Hill Heat

The second full committee hearing on Lieberman-Warner.

Witnesses

• David Hawkins, Director, Climate Center, Natural Resources Defense Council
• Dr. David Greene, Corporate Fellow, Geography and Environmental Engineering, Oak Ridge National Laboratory
• Robert Baugh, Executive Director, Industrial Union Council, AFL-CIO
• Andrew Sharkey, President and CEO, American Iron and Steel Institute
• Donald R. Rowlett, Director of Regulatory Policy and Compliance, OGE Energy Corp.

11:30 Voinovich This bill will cripple our economy.

11:36 Klobuchar This is a hearing to examine the nuts and bolts of this bill.

11:40 Craig If anybody doesn’t believe this is a complex bill, they should try reading it. I’m glad the Bali or bust approach is out. The bill is not ready for prime time.

11:44 Boxer We will start markup on December 5.

11:44 Whitehouse We are putting a lot of our nation’s wealth through this process. I’m not satisfied with the integrity of this process. My concern is that fairness to low-income folks are not part of this discussion. The bulk of the return has to go to the American consumer and the low-income American consumer more than anyone else. I’m interested in the idea of flowing moneys through the EITC.

11:49 Alexander I think we would be better off with a sector-by-sector approach.

11:53 Cardin I hope we can strengthen the use of public transit. Dr. Greene notes we burn 6000 gallons of oil every second to fuel our transportation sector. That sector is responsible for one quarter of the emissions. I think we need to strengthen the bill’s provisions. We need to make a more significant investment in public transit.

11:58 Inhofe I will raise concerns about the untoward impacts of a cap-and-trade bill. I’ve talked about how the poor will suffer. I expressed how farmers would be hurt. Today I address how blue-collar jobs across America are at risk. Many of the blue-collar jobs rely on energy-intensive manufacturing. We know natural gas is critically important. Rising prices will threaten jobs in automotive assembly, steel, fertilizer.

12:08 Hawkins In all the key areas NRDC shares a number of concerns. But we are ready to work to make this bill better. Noone is under the illusion that the bill will go directly from the committee to the President’s desk. We recommend the committee approve certain strengthening amendments and report the bill to the floor this year.

12:10 Greene Analyses such as those by the IEA show the insensitivities to fuel economy to the price of fuel. The market for fuel economy is not efficient. 39% of households never considered fuel economy in purchase decisions. Land development policies must be considered in reducing transportation sector emissions. A low-carbon fuel standard may be needed.

12:15 Baugh AFL-CIO believes action to reduce global warming and reduce oil dependence are mutually reinforcing. We actively participated in the stakeholder process to develop this bill. I’m here to address five areas in the bill that could be improved. We commend the original draft that made critical commitments to technology. Unfortunately the amendments to restrict automotive and coal funding went in the wrong direction. This sets a standard of 70% below 2005 levels by 2050. That should be subject to presidential reviews. We urge the committee to direct the Corporation to invest in domestic investments. The AFL-CIO supports price-control mechanisms. We believe hoarding of allowances will be damaging. Up to 30% of a company’s allowances may come from offsets or international allowances. We believe that is too high. We’re very concerned about the legitimacy of genuine offsets.

12:21 Sharkey We beat our Kyoto targets already. By recycling and efficiency we’ve dropped our emissions by 30%. We are not standing still. Our products lead the way in reducing carbon emissions. For example by using high-strength steel, auto manufacturers can reduce car weight and increase fuel efficiency. Legislation must consider U.S. competitiveness. Our costs will rise in 2012, costs our foreign manufacturers will not face, if at all, until 2020. Foreign allowances invite subsidies from foreign nations. We are concerns ACSA will encourage fuel switching from coal to natural gas. We believe competitiveness provisions should apply equally to domestic and foreign manufacturers. Why not encourage a race to the top? We must find prudent means of addressing climate change.

12:30 Rowlett Wind is not a suitable replacement for baseload needs. Perhaps agricultural offsets will be needed. We will have to switch from coal to natural gas.

12:35 Hawkins This bill is a good start. The emissions reductions in the short term are strong. The longterm reductions need to be stronger. We believe this bill deserves an affirmative vote in this committee.

Baugh There’s the phase-out period for the industry. Some would like us to have 100% auction, which would say to manufacturers you have to buy allowances, and you have to invest in new technologies. I think it’s important that the allowances are available for doing business. We wouldn’t want to see the phase-out tightened. We have reports coming out with the National Council on Energy Policy.

Lieberman This bill would make very serious demands on industry. With that in mind we created the free allowances. I think it’s significant that the AFL-CIO says any shortening of that phase-out period would be unwise.

12:39 Inhofe Nuclear is going to be necessary. Do you support nuclear power?

Hawkins I’d like to answer in two parts. We don’t support additional subsidies for nuclear power. We don’t object to nuclear power being part of an emissions reduction program.

Inhofe You don’t think India and China are going to reduce their emissions, do you?

Baugh No. We think it’s important the investment be done in domestic firms.

Inhofe If we adopt unilateral mandates can we ensure imported steel have the same regulations?

Sharkey Cover imports at 2012, not 2020. Watch against government subsidized allowances.

Inhofe Can you talk about the problem with an auction approach?

Rowlett Before we choose any kind of resource we have to go to regulators. Nothing is automatic. Everything has to go through state regulatory commissions.

12:45 Klobuchar We’re all concerned about the effects on consumers and the economy. What effect has the Europe cap-and-trade had on the economy?

Hawkins It has had some bumpy spots but we have not seen harm to the European economy. We will see economic opportunity by the technologies stimulated by this bill.

Baugh We do have concern about the jobs. We have a particular sensitivity to energy-intensive industries. How is the investment side of the portfolio directed. Ensure that these are domestic investments.

12:54 Voinovich Do you think the Efficiency Board can moderate price shocks?

Baugh Right now I don’t think so. The volatility is too high. There should be a much more restricted market mechanism.

12:56 Boxer The gloom and doom is belied by the facts. Change is hard, we all know that. But if we do nothing that’s very dangerous. Come to my state and see what’s happening in the venture capital community. I’m going to go back and find the naysayers’ comments for the Clean Air Act, Clean Water Act.

For my view, I would do 100% auction out of the box. I’ll support those amendments on the floor of the Senate. I would hate to see you away from the table. This is going to happen eventually, because it has to happen.

1:02 Barrasso The target date is 2050. If we act and China and India does not, how much cooler will the planet be?

Hawkins I am confident that China and India will engage much faster if we don’t take action. I’m sure they won’t take action if we don’t. Countries pay attention to what the U.S. does and does not do. Every time we bring up advanced technology and ask what they’re doing about it, they ask what we’re doing about it. This is a method that works. We took lead out of gasoline in the 1970s and 1980s. They followed suit. We put scrubbers on smokestacks. They followed suit.

1:07 Carper What can we do to reward actions your industry has already acheived?

Sharkey Rewards for early action would be welcomed.

Carper What allowances are going to be given for free?

Hawkins 20% of the allowance pool is available for free to the industry sector, and 20% to the electricity sector.

Carper I’m concerned the allowances are greater than the historical level of emissions.

Hawkins We think the argument the industrial sector will have trouble meeting these targets is not well founded.

1:12 Alexander You said that increased CAFE standards would be the greatest impact on the transportation sector in reducing oil dependence.

Greene Yes, and reducing greenhouse gases.

Alexander If it’s not baseload or peak, why are you investing in wind?

Rowlett We’re taking proactive action to reduce our footprint.

1:17 Whitehouse Offsets.

Baugh I’m concerned about paying for things people are going to do anyway.

Whitehouse The other question is how you regulate the allowance trading itself.

Baugh Goldman Sachs should not be buying allowances. When does banking become hoarding?

Whitehouse Are you convinced that the governance of the board is adequate?

Baugh We think labor should be represented.

Baugh The cap-and-trade system is an effective tax. This will raise the cost of energy. The question is how do we do it? And how do we make this transition? There are allowances for line-transmission agencies. They’re getting allowances, but there are no requirements for investing in high-efficiency transmission.

1:23 Lieberman Sen. Warner was particularly focused on maintaining the integrity of the systems. The Carbon Market Efficiency Board plays a role much more akin to the Federal Reserve.

Hawkins The acid-rain trading system did not develop the problems that concern Sen. Whitehouse. The problem of hoarding, of speculation simply hasn’t occured.

Lieberman The auctions are going to raise a very significant amount of money. We want to make sure the Corporation will set up systems so that it is spent well. Our intention is to reduce the price impacts and to reinvest the money in technologies that will drive efficiencies, creating more jobs. We have phrased our allocations in term of percentages. Outside groups have converted that to dollars. It’s a tremendous amount of money. In fashioning a system we have within our grasp to create the opportunity to make America energy independent and clean up other forms of air pollution. A lot of money will be on the table. It’s important it be used as a vast venture capital pool.

1:29 Lieberman I adjourn the hearing.