Ambassador Mark Hambley, Special Negotiator for Climate Change, U.S. Delegation COP-4, Intervention -- U.S. Statement on Flexibility Mechanisms, Joint Session of the Subsidiary Bodies, Buenos Aires, Argentina, November 4, 1998


"U.S. Statement on Flexibility Mechanisms"

Mr. Chairman,

The Kyoto Protocol sets ambitious targets for developed countries
to reduce their greenhouse gas emissions, which most scientists
believe are causing higher temperatures and disrupting the
world's climate patterns. Preserving a stable and hospitable
climate will likely require a sustained commitment to reducing
emissions over time. That it why it is so important, right from
the start, to focus on how countries can meet their targets at
the lowest possible cost. Some delegations consider the idea that
cost should be a consideration inappropriate, but to sustain
public support for concerted action over decades, cost efficiency
is the only way we can secure both economic and environmental
objectives.

The flexibility mechanisms are key to meeting ambitious
environmental targets at the lowest possible cost, and these
mechanisms must proceed in parallel to provide for consistency.
In the Protocol, the Parties agreed that countries may meet their
targets through a combination of domestic and international
actions, including Article 4, Article 6, Article 12, and Article
17. Without these instruments, it simply would not have been
possible for Parties to take on targets as ambitious as those
agreed at Kyoto.

Some are arguing for limits on how much of a nation's commitment
can be met through the flexibility mechanisms. This, in our view,
is a deeply flawed idea.  Limits on these mechanisms would
seriously distort markets. They would greatly increase
administrative costs, be exceedingly difficult to implement,
generally make it much more expensive to address climate change,
and could reduce financial and technical benefits to non-Annex I
Parties.  Restrictions currently proposed by some governments
could double carbon permit prices in the United States, but
perhaps triple those permit prices in the European Union --
without providing any reductions in worldwide greenhouse gas
emissions beyond the targets established at Kyoto.

Of course, these mechanisms can only succeed in the context of an
aggressive national commitment to controlling greenhouse gases.
They are essential tools for carrying out such a commitment. To
set the stage, the United States has been pursuing nearly 50
programs to reduce our emissions and improve our energy
efficiency since 1993, the year after we ratified the original
climate change treaty.  In October of last year, President
Clinton proposed a significantly stepped up effort, including
$6.3 billion over 5 years in tax incentives and research and
development (R&D) to cut carbon dioxide through increased energy
efficiency and renewable energy, and to reduce the other
greenhouse gases.  In the recently completed budget negotiations,
the President secured a 25% increase in climate change
investments over last year's total.

This morning I would like to briefly comment on these mechanisms,
in anticipation that we will have additional opportunities to
provide further elaboration of our views. In this regard, I would
like to call attention to the paper on our initial thinking and
recommendations for proposed decisions on mechanisms which, as
mentioned by Australia, will be issued later on behalf of a group
of countries, including the United States.

Emissions Trading

Emissions trading is the key to strong targets because it will
allow us to make the most greenhouse gas reductions at the least
cost. The costs of reducing greenhouse gas emissions for all
countries -- not just the United States -- will be dramatically
lower with an efficient trading system. For example, within the
European Community alone, control measures are as much as six
times more expensive in some countries than in others, according
to European private sector analysts. The cost differences are
even greater when looking at all industrialized countries, and
greater still between developed and developing countries.

Emissions trading will give countries and their legal entities
strong incentives to look constantly for innovative ways to
control their greenhouse gas emissions. Those who find
inexpensive opportunities to reduce their emissions could sell
the allowances they do not need to other companies who face
higher costs.  These tangible rewards for innovation should
result in a steady stream of cost-saving breakthroughs and new
technologies.  Since greenhouse gases are global pollutants, the
environmental impact of reducing them is the same no matter where
the reductions take place. The same overall reduction is
achieved, total costs are reduced, and everyone gains from the
savings allowed by trading.

A credible emissions trading system depends on strong national
measurement, reporting, and compliance regimes, and trading rules
can be used to strengthen incentives for such regimes. The U.S.
favors a simple set of guidelines for emissions trading supported
by sound methodologies.  Some areas of general agreement appear
to be emerging, including the need for national registration
systems for tracking and reporting; strong compliance measures;
and guidelines for estimating and reporting national emission
inventories.

Joint Implementation

We believe that joint implementation will also be important to
enabling developed country Parties to meet their commitments in a
cost-effective manner. We note that the Protocol does not require
any additional rules to proceed; however, we anticipate that
methodological work on project-based mechanisms may inform
Article 6 discussions.  It is important to note that there may be
some similarities with respect to projects undertaken in Articles
6 and 12.  There are, however, important differences, given that
JI reductions are ultimately subtracted from the assigned amount
of a Party with a national target whereas CDM reductions are not.

Clean Development Mechanism

The Clean Development Mechanism has the potential to serve as a
bridge between Annex I and non-Annex I countries in their efforts
to combat global climate change while promoting sustainable
development and fostering compliance with Kyoto targets.  The CDM
also serves as a vehicle to ensure that all Parties are taking
these steps consistent with their common but differentiated
responsibilities.

In creating the CDM, we must ensure that we keep at the forefront
the concepts included in Article 12 in order to guarantee
transparency, efficiency, accountability, and adherence to host
nations' sustainable development objectives. We believe there are
several fundamental elements essential to establishing a
credible, efficient, and environmentally sound CDM. These
include:

-- First, project guidelines for activities which involve
emissions by sources or removal by sinks of any greenhouse gases
covered by the Protocol. These guidelines should ensure
measurable and long-term benefits and include mechanisms for
auditing, certification, and verification.

-- Second, a simple approach to determining project additionality
through the use of national, regional, or sectoral benchmarks to
distinguish between those activities that generate greenhouse gas
reductions in excess of baseline reductions and those that do
not.

-- Third, that operational entities may retroactively certify
emissions reductions obtained from the year 2000 resulting from a
project activity begun before the CDM is operational, provided
the emission reductions meet the applicable criteria.

Article 4

One mechanism which has not been discussed in detail is the
"bubbling" provision contained under Article 4.  We believe that
there are technical issues which must be resolved in order to
provide the consistency that all Parties seek.  These include
principles, modalities, rules, and guidelines applying to
transfers of assigned amounts between Annex I Parties and
consistency in measurement, monitoring, and compliance provisions
across Articles 4, 6, and 17.  Finally, Mr. Chairman, we take
note of the EU's statement noting that there are divergences in
views on many of these issues which we may not be able to resolve
at this meeting.  Like the EU and other Parties, we are also
hopeful that we can focus on the many areas where Parties in this
chamber find convergence, so that we can move ahead in a positive
and forthright manner to develop a work plan and a timetable
which will allow us to move ahead on this important matter in an
efficient and expeditious manner.  We believe that the success of
these mechanisms will depend upon our ability to work together
and to understand each other's perspectives and needs in creating
these new mechanisms to combat global climate change.

Thank you for your indulgence.


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