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gpo114.pdf

Mr. BOUCHER.

The subcommittee will come to order. Much has been said about the costs that are associated with mandatory federal actions to reduce greenhouse gas emissions. In fact, concerns about the costs of regulation were raised during this subcommittee's hearing 1 week ago today which focused on the various capand-trade measures that are now pending in both houses of Congress. While the costs of action are relevant concerns, underpinning our goal of producing a regulatory program that confers the maximum environmental benefit at the least cost to society, we should also recognize that failing to regulate emissions also carries a cost, and in fact, it is a quite substantial one. The avoidance of enacting a mandatory greenhouse gas control program does not mean that we avoid cost, and the cost of inaction may well be greater than the cost of acting. Today, we focus on the cost of failing to act on the effect of climate change for our national security, for land and water resources, for agriculture, and for biodiversity. Our discussions today are guided by three reports, which evaluate various consequences of Congress failing to act. We are pleased to have as a witness this morning Lord Nicholas Stern, author of ''Stern Review: the Economics of Climate Change,'' a thorough analysis of the costs of inaction, which was prepared at the request of the government of the United Kingdom. Lord Stern concluded that while the cost of reducing emissions can be limited to approximately one percent of global gross domestic product, the cost of not acting would equate to as much as 5 percent of global gross domestic product. While his conclusions are not without controversy, his report is authoritatively cited in the United Kingdom and elsewhere, and we are pleased to welcome Lord Stern as our first witness this morning. Another report which is the subject of today's hearing is the National Security and the Threat of Climate Change, prepared by the Military Advisory Board, an entity that is comprised of retired United States admirals and generals. That report notes that while there is some disagreement about the extent of future effects that are due to climate change, risks are such that action is justified, and that projected, uncontrolled climate change poses a serious threat to national security. We will also receive a review of the United States Climate Change Science Program Agricultural Report, which assessed the effects of climate change on U.S. land and water resources, on agriculture and on biodiversity. This report finds that it is very likely that climate change is already affecting United States natural resources and will continue to have significant effects over the next decades. An exact estimation of the cost which will be incurred as a result of unmitigated climate change is difficult to make, and efforts to do so, such as the Stern Review, are often subject to some extent of controversy because of the economic and scientific assumptions that necessarily must be made. While these predictions are difficult to make, the reports that we examine today and other reports in the field leave very little doubt that the effects of climate change will result in cost. As sea levels rise, as storms become more severe, as ecosystems are altered and drought and other climate effects occur, it is inevitable that there will be a cost of our responding. And examination of these effects is essential to our effort to achieve a balance in the legislation that this subcommittee will draft, between environmental benefit and the cost of conferring that benefit. We will turn to our first witness shortly, but prior to that, I want to recognize other members for their statements, and at this time, the gentleman from Michigan, Mr. Upton, the ranking member of the subcommittee, is recognized for 5 minutes.

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Mr. BOUCHER.

Thank you very much, Mr. Upton. The gentlelady from Wisconsin, Ms. Baldwin, is recognized for 5 minutes.

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Ms. BALDWIN.

Thank you, Mr. Chairman. I am delighted to have Lord Stern and our subsequent panel of expert witnesses before us today. It is your work and your studies that have framed the discussion on climate change, and you have conveyed a message of urgency on us to act to lower greenhouse gas emissions in a quick and meaningful manner, and it is now up to us to heed your advice and rise to this challenge. We know that climate change comes with a very large price tag, and costs are not just economic. Our emissions have also put our environment, social structure, and national security at risk, and according to the analysis, if we fail to act comprehensively, the impacts will be felt through the loss of human lives and health, species extinction, the loss of ecosystems, and social conflict. As Members of Congress, especially as member of the People's House, we are generally prone to design and pass legislation that will provide immediate or near-term relief to our constituents. It is seemingly a challenge for us to even fathom enacting consequential legislation that may raise near-term costs with benefits not reaped for a generation or more, benefits that some of us may not live to see. Yet this is the predicament in which we now find ourselves. Do we make the investments now to avoid the worst impacts of climate change? According to Lord Nicholas Stern, the cost of acting today is about 1 percent of global GDP each year. Or do we wait, leave this issue for future generations, and watch the costs and risks rise at a rate of up to 20 percent of global GDP per year? I am of the opinion that the risks are far too great for us to fail to act in the very near term. Just last week, the U.S. Climate Change Program released a report that provides the first comprehensive analysis of observed and projected changes in weather and climate extremes in North America. Among the extremes predicted are more frequent and intense heavy downpours. The report concludes that the increases in precipitation are consistent with the observed increases in atmospheric water vapor, which has been linked to human-induced increases in greenhouse gases. I have seen firsthand the intense rain, flooding, and devastation that people in the district that I represent in Wisconsin, and across the Midwest, are experiencing as a result of intense rainfall this month. We lost homes, businesses, and farmland, not to mention millions of dollars in lost productivity. I can only hope that we will do everything in our power to ensure that these storms do not become the norm in the future. this issue, and now it is up to us, all of us, to educate the cynics and the naysayers that climate change is real. It threatens our economy, our environment, and our national security, and we will pay a much greater cost in the future if we fail to act. Thank you, I yield back the balance of my time.

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Mr. BOUCHER.

Thank you very much, Ms. Baldwin. The gentleman from Kentucky, Mr. Whitfield, is recognized for 5 minutes.

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Mr. WHITFIELD.

Well, Chairman Boucher, thank you very much for conducting this important hearing on Climate Change: the Cost of Inaction. Obviously, this subject matter is vitally important to not only our country but the entire world. I would say that cap-and-trade systems have come into vogue because many people say they are politically palatable more than imposing carbon taxes. I am pleased to say that Chairman Boucher, Ranking Member Barton, Mr. Upton, Mr. Shimkus, and I have introduced bipartisan legislation to create a fund for research, development, and deployment of the carbon capture-and-store technology that is so vitally important to help solve this problem. These types of initiative, I believe, will put our country on the road to reducing carbon emissions, rather than implementing overly ambitious, expensive, and maybe unworkable proposals that could damage our economy and do very little to reduce carbon emissions globally. I am delighted that Lord Stern is with us today, because I was reading an article in the New York Times just a couple of days ago, and the whole article was featured on the carbon markets in Europe, and it says Europe has had trouble handling its carbon market. And it specifically pointed out that CO2 emissions have risen each year since the European cap-and-trade system went into effect, and that there are major problems that they are still struggling with in this issue in Europe. And one of the major concerns that I have about adoption of a strong cap-and-trade system to set progressive targets to reduce carbon dioxide and greenhouse gas emissions here in the U.S. is we don't have the technology available to meet it, and so that presents a major problem. So I know that many people refer to the cap-and-trade system that was implemented to deal with acid rain, and that was and has been successful because the technology was available to reduce NOx and SOx emissions. And then another major concern that I have when we talk about cap-and-trade systems is that there seems to be a bias by many people that coal can no longer be an important part of the United States energy picture. And I would remind everyone that coal still produces 51 to 52 percent of all of the electricity produced in America, and I think it is unrealistic to think that we can go to alternative energy sources without dramatically increasing the cost of electricity, which increases the cost of production, which makes us less competitive with other economies around the world and ultimately can damage our economy. So we have this important balancing act that must be done, and these types of hearings will help us focus on those issues and hopefully make the right decision. And I yield back the balance of my time.

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Mr. BOUCHER.

Thank you, Mr. Whitfield. The gentleman from Michigan, Mr. Dingell, the Chairman of the full Energy and Commerce Committee, is recognized for 5 minutes.

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The CHAIRMAN.

Mr. Chairman, thank you for holding this hearing today. It is a very important one, and your leadership in the matter of global warming and other things under the jurisdiction of this committee has been exemplary, and I want to commend you and thank you. The hearing today addresses a very important topic, the risks we face if the world fails to address climate change. And I would begin my statement by observing that we will move forward as fast as we can in achieving good legislation, which will address the concerns and the problems of this nation and the world in a responsible, thorough, and thoughtful fashion. At last week's hearing, and in the Senate, we have heard a lot about how much reducing greenhouse gas emissions is going to cost us, including projected changes in gas prices, electricity rates, and gross domestic product in 2050. It is undoubtedly true that there will be costs associated with this. It is also obviously true that there will be costs associated with inaction, and so that leads us to the point of finding what is the best way to address this concern, and I intend to see to it that we do so, but we do so in a vigorous fashion. The basic point my colleagues are making is correct and one that we must not lose sight of: reducing greenhouse emissions will cost us money. But the projections of the costs of climate change programs as observed here today are only half the story. We must understand the costs of inaction, how much we will have to spend if we refuse to reduce greenhouse gas emissions. That is the important focus of today's hearing. It is also an unsaid and unstated matter that we have to address this problem because of the cost of imported oil and the simple fact that this country can no longer have that particular expenditure. Understanding the costs of both action and inaction is necessary for us to design fair and reasonable climate legislation. One economist suggests that all we have to do is set up a program where the marginal costs of actions equal the marginal costs of inaction; following a simple, mathematical formula, we will then solve our problems. I wish it were so, but I don't believe it will be that easy. First we cannot easily put a dollar value on many of the costs of inaction, such as the loss of wildlife habitat, species extinction, loss of quality of life. Second, there is a strong scientific consensus that human-caused greenhouse gas emissions are warming the planet. Scientists cannot tell us precisely what will happen at different greenhouse gas levels, such as how much more people will suffer or how many more people will lose homes and farms to flooding. It is said that we need to understand that the best they can do is to tell us what the risks might be and the possibilities or probabilities that physical changes will occur, and the costs that we will incur to address those changes. Third, the global warming problem and climate change means that we will need to act in concert with other countries. The fact that we lack certainty and precision about future costs of climate change does not mean we should not act. When faced with even low risk of a catastrophic event, we regularly buy insurance policies to avoid, cover, or reduce those risks. Reducing greenhouse gas emissions could be thought of as protecting against risk of this magnitude in a similar and thoughtful way. I would prefer to legislate with more certainty from the scientists who tell about the dangers we face in the future, but unhappily we do not have that luxury. Scientists are already observing effects now of climate change. Our witnesses today will tell us that our failure to act could put the planet and our country at risk for even bigger and graver consequences. Today's hearing is going to help us understand the potential severity of those consequences. Thank you, Mr. Chairman, and I yield back the balance of my time.

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Mr. BOUCHER.

Thank you very much, Mr. Dingell. I understand that Mr. Markey intends to waive his opening statement, and instead have 3 minutes added to his question time for the first witness. I am assuming that is correct.

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Mr. MARKEY.

I request that. Thank you.

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Mr. BOUCHER.

We will note the gentleman's waiver. Now, now, now. I am going to recognize somebody else while I still have a measure of control here. The gentleman from Oregon, Mr. Walden, is recognized for 5 minutes.

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Mr. WALDEN.

Thank you very much, Mr. Chairman. I appreciate this hearing and the others that you have held. They have been most informative with really expert witness, and while I have to step out for another meeting here in a few minutes, I do have the testimony and plan to return. Obviously, we have heard a lot about climate change. And Lord Stern, we are delighted to have you here, and I know your report has been the basis upon which a lot has been written, both pro and con, and that is the way it is with any issue of this magnitude and certainly scientists and economists are disagreeing on the magnitude of this issue. I represent a district of 70,000 square miles. We have home of ten national forests, and my passion has been the role that forestry can play, in a very positive sense, in dealing with greenhouse gas emissions, and there are studies that show actively managed forests could lead to 50- to 60-percent reduction in wildfires, which equates to about a million tons of greenhouse gas annually. It could be reduced in California alone, for example. Even though I am from Oregon, there was a report done by Finney and others that indicates that in California alone, if you had properly managed forests, you could reduce greenhouse gas emissions by a million tons a year. Managed forests sequester carbon at 1.25 tons per acre per year, and yet our federal forests sequester less than half a ton per acre per year. If you use a ton of bone-dry biomass in a biomass power plant to generate electricity as opposed to natural gas, you can reduce a one-ton net reduction in greenhouse gas, compared to natural gas, for every ton. And so I think there is an enormous opportunity here to review federal policies in this country as they relate to proper managements of forests. I have met with the U.S. Forest Service on multiple occasions. They have done a long-term look at climate change and its effects on forestry and indicate to me that the forest cannot keep pace with the change in temperature, in terms of northward migration. And as a result, we will have more drought, more bug infestation, more disease, overstocked stands, and as a result, higher fire ratios. In fact, in the last couple of years, we have set records for the number of lands burned, not all of it forests, some of it grasslands. I think it is upwards of 9 million acres a year. Forty-seven percent of the Forest Service's budget is now spent for fighting forest fires. And so I conclude with this comment that those who argue for change in other sectors of federal law cannot any longer ignore the need to change forest-management law so that we can more aggressively get in, get these stands back in balance, so that when fire occurs, it burns naturally and actually can be good for the environment, as opposed to these unnatural, catastrophic, high-emission releasing fires that are very costly to society and to the climate. And I hope at some point this committee will be able to look at those issues as well. Lord Stern, thank you for being here. Mr. Chairman, my time has expired, and I appreciate the opportunity to be here.

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Mr. BOUCHER.

Thank you very much, Mr. Walden. The gentlelady from California, Ms. Matsui, is recognized for 3 minutes.

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Ms. MATSUI.

Thank you, Mr. Chairman. I am very pleased to be here today, and thank you for calling a hearing on such an important issue. I would also like to thank today's panelists for coming today to share their expertise and add to our understanding of the risk and potential cost of climate change. All of us here today represent different areas of the country with different climates. We have seen the very impact climate change is having on our diverse landscapes, and the threat of new challenges and dangers if this issue is left unaddressed. My district of Sacramento, California exhibits many of the risks we face. We are surrounded by ecosystems that are already beginning to see significant changes. Sitting at the confluence of two great rivers, Sacramento is considered to have the highest flood risk of any major metropolitan city in the United States. Over 500,000 people, 110,000 structures, the capital of the State of California, and up to $58 billion are at risk. Rising temperatures could mean earlier and more rapid Sierra snowmelt, yielding disastrous consequences. Earlier snowmelt and varying rainfall patterns may also lead to serious drought and water shortages, already a constant worry in my ing their crops. We simply can't afford to see the Western United States with even less water. Wildfires, heat waves, the spread of tropical disease, and rising sea levels can also affect the future of my constituents, their children and grandchildren. We must take into account the cost of any legislation that would touch so many aspects of our country and our economy, but we can't get stuck on the challenges; we must find the ways to build consensus. We heard last week about some of the possible costs of potential legislation, but it is clear that if we fail to act, the cost to our country, economy, and environment will reach far beyond just the monetary. The fact is that inaction is not an option. Investing our time and resources now will mean saving our children and grandchildren much greater costs in the future.

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Mr. BOUCHER.

Thank you very much, Ms. Matsui. The gentlelady from Tennessee, Ms. Blackburn, is recognized for 3 minutes.

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Ms. BLACKBURN.

Thank you, Mr. Chairman. I do want to thank you for holding the hearing, and I want to thank our witnesses who are taking their time to come and testify before us today. Assuming for the moment that climate change is happening, then the questions before this committee and in this hearing would be what should we do about it, if anything, and what would happen if we fail to act? And climate change activists' basic argument is that current emissions of greenhouse gasses must be reduced by 80 percent. We hear that regularly. They claim that if not, then CO2 concentration in the atmosphere will cause an increase of 18 degrees Fahrenheit around the world and cause massive floods, famine, hurricanes, and drought that humans have never seen before. Essentially, what they predict is a Doomsday scenario. But history has quite a different perspective on this. When the Earth was warmer 1,000 years ago, colonies and farms dotted the landscapes in the upper latitudes, but the little ice age occurred, and disaster befell most of those. Then warming ended this ice age, and plants began to grow faster and larger and live in drier climates, providing diversity and enhanced sustainability of animal life. But now, recent data shows that the Earth is cooling significantly and could reverse that stated progress. And if current CO2 omissions are further reduced, these two factors could lead to another ice age, with drastic reductions in food production. The earth would become a less hospitable and less green planet. Well, how about that for a Doomsday scenario? Well, Mr. Chairman, I urge my colleagues, I urge all of us to apply a little bit of common sense and not go down expensive and dangerous paths that some would advocate. These globalw arming scares only exacerbate society problems and offer no meaningful solutions. Costly emissions regulations to mitigate global warming will not solve the world's major problem and could actually cause a reverse in the world's temperature gauge. But investment in simple, straightforward solutions, such as clean drinking water, sanitation, basic healthcare can, for a fraction of the cost. These investments will provide a significant economic boost to developing nations, enabling them to adapt to any climate change, whether it is cooling or warming. These countries could flourish without suffering the financial devastation caused by drastic, unwise carbon-reduction policies, promoted through skewed political agenda. I am looking forward to the discussion today. I do have to step to another meeting, Mr. Chairman. I yield the balance of my time.

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Mr. BOUCHER.

Thank you very much, Ms. Blackburn. The gentleman from Texas, Mr. Gonzalez, is recognized for 3 minutes. The gentleman waives his opening statement and will have 3 minutes added to his questioning time. The gentleman from Washington State, Mr. Inslee, is recognized for 3 minutes. He also waives his opening statement. The gentleman from Louisiana, Mr. Melancon, is recognized for 3 minutes.

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Mr. MELANCON.

Thank you, Mr. Chairman. I appreciate you holding this hearing. I come from south Louisiana, and we have one of the fastest sinking coastlines in the world. When we hear of the cost of climate change legislation, it is easy to forget what it will cost to do nothing. The State of Louisiana has crafted its own impressive master plan to determine how best to protect our communities, and the infrastructure that supplies some 30 percent of oil and gas, flyways for the migratory bird, and the nation's seafood. Our master plan calls for close to $60 billion in hurricane protection and costal restoration. Imagine these costs after decades of inaction, leading to higher sea levels and stronger storms. We are just one state in one country. The detrimental effect of climate change affects the entire world, oftentimes hitting the poorest countries the hardest. I find it ironic that last night there was a report where the EPA sent to the White House several years back compelling evidence of climate change and global warming and the White House chose to not open the email, but in fact just sat on it. I think that this information could have helped compile additional data which would help give him a better view of what is going on. I want to thank him for being here today, again, I thank the chairman, and hope that we have some information that can help us ferret through his whole process. Thank you.

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Mr. BOUCHER.

Thank you, Mr. Melancon. The gentleman from Texas, Mr. Burgess, is recognized for 3 minutes. REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

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Mr. BOUCHER.

Thank you very much, Mr. Burgess. The gentleman from Georgia, Mr. Barrow, is recognized for 3 minutes.

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Mr. BARROW.

Thank you, Mr. Chairman. I want to thank you for having this hearing, and I want to thank the witnesses for participating in this hearing. I detect a certain pattern in the almost two dozen hearings this committee has had over the course of this last Congress on this subject. We seem to get the sobering facts as to whether or not there is a problem and whether or not we are contributing to the problem and need to do something about them. And then the folks who know the most about that receded and they start talking about the constituents and the economy at large about what to do about it. Folks tend to fall off the wagon. They tend to get back on some ideas about whether or not there really is a problem or not. I don't know whether or not short-term swings in our environment with historical record that were characteristic of a carbon balance, a carbon cycle that was in balance for a much longer period of time than those short-term swings, is any indication that things are fine today. I do know this: if the same causes can produce dramatically different results, and each is very disturbing and disquieting, then we ought to be addressing these causes. And I think I know something else. God Almighty had a carbon sequestration of his own, millions and millions of years of biomass sequestered in the Earth, under his good time, under his good purpose, and we are busting that carbon-sequestration program all to Hell in the last couple of years. We have made dramatic changes in the carbon cycle that we have inherited, and we need to recognize that. It is not the wonderful self-regulating miracle that I was taught in elementary school because we have been doing things to alter that dramatically, and I just hope we will stay focused on the reality that there is a problem, we are contributing to it, the fact that it can produce dramatically different and dramatically unpleasant consequences is no indication that we have a problem on our hands and we have to deal with it. So Mr. Chairman, thank you for your leadership and keeping us focusing on the mission of this committee and what we are all about here, and with that I yield back the balance of my time.

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Mr. BOUCHER.

Thank you very much, Mr. Barrow. The gentleman from Texas, Mr. Barton, the ranking member of the full committee is recognized for 5 minutes. REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

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Mr. BARTON.

Thank you, Mr. Chairman. I am delighted to have this hearing. I think it is important to put as many of the facts, or at least what people perceive to be the facts, on the record as possible, and I think you are doing an excellent job of that. I am very pleased to see the witnesses that here today. I have read abstracts and summaries of some of their material and hopefully will have some time to ask some questions, especially our first witness. I am going to focus on some of the methodology questions, and I still think that you can have an honest debate about the science, and I will have a little bit of that. I tend to agree with what my good friend from Georgia just said. I don't quarrel too much about what he said about the carbon cycle being disrupted. I mean it is obvious if you are bringing hydrocarbons up from down in the Earth that were deposited hundreds of millions of years ago, that you put more carbon into the atmosphere than we would otherwise, and that is a fact. You have got to admit that. I think you can debate the impact of that. So I am glad to have witnesses. I am glad to have some of them talk about their methodology and the science and the consequences. I think we will have a good hearing, and it will continue to build a record that this committee is noted for doing over the years: let us get the information before we decide on the solution. With that, I yield back.

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Mr. BOUCHER.

Thank you very much, Mr. Barton. The gentlelady from California, Ms. Harman, is recognized for 3 minutes.

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Ms. HARMAN.

Thank you, Mr. Chairman, and welcome to our witnesses. I am pleased to participate in yet another careful learning experience on this subcommittee. It is important that we have as much information as possible before we go forward. In that connection, I want to commend Mr. Burgess for his opening comments, and I look forward to reading the rest of them that he inserted in the record, because I think he pulled together a lot of material that this subcommittee needs to think about. An area he mentioned that I am most keenly interested in, which is not in the sweet spot of our jurisdiction, but nonetheless a critical issue for us as Members of Congress, is the national security implications of climate change. Yesterday, the House Intelligence Committee, on which I no longer serve—I did serve there for 8 years—received a National Intelligence Estimate on the relationship of climate change and national security. It is a very important subject. Careful work is finally being done. There is absolutely no question of the effect on immigration and on food and on stability of governments caused by dramatic climate change. We need to learn more about it, and at least to this member, we need to act as promptly as we can, responsibly, on this issue, because destabilized governments and massive famine and huge changes in immigration patterns are bad for our short-term, let alone longerterm security. So I appreciate the fact that that is part of this conversation. I also want to say that a witness on the next panel, Sherri Goodman, from the executive general panel—she has got a lot of different titles in this memo that I am reading—but at any rate, connected to CNA, is someone I have known for a long time, and I think she brings great expertise, and I think our subcommittee will benefit from her testimony. And once again, Mr. Chairman, this is an activity we do need to explore in this committee. It gives us a fuller picture of the context in which we legislate. I believe we can add some real value. I believe that the bipartisan tradition of this subcommittee will help us add value. And just based on the opening comments this morning, there are some very interesting bipartisan comments. Thank you, I yield back.

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Mr. BOUCHER.

Thank you very much, Ms. Harman. The gentleman from Illinois, Mr. Shimkus, is recognized for 3 minutes.

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Mr. SHIMKUS.

Thank you, Mr. Chairman. I want to welcome, also, our panelists. This is a great committee, because the members do their homework. They are very diligent, so we are going to ask hard questions, hopefully, and we shall get hard answers back, and I think it will help us through the process. I have great respect for the chairman of this, and the full committee, with their challenging work ahead. I like to keep things light a lot of times, but this is a pretty heavy and a deep subject for many of us. A big picture, I do feel that there is—I am a Republican, so I am not using an elephant for that—but one of the elephants in the room is there a worldwide movement to have a centralized standard of living around high energy prices and environmental policies? I actually do believe that there are a lot of people who like high energy prices, and I do believe there is a movement to equalize the world standard around living in the same sized homes, driving the same sized cars, consuming the same type of food, and that is really antithetical to the great American mindset of westward expansion, explore discover, work hard, keep the benefits of your home. So there are people who love these high prices, and if they are out there, they are going to love even higher prices. We have established in this committee that climate change legislation will increase costs. This is looking at the other end of the debate. But we have established that at the last hearing we had. The first panel, I asked everybody on liquid fuels, and they all said, yes, higher costs; electricity generation, they all concurred, higher costs. The cost on this end of what it does to the poor in the rural areas of the world is the cost-benefit analysis that we are going to have to discuss and work through. I tend to be a promoter of the industrial revolution, the great benefits, and how it created a great middle class. In fact, Chairman Boucher and I sat across the table with a major Chinese official. He was asked twice, would you ever go into a climate change agreement, and they said no. And their response was you had your chance to modernize and develop a middle class using fossil fuels. Now it is ours. That type of mindset, no matter what we do in the industrialized West will never fix and cap carbon, so that is all part of the cost-benefit analysis, for the small, the poor, the middle class, rural American, and climate change will be devastating to them.

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Mr. BOUCHER.

Thank you very much, Mr. Shimkus. All members have now had an opportunity to make opening statements, and we welcome our first witness to the hearing today. Lord Nicholas Stern is the IG Patel Professor of Economics and Government at the London School of Economics and Political Science. He serves as an advisor to the United Kingdom government on the economics of climate change and development, and is author of the Stern Review on the Economics of Climate Change. His report has been authoritatively cited in the United Kingdom and elsewhere, and we are very pleased to welcome him this morning and to receive his testimony. Without objection, your prepared written statement will be made a part of the record, and we would welcome, at this time, your oral summary. FBA, IG PATEL PROFESSOR OF ECONOMICS AND GOVERNMENT, LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE

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Mr. BOUCHER.

Another minute or two would be fine, Lord Stern.

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Mr. STERN.

That is very kind. Thank you very much, Mr. Chairman. The cost of action: 1 or 2 percent of GDP, around 1 percent if we try to control at 550 parts per million as the eventual stabilization, a bit more, say 2 percent, if we try to control at 500. Others have confirmed these estimates since the Stern Review was published, International Energy Agency, McKinsey, the Potsdam Institute on Climate Change. Quite a few studies have pointed quite strongly in that direction. But I do want to emphasize that these cost estimates require good policy. This is a market failure. We have to fix the market failure. We have to rely on the markets. This isn't just about control. It is about making markets that are failing, work better. That is why people discuss a carbon tax. It is fixing a market failure. That is why people discuss cap-and-trade. It is fixing a market failure, and relying on the markets to give us efficient outcomes. Good policy means making it clear to people where we are going so those in the private sector who have to make the long-term investments have the time to adjust, have the time to reject their replacements to adopt the new technology. There will be many gains to offset against this cost. I have already mentioned, biodiversity, energy security, and so on. We will have new markets for these new technologies which could well trigger an exciting new set of opportunities for investment. We do have to encourage technologies. We do have to invest strongly, public and private money in technological development, but we can do a great deal with the technologies which we recognize now or can develop quite quickly. Competitiveness is, of course, an issue, but 1 or 2 percent on your cost doesn't destroy your competiveness when you have got relative wage rates of 5, 10, 15 times that of some of the competititors. It is good productivity that overcomes those kinds of costs. It is like a one-off, 1 or 2 percent increase in prices. Some industries, it is more difficult, and direct action there will of course be important. Now, finally on the global deal, and I can only say a word or two here and leave the rest of this for questions, but let me emphasize very strongly that acting on development, acting on world poverty, and acting on climate change come together. If we don't act on climate change, we will derail development. If we try to act on climate change in a way that undermines development, we will never get a global deal. We will never work together. So the world is now looking to the United States of America. I do believe that the big countries of the developing world could make a big response if the United States takes the lead now. I am more than happy to ask questions and answer questions as to just how that might happen. Thank you very much for your indulgence, Mr. Chairman. [The prepared statement of Mr. Stern follows:]

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Mr. BOUCHER.

Lord Stern, thank you very much for that very thoughtful testimony and for expanding this subcommittee's understanding of the costs of climate change, both the cost of acting and also, important to your points, the costs of not acting. You note in your report that fossil fuels, by the year 2050, will continue to comprise a very large portion of the world's energy supply. In fact, I think you estimate that fossil fuels, collectively, will remain at more than 50 percent of global energy supply. And in view of those realities, how important do you believe it is that carbon-capture and -sequestration technologies be developed as part of an overall strategy to control greenhouse gases?

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Mr. STERN.

Basically, economists do believe in the market mechanism. I think it is important to get the incentives right and let the market come up with the best technologies. But I do think that carbon capture and storage for coal, in particular, is of enormous importance. Coal is responsible, around the world, for 40 or 50 percent of electricity generation. India and China, countries growing very rapidly, will be using about 80 percent coal for the next two or three decades, probably longer, for the good reason that they have it themselves. They are not dependent on outsiders. And at the moment, it is quite low cost, and of course, important to them, they can use it very quickly, and speed is of the essence. So we know that coal is going to be used. Some people might wish that it wasn't, but it will be. So it seems to me that wise policy is to act on what you see to be the reality, not to wish the reality as something different. Within 7 or 8 years, if we as a world develop, say, 30 carbon capture and storage plants for coal, you need a spread of these things, because there are different kinds of coal. There are different kinds of geology and so on. But we could, as a world, get those examples up and running quite quickly, within 10 years, and that would give us the examples that we need to test out whether this very promising technology is really going to work on scale. If it doesn't work on scale, then the problem is going to be much more difficult. But I think the indications are that it really could work on scale.

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Mr. BOUCHER.

Thank you very much. You mentioned in your testimony the importance of international collective action to address the global problem of greenhouse gas emissions, and I know that in the course of your work, you have had extensive conversations in developing countries and China, and perhaps most of the point of this question in India. I understand that you have had extensive conversations with the Prime Minister of India concerning these matters. My question to you is how important is action by the United States to establish a mandatory problem to control greenhouse gasses, as a motivator for corresponding action by the major developing countries, China and India. What kind of response do you think we could expect from those countries, once the United States by its own example has controlled greenhouse gas emissions through a mandatory program here?

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Mr. STERN.

I am much more optimistic, Mr. Chairman, on a strong response than I would have been 2 years ago. I have been working in India for 35 years and living there for quite extended periods. Both on policy and in rural areas, I have been working and living in China for nearly 20 years on and off. Two years ago those countries would have said you rich countries caused this problem with your high-carbon growth in the past. Seventy percent of the greenhouse gasses are down to you. You sort it out. They, now, I think see this in a very different way. That resentment is still there. It is a political reality that we all have to recognize, but they say it in a different way. In 2050, 8 billion out of the 9 billion people that there will be in the world, will be in the currently developing countries. We hope many of them, of course, are better off by then, but they will be in the currently developing countries. They realize that you can't get action for a world of 9 billion just through the action of the 1 billion in the rich world. It just obviously doesn't stack up. So they realize that the world is shaped by their actions looking forward. They recognize very clearly just how vulnerable they are. The major rivers of Asia, just to give one very important example, rise in a few hundred square kilometers of the Himalayas. The glaciers in the Himalayas have retreated about 15 percent in the last 40 years. No surprise, the floods in Bahia in India last year were record floods on a scale never seen before. The Chinese people and authorities are very much concerned about the way in which the water behaves in their great rivers, for example, the Yellow River and the Yangtze. Much of China is struggling with problems with transferring water from South to North, and for them the disruption of the flow of the Himalayas is the big issue. Many cities, of course, in India and China are on the sea and vulnerable to sealevel rise and to the increased intensity of typhoons. This is a very clear indication to them that they are vulnerable. So they recognize, first, that they are 8 billion out of the 9 billion of people in the developing world, second that they are vulnerable, and third that they are potential deal-breakers, which they are. So if you put those three things together, it really focuses the mind. And China is already taking quite strong action. It is reforesting. It is not deforesting. You can't sell an American car in China. It doesn't satisfy the emissions requirements. China has an export tax on energy-intensive industry, equivalent to roughly $50 a ton of CO2 equivalent, since the end of 2006. It has a 5-year plan of 20 percent reduction targets for energy-to-output rations. But it is still opening one or two major coal-fire stations every week. But I think we have to see, as it were, a growing understanding of this problem and the challenge. India is about to publish its climate change action plan. It should be out in the next week or so. And I have talked at some length with the Prime Minister and the head of the planning commission, the Finance Minister, and the Minister of Science and Technology in India on those issues. I spent an extended period there in March and April. They are very much concerned with those issues. I think it is fair to say that India is a bit behind China in understanding and action, in a very broad sense, on these issues, but changing very fast in both countries. But that resentment that I described at the beginning is still there and it won't go away. So I think we have to see this as a whole package, respect the people that we are talking to as a rich world, just as when I am in China, I try to explain the great strides United States is making in technology, for example. So my own assessment is that the probability of response is much higher than it was a couple of years ago. If we all approach this in a collaborative way, then I think the response could be very large. But it is absolutely clear that the world is looking to the United States for leadership on this issue.

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Mr. BOUCHER.

Thank you very much, Lord Stern. The gentleman from Michigan, Mr. Upton, is recognized for 5 minutes.

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Mr. UPTON.

Well, thank you, Mr. Chairman, and I appreciated your testimony, Lord Stern, and I too am one who wants to see us reduce greenhouse gas emission, and I think as a Nation we have made some pretty good strides proving that it is not business as usual over the last couple of years. I would note that Ms. Harman and I passed successful legislation, enacted last year, that is going to change light bulb standards for the entire United States. We are going to phase out the 100- watt incandescent bulbs. And let us say for the record that those bulbs are already being built and are already in our stores and are without mercury or lead, a great stride by a number of manufacturers, and they happen to be making them in America, which I think is a really good thing. I am from Michigan, which you may know is called the Auto State. Mr. Stupak and Mr. Dingell are members of committee, and myself, are all from Michigan and made a pretty tough vote last year to increase mileage standards for automobiles, and we saw that happen for the first time since the '70s. There are a number of us on this subcommittee, certainly including chairmen Boucher and Dingell and others, Barton, on promoting nuclear energy. As you know, our about 20 percent of our Nation's power is generated from nuclear. We know to address our energy needs by the year 2030 we are going to need to put online more than 50 new reactors to just maintain that 20 percent. We want to see that happen. We also know that we have to address the issue of waste, and I think you are going to be seeing, I hope, some bipartisan legislation moving in both the House and Senate, long term, that can deal with that. We have seen changes in appliance standards, not only in electricity, but also on water, housing standards. We need to renew the R&D tax incentives for wind and solar, and I actually believe that we come to an agreement on a renewable portfolio standard that makes sense in this Nation, which we were not able to do this last year. I have a plant, a company in my district called Eaton that is developing a new hybrid engine for diesel vehicles. And as an example, this last year I saw, whether it be a Fed-Ex or a UPS truck, they believe it can save literally a thousand gallons of diesel a year on the mileage they usually drive. So we are making some good steps. You talked a little bit about carbon capture and sequestration. and others, are promoting a bill that will literally generate a billion dollars into a fund to make sure that we can see that technology come about and help the coal industry across the country move forward. Earlier this week I sat down with Lord Turner who I think you know is developing a plan by December 1 to show where the U.K. is to hit the various targets by 2020, 2025, 2050. I know our subcommittee is anxious to see that report, see how the U.K. intends to meet the targets that it establishes and what that political reality will be. I will ask you a question, as you spent extensive time in both India and China. The hearings that we held last year I don't think telegraphed very well what those two countries intend to do. To summarize, I would say that the gentleman from India said that it would in essence be political suicide for them to put on any new controls in the generation of electricity. Coal, as you noted, they are putting a new coal plant online literally every week in China. Where are we in terms of what you think the political reality is of both those two countries as it relates to climate change? Is that clock moving too fast?

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Mr. BOUCHER.

You are doing that.

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Mr. UPTON.

Let me stop and let you respond to that, and then, I guess I am going to be out of time.

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Mr. STERN.

Thank you very much. The potential in the United States for technological progress all of us non-Americans have great respect for. We will still have cars as we go to 2050 and we try to cut back on carbon emissions. We will still have electricity, but we have electricity which is generated in a close to zero-carbon way, and we will have cars, which in large measures, are run in other ways than fossil fuels, whether it be electricity from zero-carbon electric sources, whether that is stored as hydrogen in some shape or form. And I am confident that those kinds of technological advances can be made quite quickly. France went from very small to around 75 percent nuclear in about 20 years after the oil-price shocks. The Brazilians, whatever you think about ethanol from sugar, the Brazilians went very quickly to all of their cars being flexible as to which kind of fuel that they can use, and if you go to a Brazilian gas station, it is like going to a bar. You choose whatever pump you want, and you have got a big choice of what you drink or what you put in your tank. So they developed the cars, the infrastructure, the techniques, very quickly. Big parts of Germany, in a period of 5 years, have gone to 50- percent wind, and I understand that wind in this country is very, very prominent in new investment in electricity generation. Some of these things with the right kind of support for technical progress with the clear signals from government about where the economy is going can get very rapid responses. So it sounds sort of dramatic to talk about close-to-zero carbon electricity, close-tozero carbon transport by 2050, but that is 40 years away, and we can also already see, as you have described, the kind of technologies that might be used. I think we have to have a very open mind about those technologies. It would not make sense to rule out nuclear, carbon capture, and storage for coal, ethanol, or whatever. We have to find the best ways, and we have to do it in a way that fits with the market and is also socially responsible. On India and China, the public face is often the negotiating face, and the political realities that our friends from India and China pointed to are political realities. That is why it has to be a collaborative response. My friends in senior decisionmaking bodies in the planning commissions now say to me, look, Nick, you have got my cell phone number. Just as soon as that carbon capture and storage plan is working in the U.K., give me a call and we will go and visit it together, and then we will talk about whether we, in India, should be using carbon capture and storage, how you are going to help us with the technologies, whether you are going to allow carbon markets that allow us to sell you the carbon reductions. That is why I think it is so important, the advance of technology in the rich world, and the political realities throughout the world, that we push ahead with these technologies as rapidly as possible. The only one I underlined was carbon capture and storage for coal for the reasons I described before. I think we have to push ahead with all of them. But if we do that, if we show strong targets ourselves, we show low carbon growth, we show the sharing of technology, and we involve the whole world in the carbon markets so the reductions can be done where it is as cheap as possible, then, I think that we will get a big response. And if we commit ourselves to that path, I think we will get a big response.

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Mr. BOUCHER.

Thank you very much, Mr. Upton and Lord Stern. The gentlelady from California, Ms. Matsui, is recognized for 5 minutes.

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Ms. MATSUI.

Thank you, Mr. Chairman. Lord Stern, you describe greenhouse gas emissions as the biggest market failure the world has seen, and I ask you as an economist, if we address this failure by applying a price to carbon, how can we best make sure the price is felt by those most able to adopt the necessary corrections, while not punishing those unable to afford it?

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Mr. STERN.

It is clear that if you ration by price, then the people who are poorer find it more difficult than the people who are richer. That is true, whether we think of apples or cars or greenhouse gas emissions. So what do we conclude from that? We conclude that governments have to think about efficient markets to fix this very big market failure, and they have to think about the distribution policies, the tax and transfer systems, for example. So I think the right way to attack poverty and changes in the poverty is through the tax and transfer systems, not by distorting the markets. So I think we have to do both. Fix the market failure, and think about the distributional aspects of all government policies, not just this one. And we also have to get, I think, a fix on the size of the problem. Forty dollars per ton of CO2 is the kind of ballpark that would promote many of these technologies. It is equivalent to about 40 cents on a gallon of gasoline. Now, that is significant. It is not small. But neither is it big, relative to the kind of increase in the price of gasoline we have seen. So I think we must in our polices recognize the distributional implications. The right way to do that is not to abandon pricing. It is to think through, as we do every day in making public policy, about our tax and transfer systems.

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Ms. MATSUI.

You touched on developed countries, and you described some of the ways of how countries might take leadership on the issue of climate change. As you see from your interactions around the world, and you addressed it to a certain degree about how, for instance, India and China have basically said they are looking to us, but also being very resentful of what we are not doing, in essence. Do you see a situation where the developing countries and the United States might have a situation where we are able, in essence, to look broadly? We are looking at market things in this country, but across the world, in essence, because we are counting many problems in as far as balancing this out, that we could take one country or two countries and establish some sort of relationship where we can actually come to some sense of what we are doing and what they are doing and try to address some of the basic concerns we might have. I realize that is very broadly speaking, but it seems to me that we are always looking at China and India. Maybe we should look at India to see what their concerns are and what our concerns are and move forward on maybe one aspect of that. I always like to see where we can find some commonalities, where we can find some things that we agree on, and have the other things that we disagree on put to the side of it. Can you see in your travels and your interactions what we might be doing with, for instance, India?

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Mr. STERN.

I think the collaborative spirit that you describe is of enormous importance, and it would get a good response. Just to give you one example of the way in which Indian thinking has developed, the Prime Minister, last year, around the G-8 Summit which took place in Germany in June, indicated that India, in terms of emissions per capita, would never be above the OECD average. So that was actually saying, well, let us put history to one side. Let bygones be bygones. Our emissions per capita will never be above yours. Now, India is currently around two tons per capita. Europe, just to take that example, is 10 to 12 tons per capita. Europe will probably be down to seven or eight sometime before 2030, and India could be close to that without much strong action by them. So it is an indication that that offer that was made is one that actually becomes directly relevant quite soon, because you can't turn down in a moment. You have to plan ahead to turn down. So I felt that that was one example of openness on quite a major scale from India, which is essentially saying bygones are bygones. We do feel strongly about them, but let us look forward. Let us act together. Technology, I think, is an absolute key area of collaboration. I think collaboration with both India and China on carbon capture and storage for coal would be one example that is extremely important. But they will be looking to the rich nations to do some proving first, as well as trying things out in those countries. But we have to set that in the context of a global deal. This kind of collaborative behavior in the specifics is terribly important, but we have to keep our eye on the global deal, and we have not got much time, because that needs to be settled in Copenhagen at the end of next year.

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Ms. MATSUI.

OK, thank you, Lord Stern.

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Mr. BOUCHER.

Thank you, Ms. Matsui. The gentleman from Texas, Mr. Barton, is recognized for 5 minutes.

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Mr. BARTON.

Thank you, Mr. Chairman. This is our week for British Lords. We had Lord Reed on the oil speculation hearing on Monday in the Oversight Subcommittee, so we have had two Lords in one week. I guess that is a good thing. Anyway, we are glad to have you. Lord Stern, you said in your introduction that you are here as an academic, and I accept that your academic credentials are impeccable. I do think, though, that it is fair to point out that in your nonacademic endeavors you have economic interests that benefit if we adopt some of these carbon-reduction methodologies in the United States and worldwide. Is that true or not true?

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Mr. STERN.

I work one day a week as a special advisor to the chairman of HSBC on climate change and development issues, and I work half a day a week as vice chairman of the IDEA group, which is looking at carbon market ratings, so that is the involvement.

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Mr. BARTON.

And those are good things. I am not being negative, but you would tend to benefit, financially, which is not a bad thing, if some of these things that you predict, if we implement policies to try to prevent some of the things that you predict from coming true.

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Mr. STERN.

I am getting involved in things which I think are very good ideas. I have described exactly what my interests are.

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Mr. BARTON.

Totally acceptable. I just want the record to show that you have economic interests outside of the academic interest.

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Mr. STERN.

They are indeed on record in the House of Lords.

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Mr. BARTON.

I understand that. Now, I want to ask you about this 5 degree centigrade increase from preindustrial levels. The first question is just very, very mathematical. What is 5 degrees in Fahrenheit? Is it about 10 degrees?

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Mr. STERN.

No, it is 9. Multiply by 9/5.

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Mr. BARTON.

OK, 9 degrees. Now, what is magic about preindustrial level temperature? Is the assumption that is the perfect temperature?

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Mr. STERN.

Not at all. I was trying to describe—should I ignore this?

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Mr. BARTON.

We are not trying to irritate you. That says we have got a series of votes.

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Mr. STERN.

I thought it might have been something I said.

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Mr. BARTON.

No, sir.

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Mr. STERN.

There is nothing magical about preindustrial times. It is just a marker against which you can measure change. So when I was talking about 5 degrees centigrade above preindustrial times, I was saying imagine a world at that particular temperature, what does that world look like?

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Mr. BARTON.

But you are not stipulating that that is the perfect temperature?

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Mr. STERN.

Not at all, no.

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Mr. BARTON.

OK, now, is 5 degrees centigrade or 9 degrees Fahrenheit increase universal? I mean are we going to have temperatures increase 9 degrees Fahrenheit in southern Virginia and also in northern Wales, or does it vary around the world, and is the impact identical, or is there a different impact in certain regions?

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Mr. STERN.

There are different impacts around the world. These global averages across land and sea, so one difference would be you would expect rather bigger increases over land than over sea. You would expect bigger increases toward the poles, for example. You would see very differential impacts. Some parts of the world would dry right out. It seems that Southwest Africa is drying out, and the eastern part of Africa is getting wetter.

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Mr. BARTON.

But is it fair to say that assuming there is a temperature increase, and I will stipulate that we have certainly proven that there has been a temperature increase, that the temperature difference is going to vary by region and the impact is going to be different by region. Is that a fair statement?

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Mr. STERN.

It is a fair statement, but it is also important to recognize that the impact of temperature increases are largely through water in some shape or form—storms, floods, droughts, sea level rise—and that is dependent on the whole structure of the planet's atmosphere. You can't look at the impact by just looking at temperature in one place, but there is no doubt that that will vary by place.

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Mr. BARTON.

OK, now I am down to 3 seconds, so my next question: the economists that have criticized your economic analysis, which I stipulate that you are an expert—I am not casting any doubts about your economic background—have primarily centered on two things. They have centered that you either had no net present-value-discount rate, or if you had one, it was very low; and number two, that most of the negative consequences in your own work are fairly far out, if I remember correctly, after 2200, and if you had the proper discount rate, the net present value of that today wouldn't be nearly as large as you show it to be. Can you comment on those criticisms of your economic methodology?

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Mr. STERN.

Certainly, the attitude that we bring to the evaluation of benefits in the long term, relative to benefits now is clearly a key issue here, because precisely the way in which I opened up my testimony and much of what we have done in the past is going to determine what happens in the next 30 or 40 years, so our actions now have the consequences, and I have argued very big consequences, rather further down the tracks. It is quite clear from the logic of the exercise that the way you treat future consequences relative to consequences now is very important. It is not true to say there was no discounting. That is simply false. What I did not have, and gave explicit arguments for, is pure time discounting. Now, this is a technical subject, but I would like to try to explain what pure time discounting means.

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Mr. BARTON.

You have got my permission. I am all for being technical. I love being technical.

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Mr. STERN.

Let me try to explain it without being too nerdish and heavy. Suppose we had a pure time discount rate of 2 percent. That would mean that if you run that forwards, say, for 35 years, it would mean that we would give a weight to somebody born in 2005 half of that of somebody born in 1970. Given by assumption for this part of the argument that we suppose they have exactly the same pattern of consumption over their lifetime, it is not an issue of one group being rich or one group being poor. Pure time discounting is actually to discriminate by date of birth, to attach directly lower weight to somebody born in the future, and 2 percent per year is big. It means half the weight. So those of us who have children——

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Mr. BARTON.

But that is what we do in most economic analysis.

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Mr. STERN.

No, not necessarily. We discount in many ways because we think that future generations will be better off than we are, unless we take the ethical view that an increase in a real dollar to them, forgetting about inflation, would be worth less than now to us because they are richer. That is central to the analysis of the Stern Review. It also means, of course, that if we take action now to make that generation much worse off, then on that logic, we should have a higher weight on an extra dollar that occurs to them. So what that underlines is we have to think through those ethical issues, because what we are dealing with is changes in the long-term future, and very big changes. And this is the second technical point I would like to make about discounting: discounting usually refers to small movements around the path. In other words, you build a bridge. It costs you a bit now. It gives you benefits down the track. And you try to compare the cost now and the benefits down the track. But essentially, you have not rewritten the American economy or the British economy. It is a small change from the perspective of the economy as a whole. This is not such an issue. This is an issue about very big differences, potentially in growth rates, and very big risks, and you have to build that directly into your analytical framework. Now, there is a third point here, which is also technical, which is this not about simply an aggregate consumption good. We are talking about environment and other sorts of consumption, and there are many more dimensions that we should think about. What we are talking about is we hope rising consumption, we hope, and you would discount for that reason. But you may also, and we fear, have strongly deteriorating environment. If you then said, well, I could invest in things other than climate change, and as to when these problems manifest themselves, I am going to spend the money, the returns on that investment, in sorting out those problems when they happen, what would you find? You would find that the price of taking action would have moved up against you very sharply for the kind of reasons that I described. So a third logical problem, an error that many people have made in this analysis, is to see this as just a one-good problem, as opposed to key aspects of the problem having different goods. Now, I am sorry to have been slightly technical. And the paper, the American Economic Review, that was published in May of this year is even more technical. But I did want to explain that these issues have their complexities. We can tackle them. But I also have my view that some of the discussion in the literature has not really recognized the big studies, analyses, and literature on this issue, and has taken a very simplistic approach.

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Mr. BARTON.

My time has expired. I want to commend you for trying to be technical and trying to quantify. I happen to disagree with your methodology, but at least you have attempted to put it into a substantive form that there can be a debate on. And I think that is very important because the consequences of actions that we are asked to take at the governmental level, both domestically and internationally, are huge. And so at least you have tried, using your economic background, to put some parameters on it. And while I disagree with the way that you have done it, I totally respect that you are trying to do It, and I commend our chairman for asking you to be a witness. And at some point in time, I would love to have off-camera, a very technical discussion with you because I think it would be illuminating, at least for me. Thank you, Mr. Stern.

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Mr. BOUCHER.

Thank you very much, Mr. Barton.

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Mr. STERN.

I would be very happy to have that. Thank you.

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Mr. BOUCHER.

The subject of discounting future harm to present value was sufficiently important that it was worth taking this extra time in order to illuminate it. We have a series of three recorded votes that are currently pending on the floor of the house. We have approximately 4 minutes for the members to respond to those. The response will take a little more than one half-hour. And as much as I regret having to recess the subcommittee for that purpose, and ask Lord Stern to stay with us, I am afraid we have no alternative. And so the subcommittee does stand in recess, pending the completion of the third vote, and we will reconvene immediately thereafter. [Recess.]

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Mr. BOUCHER.

We will at this time reconvene, and I am please to recognize, at this time, the gentleman from Texas, Mr. Gonzalez, for 5 minutes of questions.

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Mr. GONZALEZ.

Thank you very much, Mr. Chairman. Welcome, Lord Stern. We truly are appreciative of the insight that you provide us. A couple of observations, and I think I do want to stay, probably, in pretty general terms in my questioning to you. I think that one of the biggest challenges that you and others that believe as you do have when you come before members of Congress, especially the House of Representatives, is that we are simply hardwired to think in 2-year cycles. And if you can overcome that, and have us look beyond that, and sometimes political interests and such, you may be successful. Few people have been able to succeed in that. And it also seems that any of our efforts that we have initiated, even here on the Hill, and I will give you a couple of examples that you might find rather interesting, have been somewhat frustrating experiences. FutureGen, were you familiar with that particular project, Department of Energy and such? Well, it seemed we had a lot of competition for that. That was a way, obviously, that we were going to have coal-fired plants and such, sequestration, and capture and such. We gave up on that because of the cost. Here on the Hill, we have our own power plant, and we thought we would try to increase the use of natural gas to cut down on emissions, but if I remember, we operated about 42-percent natural gas and maybe increasing it all the way to 15 to 16 percent more natural gas. It is costing us anywhere from $1 to $1.8 million. And that is easy for Capitol Hill to absorb some of that costs for the obvious reasons, but if I went back to San Antonio and told my municipally owned utility to do the same thing, and that is utilize natural gas in a greater degree than they use now, and to pass on that kind of cost to the ratepayers, I understand that, politically speaking, that is a difficult thing to do. We try to buy carbon credits and such here on the Hill, because we think that somehow it is going to encourage better habits out there that will reduce carbon emissions, and we find out that it probably didn't change behavior at all. So we have some very real-life experiences here that have been somewhat frustrating. But on top of all of this is something that you observed, and I think some of the members here are very sensitive to it, and that is why the United States, why Great Britain, when we have the other countries such as India and China, in essence, saying, well, we are going to wait until you do it. And I know that you have advanced this basis and reason for discounting, present costs now, future savings later, which is a very difficult principal many times in the political arena, and I am going to agree with you. I really do believe that. The question to you is if we adopted certain of the practices that you are advancing that will demand tremendous investment by our government, maybe altering, to some degree, a lifestyle of the citizen, some sacrifice, some pain, and the same is true of Great Britain, is it an economic suicide pact to our people? Because that is basically what people are advancing to counter what you have to say today, what is the implication? How dire? How serious?

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Mr. STERN.

We have to be analytical, and we have to look at the difficulties. When you do look at the costs of cutting back, and you think about how to do it well, energy efficiency, of course, saves you money. Avoiding deforestation, if it is done well, need not be costly. Investing in new technologies, using the technologies we have better, that is, in very general terms, the kind of things that you can do. Some of them do save money. But many of them cost, and I and many others have to, as best we can, make an estimate of the cost of cutting back on emissions to a degree that would allow stabilization at 500 parts per million, and we, it is not just me, have come up with numbers around two percent of GDP per annum for stabilizing at 500, perhaps one percent of GDP per annum stabilizing at 550, if we have good policies. And there are quite a few ways to mess this up and make the costs higher. So I think the first attempt to grapple with your question, which is a very important one, is just to try to be quantitative about the costs, and in being quantitative, to be specific and realistic about the potential of different kinds of technologies. McKinsey's have done that since the report was published, the International Energy Agency in Paris has done a lot of work on that. The IPCC has done a lot of work on that. And we did try to do it ourselves in the Stern Review. So working bottom-up, looking at the kinds of measures you would have to take in cutting back on the scale that we described, those are the kinds of numbers that we came up with. Is 1 or 2 percent of GDP economic suicide? The answer is no. It is 1 or 2 percent of GDP, which is real resources, and I don't want to dismiss it or say it is insignificant. It is not insignificant. The argument is that it is a small insurance premium to pay relative to the risks you remove in the future. Or if you want to get quantitative about the costs of the inaction, it is relatively small relative to those costs. You have to be careful with words like suicide, but I think it is much more dangerous not to do these things than it is to try to do them. But policy matters enormously, and good policy matters enormously. I think that people will understand why it is being done, and I think that if you design these things in a way that, for example, return revenues from taxes or return auctioning of permits back to people in different ways, and you can concentrate those on research, you can concentrate them on compensating poorer parts of the population for the price increases, then, I think that you can put together policies that will make it easier to bring people along. But I do not think that an increase in cost of 1 or 2 percent, like a one-off, permanent increase in costs of 1 or 2 percent, I don't think that can be described as economic suicide. Real resources, resources that matter, but not economic suicide.

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Mr. GONZALEZ.

Thank you very much, Lord Stern, and I yield back.

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Mr. BOUCHER.

Thank you, Mr. Gonzalez. The gentleman from Kentucky, Mr. Whitfield, is recognized for 5 minutes.

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Mr. WHITFIELD.

Thank you, Mr. Chairman and Lord Stern. We appreciate very much your being with us here today. First of all, I wanted to make a comment about this New York Times article that talks about the European cap-and-trade system, and it said implicitly in 2006 and 2007, the first 2 years of operation of the European cap-and-trade system that CO2 emissions were higher than they were prior to that. So the purpose of the cap-and-trade system was to reduce CO2 emissions, and in fact, they have been higher. Would you make a comment about that?

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Mr. STERN.

The cap-and-trade system in Europe is young. The first phase ended at the end of 2007, and the second phase has already started. The price of carbon dioxide in the second phase now is around 25 Euros or $30 a ton.

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Mr. WHITFIELD.

Forgive me for interrupting. I don't want to be rude. We have these time constraints. But would I be correct in saying that, yes, the CO2 emissions were higher in 2006 and 2007 than they were before?

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Mr. STERN.

Yes, they gave away too many permits and that is one lesson which I think has been learned.

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Mr. WHITFIELD.

And you hope in the future that you will be able to correct those problem and be able to make the CO2 emissions less.

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Mr. STERN.

Yes, you can recognize the problems and see how to correct them: give away less permits.

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Mr. WHITFIELD.

Now, recently we met with a group of Chinese, and I know we had a lot of discussion about China and India, and they indicated that within the last 3 years, in each of the last 3 years, the amount of electricity produced in China from a new coal technology, producing electricity, new coal plants coming online in each of the last 3 years, exceeded all of the total electricity produced in Great Britain in each one of those years, which is an unbelievable figure. And I was just curious, in Great Britain, what percent of electricity is produced from coal?

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Mr. STERN.

The Chinese population is 20-something times that of the U.K., and it is growing very much faster, so that figure isn't particularly surprising. I don't have the U.K. coal figure in my head. I guess it is around 25, 30 percent, but I would prefer to communicate that later, because I don't have it.

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Mr. WHITFIELD.

Would you have any idea about Europe as a whole, what percent of all of Europe's electricity is produced from coal?

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Mr. STERN.

I am guessing 35, 40 percent. But again, I would want to be a little careful about that and would not want those numbers, particularly, on the record. I would prefer to come back to you.

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Mr. WHITFIELD.

The purpose of this hearing and series of hearings is looking at the costs of not doing anything versus the cost of doing something, and I was reading this article, they said you had quoted in your review Professor Richard Tol 63 times, who is supposedly one of the leading environmental scientists in the world, and he said that you really did overstate the damage of not taking action. He said that you really cherry-picked and picked the very worse choice out of every opportunity. And then Robert Mendelssohn, the economist up at Yale said that you were way too optimistic, that the cost of taking action to solve this problem would be only one percent of gross domestic problems. How would you react to their criticism?

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Mr. STERN.

I think both of those gentlemen are wrong. And when we worked out the cost of action, we did it in a bottom-up way, in looking at the different kinds of actions you could take, in carbon capture and storage, going into the future, wind and so on, renewables, and we built it up as best we can. Subsequent work, as I said, McKinsey's work, has actually come out pretty well where we have, so that is on the Mendelssohn criticism. I just have to refer you to the other studies after ours. On the Tol criticism: it is completely wrong. I have explained in my testimony why it was I think we underestimated. The emissions are growing faster than we assumed. The carbon cycle seems to be getting weaker. The absorptive power of the planet is less than we thought. I think that the idea that somehow we overstated that case by cherry-picking is shown by subsequent experience, analysis, and evidence to be completely false.

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Mr. WHITFIELD.

Well, you understand the dilemma that we are in. We get different views on the damages of not doing anything, versus the costs of doing things. Here in America, 52 percent of our electricity is produced from coal, and what is going on in China and elsewhere and most of these cap-and-trade systems are biased against coal. But one question I would like to ask you, what is your best guess as to when the technology will be available to have an effective carbon-sequestration program?

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Mr. STERN.

The answer for that is very much in our own hands, and if we are slow, then it will take much longer. I think the fastest we could get really strong evidence and experience and show what works and what doesn't on a commercial scale is probably 7, 8, 10 years, but only if we move ahead very strongly and get those demonstration plants at commercial scale up and running, and I think public money has to get behind that in order to share the risk and share the cost. It will be much longer if we don't get on with it.

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Mr. WHITFIELD.

And you do think it is absolutely necessary that we do it?

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Mr. STERN.

I do. It is a reality that coal will be used, and we have to try to use that in as clean, efficient, safe way as possible.

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Mr. WHITFIELD.

Thank you.

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Mr. BOUCHER.

Thank you very much, Mr. Whitfield. The gentleman from Massachusetts, Mr. Markey, is recognized for 8 minutes.

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Mr. MARKEY.

Thank you, Mr. Chairman, very much, and thank you, Lord Stern, for your outstanding analysis and your service to the planet. You are one of the world's great citizens. Thank you. You have worked to quantify the economic impacts of failing to address global warming, which are staggering. Can you expand on the human face of these costs? What do the impacts mean in terms of lives lost, human suffering, both in places like Africa and Asia, but also here in the United States? Can you put a human face on this?

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Mr. STERN.

It is difficult to put a quantitative human face, but we can describe the kinds of events and get a feeling for how big they are. I mentioned in the discussion earlier today the consequences of the retreating glaciers on the Himalayas for flooding in Bahia, where the death toll last year was very high. I am sorry I don't have the number in my head, but again, that is available. The potential consequences of the disruption of the North Indian monsoon would be really devastating to hundreds of millions of people in North India. A meter or so of sea level rise would be extremely difficult for cities ranging from New York to Cairo, Dhaka and so on, around the world. It is flooding, it is droughts, it is the intensity of storms and hurricanes. We saw in Myanmar recently the human cost of the recent typhoon, sadly magnified by the inappropriate reaction. It is these kinds of events which completely disrupt people. And ultimately desertifying, some parts of the world submerging, some parts of the world subject to uncontrollable floods, you would see massive movements of populations. The examples I gave at 5 degrees centigrade are about rewriting where people can live and the cost of that movement and the conflict that history has told us would likely ensue. That is the kind of human cost. You can talk about malaria and other water-borne disease and so on. You can talk smaller things like the need to air condition the London Underground. That is not to be a big deal, although it happens to be rather expensive. You can talk about the snows disappearing off the Rockies and what that means for California's water. There are a whole range of things like that, which are very important in human terms, but less traumatic than the ones I described.