Statement of Kevin J. Fay
Executive Director
International Climate Change Partnership
before the Committee on Environment and Public Works
July 17, 1997

Good Morning, Mr. Chairman and members of the Committee. My name is Kevin Fay; and I serve as the Executive Director of the International Climate Change Partnership (ICCP), a coalition of U.S. industry representatives and associations, as well as international associations, interested in the policy development process with respect to global climate change. We appreciate the opportunity to appear before the Committee today on the subject of a global climate change convention.

ICCP was organized in 1991 to provide a forum to address the issue of global climate change and to be a constructive participant in the policy debate. Five months before the Third Conference of Parties meeting in Kyoto, the issue has certainly raised the interest of many of us in the private sector and the Congress.

ICCP continues to recognize the climate change issue as an important matter with which governments should be concerned. However, it is a very long-term issue and extraordinarily complex in both its underlying science and its entanglement with the very foundations of the global economic structure.

We have recently communicated our views on the key issues in the Kyoto negotiations to the Administration. I am attaching this correspondence to my testimony and ask that it be included in the record. We have also communicated to the President on the issue of the Administration's as yet unreleased economic analysis, expressing our frustration at their lack of communication on the matters of greatest concern to the private sector--namely the potential economic impacts of a climate change agreement and the current thinking of future implementation scenarios. This letter is also attached.

Our views have been based on the premise that the only agreement that is acceptable is one that is comprehensive and can work with flexibility, maintain national sovereignty, ensure participation by all countries, maintain a competitive level playing field, and is guided by effective science and includes a long-term objective that will guide future policymakers and future negotiators.

You will note that in both letters, we urge the President and the State Department to reiterate to our negotiating partners that the U.S. policy framework enunciated last July is the only framework that can provide a climate change agreement that is both environmentally beneficial and economically feasible.

Since prior to the first meeting of the parties in Berlin, we have consistently argued that the time is not yet right for a climate change agreement. Unfortunately, the parties established an artificial deadline under the Berlin mandate to reach an agreement by the third meeting of the parties, now scheduled to be held in December of this year.

In our view the Administration made progress in its own deliberations and offered a thoughtful policy framework at the second meeting of the parties in 1996 which we have heard about here today. This policy outline includes a comprehensive approach; identification of a long-term objective; identification of a developing country role under the treaty; implementation flexibility through emissions trading, banking, and joint implementation; and avoidance of a laundry list of so-called "policies & measures."

The U.S. framework also included a call for a binding commitment, which the Administration has subsequently defined as an emissions budget period of undetermined length to achieve reductions of an undetermined size. While most of the attention has been focused on this part of the discussions, we continue to believe that it is not the only key to a successful treaty agreement in Kyoto or beyond Kyoto.

We should point out at this time, however, that we have been provided with no analysis to justify any particular target or timetable that might be advocated.

Our primary concern has been that the result of the negotiations would focus on only one or two of the key issues, some of which we have outlined in our letter, and that the rest would be left until later. This would be unacceptable to us. This worst result would be for the Administration to agree to some target and not achieve the entire policy framework it has advocated.

An agreement on a target and timetable in Kyoto, and nothing else, would be unacceptable to the ICCP. An agreement in Kyoto on a target and timetable, including a developing country schedule, but with none of the flexibility or other provisions as articulated last year by the Administration, would be just as unacceptable.

To date, we have been disappointed in the progress on most of these fronts and we are pessimistic on the ability to achieve them between now and Kyoto absent strong signals by the White House to reinvigorate the negotiations. ICCP is not and never has been interested in an agreement at the Kyoto meeting just for the sake of reaching an agreement. This view will not change.

With respect to the economic issues and the impacts of a climate change agreement on the U.S. economy, jobs, and the environment we remain very concerned. It is difficult to address this issue in any effective way given the lack of dialogue on these topics and the lack of information being provided by the Administration. We know that the economic analysis that has been performed tells us several important things:

--that there are costs involved in reducing greenhouse gas emissions;

--the costs are likely to be reduced if flexibility provisions are incorporated;

--that you cannot achieve any reasonable goals either environmentally or economically without developing country participation; and

--the costs are less if you avoid premature capital retirement or turnover, and provide industry the opportunity to manage their way into the technological innovation that will be necessary to accomplish whatever long-term goal is established by the parties to the convention.

It is difficult to know how the costs compare to the benefits because we have yet to see any analysis that includes the benefits of mitigating climate change or facilitating adaptation strategies.

In order for there to be an effective treaty, we believe that the parties must first get the treaty structure correct. We have a long way to go before that will happen.

In closing, I believe it is useful to look at previous examples for guidance that may provide a better perspective than the intense pre-Kyoto focus. More than 12 years ago, negotiators were struggling to complete the Vienna Convention for Protection of the Ozone layer after more than five years of negotiation.

These negotiations had taken on a bitter tone as parties, including the U.S. and European Union, tried to push for adoption of their own preferred policy approach to dealing with ozone depleting compounds. Instead the parties agreed to the convention and to establish a series of workshops and information gathering devises to better understand each other's views.

When negotiations resumed, the parties were much better informed, and a treaty structure was adopted that has since been proven very durable. The Montreal Protocol, signed in 1987, has proved much more effective than most of us thought possible at the time.

We raise this example not because we believe the issues are identical. They are not and climate change is far more complex. We raise it because as we reach a fevered pitch prior to Kyoto, we want to stress that an effective framework is what counts, not an expedient framework.

A climate treaty needs to be durable for the next 100 years. Our companies have determined that the current state of scientific understanding requires a prudent long-term approach to address this issue. This view is equally applicable to the negotiations themselves.

We appreciate the opportunity to appear before you today, and we look forward to answering your questions.

June 6, 1997

The Honorable Timothy Wirth
Under Secretary of State for Global Affairs
Department of State
Washington, DC. 20520

Dear Mr. Wirth:

You have requested our views on specific issues under consideration as part of the negotiations on implementation of the Berlin Mandate for a possible protocol or other legal instrument to the Framework Convention on Climate Change. We are pleased to provide these comments on specific issues of concern to the members of the International Climate Change Partnership (ICCP) with respect to the treaty negotiations. We are also writing, however, to express our concern with the current lack of focus to the negotiations or linkage of these issues with the important relationship between the international treaty and domestic implementation schemes.

ICCP continues to recognize the climate change issue as an important matter with which governments should be concerned. However, it is a very long-term issue and extraordinarily complex in both its underlying science and its inextricable entanglement with the very foundations of the global economic structure. We are concerned that this complexity is exposing an overly ambitious timeframe for current negotiations and-that the cohesive activity necessary to ensure a viable foundation for future action under this important treaty simply has not come to be. It is equally disturbing that there has been little public discussion of the economic impacts of the range of climate change mitigation by any of the parties, including the United States.

ICCP commended the U.S. position enunciated in its statement in July of last year as a reasonable framework, and was particularly supportive of its efforts to force into the negotiations greater focus on the long-term character of the issue and its economic implications. However, we have made clear that our support is for the entire frameWork, and not for individual components. Some have misconstrued this position as support for early targets and timetables. It would be incorrect to read our position as such. While ICCP members have recognized the possibility that negotiators would agree on a mid-term emissions target, we could not specifically support such a target given the current lack of understanding of the implications of such a target or how it would be implemented. In our view, the issue of a binding target is not the most critical element of the negotiation. We view it more important to provide definition to the treaty structure through a long-term objective and a mechanism to ensure that all parties, developed and developing, have clearly defined roles before we enter into a binding commitment period. It is also important that the parties are able to achieve these goals with flexibility through emissions trading, banking, and true joint implementation. We appreciate that the U.S. has recognized this need for flexibility. It is of great concern to us that little progress appears to have been made on many of these issues concerning flexibility and the role of developing countries. While the U.S. has elaborated its views on these positions in subsequent statements and its protocol draft, we have detected little movement by the other parties on these issues. Since we are not privy to your bi-lateral discussions or the behind the scenes meetings, it is difficult for us to determine the current status of these topics.

It is not acceptable to us for the negotiations to conclude in December with an agreement on a binding commitment towards a mid-term target with all details on other key provisions to be negotiated later.

As you recall, we have consistently expressed our view that 1997 is too soon for a credible technical assessment process which would support an agreement by the parties on these issues. The apparent lack of progress to date, the dearth of information available to us regarding how these issues may be resolved, and the failure to thoroughly discuss the economic implications for an agreement, have only served to confirm this view.

We have pledged to work responsibly with the United States and other parties on the development of an effective framework to address the climate change issue consistent with the need for all nations to sustain economic growth. We remain committed to this principle. It is not clear, however, that these issues can be resolved satisfactorily by the Kyoto meeting. ICCP will, of course, reserve any judgment on the results of Kyoto for the implementation process.

We urge the United States to remain focused on and committed to delivering concrete results on all the points outlined in the statement delivered last July and elaborated on in its subsequent submittals. Further, we believe that the U.S. should indicate its commitment to its proposed climate change policy structure at the upcoming meetings of the G-7 and the United Nations General Assembly Special Session on the Environment.

Concurrently, we believe the economic impacts of a possible agreement should be communicated with industry and other policymakers so we can have an effective dialogue. Failure to discuss some of these issues in advance will make it extremely difficult to build support for ratification and implementation of the international agreement.

We look forward to working with you and appreciate the opportunity to discuss the specific views on the attached position paper in the very near future. Sincerely,

Kevin J. Fay
Executive Director


cc: The Honorable Madeleine Albright
Secretary, Department of State

The Honorable William Daley
Secretary, Department of Commerce

The Honorable Federico Pena
Secretary, Department of Energy

The Honorable Rodney Slater
Secretary, Department of Transportation

The Honorable Carol Browner
Administrator, Environmental Protection Agency

The Honorable Frank Murkowski
The Honorable Dale Bumpers
The Honorable John Chafee
The Honorable Max Baucus
The Honorable Thomas Bliley
The Honorable John Dingell
The Honorable Dan Shaefer
The Honorable Ralph Hall

June 6, 1997

President William Clinton
The White House
Washington, D.C. 20500

Dear Mr. President:

On behalf of the International Climate Change Partnership, I am writing to express our concern for the status of the economic analysis for purposes of the international negotiations on climate change and the apparent lack of progress in making the economic issues an integral part of these negotiations. The ICCP is a coalition of companies and industries around the world committed to responsible participation in the climate change policy process.

ICCP continues to recognize the climate change issue as an important issue with which governments should be concerned. However, it is a very long-term issue and extraordinarily complex in both its underlying science and in its entanglement with the very foundations of the global economic structure. ICCP commended the U.S. position enunciated in its statement in July of last year as a reasonable framework, and was particularly supportive of its efforts to give the negotiations greater focus on the long-term character of the issue and its economic implications.

It is disturbing to us that, for nearly one year, there has been little public discussion of the economic impacts of the range of proposed climate change mitigation strategies by any of the parties, including the United States.

The Administration had promised the results of its economic analysis to the Congress, its negotiating partners, the private sector and the non-governmental organizations. While we applaud the recognition of the need to peer review this work, the slow pace at which this activity is occurring raises concerns that it is either not being seriously pursued, or that the results are not being shared. Neither of these reasons, if true, bodes well for constructive private sector support of the Administration's efforts or for any result produced from the Third Conference of Parties meeting to be held later this year in Kyoto.

This matter is further complicated by the recent resignation of Under Secretary of Commerce Ehrlich, who was coordinating the analytical effort. His departure suggests a possible further loss of momentum on this important effort at a critical time.

Those who may be able to provide constructive input into the analysis and assessment being pursued by the Administration wonder what must be done to understand how specific industry sectors are being examined and what steps are being contemplated in order to pursue your climate protection goals. At a minimum, the Administration should be able to immediately publish the policy assumptions being used for individual sectors.

In addition, aside from frequent references to implementation of flexible, market-based approaches, there has been little discussion of what may be suggested as implementation steps for a Kyoto agreement. Failure to discuss some of these issues in advance will likely make it difficult to build support for ratification of the international agreement and for development of implementing legislation.

We respectfully urge you the Administration to provide an outline of the economic information and policy considerations, as well as a meaningful timeframe for the release of this information.

Finally, we understand that you are preparing to attend the meetings of the G 7 and the United Nations General Assembly Special Session on the Environment. We urge you to reiterate the United States' support for these key economic issues as critical elements of any future agreement on climate change. It is only with these key policy provisions that we will have a climate change agreement that is both environmentally beneficial and economically feasible.

International Climate Change Partnership
Views on
Key Issues in the Climate Change Protocol Negotiations
(In Alphabetical Order)

Developing Country Role

The United States has outlined a specific proposal for dealing with the developing country role as part of the Kyoto agreement, including definition of obligations under Article 4.1 of the Framework Convention, establishment of an Annex B of countries which would voluntarily adopt emissions budgets, and a date certain by which all parties would have emissions budgets.

As stated by Bert Bolin, Chairman of the Intergovernmental Panel on Climate Change (IPCC) at the March 1997 meeting of the Subsidiary Body on Science and Technological Advice (SBSTA) in Bonn, "[I]t is obvious from this graph that no reasonable future reductions by Annex I countries would stabilize global emissions." Therefore, it is imperative that developing countries be part of this agreement. Furthermore, as stated in the Administration's recent economic work, a significant percentage of infrastructure and industry investment by developed countries is occurring in developing countries. Finally, because of the strong linkages' between population growth and greenhouse gas emissions, it is important that we recognize that seven of the current non-Annex I countries represent two-thirds of the world's population.

The Administration has been forthright in its insistence that the developing country role be defined. ICCP recognizes the potential limits of the current Berlin Mandate with respect to new commitments for non-Annex I Parties. It is clear, however, that the Berlin Mandate contemplates definition and elaboration of Article 4.1 commitments for all Parties, including the developing cpuntries. Additionally, it is imperative that additional developing country participation, including emission budgets, must be defined prior to the start of the first binding budget period for the current Annex I parties. It is only through such definition that governments and the private sector can ensure that investment flows are not distorted.

Entry into Force

ICCP has noted that six countries, including India and China, currently account for 55% of greenhouse gas emissions. In order for the treaty to enter into force, it is imperative that a significant percentage of greenhouse gas emissions be represented by ratifying countries. In addition, a significant percentage of Annex I countries and developing countries should ratify the treaty before it enters into force.

We also believe that it is inappropriate for a regional economic organization to be allowed to represent both itself and the voting rights of its individual members. The EU has argued that it should be allowed to bubble its emissions and is proposing to allocate emissions internally. It is unfair that the EU be granted this concession to bubble its emissions when it declines to support similar flexibility for other Parties. Therefore, the EU should have to decide to either bubble and count as one vote, or to not bubble and to be counted individually.

Greenhouse Gas Comprehensive Approach

The protocol negotiations should continue to focus on a comprehensive approach at the international level. Recent proposals from the European Union suggested a protocol on only three gases--carbon dioxide, methane, and nitrous oxide--with the notation that fluorocarbon compounds should be covered by policies and measures and added to the basket in the year 2000. ICCP strongly opposes the EU approach. The gases that can be measured should be covered simultaneously in a comprehensive manner. The key to a comprehensive approach is for Parties to focus on achieving the most efficient emission reductions possible; and therefore, it is unproductive to segregate gases from coverage until a later date or to treat gases differently in an international agreement

Long-Term Objective

ICCP has urged the negotiators to provide for a long-term focus or objective. We believe such an objective provides clarity to negotiators, as well as to those charged with implementation of commitments. It is our understanding that the United States has performed some analysis of this issue, and that such analysis could be useful to the negotiators currently. Furthermore, we applaud the article in the U.S. protocol proposals which contemplates a long-term objective.

This objective will be an impdrtant guide to future decision making, including private sector investment planning. We note that several participants, including the EU, and certain environmental organizations have suggested certain objectives characterized as atmospheric concentrations of greenhouse gases, and that the IPCC documents present their analysis according to atmospheric loading of greenhouse gases measured in parts per million (ppm) of CO2 equivalent.

ICCP has not advocated a greenhouse gas concentration as the appropriate measure for the long term objective. A long-term objective could be defined as a combination of adaptation, impacts, and concentration measures.

Recent analysis of the economics of climate change controls have indicated that the long-term objective is not as relevant as the path charted for the emission reduction. In our view, it is impossible to develop a meaningful path without knowing the point of departure and the intended goal.

We recognize that the current state of science does not provide a precise "correct" answer. Science does provide a basis for making an informed political judgment on the objective, and scientific assessment through the IPCC and elsewhere is critical to future reassessment of any potential long-term objective.

Policies and Measures

It is imperative that each nation maintains maximum national flexibility with respect to implementation of its climate commitments. It is neither appropriate nor productive for the negotiators to determine the manner in which each country should achieve its commitments. ICCP is opposed to any listing of specific annexes of policies and measures in any manner, i.e., mandatory, regional coordination, voluntary, or exemplary.

Target/Budget/Accountability Period

There have been several proposals for specific point targets and/or budget periods as part of the protocol proposals that are currently before the Parties. ICCP has not endorsed the notion of a binding "target." We do, however, recognize that all of the government proposals to be considered in Kyoto do contemplate such a step as a starting point.

The lesson from the non-binding commitment of the 1992 FCCC agreement is that, despite the best of intentions, a specific point target is very difficult to administer due to fluctuations in economic conditions, weather conditions, etc. Therefore, we believe it is imperative that the long-term objectives be utilized to examine a reasonable path that minimizes short-term economic disruption and stimulates the longer-term technological innovation necessary to significantly reduce worldwide greenhouse gas emissions.

The U.S. has indicated a preference for an emissions budget period and a binding commitment to achieve that budget. In our view, the practical timetable for ratification and implementation of a Kyoto climate agreement, including subsequent definition of a developing country role, suggests that meaningful program implementation steps could not be up and running with confidence any time soon after a Kyoto agreement. There has been a great deal of focus on the beginning of such a so-called budget period.

In our view, the beginning of the budget period is not as important as the end of the budget period, i.e., the point at which the principle of "binding commitment" actually has the potential to impose penalty or sanction. In light of the uncertainties stated above, ratification, implementation, developing country role, and some level of experience with the implementation process, we believe that it would be inappropriate to end the first binding budget period before the year 2020. This time frame will allow industry to develop its programs, and gain confidence in their performance.

ICCP also believes this time frame is consistent with its previous position that policies at the outset of this effort must take into account a reasonable period for capital stock turnover. This will provide a period for industry to "ramp up" its climate change responses.

If the budget period is to be adopted, we believe that it should be long enough to encompass weather and economic cycles, but not so long as to present an impossible horizon to provide both industry and policymakers with some certainty. Therefore, it appears that a 10-year budget period is better than a 3 or 5-year period.

Technology Assessment

Although not specifically included as part of the current protocol proposals, ICCP continues to believe that the FCCC must be grounded in sound scientific and technological assessment processes. This function, as currently served primarily through the Intergovernmental Panel on Climate Change (IPCC), is inadequate.

The WCC is currently considering restructuring proposals including the adoption of working group outlines that incorporate an effective role for private sector expert participation. We encourage support for these proposals.

Finally, it is also important that we de-politicize the IPCC process to the maximum extent possible. Its credibility can be sustained only if it is truly seen to be the work of scientific and technical experts, and not subject to the whims of the diplomatic and political process or other special interests.

Trading, Banking and Joint Implementation (JI)

Most available economic analysis continues to indicate that flexibility through emissions trading, banking of emission credits, and joint implementation policies can help to maximize greenhouse gas emission reductions most cost-effectively. ICCP is fully supportive of such mechanisms as part of any agreement in Kyoto and beyond.

We believe it to be imperative that such principles be included in the first agreement and not be left to some future negotiations. We also believe it is important that these provision not be relegated to some pilot project with final decisions to be made at some future date.

Finally, it appears that flexibility is a positive inducement to ensure maximum compliance. It also would allow us to avoid the use of trade restrictions or trade sanctions as an enforcement mechanism in the treaty.