The Business Opportunity in a Low-Carbon Energy Economy

The Business Opportunity in a Low-Carbon Energy Economy


[Official GPO Transcript] [The Chairman] Good morning guys. [The Chairman] If the world is to increase
energy security and avoid the worse impacts of global warming,
a large-scale transition to a low-carbon energy economy
will be necessary. To achieve success, governments, businesses and
the public must work together to increase energy efficiency
and the use of renewable energy and decrease global warming
in ways that maintain economic vitality and create jobs.
We must harness the power and creativity of the global economy
to meet the global energy challenge. Business leaders, better known for green eye
shades than fondness for granola, are increasingly asking
governments around the world to adopt smart long-term
policies that ensure the true cost of energy and global warming
is fully reflected in economic transactions and capital investment.
They are seeking certainty for business decisions but
also the opportunity to make a buck. According to the Stern Review of the Economics
of Climate Change, the value of the global environmental
market could be $700 billion as soon as 2010 with the adoption
of smart policies. Companies are already jockeying
to gain the most advantageous position to capitalize on these
new opportunities. Rather than a drain on the economy, energy
and global warming policies can be a boon. The European Union has adopted ambitious mandates
for increasing energy efficiency and renewable
energy use and decreasing global warming pollution. Instead
of hindering the EU’s economy, it is roaring. As we have seen both in Europe and the United
States, smart regulation drives innovation. In 1975, cars
in the United States averaged just 13.5 miles per gallon.
Fuel efficiency standards pushed the auto industry to innovate,
and the fuel economy of cars rose to the height of 27.5
miles per gallon in 1987. In the 10 years from 1977 to 1987, U.S. oil
imports dropped from 46.5 percent to 27 percent. Rather than
build on that progress, efficiency standards have remained
untouched for 20 years. Our reliance on imported oil has risen
to 60 percent today, and dioxide emissions from the transportation
sector now make up a third of total global warming pollution
in this country. After years of stagnation, Congress has an
opportunity to move our vehicle fleet into the 21st century
by passing a strong 35 miles per gallon fuel economy standard
this fall. By 2030, the fuel economy language in the Senate
energy bill would reduce American oil consumption by 4 million
barrels per day, almost double what we currently import from
the Persian Gulf and reduce global warming pollution by more
than 350 million tons per year. By passing the energy bill
that couples this language with an increase in the renewable
fuel standard and establishing a renewable electricity standard,
Congress can initiate the transformation of a low-carbon
energy economy and make a significant down payment on the reduction
of global warming pollution necessary to save the planet. The United States and the United Kingdom have
been described as divided by a common language,
but, as we will hear from our witnesses today, business leaders
from both countries are united on the need for energy and global
warming policies that drive innovation and investment towards
the creation of a low-carbon energy economy. I look forward to their testimony; and I will
now recognize the ranking member of the Select Committee,
the gentleman from Wisconsin, Mr. Sensenbrenner. [Mr. Sensenbrenner] Thank you very much, Mr.
Chairman. Global warming is a complicated problem that
can’t be solved by the United States alone. International
partnerships must be an essential part of any global warming
policy, and I am pleased that today’s hearing will feature
the perspective of two CEOs from the United Kingdom who will
be able to add some insight from across the pond. Technology will be another essential part
of any essential global warming policy, and all four of today’s
witnesses will be able to give us more perspective on the
technology that holds the best hope of reducing greenhouse
gas emissions. Because it is clear that there will be a continued
demand for energy from increased economic growth here
and around the world, it is clear that the technological
breakthroughs are the only real way for countries around the world
to continue to meet their energy demands without raising
greenhouse gas output. While today’s witnesses may share some views
on technology, it seems that there are at least some differences
between them. Some investors have different ideas than others
about where the future of technology may go. Some consumers
will obviously have different ideas about what type of cars they
want to drive; and perhaps they won’t be the same ideas as government
regulators in Washington, London or other parts of the
world. I support the development of these new technologies;
and I want nothing to stand in their way, especially government
mandates. While I agree with our witnesses that technology
needs substantial further development, I am afraid
I don’t think government mandates will get us there. By
picking winners and losers, the government could act to block
worthwhile technology development while advancing substandard technology.
It is far too early for Congress or any government regulators
to begin deciding what technology will be right for
our future energy needs. Another concern I have with mandates is that
it will result in economic harm. Technological transitions
can benefit the economy, and the Internet is an example of
that. However, if government regulations thrust technology into
an economy that is not yet ready for it, the results will
likely be havoc. I believe that the free market is powerful
enough to sort out the variety of emerging new technologies
and integrate them into the economy without hitting our constituents
in the wallet. At the end, we all want to see greenhouse
gas reductions, but getting there is not going to be easy.
One recent report from a group called Open Europe shows that
European-based facilities covered by the EU emissions trading
scheme have actually seen an increase in CO2 emissions
by 1 percent. While that is not a tremendous increase,
it is certainly not a reduction either; and it goes
to show what a difficult task lies ahead. And nowhere does this task become more difficult
than dealing with countries like China and India,
whose emissions continue to grow. Already one report puts
China’s total emissions ahead of the U.S. Countries like
China and India will need revolutionary technology of their own
in order to slow their emissions growth. There will be an increasing demand for cutting-edge
energy technology in the United States and Europe,
Asia and elsewhere around the world. So there will clearly be
business opportunities. I am just concerned that if
the government gets into that business, like it has in Europe,
the result might not be the ones we expected or hoped to achieve. I thank the gentleman and yield back the balance
of my time. [The Chairman] The gentleman’s time has expired. The Chair recognizes the gentleman from Oregon,
Mr. Blumenauer. [Mr. Blumenauer] Thank you, Mr. Chairman. I am looking forward to the conversation today.
The gentlemen that are represented here today
are part of what I think is perhaps the single most important
element we will be dealing with in climate change and that is
the billions of decisions that are made every day by businesses
and consumers in our country and around the world. I am
interested in being able to explore with them the way that the
government can provide a framework to help advance this,
to give stability to business, to send a signal about where we
are going. I am pleased to represent a community, Portland,
Oregon, where there is a strong commitment to green
business initiatives, sustainable development and trying
to have a regulatory framework for energy, transportation
and housing that helps those pieces work together. I am
looking forward to having this conversation here, and I appreciate
your scheduling the hearing. [The Chairman] Thank you. The gentleman’s
time is expired. The Chair recognizes the gentleman from Washington
State, Mr. Inslee. [Mr. Inslee] Thank you. I appreciate the witnesses
being here. When you think about this, America does well
any time there is a large economic transition, a technological
transition. That has been our forte. It is where we have
had our growth. When there was a transition to aeronautics,
we have done very well. Where there was a transition in the
Internet, we have done very well. And now when we go into a
transition to other than carbon-based fuels we are going to do
very well if–if– the U.S. Congress adopts the free market principles
that my friend, Mr. Sensenbrenner, referred to when
it comes to the limited capacity of the atmosphere to carry
CO2. And that is why I hope that all of us here will
work on a cap-and- trade system that uses the power of the market
to drive these technologies forward once there is a price
of carbon associated with a, quote, market, a free market on the
carrying capacity for CO2; and I look forward to getting that
done. I just want to note that folks have entered
this discussion with fear, and I enter it with amazement at
how smart people are. Every time I turn around, there is a
new technology. I just got a little BlackBerry about a group
called Konarka that is developing a clear, affordable technique
for, actually, clear windows. It is just amazing what is
going on out there, and I look forward to a way to help these
folks move forward. [The Chairman] The gentleman’s time is expired. The Chair recognizes the gentleman from Connecticut,
Mr. Larson. [Mr. Larson] Thank you, Mr. Chairman. Mr. Chairman, like the other members, some
here on the dais, I look forward to the discussion. I have a keen interest in fuel cell technology,
but also I am interested in the contrast and discussion
that exists down here between a cap-and-trade system and a
carbon tax and am interested in what the panelists have to say
about that in terms of the dynamics, the leverage and how
successful they think, for example, European Union’s are.
And I want to commend the chairman again for his efforts in putting
this panel together. [The Chairman] I thank the gentleman. The Chair recognizes the gentleman from Missouri,
Mr. Cleaver. [Mr. Cleaver] Thank you, Mr. Chairman. Thank
you for calling the hearing. I would like to express appreciation to our
guests for being here. I am particularly excited about
your presence because of the advancements that we have seen
in the EU and, of course, Chancellor Merkel calling for the
need for a global emissions trading system, and I am certainly
interested in whether or not you think that is practical
and workable. Of course, the issues that we face here are
global because there is no such thing as pollution and greenhouse
gases just settling over parts of the world; and so we
look forward to your statements and the opportunity to become
dialogical. Thank you. [The Chairman] Thank you. The gentleman’s
time is expired. The Chair recognizes the gentleman from California,
Mr. McNerney. [Mr. McNerney] Thank you, Mr. Chairman, for
holding this important hearing; and I thank the panelists,
some who have come from quite a distance to participate. This is an important topic because it brings
in both the international players and a strong business
interest. It is my strong belief that the solutions to global
warming will make us more prosperous and sustainable. It will create
jobs and enhance international cooperation and understanding.
I look at this as an opportunity to be exploited in
making this a better world. We here in the United States can learn
from Europe’s experience and from known business successes. With that, I look forward to a future of cooperation
and understanding; and I yield back the balance
of my time. [The Chairman] I thank the gentleman. The
gentleman’s time is expired. The Chair recognizes the gentlelady from Michigan,
Mrs. Miller. [Mrs. Miller] Thank you, Mr. Chairman. I want
to thank you for holding this hearing. I certainly want to thank all the witnesses
as well for your attendance today. I am certainly looking
forward to listening to you as you share your expertise. Coming from Michigan, the home of the domestic
auto industry, I am interested to hear the testimony
regarding the economic impact of legislation on vehicle
technology. I do believe that there may be a number of business
opportunities in a low-carbon economy. However, as you might imagine, I am also very
concerned by some of the proposals that we should enact
legislation to mandate a low-carbon economy. These proposals
are making the assumption that the low-carbon technologies
exist or will exist in the near future and that, some of these
proposals, people would assume that the reason that these technologies
have not yet been delivered is because businesses do
not choose to develop or integrate them into their business
model. And obviously one of the leading examples of this
is in the domestic auto industry, constantly suggesting
that if CAFE standards were increased or other form of
binding legislation were enacted that the automotive industry
would just respond with technologies to meet these demands. However,
the burden that these regulations would place upon the
domestic auto industry could be very severe, particularly
at a time when it is well known about the decline that is happening,
the economic transition that is happening to the domestic
auto industry. So I would just–as I say, I am very interested
to hear about all of the different expertise on this
issue. I think it is clear what is happening in other countries
around the world where they are investing in R&D and new alternative
technologies, et cetera. At the same time, our country really
looks to the domestic auto industry to do all of the R&D
themselves to work it into their business model and to produce
cars that their customers may not be interested in purchasing.
So I will be very interested to hear your testimony. I thank you again, Mr. Chairman. [The Chairman] I thank the gentlelady. The
gentlelady’s time is expired. The Chair recognizes the gentlelady from South
Dakota, Ms. Herseth Sandlin. Ms. Herseth Sandlin. Thank you, Mr. Chairman;
and thank you for holding this very important hearing. I look forward to hearing from our witnesses
today and exploring with them the business opportunities
that do exist based on their experience and insight in a
low-carbon energy economy. But, more specifically, in representing
a rural district, a farm State, the role that American
agriculture and rural America can play in helping find solutions
and what the business opportunities are in a low-carbon
energy economy in reducing greenhouse gases, what the role of
American agriculture can be, whether it be certain
farming practices or grazing practices, that relate to participation
in a cap-and- trade system, if indeed the United States
ultimately adopts one. So this is an area, whether it is biofuels,
wind and solar, carbon storage, I look forward to exploring
with our witnesses today; and thank you very much, Mr. Chairman,
again for holding this important hearing. [The Chairman] The gentlelady’s time has expired,
and all time for opening statements has expired, so
we will now turn to our very distinguished panel. I would first like to recognize Ralph Izzo,
who is the Chairman, President and Chief Executive Officer
of Public Service Enterprise Group, Incorporated, since
April of 2007. This is a company which has electric generating
capacity in New Jersey, New York, Pennsylvania, Connecticut,
Texas, California, New Hampshire and Hawaii. He first joined PSEG in 1992 and has served
in a number of leadership positions in that company. He is
trained as a physicist, and he has also spent time in the
offices of Senator Bill Bradley and New Jersey Governor Tom Kean
working on science and technology policy. We welcome you, Mr. Izzo. Whenever you are
ready, please begin. [Mr. Izzo] Thank you. Good morning. Chairman Markey, Ranking Member Sensenbrenner
and members of the committee, I am honored to appear before
you today on behalf of PSEG. As the chairman has already told you, PSEG
is an energy services company headquartered in New Jersey.
But in addition to our regulated utility we own and operate
competitive electric generating consisting of coal, natural
gas and nuclear power. We believe that climate change is the preeminent
challenge of our time, and with it come significant
business opportunities and responsibility. Our company
has been a leader in the effort to limit greenhouse gases for
more than 15 years. Some of the steps we have taken include being
the first utility in the country to sign a pre-Kyoto voluntary
greenhouse gas reduction accord. We voluntarily agreed in
2004 to reduce our carbon dioxide emissions by 18 percent from
2000 levels by 2008, and we have been a leading advocate
for a national economy-wide cap-and-trade program to reduce
greenhouse gas emissions to 1990 levels by 2020 and 80 percent
below current levels by 2050. We are also improving the
efficiency of our own electric delivery system. Some initiatives include investing in state-of-the-art
distribution cables and energy efficient transformers, using a
biodiesel fuel blend in our vehicle fleet and replacing 1,300
cars and light trucks with hybrid electrics and retrofitting
450 bucket trucks with electric drives to power the lifts. Mr. Chairman, if you ask whether climate policies
have influenced our business decisions and whether
we think there are significant opportunities for businesses
to participate in the climate challenge ahead, the answer is
a resounding yes. To do so, PSEG and other companies will need
to apply our expertise in new ways to reduce energy demand,
spur development of renewable resources and develop carbon-free
central station power. In short, we will have to change the
way we run our businesses and enter into a new era of collaboration
with State and Federal policymakers. Energy efficiency offers one such opportunity,
but it will require a new regulatory compact. These are
investments that can be made right now using existing technology.
For example, in 1970, a typical refrigerator consumed around
2,000 kilowatt hours of electricity annually. Today, an Energy
Star refrigerator of the same size consumes about
one-fifth of that amount. The problem is that customers are not making
decisions to invest in energy efficiency opportunities
like this refrigerator. Energy utility companies are
uniquely positioned to change this dynamic by investing in energy
saving appliances and fixtures ourselves and receiving compensation
as we do for investing in pipes and wires. Consider the fact that utilities engage in
millions of interactions with customers daily and employ
a highly skilled work force that can be engaged to promote
efficiency. Also, utilities can make long-term investments and
can assure that all customers, especially low-income customers,
benefit from energy efficiency. On the renewable energy front, PSEG has requested
State approval to invest $100 million to finance
solar projects in New Jersey. PSEG proposes to provide loans
to solar developers, making solar energy more accessible and affordable
for households and businesses. We are also anxious
to explore direct investment in solar energy if Congress
enacts a provision in the energy tax package that allows
utilities to claim the investment tax credit available
to others at present. Mr. Chairman, I conclude by saying what you
already know. For the U.S. to meaningfully address climate
change, a uniform national greenhouse gas reduction policy that
establishes a market price for carbon is needed. This will
drive development of new low-carbon technologies. This should
be a single, economy-wide cap-and-trade program and a single
greenhouse gas trading market with consistent emissions reduction
targets across all States. Congress should take its cue from the 10-State
Regional Greenhouse Gas Initiative and develop a comparable
national program that will render regional programs
unnecessary. By “comparable” I mean requirements that are
at least as stringent as the so-called Reggie States. Other key components of a national program
should include transition to a Federal allowance auction
over a 10-year period and using proceeds to fund research and development
and low- income assistance programs. Allocating a portion
of allowances at no cost to electric generators based on
an updating output- based formula, this approach will spur investment
in higher efficiency power plants and provide incentives
for investing in advanced low- and zero-carbon technologies. Mr. Chairman and members of the committee,
thank you again for the opportunity to participate in these
important hearings. I look forward to your questions. [The Chairman] Thank you, Mr. Izzo, very much. [The Chairman] Before turning to our next
two witnesses, who are members of the Prince of Wales Corporate
Leaders Group on Climate Change, I would like to include in
the record a letter that Prince Charles, the Prince of Wales,
has sent to the Select Committee. Members have a copy of the
full letter, which is in front of them. [The Chairman] I would like to just read a
brief excerpt from Prince Charles’ letter to us. He said: “I have been following with the greatest
attention the most recent policy evolutions in key industrialized
countries. To secure the future for generations to follow,
I hope that the boldest possible targets can be set, together
with the policies needed to implement them. Otherwise, how can
we expect developing countries such as India and China
to take action? The legally binding targets that will be put
in place in the United Kingdom through the climate change
bill, together with those being put in place in the State of California
and steps being undertaken in numerous other States
and cities in the United States, are evidence of how policymakers
in both our countries are moving to address this problem.
A challenge of the magnitude of climate change requires a
coordinated response based on actions across every sector of society,
and the business community is going to be critical
in achieving this. The companies which are members of my Corporate
Leaders Group are playing a highly strategic role, essentially
helping to create a political space in which effective
policies can be introduced and global progress can be achieved.
I very much hope that the hearing this week will be productive
and that members of my Corporate Leaders Group will
be able to work with members of the Select Committee on Energy
Independence and Global Warming in the future to develop further
policy responses to the most pressing of problems.
This brings you my warmest good wishes. Prince Charles.” So we thank him for that letter, and we thank
the next two witnesses for coming here today. I would like to recognize a member of the
Management Committee for the Prince’s Business and Environment
Program and the Chief Executive of Johnson Matthey, Neil
Carson. He joined the company in 1980 and has served in a variety
of positions within the company and on the board before
becoming CEO in 2004. He is currently the Chairman of the
Business Task Force on Sustainable Consumption and Production. Mr. Carson, welcome; and whenever you are
ready please begin. [Mr. Carson] Chairman Markey, thank you very
much and thank you, members of the Select Committee. This
is an important issue, energy independence and global warming;
and I am very honored to be here to present evidence. As the chairman stated, my name is Neil Carson.
I am Chief Executive of Johnson Matthey and a member
of the Corporate Leaders Group, which I represent today. Johnson Matthey is a specialty chemical company.
It is nearly 200 years old. Our core skills are
in catalysts, in pressures metals and in fine chemistry; and
our largest business, as many of you will be aware, is
in the business of auto catalysts, that is, supplying catalysts
to the exhaust of cars. Lately, trucks and buses also have been
included in the legislative framework and other pollution
control systems. Also, we are a developer of fuel cell technology
and have been for many years. Our business model at Johnson Matthey is to
invest in R&D, to invest in technology; and this we hope
will maintain leadership positions in our markets by continuously
improving the performance of our products and then better
servicing our customers as a result. I won’t go into great detail about the rest
of Johnson Matthey’s business, because I think the main
points of my evidence today to you is that both Johnson
Matthey and the Corporate Leaders Group believe that, to address
climate change and energy independence, industry and government
need to work together and that time is of the essence and
that our goals can be met at the same time as growing our economies
and growing prosperity. The idea is not a new one. The idea to set
long-term and binding legislation, in this case for CO2
emissions, is a powerful incentive then for industry
like ours and others to invest in technology to find solutions
to that issue. And I have got a classic example, which doesn’t
really need to be raised at this meeting, but, of course, California
in 1970 realized that its environment was hostile
to human life and it was identified that cars were the culprit.
They set demanding legislation into the future, 5 years ahead,
and made it clear that in order to sell cars in California that
legislation would need to be met. They didn’t have very much
idea about how the legislation would be met, nor do I think they
cared much. They didn’t choose a technology. They just set
the outcome that they wanted in terms of reduced emissions from
vehicles. That was in 1970. And from 1970 to today the population
has grown 38 percent in California, the miles traveled
has grown 155 percent, GDP has grown 164 percent, but the
relevant emissions have fallen 31 percent. A good example that
prosperity can thrive over the years and that this has been
a low-cost exercise for California. Now I think we can do the same thing with
CO2. There are many mechanisms. The cap-and-trade
mechanism has been mentioned today. There is, of course, taxation
as well as an option. However, it is done from an industrial
perspective the essence must be to set clear targets for the
future and then not pick a technology, not pick a winner,
but to allow business to find a solution. The solutions will be
higher cost than currently but perhaps not as high cost as
clearing up the mitigating, mitigating for the effects of
global warming looking forward as identified by the Stern
Review. Other issues for electricity generators are
carbon capture and sequestration. These are technically possible,
feasible, but expensive mechanisms. But, again, they
can be invested in because of the cost of future emissions from
carbon. That brings to the end my summary. Climate
change is an urgent issue. With wealth comes responsibility.
We should look after the planet for future generations; and
the Corporate Leaders Group look forward to working with
governments, your government and other governments, to find
the solutions. [The Chairman] Thank you, sir, very much. [The Chairman] I would now like to recognize
Alain Grisay. He is Chief Executive of F&C Asset Management.
He was also appointed an Executive Director and a member
of the Executive Committee of Friends Provident on January
of 2006. Prior to joining F&C in April of 2001, Alain Grisay
was at JP Morgan for 20 years as a Managing Director responsible
for the investment bank’s market client business in Europe. Mr. Grisay, please begin when you are ready. [Mr. Grisay] Mr. Chairman and members of the
committee, on behalf of F&C Management and fellow members
of the U.K. and EU Corporate Leaders Group on climate change,
I would like to thank you for giving me this opportunity to
testify before the congressional Committee on Energy Independence
and Global Warming. F&C is a leading European asset management
company, nearly 140 years old, that serves a wide range of
institutional and retail customers with assets over $200 billion.
Our mission is to deliver competitive investment returns
to our clients and to act on their behalf to ensure that investee
companies generate profits for their shareholders, while ensuring
that their businesses will be around for the long term.
We take our role as active investors very seriously and, in
so doing, do not shy away from taking a strong stand on matters
of public policy where we believe these to be a vital interest
to our clients. Climate change is one such issue. I have traveled here today from London to
share with you the fruits of our thinking and experience
both as an institution investor and as a business that
has played a leading role in voicing the concerns of business
to U.K. and EU policymakers on climate change. My message is simple: Business and investors
can only play their part in tackling climate change if government
takes decisive action to make this possible. The
costs of moving forward today in a planned and deliberate
way are modest and will even yield profitable business opportunities
for many innovative companies along the way. These
costs are dwarfed by the costs of inaction when one considers the
human, natural and economic consequences of a business-as-usual
approach. In short, we simply cannot put our heads in the
sand. Most important of all, this problem will not
get solved through market forces alone in the time that
we have left to act, because climate change presents a textbook
example of market failure. This means that voluntary
targets won’t do. Business needs a level playing field in order
to take on the financial risks that adequate action on climate
change require. Business will play a pivotal role in marshaling
capital to fund the innovative technologies that will overcome
climate change, but it needs government to set clear long-term
rules and standards. I have therefore come here to ask you as legislators
of the most powerful nation to play a historical
part in this effort. Only with long-term legislative clarity can
investment companies like mine return to their day jobs
and begin the task of shifting capital on the scale that is needed
to transform the global economy to one that runs on low-carbon
energy. What does this mean in practice? That we investors
and the companies in which we invest need the U.S.
Government to, first, define climate change policy as a top
national priority and set binding national targets that will
be translated into clear, long-term rules, regulations and standards;
secondly, play a leadership role in engaging other national
governments to establish binding global targets and standards;
and, thirdly, to introduce policy instruments,
including cap-and- trade mechanisms, fiscal measures and regulatory
standards that would result in a viable carbon price. So
as long as carbon is valued at zero, capital investments in innovative
low-carbon technologies will remain embryonic and fail
to deliver the economy transformation that is needed. In conclusion, Mr. Chairman and members of
the committee, we have two choices: We can act now, with
the benefit of a bit of time and planning, thereby enabling business
to manage the transition efficiently and government to cushion
the blow for those affected by the inevitable disruption;
or we can act later and pay a much higher price. There is
no third option. Innovative companies and investors stand ready
to act, but we cannot compromise our economic survival without
clear signals from government that reflect the new economy
reality. I hope that the work of this committee will
help you lead your nation and the community of nations in
embracing this challenge and create the conditions for businesses
to play a vital role in delivering the solutions to
climate change. Thank you very much. [The Chairman] Thank you, Mr. Grisay. [The Chairman] I would like to now recognize
our final witness, Jonathan Lash. He is President of
the World Resources Institute and a founder of the U.S. Climate
Action Partnership. In 2005, Rolling Stone described him as the
environmentalist who has done the most to bridge the bitter
divide between industry interest and green groups committed
to halt global warming. His long career in State and local
government and environmental organizations as a litigator
and a leader is a testament to this well-deserved description. We welcome you, Mr. Lash. Whenever you are
ready, please begin. [Mr. Lash] Thank you, Mr. Chairman and members
of the committee. I appreciate the opportunity to appear before
you and particularly appreciate the energy the committee
is putting into addressing a compellingly important issue
for the country, to develop legislation that will be both in
our national environmental interest and in our national
economic interest. I think that is really our subject today. My organization, the World Resources Institute,
is an environmental think tank that works on global
issues, including global climate change, and has partnered with
businesses for 15 years developing low-carbon alternatives,
finding ways for them to reduce emissions to purchase green power
and developing the accounting protocol which virtually all companies
that measure greenhouse gases now use to measure and report
greenhouse gas emissions. I am here today on behalf of the United States
Climate Action Partnership, a group that now includes
six national environmental organizations and 27 companies
from virtually every sector, including GE, GM, Ford, Chrysler,
Caterpillar; six utilities, including Duke Energy, the
third largest user of coal in the United States; Dupont, Dow, Pepsi,
Rio Tinto, which is the third largest producer of coal in the
United States; Conoco, John Deere and many others. The group last January issued a call to action,
which, first of all, emphasized our agreement that
climate change is real, immediate and urgent. In fact, it is
proceeding more quickly than the scientists predicted, with
impacts that are occurring earlier than we expected. The group, of course, shares the committee’s
perception that we must and can address climate change
in ways that help the U.S. economy to move forward and compete
when tomorrow’s markets begin to demand low-carbon alternatives.
Specifically, the United States Climate Action Partnership
has recommended that Congress adopt a mandatory economy-wide
cap-and-trade system that slows, stops and then reverses
the growth in U.S. emissions, that achieves 10 to 30 percent
reductions within 15 years and 60 to 80 percent reductions by 2050.
The group urges the inclusion of the capacity to use graphics
in order to meet reduction targets and that the policy be complemented
by other policies to accelerate efficiency improvements
and advance technology. So why? Why are 27 major companies, many of
them heavy energy users and heavy coal users, recommending
stringent action on climate change? First, they believe we have to act and that
it is better to get started sooner, that delay will be expensive
and increase the eventual cost to them. Second, they want to compete in tomorrow’s
markets; and they believe tomorrow’s markets will be demanding
low-carbon technology, services and products. There will
be booming demand. They want to be there to meet that
demand. Third, they are making massive technology
investments in technology that will be in use for 50 years;
and they want to know what the rules will be in the future. Fourth, they need a carbon price. You have
already heard several times from this panel the importance
of a carbon price. If we want to let the market choose winning
technologies, the market has to have a price signal to be able
to do it. Finally, they want a level playing field.
We now have 17 States that represent the majority of the
U.S. economy that are imposing their own carbon restrictions. It
is an impossible environment for multi-national companies to
operate in in the United States. I would make one quick comment that does not
represent the U.S. Climate Action Partnership findings.
Since you are in the final process of approval of an energy bill,
there are extraordinarily important provisions in the
energy bill which would help both energy security and climate
change. Those include efficiency measures and renewable
measures. But it is important to realize that not all
measures that would improve energy security will help with
climate change. An example is the proposed subsidies for coal
to liquids. Since the process of producing liquid fuel from
coal is energy intensive, it results in far higher GHG emissions
than other liquid fuel alternatives. Thank you very much, Mr. Chairman. I look
forward to your questions. [The Chairman] Thank you, Mr. Lash, very much. [The Chairman] The Chair will now recognize
himself for a round of questions. We will begin with you
Mr. Izzo. PSEG is primarily a northern company. A couple
of weeks ago, we actually had the Vice-President of
the Southern Company who testified before us. He told us that solar
energy would not work for the Southern Company down in Florida
and Georgia. And yet we hear from you today up in New Jersey
and the States surrounding New Jersey that you are making
a massive investment in solar energy. And it seems kind of curious, because I think
that New Jersey seniors as they leave New Jersey to
go to Florida say the same thing that Massachusetts seniors
say as they leave for Florida, which is I hate the winters up here;
I am going to Florida. So why is it that you, a northern
company, can make such a massive investment so optimistically
in solar energy, but the Southern Company says that it won’t
work down there? [Mr. Izzo] Well, I can’t talk for the Southern
Company. I can tell you the logic that we put into this. Solar energy will work in New Jersey. Its
estimate, depending upon assumptions you make, is it
would cost anywhere from $5,000 to $8,000 per kilowatt. That is
more expensive than conventional gas-fired power. So one could
take the approach that, quote, it doesn’t work. I would simply
say it is more expensive. However, that would be looking at only one
side of the equation. Clearly, the benefits of solar are
not only in terms of greenhouse gas reductions but also in terms
of traditional pollutant reductions: NOX, SO2, mercury,
fine particulates. So it is our responsibility, I believe, to
educate consumers that, while there are some places energy
efficiency, where you can improve the environment at a lower
cost, there are other technologies where improving the
environment will result in higher cost, but it will work. [The Chairman] Now, we just voted in the House
a standard that would be national, 11 percent renewable
electricity by 2020 and 4 percent from efficiency. Can you
meet that up in New Jersey? [Mr. Izzo] The answer to that is yes. The
question that others will ask is, at what cost? And my response
is–that is for policymakers to decide. We will do it
at the least cost possible. But to answer your question, Mr. Chairman,
yes, we can meet it. And I think through using utilities we
have a lower cost to capital, more patient capital, longer amortization
schedules, and by removing the investment tax credit
exclusion which right now undermines a utility’s ability to invest
in that we can do it at the least cost for customers. [The Chairman] Thank you. Mr. Carson, we are also debating auto efficiency
here in the United States. Can you bring us up to
speed on what is going on in Europe? What are the standards
that are being debated across the EU? [Mr. Carson] Yes certainly, Chairman. I don’t
have the actual numbers to hand, but we talk in Europe
about fuel economy in terms of grams of CO2 per kilometer.
I think the average for the fleet is about 160
grams of CO2 per kilometer, and I would imagine that
relates to about 40 miles to the gallon. They may
be slightly more. I think that compares to the fuel economy in
the U.S. of maybe 20. Again, I don’t have those figures to hand,
but they are rough numbers. The auto makers in Europe have been working
to a voluntary program to reduce their emissions of CO2 for
the fleet, and that has had some success. But,
more recently, the governments have decided they want more success
than that and are pressing the car companies to reduce from
160 to around 140 in a couple of years time and then 120 and
ultimately to below 100. So very significant miles per gallon
that equates to. Having made that announcement earlier in the
year, the Frankfort Motor Show, which was in September,
it was interesting to note that every single car
company showcased high-fuel-efficiency vehicles. So these fuel
efficiency vehicles are available. Of course, it is easy to blame the car companies
for selling vehicles that don’t have high efficiency.
So the consumers take some blame here in what they
want to purchase. I accept that point. But the other thing that
has happened in Europe is that there has been a push to diesel
vehicles which are 19 percent more fuel efficient on a like-for-like
basis; and now 50 percent of new car sales in Europe
are for diesel fuel vehicles, up from something like 32 percent
5 years ago. So quite a dramatic change in the engine type
used in Europe. [The Chairman] My time is expired. The Chair recognizes the gentlelady from Michigan,
Mrs. Miller. [Mrs. Miller] Thank you very much, and I will
follow up on my chairman’s comments. Mr. Carson, as I mentioned to you, coming
from the Motor City, Detroit, Michigan, I obviously have
a very large interest in this; and I appreciate the fact that you
are trying to articulate the differences in what we have
as the government regulation for CAFE standards, as we call
them here, and in Europe, of course, they are voluntary. I will just make a personal observation. As
you travel to many of the major European cities, whether
it is Brussels, Berlin, Rome or whatever, you see all these
buildings that are practically blackened. We don’t have that
here, and that obviously has had an impact. I am not sure
how all the voluntary standards are working there, but
I certainly commend the European automobile industry to be looking
at doing these kind of things as well. I might ask, if I could, when–and you mentioned
in your comments, Mr. Carson, as well, about that
you were heavily invested in hydrogen fuel cell technologies,
et cetera. Perhaps you could flesh that out a bit for me. How
does your company interact with your government as far as any
research and development dollars either for hydrogen fuel
cell or lithium- ion batteries or some of the various alternative
energy sources? [Mr. Carson] Well, firstly, the comment on
the black buildings, if I may, in Europe. I don’t know
the cause exactly of that. But the latest technology which has
been driven by legislation for the emissions of diesel vehicles,
it is now possible to get diesel vehicles to exactly
the same emissions performance as petrol vehicles; and that is
for U.S. legislative limits, too. So I think that the
emissions from diesel and petrol vehicles in the future will
actually be the same, so not a differentiating factor. The fuel cell business is focused on many
applications. The biggest one in the future we believe will
be cars, and we are stimulated to work on fuel cells by the car
companies who pretty much all have some kind of programs
to put fuel cell engines into vehicles at some stage in the
future. This is quite a long-term issue. I think influential
here has been California in driving towards zero
emission vehicles which the car companies obviously have their
eye on. So our main motivation is to work with our
customers. We are the recipients and grateful to be the
recipients of some government funds in the area of fuel cells,
but our main expense and our main driver is through our
desire to develop products for future generation cars and residential
buildings in collaboration with our customers. [Mrs. Miller] Thank you. Another difference, of course, between our
two continents is the way that we tax the usage of gasoline,
petrol, and a huge tax burden in the EU which we don’t have
here, although there is a lot of talk about using taxes as
a way to disincent driving. One of the things I think that is very important
between the U.S. and the EU is that we do have an
overlay, a mesh of the regulatory standards between our two economies
and that we don’t have any kind of unintended consequences
with some of the various regulatory policies that we have had,
as we did with the Sarbanes-Oxley. Unfortunately, with the
financial services there was an overreaction, I guess, in some
ways and we didn’t really talk to our European friends about
that. So we want to make sure in the environmental area that we
do so. If I could ask a question, again to my European
friends here, and we certainly appreciate you coming,
I was very interested in what is happening with the focus
of the entire EU really on the airline industry, although that
is apparently only 3 percent of the emissions as you have
interpolated it there, but yet there is a huge focus in Europe
to utilize the emissions trade. If you could just talk a
little bit about that. Because I noticed in your written background,
Mr. Grisay, that you were saying the emissions trading
scheme really hadn’t delivered on its promise. How is that all
working? [Mr. Grisay] Well, that is a very interesting
point. It is certainly one that attracts a lot of attention
in the public and a growing awareness of the public in respect
of the responsibility of airline companies, and you
see quite a bit of lobbying in that respect. As a fund manager, I can assure you that,
for instance, in the case of the socially responsible funds
that we run, and they happen to be the largest in Europe, we
exclude investments in airline companies for that reason. I think
that it is also linked to a degree to the growing success
in alternative public transportation, in particular fast trains.
So this is indeed a comprehensive review of what the alternatives
are and certainly a growing pressure for greater efficiency.
I don’t believe airlines will disappear. I don’t believe we
should stop flying. But putting pressure on both airlines and
airports for greater efficiency is certainly the right thing to
do. [Mrs. Miller] Thank you. Has my time expired? [The Chairman] Yes, your time has expired. The Chair recognizes the gentleman from Oregon,
Mr. Blumenauer. [Mr. Blumenauer] Thank you, Mr. Chairman. Mr. Izzo, in your testimony, you indicate
that there is going to be a paradigm shift that is going
to be necessary in terms of how utilities are regulated to provide
some incentives for reasonable return on energy efficiency.
In my community, our gas company actually was a pioneer in
decoupling to disconnect the rate of return from just the
volume of gas. Are there other specific ideas that occur to you
that we should be considering in terms of changing that regulatory
scheme? [Mr. Izzo] Yes. Decoupling is a necessary
but not sufficient condition, to use an old mathematics expression,
in that it holds a utility harmless. But, today, if I
invest in a bigger wire so that more electricity will flow, I
can get a return on that investment. If I subsidize a compact
fluorescent light bulb, I get zero return on that investment.
It is strictly what is known as a pass-through. There is only
so much time in a day, there is only so much management attention
I can put to certain things, and at the end of the day
I have to show a certain amount of earnings growth. So I tend
to therefore focus on the things that produce the profitability
that my investors seek. So what I would encourage is truly putting
energy efficiency on a level playing field with supply
options and allowing you to at least earn returns on energy
efficiency. [Mr. Blumenauer] I would welcome some thoughts
that you or any of the other panel members might have
in specific ways that we might adjust the State regulatory scheme.
This looks to me to be one of the real gaps; and I, for one,
am willing to encourage higher rates of return for the types
of behaviors we want. The specifics would be of great interest. [Mr. Blumenauer] Mr. Lash, on page 5 of your
testimony you have these charts here that—- [Mr. Lash] The bubble charts. [Mr. Blumenauer] The bubble charts. There
is one bubble that I noticed that was not there, and that is
vehicle miles traveled. We have people, Urban Land Institute,
Smart Growth America, a number of folks who have done an
analysis that suggests that even if the Chairman’s CAFE
standards are reached, that the exponential increase in
vehicle miles traveled from outdated regulatory schemes,
land-use patterns and fewer transportation choices for folks
will overwhelm any energy savings. Do you have any thoughts about that missing
bubble and policy initiatives that might help address
that balance? [Mr. Lash] I do. I would make two comments. First, the explanation of why the bubble isn’t
there is, in order to make it readable, we tried to only
portray those policy initiatives that seemed to be immediately
before the Congress. So we put CAFE there because there
was an ongoing debate on CAFE. The same with coal liquids.
We didn’t see a proposal that was before the Congress, when
we developed it, on vehicle miles traveled. You are absolutely right. In fact, the evidence
is what has happened over the last 20 years, the U.S.
auto industry has made spectacular increases in performance
and efficiency, but they have been erased by increased size of
the vehicles and by increased vehicle miles traveled. So our consumption
has gone up. We have not put it into reduced consumption
of gasoline. The recommendations of the United States Climate
Action Partnership include the recognition that any
policy on transportation has to address the technology
of the vehicle, the fuels and vehicle miles traveled. That
means a combination of policies that address alternative transportation
means and getting at some of the land-use issues that
tend to force us to travel long ways to get to work. [Mr. Blumenauer] Mr. Chairman, I would hope
that there would be time in our agenda at some point, actually
maybe even a hearing in Oregon, where we have done some
of this work–Mr. Inslee has some of it in his book–where we
could look at some of the policies that would give people more
choices that would end up reducing vehicle miles traveled. In our community, because we drive four miles-per-day
less on average than the national average, we are
saving hundreds of thousands of gallons of gasoline and over
a billion dollars in savings to our constituents. I think it is
something that would be a lot of fun to explore, and would love
to offer some suggestions about where to do it. [The Chairman] We will be in Portland, Oregon,
before long, we promise. [Mr. Blumenauer] Thank you, Mr. Chairman. [The Chairman] Thank you. The gentleman’s time has expired. The Chair
recognizes the other gentleman from Oregon, Mr. Walden. [Mr. Walden] And after the Portland hearing,
you could come out to, say, Burns or somewhere and look at
great distances traveled and the need for bigger vehicles.
We would like to take a look at that, because we need to get
efficiency in those as well. I want to talk–Mr. Izzo, you made a statement,
and I just want to make sure I heard it correctly, that
solar power was at $5,000 a kilowatt hour to $8,000 a kilowatt
hour? [Mr. Izzo] Hopefully I did not use the units
kilowatt hour. [Mr. Walden] You did. [Mr. Izzo] Okay. Kilowatt. The installed value
is $5,000 to $8,000 per kilowatt installed. [Mr. Walden] Now, could you translate that,
as a rate payer, what is it per kilowatt hour? [Mr. Izzo] Per kilowatt hour, depending upon
the amount of sun and the conditions, but in New Jersey
that would be typically about 70 cents per kilowatt hour,
which is quite a bit more expensive than fossil fuel. [Mr. Walden] And what would the fossil fuel
rate be today? [Mr. Izzo] Typically, about 7 cents per kilowatt
hour. [Mr. Walden] So about 10 times. [Mr. Izzo] Yeah, some would say that it could
be as little as seven times, but it is many multiple times
more expensive. [Mr. Walden] And what is the energy efficiency
rating for solar versus some of these other—- [Mr. Izzo] If I am interpreting your question
right, in terms of dollars per ton of CO2 saved, solar
would cost about $500 in New Jersey for a ton of
CO2. But that, then, doesn’t account for any of the
NOX savings, SO2 savings, the mercury savings,
the particulate savings. [Mr. Walden] Sure. But what about energy generation
efficiency? [Mr. Izzo] About a 15 percent conversion rate
in New Jersey. [Mr. Walden] Okay. Now, I want to make sure
you and I are talking the same talk here, because, like,
I am told for hydro power, which we have a lot of in the Northwest
and in other select areas around the country, we are almost
90 to 100 percent efficient in generation conversion.
So are we talking the same thing here? The solar is what percent? [Mr. Izzo] No, we are not talking the same
thing in that regard. [Mr. Walden] All right. [Mr. Izzo] I was talking about how often the
solar energy is available to be converted into electricity. [Mr. Walden] Right. [Mr. Izzo] I don’t know the answer to that
question about the overall efficiency of the solar panel
in converting the sunlight into electricity. We could get that
for you. I don’t know that. [Mr. Walden] Okay. We are actually working
on a project in my district that would incorporate at least
solar and perhaps wind on an old military installation. And
I am fascinated by the prospect. We are working with the Air
Force to try to work with the National Guard to try to free up
the site with the State and develop these alternative sites.
And I am just curious as to the efficiencies and the costs
and all and how we can move that one forward. Mr. Carson, I think, back to the issue of
vehicle emissions and all, it seemed to me, when I was on the
Energy and Air Quality Subcommittee trip to Europe, there
was a lot of discussion we had about the differences in
air quality legal standards in Europe versus the United States,
and perhaps we have a much higher standard under the Clean
Air Act than Europe. And I am curious if you know about that and
what the differences are, especially as they relate
to diesel fuel usage in Europe and the emissions there and the
deaths that are attributed to that versus here. I think it
is about 10 times as many people die from the dirty air in Europe
as here. And we don’t want to go down a path that exports
that here, for example. [Mr. Carson] I think, yeah, the issue you
are referring to is that, in Europe, the strategic decision
was made by the governments to give a different emissions
standard to petrol vehicles than to diesel vehicles. [Mr. Walden] Okay. [Mr. Carson] Different in that it was recognized
that diesel vehicles were much lower emitters of CO2—- [Mr. Walden] Sure. Mr. Carson [continuing]. But they were higher
emitters of other pollutants like NOX and particulates.
So Europe has been tolerant to that issue and
had two different standards for the different vehicles, whereas
here in the U.S. there was no tolerance to that issue. So the
standards are the same, whichever kind of engine is used. And
that made the supply of diesel-engined vehicles in America
very difficult—- [Mr. Walden] And if you—- Mr. Carson [continuing]. For a number of years
until now– sorry to interrupt you–where the technology
has been driven forward. [Mr. Walden] Right. [Mr. Carson] And now it is possible to meet
the same standards in diesel and petrol engines with
more advanced catalyst technology. [Mr. Walden] Did I hear you say the standards
in Europe for the petrol vehicle are the same as in the
United States now for emissions? [Mr. Carson] Broadly, yes, and they always
have been broadly. [Mr. Walden] So the new standard for diesel
in Europe would pass air quality standards in the United States? [Mr. Carson] It is very hard to do a like-for-like,
because the drive cycles are all so different in Europe.
The driving pattern in Europe is somewhat faster than
in the U.S., so the test is actually different. But broadly, the
emissions standards in 2010 in Europe for both diesel
and petrol vehicles will be pretty much the same as the emission
standards in the toughest States in North America. [Mr. Walden] Thank you. Thank you, Mr. Chairman. [The Chairman] The gentleman’s time has expired.
The Chair recognizes the gentleman from Washington State,
Mr. Inslee. [Mr. Inslee] Thank you. Mr. Lash, I wanted to ask about your suggestions,
cap suggestions about the cap-and-trade system.
You testified that–you suggested that a significant portion
of the allowances be initially distributed free to
capped entities and economic sectors particularly disadvantaged
by the cap. Could you talk about what you think should
be that targeting of those? If we are going to have
some free allocation, you know, how should that be targeted? [Mr. Lash] On behalf of USCAP, I can’t tell
you very much more, because, for now, what we have agreed
on is the language you just read outloud. So let me offer some
thoughts as an individual. There are 20, 25 States in the country whose
electrical utilities are heavily dependent on coal. And
any way you look at it, if we begin to put a price on carbon,
the rates will go up more quickly in those States than the others
that have nuclear, hydro, et cetera. So there is a belief
that an allocation to those utilities for some transitional
period will help ease any price shock. A second option is to look at earned allocations.
So if a utility proposes, for example, to make a major
investment in carbon capture and storage, free allocations
would be one way that the legislation could reduce the cost,
which is another 30 percent or so on the cost of a power plant
to set up carbon capture and storage. A third option would be to look through the
utilities to the rate payers and try to find some way of
equalizing burdens for rate payers. I personally believe that
is quite complicated. [Mr. Inslee] You went on, “CAP also suggests
the free allocations be phased out over a reasonable
period of time.” Why? I mean, could you give me the rationale
for an auction, I guess, to begin with? [Mr. Lash] An auction is economically most
efficient. You are assuring that those who make the biggest
investment in reducing CO2 get the biggest economic benefit.
So a covered entity, whether it is an industry
or a utility that makes major investment, for example, in methane
to electricity from a landfill and is essentially operating
at zero CO2 emissions, ought to get a very large benefit.
One way to assure that is to have an auction of credits, and
then they don’t have to buy any credits. A second question is how you use the revenues
from the auction. It gives you a chance to put the
revenues back into programs, as I think Mr. Izzo recommended,
to accelerate the adoption of technology or offset costs to
low-income consumers. [Mr. Inslee] And, by the way, we haven’t talked
about this, and I agree with you that a huge portion of
investment would come from the private sector, but would any
of you like to talk about the pathetically weak U.S. R&D budget
from the Federal Government, which is one-sixth of what it
was on the Apollo Project? Would any of you like to agree with
my assessment on that? Thank you. That is unanimous. I will take
that. I want to ask my friends from Europe, if you
want to give us a critique of the cap-and-trade system,
maybe the top three lessons you have learned from your experience.
We were in Europe looking at it, and we drew some conclusions.
I would be interested in yours. [Mr. Grisay] Well, I think that is a very
interesting question. Europe has a trade system in carbon
certificates which did not work at the beginning. And I
think we should learn from that. It did not work because there
were simply too many certificates issued at the beginning.
And the reason for that was that each country was allowed to
issue as many certificates as it felt was necessary. So
they all protected their own industry and issued as many as possible. So, as a result of that, the price of carbon
collapsed, and it obviously failed to reach the objectives
set. The lesson is, obviously, to be much more restrictive of
the level of the number of certificates to be issued. And I
think you can expect the European Commission, at the end of this
year, to set targets for 2009 that will be a lot more restrictive. The second observation is that it is probably
wrong to let every national entity decide how many certificates
they need to issue. This should be brought at E.U. level,
for obvious coordination reasons. And, in fact, that leads to a third lesson,
which is probably to say at some stage, recognizing
that the fight against global climate change is a global
fight, one could envisage a situation where it would be a supranational
entity that would be in charge of issuing carbon
certificates. Whether that is some sort of subset of the U.N., some
sort of equivalent to the World Bank for carbon trade,
I leave open to your own wisdom. [Mr. Inslee] The presidency of that would
be determined by the winner of the World Cup, too. [The Chairman] Thank you. The gentleman’s time has expired. The Chair
recognizes the gentleman from Connecticut, Mr. Larson. [Mr. Larson] I thank the Chairman, and I thank
the panelists. And I want to continue along this same line
of questioning, having had the fortunate opportunity to travel
to Europe with the Chairman and the Speaker. But my question
is a little bit different. I believe that the best system
for us to proceed on is a carbon tax. I believe that it is more
simplified, it is more direct, and you don’t have to have any
specific economic knowledge to implement it. You don’t create
any new bureaucracy. Many countries in Europe have
utilized it successfully and are greener and farther ahead. I understand the pragmatic political applications
here in our own country. You say “taxes” and our
colleagues on the other side of the aisle just go into almost
apoplectic seizure. And there isn’t, you know, in election years
oftentimes the desire to move forward, albeit I am agnostic
with respect to a cap-and-trade system. But on an issue as vital as this, as critical
as this is to the Nation and, as Mr. Grisay said, to the
globe–and we project out into the future, and while it
is very important for the United States to step up to the plate
and lead the way, ultimately we are looking at major nations
on the verge of industrial lift-off, like India and China,
whose major resource is carbon, and ironically turn to Western
Europe and the United States and say, “So, you want to put a cap-and-trade
system on us after you have already put up most of the
carbon into the atmosphere.” So my question is, isn’t it fairer and more
direct and more efficient to go to a system that taxes carbon,
taxes something that we know is bad and know is harmful, and,
in return, have payroll deduction relief for American citizens?
Your response? [Mr. Carson] Chairman, can I make a quick
comment on that? I am sure my colleagues will also want to comment. But I guess the beauty of the cap system is
that, in Europe, the debate has been revolving around
how do we keep the level of CO2 in the atmosphere below a certain
level, be it 550 parts per billion or whatever that level is,
in order to limit the temperature rise of the planet in the
future. And if you have a cap, I guess you have some certainty
that you will get to that. [Mr. Larson] Where is the transparency and
the accountability in that? [Mr. Carson] Well, there could be some calculations
done, I am assuming, that will mean a cap has more
bearing on the outcome than a tax, which I guess, ahead of
time, you don’t know how much tax you have to set, and then
you don’t know the effect of that tax in reducing CO2 output.
Again, I guess the experts are the governments of Europe
who have come to that decision. [Mr. Grisay] What I would like to add to that
is I don’t think any measure taken on its own is going
to provide the right solution. So I think that, if we take
a long-term view, you are probably looking at a mixture of cap
and trade, fiscal and long-term standards. Now, to comment on the long-term standards,
I think it is really, really important that we provide industry
with a long- term certainty in respect of the standards
they will have to meet, because that will drive them to do the
long-term, very expensive investment that they would be required
to do to meet or beat those standards. And by setting them
up front now, we give our respective industries the opportunity
to become market leaders in those technologies. And that is
how we will basically be able to deal with the threat,
the competitive threat of emerging countries. The reality is I don’t think we can escape
the consequences of climate change. And what looks like moderately
embarrassing or annoying regulations today or taxations
today would be very mild compared to what will be needed in 10-years’
time or 15- years’ time if we don’t do this. So by pushing
it now, by incentivizing this research now, we give industry
the chance to really become very, very competitive by the
time it would be required. [Mr. Larson] Mr. Lash. [Mr. Lash] As you know, USCAP recommended
cap and trade rather than a tax, although a tax could be
included as a complementary measure to pick up those parts
of the economy that a cap system isn’t applied to. The reasons
are really the ones that were just explained by Mr. Grisay,
the wish for certainty as to the level of emissions and
the path of reducing emissions. I would add one observation, myself. I know,
Congressman, that you have been looking closely at the
idea of tax shift, which is very appealing as a way of improving
equity as well as the environment. Our experience in working
with companies for 15 years now has been that price signals don’t
work as quickly as they should. I know economists say there
are no $10 bills lying on the floor, but with the companies
we have worked with there have been some, quite a lot. And this
is a case where we need to get the action started from large
emitters quickly. [The Chairman] The gentleman’s time has expired.
The Chair recognizes the gentleman from Missouri, Mr.
Cleaver. [Mr. Cleaver] Thank you, Mr. Chairman. Mr. Carson, we are, of course, having some
debate here over a carbon tax. And as Mr. Larson mentioned,
you know, the word “tax” in some quarters is almost reason
for civil war. But is it at all possible for Europe to have one
system and the United States another, considering the fact that
we are if not already a global economy, we are moving almost hourly
toward that? [Mr. Carson] I think the important issue is
that all the economies get to do something, and harmonization
of that something is something that ought to follow
later. That is my personal view. We have never had the same
system of tax regime on fuel for cars for a very long period of
time. And that has driven differences in the market. And I understand
that, you know, a tax on fuel is an emotive issue here.
It seems it has been less emotive in Europe over the last
20 years. So I think if there is a view that we must
wait until everybody is lined up with the same system
before implementing it, then that will take too long, is my personal
view. And some action, just like in Europe with the action
on cap and trade, which wasn’t perfect–at least it was a starting
point from which we can build. And I think that ought
to be the way we operate and head toward a global agreement
later. [Mr. Cleaver] Do you or Mr. Grisay have any
idea of the estimate of the carbon dioxide output per
individual in the U.K.? I think Germany, for example, is around
11; the United States is 20. [Mr. Grisay] I think the U.K. has a modest,
but nevertheless frightening, 2 percent contribution to total
emissions, so one reason why the action needs to be lower and
not just restricted to the U.K. But if I can come back just to what—- [Mr. Cleaver] Yes. Mr. Grisay [continuing]. He was saying a second
ago, I think there are two different objectives in
my mind. One is to get the carbon level down fast across the
globe, and that may imply indeed different approaches on different
continents and different countries. But there is a second objective, which is
to make sure that industry remains competitive, that we create
a growing economy, that we do create jobs. And that is about
making industry competitive. And that is where I am coming
back to making sure that standards are being set so there is a
long-term guidance as to where industry needs to reach. It would
be much more practical to have similar standards, because,
otherwise, those countries that have the strictest standards
are, by definition, going to be a lot more competitive, going
forward. So I would add a word of warning there. You
may take a different point of view on taxes, but on standards
I think it would be very useful if we had some sort of
global approach. [Mr. Cleaver] Thank you. Just one last question. Mr. Lash, are you
at all familiar with the American Electric Power settlement
with the EPA and a number of other not-for-profit entities? [Mr. Lash] Yes. [Mr. Cleaver] Do you think that settlement,
$4.6 billion over a 10-year period, will have any impact
upon corporate America? I mean, a positive impact, where
people recognize that if you pollute, you are going to have to pay
enormously, and therefore people will move into some kind
of compliance without Government? [Mr. Lash] Congressman, I started working
on environmental issues in Washington about the time that Congressman
Markey arrived in Washington. And I started as a
litigator for NRDC, suing companies because they seemed to just
refuse to meet national standards. [Mr. Cleaver] My kind of lawyer. [Mr. Lash] Yeah. And I have moved to a completely
different approach to these issues. Now I spend half
my time working with the CEOs of big companies. I don’t think that
is just because I have, you know, crossed the 60-year-old line.
We have seen a huge change in approach and attitudes from
companies, as a new generation has taken over. They see it as
in their commercial interests to address environmental issues
proactively. And I think that is what gives me hope that we are
going to be able to address the climate change issue. I do think that the good companies need to
be backed up by EPA, by knowing that if there are companies
that violate the laws, they are going to be penalized. Otherwise,
there is always the risk that a company that is meeting
high standards has to compete with somebody who isn’t. [The Chairman] Great. The gentleman’s time has expired. The Chair
recognizes the gentlelady from South Dakota, Ms. Herseth
Sandlin. Ms. Herseth Sandlin. Thank you. And thank all the witnesses today. I would like to explore an area that we haven’t
touched on yet, and that is agriculture as a participant
in a cap-and- trade system. And in response to Mr. Inslee’s questions,
Mr. Grisay, I think you had a number of helpful observations
on what has worked effectively, maybe what hasn’t worked
effectively, and lessons to be learned. We did come to find, when we traveled earlier
this year in some meetings in London, that agriculture
is not a participant in the European emissions trading system.
I, for one, feel strongly that if the United States adopts
a cap-and-trade system that agriculture must be a participant,
and have some constituents and companies in South Dakota
and throughout our region that are working on appropriate measures
for how you value what grazing or farming techniques and
how you measure those. The response that I received in the London
meeting about why agriculture isn’t part of the European
system is sort of disagreement of how you accurately measure
and appropriately measure. So I am wondering if you would cite
that as a lesson learned and, moving forward, including agriculture. And, Mr. Lash, if you have any thoughts, as
well. [Mr. Grisay] I think it is a very relevant
question. Agriculture, in my mind, should be included.
I think the whole issue about biofuels is really one of first
recognizing that there is probably very substantial potential
in that industry, but that we need to do a better job at understanding
the full life cycle of the development of those products.
Because it appears that the so-called first generation
of biofuel products may not come from sustainable sources, and
that we may, in the course of producing them, either be totally
inefficient or actually cause damage. So the issue, in my mind, is to be very open-minded
toward agriculture and biofuels, but making sure
that we have a number of new technologies and the so-called second
generation of biofuels, which would come, for instance,
from sustainable lands, probably not from food crop, and probably
use mostly waste land or high-fiber-contained products. So there is a future there but, again, one
that requires investments and investigation. [Mr. Lash] I was hoping you were going to
bring up this issue. One aspect of it needs to be addressed
in whatever climate change legislation you pass, and that
is the question of whether agriculture can participate as
a seller of credits into a trading system under a cap. It is an
opportunity for farmers and larger-scale operators to make
reductions to sequester carbon and then to get credits for
it. A second–the question of measurement I think
we have made some progress on. The Voluntary Carbon Exchange
that operates in Chicago, Chicago Climate Exchange, has,
in fact, done quite a lot of work on measurement of agricultural
offsets so that they could be included in the CCX system.
The USCAP recommendations would allow agricultural offsets
to be included. The second set of issues are ones that would
be covered in other legislation relating to the whole issue
of biofuels, technical assistance to the agricultural community,
and the movement from corn-based ethanol to cellulosic
ethanol from waste materials or forest products. Ms. Herseth Sandlin. Thank you. And that leads to my other questions, in terms
of beyond biofuels, wind, solar, the health of our forests
and enhancing them as carbon sinks. But would you agree with me that to achieve
the potential that we have with the renewables of wind and
solar, in particular, but then with biofuels and the
flex fuel vehicles that are being manufactured and getting CAFE
credits, but yet the availability of the fuel not being as
comprehensive as we would like, that, in addition to whatever
investments we make at the Federal Government level and R&D combined
with private- sector investment in technology, that the
Federal Government has to make investments and perhaps impose
requirements as it relates to transmission capability across
the country to get the wind resources from the Great Plains to
other parts of the country, as well as the fuel distribution
infrastructure to make sure that we are achieving both the objectives
of energy security and the positive climate impact? [Mr. Lash] Again, not speaking on behalf of
USCAP, because we haven’t addressed this, the transmission
issues are very, very real, particularly because wind power
is growing so fast. I would defer to Mr. Izzo in terms of the
specifics of how best to address that. [Mr. Izzo] We are a firm believer in open
access to transmission; however, not simply designating
what type of supply would get earmarked a slice of that
transmission, but letting the market determine what the best
solutions are for moving power back and forth. But the specific answer to your question is,
yes, there is clearly a need for transmission infrastructure
to move renewable energy from the places that are
more suitable for siting and building those facilities. Ms. Herseth Sandlin. Thank you. And thank you, Mr. Chairman. [The Chairman] The gentlelady’s time has expired. Here is what I would like each of you to do:
Give us a 2- minute summation of what you want the committee
to remember as we are moving forward. We have an energy bill
that we are trying to resolve between the House and the
Senate over the next 6 weeks, which would be the most historic
energy bill in the last 30 years here in the United States. And subsequent to that, we have an intention
to take up the debate on climate change in terms of a cap-and-trade
system or, as Mr. Larson is saying and Senator Dodd,
a carbon tax. But the Speaker of the House has said that she wants
a bill that passes that has a mandatory cap-and-trade system
that reduces our emissions by 80 percent here in the United
States. So this energy bill is up right now, and hopefully
we can resolve that in the next 6 weeks, and then
we will move on. So let us go in reverse order, give each one
of you a 2- minute summation so that you can tell us how
you believe we should be viewing these issues and your recommendations
as to how we should proceed. We will begin with you, Mr. Lash. [Mr. Lash] Thank you, Chairman. I would begin by echoing what you were saying
just a moment ago. The energy bill is a very good first
step. The energy efficiency provisions, the renewable provisions
will make a significant difference for both of the issues
mentioned in the title of this committee. And it is there,
it is available, it is waiting to be passed. It will reduce costs
for the country, ultimately. Secondly, we should not assume that it isn’t
possible to pass strong greenhouse-gas-reduction legislation
in this Congress. I met with Senator Lieberman yesterday.
I believe that the Senate Environment Committee will
get a strong bill out this year, and I think there is a real
potential. The important thing is to keep our eye on
the ball, to remember that we need legislation that gives
industry and investors a long-term road map that we are
going to start reductions and continue reductions over a
period of decades, so that they can make investments in light of
those signals. [The Chairman] Thank you, Mr. Lash. Mr. Grisay. [Mr. Grisay] Thank you, Chairman. I would just summarize conversations I have
had before with Prime Minister Blair, Brown, and President
Barosso on that very question. And I think the strong message that
I would like to share with you is that there is a need for
urgent action. We just cannot wait. And there are opportunities
and risks in front of us, but the costs of delay are just
absolutely staggering. And maybe one suggestion there is to see the
U.S. Congress supporting the equivalent to a stern review,
as was done in the U.K., in case there were still people around
who had some doubts. Practically speaking, I look forward to implementing,
as part of the energy bill, binding regulations.
And I would certainly welcome a mixture of cap and trades,
fiscal measures, and standards for energy efficiency going
forward, because I think all three are necessary for the reasons
that we discussed. [The Chairman] Thank you, Mr. Grisay. Mr. Carson. [Mr. Carson] Similar message from me, Chairman.
Urgent action required. Not one solution, but very
many solutions to this issue. Some are simple, and some we must
be getting on with right away. And I am sure business is now getting on with
its resource efficiency issues, because that is going to
save money. But the others that need a technology solution also
need to go hand in hand with a framework for future binding targets,
in order that industry can spend its own money in finding
those solutions. And we and our colleagues are very keen to
work together with governments to try to make that happen sensibly. [The Chairman] Thank you, Mr. Carson. Mr. Izzo. [Mr. Izzo] With regard to the energy bill
before the Congress now, there are two imperatives that
we would identify. Number one is elimination of the investment
tax credit exclusion for utilities to participate in
solar energy so that we can help develop solar power in a least-cost
method. Number two would be incentives for States to encourage
utility participation in energy efficiency in ways
that benefit both customers and investors. On the broader issue of the global climate
change legislation, we would argue that a bill with
reduction targets and timetables that are strong enough to obviate
the need for regional and State programs is an imperative.
Regional and State programs will create competitive distortions
that could actually not only raise rates for customers,
but result in environmental degradation through a phenomenon
known as leakage. We have heard already about the importance
of harmonization at the international level and
at the E.U. level. It seems to me that a single national greenhouse-gas-emissions
credit-trading market would be an obvious first place for us to
begin here in the United States. Thirdly, a fair allocation approach in the
electric sector that acknowledges the investments already
made by companies in cleaner technology and incents those types
of investments going forward. And lastly, consumer protections in the form
of assistance for low-income customers from any proceeds
that are derived from the auctioning of allowances. [The Chairman] Thank you, Mr. Izzo, very much.
And as you know, much of what you are recommending is
in either the House or the Senate energy bill right now. And we
will fight to maintain that, because I do agree with you
that the utility sector has a huge role to play, and we have
to construct a newer and smarter set of incentives for the
utility industry to fully participate. And I want to actually tell you this, too,
especially our friends from across the ocean, that the energy
bill that we are considering and we are debating over the next
6 weeks, if the best elements of it remain intact and are
in the final package, it would meet, by 2030, 40 percent of the
United States’ goal to reduce heat-trapping gases that the United
States has to do in order to save our planet–40 percent of
our goal. So, because we are dealing with the electric
utility industry and the automotive sector, buildings,
all of the appliances in our country, combined, that
40-percent number is something that is very realistic in terms
of contribution to climate change, and I think sets the stage,
as Mr. Lash said, for a more comprehensive climate change bill.
But not to understate what 40 percent means in terms
of demonstrating the resolve that the United States has to deal
with these issues and send a signal to the rest of the world
that we no longer will be the laggard but, rather, a leader
in setting standards. And I think that is a very important statement
for us to make. So this bill that is pending before us is
very, very important. And if we have a 40-percent solution
by 2030, I think that the rest of it will be able to
be followed on, because it will give the utility industry,
the automotive industry and all other sectors a stake, then,
in finding a way to put together a comprehensive cap-and-trade
system, which, ultimately, I think will become a model for
the rest of the world, partnering with the E.U. So we thank each of our witnesses. We thank
Prince Charles for his contribution to our hearing today. And, with that, this hearing is adjourned. [Whereupon, at 11:15 a.m., the committee was
adjourned.]

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About the Author: Oren Garnes

3 Comments

  1. There is going to be NO global warming. How / Why? Because with the continued use of oil, when its all done, there will no longer be any green house issues. (Unless you use tar sand as an oil source)

    The focus should be on sustained development, not with ALTERNATE energy sources, don't use those to describe where we are heading, but with the inevitable energy sources that will re-create the present and create the future.

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