PEW CENTER ON GLOBAL CLIMATE CHANGE
Before the Senate Committee on the
Environment and Public works
March 24, 1999
Mr. Chairman, throughout your career, you have been at the forefront of the movement to protect and enhance our nation’s environment and natural resources. Your recent decision to retire from the Senate at the end of your current term represents a profound loss to the Senate and to our country. It will also be a profound loss in the field of climate change where leadership will be vitally needed, and where your vision and pragmatism will be sorely missed.
I am the Executive Director of the Pew Center on Global Climate Change, an organization founded by the Pew Charitable Trusts to work constructively on the climate change issue and to put forward meaningful and credible information and analyses to help us forge a consensus for action. The Pew Center and its Business Environmental Leadership Council were established in May 1998. While Council members serve as active participants and advisors to the Pew Center, we do not accept financial contributions from these or any other corporations. We formed the Business Environmental Leadership Council because we believe that the business community is ready and willing to provide the impetus to move forward on the issue of climate change. The Council consists of over twenty of the nation’s and world’s largest corporations. Together, the annual revenues of these companies total more than $550 billion dollars. Total employment for the companies is well over 1 1/2 million people.
The Pew Center and its Business Council accept the views of most scientists that enough is known about the science and environmental impacts of climate change for us to begin to take actions to address the problem. We recognize that the concentration of greenhouse gases is steadily increasing, and that these gases will remain in our atmosphere for many years — in some cases, for thousands of years. The current scientific consensus indicates that greenhouse gases generated by human activities could increase the temperature of the earth’s atmosphere by 1.8 to 6 degrees Fahrenheit over the next 100 years with potentially serious impacts on the global environment.
Concern over changes occurring to the earth’s climate led to United States’ ratification of the Rio Framework Convention on Climate Change in 1992. This Convention calls upon our nation to voluntarily reduce our emissions of greenhouse gases to 1990 levels by the year 2000. We will not come close to meeting our obligations under the Rio Convention, nor will many of the other industrialized nations who accepted the same voluntary target. And while we debate the reasons for our failure to meet our Rio obligations, our emissions continue to increase, and the global concentrations of greenhouse gases continue on their inexorable upward path.
For this reason, we do not believe that action on climate change should be delayed until we are satisfied with the progress that has been made on this issue internationally. Instead, we believe that companies can and should take concrete steps now in the U.S. and abroad to assess their opportunities for emission reductions and establish and meet emission reduction objectives.
The companies of the Pew Business Environmental Leadership Council support the view that they should act now, not later. Perhaps some examples of current company efforts would be instructive. BP Amoco, for example, has established a target to reduce its greenhouse gas emissions by 10 percent from a 1990 baseline by 2010. These reductions will be measured using established protocols and will be verified by external observers. BP Amoco has also created a pilot project for internal emissions trading. This allows individual business units to find the lowest cost way of meeting the company-wide target. At this stage, twelve business units are involved in this internal trading program, and five trades have occurred. The program will expand to include all the activities of BP Amoco over the next eighteen months.
Another of our companies, American Electric Power (AEP), has implemented Climate Challenge programs that fall into four main categories: improvements in the efficiency of generating and delivering electricity; increasing the use and output of its non-fossil fuel plants; establishing energy conservation programs at AEP facilities and for its customers; and sequestering carbon in forests. The total cumulative effect of these actions will be the avoidance of approximately 10 million tons of carbon dioxide that would otherwise have been emitted into the atmosphere. In one of the more innovative programs designed to reduce carbon emissions, AEP joined with BP Amoco, The Nature Conservancy, PacifiCorp and the Bolivian Friends of Nature Foundation to establish the Noel Kempff Mercado Climate Action Project in December 1996. The primary goal of this project is to preserve threatened tropical forests in the Province of Santa Cruz, Bolivia, thereby protecting its rich biological diversity and reducing releases of carbon dioxide into the atmosphere. The Noel Kempff Mercado Climate Action Project was approved by the US Initiative on Joint Implementation in December 1996.
Other ambitious examples from Business Council companies include the program of United Technologies which will, by 2007, reduce its energy and water consumption per dollar of sales by 25 percent below 1997 levels, with approximately the same reduction in emissions that cause climate change. This program is global in scope, covering 229 facilities in 36 countries, including 96 in the U.S. DuPont will, by 2000, cut its annual global greenhouse gas emissions by about 45 percent below 1991 levels. Shell International aims to reduce greenhouse gas emissions by 10 percent below 1990 levels by 2002. Since 1990 Baxter International has reduced the global warming impact of its emissions by 81 percent. Baxter also has a goal to improve their energy efficiency 10 percent per unit of production by the year 2005, based on 1996 levels of production. In 1995, Entergy committed to eliminating over four million tons of carbon dioxide emissions per year through 2000.
Regardless of the outcome of negotiations on an international climate change agreement, the members of the Business Council will continue to move forward, because they believe that this is a serious issue that demands a serious response. These programs will include internal audits of their emissions, the establishment of baselines, and the implementation of programs to reduce their greenhouse gas emissions.
The Pew Center recognizes that the nations of the world unanimously adopted the Kyoto Protocol and that this Protocol has already been signed by 84 countries. We believe that this Protocol represents a first step. But we also believe that more must be done to fully design and implement the market-based mechanisms that were adopted in principle in the Protocol. Further, the present Protocol does not ensure the participation of many important countries, and this omission must be remedied if we are to meet our environmental and economic objectives. However, we do not know when this will occur.
But we do expect that at some point in the future, the United States will ratify a climate change treaty that includes a binding commitment to reduce emissions of greenhouse gases. And while our companies are already taking voluntary actions to reduce their emissions, they also want to ensure that they will receive credit for these actions under any future climate change treaty, particularly when since many of these actions are and were undertaken at the request of the U.S. government to fulfill the goal of the Framework Convention on Climate Change.
But the issue is not primarily one of getting credit or providing incentives to act early. The key issue is one of eliminating disincentives: voluntary action, in the absence of credit, can work to the disadvantage of companies who act early to reduce their emissions. It is clearly not in our interest for companies that do the right thing by voluntarily attempting to slow the rate of greenhouse gases entering our atmosphere to be penalized and economically harmed for their efforts.
How could this happen? It is because companies typically delay the most expensive steps until the most cost effective options have been undertaken. Consider the following scenario. One company acts early, and begins by first making the most cost effective reductions. Its competitor does nothing, and continues to emit greenhouse gases. After a number of years, a binding treaty is ratified by the United States. Both companies are now asked to make the same level of reductions. However, if the company who acted early has not received credit for its reductions, its emissions baseline will be set at its new lower level, and it will be required to make additional and more costly expenditures. The competitor, who did nothing, can now meet its emissions target with lower cost reductions, resulting in a competitive advantage. The company who acted early is penalized. And for that reason, many companies may choose not to act early and voluntarily. Without credit for early action, there is a disincentive to act before rules are in place. Thus credit for early action is not just an issue of providing incentives for early emission reductions. It also removes the disincentives that penalize companies that recognize and work to ameliorate the threat that greenhouse gases pose to our atmosphere. Solving this problem requires leadership from Congress. An analysis undertaken by the Pew Center and published in October 1998 finds that federal agencies do not have sufficient legal authority to provide the certainty that firms need to make significant early investments. Congress must provide the legislative framework to remove the disincentives to early action. Such a legislative framework would also demonstrate that the United States takes its commitments under the Framework Convention seriously, and that we, as the nation with the world’s highest emissions, are committed to addressing the problem of climate change.
While the Center does not take a position on the merits of any particular bill, we believe there are a number of issues that must be addressed in such a legislative framework. We would like to stress the following:
Credits should only be provided for actions that are real and verifiable. Verifiability means that reductions must be measured and monitored using standardized measurement techniques. Any system that is adopted should reward virtuous actors — not those who engage in sham or paper reductions, or who “game” and manipulate the system. Paper reductions could occur if companies are allowed to count the same reduction twice, or to report a reduction at one facility, while transferring the production — and the emissions — to another facility. There can be no effective credit for early action program if we are not committed to establishing a robust and rigorous monitoring and verification effort.
The program should be simple and flexible. Participation in a system of credit for early action would be voluntary, but it is in our collective interest to be inclusive, so that many businesses are encouraged to mitigate and reduce their emissions. Companies in sectors that are experiencing high growth must be accommodated as must those who produce products, be they autos or appliances, that use significant quantities of energy. We must also keep transaction costs to a minimum, so that the costs of participation do not exceed the benefits to the participants.
The legislative framework should not prejudge the future national implementation scheme. We are not at a point now where we can predict the design of the program that will be implemented in the United States to meet a future international obligation. Any system for credit for early voluntary action should therefore be designed to operate within the framework of any likely domestic regulatory or tax program that might be fashioned to control domestic greenhouse gas emissions. It should also be accompanied by, and integrated into, a set of policies that stimulate early action, including fiscal policies and funding for research and development.
Domestic action should be the primary emphasis, but verifiable international projects should be included. The framework should focus primarily on domestic early action, but should also consider provisions related to international actions that comply with accepted international standards. International projects may earn credits for reductions achieved after the year 2000 under the Clean Development Mechanism. These should clearly be incorporated into any early action crediting framework. The small number of projects already accepted into the U.S. Initiative on Joint Implementation that achieved reductions prior to 2000, and meet rigorous standards for verification and monitoring, should also be recognized.
The legislative framework should not over-mortgage the U.S. greenhouse gas allocation. The Kyoto Protocol, in its current form, does not contain any incentives to act early. As long as this remains a feature of a future international control regime, credits allocated for early domestic reductions will have to come out of any U.S. allocation granted under a treaty. Therefore, careful consideration needs to be given to the impact of an early credit program on the availability of credits to those who choose not to participate in the early action initiative. Allocating too many credits too early could significantly increase the difficulty of complying with a regulatory regime. On the other hand, removing the disincentives for early action is the objective of an early action program. The design of the program should balance these two objectives, perhaps through the establishment of reasonable baselines.
The Pew Center and its Business Environmental Leadership Council believe climate change is serious business, and that early action is smart business. Our effort is founded on the belief that enough is known about the science and environmental impacts of climate change for us to take action now to address its consequences. Awarding credit for early action is an important first step in what we believe will be a long and intense effort.