on a global plan. If either fails 
to act, mitigation or adaptation strategies adopted by the rest of the 
world will fall far short of averting disaster on large parts of the 
Earth.
    These two nations, until recently, have been locked in what energy 
analyst Joe Rohm aptly called ``a mutual suicide pact.'' Neither China 
nor the United States has made binding commitments to reduce emissions. 
American leaders point to emissions growth in China and demand that 
Chinese leaders take responsibility for climate change. Chinese leaders 
counter that American greenhouse gas emissions are five times their own 
on a per capita basis and say, ``You created this problem, you do 
something about it.'' Mainstream Americans fear that China is gobbling 
up oil and driving up the price of gasoline. Chinese fear that the 
Americans control Middle East oil and shipping lanes to China.
    United States-China cooperation on climate change can help both 
countries play a role in global change befitting global leaders. 
Leadership can stem from central governments, states, provinces, 
business, and scientific institutions. Effective leadership, however, 
requires understanding both Chinese and American energy realities, and 
grasping the need for immediate action to reduce carbon emissions. This 
approach will be intrinsically valuable to each country, and can help 
facilitate a post-Kyoto global climate treaty.
    Failure to act will expose these two nations to sanctions from a 
global community increasingly alarmed by the speed of climate change. 
That the European Union recently considered sanctions on trading 
partners lacking greenhouse gas emissions policies spotlights the 
geoeconomic risk.
    For the past 2 years, the Carnegie Endowment for International 
Peace has sponsored a United States-China Climate Track II Dialogue to 
provide leaders from each country the opportunity to speak frankly and 
discuss the types of collaboration likely to produce results. Over the 
course of this dialogue, it became clear that Chinese experts believe 
that China could cut its current emissions growth rate by half through 
2020, and from that level reduce absolute emissions by one-third by 
2050. This scenario would put within reach a global goal of stabilizing 
atmospheric concentration of carbon dioxide below 500 ppm. Such a 
commitment would represent a profound shift in China's position, and 
could be pivotal in reducing the worst risks of climate change.
    Given China's new recognition of the threat posed by climate change 
and of the opportunities to avert that threat, participants in the 
dialogue identified two key outcomes for bilateral cooperation:

          1. Consensus on realistic carbon emissions reduction targets 
        and timetables for each country, and
          2. Mutual understanding of the strategies for implementing 
        those targets and timetables that are most likely to overcome 
        political hurdles in China and the United States.

    With these goals in mind, participants also identified three 
priorities for action:

          1. Building human capacity to accelerate market deployment of 
        technologies, including evaluating policies such as the 
        creation of low carbon economic development zones and creating 
        incentives for clean energy investments;
          2. Assessing priorities for joint United States-China 
        research and development cooperation, as well as considering a 
        framework for cooperation; and
          3. Discussing elements of a global climate deal in which both 
        the United States and China may participate.

    Dialogue participants also agreed that successful cooperation will 
require contributions from many types of United States and Chinese 
institutions. These include:

          1. State and provincial leaders;
          2. Nongovernmental environmental and business associations; 
        and
          3. Scientific and technical experts.

    The Carnegie Endowment and the leading Chinese environmental 
nongovernmental organization, the Global Environmental Institute, are 
working together to support these objectives, which we hope are now 
becoming mainstream thinking in both countries. Our initial analyses 
have focused on developing a technology deployment protocol that will 
eliminate specific policies favoring energy consumption over energy 
efficiency; support the development of market-based tar and regulatory 
policies; and facilitate finance for energy efficiency. We are 
currently concentrating on Guangdong province, a major energy consumer 
and home to 110 million people, by providing organizational, planning, 
and financial expertise to train leaders in a learning-by-doing model.
    Further, we aim to accelerate market-based deployment of cost-
effective, proven energy-efficiency technologies. The central 
government in China requires provincial leaders to cut ``energy 
intensity'' by an average of 20 percent by 2010, relative to 2004. To 
achieve this goal, China would have to be more successful in energy 
efficiency policy than any nation in history.
    Yet the priorities of local leaders often diverge sharply from 
those of national leaders. National leaders are more concerned with 
security, stability, macroeconomic balances, and equity than local 
leaders. Local leaders are far more concerned with growth, meeting 
demand for services, and generating revenues to pay the cost of 
operating their agencies. While clean energy development generates 
national benefits that cannot be fully captured by a city or province, 
the time and cost of promoting efficiency falls on local leaders. This 
mismatch of expectation and benefit is a fundamental flaw in Chinese 
sustainable energy policy, and undermines the effectiveness of 
otherwise admirable policies.
    Local authorities have the responsibility, but not the authority, 
to implement energy efficiency policy. Moreover, responsibility for 
action is dissipated across agencies and bureaus. The local economic 
and trade bureaus and the local development and reform commissions 
jointly regulate energy-intensive industry. These agencies are often 
uncoordinated and implement conflicting policies. Approval authority 
for projects and regulations is split between the economic and trade 
bureau and the local development and reform commission. For example, 
the economic agency may seek to shut down old energy-intensive industry 
and replace it with more modern and efficient firms. The development 
and reform commissions, however, are intent on not giving business 
licenses to new energy-using firms.
    The expertise provincial leaders need to acquire is a combination 
of specialized legal, economic, technical, and financial skills. These 
skills are used elsewhere--in American regions like the Northeast and 
Northwest or the State of California, for example--to choose priority 
technical measures and design behavioral incentives necessary to 
achieve energy efficiency goals. To further the goals of the dialogue, 
we are facilitating peer-to-peer cooperation at the state and 
provincial levels. We are encouraging cooperation on:

   Rationalizing and coordinating regulation of industrial 
        energy use.
   Providing value added tax (VAT) and income tax holidays or 
        exemptions for clean energy companies and services.
   Making it worthwhile for banks to do risk-based clean energy 
        lending.
   Replicating the successful experience of the International 
        Finance Corporation (IFC) in providing loan guarantees for 
        energy-efficiency projects in China.
   Reducing the paperwork necessary to make clean energy 
        investments in China.

    Strikingly, given the urgency of climate action, resources are 
meager within both China and the United States for energy efficiency 
and power sector decarbonization. Technology deployment gets little 
support within either nation. Official funding for clean energy 
cooperation between the countries amounts to only about 1 million U.S. 
dollars per year. The private U.S. Energy Foundation provides 20 times 
more grant money than this, but even this level of funding is far below 
the need.
    United States-China collaboration should not be envisaged as a 
threat to the climate leadership of any nation or to global 
cooperation. It should not challenge existing or planned emissions cap-
and-trade systems. Rather, it would be, and should be, considered an 
act of mutual self-preservation, helping both the United States and 
China to avert climate disaster and the eventual sanctions of other 
countries if they do not act, and laying the basis for successful 
global action.



    The Chairman. Thank you. Thank you, all three of you.
    Let me try to establish, here, sort of a baseline, if you 
will. One of the things that I run into a lot--and it's 
understandable--is people sort of viscerally react and say, 
``What do you mean China's a developing country?'' And they 
assert that notion because most people obviously don't see the 
800 million people who are living on $2 a day or less, who are 
yet to come into the urban society. They see only the Beijing, 
Shanghai, Quanjiao, so forth, that are these unbelievably 
energized, teeming manufacturing centers, and they see ``Made 
in China'' on all the products coming in here, and there's an 
automatic sense, ``Well, they may not be fully developed, but 
they're not like other developing countries, either.''
    So, what do we do here? Create a different category, try to 
reach an understanding that, indeed, they're not yet a fully 
developed industrialized country, but, on the other hand, nor 
are they the undeveloped country that we contemplated when we 
designated Annex 1 and Non-Annex 1 countries during the climate 
treaty negotiations in the Kyoto? It's something new and 
different now, and they need to understand that. Is that fair?
    Mr. Chandler. I think that's fair. I think the thing that 
Chinese leaders wake up worrying about at night is instability 
in their own country, and that is generated, as much as 
anything, by disparities in income. So, providing China with a 
way to achieve its economic ambitions and to grow, while, at 
the same time, separately achieving emissions reduction goals 
through identifiable and enforceable measures, is going to be 
key. Different schedule, different approach of measures and 
policies, but enforceable ones.
    The Chairman. Well, I understand that. But, the key is also 
for China. One of the things that I emphasize every time I get 
into that discussion--and we've done this for a long time now--
is, this whole notion of tying them to a standard as an effort 
to try to restrain growth in China. And I think it is finally 
dawning on people that, no, we're not out to restrain growth; 
we want China to grow. We'll all be better off. China will 
grow. We want it to grow clean, just as we need to grow clean. 
I mean, what we're really talking about here is the 
transformation to a sustainable economy.
    And so, when you talk about the building codes, Ms. 
Economy, buildings are roughly 40 percent of global greenhouse 
gas emissions. And so, in order to reduce greenhouse gas 
emissions, you don't just look at the transportation sector or 
the manufacturing sector, you have to look at buildings, also.
    And the question is, How do you get them in this process, 
in these next days, to buy in more to this--to bending over 
backward to embrace the new components, new materials--new 
building materials, new building codes, new standards by which 
you can very dramatically reduce emissions, and, in fact, make 
it pay for itself? This is not out-of-pocket money; it pays for 
itself to do these things. How do we achieve that?
    Mr. Chandler. Well, it's not very hard to convince them 
that it's in their best interest to make those changes. I do 
think they need assistance with capacity-building at the 
provincial level in writing the kinds of codes and incentive 
policies that the private-sector needs to put those 
technologies into place.
    I think there's a disconnect between the provincial level 
and the central government--the central government makes orders 
and asks the provincial level to achieve the goals to meet 
those targets. Provincial leaders don't have the tools to 
achieve those goals, the ones that they need. They don't have 
authority over changing taxes. They can't implement standards 
on their own, organizing finance for the private sector to make 
investments. Working with the central government to help them 
close that gap with the provincial leaders, who are under the 
gun to make improvements, will help the provincial leaders 
achieve their own goals.
    The Chairman. Yes, Mr. Lieberthal.
    Mr. Lieberthal. If I can add a couple of comments to that.
    One, I think that it's obviously important to get the 
provincial leaders more positively engaged in this, but I think 
you have to keep in mind that China has five levels of 
governance: Center, province, city, county, and township. Each 
of those levels is important. And for purposes of building 
codes, I think the most critical level is actually the 
municipal level. There are over 650 municipalities in China, 
and a lot of the building takes place within that jurisdiction.
    One of the biggest problems at municipal level is simply 
the lack of human capital to understand, for example, energy 
audits. China has 220 local energy centers around the country. 
They have almost no one at any of those centers who knows how 
to do an energy audit. That's a wonderful area for us to get 
engaged in and train some of the auditors in what we know about 
doing energy audits. It can have an enormous impact.
    They have the codes--but sometimes the incentives are 
wrong. I very much agree with Bill on that. But, beyond that, 
they just simply lack the technical human capability at the 
critical nodes in their system. And that's where I think we can 
come in--in very positive and not very expensive fashion--to 
work with them to try to realize some of these gains and help 
them to acquire the tools to do so.
    Finally, going back to your original question, I think it 
is very important for us to get out of this kind of 
categorization of treating the developing countries as a block. 
When it comes to carbon emissions, they are anything but, and 
we need to individualize that much more.
    One of the proposals in China is to think in terms of the 
human development index and what percentage of the population 
in each of the major countries is at what level on the human 
development index, and therefore, how should you sculpt policy 
or sculpt obligations around this, country by country. I say 
that simply to say there is creative thinking going on 
regarding this, and we ought to try to join that and encourage 
it.
    The Chairman. So, as the team goes over there to negotiate, 
next week--what would you want to see them achieve? What are 
the priorities that you'd lay out, in terms of that negotiating 
process?
    Mr. Lieberthal. Sir, I'd answer that on two levels. First, 
we have a kind of two-track negotiation going on with the 
Chinese. One is to develop a United States-China clean energy 
partnership. This would be a bilateral agreement. The other is 
to try to get more forward-looking stance at Copenhagen. And if 
we can do the clean energy partnership, I think that will add a 
lot of momentum going into Copenhagen. But, those are two 
different negotiating contexts. When you raise Copenhagen with 
the Chinese, the Foreign Ministry gets deeply engaged, and G77 
and related considerations move to a prominent position on the 
agenda.
    So, I would first of all encourage our team to keep those 
two tracks distinct, because I think we can make much more 
rapid and effective progress in the coming months if we focus 
on the clean energy partnership. And then, hopefully, when the 
President goes to China toward the end of this year, before 
Copenhagen, we'll be able to announce a clean energy 
partnership and have the two Presidents address Copenhagen in 
that context. I think that's simply the more effective 
negotiating track.
    Second, on substance, I think the Chinese really are now 
looking for, ``Let's do a partnership, but let's not just make 
it rhetoric. We've had about 42 bilateral energy agreements 
with the United States in the past. None of them has met the 
goals of the agreements.'' So, they're asking, ``What will you 
concretely be interested in committing to?'' And, to my mind, 
the three big areas--there are obviously more priorities that 
warrant attention, but the three big areas are coal--carbon 
capture and sequestration for coal power generation--electric 
vehicles, and energy efficiency in buildings. And I think if 
you can do something serious in each of those three areas, you 
are going to make a significant dent in the problem, and they 
are interested in all three.
    Mr. Chandler. Mr. Chairman, can I jump in and underline 
what he just said?
    In the past, in the 1990s, I sat across the table from 
Chinese--our counterparts--trying to implement many of these 
memorandums of understanding. Too often they end up just being 
talking, talking, talking. If you try to do too many different 
things without enough resources, then everyone gets frustrated. 
That's why I think it's important to focus on the things that 
really matter and take them seriously. Focus on those things 
that the United States and China have to do together if we are 
going to solve those problems.
    The Chairman. Well, a key to solving this, under any 
circumstance, and particularly to getting Copenhagen to come 
together, is going to be the MRV--measurable, reportable, 
verifiable. Ms. Economy, you've talked about the difficulty of 
getting some of the accountability that you need here, and the 
capacity for that. So, it would seem to me that one of the 
urgent needs here that ought to be discussed over the course of 
the next days is how we're going to work on that together so we 
don't wind up, in November or September, sitting there saying, 
``Well, gee, that sounds nice, but we're just not able to do 
it,'' or we're sitting there saying, ``Thanks for saying that, 
but we have no way of measuring what you've just said you're 
going to do.'' We've got to now set up a structure to build the 
capacity and have confidence that we can come in with something 
that is truly measurable and verifiable. Now, how do we do 
that?
    Ms. Economy. As I mentioned, I think California is taking 
the lead, at least in looking at this issue, and I think they 
see this as a long-term process. I would imagine that the best 
you're going to be able to offer within 1 month or 2 or 3 
months is going to be the framework of agreement for moving 
forward on MRV. Beijing has certain provinces in mind where 
they want to have test cases. These may not be the most 
progressive places, which means it's likely that we could be 
knocking our heads against a closed door rather than an open 
door. The situation changes from province to province and 
municipality to municipality.
    One of the suggestions that I often make is that, when we 
look to cooperate with China--and I think this would be true 
with MRV, as well--is that we look to the national model 
environmental cities. These are cities where the local 
leadership is already committed to doing much more, frankly, 
than the vast majority of cities in the country in terms of 
meeting their own domestic environmental laws and regulations. 
About 10 percent of China's 660-odd cities meet these national 
model environmental targets. I would suggest that we go to 
those cities and begin with this process of MRV. I think these 
cities are where we'll have an open door--or a relatively more 
open door, because they're already more transparent, and 
they're already looking to turn the corner, in terms of their 
own environment. That would be my primary suggestion for how we 
would move forward.
    The Chairman. Senator Lugar.
    Senator Lugar. Well, thank you, Mr. Chairman.
    Mr. Chandler, you mentioned the 500-parts-per-million limit 
in which many scientists feel that, if the world comes to that 
with regard to CO2, there are catastrophic results. Now, the 
question I ask this morning is one of how you, as thought 
leaders, and we, in the political realm, can try to bring some 
case to the American people of what the catastrophe is, or even 
how the catastrophe is progressing. The reason I say this is, 
that in the intelligentsia in the scientific community and the 
think tanks, there's a given, that we're progressing toward 
catastrophic results; therefore, as you inform us today, 
there's no doubt in your minds that action plans are required, 
and they are very difficult. We're discussing a very large part 
of that problem of Chinese-American relations today.
    But, now, very specifically, here in this country we have a 
debate going on; the cap-and-trade legislation that you've 
mentioned is now being discussed by the House of 
Representatives and its various committees. Some of you may 
have noted, as I did, an editorial in Monday's Washington Post 
by economist Martin Feldstein, who cited the Congressional 
Budget Office analysis that reducing U.S. carbon dioxide 
emissions by 15 percent would cost the typical American 
household $1,600 a year, immediately and proceeding. And he 
asks--Americans should ask whether this tax of $1,600-plus per 
family is justified by the very small resulting decline in 
global CO2 since the CO2 production, he says, is now less than 
25 percent, and its projected decline--as China and other 
developing nations grow, a 15-percent decline in United States 
CO2 would lower global CO2 output by less than 4 percent. And 
the impact on global warming, therefore, he says, is 
unnoticeable.
    Now, he reflects a skepticism, not just among certain 
economists, but I would say perhaps even a majority of my 
constituents. And they see the $1,600 coming along, and they 
see us discussing, theoretically, how the United States and 
China and others might meet in Copenhagen. But, the case has 
not been made demonstrably by the American people as to what 
the problem is, why this is worth $1,600 a year, or more, as 
the case may be, as we progress.
    Now, just discuss broadly what kind of a public education 
situation is conceivable in this particular timeframe, or 
really, for that matter, for the next few years, so that there 
is, in fact, a general feeling in the country that action 
should be taken, and the debate then comes down to the specific 
measures of meeting something that is really seen to be, by a 
majority, a perceived need?
    Does anybody have a thought--yes, Dr. Lieberthal.
    Mr. Lieberthal. Thank you for raising that question, 
Senator. We've discussed it before, and it is crucially 
important.
    I think that, first of all, we have to communicate to the 
American public that they are already paying a high price for 
carbon emissions, whether it is the reality that California now 
has a fire season that extends 12 months a year, or the reality 
that we have lost hundreds of square miles of forests in the 
Northwest, or the reality of increasing storms and their damage 
in the gulf coast, or the reality of prolonged drought in the 
Southeast--you name it, we are already paying a high price.
    The problem is that the price is not structured in a way 
that there's any incentive to reduce carbon emissions. And so, 
part of what we have to communicate to the American people is 
not this kind of broad, ``polar bears are going to have a 
tougher time,'' and ``100 years from now, we may be in 
trouble'' type of message; it's got to be articulated, in part, 
in terms of current pocketbook issues, with some reasonable 
numbers attached.
    Second, I believe very strongly that the President 
personally has to lead the charge on this and that the rhetoric 
is not going to resonate if it focuses on Copenhagen or on 
global obligations and that kind of thing. We have a President 
who has extraordinary communications capabilities. He's going 
to do even better than Al Gore did a few years ago in bringing 
home the reality of what we are confronting, the risk to the 
next generation, and the cost to our current generation.
    And third, in terms of our reductions only being a very 
small part of global reductions, the reality is that if America 
is going to have a leadership position in the world, it must 
recognize that this is one of the most important issues the 
world faces as we go forward. And if we don't lead here, we 
aren't going to lead very effectively anywhere else, either.
    So, I think those themes have to be articulated in a vivid 
fashion, led by the President, backed up by the Cabinet, 
hopefully with support of articulate Members of this body, in 
order to get the message across to the American people and 
change the politics of the issue.
    Senator Lugar. Ms. Economy.
    Ms. Economy. I agree with everything that Ken just 
mentioned. There's a second part to that, which is the idea 
that climate change, in essence, is also an opportunity. I 
think that President Obama began very early on, even before he 
took office, to talk about green energy and a clean energy 
future for our country. This has to be an integral part of how 
we put forth a message on climate change to the American 
people. It is what will get them excited about moving forward 
on this issue. In addition to the ``watch out'' message, there 
should be an opportunity presented to the American people to 
move our country forward into the 21st century and to take a 
leading economic role so that, as Senator Kerry mentioned, 
we're not chasing the Chinese, 5 or 10 years from now, on 
electric cars and a vast array of other renewable and energy 
efficient technologies.
    Senator Lugar. Mr. Chandler.
    Mr. Chandler. I want to thank you for giving me the 
opportunity to correct any impression that I may have given 
that 500 is OK, because I'm more and more coming to agree with 
Jim Hansen that 500 may be even too much.
    Senator Lugar. And where are we now?
    Mr. Chandler. Oh, 380--I forget the latest number, but 
increasing a couple of ticks per year.
    Senator Lugar. And what do you think, then--reduce 500 to 
what?
    Mr. Chandler. Well, I've always been an advocate for 450, 
but Jim Hansen tells me that's not ambitious enough. So--the 
point about 500 is, if you go beyond that, because of 
acidification of the oceans, you lose the barrier reefs, you 
lose the protein source for tens of millions of people, the 
exclusive protein source, a third of the world's fisheries. I 
mean, it's clearly a threshold. But even that may be too high.
    As for the cost of responding, I simply don't believe those 
numbers, about the high costs. I don't believe them, for two 
reasons. One, I spent 30 years of my career doing energy and 
economic modeling for a national laboratory in which we 
estimated those costs, and none of the credible analyses I have 
seen suggest that the costs would be much more than a fraction 
of a percent of GDP.
    But also on the personal level, I don't do very 
sophisticated things at my house; I don't have solar panels or 
even a solar water heater. But, I have simple things like a 
clock thermostat and a timer on my water heater. And--well, I 
do have LED lights now, I'm proud to say. But, it's relatively 
easy to cut your emissions by 40 percent, relative to the 
American average, as we've done in our home.
    The President is the person to make that case, both to 
dispel the doubt--any remaining doubt--that this is a 
potentially catastrophic issue, and that we don't have the 
means to deal with it. We do have the means.
    Senator Lugar. Let me shift quickly, in my time, to the 
International Energy Agency. It appears to me to be--and 
Secretary Clinton has discussed this in testimony--that Chinese 
membership in the IEA would be a constructive development, 
because the Chinese can come together with various others, in 
terms of both of the verification situation, as well as an 
understanding of international predicament. It's not a cure-
all, but in our talk about cooperative diplomacy and movement 
ahead, the lack of Chinese membership in the IEA is 
conspicuous. Have any of you given any thought to the efficacy 
of its membership or its importance?
    Yes?
    Mr. Lieberthal. I actually wrote about that roughly 3 years 
ago and encouraged United States leadership to try to get China 
invited to join the IEA and to accept the invitation. A major 
problem, as I understand it, is that because the IEA grew out 
of the OECD, it----
    Senator Lugar. Right.
    Mr. Lieberthal [continuing]. Has requirements for 
membership that China objectively does not meet. And certainly 
in the past, a big stumbling block has been some of the 
European members of the IEA who simply will not bend on those 
requirements. I understand that we have in the past few years 
diplomatically been encouraging the IEA to do something to get 
China in. China does in fact engage in some cooperation with 
the IEA, but it is not a full member with membership 
responsibilities.
    My sense is, we may have to try to develop a special 
category of membership--perhaps something like a 
``partnership'' that would effectively bring China fully in, 
but would not run into the qualifications issue. If we succeed 
in offering that, I think it will then take a lot of articulate 
diplomacy to get the Chinese to accept second-class membership, 
which is what that effectively would mean, and I don't know 
whether that would be successful or not.
    So, I agree with you, the problem is real. I think the 
problem doesn't lie here; it lies in Europe. And we just have 
to try to work with that.
    Senator Lugar. Well, you raise an important point about our 
diplomacy with European friends, in addition to the Chinese. In 
other words, if we're all going to approach this as a worldwide 
effort, we somehow will have to get over the nit-picking that 
is involved here. And I use that word advisedly. But, at the 
same time, as you say, the Chinese may be reticent to join, 
anyway.
    This is the whole problem of the diplomacy, and I think 
Secretary Clinton understands this. But, I was encouraged, at 
least, that she was at least prepared to begin to tackle it.
    Yes?
    Ms. Economy. Can I raise one issue? I had a visit from a 
staff member from IEA last October. He suggested to me that 
they're actually not that interested in having China join the 
IEA right now, because of issues of transparency, and that 
the----
    Senator Lugar. Yes.
    Ms. Economy [continuing]. Chinese are not ready to 
participate in that respect.
    Senator Lugar. Precisely.
    Ms. Economy. There needs to be some capacity-building done 
before the Chinese join, in any form.
    Senator Lugar. Yes. Well, we're back to transparency, which 
you've illustrated so well. But, clearly this is critically 
important. If we're talking about 380, 450, 500--at some point, 
I would hope, even in this country, we will have visible 
thermometers or some illustration so the American people have 
some idea, Where are we this year? We're at 390, heading to 
391, or so forth. This takes for granted, by that point, a 
majority of us feel that it's important whether we're at 390 or 
not. But, let's say we establish that that really becomes a 
pretty critical element in all of our longevity, and that of 
our children and our grandchildren. Then this transparency 
becomes very acute to illustrate whether really 390 is the 
figure. How do we know, in this vast area of China, what, in 
fact, is going on, in terms of CO2 emissions? But, in any 
event, I really appreciate your answers.
    And I ask, Mr. Chairman, as a matter of privilege, that a 
letter that I've written to the administration asking for much 
greater exposition, be made a part of the record.
    The Chairman. Absolutely. It will, indeed.
    Senator Lugar. Thank you.
    [The letter referred to follows:]

                                                    April 22, 2009.
Dr. Jane Lubchenco,
Administrator, National Oceanic and Atmospheric Administration,
Washington, DC.
    Dear Dr. Lubchenco: I write today in support of your comments 
noting the need for the Administration to dramatically increase 
education efforts on climate change for the American public and for 
policymakers, as quoted in CQToday on April 21, 2009.
    I am in complete agreement with your statement, ``What everybody 
wants to know is, What does this mean to me and the decisions I'm 
making?'' While many people claim that the scientific debate on climate 
change is settled, in fact for my constituents the question is not 
settled. Hoosiers want to be good stewards of the environment, but they 
also want to have jobs. Without solid information about how climate 
change will affect them and the economic opportunities entailed in 
meeting the climate and energy challenge, it is unlikely that the 
majority of Americans will choose to embrace higher energy bills during 
this time of economic uncertainty.
    Passing and implementing far-reaching legislation requires that 
elected officials explain clearly to the American people why it matters 
in their daily lives. Americans need detailed information on state-by-
state, district-by-district and county-by-county levels on what the 
impacts of climate change would be on them and what opportunities exist 
in a new energy economy. Such information should be based on the best 
science and economics available, and it will have maximum credibility 
if it is not biased toward a particular policy agenda.
    I encourage you and your Administration colleagues with scientific 
and economic expertise to speed and augment delivery of such unbiased 
information to members of Congress and, more importantly, directly to 
the American people. I look forward to working with you.
            Sincerely,
                                          Richard G. Lugar,
                                             United States Senator.

    The Chairman. Thank you, Senator Lugar.
    If I could just comment, Senator Lugar, on the Feldstein 
numbers and the CBO analysis, the Feldstein number of $1,600. 
What I hope, here, is, as we go forward in this debate, which 
is critical, that we're going to have a kind of baseline, if 
you will, of how we're judging some of the costs that people 
are throwing around, because there's a range. First of all, the 
Feldstein numbers from the CBO report do not factor in any 
energy efficiencies and they do not factor in any of the final 
rebates to consumers that are given in the Waxman-Markey 
legislation. So, it's not, in fact, a fair representation of an 
increase of costs.
    The EPA has estimated, based on the actual Waxman-Markey 
bill, that, as it currently--and this was prior to even some 
additional changes being made which reduced the costs further--
that you were looking at about $98 to $140, and that's before 
further changes were made that reduced the costs even more. 
It's interesting to note, you've got the EPA saying $98 to 
$140, you've got the Heritage Foundation, which says $1,500 a 
year for average family, and you've got the Republican National 
Committee saying $3,100 a year. So, we're going to have a 
range, here, that is obviously going to be based on interests 
that people are trying to express in the process.
    What I want to do, and I think we all have a responsibility 
to do it, is to get a real economic model, here. It is clear, 
with the $80 billion that we are investing in clean energy, 
alternative energy, renewable energy, et cetera, energy 
efficiency--as noted in the McKinsey & Company report that has 
created a carbon cost abatement curve which shows that about 35 
percent of these reductions, for the first 10 to 15 years, pay 
for themselves. That's not reflected in these models. Nor are 
any of the household income benefits--i.e., let's say more 
families are switching, as they will, I'm confident, as Detroit 
goes through a transformation--a lot more families are going to 
be buying hybrids and getting better mileage in their car. None 
of these studies reflect how much household income they're 
going to be keeping as a consequence of paying less for fuel. 
So, while the per-unit kilowatt hour may go up to some small 
measure--and, as I've shown, I think it's a small measure, in 
the end--the actual out-of-pocket expenses of the household is 
going to be less because of the other efficiencies and gains 
that are going to come.
    Now, we have to, obviously, show this as we go forward. 
But, there was an analysis of Indiana recently, which I will 
obviously get to you, that shows that, with whatever cost 
increase there will be, there'll still be a continued economic 
growth in Indiana, recognizing what the Waxman-Markey bill is 
doing and what we're going to try and do in the Senate, which 
is significant mitigation against coal costs, where I know you 
are dependent on Indiana.
    And so, I think that there's about a billion dollars a year 
of dedicated funding just for clean coal technology over 10 
years, and there's a wait period before that even cuts in. So, 
while the bill would be passed--I think there's about a 5-year 
period before it even becomes active that those reductions 
would have to take place. So, you get $5 billion of clean coal 
technology effort before there's even a requirement that they 
comply.
    Our hope is that, in the end, we're going to be able to 
show that this is going to have a really marginal--in fact, may 
even have, in the first 15, 20 years, very beneficial net gain 
to households because of the efficiencies and other gains we 
put in.
    Would any of you like to comment specifically on that, or 
on any of that modeling?
    [No response.]
    The Chairman. I see a huge willingness to leap into the 
fray, here. [Laughter.]
    Mr. Chandler. Well, again, that's what I used to do for a 
living. And I think if you take the net costs and the net 
benefits, and include all of those factors in a general 
equilibrium model that is sophisticated enough to include 
exactly those technologies, the answer you get is exactly the 
one you articulated. I agree with that--with your analysis 
completely.
    The Chairman. Mr. Lieberthal.
    Mr. Lieberthal. The additional layer I would stress is 
that, as we move to the future, a lot of the competition in the 
global economy is going to be focused on innovation around 
cleaner energy and cleaner appliances, et cetera, and so there 
are job opportunities out there. It is hard objectively to 
factor in, you know such as, ``What jobs will we not get 
because the next Microsoft is being developed in China, not in 
the United States?'' But, if there's anything that's clear 
about the global future, it's that there is going to be an 
increasing premium on being able to be more energy efficient 
and more low carbon. And we're going to benefit from that if 
we're moving ahead, and we're going to miss that and be buying 
other folks' products if we aren't. So, if there's a way to get 
that into the model, my guess is, Senator, it would make your 
argument still stronger. And I very much agree with your basic 
points.
    The Chairman. Mr. Chandler, when I visited a American-owned 
wind power company in China, they're now going to go after the 
provincial government rather than the central government 
because the central government did not seem willing to buy from 
the American companies, at least in the bidding that went out. 
It was only awarded to Chinese companies. Now, that's obviously 
one of those market-access, market-share issues that are going 
to be very important in this process. And I wonder if you could 
share with us any thoughts about how that might be addressed 
here in the next months.
    Mr. Chandler. That's a subject close to my heart. In a 
different incarnation, I started a business developing clean 
energy projects in China. It's still going, it's still 
successful. But, getting a clean energy business started in 
China is very time consuming, very frustrating, very expensive. 
I think we spent $\1/2\ million in legal fees before we even 
had the business plan in place. That's a function of having to 
get the business license, to get the approval for the foreign 
exchange, the foreign investment, to get all the provincial and 
municipal leaders to stamp and chop the documentation. And 
then, once you have all of those things, enforcing contracts, 
getting utilities to treat you fairly vis-a-vis the 
competition--these are issues on which the U.S. Government 
ought to, and could, help companies like ours, like that wind 
company.
    I think that probably wouldn't take a lot of arm-twisting, 
but it does require paying some attention to those issues, 
understanding them and talking to the Chinese Government about 
them, and asking for their help. I, frankly, think that, at the 
very highest levels, many of the leaders in China simply don't 
get it, because, you know, they haven't been in those trenches. 
So, bringing those problems to the attention of the leadership 
would be a contribution.
    The Chairman. I think, Ms. Economy, you specifically talked 
about--not ``I think,'' I know you talked about the lack of the 
institutional technology capacity of the Chinese to do some of 
these things. A lot of people sort of don't understand that the 
Chinese are doing unbelievable buildings, they're building 
these railroads, et cetera, and they have great technical 
capacity. So, can you describe more what you mean by that? And 
in addition to the California example, can you to try flesh 
out, a little more, how we might define those capacity-building 
tasks and go at it.
    Ms. Economy. Thank you. Let me first go back to what Bill 
said. I would take a slightly different tack, and I think it's 
going to take a lot of arm-twisting for that wind power 
company. China puts into place many requirements--for example, 
70-percent local content for wind power producers in China. In 
China's most recent stimulus package, there was a big push to 
say that anything related to infrastructure development was 
going to have to be bought from Chinese companies. There is 
significant work that will need to be done on those market-
access issues.
    In terms of exactly what we could----
    The Chairman. Well, is it a mistake to confuse a trade 
issue that belongs over here, and meanwhile we've got to get 
the capacity-building and do the other pieces that belong to 
the global climate change?
    Ms. Economy. Capacity-building is such a large and broad 
term. It's all going to be difficult. The easiest thing to do 
is to begin with the Chinese laws, as they're stated in 
regulations, and then look to the Chinese to enforce those, and 
then help them enforce those laws.
    Above and beyond that, addressing what we perceive to be 
unfair Chinese laws and regulations is another step.
    The Chairman. Well, do you believe that, come Copenhagen, 
we will have an ability to be able to measure sufficiently, and 
that they will be able to report, based on how we're measuring, 
and it'll be verifiable?
    Ms. Economy. No.
    The Chairman. You don't.
    Ms. Economy. No.
    The Chairman. You believe there's no capacity to do that.
    Ms. Economy. Not right this minute.
    The Chairman. No, I mean by December.
    Ms. Economy. Well, no, not by December. For example, they 
have almost no capacity in rural areas to measure emissions. 
There's no inventory of greenhouse gas emissions.
    The Chairman. I'm not talking about measuring them all 
across the country. What I'm talking about is measuring the 
reductions. If they come to Copenhagen and say, ``We are going 
to reduce emissions, and we're going to reduce them in the 
following sectors and try to achieve the following amounts,'' 
while they're not going to sign up to the same Annex-1 standard 
per the prior negotiations, there's no way we're going to get a 
legally binding agreement, through the U.S. Senate or 
elsewhere, if they're not reducing their emissions. And we're 
going to need to know that they are.
    Ms. Economy. What we would like to have is a baseline, 
which we don't have for all the sectors across the Chinese 
Government. Even with the targets that Ken mentioned, in terms 
of Chinese energy intensity reduction targets and the top 1,000 
company program, in the first year they didn't meet their 
target, then in the second year they came closer, and in the 
third year they met it, and now they're going to surpass the 
target.
    The Chairman. Well, let me stop you for a minute. When you 
say we don't have a baseline, we measured that China's 
emissions went up by some 300,000 megatons last year, and that 
they are now surpassing us by X amount. And we are measuring 
their annual total emissions.
    Ms. Economy. Right. But that's largely from inputs of their 
energy use. I don't know whether that factors in emissions from 
methane in different kinds of soil and other variables. The 
kind of measurement that takes place in this country, for 
example, doesn't take place there. In terms of the program that 
they initiated, the Lawrence Berkeley National Laboratory is 
currently trying to determine the reality of a verification of 
those energy intensity reduction targets. It will be 
interesting to see how well they do in their efforts, 
especially given the issues with Chinese data.
    The Chairman. I have heard that, and I understand that, and 
I know that is an issue, which is why I'm trying to get at this 
now, because if we don't get it adequately, I think you have a 
problem trying to persuade some colleagues here that they're 
doing their share. You're going to have to have the ability to 
be able to measure.
    Mr. Chandler,
    Mr. Chandler. There are two different categories of 
measurement. There are these aggregate measures, the energy 
intensity numbers, and then there are the specific measures of 
specific investments and specific projects. And in those cases, 
you have meters on the waste heat recovery power generators, 
you have meters on the wind turbines. You know how much they 
produce. You have to get approval for every RMB of investment, 
so you know how much investment is going in. You follow the tax 
data on how much coal is being consumed.
    I personally think that this larger issue of additionality 
and measurement is an overrated issue. I think it's relatively 
easy to follow specific actions and measure their success. And 
if we're talking about enforceable and verifiable measures, I 
think you can follow those.
    The Chairman. My judgment is that, based on what we're 
aware they're doing, and once we expand this cooperation, which 
is the purpose of these meetings, we should be able to. It's 
going to take a team of people to be able to have access and to 
be able to share information, and we're going to have to work 
at it. I'm not suggesting it's like that. But, it's doable. And 
we have to make sure it's done. That's what I'm trying to 
emphasize, here, just because of the politics of this. I mean, 
how are you going to get this done? You're going to have to be 
able to have some standard in place.
    Mr. Lieberthal.
    Mr. Lieberthal. I think the Chinese are providing the best 
numbers they have. And I think they'll continue to do that. So, 
I don't think that you're going to run into a problem--I hope 
I'm correct on this--I don't think you'll run into a problem of 
their making commitments at Copenhagen and then simply 
purposely lying to fake that they aren't meeting those 
commitments. But, there are severe institutional limitations. 
Some of these are technical--monitoring devices and that kind 
of thing; some are the way the political system operates, where 
reporting goes up the political hierarchy level by level. I 
mentioned the five levels earlier--the township reports to the 
county who reports to the city who reports to the province who 
reports to the center. There's a lot of room for distortion in 
this multilayered reporting system.
    On balance, I think the trends tend to be correctly 
reported, but the absolute numbers grow out of a very imprecise 
system. There are ways we can be helpful. I think if we develop 
a clean energy partnership with China, that will give us much 
more access to this process, to the ability to work with them 
to improve these things. The national-level leaders in China 
want desperately to get better numbers. So, where we can help 
with database management systems and training and that kind of 
thing, I think we have partners there in that. Also, I think 
one of the big tasks at Copenhagen is to develop better 
objective measurements, globally. A lot of what goes on 
globally now, in CDM and other things, de facto enable 
participants to play with the numbers a lot, and that will 
apply to China, too.
    The Chairman. It will apply across the board.
    Mr. Lieberthal. Yes.
    The Chairman. We have to find a mechanism.
    Senator Lugar.
    Senator Lugar. Just following through on this line of 
questioning, Mr. Chairman, it seems to me that Ms. Economy has 
brought forward a point of view which is important, that is, if 
you're trying to gauge whether you're going up or down, there 
has to be a baseline to begin with, and there isn't one here.
    Now, I think your point, Mr. Lieberthal, is that, as we 
cooperate with the Chinese, we get a better idea of their 
measurements, a better idea of how they might even go about it. 
But, it still doesn't get to the rural China problem and the 
lack of measurement, or almost any indication of whatever may 
be happening with hundreds of millions of people in the 
country. This is why I think we have to be careful in our 
statements, as public officials, to give an impression that 
somehow we've quantified this down to any particular degree. 
We're sort of generally in the ballpark.
    But, to get back to Mr. Chandler's point, whether we're in 
the ballpark or not, we believe that there are worldwide 
indications, in this parts-per-million business, that we are 
still adding, year by year, and getting closer to what I hope 
will be a more comprehensive debate among scientists--and the 
public--so we understand why that is important, whether it's 
450 or 500 or so forth.
    I think if the American public really did understand even 
indications you've given, that California has 12 months of fire 
these days or that parts of our country already are 
experiencing severe agricultural difficulties--perhaps these 
were not the most productive sections, but, nevertheless, we 
can see sort of a creeping. Facts of this sort are not well 
understood; not very well publicized with regard to this 
situation. So, I appreciate the debate or discussion we're 
having.
    At the risk of blatant self-advertisement, let me just say 
that the Lugar Center for Renewable Energy at Indiana 
University Purdue University in Indianapolis--I have no vested 
interest in it, I do not manage the center, but, it was named 
for me a while back because of my enthusiasm for the subject--
and they're going to cooperate with Sun Yat-Sen University in 
China, host a forum for energy and environmental leaders, 
really for the purpose of trying to bring some understanding to 
Midwestern States that will be participating in this. And 
Midwestern States have coal. And Midwestern States have a 
number of situations that are critical to this debate, whether 
we're doing a domestically--so, this forum will occur in 
October, not too far from now, and before Copenhagen, or in the 
midst of it.
    And I mention, also, something outside of that. An NGO 
known as CHASP has been effectively working with Chinese 
officials to implement efficiency energy standards similar to 
our Energy STAR Program. This is still just another movement 
among many, but one which I endorse, because it does get down 
to such things are refrigerators, air-conditioners, 
televisions, ways in which NGOs who are subscribing to this can 
be helpful with Chinese residential occupants in reducing 
whatever they're doing over there.
    I would just simply ask, as we've discussed this subject 
back and forth today, whether we've got accurate measurements 
or a perception of how bad the situation is. Can you help us 
quantify this in the future? We've talked about things 
occurring in climate change already in our country, and I don't 
stress that just simply in a nationalistic way, or that climate 
change is unimportant to Africa. But, in terms of our foreign 
policy, we do reach out to other countries. We've had very good 
discussions--and Senator Casey, who was here earlier on today, 
has been partner in a bipartisan bill to try to reorganize our 
food programs, both from the standpoint of emergencies, but, 
likewise, in terms of productive agriculture, especially in 
Africa and Southeast Asia, where about 800 million people are 
perpetually hungry, and will remain that way, without very 
substantial advances in their production, quite apart from any 
emergency food aid we can do.
    Now, even while we're going about this, we're having this 
debate in another forum in which several of these countries are 
affected, at least many of the articles about Africa, for 
example--so that this is a pretty grim situation, even with, 
the one hand, if we're going to constructively try to help the 
Green Revolution occur in Africa, which never occurred, for a 
variety of reasons, including lack of productive agriculture. 
Single women trying to farm less than an acre, with not very 
good seed and no fertilizer, and often very little prospects, 
and having to cart whatever they do 2 kilometers to get to the 
next road. These are the realities in the world that is facing 
climate change.
    So, I ask you, as we proceed, we can understand this 
better, in terms of American agriculture, and therefore, 
transpose it, if we know really what to expect. For instance, 
to be very parochial again, in my home State of Indiana, a big 
agricultural State--soybeans, corn--on my own farm; I'm 
interested in how climate change is going to affect that in 
this generation or the next. Now, some have said ``not very 
much.'' Conceivably even the growing season may be longer. On 
the other hand, you may have torrential rains that wash out the 
whole crop so that, growing season or not, you've got a 
problem.
    I just want to try to reduce this to something that is 
manageable, in the understanding of all of us, as to why this 
is important.
    There are charts, graphs, data that indicate how 
agriculture in America, for example, might be affected, how the 
growing seasons, or even the probability of crops, whether it 
be in the Midwest or the South or the West or New England or so 
forth, will be affected? Do you--are you aware of literature or 
a good book that we could all read or--help us out, if you can.
    Ms. Economy. I'm a China expert, but I will say that 
beginning as early as the early 1990s, at least, there were 
climate modelers based at Princeton and other places that were 
doing precisely this kind of work and trying to sketch out, 
within the United States, by region, how agriculture would be 
affected, not only from droughts and floods, but also from 
increased pestilence, for example. I am sure that there is 
literature out there, and I am happy to go and try to find it 
for you. I know the Chinese have done this kind of work, so 
there's no doubt in my mind that we have, as well.
    Senator Lugar. Yes, sir.
    Mr. Chandler. I should add that in the modeling that I've 
seen done for the Intergovernmental Panel on Climate Change, 
and that we did in the Pacific Northwest National Lab when I 
was there, moisture distribution, which is so crucial to 
agriculture, is notoriously difficult to model and to forecast. 
And so the uncertainty of the impacts, region by region, is 
very high, which in some ways makes the situation even worse, 
because if you knew that you were going to dry out or if you 
know you were going to have torrential rains on a regular 
basis, then you could adapt. But the uncertainty in the models, 
the large scale of the grids, makes it very difficult to deal 
with and increases the risk.
    Senator Lugar. Well, that's important for us to know, too, 
as people plan how to use their land over the course of time or 
what to anticipate in the next generation, for example, in 
probabilities.
    Let me just--and I appreciate, as you say, Ms. Economy, 
you're an expert on China--this is related to China only so far 
as--before we get very far with China we're going to have to 
resolve some of these problems in the United States, at least 
in terms of our own understanding and our advocacy, or we will 
have diplomats out there in Copenhagen, or wherever they may 
be, who are doing the best they can, but back home it's not 
really certain what the political atmosphere is, backing 
whatever they are saying. And this is why the credibility of 
all of our activities at the grassroots is very important.
    Let me just add one more factor. Once again, a blatant 
self-advertisement. My staff have very skillfully calculated 
how much money I'm saving each year by driving a Prius car. 
Now, many Senators drive Prius cars, so this is not a unique 
experience coming into the Hart lot every day, but they've 
calculated, at 49 miles to the gallon over the course of 4 
years of time, a figure, which we have shared with our 
constituents. Now, this doesn't mean everybody has rushed out 
to buy a Prius or another hybrid car or something of that 
variety. In other words, demonstrably there are savings in 
this. Hopefully there will be in other things we do, different 
kinds of light bulbs we're putting in and all sorts of 
renovations of buildings.
    But, let me just ask, at what point, even if there are 
savings involved for households, lifestyles in the United 
States or in China take over, really, in people's 
decisionmaking--at what point is the economic thing important? 
At what point is fear of what is going to happen, in terms of 
world catastrophe, more important? In other words, what are the 
motivating factors that, in our democracy, we will have to 
contend with? Even in China, as you say, stability is the key 
factor. How much political pain can occur in the countryside or 
somewhere else before the government says, ``Although we had 
the most noble ambitions here, Communist Party retentions comes 
first--stability--as opposed to what we're doing''?
    Yes, sir.
    Mr. Lieberthal. I'd like to make a comment about the United 
States side and a comment about the Chinese side, although, 
like Liz, I am a China specialist and a United States citizen. 
I frankly think that on the United States side, there is 
enormous capacity--and I mean this very seriously--I think 
there is enormous capacity to motivate people positively to do 
the right thing without depending primarily on fear and on 
comments about lifestyle. Americans like to be good people. I 
think, if this is framed correctly, therefore, there is a lot 
of positive motivation that can be generated. And then, if it's 
backed up with things like smart metering in homes so that 
people can see, every day, whether they're doing the right 
thing or not, I think that that is a combination that could 
produce at least some of the results we're seeking.
    In China, the reality, I think, is that leaders 
increasingly see climate change itself as a threat to 
stability. Let me just give you an example of that. Currently 
just a little under 50 percent of China's GDP is produced in 
three coastal areas--the Pearl River Delta, the Yangtze River 
Delta, and along the Gulf of Bohai. Two of those are 
extraordinarily vulnerable to sea-level rise. The Yangtze River 
Delta--Shanghai and the surrounding areas--is about 1 inch 
above sea level. The Chinese have modeled out how much flooding 
will occur with each degree of rise in sea levels, and it is 
almost mind-boggling when you look at the results, especially 
in the Yangtze area.
    Melting glaciers in the Hindu Kush affect the major rivers 
that run all across China. This is fundamental to the Chinese 
water system. And no one quite knows what the actual 
consequences will be, but they are very worried about them. And 
they see these as potentially producing large-scale 
displacement that can be catastrophic for the country.
    So, I think actually the leaders don't view the issue as 
stability versus climate change--that is in terms of, ``Should 
we focus on stability or focus on climate change?''--they have 
their ways of trying to assure stability, but they see climate 
change as something that they've got to adapt to and mitigate 
or there will be no way to maintain stability over the long 
run. I think that argument is one that they accept very 
readily.
    Senator Lugar. Thank you, sir.
    The Chairman. Thank you. That was an important point, and 
we appreciate it.
    Senator Cardin.
    Senator Cardin. Thank you, Mr. Chairman.
    I thank our witnesses for being here today. I'm working 
with the chairman in an effort to try to advance climate change 
legislation in this Congress.
    I think that we need to move forward on this, even if we 
are the only country in the world to do so, because I think it 
would be good for our Nation, it would create clean jobs here 
in America, keep the technology here, and it's important for 
our economy.
    But, I want to go into an area that I hear frequently in 
the State of Maryland, a State that had a proud tradition in 
textiles, a State that used to be more heavily involved in 
manufacturing than it is today, in which many of my 
constituents say, ``Well, if the United States enacts strict 
standards on carbon emissions, all it's going to do is make it 
easier for China to have a larger penetration into the United 
States market because they won't impose the same strict 
standards, and then you're putting United States manufacturers 
and producers at a disadvantage in regards to international 
competition.''
    Now, this issue was recognized last year in the Lieberman-
Warner bill that made its way through the Environment and 
Public Works Committee. In that bill, there was a provision 
that would have triggered some form of an import tariff against 
countries that exported products into United States that didn't 
meet the U.S. standards on carbon reductions, to try to provide 
a level playing field for products entering America from 
countries that were not dealing with the global climate change 
issue.
    Now, that trigger was sufficiently far down the road so 
that many of us thought it would not generate a lot of 
interest, as far as the challenges within the WTO or public 
relations issues with countries that we deal with.
    I want to get your views as people who understand more than 
I do what's happening in China. There are two ways we could go 
on this issue, and perhaps three. One is to do nothing. The 
other is to try to impose some type of a unilateral tariff to 
reflect what we believe should be the international commitment, 
perhaps using standards adopted later this year in Copenhagen. 
The third would be to try to negotiate within the World Trade 
Organization some recognition of the fact that it is legitimate 
for countries that have an interest in advancing global climate 
change to establish this type of regime.
    So, I guess my question to you is, How would this go over 
in China? Now, our relationship with China is somewhat mixed. 
Trade issues have been subject to a great deal of debate over 
time. China, of course, has the largest surplus, with the 
United States, of any country. We certainly are concerned about 
this balance of payment. There are legitimate concerns that we 
don't want to enact legislation here that would exacerbate the 
trade imbalance we already have with China.
    Mr. Lieberthal. First of all, Senator, I understand the 
sentiment behind the legislative proposal. The Chinese are very 
worried that American environmental efforts will be used to 
establish protectionist walls around the American market. You 
hear that sentiment all the time in China. The current global 
economic stress has heightened that worry.
    But, second, there's a more fundamental issue at stake. 
Senator Kerry raised this earlier. It is the question of 
whether the United States is seen as using concern about the 
environment to try to slow down China's economic growth because 
we're worried about China as a global rival. The chairman 
indicated that has been a major concern in China; now that is 
fading somewhat. I think, at the central leadership level, it 
is fading considerably, but at a popular level, it is still a 
very, very widespread concern.
    If we do establish barriers at the border as part of our 
cap-and-trade legislation, I think that will be seen by many in 
China as kind of confirming their view that this is really 
aimed at China, not, as it's seen up here on the Hill, as being 
focused on economic competitiveness. Rather, many Chinese will 
see this as a strategic move to try to keep China from 
realizing its own rightful potential.
    My own sense is that if China were to do nothing or do very 
little to control its own carbon emissions, then I agree that 
we really need to worry about the future impact on 
competitiveness. But, if China is making a maximum effort that 
is verifiable, then I think that we ought to back off a little 
bit. I think we need to be more sensitive to the reality that 
we have more money, we have higher tech industry, we are 
somewhat late to the climate game, and we are not fully trusted 
out there on this issue.
    Senator Cardin. I would just point out that Americans would 
believe that we are already helping China with money, since we 
have such an imbalance with them, so they clearly have a cash 
surplus with the United States.
    Mr. Lieberthal. That's absolutely true. Behind those trade 
statistics----
    Senator Cardin. Some would also argue that China has 
arbitrarily kept its currency low, holding down the wealth of 
its country, at the cost of the United States, so that we 
really are contributing to China's development. So, aren't we 
already contributing to what they--what we think should have 
been used to deal with reducing its carbon emissions?
    Mr. Lieberthal. Well, there are three points in my response 
to that, sir.
    First, is China's exchange rate below what a market would 
have dictated? I agree with you that the answer is, ``yes.''
    Second, is the trade imbalance with China something that we 
should take extremely seriously as a bilateral issue? I think 
the answer to that is, ``not quite.'' Our trade deficit with 
Asia overall as a percentage of our global trade deficit has 
actually gone down virtually every year since the early 1980s. 
But our trade deficit with China, within Asia, has gone up. 
That is because the other countries of Asia that formerly ran 
huge trade surpluses with us--Japan, South Korea, Taiwan, Hong 
Kong, Singapore--have all shifted substantial final assembly to 
China. As a consequence, two-thirds to three-quarters of the 
value of the average Chinese export to the United States 
consists of Chinese imports from elsewhere in Asia that are 
bolted together in China, packaged, and sent to the United 
States. Our trade calculations attribute all that value to 
China, but this misses the underlying reality. So----
    Senator Cardin. I understand what you're saying, but still, 
the trade imbalance of the United States, internationally, is 
troublesome.
    Mr. Lieberthal. Absolutely.
    Senator Cardin. And China's the major player in that.
    Mr. Lieberthal. Well, actually, China is now part of a 
regionally integrated Asian manufacturing system. I don't want 
to split hairs, here, sir, but our trade deficit with that 
Asian regionally integrated manufacturing system has actually 
gone down, as a percentage of our global trade deficit, 
steadily for 20 years now. So, I think pointing to the China 
component of that and saying, ``Well, that's explaining our 
problem,'' doesn't fully identify the problem. Our problems are 
more that we don't have enough domestic personal savings, and 
there are a lot of systemic issues involved.
    The China figure is very attractive to point to, because 
it's so dramatic. But, it really masks the real supply chains 
and flows of goods that describe what's actually taking place 
out there.
    Senator Cardin. But, you did say that if China does not 
take respectful action in regards to carbon emissions, then it 
may be appropriate for the United States to take some action. 
What action?
    Mr. Lieberthal. I believe it is actually already doing 
quite a bit, and I think it is prepared to do quite a bit more. 
If the United States and China cannot begin to cooperate on a 
serious level to address carbon emissions to produce some real 
results that are verifiable, that are not just rhetorical, I 
would agree with you that the political case for some kind of 
trade action, especially in the future, so that it incentivizes 
the Chinese, would be hard to resist. I personally wouldn't 
favor it, but I can certainly understand the political case for 
it. But I do believe that there is now an opportunity to engage 
the Chinese very substantially. And I would add that the 
Chinese are already, at a national level, doing more than most 
Americans realize in concrete programs to reduce their carbon 
emissions to below what they would have been without those 
efforts.
    Senator Cardin. Our chairman reminds us of that frequently 
here, sir.
    Mr. Lieberthal. Well----
    Ms. Economy. Could I just add one thing to that?
    Senator Cardin. Absolutely.
    Ms. Economy. I think there are real issues in our trade 
relationship with China. We should address them, whether it's 
intellectual property rights, market access, or the currency 
issue, as you suggest.
    My fear is that establishing some kind of carbon tariff on 
goods coming from China is going to provoke a whole round of 
similar issues and tariffs and other kinds of penalty measures, 
not just between the United States and China, but it could 
happen around the world. That would be very counterproductive 
to what we're trying to do with this global climate change 
regime.
    When you look at the history of international environmental 
treaties, some of them have sanctioning mechanisms. The 
Montreal Protocol on ozone-depleting substances has a 
sanctioning mechanism in it, for example. My feeling is that if 
we want to try to develop a sanctioning mechanism within the 
framework of Copenhagen, then that's where we should do it, but 
not as a bilateral punitive measure against one country. It 
will have all sorts of far-reaching negative ramifications for 
the United States-China relationship, as well.
    Senator Cardin. But, if China does not become party to 
that, then, of course, the mechanisms would not have any 
impact.
    Ms. Economy. When we weren't party to Kyoto, the Europeans 
were talking about what they might do to us.
    Senator Cardin. They might. But, then they had the WTO to 
fall back on. Unless you have some other agreement--it seems if 
they're not party to it, enforcement would be very difficult. 
Even within the WTO, America's record hasn't been great on 
enforcements issues.
    Ms. Economy. That's true, we haven't been great on 
enforcement. But you can certainly find ways to penalize 
countries that are not part of the agreement.
    Senator Cardin. I'm not sure.
    Thank you.
    The Chairman. Well, the key is obviously to have a 
framework where they're part of the agreement. And that's what 
we're all aiming for. That's the effort, here. And hopefully 
we'll get there.
    I believe that that is going to be possible, albeit, as we 
have all articulated, with the differing responsibilities that 
we accept, at least in the first years, there has to be a 
melding, here, and that's one of the things that I tried to 
make as clear as I could within my portfolio to the Chinese, 
that, you know, whatever happens there, we're going to get 
together every year, we're going to be reviewing it, and we're 
all going to have to be ready to react to the scientific 
realities as they continue to come in. And I think that the 
issue of how many years, is going to be up to the negotiators 
and the administration, and their relationship with China. But, 
clearly that's going to be part of this.
    Are there any other issues to come before us?
    Senator Lugar.
    If not, this has really been helpful and informative, and I 
hope we can continue to call on you as we go forward in the 
next months. And I thank you very, very much for being here 
today. Thank you.
    We stand adjourned. Thank you.
    [Whereupon, at 11:55 a.m., the hearing was adjourned.]
                              ----------                              


              Additional Material Submitted for the Record


 Prepared Statement of Hon. Barbara Boxer, U.S. Senator From California

    Thank you for convening this hearing today, Mr. Chairman, and thank 
you for your ongoing leadership on the issue of global warming.
    The world is looking for American leadership on this issue, and 
they are watching closely what we are doing here in the Congress.
    When it comes to China and global warming, we have several 
important challenges. China has likely become the world's largest 
emitter of carbon pollution. If we want to influence China's 
participation in an international agreement on climate change, we must 
demonstrate America's commitment to take real action to cut our own 
greenhouse gas emissions. When we act, we will renew our leadership--
and our leverage--on this issue in the international community.
    We must also seize the economic opportunities in clean energy. 
Legislation to curb U.S. global warming pollution will put us on a path 
toward a new clean energy economy that creates millions of American 
jobs and breaks our dangerous dependence on foreign oil. America has 
led nearly every technological breakthrough in recent years--there is 
no reason why we should not lead the clean energy revolution. But China 
is not waiting for us to act.
    China is reportedly making enormous investments in renewable 
energy, energy efficiency, and less-polluting vehicles and transit, and 
has indicated a goal of 40 percent renewable energy by 2050. In 
addition, the New York Times (May 11, 2009) reported that China's 
latest coal-fired powerplants are both more efficient and less 
expensive than their U.S. counterparts.
    Thomas Friedman put it concisely in his most recent book, ``Hot, 
Flat and Crowded'': ``. . . the ability to develop clean power and 
energy efficient technologies is going to become the defining measure 
of a country's economic standing, environmental health, energy 
security, and national security over the next 50 years."
    Again, thank you for holding this important hearing today.
                                 ______
                                 

Responses of William Chandler to Questions Submitted by Senator Barbara 
                                 Boxer

    Question. Please describe the actions that China is now taking to 
reduce its greenhouse gas emissions.

    Answer. China's energy efficiency effort--including shutting down 
many inefficient factories and powerplants--is without precedent in the 
world. China's 5-year plan for 2006-2010 contained a number of 
significant energy efficiency goals and programs, including the 
ambitious target of reducing energy intensity (the amount of energy 
consumed per unit of GDP) by 20 percent by 2010, compared to 2005 
levels. The plan focuses on increasing efficiency in the industrial and 
power generation sectors, with a combination of incentives and 
regulations that will save the equivalent of hundreds of millions of 
tons of coal every year.
    Furthermore, China aims to increase its share of clean energy by 
expanding its nuclear capacity, hastening coal-bed gas development, and 
boosting renewable energy capacity to supply 10 percent of all primary 
energy as early as 2010. Thanks in part to a set of economic policies 
that prioritize renewable energy, China already ranks fifth in the 
world in installed wind power capacity--installed wind capacity has 
more than doubled each year for the past several years--and it is the 
world leader by far in installed solar thermal capacity. The government 
also aims to control methane emissions with improved agricultural 
methods and plans to increase forest coverage 20 percent by 2010, 
compared to 2005 levels.
    The Chinese Government is investing monumental sums of money in 
energy efficiency and other green technologies. The stimulus package 
released in late 2008 included $31 billion for energy conservation, 
emissions reduction, and ecosystem reconstruction projects, plus over 
$200 billion for infrastructure such as dams, high-speed railways and 
electric grid improvements that will ultimately reduce emissions. The 
government is also in the process of drafting another stimulus package 
focusing specifically on renewable and low-emission energy sources, 
although the official amount of this investment has not yet been 
announced.

    Question. Please describe ways that China and the United States can 
work together to reduce greenhouse gas emissions.

    Answer. Key areas for cooperation include:

   Building human capacity to accelerate market deployment of 
        technologies, including evaluating policies such as the 
        creation of low-carbon economic development zones and creating 
        incentives for clean energy investments--especially energy 
        efficiency technologies that can obtain ``quick wins.''
   Facilitating joint United States-China research and 
        development cooperation; for example, on low-carbon cars, coal-
        fired powerplants, and carbon sequestration technology. As part 
        of this effort, we should foster closer links between American 
        laboratories and Chinese markets, and vice versa. We will need 
        to develop models that ensure equitable cost-sharing, fair 
        access to the use of intellectual property, and protection of 
        intellectual property.

     e.g. Establish a jointly funded civilian research and 
            development foundation for clean energy technology, where 
            the United States and China would share both the costs and 
            the associated intellectual property rights.

   Lending our expertise to help China develop market-based tax 
        and regulatory policies and market-based energy pricing, to 
        remove perverse incentives and encourage energy conservation.
   Facilitating finance for clean energy and energy efficiency 
        technologies within China (details provided in written 
        statement submitted for the record).
   Establishing state-to-province and private sector 
        partnerships to accelerate market deployment of low-carbon 
        technologies; and expanding existing programs.

     Under this type of partnership, Chinese provinces could 
            become observers of United States state and regional cap-
            and-trade programs. Ultimately, this model might even 
            provide the basis for broader United States-China 
            cooperation on emissions trading.

   Working with China to jointly propose more effective, 
        streamlined CDM regulations for the next global treaty.
   Making climate cooperation integral to trade policy, and 
        establishing agreements to prevent either country from taking 
        advantage of the other.

     e.g. Both countries could agree that after 2015 they would 
            export only appliances, cars, and equipment with efficiency 
            levels higher than the world average today, they could 
            jointly set production standards to limit the energy used 
            in manufacturing exports, and they could both agree to 
            provide tax breaks for investment and impose tax penalties 
            on high-carbon energy.

    Question. There is universal agreement that China must curb its 
emissions if the world is to avoid unchecked climate change. Some argue 
that the United States should not reduce its emissions until China does 
so. Do you agree with this argument? Would a ``wait for China'' 
approach help persuade China to take on international climate change 
commitments?

    Answer. While it is true that China must curb its emissions, it is 
equally true that the United States must curb its emissions if the 
world is to avoid the worst effects of climate change. If either 
country fails to act, the mitigation strategies adopted by the rest of 
the world will fall far short of averting disaster for large parts of 
the earth. United States refusal to act will absolutely not persuade 
China to agree to international commitments; rather, it will continue 
to give China an excuse to point fingers while they wait for us to take 
the lead. If we lead, on the other hand, then the rhetoric of the 
developing countries loses its power.

    Question. Given the serious threat that global warming represents 
to our country, and the dynamics of international climate negotiations, 
would you agree that the United States must act regardless of the level 
of commitment from China?

    Answer. Yes, the United States must enact strong climate policy 
that can stand on its own two feet and is not held hostage to other 
countries' actions. Bold action on our part is essential not only 
because it is our moral responsibility and an environmental necessity, 
but also because of the effect it will have on China. Draft legislation 
in the House of Representatives has already made a strong impression on 
the Chinese, indicating to them that we are serious about climate 
change. Strong leadership on our part will encourage China to follow. 
United States-China cooperation, in turn, is our best hope for 
achieving a successful outcome at Copenhagen.
                                 ______
                                 

 Responses of Ken Lieberthal to Questions Submitted by Senator Barbara 
                                 Boxer

    Question. Please describe the actions that China is now taking to 
reduce its greenhouse gas emissions.

    Answer. China is taking many measures, including increasing mileage 
standards and providing government incentives to purchase smaller cars, 
developing an electrified rail system in central and western China, 
shutting down small and inefficient coal-fired powerplants, creating a 
few model ``ecocities'' in order to gain experience in low carbon urban 
development, upgrading building codes (China constructs about 50 
percent of world's new floor space each year), and so forth. The most 
significant national level policies, each of which is backed by 
substantial levels of funding, include:

   Seeking a 20-percent reduction in energy intensity for all 
        GDP during the 11th five-year plan, which covers 2006-2010.\1\ 
        According to Chinese authorities, total carbon emissions would 
        decline by roughly a billion tons of CO2 over the course of the 
        plan as against a ``business as usual'' (BAU) model, if this 
        target were fully met. At present, progress toward the target 
        is behind schedule, but the gap between targets and performance 
        is closing.
---------------------------------------------------------------------------
    \1\ ``The Energy Development Plan for the 11th Five-Year Period,'' 
the National Development and Reform Council (NDRC), Government of the 
People's Republic of China, April 2007. Available at: http://
www.ccchina.gov.cn/WebSite/CCChina/UpFile/File186.pdf.
---------------------------------------------------------------------------
   Adopting the target of having renewable fuels account for 10 
        percent of China's total energy consumption by 2010 and 15 
        percent by 2020.\2\ As part of this:
---------------------------------------------------------------------------
    \2\ ``The Medium and Long-Term Development Plan for Renewable 
Energy,'' the National
Development and Reform Council (NDRC), Government of the Peoples' 
Republic of China, August 2007. Available at: http://
www.ccchina.gov.cn/WebSite/CCChina/UpFile/2007/20079583745
145.pdf. China passed a renewable energy law in 2006. In 2007 
renewables accounted for 8.5 percent of China's energy production.

     Establishing major programs to improve technology in solar 
            and wind power. China has rapidly become the world's 
            leading producer of solar panels, although solar power's 
            installed generating capacity is to increase to only 
            300,000 kW in 2010. For wind power, tax breaks, and other 
            forms of government support are already in place as of 
            2008. The installed generating capacity of wind power is to 
            increase from 1.26 million kW in 2005 to 10 million kW in 
            the year 2010.\3\
---------------------------------------------------------------------------
    \3\ ``The Renewable Energy Development Plan for the 11th Five-Year 
Period,'' NDRC, PRC. March 2008. Available at: www.ccchina.gov.cn/
WebSite/CCChina/UpFile/File186.pdf.
---------------------------------------------------------------------------
     Enhancing China's hydropower generation (despite the fact 
            that the country already has the greatest concentration of 
            hydropower facilities in the world). The installed 
            hydropower generating capacity is to increase from 117 
            million kW in 2005 to 190 million kW in 2010 \4\ and will 
            provide 6.8 percent \5\ of the country's anticipated energy 
            consumption in the latter year.
---------------------------------------------------------------------------
    \4\ ``The Renewable Energy Development Plan for the 11th Five-year 
Period,'' ibid.
    \5\ ``The Energy Development Plan for the 11th Five-Year Period.''

   Taking serious measures to reduce the emissions from highly 
        polluting power-generation facilities. Coal remains king in 
        China, and about 70 percent of power still comes from coal-
        fired plants. Over the past 5 years China has built the 
        equivalent of America's entire coal power generation system. 
        These plants will stay on line for another 30-50 years while 60 
        percent of U.S. coal-fired powerplants will be over 50 years 
        old by 2025. The technologies involved in generating power in 
        these new plants are thus very important. Fortunately, China is 
        building many of these plants to be relatively clean \6\ and is 
        investing in development and deployment of clean coal 
        technologies.\7\
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    \6\ Government regulations now require that: New plants be 
synchronously equipped with flue gas desulfurization (FGD) technology 
before 2010; existing plants begin to be retrofitted with FGD 
technology before 2010; all plants meet SO2 requirements before 2015; 
and new plants set aside space for future flue gas denitrification 
equipment installations. New power-generation units are equipped with 
low-NOX burners, and many existing units have been 
retrofitted with this technology: Zhao, Lifeng and Gallagher, Kelly 
Sims, ``Research, Development, Demonstration, and Early Development 
Policies for Advanced-Coal Technology in China,'' Energy Policy, Vol. 
35, 2007, 6467-6477.
    \7\ This includes, for example, substantial work on direct 
hydrogenation of coal, with production starting up in the Inner 
Mongolian Autonomous Region in 2008. Beijing is also focusing on coal 
gasification and is constructing 35 plants using this technique.
---------------------------------------------------------------------------
   Aggressively expanding nuclear power capabilities, with a 
        target of building 9 new generators in the next 2 years and at 
        least 30 over the coming decade. Nuclear is slated to provide 5 
        percent of China's total installed power-generating capacity by 
        2020.\8\ There have been recent suggestions that the nuclear 
        output target has been raised from 40 GW to 70 GW by 2020.\9\
---------------------------------------------------------------------------
    \8\ ``The Nuclear Industry Development Plan for the 11th Five-Year 
Period,'' the Commission of Science, Technology, and Industry for 
National Defense (COSTIND), the Peoples' Republic of China, August 
2006. Available at: http://www.caea.gov.cn/n602669/n602673/n602687/
n607857/appendix/200741310370.doc. ``China Ups Targeted Nuclear Power 
Share From 4% to 5% for 2020,'' Xinhua News, August 5, 2008. Available 
at: http://news.xinhuanet.com/english/2008-08/05/content_8967806.htm.
    \9\ China Daily, November 19, 2008: http://www.chinadaily.com.cn/
bizchina/2008-11/06/content_7180851.htm.
---------------------------------------------------------------------------
   Investing over 600 billion RMB ($88 billion) on ultra-high 
        voltage transmission projects by 2020. The installed capacity 
        of China's clean energy will be increased to 579 billion kW 
        when the smart grid is completed by 2020.\10\
---------------------------------------------------------------------------
    \10\ China Daily (May 29, 2009).

    Question. Please describe ways that China and the United States can 
---------------------------------------------------------------------------
work together to reduce greenhouse gas emissions.

    Answer. The potential menu here is long and varied. Types of 
potential cooperation include:

   Codevelopment of new technologies. This involves taking 
        ideas from the lab and bringing them through test beds, scaling 
        up and development of viable business models. In many critical 
        areas, both the United States and China have made technical 
        advances, but much remains to be done to make those 
        technologies applicable in the market and at scale. American 
        and Chinese capabilities are largely complementary, and working 
        together can move things forward more rapidly and at less cost 
        than working separately. Two prominent examples are in carbon 
        capture and sequestration and in electric vehicles.
   Foster local-to-local cooperation. Various municipal 
        governments in both countries have done a great deal to improve 
        urban transit, upgrade building stocks, optimize energy 
        provision, etc. There is some United States-China city-to-city 
        cooperation now under way, but a great deal more can be done. 
        Establishing a national level platform to foster that local-to-
        local collaboration (e.g., by providing data repositories, 
        facilitating communications, providing some translation 
        services, etc.), could greatly enhance the ability of local 
        officials in each country to cooperate with and learn best 
        practices from the other.
   Create activities to galvanize the public's imagination. 
        Forming, for example, a binational Clean Energy Corps with 
        volunteers from both countries to work on upgrading and 
        retrofitting buildings in both countries (and eventually 
        elsewhere, too) could have an impact akin to that of the Peace 
        Corps for an earlier generation.
   Cooperate to lower the costs in both countries to moving to 
        a low-carbon economy. For example, adopting common metrics and 
        standards (e.g., in appliances) where feasible will make it far 
        easier for new products to gain necessary scale.
   Cooperate to reduce the obstacles to overall cooperation 
        between developed and developing countries on reducing carbon 
        emissions. The differences between the United States and China 
        on principles (concerning the responsibilities that should be 
        assigned because of historical cumulative emissions versus 
        current emissions, per capita emissions versus total national 
        emissions, and the current stage of economic development) are 
        the key divisions over principles that have plagued global 
        climate change negotiations. If the United States and China can 
        find ways to cooperate despite these disagreements over 
        principles, it should have a beneficent effect on the global 
        negotiations and therefore on global carbon emissions 
        reduction.

    Question. There is universal agreement that China must curb its 
emissions if the world is to avoid unchecked climate change. Some argue 
that the United States should not reduce its emissions until China does 
so. Do you agree with this argument? Would a ``wait for China'' 
approach help persuade China to take on international climate change 
commitments?
    The United States absolutely should not adopt a posture of waiting 
for China before undertaking its own emissions reductions. In part, the 
science drives this response--emissions from anywhere move the world 
toward potentially unmanageable climate challenges in the future, and 
the United States accounts for more than 20 percent of global emissions 
annually. Waiting for China is therefore directly increasing the 
dangers faced by every American and all others around the globe.
    The United States should, though, use its own demonstrated 
willingness to take very serious measures to address climate change as 
a vehicle to move China along to greater efforts. To date, in terms of 
national level policy the Chinese have done considerably more than 
America has done on reducing carbon emissions (but American localities 
have undertaken many serious programs on their own). China has not been 
simply standing by waiting for others to act. But failure of the United 
States at a national level to address this issue seriously to date has 
made it far more difficult for China's leaders to do what they should 
do on this. The arguments heard in China have been: 1. The United 
States is rich and technologically advanced--why should we move on low-
carbon efforts before America does? 2. The United States seeks to slow 
or halt China's rise--and America's pushing China to reduce carbon 
emissions is simply part of this strategic United States effort.
    Now that the United States is demonstrating that it is serious at 
home, China is changing its own tune very rapidly. In many meetings I 
have had (and our officials have had) with Chinese officials this year, 
the positive change has been obvious--and the Chinese point to 
America's shift in position since January as an important ingredient. 
In addition, in a very important way American life styles define for 
middle-class Chinese what ``being modern'' is all about. As we raise 
the importance of considerations of reducing emissions, that 
potentially impacts on the types of pressures China's leaders are under 
from their own population.
    Put simply, America's taking the lead moves China in the right 
direction, while waiting for China increases very significantly the 
power of voices in China that say China should wait for the United 
States.

    Question. Given the serious threat that global warming represents 
to our country, and the dynamics of international climate negotiations, 
would you agree that the United States must act regardless of the level 
of commitment from China?

    Answer. Absolutely, but I think we can also do better than that. We 
should be able to build a bilateral United States-China Clean Energy 
Partnership this year that in turn imparts momentum to the Copenhagen 
negotiations and positions China to take a more forward-leaning 
attitude toward those global talks.
                                 ______
                                 

   Responses of Elizabeth Economy to Questions Submitted by Senator 
                             Barbara Boxer

    Question. Please describe the actions that China is now taking to 
reduce its greenhouse gas emissions.

    Answer. China's Greenhouse Gas (GHG) reduction efforts include: 
Reducing energy intensity (energy consumption per unit of GDP) by 20 
percent during 2006-2010; increasing the role of renewable energy 
within the primary energy mix to 10 percent by 2010 and 15 percent by 
2020; a top 1,000 program to improve the energy efficiency of the top 
1,000 energy consuming enterprises in nine sectors (iron and steel, 
nonferrous metal, chemicals, petroleum/petrochemicals, construction 
material, textiles, paper, coal mining and power generation); a fuel 
consumption tax on gasoline of 1 rmb per litre; \1\ replacing and 
adding to the country's stock of coal-fired powerplants with more 
efficient models; and a massive afforestation program that has raised 
the level of forest coverage in the country from approximately 12 
percent in 1998 to 18 percent in 2009.
---------------------------------------------------------------------------
    \1\ Testimony of Barbara A. Finamore before the select committee on 
Energy Independence and Global Warming, U.S. House of Representatives 
(March 4, 2009).
---------------------------------------------------------------------------
    New targets and policy initiatives are also announced with striking 
frequency. For example, the government has discussed more than tripling 
its wind-power generating capacity to 100 GW by 2020 from its previous 
target of 30GW; floated a proposal for a 40 percent Renewable 
Electricity Standard by 2050; pushed forward new rules on compulsory 
green procurement for local governments; and raised the possibility of 
a carbon tax and a carbon trading regime at some undisclosed time in 
the future.
    China is also actively investing in new technologies that will help 
slow the rate of growth of the country's GHG contribution. It has 
announced a US$1.5 billion research subsidy for automakers to improve 
their electric vehicle technology. (China's leaders have called for 
500,000 ``new energy'' vehicles, such as hybrids and electric vehicles, 
to be produced this year. Shenzhen is reportedly already establishing 
20 220-volt charging pillars in office and residential areas. According 
to one international consulting firm, Frost and Sullivan, it will take 
a minimum of 10 years for China to transition to electric vehicles.) 
State-owned power developer China Huaneng Group has announced that it 
will pursue the development of technologies to capture and sequester 
carbon (CCS) with the assistance of the ADB and the Chinese 
Government.\2\ Shenhua Group is also pursuing CCS technology in 
conjunction with its planned coal-to-liquid fuels plant in Inner 
Mongolia. Moreover, powerplant efficiency technology may soon also make 
its way from China to the United States. In April 2009, Xi'an Thermal 
Power Research Institute, a subsidiary of Huaneng, signed a preliminary 
agreement to supply Houston-based Future Fuels with a two-stage 
pulverized coal pressure gasification technology for an IGCC plant to 
be built in Schuylkill, PA, in 2010.
---------------------------------------------------------------------------
    \2\ Green Hops: New Renewable Energy Targets, More Carbon Tax 
Chatter, Singapore-Nanjing Eco-city Announced,'' Green Leap Forward 
blog (May 8, 2009). http://greenleapforward.com/2009/05/08/green-hops-
new-renewable-energy-targets.

    Question. Please describe ways that China and the United States can 
---------------------------------------------------------------------------
work together to reduce greenhouse gas emissions.

    Answer. Clean energy and capacity-building are two major areas 
where the United States and China can cooperate on climate change. 
First, a United States-China clean energy partnership needs to look 
ahead over the next 10 to 20 years at the profound changes, both within 
China and in terms of China's role abroad, and structure the 
partnership in that context. China plans to urbanize 400 million people 
between 2000 and 2030, which will have a profound impact on China's 
energy-use patterns (urban residents use 3\1/2\ times more energy than 
their rural counterparts). Energy efficient buildings (including new 
building materials) and appliances, electric cars, renewable, smart 
urban planning should be top priorities for United States-China 
collaboration. These partnerships, which may develop into ecocity or 
province/state partnerships should target first off China's national 
environmental model cities (about 10 percent of China's 660 cities) 
because the leaders and businesses in these cities have a proven track 
record of commitment to environmental protection in their cities. 
Similarly, companies that are members of China's Green Companies 
Program have begun to develop a track record of running their 
businesses in more efficient and environmentally sound ways. These 
should be the first candidates for joint projects. We already have an 
ecopartnership on this issue under the Strategic Economic Dialogue 
between Chang'an Motors and Ford Motor Company and the cities of Denver 
and Chongqing. We should be looking aggressively at what's taking place 
with that initiative, seeing what the obstacles are, what the 
opportunities are, and whether this is something that can be replicated 
throughout other parts of China. If the initiative is not working, we 
should consider how to revise and strengthen it.
    It is important to remember that technology does not matter unless 
the political and economic systems are there to support it. United 
States companies in China want contract sanctity, enforcement, and 
certainty of regulation, which circles back to governance and capacity-
building. To this end, the United States can begin to work with China 
by assisting with emissions monitoring, reporting, and verification. 
United States efforts to help China develop a more transparent, 
accountable, and rule-based system will be a long process, but an 
absolutely critical one. California is beginning an initiative that is 
going to try to address some of this problem. It has a climate 
governance partnership that it is trying to establish with a number of 
provinces, in which members of different parts of the bureaucracy at 
the local level will form climate action task forces, and to encourage 
information-sharing and transparency, and accountability at the local 
level.
    Finally, the partnership ought to address the profound changes in 
China's role abroad. Something not very many people have been thinking 
about is how China's drive for resources--timber commodities, food 
crops, oil, and gas--has brought tens of thousands of Chinese companies 
to Africa, Latin America, Southeast Asia, along with millions of 
Chinese workers, with very little to no environmental supervision. 
China is now the largest importer of timber in the world and the 
largest importer of illegally logged timber in the world. It is 
contributing to rampant deforestation in places as far flung as 
Cambodia, Myanmar, Mozambique, Russia, and Indonesia. Even as China is 
undertaking positive climate mitigation efforts with its forest program 
within its own borders, it is contributing to the opposite in many 
countries abroad. I think that as we think through a climate 
partnership with China, it ought to be in the context of a global 
sustainability program that would encourage China, the United States, 
and developing countries to discuss the actions of Chinese 
multinationals abroad.

    Question. There is universal agreement that China must curb its 
emissions if the world is to avoid unchecked climate change. Some argue 
that the United States should not reduce its emissions until China does 
so. Do you agree with this argument? Would a ``wait for China'' 
approach help persuade China to take on international climate change 
commitments?

    Answer. The United States should not wait for China and should act 
regardless of China's commitment at Copenhagen. President Obama began 
very early on, even before he took office, to talk about green energy 
and a clean energy future for our country, including his promise to 
build 5 million green jobs in the next decade. This must also be an 
integral part of the U.S. leadership's climate change message to the 
American people. It is what will get them excited about moving forward 
on this issue. China, despite its recalcitrance, is not waiting to 
develop its clean energy market. It is already forging ahead in 
developing electric cars and renewable energy technologies. There 
should be an opportunity presented to the American people to move our 
country forward into the 21st century and take a leading economic role, 
so that 5 or 10 years from now, the United States does not lag behind 
other countries, including China, on electric cars and a vast array of 
other renewable and energy-efficient technologies.
    Equally important is the need for the United States to lead by 
example. Although China will find its own path to a low carbon economy, 
the United States has the opportunity to demonstrate how it can be 
done, whether through best urban planning practices, the rapid 
development and spread of energy efficient building codes and new 
building materials, the development of alternative fuel vehicles and/or 
the rapid deployment of renewable energy and smart grid technology. The 
United States will have no credibility in pushing China to forge a new 
path if we, ourselves, are not already well down that road. Moreover, 
we will lose a critical opportunity for our own environmental and 
economic future if we do not seize this moment to develop our own clean 
energy economy.

    Question. Given the serious threat that global warming represents 
to our country, and the dynamics of international climate negotiations, 
would you agree that the United States must act regardless of the level 
of commitment from China?

    Answer. Please refer to response to previous question above.

    Question. Do you believe that China's political leaders are aware 
of the impacts and consequences for China that would result from 
unchecked global warming?

    Answer. The Chinese Government has called on experts within the 
bureaucracy to assess the impacts and consequences of climate change 
and conducted extensive studies on the issue. In April 2007, Beijing 
published a three-part National Assessment Report on Climate Change, 
the result of a 4-year collaborative study between China's Ministry of 
Science and Technology, Meteorological Administration, and the Chinese 
Academy of Sciences. In June 2007, China released its National Plan for 
Coping with Climate Change, in which Beijing outlined for the first 
time a blueprint for how the country should address the challenge.
    Nonetheless, few within China's elite discuss climate change with a 
sense of urgency; the priorities remain continued rapid economic growth 
and social stability. To the extent that these priorities coincide with 
addressing climate change though, for example, energy efficiency and 
energy security, China's leaders are enthusiastic about moving forward 
to address this global challenge. Beyond this, however, the rate and 
nature of China's economic growth suggest that without significant new 
investment and international assistance, the country will fall well 
short of what it needs to do to help stabilize the global climate. \3\ 
Part of the challenge is related simply to the magnitude of the task at 
hand. In addition, China's GHG reduction efforts are greatly 
complicated by emerging trends in the pattern of economic development, 
competing priorities within China's political system, and weak capacity 
for monitoring and enforcement. Moreover, there is a lack of political 
will in Beijing to make the necessary fundamental changes to tackle the 
climate change challenge effectively, such as the rule of law, 
transparency, and official accountability.
---------------------------------------------------------------------------
    \3\ The Tyndall center, for example, argues that China's energy 
portfolio will need to be 60 percent renewable by 2050 to stabilize the 
climate. The McKinsey report's baseline scenario for China's GHG 
emissions, in which China doubles its carbon emissions from 2005 by 
2030, necessitates that China has 100GW of wind generating capacity by 
2030. In its abatement scenario, however, in which China limits the 
growth of its carbon emissions to 10 percent above 2005 levels by 2030, 
McKinsey suggests that China would need 300GW of wind generating 
capacity.
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