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Stuart E. Eizenstat, Under Secretary of State for Economic, Business and Agricultural Affairs Statement before the House International Relations Committee Washington, D.C., May 13, 1998 As released by the Bureau of Oceans and International Environmental and Scientific Affairs

Thank you, Mr. Chairman.

At the outset, let me thank those members of Congress, in this chamber and in the Senate, who participated with us in the Kyoto Conference last December and who lent their advice and support to our efforts there. Rarely has there been an environmental issue more important or complex than global warming, and rarely has there been a greater need for the Executive Branch and the Congress to work closely together.

It is with great pleasure that I appear here today to explain the Administration's position on global warming. To this end, I will divide my testimony into four parts: (1) a short discussion of the science -- the driving force for all the efforts we have taken to date to mitigate a significant and growing global environmental problem; (2) a discussion of the results of the Kyoto Conference and key features of the Kyoto Protocol; (3) an effort to correct misperceptions; and (4) a brief review of the President's Climate Change Technology Initiative. I hope to leave you with a clear understanding of why we believe that it is necessary to act, of how we intend to proceed internationally, and of what the President plans to do here at home.

The Science

Human beings are changing the climate by increasing the global concentrations of greenhouse gases such as carbon dioxide, methane and nitrous oxide. Burning coal, oil and natural gas to heat our homes, power our cars and illuminate our cities produces carbon dioxide and other greenhouse gases as by-products -- more than 6 billion metric tons worth of carbon in the form of carbon dioxide annually. Similarly, deforestation and land clearing also release significant quantities of such gases -- another 1 to 2 billion tons a year. Over the last century, greenhouse gases have been released to the atmosphere faster than natural processes can remove them. There is no ambiguity in the data; since 1860, concentrations of carbon dioxide have risen 30 percent, from 280 parts per million (ppm) to 365 ppm.

In December 1995, the authoritative Intergovernmental Panel on Climate Change (IPCC), representing the work of more than 2,000 of the world's leading climate change scientists from more than 50 countries, concluded that "the balance of evidence suggests that there is a discernible human influence on global climate."

The IPCC Assessment represents the best synthesis of the science of climate change. It concludes:

Concentrations of greenhouse gases could exceed 700 ppm by 2100 under "business as usual" -- levels not seen on the planet for 50 million years. The projected temperature increase of 2 to 6.5 degrees Fahrenheit over the next 100 years, could exceed rates of change for the last 10,000 years. For perspective, while there is some uncertainty, tropical sea surface temperatures in the last ice age were anywhere from 2 to 9 degrees Fahrenheit cooler than today.

Increased temperatures are expected to speed up the global water cycle. Faster evaporation will lead to a drying of soils and in some areas increased drought. Overall, however, due to the faster global cycling of water, there will be an increase in precipitation.

Sea levels are expected to rise between 6 and 37 inches over the next century. A 20 inch sea level rise could double the global population at risk from storm surges -- from roughly 45 million to over 90 million, even if coastal populations do not increase. Low-lying areas are particularly vulnerable (e.g., much of coastal Louisiana and the Florida Everglades).

Human health is likely to be affected. Warmer temperatures will increase the chances of heat waves (like the Chicago event in 1995 that killed over 400 people) and can exacerbate air quality problems such as smog, and lead to an increase in allergic disorders. Diseases that thrive in warmer climates, such as dengue fever, malaria, yellow fever, encephalitis, and cholera are likely to spread due to the expansion of the range of disease carrying organisms. By 2100, there could be an additional 50-80 million cases of malaria each year.

Agriculture, forests, and natural ecosystems are also likely to be affected. The poorest countries, already subject to food production and distribution problems, will likely suffer the greatest agricultural impacts. Doubling current carbon dioxide concentrations could lead to a dramatic change in the geographic distribution of one-third of the Earth's forests. (For example, the ideal range of some North American forest species would shift by as much as 300 miles to the north in the next 100 years -- far faster than their ability to migrate on their own.) Such changes could have profound effects on parks and wildlife refuges, and lead to a reduction in species diversity.

What Changes Have We Seen to Date?

The earth's temperature is increasing: Scientists from our National Oceanic and Atmospheric Administration (NOAA), the UK Meteorological Office and the National Aeronautics and Space Administration (NASA) all recently announced that 1997 was the warmest year on record. In fact, nine of the last 11 years are among the warmest ever recorded.

In recent weeks, satellite images confirmed that a section of an Antarctic ice shelf as big as the District of Columbia has broken away from the Larsen Ice Shelf. A segment the size of Rhode Island broke off from this same area a few years ago. While these events do not appear to threaten a collapse of the west Antarctic ice sheet, they do appear to be related to a several degree warming of the ocean in this region.

In addition, the water cycle of the planet may be speeding up: Since the beginning of the century, NOAA estimates that precipitation in the United States has increased by about 5 - 10 percent, while the frequency of heavy downpours (where more than 2 inches fall in a day) has increased by about 20 percent. The United States has had many recent reminders of how costly extreme events can be: the Mississippi flooding of 1993 led to damages of between $10 and $20 billion; the Southern Plains drought of 1996 was estimated to cost $4 billion; and the Northwest floods of 1996-97 about $3 billion. We have yet to determine the total costs of the 1997-98 El Niño. While no single event can be attributed to global warming, increases in floods and droughts are expected as global warming occurs.

Action Needed Now

Some have argued that we can wait to act until all the details of the climate system have been fully understood. The science tells us that this is a recipe for disaster. We will only fully confirm predictions when we experience them. At that point it will be too late. The concentrations of greenhouse gases in the atmosphere continue to rise each year, and because these gases will persist for many decades to centuries, this problem is only slowly reversed. The earth will continue to warm and the seas continue to rise as long as we continue to load the entire atmosphere of the earth with greenhouse gases. The problem has developed over the course of a century and it will take many decades to solve. Already, we have another 1.0 degree Fahrenheit of warming in the pipeline from emissions that have previously occurred, and there will be more warming ahead as emissions continue to occur into the future. So some impacts will happen no matter what actions we take. Nevertheless, we can still forestall many others if we begin taking cost-effective actions now.

We should look at the Kyoto Protocol as an insurance policy against the potentially devastating and irreversible impacts of global warming. This insurance policy is fully justified today, based solely on our current understanding of the science. If we act now the premium will be far more reasonable than if we delay and hope the problem created by greenhouse gases will go away. It is like a life insurance policy whose costs grow significantly if we delay year after year insuring ourselves.

But there is a critical difference in the case of the climate system. In most insurance policies, the loser can be made whole -- restitution is possible; the building can be rebuilt, the stolen car replaced, the fire or flood damage repaired. In the case of global warming, we will not have a second chance -- failure to act will lead to irreversible consequences. We will be committing ourselves, our children and our grandchildren to a very different planet, and they will never forgive us.

But the premium for this insurance policy must be reasonable. For this reason we rejected unrealistic targets in Kyoto; we insisted on the use of market-mechanisms; and we opposed mandatory policies and measures -- like carbon taxes.

The totality of our scientific information, including that on vulnerability and impacts of global warming, provides a compelling reason to act.

Let me now turn to the recent Kyoto Conference.

Kyoto Protocol

Last December in Kyoto, Japan, the nations of the world reached agreement on an historic step to control greenhouse gas emissions which cause global warming. No sooner had the negotiating session ended, however, than some critics on both ends of the political spectrum, without a full examination of the results achieved, denounced the agreement as either too little too late or too much too soon. In fact, the Kyoto Protocol, reached only through the exercise of vigorous American leadership, represents an important achievement in the best interests of the United States. But it is a framework for action, a work in progress, not a finished product ready for Senate consideration.

U.S. Negotiating Objectives

In order to secure an effective agreement that is environmentally strong and economically sound, while protecting the unique worldwide interests of the U.S. military, President Clinton and Vice President Gore established three major objectives. As a result of the Kyoto negotiations, we achieved the first two -- realistic targets and timetables for reducing greenhouse gas emissions among the world's major industrial nations, which fully protect the unique role of our military in its global reach; and flexible market-based mechanisms for achieving those targets. The third, meaningful participation of developing countries, will be the focus of our work in the coming months and years, but with the Kyoto Protocol we have made an important down payment.

Elements of the Kyoto Protocol and Related Decisions

Our first objective -- realistic targets and timetables among developed countries -- had to be a credible step in reducing the dangerous buildup of greenhouse gases, yet measured enough to safeguard U.S. prosperity at home and competitiveness abroad. In the end, we secured the key elements of the President's proposal on targets and timetables, often over the initial objections of the European Union and other developed countries. The agreement and related decisions include:

The U.S. concept of a multi-year time frame for emissions reductions rather than a fixed, single-year target. The multi-year time frame will allow the United States, other nations and our industries greater flexibility in meeting our targets. Averaging over five years, instead of requiring countries to meet a specific target each year, can lower costs, especially given an uncertain future. The averaging can smooth out the effects of short-term events such as fluctuations in the business cycle and energy demand, or hard winters and hot summers that would increase energy use and emissions.

The U.S. specific time frame of 2008-2012, rather than earlier periods preferred by the European Union and others, giving us more time to phase in change gradually and deploy new technologies cost-effectively, and thereby to cushion the effects on our businesses and workers.

Differentiated targets for the key industrial powers ranging from 6% to 8% below baseline levels (1990 and 1995) of greenhouse gas emissions, with the United States agreeing to a 7% reduction. When changes in the accounting rules for certain gases and offsets for activities that absorb carbon dioxide are factored in, the level of effort required of the United States is quite close to the President's original proposal to return emissions to 1990 levels by 2008-2012, representing at most a 3 percent real reduction below that proposal, and perhaps less.

An innovative proposal shaped in part by the United States, allowing certain activities, such as planting trees, that absorb carbon dioxide -- called "sinks" -- to be offset against emissions targets. This will both promote cost-effective solutions to climate change and encourage good forestry practices. As a major forestry nation this will be of special benefit to the United States.

As proposed by the United States, the Kyoto Protocol covers all six significant greenhouse gases even though the E.U. and Japan proposed and fought until the last moment to cover only three. This was an important environmental victory -- also supported by many in our own industry -- because gases that other countries wanted to omit and leave uncovered (including substitutes for the now banned chlorofluorocarbons that endanger the ozone layer) are among the fastest growing and longest lasting greenhouse gases.

Flexible Market Mechanisms

Our second broad Presidential objective was to make sure that countries can use flexible market mechanisms to reach their targets rather than the mandatory "policies and measures," such as carbon taxes, favored by the E.U. and many other developed countries.

The Kyoto Protocol enshrines a centerpiece of this U.S. market-based approach -- the opportunity for companies and countries to trade emissions permits. In this way, companies or countries can purchase less expensive emissions permits from companies or countries that have more permits than they need (because they have met their targets with room to spare). This is not only economically sensible, but environmentally sound. By finding the least expensive way to reduce emissions, we will be providing a strong incentive for achieving the maximum level of emissions reductions at the least cost. The United States has had a very positive experience with permit trading in the acid rain program, reducing costs by 50 percent from what was expected, yet fully serving our environmental goals.

This was a new concept for developed and developing countries alike -- some of whom fought it vigorously. But we have it firmly enshrined in the Kyoto Protocol and it is a critical way of ensuring cost-effective solutions. Its inclusion was a major victory for us.

We went even further by achieving a conceptual understanding with several countries, including Australia, Canada, Japan, New Zealand, Russia and Ukraine, to trade emissions rights with each other. This ‘umbrella group' could further reduce compliance costs. Since Kyoto, further discussions have taken place and will continue.

Ensuring that we can meet our target reductions cost-effectively will depend significantly on access to the flexibility mechanisms we fought hard to include in the Kyoto Protocol. Let me be very clear: The commitment we made in Kyoto would not have been made -- could not have been made -- were it not for the flexibility mechanisms that were also agreed there. Until we are satisfied with the rules and procedures yet to be established, the promise of Kyoto will never be realized.

Meaningful Participation of Developing Countries

Our third objective was to secure meaningful participation of key developing countries, a concern that the Senate obviously shares, as evidenced by last summer's Byrd-Hagel Resolution. Global warming is, after all, a global problem which requires a global solution -- not only from the developed world but also from key developing countries.

Per capita emission rates are low in the developing world and will remain so for some time. At the same time, it is also true that by around 2015 China will likely be the largest overall emitter of greenhouse gases, and by 2025 the developing world will emit more greenhouse gases in total than the developed world. So from an environmental perspective, this problem cannot be solved unless developing countries get on board.

We encountered significant resistance in Kyoto by some developing countries to meaningful participation in solving the global warming problem. For example, we had sought to include a specific process through which advanced developing or newly developed countries could take on quantified emission limitation commitments and thereby take part in the international emissions trading regime. While a number of developing countries expressed interest in our proposal and supported it in Kyoto, others rejected it, and it was not possible to include such a specific process in the Protocol. Still, developing countries may nevertheless, as a prerequisite for engaging in emissions trading, voluntarily assume binding emissions targets through amendment to the annex of the Protocol that lists countries with targets.

Some developing countries believe -- wrongly -- that the developed world is asking them to limit their capacity to industrialize, reduce poverty and raise their standard of living. We have made clear that we support an approach under which developing countries would continue to grow -- but in a more environmentally sound and economically sustainable way, by taking advantage of technologies not available to countries that industrialized at an earlier time.

The Kyoto agreement does not meet our requirements for developing country participation. Nevertheless, a significant down payment was made in the form of a provision advanced by Brazil and backed by the United States and the Alliance of Small Island States. This provision defines a "Clean Development Mechanism," which embraces the U.S.-backed concept of "joint implementation with credit." The goal is to build a bridge -- with incentives -- between developed, industrialized countries, and developing nations. This new mechanism will allow companies in the developed world to invest in projects in countries in the developing world -- such as the construction of high-tech, environmentally sound power plants -- for the benefit of the parties in both worlds. The companies in the developed world will get emissions credits at lower costs than they could achieve at home, while countries in the developing world will share in those credits, and receive the kind of technology that can allow them to grow with lower greenhouse gas emissions.

The Clean Development Mechanism has great potential, but developing countries will need to do more in order to participate meaningfully in the effort to combat global warming. In determining what developing countries ought to do, we should be aware that the circumstances of developing countries vary widely, along a kind of continuum. Some today are very poor; their greenhouse gas emissions are negligible and are likely to remain so for the foreseeable future. Others, whose greenhouse gas emissions are not substantial, are relatively well off. Some are poor on a per capita basis, but their greenhouse gas emissions today rival or surpass those of the most advanced industrialized nations. Still others have already joined ranks with the industrialized world in the OECD but have not yet fully accepted the added responsibility for protection of the global environment that comes with their new status.

Any ‘one-size-fits-all' approach to the ‘meaningful participation of developing countries' and to satisfy the Byrd-Hagel Resolution is thus unlikely to prevail. We found in Kyoto that even among the industrialized countries it was necessary to recognize the individual national circumstances faced by those differently situated in order to reach agreement, notwithstanding our common purpose. Similarly, any uniform, inflexible approach to the ‘meaningful participation of developing countries' is unlikely to prevail.

Recognizing our "common but differentiated responsibilities and respective capabilities" it will be necessary to develop an approach that provides for a meaningful global response to the threat of global warming, while acknowledging the legitimate aspirations of developing countries to achieve a better life for their peoples. To succeed, we will need to ensure that those responsible for a significant share of global emissions accept their responsibility to protect the global environment. We will also need to ensure that those who are able to do so contribute according to their capacities and stage of development.

The Global Environment Facility (GEF) plays a unique role in moving developing countries toward integrating climate change mitigation into their overall development processes. The GEF has committed $732 million to projects in developing countries and the economies in transition for energy efficiency and cleaner energy supply, and it has leveraged over $3 billion from other sources. Every project includes measures tailored to the conditions in recipient countries to promote stronger environmental policies and domestic investment in clean energy. This is a positive, constructive role for the GEF in the climate issue -- fully consistent with the Byrd-Hagel Resolution and numerous U.S. objectives related to energy, environment, and economic development.

Some Misperceptions

Before moving on, Mr. Chairman, let me address a few specific points on which I believe there may be some misperceptions. The first of these is that the Kyoto Protocol will damage our national security or imperil the ability of our military to meet its worldwide responsibilities -- this is not true.

We took special pains working with the Defense Department and the uniformed military before and in Kyoto to protect the unique position of the United States as the world's only superpower with global military responsibilities. We achieved everything they outlined as necessary to protect military operations and our national security.

At the Kyoto Conference, the Parties took a decision to exempt key overseas military activities from emissions targets, including exemptions for "bunker fuels" (those used in international aviation and maritime transport) and for emissions resulting from a wide range of multilateral operations, such as peacekeeping and humanitarian relief. This exempts from our national targets not only multilateral operations expressly authorized by the UN Security Council (such as Desert Storm or Bosnia), but also multilateral operations that the United States initiates pursuant to the UN Charter without express authorization (such as Grenada). Countries may also decide among themselves how to account for emissions relating to multilateral operations (e.g., U.S. training in another NATO country) without going through emissions trading.

Furthermore, in terms of domestic implementation of the Kyoto Protocol, the President recently determined that, to ensure defense readiness, he will propose that military operations and training be held harmless from any national emissions limits that might be adopted. Measures intended to promote reductions in emission of greenhouse gases will not impair or adversely affect operations and training or the ability to reallocate emissions resulting from overseas activities and bases. In summary, the Department of Defense is satisfied with the agreement reached in Kyoto.

Second, it has been suggested that the Protocol will create a super UN Secretariat that will threaten U.S. sovereignty and national decision-making through alleged intrusive verification procedures and prior approval of individual emissions trades. That is not so. The review process contained in the Protocol largely codifies the existing practice under the 1992 Framework Convention, to which the United States is a Party. Under the Protocol, small expert review teams will continue to visit Annex I countries for brief periods to review implementation of the Convention and of the Protocol. The review process is intergovernmental, in that experts are nominated by governments. The review teams meet with government officials, and with others by invitation. In reviews under the Convention, including the review of our second national communication which took place here in Washington from April 20-24, 1998, the teams have met with Congressional staff, representatives of the private sector and representatives of environmental organizations -- but only with their concurrence. Any other visits, such as site visits, would take place only if approved by the host country and, if the private sector is involved, the relevant interested persons. To date under the Convention, no site visits have taken place.

In addition, let me be unmistakably clear -- while trading rules must be established internationally to have emissions trading work -- as our SEC must set rules for equity trading -- we will not accept nor do we anticipate an approach that would require prior approval of individual emissions trades by an international body. Trading will be done between interested nations and their companies, based on market principles.

Concerns have also been raised that the Protocol is flawed, on the one hand because it will threaten U.S. sovereignty by dictating national decisions on implementation and, on the other hand, because it lacks mechanisms to verify compliance. In fact we believe that the Protocol strikes an appropriate balance between these two extremes.

The United States firmly opposed mandatory, harmonized policies and measures that would be imposed upon us in order to reach our target. We prevailed. The Protocol leaves Parties entirely free to decide how best to meet their targets based on national circumstances.

At the same time, we could not tolerate a free-for-all where Parties might or might not meet their commitments, particularly given the conscientious way the United States meets its international obligations. As a result, the Protocol calls for national measurement of emissions, detailed reporting, and in-depth reviews -- on an intergovernmental basis.

The one area where we believe more work needs to be done is in identifying appropriate consequences for non-compliance; the Protocol provides for elaborating such consequences, with any binding consequences to be done in amendment form, so that the Senate would have the opportunity to approve them.

Finally, some have suggested that the Protocol will result in a huge government transfer of foreign aid to Russia in which we will give away taxpayer money with no leverage on Russian policies with these funds. This also is not true. Under the Protocol's emissions trading provisions, we envision that U.S. private sector firms may choose to purchase international emissions credits in order to meet their emissions obligations. Indeed, the private purchase of emissions credits is one of the crucial ways to achieve cost-effective emissions reductions for U.S. firms.

As with any market transaction, purchases of these credits will have to comply with all U.S. legal and regulatory requirements. In addition, U.S. firms interested in international investment will have an incentive to ensure that other countries meet the international standards for adequate monitoring and reporting of their emissions of greenhouse gases. At the same time, Russia will have significant incentives to use the revenue generated to invest in the most modern, climate-friendly plants and equipment so that, as its economy recovers, it continues to produce emissions credits that it can sell on international markets. But of course, Russia will decide how best to meet its own commitments.

Framework for Action

Where do we go from here? While historic, the Kyoto Protocol is only one step in a long process. It is, in essence, a framework for action, a work in progress, and a number of challenges still lie ahead.

Rules and procedures must be adopted to ensure that emissions trading rights, joint implementation and the Clean Development Mechanism operate efficiently and smoothly. The Kyoto Protocol establishes emissions trading, but leaves open the specifics of operations. We will work hard to ensure that the rules and procedures adopted enable emissions trading, joint implementation and the Clean Development Mechanism to work smoothly and efficiently, thereby encouraging the private sector to engage.

We will also work closely with our industries to be sure they are satisfied that the emissions trading system which is developed is as efficient and effective as possible to meet their needs.

Most significant, we must work to secure the meaningful participation of key developing countries. We must be creative in initiating bilateral agreements. We have made a promising start with an agreement we reached with China during last fall's Summit and in our continuing discussions since then.

Another example is the Joint Statement of President Clinton and President Frei of Chile, issued in conjunction with the recent Summit of the Americas in Santiago. There, the two presidents:

• Expressed their firm support for the principles and objectives of the Kyoto Protocol and their conviction that its market mechanisms will be a great help in mobilizing private sector resources to reduce greenhouse gas emissions;

• recognized the potential of the Clean Development Mechanism to become an important resource for attracting private sector initiatives and investment in clean energy technologies, energy efficiency, forests and other activities that reduce, absorb or eliminate greenhouse gas emissions;

• agreed that all countries should be involved in global efforts to address climate change, taking into account their common but differentiated responsibilities;

• noted that developed countries must set the example in reducing greenhouse gas emissions as a matter or priority, while developing countries should participate meaningfully in efforts to address climate change, for example, by taking on emissions targets whenever possible; and

• committed their governments to work together on these issues in preparation for the next conference of the parties to the Framework Convention on Climate Change this November in Buenos Aires.

We are also using regional and multilateral fora to achieve our objectives -- such as the recent Summit of the Americas in Santiago, Chile, in the Asian Partnership for Economic Cooperation (APEC) process, the President's recent trip to Africa, and the upcoming G-8 Summit in the United Kingdom.

As Secretary Albright said in her Earth Day speech, we are mounting a full court diplomatic press to bring developing nations into a meaningful role in helping solve the global climate challenge. We will accept nothing less, nor would we expect the United States Senate to do so As the President has indicated, the United States should not assume binding obligations under the Protocol until key developing countries meaningfully participate in meeting the challenge of climate change. Although the Kyoto Protocol was an historic step forward, more progress is necessary with respect to participation of key developing countries. It would be premature to submit the treaty to the Senate for its advice and consent to ratification at this time.

The Administration also plans to continue to work with the international financial institutions to promote market-based energy sector policies in developing countries that will help reduce developing country greenhouse gas emissions. Multilateral development bank policies, including those of the Global Environment Facility, strongly influence international lending and private capital flows for energy, industrial and transportation investments. Policies that favor market pricing, privatization, clean technologies and environmentally-friendly approaches will make implementing the Kyoto Protocol easier and will speed the growth of markets for new technologies that help reduce emissions in developing countries. We will work with the international financial institutions themselves -- from the World Bank to the regional development banks -- and with other countries, especially developed countries, to achieve these goals in the coming years.

The Kyoto agreement does not solve the problem of global warming, but it represents an important step in dealing with a problem that we cannot wish away. If we fail to take reasoned action now, our children and grandchildren will pay the price.

Mr. Chairman, before turning briefly to our domestic efforts, let me note two other key elements in this equation -- the contributions that the United States provides to carry out work under the UN Framework Convention on Climate Change and in the Intergovernmental Panel on Climate Change (IPCC), as well as the contributions that we make to the Global Environment Facility (GEF). For FY 1999, the President has requested $314 million for the International Organizations and Programs Account, a level that represents a 6.6 percent increase over FY 1998. This amount includes $8 million for the Climate Stabilization Fund which supports the Framework Convention and the IPCC. Parties to the Convention have much work ahead of them, as I have already noted. In addition, the IPCC has now embarked on its Third Assessment Report of Climate Change, scheduled for completion in late 2000 or early 2001. These funds are vital to ensuring U.S. leadership in both of these organizations and to ensuring that our views and the work of our scientists are taken fully into account.

In addition, the President has requested $300 million to meet our past and current pledges to help fund the Global Environment Facility (GEF). The GEF helps developing countries act to protect the global environment in several key focal areas including international waters, biodiversity, climate change and depletion of the stratospheric ozone layer. As I noted earlier, if we want to bring developing countries on board with real commitments to limit greenhouse gas emissions, we need to demonstrate that we are a reliable partner by supporting their concrete efforts with reliable resources. At this point, our GEF shortfall damages U.S. credibility in promising to help developing countries meet the climate change obligations we are urging that they undertake. I would therefore urge the Congress to fund fully our $300 million request, to meet our current pledge and also clear our substantial shortfall of nearly $200 million.

President's Climate Change Technology Initiative

In his State of the Union address, President Clinton said that global warming is "the gathering crisis that requires worldwide action." We need to begin now to launch the sensible, cost-effective efforts that will help us avoid the high future cost of inaction.

The President last October outlined a three-stage approach to addressing climate change at home. The first stage consists of immediate actions to stimulate development and use of technologies that can minimize the cost of meeting U.S. goals in reducing greenhouse gas emissions. Stage two will review options created through ongoing technology development and lead to detailed plans for a domestic, market-based permit trading system for carbon emissions. Stage three will begin to implement a market-based emissions-trading system.

As a first installment on this plan, President Clinton announced in his State of the Union message his proposal for a $6.3 billion Climate Change Technology Initiative over five years to cut U.S. greenhouse gas emissions -- $1.3 billion higher than the President announced in his initial plan in October. This vigorous initiative calls for tax cuts coupled with research and development (R&D) to take cost-effective, practical steps that will position us well to meet the challenge we face early in the next century.

This initiative consists of two parts -- $3.6 billion in tax credits for energy-efficient purchases and renewable energy, and $2.7 billion in new R&D spending over five years.

The tax package includes tax credits of $3,000 to $4,000 for consumers who purchase advanced technology, highly fuel efficient vehicles. It provides a 15 percent credit (up to $2,000) for purchases of rooftop solar electricity and hot water systems to provide incentives for meeting the Million Solar Roofs goal. It also includes a 20 percent credit (subject to a cap) for purchasing energy-efficient building equipment, a $2,000 credit for purchasing energy efficient new homes, extension of the wind and biomass tax credit, and a 10 percent investment credit for the purchase of combined heat and power systems.

The R&D component covers the four major carbon-emitting sectors of the economy (buildings, industry, transportation and electricity), plus carbon removal and sequestration, Federal facilities, and cross cutting analysis and research. Examples of this R&D effort include the Partnership for a New Generation of Vehicles (PNGV), a government-industry effort to develop affordable cars that meet all applicable safety and environmental standards and get up to three times the fuel efficiency of today's cars. In 1999, the President's budget for PNGV is $277 million, up from $227 million appropriated for 1998. Our PNGV effort is clearly paying off -- the developments about higher mileage cars announced by the Big Three last month were assisted by research supported under PNGB. It is exciting to see our U.S. automakers already planning for the cars of the future, not as pipe dreams but as achievable greenhouse gas friendly products.

As General Motors Chair and CEO John F. Smith said recently in announcing GM's plans to step up research spending and focus on bringing new products to market, "No car company will be able to thrive in the 21^st century if it relies solely on internal combustion engines."

Similar government-industry efforts are proposed to develop cleaner, more efficient diesel engines for both light trucks and heavy trucks. The R&D effort also includes expanded research partnerships for key renewable technologies such as wind, photovoltaics, geothermal, biomass, and hydropower to accelerate price reductions and improve performance. The President's 1999 budget proposes a $100 million increase in appropriations for solar and renewable energy R&D -- a 37 percent increase over 1998.

We hope that the Congress will view the President's initiative favorably and appropriate the funds and enact the tax incentives that he has requested. We look forward to working with you to put the President's proposals into action.

The President and his Administration are committed to working with you in the Congress, both to realize the potential of the Climate Change Technology Initiative and to craft the ongoing U.S. approach to climate change. The United States has the power to lead the global effort, and Congress holds the key. What is done or not done today will determine the kind of world we will leave to future generations and the conditions of life they will face.

Before concluding, let me also briefly address a concern that some have raised in recent weeks -- namely that the Administration is somehow seeking to implement the Kyoto Protocol before submitting that treaty to the Senate for its advice and consent. This is not so.

We are pursuing a host of actions as a matter of good environmental and good energy policy -- including efforts to promote energy efficiency, to increase the use of renewable forms of energy, to improve air quality, and to develop new technologies. Our efforts in these areas predate the Kyoto Conference last December and the Kyoto Protocol adopted there. They represent a prudent effort to do things today that make sense, that will be good for business and good for our environment.

Last October, the President announced his intention to proceed with the Climate Change Technology Initiative -- whether or not there was a successful outcome in Kyoto -- because the development of sound energy policies is in our national interest. The President mentioned this initiative in his State of the Union message and included it in the Administration's budget proposals to the Congress. We have acted openly, transparently and in a spirit of full cooperation with the Congress.

Let me also note that United States has existing obligations under the United Nations Framework Convention on Climate Change to adopt policies and measures to mitigate climate change. The Framework Convention was negotiated during the Bush Administration, and the United States Senate overwhelmingly gave its advice and consent to the Framework Convention in 1992. To meet our commitments under the Framework Convention, President Clinton launched the Climate Change Action Plan in October 1993 which contained nearly 50 specific measures and programs. And we continue to search for cost-effective ways to act responsibly in the face of this most significant threat to our global environment.

What we have not done -- what we will not do -- is take steps that would require mandatory action at the macro-economic level or with respect to specific sectors of our economy in order to reach the Kyoto target before the President has obtained the advice and consent of the Senate.

Sustained Effort Required

Mr. Chairman, I have mentioned that Kyoto produced a framework for future action, and I have listed a number of the steps that await us. If we delay responding to climate change, the cost of responding in the future will rise. It is crucial now to develop new technologies to avoid future costs.

Coming to grips with the threat of global warming is no small task. We must tackle it in a vigorous, sober and determined manner, understanding that it represents a challenge but also an opportunity. And as we have always done in the face of global challenge, we must assume the responsibilities of American leadership.

Thank you.

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