[Congressional Record Volume 147, Number 112 (Friday, August 3, 2001)]
[Senate]
[Pages S8894-S8896]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]




                CAP AND TRADE APPROACH TO CLIMATE CHANGE

  Mr. McCAIN. Mr. President, I rise with my friend and colleague from 
Connecticut to express our concerns on a subject that is at the 
forefront of the many issues of global concern, climate change. The 
science surrounding this issue has come increasingly into focus, and 
Senator Lieberman and I believe that it is time to take action.
  Mr. LIEBERMAN. Mr. President, I also am pleased to rise to join my 
friend and colleague from Arizona, Senator McCain, in making this call 
for consideration of the development of an economy-wide cap-and-trade 
system to control our emissions of greenhouse gases. Senator McCain and 
I have been discussing the need to develop such legislation for some 
time, and upon our return from recess, we plan to discuss with leaders 
from each sector of our economy to discuss what commitments they can 
make to curb our growing problem of global warming without seriously 
harming our economy.
  At this point, I invite Senator McCain to comment on his views on the 
subject.
  Mr. McCAIN. Over the past year, the Commerce, Science, and 
Transportation Committee has held several hearings on the various 
scientific reports from the National Academy of Science and the 
International Panel on Climate Change, IPCC. These reports conclude 
that air temperatures are, in fact, rising. The IPCC report states that 
there is new and stronger evidence that most of the observed warming 
over the past 50 years is attributable to human activities. We continue 
to see throughout the world the melting of glaciers, the dying of coral 
reefs, and rising ocean temerpatures.
  The agreement reached last week in Bonn, Germany on the Kyoto 
Protocol means that the rest of the world is moving forward to address 
this important problem. Given the fact that the United States produces 
approximately 25 percent of the total greenhouse gases emissions, the 
United States has a responsibility to cut its emissions of greenhouse 
gases. The United States must realize that when it comes to the 
climate, there are no boundaries. Therefore, climate change is an 
global problem and must be resolved globally.
  The current situation demands leadership from the United States. In 
accordance with the agreement reached last week, there is going to be a 
world marketplace for carbon reductions, a marketplace that rewards 
improvements in energy efficiency, advances in energy technologies, and 
improvements in land-use practices--and we are running the risk that 
America is not going to be part of it.
  The risks that climate change poses for businesses have now 
increased. In addition to the risk of unpredictable impacts of global 
warming, and of unpredictable regulation of greenhouse gas emissions, 
American companies now face the risk of being left out of the global 
marketplace to buy and sell emission reductions.
  While U.S. businesses are gaining experience with voluntary programs 
and are recognized as the world's experts in

[[Page S8895]]

this area, they are increasingly recognizing that purely voluntary 
approaches will not be enough to meet the goal of preventing dangerous 
effects on the climate system. Increasingly, businesses confronting 
these risks see sensible regulation of carbon dioxide and other 
greenhouse gases as necessary and inevitable. Clearly, they prefer the 
cap-and-trade approach.
  In a July 23 editorial in the Wall Street Journal, a cap and trade 
program was discussed as one of the incentive-based market strategies 
that has been developed as an alternative to traditional fiat-based, 
``nanny-sez-so'' regulation. The editorial further states that `` a cap 
and trade program will result in more abatement from those firms who 
can do it at relatively lower costs and less abatement from those firms 
who can only do it at relatively higher costs. The net will be the same 
amount of overall pollution reduction, but achieved at lower cost than 
would obtain under traditional regulation.''
  As usual, industry is ahead of government in this area. Many 
companies have already started trading programs either within their 
company or as members of partnerships to meet pre-determined levels. 
Not only are these companies meeting their environmental goals, they 
are also realizing it on a profitable basis. We all know that improved 
efficiencies mean improved profitability.
  The 1990 Clean Air Act's acid rain emissions trading program for 
limiting sulfur dioxide has shown that there can be top-down limits on 
pollutants and not endanger the economy. The key is unleashing the 
power of markets to find the most innovative, cost-effective ways of 
meeting those top-down limits. That's what a cap-and-trade system does 
best. Deploying the power of a marketplace to pursue the least 
expensive answers is a unique and powerful American approach to the 
threat of climate change.
  In 1994, the Arizona Public Service (APS), an Arizona public utility, 
entered into an agreement with the Niagara Mohawk, a New York utility, 
and the US Department of Energy to swap carbon dioxide and sulfur 
dioxide credits. APS had reduced its sulfur dioxide emissions below 
levels mandated under the 1990 Clean Air Act. Niagara Mohawk had 
reduced its carbon dioxide emissions below the level of its voluntary 
commitment. APS exchanged its sulfur dioxide allowances issued under 
the Clean Air Act's acid rain program for Niagara Mohawk carbon dioxide 
emissions reductions that APS could then use to help meet its 
commitment to DOE to reduce greenhouse gas emissions. After receiving 
the sulfur dioxide allowances, Niagara Mohawk donated them to an 
environmental organization to be retired. The cost savings achieved 
through this plan were used to fund new domestic and overseas projects 
designed to create additional carbon dioxide reductions.

  However, we should not be deceiving ourselves. Designing a cap and 
trade system is not an easy task. Critical decisions will have to be 
made as to the design and implementation of such a system. These 
decisions will ultimately affect some industries more than others. I 
would hope that the government can work hand-in-hand with industry to 
make this happen should a decision be made to pursue a cap and trade 
program.
  A comprehensive cap on America's greenhouse gas emissions, paired 
with an allowance trading system, can encourage innovation across the 
full range of opportunities for reducing emissions. That would provide 
businesses with the regulatory certainty and flexibility they need to 
confront the climate challenge successfully. Industry has repeatedly 
said that if Government sets the rules, they will take them from there 
and make it work.
  Trading helps to establish a market value per unit of greenhouse gas. 
This can be especially helpful as corporate decisions are made on major 
investments in new technologies. The market value will allow them to 
make a real comparison by which to consider purchasing new credits for 
the markets or investing in technologies and capital improvements.
  We also have to recognize that the international system for 
addressing climate change is evolving. Only a few years ago, many of 
America's trading partners were reluctant to accept market-based 
solutions. But now they have embraced them, and the global marketplace 
for greenhouse gas cap-and-trade is beginning. A national cap-and-trade 
system could give America the business valuable experience they will 
need to remain competitive with other companies in countries where 
greenhouse emissions trading is moving forward. We can expand trade 
opportunities through a new marketplace for the environment.
  Given this developing international market, it also makes sense to 
ensure that what we do domestically can be integrated and recognized on 
the international level. Ultimately, we need to make sure that the 
emissions reductions our companies, our farmers, and our foresters 
produce are fully recognized and fully tradable in the emerging global 
greenhouse gas marketplace.
  I think it is clear that a cap and trade program is a good idea 
worthy of further consideration by the U.S. Senate. I look forward to 
working with Senator Lieberman and others who have expressed a 
willingness to consider this type of approach to address this problem 
of global climate change.
  Mr. LIEBERMAN. Mr. President, I am pleased to rise to join my 
colleague, Senator McCain, in advocating an economy-wide cap-and-trade 
system to control our emissions of greenhouse gases.
  I have been extremely troubled by the failure of our government to 
engage on this crucial issue. Last Monday, 180 nations agreed to take 
historic action against global warming by agreeing to the Kyoto 
Protocol. One did not. We are the one. I believe this failure abdicates 
the United States' position as a leader in environmental affairs and 
places U.S. industry at risk.
  We now have general scientific agreement that climate change is a 
problem we must face. Early this year, the United Nation's 
Intergovernmental Panel on Climate Change released its Third Assessment 
Report on global warming. According to this panel of expert scientists, 
unless we find ways to stop global warming, the Earth's average 
temperature can be expected to rise between 2.5 and 10.4 degrees 
Fahrenheit during the next century. Such a large, rapid rise in 
temperature will profoundly alter the Earth's landscape in very 
practical terms. Sea levels could swell up to 35 feet, potentially 
submerging millions of homes and coastal property under our present-day 
oceans. Precipitation could become more erratic, leading to droughts 
that would aggravate the task of feeding the world's population. 
Diseases such as malaria and dengue fever could spread at an 
accelerated pace. Severe weather disturbances and storms triggered by 
climatic phenomena, such as El Nino, could become more routine.
  As the IPCC report reminds us, this threat is being driven by our own 
behavior. Let me quote the scientists directly, ``There is new and 
stronger evidence that most of the warming observed over the last 50 
years is attributable to human activities.'' There is no doubt that 
human-induced emissions are warming the planet.
  After receiving the IPCC's dire report, the White House requested and 
received a second opinion from the National Academy of Sciences. The 
NAS confirmed the findings of the IPCC. Let me quote:

       The IPCC's conclusion that most of the observed warming of 
     the last 50 years is likely to have been due to the increase 
     in greenhouse gas concentrations accurately reflects the 
     current thinking of the scientific community on this issue . 
     . . . Despite the uncertainties, there is general agreement 
     that the observed warming is real and particularly strong 
     within the past twenty years.

  By going forward with the Kyoto Protocol even without the United 
States, the world has taken a giant stride forward in response to this 
pressing problem. That agreement will create a worldwide market in 
greenhouse gas reductions, using market forces to drive environmental 
gains. Unfortunately, because the United States did not participate, 
U.S. interests were virtually ignored in crafting the final deal. In 
the end, I believe that not just our environment but our economy will 
suffer as a result.
  For example, let's say a multinational corporation is faced with the 
need to invest in new, more efficient technology, and has the choice of 
installing it in the United States or overseas. Under the Kyoto 
Protocol, the corporation will be able to receive valuable credits for 
making those efficiency gains--and therefore reducing

[[Page S8896]]

its greenhouse gas emissions. Those credits will be worth cold, hard 
cash in the world market that will be established under the treaty. In 
contrast, the United States currently has no system by which the 
company will gain credit for the gains. The result will be that more 
efficient, more competitive technology will be driven overseas.

  The agreement in Bonn also has probably made millions of dollars in 
U.S. investment worthless. A number of our large corporations have 
invested heavily in forest conservation on the assumption that they 
would receive credit for these forests' ability to pull carbon out of 
the atmosphere. In Bonn, however--without the U.S. at the table--credit 
for forest conservation was written out of the agreement.
  After the agreement at Bonn, it will take a lot of work to convince 
the other nations of the world to reopen the negotiations to U.S. 
participation.
  We can begin by creating a credible domestic system that can work in 
parallel with the Kyoto Protocol so the United States remains in tune 
with the remainder of the world as we move forward. Such an approach 
must move beyond our laudable but inadequate voluntary efforts. As we 
saw with the Rio Treaty, which former President Bush supported and the 
Senate ratified in 1992, voluntary programs unfortunately do not work. 
Instead, Senator McCain and I believe that we need a set of standards 
requiring action. We need an economy-wide cap and trade approach. In 
contrast to the current international agreement, such a system will 
take the interests of the United States into account.
  I also believe having such a system in place will much better enable 
us to negotiate an acceptable international agreement with the Kyoto 
participants when the U.S. does come back to the table. If we do not 
have our own domestic cap-and-trade system, our companies will be years 
behind the rest of the world in operating within the system and 
therefore disadvantaged when we join an international agreement.
  The bona-fides of a cap and trade approach are impressive. I was 
involved in the drafting of the cap-and-trade program in the Clean Air 
Act to reduce acid rain--one of the most successful environmental 
programs on the books. Recent reports from the CBO and the Resources 
for the Future espoused such an approach. Progressive companies such as 
British Petroleum have greatly reduced their greenhouse emissions by 
using their own internal cap-and-trade markets. And no less authority 
than the Wall Street Journal has endorsed such an approach to address 
our climate problems, stating that the Bush Administration should 
``propose a domestic cap-and-trade program for carbon dioxide that 
could, of course, be easily expanded to Canada and Mexico.'' It would 
be a giant step forward if the Bush Administration would make such a 
proposal to the next international meeting on climate change in 
Marrakesh, Morocco during October.
  If we adopt a cap and trade system, we will create a market by which 
corporations will receive valuable credits for efficient investments. 
We also will create a market by which corporations can receive credit 
for the laudable investments they have made to date. And we will 
unleash the power of that market to drive the United States back into 
its leadership position in the international effort to avoid the worst 
effects of one of the most serious environmental problems the world 
community has ever faced.
  I look forward to working with Senator McCain when we return in 
September as we meet with environmentalists and representatives of the 
various sectors of our economy who are currently generating greenhouse 
gases. We will ask them to help us fashion a cap and trade system that 
will work.
  Together we can and will meet this historic test and protect our 
children and grandchildren, and all who follow on the Earth, from the 
real dangers of an overheated planet.
  Mr. President, I ask unanimous consent to print the Wall Street 
Journal editorials in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                            Review & Outlook


                         Emissions Impossible?

       While Genoa burned--a topic we take up at greater length in 
     the space below--bureaucrats in Bonn continued to fiddle with 
     a dead treaty, the Kyoto Protocol on global warming. Japan 
     and Europe appear more determined than ever to resuscitate 
     the treaty without the United States. At the risk of sounding 
     flippant, we ask: Why bother?
       The whole idea behind Kyoto is puzzling at best, outrageous 
     at worst. Why require the nations of this planet to spend the 
     hundreds of billions of dollars necessary to reduce carbon 
     dioxide and other emissions when we don't even know if the 
     earth's climate is getting permanently hotter or if that 
     temperature change is caused by human activity or if that 
     change is even dangerous?
       Why, indeed. Except that if new and more sophisticated 
     research proves that human-generated greenhouse gases are a 
     menace to civilization as we know it, then it is better to 
     start now to control them and far better to do so in the most 
     cost effective fashion. And that's why we harbor a certain 
     fondness for one part of the Kyoto treaty--emissions trading.
       Emissions trading--part of a package called ``cap-and-
     trade''--is one of the incentive-based market strategies that 
     has been developed as an alternative to traditional fiat-
     based, nanny-sez-so regulation. The idea is simple: a lower 
     level of pollution is agreed upon and targeted; permits 
     reflecting that level are issued, or even sold, to polluters; 
     firms that produce emissions below their targets can sell 
     their excess permits to firms that exceed their targets. 
     Firms have a straightforward incentive to come up with 
     emission-reducing innovations because they can keep the 
     financial rewards of their innovation through reduced 
     abatement costs, reduced payments for emission permits and/or 
     selling unneeded permits.
       Thus, by providing flexibility and financial incentives, 
     cap-and-trade program will result in more abatement from 
     those firms who can do it at relatively lower cost and less 
     abatement from those firms who can only do it at relatively 
     higher cost. The net will be the same amount of overall 
     pollution reduction, but achieved at lower cost than would 
     obtain under traditional regulation.
       And cost is really mega-important. Consider the tab if--as 
     mandated by Kyoto--the U.S. had to reduce its carbon dioxide 
     emissions 7% below its 1990 levels by 2012. Without the 
     ability to buy permits from other countries, compliance would 
     have to be achieved mainly by switching from coal-fired 
     plants to natural gas plants, resulting in the premature 
     retirement of tens of billions of dollars of capital stock, 
     the zooming of energy costs throughout the economy, and the 
     loss of millions of jobs. According to the Energy Information 
     Administration, the cost could be as much as 4% of GDP.
       Now, however, consider the cost if the U.S. could meet its 
     targets by buying permits from other countries. In a scenario 
     offered back in 1998 by the Clinton Administration's Council 
     of Economic Advisors, if the U.S. buys permits for its 
     ``excess'' emissions--so that if doesn't have to reduce by 
     very much its own emissions--the cost would be only 10% of 
     GDP.
       If you doubt these estimates--and we agree that the models 
     they are based on are technically complex--then how about a 
     real-life example? Look no further than the fabulously 
     successful cap-and-trade program for sulfur dioxide. The 
     program, which was started in the U.S. in 1995 as part of the 
     effort to cut the emissions that cause acid rain, saves about 
     $700 million annually compared with the cost of traditional 
     regulation and has been reducing emissions by four million 
     tons annually. When the program is fully implemented, 
     sometime over the next couple of years, cost savings should 
     be as much as $2 billion a year--that's twice as much as 
     originally estimated by the EPA.
       In fact, the idea of emissions trading to reduce pollution 
     has proved so attractive that some firms--which are under no 
     legal obligation to cut greenhouses gases--have begun to set 
     up programs for internal trading of permits. For firms 
     interested in external trading, there are already several 
     ``precompliance'' markets where permits can be traded across 
     companies and across national borders.
       So, who needs Kyoto? While whatever number of government 
     bureaucrats are filling the air in Bonn with carbon dioxide, 
     the private sector is going ahead with its own cap-and-trade 
     solutions. Not surprisingly, European leaders would rather 
     bureaucrats control the ebb and flow of private sector 
     emissions and have bad mouthed cap-and-trade proposals in the 
     past. Recently, however, even the Euros are beginning to see 
     the light.,
       President Bush got it exactly right when he dissed Kyoto. 
     And after Kyoto is pronounced dead in Bonn, the Bush 
     Administration should propose a domestic cap-and-trade 
     program for carbon dioxide that could, of course, be easily 
     expanded to Canada and Mexico. And then to Latin America. And 
     then the world.

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