March 24, 1998

DISCUSSION PAPER

UNRESOLVED ISSUES IN THE KYOTO PROTOCOL

AND U.S. IMPLEMENTATION OF ITS COMMITMENTS

The resolution of key unresolved issues in the domestic and international contexts is crucial to an informed assessment of the Kyoto Protocol and its impact on the U.S. economy and environment.  We firmly believe that the broad range of industry sectors that contribute to the strength of the U.S. economy must be engaged in discussing how to resolve these questions domestically, and in continuing to craft the international framework begun by the Kyoto Protocol, as it is ultimately business which will play a defining role in the implementation, management and funding of many of the policies resulting from this Protocol.

Incorrectly managing these issues could misallocate limited resources, damage U.S. -- and global -- economic prosperity, and render little or no environmental benefit. The resolution of these issues will determine the feasibility, the costs incurred and the public acceptability of the U.S. meeting its commitments.

The USCIB believes that the following questions should be addressed by the U.S. government, and discussed with the U.S. business community, before U.S. ratification of the Kyoto Protocol.

Economic and Scientific Analysis

·         What impacts will U.S. commitments, as well as changes to the global economy as a result of other countries’ commitments under the Kyoto Protocol, have on the U.S. economy and U.S. citizens, notably: on jobs, lifestyles, standards of living and the allocation of economic resources to address other important environmental, societal and public health issues? 

·         How will the treaty accommodate new scientific developments that could indicate a change in the pace of greenhouse gas reductions?

Developing Countries’ Commitments

·         What constitutes “meaningful participation” by developing countries, and how will this participation be explicitly linked to the treaty?

·         How will the U.S. initiate a next round toward a new “mandate” that would bring developing countries into discussions of further commitments?

Joint Efforts and Emissions Trading

·         How will emissions trading and joint implementation, which includes multiple gases and many sources of emissions, and spans international borders, be developed and managed?

·         How will the U.S. shape institutions to support trading, and joint implementation to be responsive to U.S. interests, and to ensure that the Clean Development Mechanism does not become unduly expensive and bureaucratic?

·         What are the anticipated wealth transfers involved in financing U.S. participation in emissions trading (in light of the apparent availability of a stock of tradable credits from the countries of Eastern Europe, Russia and Ukraine)?

Domestic Implementation

·         How will the U.S. involve the full range of industry sectors in developing a technology policy which encourages the development of energy efficient technologies, as well as other innovative techniques?

·         What policies will the Administration propose so that the U.S. can comply with a legally binding commitment to reduce emissions 7% below 1990 levels (a 40% reduction when measured against projected trendlines), particularly if we see continued economic and population growth?  How much of the total reduction will come through improved energy efficiency, sinks, trading and other joint activities, and at what cost?  How much through carbon taxes, efficiency standards and cap and trade programs? How much of the reduction will come from each of the gasses?

·         What role will voluntary initiatives and agreements play, and how will credit for early action be defined and implemented?

Trade and Investment

·         To what extent can the U.S. ensure that other countries’ policies and measures  do not pose barriers to U.S. business or to U.S. trade, investment  and competitiveness generally?

Compliance

·         How will the Protocol’s compliance mechanism provide flexibility to a country which, due to greater than expected economic growth, falls short of its commitment reductions target?

·         What institutional mechanisms will be required, domestically and internationally, to monitor   and verify compliance and what penalties may be assess for no-compliance?