ELLIOT DIRINGER, DIRECTOR OF INTERNATIONAL STRATEGIES

PEW CENTER ON GLOBAL CLIMATE CHANGE

At the House of Representatives,
Subcommittee on Asia, the Pacific and the Global Environment
Committee on Foreign Affairs

July 11, 2007

Regarding the Kyoto Protocol and U.S. Climate Action: An Update

Mr. Chairman and members of the subcommittee, thank you for the opportunity to testify on the Kyoto Protocol and U.S. Climate Action. My name is Elliot Diringer, and I am the Director of International Strategies for 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 advancing practical and effective policies to address global climate change.[1] Forty-three major companies in the Pew Center’s Business Environmental Leadership Council (BELC), most included in the Fortune 500, work with the Center to educate opinion leaders on climate change risks, challenges and solutions.

Mr. Chairman, I would like to commend you and the members of this subcommittee for convening this hearing today on U.S. re-engagement in the global effort to fight climate change. The U.S. Congress is at long last engaged in a genuine debate on how – not if, but how – the United States should address global warming. So far, this debate has focused primarily on questions of domestic climate policy. This is a critical first step. But truly meeting the challenge of climate change will require global solutions as well. These will be possible, I believe, only with strong leadership from the United States. By broadening the scope of debate here in Washington, and by focusing attention on the international dimension of climate change, this hearing will help set the stage for constructive U.S. engagement and for an effective multilateral response.

In responding to Chairman Lantos’ questions, I would like to focus in particular on the post-2012 international climate framework – what it should look like, and the steps the United States must take at home and internationally to ensure its success. I will focus as well on how the United States can best address the questions of competitiveness and developing country participation.

1) Aside from the Asia Pacific Partnership for Clean Development and Climate, and given that the United States has neither ratified nor withdrawn from the Kyoto Protocol, what is the Administration doing to advance international cooperation on climate change?

An effective global response to climate change will be possible only with U.S. engagement and leadership. Lack of action by the United States stands today as the major impediment to stronger efforts by other countries. Of the steps the United States can take to encourage global action, the single most critical is to establish unilaterally a mandatory program to limit and reduce U.S. greenhouse gas emissions. Demonstrating the will – and establishing the means – to reduce U.S. emissions will greatly alter the international political dynamic and improve prospects for international cooperation.

Unfortunately, the Administration has strongly opposed efforts by Congress to establish mandatory policy to reduce U.S. greenhouse gas emissions.

In parallel with stronger domestic action, the United States also must help lead the way to an effective multilateral climate effort. In our view, this must be accomplished through a new treaty establishing binding commitments for all major emitting countries. The appropriate venue for negotiating this treaty is the U.N. Framework Convention on Climate Change, which was signed in 1992 by the first President Bush and unanimously ratified by the Senate. Unfortunately, while remaining a party to the Convention, the United States under the present Administration has consistently resisted any consideration of new commitments.

Last month, the G-8 endorsed President Bush’s proposal for a new set of discussions among the major emitting countries to be hosted by the United States. The stated goal is to achieve a consensus contributing to a new global agreement in 2009 under the Framework Convention. As proposed by the President, the primary focus of this major emitters process was to be the question of a long-term climate goal. While consensus on a long-term goal would be beneficial, it is not essential to advancing the climate effort, and should not be a precondition for moving forward with near- and medium-term commitments. In accepting the President’s offer, the other G-8 leaders rightly insisted on a broader agenda for the major emitters process, including “national, regional and international policies, targets and plans…(and) an ambitious work program within the UNFCCC.”

To be truly effective, any consensus achieved through the major emitters dialogue must ultimately be translated into binding commitments. Accordingly, as this dialogue is getting underway, parties to the Framework Convention should at the same time begin the process of negotiating a post-2012 climate agreement. The next opportunity to launch these negotiations will be at the Conference of the Parties later this year in Bali. A critical test of the Administration’s support for an effective multilateral response to climate challenge will be its willingness to support a decision in Bali initiating negotiations toward post-2012 commitments.

2) Given that the Protocol lapses in 2012, what measures should the United States as the largest emitter of carbon dioxide, take to slow growth in greenhouse emissions?

The Pew Center is a founding member of the U.S. Climate Action Partnership (USCAP),[2] a partnership of 29 major companies and nonprofit organizations. USCAP urges Congress to promptly enact an economy-wide, market-driven approach that includes, among other things, a cap-and-trade program that places specified limits on U.S. greenhouse gas emissions; sector-specific policies and measures to complement the cap-and-trade program; and a fully funded federal technology research, development, demonstration and deployment program for climate-friendly technologies.

3) What is preventing our U.S. industries from setting up markets for buying and selling emission credits?

The largest obstacle to the buying and selling of emission credits by U.S. industries is the absence of a mandatory cap on emissions and an economy-wide emissions trading system. Under a number of voluntary programs, there is a small amount of emissions trading occurring now among companies that want to demonstrate their environmental commitment and prepare for the eventuality of carbon constraints. However, a robust market requires both supply and demand, and in the case of a commodity like greenhouse gas credits, a cap or limit is the only way to create this demand. Without a mandatory cap on emissions, companies have no financial incentive to buy emission credits, since they can emit greenhouse gases for free.

It is important to remember, however, that creating a market is not the goal. Reducing emissions is the goal, and the establishment of a emissions market is a means of achieving that goal as cost-effectively as possible. Once a mandatory cap on GHG emissions is established in the United States, there will very likely be a robust market for emission credits and, more importantly, for climate-friendly technologies.

4) Given that more than 400 U.S. cities support and adhere to the Kyoto Protocol, what is being done at the federal level to accelerate the development of technology that can be used to reduce emissions?

Over the forty year history of federal environmental law, nearly all major federal environmental laws have been based on state and local precedents. As envisioned by the Founding Fathers, the states have served as laboratories of democracy when it comes to environmental policy, and have been joined in this role by many major municipalities. History appears to be repeating itself with climate policy, with climate friendly measures being embraced by most states and a large number of U.S. cities.

Unlike many previous environmental problems, however, climate change is a global problem. Minimizing the greenhouse gas emissions of any one city, state or country alone will not solve the problem even for that city, state or country.

Regarding federal efforts to deploy the use of climate-friendly technologies, the U.S. Department of Energy (DOE) has developed a strategic plan for its climate change technology programs, and has spent a large amount of money ostensibly to advance the technologies.

While DOE’s plan provides a fine overview of GHG-reducing technologies and the opportunities each could present over the long term, and the technology R&D has provided some useful advances, they do not constitute a program for deploying these technologies, nor for providing a path to stabilizing concentrations of GHGs. Merely developing and compiling information about climate-friendly technologies is not sufficient to ensure their widespread penetration into the marketplace.

A combination of technology “pushing” activities (such as those discussed in DOE’s plan) with technology “pulling” legislation that mandates reductions of U.S. GHG emissions would be the most effective and efficient way to deploy climate-friendly technology throughout the economy. Studies indicate that combining R&D incentives with carbon caps will cost the economy an order of magnitude less than relying on either R&D incentives or emissions reduction policies alone.[3]

5) Given that 70 percent of greenhouse gas emissions come from the production and consumption of energy, what should the United States be doing to encourage its energy sector to provide people with clean energy while reducing greenhouse emissions?

With the vast majority of U.S. greenhouse gas emissions coming from the production and consumption of energy, climate policy and energy policy are inextricably linked. The combination of technology-pushing activities and technology-pulling policies mentioned above in Questions 2 and 4 would help to encourage the U.S. energy sector to be more climate-friendly. In addition, a wide range of targeted policies could drive the energy system towards greater efficiency, lower-carbon energy sources, and carbon capture technologies. Energy consumption can be reduced through policies that increase energy efficiency, such as stronger appliance and vehicle fuel economy standards, improved building codes, and consumer education. Wider use of low-carbon energy sources can be promoted by extending and expanding the production tax credit for renewable energy sources, and through incentives and standards ensuring that transportation biofuels achieve net GHG reductions. Finally, increased and sustained funding to develop and demonstrate carbon capture and sequestration technologies is absolutely essential so that we can continue to rely on coal-fired electricity while reducing U.S. emissions.

6) What policy suggestions could the United States make at the 2007 Summit to make the Kyoto Protocol more effective in slowing the pace of global warming, and to make it more equitable among the United States and other developed nations?

The Kyoto Protocol is a major milestone. It established the first binding international commitments to address climate change and in many industrialized countries is driving action to reduce emissions. However, Kyoto represents just one stage in the evolution of the multilateral climate effort. Achieving broader participation and stronger commitments requires going beyond the Kyoto Protocol. A post-2012 agreement could well incorporate the Protocol or some of its features, such as the use of emissions trading and other market-based mechanisms. It is worth noting that these market mechanisms were built into Kyoto largely at the insistence of U.S. negotiators and business, recognizing their importance in minimizing the cost of emissions reduction. However, a comprehensive post-2012 agreement must include new approaches and elements and it may be more practical to fashion these under Kyoto’s parent agreement, the Framework Convention. Consequently, the most important step the United States can take at the Bali summit is to support the launch of negotiations under the Convention, which, subsuming or in parallel with the negotiations already underway under the Kyoto Protocol, lead toward a comprehensive post-2012 agreement with binding commitments by all the major economies.

What should a post-2012 climate framework look like? The Pew Center’s perspective on this question reflects not only our own detailed analysis but also the collective views of an impressive group of policymakers and stakeholders from around the world. As part of our effort to help build consensus on these issues, we convened the Climate Dialogue at Pocantico, a group of 25 from government, business, and civil society in 15 key countries, all participating in their personal capacities. The group included senior policymakers from Britain, Germany, China, India, Japan, Australia, Canada, Mexico, Brazil and the United States. It also included senior executives from companies in several key sectors, including Alcoa, BP, DuPont, Exelon, Eskom (the largest electric utility in Africa), Rio Tinto, and Toyota. The group’s report was released in late 2005 at an event here in Congress hosted by Senators Biden and Lugar.[4]

Despite a very diverse range of interests and perspectives, the Pocantico group succeeded in reaching consensus on a broad vision of a post-2012 climate framework. This vision begins with a set of key objectives that a post-2012 framework must meet. I would like to emphasize the two most critical objectives.

First, the post-2012 framework must engage all of the world’s major economies. Twenty-five countries account for about 85 percent of global greenhouse gas emissions. These same countries also account for about 70 percent of global population and 85 percent of global GDP. The participation of all the major economies is critical, first and foremost, from an environmental perspective, because all must take sustained action if we are to achieve the steep reductions in emissions needed in the coming decades to avert dangerous climate change. But the participation of all major economies is critical from a political perspective as well. For reasons of competitiveness, none of these countries will be willing to undertake a sustained and ambitious effort against climate change without confidence that the others are contributing their fair share. We must agree to proceed together.

At the same time, we must recognize the tremendous diversity among the major economies. This group includes industrialized countries, developing countries, and economies in transition. Their per capita emissions range by a factor of 14 and their per capita incomes by a factor of 18. This leads directly to the second objective identified in our Pocantico dialogue: The post-2012 framework must provide flexibility for different national strategies and circumstances. The kinds of policies that effectively address climate change in ways consistent with other national priorities will vary from country to country. We must allow different pathways for different countries. An economy-wide emissions target may work for some but it will not work for others. If it is to achieve broad participation, the future framework must allow for variation both in the nature of commitments taken by countries and in the timeframes within which these commitments must be fulfilled.

With these key objectives in mind, the Pocantico group then identified the potential building blocks of a post-2012 framework. The first of these is targets and trading. This is the approach employed in the Kyoto Protocol, as well as in the European Union’s Emissions Trading Scheme and the Regional Greenhouse Gas Initiative being undertaken by ten states in the northeastern United States. There are very sound reasons why U.S. negotiators insisted so strongly on a market-based architecture for the Kyoto Protocol – and why many of the major climate bills now before Congress adopt the same approach. Emission targets provide a reasonable degree of environmental certainty, while emissions trading harnesses market forces to deliver those reductions at the lowest possible cost.

While targets and trading should remain a core element of the international effort, we must recognize that China, India, and other developing countries are highly unlikely to accept binding economy-wide emission limits any time in the foreseeable future. In their view, binding targets, by holding them to specific emission levels regardless of the economic consequences, would be an undue constraint on their development. Economy-wide targets also may be technically impractical for them: to accept a binding target, a country must be able to reliably quantify its current emissions and project its future emissions, a capacity that at present few if any developing countries have.

A future framework, therefore, must allow for other approaches as well. A second potential element identified in the Pocantico dialogue is policy-based commitments. Under this approach, countries would commit to undertake national policies that will moderate or reduce their emissions without being bound to an economy-wide emissions limit. This is a more bottom-up approach, allowing countries to put forward commitments tailored to their specific circumstances and consistent with their core economic or development objectives. A country like China, for instance, could commit to strengthen its existing energy efficiency targets, renewable energy goals, and auto fuel economy standards. Tropical forest countries could commit to reduce deforestation. For this to work, the commitments would need to be credible and binding, with mechanisms to ensure close monitoring and compliance. Developed countries also may need to provide incentives for developing countries to adopt and implement stronger policies. One option is policy-based emissions crediting, similar to the Kyoto Protocol’s Clean Development Mechanism, granting countries tradable emission credits for meeting or exceeding their policy commitments.

A third potential element is sectoral agreements, in which governments commit to a set of targets, standards, or other measures to reduce emissions from a given sector, rather than economy-wide. In energy-intensive industries whose goods trade globally, which are the sectors most vulnerable to potential competitiveness impacts from carbon constraints, sectoral agreements can help resolve such concerns by ensuring a more level playing field. Such approaches are being explored by global industry groups in both the aluminum and cement sectors. We believe it is also worth exploring sectoral approaches in other sectors such as power and transportation where competitiveness is less of an issue but where large-scale emission reduction efforts are most urgent.

A fourth potential element is technology cooperation. This could include two types of agreements. The first would provide for joint research and development of “breakthrough” technologies with long investment horizons. Such agreements could build on the Asia Pacific Partnership and other technology initiatives but commit governments to the higher levels of funding needed to accelerate and better coordinate critical research and development. The second type of agreement could help to provide equitable access to both existing and new technologies by addressing finance, international property rights, and other issues that presently impede the flow of low-carbon technologies to developing countries.

The four elements I have outlined thus far fall under the heading of mitigation. A fifth critical element is adaptation. We need stronger adaptation efforts within the international climate framework but extending far beyond it as well. The top priority within the framework should be addressing the urgent needs of those countries most vulnerable to climate change. But the broader goal must be to spur comprehensive efforts to reduce climate vulnerability generally by integrating adaptation across the full range of development activities.

Having outlined the potential elements of a post-2012 climate effort, I now turn to the question of how these approaches can be integrated in a common framework. While different countries should be allowed different pathways, they cannot simply each go their own way. An ad hoc series of parallel initiatives will not produce an aggregate effort nearly adequate to the need. By linking actions, and negotiating them as a package, nations are likely to undertake a higher level of effort than they would acting on their own. Such a negotiation could take the form of sequential bargaining, with countries proposing what they are prepared to do under one or more of the different tracks I have described, and then adjusting their proposals until agreement is reached on an overall package. To help ensure a balanced and therefore stronger outcome, it may be necessary to agree at the outset that certain countries will negotiate toward particular types of commitments most appropriate to their circumstances. The objective would be an integrated agreement that is flexible enough to accommodate different types of commitments, and reciprocal enough to achieve a strong, sustained level of effort.

7) Given that the U.S. is not a signatory to the Kyoto Protocol, what influence does it have, if any, to promote global action?

Whether or not a party to the Kyoto Protocol, the United States has enormous power to shape – or to impede – global action against climate change. As the world’s largest economy and world’s largest emitter, the United States is arguably the single most influential force in determining the future of the international climate effort. As noted earlier, the two most critical steps the United States can take to strengthen global action are to unilaterally establish a mandatory program to limit and reduce U.S. emissions, and to lead in the development of an effective multilateral framework. Other countries eagerly await this leadership.

There are other steps the United States can take through domestic legislation to encourage developing country participation, and to address the issue of competitiveness. These issues are closely related. Ultimately, I believe, both are most effectively addressed through binding multilateral commitments. But it is important to distinguish these two issues because, in advance of a stronger global framework, each will require a different set of interim policy responses.

Competitiveness is a potential concern not for the U.S. economy as a whole, but rather for specific sectors – primarily energy-intensive industries, such as steel and aluminum, whose goods trade globally. In establishing a mandatory domestic climate program, steps can be taken to minimize or mitigate competitiveness impacts. For instance, in the design of a mandatory cap-and-trade program, potentially vulnerable sectors could be allowed special consideration in the emission allowance allocation process. Another option is to provide technology and transition assistance to affected industries and communities, possibly funded by auctioning a portion of allowances. As a longer-term option, legislation also could stipulate that if the major developing countries have not taken stronger action to reduce emissions within a specified timeframe, the United States, in concert with other industrialized countries, will consider tariffs on their energy-intensive exports or other mechanisms to correct the resulting competitive imbalances. I would note, however, that unless accompanied by positive incentives, these latter approaches are not likely to induce strong developing country action, and could lead to more confrontation than cooperation.

Engaging developing countries will require a firm but balanced approach. To begin with, we must be absolutely clear in our expectation that the major developing countries assume binding commitments in a post-2012 framework. It is true that the United States is by far the largest historic contributor to climate change. In establishing mandatory limits on domestic emissions, the United States will have begun to fulfill the commitment it made with other industrialized countries to lead the climate change effort. And having done so, it will then be reasonable to expect that countries like China fulfill their responsibilities as well. China’s emissions have grown 80 percent since 1990 and could rise another 80 percent by 2020. It is essential that these trends be reversed. Realistically, given the greater capacity and historic responsibility of industrialized countries, China, India and other developing countries will require incentives to undertake strong climate efforts. The United States should provide market-based incentives through a domestic cap-and-trade program by recognizing credits for emission reductions achieved in developing countries. In addition, targeted bilateral and multilateral assistance should be provided for the deployment of critical high-cost technologies such as carbon-capture-and storage. However, in return for these incentives, China and the other major developing countries must assume appropriate commitments that will slow and ultimately reverse the growth of their greenhouse gas emissions.

To summarize, I believe it is incumbent upon the United States to lead both by strong action at home and by actively and constructively reengaging in the international climate effort. Only with strong U.S. participation and leadership can we achieve a fair and effective global response to the critical challenge of climate change. I thank the subcommittee for the opportunity to present these views and would be happy to answer your questions.