Our cooperation is also essential to solve the other half of the climate change puzzle, which is to create a global action plan to which both developed and developing nations contribute. This is critical if we want to make not just short-term headlines, but long term improvements. For it is expected that, within two decades, the largest emitter of greenhouse gases will not be the United States, but China. And that, by ten years after that, the developing world will have become the source of the majority of such emissions. Industrialized nations created the global warming problem and must take the lead in responding. But clearly, no solution will work unless developing countries play a part in it. Global warming may look like an insurmountable problem, and its potential economic effects can seem too large to confront. But in contemplating the challenge, we should recall the many times when naysayers predicted that protecting the environment would be too hard, too costly, and too cumbersome. From America's waterways cleanup in the 1970s, to Australia's stewardship of the Great Barrier Reef, to the global effort to close the ozone hole, environmental preservation is working, and it is working in ways that keep our economies growing. In the eighteen months that I have had the honor to serve as America's Secretary of State, I have been to the Asia Pacific region six times, South Asia once and, last November, to Asia's front door for the APEC meetings in Vancouver. This schedule reflects a simple reality. No region of the world is more important to American security and prosperity, or to the values we share with others, or to our effort to meet new global challenges. Because of the financial crisis, these are not the best of times for the people of this region. But friendship, like a sailing ship, cannot be truly tested when the skies are clear and the weather fair. It is during the hard weather and high winds that we learn whether what we have designed is sound, what we have built is sturdy. America's commitment to the peace and stability of this region and to the freedom and welfare of its people is not a fair weather commitment. Nor is it short lived. It is unshakable now and it will endure. That commitment is grounded in our own interests. It is consistent with enduring principles of democracy and law. It is made secure by alliance with our closest partners, such as Australia. And it is animated by our hopes for a future far better than the past. Thank you very much for your attention here this afternoon and for your very kind welcome to beautiful Sydney. Stuart E. Eizenstat Under Secretary for Economic, Business, and Agricultural Affairs U.S. Department of State Remarks on climate change ministerial Tokyo Ministerial on Climate Change The informal ministerial on climate change held in Tokyo on September 17-18 proved very positive, and the United States thanked our Japanese hosts for putting together the meeting. Among the twenty-plus countries invited to attend, there was a strong spirit of cooperation and shared responsibility to continue the progress on climate change begun in Kyoto last December. There was interest in developing a work plan with timetables on the flexibility mechanisms emissions trading, Joint Implementation, and the Clean Development Mechanism. An active discussion took place concerning the domestic actions being taken by individual nations. The United States set forth in detail its ongoing and planned efforts, which include existing programs for energy labeling on major appliances, solar energy promotion, and model energy conservation programs in the federal government itself; $1 billion in climate-related assistance to some 44 developing countries over the next five years; as well as President Clinton's $6.3 billion proposal for new, climate-related tax incentives and R&D measures. Both developing and developed countries from China and Indonesia to Japan and the United Kingdom made clear their concern about climate change and described national policies and programs that help address climate change. Discussion of the Clean Development Mechanism, or CDM, which shows real promise as a bridge between the developed and developing countries in their efforts to address the global problem of climate change, was especially productive. Attendees recognized that the projects to be covered by the CDM can create emissions reductions with environmental benefits for us all. The ministers and their representatives generally acknowledged CDM's potential to promote investments in clean growth in developing countries and to help developed countries meet their Kyoto goals, cost-effectively, through project-generated credits against their targets. The ministerial sparked a frank and lively discussion of emissions trading. It reflected an uncommonly clear sense of the balance needed between ensuring the trading system's integrity through strong rules, and maximizing its ability to generate emissions reductions worldwide by making it simple and transparent and allowing its full and flexible use. Trading is a complex issue and countries have different views on precisely how it should work. The ministerial reflected this, yet also made clear that trading is greatly valued as an innovative and powerful approach to addressing climate change cost-effectively. On that basis, the group was quite positive on balance about the prospects for progress on trading at the Fourth Conference of the Parties - COP4 coming up in November in Buenos Aires. Based upon improved understanding with the EU, we The ministerial gave the twenty-plus attendees an opportunity to consider what can be achieved at COP4 and beyond, but no formal conclusions were reached. A very business-like attitude was taken by the ministers and their representatives, with a strong focus in discussions on identifying common interests and feasible results for COP4. In our meetings, the United States made clear that developing countries must be part of the solution. Meaningful participation by key developing countries is central, with their degree of commitment dependent upon their emissions level and state of development. The United States sees COP4 as an opportunity to renew momentum on both the UN Framework Convention on Climate Change and the historic Kyoto Protocol. There seems to be a solid basis for developing an approach to completing the elaboration of the flexibility mechanisms emissions trading and the Clean Development Mechanism. Our goal is to engage in frank discussions on the areas of shared interest, to develop a consensus on next steps in key areas, and to avoid unproductive arguments on issues that cannot be resolved at COP4. The United States hopes that at COP4, Parties will signal clearly their commitment to move forward, and their understanding of the need for greater certainty among our people and private firms about how the Kyoto mechanisms and processes will work. The United States will encourage all countries both developed and developing to reiterate at COP4 the need for concerted, cooperative action to address this global problem. A concrete step in this regard would be for Parties to renew their commitment to taking actions in the context of the Framework Convention, which recognizes both the "common, but differentiated responsibilities" of developed and developing countries and the need for a global effort. The United States would like to see greater evidence at COP4 of developed and developing countries working together on climate change. We are encouraging discussion of a broad array of developing country participation activities and acknowledgment of the specific contributions to limiting greenhouse gases many have made. We may also be able to build confidence and shared perspectives by engaging at COP4 with the private sector and the NGOs. These groups have many skills and insights to contribute, and can help us move forward on issues that are technically complex and politically sensitive. The key to success will be to establish COP4 as a stepping stone to the future of our efforts on climate change, one which is both credible and effective. Statement of The Honorable Janet Yellen Economics of Climate Change Thank you, Mr. Chairman. I appreciate having this opportunity to discuss with you the economics of climate change and the Administration's efforts to address this significant environmental challenge. As you know, I have testified on this topic before this Committee on two prior occasions. In my first appearance, prior to the Kyoto negotiations, I emphasized that if flexible, market-based mechanisms are effectively used, the costs of cutting greenhouse gas emissions would be significantly reduced. Elaborating on this point, I stated in March of this year that, in the Administration's view, the costs of achieving our Kyoto target would be modest if we can succeed in implementing international trading, joint implementation, and the Clean Development Mechanism in an efficient manner and we achieve meaningful developing country participation. A report released by the Administration in July, entitled “The Kyoto Protocol and the President's Policies to Address Climate Change: Administration Economic Analysis" elaborates the assumptions and analysis underlying this conclusion. In addition, the Stanford Energy Modeling Forum has been coordinating an economic modeling exercise of the Kyoto agreement, and the participating modelers, who include academic, private sector and government analysts, have made available some of their preliminary results. Today, I will provide a brief summary of the Administration's Economic Analysis and review several of the key findings of the Energy Modeling Forum effort. The Potential Impact of Climate Change The Intergovernmental Panel on Climate Change (IPCC) concluded in 1995 that “the balance of evidence suggests that there is a discernible human influence on global climate." Current concentrations of greenhouse gases have reached levels well above those of preindustrial times. If growth in global emissions continues unabated, the atmospheric concentration of carbon dioxide (CO2) will likely double relative to its preindustrial level by midway through the next century and continue to rise thereafter. As a result of the increased concentration of CO2, the IPCC estimates that global temperatures will increase by between 2 to 6 degrees Fahrenheit in the next 100 years, with a best guess of about 3.5 degrees Fahrenheit. Potential consequences associated with this shift in climate include a rise in sea levels, greater frequency of severe weather events, shifts in agricultural growing conditions from changing weather patterns, threats to human health from increased range and incidence of diseases, changes in availability of freshwater supplies, and damage to ecosystems and biodiversity. Further discussion of the costs of climate change is contained in the Administration Economic Analysis. Please refer to the attached paper copy or http://www.whitehouse.gov/WH/New/html/kyoto.pdf for a PDF version of this document. 2 The Kyoto Protocol and the Buenos Aires Conference of the Parties Previously, Undersecretary Eizenstat and I appeared before this Committee to discuss the Kyoto Protocol and the Administration's efforts to address the risks of climate change. In my testimony, I described the many important flexibility mechanisms in the Kyoto Protocol and explained how they would allow countries to achieve cost-effectively the emissions targets established in this agreement. These mechanisms, which permit what we have termed “when”, "what", and "where" flexibility in meeting the Kyoto emissions targets, are described in detail in the Administration Economic Analysis. Since securing international emissions trading, the Clean Development Mechanism, and joint implementation last year in Kyoto, the Administration has worked in bilateral and multilateral arenas to promote understanding of these mechanisms and to develop rules that will promote their efficient operation. This work will continue in the talks in Buenos Aires and beyond. While I will defer to the Department of State for a discussion of the upcoming international negotiations, I will reiterate that efficient implementation of these flexibility mechanisms is critical to reducing the costs of achieving the targets established in the Kyoto Protocol. Costs of Action In assessing the economic effects of the Kyoto Protocol, the Administration has drawn on the insights of a wide range of models and analysis. Examples include models of the energy sector and economy over the next 25 years, such as the Stanford Energy Modeling Forum, the Intergovernmental Panel on Climate Change's review of the economic and social dimensions of climate change, the work of the Organization for Economic Co-operation and Development (OECD) on the economic dimensions and policy responses to global warming, and the Administration's staff-level interagency analysis. In addition, the Administration used other tools, such as a meta-analysis, basic economic reasoning, overviews of the domestic and international energy sectors, statistics regarding energy efficiency and greenhouse gas emissions, and economic indicators from World Bank, International Energy Agency, and Energy Information Administration databases. Assuming that effective mechanisms for international trading, joint implementation, and the Clean Development Mechanism are established, and assuming also that the United States achieves meaningful participation of key developing countries, the Administration's overall assessment is that the economic cost of attaining the targets and timetables specified in the Kyoto Protocol will be modest for the United States in aggregate and for typical households. This conclusion is not entirely dependent upon, but is fully consistent with, formal model results. The Administration continues to believe that there are limitations to relying on any single model to assess the economic impact of the Kyoto Protocol. However, model results can further inform and improve the understanding of the effects of climate change policy. To complement the economic analysis of the Administration's policy to address climate change, we have conducted an illustrative assessment with a modified version of the Second Generation Model (SGM). The results from the SGM substantiate the conclusion that the economic effects of an efficient, effective, and global |