Senate Hearing On International Aspects of Carbon Cap & Trade Program

Feb 14: The Senate Finance Committee, Chaired by Senator Max Baucus (D-MT), held a hearing on the International Aspects of a Carbon Cap and Trade Program, a subject that was also discussed in the recently release Congressional Budget Office report, entitled, Policy Options for Reducing CO2 Emissions [See WIMS 2/13/08]. The Committee heard testimony from: Senator Arlen Specter (R-PA); Senior Counsel, Environmental Defense; International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers & Helpers; Point Carbon North America; and VP Government and Environmental Affairs, Holcim, Inc.

In an opening statement, Senator Baucus said, "I believe it is a moral imperative to deal with climate change. We all have a basic duty to leave this world to our children better than we found it. But, as we address climate change, we must also strive to do so in harmony with economic growth. Establishing a cap on carbon emissions has the potential to affect the American economy. It could raise costs, especially for energy-intensive industries like aluminum and cement. We must strive to minimize the competitive disadvantage that these costs will place on America. We can do that by encouraging other countries to commit to their own carbon
reductions. In that way, we can level the regulatory playing field. And in that way, we can reduce the incentive for American manufacturers to move their operations and jobs overseas.

"Pending legislation attempts to safeguard American economic competitiveness through measures taken at the border. For instance, proposals require importers to buy carbon allowances for products imported from countries that have not made commitments to reduce greenhouse gases. Our trading partners are watching these proposals carefully. Our challenge is to craft
border measures in a manner that both meets our domestic priorities and respects international trade rules.

"Likewise, we can preserve American economic competitiveness by reducing compliance costs for Americans. As we design the American carbon market, we must provide opportunities for American industries to buy carbon allowances wherever they are available, not only in the United States. At the end of the day, climate change is a global problem. It requires a global solution. The solution that we develop must also provide incentives for emerging economies like China, India, and Brazil to join our effort. Their economies compete with ours. They cannot enjoy a free ride, while we bear the cost. . ."

Senator Specter commented that the Bingaman-Specter, Low Carbon Economy Act, S. 1766, and the Lieberman-Warner bill America’s Climate Security Act, S. 2191, that was reported out of the Senate and Environment and Public Works Committee [See WIMS 12/6/07], have provisions designed to address competitiveness concerns.

Specter said he had made three observations: "(1) First, while this is a developing and unsettled area, there are very good arguments to be advanced that the United States can apply measures at the border to ensure that imports are treated the same as domestic products in terms of the burdens and costs of climate change legislation. (2) Second, to the extent there may be uncertainty in how international rules will be applied, it only makes sense to interpret them in the manner that will allow for the most equitable treatment between imports and domestic products -- and that will thereby provide for the greatest level of environmental protection. (3) Third, to make U.S. climate change legislation effective and to garner public support, it is vital that the same burdens be borne both by imports and domestic products. If it is concluded that this cannot be done (whether for legal or other reasons), it may be impossible to make current climate change proposals work as intended and to actually have the effect of lowering global greenhouse gas concentrations. Therefore, the work being done by this Committee to consider and educate Congress about the trade and legal implications of climate legislation is vital if we are to make progress in this area going
forward. . ."

Holcim Ltd, with U.S. headquarters in Waltham, MA, a worldwide leader in the building materials sector, with over 150 million tons of cement and almost 200 million tons of aggregates supplied annually, testified that it had extensive experience with CO2 emission trading regimes with 27 cement production facilities in 10 countries in the European Union Emission Trading System (EU-ETS). Holcim said, "To be effective in reducing domestic and global carbon emissions, a domestic cap and trade program must contain provisions to avoid 'leakage of carbon emissions' to countries that either have no, or less stringent obligations. This can be achieved by adopting a system of equal rights and equal obligations for domestic producers and importers. . ."

The Environmental Defense attorney, who held previous positions as Assistant US Trade Representative for Environment and Natural Resources, under both the Clinton and Bush Administrations testified in 21-page of testimony that, "We can do this now. At this point in the debate, you’ve heard many arguments about why it’s impossible for us to act. Chief among them is the argument that the U.S. cannot and must not go forward without having secured caps on emissions from major developing nations. I will use my time before you today to rebut this assertion. The objective of national climate legislation is to create broad-based incentives for a new round of innovation in the economy away from high carbon content products to more efficient and profitable alternatives. We can design a U.S. carbon market that achieves our environmental goals while maintaining a level playing field for our companies and workers competing in the international marketplace and creating new market opportunities. . ."

Access the hearing website for links to testimony and opening statements as they become available (click here). Access a webcast of the hearing (click here). [*Climate]