COMMITTEE ON SCIENCE U.S. HOUSE OF REPRESENTATIVES Hearing on The Road from Kyoto-Part 1: Where Are We, Where Are We Going, and How Do We Get There? Wednesday, February 4, 1998 Post-Hearing Questions and Answers Mr. David A. Smith Post-Hearing Questions Submitted by Chairman Sensenbrenner Kyoto Protocol and Worker Adjustment Assistance Is it your position that if the Kyoto Protocol were put into effect as it now stands that there would be a necessity for worker adjustment assistance, and if so, how much would this cost per worker be and who would bear the cost of such assistance? Yes. We believe worker adjustment assistance would be required as a result of climate change policies to reduce carbon emissions from industry and energy generation as required by the Kyoto Protocol. It is difficult to assign an exact cost to this assistance at this time, or to estimate the job loss or dislocation that will occur. The assistance should be sufficient to make each dislocated worker "whole." That is, for each worker it should cover maintenance of income (including benefits) until employment at the existing level of compensation is obtained, retraining and education costs, and job search and relocation assistance. A potentially significant source of funding for this support is through the auctioning of emissions permits. Unresolved Issues in the Kyoto Protocol Q2. There are many unresolved issues in the Kyoto Protocol, and many obligations and responsibilities that are ambiguous or unclear. Q2.1 In your opinion, what are the most important issues that need to be dealt with in the year ahead, and resolved in the 4th Conference of the Parties in Buenos Aires in November of this year? A2.1 Probably the most important issue is obtaining concrete, “meaningful" commitments from developing nations, in particular China, India, Indonesia, Brazil and other large non-Annex I nations, to establish emission caps, agree to a global goal and participate fully in all mechanisms designed to reduce greenhouse gas emissions. A second related issue, is how to establish, calibrate and enforce a workable global emissions trading system. A key concern, again, is that the large developing nations participate in this system, as we believe a partial system only within Annex I countries will not be sufficient. Similarly, the details of the joint implementation and clean development mechanism also need to be worked out, with clear assurances that they do not create incentives for shifting U.S. investment dollars to help offshore low-wage competitors, at the expense of U.S. jobs. Q2.2. What will be, or should be, the U.S. strategy and positions on these? A2.2. The U.S. position should be that all countries make commitments to specific emission budgets according to their development needs, but in line with the principle established by the differentiated schedules adopted by Annex I countries at Kyoto. All nations also should agree to participate in the trading system, the CDM and other mechanisms. The U.S. strategy should be to lead by example, but also work out appropriate incentives for developing nation participation that do not undercut jobs at home. Q2.3. What major decisions do you expect in Buenos Aires? A2.3. We do not have any special insights about what to expect at this meeting We would like the goals we outlined above to be achieved — i.e., full participation of developing nations in the agreement; specific agreements about the emissions trading system, joint implementation and the CDM. COMMITTEE ON SCIENCE U.S. HOUSE OF REPRESENTATIVES Hearing on The Road from Kyoto-Part 1: Where Are We, Where Are We Going, and How Do We Get There? Wednesday, February 4, 1998 Post-Hearing Questions and Answers Mr. Joseph Goffman Environmental Defense Fund Post-Hearing Questions Submitted by Chairman Sensenbrenner Market-Based Early Reduction Strategy Q1. Al. You present your market-based early reduction strategy as being voluntary in nature. If it is strictly voluntary, however, what would be the incentive to participate? Indeed, the early reduction strategy presented in EDF's testimony is strictly voluntary, thus, it depends on creating incentives for participation. To create such incentives, EDF proposes that the government award greenhouse gas (“GHG”) emissions reduction credits for GHG emissions reductions that companies achieve below a certain GHG emissions level prior to 2008. These credits then could be used by the companies that earned them to offset their compliance obligations under any GHG emissions limitation requirements to which they may be subject after 2008. The opportunity to earn such credits will act as an incentive for those businesses that determine that the ability to use such credits in the future justifies GHG-reducing activities in the near term. In EDF's view, many businesses are likely to make such a determination. For these companies, the availability of a “bank” of GHG credits earned through cost-effective actions, gives them the certainty of low-cost compliance with future emissions limitation obligations and of flexibility in integrating those obligations with their overall business activities. Those companies would also have the option of selling the credits to other firms. Q2. A2. What new legislation would be required to implement the market-based early reduction strategy described in your testimony? In order to offer companies the maximum certainty that their investments will be rewarded with GHG credits - and through that certainty, maximize the likelihood that a voluntary, incentive-reliant program will yield significant results, legislation should specify certain elementary requirements for companies seeking GHG emissions reduction credits. These would include a cumulative GHG emissions obligation against which companies' GHG emissions reductions would be “credit-able”, as well as GHG emissions quantification and reporting requirements necessary for companies to demonstrate their actual emissions performance. Unresolved Issues Q3. A3. There are many unresolved issues in the Kyoto Protocol, and many obligations and responsibilities that are ambiguous or unclear. Q3.1. In your opinion, what are the most important issues that need to be dealt with in the year ahead, and resolved in the 4th Conference of the Parties in Buenos Aires in November of this year? Q3.2. What should be the U.S. strategy and positions on these? Q3.3. What major decisions do you expect in Buenos Aires? EDF has attempted to provide a comprehensive analysis of precisely the same set of issues raised in questions 3.1 through 3.3. Rather than summarize this analysis, I am attaching two documents encompassing EDF's analysis. One is a detailed paper on the Minimum Elements necessary for a viable international GHG emissions trading regime; the other, in the form of "overheads”, is a detailed presentation “mapping" those elements against the Kyoto Protocol and a proposed agenda and strategy for the Fourth Conference of the Parties. (The attachments follow.) DRAFT -27 February 98 Minimum Elements Necessary for Effective GHG Trading: Part 1: The Five Criteria For Effective Market-Based Environmental Policy Effective market-based environmental policies must meet five minimum criteria. They are as follows: Measurement Integrity Fungibility Consistency Transparency. By measurement we mean that the emissions reductions can be quantified within a reasonable margin of error. Quantification is essential to the successful implementation of the Kyoto Protocol because the Protocol defines nations' commitments in terms of quantified reductions of total actual emissions. At the same time, since incentive programs are designed to introduce flexibility and cost-effectiveness, one increment of emissions reduction is literally exchanged for - that is, put in the place of -- another.' Before any such exchange or transaction between emissions sources can be credited for purposes of national compliance, the amounts transferred must be known. No government administrator can be expected to validate an emissions reduction for use in offsetting emissions generated elsewhere unless the amount of the reduction can be known with reasonable certainty. Integrity requires that the program be enforceable. Integrity builds upon the measurement and quantification of emissions and reductions, adding another element of environmental and financial assurance that any reductions that governments validate, are in fact legitimately equivalent to the emissions they are offsetting. In keeping with their mandates, implementing environmental authorities must focus on developing a framework which emphasizes ease of oversight backed up by serious penalties for fraud. The Kyoto Protocol assigns to each Party an amount of emissions equal to its quantified emission limitation and reduction commitment inscribed in Annex B of the Protocol. The Protocol then creates a structure for trading of three types of what may be thought of as <<emissions currencies:>> (1) portions of assigned amounts of emissions (see Arts. 3.10, 3.11 and 16bis); (2) emission reduction units resulting from projects undertaken cooperatively by and in two or more industrialized nations (see Arts. 3.10, 3.11 and 6); and (3) certified emissions reductions accruing from projects in developing nations, undertaken cooperatively by industrialized and developing nations (see Arts. 3.12 and 12). Under the Kyoto Protocol, all trading in assigned amounts and in emission reduction units must be tracked through national emissions budgets, such that any transfer of either one results in a transfer of an assigned amount (see Art. 3.11). Accordingly, this paper generally refers to transfers of assigned amounts and transfers of emissions reduction units collectively as transfers of “emissions" or "emission reductions," depending on the |