Questions from Journalists

QUESTION: You mentioned earlier presidential candidates taking positions on climate change. Do you expect any of the presidential candidates to sign the Kyoto Protocol if they become president?

MR. LASH: I would not expect the U.S. to enter the Kyoto Protocol in its first phase. I would expect the U.S., regardless of what happens in 2008, to seriously reenter the negotiations in 2009 and begin discussions of what obligations it might take for the second phase of Kyoto in 2012. I don’t know how that negotiation will proceed with respect to whether it is called the Kyoto Protocol or the Copenhagen Agreement or something else. As soon as the United States takes on mandatory obligations domestically, all of our incentives shift, and we will have an enormous interest then in assuring that the rest of the world responds and that the U.S. system and the international system fit together in terms of the carbon trading regimes.

QUESTION: There have been plenty of rumors in the past few months that President Bush could do a Nixon to China on climate change in his State of the Union address – Do you think that there will be a conservative push to get in what we would call one of the weaker bills – the ones with less requirements – with, perhaps, White House acquiesence or even support – before the administration leaves office, to innoculate against one of the stronger bills later?

MR. LASH: Yes, that’s the fear of Potemkin legislation. I do think the President will talk about climate change in his State of the Union address. I suspect that the Administration will offer a collection of measures, which when you look at them closely are all voluntary or are technology initiatives that aren’t yet funded, and I do expect to see a strong push by some of the industries that would prefer not to seriously address the climate issue to see legislation either with a cost cap or without mandatory provisions passed in the upcoming Congress. That would be quite divisive. I don’t think it will pass.

QUESTION: I am from Bangladesh, a very densely populated country where climate issues have been of great concern. Can you speak to what role, if any, smaller nations play in fighting climate change?

MR. LASH: Not only is Bangladesh facing problems because of population pressures, but, of course, it’s a very low lying country, so increased storms and sea level rise endanger over 100 million people, I believe. Because of the nature of the international process on climate change, even those nations that are not large emitters can be significant players. We ultimately have to find an agreement that includes Europe, North America, and the G-77. And in that, it’s quite possible that a nation like Bangladesh would be a significant player. It seems inevitable that any international agreement would include incentives for countries that while they’re not large scale emitters now, are rapidly growing. In fact, the Kyoto Protocol included something called the clean development mechanism, which is moving billions of dollars into investments in clean technology in developing countries. Unfortunately, that’s still much too little and the transaction costs of making those agreements under the clean development mechanisms are quite high.

MR. PERSHING: I notice two different things. The first one is with regard to the clean development mechanism. The current expenditures are on the order of US$2-$3billion, but the expectation is by 2012 we might have as much as US$30 billion. That begins to be the same size as official development assistance, and that’s a significant sum of money. Probably more significant is the expectation for foreign direct investment and the investment there, if we take the total that might be expected for example in European Emissions trading regime and other systems like that, might measure several hundred billion dollars. At that point, new technologies begin to move into countries not just in the U.S. and in Europe, but globally – in India, in Bangladesh, in Central Africa.

QUESTION: I was curious about your comments about ethanol and how cool you were to it. What sort of changes would you like to see in the U.S. transportation sector?

MR. LASH: First and most obviously, improved efficiency in the fleet. It’s the cheapest, it’s the fastest. It’s a thing we can do that has no environmental negative effects. Secondly, there certainly will be changes in the technology. We don’t yet have significant sales of advanced diesels in the United States, but that’s a significant option. Those things are available now.

QUESTION: What do you think the prospects are for changing the cap and trade standards or for somehow using hybrids or fuel efficiency diesels?

MR. LASH: We eventually have to have a fuels discussion in this nation. It ought to be conducted in terms of the economics and environmental benefits of the alternatives, and there are a number of alternatives other than turning corn into ethanol using a lot of natural gas for the process. I mentioned cellulosic ethanol earlier. DuPont and BP have an experiment with an enzyme that enables them to produce butanol, which BP is already adding to gasoline in the United Kingdom. I’ve seen five or six other technologies and I don’t spend a lot of time looking. We’ll eventually find a way to create biofuels, biodiesel, and so forth. But I don’t think this first one out of the gate is going to be the winner.

A consequence of the change of party control in the Congress is that Congressman Dingle is once more chairman of the Energy and Commerce Committee. For those of you who don’t know him, he is from Michigan and has been the staunchest friend of the automobile industry and a long time opponent of mandatory environmental or fuel economy standards. That certainly presents a difficulty. On the other hand, the U.S. automakers are in significant financial difficulty, and a technology program could become a vehicle for helping them compete more effectively. My hope is that sometime in the next three years, we’ll see a combination of regulation and subsidy that will enable them to compete more effectively.

QUESTION: Could you tell me a little bit about the internal dynamics of decisions being made in Beijing, in particular, what sort of decisions could be made that could limit carbon emissions?

MR. LASH: The honest answer to the first part of your question is no. I wouldn’t purport to be able to tell you anything about the internal dynamics. I remember being in a meeting with Premier Zhu Rongji seven or eight years ago. He surprised us very much by saying we understand the globe is warming and we understand that we will suffer early and serious consequences. He pointed to recent floods and
storms. He said that environmental problems will be a huge obstacle to Chinese development and that we want to address those issues, but we don’t see the United States as serious about those issues yet. So, I can only offer a hope that when the U.S. gets serious and when this becomes a question of moving on to post-fossil age technologies that there will be competition in that area and the potential for agreement between the U.S., Europe, and China. The conditions for that just aren’t in place, although, as I said, they’re doing much more than you would know if you didn’t follow it closely.

MR. PERSHING: I would add just a few things. The first one is that the energy sector in China beginning in 2002 was deregulated, and one of the consequences of that is that some of the activity moved from Beijing into power plant decision-making at the local level, in some cases cities and in some cases provinces. That somewhat shifted the balance of these decisions. But those provinces are often extremely concerned about the local phenomenon, and this is a point that I think is quite significant. We’re seeing an increased level of attention to two issues: one is to air pollution and the second is to the cost of imported fuel. And the consequence in the discussions we’ve had with the Chinese have suggested that those two at least as much, and probably much more, than climate change will drive decisions. But the outcomes are things like efficiency. The outcomes are things like a move to natural gas. The outcomes are in some cases significant investment in alternative energy supply. So I think stay tuned on those developments.

MR. JHIRAD: I think it’s important to point out that the Chinese automobile standards are much more rigorous than ours and they’re likely to be ratcheted up even further because the big story is the amount of imported oil consumed by over one hundred million additional cars in the next 15 years. The Chinese are very concerned about oil imports, and very concerned about the effect on the cities. In fact, some analysis that we’ve done with the Chinese shows that you can cut oil imports by a factor of three or four over the next fifteen years through high efficiency standards for automobiles and heavy investment in smaller hybrids and in mass transportation. And the Chinese are very concerned about the energy security implications of continuing on the present path.