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Environmental Security provided guidance to the delegation as we considered this issue. In the end, the Parties took a decision to exempt key overseas military activities from emissions targets, including exemptions for "bunker fuels" (those used in international aviation and maritime transport) and for emissions resulting from a wide range of multilateral operations, such as peacekeeping and humanitarian relief. This exempts from our national targets not only multilateral operations expressly authorized by the U.N. Security Council (such as Desert Storm or Bosnia), but also multilateral operations that the United States initiates pursuant to the U.N. Charter without express authorization (such as Grenada). Countries may also decide among themselves how to account for emissions relating to multilateral operations (e.g., U.S. training in another NATO country) without going through emissions trading. If any other measures to preserve our national security interests are required, and there do not appear to be any, they can be addressed through future implementing legislation. As Secretary of Defense Cohen wrote in a letter of February 24, 1998, to Congressperson Bachus, "Based on achieving our international objectives, the Department is fully satisfied with the Kyoto results."

Second, it has been suggested that the Protocol will create a super U.N. Secretariat that will threaten U.S. sovereignty and national decision-making through alleged intrusive verification procedures and prior approval of individual emissions trades. That is not so. The review process contained in the Protocol largely codifies the existing practice under the 1992 Framework Convention, to which the United States is a Party. Under the Protocol, small expert review teams will continue to visit Annex I countries for brief periods to review implementation of the Convention and of the Protocol. The review process is intergovernmental, in that experts are nominated by governments. The review teams meet with government officials, and with others by invitation. In reviews under the Convention, the teams have met with Congressional staff, representatives of the private sector and representatives of environmental organizations - but only with their concurrence. Any other visits, such as site visits, would take place only if approved by the host country and, if the private sector is involved, the relevant interested persons. It is important to emphasize that no one can come onto the private property of a U.S. citizen without that individual's express approval and consent. To date under the Convention, no site visits have taken place.

In addition, let me be unmistakably clear - while trading rules must be established internationally to have emissions trading work - as our SEC must set rules for equity trading - we will not accept nor do we anticipate an approach that would require prior approval of individual emissions trades by an international body. Trading will be done between interested nations and their companies, based on market principles.

Concerns have also been raised that the Protocol is flawed, on the one hand because it will threaten U.S. sovereignty by dictating national decisions on implementation and, on the other hand, because it lacks mechanisms to verify compliance. In fact we believe that the Protocol strikes an appropriate balance between

The United States firmly opposed mandatory, harmonized policies and measures that would be imposed upon us in order to reach our target. We prevailed. The Protocol leaves Parties entirely free to decide how best to meet their targets based on national circumstances.

At the same time, we could not tolerate a free-for-all where Parties might or might not meet their commitments, particularly given the conscientious way the United States meets its international obligations. As a result, the Protocol calls for national measurement of emissions, detailed reporting, and in-depth reviews on an intergovernmental basis.

The one area where we believe more work needs to be done is in identifying appropriate consequences for non-compliance; the Protocol provides for elaborating such consequences, with any binding consequences to be done in amendment form, so that the Senate would have the opportunity to approve them.

Finally, some have suggested that the Protocol will result in a huge government transfer of foreign aid to Russia in which we will give away taxpayer money with no leverage on Russian policies with these funds. This also is not true. Under the Protocol's emissions trading provisions, we envision that U.S. private sector firms may choose to purchase international emissions credits in order to meet their emissions obligations. Indeed, the private purchase of emissions credits is one of the crucial ways to achieve cost-effective emissions reductions for U.S. firms.

As with any market transaction, purchases of these credits will have to comply with all U.S. legal and regulatory requirements. In addition, U.S. firms interested in international investment will have an incentive to ensure that other countries meet the international standards for adequate monitoring and reporting of their emissions of greenhouse gases. At the same time, Russia will have significant incentives to use the revenue generated to invest in the most modern, climate-friendly plants and equipment so that, as its economy recovers, it continues to produce emissions credits that it can sell on international markets.

Framework for Action

Where do we go from here? While historic, the Kyoto Protocol is only one step in a long process. It is, in essence, a framework for action, a work in progress, and a number of challenges still lie ahead. We anticipate signing the Protocol within the oneyear period provided for in the agreement, which runs from March 1998 to March 1999. We have not, as yet, determined the precise timing due to tactical considerations. We

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In that diplomatic context, rules and procedures must be adopted to ensure that emissions trading rights, joint implementation and the Clean Development Mechanism operate efficiently and smoothly. The Kyoto Protocol establishes emissions trading, but leaves open the specifics of operations. We will work hard to ensure that the rules and procedures adopted enable emissions trading, joint implementation and the Clean Development Mechanism to work smoothly and efficiently, thereby encouraging the private sector to engage.

We will also work closely with our industries to be sure they are satisfied that the emissions trading system which is developed is as efficient and effective as possible to meet their needs.

Most significant, we must work to secure the meaningful participation of key developing countries. We must be creative in initiating bilateral agreements. We have made a promising start with an agreement we reached with China during last fall's Summit. We must also use regional and multilateral fora to achieve our objectives -such as the Summit of the Americas process, in the Asian Partnership for Economic Cooperation (APEC) process, the President's forthcoming trip to Africa, and the G-8 Summit in the United Kingdom. We will put on a full court diplomatic press to bring developing nations into a meaningful role in helping solve the global climate challenge. We will accept nothing less, nor would we expect the United States Senate to do so As the President has indicated, the United States should not assume binding obligations under the Protocol until key developing countries meaningfully participate in meeting the challenge of climate change. Although the Kyoto Protocol was an historic step forward, more progress is necessary with respect to participation of key developing countries. It would be premature to submit the treaty to the Senate for its advice and consent to ratification at this time.

The Administration also plans to continue to work with the international financial institutions to promote market-based energy sector policies in developing countries that will help reduce developing country greenhouse gas emissions. Multilateral development bank policies, including those of the Global Environment Facility, strongly influence international lending and private capital flows for energy, industrial and transportation investments. Policies that favor market pricing, privatization, clean technologies and environmentally-friendly approaches will make implementing the Kyoto Protocol easier and will speed the growth of markets for new technologies that help reduce emissions in developing countries. We will work with the international financial institutions themselves - from the World Bank to the regional development banks -- and with other countries, especially developed countries, to achieve these goals in the coming years.

The Kyoto agreement does not solve the problem of global warming, but it represents an important step in dealing with a problem that we cannot wish away. A premature decision to reject the Protocol would deprive us of the opportunity to complete

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its unfinished business. If we fail to take reasoned action now, our children and grandchildren will pay the price.

Mr. Chairman, before turning briefly to our domestic efforts, let me note two other key elements in this equation - the contributions that the United States provides to carry out work under the U.N. Framework Convention on Climate Change and in the Intergovernmental Panel on Climate Change (IPCC), as well as the contributions that we make to the Global Environment Facility (GEF). For FY 1999, the President has requested $314 million for the International Organizations and Programs Account, a level that represents a 6.6 percent increase over FY 1998. This amount includes $8 million for the Climate Stabilization Fund which supports the Framework Convention and the IPCC. Parties to the Convention have much work ahead of them, as I have already noted. In addition, the IPCC has now embarked on its Third Assessment Report of Climate Change, scheduled for completion in late 2000 or early 2001. These funds are vital to ensuring U.S. leadership in both of these organizations and to ensuring that our views and the work of our scientists are taken fully into account.

In addition, the President has requested $300 million to meet our past and current pledges to help fund the Global Environment Facility (GEF). The GEF helps developing countries act to protect the global environment in several key focal areas including international waters, biodiversity, climate change and depletion of the stratospheric ozone layer. If we want to bring developing countries on board with real commitments to limit greenhouse gas emissions, we need to demonstrate that we are a reliable partner by supporting their concrete efforts with reliable resources. At this point, our GEF shortfall damages U.S. credibility in promising to help developing countries meet the climate change obligations we are urging that they undertake. I would therefore urge the Congress to fund fully our $300 million request, to meet our current pledge and also clear our substantial shortfall of nearly $200 million.

President's Climate Change Technology Initiative

In his State of the Union address, President Clinton said that global warming is "the gathering crisis that requires worldwide action.” We need to begin now to launch the sensible, cost-effective efforts that will help us avoid the high future cost of inaction.

The President last October outlined a three-stage approach to addressing climate change at home. The first stage consists of immediate actions to stimulate development and use of technologies that can minimize the cost of meeting U.S. goals in reducing greenhouse gas emissions. Stage two will review options created through ongoing technology development and lead to detailed plans for a domestic, market-based permit trading system for carbon emissions. Stage three will begin to implement a market-based

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As a first installment on this plan, President Clinton announced in his State of the Union message two weeks ago his proposal for a $6.3 billion Climate Change Technology Initiative over five years to cut U.S. greenhouse gas emissions -- $1.3 billion higher than the President announced in his initial plan in October. This vigorous initiative calls for tax cuts coupled with research and development (R&D) to take costeffective, practical steps that will position us well to meet the challenge we face early in the next century.

This initiative consists of two parts -- $3.6 billion in tax credits for energyefficient purchases and renewable energy, and $2.7 billion in new R&D spending over five years.

The tax package includes tax credits of $3,000 to $4,000 for consumers who purchase advanced technology, highly fuel efficient vehicles. It provides a 15 percent credit (up to $2,000) for purchases of rooftop solar electricity and hot water systems to provide incentives for meeting the Million Solar Roofs goal. It also includes a 20 percent credit (subject to a cap) for purchasing energy-efficient building equipment, a $2,000 credit for purchasing energy efficient new homes, extension of the wind and biomass tax credit, and a 10 percent investment credit for the purchase of combined heat and power systems.

The R&D component covers the four major carbon-emitting sectors of the economy (buildings, industry, transportation and electricity), plus carbon removal and sequestration, Federal facilities, and cross cutting analysis and research. Examples of this R&D effort include the Partnership for a New Generation of Vehicles (PNGV), a government-industry effort to develop affordable cars that meet all applicable safety and environmental standards and get up to three times the fuel efficiency of today's cars. In 1999, the President's budget for PNGV is $277 million, up from $227 million appropriated for 1998. Our PNGV effort is clearly paying off - the developments about higher mileage cars announced by the Big Three last month were assisted by research supported under PNGB. It is exciting to see our U.S. automakers already planning for the cars of the future, not as pipe dreams but as achievable greenhouse gas friendly products.

As General Motors Chair and CEO John F. Smith said recently in announcing GM's plans to step up research spending and focus on bringing new products to market, "No car company will be able to thrive in the 21" century if it relies solely on internal combustion engines." And as William C. Ford, Jr., Chair of Ford's Finance Committee, also said in announcing that Ford will join with Daimler-Benz of Germany in developing cars with fuel-cell engines, “There's a compelling business case to be made."

Similar government-industry efforts are proposed to develop cleaner, more efficient diesel engines for both light trucks and heavy trucks. The R&D effort also includes expanded research partnerships for key renewable technologies such as wind, photovoltaics, geothermal, biomass, and hydropower to accelerate price reductions and