China and Climate Change Symposium

Description

Session One: Chinese Energy and Climate Strategy

Zhou Dadi, Professor, Energy Research Institute, National Development and Reform Commission (NDRC), People's Republic of China

Trevor Houser, Director, Energy & Climate Practice, Rhodium Group (RHG); Visiting Fellow, Peterson Institute for International Economics

Taiya Smith, Deputy Chief of Staff and Executive Secretary, U.S. Department of the Treasury

Presider: Elizabeth C. Economy, C. V. Starr Senior Fellow and Director for Asia Studies, Council on Foreign Relations

8:00 to 8:30 a.m. Breakfast Reception
8:30 to 9:45 a.m. Meeting

Session Two: Energy Technology in China

Wu Zongxin, Director of Academic Committee, Institute of Nuclear Energy Technology, and Director, Energy Environment and Economy Institute, Tsinghua University

Edward S. Steinfeld, Associate Professor of Political Science, Massachusetts Institute of Technology (MIT); Director, MIT-China Program, and Co-Director, China Energy Group, MIT Industrial Performance Center

Presider: Andrew Revkin, Science Reporter, New York Times

10:00 to 11:15 a.m. Meeting

Session Three: Policy Options for the United States


This session will focus on the findings and recommendations of the CFR Independent Task Force on Climate Change. The Task Force begins by arguing that the United States must lead with domestic action. It then turns its attention to the major emerging economies, including China, proposing a U.S. negotiating strategy for a global UN climate agreement that includes commitments from all major economies, while also promoting a less formal Partnership for Climate Cooperation that would focus the world's largest emitters on implementing emissions reductions.


George E. Pataki, Counsel, Chadbourne and Parke LLP; former Governor of New York; Co-chair, CFR Independent Task Force on Climate Change

Thomas J. Vilsack, Of Counsel, Dorsey & Whitney LLP; former Governor of Iowa; Co-chair, CFR Independent Task Force on Climate Change

Michael A. Levi, David M. Rubenstein Senior Fellow for Energy and Environment, Council on Foreign Relations; Director, CFR Independent Task Force on Climate Change

Presider: Robert Bazell, Chief Health & Science Correspondent, NBC News/MSNBC

11:30 a.m. to 12:45 p.m. Meeting
12:45 to 1:30 p.m. Buffet Lunch

Audio
Transcript

New York City, New York

RICHARD N. HAASS: Well, good morning. I'm Richard Haass. I'm President of the Council on Foreign Relations, and I want to extend a welcome to everyone here, particularly for those who have traveled several thousand miles from China. You are particularly welcome here at the Council today.

I think it's fair to say that no topic has risen more quickly on the U.S. policy agenda in recent years than has climate change. This is a subject with many dimensions, but I would point out two.

One is the domestic side, and the question is what we in the United States can and should do to reduce carbon emissions here. But there is also a foreign policy dimension, which is what the United States should do, what the United States can do to work with others to counter climate change and its effects around the world. And obviously in a global world what happens in places far off still affects the United States. There is ultimately only one global climate.

And here at the Council we are focusing on the international dimension, though again, the ability of the United States to be effective at home in this area will largely shape our ability to be persuasive abroad.

Here at the Council on Foreign Relations, we recently sponsored an independent task force report on climate change. And it looks at the U.S. policy options and recommends strategies to exercise international leadership on the issue. And the task force co-chairs, two former governors, Governor George Pataki of New York and Governor Tom Vilsack of Iowa, and the project director, Council senior fellow Michael Levi are here, and will discuss the report's findings and recommendations later this morning, and obviously copies of this report are available outside. I would say they're on sale, but they are free. There is such a thing as a free report.

The task force in today's symposium are but two of many things the Council is doing in this area on climate change and on energy. And what we've got is a large program in this area, which includes a full slate of research, publications, meetings, website coverage and so forth.

One of the many aspects of the debate about climate change and U.S. climate change policy is how to deal with the emerging countries, and above all, the larger emerging or developing countries. And none is more central to this debate than is China.

And obviously the environmental consequences of China's tremendous growth are profound, and they are becoming clear both to its own people and to the world. And given China's rising carbon emissions and the projection of more to come, its participation will be essential to any efforts to combat climate change around the world. But to say that is not to answer the basic question which is exactly how China can and should be integrated into multilateral arrangements to reduce emissions.

So today's -- the timing of today's program, the focus of today's program, could hardly be better. And we've got three sessions -- I'd say three smart sessions -- looking at three topics: the first is Chinese energy and climate strategy; the second is energy technology in China; and third session is the one that looks at prescription. It's the session that looks at policy options for the United States, and that will obviously dovetail closely with the findings of the just published task force report.

In closing, let me also thank the China-U.S. Exchange Foundation for arranging and supporting the participation of our international speakers and our guests. And they are here as part of a delegation from Tsinghua University led by Jang Sheelian (ph). And we are delighted to have all of them with us, and we hope this is very much part of a continuing dialogue between the Council on Foreign Relations and between yourselves and others in your country.

Without any further delay, let me -- I'm happy to turn things over to the extraordinarily capable hands of Elizabeth Economy, who is the C.V. Starr Senior Fellow and Director of Asia Studies here at the Council on Foreign Relations.

ELIZABETH C. ECONOMY: Thank you very much, Richard.

It is a pleasure to have the opportunity to have the opportunity to moderate this first session of the symposium on China and climate change.

Before we begin, please if you would turn off all your electronics -- Blackberries, and cell phones. And I know everybody asks you to do this, and inevitably there's one or two or three people who don't do it. But I am asking you in part because it will interfere with our sound system, but also of course because it interferes with our speakers' remarks. So if you would please turn them off now. And also just let me make a note that this symposium, the entire symposium, will be on the record, and broadcast throughout the United States, and globally, via cfr.org.

So with that let me just begin by reiterating a little bit of what Richard said in his opening remarks, and that is, that I think this symposium really marries two of the most significant phenomena of the 21st century -- the rise of China as a global economic powerhouse on the one hand, and the transformation of the earth's atmosphere and landscape as a result of global climate change. And both of these phenomena are of course exerting a profound impact on the way the rest of the world lives and does business.

This morning, we're going to focus on the intersection of these two phenomena. We're at a point today where China is and will continue to be for the foreseeable future one of the key, maybe top two or three players in the global effort to address climate change, in large part because it has become, as a result of its extraordinary economic growth and its reliance on fossil fuels, one of the leading contributors to the problem by some international estimates having surpassed the United States as the leading contributor of the greenhouse gas carbon dioxide in 2007.

At the same time I think the Chinese leadership has come to understand that the country will face a steep price if climate change continues unabated, whether we're talking about the more aggressive melting of the Tibetan glaciers, which will contribute to greater floods and then droughts, or a potential decline in key grain yields by 2050 of up to 37 (percent) to 40 percent, or of course the rise in seal level which threatens tens of millions of coastal Chinese, if not hundreds of millions.

But as we've seen I think with our own fraught debates on climate change here in the United States, arriving at a national policy on climate change in particular in a highly charged international context is no small matter. And the Chinese are grappling on the home front with how best to balance continuing and maintaining their economic growth with developing and implementing an effective climate change response. And at the same time they're deeply engaged in international negotiations that are focused on issues of historic responsibility or equity, sovereignty and state capacity.

So our goal this morning is a relatively straightforward one, albeit not a very simple one, and that is first just to understand the trends in China's energy use and what they will mean for the trajectory of the country's greenhouse gas emissions; then to look a bit at China's climate change strategy today, and assess some of its strengths and weaknesses; and finally, and perhaps most importantly, to think through how the United States and China can work together most effectively to transform the way that China, and I have to say, the United States do business.

To do this, it is my pleasure to introduce a truly stellar panel, really, I think some of the top experts both here and in China. To my immediate left is Trevor Houser. He is the director of the energy and climate practice of the Rhodium Group, and a visiting fellow at the Peterson Institute for International Economics. He is also the author or co-author of several path-breaking studies on China and energy issues and on climate change issues. He just had a book come out called Leveling the Carbon Playing Field this year, and he has another book coming out this year. He puts all Council fellows to shame, I have to say two books in one year, called China's Energy Evolution. And for my money he really is -- there's nobody better when it comes to providing a detailed and nuanced understanding of China's energy situation and some of the potential policy levers that we have available to employ to meet this challenge, at least here in the United States.

Because in China, we have Professor Zhou Dadi. He is currently a senior adviser and researcher at the National Development and Reform Commission's Energy Research Institute. And until 2006 he was also the director-general there.

He has recently joined the Carnegie Center in Beijing, where he'll be a research fellow also working on climate and energy issues. He has long been renowned as one of China's most eminent energy researchers and climate policy strategists. He has served as the lead or co-author of several of the IPCC assessments. And in 2007 he was awarded the U.S. EPA's climate protection award.

I also have to inject a personal note and say that whether he remembers or not, back in the early 1990s, when I was a struggling graduate student working on this issue of China and climate change, Professor Zhou was extremely helpful to me. He was one of the very few people working on this issue of modeling carbon emissions, looking ahead. We're talking 16, 15 years ago, but he really helped me to understand better China's energy situation at the time.

So it is indeed a great pleasure for me to have him back here.

And last but certainly not least we have Taiya Smith. And she is the executive secretary of the Treasury Department and coordinator for the U.S.-China strategic economic dialogue, which I think maybe we've all come to understand is not only the preeminent bilateral forum for discussing issues of trade and finance between China and the United States, but also issues of energy and the environment.

Taiya previously served as special assistant to Deputy Secretary of State Bob Zoellick, where she focused on Africa, Europe and global military affairs; and she was also the State Department's point person on Darfur during 2004 and 2005.

So the way that we are going to run this session is that I am just going to begin by asking a couple of questions of our panel, just to help set the stage for about 25 minutes or so, and then open the floor for your questions.

Let me start with you, Trevor, and just ask you to lay out some of the key trends that you see in China's energy sector today over the next maybe five to 10, 15 years, of energy makeup and some of the drivers, whether we're talking about urbanization or industry, transportation sector; and how you think these trends are going to affect Chinese greenhouse gas emissions.

TREVOR HOUSER: Sure. Thanks, Elizabeth. And let me start by saying any of my research stands on the shoulders of giants, and no one among them is more giant than Professor Zhou, who's really been doing the path breaking work in this field for a long time. So it's an honor to be on the panel with him, and with Taiya Smith who actually has to put policy to all this analysis and does a fantastic job doing so.

I would start by saying that the energy future that we're looking at today for China is quite different than the energy future all of us were looking at back in 2000 -- 2001. Between 1978 and 2000, China did something which was largely unprecedented both for a developing country and -- or a developed country. Over a 20-25 year period, sustained economic growth of 9 percent while energy demand only grew at half that rate. That degree of efficiency meant that in 2000-2001 China was only 10 percent of global energy demand, rather than 30 percent of global energy demand which it would've been if that type of economic restructuring hadn't taken place.

Sitting in 2000-2001 and looking forward, most energy forecasters either in the U.S. or in Paris at the International Energy Agency or in Beijing thought that China would be able to continue that level of energy efficiency improvement for years to come, and made forecasts based upon that.

And instead what we saw in 2001 and 2002 was a change in the nature of economic growth and its relationship to energy demand in China, so much so that today, in 2007, the IEA's forecast for Chinese energy demand is 79 percent higher than what it was just five years ago. So that's two Indias of today, or an India of 2030, that's our rounding error when we think about Chinese energy demand.

So it begs the question, what happened in those five years. Why is our forecast today so different than it was before? And more importantly is that forecast we have today any more hardwired than the forecast that we had five years ago?

The change -- what happened in those five years, wasn't that the economy grew faster than expected, though it did a little bit. It was a change in the nature of economic growth. China went from focusing primarily on light manufacturing, starting in 2002 there was a surge in energy intensive heavy industry, in iron and steel and in cement.

China today is about 35 percent of global steel production; 50 percent of global cement production; 50 percent of global glass production. That's primarily for Chinese consumption as the country urbanizes. Since the late '90s China has moved about 160 million Chinese citizens from rural areas to urban areas, or they've been in rural areas that have suddenly become urban areas, and that, of course, takes a lot of steel and cement and glass.

But China has also become a major global supplier of those goods. Four years ago China was the world's largest steel importer. Imports exceeded exports by about 450 percent. Only five years later, and China is now the world's largest steel exporter. Exports exceed imports by about 450 percent.

That turnaround in the trade balance for metals has created a significant amount of energy demand in China. It's also accounted for about half the growth in China's global trade surplus, right. So the reason that China has a global trade surplus today isn't so much because it started exporting more toys than televisions, but that it stopped importing a lot of the energy-intensive goods that it did before.

So today industry is the energy challenge China faces. That's different than the U.S. Here we have a consumer problem. All the energy we use is in automobiles, buildings like this; that accounts for about two-thirds of our energy demand, is things tied to consumers.

In China about two-thirds of energy demand is tied to producers, and specifically to five industries: to iron and steel, cement, chemicals. The iron and steel industry alone consumes 18 percent of China's energy demand, right. Compare that to all the households in the country combined, which account for about 10 percent. The chemical sector uses more energy than private transportation, and the commercial sector -- the aluminum sector uses more energy than the commercial sector. So it's a very different type of challenge than what we faced today.

Looking forward, all of that cement and steel is laying a foundation for what we might call a consumption-led Chinese energy challenge down the road. When all of those Chinese consumers start buying automobiles and air conditioners, then that's the energy challenge China will face. That's the energy challenge 30 years down the road.

What I would say is that for China, the choice versus -- environmental protection versus economic growth is not a trade-off like it is in many places; that in fact many of the economic policies that have given rise to this level of energy demand today are not delivering the benefits that you might hope for.

Those five industries that I mentioned previously -- iron and cement, steel, chemicals, aluminum -- account for about 40 (percent), 45 percent of the country's energy demand and CO2 emissions, yet they only employ 14 million people out of a country of 1.3 billion. If you're China and you need to create 20 million new jobs each year, then iron and steel and cement is not the way you do it. You need services and labor-intensive manufacturing.

And the central government, and I think Professor Zhou will talk about this, is well aware of this, and it's instituted a number of policies to try to rebalance economic growth in a much less energy intensive direction.

In the near term, I think that's where we're going to see the greatest reduction in Chinese energy demand in CO2 emissions is on the demand side because on the supply side it's a little bit more challenging. As many of you know, 80 percent of China's energy comes from coal, the balance coming from hydropower and petroleum and a little bit of natural gas.

If we're thinking about between now and 2020 the ability to significantly shift away from coal is fairly limited. There's aggressive development of renewables in China, of wind power, of hydropower. Last year, China added about 4 gigawatts of wind power, which is an incredible amount, making it the second-or third-largest wind power market in the world. By 2020 China might have 50 or 60 gigawatts of wind power. It might have another 60 gigawatts of nuclear power. But that combined in 2020 will only account for about 6 (percent), 7 percent of China's electricity needs. Hydropower will make up a significant amount, but ultimately we are looking at coal in the medium term.

Looking beyond 2020, there's the possibility for a significant technological transformation in China, in part because of the rate of growth. When you're building 100 gigawatts of power each year, that type of scale and scope gives you the opportunity to do things that you can't do in the U.S., where to introduce new technologies we'd have to decommission old technologies.  In China fast growth creates opportunities for fast deployment of clean energy technology. Must of that technology is actually being developed in China today.

So in the short term it's conservation, and over the medium and long term it's supply side.

ECONOMY: Okay, thanks, that was a terrific overview.

Let me just ask, you mentioned that the Chinese leadership is putting into place some policies to try to improve energy efficiency, reduce energy intensity. Could you just talk a little bit about those policies, and how effective you feel they've been to date. What do you think are some of the challenges perhaps in actually getting those pushed forward?

HOUSER: Sure. So the official government target, and it was created by the gentleman to my left, is to improve energy intensive economic growth 20 percent by 2010, off a 2005 baseline. That's not heroic compared to China's historic trends. It's fairly heroic compared to the past five years, what has happened. It means turning around this spike in energy intensity that we've seen in the past five years.

To get there there's a number of things the government's going. First there's the 1,000-industry program, which the government has taken those nationwide targets, broken them down, and given them to the 1,000 most energy-intensive firms -- those same iron and steel, cement firms that I talked about a minute ago. Managers are being given new awareness of energy clocks, and freedom and how to go about managing those energy costs down.

On the supply side, there's a renewable portfolio standard and a feed in tariff for wind that has led to this aggressive growth in windpower. That was a policy driven event that's been -- that's been fairly successful.

If China does reach this 20 percent reduction, and the goal is after that another 20 percent over the five years after that, to give you a sense of scale, that would reduce as much CO2 as the Lieberman-Warner bill if we passed that. It's a similar order of magnitude of reduction of CO2 off of the baseline.

The efficiency measures that China is doing today I think will only get us about halfway there. To get the other halfway, China needs to rebalance the nature of economic growth and stop producing as much steel and produce more services and light industry.

And there are some policies there that have been a little slower to arrive, but are starting to yield fruit. One is a change in the trade policy for energy intensive goods. Contrary to what many folks in Washington, D.C. think, it's not Beijing's intention to become the world's largest steel producer and flood global steel markets. The pollution tied to that steel production causes $100 billion worth of economic loss each year in the country and isn't creating a lot of jobs.

Last year, in September, there was a change in the export VAT policy, so basically a disincentive to export steel and other energy-intensive goods. And in fact since then we've seen China's steel trade balance turn the corner and started to head towards a net import position. Those measures, macroeconomic policies take longer to take effect, but are going to be more promising over the long term.

ECONOMY: Great. Professor Zhou, first let me ask whether you have anything you would like to add to Trevor's discussion of the energy situation in China, some of the measures that China is taking.

ZHOU DADI: Personally, I really agree with what he has just commented. It's quite correct. And I think, you know, if I say what's the current achievement for the energy efficiency improvement, I would like to add that in 2006 we have 1.33 percentage of the efficiency improvements.

And last year the efficiency improvement rate becomes 3.66 percentage. It's already very high, you know. Average for the world in the last 30 years is -- the efficiency improvement rate per year is only about 1.1. So this year we will achieve more than 5 percent as a target. So if we can really do it, I think we will achieve the 20 percent efficiency improvement target by 2010.

And another important issue is we speed up the development now for renewables.  For example, last year China added about 3.5 gigawatts of wind power, and this year the wind power achieved about 10 gigawatts total, and by 2010, it will achieve about 20 gigawatts. So China will become very soon the biggest wind power producer country.

And we will really change our target by 2020. At this time, the new target for 2020 could be changing to like 50 gigawatts, even more. And nuclear power will be -- speed up also. Our original target for 2020 is we'll build about 40 gigawatts of nuclear. But from recent trends we can find that the 2020 target could more than 60 gigawatts, combined with that under construction, we will have at least more than 100 gigawatts of nuclear power around 2025 or even more in 2030. So nuclear could be become very important alternative.

At the same time we are developing the natural gas. Natural gas development rates, recent year, is about 20 percent per year. So we'll do a lot of work on that. And combined with the clean coal technology, for example, recently China became the biggest country to use the ultra-super critical technology in the world for the power generation. So in this way we will try our best to improve the efficiency, and to improve the clean coal technology, and the low carbon alternatives.

ECONOMY: You mentioned in your remarks the increasing role of renewables, as did Trevor, increasing role of renewables, improvement in energy efficiency, reductions in energy intensity. And I think China has gotten a lot of credit from the international community for making -- taking these steps.

In addition I saw recently that the Central Bank had announced the potential for China to -- or it's going to explore in any case a cap-and-trade system that might include some greenhouse gases down the line. At the same time China has resisted setting any sort of firm targets for limiting greenhouse gas emissions, and has been fairly tough in terms of advocating a restrictive international verification and monitoring system.

I'm wondering if you could lay out for us what you see as sort of the three or four key elements of China's climate strategy, and what you think it might take to get China over the bar in terms of setting targets and timetables -- harder sort of targets and timetables for emissions?

ZHOU: Tactically, it's very difficult to set up the targets at this time. You know, it's -- if you compare with per capita emissions, China is still very low. And we are still lower than the average of the -- the global average, per capita emissions. And, for example, the energy consumption in China is only about 1.4 tons of oil equivalence at this time per capita, and that in the United States is about more than seven tons of oil equivalence.  In this case, if you ask China to reduce the emission right now, I don't think it's doable.

So -- and technically it's very difficult to make some kinds of forecasts, when and what time points China can achieve the peak. And although we are working on that to try to find where and when China could have the peak times, but along with the development of -- into the industrialization and urbanization we still need maybe 20 years for some kinds of cyclical growth, including the energy consumption.

And on the other hand, it really depends on the achievements of the world. For example if really the developed countries can really take the lead and decrease its per capita -- emissions per capita, and the consumption significantly, then I think China will share the innovation of technology and the new type of consumption, and we can change our, you know, so-called development target.

Because as before, we take like the United States, like the other developed countries, as our targets to have cars per family, have a bigger house for each of the people including the people in the rural areas. And right now we already understand it's very difficult if we really copy the style of the production and consumption in the future, because we are facing more serious resources and environmental challenges, including climate change.

But we need a model.  So China is trying to create such a new model of development. But, you know, at this time no one can really guarantee that. So it really depends.

So I think China's policy and strategy on climate change is to try and do our best and find what we can do our best -- (inaudible) -- but not do something just to promise just some kinds of targets but we don't know how to do it. So this is China's very critical policymaking process.

And on the other hand we'll follow the so-called principle of the common -- (inaudible) -- responsibilities, and we'll work with the UN countries and work with all the big stakeholders, including the United States, to develop the multilateral and bilateral cooperation to encourage the technology transfer, and while of course China will welcome any financial and other help to speed up the Chinese change from the, you know, the old type of development into a new -- (inaudible) -- of sustainable development model.

Thank you.

ECONOMY: Thanks. So I think what I hear you saying is that there's sometimes in the United States and in Washington -- not Taiya and her group there at the SED, but there are sometimes this belief that if the United States would simply sign on to targets and timetables, if we would step forward and do the right thing, that China would somehow follow that. But I think what I hear you saying is that that's not the case.

ZHOU: You know, at this time China still is a big country, let's say it's a big developing country. In the recent published World Bank development report in 2006, the per capita GDP of China is only a little bit more than $2,000. And even by the so-called purchase power parity, China has only a little bit more than $7,000 per capita. And compared with the United States, yes, you have about $45,000. And all the developed countries have more than $20,000.

So in this case if you say China should take the same responsibility to set up a target by 2020, for example, as one of the developed countries, that's very, you know, difficult to be accepted by China.

So we'll try to get some periodic target like our efficiency improvements, our -- some kinds of -- for example, actions on the mitigation or adaptation, but we cannot really set up a so-called total cut, as in the Kyoto Protocol for the developed countries -- (inaudible).

So it's a very important principle. I think President Hu Jintao mentioned the last time, two times about that, so the different -- (inaudible). And the comment has been we will do our best. Given -- (inaudible) -- at those times, you have the two kinds of developed country take the lead and a developing country will follow.

So I think at this stage that China will take the following stage. And, of course, along with development, China maybe becomes more and more close or near as a developed country. And I think along with the approach, China will take more and more responsibility. Finally, maybe China becomes one of so-called Annex 1 country. (Chuckles.) There, we'll do that -- (inaudible) -- but not now.

Thank you.

ECONOMY: Okay. Thanks.

Taiya, the administration's Strategic Economic Dialogue just concluded and just from the publications that came out from it it seems that major outcome in terms of the kinds of issues that we're discussing here today is the sort of establishment of some joint task forces that are going to focus on issues like electricity, air, water, transportation and conservation of forests and wetland ecosystems.

If you would flesh these things out a little bit for us and help us understand in more concrete terms what seems to be going on in U.S.-China cooperation on these issues that are related to climate change, even though this is not directly tied into climate change negotiations.

TAIYA SMITH: Well, the last SED was just ended last week. We had some very vigorous conversations about climate change, energy security and environmental sustainability.

These followed on conversations that we'd had in December where, at that time, we said well, this is such a large strategic issue that's really affecting both of our countries, we need to do something about it. And the decision at that time by the leadership on both sides was to establish 10 years of cooperation.

So when we had these conversations about climate change I think Professor Zhou has really illuminated many of the aspects that China will represent. And the U.S. response to that tends to be okay, but there's a whole lot you could be doing right now, in terms of putting new technology in place, that you're not.

And there's a lot of policy changes that could happen which would have a significant impact, and that we can work together because, in the end, the U.S. and China are facing many of the same problems.

And as Trevor suggested, actually China has an easier time in some cases because China right now is developing its capacity, building a lot of new buildings, developing a lot of new capacity for energy production too, whereas the U.S., we have to retrofit everything that's already out there.

But when you put it together, both of our countries are looking at the same fundamental issues that revolve around energy security, dealing right now with the price of oil, finding ways to ensure that we can have continued economic growth that's both environmentally sustainable and also produces the benefits that we need to for the people of our countries.

So what we look at is how can we take advantage of those shared interests; what can we do together to really help both of our countries step forward and find this new model of living that Professor Zhou was talking about?

That was one of the interesting things coming out of the SED was the Chinese government has really come to the conclusion that the current model of energy intensive growth is not one that's going to be able to allow their country to develop at the pace and speed that they want to. And that when you look down the road, there just literally aren't the resources in the world for everybody to be at that level of energy-intensive usage in your daily life.

And so together we had a great discussion about how can we find a new model, what can we do together to reach that.

Now, part of the SED is that you can have very big, strategic discussions, but our job is to figure out how to actually make a change on the ground, and what are the concrete steps that we can take to really help improve the situation.

So we've launched this 10-year cooperation in energy environment. The framework itself was signed by Vice Premier Zhang Dejiang and Secretary Paulson on Thursday. I'm sorry, it was on Wednesday. Shortly after that, China announced that it'll be raising fuel prices, sort of as part of the discussions that we'd been having.

The framework is focusing initially on five specific goals, so it's clean, efficient, secure electricity; clean air; clean water -- both of those are big topics in both of our countries, but water certainly has taken a prominence in China recently; transportation. So we're looking for clean, efficient transportation, again, a topic that's been very big in both of our countries, certainly with China increasing its vehicle fleet on a daily basis, and it will soon overtake the size of the U.S. fleet.

And then the last one is on the conservation of forests and wetlands, and that goes to some of the broader issues. Again, you can't talk about wetlands and not talk about water and sort of where all the water comes from and sort of natural ecosystems (clean ?) in the process. But it also is a way that we can help raise the awareness in both of our countries.

So as we look at these five areas, there's a few key components that we've agreed to. One is that for each one, we're looking at it not just in the development of new technology, but policy. What policies can we be looking at in both countries, recognizing the policies are different for both countries, but there's a learning process that we have that will really change our usage and help create the right incentives for consumers, both industrial as well as civilian, to make better choices as we go forward.

And another part of that is education. Certainly both of our countries, the populations need to be educated; our industries need to be educated about the best way to move forward. At the same time, we're lucky in that in many cases our industries are educating the government as well. And we see this as a two-way road in cases.

We're also looking at capacity building. I think one of the starkest examples is when you look at the size of EPA that has some 75,000 employees and then you look at the new ministry of environmental protection in China that I believe has about 450 employees. And it sort of shows you how difficult it is to enforce regulations and other policies when you don't actually have the staff that's able to do so.

And then the final component is the one that we all look to with a lot of hope, which is about how do we create new technology. Is it simply the deployment of current technology? Is it the commercialization of technologies that are already existing but we don't actually have on the shelf and we're not able to work with in a commercial setting? Or is it really the development of new technology?  

And so through this 10-year framework we're engaging all sectors of society, whether that be NGOs, the research universities. I know Xinhua is already involved in many discussions with U.S. private sector companies as well as governments.

It also includes the average person on the street, because part of -- we recognize for both countries that if you don't engage the imagination of people -- it's like going to the moon. When the U.S. decided to go the moon, we didn't know how to get there. But nine years later we were able to do it, and part of it was that you had the support of the population.

Well, certainly for the U.S. and for China, we're looking for ways that you can engage the population to help make these changes on a daily basis.

So it is a full effort all around. We've been amazed. Sort of the traditional view of working with China is that it's very difficult. On these issues, we've found that in many cases the Chinese government is ahead of where the U.S. government is in encouraging us to move forward.

An example of that is when we talk about buildings, we're working very hard on smart buildings, with a lot of collaboration between U.S. industry, U.S. government, and U.S. research institutions on finding smart buildings -- the ways that you're building will work like your car, that you can kind of go plus a diagnostic in and it'll tell you what's going on within all of the systems in the building. It takes advantage of elevators doing down and the energy produced there to help light your rooms.

Well, the Chinese side is now working on smart blocks, which -- obviously it's easier to work on a smart block when you are building the whole block. But that sort of viewpoint has really been interesting for a lot of our scientists and engineers too.

So we're looking at how do we take advantage of these different overlapping interests, which will help us get at the agenda of dealing with climate change, dealing with energy security, and ensuring the environmental sustainability.

ECONOMY: Great. One of the issues that you raised and I think has been central in the broader climate discussions is the issue of technology transfer. And I know that President Bush and Secretary Paulson have been actively engaged in trying to develop a clean energy fund, a clean technology fund.

Could you talk a little bit about how the administration sees technology transfer actually happening? (Chuckles.) And what the Chinese would like to see, what the U.S. government is prepared to do; where the things intersect and where -- maybe where there's some challenge.

SMITH: One of the first things that is always brought up -- it certainly has been a policy of the Chinese government that technology transfer needs to be a very important part of their whole energy and environment strategy.

And what we found is, first, there's a bit of a misunderstanding on both sides as to what we mean by that. Anytime you get two words to describe something, there's a whole lot underneath.

For the U.S. government, because -- our technology really is run through the private sector. So we can't look at just handing over technology, which is our assumption of what the Chinese government is looking for.

In many cases, when we actually get down into the discussion, it's not sort of giving technology; a lot of times the Chinese government is looking to find ways to be able to have access to certain technologies.

So, for example, if you're in a province where you're looking to have clean water, the only sort of clean water membranes that they're aware of are the really big U.S. companies that are coming in and telling them about their new clean water membranes that will help reduce the industrial waste. So one of the questions they've had is well, what else is out there? What else is available? So we've been looking at ways to make sure we can spread that information.

We're also aware from the U.S. side there's a concern about making sure there's appropriate compensation, but also IPR, and are the intellectual property rights of the companies that are creating this technology protected sufficiently?

I've been surprised at how many U.S. companies have told me they're already actively engaged in transferring technology, whether that be know-how of how to build a plant or it's the knowledge that they have in creating a new type of technology that they're actively engaged in working with the Chinese government on.

And in many cases, they are not concerned about IPR, if it's in a specific agreement they have with a Chinese university. But it's when you start to get this information out into the public sector and then they, our companies, later get the phone call saying your product didn't work and they discover they didn't make the product, even though it had their name on it, that's when our real tension begins to build.

So we've been working on a variety of ways to begin to address that, with the double goal of making sure the right technology gets to China in the right places, making sure that there's access to the information and technology that's available, and also being able to protect the U.S. companies, and that of course applies to companies around the world.

One thing that's come up is a lot of places in China don't have the resources to be able to buy the most cutting-edge, innovative technology. And that's a concern; it's a concern that's been discussed certainly in Bali and around the world as well.

We've been working to put together a clean technology fund. This is something that China had certainly been asking about for quite a few years. Right now that fund is focused on getting existing technology to the places that it needs to be, so China certainly qualifies as one of those parts of the world that definitely need it.

It's being run through the MDBs, so all the banks -- the World Bank is actually the one that's facilitating the process. The U.S. government, the U.K. and Japan have already contributed. Certainly we're looking to China to also be part of that process, and I think there's been some receptivity from the Chinese government to participate as well.

And the hope is that we can work together in a multilateral context to help reduce the cost. So it's not giving technology, again, but it's saying if the dirty technology costs this much, what is the differential between having the better technology that will help reduce the greenhouse gas emissions, and then finding some funding to help cover that difference.

ECONOMY: Great. Before I open the discussion, is there anything that any of you would like to add to what you've heard, that another panelist might have said? Any additional comments or thoughts?

HOUSER: I may maybe make one comment on the climate negotiation, since that's a forum that the SED doesn't participate in.

I mean, the challenge, when we look forward to Copenhagen in 2009 is that we need leadership from developed countries, and particularly the U.S. And after what happened in 1997, we need climate policy from the U.S. going into Copenhagen, or shortly after, for the U.S. to have any credibility as a negotiator.

One of the largest issues in getting U.S. climate policy passed, in addressing those two-thirds of emissions that come from consumers, is some sensitivity about the share of emissions that come from industry, particularly iron and steel and cement.

In particular, concern that putting costs on those industries is going to create a competitive disadvantage for U.S. firms vis-a-vis Chinese firms, in particular. That was a feature in the Lieberman-Warner debate. It's a feature in most U.S. climate policy.

Looking forward in how we can broker an agreement to get the U.S. to pass economy-wide caps on emissions, to demonstrate that leadership, there's a little bit of help that we can get from China in that process.

While it's unreasonable to ask China in the interim to accept economy-wide limits, and probably isn't even a good idea, if we had -- if our expectations about future Chinese emissions five years ago were 79 percent below where they are now, there's a real difficulty in setting a baseline for China, that we would cap and provide credits underneath. That in the interim, the targets are going to have to be of a policy-based approach.

But if China could formalize some of the policies that it already has in place, that are trying to discipline those industries that the U.S. is most concerned about, then that would create some political space to pass more aggressive climate policy in the U.S.

And while Chinese climate negotiators are certainly concerned about putting a cap on emissions that would subject Chinese citizens to a fifth of the carbon budget of the U.S. -- so the farmer in Guangdong who's struggled his whole life to buy an air conditioner can't turn it on, but someone in California can still drive a Hummer.

If we're talking about industries and industries that don't employ a lot of people, then there's probably more room to impose the same types of disciplines on those industries as we are in the U.S.

That gets us to 2020, 2025, when China's per capital GDP is at the level, per capita emissions is at the level of OECD countries and we can talk about more comprehensive caps.

ECONOMY: Thanks. Okay.

So let me now open it to all of you. And if you would please identify yourself, your name and if you have an institutional affiliation, and please keep your questions brief.

Yes, in the back?

QUESTIONER: Jim Dingman, INN World Report. I was wondering if the panel could discuss their reaction to the state of the studies on the level of damage to the climate; that is, that many of them are rather grim, that the damage is already irreversible. And that these trends that we're talking about, the policy debates, may not be enough.

And I was wondering what kind of best scenarios you see coming out of the next few years in dealing with this. Because we -- you talk about wetlands. Many argue that the destruction of the wetlands in the delta in the Mississippi is what caused the disaster, or enhanced the disaster in New Orleans.

So I'm just curious what you think will happen. What should be done immediately?

ECONOMY: Thank you.

Who'd like to take the question?

ZHOU: Well, China has translated the IPCC, the full assessment report, into Chinese. And because that book is very thick and writing a very scientific way, so a lot of common people and the political people cannot really understand. So we are trying to interpret that into a more readable style -- (chuckles) -- to give the message to the -- all the common people and the decisionmakers.

And we are trying to develop a Chinese version, not only to translate, interpret the findings from the IPCC report, but more specifically on what damage, what kinds of climate change happened in China, and what's the future scenarios. So we are doing that. I think it will help the Chinese people, the common people and the decisionmakers, to try to understand the urgent action that's necessary.

But of course from -- other point of view is the Chinese understand that adaptation is necessary. Although for the long term, mitigation could be very more important, but at the same time we have to prepare for what already happened -- what has to be -- happen to some extent of the climate change. So we'll do both mitigation and adaptation.

But of course it's very difficult at this stage to find which one is most critical change and their impacts on the specific biosphere or other resources. So while doing that, you could find somewhere we can really take action to impact that, we'll do that. But yes, we need a lot more scientific work, in my understanding.

Maybe -- is this some kind of answer for your question?

ECONOMY: Taiya, do you want to add anything to that?

SMITH: I can say that there's -- the urgency that you're expressing here is something that we certainly feel very strongly. Anytime you try to move governments, whether it be the U.S. government or the Chinese government, it's naturally a slow process.

I've been amazed at how quickly we've been able to move things. Some of our emphasis on forests and wetlands certainly was not understood within the U.S. government as to why we said this is really important to focus on now. But the idea being that we need to save and restore as much -- we can of these really critical areas to be able to help us deal with the future.

So this isn't a satisfactory answer, I understand, but I know that the urgency's there. We're trying to make sure that the things that are easy to do are done very quickly in both of our countries, as well as trying to look down the road four and five years from now as to what we might be considering urgent at that time.

And that's certainly why we look at this as a process which has to include all of the American people as well as the Chinese people to make sure that everybody's taking every little step that they can to help deal with the current situation.

ZHOU: For example, one of the actions that we are taking is from the 2005 to 2010, we'll increase our forestry coverage area by about 200,000 square kilometers, so that we will have about 50 million tons of carbon sink.

But on the other hand, it'll help China to solve the -- somewhere the land erosion, and a lot of benefits for the increase of the forestry. So this is something we are taking.

ECONOMY: Okay. Jim, back there?

QUESTIONER: Jim Seymour (sp), the Chinese University of Hong Kong.

Given that -- I guess my question is for Drs. Houser or Zhou or anyone who wishes. Given that nuclear power is going to be increasing, albeit small part of the nuclear -- of the power mix in China, I wonder if you could comment on the plans for handling nuclear waste. This is a problem in the United States that we've always said we would cross that bridge when we come to it, and now we're on that bridge and we don't have satisfactory answers.

So I wonder what the plan is for transporting nuclear waste safely to a safe place and hopefully in a way that would not have a negative impact on the non-Han parts of the country, to -- (Xinzhan ?), Inner Mongolia, and so forth.

ZHOU: Oh, this is a very technical question. And although my background is so-called nuclear physics, but I haven't worked on this subject for a long time. So I understand what's your concern.

China has already long time working on the nuclear -- start from the weapon, but now is working more on the peaceful use for the nuclear power. And we have already established a system -- from the basic material production, concentration and the waste treatment.

But, of course, that's before is not so much waste. So, it's easier to -- (inaudible) -- waste, but in the future when we scale up the nuclear power, we have to develop the whole system, from the material production to the waste treatments and storage. Now we have real research institutes working on that, and develops a different kinds of alternatives, and try to find the better sites for storage.

And I think that we'll follow -- first follow the IAEA's rules and we'll learn from all the countries what the lessons and what the experiences, and we'll try to develop such technology. And we already established a so-called "nuclear safety bureau," and take care of the standards, and a very strict monitoring and a checking system already be established. So, I think we'll have a good solution for that. Thank you.

ECONOMY: Okay.

Yes, over here.

QUESTIONER: Denis Simon, Levin Institute.

About two years ago the vice minister Shang Yong, from the Science and Technology Ministry, came here and talked about this new science and technology program -- the 15-year medium and long-term program. And I'm wondering what kind of coordination takes place between the NDRC and the Ministry of Science and Technology to ensure, in fact, that the big policies are actually being coordinated across the Chinese government ministries?

Those are always big challenges in the U.S. government, and obviously on the Chinese side. And I'm wondering if Professor Zhou, and maybe Taiya, can comment about, sort of, the flavor of this coordination as you see it in action, post-these SED meetings, because during the meetings it's a -- may be very serendipity, but after the meetings, you know, that's when the rubber hits the road, in terms of implementation. So maybe both of you could comment on that.

ECONOMY: (Laughs.)

SMITH: That's one of the greatest challenges, as you know, for both of our governments. What we're doing, through this 10-year framework, is we have a core group of agencies and ministries, which is about five from each side. From the Chinese side -- that includes most NDRC; MEP, their new ministry of environmental protection; SFA, the state forestry guys -- and it's led by NDRC. And NDRC has the responsibility to coordinate all of these ministries together and make sure that they have the same policy agenda and prioritization.

We have to do the same thing on our side. And I don't think it's all that much easier -- bringing together all of our groups, which includes DOE, Department of Transportation, EPA, State Department, and Treasury has the job to coordinate there. What we find often is that the representatives at the DGE vice minister level that participate in these meetings, will have differences of opinion, and we'll find on both sides, that we have to work those out so that we have a unified way forward.

The power, for us, really has been that we have the vice premier and the premier so interested in these topics that it brings together the Chinese government and the U.S. government -- under our leadership also, with the same interests, to have to have a prioritization of what's going to be most important. So we'll figure out what's most important on each side, and then we have to figure out how we make sure those interests intersect and overlap in a way that works for both countries.

I would say that most has been very energetic. We've got a lot of ideas, a lot of thoughts, and a push forward. And that's been very helpful to the process. I think also the Ministry of Urban Planning and Housing -- so, there's a new title, is another one of the ministries on the Chinese side that is very energetic and has lots of new ideas that help push it forward. And NDRC has the wonderful of challenge of trying to coordinate and bring them into one policy prioritization.

ZHOU: I think that it will be happening all the governments, including the Chinese government, that a different ministry will try to have more power to some extent. But, in China, you know, we have a state council, it's a -- it's a high-level coordinating committee -- commission.  It's always a problem if it needs to be compromised, or need to be integrated, then go -- come into the state council and the premier or vice premier will take up that, and to make the agreements and the consensus between the ministries.

And, of course, Ministry of Science and Technology, in general, is in charge of all the important -- the basic and applied technology, and the sciences R&D. But one year to go into application and into demonstration, and into real engineering projects then the NDRC will have to take care of that. So it's a combination from -- and in my understanding, the two ministries will take up the different stage of the -- of the technology and the science developments. And the demonstration and finally spreading that. So you can find things.

But, I think the -- in Chinese way is if you have questions, problems, the ministry will talk to each other and get consensus. And the final results is to move things more smoothly. So I think they are doable.

ECONOMY: Okay. Yeah, right there.

QUESTIONER: Liz Wishneg (sp), Montclair State and Columbia University.

It's very heartening to hear about all of these policy changes and a tech transfer plans, but where the challenge is is in implementation, as this panel well knows. And I wonder what's being done to make sure that these technologies are actually going to be used, that the provincial level will actually carry out these new efficiency standards. And, in particular, I wonder what happened to the "Green GDP" idea, which would connect performance to environmental behavior?

HOUSER: Let me maybe take the last -- the last bit first. Some very well-meaning Chinese planners figured out what the U.N. had figured out a long time ago, which is it's extremely difficult to do an accurate Green GDP accounting. It wasn't for a lack of trying. So there's other metrics that are starting to be worked into the criteria for provincial officials and their advancement of their non-economic growth criteria going forward, rather than just a Green GDP metric.

Certainly, enforcement at a provincial level is a challenge. But it's not -- it's not an insurmountable challenge. The top three priorities that Beijing has, at any time, certainly get done at the provincial level. The amount of economic restructuring that was necessary for WTO accession, for example, was very challenging at a provincial level. It required creating a lot of losers, as well as -- as well as winners, and there were a lot of vested interests that were routed.

As energy and environment raise on the policy agenda, into the ranks of those top three, then the policy that the central government puts forth will certainly be implemented. There's -- there's challenges in managing that relationship, but it still, it's still a government run very much from Beijing.

ZHOU: I think Green GDP, we do have a great team led by the Ministry of Environmental Protection working on that. And we try to collect the data to apply that for all the provinces for several years. And finally -- we found that, one it's very hopeful if it really gets the number. But the difficulty is there's a lot of indicators that, you know, it's very difficult to get the data, and is some kinds of, you know, artificial or based on the majority of the personal scientists.

So, in the -- finally, you find, conceptually, it's very, very useful, but practically, you know, it's (yearly ?) you get the number is very difficult. So you have -- (inaudible) -- for some years. But you cannot repeat that for every year. So, you got so big job so to do. So we are still developing that, and Ministry of Environmental Protection mentioned that we keep on working on that. But it's not majority, no.

But, on the other hand, you know, the Ministry of Environmental Protection declared their number for pollution (laughs), pollutants -- a concentrating of air, water quality, everything -- annually, for each of the provinces. It help to become one part of the important socioeconomic indicators besides of the GDP. So we do have some efforts to work on that.

ECONOMY: Let me just add one point to that because I think, in a way, it's -- it's an important question that ties into an earlier question about, sort of, the coordination and the politics. Because while it may be true (laughs) that what Beijing says, goes, and the top three priorities get implemented -- I'd be curious to know what those top three priorities are right now, it's also true that when you look at something like the Green GDP the challenge was not only in figuring out how to do it, but there was substantial resistance from the provinces to being evaluated in that regard. And the National Bureau of Statistics was not very forthcoming, they weren't that interested in doing it.

So, you had strong efforts at leadership from the Ministry -- well, it wasn't at time the Ministry of Environmental Protection, but you had a lot of interest and enthusiasm there but you didn't really have support from other key parts of the government to push it forward. So, I think while they're continuing with the effort, it is a very good example of how an excellent potential policy initiative can become stymied because of political, sort of, infighting, game playing, or just lack of support.

Okay. Okay, I promised you -- back here first. And then --

QUESTIONER: (Inaudible) -- Environmental Technologies Practice

We touched base a little bit on, sort of, the cost of being environmentally friendly. And one can argue that, in the U.S. predominantly, environmental friendliness is also -- is mostly done if it's an economically beneficial. That's when the policy gets implemented. And that environmentally-friendly technologies generally cost more than non-environmentally-friendly technologies -- be it scrubbers in your smokestacks and things of that nature.

I was wondering if Professor Zhou, or Trevor you, could comment on how China evaluates that cost versus benefit trade-off? Is it just looking at direct costs? Is it looking at long-term costs of cleaning up that pollution, so on and so forth? Thank you.

HOUSER: I think that there is -- there's a number, there's a number of metrics that are used, a number of considerations. The one that I mentioned about -- just what type of economic growth is going to deliver the employment gains and the welfare gains that you want. And in that realm, and, kind of, macroeconomic policy, it's -- there's a lot of complementarity between smart economic policy and economic policy that's going to reduce energy demand.

On the supply side, there is a number of policies that are taken just for local environmental reasons. So, a requirement to put in sulfur scrubbers; increasing those still inadequate penalty for, 'if you don't run your sulfur scrubbers' -- I mean, that incurs a cost, in a higher electricity cost it passes right on to consumers. But the sulfur dioxide pollution causes $200 billion a year worth of economic loss, and 750,000 premature fatalities. So, those types of public welfare -- these aren't climate change concerns, per se, but a lot of the policies that are implemented for local environmental reasons have a climate dividend.

I think that, at the end of the day, the major concern is that environmental protection is raising in the league tables possible risks to stability -- to government stability. We've had some of the largest environmental protests in humanitarian history taking place in China. And while it's easy to deal with, kind of, civil disobedience in the democracy realm, the air is something that you can't hide, right. Everybody knows that it's polluted.

And it's clearly the job of the central government to deal with the air. And so if the air continues to get worse, it becomes a threat to the legitimacy of the government. And I think that, above all else, at the end of the day, is the chief motivator.

ZHOU: Wand we have introduced all the moethodologies and the approaches developed in -- that developed the countries, but on the environmental protection. And in our university, we do have so-called "environmental economics" to be introduced for the students. And we calculate, or evaluate all the so-called alternatives. If you have the -- China people understand what's the cost for the environmental pollution. But that's not enough. So, (to some extent ?), we introduced mostly the total quantity to control, or the standards and the costs for the quality of the environment.

That means all the emitters who have to obey some kinds of standards or lose. If you exceed that standard, you'll be fined, or you'll be ordered to close your production. For example, for this five years we -- the target is to decrease 10 percent of the total emission of the -- of the sulfur dioxide and COD in the water, regardless of the increments of the production.

And the target has been allocated to the 30 provinces as a specific target for each of that, and each of the provinces allocate that decompose the target into cities and counties and into the -- in the process. So, they have to take specific actions to reduce the total emission of the -- (inaudible) -- pollutants.

For example, all the new constructed power plants of coal burning have to be equipped with a sulfur scrubber. And last year we already equipped about more than 20 -- 250 gigawatts of power plants with a sulfur scrubber already. And we will apply that to older power plants in the near future. Thank you.

ECONOMY: All right.

We have time for one more question, I'm afraid. And I had -- a man over here had his hand for awhile. And then we'll just offer each of our panelists a chance to make one final comment.

QUESTIONER: Thank you. It's Jim Estothia (sp), we Bloomberg News.

I wanted to get back to the question of urgency for a second. There's different forecasts and projections for when the, you know, climate damage from greenhouse gasses will, sort of, trigger the most catastrophic effects of climate change. It may be irreversible. The IPCC has a forecast that, sort of, reflects 450 million parts per million. That could be the tipping point. James Hansen, over at Goddard thinks -- I think, we may already be there, and that we shouldn't be building any new coal plants that don't sequester carbon.

I'm wondering if the decisionmakers and leaders in China have, sort of, internalized this idea that there may be a point in time when it's just irreversible and that we've gone too far. And if they have, what -- you know, how far off is that? Or what's the number they're looking at, or how do they quantify that?

ZHOU: We understand from the IPCC report that, for example, European Union raised the target to limit the temperature -- and raise -- limited to the two degrees, right. And in that case, the carbon emission -- dioxide emission have to be limited about 450 ppm, and that, totally, greenhouse gas emission will be limited with about 550, or something like that. I cannot recall the specific number, but it's like that.

In that case, the developed country has to be -- decrease their emissions by 2050 about 60 (percent) to 80 percent. And I think, for some country like the United States could be asked to decrease by 90 percent of your higher intensity. In that case, we understand that developing country has to be, you know -- decreased by the emissions, compared with current emission, by about -- I think it's 20 (percent) 30 percent, even.

So we look at that as one of the scenarios. And China is really based on this kind of scenario, is thinking about -- you have all the country take this kinds of target as a action plan, and what China should do. And we are thinking about when we will get to the peak of the emission, and when we have to -- when we have to go down our total emissions. But this is still under study.

Actually, I think it really depends, because we are -- for the whole world, I think all the people is like doing and learning and the doing process and we'll look at that. Thank you.

ECONOMY: Let me just offer you a quick opportunity -- anybody on the panel, if you want to make just a -- offer a final thought, or didn't have a chance to say something you'd like to get across?

SMITH: I think the one thing that -- what everybody will need to keep in mind is that in China the motion amongst the people is really significant. We've had groups of business entrepreneurs and others come to talk to us about their concerns about the environment in China -- and these are Chinese entrepreneurs, and the work that they're doing to try to make a difference and to change that.

We're starting to see a lot of pressure on the central government, as Trevor was suggesting, that people need to see change. They need to see the legitimacy of the central government enforced by its ability to deal with environmental challenges, and the awareness of what's happening, both in the -- there's a Carbon Club now at Beijing University which is looking at carbon trading; the work that we've all been doing with China through EPA and MEP on sulfur dioxide trading, and helping set up a national plan for that.

That's all got young people involved and really energized about what they can do to participate in the future. So, that seems to really be a big motivator for the central government. And certainly having people like Professor Zhou. who's been working on this for so many years, having the foundation to then step up and move forward.

It, of course, is never fast enough for us in the U.S. We work with Congress regularly and we know everything's got to be a bit faster. But, it's moving forward, and we're -- you know, when you're at the front line of watching it, you can see that movement. And hopefully that, together, the two countries will be able to deal with this as the largest contributors to greenhouse gasses.

HOUSER: Yeah, I guess I would just say that -- and towards your question, that if we need to reduce global emissions 50 percent by 2050, then that means that the U.S., and Europe and Japan need to reduce probably 80 percent by 2050, and the developing world maybe 25 or 30 percent, starting to -- peaking at 2020, 2025, and then coming down. That's possible without a significant amount of economic cost.

The challenge is the politics. And we're going to have to go beyond just meeting at the climate negotiating table and trying to hash it out in the 11th hour, to really understanding, what are the political blockages in each country from staging those types of commitments in a way that makes sense for both development goals and for climate goals?

The Chinese side needs to know more about what happens in the U.S. Congress and what it's going to take to get a climate bill passed. The U.S. side needs to understand better about what happens in the state council in China, and what real intentions are towards economic growth and climate change. Without that type of understanding, we're never going to be able to get to where we need to be.

ZHOU: I think my words will be very short answering to the cooperation between us, not only on economics and the politics, but also on the environment is very important. And I think the Chinese people, and our academic people, are willing to work together with the United States as partners and colleagues, and to encourage the future cooperation on all the fields. And I think if we are doing our best, we can change something in the near future. Thank you very much.

ECONOMY: Thanks.

I think I failed to keep us to 9:45, as I was told to do. So I apologize for that. But I do think that the panel has succeeded brilliantly in beginning to sketch out some of the key issues here. So, thank you. (Applause.)

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      THIS IS A RUSH TRANSCRIPT.

New York City, New York

RICHARD N. HAASS: Well, good morning. I'm Richard Haass. I'm President of the Council on Foreign Relations, and I want to extend a welcome to everyone here, particularly for those who have traveled several thousand miles from China. You are particularly welcome here at the Council today.

I think it's fair to say that no topic has risen more quickly on the U.S. policy agenda in recent years than has climate change. This is a subject with many dimensions, but I would point out two.

One is the domestic side, and the question is what we in the United States can and should do to reduce carbon emissions here. But there is also a foreign policy dimension, which is what the United States should do, what the United States can do to work with others to counter climate change and its effects around the world. And obviously in a global world what happens in places far off still affects the United States. There is ultimately only one global climate.

And here at the Council we are focusing on the international dimension, though again, the ability of the United States to be effective at home in this area will largely shape our ability to be persuasive abroad.

Here at the Council on Foreign Relations, we recently sponsored an independent task force report on climate change. And it looks at the U.S. policy options and recommends strategies to exercise international leadership on the issue. And the task force co-chairs, two former governors, Governor George Pataki of New York and Governor Tom Vilsack of Iowa, and the project director, Council senior fellow Michael Levi are here, and will discuss the report's findings and recommendations later this morning, and obviously copies of this report are available outside. I would say they're on sale, but they are free. There is such a thing as a free report.

The task force in today's symposium are but two of many things the Council is doing in this area on climate change and on energy. And what we've got is a large program in this area, which includes a full slate of research, publications, meetings, website coverage and so forth.

One of the many aspects of the debate about climate change and U.S. climate change policy is how to deal with the emerging countries, and above all, the larger emerging or developing countries. And none is more central to this debate than is China.

And obviously the environmental consequences of China's tremendous growth are profound, and they are becoming clear both to its own people and to the world. And given China's rising carbon emissions and the projection of more to come, its participation will be essential to any efforts to combat climate change around the world. But to say that is not to answer the basic question which is exactly how China can and should be integrated into multilateral arrangements to reduce emissions.

So today's -- the timing of today's program, the focus of today's program, could hardly be better. And we've got three sessions -- I'd say three smart sessions -- looking at three topics: the first is Chinese energy and climate strategy; the second is energy technology in China; and third session is the one that looks at prescription. It's the session that looks at policy options for the United States, and that will obviously dovetail closely with the findings of the just published task force report.

In closing, let me also thank the China-U.S. Exchange Foundation for arranging and supporting the participation of our international speakers and our guests. And they are here as part of a delegation from Tsinghua University led by Jang Sheelian (ph). And we are delighted to have all of them with us, and we hope this is very much part of a continuing dialogue between the Council on Foreign Relations and between yourselves and others in your country.

Without any further delay, let me -- I'm happy to turn things over to the extraordinarily capable hands of Elizabeth Economy, who is the C.V. Starr Senior Fellow and Director of Asia Studies here at the Council on Foreign Relations.

ELIZABETH C. ECONOMY: Thank you very much, Richard.

It is a pleasure to have the opportunity to have the opportunity to moderate this first session of the symposium on China and climate change.

Before we begin, please if you would turn off all your electronics -- Blackberries, and cell phones. And I know everybody asks you to do this, and inevitably there's one or two or three people who don't do it. But I am asking you in part because it will interfere with our sound system, but also of course because it interferes with our speakers' remarks. So if you would please turn them off now. And also just let me make a note that this symposium, the entire symposium, will be on the record, and broadcast throughout the United States, and globally, via cfr.org.

So with that let me just begin by reiterating a little bit of what Richard said in his opening remarks, and that is, that I think this symposium really marries two of the most significant phenomena of the 21st century -- the rise of China as a global economic powerhouse on the one hand, and the transformation of the earth's atmosphere and landscape as a result of global climate change. And both of these phenomena are of course exerting a profound impact on the way the rest of the world lives and does business.

This morning, we're going to focus on the intersection of these two phenomena. We're at a point today where China is and will continue to be for the foreseeable future one of the key, maybe top two or three players in the global effort to address climate change, in large part because it has become, as a result of its extraordinary economic growth and its reliance on fossil fuels, one of the leading contributors to the problem by some international estimates having surpassed the United States as the leading contributor of the greenhouse gas carbon dioxide in 2007.

At the same time I think the Chinese leadership has come to understand that the country will face a steep price if climate change continues unabated, whether we're talking about the more aggressive melting of the Tibetan glaciers, which will contribute to greater floods and then droughts, or a potential decline in key grain yields by 2050 of up to 37 (percent) to 40 percent, or of course the rise in seal level which threatens tens of millions of coastal Chinese, if not hundreds of millions.

But as we've seen I think with our own fraught debates on climate change here in the United States, arriving at a national policy on climate change in particular in a highly charged international context is no small matter. And the Chinese are grappling on the home front with how best to balance continuing and maintaining their economic growth with developing and implementing an effective climate change response. And at the same time they're deeply engaged in international negotiations that are focused on issues of historic responsibility or equity, sovereignty and state capacity.

So our goal this morning is a relatively straightforward one, albeit not a very simple one, and that is first just to understand the trends in China's energy use and what they will mean for the trajectory of the country's greenhouse gas emissions; then to look a bit at China's climate change strategy today, and assess some of its strengths and weaknesses; and finally, and perhaps most importantly, to think through how the United States and China can work together most effectively to transform the way that China, and I have to say, the United States do business.

To do this, it is my pleasure to introduce a truly stellar panel, really, I think some of the top experts both here and in China. To my immediate left is Trevor Houser. He is the director of the energy and climate practice of the Rhodium Group, and a visiting fellow at the Peterson Institute for International Economics. He is also the author or co-author of several path-breaking studies on China and energy issues and on climate change issues. He just had a book come out called Leveling the Carbon Playing Field this year, and he has another book coming out this year. He puts all Council fellows to shame, I have to say two books in one year, called China's Energy Evolution. And for my money he really is -- there's nobody better when it comes to providing a detailed and nuanced understanding of China's energy situation and some of the potential policy levers that we have available to employ to meet this challenge, at least here in the United States.

Because in China, we have Professor Zhou Dadi. He is currently a senior adviser and researcher at the National Development and Reform Commission's Energy Research Institute. And until 2006 he was also the director-general there.

He has recently joined the Carnegie Center in Beijing, where he'll be a research fellow also working on climate and energy issues. He has long been renowned as one of China's most eminent energy researchers and climate policy strategists. He has served as the lead or co-author of several of the IPCC assessments. And in 2007 he was awarded the U.S. EPA's climate protection award.

I also have to inject a personal note and say that whether he remembers or not, back in the early 1990s, when I was a struggling graduate student working on this issue of China and climate change, Professor Zhou was extremely helpful to me. He was one of the very few people working on this issue of modeling carbon emissions, looking ahead. We're talking 16, 15 years ago, but he really helped me to understand better China's energy situation at the time.

So it is indeed a great pleasure for me to have him back here.

And last but certainly not least we have Taiya Smith. And she is the executive secretary of the Treasury Department and coordinator for the U.S.-China strategic economic dialogue, which I think maybe we've all come to understand is not only the preeminent bilateral forum for discussing issues of trade and finance between China and the United States, but also issues of energy and the environment.

Taiya previously served as special assistant to Deputy Secretary of State Bob Zoellick, where she focused on Africa, Europe and global military affairs; and she was also the State Department's point person on Darfur during 2004 and 2005.

So the way that we are going to run this session is that I am just going to begin by asking a couple of questions of our panel, just to help set the stage for about 25 minutes or so, and then open the floor for your questions.

Let me start with you, Trevor, and just ask you to lay out some of the key trends that you see in China's energy sector today over the next maybe five to 10, 15 years, of energy makeup and some of the drivers, whether we're talking about urbanization or industry, transportation sector; and how you think these trends are going to affect Chinese greenhouse gas emissions.

TREVOR HOUSER: Sure. Thanks, Elizabeth. And let me start by saying any of my research stands on the shoulders of giants, and no one among them is more giant than Professor Zhou, who's really been doing the path breaking work in this field for a long time. So it's an honor to be on the panel with him, and with Taiya Smith who actually has to put policy to all this analysis and does a fantastic job doing so.

I would start by saying that the energy future that we're looking at today for China is quite different than the energy future all of us were looking at back in 2000 -- 2001. Between 1978 and 2000, China did something which was largely unprecedented both for a developing country and -- or a developed country. Over a 20-25 year period, sustained economic growth of 9 percent while energy demand only grew at half that rate. That degree of efficiency meant that in 2000-2001 China was only 10 percent of global energy demand, rather than 30 percent of global energy demand which it would've been if that type of economic restructuring hadn't taken place.

Sitting in 2000-2001 and looking forward, most energy forecasters either in the U.S. or in Paris at the International Energy Agency or in Beijing thought that China would be able to continue that level of energy efficiency improvement for years to come, and made forecasts based upon that.

And instead what we saw in 2001 and 2002 was a change in the nature of economic growth and its relationship to energy demand in China, so much so that today, in 2007, the IEA's forecast for Chinese energy demand is 79 percent higher than what it was just five years ago. So that's two Indias of today, or an India of 2030, that's our rounding error when we think about Chinese energy demand.

So it begs the question, what happened in those five years. Why is our forecast today so different than it was before? And more importantly is that forecast we have today any more hardwired than the forecast that we had five years ago?

The change -- what happened in those five years, wasn't that the economy grew faster than expected, though it did a little bit. It was a change in the nature of economic growth. China went from focusing primarily on light manufacturing, starting in 2002 there was a surge in energy intensive heavy industry, in iron and steel and in cement.

China today is about 35 percent of global steel production; 50 percent of global cement production; 50 percent of global glass production. That's primarily for Chinese consumption as the country urbanizes. Since the late '90s China has moved about 160 million Chinese citizens from rural areas to urban areas, or they've been in rural areas that have suddenly become urban areas, and that, of course, takes a lot of steel and cement and glass.

But China has also become a major global supplier of those goods. Four years ago China was the world's largest steel importer. Imports exceeded exports by about 450 percent. Only five years later, and China is now the world's largest steel exporter. Exports exceed imports by about 450 percent.

That turnaround in the trade balance for metals has created a significant amount of energy demand in China. It's also accounted for about half the growth in China's global trade surplus, right. So the reason that China has a global trade surplus today isn't so much because it started exporting more toys than televisions, but that it stopped importing a lot of the energy-intensive goods that it did before.

So today industry is the energy challenge China faces. That's different than the U.S. Here we have a consumer problem. All the energy we use is in automobiles, buildings like this; that accounts for about two-thirds of our energy demand, is things tied to consumers.

In China about two-thirds of energy demand is tied to producers, and specifically to five industries: to iron and steel, cement, chemicals. The iron and steel industry alone consumes 18 percent of China's energy demand, right. Compare that to all the households in the country combined, which account for about 10 percent. The chemical sector uses more energy than private transportation, and the commercial sector -- the aluminum sector uses more energy than the commercial sector. So it's a very different type of challenge than what we faced today.

Looking forward, all of that cement and steel is laying a foundation for what we might call a consumption-led Chinese energy challenge down the road. When all of those Chinese consumers start buying automobiles and air conditioners, then that's the energy challenge China will face. That's the energy challenge 30 years down the road.

What I would say is that for China, the choice versus -- environmental protection versus economic growth is not a trade-off like it is in many places; that in fact many of the economic policies that have given rise to this level of energy demand today are not delivering the benefits that you might hope for.

Those five industries that I mentioned previously -- iron and cement, steel, chemicals, aluminum -- account for about 40 (percent), 45 percent of the country's energy demand and CO2 emissions, yet they only employ 14 million people out of a country of 1.3 billion. If you're China and you need to create 20 million new jobs each year, then iron and steel and cement is not the way you do it. You need services and labor-intensive manufacturing.

And the central government, and I think Professor Zhou will talk about this, is well aware of this, and it's instituted a number of policies to try to rebalance economic growth in a much less energy intensive direction.

In the near term, I think that's where we're going to see the greatest reduction in Chinese energy demand in CO2 emissions is on the demand side because on the supply side it's a little bit more challenging. As many of you know, 80 percent of China's energy comes from coal, the balance coming from hydropower and petroleum and a little bit of natural gas.

If we're thinking about between now and 2020 the ability to significantly shift away from coal is fairly limited. There's aggressive development of renewables in China, of wind power, of hydropower. Last year, China added about 4 gigawatts of wind power, which is an incredible amount, making it the second-or third-largest wind power market in the world. By 2020 China might have 50 or 60 gigawatts of wind power. It might have another 60 gigawatts of nuclear power. But that combined in 2020 will only account for about 6 (percent), 7 percent of China's electricity needs. Hydropower will make up a significant amount, but ultimately we are looking at coal in the medium term.

Looking beyond 2020, there's the possibility for a significant technological transformation in China, in part because of the rate of growth. When you're building 100 gigawatts of power each year, that type of scale and scope gives you the opportunity to do things that you can't do in the U.S., where to introduce new technologies we'd have to decommission old technologies.  In China fast growth creates opportunities for fast deployment of clean energy technology. Must of that technology is actually being developed in China today.

So in the short term it's conservation, and over the medium and long term it's supply side.

ECONOMY: Okay, thanks, that was a terrific overview.

Let me just ask, you mentioned that the Chinese leadership is putting into place some policies to try to improve energy efficiency, reduce energy intensity. Could you just talk a little bit about those policies, and how effective you feel they've been to date. What do you think are some of the challenges perhaps in actually getting those pushed forward?

HOUSER: Sure. So the official government target, and it was created by the gentleman to my left, is to improve energy intensive economic growth 20 percent by 2010, off a 2005 baseline. That's not heroic compared to China's historic trends. It's fairly heroic compared to the past five years, what has happened. It means turning around this spike in energy intensity that we've seen in the past five years.

To get there there's a number of things the government's going. First there's the 1,000-industry program, which the government has taken those nationwide targets, broken them down, and given them to the 1,000 most energy-intensive firms -- those same iron and steel, cement firms that I talked about a minute ago. Managers are being given new awareness of energy clocks, and freedom and how to go about managing those energy costs down.

On the supply side, there's a renewable portfolio standard and a feed in tariff for wind that has led to this aggressive growth in windpower. That was a policy driven event that's been -- that's been fairly successful.

If China does reach this 20 percent reduction, and the goal is after that another 20 percent over the five years after that, to give you a sense of scale, that would reduce as much CO2 as the Lieberman-Warner bill if we passed that. It's a similar order of magnitude of reduction of CO2 off of the baseline.

The efficiency measures that China is doing today I think will only get us about halfway there. To get the other halfway, China needs to rebalance the nature of economic growth and stop producing as much steel and produce more services and light industry.

And there are some policies there that have been a little slower to arrive, but are starting to yield fruit. One is a change in the trade policy for energy intensive goods. Contrary to what many folks in Washington, D.C. think, it's not Beijing's intention to become the world's largest steel producer and flood global steel markets. The pollution tied to that steel production causes $100 billion worth of economic loss each year in the country and isn't creating a lot of jobs.

Last year, in September, there was a change in the export VAT policy, so basically a disincentive to export steel and other energy-intensive goods. And in fact since then we've seen China's steel trade balance turn the corner and started to head towards a net import position. Those measures, macroeconomic policies take longer to take effect, but are going to be more promising over the long term.

ECONOMY: Great. Professor Zhou, first let me ask whether you have anything you would like to add to Trevor's discussion of the energy situation in China, some of the measures that China is taking.

ZHOU DADI: Personally, I really agree with what he has just commented. It's quite correct. And I think, you know, if I say what's the current achievement for the energy efficiency improvement, I would like to add that in 2006 we have 1.33 percentage of the efficiency improvements.

And last year the efficiency improvement rate becomes 3.66 percentage. It's already very high, you know. Average for the world in the last 30 years is -- the efficiency improvement rate per year is only about 1.1. So this year we will achieve more than 5 percent as a target. So if we can really do it, I think we will achieve the 20 percent efficiency improvement target by 2010.

And another important issue is we speed up the development now for renewables.  For example, last year China added about 3.5 gigawatts of wind power, and this year the wind power achieved about 10 gigawatts total, and by 2010, it will achieve about 20 gigawatts. So China will become very soon the biggest wind power producer country.

And we will really change our target by 2020. At this time, the new target for 2020 could be changing to like 50 gigawatts, even more. And nuclear power will be -- speed up also. Our original target for 2020 is we'll build about 40 gigawatts of nuclear. But from recent trends we can find that the 2020 target could more than 60 gigawatts, combined with that under construction, we will have at least more than 100 gigawatts of nuclear power around 2025 or even more in 2030. So nuclear could be become very important alternative.

At the same time we are developing the natural gas. Natural gas development rates, recent year, is about 20 percent per year. So we'll do a lot of work on that. And combined with the clean coal technology, for example, recently China became the biggest country to use the ultra-super critical technology in the world for the power generation. So in this way we will try our best to improve the efficiency, and to improve the clean coal technology, and the low carbon alternatives.

ECONOMY: You mentioned in your remarks the increasing role of renewables, as did Trevor, increasing role of renewables, improvement in energy efficiency, reductions in energy intensity. And I think China has gotten a lot of credit from the international community for making -- taking these steps.

In addition I saw recently that the Central Bank had announced the potential for China to -- or it's going to explore in any case a cap-and-trade system that might include some greenhouse gases down the line. At the same time China has resisted setting any sort of firm targets for limiting greenhouse gas emissions, and has been fairly tough in terms of advocating a restrictive international verification and monitoring system.

I'm wondering if you could lay out for us what you see as sort of the three or four key elements of China's climate strategy, and what you think it might take to get China over the bar in terms of setting targets and timetables -- harder sort of targets and timetables for emissions?

ZHOU: Tactically, it's very difficult to set up the targets at this time. You know, it's -- if you compare with per capita emissions, China is still very low. And we are still lower than the average of the -- the global average, per capita emissions. And, for example, the energy consumption in China is only about 1.4 tons of oil equivalence at this time per capita, and that in the United States is about more than seven tons of oil equivalence.  In this case, if you ask China to reduce the emission right now, I don't think it's doable.

So -- and technically it's very difficult to make some kinds of forecasts, when and what time points China can achieve the peak. And although we are working on that to try to find where and when China could have the peak times, but along with the development of -- into the industrialization and urbanization we still need maybe 20 years for some kinds of cyclical growth, including the energy consumption.

And on the other hand, it really depends on the achievements of the world. For example if really the developed countries can really take the lead and decrease its per capita -- emissions per capita, and the consumption significantly, then I think China will share the innovation of technology and the new type of consumption, and we can change our, you know, so-called development target.

Because as before, we take like the United States, like the other developed countries, as our targets to have cars per family, have a bigger house for each of the people including the people in the rural areas. And right now we already understand it's very difficult if we really copy the style of the production and consumption in the future, because we are facing more serious resources and environmental challenges, including climate change.

But we need a model.  So China is trying to create such a new model of development. But, you know, at this time no one can really guarantee that. So it really depends.

So I think China's policy and strategy on climate change is to try and do our best and find what we can do our best -- (inaudible) -- but not do something just to promise just some kinds of targets but we don't know how to do it. So this is China's very critical policymaking process.

And on the other hand we'll follow the so-called principle of the common -- (inaudible) -- responsibilities, and we'll work with the UN countries and work with all the big stakeholders, including the United States, to develop the multilateral and bilateral cooperation to encourage the technology transfer, and while of course China will welcome any financial and other help to speed up the Chinese change from the, you know, the old type of development into a new -- (inaudible) -- of sustainable development model.

Thank you.

ECONOMY: Thanks. So I think what I hear you saying is that there's sometimes in the United States and in Washington -- not Taiya and her group there at the SED, but there are sometimes this belief that if the United States would simply sign on to targets and timetables, if we would step forward and do the right thing, that China would somehow follow that. But I think what I hear you saying is that that's not the case.

ZHOU: You know, at this time China still is a big country, let's say it's a big developing country. In the recent published World Bank development report in 2006, the per capita GDP of China is only a little bit more than $2,000. And even by the so-called purchase power parity, China has only a little bit more than $7,000 per capita. And compared with the United States, yes, you have about $45,000. And all the developed countries have more than $20,000.

So in this case if you say China should take the same responsibility to set up a target by 2020, for example, as one of the developed countries, that's very, you know, difficult to be accepted by China.

So we'll try to get some periodic target like our efficiency improvements, our -- some kinds of -- for example, actions on the mitigation or adaptation, but we cannot really set up a so-called total cut, as in the Kyoto Protocol for the developed countries -- (inaudible).

So it's a very important principle. I think President Hu Jintao mentioned the last time, two times about that, so the different -- (inaudible). And the comment has been we will do our best. Given -- (inaudible) -- at those times, you have the two kinds of developed country take the lead and a developing country will follow.

So I think at this stage that China will take the following stage. And, of course, along with development, China maybe becomes more and more close or near as a developed country. And I think along with the approach, China will take more and more responsibility. Finally, maybe China becomes one of so-called Annex 1 country. (Chuckles.) There, we'll do that -- (inaudible) -- but not now.

Thank you.

ECONOMY: Okay. Thanks.

Taiya, the administration's Strategic Economic Dialogue just concluded and just from the publications that came out from it it seems that major outcome in terms of the kinds of issues that we're discussing here today is the sort of establishment of some joint task forces that are going to focus on issues like electricity, air, water, transportation and conservation of forests and wetland ecosystems.

If you would flesh these things out a little bit for us and help us understand in more concrete terms what seems to be going on in U.S.-China cooperation on these issues that are related to climate change, even though this is not directly tied into climate change negotiations.

TAIYA SMITH: Well, the last SED was just ended last week. We had some very vigorous conversations about climate change, energy security and environmental sustainability.

These followed on conversations that we'd had in December where, at that time, we said well, this is such a large strategic issue that's really affecting both of our countries, we need to do something about it. And the decision at that time by the leadership on both sides was to establish 10 years of cooperation.

So when we had these conversations about climate change I think Professor Zhou has really illuminated many of the aspects that China will represent. And the U.S. response to that tends to be okay, but there's a whole lot you could be doing right now, in terms of putting new technology in place, that you're not.

And there's a lot of policy changes that could happen which would have a significant impact, and that we can work together because, in the end, the U.S. and China are facing many of the same problems.

And as Trevor suggested, actually China has an easier time in some cases because China right now is developing its capacity, building a lot of new buildings, developing a lot of new capacity for energy production too, whereas the U.S., we have to retrofit everything that's already out there.

But when you put it together, both of our countries are looking at the same fundamental issues that revolve around energy security, dealing right now with the price of oil, finding ways to ensure that we can have continued economic growth that's both environmentally sustainable and also produces the benefits that we need to for the people of our countries.

So what we look at is how can we take advantage of those shared interests; what can we do together to really help both of our countries step forward and find this new model of living that Professor Zhou was talking about?

That was one of the interesting things coming out of the SED was the Chinese government has really come to the conclusion that the current model of energy intensive growth is not one that's going to be able to allow their country to develop at the pace and speed that they want to. And that when you look down the road, there just literally aren't the resources in the world for everybody to be at that level of energy-intensive usage in your daily life.

And so together we had a great discussion about how can we find a new model, what can we do together to reach that.

Now, part of the SED is that you can have very big, strategic discussions, but our job is to figure out how to actually make a change on the ground, and what are the concrete steps that we can take to really help improve the situation.

So we've launched this 10-year cooperation in energy environment. The framework itself was signed by Vice Premier Zhang Dejiang and Secretary Paulson on Thursday. I'm sorry, it was on Wednesday. Shortly after that, China announced that it'll be raising fuel prices, sort of as part of the discussions that we'd been having.

The framework is focusing initially on five specific goals, so it's clean, efficient, secure electricity; clean air; clean water -- both of those are big topics in both of our countries, but water certainly has taken a prominence in China recently; transportation. So we're looking for clean, efficient transportation, again, a topic that's been very big in both of our countries, certainly with China increasing its vehicle fleet on a daily basis, and it will soon overtake the size of the U.S. fleet.

And then the last one is on the conservation of forests and wetlands, and that goes to some of the broader issues. Again, you can't talk about wetlands and not talk about water and sort of where all the water comes from and sort of natural ecosystems (clean ?) in the process. But it also is a way that we can help raise the awareness in both of our countries.

So as we look at these five areas, there's a few key components that we've agreed to. One is that for each one, we're looking at it not just in the development of new technology, but policy. What policies can we be looking at in both countries, recognizing the policies are different for both countries, but there's a learning process that we have that will really change our usage and help create the right incentives for consumers, both industrial as well as civilian, to make better choices as we go forward.

And another part of that is education. Certainly both of our countries, the populations need to be educated; our industries need to be educated about the best way to move forward. At the same time, we're lucky in that in many cases our industries are educating the government as well. And we see this as a two-way road in cases.

We're also looking at capacity building. I think one of the starkest examples is when you look at the size of EPA that has some 75,000 employees and then you look at the new ministry of environmental protection in China that I believe has about 450 employees. And it sort of shows you how difficult it is to enforce regulations and other policies when you don't actually have the staff that's able to do so.

And then the final component is the one that we all look to with a lot of hope, which is about how do we create new technology. Is it simply the deployment of current technology? Is it the commercialization of technologies that are already existing but we don't actually have on the shelf and we're not able to work with in a commercial setting? Or is it really the development of new technology?  

And so through this 10-year framework we're engaging all sectors of society, whether that be NGOs, the research universities. I know Xinhua is already involved in many discussions with U.S. private sector companies as well as governments.

It also includes the average person on the street, because part of -- we recognize for both countries that if you don't engage the imagination of people -- it's like going to the moon. When the U.S. decided to go the moon, we didn't know how to get there. But nine years later we were able to do it, and part of it was that you had the support of the population.

Well, certainly for the U.S. and for China, we're looking for ways that you can engage the population to help make these changes on a daily basis.

So it is a full effort all around. We've been amazed. Sort of the traditional view of working with China is that it's very difficult. On these issues, we've found that in many cases the Chinese government is ahead of where the U.S. government is in encouraging us to move forward.

An example of that is when we talk about buildings, we're working very hard on smart buildings, with a lot of collaboration between U.S. industry, U.S. government, and U.S. research institutions on finding smart buildings -- the ways that you're building will work like your car, that you can kind of go plus a diagnostic in and it'll tell you what's going on within all of the systems in the building. It takes advantage of elevators doing down and the energy produced there to help light your rooms.

Well, the Chinese side is now working on smart blocks, which -- obviously it's easier to work on a smart block when you are building the whole block. But that sort of viewpoint has really been interesting for a lot of our scientists and engineers too.

So we're looking at how do we take advantage of these different overlapping interests, which will help us get at the agenda of dealing with climate change, dealing with energy security, and ensuring the environmental sustainability.

ECONOMY: Great. One of the issues that you raised and I think has been central in the broader climate discussions is the issue of technology transfer. And I know that President Bush and Secretary Paulson have been actively engaged in trying to develop a clean energy fund, a clean technology fund.

Could you talk a little bit about how the administration sees technology transfer actually happening? (Chuckles.) And what the Chinese would like to see, what the U.S. government is prepared to do; where the things intersect and where -- maybe where there's some challenge.

SMITH: One of the first things that is always brought up -- it certainly has been a policy of the Chinese government that technology transfer needs to be a very important part of their whole energy and environment strategy.

And what we found is, first, there's a bit of a misunderstanding on both sides as to what we mean by that. Anytime you get two words to describe something, there's a whole lot underneath.

For the U.S. government, because -- our technology really is run through the private sector. So we can't look at just handing over technology, which is our assumption of what the Chinese government is looking for.

In many cases, when we actually get down into the discussion, it's not sort of giving technology; a lot of times the Chinese government is looking to find ways to be able to have access to certain technologies.

So, for example, if you're in a province where you're looking to have clean water, the only sort of clean water membranes that they're aware of are the really big U.S. companies that are coming in and telling them about their new clean water membranes that will help reduce the industrial waste. So one of the questions they've had is well, what else is out there? What else is available? So we've been looking at ways to make sure we can spread that information.

We're also aware from the U.S. side there's a concern about making sure there's appropriate compensation, but also IPR, and are the intellectual property rights of the companies that are creating this technology protected sufficiently?

I've been surprised at how many U.S. companies have told me they're already actively engaged in transferring technology, whether that be know-how of how to build a plant or it's the knowledge that they have in creating a new type of technology that they're actively engaged in working with the Chinese government on.

And in many cases, they are not concerned about IPR, if it's in a specific agreement they have with a Chinese university. But it's when you start to get this information out into the public sector and then they, our companies, later get the phone call saying your product didn't work and they discover they didn't make the product, even though it had their name on it, that's when our real tension begins to build.

So we've been working on a variety of ways to begin to address that, with the double goal of making sure the right technology gets to China in the right places, making sure that there's access to the information and technology that's available, and also being able to protect the U.S. companies, and that of course applies to companies around the world.

One thing that's come up is a lot of places in China don't have the resources to be able to buy the most cutting-edge, innovative technology. And that's a concern; it's a concern that's been discussed certainly in Bali and around the world as well.

We've been working to put together a clean technology fund. This is something that China had certainly been asking about for quite a few years. Right now that fund is focused on getting existing technology to the places that it needs to be, so China certainly qualifies as one of those parts of the world that definitely need it.

It's being run through the MDBs, so all the banks -- the World Bank is actually the one that's facilitating the process. The U.S. government, the U.K. and Japan have already contributed. Certainly we're looking to China to also be part of that process, and I think there's been some receptivity from the Chinese government to participate as well.

And the hope is that we can work together in a multilateral context to help reduce the cost. So it's not giving technology, again, but it's saying if the dirty technology costs this much, what is the differential between having the better technology that will help reduce the greenhouse gas emissions, and then finding some funding to help cover that difference.

ECONOMY: Great. Before I open the discussion, is there anything that any of you would like to add to what you've heard, that another panelist might have said? Any additional comments or thoughts?

HOUSER: I may maybe make one comment on the climate negotiation, since that's a forum that the SED doesn't participate in.

I mean, the challenge, when we look forward to Copenhagen in 2009 is that we need leadership from developed countries, and particularly the U.S. And after what happened in 1997, we need climate policy from the U.S. going into Copenhagen, or shortly after, for the U.S. to have any credibility as a negotiator.

One of the largest issues in getting U.S. climate policy passed, in addressing those two-thirds of emissions that come from consumers, is some sensitivity about the share of emissions that come from industry, particularly iron and steel and cement.

In particular, concern that putting costs on those industries is going to create a competitive disadvantage for U.S. firms vis-a-vis Chinese firms, in particular. That was a feature in the Lieberman-Warner debate. It's a feature in most U.S. climate policy.

Looking forward in how we can broker an agreement to get the U.S. to pass economy-wide caps on emissions, to demonstrate that leadership, there's a little bit of help that we can get from China in that process.

While it's unreasonable to ask China in the interim to accept economy-wide limits, and probably isn't even a good idea, if we had -- if our expectations about future Chinese emissions five years ago were 79 percent below where they are now, there's a real difficulty in setting a baseline for China, that we would cap and provide credits underneath. That in the interim, the targets are going to have to be of a policy-based approach.

But if China could formalize some of the policies that it already has in place, that are trying to discipline those industries that the U.S. is most concerned about, then that would create some political space to pass more aggressive climate policy in the U.S.

And while Chinese climate negotiators are certainly concerned about putting a cap on emissions that would subject Chinese citizens to a fifth of the carbon budget of the U.S. -- so the farmer in Guangdong who's struggled his whole life to buy an air conditioner can't turn it on, but someone in California can still drive a Hummer.

If we're talking about industries and industries that don't employ a lot of people, then there's probably more room to impose the same types of disciplines on those industries as we are in the U.S.

That gets us to 2020, 2025, when China's per capital GDP is at the level, per capita emissions is at the level of OECD countries and we can talk about more comprehensive caps.

ECONOMY: Thanks. Okay.

So let me now open it to all of you. And if you would please identify yourself, your name and if you have an institutional affiliation, and please keep your questions brief.

Yes, in the back?

QUESTIONER: Jim Dingman, INN World Report. I was wondering if the panel could discuss their reaction to the state of the studies on the level of damage to the climate; that is, that many of them are rather grim, that the damage is already irreversible. And that these trends that we're talking about, the policy debates, may not be enough.

And I was wondering what kind of best scenarios you see coming out of the next few years in dealing with this. Because we -- you talk about wetlands. Many argue that the destruction of the wetlands in the delta in the Mississippi is what caused the disaster, or enhanced the disaster in New Orleans.

So I'm just curious what you think will happen. What should be done immediately?

ECONOMY: Thank you.

Who'd like to take the question?

ZHOU: Well, China has translated the IPCC, the full assessment report, into Chinese. And because that book is very thick and writing a very scientific way, so a lot of common people and the political people cannot really understand. So we are trying to interpret that into a more readable style -- (chuckles) -- to give the message to the -- all the common people and the decisionmakers.

And we are trying to develop a Chinese version, not only to translate, interpret the findings from the IPCC report, but more specifically on what damage, what kinds of climate change happened in China, and what's the future scenarios. So we are doing that. I think it will help the Chinese people, the common people and the decisionmakers, to try to understand the urgent action that's necessary.

But of course from -- other point of view is the Chinese understand that adaptation is necessary. Although for the long term, mitigation could be very more important, but at the same time we have to prepare for what already happened -- what has to be -- happen to some extent of the climate change. So we'll do both mitigation and adaptation.

But of course it's very difficult at this stage to find which one is most critical change and their impacts on the specific biosphere or other resources. So while doing that, you could find somewhere we can really take action to impact that, we'll do that. But yes, we need a lot more scientific work, in my understanding.

Maybe -- is this some kind of answer for your question?

ECONOMY: Taiya, do you want to add anything to that?

SMITH: I can say that there's -- the urgency that you're expressing here is something that we certainly feel very strongly. Anytime you try to move governments, whether it be the U.S. government or the Chinese government, it's naturally a slow process.

I've been amazed at how quickly we've been able to move things. Some of our emphasis on forests and wetlands certainly was not understood within the U.S. government as to why we said this is really important to focus on now. But the idea being that we need to save and restore as much -- we can of these really critical areas to be able to help us deal with the future.

So this isn't a satisfactory answer, I understand, but I know that the urgency's there. We're trying to make sure that the things that are easy to do are done very quickly in both of our countries, as well as trying to look down the road four and five years from now as to what we might be considering urgent at that time.

And that's certainly why we look at this as a process which has to include all of the American people as well as the Chinese people to make sure that everybody's taking every little step that they can to help deal with the current situation.

ZHOU: For example, one of the actions that we are taking is from the 2005 to 2010, we'll increase our forestry coverage area by about 200,000 square kilometers, so that we will have about 50 million tons of carbon sink.

But on the other hand, it'll help China to solve the -- somewhere the land erosion, and a lot of benefits for the increase of the forestry. So this is something we are taking.

ECONOMY: Okay. Jim, back there?

QUESTIONER: Jim Seymour (sp), the Chinese University of Hong Kong.

Given that -- I guess my question is for Drs. Houser or Zhou or anyone who wishes. Given that nuclear power is going to be increasing, albeit small part of the nuclear -- of the power mix in China, I wonder if you could comment on the plans for handling nuclear waste. This is a problem in the United States that we've always said we would cross that bridge when we come to it, and now we're on that bridge and we don't have satisfactory answers.

So I wonder what the plan is for transporting nuclear waste safely to a safe place and hopefully in a way that would not have a negative impact on the non-Han parts of the country, to -- (Xinzhan ?), Inner Mongolia, and so forth.

ZHOU: Oh, this is a very technical question. And although my background is so-called nuclear physics, but I haven't worked on this subject for a long time. So I understand what's your concern.

China has already long time working on the nuclear -- start from the weapon, but now is working more on the peaceful use for the nuclear power. And we have already established a system -- from the basic material production, concentration and the waste treatment.

But, of course, that's before is not so much waste. So, it's easier to -- (inaudible) -- waste, but in the future when we scale up the nuclear power, we have to develop the whole system, from the material production to the waste treatments and storage. Now we have real research institutes working on that, and develops a different kinds of alternatives, and try to find the better sites for storage.

And I think that we'll follow -- first follow the IAEA's rules and we'll learn from all the countries what the lessons and what the experiences, and we'll try to develop such technology. And we already established a so-called "nuclear safety bureau," and take care of the standards, and a very strict monitoring and a checking system already be established. So, I think we'll have a good solution for that. Thank you.

ECONOMY: Okay.

Yes, over here.

QUESTIONER: Denis Simon, Levin Institute.

About two years ago the vice minister Shang Yong, from the Science and Technology Ministry, came here and talked about this new science and technology program -- the 15-year medium and long-term program. And I'm wondering what kind of coordination takes place between the NDRC and the Ministry of Science and Technology to ensure, in fact, that the big policies are actually being coordinated across the Chinese government ministries?

Those are always big challenges in the U.S. government, and obviously on the Chinese side. And I'm wondering if Professor Zhou, and maybe Taiya, can comment about, sort of, the flavor of this coordination as you see it in action, post-these SED meetings, because during the meetings it's a -- may be very serendipity, but after the meetings, you know, that's when the rubber hits the road, in terms of implementation. So maybe both of you could comment on that.

ECONOMY: (Laughs.)

SMITH: That's one of the greatest challenges, as you know, for both of our governments. What we're doing, through this 10-year framework, is we have a core group of agencies and ministries, which is about five from each side. From the Chinese side -- that includes most NDRC; MEP, their new ministry of environmental protection; SFA, the state forestry guys -- and it's led by NDRC. And NDRC has the responsibility to coordinate all of these ministries together and make sure that they have the same policy agenda and prioritization.

We have to do the same thing on our side. And I don't think it's all that much easier -- bringing together all of our groups, which includes DOE, Department of Transportation, EPA, State Department, and Treasury has the job to coordinate there. What we find often is that the representatives at the DGE vice minister level that participate in these meetings, will have differences of opinion, and we'll find on both sides, that we have to work those out so that we have a unified way forward.

The power, for us, really has been that we have the vice premier and the premier so interested in these topics that it brings together the Chinese government and the U.S. government -- under our leadership also, with the same interests, to have to have a prioritization of what's going to be most important. So we'll figure out what's most important on each side, and then we have to figure out how we make sure those interests intersect and overlap in a way that works for both countries.

I would say that most has been very energetic. We've got a lot of ideas, a lot of thoughts, and a push forward. And that's been very helpful to the process. I think also the Ministry of Urban Planning and Housing -- so, there's a new title, is another one of the ministries on the Chinese side that is very energetic and has lots of new ideas that help push it forward. And NDRC has the wonderful of challenge of trying to coordinate and bring them into one policy prioritization.

ZHOU: I think that it will be happening all the governments, including the Chinese government, that a different ministry will try to have more power to some extent. But, in China, you know, we have a state council, it's a -- it's a high-level coordinating committee -- commission.  It's always a problem if it needs to be compromised, or need to be integrated, then go -- come into the state council and the premier or vice premier will take up that, and to make the agreements and the consensus between the ministries.

And, of course, Ministry of Science and Technology, in general, is in charge of all the important -- the basic and applied technology, and the sciences R&D. But one year to go into application and into demonstration, and into real engineering projects then the NDRC will have to take care of that. So it's a combination from -- and in my understanding, the two ministries will take up the different stage of the -- of the technology and the science developments. And the demonstration and finally spreading that. So you can find things.

But, I think the -- in Chinese way is if you have questions, problems, the ministry will talk to each other and get consensus. And the final results is to move things more smoothly. So I think they are doable.

ECONOMY: Okay. Yeah, right there.

QUESTIONER: Liz Wishneg (sp), Montclair State and Columbia University.

It's very heartening to hear about all of these policy changes and a tech transfer plans, but where the challenge is is in implementation, as this panel well knows. And I wonder what's being done to make sure that these technologies are actually going to be used, that the provincial level will actually carry out these new efficiency standards. And, in particular, I wonder what happened to the "Green GDP" idea, which would connect performance to environmental behavior?

HOUSER: Let me maybe take the last -- the last bit first. Some very well-meaning Chinese planners figured out what the U.N. had figured out a long time ago, which is it's extremely difficult to do an accurate Green GDP accounting. It wasn't for a lack of trying. So there's other metrics that are starting to be worked into the criteria for provincial officials and their advancement of their non-economic growth criteria going forward, rather than just a Green GDP metric.

Certainly, enforcement at a provincial level is a challenge. But it's not -- it's not an insurmountable challenge. The top three priorities that Beijing has, at any time, certainly get done at the provincial level. The amount of economic restructuring that was necessary for WTO accession, for example, was very challenging at a provincial level. It required creating a lot of losers, as well as -- as well as winners, and there were a lot of vested interests that were routed.

As energy and environment raise on the policy agenda, into the ranks of those top three, then the policy that the central government puts forth will certainly be implemented. There's -- there's challenges in managing that relationship, but it still, it's still a government run very much from Beijing.

ZHOU: I think Green GDP, we do have a great team led by the Ministry of Environmental Protection working on that. And we try to collect the data to apply that for all the provinces for several years. And finally -- we found that, one it's very hopeful if it really gets the number. But the difficulty is there's a lot of indicators that, you know, it's very difficult to get the data, and is some kinds of, you know, artificial or based on the majority of the personal scientists.

So, in the -- finally, you find, conceptually, it's very, very useful, but practically, you know, it's (yearly ?) you get the number is very difficult. So you have -- (inaudible) -- for some years. But you cannot repeat that for every year. So, you got so big job so to do. So we are still developing that, and Ministry of Environmental Protection mentioned that we keep on working on that. But it's not majority, no.

But, on the other hand, you know, the Ministry of Environmental Protection declared their number for pollution (laughs), pollutants -- a concentrating of air, water quality, everything -- annually, for each of the provinces. It help to become one part of the important socioeconomic indicators besides of the GDP. So we do have some efforts to work on that.

ECONOMY: Let me just add one point to that because I think, in a way, it's -- it's an important question that ties into an earlier question about, sort of, the coordination and the politics. Because while it may be true (laughs) that what Beijing says, goes, and the top three priorities get implemented -- I'd be curious to know what those top three priorities are right now, it's also true that when you look at something like the Green GDP the challenge was not only in figuring out how to do it, but there was substantial resistance from the provinces to being evaluated in that regard. And the National Bureau of Statistics was not very forthcoming, they weren't that interested in doing it.

So, you had strong efforts at leadership from the Ministry -- well, it wasn't at time the Ministry of Environmental Protection, but you had a lot of interest and enthusiasm there but you didn't really have support from other key parts of the government to push it forward. So, I think while they're continuing with the effort, it is a very good example of how an excellent potential policy initiative can become stymied because of political, sort of, infighting, game playing, or just lack of support.

Okay. Okay, I promised you -- back here first. And then --

QUESTIONER: (Inaudible) -- Environmental Technologies Practice

We touched base a little bit on, sort of, the cost of being environmentally friendly. And one can argue that, in the U.S. predominantly, environmental friendliness is also -- is mostly done if it's an economically beneficial. That's when the policy gets implemented. And that environmentally-friendly technologies generally cost more than non-environmentally-friendly technologies -- be it scrubbers in your smokestacks and things of that nature.

I was wondering if Professor Zhou, or Trevor you, could comment on how China evaluates that cost versus benefit trade-off? Is it just looking at direct costs? Is it looking at long-term costs of cleaning up that pollution, so on and so forth? Thank you.

HOUSER: I think that there is -- there's a number, there's a number of metrics that are used, a number of considerations. The one that I mentioned about -- just what type of economic growth is going to deliver the employment gains and the welfare gains that you want. And in that realm, and, kind of, macroeconomic policy, it's -- there's a lot of complementarity between smart economic policy and economic policy that's going to reduce energy demand.

On the supply side, there is a number of policies that are taken just for local environmental reasons. So, a requirement to put in sulfur scrubbers; increasing those still inadequate penalty for, 'if you don't run your sulfur scrubbers' -- I mean, that incurs a cost, in a higher electricity cost it passes right on to consumers. But the sulfur dioxide pollution causes $200 billion a year worth of economic loss, and 750,000 premature fatalities. So, those types of public welfare -- these aren't climate change concerns, per se, but a lot of the policies that are implemented for local environmental reasons have a climate dividend.

I think that, at the end of the day, the major concern is that environmental protection is raising in the league tables possible risks to stability -- to government stability. We've had some of the largest environmental protests in humanitarian history taking place in China. And while it's easy to deal with, kind of, civil disobedience in the democracy realm, the air is something that you can't hide, right. Everybody knows that it's polluted.

And it's clearly the job of the central government to deal with the air. And so if the air continues to get worse, it becomes a threat to the legitimacy of the government. And I think that, above all else, at the end of the day, is the chief motivator.

ZHOU: Wand we have introduced all the moethodologies and the approaches developed in -- that developed the countries, but on the environmental protection. And in our university, we do have so-called "environmental economics" to be introduced for the students. And we calculate, or evaluate all the so-called alternatives. If you have the -- China people understand what's the cost for the environmental pollution. But that's not enough. So, (to some extent ?), we introduced mostly the total quantity to control, or the standards and the costs for the quality of the environment.

That means all the emitters who have to obey some kinds of standards or lose. If you exceed that standard, you'll be fined, or you'll be ordered to close your production. For example, for this five years we -- the target is to decrease 10 percent of the total emission of the -- of the sulfur dioxide and COD in the water, regardless of the increments of the production.

And the target has been allocated to the 30 provinces as a specific target for each of that, and each of the provinces allocate that decompose the target into cities and counties and into the -- in the process. So, they have to take specific actions to reduce the total emission of the -- (inaudible) -- pollutants.

For example, all the new constructed power plants of coal burning have to be equipped with a sulfur scrubber. And last year we already equipped about more than 20 -- 250 gigawatts of power plants with a sulfur scrubber already. And we will apply that to older power plants in the near future. Thank you.

ECONOMY: All right.

We have time for one more question, I'm afraid. And I had -- a man over here had his hand for awhile. And then we'll just offer each of our panelists a chance to make one final comment.

QUESTIONER: Thank you. It's Jim Estothia (sp), we Bloomberg News.

I wanted to get back to the question of urgency for a second. There's different forecasts and projections for when the, you know, climate damage from greenhouse gasses will, sort of, trigger the most catastrophic effects of climate change. It may be irreversible. The IPCC has a forecast that, sort of, reflects 450 million parts per million. That could be the tipping point. James Hansen, over at Goddard thinks -- I think, we may already be there, and that we shouldn't be building any new coal plants that don't sequester carbon.

I'm wondering if the decisionmakers and leaders in China have, sort of, internalized this idea that there may be a point in time when it's just irreversible and that we've gone too far. And if they have, what -- you know, how far off is that? Or what's the number they're looking at, or how do they quantify that?

ZHOU: We understand from the IPCC report that, for example, European Union raised the target to limit the temperature -- and raise -- limited to the two degrees, right. And in that case, the carbon emission -- dioxide emission have to be limited about 450 ppm, and that, totally, greenhouse gas emission will be limited with about 550, or something like that. I cannot recall the specific number, but it's like that.

In that case, the developed country has to be -- decrease their emissions by 2050 about 60 (percent) to 80 percent. And I think, for some country like the United States could be asked to decrease by 90 percent of your higher intensity. In that case, we understand that developing country has to be, you know -- decreased by the emissions, compared with current emission, by about -- I think it's 20 (percent) 30 percent, even.

So we look at that as one of the scenarios. And China is really based on this kind of scenario, is thinking about -- you have all the country take this kinds of target as a action plan, and what China should do. And we are thinking about when we will get to the peak of the emission, and when we have to -- when we have to go down our total emissions. But this is still under study.

Actually, I think it really depends, because we are -- for the whole world, I think all the people is like doing and learning and the doing process and we'll look at that. Thank you.

ECONOMY: Let me just offer you a quick opportunity -- anybody on the panel, if you want to make just a -- offer a final thought, or didn't have a chance to say something you'd like to get across?

SMITH: I think the one thing that -- what everybody will need to keep in mind is that in China the motion amongst the people is really significant. We've had groups of business entrepreneurs and others come to talk to us about their concerns about the environment in China -- and these are Chinese entrepreneurs, and the work that they're doing to try to make a difference and to change that.

We're starting to see a lot of pressure on the central government, as Trevor was suggesting, that people need to see change. They need to see the legitimacy of the central government enforced by its ability to deal with environmental challenges, and the awareness of what's happening, both in the -- there's a Carbon Club now at Beijing University which is looking at carbon trading; the work that we've all been doing with China through EPA and MEP on sulfur dioxide trading, and helping set up a national plan for that.

That's all got young people involved and really energized about what they can do to participate in the future. So, that seems to really be a big motivator for the central government. And certainly having people like Professor Zhou. who's been working on this for so many years, having the foundation to then step up and move forward.

It, of course, is never fast enough for us in the U.S. We work with Congress regularly and we know everything's got to be a bit faster. But, it's moving forward, and we're -- you know, when you're at the front line of watching it, you can see that movement. And hopefully that, together, the two countries will be able to deal with this as the largest contributors to greenhouse gasses.

HOUSER: Yeah, I guess I would just say that -- and towards your question, that if we need to reduce global emissions 50 percent by 2050, then that means that the U.S., and Europe and Japan need to reduce probably 80 percent by 2050, and the developing world maybe 25 or 30 percent, starting to -- peaking at 2020, 2025, and then coming down. That's possible without a significant amount of economic cost.

The challenge is the politics. And we're going to have to go beyond just meeting at the climate negotiating table and trying to hash it out in the 11th hour, to really understanding, what are the political blockages in each country from staging those types of commitments in a way that makes sense for both development goals and for climate goals?

The Chinese side needs to know more about what happens in the U.S. Congress and what it's going to take to get a climate bill passed. The U.S. side needs to understand better about what happens in the state council in China, and what real intentions are towards economic growth and climate change. Without that type of understanding, we're never going to be able to get to where we need to be.

ZHOU: I think my words will be very short answering to the cooperation between us, not only on economics and the politics, but also on the environment is very important. And I think the Chinese people, and our academic people, are willing to work together with the United States as partners and colleagues, and to encourage the future cooperation on all the fields. And I think if we are doing our best, we can change something in the near future. Thank you very much.

ECONOMY: Thanks.

I think I failed to keep us to 9:45, as I was told to do. So I apologize for that. But I do think that the panel has succeeded brilliantly in beginning to sketch out some of the key issues here. So, thank you. (Applause.)

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      THIS IS A RUSH TRANSCRIPT.

New York City, New York

RICHARD N. HAASS: Well, good morning. I'm Richard Haass. I'm President of the Council on Foreign Relations, and I want to extend a welcome to everyone here, particularly for those who have traveled several thousand miles from China. You are particularly welcome here at the Council today.

I think it's fair to say that no topic has risen more quickly on the U.S. policy agenda in recent years than has climate change. This is a subject with many dimensions, but I would point out two.

One is the domestic side, and the question is what we in the United States can and should do to reduce carbon emissions here. But there is also a foreign policy dimension, which is what the United States should do, what the United States can do to work with others to counter climate change and its effects around the world. And obviously in a global world what happens in places far off still affects the United States. There is ultimately only one global climate.

And here at the Council we are focusing on the international dimension, though again, the ability of the United States to be effective at home in this area will largely shape our ability to be persuasive abroad.

Here at the Council on Foreign Relations, we recently sponsored an independent task force report on climate change. And it looks at the U.S. policy options and recommends strategies to exercise international leadership on the issue. And the task force co-chairs, two former governors, Governor George Pataki of New York and Governor Tom Vilsack of Iowa, and the project director, Council senior fellow Michael Levi are here, and will discuss the report's findings and recommendations later this morning, and obviously copies of this report are available outside. I would say they're on sale, but they are free. There is such a thing as a free report.

The task force in today's symposium are but two of many things the Council is doing in this area on climate change and on energy. And what we've got is a large program in this area, which includes a full slate of research, publications, meetings, website coverage and so forth.

One of the many aspects of the debate about climate change and U.S. climate change policy is how to deal with the emerging countries, and above all, the larger emerging or developing countries. And none is more central to this debate than is China.

And obviously the environmental consequences of China's tremendous growth are profound, and they are becoming clear both to its own people and to the world. And given China's rising carbon emissions and the projection of more to come, its participation will be essential to any efforts to combat climate change around the world. But to say that is not to answer the basic question which is exactly how China can and should be integrated into multilateral arrangements to reduce emissions.

So today's -- the timing of today's program, the focus of today's program, could hardly be better. And we've got three sessions -- I'd say three smart sessions -- looking at three topics: the first is Chinese energy and climate strategy; the second is energy technology in China; and third session is the one that looks at prescription. It's the session that looks at policy options for the United States, and that will obviously dovetail closely with the findings of the just published task force report.

In closing, let me also thank the China-U.S. Exchange Foundation for arranging and supporting the participation of our international speakers and our guests. And they are here as part of a delegation from Tsinghua University led by Jang Sheelian (ph). And we are delighted to have all of them with us, and we hope this is very much part of a continuing dialogue between the Council on Foreign Relations and between yourselves and others in your country.

Without any further delay, let me -- I'm happy to turn things over to the extraordinarily capable hands of Elizabeth Economy, who is the C.V. Starr Senior Fellow and Director of Asia Studies here at the Council on Foreign Relations.

ELIZABETH C. ECONOMY: Thank you very much, Richard.

It is a pleasure to have the opportunity to have the opportunity to moderate this first session of the symposium on China and climate change.

Before we begin, please if you would turn off all your electronics -- Blackberries, and cell phones. And I know everybody asks you to do this, and inevitably there's one or two or three people who don't do it. But I am asking you in part because it will interfere with our sound system, but also of course because it interferes with our speakers' remarks. So if you would please turn them off now. And also just let me make a note that this symposium, the entire symposium, will be on the record, and broadcast throughout the United States, and globally, via cfr.org.

So with that let me just begin by reiterating a little bit of what Richard said in his opening remarks, and that is, that I think this symposium really marries two of the most significant phenomena of the 21st century -- the rise of China as a global economic powerhouse on the one hand, and the transformation of the earth's atmosphere and landscape as a result of global climate change. And both of these phenomena are of course exerting a profound impact on the way the rest of the world lives and does business.

This morning, we're going to focus on the intersection of these two phenomena. We're at a point today where China is and will continue to be for the foreseeable future one of the key, maybe top two or three players in the global effort to address climate change, in large part because it has become, as a result of its extraordinary economic growth and its reliance on fossil fuels, one of the leading contributors to the problem by some international estimates having surpassed the United States as the leading contributor of the greenhouse gas carbon dioxide in 2007.

At the same time I think the Chinese leadership has come to understand that the country will face a steep price if climate change continues unabated, whether we're talking about the more aggressive melting of the Tibetan glaciers, which will contribute to greater floods and then droughts, or a potential decline in key grain yields by 2050 of up to 37 (percent) to 40 percent, or of course the rise in seal level which threatens tens of millions of coastal Chinese, if not hundreds of millions.

But as we've seen I think with our own fraught debates on climate change here in the United States, arriving at a national policy on climate change in particular in a highly charged international context is no small matter. And the Chinese are grappling on the home front with how best to balance continuing and maintaining their economic growth with developing and implementing an effective climate change response. And at the same time they're deeply engaged in international negotiations that are focused on issues of historic responsibility or equity, sovereignty and state capacity.

So our goal this morning is a relatively straightforward one, albeit not a very simple one, and that is first just to understand the trends in China's energy use and what they will mean for the trajectory of the country's greenhouse gas emissions; then to look a bit at China's climate change strategy today, and assess some of its strengths and weaknesses; and finally, and perhaps most importantly, to think through how the United States and China can work together most effectively to transform the way that China, and I have to say, the United States do business.

To do this, it is my pleasure to introduce a truly stellar panel, really, I think some of the top experts both here and in China. To my immediate left is Trevor Houser. He is the director of the energy and climate practice of the Rhodium Group, and a visiting fellow at the Peterson Institute for International Economics. He is also the author or co-author of several path-breaking studies on China and energy issues and on climate change issues. He just had a book come out called Leveling the Carbon Playing Field this year, and he has another book coming out this year. He puts all Council fellows to shame, I have to say two books in one year, called China's Energy Evolution. And for my money he really is -- there's nobody better when it comes to providing a detailed and nuanced understanding of China's energy situation and some of the potential policy levers that we have available to employ to meet this challenge, at least here in the United States.

Because in China, we have Professor Zhou Dadi. He is currently a senior adviser and researcher at the National Development and Reform Commission's Energy Research Institute. And until 2006 he was also the director-general there.

He has recently joined the Carnegie Center in Beijing, where he'll be a research fellow also working on climate and energy issues. He has long been renowned as one of China's most eminent energy researchers and climate policy strategists. He has served as the lead or co-author of several of the IPCC assessments. And in 2007 he was awarded the U.S. EPA's climate protection award.

I also have to inject a personal note and say that whether he remembers or not, back in the early 1990s, when I was a struggling graduate student working on this issue of China and climate change, Professor Zhou was extremely helpful to me. He was one of the very few people working on this issue of modeling carbon emissions, looking ahead. We're talking 16, 15 years ago, but he really helped me to understand better China's energy situation at the time.

So it is indeed a great pleasure for me to have him back here.

And last but certainly not least we have Taiya Smith. And she is the executive secretary of the Treasury Department and coordinator for the U.S.-China strategic economic dialogue, which I think maybe we've all come to understand is not only the preeminent bilateral forum for discussing issues of trade and finance between China and the United States, but also issues of energy and the environment.

Taiya previously served as special assistant to Deputy Secretary of State Bob Zoellick, where she focused on Africa, Europe and global military affairs; and she was also the State Department's point person on Darfur during 2004 and 2005.

So the way that we are going to run this session is that I am just going to begin by asking a couple of questions of our panel, just to help set the stage for about 25 minutes or so, and then open the floor for your questions.

Let me start with you, Trevor, and just ask you to lay out some of the key trends that you see in China's energy sector today over the next maybe five to 10, 15 years, of energy makeup and some of the drivers, whether we're talking about urbanization or industry, transportation sector; and how you think these trends are going to affect Chinese greenhouse gas emissions.

TREVOR HOUSER: Sure. Thanks, Elizabeth. And let me start by saying any of my research stands on the shoulders of giants, and no one among them is more giant than Professor Zhou, who's really been doing the path breaking work in this field for a long time. So it's an honor to be on the panel with him, and with Taiya Smith who actually has to put policy to all this analysis and does a fantastic job doing so.

I would start by saying that the energy future that we're looking at today for China is quite different than the energy future all of us were looking at back in 2000 -- 2001. Between 1978 and 2000, China did something which was largely unprecedented both for a developing country and -- or a developed country. Over a 20-25 year period, sustained economic growth of 9 percent while energy demand only grew at half that rate. That degree of efficiency meant that in 2000-2001 China was only 10 percent of global energy demand, rather than 30 percent of global energy demand which it would've been if that type of economic restructuring hadn't taken place.

Sitting in 2000-2001 and looking forward, most energy forecasters either in the U.S. or in Paris at the International Energy Agency or in Beijing thought that China would be able to continue that level of energy efficiency improvement for years to come, and made forecasts based upon that.

And instead what we saw in 2001 and 2002 was a change in the nature of economic growth and its relationship to energy demand in China, so much so that today, in 2007, the IEA's forecast for Chinese energy demand is 79 percent higher than what it was just five years ago. So that's two Indias of today, or an India of 2030, that's our rounding error when we think about Chinese energy demand.

So it begs the question, what happened in those five years. Why is our forecast today so different than it was before? And more importantly is that forecast we have today any more hardwired than the forecast that we had five years ago?

The change -- what happened in those five years, wasn't that the economy grew faster than expected, though it did a little bit. It was a change in the nature of economic growth. China went from focusing primarily on light manufacturing, starting in 2002 there was a surge in energy intensive heavy industry, in iron and steel and in cement.

China today is about 35 percent of global steel production; 50 percent of global cement production; 50 percent of global glass production. That's primarily for Chinese consumption as the country urbanizes. Since the late '90s China has moved about 160 million Chinese citizens from rural areas to urban areas, or they've been in rural areas that have suddenly become urban areas, and that, of course, takes a lot of steel and cement and glass.

But China has also become a major global supplier of those goods. Four years ago China was the world's largest steel importer. Imports exceeded exports by about 450 percent. Only five years later, and China is now the world's largest steel exporter. Exports exceed imports by about 450 percent.

That turnaround in the trade balance for metals has created a significant amount of energy demand in China. It's also accounted for about half the growth in China's global trade surplus, right. So the reason that China has a global trade surplus today isn't so much because it started exporting more toys than televisions, but that it stopped importing a lot of the energy-intensive goods that it did before.

So today industry is the energy challenge China faces. That's different than the U.S. Here we have a consumer problem. All the energy we use is in automobiles, buildings like this; that accounts for about two-thirds of our energy demand, is things tied to consumers.

In China about two-thirds of energy demand is tied to producers, and specifically to five industries: to iron and steel, cement, chemicals. The iron and steel industry alone consumes 18 percent of China's energy demand, right. Compare that to all the households in the country combined, which account for about 10 percent. The chemical sector uses more energy than private transportation, and the commercial sector -- the aluminum sector uses more energy than the commercial sector. So it's a very different type of challenge than what we faced today.

Looking forward, all of that cement and steel is laying a foundation for what we might call a consumption-led Chinese energy challenge down the road. When all of those Chinese consumers start buying automobiles and air conditioners, then that's the energy challenge China will face. That's the energy challenge 30 years down the road.

What I would say is that for China, the choice versus -- environmental protection versus economic growth is not a trade-off like it is in many places; that in fact many of the economic policies that have given rise to this level of energy demand today are not delivering the benefits that you might hope for.

Those five industries that I mentioned previously -- iron and cement, steel, chemicals, aluminum -- account for about 40 (percent), 45 percent of the country's energy demand and CO2 emissions, yet they only employ 14 million people out of a country of 1.3 billion. If you're China and you need to create 20 million new jobs each year, then iron and steel and cement is not the way you do it. You need services and labor-intensive manufacturing.

And the central government, and I think Professor Zhou will talk about this, is well aware of this, and it's instituted a number of policies to try to rebalance economic growth in a much less energy intensive direction.

In the near term, I think that's where we're going to see the greatest reduction in Chinese energy demand in CO2 emissions is on the demand side because on the supply side it's a little bit more challenging. As many of you know, 80 percent of China's energy comes from coal, the balance coming from hydropower and petroleum and a little bit of natural gas.

If we're thinking about between now and 2020 the ability to significantly shift away from coal is fairly limited. There's aggressive development of renewables in China, of wind power, of hydropower. Last year, China added about 4 gigawatts of wind power, which is an incredible amount, making it the second-or third-largest wind power market in the world. By 2020 China might have 50 or 60 gigawatts of wind power. It might have another 60 gigawatts of nuclear power. But that combined in 2020 will only account for about 6 (percent), 7 percent of China's electricity needs. Hydropower will make up a significant amount, but ultimately we are looking at coal in the medium term.

Looking beyond 2020, there's the possibility for a significant technological transformation in China, in part because of the rate of growth. When you're building 100 gigawatts of power each year, that type of scale and scope gives you the opportunity to do things that you can't do in the U.S., where to introduce new technologies we'd have to decommission old technologies.  In China fast growth creates opportunities for fast deployment of clean energy technology. Must of that technology is actually being developed in China today.

So in the short term it's conservation, and over the medium and long term it's supply side.

ECONOMY: Okay, thanks, that was a terrific overview.

Let me just ask, you mentioned that the Chinese leadership is putting into place some policies to try to improve energy efficiency, reduce energy intensity. Could you just talk a little bit about those policies, and how effective you feel they've been to date. What do you think are some of the challenges perhaps in actually getting those pushed forward?

HOUSER: Sure. So the official government target, and it was created by the gentleman to my left, is to improve energy intensive economic growth 20 percent by 2010, off a 2005 baseline. That's not heroic compared to China's historic trends. It's fairly heroic compared to the past five years, what has happened. It means turning around this spike in energy intensity that we've seen in the past five years.

To get there there's a number of things the government's going. First there's the 1,000-industry program, which the government has taken those nationwide targets, broken them down, and given them to the 1,000 most energy-intensive firms -- those same iron and steel, cement firms that I talked about a minute ago. Managers are being given new awareness of energy clocks, and freedom and how to go about managing those energy costs down.

On the supply side, there's a renewable portfolio standard and a feed in tariff for wind that has led to this aggressive growth in windpower. That was a policy driven event that's been -- that's been fairly successful.

If China does reach this 20 percent reduction, and the goal is after that another 20 percent over the five years after that, to give you a sense of scale, that would reduce as much CO2 as the Lieberman-Warner bill if we passed that. It's a similar order of magnitude of reduction of CO2 off of the baseline.

The efficiency measures that China is doing today I think will only get us about halfway there. To get the other halfway, China needs to rebalance the nature of economic growth and stop producing as much steel and produce more services and light industry.

And there are some policies there that have been a little slower to arrive, but are starting to yield fruit. One is a change in the trade policy for energy intensive goods. Contrary to what many folks in Washington, D.C. think, it's not Beijing's intention to become the world's largest steel producer and flood global steel markets. The pollution tied to that steel production causes $100 billion worth of economic loss each year in the country and isn't creating a lot of jobs.

Last year, in September, there was a change in the export VAT policy, so basically a disincentive to export steel and other energy-intensive goods. And in fact since then we've seen China's steel trade balance turn the corner and started to head towards a net import position. Those measures, macroeconomic policies take longer to take effect, but are going to be more promising over the long term.

ECONOMY: Great. Professor Zhou, first let me ask whether you have anything you would like to add to Trevor's discussion of the energy situation in China, some of the measures that China is taking.

ZHOU DADI: Personally, I really agree with what he has just commented. It's quite correct. And I think, you know, if I say what's the current achievement for the energy efficiency improvement, I would like to add that in 2006 we have 1.33 percentage of the efficiency improvements.

And last year the efficiency improvement rate becomes 3.66 percentage. It's already very high, you know. Average for the world in the last 30 years is -- the efficiency improvement rate per year is only about 1.1. So this year we will achieve more than 5 percent as a target. So if we can really do it, I think we will achieve the 20 percent efficiency improvement target by 2010.

And another important issue is we speed up the development now for renewables.  For example, last year China added about 3.5 gigawatts of wind power, and this year the wind power achieved about 10 gigawatts total, and by 2010, it will achieve about 20 gigawatts. So China will become very soon the biggest wind power producer country.

And we will really change our target by 2020. At this time, the new target for 2020 could be changing to like 50 gigawatts, even more. And nuclear power will be -- speed up also. Our original target for 2020 is we'll build about 40 gigawatts of nuclear. But from recent trends we can find that the 2020 target could more than 60 gigawatts, combined with that under construction, we will have at least more than 100 gigawatts of nuclear power around 2025 or even more in 2030. So nuclear could be become very important alternative.

At the same time we are developing the natural gas. Natural gas development rates, recent year, is about 20 percent per year. So we'll do a lot of work on that. And combined with the clean coal technology, for example, recently China became the biggest country to use the ultra-super critical technology in the world for the power generation. So in this way we will try our best to improve the efficiency, and to improve the clean coal technology, and the low carbon alternatives.

ECONOMY: You mentioned in your remarks the increasing role of renewables, as did Trevor, increasing role of renewables, improvement in energy efficiency, reductions in energy intensity. And I think China has gotten a lot of credit from the international community for making -- taking these steps.

In addition I saw recently that the Central Bank had announced the potential for China to -- or it's going to explore in any case a cap-and-trade system that might include some greenhouse gases down the line. At the same time China has resisted setting any sort of firm targets for limiting greenhouse gas emissions, and has been fairly tough in terms of advocating a restrictive international verification and monitoring system.

I'm wondering if you could lay out for us what you see as sort of the three or four key elements of China's climate strategy, and what you think it might take to get China over the bar in terms of setting targets and timetables -- harder sort of targets and timetables for emissions?

ZHOU: Tactically, it's very difficult to set up the targets at this time. You know, it's -- if you compare with per capita emissions, China is still very low. And we are still lower than the average of the -- the global average, per capita emissions. And, for example, the energy consumption in China is only about 1.4 tons of oil equivalence at this time per capita, and that in the United States is about more than seven tons of oil equivalence.  In this case, if you ask China to reduce the emission right now, I don't think it's doable.

So -- and technically it's very difficult to make some kinds of forecasts, when and what time points China can achieve the peak. And although we are working on that to try to find where and when China could have the peak times, but along with the development of -- into the industrialization and urbanization we still need maybe 20 years for some kinds of cyclical growth, including the energy consumption.

And on the other hand, it really depends on the achievements of the world. For example if really the developed countries can really take the lead and decrease its per capita -- emissions per capita, and the consumption significantly, then I think China will share the innovation of technology and the new type of consumption, and we can change our, you know, so-called development target.

Because as before, we take like the United States, like the other developed countries, as our targets to have cars per family, have a bigger house for each of the people including the people in the rural areas. And right now we already understand it's very difficult if we really copy the style of the production and consumption in the future, because we are facing more serious resources and environmental challenges, including climate change.

But we need a model.  So China is trying to create such a new model of development. But, you know, at this time no one can really guarantee that. So it really depends.

So I think China's policy and strategy on climate change is to try and do our best and find what we can do our best -- (inaudible) -- but not do something just to promise just some kinds of targets but we don't know how to do it. So this is China's very critical policymaking process.

And on the other hand we'll follow the so-called principle of the common -- (inaudible) -- responsibilities, and we'll work with the UN countries and work with all the big stakeholders, including the United States, to develop the multilateral and bilateral cooperation to encourage the technology transfer, and while of course China will welcome any financial and other help to speed up the Chinese change from the, you know, the old type of development into a new -- (inaudible) -- of sustainable development model.

Thank you.

ECONOMY: Thanks. So I think what I hear you saying is that there's sometimes in the United States and in Washington -- not Taiya and her group there at the SED, but there are sometimes this belief that if the United States would simply sign on to targets and timetables, if we would step forward and do the right thing, that China would somehow follow that. But I think what I hear you saying is that that's not the case.

ZHOU: You know, at this time China still is a big country, let's say it's a big developing country. In the recent published World Bank development report in 2006, the per capita GDP of China is only a little bit more than $2,000. And even by the so-called purchase power parity, China has only a little bit more than $7,000 per capita. And compared with the United States, yes, you have about $45,000. And all the developed countries have more than $20,000.

So in this case if you say China should take the same responsibility to set up a target by 2020, for example, as one of the developed countries, that's very, you know, difficult to be accepted by China.

So we'll try to get some periodic target like our efficiency improvements, our -- some kinds of -- for example, actions on the mitigation or adaptation, but we cannot really set up a so-called total cut, as in the Kyoto Protocol for the developed countries -- (inaudible).

So it's a very important principle. I think President Hu Jintao mentioned the last time, two times about that, so the different -- (inaudible). And the comment has been we will do our best. Given -- (inaudible) -- at those times, you have the two kinds of developed country take the lead and a developing country will follow.

So I think at this stage that China will take the following stage. And, of course, along with development, China maybe becomes more and more close or near as a developed country. And I think along with the approach, China will take more and more responsibility. Finally, maybe China becomes one of so-called Annex 1 country. (Chuckles.) There, we'll do that -- (inaudible) -- but not now.

Thank you.

ECONOMY: Okay. Thanks.

Taiya, the administration's Strategic Economic Dialogue just concluded and just from the publications that came out from it it seems that major outcome in terms of the kinds of issues that we're discussing here today is the sort of establishment of some joint task forces that are going to focus on issues like electricity, air, water, transportation and conservation of forests and wetland ecosystems.

If you would flesh these things out a little bit for us and help us understand in more concrete terms what seems to be going on in U.S.-China cooperation on these issues that are related to climate change, even though this is not directly tied into climate change negotiations.

TAIYA SMITH: Well, the last SED was just ended last week. We had some very vigorous conversations about climate change, energy security and environmental sustainability.

These followed on conversations that we'd had in December where, at that time, we said well, this is such a large strategic issue that's really affecting both of our countries, we need to do something about it. And the decision at that time by the leadership on both sides was to establish 10 years of cooperation.

So when we had these conversations about climate change I think Professor Zhou has really illuminated many of the aspects that China will represent. And the U.S. response to that tends to be okay, but there's a whole lot you could be doing right now, in terms of putting new technology in place, that you're not.

And there's a lot of policy changes that could happen which would have a significant impact, and that we can work together because, in the end, the U.S. and China are facing many of the same problems.

And as Trevor suggested, actually China has an easier time in some cases because China right now is developing its capacity, building a lot of new buildings, developing a lot of new capacity for energy production too, whereas the U.S., we have to retrofit everything that's already out there.

But when you put it together, both of our countries are looking at the same fundamental issues that revolve around energy security, dealing right now with the price of oil, finding ways to ensure that we can have continued economic growth that's both environmentally sustainable and also produces the benefits that we need to for the people of our countries.

So what we look at is how can we take advantage of those shared interests; what can we do together to really help both of our countries step forward and find this new model of living that Professor Zhou was talking about?

That was one of the interesting things coming out of the SED was the Chinese government has really come to the conclusion that the current model of energy intensive growth is not one that's going to be able to allow their country to develop at the pace and speed that they want to. And that when you look down the road, there just literally aren't the resources in the world for everybody to be at that level of energy-intensive usage in your daily life.

And so together we had a great discussion about how can we find a new model, what can we do together to reach that.

Now, part of the SED is that you can have very big, strategic discussions, but our job is to figure out how to actually make a change on the ground, and what are the concrete steps that we can take to really help improve the situation.

So we've launched this 10-year cooperation in energy environment. The framework itself was signed by Vice Premier Zhang Dejiang and Secretary Paulson on Thursday. I'm sorry, it was on Wednesday. Shortly after that, China announced that it'll be raising fuel prices, sort of as part of the discussions that we'd been having.

The framework is focusing initially on five specific goals, so it's clean, efficient, secure electricity; clean air; clean water -- both of those are big topics in both of our countries, but water certainly has taken a prominence in China recently; transportation. So we're looking for clean, efficient transportation, again, a topic that's been very big in both of our countries, certainly with China increasing its vehicle fleet on a daily basis, and it will soon overtake the size of the U.S. fleet.

And then the last one is on the conservation of forests and wetlands, and that goes to some of the broader issues. Again, you can't talk about wetlands and not talk about water and sort of where all the water comes from and sort of natural ecosystems (clean ?) in the process. But it also is a way that we can help raise the awareness in both of our countries.

So as we look at these five areas, there's a few key components that we've agreed to. One is that for each one, we're looking at it not just in the development of new technology, but policy. What policies can we be looking at in both countries, recognizing the policies are different for both countries, but there's a learning process that we have that will really change our usage and help create the right incentives for consumers, both industrial as well as civilian, to make better choices as we go forward.

And another part of that is education. Certainly both of our countries, the populations need to be educated; our industries need to be educated about the best way to move forward. At the same time, we're lucky in that in many cases our industries are educating the government as well. And we see this as a two-way road in cases.

We're also looking at capacity building. I think one of the starkest examples is when you look at the size of EPA that has some 75,000 employees and then you look at the new ministry of environmental protection in China that I believe has about 450 employees. And it sort of shows you how difficult it is to enforce regulations and other policies when you don't actually have the staff that's able to do so.

And then the final component is the one that we all look to with a lot of hope, which is about how do we create new technology. Is it simply the deployment of current technology? Is it the commercialization of technologies that are already existing but we don't actually have on the shelf and we're not able to work with in a commercial setting? Or is it really the development of new technology?  

And so through this 10-year framework we're engaging all sectors of society, whether that be NGOs, the research universities. I know Xinhua is already involved in many discussions with U.S. private sector companies as well as governments.

It also includes the average person on the street, because part of -- we recognize for both countries that if you don't engage the imagination of people -- it's like going to the moon. When the U.S. decided to go the moon, we didn't know how to get there. But nine years later we were able to do it, and part of it was that you had the support of the population.

Well, certainly for the U.S. and for China, we're looking for ways that you can engage the population to help make these changes on a daily basis.

So it is a full effort all around. We've been amazed. Sort of the traditional view of working with China is that it's very difficult. On these issues, we've found that in many cases the Chinese government is ahead of where the U.S. government is in encouraging us to move forward.

An example of that is when we talk about buildings, we're working very hard on smart buildings, with a lot of collaboration between U.S. industry, U.S. government, and U.S. research institutions on finding smart buildings -- the ways that you're building will work like your car, that you can kind of go plus a diagnostic in and it'll tell you what's going on within all of the systems in the building. It takes advantage of elevators doing down and the energy produced there to help light your rooms.

Well, the Chinese side is now working on smart blocks, which -- obviously it's easier to work on a smart block when you are building the whole block. But that sort of viewpoint has really been interesting for a lot of our scientists and engineers too.

So we're looking at how do we take advantage of these different overlapping interests, which will help us get at the agenda of dealing with climate change, dealing with energy security, and ensuring the environmental sustainability.

ECONOMY: Great. One of the issues that you raised and I think has been central in the broader climate discussions is the issue of technology transfer. And I know that President Bush and Secretary Paulson have been actively engaged in trying to develop a clean energy fund, a clean technology fund.

Could you talk a little bit about how the administration sees technology transfer actually happening? (Chuckles.) And what the Chinese would like to see, what the U.S. government is prepared to do; where the things intersect and where -- maybe where there's some challenge.

SMITH: One of the first things that is always brought up -- it certainly has been a policy of the Chinese government that technology transfer needs to be a very important part of their whole energy and environment strategy.

And what we found is, first, there's a bit of a misunderstanding on both sides as to what we mean by that. Anytime you get two words to describe something, there's a whole lot underneath.

For the U.S. government, because -- our technology really is run through the private sector. So we can't look at just handing over technology, which is our assumption of what the Chinese government is looking for.

In many cases, when we actually get down into the discussion, it's not sort of giving technology; a lot of times the Chinese government is looking to find ways to be able to have access to certain technologies.

So, for example, if you're in a province where you're looking to have clean water, the only sort of clean water membranes that they're aware of are the really big U.S. companies that are coming in and telling them about their new clean water membranes that will help reduce the industrial waste. So one of the questions they've had is well, what else is out there? What else is available? So we've been looking at ways to make sure we can spread that information.

We're also aware from the U.S. side there's a concern about making sure there's appropriate compensation, but also IPR, and are the intellectual property rights of the companies that are creating this technology protected sufficiently?

I've been surprised at how many U.S. companies have told me they're already actively engaged in transferring technology, whether that be know-how of how to build a plant or it's the knowledge that they have in creating a new type of technology that they're actively engaged in working with the Chinese government on.

And in many cases, they are not concerned about IPR, if it's in a specific agreement they have with a Chinese university. But it's when you start to get this information out into the public sector and then they, our companies, later get the phone call saying your product didn't work and they discover they didn't make the product, even though it had their name on it, that's when our real tension begins to build.

So we've been working on a variety of ways to begin to address that, with the double goal of making sure the right technology gets to China in the right places, making sure that there's access to the information and technology that's available, and also being able to protect the U.S. companies, and that of course applies to companies around the world.

One thing that's come up is a lot of places in China don't have the resources to be able to buy the most cutting-edge, innovative technology. And that's a concern; it's a concern that's been discussed certainly in Bali and around the world as well.

We've been working to put together a clean technology fund. This is something that China had certainly been asking about for quite a few years. Right now that fund is focused on getting existing technology to the places that it needs to be, so China certainly qualifies as one of those parts of the world that definitely need it.

It's being run through the MDBs, so all the banks -- the World Bank is actually the one that's facilitating the process. The U.S. government, the U.K. and Japan have already contributed. Certainly we're looking to China to also be part of that process, and I think there's been some receptivity from the Chinese government to participate as well.

And the hope is that we can work together in a multilateral context to help reduce the cost. So it's not giving technology, again, but it's saying if the dirty technology costs this much, what is the differential between having the better technology that will help reduce the greenhouse gas emissions, and then finding some funding to help cover that difference.

ECONOMY: Great. Before I open the discussion, is there anything that any of you would like to add to what you've heard, that another panelist might have said? Any additional comments or thoughts?

HOUSER: I may maybe make one comment on the climate negotiation, since that's a forum that the SED doesn't participate in.

I mean, the challenge, when we look forward to Copenhagen in 2009 is that we need leadership from developed countries, and particularly the U.S. And after what happened in 1997, we need climate policy from the U.S. going into Copenhagen, or shortly after, for the U.S. to have any credibility as a negotiator.

One of the largest issues in getting U.S. climate policy passed, in addressing those two-thirds of emissions that come from consumers, is some sensitivity about the share of emissions that come from industry, particularly iron and steel and cement.

In particular, concern that putting costs on those industries is going to create a competitive disadvantage for U.S. firms vis-a-vis Chinese firms, in particular. That was a feature in the Lieberman-Warner debate. It's a feature in most U.S. climate policy.

Looking forward in how we can broker an agreement to get the U.S. to pass economy-wide caps on emissions, to demonstrate that leadership, there's a little bit of help that we can get from China in that process.

While it's unreasonable to ask China in the interim to accept economy-wide limits, and probably isn't even a good idea, if we had -- if our expectations about future Chinese emissions five years ago were 79 percent below where they are now, there's a real difficulty in setting a baseline for China, that we would cap and provide credits underneath. That in the interim, the targets are going to have to be of a policy-based approach.

But if China could formalize some of the policies that it already has in place, that are trying to discipline those industries that the U.S. is most concerned about, then that would create some political space to pass more aggressive climate policy in the U.S.

And while Chinese climate negotiators are certainly concerned about putting a cap on emissions that would subject Chinese citizens to a fifth of the carbon budget of the U.S. -- so the farmer in Guangdong who's struggled his whole life to buy an air conditioner can't turn it on, but someone in California can still drive a Hummer.

If we're talking about industries and industries that don't employ a lot of people, then there's probably more room to impose the same types of disciplines on those industries as we are in the U.S.

That gets us to 2020, 2025, when China's per capital GDP is at the level, per capita emissions is at the level of OECD countries and we can talk about more comprehensive caps.

ECONOMY: Thanks. Okay.

So let me now open it to all of you. And if you would please identify yourself, your name and if you have an institutional affiliation, and please keep your questions brief.

Yes, in the back?

QUESTIONER: Jim Dingman, INN World Report. I was wondering if the panel could discuss their reaction to the state of the studies on the level of damage to the climate; that is, that many of them are rather grim, that the damage is already irreversible. And that these trends that we're talking about, the policy debates, may not be enough.

And I was wondering what kind of best scenarios you see coming out of the next few years in dealing with this. Because we -- you talk about wetlands. Many argue that the destruction of the wetlands in the delta in the Mississippi is what caused the disaster, or enhanced the disaster in New Orleans.

So I'm just curious what you think will happen. What should be done immediately?

ECONOMY: Thank you.

Who'd like to take the question?

ZHOU: Well, China has translated the IPCC, the full assessment report, into Chinese. And because that book is very thick and writing a very scientific way, so a lot of common people and the political people cannot really understand. So we are trying to interpret that into a more readable style -- (chuckles) -- to give the message to the -- all the common people and the decisionmakers.

And we are trying to develop a Chinese version, not only to translate, interpret the findings from the IPCC report, but more specifically on what damage, what kinds of climate change happened in China, and what's the future scenarios. So we are doing that. I think it will help the Chinese people, the common people and the decisionmakers, to try to understand the urgent action that's necessary.

But of course from -- other point of view is the Chinese understand that adaptation is necessary. Although for the long term, mitigation could be very more important, but at the same time we have to prepare for what already happened -- what has to be -- happen to some extent of the climate change. So we'll do both mitigation and adaptation.

But of course it's very difficult at this stage to find which one is most critical change and their impacts on the specific biosphere or other resources. So while doing that, you could find somewhere we can really take action to impact that, we'll do that. But yes, we need a lot more scientific work, in my understanding.

Maybe -- is this some kind of answer for your question?

ECONOMY: Taiya, do you want to add anything to that?

SMITH: I can say that there's -- the urgency that you're expressing here is something that we certainly feel very strongly. Anytime you try to move governments, whether it be the U.S. government or the Chinese government, it's naturally a slow process.

I've been amazed at how quickly we've been able to move things. Some of our emphasis on forests and wetlands certainly was not understood within the U.S. government as to why we said this is really important to focus on now. But the idea being that we need to save and restore as much -- we can of these really critical areas to be able to help us deal with the future.

So this isn't a satisfactory answer, I understand, but I know that the urgency's there. We're trying to make sure that the things that are easy to do are done very quickly in both of our countries, as well as trying to look down the road four and five years from now as to what we might be considering urgent at that time.

And that's certainly why we look at this as a process which has to include all of the American people as well as the Chinese people to make sure that everybody's taking every little step that they can to help deal with the current situation.

ZHOU: For example, one of the actions that we are taking is from the 2005 to 2010, we'll increase our forestry coverage area by about 200,000 square kilometers, so that we will have about 50 million tons of carbon sink.

But on the other hand, it'll help China to solve the -- somewhere the land erosion, and a lot of benefits for the increase of the forestry. So this is something we are taking.

ECONOMY: Okay. Jim, back there?

QUESTIONER: Jim Seymour (sp), the Chinese University of Hong Kong.

Given that -- I guess my question is for Drs. Houser or Zhou or anyone who wishes. Given that nuclear power is going to be increasing, albeit small part of the nuclear -- of the power mix in China, I wonder if you could comment on the plans for handling nuclear waste. This is a problem in the United States that we've always said we would cross that bridge when we come to it, and now we're on that bridge and we don't have satisfactory answers.

So I wonder what the plan is for transporting nuclear waste safely to a safe place and hopefully in a way that would not have a negative impact on the non-Han parts of the country, to -- (Xinzhan ?), Inner Mongolia, and so forth.

ZHOU: Oh, this is a very technical question. And although my background is so-called nuclear physics, but I haven't worked on this subject for a long time. So I understand what's your concern.

China has already long time working on the nuclear -- start from the weapon, but now is working more on the peaceful use for the nuclear power. And we have already established a system -- from the basic material production, concentration and the waste treatment.

But, of course, that's before is not so much waste. So, it's easier to -- (inaudible) -- waste, but in the future when we scale up the nuclear power, we have to develop the whole system, from the material production to the waste treatments and storage. Now we have real research institutes working on that, and develops a different kinds of alternatives, and try to find the better sites for storage.

And I think that we'll follow -- first follow the IAEA's rules and we'll learn from all the countries what the lessons and what the experiences, and we'll try to develop such technology. And we already established a so-called "nuclear safety bureau," and take care of the standards, and a very strict monitoring and a checking system already be established. So, I think we'll have a good solution for that. Thank you.

ECONOMY: Okay.

Yes, over here.

QUESTIONER: Denis Simon, Levin Institute.

About two years ago the vice minister Shang Yong, from the Science and Technology Ministry, came here and talked about this new science and technology program -- the 15-year medium and long-term program. And I'm wondering what kind of coordination takes place between the NDRC and the Ministry of Science and Technology to ensure, in fact, that the big policies are actually being coordinated across the Chinese government ministries?

Those are always big challenges in the U.S. government, and obviously on the Chinese side. And I'm wondering if Professor Zhou, and maybe Taiya, can comment about, sort of, the flavor of this coordination as you see it in action, post-these SED meetings, because during the meetings it's a -- may be very serendipity, but after the meetings, you know, that's when the rubber hits the road, in terms of implementation. So maybe both of you could comment on that.

ECONOMY: (Laughs.)

SMITH: That's one of the greatest challenges, as you know, for both of our governments. What we're doing, through this 10-year framework, is we have a core group of agencies and ministries, which is about five from each side. From the Chinese side -- that includes most NDRC; MEP, their new ministry of environmental protection; SFA, the state forestry guys -- and it's led by NDRC. And NDRC has the responsibility to coordinate all of these ministries together and make sure that they have the same policy agenda and prioritization.

We have to do the same thing on our side. And I don't think it's all that much easier -- bringing together all of our groups, which includes DOE, Department of Transportation, EPA, State Department, and Treasury has the job to coordinate there. What we find often is that the representatives at the DGE vice minister level that participate in these meetings, will have differences of opinion, and we'll find on both sides, that we have to work those out so that we have a unified way forward.

The power, for us, really has been that we have the vice premier and the premier so interested in these topics that it brings together the Chinese government and the U.S. government -- under our leadership also, with the same interests, to have to have a prioritization of what's going to be most important. So we'll figure out what's most important on each side, and then we have to figure out how we make sure those interests intersect and overlap in a way that works for both countries.

I would say that most has been very energetic. We've got a lot of ideas, a lot of thoughts, and a push forward. And that's been very helpful to the process. I think also the Ministry of Urban Planning and Housing -- so, there's a new title, is another one of the ministries on the Chinese side that is very energetic and has lots of new ideas that help push it forward. And NDRC has the wonderful of challenge of trying to coordinate and bring them into one policy prioritization.

ZHOU: I think that it will be happening all the governments, including the Chinese government, that a different ministry will try to have more power to some extent. But, in China, you know, we have a state council, it's a -- it's a high-level coordinating committee -- commission.  It's always a problem if it needs to be compromised, or need to be integrated, then go -- come into the state council and the premier or vice premier will take up that, and to make the agreements and the consensus between the ministries.

And, of course, Ministry of Science and Technology, in general, is in charge of all the important -- the basic and applied technology, and the sciences R&D. But one year to go into application and into demonstration, and into real engineering projects then the NDRC will have to take care of that. So it's a combination from -- and in my understanding, the two ministries will take up the different stage of the -- of the technology and the science developments. And the demonstration and finally spreading that. So you can find things.

But, I think the -- in Chinese way is if you have questions, problems, the ministry will talk to each other and get consensus. And the final results is to move things more smoothly. So I think they are doable.

ECONOMY: Okay. Yeah, right there.

QUESTIONER: Liz Wishneg (sp), Montclair State and Columbia University.

It's very heartening to hear about all of these policy changes and a tech transfer plans, but where the challenge is is in implementation, as this panel well knows. And I wonder what's being done to make sure that these technologies are actually going to be used, that the provincial level will actually carry out these new efficiency standards. And, in particular, I wonder what happened to the "Green GDP" idea, which would connect performance to environmental behavior?

HOUSER: Let me maybe take the last -- the last bit first. Some very well-meaning Chinese planners figured out what the U.N. had figured out a long time ago, which is it's extremely difficult to do an accurate Green GDP accounting. It wasn't for a lack of trying. So there's other metrics that are starting to be worked into the criteria for provincial officials and their advancement of their non-economic growth criteria going forward, rather than just a Green GDP metric.

Certainly, enforcement at a provincial level is a challenge. But it's not -- it's not an insurmountable challenge. The top three priorities that Beijing has, at any time, certainly get done at the provincial level. The amount of economic restructuring that was necessary for WTO accession, for example, was very challenging at a provincial level. It required creating a lot of losers, as well as -- as well as winners, and there were a lot of vested interests that were routed.

As energy and environment raise on the policy agenda, into the ranks of those top three, then the policy that the central government puts forth will certainly be implemented. There's -- there's challenges in managing that relationship, but it still, it's still a government run very much from Beijing.

ZHOU: I think Green GDP, we do have a great team led by the Ministry of Environmental Protection working on that. And we try to collect the data to apply that for all the provinces for several years. And finally -- we found that, one it's very hopeful if it really gets the number. But the difficulty is there's a lot of indicators that, you know, it's very difficult to get the data, and is some kinds of, you know, artificial or based on the majority of the personal scientists.

So, in the -- finally, you find, conceptually, it's very, very useful, but practically, you know, it's (yearly ?) you get the number is very difficult. So you have -- (inaudible) -- for some years. But you cannot repeat that for every year. So, you got so big job so to do. So we are still developing that, and Ministry of Environmental Protection mentioned that we keep on working on that. But it's not majority, no.

But, on the other hand, you know, the Ministry of Environmental Protection declared their number for pollution (laughs), pollutants -- a concentrating of air, water quality, everything -- annually, for each of the provinces. It help to become one part of the important socioeconomic indicators besides of the GDP. So we do have some efforts to work on that.

ECONOMY: Let me just add one point to that because I think, in a way, it's -- it's an important question that ties into an earlier question about, sort of, the coordination and the politics. Because while it may be true (laughs) that what Beijing says, goes, and the top three priorities get implemented -- I'd be curious to know what those top three priorities are right now, it's also true that when you look at something like the Green GDP the challenge was not only in figuring out how to do it, but there was substantial resistance from the provinces to being evaluated in that regard. And the National Bureau of Statistics was not very forthcoming, they weren't that interested in doing it.

So, you had strong efforts at leadership from the Ministry -- well, it wasn't at time the Ministry of Environmental Protection, but you had a lot of interest and enthusiasm there but you didn't really have support from other key parts of the government to push it forward. So, I think while they're continuing with the effort, it is a very good example of how an excellent potential policy initiative can become stymied because of political, sort of, infighting, game playing, or just lack of support.

Okay. Okay, I promised you -- back here first. And then --

QUESTIONER: (Inaudible) -- Environmental Technologies Practice

We touched base a little bit on, sort of, the cost of being environmentally friendly. And one can argue that, in the U.S. predominantly, environmental friendliness is also -- is mostly done if it's an economically beneficial. That's when the policy gets implemented. And that environmentally-friendly technologies generally cost more than non-environmentally-friendly technologies -- be it scrubbers in your smokestacks and things of that nature.

I was wondering if Professor Zhou, or Trevor you, could comment on how China evaluates that cost versus benefit trade-off? Is it just looking at direct costs? Is it looking at long-term costs of cleaning up that pollution, so on and so forth? Thank you.

HOUSER: I think that there is -- there's a number, there's a number of metrics that are used, a number of considerations. The one that I mentioned about -- just what type of economic growth is going to deliver the employment gains and the welfare gains that you want. And in that realm, and, kind of, macroeconomic policy, it's -- there's a lot of complementarity between smart economic policy and economic policy that's going to reduce energy demand.

On the supply side, there is a number of policies that are taken just for local environmental reasons. So, a requirement to put in sulfur scrubbers; increasing those still inadequate penalty for, 'if you don't run your sulfur scrubbers' -- I mean, that incurs a cost, in a higher electricity cost it passes right on to consumers. But the sulfur dioxide pollution causes $200 billion a year worth of economic loss, and 750,000 premature fatalities. So, those types of public welfare -- these aren't climate change concerns, per se, but a lot of the policies that are implemented for local environmental reasons have a climate dividend.

I think that, at the end of the day, the major concern is that environmental protection is raising in the league tables possible risks to stability -- to government stability. We've had some of the largest environmental protests in humanitarian history taking place in China. And while it's easy to deal with, kind of, civil disobedience in the democracy realm, the air is something that you can't hide, right. Everybody knows that it's polluted.

And it's clearly the job of the central government to deal with the air. And so if the air continues to get worse, it becomes a threat to the legitimacy of the government. And I think that, above all else, at the end of the day, is the chief motivator.

ZHOU: Wand we have introduced all the moethodologies and the approaches developed in -- that developed the countries, but on the environmental protection. And in our university, we do have so-called "environmental economics" to be introduced for the students. And we calculate, or evaluate all the so-called alternatives. If you have the -- China people understand what's the cost for the environmental pollution. But that's not enough. So, (to some extent ?), we introduced mostly the total quantity to control, or the standards and the costs for the quality of the environment.

That means all the emitters who have to obey some kinds of standards or lose. If you exceed that standard, you'll be fined, or you'll be ordered to close your production. For example, for this five years we -- the target is to decrease 10 percent of the total emission of the -- of the sulfur dioxide and COD in the water, regardless of the increments of the production.

And the target has been allocated to the 30 provinces as a specific target for each of that, and each of the provinces allocate that decompose the target into cities and counties and into the -- in the process. So, they have to take specific actions to reduce the total emission of the -- (inaudible) -- pollutants.

For example, all the new constructed power plants of coal burning have to be equipped with a sulfur scrubber. And last year we already equipped about more than 20 -- 250 gigawatts of power plants with a sulfur scrubber already. And we will apply that to older power plants in the near future. Thank you.

ECONOMY: All right.

We have time for one more question, I'm afraid. And I had -- a man over here had his hand for awhile. And then we'll just offer each of our panelists a chance to make one final comment.

QUESTIONER: Thank you. It's Jim Estothia (sp), we Bloomberg News.

I wanted to get back to the question of urgency for a second. There's different forecasts and projections for when the, you know, climate damage from greenhouse gasses will, sort of, trigger the most catastrophic effects of climate change. It may be irreversible. The IPCC has a forecast that, sort of, reflects 450 million parts per million. That could be the tipping point. James Hansen, over at Goddard thinks -- I think, we may already be there, and that we shouldn't be building any new coal plants that don't sequester carbon.

I'm wondering if the decisionmakers and leaders in China have, sort of, internalized this idea that there may be a point in time when it's just irreversible and that we've gone too far. And if they have, what -- you know, how far off is that? Or what's the number they're looking at, or how do they quantify that?

ZHOU: We understand from the IPCC report that, for example, European Union raised the target to limit the temperature -- and raise -- limited to the two degrees, right. And in that case, the carbon emission -- dioxide emission have to be limited about 450 ppm, and that, totally, greenhouse gas emission will be limited with about 550, or something like that. I cannot recall the specific number, but it's like that.

In that case, the developed country has to be -- decrease their emissions by 2050 about 60 (percent) to 80 percent. And I think, for some country like the United States could be asked to decrease by 90 percent of your higher intensity. In that case, we understand that developing country has to be, you know -- decreased by the emissions, compared with current emission, by about -- I think it's 20 (percent) 30 percent, even.

So we look at that as one of the scenarios. And China is really based on this kind of scenario, is thinking about -- you have all the country take this kinds of target as a action plan, and what China should do. And we are thinking about when we will get to the peak of the emission, and when we have to -- when we have to go down our total emissions. But this is still under study.

Actually, I think it really depends, because we are -- for the whole world, I think all the people is like doing and learning and the doing process and we'll look at that. Thank you.

ECONOMY: Let me just offer you a quick opportunity -- anybody on the panel, if you want to make just a -- offer a final thought, or didn't have a chance to say something you'd like to get across?

SMITH: I think the one thing that -- what everybody will need to keep in mind is that in China the motion amongst the people is really significant. We've had groups of business entrepreneurs and others come to talk to us about their concerns about the environment in China -- and these are Chinese entrepreneurs, and the work that they're doing to try to make a difference and to change that.

We're starting to see a lot of pressure on the central government, as Trevor was suggesting, that people need to see change. They need to see the legitimacy of the central government enforced by its ability to deal with environmental challenges, and the awareness of what's happening, both in the -- there's a Carbon Club now at Beijing University which is looking at carbon trading; the work that we've all been doing with China through EPA and MEP on sulfur dioxide trading, and helping set up a national plan for that.

That's all got young people involved and really energized about what they can do to participate in the future. So, that seems to really be a big motivator for the central government. And certainly having people like Professor Zhou. who's been working on this for so many years, having the foundation to then step up and move forward.

It, of course, is never fast enough for us in the U.S. We work with Congress regularly and we know everything's got to be a bit faster. But, it's moving forward, and we're -- you know, when you're at the front line of watching it, you can see that movement. And hopefully that, together, the two countries will be able to deal with this as the largest contributors to greenhouse gasses.

HOUSER: Yeah, I guess I would just say that -- and towards your question, that if we need to reduce global emissions 50 percent by 2050, then that means that the U.S., and Europe and Japan need to reduce probably 80 percent by 2050, and the developing world maybe 25 or 30 percent, starting to -- peaking at 2020, 2025, and then coming down. That's possible without a significant amount of economic cost.

The challenge is the politics. And we're going to have to go beyond just meeting at the climate negotiating table and trying to hash it out in the 11th hour, to really understanding, what are the political blockages in each country from staging those types of commitments in a way that makes sense for both development goals and for climate goals?

The Chinese side needs to know more about what happens in the U.S. Congress and what it's going to take to get a climate bill passed. The U.S. side needs to understand better about what happens in the state council in China, and what real intentions are towards economic growth and climate change. Without that type of understanding, we're never going to be able to get to where we need to be.

ZHOU: I think my words will be very short answering to the cooperation between us, not only on economics and the politics, but also on the environment is very important. And I think the Chinese people, and our academic people, are willing to work together with the United States as partners and colleagues, and to encourage the future cooperation on all the fields. And I think if we are doing our best, we can change something in the near future. Thank you very much.

ECONOMY: Thanks.

I think I failed to keep us to 9:45, as I was told to do. So I apologize for that. But I do think that the panel has succeeded brilliantly in beginning to sketch out some of the key issues here. So, thank you. (Applause.)

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      THIS IS A RUSH TRANSCRIPT.

New York City, New York

RICHARD N. HAASS: Well, good morning. I'm Richard Haass. I'm President of the Council on Foreign Relations, and I want to extend a welcome to everyone here, particularly for those who have traveled several thousand miles from China. You are particularly welcome here at the Council today.

I think it's fair to say that no topic has risen more quickly on the U.S. policy agenda in recent years than has climate change. This is a subject with many dimensions, but I would point out two.

One is the domestic side, and the question is what we in the United States can and should do to reduce carbon emissions here. But there is also a foreign policy dimension, which is what the United States should do, what the United States can do to work with others to counter climate change and its effects around the world. And obviously in a global world what happens in places far off still affects the United States. There is ultimately only one global climate.

And here at the Council we are focusing on the international dimension, though again, the ability of the United States to be effective at home in this area will largely shape our ability to be persuasive abroad.

Here at the Council on Foreign Relations, we recently sponsored an independent task force report on climate change. And it looks at the U.S. policy options and recommends strategies to exercise international leadership on the issue. And the task force co-chairs, two former governors, Governor George Pataki of New York and Governor Tom Vilsack of Iowa, and the project director, Council senior fellow Michael Levi are here, and will discuss the report's findings and recommendations later this morning, and obviously copies of this report are available outside. I would say they're on sale, but they are free. There is such a thing as a free report.

The task force in today's symposium are but two of many things the Council is doing in this area on climate change and on energy. And what we've got is a large program in this area, which includes a full slate of research, publications, meetings, website coverage and so forth.

One of the many aspects of the debate about climate change and U.S. climate change policy is how to deal with the emerging countries, and above all, the larger emerging or developing countries. And none is more central to this debate than is China.

And obviously the environmental consequences of China's tremendous growth are profound, and they are becoming clear both to its own people and to the world. And given China's rising carbon emissions and the projection of more to come, its participation will be essential to any efforts to combat climate change around the world. But to say that is not to answer the basic question which is exactly how China can and should be integrated into multilateral arrangements to reduce emissions.

So today's -- the timing of today's program, the focus of today's program, could hardly be better. And we've got three sessions -- I'd say three smart sessions -- looking at three topics: the first is Chinese energy and climate strategy; the second is energy technology in China; and third session is the one that looks at prescription. It's the session that looks at policy options for the United States, and that will obviously dovetail closely with the findings of the just published task force report.

In closing, let me also thank the China-U.S. Exchange Foundation for arranging and supporting the participation of our international speakers and our guests. And they are here as part of a delegation from Tsinghua University led by Jang Sheelian (ph). And we are delighted to have all of them with us, and we hope this is very much part of a continuing dialogue between the Council on Foreign Relations and between yourselves and others in your country.

Without any further delay, let me -- I'm happy to turn things over to the extraordinarily capable hands of Elizabeth Economy, who is the C.V. Starr Senior Fellow and Director of Asia Studies here at the Council on Foreign Relations.

ELIZABETH C. ECONOMY: Thank you very much, Richard.

It is a pleasure to have the opportunity to have the opportunity to moderate this first session of the symposium on China and climate change.

Before we begin, please if you would turn off all your electronics -- Blackberries, and cell phones. And I know everybody asks you to do this, and inevitably there's one or two or three people who don't do it. But I am asking you in part because it will interfere with our sound system, but also of course because it interferes with our speakers' remarks. So if you would please turn them off now. And also just let me make a note that this symposium, the entire symposium, will be on the record, and broadcast throughout the United States, and globally, via cfr.org.

So with that let me just begin by reiterating a little bit of what Richard said in his opening remarks, and that is, that I think this symposium really marries two of the most significant phenomena of the 21st century -- the rise of China as a global economic powerhouse on the one hand, and the transformation of the earth's atmosphere and landscape as a result of global climate change. And both of these phenomena are of course exerting a profound impact on the way the rest of the world lives and does business.

This morning, we're going to focus on the intersection of these two phenomena. We're at a point today where China is and will continue to be for the foreseeable future one of the key, maybe top two or three players in the global effort to address climate change, in large part because it has become, as a result of its extraordinary economic growth and its reliance on fossil fuels, one of the leading contributors to the problem by some international estimates having surpassed the United States as the leading contributor of the greenhouse gas carbon dioxide in 2007.

At the same time I think the Chinese leadership has come to understand that the country will face a steep price if climate change continues unabated, whether we're talking about the more aggressive melting of the Tibetan glaciers, which will contribute to greater floods and then droughts, or a potential decline in key grain yields by 2050 of up to 37 (percent) to 40 percent, or of course the rise in seal level which threatens tens of millions of coastal Chinese, if not hundreds of millions.

But as we've seen I think with our own fraught debates on climate change here in the United States, arriving at a national policy on climate change in particular in a highly charged international context is no small matter. And the Chinese are grappling on the home front with how best to balance continuing and maintaining their economic growth with developing and implementing an effective climate change response. And at the same time they're deeply engaged in international negotiations that are focused on issues of historic responsibility or equity, sovereignty and state capacity.

So our goal this morning is a relatively straightforward one, albeit not a very simple one, and that is first just to understand the trends in China's energy use and what they will mean for the trajectory of the country's greenhouse gas emissions; then to look a bit at China's climate change strategy today, and assess some of its strengths and weaknesses; and finally, and perhaps most importantly, to think through how the United States and China can work together most effectively to transform the way that China, and I have to say, the United States do business.

To do this, it is my pleasure to introduce a truly stellar panel, really, I think some of the top experts both here and in China. To my immediate left is Trevor Houser. He is the director of the energy and climate practice of the Rhodium Group, and a visiting fellow at the Peterson Institute for International Economics. He is also the author or co-author of several path-breaking studies on China and energy issues and on climate change issues. He just had a book come out called Leveling the Carbon Playing Field this year, and he has another book coming out this year. He puts all Council fellows to shame, I have to say two books in one year, called China's Energy Evolution. And for my money he really is -- there's nobody better when it comes to providing a detailed and nuanced understanding of China's energy situation and some of the potential policy levers that we have available to employ to meet this challenge, at least here in the United States.

Because in China, we have Professor Zhou Dadi. He is currently a senior adviser and researcher at the National Development and Reform Commission's Energy Research Institute. And until 2006 he was also the director-general there.

He has recently joined the Carnegie Center in Beijing, where he'll be a research fellow also working on climate and energy issues. He has long been renowned as one of China's most eminent energy researchers and climate policy strategists. He has served as the lead or co-author of several of the IPCC assessments. And in 2007 he was awarded the U.S. EPA's climate protection award.

I also have to inject a personal note and say that whether he remembers or not, back in the early 1990s, when I was a struggling graduate student working on this issue of China and climate change, Professor Zhou was extremely helpful to me. He was one of the very few people working on this issue of modeling carbon emissions, looking ahead. We're talking 16, 15 years ago, but he really helped me to understand better China's energy situation at the time.

So it is indeed a great pleasure for me to have him back here.

And last but certainly not least we have Taiya Smith. And she is the executive secretary of the Treasury Department and coordinator for the U.S.-China strategic economic dialogue, which I think maybe we've all come to understand is not only the preeminent bilateral forum for discussing issues of trade and finance between China and the United States, but also issues of energy and the environment.

Taiya previously served as special assistant to Deputy Secretary of State Bob Zoellick, where she focused on Africa, Europe and global military affairs; and she was also the State Department's point person on Darfur during 2004 and 2005.

So the way that we are going to run this session is that I am just going to begin by asking a couple of questions of our panel, just to help set the stage for about 25 minutes or so, and then open the floor for your questions.

Let me start with you, Trevor, and just ask you to lay out some of the key trends that you see in China's energy sector today over the next maybe five to 10, 15 years, of energy makeup and some of the drivers, whether we're talking about urbanization or industry, transportation sector; and how you think these trends are going to affect Chinese greenhouse gas emissions.

TREVOR HOUSER: Sure. Thanks, Elizabeth. And let me start by saying any of my research stands on the shoulders of giants, and no one among them is more giant than Professor Zhou, who's really been doing the path breaking work in this field for a long time. So it's an honor to be on the panel with him, and with Taiya Smith who actually has to put policy to all this analysis and does a fantastic job doing so.

I would start by saying that the energy future that we're looking at today for China is quite different than the energy future all of us were looking at back in 2000 -- 2001. Between 1978 and 2000, China did something which was largely unprecedented both for a developing country and -- or a developed country. Over a 20-25 year period, sustained economic growth of 9 percent while energy demand only grew at half that rate. That degree of efficiency meant that in 2000-2001 China was only 10 percent of global energy demand, rather than 30 percent of global energy demand which it would've been if that type of economic restructuring hadn't taken place.

Sitting in 2000-2001 and looking forward, most energy forecasters either in the U.S. or in Paris at the International Energy Agency or in Beijing thought that China would be able to continue that level of energy efficiency improvement for years to come, and made forecasts based upon that.

And instead what we saw in 2001 and 2002 was a change in the nature of economic growth and its relationship to energy demand in China, so much so that today, in 2007, the IEA's forecast for Chinese energy demand is 79 percent higher than what it was just five years ago. So that's two Indias of today, or an India of 2030, that's our rounding error when we think about Chinese energy demand.

So it begs the question, what happened in those five years. Why is our forecast today so different than it was before? And more importantly is that forecast we have today any more hardwired than the forecast that we had five years ago?

The change -- what happened in those five years, wasn't that the economy grew faster than expected, though it did a little bit. It was a change in the nature of economic growth. China went from focusing primarily on light manufacturing, starting in 2002 there was a surge in energy intensive heavy industry, in iron and steel and in cement.

China today is about 35 percent of global steel production; 50 percent of global cement production; 50 percent of global glass production. That's primarily for Chinese consumption as the country urbanizes. Since the late '90s China has moved about 160 million Chinese citizens from rural areas to urban areas, or they've been in rural areas that have suddenly become urban areas, and that, of course, takes a lot of steel and cement and glass.

But China has also become a major global supplier of those goods. Four years ago China was the world's largest steel importer. Imports exceeded exports by about 450 percent. Only five years later, and China is now the world's largest steel exporter. Exports exceed imports by about 450 percent.

That turnaround in the trade balance for metals has created a significant amount of energy demand in China. It's also accounted for about half the growth in China's global trade surplus, right. So the reason that China has a global trade surplus today isn't so much because it started exporting more toys than televisions, but that it stopped importing a lot of the energy-intensive goods that it did before.

So today industry is the energy challenge China faces. That's different than the U.S. Here we have a consumer problem. All the energy we use is in automobiles, buildings like this; that accounts for about two-thirds of our energy demand, is things tied to consumers.

In China about two-thirds of energy demand is tied to producers, and specifically to five industries: to iron and steel, cement, chemicals. The iron and steel industry alone consumes 18 percent of China's energy demand, right. Compare that to all the households in the country combined, which account for about 10 percent. The chemical sector uses more energy than private transportation, and the commercial sector -- the aluminum sector uses more energy than the commercial sector. So it's a very different type of challenge than what we faced today.

Looking forward, all of that cement and steel is laying a foundation for what we might call a consumption-led Chinese energy challenge down the road. When all of those Chinese consumers start buying automobiles and air conditioners, then that's the energy challenge China will face. That's the energy challenge 30 years down the road.

What I would say is that for China, the choice versus -- environmental protection versus economic growth is not a trade-off like it is in many places; that in fact many of the economic policies that have given rise to this level of energy demand today are not delivering the benefits that you might hope for.

Those five industries that I mentioned previously -- iron and cement, steel, chemicals, aluminum -- account for about 40 (percent), 45 percent of the country's energy demand and CO2 emissions, yet they only employ 14 million people out of a country of 1.3 billion. If you're China and you need to create 20 million new jobs each year, then iron and steel and cement is not the way you do it. You need services and labor-intensive manufacturing.

And the central government, and I think Professor Zhou will talk about this, is well aware of this, and it's instituted a number of policies to try to rebalance economic growth in a much less energy intensive direction.

In the near term, I think that's where we're going to see the greatest reduction in Chinese energy demand in CO2 emissions is on the demand side because on the supply side it's a little bit more challenging. As many of you know, 80 percent of China's energy comes from coal, the balance coming from hydropower and petroleum and a little bit of natural gas.

If we're thinking about between now and 2020 the ability to significantly shift away from coal is fairly limited. There's aggressive development of renewables in China, of wind power, of hydropower. Last year, China added about 4 gigawatts of wind power, which is an incredible amount, making it the second-or third-largest wind power market in the world. By 2020 China might have 50 or 60 gigawatts of wind power. It might have another 60 gigawatts of nuclear power. But that combined in 2020 will only account for about 6 (percent), 7 percent of China's electricity needs. Hydropower will make up a significant amount, but ultimately we are looking at coal in the medium term.

Looking beyond 2020, there's the possibility for a significant technological transformation in China, in part because of the rate of growth. When you're building 100 gigawatts of power each year, that type of scale and scope gives you the opportunity to do things that you can't do in the U.S., where to introduce new technologies we'd have to decommission old technologies.  In China fast growth creates opportunities for fast deployment of clean energy technology. Must of that technology is actually being developed in China today.

So in the short term it's conservation, and over the medium and long term it's supply side.

ECONOMY: Okay, thanks, that was a terrific overview.

Let me just ask, you mentioned that the Chinese leadership is putting into place some policies to try to improve energy efficiency, reduce energy intensity. Could you just talk a little bit about those policies, and how effective you feel they've been to date. What do you think are some of the challenges perhaps in actually getting those pushed forward?

HOUSER: Sure. So the official government target, and it was created by the gentleman to my left, is to improve energy intensive economic growth 20 percent by 2010, off a 2005 baseline. That's not heroic compared to China's historic trends. It's fairly heroic compared to the past five years, what has happened. It means turning around this spike in energy intensity that we've seen in the past five years.

To get there there's a number of things the government's going. First there's the 1,000-industry program, which the government has taken those nationwide targets, broken them down, and given them to the 1,000 most energy-intensive firms -- those same iron and steel, cement firms that I talked about a minute ago. Managers are being given new awareness of energy clocks, and freedom and how to go about managing those energy costs down.

On the supply side, there's a renewable portfolio standard and a feed in tariff for wind that has led to this aggressive growth in windpower. That was a policy driven event that's been -- that's been fairly successful.

If China does reach this 20 percent reduction, and the goal is after that another 20 percent over the five years after that, to give you a sense of scale, that would reduce as much CO2 as the Lieberman-Warner bill if we passed that. It's a similar order of magnitude of reduction of CO2 off of the baseline.

The efficiency measures that China is doing today I think will only get us about halfway there. To get the other halfway, China needs to rebalance the nature of economic growth and stop producing as much steel and produce more services and light industry.

And there are some policies there that have been a little slower to arrive, but are starting to yield fruit. One is a change in the trade policy for energy intensive goods. Contrary to what many folks in Washington, D.C. think, it's not Beijing's intention to become the world's largest steel producer and flood global steel markets. The pollution tied to that steel production causes $100 billion worth of economic loss each year in the country and isn't creating a lot of jobs.

Last year, in September, there was a change in the export VAT policy, so basically a disincentive to export steel and other energy-intensive goods. And in fact since then we've seen China's steel trade balance turn the corner and started to head towards a net import position. Those measures, macroeconomic policies take longer to take effect, but are going to be more promising over the long term.

ECONOMY: Great. Professor Zhou, first let me ask whether you have anything you would like to add to Trevor's discussion of the energy situation in China, some of the measures that China is taking.

ZHOU DADI: Personally, I really agree with what he has just commented. It's quite correct. And I think, you know, if I say what's the current achievement for the energy efficiency improvement, I would like to add that in 2006 we have 1.33 percentage of the efficiency improvements.

And last year the efficiency improvement rate becomes 3.66 percentage. It's already very high, you know. Average for the world in the last 30 years is -- the efficiency improvement rate per year is only about 1.1. So this year we will achieve more than 5 percent as a target. So if we can really do it, I think we will achieve the 20 percent efficiency improvement target by 2010.

And another important issue is we speed up the development now for renewables.  For example, last year China added about 3.5 gigawatts of wind power, and this year the wind power achieved about 10 gigawatts total, and by 2010, it will achieve about 20 gigawatts. So China will become very soon the biggest wind power producer country.

And we will really change our target by 2020. At this time, the new target for 2020 could be changing to like 50 gigawatts, even more. And nuclear power will be -- speed up also. Our original target for 2020 is we'll build about 40 gigawatts of nuclear. But from recent trends we can find that the 2020 target could more than 60 gigawatts, combined with that under construction, we will have at least more than 100 gigawatts of nuclear power around 2025 or even more in 2030. So nuclear could be become very important alternative.

At the same time we are developing the natural gas. Natural gas development rates, recent year, is about 20 percent per year. So we'll do a lot of work on that. And combined with the clean coal technology, for example, recently China became the biggest country to use the ultra-super critical technology in the world for the power generation. So in this way we will try our best to improve the efficiency, and to improve the clean coal technology, and the low carbon alternatives.

ECONOMY: You mentioned in your remarks the increasing role of renewables, as did Trevor, increasing role of renewables, improvement in energy efficiency, reductions in energy intensity. And I think China has gotten a lot of credit from the international community for making -- taking these steps.

In addition I saw recently that the Central Bank had announced the potential for China to -- or it's going to explore in any case a cap-and-trade system that might include some greenhouse gases down the line. At the same time China has resisted setting any sort of firm targets for limiting greenhouse gas emissions, and has been fairly tough in terms of advocating a restrictive international verification and monitoring system.

I'm wondering if you could lay out for us what you see as sort of the three or four key elements of China's climate strategy, and what you think it might take to get China over the bar in terms of setting targets and timetables -- harder sort of targets and timetables for emissions?

ZHOU: Tactically, it's very difficult to set up the targets at this time. You know, it's -- if you compare with per capita emissions, China is still very low. And we are still lower than the average of the -- the global average, per capita emissions. And, for example, the energy consumption in China is only about 1.4 tons of oil equivalence at this time per capita, and that in the United States is about more than seven tons of oil equivalence.  In this case, if you ask China to reduce the emission right now, I don't think it's doable.

So -- and technically it's very difficult to make some kinds of forecasts, when and what time points China can achieve the peak. And although we are working on that to try to find where and when China could have the peak times, but along with the development of -- into the industrialization and urbanization we still need maybe 20 years for some kinds of cyclical growth, including the energy consumption.

And on the other hand, it really depends on the achievements of the world. For example if really the developed countries can really take the lead and decrease its per capita -- emissions per capita, and the consumption significantly, then I think China will share the innovation of technology and the new type of consumption, and we can change our, you know, so-called development target.

Because as before, we take like the United States, like the other developed countries, as our targets to have cars per family, have a bigger house for each of the people including the people in the rural areas. And right now we already understand it's very difficult if we really copy the style of the production and consumption in the future, because we are facing more serious resources and environmental challenges, including climate change.

But we need a model.  So China is trying to create such a new model of development. But, you know, at this time no one can really guarantee that. So it really depends.

So I think China's policy and strategy on climate change is to try and do our best and find what we can do our best -- (inaudible) -- but not do something just to promise just some kinds of targets but we don't know how to do it. So this is China's very critical policymaking process.

And on the other hand we'll follow the so-called principle of the common -- (inaudible) -- responsibilities, and we'll work with the UN countries and work with all the big stakeholders, including the United States, to develop the multilateral and bilateral cooperation to encourage the technology transfer, and while of course China will welcome any financial and other help to speed up the Chinese change from the, you know, the old type of development into a new -- (inaudible) -- of sustainable development model.

Thank you.

ECONOMY: Thanks. So I think what I hear you saying is that there's sometimes in the United States and in Washington -- not Taiya and her group there at the SED, but there are sometimes this belief that if the United States would simply sign on to targets and timetables, if we would step forward and do the right thing, that China would somehow follow that. But I think what I hear you saying is that that's not the case.

ZHOU: You know, at this time China still is a big country, let's say it's a big developing country. In the recent published World Bank development report in 2006, the per capita GDP of China is only a little bit more than $2,000. And even by the so-called purchase power parity, China has only a little bit more than $7,000 per capita. And compared with the United States, yes, you have about $45,000. And all the developed countries have more than $20,000.

So in this case if you say China should take the same responsibility to set up a target by 2020, for example, as one of the developed countries, that's very, you know, difficult to be accepted by China.

So we'll try to get some periodic target like our efficiency improvements, our -- some kinds of -- for example, actions on the mitigation or adaptation, but we cannot really set up a so-called total cut, as in the Kyoto Protocol for the developed countries -- (inaudible).

So it's a very important principle. I think President Hu Jintao mentioned the last time, two times about that, so the different -- (inaudible). And the comment has been we will do our best. Given -- (inaudible) -- at those times, you have the two kinds of developed country take the lead and a developing country will follow.

So I think at this stage that China will take the following stage. And, of course, along with development, China maybe becomes more and more close or near as a developed country. And I think along with the approach, China will take more and more responsibility. Finally, maybe China becomes one of so-called Annex 1 country. (Chuckles.) There, we'll do that -- (inaudible) -- but not now.

Thank you.

ECONOMY: Okay. Thanks.

Taiya, the administration's Strategic Economic Dialogue just concluded and just from the publications that came out from it it seems that major outcome in terms of the kinds of issues that we're discussing here today is the sort of establishment of some joint task forces that are going to focus on issues like electricity, air, water, transportation and conservation of forests and wetland ecosystems.

If you would flesh these things out a little bit for us and help us understand in more concrete terms what seems to be going on in U.S.-China cooperation on these issues that are related to climate change, even though this is not directly tied into climate change negotiations.

TAIYA SMITH: Well, the last SED was just ended last week. We had some very vigorous conversations about climate change, energy security and environmental sustainability.

These followed on conversations that we'd had in December where, at that time, we said well, this is such a large strategic issue that's really affecting both of our countries, we need to do something about it. And the decision at that time by the leadership on both sides was to establish 10 years of cooperation.

So when we had these conversations about climate change I think Professor Zhou has really illuminated many of the aspects that China will represent. And the U.S. response to that tends to be okay, but there's a whole lot you could be doing right now, in terms of putting new technology in place, that you're not.

And there's a lot of policy changes that could happen which would have a significant impact, and that we can work together because, in the end, the U.S. and China are facing many of the same problems.

And as Trevor suggested, actually China has an easier time in some cases because China right now is developing its capacity, building a lot of new buildings, developing a lot of new capacity for energy production too, whereas the U.S., we have to retrofit everything that's already out there.

But when you put it together, both of our countries are looking at the same fundamental issues that revolve around energy security, dealing right now with the price of oil, finding ways to ensure that we can have continued economic growth that's both environmentally sustainable and also produces the benefits that we need to for the people of our countries.

So what we look at is how can we take advantage of those shared interests; what can we do together to really help both of our countries step forward and find this new model of living that Professor Zhou was talking about?

That was one of the interesting things coming out of the SED was the Chinese government has really come to the conclusion that the current model of energy intensive growth is not one that's going to be able to allow their country to develop at the pace and speed that they want to. And that when you look down the road, there just literally aren't the resources in the world for everybody to be at that level of energy-intensive usage in your daily life.

And so together we had a great discussion about how can we find a new model, what can we do together to reach that.

Now, part of the SED is that you can have very big, strategic discussions, but our job is to figure out how to actually make a change on the ground, and what are the concrete steps that we can take to really help improve the situation.

So we've launched this 10-year cooperation in energy environment. The framework itself was signed by Vice Premier Zhang Dejiang and Secretary Paulson on Thursday. I'm sorry, it was on Wednesday. Shortly after that, China announced that it'll be raising fuel prices, sort of as part of the discussions that we'd been having.

The framework is focusing initially on five specific goals, so it's clean, efficient, secure electricity; clean air; clean water -- both of those are big topics in both of our countries, but water certainly has taken a prominence in China recently; transportation. So we're looking for clean, efficient transportation, again, a topic that's been very big in both of our countries, certainly with China increasing its vehicle fleet on a daily basis, and it will soon overtake the size of the U.S. fleet.

And then the last one is on the conservation of forests and wetlands, and that goes to some of the broader issues. Again, you can't talk about wetlands and not talk about water and sort of where all the water comes from and sort of natural ecosystems (clean ?) in the process. But it also is a way that we can help raise the awareness in both of our countries.

So as we look at these five areas, there's a few key components that we've agreed to. One is that for each one, we're looking at it not just in the development of new technology, but policy. What policies can we be looking at in both countries, recognizing the policies are different for both countries, but there's a learning process that we have that will really change our usage and help create the right incentives for consumers, both industrial as well as civilian, to make better choices as we go forward.

And another part of that is education. Certainly both of our countries, the populations need to be educated; our industries need to be educated about the best way to move forward. At the same time, we're lucky in that in many cases our industries are educating the government as well. And we see this as a two-way road in cases.

We're also looking at capacity building. I think one of the starkest examples is when you look at the size of EPA that has some 75,000 employees and then you look at the new ministry of environmental protection in China that I believe has about 450 employees. And it sort of shows you how difficult it is to enforce regulations and other policies when you don't actually have the staff that's able to do so.

And then the final component is the one that we all look to with a lot of hope, which is about how do we create new technology. Is it simply the deployment of current technology? Is it the commercialization of technologies that are already existing but we don't actually have on the shelf and we're not able to work with in a commercial setting? Or is it really the development of new technology?  

And so through this 10-year framework we're engaging all sectors of society, whether that be NGOs, the research universities. I know Xinhua is already involved in many discussions with U.S. private sector companies as well as governments.

It also includes the average person on the street, because part of -- we recognize for both countries that if you don't engage the imagination of people -- it's like going to the moon. When the U.S. decided to go the moon, we didn't know how to get there. But nine years later we were able to do it, and part of it was that you had the support of the population.

Well, certainly for the U.S. and for China, we're looking for ways that you can engage the population to help make these changes on a daily basis.

So it is a full effort all around. We've been amazed. Sort of the traditional view of working with China is that it's very difficult. On these issues, we've found that in many cases the Chinese government is ahead of where the U.S. government is in encouraging us to move forward.

An example of that is when we talk about buildings, we're working very hard on smart buildings, with a lot of collaboration between U.S. industry, U.S. government, and U.S. research institutions on finding smart buildings -- the ways that you're building will work like your car, that you can kind of go plus a diagnostic in and it'll tell you what's going on within all of the systems in the building. It takes advantage of elevators doing down and the energy produced there to help light your rooms.

Well, the Chinese side is now working on smart blocks, which -- obviously it's easier to work on a smart block when you are building the whole block. But that sort of viewpoint has really been interesting for a lot of our scientists and engineers too.

So we're looking at how do we take advantage of these different overlapping interests, which will help us get at the agenda of dealing with climate change, dealing with energy security, and ensuring the environmental sustainability.

ECONOMY: Great. One of the issues that you raised and I think has been central in the broader climate discussions is the issue of technology transfer. And I know that President Bush and Secretary Paulson have been actively engaged in trying to develop a clean energy fund, a clean technology fund.

Could you talk a little bit about how the administration sees technology transfer actually happening? (Chuckles.) And what the Chinese would like to see, what the U.S. government is prepared to do; where the things intersect and where -- maybe where there's some challenge.

SMITH: One of the first things that is always brought up -- it certainly has been a policy of the Chinese government that technology transfer needs to be a very important part of their whole energy and environment strategy.

And what we found is, first, there's a bit of a misunderstanding on both sides as to what we mean by that. Anytime you get two words to describe something, there's a whole lot underneath.

For the U.S. government, because -- our technology really is run through the private sector. So we can't look at just handing over technology, which is our assumption of what the Chinese government is looking for.

In many cases, when we actually get down into the discussion, it's not sort of giving technology; a lot of times the Chinese government is looking to find ways to be able to have access to certain technologies.

So, for example, if you're in a province where you're looking to have clean water, the only sort of clean water membranes that they're aware of are the really big U.S. companies that are coming in and telling them about their new clean water membranes that will help reduce the industrial waste. So one of the questions they've had is well, what else is out there? What else is available? So we've been looking at ways to make sure we can spread that information.

We're also aware from the U.S. side there's a concern about making sure there's appropriate compensation, but also IPR, and are the intellectual property rights of the companies that are creating this technology protected sufficiently?

I've been surprised at how many U.S. companies have told me they're already actively engaged in transferring technology, whether that be know-how of how to build a plant or it's the knowledge that they have in creating a new type of technology that they're actively engaged in working with the Chinese government on.

And in many cases, they are not concerned about IPR, if it's in a specific agreement they have with a Chinese university. But it's when you start to get this information out into the public sector and then they, our companies, later get the phone call saying your product didn't work and they discover they didn't make the product, even though it had their name on it, that's when our real tension begins to build.

So we've been working on a variety of ways to begin to address that, with the double goal of making sure the right technology gets to China in the right places, making sure that there's access to the information and technology that's available, and also being able to protect the U.S. companies, and that of course applies to companies around the world.

One thing that's come up is a lot of places in China don't have the resources to be able to buy the most cutting-edge, innovative technology. And that's a concern; it's a concern that's been discussed certainly in Bali and around the world as well.

We've been working to put together a clean technology fund. This is something that China had certainly been asking about for quite a few years. Right now that fund is focused on getting existing technology to the places that it needs to be, so China certainly qualifies as one of those parts of the world that definitely need it.

It's being run through the MDBs, so all the banks -- the World Bank is actually the one that's facilitating the process. The U.S. government, the U.K. and Japan have already contributed. Certainly we're looking to China to also be part of that process, and I think there's been some receptivity from the Chinese government to participate as well.

And the hope is that we can work together in a multilateral context to help reduce the cost. So it's not giving technology, again, but it's saying if the dirty technology costs this much, what is the differential between having the better technology that will help reduce the greenhouse gas emissions, and then finding some funding to help cover that difference.

ECONOMY: Great. Before I open the discussion, is there anything that any of you would like to add to what you've heard, that another panelist might have said? Any additional comments or thoughts?

HOUSER: I may maybe make one comment on the climate negotiation, since that's a forum that the SED doesn't participate in.

I mean, the challenge, when we look forward to Copenhagen in 2009 is that we need leadership from developed countries, and particularly the U.S. And after what happened in 1997, we need climate policy from the U.S. going into Copenhagen, or shortly after, for the U.S. to have any credibility as a negotiator.

One of the largest issues in getting U.S. climate policy passed, in addressing those two-thirds of emissions that come from consumers, is some sensitivity about the share of emissions that come from industry, particularly iron and steel and cement.

In particular, concern that putting costs on those industries is going to create a competitive disadvantage for U.S. firms vis-a-vis Chinese firms, in particular. That was a feature in the Lieberman-Warner debate. It's a feature in most U.S. climate policy.

Looking forward in how we can broker an agreement to get the U.S. to pass economy-wide caps on emissions, to demonstrate that leadership, there's a little bit of help that we can get from China in that process.

While it's unreasonable to ask China in the interim to accept economy-wide limits, and probably isn't even a good idea, if we had -- if our expectations about future Chinese emissions five years ago were 79 percent below where they are now, there's a real difficulty in setting a baseline for China, that we would cap and provide credits underneath. That in the interim, the targets are going to have to be of a policy-based approach.

But if China could formalize some of the policies that it already has in place, that are trying to discipline those industries that the U.S. is most concerned about, then that would create some political space to pass more aggressive climate policy in the U.S.

And while Chinese climate negotiators are certainly concerned about putting a cap on emissions that would subject Chinese citizens to a fifth of the carbon budget of the U.S. -- so the farmer in Guangdong who's struggled his whole life to buy an air conditioner can't turn it on, but someone in California can still drive a Hummer.

If we're talking about industries and industries that don't employ a lot of people, then there's probably more room to impose the same types of disciplines on those industries as we are in the U.S.

That gets us to 2020, 2025, when China's per capital GDP is at the level, per capita emissions is at the level of OECD countries and we can talk about more comprehensive caps.

ECONOMY: Thanks. Okay.

So let me now open it to all of you. And if you would please identify yourself, your name and if you have an institutional affiliation, and please keep your questions brief.

Yes, in the back?

QUESTIONER: Jim Dingman, INN World Report. I was wondering if the panel could discuss their reaction to the state of the studies on the level of damage to the climate; that is, that many of them are rather grim, that the damage is already irreversible. And that these trends that we're talking about, the policy debates, may not be enough.

And I was wondering what kind of best scenarios you see coming out of the next few years in dealing with this. Because we -- you talk about wetlands. Many argue that the destruction of the wetlands in the delta in the Mississippi is what caused the disaster, or enhanced the disaster in New Orleans.

So I'm just curious what you think will happen. What should be done immediately?

ECONOMY: Thank you.

Who'd like to take the question?

ZHOU: Well, China has translated the IPCC, the full assessment report, into Chinese. And because that book is very thick and writing a very scientific way, so a lot of common people and the political people cannot really understand. So we are trying to interpret that into a more readable style -- (chuckles) -- to give the message to the -- all the common people and the decisionmakers.

And we are trying to develop a Chinese version, not only to translate, interpret the findings from the IPCC report, but more specifically on what damage, what kinds of climate change happened in China, and what's the future scenarios. So we are doing that. I think it will help the Chinese people, the common people and the decisionmakers, to try to understand the urgent action that's necessary.

But of course from -- other point of view is the Chinese understand that adaptation is necessary. Although for the long term, mitigation could be very more important, but at the same time we have to prepare for what already happened -- what has to be -- happen to some extent of the climate change. So we'll do both mitigation and adaptation.

But of course it's very difficult at this stage to find which one is most critical change and their impacts on the specific biosphere or other resources. So while doing that, you could find somewhere we can really take action to impact that, we'll do that. But yes, we need a lot more scientific work, in my understanding.

Maybe -- is this some kind of answer for your question?

ECONOMY: Taiya, do you want to add anything to that?

SMITH: I can say that there's -- the urgency that you're expressing here is something that we certainly feel very strongly. Anytime you try to move governments, whether it be the U.S. government or the Chinese government, it's naturally a slow process.

I've been amazed at how quickly we've been able to move things. Some of our emphasis on forests and wetlands certainly was not understood within the U.S. government as to why we said this is really important to focus on now. But the idea being that we need to save and restore as much -- we can of these really critical areas to be able to help us deal with the future.

So this isn't a satisfactory answer, I understand, but I know that the urgency's there. We're trying to make sure that the things that are easy to do are done very quickly in both of our countries, as well as trying to look down the road four and five years from now as to what we might be considering urgent at that time.

And that's certainly why we look at this as a process which has to include all of the American people as well as the Chinese people to make sure that everybody's taking every little step that they can to help deal with the current situation.

ZHOU: For example, one of the actions that we are taking is from the 2005 to 2010, we'll increase our forestry coverage area by about 200,000 square kilometers, so that we will have about 50 million tons of carbon sink.

But on the other hand, it'll help China to solve the -- somewhere the land erosion, and a lot of benefits for the increase of the forestry. So this is something we are taking.

ECONOMY: Okay. Jim, back there?

QUESTIONER: Jim Seymour (sp), the Chinese University of Hong Kong.

Given that -- I guess my question is for Drs. Houser or Zhou or anyone who wishes. Given that nuclear power is going to be increasing, albeit small part of the nuclear -- of the power mix in China, I wonder if you could comment on the plans for handling nuclear waste. This is a problem in the United States that we've always said we would cross that bridge when we come to it, and now we're on that bridge and we don't have satisfactory answers.

So I wonder what the plan is for transporting nuclear waste safely to a safe place and hopefully in a way that would not have a negative impact on the non-Han parts of the country, to -- (Xinzhan ?), Inner Mongolia, and so forth.

ZHOU: Oh, this is a very technical question. And although my background is so-called nuclear physics, but I haven't worked on this subject for a long time. So I understand what's your concern.

China has already long time working on the nuclear -- start from the weapon, but now is working more on the peaceful use for the nuclear power. And we have already established a system -- from the basic material production, concentration and the waste treatment.

But, of course, that's before is not so much waste. So, it's easier to -- (inaudible) -- waste, but in the future when we scale up the nuclear power, we have to develop the whole system, from the material production to the waste treatments and storage. Now we have real research institutes working on that, and develops a different kinds of alternatives, and try to find the better sites for storage.

And I think that we'll follow -- first follow the IAEA's rules and we'll learn from all the countries what the lessons and what the experiences, and we'll try to develop such technology. And we already established a so-called "nuclear safety bureau," and take care of the standards, and a very strict monitoring and a checking system already be established. So, I think we'll have a good solution for that. Thank you.

ECONOMY: Okay.

Yes, over here.

QUESTIONER: Denis Simon, Levin Institute.

About two years ago the vice minister Shang Yong, from the Science and Technology Ministry, came here and talked about this new science and technology program -- the 15-year medium and long-term program. And I'm wondering what kind of coordination takes place between the NDRC and the Ministry of Science and Technology to ensure, in fact, that the big policies are actually being coordinated across the Chinese government ministries?

Those are always big challenges in the U.S. government, and obviously on the Chinese side. And I'm wondering if Professor Zhou, and maybe Taiya, can comment about, sort of, the flavor of this coordination as you see it in action, post-these SED meetings, because during the meetings it's a -- may be very serendipity, but after the meetings, you know, that's when the rubber hits the road, in terms of implementation. So maybe both of you could comment on that.

ECONOMY: (Laughs.)

SMITH: That's one of the greatest challenges, as you know, for both of our governments. What we're doing, through this 10-year framework, is we have a core group of agencies and ministries, which is about five from each side. From the Chinese side -- that includes most NDRC; MEP, their new ministry of environmental protection; SFA, the state forestry guys -- and it's led by NDRC. And NDRC has the responsibility to coordinate all of these ministries together and make sure that they have the same policy agenda and prioritization.

We have to do the same thing on our side. And I don't think it's all that much easier -- bringing together all of our groups, which includes DOE, Department of Transportation, EPA, State Department, and Treasury has the job to coordinate there. What we find often is that the representatives at the DGE vice minister level that participate in these meetings, will have differences of opinion, and we'll find on both sides, that we have to work those out so that we have a unified way forward.

The power, for us, really has been that we have the vice premier and the premier so interested in these topics that it brings together the Chinese government and the U.S. government -- under our leadership also, with the same interests, to have to have a prioritization of what's going to be most important. So we'll figure out what's most important on each side, and then we have to figure out how we make sure those interests intersect and overlap in a way that works for both countries.

I would say that most has been very energetic. We've got a lot of ideas, a lot of thoughts, and a push forward. And that's been very helpful to the process. I think also the Ministry of Urban Planning and Housing -- so, there's a new title, is another one of the ministries on the Chinese side that is very energetic and has lots of new ideas that help push it forward. And NDRC has the wonderful of challenge of trying to coordinate and bring them into one policy prioritization.

ZHOU: I think that it will be happening all the governments, including the Chinese government, that a different ministry will try to have more power to some extent. But, in China, you know, we have a state council, it's a -- it's a high-level coordinating committee -- commission.  It's always a problem if it needs to be compromised, or need to be integrated, then go -- come into the state council and the premier or vice premier will take up that, and to make the agreements and the consensus between the ministries.

And, of course, Ministry of Science and Technology, in general, is in charge of all the important -- the basic and applied technology, and the sciences R&D. But one year to go into application and into demonstration, and into real engineering projects then the NDRC will have to take care of that. So it's a combination from -- and in my understanding, the two ministries will take up the different stage of the -- of the technology and the science developments. And the demonstration and finally spreading that. So you can find things.

But, I think the -- in Chinese way is if you have questions, problems, the ministry will talk to each other and get consensus. And the final results is to move things more smoothly. So I think they are doable.

ECONOMY: Okay. Yeah, right there.

QUESTIONER: Liz Wishneg (sp), Montclair State and Columbia University.

It's very heartening to hear about all of these policy changes and a tech transfer plans, but where the challenge is is in implementation, as this panel well knows. And I wonder what's being done to make sure that these technologies are actually going to be used, that the provincial level will actually carry out these new efficiency standards. And, in particular, I wonder what happened to the "Green GDP" idea, which would connect performance to environmental behavior?

HOUSER: Let me maybe take the last -- the last bit first. Some very well-meaning Chinese planners figured out what the U.N. had figured out a long time ago, which is it's extremely difficult to do an accurate Green GDP accounting. It wasn't for a lack of trying. So there's other metrics that are starting to be worked into the criteria for provincial officials and their advancement of their non-economic growth criteria going forward, rather than just a Green GDP metric.

Certainly, enforcement at a provincial level is a challenge. But it's not -- it's not an insurmountable challenge. The top three priorities that Beijing has, at any time, certainly get done at the provincial level. The amount of economic restructuring that was necessary for WTO accession, for example, was very challenging at a provincial level. It required creating a lot of losers, as well as -- as well as winners, and there were a lot of vested interests that were routed.

As energy and environment raise on the policy agenda, into the ranks of those top three, then the policy that the central government puts forth will certainly be implemented. There's -- there's challenges in managing that relationship, but it still, it's still a government run very much from Beijing.

ZHOU: I think Green GDP, we do have a great team led by the Ministry of Environmental Protection working on that. And we try to collect the data to apply that for all the provinces for several years. And finally -- we found that, one it's very hopeful if it really gets the number. But the difficulty is there's a lot of indicators that, you know, it's very difficult to get the data, and is some kinds of, you know, artificial or based on the majority of the personal scientists.

So, in the -- finally, you find, conceptually, it's very, very useful, but practically, you know, it's (yearly ?) you get the number is very difficult. So you have -- (inaudible) -- for some years. But you cannot repeat that for every year. So, you got so big job so to do. So we are still developing that, and Ministry of Environmental Protection mentioned that we keep on working on that. But it's not majority, no.

But, on the other hand, you know, the Ministry of Environmental Protection declared their number for pollution (laughs), pollutants -- a concentrating of air, water quality, everything -- annually, for each of the provinces. It help to become one part of the important socioeconomic indicators besides of the GDP. So we do have some efforts to work on that.

ECONOMY: Let me just add one point to that because I think, in a way, it's -- it's an important question that ties into an earlier question about, sort of, the coordination and the politics. Because while it may be true (laughs) that what Beijing says, goes, and the top three priorities get implemented -- I'd be curious to know what those top three priorities are right now, it's also true that when you look at something like the Green GDP the challenge was not only in figuring out how to do it, but there was substantial resistance from the provinces to being evaluated in that regard. And the National Bureau of Statistics was not very forthcoming, they weren't that interested in doing it.

So, you had strong efforts at leadership from the Ministry -- well, it wasn't at time the Ministry of Environmental Protection, but you had a lot of interest and enthusiasm there but you didn't really have support from other key parts of the government to push it forward. So, I think while they're continuing with the effort, it is a very good example of how an excellent potential policy initiative can become stymied because of political, sort of, infighting, game playing, or just lack of support.

Okay. Okay, I promised you -- back here first. And then --

QUESTIONER: (Inaudible) -- Environmental Technologies Practice

We touched base a little bit on, sort of, the cost of being environmentally friendly. And one can argue that, in the U.S. predominantly, environmental friendliness is also -- is mostly done if it's an economically beneficial. That's when the policy gets implemented. And that environmentally-friendly technologies generally cost more than non-environmentally-friendly technologies -- be it scrubbers in your smokestacks and things of that nature.

I was wondering if Professor Zhou, or Trevor you, could comment on how China evaluates that cost versus benefit trade-off? Is it just looking at direct costs? Is it looking at long-term costs of cleaning up that pollution, so on and so forth? Thank you.

HOUSER: I think that there is -- there's a number, there's a number of metrics that are used, a number of considerations. The one that I mentioned about -- just what type of economic growth is going to deliver the employment gains and the welfare gains that you want. And in that realm, and, kind of, macroeconomic policy, it's -- there's a lot of complementarity between smart economic policy and economic policy that's going to reduce energy demand.

On the supply side, there is a number of policies that are taken just for local environmental reasons. So, a requirement to put in sulfur scrubbers; increasing those still inadequate penalty for, 'if you don't run your sulfur scrubbers' -- I mean, that incurs a cost, in a higher electricity cost it passes right on to consumers. But the sulfur dioxide pollution causes $200 billion a year worth of economic loss, and 750,000 premature fatalities. So, those types of public welfare -- these aren't climate change concerns, per se, but a lot of the policies that are implemented for local environmental reasons have a climate dividend.

I think that, at the end of the day, the major concern is that environmental protection is raising in the league tables possible risks to stability -- to government stability. We've had some of the largest environmental protests in humanitarian history taking place in China. And while it's easy to deal with, kind of, civil disobedience in the democracy realm, the air is something that you can't hide, right. Everybody knows that it's polluted.

And it's clearly the job of the central government to deal with the air. And so if the air continues to get worse, it becomes a threat to the legitimacy of the government. And I think that, above all else, at the end of the day, is the chief motivator.

ZHOU: Wand we have introduced all the moethodologies and the approaches developed in -- that developed the countries, but on the environmental protection. And in our university, we do have so-called "environmental economics" to be introduced for the students. And we calculate, or evaluate all the so-called alternatives. If you have the -- China people understand what's the cost for the environmental pollution. But that's not enough. So, (to some extent ?), we introduced mostly the total quantity to control, or the standards and the costs for the quality of the environment.

That means all the emitters who have to obey some kinds of standards or lose. If you exceed that standard, you'll be fined, or you'll be ordered to close your production. For example, for this five years we -- the target is to decrease 10 percent of the total emission of the -- of the sulfur dioxide and COD in the water, regardless of the increments of the production.

And the target has been allocated to the 30 provinces as a specific target for each of that, and each of the provinces allocate that decompose the target into cities and counties and into the -- in the process. So, they have to take specific actions to reduce the total emission of the -- (inaudible) -- pollutants.

For example, all the new constructed power plants of coal burning have to be equipped with a sulfur scrubber. And last year we already equipped about more than 20 -- 250 gigawatts of power plants with a sulfur scrubber already. And we will apply that to older power plants in the near future. Thank you.

ECONOMY: All right.

We have time for one more question, I'm afraid. And I had -- a man over here had his hand for awhile. And then we'll just offer each of our panelists a chance to make one final comment.

QUESTIONER: Thank you. It's Jim Estothia (sp), we Bloomberg News.

I wanted to get back to the question of urgency for a second. There's different forecasts and projections for when the, you know, climate damage from greenhouse gasses will, sort of, trigger the most catastrophic effects of climate change. It may be irreversible. The IPCC has a forecast that, sort of, reflects 450 million parts per million. That could be the tipping point. James Hansen, over at Goddard thinks -- I think, we may already be there, and that we shouldn't be building any new coal plants that don't sequester carbon.

I'm wondering if the decisionmakers and leaders in China have, sort of, internalized this idea that there may be a point in time when it's just irreversible and that we've gone too far. And if they have, what -- you know, how far off is that? Or what's the number they're looking at, or how do they quantify that?

ZHOU: We understand from the IPCC report that, for example, European Union raised the target to limit the temperature -- and raise -- limited to the two degrees, right. And in that case, the carbon emission -- dioxide emission have to be limited about 450 ppm, and that, totally, greenhouse gas emission will be limited with about 550, or something like that. I cannot recall the specific number, but it's like that.

In that case, the developed country has to be -- decrease their emissions by 2050 about 60 (percent) to 80 percent. And I think, for some country like the United States could be asked to decrease by 90 percent of your higher intensity. In that case, we understand that developing country has to be, you know -- decreased by the emissions, compared with current emission, by about -- I think it's 20 (percent) 30 percent, even.

So we look at that as one of the scenarios. And China is really based on this kind of scenario, is thinking about -- you have all the country take this kinds of target as a action plan, and what China should do. And we are thinking about when we will get to the peak of the emission, and when we have to -- when we have to go down our total emissions. But this is still under study.

Actually, I think it really depends, because we are -- for the whole world, I think all the people is like doing and learning and the doing process and we'll look at that. Thank you.

ECONOMY: Let me just offer you a quick opportunity -- anybody on the panel, if you want to make just a -- offer a final thought, or didn't have a chance to say something you'd like to get across?

SMITH: I think the one thing that -- what everybody will need to keep in mind is that in China the motion amongst the people is really significant. We've had groups of business entrepreneurs and others come to talk to us about their concerns about the environment in China -- and these are Chinese entrepreneurs, and the work that they're doing to try to make a difference and to change that.

We're starting to see a lot of pressure on the central government, as Trevor was suggesting, that people need to see change. They need to see the legitimacy of the central government enforced by its ability to deal with environmental challenges, and the awareness of what's happening, both in the -- there's a Carbon Club now at Beijing University which is looking at carbon trading; the work that we've all been doing with China through EPA and MEP on sulfur dioxide trading, and helping set up a national plan for that.

That's all got young people involved and really energized about what they can do to participate in the future. So, that seems to really be a big motivator for the central government. And certainly having people like Professor Zhou. who's been working on this for so many years, having the foundation to then step up and move forward.

It, of course, is never fast enough for us in the U.S. We work with Congress regularly and we know everything's got to be a bit faster. But, it's moving forward, and we're -- you know, when you're at the front line of watching it, you can see that movement. And hopefully that, together, the two countries will be able to deal with this as the largest contributors to greenhouse gasses.

HOUSER: Yeah, I guess I would just say that -- and towards your question, that if we need to reduce global emissions 50 percent by 2050, then that means that the U.S., and Europe and Japan need to reduce probably 80 percent by 2050, and the developing world maybe 25 or 30 percent, starting to -- peaking at 2020, 2025, and then coming down. That's possible without a significant amount of economic cost.

The challenge is the politics. And we're going to have to go beyond just meeting at the climate negotiating table and trying to hash it out in the 11th hour, to really understanding, what are the political blockages in each country from staging those types of commitments in a way that makes sense for both development goals and for climate goals?

The Chinese side needs to know more about what happens in the U.S. Congress and what it's going to take to get a climate bill passed. The U.S. side needs to understand better about what happens in the state council in China, and what real intentions are towards economic growth and climate change. Without that type of understanding, we're never going to be able to get to where we need to be.

ZHOU: I think my words will be very short answering to the cooperation between us, not only on economics and the politics, but also on the environment is very important. And I think the Chinese people, and our academic people, are willing to work together with the United States as partners and colleagues, and to encourage the future cooperation on all the fields. And I think if we are doing our best, we can change something in the near future. Thank you very much.

ECONOMY: Thanks.

I think I failed to keep us to 9:45, as I was told to do. So I apologize for that. But I do think that the panel has succeeded brilliantly in beginning to sketch out some of the key issues here. So, thank you. (Applause.)

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      THIS IS A RUSH TRANSCRIPT.

New York City, New York

RICHARD N. HAASS: Well, good morning. I'm Richard Haass. I'm President of the Council on Foreign Relations, and I want to extend a welcome to everyone here, particularly for those who have traveled several thousand miles from China. You are particularly welcome here at the Council today.

I think it's fair to say that no topic has risen more quickly on the U.S. policy agenda in recent years than has climate change. This is a subject with many dimensions, but I would point out two.

One is the domestic side, and the question is what we in the United States can and should do to reduce carbon emissions here. But there is also a foreign policy dimension, which is what the United States should do, what the United States can do to work with others to counter climate change and its effects around the world. And obviously in a global world what happens in places far off still affects the United States. There is ultimately only one global climate.

And here at the Council we are focusing on the international dimension, though again, the ability of the United States to be effective at home in this area will largely shape our ability to be persuasive abroad.

Here at the Council on Foreign Relations, we recently sponsored an independent task force report on climate change. And it looks at the U.S. policy options and recommends strategies to exercise international leadership on the issue. And the task force co-chairs, two former governors, Governor George Pataki of New York and Governor Tom Vilsack of Iowa, and the project director, Council senior fellow Michael Levi are here, and will discuss the report's findings and recommendations later this morning, and obviously copies of this report are available outside. I would say they're on sale, but they are free. There is such a thing as a free report.

The task force in today's symposium are but two of many things the Council is doing in this area on climate change and on energy. And what we've got is a large program in this area, which includes a full slate of research, publications, meetings, website coverage and so forth.

One of the many aspects of the debate about climate change and U.S. climate change policy is how to deal with the emerging countries, and above all, the larger emerging or developing countries. And none is more central to this debate than is China.

And obviously the environmental consequences of China's tremendous growth are profound, and they are becoming clear both to its own people and to the world. And given China's rising carbon emissions and the projection of more to come, its participation will be essential to any efforts to combat climate change around the world. But to say that is not to answer the basic question which is exactly how China can and should be integrated into multilateral arrangements to reduce emissions.

So today's -- the timing of today's program, the focus of today's program, could hardly be better. And we've got three sessions -- I'd say three smart sessions -- looking at three topics: the first is Chinese energy and climate strategy; the second is energy technology in China; and third session is the one that looks at prescription. It's the session that looks at policy options for the United States, and that will obviously dovetail closely with the findings of the just published task force report.

In closing, let me also thank the China-U.S. Exchange Foundation for arranging and supporting the participation of our international speakers and our guests. And they are here as part of a delegation from Tsinghua University led by Jang Sheelian (ph). And we are delighted to have all of them with us, and we hope this is very much part of a continuing dialogue between the Council on Foreign Relations and between yourselves and others in your country.

Without any further delay, let me -- I'm happy to turn things over to the extraordinarily capable hands of Elizabeth Economy, who is the C.V. Starr Senior Fellow and Director of Asia Studies here at the Council on Foreign Relations.

ELIZABETH C. ECONOMY: Thank you very much, Richard.

It is a pleasure to have the opportunity to have the opportunity to moderate this first session of the symposium on China and climate change.

Before we begin, please if you would turn off all your electronics -- Blackberries, and cell phones. And I know everybody asks you to do this, and inevitably there's one or two or three people who don't do it. But I am asking you in part because it will interfere with our sound system, but also of course because it interferes with our speakers' remarks. So if you would please turn them off now. And also just let me make a note that this symposium, the entire symposium, will be on the record, and broadcast throughout the United States, and globally, via cfr.org.

So with that let me just begin by reiterating a little bit of what Richard said in his opening remarks, and that is, that I think this symposium really marries two of the most significant phenomena of the 21st century -- the rise of China as a global economic powerhouse on the one hand, and the transformation of the earth's atmosphere and landscape as a result of global climate change. And both of these phenomena are of course exerting a profound impact on the way the rest of the world lives and does business.

This morning, we're going to focus on the intersection of these two phenomena. We're at a point today where China is and will continue to be for the foreseeable future one of the key, maybe top two or three players in the global effort to address climate change, in large part because it has become, as a result of its extraordinary economic growth and its reliance on fossil fuels, one of the leading contributors to the problem by some international estimates having surpassed the United States as the leading contributor of the greenhouse gas carbon dioxide in 2007.

At the same time I think the Chinese leadership has come to understand that the country will face a steep price if climate change continues unabated, whether we're talking about the more aggressive melting of the Tibetan glaciers, which will contribute to greater floods and then droughts, or a potential decline in key grain yields by 2050 of up to 37 (percent) to 40 percent, or of course the rise in seal level which threatens tens of millions of coastal Chinese, if not hundreds of millions.

But as we've seen I think with our own fraught debates on climate change here in the United States, arriving at a national policy on climate change in particular in a highly charged international context is no small matter. And the Chinese are grappling on the home front with how best to balance continuing and maintaining their economic growth with developing and implementing an effective climate change response. And at the same time they're deeply engaged in international negotiations that are focused on issues of historic responsibility or equity, sovereignty and state capacity.

So our goal this morning is a relatively straightforward one, albeit not a very simple one, and that is first just to understand the trends in China's energy use and what they will mean for the trajectory of the country's greenhouse gas emissions; then to look a bit at China's climate change strategy today, and assess some of its strengths and weaknesses; and finally, and perhaps most importantly, to think through how the United States and China can work together most effectively to transform the way that China, and I have to say, the United States do business.

To do this, it is my pleasure to introduce a truly stellar panel, really, I think some of the top experts both here and in China. To my immediate left is Trevor Houser. He is the director of the energy and climate practice of the Rhodium Group, and a visiting fellow at the Peterson Institute for International Economics. He is also the author or co-author of several path-breaking studies on China and energy issues and on climate change issues. He just had a book come out called Leveling the Carbon Playing Field this year, and he has another book coming out this year. He puts all Council fellows to shame, I have to say two books in one year, called China's Energy Evolution. And for my money he really is -- there's nobody better when it comes to providing a detailed and nuanced understanding of China's energy situation and some of the potential policy levers that we have available to employ to meet this challenge, at least here in the United States.

Because in China, we have Professor Zhou Dadi. He is currently a senior adviser and researcher at the National Development and Reform Commission's Energy Research Institute. And until 2006 he was also the director-general there.

He has recently joined the Carnegie Center in Beijing, where he'll be a research fellow also working on climate and energy issues. He has long been renowned as one of China's most eminent energy researchers and climate policy strategists. He has served as the lead or co-author of several of the IPCC assessments. And in 2007 he was awarded the U.S. EPA's climate protection award.

I also have to inject a personal note and say that whether he remembers or not, back in the early 1990s, when I was a struggling graduate student working on this issue of China and climate change, Professor Zhou was extremely helpful to me. He was one of the very few people working on this issue of modeling carbon emissions, looking ahead. We're talking 16, 15 years ago, but he really helped me to understand better China's energy situation at the time.

So it is indeed a great pleasure for me to have him back here.

And last but certainly not least we have Taiya Smith. And she is the executive secretary of the Treasury Department and coordinator for the U.S.-China strategic economic dialogue, which I think maybe we've all come to understand is not only the preeminent bilateral forum for discussing issues of trade and finance between China and the United States, but also issues of energy and the environment.

Taiya previously served as special assistant to Deputy Secretary of State Bob Zoellick, where she focused on Africa, Europe and global military affairs; and she was also the State Department's point person on Darfur during 2004 and 2005.

So the way that we are going to run this session is that I am just going to begin by asking a couple of questions of our panel, just to help set the stage for about 25 minutes or so, and then open the floor for your questions.

Let me start with you, Trevor, and just ask you to lay out some of the key trends that you see in China's energy sector today over the next maybe five to 10, 15 years, of energy makeup and some of the drivers, whether we're talking about urbanization or industry, transportation sector; and how you think these trends are going to affect Chinese greenhouse gas emissions.

TREVOR HOUSER: Sure. Thanks, Elizabeth. And let me start by saying any of my research stands on the shoulders of giants, and no one among them is more giant than Professor Zhou, who's really been doing the path breaking work in this field for a long time. So it's an honor to be on the panel with him, and with Taiya Smith who actually has to put policy to all this analysis and does a fantastic job doing so.

I would start by saying that the energy future that we're looking at today for China is quite different than the energy future all of us were looking at back in 2000 -- 2001. Between 1978 and 2000, China did something which was largely unprecedented both for a developing country and -- or a developed country. Over a 20-25 year period, sustained economic growth of 9 percent while energy demand only grew at half that rate. That degree of efficiency meant that in 2000-2001 China was only 10 percent of global energy demand, rather than 30 percent of global energy demand which it would've been if that type of economic restructuring hadn't taken place.

Sitting in 2000-2001 and looking forward, most energy forecasters either in the U.S. or in Paris at the International Energy Agency or in Beijing thought that China would be able to continue that level of energy efficiency improvement for years to come, and made forecasts based upon that.

And instead what we saw in 2001 and 2002 was a change in the nature of economic growth and its relationship to energy demand in China, so much so that today, in 2007, the IEA's forecast for Chinese energy demand is 79 percent higher than what it was just five years ago. So that's two Indias of today, or an India of 2030, that's our rounding error when we think about Chinese energy demand.

So it begs the question, what happened in those five years. Why is our forecast today so different than it was before? And more importantly is that forecast we have today any more hardwired than the forecast that we had five years ago?

The change -- what happened in those five years, wasn't that the economy grew faster than expected, though it did a little bit. It was a change in the nature of economic growth. China went from focusing primarily on light manufacturing, starting in 2002 there was a surge in energy intensive heavy industry, in iron and steel and in cement.

China today is about 35 percent of global steel production; 50 percent of global cement production; 50 percent of global glass production. That's primarily for Chinese consumption as the country urbanizes. Since the late '90s China has moved about 160 million Chinese citizens from rural areas to urban areas, or they've been in rural areas that have suddenly become urban areas, and that, of course, takes a lot of steel and cement and glass.

But China has also become a major global supplier of those goods. Four years ago China was the world's largest steel importer. Imports exceeded exports by about 450 percent. Only five years later, and China is now the world's largest steel exporter. Exports exceed imports by about 450 percent.

That turnaround in the trade balance for metals has created a significant amount of energy demand in China. It's also accounted for about half the growth in China's global trade surplus, right. So the reason that China has a global trade surplus today isn't so much because it started exporting more toys than televisions, but that it stopped importing a lot of the energy-intensive goods that it did before.

So today industry is the energy challenge China faces. That's different than the U.S. Here we have a consumer problem. All the energy we use is in automobiles, buildings like this; that accounts for about two-thirds of our energy demand, is things tied to consumers.

In China about two-thirds of energy demand is tied to producers, and specifically to five industries: to iron and steel, cement, chemicals. The iron and steel industry alone consumes 18 percent of China's energy demand, right. Compare that to all the households in the country combined, which account for about 10 percent. The chemical sector uses more energy than private transportation, and the commercial sector -- the aluminum sector uses more energy than the commercial sector. So it's a very different type of challenge than what we faced today.

Looking forward, all of that cement and steel is laying a foundation for what we might call a consumption-led Chinese energy challenge down the road. When all of those Chinese consumers start buying automobiles and air conditioners, then that's the energy challenge China will face. That's the energy challenge 30 years down the road.

What I would say is that for China, the choice versus -- environmental protection versus economic growth is not a trade-off like it is in many places; that in fact many of the economic policies that have given rise to this level of energy demand today are not delivering the benefits that you might hope for.

Those five industries that I mentioned previously -- iron and cement, steel, chemicals, aluminum -- account for about 40 (percent), 45 percent of the country's energy demand and CO2 emissions, yet they only employ 14 million people out of a country of 1.3 billion. If you're China and you need to create 20 million new jobs each year, then iron and steel and cement is not the way you do it. You need services and labor-intensive manufacturing.

And the central government, and I think Professor Zhou will talk about this, is well aware of this, and it's instituted a number of policies to try to rebalance economic growth in a much less energy intensive direction.

In the near term, I think that's where we're going to see the greatest reduction in Chinese energy demand in CO2 emissions is on the demand side because on the supply side it's a little bit more challenging. As many of you know, 80 percent of China's energy comes from coal, the balance coming from hydropower and petroleum and a little bit of natural gas.

If we're thinking about between now and 2020 the ability to significantly shift away from coal is fairly limited. There's aggressive development of renewables in China, of wind power, of hydropower. Last year, China added about 4 gigawatts of wind power, which is an incredible amount, making it the second-or third-largest wind power market in the world. By 2020 China might have 50 or 60 gigawatts of wind power. It might have another 60 gigawatts of nuclear power. But that combined in 2020 will only account for about 6 (percent), 7 percent of China's electricity needs. Hydropower will make up a significant amount, but ultimately we are looking at coal in the medium term.

Looking beyond 2020, there's the possibility for a significant technological transformation in China, in part because of the rate of growth. When you're building 100 gigawatts of power each year, that type of scale and scope gives you the opportunity to do things that you can't do in the U.S., where to introduce new technologies we'd have to decommission old technologies.  In China fast growth creates opportunities for fast deployment of clean energy technology. Must of that technology is actually being developed in China today.

So in the short term it's conservation, and over the medium and long term it's supply side.

ECONOMY: Okay, thanks, that was a terrific overview.

Let me just ask, you mentioned that the Chinese leadership is putting into place some policies to try to improve energy efficiency, reduce energy intensity. Could you just talk a little bit about those policies, and how effective you feel they've been to date. What do you think are some of the challenges perhaps in actually getting those pushed forward?

HOUSER: Sure. So the official government target, and it was created by the gentleman to my left, is to improve energy intensive economic growth 20 percent by 2010, off a 2005 baseline. That's not heroic compared to China's historic trends. It's fairly heroic compared to the past five years, what has happened. It means turning around this spike in energy intensity that we've seen in the past five years.

To get there there's a number of things the government's going. First there's the 1,000-industry program, which the government has taken those nationwide targets, broken them down, and given them to the 1,000 most energy-intensive firms -- those same iron and steel, cement firms that I talked about a minute ago. Managers are being given new awareness of energy clocks, and freedom and how to go about managing those energy costs down.

On the supply side, there's a renewable portfolio standard and a feed in tariff for wind that has led to this aggressive growth in windpower. That was a policy driven event that's been -- that's been fairly successful.

If China does reach this 20 percent reduction, and the goal is after that another 20 percent over the five years after that, to give you a sense of scale, that would reduce as much CO2 as the Lieberman-Warner bill if we passed that. It's a similar order of magnitude of reduction of CO2 off of the baseline.

The efficiency measures that China is doing today I think will only get us about halfway there. To get the other halfway, China needs to rebalance the nature of economic growth and stop producing as much steel and produce more services and light industry.

And there are some policies there that have been a little slower to arrive, but are starting to yield fruit. One is a change in the trade policy for energy intensive goods. Contrary to what many folks in Washington, D.C. think, it's not Beijing's intention to become the world's largest steel producer and flood global steel markets. The pollution tied to that steel production causes $100 billion worth of economic loss each year in the country and isn't creating a lot of jobs.

Last year, in September, there was a change in the export VAT policy, so basically a disincentive to export steel and other energy-intensive goods. And in fact since then we've seen China's steel trade balance turn the corner and started to head towards a net import position. Those measures, macroeconomic policies take longer to take effect, but are going to be more promising over the long term.

ECONOMY: Great. Professor Zhou, first let me ask whether you have anything you would like to add to Trevor's discussion of the energy situation in China, some of the measures that China is taking.

ZHOU DADI: Personally, I really agree with what he has just commented. It's quite correct. And I think, you know, if I say what's the current achievement for the energy efficiency improvement, I would like to add that in 2006 we have 1.33 percentage of the efficiency improvements.

And last year the efficiency improvement rate becomes 3.66 percentage. It's already very high, you know. Average for the world in the last 30 years is -- the efficiency improvement rate per year is only about 1.1. So this year we will achieve more than 5 percent as a target. So if we can really do it, I think we will achieve the 20 percent efficiency improvement target by 2010.

And another important issue is we speed up the development now for renewables.  For example, last year China added about 3.5 gigawatts of wind power, and this year the wind power achieved about 10 gigawatts total, and by 2010, it will achieve about 20 gigawatts. So China will become very soon the biggest wind power producer country.

And we will really change our target by 2020. At this time, the new target for 2020 could be changing to like 50 gigawatts, even more. And nuclear power will be -- speed up also. Our original target for 2020 is we'll build about 40 gigawatts of nuclear. But from recent trends we can find that the 2020 target could more than 60 gigawatts, combined with that under construction, we will have at least more than 100 gigawatts of nuclear power around 2025 or even more in 2030. So nuclear could be become very important alternative.

At the same time we are developing the natural gas. Natural gas development rates, recent year, is about 20 percent per year. So we'll do a lot of work on that. And combined with the clean coal technology, for example, recently China became the biggest country to use the ultra-super critical technology in the world for the power generation. So in this way we will try our best to improve the efficiency, and to improve the clean coal technology, and the low carbon alternatives.

ECONOMY: You mentioned in your remarks the increasing role of renewables, as did Trevor, increasing role of renewables, improvement in energy efficiency, reductions in energy intensity. And I think China has gotten a lot of credit from the international community for making -- taking these steps.

In addition I saw recently that the Central Bank had announced the potential for China to -- or it's going to explore in any case a cap-and-trade system that might include some greenhouse gases down the line. At the same time China has resisted setting any sort of firm targets for limiting greenhouse gas emissions, and has been fairly tough in terms of advocating a restrictive international verification and monitoring system.

I'm wondering if you could lay out for us what you see as sort of the three or four key elements of China's climate strategy, and what you think it might take to get China over the bar in terms of setting targets and timetables -- harder sort of targets and timetables for emissions?

ZHOU: Tactically, it's very difficult to set up the targets at this time. You know, it's -- if you compare with per capita emissions, China is still very low. And we are still lower than the average of the -- the global average, per capita emissions. And, for example, the energy consumption in China is only about 1.4 tons of oil equivalence at this time per capita, and that in the United States is about more than seven tons of oil equivalence.  In this case, if you ask China to reduce the emission right now, I don't think it's doable.

So -- and technically it's very difficult to make some kinds of forecasts, when and what time points China can achieve the peak. And although we are working on that to try to find where and when China could have the peak times, but along with the development of -- into the industrialization and urbanization we still need maybe 20 years for some kinds of cyclical growth, including the energy consumption.

And on the other hand, it really depends on the achievements of the world. For example if really the developed countries can really take the lead and decrease its per capita -- emissions per capita, and the consumption significantly, then I think China will share the innovation of technology and the new type of consumption, and we can change our, you know, so-called development target.

Because as before, we take like the United States, like the other developed countries, as our targets to have cars per family, have a bigger house for each of the people including the people in the rural areas. And right now we already understand it's very difficult if we really copy the style of the production and consumption in the future, because we are facing more serious resources and environmental challenges, including climate change.

But we need a model.  So China is trying to create such a new model of development. But, you know, at this time no one can really guarantee that. So it really depends.

So I think China's policy and strategy on climate change is to try and do our best and find what we can do our best -- (inaudible) -- but not do something just to promise just some kinds of targets but we don't know how to do it. So this is China's very critical policymaking process.

And on the other hand we'll follow the so-called principle of the common -- (inaudible) -- responsibilities, and we'll work with the UN countries and work with all the big stakeholders, including the United States, to develop the multilateral and bilateral cooperation to encourage the technology transfer, and while of course China will welcome any financial and other help to speed up the Chinese change from the, you know, the old type of development into a new -- (inaudible) -- of sustainable development model.

Thank you.

ECONOMY: Thanks. So I think what I hear you saying is that there's sometimes in the United States and in Washington -- not Taiya and her group there at the SED, but there are sometimes this belief that if the United States would simply sign on to targets and timetables, if we would step forward and do the right thing, that China would somehow follow that. But I think what I hear you saying is that that's not the case.

ZHOU: You know, at this time China still is a big country, let's say it's a big developing country. In the recent published World Bank development report in 2006, the per capita GDP of China is only a little bit more than $2,000. And even by the so-called purchase power parity, China has only a little bit more than $7,000 per capita. And compared with the United States, yes, you have about $45,000. And all the developed countries have more than $20,000.

So in this case if you say China should take the same responsibility to set up a target by 2020, for example, as one of the developed countries, that's very, you know, difficult to be accepted by China.

So we'll try to get some periodic target like our efficiency improvements, our -- some kinds of -- for example, actions on the mitigation or adaptation, but we cannot really set up a so-called total cut, as in the Kyoto Protocol for the developed countries -- (inaudible).

So it's a very important principle. I think President Hu Jintao mentioned the last time, two times about that, so the different -- (inaudible). And the comment has been we will do our best. Given -- (inaudible) -- at those times, you have the two kinds of developed country take the lead and a developing country will follow.

So I think at this stage that China will take the following stage. And, of course, along with development, China maybe becomes more and more close or near as a developed country. And I think along with the approach, China will take more and more responsibility. Finally, maybe China becomes one of so-called Annex 1 country. (Chuckles.) There, we'll do that -- (inaudible) -- but not now.

Thank you.

ECONOMY: Okay. Thanks.

Taiya, the administration's Strategic Economic Dialogue just concluded and just from the publications that came out from it it seems that major outcome in terms of the kinds of issues that we're discussing here today is the sort of establishment of some joint task forces that are going to focus on issues like electricity, air, water, transportation and conservation of forests and wetland ecosystems.

If you would flesh these things out a little bit for us and help us understand in more concrete terms what seems to be going on in U.S.-China cooperation on these issues that are related to climate change, even though this is not directly tied into climate change negotiations.

TAIYA SMITH: Well, the last SED was just ended last week. We had some very vigorous conversations about climate change, energy security and environmental sustainability.

These followed on conversations that we'd had in December where, at that time, we said well, this is such a large strategic issue that's really affecting both of our countries, we need to do something about it. And the decision at that time by the leadership on both sides was to establish 10 years of cooperation.

So when we had these conversations about climate change I think Professor Zhou has really illuminated many of the aspects that China will represent. And the U.S. response to that tends to be okay, but there's a whole lot you could be doing right now, in terms of putting new technology in place, that you're not.

And there's a lot of policy changes that could happen which would have a significant impact, and that we can work together because, in the end, the U.S. and China are facing many of the same problems.

And as Trevor suggested, actually China has an easier time in some cases because China right now is developing its capacity, building a lot of new buildings, developing a lot of new capacity for energy production too, whereas the U.S., we have to retrofit everything that's already out there.

But when you put it together, both of our countries are looking at the same fundamental issues that revolve around energy security, dealing right now with the price of oil, finding ways to ensure that we can have continued economic growth that's both environmentally sustainable and also produces the benefits that we need to for the people of our countries.

So what we look at is how can we take advantage of those shared interests; what can we do together to really help both of our countries step forward and find this new model of living that Professor Zhou was talking about?

That was one of the interesting things coming out of the SED was the Chinese government has really come to the conclusion that the current model of energy intensive growth is not one that's going to be able to allow their country to develop at the pace and speed that they want to. And that when you look down the road, there just literally aren't the resources in the world for everybody to be at that level of energy-intensive usage in your daily life.

And so together we had a great discussion about how can we find a new model, what can we do together to reach that.

Now, part of the SED is that you can have very big, strategic discussions, but our job is to figure out how to actually make a change on the ground, and what are the concrete steps that we can take to really help improve the situation.

So we've launched this 10-year cooperation in energy environment. The framework itself was signed by Vice Premier Zhang Dejiang and Secretary Paulson on Thursday. I'm sorry, it was on Wednesday. Shortly after that, China announced that it'll be raising fuel prices, sort of as part of the discussions that we'd been having.

The framework is focusing initially on five specific goals, so it's clean, efficient, secure electricity; clean air; clean water -- both of those are big topics in both of our countries, but water certainly has taken a prominence in China recently; transportation. So we're looking for clean, efficient transportation, again, a topic that's been very big in both of our countries, certainly with China increasing its vehicle fleet on a daily basis, and it will soon overtake the size of the U.S. fleet.

And then the last one is on the conservation of forests and wetlands, and that goes to some of the broader issues. Again, you can't talk about wetlands and not talk about water and sort of where all the water comes from and sort of natural ecosystems (clean ?) in the process. But it also is a way that we can help raise the awareness in both of our countries.

So as we look at these five areas, there's a few key components that we've agreed to. One is that for each one, we're looking at it not just in the development of new technology, but policy. What policies can we be looking at in both countries, recognizing the policies are different for both countries, but there's a learning process that we have that will really change our usage and help create the right incentives for consumers, both industrial as well as civilian, to make better choices as we go forward.

And another part of that is education. Certainly both of our countries, the populations need to be educated; our industries need to be educated about the best way to move forward. At the same time, we're lucky in that in many cases our industries are educating the government as well. And we see this as a two-way road in cases.

We're also looking at capacity building. I think one of the starkest examples is when you look at the size of EPA that has some 75,000 employees and then you look at the new ministry of environmental protection in China that I believe has about 450 employees. And it sort of shows you how difficult it is to enforce regulations and other policies when you don't actually have the staff that's able to do so.

And then the final component is the one that we all look to with a lot of hope, which is about how do we create new technology. Is it simply the deployment of current technology? Is it the commercialization of technologies that are already existing but we don't actually have on the shelf and we're not able to work with in a commercial setting? Or is it really the development of new technology?  

And so through this 10-year framework we're engaging all sectors of society, whether that be NGOs, the research universities. I know Xinhua is already involved in many discussions with U.S. private sector companies as well as governments.

It also includes the average person on the street, because part of -- we recognize for both countries that if you don't engage the imagination of people -- it's like going to the moon. When the U.S. decided to go the moon, we didn't know how to get there. But nine years later we were able to do it, and part of it was that you had the support of the population.

Well, certainly for the U.S. and for China, we're looking for ways that you can engage the population to help make these changes on a daily basis.

So it is a full effort all around. We've been amazed. Sort of the traditional view of working with China is that it's very difficult. On these issues, we've found that in many cases the Chinese government is ahead of where the U.S. government is in encouraging us to move forward.

An example of that is when we talk about buildings, we're working very hard on smart buildings, with a lot of collaboration between U.S. industry, U.S. government, and U.S. research institutions on finding smart buildings -- the ways that you're building will work like your car, that you can kind of go plus a diagnostic in and it'll tell you what's going on within all of the systems in the building. It takes advantage of elevators doing down and the energy produced there to help light your rooms.

Well, the Chinese side is now working on smart blocks, which -- obviously it's easier to work on a smart block when you are building the whole block. But that sort of viewpoint has really been interesting for a lot of our scientists and engineers too.

So we're looking at how do we take advantage of these different overlapping interests, which will help us get at the agenda of dealing with climate change, dealing with energy security, and ensuring the environmental sustainability.

ECONOMY: Great. One of the issues that you raised and I think has been central in the broader climate discussions is the issue of technology transfer. And I know that President Bush and Secretary Paulson have been actively engaged in trying to develop a clean energy fund, a clean technology fund.

Could you talk a little bit about how the administration sees technology transfer actually happening? (Chuckles.) And what the Chinese would like to see, what the U.S. government is prepared to do; where the things intersect and where -- maybe where there's some challenge.

SMITH: One of the first things that is always brought up -- it certainly has been a policy of the Chinese government that technology transfer needs to be a very important part of their whole energy and environment strategy.

And what we found is, first, there's a bit of a misunderstanding on both sides as to what we mean by that. Anytime you get two words to describe something, there's a whole lot underneath.

For the U.S. government, because -- our technology really is run through the private sector. So we can't look at just handing over technology, which is our assumption of what the Chinese government is looking for.

In many cases, when we actually get down into the discussion, it's not sort of giving technology; a lot of times the Chinese government is looking to find ways to be able to have access to certain technologies.

So, for example, if you're in a province where you're looking to have clean water, the only sort of clean water membranes that they're aware of are the really big U.S. companies that are coming in and telling them about their new clean water membranes that will help reduce the industrial waste. So one of the questions they've had is well, what else is out there? What else is available? So we've been looking at ways to make sure we can spread that information.

We're also aware from the U.S. side there's a concern about making sure there's appropriate compensation, but also IPR, and are the intellectual property rights of the companies that are creating this technology protected sufficiently?

I've been surprised at how many U.S. companies have told me they're already actively engaged in transferring technology, whether that be know-how of how to build a plant or it's the knowledge that they have in creating a new type of technology that they're actively engaged in working with the Chinese government on.

And in many cases, they are not concerned about IPR, if it's in a specific agreement they have with a Chinese university. But it's when you start to get this information out into the public sector and then they, our companies, later get the phone call saying your product didn't work and they discover they didn't make the product, even though it had their name on it, that's when our real tension begins to build.

So we've been working on a variety of ways to begin to address that, with the double goal of making sure the right technology gets to China in the right places, making sure that there's access to the information and technology that's available, and also being able to protect the U.S. companies, and that of course applies to companies around the world.

One thing that's come up is a lot of places in China don't have the resources to be able to buy the most cutting-edge, innovative technology. And that's a concern; it's a concern that's been discussed certainly in Bali and around the world as well.

We've been working to put together a clean technology fund. This is something that China had certainly been asking about for quite a few years. Right now that fund is focused on getting existing technology to the places that it needs to be, so China certainly qualifies as one of those parts of the world that definitely need it.

It's being run through the MDBs, so all the banks -- the World Bank is actually the one that's facilitating the process. The U.S. government, the U.K. and Japan have already contributed. Certainly we're looking to China to also be part of that process, and I think there's been some receptivity from the Chinese government to participate as well.

And the hope is that we can work together in a multilateral context to help reduce the cost. So it's not giving technology, again, but it's saying if the dirty technology costs this much, what is the differential between having the better technology that will help reduce the greenhouse gas emissions, and then finding some funding to help cover that difference.

ECONOMY: Great. Before I open the discussion, is there anything that any of you would like to add to what you've heard, that another panelist might have said? Any additional comments or thoughts?

HOUSER: I may maybe make one comment on the climate negotiation, since that's a forum that the SED doesn't participate in.

I mean, the challenge, when we look forward to Copenhagen in 2009 is that we need leadership from developed countries, and particularly the U.S. And after what happened in 1997, we need climate policy from the U.S. going into Copenhagen, or shortly after, for the U.S. to have any credibility as a negotiator.

One of the largest issues in getting U.S. climate policy passed, in addressing those two-thirds of emissions that come from consumers, is some sensitivity about the share of emissions that come from industry, particularly iron and steel and cement.

In particular, concern that putting costs on those industries is going to create a competitive disadvantage for U.S. firms vis-a-vis Chinese firms, in particular. That was a feature in the Lieberman-Warner debate. It's a feature in most U.S. climate policy.

Looking forward in how we can broker an agreement to get the U.S. to pass economy-wide caps on emissions, to demonstrate that leadership, there's a little bit of help that we can get from China in that process.

While it's unreasonable to ask China in the interim to accept economy-wide limits, and probably isn't even a good idea, if we had -- if our expectations about future Chinese emissions five years ago were 79 percent below where they are now, there's a real difficulty in setting a baseline for China, that we would cap and provide credits underneath. That in the interim, the targets are going to have to be of a policy-based approach.

But if China could formalize some of the policies that it already has in place, that are trying to discipline those industries that the U.S. is most concerned about, then that would create some political space to pass more aggressive climate policy in the U.S.

And while Chinese climate negotiators are certainly concerned about putting a cap on emissions that would subject Chinese citizens to a fifth of the carbon budget of the U.S. -- so the farmer in Guangdong who's struggled his whole life to buy an air conditioner can't turn it on, but someone in California can still drive a Hummer.

If we're talking about industries and industries that don't employ a lot of people, then there's probably more room to impose the same types of disciplines on those industries as we are in the U.S.

That gets us to 2020, 2025, when China's per capital GDP is at the level, per capita emissions is at the level of OECD countries and we can talk about more comprehensive caps.

ECONOMY: Thanks. Okay.

So let me now open it to all of you. And if you would please identify yourself, your name and if you have an institutional affiliation, and please keep your questions brief.

Yes, in the back?

QUESTIONER: Jim Dingman, INN World Report. I was wondering if the panel could discuss their reaction to the state of the studies on the level of damage to the climate; that is, that many of them are rather grim, that the damage is already irreversible. And that these trends that we're talking about, the policy debates, may not be enough.

And I was wondering what kind of best scenarios you see coming out of the next few years in dealing with this. Because we -- you talk about wetlands. Many argue that the destruction of the wetlands in the delta in the Mississippi is what caused the disaster, or enhanced the disaster in New Orleans.

So I'm just curious what you think will happen. What should be done immediately?

ECONOMY: Thank you.

Who'd like to take the question?

ZHOU: Well, China has translated the IPCC, the full assessment report, into Chinese. And because that book is very thick and writing a very scientific way, so a lot of common people and the political people cannot really understand. So we are trying to interpret that into a more readable style -- (chuckles) -- to give the message to the -- all the common people and the decisionmakers.

And we are trying to develop a Chinese version, not only to translate, interpret the findings from the IPCC report, but more specifically on what damage, what kinds of climate change happened in China, and what's the future scenarios. So we are doing that. I think it will help the Chinese people, the common people and the decisionmakers, to try to understand the urgent action that's necessary.

But of course from -- other point of view is the Chinese understand that adaptation is necessary. Although for the long term, mitigation could be very more important, but at the same time we have to prepare for what already happened -- what has to be -- happen to some extent of the climate change. So we'll do both mitigation and adaptation.

But of course it's very difficult at this stage to find which one is most critical change and their impacts on the specific biosphere or other resources. So while doing that, you could find somewhere we can really take action to impact that, we'll do that. But yes, we need a lot more scientific work, in my understanding.

Maybe -- is this some kind of answer for your question?

ECONOMY: Taiya, do you want to add anything to that?

SMITH: I can say that there's -- the urgency that you're expressing here is something that we certainly feel very strongly. Anytime you try to move governments, whether it be the U.S. government or the Chinese government, it's naturally a slow process.

I've been amazed at how quickly we've been able to move things. Some of our emphasis on forests and wetlands certainly was not understood within the U.S. government as to why we said this is really important to focus on now. But the idea being that we need to save and restore as much -- we can of these really critical areas to be able to help us deal with the future.

So this isn't a satisfactory answer, I understand, but I know that the urgency's there. We're trying to make sure that the things that are easy to do are done very quickly in both of our countries, as well as trying to look down the road four and five years from now as to what we might be considering urgent at that time.

And that's certainly why we look at this as a process which has to include all of the American people as well as the Chinese people to make sure that everybody's taking every little step that they can to help deal with the current situation.

ZHOU: For example, one of the actions that we are taking is from the 2005 to 2010, we'll increase our forestry coverage area by about 200,000 square kilometers, so that we will have about 50 million tons of carbon sink.

But on the other hand, it'll help China to solve the -- somewhere the land erosion, and a lot of benefits for the increase of the forestry. So this is something we are taking.

ECONOMY: Okay. Jim, back there?

QUESTIONER: Jim Seymour (sp), the Chinese University of Hong Kong.

Given that -- I guess my question is for Drs. Houser or Zhou or anyone who wishes. Given that nuclear power is going to be increasing, albeit small part of the nuclear -- of the power mix in China, I wonder if you could comment on the plans for handling nuclear waste. This is a problem in the United States that we've always said we would cross that bridge when we come to it, and now we're on that bridge and we don't have satisfactory answers.

So I wonder what the plan is for transporting nuclear waste safely to a safe place and hopefully in a way that would not have a negative impact on the non-Han parts of the country, to -- (Xinzhan ?), Inner Mongolia, and so forth.

ZHOU: Oh, this is a very technical question. And although my background is so-called nuclear physics, but I haven't worked on this subject for a long time. So I understand what's your concern.

China has already long time working on the nuclear -- start from the weapon, but now is working more on the peaceful use for the nuclear power. And we have already established a system -- from the basic material production, concentration and the waste treatment.

But, of course, that's before is not so much waste. So, it's easier to -- (inaudible) -- waste, but in the future when we scale up the nuclear power, we have to develop the whole system, from the material production to the waste treatments and storage. Now we have real research institutes working on that, and develops a different kinds of alternatives, and try to find the better sites for storage.

And I think that we'll follow -- first follow the IAEA's rules and we'll learn from all the countries what the lessons and what the experiences, and we'll try to develop such technology. And we already established a so-called "nuclear safety bureau," and take care of the standards, and a very strict monitoring and a checking system already be established. So, I think we'll have a good solution for that. Thank you.

ECONOMY: Okay.

Yes, over here.

QUESTIONER: Denis Simon, Levin Institute.

About two years ago the vice minister Shang Yong, from the Science and Technology Ministry, came here and talked about this new science and technology program -- the 15-year medium and long-term program. And I'm wondering what kind of coordination takes place between the NDRC and the Ministry of Science and Technology to ensure, in fact, that the big policies are actually being coordinated across the Chinese government ministries?

Those are always big challenges in the U.S. government, and obviously on the Chinese side. And I'm wondering if Professor Zhou, and maybe Taiya, can comment about, sort of, the flavor of this coordination as you see it in action, post-these SED meetings, because during the meetings it's a -- may be very serendipity, but after the meetings, you know, that's when the rubber hits the road, in terms of implementation. So maybe both of you could comment on that.

ECONOMY: (Laughs.)

SMITH: That's one of the greatest challenges, as you know, for both of our governments. What we're doing, through this 10-year framework, is we have a core group of agencies and ministries, which is about five from each side. From the Chinese side -- that includes most NDRC; MEP, their new ministry of environmental protection; SFA, the state forestry guys -- and it's led by NDRC. And NDRC has the responsibility to coordinate all of these ministries together and make sure that they have the same policy agenda and prioritization.

We have to do the same thing on our side. And I don't think it's all that much easier -- bringing together all of our groups, which includes DOE, Department of Transportation, EPA, State Department, and Treasury has the job to coordinate there. What we find often is that the representatives at the DGE vice minister level that participate in these meetings, will have differences of opinion, and we'll find on both sides, that we have to work those out so that we have a unified way forward.

The power, for us, really has been that we have the vice premier and the premier so interested in these topics that it brings together the Chinese government and the U.S. government -- under our leadership also, with the same interests, to have to have a prioritization of what's going to be most important. So we'll figure out what's most important on each side, and then we have to figure out how we make sure those interests intersect and overlap in a way that works for both countries.

I would say that most has been very energetic. We've got a lot of ideas, a lot of thoughts, and a push forward. And that's been very helpful to the process. I think also the Ministry of Urban Planning and Housing -- so, there's a new title, is another one of the ministries on the Chinese side that is very energetic and has lots of new ideas that help push it forward. And NDRC has the wonderful of challenge of trying to coordinate and bring them into one policy prioritization.

ZHOU: I think that it will be happening all the governments, including the Chinese government, that a different ministry will try to have more power to some extent. But, in China, you know, we have a state council, it's a -- it's a high-level coordinating committee -- commission.  It's always a problem if it needs to be compromised, or need to be integrated, then go -- come into the state council and the premier or vice premier will take up that, and to make the agreements and the consensus between the ministries.

And, of course, Ministry of Science and Technology, in general, is in charge of all the important -- the basic and applied technology, and the sciences R&D. But one year to go into application and into demonstration, and into real engineering projects then the NDRC will have to take care of that. So it's a combination from -- and in my understanding, the two ministries will take up the different stage of the -- of the technology and the science developments. And the demonstration and finally spreading that. So you can find things.

But, I think the -- in Chinese way is if you have questions, problems, the ministry will talk to each other and get consensus. And the final results is to move things more smoothly. So I think they are doable.

ECONOMY: Okay. Yeah, right there.

QUESTIONER: Liz Wishneg (sp), Montclair State and Columbia University.

It's very heartening to hear about all of these policy changes and a tech transfer plans, but where the challenge is is in implementation, as this panel well knows. And I wonder what's being done to make sure that these technologies are actually going to be used, that the provincial level will actually carry out these new efficiency standards. And, in particular, I wonder what happened to the "Green GDP" idea, which would connect performance to environmental behavior?

HOUSER: Let me maybe take the last -- the last bit first. Some very well-meaning Chinese planners figured out what the U.N. had figured out a long time ago, which is it's extremely difficult to do an accurate Green GDP accounting. It wasn't for a lack of trying. So there's other metrics that are starting to be worked into the criteria for provincial officials and their advancement of their non-economic growth criteria going forward, rather than just a Green GDP metric.

Certainly, enforcement at a provincial level is a challenge. But it's not -- it's not an insurmountable challenge. The top three priorities that Beijing has, at any time, certainly get done at the provincial level. The amount of economic restructuring that was necessary for WTO accession, for example, was very challenging at a provincial level. It required creating a lot of losers, as well as -- as well as winners, and there were a lot of vested interests that were routed.

As energy and environment raise on the policy agenda, into the ranks of those top three, then the policy that the central government puts forth will certainly be implemented. There's -- there's challenges in managing that relationship, but it still, it's still a government run very much from Beijing.

ZHOU: I think Green GDP, we do have a great team led by the Ministry of Environmental Protection working on that. And we try to collect the data to apply that for all the provinces for several years. And finally -- we found that, one it's very hopeful if it really gets the number. But the difficulty is there's a lot of indicators that, you know, it's very difficult to get the data, and is some kinds of, you know, artificial or based on the majority of the personal scientists.

So, in the -- finally, you find, conceptually, it's very, very useful, but practically, you know, it's (yearly ?) you get the number is very difficult. So you have -- (inaudible) -- for some years. But you cannot repeat that for every year. So, you got so big job so to do. So we are still developing that, and Ministry of Environmental Protection mentioned that we keep on working on that. But it's not majority, no.

But, on the other hand, you know, the Ministry of Environmental Protection declared their number for pollution (laughs), pollutants -- a concentrating of air, water quality, everything -- annually, for each of the provinces. It help to become one part of the important socioeconomic indicators besides of the GDP. So we do have some efforts to work on that.

ECONOMY: Let me just add one point to that because I think, in a way, it's -- it's an important question that ties into an earlier question about, sort of, the coordination and the politics. Because while it may be true (laughs) that what Beijing says, goes, and the top three priorities get implemented -- I'd be curious to know what those top three priorities are right now, it's also true that when you look at something like the Green GDP the challenge was not only in figuring out how to do it, but there was substantial resistance from the provinces to being evaluated in that regard. And the National Bureau of Statistics was not very forthcoming, they weren't that interested in doing it.

So, you had strong efforts at leadership from the Ministry -- well, it wasn't at time the Ministry of Environmental Protection, but you had a lot of interest and enthusiasm there but you didn't really have support from other key parts of the government to push it forward. So, I think while they're continuing with the effort, it is a very good example of how an excellent potential policy initiative can become stymied because of political, sort of, infighting, game playing, or just lack of support.

Okay. Okay, I promised you -- back here first. And then --

QUESTIONER: (Inaudible) -- Environmental Technologies Practice

We touched base a little bit on, sort of, the cost of being environmentally friendly. And one can argue that, in the U.S. predominantly, environmental friendliness is also -- is mostly done if it's an economically beneficial. That's when the policy gets implemented. And that environmentally-friendly technologies generally cost more than non-environmentally-friendly technologies -- be it scrubbers in your smokestacks and things of that nature.

I was wondering if Professor Zhou, or Trevor you, could comment on how China evaluates that cost versus benefit trade-off? Is it just looking at direct costs? Is it looking at long-term costs of cleaning up that pollution, so on and so forth? Thank you.

HOUSER: I think that there is -- there's a number, there's a number of metrics that are used, a number of considerations. The one that I mentioned about -- just what type of economic growth is going to deliver the employment gains and the welfare gains that you want. And in that realm, and, kind of, macroeconomic policy, it's -- there's a lot of complementarity between smart economic policy and economic policy that's going to reduce energy demand.

On the supply side, there is a number of policies that are taken just for local environmental reasons. So, a requirement to put in sulfur scrubbers; increasing those still inadequate penalty for, 'if you don't run your sulfur scrubbers' -- I mean, that incurs a cost, in a higher electricity cost it passes right on to consumers. But the sulfur dioxide pollution causes $200 billion a year worth of economic loss, and 750,000 premature fatalities. So, those types of public welfare -- these aren't climate change concerns, per se, but a lot of the policies that are implemented for local environmental reasons have a climate dividend.

I think that, at the end of the day, the major concern is that environmental protection is raising in the league tables possible risks to stability -- to government stability. We've had some of the largest environmental protests in humanitarian history taking place in China. And while it's easy to deal with, kind of, civil disobedience in the democracy realm, the air is something that you can't hide, right. Everybody knows that it's polluted.

And it's clearly the job of the central government to deal with the air. And so if the air continues to get worse, it becomes a threat to the legitimacy of the government. And I think that, above all else, at the end of the day, is the chief motivator.

ZHOU: Wand we have introduced all the moethodologies and the approaches developed in -- that developed the countries, but on the environmental protection. And in our university, we do have so-called "environmental economics" to be introduced for the students. And we calculate, or evaluate all the so-called alternatives. If you have the -- China people understand what's the cost for the environmental pollution. But that's not enough. So, (to some extent ?), we introduced mostly the total quantity to control, or the standards and the costs for the quality of the environment.

That means all the emitters who have to obey some kinds of standards or lose. If you exceed that standard, you'll be fined, or you'll be ordered to close your production. For example, for this five years we -- the target is to decrease 10 percent of the total emission of the -- of the sulfur dioxide and COD in the water, regardless of the increments of the production.

And the target has been allocated to the 30 provinces as a specific target for each of that, and each of the provinces allocate that decompose the target into cities and counties and into the -- in the process. So, they have to take specific actions to reduce the total emission of the -- (inaudible) -- pollutants.

For example, all the new constructed power plants of coal burning have to be equipped with a sulfur scrubber. And last year we already equipped about more than 20 -- 250 gigawatts of power plants with a sulfur scrubber already. And we will apply that to older power plants in the near future. Thank you.

ECONOMY: All right.

We have time for one more question, I'm afraid. And I had -- a man over here had his hand for awhile. And then we'll just offer each of our panelists a chance to make one final comment.

QUESTIONER: Thank you. It's Jim Estothia (sp), we Bloomberg News.

I wanted to get back to the question of urgency for a second. There's different forecasts and projections for when the, you know, climate damage from greenhouse gasses will, sort of, trigger the most catastrophic effects of climate change. It may be irreversible. The IPCC has a forecast that, sort of, reflects 450 million parts per million. That could be the tipping point. James Hansen, over at Goddard thinks -- I think, we may already be there, and that we shouldn't be building any new coal plants that don't sequester carbon.

I'm wondering if the decisionmakers and leaders in China have, sort of, internalized this idea that there may be a point in time when it's just irreversible and that we've gone too far. And if they have, what -- you know, how far off is that? Or what's the number they're looking at, or how do they quantify that?

ZHOU: We understand from the IPCC report that, for example, European Union raised the target to limit the temperature -- and raise -- limited to the two degrees, right. And in that case, the carbon emission -- dioxide emission have to be limited about 450 ppm, and that, totally, greenhouse gas emission will be limited with about 550, or something like that. I cannot recall the specific number, but it's like that.

In that case, the developed country has to be -- decrease their emissions by 2050 about 60 (percent) to 80 percent. And I think, for some country like the United States could be asked to decrease by 90 percent of your higher intensity. In that case, we understand that developing country has to be, you know -- decreased by the emissions, compared with current emission, by about -- I think it's 20 (percent) 30 percent, even.

So we look at that as one of the scenarios. And China is really based on this kind of scenario, is thinking about -- you have all the country take this kinds of target as a action plan, and what China should do. And we are thinking about when we will get to the peak of the emission, and when we have to -- when we have to go down our total emissions. But this is still under study.

Actually, I think it really depends, because we are -- for the whole world, I think all the people is like doing and learning and the doing process and we'll look at that. Thank you.

ECONOMY: Let me just offer you a quick opportunity -- anybody on the panel, if you want to make just a -- offer a final thought, or didn't have a chance to say something you'd like to get across?

SMITH: I think the one thing that -- what everybody will need to keep in mind is that in China the motion amongst the people is really significant. We've had groups of business entrepreneurs and others come to talk to us about their concerns about the environment in China -- and these are Chinese entrepreneurs, and the work that they're doing to try to make a difference and to change that.

We're starting to see a lot of pressure on the central government, as Trevor was suggesting, that people need to see change. They need to see the legitimacy of the central government enforced by its ability to deal with environmental challenges, and the awareness of what's happening, both in the -- there's a Carbon Club now at Beijing University which is looking at carbon trading; the work that we've all been doing with China through EPA and MEP on sulfur dioxide trading, and helping set up a national plan for that.

That's all got young people involved and really energized about what they can do to participate in the future. So, that seems to really be a big motivator for the central government. And certainly having people like Professor Zhou. who's been working on this for so many years, having the foundation to then step up and move forward.

It, of course, is never fast enough for us in the U.S. We work with Congress regularly and we know everything's got to be a bit faster. But, it's moving forward, and we're -- you know, when you're at the front line of watching it, you can see that movement. And hopefully that, together, the two countries will be able to deal with this as the largest contributors to greenhouse gasses.

HOUSER: Yeah, I guess I would just say that -- and towards your question, that if we need to reduce global emissions 50 percent by 2050, then that means that the U.S., and Europe and Japan need to reduce probably 80 percent by 2050, and the developing world maybe 25 or 30 percent, starting to -- peaking at 2020, 2025, and then coming down. That's possible without a significant amount of economic cost.

The challenge is the politics. And we're going to have to go beyond just meeting at the climate negotiating table and trying to hash it out in the 11th hour, to really understanding, what are the political blockages in each country from staging those types of commitments in a way that makes sense for both development goals and for climate goals?

The Chinese side needs to know more about what happens in the U.S. Congress and what it's going to take to get a climate bill passed. The U.S. side needs to understand better about what happens in the state council in China, and what real intentions are towards economic growth and climate change. Without that type of understanding, we're never going to be able to get to where we need to be.

ZHOU: I think my words will be very short answering to the cooperation between us, not only on economics and the politics, but also on the environment is very important. And I think the Chinese people, and our academic people, are willing to work together with the United States as partners and colleagues, and to encourage the future cooperation on all the fields. And I think if we are doing our best, we can change something in the near future. Thank you very much.

ECONOMY: Thanks.

I think I failed to keep us to 9:45, as I was told to do. So I apologize for that. But I do think that the panel has succeeded brilliantly in beginning to sketch out some of the key issues here. So, thank you. (Applause.)

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      THIS IS A RUSH TRANSCRIPT.

New York City, New York

ANDREW REVKIN:  Well, welcome back.  I'm Andy Revkin. I cover the environment and global risk basically for the New York Times, everything from earthquakes to tsunamis and then climate change, energy challenge, population development.  And so, it's a great pleasure for me to be here listening and taking notes this morning both on the earlier panel and now on this one.  I'll be taking my own notes.  You know, a reporter -- you can't get out of the habit.  And we're going to discuss now the technology questions underlying.  You heard a lot about policy this morning.  And in a world heading toward, somewhere around 2050, having essentially two more Chinas on board -- not literally but two more Chinas worth of people on the planet -- we all need more energy options than we have right now even if you set aside the climate challenge. 

Right now, by some estimates, the world is using -- you heard about gigawatts earlier -- well, we're using globally about 14 terawatts of energy, that's trillion watts.  That's 1,000 gigawatts for every terawatt.  And a gigawatt, there's two of them up the Hudson River, the Indian Point power plant is a couple of gigawatts just to give you a sense of scale -- giga, tera, billions and billions, sagans.  They used to call those units sagans because Carl Sagan was so good at that.  So we need a lot more energy than we have.  And there are countries that are using a lot less energy than the rich countries are or a per capita basis. 

On my blog recently -- I write this blog called Dot Earth -- I posed the question, "What if the world were equal - in emissions?" In other words, suppose that right now the United States average citizen emits about 20 tons of carbon dioxide per year.  The average person in India emits about 1.2 tons per year.  China is -- what is it now? Maybe five, six.

WU XONGXIN:  About two -- two tons -- (inaudible.)

REVKIN:  Yeah, so suppose we all come in around Europe.  Europe's about 10.  So let's say we all find that nice cozy middle and we head toward 9 billion people all emitting 10 tons each.  That's a lot of carbon dioxide.  That's 90 billion tons of carbon dioxide per year.  Right now the world is emitting about 28 (billion), 29 (billion), 30 billion tons a year.  So we can't get there from here with current energy choices.  We need probably triple the energy we currently get from fossil fuels. 

Now how does that play out?  And then what is the role of China both in terms of the innovation and in terms of what's happening on the ground now, which we'll talk about in a minute, too. 

I wanted to reflect briefly.  I was just in Washington yesterday with Jim Hansen, the NASA scientist whose name came up yesterday, because it was 20 years since he gave this quite gripping testimony about where we're headed on greenhouse heated world.  And I was writing about it at the time so I pulled out my old 20-year-old story.  It's a 6,000 word cover story in Discover Magazine from 1988, and I was re-reading it.  You actually -- if you go to Dot Earth you can read it too.  Discover Magazine gave us permission to post a link to it.  And there's this section toward the end looking ahead about China.  So this is 1988. 

How could the developed countries expect that China, for example, which has plans to double its coal production in the next 15 years in order to spur development, will be willing or even able to change course, willing or even able.  And as you've heard, right now, the imperative is development.  The imperative is growth and advancing and spreading, disbursing economic prosperity.  Twenty years ago, the forecast was already there, and now of course, here we are. 

I want to take you briefly to 2000, the year 2000.  I was at the Climate Treaty Talks then in The Hague and I ran into a guy from American Electric Power, Dale Heydlauff, who was their senior vice president for environment and sustainability and all that stuff.  And he told me this little story, and it was the single most depressing story I think I have heard in 20 years of climate reporting, which was he -- his company AEP at that time, besides being the largest emitter of greenhouse gasses in the industrialized world, they were building power plants in other countries at that time.  I don't think they do that business anymore.  But they had just helped China, and I don't remember which province, but they just helped build a power plant in China to basically 1950s efficiency standards.  This is around 1999.  And he knew that they could've built it to an efficiency standard probably 10 (percent), 15 (percent), 20 percent higher for X extra dollars.  And the whole idea of those conversations in The Hague was to find out a way to transfer just a little bit of wealth from the haves to the havings -- the ones who want to have -- so that we could facilitate having -- avoiding that kind of emissions. 

You know, in other words, once a coal fired power plant is built, you're talking about 50, even 60, 70 years worth of churning through 1 million tons of coal a year.  And if you could make it 10 (percent) or 20 percent more efficient, that's a lot of avoided carbon dioxide.  And the money wasn't there and the plant got built to the old efficiency standard.  And he was looking around this room, and I was looking around the room, you know, with all these delegates, hopefully mostly well-meaning people and thinking, "So how do you make that actually happen?  How do you actually make that little transfer happen which you heard about earlier?"  It still seems rather challenging. 

And one last thing, just on Sunday, the Bush -- President Bush pushed for this Asia-Pacific partnership on technology transfer and energy and climate and development.  And this meeting series that the president commissioned last year is coming close to its end this year as well. They just had their last meeting close in South Korea over the weekend and these are sort of the sherpa-level discussions because the Group of Eight meeting next month will be a very important point in this whole climate conversation about technology transfer and getting everybody on board. 

And we had a conference call and the big questions that were being discussed there all related to, "What is our long term global goal," which you heard about a minute ago too?  What do we want to have the world's emissions atmosphere look like in 2050? And we are very, very far from even having a number there yet.  The EU wants at least 50 percent cut by 2050.  The United States is sort of hovering around that number but how do you then -- and this is all voluntary.  This is not even something that'll be set in stone.  It's an aspirational -- it's set from the start as an aspirational goal.  And we're not even close to having agreement among the 12 or 13 biggest emitters of greenhouse gasses for that -- even that kind of number.  So there's a lot of work to be done. 

So let's now dive in toward China again.  And I want to introduce you to these fine panelists who have far more expertise and experience on this issue than I do.  I'm still mainly just sort of hovering around asking questions.  Next to me is Wu Xongxin, professor -- he's the director of the Academic Committee, the Institute of Nuclear Energy Technology, and director of the Energy Environment Economy Institute at Tsinghua University.  And anything that connects studying energy, the environment and the economy together is a very important initiative.  And next to him is Edward Steinfeld.  He's an associate profession of political science at MIT, in the MIT China program, and co-director of the China Energy Group, the MIT Industrial Performance Center.  And he spends a lot of time on the ground in China trying to understand trends there.

Now I want to remind you also about all those Blackberries and computers and little thingies. As they say on the airlines, anything that uses a battery please turn it off now.  And I'd like to start now.  We're going to have a quick sort of set of questions and answers here on the panel and then we'll move to audience questions. 

So I would really like to start from your own -- just to get your sense of -- what's happening now and what's China doing itself on the innovation frontier in some of the fields that are important it we want to limit greenhouse gas emissions?  And maybe we would start with you, professor.

WU:  Okay.  So -- (inaudible) -- to have the opportunity to have the exchange of views on technology, innovation in China for dealing with the climate change issues.  Because China is the -- (inaudible) -- country.  Also is during the earliest stage of globalization and the industrialization.  So we also are facing a big challenge for energy security.  And also the -- (inaudible) -- pollutant related to energy consumption.  But this I think is the -- has the common interest for international consideration for mitigating CO2 emission.  So China also considered for the technical development.  We also -- just mention to some people -- we also, China is developing some R&D programs to 2020.  So since the program maybe also is the -- (inaudible) -- for the (tenfold ?) development in China.  So because the China, the energy, they're facing some big challenges. Number one is energy security.  

And the second one also because China energy is -- coal is dominant and also coal is a very serious pollutant. And also we also consider it's the -- because China is for the oil is the shortage in supply in the -- (inaudible.)  Because we now is the sitting production for oil.  So we increase the imported dependent (resist ?) the problem. So for the science -- the R&D to work or core support in dealing with (assistance ?).  So way how is the soft energy security?  We should have the world energy supply to support the economic development.  And also one or two changes of the Department of Energy mix is dominated by coal.  NO wanted to solve how is the substitute the transportation fuel?  So mostly the older program R&D program is the dealing with this (package ?).  So, number one is we -- how is the increase of the energy supply, so we have to diversify out an energy source. Emphasize the development clean technology, especially like nuclear, hydro power and renewable energy.  And also we should improve our efficiency.  It's important.  So our target -- the government to set target for from 2005 to 2010 we wanted to reduction the energy intensity by 20 percentage, annual about 4 percentage.  So we also have some the technology support improved energy efficiency. 

We use the new technology replace the old one.  Also phase out the old technology.  Then also we also just mention that we also have some considering how substitute transportation fuel so we also developed some coal based liquefaction technology also consider the second generation of the biofuel technology.  Also cost, because China is the mostly is the coal is the dominant energy source.  We've also developed some clean coal technology, especially high efficiency coal power generation because now in recent years our country, each year, about -- each year about 100 gigawatts new power installation.  Most use super critical power generation and -- (inaudible) -- clean coal power generation.  So these things we also consider is the support of the energy development package.  And this also, I think is for interesting is content without the CO2 mitigation is the same goal, I think.  So if the biofuel  technology benefit all the National Society -- (inaudible) -- Development also, permit all the globally mitigation CO2 emissions.

REVKIN:  Yeah.  Thank you.  Thank you.  Maybe you could introduce us, Ed, to your focus there? 

EDWARD S. STEINFELD:  Sure.  You had asked, Andy, about talking about future technology trends in China. And as I sometimes joke with friends and students and colleagues, I have enough trouble predicting the past in China -- or explaining or predicting the present, let alone the future.  But that gets to the issue of, "Well, what really is happening on the ground today in China in terms of the technologies that are being employed and what's being built and how is it being employed?"  I was glad that professor Wu mentioned coal.  Coal is -- and coal fired power generation is sort of the orphan stepchild in many of these discussions about energy futures because coal is at least associated with bad environmental outcomes whether rightly or wrongly. 

The reality, however, is that coal accounts in China for the bulk of power generation -- about 80 percent of all electricity is generated through the combustion of coal; it's under 50 percent in the United States.  So we're in this game as well.  And coal, for the foreseeable future, I'd argue 10, 20, 30 years out will continue to be the basis for the power sector in China.  Coal combustion accounts for roughly 80 percent of all of China's CO2 emissions.  More than half of all coal consumed in China is consumed by the power sector, and again about 80 percent of China's electricity is fueled by coal.  So coal in many respects, whether we like it or not, is where a lot of the action is in innovation.  Of course, in nuclear and renewables but coal is a very big picture issue in China. 

I'll just say a quick anecdote.  Let's see, in 2005, my research team at MIT was sitting around a table.  We were beginning a study of the power sector in China and we all have spent a bunch of time in China -- some were Chinese, some Americans.  And, you know, we were sort of going around a table providing impressionistic views of what we thought the nature of the power sector in China was like.  And one guy at the table pretty much summed it up and he used language which I can't use now, but I'll tone it down.  He basically said, look, the story in China is -- of course it's coal fired power generation -- and China builds a lot of junk and burns a lot of junk and basically doesn't care.  That's the story. 

And, you know, that kind of resonated with a number of us.  Impressionistically we had been to a number of power plants that had museum-type technologies and we had certainly breathed the air in Chinese cities -- terrible in some cities.  On the other hand, a number of us visited very modern plants in China, and visited plants with very modern environmental cleanup technologies.  And we were left, I must say, sort of conflicted and puzzled because there was all of this impressionistic stuff out there and assumptions and statements but very little data to support those statements about what's really going on in China.  I like that statement about, you know, China builds junk and burns junk and doesn't care, not because I agree with it, but because I think those are the right leverage points for thinking about change.  You have to think about, well, what are the physical technologies that are going in.  As Andy said, these have a long time horizon once they're in place. 

Second, what are the fuels?  What kind of fuels are being burned and at what price are they being sourced?  How are they being burned? And third, what's the regulatory environment that may be shifting the price structure or putting other structures on the way technology in fuels are employed?  So we conducted a survey that we just finished of coal fired power generation in China.  We had 85 plants in the sample and we accounted for roughly 6 percent of all coal-fired power generation in China was in that sample.  And what did we find?  We found an incredibly confusing picture about what's happening on the ground today. 

So the first finding about technology -- it turns out that there's an incredible mix of technologies being built today in China.  It's not all junk.  In fact, some of it is state of the art.  As has been mentioned, there are a number of plants now using super critical, also highly efficient pulverized coal technologies on the combustion side.  Soon, there'll be some ultra super critical -- again, highly efficient on the pulverized coal side.  But even on the small side, so power plants that are thought of as operating below minimum scale economies -- even some of the small plants we saw picked up very advanced technologies, fluidized bed combustion, which may not be the most efficient technology but it's actually very efficient on the environmental clean-up side.  So the question that came to my mind is, "What's the leverage in the system that's pushing at least some plants, and a fairly substantial portion, to source and build expensive technologies on the combustion side?" 

Related to that, second, we found that most plants are sourcing coal now through both long and short-term spot contracts rather than through any kind of government allocation system or through any sort of subsidization program.  And the prices that plants are paying for coal were converging very rapidly to global levels.  So plants are paying a high price for their fuel, which partly explains why a number of plants want to put in more efficient technologies to burn that coal.  We found that a surprisingly large portion of these plants had installed some kind of environmental cleanup technologies, including flue gas desulfurization systems, very expensive to operate and expensive to purchase. 

And lastly, we found that -- so there's some good story here -- but lastly we found that he emission levels that plants themselves report, emissions levels for pollutants like sulfur, sulfur oxides -- we weren't looking at carbon, but sulfur -- the emissions levels were almost right across the sample, far in excess of Chinese rules, let alone global standards.  So that's very interesting.  What that says is there's some points of leverage in the system today for getting state of the art, roughly, technologies in place, which will have a long time horizon.  There are some price levers, clearly, which are incenting producers of energy to use those technologies.  Price, of course, works against the operation of some environmental cleanup technologies because they are expensive to use.  And clearly, there's some kind of governance problem about enforcing some of the rules on the books.

But I'll just, you know, finish this point by saying it's by no means clear that China, for oddly speaking, is building junk.  It's by no means clear burning junk.  And lastly, it's not clear that nobody cares about this, but it's clear that those who do care about emissions have not been able to, through the economic levers that they have now, to influence the behavior of plants, at least in how they emit environmentally. 

REVKIN:  Well, at least for the conventional pollutants it sounds like.  But for CO2, efficiency equals less CO2, right?

STEINFELD:  Yeah, for all pollutants and certainly for CO2.  If you're a power plant and you're installing a more-efficient system of combustion, you will use less fuel and you will emit fewer pollutants per unit of energy traded.  Now, I don't want to sound Pollyanna-ish. It's not as if the technologies being employed are going to solve China's problems or our problems immediately. 

But I simply raise this to say that there do seem to be leverage points in this system for change.  I don't think we understand those leverage points very well.  I think there are many people in China on the governance side, on the academic side, on the operational side who are also trying to figure out these leverage points in a system that's very complicated and governed in a difficult fashion, evolving fashion.

Just the last thing I'll say is doing this work on the Chinese power sector has, of course, pushed me to more research on American power production.  And surprise, surprise, it turns out in the United States that when new power plants are built, they also reflect a range of different kinds of capacities.  So some very small plants that are built, not just big stuff, they represent a range of technologies that are employed, not just absolute state of the art. 

And on the emissions side, well, arguably, a more evolved regulatory system than what exists in China today.

REVKIN:  One thing I would hope you can both help me explore is the coal-to-liquids question.  Yesterday at his briefing for the House committee, Jim Hansen  laid out trajectories for emissions.  He basically concludes, as many people do, economists and scientists, that we're going to burn the oil.  Oil is expensive, valuable, it can be turned into lots of things.  It's a very useful thing.  But coal is where Dr. Hansen feels we really do need to change the trajectory sharply, of course, if we're going to get anywhere near climate stability in time to avoid centuries of change.

But both in the United States and, it sounds like, in China, the energy security question still trumps the energy climate question in terms of which challenge you deal with first.  Now that oil prices are high, you're hearing much  more about tar sands and shale and things that we left in the ground for a long time for economic reasons.  And if Jim Hansen -- and many scientists have concluded if we start turning coal into liquid fuels, then it becomes a limitless transition to much more emissions unless you capture the carbon dioxide coming from the energy-intensive process of turning a hard rock into a liquid and all that stuff.

So in China, I wanted to ask if there's a -- do you feel that the energy security imperative still dominates over the climate question for now?

WU:  (Inaudible.)

REVKIN:  Oh, if you have any reaction, go ahead, yeah.

WU:  Because China also has engaged the -- just the pictures in China -- (inaudible) -- because the -- (inaudible) -- range is a different technology and also because China is -- (inaudible) -- is very small sized power generation and also big, modern power generation.  So it's also China is the range of different technology and different efficiencies.  So is this the China real picture.  Some areas is very developed but some areas also undeveloped.  So it's the really China situation.

And also, China -- also the problem is not -- I don't listen close to the technology problem.  Maybe some regulation no -- existing problem also influences China.  The efficiency improvement also improved the pollution the control -- I think is the real picture for China.

And also, just mention for -- because, of course, the energy security is also in China's big challenge.  So -- but also, the same -- of course, we also wanted to change it because the transportation fuel is the big problem for China.  So we considered some solution.  With solution, of course, we wanted to explore more the resources, natural gas and also coal -- (inaudible) -- and -- (inaudible).  Otherwise, we also developed some technology for substitute for transportation fuels.

So this same solution with, number one, maybe coal liquefaction.  But also, you just mentioned that because liquefaction also maybe if from the whole -- the line of consideration from the world to where is not as efficient.  So now, for us, only on the demonstration project stage, we face the different technology.  We announced some demonstration project already in the commissioning of China, but now it is under the demonstration project. 

We should make technology improvements and also for the cost improvement and also consider therefore the whole cycle that the CO2 emission since we also consideration.  So now China, only in the demonstration stage, how is the future development?  Depends since the demonstration, the results.

Third, one of cost because China considers the biofuel technology by use the second generation use the agricultural residue for the feedstock.  China is -- also the problem is because of our land.  Per capita, the land for use, land per capita, China, the average only 40 percent where the world average 11 (percent).  So the land is very big chunk on (trends ?) for China.  Number one, we should -- the food supply is number one that we are talking.  So we not consider the use for the food for the animal is enough --

REVKIN:  You don't have the corn problem that we do.

(Cross talk.)

WU:  -- but we also develop the second-generation technology for use the agriculture (already ?) for this use.  For this only -- for all the R&D program consideration.  For it also it depends on what's the R&D results and the cost once we see the results.

REVKIN:  And you're a political scientist at the root? 

STEINFELD:  I am.

REVKIN:  What's your sense of this whole issue, climate security versus energy security?  I mean, in a real-world sense, is China going to pay attention to climate security on a time scale that's meaningful without help?

STEINFELD:  Let me, as an academic, answer your question with a question.  (Laughs.)  When I hear -- and the question about coal to liquids is excellent because it forces me, in some ways, to ask, well, what kind of a China do I want to see in the future?  What kind of a United States do I want to see in the future?  Do I want to see a United States heavily dependent on Mideastern sources of fossil fuels?  Well, probably not.  And so that then pushes me back toward maybe coal to liquids or other similar solutions which, as has been pointed out, could potentially be very, very dirty environmentally.  Or do I want to see the United States on the cutting edge or China on the cutting edge of environmental security and good environmental solutions?  Well, that may push me more toward fuels like natural gas which, unfortunately, neither the United States nor China has in great enough quantity to meet their respective needs.  Which pushes us back into the energy security issue.

So from the 10,000-foot or 100,000-foot level, looking at these, we have these kind of difficult-to-reconcile strategic choices.  But you know, there's another reality operating.  It's operating in the United States, and it's operating in China, and that's a reality about energy innovation that's going on and I think will continue to go on if energy crisis remain high or get higher.

And that reality is sort of the globalization story.  You have not an explosion of players, many of them are commercial players, some from the financial industry but many from manufacturing industry, research arms of universities.  But a variety of players now are in the energy-innovation research game.  Many of them are in China or have pieces of their operations in China.  And many of them, of course, are in the United States or other advanced industrial countries.

It is, in some says, exhilarating to see this kind of very disaggregated innovation happening.  As Professor Wu mentioned, there's some very exciting things happening in China with bigger projects like high-temperature reactors.  But there are also some very exciting things happening potentially with plug-in hybrids and other type of transportation technologies which seem to be coming not through big government programs.  They may involve the government, but really seem to be bubbling up from the commercial sector.

And so when I said I'm going to answer your question with a question, the question I have is this:  I don't know how to answer it.  I'd like to know whether fundamentally we feel that energy innovation in the future, whether it happens in China or the United States or both places together, whether it's fundamentally about sort of a space-programlike, big push, top-down, big-investment government programs.  Is that what energy innovation is going to look like, whether it's in coal to liquids or carbon capture and sequestration or anything else?  Or is it more the kind of information technology model?  Lots of companies out there, some cooperating with universities, many having their own in-house research operations, many doing joint research with other companies researching across a broad portfolio of areas and innovating in the margin but fundamentally changing the way we live our lives through a bunch of incremental technology changes which somehow add up to a revolutionary world.

And I guess my hunch -- of course, I'm a political scientist, not a management specialist or a physical scientist -- but my hunch is we're not in the Apollo-program mode right now, and we'll likely not be in the future on energy innovation and energy research.  That we're much more in the IT-dispersed-disaggregated mode than we probably even realize today.

REVKIN:  So you're not making a judgment about whether we need to be in one or the other.

STEINFELD:  No.  And I'm not making a judgment or saying that the government should be spending -- personally, of course, I feel that substantial investments are necessary.  But rather that we may not find, over the long run, the clearest returns or we may not be able to pinpoint today the big, massive programs that are going to lead to change.  Or to put it somewhat differently and, I think, more optimistically, if we can't get massive funding today, and we should, but if we can't get massive funding, say, for carbon capture and sequestration, major demonstration effort, that doesn't mean the game is lost on addressing climate change.

It not more means that than it would be honest to say that in China today there's no adaptation of modern technologies.  There is a lot going on at the micro level, the grassroots level that needs to be organized better.  Undoubtedly, it would benefit from more funding.  But I think we need to better understand today what's happening in order to project into the future where many of these resources should ultimately go and who the key players are going to be in pushing change.

REVKIN:  Professor Wu, do you get a sense that there's an incentive out there in China.  There are plenty of entrepreneurs in China, innovators, engineers.  Is there anything the government is doing or can do to spur innovation on the ground, to spur that kind of activity? 

I just want to mention one thing that McCain yesterday on the campaign trail, he says he wants to offer a prize, $300 million, I think, for the breakthrough battery technology.  And he's not the first person to get into that mode.  Two years ago, I did a long article on energy research.  And some economists actually say that kind of incentive, what Gates did with vaccines, how many hundreds of years ago was done to find out how to measure longitude on a ship in Europe -- there's a book about longitude -- they had a big prize, and that was the way that they got.  It was a tinkerer who made watches who came up with that.

So is there anything going on in China that's trying to spur people to come up with new energy ideas?

WU:  China is -- (inaudible) -- innovation is maybe government pay a lot of attention, pay a lot money for the R&D work.  But China, I think, is the maybe -- I think is the place for innovation is the -- maybe government will pay a lot more attention -- a lot of money for the R&D work.  But China is the big challenge foe that because for innovation, for policy reconsideration, it's the enterprises should pay more important look in the innovation.  Then easily from the R&D go to deployment.  But now China is the problem, most R&D work activities is concentrated in the research institute at the university, not the enterprise, not play so important role in the R&D work. 

So is there some barrier from the R&D to the achievement become the industry application?  This, I think, is the China big challenge, not solution because this --

REVKIN:  In the United States, that can be a challenge.

WU:  -- yeah.  Maybe U.S. is much better because for our country, maybe for -- my personal -- you know, work in the nuclear area.  In the U.S. maybe GE company, Westin Company is mainly the force for a push to nuclear power technology development.  And it's easier from the R&D become the industry application.

But China, for nuclear technology development, most in the institute and also for -- maybe some university.  So there is the vendor from the enterprises.  So because China is the industry, maybe easier for the earliest development stage, not the sole R&D that deposits it in the -- (inaudible).  So is the -- (inaudible) -- on the time for -- (inaudible) -- for these enterprises I think is the number-one problem.

Secondly, is probably is the each -- the new technology in the stage where it's more scarce, it's always cost much higher.  So government should give some incentive -- the policy to promote the new technology development and become the largest scale and the cost with reduction then the government pays some attention.  This maybe some --  China the -- lacks the institutional incentives to promote technology deployment.

REVKIN:  I have one more question and then it'll be up to everyone in the room here for the last half hour or so.  And this gets back to that question of capturing carbon dioxide from burning coal.  It's the one thing that seems to be on everyone's list if you go down RDC, if you go to Peabody Energy, the world's biggest coal company, if you go to the Bush administration position, if you look at what the IPCC focused on in a special report a couple of years ago, capturing CO2, the main greenhouse gas accumulating in the atmosphere, from burning coal is an imperative, partially because of those trajectories.  We're going to to burn a lot more coal for decades to come. 

The problem, though, comes in scale.  And MIT actually did this pretty important report on this a couple of years ago with some other people there saying that if the world wants to prove it's serious about this, we need to have 10 or 15 demonstration projects equal to the one that was just canceled by the U.S. in play now, so that by 2020 or so, we actually know even if this technology can work at the gigaton scale.  Because again, remember those numbers a few minutes ago.  We're currently emitting 30 billion, 29 billion tons of CO2 annually.  And so anything that's meaningful has to capture billions of tons and put it away for perpetuity basically of this gas each year.  And right now, we're trying to do 1 million ton a year demonstration.  That's the scale what's happening around the world.

Is there any -- I think I've heard about China doing some partnerships to actually start building some larger CO2-capturing plants.  Is that right?

WU:  Sure.  And China also has some -- (inaudible) -- in China that domestically we have some IPCC project, so I just -- because we consider it capture and storage carbon should base on the coal gasification and uses the coal gasification and it's very easily low cost to capture CO2.  But we have some projects of IPCC demonstration product we will launch.  And also China -- also participation in U.S. international cooperation, the FutureGen project China also participates.

But for the carbon capture and the storage, also the two problem.  One is for the cost efficiency because capture should have some more high-energy intensity technology.  China now is deficient energy security.  How much energy supply the future is problem.  If we use the carbon capture and storage, we should further increase the energy supply.  So is this also -- for China is the (phase-in ?) problem.

Second also are the cost.  And the third one is China now because now is the most power generation is the burning technology, not the base -- the coal gasification.  We have to use the flue gas to capture technology.  So it's very high-energy-intensity technology.  So is this also the problem with how is the -- (inaudible) -- is now present.  Most is the burning coal.  Coal power-generation technology is the transition to go to the future, the base of the coal gasification technology also some technology problem.

So I think it is maybe we can -- in China also we want to do some R&D work and also for the demonstration project.  But for how is the -- use this technology maybe, I think, maybe should take a long time.  But also storage, just that we should make (junk ?) because -- (inaudible).  Maybe storage some the CO2.  We have -- (inaudible) -- in the -- for storage of the CO2, also a problem.

REVKIN:  Yeah, yeah, storage is a problem.

So now, I assume there are questions out there.  And you probably remember the ground rules.  Please state your name and affiliation, if you have one, and keep the question tight so we can have as many as possible.  There's one here.  And then over there in a second.

So right here in the middle -- here.

QUESTIONER:  Hi.  I'm Debbie Seligsohn from the World Resources Institute.

The NDRC already has policies requiring new coal-fired power plants in China be either super critical or ultra super critical.  So when you're talking about the best of current technologies, China has clear policies and programs.  My question is, what's needed to get to the next level of technology?  And specifically, what does China need from the U.S. 

Let me ask you to address that in two ways.  The first is the way that was discussed in the last panel, which is, what's needed in China-U.S. cooperation?  And it's important to talk about this IGCC question and both the agreement that was there in the late '90s that disappeared and FutureGen which has run into problems.  What's needed to get long-term, ongoing cooperation?

Second question, though, is a lot of people have a lot of suggestions for China for its domestic policy.  What suggestions do you have for U.S. domestic policy that will transform the market and help get us all to the next level?

And that's for both of you. 

WU:  (Chuckles.)  Because I -- for -- my personally is that the -- (inaudible) -- involve in the clean-coal technology, but I know is because, of course, we -- power generation use the -- (inaudible) -- coal and also we have now to realize the localization.  But also FutureGen project, we also wanted to have some cooperation with the U.S.  So I don't -- in additional, I am not the source of new suggestion for it.

STEINFELD:  I have to say briefly, thanks, Andy, for mentioning that the MIT "Future of Coal" study that came out in February of 2007, February of last year, is available online if anybody's interested.  But sort of the punch line of that report was that many people, like political scientists such as myself, throw around terms like carbon capture and sequestration as if this is a completely tested, understood set of technologies and it's just a question of whether we want to employ them, whether in China or in the United States.

And the point of -- well, one of the points of that report was to say the individual pieces of carbon capture and sequestration, the capture of carbon, may be fairly well understood, though even there, there's some room for debate.  And the sequestration of carbon may be fairly well understood, although, again, there's some debate.

But actually integrating this as a system and capturing carbon at the power plant and then finding some way to sequester it -- where, nobody's exactly sure -- and coordinating all this is not a trivial issue.  It's not trivial technologically.  It's not trivial institutionally about what the rules are going to be, and it's not trivial economically about what the pricing is going to be.

And so one of the points of our report is we need some demonstration projects to start understanding these economic and institutional and technological systems integration issues.  And unfortunately, the United States, as was mentioned, is not currently leading the way on these demonstration projects.  It's hard to believe that capture and sequestration will be a reality unless there's some forward motion on actually testing some of these systems.

The second point of Debbie's question about what can be done in the United States -- price doesn't solve everything.  As I said earlier, rising coal prices in China have led to the adoption, I think it's fair to say, of more efficient combustion technology in power plants, but they lead many plants not to use their cleanup technology.  So price doesn't solve everything, but price is often an important precondition for change and innovation.

If the United States moved forward and attempted to put a price on carbon, even a relatively low price, I would argue that that would have some potentially very interesting effects on American innovators in the energy area, much as gasoline prices today seem to be having that effect.  And I think if that happened politically, we'd see a bit of a change where more American constituencies would have a producer perspective, a commercial perspective of what can we win.  How can we build wealth based on this pricing, rather than how are we getting punished as consumers with this new pricing scheme?

REVKIN:  Next -- (inaudible).

QUESTIONER:  Elizabeth Bramwell, Bramwell Capital.

I wonder if you could comment on who sets the design standards for power plants and for automobiles in terms of use of scrubbers or mandated use of scrubbers or emission controls on cars?  And it seems to me -- I mean, I assume that the government has a great deal to do with that.  And there's a lot of technology in the western world that's already in place that significantly does reduce emissions.  And, you know, before we go to whole new technologies, which are going to take several years, what are you doing to use the existing technologies on your existing facilities?

And it seems to me to be kind of short term rather than long term in terms of the effect on the population, on water, and perhaps even on tourism to China.

WU:  I think it's now is because globally, we -- there's a lot of international trade; so mostly with technology by the international trade way to move to China, like the -- (inaudible) -- the technology, because most use the -- (inaudible) -- technology, because also like we -- nuclear power station.

We now think face a signed cooperation agreement with U.S. -- Westinghouse.  We also technical transport for AP-1000 -- the new technology for China.  So now we also -- (inaudible) -- the most important way by the international trade is the way to integrate the new technology.  Also -- government also has some incentive for the (push ?) that promoted the news that -- existing technologies.

But my personal consideration in China is the technology is very important (way ?), but China now is -- more important is how is the new way towards industrialization and urbanization is big challenge for China, because China each year, about 30 million people immigrate from the rural to the urban.  So it is also -- it's big challenge for China.  How is the new society, new economy, the pattern is big influence for the China energy consumption.

So if -- when the lifestyle.  What lifestyle?  What's the urbanization?  The urban -- what's the size, the form, more suitable for people living condition improvement, and also less energy consumption; and also for economy, the regional configuration also important.  If China is larger territory country.  Each large territory country always -- the traffic service demand is much higher.  So like U.S., about 40 percent of (farming use ?) for transportation, because -- (inaudible) -- China, U.S. is the larger territory country.  So China is the same situation.

So I think it's for the considered future -- for the domestic consideration for the -- (inaudible) -- development, also from the international climate change issue address.  So it's not only technology problem.  Also the problem is how is the -- or the new way for urbanization industrialization.  And this also should be -- has some innovation.  This, I think, is more important for China.

REVKIN:  (Inaudible) -- planning --

WU:  Planning -- yeah.

REVKIN:  Are there a lot of partnerships now with institutions outside of China?

WU:  I think so.  It's maybe (laughs) -- also some -- like some city planning, also have some international cooperation.  And also have some -- (inaudible) -- the foreign company involved in it, yeah.

REVKIN:  A question over there, and then here.

QUESTIONER:  My name is Greg Jackson.  I'm pastor of Mount Olive Baptist Church in Hackensack, New Jersey.

A few months ago I was in South Africa in a little town called Witbank, which is a coal miners' town, and they had several power plants all over, so you see emissions all over the place.  But also in the surrounding communities there were so many informal townships with thousands and thousands of people burning coal every single night.

We talk about manufacturing emissions and all that kind of stuff.  But what about -- have any studies been done on the relationship of poverty and coal?  And I imagine not only in South Africa; I imagine in China and other places where there are large poverty communities that have to heat by coal.  What relationship does that have in the overall environment?

REVKIN:  Either one of you would --

STEINFELD:  I can answer very briefly.  It's a very important question.  There have been a series of studies done in recent years that have looked at rural energy consumption, and particularly rural coal consumption or rural consumption of other biomass -- straw, whatever else -- mostly for cooking in households and for heating.

It's a very important issue, first, because of health, so the indoor burning of coal and straw, their biomass, has terrible ramifications for respiratory problems.  Second, of course, when fuel is burned this way in households, it's often burned in a very dirty fashion, for understandable reasons.  It's very hard to monitor and regulate.

So I think what the studies suggest, not entirely surprisingly, is that with increasing incomes in the countryside and some government incentives, there's been a pretty substantial decline in the household use of coal and biomass for heating and cooking.  And there have been positive health effects.  Whether that will continue in the future is hard to say because of some of the persistent poverty issues in China and the growing disparities between urban and rural citizens.

So one quick solution to both the poverty issue and the health issues associated with indoor burning of fuels is to keep facilitating urbanization of Chinese citizens.  Of course, that leads to a series of other social challenges.

Just to return very briefly to Professor Wu's point, you know, a lot of this is, of course, about government regulation and whether the government in China can coordinate its bureaucracy.  But I think Professor Wu's point about social issues and sort of Chinese identity issues, those are extremely important.

People in China are self-consciously, I think, asking themselves, "What does modernity mean?  What do we want to be as a country and what do we want to be as citizens?  Do we want to be just rich, even if that means dirty air and dirty water?  Well, maybe the answer is no right now.  Or do we want to be richer but also cleaner and, you know, living an existence that does look something more like the existence in advanced industrial economies, regardless of the level of wealth?"

And I think that discussion is happening in a quite overt way in China, in all different segments of society -- in the state, but also in NGOs, in civil society, in academia.  It happens in the U.S., incidentally, but just in, I think, a much more subdued way.

I know in my neighborhood -- I live in Lexington, Massachusetts -- 10 years ago, had you put your laundry outside to dry, you would have been viewed as, dare I say, sort of low-class.  Today if you do it -- I notice all over the neighborhood people are doing it -- you're making an environmental statement.  You're being green.  And I say that not as a trivial -- it is a trivial example, of course, in Lexington, Massachusetts, but when those kinds of questions are being asked on a very broad scale across Chinese society, when the leverage for changing lifestyles is so great in a developing economy, who knows where things may ultimately end up?  But I guarantee you they will look very different tomorrow from what they look like today.

REVKIN:  Right here, and then --

QUESTIONER:  John Douglas -- (inaudible) -- the Foreign Policy Association.

This is both a comment and a question.  Earlier mention was made of the Apollo program.  And for some years it has been a concern to me -- it has been obvious to me that China is going to be burning coal for a long time to come, and it's obvious to me that, since coal is very plentiful in America, we are too.  So it's both an American problem and a Chinese problem.

But why have we not or hasn't -- is it (conscience-building ?)?  Why have we not gone in more or less of a Manhattan Project mode to try to find the technological answer to coal?  I mean, we (both did ?) the demonstration problems, which I was all excited a couple of years ago about the one that was -- (inaudible) -- from China.  And here in this country, the demonstration project has failed.

But isn't the problem even deeper than that?  It's finding new technological and scientific answers to the problem of coal and making its use without emitting CO2 more economical.  That may be the project that, it seems to me, the world could call for something like a Manhattan Project type of endeavor.

REVKIN:  Do you have theories on that?

STEINFELD:  I don't have particular theories.  But I'll just again emphasize, I don't know that the answer is a Manhattan Project.  It may be.  I guess I'm equally troubled, though.  That seems much lower in scale, smaller in scale.  The Manhattan Projects have been ignored in the U.S., for the most part ignored.

And I think part of the story -- it's not just government failure.  I think societally Americans, including myself, have a very poor sense of where our energy comes from and what actually we're burning and how we're burning it and what actually we're doing.  And so when -- because we have a poor sense and because, in a relatively non-dense population setting, we don't feel the environmental impact of our own consumption patterns as directly as Chinese do, and Chinese lower per capita consumption levels, because we don't feel that directly when issues like putting a price on emissions of carbon, when those come up, the immediate response politically is negative.

And over time, as awareness grows of global warming issues and awareness grows of some of the costs of inaction, I'm hoping that we will see a change.  It may require something less than a Manhattan Project. It may require a regulatory change that will facilitate a bunch of entrepreneurial work in companies.  But I, too, think there's got to be some kind of awareness change that's going to promote either of these directions, the entrepreneurial or the Manhattan Project/Apollo program track.

REVKIN:  Professor Wu, do you have any thoughts on that, or we can pass?

I have lots of thoughts on that, but just go to my blog if you want to see them.

Over here.

QUESTIONER:  Thanks.  It's Jim Staffi (sp) with Bloomberg News.

I just want to get back to carbon capture for a second.  And Ed, I guess you're kind of a skeptic, or maybe I'm reading between the lines of the whole idea of pulling this off in time to basically make the kind of difference that needs to be made.  And I'm just wondering if there is a technological argument that you can get from A to B without developing this technology that most people say won't be ready for 15 or 20 years anyway.

Is there a way to do it with the resources we have through renewables, energy efficiency, other kinds of initiatives?  Is there a technological answer that sort of gets you around the need to sort of extend the life of coal into a carbon-constrained world?

STEINFELD:  Just very quickly, let me emphasize, I'm not a skeptic about carbon capture, so forgive me if I misstated my position.  I simply wanted to say that as one of the members -- there are 12 faculty members who did this future coal study, and so there were chemical engineers, nuclear engineers, physicists and chemists and a political scientist sitting around the table.

And what I learned from the discussion among the engineers and scientists was not that one should be skeptical about the technology, but rather one shouldn't simply assume that this is all existing, proven technology as a system and that it really has to be demonstrated -- not to demonstrate it's not feasible, but it has to be demonstrated to figure out how to integrate and how to regulate this kind of system.

The other thing I learned sitting around that table for the few years that required to do that study was that coal will be a central source of energy for many years to come and that to solve problems of global warming, or at least to buy some kind of insurance policy if global warming really proves to be as serious a problem as we think it is, one needs to focus both on a series of technologies for combusting coal cleanly -- coal is not going to disappear -- but second, one needs to take every opportunity one can to pursue other kinds of fuels and other kinds of technologies; that is to say, there is no single technological fix.  There's no social engineering quick fix to this problem.

Rather, we're going to need a variety of different solutions entering from a variety of different avenues.  It's just that coal is going to be one of those avenues, and capture and sequestration is going to be arguably one of those indispensable technological systems.

REVKIN:  There was -- right there.  We seem to be picking on men.  Are there any women out there with a question?  Raise your hand higher if you do.

QUESTIONER:  Hi.  Dan Rosen, Rhodium Group.

Is it critical that China pay for the technology that needs to be transferred to it, not just to remedy the trade imbalance, that China is a critical macro problem that is threatening the government and the economy of the country, but because without the notion of paying for it, you're never going to move innovation out of the top-down institutes Dr. Wu described to the private sector, where there's enough of a profit motive there to incentivize a broader effort to innovate and enjoy the capital gains and returns that come from innovation.

So is it critical that China pay for the technology that needs to be transferred, or should it all just be subsidized and handed over?

REVKIN:  He's saying should China pay for the technology that comes from outside, or should it be provided?  In other words, who pays for that incremental change in energy practice in China that emits carbon dioxide emissions?

QUESTIONER:  (Off mike) -- institutions protecting intellectual property will never really be developed, because that's not part of the system.

REVKIN:  That's a very macroeconomic question.

You can pass.  (Laughter.)

WU:  (Inaudible.)

REVKIN:  Let me try a take at it.  Everyone I've talked to over the years from developing countries insists that it's the responsibility of the countries who added the burden of greenhouse gases that's accumulated in the atmosphere already that they pay for the transitional costs to limit emissions, whatever would happen in a developing country with a much lower per capita responsibility for what's already happened in the atmosphere, let alone from what's coming, that it's an obligation of the outside world, the developed world, the rich world, to help.

It's just not going to happen.  Economically, the impetus is not going to be there, however that plays out on that level of economics you're talking about.  That's just a very firm stance that I've heard over and over and over again.

STEINFELD:  Maybe Professor Wu could mention the high-temperature reactor program, because here there's a potential for China to be the producer of innovative technology, selling it to the rest of the world; interesting way.

WU:  Yeah.  Because my personal involvement in high-temperature gas -- (inaudible) -- reactor.  So this may be -- (inaudible) -- we have to give that a lot of investment for R&D.  So we have to finish the chemical test reactor, a successful operation.  So government -- (inaudible) -- for 2020 or some program for support of the development demonstration project.  It's the modular design.

So since the project is also not only for institute, but also we have some utility, and the owner also investment.  But the -- for R&D work is the -- R&D function is brought by the government.  For the project itself is by the investment for -- (inaudible).  So we go out to 2013, we wanted to complete this project.  But after demonstration, we wanted modular constructing the new one.

So in (this ?) case, we also have some -- (inaudible) -- wide international cooperation, especially with the West -- the German company, because the original technology developed is the western country.  The western country -- because in this year is for the nuclear power is shut out.  So they also -- if -- not use technology is -- (inaudible).  So they also very interesting cooperation with us.  So we very closely cooperation with the German company and also international the enterprises cooperation for make other innovation for this area.

REVKIN:  Ed, did you have any thoughts on the economics of that?  That may come up again later; I have a feeling.  That's a point we can all discuss in a break or something.  I'm interested to learn more.

Oh, yes.

QUESTIONER:  Marcia Aronoff from Environmental Defense Fund.

One of the other forms of carbon capture is through sequestration.  And China has been experimenting with programs that directly tie to poverty alleviation in rural areas by creating aggregation of efforts by farmers to either manage rice growing in ways that capture or reduce methane, planting trees that are involved in avoided decertification, avoided deforestation; a variety of rural efforts.

And I'm just interested in your comments about the problems of planning for expanded urbanization and whether or not there is an awareness, broader awareness in the government, of opportunities for poverty alleviation tied to a carbon market that might provide income for poor residents of rural areas to avoid some of the rush to urbanization.

STEINFELD:  I --

REVKIN:  Haven't worked on that?  :  No.  (Chuckles.)  Overall, my sense, again, is just the limitations on land.  To have that kind of agricultural sequestration be -- somehow avoid any perceptible chunk of the carbon emissions from coal is a challenge.

I wanted to say something related to your question earlier, which was about, you know, why aren't we doing this?  And I will weigh in a little bit.  You could go to the blog to learn more.  But again, climate, as we were saying a minute ago, we have $130-a-barrel oil now.  It's having impacts.  It's actually starting to change consumer behavior.  People are driving less, according to the government.

But climate still remains a someday issue.  For most people in the world, it's not here and now.  It's about our children.  It's not even so much in America about our children as it is about someone's yet unborn kid on a coastline in Bangladesh.

And until the world wraps its head around the idea that setting us on a trajectory toward having centuries of shifting climate patterns with no new normal climate and centuries of changing coastlines -- no new normal coastline -- can you imagine a world -- actually, it would be centuries, probably a millennium or more, with no convention of what your coast is.

Until we somehow integrate that thought and make it a priority such that -- and if you go back through some stuff I've written in the last few years, you'll see we've disinvested in energy research for decades under Republican and Democratic administrations.  And there's only one country, Japan, that has had a sustained level of R&D on energy over time that wasn't just a blip during the oil crisis of the '70s.

And unless and until the rest of the world gets engaged in the idea, that we actually someday have to have a post-fossil world with a lot more people than the world has now, all seeking a quality of life, until the world is engaged on that in a way far more meaningful than anything that you've seen happen in the last five, 10 years, we're not going to get there from here.

And I would love it if each of you might summarize your thinking on, again, the order of our priorities; each one has distinct responsibility, priorities and capacities in this climate question.  And China, I think, for sure, for the time being, is in a world where other things are the dominant concern.  And the United States is rich enough to start thinking maybe more quickly about some of this.  I don't know if you share that line of thinking; if you could just summarize your ideas.  Do you have any final thoughts on how to get there from here?

WU:  (Laughs.)  I also have seen -- (inaudible) -- China (to serve ?) for substantial development, also one to two search the low-carbon economy.  So it's also benefited China, and also benefited the global climate change.  So this, I think, is for China the (search ?) -- the way towards the future.

STEINFELD:  I share your very serious concern about the climate issues.  And I guess, on the one hand, I'm a bit pessimistic about the degree to which Americans or Chinese really have gotten their collective minds around this problem and the magnitude of this problem.  I'm not sure either of our countries really has put this at the top of the priority list or even on the priority list in a meaningful way.  That's the pessimistic side.

On the optimistic side, though, actually, in China, at least, I think we are seeing very rapid technological transformation.  We're seeing regulation trying to catch up, not always very effectively, but trying to catch up.  But we're also seeing very rapid social transformation and very rapid transformation of societal attitudes.

And, interestingly enough, to me those changes end up having kind of a positive bottom-line effect for a number of commercial players, some of which are in China and many of which are outside of China.  So in ways that surprise me today, in ways I wouldn't have predicted several years ago, we're seeing the purchase of some very expensive, very high-end technologies, purchased from outsiders, whether it's nuclear technologies or other energy-related technologies, by insiders in China, sometimes through government financing, but often through commercial financing.

And what this says to me is, again, not that markets always work, but that the markets, at least in some respects, are working in China and overlapping with patterns of globalization where you have many different companies involved in various kinds of partnerships and coordination for innovation that leads for kind of an extremely rapid cycle of change.

Now, of course, we all know with IT, but I think we're starting to see similar kinds of outcomes in energy.  And although I'm not so optimistic about the political side in either the U.S. or China about priorities, I'm actually more optimistic about the social and the technological side.  So maybe the right pressures will come from the bottom or from the side, and the top will follow accordingly.

REVKIN:  Great.  A note of optimism is always a good place to stop.  So thank you both, Professor Wu and Professor Steinfeld.  And thank you all for listening.  (Applause.)

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      THIS IS A RUSH TRANSCRIPT.

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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      THIS IS A RUSH TRANSCRIPT.

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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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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