US Senate Committee on Environment and Public Works
Hearing on Global Climate Change
July 17, 1997, 10:00 am. Room SD-406

US Senate Committee on Environment and Public Works

Hearing on Global Climate Change

July 17, 1997
10:00 am. Room SD-406

Opening Statements by Senators:

Sen. John H. Chafee, Rhode Island
Sen. Max Baucus, Montana
Sen. Dirk Kempthorne, Idaho
Sen. James Inhofe, Oklahoma
Sen. Harry Reid, Nevada

Statements by Witnesses:

Honorable Timothy E. Wirth
Under Secretary of State for Global Affairs
Department of State

Dr. Janet Yellen
Chair, Council of Economic Advisers
National Economic Council
Executive Office of the President

Mr. Kevin Fay
Executive Director
International Climate Change Partnership
Arlington, VA

Mr. William O'Keefe
Chairman, Global Climate Coalition
Washington, D.C.

STATEMENT BY SENATOR JOHN H. CHAFEE
THE COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
CLIMATE CHANGE POLICY OF THE UNITED STATES
July 17, 1997

One week ago today, the Committee received testimony from a distinguished panel of witnesses on the science and economics of global climate change.

This morning, we hope to learn more about how the Administration has interpreted the current scientific and economic understanding of the climate change issue to form its domestic and international policies. We will also receive views from two very knowledgeable representatives of the business community.

What did we learn last week from our academic witnesses about the science and economics of global climate change? I suspect that some left the hearing even more certain that there are too many uncertainties to commit the United States to additional or legally binding greenhouse gas emissions reductions. Others may now be further convinced that serious climate change risks have been sufficiently demonstrated and that the time for more meaningful, preventive action is now.

Individuals possessing sound reason and good intent, of which this Committee has eighteen, could plausibly arrive at either conclusion. This is a judgment call. Those of us in government, here on this committee, elsewhere, have to advance with the best available information.

What is fact? First, energy from the Sun warms the Earth. I think we can all agree on that. Next, greenhouse gases in the atmosphere trap heat from the Earth that would otherwise radiate out into space. Greenhouse gases make the Earth warmer than it otherwise would be. Fourth, water vapor is the most abundant natural greenhouse gas.

Fifth, greenhouse gases emitted by human activities are altering the pre-industrial composition of the atmosphere. Indeed, the concentration of carbon dioxide in the atmosphere has increased from about two hundred and eighty parts per million some two hundred years ago to about 360 parts per million today.

Importantly, the concentrations will not magically halt at 360 parts per million. We will observe a doubling of pre-industrial concentrations sometime in the early part of the next century -- and unless actions are taken - we will move on to a tripling and quadrupling.

Sixth, all nations are contributing to this buildup of greenhouse gases. No one nation or group of nations acting alone can effectively address this matter. Seventh, the United States is the largest greenhouse gas emitter in absolute and per capita terms. China is the second largest greenhouse gas emitter in absolute terms, but on a per capita basis emits a tenth of U.S. emissions.

Eighth, we have measured a one degree Fahrenheit temperature increase, globally, over the past one hundred years. Finally, on the economics side, it is a fact that limiting carbon dioxide emissions will mean significant changes in energy use and energy sources.

The question is, has science provided enough information on the relationship between these facts and actual changes in the climate to warrant further action? Obviously, the Administration has made its conclusion.

The United States and some one hundred and sixty-five other nations are negotiating changes to the existing 1992 U.N. Framework Convention on Climate Change. These changes, if agreed to, could require specific, legally binding greenhouse gas emission reduction commitments for the post-2000 period. These international negotiations are to culminate at the Third Conference of the Parties to the U.N. Framework Convention, scheduled for December of this year in Kyoto, Japan.

Should we be signatories to a Kyoto agreement? What role should the developing countries play? What kinds of emission reduction requirements are appropriate? What are the likely economic, trade, competitiveness and job impacts? What are the likely environmental impacts of acting -- or not acting? How will such an international agreement be implemented domestically?

Finally, is it possible to embark upon a "low-or-no-regrets" strategy which would minimize economic damages or even improve our economic performance -- while responsibly reducing the threat of climate change?

These and other topics will undoubtedly be our focus today."

Statement of Senator Max Baucus
Hearing on Climate Change
July 17, 1997

Mr. Chairman, let me just make a few brief observations. Last week we heard from the scientists. They presented what I thought was some solid evidence and a thoughtful argument that future changes in our climate caused by human activity is a potentially serious, if not absolutely certain, outcome.

To me that means the potential consequences are too serious to ignore. And if we begin to take modest steps now to curtail greenhouse gas emissions, we may start making progress toward that goal without encountering serious economic disruptions.

As with many issues around here, our task is to find the right balance between maximizing the benefits of a policy and minimizing any adverse consequences from it. And as we were told last week, the sooner we start, the better this country will be able to achieve that result.

My second point is that if we are to succeed in limiting worldwide emissions of CO₂ and other greenhouse gases, we must have greater participation by at least the major developing countries.

After all, this is called global climate change. And if the major global players are not part of the solution, the prospects for success will be pretty slim.

Perhaps this is an area in which we need to broaden our thinking. I've spent a good deal of time looking at China's role in the world, especially from the trade standpoint. The U.S. has a lot of issues to deal with China on. Some of these are issues on which we have fundamental disagreements.

But there are many others on which we share mutual interests. And climate surely is one of them. China has more people potentially at risk from rising sea levels and violent weather than any other nation.

It also has a desperate need to increase its domestic energy supplies. And if there is no change, China will be contributing one-third of the additional greenhouse gas emissions over the next 20 years.

So looking at the broad array of issues on the U.S.-China table, we should be able to find ways to gain their support on this issue. As I've said many times, our disagreements with China should not stop us from engaging with them on issues where we can both make progress.

Finally, Mr. Chairman, whatever our ultimate policy on climate change will be, it needs the support of the American people.

I believe there is a compelling case to be made. That is why I welcome the President's decision to become more personally involved in this effort.

The toughest issues for democracies to handle are those in which the threat to society builds gradually, but inexorably, over time. We deal well with immediate crises. I hope that it will not take such an event to spur action on this issue.

STATEMENT OF SENATOR DIRK KEMPTHORNE
HEARING ON GLOBAL CLIMATE CHANGE
July 17, 1997

I want to applaud the Chairman for holding this hearing today. The issue of global climate change is certain to be an important one for decades to come. Today's hearing gives us an opportunity to help guide the Administration as it develops its policy on additional measures to reduce greenhouse gas emissions.

I have always believed that fundamentally we are all environmentalists. We all want a cleaner and healthier environment for our children and their children. I have also always believed that the best way to achieve that cleaner and healthier environment is not necessarily through more federal regulation and mandates. I believe that we will get better results faster using incentives, flexible programs, and voluntary initiatives. Those principles have worked with the Safe Drinking Water Act and the Endangered Species Act, and I believe they can and should be applied to the issue of global climate change.

As I understand it, the push for a more aggressive global climate change policy is being driven by evidence that suggests that the global temperature has increased by 1 degree, although it is unclear whether or not human caused activities are solely responsible for that increase. Nor do we know whether it's significant. But the assumption is that we should do something about it anyway -- reduce or freeze greenhouse gas emissions to 1990 levels. While I won't dispute that conclusion here today, in light of the uncertainty, I think it's important that we not jump to impose more regulations on U.S. businesses, risking jobs and our economy, when we really don't know if we are truly addressing the problem.

We should also be concerned about what the costs of any new policy will, in fact, be and who will bear them. Providing flexibility and greater opportunities for voluntary programs will go a long way to controlling unnecessary costs and increasing acceptance of any new policy.

Just as importantly, we should not put our U.S. industries at a competitive disadvantage with their competitors in international markets. Climate change is truly a global issue and the solution must be a global one as well. If the United States is going to agree to mandatory reductions, our Treaty partners, including developing countries must also. That's only fair.

Ultimately, the workability and cost of any new policy will be determined largely by the specific target levels and compliance schedules that the Administration negotiators decide to accept. So, I look forward to hearing from the witnesses this morning what those targets and schedules might be and how the Administration plans to implement any new policy.

OPENING STATEMENT
Senator Jim Inhofe
Environment and Public Works Committee
Hearing on Global Climate Change
Thursday July 17, 1997

Thank you Mr. Chairman, I am glad you called today's hearing, it is important to hear from the Administration on this issue. Under Secretary Wirth has testified in many Congressional hearings over the last few years, and unfortunately he raises more questions than he answers, but I hope today will be different.

Last week at our science hearing on this issue, a number of points were made and I personally learned a great deal. I would like to summarize a few key observations from the hearing:

1) While there is a large body of scientific research there is much controversy and disagreement and the scientific facts are being misrepresented by the Administration and the press.

2) We don't know how much human activity has influenced the climate. One scientist said 6%.

3) If you look at satellite data, we are not sure if there has been any global warming.

4) Even if we eliminate all manmade emissions, it may not have a noticeable impact on the environment, and the Treaty may only eliminate emissions here in the U.S., not the entire world.

5) When asked, all five witnesses stated that we would not have the uncertainties understood by this December, when the Administration plans on making a decision regarding the Treaty.

I have read over the hearing records in the various Congressional Committees over the last few years and I am very disturbed by the way the Administration makes promises to Congress and then immediately ignores them in international meetings. I would like to offer a few examples.

In March 1995, in a House Commerce Hearing Congressmen Dingell and Schaefer raised concerns that new targets may not apply to all countries, on behalf on the Administration, Mr. Rafe Pomerance a Deputy Assistant Secretary at the State Department said "Our goal, Mr. Chairman, is that all parties participate in this next round of negotiations. We want to see that all governments participate and help define the post-2000 regime."

One month later the Administration signed onto the "Berlin Mandate" to review the commitments made to reduce the greenhouse gases and adopt targets for further reductions. The conference differentiated between developed and developing nations. This was clearly at odds with Congressmen Dingell and Schaefer's concerns and the Administration's assurances.

In June 1996, before a hearing, Mr. Pomerance stated, "Are we going to agree to a legally binding instrument in Geneva? No way." One month later in Geneva, Under Secretary Wirth announced that the U.S. supported a legally binding emissions target.

In September 1996 before the Commerce Committee, Assistant Secretary of State Eileen Claussen told Congressman Dingell that the United States would not be bound before we have completed the economic analysis and assessments. We learned this week that the Administrations efforts to analyze the economic effects has failed. The models they used did not work, and we will not understand the effect on our nation's economy before December.

I have to conclude based on the Hearing records that the performance of this Administration is somewhere between "misleading" and downright "untruthfulness". I hope today's witnesses can change this record, but I will have to reserve judgment to see if today's promises will be fulfilled.

Thank you Mr. Chairman.

SENATE COMMITTEE ON ENVIRONMENT & PUBLIC WORKS
STATEMENT OF U.S. SENATOR HARRY REID
July 17, 1997
Global Climate Change

Good Morning. I want to share a few thoughts on the science and economics of the global climate change debate. Although the Committee has wisely chosen to hold two separate hearings on this subject this summer, one on science and economics, which was held last week and today's on the on-going international treaty negotiations, my comments cannot be so easily separated.

There is a discernible human influence on global climate. Since the dawn of the industrial age, the concentration of carbon dioxide in the atmosphere has risen by 30 percent. Most experts now agree that the build-up of greenhouse gases in the atmosphere due to the combustion of fossil fuels and other human activities is happening. To many this is a troubling phenomenon. Although we are not sure what the exact adverse consequences of this build-up will be, mere common sense dictates that we, at a minimum, begin preparing to deal with it.

The Senate approved the United Nations Framework Convention on Climate Change in 1993, which called for all signatory nations to adopt policies and programs to limit their greenhouse gas emissions on a voluntary basis. The United States had hoped to stabilize emissions in the year 2000 at 1990 levels. Unfortunately, we have fallen well short of that mark.

The United States is, at the moment, the world's biggest consumer of fossil fuels and producer of greenhouse gas emissions. As such, it is important that we must show international leadership in terms of analysis, research, and, if necessary, in reducing these emissions.

As part of the on-going international treaty negotiations, the Administration has moved towards supporting mandatory, legally binding limitations on greenhouse gases for the nations of the World. Within limits, I am supportive of these efforts.

Unfortunately, I share the concern of many of my colleagues that the current negotiations do not seem to require a firm time table for reductions from the nations of the developing world.

The U.S. currently emits more greenhouse gases than developing nations, such as China and India. However, this will not be the case for much longer, especially if the U.S. begins to curb our emissions. While I am not eager to perpetuate the poverty in these nations by mandating that they participate equally and immediately in making reductions, I have economic and competitive concerns about requiring nothing from them.

I cannot, in good faith, ask the citizens of Nevada and the rest of the Nation, who have worked very hard to develop and accommodate environmentally friendly transportation policies and clean industries, to now make more sacrifices without some guarantee that the developing nations will not make similar efforts soon.

In a global economy, we are often forced to compete with other nations that have different labor laws and practices than our own, different rules of resource protection, and yes, often weaker environmental laws. Unfortunately, cheap labor, wasteful resource use, and weak environmental laws often add up to a mighty competitive retail price.

On an issue of such wide-ranging economic impact and consequence, it is unfair to our citizens to let other nations do nothing while we make the necessary sacrifices.

Again, I absolutely acknowledge that the United States must do its part to try to avert any adverse climate change. We are a part of the problem and we will be an important part of the solution.

I would prefer that Senator Byrd's resolution recognize that the nations of the developing world will need some extra time, perhaps as much as 10 years, to put their binding reductions in place. I am hopeful that a compromise can be worked out to everyone's satisfaction

However, given a choice between sending U.S. negotiators to Kyoto offering unilateral economic disarmament on this subject, and sending them into final negotiations with a stance that demands world-wide equality of treatment now, must choose to protect the best interests of the United States.

Thank you.

Statement of The Honorable Timothy E. Wirth
Under Secretary of State for Global Affairs
before the Committee on Environment and Public Works
United States Senate
July 17, 1997

Chairman Chafee and Members of the Committee, I am pleased to be with you today to discuss the ongoing negotiations toward next steps under the United Nations Framework Convention on Climate Change. These negotiations began in August 1995 and are scheduled to end in December, at the Third Conference of the Parties in Kyoto, Japan, with the adoption of a new protocol or other legal instrument.

In his address last month to the United Nations General Assembly Special Session, President Clinton noted that "[t]he science is clear and compelling" and committed the United States to strong leadership on climate change. The President committed himself to engage the American people and the Congress in a dialogue to explain the real and imminent threats from climate change, the economic costs and benefits involved, and the opportunities that American technology and innovation can provide. The President also committed to "bring to the Kyoto conference a strong American commitment to realistic and binding limits that will significantly reduce our emissions of greenhouse gases."

In recent weeks, interest in the negotiations has intensified, particularly in the Congress. The Administration welcomes this interest, wants to encourage the broadest possible dialogue as we work toward a new agreement in Kyoto, and urges the Senate and House leadership to establish observer groups with whom we can work even more closely in the weeks and months ahead.

I would like today to focus on two concerns -- first, how the actions we are negotiating under the Climate Convention correspond to a specific environmental objective; and second, the need for developing nations to acknowledge more fully their role in meeting that objective.

I would like to begin with the science, because scientists were the ones who drew our attention to climate change in the first place, and because we continue to base our policies on the best evidence and the most rigorous scientific analysis available. While I know many of you are aware of the basic facts, I think it may be useful to reiterate a few of the most crucial points that the scientific community has established.

The "greenhouse effect" is caused by gases such as carbon dioxide, methane and nitrous oxide, which accumulate in the atmosphere and trap solar radiation, thus making the planet warmer than it otherwise would be. The natural levels or concentrations of these greenhouse gases in the atmosphere keep temperatures within a range that can support life.

Without the background level of greenhouse gases in our atmosphere, the earth's temperature would be about 33 degrees Celsius cooler.

Human beings increase the concentrations of greenhouse gases in the atmosphere primarily by the burning of fossil fuels -- coal, oil and natural gas -- and through a number of other industrial processes. Changing land use patterns, particularly deforestation and soil erosion, also play a role, by reducing the capacity of the natural environment to absorb carbon from the atmosphere. Since the industrial revolution in the 18th century, the concentration in the atmosphere of carbon dioxide has risen 30%; during the same period, methane concentrations have doubled, and nitrous oxide concentrations have risen by about 15%.

Since pre-industrial times, the Earth has warmed about one degree Fahrenheit. Scientists believe that the observed increase is unlikely to be entirely natural in origin. In its most recent scientific assessment, the Intergovernmental Panel on Climate Change (IPCC) concluded that the balance of evidence suggests "a discernible human influence on the climate system."

Projections of future climate change, based on complex climate models and on our best understanding of the physics of the climate system, suggest a rise of another two to six and a half degrees Fahrenheit by 2100, with an average increase greater than any seen in the last 10,000 years. This warming will not be uniform it is likely to be greater at higher latitudes and at the poles.

Based on these warming trends, sea level is projected to rise an additional one and a half feet by 2100 due to thermal expansion of the oceans and to the melting of glaciers and ice sheets. This would, without adoptive measures, flood 9,000 square miles of coastal areas here in the United States, notably in Florida and Louisiana, and put about 100 million people world-wide at risk each year from storm surges.

In other words, the path we are on is cause for significant concern. Climate change is likely to have wide-ranging and mostly adverse effects on human health. Both natural and managed ecosystems are at risk. The viability and location of forest and agricultural zones will change significantly.

Moreover, virtually all the studies on the effects of climate disruption have focused on predicted doubling of atmospheric concentrations of greenhouse gases. But unless significant actions are taken early in the next century, it is very likely that atmospheric concentrations will, by the year 2100, nearly triple the pre-industrial level and rise higher than any point in the last 50 million years. Changes to our climate system would also continue beyond the effects that the current studies predict; the risks would increase dramatically as concentrations continue to rise. Moreover, there is no reason to believe that these additional effects would be linear; they would most likely take unpredictable and highly undesirable paths.

Let me now move on to the division of responsibilities between developed and developing countries.

As I noted earlier, we know that man-made emissions have increased the concentration by about 30%, from 280 parts per million in pre-industrial times to around 366 ppm today. We know that the industrialized countries have put most of the carbon into the atmosphere, and that CO₂ lingers there for 100 to 150 years. We know that the United States is the largest emitter of greenhouse gases; we have 4% of the world's population and contribute 22% of the carbon. We also know that, given current trends, the developing world will pass the developed world as an emitter in about 30 years. (At that point, the developing world will have about 70% of the world's population.) China, with its 1.2 billion people, will probably pass the United States toward the end of the first quarter of that century.

So action by industrialized nations alone will not put us on the road to safe concentrations of greenhouse gases; we need action by the developing countries as well. But it is very clear from all our discussions and negotiations to date that if the developed countries, with our current economic capacity, technical capability, and energy intensive life-style, don't go first -- setting the example and reducing emissions -- then developing countries will not act either. We must lead the way. And we must move soon. If not, a doubling of concentrations becomes certain, and we put ourselves on the road to a tripling or even higher levels of concentrations -- the consequences of which are uncertain but likely to be catastrophic.

In 1992, the world community adopted the United Nations Framework Convention on Climate Change in an effort to begin coming to grips with this environmental threat. Under the Convention, developing nations agreed to take a variety of actions to mitigate climate and to facilitate adaptation to it's consequences. Industrialized nations agreed to take the same actions, but in addition, they agreed to take steps aimed at returning their emissions of greenhouse gases to 1990 levels by the year 2000.

In 1995, the Parties to the Climate Convention decided the existing treaty commitments were not adequate to address the threat. Accordingly, they agreed to begin a process to negotiate next steps. Since the "aim" set for industrialized nations expires in the year 2000, they began to consider the goals that should guide their efforts in the decade or two after the year 2000. Industrialized nations agreed to establish quantified targets to limit and reduce their greenhouse gas emissions over yet-to-be-determined time periods -- such as 2005, 2010 or 2020. At that time, developing nations, many of whom had only begun to implement their existing commitments under the Convention, argued strenuously that the negotiating process should not result in new commitments for them. They agreed, however, to continue to advance the implementation of their existing commitments.

The U.S. proposals in the current negotiations attempt to move the process. The U.S. proposal acknowledges that the list of "developed country Parties" established by the Convention's Annex I in 1992 no longer reflects current realities. A number of developing countries have joined the ranks of the developed world, through membership in the OECD and in other ways, and more are poised to do so. Our proposal to establish an "Annex B" would enable such countries, on a voluntary basis, to move beyond their current non-Annex I status, and take on binding greenhouse gas emissions obligations, reflecting their rapidly-changing economic status, and enabling them to engage in emissions trading with industrialized nations.

Similarly, Article 16 of the U.S. proposal calls on developing country Parties to adopt, by 2005, binding provisions so that all Parties have quantitative greenhouse gas emissions obligations and so that there is a mechanism or "trigger" for automatic application of those obligations, based on agreed criteria.

In urging this policy of "evolution," the United States is far out in front of almost all other countries, and we are being criticized accordingly. For example, several developed countries believe that our proposal imposes unfair burdens on developing countries. Most countries in the developing world believe that "evolution" goes beyond the scope of the Climate Convention and the Berlin Mandate. We think we have the concept about right: no one should be exempt; we emit the most, so we have to act first; but others have to phase in over time.

The overall negotiation on climate change is extremely complex -- the most complex I have seen in 25 years of public life (including 12 years on this challenging committee!) -- and the "evolution" aspect is perhaps the most important of all. We have put forward some proposals; some in Congress have as well. Now we have to hammer out a final proposal and negotiating position. We welcome your input, support and creativity as we work to solve this problem, and I look forward to hearing your ideas, questions and comments today.

The issue is not whether developing countries, especially the big and rapidly- developing ones, take on quantified commitments to limit or reduce their emissions of greenhouse gases clearly, it will be impossible to abate the threat of climate change unless they do. The issue is when such commitments should begin, and what criteria should be used to establish them, and to whom they would apply.

There are significant disparities in national income between those in industrialized nations and those in developing nations. There are enormous differences in per capita levels of greenhouse gas emissions. Some developing countries argue that these gaps must narrow before they will accept quantified emissions limitation or reduction commitments.

While this argument is understandable, it misses two key points. First, the environmental threat posed by global climate change cannot be averted if nations wait to act until levels of national income or per capita emissions converge at some theoretical point in the future. Second, industrialized nations simply will not make significant efforts to reduce their greenhouse gas emissions if their efforts will be undermined by an unlimited increase in emissions from the developing world.

The Framework Convention, which President Bush signed and to which the Senate overwhelmingly gave its advice and consent, established the principle that, with respect to climate change, the world's nations have common but differentiated responsibilities and varying capabilities. Insisting that developing nations immediately accept binding emissions targets that industrialized nations are seeking to negotiate for themselves is neither realistic nor consistent with the Convention approved by the Senate. But insisting that those developing nations now responsible for a growing share of global greenhouse gas emissions should have no further obligations to act until they have crossed some threshold of national income or emissions on a per capita basis is equally unrealistic and inconsistent with the Convention's ultimate objective.

The agreement reached in Kyoto will not solve the problem of global climate change. No matter how ambitious, it will represent only a second step along the much longer path toward achieving the Climate Convention's ultimate objective. As we prepare for Kyoto, we must also prepare for further steps beyond it. In particular, we must ensure that all nations responsible for a significant share of current global greenhouse gas emissions accept the need to limit or reduce their emissions, and that they begin to move in that direction.

What a Kyoto agreement can do is provide nations with the tools they will need to achieve to achieve significant, binding greenhouse gas limitation and reduction commitments. These tools include greenhouse gas emissions budgets over multiyear budget periods that will help smooth out annual fluctuations. They include full national flexibility in the choice of policies and measures to meet such binding emissions budgets. They include emissions trading among nations with binding emissions budgets, with the participation of the private sector in the trading regime, to help lower the costs of compliance. And they include joint implementation for credit between nations with binding emissions budgets and those that do not yet have such budgets both to lower the costs of compliance and to promote economic development and environmental protection.

Mr. Chairman, we have indeed charted an ambitious course for the months ahead. The tremendous risks to our planet demand nothing less. With your continued support and the support of other Members of Congress, I am confident that we will obtain an outcome in Kyoto that will represent a significant step forward on the much longer path toward safeguarding the Earth's climate system for present and future generations. Thank you, Mr. Chairman.

Statement before the Senate Committee on Environment and Public Works
Dr. Janet Yellen, Chair, Council of Economic Advisers
Thursday, July 17, 1997

Good afternoon, Mr. Chairman and members of the Committee. I appreciate the opportunity to discuss with you today the economics of global climate change.

Introduction

In his speech to the United Nations Special Session on Environment and Development in June, President Clinton emphasized that the risks posed by global climate change are real and that sensible preventive steps are justified. This assessment accords with the views of the more than 2300 economists, including 8 Nobel laureates, who signed a statement supporting measures to reduce the threat of climate change. The economists endorsed the conclusions from last year's report by the Intergovernmental Panel on Climate Change (IPCC), which said that governments should take steps to reduce the threat of damage from global warming, and went on to argue that market-based policies can slow climate change without harming the American economy.

At this time the Administration has not settled on a particular set of new policies to reduce greenhouse gas emissions. Instead, the President indicated in his U.N. speech that he intends to engage in a discussion with all interested parties about the problems posed by greenhouse gas accumulations and the costs and benefits of corrective action. To this end, the President will hold a White House conference on climate change later this year, and Members of his Cabinet and other senior Administration officials will meet with Members of Congress, scientific and economic experts, environmentalists, local government officials, and business and labor leaders on a regular basis over the next several months to discuss issues related to climate change. This process is intended to inform the Administration's decision-making process, which will culminate in a U.S. policy position in the international negotiations in Kyoto in December of this year.

An important step in this -- and any -- policy process is determining the impact it will have on the American economy. President Clinton's top priority, since his first days in office, has been revitalizing the U.S. economy, creating jobs and investing in people and technology to enhance long-term growth. And, we have made tremendous progress. The President is not going to jeopardize that progress. Any policy he ultimately endorses on climate change will be informed by his commitment to sustaining a healthy and robust economy.

In my testimony today, I would like to describe some of the principal lessons that emerge from the voluminous literature, much of it relatively recent, on the economic impacts of policies to address global climate change.

Underlying Uncertainties

Before I begin my discussion of the economic literature, I would like first to acknowledge the uncertainties associated with estimating both the costs and benefits of reducing greenhouse gas emissions. To provide some perspective: as you all know, it is difficult to gauge exactly what impact the balanced budget agreement will have on the U.S. economy's growth rate, levels of employment, interest rates and consumption over the next five years. But with global climate change, it is orders of magnitude more difficult to gauge the effects on the economy: we are concerned with not just the next five years and not just the American economy, but, rather, we are dealing with economic and physical processes that operate globally and over decades, if not centuries.

Although a great many scientists believe that global climate change is already underway, the more serious potential damages associated with increasing concentrations of greenhouse gases are not predicted to occur for decades. This means that the benefits of climate protection are very difficult to quantify. And, while the potential costs of reducing greenhouse gas emissions may be more immediate, they too, as I will discuss below, are difficult to predict with any certainty. Many unanswered questions exist about the biophysical systems, potential thresholds, and economic impacts. In short, if anybody tells you that he or she has the definitive answer as to the costs and benefits of particular climate change policies, I would suggest that you raise your collective eyebrows.

Lessons from the Economic Literature

Let me now turn to the economic literature and try to summarize what I think we know so far about this difficult topic. Most economists have not addressed the benefits of climate protection, but rather have focused on the costs associated with alternative paths for reducing greenhouse gas emissions. The economic literature includes estimates using many different models to evaluate numerous alternative emission reduction strategies. In fact, because there are so many different models, economists initially faced difficulties in comparing results: they could not sort out the extent to which differences in results stemmed from differences in models and assumptions versus differences in baseline emission paths and policies. To solve this problem, thereby enabling meaningful comparisons, many economists have calibrated the various models by performing a standardized simulation. Specifically, they have assessed the consequences of stabilizing greenhouse gas emissions at 1990 levels by 2010 or 2020.

Within the Administration, a staff level working group -- the Interagency Analysis Team (IAT) -- has attempted to estimate some of the economic implications of climate change policies. They took the emissions scenario most often used in academic literature -- that is, stabilizing emissions at 1990 levels by 2010-- as the starting point for their own analysis. I would emphasize that this scenario is not Administration policy; instead, it was picked to make comparisons with other models easier. The staff group employed 3 different models -- the DRI model, the Second Generation Model (SGM) and Markal-Macro model, all commonly available in the public sphere. In running these models, the staff adopted a common baseline and, to the - maximum extent possible, similar economic assumptions. This modeling effort produced some useful lessons, but as we found from the peer reviewers' comments, it also suffered from some serious shortcomings. Both the lessons and the shortcomings point to one clear conclusion: the effort to develop a model or set of models that can give us a definitive answer as to the economic impacts of a given climate change policy is futile. Rather, we are left with a set of parameters and relationships that influence estimates of the impacts. In my view, it is more productive to employ a broad set of economic tools to analyze policy options than to seek to develop a single definitive model.

I understand that a draft of the staff analysis was given to the Committee earlier this week, along with the reviewers' comments. I would be happy to answer any questions you may have about this modeling effort.

The Lessons.

Modeling efforts both inside and outside the Administration clearly indicate that economic analysis can do no more than estimate a range of potential impacts from particular policies and highlight how outcomes depend on underlying assumptions about how the economy works and the ways in which policy is implemented. However, the economics literature on climate change does point to several important lessons:

How the economy works.

First, the magnitude of the costs of reducing greenhouse gas emissions in the various models depends crucially on a number of key assumptions about how the economy works. For instance:

--If firms in the economy can shift from high-carbon to low-carbon energy sources quickly, the costs of climate protection will be lower.
-- If the economy has significant opportunities, even now, to employ energy-saving technology at low costs, the costs of climate protection will be lower.
-- If technological change occurs at a rapid rate, or is highly responsive to increases in the price of carbon emissions, the costs of climate protection will be reduced.
-- If the Federal Reserve pursues a monetary policy oriented toward keeping the economy at full employment, transitional output costs will be lower.

In short, the greater the substitution possibilities and the faster the economy can adapt, the lower the costs.

How the plan is implemented.

Second, costs depend critically on how emission reduction policies are implemented. It boils down to this: if we do it dumb, it could cost a lot, but if we do it smart, it will cost much less and indeed could produce net benefits in the long run. The over 2300 signatories of the economists' statement argued that any global climate change policy should be rely on market-based mechanisms. Such mechanisms allow for flexibility in both the timing and location of emission reductions, thereby minimizing the costs to the U.S. economy. The economists concluded that "there are policy options that would slow climate change without harming American living standards, and these measures may in fact improve U.S. productivity in the longer run."

--The speed at which emissions reductions are required can have large effects on the estimated costs. It is important to allow sufficient lead-time for orderly investment in new equipment and technology. Alternatively, if emission reduction requirements are too far off in the future, the incentives to adopt energy efficient technologies are weakened because people may not view the policy as credible.
-- A "cap and trade" system in which emission permits are issued and then traded among firms can substantially reduce the cost of meeting an emissions target by creating incentives for emissions to be reduced by those firms and in those activities where costs are lowest.
-- International emission permit trading substantially lowers costs by applying the same cost-minimizing principle globally.
-- So-called "banking" and "borrowing" of permits increases flexibility and lowers costs by allowing firms to change the timing of their emission reductions.
-- Joint implementation, whereby US firms would receive credit for undertaking emission reductions in countries with low abatement costs, would also lower the domestic burden.

An additional aspect of implementation that profoundly affects the costs of reducing emissions concerns "revenue recycling." In many model simulations, emissions are reduced by using various market mechanisms. For many of these scenarios, the Federal government realizes an increase in revenues. Economic growth can receive a long-term boost if these revenues are used to reduce distortionary taxes that diminish the incentives to invest, save or work, or if the revenues are channeled into deficit reduction, thereby lowering interest rates and boosting investment. In fact, in some models and scenarios, emissions reduction generates a net economic benefit when the revenues are recycled in a growth-promoting fashion.

Which countries participate.

The third lesson that emerges from a study of the economics of climate protection is that developing, as well as developed, countries must be part of the process. While developed countries are responsible for most of the greenhouse gas currently in the atmosphere, developing countries are starting to catch up. By 2040, the largest fraction of emissions is estimated to come from developing countries. Thus, any comprehensive plan to deal with this global problem must include a mechanism to bring developing countries into the process.

The timetable for the inclusion of developing countries is also important. The sooner that developing countries face incentives to move away from carbon intensive energy sources, the less likely it is that they will become dependent on those types of fuels to spur their economic growth. In short, global problems require global solutions. We must find the technologies and solutions to lead the way.

Conclusion

Let me conclude. Policies to promote economic growth, create jobs, and improve the living standards and opportunities of all Americans have been and always will remain the top priority of the President and his Administration. In his remarks to the Business Roundtable on global climate change, the President said "[l]et's find a way to preserve the environment, to meet our international responsibilities, to meet our responsibilities to our children, and grow the economy at the same time."

Some of the key economic lessons we have learned that will help us achieve the President's goal include:

-- Inherent uncertainty dictates that models should be expected to generate only a range of economic impacts, not definitive answers.
-- Key assumptions about how the economy works directly influence the estimated costs of climate protection.
-- Implementation of any policy needs to be market-based and flexible over time and space to achieve the lowest cost reductions.
-- All nations, both developed and developing, need to participate.

Thank you I would be happy to answer any questions you may have.

Statement of Kevin J. Fay
Executive Director
International Climate Change Partnership
before the Committee on Environment and Public Works
July 17, 1997

Good Morning, Mr. Chairman and members of the Committee. My name is Kevin Fay; and I serve as the Executive Director of the International Climate Change Partnership (ICCP), a coalition of U.S. industry representatives and associations, as well as international associations, interested in the policy development process with respect to global climate change. We appreciate the opportunity to appear before the Committee today on the subject of a global climate change convention.

ICCP was organized in 1991 to provide a forum to address the issue of global climate change and to be a constructive participant in the policy debate. Five months before the Third Conference of Parties meeting in Kyoto, the issue has certainly raised the interest of many of us in the private sector and the Congress.

ICCP continues to recognize the climate change issue as an important matter with which governments should be concerned. However, it is a very long-term issue and extraordinarily complex in both its underlying science and its entanglement with the very foundations of the global economic structure.

We have recently communicated our views on the key issues in the Kyoto negotiations to the Administration. I am attaching this correspondence to my testimony and ask that it be included in the record. We have also communicated to the President on the issue of the Administration's as yet unreleased economic analysis, expressing our frustration at their lack of communication on the matters of greatest concern to the private sector--namely the potential economic impacts of a climate change agreement and the current thinking of future implementation scenarios. This letter is also attached.

Our views have been based on the premise that the only agreement that is acceptable is one that is comprehensive and can work with flexibility, maintain national sovereignty, ensure participation by all countries, maintain a competitive level playing field, and is guided by effective science and includes a long-term objective that will guide future policymakers and future negotiators.

You will note that in both letters, we urge the President and the State Department to reiterate to our negotiating partners that the U.S. policy framework enunciated last July is the only framework that can provide a climate change agreement that is both environmentally beneficial and economically feasible.

Since prior to the first meeting of the parties in Berlin, we have consistently argued that the time is not yet right for a climate change agreement. Unfortunately, the parties established an artificial deadline under the Berlin mandate to reach an agreement by the third meeting of the parties, now scheduled to be held in December of this year.

In our view the Administration made progress in its own deliberations and offered a thoughtful policy framework at the second meeting of the parties in 1996 which we have heard about here today. This policy outline includes a comprehensive approach; identification of a long-term objective; identification of a developing country role under the treaty; implementation flexibility through emissions trading, banking, and joint implementation; and avoidance of a laundry list of so-called "policies & measures."

The U.S. framework also included a call for a binding commitment, which the Administration has subsequently defined as an emissions budget period of undetermined length to achieve reductions of an undetermined size. While most of the attention has been focused on this part of the discussions, we continue to believe that it is not the only key to a successful treaty agreement in Kyoto or beyond Kyoto.

We should point out at this time, however, that we have been provided with no analysis to justify any particular target or timetable that might be advocated.

Our primary concern has been that the result of the negotiations would focus on only one or two of the key issues, some of which we have outlined in our letter, and that the rest would be left until later. This would be unacceptable to us. This worst result would be for the Administration to agree to some target and not achieve the entire policy framework it has advocated.

An agreement on a target and timetable in Kyoto, and nothing else, would be unacceptable to the ICCP. An agreement in Kyoto on a target and timetable, including a developing country schedule, but with none of the flexibility or other provisions as articulated last year by the Administration, would be just as unacceptable.

To date, we have been disappointed in the progress on most of these fronts and we are pessimistic on the ability to achieve them between now and Kyoto absent strong signals by the White House to reinvigorate the negotiations. ICCP is not and never has been interested in an agreement at the Kyoto meeting just for the sake of reaching an agreement. This view will not change.

With respect to the economic issues and the impacts of a climate change agreement on the U.S. economy, jobs, and the environment we remain very concerned. It is difficult to address this issue in any effective way given the lack of dialogue on these topics and the lack of information being provided by the Administration. We know that the economic analysis that has been performed tells us several important things:

--that there are costs involved in reducing greenhouse gas emissions;

--the costs are likely to be reduced if flexibility provisions are incorporated;

--that you cannot achieve any reasonable goals either environmentally or economically without developing country participation; and

--the costs are less if you avoid premature capital retirement or turnover, and provide industry the opportunity to manage their way into the technological innovation that will be necessary to accomplish whatever long-term goal is established by the parties to the convention.

It is difficult to know how the costs compare to the benefits because we have yet to see any analysis that includes the benefits of mitigating climate change or facilitating adaptation strategies.

In order for there to be an effective treaty, we believe that the parties must first get the treaty structure correct. We have a long way to go before that will happen.

In closing, I believe it is useful to look at previous examples for guidance that may provide a better perspective than the intense pre-Kyoto focus. More than 12 years ago, negotiators were struggling to complete the Vienna Convention for Protection of the Ozone layer after more than five years of negotiation.

These negotiations had taken on a bitter tone as parties, including the U.S. and European Union, tried to push for adoption of their own preferred policy approach to dealing with ozone depleting compounds. Instead the parties agreed to the convention and to establish a series of workshops and information gathering devises to better understand each other's views.

When negotiations resumed, the parties were much better informed, and a treaty structure was adopted that has since been proven very durable. The Montreal Protocol, signed in 1987, has proved much more effective than most of us thought possible at the time.

We raise this example not because we believe the issues are identical. They are not and climate change is far more complex. We raise it because as we reach a fevered pitch prior to Kyoto, we want to stress that an effective framework is what counts, not an expedient framework.

A climate treaty needs to be durable for the next 100 years. Our companies have determined that the current state of scientific understanding requires a prudent long-term approach to address this issue. This view is equally applicable to the negotiations themselves.

We appreciate the opportunity to appear before you today, and we look forward to answering your questions.

INTERNATIONAL CLIMATE CHANGE PARTNERSHIP
June 6, 1997

The Honorable Timothy Wirth
Under Secretary of State for Global Affairs
Department of State
Washington, DC. 20520

Dear Mr. Wirth:

You have requested our views on specific issues under consideration as part of the negotiations on implementation of the Berlin Mandate for a possible protocol or other legal instrument to the Framework Convention on Climate Change. We are pleased to provide these comments on specific issues of concern to the members of the International Climate Change Partnership (ICCP) with respect to the treaty negotiations. We are also writing, however, to express our concern with the current lack of focus to the negotiations or linkage of these issues with the important relationship between the international treaty and domestic implementation schemes.

ICCP continues to recognize the climate change issue as an important matter with which governments should be concerned. However, it is a very long-term issue and extraordinarily complex in both its underlying science and its inextricable entanglement with the very foundations of the global economic structure. We are concerned that this complexity is exposing an overly ambitious timeframe for current negotiations and-that the cohesive activity necessary to ensure a viable foundation for future action under this important treaty simply has not come to be. It is equally disturbing that there has been little public discussion of the economic impacts of the range of climate change mitigation by any of the parties, including the United States.

ICCP commended the U.S. position enunciated in its statement in July of last year as a reasonable framework, and was particularly supportive of its efforts to force into the negotiations greater focus on the long-term character of the issue and its economic implications. However, we have made clear that our support is for the entire framework, and not for individual components. Some have misconstrued this position as support for early targets and timetables. It would be incorrect to read our position as such. While ICCP members have recognized the possibility that negotiators would agree on a mid-term emissions target, we could not specifically support such a target given the current lack of understanding of the implications of such a target or how it would be implemented. In our view, the issue of a binding target is not the most critical element of the negotiation. We view it more important to provide definition to the treaty structure through a long-term objective and a mechanism to ensure that all parties, developed and developing, have clearly defined roles before we enter into a binding commitment period. It is also important that the parties are able to achieve these goals with flexibility through emissions trading, banking, and true joint implementation. We appreciate that the U.S. has recognized this need for flexibility. It is of great concern to us that little progress appears to have been made on many of these issues concerning flexibility and the role of developing countries. While the U.S. has elaborated its views on these positions in subsequent statements and its protocol draft, we have detected little movement by the other parties on these issues. Since we are not privy to your bi-lateral discussions or the behind the scenes meetings, it is difficult for us to determine the current status of these topics.

It is not acceptable to us for the negotiations to conclude in December with an agreement on a binding commitment towards a mid-term target with all details on other key provisions to be negotiated later.

As you recall, we have consistently expressed our view that 1997 is too soon for a credible technical assessment process which would support an agreement by the parties on these issues. The apparent lack of progress to date, the dearth of information available to us regarding how these issues may be resolved, and the failure to thoroughly discuss the economic implications for an agreement, have only served to confirm this view.

We have pledged to work responsibly with the United States and other parties on the development of an effective framework to address the climate change issue consistent with the need for all nations to sustain economic growth. We remain committed to this principle. It is not clear, however, that these issues can be resolved satisfactorily by the Kyoto meeting. ICCP will, of course, reserve any judgment on the results of Kyoto for the implementation process.

We urge the United States to remain focused on and committed to delivering concrete results on all the points outlined in the statement delivered last July and elaborated on in its subsequent submittals. Further, we believe that the U.S. should indicate its commitment to its proposed climate change policy structure at the upcoming meetings of the G-7 and the United Nations General Assembly Special Session on the Environment.

Concurrently, we believe the economic impacts of a possible agreement should be communicated with industry and other policymakers so we can have an effective dialogue. Failure to discuss some of these issues in advance will make it extremely difficult to build support for ratification and implementation of the international agreement.

We look forward to working with you and appreciate the opportunity to discuss the specific views on the attached position paper in the very near future. Sincerely,

Kevin J. Fay
Executive Director

Enclosure

cc: The Honorable Madeleine Albright
Secretary, Department of State

The Honorable William Daley
Secretary, Department of Commerce

The Honorable Federico Pena
Secretary, Department of Energy

The Honorable Rodney Slater
Secretary, Department of Transportation

The Honorable Carol Browner
Administrator, Environmental Protection Agency

The Honorable Frank Murkowski
The Honorable Dale Bumpers
The Honorable John Chafee
The Honorable Max Baucus
The Honorable Thomas Bliley
The Honorable John Dingell
The Honorable Dan Shaefer
The Honorable Ralph Hall

INTERNATIONAL CLIMATE CHANGE PARTNERSHIP June 6, 1997

President William Clinton
The White House
Washington, D.C. 20500

Dear Mr. President:

On behalf of the International Climate Change Partnership, I am writing to express our concern for the status of the economic analysis for purposes of the international negotiations on climate change and the apparent lack of progress in making the economic issues an integral part of these negotiations. The ICCP is a coalition of companies and industries around the world committed to responsible participation in the climate change policy process.

ICCP continues to recognize the climate change issue as an important issue with which governments should be concerned. However, it is a very long-term issue and extraordinarily complex in both its underlying science and in its entanglement with the very foundations of the global economic structure. ICCP commended the U.S. position enunciated in its statement in July of last year as a reasonable framework, and was particularly supportive of its efforts to give the negotiations greater focus on the long-term character of the issue and its economic implications.

It is disturbing to us that, for nearly one year, there has been little public discussion of the economic impacts of the range of proposed climate change mitigation strategies by any of the parties, including the United States.

The Administration had promised the results of its economic analysis to the Congress, its negotiating partners, the private sector and the non-governmental organizations. While we applaud the recognition of the need to peer review this work, the slow pace at which this activity is occurring raises concerns that it is either not being seriously pursued, or that the results are not being shared. Neither of these reasons, if true, bodes well for constructive private sector support of the Administration's efforts or for any result produced from the Third Conference of Parties meeting to be held later this year in Kyoto.

This matter is further complicated by the recent resignation of Under Secretary of Commerce Ehrlich, who was coordinating the analytical effort. His departure suggests a possible further loss of momentum on this important effort at a critical time.

Those who may be able to provide constructive input into the analysis and assessment being pursued by the Administration wonder what must be done to understand how specific industry sectors are being examined and what steps are being contemplated in order to pursue your climate protection goals. At a minimum, the Administration should be able to immediately publish the policy assumptions being used for individual sectors.

In addition, aside from frequent references to implementation of flexible, market-based approaches, there has been little discussion of what may be suggested as implementation steps for a Kyoto agreement. Failure to discuss some of these issues in advance will likely make it difficult to build support for ratification of the international agreement and for development of implementing legislation.

We respectfully urge you the Administration to provide an outline of the economic information and policy considerations, as well as a meaningful timeframe for the release of this information.

Finally, we understand that you are preparing to attend the meetings of the G 7 and the United Nations General Assembly Special Session on the Environment. We urge you to reiterate the United States' support for these key economic issues as critical elements of any future agreement on climate change. It is only with these key policy provisions that we will have a climate change agreement that is both environmentally beneficial and economically feasible.

International Climate Change Partnership
Views on
Key Issues in the Climate Change Protocol Negotiations
(In Alphabetical Order)

The United States has outlined a specific proposal for dealing with the developing country role as part of the Kyoto agreement, including definition of obligations under Article 4.1 of the Framework Convention, establishment of an Annex B of countries which would voluntarily adopt emissions budgets, and a date certain by which all parties would have emissions budgets.

As stated by Bert Bolin, Chairman of the Intergovernmental Panel on Climate Change (IPCC) at the March 1997 meeting of the Subsidiary Body on Science and Technological Advice (SBSTA) in Bonn, "[I]t is obvious from this graph that no reasonable future reductions by Annex I countries would stabilize global emissions." Therefore, it is imperative that developing countries be part of this agreement. Furthermore, as stated in the Administration's recent economic work, a significant percentage of infrastructure and industry investment by developed countries is occurring in developing countries. Finally, because of the strong linkages' between population growth and greenhouse gas emissions, it is important that we recognize that seven of the current non-Annex I countries represent two-thirds of the world's population.

The Administration has been forthright in its insistence that the developing country role be defined. ICCP recognizes the potential limits of the current Berlin Mandate with respect to new commitments for non-Annex I Parties. It is clear, however, that the Berlin Mandate contemplates definition and elaboration of Article 4.1 commitments for all Parties, including the developing countries. Additionally, it is imperative that additional developing country participation, including emission budgets, must be defined prior to the start of the first binding budget period for the current Annex I parties. It is only through such definition that governments and the private sector can ensure that investment flows are not distorted.

ICCP has noted that six countries, including India and China, currently account for 55% of greenhouse gas emissions. In order for the treaty to enter into force, it is imperative that a significant percentage of greenhouse gas emissions be represented by ratifying countries. In addition, a significant percentage of Annex I countries and developing countries should ratify the treaty before it enters into force.

We also believe that it is inappropriate for a regional economic organization to be allowed to represent both itself and the voting rights of its individual members. The EU has argued that it should be allowed to bubble its emissions and is proposing to allocate emissions internally. It is unfair that the EU be granted this concession to bubble its emissions when it declines to support similar flexibility for other Parties. Therefore, the EU should have to decide to either bubble and count as one vote, or to not bubble and to be counted individually.

The protocol negotiations should continue to focus on a comprehensive approach at the international level. Recent proposals from the European Union suggested a protocol on only three gases--carbon dioxide, methane, and nitrous oxide--with the notation that fluorocarbon compounds should be covered by policies and measures and added to the basket in the year 2000. ICCP strongly opposes the EU approach. The gases that can be measured should be covered simultaneously in a comprehensive manner. The key to a comprehensive approach is for Parties to focus on achieving the most efficient emission reductions possible; and therefore, it is unproductive to segregate gases from coverage until a later date or to treat gases differently in an international agreement

ICCP has urged the negotiators to provide for a long-term focus or objective. We believe such an objective provides clarity to negotiators, as well as to those charged with implementation of commitments. It is our understanding that the United States has performed some analysis of this issue, and that such analysis could be useful to the negotiators currently. Furthermore, we applaud the article in the U.S. protocol proposals which contemplates a long-term objective.

This objective will be an important guide to future decision making, including private sector investment planning. We note that several participants, including the EU, and certain environmental organizations have suggested certain objectives characterized as atmospheric concentrations of greenhouse gases, and that the IPCC documents present their analysis according to atmospheric loading of greenhouse gases measured in parts per million (ppm) of CO₂ equivalent.

ICCP has not advocated a greenhouse gas concentration as the appropriate measure for the long term objective. A long-term objective could be defined as a combination of adaptation, impacts, and concentration measures.

Recent analysis of the economics of climate change controls have indicated that the long-term objective is not as relevant as the path charted for the emission reduction. In our view, it is impossible to develop a meaningful path without knowing the point of departure and the intended goal.

We recognize that the current state of science does not provide a precise "correct" answer. Science does provide a basis for making an informed political judgment on the objective, and scientific assessment through the IPCC and elsewhere is critical to future reassessment of any potential long-term objective.

It is imperative that each nation maintains maximum national flexibility with respect to implementation of its climate commitments. It is neither appropriate nor productive for the negotiators to determine the manner in which each country should achieve its commitments. ICCP is opposed to any listing of specific annexes of policies and measures in any manner, i.e., mandatory, regional coordination, voluntary, or exemplary.

There have been several proposals for specific point targets and/or budget periods as part of the protocol proposals that are currently before the Parties. ICCP has not endorsed the notion of a binding "target." We do, however, recognize that all of the government proposals to be considered in Kyoto do contemplate such a step as a starting point.

The lesson from the non-binding commitment of the 1992 FCCC agreement is that, despite the best of intentions, a specific point target is very difficult to administer due to fluctuations in economic conditions, weather conditions, etc. Therefore, we believe it is imperative that the long-term objectives be utilized to examine a reasonable path that minimizes short-term economic disruption and stimulates the longer-term technological innovation necessary to significantly reduce worldwide greenhouse gas emissions.

The U.S. has indicated a preference for an emissions budget period and a binding commitment to achieve that budget. In our view, the practical timetable for ratification and implementation of a Kyoto climate agreement, including subsequent definition of a developing country role, suggests that meaningful program implementation steps could not be up and running with confidence any time soon after a Kyoto agreement. There has been a great deal of focus on the beginning of such a so-called budget period.

In our view, the beginning of the budget period is not as important as the end of the budget period, i.e., the point at which the principle of "binding commitment" actually has the potential to impose penalty or sanction. In light of the uncertainties stated above, ratification, implementation, developing country role, and some level of experience with the implementation process, we believe that it would be inappropriate to end the first binding budget period before the year 2020. This time frame will allow industry to develop its programs, and gain confidence in their performance.

ICCP also believes this time frame is consistent with its previous position that policies at the outset of this effort must take into account a reasonable period for capital stock turnover. This will provide a period for industry to "ramp up" its climate change responses.

If the budget period is to be adopted, we believe that it should be long enough to encompass weather and economic cycles, but not so long as to present an impossible horizon to provide both industry and policymakers with some certainty. Therefore, it appears that a 10-year budget period is better than a 3 or 5-year period.

Although not specifically included as part of the current protocol proposals, ICCP continues to believe that the FCCC must be grounded in sound scientific and technological assessment processes. This function, as currently served primarily through the Intergovernmental Panel on Climate Change (IPCC), is inadequate.

The WCC is currently considering restructuring proposals including the adoption of working group outlines that incorporate an effective role for private sector expert participation. We encourage support for these proposals.

Finally, it is also important that we de-politicize the IPCC process to the maximum extent possible. Its credibility can be sustained only if it is truly seen to be the work of scientific and technical experts, and not subject to the whims of the diplomatic and political process or other special interests.

Most available economic analysis continues to indicate that flexibility through emissions trading, banking of emission credits, and joint implementation policies can help to maximize greenhouse gas emission reductions most cost-effectively. ICCP is fully supportive of such mechanisms as part of any agreement in Kyoto and beyond.

We believe it to be imperative that such principles be included in the first agreement and not be left to some future negotiations. We also believe it is important that these provision not be relegated to some pilot project with final decisions to be made at some future date.

Finally, it appears that flexibility is a positive inducement to ensure maximum compliance. It also would allow us to avoid the use of trade restrictions or trade sanctions as an enforcement mechanism in the treaty.

Statement of William F. O'Keefe
Chairman, Global Climate Coalition
Senate Environment and Public Works Committee
July 17, 1997

Mr. Chairman and Members of the Committee, as chairman of the Global Climate Coalition (GCC), I appreciate the opportunity to testify before you on global climate negotiations. The GCC is the leading representative of business and industry on this issue with members that encompass manufacturing; agriculture; small and large businesses; air, rail and barge transportation companies; domestic and international vehicle manufacturers; oil, coal, natural gas and other natural resource companies; municipal, co-op, investor-owned and independent electric utilities; cement; iron and steel; forest and paper; and numerous producers of chemicals, plastics and other industrial and consumer products.

On behalf of this broad membership the backbone of the U.S. economy I would like to take this opportunity to set the record straight on five points that are key to the current public debate on climate change. First, the science is not "clear and compelling" as President Clinton claimed July 3 in his speech to the United Nations General Assembly, Special Session on Environment and Development. Instead, scientific uncertainties abound; enhanced global warming is still a hypothesis. Second, statements on scientific uncertainties by members of the GCC are consistent with those expressed in the May 16 issue of the respected journal Science. Advocates of precipitous curbs on greenhouse gas emissions are the ones who are unjustifiably representing climate science in promoting a rush to judgment. Third, curbs on greenhouse gas emissions which mean suppressing energy use will not be cheap and relatively painless as some advocates encourage Americans to believe. Instead, curbs would be brutally expensive in terms of lost income, lost jobs and lost U.S. competitiveness on world markets. Fourth, business does not oppose action as evidenced by its widespread participation in the Administration's voluntary Climate Action programs. We support action that recognizes the state of knowledge, the extent of uncertainty, and balances the need for preserving robust economic growth with the requirement for a cleaner environment. Fifth, the climate issue does not represent a crisis requiring precipitous and dramatic actions to prevent an imminent ecological catastrophe.

Precipitous Action on Climate Change Serves an Anti-Industry Agenda

Claims of imminent catastrophe are designed to create a crisis atmosphere helpful in promoting other agendas. This strategy is routinely used to advance ill-advised policies the saccharin scare in 1977, predictions in the 1970s of famine and the exhaustion of natural resources, the predicted cancer epidemic in the 1980s, and the Alar, EDB and electromagnetic scares to name only a few.\1\

\1\ For a more complete listing of scares, see: Adam J. Lieberman, Facts Versus Fears: A Review of the 20 Greatest Unfounded Health Scares of Recent Times, prepared for the American Council on Science and Health, May 1997.

When these scares proved to be unfounded, the quest continued to find the ultimate environmental problem that will require wholesale, radical change in American lifestyles.\2\

\2\ For instance, the president of the World Resources Institute wrote: "Climate change isn't just any environmental issue. It's bigger . . . it's tied to almost every facet of contemporary economic life. How we travel, manufacture and ship goods, build buildings, farm, and spend our leisure time all influences the tempo of climate change." [emphasis in original] See: Gus Speth, forward to The Greenhouse Trap (World Resources Institute, 1990).

The late Professor Aaron Wildavsky wrote that "warming (and warming alone) . . . is capable of realizing the environmentalist's dream of an egalitarian society based on rejection of economic growth in favor of a smaller population's eating lower on the food chain, consuming a lot less, and sharing a much lower level of resources more equally."\3\

\3\ Aaron Wildavsky, "Global Warming as a Means Of Achieving an Egalitarian Society: An Introduction," introduction to Robert C. Balling, Jr., The Heated Debate (1992), xv.

MIT Professor Richard Lindzen has added that "the great threat of warming fits in with a great variety of preexisting agendas some legitimate, some less so: energy efficiency, reduced dependence on Middle Eastern oil, dissatisfaction with industrial society (neopastoralism), international competition, governmental desires for enhanced revenues (carbon taxes), and bureaucratic desires for enhanced power."\4\

\4\ Richard S. Lindzen, "Global Warming: The Origin and Nature of the Alleged Scientific Consensus," Regulation, Vol. 15, No 2, (Spring 1992).

And so it is that climate change underpins the claims:

--That the automobile is a greater threat than any enemy we will ever face.

-- That suburbia should be phased out.\5\

\5\ Worldwatch Institute, Beyond the Petroleum Age: Designing a Solar Economy (December 1990), 48.

--That human numbers must be drastically reduced.\6\

\6\ Bill McKibben, The End of Nature (1989), 191-192.

Obviously, evidence that climate change may not be an imminent catastrophe undermines such visions of America in the 21st Century. Indeed, unwavering allegiance to such agendas may explain why advocates of precipitous action deny with vehemence the logical implications of obvious scientific uncertainties.

True concern for the economic and environmental well-being of people in this and other countries would surely lead negotiators to balance their policy prescriptions with the state of scientific evidence. After all, carbon dioxide (CO₂) is not a pollutant but a natural element necessary for survival, with man-made emissions directly related to prosperity and economic progress. Curbing those emissions unnecessarily would mean fewer jobs and less income and therefore less money for other health and environmental protection measures. A less prosperous United States means a nation less able to promote technological development which is essential to environmental progress and to our continued ability to adapt in a changing world.

The Science is Not Settled

The hearings of this committee a week ago and those of the Senate Subcommittee on International Economic Policy, Export and Trade Promotion chaired by Senator Hagel in June have put a much-needed public spotlight on the compelling scientific uncertainties that should permeate every climate change discussion and negotiation. Climate scientists and modelers simply do not know enough about possible human impacts on the global climate system to justify taking near-term actions being considered by international negotiators that would require us to suppress energy use by at least 25 percent in little over a decade.

That opinion is shared by scientists who participated in the Intergovernmental Panel on Climate Change (IPCC) and wrote the 1995 Second Assessment Report, along with many other members of the scientific community. That report does state that "the balance of evidence suggests a discernible human influence on global climate" and the Administration repeatedly quotes that sentiment out of context in its statements that the "science is settled." The May 16 issue of the journal Science pointed out that Dr. Benjamin Santer, a lead IPCC author, warned against such over-simplification when he stated that, "It's unfortunate that many people read the media hype before they read the [IPCC] chapter [on greenhouse warming]...We say quite clearly that few scientists would say that the attribution issue was a done deal." That same Science article also notes that "[s]ome scientists assert that developments since the IPCC completed its report have, if anything, magnified the uncertainties," and quotes a noted scientist as saying, "There really isn't a persuasive case being made" for detection of greenhouse warming. At the article's end, the author refers to a climatologist and IPCC contributor who concluded that "while researchers are firming up the science, policy-makers could inaugurate 'some cautious things' to moderate any warming."

Unquestionably, the concentration of CO₂ in the atmosphere has increased. It has gone from about 280 parts per million two centuries ago to about 360 parts per million today. It is generally agreed that this increase is due to human activity, especially combustion of fossil fuels. CO₂ like several other gases in the atmosphere, especially water vapor, traps heat. Without this greenhouse effect, the average global temperature would be about zero degrees and life as we know it would not be possible. In theory, if CO₂ is increasing, more heat might get trapped and the temperature might rise.

But theory is not fact until subjected to the acid test of scientific rigor to confirm or reject it. To date, no confirming evidence has withstood tough scrutiny as the May 16 Science article explains. While it is a fact that there has been some warming over the past century, it is within the range of normal variability. Furthermore, most of it occurred before 1940, which was before any significant increase in CO₂ emissions. In particular, over the past 20 years, when high-quality satellite measurements of temperature began, no warming has been observed; and, in fact, there has been a slight downward trend.

Moreover, Dr. Bert Bolin, the chairman of the IPCC, has repeatedly said science has not established a link between human greenhouse gas emissions and particular severe weather events. Yet, Vice President Gore and other Administration officials made such an overstatement when they associated the flooding in North Dakota earlier this year with global warming. President Clinton made a similar overstatement when he said on June 30 in New York City that greenhouse gases have "led to the most disruptive weather patterns anybody can remember over the last four or five years." Members of the GCC and of the business community are only being accurate when they point out that such claims go beyond what can be supported by climate science.

Exempting the Developing Countries Guarantees Failure

Dr. Bolin has also cautioned against expecting global temperature benefits from emission reductions by developed countries alone. Yet, the Berlin Mandate agreed to by international negotiators in 1995 exempts developing countries from any new commitments to curb emissions. Dr. Bolin, during his February 25, 1997 presentation in Bonn to international negotiators, said that the proposals applicable only to the industrialized nations "would not be detectable on projected temperature increases."

The 2,000 economists who signed a petition on climate change and the 65 U.S. Senators who have signed Senate Resolution 98 emphasize that all countries must participate in any program to address "global" emissions. China, India and other developing countries will account for most of the future growth in carbon dioxide (CO₂ ) emissions in the next century but will be exempt from any meaningful treaty obligations. This will create powerful incentives to attract manufacturing investments and the jobs they create from the industrialized countries and also create powerful economic and political constituencies for never curbing emissions. As Representative John Dingell asked rhetorically in his testimony of June 19 before the Senate Subcommittee on International Economic Policy, Export and Trade Promotion: "Does anyone seriously believe China, or any other country for that matter, will act on altruistic motives?" Without the active involvement of developing countries, the growth in global CO₂ emissions will not be reduced in any meaningful way.

The Economic Costs Would Be High

The Administration suggests that curbing energy use will impose little economic sacrifice. Everett M. Ehrlich, former undersecretary of commerce for economic affairs, wrote in The Washington Post of June 15, 1997 that "the economic literature suggests that we could roll back our CO₂ emissions to their 1990 levels by 2010 for the equivalent of a 25 cent gas tax. It's not free, but it's not the end of the world." Few consumers would share this benign view of such a hike in their energy bills. Some authors of the IPCC report even suggest that curbing greenhouse gas emissions could be free the environmental equivalent of a free lunch or even be economically beneficial! \7\

\7\ These authors wrote: "Despite significant differences in views, there is agreement that energy efficiency gains of perhaps 10 to 30% over baseline trends over the next two or three decades can be realized at negative or zero net cost (negative net cost means an economic benefit)." See: International Panel on Climate Change, Climate Change 1995: Economic and Social Dimensions of Climate Change. Contribution of Working Group III to the Second Assessment Report of the Intergovernmental Panel on Climate Change (1996), 16.

In fact, however, every credible, independent economic analysis confirms what common sense suggests: a substantial curb on the use of a key economic resource will impose substantial costs. From an Administration draft analysis circulated last May, one could reasonably conclude that U.S. negotiators want to cut CO₂ emissions back to 1990 levels by sometime around 2010, and hold them there. This would require more than a 25 percent reduction in projected fossil fuel use. The Administration is placing its blind faith in unidentified technological breakthroughs and an unproven and probably unworkable trading scheme to counterbalance the economic damage of self-imposed energy rationing.

However, economic studies more realistic about the probable contributions of existing and new technologies paint a more sobering picture. Studies by Charles River Associates, DRI, and the U.S. Energy Information Administration indicate that energy taxes of $125 to $200 per metric ton of carbon would be needed to return emissions to 1990 levels by 2010 ($200 per ton is equivalent to an increase in the excise tax on gasoline of about 60 cents a gallon). The annual impact of a tax this size includes the following losses:

-- $100 billion to $275 billion in gross domestic product (GDP). \8\

\8\ $65 billion to $100 billion in fixed business investment.

-- $50 billion to $110 billion in consumer purchases.

The Clinton Administration Has Been Slow to Release Its Economic Analysis

DOE released on July 11, 1997 a study contracted with Argonne National Laboratory early in 1996 to investigate "the potential effects (which may be either beneficial or adverse) on energy-intensive industries in the United States of alternative scenarios for changes in world patterns of industrial energy prices that might result from new climate commitments." Six industries were selected and the study results show that the impact on each industry would range from "significantly adverse" to "devastating" and produce little, if any, environmental benefit. \9\

\9\ The six industries studied were: aluminum; chemicals and allied products; petroleum refining; cement; paper and allied products; and steel.

The U.S. Department of Energy (DOE) has attempted to put these results in a favorable light by claiming that the study examines energy price scenarios based on other countries' proposals "of large hypothetical energy price increases" rather than the "Administration's basic approach." However, the Administration has not explained how its own goals for curbing emissions could possibly avoid either high energy prices or highly restrictive regulatory curbs on energy use. At the very least, the DOE's claim that the Argonne study results apply only to the climate change proposals of other countries is an open admission that this study lacks a direct analysis of the Administration's own proposals. Hence, DOE's claim that the study "confirms the wisdom of the Administration's basic approach to climate change" is without foundation.

The delay in releasing this study and the release two days ago by the Administration of its long-promised analysis and assessment of its own post-2000 climate change proposals raises questions about its negotiating objectives.

In March 1995, as the Berlin Mandate began to take shape, President Clinton characterized U.S. objectives this way in a letter to Representative John Dingell:

"We have said this process must include thoughtful analysis and reflect the fact that global problems require global solutions. Furthermore, I assure you the U.S. delegation will not accept any outcome or agree to any process that adversely affects the United States and its industrial competitiveness."

DOE and the Environmental Protection Agency (EPA) jointly held a workshop in Springfield, Virginia to unveil the Administration's initial analysis. At a June 19, 1996 hearing before the House Commerce Committee, the DOE's Acting Assistant Secretary for Policy Marc Chupka testified that the "U.S. strongly believes that analysis and assessment is central to the development of further commitments by Annex I Parties and to the furtherance of existing commitments of other parties to the Framework Convention on Climate Change." When it was announced last summer that Dr. Everett Ehrlich would assume the role of directing and coordinating this analytic effort, he assured everyone that the results would be available this past January. Over the next several months, Undersecretary of State Tim Wirth repeatedly stated that the Administration's analysis would be released soon. This did not occur and yet negotiations proceeded.

This state of affairs led Representative Dingell in his Senate testimony of June 19, 1997 to ask:

"Why are we [proceeding with negotiations] before we have the most basic information about how climate change policies will affect our economy? In short, has the Administration bothered to do its homework? We were supposed to have the vaunted analysis and assessment of the impact of climate change policies on the U.S. economy by the end of last year. It has not been completed yet, despite repeated promises to Congress and industry that it would be available before important policy decisions are made. But the State Department formally proposed a cap-and-trade negotiating position in January. In short, the analysis is self-evidently too late to inform the process, and likely will be used to justify what the Administration has already decided to do. Just as clearly, public participation and comment on the analysis and assessment is irrelevant."

Representative Dingell's remarks were insightful. Only two days ago did the Administration release a draft copy of its baseline economic analysis. While the GCC has not had time to examine this document thoroughly and we would ask the committee for the opportunity to submit comments later it is clear that the Administration still has not provided its assessment of specific policies now under consideration. It also has not explained how those policies would be implemented domestically and internationally nor has it quantified the impact of these policies on the U.S. economy, labor, industry and trade.

This slow and partial release of the Administration's analysis and assessment has meant that the United States Senate has so far been unable to fulfill its Constitutional responsibility of "Advice and Consent." Senate Resolution 98, introduced by Senators Byrd and Hagel and now co-sponsored by 65 Senators reflects growing frustration with the Administration's failure to consult and alarm over the consequences for the U.S. economy that will result from the current negotiating strategy.

The GCC Supports Appropriate Action

In spite of major scientific uncertainties, inadequacies in climate models and the doubt that any enhanced warming will soon occur, it would be imprudent to presume "no problem." Global warming could have serious consequences should nations make wrong choices in either direction.

Therefore, a proper framing of the problem recognizes uncertainty as pointed out by the petition signed by 2,600 economists. The Administration frames climate change as devoid of significant uncertainty an approach that is clearly flawed.

The basic structure for decision-making under conditions of significant uncertainty is relatively simple even though the global climate issue itself is complex. The first decision rule is to be slow rather than quick to commit to a single course of action. This is especially important when the costs of immediate action are known to be high perhaps equal to our nation's current total annual environmental expenditures but the many scientific uncertainties prevent any reliable estimate of the environmental benefits (if any) from that action. In the case of global warming, we have time to address these uncertainties. Nothing we do in the next 20 years will have any appreciable impact on the world's average temperature in 2050 or 2100.

This fact is absolutely crucial, because costs are exceedingly sensitive to timing. Many capital investments, including those in the energy and automobile industries, are long term. If change can be deferred until current equipment reaches the end of its useful life, and until more efficient devices are on-line, costs can be substantially less. Over the past 22 years, new technologies have enabled us to reduce energy intensity per dollar of gross domestic product by about 32 percent. This progress should continue. Analysis by the Electric Power Research Institute and the Stanford Energy Modeling Forum concludes that an orderly, long-term strategy for achieving a scientifically justified CO₂ objective would cost only one-fifth as much as a program that requires near-term cuts.\10\

\10\ EPRI Journal, Nov./Dec. 1995.

This leads to the second decision-making rule: invest in information to reduce the uncertainties and to better understand the implications of alternative courses of action. Indeed, the money already spent on improving climate models has increased our understanding of the climate system enormously with no indications yet that we have reached the point of diminishing returns in improving scientific knowledge and climate models.

Furthermore, as climate models have improved they have so far suggested that much of the 1 degree F increase in average global temperature over the past 130 years is due to natural variability and that any future warming is likely to be much less than earlier models have predicted. For instance, when the British Meteorological Office recently improved its modeling of the effects of clouds and precipitation, the model's response to a doubling of CO₂ emissions was a decline in warming from 5.2 Celsius degrees to 1.9 degrees. The first results from the new climate model at the National Center for Atmospheric Research (NCAR) in Boulder, Colorado suggest according to the May 16 article in Science that "future greenhouse warming may be milder than some other models have suggested and could take decades to reveal itself."

With improved information indicating that the problem may be less rather than more severe than originally thought, it seems only sensible to continue improving scientific knowledge before committing to expensive policies predicated on earlier estimates, as the Administration appears determined to do. Although assessments of potential future impacts have moderated over the past few years, the Administration's policy has shifted from support of voluntary programs to legally-binding commitments.

The third rule for decision-making under uncertainty is called "no or low regrets." Look for actions that will produce benefits under any set of circumstances. The GCC has developed a list of emission-reducing actions that would be worthwhile even if the threat of global warming turns out to be another wildly exaggerated environmental scare.

The business community has shared these steps with the Administration which are based on these points:

-- Encourage an economic turnover of the capital stock. \11\

\11\Focus investment in research to narrow the range of scientific uncertainties.

--Invest in the development of new technologies.

-- Expedite diffusion of new technologies in developing countries.

-- Facilitate the investment of U.S. private capital in countries with high emissions levels.

-- Continue promoting voluntary programs for reducing U.S. emissions.

These points establish that GCC members support an action-oriented policy on climate change.

The fourth decision rule is to consider alternatives. Only two decades ago, global cooling was the dominant concern. It is also possible that some warming will occur but not be harmful or that developing adaptations to warming will greatly mitigate any harm. Sound policies must allow for these possibilities, and not be based on a single point estimate.

Summary and Conclusion

Many uncertainties about the climate system, and the current and future impact of human activities on it, have been well documented. Business has played a constructive role by drawing attention to these uncertainties and the serious ramifications they pose for the Administration's negotiating strategy.

Business agrees that action should be taken but rejects an unjustified rush to judgment. The major difference between the business community and the Clinton Administration is over approach, not the need for action. We support what can be called "Lewis and Clark" planning, after the famous explorers who successfully managed enormous uncertainty by gathering new information, taking a limited number of steps, reassessing and then repeating the process. In 1803, Lewis and Clark could not plan a detailed water route to the Pacific President Jefferson's main goal. No one knew that the Rocky Mountains were in the way. Lewis and Clark were successful because they respected the limits of knowledge, anticipated surprises and recognized the need to adapt.

The Clinton Administration supports an approach that discounts uncertainty. Minimal uncertainty allows detailed planning comparable to an extended itinerary what can be called "Cooke's Tour planning" after the famous travel agency. The conditions for this type of policy planning do not exist, and a Kyoto agreement that presumes they do will be playing "Russian Roulette" with our economy.