ENVIRONMENTAL TRENDS FOR 2007
THE WORLD RESOURCES INSTITUTE
DR. DAVID JHIRAD,
VICE PRESIDENT FOR RESEARCH,
THE WORLD RESOURCES INSTITUTE
DR. JONATHAN PERSHING,
CLIMATE, ENERGY AND POLLUTION PROGRAM,
THE WORLD RESOURCES INSTITUTE
DECEMBER 19, 2006
THE NATIONAL PRESS CLUB
I want to introduce two of my colleagues who are here with me and will help answer your questions in a moment: Dr. David Jhirad, an energy expert, seated in the front row, and next to him Dr. Jonathan Pershing, the head of our climate program.
So I’m going to talk about five issues this year. Of course, a significant part of that will be talking about climate change, the end of the decade of denial for the United States. I’ll talk about prospects for legislation, about climate and energy in the agriculture bill, about climate science and technology in the coming year, about some interesting developments on the Chesapeake Bay, and finally, the prospects for international action.
During 2007, the congressional debate on mandatory greenhouse gas control legislation will start in earnest in the House and the Senate, and we may quite likely see a vote in the Senate and we’ll almost certainly see legislation adopted during the next three years. We may in fact see legislation advancing during 2007 that, ironically, environmentalists will oppose because it’s too weak. I’ll come back to that in a moment.
Here’s why I think we’re so likely to see legislation. First, changes in public attitudes. Of course, the election a month ago was not about environment or climate change or energy � it was focused on war, competence and corruption � but the exit polling revealed that the heavy advertising that had been done by congressional candidates in key swing districts in fact had a significant impact and a significant impact in particular on independent voters.
A number of polls in recent months have illustrated the degree to which public attitudes on energy and climate are shifting, in particular when the issues of energy security and climate change are linked. That is certainly in part because of the effect of Katrina on public attitudes. It is also in part because of the efforts of Al Gore to communicate about this issue to the American public.
In addition, we’re seeing accelerating action at the state level, which is both substantively and politically important. You’re all aware that early last fall, California passed very strong mandatory legislation to reduce greenhouse gas emissions in that state, regardless of what happens on a national level, and including consideration of the power they get from outside of the state. It’s widely believed that his endorsement of that legislation significantly improved Governor’s Schwarzenegger’s prospects at a time when he was lagging behind his opponent in the polls; he suddenly jumped ahead.
California represents such a significant part of the economy and the political base of the country that that action alone was significant, but also a set of Northeast states who signed an agreement in 2005 on climate action setting up their own voluntary cap � voluntary on their part, but mandatory for the utilities operating within those states � are now proceeding to implement those requirements. And two states that had dropped out of the Northeast agreement, Massachusetts and Maryland, have now joined in again. Interestingly, a number of these states are taking a very stringent approach to how they allocate responsibility for making reductions.
Indeed, across the country we’re seeing responses to climate change and energy challenges. A number of states have enacted renewable portfolio standards, which require that a certain percentage of their electrical power come from renewable sources and impose conditions on utilities to buy wind or solar power or biogas.
In addition, a number of states have enacted their own standards for automobiles, impatient with the failure of the federal government and the Congress to act on automobile fuel efficiency. This is of course a political indicator. Two hundred cities have their own climate plans � a majority of states � states where a majority of the economy functions. It’s also an important historical indicator. On issue after issue where the United States has faced a need for legislation to drive significant social change, the change has begun at the local and state level. Whether it was child labor a hundred years ago or the early action on the environment 30 to 40 years ago, it began on the states and ended at the federal level.
This particular set of actions on automobile fuel economy also illustrates another impact of the state actions. Increasingly, industries that operate nationally and globally are facing a patchwork or requirements that create enormous costs for them, and are becoming impatient with action at the state level, and instead of opposing, are demanding federal action. In fact, industry has gone beyond simply responding impatiently to what the states are doing. A number of companies, as we’ve discussed in previous years, have taken voluntary action to reduce their own greenhouse gas emissions even though there are no requirements on them, some of those very substantial reductions. But beyond that, many companies are now identifying climate constraints as drivers of tomorrow’s markets and are building their strategies around producing products that their customers can use to reduce greenhouse gas emissions.
Of course, one illustration is General Electric, which a year and a half ago said that they would grow their sales of what they call ecomagination products from $10 billion to $20 billion in five years. They already have more than $20 billion in orders for those products and have doubled the number of products that they can sell to their customers to help them reduce their greenhouse gas emissions. But other companies like DuPont or Praxair are on the same course.
Indeed, this is some work done by Citigroup in cooperation with the World Resources Institute for their high net-worth clients, people who hold hundreds of billions of dollars of assets, seeking to provide them with guidance on how they can select the shares of companies who have strategies for dealing with future opportunities to sell products that reduce greenhouse gas emissions.
All of those trends are leading one company after another to take action to endorse mandatory legislation. What would have been unthinkable six or seven years ago, surprising even two or three years ago, is now commonplace as dozens of companies are now endorsing mandatory action, a set of them at a hearing held by Senators Domenici and Bingaman last summer. You will see much more of that in the coming year as companies see the opportunity for some kind of federal action to give them predictability and coherence in the requirements they have to respond to.
This is just a selection of the presidential candidates. Take a look at their websites. Every candidate up there, either party, has a strong position on climate change, and on his or her website is trumpeting action that they’ve already taken.
So one can argue that whatever happens in 2008, this trend will continue, and those presidential politics, as those candidates want to make sure they aren’t left behind on this issue, feed back into the probability of congressional action. And then there’s the fact of course of a significant change in leadership. In the Congress, the most interesting is from Senator Inhofe, who regards climate evidence as fantasy and brings in a science fiction writer to testify about what he sees as the climate truth, who will leave the chair of the Senate Environment Committee and be replaced by Senator Barbara Boxer of California, and in a moment we’ll see why that’s important.
So will Congress take serious action on climate change? Of course, that’s very much my hope. Serious action means that we don’t just stop the increase in emissions in the United States, but we get on a path towards significant reductions. Serious legislation will put us on a path that would be consistent with the world limiting global concentrations of greenhouse gases to 450 to 550 parts per million.
Here are the crop of bills that was introduced in the last Congress, and how they fit on that scale. You can see there are real differences. Some would not make significant reductions over time, and some would. If you look at the names attached to the bills that would make significant reductions, it’s interesting to see that Congressman Waxman of California and Senator Boxer of California have both introduced bills which would achieve on the national level essentially what California already proposes to do on a state level, and that both are in positions of leadership in the upcoming Congress. So California’s action is having a real effect on this election of bills being introduced.
If you take a look at these bills not simply over the period from now until 2020, but until 2050, which is the real period over which reductions will have to take place, the differences become quite startling. This is what the administration claims for the actions they’ve taken. All of these are based simply on what the sponsors of the action claim. This is business as usual. This is where the tracks to stop at a reasonable level are, and if you look, there’s some legislation that continues down that path and some that even, by its own provisions, suggests that we simply maintain stable emissions. This is at a level that will continue to build up global concentrations of greenhouse gases.
I ask you to think about this graph from two points of view. First, imagine that you are the CEO of a company trying to decide whether to make an investment in a carbon-intensive technology � a new coal-fired power plant for example. How do you decide how expensive that will be for you in the future if you don’t know whether the requirements will be these or these? That’s a difference in price per ton of emissions, of CO2 emissions, between, say, $7 for these, which have caps, and $30 or $35 per ton for the lower levels. It’s an almost unthinkable disparity in which companies are trying to make decisions. Or think about this spread from the point of view of environmental advocates of legislation. It’s very likely that if bills like these two, which have price caps, advance, that they will be strongly opposed by the environmental community because they aren’t regarded as serious, and probably supported by industries who would rather not take strong action and would like to see something passed that fills in the space � Potemkin legislation: a facade of climate legislation with nothing behind it.
For the U.S., the story of what needs to be in serious legislation is about cars and coal, and the politics are about cars and coal and competition. About a third of U.S. emissions come from the transportation sector, about a third from the utility sector, almost all � more than half of utility emissions come from the burning of coal. And in both cases we’re using old technology. The power plants that are being built are using 40-year-old technology. The automobiles that are being built with internal combustion engines are using a modified version of 75-year-old technology. In order to make significant reductions, those technologies have to change. That’s going to require a very strong signal. That’s the difference between the bills that show continuing declines in emissions and the bills that stabilize. The ones that just stabilize won’t give that signal to change these technologies.
And of course, ten years ago the fear of global competition, in particular of China, was used as the club to beat Kyoto to death in the United States Senate. It’s why it was never sent for ratification. The argument that if the U.S. adopted Kyoto and made reductions while China did not, it would become impossible for our companies to compete with Chinese companies. That will be a crucial question in the debate: whether the issues as posed is one of added costs to achieve environmental results, or of a transition to new technologies in which we want to be able to compete for tomorrow’s markets.
One last observation on legislation: I pointed out early on that the connection between global climate change and energy security is politically quite powerful. The polls show very high majorities of both parties supporting action that would both address climate change and energy security, and that’s a political comfort zone, to be advocating security and environment. And there are big overlaps between measures which would reduce emissions of greenhouse gases and use of fossil fuels, and reduce importation of oil and gas from countries whose commitment to continued support we’re unsure of. But the overlap isn’t complete, and there are some measures that might be taken to promote energy independence that would very, very bad ideas for climate change. An illustration is the liquefaction of coal to create fuels from coal, which significantly increases greenhouse gas emissions rather than reducing them, even if it enabled us to reduce importation of foreign oil.
That brings me to the Ag bill that will be in debate in the Congress in the coming year. You’ve seen a great deal of discussion of the use of ethanol to create a mixture called E85 � 85 percent ethanol, 15 percent gasoline � and the creation of automobiles that can use that fuel as well as pure gasoline. Ethanol provides an opportunity for Congress to address an environmental question, to address an energy security question, and to funnel huge amounts of money to farmers in the Midwest, in particular in Iowa. It’s a political trifecta, and it will have huge, huge momentum in the upcoming Congress. So let me just raise a couple of issues about E85 ethanol.
First of all, you’re all ware it’s driven by enormous subsidies. There’s a 50-cent-a-gallon direct subsidy; there are protectionist tariffs that exclude cheaper ethanol from Brazil made from sugarcane; there is an incentive that allows the big automobile manufacturers a credit toward their meeting their requirements under fuel economy standards if they build cars that can use E85 ethanol, even if those cars never do use E85 ethanol. So there’s a triple subsidy. The environmental benefits are very limited because so much energy is used in the production of ethanol that the climate benefits are only about 20 percent of what they might be, and the potential for ethanol is limited as well. First of all, right now we’re talking about a few hundred fueling stations out of tens of thousands nationwide. If you look at this map, it shows there’s only one state in which there are more than 300 stations � Minnesota, interestingly, where the most ethanol refineries are being built, and very few, only 10 to 20 in much of the country.
In addition, even if we solve the distribution problem, and even if we’re willing to accept the subsidies, and even if we overlook the limited environmental benefits, if you dedicated every acre in the country that we now use for growing corn to making ethanol you still have had only a minor impact on the total U.S. fuel supply.
And of course, agriculture has its own environmental issues, which brings me to the question I wanted to raise about the Chesapeake Bay. This actually is an optimistic outlook. The reason that we’re concerned about climate change is disruption of the carbon cycle, the process by which carbon is added to the atmosphere and taken back out by the environment. Humankind has added so much carbon that nature can’t reabsorb it. But it’s not just carbon; it’s also nitrogen and phosphorous. We’ve doubled the flow of nitrogen into the environment and tripled the flow of phosphorous.
These are findings that stun the scientists who participated in the Millennium Assessment of Global Ecosystems a couple of years ago. The nitrogen comes both from the burning of fossil fuels and from massive use of nitrogen and phosphorous in agriculture, the basis of an agriculture miracle that feeds us all, but there’s a consequence. As flows of nitrogen and phosphorous, which are plant nutrients, have increased into watersheds and the watersheds empty into the ocean, the nutrients create eutrophication. Algae grows very fast, oxygen declines, and we get dead zones in different areas of the world. This is simply a map of where those dead zones are occurring through Europe, Asia, South America and even Africa. In the dead zones like the one at the mouth of the Mississippi nothing lives. There’s no fishery any longer. And you’ll see that the entire East Coast of the United States in the summertime is one long dead zone. I want to look at one specific area, the Chesapeake, the greatest estuary in North America, something that has enormous personal meaning to me because I spend a lot of time on the Chesapeake as a fisherman and an avid sailor.
The Chesapeake in the last five years for the first time has begun to suffer massive dead zones as eutrophication takes place, because of agriculture upstream and the Potomac and Susquehanna watersheds and because of massive development. Despite the fact that we’ve taken action to reduce sewage discharges into the rivers that flow into the Chesapeake, that’s been more than offset by increased nitrogen and phosphorous from agriculture. In 2007, however, you’re likely to see several states � Pennsylvania, Virginia, West Virginia, I hope Maryland � participating in a process that tries to give farmers benefits for reducing runoff to the Chesapeake Bay. It will be a trading system like the ones used for sulfur dioxide or for carbon dioxide, where it’s possible for the source of releases to sell reductions to other sources and make money by doing the right thing environmentally. That will all go on online using a system actually that WRI developed. I think you’ll see Pennsylvania taking the lead very soon. This will be a first-in-the-world innovation at this scale, and it gives real hope for the Chesapeake.
Moving on to scientific and technological issues in the climate field. The decade-old scientific consensus that’s reflected in this chart � which is just a list of the different scientific bodies that have looked at the evidence and continued that consensus � that will be reaffirmed and strengthened by the fourth assessment report by the Intergovernmental Panel on Climate Change, which will come out in pieces during the coming year.
Of course, 2006 was a year of both new science and anecdotes about climate change, the news about the fact that the Greenland ice sheet was melting much more quickly than expected, a number of findings about the biological effects of warming, and Europe’s warm fall. This was the front page of the Financial Times about a week and a half ago while my colleague Dr. Pershing and I were in Europe and they were decrying the cancellation of several World Cup races. I was in Switzerland and nobody was skiing. We will, by the way, be putting out a summary of the science for 2006 in a few weeks. We did that last year and found it was quite useful to a number of people. Keep and eye on our website.
It was not a big year for Atlantic hurricanes that had been predicted. That was a relief, but in fact the total number of tropical storms, if you also count the typhoon season in the Pacific, was 42, which is almost as high as 2005’s 47, and there were four category four and five typhoon with devastating effect in the Pacific. This tracks the comparison of storms before the last ten years, and storms recorded recently, in the last 15 years, and the number of very strong storms during that period.
In fact, quite interestingly, there is a developing consensus about the limit of warming that we can accept without seeing very serious and completely unpredictable consequences that the treaty that virtually all the countries of the world, over 190 countries have signed and ratified, including the United States, the Framework Convention on Climate Change, agrees that we will stop the buildup of greenhouse gases at safe levels, before they reach dangerous levels. But there’s never been an agreement of what a dangerous level was, and there hasn’t even been any explicit discussion.
Increasingly now there is an emerging consensus that we have to stop the buildup before we reach two degrees centigrade. You can see here that at one degree centigrade the consequences for different biological systems are all in the no significant effect or small impact zone, and by two degrees centigrade almost all of the biological systems are to severe impact zone. That, along with a number of other factors, has lead into an evolving consensus that a range of concentrations in the atmosphere, between 450 parts per million and 550 parts per million, is probably the limit of what we can accept, which by the way is the range that those bills with the steepest reductions aim at. That’s quite a significant change in the international discussion driven by the rapidly evolving science.
There are also some technologies on which we’re likely to see important announcements in the coming year. The most important is the alternative to corn based ethanol, cellulosic ethanol, which breaks down the basic cellulosic structure of any kind of plant matter and enables us to make food from it � make fuel from it. That can either be an enzyme based process or a heat based process. We’re very likely in the coming year to see announcements of progress in that area. The second is with regard to nanotechnology and the storage of electrical energy. It is quite possible there will be announcements about new batteries with capacity many, many times the capacity of the best existing chemical storage batteries. It looks like there may be breakthroughs on the cost of thin film solar cells that will make it possible to sell solar photo voltaic energy at prices below the prices of conventional fossil fuel energy.
And finally, the Department of Energy is likely to make � announce the selection of three sites for experimental carbon capturing and storage facilities. These are facilities that will burn coal in ways that capture the CO2 and enable it to be re-injected underground. This technology is the polio vaccine for coal. If this technology becomes viable and affordable, it enables countries like the United States and China, who between them have 1,200 coal fired power plants planned on the books to build those plans, use their coal without increasing global emissions. So this is one to watch with great attention.
One group that is in fact watching with great attention are the venture capitalists. In the words of Deep Throat: follow the money. Enormous amounts of money are flowing into green energy technologies in recent years. It’s an area that John Doerr, one of the founders of Kleiner Perkins, called the mother of all investment opportunities � bigger than the information revolution. It is pumping funds into the technologies that I just showed you and many others. On the other hand, if you were to follow the money in the U.S. budget, you would see no sign of increasing commitment to the U.S. being a leader on low carbon technologies. Our research investments have been low, have stayed low. This would be a good indicator of whether the U.S. is getting serious about addressing climate change.
Finally, one last issue to look at. There is, of course, an ongoing international process. Global warming is the product of emissions from every nation in the world. Every molecule of CO2, whether it’s North America or Asian as the same impact in the atmosphere. And the international process has been slowed down by the U.S. refusal to participate. If you look at these graphs, they’re simply the top 25 countries in terms of GDP the top 25 in terms of population and the top 25 in terms of emissions, and there’s a crucial overlap. The countries that will be decisive are the United States and China. The European Union is already a participant in the Kyoto protocol, as is Japan. The key decisions will be decisions made in Washington and Beijing, so is there much hope of action?
We certainly see evidence of continued action in Europe. The EU Commissioner Barroso recently returned the allocation schemes by nine of 10 countries that have obligations under Kyoto and told them they had to be more stringent. That will drive up the price of carbon credits on the EU exchange. In fact, this is a good indicator. If you want to see indicators of whether European investors think that they are being serious, watch the price of carbon credits on this exchange. You can just go online � what’s the website? ECX, if you just take a look at ECX from time to time, if the price is going up, the Europeans are serious, if it’s dropping precipitously, their own people don’t believe them. In fact, Chancellor Merkel has said that she wants climate change to be a focus of the G8 summit. The prime minister of Denmark recently told his government that climate change was his top priority. As I said, the key id the United States and China.
This announcement a few weeks ago was pretty stunning, that China would pass the U.S. in terms of emissions much earlier than expected: by 2009. China has given no sign that it is willing to take on limitations on its emissions. But on the other hand, in terms of per capita emissions, the United States is far ahead of China. The average American uses seven times as much energy and 12 times as much gasoline as the average Chinese. China’s fuel economy standards are far stronger than those in the United States. China has developed a set of energy efficiency measures and mandates, responding to their own priorities, not to global priorities, that are ahead of many other nations. It is developing green technology industries. And it brings us back again to the question of whether we’re going to see global climate change simply as a cost or whether this is a question of how to seize opportunities to sell the technologies that will be demanded by tomorrow’s markets. Thank you.
So I’ll be delighted to take questions or direct questions to my colleagues, Pershing and Jhirad. Yes, please.
Q: (Off mike).
MR. LASH: I would not expect the United States to enter the Kyoto protocol in its first phase. I would expect the United States, regardless of what happens in 2008 to seriously reenter the negotiations in 2009 and begin discussions of what obligations it will 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. We have an enormous interest � as soon as the United States takes on mandatory obligations domestically all of our incentives shift, and we 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.
Q: (Off mike.)
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 they 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.
Yes, there was another question over here. Yes?
Q: (Off mike.)
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. And 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, 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 agreement 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.
Pershing, do you want to add anything on that?
JONATHAN PERSHING: I probably notice two different things. The first one � just two different things on that question. The first one is with regard to this thing called the clean development mechanism. The current expenditures are on the order of $2 to $3 billion U.S., but the expectation is by 2012 we might have as much as $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.
MR. LASH: Yes.
Q: (Off mike.)
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, so I could put up a graph showing you the huge increases in the sales of hybrids. 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.
We eventually have to have a fuels discussion. The fuels discussion 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 think cellulosic ethanol within five years. I know that 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.
Q: (Off mike.)
MR. LASH: Well, one 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 difficulty financially already 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.
David, do you want to add anything on that? No?
Anything else? Yes.
Q: (Off mike.)
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 with a group who pushed strongly about the importance of climate change. He surprised us very much by saying, we understand the globe is warming; we understand that we will suffer early and serious consequences. He pointed to recent floods and storms. He said, in general, environmental problems will be a huge obstacle to Chinese development. 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 United States gets serious and when this becomes a question of moving on to the post-fossil age technologies that there will be competition in that area and the potential for agreement between the United States, 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.
David or Jonathan, anything to add on China?
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 both local power plant decision-making at the local level, in some cases cities and in some cases provinces. And that somewhat shifted the balance of these decisions. But those provinces are often extremely concerned about the local phenomenon, and this is the other comment 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.
Q: (Off mike).
MR. LASH: The decision seems likely to be made by all of those players, not just one.
DAVID JHIRAD: I think it’s important to point out that, as Jonathan said, the Chinese automobile standards are much more rigorous than ours and they’re likely to be ratcheted it up even further because the big story is the amount of oil from a hundred million plus cars in the next 15 years. And 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 the oil imports by a factor of three or four by just having high efficiency standards for automobiles and investing heavily in smaller hybrids and in mass transportation. And the Chinese are very concerned about the energy security implications of not going that route.
Q: (Off mike.)
MR. LASH: In fact, the British have led in that effort. When Gordon Brown was announcing what he expects will be his last budget as chancellor of the exchequer, there was a climate program to go with it and a significant commitment to address the problem of emissions from airlines.
The difficulty with airlines is as of now there aren’t any alternative fuels. There aren’t any alternative engines. There are just some jests that are more efficient. GE makes the most efficient jet turbine and there are some that are less efficient, so it’s a question of adjusting routes, increasing usage, and changing ground control patterns. The EU has now developed a very strong set on incentives for their airlines to make reductions, and has allocated to each airline for operations within Europe a block of emissions, free. And they can then reduce their actual emissions and trade the excess.
Since the airlines have made very few efforts to address the problem of reducing CO2 emissions, it’s expected that they’re actually going to make significant money simply by trading these allocations. The U.S., by refusing to participate, essentially refused to participate in the allocation of emissions rights and therefore ruled itself out of the trading scheme. I don’t know enough about the economics of the airline industry to know how bad a mistake that was, but surely after 2009 this is going to become a global scheme, and surely the folks at GE who want to sell their new 7E7 Dreamliner, which is the most efficient aircraft in the world, were disappointed that the U.S. wasn’t participating. That’s a big competitive advantage they have over Airbus.
Anything else? Thank you all very much and have a wonderful holiday season.