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6 CityPlace Drive Creve Coeur, MO 63141 (314) 656-5300 (314) 787-6163 fax Smurfit-Stone Position on Climate Change Introduction: Climate change is a global scale environmental issue. Many in the scientific and political communities support the theory that greenhouse gasses (“GHG”) released contribute to global climate change. Although natural processes release GHG, it is the increase in human generated sources of GHG, primarily carbon dioxide (“CO2”) resulting from the burning of fossil fuels such as gasoline, diesel fuel and coal, since the start of the industrial revolution that many have predicted will cause catastrophic global human and economic impacts. Multiple federal, state, provincial and local initiatives have been developed to reduce the emissions of GHG. Since fossil fuels are the main human contributor to GHG emissions, any initiative that deals with fossil fuels or other energy sources is linked to climate change. State or regional Renewable Portfolio Standards (“RPS”) attempt to encourage the use of alternatives to fossil fuels. Wood is a fuel which is both renewable and not a contributor to GHG emissions. As a result, wood is generally promoted in RPS proposals. Frequently, RPS proposals offer incentives such as subsidies and tax credits to encourage large fossil fuel consumers to switch to renewable, non-CO2 emitting fuels such as wood. Other initiatives such as tax bills and energy efficiency legislation are often structured to encourage the reduction of the use of fossil fuels or replacing coal with natural gas which emits less CO2. Unfortunately, these initiatives are being considered without an overall energy policy that stresses the development of natural gas, nuclear and other sources of low/non-CO2 emitting energy. Potential Impacts: The economic and other impacts of mandating GHG reductions or encouraging the use of wood or other biomass fuels are likely to be far reaching. Because various legislative proposals aimed at reducing GHG emissions are still largely under development, the specific impacts to Smurfit-Stone and the pulp and paper industry are difficult to predict as any single variable can vastly alter the scope of such impacts considerably. For example, a study done by National Economic Research Associates (“NERA”) suggests that under a moderate approach to GHG regulation, the overall net present value costs to the industry could be $3.3 billion for higher wood prices and $2.5 billion for higher electricity prices. Additionally, the use of an auction versus and allocation approach to a GHG emission cap and trade system could add another $6 billion in costs for the pulp and paper industry. Smurfit-Stone GHG Reduction Efforts: In addition to reducing greenhouse emissions to 1990 emission rates as reported by EPA on February 22, 2008, U.S. industry and the U.S. pulp and paper industry in particular has made great strides in reducing GHG emissions. Consistent with our core value of environmental responsibility, Smurfit-Stone has taken early, voluntary steps to use less fossil fuel and further reduce emissions of CO2 from its operations. Smurfit-Stone has reduced the burning of fossil fuels by over 20% since 1998. Smurfit-Stone has already met its 2010 Phase I and 2 reduction obligations for Chicago Climate Exchange (“CCX”) members (6% since the baseline from 1998-2001). AF&PA member companies expect to meet their voluntary DOE Climate Vision Program goal of reducing GHG intensity by 12% over 2000 levels by 2012. Through its collection of waste paper, Smurfit-Stone prevented the release of an estimated 6.6 million tons of CO2 equivalents from landfills. Position on Climate Change, RPS or Other Energy Related Legislation: Any legislation requiring GHG reductions or encouraging the use of alternative fuels must be considered in the context of a broader U.S. energy policy and must address the availability and cost of natural gas and other sources of energy. It should also provide incentives and support for the development and use of technologies that reduce GHG emissions and increase energy efficiency. We believe that a voluntary approach to reducing GHG emissions in the U.S. would be efficient and effective; however, we recognize there is a push at both the federal and state levels for a mandatory approach to GHG emissions reductions. In our view, any mandatory GHG reduction approach must have at least the following key attributes. o Multiple Economic Sectors. According to EPA, the U.S. industrial sector has presently reduced its GHG emissions to roughly 1990 levels, the target year for the Kyoto treaty. During the same time period other sectors of the U.S. economy grew their GHG emissions by as much as 34%. Any mandatory GHG reduction legislation must incorporate emission reduction strategies for multiple sectors of the economy applying the most efficient regulatory tool suitable for each sector. o International Competition. U.S. climate change legislation must not place U.S. Industry at a disadvantage with competing industries in (Kyoto treaty) countries which have failed to reduce their GHG emissions below the 1990 levels that U.S Industry has already achieved. It must not have an anti-competitive effect on U.S. manufacturers, and must not be used as revenue generation mechanism by governmental authorities. Legislation must incorporate process for periodic review and correction for competition from countries that are not requiring similar GHG emission reductions. Trade sanctions or other free trade penalties should not be incorporated in an effort to counter the inherent anti-competitive impact of the legislation. o Cap and Trade. If a cap and trade is used, it must give allowances to the industrial sector rather that auctioning credits and allow for a phase-in of caps to permit capital investments and technology advancement. The cap should be structured to be inversely proportional to the increase in CO2 emissions from the U.S. economic sectors so as not to penalize the industrial sector for the growth in the emissions of the other sectors. It must also include mechanisms to prevent economic hardship for program participants. Further, it must allow for use of national and international credits, and give credit for activities that prevent GHG emissions, including carbon sequestration in paper products. o Biomass. It must retain the internationally-recognized principle of carbon neutrality for biomass fuels. However, biomass must be used efficiently with consideration to conservation and sustainability of the resource and the carbon sequestration impacts of each use. Furthermore, we are opposed to any incentives or subsidies that would divert biomass from its most economically productive or environmentally conservative use simply to meet a mandate where other fuels could be used. o Energy Efficiency. It must provide for recognition of operations that already use energy efficient technology such as combined heat and power (“CHP”) in addition to those that install similar technology once the legislation is passed to avoid inadvertently penalizing those companies with the foresight to install the technology without the benefit of subsidies or other incentives. o Primacy. It must be a national program that establishes minimum, uniform national standards so that business can make capital and other planning decisions, but it also must recognize the ability of states to carry out requirements established in harmony with the federal program. States are in the best position to inventory their biomass resources and establish programs to manage those resources in a manner that is sustainable and most beneficial to the locality in which the resource resides. o Early Reduction Credits. It must recognize and give credit for early GHG reductions, including those made under voluntary programs such as Climate Vision and CCX. o Simplified Protocols. It must encompass simple, streamlined GHG accounting and reporting protocols based on internationally recognized principles that are currently in use. Industrial sector-based regulatory strategies must be avoided as overly complex and unnecessarily restrictive to emissions trading.