Hi. Thank you for inviting me to speak to your panel today. I appreciate your flexibility in rescheduling my visit, due to my mother's medical emergency, and I'm grateful for the opportunity.
My name is Vicki Arroyo and I'm director of policy analysis with the PEW Center on Global Climate Change. The PEW Centre is a non-profit, non-partisan, and independent organization dedicated to providing credible information and straight answers and solutions in the effort to address global warming.
Forty-two major companies participate in the PEW Center's Business Environmental Leadership Council, or BELC as we call it, making the BELC the largest U.S.-based association of corporations focused on addressing the challenges of climate change.
Many different sectors are represented, from high technology to diversified manufacturing, from oil and gas to transportation, and utilities to chemicals. These companies represent $2.5 trillion in market capitalization and employ over 3.3 million people and they work with us to educate the public and policy-makers on both the challenge and the solutions to climate change.
We're working to advance effective, pragmatic policies, both in the U.S. and internationally, and our work is informed by our ongoing relationship with the BELC.
I direct the centre's analytical program, including work on science, economics, and domestic policy. Our basic view is that domestically we need mandatory caps, a cap-and-trade program as the cornerstone, and internationally we need binding commitments for all major economies to ensure environmental effectiveness, protect against competitiveness impacts, and provide access to lower cost reductions.
I'd like to start by congratulating your committee on taking up these initiatives. For years, we in the U.S. looked to Canada for its leadership on mandatory reporting and on working on alternative design approaches for offsets, and it's heartening to see the issue moving forward again.
I'm happy to report there's been tremendous movement in the United States as well in recent months, galvanized by a variety of factors, including the compelling science, increased public awareness from things like Al Gore's movie and the press, states' leadership, the Democratic Party's takeover of Congress and its priority for addressing climate change, calls for more and more business leaders to address climate change, and emerging presidential candidates making this an issue.
As you heard from Mr. Marcu earlier, the U.S. policy picture is changing rapidly, with new proposals being submitted almost weekly on Capitol Hill in the early months of the year. Older proposals are being revised to allow for phased reductions into the future, often with an ambitious long-term reduction target by 2050, informed by the science.
Most of the federal proposals cover six greenhouse gases and are economy-wide, covering large sources and fuels. There is some focus on the utilities sector, for example, with Senator Feinstein's and Senator Carper's bill, because of their familiarity with cap and trade and their wish for regulatory certainty.
All proposals provide for an absolute cap, although one is set on an intensity basis. Many provide for offset allowances from sequestration, non-covered domestic and international sources. There is broad support here for bills with offsets, as long as the sources of emission reductions, both domestic and international, are real, quantifiable, and verifiable.
There are several proposals I could mention, but I thought giving an outline of just one that you may have heard of may be helpful. The Climate Stewardship Act, sponsored by Republican Party senator and presidential hopeful John McCain and independent senator Joe Lieberman, with co-sponsors including Democratic Party presidential hopefuls Barack Obama and Hillary Clinton, creates an economy-wide cap-and-trade program covering 85% of U.S. greenhouse gas emissions. It proposes to hold emissions to 2004 levels in 2012, to reach 1990 levels in 2020, and get 28% below 1990 levels by 2030 and 60% below 1990 levels by 2050. It allows for use of offsets up to 30%. Again, offsets here have been considered one cost control mechanism.
Allocation right now is determined in the bill by the administrator, but it's likely that is going to be a political decision made by Congress before the bill finishes. It provides credit for early action, banking, and borrowing. Because it's important to stimulate technology development, there's also a technology title with incentives for advanced energy technologies, adaptations, and the like.
It's important, in addition to a price signal, because alone, a technology push and technology incentives are not enough; you need a price signal, as we've heard before.
Variations on the cap-and-trade theme are being offered by many influential senators and Congress people: Senator Boxer, the chair of the Senate's environmental public works committee, and Senator Bingaman, of the energy committee. I mentioned Senator Feinstein as well as Senators Kerry and Snowe.
Only one bill allows for continued growth in emissions through 2020. It's a target based on intensity and includes a very low safety valve of $7 a tonne of carbon dioxide. That's an upstream bill based on the recommendations of the National Commission on Energy Policy. Many people feel that we're beyond this bill now, and we're likely to see something more aggressive.
At the Pew Center on Global Climate Change, we're concerned with this approach, in that it allows for a continued emissions growth, and we're concerned that the safety valve will hinder linkage. As you just heard from Mr. Delbeke, linkage is a critical feature of a functioning global market.
We're also concerned that the low price of $7 a tonne for carbon dioxide will not necessarily encourage sufficient innovation in bringing important technologies, such as capture and sequestration.
The House now has many bills and many more active committees than in the past. There is a new select committee on global warming set up by House Speaker Pelosi. Chairman Dingell's committee on energy and commerce is moving forward with hearings. There is an active science committee, and even the oversight committee on ways and means is having hearings now on climate change.
There's a bipartisan Olver-Gilchrest bill that's similar to the McCain-Lieberman vehicle, which I describe below. It has a more aggressive target, but there's no technology title.
As you may have heard, Speaker Pelosi called for a climate bill in the House to be debated on the floor by July. At the same time as we see momentum building in Congress, there are some interesting developments with business leaders signing up to promote action.
You might have heard about our work with the U.S. Climate Action Partnership. On January 22, the CEOs of ten leading firms, such as GE, Dupont, Duke Energy, and Caterpillar, joined with four NGOs, including ours, to call for mandatory legislation—specifically an economy-wide cap-and-trade program with support for key technologies and targeted sectors, such as transportation and coal-burning electricity generation.
After they made this call in January, and since the findings of the recently released fourth IPCC assessment were so compelling, every week, more and more companies and trade associations seem to be joining the ranks of people calling for mandatory policy. They see the science and they want to act.
They need regulatory certainty for the investment decisions that they're making. They want to help design meaningful and pragmatic policy, and they want a seat at the table. They prefer federal policy to a patchwork of state activity. And indeed, as you heard, the states in the U.S. are ahead of the federal government.
Climate change is a bipartisan issue throughout the states, with Republican governors such as George Pataki, who led the RGGI partnership, and Governor Schwarzenegger, who led efforts in California. As of yesterday, Governor Schwarzenegger joined with four other western governors, agreeing to plans to cut their emissions and allow for trading.
There's a lot of leadership at the state level, and their reaction is very laudable, but we certainly don't think it's enough. They would prefer a federal program. Our businesses would also prefer a comprehensive federal program, and given the nature of greenhouse gases, it obviously makes more sense to deal with this both at the national and indeed international levels.
So while much of the debate in the U.S. is focusing for the moment on the need for domestic action, there's growing recognition of the need for the U.S. to re-engage in the international negotiations and help lead and develop an effective and inclusive post-2012 framework.
Last year the Senate Committee on Foreign Relations passed a resolution sponsored by Senators Joseph Biden and Richard Lugar, the committee's top Democrat and Republican, calling for the U.S. to participate in negotiations under the UN Framework Convention on Climate Change, with the aim of establishing mitigation commitments for all major emitting countries.
We believe that the key to engaging all major economies is a flexible framework, allowing countries to take on different kinds of commitments. We also believe it's essential that this future framework be market-based, with emissions trading and a modified version of the clean development mechanism. While the CDM has had problems, it is working and it's the core concept. The core concept is a sound one, wherein developing countries' marketable credits for verified emission reductions create a strong market incentive for clean investment.
Both Canada and the United States strongly supported the inclusion of market-based mechanisms in the Kyoto Protocol, and we know that the issue has become clouded because of Russian hot air. But Canada can be an active player in the global carbon market without ever touching a single Russian tonne. Many companies and countries are investing right now through CDM in real and verified emissions reductions.
By investing wisely, Canada can make progress towards its own reduction goals, while helping developing countries along the path of climate-friendly development.