Unilateral Versus Multilateral Actions to Reduce Greenhouse Gas Emissions Q3. A3. On the one hand, your testimony implies opposition to any binding international agreement, because such agreements would cede a degree of U.S. sovereignty to some international body. On the other hand, you also seem to reject he idea of the U.S. taking action on its own, referring to that as “unilateral economic disarmament." What is the Global Climate Coalition's view about unilateral versus multilateral actions to reduce greenhouse gas emissions? Should there be a requirement to reduce greenhouse gases whether that requirement be a mandatory target (as provided in the yet to be ratified Kyoto Protocol) or a voluntary aim (such as is included in the original 1992 Framework Convention on Climate Change) nations should have the flexibility to take actions that are best suited for their individual economic, social and political structures. The GCC opposes "common" policies and measures, as does the US government. In this sense, actions should be unilateral. However, GCC would support bilateral or multilateral actions such as that envisioned by Joint Implementation or the Clean Development Mechanism. When GCC stated that we oppose the Kyoto Protocol because such an agreement would cede a degree of US sovereignty we were referring to the fact that when an international body, such as the Conference of the Parties to the Convention, is given the authority to determine specific emissions targets for the United States, that body in essence is determining basic directions for US energy policy and thus for US economic policies. Kyoto Protocol Entry Into Force in the Absence of U.S. Senate Ratification Q4. A4. In your view, is it likely that the Kyoto treaty will enter into force if it is not ratified by the U.S. Senate? It is certainly possible that the Kyoto Protocol could enter into force without ratification by the United States. The Protocol enters into force 90 days after two conditions are met: a) at least 55 parties to the Framework Convention on Climate Change have ratifies, accepted or acceded to the Protocol; AND b) the Developed country parties that ratify represent at least 55 percent of the total carbon dioxide emissions of all developed countries in 1990. The United States emissions totaled 36.1% of developed country parties in 1990. Thus, the protocol can enter into force if the United States does not ratify the agreement. However, as emissions from Russia totaled 17.4% Russia would have to ratify for this As a practical matter WOULD there be a sufficient number of countries without the United States? It is doubtful as some nations will most likely wait for the US to ratify before doing so themselves. Acid Rain Emissions Trading Program Q5. A5. Mr. Goffman of the Environmental Defense Fund testified that the acid rain emissions trading program has been very successful in minimizing costs, but you state that “the jury is still out.” Q5.1 Could you elaborate on your reservations about the SO2 emissions trading program? Q5.2 Does the Global Climate Coalition believe that there was a more efficient way to reduce SO2 emissions? The costs of compliance with the SO2 reduction requirements of the Clean Air Act Amendments of 1990 have been lower than was anticipated before the Act was passed. Without a doubt the SO2 emissions trading program has been a factor, but not the only factor. The trading system has been joined by lower than expected costs of coal transportation a ready capability of utilities to switch from high sulfur to low sulfur coal to mean lower total compliance cost. The SO2 program, while ambitious, is relatively simple when compared to trading program that includes even one greenhouse gas CO2. The SO2 program is a domestic program with a limited number of participants and only a few hundred sources. The program allows for early banking of allowances during phase one for use in phase two after 2000. Due to this there has been an abundance of allowances that has diluted the market price for allowances to date. It is also important to note that the financial and regulatory institutions existed and were accepted by the players in the system before the trading market was developed. This is not the case for an international emissions trading system where many of the players do not even know what a market is, let alone how to function within such a structure. While the SO2 program has enjoyed relative success during the Phase One of the program, there are some significant challenges ahead and this is why the "jury is still out." These issues are beginning to surface, as the beginning date of Phase Two grows closer. First, the potential performance of the market during Phase Two is in question. The market price for allowances has recently begun to rise and it is uncertain how the introduction of lower emission targets will influence the market and the market price. In fact during the first part of 1998 the price of allowances for Phase Two rose by more than 50%. There are many unanswered questions regarding market liquidity, future price reductions in scrubber technology, the future of nuclear and hydroelectric generation capacity and the implications on generation by electric utility industry restructuring. All hold the potential to influence the market. Secondly, the continued regulatory pressure by EPA for SO2 reductions beyond that required in the Clean Air Act, along with proposed regulations to control other emissions such as NO, and particulates which have the effect of changing the rules in the middle of the game, may have an effect on the availability and the price of allowances. The Committee also asked if the GCC believed that there is a more efficient way to reduce SO2 emissions. Although individual members of the GCC may have a position, or opinions, on this question the GCC does not address issues regarding the reduction of SO2 emissions. Kyoto Protocol Emissions Trading Scheme Q6. The emissions trading scheme in the Kyoto Protocol is not scheduled to actually begin until 2008. Why isn't that enough time to resolve all of the logistical and procedural concerns you have raised? A6. If the United States alone were to be responsible for designing and implementing an international trading system including all rules, enforcement procedures and determining institutional arrangements it would be just possible that the system could be in place and working before 2008. However, at this point there is only an outline, just the suggestion that trading can be one of the ways to reduce emissions. There are no rules. There is no agreement on the amount of an obligation that can be meet with trading. There is no accepted means of measuring emissions and giving them the property right that is necessary to trade on an exchange, there is no agreement on liability if a trade is made but the underlying commodity (the emissions reduction) does not exist. There is no enforcement procedure agreed. All these and other very important considerations must be negotiated by 160 countries most of whom are not familiar with the market system -before trading can commence. It is, in our view, virtually impossible to gain the acceptance and understanding that would be required on an international basis and then to negotiate and put in place an international system before 2008. At this point even the definition of the word “supplementary” is in question – how much of a countries reduction obligation can be met by trading or with a combination of trading and credits generated from projects under the Clean Development Mechanism. The United States believes that flexibility should be complete - if necessary all of the obligation could be met with credits generated this way. On the other hand other countries, including those of the European Union believe that less than 50 percent can be met with trading. This is the first hurdle to cross. Yet another vital question to ask - what legal entity has final responsibility for the quality of reductions, companies or countries? Will it be different between countries and if so Finally, to be truly effective a trading system must be global. The trading system included in the Protocol applies to developed countries only. These countries will not assume obligations to even reduce the rate of growth in emissions before 2008. Unresolved Issues in the Kyoto Protocol Q7. A7. There are many unresolved issues in the Kyoto Protocol, and many obligations and responsibilities that are ambiguous or unclear. Q7.1 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? Q7.2 What should be the U.S. strategy and positions on these? Q7.3 What major decisions do you expect in Buenos Aires? Two of the most important issues to discuss at COP4 – of the literally hundreds of issues that must be resolved before the Protocol goes into effect - if it does - are participation of developing countries and the way that the market mechanisms, ie trading and the Clean Development Mechanism, should operate. The developing countries do not wish to discuss any commitments on their part. Due to the complexity of international emissions trading and Clean Development Mechanism concepts, much negotiation will be required before even a schedule to discuss the various issues at hand much less resolution. These complex issues cannot be decided in a two week period, unless one expects "halfdecisions" that are ill thought out and non-workable. For these and other reasons, we do not expect any firm decisions on any issue of importance at COP4 in November 1998. |