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The White House

Background Material on President Clinton's Climate Change Proposal
October 22, 1997

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Global climate change is the premier environmental challenge and opportunity of the 21st century, and the risks it poses justify sensible preventive steps. Addressing this issue is one of the United States' greatest imperatives, for this and future generations. Recognizing the solid foundation of climate science, President Clinton is committed to strong and sensible action to reduce greenhouse gas emissions -- including realistic and binding emissions targets.

Key elements of President Clinton's climate change proposal include: Binding Targets to Reach 1990 Emissions Levels by 2008-2012 and Reductions Below 1990 Levels in the 5-Year Period That Follows. A critical component of the President's comprehensive framework is a realistic, achievable, and binding target of reducing greenhouse emissions to 1990 levels by 2008-2012 and reductions below 1990 levels in the 5-year period that follows. $5 Billion Program of Tax Cuts and R&D for New Technologies. To spur energy efficiency and the development of new technologies, the President proposes a major new package of tax cuts and R&D spending amounting to $5 billion over five years. Industry-by-Industry Consultations and Early Credit. The Administration challenges key industries to prepare plans over the next 9 months on how they can best reduce emissions. To provide an incentive for near-term actions to cut emissions, the President is committed to ensuring appropriate rewards for firms that act early. Developing Countries Must Participate. Climate change is a global problem, and requires a global solution. That's why the United States has spear-headed joint implementation projects, and the President has committed that the United States will not adopt binding obligations without developing country participation. Broad-Based Domestic and International Emissions Trading System Begins After A Decade of Experience Has Accumulated. The President is committed to a market-based emissions trading system, both domestically and internationally, that will harness the power of the market to reduce emissions to 1990 levels by 2008-2012. The trading system would begin after a decade's worth of experience with tax incentives, R&D, early credit, electricity restructuring, Federal efforts, and other measures.

BINDING TARGETS: The U.S. binding target is realistic: It seeks to return U.S. emissions to 1990 levels in the period 2008-2012 and reduce them further thereafter. We reject the European proposal for more stringent early reductions, as well as the "do-nothing" approach of some interests. The target is achievable: By providing incentives for early action to reduce emissions, attacking domestic energy inefficiencies, and putting in place a market-based emissions trading system, we can reach 1990 levels in the proposed time frame with minimal economic costs. And it is meaningful: Achieving 1990 levels in the period 2008-2012 would amount to almost a 30 percent reduction off a business-as-usual path, an important first step on the road toward stabilizing greenhouse gas concentrations in the atmosphere.

SOLID PRINCIPLES: The President's five climate change principles include: that the policies should be guided by science, rely on market-based common-sense tools, that we should seek win-win solutions, that global participation is essential to addressing the global problem of climate change, and that we must have regular common-sense reviews of the economics and science of climate change.

SOUND AND SENSIBLE THREE-STAGE APPROACH: Reflecting his five key principles, the President's plan includes three stages: Stage 1 includes priming the pump through programs such as R&D, tax incentives, incentives for early action, and Federal leadership, and industry consultations. Stage 2 builds upon the first stage by including a review and evaluation in preparation for the permit trading system. Stage 3 -- which does not occur for a decade -- involves meeting binding targets through a domestic and international emissions trading program. The President is committed to working with labor and Congress to insure that we give proper assistance to any workers dislocated by the changes in energy usage inherent in any climate change plan.

INITIAL ACTION PLAN: The President's immediate action plan includes 9 elements:

1. $5 Billion in Tax Cuts and Federal R&D: To spur energy efficiency and encourage the development and deployment of lower-carbon energy sources, the Administration supports a major new package of tax cuts and R&D spending amounting to $5 billion over five years.

2. Credit for Early Action: To provide an immediate incentive for near-term actions, the President is committed to ensuring that firms acting early are rewarded appropriately.

3. Industry-by-Industry Consultations: The Administration challenges key industry sectors to prepare plans over the next 9 months on how they can best reduce emissions.

4. Encouraging the Use of Energy-Efficient Products: The President will complement his tax incentives, commitment to early action credit, and industry consultations by engaging in a broad-based effort to expand the use of existing energy-efficient technologies.

5. Federal Procurement and Energy Use: The Department of Energy will spearhead a comprehensive effort to reduce greenhouse gas emissions from Federal sources.

6. Electricity Restructuring: To deliver a significant down payment on emission reductions, while saving consumers billions, we will pursue a bold plan for electricity restructuring.

7. Setting a Concentration Goal: The United States supports developing a specific, long-term concentration goal with the assistance of the National Academy of Sciences and other bodies.

8. Bilateral Dialogues: In addition to pursuing agreement in Kyoto, the Administration will pursue bilateral dialogues with key developing countries to promote clean energy.

9. Economics and Science Reviews: The President proposes regular scientific and economic reviews. These reviews will ensure that policy-makers have the best possible information on climate change.

WIN-WIN: There are numerous win-win solutions to reducing carbon emissions. For example, a breakthrough in fuel cell technology announced yesterday will clear the way toward developing cars that are three times as efficient as today's models -- cutting pollution while also cutting driving costs.

INITIAL CLIMATE CHANGE ACTIONS

President Clinton has proposed nine immediate actions to begin addressing climate change:

1. Tax Cuts and Federal R&D: To spur energy efficiency and the development of lower-carbon energy sources, the Administration supports a major new package of tax cuts and R&D spending amounting to $5 billion over five years. Many of the ideas from the recent report of the President's Committee on Science and Technology (PCAST) will be considered in constructing this package.

2. Credit for Early Action: To provide an immediate incentive for near-term actions to cut emissions, the Administration is committed to ensuring that firms which act early are rewarded appropriately. We will work with companies to build a program that appropriately rewards those who take prompt and early actions before the beginning of the mandatory emissions budget period in Stage 3.

3. Industry-by-Industry Consultations: The Administration challenges key industry sectors to prepare plans over the next 9 months on how they can best reduce emissions, including how the Federal government can remove regulatory hurdles that discourage energy efficiency. The Administration will work in partnership with industry to develop sensible efficiency standards in a variety of areas.

4. Encouraging the Use of Energy-Efficient Products: As the Department of Energy's National Laboratories study illustrates, many existing technologies produce win-win solutions to reducing carbon emissions -- but nonetheless are still not widely used. The President is committed to expanding their reach. He will therefore complement his other programs by engaging in a broad-based effort to expand the use of existing energy-efficient technologies -- while also spurring the development of new technologies.

5. Federal Procurement and Energy Use: To reduce greenhouse gas emissions from Federal sources, DOE will spearhead a comprehensive effort that includes expanded performance contracting to make Federal buildings more energy-efficient, improved Federal procurement of energy-efficient technology, and partnerships to improve the energy efficiency of Federal aircraft, ships and vehicles. Federal agencies will also be called upon to assess emissions in major initiatives.

6. Electricity Restructuring: To spur further efforts to clean our air and deliver a down payment on greenhouse gas emission reductions, while saving consumers billions, we will pursue a bold plan to restructure the energy sector. It is time to change the rules that are often more than 70 years old -- stifling innovations that can save money and impede newer, cleaner technologies.

7. Setting a Concentration Goal for Greenhouse Gases in the Atmosphere: The goal of the existing climate treaty is to stabilize concentrations of greenhouse gases, but the specific concentration has never been defined. The U.S. supports developing a specific, long-term goal, with the assistance of the National Academy of Science and other appropriate bodies.

8. Bilateral Dialogues: In addition to pursuing agreement in Kyoto, the Administration will pursue bilateral dialogues with key developing countries to promote clean energy.

9. Economics and Science Reviews: The President proposes regular scientific and economic reviews, to ensure that policy-makers have the best possible information on climate change.

BACKGROUND INFORMATION

PRESIDENT CLINTON'S FIVE CLIMATE CHANGE PRINCIPLES

Global climate change is the premier environmental challenge and opportunity of the 21st century, and the risks it poses justify sensible preventive steps. Addressing this issue is one of the United States' greatest imperatives, for this and future generations. Recognizing the solid foundation of climate science, President Clinton is committed to strong and sensible action to reduce greenhouse gas emissions -- including realistic and binding emissions targets.

President Clinton's climate change plan is based on five key principles:

• Guided by science. The vast majority of the world's scientists have concluded that if the countries of world do not work together to cut greenhouse gas emissions, temperatures will rise and disrupt the global climate. Indeed, most scientists say this process has already begun. But there is much we still don't know about how the climate and human health will react to increased greenhouse gas concentrations. That's why the President's plan includes regular science reviews, to ensure that our policies are guided by the best science available.

• Market-based, common-sense tools. We have learned that the cost of protecting the environment is substantially lower if we harness the power of markets to do so. That's why the President's plan emphasizes flexible and market-based mechanisms. His plan includes a domestic and international permit trading system for greenhouse gas emissions, similar to the highly successful permit trading system that has dramatically cut acid rain at a fraction of the predicted cost.

• Seek win-win solutions. There are a multitude of win-win solutions to reducing carbon emissions, that can improve our energy efficiency and save consumers money. For example, a breakthrough in fuel cell technology announced yesterday will clear the way toward developing cars that are twice as efficient as today's models -- cutting pollution while also cutting driving costs. The President believes that we must seek such win-win solutions to addressing climate change.

• Global participation. Climate change is a global problem, and requires a global solution. A ton of carbon emitted in Argentina has just as much effect on the global climate as a ton of carbon emitted in the United States -- and within the next few decades, emissions from developing countries are expected to exceed those from developed countries. And many win-win opportunities exist to reduce greenhouse gas emissions in developing countries. That's why the United States has spear-headed joint implementation projects and the President has committed that the United States will not adopt binding obligations without developing country participation.

• Common-sense economic reviews. Our knowledge of the challenges and opportunities we face will grow over time. Therefore, the President is calling for regular 5-year economic reviews and updates, to ensure that policy-makers, both in the Administration and in Congress, have the best possible information on how the economy is responding to the effort to address climate change, how other countries are performing relative to their own commitments, and how the climate is changing in response to human activities.

THE PRESIDENT'S THREE-STAGE PLAN ON CLIMATE CHANGE

Reflecting his five key principles, the President's plan will proceed in three stages:

• Stage 1: Priming the Pump Through R&D, Tax Incentives, Incentives for Early Action, Federal Leadership, and Industry Consultations. The first stage of the President's package includes a 9-point action plan -- including $5 billion in tax incentives and spending for R&D and energy efficiency, incentives for early action, a set of Federal government energy initiatives, and industry-by-industry consultations to explore their best ideas on how to reduce emissions in a cost-effective manner (including market-oriented standards for energy efficiency). The first economic review would occur near the end of Stage 1.

• Stage 2: Review and Evaluation. The second stage, which would begin around 2004, will build upon the programs adopted in Stage 1, by including a review of our progress and an evaluation of next steps as we move toward a market-based permit trading system for carbon emissions. During this second stage, the details of the permit system would be refined and perhaps tested. Such a permit system is similar in concept to the one that dramatically cut acid rain emissions -- although the scale would be significantly larger than the current acid rain program. The second economic review would occur near the end of Stage 2.

• Stage 3: Meeting Binding Targets Through Domestic and International Emissions Trading Program. In the third stage, we would reduce emissions to 1990 levels by 2008-2012, and below 1990 levels in the 5-year period after that, through a market-based domestic and international emissions trading system. Before beginning this third stage, the second economic update and review would allow Congress and the President to evaluate how the economy had responded to a decade's worth of experience in the first two stages of the President's plan. The President is committed to working with labor and Congress to insure that we give proper assistance to any workers dislocated by the changes in energy usage inherent in any climate change plan.

This three-stage program recognizes the long-term nature of the effort to address climate change in three ways:

• By adopting a graduated approach to emissions reductions, it allows us to exploit the tremendous opportunities for win-win reductions first.

• By adopting a system of regular scientific and economic updates and reviews, it allows us to monitor our progress and re-assess our success in reducing emissions, the state of scientific knowledge, and how the economy is responding to our efforts. Only after we have accumulated ten years of experience with the first two stages of the program would we enter the internationally binding period.

• By insisting that the United States will not adopt binding obligations without developing country participation and by emphasizing the importance of an international trading system and joint implementation, we take advantage of low-cost reduction possibilities wherever they occur -- either here or abroad.

COMPREHENSIVE FRAMEWORK FOR EFFECTIVE, SENSIBLE ACTION

GREENHOUSE GAS EMISSION REDUCTION TARGET

Under the current international climate change agreement (signed in Rio de Janeiro in 1992), industrialized countries accepted a non-binding emissions reduction goal. Most nations, including the United States, will fall short of meeting it. This fact, coupled with better scientific evidence on the seriousness of the climate change threat, led the U.S. to propose last year that a new agreement set binding limits on emissions. The proposed U.S. emissions target is designed to provide important environmental gains while maintaining strong economic growth. It is:

• Realistic. Seeks to return U.S. emissions to 1990 levels in the period 2008-2012 and reduce them further thereafter. Rejects the European proposal for more stringent early reductions, as well as the "do-nothing" approach of some interests.

• Achievable. By providing incentives for early action to reduce emissions, attacking domestic energy inefficiencies, securing flexible international implementation mechanisms, and putting in place a market-based domestic emissions trading system, the U.S. can reach 1990 levels in the proposed time frame with minimal economic costs.

• Meaningful. Achieving 1990 levels in the period 2008-2012 would amount to almost a 30 percent reduction off a business-as-usual path, an important first step on the road toward stabilizing concentrations of greenhouse gases in the atmosphere. Emissions accounting will include all greenhouse gas sources and sinks (including reforestation).

FLEXIBLE, MARKET-BASED IMPLEMENTATION

Just as the effects of climate change will be felt globally, so too are the causes of climate change global in nature. Greenhouse gas emissions do equal harm to the atmosphere whether they come from a coal plant in China or a bus in Boston. For this reason, any regime to reduce greenhouse gases must be global. It must also allow all nations the ability to seek out the most efficient way of reducing emissions so that the greatest gains are achieved at the least cost. For these reasons, the United States strongly supports the inclusion in a new climate change agreement of two innovative, flexible mechanisms for reducing emissions:

• International Emissions Trading -- Using Markets to Lower Costs. The principle of emissions trading is to use the efficiency of the market place to achieve environmental objectives at the lowest possible cost. Under an international emissions trading regime, a country (or firm) would be able to meet its emissions reduction target by reducing pollution itself, purchasing reductions from another country (or firm) that was able to achieve excess gains, or some combination of both.

• Joint Implementation -- A Global Solution to Low-Cost Reductions. Joint Implementation (JI) is an innovative, market-based approach for addressing global climate change that uses international partnerships to achieve low-cost reductions in greenhouse gas emissions. Under JI, a company in the United States invests in a project which reduces emissions in another country and uses those reductions as a less expensive means of meeting its own target.

PARTICIPATION OF DEVELOPING COUNTRIES

In addition to its non-binding emissions reduction aim for developed countries, the Rio climate change agreement required all countries to take policies and measures to reduce emissions. Many developing countries have made real strides, through, for example, reducing energy subsidies. Nevertheless, given that developing country emissions will eclipse those from the developed world within several decades, these countries need to do more. Accordingly, the U.S. calls on developing countries to strengthen their existing commitments and to agree that their obligations must increase over time to include binding emissions limits. Our principles include:

• Global Participation. All countries must participate. Every nation would be required to take meaningful actions to limit emissions. The U.S. will not assume binding obligations until developing countries agree to participate meaningfully in the challenge of addressing climate change.

• Equity. The obligations of poorer and less developed countries should take into account their state of economic development and their relative contribution to the climate change problem.

• Assistance. While insisting that developing countries take meaningful actions to address climate change, the U.S. recognizes that many of these countries face significant development challenges that hamper their ability to reduce emissions. President Clinton is reemphasizing his commitment to working with these nations to help build more sustainable energy futures. This includes a $1 billion package of assistance from USAID and a renewed commitment to provide financial assistance through the Global Environment Facility, as well as our pathbreaking joint implementation proposals.