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Under Secretary of State for Global Affairs Timothy E. Wirth Statement before the Senate Foreign Relations Committee, Subcommittee on International Economic Policy, Export and Trade Promotion Washington, DC, October 9, 1997 As released by the Office of the Spokesman U.S. Department of State

Mr. Chairman and Members of the Subcommittee:

Today, in addition to providing an update on our progress in the climate change negotiations, I would like to address three issues: (1) the matter of the European Union "bubble", (2) issues related to developing country participation, and (3) the various mechanisms through which we can bring appropriate technologies to developing countries to assist them in combating climate change.

Let me start with an update, in particular focusing on developments since I last appeared before this committee in June 1997.

We are rapidly approaching the end of the negotiations leading up to the third session of the Conference of the Parties, to be held in Kyoto, Japan from December 1-10, 1997. As of today, there are only 64 days left 4 and only about 18 of those are set aside for formal negotiations. Progress has been made, on some of the important issues, and the beginnings of an agreement are emerging. If we are successful, the agreement is likely to include critical elements of our own proposal, including:

• an emissions budget, which allows for smoothing of fluctuations in weather and economic variables and some flexibility in the timing of emissions reductions;
• a multi-gas approach, in which not only carbon dioxide but all greenhouse gases are incorporated (although there is significant opposition to including "sinks");
• international emissions trading and joint implementation, both of which increase flexibility by allowing Parties to offset emissions at home with the purchase of emissions reductions elsewhere;
• mechanisms for monitoring and verification of reductions, which insures a level playing field for all Parties; and
• action by developing countries, in addition to a target and timetable from developed countries.

I do not mean to suggest that the final text will include each of these elements in the form that we originally set forth in our U.S. proposal this past January; the negotiating process does not allow for that. But the Administration has proposed, and much of the world has begun to accept, an overall paradigm for moving forward to address this serious problem: a solution which maximizes flexibility in implementation while insuring the integrity and environmental benefits of emissions targets.

The Administration is not yet at the point of finalizing its decision regarding a target for controlling emissions. We will keep you informed as to our progress on this front. We have clearly heard the concerns raised in this committee, as well as those raised in the Senate Resolution passed early this summer. I wish to restate here: our agreement will protect American competitiveness and will be in the best interest of the American people. The President again committed himself to these goals at the White House conference on Monday, and it is a goal to which we have consistently adhered during the course of our negotiations.

However, on many aspects of our proposal, we have been clear 4 and the domestic consensus supports our approach. The Administration has been aggressively promoting these elements of our proposals in an intense round of bilateral and multilateral sessions. The President has made climate change an issue in his meetings with other national leaders, including in sessions on the margins of the General Assembly session of the United Nations. The Vice President and the Secretary of State have raised climate change in their own meetings. I have had a series of sessions in Europe and Saudi Arabia, as well as with key ministers from Japan, Australia, Canada, and New Zealand, and I will continue to raise this issue in meetings in China later this month. Senior officials have been in Latin America and in Asia discussing our positions. Our hard work is beginning to pay off in an opening of peoples' minds to our perspectives; we remain hopeful that our continued efforts will create a consensus around our approach as we move to Kyoto.

Our allies in the negotiations are found in all blocs of countries: among the developed countries, we have our most extensive areas of common ground with Australia, Canada, Japan and New Zealand 4 each of which supports our proposals for the flexibility elements so important to achieve a lasting, successful and economically feasible agreement in Kyoto. Many countries of the former Soviet Union and of Eastern Europe support our proposals as well. However, we have reached something of an impasse with our European colleagues.

The EU "Bubble"

As you are probably all aware, the EU has chosen what many analysts consider an unrealistic and unachievable target of a fifteen percent reduction by 2010 below 1990 levels. Further complicating the negotiation, European Union member states have also insisted that they be allowed to "bubble" their emissions. This means that while emissions as a whole may be limited to a set target, each individual country may not be required to meet that limit. In fact, a significant portion of the total EU emissions reductions are anticipated to stem from the re-unification of Germany, and the removal of coal subsidies in the UK and a switch to natural gas. While we certainly applaud the shutting down of inefficient and polluting factories and of the removal of subsidies in the energy sector, it is not clear that the benefit of such actions should eliminate the need for other countries within the EU to act. Yet, under the EU proposal, some countries will not be required to reduce emissions at all 4 and some will be allowed to grow. For example, Portugal will be entitled to emissions increases of 40 percent above 1990 levels by 2010, Spain will be able to increase emissions by 17 percent, and France will be required only to maintain emissions at 1990 levels.

Congress has been quick to point out some of the problems inherent in this kind of "burden-sharing". I would like to share with you some of the questions we have asked on this issue:

• We have questioned how the EU proposal would relate to international emissions trading. If it is merely a proposal in which each country would be given a flat rate, and then allowed to trade emissions on the market, we would support their approach.
• We have not been told how the EU intends to insure accountability: for example, if the European Union exceeds its target, what compliance mechanisms exist? Will each country within the EU have the same obligations as countries outside of the Union? Is each country responsible for its "share" only? How is that determined?
• What kind of examples is the EU setting for the developing world? If a 40 percent increase is allowed for some industrialized countries, than even less can be demanded from developing countries. Surely we must demand more of the industrialized country Parties in an effort to set an appropriate standard.
• How will new European Union member states be brought in? If the number of countries is enlarged through the addition of Eastern European members with low emissions, will the overall target be adjusted?

I hope this list of questions gives you an idea of the extent to which we are demanding answers in the international debate. Clarity on these questions is essential for eventual agreements in Kyoto.

Developing Countries

Let me turn to another issue of enormous concern to those on this committee and to others outside this room as well: the participation of developing countries. Let me be clear - developing countries must participate in this treaty. The rationale for developing countries to act is clear: while at present they are responsible for less than half of global emissions, over the next decades, their percentage of the total will grow, despite the fact that their per capita emissions will continue to remain far below our own. We must address this trend of rising emissions if we are to truly make a dent in the long-term problem.

However, I believe it would be instructive to understand better another perspective on this issue 4 that of developing countries themselves. Let's look at some numbers.

• According to the Intergovernmental Panel on Climate Change (IPCC), approximately half a billion cases of malaria are already reported each year. However, experts believe outbreaks of malaria will increase as climate changes. Most of the deaths from malaria occur in children less than five years old 4 and almost all of these kids live in developing countries.
• According to the World Bank, two billion people live on less than $2 a day, and 1.3 billion live on less than $1 a day 4 and all of these are in developing countries.
• It is this perspective, and these factors that developing countries consider when they call on the developed world to act first.
• Many uninformed observers have suggested that there are no obligations for developing countries in the current agreement. This is not true. In fact, among other commitments, developing countries are called upon to inventory their emissions of greenhouse gases, to take policies and measures to mitigate and adapt to climate change, to cooperate in the development and transfer of technologies, and to promote and cooperate in climate change research, education and training.

Developing countries have taken action to address their FCCC commitments. Just as we are working to mitigate our emissions, developing countries have proceeded aggressively to develop programs which have reduced their own. Some of the developing country effort has been the result of successful programs mounted by AID, by the U.S. Country Studies Program, U.S. Initiative on Joint Implementation, and by bilateral and multilateral donations from other countries and international organizations. However, much of the resources and the impetus for action have come from within these countries. As we move to another level of international commitment, it is important to understand what has been achieved to date.

A number of examples of developing country efforts are illustrative of this progress. According to the World Bank, between 1991 and 1996, fossil fuel subsidies in 14 developing countries that account for 25 percent of global carbon emissions from industrial sources declined about 45 percent 4 from $60 billion to $33 billion (for comparison, note that OECD subsidies declined by about 20.5 percent, from $12.5 billion to $9.9 billion). China, which accounts for approximately 12 percent of total world energy-related CO2 emissions, has been actively reforming energy pricing, and subsidies have fallen from 37 percent in 1984 to 29 percent in 1995, while petroleum subsidies have fallen from 5 percent in 1990 to 2 percent in 1995. Furthermore, Chinese efficiency gains have also been significant; without intervention, emissions would have been nearly 155 million metric tons higher in 1990 than they were with policy actions. And, by the end of 1993, 12 percent of China's installed electrical generation capacity was produced by co-generation. Many other developing countries are also actively promoting energy efficiency. For example, in Brazil an aggressive program to use ethanol from sugar cane has replaced nearly half of the gasoline that otherwise would have been used.

What does all this tell us? Clearly, it tells us that our expectations and theirs are predicated on different assumptions. We look at them and point to the cause of the problem in the future; they look at us and point to the cause of the problem now. We look at them and worry about competitiveness; they look at us, and point to our overwhelmingly better lifestyle and standard of living 4 which most of them are desperate to duplicate, but are being told is beyond their reach because of the environmental consequences. As President Clinton remarked at the White House conference on Monday, our problem with China is one of national security 4 it is that China might follow our emissions path, and in so doing would create a world unlivable for us all. We look to Kyoto and demand that all countries participate; developing countries look to Kyoto and agree to take actions 4 but only after the industrialized world has moved first.

Historically, the bonds of the developing country alliances are difficult to break, notwithstanding the often great differences within the group. We can empathize with the needs for small island states, which face potential eradication through sea level rise, to insist on aggressive targets. We can conclude that grouping all developing countries together is a mistake 4 and we can suggest that poor countries which emit next to nothing should have different obligations than do the wealthier countries with a significant share of the global total.

We can accommodate the concerns of developing countries that differences between levels of development are real by providing flexibility in the obligations we insist they take on. Many developing countries accept that eventually they will have to assume greater responsibility for dealing with climate change 4 but suggest the appropriate time for such action would be once they have passed a certain threshold of economic development.

We can also address the concerns developing countries have set forth regarding the imbalance in our expectations 4 that they be called upon to set targets before we have demonstrated our own good faith. This is best accomplished by fully funding our own programs and by aggressively seeking to develop the technologies that will be needed for global reductions.

We can continue to promote active developed and developing country cooperation through our ongoing bilateral and multilateral assistance programs. Evidence of success in these efforts is beginning to emerge in many developing countries with the development of renewable energy technologies, the removal of subsidies, the improvements in efficiencies and the implementation of climate action plans. We can demonstrate with our own commitments that we value these environmental efforts, and that the United States will stand by countries which invest in the long term and the global well-being.

Ultimately it is actions themselves that will determine international success in addressing the climate change problem 4 not the instrument which codifies the obligations, or the process through which the actions may be generated. Real emissions reductions, in all countries in the world, at the least possible costs are our goals. Others may also exist 4 and we need to take advantage of them all.

I am not proposing that we step back from our view; that both developed and developing countries must act to avoid continued and potentially calamitous global warming. Rather, I am saying we must determine what we ask of developing countries with a realistic and fair appreciation of how they see the world as well. The level and timing of each country's commitments must be commensurate with its national abilities and level of development. Balance and fairness must be maintained. And any package to which we agree in Kyoto will insure this is done.

Our developing country proposal has three parts:

It calls for continuing to advance the implementation of commitments: essentially defining the specifics of what that means, and including calling on them to increase energy efficiency, to emphasize market oriented pricing, to increase the use of renewables, to improve their transport sector 4 and in general to take actions to address climate change that are justified economically in their own right.

It creates a new category of countries (Annex B): in which developing countries would voluntarily take on legally binding emissions limitation or reductions commitments; and

It proposes that the Parties ultimately agree on provisions so that all Parties (including developing countries) have quantitative greenhouse gas emissions obligations, and so that there is a mechanism for automatic application of progressive obligations to Parties based on agreed criteria.

While we may be willing to be flexible on the procedures through which each of these elements is made part of the Kyoto package, we remain absolutely convinced on the substance. Developing countries must be clearly and integrally a part of next steps in order for the U.S. to consider becoming a Party. The United States will not assume binding obligations until developing countries make adequate commitments in terms of their own obligations.

Developing the Infrastructure

Let me turn finally to the broader question of how we intend to develop mechanisms to bring appropriate technologies to developing countries to assist them in combating climate change. We all recognize that unless remedial action is taken, developing country emissions are expected to rise as part of their economic development. In my view 4 and I believe in the view of most of the members of this committee 4 it will be critical to find ways to work with developing countries to reduce emissions. This must be a priority regardless of the approach we take through the Convention or any subsequent legal instrument.

What does this mean? It means we must build the next 100 gigawatts of power generating capacity to be cleaner and more efficient. It means we must fully fund the Global Environment Facility; it means we must seek to continue our efforts to develop initiatives to promote environmental export credits and initiatives; it means we must rationalize our lending through the multilateral development banks and our bilateral assistance programs to cover environmental concerns; and it means we must endeavor to continue our efforts to develop and implement the new technologies of the future.

Let us briefly consider two of the largest developing country emitters: China and India. Even after more than a decade of extremely strong economic growth, China is still a seriously underdeveloped country. On a per capita basis, China's GDP is about $620. Over 100 million Chinese still have no electricity. Seeking to remedy its domestic energy scarcity, China's five year plan calls for the addition of 70 gigawatts of electricity generating capacity before the year 2001. That means China will have to add one 1,000 megawatt electric plant every month for the next four years. Under current policies, most of that will come from coal 4 which currently accounts for about 75% of China's electricity. Yet, there is a substantial opportunity to help China make more use of gas and renewable energy with profitable opportunities for U.S. businesses.

India is in similar straits. CO2 emissions increased by 40 percent between 1986 and 1995, with domestic coal fueling industrialization. Currently, India is even lower in per capita emissions than China 4 nearly five times below the world average of four tons a person, and approximately 1/20th of the level in the United States. Like China, India is also installing enormous quantities of new energy generating capacity 4 plans call for the installation of 62 gigawatts by 2002. Inefficiencies and poor technology mar their current infrastructure; currently in India, up to 40 percent of the electricity generated is lost in transmission and distribution. Here too, there are profitable opportunities for U.S. businesses.

We must seek ways to encourage these countries to build a more climate-friendly energy infrastructure. Fortunately, opportunities to move in a more sustainable direction are available. For example, we can work with the international financial institutions (including the World Bank and the regional development banks) and require them to look more closely at the implications of power plant financing. This might require moving away from some of the current solutions which have been seen by the international financial institutions as least cost because damages from climate change may not have been factored into earlier cost calculations. We would welcome a more extensive dialogue with Congress on ways to improve energy lending strategies in these arenas.

Many of the actions we want developing countries to take will be good for the global environment, but will cost money up-front. We must increase the funding available for the Global Environment Facility, which seeks to provide part of the costs to meet the incremental global environmental benefits the planet so urgently requires.

We need to look at ways to bring our private sector into the dialogue as well. Commercial energy suppliers are seeking power generation opportunities in developing countries. To maximize these opportunities, we will need mechanisms that provide "emissions credits" for such investments by firms and/or developed countries. We need other export financing agencies to adopt standards like Ex-Im Bank's set of emission guidelines for the projects it supports, while offering financial incentives for U.S. exporters and foreign buyers who chose renewable energy and low emission technology options to meet their power generation needs. These measures such as Ex-Im Bank's need to be complemented by a global recognition and acceptance of strong environmental criteria. Once our firms demonstrate that new, fuel-efficient technologies and renewable energy sources are commercially viable, we can expect that countries in the developing world will quickly adopt that technology. We should also look to ways to encourage research and development into energy-efficiency and renewable energy both by our private sector and through government funding and research. The development of long-term alternatives will be critical in the path to a sustainable future. Congress has been in the forefront of promoting private sector investment; we would welcome a continued dialogue on how to advance our environmental goals through such mechanisms.

It is clear that these actions must be taken. However, it is equally clear that none of these important steps can be taken by the Administration acting alone. Each will need congressional support. The Senate's attention to the climate issue has brought into focus the importance of the problem, and the need to involve all countries in the solution. In this light, we must now work together to find that solution. I look forward to doing just that.

I would be pleased to answer any questions from the committee.

Thank you.

For additional information, see The White House Initiative on Global Climate Change

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