REMARKS BY EILEEN CLAUSSEN

PRESIDENT, CENTER FOR CLIMATE AND ENERGY SOLUTIONS

ELECTRIC POWER SUPPLY ASSOCIATION DISCUSSION ON “FUTURE CHALLENGES”

PHOENIX, ARIZONA

JANUARY 25, 2013

Thank you for inviting me.  I’m glad to be with you today to discuss future challenges because I believe there’s no greater challenge right now than providing safe, affordable, reliable energy for all — while at the same time protecting the global climate.

So let’s talk about where we are and where we’re going.

Where we are is that climate change is not a future possibility but a present reality.  The Top 10 warmest years on Earth, since we started keeping records, have all occurred since 1998.

2012 was the hottest on record for the contiguous United States.  And we have endured extreme drought, wildfires and the devastation of Hurricane Sandy.

Where are we going?  Simply put, the world is doing too little, too slowly to avoid even greater tolls from climate change on our environment and our economy.

Here in the U.S. we are actually reducing our carbon emissions.  The Energy Information Administration expects U.S. carbon emissions from all energy sources to stay below 2005 levels through 2040 and beyond.

Why is that?  Unfortunately, one reason for our recent drop in emissions is the sluggish economy.  But we’re also seeing the effects of tougher fuel economy standards and the switch by many power plants from coal to cheaper, cleaner natural gas.

Still, it’s not enough.  The EIA says we’re on pace for a 9 percent cut in emissions by 2020.  That’s nowhere near the pledge the U.S. made to reduce greenhouse gas emissions 17 percent below 2005 levels.

The picture is bleaker elsewhere.

Over the next two decades, global energy demand is projected to rise 50 percent.  While emissions in most developed countries are stabilizing or declining, emissions from China, India and other developing countries are soaring.

The International Energy Agency expects carbon dioxide emissions in India could increase more than 58 percent by 2020.

China is big enough and diverse enough that you can tell any story you want.

China is the world’s number-one solar photovoltaic manufacturer.  It’s home to four of the world’s top 10 makers of wind turbines.  And China is establishing seven regional greenhouse gas trading systems.

Unfortunately, it’s also true that China’s coal generating capacity has tripled since 2000, and is projected to grow an additional 50 percent by 2030.

China already emits more than Europe and the U.S. combined.  If current trends are allowed to continue, China alone will be responsible for one-third of global emissions by 2035.

The IEA says coal could nearly surpass oil as the world’s top energy source within a decade, almost entirely due to new energy demands in India and China.

So greenhouse gas emissions are a problem that the U.S. alone can’t solve.

We are in the early stages of negotiating a new international agreement for 2015.  But we shouldn’t expect the United Nations climate negotiations to deliver a quick, sweeping solution to this challenge.

Instead, our best hope would be for an agreement that could facilitate stronger action at the national level – which is the key arena right now.

Here in the U.S., I see little chance of comprehensive climate and energy policy being enacted anytime soon by Congress, which is having difficulty with compromise.

But I do see some important steps Washington could take.  Let me mention two things I expect to see, and one that I’m not holding my breath on, but I still want to raise.

First, it’s reasonable to expect the Environmental Protection Agency to start work this year on the next round of fuel economy standards for medium- and heavy-duty vehicles.

Heavy-duty vehicles account for 6 percent of U.S. greenhouse gas emissions.  New standards, depending on how they’re written, could improve efficiency by at least 10 percent over Model Year 2018 levels.

Keep in mind that the biggest steps the federal government has taken directed at climate change were last year’s new fuel economy and greenhouse gas standards for cars and light trucks.  (The new standards will reduce their carbon intensity 40 percent by 2025.)

Second, I expect this year to see the final EPA standards for carbon dioxide emissions from new power plants.  Those have already been proposed.

As for existing power plants, which account for about a third of U.S. greenhouse gas emissions, we’ll have to wait and see.  Rules haven’t been proposed and we have no word on EPA’s timetable.

Whatever the standards are, we hope EPA gives states flexibility, under section 111(d) of the Clean Air Act, to use different approaches to meet them — including market-based mechanisms like emissions trading.  That would let us integrate the federal approach with the trading systems already in place in the Northeast (the Regional Greenhouse Gas Initiative) and California.

While a lower probability, I’d also like to mention the idea of a revenue-neutral carbon tax.  We like a price on carbon because it could spur the development and deployment of the clean technologies we need to put us on the path toward steeper emission cuts.

That’s not why anyone is talking about it, of course.

Congress is faced with some major fiscal challenges — tax reform, entitlement reform, deficit reduction.  Any revenue from a carbon tax could be used to offset other tax reform and help address those challenges.

We have some ideas on how to draft a fair and functional carbon tax.  And there are even some conservative thinkers outside of Congress who support a revenue-neutral carbon tax.  But as I like to say, the only problems politically with a carbon tax are the words “carbon” and “tax.”

Narrower congressional action is possible.  For example, we’re seeking support for extending a tax credit to promote the use of captured carbon dioxide for oil recovery.

This is a proven technology that will boost domestic oil production while reducing carbon emissions.  It’s supported by a coalition we helped pull together of industry, state, labor and environmental leaders.  But Congress has a lot, from the debt ceiling to gun control to immigration, on its plate.

As we see with many thorny policy issues, states have been taking the lead.  For example, 30 states plus DC have some kind of renewable energy standard.

California just launched its own greenhouse gas cap-and-trade program, which is expected to cut emissions by more than 60 million metric tons of carbon dioxide equivalent by 2020. (That’s a 12 percent reduction compared with California’s expected emissions without cap-and-trade.)

That’s significant by itself.  But more importantly, California’s and the Northeast’s use of market-based mechanisms to reduce emissions could serve as examples for others to follow.

We see cap-and-trade programs in place or in the works in countries (such as Australia and South Korea), provinces (such as Quebec) — even cities.  For example, Sao Paulo, Brazil, is launching a test phase of a cap-and-trade program this year with the goal of reducing carbon emissions 20 percent below 2005 levels by 2020.

Perhaps in the future we can stitch together some of these individual actions into a more coherent policy to promote clean energy and reduce greenhouse gases.

Because this current patchwork approach is not enough to address the challenge of providing safe, affordable, reliable energy while protecting the climate.  It’s a start, but don’t have time to waste.

Climate change is real and we – you – are already paying a price.

Dominion Resources had to shut down a unit of its Millstone nuclear plant in Connecticut this summer because water from Long Island Sound was too hot to use for cooling off safety equipment.  Drought continues to hamper the movement of Mississippi River barges loaded with coal and fuel oil.  Hurricane Sandy cut power to more than 8 million homes, some of which remained dark for weeks.

Our power sector will have to become more resilient to the effects of climate change that we are already seeing.

Some companies are assessing the risks that extreme weather poses to their operations.  They’re investing in new technology and infrastructure to try to minimize disruption and damage to services and operation sites.

Companies like PG&E and Duke Energy, members of our Business Environmental Leadership Council, have taken a closer look at how they can improve water management in light of increased drought.

Regulatory and policy uncertainty can complicate these investments in climate resilience.  So energy and utility companies have an incentive to play a role in shaping energy policies.

That’s why I’m looking forward today to hearing what you think.