[Senate Hearing 111-284]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-284

                INTERNATIONAL ASPECTS OF CLIMATE CHANGE

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

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                                   TO

         EXPLORE INTERNATIONAL ASPECTS OF GLOBAL CLIMATE CHANGE

                               __________

                           NOVEMBER 17, 2009


                       Printed for the use of the
               Committee on Energy and Natural Resources




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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

BYRON L. DORGAN, North Dakota        LISA MURKOWSKI, Alaska
RON WYDEN, Oregon                    RICHARD BURR, North Carolina
TIM JOHNSON, South Dakota            JOHN BARRASSO, Wyoming
MARY L. LANDRIEU, Louisiana          SAM BROWNBACK, Kansas
MARIA CANTWELL, Washington           JAMES E. RISCH, Idaho
ROBERT MENENDEZ, New Jersey          JOHN McCAIN, Arizona
BLANCHE L. LINCOLN, Arkansas         ROBERT F. BENNETT, Utah
BERNARD SANDERS, Vermont             JIM BUNNING, Kentucky
EVAN BAYH, Indiana                   JEFF SESSIONS, Alabama
DEBBIE STABENOW, Michigan            BOB CORKER, Tennessee
MARK UDALL, Colorado
JEANNE SHAHEEN, New Hampshire

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
               McKie Campbell, Republican Staff Director
               Karen K. Billups, Republican Chief Counsel










                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Bingaman, Hon. Jeff U.S. Senator From New Mexico.................     1
Colvin, Jake, Vice President, Global Trade Issues, National 
  Foreign Trade Council..........................................    36
Harbert, Karen, President and CEO, Institute for 21st Century 
  Energy, Chamber of Commerce....................................    22
Levi, Michael A., Ph.D., David M. Rubenstein Senior Fellow For 
  Energy and the Environment, Council on Foreign Relations.......     4
Murkowski, Hon. Lisa U.S. Senator From Alaska....................     2
Purvis, Nigel, President, Climate Advisers.......................     9
Smith, Taiya, Senior Associate, Energy and Climate Program, 
  Carnegie Endowment for International Peace.....................    16

                                APPENDIX

Responses to additional questions................................    57

 
                INTERNATIONAL ASPECTS OF CLIMATE CHANGE

                              ----------                              


                       TUESDAY, NOVEMBER 17, 2009

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:03 a.m. in 
room SD-366, Dirksen Senate Office Building, Hon. Jeff 
Bingaman, presiding.

OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW 
                             MEXICO

    The Chairman. OK, why don't we get started. Thank you all 
for coming today. The committee is having a hearing on the 
international aspects of global climate change. The committee 
has held several hearings to learn about the implications of 
domestic climate change legislation on the energy sector and on 
consumers, and today's hearing is to learn how United States 
domestic efforts would fit in with global efforts to reduce 
greenhouse gas emissions.
    Much of the discussion of international climate policy 
revolves around the United Nations and negotiations to reach an 
international agreement to reduce emissions. This weekend at 
the Asia Pacific Economic Cooperation Summit, President Obama 
and other world leaders decided to delay the goal of reaching a 
climate change agreement at the next global climate conference 
in Copenhagen.
    Today we'll hear from witnesses on this issue and explore 
the realms of possibility for an international agreement. We'll 
also hear about specific countries and their efforts to deal 
with climate change policy. Major emitters such as the United 
States and the European Union and China and India, and tropical 
rain forest countries as well, are at the core of climate 
discussions. It's important for the committee to understand the 
unique differences and challenges that each of these countries 
face.
    I was glad to see that there's an announcement today that 
the U.S. and China have made a series of announcements with 
regard to this set of issues. The United States and China 
clearly share many of the same energy and climate challenges, 
and a strong bilateral partnership on clean energy and 
renewables and efficiency could benefit both countries.
    Let me also just mention that we hear a lot about United 
States clean technology development and deployment. Effective 
programs to spur the development and deployment of clean energy 
technologies abroad are vital to our national goals of 
mitigating climate change and also to promoting U.S. 
competitiveness in future energy technologies.
    U.S. international clean energy technology research, 
development, and deployment programs are spread across six 
agencies at the current time. Each program does valuable work, 
but they lack a unified national strategy to guide their 
efforts. I think there are structural and budgetary problems 
that we need to look at. The result is a duplication of 
capacity across agencies, underresourcing of programs where 
they do exist, and less than optimal outcomes from the Nation's 
international energy technology portfolio. I hope we can 
develop a better approach to international energy cooperation 
than simply creating more interagency coordinating groups. So 
this is an important issue and a follow-on to the other 
hearings we've had.
    Let me defer to Senator Murkowski for her comments and then 
we'll introduce the panel.

        STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR 
                          FROM ALASKA

    Senator Murkowski. Thank you, Mr. Chairman. I'd like to 
thank the witnesses for joining us here this morning. You 
mentioned the other hearings that we have held, the four 
hearings on the domestic climate legislation. We have looked at 
cost containment, cost estimates, price volatility, allowance 
allocations, the role of natural gas. Of course, we have the 
hearing which is being rescheduled that will look more broadly 
at our climate policy options.
    Today, as we discuss the international aspects of climate 
change, it's like Paul Harvey's ``And now we're going to hear 
the rest of the story,'' ranging from actions in other 
countries to the replacement of the Kyoto Protocol.
    We recognize that these are incredibly important subjects 
because climate change is clearly a global challenge that 
requires nothing short of a global solution. Our committee has 
been focused on the nuts and bolts of the domestic policy, but 
we can't forget that our actions will make little difference 
unless the rest of the world is working with us as partners in 
that effort. I think we recognize the global emissions trends 
make this apparent.
    While we recognize that climate change mitigation must be a 
global effort, progress on the international front has been 
slow and difficult. The U.N. process is well behind the time 
line that was set just a couple years ago, and less than 3 
weeks before the start of the Copenhagen conference almost 
everyone involved in that effort has pivoted to managing the 
expectations for what can be accomplished. Instead of a legally 
binding treaty, it appears that the goal now for Copenhagen is 
to broker a political agreement.
    Those that would insist that America must act first assume 
that others will always follow our example, but I think we know 
that our history shows that this isn't always the case. The 
United States has made great strides in civil rights, worker 
protections, environmental stewardship, but no amount of 
domestic leadership can guarantee similar progress abroad, and 
it's difficult in my opinion to see how climate change is going 
to be any different.
    This line of thinking, that domestic actions will make an 
international difference, also diverts our attention away from 
the sticking points that negotiators have been unable to 
resolve. It's difficult to see how an American climate policy 
would ease the deep divisions over the level of emissions cuts 
that are necessary, not to mention who should make those cuts 
and who should pay for them.
    It's also tough to imagine that this Congress, while we 
grapple with record deficits and high unemployment, would pass 
a bill that freely transfers the amount of money and technology 
that other nations appear to be seeking.
    Now, I want to be clear. None of these observations are 
meant to suggest that we should halt the development of 
domestic climate policies or retreat from the international 
process. But instead of trying to pass any bill that somehow 
would convince the world that we're serious about climate 
change, I think that we need to go back to the drawing board, 
work on a policy that the rest of the world may actually want 
to follow.
    It's fair to say that we haven't developed that policy yet. 
For better or for worse, I'm not convinced that there are 
countries that want to copy either the House or the Senate 
bills. From a broader perspective, until we show the world that 
it's possible to reduce emissions and maintain economic growth, 
I believe it's going to remain difficult to secure the 
international commitments that will matter the most.
    By examining the nations around the world and what they are 
doing, what they might need help with, the status of 
international negotiations, I do hope that this hearing will 
assist in our efforts to develop an effective climate policy 
that positions the United States as the leader that others will 
want to follow.
    With that, Mr. Chairman, I again thank you for this series 
of hearings and look forward to the comments from the 
witnesses.
    The Chairman. Very good.
    Let me introduce our witnesses. Dr. Michael Levi is the 
Senior Fellow for Energy and the Environment with the Council 
on Foreign Relations. Thank you for being here.
    Mr. Nigel Purvis is President of Climate Advisers. Thank 
you for testifying today.
    Ms. Taiya Smith--Is ``TIE-yah'' correct?
    Ms. Smith. That's right, ``TIE-yah.''
    The Chairman. She is Senior Associate with the Carnegie 
Endowment for International Peace.
    Ms. Karen Harbert is here from the--she's President and CEO 
of the Institute for 21st Century Energy with the U.S. Chamber 
of Commerce.
    Mr. Jake Colvin is Vice President of Global Trade Issues 
with the National Foreign Trade Council.
    Thank you all very much for being here, if each of you 
could take about 6 minutes and give us the main points that you 
think we need to understand. We are advised by the Majority 
Leader that there's going to be three votes beginning about 
11:15. So we want to hear from all of you and then hopefully 
get some good questions asked, and we'll see if we need to 
reconvene after those votes.
    But Dr. Levi, why don't you go right ahead.

STATEMENT OF MICHAEL A. LEVI, PH.D., DAVID M. RUBENSTEIN SENIOR 
   FELLOW FOR ENERGY AND THE ENVIRONMENT, COUNCIL ON FOREIGN 
                           RELATIONS

    Mr. Levi. Good morning, Chairman Bingaman, Senator 
Murkowski, members of the committee. Thank you for inviting me 
to speak with you about the state of global efforts to combat 
climate change, about prospects for the ongoing U.N. 
negotiations, and about climate policy in Europe and India.
    What will matter most to meeting the climate challenge is 
the introduction of effective domestic policies in the biggest 
economies. International agreements and initiatives are 
essential, but they are not a substitute. International efforts 
should be judged on whether they help facilitate smart domestic 
actions around the world.
    The U.S. should focus its UN-based efforts on things that 
that forum can do well, rather than on solving the entire 
climate problem alone. Our efforts should in particular promote 
transparency and accountability in each country's emissions-
cutting efforts through regular measurement, reporting, and 
verification, and by creating a mandatory review process for 
states to scrutinize each other's efforts.
    Agreement in the U.S.-China joint statement released a few 
hours ago in Beijing on the need for full transparency is an 
important step in that direction.
    Legally binding commitments to robust targets or emissions-
cutting policies would be a valuable additional outcome and we 
should try hard to obtain them. But those commitments may not 
be forthcoming in the near future and they do not guarantee 
that countries will actually deliver on their promises.
    It is also essential to remember that the U.S. negotiations 
exist within a broader universe of climate initiatives, many of 
which may be much better at advancing international 
cooperation. That wider context includes bilateral efforts with 
key countries like China and India, gatherings of small but 
pivotal groups like the G-20 and the Major Economies Forum, and 
institutions like the World Bank that work on the ground to 
actually implement big energy projects.
    I said at the outset that what matters most is what 
individual countries actually do. With that in mind, let me 
turn to Europe. The EU has adopted an aggressive stance toward 
climate policy. They've agreed on a set of ambitious domestic 
efforts through 2020 aiming to cut emissions to 20 percent 
below 1990 levels by then and to boost renewables to 20 percent 
of primary energy. Their cuts will be achieved through a mix of 
cap and trade for big sources, like power plants and factories, 
efficiency standards and gasoline taxes for transportation, 
purchases of international offsets, and a host of other smaller 
domestic initiatives. What's most important to note is that 
Europe will use a wide range of tools in order to achieve its 
goals, rather than relying on a single instrument.
    Europe and the United States do differ considerably in 
their international approaches. The Europeans have demanded 
binding targets from the developed world, but only voluntary 
actions from developing countries. Some European leaders have 
recently begun to move considerably closer to the U.S. 
position, which correctly insists on real commitments from all 
countries. But there's still real possibility that Europe would 
accept a lopsided deal.
    Europe has also been more aggressive in offering money to 
developing countries. It's not clear whether they can deliver 
on those proposals, but it's fairly clear that the United 
States will not match their numbers. We need to be careful that 
we are not blamed for the failure of international negotiations 
when we don't meet that bar.
    Let me underline this introduction to Europe by saying that 
U.S. climate diplomacy is far more effective when we can align 
it with our partners across the Atlantic. It's very important 
that U.S. Senators make clear their bottom lines to their 
European counterparts.
    The last thing I'd like to do is give you a brief tour of 
where India stands. Indian domestic climate strategy is 
extremely uneven. It includes so-called ``missions'' on solar 
energy, energy efficient, urban economy use, and forest cover, 
but most of the details are still being fleshed out. We're 
going to need to watch over the coming months and, frankly, 
over the coming years to see where they're actually heading. 
They are going to engage in a much more bottom-up process, 
along the lines of what we do here, than in a top-down process 
that takes us from high-level goals to specific policies like 
we're used to seeing from Europe.
    India has at least a couple problems delivering on its 
goals. The first is money. Renewables and nuclear cost more 
than the alternatives. They also cost more up front. Efficiency 
can save India money over time, but it also requires more 
initial investment.
    The second problem is regulatory capacity. The Indian 
system is still riddled with holes. For example, India just 
announced its intent to create an EPA a few months ago. This is 
a critical problem in many developing countries and inhibits 
their ability to enter international agreements with 
confidence.
    India has taken a hard line in the international 
negotiations, in part for that reason and in part for 
ideological reasons. But it is important to also know that 
Indian climate policy is in flux. The Indian environment 
minister recently suggested a much more flexible approach than 
India's negotiators have been taking. He's faced a lot of 
political push-back, but my sense in talking to people in India 
is that a significant slice of the political establishment is 
with him. It's a minority, but it's serious.
    We need to empower those who will take a more constructive 
role in working with us. It's important to keep that in mind in 
particular when we talk about carbon tariffs in the U.S. 
system. Indians are very upset about that threat. The tariffs 
reflect legitimate concerns by U.S. lawmakers, but they're more 
likely to alienate our potential allies in India than they are 
to provoke positive action. I'd encourage the Senate to focus 
on other tools for addressing competitiveness.
    Let me make one final note on the Indian foreign policy. 
India has taken a much more positive role outside the formal 
U.N. negotiations. This stresses the importance of engagement 
outside the U.N. process. Even a small amount of flexible 
funding for DOE and EPA to help them take advantage of emerging 
opportunities for concrete cooperation would be invaluable.
    I thank you for your time and attention and I look forward 
to any questions that you have.
    [The prepared statement of Mr. Levi follows:]
   Prepared Statement of Michael A. Levi, Ph.D., David M. Rubenstein 
   Senior Fellow for Energy and the Environment, Council on Foreign 
                               Relations
    Chairman Bingaman, Senator Murkowski, members of the committee, 
thank you for inviting me to speak with you about the state of global 
efforts to combat climate change, about prospects for the ongoing 
United Nations climate negotiations, and about climate policy in Europe 
and India.
    There is an emerging international political consensus that global 
emissions should be cut at least in half by midcentury. The 
International Energy Agency estimates that the United States, Europe, 
China, and India will each need to cut their energy-related emissions 
by 12-15% below business as usual by 2020 and by 34-42% below business 
as usual by 2030 to get the world on this path. What will matter most 
to meeting this extraordinary challenge is the introduction of strong 
and effective domestic policies in the biggest economies. International 
agreements and initiatives, while essential, are no substitute. 
International efforts should be judged by whether they make it easier 
for countries to implement smart domestic policies and to ensure that 
those succeed.
                      the global climate landscape
    The international climate regime is often conflated with the UN 
climate negotiations or the Kyoto protocol. This is wrong and 
distorting. The UN talks are an important part of global climate 
efforts. But a meaningful appraisal of the global scene must go well 
beyond that. Three other elements are particularly important: bilateral 
engagement with countries like China; highlevel coordination through 
groups like the G-20 and Major Economies Forum (MEF); and institutions 
like the World Bank that can help countries develop in climate-friendly 
ways.
    Bilateral engagement provides opportunities to address the unique 
incentives, opportunities, and challenges that each country faces in 
confronting climate change. These cannot be adequately exploited in 
large global settings like the UN negotiations, which seek common 
approaches that work for all. I will discuss U.S. opportunities for 
engaging India later; another panelist will address China. Others--
notably Europe and Japan--also have their own programs of bilateral 
climate engagement, which are often deeper and more developed than U.S. 
efforts. The United States should coordinate with and learn from those 
other initiatives.
    The G-20 and MEF are playing increasingly important roles in high-
level efforts to improve climate policy. Each involves fewer than 
twenty countries that together are responsible for about 80% of global 
emissions. They are essential to watch. The G-20 has recently become 
the premier political forum for coordinating global economic policy. It 
is wading slowly but determinedly into energy issues. Its first victory 
was a decision in September to phase out inefficient fossil fuel 
subsidies. The decision does not create legally binding commitments, 
but it has generated muchneeded domestic efforts in major countries to 
reexamine subsidy policies. This sort of interplay between global 
discussion and domestic action is the future of climate cooperation.
    The MEF, meanwhile, has helped advance global climate discussions 
by allowing a small but critical group of countries to focus on climate 
policy on a regular basis in a relatively informal setting. It should 
continue indefinitely. One particularly promising area of MEF 
discussion has centered around energy technology innovation. The world 
must drive down the cost of existing low-carbon technologies while 
developing their next-generation replacements. Governments will need to 
promote private investment in order to do this. Coordinating those 
actions internationally will help save money and minimize the odds that 
gaps are left unaddressed. The new MEF-based Global Partnership for 
low-carbon technology aims to do this. It is still in its infancy, and 
much remains to be fleshed out, but with the right resources, it could 
play an important futre role.
    Institutions that can help developing countries implement low-
carbon technologies will also play a critical role. Chief among these 
are the World Bank and the regional development banks. Transforming 
energy systems will require efficient use of public funds to unlock 
private investment on a massive scale. While many developing countries 
are wary of institutions like the World Bank, the reality is stark: no 
existing institutions other than the multilateral development banks are 
capable of handling the sums of money and the complex energy projects 
that will be needed. In particular, the Bank's climate funds, including 
the U.S.-sponsored Clean Technology Fund, are providing important 
experience, and a model for moving forward, in international public 
finance. Congress is poised to approve Clean Technology Fund funding 
for FY10. This will be important--both as practical progress and as a 
political signal--heading to Copenhagen.
                          the un negotiations
    The UN negotiations are making considerably less progress than many 
had hoped for not long ago, and the bulk of the blame for the current 
state has been directed at the United States. Many analysts and 
negotiators argue that the world could seal a deal at Copenhagen if 
only the United States passed climate legislation before then. I 
disagree. Let me be clear: robust U.S. climate legislation is essential 
to effective international action on climate change. But it is not 
enough alone. The world must still bridge difficult disagreements on 
what developing countries will do under a global agreement and what 
financial assistance developed countries will provide them. U.S. action 
on domestic legislation would help remove the United States as an 
excuse for inaction and as a distraction from these critical issues. 
But it will not be determinative alone.
    The UN process occupies a special place in the foreign policy of 
many U.S. allies, friends, and partners. For that reason alone, the 
United States should take it seriously. But the UN process is severely 
limited. It involves a large and unwieldy number of participants. This 
makes proceedings inefficient and tailored deals for the most important 
countries difficult to include.
    The United States should focus its UN-based efforts on things that 
the UN process can do well rather than on solving the entire climate 
problem alone. This points to three areas for near-term focus where 
real and important progress is possible. First, negotiators should 
agree on a longterm global goal for cutting emissions. This will 
provide an agreed benchmark against which to measure efforts in all 
forums. Second, negotiators should promote transparency in national 
emissions-cutting efforts. They should create a scheme for measurement, 
reporting, and verification of whether states are implementing promised 
domestic emissions-cutting efforts and delivering pledged emissions-
cutting assistance, and create a regular review process through which 
states would scrutinize each others' climate policies. This would help 
replace the current climate of distrust with a virtuous cycle of 
stronger policies. Third, the UN process should help mobilize funds to 
help the most vulnerable countries adapt to the unavoidable 
consequences of climate change. The UN is a useful forum for addressing 
this issue given the large number of countries affected. There may also 
be opportunities for targetted mini-deals, including on avoided 
deforestation and on reform of international offsets, with the latter 
being more difficult.
    Legally binding commitments to robust targets or emissions-cutting 
policies would be a valuable additional outcome. The United States 
should be engaged in a long-term effort to obtain them and should not 
make its own binding UN commitments unless other major emitters do. But 
such commitments may not be forthcoming in the near future. Nor should 
we confuse the legal character of states' commitments with their 
seriousness. Canada took a binding commitment at Kyoto but will fail to 
meet it because it did not put the necessary policies in place to 
achieve it. Russia will meet its legally binding Kyoto target with zero 
effort because that target was set too high. It is much more important 
to elicit ambitious, credible, and transparent domestic policies than 
it is to obtain legally binding promises that may amount to little in 
practice.
                                 europe
    The states of the European Union (EU) have adopted an aggressive 
stance, both domestically and in international negotiations, toward 
climate change policy. The United States need not worry much about 
European greenhouse gas emissions. The United States needs, however, to 
be careful to coordinate its foreign policy approach with Europe if it 
wants to succeed.
    Europe has agreed on an ambitious set of domestic efforts through 
2020. Its core ``20-20-20 by 2020'' plan aims to cut European emissions 
to 20% below 1990 levels by 2020 while boosting renewables to 20% of 
primary energy and increasing efficiency by 20% too.\1\ Emissions cuts 
are to be achieved by the EU Emissions Trading System (ETS), which 
covers large stationary emissions sources (about half of EU emissions) 
through a cap-and-trade system; by emissions standards for 
transportation (about one-fifth of EU emissions); through purchases of 
international offsets; and through complementary measures pursued by 
member states in areas like efficiency and renewables. Efforts to reach 
the renewables and efficiency targets are essentially a matter for 
individual countries. All this is done against the challenging backdrop 
of east-west divisions over costs and other internal tensions stemming 
from varying dependence on Russian natural gas. Experts agree that 
Europe will be able to deliver on its goal of cutting economy-wide 
emissions for 2020--though they believe that it will need to use 
international offsets to deliver part of that. There is less agreement 
on whether Europe will be able to deliver on its renewables goals.
---------------------------------------------------------------------------
    \1\ The EU emissions target will be increased to 30% is there is a 
strong global climate deal.
---------------------------------------------------------------------------
    Many have claimed that there is an ``ambition gap'' between what 
the United States is considering and what the EU plans to do. This is 
incorrect by almost any meaningful measure. Indeed the European target 
amounts to cutting EU emissions to 17% below 2005 levels--slightly less 
than the 20% cut below 1990 levels envisioned in the Kerry-Boxer 
legislation. That said, if the United States continues on its current 
course, it will fall well short of Europe.
    Europe and the United States differ more in their international 
approaches. The European Commission has demanded that any new climate 
deal include binding emissions targets for all developed countries but 
has only called for voluntary actions from the developing world. This 
is clearly unworkable for the United States. But there are signs of 
evolution from key European countries. German Chancellor Angela Merkel 
recently appeared to assert that China and India would need to take on 
commitments as part of a deal.\2\ Other reports suggest that the UK is 
also taking a firmer stand. Still, there is a real possibility that 
Europe would accept a deal that required binding commitments of 
developed countries and only voluntary actions from others.
---------------------------------------------------------------------------
    \2\ Developing countries would be asked to commit to policies, not 
to targets. This tracks the U.S. position.
---------------------------------------------------------------------------
    Europe has also been more aggressive than the United States in 
offering money to developing countries. The EU has indicated that $33-
$74 billion of public funds will be needed each year by 2020. It has 
not declared the share that it would be willing to contribute, and 
there is debate over who in Europe would pay, making it unclear whether 
the EU can deliver. The United States is highly unlikely to support a 
similar sum, but it may be blamed for the failure of international 
negotiations if it does not meet the European bar.
    Ultimately, the United States is far more effective in its climate 
diplomacy when it stands shoulder-to-shoulder with Europe. It is 
extremely important that U.S. Senators make their bottom-lines clear 
directly to their European counterparts and work with them to close any 
gaps.
                                 india
    India has been wrongly lumped together with China in climate 
discussions. Total Indian emissions were, as of 2005, about one quarter 
of total Chinese emissions. Indian GDP is about 30% of Chinese GDP, and 
its foreign exchange reserves are barely 10% of those held by China. 
About 40% of Indians have no access to electricity; almost all Chinese 
have at least some. And while both countries are vulnerably to climate 
change, the danger to India is particularly acute.
    Indian domestic energy and climate policy contains some important 
elements but currently lacks strategic breadth and coherence. It is 
driven primarily by a desire to improve air quality, energy security, 
access to energy, and economic efficiency. This is to be commended: 
such aims are a more sustainable foundation for Indian energy policy 
than climate change. The 2008 National Action Plan on Climate Change 
was the first Indian attempt at developing a comprehensive climate 
strategy, and included ``missions'' on solar energy, energy efficiency, 
urban energy use (including vehicle fuel economy), and forest cover. 
Details mostly remain to be fleshed out. We will learn much more about 
Indian policy over the coming months and years.
    Some highlights of existing policy are still worth noting. India 
aims to have more than 20 GW of nuclear capacity (equivalent to twenty 
large plants) installed by 2020, enabled in part by the recent U.S.-
India nuclear deal, though the IEA estimates that it is on course to 
have only 11 GW by then. It appears prepared to set a goal of 
installing 20 GW of solar power by 2022--more than double the amount of 
solar currently installed worldwide. India has a robust wind industry, 
led by Suzlon, the fifth-largest turbine producer in the world. It is 
also attempting to move toward cleaner coal-fired power, though its 
plants are still far less efficient than those in China.
    End-use efficiency, however, will be the greatest near-and mid-term 
opportunity in India. This may strain Indian finances, since efficiency 
requires larger investments up front even it pays off in lower energy 
bills over time. Others, including the United States, will need to step 
in to help where appropriate. The need to target efficiency will also 
stress Indian regulatory capacity. India often lacks the capacity to 
effectively regulate emissions even when it wants to. Indeed it was 
only three months ago that India announced plans to create an 
Environmental Protection Agency. This lack of implementation capacity 
is a critical problem in many developing countries--but one that is 
often overlooked by analysts. A global agreement to curb emissions will 
be of little value if the countries involved lack the capacity to 
deliver on their promises. This points again to the importance of 
technical cooperation in building capacity and of transparency and 
review to ensure that promises are being carried out and that policies 
are effective.
    India has, historically, taken a hard line in international climate 
negotiations. It has refused to accept commitments, either to emissions 
targets or to emissions-cutting policies and measures. It has joined 
other developing countries in demanding transfers of several hundred 
billion dollars each year to pay for mitigation and adaptation while 
asking for developed countries to weaken intellectual property 
protections on low-carbon technology too. It would be surprising if 
India adopted a substantially different position at the upcoming 
negotiations in Copenhagen.
    Yet, under the surface, Indian foreign policy on climate is in 
flux. The environment minister, who is close to Prime Minister Singh, 
recently suggested a much more flexible approach to international 
engagement, arguing that India should take strong unilateral emissions-
cutting actions and submit those to international scrutiny. He has run 
into strong political opposition and has had to retract some of the 
positions. Yet my own discussions suggest that this more forwardleaning 
position has support among a significant faction, if still a minority, 
of Indian elites. They believe that Indian foreign policy will gain if 
the country takes a positive approach to climate. U.S. foreign policy 
should aim to empower those who are ready to adopt this constructive 
stance.
    Indian policymakers across the political spectrum have reacted with 
alarm to U.S. threats of carbon tariffs. Those tariffs reflect 
legitimate concerns by U.S. lawmakers about the impacts of climate 
legislation on U.S. competitiveness. Yet those Indian lawmakers who are 
most interested in climate cooperation often happen to be those who 
care most about free trade too; they are internationalists. Tariffs are 
more likely to alienate potential U.S. allies in India than they are to 
provoke positive action on climate. The Senate should focus strongly on 
other tools for addressing competitiveness, including rebates to 
energy-intensive trade-exposed industries.
    India has also taken a more positive role outside formal UN 
negotiations. This stresses the importance of non-UN engagement. 
Reports suggest that U.S.-India discussions on technology cooperation 
in advance of Prime Minister Singh's planned November 24 visit to 
Washington have been very productive. Secretary of Energy Steven Chu 
visited New Delhi last week.
    In sum, the United States should be focused primarily on what India 
does at home--and on working with India, bilaterally and through 
international forums and institutions outside the UN process, to make 
strong domestic action more likely. Congress should ensure that 
appropriate financial support is available to empower joint efforts. 
Cooperation in the UN negotiations is a longer-term prospect. The 
United States should aim for it while keeping its expectations modest.

    The Chairman. Thank you very much.
    Mr. Purvis, go right ahead.

             STATEMENT OF NIGEL PURVIS, PRESIDENT, 
                        CLIMATE ADVISERS

    Mr. Purvis. Mr. Chairman, Senator Murkowski, other 
distinguished members of the committee:
    Thank you for the opportunity to testify.
    Mr. Chairman, in requesting my participation at this 
hearing you asked me to address two specific issues. The first 
is the state of play of global climate negotiations. The second 
is the status of international efforts to reduce tropical 
deforestation.
    Let me begin with global climate talks. With the Copenhagen 
conference just a few weeks away, it is now possible to see the 
contours of a possible political agreement. Copenhagen promises 
to be a major step forward from Kyoto if nations can reach 
agreement. Kyoto was premised on a single and somewhat 
scientifically arbitrary 5-year goal. Copenhagen is likely to 
be grounded in a shared science-based vision of what needs to 
happen by 2050 in order to protect the climate for future 
generations.
    Whereas Kyoto created mitigation obligations for developed 
nations only, the Copenhagen outcome is likely to mandate 
nationally appropriate mitigation actions by all major 
emitters. Kyoto sought to dictate domestic policy through top-
down, globally negotiated emissions targets. Copenhagen is 
likely to pursue a bottom-up approach that is anchored in the 
diverse domestic laws and programs of each nation.
    Kyoto demanded international commitments only from nations, 
whereas Copenhagen will ask nations to show that their 
international commitments are supported by domestically 
enforceable laws and programs.
    Kyoto provided little opportunity to verify in real time 
whether nation were honoring their commitments, whereas 
Copenhagen is expected to enable a stronger system for 
measuring, reporting, and verifying progress, with the details 
of that system to come in the months ahead.
    This progress in Copenhagen is striking and encouraging if 
an agreement can be reached. In these negotiations, the 
American people have been well served by the U.S. negotiating 
team. Importantly, reaching agreement in Copenhagen may not be 
possible without some progress on the 2020 mitigation goals by 
major economies and on some level of financial assistance the 
developed nations could provide to developing nations in the 
near term. Most developed nations are ready to commit. Most 
developing nations appear on the verge of pledging new 
mitigation actions. In fact, in the last few days we have the 
announcement this morning from China, we have an ambitious 
announcement from Brazil, as well as a new mitigation target 
from South Korea. So there is evidence that the major emerging 
developing countries are in fact gearing up to promise new 
mitigation actions in Copenhagen.
    The Obama Administration therefore faces a significant 
challenge. It needs to be forthcoming enough to keep 
international negotiations moving forward, while at the same 
time not getting too far ahead of the Senate and the Congress 
as a whole, which needs more time to consider energy and 
climate legislation.
    Success in Copenhagen is far from guaranteed. Climate 
negotiations aren't always predictable. A failure in 
Copenhagen, if it occurs, should not be read by the Congress as 
an absence of political will in other nations, but rather as a 
sign that major emerging economies need greater certainty and 
clarity about the shape of U.S. commitments and action in the 
years ahead.
    If Copenhagen does succeed, as I suspect it shall, further 
success may not be possible in 2010, however, without that 
increased clarity about the new direction of U.S. policy. 
Either way, therefore, in my view it is time for the Senate to 
craft a durable, bipartisan approach, one that protects our 
economy, national security, and environment.
    As you requested, Mr. Chairman, I will conclude with some 
observations about the important question of what can be done 
to reduce emissions from tropical deforestation. This is 
perhaps the area where the prospects for progress in Copenhagen 
are strongest. Over the last year I have had the privilege of 
serving as the executive director of the Independent Commission 
on Climate and Tropical Forests. That commission is chaired by 
former Senator Lincoln Chafee and Center for Environmental 
Progress CEO John Podesta, and includes former Senator Chuck 
Hagel and other prominent leaders.
    Last month the commission released a detailed report* with 
concrete recommendations for U.S. policymakers, which I have 
here, and with your permission, Mr. Chairman, if I could ask 
that that be submitted for the record.
---------------------------------------------------------------------------
    * Document has been retained in committee files.
---------------------------------------------------------------------------
    The Chairman. It will be included.
    Mr. Purvis. Thank you.
    The commission found that including strong tropical forest 
protections in domestic climate legislation is in the vital 
economic, national security, and environmental interests of the 
United States. The commission recommended that, in partnership 
with developing countries, the United States should lead a 
global effort to halve emissions from deforestation by 2020 and 
achieve zero net emissions from forests by 2030.
    Solving the climate problem will not be possible without 
urgent efforts to stem tropical deforestation, which accounts 
for 17 percent of global greenhouse gas emissions, more than 
the entire global transport sector. By moving aggressively to 
reduce emissions, the world can buy time and achieve a more 
smooth transition to a clean energy economy of tomorrow. No new 
technologies are needed to stop cutting trees.
    Including tropical forests in U.S. climate legislation, 
moreover, would dramatically lower the cost of U.S. action. 
According to analysis done by EPA, the price of emissions 
permits under a cap-and-trade program in the climate bill 
approved by the House of Representatives would be 89 percent 
higher if U.S. companies were not allowed to meet part of their 
domestic regulatory burden by financing international emissions 
reductions. EPA's analysis shows that the majority of these 
international offsets, as they are known, would come from 
tropical forests. McKinsey and Company suggest that the 
percentage could be over 80 percent of the expected 
international offsets between now and 2020 could come from 
tropical forests.
    So the total savings to the U.S. economy net of investments 
needed to achieve--to slow deforestation, would be about $50 
billion, the commission found, by 2020--a $50 billion savings 
by including forests in U.S. domestic climate legislation if 
the House bill were enacted into law.
    Thank you, Mr. Chairman. Thank you for the opportunity to 
testify. I'd be happy to answer your questions.
    [The prepared statement of Mr. Purvis follows:]
 Prepared Statement of Prepared Statement of Nigel Purvis, President, 
                            Climate Advisers
    1Mr. Chairman, Senator Murkowski, and other distinguished members 
of the Committee, thank you for the opportunity to testify on 
international climate change policy. My name is Nigel Purvis, and I am 
president of Climate Advisers, a consulting firm that specializes in 
U.S. and international climate policy. From 1998 to 2002, I was a U.S. 
climate change negotiator, serving most recently as deputy assistant 
secretary of state for oceans, environment and science. Currently, I am 
also a scholar at Resources for the Future, the German Marshall Fund of 
the United States, and The Brookings Institution. These organizations 
neither lobby nor take positions on specific proposals. The views I 
present today are my own.
    Mr. Chairman, in requesting my participation at this hearing, you 
asked me to address two specific issues and their implications for U.S. 
climate policy. The first is the state of play of global climate 
negotiations. The second is the status of international efforts to 
reduce emissions from tropical deforestation.
                               copenhagen
    Let me begin with global climate talks. Two years ago, the 
international community set the goal of concluding next month in 
Copenhagen, Denmark, new global arrangements that would define the 
terms for international climate cooperation after 2012, when the Kyoto 
Protocol expires. Negotiations have proceeded under the United Nations 
Framework Convention on Climate Change, the leading global climate 
agreement to which almost all nations, including the United States, are 
parties.
Status of Global Climate Negotiations
    With the Copenhagen conference just weeks away, most governments 
and experts now believe that it will prove impossible to finalize a new 
legal instrument this year. There are several reasons why.
    First, nations remain divided on important and contentious issues, 
including:

   The legal form of a new agreement--whether it should be 
        legally binding and, if so, on what categories of countries.
   The emissions mitigation responsibilities of developed and 
        developing nations.
   The financial responsibilities of developed nations to 
        assist developing nations adapt to climate change and pursue 
        low-carbon economic growth.
   The mechanisms and institutional arrangements needed to 
        verify emissions reductions and manage any new financial 
        resources intended to assist developing nations.

    Resolving these issues would be difficult and time consuming under 
the best of circumstances. Climate agreements are every bit as complex 
as trade agreements and, like trade negotiations, climate negotiations 
sometimes defy political deadlines. The Kyoto negotiations took a 
decade from start to finish. The Copenhagen process will not require 
that long, but it will take some months or possibly years more.
    Second, the negotiations have been affected by significant 
uncertainty surrounding the shape of future U.S. climate and energy 
policies. The world learned from the Kyoto negotiations that the United 
States cannot deliver on new climate commitments unless the president 
and Congress see eye-to-eye. In 2008, the international community 
waited for a new American president. In 2009, nations have been waiting 
for the Obama administration and Congress to find common ground on 
climate and energy legislation. The United States is the world's 
largest economy and, historically speaking, the world's largest 
greenhouse gas emitter. In 1992 our nation pledged to return emissions 
to 1990 levels by 2000, and yet our emissions are far above that level 
today. Because we have the most innovative economy in the world, other 
nations reason that if we cannot reduce our emissions, perhaps few can. 
Understandably, other nations are reluctant to commit to ambitious 
climate policies until they see the United States reduce its emissions.
Copenhagen Political Agreement
    Despite these significant challenges, there are many hopeful signs 
internationally. Several key nations--both developed and developing--
are taking robust climate action at home. Increasingly, the world's 
major economies believe that sound climate policies advance other 
important national interests, including energy security, economic 
growth, and public health. Internationally, countries are finding 
common ground on principles that could guide global cooperation. The 
Copenhagen conference presents an opportunity for nations to agree upon 
the architecture underpinning a new climate agreement even if reaching 
a full agreement is not yet possible.
    Progress made in Copenhagen on the structure for the next phase of 
global climate cooperation would initially be captured by nations in 
the form of a written political agreement rather than a legal 
instrument. Although political agreements do not create legally binding 
obligations under international law, by definition, a high-profile 
outcome from Copenhagen would be politically binding in the sense that 
nations would commit publicly to specific outcomes. A solid political 
agreement would send a clear signal about where the international 
community is heading while also providing concrete guidance to 
negotiators as they continue the work of crafting a complete 
international agreement.
Architecture for a Copenhagen Agreement
    What could be included in such a political agreement coming out of 
Copenhagen? Here are a few specific examples where progress may be 
possible next month.

          Shared Long-Term Goals.--Nations could agree in Copenhagen to 
        limit global warming to 2 degrees Celsius (3.6 degrees 
        Fahrenheit) above pre-industrial levels and to reduce global 
        emissions 50 percent by 2050. Developed countries could commit 
        to reducing their emissions 80 percent, with developing nations 
        committing that their emissions should decline significantly 
        compared to business as usual by 2020 and peak by a certain 
        date. Some of these goals were embraced earlier this year by 
        key regional and economic groups, such as the G8, Major 
        Economies Forum, and Asia Pacific Economic Cooperation (APEC), 
        but Copenhagen presents an opportunity to elevate these long-
        term goals to the global level.
          Low-Carbon Growth Plans.--Consensus has been building for 
        each country to create a lowcarbon growth plan that describes 
        in detail its long-term strategies for climate-friendly 
        economic growth. The experience of countries that have created 
        such plans shows that, done well, the process strengthens 
        domestic political consensus for action and increases 
        international transparency.
          International Registration of Domestic Actions.--There is 
        also growing agreement that global action on climate needs to 
        be built on a foundation of domestic action, backed by domestic 
        law, and that these domestic actions should be registered with 
        the international community. Such registration of domestic 
        programs would provide recognition for what each country is 
        doing, help build trust, facilitate discussions of 
        comparability, and enable a global assessment of the overall 
        environmental adequacy of actions. Whereas low-carbon growth 
        plans would show what nations plan to do, an international 
        registry would record what nations are actually doing. 
        Developed countries would commit to actions that achieved 
        substantial reductions in national emissions from a base year. 
        Developing nations would commit to nationally appropriate 
        mitigation actions that would result in significant deviations 
        from projected emissions trajectories. These actions would be 
        supported by technical and financial assistance from developed 
        nations.
          Measurement, Reporting, and Verification.--Any agreement will 
        require robust measurement, reporting, and verification to 
        ensure commitments are met. Nations in Copenhagen can lay out 
        the general framework for such a system by establishing the 
        principle that all major emitters need to strengthen their 
        international reporting and also participate in a credible 
        verification system.
Targets for 2020
    Importantly, reaching agreement in Copenhagen on the architecture 
of the next global climate agreement may not be possible without some 
progress on targets and timetables for action. Developing nations are 
looking for clearer evidence that developed nations really will lead, 
as they agreed to do when adopting the U.N. Framework Convention on 
Climate Change. More specifically, developing nations are asking 
developed nations to commit in Copenhagen to firm emissions reduction 
targets for the year 2020. They are also asking developed nations to be 
specific about how much financing they will provide to the developing 
world to help nations adapt to climate change and pursue low-carbon 
economic growth.
    Most developed nations are ready to commit to 2020 mitigation and 
financing targets in Copenhagen. The European Union and Japan have 
already announced their emissions mitigation targets for 2020--30 
percent\1\ and 25 percent below 1990 levels, respectively. European 
leaders recently proposed a global funding package of $150 billion 
annually by 2020 for climate change mitigation and adaptation in 
developing nations, with $33 billion to $75 billion in public funding 
per year from developed nations, and a fast-start fund of $7.5 billion 
to $10.5 billion total from 2010 through 2012. The Obama 
administration, therefore, faces a significant challenge. It needs to 
be forthcoming enough on U.S. mitigation and financing targets to keep 
international negotiations moving forward and avoid attempts to blame 
the United States, while at the same time not getting too far ahead of 
the Senate, which needs more time to consider climate and energy 
legislation.
---------------------------------------------------------------------------
    \1\ The European Union has pledged to reduce emissions 30 percent 
below 1990 levels by 2020 if other nations take comparable action, or 
20 percent below 1990 levels by 2020 if other nations do not take 
comparable actions.
---------------------------------------------------------------------------
Major Step Forward from Kyoto
    Assuming the administration is able to strike the right balance, a 
political agreement in Copenhagen along the lines presented previously 
would be a major step forward from Kyoto.

   Whereas Kyoto created mitigation obligations for developed 
        nations only, the Copenhagen outcome is likely to mandate 
        nationally appropriate mitigation actions by all major 
        emitters.
   Kyoto provided little opportunity to verify in real time 
        whether nations were honoring their commitments, whereas 
        Copenhagen is expected to enable a stronger system for 
        measuring, reporting, and verifying progress.
   Kyoto sought to dictate domestic policy through top-down, 
        globally negotiated emissions targets; Copenhagen will take a 
        bottom-up approach that is anchored in domestic laws and 
        programs.
   Kyoto demanded international commitments only, whereas 
        Copenhagen will ask nations to show that their international 
        commitments are backed by domestically enforceable laws and 
        programs.
   Kyoto was premised on a single and somewhat scientifically 
        arbitrary five-year goal; Copenhagen is likely to be grounded 
        in a shared, science-based vision of what needs to happen by 
        2050 to protect the climate for future generations.

    This potential for progress is striking and encouraging. In these 
negotiations, the president, Congress, and the American people have 
been well-served by the U.S. negotiating team.
All Eyes on the Senate
    Copenhagen provides an opportunity for a historic political 
agreement that could structure continuing climate negotiations in ways 
that advance U.S. national interests. Success in Copenhagen, however, 
is far from guaranteed. Even the less controversial architectural 
issues I have described remain unresolved and climate negotiations are 
always unpredictable. If Copenhagen fails to deliver, the international 
community will blame the United States for not completing its work in 
time. A failure in Copenhagen should not be read by Congress as an 
absence of political will in other nations but rather a sign that major 
emerging economies need greater certainty about U.S. policy before they 
make new commitments.
    If Copenhagen succeeds in creating a new political agreement, as I 
suspect it will, the conference will prove to be an important but not 
final step on the road toward a new global structure for climate 
cooperation. Even with a successful outcome, further progress in 2010 
would be unlikely without greater clarity about the shape, timing, and 
ambition of new U.S. climate and energy legislation. The time has come 
for the Senate to craft a durable, bipartisan approach--one that 
protects our economy, national security, and environment. The Senate 
must show the American people and the world that they are not waiting 
for Godot.
                            tropical forests
    As you requested, Mr. Chairman, I will conclude with observations 
on the important question of what can be done to reduce emissions from 
tropical deforestation. This is perhaps the area where the prospects 
for progress in Copenhagen are strongest.
    Over the past six months I have had the privilege of serving as 
executive director of the Commission on Climate and Tropical Forests.* 
The Commission is an independent group chaired by Senator Lincoln 
Chafee (R-RI) and Center for American Progress CEO John Podesta. It 
includes in its membership Senator Chuck Hagel (R-NE); Mike Morris, CEO 
of American Electric Power; Sam Allen, CEO of Deere & Co.; and other 
prominent political, foreign policy, national security, business, 
labor, and environmental leaders. Last month, the Commission released a 
consensus report with concrete findings and policy recommendations for 
the United States, which I shall summarize now. These recommendations 
were based on extensive research and due diligence by the Commission, 
including meetings with leaders of tropical forest nations, field 
visits in Brazil, and discussions with leading climate and tropical 
forest experts.
---------------------------------------------------------------------------
    * For further information and to download the commission's report, 
visit www.climateforestscommission.org.
---------------------------------------------------------------------------
U.S. National Interests and Tropical Deforestation
    The Commission found that including strong tropical forest 
provisions in ambitious domestic climate policies is in the vital 
environmental, economic, and national security interests of the United 
States.
    Solving the climate crisis will be nearly impossible without urgent 
efforts to stem tropical deforestation, which accounts for 
approximately 17 percent of global greenhouse gas emissions--more than 
all the cars, trucks, planes, trains, ships, and buses in the world. By 
moving aggressively to reduce deforestation, the world can buy time and 
more smoothly transition to the clean energy economy of tomorrow.
    Including tropical forests in U.S. climate legislation, moreover, 
would dramatically lower the cost of ambitious U.S. action. According 
to analysis done by the Environmental Protection Agency (EPA), the 
price of emissions permits under the cap-and-trade program in the 
climate bill approved by the House of Representatives would be 89 
percent higher if U.S. companies were not allowed to meet part of their 
domestic emissions-reduction obligation by financing international 
emissions reductions. EPA's analysis suggests that the majority of 
these international ``offsets'', as they are known, would come from 
tropical forests. The total cost savings for the U.S. economy, net of 
investments needed to reduce deforestation, would be $50 billion by 
2020 compared to domestic action alone.
    Incentives to halt tropical deforestation also provide a dual 
benefit for U.S. national security--both by reducing the adverse 
impacts of climate change, which act as a ``threat multiplier,'' and 
protecting natural resources that are a key source of corruption, 
political instability, and conflict in strategically important nations 
around the world.
    Well-designed forest conservation policies would also help 
alleviate poverty, as 90 percent of those living in extreme poverty 
depend on forests for some part of their livelihood. Forest 
conservation, furthermore, would protect priceless biodiversity because 
the majority of known terrestrial species live in forests.
Ambitious Action by Developing Nations
    Importantly, developing nations are eager to reduce deforestation. 
Brazil, for example, has pledged to reduce deforestation in the Amazon 
region an astonishing 80 percent by 2020, a potential annual reduction 
greater than the total yearly emissions from Canada. Impressively, 
Brazil is already making substantial progress toward this goal, with 
deforestation down 50 percent from its peak in 2004. Indonesia, for its 
part, has pledged to reduce its national emissions 26 percent below 
business-as-usual levels by 2020, and 41 percent below if the 
international community provides financial support. Brazil and 
Indonesia account for half of global deforestation and are two of the 
world's five largest emitters.
    While tropical forest nations are showing they have the political 
will to reduce their emissions, many of these countries face 
significant obstacles. The primary drivers of deforestation are the 
economic opportunities provided by agriculture, ranching, and timber. 
Strong and reliable financial incentives are needed to change the 
economic calculus facing local landowners and forest-dwelling 
communities. In many nations, technical assistance is needed to 
strengthen forest sector governance and increase the capacity of 
nations to verify emissions reductions.
Opportunity for U.S. Leadership
    In view of the many vital national interests at stake, as well as 
the opportunities for immediate progress and constructive partnerships 
with developing nations, the Commission concluded that the United 
States should help lead a global effort to halve emissions from 
deforestation by 2020 and achieve zero net emissions from forests by 
2030. These are ambitious but achievable goals with the right policies 
in place.
    The Commission believes that a well-designed cap-and-trade program 
would provide an effective mechanism for mobilizing financing from U.S. 
sources, finding that by 2020, U.S. carbon markets could mobilize 
roughly $9 billion annually for tropical forest conservation. 
Furthermore, public sector investments should increase gradually to $5 
billion annually by 2020 to help prepare developing nations to 
participate in U.S. carbon markets and to reduce deforestation in 
nations that cannot attract private capital. The climate bills passed 
by the House of Representatives and the Senate Environment and Public 
Works Committee would both generate funding for international forest 
conservation on this scale.
    Senators, as you weigh the many important national priorities 
involved in climate and energy legislation, I urge you to consider 
maintaining this strong emphasis on reducing tropical deforestation. 
These provisions are essential to solving the climate crisis, making 
climate action affordable for the United States, encouraging action by 
developing nations, and establishing U.S. leadership.
    I commend the Committee for organizing this hearing and thank you 
for the opportunity to present my views. I would be happy to answer 
your questions.

    The Chairman. Thank you very much.
    Ms. Smith, why don't you go right ahead.

STATEMENT OF TAIYA SMITH, SENIOR ASSOCIATE, ENERGY AND CLIMATE 
      PROGRAM, CARNEGIE ENDOWMENT FOR INTERNATIONAL PEACE

    Ms. Smith. Thank you. Thank you, Mr. Chairman, Senator 
Murkowski, and members of the committee.
    You've asked me to focus on China and its role in managing 
climate change. On August 12, Chinese Premier Wen Jiabao 
announced that the State council had decided to incorporate 
climate change into its economic and social planning process. 
That's important and it includes China's climate change goals, 
which are, notably:
    Reducing its energy intensity by 20 percent between 2005 
and 2010. China announced in 2008 it had already reduced carbon 
intensity by 10 percent and analysts predict that if current 
rates continue it will reach this 2010 goal.
    Obtaining 15 percent of the Nation's energy supply from 
non-fossil fuels by 2020. They're already on great progress to 
also reach this goal.
    Increasing forest coverage by 20 percent from 2005 levels, 
which has been one of China's most successful goals so far.
    China's stated targets and objectives are impressive, but 
they leave us with questions: How can we validate what they're 
doing and what's the impact on us?
    Our ability to trust China's data is very important. The 
Chinese climate change negotiators have stated that China will 
not accept a carbon cap because they see it as limiting their 
economic growth. If the 2010 target of reducing carbon 
intensity by 20 percent is met, China's carbon dioxide 
emissions will be reduced by 1.5 billion tons, which is larger 
than was pledged by all the other countries who ratified the 
Kyoto Protocol.
    We know that China will only make commitments if it's in 
its national interest. National stability is paramount in 
China. After decades of strife, China now enjoys relative peace 
for the last 30 years, but nearly all the Chinese over the age 
of 50 still remember what it was like before the current era.
    Since 1978, China has achieved nearly double-digit GDP 
growth and brought more than 3 million rural Chinese out of 
poverty. Much of its current stability rests on the promise 
that economic growth will continue and its citizens will 
achieve prosperity. I like to think of this as the Chinese 
dream, which is like the American dream, but it's on steroids.
    This miraculous growth that has achieved the first round of 
poverty alleviation has become harder and harder to achieve as 
China moves up the industrialization scale and deals with its 
legacy of previous growth. So now in addition there are 
approximately 25 protests a day in China due to environmental 
issues, such as contamination, polluted air, and rivers that no 
longer support fish. The government has seen this. They 
recognize the risk to their stability and also that 
environmental degradation is sapping their GDP.
    At the same time, they've been studying climate change. 
Severe winter storms brought home the reality that dependence 
on foreign supplies of oil and coal for energy production are 
not viable for long-term logistics as well as political 
reasons.
    The impact of all of this is that China has come firmly to 
the conclusion it has to deal with climate change, in addition 
to energy security and environmental degradation, in order to 
maintain its economic growth and thereby national stability. At 
the same time, top Chinese officials have come to the 
conclusion there are simply not enough resources in the world 
to support another billion people living the energy-intensive 
western lifestyle. They're looking for a new, uniquely Chinese 
model of sustainable economic growth that will allow their 
population to achieve long-term prosperity.
    Then at the same time we have to think about how they 
achieve this. The Chinese government battles every day to 
enforce national policy, and incentivize local governments, 
enterprises and individuals to support its goal of the 
sustainable model of economic growth. U.S. EPA, U.S. Department 
of Energy, many State governments, and many American companies 
and NGO's work closely with the Chinese government to improve 
China's oversight, policies and processes. We must continue to 
support this work.
    There are still accounts of powerplant scrubbers sitting 
idle, but there are also some positive stories. China has two 
projects, the Program on Large Substituting for Small, which 
shuts down small, inefficient coal-fired powerplants, and the 
Top 1,000 Energy Consumer Enterprise program, which sets energy 
targets for China's 1,000 highest energy-consuming enterprises. 
As part of this, China has now shut down 54 gigawatts worth of 
small, inefficient coal plants and plans to close a further 31 
gigawatts over the next 3 years.
    As we think about how we can help work with China on 
reaching its goals, we want to remember that, as Dr. Levi was 
saying, we need to encourage China to actually be able to be 
transparent and improve its verification process. Also we need 
to remember that China will resist allowing international 
inspectors into China to verify its emissions. Reciprocity is a 
very powerful tool in China and if the U.S. and other key 
powers were to allow inspectors in, China would have a harder 
time holding out against them.
    Short of that, though, we need to remember that China is 
very sensitive in its international reputation. So establishing 
an international body that would allow countries to monitor 
each other through a dispute reconciliation mechanism, such as 
the WTO, could turn out to be one of the most effective ways to 
ensure both China develops a strong internal system and that 
the international community has a way to engage with China on 
the data that it issues.
    I think the last important thing for us to remember is 
that, while we know China has a strong domestic motivation, 
this has a big impact for the U.S. and for our companies here. 
What it means is that the market for clean technology has 
expanded exponentially. We need to keep pressure on China to 
keep its markets open. The most powerful tool we have to drive 
the development and deployment of technology is the combined 
U.S.-China market. Bringing a single standard U.S.-China market 
for these goods and services provides market-based incentives 
that no government policy or funding source could ever supply. 
Conversely, if we do not engage with them on developing the 
standard marketplace, it is our economy and our industry that 
will likely lose out.
    The Chinese are moving forward to develop these goods and 
services. Only through cooperative development of common 
standards will we also be able to benefit from their growing 
market. So I would encourage us to press the Chinese very hard 
on jointly developing standards with us.
    Thank you for this opportunity. I look forward to your 
questions.
    [The prepared statement of Ms. Smith follows:]
Prepared Statement of Taiya Smith, Senior Associate, Energy and Climate 
          Program, Carnegie Endowment for International Peace
    Mr. Chairman and Members of the Energy and Natural Resources 
Committee. Thank you for giving me the opportunity to comment on the 
global dynamics of climate change. I am going to focus my remarks on 
China and its role in managing climate change. The Climate and Energy 
program at Carnegie has focused much of its work on China and 
especially U.S.-China cooperation. Carnegie also has a significant 
China program, including an office in Beijing.
    On August 12, 2009, Chinese Premier Wen Jiabao announced that the 
State Council had decided to incorporate climate change into its 
economic and social planning process. ``Controlling greenhouse gas 
emissions and adapting to climate change,'' he said, would become ``an 
important basis for setting the medium and long-term development 
strategies and plans of government at every level.'' This decision by 
the State Council was the result of years of internal debate, study, 
and discussions with international and domestic climate change and 
economic experts. It was followed shortly after by China's top 
legislative chamber adopting a resolution calling for active engagement 
in global climate negotiations, and by new domestic initiatives to 
``make carbon reduction a new source of economic growth.''
    In order to achieve these objectives, in September this year at the 
United Nations General Assembly, President Hu announced to the world 
China's climate change goals, notably:

   Reducing energy intensity by 20% between 2005 and 2010.\1\ 
        China has reduced its energy used per unit of GDP by 1.8% in 
        2006, 4% in 2007, and 4.6% in 2008. In the first half of 2009, 
        China reduced energy intensity by 3.35%. Analysts predict that 
        if China is able to continue at this pace, it will reach its 
        2010 goal.
---------------------------------------------------------------------------
    \1\ ``The Energy Development Plan for the 11th Five-Year Period.'' 
the National Development and Reform Council (NDRC), Government of the 
People's Republic of China, April 2007. Available at: http://
www.ccchina.gov.cn/WebSite/CCChina/UpFile/File186.pdf
---------------------------------------------------------------------------
   Obtaining 15% of the nation's energy supply from non-fossil 
        fuels by 2020. China's internal goal is to have 15% of its 
        energy from renewable sources by 2020.\2\ Expectations are that 
        it will reach the internal goal. For example, by 2008, China 
        had 12 GW of installed wind capacity and anticipates having 20 
        GW by the end of 2009. In addition, China has the largest 
        surface area for solar water heating in the world and the most 
        nuclear power capacity under construction.
---------------------------------------------------------------------------
    \2\ ``The Medium and Long-Term Development Plan for Renewable 
Energy,'' the National Development and Reform Council (NDRC), 
Government of the Peoples' Republic of China, August 2007. Available 
at: http://www.ccchina.gov.cn/WebSite/CCChina/UpFile/2007/
20079583745145.pdf.
---------------------------------------------------------------------------
   Increasing forest coverage by 40 million hectares and forest 
        stock volume by 1.3 billion cubic meters by 2020 from 2005 
        levels (which is a 20% increase). China's reforestation effort 
        is one if its most successful programs, and the State Forestry 
        Administration believes that they are on target to reach this 
        goal. China's stated targets and objectives are impressive and, 
        according to official data, it appears to be on target to reach 
        them. To an American audience, two questions logically follow. 
        First, how can we validate the carbon emissions data coming 
        from China, and, second, what impact will China's addressing 
        climate change have on us?
                        validating china's data
    The question of how to evaluate the data provided by the Chinese 
government especially in light of the Chinese climate change 
negotiators clearly stating that China will not accept a carbon cap 
(which they see as limiting their economic growth potential) and 
instead will focus on carbon intensity targets. Carbon intensity refers 
to the amount of carbon used to produce a unit of gross domestic 
product. The key difference between a carbon cap and carbon intensity 
targets is that under the latter, carbon emissions would likely 
continue to grow as the economy continues to expand. However, given 
accurate predictions of economic growth, an intensity target can be 
translated into an escalating carbon cap which meets both the Chinese 
need to continue growing and the U.S. requirement that China not be 
allowed unlimited green house gas emissions.
    On its face, China has made remarkable progress towards its energy 
intensity goals. Under the current Five-Year Plan, China pledged to 
reduce its energy intensity by 20% between 2006 and 2010. According to 
Chinese authorities, by 2008, China had reduced its carbon intensity by 
10%. If the Five-Year Plan is fully implemented, addressing carbon 
intensity alone will reduce China's carbon dioxide emissions by 1.5 
billion tons, which is larger than that pledged in total by all of the 
other countries who ratified the Kyoto Protocol.
    To understand how serious China is about its climate change, we 
first need to understand its internal motivations. National stability 
is paramount in China. After decades of strife, China has now enjoyed 
relative peace for the last 30 years. But nearly all Chinese over the 
age of 50 still remember what it was like before the current era. Since 
1978, China has achieved near double digit GDP growth for over two 
decades and brought more than 300 million rural Chinese out of poverty. 
Much of the current stability rests on the promise that economic growth 
will continue and all citizens will achieve prosperity. Yet, as Beijing 
is aware, the prospects of this are tenuous. First, the miraculous 
growth that achieved the first round of growth has become harder and 
harder to achieve as China both moves up the industrialization scale 
and deals with the legacy of previous growth. Among the challenges it 
must face are a myriad of environmental degradation and public health 
hazards. In addition to the daily realities and domestic unrest brought 
by contamination, polluted air, and rivers that can no longer support 
fish (there are approximately 25 protests a day in China due to 
environmental issues), the government recognizes that environmental 
degradation is sapping GDP growth.
    At the same time, Beijing has been studying climate change and the 
potential effects it could have on China. The results of this study are 
worrying. China is in the part of the world that will be hardest hit by 
climate change, and will be managing rising sea levels, increasingly 
intense storms and desertification simultaneously. Severe winter storms 
two winters ago brought home the reality that dependence on foreign 
supplies of oil and coal for energy production is not viable long term 
for logistical as well as political reasons. China had long ago come to 
the conclusion that reliance on foreign oil creates difficulties 
politically and has focused efforts on trying to lock in oil and gas 
supplies (often from controversial countries like Sudan, Iraq, and 
Iran) to ensure supply.
    The impact of all these factors is that China has come firmly to 
the conclusion that it has to deal with climate change, in addition to 
energy security and environmental degradation, in order to maintain 
economic growth and thereby national stability. After years of 
research, top Chinese officials have come to the conclusion that there 
simply are not enough resources in the world to support another billion 
people living the energy-intensive lifestyle of the West. As a result, 
they are looking for a new, uniquely Chinese model of sustainable 
economic growth that will allow their population to achieve long term 
prosperity. With the State Council supporting the President and 
Premier, we are seeing the Chinese government taking an increasingly 
large role in international climate change activities. In the last six 
weeks, China has signed a climate change agreement with India, offered 
assistance with adaptation to Africa, and further strengthened its 
agreements with Japan on climate change and technology transfer.
    While the power of the central government in Beijing is essential 
to catalyze change in China, it is not necessarily enough to ensure 
that change does occur throughout the country. A popular saying in 
China explains that ``the mountains are high and Beijing is far away'' 
and therefore it is hard for the central government to ensure that 
policies and actions are taken in the manner prescribed. The Chinese 
government battles daily to enforce national policy and incentivize 
local governments, enterprises and individuals to support its goal of a 
sustainable model of economic growth. Along with the U.S. EPA, the U.S. 
Department of Energy, and U.S. state government officials, many 
American companies and NGOs are working closely with the Chinese 
government to improve China's oversight policies and processes. While 
there are still stories of power plant scrubbers sitting idle, there 
are an increasing number of positive stories.
    China has launched a series of programs to reach the goal of 
reducing energy intensity by 20%. Two of the most noteworthy programs 
are the ``Program of Large Substituting for Small,'' which shuts down 
small, inefficient coal fired powers plants, and the ``Top 1000 Energy-
Consuming Enterprises'' program, which set energy-saving targets for 
China's 1000 highest energy-consuming enterprises (themselves 
responsible for a staggering one-third of China's energy consumption). 
Since 2006, China has shut down 54 GW worth of small, inefficient coal 
plants and plans to close a further 31 GW in the next three years. As a 
result, many of the world's cleanest and most efficient coal-fired 
power plants are now located in China: the Chinese coal-fired power 
plant fleet is now more efficient on average than the U.S. fleet.\3\ 
The Top 1000 program began in 2006. That year, the program alone 
accounted for two-thirds of China's efficiency improvements and by 
2007, when the country was making improvements, the Top 1000 still 
represented half of all the efficiency improvements in the country. If 
the trend continues, by 2010 it could prevent 450 million tons of 
carbon dioxide from being released into the atmosphere from a business 
as usual scenario.\4\
---------------------------------------------------------------------------
    \3\ ``Cleaner Coal in China.'' 2009. International Energy Agency/
OPEC report
    \4\ Price, L., Wang. X, and Jiang, Y. (2008). ``China's Top-1000 
Energy-Consuming Enterprises Program: Reducing Energy Consumption of 
the 1000 Largest Industrial Enterprises in China.'' Lawrence Berkeley 
National Laboratory Report (LBNL-519E)
---------------------------------------------------------------------------
    While we have ways to monitor and evaluate actions on a project 
basis, we still have to rely on the central government for national 
statistics. For example, the metric by which the energy intensity 
target is measured is energy intensity of GDP. President Hu announced 
in September that China would decrease its energy intensity per dollar 
of GDP by a ``notable margin''. Looking past the withholding of an 
exact number (certainly done for negotiating purposes as this and 
monitoring and evaluation mechanisms are the two most significant 
issues China has to trade with developing countries in the COP 
negotiations), China has an established process for evaluating each 
province's energy intensity. Two ministries, the National Development 
and Reform Commission (NDRC) and the National Bureau of Statistics 
(NBS) jointly set standards and implement a comprehensive system 
reviewing progress made on the goals defined through the Five-Year 
Plan. While some have questioned the exact figures produced (some of 
which is explained by differing assessments of China's economic growth 
each year), the process is rigorous and has produced interesting 
results. We must continue to support the work being done through U.S. 
agencies to help China develop its internal monitoring and verification 
regime.
    The alternatives to depending on China's internal processes are 
limited. Many in China will resist allowing international inspectors 
into China to verify its emissions, in much the same way as many in the 
United States will resist allowing foreign inspectors to check heavy 
industry and power plants. Reciprocity, however, is a powerful tool. If 
the U.S. and the other key powers were to allow international 
inspectors, China would have a harder time holding out against them. 
Additionally, China is very sensitive to its international reputation. 
Establishing an international body that would allow countries to 
monitor each other through a dispute reconciliation mechanism, such as 
the way the WTO operates, could turn out to be one of the most 
effective ways to ensure both that China develops a strong internal 
system and that the international community has the ability to engage 
with China on the data that it issues. For such a system to work, China 
would have to be willing to report all its data to the management 
organization, not just those figures associated with internationally 
funded projects.
                      impact on the united states
    Knowing that China has the strong domestic motivation to address 
climate change and has now taken the political decision to make climate 
change part of its planning process, we can plan on there being a 
market in China for new and existing products and services oriented to 
cleaning up China's energy sector and addressing climate change, as 
well as other environmental impacts such as dirty water. The biggest 
impact for the U.S., outside of the climate change negotiations and 
global carbon emissions, is that the market for clean technology has 
expanded exponentially. The decisiveness of Chinese decision makers has 
made its market attractive to businesses searching for certainty. For 
example:

   China's total installed wind capacity doubled for the 4th 
        year in a row in 2008. At 12.2 GW capacity, China has the 
        fourth largest installed capacity in the world behind the U.S., 
        Germany, and Spain and plans to expand to 100GW by 2020. By the 
        end of 2008, 61.8% of China's market share came from domestic 
        and Sino-foreign joint venture turbine makers. In 2004, 
        foreign-made equipment accounted for 75%.\5\
---------------------------------------------------------------------------
    \5\ Global Wind Energy Council (2008). ``GWEC: China.'' Retrieved 
at: http://www.gwec.net/
---------------------------------------------------------------------------
   China has recently announced increased spending on research 
        and development and new subsidies to foster a stronger domestic 
        market in the solar field as well. The ``Golden Sun'' program 
        announced in July 2009 offers up to 70% of the cost of 
        installing PV generation and transmission systems for projects 
        selected by provincial governments.\6\
---------------------------------------------------------------------------
    \6\ China People's Daily. (July 22, 2009) Retrieve at: http://
english.people.com.cn/90001/90778/90857/90860/6707179.html

    In the last five years, Chinese renewable energy firms have 
capitalized on domestic incentives and binding renewable energy targets 
to grow the wind industry in China. At first it appeared that the 
government incentives were not available to foreign participants. 
However, following the meeting of the U.S.-China Joint Commission on 
Commerce and Trade (JCCT) in which China agreed to drop its ``Buy 
Chinese'' policy that required local governments to source more than 
70% of products and technologies from domestic sources, we may see a 
resurgence of foreign companies investing in this sector.
    We will need to keep the pressure on China to keeps its markets 
open. The most powerful tool that we have to drive the development and 
deployment of technology is the combined U.S.-China market. Bringing 
together a single, standard U.S. and China market for these goods and 
services provides market-based incentives that no policy or government 
funding source could ever supply.
    Conversely, if we do not engage with them on developing this 
standard marketplace, it is our economy, and our industry, which will 
likely lose out. The Chinese are going to move forward to develop these 
goods and services; only through cooperative development of common 
standards will we also be able to benefit from their growing market. 
Several steps can help us reach that goal, including to:

   Work with China to create policies that encourage 
        competition in clean technology.
   Emphasize the importance of dropping barriers, from policy 
        to political, to market access and investment in each other's 
        country. As in the discussion on monitoring and verification, 
        reciprocity is a strong tool. ``Buy American'' clauses are 
        often met with ``Buy Chinese'' clauses. At the same time, we 
        need to educate Chinese investors that developing American jobs 
        is part of the cost of investing in the U.S.
   Press China hard to jointly develop new standards with us. A 
        single standard for new technology, such as electric vehicle 
        batteries, will ensure that American companies are able to 
        compete in the Chinese markets.
                                summary
    In summary, China is making many of the right steps towards 
managing climate change. Its policies and actions are aligned to 
achieve substantial cuts in the country's carbon emissions in the 
short, medium and long term. China needs to find a new model of 
sustainable economic growth in order to ensure stability, energy 
independence, and environmental health. Managing climate change is a 
critical part of that mix. The U.S. can have confidence that China is 
going to do what it says it is going to do because its motivations are 
internal. And, China is continually improving its ability to enforce 
its own policies. Improving the process by which Beijing monitors how 
well it reaches its national goals requires continued technical 
support. While it is unlikely that China will allow international 
inspectors, a process that puts its reputation at stake could be 
helpful. Most important is the recognition of reciprocity. China will 
push back hard against any policy or initiative that appears to set it 
in a special category.
    Finally, for the United States, China represents a critical market. 
Access to the joint American-Chinese market will be a critical 
motivator for the development and dissemination of clean technology. We 
need to work with the Chinese to ensure that we keep our markets open 
to each other. Specifically, we need to develop shared standards, drop 
barriers to access and investment in each other's markets, and 
implement the right set of incentives to encourage competition in this 
rapidly expanding sector.
    Thank you for this opportunity to appear before you. I look forward 
to your questions. Thank you.

    The Chairman. Thank you very much.
    Ms. Harbert, why don't you go right ahead.

 STATEMENT OF KAREN HARBERT, PRESIDENT AND CEO, INSTITUTE FOR 
            21ST CENTURY ENERGY, CHAMBER OF COMMERCE

    Ms. Harbert. Thank you, Chairman Bingaman and Ranking 
Member Murkowski and members of the committee, for holding this 
hearing and inviting me to participate. My testimony today will 
focus on what I believe are some of the major components and 
challenges to an international agreement and where I believe 
the business community can play a constructive role.
    Trying to get over 190 countries to agree on a new treaty 
would be tough enough even in the best of economic 
circumstances, and these today are not the best of economic 
times. It's important to keep in mind the global context in 
which these negotiations are occurring. The world has changed 
considerably since the U.N. framework convention was launched 
in 1992, with the vast majority of future energy demand and 
greenhouse gas emissions coming now from the developing world.
    Our energy institute has cautioned for some time about 
unrealistic expectations surrounding technology readiness and 
commercial adoption, short-term commitments by developed 
countries, burden-sharing by developing countries, capital 
requirements, expectations for wealth transfers, technology 
transfer, and intellectual property. The complexity of these 
issues has yielded confrontation and finger-pointing and not 
much progress.
    I think it would be a mistake to draw from these 
developments the conclusion that all would be well if only the 
U.S. had domestic legislation in hand. These issues go well 
beyond what we can expect to see addressed in domestic 
legislation and they will be no less contentious even when we 
have it. We need to put to rest the idea if the U.S. goes first 
China, India, and other large emerging countries will fall in 
line into binding commitments of their own when they currently 
have no legal obligation to do so. This remains an unjustified 
article of faith and carries with it considerable risk.
    We have seen with the Kyoto Protocol that a top-down 
approach does not work. We need in a new agreement a bottom-up 
approach that accommodates a wide range of national 
circumstances and should be as simply as possible to implement.
    Climate change risks need to be addressed as part of an 
integrated agenda that proceeds from a very clear understanding 
that for many countries energy security is still a greater 
concern than climate change. At its most fundamental level, 
reducing carbon dioxide emissions from energy is a technology 
challenge that, as an article in Science once famously noted, 
``cannot simply be regulated away.'' It can't be negotiated 
away, either. It has to be innovated.
    An agreement that focuses on technology offers a path 
forward that developed and developing nations can embrace 
together. How rapidly advanced energy technologies develop and 
are adopted commercially will be the most important factor In 
determining how quickly and at what cost greenhouse gas 
emissions can be reduced. Existing technologies surely can make 
an important contribution, but they alone are not capable of 
significantly reducing greenhouse gas emissions on the global 
scale at an affordable cost.
    New and in some case revolutionary energy technologies, 
many still years, if not decades, over the horizon, will have 
to be developed, invested in, adopted commercially, and we need 
the infrastructure to go along with them. That's why it's so 
critical that there not be a weakening of intellectual property 
rights in any agreement, which would only serve the stymie the 
development of the very technologies we need to make progress.
    With a clear stake in the process, developing country 
governments can be convinced that intellectual property 
protections are in their interests as well as ours. Their 
businesses already know this. From less than 5 percent of 
patents in 1998, emerging economies now account for roughly 20 
percent of patents worldwide.
    Improving the performance and lowering the cost of advanced 
alternative technologies can, if successful, broaden the range 
of economically and politically viable policy options available 
to decisionmakers. However, in order to have these technologies 
more quickly penetrate both developed and developing nations' 
markets, we should seriously undertake efforts to reduce global 
tariff and non-tariff barriers on clean energy goods and 
services.
    In addition, to be credible and effective in reducing 
greenhouse gas emissions a new arrangement must include 
realistically ambitious commitments by all countries. Large 
developing countries like China, India, and Brazil must be part 
of any new international accord for it to actually reduce 
greenhouse gas emissions.
    Finally, we believe there needs to be a greater role for 
the international business community in these negotiations. 
When all is said and done, after all, it's largely going to 
fall on the business community to implement whatever's in the 
treaty. Given the right environment, business is prepared to do 
what it does best: innovate to find solutions. But we need a 
seat at the table.
    In September the U.S. Chamber hosted the first meeting of 
the major economies business forum on energy security and 
climate change. Over 2 days, high-level representatives from 13 
business organizations spanning 6 continents and representing 
more than 25 million businesses exchanged views, identifying 
common ground on many of the issues being considered in the 
international negotiations.
    Maybe surprising to policymakers, but not to businesses, 
there was a significant amount of agreement on the importance 
of practically addressing energy security, finance, technology, 
and economic competitiveness issues. I would ask that the 
formal declaration* endorsed by all those business 
organizations be included in the record of this hearing.
---------------------------------------------------------------------------
    * Document has been retained in committee files.
---------------------------------------------------------------------------
    The Chairman. It will be included.
    Ms. Harbert. Our organizations will continue to meet 
regularly to provide valuable and practical input to the 
international negotiations. But the bottom line is this: 
International business and the business community would welcome 
a more formal role in the U.N. framework convention and the 
major economies forum, and we should be allowed to do so. We 
are the solution.
    In closing, let me say that business needs a predictable 
environment in which to operate and plan and remain 
competitive, and it would welcome an ambitious international 
climate change agreement. But that ambition needs to be 
tempered with a healthy dose of pragmatism. A realistic vision, 
focused on technology, that encourages cooperation, not 
confrontation, would be a good place to start.
    Thank you, and I'll be happy to answer any of your 
questions.
    [The prepared statement of Ms. Harbert follows:]
 Prepared Statement of Karen Harbert, President and CEO, Institute for 
                21st Century Energy, Chamber of Commerce
                           executive summary
    As this year's negotiations wind their way to a conclusion in 
Copenhagen, Denmark, the prospect of a new international deal is not 
very bright, and it is not hard to see why.
    Consider that the starting point for discussion is a 50% reduction 
in global greenhouse gas emissions by 2050. Endorsed by G8 leaders, 
this ``50-by-50'' goal is among the most aggressive of the 177 
emissions reduction scenarios examined by the Intergovernmental Panel 
on Climate Change.
    Meeting such a goal would require large and expensive emissions 
reductions and avoidances, most of which would have to occur in 
developing countries. Th ough ultimately non-binding and unenforceable, 
the long-term vision nonetheless drives expectations about technology 
readiness and commercial adoption, short-term goals, burden sharing by 
developing countries, finance and wealth transfers, and technology 
transfer, issues that are among the most contentious in the 
international negotiations. A 2008 report from the International Energy 
Agency (IEA) describes the scale of the technology breakthroughs that 
would be needed over the next 40 years to transform the energy sector 
and halve global carbon dioxide emissions from their 2005 level.
    In the power sector, IEA estimates that carbon-free sources would 
have to boost their output over 550% and provide 95% of the electricity 
generated worldwide in 2050. To realize a shift of this magnitude, 
nuclear capacity would have to be added at an annual rate half again as 
large the historical high every year from 2010 to 2050. Renewable 
energy sources (excluding hydropower) also would have to be installed 
at a breakneck pace and grab 34% of an electricity market well more 
than twice the size it was in 2005, when these renewables claimed a 
meager 2% market share. Additionally, all coal plants and most natural 
gas plants would have to be fitted with carbon capture technology, 
which is not yet commercially available and may not be for many years.
    The world's transportation sector, now dominated by oilbased fuels, 
would have to undergo similarly sweeping changes. For example, from 
virtually none today, IEA estimates that by 2050 nearly 1 billion 
electric and fuel cell cars would have to be on the world's roads.
    Developing countries contend that as developed countries are 
responsible for most of the build-up of atmospheric carbon dioxide (a 
debatable claim), they should go first with emissions cuts of at least 
40% to 45% below the 1990 level by 2020 and 80% to 95% below by 2050.
    These targets are an extraordinary leap for developed countries; no 
developed country has proposed such reduction schemes to date. Even if 
developed countries could achieve these deep cuts, without meaningful 
commitments by developing countries, prospects for meaningful 
reductions in greenhouse gases remain dim. That is because about 80% or 
more of the expected growth in global carbon dioxide emissions to 2050 
is expected to occur in developing countries, with China and India 
leading the way. As challenging as it is for developed countries to 
rein in emissions, the challenges for developing countries, which need 
cheap, reliable energy to raise living standards, are greater still.
    Let us assume that developed countries succeeded in cutting 
emissions by 80% in 2050. To meet a 50% global target, total emissions 
from developing countries, aft er rising for decades, would have to 
return to or slightly below their 2000 level in 2050. What is more, 
because developing countries will have much larger populations 40 years 
hence, their per capita emissions, now about 2.5 tons, would have to be 
lower, too--and that would be the case even if developed countries 
slashed their emissions to zero.
    With billions of people still lacking access to electricity, 
developing countries are unlikely to cap emissions if it hampers their 
economic development. Many sit on large reserves of fossil fuels and 
see no reason why they should forgo their use. They've made it plain 
that their cooperation will come only with significant financial 
contributions from other countries.
    Developing countries are pressing the United States and other 
developed countries to transfer anywhere from 0.5% to 2.0% of their 
gross domestic product each year to bankroll climate change programs in 
developing countries. At that rate, in 2008 the cost to American 
taxpayers alone would have been $72 billion to $289 billion.
    But even that might not be enough. A Massachusetts Institute of 
Technology report warns that if developing countries are fully 
compensated for their efforts, implied financial transfers from 
developed countries could amount to over $400 billion annually in 2020 
and about $3 trillion in 2050.
    Developing countries also are trying to use the negotiations to 
weaken intellectual property protections through compulsory licensing 
of advanced energy technologies, ostensibly to remove barriers to 
``technology transfer.'' Without intellectual property rights, there is 
very little incentive for companies to invest in costly research and 
development that will lead to the technology breakthroughs required to 
meet reduction targets.
    Just as worrisome are threats by some governments to impose carbon 
tariffs on goods coming from nations that don't take on comparable 
commitments, which would inevitably lead to a green trade war.
    Every delegation at the U.N. negotiating table understands these 
numbers, so it is little wonder the Parties remain so far apart. Many 
countries are coming to realize that it is one thing to achieve 50-by-
50 in a computer model, quite another in the real world.
    How rapidly advanced energy technologies develop and are adopted 
commercially will be the most important factor in determining how 
quickly and at what cost greenhouse gas emissions can be reduced. An 
accelerated program to improve the performance and lower the costs of 
advanced alternate energy technologies can, if successful, broaden the 
range of economically and politically viable options available to 
policymakers. National and international climate policy should 
concentrate on supporting greater energy efficiency and 
commercialization of low-carbon technologies for energy supply. In 
addition, developed and large developing countries alike must make a 
larger commitment to technology development worldwide.
    A new agreement should be flexible; recognize growing energy needs; 
set realistic goals; ensure global participation, including major 
developing countries; promote the development of and trade in clean 
energy technologies; protect intellectual property; and maintain U.S. 
competitiveness.
    At the end of the day, all the ``modalities'' and ``frameworks'' 
erected in these negotiations cannot ward off failure if the goal 
itself is not practicable.
    Business needs a predictable environment in which to operate and 
plan, and it would welcome an ambitious agreement. But that ambition 
needs to be tempered with a healthy dose of pragmatism. A realistic 
vision that encourages co-operation would be a good place to start.
    This paper explores some of the fault lines among the Parties in 
the negotiations, primarily the rift between developed and developing 
countries. It discusses the scale and scope of the technology 
challenge--which oft en gets overlooked in the public discussion--and 
some of the dynamics at work that hinder an agreement. And it off ers 
the broad outlines of a technology-centered approach that could form 
the basis of a workable agreement.
                             state of play
    Climate change is among the most complex issues facing the 
international community. Negotiations are currently taking place under 
both the United Nations Framework Convention on Climate Change (UNFCCC) 
and the Kyoto Protocol with a goal of completing a new arrangement to 
address climate change in Copenhagen, Denmark at the end of 2009. 
However, despite the urgency governments attach to an agreement, the 
prospects for a comprehensive deal remain dim.
    The ultimate long-term objective of the Convention, which was 
adopted in 1992 and entered into force in 1994, is the stabilization of 
greenhouse gas concentrations in the atmosphere at a level [undefined 
in the text] that would prevent dangerous anthropogenic interference 
with the climate system. This goal should be achieved within a time 
frame that would allow ecosystems to adapt and in a manner that ensures 
food production is not threatened and that would promote sustainable 
economic development (UNFCCC 1992). Meeting these complementary 
objectives will require a sustained, long-term commitment by all 
nations over many generations.
    The Kyoto Protocol completed in 1997 sets binding greenhouse gas 
emissions targets for 37 developed countries and the European Community 
that combined would reduce emissions for these countries as a whole 5% 
below the 1990 level over the period 2008 to 2012. Developing countries 
have no obligations to slow or reduce emissions under the Protocol. To 
date, 187 UNFCCC Parties have acceded to the Protocol, excluding the 
United States.
    The Bali Action Plan agreed to at the 13th Conference of the 
Parties in Indonesia in December 2007 launched a twoyear negotiations 
process to strengthen the international response to climate change 
through the ``full, effective and sustained implementation of the 
Convention through longterm cooperative action, now, up to and beyond 
2012, in order to reach an agreed outcome and adopt a decision'' at 
Copenhagen in 2009.
    The Bali Action Plan set up two parallel negotiating tracks: (1) a 
Kyoto Protocol track, which is looking at a second commitment period 
under that treaty; and (2) a ``Long-Term Cooperative Action'' track 
under the UNFCCC. The U.S. observes in the former and participates in 
the latter. If or how these two tracks merge is the topic of 
considerable speculation. For procedural reasons it could only occur in 
Copenhagen at the earliest.
    The negotiations revolve around a shared vision for longterm co-
operation--including a global emissions goal--and four actions areas 
covering mitigation, adaptation, technology, and finance (UNFCCC 2007).
    The success of these negotiations will depend in large part on the 
ability of the developed countries to entice large developing countries 
such as China, India, and Brazil into a binding agreement, but that 
will be easier said than done. The rift between developed and 
developing countries is wide, and it is difficult to see how it can be 
bridged in the remaining negotiating sessions. Just how far apart the 
Parties remain can be seen in the leaders' statements on climate change 
emerging from the G8,\1\ Major Economies Forum on Energy and Climate 
(MEF),\2\ and G5\3\ meetings in Italy last July. The matrix in table 1 
breaks down the emissions targets each group of countries was able to 
agree on in Italy.
---------------------------------------------------------------------------
    \1\ The Group of Eight includes the United States, Canada, France, 
Germany, Italy, Japan, Russia, and the United Kingdom.
    \2\ The MEF includes the United States, Australia, Brazil, Canada, 
China, the European Union, France, Germany, India, Indonesia, Italy, 
Japan, the Republic of Korea, Mexico, Russia, South Africa, and the 
United Kingdom.
    \3\ The Group of Five includes Brazil, China, India, Mexico and 
South Africa.
---------------------------------------------------------------------------
      

       Matrix of Climate Change Declarations for the G8, MEF & G5
------------------------------------------------------------------------
             Issue                     G8              MEF          G5
------------------------------------------------------------------------
Average Global  Temperature     2 above pre-     2 above pre-    ----
 Limit                           industrial       industrial
------------------------------------------------------------------------
Peak Global Emissions           As soon as       As soon as      ----
                                 possible         possible,
                                                  with
                                                  developed
                                                  countries
                                                  peaking
                                                  before
                                                  developing
                                                  countries
------------------------------------------------------------------------
                                        Short-Term Target (2020):
------------------------------------------------------------------------
Global                          ----             ----            ----
------------------------------------------------------------------------
Developed Countries             ``Robust''       ``Robust''      -40%
                                 aggregate and    aggregate and   from
                                 individual       individual      1990
                                 reductions       reductions      baseli
                                                                  ne
------------------------------------------------------------------------
Developing Countries            Reduce           ``Meaningful''  .......
                                 emmissions       deviation
                                 below            from [Note:
                                 ``business-as-   not
                                 usual''          ``below'']
                                 projections      business-as-
                                                  usual
------------------------------------------------------------------------
                                         Long-Term Goal (2050):
------------------------------------------------------------------------
Global                          -50% (no         ----            ----
                                 baseline
                                 provided)
------------------------------------------------------------------------
Developed Countries             -80% from 1990   ----            ----
                                 baseline
------------------------------------------------------------------------
Developing Countries            ----             ----            ----
------------------------------------------------------------------------

    Much has been made of the reference in the G8 and MEF declarations 
to limit the average global surface temperature to no more than a 2C 
increase above the pre-industrial level.\4\ Using the ``best estimate'' 
provided by the Intergovernmental Panel on Climate Change's Fourth 
Assessment Report (IPCC 2007), a 2C target translates into an 
atmospheric carbon dioxide concentration in the range of 350 ppm to 400 
ppm.\5\ (To put this in perspective, the current atmospheric 
concentration of carbon dioxide is a little under 390 ppm, roughly 120 
ppm above the preindustrial level.) To get global emissions on a 
trajectory to stabilize atmospheric carbon dioxide concentrations 
within this range, IPCC estimates that global emissions would have to 
peak no later than 2015 and would have to be about 50% to 85% below 
their 2000 level in 2050.\6\
---------------------------------------------------------------------------
    \4\ Both the G8 and the MEF declarations state that it is the 
``scientific view'' that the average global temperature ``ought not'' 
exceed 2C above the pre-industrial level. The IPCC is barred, however, 
from offering policy recommendations in its reports. The IPCC presents 
a range of possible emissions pathways to stabilize the atmospheric 
carbon dioxide concentration.
    \5\ This is based on a best estimate of climate sensitivity whereby 
a doubling of the atmospheric concentration of carbon dioxide would 
lead to a 3C average global temperature rise from the preindustrial 
average (IPCC 2007, WGIII SPM Table SPM.5). IPCC, however, gives a 
range of climate sensitivities from about 2.0C to 4.5C. Th us, there 
is a range of possible atmospheric carbon dioxide concentrations, 
roughly from about 300 ppm to 550 ppm, corresponding to a 2C average 
rise. Th e emissions trajectories needed to meet either end of this 
range are very different.
    \6\ A 50% cut in carbon dioxide emissions by 2050 would not 
stabilize atmospheric carbon dioxide concentrations in the 350ppm to 
400ppm range. Further cuts and avoidances would be needed after 2050. 
In fact, IPCC notes that many scenarios aimed at meeting the most 
aggressive carbon dioxide stabilization targets--440 ppm and lower--
call for net negative global emissions sometime before 2100 (IPCC 
2007).
---------------------------------------------------------------------------
    The G8 also reiterated its support specifi cally for a 50% 
reduction in global emissions by 2050 (with no baseline supplied), and 
it called on developed countries to commit to an 80% reduction from a 
1990 baseline over the same period.
    The G5 statement is noteworthy more for what it leaves unsaid. 
Developing countries as a group clearly are not interested in moving 
the discussion beyond midterm commitments for developed countries. As 
long as the discussion focuses on 2020, developing countries really see 
no reason to do much of anything. That is not the case when the 
discussion turns to a 2050 global goal.
    In the U.N. negotiations, the idea of a 50% reduction in global 
emissions (from base years ranging from 1990 to 2005) by 2050--with 
developed countries pitching in at least 80%--has become the starting 
point of discussion of the long-term emissions goal.\7\ The general 
view is that, as part of the shared vision, this ``50-by-50'' long-term 
goal will not be considered operational, but rather aspirational.
---------------------------------------------------------------------------
    \7\ Draft U.N. negotiating text in the Ad Hoc Working Group on 
Long-Term Cooperative Action has a number of different proposals--
stabilizing greenhouse gases (in carbon dioxide equivalents) from 350 
ppm to 450 ppm, limiting the temperature rise from 1.5C to 2C, and 
reducing global emissions anywhere from 50% to 95% below the 1990 level 
by 2050 (UNFCCC 2009a)--all of which imply a minimum global reduction 
of 50% by 2050.
---------------------------------------------------------------------------
    Though ultimately non-binding and unenforceable, the longterm 
vision nonetheless drives expectations about technology readiness and 
commercial adoption, short-term goals, burden sharing by developing 
countries, fi nance and wealth transfers, and technology transfer, 
issues that are among the most contentious in the international 
negotiations.
                       technology scale and scope
    As we consider the international negotiations, it is important to 
take stock of the technology challenge to achieve deep reductions in 
carbon dioxide emissions. A 50-by-50 global goal is among the most 
aggressive of the 177 emissions reduction scenarios examined by the 
Intergovernmental Panel on Climate Change. Meeting it would demand the 
almost complete transformation of the global energy system in just 40 
years. It would require extremely large and expensive emissions 
reductions and avoidances, most of which would have to occur in 
developing countries, from where the lion's share of future emissions 
are expected to come.
                         a note about the data
    For simplicity, most of the 50-by-50 scenario data cited in this 
paper stem from IEA 2008 unless noted otherwise. The IEA's scenario 
results are consistent with those of other groups, such as the U.S. 
Climate Change Science Program's report on stabilization scenarios 
(CCSP 2007), which included scenario results from three different 
models. The IEA figures should be seen as an indication of the scale 
and scope of the changes in energy systems and reductions and 
avoidances in emissions that would be needed to meet a 50-by-50 target 
for energy-related carbon dioxide only (it does not consider emissions 
of carbon dioxide from land use change or industrial processes or 
emissions of other greenhouse gases). While mitigation scenarios from 
other groups yield somewhat different results, they are generally all 
of the same magnitude and tell essentially the same story.
    In addition, the definitions of ``developed'' and ``developing'' 
countries in the IEA report align with OECD and non-OECD countries, not 
the more familiar Annex I and Non-Annex I designation used in the 
UNFCCC. This does not impact the data in any meaningful way.
    The scale of the changes required to meet a goal of this magnitude 
is not well appreciated. A 2008 report from the International Energy 
Agency (IEA) describes in detail the technology breakthroughs--in 
fossil fuel power generation; carbon capture and storage; nuclear 
energy; biomass, wind, solar, and other renewable energy; 
transportation fuels; batteries; electricity systems; and other 
technologies--that would be needed over the next 40 years to transform 
the energy sector and halve global energy-related carbon dioxide 
emissions from their 2005 level (IEA 2008).\8\
---------------------------------------------------------------------------
    \8\ Using IEA's ``BLUE Map'' scenario. The IEA ``50-by-50'' 
scenario described is compared to a no-policy ``reference case.'' This 
reference scenario assumes that some technology and efficiency 
improvements will occur even in the absence of any additional climate 
change policies. Thus projected emissions are lower than they would be 
under a scenario where technology and efficiency were ``frozen'' over 
the next 40 years. The 50-by-50 mitigation scenario focuses on 
determining the amount of additional emissions reductions needed beyond 
the reference scenario.
---------------------------------------------------------------------------
    There is always a large element of uncertainty when peering into 
the future, and as IEA notes, many of the technologies demanded by a 
50-by-50 scenario are still under development, and their progress is 
highly uncertain. Even under the most optimistic circumstances, 
however, 50-by-50 would be extraordinarily difficult to achieve.
    In 2005, global emissions of carbon dioxide were around 26.6 
gigatons.\9\ IEA estimates that, assuming no additional climate 
policies and some ``business as usual'' technology and energy effi 
ciency improvements, global carbon dioxide emissions could rise to 61.7 
gigatons by 2050. To halve energy-related carbon dioxide emissions in 
2050 relative to 2005--i.e., 13.3 gigatons--implies reductions and 
avoidances in excess of 48 gigatons, an amount about equal to 8 times 
current U.S. carbon dioxide emissions (figure 1).*
---------------------------------------------------------------------------
    \9\ A gigaton equals 1 billion metric tons.
    * Figures 1-7 have been retained in committee files.
---------------------------------------------------------------------------
    Energy efficiency is the biggest source of emissions reductions in 
IEA's scenario. Immediately following the oil price shock of the 1970s, 
energy effi ciency in developed countries improved at a rate of about 
2.5% per year. More recently, however, yearly efficiency improvements 
have been lagging at well less than half that rate. To achieve 50-by-
50, IEA requires energy effi ciency to improve at a sustained rate of 
1.7% from 2010 to 2050 compared to 0.9% in its baseline scenario. This 
represents an increase in rate of annual effi ciency gains of 85% to 
90% and would be very challenging to maintain. Under its 50-by-50 
scenario, total global energy demand is one-third less than in the 
reference case.
    In the power sector, IEA estimates that electricity production will 
more than double from 2005 to 2050. In 2005, non-emitting sources of 
power accounted for about one-third of electricity generated worldwide, 
and just about all of that was from either nuclear or hydropower 
sources. To meet rising electricity demand and reduce carbon dioxide 
emissions, carbon-free sources would have to boost their output from 6 
to 40 petawatt hours,\10\ a jump of more than 550%, and provide 96% of 
the electricity generated worldwide in 2050 (figure 2).
---------------------------------------------------------------------------
    \10\ A petawatt hour equals one quadrillion watt hours.
---------------------------------------------------------------------------
    To realize a shift of this magnitude, low-emission sources of power 
would have to be at added at an unprecedented rate (figure 3). Nuclear 
capacity would have to be added at an annual rate half again as large 
the historical high every year from 2010 to 2050. Renewable energy 
sources, excluding hydropower, would have to be installed at a 
breakneck pace--rising about 3,500%--and grab 34% of an electricity 
market well more than twice the size it was in 2005, when non-hydro 
renewables claimed a meager 2% market share. (For example, nearly 
18,000 4-megawatt wind turbines would have to be installed each year 
from 2010 to 2050.\11\) By 2050, all coal plants and most natural gas 
plants would have to be fitted with carbon capture technology, which is 
not yet commercially available and may not be for many years.
---------------------------------------------------------------------------
    \11\ Most wind turbines in service and available today are rated 
well below 4 megawatts.
---------------------------------------------------------------------------
    The world's transportation sector, now dominated by oilbased fuels, 
would have to undergo similarly sweeping changes. Batteries and fuel 
cells are expected to be the main alternatives to the internal 
combustion engine in automobiles. Because these alternatives are too 
expensive and impractical for trucks, ships, and planes, biofuels are 
expected to play a greater role in these transport modes.
    On average, something on the order of 85% to 90% of all the cars 
and light trucks sold annually from 2010 to 2050 would have to be some 
sort of alternate vehicle, and by 2050, new conventional gasoline and 
diesel vehicles essentially would be unavailable. Figure 4 shows the 
dramatic change in global new car sales in 2050 under IEA's business as 
usual baseline and 50-by-50 scenarios. From virtually none today, IEA 
estimates that 40 years from now nearly 1 billion electric and fuel 
cell cars would have to be on the world's roads.
    A 50-by-50 goal would demand, then, an unprecedented global 
transformation of existing and future energy systems away from fossil 
fuels--which in 2005 supplied nearly 90% of energy demand--on a massive 
scale and at a breathtaking pace.\12\ IEA pegs the additional 
investment for all this at $45 trillion, a yearly average, it notes, 
equivalent to the (GDP) national product of Italy.\13\ By 2050, the 
marginal costs for a ton of carbon dioxide would be $200. Under a more 
pessimistic technology outlook, the cost of carbon dioxide could climb 
to $500 to $800 a ton.
---------------------------------------------------------------------------
    \12\ The technology challenge may be even greater than many models 
suggest. An analysis of the IPCC's mitigation scenarios appearing in 
Nature found that two-thirds or more of the emissions reductions from 
technology change and effi ciency improvements are built in to the no-
policy reference cases. The amounts of ``spontaneous decarbonization'' 
assumed in the IPCC reference cases, the authors argue, are 
``optimistic at best and unachievable at worst, potentially seriously 
underestimating the scale of the technological challenge.'' They 
conclude that ``if most decarbonization does not occur automatically, 
then the challenge to stabilization could in fact be much larger than 
presented by the IPCC'' (Pielke Jr. et al. 2008). Recent trends in 
global emissions lend credence to this view. IPCC, for example, reports 
that, ``Th e long-term trend of a declining carbon intensity of energy 
supply reversed aft er 2000'' (IPCC WGIII 2007).
    \13\ IEA did not measure global GDP impacts, noting that, ``Th is 
expenditure represents a re-direction of economic activity and 
employment, and not necessarily a reduction in GDP'' (IEA 2008).
---------------------------------------------------------------------------
                     sharing the burden--after you
    Studies on global emissions trends demonstrate that emissions 
reductions by the developed world alone cannot reduce global emissions 
appreciably. There is, however, a huge and perhaps unbridgeable divide 
between the developed countries and the developing countries. The 
UNFCCC did not create these divisions, but it does refl ect and sustain 
them.
    The blame game is played with great aplomb within the Convention. 
Developing countries assert that as developed countries bear 
``historical responsibility'' for most of the build-up of atmospheric 
carbon dioxide,\14\ they bear a responsibility to reduce emissions in 
their own countries and finance reductions in others. This notion of 
historical responsibility pervades much of the negotiations.
---------------------------------------------------------------------------
    \14\ This is a debatable claim. An analysis commissioned by the 
UNFCCC and presented at the COP-14 in Bali, Indonesia suggests that 
when land use change is factored in, total emissions from large 
developing countries have contributed appreciably to the stock of 
atmospheric carbon dioxide (though their per capita contribution would 
still be relatively low) (MATCH 2007).
---------------------------------------------------------------------------
    In addition, the Convention's preamble expresses the view that 
``the share of global emissions originating in developing countries 
will grow to meet their social and development needs'' (UNFCCC 1992). 
The link between industrialization and increasing greenhouse gas 
emissions is strong, so it is expected that as these countries develop 
economically, they will emit more.
    Parties to the UNFCCC also agreed in the treaty text that, as a 
matter of principle, protecting climate system should be ``on the basis 
of equity and in accordance with their common but differentiated 
responsibilities and respective capabilities. Accordingly, the 
developed country Parties should take the lead in combating climate 
change and the adverse eff ects thereof '' (UNFCCC 1992). In other 
words, developing countries are not expected to do as much as developed 
countries, which have greater economic and technological capabilities 
to curb emissions. This principle of common but differentiated 
responsibilities is on full display in the Kyoto Protocol, where only 
developed countries have binding obligations to reduce emissions, a 
state of affairs developing countries have no incentive to see changed.
    While the gradation between developed and developing countries has 
always been murky, the Convention, nonetheless, established and 
maintains clear lines of differentiation among its Parties. The 
Convention divides Parties into three main categories, and it is 
through these designations that the commitments and responsibilities of 
the Parties largely have been determined.
    Annex I includes countries that made up the Organization for 
Economic Co-operation and Development (OECD) in 1992 and countries with 
``economies in transition'' (Russia, the Baltic states, and most 
Central and Eastern Europe states). In general, the Convention places a 
heavier burden on Annex I countries to report and reduce greenhouse gas 
emissions. The OECD countries listed in Annex I comprise Annex II. This 
subset of countries is obliged to provide financial support to 
developing countries for reporting, mitigation, and adaptation 
activities. All other countries--almost all of which can be viewed as 
developing--are designated Non-Annex I.
    The world has changed considerably since the UNFCCC was launched in 
1992. Mexico and South Korea, both Non-Annex I Parties, are OECD 
members. Singapore, another Non-Annex I party, has one of the highest 
levels of per capita income in the world. Major emitting countries like 
China, India, Brazil and other large and emerging economies are rapidly 
industrializing and becoming major players in the world's economies and 
its energy markets.
    There are, however, no criteria or instruments in the Convention 
that would automatically move Parties, as they advance economically, 
from Non-Annex I to Annex I, or even to an intermediate status. The 
Convention does allow for changes to occur either voluntarily or 
through a treaty amendment, an arduous process requiring consensus of 
the Parties or, if that cannot be achieved, a three-fourths majority 
vote.\15\
---------------------------------------------------------------------------
    \15\ Provision was made in the UNFCCC to consider additions to 
Annex I by 1998, and six European countries were added.
---------------------------------------------------------------------------
    Obviously, developed countries have a strong interest in supporting 
such a change, and Australia, for one has been pushing to introduce 
such a mechanism into the Kyoto Protocol. Just as obvious, developing 
countries have no incentive to agree to a more systematic and dynamic 
approach not only because of what this may mean for them in the UNFCCC, 
but in other U.N. and international venues as well. None of this alters 
the fact that to reduce global emissions appreciably, any new 
international arrangement addressing climate change must include active 
participation from developing countries, especially large economies 
like China and India. In this regard, the Bali Roadmap that emerged 
from the UNFCCC talks in Indonesia in 2007 was promising in that 
developing countries agreed to consider ``nationally appropriate 
mitigation actions'' that are ``measurable, reportable, and 
verifiable''. Such actions would be ``supported and enabled by 
technology, financing and capacity-building'' from developed countries 
(UNFCCC 2007).
    It is within these broad parameters that the negotiations should be 
viewed, particularly the discussions about burden sharing to achieve a 
global emissions goal.
    Developed countries have proposed a global goal of a 50-by-50 
reduction, with developed countries kicking in an aggregate reduction 
of 80% through ``comparable'' reductions by individual states. 
Consistent with the concept of common but diff erentiated 
responsibilities and respective capabilities, more advanced developing 
countries (e.g., South Korea, Singapore, Mexico) would undertake 
significant mitigation commitments, and major emitting developing and 
emerging economies (e.g., China, India, Brazil, South Africa) would 
reduce their emissions growth below a business-as-usual baseline.
    For their part, developing countries contend that because human-
induced climate change has global impacts, the ``carbon space'' should 
be shared more equitably. This carbon space represents the historical 
and future amount of greenhouse gas emissions that would be consistent 
with a specific (and presumably agreed upon) concentration of carbon 
dioxide in the atmosphere. Citing historical responsibility, developing 
countries argue that developed countries have exceeded their fair share 
of the carbon space. Thus, developed countries have an obligation to go 
first with emissions cuts below their 1990 level of at least 40% to 45% 
by 2020 and 80% to 95% below by 2050.
    The scale and transformation necessary to achieve a 40% to 45% 
reduction by 2020 has received far less evaluation than the targets 
themselves. In the United States, for example, no administration or 
congressional proposal under serious consideration comes anywhere near 
a 40% reduction by 2020. An 80% cut by 2050 would shrink the country's 
``carbon footprint,'' relative to its economy and population, to levels 
today seen only in countries like Haiti and North Korea.\16\
---------------------------------------------------------------------------
    \16\ Based on data from the Energy Information Administration, 
World Carbon Intensity--World Carbon Dioxide Emissions from the 
Consumption and Flaring of Fossil Fuels Using Purchasing Power 
Parities, 1980--2006 (available at: http:// www.eia.doe.gov/pub/
international/iealf/tableh1pco2.xls) and World Per Capita Carbon 
Dioxide Emissions from the Consumption and Flaring of Fossil Fuels, 
1980--2006 (available at: http://www.eia.doe.gov/pub/international/
iealf/ tableh1cco2.xls).
---------------------------------------------------------------------------
    No other developed country is aiming for midterm targets 
approaching a 40% to 45% reduction, either. The European Union has 
pledged cuts of 20% by 2020 below a 1990 baseline (and allowing 
international off sets) and would be willing to go as high as 30% if 
other developed countries take on similar goals. Japan's new government 
announced its intention of reducing emissions 25% below from the 1990 
level in 2020, contingent on an international deal. Australia has set a 
2020 goal of 5% to 15% below its 2000 level and would be prepared to 
accept 25% if certain conditions are met as part of an international 
agreement. Canada is looking at a 20% reduction from its 2006 level by 
2020. New Zealand announced its intention to limit emissions 10% to 20% 
below 1990 levels by provided certain conditions are met. And Russia 
said it would commit to 2020 goal of a 10% to 15% reduction from the 
1990 level.\17\
---------------------------------------------------------------------------
    \17\ Russia's emissions in 2007 were roughly a third below 1990's 
level, so its goal actually represents an increase in emissions of 29% 
to 36% from 2007's level.
---------------------------------------------------------------------------
    Even if developed countries could deliver steep cuts in emissions, 
absent meaningful commitments by developing countries, it will be 
nearly impossible to achieve signifi cant reductions in global 
emissions. That is because about 80% or more of the expected growth in 
global carbon dioxide emissions to 2050 is expected to occur in 
developing countries, with China, India, and Southeast Asia leading the 
way (figure 5).\18\
---------------------------------------------------------------------------
    \18\ While much of the focus is on large emerging economies such as 
China, India, and Brazil, we should not lose sight of the fact that a 
great deal of emissions growth is expected to occur in other regions of 
the world. Non-MEF countries, for example, could see their carbon 
dioxide emissions rise by 6 gigatons between 2005 and 2050. That is 
roughly equivalent to total gross carbon dioxide emissions from the 
United States in 2007, a not insignificant amount.
---------------------------------------------------------------------------
    Brisk economic and population growth can be expected to increase 
greatly the demand for energy, primarily from fossil fuels, in 
developing countries. Between 2005 and 2050, IEA expects that GDP in 
China and India will grow nearly 900% and in Brazil nearly 300%.\19\ 
Over the same period, the world's population is expected to soar from 
6.5 billion to 9.2 billion, a rise of more than 40%, with most of the 
growth coming in Asia and Africa and almost none from developed 
countries. Out of a projected 2050 global population of over 9 billion 
people, only about 1 billion will be in OECD countries (IEA 2008).
---------------------------------------------------------------------------
    \19\ Per capita GDP of developing and emerging economies, however, 
will remain well below those of OECD countries.
---------------------------------------------------------------------------
    These trends are expected to lead to a huge appetite for energy 
that could see global demand more than double over the period, again 
with the vast majority of the increase occurring in developing 
countries.
    To have any impact on greenhouse gas concentrations, therefore, the 
developing world also must act. So what would developing countries have 
to contribute to meet a 50-by-50 goal?
    Let us assume that developed countries succeeded in cutting 
emissions by 80% in 2050. To meet a 50% global target, total emissions 
from developing countries, aft er rising for decades, would have to 
peak and subsequently return to or slightly below their 2000 level 
(figure 6).\20\ What is more, because developing countries will have 
much larger populations 40 years hence, their combined per capita 
emissions also would have to be lower than today's--and that would be 
the case even if developed countries eliminated their emissions 
entirely (figure 7).
---------------------------------------------------------------------------
    \20\ Nationally appropriate mitigation actions that reduce 
emissions below a business as usual baseline have been proposed for 
developing countries. However, even if these were successful in slowing 
emissions growth, at some point carbon dioxide emissions from these 
countries still would have to peak and decline sharply for a 50% global 
reduction to be realized.
---------------------------------------------------------------------------
    Developing countries are unwilling to accept restrictions on their 
development and energy use. Providing modern energy services to lift 
their people out of poverty is a much more pressing need than 
addressing climate change. With billions of people still lacking 
electricity, developing countries are understandably loath to cap 
emissions if it hampers their economic development and energy security. 
Much of the energy needed to power economic growth will likely be 
supplied by fossil fuels. Many developing countries sit atop large 
reserves of coal, oil, and gas, and it would be naive to expect them to 
forego their use in favor of more costly and less reliable energy 
options.
    Developing countries routinely point out that their per capita 
emissions, now at approximately 2.5 tons, are generally much lower than 
those in developed countries, now in the neighborhood of 11 to 12 tons. 
There is a wide range of per capita carbon dioxide emissions exhibited 
among developing countries. Some small developing states with large 
energy intensive industries, such as refining, have per capita 
emissions that are very high (greater than 30 tons), but for the vast 
majority of these countries, they are under 3 tons.
    At about 4 tons, China's per capita emissions from energy, like its 
emissions as a whole, have experienced tremendous growth over the last 
decade in step with that country's rapid industrialization. 
Nevertheless, its emissions per person are still only about a third as 
much as that of the average person living in a developed country.
    India's emissions per capita are quite low, and it is a major 
emitter largely by virtue of its sizeable population, not because its 
people consume an inordinate amount of fossil fuels. Carbon dioxide 
emissions for each Indian hover just over 1 ton, less than a tenth of 
the developed country average.
    China and India, and other developing countries, have stated 
unequivocally that they are not in a position to take on legally 
binding emissions reductions, especially given their low per capita 
emissions. The Indian government, in particular, has said repeatedly 
that as a matter of equity it will not allow its per capita emissions 
to exceed the average for the developed world (Government of India 
2009). Other countries have embraced this idea of a ``fair sharing'' of 
the carbon space and the ``convergence'' of per capita emissions 
between developed and developing countries.
    But again, let us suppose that developed countries managed to slash 
their dioxide emissions 80% by 2050, which would place their combined 
per capita emissions at just about 2 tons per person. If every country 
in the world somehow matched this remarkably low level,\21\ last seen 
globally on the eve of World War II, global carbon dioxide emissions 
from energy would decline to about 18.4 gigatons, an amount that is 
still well above the level needed to reach a 50% global reduction 
target.\22\
---------------------------------------------------------------------------
    \21\ Estimates vary, but developing country per capita emissions 
are expected to exceed 4 and possibly 5 tons by 2050 under various 
business as usual scenarios.
    \22\ Using IEA's global population projection of 9.2 billion (IEA 
2008, Table B.1, Population Projections, 2005--2050). At 9.3 billion, 
the U.S. Census Bureau's forecast for global population is about the 
same as IEA's (see: http://www. census.gov/ipc/www/idb/worldpop.php). 
With global per capita emissions at 2 tons per person, to meet a 50-by-
50 emissions target, the world's population would have to be a little 
above its level in 2005 (6.5 billion people), a completely unrealistic 
scenario given current population projections.
---------------------------------------------------------------------------
                              money talks
    Although many developing countries, including China, India, Mexico, 
and South Africa, have issued or plan to issue national climate action 
plans, implementing a national plan is a different undertaking than 
accepting a binding commitment as part of an international treaty. 
Whereas developed countries are willing to off er their national plans 
as a basis for a binding international obligation, the position of the 
developing countries is that they are not prepared to do so.
    Developing countries have been forthright in saying that their 
cooperation, in addition to being nonbinding, will only come with 
financial strings attached. The Convention directs Annex II Parties to 
provide financial resources, including transferring technologies, to 
cover the ``agreed full incremental costs'' to developing countries of 
complying with various articles implementing the treaty.\23\
---------------------------------------------------------------------------
    \23\ UNFCCC Article 4.3.
---------------------------------------------------------------------------
    In the Bali Roadmap,\24\ developing countries agreed to consider 
nationally appropriate mitigation actions ``in the context of 
sustainable development, supported and enabled by technology, financing 
and capacity-building, in a measurable, reportable and verifiable 
manner'' (UNFCCC 2007). This language has been interpreted in various 
ways, but in general, the phrase ``measureable, reportable, and 
verifiable'' refers both to the nationally appropriate mitigation 
actions of developing countries and the support for ``technology, 
financing and capacity-building'' that developed countries are expected 
to provide. The G77 China group, for example, has stressed that 
nationally appropriate mitigation actions undertaken by developing 
countries would be voluntary and dependent upon adequate provision of 
financing.
---------------------------------------------------------------------------
    \24\ Paragraph (1)(b)(ii).
---------------------------------------------------------------------------
    These provisions have become fodder for all manner of demands by 
developing countries on the economies of developed countries. 
Developing countries are counting on huge direct transfers of wealth to 
support their eff orts to mitigate emissions and fund adaptation 
efforts, and it is perhaps the case that developed countries have not 
done enough to temper these expectations.
    China, India, South Africa, Bolivia, Colombia, among others, are 
pushing developed countries to transfer anywhere from 0.5% to 2.0% of 
their GDP each year to support climate change programs in developing 
countries. At that rate, the contribution from American taxpayers alone 
would have been $72 billion to $289 billion in 2008. Yet even that may 
not be enough. A report out of the Massachusetts Institute of 
Technology estimates that if developing countries are fully compensated 
for their mitigation activities\25\ through a global emissions trading 
scheme, the implied financial transfers from developed countries to 
meet a 50-by-50 goal could amount to over $400 billion annually in 2020 
and about $3 trillion in 2050 (Jacoby et al. 2008). The U.N.'s World 
Economic and Social Survey 2009 suggests developing countries will need 
international support to the tune of 1% of global GDP a year, currently 
about $500 to $600 billion (UN 2009).
---------------------------------------------------------------------------
    \25\ The MIT study did not consider transfers for adaptation.
---------------------------------------------------------------------------
    It was always very unlikely that developed country governments 
would agree to such vast sums in the best of times, much less in the 
midst of a severe crisis in world financial markets. In any event, most 
of this financing would have to come from the private sector, with 
government financing serving to spur and bolster these investments. 
There is a real concern that these financial flows could be used to 
underwrite the modernization and competitiveness of often state-run 
firms in developing countries, putting private firms at a distinct 
disadvantage.
            intellectual property protections under assault
    The Convention also states that Annex II Parties ``shall take all 
practicable steps to promote, facilitate and finance, as appropriate, 
the transfer of, or access to, environmentally sound technologies and 
know-how to other Parties, particularly developing country Parties, to 
enable them to implement the provisions of the Convention'' (UNFCCC 
1992).
    Developing countries have used this provision deftly to justify 
their attempts to weaken intellectual property protections, ostensibly 
to remove barriers to technology transfer. Compulsory licensing and a 
fund supported by developed countries to buy down intellectual property 
are two of many proposals being bruited.
    There is, however, no justification for the view that intellectual 
property protections hinder technology diffusion. A review of the 
relevant literature by researchers at Colorado College found that 
intellectual property rights ``do not constitute as signifi cant a 
barrier as claimed since a variety of technologies exist for reducing 
emissions.'' The study also found that, ``In many cases, IPR protected 
technologies are not necessarily more costly than those not covered'' 
(Johnson and Lybecker 2009).
    All the same, developing countries continue to call for weakened 
intellectual property regimes. The China/G77 group proposed treaty text 
that reads: ``All necessary steps shall be immediately taken in all 
relevant fora to mandatorily exclude from patenting climate friendly 
technologies held by Annex II countries which can be used to adapt to 
or mitigate climate change.'' The Philippines put forward the 
following: ``All necessary measures and actions shall be immediately 
taken to facilitate technology pools that include associated trade 
secrets and know-how on environmentally sound technologies and enable 
them to be accessed, including on royalty-free terms for developing 
countries.'' Bolivia offered similar language, suggesting that 
``nothing in any international agreement on intellectual property shall 
be interpreted or implemented in a manner that limits or prevents any 
Party from taking any measures to address adaptation or mitigation of 
climate change, in particular the development and transfer of and 
access to technologies'' (UNFCCC 2009b).
    If provisions such as these are included in a final climate change 
agreement, developing countries could claim the legal right to seize 
the ``green'' technologies developed by American and other companies. 
Without intellectual property rights, there is precious little 
incentive for companies to invest in advanced technologies if after 
years of research and development and millions or even billions of 
dollars invested, their inventions could be expropriated outright by 
companies in developing countries and manufactured and sold around the 
world at reduced cost.
    If their incentives are removed through what would amount to 
legalized theft of their intellectual property, some of the most 
innovative companies in the developed world would simply abandon the 
development of clean energy technologies. U.S. negotiators were joined 
by their colleagues from Europe, Japan, and other developed countries 
in declaring that any weakening of intellectual property would be a 
deal-breaker.
                           a green trade war?
    Just as worrisome as the assault on intellectual property rights 
are threats by some developed country governments to engage in 
protectionist practices to avoid ``carbon leakage''--that is, the 
movement of energy-intensive industries, and thus their carbon dioxide 
emissions, to other countries. Many developed country governments, 
including the United States and the European Union, are considering 
imposing border adjustments on goods coming from nations that do not 
take on comparable commitments. (Remember, under the principle of 
common but differentiated responsibilities, developing countries are 
not expected to take on similar commitments.)
    H.R. 2454, The American Clean Energy and Security Act of 2009, 
includes border adjustment measures that would impose carbon tariff s 
on goods imported from countries that, as determined by the government, 
have not adopted restrictions on emissions similar to those in the 
United States. The tariff would take eff ect in 2020 and fall on 
imports of carbon-intensive products, such as cement and steel.
    These kinds of proposals are counterproductive. They do little to 
raise the level of trust between the developing and developed 
countries, and they are unnecessary if an international agreement 
eventually is reached. The U.S. proposal earned swift rebukes from 
China and India, both of whom object to putting up trade barriers under 
the guise of protecting the climate, and they have proposed treaty text 
that would prohibit the use of carbon tariffs.
    One expects a little gamesmanship as the negotiations progress, but 
threats of trade sanctions set a dangerous precedent and--
notwithstanding a recent World Trade Organization (WTO) and U.N. 
Environment Programme report (WTO/ UNEP 2009)--could violate WTO rules 
if put into practice.\26\ At the very least, border adjustments would 
inevitably invite retaliation and incite a green trade war, and because 
no one wins a trade war, warnings of carbon tariffs have little value 
as negotiating leverage. Moreover, these types of proposals stand in 
stark contrast to the commitment made by the G20 countries in April 
2009 to ``refrain from raising new barriers to investment or to trade 
in goods and services'' (Wenk & Westerman 2009).
---------------------------------------------------------------------------
    \26\ The WTO/UNEP report states: ``The general approach under WTO 
rules has been to acknowledge that some degree of trade restriction may 
be necessary to achieve certain policy objectives, as long as a number 
of carefully crafted conditions are respected.'' However, the report 
also includes a disclaimer that ``opinions refl ected in this 
publication are the sole responsibility of the World Trade Organization 
(WTO) Secretariat. Th ey do not purport to refl ect the opinions or 
views of Members of the WTO.'' The 153 Members of the WTO have varied 
views on the relationship between trade rules and climate change, as 
seen in recent warnings by China and India.
---------------------------------------------------------------------------
    It is important that the international climate negotiations not be 
used as an excuse to erect barriers to free and open trade, or as a way 
to gain competitive advantage or redistribute wealth. The WTO, not the 
UNFCCC, is the appropriate forum for intellectual property and trade 
discussions. Instead of raising barriers, governments should be 
pursuing the elimination of tariff and nontariff barriers to 
environmental goods and services to lower their costs and increase 
global access of clean energy technologies.
    In a more constructive vein, developed countries have proposed the 
idea of sectoral approaches focused on specific industries (e.g., 
steel, refining, and cement) as a way to ease competitiveness concerns, 
motivate action in developing countries, and bring them into 
international carbon markets (other than the market for offsets).
    There are many different sectoral proposals being considered. Under 
sectoral crediting, a developing country could set a specific 
improvement in emissions intensity for a sector that if exceeded would 
generate internationally-tradable credits. If the sector failed to meet 
the target, no penalty would apply. Under sectoral trading, a 
developing country would commit a sector to an emissions cap for which 
it would receive tradable credits.
    While promising, sectoral approaches are not without their 
detractors, and as with many other proposals, the devil is in the 
details. There is, for example, a real concern that sectoral agreements 
could be structured in such a way that the primary beneficiaries would 
wind up being ineffi cient state-run enterprises that dominate many 
industrial sectors in developing countries.
    Sectoral agreements could be very difficult to reach given both the 
number of Parties involved and the almost complete lack of any mention 
of sectors in either the Convention or the Kyoto Protocol, both of 
which emphasize country-wide engagement.\27\
---------------------------------------------------------------------------
    \27\ The exceptions being forestry, shipping, and aviation.
---------------------------------------------------------------------------
    Moreover, with but a few exceptions--notably South Korea and 
Mexico--developing countries have shown little interest in sectoral 
approaches, especially if doing so would involve binding commitments.
                              whither now?
    Every delegation sitting around the U.N. negotiating table 
understands these numbers and their implications, so it is little 
wonder that the Parties are so far apart. It is one thing to achieve 
50-by-50 in a computer model, quite another in the real world. The 
focus on an unenforceable target and timetable has made an already 
difficult negotiation that much more difficult by creating expectations 
that both developed and developing Parties are seemingly unprepared to 
fulfill.
    As a practical matter, any long-range numeric goal makes 
assumptions about the pace of technology development and diffusion, an 
inherently unpredictable process. At its most fundamental level, 
reducing carbon dioxide emissions from energy is a technology challenge 
that, as a 2002 article in Science famously noted, ``cannot be simply 
regulated away'' (Hoffert et al. 2002). Neither can it be negotiated 
away.
    A 50-by-50 vision also takes for granted a degree of burden sharing 
that developing countries are not willing to accept, and that in turn 
compels unreasonable demands for assistance from developing countries. 
Even under the rosiest scenarios that include deep emissions cuts in 
developed countries, 50-by-50 still implies large emissions cuts by 
developing countries at some time in the future that in their view 
poses a threat to their industrial development. Right now, there is 
little reason for them to accept any sort of reduction commitment, 
binding or otherwise, without wealth and technology transfers worth 
hundreds of billions, and perhaps rising to trillions, of dollars each 
year.
    The top-down approach embodied in the Kyoto Protocol is seriously 
flawed, and it is unlikely to supply the vehicle for a new, 
comprehensive international agreement. What is needed instead is a 
long-term vision that motivates and provides direction for national and 
regional co-operative activities, takes into account emerging science 
and technology development and turnover, recognizes growing energy 
needs, ensures the broadest participation, and does not undermine 
economic growth.\28\
---------------------------------------------------------------------------
    \28\ For more on the Energy Institute's principles for a sound 
international agreement, see Harbert, K. 2009.
---------------------------------------------------------------------------
    An agreement that focuses on technology offers a path forward that 
developed and developing countries can embrace. How rapidly advanced 
energy technologies develop and are adopted commercially will be the 
most important factor in determining how quickly and at what cost 
greenhouse gas emissions can be reduced. Existing technologies can make 
an important contribution, but they alone are not capable of signifi 
cantly reducing greenhouse gas emissions on a global scale and at an 
acceptable cost. New and in some cases revolutionary energy 
technologies, many still years if not decades over the horizon, will 
have to be developed and adopted commercially along with the 
infrastructure to support them. But there is a great deal of 
uncertainty about how fast, or even if, these technologies will 
progress.
    An accelerated program to improve the performance and lower the 
costs of advanced alternate energy technologies can, if successful, 
broaden the range of economically and politically viable policy options 
available to decision makers. National and international climate policy 
should concentrate on supporting greater energy efficiency and 
commercialization of all low-emitting technologies for energy supply, 
including nuclear power.
    Developed and developing countries alike must make a larger 
commitment to technology development worldwide. Together, the United 
States and Japan account for an estimated 80% of all energy research 
and development spending by national governments. That has to change. 
Research and development into the next generation of potentially 
transformational energy technologies needs a substantial boost in 
funding, and the Energy Institute has recommended doubling the federal 
budget for advanced energy technologies.
    A successful new agreement, then, should promote new partnerships 
involving developed, emerging, and developing countries and the private 
sector that create opportunities for technology co-operation, public-
private partnerships, innovative financing, and capacity building.
    With a clear stake in the process, developing country governments 
can be convinced that intellectual property protections are in their 
interests as well as ours. Their businesses already know this--from 
less than 5% of patents in 1998, emerging economies now account for 
roughly 20% of patents worldwide (Copenhagen Economics 2009).
    To be effective in reducing greenhouse gas emissions, a new 
arrangement should include realistically ambitious commitments by all 
countries in keeping with the principle of ``common but differentiated 
responsibilities and respective capabilities.'' Large developing 
economies, like China, India, and Brazil, must be a part of any new 
international accord for it to be credible. This is not to say that we 
should expect developing countries to take on commitments similar in 
scope to developed countries. While the character of the commitments in 
developing countries should be similar to those in developed countries 
in terms of ambition, the content of those commitments could be quite 
different depending on national circumstances.
    The emphasis, therefore, should be on co-operation to assess the 
mitigation potential of different countries and develop cost-effective 
action plans that are ``measurable, reportable, and verifiable.'' A 
bottom-up approach that recognizes the results of domestic, bilateral, 
and multilateral activities and incorporates sufficient leeway to 
permit new ideas and approaches to be introduced as they emerge is one 
that could garner a broad support. It is also important that these 
commitments evolve as economic circumstances change.
    Governments also should be taking take steps outside of the 
Framework Convention to overcome barriers to technology transfer and 
commerce. Eliminating tariff and non-tariff barriers to environmental 
goods and services should be pursued vigorously to lower costs and 
increase global access of clean energy technologies. Although WTO, not 
UNFCCC, is the appropriate forum for these discussions, it is an 
example of how the international discussion on climate change can 
catalyze action in other areas.
    In addition, the energy supply sectors in many countries suffer 
from extensive and lengthy regulations that delay new energy projects. 
National governments also can ensure that energy projects move ahead 
with greater predictability by streamlining siting, permitting, and 
other regulatory requirements. It is inexplicable that governments have 
not taken these relatively simple but extremely effective steps.
    Finally, the range of voices in the negotiations needs to be 
expanded. To get a workable agreement, the energy, industry, and 
finance ministries must get fully engaged. It is these ministries, 
after all, that will be responsible for implementing key aspects of any 
agreement. Governments also should recognize and embrace business 
engagement so the international process can take better advantage of 
the range of technical expertise that business can provide.
    At the end of the day, all the ``modalities'' and ``frameworks'' 
erected in these negotiations cannot ward off failure if the vision is 
not realistic--unreasonable expectations only breed unreasonable 
demands and finger-pointing. Business needs a predictable environment 
in which to operate and plan, and it would welcome an ambitious 
international climate change agreement. But that ambition needs to be 
tempered with a healthy dose of pragmatism. A realistic vision focused 
on technology that encourages cooperation, not confrontation, would be 
a good place to start.

    The Chairman. Thank you very much.
    Mr. Colvin.

         STATEMENT OF JAKE COLVIN, VICE PRESIDENT FOR 
                          GLOBAL TRADE

    Mr. Colvin. Thank you very much, Mr. Chairman. Thank you, 
Senator Murkowski. I'm honored to be here today and we welcome 
the commitment of Congress and the administration to address 
the urgent problem of climate change. We particularly welcome 
the attention of this committee to the international aspects of 
climate policies.
    The National Foreign Trade Council is the country's oldest 
trade association devoted specifically to international trade 
and tax policies. I'm proud to say that a number of our member 
companies have been leaders in addressing climate change 
through their business practices, partnerships, and advocacy 
efforts.
    NFTC broadly supports efforts to reduce U.S. emissions, as 
well as an international framework agreement. But the council 
does not take a position on comprehensive climate legislation, 
which addresses issues beyond our mandate and expertise. We 
focus only on the aspects of climate policies which are likely 
to impact the global economy. I would like to concentrate on 
two of those issues here today. First is the importance of a 
robust green trade component of U.S. climate policies and the 
second is to put a finer point on some of the things that my 
fellow panelists have said, the danger of imposing new carbon 
tariffs.
    Efforts to expand overseas markets for U.S. climate 
technologies will be critical for creating new green collar 
jobs. While the United States is the largest consumer, one of 
the largest consumers, of green goods and services today, 
demand growth has slowed in recent years. Overseas markets 
offer significant potential for U.S. businesses. U.S. exporters 
face high tariffs and other obstacles to green exports. 
Reducing these hurdles would allow U.S. companies to capture a 
larger share of the $600 billion environmental goods and 
services market. In addition, the World Bank notes that it is 
widely accepted that trade liberalization would benefit the 
environment.
    But thus far green trade has not received a great deal of 
attention in the international climate discussions. Given its 
environmental importance, we hope that the administration and 
Congress can work together to advance cooperation on these 
issues, not only in economic forums but in relevant 
international climate forums, including the U.N. FCCC and the 
Major Economies Forum.
    Two issues that have received a great deal of attention in 
international climate discussions are intellectual property 
rights and financing. My colleague Karen has noted, IP rights 
are important to the U.S. economy as well as to the development 
of new energy solutions and environmental technologies. This is 
why proposals at the U.N. FCCC that would weaken the value of 
intellectual property assets are so troubling. We commend the 
administration and Congress for their continued strong support 
of global intellectual property rights protection and we would 
urge your continued vigilance as the negotiations progress.
    I think it's equally important, though, to note that the 
United States should support robust financing mechanisms, and 
getting this pillar right is critical to the success of 
international climate negotiations. It will also create new 
markets for U.S. exports. Overall, an aggressive strategy to 
promote green exports and innovation would complement the 
administration's goal of rebalancing the global economy.
    I think green trade also presents a unique opportunity for 
Congress and the President to work together toward objectives 
that ought to attract strong bipartisan support.
    Given the increasing reliance on exports to grow the U.S. 
economy, it is essential to avoid measures which could make it 
more difficult for American businesses to succeed in the global 
economy. We are particularly concerned about the potential for 
carbon tariffs in U.S. cap-and-trade legislation to encourage 
retaliation from U.S. trading partners and the potential to 
ignite a global green trade war.
    This concern is shared by a number of U.S. industries, 
including some of the sectors which are most likely to be 
affected by U.S. climate policies. For example, the Farm Bureau 
has testified that carbon tariffs are in serious jeopardy of 
being found to be noncompliant with our WTO obligations and 
that they could very likely lead to retaliation. The American 
Forest and Paper Association has written that a border tax is 
highly imperfect and should be avoided. The U.S. chemical and 
aluminum industries have expressed similar concerns.
    Increasingly, other countries are also raising the 
possibility of using green tariffs against the United States. 
If Congress legitimizes carbon tariffs through U.S. 
legislation, it will become more difficult to argue against 
their use by others.
    Imposing green tariffs also threatens to cause diplomatic 
tensions which will make it more likely to cooperate on 
environmental initiatives with developing countries, I think as 
already mentioned.
    For all of these reasons, we share the skepticism expressed 
by President Obama to border measures. At the same time, we 
appreciate the need to address legitimate political and 
economic concerns and ensure the passage of U.S. climate 
legislation. So if a border adjustment mechanism is to be 
contemplated in U.S. legislation, we believe it is essential 
that any provision provide complete authority and discretion to 
the President to determine if and when such a measure should 
apply. We think it will also be important to design a measure 
in a way that recognizes steps that other countries, and even 
overseas individual firms, are taking to reduce their carbon 
footprint.
    To conclude, an aggressive and innovative green trade 
policy can assist efforts to advance U.S. economic priorities 
as well as environmental goals, but attempts to impose new 
green tariffs could harm both.
    Thank you very much for the opportunity to share our views.
    [The prepared statement of Mr. Colvin follows:]
   Prepared Statement of Jake Colvin, Vice President for Global Trade
    Mr. Chairman, Thank you for the opportunity to testify before the 
Committee. We welcome the commitment of Congress and the Administration 
to address the real and urgent problem of climate change. We 
particularly appreciate your efforts to highlight the international 
aspects of climate policies.
    The National Foreign Trade Council (NFTC) is the country's oldest 
and largest trade association devoted specifically to international 
trade and tax policies. Our members are global companies doing business 
in virtually every country on earth. The NFTC supports an open, rules-
based trading system, promotes international tax policies that 
contribute to economic growth and job creation, and opposes unilateral 
economic sanctions.
    Given our focus on international economic issues, the Council does 
not take a position on specific legislative approaches to climate 
change. While we broadly support targets to reduce U.S. emissions and 
an international framework agreement to put countries on low emissions 
pathways, comprehensive climate legislation addresses issues beyond our 
mandate and expertise.
    I am proud to say that a number of NFTC's member companies have 
been leaders in addressing climate change through their business 
practices, partnerships and advocacy. For example,

   ExxonMobil is a leader in the development and use of 
        component technologies essential for carbon capture and storage 
        (CCS), which represents an important opportunity for reducing 
        global emissions.
   GE is on track to double its R&D in its ecomagination 
        products to $1.5 billion by 2010 and has reduced the intensity 
        of its greenhouse gas by 41 percent since 2004--surpassing its 
        own goal of a 30 percent reduction.
   Procter & Gamble has doubled its 2012 reduction targets for 
        greenhouse gas emissions, waste generation and water and energy 
        consumption and recently unveiled the activation of a 1.1 
        megawatt photovoltaic solar system at its paper products 
        manufacturing plant in Oxnard, California.
   Wal-Mart has outlined a series of aggressive goals and 
        expectations with leading suppliers, officials and NGOs in 
        China to improve energy efficiency, use of natural resources, 
        transparency and compliance with environmental laws.

    In addition, a number of NFTC's member companies have partnered 
with organizations such as Conservation International and the World 
Wildlife Fund on projects to reduce voluntarily their carbon footprint 
and conserve resources. Others have expressed views about U.S. climate 
policies on their own or through organizations such as the Business 
Roundtable, which just released a report outlining its views on a 
sustainable climate and energy policy, and the United States Climate 
Action Partnership (USCAP), in which nine of the Council's board 
companies participate.
    The Council focuses only on the aspects of climate policies which 
are likely to impact the global economy, relations with U.S. trading 
partners, and the international competitiveness of our member 
companies. I would like to concentrate today on two issues related to 
international economic aspects of climate change:

   First, the United States has an opportunity to further U.S. 
        economic growth and global environmental goals by more fully 
        incorporating a green trade component into the U.S. climate 
        agenda.
   Second, addressing competitiveness concerns in U.S. climate 
        legislation presents a serious challenge for policymakers. 
        There is a danger that well-intentioned and politically popular 
        measures such as carbon tariffs could threaten U.S. export 
        markets and undermine global environmental cooperation.

    promoting u.s. green jobs and clean technology development and 
                               deployment
    The Administration and Congress can promote green jobs at home and 
advance global environmental objectives by incorporating a more robust 
green trade component into the international climate agenda.
Expanding overseas markets through green trade
    In particular, efforts to expand overseas markets for U.S. climate 
technologies by reducing trade barriers is critical for creating new 
green collar jobs in the United States and can aid global climate 
goals.
    Future growth of the U.S. clean energy economy will depend on 
access to foreign markets. While the United States is among the largest 
producers and consumers of green goods and services today, demand 
growth has slowed in recent years. Demand for environmental goods and 
services is growing rapidly in developing countries, which offer 
significant opportunities for U.S. companies.
    U.S. exporters face disproportionately high tariffs and other 
obstacles to selling environmental goods and services like wind 
turbines and solar panels abroad. In fast-growing developing countries 
such as China and India, tariffs can be as high as 40 percent. In some 
instances, non-tariff measures such as preferential government 
procurement policies and foreign investment restrictions present even 
larger obstacles for U.S. businesses. Reducing these impediments would 
allow U.S. companies to capture a larger share of the more than $600 
billion environmental goods and services market, which is growing at 
twice the rate of all trade.
    Removing green trade barriers can also help the environment. The 
World Bank notes that, ``it is widely accepted that trade 
liberalization of [environmental goods and services] would benefit the 
environment by contributing to lowering the costs of goods and services 
necessary for environmental protection, including those beneficial for 
climate change.'' Research also suggests a link between more green 
trade and improved environmental quality.
    Thus far, green trade has not received a great deal of attention in 
international climate negotiations despite the clear environmental 
benefits. While the United States has proposed an Environmental Goods 
and Services Agreement as part of the Doha Development Round of trade 
negotiations under the World Trade Organization (WTO), progress has 
been slow.
    Given the economic and environmental importance of green trade, we 
hope that the Administration and Congress can work together to identify 
additional channels to advance cooperation on these issues, including 
through the Major Economies Forum and the United Nations Framework 
Convention on Climate Change (UNFCCC).
    Earlier this year, NFTC partnered with eight other leading U.S. 
business associations to call on the President to elevate the priority 
of lowering green trade barriers and to pursue a green trade agreement 
``through all appropriate international economic and environmental 
forums.'' A copy of the letter is attached to this testimony.
Improving global frameworks to encourage the development and deployment 
        of U.S. clean technologies
    Two issues that have received a great deal of attention in 
international climate discussions are intellectual property rights and 
financing. Ensuring the global protection of intellectual property 
rights and addressing funding and capacity needs in developing 
countries will promote investment environments abroad that are better 
able to adopt and develop clean technologies.
    The intellectual property rights system--and predictable 
enforcement of those rights overseas--helps spur innovation and 
economic growth across all sectors of the U.S. economy. Importantly, 
the system promotes the development of new energy solutions and 
environmental technologies needed by communities around the world to 
address global warming. Given the importance of IP protection for 
promoting innovation and developing clean technologies, proposals in 
the UNFCCC negotiations that seek to weaken the value of intellectual 
property assets are troubling. We commend the Administration and 
Congress for their strong and continued support for global intellectual 
property rights protection.
    While it is essential to protect and reward U.S. innovation, it is 
equally important for the United States to support robust financing and 
assistance mechanisms to ensure that developing countries can develop 
the capacity to address climate change and adopt clean technologies. 
Financing is an important pillar on which success of the UNFCCC 
negotiations will hinge, and can help secure strong actions from 
developing countries. Getting it right--in terms of adequate public 
funding, proper mechanisms and reporting requirements, and targeting 
public funds to create enabling environments that will attract private 
capital and investment--is critical. Investing in the development of 
overseas capacity for clean energy technology will help accelerate the 
reduction of global emissions and create new markets for U.S. products 
and services.
Promoting sustainable economic policies
    An aggressive strategy to promote green trade and innovation would 
complement the goal of rebalancing the global economy that President 
Obama and other world leaders established at recent G-20 forums. As 
President Obama said prior to his recent trip to Asia, a new global 
growth strategy will be ``one in which prosperity around the world is 
no longer as dependent on American consumption and borrowing, but 
rather more on American innovation and products.'' Future U.S. job 
growth will rely increasingly on tapping higher demand from overseas 
markets, particularly from China and other advanced developing 
countries.
    Green trade also presents a unique opportunity for the President 
and Congress to work together on a bipartisan basis and restore a 
common purpose to U.S. trade policy. Policies aimed at opening markets 
for U.S. clean technologies, protecting and promoting innovation, and 
providing high-quality financial assistance to developing countries 
ought to attract strong bipartisan support.
                  addressing competitiveness concerns
    As Congress seeks to address competitiveness and carbon leakage 
concerns from implementing an emissions reduction program, one popular 
option--the use of border adjustment measures--could damage the ability 
of American companies to compete in key markets and global 
environmental cooperation. Given the increasing reliance on exports to 
grow the U.S. economy and create new jobs, it is essential to avoid 
introducing measures which could cause unnecessary friction with U.S. 
trading partners.
Avoiding a green trade war
    One concern is the compatibility of border adjustment measures with 
global trade rules. Although border measures are not inherently 
incompatible with trade rules, the WTO notes that, ``a connection must 
be established between the stated goal of the climate change policy and 
the border measure at issue'' and ``the measure must not constitute a 
``means of arbitrary or unjustifiable discrimination'' or a ``disguised 
restriction on international trade.'' As a result, according to Jeffrey 
Frankel of Harvard University, ``border measures to address leakage 
need not necessarily violate the WTO or sensible trade principles, but 
there is a very great danger that in practice they will.''
    The House-passed American Clean Energy and Security Act is 
particularly troublesome in this regard. By establishing a mandatory 
international reserve allowance program and requiring Congress to 
approve a joint resolution to turn it off, the House of Representatives 
introduced a political element into the decision-making process. U.S. 
trading partners will argue that such a program is as likely to be 
fueled by a desire to protect domestic industry as by an interest in 
protecting the environment.
    While NFTC believes that the free allowances contained in current 
legislative proposals could also be scrutinized for their compatibility 
with global trade rules, the reality is that these allocations are less 
likely to disrupt the global trading system or cause conflict with U.S. 
trading partners. One reason is that most countries contemplating 
emissions reduction programs include free allowances in their plans and 
will be reluctant to challenge similar efforts by others. Trade expert 
Gary Horlick also pointed out earlier this year in testimony before the 
Senate Finance Committee that, ``import restrictions are much more 
likely to be challenged in the WTO than is financial assistance to 
producers, such as offsetting costs or giving away permits.'' In 
practice, countries are bothered more by tariffs than financial 
assistance.
    Regardless of whether it is possible to design a provision that 
complies with global trade rules, it is not in the economic or 
environmental interest of the United States to rely on border 
adjustment measures. They have already been met with fierce resistance 
by developing countries such as China and India. Border measures are 
likely to encourage retaliation from U.S. trading partners and will 
make it more difficult for American businesses to succeed in the global 
economy.
    Concerns about the impact of border measures on the global 
competitiveness of U.S. businesses and workers have led many industries 
to oppose them, including some of the sectors projected to be most 
heavily affected by climate legislation. Associations representing the 
forest, chemical and aluminum industries, along with the American Farm 
Bureau Federation, have all expressed skepticism about their utility. 
For example:

   The American Chemistry Council said in a September statement 
        that, it ``does not support policies that aim to address 
        emissions leakage by imposing border taxes or some other trade-
        related cost adjustments.''
   The American Farm Bureau Federation has testified that, 
        ``Provisions such as those contained in the House bill 
        effectively imposing border tariffs on goods from countries 
        that do not have similar GHG restrictions will almost certainly 
        be challenged in the WTO and are in serious jeopardy of being 
        found to be non-compliant with our obligations. Moreover, such 
        actions could very likely lead to retaliation.''
   In August, the American Forest & Paper Association wrote in 
        a statement to the Senate Finance Committee that, ``a border 
        tax or other border measures are highly imperfect, will have 
        their own negative repercussions, and should be avoided.''
   Stephen Larkin, President of the U.S.-based Aluminum 
        Association, observed recently that, ``We believe that border 
        adjustments are not useful.''

    Increasingly, other countries are also raising the possibility of 
using a border tariff against the United States if Washington fails to 
pass climate legislation or U.S. targets are seen as too weak. If 
Congress legitimizes carbon tariffs through U.S. legislation, it will 
become more difficult to argue against their use by U.S. trading 
partners.
    In short, border measures threaten to ignite a green trade war and 
diminish the President's authority and ability to rebalance the global 
economy.
Balancing U.S. political interests with international environmental 
        goals
    Imposing a cost on certain imports into the United States through a 
border adjustment measure or carbon tariff is also unlikely to advance 
U.S. environmental goals. Doing so could have a negative effect on 
relations with key developing countries whose participation in an 
international agreement is essential to addressing global climate 
change.
    One problem is that a carbon tariff is a blunt instrument, at least 
as it has been conceived in U.S. legislation thus far. Carbon tariffs 
would likely apply equally to imports from energy-efficient facilities 
and carbon-intensive producers from a target country. This blanket 
application does not provide the kind of incentive to foreign producers 
to become more energy efficient that would encourage a reduction in 
carbon emissions.
    More broadly, imposing green tariffs would likely cause diplomatic 
tensions that will make it more difficult to cooperate on important 
environmental initiatives with key developing countries.
    For all of these reasons, we share the skepticism expressed by 
President Obama to border measures in June. In order to create a level 
playing field for manufacturers, the President said that, ``there may 
be other ways of doing it than with a tariff approach.''
    Although we are skeptical about the utility or necessity of 
including carbon tariffs in U.S. climate legislation, we appreciate the 
need to address legitimate political and economic concerns to ensure 
the passage of climate legislation in the United States.
    If a border adjustment mechanism is to be included in U.S. climate 
change legislation, it is essential that any provision provides 
complete authority and discretion to the President to determine if and 
when it should apply. It will also be important to design a measure in 
a way that recognizes steps that other countries are taking to green 
their economies, particularly in the context of an international 
framework agreement on climate change. We would also encourage Congress 
to consider whether it is feasible to design a measure in such a way 
that provides incentives for foreign companies to green their 
production. Carbon tariffs should not be applied either to countries 
which are taking nationally-appropriate steps to combat climate change 
or to imports of goods from overseas facilities, wherever located, if 
those individual facilities haven taken steps to lower their greenhouse 
gas emissions on their own.
                               conclusion
    Aggressive and innovative green trade policies can assist efforts 
to advance U.S. economic priorities and environmental goals, but 
attempts to impose new tariffs could harm both. As General Electric's 
CEO Jeffrey Immelt wrote earlier this year, ``Renewing American 
competitiveness will not be accomplished through protectionism, but by 
rebuilding American technology, manufacturing and exports.'' Efforts to 
open markets abroad for U.S. businesses and workers in the clean 
technology arena will be essential to rebalance the global economy and 
create the next generation of green manufacturing jobs in the United 
States. Thank you for the opportunity to share our views.
                  attachment.--letter to the president
                                     Washington, DC, July 30, 2009.
Hon. President of the United States,
The White House, 1600 Pennsylvania Avenue, NW, Washington, DC.
    Dear Mr. President: We write to express our appreciation for your 
commitment to lower trade barriers to environmentally-friendly goods 
and services, which would result in important benefits for the U.S. 
economy and to global climate change efforts. We strongly urge you to 
pursue a swift conclusion of a comprehensive Environmental Goods and 
Services Agreement through all appropriate international economic and 
environmental forums.
    Lowering trade barriers on green goods and services would be good 
for the environment and the U.S. economy. The World Bank notes that, 
``it is widely accepted that trade liberalization of [environmental 
goods and services] would benefit the environment by contributing to 
lowering the costs of goods and services necessary for environmental 
protection, including those beneficial for climate change.'' U.S. 
businesses and workers would also benefit from the removal of 
disproportionately high tariffs and non-tariff barriers that U.S. 
exporters face on green goods and services in a large and rapidly 
growing export market. Lowering trade barriers would help create the 
green jobs that will accelerate recovery of the U.S. economy.
    We urge you to use all possible channels to pursue an agreement to 
reduce or eliminate trade barriers on environmental goods and services. 
While the Doha Development Round of trade negotiations under the World 
Trade Organization (WTO) is one appropriate forum, we believe the 
combined economic and environmental benefits of an agreement warrant 
the exploration of alternative or complementary efforts. We hope you 
will investigate the feasibility of either a plurilateral agreement at 
the WTO or the initiation of negotiations via another forum, balancing 
the need to capture a significant portion of environmental trade and an 
ability to enforce commitments with a framework that is flexible enough 
to permit the rapid conclusion of a deal. We believe that either the 
Forum on Asia Pacific Economic Cooperation (APEC) or the Organization 
for Economic Cooperation and Development (OECD), which have initiated 
important work on reducing barriers to green goods and services, could 
serve as the basis for interim commitments in advance of an agreement 
at the WTO.
    We also encourage you to introduce the consideration of avoiding 
and eliminating barriers to green trade into international climate 
change discussions. While an environmental forum is not the appropriate 
venue for negotiating a trade agreement, international climate 
discussions--for example at the United Nations, in the Major Economies 
Forum and in bilateral and regional forums--should reflect the 
importance of lower trade barriers in delivering clean technologies to 
developing countries. As international climate change negotiators seek 
to agree upon a range of policies to help developing countries finance 
and adopt clean technologies, promoting the utility of lowering trade 
barriers on green goods and services should be a key component of a 
U.S. approach. This approach should also facilitate the deployment of 
technology while preserving in full the incentives for U.S. companies 
to invest in the development of new solutions. Promoting trade and 
protecting Intellectual Property rights in green technologies are of 
paramount importance if we are to enable the creation of new solutions 
to climate change and green jobs in the United States.
    It is equally vital for domestic efforts to recognize the 
importance of lowering trade barriers. Thus far, congressional efforts 
to provide a framework for exporting clean technology, for example 
through the American Clean Energy and Security Act of 2009, have failed 
to include any mention of global trade in environmentally-friendly 
goods and services. Emphasizing the importance of an international 
environmental goods and services agreement in domestic legislation 
would enhance legislative efforts to deliver clean technologies to the 
developing world. We hope that you and your Administration will work 
with Congress to generate clear signals of support for lower trade 
barriers, which can help to reinforce a positive message on lowering 
green tariffs to the international community.
    We look forward to working with you to amplify and support your 
efforts to achieve an Environmental Goods and Services Agreement in the 
coming months. Thank you for your consideration of these comments.
            Sincerely,
                    Business Council for Sustainable Energy, Coalition 
                            of Service Industries, Emergency Committee 
                            for American Trade, Information Technology 
                            Industry Council, National Association of 
                            Manufacturers, National Foreign Trade 
                            Council, Organization for International 
                            Investment, Retail Industry Leaders 
                            Association, United States Chamber of 
                            Commerce.

    The Chairman. Thank you and thank you all for your 
testimony. Let me ask a few questions.
    Ms. Smith, one of the talking points that we hear a lot 
here in the Congress is that it doesn't matter what we do about 
climate change, the Chinese are building another couple of 
coal-fired powerplants every week and that's sort of the way 
things are going. Sometimes the talking point says they're 
building one a week, sometimes the talking point says they're 
building two.
    You testify--in your testimony you indicate that they're 
shutting down coal-fired powerplants. Could you maybe give us 
your best opinion or advice or expertise on what are the facts? 
Are they adding to the production of electricity from coal-
fired plants? Are they moving away from that? What's happening?
    Ms. Smith. Thank you, Senator. They're doing both. So 
China's share of world coal use is about over 40 percent and 
it's continuing to rise. Coal now provides 70 percent of 
China's energy and almost 80 percent of its electricity. They 
have the project which shuts down dirty smaller coal-fired 
powerplants while they're building new, more innovative ones. 
So China's coal fleet right now is actually more efficient than 
the U.S. coal fleet when you look at it overall.
    The idea is that----
    The Chairman. On a net basis, is there a way to say that 
they are increasing or decreasing emissions from coal-fired 
powerplants as we move ahead?
    Ms. Smith. On a net basis, I think right now you would say 
that they are increasing. But at the same time, they've also 
taken some significant steps to really clean up their projects. 
So right now China has the most advanced coal-fired powerplant 
projects in the world, including GreenGen, which is the most 
forward-leaning CCS project in the world.
    The Chairman. Mr. Colvin, let me ask you a question about--
you talked about green trade and green tariffs, the advantages 
of not having these kinds of tariffs or barriers to trade. This 
latest--this announcement a week or two ago that a Chinese firm 
is going to build a very large wind-fired--wind-powered farm 
there in West Texas, I believe, my understanding of that is 
that they are doing that as a joint venture with some U.S. 
companies and they are insisting that all of the turbines that 
would be used at that wind farm would be Chinese manufactured.
    Is that something that should concern us, if you have 
financing coming in to underscore or underwrite the costs of 
projects in this country with restrictions on what kinds of--
where the manufactured equipment that is going into those 
projects needs to come from?
    Mr. Colvin. Thank you, Senator. I'm unfamiliar with the 
example that you've just provided, but I think as you described 
it it should certainly concern us. I think it underscores the 
difficulty, but also the opportunity, to work with China.
    I think as Taiya explained in her testimony, our markets 
are relatively open to foreign investments. The Chinese market 
is not necessarily. So while China has embarked on clean energy 
policies as a national strategy, we haven't done much on the 
trade side and on the investment side in terms of collaboration 
with China and other countries of late to open up markets for 
our technologies, for our goods, for our services.
    So I think there are a couple of components here. The first 
is a robust offensive, aggressive U.S. trade policy. When we 
enter into a negotiation with China, with other countries, for 
example to lower or eliminate barriers on environmental goods 
and services, we get to lower barriers in China. Since our 
barriers are already low, we get to enter into a negotiation 
and help to remove barriers in their countries.
    I think another thing that's important is something that 
Taiya alluded to, which is that we need to set up standards 
that are transparent, that are nondiscriminatory, that do not 
advantage one particular country's products or firms or 
technologies versus another. When American firms can compete on 
a level playing field and the process is transparent, I think 
that's better for all of us.
    The Chairman. Let me ask one more question here in my 
remaining 6 seconds. Mr. Purvis, could you just briefly 
describe what Europe is doing in recognizing this deforestation 
as a legitimate offset? To what extent does it figure into 
their ETS, emissions trading scheme?
    Mr. Purvis. Senator, as you may know, Europe was one of the 
more skeptical parties in the Kyoto negotiations about the idea 
of including forests in climate agreements and in their 
domestic or regional climate policy. So in the early phases of 
the European emissions trading system there's a very limited 
role for forests. In fact, it's largely squeezed out.
    But Europe has made it clear, the European Union has made 
it clear, that if there is an agreement, a global agreement 
that includes forests, they will allow those forests into the 
next phase of the European emissions trading system and that 
they will adopt the rules that are negotiated internationally. 
So they've turned the corner.I think they have much greater 
confidence that these emissions reductions can be measured and 
verified, and they are willing to allow them in on the basis of 
a global agreement.
    Some European countries are leading--Norway is an example. 
Norway has pledged over a billion dollars of funding to help 
countries like Brazil and Indonesia, even countries where 
deforestation is not currently a problem, but where the threat 
of deforestation exists, such as Guyana; and it is really 
showing what can be done by engaging with these countries. 
Brazil's deforestation is now down remarkably, well over 50 
percent from its high in 2005. Brazil has pledged to reduce 
deforestation in the Amazon region 80 percent by 2020 compared 
to its high water mark, and has now in just this last couple of 
days put forward a national economy-wide emission reduction 
goal that is over 30 percent.
    In Indonesia, the president of Indonesia recently in the 
margins of the recent General Assembly summit in New York 
pledged that Indonesia's emissions, most of which come from 
deforestation, would be reduced over 20 percent by 2020, and 
with international financial assistance 40 percent.
    So Europe is encouraging this leadership by developing 
countries.
    The Chairman. Thank you very much.
    Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman.
    This handful of countries, notably China, France, and 
Japan, have expressed some degree of support, or at least had 
discussion about, a carbon tax. As we listen to all of you this 
morning, you raise the issues of trade certainty within the 
business community. I throw this out to any of you to discuss 
the merits of a possible carbon tax as opposed to a cap-and-
trade type of a system and just how it interrelates at the 
international level.
    Ms. Harbert. Thank you, Senator.
    Senator Murkowski. Ms. Harbert, if you could lead off.
    Ms. Harbert. I'll address what I think are the 
characteristics that might differentiate the two. If you employ 
a carbon tax, you reduce the volatility associated with cap-
and-trade. There's a sure price, obviously, on carbon. It's a 
more transparent system and I think that that bears a lot of 
value in today's very uncertain market, that there's a very 
transparent way of doing it.
    We have to look at how you could actually include offsets, 
because in any scheme, whether it's cap-and-trade or a carbon 
tax, as noted by I think Dr. Levi, that EPA itself said that 
without offsets the price for reductions would be 89 percent 
higher. So we're clearly going to have to think a lot more 
creatively than we currently are so that we can actually 
demonstrate the leadership that you referenced in your opening 
remarks, which is to show the developed and developing world 
that you can grow your economy and be good stewards of the 
environment at the same time. By emphasizing other approaches 
and different suites of technologies and different financial 
incentives and reducing tariff barriers around the world, 
there's a way to do this that's not disruptive.
    I think all options should be on the table, whether it's 
cap-and-trade or a carbon tax. They each have different merits 
and they shouldn't be just immediately written off the table.
    Senator Murkowski. Mr. Purvis, then Mr. Levi.
    Mr. Purvis. Senator, I agree that a number of policy 
options should be considered by the Senate. Internationally, 
the momentum is toward cap-and-trade and away from taxes. So 
what we see in the European Union is that they've extended 
their cap-and-trade system through 2050 and they've also 
expanded the share of the European economy that is covered by 
that cap-and-trade system.
    The new government in Japan has reversed course and the 
long opposition to a cap-and-trade system there is now over and 
the official policy is that they're moving rapidly toward cap-
and-trade. In Australia there is before the senate a bill to 
establish a cap-and-trade program. There are many countries 
that have not gone this route that are moving rapidly toward 
that.
    So I think there are still opportunities for the U.S. to 
affect the mix of international policies, but cap-and-trade is 
gathering momentum.
    Senator Murkowski. Dr. Levi.
    Mr. Levi. A carbon tax is perfectly fine in principle. Let 
me make a few points that I think are important to consider 
when thinking about it. First, a carbon tax is not simple. Once 
you run a carbon tax through a real political process, it will 
look very complicated. It can quite easily include things like 
offsets through tax credits. It can include a lot of other 
measures that we have in the cap-and-trade legislation that's 
been put before the Senate.
    The second is the numbers matter a lot. So the level of the 
tax is fundamentally important to its impact.
    The third is verification. We can verify quite 
straightforwardly in other countries whether a carbon tax is 
being imposed, but we need to be able to look at that in a 
broader context. If a carbon tax is imposed and the revenue is 
used to subsidize dirty industries in other parts of the 
economy, that doesn't necessarily give us a net gain on 
emissions. So we need to look at this within a broader context 
of what countries are doing.
    Let me put, though, one recommendation for something to 
look at. We're talking about--it's come up in several people's 
testimony, the possibility of carbon tariffs on imports into 
the United States. One option to preempt that would be for 
countries like China to levy their own fees on exports heading 
out of their countries, essentially a carbon tax, but 
restricted to exports from their countries. There have been 
signals from China in the past of heading in that direction. It 
would level the playing field when we compete abroad in energy-
intensive industries and would avoid some of the diplomatic 
complications involved in imposing a tariff here.
    Senator Murkowski. Let me ask very quickly. As you know, we 
have the EPA that has a stick over the head of Congress here in 
terms of rolling out any climate change policy as they begin to 
regulate domestic greenhouse emissions sooner than later. Can 
any of you discuss whether or not we have any other countries 
that are in a similar situation, considering this type of a 
command and control type of regulation as their principal 
climate policy, because that may be where we end up next year, 
the EPA setting that policy?
    Ms. Smith. Certainly when you talk about command and 
control the Chinese government comes to mind. Their policy has 
very much been a top-down, where they are defining for the rest 
of the country how they shall be working on climate change. 
What they found is that the mountains are high and Beijing is 
far away, which means that it's very difficult to enforce that 
throughout the provinces, even in an authoritarian government 
like they have in China.
    So were this to happen, there would be plenty of people 
within similar company, but you're finding that you have to do 
the same things throughout the country to ensure that the 
policies are actually followed through on.
    Ms. Harbert. I would just add one reason why I think other 
countries are not considering this, and it goes back to 
competitiveness. Countries are very concerned about their 
ability to compete in an increasingly competitive global 
marketplace, and command and control tends to penalize certain 
industries and inhibit their ability to compete on a level 
playing field internationally. So I think that's why we see 
most countries shy away from that.
    The Chairman. Senator Cantwell.
    Senator Cantwell. Thank you, Mr. Chairman. Thank you for 
this important hearing.
    I thank the witnesses for their testimony and their 
expertise. I want to say that I'm glad that President Obama and 
President Hu have signed an agreement today on clean energy 
cooperation. Myself and Senator Murkowski sent a letter to the 
administration in February asking them to pursue that, and 
several members of this committee, Senator Shaheen and Senator 
Bayh and many others, signed that letter. So we're glad that 
they're making some progress on that. I think we called for 
accelerated development of clean energy for an economic value 
that we could see in the United States.
    Ms. Smith, again I want to thank you for your leadership in 
the last administration on getting a 10-year memorandum of 
understanding of cooperation between the U.S. and China on 
clean energy, because that was also mentioned in the 
President's statement from the White House today, a part of the 
framework moving forward.
    But both you and Ms. Harbert mentioned this notion of kind 
of the concept of a single market, of the United States and 
China being able to accelerate the deployment of clean energy 
solutions if we were working more cooperatively together. One 
of the things that we have been pushing up here on the Hill is 
the notion of reducing tariffs between China and the United 
States in a cooperative fashion. Right now there is anywhere 
from--let me say it differently. The United States and China 
should take the lead in trying to zero out tariffs on clean 
energy solutions, and if we did that as a joint cooperative we 
would be very successful in convincing the rest of the world, 
but we would have created a market in China for U.S. products 
and services that would be much more affordable than they are 
today.
    Any thoughts about that? I think right now some of the 
tariffs on U.S. products going into China are as much as 25 
percent, so very high tariffs.
    Ms. Smith. Thank you, Senator. There are up to 26 percent 
tariffs on goods going into China, environmental goods and 
services. This issue has obviously been debated throughout the 
Doha Round of trade negotiations as well. Right now I 
understand they are pushing it forward to be considered at 
Copenhagen, and one of the hopes is that if we can rally enough 
political pressure to have the political agreement include 
countries getting together to reduce these tariffs, that this 
could be a real positive feat.
    The Chinese government is reluctant, and we've had many 
conversations with them at the highest levels of their 
government about this, and expressing that the Chinese people 
are actually suffering because of these extra costs on 
environmental goods and services going into China. So it's 
something that we need to continue to explain and certainly 
more discussion of it and making sure that more people 
understand the impact is going to be a key part of that.
    Ms. Harbert. The challenge is not just limited to China. If 
you look at Brazil or India, there are very high tariffs there 
on solar technology, on wind technology, that they could be 
greatly taking advantage of, and it would create new American 
jobs, new American industries.
    I think the European Union strongly believes that we should 
be doing this as well, and if we had the U.S., the EU, and some 
of the leaders in the developing world, it would be really a 
win-win. That's where we are in the negotiations. We need to 
start looking for some win-wins and this strikes us and the 
business community as something that would generate growth and 
certainly be a win for the environment.
    So I hope you continue to push it forward, and we will, 
too.
    Senator Cantwell. We have S. Res. 76 and we are going to.
    But I'm interested, Ms. Harbert. What do you think--I've 
had many conversations with Chinese business and academics who 
are part of clean energy forums and discussions. They seem to 
be very supportive. Obviously, doing that and the government 
doing that are two different things. But how would we go about 
expressing the level of cooperation that this might garner 
between the United States and China? Considering they have so 
many products currently that are coming to the United States, 
this is about helping the trade imbalance with a solution that 
they actually need, and making it more cost affordable for 
their citizens.
    Ms. Harbert. You've hit the nail right on the head. This is 
an economic growth issue and, as we all know, the primary 
objective for the Chinese government for its people is economic 
growth, and then things come way after that, probably similar 
to what it is right now in the United States as well.
    However, that means preserving at all cost their ability to 
develop technologies, to develop things that they will actually 
not just use for the domestic market, frankly, but to export. 
That's what this is about. It is about competition, and they 
want to be seen and be able to grow their domestic market for 
export in this. I think that we need to be able to convince 
them that this is actually an opportunity for them to exhibit 
leadership. They care very much about leadership. If we were to 
take a leadership role together, we could actually make a huge 
difference and they could claim a very respectable contribution 
to reducing greenhouse gas emissions.
    Senator Cantwell. Thank you very much.
    The Chairman. Senator Barrasso.
    Senator Barrasso. Thank you very much, Mr. Chairman. I 
really appreciate you holding this hearing. I also want to 
thank you for partnering with me on introducing new legislation 
aimed at technological challenges that we face in addressing 
global climate change. As you know, 2 weeks ago we introduced 
legislation called the Carbon Dioxide Capture Technology Act of 
2009. In the Senate we've discussed various proposals to 
regulate the output of carbon dioxide through a cap-and-trade 
approach. Some have advocated a carbon tax.
    But as we've discussed, overlooked in the debate is the 
carbon dioxide already in the atmosphere, that is the carbon 
dioxide contributing to the warming of the planet. The best 
scientists tell us it's a factor. To what extent, there is 
disagreement. We're not exactly sure. But it seems to me a 
worthy approach to find a way to remove existing carbon dioxide 
from the atmosphere and then permanently sequester it.
    This is the other end of the problem and it's sometimes 
referred to as ``air capture.'' To accomplish this, we're going 
to need to invest the money to develop the technology. The 
technology can then be used worldwide. So the approach of our 
bill is to address it through a series of financial prizes, 
where we set technological goals and outcomes. The first to 
meet each criteria would receive Federal funds and 
international acclaim. Prizes would be determined by an 
advisory board under the Department of Energy. The board would 
be comprised of climate scientists, physicists, chemists, 
engineers, business manager, economists. They'd be appointed by 
the President and with the advice and consent of the Senate. 
The awards would go to those both public and private who could 
achieve milestones in developing and then applying the 
technology.
    This is technology that could significantly help to slow or 
reverse the accumulation of carbon dioxide in the atmosphere. 
The carbon dioxide would have to be permanently sequestered in 
a manner that would be without significant harmful effects.
    I believe that prizes can be a unique tool in creating 
technological developments. It only seems natural that if we 
can get all the best scientific minds thinking about the same 
problem we will significantly enhance our chances of solving 
it. I think that nations around the world would then want to 
use this technology.
    The United States currently offers prizes through NASA's 
Centennial Challenge program. The Economist a couple of weeks 
ago reported on NASA's competition to create a new Moon Lander 
for future Moon exploration. The article states that NASA's 
system of prizes, quote, ``spur technological development using 
the twin lures of hard cash and the kudos of being officially 
recognized,'' as the Economist says, ``as cleverer than your 
peers.''
    So I want to thank you, Mr. Chairman, for working across 
the aisle on this important legislation when we talk about new 
technology which will not just benefit us in the United States, 
but will have global implications.
    If I could, Ms. Harbert. There was an op-ed column in the 
Washington Post last week, November 13, ``Cooling the Planet 
Without Chilling Trade.'' The authors say: ``We agree that it's 
politically unrealistic and unwise to try and enact a cap-and-
trade system that puts manufacturers in the United States at a 
competitive disadvantage with those operating overseas that 
don't produce under comparable requirements.''
    In my home State of Wyoming, I'm concerned about the impact 
cap-and-trade would have on our soda ash industry. Our main 
competitor is China. If China's not bound by the same rules our 
industry is under, then American jobs are going to go overseas.
    So I'd just like to ask for you to comment on that and what 
we should do in the case that, realistically, China is not 
going to go with hard caps?
    Ms. Harbert. I think that's why we have to have--we have to 
hit the rest button and have some new discussions on finding a 
way to bring the developing world and the developed world 
together on a reasonable and achievable path. If we embark on 
this alone, we certainly are not going to gain the accolades of 
our business community because they're going to be moving with 
their feet and moving to other countries that don't have the 
same environmental regulation.
    That's not just bad for the American economy and bad for 
American jobs. That's bad for the environment, because they're 
going to places that will not have the same environmental 
regulation. So we need to be very clear about the objective. We 
want to remain competitive and we want to do good things for 
the environment and we want to have affordable energy. You can 
achieve all three if we're very creative and we invest in 
technology solutions like you have proposed or Senator 
Bingaman, if we get serious about innovative financing like 
this committee has approved in the Clean Energy Development 
Authority.
    If we marry up technology, innovation, and financing, we 
can actually show countries like India and Brazil and Malaysia 
that there's a way to do this that invests in our future, 
brings technology to the forefront, and actually allows us to 
remain competitive, because I don't think anybody is going to 
sign onto something that imperils their future ability to grow 
their economy. That's just a fundamental reality.
    So that's why we have continued to call for a little more 
realism in this approach. Let's go forward, let's go forward 
smartly, because then it will be achievable.
    Senator Barrasso. Thank you.
    Thank you, Mr. Chairman.
    Mr. Levi. Senator, may I add a quick remark on that? The 
concerns are very important, but it's also important to look at 
the level of ambition in different countries, not just whether 
they have the same form of legislation or policy. Different 
countries have different circumstances, can approach the 
problem in different ways. Whether or not China has a hard cap 
or not doesn't matter as much as whether its rules, its 
regulations, its incentives are strong enough.
    They can have a cap that's very high and very meaningless. 
They can have regulations that are tight and significant. 
That's where we need to focus in eliciting ambition from them.
    The Chairman. Senator Shaheen.
    Senator Shaheen. Thank you, Mr. Chairman, and thank you all 
for appearing here today.
    Mr. Purvis, you talked about the importance of addressing 
deforestation as part of any kind of a global agreement. Can 
you--coming from a State where we are very heavily forested, 
the second most heavily forested in the country, and where 
timber is a big interest in our economy, there is concern about 
how in fact any agreements, any global agreements, would 
actually hold those developing countries accountable for 
reducing deforestation.
    Can you speak to how you think we can reassure people who 
are concerned about that, that in fact any efforts to address 
deforestation are going to be verifiable and that we can 
measure those and people can be confident that that's actually 
happening
    Mr. Purvis. Senator, thank you very much for the question 
and for your interest in this issue.
    Of course, our forests in this country are growing, and the 
problem of deforestation is largely in developing countries. In 
fact, half of the deforestation globally is occurring in just 
two countries, Brazil and Indonesia. So the challenge is to 
work in partnership with these developing countries who are 
increasingly showing a real interest in curbing their 
deforestation, which they see as a threat to their long-term 
economic viability and to their security and to the welfare of 
their people, how we can do that in partnership with them.
    Fortunately, satellite technology and other systems are 
allowing us to have a very clear sense of what's actually 
happening on the ground. We're able to use remote sensing to 
accurately establish not only the forest cover, but also the 
health of the forests, and determine through some good science 
the actual carbon content in those forests.
    As a result of that ability, it gives us an opportunity to 
work with developing countries on a pay-for-performance system, 
where after some initial capacity-building assistance to make 
sure that they have the right plans in place and the right 
systems to be able to go forward, we can then reward them when 
in fact they do reduce their deforestation and achieve emission 
reductions.
    That pay-for-performance approach is absolutely essential, 
I think, to set the incentives right in those countries, but 
also to assure the American people that the partnerships that 
they could have with developing countries would be achieving 
real outcomes, outcomes that would be reducing the cost of our 
climate action as well as achieving a real environmental 
benefit.
    Senator Shaheen. Do you have estimates on what the cost of 
that kind of a pay-for-performance program would be?
    Mr. Purvis. Sure. We know from Brazil, as an example, that 
in their current Amazon Fund, where as I said they have pledged 
to reduce their emissions 80 percent by 2020, that they are 
asking for a $5 a ton payment. That's a quarter of the expected 
cost of emission reductions under the bill that was approved by 
the House or by the Senate Environment and Public Works 
Committee. So significant cost savings are possible based on 
what developing countries themselves are asking for.
    We also know from experience in the voluntary carbon 
markets that the cost of reducing deforestation, even on a 
relatively small scale, where it's less efficient than doing it 
on a large scale, are roughly in that range. So I think it's 
reasonable for the Senate to conclude that there would be very 
substantial cost savings, with the average cost being well 
under $10 a ton, probably closer to $5 a ton in the next 
decade.
    Senator Shaheen. Thank you.
    Mr. Colvin, you talked about your concern about tariffs and 
the barriers that would be to global competitiveness, I think 
is the way I would translate what you said. I certainly share 
that. I think it's very important, particularly as we come out 
of this recession, that we have strong measures in place to 
help American businesses trade overseas and get their products 
into overseas markets, and appreciate the dynamic that we might 
set up by putting tariffs on imports is going to affect our 
exports.
    But, having said that, what is the alternative for 
companies who feel like they're going to be negatively affected 
by our failure to address cheaper imports coming into the 
country?
    Mr. Colvin. Thank you very much. I think it's important to 
recognize that, as President Obama said in June after the 
passage of the American Clean Energy and Security Act, that 
there are other ways to address the problem. One of them is 
through free allocation of allowances through a cap-and-trade 
system. So if you are looking just at the current framework, 
free allowances are a way to make whole companies that are 
disproportionately affected by energy legislation.
    I would also make the point that those companies are a 
small segment of the U.S. business community. It's important 
and it's important to get it right, there's no doubt. But I 
think it's important to take--it's also important to take a 
broader view of competitiveness. All of our firms, whether or 
not they are substantially affected by climate legislation, 
operate globally. So when you operate globally, it's important 
to make sure that markets are open and that other countries are 
not taking steps against your company for totally unrelated 
reasons, for example to retaliate against carbon tariffs.
    Senator Shaheen. Thank you.
    My time is up.
    The Chairman. Senator Murkowski, did you have additional 
questions? Go right ahead.
    Senator Murkowski. I just have one more question. Thank 
you, Mr. Chairman.
    This relates to the Kyoto Protocol. There's a group of 
professors, including Steve Rainer of Oxford and Gwen Prinz of 
the London School of Economics, and they have argued that it is 
in the world's best interest to abandon the construct behind 
the Kyoto Protocol, and have noted that Kyoto has failed to 
reduce the emissions of participating nations. They wrote 
recently that ``It was always the wrong tool for the nature of 
the job,'' and instead have advocated a massive investment in 
the technological innovation and adaptation.
    I would like to know your opinions on this assessment. Is 
the Kyoto Protocol a failure? Should we rethink this 
international framework?
    Mr. Purvis, I believe it was you that mentioned if we 
succeed in Copenhagen or if we fail. I'm curious to know how 
you might define what success in Copenhagen is or, on the other 
hand, what failure might be?
    Mr. Purvis. Thank you, Senator. I think Kyoto is a 
Rorschach test. It's one of those things where you can see what 
you want. But there are a few things that I think are important 
to note. One, as a matter of fact it expires in 2012. 
Currently, the discussions are moving so that there is little 
interest among the developed countries who have obligations 
under Kyoto to continue Kyoto per se. So the outcome of the 
Copenhagen process, whenever it culminates, will be a legal 
instrument that is different from Kyoto, that will be under the 
framework convention on climate change, but will not be an heir 
to Kyoto.
    I tried to highlight in my testimony a number of ways in 
which that process is moving in a much more beneficial manner 
to U.S. interests, where it's bottom-up, it's driven on the 
basis of action. We're not just taking countries' word that 
they're going to act. We're actually looking to see what 
they're doing. We're judging outcomes based on actual results 
rather than on promises. There's a greater diversity of actions 
that nations are allowed to put forward.
    The formal proposals that are being considered envision 
that every country would have a schedule that it fills out that 
explains to the world what it's doing. The U.S. President 
working with the Congress would be able to determine the 
actions that the U.S. would submit to the international 
community and then there would be a process of reporting and 
monitoring and verifying what's been done in each country and a 
political process that would be, building on Dr. Levi's point 
about the importance of transparency, a political process to 
judge whether the sum of these different actions that are 
listed on each of these national schedules is in fact 
environmentally adequate, whether it's comparable, whether 
there's equity in terms of different countries taking action 
based on their different level of development.
    That kind of approach strikes me as much--as politically 
realistic and well suited to the moment that we're in. It 
allows the President to work with the Congress to define an 
approach that works for this country. It gives that same 
flexibility to other countries to really figure out what's 
nationally appropriate for them, but then encourages a real 
exchange of information so we know what's happening in real 
time and we can intervene politically to make sure that 
countries are doing what they say that they are going to do.
    Senator Murkowski. Some have suggested, however and they 
are backing away from this now, that in order for Copenhagen to 
be successful that the Congress in the United States needed to 
adopt some form of climate policy. Obviously this is not going 
to occur prior to Copenhagen. Do we walk into Copenhagen with 
this label of ``the U.S. has failed''?
    Mr. Purvis. I think that if Copenhagen fails there'll be an 
effort to blame the U.S. The President in his remarks, in his 
agreement with the Chinese president, suggested that the United 
States would be going to Copenhagen with some numbers. I 
suspect that what the administration is likely to do is to 
consult with the Congress and to leave some flexibility for the 
political process to work in this country after Copenhagen.
    But the window to influence what the U.S. puts on the table 
will be relatively small, and at some point the international 
community would like a clear answer about what the U.S. is able 
to offer. So at most, I think we have maybe 6 months or a year 
for the Congress and the President to find common ground and to 
establish a new set of agreements or a new set of actions for 
the U.S. that will be offered to the international community.
    So I think Copenhagen can succeed in creating an 
architecture that allows for that additional political process 
in this country.
    Senator Murkowski. That would be a success in your opinion 
then, if it established that framework?
    Mr. Purvis. That architecture that is bottom-up, that 
allows for real verification of actions, allows for a political 
process about whether countries are doing enough, to me that 
would be a very positive outcome. Ultimately, countries will 
have to be definitive about what they're prepared to do. I 
don't think that the window for that ends in Copenhagen, but 
it's a limited window and I think there's an appreciation 
internationally of how the midterm elections and the political 
process in this country maybe mean that really the beginning of 
next year is the time for the Congress to consider what 
additional actions, if any, the United States would be prepared 
to put on the table.
    Mr. Levi. Senator, let me reinforce something that Nigel 
has said. If we get the right kind of architecture at 
Copenhagen, it steers all countries in the direction that is, 
frankly, that is discussed in the paper that you mentioned, one 
where we focus more on bottom-up efforts and one where we focus 
on political engagement and on implementation in countries, as 
well as transparency.
    On the question of the interaction between U.S. legislation 
and international action, we've had a really polarized debate. 
There's been one side that basically says once we act 
everything will follow. There's another that says we won't make 
any difference at all. The reality lies in between those.
    Unfortunately, as long as we don't have a comprehensive 
policy in place here the bulk of the international discussions 
will be focused on what the United States is or isn't doing. In 
particular, our European friends will spend a very large 
fraction of their time focusing on what the United States is or 
isn't doing.
    Once we act at home, we can start to move beyond that. 
We've seen that when the United States and the Europeans line 
up in their positions toward the developing countries, we can 
make considerably more progress. To get to that point, though, 
we're going to have to remove this as a debating point across 
the Atlantic.
    Senator Murkowski. Thank you, Mr. Chairman.
    The Chairman. Senator Sessions, did you wish to ask some 
questions of the panel?
    Senator Sessions. Thank you, Mr. Chairman. I would. I don't 
want to repeat what has occurred. I had to be at a briefing, a 
closed briefing on the shooting at Fort Hood, so I apologize 
for not being here. It remains a matter of interest to me.
    One of my concerns is that the last panel we had, I asked 
the question about whether or not the EPW bill would actually 
create jobs. Nobody agreed that it would create jobs. The 
experience in Spain was that, a study there, as I understand 
it, that it cost jobs. When you drive up the cost of energy, 
you definitely lose some jobs. The idea that they'll be more 
than made up by some sort of green jobs is, at least to the 
panelists that I asked, about as many as here today, including 
top government agencies, concluded it's a net loss; as I would 
interpret their testimony, that it would be a loss.
    One of the things that worries me is our unemployment as 
surging is, what about international offsets? Perhaps you 
talked about that some, but I would like to ask any of you to 
comment on it if you would like. What about the danger of 
transfer of American wealth to competitive economies, economies 
that are competing against us very day, in many cases winning 
that competition, because Americans get laid off and then two 
things occur. No. 1, we raise the cost of our energy, so our 
plant then becomes even less competitive; and No. 2, we take 
American--we buy offsets, for example, that I think could occur 
under the EPW bill, that we would pay money to a steel mill, 
let's say in China, to make efficiencies in their production 
that they might not otherwise make.
    So am I missing something here, and is there a danger in 
international offsets that we would enhance the competitiveness 
of our global competitors and transfer American wealth and 
indeed could help us lose jobs here? Mr. Purvis?
    Mr. Purvis. Senator, thank you for the question. The idea 
of offsets is not that attractive to American business and to, 
I would imagine, the American political establishment, in the 
context of our not yet having made a decision to dramatically 
reduce our emissions. But once we're on the path toward 
ambitious climate action, then offsets are what allow us to 
achieve those actions in an affordable manner.
    The Environmental Protection Agency has said that the price 
of emissions permits would be 89 percent higher under the bill 
that you cited if international offsets were not made 
available.
    Senator Sessions. That's a good point. So it's cheaper to 
reduce CO2 by giving money to China because their 
plants already are far less efficient and they use more energy 
to melt steel and create steel than we do, I would agree. But 
if that's not your only goal and your goal is the health of the 
American economy, how do you weigh that?
    Mr. Purvis. The other point I would make on competitiveness 
is that the EPA analysis shows that the majority of the 
international offsets over the next decade are likely to be in 
the forest sector. When we are purchasing offsets from Brazil 
or Indonesia or other tropical forest countries, what we're 
doing is protecting their forests and making sure that those 
forests are not harvested for their timber, which competes with 
U.S. timber, that those forests are not converted into 
agricultural lands, which then grow commodities which compete 
with U.S. agricultural commodities.
    So in the early years the money in the large program is 
likely to not really go to China as much as it is to these 
other countries where there are very substantial co-benefits 
for allowing those offsets. So I think there are the initial 
cost savings as well as the opportunity to support other 
aspects of the U.S. economy.
    Senator Sessions. There are studies that raise some 
question about the legitimacy of those offsets, since these 
countries may well have been replanting anyway, or they have an 
economic interest in doing so.
    Would anybody else like to comment?
    Ms. Harbert. The availability of offsets is central to the 
affordability of any scheme. So the first question is are they 
going to be available? If we're successful in having an 
international agreement, those offsets might very likely be 
used by the countries themselves, thereby raising the price of 
compliance here in the United States. So we either are going to 
be transferring it to other countries or in an international 
format we actually may be increasing the price of--we are going 
to be increasing the price of electricity and gas, but it may 
be even higher than that if these offsets end up not being 
available for use.
    I think the real issue for competitiveness and for the 
American business community is to find out how to do this 
without having to sacrifice jobs and move them overseas or 
transfer wealth, because at the end of the day if we are 
subject to some U.N. body that's going to determine whether 
this offset is real or not, American businesses all over the 
country are going to not be able to make business decisions in 
real time and capital investments, because they're going to be 
subject to a higher level of review by U.N. panels or whoever 
to determine whether these offsets are available to them or 
not. That's not really a real-time recipe for competitiveness 
in today's fast-moving economy.
    Mr. Levi. Senator, I think it's important to think about 
offsets in a broader context. If all we do is take steps at 
home and pay for emissions reductions below business as usual 
in a country like China, that's insufficient. But if we can 
include offsets in a system where we extract other commitments 
from those countries, where they take steps on their own in 
order to become eligible for offsets beyond those steps, where 
they take perhaps steps to reduce some of the tariff and non-
tariff barriers to our selling clean technology into their 
countries in order to meet their regulatory requirements, then 
we can find win-wins.
    But we need to broaden the discussion of what it is we're 
after if we want to get those win-win outcomes.
    Senator Sessions. But if we pass the House or the Senate 
bill, we don't have any guarantee that that would happen. In 
fact, maybe we would have given it up because we had already 
declared that we were going to buy offsets from abroad. So I 
think the net of it is that it will not create jobs. I'll just 
leave it at that.
    Thank you, Mr. Chairman.
    The Chairman. Senator Shaheen, did you have another 
question?
    Senator Shaheen. No.
    The Chairman. Senator Murkowski, did you have other 
questions?
    Senator Murkowski. No, thank you.
    The Chairman. Let me just thank this panel very much for 
all your good testimony. I think this has been a useful hearing 
and we appreciate your efforts to educate us on these issues.
    Thank you very much.
    [Whereupon, at 11:28 a.m., the hearing was adjourned.]
                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

      Responses of Jake Colvin to Questions From Senator Murkowski
    Question 1a. Many argue that the United States must implement a 
robust climate policy in order to re-take the lead in the development 
of clean energy technologies. Key to this effort will be the protection 
of intellectual property rights, which can help companies recoup their 
investments and encourage them to keep working on new technologies.
    Can you discuss some of the opportunities to secure intellectual 
property rights in both domestic legislation and an international 
treaty?
    Answer. Internationally, the World Trade Organization Agreement on 
Trade-Related Aspects of Intellectual Property Rights (TRIPS) 
establishes the worldwide baseline for intellectual property rights and 
enforcement. Beyond TRIPS, many countries have extended IP rights and 
enhanced enforcement efforts through numerous regional and bilateral 
agreements. United States free trade agreements, for example, contain 
commitments from trading partners to extend IP rights and enhance 
enforcement efforts beyond TRIPS. Developing deeper economic 
relationships with U.S. trading partners--for example by concluding 
trade agreements--would provide additional avenues to strengthen 
protection of IP assets abroad.
    Domestically, Congress should be commended for its attention in 
climate legislation and recent letters to the importance of 
intellectual property protection for promoting innovation and 
delivering clean technologies to developing countries. NFTC strongly 
supports the inclusion of the language in the American Clean Energy and 
Security Act at Section 441 and agrees that, ``Intellectual property 
rights are a key driver of investment and research and development in, 
and the global deployment of, clean technologies.''
    It is important for Congress to continue to make clear the priority 
it attaches to resisting attempts in global climate negotiations to 
distort trade and weaken global rules on intellectual property, as 
recent letters to the Administration from Members of both the Senate 
and House have done.
    Congress should use future climate and energy legislation as 
opportunities to urge the Administration to resist the range of trade-
distorting or IP-weakening mechanisms that governments have proposed 
and to target capacity-building assistance and funding to efforts to 
improve environments in developing countries for protecting IP rights.
    Question 1b. If the United States demands that strong intellectual 
property rights be included in a post-Kyoto framework, how do you think 
the rest of the world will react?
    Answer. Any country that seeks to promote the production of 
innovation should support a predictable market for intellectual 
property rights. These markets will stimulate investment in new 
technology and provide the legal framework for deployment. Ultimately, 
we believe that the world--particularly advanced developing countries 
like China and India, which are developing clean technology industries 
of their own, will support strong IP protection. And given the 
scientific consensus that time is short and we must invest heavily in 
new technologies to meet mitigation targets, the only IP conversation 
that should be happening at the UN is whether IP rights are strong 
enough.
    Yet numerous proposals submitted to the United Nations Framework 
Convention on Climate Change (UNFCCC) draft negotiating text seek to 
weaken the value and global protection of IP rights. These efforts are 
based on the false premise that IP protection will slow technology 
deployment efforts, particularly in developing countries.
    One of the worst things we can do is chill investment by giving any 
credibility to arguments which seek to weaken the assets underlying 
clean tech investments. It is our experience that such proposals are 
not supported by companies, environmentalists--or by most member 
states. Weakening IP rights is not in the interest of any country which 
seeks to contribute to innovating and deploying new technology 
solutions.
    We believe the best approach to international climate negotiations 
is to emphasize the importance of strong IP protection and make clear 
that global climate negotiations must exist within the established 
intellectual property regime. The system of rules that have been 
established under the WTO should not be altered by another body. 
Ultimately, the real issues in the international negotiations are 
funding and capacity-building, not IP. The United States and other 
developed countries will need to get creative to establish policies and 
incentivize adequate funding to help countries transition to low-carbon 
pathways.
    Question 2. Like many academics and economists, you testified that 
border adjustment mechanisms in climate policy could prove highly 
problematic. Would it be easier to protect our nation's balance of 
trade under a carbon tax, a sectoral approach, greater investment on 
technological innovation, or another strong climate policy, as opposed 
to cap-and-trade?
    Answer. While a carbon tax may make a border adjustment measure 
easier and more transparent to administer, the imposition of a ``carbon 
tariff'' under such a system could cause some of the same concerns 
among U.S. trading partners. Countries are bothered by the idea of new 
tariffs, however straightforward or fair they may be from an 
implementation perspective.
    Regardless of the type of carbon-pricing policy Congress may 
implement, it would be useful to consider how to help workers in 
energy-intensive industries who may be harmed by the transition to a 
clean energy economy. As Joe Aldy and Billy Pizer concluded in a report 
prepared for the Pew Center on Global Climate Change, ``most of the 
effect on domestic production arises from a shift in consumption away 
from carbon-intensive goods--rather than a shift in production to 
unregulated foreign imports.''
    It is important to remember that certain energy-intensive 
manufacturing sectors are likely to face transition costs under a cap-
and-trade program from a shift in consumer demand towards less energy-
intensive products. While I believe that transitioning to a clean 
energy economy will ultimately create jobs, it is important to be 
honest about the costs too.
    Congress might consider whether to provide transition assistance to 
American workers in energy-intensive industries who may face new 
competition from U.S. energy-efficient industries, which will become 
relatively more competitive if the United States puts a price on 
carbon. It might be especially useful to think about ways to target 
such assistance to more experienced workers who may be less willing or 
able to transition to green industries.
    The United States may wish to look to how other countries are 
handling similar issues. Germany, for instance, is providing payments 
to older workers who have lost jobs in their domestic coal industry, 
and economic development programs to help coal towns transition to new 
industries.
    Finally, there are numerous other trade-related incentives under 
consideration in the United States and other countries which have the 
potential to create jobs and help the environment. Eco-labeling 
schemes, clean technology funds, government procurement policies 
favoring climate-friendly goods, and incentives for research, 
development and production of clean technologies have all been 
discussed in various contexts. In general, policies are less likely to 
violate global trade rules to the extent that they are transparent, 
apply the same rules to foreign and domestic entities, do not 
needlessly restrict trade and are not designed to impact the export 
performance of domestic industry.
                                 ______
                                 
   Responses of Karen A. Harbert to Questions From Senator Murkowski
    Question 1. While the United States has focused almost exclusively 
on cap-and-trade, can you comment on other nations' ability and 
interest in implementing that type of system? Are other nations, 
developed and developing, capable of implementing economy-wide caps on 
emissions, creating a new carbon market, and properly administering 
cap-and-trade?
    Answer. No nation that I am aware of has relied, or plans to rely, 
exclusively on cap & trade. The European Emissions Trading System, for 
example, covers the power generation and industrial sectors--sectors 
that constitute about 45% of total European greenhouse gas emissions. 
Nations, including the U.S., rely on many different policy options to 
achieve emissions reductions, including energy efficiency standards, 
lighting standards, building efficiency codes, renewable electricity 
requirements, renewable fuel requirements, vehicle fuel efficiency 
standards, and others. Indeed, many of these other policy mandates 
require actions that might, because they are more costly, not be 
pursued under a true economy-wide cap & trade scheme.
    For a cap & trade system to function properly, carbon traders have 
to be assured of the integrity of the emissions credits being sold on 
the market. Ensuring market transparency as well as an offset 
verification process is paramount for the private sector. It will be 
even more challenging to establish such a system in a developing 
country, many of whose power generation sectors are not as well 
established (for example, it is not uncommon for households to pirate 
power from the grid in many developing countries, which then weakens 
price signals we take for granted here in a well-functioning market). 
Moreover, developing countries have been clear that they will not 
accept binding emissions targets, which would be a prerequisite for a 
carbon market. It is very unlikely that a global emissions market on 
the scale as foreseen by the UN could be set in place with the 
requisite governance structure to ensure transparency and verifiability 
anytime soon.
    Policy leaders and negotiators alike should be less focused on 
dictating the mechanism for countries to adopt and instead should 
ensure that existing mechanisms are utilized to the fullest extent 
possible. For example, we should be pursuing the removal of tariff and 
non-tariff barriers on clean energy goods and services through the Doha 
round, which would reduce the cost of clean energy and stimulate jobs 
here and around the world. That is the type of win-win approach 
negotiators should embrace.
    Some countries may trend toward a sectoral approach focused on 
specific industries (e.g., steel, refining, and cement) as a way to 
ease competitiveness concerns, motivate action in developing countries, 
and bring them into international carbon markets (other than the market 
for offsets). Under sectoral trading, a developing country would commit 
a sector to an emissions cap for which it would receive tradable 
credits. While promising, sectoral approaches are not without their 
detractors, and as with many other proposals, the devil is in the 
details. There is, for example, a real concern that sectoral agreements 
could be structured in such a way that the primary beneficiaries would 
wind up being inefficient state-run enterprises that dominate many 
industrial sectors in developing countries which would disadvantage our 
private sector.
    Question 2. In my opening statement, I expressed skepticism that an 
American climate policy would prompt the international cooperation 
that's needed to truly address this challenge. After all, while our 
nation has made significant progress on a host of issues here--from 
worker protections to environmental stewardship--those achievements 
have not always been matched by progress throughout the rest of the 
world.
    Assuming the United States does pass a climate policy, can you 
comment on how that would affect the issues that have made 
international negotiations so tough, including who should be required 
to make emissions cuts, how steep those cuts should be, and who should 
pay for the costs associated with them?
    Answer. I agree that it would be a mistake to conclude that all 
would be well if only the U.S. had domestic legislation in hand. While 
the U.S. Chamber supports Federal climate legislation, we also 
recognize that the most contentious issues in the international 
negotiations go well beyond what we can expect to see addressed in 
domestic legislation. These contentious issues include short-term 
emissions reduction commitments by developed countries, burden sharing 
by developing countries, finance, wealth transfers, technology 
transfer, and intellectual property concerns. It is not likely that 
these issues will be less contentious if a bill is signed into law. One 
need look no farther than the European Union, which has firm 
commitments and now finds itself in an unenviable position 
competitively. I would also note that very few other developed 
countries have comprehensive economy-wide climate laws on the books at 
present.
    The position of developing countries is that developed countries 
should go first with deep and binding emissions reductions. Developing 
countries are not prepared to accept internationally binding 
commitments and they have been up front that their cooperation, in 
addition to being nonbinding, will only come with significant financial 
contribution. They are pressing for the developed countries to transfer 
anywhere from 0.5% to 2.0% of their gross domestic product each year to 
bankroll climate change programs in developing countries. At that rate, 
in 2008 the cost to American taxpayers alone would have been $72 
billion to $289 billion. Developing countries also are trying to use 
the negotiations to weaken intellectual property protections through 
compulsory licensing of advanced energy technologies, ostensibly to 
remove barriers to ``technology transfer.'' It is unlikely that a 
domestic climate bill would change these dynamics in any meaningful 
way.
    It is important to recognize that how rapidly advanced energy 
technologies develop and are adopted commercially will be the most 
important factor in determining how quickly and at what cost greenhouse 
gas emissions can be reduced. Existing technologies can make an 
important contribution, but they alone are not capable of significantly 
reducing greenhouse gas emissions on a global scale and at an 
acceptable cost.
    To address global climate change and promote economic growth, we 
must promote a long-term vision that motivates and provides direction 
for national and regional cooperative activities, takes into account 
emerging science and technology development and turnover, recognizes 
growing energy needs, ensures the broadest participation from developed 
and developing nations, and does not undermine economic growth.
    Question 3. To meet the 50-by-50 goals outlined in your written 
testimony, you indicated that emission-free electricity, most of which 
comes from nuclear and hydro sources, would have to increase by over 
500% by 2050 from today's levels. Many developing countries and those 
with small electric grids would be challenged to increase their use of 
these resources, from both a technology and regulatory point of view.
    Do you think a concerted international effort should be made to 
develop and promote small- and medium-size nuclear reactors for the 
developing world, along with the technical and regulatory capabilities 
those countries would need?
    Answer. An agreement that focuses on technology offers a path 
forward that developed and developing countries can embrace. We believe 
all energy sources should be on the table, but it is difficult to see 
how deep global emission reductions could be achieved absent a large 
role for nuclear power. As we consider the scale and scope of the 
technology challenge, we have to move beyond the current discussions 
and ask ourselves if the world is prepared to undertake the transition 
in energy systems that would be needed to cut global emissions 
significantly. Is the world prepared and able to deploy nuclear power 
and other advanced technologies (e.g., carbon capture and storage and 
second generation biofuels, to name two) at the scale and within the 
timelines required to meet the UN's targets?
    A successful new agreement should promote new partnerships 
involving developed, emerging, and developing countries and the private 
sector that create opportunities for technology cooperation, public-
private partnerships, innovative financing, and capacity building. A 
concerted and cooperative effort along these lines focusing on nuclear 
power could be very effective in making nuclear power a reliable and 
safe technology option.
    Question 4. There is an unprecedented effort to create millions of 
new jobs--``green jobs''--in America's energy sector. Is this same 
emphasis present in other countries, or are other concerns, such as 
keeping energy affordable or simply transitioning to non-fossil 
resources, given higher priority?
    Answer. Only where there is national interest to do so. Developing 
countries are unwilling to accept restrictions on their development and 
energy use. Providing modern energy services to lift their people out 
of poverty is a much more pressing need than addressing climate change.
    With billions of people still lacking electricity, developing 
countries are understandably loath to cap emissions if it hampers their 
economic development and energy security. Much of the energy needed to 
power economic growth will likely be supplied by fossil fuels. Many 
developing countries sit atop large reserves of coal, oil, and gas, and 
it would be naive to expect them to forego their use in favor of more 
costly and less reliable energy options.
    To the extent that developing countries can use their comparative 
advantages in labor to attract green manufacturing jobs, it is likely 
they will do so. Many developing countries are home to manufacturing 
plants that produce solar panels and wind turbines, for example, but 
the products of these facilities are largely focused on an export 
market. Further, some firms are thinking of moving manufacturing 
facilities from developed to developing countries to take advantage of 
lower labor costs.
    As we consider the implications the negotiations will have on job 
creation, we shouldn't lose sight of the fact that a bad agreement--and 
bad domestic legislation, too--would ship existing U.S. jobs overseas, 
especially those from energy intensive industries. To avoid this, we 
need an agreement that doesn't tilt the competitive playing field 
against U.S. industry. And to do that, large developing economies, like 
China, India, and Brazil, must signal their willingness to commit to 
realistically ambitious and binding goals. That will be one of the real 
tests coming out of Copenhagen that will have tremendous implications 
for U.S. policy.
                                 ______
                                 
    Responses of Michael A. Levi to Questions From Senator Murkowski
    Question 1. While the U.S. has focused almost exclusively on cap-
and-trade, can you comment on other nations' ability and interest in 
implementing that type of system? Are other nations, developed and 
developing, capable of implementing economy-wide caps on emissions, 
creating a new carbon market, and properly administering cap-and-trade?
    Answer. Cap-and-trade appears to be the most popular emissions-
cutting tool for large emissions sources in the developed world. It has 
been the central element of European Union emissions-cutting efforts. 
New Zealand passed a cap-and-trade bill last year; Australia has been 
debating one for some time. Japan, after resisting the approach, is 
aggressively exploring it now. Canada also appears to favor cap-and-
trade over other tools. All of these nations are capable of 
implementing economy-wide caps as well as creating and administering 
carbon markets. That said, in each case, cap-and-trade has been 
complemented by other policy tools, and in most cases, it has been 
limited to power plants and factories.
    Developing countries differ in their abilities to implement 
economy-wide emissions caps, create carbon markets, and properly 
administer economy-wide cap-and-trade systems. Advanced developing 
countries like South Korea are currently capable of implementing such 
systems. Intermediate developing countries like China and India are 
not. They lack the means to monitor economy-wide emissions and to 
enforce the rules of an economy-wide cap-and-trade system. There are, 
however, likely to be subsectors of both coutnries' economies that 
could administer and enforce cap-and-trade systems successfully.
    Question 2a. Many argue that the United States must implement a 
robust climate policy in order to re-take the lead in the development 
of clean energy technologies. Key to this effort will be the protection 
of intellectual property rights, which can help companies recoup their 
investments and encourage them to keep working on new technologies.
    Can you discuss some of the opportunities to secure intellectual 
property rights in both domestic legislation and an international 
treaty?
    Answer. The greatest opportunities to secure intellectual property 
rights are through bilateral engagement with key countries like China 
and India, rather than in domestic legislation or a global climate 
treaty. The most that domestic legislation can do is limit U.S. 
negotiators' flexibility. It is important that Congress provide clear 
direction to negotiators, but it could be counterproductive to overly 
constrain negotiators' options, as they try to negotiate agreements 
that expand markets for U.S. clean technologies. A global treaty is 
also unlikely to provide a solution to intellectual property rights, 
since the most important concerns are specific to only a handful of 
countries (such as China). That said, the United States should avoid 
allowing any international agreement to permit compulsory licensing of 
low-carbon technologies, which would undermine incentives for 
innovation while possibly also inhibiting the diffusion of critical 
clean energy solutions.
    U.S. negotiators must remember that when it comes to U.S. exports 
of clean technologies, their goal should not be to simply protect IPR--
it should be to grow opportunities for U.S. businesses to profit as the 
world transitions to a low-carbon economy. That can be done both by 
protecting IPR and by expanding demand and markets for new clean 
technologies. If U.S. negotiators can make small compromises on IPR in 
exchange for developing-country actions that massively expand demand 
and markets for U.S. products, that may produce a win-win outcome. 
While the United States should be careful, it should not foreclose such 
opportunities.
    Question 2b. If the United States demands that strong intellectual 
property rights be included in a post-Kyoto framework, how do you think 
the rest of the world will react?
    Answer. The United States will have strong support from other 
developed countries if it demands that strong intellectual property 
rights be reaffirmed in a post-Kyoto framework. It will likely face 
opposition from major developing countries, but that opposition is 
unlikely to derail a deal.
    Question 3. In 2005, the Bush Administration started the Asian 
Pacific Partnership on Clean Development and Climate to foster 
international cooperation and technology development. That program 
brought together the governments and private sectors of seven nations--
Australia, Canada, China, India, Japan, Korea, and the United States--
to reduce pollution while maintaining economic strength.
    From your viewpoint, is this program achieving its goals? Is it a 
successful model that could be incorporated into other climate change 
programs?
    Answer. The APP has made important contributions to the development 
of policies and technologies that will help reduce global emissions. 
Its informal nature and its focus on specific initiatives (rather than 
on high-level promises) can unlock action where diplomatic efforts are 
deadlocked. That said, it could benefit from substantial increases in 
both high-level attention and financial support.
    The APP provides a useful model for future programs, though it is 
not a substitute for high-level engagement or for enactment of strong 
incentives (whether financial or regulatory) that steer businesses 
toward low-carbon investments. In 2008, a Council on Foreign Relations 
sponsored Independed Task Force Report, Confronting Climate Change: A 
Strategy for Foreign Policy, a bipartisan group of over two dozen 
senior leaders from business, policy, finance, labor, academia, and 
environmental groups called for the creation of a ``Partnership for 
Climate Cooperation'', which would combine an intensified APP-type 
focus on bottom-up efforts with high-level engagement among national 
leaders. Such an approach, which could be facilitated through the Major 
Economies Forum or possibly the G-20, remains attractive.
    Question 4. The levels of pollution we're seeing in Alaska are at 
least partially a function of pollution coming over the pole from 
Europe and Russia. We're seeing firsthand how pollution travels--it 
does not recognize political borders. Because what happens in places 
like China or India will affect the U.S., I'm interested to hear your 
perspective on the level of urgency that economically-developing 
nations are showing with regard to reducing their emissions.
    In looking at China and India's recent actions, it appears they are 
more interested in economic development, in order to maintain 
stability, rather than putting controls on their economies that will 
reduce emissions. Do you agree with that assessment, or have you seen a 
shift in the approach that developing nations like China and India are 
taking to climate change?
    Answer. China and India have been taking significant steps that 
reduce their emissions--but they are not taking those steps because of 
concerns about climate change. They are taking those steps because of 
concerns about dependence on imports of oil and gas, because of 
concerns about local air pollution (and, in the case of China, the 
implications of that for political stability), and because of concerns 
about inefficient consumption of energy. So long as those steps are 
sufficiently strong, they should be acceptable to the United States. 
The problem with current Chinese and Indian policies is not that they 
are not aimed at dealing with climate change--it is that they do not 
yet appear to be strong enough to sufficiently curb energy use and 
associated emissions.
    Question 5. There is an unprecedented effort to create millions of 
new jobs--``green jobs''--in America's energy sector. Is this same 
emphasis present in other countries, or are other concerns, such as 
keeping energy affordable or simply transitioning to non-fossil 
resources, given higher priority?
    Answer. The focus on ``green jobs'' has been dominated by the 
United States. Other countries have pursued policies with different 
emphases. In most developed countries, and in Europe in particular, the 
emphasis has been on climate benefits. Japan has emphasized the 
importance of both climate and energy efficiency. China has been 
concerned with reliance on imported oil, as well as on the local 
environmental impacts of the inefficient burning of coal. The different 
priorities lead to somewhat different policy approaches. Ultimately, 
employment in the United States will be determined primarily by 
economic policies that have nothing to do with climate change. Good 
climate policy, including well-designed cap-and-trade efforts, can and 
should avoid doing significant harm to employment, but those efforts 
should not be expected to substantially increase U.S. employment 
either.
                                 ______
                                 
     Responses of Nigel Purvis to Questions From Senator Murkowski
    Question 1a. Many argue that the United States must implement a 
robust climate policy in order to re-take the lead in the development 
of clean energy technologies. Key to this effort will be the protection 
of intellectual property rights, which can help companies recoup their 
investments and encourage them to keep working on new technologies.
    Can you discuss some of the opportunities to secure intellectual 
property rights in both domestic legislation and an international 
treaty?
    Answer. A strong system to protect intellectual property rights 
(IPR) is absolutely essential to spur innovation to address climate 
change and to foster U.S. economic growth. Domestic legislation can 
strengthen international protections for IPR by promoting the right 
kind of international clean technology partnerships. New funding for 
international technology cooperation, including funding provided under 
a cap-and-trade program, could be conditioned on new commitments from 
other countries to better implement existing IPR standards and 
protections. This approach would create stronger incentives for 
improved IPR compliance and enforcement in other nations while also 
encouraging dissemination of new technologies developed jointly through 
bilateral clean energy programs.
    Question 1b. If the United States demands that strong intellectual 
property rights be included in a post-Kyoto framework, how do you think 
the rest of the world will react?
    Answer. It is probably not feasible to include new IPR protections 
in a new global climate change agreement in the Copenhagen process 
under the United Nations. In these negotiations, developing countries 
are pushing to weaken, not strengthen, IPR protections. The most likely 
compromise outcome, therefore, is that the next global agreement will 
leave international IPR protections unchanged and possibly unaddressed. 
The more productive path forward would be for the United States to 
include provisions relating to IPR in bilateral climate and trade 
agreements that the United States negotiates with key countries, 
including its major trading partners in the developing world. In 
exchange for the opportunity to cooperate with the United States on the 
development and dissemination of clean energy technologies, as well as 
opportunities for enhanced access to U.S. carbon markets, major 
emerging economies might agree to significantly strengthen their 
enforcement of existing IPR standards.
    Question 2. It is commonly agreed that financing for clean energy 
technologies is critical to agreement on a new international climate 
framework. Some countries believe this could ultimately cost more than 
$1 trillion per year.
    Given our nation's struggling economy and record deficits, how much 
do you think the U.S. is capable of pledging for these efforts, and 
where can that money come from?
    Answer. The European Union estimates that developing countries will 
need approximately $150 billion by 2020 to mitigate their emissions and 
adapt to climate change. Their estimate includes financing from all 
countries and all sources, both public and private sectors and 
developed and developing countries. This estimate seems realistic and 
in line with estimates prepared by the World Bank. A substantial 
portion of the needed funding is likely to come from the private 
sector. Developing nations would also be expected to self-finance a 
significant portion of their efforts.
    At the same time, it is in the interest of the United States to 
invest in clean energy and emissions reduction partnerships with 
developing nations. The cost of reducing emissions in the United States 
exceeds the cost of emissions reductions in developing nations. We can 
strengthen our economy and enhance our security by achieving part of 
our emissions reduction responsibility in developing nations rather 
than at home. Well-designed foreign investments and partnerships would 
advance other U.S. foreign policy goals as well, including poverty 
alleviation, energy security, international stability, and biodiversity 
conservation. Importantly, these investments should not be viewed by 
Congress and the American people as foreign aid. On the contrary, 
reducing the cost of U.S. climate policy is a strong self-interested 
goal.
    Question 3. In 2005, the Bush Administration started the Asian 
Pacific Partnership on Clean Development and Climate to foster 
international cooperation and technology development. That program 
brought together the governments and private sectors of seven nations--
Australia, Canada, China, India, Japan, Korea, and the United States--
to reduce pollution while maintaining economic strength.
    From your viewpoint, is this program achieving its goals? Is it a 
successful model that could be incorporated into other climate change 
programs?
    Answer. The Asia Pacific Partnership (APP) should be extended and 
expanded. Bringing together key nations and industries to share best 
practices and develop common standards is a sound approach. However, 
the APP has never been funded adequately and thus its results have been 
modest. The United States should increase funding for the APP and 
consider expanding its membership to include other willing countries 
that could contribute resources and expertise, such as nations in 
Europe.
    Question 4. As you are aware, wildland fires in the United States 
and Canada have been increasing over the last 20 years. Several 
different studies have shown that significant amounts of carbon dioxide 
are released while these fires burn, and then again as the trees killed 
in the fires decompose. One study in California found the fires between 
2001 and 2007 released as much carbon dioxide as half of the registered 
cars in that state over the same period.
    If tropical forests are going to be considered for credit for 
sequestering carbon, shouldn't the carbon saved by preventing domestic 
fires, as well as insect and disease outbreaks that kill trees, be 
eligible as well?
    Answer. U.S. climate policies should create incentives to reduce 
emissions and increase carbon sequestration across all sectors of the 
economy, including our nation's forests. Of course, proposals to 
suppress forest fires also need to consider ecological impacts beyond 
climate change. U.S. climate policy should also reflect that tropical 
forests and North American forests are somewhat different. Tropical 
forests tend to hold more carbon and can be less expensive to protect 
than North American forests. In addition, some scientists believe that 
northern forests may contribute to climate change (by absorbing the 
sun's heat) in ways that are quite different than in the tropics.
    Question 5. Studies have shown that fires in the northern 
latitudes, such as Alaska and Northern Canada, release more carbon 
dioxide than fires in the continental United States because of the 
organic duff that persists in tundra and taiga forests. History also 
shows that we tend to allow those fires to burn until the weather puts 
them out.
    Should we be more concerned about these fires, not least because of 
the high emission rates associated with them, and try to put them out 
more quickly compared to fires in other areas, such as southwestern 
deserts?
    Answer. U.S. climate policies should create incentives to reduce 
emissions and increase carbon sequestration across all sectors of the 
economy, including our nation's forests. The role of forests in the 
northern latitudes should receive special attention and consideration 
given the potential for deforestation in those latitudes to release 
higher levels of greenhouse gases, including from tundra and taiga 
soils. Proposals to suppress forest fires in northern latitudes also 
need to consider ecological impacts beyond climate change.
                                 ______
                                 
      Responses of Taiya Smith to Questions From Senator Murkowski
    Question 1. While the United States has focused almost exclusively 
on the creation of a capand-trade system, can you comment on China's 
interest in that type of policy? Is China capable of successfully 
implementing an economy-wide cap, creating a carbon market, and 
administering such a program?
    Answer. Initially skeptical about the carbon trading market, China 
worried that a cap-and-trade system will sap its GDP growth and will 
allow richer nations to pay their way out of obligations to reduce 
greenhouse gas emissions. However, China now has come to embrace it as 
an opportunity to attract foreign investment in promoting energy 
efficiency and renewable energy projects. Jiang Weixin, a senior 
official of the National Development and Reform Commission (NDRC) has 
stated, ``The cap-and-trade system create opportunities for developed 
countries to emit greenhouse gases at a relatively low economic cost 
and achieve their emission reduction targets, while developing 
countries obtain benefits such as funding and technology transfer, 
which will boost their efforts to pursue sustainable development.'' The 
Chinese now see cap-and-trade as a win-win for them.
    Further, after a decade of small-scale experiments in using 
emissions trading to reduce pollution, China is taking steps to set up 
a nationwide system. Three cities--Shanghai, Beijing and Tianjin--have 
begun creating emissions exchanges modeled on carbon trading markets in 
the U.S. and Europe.\1\ China currently accounts for 60 percent of 
carbon credits trading under the Clean Development Mechanism (CDM). 
This is a significant increase from its initial role in CDM, which was 
just five percent of the contracted volume.
---------------------------------------------------------------------------
    \1\ China National Petroleum Corp. (CNPC) has joined with the 
Chicago Climate Exchange and the European Climate Exchange to set up 
the Tianjin Climate Exchange. BlueNext has partnered with the Beijing 
Environment Exchange to establish the Beijing exchange, and the 
Shanghai United Assets and Equity Exchange is backing the Shanghai 
Environment Energy Exchange.
---------------------------------------------------------------------------
    Implementing a national program of carbon trading will take more 
time. The national sulfur trading program is due to roll out in 2011, 
with significant support from the U.S. Environmental Protection Agency 
(EPA). Expanding this to include other gases will take longer, 
potentially up to a decade, while this first program is established. 
Already many in Beijing are already thinking seriously about what a 
national program could look like, including consideration of the 
necessary legislative and legal bodies. Critical to a successful 
establishment of a trading program in China will be economic incentives 
and expert support. EPA had been working with China for 15 years before 
they had the technical capability and political willingness to attempt 
to expand the program nationally.
    Question 2. In 2005, the Bush Administration started the Asian 
Pacific Partnership on Clean Development and Climate to foster 
international cooperation and technology development. That program 
brought together the governments and private sectors of seven nations--
Australia, Canada, China, India, Japan, Korea, and the United States--
to reduce pollution while maintaining economic strength. From your 
viewpoint, is this program achieving its goals? Is it a successful 
model that could be incorporated into other climate change programs?
    Answer. The U.S. works with China to accelerate the deployment and 
development of clean energy technologies through two different forums, 
the bilateral U.S.-China Ten Year Cooperative Framework on Energy and 
the Environment (TYF) and the multilateral Asia-Pacific Partnership on 
Clean Development and Climate (APP). The TYF was established in June 
2008, and expanded through a memorandum of understanding signed at the 
Strategic and Economic Dialogue in July 2009 and again at the 
Presidential Summit in November 2009. It focuses on ten strategic areas 
ranging from cleaner uses of coal to natural resource conservation with 
the aim of achieving concrete progress in each of these areas. The APP 
brings together seven countries to focus regionally on five key areas 
(climate change mitigation, energy security, air pollution, economic 
development, reduction of poverty) and has twenty projects. Both 
initiatives coordinate and utilize the private sector to help implement 
their projects.
    The APP has had some success; most importantly it has regularly 
brought together an important group of countries to discuss the 
practicalities of managing climate change and encouraged the use of 
market-based mechanisms under the Kyoto Protocol. Through its programs, 
it has had a number of achievements, but funding shortages, 
insufficient communications, technical barriers, and so forth have 
prevented APP and its projects from making any breakthrough. Moreover, 
national strategy and interests differ amongst participating nations 
and this has resulted in limiting the work that the partnership can 
achieve. In contrast, the bilateral TYF is more nimble and able to 
respond at a higher level more rapidly. Further, the TYF is able to 
incorporate ongoing efforts and funding streams into its work and can 
easily raise awareness and support to the Presidential level as it was 
established with agreement at the highest levels of the U.S. and 
Chinese governments.
    Both programs have advantages and core constituents. The APP model 
will likely prove to be useful as we expand regional relationships to 
manage and bring down the costs of climate change, though it will never 
replace bilateral relationships. To improve the effectiveness of the 
APP, stricter project management should be implemented for scope, 
schedule, budget, and accountability as well as discussions around how 
intellectual property should be managed.
    Question 3. In your written testimony, you note that China is 
pursuing ``new domestic initiatives to `make carbon reduction a new 
source of economic growth.''' Do you believe China would ever implement 
policies to reduce emissions that are seen as hampering, rather than 
promoting, economic growth?
    Answer. China is in a difficult place; it has to maintain economic 
growth and it has to reduce its dependency on unsustainable energy 
sources. For the government in Beijing, there is no choice between the 
two in the long term. However, over the short term, continuing economic 
growth will trump carbon reduction. As new technologies are developed 
and introduced into the market place, this will adjust and they will 
decrease carbon emissions.
    There will be certain instances where the government will institute 
policies that will slow growth or redirect growth, but I believe that 
they will be confined to scenarios that can be controlled or that have 
proven in the long term to result in the successful creation of a 
sustainable economic system. Another instance where this could occur is 
if the environmental degradation is so bad that it must become a 
priority over economic growth. On the national scale, China has decided 
to seize climate change as an opportunity and hopes to use it to propel 
its economy into cleaner, sustainable growth while managing both 
environmental degradation and energy security. The decision to announce 
its own target ahead of Copenhagen was a move to both lock in its 
ability to continue to grow the economy, and also to assure the world 
that China is participating. What it also means however, is that China 
will be under increasing international pressure to ensure that it is 
able to meets its own targets. This pressure will be particularly 
important in helping manage the political factions within China as it 
becomes increasingly difficult for the government to reach its economic 
growth and climate change targets at the same time.
    Question 4. What do you think of this week's bilateral clean 
technology agreement between the United States and China? What progress 
might it lead to in the years ahead?
    Answer. The agreements reached at the Presidential Summit are 
substantive and important. The challenge now will be to ensure that the 
U.S. is able to dedicate the necessary resources toward their 
implementation.
    As China continues to devote more resources to developing clean 
energy, it will become increasingly competitive in the international 
market. However, it will not be able to do this fast enough to slow its 
emissions without considerable support. The combination of Americans 
and Chinese working together has proven to be effective and profitable 
for both sides. The agreements signed on November 17 expanded the Ten 
Year Framework as an instrument to manage our cooperation and also 
launched cooperation on coal, electric vehicles, and reached out to the 
private sector for assistance in building joint R&D centers. The 
results anticipated will range from improvements in technology (such as 
battery) to larger scale policy changes in China. The development of 
new applications for technology and standards so that companies can 
market their products in both the U.S. and China is also an important 
potential result. The Chinese are fully committed to participate in 
them and are providing the necessary staff to be able to make the most 
of the agreements.
    However, as the scope, depth, and complexity of U.S.-China 
cooperation on clean energy rapidly expands, there is a risk on both 
sides that it will become more difficult to coordinate this cooperation 
effectively. On the U.S. side, the coordination efforts will take 
considerable human power, dedication, determination, and hours of work 
each day. The Obama administration will need to seriously consider 
appointing a high-level official to manage the clean energy cooperation 
relationship with China. One purpose this person would serve is to 
better coordinate the various parts of the U.S. government effort as we 
deal with constituencies from scientists to public policy specialists 
to corporate executives. A second important objective would be to 
encourage the Chinese side to appoint a counterpart who could help 
overcome the bureaucratic disconnects within the Chinese system.




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