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Hearing of the Senate Foreign Relations Committee - Global Climate Change: U.S. Leadership for a New Global Agreement - Panel I

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Location: Washington, DC

PANEL I OF A HEARING OF THE SENATE FOREIGN RELATIONS COMMITTEE
SUBJECT: GLOBAL CLIMATE CHANGE: U.S. LEADERSHIP FOR A NEW GLOBAL AGREEMENT

CHAIRED BY: SENATOR JOHN KERRY (D-MA)

WITNESS: TODD STERN, SPECIAL ENVOY FOR CLIMATE CHANGE, STATE DEPARTMENT

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SEN. KERRY: The hearing will come to order. Good morning, everybody. I apologize for starting a few moments late. Washington seems to get paralyzed when there's a tiny bit of moisture on the road. It's bizarre. Happy Earth Day to all, and I think it is an appropriate topic obviously for us to be grappling with today and we're delighted to have Todd Stern come before the committee.

As everybody knows, he is the designated hitter for the president of the United States and the secretary of state and State Department on the subject of Copenhagen and the climate control negotiations, and I appreciate the closeness with which he is working with us and cooperation of the administration on this topic. Let me just mention Senator Boxer, who is a member of this committee and also chairs the Environment and Public Works Committee and is a -- more than a full partner, leader, and really a very key part of our efforts up here in the -- in the Senate, is -- is not able to stay because she is chairing her own committee shortly. But we'll put her full statement in the record and I thank her for being here at the beginning of this.

Today's hearing comes at a really critical juncture in our global effort to address climate change. The clock is literally ticking on the best chance that countries of the world will have to marshal an effective global response, and I think all policy makers need to remember -- all of those who are involved in this process need to realize that if we aim too low America and the global community will fail to do what is necessary to meet this challenge. It is that simple.

It's also urgent -- let me just share -- I'm not going to go through all the latest evidence but Russian officials, as I've been meeting with them, first of all, have promised me that -- and I think they probably suggested this to the administration -- that their per capita emissions will never exceed those of the United States. Now, whether that's going to meet the test or not, because per capita is obviously not the full measurement, is -- is yet to be determined. But in fact, Russia could become the site of disastrous new greenhouse gas emissions.

Many people are not aware of this. I just want to get this out. Methane is 20 times more powerful than carbon dioxide. Experts say that the total amount of methane beneath the Arctic is greater than the total amount of carbon stored in all the world's coal. Today, methane is beneath a lid of permafrost on land and under water. But that lid, folks, is disappearing. It's melting.

Last year, the International Siberian Shelf Study measured the highest ever levels of methane in the Arctic Ocean and found methane bubbles coming out of chimneys in the sea floor. There are places on land and at sea where lighting a match in the open air actually causes an explosion from free-floating methane. Alongside any thought of economic gain from climate change Russia is going to have to obviously consider the reality that these changes will bring with them -- dramatic changes.

But they are dramatic for all of us because as we -- you know, Lisa Murkowski, senator from Alaska, and Mark Begich will tell you, just go to Alaska and walk around and see what's happening to the permafrost there, and both of them have suggested that senators ought to come and visit Alaska if they want to see a living laboratory with respect to climate change. So our challenge is obviously enormous and today we're less than nine months from the 15th Conference of Parties in Copenhagen, a summit to negotiate a successor treaty to the Kyoto Protocol.

Within this make-or-break year, this week is a -- actually a crucial but little-noticed turning point. This is the deadline for countries to submit their input to the draft treaty that (would ?) be circulated by early June, so while Copenhagen is December, the standards that we're going to take to Copenhagen are now -- this week, next week, and in the next months. And it is -- obviously I know that our team under Todd Stern's leadership is hard at work crafting our input.

Our submission this week represents a crucial opportunity to ensure that America's perspective on financing, on the structure of mitigation commitments, and countless other issues is maintained and reflected in the draft document. Our essential challenge in -- in crafting a global deal is how do you give life to several -- a couple of phrases. One phrase is "common but differentiated responsibilities". That phrase was codified by the United Nations and ratified by the United States Senate in 1992, and under that phrase we all agree, all the nations participating, to accept common but on the other hand differentiated responsibilities, and this will be the key to bringing the G-77, China, other countries, to the table. This largely, in fact, boils down to a debate over how much action is required from the United States and how much from China because what we decide to do will set the tone for the Copenhagen discussions.

While much has changed in the past 17 years, we're still struggling to answer that fundamental question. Now, Senator Lugar and I and Senator Gregg, Senator Voinovich, Senator Bayh were all at a four-day conference sponsored by the Aspen Institute on climate change and we heard a lot of very useful information regarding this. But one of the things that is clear is China is moving. China is moving in many ways more rapidly than the United States, and again, many people are not aware of that.

The debate is sort of stuck in several years ago. The fact is that in a few years China is going to surpass us and they're going to be grabbing the technologies and creating the jobs because they understand the greening of their economy is the future, and it's critical for us to understand that too. China is implementing policies to address its energy use, in some cases, as I said, more ambitious than ours. They will actually exceed their goal of a 20- percent reduction in energy intensity and they will have done it faster than they thought they could and, in fact, they weren't even sure they could meet the goal.

But they're putting into practice what many of us have said, which is once you set a goal and begin to move down the road the technology begins to take over and the marketplace begins to take over and things happen faster than you think. So we have to reconcile two imperatives. On the one hand, China requires a treaty that gives it room to develop, and on the other hand, unless we convince the world's most populous nation to pursue a sustainable low-carbon development path none of us can hope to solve the problem of climate change. So these two constraints define the scope and the structure of any viable agreement.

That's the reality and that's why the Copenhagen agreement must both secure aggressive emission cuts from developed countries and also support verifiable low-carbon growth pathways that will allow developing nations to begin reducing emissions within the next 10 and 15 years. This will only be possible if we develop financing mechanism and structures to facilitate technology transfer and to energize global markets in clean energy technologies. The agreement must also help countries adapt to a changing environment.

The most dire impacts of climate change -- I just came from Darfur and I can't tell you how impacting it was to come back here and just see trees and green, and the desertification that is taking place in parts of the world is stunning. The agreement needs to understand these dire impacts are going to be felt by people who did the least to bring this about and who are the least capable of managing its impacts. All over the world, millions of people are going to be affected by the practices that the developed industrial nations put into place over 150 years.

A study in Science warned that climate change may exacerbate mega droughts in West Africa, and we have to agree on a global mechanism to support poor countries as they struggle to relocate their citizens and reorient their agriculture patterns and resource use in response to a warming planet. Let me remind everybody just a few years ago the Pentagon, the Joint Chiefs of Staff, all concurred that climate change is not an environmental issue alone, not an economic issue alone -- it's a national security issue. And the fact is that if you have 200,000 plus climate refugees, 10 times the numbers we have today, you're going to have an extraordinary challenge in terms of failed states, the burden of -- humanitarian burden and conflict resolution.

The time has come for the United States to reclaim our rightful role as a diplomatic leader within the U.N. framework on climate change. I'm pleased that the State Department will be convening a major economies forum here in Washington next week. While any agreements reached in these meetings should be reflected and formalized in the official U.N. negotiating process, I believe next week's forum can strengthen the final deal by offering the 17 largest emitters a venue to explore areas of agreement in a smaller, more focused setting.

We here in Washington need to understand that the world is really -- and I don't say this in any form of arrogance -- it's a matter of a reality that I found when I went to Poznan and met with countless environment ministers and likewise foreign ministers and environment ministers who've been coming to Washington in the last months -- they're all looking to the United States. They're looking to Washington, to take its cue from us. In meetings that I've had over the past months with ministers from Germany, China, Bangladesh, all across the globe, I've been struck by the extent to which the eyes of the world are focused on the United States Congress and our domestic policy process.

Without a clear signal from Congress (in ?) and scope, format, and ambition of our domestic program, our negotiators are going to lack the leverage to secure the participation of all the major contributors to climate change, and ultimately the strength of our domestic policy will be a critical factor to galvanizing the will to enter into a global agreement in Copenhagen. This particular challenge is one that America cannot meet alone and we should not try to. (Inaudible) -- in the developing world is going to be responsible for three-quarters of the projected increase in energy use worldwide over the next two decades.

Even if we cut our emissions to zero tomorrow, those increases would more than nullify our progress. So we are in this globally and we all have responsibilities. Also, by structuring the global (deal ?) that steers developing economies into low-carbon pathways we actually have an opportunity, folks, to invigorate global markets and to revitalize all of our economies around energy products and services that are sustainable and that make a longer-term difference to the quality of jobs and the quality of our economies, and that will give America a chance to lead economically once again because of the power of our research and development.

Remember, we developed solar and wind, but because in the 80s we drew back from our commitment and support to it Japan and Germany took over the lead and others with respect to photovoltaics and alternative renewable fuel. We lost hundreds of thousands of jobs by turning our back on that market. We can't repeat that mistake. And so the fact is that this country needs to understand that today the top 30 companies in the world in solar, wind, and advanced batteries -- of the top 30, only six are based in the United States. So if we do this right, I believe that the next four or five Googles are going to emerge -- Google equivalents will emerge in the energy sector, and I want them to be based here in the United States of America.

We also need to take a risk-based approach to climate change policy. Surveying the existing models, Harvard economist Martin Weitzman found that there is approximately a 5 percent chance that world temperatures will rise by more than 10 degrees, or 18 degrees Fahrenheit -- 10 degrees Celsius, 18 degrees Fahrenheit. I wonder how many people in this room would board an airplane if you were told there was a 5 percent change it's going to crash. I don't think we can afford to take that 5 percent risk with our planet where there are irreversible -- irreversible consequences to what is happening.

We're running out of time. Earlier this month, a 25-mile wide ice bridge connecting the Wilkins shelf to the Antarctic land mass shattered, disconnecting a shelf the size of Connecticut from the Antarctic continent and its first time in measured history that this has happened. We are seeing our world change in real time in ways that ought to trouble all of us and mobilize the world to take quick and decisive action.

Frankly, the greatest risk that we face is that we will trim our sails and do too little now and face enormous consequences later that cost us an awful lot more in order to mitigate and remediate. If we fail to confront the full scale of this threat, today's global challenge is poised to become a global catastrophe. Our first witness, Todd Sterns, special envoy for climate change at the State Department, is on the front lines of these efforts. I've known him for many years.

We worked closely together in the lead-up to the Kyoto negotiations. He has a deep background and knowledge in this area and I'm confident in his ability to be able to help get us where we have to go.

So I'm pleased to welcome him before the committee today.

And Senator Lugar, look forward to your comments.

SEN. RICHARD LUGAR (R-IN): Thank you very much, Mr. Chairman. I join you in welcoming Todd Stern and our other distinguished witnesses.

This hearing offers an opportunity for the Obama administration to provide details on its intentions with regard to climate change policy and negotiations. At the recent climate talks in Bonn, it was announced that four or more additional negotiating sessions are planned before the Copenhagen Conference of Parties.

It's my understanding that the deadline for nations to submit negotiating text for Copenhagen, as you've just pointed out, Mr. Chairman, is April 24 -- just two days from now. The United States may be able to delay its submission for a short period of time, I'm advised, but under the rules of the Framework Convention, the negotiating text must be agreed on by June 8. I am hopeful that Mr. Stern will shed light on when the administration will make its submissions and what it will contain. I also hope that we will receive clear answers concerning the nature of the agreement we are negotiating.

There is a great deal of discussion about a negotiated architecture in which various nations make new commitments to reduce emissions. Under this architecture, various funds are contemplated to help developing countries adapt to climate change and obtain clean technologies. It is not apparent, however, how nations would be bound to these new commitments or what type of ratification would be required. I also understand that China and India have already declared they will not make binding emissions reductions. Clearly, the absence of credible commitments from China, India, and other major developing countries would constitute a severe obstacle to climate change legislation in the United States and elsewhere.

More generally, the challenge for the Obama administration is that the American political debate on this issue has not progressed on the same timetable as international negotiations. Although there is growing opinion in the United States that climate change is a problem that requires a response, most Americans don't fully appreciate what this means or how such a response would affect their daily lives.

Results of opinion surveys indicating concern about climate change may bear little resemblance to public reaction to the specific steps required to implement an international agreement. Public response to sudden utility rate increases stemming from a cap and trade agreement, for example, is likely to be severely negative without an extraordinary education effort led, first of all, by the President. Even with such an effort, the American people and their representatives in Congress will be skeptical of any agreement that is perceived as overly burdensome or unfair to the United States or even to the region of the country in which they live.

If the administration intends to gain support this year for an international arrangement on climate change, which almost certainly will have far-reaching implications for the American people, it must vastly expand its efforts to explain what it is attempting to accomplish and how this will affect Americans. It also must recognize that steps that exacerbate the current recession or significantly expand the deficit will likely cause an erosion of support among many in the American public.

I am hopeful that the United States climate change response can be centered on steps that simultaneously reduce our reliance on foreign oil, promote soil and water conservation, contribute to rural development, leverage new energy technologies, and create jobs. Public support will be strongest for emissions-cutting measures that are seen as contributing to additional United States economic or national security priorities.

I applaud the Obama administration for continuing the Bush administration's initiative to hold forums on climate and energy with a smaller group of economic powers. These forums strike me as the best way to engage China and India, and I look forward to monitoring those discussions. I also look forward to working with the administration on how the United States can better assist developing countries to adopt low-carbon economic growth strategies and improve agricultural production.

Senator Casey and I have authored legislation to elevate the priority of global food security in American foreign policy. Climate change will surely impact the most vulnerable regions of Africa and Asia, and biotechnology will have to play a role in developing seeds resistant to the effects of climate change.

I thank the witnesses for being with us today. I look forward to their testimony.

And I thank you, Mr. Chairman, for calling this hearing.

SEN. KERRY: Thank you very much, Senator Lugar. Appreciate your comments.

Let me just mention everybody. We do have a second panel so we're going to try and proceed through expeditiously if we can. Three expert witnesses on the second panel: Ned Helme, the president of the Center for Clean Air Policy; Paul Camuti, president and chief executive officer of Siemens Global Research; and Helene Gayle, president and chief executive officer of CARE. And we welcome them here also.

Todd, thank you for being here with us, and we look forward to your testimony. If you could summarize and then leave us the time to get as many questions in, I think it would be helpful, and your full testimony will be placed in the record as if read in full.

MR. STERN: Yes, sir. Thank you very much, Mr. Chairman, for inviting me to testify today. I want to commend, first of all, you and Senator Lugar --

SEN. KERRY: Is the mike on?

SEN. LUGAR: Yeah, I think you have to press a button there.

SEN. KERRY: Is it on?

MR. STERN: Take it from the top.

SEN. KERRY: There you go.

MR. STERN: Thank you very much for inviting me today to testify. Mr. Chairman, I want to commend you and Senator Lugar for the outstanding leadership you've shown over the years on the issues of climate change and clean energy, and I look forward to working with you and other members of your committee as we move forward on this issue.

That we must meet this challenge is absolutely clear. The basic science of climate change is no longer in doubt, and what is perhaps most disturbing is that the more we learn about the issue, the more urgent the situation becomes, as you've described in your testimony. Emissions are rising far more quickly than expected, sea level projections are being revised upward, and the summer ice cover in the Arctic is disappearing much more rapidly than was projected even a few years ago.

And as a result we are at risk of creating a world where climate change disasters will drive millions of people across borders. Droughts and wildfires will threaten homes and ecosystems. More frequent extreme weather events will threaten communities, and conflicts are likely to arise over scarce natural resources.

In addition, the diplomatic cost of inaction is becoming increasingly severe. Our nation's pursuit of a range of foreign policy and national security objectives has been surely been compromised by our failure to date to meet the energy and climate change crisis head on.

The United States thus has an interest as well as a responsibility in leading on this issue. We are the world's largest historic carbon polluter and our emissions on a per capita basis are much higher than those of China, and more than double even the EU and Japan.

But, just as importantly, we are unique in our capacity to meet this challenge. Our scientists, engineers and entrepreneurs can and must develop the innovative solutions and technologies that will lead America forward, and they're waiting to do so. If they get the right signals, there is enormous pent up energy and excitement among, in particular, the next generation. We can set it loose if we do -- if we take the right steps.

The Obama administration and Congress have already taken a number of important steps in this direction. For example, the stimulus package provided tens of billions of dollars in clean energy investment and loan guarantees. It was a truly historic down-payment on our clean energy transformation.

And now, in order to create millions of clean energy jobs, become a global leader in clean energy industry, reduce our oil dependence and combat climate change, we must also pass legislation that caps carbon pollution and allows market forces to drive innovation in the clean energy sector.

And let me be clear: Unless we stand and deliver by enacting strong, mandatory, nationwide climate and energy legislation, the effort to negotiate a new international agreement will come up short. There will be no new global deal if the United States is not part of it, and we won't be part of it unless we are at least on track to enacting our own domestic plan.

Of course, it is also essential that others do their part. Eighty percent of greenhouse gas emissions are produced outside the United States, and that number, by the way, is growing. And that's why we need a new international agreement that will include significant commitments from all major countries. I am heartened by the fact that the thinking of our country and others around the world has evolved since the time of the Kyoto negotiations. Developing countries such as Mexico and South Africa have charted low-carbon development pathways that are quite impressive, and it is now I think much more widely understood that clean energy can become a catalyst rather than a burden on the economy.

And yet there is no question that the challenges we confront in seeking to negotiate a viable new accord are very real. If you spent much time in Bonn at the recent negotiating session -- and I know, Mr. Chairman and Mr. Ranking Member, that you had staff there -- you would have been treated to a lot of old-style, north-south rhetoric of the kind that doesn't do much for finding common ground.

At present we are actively pursuing our strategy on three related fronts. First, we are fully engaged in the Framework Convention negotiating process itself. I went to Bonn to speak on behalf of the United States at the beginning of the meeting, and our re-engagement and the president's clear commitment cannot conjure away substantive differences, but they do dramatically change the negotiating environment that we inherited.

Second, we are intensifying the dialogue among 17 of the largest economies in the world, including China, India, Brazil, Mexico, South Africa and Indonesia, through the Major Economies Forum that the chairman alluded to. This forum can help to build both the requisite political consensus for strong agreement in Copenhagen, as well as to build commitment for cooperation on clean energy technologies and policies.

We plan to convene three preparatory sessions for the Major Economies Forum during the next three months, and the first will be held on the 27th and 28th of this month in Washington. There will be a leaders meeting in Italy immediately following the G-8 in July.

Third, we are focusing on key bilateral relationships. In the past two months, I have met probably with more than 30 different countries. Relationships with developing countries -- the majors -- are going to be particularly crucial, and, of course, none is more important in this regard than China. China has demonstrated a growing commitment to clean energy in the past several years. Their current five year plan includes a goal of reducing energy intensity by 20% by 2010; a goal to increase their share of renewables in their economy to 15% by 2020, and many other initiatives.

At the same time, China must do significantly more if we are to have a chance to solve the problem, and I expect to be going to China soon to pursue discussions on that subject.

Before concluding, let me just summarize the principles that guide our thinking. First, the United States must lead with a strong commitment to reduce our own emissions in a nationwide program. Second, we will need to ensure that the agreement is truly global, as I just indicated. Third, we must work to promote research, development, and a wide-scale deployment of clean energy technologies. Fourth, we cannot meet ambitious reduction goals without concerted efforts to conserve the world's tropical forests. Fifth, Americans must understand that, as difficult and challenging as this may be for us, it will be still a greater challenge for countries that are still developing, and particularly the poorer ones. Developed countries will have to work together to provide financial assistance and technology assistance to developing countries as part of our ultimate international agreement, and we will need to do work on the issue of adaptation as well.

I believe these general principles can guide us toward a pragmatic international agreement. It will be difficult, but I think with the administration, Congress and the American public committed to doing this, we can succeed.

Thank you, Mr. Chairman and members of the committee, and I look forward to answering your questions.

SEN. KERRY: Thank you very much, Mr. Stern. I appreciate that very much.

Let me pick up really off of Senator Lugar's question or statement essentially about the global participation and the concern that he expressed a moment ago about China having said they're not going to accept a mandatory, quote, "reduction target."

I think it's important that we all begin from a beginning point where we understand why we're where we are in that state of play. But more importantly, would you talk a little bit about the accountability that will exist? Let me be very specific, Senator Lugar. At Bali, and in Poznan, further, the countries accepted a concept called MRV -- measurable, reportable and verifiable. So while they may not sign up as was agreed in really Berlin in one of the COPs before they even went to Kyoto -- while they may not sign up immediately because of their less developed status and because of their -- because of that original agreement, fundamentally, which is why China is so key to this -- they are agreeing to accept differentiated responsibilities that are measurable, verifiable and reportable. So it is possible to proceed forward for a few years -- whatever number -- while we synchronize sort of where the lines come together -- the melding of activity under a joint developed-less-developed agreement that is mandatory, obviously. Ultimately it has to be.

So maybe, Mr. Stern, you could share some thoughts about that a little bit, because in my judgment if we were to get an agreement in Copenhagen where you have the developed world agreeing to certain levels of reductions -- as we agreed to, may I say, in 1992, and ratified by the Senate under George Herbert Walker Bush -- if you get that and you get the less-developed countries joining together in major reductions, though reportable, measurable and verifiable -- if those levels that we're trying to get meet an acceptable standard, we can actually all get moving in the same direction and wind up in the same place at an appropriate moment. Is that a fair sort of statement of what the expectations are from the developing countries?

MR. STERN: Well, I entirely agree with the way you just framed that, Senator. I think that there are different expectations from different developing countries.

Let me just say it the way I kind of look at this at the moment. I think that there's no question that developed countries, including the United States, are going to have to make major significant commitments, which I think are -- for us, with respect to the issue of mitigation of what -- how much we're going to reduce emissions, will be very significantly framed by what is done in our domestic legislative debate.

I think at the same time, there need -- there are --- there's the broad range of developing countries, but there are obviously significant differences within the group of developing countries. I think among the major developing countries -- the kind of countries that are coming to our Major Economies Forum, for example, and some others -- it's going to be very important that they make significant commitments to reducing their emissions.

You cited the kind of foundation principle that is often relied upon by developing countries -- common but differentiated responsibilities. We think that's a perfectly appropriate phrase. The responsibilities are differentiated, but they're common. It does not mean that the developing countries can have a free pass -- the more developed ones among them can have a free pass going forward. We will never solve the problem that way. I mean, I -- in a speech I gave a while ago, I said, "Do the math. Add it up. Add up the emissions." We can't -- as you said, 75 percent of the growth is going to come from developing countries going forward. We cannot get anywhere near where the science tells us we have to get without significant commitments from developing countries.

At the same time, differentiated -- both halves of that phrase are important, and we can expect the major developing countries to do a lot. We should not hang up the whole -- stop the show on the basis that they don't do exactly the same thing that we're doing now. We should -- any difference between us ought to narrow over time, but the important thing is that they take real commitments, that they are consistent with where the science tells us we need to go, and that we get started.

We have been on the sidelines -- we have been debating this thing for too long now. We have got to get going. Five more years of talking about it rather than doing it is just going to set us back.

SEN. KERRY: So the bottom line is that the developed countries will in fact not be outside of a treaty or outside of an agreement, but there will be differentiated expectations with an ultimate melding of everybody in a sufficient level to meet the task.

MR. STERN: That is the way we see it. I also don't want to mislead anybody. It is -- this is a difficult negotiation, and we have to see whether the developing countries will come along on that basis. But they need to, and we need to work with them to make that happen.

SEN. KERRY: So is there any question in your mind -- there certainly isn't in mine from the meetings that I've had with everybody -- that if the United States doesn't take a lead and do something, having done nothing, and actually stiff-armed the entire process the last 10 years, it's as non-starter.

MR. STERN: There is absolutely no question in my mind that that's true. The core -- the foundation stone of our strategy has to be domestic action. I mean, there is a lot more that we have to do; that's not the end point of our strategy, but that is absolutely the core piece of it. And, as I said in my testimony, we have to be absolutely clear about this. If the United States is not on a real evident track to enact its own domestic plan, you know, the cards drop out of our hand. We will not get anywhere without them.

SEN. KERRY: Senator Lugar?

SEN. LUGAR: Thank you, Mr. Chairman.

Mr. Stern, in my opening comments I asked if the administration would explain what it's attempting to accomplish and how this will affect Americans, and I don't mean that in a broad-scale way. I'm really thinking specifically of some legislation now that points in this direction, that there be literally diagrams, maps, text in which, first of all, members of Congress could understand what usually are the first two sentences of testimony: it's incontrovertible, science knows, and so forth.

Many scientists may know, and you may know, and our negotiators may know, but I can testify my constituents claim they don't know, and they would like for me to explain what this is all about. This is so fundamental that I hate to be a skeptic at the party, but I would just say that we're coming down to a point where the administration, at least in two days or a few days, is going to have to put on paper at least some thoughts with regard to Copenhagen. This may be delayed for a variety of reasons, and they may be fairly general, and it may, as the chairman says, be started in the right direction. And we all are sort of headed down the trail.

But I would just say specifically, it's important, first of all, for the administration -- and this ought not to be entirely your burden. It ought to be our burden in the Congress. Other people who are taking leadership as governors have to explain specifically what is the science? What are these measurements? Why are we so certain that by 2020, 2050, whatever the target would be, that something beyond remedy might occur or the percentages of something of that sort occurring?

Because, fundamentally, whatever happens at Copenhagen or other locations will require ratification by the United States Senate and the former treaties -- two-thirds of the Senate, Republicans and Democrats; two-thirds of the states, in essence. And we're not close to that. We're really in the opening stages of our debate in Congress.

This is a problem for you, as our negotiator, and the president has made this point. Going to Copenhagen without congressional action or without at least some sentiment expressed is going to be very debilitating to your efforts, or at least very hazardous. This is why this has got to be a pretty concentrated effort, not only for the preparation for Copenhagen, but the preparation of the Congress and the public in this particular period.

Now let me just make an example. Yesterday, outside this building we had a car. It was created by a company called Bright (ph) Car Company. I was there, and others here were there because the car was produced in Indiana and research was done at the Anderson Discovery Park on hybrid engines. And it was not really a car; it was a van. It was something that could be used commercially. It claimed to get 100 miles per gallon.

But furthermore, someone else introduced a solar tower out here, just outside the building, pointing out that given the hours that are involved it could produce all of the energy for those vans with solar energy, so you don't even get into the CO2 problem that sometimes you get into with a 100 miles per gallon deal.

The dilemma here is that although the Congress has appropriated money for projects like this, and there are many such around the country, the money has not been forthcoming. Now, I hope it will be, because I would say, once again -- trying to help solve the problem -- if I could make the case, as I tried to, to a television station going back to Anderson, Indiana yesterday, that this is a new automobile company. These are jobs. These are vans that could be used commercially throughout the United States. More particularly, they're vans that could be used by the U.S. government.

And while we were busy in the climate change business, if we're serious about the transportation side of it, which we all claim is 40 percent of the problem of CO2, we have a lot of possibilities in purchase in the United States government, or in suggestions of state governments.

I go through all of this because it seems to me that the credibility of whatever you're doing with Copenhagen, or at least our situation, has to run right along with credibility with the American people, with members of Congress, with the support that you will need.

I remembered in a different venue, President Reagan appointed an arms control observer group in 1986, and it was for the purpose of having the leadership of the Senate -- Republican and Democrat -- go to Geneva, look over the shoulder of the negotiators. Nothing happened for three years, but we did finally have an INF treaty and it passed, and it would have no chance of passing vis-a-vis the Soviet Union at that point without there being people like ourselves who were meddlesome, who were always hovering over the shoulder, who were trying to make a case to the American people of why this was important, why we were not giving away the store, why nuclear weapons were not going to rain down on the United States.

So this is sort of a heavy message, but give me at least some thoughts as to what are you preparing actually in the next two days or the next weeks or so in recognition of the April 24th deadline.

MR. STERN: Senator, a number of points in response to what you've just said. I'll take the last one first. With respect to submissions, there are submissions on a number of subjects that we are preparing now and that we'll be getting -- we'll be sending forth in the course of the next several days.

I might say that you are right that the deadline can extend by a little bit -- not by much but by a little bit. I think it is also true that people, including the people in the international negotiating bureaucracy, if you will, the leaders, do recognize that the world gave itself two years and the United States nine months for this process, in effect, in Bali. The agreement was made in Bali in December of 2007, but for a new administration coming in -- by the way, this would have been true whether it was a Democratic or a Republican administration. Basically you have about nine months by the time people get in.

And many of the people who will be involved in this issue, by the way, in the administration, aren't even there yet. So I think there is some understanding of -- a little bit of flexibility in the deadlines but not a great deal. So we will be making submissions on a number of subjects in a few days.

Let me talk to your broader point, though. I couldn't agree more with your underlying comment about the American people. I used to say, back when I was doing this in the White House in the late '90s, when people would ask, what's the most important thing we can do in our international negotiations, I would say, educate the American public because the American public feels this issue the way they started to worry about skin cancer coming from the ozone hole in the early 1990s. That's what got the Montreal Protocol done.

And so the appreciation and concern about this issue among the public, in a way that would radiate out to their representatives is enormously important. And I think it's a two-part message, fundamentally. It's a message of both danger and opportunity. I think that the danger is very, very real. Senator Kerry talked about it quite eloquently in his testimony -- in his opening statement, rather. And the opportunity is enormous. I mean, the green revolution really is going to lead the economic development of the 21st century and we need to be leaders.

Right now -- I have said to people in recent days, we're going to spend the next few years probably trying to push China, and five years from now we're going to be chasing them, because the Chinese are moving and they are going to move rapidly and they are going to conclude -- they are concluding that this is going to be a critical economic driver going forward.

I was in Germany in Berlin before I went to Bonn, meeting with the various leaders in the German government, and they told me by 2020 green technology will be the number-one employment -- the number-one part of the sector in the German economy. So I think it's both messages, and I could not agree more that this needs to be -- that we need to drive that message forward.

I also would welcome participation, and we will work with Senator Kerry and you and others in terms of having Senate participation at the member level, the staff level, and whatever makes sense in your minds to have participation in what we do going forward, because I completely agree with you. I think that's quite important.

SEN. LUGAR: Thank you very much. Thank you, Mr. Chairman.

SEN. KERRY: Thank you, Senator Lugar. If I could just ask that we -- I will put into the record the New York Times of April 2nd, 2009. It was a right-hand, front-page column article, just, "Chinese leaders have adopted a plan aimed at turning the country into one of the leading producers of hybrid and all-electric vehicles within three years and making it the world leader in electric cars and buses after that. The goal, which radiates from the very top of the Chinese government, suggests that Detroit's Big Three, already struggling to stay alive, will face even stiffer foreign competition," and so on it goes.

So I put this in the record and I think it underscores what Todd just said about the economic opportunity.

Senator Menendez.

SENATOR ROBERT MENENDEZ (D-NJ): Thank you, Mr. Chairman.

Mr. Stern, you've been quoted as saying that our international negotiation strategy will largely be set by domestic legislation that the Congress and the president are able to enact. So if that is the case, what role does that leave for you in international negotiations before we enact such legislation? And what do you see in terms of the administration pushing forward on a domestic cap and trade bill as the foundation for your negotiating position abroad?

MR. STERN: Thank you, Senator. As I have said this morning, I think that getting domestic legislation is a cornerstone for our strategy. I think it's enormously important. It's going to establish U.S. credibility and it's going to -- we have -- I think we have made effectively the point, and I think the point has been taken on board internationally, that the United States is back in the game and engaging. But the world also wants to see what the United States actually does, not just what the United States says.

I do not mean to say that our overall strategy is set by what's passed in Congress. That's an important piece of it. But we already know, in broad strokes, what kind of reductions we're talking about. I mean, we -- the president has announced -- this goes back to his campaign, it's in his budget -- he's announced the kind of numbers that he's talking about, which is about a 15-percent cut from where we are now and an 80-plus-percent cut -- by 2020 and an 80-plus-percent cut by 2050. Congressman Waxman has put in a bill on the House side, which is a little bit more than that but kind of in the same general range. Plus or minus, that's the range of what we're talking about, so I don't think that that's -- I don't think that that needs to be in great suspense.

So there's that piece. There's a piece that involves what we expect from developing countries and in what form that we think they need to make their -- to take their action to make their commitments. There are important issues that have to do with financing. Developing countries are looking for financial support for their mitigation efforts as well as for adaptation. Frankly, they are talking about numbers often that are not fully tethered to reality but nonetheless there is a very real need to put together funding packages, and there are important questions about how to structure that.

SEN. MENENDEZ: Yeah, well, let me -- I've let you go on for three minutes.

MR. STERN: Okay.

SEN. MENENDEZ: I want to figure out, though, the answer to my question.

MR. STERN: Okay.

SEN. MENENDEZ: And that is, if you -- your previous comments have been focused on our ability to negotiate successfully abroad. It is more than what we say but what we do. And while those are parameters of goals to be achieved, they have to have actual legislation in order to achieve them. Is that a fair statement?

MR. STERN: Well, I think that we have to have actual legislation as soon as possible. I would absolutely agree with that.

SEN. MENENDEZ: And so, to some extent, your ability to succeed in promoting U.S. interests abroad as it relates to global warming is going to be dictated by what the Congress does or doesn't do with the president.

MR. STERN: I think what -- I think our capacity to get legislation is going to be a core part of -- yes, I mean, I think that's largely right. I mean, I think that there is a timing question which is a little bit -- which is related to that, but if you said to me, we're not going to get any legislation done, we're not going to be able to enact a plan, is that going to be devastating to our capacity to negotiate an international treaty? I would say yes.

SEN. MENENDEZ: Okay. Let me ask you one other line of questioning that I have a great interest in, and that's deforestation, as part of our broader issues. Today is Earth Day. You know, literally so many people are marking the occasion by going ahead and planting a tree, which his not an insignificant, long-term, profound consequence. The question is, a tropical deforestation, stopping it is essential if we're going to stabilize our climate. I'm pleased to hear you acknowledge the problem in your testimony, given, as you said, that deforestation accounts for approximately 20 percent of the worldwide greenhouse gas emissions.

The question is, how do we successfully pursue working with countries to stop that deforestation? If you look at the Union of Concerned Scientists, they have estimates that are pretty significant in dollars. So they talk about raising $50 billion annually to reduce tropical deforestation by 66 percent in 2020. If those were the numbers and then you look at what U.S. contributions have been to those types of initiatives in a similar set, that's a very significant number.

The question is, do you think we can marry our need to reduce compliant costs at home with the need for resources abroad and address international deforestation and degradation by creating a system of international offsets?

MR. STERN: The short answer is yes. I think that there are different proposals that people are talking about and that countries prefer. There is the carbon market's approach, which is what you just asked me about, and there are some who prefer the creation of a fund. I think for reasons that are implicit in your question, I think that there is a lot to recommend the notion of using the carbon markets, and I think that it will be important -- it is a challenge but I think a challenge that can be met to do that in a way that has environmental integrity, where you're measuring and monitoring and all of that.

SEN. MENENDEZ: And that's my next question. Do you think that the international community can create the regulatory and enforcement capacity possible to make such a market work?

MR. STERN: I think that the answer to that is yes, but it's also going to depend on kind of country by country. In other words, the capacity is going to have to be built up in Indonesia, in Brazil, in other countries that are heavy, that are the core countries for tropical forests.

So they have got to be able to measure and monitor. You've got to deal with the problem of what's called permanence, whether you get the credit and then next year you cut the forest down, and the problem of leakage, which is you preserve the forests here and they cut them down someplace else.

I think there are ideas for managing those things. There are discussions that are going on actively. We are intensely engaged in those discussions and we are committed to the notion that forests have to be part of this. And I think fundamentally -- again, for just the raw financial reasons that you were suggesting in your question, that in my mind the carbon markets almost certainly will have to be the way to go.

SEN. MENENDEZ: Thank you, Mr. Chairman.

SEN. KERRY: Thank you very much, Senator Menendez. Senator Corker?

SENATOR BOB CORKER (D-TN): Mr. Stern, I appreciate you coming today, and this is an issue that I've tried to make myself informed of because I think it's important. It's going to be a big part of our debate.

I spent a week or so in Europe meeting with carbon traders and European Commission members and cement manufacturers and steel manufacturers and utilities. I've been to Greenland, and just a few weeks ago I was in the Amazon in Brazil looking at deforestation issues and the U.N.-led program and other things, and I look forward to working with you.

I have to tell you that other than this hearing happening at the time with Earth Day, this is sort of a nothing bigger presentation today. I have no idea -- no earthly idea what you're planning to submit, and I was hoping that today we'd get some details because I think, as has been mentioned by others, understanding where the administration is going, then this relates to domestic policies that we might put in place here. And I have absolutely no idea -- and yet the submission is due in 48 hours -- as to what the administration plans to do.

And without going into that, I guess I'd like to understand, is that because you don't know or the administration is not willing to share that yet?

MR. STERN: Well, Senator, I'm sorry. We will certainly being working very closely with you and others in this committee, among others in Congress. We are --

(Cross talk.)

SEN. CORKER: -- working with us, but --

MR. STERN: Well, I understand, but we will be making submissions on certain issues. We will be -- we will be continuing to work on other issues. Look, the reality is that, as I said, I think it's something that is important to bear in mind, that we came in about two months ago and the world -- the world had two years and we have a lot shorter time than that. We are very much on the schedule that I would have anticipated.

SEN. CORKER: Okay, let me just ask you this. When you submit -- I've only got a limited time here.

MR. STERN: Yep.

SEN. CORKER: Apparently the answer is you don't know because you've only been in office for two months, so I'm just -- let me just -- if you just give me a specific answer -- and I want to ask you some more things -- when it is that the administration will have a firm policy or a firm guideline as to what they hope to accomplish in Copenhagen that they can submit to us to look at, because I think that very much needs to be understood as we look at some of these other policies.

MR. STERN: Well, Senator, as I said, I think that -- I don't think that there is a lot of suspense with respect to the main outlines of what we're talking about.

SEN. CORKER: No, but let me say -- okay, I think we're getting probably nowhere. Let me just -- you made a comment that somewhat I found prevalent in the climate debate, and that is just doing it, okay -- earlier, talking about we just need to do it.

What I have -- and talked with other members of the committee about -- the details of how we do it are pretty important, okay? And so I'd like to have an understanding of a lot of things, like international offsets. There has been all kinds of -- you know, and your sense about international offsets and their role, because it will affect us at it relates to the domestic things that we do here.

Personally I've been very concerned about clean development mechanisms. An international university said that 76 percent of them actually had no effect whatsoever. You know, Stanford has written papers about it. The bill that -- the Waxman-Markey bill that just came out said that without international offsets in their bill, carbon prices in America would actually be 96 percent higher. Well, that's something that we all sort of need to understand. Candidly, Senator Menendez and I seem to always be back to back, whether it's here or on other committees, and I appreciate his focus on deforestation, personally.

If we're going to look at international offsets, deforestation to me is a much more potent way of looking at it and verifying it and actually making multiple good things happen at one time versus dealing with the fraud, the huge amount of fraud that has allowed people to make hundreds of millions of dollars off fraudulent CDMs.

So I'd like to just get a sense of -- let's just focus on that one issue and how you plan to approach that as you go ahead because it will affect us greatly in this country.

MR. STERN: Two issues, Senator. First of all, I would say within the space of the next week to two weeks we can come up and talk with you if you'd like, or your staff, on details of a number of these issues. I'd be happy to do that.

SEN. CORKER: We would --

(Cross talk.)

MR. STERN: On the specific issue of offsets and CDM, I kind of look at it two ways. I think that, first of all, as I said to Senator Menendez, I think the forest piece is a very important part of it. I think what CDM, the clean development mechanism more broadly -- I think that there is, as I think about this, a need probably both to narrow and broaden -- narrow in the sense that there has been a lot of -- there have been a lot of CDM credits that don't have environmental integrity that are, as you have --

SEN. CORKER: Not the vast majority of them.

MR. STERN: I don't know what the exact numbers are but I'm not disputing that issue at all. I think there's a lot that are not good enough.

By the same token, it may well make sense to have an offset mechanism that can work in connection with actions that are taken at a broader-than-project level, at a -- (inaudible) -- type level if they're the right kinds of policies to move whole sectors to a low- carbon path.

So, I think both a narrowing and, potentially, a broadening are what we're thinking about right now. Again, what we are -- (laughs) -- we are not trying to hide any ball, believe me. We will be very happy to come up, talk with you, talk with your staff on a number of these issues quite, quite soon.

SEN. CORKER: Well, Mr. Stern, I very much appreciate, first of all, the importance of the role which you're going to play. And I hope that we will be in constant contact. We also plan to play a major role in the domestic debate here as it relates to climate change. And I do think that one of the things we can all do is to be more honest about the issue.

I think the comment that Senator Lugar made regarding informing the public -- in the budget amendment discussion, which I realize is mostly silly, and mostly demeaning for most of us participating, and it's mostly (messaging ?) votes, but only two senators, I was one of those, was willing to acknowledge that if we do have cap-and-trade we're going to be talking about increased prices on all energy that's generated from fossil fuel here.

So, I find it amazing that we're in the year 2009 and people are still trying to move around that topic. I mean, the purpose of cap- and-trade is to drive up energy prices from things -- from energy that's generated from fossil fuel. That's the purpose of it.

And so I do hope that we'll have an open and honest dialogue. I want to be constructive in this. And I look forward also to talking to you when you come to our office about the deforestation issue. I think it's one that is important.

And candidly, I think many citizens in this country, even if they don't care about the issue of climate change, could find themselves towards caring greatly about the Amazon and other places being desecrated the way they are.

Thank you very much, and (I) look forward to (talking with you ?).

MR. STERN: I agree with you completely, and I look forward to working with you, Senator.

SEN. KERRY: Senator Corker, thank you for the line of questioning. Thanks for the work you're doing to -- (inaudible) --

Could I just comment two things quickly? The purpose of cap-and- trade is not specifically to put an increase on it. It's to put a price on it. The price could be lower, the price could be higher. Now, it will be higher to begin with. I absolutely acknowledge --

SEN. CORKER: Which will increase prices, initially.

SEN. KERRY: But, you would have a marketplace with vast revenues coming in to some entity where many of us -- we had this discussion at the -- (inaudible) -- Institute. There's a formula by which you can redistribute that to citizens and reduce the impact so that you have a mitigation against --

SEN. CORKER: And I'm very supportive of that, and I offered that amendment last summer, so.

SEN. KERRY: So, I think, you know, it's important to put it in its perspective. Also, the EPA just did a preliminary analysis of the Waxman bill -- yesterday it came out, and it said, to a lot of people's surprise, that it would only have a 0.1 to 0.2 impact on economic growth.

SEN. CORKER: One of the reasons is it had Clean Development Mechanisms in it that lowered -- that didn't affect carbon prices by -- If it didn't have the mechanisms in place, carbon prices would be 96 percent high. Again, that's the reason, Senator --

SEN. KERRY: Well, that's -- (inaudible) --

(Cross talk)

SEN. CORKER: -- (inaudible) -- such an important part of our discussion.

SEN. KERRY: It is an important part of the discussion.

And the final comment I'll make is, Europe realizes that, in the implementation -- first of all, when I was in Kyoto, and Todd Stern will remember this, the Europeans were dead set against, dead set against cap-and-trade (at a ?) marketplace. They didn't believe in it. They accepted it. But, they implemented it with that mind-set of really not liking it, understanding it, et cetera, so there were games played in the beginning. We all understand that.

Now, they like it. And now it's working. And now the price has stabilized. And, they've reformed the CDMs, and they're moving on that. Every discussion we've had with them they have acknowledged, you've got to have CDM reform. So, we're learning from their lesson. I think that's one way we could approach it.

Senator Webb.

SEN. WEBB: Thank you, Mr. Chairman.

Mr. Stern, actually I would like to begin by following on a little bit about what Senator Corker said. And I'd like to associate myself with a great deal of the remarks that Senator Lugar also put before us. (You are aware of ?) the votes that took place during the budget process, are you not?

MR. STERN: Yeah, sure.

SEN. WEBB: This is a pretty clear indicator, I think -- from the perspective, at least, of the Senate, that there are a great number of concerns about whether this issue has become clearly defined as it relates to specific legislation that might be proposed. There are a lot of pretty -- there are a lot of unanswered questions, as they relate to technology, something that Senator Corker and I have discussed many times, the business model, the bureaucratic implications of legislation, perhaps unintended consequences, and also the international competitiveness of the United States.

So, this is -- and many of us feel a strong commitment to improving environmental conditions, but that doesn't mean that the mail has been answered on a lot of these other questions. And I, like Senator Corker, have been spending a great deal of time over the last two years trying to sort out the technological capabilities, with respect to carbon dioxide emissions, and trying to examine the business model.

Actually, the more I read about cap-and-trade, the less comfortable I am with it. I think that there are a lot of people who made a lot of money in the middle. I think we just went through that sort of an experience with our economy. So, there are going to be a lot of questions that are going to be coming out of both sides of the aisle here as this issue moves forward.

I would like to ask you to -- and we don't have much time but, in precise terms, if you would, to explain the different categories, the Annexes in the UNFCCC.

MR. STERN: Sure.

The traditional breakdown is between developed countries -- and there's a list of, essentially, the OECD, and that's Annex 1. And then Non-Annex 1 are countries that are -- that, at the time, were not OECD. There are two countries that are -- that weren't, and now are, Mexico and South Korea, and they're sort of, in another zone between "developed" and "developing" in the world of the Framework Convention. But, --

SEN. WEBB: (Do ?) the developed countries in Annex 1 have specific obligations?

MR. STERN: The developed countries, under the Kyoto Protocol, have specific obligations. There are obviously some countries, including the United States, that did not -- (inaudible) -- joining Kyoto --

SEN. WEBB: But, I assumed they have specific obligations --

MR. STERN: Exactly.

SEN. WEBB: -- if we were to join in this.

And then there's an Annex II, which is a subset of Annex 1?

MR. STERN: Yes. There are countries from the former -- essentially, the former Soviet group of countries, but the fundamental, the fundamental division is between the Annex 1 and the Non-Annex 1 -- (inaudible) --

SEN. WEBB: And so the major polluters in the world today -- China and India, are not Annex 1?

MR. STERN: Correct.

SEN. WEBB: So, they -- (inaudible) --

(Cross talk)

SEN. WEBB: They do not -

MR. STERN: -- (inaudible) --

SEN. WEBB: -- have specific obligations.

MR. STERN: Absolutely right.

SEN. WEBB: And one of the justifications in this exclusion for them was that the developed nations have greater financial resources in order to deal with specific obligations -- according to what I'm reading here?

MR. STERN: Well, that's -- I mean, that's partly right. I mean, there's -- I would just maybe make one slight exception to what you said. They are major polluters. I would not describe them as "the" major polluters --

SEN. WEBB: So, in terms of carbon dioxide emissions, are they not now the --

MR. STERN: -- (inaudible) --

SEN. WEBB: -- the highest polluters?

MR. STERN: No. No, no. The United States is around 20 percent. China is slightly more. India is around 4 percent of the world total. So, India is important --

SEN. WEBB: Well, okay, so --

MR. STERN: I'm not -- I'm not (going to ?) -- (inaudible) -- polluter though we are, China is number one right now. We're number two. The EU, broadly, is -- I don't remember the exact percentage, but probably 14, or something like that -- (inaudible) --

SEN. WEBB: But, here's the -- here's the dilemma: Where a legislator, who is attempting to be fair to the situation, but also to America's place in the world economy, we have a situation where it is assumed that we have greater financial resources to deal with this problem, when China is a greater emitter and they're sitting on a $2 trillion surplus --

MR. STERN: Right.

SEN. WEBB: -- while our economy has gone down the tubes in the last eight or nine months. Would you comment on that?

MR. STERN: Sure. Look, I am absolutely not taking the position that I think that China or the other major developing countries should stay on the sidelines and not have obligations. I understand that that's what the original division set up, and I understand that's the way Kyoto was. That's not what our position is. So, I hear you. That's --

SEN. WEBB: And the position would be that China would also have to have a specific obligation?

MR. STERN: Yes. That doesn't mean the same obligations. That's what I was saying earlier, in response to something that Senator Kerry said. But, the --

SEN. WEBB: Why wouldn't they have the same obligation?

MR. STERN: There has been a historical division, which is kind of represented in the phrase "common, but differentiated responsibilities." And developing countries -- based on their level of development, based on their per capita income, and so forth, have had different expectations.

That's narrowing for a country like China. It's narrowing quite considerably. China, right now, is a developed country and a developing country. There's probably 300 (million) or 400 million people who still live in poverty in the countryside. It's basically a developed country in the cities, and a developing country in the countryside.

SEN. WEBB: -- (inaudible) --

MR. STERN: Right. And so --

SEN. WEBB: But, at the same time they're sitting on $2 trillion --

(Cross talk)

MR. STERN: Well, there's no question about that.

SEN. WEBB: -- (inaudible) -- seriously affect what's going on in their countryside.

MR. STERN: There's no question about that. And I think that, I think that we need to be -- our policy is the Chinese, and other major developed -- developing countries, are going to have to take on real obligations. But, that does not necessarily mean, to me, that that needs to be, at this point, an economy-wide target the way the United States might take on.

I think it has to be robust action. I think we need to be -- (inaudible) -- I think it needs to be quantified; that they need to commit to it. We need to be -- that needs to be transparent. We need to be able to see what it is and make a determination about whether it's in the --

SEN. WEBB: (Makes no sense ?).

MR. STERN: -- (inaudible) --

SEN. WEBB: I'm over my time.

But, I do want to reinforce that there are a lot of questions, on this side, with respect to the capability of technology to protect our energy production in all sectors; the business models that are being used; there's going to be a lot of questions about cap-and-trade; the bureaucracy that would come out of this. The bureaucracy that was going to come out of last year's bill was -- it looked like something you would get out of the old Soviet Union. It would have bogged down our governmental system, and also our ability to compete internationally. So, those are the questions.

Thank you, Mr. Chairman.

SEN. KERRY: Thank you, Senator Webb.

Let me just assure you that we are prepared -- those of us who have been advocating moving forward on this, to sit down with you at any time; work through each and every one of these issues. There are answers.

A lot was learned through last year's effort. There is a very different approach being taken this year to try to deal with those things up front and inclusively. And we look forward to working with you.

SEN. WEBB: Well, thank you -- (inaudible) -- trying to talk to as many different people as we can.

SEN. KERRY: Good. Thank you.

Senator Shaheen -- or Senator Casey.

SEN. CASEY: Mr. Chairman, thank you very much for calling the hearing. I think it's further evidence of the chairman's commitment to these issues for a long time -- many decades.

And I do want to commend our witness, that Mr. Stern you're here not just to testify and to respond to questions, but you're doing it with a sense of urgency on this issue that's critically important. I believe this issue is as important as any we'll face in this Congress. It does, in the end -- it's not just an esoteric issue that's far into the future. I really believe that it involves not just the kind of world we're going to have but, in essence, human life and the protection of human life.

I wanted to try to focus on two areas: One, from the vantage point of a perspective of Pennsylvania. I live in and represent a state that's number three in terms of carbon emissions. And I guess that adds up to about 1 percent of the world's carbon, so we have a significant challenge ahead of us.

There are particular industries where there's a real concern about so-called "carbon leakage," meaning high-paying, high-skilled jobs going to countries that haven't set forth or put in place restrictions that relate to climate change. I wanted to ask you, for example, in the steel industry in Pennsylvania that's a very -- a real concern that jobs will be going to another country that "isn't doing their part," so to speak, in simple terms.

What's your feeling about -- and has the administration arrived at a conclusion about so-called "sectoral agreements," meaning economic sectors that would take into account that concern about, what's known in common parlance, "carbon leakage," as it relates to jobs?

MR. STERN: Thanks, Senator.

Two comments: First of all, I think that both in terms of the legislation that's been introduced in the House, and in terms of discussions that are going on inside the administration, I think there is a lot of focus on what to do and how to respond to the concerns of energy-intensive industries like steel.

The Waxman legislation includes, you know, two different ways to deal with that. One would, in effect, provide a certain amount of resources from the sale of allowances to energy-intensive industries, and tie that to their production. So that the more you produce, the more you get in order to offset the higher energy costs that might ensue. That's one idea.

The other idea, which has also appeared in legislation in previous years, has to do with, in effect, a border tax adjustment. We don't have a position on that at this point. And, anyway, that would be done -- would need to be done with some sensitivity to WTO concerns, but that is another idea that's embedded in that bill.

The sectoral agreements, I think that there is potential for those. I think that, I think that -- I'm not sure that those -- it's conceivable that those could be part of a Copenhagen agreement, or they could, it's also a potential that they could happen independent of Copenhagen.

I think it's important to say in this context Copenhagen is not the whole -- is not the, is not the whole show. It is very important, and it -- at this point, it has a great deal of our focus, but it will be vitally important to have major technology agreements among the key countries around the world. It could be very important to have agreements on standards, and that could include things like steel or other kinds of products or appliances. It could be global.

So, there are -- Copenhagen is an enormously important framework, but that's not going to be -- if we can get, if we get a Copenhagen deal done, in my mind that's the start, that's not the finish. I mean, that's sets -- that would set the broad framework within which we would operate, and would set targets for where people need to go. But, then you've actually got to take the action that could make the reductions, and sectoral agreements could be part of that.

SEN. CASEY: Thank you.

I want to ask you about financing, and the U.S. role in financing any kind of adaptations or climate initiatives in developing countries. How do you see that working? And, has the administration, has it arrived at a position on how -- what our role would be in financing those adaptations or new initiatives?

MR. STERN: Yes. Well, we are in the middle of a lot of work on that subject right now, both internal to the administration and in consultations with our colleagues in other donor countries. I think that financing, whether it applies to adaptation or to mitigating is something that needs to be looked at, in essence in terms of different potential sources of funding.

Carbon markets themselves can provide a lot of funding. Some funding probably -- probably this is probably more true in the context of adaptation -- even is going to need to come from public sources, government sources. So, there is the -- what the total amount of potential funding can -- what amount can be put together among the donor countries.

There are also very important related questions that have to do with what sort of institutional arrangements would be set up; what the governance structure would be, as between developed and developing -- probably a blended structure. Not exactly what the developing countries are going to want, and not exactly what the developed countries are going to want, but a blend, so that we can have both a flow of funds but accountability over the funds.

The last thing we want is for money to go and not get used well. So, I think that we are right in the middle of working on that. We have been meeting with our friends from the U.K., and Germany, and many other countries to work on both the amounts that could be provided and the structure.

SEN. CASEY: Thank you very much.

SEN. KERRY: (Off mike.) Thank you, Senator -- (inaudible) --

Senator Shaheen -- I'm sorry, I didn't have the mike on.

SEN. SHAHEEN: (Off mike.) I would like to just go back to the comments of Senator Corker and Kerry, relative to the purpose of cap- and-trade to begin. And I would take it one step further even than Senator Kerry did in talking about the purpose as not just to put a price on fossil fuels, but it's really to try and put a price on carbon.

And I appreciate, Senator Corker, you think that can be done more efficiently with a tax. But, I think the neither of those are really the purpose of what we're talking about. It's really how we deal with the greenhouse gases that cause global warming.

And I think sometimes we all understand that but we get so into the reeds of what's involved here that we've got to stay focused on the point you made, Mr. Stern -- and thank you for being here, and the point that a number of people here have so eloquently made, and that is that we have to deal with climate change; that we are experiencing now in New Hampshire, and the farther north we go the more we can see the impacts of that.

And there are number of ways for us to deal with this issue, but the important thing is for us to get a commitment to deal with this issue and to do it expeditiously. And I would point out that we have a number of states in the United States that already have cap-and- trade programs underway. New Hampshire is one of those, with the Regional Greenhouse Gas Initiative. And so far it's working well and it hasn't -- we haven't seen a negative impact on our industry beyond the impacts that we're all feeling with the economic downturn.

So, I just think it's important for all of us to stay focused on the need to get something done because of the challenge that's facing us. And, with that said, to recognize that there are significant areas of disagreement among us about how to get that done. And one of the things you pointed out was that it's going to be very important to have a position, that Congress and the United States have taken, to go to Copenhagen; that we will be in a much better negotiating position.

So, I guess what I would say to you is, recognizing the challenges that we're facing to do that, what do we need to take to Copenhagen, short of legislation, that will demonstrate our commitment to addressing this issue?

MR. STERN: Thank you very much, Senator.

I think that there are -- first of all, there are a number of thing that have happened already, which certainly -- which certainly are very helpful. As I noted in my testimony, the stimulus package included a very large amount -- it gets described in different (laughs) precise numbers. But, whether it's $80 billion, or $70 (billion) or $90 (billion), it's a large number and it really, an historic down payment.

I think that, though, on the issue of the major cap-and-trade and energy legislation, I think that, for purposes of Copenhagen, real serious progress has to be made on that. I would love to see the bill done. I think that would be -- that would be --

SEN. SHAHEEN: -- (inaudible) --

MR. STERN: Yes. That would be in everybody's interest.

But, short of that, I think demonstrable progress. A sense that it is rolling -- it is rolling with determination and decisiveness down a track, is at least what we're going to need. If, by contrast, the sense is -- as I said earlier, that the bill is dead, and it didn't go anywhere, and we've got nothing going on, it's going to be very, very difficult. I mean, it's going to be more than difficult. So, I think that we need to be making demonstrable progress at the very least.

SEN. SHAHEEN: Thank you.

As I'm sure you're aware, one of the debates that's going on, as we think about our internal legislation, is how we -- revenue recycling, and what happens to dollars -- do they get sent back to consumers; how do those get used?

Does that debate here has implications, as you're thinking about dealing with developing countries, and -- ?

MR. STERN: I think that the -- I guess my answer to that would be -- I'm not sure that it has direct implications with respect to developing countries. One thing that would have some implications, with respect to developing countries, is whether there's any capacity within the bill to have some very small part of the proceeds available for adaptation uses for the poorest countries, for example. And I think that actually would be important -- probably a contentious debate, but I think it would be very useful in the international context if that were true.

Beyond that, I think the precise debate -- and it is a very (laughs) active debate, I think on the Hill, and even obviously a subject of a lot of discussion and consideration within the administration. Whether the funds get sliced up exactly this way or that way, I think matters, in general, matters less on the international side than that the choice gets made that is most productive to getting legislation completed; and, legislation which stays strong. I mean, you don't want it to be sliced up in a way that guts the legislation -- it's got to be real and strong. But, getting it done, I think, is "the" fundamental internationally.

SEN. SHAHEEN: Thank you.

SEN. KERRY: Mr. Stern, thank you.

Are there any further -- (inaudible) -- Senator Corker?

SEN. CORKER: I look forward to seeing you in a week or so, and talking through some of these things. I guess I'd just close -- and I won't take, certainly, seven minutes to do this, but the reason that I think this is such an important issue is the relationship between addressing climate and energy security in general, and our economic security, okay.

And I see some of the upsides that people talk about, on the economic side. I also see some of the downsides. And -- (inaudible) -- the amendment last year to make sure all the proceeds come back to people, which I know it's a -- that was a great line of questioning I thought, which does put in place the -- (inaudible) -- between us and the developing countries if we don't want our citizens transferring wealth, right. A pretty important issue.

But I guess I would just ask that -- ask how much time you're spending on the energy side, in that climate change legislation, or treaties, done in a vacuum, can leave us in a very bad place as it relates to our own energy security. And it doesn't take but just one trip to Ukraine, or Russia, and the tendency of Russia to turn the valve off when sometimes things aren't going exactly the way they wish, and to see the huge amount of fuel switching that took place in Europe after cap-and-trade legislation was put in place in the European Union.

So, I hope that this is not being done in a vacuum. And I know Jeanne and I serve together on the Energy committee, and this is all very related, and I would just say, Mr. Chairman, I actually think it would be helpful -- I know you talked to Senator Webb about sitting down, but this, and the energy, really tie together, and in a very, very important way -- and I hope that as we're moving through this we will make sure that we address the complexities that are so important to our country as it relates to energy security, which is very relevant to our national security and our economic security when we're talking about climate.

So, I look forward to those meetings and, certainly, Mr. Chairman, I appreciate you having the hearing today.

SEN. KERRY: Well, thank you, Senator Corker. Let me just say, we're going to have -- we're going to have a lot of meetings. We're ready to work to move this forward.

And one of the reasons -- in fact, the leader has decided, Harry Reid has decided to keep the energy bill and the cap-and-trade bill linked in the Senate, as they are in the House, because of the interconnectedness. We understand that. We have a huge investment that is taking place through this stimulus package, some $80 billion going into alternative renewable, (and so forth. ?)

Senator Lugar raised the question with me, and publicly, about why some of this money isn't getting out there into these companies, in terms of technology. And, indeed, there was about $40 billion just bottled up at the Energy Department in the last administration. No grants were being made. Secretary Chu is committed now to moving that money out into our private sector, and that's going to make an enormous difference for colleges, and universities and technology advances as we go forward.

But, one thing that a lot of opponents -- or questioners, I don't want to say opponents, people who are still sitting on, you know, serious reservations -- I think aren't focused on is the fact that cap-and-trade, as it is currently defined in the Waxman bill and in our conceptualization here, is not economy-wide. The transportation sector is not in it. The agricultural sector is not in it. The small business community is not in it. It applies to utilities, power generation, and it applies to heavy industry.

Effectively, you're talking about a universe of about 2,000 entities in the United States. That's it. That's what you're talking about. And our economy, you know, is big enough, number one, to consume that.

Secondly, the McKinsey company, which is one of the most reputable, well-thought of consulting companies -- business consulting and advisory companies in the country, spent a number of millions of dollars doing an analysis of the carbon cost abatement curve -- and they have a chart, and I'm going to get it for you, you should read the study -- that shows that the first 30, 35, whatever, I forget the exact percentage, it's about 30, 35 percent of this reduction, is completely paid for while you're doing it.

The companies that do it actually get money back. They wind up net positive in the doing of it. And then you have a midsection cost that's very minimal, and it's at the far outside end of it, where you're grabbing a much greater amount, that you actually went in (with a higher cost. ?) So, for the first few years this is going to be money back to companies.

This is the most energy inefficient nation on the planet, folks. I'm sure our next panel will probably address some of this. Energy efficiency, according to this, in the McKinsey study, can grab anywhere from 40 to 75 percent -- 70 percent of the total grab we need to get out of greenhouse gas emissions. So, we become more competitive because we are, in effect, becoming more efficient. So, these are all the things that we need to get at as we go at this over these next months, and I look forward to sitting down.

Now, Mr. Stern, as we terminate your part of this panel, let me just say to you, what -- (inaudible) -- this -- and Senator Lugar mentioned the Arms Control Observer Group, we've been planning. Two years ago I ran that by then-Chairman Biden and we decided, sort of, to do that within the framework of this committee, which has jurisdiction over the treaty. And the Senate is going to have to, hopefully, be able to pass whatever it is that (works. ?)

So, my commendation to you here is that we've got to be talking more. And I think you've got to, sort of, be up here dealing with both sides of the aisle. We'll convene that, Senator Lugar and I, so we have an ongoing effort to be working at these issues. I think it will help you; it'll help us; and in the end, hopefully, it helps the final product significantly.

Now, in fairness -- I said this to Senator Corker, Todd Stern made it clear to me, prior to coming up here, that not all of the "t's" were crossed and "i's" dotted with respect to where they're going in the next few days. And --

(SEN. CORKER ?): ( I would add -- I would add ?) paragraphs written, but --

SEN. KERRY: Well, no. I think that's unfair. I think that's unfair. But, I think that for a lot of reasons they're trying to get all of that. They've got the major -- (inaudible) -- meeting next week. I think we've got to allow them that leeway to be able to complete that task. This is a major effort. And, as he said, not all of those folks are even on-board yet.

So, I knew he was coming here today without the ability to fully flush out every single component of it. I still think it was important, and I think it's contributed significantly to people's understanding of the process, and where we're heading, and how we're going to get from here to there.

So, I thank you for taking the time to be up here today. We look forward to continuing this work with you in the next weeks. And you wanted to make one comment -- (inaudible) -- ?

MR. STERN: Well, thank you very much, Senator Kerry. I welcome a very full engagement with this committee.

I talked to Senator Corker separately, but I do want to say that we are in anything but a vacuum, in terms of the energy issue. We have worked closely with the White House and the Department of Energy on energy partnership with Canada, with Mexico; and the initiative in the Summit of the Americas.

And, when I went with Mrs. Clinton to China back in February, the leading thing that we focused on was establishing an energy partnership with the Chinese. They agreed with -- they agreed on that, in principle. And we are working very hard right now. I hope to go later in the month of May to China -- as soon as I possibly can, with people from DOE, and probably the Science and Technology Office, to work on, specifically to work on energy issues and climate change issues.

I think that these things are absolutely, completely, intimately linked, and that the energy security issue is fundamentally linked as well. So, we're not approaching it in a vacuum at all. Just the opposite.

SEN. KERRY: Thank you very much, Mr. Stern. We appreciate it.

MR. STERN: Thank you, Senator.

SEN. KERRY: Could we invite the second panel to move right in and have a seamless transition here, hopefully? Thank you.

END.


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