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Hearing of the House Select Committee on Energy Independence and Global Warming - Roadmap from Ponzan to COpenhagen

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Location: Washington, DC


HEARING OF THE HOUSE SELECT COMMITTEE ON ENERGY INDEPENDENCE AND GLOBAL WARMING - ROADMAP FROM POZNAN TO COPENHAGEN: PRECONDITIONS FOR SUCCESS

CHAIRED BY: REP. EDWARD J. MARKEY (D-MA)

WITNESSES: JOHN BRUTON, DELEGATION OF THE EUROPEAN COMMISSION AND AMBASSADOR TO THE UNITED STATES; ELLIOT DIRINGER, VICE PRESIDENT OF INTERNATIONAL STRATEGIES, PEW CENTER ON GLOBAL CLIMATE CHANGE; ROB BRADLEY, DIRECTOR OF THE INTERNATIONAL CLIMATE POLICY INITIATIVE, WORLD RESOURCES INSTITUTE; KAREN ALDERMAN HARBERT, PRESIDENT AND CEO, INSTITUTE FOR 21ST CENTURY ENERGY

Copyright ©2009 by Federal News Service, Inc., Ste. 500, 1000 Vermont Ave, Washington, DC 20005 USA. Federal News Service is a private firm not affiliated with the federal government. No portion of this transcript may be copied, sold or retransmitted without the written authority of Federal News Service, Inc. Copyright is not claimed as to any part of the original work prepared by a United States government officer or employee as a part of that person's official duties. For information on subscribing to the FNS Internet Service at www.fednews.com, please email Carina Nyberg at cnyberg@fednews.com or call 1-202-216-2706.

REP. EDWARD J. MARKEY (D-MA): Good morning.

Today, the Select Committee on Energy Independence and Global Warming will have a briefing from the ambassador of the European Commission to the United States regarding the EU's progress toward the Copenhagen negotiations, and then we will have a hearing to learn about our country's progress.

Despite the chill in the air today, global temperatures remain high. 2008 was tied for the eighth warmest year on record. The evidence of shrinking ice caps and increasingly violent storms remind us of the danger and challenges we face due to climate change. The debate is no longer about whether humans are causing global warming, but what we are prepared to do about it.

Now that the United States has a president committed to action, Congress is poised to help resolve it. Last Congress made progress with the passage of the 2007 Energy bill, which, by raising fuel economy and appliance efficiency standards, will reduce global warming pollution in the future. Now the task confronting us is how to construct policies that meet the scientific need and the political will. To accomplish this, we will build and improve upon the good work from the 110th Congress.

During this economic crisis, we must find a way "to lay a new foundation for growth," as President Obama said in his inaugural address. That is our challenge: to embrace the opportunity to create sustainable jobs and a resilient economy, to reduce our dependence on oil, and to prevent human misery.

But the United States cannot solve this problem alone. The only prospect for success exists if the global community engages in a joint effort. This is the challenge the international community accepted in Bali in 2007. At that meeting, delegates from almost 200 countries met to discuss international climate protection. They decided on a path of negotiations leading to a comprehensive future climate regime to be adopted in 2009 in Copenhagen.

The Select Committee one year ago heard testimony about the progress made at the Bali meeting. Today, we are at the halfway point on the road to Copenhagen. This hearing will examine what progress has been made in answering the four main questions posed by the Bali roadmap: how to fulfill the needed greenhouse gas reductions outlined by science, how to adapt to impacts we can no longer avoid, how to answer the need for technology cooperation, and how to support poor countries as they struggle to cope with the realities of climate change.

It is time to take stock and to plan ahead. There are encouraging signs all across the globe. Mexico, South Africa, the EU and others have made significant domestic commitments. China's recent five-year plan makes energy efficiency, renewables, and carbon reduction a priority. Carbon markets are being implemented all across the world.

The next step from Bali was Poznan, Poland. In December, almost 4,000 government officials met to negotiate the next steps on the path to Copenhagen. Today, we will examine the concrete results of the conference, the progress of the international community on the Bali agreement, and if that progress is enough to guide us out of the climate crisis.

There are only 305 days left until the final negotiations in Copenhagen; 305 days from today, the United States and the world will have to reach an agreement that reduces global warming pollution and facilitates cooperation on adapting to unavoidable climate impacts, developing and deploying low-carbon technology, and financing aid to developing countries.

The road to Copenhagen will require the determination of heads of state and the hard work of negotiators, policymakers, scientists, and economists alike. It will not be easy, but there is no alternative to a global solution. We must find a way to protect the planet while ensuring prosperity for those on it.

That concludes the opening statement of the chair.

I now turn to recognize the ranking minority member, the gentleman from Wisconsin, Mr. Sensenbrenner.

REP. F. JAMES SENSENBRENNER, JR. (R-WI): I thank the chair.

Global warming is a universal challenge. The logic supporting a global treaty is therefore obvious. But a global agreement without global commitments is not a solution. With the United Nations' self- imposed deadline to replace the Kyoto Protocol approaching, we can't allow expedience to dictate a costly and ineffective response.

Opposition to Kyoto was bipartisan. In 1997, the Senate voted 95 to nothing to pass the Byrd-Hagel resolution stating that the United States should not be a signatory to a treaty that does not include binding targets for developing nations or that would result in serious harm to the economy. Because Kyoto failed on both counts, President Clinton never submitted the treaty to the Senate for ratification.

Kyoto's principal failure was its lack of inclusiveness. By only requiring commitments from developed countries, Kyoto does not place restrictions on a majority of countries, including three of the world's five largest emitters -- China, India, and Brazil. A treaty cannot reduce emissions without their participation. Even Al Gore -- Al Gore -- conceded that binding commitments from developing countries are essential.

But I was the only member of the House to attend the U.N. climate conference in Poznan last December, and negotiations are not headed in that direction. I met with delegations from both China and India, and I asked point blank, "Will you agree to mandatory emissions cuts?" Both countries said, "No."

The emissions in the developing world are rising so rapidly that reductions from developed countries will be entirely offset by countries without binding commitments.

The Battelle Memorial Institute recently calculated that based on business-as-usual projections, developing countries will produce more emissions than developed countries within the next 10 years, and there is a graphic over there that demonstrates that fact.

A recent article in Foreign Affairs magazine quantified China's growth: "By 2050, China is expected to have more cars than the United States. China's grand-scale urbanization plan will aggravate matters. China's leaders plan to relocate 400 million people to newly developed urban centers between 2000 and 2030. In the process, they will erect half of all the buildings expected to be constructed in the world during that period. That is a troubling prospect considering that Chinese buildings are not energy efficient. In fact, they are roughly two and a half times less so than those in Germany."

Rather than accept mandatory limits or increase its efficiency, China and other developing countries hope to sell offsets to the developed world. Accepting foreign investment is hardly a sacrifice comparable to binding limits on emissions, but beyond the unfairness, there is no way to guarantee that the offsets will actually happen.

The theory is sound. Instead of limiting emissions where they're the most costly, companies can make the same cuts for less money abroad. The problems, however, are twofold: first, money that should be invested in our own economy is sent to China; and, second, many of the offsets won't happen.

A recent project demonstration demonstrates the problem. Germany recently agreed to purchase offset credits from Chinese developers to build a new dam. The U.N. approved more than 16 million credits for the project. This legitimizes 16 million tons of emissions in Germany and generates tens of millions of dollars of revenue for China. The problem, beyond the massive transfer of wealth, is that developers began constructing the dam two years before applying for the credits. According to the British Times Online, one U.N. official estimated that 20 percent of the carbon credits failed to result in actual reductions.

Karen Harbert, the president and CEO of the Institute for 21st Century Energy, will testify that the 2007 U.N. negotiations in Bali, Indonesia, produced positive steps towards a new treaty. In Bali, developing countries agreed to actions that were measurable, reportable, and verifiable. This fits with the principle of common but differentiated responsibilities and respective capabilities that I support and that is fundamental in these negotiations.

An agreement to handicap a handful of economies won't economic realities. Consumers will still buy goods, the manufacture of these goods will result in the same emissions, and America will simply outsource more emissions and more jobs.

Every country has the right -- and every government the obligation -- to pull its citizens from poverty and advance their way of life. The current global downturn starkly demonstrates that wealth isn't a fixed pie. It can increase and decrease in absolute terms, and American prosperity doesn't come at the expense of the world.

The entire economic world can grow, but all that growth must be subject to the same limitations. We cannot self-impose costs while foreign markets grow freely. The result is too predictable: a long- term contraction of the U.S. economy coupled with the continued explosion of global markets. In the face of intense pressure to find a solution, we can't adopt a costly one that won't work.

And I thank the chair.

REP. MARKEY: Great. The gentleman's time has expired.

The chair recognizes the gentleman from Washington State, Mr. Inslee.

REP. JAY INSLEE (D-WA): Thank you.

I'd like to make three points.

First, I want to answer the question why we're here when we have such an economic meltdown underway, why we're talking about global warming, and I want to suggest there's two reasons for it.

Number one, the Arctic, as it melted this summer, did not pay any attention to the Dow Jones average, that the Pacific did not pay attention to the Standard & Poor's as it became 30 percent more acidic in the last 50 years. Mother Nature does not wait for us. We have a -- it's a necessity of acting now.

And, secondly, anyone who looked around, the best opportunities for economic growth in this country are associated with beating global warming. We know there's a world out there that's going to want these technologies, and we believe that we took a first step with our economic recovery package to develop these technologies. This is an economic recovery mission that we are on as well as a global environmental one.

Second point as to why we should act while China has not entered into an agreement yet with us, let me suggest that I believe the road ahead -- the single-most important thing we can do is for the United States to regain its moral authority to lead the world. We haven't -- we're not in a real strong position to lead right now because we haven't acted, and I would suggest that we need to act domestically before Copenhagen so that we have moral authority to lead the world into an international agreement, and I believe it is our American destiny to do this, and what we did last week in adopting our economic recovery plan, which has about $88 billion of investment in these new technologies -- we are on our way to restoring our moral authority to lead the world.

So the moral of the story is you can't blame everything on China when you haven't done anything at home, and I wish we'd spend more time figuring out how we're going to have a domestic response to this and a little less time blaming all the problems of the world on China when we're the ones who have three to five times more CO2 output per capita than the Chinese.

A third point just real quickly: I met with the deputy minister of environment for Czechoslovakia yesterday. He had some very interesting ideas about what we should ask the Chinas and Indias of the world. I believe there are many things we can obtain by agreement with the developing world, but we need to regain our moral authority first.

Thank you.

REP. MARKEY: Great. The gentleman's time has expired.

The chair recognizes the gentleman from Oregon, Mr. Blumenauer.

REP. EARL BLUMENAUER (D-OR): Thank you, Mr. Chairman.

And I appreciate what my friend, ranking member from Wisconsin, outlined. There are real considerations we need to take into account to be able to do this right. But while Germany may be two and a half times more energy efficient than China, the United States doesn't look all that good in comparison with Germany itself, despite our advanced economy and having talked about this for some time.

I do feel very strongly that Mr. Inslee's point about this being the path for the new economy, for one that's sustainable and has economic opportunity, is spot on. I think with benefit of this hearing and the work, Mr. Chairman, you're doing with the Select Committee, we can refine proposals to make sure that we don't outsource pollution and jobs. There's no reason we can't refine our own trade and environmental policies to make sure that there is, for example, a carbon tariff to avoid that. These are things that are within our capacity.

Now that the United States has ended an eight-year hiatus where it's not part of the global process working in tandem, that we have a president that is committed to our international cooperation and our international leadership, I look forward to hearing from the witnesses and devising legislation and ideas that are based on the experience around the world, good and bad, so that we can meet this global climate challenge.

Thank you.

REP. MARKEY: Great. I thank the gentleman. The time has expired for opening statements.

And we will now begin with a briefing from His Excellency, John Bruton, who is the ambassador of the European Commission to the United States.

As a reminder, we are not receiving testimony from a witness, but a briefing by a foreign dignitary. The Select Committee is honored to hear from Ambassador Bruton.

Before accepting his current position, Ambassador Bruton was the prime minister, the taoiseach of Ireland, where he helped to transform the economy and enhance the peace process.

Your Excellency, thank you very much for joining us today. Whenever you are comfortable, we would invite you to begin your testimony.

MR. JOHN BRUTON: (Off mike.)

REP. MARKEY: Is your microphone on?

AMB. BRUTON: Sorry.

REP. MARKEY: OK. Please.

AMB. BRUTON: Sorry, sir.

The EU contribution to this process is a package of climate and energy laws to ensure reduction of emissions by 20 percent relative to the 1990 level by 2020. This remains an ambitious program and is unanimously supported by all 27 member states, including those heavily relying on coal. The package covers cap and trade, increased renewable energy, development of carbon capture and storage, and stringent auto emissions.

We reformed our carbon (inaudible) rules on the basis of the lessons from the first phase. Our cap and trade will get progressively tighter year on year, and principal power plants will no longer receive any free allowances beyond 2012, thereby removing the potential for windfall profits. Auctioning will be introduced gradually for industrial sectors.

To safeguard jobs and avoid carbon leakage in energy-intensive sectors, we will identify sectors at risk on the basis of criteria and allow more free allocation of allowances pending 100 percent auctioning by 2027.

Along with President Obama, we are convinced that measures to tackle climate change and economic recovery go hand in hand. If we do not address climate change now, we risk an irreversible climate crisis. Key developing countries have adopted strategies and plans, including China, Mexico, and India.

South Africa, for example, has set out proposals for a substantial quantified deviation from baseline, in other words from what they would otherwise be producing in CO2 and are enabled in this by international funding and technology.

We need to finance both adaptation and mitigation plans of the order of $224 billion globally for mitigation, over half of which will be in developing countries, and developing countries may need between $29 and $69 billion per year by 2030 for adaptation. The significant amounts are -- these amounts are small when compared with the costs of doing nothing. And Lord Stern put that as a figure of between 5 and 20 percent of GDP by 2030.

This calls for obviously increased public funding and substantial finance from both the private sector and developing countries themselves. Developed countries must provide finance and technology support for increased action in developing countries.

So we welcome President Obama's long-term target of reducing emissions by 80 percent by 2050, and the early appointment of a highly qualified team in the administration and in the White House. We're encouraged also by the congressional timetables for getting draft legislation to a floor vote. Progress on robust domestic legislation in the United States is an essential step towards a comprehensive global agreement, and political leadership is vital for achieving this.

Last week, the European Commission set out its proposals for Copenhagen. It contains four main elements.

Firstly, recognizing that developed countries collectively need to reduce their emissions by 30 percent relative to 1990 levels and, if agreeing on the basis of criteria, a fair distribution of effort between them on the basis of an international agreement.

Secondly, increased action from developing countries, as the ranking member has indicated. As a group, they need to collectively reduce their emissions by 15 to 30 percent below business-as-usual by 2020. To achieve this, rather than require that developing countries commit to targets, we propose instead that each draws up a low carbon development strategy which would serve as the basis for discussion with donors to support specific actions in that strategy.

Thirdly, a credible financial package is essential to ensure the significant increases in public support to developing countries to fulfill these commitments, and we identify two options for finding this finance and lay out what it might mean.

And fourthly, we suggest that a carbon market, a carbon price will be essential for securing cost-effective emissions and for redirecting finance. We foresee that there would be a robust international carbon market in parallel to the U.N. negotiations and that there should be EU-U.S. cooperation on this.

We also need to work together to establish precisely what is required from developing countries, and hopefully between now and Copenhagen, we can flesh that out, and we need, furthermore and finally, to reform the clean development mechanism to eliminate some of the concerns that have been identified amongst others here by the ranking member.

REP. MARKEY: Let me begin by recognizing the gentleman from Washington State, Mr. Inslee.

REP. INSLEE: Mr. Bruton, as I understand your testimony, you are suggesting for the developing world action items, that the most achievable goal in Copenhagen would be to essentially require certain defined efforts by members of the developing world as opposed to specific targets which the developed world would embrace. Is that generally what you're thinking?

AMB. BRUTON: What we do also require that we identify what would be the level of emissions from each country on a business-as-usual basis and ask the actions that they take would involve reducing by 2030 the trend in emissions to 15 to 30 percentage points below what business-as-usual would indicate. But we don't propose the specific binding targets of the kind that we believe are feasible in developed countries.

Part of the problem here is that developing countries don't have the baseline data, don't have the monitoring arrangements that one needs to pursue rigid targets. We need to develop that, and I think the proposals we make for refining the clean development mechanism would assist in developing countries in getting them to have the baseline monitoring and enforcement mechanisms in place in due course. But they're not ready yet.

REP. INSLEE: So, as I understand it, you would envision the agreement specifying certain action items that a developing country would need to take, and those would be designed to achieve a certain reduction below baseline projections that would otherwise occur. Is that generally the goal here that you think should be the vision?

AMB. BRUTON: I don't think that it will be possible to negotiate in an international agreement specific actions for every one of the 100 or so countries in the world. What we would be requiring each one of them, though, to do by 2011 is produce a low carbon development strategy where they would specify in that program the actions that they would be taking, and then their compliance with that and the adequacy of that program would be assessed internationally on an ongoing basis. But, in the first instance, the actions would have to be identified by them rather than in the agreement.

REP. INSLEE: And do you think that sanctions for non-compliance should have a good airing in Copenhagen? Mr. Blumenauer referred to a carbon tariff, if you will, and there's various other methods.

Should that be discussed? Should there be some international sanction associated with outliers who would not enter into this international agreement?

AMB. BRUTON: We believe that a cap and trade system involves automatic penalties for those who exceed certain caps, and more than half of our greenhouse gas emissions are already covered by our cap and trade system, and we propose slightly to extend that by bringing in aviation as well. And then internally in the European Union, we have for the rest of the emissions a requirement to reduce by 10 percent as against the present level with a (inaudible) process of penalties for countries within the European Union. That's there to achieve that part of the target.

The issue of a carbon tariff is one that I am not sure I can comment upon at this stage. One does not want to introduce disruptions to international trade that one can avoid by other methods and, hopefully, the negotiation, if the low carbon development strategies that are produced by the developing countries are adequate, should avoid that necessity.

REP. INSLEE: So let's assume -- I'll just push on this just a moment. Let's assume that the Duchy of Fredonia just refuses to negotiate with the rest of the world just period, just sticks its finger in the eye of the rest of the world, refuses to enter into any binding agreement. Let's assume that, you know, the vast majority of the rest of the world does and incurs certain obligations consistent with its own station in economic development. Isn't it a fair question to say shouldn't the exports from that country carry some costs associated with its failure to abide by this global need for global action?

AMB. BRUTON: Well, the first thing to say, I think, is that the major emitting countries are already committing themselves to move forward on a basis that involves international commitments.

In the hypothetical case that you postured, one might eventually come to have to do something of the nature you describe, but I think we shouldn't start there. Obviously, all participants in the negotiation know that what you have stated is an eventual possibility, but I think that's probably something better kept in reserve rather than used up front. One must, I think, have faith in the commitments that we hope the countries will be making.

Obviously, if countries make no commitments and then it's demonstrable on the basis of objective criteria that their exports are obtaining an unfair competitive advantage, then perhaps certain measures might be contemplated. But it's important that the criteria for measuring that would be objective, that there would actually have to be actual damage in the compliant countries for measures to be adopted.

I think punishment for punishment's sake is not an approach we should adopt.

REP. INSLEE: So we'll speak softly for a while, but we will keep a big stick out there.

Thank you.

REP. MARKEY: The gentleman's time has expired.

The chair recognizes the gentleman from Wisconsin, Mr. Sensenbrenner.

REP. SENSENBRENNER: Thanks very much.

Mr. Ambassador, welcome, and I'm sure this debate's going to be going on long after you and I depart from the scene. But let me have a shot across the bow.

You know, I'm afraid that what you've said in -- your European nations that you represent here really haven't been listening to what's been going on in this entire debate.

Sunday's edition of the Indian newspaper, The Economic Times, quoted IPCC Chairman R.K. Pachauri as saying, quote, "Negotiations are going on for the conference of the parties where we will have a multilateral worldwide agreement. Of course, the developing countries will be exempted from any such restrictions, but the developed countries will certainly have to cut down on emissions," unquote.

And last Thursday's issue of The Financial Times quoted top U.N. climate change bureaucrat Yvo de Boer as saying, quote, "I don't think developing countries will accept binding targets," unquote.

What are your reactions to these statements and what they portend for this year's negotiations?

AMB. BRUTON: Well, the first thing to say is, of course, the eventual agreement will be agreed between states, and while the officers of the United Nations whom you quote will, no doubt, be helpful, it's the agreement between states that will finally be what will be effective.

I think there is a distinction here to be made between commitments to action and targets. Targets involve, as we understand them in the cap and trade mode, automatic sanctions in the event that one exceeds those targets. Commitments to action do involve eventually penalties, but the penalties are not automatic in the same way, there's a more iterative and excursive process internationally before any country might suffer any direct consequence.

But what they both have in common is that they both involve commitments by developing countries as well as by developed countries. Obviously, these commitments, no doubt you would agree, need to be differentiated (inaudible) their income and capacity.

REP. SENSENBRENNER: Well, you know, again repeating the quote from Dr. Pachauri, he used the word "will be exempted from any such restrictions," and Mr. de Boer said the developing world -- it will not accept binding targets. Now I read this to be the same.

Senator Kerry at Bali gave a speech that I agree with that said that the U.S. Senate wills not ratify the treaty that is not worldwide in application. Now, doesn't this mean that we are exactly where we were immediately post-Kyoto, when the treaty was so flawed that President Clinton, who did sign the treaty, never submitted it to the Senate for ratification?

AMB. BRUTON: I think there is a necessity to draw some distinction between developing countries as a whole, some of which are growing quite fast, and whose the emissions are growing quite fast. And the least developed countries, whose emissions are insignificant, and who are not in prospect of increasing those emissions very much.

The main effort, I think, in the matter is securing binding commitments, or securing commitments that can be pursued from the developing countries will be on the bigger number of countries that are not in the least developed category. And it may be that in the least developed category the commitments will be as you describe it.

REP. SENSENBRENNER: Mr. Ambassador, you know, you heard Mr. Inslee criticize me for blaming China. I've heard an awful lot of blame of China from both sides of the aisle, a lot of which is, in my opinion, justified.

By giving China, which now emits more greenhouse gases than does the United States, another get out of jail free card, how do you sell that in Europe or in the United States, given the fact that a lot of people have lost their jobs as a result of competition from China?

AMB. BRUTON: I don't think you could sell that. I don't think there will be a get out of jail free card for China. I think China already has indicated itself it's prepared to take action. Its auto standards, for example, are more rigorous than the auto standards that apply here. They recognize that they need to do a lot about capture and storage in particular, because of the heavy reliance on coal. We need to assist them as best we can technologically to develop in that direction. But there will be no get out of jail free card for --

REP. SENSENBRENNER: Have the Chinese used the money that Europe has sent them by buying carbon offset credits exclusively to reduce greenhouse gas emissions, or have they just used that money for something that ends up having the same effect of increasing the emissions?

AMB. BRUTON: Well I heard the example that you quoted in your opening statement, and I think we would all recognize that there have been some deficiencies in the clean development mechanism. Which now there is room for improvement, and we have made proposals to improve it, to eliminate the possibility of the sort of thing you described happening.

REP. SENSENBRENNER: I'll just respond, since my time is up, is the Chinese have more ways of saying no than any other society on the earth.

Thank you.

REP. MARKEY: Gentleman's time has expired. The chair recognizes the gentleman from Oregon, Mr. Blumenaur.

REP. EARL BLUMENAUR (D-OR): Thank you, Mr. Chairman.

I'd like to just follow up the last two lines of inquiry; I think raise interesting and important points. I'd like to go back to the potential of a carbon tariff, not as something that is punitive, and trying to complicate the situation, but if we establish a regimen where there is a disincentive for people to export their pollution, or import it from someone else, it would seem to me that that would add to the desire that we all have, to have a global, transparent, effective, reasonable, fair system, that treats everybody the same. Particularly if some of the carbon tariff recovery were used to accent and accelerate the technological conversion that we need.

I'd like to explore a little further with you, whether or not there is a potential here of complimenting our global climate change goals, by having a framework that ensures that there are mechanisms to discourage people from exporting their carbon pollution, and importing it to others.

AMB. BRUTON: The European Commission certainly recognizes that this problem potentially exists. We have proposed a way of dealing with it, (in or and?) our proposals which would involve giving free allowances to sectors under the Cap and Trade system, if those sectors can be demonstrated to be potentially victims of unfair competition from other countries which are enjoying greater freedom to increase emissions --

REP. EARL BLUMENAUR: Could I just—

AMB. BRUTON: But we haven't gone as far as a carbon tariff.

REP. EARL BLUMENAUR: Could I just—following up on that, I understand that you have a mechanism to try and hold harmless, or reduce the damage to one of your local industries, because taking Mr. Sensenbrenner's example, somebody in China is cutting corners, or just ignoring it.

But what that does is that it compounds the problem, because you have somebody who is cheating, and then you give an extra allowance to somebody to make up for the cheating, as opposed to having a mechanism, whereby the cheater loses their competitive advantage, and the tariff is used to try and accelerate the technological conversion.

AMB. BRUTON: Well, the effect is pretty much the same, because if you give free allowances to one exposed sector, then obviously there are less allowances available to buy for the sectors that are not exempted, so their costs for buying allowances will increase, and that's in a sense the same effect as you achieve by a tariff. What a tariff does is increase domestic prices of imported goods, so we just are using a different method to shift the cost to the rest of the economy to the benefit of the exposed sector. That's the marriage, if you like, of having a Cap and Trade system that enables you to do that sort of thing without resort to tariffs.

But, this is a negotiation, and the United States obviously is free to advanced ideas in this area, and I am sure the European Union countries will look at those ideas. But as of now, we don't believe that's the best way to go, ourselves.

REP. EARL BLUMENAUR: Thank you.

The targets —- trying to go back to 1990 levels, slight difference of just being from the United States. Our population has increased 19 percent since 1990; I think we're looking at a number of European countries that are not so blessed, or cursed, or -— with increasing population, appear to distort slightly the equities. Any thoughts about where we establish a baseline that is fair and reasonable?

AMB. BRUTON: Yes, we recognize this problem. And in the proposals that we have made for Copenhagen, we have said that the criteria for distributing the burden between developed countries would vary on the basis of GDP per capita. In other words, a richer country would have to bear a greater burden than a smaller one. Greenhouse gas emissions per capita, those who are already emitting more would have to reduce a little more. A trend in emissions in recent times to the extent where countries have already met the Kyoto targets would also be a factor in their favor.

But, finally and (fourthly ?) and very importantly addressing your point, population trends, if a country has a trend of increasing population inevitably that's going to involve increasing tendency to emit, and obviously that would have to be taken into account in favor of the country that could show that it's population was increasing. So I expect that the United States would be accommodated substantially on that point because of the more rapid population growth you have here, than is the case in most, if not all European countries.

REP. EARL BLUMENAUR: Thank you. Thank you, Mr. Chairman.

REP. MARKEY: Thank you.

And we will go a second round, if that is the will of the members in asking questions.

Let me ask this question, if I may. The original European Emissions Trading Plan was criticized for over allocation and windfall profits. You mentioned that in your opening statement. Could you expand upon the problems you identified, and now the corrections which you have put into place, in order to deal with the problem areas that you identified in that original plan.

AMB. BRUTON: Mr. Chairman, as you indicated we'd simply allocated too many, and too many emissions trading permits, and as a result the value of these permits fell very fast. And therefore, the emissions trading system in its first three year period didn't achieve what it was intended to achieve, because of that error in calculation.

And that arose principally because we didn't have enough data or accurate data in the beginning to make the allocations more realistic. But in the second phase, which runs up to 2012, we have much more realistic targets, because we've been able to use the information gained in the first phase to make those targets more realistic. And in the second phase we will be reducing our greenhouse gases by six percentage points, and then in the third phase, we propose even more rigorous reductions, with a reduction of 1.75 percentage points per annum in emissions. So, the error that was made in the beginning will be remedied.

I think it is fair to say that the European Union is the first to attempt to put a carbon trading system in place, and we are learning as we're going along, and hopefully others will be able to learn from our mistakes, and we don't regard that as anything bad, but good instead.

REP. MARKEY: And could you expand a little bit more on the clean development mechanism, and the cooperation that could be fostered between the United States and the E.U. in this area, and if you could, again, expand more on this offset marketplace that Mr. Sensenbrenner referred to as well?

AMB. BRUTON: As I indicated in my opening remarks, and in response to the ranking member, we do recognize that there were deficiencies in the system as it operated initially. The monitoring and enforcement mechanisms were not as good as they ought to be, and we have tabled proposals to improve the team development mechanism. And I would be happy to supply a more detailed briefing to the committee on precisely how we envision the team development mechanism being improved. I fear that if I were to attempt to summarize it now, I might not do so with complete accuracy.

REP. MARKEY: And, if you could, you also referred to the Stern report, this is the insight, that if we don't act, it could cost the E.U., the United States, more in the long run, than if we act now, even though some are criticizing the impact that it might have upon economies today. Could you expand upon that insight of the Stern report, and the extent to which the E.U. has embraced that insight.

AMB. BRUTON: We have embraced this insight fully. The Stern report estimates that if we don't act now to limit climate change, that the damage to our economies, through the various phenomena would arise including massive loss of water supplies effecting food supplies.

For example, a lot of the conflicts in the world are currently taking place in places where water is deficient in supply relative to population; if a global warming occurs, that strife will get worse. But the overall estimate that has been made, is that failure to act would involve a loss in global GDP of five percentage points every year into the future, and possibly up to 20 percentage points of a loss of global GDP every year into the future.

That's relatively high by comparison to the costs of doing something, which the Stern study indicated could be limited to one percentage point of GDP, that's against five to 20 percentage points.

There is no doubt that action will cost money. If you, for example, build a coal fired plant that has a carbon capture and storage built in, then that could add, on present technologies, between 30 and 80 percentage of the cost of the plant. But very good work is being done, in particular here in the United States. I was in Pittsburg yesterday visiting a center where they're doing this work to put in place technologies that will reduce the cost of carbon capture and storage very substantially, and enable coal to be used as a fuel without damaging the environment, and obviously we must work better on those technologies. And I believe that the carbon capture and —- I'm sorry the cap and trade system will release the funds that will enable us to finance the sorts of research that's being done in centers like the one I visited yesterday in Pittsburg.

REP. MARKEY: Thank you very much.

Let me turn and recognize the gentleman from Washington, Mr. Inslee once again.

REP. INSLEE: Mr. Ambassador, you've heard a little bipartisan exchange about this. I want to make sure we're unified, and I want to preserve and defend my friend Mr. Sensenbrenner's right to criticize China and other countries in the developing world, we have a bipartisan consensus on that. But I want you to know that the point I want to leave with you, is that some of us here feel we will be at a better position to criticize China and a much stronger negotiating position, and a much more morally persuasive position, if we do move ahead forward in the United States, and I'm trying to help Mr. Sensenbrenner even be a bigger and better and more successful critic of Chinese actions. If we adopt a cap and trade system he will be at the pinnacle of critical -—

REP. MARKEY: Will the gentleman yield?

REP. INSLEE: Sure, certainly.

REP. MARKEY: Thanks, I think.

(Laughter.)

REP. INSLEE: So I wanted to make that point clear. I wanted to ask you, a suggestion has been made that the principals, the heads of state meet in the spring before Copenhagen, that suggestion has been floated out there by the leader of the U.N., what does Europe think about that idea?

AMB. BRUTON: Yes, I think this one suggestion has been advanced as well by Prime Minister Gordon Brown in Britain, is that there might be a discussion in the margins of the G20 Summit, which is principally concerned with the overall economic crisis that the world is facing, that they might meet in the margins of that to review progress in preparation for Copenhagen. I don't know whether the other parties will agree to this, or whether the United States would be happy with it, but it seems to me to be wise to move forward and parallel in conjunction on the two issues, because we can't really separate what we need to do to deal with the long-term problem of global warming, from what we also need to do with the short-term problem, hopefully short-term problem of the financial crisis; the two fields of action should be synchronized to the maximum to be possible.

REP INSLEE?: Great. Thank you.

I want to ask you, this idea you were talking about sort of—we're talking about, you know, common responsibility and differentiated actions according to our specific economic conditions. And anybody who has seen "Slumdog Millionaire," which is a great movie, I highly recommend it —- two thumbs up from Congress, at least one of us. You know, you look at the kids living in the -- nine million kids living in a Mumbai on less than a dollar a day, and struggling to get water, and a little piece of bread, somewhere along during the day. And you ask yourself, you know, what should I ask that kid to do, or that family to do in relationship to their global warming emissions compared to what I should ask my family to do?

And my family's emissions are probably eight or nine times higher than his family's on a per head basis. My family's are six times higher than, or five times higher than the typical Chinese on a per capita basis. Actually I heard Prime Minister Singh, contrary to what's been said here, I've heard Prime Minister Singh saying they already have agreed to a limit, a binding target on CO2. India has said we commit to the world, we will never emit more per capita than the average per capita emissions of anyone in the world. They have made a commitment to do that—already a binding commitment, if you will.

So, I guess the question is could you expand on how we should define our individual commitments? How do we distinguish the commitment the "Slumdog Millionaire" should make before he wins all of the 20 million rupees, compared to what, you know, my family should make. You know, what formula should we use to distinguish our commitments in that regard?

AMB. BRUTON: I saw the movie, too, and I'm glad that it had a happy ending.

(Laughter.)

REP. INSLEE?: Yeah, you'll notice—

AMB. BRUTON: (Inaudible) -— this saga has a happy ending.

REP. INSLEE?: By the way, she didn't kiss the guy until he had the 20 million rupees, by the way.

(Laughter.)

AMB. BRUTON: Yes, I did notice that.

I think that what's important is that every member state that's a party to the agreement, has a sense of ownership of the targets, that they feel that these are targets that they have themselves devised, or these are commitments, or actions that they have themselves devised and committed to. Therefore, I am not so sure that it's wise, at this point, for us to say what the Indians should do, or for us to say what the Bangladeshi's should do. Each must devise their own plan, and have that plan then peer reviewed by other countries, and hopefully accepted, and monitored on a peer review basis as to its implementation. I think that's the best approach to adopt, so that everybody feels that they have ownership of the problem, and of the solution.

I would also underline the point that you made by saying it is the least developed countries that would suffer the greatest immediate impacts of global warming -— Africa where desertification would be accelerated; Bangladesh where potentially millions upon millions of people will simply find their homes disappear under water eventually, as a result of an increasing frequency of flooding, as connected with increased sea levels.

So, I think it is important that everybody act, everybody have a sense of urgency, and everybody have a sense of ownership of their own program as part of an international framework.

REP. INSLEE?: Thank you.

REP. MARKEY: Gentleman's time has expired.

The gentleman from Wisconsin, Mr. Sensenbrenner.

REP. JAMES SENSENBRENNER (R-WI): Thank you, Mr. Chairman.

First of all, the commitment that Prime Minister Singh of India made, when you add up the figures is really not a commitment at all, because if you look at the per capita emissions of the 300 million people in the United States, and then you look at the per capita emissions of India, in total, and recognize that there are a billion plus people that live in India, India has got a long ways to go.

What I heard, excuse me, heard when we were both up in New Delhi was that the top priority of India was to provide electricity to the half of the population that doesn't have it yet. And that's going to require a lot of generation, and it's going to require generation that is largely fueled by fossil fuels of one kind or another. So, I know that we're using the same figures to come to two different conclusions. I think my picture is little bit broader, and that is what confirms what is stated in the chart over there, that was done by the Patel institute, that essentially says, that even if the first world reduces their emissions to zero by 2050, without the type of mandatory restrictions that the third world is talking about being unacceptable, we simply will have just about the same growth of greenhouse gas emissions, and greenhouse gases in the atmosphere as we have now.

That being said, we've heard quite a bit about the clean development mechanism. I talked about the German firm buying credits from a Chinese, that really the Chinese government, because that's everything that goes one there, for a dam that was under construction for two years before the credits were even dreamed up, and there is a case of an Indian chemical company named SRF that was getting 50 to 60 million dollars worth of credits for burning refrigerator gases in a very cheap incinerator, and that's somewhere around half a billion dollars that they would be getting. So, I wonder, you know, how good the clean development mechanism will be in coming up with cost effective ways of reducing our greenhouse gas emissions.

My question, Mr. Ambassador, is this, is how much money have the member states of the European Union sent outside the E.U. to buy these credits, and what kind of effect does the E.U. believe that that money has done, in using these two specific examples as a case in point.

AMB. BRUTON: I regret to say I don't have the figure that you are needing —-

REP. SENSENBRENNER: Um, Hmm.

AMB. BRUTON: -- but I will attain it for you. I would also acknowledge that there have been deficiencies in the way the clean developing mechanism has operated in the past, and we are committed to improving those, to ensure, in particular, that any project which benefits from a clean development mechanism fund disposal, is genuinely additional to what would otherwise take place, that it involves a net reduction in emissions relative to what might otherwise take place, and the transfer verified, and also moving away from giving the money to specific projects, but rather giving it to sectors in developing countries.

REP. SENSENBRENNER: Sure, but what you're saying, Mr. Ambassador, is that there have been some big problems with the way it's been working to date.

AMB. BRUTON: I am saying that. Now, I cannot be more specific than I have just—

REP. SENSENBRENNER: But -—

AMB. BRUTON: -- been in explaining how the improvements we would make would work, and I would see that this would be helpful to the committee, if I could, dig more deeply -—

REP. SENSENBRENNER: I accept that. However, I notice, about a year ago, The Times of London said that as a result of the commission ratcheting down the Cap, that over half the credits the British electric industry would have to buy would come from outside of the European Union, and doesn't this mean that the clean development mechanism is turning into a wealth transfer from the first world, and specifically Europe that's trying to do the right thing, to the third world which keeps on parsing words and figuring out how to avoid being under the same type of reduction regime that everybody wants the first world to be under.

AMB. BRUTON: Well, that is true, but it is also the case that one can achieve bigger reductions in emissions more cheaply in countries that have not yet developed facilities, than if you spend the same money —-

REP. SENSENBRENNER: But -—

AMB. BRUTON: -- reengineering existing facilities in developed countries.

REP. SENSENBRENNER: But without a cap, what incentive is there for the countries that get this money, and again I'll talk about China and India, to actually do what both you and I want them to do. There really isn't an incentive to do that.

AMB. BRUTON: Well the developing countries would all, in our proposal, have to commit to low carbon development strategies, which would involve strict commitments to certain actions that they will take, and they will have to collect data. And eventually, on the basis of that data, one hopes that they will also be able to participate in the cap and trade system. Maybe not immediately, but as we go down the road, and to the extent that it is cheaper to reduce emissions in developing countries than in developed countries, it may actually be profitable for some of these countries to want to go into the cap and trade system because they will tend to benefit from it, relatively speaking—

REP. SENSENBRENNER: Well my view of the CDM is, so far to date, they've taken the money and run. My time is up, so I yield back my deficit.

REP. MARKEY: I thank the gentleman. Does the gentle lady from Tennessee have any questions she would like to ask?

REP. MARSHA BLACKBURN (R-TN): Thank you, Mr. Chairman.

I just have one item I wanted to bring to you, and hear from you on Mr. Ambassador. And thank you very much for your time, and for coming to talk with us.

The tariffs and, we have spent, and especially in my state—in my district we talk a lot about trade, and the importance of trade. So, as you look at the agreement, what if a country decides not to agree, and to the agreement, and tariffs that would be put on, and how do you see that interfacing with the WTO? Would there be some WTO violations, have you thought through the tariff situation there, and if countries are outside the agreement, and have you given thought to that, and that is more or less thinking out loud with you. But I would like to hear where you all are on that, and Mr. Chairman that's the only question that I have. And after his answer I'll yield back.

AMB. BRUTON: As of this point, the European Commission or the European Union is not putting forward any proposals for tariffs. We have within the modifications we propose to make our internal cap and trade system made provision to help out any industry that, in our jurisdiction, can be demonstrated to be suffering from unfair competition from a country that is either not part party to the agreement, or is able to produce more cheaply simply because of the availability —- because they are not under the same constraints as our producers are. But, we don't exclude this completely as a possibility.

But I think it's important to say that we have all benefited from the open trading system in the world, and introducing a new basis for the imposition of tariffs, which could lead to a lot of litigation, might not necessarily be the best way to get the sort of commitment that we need from these countries to take the action we want them to take.

And I therefore feel that the approach is requiring them to produce low carbon development strategies, which commit them to specific actions, which would be monitored, is a better approach to getting to where we want to get to then threatening them with terrorists at this stage. But at the end of the day, they know and we know that that recourse is available in the event that no other recourse is effective.

REP. MARKEY: Gentle lady's time is expired.

We thank you, sir. And perhaps you could, for a minute or two, just summarize what it is that you would like us to know about what the European community is doing and is planning to do in order to lead on the issue of climate change, and what your expectations are in hopes for the United States in that.

AMB. BRUTON: Thank you very much, Mr. Chairman. The European Union has already committed itself unanimously to imposing internal constraints on itself of an increasing severity to reduce our emissions. And we're now seeking, in conjunction with the United States, to work with you to create a global carbon market that will put a price on carbon, and by putting a price on carbon, incentivize research and development and action to reduce carbon emissions.

We believe that the nexus between the United States and the European Union is essential if there's to be a success in Copenhagen, and we regard the fact that you have taken the trouble to invite me to speak here as a very good sign that we are on a convergent track as far as this is concerned. And I'm very grateful to you and to the members for giving me such a generous hearing.

REP. MARKEY: We thank you, sir. It's our honor to have you with us today. It is clear that the cost of inaction is greater than the cost of action. It's also clear that the developing world and the industrialized world must act together, although in different ways towards solving this problem. And we want to work with you throughout this year towards the harmonization of our efforts in order to give leadership to the rest of the world, which is necessary to solve this problem. So we thank you, sir. It's our honor to have had you here. Thank you.

AMB. BRUTON: Thank you, Chairman.

REP. MARKEY: And we have a second panel, which will also now please move up to the witness table. And we would ask our first witness, when he is ready, to begin with his five minutes of opening testimony.

And that would be Elliot Diringer, who is the vice president of International Strategies for the Pew Center on Global Climate Change. Mr. Diringer served in the Clinton administration as deputy assistant to the President and deputy press secretary. He now directs the Pew Center's outreach to key governments and actors involved in international climate change negotiations. Mr. Diringer, whenever you're ready please begin.

MR. DIRINGER: Mr. Chairman, members of the committee, thank you for the opportunity to appear before you today. In summarizing my written testimony, I'd like to emphasis four points, the progress made since Bali, what is needed in a post-2012 climate framework, what will constitute success this year in Copenhagen, and how the United States can best ensure that success.

While global greenhouse gas emissions continue to rise at an alarming rate, governments have made important progress since the Bali conference. Ambassador Bruton has just described efforts underway in Europe. Other developed countries also are moving forward.

Australia is planning a cap and trade system and other measures to reduce its emissions up to 15 percent by 2020, and Japan will announce its own mid-term target later this year.

Even more encouraging is that several major developing countries have now adopted national climate strategies. China, which adopted a national climate program in 2007, was joined last year by India, Brazil, Mexico and South Africa. Brazil is proposing to reduce deforestation rates at 70 percent by 2017. Mexico has set an aspirational goal of reducing emissions 50 percent by 2050, and South Africa has pledged to stop its emissions growth by 2025, with absolute reductions to begin 10 years later.

Internationally as well, we've seen progress since Bali. President Bush, and other G8 leaders, supported a global goal to reduce emissions at least 50 percent by 2050. In the major economies summit, China, India and other major developing countries, acknowledge that their emissions must deviate from business as usual. And in the U.N. climate negotiations, governments have put forward dozens of concrete proposals for fashioning a comprehensive post-2012 agreement.

In anticipation of new U.S. leadership, governments resolved two months ago in Poznan Poland to shift this year into full negotiating mode. After years of stalemate, conditions are finally set for a genuine negotiation to begin.

The Pew Center believes that to be effective, a post-2012 climate agreement must establish verifiable commitments by all major economies, including economy-wide emission targets for developed countries, and a range of policy commitments for developing countries.

We see four major challenges between now and Copenhagen. The first is agreeing on a range of comparable emission targets for developed countries. President Obama has called for reducing U.S. emissions to 1990 levels by 2020. The European Union, as we've just heard, has set a target of 20 percent below 1990 levels.

Measured against the 1990 baseline, these goals appear very much at odds. However, circumstances today are different. Measured against the more current baseline, these goals appear considerably more comparable. Both, in fact, would reduce emissions roughly 15 percent below 2005 levels. Targets under consideration in Australia, Canada and Japan fall in a similar range.

The second challenge is defining developing country actions in a way that works for developing countries, and can be accepted by the United States and other developed countries as a genuine commitment. Developing countries are not prepared at this stage to assume economy- wide targets.

Commitments to implement nationally defined policies, such as energy intensity goals, efficiency standards or sectoral targets are a reasonable alternative, provided that these policies are defined in clear metrics and produce verifiable emission reductions.

The third major challenge is agreeing on the appropriate means and level of support for developing country action. Mobilizing support will be difficult under current economic conditions, but early progress in this area will be essential to reaching agreement in Copenhagen.

The fourth major challenge is deciding how country's efforts are to be measured and verified. A credible verification system is key to establishing and maintaining parties' confidence in their efforts in the overall regime.

We cannot hope to fully resolve all of these issues in the next 10 months. As such, we believe that the Copenhagen conference should be considered a major success if it produces a strong interim agreement that puts a full, final and rectifiable treaty within reach.

This interim agreement should do three things. It should establish the basic architecture of a post-2012 framework, it should indicate the range of emission reductions and level of support that developed countries are prepared to commit to, and it should initiate a process to determine the specific actions to be undertaken by developing countries. This would settle fundamental, legal and design issues, and create a positive dynamic for concluding a final agreement.

To ensure success is Copenhagen, the United States must first and foremost lead at home by quickly enacting comprehensive mandatory legislation to reduce U.S. emissions. The United States must also lead abroad through a full-fledged diplomatic strategy.

Congress can help strengthen the hand of U.S. negotiators through its design of domestic climate legislation. Congress could, for instance, authorize immediate assistance for capacity building and developing countries, with assistance for technology deployment to be made available upon U.S. ratification and entry into force of a new climate agreement.

Similarly, Congress could set aside allowance auction revenues to be made available on entry into force for emission reductions overseas, above and beyond a U.S. domestic target.

The targets set under domestic legislation must fundamentally guide the U.S. negotiating position, but room to bargain could provide the negotiating leverage needed to secure stronger commitments from others.

I thank you for this opportunity, and I'd be happy to answer your questions.

REP. MARKEY: We thank you very much, Mr. Diringer. Our second witness is Rob Bradley.

He's the director of the International Climate Policy Initiative at the World Resources Institute. Mr. Bradley, a trained physicist, now manages a variety of projects, including clean energy technologies, poverty reduction and adaptation strategies for climate change. We welcome you, Mr. Bradley.

MR. BRADLEY: Mr. Chairman, members, thank you and good morning. My name's Rob Bradley. I'm director of the International Climate Policy Initiative at the World Resources Institute. Thank you for the opportunity to join you today. I'd like to make three points, each of which I treat in more detail in my written testimony, which I hope can be included in the record.

First, success against climate change will mean both strong federal policy in the United States, and action from major developed and developing economies. Second, the world has changed dramatically from the days of the Kyoto Protocol. Major developing countries are ready to take significant action on limiting emissions. Third, the Bali action plan provides a solid foundation for a new international agreement that meets key U.S. interests.

The United States is an indispensable leader the fight against climate change. Without the world's largest economy and biggest historical emitter, other countries cannot fix the problem, but nor can the U.S. do it alone.

Almost 80 percent of global emissions are produced by 15 countries, counting the EU as one country, nine of which are in the developing world. The Kyoto Protocol, the main climate agreement to date, has been rejected by the U.S., in particular because of the concern that without meaningful participation from major developing countries, it would be ineffective and excessively costly to the U.S. economy.

Developing countries have historically argued that with their poverty and small historical contribution to the climate problem, they should not be responsible for curbing emission. But in recent years, there has been a flood of developing country climate plans.

For example, Brazil announced that it would reduce its deforestation rate over 50 percent from the recent levels by 2017, avoiding an estimated 4.8 billion tons of CO2 emissions. China committed to reducing national energy intensity as energy used per unit of GDP by 20 percent by 2010, and looks on course to meet that goal, with programs expected to cut emissions by 550 million tons of CO2. Investment in wind, hydro, nuclear and bio-matter are expected to save an additional 640 million tons by 2010.

India has a number of states that are taking forward aggressive renewable energy targets with renewable portfolio standards. Mexico aims to half its greenhouse gas emissions by 2050, and is considering employing a cap and trade policy akin to the one recently considered by U.S. Congress.

South Africa has presented a detailed and highly ambitious plan to peak its national emissions by 2020, and to bring them down to low levels in 2050 in accordance to the finds.

These policies will often not be of the same form as the cap and trade approach favored in the U.S. and Europe, but that need not make them any less ambitious. They are more impressive when we consider the poverty of many of these countries.

As has already been mentioned, in India, 550 million people still lack any access to electricity, and they, just like Americans and Europeans in the last century, legitimately aspire to get it. But they are seeking to do so on a lower carbon pathway. Indeed, countries such as China and India see their future as leaders in the clean energy revolution.

Significant questions do remain. Many of these countries have a poor record of implementing national plans. Reliable data are hard to obtain. Standards of enforcement, governance and transparency are very variable. It will certainly not be enough for countries to take each other's plans at face value.

And this is where the international agreement comes in. It must enhance collective willingness to act by establishing accountability, to build trust that countries are taking real action to cut emissions, and framing those actions in the context of global goals.

The Bali action plan provides for a radically different agreement from the Kyoto Protocol. Mitigation actions from both developed and developing countries are to be quote, "measurable, reportable and verifiable," end quote. This language also applies to finance, technology and capacity building support to developing countries. This body can shape the success of the international process.

Most importantly, adopting an ambitious federal climate policy will unleash action not only in the U.S., but also from countries that have been waiting on the world's biggest economy.

Second, U.S. policy should include provisions for financing international action on adaptation, forest protection and clean technologies.

I don't want to imply that this will be easy. Many countries remain wary of commitment, and their rhetoric will stress these fears. But the world has moved on a lot in 10 years. There is a real willingness to tackle emissions, and a potential agreement that can turn this willingness into verifiable action. And for the United States and for the world, the time is right to rise to this challenge. Thank you, and I look forward to your questions.

REP. MARKEY: Thank you, Mr. Bradley, very much. And our final witness is Ms. Karen Alderman Harbert, who is the president and CEO of the U.S. Chamber of Commerce's Institute for 21st Century Energy. Prior to her time at the institute, Ms. Harbert served as the assistant secretary for policy and international affairs at the U.S. Department of Energy. We welcome you, Ms. Harbert. Whenever you're ready, please begin.

MS. HARBERT: Thank you, Chairman Markey and ranking member Sensenbrenner, and other members of the committee for holding today's very important hearing on climate change.

Climate change is undoubtedly one of the most complex issues facing the international community today, and I want to focus on some of the major challenges to a new agreement, and where I believe the U.S. needs to play a constructive role.

However, it's important to keep in mind the global context in which these negotiations are occurring has changed. The world has changed considerably since the UNFCCC was launched in 1992. Energy demand is going to increase by 50 percent between now and 2030, and 75 percent of that growth is going to be in the developing world.

Next year, CO2 emissions from the industrialized nations will account for 47 percent of emissions. The developing world will be 53 percent. In 2030, that will be a very different picture. The industrialized world will be 38 percent, and the developing world will be 62 percent. So to be effective, therefore, any new arrangement should take into account changing trends and global economic development, energy demand and emissions.

The old model of donor and recipient countries simply will no longer work. Climate change needs to be addressed as part of an integrated agenda that proceeds from a clear understanding that for many countries, energy security is a greater concern right now than climate change. And too often, energy is vilified in these international discussions.

Yet in reality, affordable energy is central to addressing climate change because it underpins economic growth, which is necessary to derive technology creation and deployment, and definitely environmental protection.

International strategies that recognize the reality can raise the level of trust between and among developed and developing nations. In addition, in these negotiations, which were going to be very difficult to begin with under the very best of circumstances, are now complicated further by the recent financial crisis.

Looking ahead, the U.S. must be the voice of reason in these negotiations. Permeating much of these negotiations is an air of unreality that ultimately could derail an agreement. Unachievable emission reduction targets, the weakening of intellectual property protections, and unrealistic demand for financial support, for example, are now all on the negotiating table.

We must temper our ambition with realism, which means that while we promote a positive, pro-growth agenda that will attract developed and developing nations, and will improve environmental stewardship, we must also be willing to walk away from a bad deal.

Further, to ensure our economy retains its competitiveness, any new domestic climate policy should be conditioned on an international agreement that has full international participation. The idea that if the U.S. goes first, China and India and other nations will follow is just simply an unjustified article of faith that carries with it tremendous economic risk, and potentially no environmental benefit.

We've seen with the Kyoto Protocol that top-down approaches simply do not work. A new agreement needs to accommodate a wide range of national circumstances and approaches, and it should be very simple to implement and oversee.

A long-term global emissions reduction goal should be realistic, achievable, and take into account emerging science, the pace of technology development and diffusion, and should not undermine economic growth, or simply shift jobs or pollution overseas.

To be effective, the new agreement must include the participation of countries like China and India. In that regard, the Bali Road Map was very welcome in that we saw an indication of their willingness to participate in activities that were measurable, verifiable and reportable.

A new arrangement should include commitments by all countries in accordance with the common, but differentiated responsibilities. However, we should not use that as a source for inaction.

We believe the notion of responsibilities and capabilities ought to evolve as economic conditions evolve and countries evolve, and we must recognize that countries should graduate from developing to developed status.

At the cornerstone of any success is technology, development and deployment, and that will determine how quick and how costly any future agreement will be. We know that the world will use coal, will use natural gas, will use oil, and we must fashion policies to accommodate their exploitation in the developing world, yet be mindful of environmental stewardship.

We, of course, are paying close attention to China and the G-77 weaken intellectual property as part of their proposal. We have to resolve what place nuclear power and carbon capture, storage and sequestration will be in any new agreement.

We can lead by example, and we can accelerate nuclear power in this country, and we can invest seriously in CO2 carbon capture and storage. So we have opportunities to exert leadership here at home by making wise, smart energy policy choices.

And through the WTO, we should eliminate tariff and non-tariff barriers to environmental goods and services, which will lower the cost of any eventual agreement. But it's important that climate change not be invoked as an excuse to erect tariff barriers to gain competitive advantage or redistribute well.

And we also have to remember that financing is critical. This will not be cost free, as Ambassador Bruton said. We need international concessionary financing, and we need to re-look at the financial instrumentation we have here at home.

So in sum, what would a new international approach look like? The following eight principles; it should consider growing energy means, circumstances and resource endowments of all countries. It should set realistic and achievable goals. It should strike a good balance between environmental protection, energy security and economic growth. It should ensure global participation.

It should allow for diversified approaches. It should ensure that mitigation actions are all measurable, reportable and verifiable. And it should place technology at the cornerstone while protecting intellectual property and the rule of law.

We should keep business at the table, we should keep the energy sector at the table because they will be key to the success of any ultimate agreement. Thank you.

REP. MARKEY: Thank you, Ms. Harbert, very much. Now, we turn to recognize the gentleman from Washington state, Mr. Inslee.

REP. INSLEE (D-WA): Thank you. I'd like to ask about alternative ways to deal with the situation of if countries do not enter into this new international framework. Mr. Blumenauer threw out the idea of some tariffs to be an adjustment.

Let's assume that a country X does not enter into this international agreement, the possibilities to have some tariff associated with their failure to do so associated with the cost of non-compliance.

Mike Doyle and I are working on an approach a little different that would essentially provide free permits to energy intensive industries as an approach to prevent leakage overseas. It wouldn't be directed to any one country. It would simply say that energy intensive industries would receive some free permits, as opposed to having to buy them, at what many of us hope to be an affective option.

I just wondered if you would like to comment on those two different approaches. Mr. Diringer, you like to speak?

MR. DIRINGER: Thank you, Mr. Inslee. Let me distinguish between to scenarios then. One, domestic action in anticipation of an international agreement, and the second scenario being once we've reached an international agreement.

I think in the first scenario, the approach you and Mr. Doyle have put forward seems rather workable. In our analysis of potential competitiveness impacts, they actually appear reasonably modest and can be addressed through the allocation process.

Ambassador Bruton described how Europe has chosen to go that route. Australia also is using free allocation to energy intensive industries to address this issue, and we would prefer that to the imposition of border measure, you know, lateral border measures in the absence of an international agreement.

Assuming that we are able to achieve an international agreement, it seems as if there are two options. One would be to try to structure into the agreement the use of some types of tariffs or border measures as a means either to enforce the agreement, or as a tool to encourage action by parties that have not yet entered into the agreement.

The other option would be not to have those as an explicit tool of the agreement, but for countries again to choose to do that unilaterally, but now with an agreement in place.

Either of those options, assuming that an agreement's in place, to my understanding, would be more affective and more legitimate under the WTO than choosing to go the route of unilateral trade measures in the absence of an international agreement.

I should emphasis, I'm not an attorney, and by no means a WTO expert, but my understanding again is that if parties have reached and international environmental agreement, then the use of trade measures either as a means of enforcing that agreement, or as a unilateral tool to guard countries against impacts would be both more legitimate and more effective.

REP. INSLEE: All right, thank you. I'm going to just take Mr. Diringer's answer. It kind of covered several things, because I wanted to ask another question. Let me start with Ms. Harbert, if I can. I really appreciated your comment about trying to drive technology as the answer to this problem. It's one thing that I wholeheartedly embrace, and I appreciate you bringing that up.

But I want to ask you about what you believe, what your organization believes should be the relative contributions of the world's citizens to this problem. So I'll invite you to play "slum dog millionaire" with me for a minute.

Take two world citizens, one in India, one in Mumbai, one living on $1 a day with no legal place to live, and then a middle-class American living in the first congressional district where I live. My constituents, myself included, net about 10 times more per capita than the slum dog millionaire.

So I guess the question is, what do you think our relative expectation should be of one another in this international agreement? How should we quantify that? Should they be dependent on our gross net domestic products? What should we expect of each other?

Should we have the same per-capita emissions, in which case Indians could go up by a factor of five, and ours come down by 50 percent? That seems not very attractive to me, but it might be seen as fair to the Indians. In fact, Prime Minister Singh has said as much. What do you think it should be?

MS. HARBERT: Well, first of all, the first thing I'm going to do after this hearing is go see the movie. (Laughter.)

First of all, we want to presume that any agreement that anybody ever is going to be party to is going to be a success. In order for it to be a success, it has to be binding, and therefore, there have to be responsibilities that everybody is going to agree to.

There is a precursor agreement that the developing world will have common, but differentiated responsibilities. But if there is a binding agreement, that means that over time, those will increase. And so we have to be willing to sit at a table and look across the table at our counterparts in the developing world and have them agree to binding agreements.

Therefore, it will not be incumbent, and our taxpayers and our citizens will not be the ones paying continuously over time for the compliance of the developing world.

If we erect tariff barriers at our borders because either they have not signed on to an agreement, or they're not in compliance with their agreement, that basically is just going to put on the burden of the American citizen of that cost. And that would be unfair, whether it's in your district or anybody else's district, that we are paying for the failure of the agreement, and it's either an enforcement or whether it was just never successfully negotiated to begin with.

So we have to recognize the aspirations of the developing world. They have a right to develop, but they also have an obligation to enter into a binding enforceable agreement that will really and materially reduce greenhouse gas emissions over time.

If they do not participate, we will not succeed. So if the goal is to succeed they have to be party to it, and they have to have binding and forcible obligations.

REP. INSLEE: So what I hear you saying, it needs to be binding, but it can and should be differentiated so that the cut, or the difference from the business as usual approach that the Indians may take may be different than the percentage we would take. You would accept that as a principle?

MS. HARBERT: Well, certainly every country is different in the type of natural resources it is endowed with, with the types of industries that its economy relies upon, so every country should have the sovereign right to decide how it's going to get to the target and to the binding obligations that it has agreed to. Because a country that has a lot of oil and gas and coal is going to go about it differently than a country that may be of a declining population that has a huge wind and solar base.

And so we should not be trying to enter into this with a prescriptive formula. It should be flexible. There should be different sectoral approaches to this. But at the end of the day, if we allow countries to be exempt from any obligations, our industries, our jobs will go overseas, and our citizens will pay the price, and it will do nothing to improve the environment.

REP. INSLEE: Thank you.

REP. MARKEY: All right. The gentleman's time has expired. The gentle lady from Tennessee, Ms. Blackburn, is recognized.

REP. BLACKBURN (R-TN): Thank you, Mr. Chairman, and thank you all for your patience today, and for the good conversation about this because I think it is something that does concern us all, and especially in this economic environment in which we find ourselves in.

Mr. Bradley, I'm wanting to come to you. One of the things that I hear from my ag community quite a bit, they are very concerned about livestock emissions, and regulations that might be forced on them. I want to know what your opinion is on that.

MR. BRADLEY: Agricultural emissions are a significant source of emissions in large parts of the world. And certainly, when we look at some of the developing countries that we've been talking about here today, finding reliable ways to address emissions from rice patties, from cattle for instances in places like India is going to be a large part of the overall solution that we need to explore in those countries.

I would say that while there are a range of things that can be done within the agricultural community, this is probably something that is going to be somewhat more detailed than, perhaps inclusion in cap and trade mechanisms as the kinds that we have been talking about here more generally. Certainly I think that, these are areas where there's some ripe scope for technology corporations. Agricultural research is actually an area which has quite a good tradition of international collaboration. And certainly it would be, I think, a very, a very promising area to try and find some constructive ways in which the U.S. and developing countries can work together to, to explore solutions through emissions in that sector.

REP. BLACKBURN: Well, I will, I will tell you that it is something that does concern us, because you're talking about an issue that would end up affecting every single U.S. farm. And the impact of that on our food security supply and network is something that is not lost on us.

So any further detail you have on that, that you could submit in written form, I would definitely appreciate having. Another question for you. Reading some of the Economist writings on climate change, and dealing with the economic situation that we are currently in, the jobs retention issues that are in front of us, a large number of them have stated that spending billions of dollars on climate change right now is unnecessary.

And they say the money probably would be better spend going toward projects such as clean water and sanitation, that that would be a more effective route in developing countries than putting the focus on climate change. And I'd like to hear you address that.

MR. BRADLEY: So just to make sure I understand your question, it would be more effective in that view, to spend money on water systems in developing countries than on cutting emissions?

REP. BLACKBURN: Clean water and sanitation, correct, instead of addressing the emissions and climate change issue.

MR. BRADLEY: There are two ways in which this interacts with climate change. One is, and this is something you alluded to with the agricultural question as well. It's not going to be possible to build effective water and sanitation and similar infrastructure in developing countries unless, first of all, we take into account the climate impacts that they will already be facing, because those water systems will have to exist and provide their service within those stressed environments.

And secondly, simultaneously, we do need to insure that climate change doesn't race ahead and perhaps, outstrip some of the value that those systems are going to bring. If you're asking though, is it, does it make sense for a country like India to be spending more of its effort proportionately on providing those kinds of services that on cutting emissions at this stage in its development, then yes, I would agree.

I think one, this is an issue that we, we've sort of harked back to a number of times in this hearing. And it's important to understand how heterogeneous these countries are. There is a so- called Germany within India. You have 70, 80 million people in India who live, what would be largely viewed as a Western lifestyle, have, drive Mercedes, have air conditioned apartments and so forth.

Simply because they happen to be lodged in the middle of a very poor country should not exempt those kinds of communities for taking action. And this is why some of the discussions we've been having around developing countries emphasizes taking specific actions rather than necessarily starting from a national, a national emissions limit. Because within that national emissions limit, you potentially end up dragging down the, the slum dog millionaires who, who we desperately need to help get out of poverty, provide water to, provide energy to, and so on.

REP. BLACKBURN: Thank you. Yield back.

REP. ED MARKEY (D-MA): The chair recognizes the gentleman from Missouri, Mr. Cleaver.

REP. EMANUEL CLEAVER (D-MO): Thank you, Mr. Chairman. Mr. Diringer, Mr. Bradley. Mr. Diringer, in your testimony you've suggest that the U.S. move swiftly to cap and reduce emissions, which I agree with, incidentally. In fact, I had hoped that it would have been something that we moved early in this Congress.

But with the hemorrhaging economy, my fear is that that will take such a precedent that, some of the issues that some of us, at least on this side are extremely concerned about are going to be delayed. We already, I think, have somewhat of a damaged image in this area, internationally. That's where Mr. Bradley comes in as well. Does a delay in moving in this area of capping and then reducing emissions further damage our international credibility as it relates to climate change and the effort by the world community to begin to address this serious problem?

And then secondly, if I can ask both questions, and then I'll just let the two of you speak. Having a family in Tanzania, Tanzania as they call the country, we changed it over here, where they have a 1,500 dollar a year annual income, and I've seen the, the devastation there of the environment, they are really suffering there. Even in the shadows of Kilimanjaro they have serious water problems. The only way we're going to address developing countries is that the first world countries understand that issue, and then spend whatever is as necessary. The deforestation is just, I mean, probably they've knocked over an acre since this committee has been in session today. So, I'd like to get you to discuss, without rambling as I did, the two issues that that I raised.

MR. DIRINGER: Let me try to address the first, and perhaps Rob will want to pick up on the second. Absolutely further delay in domestic action by the United States will delay, and I think actually would preclude the possibility of an effective global agreement. In action to date by the United States, which is not only the largest economy in the world, but also the largest historic emitter of green house gasses, has been the single greatest impediment to progress in developing an effective global agreement.

And I think that we have been in a very prolonged period of stalemate and in pre-negotiation with countries waiting to see what the U. S. is prepared to do. You know, we did see some progress over the past year. We saw some progress in the major economies dialogue that President Bush initiated.

There was initially some great skepticism from other countries, but I think other countries came to recognize the value in that type of dialogue. But I think the reason it didn't produce any more, is because President Bush didn't put anything on the table in terms of U.S. action. There are great expectations right now about the new administration, and what it will be prepared to do, both in terms of moving forward with domestic action and bringing something into the negotiations.

So, I think that's, frankly domestic action in the U.S. is essential. It may not be sufficient, but it is the first essential step towards moving forward internationally. If I could, you mentioned, you know, concern about the current economic situation perhaps delaying action. I just want to note that the Pew Center, along with the World Resources Institute were both members of the U.S. Climate Partnership, a coalition of major companies and non-government organizations calling for mandatory action and enactment of cap and trade legislation this year.

And one of the points made by the CEO's of the companies is that there is a cost to regulatory uncertainty. For them, this is actually a very strong economic rationale to move as quickly as possible to enact the kind of legislation we need.

REP. CLEAVER: Thank you. Mr. Bradley?

MR. BRADLEY: As briefly as I can, absolutely, without the United States taking, taking a leadership position on domestic policy, I see very little prospect for an international agreement. And it's striking; we focus a lot in these conversations on the sort of differences with, with China. But in many ways, the conversations that we hear when we go to China are extremely, extremely similar to the ones being held here in Washington around climate change.

They completely get how bad climate change is. They really worry about the impacts that they face, that they say, listen, we're trying to do some things right now, but without the world's biggest economy moving on this, how can we, how can we move much faster than we are now? They have been extremely explicit. I would, I would depart a little bit from Ms. Harbert's framing of it. The idea that China and India will, to a certain extent, wait on U.S. leadership before following suit, I don't think is an article of faith. I think it's something they have repeatedly and publicly stated, and at the very least is worth trying to take them at their word on, for one part of their conversation. And certainly the issue of countries like Tanzania and the kind of impacts that they face from climate change is one of the things that should galvanize us all.

I was on Mt. Kilimanjaro a couple of years ago, and you see the 50's and 60's with this kind of shaggy mane of snow on Mt. Kilimanjaro, and it's now thinner than my hair. It's something which really underlines the incredible difficulties that many of these countries are going to face. One of the things that I think was very praiseworthy in many of the discussions around the climate bills last year, was a fairly consistent intent of the part of congress to provide adaptation, provide finance for international adaptation.

And it was interesting to see the religious community in particular fall full square behind that. And I think that is an important recognition of, of the moral case that there is there, and to provide that kind of assistance to the countries that are going to be most affected.

REP. MARKEY: The gentlemen's time has expired. Let's go back to this issue of a Germany inside of India, or, what country would be inside of China, given their economic development right now, huh? Even larger than, huh?

MR. BRADLEY: Couple of Germanys.

REP. MARKEY: Couple of Germanys inside of China, huh? So Ms. Harbert, what do you think about the prospects of us reaching an agreement with the well-to-do in Shanghai, the well-to-do in Bangalore, the interests that they represent? At least in sectoral agreements on steel, on cement, where they're modernizing, where they're building these new plants, it's a good reason to believe.

Do you not believe that, that we could, in fact, reach differentiated agreements with, with these countries, so that wherever they're modernizing, wherever they're building, wherever their wealth is great, they're bound by the same rules, but we can take into account, you know, the slum dog aspect of it, in the movie you haven't seen. But you can only assume that it is that dollar or dollar a day residence of both of those countries.

MS. HARBERT: Well, there are ongoing efforts right now that are succeeding on a sector-by-sector basis. The Asia-Pacific partnership, you have the aluminum, the aluminum industry working amongst twelve or thirteen countries to find ways to produce aluminum in a much more energy efficient manner.

The same in the area of cement and steel, etc. And that's because we are using technology and reality and economics as the base for making decisions on how to modernize the system. One of the most important things we can do is reduce the tariff barriers on clean energy, goods and services. And we have not been successful in the Doha Round. We may need to look at different ways of business.

Why are we making clean energy more expensive in the developing world? That is needless, and we can reduce that.

And those would be American jobs and American exports. But if you listen to the Chinese, and I've spent a lot of time in China, as have you, the Chinese have said yes, we're willing to sit at the table. It's going to be very costly. Our priority is economic growth, bringing our people out of poverty so that we don't have these pockets of Germany, that everybody has a much better baseline, and we should afford them the right to have their people have a better way of life.

But they said it's going to cost money, and we don't have it, and therefore we expect to be paid. In fact, they have said they want point 7 percent of the industrialized world's GDP on an annual basis to be able to sit at the climate negotiating table and agree to something. Well, that would mean $80 billion dollars every year from the American tax payer to fund China's compliance with an international agreement. That's a heck of a lot of money. And that's just the U.S. obligation. So we have to be very careful in how we approach bringing them in, and that it ultimately doesn't fall just purely on an economic basis on the people inside the United States, that for a long time, have been more prosperous.

REP. MARKEY: So, Mr. Diringer, do you agree with Ms. Harbert? Is that a good formula for us to use?

MR. DIRINGER: Well, well first on, on the question of sectoral agreements, we thing that's certainly something worth exploring. I don't know about the practicality of trying to negotiate something with a national government with respect to action in specific geographic areas, but in terms of action within certain economic sectors, that's certainly something we should be discussing and in fact, if we are able to reach agreements around specific sectors, particularly the energy intensive sectors, that would be one very effective way to address the competitiveness concerns that, that we have.

As far as the formula, the quid pro quo if you will, that needs to be reached in order to move forward internationally, I think we need to be very clear. We need to see commitments. We need to see reasonable commitments. We also need to be prepared to provide some support to those countries that needed to achieve those commitments.

In the case of China, when you have conversations, I mean, the impression I get is that, that they understand that, a) they have lots of money, and that's not really the thing they need form us, and that lots of money is probably not forthcoming from the United States toward China. But what they do need is some assistance on the technology front.

REP. MARKEY: So what do you recommend? You know, Miss Harbert said the same thing. So how do we handle this issue of technology and it's transfer? What would you have built into the (agreement ?)? First you, Mr. Diringer, then we'll go back to you, Ms. Harbert. What are the specifics that you would like to see included?

MR. DIRINGER: Well, I think an immediate priority for this administration is to initiate a high level dialogue with China, to have an honest conversation about what they're prepared to do and what they need to do that. I think in terms of the types of measures that we build into an agreement, we need specific commitments from them, and we need to help establish financial mechanisms that provide support, although that will be differentiated support.

And you need to evaluate on a case by case basis based on the types of actions countries are prepared to do, the types of assistance that would be available to them given their national circumstances. And for a country like China, that has considerable financial resources available to it, then that may not be the most appropriate form of support --

REP. MARKEY: So you're not testifying that China, in terms of our need to provide them with technology transfer in order to deal with their issues. You think that they have sufficient technological capacity and resources to do it?

MR. DIRINGER: Well, I think they have sufficient financial capacity. But I do think that there may be areas where we can assist them in terms of technological capacity provided, I mean, we need to --

REP. MARKEY: Just so that I can understand what you said. So what would you recommend specifically that we do in those areas that you think --

MR. DIRINGER: Coming to clear terms about the sharing of technology in a way that allows them access to the state of the art clean technologies that well enable them to reduce their emissions, while at the same time protecting the intellectual property of U.S. companies.

REP. MARKEY: And, but what are those clear agreements? How do we make --

MR. DIRINGER: There are many companies that operate, you know, day to day right now in China, U.S. companies that have technology sharing agreements and are able to do business in China in ways that they don't feel is undermining their intellectual property. So I think we, those are the types of agreements that we need to work out with respect to the clean energy technologies.

REP. MARKEY: Ms. Harbert?

MS. HARBERT: I think there's three things. First of all, the United States has already put on the table the International Clean Energy Fund. They were the U.K. and Japan for a facility housed at the World Bank that would provide concessionary financing to the developing world for clean energy projects.

That would do a lot for us in this economy, and generate jobs here at home, and it would do a lot to have commercially viable projects built on the back of the private sector rather than on governments around the world that would distribute clean energy. We should fund that effort. Secondly, we should be serious about reducing tariffs on (clean goods ?) and services around the world, that reduces the cost of clean energy. And if the priority is economic growth in Bangalore and in Shanghai, that would reduce the cost of providing it.

And we have to recognize that the technology is not owned by government. United States government can't just go over to the Chinese government and give it away. They don't own it. GE does. Dow does. DuPont does. And they're not going to give it away. That's not the way that our system works. And so, we need to have very strong intellectual property protections in place, that we can cooperate with China, but we're not, then we should disabuse ourselves. And we should stop using the word tech transfer in the negotiations. The Chinese and the Indians and others are expecting to receive a big bundle of technology one day. And it's not forthcoming that way. It just doesn't work. And so, we have to find a way to make it work, and for that technology commerce to be technology transfer.

REP. MARKEY: Mr. Bradley, let's go to Mexico for a second. They're talking about a cap in trade system. That becomes kind of a shock to most people, that Mexico has decided to take a leadership role. How realistic is it for us to expect that Mexico would adopt a meaningful cap and trade system that could be looked to with some confidence as something which is binding, enforceable and confidence building?

MR. BRADLEY: Thank you. I'll certainly address that question. I wonder if I could ask your indulgence just to make one comment on the China and technology question?

REP. MARKEY: Please do so.

MR. BRADLEY: The Chinese government strong armed Hwanang (ph) Power, which is China's largest power utility into setting aside capital to put into the Futuregen project. In other words, the Chinese were proposing to pay money towards the construction of a power project in Illinois. They, this project was cancelled by the administration, and the Chinese found out about it in the Washington Post. They have repeatedly emphasized in many contexts, and it's true that in the negotiations they do have some very, I would say, unrealistic, some starting negotiating positions about financial transfers.

But in many cases they're seeking to jointly and equally co-fund research and development, and to share the intellectual property that arises from it.

REP. MARKEY: And that's a good model, Ms. Harbert, huh?

MS. HARBERT: To share the intellectual property?

REP. MARKEY: Jointly fund and develop --

MS. HARBERT: To the extent that the intellectual property that is generated, there can be common indifferentiated benefits, sure.

MR. BRADLEY: On the question of Mexico, I don't want to imply that Mexico is, is on the brink of passing a cap and trade bill. My colleagues have been working in Mexico now for seven or eight years, helping build up the databases and inventories necessary for some key sectors to monitor and verify their emissions effectively.

The climate change strategy that the Mexican government came up with last year has talked about setting targets for specific sectors. It will probably not be economy wide in the first instance. Mind you, neither is the EU's emissions trading system economy wide. The kinds of sectors that we're talking about are similar to those in the EU sector, heavy, heavy manufacturing and the power sector. The dynamic by which that will be put in place may be a little bit different that in the United States. So for instance, in many instances thought, the companies involved are actually state owned, particularly, for instance, the refining sector and some of the power generation.

So it's, I would say that Mexico is not on the brink of a cap and trade bill as we would recognize it here. But I would say that there is a very realistic prospect that significant sectors will have a cap and trade type policy applied to them in the kind of timescale in which we will bringing in the next climate agreement.

REP. MARKEY: Thank you. There's a national teach-in today on global warming that's taking place in hundreds of campuses, in college and in high school alike, all across the country. In my district, Brandies University has asked me to participate, but rather than me teaching them, I thought it would be important to let congress hear from the students. So, today at this hearing, I'm going to put Brandies University in the chairman's seat and ask a question sent to me by Matthew Schmidt, who is a sophomore, who heads the Students for Environmental Action at Brandies. Here's the question; after World War II, the United States played a crucial role in the rebuilding of Europe. Has the time come for the United States to consider a similar role in spreading clean energy technologies throughout the world? Mr. Diringer?

MR. DIRINGER: I would say absolutely. But the United States will not be in a position to do that on its own, obviously. It will need to work in partnership with other developed countries and potentially, with other developing countries who increasingly have the financial and technological wherewithal to assist in the diffusion of technology worldwide. I think it's also interesting to reference the institutions that emerged in the post World War II environment.

We are now approaching a point where it's time to reconsider the missions of those institutions. And I think that, in moving forward on technology to address climate change, it's worth considering reinvention of the Bretton Woods (ph) institutions, and making this one of their missions going forward, so that we can move beyond the traditional donor- recipient model as Miss Harbert put it, to a new model, in which countries work in partnership to advance the types of technologies we need.

REP. MARKEY: Mr. Bradley?

MR. BRADLEY: I think a, a sort of a reservation on that model is that, as Miss Harbert has been saying, it's not as thought the U.S. owns all of these technologies and it's a question of transferring them overseas. And I do think that some of our international partners don't completely understand that. And certainly, I think some commentators and certainly some climate negotiators imagine that we have a lot of great technologies in a basement somewhere that we're deliberately not sharing. This is more of a collaborative effort.

But I do think that the model that is going to work, and the model that ultimately will invalidate some of the longer projections that we see in models. The thing that isn't captured in models is that we must get to a point where some of the technologies that are going to let us have zero carbon energy really break through to the point of competitiveness. The one thing that can do more than anything else in the world to drive that, is by setting a carbon regime in the United States, which will allow the world's biggest, most technologically advanced, and most innovative economy to start really pushing those technologies forward.

That will be America's biggest gift to t he world. And those technologies that ultimately will drive that revolution will come from all kinds of places. But they will come from America more than from any other single place. So does America play a role in a way that looks exactly like the Marshall Fund (ph)? Not quite. But does America play that incredibly important core role in driving an energy technology resolution? I certainly hope so.

REP. MARKEY: Ms. Harbert?

MS. HARBERT: I guess I would make three comments to the wonderful question posed by the student. First, you know, we are investing less in clean energy R&D in this country than we did since the 1970's. So we have not put our money where our mouth is. We need to be serious about not just the R&D, but as you said, in the deployment and providing the incentives out there to actually have these technologies penetrate the marketplace, which will generate exports and generate an innovation revolution of clean energy.

To do that, we need sufficient loan guarantees in this country, we need a clean energy bank, we need production tax credits that will incentivize. There's a lot of financial instrumentation that is very valuable that could be put in place, absent having an overarching mandate. Secondly, he brought up World War II. Our infrastructure in this country was build right after World War II, and we really haven't done anything to modernize it since.

And if we're going to have a growing economy and fuel and economic recovery, we've got to get serious about infrastructure in this country. Otherwise we're going to have brown-outs that certainly would not do anything for our economic recovery. And we can demonstrate huge leaps in of technology in our electricity grid, since it has not really been modernized since World War II. And that will certainly help with the 1.6 billion people that don't have electricity around the world, to have it in the advanced technology state. Last but not least, maybe the most important, is, this question came from a student at a university.

And we are not graduating enough scientists, enough engineers, enough math students to actually have the intellectually feedstock we need for the innovative transformation that we need. We need more engineers. We need more scientists. We need more academic institutions that have teachers that are capable of doing it. Starts in pre kindergarten all the way through Ph.D.

So we've got to get serious about the intellectual foundation of what we're talking about here, because we don't have the people that we need about all these goals that we're talking about. So, we talked about importing oil all the time, we're going to be talking about importing all of our intellectual feedstock to fuel this revolution. And that really won't sit well here at home.

REP. MARKEY: Thank you, Miss Harbert, very much. And we thank the Brandies student for his question. You know, President Kennedy, in his inaugural, obviously uttered that famous statement, ask not what your country can do for you, but what you can do for your country. But he also then followed it by talking to the world, and saying to the citizens of the world, ask not what the United States can do for you, but what we can do together, of working for the goal of freedom and progress in the world at large. And I think here we have many countries that will be able to contribute.

Germany is the leader in photovoltaic solar technology, and Denmark the leader in wind. And obviously there are many parts of the world that can play leadership roles with the United States, of course as the largest industrialized country, hopefully playing the largest role of them all. In the stimulus package that is now under consideration between the house and senate, there is a large, large infusion of funding for education. We agree with that insight that you made, Miss Harbert, that we have fallen behind. We have to make the investment in education.

Because without that in the long run, we cannot be leaders. To a very large extent, our leadership now is based upon the huge investment which we made a generation ago. That's why we win the Nobel Prizes now. That's why we are the leaders. But we can't know thirty years from now whether or not we are going to be the winners over India and China and Germany and other countries, until we first determine how much we want to invest once again in our technologies, in our young people, to make sure they are competitive. That is still an unknown up result, because we have yet to make those decisions.

However, a renewable electricity standard would give an incentive for the development of new technologies, the tax breaks, the incentive for the development of a new, modern technology driven, telecommunications driven grid is also a part of the solution. And we have to get to the, to the business of developing those new technologies. And then the United States will be the leader, but amongst other countries as well in solving this problem. Does the gentleman from Missouri have any other comment?

This has been a fabulous introduction to, to where we now stand in the world on these issues. It's going to be a very, very fast paced race for 305 days to Copenhagen. And we intend to insure that this congress and the American people are informed of all of the choices which we have to make this year if the United States is to be the leader when that meeting is convened. Thank you all so much.


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