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Frank E. Loy Under Secretary for Global Affairs Statement before the Committee on Foreign Relations and the Committee on Energy and Natural Resources United States Senate Washington, DC, September 28, 2000

Good afternoon. I want to thank both Committees for having me here today to talk about the upcoming Sixth Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC), which will take place this fall in the Netherlands at The Hague.

Eight years ago, the United States, under the administration of President George Bush, joined with more than 150 countries from around the world in forging an agreement to begin to tackle a great challenge -- the challenge of global climate change. Five years later, in Kyoto, Japan, we took the next step in addressing this challenge, by negotiating an historic agreement to limit emissions of greenhouse gases.

Scientific Assessment

In taking these actions we were spurred by the overwhelming weight of scientific authority, which tells us that the build-up in greenhouse gases in the atmosphere creates risks that are too serious to ignore. Since Kyoto, this scientific consensus has only gotten stronger -- both as to the evidence that human-induced climate change is occurring and as to the dangers it presents.

Today, there is indisputable evidence that the Earth is warming.

• Studies show that the 20th century has been the warmest century in the past 1,000 years and that the 1990s have been the warmest decade in that period, while 1998 was the single warmest year on record.
• Temperature profiles in boreholes, for example, now provide independent verification of surface warming of 1 degree C over the last 500 years -- with 50% of this warming occurring since 1900.
• New evidence shows that the top 300 meters of the ocean have also warmed by about 1/3 of a degree C over the past 50 years.
• New research reveals that arctic sea ice thickness has declined by about 40% over the past 20 to 40 years.

These and other studies make scientists more confident than ever that natural processes cannot explain the dramatic warming we have seen in the 20th century. Indeed, the data only makes sense if one includes the effects of human-induced warming.

Scientists predict that, if we continue on our current course, concentrations of greenhouse gases in the atmosphere will reach roughly twice pre-industrial levels during this century -- a level not seen on this planet for the past 50 million years -- and proceed upward from there. The Intergovernmental Panel on Climate Change (IPCC), which represents the work of more than 2,000 of the world's leading climate scientists, estimates that a doubling of pre-industrial levels will lead to an increase in average global temperature of 2 to 6.5⁰F, and significantly more at some locations. By way of comparison, the last ice age was only 5 to 10⁰F colder than today.

Scientists warn that these unprecedented changes in our atmosphere will bring many potential dangers -- including more severe and extreme weather events, such as storms and droughts, increases in respiratory and infectious diseases, rising sea levels, and widespread damage to forests and other ecosystems.

Need for Prudent Action at a Reasonable Cost

As policymakers, we must base our decisions on the best scientific evidence available. But we would fail in our duty to safeguard the health and well-being of our citizens and the environment they cherish if we waited to act until the details of the climate system have been fully understood. The science tells us that this would be a recipe for disaster, for we will only fully confirm the predictions of climate science when we experience them, at which point it will be too late. Instead, we should ask, "Are the risks great enough to justify taking action?" When it comes to the challenge of climate change, the answer is an emphatic "yes."

We need, in essence, to take out an insurance policy to protect us against the risks of climate change. This insurance policy is fully justified today, based solely on our current understanding of the science. If we act now the insurance premium will be far more reasonable than if we delay and hope the problem will simply go away.

That is why the President has proposed increased investments for the research and development of clean energy technologies, and voluntary partnerships with industry to reduce emissions. We have also proposed tax credits for clean and efficient cars, homes and appliances. These are "win-win" programs that not only reduce greenhouse gas pollution and energy consumption, but also save money for consumers and businesses. Unfortunately, Congress has not adequately supported this aspect of the Administration's energy policies.

U.S. Negotiating Objectives at Kyoto

A crucial element of our insurance policy against global warming is to complete work on the Kyoto Protocol.

As we have often said, the Kyoto Protocol is both an historic achievement and a work in progress. The agreement negotiated in 1997 reflects the core objectives that the United States sought to achieve and provides a basis for real action, at a reasonable cost. The Protocol combines ambitious but realistic environmental targets with innovative market-based mechanisms to help Parties achieve those targets in a cost-effective manner. It represents an important and judicious step forward in meeting a very great challenge. And it is undeniably a document that reflects our key negotiating objectives.

• We negotiated for -- and won acceptance of -- a multi-year time frame for emissions reductions, which allows us greater flexibility than a fixed single-year target, lowers costs, and smooths out the effects of short-term events such as fluctuations in the business cycle and hard winters or hot summers that would increase energy use.

• We negotiated for -- and won -- inclusion of all six significant greenhouse gases, including the fastest growing and longest lasting gases. By including all of these gases, we will both better protect against climate change and reduce the cost of doing so.

• We insisted on -- and won -- inclusion of market-based mechanisms, such as emissions trading, which will dramatically lower the cost of meeting greenhouse gas emission reduction targets.

• We insisted on -- and won -- the inclusion of carbon "sinks," so that activities such as planting trees, restoring degraded soils, and adopting best land-use management practices can potentially be counted against emissions targets -- thereby creating economic opportunities for U.S. farmers and the U.S. forestry industry.

• And we rejected both unrealistic, prohibitively expensive targets and mandatory policies and measures, such as carbon taxes.

That said, we made it clear from Day One that the Kyoto Protocol is a work in progress and not yet a finished product, and that by itself it is not a complete solution to the problem of climate change. In order to do so, we believe that three fundamental issues must be addressed: environmental effectiveness, economic cost and developing country participation. Let me briefly speak to each of these.

Environmental Effectiveness

First, environmental effectiveness.

Any elaboration and implementation of the Protocol must assure the world that the reductions and removals of greenhouse gases from the atmosphere required by the Protocol actually occur. Toward this end, the United States has taken the lead in developing comprehensive, effective, and binding rules to estimate, report and review emissions, and to track trading of Parties' emissions allowances. We can report at this point that these vital elements of environmental effectiveness have already gained wide acceptance in the negotiations.

We are also vigorously promoting provisions to ensure compliance with the obligations of the Protocol. The United States supports legally binding consequences for exceeding emissions targets, and believes that these consequences should be non-punitive and agreed upon in advance. A meaningful and predictable compliance regime is critical not only to achieving our environmental objectives, but also to assuring that other countries will fulfill their commitments and that the Protocol's cost-reducing market-based mechanisms will work as planned.

Economic Cost

The second fundamental issue that must be resolved to complete work on the Kyoto Protocol is economic cost. The final agreement must ensure that overall costs of compliance will be reasonable and no higher than necessary.

Only if we adhere to this principle will the planet get the greatest environmental benefit possible for every dollar, euro, or yen devoted to addressing climate change. In a world of limited resources, it makes little sense deliberately to design a system that makes removing a ton of greenhouse gases from the atmosphere any more expensive than necessary.

In our view, cost-effective action is possible only if the Kyoto mechanisms and the Protocol's sinks provisions can be implemented as simply as possible, while preserving the environmental integrity of the Protocol. Overly bureaucratic requirements or artificial limits on these important tools will only restrict the ability of the Parties to meet their targets at reasonable cost and thereby undermine support for the Protocol.

Let me just touch on two specific, key topics that affect critically both environmental effectiveness and economic cost.

Number one: emissions trading.

The inclusion of emissions trading in the Protocol was an important victory for our negotiators at Kyoto. At the time, the potential benefits of trading were little understood or appreciated among most international climate negotiators. I am pleased to report that we have come a long way since then, both among developing and industrialized nations. In fact, many nations are now enthusiastic about designing trading systems on the national level, realizing that it will help them meet their emissions target more quickly and more cost-effectively.

At the international level, we recognize that we still have a lot of heavy lifting to do to finalize how trading will work under Kyoto. But it is an endeavor that will be well worth the effort.

We believe that well-designed emissions trading system will:

• Cut the cost of reducing greenhouse gases by allowing the marketplace to identify the most cost-effective reductions, thereby making efficient use of limited global resources; and
• Quicken the pace at which countries address climate change by creating a market for innovative ways to reduce emissions cost-effectively and fostering the rapid development and diffusion of new technologies that reduce emissions.

As I have already summarized, the United States has been a forceful advocate for strong provisions on monitoring, reporting, and tracking, which are needed to assure the integrity of international emissions trading. But we will continue to reject restrictions that would not contribute at all to environmental integrity but would only burden the market and impose unnecessary costs. In particular, we will resist efforts by the European Union to put an arbitrary and distorting "cap" on a Party's ability to use the mechanisms -- an idea, I would note, which they do not propose be applied to their own ability to "bubble" their emissions under a different article of the Protocol.

Number two: carbon sinks.

The Kyoto Protocol recognizes that sinks must be included as part of an economically and environmentally sound approach to climate change. Specifically, Article 3.3 of the Protocol requires certain forestry activities -- afforestation, reforestation, and deforestation since 1990 -- to be counted toward a party's reduction commitments. Article 3.4 allows the Parties to the Protocol to add additional sink activities, such as those related to agricultural soils.

In the past year, the Parties have moved forward with a process to define those sinks activities that will be included under the Kyoto Protocol. The United States has stated its support for:

• Broad and comprehensive inclusion (based on sound science) of land use, land use change, and forestry activities;
• Inclusion of forest management, cropland management and grazing land management under Article 3.4;
• Rules -- including definitions of key terms such as "reforestation" -- that help protect forests and avoid creating "perverse incentives" (for example, to log old-growth forests);
• A strict accounting system that looks at the total impact of land management on carbon stock changes, including both emissions and removals, and that requires Parties to be able to accurately monitor and verify emissions and removals.

To address the concerns of some countries about the effect of comprehensive greenhouse gas accounting on the first budget period targets, the United States has indicated its willingness to consider a "phase-in" during the first commitment period (2008-2012), under which countries would be allowed to count a portion of the total amount of carbon they sequester.

The United States believes that a comprehensive, broad-based accounting approach that includes sinks provides a critical long-term incentive to protect existing carbon reservoirs, increase carbon sequestration, and reduce greenhouse gas emissions through better land management practices -- actions that not only mitigate climate change, but have many other environmental benefits. A comprehensive approach will also be easier to monitor and verify than narrow practice-based accounting and will minimize leakage and double counting.

Developing Country Action

The final issue that must be addressed is developing country action. In the long-run, in order to combat climate change, key developing countries will need to join in the fight against climate change. Climate change is a global problem that requires a global solution. Industrialized countries must take the lead, but other countries must also contribute in ways that promote their sustainable development. Kyoto's Clean Development Mechanism -- which allows industrialized countries or their authorized private entities to earn emission credits through projects that contribute to the sustainable development of developing countries -- is an important step forward.

In the past three years, we have seen some notable progress in the area of developing country participation -- both within the context of the Kyoto Protocol and apart from it.

In the Kyoto negotiations, there is now a genuine and enthusiastic support for the Clean Developing Mechanism among many developing countries. Nations that were suspicious of the idea at Kyoto now have a further understanding of the economic incentives it will provide for both emission reductions and for investment that can power their economic growth. We are working hard in the negotiations to shape strong, market-based operational rules for the Clean Development Mechanism. This will be high on the agenda at The Hague.

Furthermore, several countries have stepped forward and moved to take on national emissions targets. Argentina has, in fact, announced a target. Kazakhstan and Bolivia have announced a willingness to do the same. The United States has voiced its strong support for these actions. We have urged the Parties to build on these successes and to establish mechanisms that enable developing countries that voluntarily limit their emissions to reap all of the rewards (in terms of technology and investment) that will come from joining in Kyoto's emissions trading system.

Quite apart from the context of Kyoto, many developing countries are making real strides to mitigate their greenhouse gas emissions by improving energy efficiency, expanding the use of renewable energy, slowing deforestation, and otherwise stemming their emissions growth. The United States fully intends to be an active partner in this progress.

The President's Committee of Advisors on Science and Technology projects that the markets for energy technology in developing countries will total $4 to $5 trillion over the next 20 years and $15 to $25 trillion over the next 50 years. To accelerate the development and deployment of clean energy technologies around the world, President Clinton proposed in his FY 2000 budget an International Clean Energy Initiative -- a $200 million multi-agency effort to encourage open competitive markets and remove market barriers to clean energy technologies in developing and transition countries and to provide new incentives for clean energy technology innovation and export. This initiative will promote U.S. exports and create high-value jobs, and will assist countries to power their economic development while fighting air pollution and climate change.

Internationally, the President has been a forceful advocate of the concept that in today's global environment, countries can have both economic growth and environmental protection. The "Big Idea" of the Industrial Revolution -- that for an economy to grow, pollution will also grow, is no longer true. Over the past year, the President's advocacy of the new paradigm has borne fruit.

In March, in connection with the President's visit to India, the United States and India announced a joint statement on cooperation on energy and environment issues. In addition to underscoring both nations' determination to cooperate in completing work on Kyoto, the statement outlined a common agenda on clean energy development. Importantly, India outlined two important goals. First, that 10% of its new electric power will come from renewable energy sources by 2012. Second, that it will improve energy efficiency in power production by 15% by 2007-08.

In May, the United States and China signed a joint statement on environmental cooperation. In the statement, our two nations committed to further our ongoing cooperation to address global environmental challenges, including climate change. In the past, China has opposed international dialogue regarding the role of developing countries in taking action to address climate change. The statement reflects a new openness to engagement. Furthermore, the statement expresses the view that sustained economic growth can be achieved while still taking action to address climate change.

Conclusion

In conclusion, let me state that we all recognize that shaping the rules and procedures of the Kyoto Protocol is a highly complex and difficult process. But it is one at which we must succeed, relying on science to guide our negotiations and taking strength in our common commitment to protect this Earth for future generations.

Two years ago, in Buenos Aires, the Parties agreed to a plan of action for advancing the ambitious agenda outlined in the Protocol. In particular, they agreed to a plan and a process to reach decisions on a number of key outstanding issues, including not only the specific topics I have discussed here today, but also the rules on compliance and the consequences for non-compliance; the development and transfer of cleaner, climate-friendly technologies, and consideration of the adverse impacts of climate change and response measures.

We anticipate that many of these highly complex issues will come to a head at The Hague and that COP-6 will be the most significant conference since Kyoto. As we approach these negotiations I would like to assure both Committees of three things. First, that the United States is committed to making as much progress as possible at COP-6 -- the stakes demand no less. Second, however, we will not seek progress or agreement at the expense or sacrifice of our core principles in these negotiations. And finally, as we go forward, I pledge to you that we will continue to consult closely with you, the Congress, with the American business community, and with the environmental community.

Thank you very much.

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