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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 Released November 7, 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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