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Symposium on China and Climate Change, Session Three: Energy Policy Options for the United States [Rush Transcript; Federal News Service]

Panelists: George E. Pataki, Counsel, Chadbourne and Parke LLP, Former Governor Of New York (R); Co-Chair, CFR Independent Task Force on Climate Change, Thomas J. Vilsack, Counsel, Dorsey & Whitney LLP; Former Governor of Iowa (D); Co-Chair, CFR Independent Task Force on Climate Change, and Michael A. Levi, David M. Rubenstein Senior Fellow for Energy and Environment, Council on Foreign Relations; Director of the CFR Independent Task Force on Climate Change
Presider: Robert Bazell, Science Correspondent, NBC News
June 24, 2008
Council on Foreign Relations

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New York City, New York

ROBERT BAZELL: Ladies and gentlemen, we obviously have an empty seat. The former governor of New York is stuck in traffic. Maybe he can help do something about the traffic when gets here and help with the global energy crisis as well as global warming.

But meanwhile, it's my -- I'm Robert Bazell, I'm the science correspondent for NBC News, and it's my pleasure to moderate this session in this daylong discussion about climate change and China. We're going to talk about some of the bigger issues of climate change here.

On my immediate left is Tom Vilsack, who is a former governor of Iowa, and is now in law practice, but certainly is very interested in many of these issues and has a lot of ideas of how we should proceed; and Michael Levi is a staff member here at the Council on Foreign Relations, as well as a professor -- adjunct professor at Columbia University.

And I think the way I'd like to start it with the two of you is, you know, we're talking -- the idea of talking about the United States -- this was mentioned in the report and it's come up this morning, but I think we have to talk about this over and over again, in my opinion, because the elephant in the room in this discussion is how in the world can the United States, or a private think tank like this, think about asking anybody -- any other country on the face of the earth to do anything about climate change given the record of the Bush administration? And this is not -- one Republican governor is not here -- but the United States has done nothing, including up to two weeks ago when the Senate couldn't even pass a cap-in-trade bill that was pretty mild by a lot of environmentalist standards.

So how do we have -- this could be the hosta (sp) factor. How do we get past the hosta (sp) factor that we've done nothing about climate change and we're having conversations about how to get other countries to change.

Governor.

THOMAS J. VILSACK: We can't. I mean, the reality of the report -- and I think it's the consensus of all the task force members -- is that for the United States to provide moral leadership on climate change requires a strong commitment to a domestic policy that is comprehensive, that is bold and that is significant.

Now, the question is: How do we do that, given the record up to this point? I would say that there are two fundamental reasons why this is going to happen. One is that I think that there's growing political pressure from cities and states across the country that are taking matters into their own hands and moving this agenda forward. I think there's also some litigation pressure and regulatory pressure from states suing the EPA, which will require some decisions made by government at some point that will force the government's hand.

And I think overall, in a presidential election season with a softening economy, that this issue more than any other issue domestically, in my view, has the capacity to allow us to argue and articulate a plan and strategy for rebuilding the middle-class in this country, which can be very politically -- (inaudible).

So I think there are political pressures. I think the states and cities are compelling change and I think the task force reflects that with a very comprehensive commitment to domestic policy, which will in turn form and shape our foreign policy.

BAZELL: I want to step back -- and I think that with your state just having experienced its second 500-year flood in how many years and, you know, all the hot days and Hurricane Katrina. And there's been a lot of things happening that persuade people that something bad is going on.

And yet, there remains legitimate uncertainties in the scientific community -- not -- there's no question that the world is getting warmer, but there is still questions about the extent to which that has to do with human activity and to what the consequences are going to be. And it may be good for some people in this country.

And Michael, when you deal with this issue, how do you -- has the United States or the world ever faced an issue of this magnitude with such uncertainty?

MICHAEL A. LEVI: There's an enormous amount of uncertainty involved in dealing with this in a variety of levels. It's not just technical uncertainty, but uncertainty in what sorts of solutions will be the most effective.

But the uncertainty in being able to predict the future, frankly, scares me rather than making me feel comfortable. When you approach a problem like this, if you wait to know what's going to happen -- given the time lag between our actions and the effects they have -- we're not going to be able to deal effectively with the problem.

There was an interesting study last year that came out from a wide range of retired military leaders talking about the impacts of climate change. And most of the attention it got was for a discussion of how it could intensify conflict.

What really stood out to me in that was one former general who said, on the battlefield, if we wait for certainty, we're dead. And that's the kind of big foreign policy thinking that I think we need to bring to this. You can't wait for certainty before you act. It's the job of policymakers to manage uncertainty and to deal with it and to be able to move forward despite it, rather than trying to remove it from the system.

BAZELL: But when you talk about uncertainty on the battlefield, there is an enemy that's coming at you. Here it's an uncertainty of a very different nature.

I mean, correct me if I'm wrong: We've never confronted anything like this before, right? Either one of you.

VILSACK: But the reality is that what we do know is that the risk of being wrong about the nature of the risk is fairly significant. When you look at the potential danger that could occur if the world does in fact heat up by 10 degrees, instead of a degree or two. So why risk that, number one?

Number two, when you see the economic opportunity side of this -- particularly for the United States -- why not embrace it? And three, I think, again, there are political pressures that are going to require and necessitate action by the United States.

BAZELL: Well, let's -- I want to hear about your -- the idea that this can become a driver of --

Ladies and gentlemen, Governor Pataki -- former governor.

GEORGE E. PATAKI: We need congestion pricing in New York City. (Laughter -- applause.)

BAZELL: One of the things --

Governor Vilsack was just talking about the economic opportunities that climate change presents for domestic policy in the United States. And why don't you continue with that.

Is this sort of like the idea that we got into a terrible mess in the 1930s and it was only the Second World War that got us out of it? Are we looking at this as some kind of enormous challenge that we can use to mobilize and spend tax dollars and get ourselves going again in a lot of ways?

VILSACK: Well, I mean, there are a number of securities that drive this. There's a national security imperative. The need for us to sort of move away from a dependence on foreign energy sources that are not reliable. There is obviously the climate change security issue. There's the fact that there's a growing disparity between rich and poor in this country and the middle-class is shrinking.

All of that, I think, suggests that we need some bold strategy for addressing all of those issues. And it's climate change that, I think, allows us to address all of them simultaneously. When you consider the demonstration projects, the new technologies, the greater efficiencies, the retrofitting of buildings, appliances, land use planning, new developments, new forms of transportation, new infrastructure investments -- all of that, while it's expensive, is also a creator of jobs.

My state is a good example. When we embraced the wind energy in Iowa and we embraced renewable fuel -- and I understand that there are concerns about corn-based ethanol, which we address in the report -- the reality is, we actually added manufacturing jobs to our economy -- actually a net increase of manufacturing jobs. So my state's seen an increase in revenues to state government in the last 18 months by 20 percent, while most states are looking at cutting budgets.

So there is a reality here that if we seize this moment, we put ourselves in a position to rebuild the American economy long term, and at the same time, allow us to go to the table internationally and press for significant changes on the part of other developed countries and hopefully, commitments by developing nations.

BAZELL: Governor Pataki, what do you think the reality is that the United States can go from a policy that most environmentalists would describe as abysmal for the last seven or eight years and actually do something about it?

PATAKI: I think it's very likely that we will. First of all, we have to. And I also think that the public is ahead of many of the politicians in this case.

And I have to agree with Governor Vilsack. I see this as an enormous opportunity to create domestic industries that generate a very strong economic boost to our country, as opposed to sending between a half-a-trillion and three-quarters-of-a-trillion dollars overseas for oil that we just pollute the atmosphere with and then need to do the same thing the next year.

I also think it's very likely we'll have cap-in-trade for a number of other reasons. One, both candidates support it. And second of all, it is already happening. We had the regional greenhouse gas initiative in the northeast. Cap-in-trade -- 10 states, led by New York, already committing at the end of this year and 2009 to begin reducing greenhouse gas emissions. You have the Western States Initiative, headed up by California and Governor Schwarzenegger. You have Florida, putting in place by executive order, cap-in-trade programs.

And it is far more rational to have one national system, than to have different regional systems, so that people can work together and cooperate together. So I think the public will is there, the political leadership supports it and I think the fact that it is happening at the state level makes it very likely that we will have it nationally as well.

And also, just -- I heard Governor Vilsack mention -- our ability to work with other countries. We rejected Kyoto. That was the right decision, but walking away from the entire process was the wrong decision. And if we put in place this policy, we will be able to -- from a position of moral leadership -- engage with the rest of the global community in a global solution to the climate change issue.

BAZELL: For each of you former governors: What got you interested in this issue and why were willing to spend so much time -- why are sitting up here now?

VILSACK: Well, as a governor, one of your responsibilities is to have an economy that supports the people of your state and supports the quality of life that people are interested in having -- education, health care and so forth.

So for in my state -- a state that had not grown very much, a state that had economic stagnation -- we needed to do something different. And it seemed to us, it seemed to me, that energy was the way in which we could redirect the economy of the state. And just George's leadership here in the northeast I think did set the table for a cap-in-trade system nationally. And hopefully, we will learn from that experience, because there are a lot of unanswered questions about cap-in-trade -- how you set it up.

Why I'm here today? I've got two sons. I care deeply about them and I care deeply about the country that they're going to inherit and the world that they're going to live in.

BAZELL: Governor Pataki?

PATAKI: Well, if back when we were working on this as governors, if you had asked in a poll, "Where is climate change?" it wouldn't have been in the top 10; it wouldn't have been in the top 20, probably not in the top 50. But if you asked, "What about economic growth?" -- as Governor Vilsack just talked about -- it would have been right at the top. "What about national security?" It would have been right at the top. "What about energy?" It would have been right at the top. And certainly environmental issues are of great concern to people, and more so now, I think, than they may have been a few years back.

So when you put all that together, the only area when it does come together is in the whole issue of energy. And if we can reduce carbon emissions, in the process, we're going to be reducing our reliance on foreign oil for transportation. We're going to have to be developing the new technologies like clean coal or geothermal or solar or wind or biofuels that will create domestic jobs.

So it all comes together both from the standpoint of defensively protecting our climate and our country, but also offensively from generating technology and economic growth and confidence in the future. You know, instead of spending a half-a-trillion importing oil, we could be exporting this country to other nations that are desperately in need of that.

BAZELL: Well, let me ask you a question: Isn't $138-a-barrel oil and $5-a-gallon gasoline doing more to reduce greenhouse gas emissions in the United States than anything that's been done up to now or we couldn't even think about having done in the next 20 years?

PATAKI: It's having an enormous negative economic impact, but it is not having a concomitant positive environmental impact at all, because most of the pollutants in the atmosphere come from power generation. It's not just transportation. Ninety-seven percent of our transportation is fueled by oil and that has to change and it will change. But we also have power generation -- particularly the use of coal --

that is the largest contributor to the greenhouse gas emissions and that's not going to change because oil is at or gasoline is at $4.50 a gallon.

What we need to do is tell our technology experts, tell our universities, tell our venture capitalists and our utilities that own these coal plants that we need to move and transition to clean coal. Capture of CO2, sequestration of CO2, coal-to-liquid in a way where we can isolate pollutants such as CO2. It will happen when you have the government policies incentivizing the private sector to take these steps.

BAZELL: Now, this idea of the government policy incentivizing the private sector -- let me just be devil's advocate here. A lot of people argue that the free market will take care of it. The steam engine was only invented in England after England was deforested. And a whole lot of environmental concerns actually get taken care of by the free market if you just let it. Why is this different?

LEVI: It's cheap to operate -- society to operate the energy system in a way that pollutes more. And there are no trends that we can see in the near future that will fundamentally change that. There are some things -- for example, the price of oil -- that will change that trend. But as Governor Pataki said, there are a lot of other areas where it won't.

Now, look, if you put a cap on emissions and the market, as it is, drives pollution down, then it's not going to cost you to meet that cap. If the market by itself isn't going to be meeting it, well, then, that cap will push emissions down.

VILSACK: Let me say, there are some aspects of this that the market can't do or may not do as well. There's massive infrastructure resources that have to be invested, and the government has to create a structure and a system that enables the private sector to feel comfortable about making those investments; transmission lines, for example.

We can build all of the windmills possible in Iowa and in the Midwest, but the reality is we can't get the energy we're producing to where it's needed unless we have a national transmission, a smart grid. All of that requires regulatory structures and systems that provide predictability and stability.

Government has a significant role and responsibility to play in setting the foundation and the groundwork, in the same way, providing resources for public investment in research and development. We've moved away from that in this country, and we need to get back to the government providing resources and funding. And it's going to require redirecting of priorities.

You know, there's not all the money in the world to do all of this, so you have to make decisions and priorities. And that's why the report mentions the important role that leadership is going to play, political leadership in this. It's going to be incumbent upon us, Republicans and Democrats, to assure that our candidates for president understand the significance of this, and when they go into the White House, go in with the understanding that they have to provide presidential leadership on this.

BAZELL: But just to be clear, there's never been -- has there ever been anything of this magnitude? Clearly we've passed laws in the history of the country that got rid of a lot of air pollution. We've got mileage standards up on automobiles -- not for this reason at all, but because it was the right thing to do. But it's far more incremental than talking about completely changing the basis of our economy in many ways.

VILSACK: Well, if you think about -- you know, people talk about the Apollo project, and that's certainly a more current example. I look at the national transportation system, the highway system. And that was sold to the country based on national security, and massive investment -- massive investment.

BAZELL: Well, here's -- that was sold -- yeah, in 1956 the National Defense Highway Act was passed because President Eisenhower -- but the country was terrified of being attacked by nuclear bombs at the time. Is the country terrified enough or -- Governor Pataki, you said the people were out in front of their elected officials on this. We know there's hot days. We know there's 500-year floods. We know there was Hurricane Katrina.

But do we know -- does the public truly understand, because of the uncertainties that you were talking about, that they're facing such a threat, that they'll go along with things like the highways that they went along with because they thought it would make us safer from an attack by the Russians?

PATAKI: I think it largely depends on how you present it and what exactly you're talking about. If you just say, "We're going to have to put in place cap and trade," good luck. Then I think I would be very skeptical of that. But that's why, if you look into the report, we talk about things like a national transmission system.

I think the private sector is prepared to build it, but you can't get it permited. You need to go town to town, county to county, state to state. We have in the Dakotas the wind power capacity to generate 20 percent of the electric generated in the U.S. today. The private sector is ready to build those windmills. But you can't get the power from here to there. If you had a federal permiting process, the private sector would build that.

And you were playing the devil's advocate a little bit a while ago, but let me tell you something that I did where the experience worked. I don't know if any of you are old enough to remember the buses in New York a little over a decade ago where you'd stand at a bus stop and the soot would come pouring out the back.

In 1996, I told the MTA, "You have to buy nothing but hybrid, clean buses, starting now." And they said, "You're out of your mind. The technology doesn't exist." And I said, "Put out the contract." They put out a $300 million contract, and today we not only are making the buses for New York. We're making them for Mexico City. We're making them for LA. And they're being made in upstate New York. So when you create the incentive -- I have enormous confidence in the technology, the entrepreneurial spirit, the willingness of people in this country to take risks and solve problems.

VILSACK: Look at the government's role on the Internet and the relationship there. It's significant. But this will dwarf the impact of the Internet, in my view, in terms of its economic opportunity. So there's clearly a role for government, and it's a partnership role.

We talked about demonstration projects. I mean, it's pretty difficult to ask the private sector to do a demonstration project on sequestration -- coal storage and sequestration. But if the government partners, if the government creates tax credits, incentives, financial assistance, and some regulatory predictability, then all of a sudden it becomes much more feasible.

LEVI: Let me add one small thing. This isn't some big crash program that we're asking people to pour huge amounts of money through the government in suddenly. Okay, a lot of this is about slow but steady transformation over the scale of decades -- very different from mobilizing --

BAZELL: Let me (interject ?), because this is a very important point. I have been hearing from many scientists for many years about a potential tipping point, where this becomes an out-of-control spiral. And many say it's already happened. We don't know, of course, because of the uncertainty about it. But when you talk about the minimal, incremental things, isn't that a little dangerous in terms of the potential scope of the problem?

LEVI: We have to be sensible about this. We're not going to go and wreck the economy in some kind of enormous experiment. We have to be responsible. There are people's lives that are intimately integrated with the energy system, and we have to be serious about that.

But being steady, gradual, but very ambitious over the long term, those pieces are not incompatible. We talk in the report about a cap-and-trade system with the initial goal of reducing U.S. emissions 60 to 80 percent below 1990 levels, revisit and revise periodically based on new information across the board; a global goal of cutting global emissions by 50 percent.

Those are big goals. Those are consistent with a lot of the recommendations -- not the most extreme recommendations on avoiding tipping points, but consistent with many of the very strong recommendations on those. But they don't mean shocking the economy immediately if you do them right.

BAZELL: Let me just interrupt you for a second here. And I apologize if a lot of people in the room know a lot more than I do, but why don't you explain cap and trade?

PATAKI: Well, what we call for -- you can do it in many different ways. So let me just give you RGGI as an example. There, beginning in --

BAZELL: Reggie? Who's Reggie?

PATAKI: Forgive me -- the Regional Greenhouse Gas Initiative, where the 10 northeastern states have signed on, beginning in 2009. What will happen there is, beginning in 2009, there will be carbon credit allocations to power producers based on their current level of production.

By 2014, those will have to begin to ratchet down. By 2019, we will have to have 10 percent lower carbon emissions from those power producers than we had in 2009. And so what will happen is you will be allocated credits. Either you will have to purchase them by auction or you will be allocated them freely. Over time, the amount of those credits will come down so there will be a price on carbon. You can either retrofit a plant, shut a plant, or purchase credits from someone who has them, who has taken other steps.

So this is not brand new. As part of the Clean Air Act that was passed under the first President Bush, we put a cap-and-trade program for pollutants that caused acid rain, and the lakes, particularly in the Adirondack Mountains here in New York State, for sulfur dioxide and nitrous oxide, and that has worked. It creates a market.

The EU has already done this. The EU has a cap-and-trade program for carbon emissions because they signed on to Kyoto back when Kyoto was ratified. Their program initially didn't work because they had too many credits allocated, so there was no value. But they have refined the system. And I know that Michael and Governor Vilsack were over talking to them about their experience, but they have experience with cap and trade. You might want to comment some more on that.

VILSACK: They're concerned about the United States. I mean, they realize the United States eventually is going to have a cap-and-trade system or some pricing mechanism. They had the same dilemma that the United States has faced. Is it a carbon tax or is it a cap-and-trade system? I think politically it's going to be difficult to institute a carbon tax, so cap and trade.

They want to make sure that whatever cap-and-trade system is established in this country can, at some point in time, integrate itself into an international market. So there are a lot of unanswered questions about cap and trade. George mentioned several of them. But, for example, to Michael's point, do you set up a cap-and-trade system? And, if so, do you have a safety valve? Do you have some kind of mechanism that, boy, if it is a significant disruption to the economy, you can calibrate; you can readjust?

You know, the folks in the EU are concerned about that, because it may make it more difficult to integrate the two systems. But eventually, over time, I think you will see an international market. And one of the interesting questions from our conversations with the EU is, where will the financial center of that be? Will it be in the EU or will it be someplace else? It's potentially a $2 trillion market, the largest market of its kind in the history of humankind. So it behooves us to understand it.

BAZELL: Well, Governor Pataki, doesn't everybody who owns a coal-fired power plant argue with you that you can call it cap and trade, but it's a carbon tax? You can call it RGGI; you can call it Sam; you can call it --

PATAKI: It is a different system, because if it was a tax, you would have to pay that tax flat out, based on the amount of carbon you put out. When it's a cap and trade, it depends on the allocation of the credits and whether or not they're going to be provided. You're going to have to buy them initially or you're going to be given those credits, and then, over a period of years, have to purchase a part of it. So they are very different systems.

And as Governor Vilsack was saying, with cap and trade, we will have the potential to be able to integrate in multinational markets such as with the EU. We will also be able to set carbon greenhouse gas goals like Michael was talking about, 60 to 80 percent by 2050. And those will be allocated based on emissions. With a carbon tax, the tax may or may not achieve the desired result.

Another element of that is that tax generates revenue for the government. This is about climate change. In my view, this isn't about generating government revenue. So that if you put in place a cap-and-trade program, you can do it in a way that is essentially revenue-neutral to the American public, as opposed to a benefit to the government.

LEVI: Let me just add a small thing. Of course, the report is mainly focused on foreign policy, and this is just a piece of the foundation for it. So we didn't get into all of the fine details. But you'll see there's an incredibly wide range of people who are involved and who signed off on this report saying they agreed with the policy thrust and judgments here, one of whom is the CEO of one of the largest utilities in the country, which is heavily dependent on coal-fired power. So you can come to these sorts of agreements if you approach things in a sensible --

BAZELL: Although you did point out in the report that there was disagreement about cap and trade.

VILSACK: Disagreement, but eventually there was a consensus among this group, widely diverse group, that this was most likely to be the most politically feasible route to go in terms of trying to put a price or a mechanism on carbon, and also a mechanism that will allow us again greater integration opportunities with the rest of the world.

I mean, this domestic policy, as important as it is for the United States, won't mean much if the rest of the world isn't doing its part as well. And so we need to be able to lead. The domestic policy is part of that, but it's by no means -- the thrust of the report really is about a two-pronged foreign policy approach, which we probably ought to talk about.

BAZELL: Yeah, we're going to change the subject to that. But I just wanted to talk about this elephant in the room before we started, because if we don't clean up our own act, I can't imagine how you can go to the EU or China or anyplace else on earth and say, "We need you to reduce your emissions."

PATAKI: Can I just make one last comment here? You know, we're acting as though this has never happened before. And when you deal specifically with air pollution, we haven't had this magnitude. But I analogize it to water pollution. For hundreds of years, whether you were a factory, a municipality, a neighborhood, you just put whatever pollutants you had into the rivers and said, "Take them away." And eventually it's not our problem. And now essentially that's what we're doing with pollutants in the air. We're just saying, "Take it away. It's not our problem."

With water, we came to a conclusion it is our problem, and we required massive change. If you had told everybody overnight you had to have every single home, every factory, every plant, every municipality hooked into something that would dramatically reduce pollutants before they went into the water bodies, people would have said, "What are you thinking?" Well, the answer is we were thinking correctly, and we now have clean water. And there's no reason we can't do the same thing with greenhouse gas emissions.

BAZELL: That's a good point. And we will move on to the substance of the report, which is it's a massive assumption that the United States does get its own act together. How best do we approach especially countries like China, that are undergoing massive development right now, where they require it, and coal is driving their economic engine?

VILSACK: Well, the report focused on two aspects. I'll just talk about the U.N. aspect. And then George, do you want to talk about the major economies and the emitters' process, partnership?

PATAKI: Mmm-hmm. (Affirmative response.)

VILSACK: It is fairly clear that the international community is interested in a global agreement, post-Kyoto. And certainly meeting in Bali, they set up a road map that involved finance and technology and mitigation and adaptation.

The United States needs to be committed to that process much more so than it was with Kyoto. It should not walk away, as George suggested. We should be at the table. We should be helping to frame and create the possibility of a global agreement. But we should not be naive to believe that that's going to be a relatively simple thing to do.

And, in point of fact, it will be a very difficult thing to do, particularly when you understand and appreciate that this energy area also intersects every aspect of an economy, including agriculture. And we seem to have a hard time internationally reaching agreements on agriculture, in part because of the way we subsidize our agriculture here, which is addressed in the report.

So we suggest a strong, continued commitment to the U.N. process. But we also think that there need to be steps taken now between the major economies and the major emitters that could inform that U.N. process.

PATAKI: Right. I think what the report does is essentially say we need parallel processes. We need to be actively engaged in the U.N. process and seek to have those 192 nations come to an agreement that is meaningful dealing with the issue of climate change.

But at the same time, you have to be realistic and understand that you have countries in very different positions economically, socially, financially. Whether they're able to actually achieve the goals that we might set for certain nations is problematic.

So the goal here is to, as we move forward with the U.N. process, have that parallel process engaged in two ways -- one, with the major economies, the developed economies, the EU, Canada, Japan, other countries, many of whom signed Kyoto, and come to an agreement that will have stronger emissions limits than we can most likely expect to be globally imposed through the United Nations.

And then there are nations such as China and India and Brazil and Indonesia and others, emerging economies, that have to be part of the solution. And they were left out of Kyoto. But we can't expect them to take the same steps today that countries like the United States or Great Britain can take.

So we would create a partnership for climate cooperation with the major emitting countries where we would look to engage with them in positive ways so that they could be part of the solution, limit their carbon intensity, limit the growth of carbon emissions from what it would be, in a way that's consistent with their need to develop economically.

LEVI: Let me just say a quick word about how the -- or if you want to say --

VILSACK: No, go ahead.

LEVI: -- how the two pieces fit together, because I think it's critical. Firstly, for the U.N. agenda, we do lay out some pretty clear lines. Advanced countries need to sign up to their emissions targets as part of an international deal. Rapidly emerging economies should sign up to ambitious commitments to action, to specific actions that the governments control.

We talked about this morning how it's very difficult to predict overall economic outcomes. It's also very difficult to deliver on them. So we want to focus on specific steps the governments can control. We need to reform the way these things are financed, and we could get into that in the Q&A. And we need to address adaptation as well.

Now, when you want to sign up to all these things as part of a global deal, it's hard. We're in pretty uncharted territory. You talked about uncertainty in science. There's a lot of uncertainty in how we deliver on these promises and how we provide incentives for others to deliver on the promises. And it may be that countries aren't willing to sign up, but they haven't been through the experience of seeing that they can.

And this partnership approach, the more flexible approach, the highest levels but still flexible, can develop that experience and that confidence that will let countries later on sign up to something much more rigid, much more binding in an international legal sense.

VILSACK: Develops relationships between leaders of those countries as well on this issue and goes beyond what the Bush administration has started with the major economies initiative, because it really is backed by a strong American domestic policy. And it takes a look at a series of tools that we believe ought to be looked at comprehensively -- export assistance, technical assistance to countries.

We propose the development of a climate fund that potentially could navigate the very tricky waters of how you help developing countries create and embrace new technologies while at the same time not jeopardizing your own economy at home.

The climate fund could, for example, hypothetically take resources from the United States and use it to purchase technologies developed in the United States, creating jobs here, and then provide that technology with appropriate intellectual property protections to developed nations so they get the benefit of the technology at a discounted price, but we create opportunity here for other countries that participate in this; the important role that foreign aid currently plays, perhaps integrating more climate change considerations as we look at reforming foreign aid in this country.

I mean, there are a series of tools that ought to be utilized by these major economies and these major emitters to see what works. And by doing so, you inform the U.N. process.

BAZELL: So at this point it's fair to say that two things have to happen. The United States has to get its house in order; then you've got to try a lot of things, all those things you just mentioned, and not one at a time; simultaneously. And the idea that, say, a foreign purchase of something from China or any other country would be contingent on carbon emissions, that's not out of the question in the future. It could become part of our trade policy. It could become part of foreign aid policy.

VILSACK: There's a caution on that last piece. And I think the task force suggests that we should not be recommending at this point in time specific border adjustments to products purchased from other countries that may be purchased with cheap energy and polluting energy. But we do suggest that that is a tool that could potentially be used not by an individual country but by the international community to put pressure on a country to take the right steps, because the reality is, all of us have to do our part. If one major country decides not to do it, then it's not going to work.

BAZELL: Why don't I open the floor to questions at this point? Is there anybody in the audience who has a question?

You, sir.

QUESTIONER: Thank you. My name is Jim Dingman. I'm from the INN World Report.

I wanted to ask the panel to talk about how we deal with overcoming the past 40 years of domestic political culture in our country, which is against big government, which is against big macro ideas. You know, we all know what happened in California, and this is an obvious reality politically.

And secondly, what about the power of the energy companies? You know, any cursory history of what happened after October '73, one can go back and forth and see how the (CAFE ?) standards were attacked, how environmental standards were attacked back in the '70s. What makes you think that we're not going to revisit these kind of issues in the policy debates domestically about this?

PATAKI: Well, I hope we do revisit these issues in the domestic policy debate, because I do not want to see large, intrusive government investing in technologies and picking winners and losers. That's why I think an intelligently designed cap-and-trade program can work very well, because you're setting clear targets to the private sector. That is what government is doing, and perhaps incentivizing solutions to meet those goals. But you're not telling someone they have to close this plant or open this type of plant.

If we do it intelligently and put in place incentives like, as Governor Vilsack was talking about, the ability to create the national transmission system so we can access wind power, we can access solar power from the Southwest, if we put in place programs, as we discuss in the report, to encourage nuclear power to begin to play a more prominent role in the United States, but leave those decisions to the private sector, then I think we will not see that intrusive hand of government. We will set policy goals in the public interest that the private sector will use the most efficient means to meet.

VILSACK: I think there are a couple of other considerations, in addition to what Governor Pataki just said. I think, first of all, there is a convergence on the political right and the political left about the significance and importance of climate change and stewardship in protecting the environment that I don't think you've seen before, which I think will help move the politics of this.

I think there is a deepening concern and anxiety about the general economy in the country, in part because of energy prices going up, and the reality that those prices are not going to come down. If anyone thinks that this is sort of an anomaly, it's a blip, and we're eventually going to get back down to low oil costs, that's just not going to happen. When the producing countries are seeing their productivity come down, when emerging economies are using more and more oil, there's going to be greater, greater demand and less supply and more expensive extraction costs. Oil is going to be expensive. And so we're going to get awfully tired of continuing to pay those high costs. We're going to be looking for alternatives.

I also think that there is pressure from the states, as I said before, that you just can't have 50 different systems. I mean, you've got what's going on in the Northeast. You've got what's going on in the western states. The Midwestern governors have also convened and are setting targets and so forth. So now you've got this hodge-podge of activity. There has to be an overlying national policy. There just has to be. Otherwise it's going to be inefficient and ineffective. So all of those pressures, I think, make this a little different than the previous 40 years.

LEVI: Let me say a quick word about the Washington politics also. I'm afraid to talk about politics, sitting between two professionals here. But I think hiding behind some of this discussion -- and it was alluded to earlier -- is the defeat of Lieberman-Warner a few weeks ago. And all I'd say is don't overinterpret that. That was the defeat of a specific bill. There were a lot of different things going on there. People expected it not to pass several months before it ever came to the floor, which gave them no incentive to compromise and come to something.

So I think a lot of people are mistakenly taking that as a signal that we're not going to be able to put domestic policy in place. So add on top to all the positive things that we've heard about why domestic policy can happen with the right leadership, do not take that as a huge data point about why it won't happen.

BAZELL: Okay, yes, ma'am, here.

QUESTIONER: Hi. Wendy Luers for the Foundation for a Civil Society.

Would you respond more in-depth to the dissenting opinion of Jim Wolfensohn and Tim Wirth about utilizing existing non-hodge-podge -- or maybe there's already a hodge-podge -- of avenues internationally? And if, in fact, one is going to use the United Nations and that which exists in the United Nations, if you all consider them useful rather than ineffective, how do you incentivize the U.S. government to place more emphasis and more importance on climate change and cooperation with the U.N. and supporting the U.N. efforts? Because that's been very low on the totem pole for any of our ambassadors to the U.N. in the last eight years.

PATAKI: I'll take a stab at this. I think there are national security considerations here. If we really are interested in trying to fashion peace in the Middle East, if we're really interested in creating a more stable and secure world, I think we have to address it in part through energy and through climate change policy.

And so, therefore, the United States, as a policy, should be looking at every avenue to intersect and every avenue to use to get to a point where we actually have a policy that reduces our reliance on foreign oil, that strengthens our hand to negotiate in the Middle East potentially, that creates partnerships and alliances and reclaims some of the moral high ground that we've lost over the last several years. All of that is significant and important.

And I think we also have to be sensitive in this U.N. process and in the partnership process; we have to be sensitive to the needs of other countries. It was mentioned here earlier about China. We need to recognize that they have anxiety about energy security. It's not much different than ours. They don't like the notion that they have to be reliant on other nations.

So how do we use diplomacy? How do we use the U.N.? How do we figure out ways in which we can say, "We understand your issue; we want to help you, through our diplomatic efforts; we want to help you address those energy security issues; at the same time, we hope that you understand the concerns we have about our economy, the trade deficit and so forth"?

VILSACK: Let me --

LEVI: (Inaudible.)

VILSACK: Michael, go ahead.

LEVI: Please.

VILSACK: No, you go ahead.

LEVI: I was going to -- directly to your specific question about the additional opinion on the partnership for climate cooperation, there was a concern by two members of the group that it would divert attention away from the U.N. process. Fundamentally, the way most of the group saw it is that these pieces would be complementary and that a wide set of bilateral and regional arrangements that exist and that are proliferating are not an appropriate substitute for a small group of the biggest emitters, simply because to get things done, you need high-level leadership. You need direction from the top of government.

And the president is not going to show up at a long series of bilateral meetings and a long series of regional meetings all focused on climate. You need a focal point where you can bring in people right at the top if you're going to mobilize the sorts of resources and the sorts of efforts that you need to get at a solution. And that's the animating thrust behind this partnership idea and why it is distinct from all the other regional and bilateral initiatives out there.

BAZELL: Did you want to say something?

VILSACK: No, that's fine.

BAZELL: Let me just follow up on something Governor Vilsack said in response to that, and a question for both the governors. A lot of people say that the response of the current administration to the threat of climate change was very much modeled after the response of cigarette companies to the idea that cigarettes might have health problems.

And we have lost -- a lot of people think we've lost a lot of moral authority in the world. There's going to be another president. There's going to be another point of view. How long do you think it will take to wash out this legacy of our not just not doing much about the problem but actively denying that there's a problem? Governor Pataki. (Laughter.)

PATAKI: Well, as I said earlier, I think the fact that Senators McCain and Obama both support cap-and-trade legislation and have been very aggressive in expressing their concerns about climate change, I think, gives us a lot of -- gives me a lot of confidence that, in a relatively short period of time, the new administration, whichever it is, will be able to work with Congress to put in place intelligent national legislation.

And getting back to your point about the parallel process, it's kind of hard to try to figure out where the globe should go when you haven't figured out where your own country is going to go. And so we have to continue. And I think, to credit the administration, at Bali we saw a team that worked to try to begin the process of achieving, by 2009 in Denmark, which is the goal, a post-Kyoto protocol.

They also put in place the major emitters process with the 17 countries to begin engaging countries that, under Kyoto, had no requirements at all, like China, like India, like Mexico, like Brazil, like Indonesia, who have to be a part of the solution. So I don't defend them as being as proactive as I believe they should have, not by a long shot. But we have seen some progress over the course of the past few years, and I'm confident that we will see very rapid progress with the new administration, whichever it is.

(Sound of cell phone ring.)

BAZELL: I thought I turned this thing off, and I clearly didn't. (Laughter.)

Yes, sir, over there.

QUESTIONER: Lucas Haynes (sp) -- (inaudible) -- Foundation.

Given the projected reliance on coal by the U.S. and China going forward and the significant technical and economic obstacles to carbon capture and sequestration, it seems like there's a huge opportunity for bilateral cooperation between the U.S. and China on, you know, marrying scientific and engineering expertise, you know, building some of the good will that you've talked about between these two large emitters. And I wonder if that was considered, if it's in the report, or thoughts on that.

VILSACK: It is. The report takes a look at a comprehensive set of tools. And one tool is that international research and development programs where there would be cooperation country to country, to try to figure out -- demonstration projects that wouldn't necessarily be focused only on the United States but could be throughout the globe. So, I mean, there is a clear understanding that we're going to have to work with people. We're going to have to share assistance and experience.

(Sound of cell phone ring.)

LEVI: You should take out the battery. (Laughter.)

VILSACK: It's the Bush administration calling you.

BAZELL: Yeah, exactly.

VILSACK: So there is a recognition of that. And that's one of the reasons why this partnership is so important, developing relationships among leaders that will make it a little bit easier for those joint projects to be developed and financed. So it's clearly one of the key points of the report.

PATAKI: Your point is extremely important, and I think Tom hit it on the head. And it's not just the United States and China. A majority of the nations of the world depend on coal for their primary source of power generation. So working on the ability to figure out, in an economically efficient way, how you can isolate and capture CO2 is in all of these nations' interest. And having that technology transfer, having the pilot programs that can be multinational, I think, will help us solve the problem a lot quicker than if we just try to do it alone.

BAZELL: Yes, sir, over there.

QUESTIONER: Herbert Levin.

Governor Vilsack, last night in this room we were told that 30 percent of our corn crop is going to produce ethanol; that this is not justifiable, that it's energy deficit when you include the fertilizer and the transportation; and more importantly, that this has raised the price of food. Along the African coast, African countries are food-deficit -- not in the hinterlands, where they have subsistence agriculture; but that this means you're going to have a generation of malnutrition-ridden Africans, from which they will not recover. Do you accept those views which were given us in this room last night?

VILSACK: Sure. Clearly corn-based ethanol is not sustainable. And I think the focus of this next generation of renewable fuels has got to be on sustainable sources in feed stocks for renewable energy.

Corn, in my view, was a good way to start the conversation because it was relatively easy to convert and to create an awareness of the importance of investing in renewables. The report basically suggests that it's time for us to take a look at the subsidy system that advanced corn-based ethanol and to eliminate those subsidies over time. It also suggests that we need to be a little bit more enlightened on the tariffs that we are currently imposing on Brazilian ethanol, for example, and reducing and removing those tariffs over time, which -- and is a report that I signed on to.

I'm not so willing to concede the fact that it's ethanol that's driving food price increases globally. I think there are a lot of reasons why that's happening -- weather conditions, energy costs, governmental policies, the failure to embrace new technologies in agriculture.

There are a whole series of reasons why we may have food shortages and increased food costs in other countries. Ethanol may play a part of that, but it's by no means, in my view, the key factor. I'm not sure it's 30 percent of the corn crop. I think it's closer to 16, 17 percent of the corn crop, producing about 4 percent of our fuel. I wasn't real good in math, but it just doesn't equate.

And so that's why there's a push now in Louisiana, with the first cellulosic plant, in Iowa with the second one coming online soon, to create new ways to produce ethanol. I think that's one of the reasons why we suggest substantial increases in investments in research and development to come up with those new ways.

BAZELL: Yes, ma'am.

QUESTIONER: Thank you. I'm from Indonesia; one comment and one question.

I think, with regard to the major economies meeting, I think it's very important to build the confidence-building among -- (inaudible) -- countries. We've been involved in that process. I think it helps us a lot. But as you say, it's not complementary to the U.N. process because we feel that it's not -- (inaudible) -- but complementary to the end process.

The question I would like to raise is that I was wondering, how do you see the future negotiation in Copenhagen? If developing countries -- because I don't see developing countries who have had (abandoned target ?). If developing countries can implement their sustainable development policies which result in reducing emissions but not setting a global target while developed countries (hit ?) the target, how will that compromise be feasible in the future? Thank you.

VILSACK: Well, one of the things that the report suggests is a reform of the current system that's in place as a result of Kyoto with the clean development mechanism, the CDM process. It was fairly clear from our discussions with the EU that there were real concerns about what kind of programs were being funded through that program and whether or not, A, it needs to be reformed, and B, whether it needs to be expanded to include deforestation as a way of financing better practices. That would be the first thing.

I think you'll see a consensus develop that the CDM system has to be changed, and our hope is that it is expanded to include deforestation so that it reaches countries like Indonesia and Brazil in particular.

Secondly, I think there is a recognition that it's not going to be easy for the developed nations to request developing nations to agree to hard targets and hard thresholds, but we do think it is possible for us to reach agreement on specific programs that, if implemented, would have the impact of helping to reduce the risks of climate change.

So that's the reason why we established the partnership; again, a way of figuring out what works, what specific agreements can we reach with countries like Indonesia, what specific policies would they be willing to commit to, as opposed to "What percentage are you going to reduce your emissions by?"

LEVI: You know, in the Bali road map, we talk about commitments from the -- (inaudible) -- foreign countries and we talk about actions from the developing countries. So that's already there. The question is, how ambitious are those actions? How ambitious are those commitments? And that's one thing we're trying to break down in this report.

There's been a lot of focus on form. Do you have a cap? Do you not have a cap? Do you have a big deal? Do you not have a big deal? Let's really focus on what the emissions reductions we get out of the process and out of the agreements are. That really is what ultimately matters. And then we can step back and look at what the right kinds of commitments and agreements we get into are. But it's far more important to be looking at the magnitude of the effects of the different commitments and decisions that are taken.

VILSACK: And there's also, I think, the need for a recognition that population increases and so forth play a role in all of this. And as economies mature, that plays a role. You're obviously going to use more power under those circumstances.

While we didn't address the issue of population, at some point in time maybe that's the next study. There's a population proponent here as well, and far be it from me to suggest how we do that. But there is at least a recognition that when you set up systems and targets, you have to take into consideration that you've got economies that are going to be improving. You've got population increases. And that needs to be factored into what you ask countries to do.

PATAKI: And just one other point on this. Indonesia is a part of the major economies process. But the major economies process is aimed at creating a global agreement, having those 17 nations take the leadership in working with the other nations to have a post-Kyoto 102- -- 92-nation U.N. agreement.

But part of the concept of the partnership for climate cooperation is those 17 nations together, or working in smaller groups, can come to their own individual compacts apart from the U.N. compact, like with Indonesia, where, if the U.S. puts in place a cap-and-trade program where we have offsets, we could have those offsets specifically negotiated with Indonesia, where if Indonesia takes verifiable steps to limit deforestation, move to sustainable forestry, U.S. companies under cap and trade would get credits to support Indonesia in taking those steps. So we will not only have the global effort; we will have those regional compacts that will help particularly with the rain forest countries, which are such an important part of the solution as we go forward.

BAZELL: In the front row here. Do you want to --

QUESTIONER: Thank you. My name is -- (inaudible) -- from Energy Research -- (inaudible) -- of China.

When we talk about the domestic policy negotiation position of the United States, I think the very important issue is how to ensure the (compatibility ?) of efforts among the developed (participants ?). For example, for the states, the cap for California and for Washington, we talk about the commitments or actions for European Union and United States. So how to ensure the (compatibility ?) of efforts between different (participants ?) is very important. So I would like to know, what's your ideas on those issues? Thank you.

LEVI: (Inaudible) -- compatibility --

QUESTIONER: Yes.

LEVI: -- of efforts?

QUESTIONER: Yes.

VILSACK: As I interpret your question, I think it starts with a recognition that countries are at different places; and as a result of being in different places economically, in terms of technology, in terms of technical expertise, that there is a need for developed nations to recognize that in any agreement that is reached. And there needs to be a willingness on the part of developed nations to provide assistance -- technical assistance, to provide export assistance, to provide ways in which technology and expertise can be given to developing nations in a way that's acceptable to them.

There's also, I think, a recognition that no matter what we do, there are going to be some adverse consequences as a result of what we've already done for the last 150 to 200 years. And therefore, developed nations again have a responsibility to step up and provide adaptation assistance, everything from figuring out how to fight forest fires more properly to establishing the infrastructure that could protect communities in cities.

And I think the notion of agreements, whether it's through the partnership or through the U.N., create forms in which we can begin to integrate the various ideas and concepts. In the United States, it's fairly clear you can have the various states do everything they're doing, but until you have a national policy, overarching national policy, it's really not going to be as efficient or as effective as it could be.

LEVI: You asked about integration, perhaps also at a technical level of cap-and-trade systems between the United States and Europe. I think we discovered in our discussions in Europe, that provides enormous opportunity for a wide range of discussions between the United States and Europe. And if you go to Japan, you find the same thing, for a wide range of discussions on harmonizing approaches and strategies to climate more broadly, the most obvious example being harmonizing approaches to offsets.

The United States won't go along with something with the clean development mechanism in its current form. The Europeans are having thoughts about, in the process of doing that kind of harmonization, making these pieces compatible. We're going to end up having a lot of other discussions about critical issues that go well beyond the borders of those countries that are involved.

BAZELL: On this side -- the gentleman here.

QUESTIONER: Rodney Nichols.

There appears to be a renaissance of interest in nuclear power around the world. It has not been mentioned this morning. It's clearly clean. What's the panel think about nuclear power worldwide?

PATAKI: Well, the report specifically calls for the U.S. to begin a nuclear program. We support nuclear power. And that drew the only actual dissent in the entire report. Obviously you have to do it in an intelligent way. But nuclear power, I believe, and I think the report indicates, is an appropriate part of the solution to how we can achieve economic growth with cap and trade.

VILSACK: Limited to the countries that currently have it; a little concerned about whether or not -- how far down the road you expand in countries that do not currently have that capability and whether or not you then add to the whole nuclear proliferation discussion.

We did not address several of the stumbling blocks that currently exist in this country in terms of the efficiency of the power that we currently do produce and the waste disposal. Obviously those issues have got to be addressed in a significant way. And it goes, again, to the whole notion of investing in research and development and coming up with new and creative ways to solve these problems. But it is clear that we're serious about reducing to 1980 levels, 80 percent below 1980 levels. We're going to have to do something significantly different and we're going to have to have different thoughts about nuclear and coal.

LEVI: It also gets to one of the incentives that we talked about. We want to move beyond strictly economic incentives. And one set of incentives involves aligning energy security and climate change priorities. So we talk about a real effort on improving security supply for nuclear fuel, which has a nonproliferation benefit and also has the benefit that for major countries that already have nuclear power, they can expand while not giving up their energy security. We have similar discussions on natural gas also.

BAZELL: Yes, ma'am, over there.

QUESTIONER: Marcia Aronoff from Environmental Defense Fund.

I wanted to ask a question relating to your domestic recommendations. And the question is whether or not the challenge that we need to address is cost certainty or cost containment. And the beauty of a cap-and-trade system is that it creates shortage, shortage of pollution, and creates an incentive for the private sector to invest in it.

When you apply cost certainty as your measure, you're essentially printing money if the cost goes above a certain point. And isn't that going to kill the investment incentives for investing in pollution reduction? So (it ?) would press you on whether or not the challenge that you're recommending is mechanisms to contain costs like banking, borrowing, offsets, the whole range of ways of making sure that costs are reduced, or a cost certainty.

VILSACK: The report didn't go into those details and specifics. Again, the genesis of this report was really "What should the foreign policy implications of climate change be?" In order to get to that issue, we had to recognize that there needed to be a strong domestic component, but we didn't want to get into -- as Michael would say, we didn't want to get into the weeds on all of those technical issues. I mean, you can get into those technical issues when you get into cap and trade.

There are a whole variety of discussions: Who's covered by it? Where does the money go? How is it allocated? What do you do about poor people whose energy bills are going to be regressively much higher, greater impact? You know, do you have a safety valve? Do you have a Federal Reserve Board type system, which is what McCain-Lieberman suggested? What are the mechanisms?

We didn't get into any of that. We just simply said, "Look, we've got to get serious about this and we have to have specific goals that we commit to, and we have to have some mechanism for pricing carbon so that people understand and appreciate we've got to change."

BAZELL: I think we have time for one more question here, and I'll take this woman in the polka-dots.

QUESTIONER: I wanted to ask you about the time line for your two proposals, because the global deal from the Bali road map heads to Copenhagen, and it's a very, very tight time line. And then where that really begins, given the U.S. election and the need for sort of U.S. policy to move forward, is another question.

And so I'm wondering how you see your partnership ideas fitting into a Copenhagen deadline. Do you think Copenhagen gets extended? How much is before Copenhagen? How much is after Copenhagen? And Debbie Zelickson (sp) from the World Resources Institute in Peekskill, New York.

PATAKI: Well, I think we shouldn't be sitting here and talking about extending the 2009 goal for Copenhagen. I think we should all hope that -- one of the things you don't want to do is give a multinational group of people more time. (Laughter.) They will use it. So I think, to the extent that that time line was set with a goal of achieving it in Denmark in 2009, that is a good thing, because Kyoto expires in 2012. And if, in fact, there's a global protocol in place by then, it will give countries the time to begin to prepare to take the necessary action by 2012.

With respect to the partnership, I think that should begin right away, because there's absolutely no reason why bilateral or multilateral cooperation among the largest economies of this world should not start right now. There is the major emitters process aimed at helping the Copenhagen process.

We believe we should have the partnership working right now to achieve multilateral agreements, like with China, like with Indonesia, like with all the rain forest countries or others. They're not inconsistent. There's no reason to delay any of them, and to just continue to try to move forward aggressively.

VILSACK: One other point. In the report, we also talk about the relationship between the executive branch of the United States government and the legislative branch, which goes to the issue of time and approvals, and suggesting that there really needs to be mechanisms where the legislative branch is brought into this process at an early point, that there's a partnership, and that we look at sort of executive agreements, as opposed to treaties, to make it just a bit easier to move more quickly on agreements and arrangements that are reached.

BAZELL: Well, I want to thank you all for coming, and I want to thank the panel members for a very lively and interesting discussion. Let's hope the United States can get its act in order to lead the rest of the world, or at least cooperate with the rest of the world in getting this done. (Applause.)

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