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
Agenda for Climate Action
Prepared by the Pew Center on Global Climate Change
Download report (pdf)
Eileen Claussen, President, Pew Center on Global Climate Change
Over the past seven years, the Pew Center has published more than 60 reports on the science, economics, solutions, and policy options related to global climate change. Over that time, the scientific consensus on this issue has only strengthened, but there is, as yet, no consensus on the appropriate portfolio of policies that are required to address global climate change successfully. This Agenda for Climate Action is C2ES’s attempt to fill that gap. It takes a comprehensive look at a suite of climate, energy, and technology policies that could provide meaningful reductions in greenhouse gas emissions throughout the economy.
This report finds six areas in which the U.S. must take action: (I) science and technology research, (II) market-based emissions management, (III) emissions reductions in key sectors, (IV) energy production and use, (V) adaptation, and (VI) international engagement. In the areas of science and technology research, we call for increased stable funding for both, along with innovative approaches to distribute funds efficiently. We propose a mandatory GHG reporting system, which can form the basis for tracking voluntary reductions, accompanied by a large-source, economy-wide cap-and-trade program for greenhouse gases. This combination of technology investment and market development will provide for the most cost-effective reductions in greenhouse gases, as well as create a market for GHG-reducing technologies.
While these broader efforts are critical, sector-specific actions are also needed. To address emissions from the transportation sector, we propose converting the struggling Corporate Average Fuel Economy (CAFE) program into a more ambitious but tradable GHG standard, along with increased support for low-emission vehicles and fuels. For the industrial sector, we encourage greater outreach and incentives for improvements in process efficiency and the manufacture of low-GHG products. In the agriculture sector, biological sequestration programs in Farm Bill legislation must receive proper funding and prioritization. Because energy is at the heart of this issue, we tackle this sector separately, making recommendations for each major energy source. To enable continued use of coal in a climate-friendly manner, we promote aggressive research and development on carbon separation and capture technologies, development of a regulatory framework for geologic sequestration, and advanced generation coal plants. Natural gas is an important transition fuel, and we support the expansion of natural gas transportation infrastructure and production. We propose extending incentives for renewable fuels and electricity generation, an increased focus on biomass, and federal-level support for renewable credit-trading programs. We also support continued use of nuclear power generation, pending resolution of issues such as safety and waste storage. There are vast opportunities for improving efficiency on an economy-wide basis, so we promote improved efficiency in electricity production (through distributed generation, combined heat and power technologies), in electricity transmission (through test beds for an advanced grid), and during energy use (through building codes, product standards, and manufacturing process improvements).
Because none of these efforts will fully prevent all potential effects of climate change (indeed, many impacts are already being observed), we propose the development of a national adaptation strategy and the funding of early warning systems. Last but not least, while the Agenda focuses on domestic actions, it argues for greater participation by the U.S. in international negotiations to engage all major emitters in a global solution.
Despite the specificity of many of the steps included here, there is still much room for ongoing refinement and elaboration of these recommendations. While we have consulted with many stakeholders in the development of this report, we look forward to building upon the suggestions described here through further outreach and consultation.
This report follows the publication of International Climate Efforts Beyond 2012: Report of the Climate Dialogue at Pocantico, an examination of options for advancing the international climate effort post-2012. Taken together, these two documents offer a promising path forward for the U.S. and the world in tackling global climate change.
Climate change is one of the most complex issues that the world will face in this century. Concentrations of greenhouse gases in the atmosphere have already reached levels unprecedented for hundreds of thousands of years, causing changes not only in global temperature, but also in observable impacts throughout the world, and these changes are happening more quickly than expected. The broad consensus of established scientific experts both internationally and domestically is that most of the warming in recent decades can be attributed to human activities. In addition, the rate and severity of these changes will increase without significant steps to reduce greenhouse gas emissions (GHGs). Stabilizing greenhouse gas concentrations will require a fundamental shift in our energy system, but this transition will have other benefits as well, including improved competitiveness, security, air quality, public health, and job creation. This transition will not be easy, but it is crucial to begin now.
This Agenda is the Pew Center's attempt to develop and articulate a responsible course of action for addressing climate change. It identifies fifteen actions that should be started now, including U.S. domestic reductions and engagement in the international negotiation process. It includes both broad and specific policies, combining recommendations on technology development, scientific research, energy supply, economy-wide markets, and adaptation with critical steps that can be taken in key sectors. While reductions across sectors and sources of emissions are key, these steps are not likely to happen simultaneously, nor without costs. However, these recommendations have been designed to be both cost-effective and comprehensive.
Invest in science and technology research.
1. Ensure a robust research program though the Climate Change Science Program.
2. Offer long-term, stable funds—in the form of a reverse auction—to GHG-related technology research and development.
Establish mandatory limits on greenhouse gas emissions and harness market mechanisms for economy-wide reductions.
3. Create a mandatory GHG reporting system as a basis for an economy-wide emissions trading program.
4. Implement a large-source, economy-wide cap-and-trade program for greenhouse gases.
Stimulate innovation across key economic sectors.
5. Transportation: Convert the Corporate Average Fuel Economy (CAFE) program into strengthened, tradable corporate average emissions standards. Support biofuels, hydrogen, and other low-GHG fuel alternatives.
6. Manufacturing: Provide outreach and incentives to manufacturers for improvements in industrial efficiency and low-GHG technologies, and support the production of low-GHG products.
7. Agriculture: Raise the priority and funding levels for Farm Bill programs and other federal initiatives on carbon sequestration.
Drive the energy system toward greater efficiency, lower-carbon fuels and carbon capture technologies.
8. Coal and Carbon Sequestration: Provide funding for tests of geologic carbon sequestration and for research, development and demonstration (RD&D) projects on separation and capture technologies, in combination with advanced generation coal plants. Establish an appropriate regulatory framework for carbon storage.
9. Natural Gas: Expand natural gas transportation infrastructure and production.
10. Renewables: Significantly “ramp up” renewables for electricity and fuels, including an extension and expansion of the production tax credit, a uniform system for tracking renewable energy credits, and increased emphasis on biomass.
11. Nuclear Power: Provide opportunities for nuclear power to play a continuing role in a future low-carbon electricity sector.
12. Efficient Energy Production and Distribution: Support the development and use of combined heat and power installations, distributed generation technologies, and test beds for an upgraded electricity grid.
13. Efficient Energy Usage: Reduce energy consumption through policies that spur efficiency, including appliance and equipment standards, building R&D and codes, and consumer education.
Begin now to adapt to the inevitable consequences of climate change.
14. Develop a national adaptation strategy through the Climate Change Science Program and Climate Change Technology Program, and fund development of early-warning systems for related threats.
Engage in negotiations to strengthen the international climate effort.
15. Review options for a new or modified agreement to ensure fair and timely action by all major emitting countries, and participate in negotiations to establish binding climate commitments consistent with domestic interests.
These fifteen recommendations are not the only means of achieving a lower-carbon future, but taken together, they would chart a climate-friendly path for the U.S.. Putting the Agenda into practice will take political will and policy action. All recommendations require government leadership, private sector commitment and time. Nonetheless, the details of specific recommendations in this Agenda are less critical than the compelling need to get started. Further delay will only make the challenge before us more daunting and costly.
Agenda for Climate Action
February 8, 2006
National Press Club, Washington, DC
Remarks made by business representatives at the release:
Group Climate Change Adviser
Shell International Limited (pdf)
Director for Federal, Governmental and Regulatory Relations
PG&E Corporation (pdf)
Western Hemisphere Health, Safety, Security, and Environment Director
Vice President of Federal Affairs and Environmental Safety
Vice President, Environmental Health and Safety
Holcim (US) Inc. (pdf)
Vice President, Government Relations
Whirlpool Corporation (pdf)
Supporting statements: Agenda for Climate Action
The Pew Agenda is an example of the kind of big picture, integrated thinking that is needed to tackle the climate issue. We're pleased that the Agenda makes the point that climate solutions should be market based while covering all parts of the economy and resolving regulatory uncertainty. These are all vital as the utility industry prepares to build the next generation of power plants needed by our growing economy.
James E. Rogers, Chairman, President, and Chief Executive Officer
The changes needed in our energy infrastructure to meet future demand and respond to climate change will not happen by chance - a clear, long term framework will give business the necessary incentive and confidence to invest further.
John D. Hofmeister, President and US Country Chair
Shell Oil Company
Holcim is pleased with the leadership that the Pew Center has taken with regard to greenhouse gas reduction policies and the depth of research that comprises the foundation of this report. Importantly, the Pew Center recognizes the necessity of market-based solutions and that various sector needs must be taken into consideration if we are to have consensus in what must be done to contain and ultimately reduce the generation of greenhouse gases.
Patrick Dolberg, President & Chief Executive Officer
Holcim (US) Inc.
Through its association with the Pew Center, Alcan has identified another avenue through which to actively address climate change and its effects on the long-term sustainability of the Company. This report sends a clear message, calling on all stakeholders to broaden their investment in tackling the economic, social, and environmental issues that climate change presents.”
Daniel Gagnier, Senior Vice President, Corporate and External Affairs
Intel supports Pew's efforts to advance the national discussion on climate change by proposing options that merit careful consideration. Intel agrees that climate change is a serious issue, and has been actively working to mitigate its own climate impact through aggressive programs to reduce energy consumption and emissions of global warming compounds.
Dane Parker, General Manager of Environmental Health and Safety
February 8, 2006
Contact: Katie Mandes, (703) 516-0606
PEW CENTER ON GLOBAL CLIMATE CHANGE RELEASES FIRST COMPREHENSIVE APPROACH TO CLIMATE CHANGE
All Sectors Must Share in Solution
WASHINGTON, D.C. – The Pew Center on Global Climate Change released the first comprehensive plan to reduce greenhouse gas emissions in the United States. The Agenda for Climate Action identifies both broad and specific policies, combining recommendations on economy-wide mandatory emissions cuts, technology development, scientific research, energy supply, and adaptation with critical steps that can be taken in key sectors. The report is the culmination of a two-year effort that articulates a pragmatic course of action across all areas of the economy.
The report calls for a combination of technology and policy and urges action in six key areas: (1) science and technology, (2) market-based programs, (3) sectoral emissions, (4) energy production and use, (5) adaptation, and (6) international engagement. Within these six areas, the Agenda outlines fifteen specific recommendations that should be started now, including U.S. domestic reductions and engagement in the international negotiation process. All the recommendations are capable of implementation in the near-term.
The report concludes that there is no single technology fix, no single policy instrument, and no single sector that can solve this problem on its own. Rather, a combination of technology investment and market development will provide for the most cost-effective reductions in greenhouse gases, and will create a thriving market for GHG-reducing technologies. To address climate change without placing the burden on any one group, the report urges actions throughout the economy.
“Some believe the answer to addressing climate change lies in technology incentives. Others say limiting emissions is the only answer. We need both,” said Eileen Claussen, President of the Pew Center.
Emissions in the United States continue to rise at an alarming rate. U.S. carbon dioxide emissions have grown by more than 18% since 1990, and the Department of Energy now projects that they will increase by another 37% by 2030.
Joining the Pew Center at the announcement were representatives from the energy and manufacturing sectors. Speaking at the release were: David Hone, Group Climate Change Adviser, Shell International Limited; Melissa Lavinson, Director, Federal Environmental Affairs and Corporate Responsibility, PG&E Corporation; Bill Gerwing, Western Hemisphere Health, Safety, Security, and Environment Director, BP; John Stowell, Vice President, Environmental Strategy, Federal Affairs and Sustainability, Cinergy Corp., Ruksana Mirza, Vice President, Environmental Affairs, Holcim (US) Inc.; and Tom Catania, Vice President, Government Relations, Whirlpool Corporation.
While actions are needed across all sectors, some steps will have a more significant, far-reaching impact on emissions than others and must be undertaken as soon as possible.
- A program to cap emissions from large sources and allow for emissions trading will send a signal to curb releases of greenhouse gases while promoting a market for new technologies.
- Transportation is responsible for roughly one-third of our greenhouse gas emissions, and this report addresses this sector through tradable emissions standards for vehicles.
- Because energy is at the core of the climate change problem, the report makes several recommendations in this area: calling for increased efficiency in buildings and products, as well as in electricity generation and distribution. Incentives and a nationwide platform to track and trade renewable energy credits are recommended to support increased renewable power. In recognition of the key role that coal plays in U.S. energy supply, the report calls for the capture and sequestration of carbon that results from burning coal. Nuclear power currently provides a substantial amount of non-emitting electricity, and is therefore important to keep in the generation mix. The report recommends support for advanced generation of nuclear power, while noting that issues such as safety and waste disposal must also be addressed.
- While most of the recommendations focus on mitigation efforts, the report acknowledges that some impacts are inevitable and are already being seen. As a result, it proposes development of a national adaptation strategy to plan for a climate-changing world.
- Finally, despite the importance of efforts by individual countries on this issue, climate change cannot be addressed without engagement of the broader international community. The report recommends that the U.S. participate in international negotiations aimed at curbing global greenhouse gas emissions by all major emitting countries.
Other recommendations include: long-term stable research funding, incentives for low-carbon fuels and consumer products, funding for biological sequestration, expanding the natural gas supply and distribution network, and a mandatory greenhouse gas reporting program that can provide a stepping stone to economy-wide emissions trading.
The full text of this and other Pew Center reports is available at http://www.c2es.org.
The Pew Center was established in May 1998 by The Pew Charitable Trusts, one of the United States’ largest philanthropies and an influential voice in efforts to improve the quality of the environment. The Pew Center is an independent, nonprofit, and non-partisan 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.
In a major address before the UN Security Council on February 6, 2006, Senator Richard G. Lugar (R-Indiana), Chairman of the U.S. Senate Foreign Relations Committee, called for the United States to return to negotiations under the Framework Convention on Climate Change to achieve a comprehensive international approach to global warming. He said a "roadmap to this outcome" is contained in the recent report of the Climate Dialogue at Pocantico convened by the Center.
Excerpt from Senator Lugar's address:
"...[Fossil fuel] dependence also presents huge risks to the global environment. With this in mind, I have urged the Bush Administration and my colleagues in Congress to return to a leadership role on the issue of climate change. I have advocated that the United States must be open to multi-lateral forums that attempt to achieve global solutions to the problem of greenhouse gases. Climate change could bring drought, famine, disease, mass migration, and rising sea levels threatening coasts and economies worldwide, all of which could lead to political conflict and instability. This problem cannot be solved without international cooperation.
The time is ripe for bold action by the international community because much has changed since talks first began in 1992 on what became the Kyoto treaty. For one, China and India, who won exemptions from the treaty’s emission-cutting requirements, have enjoyed rapid growth. They are now much greater sources of greenhouse gases than anticipated, but also far stronger economies, more integrated into the global system.
Our scientific understanding of climate change has also advanced significantly. We have better computer models, more measurements and more evidence -- from the shrinking polar caps to expanding tropical disease zones for plants and humans -- that the problem is real and is caused by man-made emissions of greenhouse gases, including carbon dioxide from fossil fuels.
Most importantly, thanks to new technology, we can control many greenhouse gases with proactive, pro-growth solutions, not just draconian limitations on economic activity. Industry and government alike recognize that progress on climate change can go hand in hand with progress on energy security, air pollution, and technology development.
A roadmap to this outcome is contained in a recent report from the Center, a non-partisan organization, which assembled representatives from China, India and other countries and from global industrial companies, as well as from the U.S. Senate Foreign Relations Committee staff. This diverse group agreed on the need for fresh approaches beyond Kyoto. They said the U.S. must engage all the major economies at once, including India and China, because experience has shown that countries will not move unless they can be sure their counterparts are moving with them.
The United States, the world’s richest country and the largest emitter of greenhouse gases, should seize this moment to make a new beginning by returning to international negotiations in a leadership role under the Framework Convention on Climate Change. I believe that the United States is prepared to do that. Our friends and allies should embrace this opportunity to achieve a comprehensive international approach to global warming...."
Full text of Senator Lugar's address to the Security Council
More on the report of the Climate Dialogue at Pocantico
Additional resources on international climate policy, including text of the Sense of the Senate resolution, S. Res. 312 (pdf), proposed by Senator Lugar with Senator Joseph R. Biden, Jr. (D-Delaware), calling for U.S. participation in international negotiations under the Framework Convention on Climate Change
As of July 2014, 207 bills focusing specifically on climate change had been introduced in the 113th Congress (2013-2014). Many more bills touch on energy, environment, transportation, agriculture and other areas that could have an impact on or be affected by climate change. The list below, however, contains for the most part only those bills whose authors explicitly reference climate change or related terms, such as greenhouse gases (GHG) or carbon dioxide. (For brevity, all legislative proposals, including resolutions and amendments, are referred to here as "bills.") The list includes 126 bills that are intended to advance climate action, as well as 81 bills that would hinder climate action, 51 of which would curb EPA’s ability to regulate greenhouse gas emissions from power plants.
Though they do not specifically mention climate change, this list also includes those bills dealing with the impact of Hurricane Sandy which have been signed into law. The list also includes Public Law 113-89, which reverses many of the provisions of the Flood Insurance Reform Act of 2012, and was enacted into law despite being opposed by climate action and taxpayer advocates.
In addition, the list includes the Shaheen-Portman and McKinley-Welch energy efficiency bills. Shaheen-Portman enjoyed bipartisan support and had been considered the best prospect for enactment among energy bills in this Congress. In May 2014, however, the bill fell five votes short of the sixty needed to bring the bill to a final vote in the Senate – a casualty of disagreements over whether to consider the approval of the Keystone XL pipeline and prohibition of EPA’s carbon dioxide regulations as amendments to the energy efficiency bill.
The bills, resolutions, and amendments of the 113th Congress dealing with climate change are divided into the following categories:
- Climate Change Adaptation
- Clean Energy
- Energy Efficiency
- Natural Gas
- Other Greenhouse Gases
- Other Climate Action
- Renewable Fuel Standard
- Carbon Tax
- Carbon Capture and Storage or Enhanced Oil Recovery
- Elimination of Tax Credit for Carbon Capture and Storage
- Keystone XL
- Curbing Climate Action
- National Flood Insurance Program
Two proposals for mandatory programs on greenhouse gases have recently been discussed in the Senate. Their targets and likely effects are discussed here along with projections for the Kyoto Protocol and the existing Bush Administration Climate Change Plan, two commonly discussed alternative approaches. Senator Bingaman has offered a proposal based on recommendations made by the National Commission on Energy Policy. (See Summary of Bingaman Climate and Economy Insurance Act of 2005.) Senators McCain and Lieberman reintroduced a modified version of their Climate Stewardship Act. (See Summary of McCain-Lieberman Climate Stewardship and Innovation Act of 2005.) A cornerstone of both proposals is an economy-wide tradeable permits system, which imposes mandatory targets for large emitters and a market based system for meeting those targets. Such a system was used by the Clean Air Act to deal with acid rain, and is central to the Kyoto Protocol. It is, however, not part of President Bush’s Climate Initiative, which relies on voluntary action and nonbinding targets.
Senator Bingaman’s proposal differs from previous proposals that sought to impose mandatory targets in two distinct areas. First, absolute emission reduction targets are set based on emissions intensity – emissions per million dollars of GDP. Initially the goal is to reduce emissions intensity by 2.4% per year until 2019, after which the target becomes more stringent and increases to 2.8%. Despite this reduction in intensity, absolute emissions would actually grow. The Climate Initiative proposed by President Bush also set an intensity target but did not translate this target into an absolute level of mandatory reductions. (See Analysis of President Bush's Climate Change Plan.) The McCain-Lieberman proposal, in contrast, has sought to stabilize emissions at a specific level – as such it requires a greater scale of reduction as our economy continues to grow. The second significantly different element in the Bingaman proposal is a “safety value”, or price cap on the cost of greenhouse gas permits. A cost (or price) cap ensures that large emitters with targets will not have to pay more than some specified price for permits. Bingaman’s proposal sets the price cap at $7/TCO2 initially but increases this cap by 5% nominally each year (assuming a 2% rate of inflation, this implies that the price would only rise by 3% in real terms). As a point of reference, permits in the European greenhouse gas market have been trading during the summer of 2005 for over $25 USD/TCO2. A price cap gives emitters with targets some assurance about the cost of compliance but like a tax, does not ensure any specific level of reduction will occur. The EIA projects that allowance prices would reach the safety valve by 2016, causing emissions to exceed the cap after this time.
Balancing the cost of a new policy while ensuring that sufficient reductions occur to address the issue is crucial for the selection of the appropriate climate policy approach for the U.S.. The various climate policy proposals that have come forward to date have a wide range in cost, but also considerable differences in the resulting emissions reductions. The following table compares and contrasts the significant elements of current proposals that include targets - the Climate and Economy Insurance Act (proposed by Bingaman), the Climate Stewardship and Innovation Act (proposed by McCain and Lieberman), the Bush Climate Initiative, and the Kyoto Protocol. More detailed descriptions of these proposals as well as economic modeling cost projections are available on our website.
Climate Policy Proposal Comparison
Program Element/Result [i]
Bingaman Proposal [ii]
Climate Stewardship and Innovation Act
Climate Initiative Bush Administration[v]
Mandatory / Voluntary
Absolute based on 2.4% intensity improvement 2010-2018, after 2019 target increases stringency to 2.8%
Absolute emissions 2000 emissions level after 2010
7% below 1990 levels by 2012
Intensity target goal 18% reduction by 2012
Offsetting Emissions Allowed for Compliance
Not to exceed 3%
not to exceed 15% of allowance allocation
no limits specified through Kyoto, though implementing countries have discretion
Yes - $7
(12% above 2010 levels in 2020)
(12% above 2000 levels by 2012)
EIA Estimated Emissions Reductions 2025
EIA Estimated Permit Price 2025 ($/TCO2)[x]
EIA Estimated Impact on real GDP
($135 billion in 2020)
[i] This table compares EIA’s analysis of only the greenhouse gas-trading program contained in each policy options. It does not include other policy elements, like technology incentives, that may be contained in each proposal
[ii] As modeled by EIA in Impacts of Modeled Recommendations of the National Commission on Energy Policy, April 2005, for the Cap and Trade component of the NCEP proposal.
[iii] Because the bill does not change the significant provisions related to carbon limits, this review summarizes the analysis of the previous McCain-Lieberman proposal as voted on in the U.S. Senate on October 30, 2003, Amendment 2028: The Climate Stewardship Act of 2000. A summary of the bill is available at http://wwww.c2es.org/federal/analysis/congress/108/summary-lieberman-mccain-climate-stewardship-act-2003. Results are from EIA’s (2004), assessment of http://www.eia.doe.gov/oiaf/analysispaper/sacsa/pdf/s139amend_analysis.
[iv] Described and analyzed by EIA (1998), Impacts of the Kyoto Protocol on U.S. Energy Markets and Economic Activity, Report SR/OIAF/98-03, available at http://www.eia.doe.gov/oiaf/kyoto/pdf/sroiaf9803.pdf. Reduction and price estimates are taken from the “1990-3%” scenario and are based on an auction approach for GHG permits with revenue recycling through tax policy.
[v] As announced on February 14, 2004, available at www.whitehouse.gov/news/releases/2002/02/climatechange.html
[vi] The Bingaman (NCEP) proposal calculates the target level of reductions in terms of emissions intensity based on expected future GDP growth; this target, however, is translated into an absolute emission target but because it is based on a growing economy the target grows over time. Should GDP differ from the forecasted level, the target is not affected. Utilization of the safety valve, in addition, will result in emissions above the target level of emissions reductions.
[vii] Assuming that the U.S. could meet some of its target through the use of biological sinks, the numbers represented here are those associated with EIA’s modeling of 3% below 1990 emission levels.
[viii] Estimated emission reductions have been adjusted to reflect a consistent baseline using EIA’s AEO2005 baseline assumptions. Adjustments are based on predicted percentage change applied to AEO2005 baseline levels. For example, EIA analysis suggested that McCain Lieberman reductions in 2025 would be 7,997 (-22%) million metric tonnes carbon dioxide equivalent (MMTCO2e) below their AEO2003 base case level of emissions. Utilizing the lower AEO2005 emissions baseline and assuming that a reduction of 22% implies emissions are reduced by approximately 2,180 MMTCO2e.
[ix] To convert from MTCO2 to MTC divide by 3.67.
[x] All dollars converted to $2004 constant dollars utilizing CPI.
[xi]The safety-valve permit price rises from $6.26 per metric ton in 2010 to 8.73 in 2025 (in 2004 dollars).
[xiii] Table 29 Impacts of the Kyoto Protocol on U.S. Energy Markets and Economic Activity, Report SR/OIAF/98-03. Assuming revenue recycled through an income tax rebate.
H.R.6 E.N.R.: The Energy Policy Act of 2005, as enacted (also referred to as Public Law 109-190) is intended primarily to increase the supply of energy, largely by providing subsidies, but also by setting standards that would increase the use of certain types of energy and energy-saving technologies. The energy sources and technologies promoted by the law include some that are climate-friendly and some whose use will result in large emissions of carbon dioxide (CO2). Among the provisions of the law specifically mentioning greenhouse gases (GHGs) are those that promote the deployment of GHG-intensity-reducing technologies, both domestically and in developing countries; authorize programs to promote the development and deployment of technologies that would capture and sequester CO2 emissions; and commission a National Academy of Sciences study of fuel cell technologies. Among the provisions that do not specifically mention GHGs, but would nevertheless promote climate-friendly technologies and activities are provisions that:
- Establish a national biofuel standard mostly in the form of ethanol for gasoline. This will increase the biofuels from 4 billion gallons per year in 2006 to 7.5 billion gallons per year in 2012.
- Increase the requirement for the purchase of renewable power by the federal government to 3% in 2007 and 7.5% in 2013.
- Establish new efficiency standards for 15 new commercial and residential products.
- Extend, through the end of 2007, the renewable electricity production credit of 1.9¢ per kWh during the first ten years of operation.
- Create a new tax credit for residential investments in solar power and fuel cell systems of 30% at an estimated $31 million.
- Increase the credit for commercial solar installations from 10% to 30% for two years at an estimated $222 million.
- Provide for investment tax credits for improving residential energy efficiency at an estimated $556 million.
- Allow for deductions for commercial buildings that cut their energy consumption by 50% for an estimated $243 million.
- Provide credits to manufacturers of energy efficient appliances ($180 million) and for building contractors that meet certain efficiency standards ($28 million).
- Offer tax incentives for the purchase of alternative fuel vehicles beginning in 2006 for an estimated cost of $874 million.
- Provide a 30% credit to alternative refueling installations at both residential and commercial properties.
- Authorize a $200 million annual clean coal initiative to go primarily towards coal gasification projects.
- Create three new investment tax credits for clean coal facilities with an expenditure cap of $1.612 billion. (20% for industrial gasification projects, 20% for IGCC, 15% for other electricity producing projects)
- Authorize a $1.25 billion fund for the Next Generation Nuclear Plant at Idaho National Laboratory to produce both electricity and/or hydrogen.
- Provide a tax credit of 1.8¢ per kWh for new nuclear power facilities during their first eight years of operation.
- Provide financial support for to up to six new nuclear power reactors in case of unforeseen construction delays.
Action: 8/8/05: Signed into law as Public Law 109-190.
The Climate Stewardship and Innovation Act of 2005 (S.1151) introduced by Senators John McCain (R-AZ) and Joseph I. Lieberman (D-CT), would limit, from 2010 on, the total greenhouse gases (GHG) emitted by the U.S. electricity generation, transportation, industrial, and commercial sectors to the amount emitted in 2000. The affected sectors represented approximately 85% of the overall U.S. emissions in the year 2000. The bill also would provide for the trading of GHG emission allowances and reductions.
Target: The bill would cap the 2010 aggregate emissions level for the covered sectors at the 2000 level. The bill's emissions limits would not apply to the direct emissions of the agricultural and the residential sectors. Certain subsectors would be exempt if U.S. Environmental Protection Agency (EPA) determined that it was not feasible to measure their GHG emissions. The U.S. Department of Commerce would biennially re-evaluate the level of allowances to determine whether it was consistent with the objective of the United Nation’s Framework Convention on Climate Change of stabilizing GHG emissions at a level that will prevent dangerous anthropogenic interference with the climate system.
Allowances: An entity that was in a covered sector, or that produced or imported synthetic GHGs, would be subject to the requirements of this bill if it (a) owned at least one facility that annually emitted more than 10,000 metric tons of GHGs (measured in units of carbon dioxide equivalents – MTCO2E); (b) produced or imported petroleum products used for transportation that, when combusted, would emit more than 10,000 MTCO2E; or (c) produced or imported HFC, PFC and SF6 that, when used, would emit more than 10,000 MTCO2E. Each covered entity would be required to submit to the EPA one tradeable allowance for each MTCO2E directly emitted. Each petroleum refiner or importer would be required to submit an allowance for each unit of petroleum product sold that, when combusted, would emit one MTCO2E. Each producer or importer of HFC, PFC, and SF6 would be required to submit an allowance for each unit sold that, when used, would emit one MTCO2E. The EPA would determine the method of calculating the amount of GHG emissions associated with combustion of petroleum products and use of HFC, PFC, and SF6.
Allocation of Allowances: The Commerce Department would determine the amount of allowances to be given away or "grandfathered" to covered entities and the amount to be given to the Climate Change Credit Corporation established by the bill. The Commerce Department's determination would be subject to a number of allocation factors identified in the bill. The Corporation would use proceeds from the sale of allowances to reduce energy costs of consumers, assist disproportionately affected workers, help low income communities and individuals, disseminate technological solutions to climate change, and aid fish and wildlife in adapting and mitigating the impacts of climate change.
Flexibility Mechanisms: Covered entities would have flexibility in acquiring their allowances. In addition to the allowances grandfathered to them, covered entities could trade with other covered entities to acquire additional allowances, if necessary. Also, any entity would be allowed to satisfy up to 15% of its total allowance requirements by submitting (a) tradeable allowances from another nation's market in GHGs; (b) a net increase in sequestration registered with the National Greenhouse Gas Database established by the bill; (c) a GHG emission reduction by a non-covered entity registered with the Database; and (d) allowances borrowed against future reductions (as described below). A covered entity that agreed to emit no more than its 1990 levels by 2010 would be allowed meet up to 20% of its requirement through (a) international credits, (b) sequestration, and (c) registered reductions, but not (d) borrowed credits. An entity planning to make capital investments or deploy technologies within the next 5 years would be allowed to borrow against the expected GHG emission reductions to meet current year requirements. The loan would include a 10 percent interest rate.
National Greenhouse Gas Database: The EPA Administrator would be required to implement a comprehensive system for GHG reporting, inventorying, and reductions registrations. Covered entities would be required to report their GHG emissions and non-covered entities would be allowed to register GHG emission reductions and sequestration. The National Greenhouse Gas Database would be, to the maximum extent possible, complete, transparent, accurate, and designed to minimize costs incurred by entities in measuring and reporting emissions. The Commerce Department, within one year of enactment, would be required to establish, by rule, measurement and verification standards and standards to ensure a consistent and accurate record of GHG emissions, emissions reductions, sequestration, and atmospheric concentrations for use in the registry.
Penalty: Any covered entity not meeting its emissions limits would be fined for each ton of GHGs over the limit at the rate of three times the market value of a ton of GHG.
Research: The bill would establish a scholarship program at the National Science Foundation for students studying climate change. The bill would also require the Commerce Department to report on technology transfer and on the impact of the Kyoto Protocol on the U.S. industrial competitiveness and international scientific cooperation.
The bill also would make changes to the U.S. Global Change Research Program, establish an abrupt climate change research program at the Commerce Department, and establish a program at the National Institute of Standards and Technology in the areas of standards and measurement technologies.
Innovation: The bill would rename the Technology Administration, within the Commerce Department, the Innovation Administration. The responsibilities of the Commerce Department would be expanded to include the development of climate change innovation policies. The bill would establish a variety of programs and studies focused on fostering climate change innovation ranging from grade school education and university programs to technology transfer and patents.
The bill would establish additional research and demonstration programs for cleaner transportation, retooling of vehicle manufactures for advanced low-GHG-emitting vehicles, energy efficiency, and managing and monitoring agricultural and geological sequestration, among other concerns.
Technology: Revenues generated from the sale of allowances granted to the Climate Change Credit Corporation (see above) would be used to promote three different aspects of technology innovation and deployment: (1) first-of-a-kind engineering, (2) construction of the first generation of facilities that use substantially new technology, and (3) the marketing and procurement of low/no-GHG-emitting power or low-GHG-producing products. Projects for first-of-a-kind engineering and construction support would be selected according to the extent to which they reduce greenhouse gas emissions, are a substantially new technology, and attain cost effectiveness and economic competitiveness, among other criteria. The construction loan program for new facilities that meet the criteria would include at most three advanced coal power-generating facilities that combine Integrated Gasification Combined Cycle (IGCC) and carbon capture technologies with geological storage of greenhouse gases; three nuclear reactors (one of each new certified design); three large-scale biofuels facilities that maximize cellulosic biomass use; and three large-scale solar power facilities, and would be open to other unspecified technologies meeting the environmental and economic criteria.
Funding provided for first-of-a-kind engineering would be reimbursed to the Climate Change Credit Corporation by facilities that made subsequent use of the engineering and design supported by this program. Financial support for construction would be in the form of secured loans or loan guarantees that would be paid back to the Corporation. The reimbursed funds could be placed in a revolving fund to continue these programs as long as the Corporation deemed appropriate. Support for the marketing and procurement of low/no-emitting end products would be funded directly from the proceeds earned by auctioning 50% of the Corporation’s allowances. This program would be designed to evolve as innovation and technology moved forward.
For more information, see our Comparison of Climate Policy Proposals.
Statement of Eileen Claussen, President
Pew Center on Global Climate Change
November 15, 2005
The Pew Center enthusiastically welcomes the climate change resolution introduced by Senator Lugar and Senator Biden calling for the United States to participate in negotiations under the Framework Convention on Climate Change to establish mitigation commitments by all major greenhouse gas-emitting countries.
The timing of such a clear message from the leadership of the Senate Foreign Relations Committee is especially important coming on the eve of the Montreal climate negotiations, where governments will decide on launching a process to consider next steps in the international effort. Parties to the Kyoto Protocol are obligated to begin considering post-2012 commitments for those developed countries with commitments under the Protocol. It is critical that a parallel process be launched under the Framework Convention, which includes the United States, to consider a broader range of possibilities that can engage all major economies. We urge the Administration to support such a process as a step toward a more inclusive and effective international climate effort.
The current U.S. policy on climate change, both domestically and internationally, is wholly inadequate. The Lugar-Biden resolution is an important complement to the Bingaman resolution passed earlier this year by the Senate calling for mandatory market-based limits on U.S. greenhouse gas emissions. It is critical that as we move forward to establish a meaningful domestic effort, we also work with other nations to strengthen the international framework and ensure that all other major emitting countries also contribute their fair share to this global effort.
Exchange Between Senator Chuck Hagel (R-NE) and Eileen Claussen Regarding: U.S.-International Climate Change Approach: A Clean Technology Solution
Hearing of the Subcommittee on International Economic Policy, Export and Trade Promotion of the Senate Foreign Relations Committee, Panel II
November 14, 2005
Adopted from transcript by the Federal News Service
SEN. HAGEL: Secretary Claussen, welcome. We are glad you're here. When I say Secretary Claussen, those who are observing this hearing should note that you are not a secretary in the current government, but in a past government you were assistant secretary of State. And we're once again very grateful for your willingness to come before the Senate Foreign Relations Committee and offer some important thoughts. Your present capacity is president of the Pew Center on Global Climate Change. You have been a leader on this issue for many years. You know exactly what you're talking about and have very definite opinions and perspectives. We are always grateful to receive those.
And I'm pleased again that you'd take time to come before the committee. So please provide your testimony, and if you'd care to abbreviate it or read it all, either way. And then, we'll have an opportunity to exchange some thoughts.
President Claussen, thank you.
MS. CLAUSSEN: Thank you very much, Mr. Chairman. If I may, I would just like to summarize a few key points from my written statement.
The Hagel climate provisions of the energy bill go to a very important issue: how best to develop and deploy climate-friendly technologies urgently and on a global scale. Standards of living and energy demand are expected to rise dramatically in the developing world over the next few decades. China expects to build 544 gigawatts of new coal capacity over the next 25 years, and the city of Shanghai -- and these are just examples -- predicts a quadrupling of cars and trucks by 2020.
If we are going to address the climate change problem, the huge growth in energy demand in developing countries must be as climate- friendly as possible. We believe the Hagel provisions, if implemented properly, can help achieve that outcome. First, we would urge that assistance provided to developing countries be tailored to their specific needs. Rather than seeing climate-friendly technology deployment as an exercise in funding demonstration projects or increasing technology exports, our goal should be to integrate climate-friendly activities into national strategies for economic growth, poverty reduction and sustainable development.
This is the only way that it will make a lasting difference – that is, by becoming a part of the recipient country's own economic plans and programs.
Second, the Hagel provisions, like the many technology initiatives launched before it, can only be effective to the extent that they are adequately funded and managed. Time and again in the past, we have launched initiatives to much fanfare, but then provided inadequate funding and failed to manage them as a coherent whole. It would be a shame if the same happened to the Hagel program.
More important than any of this, though, is the need to establish a fair and effective international framework to engage all major emitting countries in the effort against climate change. We do not believe that technology initiatives in and of themselves will make a significant difference, and we do not believe that an international framework necessarily means putting countries on an energy diet -- a greenhouse gas emissions diet, yes; an energy diet, no.
But in order for countries to undertake and sustain ambitious efforts to limit or reduce greenhouse gas emissions, they need to be confident that other countries, and in particular their major trading partners, are also contributing their fair share to the overall effort. We need, therefore, some form of mutual assurance and some certainty. This is best accomplished in a common framework within which countries can take on commitments commensurate with their responsibilities and capabilities and appropriate to their national circumstances. Technology cooperation should be a part, but only one part, of such a global framework.
Through an initiative called the Climate Dialogue at Pocantico, the Pew Center has engaged with policymakers and stakeholders from around the world to look at options for creating such a framework. Dialogue members who participated in their personal capacities included policymakers from Australia, Brazil, Canada, China, Germany, Japan, Mexico, the United Kingdom and the U.S. Senate; senior executives from Alcoa, BP, DuPont, Eskom of South Africa, Exelon, Rio Tinto and Toyota; and experts from the Pew Center, India's Energy and Resources Institute, and the World Economic Forum. The final report of the dialogue will be released tomorrow, actually, in this room with Senators Lugar and Biden, and will be presented to government ministers at the upcoming climate change negotiations in Montreal.
We believe we've come up with some ideas for a path forward. Now what we need is for the United States to be constructively engaged in negotiating a framework, based perhaps on some of the ideas we will be suggesting. The climate negotiations taking place next month in Montreal would be an excellent place to start that engagement, and we know that nearly every country there would welcome U.S. leadership.
Unfortunately, we understand that the Administration is opposing efforts by other countries to initiate a process to begin considering next steps under the Framework Convention. We believe it is essential that such a process go forward.
So my final recommendation would be for the Senate to revisit and update the 1997 Byrd-Hagel resolution, advise the executive branch to work with other nations, both under the Framework Convention and in other international fora, with the aim of securing U.S. participation in agreements consistent with the following four objectives:
- First, to advance and protect the economic and national security interests of the United States.
- Second, to establish mitigation commitments by all countries that are major emitters of greenhouse gases.
- Third, to establish flexible international mechanisms to minimize the cost of efforts by participating countries.
- And fourth, to achieve a significant long-term reduction in global greenhouse gas emissions.
Doing that, if it leads to constructive U.S. engagement in the development of an international climate policy framework, is far and away the most important thing the Senate could do to create a positive context for implementation of the Hagel provisions.
Thank you very much.
SEN. HAGEL: President Claussen, thank you, as always, for your comments. And your entire statement will be included in the record.
I'm going to bounce around a little bit on some questions based on your testimony and some things that you did not specifically mention, but are in your statement, and then also based on some of the things that the previous witnesses mentioned.
First, Kyoto's cap and trade system – in your opinion, is it working for the European countries?
MS. CLAUSSEN: Let me put it this way. I think it is much harder than most of them thought it would be to actually implement the targets they negotiated. But I do think it has spurred a lot of activity, a lot of which is really positive in terms of reducing greenhouse gas emissions.
So, has it been helpful in educating people and getting them on the right path? I think the answer is yes. Is it going to fulfill the dreams of many of those that signed? Probably not.
SEN. HAGEL: Meaning that many will not meet their targets?
MS. CLAUSSEN: I think many will not meet their targets -- not all, but many.
SEN. HAGEL: Do you believe a cap and trade system is necessary to force new technologies onto the market?
MS. CLAUSSEN: No. I think a cap and trade system is one approach that can work quite effectively, but it is not the only approach.
It is certainly my vision that we need some different paths forward, of which that could be one. It could be chosen by some countries, but I think we need others as well.
SEN. HAGEL: You sat and carefully listened, as I noted, to the testimony of the first panel, and they referenced some of these areas, in particular Secretary Garman. How do you respond to what you heard? Do you think that's too far out? Is it too much on the periphery? Were you encouraged by what you heard? Give me your thoughts on that.
MS. CLAUSSEN: This is something that Jim Connaughton said at the end: I think we are at a point where many in the private sector are starting to think very seriously about long-term strategies that move us toward climate-friendly greenhouse gas technology. I think that's right. I think, though, that what he thinks spurred that development was maybe helpful, but not what actually did it.
If I look at what has changed in the world that would result in that kind of activity, it is much more likely to be implementation of Kyoto, warts and all; the efforts in California and along the West Coast of the United States; the efforts in the Northeast and the Mid-Atlantic, where they are developing and will soon announce a cap-and-trade system; lots of other activities at the state level – 21 states with renewable requirements. That activity is really what is spurring the change in the private sector, more investment in climate-friendly technologies.
But I do think it's happening. I do agree with that. I just see different reasons for it.
SEN. HAGEL: Would you generally say you agree with what you heard as the objectives of this administration from the three representatives of the administration?
MS. CLAUSSEN: On the assumption that what we're all after is a world where emissions are reduced pretty substantially in the next 50 or so years, I think the answer is yes. I just don't think you can get there only by a “push.” I think you need a “pull” to get the technologies into the market as well, and some kind of certainty and some kind of policy that's more than the current administration seems to be interested in.
SEN. HAGEL: If we are seeing significant increase in the potential and the technologies coming on line, then what additionally would mandates, caps or government regulation do?
MS. CLAUSSEN: What would they do? I think they would move the technologies much faster in the development stage, and much, much faster in the deployment and diffusion stage, which is what we need to do. We need to get moving faster than just a little bit of push.
Again, I think your provisions will be very helpful. They just need to be complemented with something that helps get those technologies into the marketplace.
SEN. HAGEL: You mentioned international dialogue and how you think maybe something can come out of that. Would you expand on that a little bit?
MS. CLAUSSEN: Well, I don't want to expand too much, because I don't want to talk about what we're going to announce tomorrow. But I'll give you a little flavor.
The fact that we had such a diverse group of people around the table and that they actually reached a consensus was pretty good. We agreed on a set of elements we think are really important. We talked about adaptation, and we talked about long-term targets.
But when we started to focus on mitigation, we thought that there were four elements that were really important. One of them was technology, one of them was targets-and-trading, one of them was sectoral approaches, and one of them was what we called policy-based approaches.
We looked at that range of elements because we thought some may be more appealing to some countries than others, and what we were really interested in, in the long term, was getting everybody on the right path.
So we are looking at something that provides maximum flexibility with real results. When you asked me about targets and trading, yes, it's important, and I think it's a path that many will want to go down. But there are other ones as well.
SEN. HAGEL: Let me ask you a question I asked Secretary Dobriansky about. What are some of the regions in the world where you think we have the most significant opportunity for cost- effective development of these technologies?
MS. CLAUSSEN: Let me put it a slightly different way. Twenty- five countries are responsible for 83 percent of global greenhouse gas emissions. These countries are also among the most populous, and they're also the countries with the largest GDPs.
But on the other hand, per capita emissions range by a factor of 14 and per capita incomes within that group by a factor of 18. So while they are the countries that absolutely have to be at the table -- and we feel very strongly that all of that group needs to be at the table -- we do need to have some kind of a flexible approach that allows each of those countries to do what is in their national interest, but that is also moving us on the right path on greenhouse gas emissions.
So I would look at it in terms of sort of major emitters, major economies, the people who have to be at the table.
SEN. HAGEL: You mentioned your idea about revisiting the Byrd- Hagel amendment, if I understood your point, to essentially update it.
MS. CLAUSSEN: Yes.
SEN. HAGEL: And you mentioned, I think, four specific areas. Would you care to expand on that point?
MS. CLAUSSEN: Our interest is in doing some of the things that you have in the Byrd-Hagel resolution, but instead of putting them in a negative context – what you shouldn't do – we think they should be put in a positive context of what the U.S. government should do. It is really important for the U.S. government to be engaged in this, and it's important for our private sector, too, to see the U.S. at the table shaping the solutions. Many in the private sector would feel that our views, our analysis, the way we look at these things is really important and should be a part of the process if we're going to have an outcome with which we can live.
So it's really important to urge engagement. I understand the context for the Byrd-Hagel resolution, but I think the context is different now, and it is really important for the U.S. to be at the table – at the table with ideas and at the table with solutions.
SEN. HAGEL: You do not think what you heard in the last hour and a half from three senior administration officials, talking about at the technologies, engagement, not only some of the legislation I sponsored that's now law, but even beyond that R11; you do not feel that's enough?
MS. CLAUSSEN: I don't, because I think most other countries, while they will participate in all of these initiatives that the last three witnesses talked about – and many of them have the potential to be effective, so I'm not trying to denigrate what contribution they can make – most countries are interested in a policy framework, not just a technology framework. As far as I understand it -- I may be wrong here, but I don't think so -- the U.S. has essentially said they don't want to participate in discussions about the future in a policy sense. And I think that's a mistake because the world needs both mutual assurance and certainty, you have to do that in some kind of a policy framework, and I think the U.S. should participate.
SEN. HAGEL: Thank you. Staying with your three colleagues here for a moment, let me give you an opportunity to respond to anything that you care to respond to that you heard while they were at the table.
MS. CLAUSSEN: Well, I talk to them all all the time, and we agree on a fair number of things. I just think the vision doesn't go where it needs to go if we're really going to address this. We have to start with a much greater sense of urgency, but not to do things that are bad for economic growth. I think that we can do things that are good for economic growth, that result much sooner in reductions in greenhouse gas emissions.
It's interesting when you look at the companies that have taken on targets, and there are probably 35 or 38 of them. Many of them have targets that are much more stringent than, say, the U.S.-Kyoto target. Thirteen of them have already met their targets, and not one of them on net has spent money doing it because they've found efficiency opportunities that would result in reductions in greenhouse gas emissions. I don't want not to take those while we can take them, while we're developing the technologies that would be good in a decade or two decades. We need some long-term technologies, but why wouldn't we take opportunities that exist right now to put us on the right path? And I just don't see the Administration moving in that direction. I seem them focused on the long-term. I don't want to see us miss opportunities in the short-term.
SEN. HAGEL: You were here for the question that Senator Alexander asked the panel about why we shall invest in the Australian project with the timeline as it is, versus the timeline here. Do you know anything about that?
MS. CLAUSSEN: I don't know any of the specifics about that, but I do know that the private sector is really interested in advancing the technology, and I see them marketing a lot of technologies abroad because they feel that the policy climate is more certain abroad, whether it's in a Kyoto country or a country that's more committed to long-term emission reductions.
If you talk to the CEO of General Electric, for example, who's just started to really focus in a major way on greenhouse gas reducing technology, he views a lot of his markets abroad rather than here, because he doesn't think we're at the same stage in our policy development and implementation. He's very much focused on abroad, and of course he wants to sell his technology, but it's interesting that he sees the markets there, not here. Well, I think he should be seeing them here as well.
SEN. HAGEL: But you don't know anything about why they would make that decision.
MS. CLAUSSEN: No, I don't. But I'm happy to try to find out and answer it for you.
SEN. HAGEL: Well, I'll tell Senator Alexander that you will take that assignment on. He'll be very pleased about that. As you know, he is very engaged in this overall issue and very knowledgeable.
MS. CLAUSSEN: Yes. Well, coal and transportation are the two things we really need to focus on, because we're going to burn a lot of coal, and China and India and Australia are going to burn a lot of coal, and we have to find a way to do it with capture and sequestration.
SEN. HAGEL: Yes, for a long time to come.
MS. CLAUSSEN: For a long time to come.
SEN. HAGEL: Well, we are going to vote shortly, so I will adjourn our committee hearing. But let me also say, as I did to the first panel, that we may have additional questions if that is acceptable to you.
MS. CLAUSSEN: Absolutely.
SEN. HAGEL: We'll get those to you in the next two days if we have some members that would require that. Your full testimony, of course, will be included in the record.
Again, I personally appreciate all of the time that we've had over the years to exchange views on this issue, and your continued leadership. Thank you very, very much.
MS. CLAUSSEN: Thank you very much.
SEN. HAGEL: The committee's adjourned.
POLITICS AND BUSINESS: CLIMATE CHANGE POLICY APPROACHES A TURNING POINT
SPEECH BY EILEEN CLAUSSEN
PRESIDENT, PEW CENTER ON GLOBAL CLIMATE CHANGE
DAVID BRADFORD SEMINARS ON SCIENCE, TECHNOLOGY, AND ENVIRONMENTAL POLICY
WOODROW WILSON SCHOOL OF PUBLIC AND INTERNATIONAL AFFAIRS
November 7, 2005
Thank you very much. It is a pleasure to be here at the Woodrow Wilson School and an honor to be delivering the David Bradford Seminar this week. I knew David when he was at the Council of Economic Advisors, and found him to be honest, thoughtful and engaged, so it is a double honor for me to be giving this seminar.
I am here today to talk about climate change policy. And I must admit that in the current political environment, with White House investigations and Supreme Court nominations dominating the agenda, it is a challenge to break through the noise and get people to pay attention to this issue. But never fear. In preparing my remarks, I had a couple of ideas for how to get action on climate change in the current political environment:
One is to start naming hurricanes after members of Congress who still say we don’t know enough about this issue to act. Or telling the White House that if they think they’re in hot water now, just wait. It’s only going to get hotter.
In all seriousness, the title of my remarks today is Politics and Business: Climate Change Policy Approaches a Turning Point. And I want to revise that, given the attention that’s gone to the recent bestselling book by the New Yorker writer Malcolm Gladwell. Rather than saying climate change policy is approaching a turning point, I want to say it is approaching a tipping point.
Gladwell defines a tipping point as “that one dramatic moment when everything can change all at once.” Granted, we are not there yet on climate policy, but we are certainly getting close. And I think there are two reasons for that: One is that the science of climate change has reached a point where it simply cannot be ignored or pushed aside. And the second reason is the growing number of financial and business leaders that are saying it is time to take this issue seriously – indeed, many are saying that it would be irresponsible not to take it seriously. As the private sector becomes increasingly vocal and active on this issue, particularly here in the United States, there is no doubt in my mind that our nation’s elected leaders will finally reach their tipping point – and step up and act.
Why are corporate leaders putting climate change on the agenda? The answer is simple: this is an issue that poses very real risks for business – and opportunities as well. And to ignore it is like ignoring those radar pictures we became so accustomed to this fall – those images of huge storms barreling toward our coastline. You can turn off the TV if you want, but that will not change the fact that we are all in the projected storm track for climate change. A business or an investor who is not thinking long and hard about how to respond is going to be like all those wrecked homes and boats we saw in the after-storm coverage. The boats all beaten and washed up on shore, the homes a shell of their former selves.
It is a tribute to the foresight of many in the private sector that they understand this and are beginning to plan for doing business in a world where climate change is a dominant concern. And today I want to talk about what investors and companies around the world are saying and doing about this issue.
Climate Change Science: An Open-and-Shut Case
But first I want to talk very briefly about the hurricanes we have seen this fall – and I will remind you the season’s not over yet. The U.S. Gulf Coast, as all of you know, was hit hard by hurricanes this year. Katrina alone killed more than 1,200 people, and we all know about the enormous destruction it left behind – an entire city decimated; 1 million displaced from their homes in coastal areas of Louisiana and Mississippi alone.
At the Pew Center, we have been quite busy answering questions about whether Katrina and these other storms were the product of global warming. And the honest answer is we don’t know for sure – no one does. But what we do know is that hurricanes draw their strength from the heat of the surface waters in the ocean. And as those waters get warmer, they are more likely to produce stronger storms. While Katrina was moving across the Gulf, the surface waters were unusually warm, about 2 degrees above normal for that time of year. Around the world, sea surface temperatures are more than 1 degree warmer on average than they were a century ago. So, whether or not Katrina and company were directly influenced by climate change, and there is certainly a case to be made that they were, they nevertheless are a sign of things to come.
Scientists have established beyond any reasonable doubt that the climate is changing, that these changes are the result of human activities, and that these changes are likely to become more pronounced – and more dangerous – in the decades to come. Instead of detailing all the various studies, I will refer you to the Pew Center website, www.c2es.org, for an overview of what we know.
An Economic Toll As Well
But it is not only the science of climate change that should cause us to stand up and take notice; it is also the economics of climate change. Katrina alone is projected to cost U.S. taxpayers as much as $200 billion. We saw disruption in our energy supplies, higher fuel prices, losses of farmland and crops, destruction of countless businesses large and small, effects on ports and shipping, and much more.
Consider the economic impact on the energy sector alone. Because of Katrina and Rita, 90 percent of crude oil production in the Gulf of Mexico was still “shut in” as of mid-October, meaning companies had made little progress in restoring output. Seventy-two percent of offshore natural gas production was still offline. And we’ve all heard what that is going to do to home heating bills this winter.
This is happening, I remind you, in an area that is responsible for 30 percent of U.S. oil production and about a quarter of our natural gas output. And that’s not even the whole story of how these storms damaged our energy infrastructure – because they also hit a region that boasts nearly half of the nation’s refining capacity. At its peak, Rita closed 16 refineries in Texas and Louisiana that together account for more than 5 percent of refining capacity. Some of these suffered significant damage and are likely to remain closed for months.
And the energy industry wasn’t alone in suffering these direct economic losses. Insurers took a big hit as well. Overall insured losses from Katrina and Rita are estimated at between fifty and seventy-five billion dollars. That’s not even counting the losses Wilma incurred in Florida, at this point estimated at between 8 and 12 Billion.
It is no wonder that the insurance industry has been out in front on the climate issue and making the case for action. Here is a statement from Munich Re Group, one of the world’s largest reinsurers. “The increasing weather extremes linked to impending climate change are already causing weather catastrophes of a new dimension.” End quote. According to another insurance giant, Allianz, climate change is increasing the potential for property damage at a rate of between 2 and 4 percent every year.
Allianz and Munich Re are not the only insurance companies that believe climate change is a risk. In the United States, AIG had this to say: “On the risk side, especially in the longer term of several decades and more, the potential impacts of climate change such as temperature rise, increased weather disturbance activity and sea level rise pose risks of widespread and possibly devastating damage to infrastructure in low-lying coastal areas, to forests and other ecosystems, to food production, to water resources and to human health. In turn, these potential consequences could result in far-reaching negative impacts on economies and societies worldwide.” End quote.
I believe the leadership of these insurance companies and their industry is emblematic of a broader shift in the private sector. You could say that insurers are the tip of the iceberg – and this one’s not melting.
The Investment Community Takes Note
Another segment of the private sector that is increasingly willing to raise this issue as a real concern is the investment community. Last May, there was a gathering at the United Nations titled the 2005 Investor Summit on Climate Risk. Participants included representatives of U.S. and international pension funds with collective assets of $5 trillion. CalPERS and CalSTERS, the pension funds for the state of California, were there, as were many other institutional investors from around the world. And the reason they were there was to talk about both the risks and the opportunities that climate change poses for investors.
Risks and opportunities. When you are entrusted with investing billions or trillions of dollars, you had better know a fair amount about both of these eventualities. What risks does climate change pose for investors? How can they know that the companies they invest in are positioned to manage those risks? And, in a similar sense, how can they gauge whether companies are prepared to take advantage of new opportunities presented by the growing movement toward regulation and carbon constraints?
The risks of climate change for the business sector can be broken out in three key ways. First, there is litigation risk – companies could face lawsuits. Some of these may be frivolous, while others may have merit. Either way, business needs to factor the risk of litigation into their planning.
The second category of risk facing the business sector is physical risk. Some sectors and businesses will face direct consequences from the physical impacts of climate change, including not just hurricanes, but also drought, sea level rise and flooding. I already talked about insurance companies. But what about agriculture, forestry, real estate and other industries that hinge on the physical environment?
In addition to litigation risk and physical risk, there is also regulatory risk – the risk of government taking action on this issue in a way that affects corporate profits. And this is the risk area that is likely to have the most immediate and substantial impact on businesses and investors.
I know what you are probably thinking. You are thinking that the chance of any meaningful regulation coming out of Washington on this issue any time in the near future is pretty dim. Of course it all depends on your definition of how near “near” is. And you are probably right. But the fact is that many companies, including U.S.-based multinationals, already are experiencing climate-related regulation in their operations in the EU, Canada and other countries working to implement the Kyoto Protocol. And, even here in the United States, most of the CEOs I talk to tell me they view regulation as an inevitability. Maybe not tomorrow or the next day, but sometime soon.
In fact, some of these CEO’s seem to prefer the certainty that comes with regulation to the no-man’s land they are operating in today. Consider what Jeff Immelt, CEO of GE had to say: “Long-term certainty would help us all make smart decisions,” he said. He continued: “We believe that the government can provide leadership by clarifying policy, by committing to market mechanisms [and] by promoting diverse energy sources.”
Jim Rogers, the CEO of Cinergy Corp., said it a little more succinctly: “One day, we will live in a carbon-constrained world.” End quote.
These are the CEO’s of major, major industry, and in the case of Cinergy, a major coal-burning energy company. And the air of inevitability in Jim Rogers’ statement should certainly be a wake-up call for investors that regulatory risk is real.
But of course, it is not just the risks associated with climate change that are attracting the attention of the investment community. It is also, as I said, the opportunities. Those companies that lead the way in low-emission vehicles, clean coal technologies, clean energy, and technologies for slashing emissions are going to be the winners in the 21st-century economy.
Right now, California’s massiveenvironmental risk management into the due diligence process of its private equity divisions.
What’s more, as part of the policy, JP Morgan Chase said it supports reductions in greenhouse gas emissions through market-based, national policies. This is a leading global financial services firm – $1.1 trillion in assets. And now it is leading in another way as well.
The actions of JP Morgan Chase and together with the United Nations Investor Summit on Climate Risk, are clear signs that investors are beginning to take this issue seriously.
And they are not the only signs. A couple of years ago, we saw the launch of The Ca state pension system is investing significant amounts in alternative energy businesses. GE plans to spend an additional $1.5 billion on research on clean technology. And every month, it seems there is another story of a major venture capital or private equity firm – I am talking about the big names like the Carlyle Group – investing in clean energy deals. So while there are many risks, there are also many opportunities out there because of climate change, and savvy investors know it.
Is everyone seeing this as an investment opportunity? Of course not. Just last month, Exxon Mobil announced nearly $10 billion in third-quarter profits but said it has no plans to put any of those earnings toward the development of alternative energy sources. “We’d rather re-invest in what we know,” said the company’s spokesman.
So it may not be for everyone. But you can’t deny that the investment community is beginning to factor climate change into their strategies and research. Last April, for example, JP Morgan Chase announced a set of environmental principles to guide the firm’s global investments and business efforts. Among the highlights: JP Morgan Chase will incorporate rbon Disclosure Project, or CDP. This is an initiative that enables a large number of institutional investors to collectively sign a request to companies for disclosure of their greenhouse gas emissions and climate strategies. When this project was launched in 2003, 35 investors totaling $4.5 trillion in assets signed on. Then in 2004, 95 investors accounting for $10 trillion became signatories. This year, the request to companies went out under the signatures of 155 institutional investors with combined assets of $21 trillion.
CDP then sends this request to the 500 largest companies in the world. Currently, more than 350 of these companies currently report their emissions and climate strategies through the CDP website.
What is happening here, I believe, is a reflection of the post-Enron, post-World Com environment. Investors are asking companies for an even higher level of transparency and information, not just in their accounting but in other risk areas as well. California’s massive pension funds and many others are actually pressuring the SEC to enact separate disclosure rules specific to greenhouse gas emissions.
A related factor in the movement toward greater disclosure is Sarbanes-Oxley. Because of this law, growing numbers of U.S. companies are weighing whether climate change may create a material impact on future earnings. And, as the number of companies disclosing emissions and exposure to climate-related risk increases, Sarbanes-Oxley actually strengthens the hand of activist shareholders who are pressing companies that have not yet addressed the issue.
A study by CERES last year found that oil and gas companies faced a record total of 31 shareholder resolutions on the climate issue in 2004. The filers of these resolutions included state and city pension funds, a foundation, socially responsible investment firms, and religious pension funds. And an important focus of the resolutions was risk disclosure – in other words, to what extent are these companies preparing for looming constraints on their carbon emissions?
So the bottom line, if you will excuse the pun, is that investors are flexing their muscle on this issue – these investors do not want to see corporate boards and CEOs with their heads buried in the sand. They want to see an acknowledgment of the problem, an understanding of its potential impact on business performance, and concrete strategies for staying ahead of the problem and even turning it into a platform for new products and increased profitability.
Business Steps Up to the Plate
And the good news is that those investors who are concerned about this issue are beginning to get what they want from the companies they invest in. At the Pew Center, we work with 41 leading companies to promote action on climate change. These are mostly Fortune 500 companies with a combined market capitalization of over $2 trillion and 3 million employees. They represent most industrial sectors and many of the largest emitters of greenhouse gases, including coal-burning utilities, mining companies, aluminum producers, automobile manufacturers, pulp and paper manufacturers, chemical companies, oil and gas businesses, and the cement industry. Council members include BP, Shell, General Electric, American Electric Power, DuPont, Toyota, Whirlpool, Intel, and more.
In joining the Council, these companies are united with the Pew Center in several beliefs, including this one – and I quote:
“We accept the views of most scientists that enough is known about the science and environmental impacts of climate change for us to take actions to address its consequences.”
To date, 30 of the 41 companies that work with the Pew Center have set targets to reduce their emissions, many of them more stringent than those in the Kyoto Protocol. And 13 of these companies already have met or exceeded at least one of their targets. And not a single one of these companies has found that it cost them money or market share. Of course, no one is under the impression that long-term efforts to address climate change will be cost-free. But the sooner we begin and the more we do to help companies manage these costs through market-based and flexible strategies, the more we will realize that we can reduce emissions without causing real and lasting damage to the economy or our competitiveness.
Let me talk briefly about what three of the companies we work with are doing – and I will start with one of the world’s largest companies, GE. GE just joined the Pew Center in July. It has committed to reduce its greenhouse gas emissions by 1 percent by 2012, relative to 2004 levels, and it will increase energy efficiency by 30 percent. Based on the company’s projected growth, GE’s emissions would have risen 40 percent by 2012 without further action.
But this is really not what is significant about GE. Much more important is that GE is committed to doubling its investment in environmental technologies to $1.5 billion by 2010. Think about that for a moment: $1.5 BILLION by 2010 – that is basically the equivalent of starting a new Fortune 250 company – focused exclusively on clean technology. These efforts are part of GE’s “Ecomagination” initiative to aggressively bring to market new technologies that will help customers meet pressing environmental challenges. In one instance here, you have a company addressing both the risks and the opportunities of climate change.
I also want to tell you about the work of Cinergy. I quoted Cinergy’s CEO, Jim Rogers, at the start of my remarks. This is a company that burns more than 30 million tons of coal each year, and it devoted its entire 2004 annual report to climate change – not to debunk the issue or attack the science, but to acknowledge that climate change is a problem, and that Cinergy should be a part of the solution. Cinergy’s goal is to reduce greenhouse gas emissions to an average of 5 percent below 2000 levels during the period from 2010-2012.
Cinergy recently announced plans to merge with Duke Energy, and Jim Rogers said that one rationale for the merger is the imminent arrival of carbon constraints. Duke Energy, he says, has a significant number of clean-burning natural gas plants, which will allow Cinergy to retire some of its coal-burning facilities more quickly.
The third company I want to talk briefly about today is Alcoa. Alcoa already has met its 2010 goal of reducing companywide emissions of greenhouse gases by 25 percent from 1990 levels. And in June, Alcoa issued a forecast that the aluminum industry could be greenhouse-gas neutral by 2017. Among the reasons: the increased use of aluminum in cars and trucks, which will reduce emissions from that sector. While this is an ambitious goal, there will likely be some lively debate about which industry – aluminum or autos – gets credit for this reduction.
GE, Cinergy, Alcoa and the other companies we work with at the Pew Center aren’t just looking internally at what can be done to address the climate problem. They are also looking beyond their own operations at public policies. For many years, there was a real hesitancy among business leaders to speak out on this issue, but that is changing. Why are the companies and the CEOs I have mentioned stepping out from behind the shadows now? Because they see that regulation is inevitable, and they want to make sure it is regulation they can live with. They see the states stepping into the void and adopting state and regional policies that seek to curb emissions. They see other countries putting together their own policies, some of them quite ambitious. They see that these actions are having a real effect – or soon will – on significant portions of their operations around the world. They get the picture. It’s inevitable to them that regulation is coming down the pike. In many cases, it is already here.
In addition to their interest in staying a step ahead of the regulations, these companies also want a higher level of certainty – they’re frankly tired of not knowing what’s going to be expected of them in the years ahead. It gets back to the issue of regulatory risk – they need to know what kind of risk they face.
Here is Wayne H. Brunetti, CEO and Chairman of Xcel Energy, as quoted in Business Week: “Give us a date, tell us how much we need to cut, give us the flexibility to meet the goals, and we’ll get it done.”
Four of the companies we work with at the Pew Center testified in front of the House Science Committee this year. The companies included Cinergy, DuPont, Baxter and United Technologies. Another company on the Council, Whirlpool, submitted written testimony. Their message: they are already living with greenhouse gas regulations in Europe and they are thriving in those places. These companies also told the committee that a lot of what they’re doing to cut emissions has bottom-line benefits. Efficiency pays. It’s smart business.
These companies are demonstrating a real boldness in entering the policy debate on this issue. They see it as absolutely essential to couple the work they are doing to reduce their emissions with a more active policy stance. The policy decisions that are made on this issue will have important implications for their future profits and performance, and these companies feel they have a responsibility to their shareholders to be involved.
Policies for Moving Forward
These companies also see a pressing need for U.S. leadership in the international arena. Remember: many of these firms are multinationals – they have operations around the world. So, in the same way that they want certainty here at home, they also want to know that policies around the world will be as predictable and as integrated and as consistent as possible.
At the G-8 meeting this past June in Gleneagles, Scotland, 20 business leaders were part of a special Climate Change Roundtable that identified a set of key principles for climate change policy. Included in those principles are the following:
- “Policy frameworks that use market-based mechanisms to set clear, transparent and consistent price signals over the long term offer the best hope for unleashing needed innovation and competition.”
- “Solutions must be global – participation of all major emitters is essential.”
The fact that these corporate leaders, including some from the United States, were able to agree to these and other principles shows how important they perceive this issue is for the future of their businesses. Business is in many respects leading the way, and it is time for policy makers, particularly those in Washington, DC, to get the message and act on their behalf.
What should policymakers do? Over the past year, the Pew Center brought together a group of policymakers and stakeholders from around the world to consider that question. We just recently held our last meeting and we’ll be releasing our final report, International Climate Efforts – Beyond 2012 next week. So without giving away too much, let me share with you a couple of key points.
First, while ultimately we need a fully global approach, what’s absolutely imperative at this stage is engaging the major economies. That includes the United States and the major developing countries. Twenty-five countries account for 83 percent of global emissions. They also account for 71 percent of global population and 86 percent global GDP. This is the core group that needs to act. It’s important, at the same time, that we recognize the tremendous diversity within this group. Their per capita emissions range by a factor of 14; their per capita income by a factor of 18.
So while all the major economies must commit to stronger action, we need to recognize and respect those differences, and allow different countries to take different kinds of approaches best suited to their needs and circumstances.
This leads to a second point: We need a more flexible framework, one that can accommodate different approaches by allowing for different kinds of commitments. Emission targets may work for some countries; but not for others. Maybe the best approach is some type of policy commitment that doesn’t entail a binding emissions limit. In the dialogue, we looked at a whole range of options, and the final report identifies those that seem most promising, and looks at ways they can be combined into a comprehensive framework. But for those details, I’ll have to ask you to stay tuned. The report will be out in just a few days, and we’ll have lots more to say about these ideas in the months ahead.
For now, suffice it to say that a tipping point is almost upon us. The combination of growing scientific certainty, growing concern – and growing action – among businesses and investors has brought us to a place where the kinds of international policies I am talking about are no longer a pipe dream. Even the U.S. Senate has shown support for real action, with a majority of senators supporting a resolution this summer that called for a mandatory national program to slow and eventually reverse U.S. emissions. The resolution was nonbinding, but it is yet another sign of change.
Thanks in large part to the leadership of the financial and business communities; climate change policy is approaching “that one dramatic moment when everything can change all at once.” My only fear is that this tipping point in policy arrives too late to keep another tipping point at bay – the point at which catastrophic climate change becomes inevitable, a force too strong to stop.
That is one case when tipping will not be appreciated. Thank you very much.