Chairman Boxer, on behalf of the 9 million members of the AFL-CIO, I want to thank you and the members of the Environment and Public Works Committee for the opportunity to testify this afternoon on America's Climate Security Act (S. 2191).

America needs an energy policy for the twenty first century that will result in a cleaner planet, greater energy efficiency and the revitalization of our manufacturing base. It is an opportunity for our nation to prove that economic development and environmental progress can and should go hand-in-hand. We believe that taking action to address global warming and energy independence are mutually reinforcing goals that are in the best interest of the nation's economic, environmental and national security.

The AFL-CIO has actively participated in various stakeholder meetings with members of both the House of Representatives and the Senate that have led to legislative proposals that the AFL-CIO and many of our affiliates have supported. We have also participated openly and honestly in the stakeholder meetings that resulted in S. 2191, America's Climate Security Act. It is our intention to continue working with the members of this committee to develop "cap-and-trade" legislation that addresses the environmental health of the planet while assuring that good paying jobs are not sacrificed to overseas competition.

The AFL-CIO takes to heart the statement in S. 2191 that this legislation should achieve its purpose "while preserving robust growth in the United States economy and avoiding the imposition of hardship on United States citizens." Today we wish to recognize the aspects of S. 2191 that the AFL-CIO supports and to offer our thoughts on how to strengthen the legislation.

Investment Portfolio

We appreciate the fact that the original draft of S. 2191 incorporated many of our investment recommendations such as the inclusion of bonus allowances to promote early technology deployment and the early auction of allowances for quick investment into research and development. We commend Senator Lieberman and Senator Warner for their original draft ofS. 2191 which made critical long term commitments to technology development and deployment with an investment portfolio that includes renewable energy supplies, appliance efficiency, biomass, advanced coal and sequestration program, and the advanced technology vehicles manufacturing incentive program.

Unfortunately, the latter two pieces of the investment portfolio were severely undermined by automobile and coal-related a mendment as adopted during the subcommittee markup. The AFL-CIa believes these amendments are counterproductive and actually undermine the technological transition this legislation is attempting to achieve. We encourage the committee to return to the original language.

Timelines and Targets

The AFL-CIO supports realistic timelines and goals for emission reduction. Weare concerned that there is a disconnect between the reduction targets and the actual development and deployment of new technology. S2191 set a 15 percent reduction of greenhouse gas emissions below 2005 levels by 2020. This is prior to the anticipated commercial availability of carbon capture and storage technologies. Similarly, renewable technologies have their own set of technology development and deployment issues that seriously call into question the ability to meet the reduction levels without drastic economic harm.

S. 2191 also requires a 70 percent national emission reduction below 2005 levels by 2050. Tpe AFL-CIO has supported a 60 percent or greater reduction by 2050 that was tied to a I>residential review of the participation of the developing nations like China, India, Brazil, etc in a global climate protection framework. We urge the Committee to also make this linkage and include five-year review requirement.

Job Creation

We believe that S. 2191 can serve a dual purpose: environmental protection and economic development. The legislation needs to make explicit the implicit economic development goals embodied in the bill's investment strategy and its stated purpose of "preserving robust growth." It is in the national interest to assure that the investment dollars generated by this legislation are reinvested in our domestic economy.

We urge the Committee to adopt language to direct the Climate Change Credit Corporation that "the financial resources of the corporation shall be dedicated to domestic investments. In addition, we suggest that "domestic economic development" be identified as a finding of Congress and that domestic investments in technology development, production and construction" be identified as a purpose of the legislation.

Cost Control and the Market System

The AFli;-CIO supports a limited market approach to cap and trade, with regulatory mechanisms that act as a price control to prevent any serious long-term damage to the economy. The Carbon Market Efficiency Board (CMEB) has a cost control mechanism, 2 but we believe its market intervention tool and its open market system work at crosspurposes.

The CMEB is empowered to take action after prolonged allowance price hikes of 180 or more days but that may be too late because firms are required to obtain and use allowances annually.. In 180 days the irreparable economic damage will already have been done. Additionally, the intervention tool allowing the issuance of "future" allowances to drop prices seems to be of limited value given how this market seems to be structured.

S. 2191' s open and "unlimited trading" of allowances and the ability to bank them in perpetuity leaves the system open to predatory and speculative trading practices and the hoarding of allowances that will fuel volatile pricing in the market. This will have a detrimental pricing impact on the public, utilities sector, and energy-intensive industries.

To address these concerns, the AFL-CIO recommends that the trading of allowances be regulated and restricted. Market participation should be limited to firms that intend to use the allowances. The banking of allowances be limited by setting a "time certain" by which they must be used or expire. These steps will help create a more certain less speculative trading environment. In addition, the CMEB market intervention timeline should be shortened and additional intervention tools considered.

International Provisions

The AFL-CIO endorses S. 2191 's inclusion of international language which will help preserve American jobs while taking an important step forward to engaging the developing world in seeking a solution to global warming. However, modest modifications to the international timeline and implementation process would strengthen this section.

Implementation can and should take place far sooner than 2020. The bill should require the President to open negotiations immediately upon enactment. Once the regulations are in place and the cap and trade program is in operation for two to three years, then the international action can be implemented. This last step should be an administrative action, not something subject to presidential waiver.

Offsets and International Allowances

We are concerned about the use of offsets and international allowances; the ability to monitor their legitimacy; and ways in which they could undermine domestic investment in industry. Under S. 2191, for up to 30 percent of the annual allowances a firm must submit be comprised of offsets (15 percent) and internationally purchased allowances (15 percent). This could prove to be a disincentive to firm investments in transformational technology.

The AFL-CIO believes that the S 2191 should either limit the use of offsets and international allowances in combination, or simply to lower the amount available. We also have a related concern over the possibility of double dipping, whereby allowances are granted for offset activity that would have been done anyway as a course of law, tax policy and/or business practice. This does not add to green house gas reduction and should be prohibited.

We look forward to working with Congress to achieve an energy policy for the twenty first century that will result in a cleaner planet, greater energy efficiency, and the revitalization of our manufacturing base.