Forum on the State and Development of The Greenhouse Gas Market

Forum on the State and Development of The Greenhouse Gas Market

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

International Emissions Trading Association's Annual Conference
Brussels, Belgium

December 5, 2002

Thank you for that kind introduction. I'm delighted to be here. I had the pleasure a year ago of welcoming IETA to Washington for its first annual conference. And I'm thrilled to have the opportunity to speak again, this year here in Brussels.

I'm reminded of a story about George Bernard Shaw. One of his plays was about to open in London and he sent two tickets to Winston Churchill with a note that read: "Enclosed are two tickets to the first-night performance of a play of mine. Bring a friend -- if you have one."

Churchill, never to be outdone, quickly wrote back: "Dear G.B.S. -- I thank you very much. Unfortunately, I am engaged that night, but could I have tickets for the second night… if there is one."

There was no doubt in my mind that IETA would be back for a second performance, and I very much appreciate the invitation. It has been our privilege at Pew to work with IETA on a number of fronts to encourage the development of an active, global greenhouse gas market. And I look forward to continuing that partnership as we move forward and promote real solutions to the critical challenge of global climate change.

Today I'd like to offer you some thoughts on where we stand in the effort to meet the challenge of climate change - in particular, where the United States stands in this effort - and what it is going to take to move us further along.

I'd like to start with some reflections on the most recent round of international negotiations, which concluded last month in Delhi. It's been said that blessed is the one who expects nothing, for he is never disappointed. That may well have been the case with COP 8. With the big issues on Kyoto implementation resolved in Bonn and Marrakech, but the Protocol not yet in force, expectations for Delhi were low. And they were met. The issues on the table in Delhi were largely technical and incremental in nature. And, even on these, the progress was modest.

But there were a couple of important outcomes. One was a greater emphasis on adaptation - a recognition that we cannot focus on mitigation alone. The second was the emergence of debate over next steps - the question of how we move forward beyond Kyoto's first commitment period. Long looming in the background, the issue was placed squarely on the table in Delhi, dominating both the dialogue and the political dynamics of the conference.

In the end, after much debate and negotiation, the Delhi Declaration itself was silent on the question of next steps. But the critical conversation about how we move toward a truly effective long-term framework has at least begun.

Delhi is also noteworthy because of the role played by the United States. Having played a more peripheral role in the negotiations immediately following its rejection of Kyoto, the United States began to reassert itself in Delhi, and in ways that were not necessarily helpful.

You'll recall that President Bush said he was rejecting Kyoto, in part, because it did not include commitments for developing countries. Yet in Delhi, the United States was suddenly arguing that it would be unfair to ask these same developing countries to take on emission targets.

On the surface, this might appear inconsistent if not hypocritical. But it is consistent in this sense: Although the administration is delivering one message at home and another abroad, both serve to impede progress. Whether the United States is harping on the lack of action by others, or deterring action by others, the goal remains the same: avoiding commitments of its own.

The U.S. stance in Delhi underscores an unsettling reality. On the one hand, we are in fact making significant headway against climate change. For all its flaws, Kyoto is a remarkable achievement and its entry into force will be a critical milestone. Even within the United States, there are encouraging signs. I'll elaborate on some of those in a few moments. But - and here's the unsettling part - the reality is that at the end of the day, we cannot meet the challenge of climate change without the full and willing participation of the United States. Until and unless the United States demonstrates a willingness to tackle its own emissions, it will be extraordinarily difficult for other developed countries to go beyond the commitments they made in Kyoto, and it will be next to impossible to persuade developing countries to take stronger action of their own.

So our prospects for success may hinge on two questions: Where is the United States today on the issue of global climate change? And what ultimately will it take to secure the full and willing participation of the United States in an effective long-term effort to meet this challenge?

First, I think it's important that we have absolutely no illusion about what we can and cannot expect from the present administration. It may be a sign of progress that the White House is no longer openly challenging the broad scientific consensus that global warming is real. We've moved past denial. The administration is busily recruiting companies for voluntary emission reduction programs. It is moving to improve the federal government's woefully inadequate emissions registry. It is engaging in bilateral efforts with a long list of countries.

These are all good things. But they fall far, far short of what is needed. And - forgive me if I seem a bit jaded - they seem meant to convey the appearance of progress, and thereby deter actions that would achieve genuine progress. I'm asked often whether I think the Bush administration can be persuaded to take stronger action on climate change. And I have to say that, barring a dramatic and unforeseen shift in U.S. politics, the answer is no. There is little to suggest that this administration is prepared to engage constructively on this issue either diplomatically or domestically.

That, however, is not to say that the United States is a lost cause. In fact, I would argue that, odd as it might seem, the United States is much further along in addressing this issue than it was the day President Bush took office. Climate change is getting more attention than ever - in the press, in corporate boardrooms, in state capitols, and even in Congress.

In the business sector, we've seen a steady shift from denial to acknowledgment; from acknowledgment to action; and, in some cases, from action to advocacy.

Many of you, I'm sure, are familiar with the voluntary actions being taken by leading companies to reduce their emissions. At last count, we'd identified more than 40 major companies that have publicly committed themselves to greenhouse gas reduction targets. Now the Business Roundtable, at the urging of the Administration, is trying to get all of its members to commit to voluntary action. Even Exxon-Mobil, a leading champion of the Administration's business-as-usual strategy, recently ran ads touting its efforts to get a handle on its emissions.

These voluntary steps of course are commendable, but they are hardly enough. The companies that are truly committed to tackling climate change know that we will never achieve the deep emission cuts we need unless everyone moves far enough, and fast enough, in the right direction. And that will happen only if the government requires it.

That is why the companies we work with at Pew recently called for the development of a comprehensive national climate strategy that is flexible and market-based but also has teeth - a strategy of mandatory, not voluntary, reductions. We need more companies that are prepared not just to acknowledge, and not just to act - but to advocate as well.

Even more dramatic are the efforts being launched by state governments. At least 42 of the 50 states have programs that, while not necessarily directed at climate change, have the potential to significantly reduce greenhouse gas emissions. And some of these states, it's worth noting, have higher annual emissions than many industrialized countries. For instance, Texas emits more than France.

Last month we released a report taking a closer look at several state efforts, and the results are impressive, to say the least. Some states are tackling climate change head-on with comprehensive strategies aimed at reducing emissions across sectors. For instance, New Jersey, moved in part by the threat to its coast from rising sea levels, has set a goal of reducing emissions 3.5 percent below 1990 levels by 2005 and, through a combination of regulatory and voluntary initiatives, is well on its way toward meeting its target.

Other states are reducing emissions by diversifying their energy supplies, in particular through greater use of renewable energy. Twelve states have adopted renewable portfolio standards requiring utilities to obtain a share of their power from renewable sources. In Texas, for instance, the "oil rush" is now giving way to a "wind rush." It's estimated that the substitution of wind and other renewables for fossil fuels will reduce the state's CO2 emissions by nearly 2 million tons a year.

Nebraska was the first state to directly link agricultural policy with greenhouse gas reduction. It is pursuing carbon sequestration as a dual strategy - one that promotes better soil conservation, while also positioning Nebraska farmers to reap rewards in a national or international carbon market. Others agree - four other states passed similar sequestration laws last year.

Other states are establishing greenhouse gas registries. Some are requiring large generators to report their emissions. Still others are going the next step and mandating that large generators reduce their emissions. Massachusetts has a multi-pollutant law requiring six older power plants to reduce their CO2 emissions 10 percent over the next several years. The law, which allows for emissions trading, is expected to reduce emissions by 2 to 4 million tons a year.

And of course California, always at the leading edge in environmental policy, is now trying to regulate carbon emissions from cars and trucks. The state's new law is being challenged in court by the automakers, and by the Bush administration. But if it survives, it will have a profound impact well beyond California. If other states follow California's lead, it could effectively set the new standard for cars sold across the United States.

While different states are taking different approaches, our report found some common characteristics. First, these efforts are typically supported by broad, bipartisan coalitions. Second, they often succeed because states view climate mitigation less as a burden than as an opportunity. Third, many of these efforts have multiple drivers, and multiple benefits - from increased energy security to lower tax bills and cleaner air.

These state initiatives are encouraging. They are achieving real reductions. Actions in one state are being replicated in others. And while state action alone will not be enough, it will help move us where we need to go. It is common in the United States for federal policy to reflect lessons learned from state initiatives. And to the extent that a fragmented, state-by-state approach to climate policy leads to a patchwork of conflicting rules and regulations. this will increase pressure on Washington for a comprehensive, consistent national approach.

So what are the odds that we will see one? As I said earlier, you should not expect any new initiative on this issue from the Bush administration. The prospects, however, may be significantly better in Congress, where both Democrats and Republicans have shown more interest than ever before in addressing climate change. Indeed, three times as many legislative proposals were introduced in the last two years as in the previous two years.

Climate change emerged as one of the major sticking points in the most recent effort to produce a comprehensive energy bill. The Senate version of the bill included two bipartisan climate provisions - one establishing a new office in the White House charged with developing a long-term climate strategy, the other establishing a system for tracking and reporting greenhouse gas emissions that would start out as voluntary but could become mandatory after five years.

The outcome of the recent midterm election, which gave Republicans control of both houses, might suggest that the recent surge in climate activity will be short-lived. Certainly, the odds of moving any major climate legislation in the foreseeable future are not especially good; frankly, they weren't much better before the election. But I think there's a good chance that the climate change debate in Congress will be very much alive.

Indeed, the debate could soon become far more serious. As many of you may know, Senators John McCain and Joe Lieberman have been working on legislation to establish a greenhouse cap-and-trade system in the United States. The Pew Center has been deeply involved in this effort from the start. We provided extensive input as the bill was being drafted and arranged for company representatives and independent experts to provide input as well. As you can imagine, crafting a sound, workable trading bill that has any political viability is no simple matter. I'm sure each of you could find something to quibble with in this bill. But on the whole, at least as it's presently drafted, the bill represents a very credible start. It is economy-wide. Its targets are aggressive but not unreasonable. And it allows for flexibility through sequestration and international trading.

The bill is likely to be introduced early in the new year. And while it's not about to come to a vote anytime soon, it's not likely to disappear either. With the Republicans taking control of the Senate, Senator McCain will again be chair of the Commerce Committee, and he said the day after the election that climate change will be one of this top priorities.

So while the Bush administration will continue to favor appearances over action, we have companies calling for mandatory carbon reductions, we have states stepping into the leadership vacuum, and we may soon have a genuine debate in Congress over national climate policy. What will it take to build on this momentum and produce real, sustained action? What will it take to make the United States and full and willing partner in the global effort against climate change?

For starters, it will require the continued resolve of the international community. Other nations must not allow the United States to deter them from acting. Having resolved their differences on Kyoto, they must now move forward with it and make it a success. They must fulfill their commitments and they must give the market the chance to achieve the necessary reductions as cost-effectively as possible.

Kyoto's success is the most effective form of diplomatic pressure that can be brought to bear on the United States. It is essential. But at the end of the day, the only pressures that can tip the scale - the only pressures that can persuade Washington that it is time to act - are those that come from within.

Ultimately, this requires the engagement of the American public. As I said earlier, we've seen a gradual evolution within the business community on this issue: first, a company accepts that the issue is real; next, it takes steps to address its own contribution to the problem; and then it engages in the policy debate, calling on government to do its part. We need to promote the same kind of evolution within the American public.

Most Americans already accept that climate change is real. But they need a much clearer understanding of its causes - of the ways in which their everyday activities contribute to climate change; and of its consequences - of the threats it poses to their communities, to their natural surroundings, and to future generations.

Next, people must better understand the choices they can make to reduce their own contribution to climate change - how as consumers they can choose more energy-efficient cars and appliances; and how as investors they can encourage more responsible corporate behavior.

Finally, the American public must demand action on the part of their elected leaders. Often it has taken a dramatic event or circumstance to mobilize public support on an environmental issue - the Cuyahoga River caught fire, our skylines literally disappeared behind the haze, families were forced from their homes at Love Canal. Climate change is different. We can't afford to wait for a climate disaster. We have to make the case for taking action now, before the crisis is upon us.

It may seem as if I've strayed quite far from the topic of this conference: the state and development of the greenhouse gas market. But actually I think I may be addressing the very heart of the matter. To have a functioning market, it is not enough to create institutions and accounting procedures. You must also have demand. Right now, it is not there. Our challenge, I would submit, is to create it.

Thank you for listening. I would be happy to take your questions.

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