[Senate Hearing 111-143]
[From the U.S. Government Publishing Office]
S. Hrg. 111-143
PATHWAYS TO A ``GREEN'' GLOBAL ECONOMIC RECOVERY
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HEARING
BEFORE THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
MAY 19, 2009
__________
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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
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Page
Kerry, Hon. John F., U.S. Senator from Massachusetts, opening
statement...................................................... 1
Lugar, Hon. Richard G., U.S. Senator from Indiana, opening
statement...................................................... 4
Rogers, James E., president and CEO, Duke Energy, Charlotte, NC.. 13
Prepared statement........................................... 15
Stern, Lord Nicholas, chair of the Grantham Research Institute on
Climate Change and the Environment, London School of Economics
and Political Science, London, United Kingdom.................. 6
Prepared statement........................................... 9
Additional Material Submitted for the Record
Prepared statement by the staff of the Friends of the Earth,
Washington, DC................................................. 37
(iii)
PATHWAYS TO A ``GREEN'' GLOBAL ECONOMIC RECOVERY
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TUESDAY, MAY 19, 2009
U.S. Senate,
Committee on Foreign Relations,
Washington, DC.
The committee met, pursuant to notice, at 2:25 p.m., in
room SD-419, Dirksen Senate Office Building, Hon. John F. Kerry
(chairman of the committee) presiding.
Present: Senators Kerry and Lugar.
OPENING STATEMENT OF HON. JOHN F. KERRY,
U.S. SENATOR FROM MASSACHUSETTS
The Chairman. This hearing will come to order. I apologize
for the lateness of our starting, but it is genuinely for
circumstances beyond both Senator Lugar's and my control. The
Senate chose to vote at 2:15, and the caucuses were both going
on; both parties had their Tuesday caucus, and the result is
that folks have been delayed there and we have come over from
the vote. But, we're really happy to welcome both of you here
today.
It's very special for us to have two of the world's leading
advocates for decisive action against climate change, Sir
Nicholas Stern and Jim Rogers.
Lord Stern's 2006 report, which is now known throughout the
climate policy world simply as the Stern Report, remains the
seminal document on the global economics of climate change. And
Jim Rogers, the CEO of Duke Energy, has confounded many of the
naysayers in the industry by continually remaining a very
powerful and important, courageous advocate for aggressive
action. I think ``commonsense advocate'' ought to be added to
that too, because he believes it's good for our economy and
good for business. I might comment that he recently cut Duke
Energy's ties with the National Association of Manufacturers,
citing, in part, his fundamental differences on climate change
policy.
This hearing comes at a very timely moment in our national
climate change debate. The House Energy and Commerce Committee
is, right now, considering a comprehensive climate change
energy bill that would reduce emissions by 83 percent by 2050,
and it is a bill with a real chance of becoming law. We are
focused, here in the Senate, as never before, on this issue,
working continually, with weekly meetings, in an effort to
advance this. And just earlier this afternoon, the President
announced a plan to accelerate our fuel efficiency standards
and goal in the country to 35.5 miles per gallon by 2016. I
might comment parenthetically, China has actually set a more
aggressive goal, and they have set the year of implementation
for next year. So, it is not something where the United States
is moving in a lonely way. The President also announced a
tailpipe emissions plan that would, for the first time in the
American economy, set a nationwide carbon dioxide emission
standard.
Let me just say, personally, that this is a milestone in
the fight against climate change. In 2002, Senator McCain and I
introduced the first major fuel economy legislation, and I'm
extremely pleased that the Nation is now adopting these
aggressive measures, which will help ensure that the American
automobile industry is viable for decades to come.
As our two witnesses will share, taking action to address
climate change is not just an urgent scientific imperative, it
is also a tremendous economic opportunity. Just this morning,
we had several witnesses--Chad Holliday, of DuPont Company, and
Mark Stiles and Liz Warner, of a startup company that is
involved in algae production in New Mexico that is producing
algae, which can create fuel for jet fuel, for diesel, and
become a biocreated fuel that is economically viable in the
commercial marketplace.
So, this is a chance to create millions of new jobs here at
home. It's a chance to help spark a global recovery that brings
clean growth to the developing world and lasting benefits to
all of us.
We really have no choice but to undertake these policies at
a difficult economic moment. Some people try to argue, ``Well,
we're in tough economic times. How do we afford this? We can't
afford to do it.'' But, as we will hear from Sir Nicholas Stern
and Jim Rogers, we really can't afford to delay. That's where
the greater cost lies.
Both our Nation and other countries are, right now, making
historic investments that are going to shape priorities and
constrain spending for years to come. The reality is, though,
there will never be a better moment than this one to transition
the world's economies on to clean development pathways. As we
act to address the financial crisis of this day, our challenge
is also to use this opportunity to avert the financial crisis
of tomorrow.
We're taking important steps. In addition to the
President's announcement today, America's domestic recovery
package invested, as we--a lot of Americans aren't aware of
this, but in the package that we passed, the so-called American
Recovery and Reinvestment Act of 2009, there's $80 billion of
direct green stimulus measures; that is second only to China's
remarkable $200 billion.
And anybody who wonders whether China is going to be part
of this ought to just go back and read the New York Times of a
couple of months ago, where a front-page story carried the news
of how China is determined to quickly become the world's
leading electric car manufacturer. Let me tell you, when the
command-control economy such as theirs, as we've seen with
China, decides to move in that direction, they will move in
that direction. And many people who wonder what China is doing
today are going to wake up in a couple of years and find that
the United States is actually chasing China, trying to catch up
to some of the things they're doing.
The fact is that, just last week, the Department of Energy
announced a $25 million stimulus fund to support a state-of-
the-art wind-turbine blade testing facility in Charlestown, MA.
There is a competitive process for determining its location,
but obviously I'm pleased it is there. It'll begin in
construction this fall; it'll bring 250 new jobs to the greater
Boston area. And local officials expect the facility to become
a clean-energy hub that actually attracts new businesses and
new jobs.
While the economic recovery package represents America's
largest investment ever in clean energy, this is, frankly, just
the first step. Congress needs to pass strong, comprehensive
climate change and energy policy. And as Jim Rogers knows
better than anybody, climate change is not just something you
talk about in the abstract, all by itself. The only response to
climate change is energy policy. Energy policy, whether it's
new and alternative creative fuels or alternative renewable
energy, or whether it's energy efficiency, those are the ways
in which you affect emissions.
So, emissions are almost secondary, in a funny way, to the
economic transformation that is staring us in the face through
the clean energy jobs that we can win. Economists warn--and
we'll hear this from Sir Nicholas Stern today--that to ward off
catastrophic climate change--and I say this again and again to
people who say, ``Well, what about the cost? How much is this
going to cost?'' Folks, the costs are negligible. The McKinsey
Company study shows that, in the first 20 years or so--20 to 30
years--it pays for itself through the energy efficiencies to
actually make this transformation. So, it is not costs up front
in that regard, although there's some capital outlay. But, the
savings come back to pay for themselves.
But, the costs of not doing anything are going to be far
greater. And the fact is that the Green Revolution needs to
happen three times faster than the Industrial Revolution did in
order for us to be able to meet this challenge.
The good news is that America has innovated on a massive
scale before; and with the right incentives, we can do it
again. America was the engine of the IT revolution. That
revolutionized the way the world does business today. Today,
the IT economy is estimated at $1 trillion, without about 1.5
billion users worldwide. Obviously, we're trying to grow those
users. But, energy is a $6 trillion market, with 4 billion
users worldwide. The opportunities for innovation and growth
dwarf any other sector that we can imagine. Until now, we have
ceded the initiative to other countries. We invented the solar
photo voltaic cell at Bell Labs in 1954, but it was Germany
that put in place strong policy mechanisms to drive investment
in solar power and other renewable energy sources. As a result,
renewable energy uses have tripled, to 16 percent, in Germany,
creating 1.7 million jobs. By 2020, Germany's clean energy
sector will be the biggest contributor to the nation's economy.
Last week, Tony Blair testified before this committee that
the U.K. already employs far more people in green technologies
than in traditional sectors, like coal, steel, and
shipbuilding, industries which the British pioneered. These new
jobs are the direct product of sustained policy incentives
designed to spark private investment.
We know that with each dollar the government invests, we
can create 3.5 times as many green jobs as old industry jobs,
or as oil industry jobs. We also know that green jobs pay 17
percent more than the median national income. As unemployment
levels continue to rise, this is very simply one more reason
why can't afford to wait until the economic downturn passes in
order to try to implement strong energy policies. Strong energy
policies are part of the economic recovery.
And, while the domestic imperative for acting to address
climate change is huge, make no mistake, this is also a test of
America's willingness to lead in meeting global challenges. Our
domestic policy--I have heard this with Foreign Minister after
Foreign Minister, Environment Minister after Environment
Minister, country after country, preparing to go to
Copenhagen--our domestic policy will motivate others to advance
their own clean energy priorities, and that will, in turn,
drive investment globally and open new and vibrant markets for
the export of U.S. energy technologies. The question is not
whether the 21st century economy will be the green economy; it
has to become one. And I believe it will. The question is
whether America will lead, and whether the world can change
course fast enough to prevent a climate disaster.
Our two witnesses today have powerful insights into these
economic opportunities and the challenge that is presented. I
look forward to hearing their testimony.
Senator Lugar.
OPENING STATEMENT OF HON. RICHARD G. LUGAR,
U.S. SENATOR FROM INDIANA
Senator Lugar. Well, I'm pleased to join you, Mr. Chairman,
in welcoming our distinguished witnesses. They truly offer two
unique perspectives on the economic consequences of climate
change.
As an economist, Lord Nicholas Stern issued a far-reaching
report, which you've mentioned, in 2006, including that the
cost of addressing climate change will increase, the longer we
delay taking action. As a businessman, Jim Rogers of Duke
Energy knows firsthand the direct costs of dealing with climate
change.
Steps to address climate change in the United States, as
elsewhere, will occur in a political context that will be
deeply affected by the current recession, by varying
perceptions of risk, regional differences, and other factors.
This would seem to be stating the obvious, but policymakers
must continually remind ourselves that, even if some type of
international agreement on climate change is possible, it won't
mean much if the American public and publics around the world
reject it as unfair or too burdensome.
American participation in any global agreement on climate
change is likely to bring profound changes to the American
economy and the culture that require achievements of much
greater consensus than at least I perceive we now have.
By ``consensus,'' I'm not speaking just of agreement, on
the reality of climate change, or even the necessity of taking
action. I believe we need much broader agreement on how we
structure our response and what sacrifices will have to be made
by the American people. Absent a reasonable consensus on these
points, implementation of a climate change policy is far more
likely to be ineffective, economically damaging, and divisive.
When I discuss, with Hoosiers in Indiana, the threats that
the United States faces from our over-reliance on foreign oil,
they understand both the economic and national security risks
of our situation. When Hoosiers open a new biofuels or
geothermal plant, or unveil a new windmill, they are proud;
but, their interests in these technologies is not always
academic. They want to know how many jobs will be created, how
many dollars will be returned by the investment in the long
run, how the project fits into broader efforts to achieve
energy independence for our country. Most Hoosiers are pleased
that the project also reduces carbon emissions, but that is
rarely their central motivation for embracing new technologies
and conservation measures.
Now, I'm hopeful that the U.S. climate change response can
be centered on steps that simultaneously reduce our reliance on
foreign oil, promote soil and water conservation, contribute to
rural development, leverage new energy technologies, and create
jobs. Public support will be strongest for emissions-cutting
measures that are seen as contributing to additional U.S.
economic or national security priorities.
As I mentioned during the last hearing on climate change,
the American political debate on this issue has not progressed
on the same timetable as international negotiations. I've
called on the Obama administration, both in private and in
public, to vastly improve and broaden its education campaign on
climate change. An essential step in this process must be to
provide a much clearer picture of the overall elements of the
problem and the administration's strategy in structuring a
potential agreement. I understand that climate talks are fluid,
but the American political debate must be sufficiently informed
to reach some conclusions about what steps are economically and
politically plausible.
If negotiations proceed without these public reference
points, congressional approval of any climate change agreement
will be exceedingly difficult, and we will fall far short of
the type of consensus that is needed to sustain an effective
program.
I look forward to the insights of our witnesses. As always,
I appreciate your calling the hearing, Mr. Chairman.
The Chairman. Well, thank you, Senator Lugar. And let me
just say, with respect to those comments, I appreciate them
very much. You and I were at a conference in Spain together, on
the subject of the Aspen Institute, and you've reflected some
of your concerns here again today, which is the purpose of this
hearing, obviously, and of further discussion. And I hope Mr.
Rogers, who represents one of our largest energy-producing
companies in the country, and, I think, has a strong voice in
manufacturing, can help engage some of those people who are
wondering about what the impact of this will be. So, we look
forward to continuing that dialogue, and I intend to pass those
words on to the administration, to make certain that they hear
what you said today.
Sir Nicholas, would you begin?
Mr. Rogers, if you don't mind, I would like to sort of
afford our guest the opportunity of sharing, sort of, the
economic framework first, then I think that'll allow you to
come in underneath it with a very much more specific piece.
Thank you.
STATEMENT OF LORD NICHOLAS STERN, CHAIR OF THE GRANTHAM
RESEARCH INSTITUTE ON CLIMATE CHANGE AND THE ENVIRONMENT,
LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE, LONDON,
UNITED KINGDOM
Lord Stern. Thank you very much, Chairman Kerry, and thank
you very much, Ranking Member Lugar, for inviting me to be with
you here today. It's a great privilege to be back, testifying
to the Senate. And it's also a pleasure to be on a panel again
with such a distinguished industrialist as Jim Rogers.
I'm Nicholas Stern, professor at the London School of
Economics. I'm a Member of the Upper House in the U.K.
Parliament, a lot less influential than your distinguished
body, Senators.
Let me start with why we're doing all this. What are the
benefits of action? Well, the benefits of action are the other
side of the costs of inaction. Given where we are, at around
435 parts per million of CO2 equivalent concentrations in the
atmosphere, and we're adding around 2\1/2\ parts per million a
year, and that 2\1/2\ parts per million is rising, 100 years of
that would put us at well over 750 parts per million, and that
would give us at least a 50-50 chance as a world, sometime at
the end of this century, beginning of next, being 5 degrees
Centigrade above preindustrial times. That is truly enormous.
The planet hasn't seen that for 30 million years. It hasn't
even seen 3 degrees for 3 million years. And we humans have
been around for about 100,000, maybe 200,000 if you relax your
definition of sapiens in Homo sapiens. We simply don't know how
we could cope with that, but what seems certain is that the
changing pattern of coastlines, of where the deserts are, the
absence of snow, essentially, in such a world, and ice,
hundreds of millions of people would have to move, and we would
see extended conflict over many decades.
That is the scale of the risks that we run. This isn't
overdramatizing, it's just simply taking the simple science of
where we're likely to get to if we don't act. If we're to bring
those probabilities down to anything like acceptable levels, we
as a world are going to have to peak in the next 5 or 10 years,
which means the rich countries have to peak almost immediately,
and the poorer countries have to peak by around 2020.
Increasingly, you're seeing Mexico, Brazil, China come in with
plans which look as if they could achieve peaking in 2020. We
all hope they'll do more.
What would it cost us to do this as a world? Well, I've
said 1 or 2 percent of GDP to cut emissions by--as a world, by
50 percent by 2050, which would be what would be necessary to
hold emissions concentration--to hold concentrations in the
atmosphere below 500 parts per million of CO2 equivalent, and
then start the process of bringing it on down from there.
Many estimates--Mr. Chairman, you quoted that from
McKinsey's, which is a very good one--are much, much lower than
those numbers. Those numbers leave a lot of scope for good
policy to bring those costs down, and they don't assume much
learning. We can do much, much better than that, in my view.
But, there's actually a rather deeper point, which is that
this simple calculation of costs in the way that most
economists do it--you know, What slice of GDP do you have to
make out to make these changes?--usually the number is small,
as I argued, but I think that's the wrong way to look at it. We
have to look at it in a much more dynamic way. If you just look
at this next year or two, we can, through a green recovery,
have a very powerful force for coming out of recession. Roughly
speaking, for $10 billion, you create 100,000 jobs in
weatherproofing. That's--and the tremendous returns to that, in
terms of energy saving. You probably save $2 or $3 billion a
year simply on energy from that whilst creating those jobs. The
Peterson Institute's come up with those numbers; they're quite
similar to what we've done in the Grantham Institute at London
School of Economics. So, great returns in the short run.
We would embark, second, on two or three decades of very
powerful growth driven by investment in low carbon technology.
We'd have a true Schumpeterian story of innovation and
investment driving growth would be similar--indeed, probably
bigger than the railways, electricity, the motor car, or IT.
There's a very dynamic story of growth there.
Third, if you run that forward 40 or 50 years, we'll have
low carbon growth. That will be much more attractive than the
alternative. It will be cleaner, in the normal sense of less
polluting locally. It will be much more energy secure. It will
be quieter, it will be safer, it will be more biodiverse. And
further, in a still longer period, it'll dramatically reduce
the long-term risks.
This is an investment program, with returns in years and
months, and with returns in a few decades, a return in several
decades, returns over the century. It is enormously attractive,
and a narrow view of short-run costs doesn't pick up that
dynamic story.
And, above all, it's a growth story. High carbon growth
kills itself--first, on very high prices of hydrocarbon, and
second, on the very hostile physical environment it creates.
Low carbon growth is the only growth story, and the United
States is in a tremendous position to lead. The constant
innovations and new ideas that you see, in large measure, come
from this country.
We are, of course, in an economic crisis. That just
strengthens the arguments still further. The argument of the
economic crisis for delay is simply confused and wrong. We
should surely have learned that risks ignored are risks
magnified. That must be a lesson from this economic crisis. We
should surely have learned that you don't come out of one
crisis and sow the seeds of the next crisis. I would suggest
that's, in part, what we, as a world, did when the dot-com
bubble burst around the turn of the century; we sowed the seeds
of the next one. What we must surely do is lay the foundation
for the real growth story of these next few decades.
If you just take a narrow view, over this next decade, of
the new jobs in renewables, it's probably a few million in the
United States and a few million in Europe. That's a very narrow
view of renewables. We have to see energy efficiency as
pervading the whole construction industry, as pervading the
whole of public transport and of private transport. If you take
that view, I believe you're going to talk about a big slice of
our workforce in the new technologies, the new construction,
the new transport, and so on, that's coming forward.
So, the challenge, then, is to manage the transition, and
to do it well. We know the kind of policies that are
necessary--prices for carbon and regulation, investing in new
technologies, public and private, promoting energy efficiency,
avoiding deforestation, and adapting to the carbon--adapting to
the changes which will take place. We know what we have to look
out for--problems of competitiveness and leakage. We can
analyze how big they are.
Joe Aldy and Betty Pizer, a recent paper, have showed that,
actually, the problem is very small, and, for a reasonable
estimate, the carbon price in the United States, the change in
employment in manufacturing would be negligible.
There'll be a few areas where it is most important, and we
have to focus our policy on working out how to manage those.
But, I believe, again, there's a great deal we can do in, for
example, adjusting the speed of auctioning permits, which could
be different in industries with different challenges. That
would be one way of doing it. But, of course, much the best way
is to work together as a world to get everybody along this
path, and that's the opportunity we have in Copenhagen.
I've tried, in the book ``Global Deal,'' which was
published here in the United States last month, to set out what
such a global deal would look like. I believe that the United
States, China, and the European Union will lead that global
lead. They're responsible for about half of global emissions.
The big story is the relationship between the United States,
China, and the European Union. That will shape where this
global deal goes.
We have to recognize what other people are doing. And you,
in your introduction, sir, you described very clearly that
China is moving quickly. The European Union is moving very
quickly. I spend a lot of time in discussions with European
Union leaders and with Chinese leaders, and I always try to
explain to them what United States is doing. But, what I'm
saying here is that United States position is critical. The
technologies that you set as standards will change the world.
In the United States, you went from leaded to unleaded petrol;
everybody else had to follow. And they did. At the same time,
the action which people will take, themselves, will depend very
much on what United States does. So, you have a tremendous
leadership role, which I believe you are starting to take, and
you have the ability to have a tremendous multiplier effect,
not only through your ideas and technologies, which will be
fundamental, but also in the policies and actions which you
make, going forward. And I think you're already seeing the
world starting to follow where the world thinks United States
is likely to go, and I think that's a tremendous move forward.
I'm not an American, as you can tell from my accent, but
looking at United States from outside, I think the leadership
that's emerging is tremendously important. And, of course, if
it doesn't emerge, it would be very damaging for a global
agreement. But, I'm much more optimistic now than I was before.
So, thank you very much for the opportunity to be here.
[The prepared statement of Lord Stern follows:]
Prepared Statement of Lord Nicholas Stern, Chair of the Grantham
Research Institute on Climate Change and the Environment and IG Patel
Professor of Economics and Government at London School of Economics and
Political Science, London, United Kingdom
overview
The world currently faces both an economic crisis and an even
deeper climate crisis. This global economic recession, triggered by a
major financial crisis, draws into sharp focus the economic and social
impact of not taking into account the risks of our actions. The climate
crisis is altogether of a different scale and magnitude. Continuing
with current practice will, by the end of the century, take the world
to a point where eventual global warming of more than 5 C is more
likely than not. Temperature increases on this scale would disrupt the
climate and the environment so severely that there would be enormous
consequences for where and how people lived their lives. Large scale
migration, possible of hundreds of millions of people, would probably
result in extended conflict. In other words, the current path of high
carbon growth cannot sustain itself over the long term. Low carbon
growth is the only sustainable growth path for the future. Moreover,
the transition to a low carbon global economy offers substantial
opportunities for a surge in economic growth led by innovation,
investment and job opportunities, whilst supporting energy security and
a cleaner, safer, quieter and more biodiverse environment. Many of the
necessary technologies are already understood, but new ones will be
created along the way offering substantial opportunity for investment.
Those countries which act early are likely to reap significant economic
rewards and ensure their growth will be resilient to climate change in
future. Those countries who fail to anticipate change will be left
behind. The United States has a historic opportunity to lead the
transition to a global low carbon economy, demonstrating that low
carbon growth is feasible and affordable. Moreover, the United States
has a critical role to play if the world is to achieve a global deal on
climate in Copenhagen in December 2009.
the case for action
The basic science is well understood. The rising concentration of
greenhouse gases in the atmosphere, due to emissions from a wide range
of human activities, is increasing average global temperatures. This
process affects the timing, distribution, averages and extremes of
temperatures as well as the intensity of rainfall, likelihood of
extreme weather events and pace of sea level rise. Without strong
action the world will, in the next decade, commit future generations to
a temperature rise of at least 2 C relative to preindustrial levels--a
level which many scientists already deem too dangerous. A temperature
rise of at least 5 C is unknown territory for humans and greater than
the difference between now and the last ice age. There would
undoubtedly be catastrophic consequences for the planet.
Climate change is already having an impact in the United States.
Increases in weather extremes such as storms, floods, droughts, and
heat waves have already led to significant economic damages in both
rural and urban areas and further impacts and increasing damages are
forecast. Globally, it is the poorest countries and poorest within
those countries that will be hit earliest and hardest but these impacts
will be felt worldwide. The risks of severe hardship and dislocation,
water stress, mass migration and rising conflict will pose a severe
foreign policy challenge for the United States in the future. The need
to manage risks to United States economic, national, and energy
security therefore dictates early and strong action on climate change.
Climate change policy is not only sensible risk management. It is
also the means for boosting growth today whilst laying the foundations
of stable and sustainable growth for future generations. It is vital
that all countries act together in order to achieve emissions cuts on
the scale required. The United States has an important leadership role
to play and can lead the world in the transformation to a low carbon
global economy, generating new investment and employment opportunities
and positioning itself as a global leader in new innovative
technologies. Policies for a ``green recovery'' will create a pathway
for more sustainable growth whilst also sharply reducing climate change
risks. This is the only growth strategy for the future.
future growth must be low carbon growth
1. Economic opportunities in early and strong action on climate change
The question of what economic opportunities strong action on
climate change could bring should start with an overview of what the
policy framework should look like. The following key components make up
the essential elements:
Placing a price on carbon to correct market failures by
making it possible for markets to reflect the right signals;
Policies to stimulate the development and deployment of low
carbon technologies through addressing market failures and
bottle necks;
Encouraging behavioural change, particularly energy
efficiency;
Promoting adaptation to climate change that is already
unavoidable;
Globally, bringing an end to deforestation.
If applied in the right way, policies to tackle climate change
present both short-term benefits during the current global recession
and underpin large and growing investment opportunities for decades to
come. For example, pathways for green global recovery include short-
term policies that can stimulate employment creation and investment,
all of which can play a vital role in supporting aggregate demand and
growing out of recession. In the medium to long term there are clear
win-wins from a strong policy framework to tackle climate change,
including the stimulus to innovation from structural change, addressing
longstanding market failures and barriers preventing behavioural change
and uptake of new technologies, and important co-benefits such as a
cleaner environment and greater energy security. The era of low carbon
growth promises to be exciting, creative, and transformational.
For these reasons, the debate around climate change action should
not be seen purely through the lens of containing and managing economic
costs. There will indeed be costs of transition, but these can be
managed through carefully targeted policies and programs. More
importantly, there will be investments with very high returns.
Moreover, taking action today is crucial to avoid the high costs of
delay. Continuing business as usual emissions will build stocks of
CO2 in the atmosphere, resulting in higher concentrations
and making the starting point for reductions both more challenging and
more expensive. Slow initial action not only increases the chances of
going above 2 C, but also means that low-cost mitigation options are
missed and high carbon technologies and infrastructure are locked in.
It is therefore vital to strengthen the understanding among
governments, businesses and consumers of how key policies to tackle
climate change, both domestically and at a global level, can promote
and sustain economic recovery and growth in the future.
The economic arguments that climate change policies can be growth
enhancing have most recently been debated in the context of the
economic stimulus and recovery packages implemented in many of the
world's major economies. At time when declining demand in the world
economy is driving economic downturn, causing a sharp deterioration in
the economic outlook, the case for a fiscal stimulus becomes clear
cut--helping to sustain demand, use otherwise idle resources, save
money through improved energy efficiency and create jobs. To be
effective, however, fiscal policies need to be timely (with a
significant proportion of expenditures being carried out within the
next year), well targeted (with long-term social returns, positive
lock-in effects and use of underutilized resources) and time-limited
without bringing into question the long term credibility of the fiscal
framework.
In several recent papers \1\ on this issue, public spending aimed
at stimulating private investment to reduce green house gas emissions
was seen to perform very well against these criteria for an effective
stimulus, whilst increasing energy efficiency and security. Through
addressing market failures and stimulating private investment, these
measures generally avoid crowding out private sector activity. Such
policies not only make sense in the current economic context, but also
more generally as the drivers of future innovation, job opportunities
and to lay the foundations for growth in the future that is far more
sustainable than the path the world is currently on. Crucially, these
policies avoid the risk of locking in high carbon infrastructure for
the coming decades.
---------------------------------------------------------------------------
\1\ ``Towards A Green Global Recovery--Recommendations for
Immediate G20 Action,'' O. Edenhoffer and N. Stern, April 2009. And,
``An Outline of the Case for a Green Stimulus,'' A. Bowen, N. Stern, S.
Fankhauser, and D. Zenghelis, February 2009.
---------------------------------------------------------------------------
2. Key areas for investment and action
A key example of this is in spending to improve energy efficiency.
All major economies have the potential for substantial energy
efficiency improvements, which in total could make up a significant
proportion of the emissions reductions required to meet global
stabilisation targets. Energy efficiency measures have a high
multiplier effect (raising aggregate demand through fiscal spending)
being concentrated in sectors strongly affected by the decline in
global demand, such as construction. Furthermore, lower spending on
energy costs frees up income that can be spent on the products from
other sectors of the economy. Energy efficiency measures also lay the
foundation for a more sustainable future, simultaneously reducing
emissions and energy costs, cushioning against future resurgent oil
prices. In all countries, substantial potential for energy efficiency
improvements remain. The IEA \2\ has identified 25 energy efficiency
policies, including in buildings, transport, appliances and industrial
sectors that can be implemented at low or negative cost impacting
economic activity in the short term and reducing consumer energy bills
in the future.
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\2\ ``A Clean Energy New Deal: Ensuring Green Growth in a Time of
Economic Crisis,'' December 2008.
---------------------------------------------------------------------------
Policies to upgrade physical infrastructure are another good
example of measures to create short-run benefits whilst laying the
foundations for future sustainable growth. Investment in infrastructure
can have a high multiplier effect in times of economic recession. If
well targeted, it can also have strong implications for the profile of
emissions in the future. This is nowhere truer than in the power
sector. Ageing capital stock in industrialized countries presents an
excellent investment opportunity, for example in the transmission and
distribution grid, storage of electricity and other elements of the
network to absorb innovative low carbon technologies and avoiding lock-
in of high carbon systems. Investing in networked technologies to
ensure energy is produced, distributed and consumed more efficiently
through integrated ``smart'' systems which monitor and reduce waste
also have great potential to save money and reduce emissions.
Investment in public transport is another strong example, contributing
to the decarbonisation of infrastructure, for example through setting
emissions standards for CO2 and local air pollutants and supporting the
switch from petroleum to electricity.
Policies to support clean energy technology are a further crucial
part of the mix, contributing directly to job growth and fostering
innovation, creativity and comparative advantage in a key future growth
sector. If the world is to put itself on a path to achieve the
necessary cuts in emissions, a fundamental transformation is required
in the way energy is produced and consumed. Key technologies including
renewable energy (solar, wind, hydro, tidal, wave, biomass, and
geothermal), nuclear and carbon capture and storage for coal will
require significant investment for demonstration and deployment if
growing world energy demand is to be met. The IEA estimates $1 trillion
a year in energy supply investment between now and 2030 is needed. The
difficulties caused by current credit market constraints and other
bottlenecks make this challenge even more daunting. Nonetheless, there
could be significant economic opportunity for early movers who strive
to get ahead of the curve. As we learn more about technologies from
research and experience and exploit economies of scale, costs fall over
time. Moreover, the job growth potential in the clean energy industry
is increasingly clear, with countries such as Denmark and Germany
amongst many others already reaping rewards. Early investment in low
carbon technologies also makes clear sense from a cost perspective,
reducing a key source of uncertainty about the scale of future
mitigation costs. Furthermore, it can promote energy security through
securing against future supply disruptions and support resistance to
future price shocks.
These are only three examples of policy areas that can secure the
immediate benefits of stimulus and employment creation, whilst laying
the foundations for a low carbon world. Governments around the world
are already taking strong action in this direction, evidenced by the
$430 billion fiscal resources dedicated to climate change investment
themes as part of recent stimulus packages. This includes the $65
billion committed by the U.S. administration to green energy, through
spending and tax incentives. In the U.K. 2009 budget, 1.4
billion new spending was announced to support the low carbon sector.
China and South Korea are also major economies with policies for low
carbon growth making up an important part of their fiscal stimulus
packages and approaches to future wealth creation and sustainability.
There are many more positive examples at the firm level, where globally
competitive companies are embedding energy savings and low carbon
policies at the centre of their business planning. Recent research
shows that better managed firms generally tend to me more energy
efficient, reducing energy usage without hurting their employment and
output. In the United States, companies such as Cisco, IBM, DuPont, Dow
Chemical, General Electric, and Duke Energy are at the forefront of the
climate change debate, recognising that strategic global importance of
low carbon growth and energy savings to their business models.
The current global financial crisis has clearly brought into
sharper focus the need for an economic recovery which leads to a more
sustainable global economy. Action currently being taken around the
world is only the beginning of the pathway that is necessary to achieve
a low carbon global economy, consistent with the international targets
necessary to avoid dangerous climate change. In future, there is both a
need and an opportunity to deepen these policies at the national level
and make them even more impactful through globally coordinated action.
Without this, it will not be possible to stimulate the global flows of
trade and investment that is vital to support deep emissions cuts on
the scale required, whilst sustaining economic growth and supporting
the international development and diffusion of critical low carbon
technologies. The United States has a historic opportunity to lead the
world in the era of low carbon growth, acting early to create new forms
of comparative advantage and foster a sustainable growth path for
itself and others in the future. Leadership has already been shown in
some United States States, such as California, to introduce regulation,
cut emissions and support low carbon industry. Furthermore, there is
enormous scope for developing the renewable industry in the United
States, given its natural resource endowments.
3. Fostering the transition and managing the costs of adjustment
Like any adjustment process, there will be costs of transition
inherent in transforming the economy to a low carbon growth path.
Placing a price on carbon, whether through cap and trade or a carbon
tax, requires the market to readjust. There will clearly be winners and
losers from this process, as with any adjustment process. However, with
the right policy framework these costs should be manageable and are not
a reason to delay strong action. Complementary policies to support
adjustment at the firm level, innovation and uptake of new
technologies, to encourage behavioural change and to enable trading
will help support least cost abatement potential and keep costs at a
manageable level.
Concerns about competitiveness and carbon leakage are often heard
and are important considerations for any government. It is important to
understand and quantify these impacts as closely as possible, to ensure
they are not overstated and that any compensation program can be well
targeted. Existing research shows that these concerns are mainly
relevant to a small number of specific industries and sectors rather
than the wider economy. In the United States, only 1.6 perecent of GDP
and 1.7 percent of employment are generated from carbon intensive
sectors. Moreover, the influence of small carbon costs on location
decisions is dwarfed by commercially more important factors such as
access to markets, raw materials, skills, technologies and
infrastructure. Recent research by the Pew Centre \3\ confirms that the
competitiveness impacts from a unilateral United States climate policy
on domestic manufactures as a whole are small (approximately 0.7
percent) for a $15 per tonne CO2 price. This implies policies are most
efficiently targeted at supporting the transition in specific
industries. Protectionist trade measures should be avoided. They are
blunt measures and risk affecting unrelated industries if trade dispute
results.
---------------------------------------------------------------------------
\3\ ``The Competitiveness Impacts of Climate Change Mitigation
Policies,'' J. Aldy and W. Pizer, Resources for the Future, May 2009.
---------------------------------------------------------------------------
Equally important are the concerns around costs to consumers and
households through energy price rises, brought about by placing a price
on carbon. Whilst cost passthrough of the carbon price from industry to
the consumer does occur as part of the clear price signal that is
necessary to incentivise behavioral change, the average cost to
household budgets can be contained through careful measures, including
through compensating low-income households. Moreover, encouraging
companies to improve their efficiency and allowing companies access to
cheaper abatement opportunities abroad would reduce the price of
emission permits, leading to lower cost being passed through to the
consumers. Household energy consumption can also be reduced through
behavioral change, awareness, low-cost actions, and investment
decisions. Capturing such opportunities would mean less income spent on
energy, and hence help keep cost down for vulnerable families. In other
words with the right flanking measures, a carbon price should not
necessarily entail excessively higher cost to consumers.
achieving a global deal on climate change--a leadership role for the
united states
A global deal on climate change is necessary if the world is to
achieve the necessary global targets. The timing is urgent, with the
negotiations for a post-Kyoto framework shortly to get underway in the
buildup to Copenhagen 2009. Both developed and developing countries
have a role to play in building positive momentum for a global deal.
This must be global collaboration on a scale never witnessed before in
our lifetimes. The United States has a historic opportunity to play a
crucial international leadership role to achieve this. The world will
look to U.S. leadership in setting clear and strong mid-term targets
for 2020, on a credible pathway to achieve its goals by 2050. The rest
of the world will watch the domestic debate on U.S. climate legislation
more closely than ever before, and if the United States demonstrates
strong ambition for its own emissions reductions the rest of the world
will follow. Moreover, the support which developing countries require
to achieve low carbon growth, including vital flows of finance and
technology, can only be successfully designed and implemented with
strong U.S. backing. The chances of achieving a credible and enduring
global deal on climate change depend on the United States playing a
central role.
conclusion
Strong action on climate change is feasible and affordable and
creates substantial economic opportunity. The economic and climate
arguments for the green fiscal stimulus have enabled governments around
the world to better understand the framework for supporting
opportunities, whilst managing the economic costs. Fiscal stimulus
measures for example in energy efficiency, investment in alternative
power infrastructure, low carbon RDD&D, infrastructure and transport
will both enable a green recovery and lay the foundations for the
future more sustainable growth. This is only the beginning of what
needs to be done to set the world on a pathway for avoiding dangerous
climate change. The scale of the challenge is daunting, but full of
opportunities. The task now rests with Governments to put in place as
quickly as possible a clear, consistent and credible set of policies
and measures to support the transition to a global low carbon economy,
bound into an international framework.
The Chairman. Well, thank you, Sir Nicholas. And we do look
forward to being able to ask you a few questions. But, your
opening statement sets a good stage, and we appreciate it very
much.
Mr. Rogers.
STATEMENT OF JAMES E. ROGERS, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, DUKE ENERGY, CHARLOTTE, NC
Mr. Rogers. Mr. Chairman, Ranking Member Senator Lugar, I
am delighted to be here today to share with you my thoughts on
how we can work together to drive a green global economic
recovery.
My name is Jim Rogers. I'm the CEO of Duke Energy. We
provide electric power to more than 11 million people in five
States, and, as Senator Lugar knows, we're the largest utility
in Indiana. We're also the third-largest electric power
generator, based on kilowatt-hour sales, in the Americas, both
North and South America. We produce electricity from
renewables, solar, wind, and biomass, coal, nuclear, natural
gas, and hydropower.
As I sit before this committee, I recognize, as you all do,
that we face two simultaneous and urgent crises: Global climate
change and a deep financial downturn. There are great
similarities between them. No one nation or entity can solve
either problem. It will take policy leaders and businesses from
around the world to solve both.
There's a great opportunity for us in both crises. If we
structure our approach to climate change effectively, we can
address the global climate crisis, which will provide a pathway
to help address the global financial crisis.
Climate legislation in the United States is not going to be
free, it's not going to be easy or quick, but it must be fair,
and it must be now, to drive a green global economic recovery.
There are several reasons why action, now, is important. By
putting a cap on emissions and a price on carbon, it will allow
our country to get the best bang for the buck from the green
portions of the stimulus. This linkage will create a roadmap
that will allow capital-intensive industries, like my own, to
start planning for future investments and the creation of 21st
century high-tech jobs, because the building of new
transmission, renewables, nuclear, cannot be done overnight; it
can be completed over the next 3 to 10 years. Most
importantly--and I want to underscore this--it is confidence in
this roadmap that will help us all rebound from this recession
that we find ourself in today.
I'd further note that, as I look at our own company, as one
of the largest generators in the country, by 2050 virtually
every powerplant we own today will be retired or replaced. And
that's an ``aha'' for me, in the sense that it says that, if we
want a low carbon generation fleet in this country, getting
about the business now will allow us to make this transition in
a way that creates jobs and generates advanced technologies.
The second reason is--action now is important--is because
the United States, in my judgment, lags behind its global
competitors in the race to fuel the clean energy future.
According to research firm New Energy Finance, the value of low
carbon energy market worldwide is expected to reach $450
billion annually by 2012, rising to $600 billion annually in
2020. Without a U.S. carbon program, we will not be
participating in these lucrative markets.
If you look today at China, you will find that they are
investing roughly $221 billion over the next 2 years in clean
energy. That's double the U.S. investment in everything from
wind to solar to advanced batteries. I understand very well the
arguments against action on energy and climate, with concerns
focused on our economy today; but, the reality is, we can't
afford not to act if we hope to compete and lead.
The right--underscore ``right''--comprehensive carbon
legislation can provide, not only the certainty and rules of
the road by which we can plan, build, and compete, they can
also protect consumers during the transition to this low carbon
world. The sooner Congress provides a clear set of rules, the
sooner investments will be made.
I strongly believe that one of the most effective
approaches to solving the climate issue would be to develop a
series of public and private partnerships with countries and
businesses around the globe. Through domestic action and
international leadership and cooperation, we can drive a green
economic recovery worldwide.
For instance, we have an opportunity to establish a new
spirit of cooperation between China and the United States. The
most important long-term issue that both countries face is the
same: The challenge of responding to climate change while
providing for economic growth. It is an issue for which
progress would be mutually beneficial. Think about it. Both
countries rely heavily on coal. Both rely on oil, a national
security issue for both. Both are at risk, due to climate
change. Because of these shared concerns, this area is ripe for
collaborative endeavors that would build additional trust
between China and the United States.
It is my judgment, and the recommendation that I would make
is, that the United States should appoint a senior climate
negotiator to work directly with China to build what I would
characterize as a ladder of cooperation which engages both the
public and private sectors. I believe China would respond in
kind. And I think that's an important point. This cooperative
effort, I believe, would be like a living laboratory to further
action on electric cars, the identification of new energy
efficiency capabilities, research and deployment of carbon
capture and sequestration, which is so key to our continued use
of coal. I believe that we will be able to scale carbon capture
and sequestration faster in China, with their buildout of
plants, than we can in the United States; and by working
together, we can do it even faster. It will also lead to work
on Smart Grid technologies, and are involved, as a company, in
some of those efforts, and advanced technologies for the
monitoring of greenhouse gases. These are just some of the
areas that we could work together with the Chinese on that
would advance for both of us.
Cooperation and progress in the development and deployment
of clean energy technologies are not just important in their
own right, they also encourage a new spirit of Chinese
leadership in United Nations climate negotiations.
It's my belief that China is better equipped than any other
developing country to help the world define pathways for all
nations to follow toward emission reductions. First, by taking
cost-effective steps to cut energy waste, and second, by
graduating to real and enforceable emission limits. Working
together on clean energy, the United States and China may also
be able to show the way to a new global agreement on climate
change.
And this idea is not original with me; this idea actually
comes from former Prime Minister Tony Blair, who talks about
the significance of the G2, not just the G8 or the G20, but if
the G2 can come together, not in a way that--to the exclusion
of the rest of the world, but because we have these common
interests and these common issues, that we could help mold a
post-Kyoto agreement. Our company stands ready to work both
with the administration and Congress to get this done.
Thank you very much.
[The prepared statement of Mr. Rogers follows:]
Prepared Statement of James E. Rogers, Chairman, CEO, and President,
Duke Energy Corporation, Charlotte, NC
Mr. Chairman and members of the committee, I am delighted to be
here today to share with you my thoughts on how we can work together to
drive a green global economic recovery. My name is Jim Rogers and I am
chairman, CEO, and president of Duke Energy Corporation.
Duke Energy provides electric power to more than 11 million people
in five States: North Carolina, South Carolina, Ohio, Indiana, and
Kentucky. We are the third-largest electric power holding company in
the United States based on kilowatt-hour sales. Our diversified
generation portfolio of 37,000 megawatts mirrors the mixture of supply
in the United States as a whole with a blend of coal, nuclear, natural
gas, and hydropower.
We have also made sizeable investments in renewables, notably wind
where we have more than 500 megawatts in operation and another 5,000
megawatts under development, and in biomass where we have formed a
joint venture that has targeted the construction of at least ten 50-
megawatt biopower facilities in the United States over the next 5
years. Finally, Duke Energy owns and operates approximately 4,000
megawatts of electric generation facilities in Central and South
America. About 75 percent of this capacity is hydroelectric.
My views on these international challenges are not just shaped by
my responsibilities running a large U.S. energy company with
significant international operations. My perspective has also been
formed from my membership and participation in the World Economic
Forum's Task Force on Low-Carbon Economic Prosperity, the Club of
Madrid and U.N. Foundation ``Global Leadership for Climate Action,''
Globe International, the World Business Council for Sustainable
Development, and the Copenhagen Climate Council. We are a founding
member of the Joint U.S.-China Cooperation on Clean Energy where we are
focused on sharing information, experience, and expertise. And we are
the only U.S. utility that is a founding member of the China Greentech
Initiative. Some of the other U.S. members are Dell, Cisco, and GE.
two crises, two opportunities
Here and around the world we are facing two simultaneous and urgent
crises: Global climate change and a deep financial downturn. There are
great similarities between them. No one nation alone can solve either
problem. With both, government, NGOs, and business must work together
to find the right way forward.
Yet there are key differences: The economy has sustained a cycle of
boom and bust for generations, whereas the environment is close to
``bust,'' and it is not cyclical. We are fast approaching thresholds of
irreversible damage to our global climate. But the government has the
chance to address this great market failure to still minimize its worst
impacts. And there is a great opportunity for us in both crises: If we
structure our approach to climate change effectively, addressing the
global climate crisis can also be one of the keys to addressing our
global financial crisis.
I agree with a key point Sir Nicholas Stern has made: We must act
now because if we don't, the economic costs, including the cost of our
security here at home, will be much greater. Moreover, the costs and
harm to those who are least able to adapt to the impacts of global
climate change will rise significantly absent action now--and the
unjust irony is they have contributed least to the problem.
consumers are at risk: we must get this right
I might add that my company and my customers are at ground zero for
both the environmental and economic storms we face. Duke Energy is the
third-largest consumer of coal in the United States and we emit around
100 million tons of carbon dioxide annually. And as Senator Lugar
knows, the Midwest has been particularly hard hit by this recession.
With so much of this region dependent upon traditional coal-fired
powerplants, we have to be very careful about how we make the
transition to a ``decarbonized'' economy. Yet we also know that new
clean technology manufacturing can help restart closed factories as the
Gamesa wind turbine facility has in Pennsylvania.
So how do we move forward to capture this economic opportunity here
at home and globally? We need government leadership to partner with
industry to transition our economy to be cleaner, more efficient, and
more competitive. The Waxman-Markey bill currently being marked up goes
a long way toward providing a solid foundation upon which we can build
a green global economic recovery. It creates a 40-year roadmap for U.S.
carbon reductions; in our sector, it seeks to minimize consumer impacts
and regional disparities by effectively distributing allowances
directly to consumers of electric power; it creates enormous incentives
for renewable energy; and it focuses needed resources on the
development of the next generation of coal powerplants that will
include carbon capture and sequestration.
american economic opportunity
By putting a cap on emissions, encouraging energy efficiency and
deployment of clean energy technologies, and providing a transition to
allow carbon economy, the right climate legislation will not only
increase our competitiveness by reducing energy consumption and
reliance on foreign oil, but will also create clean energy jobs here at
home in engineering, manufacturing, and construction.
The carbon intensity of the United States has begun to show steady
declines on a normalized basis--that is greenhouse gas emissions per
unit of GDP. Since 1950 U.S. energy use--measured per dollar of GDP--
has declined more than 75 percent, from 9.4 British Thermal Units per
dollar of GDP to just 2.5 BTUs.\1\ Yet we have much more work to do.
---------------------------------------------------------------------------
\1\ Joel Makower,`` Strategies for the Green Economy.''
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According to the McKinsey Global Institute, ``each person in the
United States today consumes the equivalent of almost seven gallons of
oil--80 percent more energy than Northwestern Europe, 94 percent more
than Japan, and seven times the level of China.'' This waste harms our
competitiveness. Yet, according to this same analysis, by deploying
existing technologies that have an investment return of 10 percent or
more, the United States can increase its energy productivity to cap our
energy demand at today's levels.\2\
---------------------------------------------------------------------------
\2\ ``Wasted Energy: How the U.S. Can Reach Its Energy Productivity
Potential,'' McKinsey Global Institute, July 2007, available at: http:/
/www.mckinsey.com/mgi/publications/wasted_
energy/index.asp.
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Of course one key aspect of this is in the utility industry is the
disincentives to saving energy. Working as cochair of the National
Action Plan on Energy Efficiency, which has developed Vision 2025, a
plan to increase dramatically energy efficiency by 2025, we encouraged
States to examine the disincentives to utility energy efficiency and
identified the barriers that consumers have to meeting that energy
efficiency goal.
The United States also lags behind its global competitors in the
race to fuel the clean energy future. According to the research firm
New Energy Finance, the value of low carbon energy market is expected
to reach $450 billion annually by 2012, rising to $600 billion annually
in 2020. In 2007, global investment in sustainable energy broke all
previous records, with $148.4 billion of new money raised in 2007, an
increase of 60 percent over 2006. Total financial transactions in
sustainable energy, including acquisition activity, was $204.9
billion.\3\
---------------------------------------------------------------------------
\3\ ``Global Trends in Sustainable Energy Investment,'' 2008, New
Energy Finance and United Nations Environment Program.
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China is Investing in Greentech
While I recognize that the Chinese market differs substantially
than the United States, it is still worth noting that China has
committed $221 billion over the next 2 years toward their clean energy
economy. That's double the U.S. investment in everything from wind to
solar to advanced batteries. China now has renewable energy, energy
efficiency, and fuel economy standards that are all more aggressive
than our own. I also realize that China is developing more coal plants
than the United States, but the point that should be emphasized is they
are also preparing to meet new energy challenges.
According to the Chinese Sustainable Energy Programs: ``By 2008,
average Chinese passenger cars had to meet a 36-miles-per-gallon (mpg)
fuel efficiency standard. In late 2007, the U.S. standard for passenger
vehicles was raised to 35 mpg, but not until 2020. China is also in the
process of setting fuel economy standards for trucks and agricultural
vehicles. These policies together are going to reduce China's GHG
emissions by 488 million tons of CO2 by 2030.'' \4\ In comparison, the
EU commitment under Kyoto is about 300 million tons of CO2 between 1997
and 2012.
---------------------------------------------------------------------------
\4\ The China Sustainable Energy Program is a joint project of the
Packard Foundation and the Energy Foundation.
---------------------------------------------------------------------------
Perhaps most striking, China has established the world's most
aggressive energy efficiency target, which calls for a 20-percent
reduction in energy intensity between 2005 and 2010 (which is a
nation's energy consumption per unit of GDP). If fully implemented,
this target would translate to a reduction of over 1.5 billion tons of
CO2 in just 5 years. Although China is not yet on track to fully reach
this goal, they are working toward it and are already taxing the least
efficient performers in major emitting industries to increase
productivity.\5\
---------------------------------------------------------------------------
\5\ Ibid.
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China's Renewable Energy Law, which came into force in 2005, has
set the world's most aggressive renewable energy target. By 2020, 15
percent of all energy is to come from wind, biomass, solar and
hydropower energy, compared to its current 7 percent. China projects
that it will have 137 gigawatts of renewable power generation by then,
plus vehicle fuels with at least 15 percent renewable energy content.
In August 2007, China's National Development and Reform Commission
launched its Medium to Long-term Renewable Energy Development Plan. By
2020, installed capacity for small hydro, wind, biomass, and solar will
reach 75 GW, 30GW, 30 GW and 1.8 GW, respectively. Estimated total
investment needs for realizing these target amounts to nearly US$270
billion. As you know, the United States has yet to establish a national
renewable energy platform.\6\
---------------------------------------------------------------------------
\6\ Ibid.
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These investments and policies are paying off. This year, China is
expected to become the world's largest wind turbine manufacturer. Until
the late 1990s, the United States dominated the global solar energy
market. Now Japan, China, and Germany are the leaders. These other
countries have policies that have created better markets for clean
technologies, so the business opportunities have moved overseas.
According to recent research by Lazard, of the world's top 10 solar, 10
wind, and 10 advanced battery manufacturing companies, only five of the
30 are American companies.\7\
---------------------------------------------------------------------------
\7\ Lazard research for Kleiner Perkins Caufield and Byers.
---------------------------------------------------------------------------
Arguments against action on energy and climate suggest we can't
afford to take action; yet the reality is we can't afford not to act if
we hope to compete and lead. We need comprehensive energy and carbon
legislation to provide the certainty and rules of the road by which we
can plan, build, and compete. The sooner Congress provides a clear set
of rules, the sooner investments will be made. We must unleash the
spirit of economic entrepreneurship to tackle this challenge.
a global deal to drive a green economic recovery
Internationally, I have been working to develop recommendations and
help shape the structure of a global agreement through the World
Economic Forum's Gleneagles Dialogue, through Global Leaders for
Climate Action (under the auspices of the Club of Madrid and the U.N.
Foundation), and as a member of the executive committee of the World
Business Council on Sustainable Development.
It is clear to me that just as effective comprehensive carbon
legislation in the United States is what we need to drive our economic
recovery, so too can a smart global agreement on climate change support
global economic prosperity. And there are other benefits to agreement:
First, the sooner we act, the lower the costs of impacts we will face
in the future; second, the opportunities to cooperate on policy and
technology strategies can improve our relationships; and by reducing
global impacts from climate change, we will increase stability and
improve national security.
To reach a deal that includes developing countries the United
States must demonstrate leadership and reengage in international
negotiations. Seventy to eighty percent of the existing greenhouse gas
concentrations in the atmosphere are from developed countries, and the
United States continues to emit one-quarter of the world's emissions
with only 5 percent of the world's population. There is a short window
of opportunity for the United States to show its commitment to
resolving the climate change challenge through strong action.
Without a mandatory cap on greenhouse gas emissions here, it is
highly unlikely that key developing countries like China will make
their own commitments. And without a new agreement we won't have the
market signals to drive financial flows to more efficient, cleaner
energy, and greater global productivity. A global deal will also expand
opportunities to find the lowest cost emission reductions; a global
approach to emissions reductions allows each dollar to be spent where
it can go the farthest.
So to facilitate a truly global deal, we need a strong legislative
package of medium- and long-term domestic targets, along with a suite
of commitments and mechanisms to engage internationally. These include:
--Mandatory domestic reductions of greenhouse gas emissions;
--Provisions for valuing standing forests and other types of
international offsets;
--Bilateral and multilateral mechanisms to accelerate clean technology
deployment overseas;
--Financing for investments in these clean technologies (clean energy
and carbon mitigation technologies) in developing countries; and
--Assistance to the most vulnerable populations for adaptation to
climate change, to reduce climate change's greatest impacts such as
drought, flooding, and sea level rise. Oxfam estimates that
developing country costs of adaptation will be some $50 billion.
benefits of a global deal with developing countries
These provisions also serve America's interests. Mandatory
reductions here drive domestic competitiveness and the development of
vital new technologies. Carbon reductions from protecting international
forests are low cost and have great co-benefits from poverty
alleviation, to protection of biodiversity and will bring nations like
Brazil and Indonesia to the table for the global agreement. Support for
clean technology deployment and financing in developing economies
benefits American innovators because it is these developing economies
that can be the greatest market opportunities.
According to New Energy Finance, in 2004-05, developing countries
accounted for 10 percent of global asset finance, which doubled to 20
percent in 2006-07, reflecting a surge in sustainable energy capacity
in these countries. In addition, investment in shipping, airline, and
auto efficiency and cleaner technologies and fuels also reduces our
dependence on oil. Finally, adaptation assistance serves America's
national security interests as well: As the Center for Naval Analysis
has found, climate change is a great potential threat to our national
security, undermining our stability and efforts to alleviate poverty
which also exacerbates global instability. To ensure U.S. leadership, I
understand that Senator Kerry has informed the Senate Budget Committee
of his support for a $5 billion reserve fund to assist with the
implementation of agreements reached at the 15th Conference of the
Parties in Copenhagen this December.
Competition and Cooperation With China
Some have argued that to ensure China and other rapidly
industrializing countries make their own commitments, the United States
needs to put in place border tax adjustments for carbon-intensive
imports. However, China and India, the primary targets of U.S. trade
measures in domestic legislation, are not leading suppliers of carbon-
intensive exports to the United States. Therefore, U.S. trade measures
may not create substantial leverage to shape climate change policies of
other countries--particularly China and India--even though they could
provoke retaliation that hits U.S. exports.
The United States should consider leading with cooperation,
engaging China and India in the climate negotiations so as to reach
global agreement and contribute to cooperative financing and technology
arrangements that move all of us to reduce carbon emissions. Secretary
Clinton has called for the United States and China and Japan to
collaborate on clean cars and building efficiency. In fact investments
in efficiency are the cheapest carbon reduction investments we can
make. The electrification of transportation will reduce emissions and
oil consumption, both leading to reduced carbon emissions and better
U.S. security as we wean ourselves off massive infusions of foreign
oil.
I strongly believe that one of the most effective approaches to
solving the climate issue will be to develop a series of public and
private partnerships with China. Thus we are currently working with
several Chinese organizations (and seeking other Chinese partnerships)
to speed the development of smart grid and carbon capture and
sequestration technologies. I have also been involved in efforts to
have the three largest consumers of coal, the United States, China, and
Australia, combine their efforts to quickly test and deploy advanced
coal technologies including facilities with carbon capture and
sequestration.
I am proud that Duke is currently building the first ``next
generation'' coal gasification plant at our Edwardsport station in
Indiana. We are also working to add carbon capture and sequestration to
this project. But with China opening new coal-fired powerplants on a
monthly basis we have to accelerate our work on not just carbon capture
from new plants but create retrofit options as well. This is a
formidable technological and financial challenge. I think it behooves
the United States to work with the other two ``coal powers,'' China and
Australia, to pool our resources, to share data and to develop standard
approaches that can quickly move this key solution from conception to
commercial installation.
conclusion: we must lead
Through domestic action and international leadership and
cooperation, we can drive a green economic recovery worldwide. The
energy provisions in the stimulus package were a downpayment on the
transformation of our economy. But we need Congress to pass
comprehensive climate legislation to build off of the stimulus
investments, to continue the transition to a cleaner, more prosperous
future for this country, and to regain our technological and moral
leadership on this challenge globally.
We stand ready to work with both the administration and Congress to
get it done. We can lead. And we must lead.
The Chairman. Well, thank you very much, Mr. Rogers. We, as
I said earlier, greatly appreciate the leadership.
Lets dig in. I know, Sir Nicholas, you have a plane that
you need to catch, and we're sort of dealing with about a 45-
minute period, here, but I'm confident that Senator Lugar and I
will have you out of here on time.
Mr. Rogers, speak to the concerns that, as Senator Lugar
has pointed out, and some other folks have in their States,
about the transitional impact, here. What is it that you see,
in terms of the imperative to move now, and the feasibility of
doing so, that some other CEOs don't share with you? And you've
had a lot of these discussions.
Mr. Rogers. I've had the good fortune to spend the last
several years working with USCAP. It's a group of 25 companies
and four NGOs who have worked to mold what we call a
blueprint----
The Chairman. Just for the record's sake--I know who they
are, but lay out the companies that are involved in that.
Mr. Rogers. Well, I probably can't name them all, but GE,
DuPont, some of the major auto industries, ConocoPhillips, Rio
Tinto, which is the coal business; on the NGO side----
The Chairman. Dow Chemical--I think, Florida Power & Light.
Mr. Rogers [continuing]. Florida Power & Light, Public
Service of New Mexico, PNM, Pacific Gas & Electric, also----
The Chairman. Almost all of them, Fortune 500 companies.
Mr. Rogers. All Fortune 500 companies.
The Chairman. Right.
Mr. Rogers. NRDC, EDF, WRI, the Pew Institute--so, we have
a--that process, Mr. Chairman, has given me 2 years to work the
issue and to think through the issue. And we were able to come
together with a blueprint that I think points the way forward.
And let me characterize it in my words, because, in
Indiana, as Senator Lugar knows, 96 percent of our electricity
comes from coal, and we need to make the transition to the low
carbon world without having to pay twice for the transition.
So, through USCAP, what we've found is that we can have
aggressive timelines and targets and protect the environmental
quality of the legislation. That, you put over here on one
side. We can achieve that. It's 80 percent type reductions by
2050, it's milestones in 2030 and 2020. So, we have very
aggressive targets there.
But, the other thing that's recognized is the importance of
making the transition. When I said, a few moments ago, it
wouldn't be free or easy or quick, but it had to be fair, what
I really meant is, yes, it's going to cost more money. There's
no question about that. And some regions of the country more
than others. Second, and it's not going to be easy, because
virtually every way we generate electricity needs advances in
technology. Wind needs it, solar needs it, coal needs it, with
CCS, natural gas needs it, with a way to capture carbon,
nuclear, with spent fuel. Virtually every way we generate
electricity, we need advances in technologies. It won't be
quick, because, either with CCS, unless we can scale up faster
by working with the Chinese, could be a decade to 15 years off.
One of the things that we all came together around is, How
do you make the transition? And the key to that is really the
same way we did it under the Clean Air Act amendments in 1990,
as you may remember, where we adopted cap and trade and we used
an allowance system to allow companies like ours to continue to
generate power from our plants until we could either retire or
replace or retrofit. That system, I would suggest to you,
worked well for SO2, will work well for CO2 in this country,
and mitigate--and I'm looking directly at Senator Lugar when I
say this--mitigate the cost impact on the consumers in his
State, but allow us to make that transition to a low carbon
world.
My last point in this. In Indiana, we're building what will
be the world's largest coal gasification plant. We're building
it because it will be, from a SOX/NOX,
mercury, fine-particulate standpoint, the least emissions of
any coal plant in the world. Part of that is a result of
participating in a demonstration project in the early 1990s,
where we got comfortable with the technology. This is a private
funding, with some public health. But, here's the important
point. We had the capability in Indiana, with that plant, to
develop, and we are now investing over $18 million for carbon
capture and sequestration, which will become the largest
sequestration project in the world, done here in the United
States. And I think it shows leadership on our part, as we move
forward, that we can deliver electricity and reduce carbon from
coal.
The Chairman. That's very helpful.
Sir Nicholas, what about from your point of view? What do
you say to the manufacturers or others in coal-burning States
where they face the potential of an increased cost of the coal
itself, or the production, because they've got to capitalize to
put out their new technologies or the conversions? What's the
response to that?
Lord Stern. I think that we have to look to manage that
transition process, as Jim Rogers has described. One way in
which we handled that in European Union when we have different
countries differentially dependent on coal--and Poland, for
example, is very dependent on coal--is that you can allow for
the process of auctioning to be adjusted over time so that
those kinds of areas or industries go more slowly toward the
fuller auctioning than elsewhere. So, that's one mechanism of
adjustment.
A second is that any revenues you get from different kinds
of auctioning systems can be used to protect those people who
are hit earliest or hit hardest by this story. The MIT work
from the Global Action Labs described that it should be
possible in United States to carry out these adjustments, these
increases in prices, because some electricity must be more
expensive. But, it's possible to carry that out in a way where
these revenues can be used to protect low- and middle-income
households.
So, part of it is through the way in which you cooperate
with the companies themselves--for example, through the auction
process that I described--and second is through the consumers,
and--compensate those consumers who might be hardest hit.
The Chairman. Then the----
Lord Stern. But, at the same time, recognizing that the
sums involved there, the impact on consumers, are not huge in
this story.
The Chairman. The plan, as we currently contemplate it,
does look at a major rebate to taxpayers out of the revenues
off the auction, to whatever degree you decide to auction. I
personally am in favor of as much of it being as close to 100
percent as you can get. Now, we're not going to get 100
percent, we're going to have allowances in there, and we all
understand that. But, if you put those revenues back into
primarily cushioning any impact on consumers, second, into R&D,
and third, into some of the things we need to do to help less-
developed countries do it, you can, I think, patch together a
pretty good equation here.
The question that some folks have is, Will this
disadvantage them in the global marketplace? Will this somehow
make them noncompetitive? What do you say to that, both of you?
Mr. Rogers. First, I would start and, in a very respectful
way, suggest to you that USCAP said we would evolve to a full
auction, but that we had to allocate 40 percent of the
allowances to the electric sector and start with a high
allowance level going directly to the LDCs, and then being
phased out over time, because that proves to be the most cost-
effective way--because, take a State like Indiana, which is the
largest coal-producing State in the country; that will keep the
rates down. In fact, the steel industry in our country is one
of the least carbon-intensive steel industries in the world.
So, keeping the power costs down for these capital-intensive or
energy-intensive industries is one key way to do it. So, I
would suggest to you, as you think your way through this,
mirroring more the approach of the CO2 program will produce
better results without administrative costs and without the
diversion of money with the auctions.
As a for-instance, there has been great debate, as you
know, with the notion of 100 percent auction, which has been
proposed, which is nothing more than a carbon tax; and that
money would be diverted from the 25 States where more than 50
percent of the electricity comes from coal to the coast. And,
interestingly enough, in Indiana, specifically, the GDP per
capita is lower than the States on the coast. And this
redistribution of wealth would be for tax reductions, so maybe
specific payments, but the reality is, it wouldn't be to solve
this ecological crisis that we face. And I think that's one of
the reasons a full auction is flawed from the get-go.
The other point I would make is--and I say this very
respectfully--is that we really pushed hard, in the Kyoto
negotiations, Mr. Chairman, as you know, for cap and trade. The
reason that it didn't work in Europe is because they didn't
really have a baseline with respect to that, so it was
difficult to make allocations. And second, they had a
fundamentally different power sector. It had been liberalized.
As a consequence of it, there were windfalls. Given the way our
country structures our utility industry, there is no potential
for windfall, and we have clear baselines. So, whatever
failures or shortcomings happened there won't happen here.
The Chairman. Well, I happen to completely agree with that.
I was at--as you know, was part of the negotiations in Kyoto,
and I remember distinctly--first of all, the Europeans didn't
want to do it, because they didn't believe in it. So, there was
an inherent resistance to the idea. And I think the early
implementation began with some of that, with great skepticism
about its ability to work.
Second, there was, as we know, a sort of negative impact on
selected sectors--cement, a few others--giveaways that took
place in--without sufficient understanding.
Europe has now understood that very well, and has moved to
correct it. And, in fact, it serves as a terrific baseline of
understanding what not to do as we approach it, and how to do
it right. But, I helped write the original bill. As a
Lieutenant Governor back in 1983, I chaired a Governor's Task
Force, and we devised the whole concept of trading emissions,
and put it in place for CO2. And I might comment that the CO2
experience is one which showed that all the predictions came in
way below the original--everybody's fears--and it happened a
lot faster than everybody predicted, and with much greater
ease. And I am absolutely confident the same thing is going to
happen here, because technology and the marketplace are just
going to take over, and this is going to be a lot easier than
people think. That would be my judgment.
Do you want to comment, Sir Nicholas?
Lord Stern. Yes, Mr. Chairman. On the first question of the
competitiveness and costs, there's a tremendous amount that can
be done on energy efficiency, which actually brings costs down.
Help firms to focus on that, giving incentives to firms to
focus on that, setting the right kinds of standards, can
actually bring costs down. And we see a lot of examples--I'm
sure Jim has seen far more than I have directly--is that if you
help a strong focus in this area, it's really remarkable the
kind of results that you can get.
Second, there will only be a few industries for which the
cost increases are of any great substance. And I think it's
very important to be analytical and work through and focus
where those problems are.
And, basically, we know what the energy-intensive
industries are. It's not a secret. I mean, it's aluminum and
steel and, you know, paper and cement. It's a few; it's not
more than half a dozen or so. And there, I think the first
challenge would be to try to get global agreements on standards
in those sectors. And there, I think that we're beginning to
see some movement forward on industries like steel, which are
measuring, in a comparable way now, their emissions right
across through their international industry associations.
So, I think the first step is energy efficiency. The second
step is global agreement, but all on the back of a careful
analysis of where the problems really are, and how big they
are.
Now, commenting on the question of the European experience
in cap and trade, actually phase 1, 2005 to 2007, of the
European Union emissions trading scheme was very much about the
kind of learning that Jim Rogers has just described. When we
came out of phase 1--and I think probably the most important
thing was the--by then, after those 2 or 3 years, we had
managed to be able to measure much more carefully what was
going on, industry by industry. And I think the United States
is probably already there, so that particular learning phase of
understanding what the baseline was and, therefore, what the
emissions allocations and the permits should be, has probably
already been done in this country.
You were also pioneers of the SOX trading
scheme. So there's direct experience of that. And probably in
Europe we didn't learn enough from the United States, but the
mistakes that we did make in the early stages, I think, are
worth remembering, although they are pretty obvious that, if
you give out too many permits, you'll crash the price, and you
don't need a degree at London School of Economics to work that
out. I do not think that there's any danger, really, of your
making that mistake in this country.
I do think that it's starting to work and showing real
results. I think, by the end of phase 2, 2012, that emissions
will be 9 percent lower than they were in 2005, when the
trading scheme started. So, we're already starting to see those
results on prices which have varied between 10 euros and 30
euros per ton of CO2. The exchange rate between the dollar and
the euro has moved around during that time, all over the place,
and I tend to think of one-for-one, although I know it's not
exactly one-for-one right now. But, you can see though, roughly
speaking, what those prices have been.
I think, as we get a bit more ambitious in Europe, those
prices will go up, and that will be part of the process of
cutting back. But, we'll be getting much more carbon-efficient
along the way. And so, whilst the price of carbon will go up,
its effect on prices and goods which are produced will not be
anywhere near that much because of the learning about how to be
much more efficient, relative to energy and to carbon.
So, I think the cap-and-trade scheme is going well now.
You'd expect the price to fall a bit during a recession,
because demands for energy will be less. Probably no bad thing
that that happens. It's one of the countercyclical aspects of
the price mechanism. But, we don't want too heavy fluctuations.
I think strong ambition will mean that the price stays steady,
and I think it's important that it doesn't fluctuate too much,
although some fluctuation is inevitable and, I believe,
acceptable.
So, I think that your cap-and-trade scheme here, along the
lines I've been reading it as proposed, I think has excellent
prospects for having the effects that you expect it to have.
The Chairman. Thank you very much, sir.
Senator Lugar.
Mr. Rogers. Mr. Chairman, if I may----
The Chairman. Yes.
Mr. Rogers [continuing]. Echo Sir Nicholas' comments in a
couple of ways. One, with respect to energy-intensive industry,
I think what we have learned, there is not that much worldwide
trade with respect to steel and cement, aluminum, and those
areas. There's actually an excellent study, by the World
Resources Institute and the Peterson Institute, where they get
into great detail, in terms of how to address these issues,
that I would recommend to you.
Second, with respect to energy efficiency, I have the good
fortune of having cochaired the National Action Plan on Energy
Efficiency, and now also cochair the Alliance to Save Energy,
here in Washington. And there's been a tremendous effort made
to change the regulatory models at every State level to incent
utilities to invest in residential consumers, in businesses, in
industry, to help stimulate productivity gains in the use of
electricity. I think we've just begun with respect to those
kind of investments. And I believe if we're able to continue to
make it and we're incented to make it, I believe it will
happen, and it will play the kind of role that was just
suggested in dealing with these issues.
The Chairman. Very helpful, thank you, sir.
Senator Lugar.
Senator Lugar. Mr. Chairman, let me just begin by saying
that I come back to the thought that many people who are my
constituents in Indiana really are sold on the idea of
conserving energy. They see the cost savings for their
businesses, for themselves. And so, that's important, that
there are a great number of public efforts.
At Ball State University, a week ago, I was the
commencement speaker, but after we finished, we went out to
drill the first hole of 3,700 that will make Ball State
University campus, several hundred acres, a thermal energy
situation, the largest one in the United States. And it's
likely to take 4 or 5 years, and probably $41 to $70 million to
do this. But, nevertheless, we described this to the graduates,
to the 15,000 people that were there. People were very proud of
the fact that that's going to occur there in Muncie, Indiana.
Likewise, they're proud of the fact that their
architectural school is involved in renovating huge office
buildings in New York, in addition to small houses in Indiana.
There is excitement about this.
This has been true, although controversies abound, over
ethanol. Nevertheless, many people have been thoughtful about
how we replace oil, and there are some savings, when it comes
to conservation. They're interested in what happens in biofuels
and hybrid cars, and we have hybrid engines being produced.
Now, this is tremendously important regarding the issue
we're talking about today. We have sort of a threshold in which
the broad use of climate change, as a term, or cap and trade,
as a mechanism have not caught on. I've been looking, maybe in
vain, for what would be almost a small picturebook of what
happens in the world as things change due to excessive CO2 in
the atmosphere or other emissions. Al Gore, when he appeared in
this room before this committee, had some excellent
illustrations in which we saw, not only ice melting, but
progressive changes of temperatures, year by year, at least in
the schematics that he had, that would make a change, not only
in Iceland or up in Greenland, but across various areas of
Africa or of the United States.
Even here, skeptics, say, in Indiana, find this ambiguous.
Some say, ``Perhaps our growing season would be longer. In
fact, corn yields might be better.'' Now, granted that in Sri
Lanka things may be going very badly, and we're sorry about
that; but, nevertheless, we have a major case that this is the
catastrophic situation that is being portrayed for everybody,
maybe for somebody. Now, you're not making that case, either,
but you're saying the dislocations, the conflicts that might
occur, the suffering in humanity would be large, that all of
us, as human beings, have some common stake in mankind.
I just come back to the fact that it has been very
difficult for me to find, just physically, the materials,
pieces of paper, small books, pictures, schematics. I think you
may have had the same problem, but if you haven't, let me say,
just as a working politician, this is where rubber hits the
road right now with regard to all of this.
Now, fortunately, in our State, Jim Rogers is involved. I
pay tribute to him, because, pragmatically, Duke is a large
producer of power in Indiana. And a year ago or so, when Jim
and I had a conversation about the so-called Lieberman-Warner
bill, he was already informed by USCAP and by conversations as
to why he felt this was probably not the best piece of
legislation to cosponsor and to move on, at that point. I'll
not try to reiterate all that conversation, but essentially it
came back to considerations that we have in our State; namely,
a fear that the price of electricity for ordinary consumers, a
few months after cap and trade is adopted, might go up 40
percent. Now, that may have been an exaggeration, but that was
commonly the figure that was cast about in the press and in
arguments. And some would say, ``Well, tough luck. You folks
are using coal. This is dirty. You're putting the CO2 in the
atmosphere. You ought to pay for it.'' If, in fact, you live in
New England or California, why, that's their problem.
Nevertheless, people come back and say, ``But, listen,
historically we have 96 percent of our electricity from coal.
Even if we started changing immediately, who all is going to
change that immediately? Will Duke Power begin tearing down all
the installations, and thus, there is no electricity available
at all to us, or precisely how does the world work in my
generation or for my grandchildren, what--really, where is the
scheme?''
The lack of sensitivity toward these arguments led to
crash-and-burning of Lieberman-Warner, very fast, sort of 1
week of cap and trade, and that was it for the year.
Now, this year it has an expected better run ahead of it. I
don't know all the details of the House committee's
deliberations, nor all the amendments that may be offered
during the markup which will be transpiring shortly, but
essentially it appears that some Members have tried to meet
some of the things you've talked about today; namely, how
rapidly to progress in this. What is the transition period? How
can consumers, ordinary people, be compensated for what is
occurring in industry or the government, in the meanwhile, so
that there are not egregious differences between 25 States of
the Union and the other 25?
Furthermore, the moneys that are engendered if we were to
have an auction of any sort, where does it go? Originally, in
some budget schemes that were proposed, it might have gone to
pay for almost anything in the world. This has been more
narrowed, in terms of its focus, as we've come on. But, that
will be a very critical element. So will be the thoughts that
Mr. Rogers presented about the carbon sequestration experiment.
None of us know how well that works, how efficiently, how well
it will be adopted by others. But, it's an important step
forward; critical, really, if coal is to be utilized, and will
probably be utilized for a while in our world.
I like the idea that has been presented today of
international cooperation. This will have to be very
sophisticated, because at least we are routinely told that the
Chinese open up a coal-fired powerplant every week somewhere in
China, even while they're giving plans and ideas that are of
worldwide significance. Why? Because, in a practical way, they
would say, a lot of very poor people are moving from the farm
to the city, heating their houses for the first time in life,
using cars for the first time. We've got to understand that,
and we try to. But, this is going to require very sophisticated
international diplomacy.
Let me just ask this question. What are the metrics that
are available for any of us to try to gauge, first of all,
where we stand and where we're headed? Now, there are, I
appreciate, many scientific studies that have made estimates of
what type of carbon is in the atmosphere presently. That has to
be sort of the threshold from which we gauge that we've made
headway. Can this be done by nation, by sector? How often is it
published?
In the financial press, why, people who are interested can
find the Dow Jones Average every day. Now, it may be
impractical to get a CO2 fix each day, in terms of our
understanding, but for most of us it's pretty hard to find it
at all, except in journals or abstruse documents. And it
appears to me, for instance, from the standpoint of my
constituents, they would say, ``Are we making headway? Are the
things that we are doing making any difference in all of this,
given what we feel is the sacrifice and the inconvenience,
dislocation of our lives?''
I think the metrics of this will be extremely important, as
well as a check-and-balance with everybody else in the world as
to how well all of us are coming along with this thing, how
much of the sharing and cooperation may be available.
Do either one of you have any comments about that? That is,
the measurements currently, the information available,
information that could be available, and then, finally, this
very broadcast situation for rudimentary illustrations so that
there is a gut feeling on the part of even a majority of people
in my State that this is worth tackling, quite apart from the
personal enthusiasm I would have or others, such as yourselves,
who wander through our State.
Lord Stern. If I may go first, as I will have to leave
fairly shortly.
I think the communications side of this is absolutely
vital, and the media, the politicians, the academics, the
industrialists, just to take categories of people in this room,
I think all have a major responsibility here.
I think the way I like to understand it is the risks of the
kind of transformation that I described. I mean, 5 degrees
Centigrade is enormous. It's way outside human experience. It
rewrites the physical geography of the world. In Europe, we
would have to see much of southern France, Italy, Spain,
Portugal start to look like the Sahara Desert----
Senator Lugar. Do you have----
Lord Stern [continuing]. By the end of this.
Senator Lugar [continuing]. Confidence the 5 degree
Centigrade is right? In other words, that that's in the
ballpark?
Lord Stern. I am a consumer of the science of--the great
science that comes out of the center in the United Kingdom, at
Princeton, et cetera, just to name two of the major centers.
And the numbers I'm giving, about business as usual for much of
this century, taking us to a 50-50 chance of being either side
of 5 degrees Centigrade by the end of this century, early next,
comes directly from them. And it's now pretty balanced view
across the scientists of the world, that you'll find those
kinds of numbers.
So, people who say we've been up and down--we've been down
quite recently; last ice age, 10 or 12,000 years ago. We have
never, as humans, been anywhere near the kind of range we're
describing, and it would transform United States just as much
as other countries. But, of course United States, like many of
the countries of the rich world, would have to deal with
massive movements of people. I mean, it would just be a long
period, a period that we couldn't see the end of, actually, of
movement and conflict. We just have to understand the scale.
But, it's not just that kind of image. I think it's also
the image that the alternative story is actually very
attractive. It's a different kind of growth. It drives growth
for the next few decades, when we get to low carbon growth; it
allows growth to continue, and so on. And, you know, it's
cleaner, it's more energy-secure, it's quieter, it's safer,
it's more biodiverse.
So, the worrying side is very, very worried, but the
different way of organizing ourselves, continuing to grow,
continuing to move around, continuing to heat and cool our
homes, all those things we can do, but we can do it in a low
carbon way, and it will be actually attractive, for all sorts
of reasons.
So, I think those arguments have to be made powerfully; as
I said, by academics, industrialists, politicians, media.
There's very good film coming out, being issued round the
world, called ``Home,'' made by Yann Arthus-Bertrand, is a very
famous sort of French photographer and ecologist--that's coming
out next month--which has a lot of visual things it can show.
But, we need many more things like that for the communication.
On the price side, I mean, I think 40 percent extra for
electricity consumer is way over the odds of estimates of these
kinds of things. The extra price for generation, of course, is
very different from the extra price for delivery, because the
price for generation is only--it would be generally less than--
again, I--some trepidation, with Jim Rogers, on my right--the
price for generation would generally be less than half of the
price actually delivered to the consumer. So, you know, you've
got to make sure that when people are talking about prices
here, they're talking about delivered prices to the consumers.
On the----
The Chairman. Yes, also, that--can I just ask you before
you----
Lord Stern. Yes.
The Chairman [continuing]. Run? In answer to that question
of Senator Lugar, while prices may go up for the unit of energy
itself----
Lord Stern. Yes.
The Chairman [continuing]. The Union of Concerned
Scientists come out with a report showing that all across the
country, sector for sector, the consumer gains, because of all
the other efficiencies that you can actually----
Lord Stern. Yes.
The Chairman [continuing]. Measure and factor coming into
the system. So, out-of-pocket family expenses, budget, are, in
fact, going to see savings, not expense.
Lord Stern. We are actually in the middle of--well, perhaps
not the middle of--at the beginning of a revolution in energy
efficiency, just the kind of light bulbs being developed,
they're changing--they're cutting the usage of electricity by
factors of 5 or 10 or 15--not percentage--by factors like that.
So, the kinds of efficiency standards that were being discussed
today, if I understand correctly, by President Obama, you're
seeing very big increases in efficiency there. So, one has to
set, as it were, the price of the energy in the context of the
world, through these kinds of pressures and schemes and
regulations and incentives, are actually driving a whole
energy-efficiency revolution. I think you described it,
yourself, Senator, how excited people get when, in their
communities and in their institutions and their universities or
wherever they work, they see those opportunities.
On CCS, I think we have--because there are so many types of
geology and so many types of coal, I think what we would like
to see is, in Europe, some kinds of experiments; United States,
some kinds of experiments--and we mean, here, commercial-scale
plants, because we have to find out how they're going to
function and what it's going to cost--and Australia. We have to
communicate with each other as to which ones we're doing so
that if we have 30 or 40 round in the world--in the world, in
the next 10 years, there is sufficient variation that we do
enough learning to cover these different types of coal,
different kinds of technology, different kinds of methods of
when you capture it in the process. So, I think we have to
share what we're doing as a world, and not all do the same,
because otherwise we're not going to learn. And that kind of
cooperation doesn't need a worldwide CCS energy council; that's
another layer of bureaucracy. It actual needs communication,
country by country, and asking, ``What are you doing? OK, we'll
do something--we'll do something different.''
Last, on the counting, Deutsches Bank, in Times Square in
New York, in about 3 weeks time--I hope I'm not jumping the gun
here--is going to launch a carbon counter. I just recorded
something for that occasion. And it's going to be running up.
And so, at any point in time, you go to Times Square--and
obviously you get there online, as well--and you can watch the
carbon concentrations----
Senator Lugar. The concentrations----
Lord Stern [continuing]. In the atmosphere----
Senator Lugar [continuing]. Counter up there.
Lord Stern [continuing]. Going up. So, these are the kinds
of communications stories----
The Chairman. Great.
Lord Stern [continuing]. That I think that we're going to
need, and we're all going to have to be involved, in our own
ways.
The Chairman. They ought to work----
Mr. Rogers. Senator Lugar----
The Chairman [continuing]. Having a carbon counter on every
face page of every search engine so that it goes up; we should
really do that, I'm serious. That would save everybody spending
more time driving it up by going to Times Square to see it.
[Laughter.]
We could do it virtually, I think.
Sir Nicholas, we need to excuse you. I know you've got to
be in a car within 5 minutes to get where you're going and do
what you're doing. So, before Jim answers, if I can just thank
you, on behalf of the committee, we're extraordinarily
appreciative of the contribution you've made to this. It is no
small feat that your report is sort of the gospel, or whatever
other denomination you want to attach to it, of guidance in
this effort, globally, and I've enjoyed working with you, as
have others, and we look forward to staying in touch with you.
I would like to ask you--we're going to get a meeting,
probably in a few weeks, once the House has done something,
we're going to sit down with our colleagues on the other side
of the aisle and really begin the hard-nosed effort, here. It
would be wonderful if, on your next scheduled visit through
here, you'd let us know so we could schedule you to come in
there. I think it would be really great to have you and USCAP
members come in, in that context, and I want to try to schedule
that.
Lord Stern. Thank you so much.
Senator Lugar. Thank you very much, sir.
The Chairman. Thank you so much. We appreciate it and wish
you well in your travels.
Lord Stern. Thank you very much for having me.
The Chairman. We're delighted. We're honored. We really
are. Thank you.
Mr. Rogers. Safe travels. We've had an opportunity to work
together a lot, and it's been a great inspirational for me, and
been very informative. And thank you so much.
The Chairman. Thank you.
So, if you could answer Senator Lugar, would that great.
Mr. Rogers. I would. And, Senator Lugar, I'm going to start
by saying I come from a perspective--as a guy who started his
career as a consumer advocate fighting rate increases at
utility companies in the 1970s. And I've spent the last 20
years as a CEO, starting in Indiana, as you know well. So,
first of all, when I approached this, I approached this with--
really wearing both hats.
What I've done is really depend on the work of the
scientists. And the scientists of IPCC really say that the 450
to 550 parts per million is where we need to be by 2050, and
that means an 80-percent reduction in this country, and that we
need to be on that road. Now, there's been additional
scientific work done that suggests different numbers, but,
quite frankly, those are the numbers that I'm comfortable with,
mainly because it represents kind of a worldwide consensus with
respect to this very technical issue.
I would say that when you--when we look at national
averages in terms of impact, the fact of the matter is, this
falls unevenly across our country. The same is true when you
look at climate change and adaptation. Some parts of the world
benefit, other parts are hurt, so there's uneven impact, and
even the scientists are not clear how that plays out.
They are clear that the Earth is warming. They're clear
that manmade emissions are contributing. There is--not perfect
clarity around the timeline and the impacts, but more work is
being done. But, I think there's enough science that says we
need to act.
The second point I would make--and this really gets to why
we're where we are and why we need a fair transition, an
equitable transition. I happen to remember back, new to
Washington after being a consumer advocate, working for the
Federal Energy Regulatory Commission, and later for a law firm
here, that--the passage in 1978 of the National Energy Act. And
the important thing I remember is that, at that point, 18
percent of the electricity of this country came from oil, and
we said we must wean ourself from oil in energy independence in
1970 standards. We did do several things. First, we encouraged
the building of coal plants in this country, and we encouraged
the building of nuclear plants. The second thing we did is, we
passed a law that prohibited the burning of natural gas. Few
people remember that law being passed in 1978, but it was later
repealed, as you know, in 1985, to allow us to use natural gas
to generate electricity. But, the reality became--our mission
in the 20th century was to provide universal access,
affordable, and then, when Three Mile Island happened and we
had Marble Hill in Indiana, we basically only had one way to
provide generation 24-by-7, and that was coal. And so, many
States, who had to meet the demand in the most affordable way,
built coal plants, and that was just the reality of national
policy. And I've taken the position, in many forums, that it
would be unfair to punish that region of the country for
carrying out the national policy of the 1970s, in terms of
building coal plants, that we need a fair transition.
Now, let me make another point that really answers your
question that I think is very important. Even--and this is the
motivating point for all Hoosiers--first of all, we're going to
have to retire and replace all of our plants anyway. And so, we
need to do that in a smart way with advanced technologies. That
is just going to happen. And there's a certain reality, even
without carbon legislation, that process will drive prices up.
And so, that is a certain inevitability that I'm unafraid to
talk about, because we need to talk about it to be straight
with the American people and with Hoosiers.
But, the second thing that I think is really important--and
this is why I'm such an advocate for energy efficiency--between
now and 2050, the world's going to go from 6\1/2\ billion
people to 9 billion people. There's going to be a tremendous
battle for scarce resources. I believe that the State or the
country that's the most energy efficient in the world are going
to be the ones that have the highest probability of raising GDP
per capita. And even without carbon concerns, I think we ought
to be on that road, because of this battle over scarce
resources.
So, when I add the retirement-and-replacement point and the
need to--the battle over scarce resources, I combine those two
facts, and then I look at the need to reduce our carbon
footprint--all of that comes together, that says we need to act
urgently, because we're already in a period, I believe, where
we're beyond mitigation, we're in a period of adaptation, and
the only issue is what adaptation will occur and what the cost
will be. The sooner we act, it reduces the probability that we
have adaptation costs and issues in the future. And I know that
if Sir Nicholas was here, he would--he has made that argument
very persuasively, because the sooner that we act, it minimizes
the adaptation, going forward.
So, from my standpoint, we do need to educate consumers. We
feel like that's an important role that we have. But, we also
need to educate them to the--what the worldwide scientists are
saying--to the inevitability of retirement and replacement, and
to the need to be energy efficient, because that, over time,
not just for us, but for our children and grandchildren, will
assure that the--increase the probability that the GDP per
capita for our consumers will grow if we're the most efficient
in the world.
Thank you very much.
Senator Lugar. Thank you, sir.
The Chairman. Let me follow up on that, if I can. And thank
you for your terrific answer.
I want to ask you a couple of toughies that get thrown at
us by some folks around here as we struggle through this. Some
people say, ``Well, you know, the utility guys, yeah, they're--
they can be for it, because they're going to get these big
allowances, and it's going to help them do exactly what you
just described, and they'll get a bunch of money in the pocket,
but the other guys are going to get hit a little harder,
because they don't have the same capacity to grab the
allowance, et cetera.'' What do you say to that? I'm sure
you've heard it.
Mr. Rogers [laughing]. Yes, sir. Mr. Chairman, based on the
way we're regulated in the five seats we operate--Indiana,
Ohio, Kentucky, and North and South Carolina--that these
allowances, they're the same way the CO2 allowances--go
directly to our customers. Directly. And I'm a CEO that would
sign in blood that these go directly to our customers. And
actually, I had a wonderful conversation with Larry Summers the
other day, talking through this and the recognition that--of
how regulated utilities work. It goes directly to the
customers, particularly if you send it directly to the local
distribution companies, because there are some States that have
been deregulated, and in those States it still needs to go to
the LDC, which is regulated by the State Commission.
So, I think the short answer is, no windfalls. And I think
you can write that into the legislation. I'd be delighted to
sign it, because I think that is one reality. So, in a sense of
the word, I sit here today, not because this is going to affect
my investors; I sit here today because it's going to have an
adverse impact on my customers, which goes back to the very
beginning of my career as an assistant attorney general
fighting rate increases.
Because I see prices going up anyway, because our company
spent $5 billion retrofitting our plants for SOX and
NOX coming out of the 1990 amendments, and we've
been able to do that over time at a lower cost, as you
suggested, can smooth out the impact on consumers, because of
the way the allowance system worked.
The second thing is, is that we're building out Smart Grid.
Smart Grid, we have in our budget, about $1 billion over the
next 5 years. That will drive prices up. But, the important
thing about Smart Grid is, that will fundamentally transform
several things. It will improve our reliability. It will
improve our ability to do restoration after storms. It will
reduce line loss. And probably, Mr. Chairman, most importantly,
it will enable the next several generations of energy
efficiency that many of us today can't imagine. My prediction
is, we'll look back, 5 years from now or 10 years from now, and
what we're doing for energy efficiency today will look very
primitive with respect to what we will do then. And the Smart
Grid is really the key to being able to enable that.
The Chairman. Good answer. And a direct answer. And I
appreciate it.
Let me ask you another sort of question you hear and get
asked. I think the record's important to build out, here. If
coal-fired powerplants are such a danger--and I believe they
are--any pulverized coal-fired powerplant that can't capture
and sequester, today, is a problem--why are we not creating a
greater crash project to build nuclear or some other--i.e.,
solar thermal, concentrated solar thermal or something else in
Arizona, et cetera? I know you said you're doing solar, you're
looking at wind, you're doing these other things so are you
investigating how to scale this up? I would assume you're
balancing that kind of thing as mightily as anybody in the
business can.
Mr. Rogers. Yes, sir. We're in a unique place. We're the
third-largest generator of electricity from coal, but we're
also the third-largest generator from nuclear. And we have
proposed building a 2,200-megawatt nuclear plant in Cherokee
County, SC, and we're actually exploring the possibility of a
nuclear plant in the Midwest.
The reason that we are looking at nuclear, because we
believe there will be a need for baseload generation--and, as I
sit here today, the only technology that exists that provides
power 24-by-7 with zero greenhouse gas is nuclear--it will
allow me to retire some of my coal plants. We have not
retrofitted every one of our coal plants. Some are 40, 50, 60
years old. It didn't make economic sense to retrofit them for
SOX and NOX. And, as I look at
mountaintop mining, I look at ash ponds, I look at stricter--
and I had an opportunity yesterday to meet with Administrator
Lisa Jackson----
The Chairman. Yes.
Mr. Rogers [continuing]. To talk about this.
The Chairman. Absolutely.
Mr. Rogers. As I see this coming, I believe I need a
program to retire, as soon as possible, without making
incremental investments in, these old plants. So, from my
standpoint, I believe that the only 24-by-7 product that I can
build is nuclear, but I also believe--because we have 500
megawatts that we operate today, and 5,000 under development--
wind will play a role. But, I'm actually coming to the belief--
and I'm going to share this in a very careful way--that I think
that solar will end up playing a much bigger role, because--for
a variety of different reasons, and one reason is I'm on the
Board of Advanced Materials in Santa Clara, which is really
developing the manufacturing capability to really accelerate,
in the same way they did for semiconductors, to reduce the
cost. I believe solar will end up playing a much bigger role,
at the end of the day, than wind.
And then when you start to--because it also provides a
distributed generation option that wind doesn't, because wind--
the transmission issues are immense, in terms of getting it
from where the wind is to where the load is, and that's a long
conversation in itself--but, the important point is, I think
nuclear and wind and much cleaner coal--but, I think it's an
open question.
And the last point I'll make--and I say this very
carefully, and I present it to you as a work in process--but, I
have come to believe addressing the spent-fuel issue for
nuclear, with the cask system that we have today and with the
process--the possibility of recycling, might prove to be easier
to do and cheaper to do than sequestration of carbon, because
of the--huge infrastructure will have to be built. And a
Princeton scientist said it to me in a very direct way. He
said, ``If you look at all the spent fuel in America, you could
put it on one football field, 7 feet high.'' If--contrast that
geography to the geography of hundreds and hundreds and
hundreds of thousands of acres of storing carbon underground.
As a guy who used to run natural gas storage fields with
migration of gas and the other issues, I have some sense of
some of the technical challenges associated with sequestration.
But, from a time standpoint, there's another dimension. As
I talked to the scientists at MIT, they truly believe that we
can advance the recycling technology that's been used in France
successfully, where 75 percent of the electricity comes from
nuclear, that we can do that in the next 25 to 50 years. And
the current storage that we have in the cask system works. What
we really need to do is pour money into the recycling. And,
quite obviously, the proliferation issue is not the same today,
when you recognize that over 30 nuclear plants are being built
around the world, and not in the United States.
The Chairman. Well, that really sets the stage. I couldn't
agree with you more. And I know it's a little heresy in some
quarters to say it, but I wrote a book, a year and a half ago,
with my wife, in which we dedicated a small amount of it to
this issue, because it wasn't really about that, alone. But, I
allowed--I mean, as a strong environmentalist and one who
opposed nuclear, you know, 15, 20 years ago, when I thought we
were going to come online faster with bigger alternatives. But
I look at the predicament we're in today, and, if you accept
the science that drives the notion that you have to do
something about this--and I've said, many times, you can't be
half pregnant on this--if you accept the science of global
climate change, and accept the greenhouse, and accept that
we're causing it, then you also have to listen very carefully
to the scientists who tell you, ``This is what's going to
happen, X, Y, and Z,'' particularly when you measure all the
science that's coming in today, all of which is coming in at a
much faster rate and to a much higher quantity, telling us all
the things they said were going to happen are happening. So, as
a public policy, sort of, precautionary point of view, I think
we have to respond to that. And I would far rather,
particularly, as you've said--I mean, there are going to be
nuclear plants built all around the world; none are safer than
here, and none of the waste is safer than here. I would far
rather do that than build a coal-fired powerplant right now. I
don't think we ought to build another one until we know how to
capture and sequester.
When people talk about ``clean coal,'' I accept that. It's
great. We can have clean coal, and we can burn it clear,
terrific, because we have huge supplies, it's cheap. All of
those arguments are real. But, I have to tell you, I don't know
quite yet how we're going to do that.
Vinod Khosla, whom you know and I know, is pursuing an
interesting new venture-capital effort that may be a game
changer; it may show us how we can actually burn coal, take the
CO2, turn it into a product that you can then sell, and you win
on both sides of the equation. More power to it. But, until we
know we can do that and cleanly, we shouldn't be building more
of them. And it seems to me that nuclear is an enormously
obvious alternative, in the near term. Long term, I agree with
you 100 percent. Solar, if I were in the private sector today,
and I was doing this, I'd be racing down that solar road,
because there's just no question in my mind of the numbers of
places in the world where this is--I just came back from Jordan
over the weekend. King Abdullah is exploring solar. I was
interested to hear that--he's exploring it with several
countries, and I asked him, ``Is the U.S. in this game?'' He
said, ``No.'' And he was a little surprised. And I'm surprised.
We're not in the hunt for their solar project. We ought to be.
We ought to be in the hunt for these projects all over the
world.
So, the sooner we can do this, the better. You know, there
are more places with more sun that have more ability to
translate it into electricity in places that don't have it,
where there's a huge market. That's what I meant by the $6
trillion market. That's for today's users. There are a bunch of
people out there who aren't today's users, but who want to be.
And if you're talking about an electric-car market, you've got
to find a way to supply electricity that is going to power
those cars and charge those batteries at night, and so forth.
Another point I'd make is, on the issue of the
transmission, that's the second biggest piece of this. And we
ought to be doing--and I think this is a debate we've got to
get into quickly--it's absurd that, in the United States of
America in 2009, you can produce electricity out in California,
but you can't get it to other parts of the country. For
instance, Texas has its own grid but it won't connect to New
England. If you're going to produce solar or produce wind in
these places, it's not 24-7. Therefore, No. 1 is that you've
got to have some feed into that grid to make up for it; but,
two, you've got to get it from here to there. I am told that
the minute we deal with that issue, there's anywhere from $150
to $200 billion in the private sector waiting to rush in, that
will engage in construction of facilities, because they now
know they can get a return on the investment by appealing to a
larger market.
So, my hope is that this will be the front--I mean, this
ought to be the major debate, here. We ought to be grabbing
this stuff and getting it done. And I do think the experience
of Franklin Roosevelt and electricity is relevant, because--you
know, they put it out there for about $5 billion of cost in the
1930s. He made a fundamental policy decision: All of America
has got to be connected. And within about 4 or 5 years, all of
America was connected, and look at the difference that it made.
This is not unlike the Internet or some other thing in the way.
We've got to get it out there. And we're falling behind on
that, too, because we haven't made the commitment to get
broadband to all the parts of our country, so other countries
are far more wired than we are, and their productivity goes up
faster.
So, I think that this is all linked in a funny way, and
your leadership, Mr. Rogers, is really critical, you and the
rest of the USCAP folks, because you can validate this in ways
that we elected officials just can't. You know, anybody who
employs thousands of people, and pays the levels of taxes you
do, and has the kind of annual revenues you do, has more
ability, I think, to move minds here in these next months. So,
we're going to call on you to do that, and I would hope we can
rely on you to have Washington on your travel schedule, you
know, a little bit over these next 5, 6 months, because you're
going to be a key part of this.
Mr. Rogers. Mr. Chairman, I appreciate that, and I will do
that. But, may I drop a footnote to your last comment?
The Chairman. Of course.
Mr. Rogers. Because I think it will add to the
conversation.
First, in North Carolina we just got approval for us to
invest to put solar on the rooftop, so when we look out, we see
the rooftop of our customers as future plant sites. And so,
we're going to be installing, operating, and dispatching, and
learning to operate our grid reliably with solar on the
rooftop. It's one of the first programs approved in the United
States.
The Chairman. That's great.
Mr. Rogers. The second thing that I would say, with
transmission--and that's why I believe, at the end of the day,
solar wins, versus wind--is because the only way you get
transmission built in this country, to be--use a technical
term, as a former lawyer--you have to eminent domain, because--
and, quite frankly, most people that want transmission built--I
mean, want renewables, don't want eminent domain, because of
the local pushback. So, I think we need to have a honest
conversation about eminent domain, but also to look at what the
ultimate cost is of moving power across the country.
And my last point--and I think this is one of the reasons
that I'm here today, and it's in my testimony, but I want to
underscore it, because I think this should be the clarion call
to Congress, to the American people, to the future of our
economy, and there's recent research that's done by Lazare,
that says, of the world's top 10 solar, top 10 wind, and top 10
advanced battery manufacturing companies, only 5 of the 30 are
American companies. We're losing out on an opportunity. And I
think good, sound policy, that I know you all are working
toward, is going to give us a running shot, because it isn't a
question of leading, it's a question of catching up so that we
can lead someday.
The Chairman. Boy, do I agree with that, and I quote,
often, in some speeches lately, that, having founded the solar
cell, as I mentioned earlier, of the top 10 solar companies in
the world, we don't have one of them. And out of the top 30
alternative renewable, I think we only have 6. We only have 6
out of the 30. I mean, this is our economic future.
And I couldn't agree with you more, I testified, a year
ago--I have legislation on the question of how you're going to
put some of these pipes in, and so forth, for sequestration. It
works, as you know, pretty well if you're in North Dakota or
South Dakota or somewhere and you're near a particular plant.
They're doing some enhanced oil recovery with natural carbon
dioxide now. And you can do it. But, the fact is, boy, did I
learn, in that hearing, as you listened to the various Senators
and the questions that were asked, the morass of liability
issues and of passage, rights-of-way, and easements and the--
just the cost of the infrastructure--I have grown very, very
skeptical and leery of joining in this grand chorus about
geologic sequestration in far-off places. I think you can find
some plants and put them right beside a place, and you may get
some of it, but that is not going to be the silver bullet to
this issue, because the cost of those pipelines and of those
pipes and of that maintenance, as you just said, compared to
that football field, it just--it's not going to take you where
you need to go.
So, these are good things to be putting out on the table
now, and I thank you for helping to do that today. We all need
to do it. But, I hope--some of Senator Lugar's questions, I
hope, have been answered, and we look forward to continuing
this dialogue in a very constructive way over the course of the
next months.
Thank you very much for being here.
Senator Lugar, do you have any more questions or any
comments?
Senator Lugar. I just would add to your compliment of our
witness, Jim Rogers. He is uniquely in a position of being
executive of a large power company and providing services to
five States, as you pointed out, but, likewise, experienced
enough with legislators here in Washington, as well as the rest
of the other interest groups, to pragmatically try to weave
together some source of formula. So, by the time these formulas
are woven together, the purists, idealists, whatever, find all
of this to be one compromise that is just simply unconscionable
after another. But, it's this kind of individual that
conceivably can bring together a piece of work that, in our
democracy, with all the complexities, and 50 States, and so
forth, might happen.
So, I appreciate your enormous patience, as well as the
intellectual grasp you have of all this; likewise, your
understanding of working politicians who are dealing with
constituents, as you are. Yours is customers, ours is voters,
and so forth.
But, thanks so much for coming.
Mr. Rogers. Thank you.
The Chairman. Sometimes they're the same. [Laughter]
Thanks so much. Appreciate it.
We stand adjourned.
[Whereupon, at 4:10 p.m., the hearing was adjourned.]
----------
Additional Material Submitted for the Record
Prepared Statement Submitted by the Staff of Friends of the Earth,
Washington, DC
introduction
Chairman Kerry, Ranking Member Lugar, we ask that this written
testimony be submitted into the record for the above-referenced
hearing. Our comments concern reducing black carbon emissions from
ships transiting Arctic waters.
black carbon emissions are exacerbating arctic warming
Climate, change impacts are apparent in many areas around the globe
but nowhere more so than in the Arctic, ground zero for warming, where
winter temperatures have climbed 3-4 degrees Celsius over the past 50
years, and may rise another 4-7 degrees Celsius over the next
century.\1\ In addition to having well-documented public health effects
\2\ and accelerating the melting of Himalayan glaciers to the detriment
of billions in South Asia,\3\ black carbon, the light-absorbing
carbonaceous element of soot, can have profound effects on Arctic
warming, and, in turn, global ramifications. Suspended black carbon
particles not only heat the atmosphere by absorbing direct and
reflected sunlight,\4\ but they also reduce the reflectivity of ice and
snow, thereby increasing melting rates.\5\ As lighter colored snow and
ice recede and are replaced by darker, more light-absorbing matter such
as water and land, warming is accelerated in a dangerous feedback
mechanism. Recent studies find that black carbon is responsible for
almost half of Arctic warming,\6\ and that incomplete fossil fuel
combustion, such as from marine vessel engines, constitutes a
significant source of black carbon in this region.\7\
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\1\ Arctic Climate Impact Assessment, ``Impacts of a Warming
Arctic,'' 10, 12 (2004), available at http://amap.no/acia/.
\2\ J. Schwartz, Testimony to the House Committee on Oversight and
Government Reform Committee, U.S. House of Representatives, The
Honorable Henry A. Waxman, Chair, October 18, 2007.
\3\ Elisabeth Rosenthal, ``Third-World Stove Soot is Target in
Climate Fight,'' N.Y. Times, April 15, 2009, available at http://
www.nytimes.com/2009/04/16/science/earth/16degrees.html?scp=l&
sq=Ramanthan%20black%20carbon&st=cse.
\4\ The current estimate for black carbon forcing at the ``top of
the atmosphere'' is as much as 60% of the current radiative forcing due
to carbon dioxide's greenhouse gas effect. V. Ramanathan, ``Role of
Black Carbon on Global and Regional Climate Change,'' Testimony to the
House Committee on Oversight and Government Reform Committee, U.S.
House of Representatives, The Honorable Henry A. Waxman, Chair, October
18, 2007.
\5\ C. Zender, ``Arctic Climate Effects of Black Carbon,''
Testimony to the House Committee on Oversight and Government Reform
Committee, U.S. House of Representatives, The Honorable Henry A.
Waxman, Chair, October 18, 2007.
\6\ D. Shindell & G. Faluvegi, ``Climate Response to Regional
Radiative Forcing During the Twentieth Century,'' 2 Nature Geoscience
294, 2009.
\7\ D. Koch et al., ``Global Impacts of Aerosols from Particular
Source Regions and Sectors,'' 112 Journal of Geophysical Research
D02205, 2007; see M. Flanner et al., ``Present-Day Climate Forcing and
Response from Black Carbon in Snow,'' 112 Journal of Geophysical
Research D11202, 2007 (finding that over 80 percent of the forcing
caused by black carbon on snow comes from black carbon from fossil
fuels).
---------------------------------------------------------------------------
Many scientific experts assert that near-term black carbon
mitigation efforts can limit warming and forestall cataclysmic
``tipping point'' events, such as permafrost melt and loss of the
Greenland ice sheet and associated sea level rises.\8\ Additional
derivative problems from Arctic-related warming that can be forestalled
include prolonged droughts, altered weather patterns in the northern
hemisphere,\9\ desertification, increased boreal wildfires,\10\ coastal
erosion, and reduced glacial-fed freshwater resources in other parts of
the world.\11\ These issues threaten the environmental, economic, and
national security interests of the United States and the international
community. Secretary of State Clinton,\12\ Nobel Prize Laureate Al
Gore,\13\ and the Arctic Council \14\ have all recently noted how
addressing short-lived \15\ climate forcers such as black carbon can
slow Arctic warming. More specifically, one scientific expert even
remarked during a 2007 congressional hearing that ``[r]educing intra-
Arctic [black carbon] emissions from generators and marine vessels will
become increasingly important as industry and transport seek new
opportunities in the thawing Arctic.'' \16\
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\8\ E.g., Ramanathan, supra note 4.
\9\ M.C. Serreze et al., ``Perspectives on the Arctic's Shrinking
Sea-ice Cover,'' 315 Science 1533, 1536 (2007).
\10\ Arctic Climate Impact Assessment, ``Arctic Climate Impact
Assessment,'' 840 (2005).
\11\ Rosenthal, supra note 3.
\12\ Secretary of State Hilary Clinton, Remarks at The Joint
Session of the Antarctic Treaty Consultative Meeting and the Arctic
Council, 50th Anniversary of the Antarctic Treaty, Washington D.C.,
April 6, 2009, available at http://www.state.gov/secretary/rm/2009a/04/
121314.
htm.
\13\ Arctic Council Conference on Melting Ice, Co-Chair's Summary--
``Melting Ice: Regional Dramas, Global Wake-Up Call,'' Tromso, Norway,
April 28, 2009, available at http://arctic-council.org/filearchive/
summary.pdf.
\14\ Tromso Declaration, 6th Ministerial Meeting of the Arctic
Council, April 29, 2009, Tromso, Norway, at http://arcticcouncil.org/
filearchive/FINAL%20DRAFT%20DECLARATION%2028%20
APR%2009%20A4.pdf.
\15\ Generally black carbon aerosols stay aloft for less than one
week. Reddy, M.S. and O. Boucher, ``Climate Impact of Black Carbon
Emitted from Energy Consumption in the World's Regions,'' 34
Geophysical Research Letters L11802, 2007.
\16\ Zender, supra note 5, at 6 (emphasis added).
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black carbon emissions from ships: a growing problem
Ships accounted for 3.6 percent of black carbon emissions in the
United States \17\ in 2002 and 1.7 percent of black carbon emissions in
the world in 2000,\18\ and in 2004 released 1,180 tons of black carbon
in or near the Arctic.\19\ Moreover, since 2004, shipping and attendant
black carbon emissions have increased substantially.\20\ With the
Arctic continuing to warm at twice the rate of the rest of the
world,\21\ and the region's sea ice extent \22\ and thickness \23\
decreasing dramatically, the fabled Northwest Passage and Northern Sea
Route opened to traffic in the summer of 2008.\24\ In the near term,
shipping involving oil and gas in the Arctic, where nearly one quarter
of the world's untapped hydrocarbon resources reside,\25\ as well as
shipping of minerals and timber, is likely to increase.\26\ In the not-
so-distant future, as sea ice melting accelerates, trans-Arctic
shipping along the above-mentioned passages--as well as over the North
Pole \27\--will present attractive options for shippers as it could
save many thousands of kilometers, and substantial fuel costs, on
voyages between Asia and Europe.\28\ In addition, destinational cruise
ship travel to the Arctic is exploding, and pushing further north.\29\
In sum, approximately 3,000 marine vessels operated in the Arctic in
2004 alone,\30\ and that number has likely increased in the following
five years time as summer sea ice has continued to wane and the
Northwest Passage and Northern Sea Route have opened up. These vessels
present a significant, continuing, and growing black carbon threat to
an already warming Arctic.
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\17\ W. Battye et al., ``Methods for Improving Global Inventories
of Black Carbon and Organic Carbon Particulates,'' Report No. 68-D-98-
046, Prepared for U.S. EPA by EC/R Inc., 2002, available at http://
www.epa.gov/ttn/chief/conference/ei11/ghg/battye.pdf.
\18\ D. Lack et al., ``Light Absorbing Carbon Emissions from
Commercial Shipping,'' 35 Geophysical Research Letters L13815, 2008.
\19\ Arctic Council, ``Arctic Marine Shipping Assessment 2009
Report,'' 141 (2009), available at http://arcticportal.org/en/pame/
amsa-2009report [hereinafter AMSA].
\20\ Dr. Lawson Brigham presentation at 8th Conference of Arctic
Parliamentarians, Fairbanks, Alaska, August 12, 2008, cited by
Treadwell M. & Wiepking T., ``Why the Arctic Matters . . . America's
Responsibilities as an Arctic Nation,'' Commonwealth North Study
Report, at 22, April 2009, available at http://
www.commonwealthnorth.org/index.cfm?fa=documents_over
view&doctype=54.
\21\ IPCC 2007, Observations: Surface and Atmospheric Climate
Change, In: ``Climate Change 2007: The Physical Science Basis,
Contribution of Working Group I to the Fourth Assessment Report,''
[Trenberth, K. et al, (eds.)], 237, available at: http://www.ipcc.ch/
pdf/assessment-report/ar4/wg1/ar4-wgl-chapter3.pdf.
\22\ R.W. Lindsay & J. Zhang, ``The Thinning of Arctic Sea Ice,
1988-2003: Have We Passed a Tipping Point?'' 18 Journal of Climate 4879
(2005); J. Stroeve et al., ``Arctic Sea Ice Extent Plummets in 2007,''
89 Eos Trans. Amer. Geophys. Union 13 (2008), available at http://
www.agu.org/pubs/crossref/2008/2008EO020001.shtml; J. Richter-Menge et
al., ``Sea Ice Cover,'' in Arctic Report Card 2008, available at http:/
/www.arctic.noaa.gov/reportcard/seaice.html (in 2007, sea ice extent
was thirty-nine percent lower than the long-term average from 1979 to
2000).
\23\ ``Arctic is Seeing Thinner Sea Ice, Experts Warn,'' Associated
Press, April 6, 2009, available at http://www.msnbc.msn.com/id/
30074699/.
\24\ Andrew Revkin, ``Arctic Ice Hints at Warming, Specialists
Say,'' N.Y. Times, September 6, 2008, available at http://
www.nytimes.com/2008/09/07/science/earth/07arctic.html?_r=4&scp=
2&sq=northwest%20passage&st=cse&oref=slogin.
\25\ USGS Newsroom, ``90 Billion Barrels of Oil and 1,670 Trillion
Cubic Feet of Natural Gas Assessed in the Arctic,'' USGS, July 23,
2008, available at http://www.usgs.gov/newsroom/article.asp?ID=1980.
\26\ AMSA, supra note 19, at 76-77.
\27\ Scott Borgerson, ``Sea Change: The Transformation of the
Arctic,'' The Atlantic, 88-89, November 2008 (indicating that a voyage
between Yokohama, Japan, and Rotterdam, Netherlands, over the North
Pole, rather than through the Panama Canal, would reduce trip length by
over 12,000 kilometers).
\28\ K. Wilson et al., ``Shipping in the Canadian Arctic: Other
Possible Climate Change Scenarios,'' Geoscience and Remote Sensing
Symposium, IGARSS '04 Proceedings, September 2004, available at http://
www.arctic.noaa.gov/detect/KW_IGARSSO4_NWP.pdf.
\29\ Approximately 250 passenger ships operated in the Arctic in
2004. AMSA, supra note 19, at 71; see also M. Treadwell & T. Wiepking,
supra note 20, at 22 (noting that, in 2008, 45 cruise ships, carrying
55,000 passengers, visited Greenland, up from 30 ships in 2007; and
three different cruise ships voyaged through the Northwest Passage in
the summer of 2007, while seven cruise ships with over 3,000 passengers
visited the northern Bering Sea and Arctic Alaska waters in 2008).
\30\ AMSA, supra note 19, at 72.
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how the united states should proceed on this issue
Presently there are no national or International Maritime
Organization (IMO) measures regulating black carbon emissions from
ships in the Arctic. For instance, while the United States and Canada's
recently submitted Emission Control Area (ECA) application to the IMO
is a necessary and laudable action directed at lessening the public
health and environmental impacts from ships in both countries, the ECA
does not extend into the U.S. or Canadian Arctic, nor do its proposed
measures target black carbon emissions.\31\
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\31\ See U.S. EPA Web site, at http://www.epa.gov/otaq/
oceanvessels.htm.
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The IMO has the ability to create stringent particulate matter
standards that decrease black carbon emissions as well as adopt ECAs
which focus on black carbon particle reductions, similar to what has
been done with respect to sulfur in Baltic and North Sea SECAs.
Further, there are available ways to reduce black carbon emissions
immediately that are cost-effective and practicable, through in-engine
modifications (e.g., slide valves) and operations (e.g., reduced
speeds). Moreover, the use of distillate fuel in ship engines, rather
than heavy fuel oil, would facilitate the use of engine exhaust
technologies such as particulate filters that decrease black carbon
emissions.
We request that this Committee urge the U.S. IMO delegation, and in
particular the U.S. EPA, to collaborate with IMO member nations,
especially countries with territory in the Arctic, to (1) develop
particulate matter/black carbon-specific ECA emission standards and
adopt a black carbon (and also nitrogen oxide) Arctic ECA in the near
term; (2) institute interim voluntary black carbon measures for ships
operating in the Arctic immediately; and (3) support the development
and enhancement of technical and operational measures to control and
reduce black carbon emissions from ships.
It is imperative that strong and effective measures to reduce black
carbon be initiated now as shipping emissions are currently
contributing to melting Arctic sea ice and snow, Arctic shipping is
growing considerably, and adequate mitigation measures may take several
years to implement. Neglecting the issue of black carbon emissions from
Arctic shipping at this stage would risk exacerbating the speed and
degree of climate change. We believe that the U.S. delegation should
take a leading role at the IMO to immediately address Arctic black
carbon emissions from ships.
We further request the Committee urge the U.S. IMO delegation to
provide technical expertise and guidance in helping to strengthen and
harmonize any black carbon-related efforts at the IMO with pending
federal legislation (e.g., H.R. 1760) addressing black carbon
emissions.
Thank you for the opportunity to provide these comments.
Sincerely,
John Kaltenstein,
Clean Vessels Program Manager,
Friends of the Earth.