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POLITICS AND BUSINESS: CLIMATE CHANGE POLICY APPROACHES A TURNING POINT
SPEECH BY EILEEN CLAUSSEN
PRESIDENT, PEW CENTER ON GLOBAL CLIMATE CHANGE
DAVID BRADFORD SEMINARS ON SCIENCE, TECHNOLOGY, AND ENVIRONMENTAL POLICY
WOODROW WILSON SCHOOL OF PUBLIC AND INTERNATIONAL AFFAIRS
November 7, 2005
Thank you very much. It is a pleasure to be here at the Woodrow Wilson School and an honor to be delivering the David Bradford Seminar this week. I knew David when he was at the Council of Economic Advisors, and found him to be honest, thoughtful and engaged, so it is a double honor for me to be giving this seminar.
I am here today to talk about climate change policy. And I must admit that in the current political environment, with White House investigations and Supreme Court nominations dominating the agenda, it is a challenge to break through the noise and get people to pay attention to this issue. But never fear. In preparing my remarks, I had a couple of ideas for how to get action on climate change in the current political environment:
One is to start naming hurricanes after members of Congress who still say we don’t know enough about this issue to act. Or telling the White House that if they think they’re in hot water now, just wait. It’s only going to get hotter.
In all seriousness, the title of my remarks today is Politics and Business: Climate Change Policy Approaches a Turning Point. And I want to revise that, given the attention that’s gone to the recent bestselling book by the New Yorker writer Malcolm Gladwell. Rather than saying climate change policy is approaching a turning point, I want to say it is approaching a tipping point.
Gladwell defines a tipping point as “that one dramatic moment when everything can change all at once.” Granted, we are not there yet on climate policy, but we are certainly getting close. And I think there are two reasons for that: One is that the science of climate change has reached a point where it simply cannot be ignored or pushed aside. And the second reason is the growing number of financial and business leaders that are saying it is time to take this issue seriously – indeed, many are saying that it would be irresponsible not to take it seriously. As the private sector becomes increasingly vocal and active on this issue, particularly here in the United States, there is no doubt in my mind that our nation’s elected leaders will finally reach their tipping point – and step up and act.
Why are corporate leaders putting climate change on the agenda? The answer is simple: this is an issue that poses very real risks for business – and opportunities as well. And to ignore it is like ignoring those radar pictures we became so accustomed to this fall – those images of huge storms barreling toward our coastline. You can turn off the TV if you want, but that will not change the fact that we are all in the projected storm track for climate change. A business or an investor who is not thinking long and hard about how to respond is going to be like all those wrecked homes and boats we saw in the after-storm coverage. The boats all beaten and washed up on shore, the homes a shell of their former selves.
It is a tribute to the foresight of many in the private sector that they understand this and are beginning to plan for doing business in a world where climate change is a dominant concern. And today I want to talk about what investors and companies around the world are saying and doing about this issue.
Climate Change Science: An Open-and-Shut Case
But first I want to talk very briefly about the hurricanes we have seen this fall – and I will remind you the season’s not over yet. The U.S. Gulf Coast, as all of you know, was hit hard by hurricanes this year. Katrina alone killed more than 1,200 people, and we all know about the enormous destruction it left behind – an entire city decimated; 1 million displaced from their homes in coastal areas of Louisiana and Mississippi alone.
At the Pew Center, we have been quite busy answering questions about whether Katrina and these other storms were the product of global warming. And the honest answer is we don’t know for sure – no one does. But what we do know is that hurricanes draw their strength from the heat of the surface waters in the ocean. And as those waters get warmer, they are more likely to produce stronger storms. While Katrina was moving across the Gulf, the surface waters were unusually warm, about 2 degrees above normal for that time of year. Around the world, sea surface temperatures are more than 1 degree warmer on average than they were a century ago. So, whether or not Katrina and company were directly influenced by climate change, and there is certainly a case to be made that they were, they nevertheless are a sign of things to come.
Scientists have established beyond any reasonable doubt that the climate is changing, that these changes are the result of human activities, and that these changes are likely to become more pronounced – and more dangerous – in the decades to come. Instead of detailing all the various studies, I will refer you to the Pew Center website, www.c2es.org, for an overview of what we know.
An Economic Toll As Well
But it is not only the science of climate change that should cause us to stand up and take notice; it is also the economics of climate change. Katrina alone is projected to cost U.S. taxpayers as much as $200 billion. We saw disruption in our energy supplies, higher fuel prices, losses of farmland and crops, destruction of countless businesses large and small, effects on ports and shipping, and much more.
Consider the economic impact on the energy sector alone. Because of Katrina and Rita, 90 percent of crude oil production in the Gulf of Mexico was still “shut in” as of mid-October, meaning companies had made little progress in restoring output. Seventy-two percent of offshore natural gas production was still offline. And we’ve all heard what that is going to do to home heating bills this winter.
This is happening, I remind you, in an area that is responsible for 30 percent of U.S. oil production and about a quarter of our natural gas output. And that’s not even the whole story of how these storms damaged our energy infrastructure – because they also hit a region that boasts nearly half of the nation’s refining capacity. At its peak, Rita closed 16 refineries in Texas and Louisiana that together account for more than 5 percent of refining capacity. Some of these suffered significant damage and are likely to remain closed for months.
And the energy industry wasn’t alone in suffering these direct economic losses. Insurers took a big hit as well. Overall insured losses from Katrina and Rita are estimated at between fifty and seventy-five billion dollars. That’s not even counting the losses Wilma incurred in Florida, at this point estimated at between 8 and 12 Billion.
It is no wonder that the insurance industry has been out in front on the climate issue and making the case for action. Here is a statement from Munich Re Group, one of the world’s largest reinsurers. “The increasing weather extremes linked to impending climate change are already causing weather catastrophes of a new dimension.” End quote. According to another insurance giant, Allianz, climate change is increasing the potential for property damage at a rate of between 2 and 4 percent every year.
Allianz and Munich Re are not the only insurance companies that believe climate change is a risk. In the United States, AIG had this to say: “On the risk side, especially in the longer term of several decades and more, the potential impacts of climate change such as temperature rise, increased weather disturbance activity and sea level rise pose risks of widespread and possibly devastating damage to infrastructure in low-lying coastal areas, to forests and other ecosystems, to food production, to water resources and to human health. In turn, these potential consequences could result in far-reaching negative impacts on economies and societies worldwide.” End quote.
I believe the leadership of these insurance companies and their industry is emblematic of a broader shift in the private sector. You could say that insurers are the tip of the iceberg – and this one’s not melting.
The Investment Community Takes Note
Another segment of the private sector that is increasingly willing to raise this issue as a real concern is the investment community. Last May, there was a gathering at the United Nations titled the 2005 Investor Summit on Climate Risk. Participants included representatives of U.S. and international pension funds with collective assets of $5 trillion. CalPERS and CalSTERS, the pension funds for the state of California, were there, as were many other institutional investors from around the world. And the reason they were there was to talk about both the risks and the opportunities that climate change poses for investors.
Risks and opportunities. When you are entrusted with investing billions or trillions of dollars, you had better know a fair amount about both of these eventualities. What risks does climate change pose for investors? How can they know that the companies they invest in are positioned to manage those risks? And, in a similar sense, how can they gauge whether companies are prepared to take advantage of new opportunities presented by the growing movement toward regulation and carbon constraints?
The risks of climate change for the business sector can be broken out in three key ways. First, there is litigation risk – companies could face lawsuits. Some of these may be frivolous, while others may have merit. Either way, business needs to factor the risk of litigation into their planning.
The second category of risk facing the business sector is physical risk. Some sectors and businesses will face direct consequences from the physical impacts of climate change, including not just hurricanes, but also drought, sea level rise and flooding. I already talked about insurance companies. But what about agriculture, forestry, real estate and other industries that hinge on the physical environment?
In addition to litigation risk and physical risk, there is also regulatory risk – the risk of government taking action on this issue in a way that affects corporate profits. And this is the risk area that is likely to have the most immediate and substantial impact on businesses and investors.
I know what you are probably thinking. You are thinking that the chance of any meaningful regulation coming out of Washington on this issue any time in the near future is pretty dim. Of course it all depends on your definition of how near “near” is. And you are probably right. But the fact is that many companies, including U.S.-based multinationals, already are experiencing climate-related regulation in their operations in the EU, Canada and other countries working to implement the Kyoto Protocol. And, even here in the United States, most of the CEOs I talk to tell me they view regulation as an inevitability. Maybe not tomorrow or the next day, but sometime soon.
In fact, some of these CEO’s seem to prefer the certainty that comes with regulation to the no-man’s land they are operating in today. Consider what Jeff Immelt, CEO of GE had to say: “Long-term certainty would help us all make smart decisions,” he said. He continued: “We believe that the government can provide leadership by clarifying policy, by committing to market mechanisms [and] by promoting diverse energy sources.”
Jim Rogers, the CEO of Cinergy Corp., said it a little more succinctly: “One day, we will live in a carbon-constrained world.” End quote.
These are the CEO’s of major, major industry, and in the case of Cinergy, a major coal-burning energy company. And the air of inevitability in Jim Rogers’ statement should certainly be a wake-up call for investors that regulatory risk is real.
But of course, it is not just the risks associated with climate change that are attracting the attention of the investment community. It is also, as I said, the opportunities. Those companies that lead the way in low-emission vehicles, clean coal technologies, clean energy, and technologies for slashing emissions are going to be the winners in the 21st-century economy.
Right now, California’s massiveenvironmental risk management into the due diligence process of its private equity divisions.
What’s more, as part of the policy, JP Morgan Chase said it supports reductions in greenhouse gas emissions through market-based, national policies. This is a leading global financial services firm – $1.1 trillion in assets. And now it is leading in another way as well.
The actions of JP Morgan Chase and together with the United Nations Investor Summit on Climate Risk, are clear signs that investors are beginning to take this issue seriously.
And they are not the only signs. A couple of years ago, we saw the launch of The Ca state pension system is investing significant amounts in alternative energy businesses. GE plans to spend an additional $1.5 billion on research on clean technology. And every month, it seems there is another story of a major venture capital or private equity firm – I am talking about the big names like the Carlyle Group – investing in clean energy deals. So while there are many risks, there are also many opportunities out there because of climate change, and savvy investors know it.
Is everyone seeing this as an investment opportunity? Of course not. Just last month, Exxon Mobil announced nearly $10 billion in third-quarter profits but said it has no plans to put any of those earnings toward the development of alternative energy sources. “We’d rather re-invest in what we know,” said the company’s spokesman.
So it may not be for everyone. But you can’t deny that the investment community is beginning to factor climate change into their strategies and research. Last April, for example, JP Morgan Chase announced a set of environmental principles to guide the firm’s global investments and business efforts. Among the highlights: JP Morgan Chase will incorporate rbon Disclosure Project, or CDP. This is an initiative that enables a large number of institutional investors to collectively sign a request to companies for disclosure of their greenhouse gas emissions and climate strategies. When this project was launched in 2003, 35 investors totaling $4.5 trillion in assets signed on. Then in 2004, 95 investors accounting for $10 trillion became signatories. This year, the request to companies went out under the signatures of 155 institutional investors with combined assets of $21 trillion.
CDP then sends this request to the 500 largest companies in the world. Currently, more than 350 of these companies currently report their emissions and climate strategies through the CDP website.
What is happening here, I believe, is a reflection of the post-Enron, post-World Com environment. Investors are asking companies for an even higher level of transparency and information, not just in their accounting but in other risk areas as well. California’s massive pension funds and many others are actually pressuring the SEC to enact separate disclosure rules specific to greenhouse gas emissions.
A related factor in the movement toward greater disclosure is Sarbanes-Oxley. Because of this law, growing numbers of U.S. companies are weighing whether climate change may create a material impact on future earnings. And, as the number of companies disclosing emissions and exposure to climate-related risk increases, Sarbanes-Oxley actually strengthens the hand of activist shareholders who are pressing companies that have not yet addressed the issue.
A study by CERES last year found that oil and gas companies faced a record total of 31 shareholder resolutions on the climate issue in 2004. The filers of these resolutions included state and city pension funds, a foundation, socially responsible investment firms, and religious pension funds. And an important focus of the resolutions was risk disclosure – in other words, to what extent are these companies preparing for looming constraints on their carbon emissions?
So the bottom line, if you will excuse the pun, is that investors are flexing their muscle on this issue – these investors do not want to see corporate boards and CEOs with their heads buried in the sand. They want to see an acknowledgment of the problem, an understanding of its potential impact on business performance, and concrete strategies for staying ahead of the problem and even turning it into a platform for new products and increased profitability.
Business Steps Up to the Plate
And the good news is that those investors who are concerned about this issue are beginning to get what they want from the companies they invest in. At the Pew Center, we work with 41 leading companies to promote action on climate change. These are mostly Fortune 500 companies with a combined market capitalization of over $2 trillion and 3 million employees. They represent most industrial sectors and many of the largest emitters of greenhouse gases, including coal-burning utilities, mining companies, aluminum producers, automobile manufacturers, pulp and paper manufacturers, chemical companies, oil and gas businesses, and the cement industry. Council members include BP, Shell, General Electric, American Electric Power, DuPont, Toyota, Whirlpool, Intel, and more.
In joining the Council, these companies are united with the Pew Center in several beliefs, including this one – and I quote:
“We accept the views of most scientists that enough is known about the science and environmental impacts of climate change for us to take actions to address its consequences.”
To date, 30 of the 41 companies that work with the Pew Center have set targets to reduce their emissions, many of them more stringent than those in the Kyoto Protocol. And 13 of these companies already have met or exceeded at least one of their targets. And not a single one of these companies has found that it cost them money or market share. Of course, no one is under the impression that long-term efforts to address climate change will be cost-free. But the sooner we begin and the more we do to help companies manage these costs through market-based and flexible strategies, the more we will realize that we can reduce emissions without causing real and lasting damage to the economy or our competitiveness.
Let me talk briefly about what three of the companies we work with are doing – and I will start with one of the world’s largest companies, GE. GE just joined the Pew Center in July. It has committed to reduce its greenhouse gas emissions by 1 percent by 2012, relative to 2004 levels, and it will increase energy efficiency by 30 percent. Based on the company’s projected growth, GE’s emissions would have risen 40 percent by 2012 without further action.
But this is really not what is significant about GE. Much more important is that GE is committed to doubling its investment in environmental technologies to $1.5 billion by 2010. Think about that for a moment: $1.5 BILLION by 2010 – that is basically the equivalent of starting a new Fortune 250 company – focused exclusively on clean technology. These efforts are part of GE’s “Ecomagination” initiative to aggressively bring to market new technologies that will help customers meet pressing environmental challenges. In one instance here, you have a company addressing both the risks and the opportunities of climate change.
I also want to tell you about the work of Cinergy. I quoted Cinergy’s CEO, Jim Rogers, at the start of my remarks. This is a company that burns more than 30 million tons of coal each year, and it devoted its entire 2004 annual report to climate change – not to debunk the issue or attack the science, but to acknowledge that climate change is a problem, and that Cinergy should be a part of the solution. Cinergy’s goal is to reduce greenhouse gas emissions to an average of 5 percent below 2000 levels during the period from 2010-2012.
Cinergy recently announced plans to merge with Duke Energy, and Jim Rogers said that one rationale for the merger is the imminent arrival of carbon constraints. Duke Energy, he says, has a significant number of clean-burning natural gas plants, which will allow Cinergy to retire some of its coal-burning facilities more quickly.
The third company I want to talk briefly about today is Alcoa. Alcoa already has met its 2010 goal of reducing companywide emissions of greenhouse gases by 25 percent from 1990 levels. And in June, Alcoa issued a forecast that the aluminum industry could be greenhouse-gas neutral by 2017. Among the reasons: the increased use of aluminum in cars and trucks, which will reduce emissions from that sector. While this is an ambitious goal, there will likely be some lively debate about which industry – aluminum or autos – gets credit for this reduction.
GE, Cinergy, Alcoa and the other companies we work with at the Pew Center aren’t just looking internally at what can be done to address the climate problem. They are also looking beyond their own operations at public policies. For many years, there was a real hesitancy among business leaders to speak out on this issue, but that is changing. Why are the companies and the CEOs I have mentioned stepping out from behind the shadows now? Because they see that regulation is inevitable, and they want to make sure it is regulation they can live with. They see the states stepping into the void and adopting state and regional policies that seek to curb emissions. They see other countries putting together their own policies, some of them quite ambitious. They see that these actions are having a real effect – or soon will – on significant portions of their operations around the world. They get the picture. It’s inevitable to them that regulation is coming down the pike. In many cases, it is already here.
In addition to their interest in staying a step ahead of the regulations, these companies also want a higher level of certainty – they’re frankly tired of not knowing what’s going to be expected of them in the years ahead. It gets back to the issue of regulatory risk – they need to know what kind of risk they face.
Here is Wayne H. Brunetti, CEO and Chairman of Xcel Energy, as quoted in Business Week: “Give us a date, tell us how much we need to cut, give us the flexibility to meet the goals, and we’ll get it done.”
Four of the companies we work with at the Pew Center testified in front of the House Science Committee this year. The companies included Cinergy, DuPont, Baxter and United Technologies. Another company on the Council, Whirlpool, submitted written testimony. Their message: they are already living with greenhouse gas regulations in Europe and they are thriving in those places. These companies also told the committee that a lot of what they’re doing to cut emissions has bottom-line benefits. Efficiency pays. It’s smart business.
These companies are demonstrating a real boldness in entering the policy debate on this issue. They see it as absolutely essential to couple the work they are doing to reduce their emissions with a more active policy stance. The policy decisions that are made on this issue will have important implications for their future profits and performance, and these companies feel they have a responsibility to their shareholders to be involved.
Policies for Moving Forward
These companies also see a pressing need for U.S. leadership in the international arena. Remember: many of these firms are multinationals – they have operations around the world. So, in the same way that they want certainty here at home, they also want to know that policies around the world will be as predictable and as integrated and as consistent as possible.
At the G-8 meeting this past June in Gleneagles, Scotland, 20 business leaders were part of a special Climate Change Roundtable that identified a set of key principles for climate change policy. Included in those principles are the following:
- “Policy frameworks that use market-based mechanisms to set clear, transparent and consistent price signals over the long term offer the best hope for unleashing needed innovation and competition.”
- “Solutions must be global – participation of all major emitters is essential.”
The fact that these corporate leaders, including some from the United States, were able to agree to these and other principles shows how important they perceive this issue is for the future of their businesses. Business is in many respects leading the way, and it is time for policy makers, particularly those in Washington, DC, to get the message and act on their behalf.
What should policymakers do? Over the past year, the Pew Center brought together a group of policymakers and stakeholders from around the world to consider that question. We just recently held our last meeting and we’ll be releasing our final report, International Climate Efforts – Beyond 2012 next week. So without giving away too much, let me share with you a couple of key points.
First, while ultimately we need a fully global approach, what’s absolutely imperative at this stage is engaging the major economies. That includes the United States and the major developing countries. Twenty-five countries account for 83 percent of global emissions. They also account for 71 percent of global population and 86 percent global GDP. This is the core group that needs to act. It’s important, at the same time, that we recognize the tremendous diversity within this group. Their per capita emissions range by a factor of 14; their per capita income by a factor of 18.
So while all the major economies must commit to stronger action, we need to recognize and respect those differences, and allow different countries to take different kinds of approaches best suited to their needs and circumstances.
This leads to a second point: We need a more flexible framework, one that can accommodate different approaches by allowing for different kinds of commitments. Emission targets may work for some countries; but not for others. Maybe the best approach is some type of policy commitment that doesn’t entail a binding emissions limit. In the dialogue, we looked at a whole range of options, and the final report identifies those that seem most promising, and looks at ways they can be combined into a comprehensive framework. But for those details, I’ll have to ask you to stay tuned. The report will be out in just a few days, and we’ll have lots more to say about these ideas in the months ahead.
For now, suffice it to say that a tipping point is almost upon us. The combination of growing scientific certainty, growing concern – and growing action – among businesses and investors has brought us to a place where the kinds of international policies I am talking about are no longer a pipe dream. Even the U.S. Senate has shown support for real action, with a majority of senators supporting a resolution this summer that called for a mandatory national program to slow and eventually reverse U.S. emissions. The resolution was nonbinding, but it is yet another sign of change.
Thanks in large part to the leadership of the financial and business communities; climate change policy is approaching “that one dramatic moment when everything can change all at once.” My only fear is that this tipping point in policy arrives too late to keep another tipping point at bay – the point at which catastrophic climate change becomes inevitable, a force too strong to stop.
That is one case when tipping will not be appreciated. Thank you very much.
Climate Data: A Sectoral Perspective
Prepared for the Pew Center on Global Climate Change
Kevin Baumert, Jonathan Pershing, Timothy Herzog
World Resources Institute
Download entire report (pdf)
At the G8 Summit held on July 6-8, 2005, in Gleneagles, Scotland, leaders of the Group of 8 countries issued a joint communiqué and a “plan of action” on Climate Change, Clean Energy, and Sustainable Development.
The G8 Summit in Gleneagles has advanced the international debate on climate change and opened a new political dialogue that can in time lead to broad, effective international action.
For the first time ever, leaders of the major industrial economies and the major emerging economies sat together with the challenge of climate change placed squarely before them. This is precisely the group that must form the core of an effective international climate effort. One encouraging outcome of their discussions was the decision by G8 leaders to launch with other interested countries a Dialogue on Climate Change, Clean Energy and Sustainable Development. This dialogue presents an important opportunity to explore potential paths forward and to forge the political understandings that must be the underpinnings of an effective global climate strategy.
In acknowledging the human contribution to global warming, and the urgency of reducing greenhouse gas emissions, the leaders took an important step toward that deeper political consensus. The Summit delivered little in the way of concrete action; there was little reason to believe it would. Yet by placing climate change at the top of the Summit’s agenda, Prime Minister Blair forced a necessary debate at the highest levels and won agreement to take the conversation forward. It will be up to the G8 leaders and their developing country counterparts to ensure its success.
TESTIMONY OF ELLIOT DIRINGER
PEW CENTER ON GLOBAL CLIMATE CHANGE
COMMITTEE ON ENVIRONMENT AND SUSTAINABLE DEVELOPMENT
HOUSE OF COMMONS
MAY 31, 2005
Mr. Chairman, members of the Committee, thank you for the opportunity to contribute to the Committee’s consideration of the vital issue of climate change. My name is Elliot Diringer and I am director of international strategies at the Pew Center on Global Climate Change.
The Pew Center is a U.S.-based non-governmental organization dedicated to providing credible information, sound analysis and innovative solutions in the effort to address global climate change. Since our founding in 1998 the Center has published more than 50 peer-reviewed reports on climate science, economics, policy and solutions. In addition, through the Center’s Business Environmental Leadership Council (BELC), we work closely with 39 major corporations to develop and promote practical and effective climate change policies. The BELC includes two Canadian firms, TransAlta and Ontario Power. The BELC companies do not contribute financially to the Center.
My aim today is to provide you with our perspective on the options for advancing the international climate change effort beyond 2012. Allow me to begin by noting that the Pew Center welcomes the Kyoto Protocol’s entry into force. We commend the Canadian government for its commitment to the Protocol, and for its efforts toward a workable and effective implementation strategy. We believe, however, that in looking beyond 2012 it is important to look beyond the Kyoto Protocol at the full array of options.
The challenge before us is to engage all the world’s major greenhouse gas-emitting countries in a long-term effort that fairly and effectively mobilizes the technology and resources needed to stabilize the global climate. Over the past three years, the Pew Center has led an initiative to facilitate constructive thinking and dialogue on options for advancing the international climate effort. As part of that effort, the Center has convened the Climate Dialogue at Pocantico, which brings together senior policymakers and stakeholders from around the world for a series of off-line discussions exploring options beyond 2012. The 25 participants include policymakers from Australia, Brazil, Canada, China, Germany, Japan, Mexico, Tuvalu, the United Kingdom, and the United States; executives of companies such as Alcoa, BP, DuPont, Rio Tinto, and Toyota; and NGO representatives from India, Switzerland, and the United States. The group has met three times and will convene for a final session this September. In a moment, I would like to describe the options presently under consideration.
First, however, I would like to introduce some of the broad insights that emerged from our initial work on these issues and served as an important foundation for our dialogue discussions. Four brief points:
- First, while the climate challenge is ultimately one of mobilizing technology, it is in the first instance one of mustering political will. Some approaches to international action can better assist in that than others.
- Second, scientific and economic uncertainty is not a justification for inaction, but rather an additional rationale for acting now.
- Third, while climate change is a common challenge, countries will engage in collective action only if they perceive it to be in their national interest. A multilateral approach must therefore recognize and accommodate domestic concerns such as development and competitiveness.
- Fourth, bridging diverse national interests requires a flexible architecture that allows different types of commitments for different countries.
As further input to our dialogue process, we also examined a broad array of emissions, energy, economic, and socio-economic data, focusing primarily on the 25 largest emitting countries. [See Climate Data: Insights and Observations.] These 25 countries account for 83 percent of global greenhouse gas emissions. Seventeen of them are also among the world’s most populous countries, and twenty-two are among those with the highest GDPs. The group of top emitters varies little whether considering only carbon dioxide (CO2) emissions from fossil fuel combustion, or CO2 from land use change as well, or other greenhouse gases; or whether looking at present, cumulative, or projected emissions. These data strongly support the view that to be effective in the long term the international climate effort should at a minimum include these larger emitters. The data also show, however, the tremendous diversity within this group; it includes almost an equal number of developed and developing countries, as well as economies in transition. Their per capita emissions and per capita incomes vary widely, with important implications in understanding both responsibility for climate change and capacity to address it.
With that background, I would like to turn now to the options presently under consideration within our Pocantico dialogue. As I noted a moment ago, we believe the aim in the next stage of the international climate effort must be a flexible architecture able to accommodate different strategies and commitments. In assessing the options, we began by looking at a range of approaches, not as alternatives per se, but rather as potential elements in such a framework. Through the course of discussion, the group has more or less settled on six such elements:
The first element is what we call an aspirational long-term goal. Addressing climate change is a long-term effort, and in undertaking it, it is important to know what we are aiming for. However, trying to negotiate a specific quantified long-term target would likely be futile, and possibly even counterproductive. As an alternative, governments, businesses, or expert communities – acting individually or in groups – can put forward “aspirational” goals consistent with the ultimate objective of stabilizing greenhouse gas concentrations at a level that avoids dangerous anthropogenic interference. Several governments and some businesses have already done so. Such goals, expressed in terms of temperature and/or concentrations, can serve to spur and guide future climate efforts, without serving as a formal basis for negotiating commitments.
The second element is targets and trading. The principal virtue of this approach is cost-effectiveness. In addition, it builds on the existing Kyoto architecture, the European Union’s emissions trading systems, and the other trading systems now emerging. The Kyoto approach, however, relies on a particular type of target – it is binding and focused on absolute emission levels. A future approach could incorporate different types of targets. Two possibilities are emissions intensity targets, or no-lose targets, which would provide incentive for developing countries to undertake reductions by allowing them to market any reductions below their targets without imposing penalties if their targets are exceeded. Different groups of countries could take on different types of targets, with further differentiation within groups in order to reflect particular national circumstances.
Our third element is sectoral. Rather than economy-wide targets, the idea here is to structure commitments around some of the key emissions-generating sectors, such as power, transport, land use, or energy-intensive manufacturing. Such an approach can help ease competitiveness concerns by ensuring a level playing field across a given sector. Commitments could take the form of emission targets; performance-based standards (for instance, regulating carbon emissions from autos); or technology-based standards (for instance, in the power sector, requiring the phase-in of advanced combustion and carbon capture-and-storage technology for new coal-burning power plants).
A fourth element is sustainable development policies. The objective here is to capitalize on natural synergies between climate and development objectives by promoting measures that simultaneously advance both. These could include energy policies such as cost-based pricing, transportation measures to promote mass transit and cleaner fuels, or agricultural policies supporting sequestration-promoting practices. One approach would be for countries to commit to broad policy objectives, then pledge specific national measures to achieve them, with periodic reporting subject to international review. Verified emission reductions achieved through these measures could be marketed through a mechanism similar to the Clean Development Mechanism, which would certify credits on a “programmatic” or sectoral basis, rather than project by project. These approaches may better engage developing countries by speaking directly to core development concerns, and by not imposing a quantified emissions limit.
A fifth element is technology approaches. All of the earlier elements seek in some way to drive technology into the marketplace. But there is also a role for approaches that seek to directly drive technology – in particular, the breakthrough technologies we will need to achieve reductions on a much larger scale over the long term. One possibility is that countries set a long-term goal of zero-net emissions in the power or auto sectors. Another possibility is stronger international cooperation and funding for the research and development of potential breakthrough technologies such as hydrogen, biomass fuels, or carbon capture-and-storage.
The sixth and final element is adaptation. All the approaches I’ve described thus far focus on mitigation – reducing emissions. But if we are to achieve agreement on a new framework, particularly if it is to include some form of commitment for developing countries, it must deliver more on adaptation. One possibility is to establish climate disaster funds to provide relief to poor countries suffering climate-related losses, whether the result of climate change or climate variability, and to offer subsidized climate disaster “insurance” to middle-income developing countries. Proactive adaptation might be better promoted by mainstreaming adaptation across the full range of development assistance, rather than through climate regime. For instance, multilateral development banks could adopt new lending guidelines to routinely incorporate climate risk assessments and adaptation measures in project design, review, and approval.
As I noted, we view these elements not as alternatives but as potential building blocks for a broader international framework. In our dialogue discussions, we have only begun to consider ways the elements might be linked, so I cannot offer specific ideas at this time. However, we look forward to sharing the final outcomes of the dialogue following our concluding session in September.
Our aim in the dialogue is to offer some vision of where the international climate effort might go in the future. An immediate question, however, is whether and how to launch a more formal process among governments to begin considering post-2012 options. In offering to host the upcoming climate talks in Montreal, the Canadian government has taken on a very significant challenge. The conference will take the final steps to put the Kyoto Protocol fully into motion. It will be more successful still if parties also are able to take the first steps toward further broadening and strengthening the international effort. Many governments have signaled their willingness to start, and we wish the Canadian government every success in this endeavor.
Thank you for the opportunity to provide this input. We would be pleased to contribute further to the Committee’s consideration of these issues and to the Government’s efforts to strengthen the international climate effort.
Judith M. Greenwald, Director of Innovative Solutions at the Pew Center, Discusses Keeping the Nuclear Power Option Open
(This article appeared in Oxford Energy Forum, May 2005)
Addressing the challenge of global climate change will require a sustained and comprehensive commitment to climate-friendly policies and investments throughout the world. Such policies and investments must be focused on enabling a transition to a low-carbon economy through a significant reduction in annual greenhouse gas (GHG) emissions by 2050. A commonly stated goal is to stabilize the atmospheric concentration of carbon dioxide (CO2) at twice its pre-industrial level. Such a “decarbonization” in the context of increasing global demand for energy would necessitate an increase of roughly 100 to 300 percent of present-day worldwide “primary power” consumption from non-CO2-emitting sources such as renewables, nuclear power, the use of fossil fuels with carbon capture and sequestration, and energy efficiency improvements.
Achieving this transition depends on both near-term and long-term actions...
Congressional Testimony of Eileen Claussen: Regarding the Climate Change Technology Deployment in Developing Countries Act of 2005 (S.883)
STATEMENT BY EILEEN CLAUSSEN, PRESIDENT
PEW CENTER ON GLOBAL CLIMATE CHANGE
REGARDING THE CLIMATE CHANGE TECHNOLOGY DEPLOYMENT
IN DEVELOPING COUNTRIES ACT OF 2005 (S.883)
Before the International Economic Policy, Export and
Trade Promotion Subcommittee, The Foreign Relations Committee
United States Senate
May 19, 2005
Mr. Chairman and members of the subcommittee, thank you for the opportunity to testify on the Climate Change Technology Deployment in Developing Countries Act of 2005 (S.883) introduced by the chairman. 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. Thirty-nine 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.
Global climate change is real and likely caused mostly by human activities. While uncertainties remain, they cannot be used as an excuse for inaction. Temperatures at the Earth’s surface increased by an estimated 1oF over the 20th century. The 1990s were the hottest decade of the entire century; perhaps even the millennium, and 1998, 2001, and 2002 were three of the hottest years ever recorded. The growing scientific consensus is that this warming is largely the result of emissions of carbon dioxide and other greenhouse gases from human activities including industrial processes, fossil fuel combustion, and changes in land use, such as deforestation. Projections of future warming suggest a global increase of 2.5oF to 10.4oF by 2100, with warming in the United States expected to be even higher. This warming, along with the associated changes in precipitation and sea-level rise, will have important consequences for the U.S. environment, economy and security.
I believe there are three things we in the United States must do to reduce the real and growing risks posed by global climate change: First, we must enact and implement a comprehensive national program to progressively and significantly reduce U.S. emissions of greenhouse gas emissions in a manner that contributes to sustained economic growth. While I am happy to elaborate on this point, that is not my intent today. Second, we must strengthen our efforts to develop and deploy climate-friendly technologies and to diffuse those technologies on a global scale. That is the primary thrust of the bill before you today. And third, the United States must work with other countries to establish an international framework that engages all the major greenhouse gas-emitting nations in a fair and effective long-term effort to protect our global climate. I would like to return to this point later in my testimony and offer specific ideas on how this third critical challenge can best be met. First, though, let me discuss the specifics of the Hagel bill.
We must strengthen efforts to develop and deploy climate-friendly technologies on a global scale. Standards of living are expected to rise in developing countries over the next few decades, and, as they do, energy demand will rise. China, for example, expects to build 544 gigawatts of new coal capacity between 2003 and 2030, far more than current coal capacity in the United States. Shanghai predicts a quadrupling of cars and trucks by 2020, and car sales in Delhi have risen 10% per year since the mid-1970s. If we are going to address the climate change problem, the huge growth in energy demand in developing countries has to be as climate-friendly as possible.
Sen. Hagel’s bill is intended to address exactly that challenge. The bill would have the Department of State identify the top 25 energy users among developing countries, describing among other things the quantities and types of energy they use, and the greenhouse gas intensity of their energy, manufacturing, agricultural and transportation sectors. The bill would require the development of a technology strategic plan, and provide for at least ten demonstration projects to promote the adoption of technologies and practices that reduce greenhouse gas intensity in developing countries. The bill would identify potential barriers to the export and adoption of climate-friendly technologies. All of these would be useful activities.
I would, of course, like to offer a few suggestions.
First, we should tailor the assistance provided to developing countries to their needs. It is in the interest of the United States for developing countries to develop, and thereby to increase the health and well-being of their people, and it is important to recognize that the path each country takes in its development will vary. Our efforts to promote the deployment of climate-friendly technologies will occur in the context of these varying paths to development. Rather than viewing climate-friendly technology deployment as an exercise in funding demonstration projects or increasing technology exports, our objective should be to integrate climate-friendly activities into national strategies for economic growth, poverty reduction, and sustainable development. We should be helping developing countries build their capacity to assess clean energy options and establish policy frameworks that will favor such options even after our funding assistance is gone.
The reality is that the highest priority for most developing countries is economic growth and development. Energy policies and plans are critical to achieving those priorities. Making climate change one of the drivers of energy policy, as the United Kingdom has done, will move us toward meeting our goal of a stable climate. It is in this context that we should support and promote efforts by the largest developing countries to identify specific goals for limiting their emissions of greenhouse gases – recognizing that their goals may vary in form, content and timing. One way to do that would be to require that the largest developing countries, in agreeing to receive assistance under this bill, would establish goals consistent with their development strategies, and periodically report progress towards meeting them.
Second, we would recommend tracking progress under this bill not only in terms of greenhouse gas intensity, but in terms of actual greenhouse gas emissions. Measuring intensity is useful in that it allows us to distinguish a reduction in emissions that results from a genuine improvement in the technology from a reduction due to reduced production. Intensity reduction, however, is not a surrogate for emission reduction, and our objective of achieving a stable climate must entail actual emission reductions. We therefore should be tracking our progress in those terms.
I would respectfully suggest that Senator Byrd’s International Clean Energy Deployment and Global Energy Markets Investment Act of 2005 (S.745) takes a useful approach to the issues I have just mentioned. It might be beneficial to merge these aspects of the Byrd bill with the Hagel bill.
An international technology deployment program, such as the Hagel bill, can only be effective in the context of an international framework that engages all major emitting countries in the effort against climate change. So even more critical, I believe, is the third challenge I identified at the outset: establishing a fair and effective international framework to engage all major emitting countries in the effort against climate change.
Through an initiative called the Climate Dialogue at Pocantico, the Pew Center has engaged with policymakers and stakeholders from around the world in a wide-ranging examination of specific options for advancing the international climate effort. I would like to share with you some of the insights and observations emerging from this ongoing dialogue.
First, there is no getting around national interest. Climate change is a collective challenge. However, the political reality is that nations will join in meeting this collective challenge only if they perceive it to be in their national interests. A multilateral framework must therefore recognize and accommodate the very real and significant differences among nations. The key here is flexibility. We need a framework flexible enough to allow different countries to undertake the different types of strategies best suited to their national circumstances. To accommodate different types of strategies, we must allow for different types of commitments. For instance, a quantified emissions limit may be appropriate for some countries, while for others some form of non-quantified policy commitment may be more feasible and effective. Also, commitments could apply economy-wide, or they could be structured around specific sectors.
There are many possibilities and the time to begin considering them is right now. In its present form, the Kyoto Protocol extends only to 2012. Under the terms of the Protocol, parties must begin consideration of new commitments this year. This process will begin when climate negotiators meet later this year in Montreal. While the United States is not a party to the Protocol, it can, if it so chooses, exert great influence on the pace and direction of these discussions. Other countries would very much welcome the United States’ engagement. Most have come to accept that the United States will never be a party to the Kyoto Protocol. And they understand that a truly effective international approach – one with the full engagement of the United States and the major developing countries – will require moving beyond Kyoto. The Administration has thus far taken the position that it is premature to discuss post-2012 options. Quite to the contrary, it is essential that we begin now, with the United States fully and constructively engaged.
Toward that end, I believe the most powerful step the Senate could take to reestablish U.S. leadership on this vital global issue would be to revisit and update the sense of the Senate on the future of the international climate effort. As we all know, Senate Resolution 98 of the One Hundred Fifth Congress – the Byrd-Hagel resolution – has had a profound influence on the climate debate here and abroad. As the international climate effort enters a new stage, a new Senate resolution can again shape the debate. It can help ensure that the United States is at the table and define the terms of U.S. engagement; and, in so doing, it can help achieve the best possible outcome.
I would strongly encourage the Foreign Relations Committee to consider, and to report to the full Senate, a resolution advising the Executive Branch to work with other nations, both under the Framework Convention and in other international fora, with the aim of securing U.S. participation in agreements consistent with the following four objectives:
First, to advance and protect the economic and national security interests of the United States. Potential climate change impacts such as chronic drought, famine, mass migration, and abrupt climatic shifts may trigger regional instabilities and pose a growing threat to our national security interests. Addressing climate change, on the other hand, can greatly strengthen U.S. security by reducing our reliance on energy imports. Sea-level rise and other climate impacts pose a direct economic threat as well, to U.S. communities and to U.S. businesses. On the other hand, our response to climate change, if not well conceived, could pose a different sort of economic burden. It is imperative that we both avoid the economic consequences of climate change, and minimize the costs of addressing climate change.
Second, to establish mitigation commitments by all countries that are major emitters of greenhouse gases. Ideally, a global challenge such as climate change should be met with a full global response. What is most critical at this stage, however, is getting the largest emitters on board. Twenty-five countries account for 83 percent of global greenhouse gas emissions. Seventeen of them are also among the world’s most populous countries, and twenty-two are among those with the highest GDPs. To be truly effective, these major emitters must be part of the solution. While we cannot expect all these countries to act in the same way, or necessarily in the same timeframe, we believe that all must commit to take action.
Third, to establish flexible international mechanisms to minimize the cost of efforts by participating countries. The United States has led the world in demonstrating that well-designed market-based approaches can achieve the greatest environmental benefit at the lowest cost. U.S. negotiators fought rightly and successfully to build market mechanisms into the Kyoto architecture. U.S. economic and business interests will be best served by an international climate strategy that uses emissions trading and other mechanisms to ensure that our efforts are as cost-effective as possible.
And, fourth, to achieve a significant long-term reduction in global greenhouse gas emissions. Our initial efforts to address climate change, both domestically and internationally, can be at best first steps. But in taking these steps, we must remain cognizant of our ultimate objective – stabilizing the global climate – and we should craft policies and agreements robust enough to drive and sustain the long-term efforts needed to achieve it.
I believe these four principles form a solid foundation for constructive U.S. engagement and urge that they be incorporated in a new Sense of the Senate resolution. Moreover, such a resolution strikes me as being very much within the spirit of the Hagel bill and could well be taken up as an amendment to it.
In closing, the most important thing Sen. Hagel has done in writing S.883, and that the subcommittee has done in holding this hearing, is to join the question of how best to address climate change. As Senator Hagel has said, “Achieving reductions in greenhouse gas emissions is one of the important challenges of our time.” And: “We all agree on the need for a clean environment and stable climate. The debate is about solutions. The question we face is not whether we should take action, but what kind of action we should take.” I thank and commend Sen. Hagel for placing these issues before you, and thank the subcommittee for the opportunity to testify. The Pew Center looks forward to working with the committee and Sen. Hagel on S.883 and on any future climate change legislation.
Full Article (PDF) in French
Press Advisory: Pew to Convene Australia-New Zealand Forum on Future of International Climate Change Effort
For Immediate Release: March 10, 2005
Contact: Katie Mandes, +1 703.516-0606
PEW CENTER TO CONVENE AUSTRALIA-NEW ZEALAND FORUM ON FUTURE OF INTERNATIONAL CLIMATE CHANGE EFFORT
Minister Ian Campbell, Minister Pete Hodgson Will Address April 8 Event in Sydney
Washington, DC – The Pew Center on Global Climate Change today announced that it will convene the Australia-New Zealand Climate Forum, a gathering of policymakers, stakeholders, and experts to explore options for advancing the international climate change effort beyond 2012. The event, to be held April 8 in Sydney, is being organized in cooperation with the Australia and New Zealand governments.
The forum is part of a broader initiative by the Pew Center, an independent U.S.-based think tank, to promote constructive thinking and dialogue on next steps in the international climate effort. Over the past year, the Center’s Climate Dialogue at Pocantico has brought together senior policymakers and stakeholders from 15 countries to discuss post-2012 options. The Sydney forum provides an opportunity for the region’s leading climate figures to learn about and contribute to this ongoing dialogue.
Speakers at the forum will include Ian Campbell, Minister for the Environment and Heritage in Australia, and Pete Hodgson, Minister of Transport and Convenor of the Ministerial Group on Climate Change in New Zealand.
“There is a critical debate emerging over the future of the international climate effort. Our aim in Sydney will be to help ensure that the region’s key players are fully informed and engaged as this debate moves forward,” said Pew Center President Eileen Claussen, former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.
“It is clear to all involved that the Kyoto Protocol is at best a start in the international climate effort. We think it’s important to look beyond Kyoto. We need new approaches that will engage all the large greenhouse gas emitters in a serious long-term effort that protects both the global climate and the global economy. That will be the focus of our discussions in Sydney, and we are grateful to the governments of Australia and New Zealand, and in particular to Minister Campbell and Minister Hodgson, for hosting this timely discussion,” Claussen said.
The day-long forum will have two segments – a Leaders Roundtable in the morning with Ministers, CEOs, and other senior officials and executives; and a larger gathering in the afternoon with a broader group of policymakers, stakeholders, and experts. Participation in both segments is by invitation only. A briefing for interested press will be held the day before the forum (see note below).
Each session will feature presentation of analysis and post-2012 options developed in connection with the Pocantico dialogue. The afternoon session also will include responses from experts and stakeholders in the region, including: Catherine Beard of the Greenhouse Policy Coalition; Gregg Bourne of the World Wildlife Fund; Mitchell Hooke of the Minerals Council of Australia; Heather Ridout of the Australian Industry Group, and Ralph Sims of Massey University.
The Pew Center, based in Arlington, Virginia, was founded in 1998 by the Pew Charitable Trusts, a U.S. philanthropy, to promote pragmatic and effective U.S. and international climate change policies. The Center publishes peer-reviewed analysis of climate science, economics, policy, and solutions; consults on policy development with the 38 major corporations in its Business Environmental Leadership Council; and facilitates dialogue among experts, policymakers, and stakeholders. It is funded entirely by charitable donors. (For more on the Center, see www.c2es.org)
The Center’s Climate Dialogue at Pocantico began in July 2004 and will conclude later this year. Its 25 participants include policymakers from Argentina, Australia, Brazil, Canada, China, Germany, Japan, Mexico, the United Kingdom, and the United States; NGO representatives from India, Switzerland, and the United States; and senior executives from Alcoa, BP, DuPont, Eskom, Exelon, Rio Tinto, and Toyota. The participants include Howard Bamsey, Chief Executive of the Australian Greenhouse Office, and Meg McDonald, General Manager, Corporate Affairs, for Aloca World Alumina in Australia. Additional background, including the full list of participants and options under consideration, is available at www.c2es.org/pocantico.cfm.
The Pocantico dialogue is supported by The Pew Charitable Trusts, the United Nations Foundation, the Wallace Global Fund, and the Rockefeller Brothers Fund. The Australia-New Zealand Climate Forum is supported by the Australia and New Zealand governments through the Australia-New Zealand Climate Change Partnership.
NOTE TO EDITORS AND REPORTERS: Eileen Claussen and other participants in the Pocantico dialogue will brief interested press on Thursday, April 7 (time and location to be determined), on analysis and options to be presented at the forum. Those interested in participating in the briefing should contact Katie Mandes (+1 703 516 0606; email@example.com). Both the morning and afternoon segments of the April 8 forum will be closed to press.