Statement of Jason Grumet

Tuesday, April 6, 2004

I want to thank Chairman Domenici, Senator Bingaman, and all the Committee members for holding this important conference. A careful review of the comments from industry and others indicate a center of gravity is forming on many of the key questions posed by the Committee.

The National Commission on Energy Policy (NCEP) concurs with the bulk of the comments that advocate an economy-wide program. The generally stated preference for an economy-wide approach to domestic greenhouse gas reductions is noteworthy in that it differs from the EU program which only requires reductions from large stationary sources. The chance to learn from the experiences in Europe is a significant opportunity for domestic policy design.

To achieve the desired program coverage, many respondents note that it is preferable to impose the regulatory burden "upstream" on a small number of sources high in the energy chain. NCEP believes that either a fully upstream approach or a so-called hybrid model upstream for oil and gas and at the point of combustion for electric utilities deserve the bulk of Congressional focus.

Allocating emission permits may pose the greatest political challenge to adopting a market-based greenhouse gas reduction program. It is critical to understand that ultimate decisions regarding permit allocation and point of regulation do not affect overall program costs. The Energy Information Administration conclusion in it's April 2005 report that the NCEP proposal would have "no material effect" on the U.S. economy remains the best assessment of the costs of the NCEP proposal.

Deciding how to allocate emission permits at the outset of a trading program has considerable implications for the distribution of burdens and overall program fairness. NCEP believes that the most equitable and politically viable way to initiate a market-based reduction program is to grant free allowances to those who will bear the primary costs of program compliance.

It is increasingly clear that an analytical consensus on the major design elements of any mandatory market system is within reach. NCEP is encouraged that this burgeoning technical consensus will help to forge the political consensus necessary for decisive near-term action.