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
For Immediate Release:
February 26, 2003
Contact: Katie Mandes
NEW REPORT: Climate Change Poses Challenges for U.S. Forestry
Washington, DC - One-third of U.S. lands are covered by forests, making forest ecosystems one of the nation's most prominent natural resources. In addition to their contribution to biodiversity, water quality, and recreation, forests also play a significant role in the U.S. economy, and forestry or forestry-related enterprises are the dominant industries in many U.S. communities. According to a new study by the Pew Center on Global Climate Change, the U.S. forestry sector will face a number of challenges in the next century due to the impacts of climate change.
The Pew Center report, Forests and Global Climate Change: Potential Impacts on U.S. Forest Resources, explores the challenges climate change will pose to forest ecosystems and related economic enterprises over the next century.
"Changes in forest productivity, the migration of tree species, and potential increases in wildfires and disease could cause substantial changes to U.S. forests," said Eileen Claussen, President of the Pew Center on Global Climate Change. "Moreover, these ecological impacts will have direct implications for our economy. The timber industry in the southern United States is particularly vulnerable."
The key conclusions of the report include:
Forest location, composition, and productivity will be altered by changes in temperature and precipitation. Climate change is virtually certain to drive the migration of tree species, resulting in changes in the geographic distribution of forest types and new combinations of species within forests. In addition, climate change is likely to alter forest productivity depending upon location, tree species, water availability, and the effects of carbon dioxide (CO2) fertilization.
Changes in forest disturbance regimes, such as fire or disease, could further affect the future of U.S. forests and the market for forest products. Increased temperatures could increase fire risk in areas that experience increased aridity, and climate change could promote the proliferation of diseases and pests that attack tree species.
U.S. economic impacts will vary regionally. Overall, economic studies indicate that the net impacts of climate change on the forestry sector will be small, ranging from slightly negative to positive impacts; however, gains and losses will not be distributed evenly throughout the United States. The Southeast, which is currently a dominant region for forestry, is likely to experience net losses, as tree species migrate northward and tree productivity declines. Meanwhile, the North is likely to benefit from tree migration and longer growing seasons.
As a managed resource, the implications of climate change for the forestry sector are largely dependent upon the actions taken to adapt to climate change. The United States currently has vast forest resources, and more timber grows within the United States than is consumed each year. If professional foresters take proactive measures, the sector may minimize the negative economic consequences of climate change.
A number of challenges currently limit our understanding of the effects of climate change on forestry. Existing projections for future changes in temperature and precipitation span a broad range making it difficult to predict the future climate that forests will experience, particularly at the regional level. Thus, current projections could fail to accurately predict the actual long-term impacts of climate change for the forestry sector.
Part of "Impacts" Series
Forests and Global Climate Change: Potential Impacts on U.S. Forest Resources, was prepared for the Pew Center by Herman Shugart (University of Virginia), Roger Sedjo (Resources for the Future), and Brent Sohngen (The Ohio State University). It is the ninth in a series of Pew Center reports examining the potential impacts of climate change on the U.S. environment. Other Pew Center reports focus on domestic and international policy issues, climate change solutions, and the economics of climate change.
Multi-Gas Contributors to Global Climate Change: Climate Impacts and Mitigation Costs of Non-CO2 Gases
Prepared for the Pew Center on Global Climate Change
John M. Reilly, Henry D. Jacoby, and Ronald G. Prinn
Massachusetts Institute of Technology
Eileen Claussen, President, Pew Center on Global Climate Change
In the effort to understand and address global climate change, most analysis has focused on rapidly rising emissions of carbon dioxide (CO2) and options for reducing them. Indeed, carbon dioxide, a byproduct of fossil fuel combustion, is the principal greenhouse gas contributing to global warming. However, other greenhouse gases including methane, nitrous oxide, and a number of industrial-process gases also are important contributors to climate change. From both an environmental and an economic standpoint, effective climate strategies should address both carbon dioxide and these other greenhouse gases.
Non-CO2 gases account for 17 percent of total greenhouse gas emissions in the United States and a much larger percentage in developing countries such as India and Brazil. In addition, a host of local and regional air pollutant emissions interact in the atmosphere’s complex chemistry to produce either additional warming or cooling effects. Understanding how these gases interact—and how to craft policies that address a range of environmental impacts—is vital to addressing both local and global environmental concerns.
In this report, authors John Reilly, Henry Jacoby, and Ronald Prinn of M.I.T. unravel some of the complexities associated with analyzing the impacts of these multiple gases and opportunities for reducing them. Emissions originate from a wide range of sectors and practices. Accurate calculation of emissions and emission reductions is easier for some sources than for others. For policy purposes, various greenhouse gases are compared on the basis of “global warming potentials,” which are based on the atmospheric lifetime of each gas and its ability to trap heat. However, these do not yet accurately capture the climatic effects of all the substances contributing to climate change and so must be used with some caution. While scientists have recognized the various roles of non-CO2 gases and other substances that contribute to climate change for some time, only recently have the various pieces of the puzzle been fit together to provide a more complete picture of the critical role these gases can play in a cost-effective strategy to address climate change.
Using M.I.T.’s general equilibrium model, the authors demonstrate that including all greenhouse gases in a moderate emissions reduction strategy not only increases the overall amount of emissions reductions, but also reduces the overall cost of mitigation: a win-win strategy. In fact, due to the high potency of the non-CO2 gases and the current lack of economic incentives, this analysis concludes that control of these gases is especially important and cost-effective in the near term. The policy implications are clear: any attempt to curb warming should include efforts to reduce both CO2 and non-CO2 greenhouse gases.
The Center and the authors are grateful to James Hansen, Keith Paustian, Ev Ehrlich, Francisco Delachesnaye, and Dina Kruger for their helpful comments on previous drafts of this report. The authors also acknowledge support, through the M.I.T. Joint Program on the Science and Policy of Global Climate Change, and the research assistance provided by Marcus Sarofim.
Most discussions of the climate change issue have focused almost entirely on the human contribution to increasing atmospheric concentrations of carbon dioxide (CO2) and on strategies to limit its emissions from fossil fuel use. Among the various long-lived greenhouse gases (GHGs) emitted by human activities, CO2 is so far the largest contributor to climate change, and, if anything, its relative role is expected to increase in the future. An emphasis on CO2 is therefore justified, but the near-exclusive attention to this single contributor to global warming has had the unintended consequence of directing attention away from the other GHGs, where some of the most cost-effective abatement options exist. The non-CO2 GHGs emitted directly by human activities include methane (CH4) and nitrous oxide (N2O), and a group of industrial gases including perfluorocarbons (PFCs), hydrofluorocarbons (HFCs), and sulfur hexafluoride (SF6). When taken together with the already banned chlorofluorocarbons (CFCs), their climate significance over the past century is roughly equivalent to that of CO2. Looking to likely emissions over the next half-century, it is also the case that feasible reductions in emissions of methane and other non-CO2 gases can make a contribution to slowing global warming that is as large as or even larger than similar reductions in CO2 emissions. To effectively limit climate change, and to do so in a cost-effective manner, thus requires that climate policies deal with CO2 and non-CO2 gases alike.
There are several reasons why attention has been focused so heavily on CO2 even though the full list of GHGs has been targeted for control under international climate agreements. Emissions of CO2 from fossil sources can be readily estimated from market data on fuel use, whereas the other gases present measurement difficulties. Also, the analysis of abatement options for fossil emissions benefits from decades of research on energy markets, energy efficiency, and alternative energy supply technologies—work that was spurred by concerns about the security of supply and prices of fossil fuels. The analytical capability developed to study energy markets was then readily applied to the climate issue. Now that the capability to measure and assess the non-CO2 GHGs has improved, it is clear that their control is also an essential part of a cost-effective climate policy.
In addition to the main non-CO2 GHGs identified above, there are other emissions from human activities that are not included in existing climate policy agreements but that nonetheless retard or enhance the greenhouse effect. Tropospheric ozone (O3) is a natural greenhouse constituent of the atmosphere. Emissions of carbon monoxide (CO), nitrogen oxides (NOX), aerosols, non-methane volatile organic compounds (NMVOCs), and ammonia (NH3) all affect the chemistry of tropospheric ozone and methane. Black carbon or soot, though not well-understood, is thought to contribute to warming as well. Other human emissions have the opposite of a greenhouse effect. Sulfur dioxide (SO2) and nitrogen oxides (NOx), mainly from fossil fuel combustion, are converted by chemical processes in the atmosphere into cooling aerosols. These various gases and aerosols are related to one another by their common generation in industry and agriculture as well as by their interaction in the chemistry of urban areas, the lower atmosphere, and the stratosphere. Thus, policies that reduce CO2 also may affect emissions of SO2, NOx, and CO, as well as the non-CO2 greenhouse gases.
Designing a cost-effective approach for control of these multiple substances requires some way of accounting for the independent effects of each on climate. The current method for doing so is a set of indices or weights known as global warming potentials (GWPs). These have been developed for the main GHGs, but not for SO2 and other local and regional air pollutants. By design, the GWP for CO2 is 1.0 and the values for other GHGs are expressed in relation to it. These indices attempt to capture the main differences among the gases in terms of their instantaneous ability to trap heat and their varying lifetimes in the atmosphere. By this measure, for example, methane is ton for ton more than 20 times as potent as CO2, while N2O is about 300 times as potent, and the industrial gases are thousands of times as potent when taking into account the atmospheric effects of these gases over the next 100 years.
The relative value of controlling non-CO2 gases, as expressed by these GWPs, is one key reason that inclusion of the non-CO2 gases in policies to address climate change can be so effective in lowering implementation costs, particularly in the early years. Given the high carbon-equivalent values of the non-CO2 gases, even a small carbon-equivalent price on these gases would create a huge incentive to reduce emissions. Another reason is that, historically, economic instruments (i.e., prices, taxes, and fees) have not been used to discourage or reduce emissions of non-CO2 gases, whereas price signals via energy costs exist to curb CO2 emissions from fossil fuels.
If, for example, the total GHG emissions reduction required to meet a target were on the order of 10 or 15 percent, as would be the case if total GHG emissions in the United States were held at year 2000 levels through 2010, nearly all of the cost-effective reductions would come from the non-CO2 greenhouse gases. Compared to a particular reduction achieved by CO2 cuts alone, inclusion of the non-CO2 abatement options available could reduce the carbon-equivalent price of such a policy by two-thirds. This large contribution of the non-CO2 gases, and their potential effect on lowering the cost of a climate policy, is particularly surprising because it is disproportionate to their roughly 20 percent contribution to total U.S. GHG emissions. In developing countries like India and Brazil, non-CO2 gases currently account for well over one-half of GHG emissions. Any cost-effective effort to engage developing countries in climate mitigation will, therefore, need to give even greater attention to the non-CO2 gases.
Of course, these gases are only part of an effective response to the climate threat. Even if they were largely controlled, we would still be left with substantial CO2 emissions from energy use and land-use change. Over the longer term, and as larger cuts in GHGs are required, the control of CO2 will increase in its importance as an essential component of climate policy.
There remain a number of uncertainties in calculating the climatic effects of non-CO2 gases, and one is the accuracy of global warming potentials. Analysis has shown that the GWPs currently in use significantly underestimate the role of methane, and any correction of this bias would amplify the importance of the non-CO2 greenhouse gases. This error is due in part to omitted interactions, such as the role of methane in tropospheric ozone formation. The GWPs also fail to adequately portray the timing of the climate effects of abatement efforts. Because of its relatively short lifetime in the atmosphere, abatement efforts directed at methane have benefits in slowing climate change that take effect over the next few decades, whereas the benefits of CO2 abatement are spread out over a century or more. To the extent one is concerned about slowing climate change over the next 50 years, therefore, the control of methane and HFCs—the gases that last a decade or so—has an importance that is obscured when 100-year GWPs are used to compare the contributions of the various gases. Economic formulations of the GWP indices have been proposed that would address these concerns, but calculations using these economic-based formulae are bedeviled by a variety of deeper uncertainties, such as how to monetize the damages associated with climate change.
A still more difficult issue is whether and how to compare efforts to control other substances that affect the radiative balance of the atmosphere, such as tropospheric ozone precursors, black carbon, and cooling aerosols. The main issue with these substances is that, even though their climatic effects are important, a more immediate concern is that they cause local and regional air pollution that affects human health, crop productivity, and ecosystems. Moreover, their climatic effects are mainly regional, or even local, and this feature creates difficulties for the use of a single index to represent their effects across the globe. In the end, it is essential to consider these substances as part of climate policy, but more research and analysis is needed to quantitatively establish their climate influence and to design policies that take account of their local and regional pollution effects.
Putting aside the local and regional air pollutants, the quantitative importance of the other non-CO2 greenhouse gases has now been relatively well-established. One of the major remaining concerns in including them in a control regime is whether their emissions can be measured and monitored accurately so that, whatever set of policies are in place, compliance can be assured. In fact, the ability to monitor and measure has less to do with the type of greenhouse gas than with the nature of its source. It is far easier to measure and monitor emissions from large point sources, such as electric power plants, than from widely dispersed non-point sources, such as automobile and truck tailpipes or farmers’ fields. Methane released from large landfills can be easily measured, and is in the United States. But, it is impractical to directly measure the methane emitted from each head of livestock, or the N2O from every farmer’s field. The difficulty of monitoring and measuring emissions implies that a different regulatory approach may be desirable for different sources, at least initially.
Scientists have long recognized the various roles of non-CO2 greenhouse gases and other substances that contribute to climate change. It is only in the past few years, however, that the various pieces of this complex puzzle have been fit together to provide a more complete picture of just how critical the control of these gases can be in a cost-effective strategy to slow climate change. Control of non-CO2 greenhouse gases is a critical component of a cost-effective climate policy, and particularly in the near term these reductions can complement early efforts to control carbon dioxide.
Congressional Testimony of Eileen Claussen: Regarding the Draft American Investments for Reduction of Emissions Act of 2003
STATEMENT BY EILEEN CLAUSSEN, PRESIDENT
PEW CENTER ON GLOBAL CLIMATE CHANGE
Before the Senate Committee on
Commerce, Science and Transportation
January 8, 2003
Mr. Chairman and members of the Committee, thank you for this opportunity to testify regarding the draft American Investments for Reduction of Emissions Act of 2003. My name is Eileen Claussen, and I am the President of the Pew Center on Global Climate Change.
The Pew Center on Global Climate Change is a non-profit, non-partisan, and independent organization dedicated to providing credible information, straight answers, and innovative solutions in the effort to address global climate change. Since 1998 the Pew Center has published 43 peer-reviewed reports - aimed primarily at policy-makers and opinion-leaders - on the science and environmental impacts of climate change, the economic costs and benefits of climate change policies, domestic and international policy alternatives for addressing climate change, and technology options for reducing greenhouse gas emissions. Thirty-eight major companies in the Pew Center's Business Environmental Leadership Council (BELC), most included in the Fortune 500, work with the Center to educate the public on the risks, challenges, and solutions to climate change. The BELC companies do not contribute financially to the Center.
The Pew Center accepts the view of the great majority of scientists that enough is known about the science and environmental impacts of climate change for us to take action now. As noted in 2001 by the National Research Council of the National Academy of Sciences, "greenhouse gases are accumulating in Earth's atmosphere as a result of human activities, causing surface air temperature and subsurface ocean temperature to rise." 1 The potential consequences of this warming include sea-level rise and increases in the severity or frequency (or both) of extreme weather events, including heat waves, floods, and droughts, with potentially major impacts to U.S. water resources, coastal development, infrastructure, agriculture, and ecological systems.2 We consider the risk of these and other consequences sufficient to justify action to reduce greenhouse gas emissions significantly. Moreover, much of this action must occur in the United States, which produces 24% of global emissions, making it the world's largest greenhouse gas emitter. U.S. greenhouse gas emissions are expected to grow by 12% by 2012 under current Administration policy.3
The Pew Center also believes that the cost to the United States of meeting a given emissions target can vary substantially depending on the policy approach taken. In general, the most cost-effective approaches allow emitters flexibility in deciding how to meet a target; provide early direction so targets can be anticipated and factored into major capital and investment decisions; and employ market-based mechanisms, such as emissions trading, to achieve reductions where they cost the least.
The Pew Center welcomes this opportunity to share its views on the draft American Investments for Reduction of Emissions Act of 2003, which, when introduced, will be the most significant piece of climate change legislation ever put before Congress. To provide some context for the Committee's review of this draft legislation, I would like to begin with an overview of climate change efforts already being undertaken by other countries, as well as by states and industry here in the United States.
Because climate change is a global challenge that requires a global solution, I think it is important that a discussion of U.S. policy start with a full understanding of how the issue is being addressed elsewhere in the world. I would like to emphasize two points: virtually all industrialized nations have now committed themselves to reducing their greenhouse gas emissions; and most view emissions trading as an essential component of their climate change strategies.
More than ten years ago, at the Earth Summit in Rio de Janeiro, the United States joined other nations in approving the United Nations Framework Convention on Climate Change. Recognizing that additional efforts were necessary to effectively address climate change, the parties subsequently negotiated the Kyoto Protocol, which sets binding emission targets for industrialized countries. While far from perfect, the Protocol represents a significant diplomatic achievement. Largely at the insistence of the United States, the Protocol includes several innovative mechanisms to ensure that emissions are reduced as cost-effectively as possible, chief among them an international system of emissions trading.
The present U.S. Administration has made clear it will not submit the Kyoto Protocol to the Senate for ratification. Nevertheless, other countries, including the United States' closest allies, continue to support the Protocol and have moved forward with ratification. Last month, Canada became the 100th country to ratify the agreement. Apart from the United States, Australia is the only country to state explicitly that it is not prepared to ratify the Kyoto Protocol. However, the Australian government remains committed to meeting its Kyoto emissions target and has not ruled out ratifying the treaty at a future date. The Protocol still must be ratified by Russia in order for it to enter into force. Russia has announced its intention to ratify the treaty, and is expected to do so later this year.
On a parallel track, governments are deeply engaged in developing and implementing domestic policies to meet their Kyoto targets. Japan, for instance, has set national targets for carbon dioxide and for other greenhouse gases, and is developing more than 100 measures to improve energy efficiency, promote renewable energy, enhance carbon sequestration and advance other efforts to reduce emissions. In addition, the Canadian government recently adopted a comprehensive plan that calls for binding emission reduction agreements with industry, increased government support for technology research, and targeted measures such as energy efficiency standards.
Some countries are contemplating emission reductions well beyond those required under the Kyoto Protocol. The German government has said it is prepared to reduce emissions 40 percent below 1990 levels by 2020, provided other countries agree to steeper cuts as well. In the United Kingdom, the Royal Commission on Environmental Pollution is recommending a 60 percent reduction in U.K. emissions by 2050, and Prime Minister Blair has called for a similar reduction worldwide.
Each of these countries is pursuing a strategy tailored to its national circumstances, such as its energy mix, regulatory culture, and economic profile. And each, it is worth noting, is looking to emissions trading to help meet its target. Some may rely primarily on the international trading system established under the Kyoto Protocol, while others are developing domestic systems of their own. The European community, which at first viewed U.S. arguments for emissions trading with deep skepticism, is now leading the way in establishing greenhouse gas markets. In Denmark, a cap-and-trade system regulating carbon emissions from the power sector was enacted in 1999. Last year, the U.K. became the first country to introduce a broad-based greenhouse gas trading system. While voluntary in nature, the U.K. system provides strong incentives for companies to take on binding emission targets. These and other systems are still in their early stages, but the volume of trading is rapidly increasing. A recent World Bank study projected that the number of greenhouse gas credits traded worldwide would increase four-fold from 2001 to 2002. In the first trade under the Kyoto system, a Japanese firm last month purchased 200,000 credits from Slovakia, which intends to invest the proceeds in domestic emission reduction projects.
One of the most significant steps in the development of the greenhouse gas market came last month when the European Council reached agreement on the establishment of a European trading system for carbon dioxide. This system, which is subject to final approval by the European Parliament, will encompass all the member states of the European Union (including the ten approved for new membership in 2004), which have a combined economy larger than that of the United States. In its initial phase, the system will cover six sectors - including electric utilities, steel producers, and oil refiners - which together account for nearly half of Europe's carbon dioxide emissions. Individual member states will set targets and allocate allowances among their emitters, and facilities that fail to meet their targets will face significant penalties. The system is designed to be compatible with the Kyoto system and with other national systems, but trading will be permitted only with countries that have ratified the Kyoto Protocol. Member states overcame strong political differences to reach agreement on this system, and its operation will provide valuable lessons for the future of greenhouse gas emissions trading.
I would like to offer one final note on what is happening internationally. As you know, one of the chief criticisms of the Kyoto Protocol is that it does not establish greenhouse gas emission limits for developing countries. Whether or not one believes the Kyoto Protocol is fair in this respect - and I happen to believe it is - I think the more important question is whether or not developing countries are in fact taking steps to limit their emissions. The Pew Center recently undertook an analysis of climate change mitigation in six developing countries, including China, India, Mexico, and Brazil.4 We identified many measures underway in those countries that, while not necessarily motivated by climate concerns, are significantly reducing the growth of their greenhouse gas emissions. We calculated that these measures - which include market and energy reforms, fuel switching, and pollution controls - have reduced the growth of these countries' combined greenhouse gas emissions by nearly 300 million tons a year. These findings suggest significant opportunities to further reduce emissions growth in developing countries while helping them to achieve stronger economic growth and other development priorities.
Clearly, significant greenhouse gas reduction activities are occurring abroad, but U.S. states are undertaking important activities as well. In fact, the recent state leadership in addressing climate change has been striking. At least two-thirds of the states have programs that, while not necessarily directed at climate change, are achieving real greenhouse gas emission reductions. Measures that have proven controversial at the federal level, such as renewable portfolio standards and mandatory reporting of greenhouse gas emissions, have been implemented at the state level, often with bipartisan support and little controversy.
The Pew Center recently published a report on state initiatives to reduce greenhouse gas emissions.5 This report found that Texas and eleven other states have enacted legislation that requires utilities to provide a certain amount of renewable power as part of their total offering of electricity. Texas has also established a Renewable Energy Credits (RECs) Trading Program that gives utilities considerable flexibility in meeting the requirement. Under this market-based program, every certified renewable energy project in Texas produces one credit for every kilowatt-hour of electricity that it generates. These credits can be purchased by electricity providers to meet any shortfall in their own generation of renewable energy. A carbon cap-and-trade program would work on the same principle.
Important work is being done in other states, as well. New Hampshire and Massachusetts have recently started directly regulating carbon dioxide emissions from power plants. Nebraska, Illinois, North Dakota, Oklahoma, and Wyoming are linking agricultural policy with greenhouse gas reduction, and are taking steps to allow agricultural interests to sell stored, or "sequestered," carbon as a commodity. California has enacted a law to require reduction of greenhouse gases emitted from cars, sport utility vehicles (SUVs), and light-duty trucks. And the New England governors have joined with the premiers of the five eastern provinces of Canada in committing to reduce regional greenhouse gas emissions to 1990 levels by 2010 and to ten percent below 1990 levels by 2020.
There are similar examples of leadership in industry. A growing number of companies are voluntarily committing themselves to greenhouse gas reduction targets. At last count, the Pew Center had identified more than 40, most either based in the United States or with significant U.S. operations. BP, for example, has reduced greenhouse gas emissions to 10 percent below 1990 levels - eight years ahead of target - and now has pledged to keep them there at least until 2010. Alcoa is working to reduce its greenhouse gas emissions by 25 percent below 1990 levels by 2010. DuPont is aiming for a 65 percent reduction below 1990 levels, also by 2010.
The Pew Center recently studied several companies that have taken on targets and found they are motivated by several things.6 They believe the science of climate change is compelling. They know in time the public will demand strong climate protections, and they can get ahead of the curve by reducing their emissions now. They want to encourage government policies that will work well for business. They also cite one other important motivation: To improve their competitive position in the marketplace. That, in fact, has been the result. The companies are finding that reducing emissions also helps to improve operational efficiencies, reduce energy and production costs, and increase market share - all things that contribute to a healthier bottom line. While addressing climate change is not necessarily profitable, the evidence so far suggests it is certainly affordable.
To summarize: Other countries are moving forward to address climate change, and, in the United States, states and companies are exercising leadership to fill the void left by inaction at the federal level. In this context, I believe the draft American Investments for Reduction of Emissions Act of 2003 represents an important milestone in the effort to ensure that the United States does its part to address global climate change. Its enactment would establish a comprehensive national framework that would put the United States on a path toward significant long-term emissions reduction.
The draft Act incorporates several features that would be critical to the success of a national climate change strategy. First, it would establish ambitious environmental goals through binding caps on greenhouse gas emissions. Recognizing the need for reductions from all the major sectors, the Act would apply this cap economy-wide, providing an important signal to key players throughout the economy to increase energy efficiency and develop alternative fuels and technologies to reduce greenhouse gas emissions.
Second, the Act would provide companies with the flexibility they need to reduce emissions as cost-effectively as possible. It would establish a rigorous nationwide system allowing emissions trading across sectors, gases, and national borders, and would provide reasonable credit for carbon storage through sequestration.
Third, the Act would take a phased approach that respects economic realities. As mentioned, our work has demonstrated that there are many cost-effective - in fact, cost-saving - opportunities to reduce emissions in the short- and perhaps medium-term. However, achieving the emission cuts ultimately needed to avert the most adverse consequences of climate change is not a cost-free proposition. The Act's phased approach would take advantage of the relatively easy steps now readily available, while allowing time for the capital and technology investments needed to achieve deeper emissions cuts over the long term.
Finally, the Act would seek to treat all affected parties fairly. It would recognize the real and verifiable reductions of those who have taken the lead in reducing their emissions, and would provide assistance to consumers, workers, and communities affected by climate change policy.
As with any legislation this far-reaching and complex, there is significant room for debate on the specifics, even among those who share the Act's objectives and would support its broad approach. Nonetheless, we believe the draft Act offers a solid foundation for crafting an effective national climate policy that draws on America's strengths and begins to fulfill its responsibility to protect our global climate. We appreciate the vision and leadership shown by Senators McCain and Lieberman in drafting the American Investments for Reduction of Emissions Act of 2003 and look forward to providing any assistance that might be useful to the Committee as it acts on the bill.
1. "Climate Change Science: An Analysis of Some Key Questions," Committee on the Science of Climate Change, National Research Council, 2001.
2. Wigley, T.M.L., 1999, The Science of Climate Change: Global and U.S. Perspectives, Pew Center on Global Climate Change; Neumann, J.E., G. Yohe, R. Nicholls, and M. Manion, 2000, Sea-Level Rise & Global Climate Change: A Review of Impacts to U.S. Coasts, Pew Center on Global Climate Change; Frederick, K.D. and P.H. Gleick, 1999, Water and Global Climate Change: Potential Impacts on U.S. Water Resources, Pew Center on Global Climate Change.
3. "Pew Center Analysis of President Bush's February 14th Climate Change Plan," Pew Center on Global Climate Change, 2002, available online.
4. Chandler, W., R. Schaeffer, Z. Dadi, P.R. Shukla, F. Tudela, O. Davidson, and S. Alpan-Atamer, 2002, Climate Change Mitigation in Developing Countries, Pew Center on Global Climate Change.
5. Rabe, B., 2002, Greenhouse & Statehouse: The Evolving State Government Role in Climate Change, Pew Center on Global Climate Change.
6. Margolick, M. and D. Russell, 2001, Corporate Greenhouse Gas Reduction Targets, Pew Center on Global Climate Change.
Capital Cycles and the Timing of Climate Change Policy
Prepared for the Pew Center on Global Climate Change
Robert J. Lempert, Steven W. Popper, and Susan A. Resetar, RAND
Stuart L. Hart, Kenan-Flagler Business School, University of North Carolina at Chapel Hill
Eileen Claussen, President, Pew Center on Global Climate Change
Patterns of capital investment by businesses can have a major impact on the success and cost-effectiveness of climate change policies. Due to the high cost of new capital, firms often are reluctant to retire old facilities and equipment. Thus, capital investment decisions made today are likely to have long-term implications for greenhouse gas (GHG) emissions. Because businesses consider a range of factors when making capital stock decisions, policy-makers need to understand and focus on these factors in order to craft effective climate change policies.
The Pew Center commissioned this report to gain an understanding of the actual patterns of capital investment and retirement, or “capital cycles.” Authors Robert Lempert, Steven Popper, and Susan Resetar of RAND, with Stuart Hart of the Kenan-Flagler Business School at UNC-Chapel Hill combine analysis of the literature on investment patterns with in-depth interviews of top decision-makers in leading U.S. firms. Their work provides important insights into the differing patterns of capital investment across firms and sectors, and what factors spur those investments.
The authors found that capital has no fixed cycle. In reality, external market conditions often drive a firm’s decision whether to invest or disinvest in large pieces of physical capital stock, and a firm often invests in new capital only to capture new markets. In the absence of policy or market incentives, expected equipment lifetimes and the availability of more efficient technologies are not significant drivers of capital stock decisions. With regular maintenance, capital stock often lasts decades longer than its rated lifetime, and the availability of new technology rarely influences the rate at which firms retire older, more polluting plants.
The authors suggest certain policies that can stimulate more rapid turnover of existing capital stock. These include putting in place early and consistent incentives that would assist in the retirement of old, inefficient capital stock; making certain that policies do not discourage capital retirement; and pursuing policies that shape long-term patterns of capital investment. For example, piecemeal regulatory treatment of pollutants rather than a comprehensive approach could lead to stranded investments in equipment (e.g., if new conventional air pollutant standards are put in place in advance of carbon dioxide controls at power plants). The authors also note that even a modest carbon price could stimulate investment in new capital equipment. Ultimately, any well-crafted policy to address climate change must consider and harness market factors and policies that drive capital investment patterns.
The authors and the Pew Center wish to acknowledge members of the Center’s Business Environmental Leadership Council, as well as Byron Swift, Ev Ehrlich, Mark Bernstein, Debra Knopman, Alan Sanstad, and David Victor for their advice and comments on previous drafts of this report. We also thank the individuals who gave their time in interviews with the project team.
One important source of climate-altering greenhouse gas (GHG) emissions is the capital equipment that supports the world’s economic activity. Capital stock, such as electricity generation plants, factories, and transportation infrastructure, is expensive and once built can last for decades. Such capital also presents important and conflicting constraints on policy-makers attempting to reduce society’s GHG emissions. On the one hand, attempts to reduce emissions too quickly may create a drag on the economy if they force the premature retirement of capital. On the other hand, delaying reductions may raise the cost of future actions because the facilities built today can still be polluting decades from now.
This report aims to help policy-makers navigate between these conflicting tensions by providing an understanding of the actual patterns of capital investment and capital retirement and the key factors that affect these patterns. “Capital cycles” have been studied extensively in the empirical and theoretical literature. Nonetheless, the topic remains poorly understood in the debates over climate change policy. In part, there are few good summaries available of the voluminous and complex literature. In addition, the differing patterns of capital investment across firms and sectors can have important implications for climate change policy. Such heterogeneity is not well-captured by the existing theoretical and empirical literature.
This report begins with a brief overview of the existing theoretical and empirical literature on capital cycles. It then turns to its main focus—the results of a small number of in-depth interviews with key decisionmakers in some leading U.S. firms. In the course of the study, nine interviews, designed to illuminate the key factors that influence firms’ capital investment decisions, were conducted with firms in five economic sectors. The firms interviewed are mostly members of the Center’s Business Environmental Leadership Council (BELC). Based on the information gathered during the interviews, this report closes with some observations regarding the implications for the timing of climate change policy.
This is a small study with limited scope. Nonetheless, several consistent and clear findings emerged from the firm interviews:
Capital has no fixed cycle. Despite the name, there is no fixed capital cycle. Rather, external market conditions are the most significant influence on a firm’s decision to invest in or decommission large pieces of physical capital stock. In particular, firms strive to invest in new capital only when necessary to capture new markets. Firms most commonly retire capital when there is no longer a market for the products they produce and when maintenance costs of older plants become too large.
Capital investments may have long-term implications. Today’s capital investment decisions can have implications that extend for decades. Capital stock is expensive, and firms often have little economic incentive to retire existing plants. The environmental performance of capital stock is not fixed over time and can improve as a firm makes minor and major upgrades. Nonetheless, there are limits to such upgrades, so that investment decisions made today may shape U.S. GHG emissions well into the 21st century.
Equipment lifetime and more efficient technology are not significant drivers in the absence of policy or market incentives. It is often assumed that the engineering and nominal service lifetimes of physical equipment are important determinants of the timing of capital investment. The phrase “capital cycle” derives at least in part from the notion that capital equipment in each sector has some fixed lifetime, which drives the industry’s capital investment decisions. This study finds that the physical lifetime of equipment does drive patterns of routine maintenance in different economic sectors, but it appears to be a less significant driver of plant retirement or for investment in new facilities. With regular maintenance, capital stock can often last decades longer than its rated lifetime.
In addition, discussions of climate change policy often highlight the potential of new technology to enable low-cost reductions in GHG emissions. This study finds that however beneficial such technology may be, it will likely have little influence on the rate at which firms retire older, more polluting plants in the absence of policies promoting technology or requiring emissions reductions. New process technology, that is, technology that improves the efficiency and cost-effectiveness of a factory or power plant, requires performance improvements of an exceptional magnitude to induce a firm to retire existing equipment whose capital costs have already been paid. Firms do adopt new process technology, but only when other factors, particularly changes in demand for their products or regulatory requirements and other government policies, drive them to invest in new capital stock.
Firms focus investment towards key corporate goals. Although manifested differently across firms and economic sectors, all the firms we interviewed followed the same basic decisionmaking process for capital investment. Each year a firm’s leadership allocates the funds available for capital investment—first to must-do investments, then to discretionary investments. The former are required to maintain equipment and to meet required health, safety, and environmental standards. The latter are prioritized according to their ability to address key corporate goals. In particular, firms’ capital investment is often driven by the desire to capture new markets. Uncertainty was a recurring theme in all our interviews. Capital investment decision processes are shaped by the desire to reduce the potential regret due to adverse or unforeseen events over the long lifetime of capital stock.
These results are based on interviews with a small number of firms and are by no means definitive. Nonetheless, they suggest that climate policy should combine modest, near-term efforts to reduce emissions and more aggressive efforts to shape capital investment decisions over the long term. In particular:
The long lifetime of much capital stock may slow the rate at which the United States can obtain significant GHG emission reductions. Firms are often reluctant to retire capital and attempts to force them to do so on a short-term timetable can be costly. Sporadic and unpredictable waves of capital investment make it more difficult for climate policy to guarantee low-cost achievement of fixed targets and timetables for GHG emissions reductions. Reductions may be more rapid during periods of significant capital turnover and less rapid otherwise.
Policy-makers should consider early and consistent incentives for firms to reduce GHGs. Incentives ranging from early action credits to emissions trading can take advantage of those rare times when firms make major investments in new capital. Relatively low-cost opportunities for GHG emissions reductions are often available during such periods of investment. This analysis suggests that introducing a relatively low carbon price could serve as a consistent incentive to reduce GHG emissions.
Policy-makers should avoid regulations and other rules that discourage capital retirement. The retirement of older facilities often provides the opportunity for low-cost deployment of new, emissions-reducing technologies. The grandfathering provisions of the Clean Air Act and other environmental regulations may delay the retirement of older plants by exempting them from the environmental regulations governing new plants. At the same time, regulations governing some pollutants may provide an opportunity to address GHGs simultaneously while these investments are being made.
Policy-makers should pursue policies that shape long-term patterns of capital investment. While policy may only make small perturbations in near-term decisions regarding the composition of U.S. capital stock, over the long term, policy may significantly shape the market forces and opportunities perceived by firms. Government-sponsored research and development on new, emissionsreducing technologies and policies such as a cap-and-trade program may have a profound effect on the direction of long-term investments in new capital stock. Overall, the dynamics of capital investment and retirement suggest that policy-makers can set ambitious long-term climate goals, but should allow firms a great deal of flexibility in the timing with which they will respond to them.
This brief assesses the practicality of reporting greenhouse gas (GHG) emissions, as might be required under Title XI in the Energy Policy Act of 2002 (H.R.4), as passed by the Senate. To summarize:
- Most GHG emissions either are already being monitored or could be calculated from readily available information. Title XI would leave to the Administration the decision of whether to require new monitoring, rather than calculation, of GHG emissions.
- Carbon dioxide (CO2) from the burning of fossil fuel (e.g., coal, oil, and natural gas) accounts for most U.S. GHG emissions. Power plant emissions, which account for 34% of U.S. GHG emissions, are already being reported. Measurement and verification standards could be established to allow other combustion-related CO2 emissions to be calculated by multiplying the amount of fuel consumed by emission factors.
- Many other sources of GHGs already report to federal and state agencies under both regulatory and voluntary programs, though not in a coordinated or comprehensive manner.
- The GHG emissions associated with the current sales of certain products can be estimated from readily available information. This includes emissions from highway vehicles, which account for 20% of total U.S. GHG emissions.
- Agency guidance would be useful in reducing the complexity associated with certain aspects of reporting, such as the question of who reports for facilities owned or controlled by multiple parties.
- As with other reporting programs, once entities gain experience with GHG reporting, they find ways to reduce costs, improve accuracy, and reduce uncertainty.
Over the past several decades, the scientific community has arrived at a consensus that human activities (fossil fuel combustion, some land use practices, and some industrial processes) contribute to global climate change through the emission of greenhouse gases (GHGs). Title XI of the Senate-passed Energy Policy Act of 2002 (H.R.4) would establish a National Greenhouse Gas Database consisting of an inventory and registry of GHG emissions and emission reductions. The gases reported would be carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6), with additional gases included if recommended by the National Academy of Sciences and then added by regulation. Reporting to the database would be voluntary for at least five years. If in that time more than 60 percent of U.S. GHG emissions were being reported, reporting would remain voluntary. Otherwise, mandatory reporting would be “triggered” for the largest GHG emitters.
GHG reporting is expected to have several benefits. Entities would measure and report their GHG emissions in a clear and transparent manner. The resulting data would enhance understanding of GHG emissions and reduction options, and highlight opportunities to reduce energy use and eliminate other types of waste. Disclosure of GHG emissions would also likely provide reporting entities an incentive to reduce emissions voluntarily, as has occurred under programs requiring disclosure of the release of toxic chemicals. This incentive is further enhanced by the opportunity to register verified emission reductions as transferable credits and allow those reductions to “be applied. . .toward a federal requirement. . .imposed on the entity for the purpose of reducing greenhouse gas emissions.” (See Section 1104(c)(3) of Title XI.)
This brief discusses the practicality of two types of reporting under Title XI, in the event that reporting becomes mandatory: reporting of direct entity-wide GHG emissions and reporting of GHG emissions from products. Under Title XI, the agencies responsible for implementation could require reporting on additional emissions categories: examples include indirect emissions from imported electricity, heat, or steam; and process and fugitive emissions. Because the additional categories would be left to the discretion of the agencies and are not defined in the bill, this analysis addresses only the two explicitly defined reporting categories. It should be noted that a requirement to report these additional emissions categories could add significant complexity to a mandatory reporting obligation in certain cases. Consequently, agency guidance to resolve any complexities emerging from these additional reporting categories would be desirable.
Reporting of Direct Entity-Wide Emissions
Section 1105(c)(1) of Title XI would require each entity that participates in the database to report its entity-wide GHG emissions—i.e., the sum of emissions from its facilities and from fleets of more than 20 motor vehicles.
Facility-level measurement of GHG emissions should be straightforward. Many companies already report facility-level GHG emissions to federal and state agencies under a variety of regulatory and voluntary programs that have not proved to be excessively costly or burdensome. GHG emissions could be estimated through the use of emission factors and fuel or process inputs, or directly monitored. Unlike current reporting for many pollutants, the measurement and verification standards to be set by the implementing agencies under Section 1106 need not require the monitoring of GHG emissions.
CO2 Emissions from Combustion Processes
Most direct CO2 emissions result from the combustion of fossil fuels for heat, transportation, or electricity generation. Most electric power plants already report their CO2 emissions to the Environmental Protection Agency (EPA), representing 34 percent of total U.S. GHG emissions.In addition, some 20,000 manufacturing establishments regularly report fossil fuel usage to the U.S. Census Bureau. Emissions of CO2 resulting from the use of fossil fuels to produce heat and power can be determined easily and accurately. During combustion of fossil fuels for energy, over 99 percent of the carbon in the fuel is converted to CO2. To calculate emissions, all that is required is to know the amount of each fossil fuel used, and the appropriate emission and conversion factors.
Non-Combustion-related CO2 and other GHG Emissions
For non-CO2 GHG emissions and other industrial sources of CO2, an understanding of the emission pathway and relevant material inputs is required. However, many industrial sources of these gases already report under a variety of programs. Deep underground coal mines whose ventilation systems emit detectable levels of CH4 (greater than 50 ppm) have their emissions monitored and recorded by the Mine Safety and Health Administration, covering almost 100 percent of these emissions (EPA, 2002). Similarly, 8 of the 9 aluminum producers report their PFC emissions and 45 percent of electric power producers report their SF6 emissions to EPA under voluntary programs. In addition, over 90 percent of SF6 emissions from the magnesium industry, and over 70 percent of PFC emissions from the semi-conductor manufacturing industry are already reported to trade groups that aggregate the information and provide it to EPA.
A multi-stakeholder collaboration led by World Resources Institute (WRI) and the World Business Council on Sustainable Development (WBCSD) has developed a free, comprehensive, and publicly available protocol to assist entities in determining their GHG emissions. The protocol includes easy-to-use calculation tools (WRI and WBCSD, 2002) for facility-level emissions that consist of downloadable spreadsheets and accompanying instructions. These tools automate the calculation of facility-level GHG emissions, enabling any facility to determine its GHG emissions using readily available and familiar information on material inputs, outputs, and processes.
Table 1 lists major sources of U.S. GHG emissions by gas and sector.
Table 1: Major Sources of GHG Emissions by Gas and Sector:
Total Emissions and Percentage of U.S. Total
GHG and Sector
2000 Emissions(Mt CO2E)
% of U.S. Total
Fossil Fuel Combustion
Industrial (exclusive of electricity)
Residential (exclusive of electricity)
Commercial (exclusive of electricity)
Iron and Steel Production
Natural Gas Systems
HFCs, PFCs, and SF6
Ozone Depleting Gas Substitution
Note: Only source categories that contribute at least .5% to total U.S. GHG emissions are shown. Agricultural sources of GHG emissions are not shown as they are excluded from reporting under Title XI of the Senate-passed Energy Policy Act of 2002 (H.R.4).
Source: EPA, 2002.
Reporting of GHG Emissions From Products
Section 1105(c)(1) of Title XI also would require each entity that participates in the database to provide an estimate of GHG emissions from fossil fuel combusted by products manufactured or sold by the reporting entity in the previous calendar year.
This reporting would be easier for some products than for others. Estimating the GHG emissions of motor vehicles sold in the United States, for example, would be relatively easy, and reports on emissions from vehicles sold would contribute extremely useful information to the database. Emissions from the transportation sector are responsible for 26 percent of U.S. emissions and are rising more rapidly than those of any other sector. Lifetime vehicle emissions could be calculated from readily available information about mileage per gallon of fuel and average miles traveled per year for each new vehicle sold in the United States. This calculation would be made even easier if the implementing agencies provided guidance on estimation methodology and emission factors.
Similarly, reporting could be straightforward for new products sold in the United States for which the Department of Energy (DOE) has established efficiency standards. The DOE standards could form the basis for reporting guidance and allow emissions from these products to be included in a reporting mechanism.
Other products that combust significant quantities of fossil fuels include industrial heat boilers and other products with internal combustion engines. Reporting for these and other products’ emissions would be somewhat more complex, and agency guidance would be desirable.
The Benefits of Experience
As with other reporting programs, once entities gain experience with GHG reporting, they find ways to minimize costs, improve accuracy, and reduce uncertainty. Also, to the extent that GHG emission credits become more valuable in the private market, entities will have an incentive to invest in more accurate estimates. Because of the current experience in estimating CO2 emissions from combustion, uncertainties related to these measurements are fairly well defined in many cases. However, the uncertainty and accuracy of other industrial GHG emission estimates vary by gas and source. Uncertainties may stem from poor models of emission processes, ranges or uncertainties in emission factors, and uncertainties in input data.
While entity-wide emissions can be calculated through the aggregation of facility-level emissions, some large companies might have to resolve complex issues such as those arising from divestitures, acquisitions, and multi-party ownership and control of facilities. Should reporting become mandatory, additional costs could arise in association with an entity’s internal process for ensuring compliance; however, the costs associated with these challenges should decline with experience, and agency guidance could be helpful in minimizing reporting burdens.
Reporting of GHG emissions in Title XI of the Senate-passed Energy Policy Act of 2002 (H.R. 4) would be based on the aggregation of facility-level emissions to the entity level and reporting of combustion-related CO2 emissions from products. Monitoring would not necessarily be required. For facilities not electing to monitor, direct facility-level GHG emissions could generally be established with readily available data and calculation tools. Moving from facility-level to entity-wide reporting and reporting of product emissions could be facilitated by agency guidance. Such guidance would be consistent with current bill provisions calling for agencies to minimize measurement and reporting costs for entities.
For further reading regarding: the emerging international GHG trading market, see Rosenzweig, et al. (2002); GHG inventory issues, see Loreti, et al. (2000); and GHG verification issues, see Loreti, et al. (2001). For information about how six major U.S. companies (ABB, Entergy, IBM, Shell, Toyota, and United Technologies) have developed emissions inventories and adopted emissions reduction targets, see Margolick and Russell (2001).
NOTE: The Center for Climate and Energy Solutions (at the time named the Pew Center on Global Climate Change) published the relevant publications listed below.
1.EIA (2000), Carbon Dioxide Emissions from the Generation of Electric Power in the United States, Energy Information Administration, U.S. Department of Energy, July 2000.
2.EIA (2001), Emissions of Greenhouse Gases in the United States 2000, Energy Information Administration, U.S. Department of Energy, November 2001.
3.EPA (2002), Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2000, U.S. Environmental Protection Agency, April 2002.
4.IPPC (1996), Revised 1996 IPCC Guidelines for National Greenhouse Gas Inventories, Intergovernmental Panel on Global Climate Change.
5.Loreti, C., S. Foster, and J. Obbagy (2001), An Overview Of Greenhouse Gas Emissions Verification Issues, Pew Center on Global Climate Change, October 2001.
6.Loreti, C., W. Wescott, and M. Isenberg (2000), An Overview Of Greenhouse Gas Emission Inventory Issues, Pew Center on Global Climate Change, August 2000, /projects/emissions_verification.cfm.
7.Margolick, M. and D. Russell (2001), Corporate Greenhouse Gas Reduction Targets, Pew Center on Global Climate Change, November 2001.
8.NAS (2001), Climate Change Science: An Analysis of Some Key Questions, National Academy of Sciences, Washington D.C.
9.Rabe, B. (2002), Statehouse and Greenhouse: The Evolving State Government Role in Climate Change, Pew Center on Global Climate Change, November 2002.
10.Rosenzweig R., M. Varilek, and J. Janssen (2002), The Emerging International Greenhouse Gas Market, Pew Center on Global Climate Change, March 2002m.
11.Wigley, T. (1999), The Science of Climate Change: Global and U.S. Perspectives, Pew Center on Global Climate Change, June 1999.
12.WRI and WBCSD (2002), The Greenhouse Gas Protocol Initiative, http://www.ghgprotocol.org, World Resources Institute and World Business Council on Sustainable Development, accessed on 29 July 2002.
For more information on how these gases contribute to global climate change, see Wigley (1999).
 Wisconsin has required all facilities releasing more than 100,000 tons of CO2 annually to report since 1993. Many smaller facilities have reported voluntarily, including a wide range of industries and some smaller sources, such as a pizza company and medical facilities. Rabe (Forthcoming).
 The reporting of CO2 is required under Section 821 of the Clean Air Act Amendments of 1990.
EPA (2002), Annex 1 (Table A14), pp. 233-250.
 Tables of emission factors and useful conversion formulas are given in EPA (2002) and EIA (2001).
Non-CO2 emissions can be quickly converted from a mass to a CO2E basis using internationally defined global warming potentials or GWPs (IPCC, 1996).
National voluntary climate protection programs that involve GHG emissions reporting include: the SF6 Emissions Reduction Partnership for the Magnesium Industry; the SF6 Emissions Reduction Partnership for Electric Power Systems; the Voluntary Aluminum Industrial Partnership (emissions of PFCs); the PFC Reduction/Climate Partnership (emissions of PFCs, SF6, HFC-23, and NF3); and the HCFC-22 Producers Partnerhip Program (HFC-23).
Offsets from sinks are not included.
Designing a Climate-Friendly Energy Policy: Options for the Near Term
Prepared for the Pew Center on Global Climate Change
Douglas W. Smith, Robert R. Nordhaus, Thomas C. Roberts, Shelley Fidler
Janet Anderson, Kyle Danish, Richard Agnew, of Van Ness Feldman, P.C.
Marc Chupkam The Brattle Group
Eileen Claussen, President, Pew Center on Global Climate Change
Energy use and climate change are inextricably linked. In the current national energy policy debate, choices made today will directly impact U.S. greenhouse gas (GHG) emissions far into the future. In addition, near-term energy policy decisions will affect the costs of implementing any future climate policy. Decision- makers face the challenge of crafting policies that allow the United States to meet its energy needs while acting responsibly to reduce GHG emissions. This report contributes to the debate by examining a number of "climate-friendly" energy policy options for the near term-that is, policies that would advance U.S. energy policy goals during the next few decades while at the same time contributing to efforts to curb global warming.
For this most recent report in the Pew Center's policy series, a diverse team of authors from Van Ness Feldman, P.C. and The Brattle Group has identified key elements of a climate-friendly energy policy. The authors describe important U.S. energy policy objectives, including: (1) a secure, plentiful, and diverse primary energy supply, (2) a robust, reliable infrastructure for energy conversion and delivery, (3) affordable and stable energy prices, and (4) environmentally sustainable energy production and use.
Often, these objectives are thought of as competing goals - that energy policy and security issues are in conflict with environmental objectives and vice versa. In reality, our authors find a substantial convergence between the goals of energy policy and climate policy, and that many feasible and beneficial policies from supply and security perspectives can also reduce future U.S. GHG emissions. Some key elements of a climate-friendly energy policy identified here include: increasing natural gas production and expanding natural gas transportation infrastructure; developing and deploying renewable energy technologies and efficient electricity production technologies; enhancing efficiency of automobiles and light trucks, industry, and buildings; and research and development on non-fossil fuels and carbon sequestration.
The authors caution, however, that a climate-friendly energy policy is not a substitute for climate policy. More significant GHG emissions reductions would be necessary in order to address climate change than can be justified solely on the basis of traditional energy policy objectives. The policy options outlined in this report represent sensible and important first steps in the United States' efforts to reduce GHG emissions.
In other reports and workshops, the Pew Center is evaluating options to produce more dramatic changes to the U.S. energy system, which could eventually lead us to an economy based on energy sources other than the carbon-based fossil fuels that are the primary contributors to global warming. Indeed, in the long run, we can only curb climate change by weaning ourselves of our reliance on fossil fuels.
The Pew Center and the authors wish to thank Ralph Cavanagh, David Greene, Tom Runge, Thomas Casten, and Ev Ehrlich for their comments on previous drafts of this report.
Energy policy and climate policy are closely linked because the majority of U.S. greenhouse gas (GHG) emissions are in the form of carbon dioxide (CO2) emissions resulting from the combustion of fossil fuels. Energy policies can reduce CO2 emissions by, for example, increasing energy efficiency, reducing reliance on fossil fuels, and shifting from high-carbon to lower-carbon fuels. Conversely, energy policies that miss opportunities to make such changes will leave unchecked the trend of increasing CO2 emissions. Consequently, energy policy decisions made today can help reduce GHG emissions in the near term and can significantly affect how costly it would be to implement any future climate policy.
The federal government is in the throes of one of its periodic comprehensive reviews of U.S. energy policy. It is likely that significant federal energy policy questions will be addressed in the near term, before the development of any climate change regulatory program. Yet, there is also the distinct possibility that the United States will eventually adopt a mandatory GHG reduction program. This report considers energy policies that can be adopted in the context of the energy policy debate, short of adopting a GHG program now, to best position the nation to reduce GHG emissions and to implement future climate change policies. These are the options that make up a "climate-friendly energy policy."
In reviewing policy options, we have identified four key objectives that drive energy policy:
(1) Secure, plentiful and diverse primary energy supply,
(2) Robust, reliable infrastructure for energy conversion and delivery,
(3) Affordable and stable energy prices, and
(4) Environmentally sustainable energy production and use.
In developing a template for a climate-friendly energy policy, we have limited ourselves to a review of energy policy options, i.e., policies that serve one or more of these objectives. We have not considered climate policies that lack a direct energy policy nexus. We have also limited ourselves to relatively near-term energy policy initiatives, i.e., initiatives that could begin to produce energy policy benefits over the next decade or two.
Climate-friendly energy policies fall into one of three general categories-policies that:
(1) Reduce GHG emissions now,
(2) Promote technology advancement or infrastructure development that will reduce the costs of achieving GHG emissions reductions in the future, and
(3) Minimize the amount of new capital investment in assets that would be substantially devalued (or "stranded") if a GHG program were implemented.
Using these guidelines, the following are highlighted as key elements of a climate-friendly energy policy:
Increased natural gas production and expanded natural gas transportation infrastructure will lower the price and increase the availability of natural gas and, in turn, support the continued use of gas in lieu of coal in new power plants.
Deployment of efficient electricity production technologies, including combined heat and power, fuel cells, and highly efficient power plant technologies, can significantly increase the amount of useful energy gleaned from fuels, and thus reduce both energy costs and GHG emissions.
Maintaining a role for nuclear and hydroelectric power can enhance diversity of energy supply. It also will reduce growth in fossil fuel consumption for electricity generation and may reduce energy prices.
Deployment of renewable energy technologies can help diversify the nation's energy portfolio. These technologies are environmentally beneficial-most produce little or no GHG emissions.
Building and Industrial Efficiency
Enhancing end-use efficiency in buildings and industry can reduce overall consumer costs in many cases, can reduce the need for new electric power plants, and can reduce GHG emissions related to energy use.
Enhancing efficiency of automobiles and light trucks reduces oil consumption, and thereby mitigates reliance on oil imports and reduces GHG emissions.
Research and Development
Research and development on efficient technologies in all sectors can provide options to reduce future energy costs to consumers and future energy consumption, with corresponding GHG benefits.
Research and development on non-fossil fuels and carbon sequestration can provide future alternatives to reliance on oil and could enable continued use of coal consistent with a GHG emissions limitation.
In many areas, there is a substantial convergence between energy policy objectives and climate policy objectives. In particular, climate-friendly energy policies aim to: (1) increase the efficiency of energy use; (2) increase the use of renewable (including biofuels) and other non-emitting technologies; (3) promote the use of natural gas instead of coal or oil; and (4) encourage research and development on new energy technology.
This set of climate-friendly energy policies advances energy policy objectives. Taken together, these measures would build on the policies implemented to date to: enhance energy security by reducing growth in demand for oil, increase the diversity of the country's energy mix, strengthen the energy delivery infrastructure, and contribute to improvements in air quality without significantly increasing consumer energy costs. In addition to the policies listed above, there are other energy policy options that have no significant climate change impacts but may address central energy policy concerns and, thus, should be considered for inclusion in any comprehensive energy policy. These could include policies to increase domestic production of oil, to expand electricity transmission infrastructure, and to promote competitive electricity markets.
The set of climate-friendly energy policies discussed in this report advances climate objectives, but it does not constitute a fully elaborated climate policy. It does not produce the magnitude of reductions needed, for instance, to meet the non-binding goal set forth for the United States in the 1992 Rio Framework Convention on Climate Change, i.e., to return U.S. GHG emissions to 1990 levels. Based on the U.S. Department of Energy's analysis1 of a similar set of policy elements, it appears that this package could significantly slow the projected growth of GHG emissions, but is not sufficient to reduce energy-related GHG emissions from current levels, much less return them to 1990 levels. Moreover, trying to achieve climate goals indirectly through energy policy tools will necessarily be more expensive than achieving the same climate goals through an effectively designed, market-based GHG regulatory program covering all sectors of the economy. Instead, this is a collection of near-term energy policies that stand on their own as energy policies and would help better position the U.S. economy for possible future GHG emissions limitations.
Leading Source on Global Warming Issues Eileen Claussen Provides Data-Based Information to Inform Federal Decision Makers
Leading Source on Global Warming Issues--Eileen Claussen--Provides Data-Based Information to Inform Federal Decision Makers
Question and Answer with The Pew Charitable Trusts
PEW WIRE: Is human-induced climate change occurring? What scientific evidence exists to substantiate this and what are some anticipated effects of climate change?
CLAUSSEN: Multiple lines of evidence provide independent validation of the reality of anthropogenic climate change. Scientists have observed warming over the past century in the atmosphere, at the earth's surface, and in the oceans as well. These trends cannot be explained without considering increasing atmospheric greenhouse gas concentrations--including those generated from human activities such as the burning of fossil fuels and deforestation. In conjunction with this warming, scientists are also seeing increases in precipitation, retreat of glaciers around the world, reductions in Arctic sea-ice, and the continuation of a long upward trend in global sea-level. There is also some evidence that the world's wildlife are starting to respond to the warming such as earlier reproduction times in plants and animals and changes in the geographic distribution of some species.
PEW WIRE: Can you recap of the political history of climate change?
CLAUSSEN: Governments launched the international effort against climate change with signing in 1992, at the Earth Summit in Rio de Janiero, of the UN Framework Convention on Climate Change (UNFCCC). The convention set an ultimate objective of stabilizing greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. Developed countries, agreeing to take the lead, adopted a non-binding aim of returning their emissions to 1990 levels by 2000.
Three years later, recognizing that the voluntary target was insufficient and that most countries would not meet it, parties to the Convention agreed to negotiate new, binding targets for developed countries. Five months before the negotiations were to conclude, in July 1997, the U.S. Senate adopted the BrydHagel resolution, saying the United States should not sign a binding treaty if it would cause undue economic harm or did not include new commitments for developing countries. In December 1997, the Clinton administration agreed to the Kyoto Protocol, setting binding targets for developed countries only (for the United States, 7 percent below 1990 emissions by 2008-2012). (Countries included in Annex B to the Kyoto Protocol and their emission targets.) However, President Clinton did not submit Kyoto to the Senate for ratification.
Shortly after taking office, President Bush rejected the Kyoto Protocol. Despite the U.S. withdrawal, other countries are moving ahead with Kyoto. Japan and the European Union have ratified the Protocol, and Russia is expected to within the next year, meeting the necessary threshold for bringing the treaty into force. In February, President Bush presented a new climate change strategy with a non-binding target of reducing U.S. greenhouse gas intensity (define) 18 percent by 2010. However, this target essentially continues the trends in greenhouse gas intensity reduction seen over the past two decades and translates into a 12 percent increase in actual emissions. It would allow U.S. emissions to rise to 30 percent above 1990 levels by 2010. Click here to view the Pew Center's analysis of President Bush's climate change plan.
PEW WIRE: How does the Pew Center fit into the climate change puzzle?
CLAUSSEN: The Pew Center on Global Climate change is dedicated to providing credible information, straight answers, and innovative solutions in the effort to address global climate change. Established in 1998, the independent, non-profit, nonpartisan Pew Center has become the leading voice for concrete, cost-effective action against climate change. We work with top scientists and economists to unravel the complexities of climate change and with government leaders in Washington and abroad to put in place both policy and practical solutions. The Pew Center also works with leading corporations to develop solutions that are both practical and effective. The 38 members of the Business Environmental Leadership Council come together through the Pew Center to develop and share climate change strategies, with a principal focus on market-based approaches. Companies also set emissions reduction targets. BP, for example, met its target to reduce GHG emissions by 10% from 1990 levels in 2010 seven years early and Dupont will reduce emissions by 65% below 1990 levels by 2010. All these facets of the Pew Center mission contribute to our goal of providing a smooth transition to a clean energy economy that ensures both a stable climate and strong, sustainable growth. View a full list of policy, economic, and scientific analysis and reports.
PEW WIRE: Taking into account the political, scientific and economic aspects of climate change, why is now a particularly good time to begin seriously addressing climate change issues?
CLAUSSEN: An immediate signal that initiates action is required in order to provide a smooth and cost-effective transition to a stable concentration of greenhouse gases in the atmosphere--a challenge that will take decades, if not generations, to address. A recent Pew Center brief, The Timing of Climate Change Policy, identifies many compelling reasons to begin taking action now, including: the substantial future climate change that is already inevitable and its potential to generate serious environmental impacts; the opportunity to learn about the economys responsiveness in order to construct an optimal policy path over time; the need to manage possible future GDP losses; and the need to provide time and incentives for a broadly-based technological response to the problem.
The argument that delay is the best strategy for addressing global climate change runs counter to what we understand about technology, the economy and climate science itself. It risks allowing significant escalation of the problem while providing little in the way of a momentum towards a long-term solution. In contrast, moving forward with a real and rational program to reduce greenhouse gases allows us to address this challenge in a way that is timely, consistent, meaningful, and cost-effective. Learning by doing is essential to addressing an issue as complex as climate change, and so we must begin to test approaches now.
PEW WIRE: Looking to the future, what are some effective first steps in reducing emissions?
CLAUSSEN: A mandatory GHG reporting and disclosure program would be an effective first step in any domestic GHG reduction program. Similar to the federal Toxics Release Inventory (TRI) program, a mandatory GHG reporting program would apply to all major sources of GHG emissions and require disclosure of their reports to the public. Such a reporting program would: (1) provide a solid foundation for a U.S. program to reduce GHG emissions, (2) provide the basis for government assurances that companies would not be penalized for their early reductions under a future climate policy, and (3) potentially create a powerful incentive for voluntary reductions. The program should be comprehensive, but should be implemented in phases to allow for the development of widely accepted and sound reporting protocols.
The 107th U.S. Congress has acted upon legislation regarding the tracking and reporting of GHG emissions. Other legislation being considered would require development of a U.S. National Climate Change Strategy with the goal of stabilizing atmospheric GHG concentrations.
In the long-term, an effective emissions reduction program should couple mandatory greenhouse gas reductions with technology development and market mechanisms. Such a program should promote new technologies and practices and provide a foundation upon which to secure long-term emissions reductions (e.g., through a program that caps GHG emissions but allows for trading among entities subject to the cap). Moving forward with a real and rational program to reduce GHGs will allow us to address this challenge in a way that is timely, consistent, meaningful, and cost-effective.
By Eileen Claussen
The New York Times
June 7, 2002
In its business-as-usual approach to climate change, the Bush administration is increasingly out of step not only with other industrialized powers, but also with the growing support in this country for action to prevent global warming. The administration's oddly two-sided report last week to the United Nations brings the White House into the scientific mainstream on the subject - acknowledging that human activity is probably the cause of global warming and that America itself faces serious consequences - but at the same time lays out a strategy ensuring that American emissions of greenhouse gases will continue rising sharply for at least a decade.
Last week the European Union and its 15 member states completed en masse their ratification of the emissions-limiting treaty that President Bush has rejected, the Kyoto Protocol. This week Japan followed suit. Russia expects to ratify by the end of the year, meaning only one or two smaller countries would be needed to put the treaty into effect. (Ratifying countries must account for at least 55 percent of developed country emissions in 1990.)
The administration is also ignoring a growing domestic recognition of the need to act. Persuaded that the risks of climate change are real and that restraints on emissions are inevitable, many American companies are working on carbon reduction. To be sure, many others, especially in the energy and oil businesses, are strongly resistant. But dozens of major corporations like Alcoa, DuPont and Intel are among those setting their own targets for lower emissions. For many, there are financial payoffs, too - improved efficiencies, lower costs and increased sales of energy-saving products.
State governments are also moving ahead. New Hampshire recently became the third state to adopt mandatory controls on carbon emissions from power plants. New Jersey is aiming to reduce statewide emissions by 3.5 percent from 1990 levels in the years before 2005. All six New England states, in a compact with five Eastern Canadian provinces, have pledged to reduce their emissions to 10 percent below 1990 levels by 2020.
Even in Congress, the tide is beginning to turn. Twice as many climate change measures were introduced in the past year as in the previous four years combined, many with strong support from both Democrats and Republicans.
Scientists project that a century's worth of greenhouse gas releases, mostly from burning fossil fuels, have already bought us a few degrees of warming in the decades ahead. The challenge is heading off further warming by gradually weaning ourselves from fossil fuels. This transition to a low-carbon economy will require a new industrial revolution.
We must look to the marketplace to carry it out. Only the market can mobilize the ingenuity, investment and productive capacity needed to develop and disperse new technologies on such a large scale. But the marketplace will deliver only if it perceives a demand, and providing that demand is a role for government.
A modest but logical first step in the U.S. is a measure passed unanimously by the Senate in April encouraging companies to disclose their greenhouse gas emissions voluntarily. If after five years less than 60 percent of emissions are being reported to the public, the measure would change this voluntary reporting system to a mandatory one. A similar approach helped dramatically reduce toxic air and water pollution nationwide. This legislation should be accepted by the House and signed by the president.
Ultimately, though, the market must be driven by policies that set realistic, binding targets for reducing emissions and give companies the flexibility to achieve them as affordably as possible. The Bush administration's own report shows the danger in its remaining stubbornly out of step. The longer the United States waits, the graver the risks - and the cost of averting them.
Eileen Claussen is president of the Pew Center on Global Climate Change.
© 2002 The New York Times Company
Keynote Address By Eileen Claussen, President
Pew Center On Global Climate Change
Environmental Horizons 2002 Conference
University of Illinois at Urbana-Champaign
April 1, 2002
Thank you very much. It is a pleasure to be here for Environmental Horizons 2002. I'd like to commend everyone involved with the University's Environmental Council for putting together such an inspiring and informative program.
There's just one thing missing from the program - an awards ceremony. So I thought I'd begin my remarks today by handing out a few honors. Actually, I was inspired by last week's Academy Awards. I got to thinking about some of the recent developments in Washington on the issue of climate change, and wondered what kind of Oscars I would award to some of the key players. And here's what I decided.
First, I would have to say that the award for best performance in a non-supporting role goes to the U.S. Senate for refusing once again to deal head-on with the question of fuel efficiency standards for American cars and trucks. There's always a lot of tough competition in this category, but this year, the Senate won it hands down.
Next, the award for the best misdirection, and the clear winner this year is the Bush White House for its new climate policy. The Administration did its best to make the policy look meaningful and serious, but anyone who's seen the uncut version knows, unfortunately, that it is not.
Finally, I'd like to offer a special posthumous award to the Clinton administration. For talking big about climate change on the international stage but doing next to nothing about it at home, I present the Clinton White House with the award for best costumes.
In all seriousness, I'm here today to talk about the challenge of global climate change. I believe this is one of the most profound challenges of our time, and I believe it is a challenge that can be met. But it will not be met easily. Because the causes and consequences of global warming cut across every nation, every sector, and every community around the world. And an effective response to global warming requires action in every nation, every sector, and every community around the world. What is needed, in short, is a fundamental transformation in the way we power our global economy. We must, over the next several decades, make the leap from a fossil fuel-based economy to one that runs on clean energy. I'd like to talk today about how to make that happen. And I'd like to talk about the powerful forces that must be brought to bear - the force of technology, the force of the marketplace, the force of government, and finally, the force of individuals and communities around the globe.
Let me begin, though, with the force of science. With this issue, science is always the best place to start because our efforts must rely on the best science possible. So what does the science tell us? First, it tells us that the earth is indeed getting warmer. The 1990s were the hottest decade of the entire millennium, and 1997, '98, and '99 were three of the hottest years on record. Second, this warming trend is almost certain to accelerate. Scientists project an average global increase of two to ten degrees Fahrenheit over the next century - the largest swing in global temperature since the end of the last ice age 12,000 years ago. Third, and perhaps most importantly, the evidence strongly suggests that human activities, in particular the burning of fossil fuels, are largely to blame.
You can find scientists who will dispute these findings. But these three broad conclusions - the earth is warming, this warming trend will worsen, and human activity is largely responsible - represent the overwhelming consensus of the scientific community. They are among the key findings of the Intergovernmental Panel on Climate Change, a U.N. body that draws on the expertise of hundreds of climate scientists around the world. And they were confirmed by a special panel of the National Academy of Sciences asked by President Bush to review the state of climate science.
What, then, does the science tell us about the potential impact of this warming? Put another way, what kind of future are we creating for our children and grandchildren? Some people like to see the bright side of global warming. Lower heating bills in winter, for instance, and longer growing seasons here in the Midwest. But there's good reason to believe that any potential benefits will be far outweighed by the costs.
Rising sea levels will flood coastal areas - a very real worry along portions of the U.S. coastline but a much greater worry for low-lying countries like the Netherlands and Bangladesh. In summer, higher temperatures will mean a greater risk of deadly heat waves. By 2100, for instance, the people of Chicago may be 25 times more likely to endure three straight days of 100-degree heat. Higher temperatures will also mean an increase in extreme weather-more flooding, more drought, and more severe storms. Rain and snowfall patterns will be disrupted, putting water supplies at risk. The Great Lakes are projected to drop 4 to 5 feet over the next 100 years, threatening irrigation supplies for farmers. And the lakes could be 5 degrees warmer, threatening the survival of native species like rainbow trout. Indeed, in the long run, the greatest risk may be the steady unraveling of ecosystems, the support systems for all life on earth.
There are, of course, uncertainties in the science, particularly when it comes to projecting the magnitude and timing of the kinds of impacts I've just described. But these uncertainties cut both ways. Yes, it's possible that the impacts of global warming won't be as bad as we now project. But it's just as likely they will be worse. For instance, most of our computer modeling assumes a linear relationship between rising temperatures and impacts: as the planet warms, the impacts grow worse, proportionately. But many scientists worry about the potential for a non-linear, or catastrophic, event. Last week, scientists reported the sudden breakup of an Antarctic ice shelf the size of Rhode Island. That same kind of event on a much larger scale - for instance, the collapse of the West Antarctic ice sheet - could trigger a catastrophic rise in sea level well beyond what is ordinarily predicted. So, for me, uncertainty in the science is hardly a reason to delay action. Quite the contrary - it's a reason to act now.
What kind of action must we take? For the moment, let's stick with the science. The earth is warming because we are adding carbon dioxide and other greenhouse gases to the atmosphere. Right now, there is about 40 percent more carbon dioxide in the atmosphere than there was at the dawn of the Industrial Revolution. If we continue with business as usual, CO2 levels will be twice the pre-industrial level by the middle of this century. This doubling of CO2 concentrations is the scenario most scientists have relied on in projecting the likely impacts of global warming. But what is now becoming clear is that it will be extraordinarily difficult, if not impossible, to stabilize concentrations at this level anytime within this century. Indeed, it now seems likely that by 2100 greenhouse gas concentrations will be approaching three times the pre-industrial levels. And that suggests that we may well face consequences more severe than those already projected.
Our goal, ultimately, must be to stabilize greenhouse gas concentrations in the atmosphere at levels that are reasonably safe. There is no consensus at the moment on what those levels might be. And this is not a question science can answer for us. The level of risk we as a society are willing to accept is, in the end, more a matter of values. But scientists generally agree that to stabilize concentrations at any reasonably safe level we must over time reduce our emissions of greenhouse gases 50 to 80 percent from current levels. Let me repeat that: we must reduce emissions of greenhouse gases 50 to 80 percent from current levels. Since emissions worldwide are now rising, and are certain to continue rising for some time to come, we clearly have a very long way to go.
How do we get there? What it is going to take, I believe, is nothing short of a new industrial revolution. As I said earlier, meeting the challenge of climate change requires a fundamental transformation in the way we power our economy. We must steadily reduce our reliance on coal and oil - the principal sources of the greenhouse gases we are putting into the atmosphere. And we must make the transition to clean sources of energy that can keep the global economy healthy, and keep it growing, without endangering the global environment. Industrial societies have been through major energy transitions before - we've gone from wood to coal, and from coal to oil. But unlike past transitions, we can't afford to wait for this one to happen on its own. We must make it happen. We must bring to bear the forces necessary to mount this new industrial revolution.
First is the force of technology - or, more accurately, the force of many new technologies. There is no silver bullet. Our ultimate success against climate change hinges on the development and deployment of a vast array of technologies that dramatically reduce the carbon intensity of our economy. Technologies that change how we produce electricity, how we move from place to place, how we farm and manage our forests, how we manufacture products - even how we build and manage our buildings. And the technologies that will enable industrialized countries to make the transition to clean energy must also be adapted and shared with developing countries, so they can leapfrog past carbon dependence and choose a more sustainable path from the start.
Looking at the major energy-using sectors of our economy, you can see on a broad scale the kinds of changes that are needed here in the United States. In the electricity sector, for instance, we need to gradually shift the supply mix away from coal, the dirtiest of the fossil fuels, toward natural gas, which is much lower in carbon, and towards solar, wind and other renewables. In transportation, we have to reverse the decline in the fuel efficiency of our cars and SUVs, because the internal combustion engine will be with us for a while longer and we do have the technology to make it more efficient. But we must also hasten the arrival of its successor, whether it be the hydrogen fuel cell or another technology. In buildings, where we use a third of our energy, smart technologies and smart design can deliver enormous energy savings without sacrificing comfort or quality of life. And finally, in manufacturing, we need to find ways to reduce emissions at every step - from changing inputs to redesigning production processes to reworking the entire product mix.
It's one thing to envision the kinds of technologies we need. It's another thing to make them real. For that, I believe, we must bring to bear a second force - the force of the marketplace. This is true not only because the necessary changes - whether they be new products, new processes, or new sources of energy - must take place within the marketplace. It is also true because only the marketplace can mobilize the investment, the productive capacity, and the ingenuity that is needed. The inspiration behind a new technology may spring from the mind of a scientist, an engineer - or maybe an overachieving undergraduate. But only the marketplace can quickly adapt this new technology to society's needs and desires, can produce and deliver it on a mass scale, and can figure out how to do it at the least possible cost. Just think how efficiently the market has put a cell phone into the hands of so many men, women and children over the last a few years.
So the marketplace, while quite obviously a driving force behind the continued rise in greenhouse gas emissions, must also be a driving force behind the solution. We must put the market to work to protect the climate. And if we do it right, not only the environment will benefit - the market will benefit as well. Many people still think that environmental protection and economic growth are inherently antagonistic goals. I believe they are wrong, and I believe the experiences of the companies we work with at the Pew Center show they are wrong.
One of the things we did when we launched the Pew Center four years ago was to bring together a group of major corporations that support action to address climate change. We call it the Business Environmental Leadership Council. The Council now includes 37 companies - primarily Fortune 500 firms - including Weyerhaeuser, Intel, Boeing, Dupont, Shell and Alcoa. Together these companies employ more than 2 million people and generate revenues of nearly $900 billion a year.
In their efforts against climate change, many of these companies have adopted targets for reducing their greenhouse gas emissions. Dupont, for instance, is working to reduce its emissions 65 percent below 1990 levels by 2010. Alcoa is aiming for a 25 percent reduction. Last month, Lord John Browne, the chairman and CEO of BP, announced that his company had already met its goal of a 10 percent reduction - eight years ahead of schedule - and is now committed to capping emissions at that level through 2012 even though BP's revenues are projected to grow 5.5 percent a year.
We published a study recently that analyzed a number of companies that have taken on voluntary greenhouse gas targets. These targets take many different forms. Some companies are ramping up their use of clean energy or improving their energy efficiency. For instance, Baxter International, a healthcare firm based outside Chicago is boosting its energy efficiency by 30 percent. Other companies are going beyond the production process and pledging to reduce emissions from the products themselves. In Europe, for instance, the major automakers - including, I would note, the American automakers - have pledged to reduce greenhouse gas emissions from their fleets 25 percent by 2008.
Our report took a close look at six of these companies - why they chose to adopt targets, and what their experiences have been. The companies cited several motivations: They believe the science of climate change is compelling, and in time the public will demand strong climate protections. They want to get ahead of the curve by reducing their own emissions, and by encouraging government policies that work well for business. But the companies all cited one other important motivation for taking on a target: to improve their competitive position in the marketplace. And that, in fact, has been the result. Each of these six companies is on track to meeting or exceeding its greenhouse gas goal. Together, they've delivered reductions equal to the annual emissions of 3 million cars. And at the same time, the companies are finding that these efforts are helping to improve operational efficiencies, reduce energy and production costs, and increase market share - all things that contribute to a healthier bottom line.
These voluntary efforts demonstrate that companies can internalize the costs of climate protection. They show how the very act of setting a goal spurs innovation and puts competitive instincts to work in a new direction. They demonstrate the ability of the marketplace to mobilize technology to address climate change. They are commendable, and they are instructive. But they are not enough. For the market will deliver only if it perceives a demand. And for that, we must bring to bear a third force - the force of government.
Government has several critical roles to play in sparking this new industrial revolution. We must look to government, first, to set the goal - to send a clear signal to the marketplace that this is the direction we must go. We must look to government, second, to prime the pump - to provide strategic assistance that will help spawn new technologies and then move them from the laboratory to the marketplace. And we must look to government, third, to keep everyone on track - to make sure we not only stay focused on the goal, but meet it - or face clear consequences. The marketplace can drive the technology; but only if government drives the marketplace.
Let me be clear: I am not advocating a draconian command-and-control system that says do it, and do it this way, or else. We've had enough experience with such approaches to know they won't work here. Rather, I am suggesting a thoughtful strategy that understands, respects and mobilizes the marketplace. I am suggesting a comprehensive but careful mix of measures that provides the marketplace with the necessary incentives - and the necessary flexibility - to get us to our goal, and do it cost-effectively.
So, what kind of signal is government sending the marketplace now? Let's look first on the international side. Over the last year, we saw both the greatest success and the greatest setback since the international effort to address climate change was launched a decade ago. The success was that after years of wrangling, nations finally agreed on a set of rules for implementing the Kyoto Protocol. The Protocol, which was negotiated in 1997, establishes the first binding international limits on greenhouse gas emissions. It points industrialized countries, at least, in the direction of emissions reduction. And it establishes a set of mechanisms to help countries meet their targets by tapping the power of the marketplace. Through a system of greenhouse gas trading, for instance, countries can buy emissions credits from other countries that are able to cut their emissions more cheaply. By harnessing the law of supply and demand, you achieve the greatest environmental return for every unit of investment. This approach, I would note, was written into Kyoto largely at the insistence of the United States, which pioneered the practice of emissions trading.
With the rules for implementing Kyoto now settled, the next step is ratification. The European nations are well on track, while vigorous debates are underway in Japan, Canada and other industrialized countries that face some serious challenges in meeting their Kyoto targets. It's by no means a sure bet, but I would say the prognosis is good for the Protocol to enter into force either this year or next. And that would be a major achievement.
The setback, of course, was President Bush's outright rejection of Kyoto early last year. I don't intend to spend any time here debating the merits of Kyoto, but let me say this: I agree with the President that the Protocol is flawed, but do not believe, as he does, that it is fatally flawed. The reality, though, is that he is the president. And given that, there is virtually no prospect of the United States returning to Kyoto, at least in the short term. The emphasis now must be on building a credible climate program here in the United States - one that, hopefully, can in time converge with the international effort to form a truly global strategy.
The national climate plan announced by President Bush in February is, unfortunately, not an auspicious start. It was encouraging in one respect: The Administration says it will develop rules to ensure that companies voluntarily reducing their emissions receive appropriate credit toward any mandatory measures that might later be put in place. Insofar as this tacitly acknowledges that mandatory measures may in fact be necessary, it represents a measure of progress. But beyond that, the President's plan offers only a promise - a promise that over the next decade the United States will do really no better than it's doing right now.
The President set a goal - a voluntary goal - of reducing the greenhouse gas intensity of the U.S. economy 18 percent by 2012. That means 18 percent fewer greenhouse gas emissions for every dollar of GDP. That sounds good. But when you do the math, you see that an 18-percent reduction in greenhouse gas intensity amounts to a 12-percent increase in actual emissions. The Administration says emissions are projected to grow even more, so the President's goal represents a real improvement. But if you look at data on what's actually happening, you see that greenhouse gas intensity is already improving in the United States, and the President's goal essentially continues the trends of the last two decades. In other words, it's more or less business as usual.
There are, however, signs that this issue is being taken more seriously at the other end of Pennsylvania Avenue. Despite the Administration's lackluster efforts - or, perhaps, inspired by them - there is growing bipartisan interest in Congress in doing something about climate change. In fact, there were nearly twice as many climate change bills introduced over the past year as in the previous four years combined.
These bills cover everything from regulating carbon dioxide emissions from power plants to boosting research and development on alternative fuels. Several would establish a national system for tracking and reporting greenhouse gas emissions - an important first step. The farm bill passed recently by the Senate would provide strong incentives to farmers to adopt practices that suck carbon out of the atmosphere. And Senators Lieberman and McCain plan to introduce a bill later this year to establish a nationwide cap-and-trade system - in other words, to cap greenhouse gas emissions nationwide and let companies buy and sell emissions credits. It's a bold idea - one that frankly I can't see being enacted for some time, probably years. Still, for the first time, Congress is engaged in serious debate about how the United States should meet its responsibilities on climate change.
And beyond the Beltway, we see not just debate, but action. States and local communities, instead of waiting for leadership from Washington, are taking up this challenge on their own. Over the past year, the Pew Center worked with the National Association of State Energy Officials to gather information on state programs that reduce greenhouse gas emissions. In February, we posted the initial results on our web site: a searchable database describing 21 state programs that have delivered real emissions reductions.
Oregon, for example, requires all new power plants to limit or offset their carbon dioxide emissions, making it the first state in the nation to enact mandatory carbon controls. Texas requires that all its electricity providers generate about 3 percent of their power using renewable sources. New Hampshire plans to cut emissions and save $4 million a year through energy-saving retrofits on state-owned buildings. Here in Illinois, a new Clean Energy Community Foundation is helping local governments and community groups improve energy efficiency and promote renewable power. And last fall, Chicago became the first city in America to join a voluntary emissions trading system called the Chicago Climate Exchange. Finally, here's one of my favorite examples: In Pattonville, Missouri, high school students have teamed up with state officials to run their school's boilers using methane captured from a neighboring landfill. Perhaps if we could channel the energies of high school students everywhere we'd have this thing licked.
But most high school students, I'm afraid, are channeling their energies elsewhere. And, unfortunately, so are many governments. Ten years after the Earth Summit in Rio, where nations pledged themselves to the fight against global warming, they are just barely getting started. Governments have yet to deliver a clear, unequivocal message to the marketplace that climate change can no longer be ignored.
What kinds of policies would get the message across? Here in the United States, we need a firm mandate that puts us on the path to long-term emissions reduction. And we need flexible policies that give companies room to find the most cost-effective ways to fulfill that mandate. Internationally, assuming Kyoto does get off the ground, we must start looking well beyond its short-term goals. As with a domestic program, firm mandates that move us toward our goal of stabilizing concentrations of greenhouse gas concentrations in the atmosphere are key. This will take more than keeping those countries committed to Kyoto on a downward emissions path. It will take putting the United States firmly on that path. And it will take moving major emitting countries in the developing world on cleaner energy paths as well. In short, we will need to forge an effective global strategy that combines the force of governments with the force of the marketplace.
So why haven't we made more progress? Because, I believe, we have not yet brought to bear the fourth, and perhaps most critical, force. That is the force of people--the sheer force of public pressure. Like the marketplace, government will deliver only if it perceives a demand. The polling shows that most Americans believe that global warming is real and that more should be done to address it. But those sentiments have yet to translate into an effective call for action. People are concerned, but they're also confused. And many feel powerless in the face of such a monumental challenge.
Let me suggest a few ways in which we do have power if we choose to exercise it. First - and I'm speaking now, of course, to those of you who are so inclined - don't underestimate your power as a citizen to sway your elected leaders. Next time one of your Senators is touring the state, show up at a town hall meeting and ask what he's doing to make our cars and tucks more fuel efficient, or our electricity supply less carbon-intensive. Believe me, it makes a difference. Second, you have power as a consumer. Once you understand the fundamental link between climate change and our use of energy, you can send your own signals to the marketplace. Every time you replace a regular light bulb with a compact fluorescent, or choose a more efficient appliance or car, you express a demand for climate protection. Third, you have power as an investor - at least those among you with something to invest. The more companies are asked by investors about their greenhouse gas emissions, the quicker they will reduce them.
These may seem like small steps, but they can add up. We all bear responsibility here. And only when we accept our responsibility and act on it - as citizens, as consumers, as investors - will government and the marketplace respond. The science, I believe, paints a compelling picture: Future generations face grave risks. The technology to avert those risks is, I believe, within reach. The marketplace has the power to deliver it. But government will demand it only when we do - only when we bring our force to bear.
Thank you very much.
A new climate change strategy for the United States announced by President George W. Bush on February 14, 2002, sets a voluntary "greenhouse gas intensity" target for the nation, expands existing programs encouraging companies to voluntarily report and reduce their greenhouse gas emissions, and proposes increased federal funding for climate change science and technology development. Some elements of the Administration's strategy may provide additional incentive to companies to voluntarily reduce greenhouse gas emissions. However, the Administration's target - an 18 percent reduction in emissions intensity between now and 2012 - will allow actual emissions to increase 12 percent over the same period. Emissions will continue to grow at nearly the same rate as at present.
Greenhouse Gas Intensity Target
Different types of targets can be used to limit or reduce emissions. One approach is an "absolute" target requiring that emissions be reduced by a specified amount. This is the approach taken by both the United Nations Framework Convention on Climate Change (UNFCCC), which set non-binding emissions targets for developed countries and was ratified by the U.S. Senate; and by the Kyoto Protocol, which sets binding targets but was rejected by the Administration.
The Administration's strategy instead sets a target for greenhouse gas intensity: the ratio of greenhouse gas emissions (GHGs) to economic output expressed in gross domestic product (GDP). This approach minimizes economic impact by allowing emissions to rise or fall with economic output; however, it provides no assurance that a given level of environmental protection will be achieved since the degree of environmental protection is measured in relation to GDP. Theoretically a GHG intensity target can lead to a net reduction in emissions, but only if it is sufficiently stringent. The Administration's target - an 18 percent improvement in GHG intensity over the next decade - allows a substantial increase in net emissions.
In 1990, total U.S. GHG emissions were 1,671 million metric tons in carbon equivalents (MMTCE) or 6,128 million metric tons in carbon dioxide equivalents (MMTCO2E). As of 2000, total U.S. GHG emissions were 14.1 percent above 1990 levels, or 1,907 MMTCE (6,994 MMTCO2E).
Although total emissions continued to rise, greenhouse gas intensity in fact fell over the last two decades. Contributing factors include energy efficiency improvements, the introduction of new information technologies, and the continued transition from heavy industry to less energy-intensive, service-oriented industries. In the 1980s greenhouse gas intensity fell by 21 percent. During the 1990s greenhouse gas intensity fell by 16 percent. The Administration's strategy aims to cut greenhouse gas intensity to a level of 151 metric tons carbon equivalent per million dollars of GDP by 2012, 18 percent below its present level. While this would represent a very modest improvement over the "business as usual" emissions projections for 2012 used by the Administration, it appears to continue the same trend of GHG-intensity reductions and GHG emissions increases experienced over the last two decades.
In terms of actual emissions, total U.S. GHG emissions would grow 12 percent by 2012, resulting in GHG emissions of 2,155 MMTCE (7,900 MMTCO2E). Emissions in 2012 would be 30 percent above 1990 levels (1990 is often used as a "base year" because the Framework Convention on Climate Change called for industrialized countries to return to their 1990 levels by 2000). The Administration proposes to achieve its GHG intensity target entirely through voluntary measures. Prior experience has shown that despite the existence of a range of voluntary government programs to encourage early reductions, despite significant actions by individual companies, and despite improvements in greenhouse gas intensity, emissions continue to rise as these gains are outpaced by economic expansion, changing consumer preferences, and population growth. Further, because the target (1) is voluntary, (2) represents only a slight change from the "business as usual" path, and (3) does not appear to advance specific policy solutions, it is unclear how this goal will be translated into actual reductions in GHG intensity across various sectors of the economy. Previous voluntary GHG targets, including the UNFCCC's target of returning to 1990 levels of GHG emissions by 2000, have not been met by the United States.
Voluntary Reporting Programs
The Administration's program calls for expansion of an existing Department of Energy voluntary reporting program, and also calls for the provision of "baseline protection" for those companies making voluntary reductions in advance of potential future requirements. "Baseline protection" would ensure that companies acting to reduce their emissions will have those emission reductions counted towards requirements to limit GHG emissions that may be put in place in the future. In addition, the President directed the Secretary of Energy to recommend reforms to allow the transfer of registered reductions across firms (i.e., trading).
The existing "Voluntary Reporting of Greenhouse Gases Program" is managed by the Energy Information Administration of the Department of Energy under section 1605(b) of the Energy Policy Act of 1992. The 1605(b) program records the company-reported results of voluntary measures to reduce, avoid, or sequester carbon.
Under the current program, organizations voluntarily submit information on their GHG reduction efforts, and the information is entered into a public database. The program allows companies broad discretion in determining the basis for calculating their emissions reductions. Companies must self-certify that their claims are accurate, and outside verification is not necessary. Emissions reduction claims submitted to the program are reviewed for arithmetic accuracy and the clarity of the information presented, but no verification of supporting documentation is required.
For 2000, 222 U.S. companies and other organizations reported to the program that they had undertaken 1,882 projects to reduce or sequester greenhouse gases. Reported emission reductions included 187 MMTCO2E in direct emission reductions, 61 MMTCO2E in indirect emission reductions, 9 MMTCO2E of reductions from carbon sequestration, and 12 MMTCO2E of reductions reported under the EIA 1605EZ form, which does not specify whether reported reductions are direct reductions or indirect reductions.
Reported direct emission reductions under this program represented 2.7 percent of total U.S. GHG emissions in 2000, while reported indirect reductions were 0.9 percent, unspecified reductions were 0.2 percent, and carbon sequestration represented 0.1 percent.
Concerns exist that the current 1605(b) program has limited credibility and scope because companies are allowed broad discretion in calculating emissions reductions, there are no verification requirements, and the vast majority of GHG emitters choose not to report. It is also possible that some of the same reported reductions are reported by more than one entity and are thus double-counted.
The President's program directs the Secretary of Energy to work with other key Cabinet officials to propose improvements to the program to enhance measurement accuracy, reliability, and verifiability.
In addition to 1605(b), a number of other government initiatives had been aimed at getting companies to reduce their GHG emissions voluntarily - efforts largely spurred by the UNFCCC's non-binding target. Some companies that have reduced their emissions voluntarily have participated in these programs. Though voluntary efforts have resulted in significant emissions reductions by some firms, in the aggregate, they have not succeeded at curbing the overall growth in U.S. emissions. In fact, U.S. GHG emissions increased 14.1 percent between 1990 and 2000.
The President announced that his FY 2003 budget provides $4.5 billion for global climate change-related activities, including the first year of funding for a five-year, $4.6 billion commitment to tax credits for renewable energy sources. These numbers are consistent with the Administration's previous FY 2003 budget request, and do not reflect additions to it.
Of this $4.5 billion, $700 million represents an increase relative to last year's budget. Most of the increase ($555 million) is for tax credits, including extending some tax credits that would have expired, expanding the applicability of others, and adding new ones. For example, the Administration proposed to extend the production tax credit for wind energy, expand the applicability of the credit for biomass power, and initiate tax credits for the purchase of hybrid, electric, and fuel cell cars. The budget also includes $150 million for the development of a hydrogen fuel-cell-powered automobile.
The President's FY 2003 budget proposal also appears to continue spending for research on science and technologies relating to climate change, and expands research in some areas (e.g., geological storage of GHGs and understanding of the carbon cycle). The budget also funds climate observation systems, international conservation efforts, and bilateral research initiatives.
Our Domestic Policy Recommendations
A number of potential U.S. domestic policy options are discussed in a policy brief published by the Center, entitled The U.S. Domestic Response to Climate Change: Key Elements of a Prospective Program. That policy brief outlines elements of a domestic climate change program that would: (1) require the tracking and reporting of GHG emissions, (2) promote new technologies and practices, and (3) secure long-term emissions reductions through a flexible mandatory program, such as a mandated cap on GHG emissions with market-based trading of emissions credits.