Testimony: The U.S. Intended Nationally Determined Contribution to the United Nations Framework Convention on Climate Change: Is there a Better Path Forward?

WASHINGTON, DC - April 15, 2015 - Dr. Margo Thorning testifies before the Committee on Science, Space and Technology of the U.S. House of Representatives in the Rayburn Building 2318.

By Margo Thorning, Ph.D.

Senior Vice President and Chief Economist American Council for Capital Formation Before the Committee on Science, Space and Technology U.S. House of Representatives

Executive Summary

Questions about the U.S. INDC: The U.S. submission to the UNFCCC leaves many questions unanswered. First, how likely are developing economies like China, India, and Brazil, whose emissions are growing rapidly, to implement strong measures to reduce fossil fuel use? Second, reaching the Administration’s previous target of reducing CO2 emissions to 17 below 2005 levels by 2020 seems unlikely to be achieved, how will we reach the new tighter INDC target of 26-28 percent reduction below 2005 levels by 2025? Third, how will the various regulatory measures described in the INDC to reduce U.S. CO2 emissions, which are already in place or in the planning stage, be implemented and what will their impact be on our economy?

Trends in Global Energy Use: The IEA’s WEO 2014 states that global energy demand will grow by 37 percent by 2040.How likely are developing countries like China and India to adopt strong measures to curb energy use and switch away from fossil fuels to more expensive renewables? Developing countries will likely continue to add natural gas and LNG to their energy portfolios along with nuclear power in an effort to reduce particulate emissions from coal and biomass but the strongest driver for these countries will be the need for energy for economic growth, not CO2 reductions.

Economic Impact of INDC Policies: A key part of the INDC is EPA’s Clean Power Plan; a NERA study shows that the present values in 2014 of extra spending on energy incurred over the 2017-2031 ranges from $366 billion to $479 billion. Global CO2 emission forecasts suggest that developing countries will continue to be the major source of growth over the next 25 years and that reducing U.S. CO2 emission growth will make little difference to global GHG concentrations.

Strengthening the U.S. Economy and Slowing Growth of CO2 Emissions: Several policies could help strengthen the U.S. economy as well as slowing global CO2 emission growth. Federal tax reform which allows expensing for all new investment would stimulate economic growth and pull through cleaner less emitting technology. Encouraging the export of U.S. LNG and clean coal technology to developing countries would strengthen the economy and slow the growth of global emissions. The consistent use of cost/benefit analysis to review existing regulations and analyze proposed regulations would also strengthen the economy.

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