Of perhaps even greater concern, the United States could be strictly bound by the Protocol even if the international enforcement mechanism is lax. U.S. law provides for citizen suits to mandate compliance with certain laws, such as environmental laws. Thus, a U.S. citizen or party may be able to sue to enforce the U.S. commitments under the Protocol. Under such a circumstance, the Federal Courts could intervene to force compliance with the Protocol if the Administration or the Congress fails to act.

The first enforceable goal of the Kyoto Protocol, that Developed Countries show "demonstrable progress" in meeting their commitments by 2005, is undefined, and the penalty for failure to achieve this requirement is undetermined. The term "demonstrable progress” is not defined in the Protocol and, since there are no noncompliance or enforcement mechanisms in place, it is uncertain what would happen to a country that fails to achieve demonstrable progress. Given that the Protocol also mandates the initiation of negotiations for new reduction commitments by 2005,41 it is possible that failure to achieve demonstrable progress could be used by Parties to the Protocol to leverage the need for additional measures. (A similar scenario occurred in Berlin in 1995, where the Parties to the FCCC judged the voluntary aims set only three years earlier as "inadequate" and decided to pursue mandatory reduction measures.) For example, the European Union strongly favors the adoption of mandatory policies and measures to force compliance (like carbon taxes, CAFÉ, etc.), and its negotiating position could be enhanced if demonstrable progress is not achieved.

VI. FLEXIBLE MARKET MECHANISMS

In Kyoto, the Administration proposed and urged the adoption of flexible, market-based approaches to achieve emission reductions. In particular, an emissions trading system embracing free-market principles with all major global emitters could help ease the potentially severe costs of compliance with the emission reduction commitments.

Article 3 of the Kyoto Protocol-which sets the terms for emission reduction requirements-permits Developed Countries to acquire from, or transfer to, one another emission reduction units in accordance with Article 6 (joint implementation) and Article 17 (emission trading). The Kyoto Protocol

provides for joint implementation with Developing Countries through a newly created "Clean Development Mechanism," which requires additional actions on the part of Developed Countries to get credit for projects. In general, the use of market-based mechanisms is forecast to reduce the costs of compliance as compared to command-and-control type approaches. Based on the current status of these mechanisms in the Kyoto Protocol, however, it is impossible to rely with any certainty on their ultimate availability, or to project the cost savings that might be attained from their use.

The Kyoto Protocol does not resolve the major issues in terms of how joint implementation between Annex I countries would work. This Article allows Parties (i.e. Developed Countries) to earn reduction credits through their involvement in certain projects that reduce emissions in other Developed Countries, but it does not establish how the credits would be determined. It does not provide explicitly for participation by companies, though it has been assumed that companies would be able to participate for credit. Other more complicated issues exist such as how the Article would address the situation where a multinational corporation undertakes a project in another country where it operates.

The Article's caveat that credits are limited to reductions that are "additional to any that would otherwise occur" is particularly troubling. In essence, this limitation appears to require a judgment of the motives of an individual country or company. Presumably, to determine whether a particular project

that reduces emissions meets this standard, a UN review team will assess the merits of the project to determine not only how much of a reduction was realized but whether the project would have been undertaken for any other reason. The Article seems to connote that a profitable venture, for example, is not deserving of credit for any reduction realized. If this is the case, and we will not know until the rules and guidelines are formulated, joint implementation will have very limited value.

In addition, the limitation that the acquisition of reduction units be "supplemental to domestic actions" remains undefined. Reportedly, initial discussions in Kyoto as to the permissible amount of reductions that could be achieved through joint implementation and count towards the overall commitment of a country were shelved because the proposed limit was so low. Guidelines and rules for the implementation of Article 6 are not scheduled to be developed by the Parties until after the Protocol enters into force. 42

Emissions Trading

Ideally, through the mechanism of emissions trading, countries and companies will be able to purchase less expensive emissions permits from companies or countries that have more permits than they need. While the concept of emissions trading is "enshrined" in the Protocol, almost all of the details remain unresolved and, again, cannot be approved until after the Protocol enters into force.

The Kyoto Protocol does not resolve any of the major issues with regard to how an emissions trading program would work. As with joint implementation, a myriad of fundamental questions remain unexplored and unresolved with respect to emissions trading. Some of these issues include:

• what constitutes an emissions credit;

• how initial allocations of emissions units would be made;

• who would be permitted to make trades;

• what institutions or mechanisms would be required (and whether they would be exclusive) and how they would be funded;

⚫ who would bear the risks and costs of failures in the trading system; and, • how monitoring and compliance would operate or be enforced.

Even more complex issues include whether multinational companies could trade within their own firms across international borders. Furthermore, there are questions as to whether there will even be a pool of emissions reduction units available to trade (the units that exist as a result of reaching commitments with "room to spare") and, if so, whether there would be sufficient buyers and sellers in the marketplace to realize any economic benefit at all. All of these issues will need to be resolved through negotiations and at future Conferences of the Parties to the FCCC.43

As was discussed in the previous section on joint implementation, what would qualify as an emissions reduction unit that is "supplemental" to domestic actions has not yet been determined. But, the EU, with the support of Developing Countries, intends to work to establish a limitation on the total amount of emission reduction commitments a country could satisfy through emissions trading, perhaps as little as 10%-50% of a Party's commitment. In contrast, the EU will have access to unlimited trading within its bubble. Such a narrow limitation would present a serious problem for the United States' compliance effort, since the Administration has thus far only been able to account for roughly 26% of its targeted reductions through programs identified in the 1997 Climate Action Plan and, thus, may need to rely on market mechanisms such as emissions trading to meet as much as 74% of its commitment.

Without Developing Country participation, the potential for a successful international emissions trading scheme is greatly diminished. A vibrant market requires numerous participants, and buyers and sellers who are differently situated, in order to create economic incentives and efficiencies. Efficient control opportunities are much greater in China, the former Soviet Union, and other developing countries than they are in the developed regions." Dr. Yellen, the Chair of the President's Council of Economic Advisors, agreed that "developing country participation is crucial because it would permit relatively low-cost emissions reductions to be internationally recognized as a substitute for more expensive emissions reductions that might otherwise be achieved domestically by U.S. companies and those in other industrialized countries. "45 Several economic analyses—including ones by the Organization for Economic Cooperation and Development (OECD)46 and the National Economic Research Associates (NERA) 47-agree that any program to limit global climate change would have to involve the participation of non-Annex I countries in order to be efficient and cost-effective. Moreover, no one buyer or seller should dominate the market and independently influence the market price." 48

The true costs of, and potential savings from, emissions trading are completely unknown. In October 1997, President Clinton proclaimed that by providing incentives for early action, attacking domestic energy inefficiencies, and putting in place a market-based emissions trading system, the U.S. could reach 1990 levels by 2008-2012 with "minimal economic costs." For many of the reasons stated above, emissions trading may not substantially lower costs. For a market system to function effectively, it must be competitive and the transaction costs--including the costs necessary to identify a trading partner, make proposals, execute negotiations, and ensure the completion of obligations under any resulting contract—must be low. These costs are unknown at this time, but will be impacted by the exclusion of Developing Countries. Not withstanding, the net effect of emissions trading results in increased costs to U.S. manufacturers whose competitiveness may become jeopardized. Emissions trading entails a cap on energy use, results in energy rationing and higher energy costs in "addition" to the costs of purchasing emissions credits.