Climate Change: What is the Role of the United States?
Ambassador William R. Timken, Jr.

 

Harvard Club Meeting, Frankfurt, August 1, 2007.

As prepared for delivery.

It is a pleasure to join this meeting of the Harvard Alumni Association.  I myself am a member of the Harvard MBA Class of 1962.  I am the first American Ambassador to Germany with an MBA, working for the first President with a Harvard MBA.   At the Timken Company and through my involvement with a number of national and international trade organizations, I have had 43 years of hands-on experience in markets and economies around the world.  My experience as Ambassador for the past two years has reinforced my belief that an understanding of business needs is an essential element of international diplomacy.  Business knows what policies are good for the economy.

 

Chancellor Merkel and President Bush speak frequently.  I have sat in on most of their meetings.  They both agree that pooling the strengths of the world’s strongest economies is one of the most effective ways to address the economic and political challenges we face globally – and one of the surest ways to create good jobs at home as well as in developing countries.   Transatlantic trade and investment fuels the engines of the world's economy.  It leads to tangible benefits – jobs, goods, new ideas – for people around the world.

 

One of the main achievements of the German EU presidency was the new framework agreement on economic integration between the United States and the European Union.  With more than three billion dollars a day in trade, services and investment crossing the Atlantic every single day, something is obviously already going very right in the transatlantic partnership.  But those numbers underline the need for increased cooperation.  Fourteen million jobs depend directly on transatlantic trade.  

 

By reducing trade and regulatory barriers between our dynamic economies, there will be more growth and more innovation.  That same concept underlies the new consensus that is developing around climate change and energy related issues.   Energy security and environmental security are at the top of the foreign policy, economic policy and national security agendas of almost all countries.  The 21^st century paradigm for energy security is defined by secure supply, environmental responsibility and an emphasis on technology and innovation. Free, open and competitive markets for energy trade and investment are critical to solving our energy challenges.   

 

I am frequently asked what the United States is doing about climate change.  Well, we are doing a lot – much more than we are given credit for.   Since 2001, we have invested 30 billion dollars in clean energy technology.  That’s more than any other nation in the world.  In 2002, President Bush established a goal to reduce our greenhouse gas emissions intensity by 18 percent by 2012.  We are ahead of our target.

 

We have the results to back up the five broad goals that define U.S. energy policy.  Those goals are:

-            First, we need to diversify the available supply of conventional fuels and expand production.

-            Second, we have to expand the diversity of our energy portfolio and expand the growth and penetration of alternative technologies.

-            Third, we have to promote energy efficiency. The next best source of energy is the one we currently waste.

-            Fourth, we have to improve the earth’s environment. We need to reduce pollution, and to improve our environmental stewardship in a more expedited manner.

-            Finally, we have to maintain a global energy supply system.   Delivering energy resources is as important as finding them.

 

The bottom line, however, is that it does not matter what one country does alone.  It matters what we do together.  Actions speak louder than words.   That is the message that we have been taking to our partners around the world.  We are using every opportunity to advance this message, whether at the level of the G8, the UN, the U.S.-EU, the International Energy Agency, the International Atomic Energy Agency, the World Energy Council’s International Energy Forum,  the Asia Pacific Economic Cooperation group of countries, the Strategic Economic Dialogue that we have initiated with China, and other bilateral discussions.  This year we have already or will highlight our proposals on energy and climate change at meetings of all these organizations.  It’s paying off.  

We are seeing a new action-oriented and forward-looking consensus on climate change and energy security.  The two issues are completely intertwined.  You cannot say energy security comes first, and the environment second -- or vice versa.  If we do one at the expense of the other, the costs will be too great over the long term.   

 

There are a variety of tools that governments and the private sector can use to produce results.  The key drivers behind all of them are investment and technology.   As any Harvard business school grad will tell you:  Investment only flourishes where stable regulatory frameworks, open investment climates, adherence to the rule of law, and market-based pricing of energy resources are in place.  In my opinion, that’s the bottom line.  We all know there’s no one silver bullet technology or policy.  The fundamental question regarding the energy challenge is whether we will have the capital flows required to unlock new energy resources and carry the innovation cycle forward.

 

Over the long term, there are going to be huge research projects that no one country, including the United States, will be able to afford to do on their own.  For example, clean coal capture and storage sequestration are big ticket investments that have broad application.  It’s incumbent upon all of us to do the research together and share the results. 

 

Alternative technologies can only be implemented when they are cost-competitive.  We know certain technologies work, but we can’t get them out into the marketplace.  How can we close that gap?  On a short term basis,   Government can buy down the costs of these technologies so they actually become available to the market place.  

That poses an enormous opportunity for emerging economies.  They have the advantage of technology that can help them leapfrog into an advanced energy economy.  It also poses short-term challenges because clean energy costs more.  Energy projects are very complex. They’re both labor and capital intensive.  They can take a long time before they can be implemented but the investment in these projects needs to happen now.  Those countries need to take a proactive stance and create the conditions that will be attractive for investors.

 

In the industrialized world, there are other challenges.  Diversification requires not only infrastructure investments but also adjustments.  For example, there is a great need to have more liquefied natural gas in the U.S., yet it’s extremely difficult to get communities to accept an LNG terminal.  People want to see more use of wind in the U.S., but not in their backyard.   We will need to conquer not only NIMBYism, but also BANANA -- build absolutely nothing anywhere near me.  We want to be able to turn on the lights, but nobody wants to see where it comes from.

Finally, I think the most important thing to remember is that there is not a one-size-fits-all approach when it comes to both climate change and energy security.  There’s not a cookie cutter approach that can be decided in Bali, in Brussels, St. Petersburg, or in Tokyo.  We certainly can’t decide that in Washington. We have to allow countries to decide according to their own national circumstances, recognizing differences in geography, local economies, and demographics.  

 

President Bush’s plan to bring together the world’s largest economies to find a way to get a post-Kyoto framework in place by the end of next year met with approval among G8 leaders in Heiligendamm.  That means that we could actually have an agreement among the countries that comprise roughly 90 percent of the world’s emissions about how to move forward.  China and India have to be at the table if we’re ever going to make a dent in climate change.  They cannot be exempt from this new architecture.   Participation will not hamper their economic growth.   Actually it will allow them to excel -- but not at the expense of the world’s environment. 

 

If each country establishes a program to be reviewed by the 15 peers on a yearly basis to see if they are adhering to the programs and the goals they have set out, it will be a very powerful step forward in addressing global climate change.  Those same principles of “pledge and review” that President Bush brought to the table at the G8 Summit are being addressed at other international discussions about the responsibilities required of a responsible stakeholder in the international energy market.   In the last 10 years, each of the major developed countries has established a very substantial portfolio of energy and climate change initiatives.   We have a very firm foundation for what can be achieved, in terms of both technology and investment.  We must be successful with these efforts. 

 

What most of the politicians are failing to tell their constituents is that all the proposals and commitments on climate change which they propose will increase the cost of energy to our economies.  That means each individuals’ standard of living will be reduced.  How responsibly governments work with the private sector will determine how much our standard of living will be reduced.

 

You have probably all heard the expression:  you can’t see the forest for the trees.  Just as I don’t believe enough credit is given to the U.S. record on energy and environment, I also do not believe that most people are aware of the enormous amount of common action --especially between Europe and the United States -- that has taken place in the last five years in this area.  Together we have made strong commitments on power generation, on alternative fuels, on efficiency, on technology advancement and transfer, common standards.  More important, we have lived up to those commitments.  This is the real stuff that delivers results. We're going to be building on that experience toward achieving a long-term vision that will allow the world to meet the energy challenges of the future.