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in this Protocol, and continued to oppose emissions limitation commitments by nonAnnex I countries. The negotiations concluded without such commitments, and the United States indicated that it will not submit the Protocol for Senate consideration—and therefore will not ratify it-until subsequent negotiations are held and meaningful commitments are made by developing countries. The next meeting of the Parties will be in November 1998 in Buenos Aires, Argentina, and may provide the first formal opportunity for this issue to be revisited, although it is not clear yet whether or how it would be put on the agenda for that meeting.

The Protocol does call on all Parties-developed and developing-to take a number of steps to formulate national and regional programs to improve "local emission factors," activity data, models, and national inventories of greenhouse gas emissions and sinks that remove these gases from the atmosphere. All Parties are also committed to formulate, publish, and update climate change mitigation and adaptation measures, and to cooperate in promotion and transfer of environmentally sound technologies and in scientific and technical research on the climate system.

Emissions Trading and Joint Implementation. Emissions trading, in which a Party included in Annex I "may transfer to, or acquire from, any other such Party emission reduction units resulting from projects aimed at reducing anthropogenic emissions by sources or enhancing anthropogenic removals by sinks of greenhouse gases" for the purpose of meeting its commitments under the treaty, is allowed and outlined in Article 6, with several provisos. Among the provisos is the requirement that such trading “shall be supplemental to domestic actions." The purpose of this proviso is to make it clear that a nation cannot entirely fulfill its responsibility to reduce domestic emissions by relying primarily on emissions trading or joint implementation to meet its targets. A number of specific issues related to the rules on how joint implementation and emissions trading will work are to be negotiated and resolved in subsequent meetings, as these issues are clarified and identified. In the months since the Protocol was completed, it has become increasingly clear that this is an extremely complex issue, and an emissions trading system is not likely to be designed and implemented quickly.

A major development is the establishment of a “clean development mechanism" (CDM), through which joint implementation between developed and developing countries would occur. The United States had pushed hard for joint implementation, and early proposals were formulated with the expectation that "JI" projects would be primarily bilateral. Instead, negotiations resulted in agreement to establish the clean development mechanism to which developed Annex I countries can contribute financially, and developing non-Annex I countries can benefit from financing for approved project activities; Annex I countries can then use certified emission reductions from such projects to contribute to their compliance with part of their emission limitation commitment. Emissions reductions achieved through this mechanism can begin in the year 2000 to count toward compliance in the first commitment period (2008-2012). Again, proposals on how this mechanism will operate will be developed and, presumably, discussed at the November 1998 Conference of the Parties. Like emissions trading, making the CDM operational appears likely to be a protracted and difficult process, given the increasing number of complexities emerging from the on-going work and discussions on how the

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Issues for Congress

Ratification. For the United States to ratify the Protocol, the treaty must be submitted to the U.S. Senate for advice and consent. Ratification requires a two-thirds majority vote in the Senate for approval. Unless the United States ratifies the treaty, it will not be subject to its terms and obligations. President Clinton has voiced strong support for the Kyoto Protocol, and the United States is expected to sign it, although it is not clear when. However, in recognition of the opposition expressed in the Senate by S.Res.98, which passed 95-0, to a Protocol that does not include requirements for emissions limitations by developing countries, the President has indicated that he will not submit the treaty to the Senate for advice and consent until additional negotiations have provided for meaningful developing country participation. The next Conference of the Parties that would offer an opportunity to make such provisions will be in November 1998 in Buenos Aires. Thus it seems unlikely that the treaty will be submitted to the Senate until after that time.

Oversight. Both the House and Senate sent delegations of Members to serve as observers on the U.S. delegation to the Kyoto meeting. Supporters and opponents of the Protocol were included in these delegations. A number of committees have held hearings on the implications of the Protocol for the United States, its economy, energy prices, impacts on climate change, and other related issues. While the Administration has stated that it believes the treaty can be implemented without harm to the U.S. economy, and without imposing additional taxes, a number of questions related to how its goals can be achieved are likely to arise in hearings during the year ahead.

Legislation. When a treaty is sent to the Senate for consideration, legislation that might be required for its implementation is also typically sent to the Congress. Such legislation is not likely in the near future, certainly not until the end of 1998, or until the treaty is sent to the Senate. However, the President's proposal on climate change, announced in October, included, among other things, a $5 billion package of tax credits and spending on research and development over 5 years to encourage energy efficiency and development of new lower emission technologies. In the President's budget proposals, he offered an initiative over multiple years of $6.3 billion dollars for research and development and some possible tax incentives. A number of legislative proposals including bills, resolutions, and provisions in several appropriations bills-express concerns related to the Kyoto Protocol. Many of these would limit activities of the U.S. government that might be seen to advance the goals of the Kyoto Protocol prior to its consideration by the Senate."

'Congressional hearings are discussed in the CRS electronic briefing book on Global Climate Change at http://thomas.loc.gov/brbk/html/ebgcccon.html

'See CRS Issue Brief 89005: Global Climate Change. Another source for a listing of legislation and its status, and other information about the Kyoto Protocol and other climate change concerns and reports, is the CRS electronic briefing book on Global Climate Change on the CRS Home Page at: http://thomas.loc.gov/brbk/html/ebgcctop.html

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EXECUTIVE SUMMARY

I. INTRODUCTION

II. KEY ATTRIBUTES OF ENVIRONMENTALLY AND
ECONOMICALLY EFFECTIVE EMISSIONS TRADING
MARKETS

III. EMISSIONS TRADING UNDER THE KYOTO
PROTOCOL: A PATHWAY TO CREDIBILITY AND
SUCCESSFUL IMPLEMENTATION

A.The Emissions Trading Framework in the Kyoto Protocol
B. Actual Emissions Performance: The Basis of Accountability

C. Matching Accountability With Flexibility: Cumulative Multi-Year
Commitments

D. Matching Accountability With Flexibility: The Role of Emissions
"Savings"

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E. Matching Accountability With Flexibility: International Emissions
Trading

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F. Broadening Participation: The Role of the Clean Development
Mechanism

G. The Importance Of Cost Savings

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IV. THE MECHANICS OF EMISSIONS TRADING
UNDER THE PROTOCOL: FOCUS ON

ENVIRONMENTAL PERFORMANCE AND

ACCOUNTABILITY

A. The U.S. Acid Rain Program: An Example

B. The Mechanics of Annex B Emissions Trading: Focus on
Assigned Amounts and Actual Emissions

C. Trading Under Article 6

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1. Project Baselines and “Additionality": A Matter of Sovereign Discretion 2. Project-Based Trading Under Article 6: One Option for Emissions Trading..

D. Trading under the Clean Development Mechanism: Early Start and "Additionality"

1. The Importance of Early Action

2. “Additionality” and Baselines: Focusing on Actual Emissions

3. "Leakage" and "Loopholes"

4. "Financial Additionality": Not An Appropriate Test

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V. THE RULES FOR ACCOUNTABILITY UNDER
ARTICLE 17: TOOLS FOR ASSURING THE
INTEGRITY OF THE KYOTO PROTOCOL

A. Compliance “True-Up"

B. Automatic Deduction

C. Making the Environment Whole: Repaying The Atmospheric Debt
D. Tracking Compliance within the Commitment Period

VI. THE ROLE OF ARTICLE 17 ACCOUNTABILITY

FOR EMISSIONS TRADING IN THE WIDER

CONTEXT OF PARTY NONCOMPLIANCE:

CREATING INCENTIVES FOR SOVEREIGN
COMPLIANCE

A. Automatic Deduction

B. The Discount ..

C. Prohibiting Sales and Transfers

VII. A COMPREHENSIVE REPORTING SYSTEM

FOR EMISSIONS PERFORMANCE AND TRADING
A. Measurement and Reporting: Vintaging

B. Reporting and Tracking of Trading

C. Reporting and Accountability

VIII. MEASUREMENT and QUANTIFICATION

IX. DOMESTIC ACTIONS: INSTITUTION-BUILDING
AND EARLY ACTION STRATEGIES

Meeting the Initial Challenge: A Market Mechanism to Spur
Reductions and Jump-Start the Emissions Trading Market
X. ISSUES IN CONFLICT

A. Cap on Trading: "Supplementarity”

B. Emissions Trading and Economies in Transition

C. "Forward Sales”: Trading Without Rules?

XI. CONCLUSION

BACKGROUND NOTE

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