Federal

The Center for Climate and Energy Solutions seeks to inform the design and implementation of federal policies that will significantly reduce greenhouse gas emissions. Drawing from its extensive peer-reviewed published works, in-house policy analyses, and tracking of current legislative proposals, the Center provides research, analysis, and recommendations to policymakers in Congress and the Executive Branch. Read More
 

Statement: House Committee Passes Landmark Climate & Energy Bill

- This statement was issued following the passage of the American Clean Energy and Security Act (ACES Act) by the House Energy and Commerce Committee. -

Statement of Eileen Claussen
President, Pew Center on Global Climate Change

May 21, 2009

Today the House Energy and Commerce Committee achieved something extraordinary – passage of a bill that sets us on a path to tackle climate change, drive our economic recovery, and advance our energy independence. Congressmen Waxman, Markey, Dingell and Boucher, and their colleagues on the committee have drawn from more than two years of intensive work to produce this landmark legislation. The bill will provide the certainty businesses need to invest in a clean energy future and provide protection for consumers.

The science is clear. There is no longer any doubt that climate change is real, it is largely caused by humans, and tackling it is urgent. The ACES Act combines ambitious but achievable greenhouse gas emission reduction targets with a market-based program that will reward business leaders for deploying clean energy technologies as quickly and inexpensively as possible. There is a global race underway to develop these technologies – a race that will dominate the 21st century economy – and the ACES Act will help U.S. businesses lead that race.

The ACES Act uses a variety of measures to minimize costs to the U.S. economy by providing assistance to help consumers and businesses transition to a low carbon future. In addition, the ACES Act will allow the United States to help lead the efforts toward a global agreement in which the major economies of the world, both developed and developing, play their part to address the climate challenge.

Chairmen Waxman and Markey have seized their opportunity to begin building a stronger U.S. economy and a better, safer world. It will not be an easy task – but it is one we must begin now. I urge the Congress to build on this work to pass strong climate and energy legislation.

 

Read more about the ACES Act.

Pew Center Contact: Tom Steinfeldt, 703-516-4146

Op-Ed: Putting a Price on Carbon: An Emissions Cap or A Tax?

- Opinion piece featured in Yale Environment 360 on May 7, 2009. -

Yale Environment 360
To read the entire piece and other responses, click here.

 

May 7, 2009  

The days of freely dumping greenhouse gases into the atmosphere are coming to an end, but how best to price carbon emissions remains in dispute. As the U.S. Congress debates the issue, Yale Environment 360 asked eight experts to discuss the merits of a cap-and-trade system versus a carbon tax.

A broad spectrum of people concerned about global warming and U.S. energy independence agree on one basic truth: Sooner or later, emitting planet-warming greenhouse gases is no longer going to be free. Whether it comes this year, or next, or in five years’ time, legislation imposing a price on burning fossil fuels seems all but inevitable.

Any law that places a price on carbon must achieve two basic and interrelated goals: discouraging — with increasingly painful economic consequences — the use of oil, coal, and natural gas, and encouraging the development of renewable sources of energy. Two paths to this end have been proposed. The first is a cap-and-trade system, which would place progressively stricter limits on fossil fuel use; require power plants, industries, and other major sources of greenhouse gases, to purchase permits to discharge carbon dioxide; and establish a market in those permits. The second is an outright tax on fossil fuels. Proponents of both methods say the economic hardship created by higher energy prices could be offset by rebates to taxpayers.

The cap-and-trade option has attracted far more attention and has many more supporters, including President Obama, key Congressional leaders, and an influential coalition of environmental groups and big businesses, including General Electric, Dow Chemical, Shell Oil, and Duke Energy. Congressional leaders say they hope to pass a cap-and-trade bill by year’s end, but whether they can achieve that goal remains a major question.

Supporters of cap-and-trade argue that it has two main strengths. It sets a steadily declining ceiling on carbon emissions, and, by creating a market that rewards companies for slashing CO2 (corporations that reduce emissions below their allotment can sell them on the open market), it uses the free enterprise system to wean the country off fossil fuels and onto renewable energy. Proponents of a carbon tax say their plan has one overriding benefit: Its simplicity. They contend that by imposing a predictable and steadily increasing levy on fossil fuels, the carbon tax will also drive development of alternative sources of energy.

Yale Environment 360 asked a number of environmentalists, economists, and academics to explain which approach – cap-and-trade or a carbon tax – they preferred. There was disagreement on many points, but on one issue most concurred. As Jeffrey D. Sachs, director of the Earth Institute at Columbia University, said, imposing some sort of price on fossil fuels “is a big improvement over the do-nothing status quo.”

 

Eileen Claussen's response:

An economy-wide greenhouse gas cap-and-trade system sets a clear limit on greenhouse gas emissions and minimizes the costs of achieving this target. Environmental integrity and cost-effectiveness are two critical advantages that make cap-and-trade the right policy mechanism to tackle climate change in an economically responsible manner. Complementary measures and incentives — including for coal, transportation, technology commercialization, and buildings and energy efficiency — are also necessary pieces of the climate solution.

Unlike traditional regulation, a cap-and-trade program constrains emissions but lets market forces set a price on emissions. Rather than mandating a specific technology, the flexibility afforded by emissions trading markets helps identify where emission reductions can be achieved most cost-effectively. Cap-and-trade stimulates the development of new technological solutions that can enable much deeper emissions cuts at lower cost in the future.

A carbon tax is often presented as a main alternative to cap and trade. A core difference between these approaches involves the issue of certainty. A tax provides cost certainty by setting a fixed cost on emissions, whereas cap-and-trade delivers emissions certainty by establishing a declining emissions limit based on an assessment of the reductions level required to protect the climate. In contrast to a cap-and-trade approach, a tax would not provide the same level of emissions certainty during any given compliance period.

An economy-wide cap-and-trade policy is supported by President Obama, by Congressional leaders drafting bills in the House and Senate, and by the 25 major corporations and 5 NGOs working together as the U.S. Climate Action Partnership. Greater flexibility to achieve emissions reductions in a cost-effective manner and greater certainty that environmental objectives will be met are key advantages of a cap-and-trade policy.

Press Release: Analysis Projects Modest Competitiveness Impacts Under Cap and Trade

Press Release - May 6, 2009

Contact: Tom Steinfeldt, (703) 516-4146 

Press Teleconference Audio


PEW CENTER ANALYSIS PROJECTS MODEST COMPETITIVENESS IMPACTS
UNDER A U.S. GREENHOUSE GAS CAP-AND-TRADE PROGRAM

Report Outlines Policy Options to Ease Potential Impacts
on Energy-Intensive Manufacturers

Washington, DC – A close look at the historical relationship between energy prices and U.S. production and consumption of energy-intensive goods suggests that energy-intensive manufacturers are likely to face only modest “competitiveness” impacts under a U.S. greenhouse gas cap-and-trade program, according to a new analysis released today by the Pew Center on Global Climate Change.

The Pew Center study projects that U.S. energy-intensive manufacturing industries would on average lose 1 percent of their annual production to imports assuming a CO2 price of $15 per ton in the United States and no carbon price in other countries.  Both the U.S. Energy Information Administration (EIA) and the Environmental Protection Agency (EPA) have projected CO2 prices of approximately $15 per ton under cap-and-trade programs proposed in Congress.

The authors conclude that the projected impacts can be addressed through policies targeted to energy-intensive sectors.  They outline a range of policy options, including: compensating energy-intensive sectors covered by a mandatory cap for their regulatory costs; excluding those sectors from the cap-and-trade program; and using border adjustment measures to equalize costs for domestic and imported energy-intensive goods.

“This is one of the most sophisticated efforts ever to quantify the potential competitiveness impacts on energy-intensive industries.  The analysis shows clearly that, at the price level studied, the potential impacts are very modest and very manageable,” said Pew Center President Eileen Claussen.  “Policymakers have a range of policy tools to mitigate the modest economic impacts that may be foreseen.  The bottom line is that fear of competitive harm should not stand as an obstacle to strong climate policy.”

The report is authored by economists Joseph E. Aldy and William A. Pizer, who were affiliated with Resources for the Future, a think tank in Washington, D.C., at the time the analysis was undertaken.  Both have since taken positions in the federal government.

The report, “The Competitiveness Impacts of Climate Change Mitigation Policies,” bases its projections on an econometric analysis of the historical relationship between fluctuations in energy prices and shipments, trade, and employment within energy-intensive manufacturing industries.  The analysis draws on 20 years of data for more than 400 energy-intensive subsectors.

Based on the historical relationships identified, the authors estimate the likely impacts of energy price increases at the levels associated with a CO2 price of $15 per ton.  An EIA analysis cited in the report projects a CO2 allowance price of $16.88 per ton in 2012 under the Lieberman-Warner cap-and-trade proposal considered last year in Congress (S.2191).  A preliminary EPA analysis of the draft Waxman-Markey climate and energy bill released in April projects an allowance price of $13 to $17 in 2015.

In assessing the potential impacts on energy-intensive manufacturers, the analysis distinguishes “competitiveness” impacts – the loss of market share to foreign competitors facing no carbon price – from the broader economic impacts these sectors may face under a mandatory greenhouse gas policy. 

For U.S. manufacturing as a whole, the analysis estimates an average production decline of 1.3 percent, and a decline in consumption of 0.6 percent, suggesting only a 0.7 percent shift in production overseas.  For energy-intensive industries (those with energy costs exceeding 10 percent of shipment value), output and consumption are projected to decline 4 percent and 3 percent, respectively, suggesting a 1 percent shift in production.  The findings indicate that most of the projected economic impact reflects a move towards less emissions-intensive products, rather than an increase in imports or a shift of jobs or production overseas.

Looking at specific sectors, the report estimates a “competitiveness” impact of 0.6 percent for bulk glass; 0.7 percent for aluminum and cement; 0.8 percent for iron and steel; and 0.9 percent for paper and industrial chemicals.  The authors note that the analysis assumes similar behavior among industries with similar energy intensity, and that at any given level of energy intensity, some industries may face impacts higher than the calculated average.

The analysis contributed to a recent Pew Center policy brief, “Addressing Competitiveness in U.S. Climate Change Policy,” which further examines available policy options.  It also was cited by Claussen in recent testimony before the Energy and Environment Subcommittee of the House Energy and Commerce Committee.

Claussen noted that the competitiveness provisions of the Waxman-Markey discussion draft – which would use output-based rebates to compensate energy-intensive manufacturers for increased costs, and resort to border measures only if the President determines the rebates have been ineffective – are largely consistent with earlier Pew Center recommendations. 

“The draft provides a very sound framework for managing what we now know are relatively modest risks,” said Claussen.

The new report, and additional information on global climate change and the Pew Center, are available at www.c2es.org.

###

The Pew Center was established in May 1998 as a non-profit, non-partisan, and independent organization dedicated to providing credible information, straight answers, and innovative solutions in the effort to address global climate change. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.

The Competitiveness Impacts of Climate Change Mitigation Policies

The Competitiveness Impacts of Climate Change Mitigation Policies

May 2009

By:
Joseph E. Aldy and William A. Pizer
Resources for the Future


A close look at the historical relationship between energy prices and U.S. production and consumption of energy-intensive goods suggests that energy-intensive manufacturers are likely to face only modest “competitiveness” impacts under a U.S. greenhouse gas cap-and-trade program, according to this report.

 

Press Release

Audio of report release press teleconference

Download the entire report (PDF)

 

Also see Eileen Claussen's Congressional Testimony on Competitiveness

Review of Proposed Options for Addressing Industrial Competitiveness Impacts (PDF)

Joseph E. Aldy
William Pizer
0

Climate Policy Hill Briefing on Carbon Market Design & Oversight in a U.S. Greenhouse Gas (GHG) Cap-and-Trade System

Promoted in Energy Efficiency section: 
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This briefing discusses issues in the development and oversight of a well-functioning carbon commodity market. These topics include overall market design, options for the choice of regulator, the derivatives market, the Over-the-Counter (OTC) market, and the rules and enforcement necessary to prevent market manipulation and abuses.

Briefing on Carbon Market Design & Oversight in a U.S. Greenhouse Gas (GHG) Cap-and-Trade System
May 1, 2009

The Pew Center and the Nicholas Institute for Environmental Policy Solutions at Duke University held a briefing on the design and oversight of a successful carbon market. As Congress debates climate change legislation, one of the most critical yet least discussed issues is the development and oversight of a well-functioning carbon commodity market.  This briefing frames and discusses many of the central issues in this process, including: overall market design, options for the choice of regulator, the role and importance of the derivatives market, and the types of rules and enforcement necessary to prevent market manipulation and abuses.  

Video  Watch the video and accompanying slides presented by each speaker listed below.

  • Janet Peace, Vice President for Markets and Business Strategy, Pew Center on Global Climate Change
    Presentation: Windows Media   Slides (pdf)
  • Jonas Monast, Co-Director, Duke University Climate Change Policy Partnership
    Presentation: Windows Media   Slides (pdf)   
  • James Newsome, Board member of the CME Group, former president of NYMEX and former chairman of the CFTC
    Presentation: Windows Media   Slides (pdf)
  • Andy Stevenson, Finance Advisor in NRDC’s Center for Market Innovation and a former hedge fund manager and investment banker
    Presentation: Windows Media   Slides (pdf)
  • Betsy Moler, Executive Vice President of Government and Environmental Affairs and Public Policy, Exelon Corporation, and former FERC Commissioner
    Presentation: Windows Media   
  • Question & Answer: Windows Media   

Briefing Highlights

  • The U.S. carbon market will be large.
  • A market for GHGs will be different than other commodity markets.
    - Created to deliver an environmental goal
    - Emitters will have to participate
    - There will be a limited supply of compliance units (allowances and offsets) that will likely decrease over time.
  • The effectiveness of the market will have implications for the broader economy.
  • Key fundamentals of a successful market
  • Role and importance of the derivatives market
  • Oversight considerations, such as the types of rules and enforcement necessary to prevent market manipulation and abuses

 

Related Materials

Climate Policy Briefs Series

Back to list of 2009 Briefings

 

-This series was made possible through a generous grant from the Doris Duke Charitable Foundation, but the opinions expressed herein are solely those of the presenters.-

Climate Policy Hill Briefing on International Offsets

Promoted in Energy Efficiency section: 
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This briefing focuses on the role and function of international offsets in a mandatory GHG cap-and-trade system.

Briefing on International Offsets in a U.S. Greenhouse Gas (GHG) Cap-and-Trade System
April 24, 2009

The Pew Center held a Congressional briefing on the role and function of international offsets in a mandatory GHG cap-and-trade system. Given the importance of offsets as a cost-containment measure in cap-and-trade system design, the intent of this briefing was to show that international offsets can be a viable and reliable way of acheiving low-cost GHG emissions reductions.    

Video  Watch the video and accompanying slides presented by each speaker listed below.

  • Janet Peace, Vice President for Markets and Business Strategy, Pew Center on Global Climate Change
    Presentation:     Slides (pdf)         Windows Media

 

  • Christiana Figueres, Principal Climate Change Advisor to ENDESA Latinoamérica, the largest private utility in Latin America, and former representative to the CDM Executive Board
    Presentation:     Slides (pdf)          Windows Media

 

  • Graeme Martin, Manager of Business Development, Environmental Products, Shell Energy North America
    Presentation:     Slides (pdf)          Windows Media

 

  • Eric Haxthausen, Director of U.S. Climate Change Policy, The Nature Conservancy
    Presentation:     Slides (pdf)          Windows Media

 

  • Dirk Forrister, Managing Director, Advisory and Research Service, Natsource
    Presentation:     Slides (pdf)         Windows Media

 

 

 Briefing Highlights

  • Offsets can significantly reduce the costs of a cap-and-trade program, deliver a price signal throughout the economy, and stimulate technological innovation in sectors not covered by the cap.
  • International offsets are particularly advantageous because there are numerous low-cost mitigation opportunities in developing countries. Further, by engaging developing countries, international offsets can foster the development of a global carbon market through a common price signal.
  • The existing process for certifying international offsets under the Kyoto Protocol has been alternately criticized as being overly and insufficiently stringent. While the process, known as the clean development mechanism, is not perfect, it has improved over time and has led to important benefits, including cost containment and technology diffusion.
  • Deforestation and forest degradation account for approximately 20 percent of global greenhouse gas emissions, and forest carbon credits (both international and domestic) can be employed to promote preservation and restoration of forest land.

 

Related Materials

Briefing and video on the use of domestic offsets in a U.S. cap-and-trade program

Brief on Offsets in a Domestic Cap and Trade Program

More climate change policy briefs

Back to list of Briefing Videos

 

 

-This series was made possible through a generous grant from the Doris Duke Charitable Foundation, but the opinions expressed herein are solely those of the presenters.-

Congressional Testimony of Elliot Diringer - International Aspects of the American Clean Energy and Security Act

 

Elliot Diringer
Vice President, International Strategies
Pew Center on Global Climate Change

Submitted to
the Energy and Environment Subcommittee
Energy and Commerce Committee
U. S. House of Representatives


April 23, 2009

International Aspects of the
American Clean Energy and Security Act

For a pdf version, please click here.

Chairman Waxman, Chairman Markey, Ranking Members Barton and Upton, members of the committee, thank you for the opportunity to testify on the international aspects of Waxman-Markey discussion draft of the American Clean Energy and Security Act. My name is Elliot Diringer, and I am the Vice President for International Strategies at the Pew Center on Global Climate Change.

The Pew Center on Global Climate Change is an independent non-profit, non-partisan organization dedicated to advancing practical and effective solutions and policies to address global climate change. Our work is informed by our Business Environmental Leadership Council (BELC), a group of 44 major companies, most in the Fortune 500, that work with the Center to educate opinion leaders on climate change risks, challenges, and solutions. The Pew Center is also a founding member of the U. S. Climate Action Partnership (USCAP) , a coalition of 25 leading businesses and five environmental organizations that have come together to call on the federal government to quickly enact strong national legislation to require significant reductions of greenhouse gas emissions.

For the United States to effectively address climate change, the enactment by Congress of mandatory market-based legislation to significantly reduce U.S. greenhouse gas emissions is of the utmost priority.  The Pew Center commends Chairman Waxman and Chairman Markey for significantly advancing this effort with their discussion draft.  An essential complement to strong domestic climate legislation is an effective international agreement ensuring that other major economies also contribute their fair share to what must be a global effort.  It is in the strong interest of the United States to ensure that domestic climate legislation is fashioned in ways that maximize prospects for such an agreement.  In the international negotiations now underway under the Bali Action Plan, the United States will be best able to lead efforts toward an effective global agreement if our domestic legislation:

  • Sets a solid foundation for a verifiable international commitment by the United States, and provides means for the U.S. to take additional actions that can encourage strong commitments by others;
  • Creates positive incentives for stronger emission reduction actions and commitments by the major emerging economies;
  • Dedicates resources to addressing the critical adaptation needs of poor and vulnerable countries;
  • Facilitates the linkage of the United States’ emissions trading system in a global greenhouse gas market; and
  • Includes transitional measures to address the potential competitiveness risks to energy-intensive, trade-exposed industries.

The Pew Center believes that, on the whole, the Waxman-Markey discussion draft would establish a strong foundation for effective U.S. engagement in the global climate effort.  In my testimony today, I would like to offer a number of suggestions for strengthening the proposed legislation to better ensure that the very considerable domestic effort it would initiate is maximally leveraged to achieve a fair and effective global climate agreement.

 

Foundation for a Verifiable International Commitment

An effective global response to climate change requires clear and verifiable international commitments by all major greenhouse gas-emitting nations.  Countries can be expected to deliver their strongest possible efforts only if they have confidence that their counterparts and competitors are delivering theirs as well.  The best means of instilling and maintaining this confidence is a treaty, or a set of international agreements, establishing mutual legal commitments with international accountability.  These commitments must be measurable, reportable, and verifiable.

Given the tremendous diversity among the major economies, it is reasonable that their commitments vary not only in stringency but in form as well.  In A Blueprint for Legislative Action, USCAP recommends a framework that would establish “binding absolute economy-wide reduction targets for developed countries while allowing developing countries a range of binding policy commitments, taking into account national capacities, circumstances, and policy approaches.”     

The Pew Center believes the Waxman-Markey discussion draft would create a very strong foundation for U.S. participation in such a framework.  The emission reduction targets it proposes are ambitious and achievable, and would represent a very credible contribution by the United States toward the ultimate goal of safely stabilizing greenhouse gas concentrations in the atmosphere.  In establishing mandatory targets through 2050, the legislation would provide the basis in domestic law for a corresponding commitment, or series of commitments, at the international level.  To be meaningful, these international commitments must be legally distinct from, and in addition to, the domestic law in which they are rooted.  If countries are merely to pledge national actions – even if these actions are “binding” under domestic law – they are accountable only to themselves.  International commitments create international accountability, and the willingness of the United States to assume such a commitment is the only basis on which it can expect the same of other sovereign governments. 

The emission targets set under cap-and-trade legislation will fundamentally guide any U.S. targets agreed internationally.  The United States will have greater leverage in international negotiations, however, if it has the flexibility to take additional actions that can encourage stronger commitments by others.  One way to do this is by committing support for mitigation and adaptation efforts in developing countries, as is discussed below.  Another way is through  mechanisms facilitating emission reductions outside the United States above and beyond those required under domestic cap-and-trade legislation (i.e., not as international emission offsets used for domestic compliance).  The discussion draft would establish one such mechanism by setting aside a portion of emission allowances to support supplemental emission reductions from reduced deforestation in developing countries. We encourage the Committee to consider broadening these provisions to allow the use of allowance value to facilitate other types of mitigation actions in developing countries, or to acquire emission credits meeting U.S. offsetting criteria, and then retire them.

 

Incentives for Developing Country Mitigation

To achieve an effective international agreement, the United States and other developed countries must be prepared to provide effective incentives and support for stronger action by the major emerging economies.  Under the 1992 U.N. Framework Convention on Climate Change, developed countries committed to provide financial and technological assistance to developing countries. This commitment is underscored in the Bali Action Plan adopted in 2007 by the United States and other Convention parties. In framing negotiations toward a new climate agreement, the Bali plan states that future mitigation actions by developing countries are to be “supported and enabled by technology, financing and capacity-building.” Early and sustained action by the United States to deliver this support will greatly enhance prospects for an effective post-2012 agreement.  Broadly speaking, this support can be delivered as direct assistance, either bilateral or multilateral, and through market-based mechanisms.

 

Public Finance

There is broad recognition that the majority of investment for mitigation will come from private financial flows, in part through greenhouse gas markets, as discussed below. But additional public finance is needed to supplement these market flows.  We believe the United States must be prepared to commit such support, and that these incentives will be most effective if: a) the support provided is adequate and predictable; and b) it is structured as a phased-in program providing some immediate assistance for capacity-building and technology deployment, and greater support for technology deployment once countries commit to effective climate policies. This assistance should be provided through bilateral programs and multilateral mechanisms, including the Clean Technology Fund recently established at the World Bank.

We believe the International Clean Technology Fund proposed in the discussion draft could be an important element of an effective funding strategy.  It would allow support to be delivered through both bilateral programs and multilateral mechanisms, and would establish eligibility criteria providing a clear incentive for developing countries to adopt and commit to effective climate mitigation policies.  However, we would recommend strengthening the provision in several respects.

First, it is critical that a clear, reliable, and predictable source of revenue be designated for these purposes.  We believe the legislation should authorize immediate appropriations for two purposes: a) to support capacity-building activities, as discussed further below; and b) to fulfill the United States’ pledge to help fund the World Bank’s new Clean Technology Fund.  These efforts would immediately demonstrate the United States’ commitment to support developing countries and would help position those countries to undertake stronger efforts.  For the longer term, the legislation should designate a portion of allowance value to provide sustained support for technology deployment.  As proposed in the discussion draft, this further support should be conditioned on a recipient countries’ ratification of an effective international climate agreement, or on the President’s determination that it is undertaking nationally appropriate mitigation activities.  The funds generated through this portion of allowance value could be held in reserve until such time as these eligibility criteria are met.

Second, we believe as a general matter that support for technology deployment should be technology-neutral, so that each dollar invested can achieve maximum return in emissions reduction.  We are concerned that, as written, the discussion draft may exclude funding for more efficient coal-fired electrical generating facilities.  Given the very strong likelihood that many countries will continue to rely on coal as a major energy source, and will continue building substantial new coal-fired generating capacity, we favor using technology support to ensure that these new facilities are as efficient, and least GHG-intensive, as possible.  Eligibility criteria should require that supported facilities deploy the best available combustion technologies and achieve substantial efficiency improvements and emission reductions beyond business as usual.

Third, we believe the legislation should provide explicit and immediate support for a range of capacity-building activities in developing countries.  These should include:

  • Emissions measurement – Strengthening capacity to accurately monitor and measure GHG emissions in key sectors and, ultimately, economy-wide as a basis for policy development, crediting and other market-based responses, and assessing progress.
  • Economic modeling – Strengthening capacity to project emissions and economic conditions under different scenarios, and to evaluate the costs and emission reduction potentials of alternative mitigation approaches.
  • Policy development – Strengthening capacity to design, implement, and enforce nationally appropriate policies that would contribute to emission reduction and could form the basis of international commitments.
  • Technology assessment – Strengthening capacity to assess available mitigation
    technologies and to identify those best suited to national circumstance.

 

Market-based Incentives

Access to the U.S. greenhouse gas market can provide another important incentive for stronger action by developing countries.  The Pew Center strongly supports the use of international emissions offsets, both as an incentive for developing country action and as a mechanism to contain costs in a U.S. cap-and-trade system.  EPA’s recent modeling analysis of the Waxman-Markey discussion draft found that the exclusion of international offsets could increase allowance prices by 96 percent.

USCAP recommends allowing up to 1.5 billion tons of international offsets per year within the cap-and-trade system.  Criteria must be established for all offsets, domestic and international, to ensure they are environmentally additional, verifiable, permanent, measurable, and enforceable.  In the case of international offsets, USCAP recommends that EPA be directed to establish a process to evaluate and approve proposed offsets, and that over time developing countries be required accept climate mitigation commitments to remain eligible for GHG crediting.  In addition, USCAP favors the use of emission offsets from reduced deforestation to supply a strategic emissions reserve available to covered entities to help reduce compliance costs. The overall aim of these recommendations is to encourage developing countries to move rapidly to curb their emissions, while providing verifiable emission offsets to help contain costs for U.S. emitters. 

Although the discussion draft allows fewer offsets (domestic and international) than favored by USCAP, the Pew Center believes that it is in many ways consistent with these recommendations.  Its offsetting provisions would provide a strong positive incentive for developing countries to undertake stronger efforts and to assume reasonable climate commitments.  By allowing crediting on a sectoral basis, the proposed legislation would help mobilize larger-scale reduction efforts in key sectors, while the provisions on reduced deforestation would establish the safeguards needed to ensure the integrity of forest-based offsets. 

Importantly, the draft would allow for the recognition of credits issued by an international body under the UN Framework Convention, or a new climate agreement, provided they meet U.S. offsetting criteria.  A well-functioning international crediting mechanism is important to the efficiency of the global greenhouse gas market.  By potentially allowing offsets from an international mechanism, Congress would help position the United States to strongly influence the restructuring of the existing Clean Development Mechanism or the design of a successor mechanism.

 

Supporting Adaptation Efforts

As noted in the discussion draft, the United States committed under the UN Framework Convention and the Bali Action Plan to provide “new and additional” resources to help poor and vulnerable countries adapt to climate change, and such assistance must be predictable and sustainable.  Consensus among governments on the appropriate means and levels of adaptation support will be critical to achieving a comprehensive climate agreement.

Conceptually, the discussion draft would provide a sound basis for significantly enhanced U.S. support for adaptation efforts in the least developed countries, small island states, and other especially vulnerable countries.  It would establish a stronger framework for delivering direct bilateral assistance, and importantly, it would reserve 40 percent to 60 percent of the support available for U.S. contributions to any international adaptation funds established or designated under a new climate agreement.

To be effective, and to help secure a strong climate agreement, the legislation must establish a clear, predictable, and sustained source of funding for these international adaptation efforts.  The Pew Center strongly supports designating an appropriate portion of allowance value for these purposes.

 

Linking Trading Systems

Emission reduction efforts in the United States and elsewhere will be more cost-effective if linked through a global greenhouse gas market.  It is critical, therefore, that domestic U.S. legislation anticipates and facilitates the linkage of a U.S. cap-and-trade system to existing and emerging market-based systems in other countries and regions, provided they are of comparable environmental integrity. 

The discussion draft appears to lay the necessary foundation for linkage to other market-based systems.  It would establish sound criteria for determining qualifying programs, including the requirement of absolute emission limits, and of comparable stringency with respect to compliance, enforcement, and offset quality.  By also allowing the recognition of allowances from programs establishing sectoral targets, the draft would provide another strong incentive for stronger efforts by countries not yet prepared to take on economy-wide targets.

 

Addressing Competitiveness Concerns

In recent testimony before the Energy and Environment Subcommittee, Pew Center President Eileen Claussen outlined our views and recommendations concerning potential competitiveness impacts on trade-exposed, energy intensive industries.   In brief, our analysis indicates that these potential competitiveness impacts are modest and manageable through a range of policy options. 

We believe that in the long term, concerns over competitiveness and associated emissions leakage are best addressed through effective international climate commitments, and that the overriding objective should therefore be to facilitate their establishment.  In the interim, we favor the use of transitional measures such as output-based emission allocations or rebates to vulnerable industries, and transition assistance to affected workers and communities.  We strongly discourage the use of unilateral trade measures.  Such measures would not fully counter competitiveness risks; as they would apply only to imports to the United States, they would not help “level the playing field” in the larger global market where U.S. producers may face greater competition from foreign producers.  Further, they risk retaliatory trade measures, and put climate relations on the path to confrontation rather than cooperation.

On the whole, we believe the discussion draft takes a very sound approach to addressing competitiveness concerns.  As we favor, it relies primarily on an output-based approach to compensate firms in qualifying sectors for the direct and indirect costs of greenhouse gas regulation.  Also consistent with our recommendations, the draft would: structure the compensation so as to provide an incentive for investments in energy efficiency; phase down the level of compensation over time; provide for Presidential review to slow this phase-down if necessary; and end compensation if 70 percent of global output is subject to commensurate greenhouse gas regulation.  We believe this approach addresses the transitional competitiveness concerns likely to arise under a mandatory cap-and-trade program, while maintaining the environmental integrity of the program and providing an ongoing incentive for producers to improve their GHG performance.

Critically, the draft contemplates the use of trade measures against other countries only as a last resort if the President finds that, despite the rebate program, regulatory costs have harmed production or employment by energy-intensive U.S. manufacturers, or that emissions from competitors in countries without commensurate climate obligations have increased.  This approach preserves trade measures as an option, but defers their use to allow a reasonable period to assess the efficacy of the rebate program and to achieve effective international agreements.

In conclusion, the Pew Center believes that the Waxman-Markey discussion draft would provide the foundation for a strong U.S. contribution to the global climate effort, and that with further refinements, the proposed legislation would well position the United States to lead efforts toward an equitable and effective international agreement.  We appreciate the opportunity to provide our input on the discussion draft, and look forward to working with the Subcommittee and the Committee as this critical legislation moves forward.  

Press Release: USCAP Testifies on Waxman-Markey Discussion Draft

USCAP

For Immediate Release
Contact: Tad Segal (202) 667-0901, Tad.Segal@widmeyer.com
April 22, 2009

 


USCAP to Congressional Panel: Clarity on Climate Policy Will Spur Economic Investment

Washington, D.C. (April 22, 2009) – American businesses stand ready to invest billions of dollars in critical infrastructure and next-generation clean energy technologies but first need clarity on future regulation of greenhouse gases, members of the U.S. Climate Action Partnership (USCAP) told members of the House Energy and Commerce Committee during a hearing on pending climate legislation today.

Backing an economy-wide cap-and-trade approach to reduce greenhouse gas (GHG) emissions, the members of USCAP urged the Committee to produce well-crafted and balanced national climate legislation that establishes clear rules of the road. Companies in many industries today cannot make prudent large-scale, long-term investment decisions without first understanding how climate protection efforts will be structured and implemented going forward, the USCAP members said. Resolving this uncertainty will free companies to begin deploying capital and spending more on badly needed research and development.

“Long-lasting climate change legislation must be based on three equal tenets – protecting the environment, the economy and consumers,” said Jim Rogers, President and CEO of Duke Energy. “The sooner Congress acts on climate change to provide the regulatory clarity business and industry needs to move ahead with major capital projects, the more rapid our economic recovery will be.”

This is the second time in the past three months that USCAP has testified before the House Energy and Commerce Committee on the subject of climate protection legislation. On January 15th, USCAP members presented the Committee with their Blueprint for Legislative Action, which lays out a comprehensive and integrated set of policy recommendations.

The Blueprint calls for reductions of GHG emissions of 80 percent by 2050, compared to 2005 levels. In addition, USCAP has called for domestic and international offset provisions that will help lower GHG emissions from non-capped entities, cost containment measures to protect consumers and industries, and other complementary measures that enhance the effectiveness of any emissions reduction program and increase investment in new technologies.

"With leadership and foresight, we can strengthen our economy by reducing pollution. Inaction is simply not an option," said Frances Beinecke, President of the Natural Resources Defense Council. "By increasing energy efficiency and moving to clean, renewable energy, we can create millions of jobs, save consumers billions of dollars, and increase our energy security. We have an opportunity to be the global leader in low-carbon technology if we act wisely and swiftly."

USCAP said that any legislation must also protect consumers, vulnerable communities and businesses while ensuring economic sustainability and environmental effectiveness.

“Swift enactment of a well-crafted cap-and-trade program will encourage the critical private
sector investment in low-carbon technologies required to protect our environment, while at the same time protecting consumers and our domestic industries,” said David Crane, President and CEO of NRG Energy.

Last month, USCAP hailed the introduction of the Waxman-Markey discussion draft as a strong starting point for national climate protection legislation. Commenting on the draft, USCAP members said it addresses many of the core issues and policy recommendations identified by USCAP in its Blueprint, which were agreed upon only after significant discussion and debate within the group.

"I believe that this may be the single greatest opportunity to reinvent American industry, putting us on a more sustainable path forward,” said Charles Holliday, Jr. Chairman of DuPont. “A federal climate program has the potential to create real economic growth through innovation."

###

United States Climate Action Partnership (USCAP) is a group of businesses and leading environmental organizations that have come together to call on the federal government to quickly enact strong national legislation to require significant reductions of greenhouse gas emissions.

USCAP Members:
 Alcoa  Boston Scientific  BP America  Caterpillar  Chrysler  ConocoPhillips  John Deere  Dow  Duke Energy  DuPont  Environmental Defense Fund  Exelon  Ford  FPL Group  GE  GM  Johnson & Johnson  Marsh  Natural Resources Defense Council  The Nature Conservancy  NRG Energy  PepsiCo  Pew Center On Global Climate Change  PG&E  PNM Resources  Rio Tinto  Shell  Siemens  World Resources Institute  Xerox 

Statement: EPA Issues Proposed Endangerment Finding

-On the occasion of the EPA's issuance of a proposed endangerment finding for greenhouse gases.-

Statement of Eileen Claussen
President, Pew Center on Global Climate Change


April 17, 2009

I applaud the EPA for officially recognizing that greenhouse gas emissions are a danger to our public health and welfare that, if unchecked, could have potentially serious impacts to our environment and well-being. Today's announcement is a major milestone for the U.S. and signals clearly that any further delay of action will only prove more costly for both our environment and our economy. All eyes are on Congress now as it considers legislation that will move the country toward a cleaner and more sustainable energy future.    

EPA press release

More information from EPA

2009 Climate Legislation Briefings

The Pew Center presents Congressional briefings on a variety of critical climate change policy issues. From this page, users can access these briefing materials, including web videos of the proceedings and related presentations and summaries.

The Pew Center also offers a series of Congressional policy briefs that walk policymakers through important design choices for a cap-and-trade program and key complementary measures to reduce greenhouse gas emissions.
To learn more about the Congressional Policy Briefs, click here.

2009 Briefings

May 1, 2009
Briefing on Carbon Market Design & Oversight

April 24, 2009
Briefing on International Offsets

March 27, 2009
Briefing on Allowance Value

March 6, 2009
Briefing on Domestic Offsets

 

-Supported by a Generous Grant from the Doris Duke Charitable Foundation-

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