Climate Change:

Energy execs discuss new Pew Center report, industry action on CO2

Last week, energy industry executives joined the Pew Center on Global Climate Change for the introduction of the group's recommendations on how to reduce greenhouse gas emissions in the United States. During today's E&ETV Event Coverage, panelists from Cinergy Corp., PG&E Corp., BP, Shell International Ltd. and other companies discuss the Pew Center's proposal. The industry representatives also detail the actions they are taking to limit their carbon dioxide emissions.

Transcript

David Hone: We are actually seeing a lot of climate change activity starting in the United States, most of it is at the state level. And a federal initiative along these lines is something that would be preferable from a business standpoint to the multiplicity of state regulations that we're starting to see. We recognize, as a business, that climate change is fundamental to meeting future energy needs. An expansion of today's energy infrastructure to meet future demand without also encompassing a change in its carbon profile will not be sustainable. Let me give you some examples of the types of changes that are going to be needed to address climate change and therefore where an agenda like this fits in. Shell's been working quite closely with the World Business Council for Sustainable Development looking at the pathways necessary for a 550 part per million trajectory. This is a level of carbon emissions that many think is probably the minimum that we have to do to avoid dangerous climate change.

Within this study we've looked closely at the USA and Canada and these are the types of changes needed, certainly by 2025, to contribute to this global trajectory. In the transport sector, this is for the USA, carbon emissions would have to be down by 10 to 20 percent. This is despite continued strong growth of about 20 percent upwards. In power generation we'd need something like 70 large coal-fired power generation stations, just in the U.S. alone, with carbon capture and storage. Two million vehicles on the road, fueled by a fuel such as hydrogen and bio fuels making 10 percent of the mix. Nuclear powers still remaining at today's levels, continued energy efficiency improvement in buildings. Strong growth in natural gas, especially for power generation, and a very strong growth in renewables, for instance wind power, growing by something like 15 percent per annum.

Now these are all big changes and it's not just a question of doing one or the other. It's a question of all of these need to be addressed and we have to get going along all of these, with all of these technologies. And it's unlikely that these sorts of changes are just going to happen by chance. A clear agenda will be needed to drive this forward, one that addresses the technology development and addresses the deployment issues that are all very important.

It's also important that we have one that removes barriers for progress and gives industry the certainty it needs to start to make investments. After all, industry is the key enabler for the changes that we're looking for. Now Shell is already active in many of these sectors. And we're making a start. For instance, in the USA we partnered in over half a gigawatt of wind capacity. We're manufacturing and installing advanced thin film solar. We're developing ethanol manufacture with our partner in Canada from bio waste such as straw. So this is removing the need to actually grow crops specifically for ethanol, but using a lot of the agricultural and ultimately perhaps other types of bio waste to manufacture this product. We're developing the building blocks for zero emission power generation, such as gasification technology. And now we have a new initiative that Shell looking specifically at carbon sequestration.

We already opened, have a hydrogen station here on the Beltway. And in fact, we're opening two new hydrogen stations in 2006. In fact, if you recall last week, the State of the Union, the president mentioned the Advanced Energy Initiative, a lot of these are the building blocks of that. But nevertheless, a lot more needs to be done.

Although investment is happening it's really not happening fast enough. And much more can be done, with a framework, to enable this investment to take place. For example, let me just give you two examples. The USA has no carbon market today. And a carbon market, as we're starting to see develop globally, with a center in the EU, really helps promote energy efficiency projects. But importantly also encourages low carbon energy investments. Energy efficiency alone, while vital to moving forward, isn't the only piece of this puzzle. Low carbon investment is, and a carbon market can help deliver that. And just one example where we're struggling at the moment is LNG imports. A big opportunity for the future, but planning permission for the terminals is a struggle as well. So again, thank you very much for inviting me today. This is a good agenda. It's looking forward. It's looking to deliver some of the major changes needed over the next 25 to 50 years. Thank you.

Melissa Lavinson: Since its inception, Pew has truly become a leading organizational on matters related to climate change, both in the U.S. and internationally. PG&E is proud to be a member of Pew's Business Environment Leadership Council. We value our membership in the BELC and the resources that it provides us through its publications, through its staff commitment and through the opportunity that it provides us to exchange information ideas with businesses, with academics, policymakers, the NGO community, everybody really involved in this issue.

I want to congratulate Pew today on the release of the agenda. We truly believe that it is a solid framework for addressing the issue of climate change in a thoughtful and holistic way. At PG&E it has been our position, let's effectively address the issue of climate change. It's going to take sustained and coordinated action at all levels of the economy and at all levels of government.

The recommendations included in the agenda will result in the development and deployment of innovative technologies, increased energy efficiency and the use of alternative fuel vehicles, expansion of much-needed infrastructure and the addition of energy supplies. And it will begin to prepare us for the potential consequences of climate change. In particular, PG&E agrees that supporting low and non-emitting generation technologies, including renewable energy, nuclear energy and advanced coal technologies, focusing policies and investment dollars and actions on programs that will reduce our overall energy demand and expanding the nation's natural gas infrastructure are all fundamental to meeting our future energy needs responsibly. And in a way that mitigates greenhouse gas emissions, maintains economic growth and increases the nation's energy security.

Equally important to these other initiatives however is creating a National Greenhouse Gas Emissions Registry. It will allow us for full understanding of the key emissions sources in the US, thereby enabling us to identify the most cost effective emissions reductions available. This is an extremely important component of any market-based emission reduction program. And in fact, PG&E has pursued many of the recommendations included in the agenda. And this has allowed us to provide our customers with clean energy supplies and options producing their energy demand. And it has also allowed us to identify ways in which that we can reduce our own greenhouse gas emissions profile.

Some examples of these actions include certifying our greenhouse gas emissions with a California Climate Action Registry; making significant investments in energy efficiency, which has resulted in the avoidance of more than 52,000,000 tons of carbon dioxide from being released to the atmosphere; supporting renewable generation and other clean generation technologies, which has allowed our utility to have among the lowest greenhouse gas emissions rate of any investor owned utility in the US; and providing our customers with opportunities to reduce their greenhouse gas emissions, including, through our recently announced climate protection program, our clean air transportation programs, as well as through our solar schools initiative.

We recognize at PG&E that there is no silver bullet with regard to climate change. And that actions taken need to achieve multiple goals. While climate change is a complex and challenging issue, it's one that also provides businesses with opportunities and with opportunities for the economy as a whole. These opportunities include developing and deploying the next generation of clean energy technologies, creating export markets for U.S. businesses and improving the overall economic energy security of our country. Again, I want to thank Pew for the opportunity to speak here today and for all of their efforts to move to climate change debate forward in a constructive and sensible manner. Thanks.

Bill Gerwing: BP is a member of Pew's Business Environmental Leadership Council, a unique gathering of leading companies from multiple sectors learning from each other about sensible ways to address climate change. BP believes the time has passed when people could live in hope that the issue of climate change would be disproved or go away. The climate science is admittedly unfinished. There are things we don't know. There always will be. However most scientists have come to the conclusion that precautionary area action is warranted and BP agrees.

The challenge is serious, but there is reason for cautious optimism that the challenge can be met. The actions laid out by Pew in this report and the work done by BP and others has begun to show a range of options to address these challenges. The Pew agenda for climate action lays out a broad suite of policy recommendations. BP has publicly supported many of these actions and has incorporated some of them into our internal plans to address greenhouse gas emissions. In the short amount of time I have today I'll touch just on a few of these recommendations.

First, we believe that in order for efforts to reduce greenhouse gas emissions to succeed we must be able to accurately measure and account for these emissions. That's why we agree that the emission registry and reporting system is critical to the success of the process to reduce emissions. Second, we support the development of a well designed market-based system to constrain greenhouse gas emissions, a system that is effective, efficient and equitable.

Our experience with NOX and SOX markets in the United States, the E.U. emission trading system and our own internal CO2 trading program has shown that a properly designed trading program can facilitate certainty in outcomes, in investment planning and minimize costs. A market-based system such as an emissions cap with tradable emission allowances is economically efficient. It allows reductions to be made at the most economical point, rather than forcing every emitter to make the same reductions regardless of cost.

We agree with the goal of an economy wide system, but believe that there may be benefit in starting where we have the most experience. For example, by first addressing emissions from large stationary sources and building upon this system over time. Third, we support policies that encourage the development and deployment of promising innovative technologies, such as carbon capture and storage, alternative energy and the funding of programs that increase our understanding of the science around climate change. And lastly we support policies that provide for improvements in infrastructure and increased use of cleaner fuels that exist today, such as clean burning natural gas. When burned natural gas produces almost half the greenhouse gas emissions as coal.

We will continue to work with Pew and others trying to further develop these and other market based options. However we can't wait for a global political solution before we begin to act, a solution which may or may not ever come. We at BP have already begun to act. I know that several other companies working with Pew have as well.

At BP we started by reducing our emissions from our own operations. We set a target reducing emissions by 10 percent below a 1990 baseline. And we met that target well ahead of schedule. And we found that rather than costing us money the process actually added value, about $600 million in value. Our most recent action reflects the need to take yet another step, to look ahead again, and to invest to meet the needs of tomorrow.

We recently announced the launch of the new business, BP Alternative Energy. This business will build on our work with alternatives by significantly increasing our investment in clean power projects by as much as $8 billion over the next 10 years. Our alternative energy will increase our investment in solar, thereby interpinning BP's position as a leading global supplier of photovoltaic systems. It will include work on wind power, where we have begun with a series of wind farms on our own land in Scotland. But will also for the possibility to build our first large-scale U.S. wind farm as early as 2007. Additionally BP Alternative Energy will include work on combined cycle gas turbine and cogeneration technology.

And perhaps most exciting, this new business will involve large scale deployment of the rapidly evolving technology of carbon capture and storage, allowing us to take carbon out of the hydrocarbons. And use hydrogen to develop a virtually carbon free energy source for electric power. We have already announced one such project in Scotland. And soon we will announce a second major project here in the United States.

In addition to work being done at Princeton, with funding support from BP and Ford, demonstrates that there are a number of technology options that can be applied to address global climate change, technologies that exist today, but need to be introduced at scale. A clear message from the work produced by Pew, BP, Princeton and others is that there is no single technology and no single policy option that will address climate challenge. Rather there will be a range of options, each which will have the ability to contribute to a solution given the proper policy framework.

And this policy framework will advance not through a preoccupation with the differences that exist in how to approach this challenge, but rather identifying solutions that work, by focusing on areas of agreement and by working to expand those areas of agreement through open minded engagement. Groups like Pew Climate Center are at the forefront of these efforts and we're happy to be affiliated with them.

John Stowell: Cinergy is based in Cincinnati, Ohio. We're an electric and gas utility. We serve customers in southwest Ohio, Northern Kentucky and two thirds of the State of Indiana. We burn between 25 and 30 million tons of coal each year to generate electricity. And our service territory actually lies within the coal fields of the Midwest. So obviously, our interest in climate change is important and obvious. But unfortunately we're about to enter this era of massive capital investment under a cloud of regulatory uncertainty. And the biggest question mark that the utility industry faces right now is climate change. Not that climate change itself is uncertain, we at Cinergy have acknowledged long ago, the science has become very obvious to us and has pointed conclusively that human intervention is at least partly responsible for the build up of greenhouse gases in our atmosphere.

But the uncertainty that we face is when will there be regulation and what form will it take? So we're pleased that the Pew Center has produced a thought provoking roadmap toward what we hope will be a rational, measured, but certain, regulatory program that will help reduce greenhouse gas emissions.

We agree there needs to be a multi-sector approach. The utility industry cannot and should not be required to do it, do this project on its own. And we need to encourage development and deployment of new technologies. We need an appropriate carbon price signal to encourage establishment of a viable greenhouse gas market. We need to make every American an energy miser and learn how to use resources more efficiently. We need a diversified energy mix that includes renewables, natural gas, coal and nuclear. And we have to be patient. The commitment to reduce greenhouse gas emissions to an acceptable level will take not just a few years, but it will take decades.

The last few days, I think, have been pretty encouraging. In fact, this morning the Sustainable Energy Institute had a very interesting panel on climate change with Senators Carper and Graham. And we've seen the release of the Domenici-Bingaman white paper, which succinctly lays out important details that really need to be addressed. This morning the National Evangelical Movement had a press conference. They're beginning to weigh in. And I think that's an important political and influential constituency that we need to pay attention to. And then today the Pew agenda has been released. A plan that I think deserves serious discussion and consideration. Cinergy, and in just a few weeks, Duke Energy, looks forward to continuing to work with Pew and others on what we believe is the most critical environmental issue we've ever faced. Thanks.

Ruksana Mirza: We believe that climate change is a serious global challenge that requires a comprehensive and thoughtful response. I would like to commend the Pew Center for the leadership that it has shown in moving the discourse on this important topic forward. Holcim U.S. has been a member of the Business Environmental Leadership Council of the Pew Center since 1998. And is committed to the principles of the BELC, including that we can make significant progress in addressing climate change and sustaining economic growth in the United States by adopting reasonable policies, programs and transition strategies. And that U.S. businesses can and should take steps to assess opportunities for emission reductions and invest in more efficient products, practices and technologies.

As you heard from Vicki, Pew's agenda for climate action calls for the establishment of a reliable and credible system for tracking and reporting greenhouse gas emissions, as a basis for a future U.S. greenhouse gas reduction system. Holcim agrees that this is an essential element for moving forward.

In 1999, along with other leading cement companies, Holcim Limited, our parent company, launched the cement sustainability initiative under the auspices of the World Business Council for Sustainable Development. Under this initiative industry worked with the WBCSD and the World Resources Institute to develop a common greenhouse gas accounting and reporting protocol. And members of the CSI committed to develop omission inventories using the protocol, set reduction targets and publicly report on their progress in achieving these targets. In 2006 the CSI has announced its intention to go further by requiring its members to obtain third-party verification of their emission inventories.

In keeping with the requirements of the CSI, in 2002 Holcim committed to reduce our global specific CO2 emissions, the major greenhouse gas from cement production, by 20 percent by the year 2010, relative to baseline emissions in 1990. Holcim is working towards achieving this objective by improving its energy efficiency, reducing its dependence on fossil fuels through increased use of waste fuels and replacing the most energy intensive component of cement by other cementitious materials.

We've committed to this energy objective, we committed to this efficiency objective because we believe that if global society intends to protect the climate while meeting the demands of a growing population, society must improve the CO2 efficiency of its consumption and production. The agenda calls for action by all sectors of the economy. As you've heard from several speakers, there is no magic bullet. There is no one single answer to the challenge of climate change. The agenda also recognizes that a greenhouse gas reduction program must be market-based and incorporate sector specific needs to ensure that U.S. competitiveness is maintained.

Holcim strongly believes that policies which provide incentives, that move the economy towards greater efficiency, towards doing more with less, will not only help reduce greenhouse gas emissions, but also strengthen the economy and move society towards the larger goal of sustainability. Thank you.

Tom Catania: Whirlpool Corporation is the leading manufacturer of major home appliances in the world. And we are one of the earliest members of the Business Environment Leadership Council advising the Pew Center. And certainly are quite happy to support this agenda which they are announcing today. In fact, we'd like to believe that in the appliance industry we're well down the road to implementation of that agenda. And in fact, I'll give you a couple of statistics I think that illustrate that point. Our company has been a regular participant in and winner of awards from the Department of Energy and the Environmental Protection Agency for energy efficiency achievements. And really climate change mitigation and energy efficiency are synonymous in our sector. Also relevant for this event, our company has chosen to adopt a greenhouse gas emissions reduction target. Our target date for achieving it is 2008. We hope to be emitting, on an absolute level, 3 percent less than we did in 1998, despite the fact that our products will, we expect to have at least a 40 percent increase in products.

And that is the other noteworthy part of our goal, because it's based on emissions related to the use of our products, not just emissions related to the manufacture of our products. Obviously the climate impact of the use of the products over their long life is much more significant than its manufacture. So I think putting that in context you can see it's an ambitious target for us.

For our sector, in general, the national policies of blending an appropriate mix of mandatory standards, voluntary initiatives and market transformation programs have delivered tremendous achievements, not only in our energy efficiency, but of course the impact on climate change. For example, since 1987 the impact of appliance standards has been identified to have saved 60 quadrillion BTUs of energy or the amount of energy that would be generated by 10 billion gallons of oil. But it's not just the mandatory programs, the voluntary programs such as the Energy Star program, according to the Department of Energy, have added another 110 trillion BTUs of savings or over $3 billion in reduced energy bills for consumers.

So there are numerous examples of no regrets, win-win opportunities. I would just site, in the appliance sector, the rapid growth of high-efficiency washers, products that not only make a significant contribution to climate change mitigation, reduced energy consumption, reduced water consumption, but also produce lots of innovations for the consumer in their general use of the product. So we think the program is working. We think the agenda is workable and we think our sector is a good example of the opportunities in our economy as well as the challenges of addressing climate change. Thank you.

Vicki Arroyo: Thank you all so much for your comments. This is a pivotal time for climate policy in the US. There is mounting international pressure for the U.S. to take real action on this issue. Six former EPA administrators, from both Republican and Democratic administrations, as well as our own National Academy of Sciences and others from across the world have stated publicly that the science is clear enough and the problem is urgent enough to take action now. Each day the science is becoming more compelling. We see ice sheets and glaciers melt, the loss of species and increased storm intensity all linked to human induced climate change.

In the meantime emissions in the United States continue to increase. U.S. carbon dioxide emissions have gone up by more than 18 percent since 1990. And the Department of Energy predicts that they will increase by another 37 percent by 2030. There are nods to the climate problem in various pieces of legislation, including last year's energy bill, the transportation and farm bills. But these are not cohesive. And in fact many provisions provide incentives that increase rather than decrease emissions of carbon dioxide and other greenhouse gases. It's worth noting the DOE's predicted 37 percent increase includes the affects of the 2005 energy bill, which did have some good programs and incentives.

Many U.S. states, as you've heard, are taking matters into their own hands, developing emissions trading programs and standards and they're promoting renewables and product efficiency among others. While the states should be commended for recognizing the urgency of the issue and taking steps to achieve some reductions, the programs raise concerns in the business and policy communities that obligations are too uncertain and too varied across this country.

You've just heard representatives of the U.S. industry speak about the importance of regulatory certainty for investment planning and say that no one sector should bear all the responsibility for addressing this problem. We need a suite of policies that will provide the certainty and include the whole economy. This agenda provides both policies that promote technology development and those that will bring the technologies into the market by establishing an important signal, such as an emissions cap, that has so far been missing. And it aims to do so in a cost-effective pragmatic manner. Some believe the answer to addressing climate change lies in technology incentives. Others say limiting emissions is the only answer. Our agenda says we need both.

Despite the specificity of many of the steps included in the agenda there is still much room for ongoing refinement and elaboration of its recommendations. We look forward to building upon the suggestions described here through further outreach and consultation. We already have briefings scheduled for the Hill, we've offered members of the administration. And we're also trying to get on the roster for lots of conferences in important sectors throughout the economy to work with people to develop the ideas further.

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