[Senate Hearing 105-457]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 105-457
 
          IMPLICATIONS OF THE KYOTO PROTOCOL ON CLIMATE CHANGE

=======================================================================

                                HEARING

                               BEFORE THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                       ONE HUNDRED FIFTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 11, 1998

                               __________

       Printed for the use of the Committee on Foreign Relations







 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 senate



                      U.S. GOVERNMENT PRINTING OFFICE
46-812 CC                     WASHINGTON : 1998




                     COMMITTEE ON FOREIGN RELATIONS

                 JESSE HELMS, North Carolina, Chairman

RICHARD G. LUGAR, Indiana            JOSEPH R. BIDEN, Jr., Delaware
PAUL COVERDELL, Georgia              PAUL S. SARBANES, Maryland
CHUCK HAGEL, Nebraska                CHRISTOPHER J. DODD, Connecticut
GORDON H. SMITH, Oregon              JOHN F. KERRY, Massachusetts
CRAIG THOMAS, Wyoming                CHARLES S. ROBB, Virginia
ROD GRAMS, Minnesota                 RUSSELL D. FEINGOLD, Wisconsin
JOHN ASHCROFT, Missouri              DIANNE FEINSTEIN, California
BILL FRIST, Tennessee                PAUL D. WELLSTONE, Minnesota
SAM BROWNBACK, Kansas

                     James W. Nance, Staff Director

                 Edwin K. Hall, Minority Staff Director

                                  (ii)

  


 
                            C O N T E N T S

                              ----------                              
                                                                   Page

Eizenstat, Hon. Stuart E., Under Secretary of State for Economic, 
  Business, and Agricultural Affairs.............................     5

                                Appendix

Prepared statement of Chairman Helms.............................    37
Prepared statement of Senator Hagel..............................    38
Prepared statement of Senator Feingold...........................    41
Prepared statement of Hon. Stuart E. Eizenstat...................    41

Additional Questions for the Record Submitted by the Committee to 
  Assistant Secretary Eizenstat:
    Responses to Questions Submitted by Senator Helms............    49
    Responses to Questions Submitted by Senator Hagel............    53
    Attachments:
      1. Office of Management and Budget Report to Congress on 
        Federal Climate Change Expenditures, March 1998..........    72
      2. Climate Change Technology Initiative Briefing Materials.    72
      3. U.S. National Communication to the U.N. Framework 
        Convention on Climate Change, ``Climate Action Report''..    80
      4. Prepared Testimony of Dr. Janet Yellen, Chair, Council 
        of Economic Advisers, Before the House Commerce 
        Committee, March 4, 1998.................................    80

                                 (iii)

  

 
          IMPLICATIONS OF THE KYOTO PROTOCOL ON CLIMATE CHANGE

                              ----------                              


                      WEDNESDAY, FEBRUARY 11, 1998

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:25 a.m. In 
room SD-419, Dirksen Senate Office Building, Hon. Chuck Hagel 
presiding.
    Present: Senators Hagel, Thomas, Grams, Biden, Sarbanes, 
Kerry, Robb, and Feingold.
    Senator Hagel. The committee will please come to order.
    Mr. Secretary, welcome. It is nice to have you.
    Not unlike many occurrences up here, we are getting started 
late because of a vote. So we appreciate very much your 
patience.
    Senator Helms is in another meeting and has asked me to get 
going. We know your time is valuable and our colleagues are 
anxious to talk a little bit about this issue. So we are 
grateful that you could come up.
    It could be worse, Mr. Secretary. You could be dealing with 
Iraq. This is just an ``easy'' subject this morning, climate 
control.
    I am going to begin with my statement and then will ask my 
colleagues for any additional comments. Then we will get 
started with your statement, Mr. Secretary, and questions.
    Senator Hagel. In the last session of Congress, as you 
know, Mr. Secretary, I chaired three subcommittee hearings in 
advance of the Kyoto Conference. We now have a finished product 
from Kyoto. The administration refers to this finished product, 
the Kyoto Protocol, as a ``work in progress.''
    This leaves people with the mistaken impression that the 
treaty remains under negotiation and that objectionable parts 
of the treaty can be negotiated away before it is submitted to 
the Senate for advice and consent. But this is not the case, I 
think, as you know.
    This treaty cannot be amended until it goes into force, and 
even then, only by a three-quarters vote of all countries that 
have become party to the protocol. Developing countries which 
are not bound by any emissions limits in this protocol make up 
more than three-quarters of the world's Nations.
    Certainly, later actions of subsequent U.N. Conferences 
might add to the protocol. It might expand U.N. regulations and 
interpretations of how the treaty would be carried out. Later 
actions might define compliance measures and enact U.N. 
sanctions against countries that do not meet their legally 
binding commitments under the treaty.
    But what is in the protocol today, including its many 
objectionable provisions, will not change prior to it coming 
into force--that is, assuming it ever comes into force.
    This treaty requires a seven percent below 1990 levels 
emissions cut for the U.S. during the years 2008 to 2012. In 
real terms, this would be a devastating 40 percent reduction in 
projected emissions for the United States. It is inevitable 
that this extreme cut in energy would cause serious harm to our 
economy.
    Furthermore, developing countries like China, Mexico, South 
Korea and 131 other Nations are totally exempt from any of 
these new restrictions placed on industrial countries. A later 
change of the treaty requires, as I mentioned, a three- 
quarters vote after the treaty has already gone into force.
    Last July, the Senate went clearly on record by passing 95 
to 0 Senate Resolution 98, the Byrd-Hagel Resolution. Even more 
significant than the 95 to 0 vote is that the bipartisan 
resolution has 65 cosponsors.
    This resolution was very clear, as you know. The resolution 
called on the President not to sign any Kyoto Treaty or 
agreement unless two minimum conditions were met. It said the 
President should not sign any treaty that either caused serious 
harm to the U.S. economy or that did not place legally binding 
obligations on the developing countries to limit or reduce 
their emissions in the same compliance period as that required 
for industrialized Nations.
    Nowhere does the resolution mention the administration's 
nebulous standard of achieving ``meaningful commitments by 
developing countries.''
    As our colleague and coauthor of Senate Resolution 98, 
Senator Robert Byrd, noted in his floor statement of 2 weeks 
ago, the Kyoto Protocol fails--fails--to meet either of the 
requirements of Senate Resolution 98. It fails to meet the 
minimum criteria set unanimously by the U.S. Senate.
    In his floor statement, Senator Byrd called on the 
President not to sign this treaty, and I agree with Senator 
Byrd.
    I will not now go into all of the details on why this 
particular protocol is so seriously flawed. But they can be 
grouped in five general areas. These are: no developing country 
commitments is number 1; number 2, economic harm to the United 
States economy; number 3, fair treatment for U.S. interests; 
number 4, impact on our national sovereignty; and, number 5, 
impact on our national security.
    I expect to ask those questions as we get later into the 
hearing.
    This returns us to the question of whether the President 
will choose to sign this treaty when it is open for signature 
at the United Nations on March 16 of this year and, if he does, 
then whether he intends to send it, send this treaty if he 
signs it, to the Senate this year.
    I hope, Secretary Eizenstat, that you will be able to give 
us a clear answer to these questions and others.
    The President claims that the treaty, again, ``is a work in 
progress.'' If so, it makes no sense to sign a flawed treaty, 
thereby giving our future leverage in negotiating strength 
away. This would be compounding the President's and Vice 
President's past mistakes. These include agreeing to the Berlin 
Mandate and publicly calling on our negotiators in Kyoto to 
show increased flexibility, which the Vice President did when 
you and your team were trying to hold to the President's own 
position that he clearly enunciated last October.
    The President's position included insistence that emission 
cuts not go below the 1990 level and the so-called ``meaningful 
participation of developing countries.''
    I will be very interested in understanding from you, sir, 
what precisely was it that the administration meant and does 
mean by ``meaningful participation of developing countries'' 
since we gave it away in Kyoto.
    But if the President believes this treaty is good enough to 
sign, it should be good enough to submit to the Senate for 
open, honest debate. The American people have a right to know 
exactly what the President has obligated them to do under this 
treaty.
    There is also a document known as the United States 
Constitution. The U.S. Senate has a constitutional 
responsibility to provide its advice and consent for all 
treaties agreed to by the President. Until this treaty is 
ratified by the Senate, there should be no action taken by the 
administration to implement obligations under the treaty 
through Executive Order, regulation, or budgetary fiat.
    I look forward to receiving your comments on these points 
as well as others.
    [The prepared statement of Senator Hagel appears in the 
Appendix.]
    Senator Hagel. With that, let me call now, Mr. Secretary, 
on my colleagues for any statements they may wish to submit. 
Secretary Robb--I mean Senator Robb.
    Senator Robb. Sometimes I'm not sure, too. [General 
laughter]
    Senator Robb. Thank you, Mr. Chairman.
    Secretary Eizenstat, thank you for coming today. I have 
known you for many years and have a very high regard for your 
skills in a variety of different areas, and certainly you are 
unsurpassed as a negotiator. You have just been given a fairly 
tough list of questions to respond to. I regret that I have two 
other hearings, one in Intelligence and one in Armed Services, 
that are taking place at the same time. But I wanted to hear 
your opening statement and I hope you will be able to address 
as many of the concerns that were raised by Chairman Hagel as 
possible.
    I was one of the cosigners of the letter that indicated 
that we thought at the very least we ought to be concerned 
about serious adverse economic impact on our own economy and 
particularly participation in some form by the developing 
countries.
    I must say that those concerns have not yet been addressed 
to my satisfaction. But I commend you on the negotiations with 
a very difficult topic, with disparate views given to you from 
many participants in the United States. I look forward to your 
testimony here.
    I may have some followup questions for the record later on. 
But at the very least I thank you for what you have attempted 
to do, which will probably provide little comfort and not a 
great deal of understanding at this point. But I recognize the 
task you have undertaken.
    Thank you, Mr. Chairman. I look forward to Secretary 
Eizenstat's opening statement.
    Senator Hagel. Senator Robb, thank you. Senator Grams.
    Senator Grams. Thank you very much, Mr. Chairman. I would 
like to recognize your outstanding efforts. You have spoken 
with authority and conviction on behalf not only of the U.S. 
Senate but also, I believe, for the American workers, for 
families and for taxpayers as well.
    First I would like to point out to the members of this 
committee and to Mr. Eizenstat that the Clinton Administration 
and the Department of Energy just 11 days ago missed their 
legal and contractual deadline to begin taking possession of 
spent nuclear fuel from commercial nuclear plants across the 
country.
    Now what does this mean and how does it apply to today's 
hearing?
    The DOE's failure to take spent nuclear fuel means that 
nuclear power plants across our country will have to begin 
shutting down permanently because of inadequate storage space 
for the spent fuel. And as you may know, nuclear power has been 
responsible for 90 percent of all the cuts in carbon dioxide 
emissions from U.S. electricity production since 1973.
    As more and more nuclear plants shut down in the United 
States, more and more are being built all across Europe. France 
is leading the way, and developing nations, such as China, are 
about to significantly increase their use of nuclear power as 
well as Japan.
    Meanwhile, here at home, due to the rhetoric of extremists 
and also the lack of a clear energy policy, we are hamstrung, 
unable to act because of politics and not because of science or 
technology. I cannot stress enough how important it is to 
recognize that the failure of this administration to address 
nuclear waste storage will lead to even greater economic 
hardship as a result of this treaty.
    Now we simply cannot meet our energy needs into the next 
century by signing on to treaties which legally bind us to 
unreasonable reductions in energy output while at the same time 
we eliminate cleaner energy by closing down nuclear power 
plants.
    Europe recognizes this, as do many other nations with whom 
we have to compete for jobs, and industry, and markets. They 
know we agreed to a treaty which works for them and hurts us. 
But who does it really hurt? Not Bill Clinton and certainly not 
Al Gore. It puts off any real political problem for them until 
well after they are out of office.
    This treaty hurts moms and dads, grandmas and grandpas. It 
significantly will impact senior citizens on a fixed income. It 
takes an enormous swipe at miners, loggers, truckers, farmers, 
anyone who has any work in energy intensive professions. It 
means less income for families that are struggling to survive 
and educate their children. It means Americans may have to face 
a challenge to their way of life and their standard of living.
    If that is what this treaty holds for Americans, it cannot 
and will not be supported by this committee or the U.S. Senate.
    I think this body made that point very clearly when we 
voted unanimously last summer on the Byrd-Hagel Resolution. I 
only regret that this administration saw that vote as a mere 
suggestion, rather than acknowledging the clear and unambiguous 
message that it contained.
    I am going to be listening very closely today to hear what 
direction was given to the Kyoto negotiators by Vice President 
Gore. I want to know how the administration intends to meet the 
demands of this treaty. I would like to know how you will 
pursue developing nations' participation later this year in 
Argentina.
    I also would like to know today, as does everyone else on 
this committee, when this treaty will be presented to the 
Senate for ratification.
    So, again, thank you, Mr. Chairman, for your efforts in 
holding today's hearing. I am looking forward to the discussion 
and for the quick delivery of this treaty to the Senate for 
ratification procedures.
    Senator Hagel. Senator Grams, thank you. Mr. Secretary, 
welcome again. Please proceed.

STATEMENT OF HON. STUART E. EIZENSTAT, UNDER SECRETARY OF STATE 
        FOR ECONOMIC, BUSINESS, AND AGRICULTURAL AFFAIRS

    Ambassador Eizenstat. Thank you, Mr. Chairman. It is a 
pleasure to be here with you and with Senator Robb and Senator 
Grams. I appreciate the participation you personally made in 
going to Kyoto and the amount of time you, Senators Baucus, 
Chafee, Enzi, Kerry and Lieberman spent on this issue.
    Rarely has there been an environmental issue more complex 
or important, and rarely has there been a greater need for the 
executive branch and Congress to work closely together.
    I will divide the summary of my testimony--and I assume the 
full version can be submitted into the record--into four parts: 
first, a short discussion of the science; second, the key 
features of the protocol; third, efforts to correct 
misperceptions; and, fourth, a brief review of the President's 
own Climate Change Technology Initiative.
    First, on the science, human beings are changing the 
climate by increasing the global concentration of greenhouse 
gases. Over the last century, greenhouse gases have been 
released to the atmosphere far faster than natural processes 
can remove them. There is no ambiguity in the data.
    In this first chart (indicating) the actual data is shown 
in blue from ice cores taken by scientists. The orange part 
indicates also actual data taken from the atmosphere in Hawaii.
    What this dramatizes quite clearly is that the 
concentrations of greenhouse gases have grown by some 30 
percent and especially since 1960. You can see the increasing 
slope of these concentrations in the orange from 1960 to the 
present date. That slope will increase and continue to increase 
dramatically.
    The authoritative intergovernmental panel on climate 
change, representing the work of more than 2,000 of the world's 
leading climate change scientists from more than 50 countries 
and representing the best synthesis of the science on climate 
change, made a number of important conclusions.
    Under a business as usual environment, concentrations of 
greenhouse gases could exceed levels not seen on the planet for 
50 million years. The projected temperature increases of 2 to 
6.5 percent over the next 100 years could exceed rates of 
change not seen for the last 10,000 years.
    The chart which we have over here (indicating) indicates 
both the increase in the concentration levels and in 
temperature. It indicates the dramatic connection between 
concentrations of CO2 and other greenhouse gases and 
the dramatic increase in temperatures which would occur if 
those are left unabated.
    Increased temperatures are expected to speed up the global 
warming cycle. It will lead to a drying of soils and, in some 
areas, increased drought. Overall, 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 and low lying 
areas are particularly vulnerable--much, for example, of 
coastal Louisiana and the Florida Everglades as well as other 
parts of the world.
    This would also affect human health. It would exacerbate 
air quality problems and diseases that thrive in warmer 
climates, including malaria, and yellow fever would increase. 
It is estimated that by the end of the next century there would 
be an additional 50 million to 80 million cases of malaria each 
year if this climate change continues unabated.
    It would also lead to a dramatic change in the geographic 
distribution of a third of the earth's forests. Nine of the 
last 11 years are among the warmest ever recorded. Increases in 
floods and droughts are expected as global warming occurs.
    Some have argued that we should wait. Science tells us that 
this is a recipe for disaster for the concentrations of 
greenhouse gases in the atmosphere will continue to rise each 
year.
    This is a problem that has developed over the course of a 
century and it will take many decades to solve.
    We should look, Mr. Chairman and members of the committee, 
at Kyoto as an insurance policy against the potentially 
devastating and irreversible impacts of global warming. If we 
act now, the premium on this insurance policy will be far more 
reasonable and less costly than if we delay and hope that the 
problem created by greenhouse gases will somehow go away. 
Indeed, it is like a life insurance policy whose costs grow 
significantly if we delay year after year in insuring 
ourselves.
    In the case of global warming, we will not have a second 
chance. Failure to act could lead to irreversible consequences 
and we will be committing ourselves, our children, and our 
grandchildren to a very different planet, and they will never 
forgive us.
    Second is the actual conference and protocol itself. It 
represents an important achievement. But it is a framework for 
action, not a finished product yet ready for Senate 
consideration.
    President Clinton and Vice President Gore established three 
major objectives for us to negotiate and, as a result of the 
negotiations, we achieved the first two and have made some 
progress, though not enough, on the third.
    Our first objective was developing realistic targets and 
timetables among the developed countries. These had to be 
credible in terms of beginning to reduce the dangerous buildup 
of greenhouse gases and 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. The U.S. concept of multi-year timeframes for 
emission reductions was selected rather than a fixed, single 
year target. This will allow our industries greater flexibility 
to meet those targets.
    In addition, the timeframe 2008 to 2012 was the U.S. 
timeframe, not the earlier periods preferred by the European 
Union, Japan, and others. This will help cushion the transition 
and the effect on businesses and workers.
    We also got the concept of differentiated targets for key 
industrial powers ranging from 6 to 8 percent below baseline 
levels so that our competitors are taking on similar, and in 
some cases with respect to the European Union, deeper 
obligations than we are.
    When changes in the accounting rules for certain gases and 
offsets for so-called ``sinks'' that absorb carbon dioxide are 
factored in, the level of effort required of the United States 
is very close to the President's original proposal to return 
emissions to 1990 levels by 2008 to 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 
allows certain activity, like planting trees and good forest 
practices, that absorb carbon dioxides, called ``sinks,'' to be 
used to offset emission requirements that industry will have. 
This will be a significant way of reducing costs and burdens 
and will be a particular benefit to the United States.
    Also, as proposed by the U.S., the Kyoto Protocol covers 
all six significant greenhouse gases, even though the European 
Union and Japan fought until the last moment to cover only 
three.
    Our second Presidential objective was to make sure that 
countries could meet their obligations by flexible market 
mechanisms, rather than mandatory policies and measures, like 
carbon taxes, favored by the European Union 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. 
This is not only economically sensible but environmentally 
sound.
    We have had a very positive experience with permit trading 
in our own acid rain program, which has reduced costs by 50 
percent from what was expected. This has been confirmed by a 
number of experts in a recent Wall Street Journal article.
    So the inclusion of these market based mechanisms and the 
right to trade in the open market was a signal victory for the 
United States. Indeed, we went even further by achieving a 
conceptual understanding with several countries, including 
Australia, Canada, Japan, New Zealand, Russia, and the Ukraine, 
to trade emissions rights with each other. This umbrella group 
could further reduce compliance costs.
    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 that these mechanisms give us that were also 
agreed to. Until we are satisfied with the rules and procedures 
yet to be established, the promise of Kyoto will never be 
realized.
    Our third objective was the one that you, Senator Grams, 
Senator Robb, and others alluded to, which is to secure 
meaningful participation of key developing countries. This is 
obviously a concern that the Senate shares, as evidenced by 
last summer's Hagel-Byrd Resolution.
    Global warming is, after all, a global problem. It requires 
a global solution, not only for the developed but also for the 
key developing countries. By 2025, the developed world will be 
emitting less greenhouse gases and the developing world will be 
emitting more than the total of the developed world.
    We encountered significant resistance in Kyoto by some 
developing countries to meaningful participation in solving the 
global warming problem. Still, developing countries may, as a 
prerequisite for engaging in emissions trading, which will be 
very valuable to them, voluntarily assume binding emissions 
targets through amendment to the annex of the protocol that 
lists countries with targets.
    Some developing countries seem to believe, wrongly, that 
the developed world was asking them to limit their capacity to 
industrialize. We have made it clear that we support an 
approach under which developing countries would continue to 
grow but in a more environmentally sound and economically 
sustainable way.
    Let me be very clear. 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 strongly backed by the 
United States. This defines a Clean Development Mechanism which 
fully embraces the U.S. backed concept of joint implementation 
with credits. This will build a bridge with incentives between 
the developed countries and developing nations and will allow 
companies in the United States and elsewhere in the developed 
world to invest in projects abroad and get credit for it 
against their emissions targets, again lowering the burden on 
U.S. industry by allowing this kind of participation.
    They can either invest or they can simply purchase the 
permits.
    In determining what developing countries ought to do, we, 
of course, need to be aware that the circumstances of 
developing countries may vary. Any one size fits all approach 
to meaningful participation of developing countries is unlikely 
to prevail.
    I would like, Mr. Chairman and members of the committee, to 
deal very briefly with some misperceptions. The first is that 
the Kyoto Protocol will imperil the ability of our military to 
meet its worldwide responsibilities. This is absolutely untrue.
    We took special pains, working with the Defense Department 
and with our uniformed military, both before and in Kyoto, to 
fully protect the unique position of the United States as the 
world's only super power with global military responsibilities. 
We achieved everything they outlined as necessary to protect 
military operations and our national security.
    At Kyoto, the parties, for example, took a decision to 
exempt key overseas military activities from any emissions 
targets, including exemptions for bunker fuels used in 
international aviation and maritime transport and from 
emissions resulting from multilateral operations, such as self 
defense, peacekeeping, and humanitarian relief.
    This exempts from our national targets not only 
multilateral operations expressly authorized by the U.N. 
Security Council, such as Desert Storm or Bosnia, but, 
importantly, also exempts multilateral operations that the U.S. 
initiates pursuant to the U.N. Charter without express 
authorization, such as Grenada.
    A second misperception is that somehow the protocol will 
create a ``super U.N. secretariat,'' threatening U.S. 
sovereignty and national decision making through alleged 
intrusive verification procedures and prior approval of 
individual emissions trades. This also is not so.
    The review process in the protocol largely codifies already 
existing practices under the 1992 Rio Convention. The review 
process is not by some secretariat, it is intergovernmental. 
Experts are nominated by governments. The review teams meet 
with government officials and with others by invitation. In 
reviews under the prior convention, the teams have met with 
Congressional staff, with representatives of the private sector 
and environmental organizations, but only with their 
concurrence. Any other visits, such as site visits, would take 
place only--and I underscore only--if approved by the host 
country, including in this case the United States, and only if 
the private sector involved agrees to it.
    So the notion that somehow people are going to be swooping 
down on U.S. private property is utterly, completely, and 
totally false.
    In addition, let me be unmistakably clear. We will not 
accept nor do we anticipate an approach that would require 
prior approval of individual emissions trades by any 
international body. Trading will be done between interested 
nations and their companies based on market principles.
    A third concern is that somehow on the one hand we are told 
it will threaten U.S. sovereignty by dictating national 
decisions on implementation, and yet, on the other, it lacks 
mechanisms or teeth to verify compliance. In fact, the protocol 
strikes an appropriate balance between these two extremes.
    We firmly opposed and succeeded in opposing mandatory 
harmonized policies that were desired by others and that would 
have imposed on us uniform ways to reach our targets. We 
prevailed. The protocol leaves to the parties themselves to 
decide how best to meet their targets based on national 
circumstances. If somebody else wants to do it by heavy carbon 
taxes or heavy central regulation, that is their business. We 
are going to do it by market driven mechanisms alone.
    At the same time, we obviously could not tolerate a free- 
for-all. And so, the protocol calls for national measurements 
of emissions, detailed reporting, and in depth reviews on an 
intergovernmental basis, not by some secretariat.
    Finally, there are some who suggested that the protocol is 
going to result in a huge government transfer of foreign aid to 
Russia. This is also not true. U.S. private sector firms may 
choose to purchase international emissions credits from Russia 
and from others. This will be a private decision, and, indeed, 
it is one of the crucial ways to achieve cost effective 
emissions reductions for U.S. firms.
    Now where do we go from here? First, rules and procedures 
must be adopted to assure that emissions trading rights, joint 
implementation, and the Clean Development Mechanism operate 
efficiently and smoothly. In addition, we will 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. I have already met 
with industry and I have told them: you have to tell us if it 
satisfied your needs. We cannot tell you.
    Most significant, we have to work to secure the meaningful 
participation of key developing countries. We will put on a 
full court diplomatic press to bring developing nations into a 
meaningful role to help solve the global climate challenge. We 
will accept nothing less nor would we expect the U.S. Senate to 
do so.
    As the President has indicated, the U.S. should not assume 
binding obligations under the protocol until key developing 
countries meaningfully participate in meeting the challenge of 
climate change and more progress is clearly necessary. It 
obviously would be premature to submit something to the Senate 
when the Senate itself has asked for this kind of participation 
and we have not yet achieved it. That is the great obligation 
we have to assume over the coming months and, if necessary, 
years.
    The President outlined last October a three stage approach 
to address climate change at home. As a first installment, he 
announced in his State of the Union Message a proposal for a 
$6.3 billion Climate Change Technology Initiative over 5 years 
to cut U.S. greenhouse gas emissions. These will mean tax cuts 
combined with R&D incentives to take cost effective, practical 
steps to position us to meet the challenge we face early in the 
next century.
    We have no intention by executive fiat of going around the 
Senate's constitutional prerogatives--absolutely none. This is 
a down payment that the Senate itself can make to get us on a 
path so that we will be ready for any obligations we may later 
assume with the Senate's advice and consent.
    We in the administration have great confidence in the power 
of U.S. ingenuity, innovation, and technology to help us meet 
our goals. Indeed, I think this will stimulate this ingenuity 
in remarkable ways.
    An example is the partnership for a new generation of 
vehicles which will get up to three times the fuel efficiency 
of today's cars in a recent announcement by the chairman and 
CEO of General Motors about his goal for a new generation of 
automobile.
    In closing, this administration is committed to work with 
you and the Congress both to realize the potential of the 
Climate Change Technology Initiative of the President and to 
craft our ongoing approach to climate change. We have 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 
leave to future generations and the conditions of life they 
will face.
    But we can not, in conclusion, ignore what science is 
telling us. We would do so at our peril. And, again, what we 
are looking for is a kind of insurance policy, one that we can 
afford, one that is prudent, but one, Mr. Chairman and members 
of the committee, if we fail to act, if we fail to recognize 
what these scientists and charts are telling us, will be 
infinitely more costly to do in the future without action now.
    Thank you very much and I look forward to your questions 
and comments.
    [The prepared statement of Ambassador Eizenstat appears in 
the Appendix.]
    Senator Hagel. Mr. Secretary, thank you.
    Let me ask the distinguished ranking member of the Foreign 
Relations Committee, Senator Biden, for any opening comments. 
Then, after Senator Biden's comments, we will go to questions.
    Senator Biden. Thank you, Mr. Chairman. I will withhold my 
opening comments until it comes time to question.
    Mr. Ambassador, I think you did an incredible job. It is 
obvious two major things remain to be done. But when I get to 
the questioning, I will pursue those at that time.
    Thank you for the opportunity, Mr. Chairman.
    Senator Hagel. Yes, sir.
    We will take a 5 minute rotation period for questions and I 
will begin.
    Mr. Secretary, again, thank you for coming up here. I think 
there is little doubt that everyone on this panel who has dealt 
with you over the years has a very, very high regard for you, 
including this junior Senator from Nebraska in the time that we 
have had to get acquainted over this last year and a half. I 
have appreciated it.
    I say that up front because I think it is important that we 
all understand our respect for you and the kind of job that you 
have done for this country over the years in many positions.
    I would like to take you through a series of questions and 
I will have more later. My colleagues I know will want to ask 
questions. Let me begin with this.
    Can you tell us if at this point the President is prepared 
to sign the protocol in March? Or when would the President sign 
this if he intends to sign it?
    Ambassador Eizenstat. Mr. Chairman, the protocol is open 
from the middle of March 1998 to the middle of March 1999. We 
would plan to sign the protocol within this 1 year signing 
period provided in the agreement. We have not yet determined 
the precise timing and we will sign at a time that makes the 
most sense in terms of the overall diplomatic situation.
    The issue that is more significant is ratification. As the 
President has said, we are not going to submit the protocol for 
ratification until we get the kind of participation from key 
developing countries that we want to achieve and that you want 
us to achieve. That will be the great obligation on our 
shoulders in the months, and, if necessary, the years ahead.
    Senator Hagel. Are you saying, then, that you will or you 
will not, upon the President's signing the protocol, send it to 
the Senate?
    Ambassador Eizenstat. Again, we don't know where we will be 
between March 1998 and March 1999, how far we will have come in 
terms of getting this meaningful participation that we desire 
and that the Senate has made unmistakably clear it requires.
    If we have not obtained that--and I think it would be a 
stretch to imagine that in that 1 year period we will have 
achieved that because it is going to take a great deal of 
work--then we would not be in a position to submit it. If we 
have, we would be. That is the key issue.
    So I cannot give you a definitive answer because we don't 
know where we will be at the end of the signature period. But, 
again, I think, quite frankly, it is a real stretch to imagine 
that we will get the kind of meaningful participation that we 
desire and that the Senate requires in that 1 year timeframe.
    Senator Hagel. You heard my comments in my opening 
statement, Mr. Secretary, regarding the process of amending. 
Unless there is some misunderstanding here within the committee 
and within the rules, it is my understanding that we would have 
some difficulty going back and changing any of the dynamics of 
this Kyoto Protocol.
    Would you take us through how this would happen and how it 
would work using specific examples on developing nations, such 
as when the Chinese have said straight out--they told me with a 
number of my colleagues from the U.S. Senate present--that they 
had no intention of signing anything and would not, as you 
know, even consider signing anything on a voluntary basis, as 
well as other members of the G-77?
    Ambassador Eizenstat. No one knows better than I do--and, 
of course, you were there as well--the difficulty we had with 
some of the developing countries, including China and India. It 
was not uniform, but certainly they were in the lead.
    First, it would require an amendment, as you suggest, for 
major changes in the treaty. However, a mechanism is created by 
which countries can, if they wish, voluntarily assume binding 
obligations, and that is one of the things that we will be 
pressing developing countries to do.
    Let me, if I may, mention a couple of things on the 
developing country side because I think it is important to 
understand what was accomplished and what was not.
    First, I see a spectrum of developing countries. There are 
those, for example, who are already members of Western 
industrial institutions--for example, the OECD. Mexico and 
South Korea would be examples and there are other countries, 
such as Argentina, that are knocking on the door.
    I think that for those countries, they ought to assume, if 
they are members, in effect, of an industrialized organization, 
the kind of binding reductions over time that we have done.
    Second, there are other countries that are not at that 
stage of development but who can afford to make binding 
reductions or perhaps, if not reductions, at least reducing the 
rate of increase by an efficiency standard. One of the things 
we have said to these countries is if you are concerned about 
your own stage of industrialization, then you ought to be 
concerned also about energy efficiency and sustainable 
development. We are working on a formula that is emissions per 
unit of GDP so that they would cut their rate of growth.
    For still others, there may be other ways to meet those 
commitments. Bilaterally, subregionally, and multilaterally 
through the international financial institutions we will be 
working to achieve that result. We, for example, want to make 
sure if the World Bank, the Asian Development Bank, or the 
Inter-American Development Bank make large loans or grants for 
power plants and other projects, that they are done in ways 
that are environmentally sound.
    But it is also important to recognize that the developing 
countries did begin a process. It is not sufficient. But we 
should not think they did nothing.
    For one thing, for example, they agreed to the creation of 
this Clean Development Mechanism. This is a way of beginning to 
bring them into the process. It has a double benefit. It brings 
them into the process, but it gives our companies credits for 
any clean projects that they agree to or any credits that they 
buy.
    Second, developing countries also agree to advance the 
implementation of their existing commitments under the 1992 Rio 
Convention.
    Third, I believe, Mr. Chairman and members of the 
committee, it will be a very, very powerful incentive when this 
trading rights regime begins and we have international 
emissions trading as we already have in the Acid Rain program 
in the United States.
    In order to be a party to an emissions trade, a developing 
country is going to have to take on binding obligations. So 
that in and of itself will also create an incentive for 
developing countries to take on these binding obligations.
    Senator Hagel. Let me just ask a followup question to this 
and then we will go to Senator Biden.
    I understand your point about incentives and the 
possibility of developing nations signing on for the reasons 
you mentioned, and I suspect there are more.
    Why would we sign a treaty, though, why would we put 
ourselves in a position when, in fact, there is no assurance 
that China, India, and 132 other nations that, as you say, will 
be the biggest manmade greenhouse gas emitters in the next few 
years, China being the largest by the year 2015, will join? 
And, as you suggest as well, and I agree, if this is a global 
problem, it requires a global solution. So why would we go 
ahead and put ourselves in a position with the possibility that 
these nations would come on board and restrict ourselves to 
legally binding mandates, restrict our economy and all the 
dynamics of our society when the Chinese and other nations have 
made it pretty clear that they have no intention of moving 
forward on this?
    Ambassador Eizenstat. That is a good and important 
question. Let me answer it in the following way.
    First of all, we will not be assuming legally binding 
obligations on ourselves until and unless we have that 
meaningful participation. Let me underscore that. We will not 
be assuming legally binding obligations. Only the Senate of the 
United States can take that upon the United States, and we will 
not submit it to the Senate until we have that, until we are 
satisfied and you are satisfied that we have that level of 
achievement.
    Senator Hagel. May I also ask: that means the 
administration will not go forward in trying to implement any 
dynamic of this Kyoto Treaty through regulation, budget, fiat, 
executive order, until, as you suggest, it is brought before 
the U.S. Senate?
    Ambassador Eizenstat. Yes, sir.
    We have no intention, through the back door or anything 
else, without Senate confirmation, of trying to impose or take 
any steps to impose what would be binding restrictions on our 
companies, on our industry, on our business, on our 
agriculture, on our commerce, or on our country until and 
unless the Senate of the United States says so.
    Now, with respect to the signature issue, which was the 
second part of your question, there are two factors there. The 
first is we believe it is important sometime during this 1 year 
period to lock in the kinds of commitments that we got from the 
other developing countries and the achievements we achieved.
    We got sinks in, we got flexible market mechanisms in, we 
got our budget period in, we got multi-year budgeting in, we 
got the joint implementation with credits in the form of the 
Clean Development Mechanism in. These were all brand new 
concepts, literally brand new. Nobody had ever heard anywhere--
not just in the developing world, nobody in Europe had ever 
heard--of an emissions trade as we have already been doing 
domestically.
    Nobody knew what a sink was except as something in which 
you wash dishes. No one had any idea what joint implementation 
with credits was.
    These were U.S. concepts. We have now gotten countries to 
agree to that and we want to lock that in.
    Last, we didn't want to isolate ourselves, having achieved 
this, in terms of the ability to continue to get other 
countries to take this seriously by being the only country in 
the world that does not sign the treaty.
    Now, again, the timing, you will understand, has to be done 
tactically so that we do it at the right diplomatic moment. But 
I can assure you that this administration has no plans to and 
will not in any way, shape, or form, take executive action, 
preempting your constitutional right to make this ultimate 
decision.
    We will push forward with things like tax credits and R&D, 
assuming Congress approves it, which, of course, is just 
getting us in line for this--but nothing more and nothing less.
    Senator Hagel. Thank you. Senator Biden.
    Senator Biden. Stu, I think you did an incredible job. The 
hardest part of all of this is that I think Senator Byrd may be 
right when he referred to it as a ``work in progress.'' I mean, 
first of all we finally have stopped fighting about whether or 
not it is a problem. I come from what some people facetiously 
refer to as the ``State of du Pont.'' [General laughter]
    Senator Biden. Fifteen years ago or 20 years ago, in my 
State, where the chemical industry is big and the automobile 
industry is big, and it is a small State, there was a great 
debate about whether this was a problem. There was no problem. 
We didn't have any problem. It has taken a long time and a lot 
of scientific data and investigation, and the consensus has 
been arrived at by those companies and many others that there 
is a serious problem.
    How you get from acknowledging a serious problem--and we 
can disagree on the consequences of the problem and how far out 
it becomes serious, more serious--how you get from that 
acknowledgement to an international code of conduct, in effect, 
is a painstaking process.
    So I don't know how you could do it any other way than the 
way you are approaching it.
    One of the things you said here today is that, although 
Senator Kerry of Massachusetts and the distinguished chairman 
both have taken intense interest in and know a great deal more 
about this issue than I do, and have differing views or 
perspectives, the vast majority of American businesses, 
American citizens, and American farmers assume that what 
happened in Kyoto was binding. In my State, they think that OK, 
well, they went over and signed that damn thing and this means 
we cannot make a Durango in my State anymore, and this means 
such and such--all of which is not true, all of which is not 
true.
    So the important point--and we only have 5 minutes, so I 
will use this time for my statement--is that you have laid out 
here that nothing is binding upon the United States of America 
at this moment, and even if and when you sign, you cannot, the 
President of the United States cannot bind--cannot bind--the 
United States. Only the U.S. Senate can do that. And it is 
crystal clear to you, a man who knows this body incredibly 
well--we have been here a long time, off and on, together--that 
this body, to use the vernacular, is not going to ratify a 
treaty that does not deal with the two outstanding, more than 
fine tuning, problems, that is, the issues of the countries in 
question from Brazil to China and their participation, and many 
others which I have left out, as well as how this emissions 
trading mechanism will, in fact, work.
    I just want to say to you that I thought it was remarkable 
that you went to Japan, you prevailed on the timetable, you 
prevailed on the average emissions, on the budget period, you 
prevailed on inclusion of the six gases that contribute to the 
greenhouse effect, and you prevailed on dealing with the 
military for multilateral operations as well as ones we 
initiative, and you also essentially laid in and accepted a 
provision for market based practices for trade in emissions. 
These are significant.
    Now I don't know how you are going to hold on to them, to 
be blunt about it. I am not sure how you are going to keep 
them. I am not sure how, other than signing at some point, 
other than signing, you are going to be able to hold this 
center together. You are going to have one hell of a job trying 
to bring in the largest future polluters in the world.
    But I have great faith in your skills and I just hope you 
are able to figure out how in the hell to do that. That is 
because, to state it very plainly, and I surely cannot speak 
for the Senate--although my daughter thinks I was born in the 
Senate I have been here for so long--the truth of the matter 
is, absent dealing with the two major issues you mentioned, 
there will be no ratification of this treaty.
    I hope that between now and next year we can all work 
toward trying to help you and the administration in dealing 
with the two problems--and there are others--rather than just 
suggesting that what came out of Japan is dead on arrival. I 
hope we won't do that, because you have forthrightly 
acknowledged that you know the hurdles you have to get over to 
send this up to the Senate for any practical prospect of 
winning.
    I have an open mind. I think you are correct, and I hope in 
the meantime, by the way--I know the chairman didn't mean 
this--but I hope that we do not suggest that we should not 
independently, unrelated to any other nation in the world, 
further deal with emissions issues here in this country for our 
own safety's sake regardless of anybody else doing anything at 
all. So I am sure, I hope there will be suggestions, 
legislative initiatives, and executive initiatives relating to 
dealing with the environment that may, in fact, fall under the 
purview of what is captured in this agreement, but not because 
it is in the agreement.
    Again, I thank you for listening. I apologize for being 
late and I will now yield to those who have made it more of 
their business to be informed on the details of the treaty. 
But, like the work in progress, I think this is an educational 
process, including educating those nations that have not signed 
on on what their own naked self-interest is.
    Ambassador Eizenstat. I appreciate that very much.
    If I may be permitted just a brief comment----
    Senator Hagel. Certainly.
    Ambassador Eizenstat. I would like to relate again back to 
Senator Hagel's statement as well as Senator Biden's.
    When we talk about our own action, I want to be clear. For 
example, Presidents for years, Republican and Democrat, have 
been trying to put good practices into government procurement, 
into insulation, into clean car initiatives. We would continue 
to do that so that, for example, the U.S. Government is a 
model.
    Our military--and I am proud that they are sitting behind 
me--our military has been the leader in energy efficiency. They 
are already very close to meeting the 1990 targets.
    Now, admittedly some of it is because of base closings. But 
they have put in real energy efficiency. So I don't want you to 
misunderstand. Obviously, those would be going on because they 
are good practices, not because we are subverting Senate will.
    Second, I have had the honor of knowing Senator Byrd for 20 
years. There is no State that has a more direct relationship to 
this problem than West Virginia. I have been very impressed by 
the way in which Senator Byrd has looked at this issue.
    He, no more than me, is not a scientist. But he has 
listened to the science. I think a lot of us have.
    Without being in any way impertinent, let me just suggest 
for those who have legitimate concerns--and there are real 
questions that have to be answered--if one believes these 
figures, these charts--and this chart (indicating) is not a 
projection; this chart (indicating) is a projection, but this 
one is not a projection. These are actual core samples that 
were done from glaciers and so forth which were melting. They 
show this dramatic curve. Then the orange is actually taken 
from measurements in Hawaii on top of a very tall mountain.
    If one believes that slope, if one believes the science and 
the likely projections over here (indicating), one has to say 
what is one going to do about it. What do you do about it?
    Now, God knows, this is not a perfect treaty. No treaty is. 
There are always compromises. But it is a reasonable down 
payment on a beginning of that process. It is not complete. It 
is a work in progress. As Senator Biden very eloquently said, 
the problem is so complex, no one agreement can encapsulate 
everything that needs to be done.
    We did not succeed as we'd hoped to with developing 
countries. We didn't. I am the first to admit it. But we 
achieved a lot of other things. We made a first step, and that 
gives us the foundation to then go to developing countries and 
say now look, we are willing to do our part if you will do your 
part, and if you don't do your part, there is not going to be a 
treaty--period.
    Senator Hagel. Thank you.
    Senator Grams.
    Senator Grams. Thank you very much, Mr. Chairman.
    Mr. Eizenstat, again, welcome. I would like to go back to 
some of the things I mentioned in my opening statement, and 
that is that in this country we rely primarily on fossil fuels 
and nuclear power to meet our energy needs.
    This administration, however, just 11 days ago, as I 
outlined, failed to meet both its legal and contractual 
obligations to begin accepting spent nuclear fuel from 
commercial plants across the country. And, as we know, this 
means it could have very permanent effects on plant shutdowns, 
on the decreased use of nuclear energy, which is very likely. I 
have seen figures which show that nuclear power plants are 
credited, as I said, with 90 percent cuts in carbon dioxide 
emissions from U.S. electricity production since 1973.
    Additionally, countries throughout Europe, again, like 
France, are turning more and more to nuclear power. China has 
plans for substantial use of nuclear energy now and in the 
future, as does Japan.
    Meanwhile, we continue to hide from nuclear power thanks to 
extremist rhetoric and fear.
    Now just how do you and the administration expect the 
United States to meet our energy needs in the years to come 
given the limits of Kyoto and our lack of nuclear energy 
policy?
    Ambassador Eizenstat. That is a very important question. I 
was Ambassador to the European Union for 2\1/2\ years and was 
based in Brussels. I travelled widely in Europe and I know what 
nuclear power means in countries like France, where it supplies 
70 percent of electricity.
    I have been a very strong, unequivocal proponent of nuclear 
power. I believe that under Kyoto and post Kyoto, nuclear power 
will have to play an increasingly important role because it 
does not emit greenhouse gases.
    I agree that we need, therefore, to look at our nuclear 
policy and I might say that when I served as President Carter's 
Chief Domestic Advisor, I had on my desk, literally, the 
Nuclear Siting and Planning Act which would have speeded up 
permitting. It was within perhaps 48 hours of being submitted 
to the Congress when Three Mile Island occurred, and we have 
never recovered since.
    I cannot speak to the DOE issue and would defer to them. I 
would be glad to try to get them to respond to your legitimate 
concerns.
    Senator Grams. We have tried and cannot do it.
    Ambassador Eizenstat. But I will say also on the fuel issue 
that we were talking in 1977-78, when I was in the White House, 
about salt domes and other ways. I think this country, under 
Republican and Democratic Presidents, ought to be doing more, 
ought to have done more. I think, again, nuclear energy has a 
very real role to play in this climate change issue. On that, I 
fully agree with you.
    Senator Grams. Has the administration in these talks or in 
your consideration, then, considered the regional implications 
of complying with the treaty for areas which will have to 
replace energy from nuclear reactors, such as in my home State 
of Minnesota? About 30 percent of our power comes from nuclear. 
It would be awfully expensive to go to coal fired or other 
places to replace that.
    So has this been part of your consideration and in your 
numbers as well?
    Ambassador Eizenstat. It will be factored in.
    There is a nuclear power initiative in the President's own 
budget to extend the life of plants. That is a beginning of the 
process. It is certainly not the end of it.
    We would like very much to work with you to plan on how we 
could make nuclear energy more significant in the years ahead.
    Senator Grams. I have just some other quick questions. What 
type of economic modeling, outside of the nuclear issue, has 
the administration done to determine the economic effects of 
this treaty? I want just to mention a couple of things.
    The administration attempted, I think, an economic modeling 
effort, which has been branded a failure. In fact, the Director 
of the President's Council of Economic Advisers, Dr. Janet 
Yellen, testified before the House Commerce Committee that the 
administration's efforts were ``futile.''
    How do you respond to that?
    Ambassador Eizenstat. I regret that Janet Yellen is not 
here. We came very close to being able to arrange our timing. 
Unfortunately, the Economic Report of the President, which is 
the Council's major activity for the year, came out at the very 
time of this testimony or she would have been here to present 
our economic analysis. That analysis will be ready very 
shortly, and when I say very shortly I mean literally within a 
week or 2, and at an appropriate Congressional hearing we will 
lay that out.
    I think you will find from here findings that the costs to 
the economy are reasonable and that there are, indeed, many 
benefits to doing this as well, health and other, and that, 
again, delaying action will only increase the cost.
    Senator Grams. When you say costs are doable or can be 
absorbed, I know Senator Byrd is extremely interested in this. 
The United Mine Workers of America commissioned a study which 
considered economic impacts as a result of the reduction only 
back to the 1990 levels. Some of their findings included this: 
Nearly 1 of every 2 coal miners will lose their jobs. 1.7 
million more American jobs will be eliminated as a result. Gas 
prices will increase 43 percent, fuel oil will increase 119 
percent, electricity prices will increase by 94 percent.
    You could go on and on. But how do you answer numbers and 
statistics like that?
    Ambassador Eizenstat. Again, Chairman Yellen will have that 
analysis very shortly. I think you will find that it is 
dramatically different than those figures that you just 
indicated.
    Many of the studies, Senator Grams, did not take into 
account things like offsetting costs of sinks, the offsetting 
costs of joint implementation with credits, the offsetting 
costs of emissions trading. When those are factored in, one 
sees that the costs go down very, very dramatically.
    In addition, over the last several decades we have had 
these kinds of studies every time there has been an 
environmental initiative, whether it was clean water, clean 
air, ozone, acid rain. What we found is that we can, in fact, 
do both. We can have a cleaner environment and we can have a 
solid economy.
    We have now an economy we can all be proud of: 14.5 million 
jobs have been created; an under 5 percent unemployment rate. 
And yet, we have an environment that is infinitely cleaner than 
it was.
    We also have, and I think these studies do not take that 
into account, something called a Five Labs Study that was done 
by the five National Labs. They are totally independent. You 
know, nobody told them what to come up with. They made some 
findings about what technology can do and how we can reduce the 
burdens and costs on coal miners and others by coming up with 
what is the hallmark of America, and that is ingenuity and 
technology.
    We believe that we are going to be able to develop cleaner 
plants and cleaner cars and that, indeed, having this kind of 
target is going to send a signal to the free market to 
innovate, and that that innovation will itself create jobs.
    Senator Grams. Just one final thing. You mentioned that 
there were over 2,000 leading scientists from 50 countries. I 
have heard some questions about the names and everything. Could 
you just supply me in the future with their names and 
credentials?
    Ambassador Eizenstat. Absolutely, and many came from the 
United States. We would be glad to.
    I think this is the most definitive group and represents a 
basic consensus.
    Interestingly, just within I would say the last couple of 
weeks, actually, when we got the 1997 final reports on weather 
which made 1997 one of the warmest years in history--it fell 
into a pattern where 9 of the last 11 years are among the 
warmest ever recorded--a lot of climatologists who were 
themselves somewhat doubtful have now said indeed there must be 
something happening here and it must be to some extent 
occurring from human conduct. So we will be glad to supply that 
to you, Senator.
    [The information referred to appears in the appendix.]
    Senator Grams. Thank you very much.
    Thank you, Mr. Chairman.
    Senator Hagel. Senator Kerry.
    Senator Kerry. Thank you, Mr. Chairman.
    Mr. Chairman, I am going to use a little bit of my time to 
make a couple of opening comments, if I may, and then would 
proceed.
    While it is not our responsibility here to provide 
testimony or anything, I would like to make a few observations 
as a member of the Observer Group with you, who spent time in 
Kyoto and has been following this issue. Then I would like to 
ask a few questions of Ambassador Eizenstat, if I may.
    Let me begin by saying that I think it is very important to 
underscore the positive side of the ledger here and to 
recognize the circumstances in which we arrived in Kyoto.
    In my judgment--and I was in Rio, and I was the chairman of 
the delegation that went to Cairo, so I have been through a few 
of these--we were a little less organized than we had been 
previously, regrettably, and I think some of the groundwork 
that needed to have been done was still hanging loose for 
various reasons.
    So I thought that we arrived in Kyoto on a precipice. I was 
somewhat concerned initially about a change in sort of the 
personnel and the relationships of who was going to be 
negotiating.
    I must say that Ambassador Eizenstat I thought did a superb 
job and I think his team did a superb job of pulling together a 
rather remarkable step forward in the face of some very, very 
tricky, complex, and difficult negotiating circumstances. I 
think the team negotiated skillfully and diligently with a 
remarkable stamina. I don't know how they stayed up the hours 
they did. And notwithstanding the long hours, I think nobody 
lost sight of the focus of interests that we were trying to 
protect--the interests that you had expressed, Mr. Chairman, 
with Senator Byrd, and the larger economic interests for our 
country.
    So I think we need to look at the positive. One hundred 
fifty nine countries came together with no argument over the 
science. Prime ministers, presidents, and whole governments 
sent their delegations there with an understanding among all of 
them that we needed to do something. There was no issue about 
the need to do something. The question was who takes the first 
steps and by what quantities and methodologies.
    I think it is very important for people in the U.S. Senate, 
which seems to be the only place in the world where there is 
sort of a significant governmental effort to try to rewrite or 
reinterpret some of the science, to take note of this fact of 
159 nations making this decision to come together.
    Second, I think it is very important to put on the table 
the difficulties that Ambassador Eizenstat and others ran into 
in negotiating.
    I was personally taken aback by it. In all of the dealings 
I have had in the 13 years I have served on this committee, I 
have never in my foreign travels run into quite the degree of 
anger directed toward the United States as was just palpable in 
our negotiations in Kyoto.
    There has always been tension. We have always been, since 
World War II, certainly, the larger player on the block, and we 
have always suffered some slings and arrows for the perceived 
arrogance of some of the positions that we take.
    But this was different, and I think Ambassador Eizenstat 
would agree with me that it was different. Two reasons 
particularly leapt out as to why it was different.
    Reason number one is because of our failure to pay our dues 
at the United Nations and the sense people have that we are 
willing to throw our weight around without carrying our portion 
of that weight; that we are delinquent and, because of that 
delinquency, I think it has cost us in Kyoto, as I believe many 
people on the international scene interpret it as costing us 
now in our efforts with Iraq.
    The second point is that we went to Rio, and we signed on 
in Rio, and the U.S. Senate ratified the treaty in Rio which 
agreed to voluntarily reduce our emissions. And every nation in 
the world was able to sit in judgment on the fact that, not 
only did we not reduce, not even make some enormous effort to 
reduce, we significantly increased our emissions in this 
country.
    And so, they sat there saying who are you kidding. You are 
telling us less developed countries that we have to come on 
board and you people have not even made a good faith, first 
step effort to prove you are wiling to be serious about this.
    So there are serious doubts about the bona fides that we 
brought to the table, notwithstanding the Clean Air Act, the 
Clean Water Act and other great efforts we have made in this 
country, which many of us tried to explain to them. But we were 
dealing in a very difficult climate.
    The third point I want to make is this. There was a very 
significant misinterpretation which could not be undone in the 
circumstances I just described by the developing countries as 
to what was expected of them. And because of the volatility 
that was in the air and the pressures of coming to cloture in a 
short period of time, there just was not a capacity, even with 
all of the delegation meetings that we had, to pull them back 
from this misinterpretation.
    I believe in these ensuing months, before we go to Buenos 
Aires, we have the opportunity to reach out with personal 
diplomacy, with bilateral diplomacy, with multilateral, quietly 
to bridge that gap.
    None of these developing countries understood the degree to 
which we are not requiring them to have the same implementation 
plan, the same timetable, the same levels. All of them saw our 
efforts to include them as a conspiracy to minimize their 
growth whereas it is much the contrary.
    But because the concepts of joint implementation and 
emissions trading and other things were wholly new to them, 
without the time to explain them we simply were not able to 
bridge the gap and bring them on board.
    I am quite convinced that, over a period of time, they will 
recognize that what we are really asking them to do is simply 
sign on to the notion that this is a global problem with 
varying responses needed by different countries.
    In fact, China today is taking very positive steps in many, 
many areas of the environment and embracing whole new 
technologies, many of which would adequately satisfy already 
what we are really needing to get in the context of this kind 
of treaty.
    In addition, there are distinctions between countries. 
While China was very adamant, many of us found other less 
developed countries or developing countries wholly prepared to 
participate, anxious to take part in the upsides of this 
treaty, which are the joint implementation and other matters.
    There is a golden lining for us, too, with respect to that. 
I just met 2 days ago in Massachusetts with the Environmental 
Business Council. We have hundreds of companies in our State, 
as there are in California, Texas, Florida, and other States in 
the country, all of which are pushing the frontier of 
technology in remediation mitigation, in clean air, best use, 
and so forth.
    This notion that this represents a job loss to us is 
incomprehensible when measured against the technological 
journey this country has led in since the war.
    We have enormous ability to be able to produce jobs through 
this endeavor, and the experience of the 1980's, when President 
Reagan came in and pulled the money out of the Energy Institute 
in Colorado is one of the clearest examples of what happens 
when we diminish or relinquish our research and technology 
pushing efforts.
    The Germans and Japanese leapt to the forefront of 
photovoltaics and renewables, and now, as the former Communist 
Bloc countries come on line seeking those technologies, 
unfortunately there are other countries they go to rather than 
us for the leading technologies in those areas.
    If we push the curve, as the President's budget seeks to 
do, with $6.3 billion of technology effort over the next years, 
we can regain that lead and we can provide the jobs.
    There are a final two points I would quickly make.
    The joint implementation effort and emissions trading 
opportunities here ought to also be viewed in their proper 
light. There is enormous technology transfer available in this 
treaty. It is ground breaking in its capacity to take the 
United States and other developed countries' technologies and 
assist the developing countries to avoid making the mistakes we 
made even as they grow.
    This is, I think, one of the most brilliant and important 
parts of this treaty. We should look on that as pure 
opportunity--economic opportunity and environmental 
opportunity. I think it is important for our colleagues in the 
Senate to understand the full measure of that opportunity.
    In addition to that, it can even be argued--and I regret to 
say this--that if you accept all of the science as these 
countries have and you come here looking at these charts with 
their increasing curves, the truth is that what happened in 
Kyoto is not enough, frankly, to turn that around. Most 
environmentalists and most scientists will regretfully have to 
swallow hard to tell you that truth.
    But this treaty merely tries to get us down toward 
stabilization and slightly below it. Nobody makes the argument 
that this is a level sufficient to solve the problem of global 
warming.
    So we need to be very, very cautious in whatever measures 
of opposition we bring to even these efforts as we think about 
where we are going in the future.
    The last comment I would make in terms of opening is that 
the benefits always get hidden here. The benefits are always 
overridden by statistics that do not adequately take into 
account the kinds of things Ambassador Eizenstat just talked 
about--the mitigation, the counter technologies, the emissions 
trading, the joint implementation, all of these upsides that 
are more difficult to measure. But when you read these 
dastardly figures, they do not take them into account.
    But they never take into account the upside benefits of 
health, of what happens with respect to energy efficiency and 
of national security. We have become far more energy dependent 
on foreign oil, not less, since the Gulf War. We fought a war 
over oil only a few years ago. And, even as we become more 
dependent, we ought to be thinking about how we turn that 
around.
    This treaty has the silver lining of actually requiring us 
to begin to become more energy efficient and less dependent. 
That increases the national security of the United States.
    So the upside benefits it seems to me also need to be put 
on the table.
    Mr. Chairman, I thank you for your indulgence. I won't ask 
questions in this round.
    Senator Hagel. Thank you. Thank you, Senator.
    Mr. Secretary, as a matter of fact, I find Senator Kerry's 
comments interesting. He is right about his sense of the anti-
Americanism which you dealt with every second of your time in 
Kyoto. That seems to me should give us even more pause, seeing 
that, living with that, as you did, as Senator Kerry and I saw 
that strong, intense, anti-Americanism there, even more pause 
as to the issue of fairness and functionality of any kind of 
agreement we make here when you are allowing 134 developing 
nations to essentially have, by the dominance of their numbers, 
the sway on this treaty. I think that is a very important 
issue. I know it is with American industry, American business, 
with the AFL-CIO, that is, will we be treated fairly? Will this 
continue, this big, ``Ugly American, you have polluted the 
world, you have done us all in, you have taken advantage of our 
resources''? That is a concern.
    Let me shift to a couple of other areas, to economic 
issues.
    We are all sorry that Dr. Yellen is not here. You may know 
that I have asked many times for the administration to send 
somebody up here who could talk to us about the economy, some 
of the issues that Senator Grams was referring to, major 
issues. Aside from the debate over the science, whether it is 
contradictory, whether it is unclear, whether it is there or 
not, if, in fact, we would go forward here, it is going to be 
at some cost to our economy.
    Now I am not disregarding what Senator Kerry is talking 
about, initiatives in technology and things that we know about. 
But the fact is, when you are talking about the kind of numbers 
we are talking about here, the administration surely is going 
to have to come forward with some economics here, some models, 
some studies.
    One of the biggest problems we have here with the 
administration on this issue, and I think, generally, with the 
people across this country who would be affected most by this, 
is where are those numbers, who is addressing this, and that we 
are not focusing on the reality.
    The theoretical is one thing, and addressing the science is 
something. But when you are talking about people losing jobs 
and our international competitiveness being questioned, being 
imperiled, being threatened, and all that goes back from that--
standards of living and the future of our children--I would 
like you to deal a little bit with that issue and when are we 
going to see something?
    Ambassador Eizenstat. Let me take both aspects because 
Senator Kerry led off with it as well.
    On the anti-Americanism, I think no one bore more the 
slings and arrows of outrageous fortune in that regard than I 
did. I sometimes, frankly, thought I was in a 1950's time warp 
and that we were in the old North-South debate, rather than the 
globalized economy we all believe we are in.
    But there are two aspects to it that give me confidence. 
First of all, we worked our way through that, and, with our 
leadership, with the help of Chairman Estrada, who is a 
tremendous chairman, and with the help of other developing 
countries who did not take such an extreme position--Senator 
Kerry is right; particularly some of the Latin American 
countries were much more reasonable--we were able to work 
through that anti-Americanism and come up with all of these 
concepts--flexible market mechanisms, joint implementation with 
credits, reasonable budget periods, and trading rights, and so 
forth--that were essential to us.
    A second point on the anti-Americanism--and I agree 110 
percent with Senator Kerry--is there is a real education issue 
here. The developing world did misunderstand what it was we 
were suggesting and somehow thought it was imperiling their 
industrialization. Their argument was look, you have been 
polluting the climate for 100 years and now you industrial 
countries are telling us, just as we are beginning to 
industrialize, what we can't do. We can show them how it is 
good for their economy to be more energy efficient, that 
development has to be sustainable to be real. I think with that 
education we will begin to get countries on board. But that 
will take time. Yet it will happen.
    With respect to the issue of sort of being overwhelmed, the 
way in which this is structured, this is a conference of 
parties. There is not going to be any centralized bureaucracy 
which tells us what to do. We have a very important say-so. 
Developing proper rules for trading is absolutely critical, and 
we will be working with you and industry to assure that we get 
this.
    Last, on the cost issue, I assure you that Chairman 
Yellen's absence here is not due to the fact that now we do not 
have a model. Quite the contrary. We have done an economic 
study, relying on other models. That study will be available 
very shortly.
    Indeed, had her timing worked out with the economic report, 
she was fully prepared to come here and sit with me. You do 
have a right to know the cost impacts and we will provide them.
    Senator Hagel. Well, that is reality and you understand 
that. I am not sure people in the White House understand that, 
but that is what real America is looking at here.
    Ambassador Eizenstat. They have a right to it.
    May I say, again, that no one lives in a vacuum. We live in 
a world of relativism, and we have to look at the commitments 
we've made relative to those that our major competitors took. 
And, when you look at that, what did Japan assume? What did the 
15 countries of the European Union assume who are our major 
competitors?
    You will see that our obligations were essentially the same 
or even less than theirs. And when you add in sinks, things 
that we have particular advantages with because of our forests, 
we come out very well compared to our major competitors and 
certainly no worse.
    Senator Hagel. Well, I think that is debatable. But I will 
take that back up in another round. Let me add just one thing.
    With all due respect, Mr. Secretary, to your answer 
regarding the intensiveness of the anti-American feeling over 
there, the fact is you left Kyoto with not one developing 
nation signing up. That is the cold, clear fact that we are 
dealing with here, which makes all of us very uneasy.
    Just one very quick question and then Senator Feingold has 
a number of questions. He has been patient.
    It is my understanding that, as you negotiated, prior to 
the negotiations there was a master document that the 
negotiators were working off of. Can you tell me if that is 
correct and who, then, produced that? If there is such a 
document, would you share that with the committee?
    Ambassador Eizenstat. If you are referring to the initial 
drafts by Chairman Estrada, a sort of working draft, there were 
working drafts with brackets that had been put on over the 
course of, oh, perhaps a year of negotiations, where we put 
certain brackets around items we couldn't accept and other 
countries did. That is the only document I can think of.
    Senator Hagel. This is a document that I have been told you 
were working off of that showed each country's baseline 
emissions and you didn't have any kind of master document--
``you,'' the negotiators, not the U.N. or Estrada.
    Ambassador Eizenstat. Our team did have information about 
the emissions levels of other countries. But I never had one 
sort of master document that I was operating from. I had 
negotiating instructions, but not something that you refer to 
there.
    I would be glad to try to look to see if there is anything 
relevant, but nothing that fits the description that you just 
have given me comes to mind.
    Senator Hagel. Thank you.
    Senator Feingold.
    Senator Feingold. Thank you, Mr. Chairman.
    Let me, first of all, ask that my full statement be placed 
in the record.
    [The prepared statement of Senator Feingold appears in the 
Appendix.]
    Senator Feingold. Let me also begin by just thanking my two 
colleagues here who obviously have devoted an enormous time to 
this. That is in addition to all of the other responsibilities 
they have. To devote that much effort to something this 
complicated is impressive and I am appreciative of it.
    I find myself in the position of obviously not knowing all 
the details of the impact of the protocol on the country and on 
Wisconsin. This hearing, which reviews for the committee the 
evolution of the United States negotiating position from 
stabilizing its emissions at 1990 levels to agreeing to a 7 
percent reduction, is a first step in developing some 
understanding of this.
    Some of the predictions that have been made regarding the 
impact of the Kyoto Protocol are very serious and concern me. 
They need to be addressed and I know the Secretary is already 
doing that. But let me begin for a couple of minutes by asking 
you something that has already been raised of me in Wisconsin, 
Mr. Secretary. You have already touched on it.
    Some manufacturers in my State have raised concerns that 
the administration will be implementing the protocol without 
the United States actually ratifying the protocol. You have 
already said in answer to an earlier question about this that 
there are no binding agreements to that effect.
    But the specific question that has been raised to me was 
whether or not the budgetary proposals having to do with $6 
billion in tax credits are, in effect, a way to implement the 
protocol without ratifying it.
    I would appreciate it if you would respond to that.
    Ambassador Eizenstat. First of all, on your first question 
or statement with regard to targets, the target we agreed to 
represents, at most, a 3 percent real reduction and possibly 
less, below the target that the President has initially set 
before the negotiations. The remaining 4 percent or so results 
from changes in the way the gases are treated. We benefited by 
having six gases in rather than three and particularly 
benefited by a factor of 3 percent or more by the inclusion of 
carbon absorbing sinks--that is, forests and things--which will 
remove a burden from Wisconsin in other industries that they 
otherwise might have had to assume.
    Second, I want to reiterate that we are not implementing 
binding obligations on this country without Senate 
ratification--period.
    Third, with respect to the President's program of tax 
credits and R&D incentives, these are to get us in a position 
where we will be further down the road and won't have to make 
the kind of drastic reductions that otherwise might be called 
for. These are voluntary. Congress has to fully debate and 
approve them. They are good energy practices. They are 
incentives for industry to do more, similar to what other 
Presidents have done in other circumstances. They are not some 
covert effort to implement obligations or assume binding 
obligations. They are really to make this country more energy 
efficient, and by doing so we will be in a better position if 
and when the Senate ratifies to meet our obligations. We will 
have gotten a fair start.
    Senator Feingold. Is it fair to say, then, that we could 
have expected those tax credits or incentives to have been in 
the budget regardless of whether the Kyoto Accord had been 
entered into?
    Ambassador Eizenstat. Yes, because the President had talked 
about those before there was a Kyoto Protocol. We have enhanced 
them by another billion dollars to show our earnestness in 
moving forward. But they already were being planned and talked 
about well before the Kyoto Protocol was signed--excuse me--was 
negotiated. It was not signed.
    Senator Feingold. I appreciate your directly addressing 
that because it is being mentioned to me.
    Mr. Secretary, do you see any chance that the protocol will 
enter into force without the U.S. ratifying it?
    Ambassador Eizenstat. No.
    Senator Feingold. How will the administration be seeking 
additional involvement of developing countries? I think you 
have touched on this, but if you could, say a little more.
    Ambassador Eizenstat. We are going to undergo a full 
diplomatic press. This will include the following: using 
multilateral fora, like the G-8, to encourage our developed 
country partners to get into swing with us in encouraging 
developing countries to be involved; doing the same in the 
OECD; using international financial institutions, like the 
World Bank and the regional development banks, to agree only to 
fund projects abroad in the energy area which are greenhouse 
gas friendly; bilateral efforts.
    Senator Kerry, I will tell you if there is one lesson that 
I drew out of this, it is that if you go back into a G-77 
context and try to get this done, it won't get done. We have to 
deal country by country with the key countries involved, and we 
will be doing that bilaterally.
    We already have, for example, with China the beginnings of 
that--it is only the beginnings, but the beginnings--that Vice 
President Gore negotiated through a bilateral environmental 
agreement. We also will use subregional and regional fora, 
whether it is the Summit of the Americas, working with 
MERCOSUR, to get them to do so. And we are going to do the 
education job. We are going to point out to them the advantages 
of assuming real limitations, or at least limitations on their 
growth to their own economy.
    In addition, we are going to point out to them that if they 
want to take advantage of the benefits of emissions trading, 
which is a potentially huge advantage for them, they cannot do 
that without assuming binding emissions targets.
    They are going to see, Senator Feingold--I am absolutely 
certain of this--over time, when they see how emissions trading 
works and how profitable it is for the companies selling 
credits, they are going to want to be part of that.
    We are also going to work on the joint implementation with 
credits concept, the Clean Development Mechanism to implement 
that. So it will be a multifaceted effort. It is one that will 
take time, but we are committed to do it. We know how important 
it is to the Senate.
    But may I say, if the Senate had never passed Hagel-Byrd, 
if it had never passed Hagel-Byrd, we would be doing the same 
thing because we believe that this is a global problem and it 
cannot be solved by the developed countries alone.
    Senator Feingold. Thank you, Mr. Chairman.
    Senator Hagel. Thank you, Senator.
    Mr. Secretary, you alluded to this earlier, but take us 
through how this works with the U.N. The U.N. now has over 
50,000 employees. Much of the concern, at least from the people 
that I think many of us hear from across this country is my 
goodness, we are going to allow the United Nations to 
administer, to enforce, and what else, what we are doing.
    Would you reassure us as to how this is going to work? Who 
enforces, who administers? What is the recourse? Say my farmer 
out in Nebraska comes in and has somebody test soil. And, by 
the way, this is not an exaggeration, as you know. You know 
what the appendix looked like in this document, and you know 
that Article 2 deals with agriculture, and you know very 
specifically what that soil composition is supposed to be. So 
somebody comes in and tests soil. I don't know how it works, 
but you tell us. Then what is the recourse? Do we go to the 
Hague? How does that happen?
    Ambassador Eizenstat. I want to assure every farmer in this 
country, every person who works in an industry in this country 
that there will be no visits by any international body to which 
the U.S. Government does not invite them and that they 
themselves permit that to occur. It is very important to 
understand this.
    Senator Hagel. I am a little confused. If there are legally 
binding mandates, you are then going to say that if the farmer 
wants to be tested, even though the United States is part of a 
legally binding, mandated forum here, that he can or can't be?
    Ambassador Eizenstat. What I am saying, Senator, is that 
compliance under this agreement--and this is something we 
insisted on--is essentially national. It relies on the United 
States to do the heavy compliance work.
    Now there will be teams. These will be intergovernmental 
teams. They will be review teams that will look at data that we 
supply, that we, the United States of America supply.
    Senator Hagel. United Nations teams? When you say there 
will be teams, what kind of teams? United Nations teams?
    Ambassador Eizenstat. They will not be from any secretariat 
They will be chosen by the countries who will be participating 
in the reviews--for example, the Annex I countries. So there 
will be Canadians on the team and so forth.
    But what does the team do?
    Senator Hagel. So we have the possibility of a multi-
national team visiting sites in America?
    Ambassador Eizenstat. No, sir--not unless we invite them 
and not unless the person on whose property they wish to go 
invites them.
    Senator Hagel. And so, if a farmer in Nebraska does not 
want to invite a United Nations team in to look at his soil, 
that is all he has to say, I don't want them in?
    Ambassador Eizenstat. That is exactly correct.
    What will this team, this intergovernmental team do? They 
will meet with U.S. Government officials, just as they have 
already met with Congressional staffs under Rio. They will look 
at our data. They will try to verify the data we supply. But 
they will not be able to have the capacity to do intrusive 
investigations of sites without the approval of our government 
and without the approval of the person involved. That is a very 
important thing to recognize.
    This is essentially self-reporting and it does not impose 
some U.N. secretariat swooping down on people not only 
unannounced but uninvited or unwanted.
    Senator Hagel. But how is this enforced? If these are 
legally binding mandates, how, in fact, if that is the case, 
what you just said, how do you enforce this? If any other 
signatory to the treaty says I am not interested in having you 
come look at my coal mine or my farm, where is the enforcement 
here?
    Ambassador Eizenstat. OK. First of all, Annex I parties 
have to have in place a measurement system for greenhouse gas 
emissions. We already basically have ours. Most of the 
developed countries do. But this will be something that will 
provide a baseline for measurement.
    Second, there will be this intergovernmental process, 
nominated by governments, who will take data and meet with our 
officials.
    Third, we will try to insure compliance with the 
obligations by making it clear that countries that are not in 
compliance with the reporting requirements cannot receive 
credits for joint implementation projects.
    Now, fourth, there is a need--and this will be elaborated 
also, and this is why we call it a work in progress--this will 
also have to be elaborated, the precise rules that will govern 
compliance and enforcement. We have this kind of outlined but 
it needs to be filled in.
    Senator Hagel. So we don't yet know how this will work.
    Ambassador Eizenstat. What we do know is there won't be any 
intrusive, unwanted, uninvited visits. What we do know is that 
it relies largely on national compliance. What we do know is 
that there is not going to be some international secretariat 
insisting on compliance. It will be done through an 
intergovernmental process in which we are fully involved.
    Filling out the details of that framework--and that is why 
I call this a framework for action--will be the work over the 
next months and years. But we have taken out those concerns 
that people had, Senator Hagel, that there would be again some 
intrusive, U.N. mandated search, swooping down unannounced, 
uninvited, and unwanted. That will not happen.
    Senator Hagel. When you say you have taken them out, you 
took them out of what?
    Ambassador Eizenstat. We assured that that was not in the 
Protocol.
    Senator Hagel. So those are unfounded concerns across 
America?
    Ambassador Eizenstat. They are completely unfounded 
concerns.
    Senator Hagel. OK.
    Senator Kerry.
    Senator Kerry. Thank you, Mr. Chairman.
    Mr. Secretary, in response to the chairman's comment and 
inquiry simultaneously about the 134 developing countries and 
the atmosphere and us being pushed around by that, it struck me 
that, to the contrary, we were remarkably successful in holding 
our ground and achieving sort of a common sense conclusion 
based on the merits of our arguments.
    I thought you might just sort of summarize, if you would, 
please, what you thought were the list of sort of 
accomplishments with respect to what we went in to fight for 
and what we came out with. Just make sure we are clear on the 
record.
    Ambassador Eizenstat. I think it is very important in 
response to Senator Kerry's comments, and, Senator Hagel, you 
obviously saw that as well, that we recognize what was 
accomplished.
    The United States of America does not allow itself to be 
pushed around by anybody, and we did not. We got multi-year 
budgeting, rather than having 1 year, which other countries did 
not want. We got our budget period, 2008 to 2012, rather than 
the Secretariats, and the EU's, and Japan's, and the developing 
countries' earlier budgets which they wanted.
    We got the joint implementation with credit concept through 
the Clean Development Mechanism.
    We got emissions trading and the kind of enforcement and 
compliance we did. All of those were done notwithstanding the 
opposition, because we had clear positions, we had clear 
negotiating instructions from the President and Vice President. 
We stuck to those. We achieved reasonable targets and 
timetables. We got flexible mechanisms. All of those were 
achieved.
    Now you were absolutely right, Senator Hagel. We did not 
get the binding obligations by developing countries. That is 
what we have to work on.
    But, my goodness, when you look at the opposition that we 
had to all of these other things, Senator Kerry, we got all of 
these, notwithstanding not only the objections of developing 
countries but those of the European Union as well. The six 
gases is another example.
    This is something that not only our environmental community 
but the business community that was in Kyoto insisted on. The 
EU and Japan did not want six gases. They only wanted three 
because it made their numbers look better. That's number one. 
Number two, they knew that they had rapidly growing gases in 
the other three areas, more so perhaps than we did. They did 
not want to cover it.
    We said no deal unless it's six gases. We got six gases 
covered. That also gives us at least a percent off of our 
commitment.
    The sinks are another example. Again, this is a novel 
concept, the notion that good forestry practices would somehow 
count in favor of our targets so that we could take them as 
credits. Again, we probably get 4 percent or so on that, 3 or 4 
percent. That was a new concept, not something that was 
immediately approved by either the developed or developing 
world. We worked through that opposition.
    Let me put it very bluntly. Every country, however anti-
American their rhetoric may have been, knew there was not going 
to be an agreement unless the United States of America was a 
player and its essential requirements were provided for.
    That does not mean we got everything we wanted. But we got 
virtually everything that we came looking for except the 
developing country piece. We got a down payment on that with 
the joint implementation with credits and with other provisions 
that I have mentioned, and that is what we had to work on.
    Senator Kerry. Thank you very much.
    In addition, there are many CEOs of various companies in 
this country who are very excited about the prospects of what 
this treaty can accomplish. There are businesses that are very 
supportive of it as there are some that are concerned about it. 
You can draw the lines fairly clearly about what interests are 
represented there.
    But I wonder if you would share with the committee and 
those interested for the record why joint implementation, 
emissions trading, and the Clean Development Mechanism are, in 
fact, cause for business to view this positively and what you 
think the upside for business is as a result.
    Ambassador Eizenstat. There are several upsides. First of 
all, when I was Under Secretary of Commerce for International 
Trade, one of the areas that is the fastest growing export area 
is environmental exports. We indeed created a whole new unit 
for environmental exports. With Kyoto, we are going to find 
that the demand under the Clean Development Mechanism, under 
joint implementation with credits, as developing countries want 
more of this technology is going to be fantastic. The number of 
jobs that will be created through environmental exports, 
measurement devices and the like, is just going to be 
tremendous. It is really going to be an enormous growth area.
    Second, what our industries said to us is don't impose 
carbon taxes, don't put in a top/down regulatory system. Give 
us the flexibility to meet these targets by market driven 
mechanisms, and that is what emissions trading really does. It 
gives a company, a utility in Nebraska or in Massachusetts the 
opportunity to joint venture in India, Pakistan, South Korea, 
or China, and not only provide that country with an incentive 
to begin to get involved in cleaning this problem up but in 
getting a credit to boot so that they don't have to put on an 
additional scrubber, perhaps, so they don't have to take 
additional demands on their own shoulders.
    In other words, it is the cheapest, most efficient way 
economically and it is environmentally sound because it will 
encourage developing countries who want to sell these credits 
and developed countries under Annex I to do as much as possible 
to have excess credits that they can sell. The same is with the 
joint implementation and Clean Development Mechanism. This is a 
bridge between the developed and the developing world. It is a 
partnership. Again, a company in Nebraska or in Massachusetts 
can do one of two things.
    It can invest in that particular power plant or forestry 
project in a developing country; but if it does not want to 
invest, it can just purchase the credit that comes from it.
    So in all of these ways, we have done what industry wanted, 
which is to provide flexible, nongovernmentally driven, non-tax 
driven mechanisms.
    Senator Kerry. Mr. Chairman, I know my time is up, but may 
I just ask one more question because I have to leave?
    Senator Hagel. Yes, sure.
    Senator Kerry. I appreciate that.
    Recently, there was a letter, the so-called Compass letter 
to the President from a number of former national security 
personnel, and this letter, signed by Jeane Kirkpatrick, 
Richard Cheney, Caspar Weinberger and others, suggested that 
the Kyoto Treaty threatens to limit the exercise of American 
military power: ``by exempting only U.S. military exercises 
that are multinational or humanitarian, unilateral military 
actions, as in Grenada, Panama, and Libya, will become 
politically and diplomatically more difficult.''
    I know that this is not, in fact, the case. But I would 
like to ask you, for the record, if you would address that 
question so we can try to answer it.
    Ambassador Eizenstat. First of all, there is not one person 
on that list that I do not respect. Each has served his or her 
country in very positive ways and what they say has, therefore, 
to be taken seriously.
    It is, unfortunately, completely incorrect. Everybody is 
entitled to at least one mistake in life.
    If they would have checked with our uniformed military and 
with our Defense Department, they would know that every 
requirement the Defense Department and the uniformed military 
who were at Kyoto by my side said they wanted they got.
    This is self-defense, peacekeeping, humanitarian relief, 
and they even mention in there that this would not have covered 
Grenada. That is not so. That is not so. It covers not only 
multilateral operations expressly authorized by the Security 
Council, like Desert Storm in Bosnia, it also covers 
multilateral operations we initiate pursuant to the right of 
self-defense. Under the U.N. Charter, it does not have to be 
authorized by the U.N. A perfect example of that is Grenada.
    When President Reagan went into Grenada to relieve that 
island of its communist dictators, it was a multilateral effort 
that we initiated. It wasn't done pursuant to the United 
Nations, but it was, in effect, pursuant to the Charter but not 
authorized by them. That is perfectly permissible.
    We got bunker fuels covered.
    There was also a concern by our military because of our 
unique situation with NATO where we have troops based in South 
Korea and in Europe and in many other countries that, somehow, 
countries would want to throw out U.S. troops, because they 
would be concerned that somehow the emissions coming from bases 
and so forth would count against them.
    We got that taken care of by allowing a negotiation. We are 
willing to assume that ourselves.
    So I think it is a fair statement to say that our military 
really believes that we did what they wanted, that we produced 
what they wanted. And if there is anything else that is 
required, which I do not believe there to be, that can 
certainly be taken care of in implementing legislation.
    Senator Kerry. Mr. Secretary, thank you. I know that people 
in public life are easy targets these days and public servants 
do not get a lot of credit. But I will say that you and your 
entire team, I wish people in this country could have seen how 
hard, expertly and diligently you all labored on our behalf 
there. I thought it was a terrific job and I thank you for it.
    Ambassador Eizenstat. Thank you, Senator.
    Senator Kerry. Thank you, Mr. Chairman.
    Senator Hagel. Senator Kerry, thank you.
    Mr. Secretary, if I could pick up on where Senator Kerry 
left off on the military issue, the Compass letter, you 
probably saw the full page ad in the paper this morning.
    Ambassador Eizenstat. Yes, I did.
    Senator Hagel. There is another aspect of it which is 
national sovereignty. I would very much like to ask you to 
respond to that as well. But let's keep on the military point 
for a moment.
    Are you saying that what essentially we have agreed to here 
would cover all United States unilateral military activity, 
that there is, in fact, a blanket exemption for our national 
defense forces?
    Ambassador Eizenstat. What I'm saying is that we took care 
of those concerns the military had and that includes those 
actions we unilaterally initiate that have a multilateral 
component, as almost everything we do does.
    For example, in Grenada we did not go to the Security 
Council. President Reagan did not go to the Security Council, 
but he involved some of the Caribbean countries in that process 
because we obviously want to have that kind of coalition. Those 
are fully covered, even if the U.N. Security Council never 
approves it.
    Senator Hagel. So, in essence, there is a blanket exemption 
for the United States military here?
    Ambassador Eizenstat. There is the kind of exemption that 
they wanted. Yes, sir.
    Senator Hagel. Does that mean a blanket exemption? Did they 
ask for a blanket exemption?
    Ambassador Eizenstat. They asked for what we gave them. 
That's what they asked for. I'm not trying to be coy. We asked 
them what do you need and this is what they told us and this is 
in there.
    Senator Hagel. So if I would ask any of our commanders, 
they would give me the same answer.
    Ambassador Eizenstat. Well, if they were the same ones that 
were with me, they certainly would, and I hope that that is the 
case.
    Senator Hagel. You hope it is the case?
    Ambassador Eizenstat. Yes, sir, because----
    Senator Hagel. I want a little more precise answer than 
that, Mr. Secretary.
    Ambassador Eizenstat. I'll give you a precise answer.
    Senator Hagel. I'm asking you a question of whether, in 
fact, they asked for a blanket exemption--and I don't know that 
answer.
    Ambassador Eizenstat. I can tell you that in the meetings I 
participated in--I don't know what happened in Virginia, but I 
can tell you in the meetings I participated in--we asked them 
what do you need. They told us and we got them for us. I also 
understand, although I was not privy to this, that there was a 
briefing by our uniformed military and our Defense Department 
of the committee that is responsible, the Armed Services 
Committee, in either the Senate or the House that asked these 
questions and that our military said that they were satisfied. 
Now I have only that to go on and that is as precise an answer 
as I can give you.
    They told me that this is what they needed. This is what 
they produced and I am told they are satisfied with it.
    Senator Hagel. When we say ``they,'' or when you say 
``they,'' who does that mean? Does that mean the Chairman of 
the Joint Chiefs of Staff or each of the Chiefs of the various 
services? You don't know?
    Ambassador Eizenstat. I know that there was in Kyoto a 
representative of the Joint Chiefs of Staff, who represented 
himself as representing the views of the Joint Chiefs of Staff, 
and I wouldn't say he kissed me, but he came darn close to it 
in terms of telling me how much he appreciated what we had done 
and that they were satisfied with what was done.
    Senator Hagel. Well, if you would, provide for the record, 
since there is, I think, some unclear communication here, 
number 1, what, in fact, was requested by the military; number 
2, who, in fact, requested it from the military; and, number 3, 
was there any change or deviance from that request. I think if 
we get those three questions answered, that would give us a 
clearer understanding of what exactly they asked for and who 
asked for it.
    Thank you.
    [The information referred to appears in the appendix.]
    Senator Hagel. May I go back, Mr. Secretary, to a previous 
conversation we had on administration implementation of this? 
You made it pretty clear that the United Nations, that is, it 
is still unclear as to what exactly their role is, but you made 
it very clear that they would not be administering or 
implementing this treaty.
    That, then leads me to believe that there would be agencies 
of our government that would be implementing the treaty, I 
suspect agencies such as the EPA.
    If this, in fact, is correct--and please direct me in the 
right area here as to how we comply--what new laws and 
regulations will be required and how will you move on those new 
laws and regulations in order for us to be in compliance?
    Ambassador Eizenstat. That is something that we will be 
working on in the coming months and we will be able to give you 
a more precise indication of that.
    I can give you one example of something that would require 
legislation if you ratify the treaty. It is this.
    We would want to do not only an international trading 
regime but we would have to do a domestic trading effort and 
that would require legislation.
    In terms of the enforcement process, I am not immediately 
aware of anything that would require new legislation. I think 
it can all be done within existing authorities. But certainly 
if something arises, we will be working very closely to tell 
you. But I am not aware in the enforcement area that we require 
new laws.
    Senator Hagel. And, as you said earlier, we don't need to 
worry about now because that won't happen, and it will not 
happen until the President would sign the treaty and the Senate 
would ratify it, is that correct?
    Ambassador Eizenstat. That is correct.
    Senator Hagel. Have you any idea on the cost of compliance 
by industry or by region? Do we have any of those numbers? Have 
we looked at any of those things?
    Ambassador Eizenstat. With your permission, again, I am not 
an economist. I have enough problems being a lawyer and don't 
have to take that additional burden on. But Janet Yellen will 
be testifying at the next available opportunity. Again, she 
would have been able to testify here had we been able to work 
out the timing with the Economic Report. We will try to give 
you the best macroeconomic analysis we can.
    Senator Hagel. But surely, Mr. Secretary, as you negotiated 
this and those prior to your tenure would have had to factor in 
some costs.
    Ambassador Eizenstat. Yes, sir, we did. We had with us a 
representative, John Gruber, from the Treasury Department, who 
had his handy computer, who at every turn, every time we made 
any significant proposal or we received one, factored the costs 
in. He was in constant contact with Washington, with Treasury, 
and with the Council of Economic Advisors. We did not sneeze 
without getting an economic analysis of it.
    Senator Hagel. You know, that is all interesting. But I 
find it even more interesting that you used those numbers and 
you used some format for modeling. You had to. Certainly there 
is something available. But yet, we have never been able to get 
any of that.
    Ambassador Eizenstat. Well, as the World Resources 
Institute has indicated, there are scores of models. The models 
depend on different assumptions.
    Senator Hagel. But I am talking about the ones that you 
used to negotiate the deal in Kyoto.
    Ambassador Eizenstat. Yes, sir.
    Senator Hagel. That is the only one I have ever been 
interested in and I think my colleagues, too, as to how did you 
then use the economic piece of this and how was that factored 
in; also what numbers did you use and where did they come from?
    Ambassador Eizenstat. They came from Treasury and the 
Council of Economic Advisors, which, in turn, relied on other 
models, which they will be prepared, which Janet Yellen will be 
prepared to testify about in great detail.
    Senator Hagel. And we will look forward to that.
    Mr. Secretary, we have kept you for a long time. As always, 
we are grateful for you and the work you do for this country.
    Ambassador Eizenstat. Thank you, Senator.
    Senator Hagel. Am I supposed to do anything else? I guess I 
should just remind you that for all comments, additional 
points, anything for the record, we will keep it open for a 
couple of days. I will be sending up some additional questions 
as well.
    Ambassador Eizenstat. Thank you for your courtesy.
    Senator Hagel. Mr. Secretary, thank you.
    [Whereupon, at 12:20 p.m., the hearing was concluded.]

 
                            A P P E N D I X

                              ----------                              


                  Prepared Statement of Chairman Helms

    Senator Helms. The Committee meets today to begin consideration of 
the Agreement reached in Kyoto, Japan, in December regarding global 
climate change. This is the first time that the Committee will hear an 
assessment of the Kyoto Agreement by the distinguished Under Secretary 
of State for Economic Affairs Stuart Eizenstat. Secretary Eizenstat was 
brought in at the 11th hour to head the U.S. negotiating team in Kyoto.
    Mr. Secretary, I think you are aware of my personal respect for 
you. For that reason, I must be frank: I believe that the 
Administration's policy on climate change, and the Agreement reached in 
Kyoto, are wrong-headed and bode ill for the United States.
    The United States currently has a treaty commitment to reduce 
greenhouse gas emissions to 1990 levels by the year 2000. That is under 
the U.N. Convention on Climate Change. I think we can all agree that 
the U.S. will not meet that unrealistic goal. So I am at a loss as to 
why this Administration decided it was a good idea to go ahead and 
negotiate a follow-on Protocol to that obviously flawed treaty, which 
contains an even more extensive mandate and even more intrusive 
enforcement of the greenhouse gas emissions goals?
    Why would the Administration--knowing full well that the United 
States cannot, and will not, meet the goals set in 1992--begin a 
massive campaign (headed, incidentally, by former Under Secretary for 
Global Affairs Tim Wirth) to press for a new, legally enforceable, 
treaty designed to try to force additional action?
    Mr. Secretary, despite all their best efforts, the U.N. bureaucrats 
and the extremist environmental groups could not persuade the Bush 
Administration to sign onto a legally enforceable climate agreement in 
1992. Their agenda in Kyoto was to get this Administration to do what 
the Bush Administration refused to do--that is, set a process in place 
that would lead to a legally binding international obligation. 
Apparently they succeeded.
    I am, quite frankly, appalled that the Administration is seeking to 
end run the legislative process, and present the Kyoto Protocol to 
Congress as a fait accompli. In pushing forward this treaty policy, the 
Administration is attempting to circumvent Congress and thereby shift 
decision-making authority over U.S. energy policy to a small group of 
unelected U.N. bureaucrats and the foreign competitors of the United 
States.
    Mr. Secretary, I cannot and will not let this happen on my watch.
    I could detail some of the worst aspects of the Kyoto Protocol, but 
I will leave that to my distinguished colleague, Senator Hagel. Senator 
Hagel was in Kyoto during negotiations and I regard him as the Senate's 
foremost expert on the defects and deficiencies of the Kyoto Protocol.
    Let me conclude by saying this: The President ought to slow down 
and take the time to read the tea leaves--scrap this defective Kyoto 
Protocol and reject the whole Kyoto negotiating process. Clearly, the 
developing world has no interest in the process except as a foreign aid 
cash cow. The Protocol is premised on the faulty idea that global 
changes can occur only when certain countries are asked to make 
commitments. In any event, this Kyoto Protocol has practically no 
chance of being ratified by the Senate, not on my watch.
    If the Administration will come clean on its climate policy, and 
submit specific changes in law it would propose for the United States, 
it might possibly present an achievable plan to Congress. But not this 
turkey that took flight at Kyoto.
    Let me spell it out: If the Clinton Administration insists on 
standing by this misguided treaty, then the Administration should 
submit the Kyoto Protocol immediately to the Senate. We will debate it, 
and vote up or down on it. Because we have a moral obligation to let 
American businesses--and the workers whose jobs may hang in the 
balance--know whether they will be required to take on these enormous 
economic obligations in the next decade.

                               __________

                  Prepared Statement of Senator Hagel

    Today, we are conducting the first Senate hearing since the 
conclusion of the U.N. global climate conference last December in 
Kyoto, Japan, and we have with us the chief U.S. negotiator of this 
treaty, Undersecretary of State Stuart Eizenstat.
    In the last session of Congress, a number of hearings were held in 
the Senate in advance of the Kyoto conference, including three in the 
Foreign Relations Subcommittee on International Economic Policy, Export 
and Trade Promotion, which I chair. I expect that the focus of today's 
hearing will be somewhat different, because we now have a finished 
product: the Kyoto Protocol. This is a document of 27 pages, 24 
Articles, and two Annexes. It is a treaty now awaiting the signature 
and ratification of the participating countries, including the United 
States.
    The Administration refers to the Kyoto Protocol as a ``work in 
progress.'' This leaves people with the mistaken impression that the 
treaty remains under negotiation and that objectionable parts of the 
treaty can be negotiated away before it is submitted to the Senate for 
Advice and Consent. That is not the case.
    This treaty cannot be amended until it goes into force, and even 
then, only by a three-quarters vote of all countries that have become 
party to the Protocol. Developing countries, which are not bound by any 
emissions limits, make up more than three-quarters of the world's 
nations.
    Certainly, later actions of subsequent U.N. conferences might add 
to the Protocol. It might expand U.N. regulations and interpretations 
of how the treaty would be carried out. Later actions might define 
compliance measures and enact U.N. sanctions against countries that do 
no meet their legally-binding commitments under the treaty. But what is 
in the Protocol today, including its many objectionable provisions, 
will not change prior to it coming into force--assuming it ever comes 
into force.
    This treaty requires a reduction in greenhouse gas emissions of 
seven percent below 1990 levels for the U.S. during the years 2008 to 
2012. In real terms that would be a devastating 40 percent reduction in 
projected emissions for the U.S.! It is inevitable that this extreme 
cut in energy use would cause serious harm to our economy. Furthermore, 
developing countries like China, Mexico, India, South Korea and 130 
other nations are totally exempt from any of the new restrictions 
placed on industrial countries. To later change the treaty requires a 
three-fourths vote after the treaty has already gone into force.
    Last July, the Senate provided its advice to the Administration 
regarding this treaty and went clearly on the record by passing Senate 
Resolution 98, the Byrd-Hagel resolution, on a vote of 95 to zero. It 
is rare that a resolution critical of a major element of an 
Administration's foreign policy would receive such unanimous support in 
the United States Senate. Even more significant than the 95-0 vote is 
that this bipartisan resolution had 65 cosponsors, including 18 of my 
Democratic colleagues.
    The Byrd-Hagel Resolution was very clear.
    The resolution called on the President not to sign any Kyoto treaty 
or agreement unless two minimum conditions were met.
    First, the Byrd-Hagel Resolution directed the President not to sign 
any treaty that placed legally-binding obligations on the United States 
to limit or reduce greenhouse gas emissions ``. . . unless the protocol 
or agreement also mandates new specific scheduled commitments to limit 
or reduce Greenhouse Gas emissions for Developing-Country Parties 
within the same compliance period.'' Nowhere does the resolution 
mention the Administration's nebulous standard of achieving 
``meaningful commitments by key developing countries.'' The Byrd-Hagel 
Resolution was very clear--the United States should not sign a any 
global climate treaty that does not include binding commitments for the 
developing countries, such as China, Mexico, India, Brazil and South 
Korea, in the same time frame as the U.S. The Kyoto Protocol does not 
include a single developing nation.
    Second, the Byrd-Hagel Resolution said that the President should 
not sign any treaty that ``. . . would result in serious harm to the 
economy of the United States.'' The Kyoto Protocol would legally bind 
the United States to reduce our greenhouse gas emissions to seven 
percent below 1990 levels by the years 2008 to 2012. It goes much 
further than President Clinton's own bottom line of last October, where 
he pledged that he would accept nothing more than returning to a 
baseline of 1990 levels in greenhouse gas emissions. Independent 
economic studies of the President's position showed it would result in 
the loss of up to 2 million U.S. jobs, the relocation of at least six 
major U.S. industries to developing nations, a major slow down in 
economic growth and much higher energy prices for the American people. 
Yet, our negotiators agreed to a treaty that would have an even more 
devastating impact on the U.S. economy.
    As Senator Robert C. Byrd noted in his floor statement of two weeks 
ago, the Kyoto Protocol fails to meet either of the requirements of 
Senate Resolution 98. It fails to meet the minimum criteria set 
unanimously by the United States Senate. Therefore, I join Senator Byrd 
in calling on the President not to sign this treaty, a treaty that so 
clearly runs against our country's national interests.
    So what happened in Kyoto? How did we agree to such a bad deal for 
the American people? Today, Undersecretary of State Stuart Eizenstat 
will be testifying before the Senate Foreign Relations Committee and 
hopefully he will be able to provide some answers. Stuart Eizenstat 
brings professionalism and seriousness of purpose to every task he 
takes on. He was thrust into the position of being the chief U.S. 
negotiator in Kyoto after the man who had guided this process for 
years, Undersecretary of State Tim Wirth, abruptly resigned immediately 
prior to the Kyoto conference.
    Despite his abilities, Undersecretary Eizenstat was severely 
hampered in his eleventh hour efforts to negotiate a treaty in Kyoto 
that would actually advance U.S. interests. The U.N. climate change 
negotiation process was critically restricted by the so-called ``Berlin 
Mandate'' that prohibited the negotiations from even considering any 
new commitments by developing countries. Under the guise of this 
``Berlin Mandate,'' which was made part of the negotiating process by 
Undersecretary Wirth in 1995, developing countries refused to even 
consider language that would allow them to ``voluntarily opt-in'' to an 
agreement to reduce greenhouse gas emissions. While all of the 
developing nations--especially China, Mexico, India, Brazil and 
Argentina--were represented in force in Kyoto and took part in writing 
and approving the language binding the U.S. and the other 
industrialized nations, they had no intention of participating in the 
treaty. And they got off without having to agree to anything, not even 
voluntary commitments at a later date.
    Again, I believe even the Administration's position, as laid out by 
President Clinton last October, did not satisfy the basic minimum 
requirements of economic harm and developing country participation set 
by the U.S. Senate. However, at least the U.S. negotiators were holding 
firm to the Administration's position during the first week of the 
Kyoto conference, rather than caving to the European Union, the 
developing nations, U.N. climate change bureaucrats and international 
environmentalists who wanted the United States to agree to much larger 
cuts. That resolve vanished after Vice President Gore made a whirlwind 
visit to Kyoto for less than a day in the middle of the conference, and 
publicly instructed U.S. negotiators to show ``increased flexibility.'' 
At this point, the United States lost any last vestige of leverage in 
the negotiations. The U.S. negotiating position became ``get a deal at 
any cost.'' Which our negotiators did, at a great cost to the American 
people. As far as I can tell, the United States is the only country 
that came out of Kyoto worse than we came in.
    In my view, the Kyoto Protocol is so seriously flawed that its 
problems go far beyond those specific criteria laid out in S. Res. 98. 
These problems can be grouped in five general areas: (1) developing 
country commitments, (2) economic harm, (3) fair treatment for U.S. 
interests, (4) impact on national sovereignty, and (5) impact on 
national security.
    First, as already noted, the treaty fails to include new legally-
binding commitments on the developing nations. In fact, Article IO of 
the treaty goes so far as to restate the so-called ``Berlin Mandate'' 
by emphasizing that the Protocol must be implemented ``without 
introducing any new commitments for Parties not included in Annex I.'' 
The Administration has stated that it hopes to get ``meaningful 
participation by key developing countries''--whatever that means--at 
the next U.N. conference planned for Buenos Aires next November. But 
the language of the Protocol itself clearly exempts developing nations 
from the binding commitments it requires.
    Second, every serious economic study I have found predicted serious 
economic harm even if the Administration had held to its position of 
last October. Those included independent studies, some commissioned by 
the AFL-CIO, and some commissioned by business and consumer groups. 
These studies found job losses in the rage of 2 million, large 
increases in energy costs, a 50-cent increase in gas prices, and a drop 
in economic growth rates of over 1% a year. These economic consequences 
would be particularly severe for American agriculture. Dramatic 
increases in energy costs would force production costs so high for many 
farmers that it would drive them right out of business.
    The Administration questions these economic findings, but we are 
still awaiting the comprehensive economic model promised more than two 
years ago by the Clinton Administration. The Administration struggled 
with the model for a year and a half before finally abandoning the 
effort last summer after receiving strong criticism through the peer 
review process. In fact, the Chair of the Council for Economic Advisors 
went so far as to call economic modeling in this area ``futile.'' Twice 
now, the Administration has pulled witnesses that were to address the 
economic consequences of this treaty in Senate hearings. At the hearing 
today in the Foreign Relations Committee, Janet Yellen, Chair of the 
Council for Economic Advisors, was scheduled to accompany 
Undersecretary Eizenstat, but pulled out of the hearing two days ago. I 
invited Deputy Secretary of the Treasury Larry Summers to testify on 
economic issues before my subcommittee last October. I have been told 
he was willing to appear but was prevented from doing so by the White 
House.
    Third, this treaty is unfair to the United States. It gives the 
European Union the ability to pool its supposed ``cuts'' under the 
umbrella of the so-called ``European Bubble.'' This permits Europe to 
avoid the kind of economic harm that will hit the American economy 
because the EU benefits from two unique circumstances: the collapse of 
dirty industry in eastern Germany and Britain's shift from coal to 
North Sea natural gas for economic reasons. Throughout the treaty, one 
finds provisions that protect developing country interests, require 
increases in U.S. foreign aid, and shift trade advantages away from the 
U.S. to our European and developing country trading partners.
    Fourth, the treaty will undermine U.S. sovereignty. For the first 
time, the United States would give control of our economy to an 
international bureaucracy within the United Nations. Domestic energy 
policy is a basic component fueling economic growth. The Kyoto Protocol 
would give this new U.N. environmental bureaucracy the authority to 
determine energy use in the United States by determining what energy 
sources we could use and how much, effectively setting price controls 
and the rationing of U.S. energy. I fear we would set up a process 
where the United Nations could come in and shut down an American 
business because they violate U.N. mandates, or where the U.N. would 
place trade sanctions on the United States if we were to fail to comply 
with its mandates.
    Finally, the treaty will have a severe impact on U.S. national 
security. We all know that our armed forces are the largest users of 
fossil fuels in the U.S. government. Before Kyoto, the Department of 
Defense asked for our negotiators to request a blanket exemption for 
our armed forces. The White House reportedly refused to seek such an 
exemption, afraid that other U.N. negotiators would not agree to such a 
demand. The Administration has claimed that the Kyoto protocol does, in 
fact, exempt our armed forces. It does not. All it does is exempt 
multilateral operations approved by the United Nations. If America 
should have to take military action alone, or without the approval of 
the U.N., does that mean the use of the United States military will be 
limited by the amount of greenhouse gases they would emit? Since when 
do U.N. bureaucrats set our national security and national defense 
policy? Clearly, the entire concept is ludicrous. But so is the Kyoto 
Protocol.
    This returns us to the question of whether the President will 
choose to sign this treaty when it is opened for signature on March 16, 
1998, and if he does whether he intends to send it to the Senate this 
year. I hope Undersecretary Eizenstat will be able to give us a clear 
answer to these questions.
    The President claims that the treaty is ``a work in progress.'' If 
so, it makes no sense to sign a flawed treaty, thereby giving away our 
leverage and negotiating strength. That would only compound the 
President and Vice President's past mistakes. These include agreeing to 
the Berlin Mandate and publicly calling on our negotiators to show 
``increased flexibility'' when the negotiators were trying to hold to 
the President's own position of last October. The President's position 
included insistence that emissions cuts not go below the 1990 levels 
and the so-called ``meaningful participation'' of developing countries. 
I will be very interested in understanding from Undersecretary 
Eizenstat precisely what the Administration means by ``meaningful 
participation'' of developing countries--since you gave it away in 
Kyoto.
    If the President believes this treaty is good enough to sign, it 
should be good enough to submit to the Senate for an honest and open 
debate. The American people have a right to know exactly what 
obligations the United States would have under this treaty. There is a 
document known as the United States Constitution. This document gives 
the Unites States Senate the responsibility to provide its advice and 
consent for all treaties agreed to by the President. If President 
Clinton signs this treaty, he should immediately submit it to the 
Senate. To do anything else would be a deliberate attempt to bypass the 
Constitutional authority of the United States Senate.
    Unless and until this treaty is ratified by the Senate, there 
should be no action taken by the Administration to implement 
obligations under the treaty through executive order, regulation or 
budgetary fiat. I look forward to receiving Undersecretary Eizenstat's 
comments on this point as well.
    Members of the Senate and the House will remain actively engaged in 
this issue. Oversight hearings will be held this year to ensure that 
the Administration is not attempting to implement this treaty prior to 
ratification. The Administration should be put on notice that the 
Congress will not allow this treaty to be forced piecemeal upon the 
American people until it is given the proper debate and receives the 
required 67 votes in support of ratification in the U.S. Senate. We 
will continue to monitor the ongoing negotiations leading to the fourth 
Conference of Parties in Buenos Aires in November.
    The Senate's bottom line, as represented in the unanimous vote on 
S. Res. 98, remains unchanged. The United States Senate will not 
support the ratification of any treaty that does not include binding 
commitments by the developing nations in the same compliance period, or 
any treaty that will cause serious harm to the U.S. economy. That is 
the very least we expect.

                               __________

                 Prepared Statement of Senator Feingold

    Thank you Mr. Chairman, I wanted to have an opportunity to make a 
brief statement on the Kyoto Protocol and the subject of climate 
change.
    In general, as do many other members of this Committee, I support 
the objective of reducing greenhouse gas emissions into the 
environment. In fact, in part due to my interests in climate change, I 
joined with my colleague from Wisconsin (Sen. Kohl) in introducing 
legislation (S. 1375) on November 5, 1997, to create a federal energy 
revolving fund or ``energy bank.''
    When President Clinton announced his plan for meeting the challenge 
of global climate change on October 22, 1997, in preparation for the 
Bonn negotiating meetings on the Kyoto Protocol, among the items he 
cited was the need to do more in the area of federal energy management.
    Aggressive energy management can reduce carbon emissions from the 
activities of the federal government, which, the President indicated, 
has the Nation's largest energy bill at almost $8 billion per year. The 
President specifically stated that there is a need to improve federal 
procurement of energy efficient technologies, and the measure I 
introduced with my colleague from Wisconsin (Sen. Kohl) is a positive, 
proactive measure to ensure that federal agencies specifically set 
aside funds to achieve this goal. I also view such legislation as 
having the potential to benefit the country fiscally as we reap the 
benefits of reduced federal energy bills.
    However, I find myself, as do other Committee members who did not 
have the benefit of accompanying the Administration to Kyoto, in a 
position of not yet knowing the full details of the impact of the 
Protocol on the country and, in particular, on Wisconsin.
    This hearing, which will review for the Committee the evolution of 
the United States' negotiating position from stabilizing its emissions 
at 1990 levels to agreeing to a 7% reduction, is a first step in my 
developing that understanding. Some of the predictions that have been 
made regarding the impact of the Kyoto Protocol are very serious and 
concerning and they need to be addressed.
    I look forward to the Administration's testimony on this matter and 
to future hearings on this topic. Thank you.

                               __________

             Prepared Statement of Hon. Stuart E. Eizenstat

    Thank you, Mr. Chairman.
    At the outset, let me thank those members of Congress, in this 
chamber and in the House of Representatives, who participated with us 
in the Kyoto Conference and who lent their advice and support to our 
efforts there. In particular I wish to thank Senators Hagel, Baucus, 
Chafee, Enzi, Kerry and Lieberman for taking the time to be present. I 
must also thank Senator Byrd, who could not be with us in Kyoto, for 
his interest and leadership. 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 recent 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 U.K. 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.
    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 learn what 
the current floods in California will cost. 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, 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 
full recourse to 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 chloro-fluorocarbons 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.
    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, and over 70 percent of today's atmospheric 
concentrations of greenhouse gases attributable to human activities are 
the result of emissions by the industrialized world. At the same time, 
it is also true that by around 2015 China will 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 without ruining their 
environment.
    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.
    As Senator Byrd said in his letter of December 15, 1997, to the 
President, and recently restated on January 29 here in the Senate:

        . . . binding commitments for developing nations should be 
        paced according to the ability of each country to achieve 
        greenhouse gas emission limitations appropriate to its national 
        circumstances and economic growth. These limitations could be 
        gradually implemented. Whether such commitments are in fact 
        appropriate and represent best effort by each nation, will not 
        be difficult to discern. As the saying goes, we will know it 
        when we see it.

    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.

                          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 U.N. Security Council (such as 
Desert Storm or Bosnia), but also multilateral operations that the 
United States initiates pursuant to the U.N. 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.
    Second, it has been suggested that the Protocol will create a super 
U.N. 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, 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.

                          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. We must also 
use regional and multilateral fora to achieve our objectives--such as 
the Summit of the Americas process, in the Asian Partnership for 
Economic Cooperation (APEC) process, the President's forthcoming trip 
to Africa, and the G-8 Summit in the United Kingdom. We will put on 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. A premature decision to reject the Protocol would 
deprive us of the opportunity to complete its unfinished business. 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 U.N. 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. 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 two weeks ago 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 PNGV. It is exciting to see our U.S. auto makers 
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 21st century if it relies solely on internal combustion 
engines.'' And as William C. Ford, Jr., Chair of Ford's Finance 
Committee, also said in announcing that Ford will join with Daimler-
Benz of Germany in developing cars with fuel-cell engines, ``There's a 
compelling business case to be made.''
    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.

                       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.
    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.

                               __________

           Responses to Questions Submitted by Chairman Helms

    Question. Please provide the official U.S. global greenhouse gas 
inventory used by negotiators in Kyoto, on a country-by-country 
specific basis, for the six greenhouse gases listed in Annex A of the 
Kyoto Protocol.

    Answer. There was no official inventory of greenhouse gases for all 
countries used in Kyoto. The U.S. 1997 national communication ``Climate 
Action Report'' to the Framework Convention on Climate Change contains 
inventory figures used for the U.S. (Table 3-1). For other countries, 
there were a number of sources we drew upon for national totals, 
including individual countries' national communications, information 
from the U.S. Country Studies Program, and International Energy Agency 
analyses of carbon dioxide emissions derived from fuel use.

    Question. Please provide the 1990 baseline and projections at least 
through 2030 for carbon dioxide, methane, and nitrous oxide.

    Answer. For the U.S., carbon dioxide, methane, and nitrous oxide 
emissions through 2020 are reported in the 1997 U.S. national 
communication ``Climate Action Report'' to the Framework Convention on 
Climate Change (Table 3-1), which we have included as an attachment to 
these answers. Estimates beyond 2020 are not reported in the national 
communication, although IPCC long-term scenarios provide a set of 
alternative projections beyond 2020. For other countries, there were a 
number of sources we drew upon for national totals, including 
individual countries' national communications, information from the 
U.S. Country Studies Program, and analysis from the International 
Energy Agency and the Energy Information Administration.

    Question. Please provide the 1995 baseline and projections at least 
through 2030 for hydrofluorocarbons, perfluorocarbons, and sulfur 
hexafluoride.

    Answer. For the U.S., hydrofluorocarbons, perfluorocarbons, and 
sulfur hexafluoride emissions through 2020 are reported in the 1997 
U.S. national communication ``Climate Action Report'' to the Framework 
Convention on Climate Change (Table 3-1), which we have included as an 
attachment to these answers. Estimates beyond 2020 are not reported in 
the national communication, although IPCC long-term scenarios provide a 
set of alternative projections beyond 2020. For other countries, there 
were a number of sources we drew upon for national totals, including 
individual countries' national communications, information from the 
U.S. Country Studies Program, and analysis from the International 
Energy Agency and the Energy Information Administration.

    Question. Please provide the assumptions, data and calculation 
methodology that support the Administration's assertion that the impact 
of carbon sinks on the U.S. greenhouse gas reduction commitment will 
reduce the actual reduction to 2 or 3 percent below 1990 levels, rather 
than 7 percent.

    Answer. The Administration's proposal for reducing greenhouse gas 
emissions to 1990 levels between 2008-2012 included all sources and 
sinks, in both the baseline and the commitment period. Subsequent 
changes in baseline measurement and methodology explain the 
Administration's assertion that ``the 7 percent target represents at 
most a 3 percent real reduction below the President's initial proposal 
of reducing greenhouse gases to 1990 levels by 2008-2012.''
    First, at the initiative of the U.S., the Protocol allows parties 
to apply their 1995 baselines for emissions of hydrofluorocarbons, 
perfluorocarbons, and sulfur hexafluoride. This change accounts for 
about 1 percent of the difference in stringency (see the 1997 U.S. 
national communication, ``Climate Action Report,'' for data on these 
three gases). Second, the Protocol does not include sinks in the 
baseline--though it does include afforestation, reforestation and 
deforestation in later years. Taken together, these changes in baseline 
measurement and methodology account for about 4 percent of the 
difference in stringency, leaving roughly a 3 percent real reduction 
below the President's original proposal.

    Question. The Kyoto Protocol establishes a Clean Development 
Mechanism. What staffing and administrative costs do you anticipate 
will be required to establish and run this ``Mechanism''?

    Answer. The Clean Development Mechanism (CDM) provides a means 
through which industrialized and developing countries can establish 
partnerships to cut emissions in the developing world, to the benefit 
of both parties. The intent is to have the CDM operate through existing 
institutions, not to create new ones. The CDM begins with private 
sector investments in developing countries. We anticipate that there 
may be minor administrative costs associated with using the mechanism. 
Any transaction fee collected would be much like the commission 
collected by a stockbroker when buying or selling stock. Similar fees 
exist in the highly successful SO2 permit trading system 
implemented to control acid rain in the U.S. As with other markets, 
participants in the CDM will have a built-in incentive to ensure that 
administrative costs are kept to a minimum.

    Question. What fee do you anticipate the U.N. will charge companies 
for investing in developing countries through this ``Mechanism''?

    Answer. It has not been determined that the United Nations would 
play any role whatsoever in the Clean Development Mechanism (CDM). The 
CDM allows companies to invest in projects or to purchase certified 
emissions reductions outright. A small share of the proceeds will go to 
cover administrative expenses and help countries that are particularly 
vulnerable meet the costs of adaptation to climate change. We do not 
anticipate that the United Nations pre se will receive any funds from 
the CDM, unless a UN agency were to be selected as an operating entity.

    Question. What criteria do you anticipate this ``Mechanism'' will 
use to approve or reject investments?

    Answer. Emissions reductions obtained through the CDM must be 
verified as being real and additional, above reductions that would 
otherwise have occurred. The exact rules and guidelines for the 
acceptance, monitoring and verification of CDM projects will be worked 
out with the other Parties over the next year or so. The U.S. will push 
for a structure which ensures that reductions are real and additional, 
while allowing as much flexibility as possible for participants in CDM 
project activities.

    Question. The Energy Information Administration (EIA) has projected 
that carbon emissions in the United States will increase from 1990 
emissions levels by 34 percent by the year 2010. The Kyoto Protocol 
would require the United States to reduce these emissions to 7 percent 
below 1990 levels by 2010. In addition to your assertions of increased 
energy efficiency, and international emissions trading, please detail 
how the Administration intends to reach these enormous commitments 
without constraining U.S. economic growth?

    Answer. There are several ways in which U.S. energy efficiency will 
be improved, and costs will be reduced without constraining U.S. 
economic growth. These are discussed in detail in the attached 
testimony of Dr. Janet Yellen, Chair of the Council of Economic 
Advisors, on March 4, before the House Commerce Committee, and then 
before the Senate Agriculture Committee. These include the following: 
(1) international emissions trading among Annex I countries; (2) 
innovation and technology, spurred by the President's tax cut and R&D 
package; (3) in addition to increased energy efficiency and 
international emissions trading among Annex I countries, substantial 
cost reductions are possible if developing countries commit to 
quantitative targets enabling them also to participate in international 
emissions trading arrangements. Significant benefits should also accrue 
from the Clean Development Mechanism. A number of additional factors 
can also play a role in enabling the United States to meet its target 
without constraining economic grow? These include the use of carbon 
absorbing sinks to offset greenhouse gas emissions and the flexibility 
allowed by the Kyoto Protocol to meet the U.S. target through 
reductions in all six greenhouse gases and not just CO2 
alone. The President has also indicated his support for legislation to 
unleash competition in the electricity industry. Such legislation could 
lower electricity prices significantly for American consumers and also 
reduce greenhouse gas emissions.

    Question. Regarding amendments to the Kyoto Protocol, while the 
Administration is calling the Kyoto protocol a ``work in progress,'' 
isn't it true that the Kyoto Protocol is a final document that must be 
considered by all nations as is? Can the Protocol be amended or changed 
in any way before it enters into force? If so, how would this be done?

    Answer. The President has made clear that the Protocol is a work in 
progress and that without more developing country involvement, he will 
not submit it to the Senate for advise and consent to ratification. 
Accordingly, we intend to take steps to ensure that our objectives are 
met, including meaningful participation by key developing countries. 
One method for achieving such progress is for the Conference of the 
Parties to adopt a further instrument, such as a supplementary 
protocol, which would be an integral part of the Kyoto Protocol and 
would enter into force at the same time as the Protocol. Further review 
and consultations with other governments would be necessary to 
determine what form and content of additional steps and documents would 
be feasible and desirable.

    Question. Procedurally, how does the Administration intend to act 
on any proposals in Buenos Aires? For example, how would an emissions 
trading regime be considered and adopted? What about enforcement and 
compliance rules? What about new scheduled emissions reduction 
commitments by developing countries in the same compliance period as 
developed countries?

    Answer. Most of the decisions called for in the Protocol must be 
made by the Protocol Parties, which can only happen once the Protocol 
has entered into force. With respect to such decisions, the meeting of 
the Convention's Conference of the Parties in Buenos Aires will be 
preparing such decisions, rather than making them. However, with 
respect to emissions trading rules, the Protocol assigns the taking of 
decisions to the Conference of the Parties; thus, decisions related to 
emissions trading could be taken at Buenos Aires (although they would 
become effective only upon entry into force of the Protocol).

    Question. Please answer the following questions regarding the 
creation and implementation of a domestic emissions trading program:
    Is the Administration considering the creation and implementation 
of a domestic emissions trading program?

    Answer. The Administration supports emissions trading as one 
element in the implementation of a binding target once the Kyoto 
Protocol is ratified and enters into force. The Administration's 
approach to domestic emissions trading will, of course, reflect our 
concern for the Senate's constitutional role in advising and consenting 
to international treaties.

    Question. Does the Administration believe that a domestic emissions 
trading program could be implemented absent legislation? Would 
legislation be required for any aspect of a domestic emission trading 
program under consideration? If you do not believe that legislation is 
required, under what statutory authority, specifically, would the 
Administration intend to proceed? What would be the basis for such an 
interpretation?

    Answer. The Administration believes that new domestic legislation 
would be required to establish a comprehensive greenhouse gas emissions 
trading regime in order to meet our Kyoto Protocol commitments and 
looks forward to working with the appropriate committees in Congress 
shaping legislation at the appropriate time.

    Question. Would a domestic emissions trading program be implemented 
without ratification of the Kyoto Protocol? If so, on what basis? How 
would such a program relate to the proposed, yet thus far undefined, 
international emissions trading regime?

    Answer. The Kyoto Protocol does not limit national programs to 
mitigate climate change such as a domestic emissions trading 
initiative. The President has stated his support for a ``cap and 
trade'' system that would come at the end of a three-stage approach and 
not become effective before 2008. This strategy allows ample time for 
Senate advice and consent to ratification. In this process, we 
anticipate that any domestic emissions trading program would be crafted 
to facilitate participation in international emissions trading.

    Question. Would a domestic emissions trading program be voluntary? 
If so, what incentives would be offered to induce companies and other 
entities to participate? Who would run such a program? Under what 
authority?

    Answer. Under the acid rain program, firms are not required to 
participate in emissions trading, but may do so, on a voluntary basis, 
as a means of reducing their costs of compliance. We anticipate that 
any emissions trading for greenhouse gas would be designed in a similar 
manner. Operational aspects of an emissions trading program, including 
the administrative structure, presumably would be determined through 
authorizing legislation.

    Question. By its very nature, an emissions trading program would 
require an emissions ``cap'' that would make an emissions unit tradable 
commodity. Would adherence to the cap be voluntary or mandatory? How 
would a cap be established? Has any Administration official or entity 
examined in any way whether a mandatory cap could be placed on carbon 
emissions? If so, would it be the Administration's view that 
legislation would be required to proceed? If not, under what authority 
would the Administration act?

    Answer. Both theoretical models and previous experience suggest 
that a mandatory cap is required for emissions trading. Specific design 
issues would be worked out in the context of legislation which the 
Administration believes would be required for implementing any 
comprehensive emissions trading regime for greenhouse gases. Our goals 
would include designing a flexible trading system, in close 
consultation with Congress, the private sector and interested others.

    Question. Could international emissions trading proceed today on 
the basis of the Kyoto Protocol? If so, how? If not, what would the 
Administration deem necessary for an international emissions trading 
program to proceed?

    Answer. The concept of emissions trading is enshrined in Article 17 
of the Protocol and our legal reading of the text leads us to believe 
that emissions trading can proceed. However, details to improve 
comparability and transparency and to guarantee flexibility and 
credibility remain to be worked out by the Parties.

    Question. If the United States, or any other nation, sought to 
amend the Kyoto Protocol, wouldn't it need to follow the amendment 
process to the Protocol? To participate in that process, wouldn't the 
United States, or any other nation, have to be a party to the Protocol? 
If this is the case, how does the Administration intend to change 
anything that is now included in the Protocol or add anything to the 
Protocol--which is deemed a work in progress--until after U.S. 
ratification? If it is your belief that the United States does not have 
to be a party to the Protocol to amend the agreement, how could this be 
done?

    Answer. After entry into force of the Protocol, Parties seeking to 
amend the Protocol would have to follow the amendment procedure set 
forth in Article 20. Participation in that process would require being 
a Party to the Protocol. As noted above, the considerations for adding 
elements to the Protocol prior to entry into force are different, and 
we are exploring the modalities for doing so.

    Question. Would the Administration consider submitting the Kyoto 
Protocol to the Senate for its advice and consent before formal 
adoption of amendments to the Protocol? If not, is it the 
Administration's intention to forgo submitting a global climate treaty 
to the Senate? If so, how specifically would the Administration go 
about making the Protocol acceptable to the American people?

    Answer. As noted above, we are exploring possible modalities for 
adding new elements to those contained in the Kyoto Protocol. The 
President has said that he will submit the Protocol to the Senate only 
after meaningful participation of key developing countries has been 
achieved.

    Question. Is it the intention of the Administration to seek to 
negotiate a new Protocol and send both Protocols together to the Senate 
for advice and consent? If so, what would a new Protocol look like 
specifically? Have any other countries expressed an interest in such an 
approach? If so, which countries?

    Answer. At this time, we do not have a proposal for a new 
instrument.

           Responses to Questions Submitted by Senator Hagel

    Question 1. When the Congressional delegation met with Vice 
President Gore in Kyoto, I asked the Vice President exactly what he 
meant when he called on you and the rest of the U.S. delegation to show 
more flexibility. The Vice President said that he would defer that 
question to you, but you were not at that meeting. Can you tell us 
exactly what instruction you received from the Vice President and what 
he meant when he instructed you to be more flexible in the 
negotiations?

    Answer. The Vice President's visit advanced the negotiations by 
prompting all Parties to renew their efforts to find common ground. 
Earlier in the meeting, the U.S. signaled its openness to consider 
differentiated targets for developed countries. This move helped bring 
on board a number of critical countries and demonstrated that we were 
serious about obtaining a successful outcome in Kyoto. It would be 
inappropriate to discuss internal deliberations that led to 
modification of the U.S. position, but the Vice President's call for 
greater flexibility furthered the trust building process among our 
negotiating partners. We were able to convince them to focus on 
realistic targets and to include all six major greenhouse gases and 
carbon ``sinks''--elements which they had previously opposed. In the 
end, the U.S. level of a 7% reduction in emissions actually represents 
at most a 3% real reduction below the President's initial proposal for 
stabilization of emissions at 1990 levels by 2008-2012 when different 
methods of accounting for the sinks and all six gases are factored in.

    Question 2. Please define for me: ``meaningful participation from 
key developing countries?''

    Answer. Climate change is a global problem that requires a global 
solution. Current projections show that developing country emissions 
will surpass those from industrialized countries by 2030 or sooner. The 
problem of climate change cannot be solved unless developing countries 
take measures themselves to limit greenhouse gas emissions.
    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 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.
    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.
    The U.S. will be working bilaterally, regionally, and 
multilaterally in the coming months and years to promote more active 
efforts by developing countries to limit their emissions. We will 
concentrate on key developing countries and on approaches that are 
consistent with the economic growth and development of these countries 
and with other environmental objectives. We will not submit the Kyoto 
Protocol to the Senate for advice and consent to ratification until we 
believe we also have achieved meaningful participation from key players 
in the developing world.

    Question 2.1.  What countries do you define as ``key?'' Do you 
consider China a ``key'' developing country? Do you consider India a 
``key'' developing country?

    Answer. The term ``developing country'' encompasses a wide range of 
nations which are at various stages of industrialization and contribute 
differently to global emissions. Accordingly, there is no one-size-
fits-all approach to measuring developing country participation. 
Clearly, a country with per capita high GNP or one that emits a 
proportionally large share of global emissions should be expected to do 
more than one that is poor or whose emissions are negligible. China and 
India, in terms of their contributions to global emissions, the size of 
their populations and their rates of economic growth, are clearly key 
countries in the effort to control global greenhouse gas emissions.

    Question 3. The Administration's position on the issue of 
developing country participation has been much weaker than that 
unanimously urged by the Senate in Senate Resolution 98. The President 
has called for ``key'' developing countries to participate in a 
``meaningful'' way, while the unanimous view of the Senate was that 
``the United States should not be a signatory to any protocol which 
would mandate new commitments to limit or reduce greenhouse gas 
emissions for the Annex I Parties, unless the protocol or other 
agreement also mandates new specific scheduled commitments to limit or 
reduce greenhouse gas emissions for the Developing County Parties 
within the same compliance period.'' Why did the Administration use a 
different standard than that voted unanimously by the Senate?

    Answer. The Administration has sought to move forward 
internationally to deal with the threat of global warming. In this 
regard, the Kyoto Protocol represents an important achievement--for the 
first time, industrialized countries have agreed to legally binding 
commitments to limit or reduce their emissions of greenhouse gases, and 
the Kyoto Protocol contains important provisions that will enable them 
to do so cost-effectively, including emissions trading and joint 
implementation. In addition, the Protocol contains provisions that are 
pertinent to developing countries. For example, it requires all 
Parties, including developing country Parties, to advance the 
implementation of their existing commitments under the Framework 
Convention. The Protocol's Clean Development Mechanism will also 
promote cooperative projects between industrialized and developing 
countries designed to limit emissions in developing countries. And 
developing countries may take on quantified emissions limitations 
commitments under the protocol's amendment procedure that will enable 
them to participate in emissions trading with industrialized countries. 
But these elements alone do not amount to the meaningful participation 
that the President has called for as a prerequisite for submission of 
the Protocol to the Senate for approval. More must be done to bring key 
developing countries more fully into the global response to climate 
change.

    Question 3.1.  Does the Administration intend to adhere to the 
letter of S. Res. 98 that is to negotiate legally-binding, specific new 
scheduled commitments within the same compliance period for the 
Developing Country Parties currently left out of the Kyoto Protocol?

    Answer. The Administration will not submit the Protocol to the 
Senate for ratification until there is meaningful participation by key 
developing countries. Requiring such participation by developing 
countries was the intention of Senate Resolution 98--an intention the 
Administration shares.

    Question 3.2.  At what point, specifically, will the Administration 
reconsider the viability of the Kyoto Protocol if emission reduction 
commitments cannot be secured from the Developing Country Parties?

    Answer. Many issues concerning the Kyoto Protocol remain to be 
worked out, and these include the participation of the developing 
countries. The U.S. will continue to work bilaterally, regionally, and 
multilaterally in the coming months and years to promote more active 
efforts by developing countries to limit their emissions. We must 
recognize that the term ``developing country'' encompasses a wide range 
of nations which are at various stages of industrialization and make 
varied contributions to global emissions. We are developing a 
diplomatic strategy which will concentrate on key countries and on 
approaches that are consistent with the economic growth and development 
of these countries and with other health and environmental objectives. 
The President has made clear that without the participation of these 
countries, whose emissions will pass those of the industrialized 
nations within several decades, it is impossible to develop a 
successful global solution to climate change. We will not submit the 
Kyoto Protocol to the Senate for advice and consent to ratification 
until there is meaningful participation from key players in the 
developing world.

    Question 3.3. Does the President intend to honor the unanimous 
request of the Senate not to be a signatory--that is not to sign the 
Protocol--until we have met both objectives of the Byrd-Hagel 
resolution test: emission reduction commitments from the Developing 
Country Parties and a demonstration that the Protocol will not 
seriously harm the U.S. economy?

    Answer. The Administration intends to sign the Kyoto Protocol 
within the one-year period beginning on March 16, 1998, that it will 
remain open for signature. The specific timing will depend on an 
assessment of when it is most opportune to do so based on tactical 
considerations. The Protocol would not become binding on the United 
States, however, until it is ratified and proclaimed by the President 
following advice and consent by the Senate. The President has indicated 
that he will not submit the Protocol to the Senate for its advice and 
consent until we have achieved more meaningful participation from key 
developing countries.

    Question 4. Does the FY 99 budget contain any programs or budget 
requests that could have the effect of implementing portions of the 
Kyoto Protocol? Please provide the Committee with a list of all climate 
change programs in the Executive Branch, with a description of each 
program and how they relate to the Kyoto Protocol

    Answer. The FY 1999 budget does not contain any programs or budget 
requests to implement the Kyoto Protocol. The FY 1999 budget is 
consistent with the policies announced by the President on October 22, 
1997, to address climate change through immediate actions to stimulate 
the development and use of energy efficient and low-carbon 
technologies. Many of the programs in the FY 1999 budget initiative 
were established to carry out responsibilities under the Energy Policy 
Act of 1992 and other major statutes, not the Kyoto Protocol. There are 
additional voluntary programs under the Climate Change Action Plan that 
have been in place since 1993 or 1994. Besides reducing greenhouse 
gases, these programs produce substantial benefits for the Nation--both 
now and in the future--in terms of greater energy efficiency, economic 
growth, increased national security, a cleaner environment, and more 
job opportunities for American workers.
    Attached is a Report to Congress on Federal Climate Change 
Expenditures pursuant to Section 580 of Public Law 105-118, Foreign 
Operations, Export Financing, and Related Agencies Appropriations Act 
of FY 1998. The programs discussed in this report are most directly 
related to global climate change. Also attached are briefing materials 
on the climate change initiative included in the FY 1999 budget. The 
Administration will not seek to impose binding restrictions on U.S. 
business before the U.S. Senate ratifies the Kyoto Protocol.

    Question 5. Article 3 calls for the U.N. Subsidiary Body for 
Scientific and Technological Advice to report within a year on which 
additional activities should be regulated by the treaty. What specific 
additional domestic U.S. economic activities do you believe should be 
brought under the jurisdiction of the Kyoto Protocol?

    Answer. None.

    Question 6. Article 5 calls on countries to enhance their 
monitoring systems of greenhouse gas emissions. Will the Administration 
make any changes in our existing monitoring systems prior to Senate 
ratification of the treaty?

    Answer. We already maintain a continuous emissions monitoring 
system for carbon dioxide emissions from utility boilers, as required 
under the Clean Air Act Amendments of 1990. To meet our existing 
commitments under the Framework Convention on Climate Change, the U.S. 
maintains a thorough and comprehensive system for monitoring emissions 
and sequestration of greenhouse gases. The U.S. has also led efforts to 
improve the guidelines for international reporting of greenhouse gas 
inventory information. We will continue to further refine and develop 
our methodologies and data and to press other countries to improve 
their methods, data, and inventory estimates as well.

    Question 7. Article 6 delays the implementation of any 
international emissions trading system among industrial countries until 
some later U.N. conference establishes procedures for verification and 
reporting. Do you believe that a fully functioning trading system will, 
in fact, be adopted next November in Buenos Aries?

    Answer. The Kyoto Protocol established a right to trade, and we 
believe parties can begin to trade at anytime. However, for a trading 
system to function well, rules and guidelines will need to be 
established. In the coming months leading to Buenos Aires, the Parties 
to the FCCC will continue their work to define the ``relevant 
principles, modalities, rules and guidelines'' for emissions trading. 
We anticipate this process to be complex, but the Administration will 
build upon and share with other Parties our experience with the 
successful domestic SO2 (acid rain) emissions trading 
program in developing verifiable domestic and international trading 
regimes. We are optimistic that significant progress on the structure 
of a functioning trading system can be made by Buenos Aires.

    Question 8. Article 11 requires the industrial countries to 
``provide new and additional financial resources'' to developing 
countries. What exactly does this mean, in terms of the U.S. budget?

    Answer. Article 11 simply restates the preexisting obligation of 
Annex II Parties (which includes the United States) under Article 4.3 
of the Framework Convention. Under Article 4.3, Annex II Parties are to 
provide new and additional financial resources:
   to meet the agreed full costs incurred by developing country 
        Parties of complying with reporting-related obligations; and
   to meet the agreed full incremental costs of implementing 
        measures that are covered under Article 4.1 of the Convention 
        and that are agreed to by the international entity operating 
        the financial mechanism (i.e., the GEF).
    Article 11 of the Protocol identifies which commitments in that 
Article are reporting-related (and thus qualify for full funding) and 
which implement other aspects of Article 4.1 of the Convention (and 
thus qualify for incremental cost funding).
    The U.S. already fulfills these obligations through its 
participation in and contribution to the Global Environmental Facility 
(GEF), which helps developing countries act to protect the global 
environment, and through the U.S. Country Studies Program, which 
assists developing countries to inventory their greenhouse gas 
emissions, assess their vulnerabilities to climate change, and develop 
policies and measures to mitigate and adapt to climate change, and 
through various other programs, including those of the U.S. Agency for 
International Development.
    Because Article 11 of the Kyoto Protocol only restates an existing 
obligation, it is not expected to have any increased impact on the U.S. 
budget.

    Question 8.1. Does the Administration plan to implement this 
requirement of the Kyoto Protocol before Senate ratification?

    Answer. The Administration will implement its obligations under the 
Convention, which already exist and pre-date the Kyoto Protocol. This 
does not circumvent the Senate's constitutional authority to ratify 
Kyoto before its binding requirements can come into force.

    Question 9. Article 12 creates a new U.N. foreign aid fund on the 
climate change issue. This is the ``Clean Development 
Mechanism.'' This Article creates a new U.N. structure for the transfer 
funds from industrial to developing nations. It would permit industrial 
countries or companies to pay into a fund that would, in turn, pay for 
projects in developing nations to achieve ``sustainable development'' 
and to reduce greenhouse gas emissions beyond what they would otherwise 
be. Article 12 also contains language that would permit the U.N. Clean 
Development Mechanism to retain a portion of the funds it receives for 
its own administrative purposes. Early versions of this Brazilian 
proposal forthrightly referred to this as ``user fee'' authority, a 
form of U.N. taxation authority. Does the Administration have any 
concerns about granting this kind of fee retention authority to a U.N. 
body?

    Answer. The Clean Development Mechanism (CDM) is not part of the 
UN, nor is it a ``structure'', nor is it a ``fund''. The CDM builds on 
a U.S. proposal called joint implementation--designed in coordination 
with U.S. businesses, allowing cost-effective emissions reductions by 
facilitating private sector investment in clean technologies. The CDM 
begins with private sector investments in developing countries. We 
anticipate that there may be minor administrative transaction costs 
associated with using the mechanism. Any transaction fee collected 
would be much like the commission collected by a stockbroker when 
buying or selling stock. Private brokers charge similar fees for the 
transactions they facilitate under the highly successful S02 
permit trading system implemented to control acid rain in the U.S. 
Beyond covering the costs of administrative expenses, which we expect 
to be minor, and assisting particularly vulnerable countries with costs 
of adaptation, the Kyoto Protocol proposes no other assessment of costs 
with respect to the CDM. The CDM is expected to provide attractive new 
opportunities for U.S. firms by enabling them to share in the 
greenhouse gas emissions reductions achieved as a result of energy 
efficiency, clean technology or carbon sequestration projects in 
developing countries.

    Question 10. Last year, the Administration abandoned a year and a 
half-long effort to develop an economic model that would show that we 
could make major cuts in energy use in this country without harming our 
economy. The Chair of the Council of Economic Advisors went so far as 
to call economic modeling ``futile.'' On February 4, 1998 the Chair of 
the Council on Environmental Quality, Kathleen McGinty said before the 
House Science Committee, ``The Administration is working on a more 
detailed economic analysis of the impact of the targets reached in 
Kyoto. Council of Economic Advisers Chair Janet Yellen will be prepared 
to discuss the analysis at a hearing next week before the Senate 
Foreign Relations Committee.'' Can you tell me why the Administration 
did not produce either Janet Yellen as a witness or the promised 
detailed economic model or analysis?

    Answer. Dr. Yellen was unable to complete preparation of testimony 
by the Committee's hearing deadline because of her obligations 
associated with the release of the 1998 Economic Report of the 
President. Dr. Yellen did testify before the House Commerce Committee 
on Wednesday, March 4 and the Senate Agriculture Committee on Thursday, 
March 5 on the Administration's economic analysis.

    Question 11. Were you involved in developing the statement of the 
Administration's climate change policies announced by the President in 
his October 22, 1997 speech at the National Geographic Society, and, if 
you were, will you please describe for us the role you played?

    Answer. I was not directly involved in the drafting. However, I was 
heavily involved in policy discussions at the White House and the State 
Department regarding development of the Administration's position on 
global climate change.

    Question 11.1. When were you told that you would be head of the 
U.S. delegation at the third session of the Conference of the Parties 
to the United Nations Framework Convention on Climate Change; and who 
told you?

    Answer. I was a regular participant in high-level discussions at 
the White House and the State Department regarding our preparations for 
Kyoto. I was asked by senior Administration officials about three weeks 
before I left for Kyoto to lead the U.S. delegation, building upon my 
regular participation in interagency discussions on this issue.

    Question 11.2. Will you please describe for us the role you played 
in developing the Administration's policy approach to, and strategies 
concerning, the international climate change negotiations during the 
period between the President's October 22 speech and the first day you 
arrived at the Kyoto Conference?

    Answer. I was for part of this period a regular Department of State 
representative to interagency discussions. Of course, given my 
position, I contributed to the foreign policy aspects of the U.S. 
climate change strategy, including the diplomatic strategy.

    Question 11.3. At the Kyoto Conference, you were the head of the 
U.S. delegation. Will you please describe the role you played in 
developing the Administration's policy approach to, and strategies 
concerning, the international climate change negotiations in Kyoto; 
and, in doing so, will you please describe on a comparative basis the 
decision making authority within the delegation of you, Ms. Kathleen 
McGinty, and Mr. Todd Stern?

    Answer. I served as head of the U.S. delegation and relied heavily 
on the advice and counsel of all members of the delegation including 
Mr. Stem and Ms. McGinty. As you know from your own time in Kyoto, 
negotiating this Protocol required an extraordinary amount of work, and 
I relied on Mr. Stem and Ms. McGinty, with support from an excellent 
interagency technical team, to help me pull together all of the 
diplomatic, public affairs, and outreach aspects of our work. I 
deployed our team to deal with discrete issues, like sinks and 
emissions trading; briefed our Congressional delegation on a regular 
basis; helped develop our negotiating strategy; negotiated directly 
with representatives from the European Union and Japan on targets, 
timetables, trading rights and other issues; helped organize the non-EU 
umbrella group of countries and dealt with representatives of the G-77 
countries.

    Question 12. In his testimony last fall before the House Commerce 
Committee, former Under Secretary of State Wirth referred to the 
Administration's ``economics team'' in response to Committee questions 
about economics issues relevant to the international climate change 
negotiations. Prior to your appointment as head of the U.S. delegation 
for the Kyoto Conference, did you regard yourself as part of the 
Administration's ``economics team'' with respect to the international 
climate-change negotiations?

    Answer. As a regular participant in interagency discussions on 
various aspects of climate change and Kyoto, I represented the 
Department of State's perspective, including international economic and 
political dimensions.

    Question 12.1. From and after the time you were appointed head of 
the U.S. delegation, was there an ``economics team'' concerning the 
international climate-change negotiations, and, if there was, who were 
its members and who headed the ``economics team?''

    Answer. The delegation relied heavily on the economic expertise of 
the various economic agencies in the Executive Branch. Rather than 
being a single ``team'', various agencies have participated in these 
internal deliberations--the Council of Economic Advisers, the National 
Economic Council, Treasury, Commerce Department, Energy Department, 
etc. Agency representatives included Deputy Treasury Secretary Larry 
Sunimers, and Dr. Janet Yellen and Jeff Frankel of the Council of 
Economic Advisors.

    Question 12.2.  Is there currently in place any interagency body 
within the Executive Branch that has the responsibility to analyze the 
economic implications to the nation of the emissions-reduction 
requirements specified in the Kyoto Protocol for the United States and 
of alternative domestic policies to achieve those reduction 
requirements?

    Answer. As I have said, there is not a single agency, but rather 
several competent departments that work together on analysis, depending 
on the issue. The Council of Economic Advisors has done the 
Administration's major economic analysis, presented to the Congress on 
March 4.

    Question 12.3. If yes, what is the name of that interagency body? 
Who is the chair of that body? Are you a member of that body?

    Answer. The National Economic Council regularly convened various 
agencies to consider the economic implications to Kyoto and to arrive 
at major policy decisions.

    Question 13. You were appointed head of the U.S. delegation at the 
Kyoto Conference after former Under Secretary of State Wirth announced 
his intention to resign as Under Secretary for Global Affairs. The 
President has not yet sent to the Senate his nomination of a successor 
to Mr. Wirth. Are you currently proceeding on the assumption that, 
unless and until you are informed by the Secretary of State or the 
White House to the contrary, you are the senior State Department 
official who has immediate responsibility for the Administration's 
policy approach to, and strategies concerning, international climate-
change negotiations?

    Answer. I continue to play a leading role within the Department and 
in the formulation of our climate change policy, relying on the fine 
expertise of our professionals in the environmental and economic areas. 
It has not been determined who will take the lead if a new Under 
Secretary for Global Affairs is confirmed.

    Question 13.1. What is your current assumption about whether you or 
Mr. Wirth's successor, if and when confirmed by the Senate, will head 
the U.S. delegation at the fourth session of the Conference of the 
Parties when it meets in Buenos Aires in November?

    Answer. Please see previous answer.
    I expect to continue to play a significant role for the foreseeable 
future. The Department will review the composition of our team for the 
Conference of the Parties meeting in Buenos Aires this November, as 
that time approaches.

    Question 14. In his October 22, 1997 speech at the National 
Geographic Society, the President said: ``First, the United States 
proposes at Kyoto that we commit to the binding and realistic target of 
returning to emissions of 1990 levels between 2008 and 2012. And we 
should not stop there. We should commit to reduce emissions below 1990 
levels in the five-year period thereafter, and we must work toward 
further reductions in the years ahead.'' As of the time you arrived at 
the Kyoto Conference, or at any time during the Kyoto Conference, were 
you informed of:

    Question 14.1. What the President's October proposal would require 
of the United States in terms of the tons of carbon-equivalent 
emissions reductions.

    Answer. Yes, in a general sense.

    Question 14.1.1. What domestic laws and regulations likely would be 
required to enable the United States to abide by the President's 
October proposal.

    Answer. No. We did not get to this level of detail. The President 
indicated in October that he favored an emissions trading system 
between 2008-2012 as a key element of his proposal, but the details of 
that system have not yet been elaborated. Of course, as we seek to 
build the rules and guidelines for an effective international trading 
system and as we work to secure the meaningful participation of key 
developing countries, we are also looking forward to working with the 
Congress on measures we can take at home, including full funding of the 
President's Climate Change Technology Initiative and enactment of the 
tax incentives included in the FY 1999 budget.

    Question 14.1.2. What the economic consequences to the nation 
likely would be if the President's October proposal were the basis for 
a protocol?

    Answer. Yes. Our proposals for emissions trading and joint 
implementation will help ensure that emissions can be reduced in the 
most cost-effective manner, consistent with the President's commitment 
to economic growth and environmental protection.

    Question 14.2. For any affirmative response to any of the above 
questions:

    Question 14.2.1. Who gave you that information, and when?

    Answer. The inter-agency process and groups convened on a regular 
basis in various fora in which I participated before and during the 
Kyoto Conference.

    Question 14.2.2. Please tell us what portions of the information 
were in written form, by way of briefing papers or otherwise, including 
any notes you made of information that was given to you?

    Answer. As part of the interagency process, I received oral 
briefings, reviewed written memoranda, and participated in meetings 
that addressed the projected level of effort that would be required to 
meet the President's proposal and the likely economic consequences. It 
is impossible to reconstruct what portions were in written form.

    Question 14.2.3. To the extent the information to which I have 
referred was not given to you in written form or reflected in any notes 
you made of the information given to you, would you please tell the 
Committee:

    Question 14.2.3.1. What the President's October proposal would 
require of the United States in terms of the tons of carbon-equivalent 
emissions reduction.

    Answer. At numerous meetings and policy discussions, we established 
a notional level of effort that would be required to meet the 
President's proposal, representing significant reductions below the 
business-as-usual projections for emissions. We anticipated that 
reductions in greenhouse gas emissions roughly equivalent to 30 percent 
from business-as-usual projections would be necessary to meet our 
targets on the Kyoto Protocol. However, some of these reductions could 
be achieved through international emissions trading, carbon sinks, 
joint implementation projects, and the Clean Development Mechanism.

    Question 14.2.3.2. What domestic laws and regulations likely would 
be required to enable the United States to abide by the President's 
October proposal; and

    Answer. To the best of my knowledge, we do not have a specific 
analysis of laws and regulations required to meet the President's 
objectives. We are prepared to work intensively with Congress to 
formulate them at the appropriate time.

    Question 14.2.3.3. What the economic consequences to the nation 
likely would be if the President's October proposal were the basis for 
a protocol?

    Answer. I was not provided with a full-blown economic analysis but 
received indications that flexible, market-based mechanisms would 
ensure that the Protocol would be implemented in the most cost-
effective manner if elements of the President's proposal (e.g., 
emissions trading and joint implementation) were included in the final 
text.

    Question 14.3. Prior to your leaving for the Kyoto Conference was 
it your understanding that the President's October proposal for 
emissions ``targets and timetables'' presupposed that a protocol would 
provide for emissions trading among Annex I Parties and for ``joint 
implementation'' among and between Annex I and non-Annex I Parties?

    Answer. Yes. The emissions targets in the President's Climate 
Change Initiative announced in October, and our participation in the 
Kyoto agreement, were dependent on the inclusion of international 
emissions trading and the joint implementation concept in the Kyoto 
Protocol.

    Question 14.4. Prior to your leaving for the Kyoto Conference, what 
was your belief as to how difficult it would be for the United States 
to achieve the emissions limitation that was proposed in the 
President's October speech, assuming a protocol provided for emissions 
trading among Annex I Parties and for ``joint implementation'' among 
and between Annex I and non-Annex I Parties?

    Answer. We believed this goal would take real effort, but that 
these flexible market-based mechanisms would be critical in allowing 
the most cost-effective reductions and creating incentives for 
investment in clean technologies, ensuring sustainable development and 
continued economic prosperity.

    Question 15. As you know, the Kyoto Protocol, if it ever were to 
become binding on the United States, would require our nation to reduce 
its emissions of greenhouse gases by 7 percent below their 1990 levels 
during the period 2008 through 2012, all in accordance with the 
specific provisions of the Protocol concerning the list of greenhouse 
gases, sinks, baseline dates, and so forth. I refer you to a document 
entitled ``Fact Sheet: The Kyoto Protocol on Climate Change,'' dated 
January 23, 1998. It states that it was prepared by the Department of 
State's Bureau of Oceans and International Environmental and Scientific 
Affairs. Did you, personally, approve issuance of that ``Fact Sheet'' 
and, if you did not, who was the highest ranking official of the State 
Department who approved its issuance?

    Answer. As Under Secretary of State, I stand behind the material 
produced for the public and by the Department, whether or not I have 
personally approved every detail. The fact sheet you mention, while it 
may have been prepared by a particular bureau, is a publication of the 
Department. I do not specifically recall whether I approved this, but I 
am confident of the customary diligent work of our career 
professionals.

    Question 15.1. The State Department's ``Fact Sheet'' states: ``The 
7 percent target represents at most a 3 percent real reduction below 
the President's initial proposal of reducing greenhouse gases to 1990 
levels by 2008-12. The remaining 4 percentage points result from 
certain changes in the way gases and sinks are calculated and do not 
reflect any increase in effort as compared to the Presidents original 
proposal.'' The document then goes on to attribute one percentage point 
of the 4 percentage points to changing the baseline from 1990 to 1995 
for the three synthetic gases covered by the Kyoto Protocol (``FCs, 
PFCs, and SF6). It further attributes ``about 3'' percentage 
points of the 4 percentage points to not including in the 1990 baseline 
U.S. sinks, but including certain changes in sinks during the period 
2008 through 2012. Was an analysis, which showed that the Kyoto 
Protocol involves ``at most a 3 percent real reduction'' of U.S. 
greenhouse gas emissions below 1990 levels furnished to you while you 
were in Kyoto and before you agreed to the 7 percent reduction figure; 
and, if so:
   Who prepared the analysis?
   Who furnished you the analysis, and when?
   Were you given or shown any such analysis in writing?

    Answer. Yes. Analyses of the effects of the various proposals on 
sinks and the three synthetic gases were undertaken during negotiations 
by the U.S. delegation, with assistance from the Administration's 
economic experts in Washington. The negotiations on sinks and the 
basket of gases were particularly complex, as numerous proposals were 
considered. These analyses were done in real time, as negotiations were 
occurring.
    The elimination of the requirement of a 1990 sinks base in 
factoring in changes in the ``net changes in sinks'' in the budget 
period was less restrictive and allowed us to be more flexible in 
establishing an emissions reduction target. Likewise, the move of the 
synthetic gases baseline to 1995 also gave us increased flexibility.

    Question 15.2. Please tell us which other nations--at the time of 
the Kyoto Conference, but before actual adoption of the Kyoto 
Protocol--were informed, either by you or by any other member of the 
U.S. delegation, that the Kyoto Protocol, as finally proposed to be 
adopted by the Kyoto Conference, would entail at most a 3 percent real 
reduction of U.S. greenhouse gas emissions below 1990 levels?
   Was Chairman Estrada of the Committee of the Whole informed 
        of that; and, if so, when?
   Were any member nations of the European Union informed of 
        that; and, if so, which ones and when?
   Were any developing nations, including, but not limited to, 
        China, India, Argentina. Brazil, or any member nation of the 
        Alliance of Small Island States informed of that; and, if so, 
        which ones and when?

    Answer. The Chairman of the Committee of the Whole and other 
nations fully recognized that differences in accounting procedures for 
sinks and the inclusion of the synthetic gases would mean different 
results for the U.S. target, as well as the targets of other countries. 
Indeed, the different accounting procedures affected many of these 
countries' own targets. These effects were widely known, and were 
factored into other countries' decisions as we prepared to agree on 
differentiated targets. During my negotiations with the European Union 
and Japan this was explained.

    Question 16. Article 3.1 of the Kyoto Protocol states that the 
emissions reduction requirements of the Annex I Parties set forth in 
Annex B to the Protocol, in accordance with the provisions of Article 
3, are ``with a view to reducing their overall emissions of such gases 
by at least 5 per cent below 1990 levels in the commitment period 2008 
to 2012.'' My recollection is that Ambassador Estrada, who chaired the 
AGBM and the Committee of the Whole, stated that the reduction of the 
Annex I Parties would amount to about 5.2 percent below 1990 levels. If 
the ``real'' reductions or limitations of the Annex I Parties are 
calculated in the same manner as the proposed U.S. reduction is 
calculated in the State Department's ``Fact Sheet''--in other words, 
taking into account the 1995 baseline for the three synthetic gases and 
the provisions regarding sinks--shouldn't we conclude that the ``real'' 
reductions of the Annex I Parties below 1990 emissions levels will be 
less than 5 percent?

    Answer. No.

    Question 16.1. Putting it another way, if the U.S. reduction is 
``at most a 3 percent real reduction'' below 1990 levels, that would be 
less than one-half of the 7 percent proposed reduction for our nation 
set forth in Annex B to the Kyoto Protocol. I understand that the 
United States accounted for perhaps as much as one-third or more of the 
Annex I Parties' gross emissions in 1990; Russia (the next largest 
Annex I emitter of greenhouse gases), as well as New Zealand and 
Ukraine, refused to agree to any reductions below their respective 1990 
emissions levels; and Australia would be allowed to increase its 
emissions by 8 percent over its 1990 level. In these circumstances, can 
you explain how the aggregate reductions of the Annex I Parties during 
the period 2012 through 2018 will achieve the 5 percent reduction level 
referred to in Article 3.1 of the Kyoto Protocol?

    Answer. The 5 percent reduction below 1990 levels is real. The 
inclusion of sinks and the three synthetic gases in the emissions 
accounting produced a different accounting structure for national 
reduction targets. The structure used in the Kyoto Protocol is that 
proposed by the U.S., and is more environmentally comprehensive because 
it covers six instead of three gases and provides for the protection of 
forest sinks. Each nation's target in the Kyoto Protocol is based on 
the calculation structure adopted in the Protocol. The U.S. target, for 
example, is seven percent below the 1990 level under that calculation, 
while the European Union's target is eight percent below 1990 levels. 
What the State Department fact sheet accurately states is that the U.S. 
reduction is ``at most a three percent real reduction below the 
President's initial proposal.'' The point is that the U.S. dropped no 
more than three percent in real terms below what the President 
announced. Though Australia is allowed to increase its greenhouse gas 
emissions, due to its particular demographic and economic growth 
projections, Australia only generates about 1.2% of the world's total 
carbon emissions. The overall reduction goal for Annex B Parties is 5.2 
percent below 1990 levels.

    Question 16.2. As far as the Administration is concerned, is the 
phrase ``with a view to reducing their overall emissions of such gases 
by at least 5 per cent below 1990 levels in the commitment period 2008 
to 2012,'' as set forth in Article 3.1 of the Kyoto Protocol, anything 
more than a purely political statement; or, could it in any manner be 
interpreted as placing on the United States a legal obligation over and 
above the 7 percent reduction set forth in Annex B, when interpreted in 
accordance with the balance of Article 3 without regard to that phrase?

    Answer. The United States ensured that the phrase was not written 
in mandatory terms, because, inter alia, the figure of 5% below 1990 
levels does not take account of the ability of Annex I Parties to 
increase their allowed emissions through the Clean Development 
Mechanism.

    Question 17. The fact sheets and related documents that were 
distributed by the White House, along with the text of the President's 
October speech, stated with respect to the emissions target and 
timetable he had announced: ``And it is meaningful. Achieving 1990 
levels in the period 2008-12 would amount to almost a 30 percent 
reduction off a business-as-usual approach.'' Even assuming, for the 
sake of our discussion, that the 7 percent reduction referred to in 
Annex B of the Kyoto Protocol amounts to ``at most a 3 percent real 
reduction'' below 1990 levels, would. you please:

    Question 17.1. Tell the Committee how many millions of tons of 
reduction will have to occur in 2012 (the last year of the first 
commitment period) compared to the baseline emissions projections for 
that year.

    Answer. We do not have specific estimates of emissions for 2012. 
One could compare the 1990/1995 baseline to business-as-usual 
projections for 2010 (see, for example, the U.S. National Communication 
for 1997 and other USG publications), to generate an estimate of 
potential reductions, but this would misstate the effects of the 
Protocol on U.S. emissions. First, U.S. firms can gain credit for 
actions taken overseas through international emissions trading, joint 
implementation and the Clean Development Mechanism. Second, the 
Protocol provides opportunities for offsets, through afforestation and 
reforestation. Third, the Protocol provides opportunities for 
``smoothing'' variations in annual emissions over a multi-year 
commitment period (2008-2012).

    Question 17.1.1. Explain why the Administration agreed in Kyoto to 
a legally binding obligation to reduce our greenhouse gas emissions by 
such amount below 1990 levels during the period 2008 through 2012?

    Answer. Global climate change threatens the economic and 
environmental security of all countries. The severity of this threat, 
and the global nature of greenhouse gases, necessitate international 
action. The clear commitments being undertaken by other members of the 
international community presented an unprecedented opportunity to 
address climate change cooperatively that we did not wish to discard. 
Accordingly, after close consultation with the President and Vice 
President, the U.S. delegation reached agreement with other Parties on 
the package of elements that formed the Kyoto Protocol. The combination 
of these elements allowed us to take on a target more ambitious than 
the one initially elaborated in the President's October 22nd proposal. 
Of course, this target does not become legally binding on the United 
States until the Protocol enters into force. Ultimately, a serious 
international effort to address climate change will limit costs to the 
United States.

    Question 17.2. Given the provisions in the Kyoto Protocol 
concerning the baseline for the three synthetic gases and the 
provisions regarding sinks, if the U.S. delegation had insisted at the 
Kyoto Conference on percentage figures in Annex B to the Protocol that 
would have resulted, in reality, in a U.S. commitment only to return 
its greenhouse gas emissions to their 1990 level, rather than the 3 
percent reduction claimed in the State Department's ``Fact Sheet,'' 
please tell us, based on your discussions with other nations, which of 
them, if any, would have formally objected to adoption of such a 
protocol?

    Answer. The text that became the Kyoto Protocol was a package that 
reflected the day-to-day progress of the negotiations. As countries 
neared consensus on various elements of this package, negotiations on 
other elements were affected. Within this dynamic, inter-related series 
of negotiations, it is impossible to predict with any certainty which, 
if any, nations might have objected to such a U.S. stance. The final 
agreement reflected significant mutual compromise by many delegations, 
including the U.S., Japan, and the EU, the latter of which assumed a 
more stringent target than the United States.

    Question 18. Article 3.2 of the Kyoto Protocol states: ``Each Party 
included in Annex I shall, by 2005, have made demonstrable progress in 
achieving its commitments under this Protocol'' Does this constitute a 
legally-binding obligation?

    Answer. Yes, when the Protocol enters into force.

    Question 18.1. Will you please tell us what that provision means in 
terms of the relationship between U.S. greenhouse gas emissions in 2005 
and
   The baseline projection of U.S. emissions for 2005 and
   U.S. greenhouse gas emissions in 1990?

    Answer. The provision does not mean anything in particular 
concerning the relationship between U.S. emissions in 2005 and 
projected emissions for 2005 or emissions in 1990. Rather, with respect 
to this provision, the United States made clear that it would be in 
compliance with such a provision if it had the necessary implementing 
legislation in place to meet its target during the 2008-2012 commitment 
period. The United States would only become a Party to the Protocol 
with the necessary domestic legislation in place.

    Question 18.2. Does the Conference of the Parties to the Kyoto 
Protocol have the authority to determine whether the United States is 
in compliance with Article 3.2; and, if it does, would our nation be 
exposed to risk of enforcement provisions that might be established 
pursuant to Article 17 of the Protocol?

    Answer. The Parties have yet to establish procedures for 
determining when a Party is not in compliance or consequences for such 
non-compliance. However, any enforcement or compliance procedures 
entailing binding consequences can only, as provided in Article 18, be 
adopted by means of an amendment to the Protocol, and the United States 
would only be bound to those consequences if it agreed to such an 
amendment.

    Question 19. In his October speech, the President said there should 
be reductions below 1990 levels during the five-year period after 2012. 
Either before or during the Kyoto Conference, did you or any other 
member of the Executive Branch ever propose to, or discuss with another 
nation what the percentage reduction should be during the five-year 
period after 2012? If yes----
   What percentage reduction was proposed or discussed for that 
        second commitment period;
   Who expressed the view of the United States on that issue;
   When such further reduction was proposed or discussed;
   Who the other nations were; and
   What their reaction was?

    Answer. A variety of nations had proposals for commitments during a 
second budget period, and these were discussed with the U.S. delegation 
in bilateral and multilateral fora during the Kyoto Conference. The 
U.S. did not propose any specific longer-term numerical reductions to 
take place during a second five-year budget period or beyond. However, 
the President said in the October 22nd announcement of his Climate 
Change Policy that the U.S. will undertake additional reductions in a 
second five-year budget period.

    Question 19.1. As nearly as I can determine, there are two places 
in the Kyoto Protocol that define the first ``commitment period.'' 
Article 3.1 uses the expression ``the commitment period 2008 to 2012,'' 
and Article 3.7 uses the identical expression. I am concerned that the 
word ``to'' could be interpreted by some to mean ``up to,'' rather than 
``through'', so that the language in the Kyoto Protocol would be 
interpreted to refer to the years 2008, 2009, 2010, and 2011--that is, 
``up to'' 2012. Such interpretation would mean that the first 
commitment period has a duration of only four years. Was it the 
intention and understanding of the U.S. delegation at the Kyoto 
Conference that the phrase ``the commitment period 2008 to 2012,'' as 
used in the Kyoto Protocol, was meant to include the full year 2012?

    Answer. Yes, the phrase ``the commitment period 2008 to 2012'' 
includes the full year 2012. Indeed, Article 3.7, which defines the 
initial assigned amount for a Party, provides for the baseline level of 
emissions to be multiplied by the percentage in Annex B, and then 
multiplied by five. This would not make sense if the commitment period 
only included four years.

    Question 20. Even if one assumes that the Kyoto Protocol provides 
for at most a real 3 percent reduction of U.S. greenhouse gas emissions 
below their 1990 levels during the period 2008 through 2012, would you 
agree that, all other things being equal, the level of effort required 
to enable U.S. compliance with that commitment would have to be greater 
or more far-reaching than would be the case if the Protocol only 
required, under its provisions, returning the nation's emissions to 
their 1990 level, and, also, that the economic consequences would be 
greater?

    Answer. Yes.

    Question 20.1. During the decision-making process as to whether the 
U.S. delegation should agree to the Kyoto Protocol, as it finally was 
to be proposed to the Kyoto Conference, did you participate in any 
discussions, or receive any information, concerning whether, or how, or 
the extent to which, domestic laws and regulations that would be 
required, and the economic consequences to the nation, would or could 
differ from those contemplated at the time of the President's October 
1997 speech?

    Answer. I received information regarding the relationship between 
the Kyoto Protocol and the U.S. economy but was not informed regarding 
the role of domestic laws and regulation. We consulted with our 
economic experts in determining the soundness of our negotiating 
position in Kyoto. We have not yet conducted an assessment of domestic 
laws and regulations but we look forward to working with the Congress 
at the appropriate time.

    Question 20.1.1. If you answered yes to the above, was any such 
information furnished to you in written form; and, if so, who prepared 
the information, and who furnished it to you?

    Answer. No, except for quick analyses done on the spot of the 
economic impact of various options we were considering, I received oral 
briefings from members of the U.S. delegation.

    Question 20.1.2. Would you please describe for the Committee what 
was said during any discussions you had on that issue?

    Answer. It would be inappropriate to characterize specific 
positions taken by specific officials in the Executive Branch as part 
of the deliberative process. However, CEA Chairman Yellen gave 
extensive answers to numerous questions regarding the Administration's 
economic analysis at the March 4 and March 5 hearings. I refer you to 
her testimony and the transcripts from these hearings.

    Question 20.1.3. Would you please tell us whether the President or 
the Vice President, or both, were provided the information that you 
had?

    Answer. While we consulted closely with the White House during the 
Kyoto negotiations, I have no specific knowledge as to whether they 
were provided with exactly the same information that I was given.

    Question 21. As you know, Senate Resolution 98, the Byrd-Hagel 
Sense of the Senate Resolution, provided, in part, that ``the United 
States should not be a signatory to any protocol to, or other agreement 
regarding, the United Nations Framework Convention on Climate Change of 
1992, at negotiations in Kyoto in December 1997, or thereafter, which 
would--(A) mandate new commitments to limit or reduce greenhouse gas 
emissions for the annex I Parties, unless the protocol or other 
agreement also mandates new specified scheduled commitments to limit or 
reduce greenhouse gas emissions for Developing country Parties within 
the same compliance period. . . .'' Please tell the Committee what 
efforts were made by the United States, from and after the time you 
were told you would head the U.S. delegation at the Kyoto Conference, 
to obtain language in the Kyoto Protocol that met the specific 
requirements of Senate Resolution 98, namely, that ``mandates new 
specified scheduled commitments to limit or reduce greenhouse gas 
emissions for Developing Country Parties within the same compliance 
period'' as would apply to our nation?

    Answer. In negotiations and numerous bilateral meetings throughout 
the eleven days of the Kyoto Conference, we, in coordination with our 
allies, vigorously attempted to persuade developing countries to take 
on additional commitments within the Kyoto Protocol. Our bilateral 
discussions with developing countries included, for example, meetings 
with China, Mexico, India and Brazil. We frequently consulted with 
other Annex I countries to develop a coordinated approach to developing 
country participation. In the closing days of the negotiations, these 
discussions took place around the clock. The foundations for our work 
in Kyoto on developing country participation were laid in numerous 
bilateral meetings with developing and industrialized countries, and in 
various multilateral fora, including the OECD and the G-8, in which we 
extensively pursued cooperation with other Annex I countries on this 
issue. These efforts, while not achieving all of our goals, bore fruit 
in the form of developing country support for essential elements of the 
U.S. position in Kyoto, including their advocacy for the Clean 
Development Mechanism. As I have said repeatedly, this is a down 
payment only, and we continue to seek meaningful participation by key 
developing countries. I worked the Hagel-Byrd resolution frequently in 
Kyoto.

    Question 21.1. In the President's October speech, he stated: ``The 
United States will not assume binding obligations unless key developing 
nations meaningfully participate in this effort'' In his December 8 
speech to the Kyoto Conference, one of the specific conditions stated 
by the Vice President to show ``increased negotiating flexibility'' 
also was ``the meaningful participation of key developing countries.'' 
At any time, were you under the impression that such language met the 
requirements set forth in the Senate Resolution that was adopted by a 
vote of 95 to zero? If yes----

    Answer. Yes, we believe such participation would meet the spirit of 
the commitments set forth in the Resolution. Developing countries vary 
in many characteristics which affect their ability to participate in 
global action on climate change. We did not expect that Chad, for 
example, would be able to participate in the same way as, say, 
Singapore or Israel. The actions taken by developing countries will to 
a large extent determine the long-term success of our efforts to 
mitigate global climate change. Building on the commitments made by 
developed and developing countries at Kyoto, the U.S. will continue to 
work bilaterally, regionally, and multilaterally in the coming months 
and years to promote more active efforts by developing countries to 
limit their emissions.

    Question 21.1.1. What, if anything, made you think that Senate 
Resolution 98 was only concerned with ``key'' developing nations, as 
distinguished from all, or substantially all, of them?

    Answer. The Senate in Resolution 98 made clear that an effective 
solution to climate change must involve more than just the 
industrialized countries, and this Administration has devoted its full 
efforts to achieving that goal. The intention always has been that 
developing countries should take on binding commitments to limit their 
greenhouse gas emissions. Our efforts to effect this and other actions 
by developing countries support the spirit of Senate Resolution 98.
    Moreover, meaningful participation by key developing countries 
would capture, by far, the vast majority of future greenhouse gas 
emissions in the developed world. Surely we should not hold-up the 
prospect of commitments by such countries to participation by countries 
that have minuscule effects on the climate change problem.

    Question 21.1.2. What, if anything, made you think that the 
expression ``meaningful participation'' was exactly the same thing as 
the requirement of Senate Resolution 98 that referred to ``new 
specified scheduled commitments to limit or reduce greenhouse gas 
emissions for the Developing country Parties within the same compliance 
period?''

    Answer. They are not exactly the same thing. The interpretation 
meets the spirit of Senate Resolution 98, that developing countries 
play a meaningful and important role in combating the serious problem 
of climate change. We are actively seeking explicit mechanisms by which 
developing nations will be able to fulfill that key role.
    The recent economic crisis in Asia has highlighted one of the 
difficulties of establishing scheduled emissions reductions commitments 
for developing countries. Not only do these countries vary considerably 
in their emissions growth projections, but these projections are highly 
sensitive to unpredictable economic events.

    Question 21.2. Do you agree that the Kyoto Protocol, as written, 
does not meet the requirements of the Senate, as set forth in Senate 
Resolution 98?

    Answer. Yes, in and of itself.

    Question 22. As of, or around, the time you were designated to head 
the U.S. delegation to the Kyoto Conference, what was your 
understanding of the intention and meaning of the following words, as 
used in the Presidents October speech:
   ``key''--Please name all of the developing nations that were 
        ``key?''
   ``participation''--did it include quantitative commitments, 
        in the Protocol or in a simultaneously adopted, but separate, 
        protocol, to limit the growth of developing nations' greenhouse 
        gas emissions?
   ``meaningful''--what did that mean?

    Answer. At the time I was designated to head the U.S. delegation, 
we had not specifically identified a list of key developing countries. 
Obviously, developing countries vary greatly in their stages of 
industrialization, their greenhouse gas emissions profiles and other 
characteristics relating to their ability to mitigate global climate 
change. Thus, some countries may be found to be more critical than 
others in participating in a global effort to combat climate change. We 
are now in the process of developing a diplomatic strategy of next 
steps, one of which will be to identify those countries who are most 
critical to our efforts to control global climate change. Meaningful 
participation by these countries could include quantitative 
commitments. The U.S. worked hard to ensure that developing countries 
would have the opportunity to take on such commitments within the 
structure of the Kyoto Protocol, and we will continue to work 
bilaterally and multilaterally to involve developing countries.

    Question 22.1. My understanding is that the Annex I nations and the 
developing nations knew of the terms of Senate Resolution 98 at least 
by the summer of 1997, when the Ad Hoc Group on the Berlin Mandate met 
in Bonn. Is that your understanding also?

    Answer. Yes. Other nations knew about this Resolution, and in some 
cases, had the opportunity to hear about it directly from Senate staff 
members who attended the Ad Hoc Group on the Berlin Mandate meetings in 
Bonn last summer.

    Question 23. At any time during the Kyoto Conference, did the 
Administration's intent and understanding of the phrase ``meaningful 
participation of key developing nations'' change from the intent and 
understanding that existed as of the President's October speech? If so, 
would you please tell us what the changes were?

    Answer. All of the fundamental precepts of our position remained 
consistent throughout the negotiations.

    Question 24. Does the Kyoto Protocol, as written, provide for 
``meaningful participation of key developing countries'' within the 
meaning of the President's October 1997 speech?

    Answer. No.

    Question 24.1. The following is from a document, dated December 11, 
1997, which is entitled ``Transcript: Eizenstat Briefing on Results of 
Climate Talks'' and which bears a legend at the top stating ``The 
United States Mission to Italy.'' The document purports to be a 
transcript of your news conference on December 11 in Kyoto. The 
following statement is attributed to you:

          Second is the question of eventual ratification by the U.S. 
        Senate. The President has indicated that the United States 
        would not take on legally binding targets until there was 
        meaningful participation by developing countries. Clearly, 
        despite the very important step taken through the Brazilian 
        process of creating a Clean Development Mechanism for Credit, 
        that meaningful participation has not yet been taken as a 
        result of the steps that were done here. We hope, over time, 
        they will.

    Did that transcript accurately set forth what you said at your news 
conference?

    Answer. Yes.

    Question 24.2. If anybody in the Administration, or anybody else, 
ever tries to tell or suggest to this Committee that the Kyoto 
Protocol, as written, provides for ``meaningful participation by key 
developing countries,'' can we count on you to deny that?

    Answer. We have stated clearly that the Protocol does not, at this 
time, meet the President's requirement for meaningful participation by 
key developing countries. In our view, we expect additional engagement 
by developing countries to meet the objectives of the Framework 
Convention on Climate Change and to satisfy the Administration's 
desires for meaningful participation on the part of developing 
countries. We are working actively to find ways to encourage such 
engagement, which we think is fully consistent with sustainable growth 
and development. One of our biggest challenges in attaining developing 
countries' participation is that developing countries, here simply 
defined in the Kyoto Protocol context as those countries not included 
in Annex B, encompass a wide range of national circumstances. These 
countries vary tremendously in their wealth; population; stage and 
pattern of development; geographical characteristics; political, legal, 
economic, and industrial structures; energy consumption patterns; and 
environmental policies, as well as a wide range of cultural factors 
that affect and are affected by all of the above. It is important for 
us to recognize that not all developing countries are uniform; some may 
be acting more aggressively than others to combat global climate 
change.

    Question 25. The State Department's ``Fact Sheet: The Kyoto 
Protocol on Climate Change,'' dated January 23, 1998 states (beginning 
at the bottom of page 4): ``While the conference rejected a proposal to 
create a new category of nations that would voluntarily assume binding 
emissions targets, developing countries may as a prerequisite for 
engaging in emission trading still do so through an amendment to the 
annex of the protocol that lists countries with targets.'' Does that 
statement mean that there is a mechanism for developing nations to opt 
into the Kyoto Protocol by means of amendment to Annex B?

    Answer. Yes.

    Question 25.1. Was the United States, before and during the Kyoto 
Conference, a proponent of what had been called Article 10, which was 
called Article 9 in a subsequent draft because of renumbering of the 
Articles, and that Article 10 was intended to set forth the rules by 
which a non-Annex I Party (that is, a developing nation) could ``opt 
in'' to a quantitative commitment to limit reduce its greenhouse gas 
emissions?

    Answer. Yes.

    Question 25.2. Is it true that the developing nations, as a group, 
refused to go along with this ``Article 10,'' and that, in your press 
conference immediately after adoption of the Protocol, you stated that 
the defeat of the opt-in provisions of Article 10 ``was I think our 
single greatest disappointment?''

    Answer. Yes, we were disappointed that the broader provision on 
voluntary participation was not adopted. We were able to get a 
significant down-payment from developing countries in their support for 
the Clean Development Mechanism (CDM), and their support for other 
essential parts of the U.S. position. More specifically, the Protocol 
promotes investment in projects in developing countries which can 
offset emissions in developed countries (through the CDM) The Protocol 
also strengthens all Parties' national communications requirements and 
gives advanced developing countries the option of adopting an emissions 
budget and trading under the Protocol--potentially providing even more 
direct investment and technology transfer than the project-based CDM. 
More work, of course, remains, particularly on gaining the meaningful 
participation of developing countries, and we will make bilateral and 
multilateral efforts to this end.
    We are now vigorously pursuing a diplomatic strategy to do exactly 
that.

    Question 25.3. Who came up with the idea that Annex B could be 
amended so as to add a developing nation and a related emissions-
limitation commitment, or when such idea first entered into a draft of 
the Protocol?

    Answer. Mexico proposed that the phrase ``Annex I'' in the 
emissions trading article be changed to ``Annex B'', and this proposal 
was supported by other countries.

    Question 25.4. Do you believe that a majority of the developing 
nations wanted to include Article 10 in the Kyoto Protocol?

    Answer. No.

    Question 25.5. If a ``developing'' nation wanted to undertake an 
emissions-limitation commitment for itself and that it proposed to 
amend Annex B of the Kyoto Protocol by stating what its commitment was, 
do you agree that, by reason of Articles 20.7 and 19.3 of the Protocol, 
such amendment would first have to be approved by at least a three-
fourths majority vote of the Parties to the Protocol?

    Answer. Yes.

    Question 25.6. Do you believe that the Government of the United 
States, under our Constitution, could not deposit an instrument of 
acceptance to any amendment of Annex B pursuant to Article 19.4 of the 
Kyoto Protocol without the advice and consent of the U.S. Senate?

    Answer. Seeking Senate advice and consent is the route that is 
currently anticipated for amendments to Annex B pursuant to Article 
20.4 (the former Article 19.4), given the provisions of the Kyoto 
Protocol.

    Question 25.7. If a developing nation were added to Annex B, would 
it automatically become an Annex I Party to the Convention?

    Answer. No. The term ``Party included in Annex I'' is defined in 
Article 1.7 of the Protocol and provides the exclusive basis upon which 
a Party may become an Annex I Party to the Convention.

    Question 25.8. Would a developing nation that is added to Annex B 
also undertake the commitments of Annex I Parties set forth in Article 
2 (concerning policies and measures), Article 5 (concerning a national 
system for estimation of its emissions and sinks), Article 7 
(concerning its national emissions inventory and national 
communications), and Article 8 (concerning expert review of its reports 
filed pursuant to Article 7)? If yes----

    Answer. No, not automatically. Developing countries, however, like 
other Parties to the Framework Convention on Climate Change, do have 
requirements under the Convention to publish greenhouse gas emissions 
inventories and programs containing measures to mitigate climate 
change.

    Question 25.8.1. Will you please look at those Articles in the 
Kyoto Protocol and tell me what language in them would make them 
applicable to a developing nation that became listed in Annex B?

    Answer. Not applicable in light of answer above.

    Question 26. In her written testimony before the House Science 
Committee on February 4, Ms. Kathleen McGinty said: ``The President has 
made it clear that he does not intend to send the Kyoto Protocol to the 
Senate for ratification until we have achieved meaningful participation 
by key developing countries.'' Is that also your understanding of the 
President's position; and, if it is, who told you that?

    Answer. Yes. I have been informed of that position by the 
President's policy advisors.

    Question 27. I am told that various Administration officials have 
referred to efforts to obtain, on a bilateral or multilateral basis, 
the agreement of certain developing nations to quantitative limitations 
on the growth of their greenhouse gas emissions. For example, I 
understand that Ms. McGinty indicated that in her oral testimony before 
the House Science Committee. Is it the Administration's position that 
any such bilateral or multilateral agreements would constitute 
``meaningful participation by developing nations?''

    Answer. Bilateral or multilateral agreements that support the 
objectives of the Framework Convention and the Kyoto Protocol are 
highly desirable. Whether any such agreements would contribute to a 
determination of ``meaningful participation by developing nations'' 
would depend on which nations were Party to these agreements and on the 
specific provisions of such agreements.

    Question 27.1. How could the Administration contend that bilateral 
or multilateral agreements with developing nations would justify the 
Senate's ratification of the Kyoto Protocol, in the absence of 
amendments to the Kyoto Protocol that made it certain the developing 
nations added to Annex B also were subject to Articles 2, 3, 5, 7, and 
8, and that all such commitments, including those undertaken by means 
of joining Annex B, were subject to such enforcement provisions as 
might be adopted to elaborate Article 17?

    Answer. There are a variety of different agreements or arrangements 
that could, in principle, play a part in a determination that a given 
country was participating meaningfully in the global effort to reduce 
greenhouse gases. It would not be productive at this time to rule out 
any particular form of agreement. The most important thing would be the 
substantive commitments undertaken by the parties in question.

    Question 27.2. Is the Administration contemplating proposals to 
amend the Kyoto Protocol to make certain that, if developing nations 
were added to Annex B, they also will be subject to Articles 2, 3, 5, 
7, and 8?

    Answer. The Administration is still evaluating what steps to take 
with respect to the Protocol. Among the options we are exploring are 
the legal possibilities of amending the Protocol before it enters into 
force.

    Question 28. What do you believe the chances are that the Kyoto 
Protocol will enter into force by the fourth session of the Conference 
of the Parties in November if the Senate has not ratified it more than 
90 days before that session?

    Answer. None.

    Question 29. If the Kyoto Protocol does not enter into force by the 
November session of the Conference of the Parties, do you believe that 
the Protocol's provisions concerning amendment of the Protocol are 
irrelevant and that, in the absence of adoption of the Rules of 
Procedure of the Conference of the Parties that provide for amendment 
of the Kyoto Protocol by something other than ``consensus,'' any 
amendments to that Protocol would require ``consensus?''

    Answer. The Protocol's provisions concerning amendment of the 
Protocol would not apply before the Protocol enters into force. While 
the Protocol cannot, strictly speaking, be ``amended'' before it enters 
into force, it may be possible for the Conference of the Parties to 
adopt a further instrument, such as a supplementary protocol, which 
would be an integral part of the Kyoto Protocol and would enter into 
force at the same time as the Protocol. Further review and 
consultations with other governments would be necessary to determine if 
such a route were desirable and, if so, what form and content would be 
feasible.

    Question 30. Would you please describe for us all of the ways, 
including procedure, that the State Department is considering to 
accommodate the requirements of Senate Resolution 98?

    Answer. Climate change is a global problem that requires a global 
solution. Current projections show that developing country emissions 
will surpass those from industrialized countries by 2025 or sooner. The 
problem of climate change cannot be solved unless developing countries 
take measures themselves to limit greenhouse gas emissions.
    The U.S. will be working bilaterally, regionally, and 
multilaterally in the coming months and years to promote more active 
efforts by developing countries to limit their emissions. We will 
concentrate on key countries and on approaches that are consistent with 
the economic growth and development of these countries and with other 
environmental objectives. We will not submit the Kyoto Protocol to the 
Senate for advice and consent to ratification until there is meaningful 
participation from key players in the developing world.

    Question 31. Did the President, personally, authorize the U.S. 
delegation at the Kyoto Conference to vote for adoption of the Kyoto 
Protocol?

    Answer. As chief of delegation, I frequently consulted with the 
White House as to the degree of my negotiating authority and I joined 
the consensus to adopt the Kyoto Protocol on that basis. I was told 
that my actions had the President's approval.

    Question 31.1. Will you please explain to the Committee why the 
President authorized the U.S. delegation to vote for adoption of the 
Kyoto Protocol at the Kyoto Conference, but no decision has been made 
as to when it will be signed in behalf of the United States?

    Answer. We would expect to sign during the year the Protocol 
remains open for signature. Given that many issues remain in 
negotiation, we would plan to sign when it is tactically advantageous 
for us to do so.

    Question 32. Will you please identify and describe any oral or 
written understandings with, or commitments to, other nations--of any 
kind other than those specifically set forth in the Protocol--which 
were made by the President, by the Vice President, or by any member of 
the U.S. delegation to the Kyoto Conference, including, but not limited 
to, any understandings or commitments regarding:
   Implementation or the interpretation of the Protocol;
   The substance of future decisions by the Conference of the 
        Parties, which the United States would support, regarding rules 
        or guidelines elaborating the Protocol; or concerning the 
        timing of any Party's signature or ratification of the 
        Protocol.

    Answer. As you know, the Vice President came to Kyoto not to 
negotiate, but to demonstrate U.S. support for the Kyoto Conference, 
and to explain to other governments the strength of the U.S. proposal. 
Neither the President nor the Vice President nor I entered into any 
understandings or made any commitments with other countries regarding 
implementation of the Protocol, future decisions by the Conference of 
the Parties, or the timing of any Party's signature or ratification of 
the Protocol.

    Question 33. Article 16 bis. Will you please tell us what 
``modalities'' would be, as distinguished from the ``principles,'' 
``rules,'' and ``guidelines'' referred to in that Article?

    Answer. The term ``modalities'' is generally used to refer to the 
mechanics of how a regime will work, as opposed to the substantive 
``rules'' that will apply.

    Question 33.1. Do you believe that, until the Conference of the 
Parties makes all of the decisions that it is empowered to make under 
those Articles of the Kyoto Protocol, it will be impossible for either 
the Administration or the Congress to know the extent to which those 
Articles--in reality--would or could reduce the nation's cost of 
complying with the emissions-reduction requirement set forth in the 
Protocol?

    Answer. The Kyoto Protocol establishes international trading of 
emissions rights among Annex I countries. The Administration's policy 
is to secure rules that ensure an effective international market for 
emissions rights. It is impossible to know exactly the magnitude of the 
cost reduction associated with international trading, because of many 
uncertainties. Some of these uncertainties will be addressed in 
subsequent negotiations; however, many uncertainties are associated 
with the inability precisely to predict the state of the U.S. and 
global economies a decade or more from now. It is possible to draw from 
the economic literature on trading, and descriptive statistics of Annex 
I economies, and to use the results from modeling exercises to 
illustrate the substantial gains possible through international 
trading. The finding that effective international trading can 
significantly reduce compliance costs is quite robust--and consistent 
with actual experience in our domestic SO2 trading regime.

    Question 34. Do you believe that under Article 16 bis, Annex B 
Parties can begin engaging in emissions trading now?

    Answer. The Kyoto Protocol established a right to trade, and we 
believe Parties can begin to trade at anytime. In order to ensure that 
emissions trading is fully and effectively utilized, however, rules and 
guidelines will be needed as they are to facilitate the integrity of 
any market. In the coming months leading to Buenos Aires, the Parties 
to the FCCC will continue their work to define the ``relevant 
principles, modalities, rules and guidelines'' for emissions trading. 
We anticipate this process to be complex, but the Administration will 
build upon and share with other Parties our experience with the 
successful SO2 emissions trading program in developing 
verifiable domestic and international trading regimes. We are hopeful 
that significant progress on the structure of a functioning trading 
system can be made by Buenos Aires.

    Question 34.1. Do you have any reason to believe that other Parties 
to the Convention, specifically including the European Union, agree 
that, under Article 16 bis, Annex B Parties can begin engaging in 
emissions trading before the Conference of the Parties defines what it 
regards as the ``relevant principles, modalities, rules and 
guidelines'' for emissions trading, as provided for in the first 
sentence of Article 16 bis?

    Answer. Yes. Other parties, however, generally share our view that 
rules and guidelines are needed to facilitate a comprehensive and 
effective market for emissions trading.

    Question 34.2. Will you please explain to the Committee, in summary 
form at this time, all of the issues that will have to be decided by 
the Conference of the Parties in order to enable emissions trading 
under Article 16 bis be a viable and effective mechanism for reducing 
the costs of complying with the emissions-reduction commitment of the 
United States under the Kyoto Protocol?

    Answer. We are currently working on a strategy to address the as-
yet undefined issues in the design of the emissions trading system. 
Among the issues likely to be addressed are questions of who can trade; 
systems for monitoring and verification; rules for compliance and 
enforcement; and coordination with domestic trading regimes. The rules 
and procedures for the international emissions trading regime are to be 
considered at the Fourth Conference of the Parties (COP-4) in Buenos 
Aires, Argentina this coming November. Until COP-4, we will work hard 
to build a consensus on the structure of an emissions trading regime 
which provides the greatest flexibility for our private sector and 
domestic implementation.

    Question 35. Regarding the Clean Development Mechanism, 
particularly Article 12.8, which states: ``The Conference of the 
Parties serving as the meeting of the Parties to this Protocol shall 
ensure that a share of the proceeds from certified project activities 
is used to cover administrative expenses as well as to assist 
developing country Parties that are particularly vulnerable to the 
adverse effects of climate change to meet the costs of adaptation.'' 
Who are those countries that will be entitled to receive funding to 
meet the costs of adaptation?
   Are they limited to the groups of countries referred to in 
        Article 4.8 of the Convention?
   Will the share of proceeds to be used to meet the costs of 
        adaptation be allocated among deserving nations in accordance 
        with some currently unknown, decision making process to be 
        established by the Conference of the Parties?
   Please identify all countries that would be excluded from 
        receiving any portion of such funding.

    Answer. The Conference of Parties will determine which countries 
are particularly vulnerable to the adverse effects of climate change. 
The U.S. believes that this category should be limited to countries 
which are vulnerable to changes in climate, and that it should not 
include countries demanding compensation for loss of income resulting 
from international efforts to mitigate climate change (e.g., through 
reductions in oil exports). This definition will be one of the details 
worked out in the development of rules for the Clean Development 
Mechanism (CDM). The Protocol does not specify that this provision 
refer only to the groups of countries referred to in Article 4.8, 
though that Article does describe some of the vulnerabilities faced by 
nations who might be eligible for adaptation assistance. Nor does the 
Protocol specify any countries that would be excluded from receiving 
any portion of such funding. As with other decisions regarding rules 
for the CDM, any proposals to specify vulnerable countries who would be 
entitled to assistance in meeting their costs of adaptation would have 
to meet the approval of all the Parties.

    Question 35.1. Does the United States have an understanding with 
Brazil, or with any other nations, as to a limit, or potential limit, 
on the amount of money derived from projects under the Clean 
Development Mechanism that will be diverted to developing nations for 
adaptation purposes?

    Answer. No.

    Question 36. My understanding is that the fourth session of the 
Conference of the Parties in November will review the adequacy of 
Articles 4.2(a) and (b) of the Convention. Given that the Conference of 
the Parties adopted the Kyoto Protocol and that Articles 4.2(a) and (b) 
of the Convention have nothing to do with commitments of developing 
nations, will you assure this Committee that the position of the United 
States at the November session will be that Articles 4.2(a) and (b) of 
the Convention are ``adequate?''

    Answer. We agree that the objectives of the Framework Convention on 
Climate Change cannot be fully met unless developing countries assume 
some of the commitments assigned only to developed countries in the 
Convention. In that respect, Articles 4.2(a) and (b) are inadequate 
because they do not include developing countries.

    Question 37. The Kyoto Protocol contains no provisions that 
describe what the procedures and consequences will be if a Party is not 
in compliance with its commitments under the Protocol. Article 17 of 
the Protocol does not itself provide deterrence to non-compliance; yet 
we know that, for any number of reasons, the United States would comply 
with its commitments if the Protocol ever received the advice and 
consent of the Senate. What specific proposals did the U.S. delegation 
make during the negotiations that concluded with the Kyoto Protocol 
that detailed the procedures to determine whether a Party was in non-
compliance, and, in case of non-compliance, what specific consequences 
would ensue in different situations?

    Answer. U.S. proposals regarding non-compliance procedures and 
consequences are contained in the January 1997 protocol framework 
submitted to the Secretariat, as elaborated in June 1997. U.S. 
proposals did not detail procedures to determine non-compliance; this 
was to be left to the Parties for elaboration. U.S. proposals did, 
however, specify consequences for certain situations. For example, in 
the U.S. proposal, a Party would not have been able to participate in 
emissions trading if it was not in compliance with its obligations 
related to measurement of emissions or its obligations to report 
resulting data. A Party would also not have been able to participate in 
trading if it did not have in place a national mechanism for 
certification and verification of trades. Finally, a Party that 
exceeded its budget would also not be permitted to sell its allowances 
in that budget period.
    Although it did not, strictly speaking, address the issue of ``non-
compliance,'' the U.S. proposal also included a provision that would 
have set forth the consequences for a Party that exceeded its emissions 
budget in a budget period, namely it would have had to reduce, by a 
specified ratio (at a penalty rate) of greater than 1:1, the amount of 
its budget for the subsequent budget period. The proposal assumed 
acceptance of the principle of ``borrowing'' from a later period for 
use in an earlier period--a concept that was not included in the final 
Protocol--but which may nevertheless be relevant to drafting rules for 
operation of the future regime.

    Question 37.1. Does the Administration favor use of trade 
sanctions, such as embargoes, in case of certain types of non-
compliance; and, if so, please tell us what the Administration is 
considering in that regard?

    Answer. The Administration does not currently have a position on 
the use of trade sanctions in case of certain types of non-compliance.

    Question 38. Is the Administration contemplating submitting to 
Congress any other legislative proposals, or is it contemplating 
proposing any new or amended regulations, any of which are intended to 
reduce U.S. greenhouse gas emissions, prior to the President's signing 
the Kyoto Protocol and submitting it to the Senate for its advice and 
consent? If so, will you please describe the substance of any such 
legislative or regulatory proposals that are being contemplated?

    Answer. President Clinton has chosen to emphasize those domestic 
measures that are more voluntary and incentive-based in nature. The 
President has laid out a comprehensive plan for cutting U.S. emissions 
of greenhouse gases that will enhance, not diminish, our economic 
growth and competitiveness. The President's plan includes $6.3 billion 
in tax incentives and R&D spending over five years on energy efficient 
and low carbon-emitting technologies, restructuring of the electricity 
industry that will both cut emissions and save taxpayer dollars, 
overhauling of Federal energy use and procurement practices, and 
industry-by-industry consultations to develop specific voluntary plans 
for reducing emissions. Such actions have other benefits not directly 
related to climate change, including definition of clean, efficient 
technologies; higher energy efficiency; cleaner air; and reduced health 
costs. Some of these initiatives will require legislative approval and 
we look to the Congress for support in these endeavors. In the 
President's October 22nd policy speech, he stated that the 
Administration would pursue these initiatives whether or not any 
agreement was reached in Kyoto.

    Question 39. Has any Department or agency of the Executive Branch, 
or any interagency body, been given the responsibility to develop 
potential proposals for legislation or regulations that would be 
intended to facilitate compliance by the United States with the Kyoto 
Protocol if the Protocol ever were to become binding on this nation? If 
so, will you please identify the Departments, agencies, or interagency 
body; and, if it is an interagency body, who is the head of it?

    Answer. To date, no agency or interagency body has been given 
responsibility to develop potential proposals for legislation or 
regulation that would be intended to comply with the Kyoto Protocol if 
it were to become binding on the U.S. There is a great deal of work to 
be done between now and then to flesh out some of the mechanisms and 
methodologies in the Protocol, and to ensure that we have greater 
developing country participation in the global solution. If we are 
successful in getting the additional elements we need and the Kyoto 
Protocol is ratified by the Senate and enters into force, the 
Administration will work closely with Congress to consider and develop 
means by which the U.S. can comply with our resulting commitments.
                                 ______
                                 

                             ATTACHMENT #1

       Report to Congress on Federal Climate Change Expenditures

Prepared by the Office of Management and Budget, March 1998 Pursuant to 
                   Section 580 of Public Law 105-118

    The State Department supports the work of the UN Framework 
Convention on Climate Change Secretariat and the Intergovernmental 
Panel on Climate Change (IPCC)--the single, most authoritative, 
international scientific and technical assessment body with respect to 
climate change. Many nations rely on the IPCC for information and 
assessment advice on climate change.

                      Indirectly Related Programs

    Several Federal agencies conduct programs that are indirectly 
related to global climate change. For example, the Department of 
Defense conducts research to improve energy efficiency of military 
aircraft as a means of improving defense capability. The Department of 
Transportation conducts research that can lead to improved vehicular 
traffic flow and reduced fuel consumption. By promoting energy 
efficiency, these programs can also help reduce the Nation's emissions 
of greenhouse gases. Nevertheless, since the primary focus of these 
programs is not on climate change, the Administration does not consider 
them to be ``climate change programs and activities,'' as stipulated in 
Section 580 of the Foreign Operations bill.
                                 ______
                                 

                             ATTACHMENT #2

  Climate Change Technology Initiative 1999 Budget Briefing Materials

                            February 2, 1998

          . . . So while we recognize that the challenge we take on 
        today is larger than any environmental mission we have accepted 
        in the past, climate change can bring us together around what 
        America does best--we innovate, we compete, we find solutions 
        to problems, and we do it in a way that promotes 
        entrepreneurship and strengthens the American economy.
          If we do it right, protecting the climate will yield not 
        costs, but profits; not burdens, but benefits; not sacrifice, 
        but a higher standard of living.

                                President Clinton, October 22, 1997

                  Climate Change Technology Initiative

Introduction
    Last October the President outlined the three-stage approach the 
U.S. will take in addressing climate change. 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 market-based 
permit trading system for carbon emissions. Stage three will begin to 
implement a market-based emissions-trading system.
    The President's 1999 budget includes $2.7 billion over five years 
for increased R&D and deployment of energy efficiency, renewable 
energy, and carbon-reduction technologies, and an additional $3.6 
billion over five years in tax incentives. These provide a total 
initiative of $6.3 billion in new funding and tax expenditures over 
five years to stimulate adoption of more efficient technologies in 
buildings, industrial processes, vehicles, and power generation.
    During the coming year, federal agencies will supplement these 
activities with three other actions outlined in the President's plan:
   Active support for industry-by-industry consultations with 
        all major business sectors.
   Changes in federal procurement policy to ensure that Federal 
        agencies make all cost-effective energy investments and take 
        advantage of energy savings performance contracts and other 
        service available from private investors.
   Introduction of utility restructuring proposals that will 
        reduce carbon emissions while saving customers billions of 
        dollars in electric bills.
    Section 1 below shows several summary tables that provide a variety 
of views or perspectives on the Climate Change Technology Initiative 
(CCTI)--by agency, by type of activity, direct spending, and tax 
incentives. Following that, in Section 2, are programmatic details 
organized by the sector or technical topic on which they are focused.

                       Section 1.--Summary Tables

                            Table 1.--Climate Change Technology Initiative (Agencies)                           
                            (Direct programs and tax incentives, millions of dollars)                           
----------------------------------------------------------------------------------------------------------------
                                                                                          Increase              
               Selected agencies                     1997         1998         1999       1998 to    Increase  5-
                                                    actual      estimate     proposed       1999      year total
----------------------------------------------------------------------------------------------------------------
Energy.........................................          657          729        1,060          331        1,899
Environmental Protection Agency................           86           90          205          115          677
Housing and Urban Development..................           --           --           10           10           10
Commerce.......................................           --           --            7            7           38
Agriculture....................................           --           --           10           10           86
----------------------------------------------------------------------------------------------------------------
  Appropriations Sub-Total.....................          743          819        1,292          473        2,710
Tax Incentives.................................           --           --          421          421        3,635
----------------------------------------------------------------------------------------------------------------
    Total Initiative...........................          743          819        1,713          894        6,345
----------------------------------------------------------------------------------------------------------------


     Table 2.--Two Views of the Climate Change Technology Initiative    
------------------------------------------------------------------------
      Principal Technical Areas         Major Types of Federal Activity 
------------------------------------------------------------------------
Efficient buildings, heating and      Cost-shared R&D partnerships with 
 cooling, and appliances               industry.                        
Efficient transportation              Supporting research n materials,  
 (automobiles, trucks, and             combustion, and biotechnology.   
 transportation planning)                                               
Efficient industrial processes and    Limited-duration tax incentives to
 technologies                          promote adoption of major        
                                       technical innovations.           
Low-carbon generation of electricity  Labeling and information programs 
 using renewable energy, and           to stimulate markets for highly  
                                       efficient products.              
Techniques for permanently capturing  Policy studies and market         
 and sequestering greenhouse gases     incentives.                      
------------------------------------------------------------------------

    The Climate Change Technology Initiative encompasses programs in 
five agencies, and most of the participating agencies are expected to 
make contributions in several sectors, so coordination is important. 
Table 3 shows the total multi-agency funding applied to climate change 
issues in the key end-use sectors and technical topics that form the 
basis for interagency coordination in the CCTI.

                            Table 3.--Climate Change Technology Initiative (Sectors)                            
                            (Direct programs and tax incentives, millions of dollars)                           
----------------------------------------------------------------------------------------------------------------
                                                            1999 proposed                                       
                                     1998    ------------------------------------------    Total      Total Tax 
    Key Sectors and  Topics        estimate                       Tax                     increase    Incentives
                                              Appropriations   incentives     Total      1998-1999    1999-2003 
----------------------------------------------------------------------------------------------------------------
Buildings......................          146            264           136          400          254        1,696
Industry.......................          156            216           276          492          336        1,004
Transportation.................          246            356             4          360          114          744
Electricity....................          220            312             5          317           97          191
Carbon Sequestration and Cross-                                                                                 
 Cutting Research..............            0             42            --           42           42           --
Policy Analysis, Market                                                                                         
 Incentives....................            6             26            --           26           20           --
Program Direction..............           45             57            --           57           12           --
----------------------------------------------------------------------------------------------------------------
      Total....................          819          1,292           421        1,713          894        3,635
----------------------------------------------------------------------------------------------------------------

    The budget provides tax incentives to accelerate the adoption of 
new technologies, which complements the direct Federal R&D and 
deployment spending. Incentives are provided in each of the major 
sectors that the CCTI addresses, as shown in Table 4.

      Table 4.--Climate Change Technology Initiative Tax Incentives     
                 (Tax Expenditures, millions of dollars)                
------------------------------------------------------------------------
                                                             Total  1999-
                                                    1999         2003   
------------------------------------------------------------------------
Buildings                                                               
  Provide tax credit for energy-efficient                               
   building equipment.........................          123        1,379
  Provide tax credit for new energy-efficient                           
   homes......................................            7          197
  Provide tax credit for rooftop solar systems            6          120
                                                                        
Transportation                                                          
  Provide tax credits for highly fuel                                   
   efficient vehicles (begins in year 2000)...           --          660
  Equalize tax treatment of parking, transit,                           
   and vanpool benefits.......................            4           84
                                                                        
Industry                                                                
  Provide tax credit for combined heat and                              
   power systems..............................          270          942
  Provide tax credit for certain circuit                                
   breaker equipment..........................            3           36
  Provide tax credit for PFC/HFC recycling                              
   equipment..................................            3           26
                                                                        
Electricity                                                             
  Extend production tax credit for electricity                          
   produced from wind and biomass.............            5          191
------------------------------------------------------------------------
      Total...................................          421        3,635
------------------------------------------------------------------------

                    Section 2.--Programmatic Details

                               Buildings

    Buildings produce 35% of U.S. greenhouse gas emissions. Much of 
this is the indirect result of producing electricity since more than 
two thirds of electricity produced is consumed in buildings. The energy 
used in the typical home causes significantly more greenhouse gas 
emissions that does a typical car.
    Building shells last a long time and the bulk of greenhouse gas 
emissions in 2010 will come from buildings standing today. Appliances 
and building equipment, such as heating, ventilation, and air 
conditioning (HVAC) equipment, are replaced much more frequently. The 
budget includes several programs designed to develop highly efficient 
new appliances and HVAC systems and to create incentives for their use. 
Over the long-term, it is essential that new buildings be designed and 
built with the same kinds of technology that have permitted most 
successful U.S. businesses to improve quality--including lowering 
energy demand and emissions--while reducing costs. Overall, Federal 
appropriations for buildings technology are proposed to increase $118 
million (81 percent) in 1999 to a total of $264 million.
1. Efficient Building Equipment and Appliances
   DOE proposes to expand research partnerships for building 
        equipment and appliances by $19.7 million to increase the 
        efficiency of lighting, refrigerators, air-conditioning systems 
        and other building equipment. By 2000, for example, the program 
        hopes to help industry develop a prototype refrigerator using 
        half the electricity of today's equipment and to complete field 
        tests of advanced absorption chillers and natural-gas heat-
        pumps.

   EPA and DOE will expand their partnerships that are helping 
        consumers and businesses reduce their energy bills and their 
        greenhouse gas pollution by up to one-third or more. The EPA 
        and DOE Energy Star appliance labeling program is helping 
        consumers save significantly on their energy bills. EPA and DOE 
        will work with manufacturers to expand the Energy Star label to 
        new product lines, building on recent partnerships with 
        consumer electronics manufacturers.

   Markets for a new generation of building equipment will be 
        encouraged through $1.4 billion in tax credits over five years. 
        The credits would equal 20 percent of qualified investments in 
        fuel cells, electric heat pump water heaters, natural gas heat 
        pumps, residential size advanced electric heat pumps, natural 
        gas water heaters and advanced central air conditioners.
2. Efficient Building Design and Construction
    Over the long-term, it is possible to achieve 30-50 percent or 
greater reductions in building energy use by using modern engineering 
methods to improve product quality and lower production costs. A 
partnership with builders, suppliers, insurance companies and state and 
local governments will undertake a program to accelerate development 
and demonstration of inexpensive, highly efficient, attractive housing, 
and to streamline federal, state, and local building and utility 
regulations in ways that encourage innovation in construction. These 
energy efficiency innovations will be combined with design improvements 
that increase resistance to wind and seismic damage (thereby reducing 
insurance costs), reduce construction injuries, and reduce maintenance. 
The program includes:

   $13.4 million increase in DOE's program to improve whole 
        building designs, which expands the highly successful Build 
        America partnerships. By the end of 1998, the program will 
        complete 300 attractive homes that cost less to build than 
        conventional units and simultaneously reduce energy use by 30 
        percent or more.

   $200 million in tax credits over five years for a new 
        program designed to encourage builders to develop and introduce 
        innovative housing designs and production methods that result 
        in high-quality, affordable, highly efficient new homes. The 
        credit would equal one percent of the purchase price of the 
        home, up to a maximum of $2,000.

   Expansion of EPA's Energy Star Buildings and Energy Star 
        Homes programs to provide reliable information and technical 
        assistance to help businesses and homeowners reduce their 
        energy use while saving money.

   $10 million for HUD to manage the new Partnership for 
        Advanced Technology in Housing (PATH) program in conjunction 
        with DOE and EPA. PATH will link the efforts of builders, 
        suppliers, insurance firms, financial institutions, as well as 
        the numerous Federal, state, and local agencies with programs 
        affecting the housing industry. This partnership will identify 
        and seek to remove barriers that have reduced incentives for 
        innovation in housing design and construction.
3. Million Solar Roofs
    Since the President challenged the Nation to have a million rooftop 
solar units installed and operating in a decade last fall, utilities, 
States, and Federal agencies have already set goals to place about 
500,000 solar energy systems on U.S. roofs. A new DOE program will 
continue this momentum through R&D and deployment partnerships with 
state and local governments, energy service providers, the solar 
industry, developers, and builders. Funds will also be used to train 
builders and inspectors. The budget request for this program in 1999 
totals $12 million, with $10.5 million for photovoltaic units and $1.5 
million for solar water and space heating equipment.
    The budget also proposes a new tax credit available for purchasers 
of rooftop photovoltaic systems and solar water heating systems located 
on or adjacent to buildings for purposes other than heating swimming 
pools. The credit would be 15 percent of qualified investments up to a 
maximum of $1,000 for solar hot water heaters and $2,000 for 
photovoltaic systems. The credits are estimated to provide $120 million 
for five years.

                             Transportation

    Cars, trucks, aircraft, and other parts of the Nation's 
transportation system are responsible for about a third of U.S. 
greenhouse gas emissions. Emissions in transportation are growing 
rapidly, both because Americans are driving more and because of the 
growing popularity of sport-utility and other larger vehicles. A range 
of new technologies make it possible for Americans to continue to enjoy 
the best personal transportation in the world while emissions of 
greenhouse gases are reduced by factors of two or three. The budget 
also provides increased support for truck technologies, since the 
amount of fuel used in trucks (including trucks used largely for 
personal transportation) now exceeds fuel use in cars. The budget calls 
for a $110 million (45 percent) increase in appropriations for 
transportation R&D over 1998, providing a total of $356 million in 
1999. This would be supplemented by tax credits to stimulate key early 
markets.
1. New Generation Automobiles
    The Partnership for a New Generation of Vehicles (PNGV) is on 
schedule for meeting its ambitious goal of building a production 
prototype of an attractive, affordable automobile which can achieve up 
to three times the fuel efficiency (and on third the greenhouse gas 
emissions) of comparable vehicles sold today. All three U.S. auto 
makers demonstrated concept cars capable of approaching the PNGV fuel 
efficiency goal in this year's Detroit Auto Show. An enormous amount of 
work remains to be done, however, to convert these concept vehicles 
into practical production vehicles. The bulk of the vehicle development 
investment will be made by the industry, but Federal cost-sharing is 
essential to address key research needs.
    Federal research funding for advanced automobiles will be increased 
and a new tax credit will be provided to encourage a shift to advanced 
technology vehicles. Following a program plan developed in close 
partnership with industry, the program will focus on propulsion 
technology and lightweight materials, with significant increases 
planned in the following areas:

   A $50 million (22 percent) increase in funding for all 
        agencies for PNGV-related work (a total of $277 million) which 
        includes:

           A $21 million increase to develop fuel cells that 
        can be practical substitutes for today's internal combustion 
        engine.
           A $10.4 million increase in funding for advanced 
        direct injection diesel cycle engines that can provide 
        attractive power systems for hybrid vehicles if emission 
        problems can be overcome. Federal funding will focus on 
        particulate and NOX emissions, and will include 
        analysis of alternative fuels for direct-injection diesels.
           An accelerated EPA program to develop a low-NOX 
        methanol-fueled diesel engine that can simultaneously achieve 
        high efficiency and low carbon, particulate, and nitrogen oxide 
        levels.

   Tax credits to stimulate early introduction of new 
        generation automobiles and light trucks. In the year 2000, a 
        credit of up to $3,000 would be provided for vehicles achieving 
        two times the efficiency of today's comparable vehicles (2X), 
        and in 2003 a credit of up to $4,000 would be provided for cars 
        that achieve three times today's efficiency (3X). The 2X credit 
        would be phased out by 2003 and the 3X credit by 2010. These 
        credits would total$660 million for the five years between 1999 
        and 2003, but would continue after that date. The credits are 
        designed to encourage early introduction of major innovations 
        in vehicle technology, not to encourage consumers to shift to 
        smaller vehicles or vehicles offering reduced amenities.
2.  Trucks
    In 1996 the energy used in trucks (including light trucks used 
principally for personal transportation) exceeded the energy used by 
automobiles. Two new programs will be launched to develop technologies 
that will both improve truck efficiency and reduce emissions:

   Heavy Truck Partnerships. A new partnership linking the 
        Department of Energy, the EPA, the Department of Defense,and 
        manufacturers will be supported to increase the fuel efficiency 
        of today's heavy, diesel-powered trucks. Heavy vehicle systems 
        R&D will increase by $20 million. The research should make it 
        possible to increase the fuel efficiency of heavy diesel 
        engines from their current levels of 44 percent to 55 percent, 
        and to increase fuel efficiency of heavy trucks (class 7-8) 
        from 7 mpg to 10 mpg. The research focuses on direct-injection 
        diesel engines, and is aimed at improvements in both fuel 
        economy and meeting future particulate and NOX 
        (nitrogen oxides) emissions standards.

   Light Truck Partnerships. A second new partnership, led by 
        the Department of Energy, will focus on developing improved 
        diesel engines for use on light trucks and sport-utility 
        vehicles. These are the fastest-growing segment of the 
        passenger vehicle market, but they are also the least fuel-
        efficient. Fuel efficiency in these vehicles could be increased 
        by as much as 35 percent if they used diesel engines instead of 
        normal gasoline engines. However, if diesel engines are to be 
        substituted for gasoline engines on a large scale, the must be 
        clean diesels, with particulate and NOX emissions 
        comparable to gasoline engines. Making diesel engines that 
        clean poses a major technical challenge, which is shared by the 
        PNGV program in their diesel-hybrid designs. The 1999 budget 
        includes a new initiative to develop medium-sized diesel 
        engines for light trucks, with a focus on the necessary 
        environmental technology, and coordinated with similar efforts 
        being made within PNGV.
3. Encouraging Sustainable Communities and Use of Mass Transit
    Many communities are developing innovative ways to reduce 
congestion and transportation energy needs by improving highway designs 
and urban planning and by encouraging mass transit.
   Tax credits to encourage us of mass transit. Present tax 
        laws exclude parking benefits from income taxes even if 
        employer offer these benefits in lieu of other compensation. 
        The proposed new credit would apply the same rule to employees 
        whose employers offer transit and van pool benefits in lieu of 
        compensation. The new proposal would also correct a defect in 
        current law, which allows employees to exclude up to $155 (in 
        1993 dollars) in parking benefits from income, but only $60 (in 
        1993 dollars) for employer-provided transit and van pool 
        benefits. The change would increase the exclusion for transit 
        and van pool benefits to $155, the same as for parking 
        benefits.
   Expanded EPA and DOE partnerships with state and local 
        decision-makers to develop and implement ``sustainable 
        transportation'' plans. These will promote alternatives to 
        single-occupancy vehicle travel, modeled after the approach 
        adopted by Portland, Oregon. They will also promote compact, 
        walkable, and mixed-use development--while reducing the growth 
        in vehicle travel, emissions, and congestion. Programs in EPA 
        and DOE will be coordinated with existing and planned DOT 
        programs.

                                Industry

    The initiative expands Federal research efforts to develop 
innovative technologies and production methods which can help 
businesses achieve productivity gains and prosper in a competitive 
marketplace while leading to major reductions in emissions of 
greenhouse gases. Manufacturing, materials, and process industries 
produce over 80 percent of hazardous wastes and 95 percent of toxic 
wastes. Most of these greenhouse-gas emissions technologies will also 
lead to a sharp reduction in the production of toxic wastes.
    The expanded program builds on visionary research plans jointly 
developed by DOE and EPA with a number of major industries over the 
past three years. The total appropriated funding for industrial 
research is proposed to increase by $60 million (38 percent), to $216 
million in 1999. This will be supplemented by tax credits worth over $1 
billion over a five year period.
1. Expanding the DOE Industries of the Future and Other Industrial 
        Programs
    Funding will increase $29 million (22 percent) to $166 million in 
this DOE program to support research priorities identified by industry 
teams over the past few years. Partnerships currently exist with the 
aluminum, steel, glass, paper and forest products, metal casting, and 
chemicals industries, which have all completed or will soon complete 
industry vision statements and technology road maps. For example, the 
1999 budget proposes to:

   Start a new $19 million competitive grant program, open to 
        any industrial production technology that can lead to major 
        cost-effective reductions in greenhouse gas emissions. The 
        program is expected to support about 40 new technologies

   Provide an increase of $2.8 million dollars for developing 
        advanced technologies in bulk chemical production, which can 
        allow these industries to substitute clean, efficient 
        production bio-chemical processes that imitate the efficient 
        processes of living cells.
   Increase funding for the Motor Challenge program by $4.8 
        million to support high-technology controls and other systems 
        that can cut electric use by as much as 50 percent in systems 
        running pumps, fans, chillers, and other mechanical equipment 
        in industry.
2. Expanding EPA's Industrial Partnership Program
    EPA will expand its partnership programs with key industries by 
$29.2 million, complementing DOE's Industries of the Future program. 
EPA will also lead a multi-agency effort (including DOE) to develop 
voluntary by aggressive agreements for cost-effective reductions of 
greenhouse gas emissions and credit early action. These agreements will 
be designed to catalyze the ingenuity of American business and double 
the rate of energy efficiency improvements in key industries over the 
next decade, while enhancing the productivity of American industry. 
These agreements will build upon EPA's success at forming partnerships 
with industries such as aluminum and metal finishing. EPA will further 
consult with industry to identify cross-cutting national goals for 
efficient, low-pollution technologies and processes, such as the use of 
combined heat and power systems that reduce energy waste from power 
generation.
3. Tax Credits
    Tax credits proposed in the budget will stimulate rapid 
introduction of a set of technologies which can lead to major 
reductions in industrial greenhouse gas emissions during the next few 
years. A tax credit for combined heat and power (CHP) systems is 
particularly important in order to encourage investments in systems 
that produce both electricity and process heat and/or mechanical power 
from the same primary energy source. Two-thirds of the energy used to 
generate electricity in conventional systems is exhausted as ``waste 
heat.''

   A 10 percent investment tax credit for highly-efficient CHP 
        systems that have depreciation recovery periods of 15 years or 
        more. the proposed credits would total $942 million over five 
        years.

   A 10 percent tax credit for replacement of circuit breaker 
        equipment which uses sulfur hexaflouride, an extremely powerful 
        greenhouse gas, would encourage utilities and other owners of 
        these devices to replace them with modern equipment. This 
        credit would total $36 million over five years.

   A 10 percent tax credit for the installation of qualified 
        recycling equipment to recover certain perflourocompound and 
        hydroflurocompound gases used in the production of 
        semiconductors. This credit would total $26 million over five 
        years.

                              Electricity

    Generation of electricity in the U.S. is responsible for more than 
a third of U.S. greenhouse gas emissions; 77 percent of these emissions 
come from coal burning plants. The budget emphasizes research on 
renewable energy technologies, which produce virtually no net 
greenhouse gases. (Hydroelectric and other renewable energy sources 
produce about 9 percent of U.S. electricity today.) Increases are also 
provided for R&D to extend the life of nuclear plants, which produce 
nearly 22 percent of U.S. electricity, and to improve the efficiency of 
coal combustion, which could reduce carbon emissions from coal-fired 
generating units.
    DOE and EPA will work with States and utilities on the 
restructuring of the electricity sector, to ensure that the 
restructuring does not create barriers to the adoption of renewable and 
low-carbon generating technologies.
1. Renewable Energy
    The FY 99 budget proposes funding for research partnerships in 
wind, photovoltaics, biomass, solar thermal, geothermal, and other 
renewable energy resources that can lead to competitively priced 
sources of electricity, heat, and chemicals with little or no 
greenhouse gas production. The total DOE budget for renewable energy, 
hydrogen, and energy storage research is proposed to increase $117 
million (43 percent), to $389 million. Funding for renewable energy 
crop research in USDA is proposed to increase by $10 million. The 
program increases include:

   An increase of $13.3 million (to $78.8 million) for 
        photovoltaics. A major goal is increasing the efficiency of 
        commercial units, such as improving solar shingles, which can 
        be used to support the million solar roof initiative, from 7 
        percent efficiency in converting solar energy to electricity to 
        10 percent.

   Renewable Energy Production Tax Credit. A 5-year extension 
        is proposed for the tax credit for electricity produced from 
        wind and biomass.

   An increase of $10.5 million (to $43.5 million) for wind 
        energy systems. In regions with good wind resources (average 
        wind speed = 15 mph), new wind machines can produce electricity 
        at 4 cents per kWh. With the planned research, costs can be 
        reduced to 2.5 cents per kWh by 2002 in areas with good wind 
        resources.

   An increase of $39.1 million in research on conversion of 
        wood and crop wastes and energy crops to fuels and electricity. 
        This includes a $29.1 million increase in DOE and $10 million 
        in USDA. These two agencies will work closely to support 
        efforts that can lead to new sources of income for farm 
        communities, produce rural jobs in value-added processing, and 
        produce fuels and electricity at competitive prices.
2. Nuclear Power-Plant Life Extension
    DOE will initiate an R&D effort addressing the critical technology 
needs to allow currently-operating nuclear power plants to safely 
extend their operating lifetimes by 10 to 20 years. Under current NRC 
licenses, approximately 60 gigawatts of electric generating capacity 
would have to be retired between now and 2015. (Most of that comes 
between 2005 and 2015.) NRC has indicated that they would probably not 
grant any plant more than one life extension. This initiative would:

   Support development of technologies necessary to safely 
        operate these plants for another 10 to 20 years will make the 
        transition to other low-carbon sources, such as solar and 
        renewable energy, much easier.
3. Innovative Coal Combustion Technologies
    In FY 99, DOE will initiate a research program on innovative new 
approaches to coal combustion that offer the possibility of much lower 
carbon emissions than existing technologies.

                    Carbon Removal and Sequestration

   Sequestration R&D. $42 million in new research is proposed 
        in the budget to find ways to remove carbon dioxide 
        (CO2) from combustion gases and sequester (store) 
        the carbon so that it does not enter the atmosphere.

   DOE's basic science office will engage in biochemical and 
        microbial research.

   DOE's fossil energy office will conduct an applied 
        sequestration R&D program, jointly managed with the basic 
        science office.

   USDA will initiate research on enhancing the carbon-
        sequestering capabilities of agricultural species. NIST will 
        support complementary biotechnology work on plant metabolism 
        and carbon use.

   EPA is requesting an increase of $3.4 million for work with 
        forest products industries to achieve greater reliance on 
        biomass fuels as an energy source and to sequester carbon in 
        forests.

                  Cross-cutting Analysis and Research

   Emissions credits, incentives, and trading. EPA will lead an 
        effort, assisted by DOE, to evaluate options for a domestic 
        trading system and early reduction program in industry. The 
        Federal government will work with stakeholders to understand 
        their views and interests, and to build the institutional 
        capacity needed to implement a carbon emissions credit and 
        trading system.

   Program and science assessments. DOE will lead efforts to 
        assess the implications of new research results produced by the 
        Global Change Research Program in order to determine what 
        geographic and technological responses may be appropriate.
                                 ______
                                 

                             ATTACHMENT #3

U.S. National Communication to the U.N. Framework Convention on Climate 
                                 Change

                         Climate Action Report

[This document is on file as part of the Committee's permanent hearing 
      record. It can also be accessed on the Internet at: http://
            www.state.gov/www/global/oes/97climate--report]

                                 ______
                                 

                             ATTACHMENT #4

  Prepared Testimony of Dr. Janet Yellen, Chair, Council of Economic 
      Advisers, Before the House Commerce Committee, March 4, 1998

    Thank you, Mr. Chairman. The President has said that we can work to 
avert the grave dangers of climate change, while at the same time 
maintaining the strength of our economy. I agree and am pleased to have 
this opportunity to appear before the Committee to elaborate on the 
Administration's views on these issues.
    The international agreement that was reached in Kyoto this past 
December is a crucial step forward in addressing global climate change. 
But it is only one step in a journey. Since the international effort to 
reduce greenhouse gas emissions is still in some respects a work-in-
progress, it is not yet possible to provide a full authoritative 
analysis of it. Many of the specifics in several crucial areas are not 
completely resolved in the diplomatic arena, forcing analysts to make a 
variety of assumptions about the ultimate form of the international 
regime. In my testimony today, I will attempt to identify key elements 
of the agreement and the Administration's policy, such as international 
emissions trading, meaningful developing country participation, 
inclusion of land-use activities that absorb carbon (``sinks'') and six 
categories of gases, as well as domestic initiatives, that together can 
ensure that reductions in global greenhouse gas emissions are 
consistent with continued strong economic growth. I will explain the 
reasoning underlying our conclusion that, under these conditions, 
economic impacts are likely to be modest.
    The Administration is strongly committed to ensuring that these key 
elements are reflected in our domestic and international climate change 
policies. We are firmly committed to meaningful developing country 
participation, the use of sinks to offset emissions requirements, and 
emissions trading both domestically and internationally. And as you 
know, the President's FY 1999 budget includes a $6.3 billion package of 
tax cuts and R&D investments over the next five years; this package 
makes good sense in terms of energy policy and will jump start our 
efforts. A final component of the President's climate change policy is 
his support for electricity restructuring in a manner that will offer 
approximately $20 billion in cost savings to electricity consumers, 
while reducing greenhouse gas emissions.

              Basic Economic Rationale of the Kyoto Treaty

    To begin our analysis, it may be worth stepping back and examining 
the larger question of the basic rationale, from an economist's 
perspective, for the Kyoto Protocol.
    The earth's surface appears to be warming from the accumulation of 
greenhouse gases from myriad sources worldwide. None of these emitters 
presently pays the cost to others of warming's adverse effects--a 
classic externality in the language of economists. As a result of these 
distorted incentives, disruption of the Earth's climate is likely to 
proceed at an excessive pace and if left uncontrolled may pose 
substantial costs in terms of harm to commerce and the environment 
alike. The fundamental economic logic of the Kyoto Protocol is thus 
that without such an international agreement, individual nations will 
not have the proper incentives to address the threats from global 
climate change.

                        Costs of Climate Change

    In evaluating efforts to mitigate global warming, the first step is 
to consider the costs of inaction. These costs--and they are 
significant--provide the primary motivation for actions to reduce 
greenhouse gas emissions.
    The Intergovernmental Panel on Climate Change (IPCC), jointly 
established by the World Meteorological Organization and the United 
Nations Environment Programme, concluded in 1995 that ``the balance of 
evidence suggests that there is a discernible human influence on global 
climate.'' Current concentrations of carbon dioxide, methane, nitrous 
oxide, and the other so-called greenhouse gases have reached levels 
well above those of preindustrial times. Of these, carbon dioxide 
(CO2) is the most important: net cumulative CO2 
emissions resulting from the burning of fossil fuels and deforestation 
account for about two-thirds of potential warming from changes in 
greenhouse gas concentrations related to human activity.
Climatic Impact
    If growth in global emissions continues unabated, the atmospheric 
concentration of CO2 will likely double relative to its 
preindustrial level by midway through the next century and continue to 
rise thereafter. As a result of the increased concentration of 
CO2, the IPCC estimates that global temperatures will 
increase by between 2 to 6 degrees Fahrenheit in the next 100 years, 
with a best guess of about 3.5 degrees Fahrenheit. While scientists 
believe that human activities are leading to a gradual warming of the 
average temperature of the earth, the change in temperature in a given 
region at a given time may differ substantially from this average. 
Indeed, models predict warming will be greater in high latitudes than 
in the tropics, and greater over land than ocean.
    Potential consequences associated with this shift in climate 
include a rise in sea levels, greater frequency of severe weather 
events, shifts in agricultural growing conditions from changing weather 
patterns, threats to human health from increased range and incidence of 
diseases, changes in availability of freshwater supplies, and damage to 
ecosystems and biodiversity.
Economic and Monetary Damages
    The derivation of quantitative or monetary estimates of the damages 
from such a change in the climate is extremely difficult given the 
capacity of today's models. Estimates of the economic damages from 
climate change fall into the following broad areas: agriculture, sea-
level rise, air conditioning and heating, water supply, human life and 
health, air pollution, and other costs (hurricanes, relocation costs, 
human amenity, construction, leisure activities, urban infrastructure, 
and ecological damages such as forest loss and species loss). Although 
the quantification of these effects is quite demanding, researchers 
have developed estimates that prompt substantial concern. The IPCC 
reports that a doubling of carbon dioxide levels would lead to 
approximately 10,000 estimated additional deaths per year for the 
current U.S. population from higher summer temperatures, even after 
netting out the effects of warmer winters and assuming acclimatization. 
Other researchers have predicted sea level increases of about 20 inches 
by 2100, with greater increases in subsequent years.
    Despite the difficulties, respected researchers have developed 
estimates of the monetary damages expected from an average worldwide 
temperature increase. For example, William Cline, then of the Institute 
for International Economics, estimated that a temperature change of 4.5 
degrees Fahrenheit would impose annual damages of about 1.1 percent of 
GDP per year on the U.S. economy. That amounts to $89 billion in 
today's terms. (Cline's original estimate is quoted in 1990 dollars. 
The figure given above translates this number into 1997 terms by 
scaling it to current GDP.) William Nordhaus of Yale University has 
likewise computed estimates of the dollar loss attributable to a 
doubling of greenhouse gas concentrations. Although he uses methods 
that differ from Cline's in several respects, Nordhuas estimates that a 
slightly larger temperature change of 5.4 degrees Fahrenheit would 
impose losses equal to about 1 percent of GDP. A third independent 
estimate reported by Nordhaus is close to Cline's. It must be noted, 
however, that this similarity among aggregated estimates masks the true 
uncertainty associated with forecasts of the damages from given 
increases in global warming--the estimates are all fundamentally based 
on extrapolations from current and past experience, and may not fully 
incorporate effects that will unfortunately become apparent only with 
future experience.
    One key difficulty in interpreting and monetizing these estimates 
of damages is uncertainty over the extent that they should be 
discounted because they occur in the distant future. Since the benefits 
of stemming future climate change accrue over not only decades but 
centuries, small changes in the discount rate can produce substantial 
changes in the results. But the precise discount rate that should be 
used to evaluate questions as important as the future climate of the 
planet remains a subject of intense debate. It is safe to say that 
there is, as yet, no professional consensus on the issue. Indeed there 
can be no technical answer to the ethical question how we should value 
the welfare of future generations.
    A similar difficulty with such estimates is that they do not 
include potential non-linearities in the relationships between 
greenhouse gas concentrations and temperature, between temperature and 
economic damages, or in the various other complicated relationships 
governing interactions between greenhouse gas emissions, the climate, 
and the economy. Current estimates of damages do not, and cannot, 
accurately reflect the value of reducing the unknown risk of large-
scale and potentially irreversible discrete events with potentially 
catastrophic consequences.
    Two such possibilities serve as illustrations. Warming of Northern 
tundra may release huge amounts of methane from the permafrost, thereby 
leading to accelerated warming. We do not know at what point, if any, 
such potentially unstable activity would be triggered. Second, evidence 
from climate models suggests that some types of climate change may lead 
to changes in ocean currents, including weakening of the Gulf Stream 
that warms Western Europe. Scientific evidence suggests that abrupt 
seawater temperature shifts have occurred over periods as short as 
decades.
    To what extent are we willing to take such chances with our planet? 
There is a strong argument for the Kyoto Protocol as a form of planet 
insurance. But what numerical weight should one assign to these 
catastrophic risks? In other words, what is the value of the insurance 
policy? Although it is difficult for an economist, or anyone, to know, 
reductions in the risk of such catastrophic outcomes must be considered 
in addition to the costs and benefits that can be reasonably 
quantified. Since human beings are typically averse to risk, such 
catastrophic risks are especially important in evaluating whether the 
benefits of a particular climate control policy justify the costs. One 
must have at least some sympathy with those who criticize economists on 
the grounds that the effects of climate change are extremely difficult 
to quantify in a single monetary number.

        Addressing Global Climate Change in an Efficient Manner

    The costs of unabated climate change may thus be difficult to 
quantify, but they are nonetheless real and provide the motivation for 
reducing greenhouse gas emissions. In taking action to reduce those 
emissions, economic analysis suggests that two elements are absolutely 
essential:

   The effort must be global, to address the global externality 
        inherent in the nature of the problem.

   The effort must be flexible and market-based, to ensure that 
        we achieve our objectives in the most efficient manner 
        possible.
Need for Global Action
    Climate change is a global problem requiring a global solution. As 
I mentioned earlier, no single country has an incentive to reduce 
emissions sufficiently to protect the global environment against 
climate change. Each has an economic incentive to ``free ride'' on the 
efforts of others. Even if the United States sharply reduced its 
emissions unilaterally without an international agreement limiting 
emissions abroad, greenhouse gas emissions from all other countries 
would continue to grow, and the risks posed by climate change would not 
be significantly reduced. It is important to emphasize that emissions 
of different gases anyplace in the world have very similar effects on 
global climate.
    The threat of disruptive climate change has led to coordinated 
international efforts to reduce the risks of global warming by reducing 
emissions of greenhouse gases. A landmark international agreement to 
address global warming was the Framework Convention on Climate Change 
signed during the Earth Summit in Rio de Janeiro in 1992. This 
convention established an objective of limiting greenhouse gas 
concentrations and called upon industrial countries to return their 
emissions to 1990 levels by 2000. Since then, it has become clear that 
the United States and many other participating countries will not meet 
this voluntary goal; quite the contrary, emission levels have continued 
to rise not fall among both developed and developing countries.
    To address the lack of progress among many industrialized countries 
toward meeting the Rio objective, the United States and approximately 
160 other nations agreed in negotiations held in Kyoto, Japan, last 
December, to reduce emissions of greenhouse gases. The Kyoto Protocol, 
which requires the advice and consent of the Senate, would place 
binding limits on each industrial country's combined emissions of the 
six principal categories of greenhouse gases: carbon dioxide 
(CO2), nitrous oxide (N2O), methane, sulfur 
hexafluoride, pefluorocarbons, and hydrofluorocarbons. These limits 
apply to the 38 so-called Annex I countries, which are the 
industrialized countries, defined to include Russia, Ukraine, and most 
Eastern European countries.
    Under the Kyoto Protocol, each industrial country's baseline is its 
1990 emissions of CO2, methane, and N2O and its 
choice of 1990 or 1995 levels of the other three categories of gases. 
The United States agreed to a target of 7 percent below this baseline 
by the period between 2008 and 2012. Given the changes in the 
definition of the baseline for the three long-lived chemical compounds 
(HECs, PFCs and SF6) from 1990 to 1995 combined with a 
change in the way sinks are accounted for in the baseline, the actual 
reduction required in the U.S. is no more than 2-3 percent more than 
the President originally proposed as the U.S. negotiating position. The 
targets for the European Union and Japan are 8 percent and 6 percent 
below 1990 levels, respectively. Australia, New Zealand, Norway, 
Russia, and Ukraine all have limits somewhat less ambitious when 
phrased as cuts relative to their 1990 levels. In sum, over the period 
from 2008 to 2012, the industrial countries are expected to reduce 
their average emissions of greenhouse gases to about 5 percent below 
their 1990 levels.
    The President has made clear that he will not submit the Kyoto 
Protocol to the Senate without meaningful participation from key 
developing countries (who are not included in Annex I).
    There are several reasons why meaningful participation from 
developing countries is essential. First, developing countries are 
projected to contribute a majority of world emissions around 2030 under 
a continuation of business-as-usual. Without the participation of 
developing economies, efforts by the industrialized countries to limit 
emissions will therefore not provide adequate protection from climate 
change.
    Second, developing country participation is crucial because it 
would permit relatively low-cost emissions reductions to be 
internationally recognized as a substitute for more expensive emissions 
reductions that might otherwise be achieved domestically by U.S. 
companies and those in other industrialized countries. Since greenhouse 
gas emissions have the same basic impact on the climate regardless of 
where they occur, emission reductions in developing countries have the 
same environmental benefit as reductions in the U.S. But these 
reductions are much less costly than reductions in the U.S. or in other 
developed nations, because of the very inefficient and carbon-intensive 
uses of energy in these countries today. It thus makes sense, from both 
an environmental and an economic perspective, to incorporate emissions 
reductions in developing countries into the international system.
    Third, principles of basic fairness suggest all countries should do 
their part, depending, in part, on their ability to contribute to the 
solution. Thus even poor countries should participate, although the 
lack of resources in such countries may limit the extent of their 
participation.
    Some have expressed fears that the Kyoto Protocol might adversely 
affect the competitive position of American industry. Evaluating how 
the Kyoto Protocol could affect competitiveness of a few specific 
manufacturing industries--especially those that are especially energy-
intensive, such as aluminum and chemicals--is complex. The answer 
depends, in part, on the impact of the agreement on energy prices, 
which we will shortly address. In general it is difficult to undergo a 
structural change in the economy without having the effect of expanding 
some sectors and contracting others. But to provide some perspective on 
this issue, consider the following facts. First, on average, energy 
constitutes only 2.2 percent of total costs to U.S. industry. Second, 
energy prices already vary significantly across countries. According to 
the 1997 Statistical Abstract, for example, in 1996 premium gasoline 
cost $1.28 per gallon in the United States but only 8 cents per gallon 
in Venezuela. Similarly, gas prices were $3.71 per gallon in 
Switzerland and $4.41 per gallon in France. Electricity prices also 
vary significantly: in the U.S. they were 5 cents per kilowatt hour in 
1995, a fraction of prices in Switzerland of 13 cents per kilowatt 
hour. Yet U.S. industry is not moving en masse to Venezuela, nor is 
Swiss industry moving to the United States. Third, roughly two-thirds 
of all emissions are not in manufacturing at all, but in transportation 
and buildings, sectors which, by their very nature, are severely 
limited in their ability to relocate to other countries. We therefore 
believe we need developing country participation because the problem is 
global and cost-effective solutions are essential, than to avoid 
adverse effects on competitiveness.

                   Flexibility and Marker Mechanisms

    A global solution is thus critical to the global problem of climate 
change. Globalizing the solution is not, however, enough by itself. We 
must also ensure that our efforts to reduce global greenhouse gas 
emissions in the most efficient manner possible. The nature of the 
climate change problem suggests three basic methods to lower costs of 
achieving given levels of environmental protection. They can be 
characterized in terms of three categories of flexibility: (1) ``when'' 
flexibility; (2) ``what'' flexibility; and (3) ``where'' flexibility, 
which may be the most important of all. Such methods have long been 
championed by economists interested in increasing the efficiency of 
protection. Indeed, over 2,500 economists from academia, industry, and 
government alike urged such approaches in a letter they signed last 
year advocating action on climate change:

          Economic studies have found that there are many potential 
        policies to reduce greenhouse gas emissions for which the total 
        benefits outweigh the total costs . . . The most efficient 
        approach to slowing climate change is through market-based 
        policies.
1. ``When flexibility'' (timing)
    First is ``when flexibility'' or timing. Since climate change is a 
long-term problem, the exact timing of emissions reductions is, within 
some range, not of primary importance. Thus the freedom to delay or 
accelerate reductions within an agreed upon time frame--while ensuring 
credibility of emissions reductions--lowers costs.
    As a result of U.S. leadership, the Kyoto Protocol incorporates 
this principle of ``when flexibility'' in four ways:

   First, the initial emissions reductions are less severe, and 
        the period over which they occur ends much later than what had 
        been proposed by many other countries. By adopting a gradual 
        and credible path of reductions in the early years, we can 
        greatly reduce costs such as those from prematurely scrapping 
        coal-fired electricity plants, while attaining the same 
        ultimate environmental goals.

   Second, under the Kyoto Protocol, the emissions target is 
        not specified in terms of a specific year, but rather in terms 
        of an average over a five-year period (2008-2012). 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.

   Third, there is allowance for ``banking'' emission 
        reductions within the 2008-2012 commitment period, for use in a 
        subsequent commitment period (although the emission targets of 
        the subsequent periods have not yet been specified),

   Fourth, CDM credits achieved between 2000 and 2008 may be 
        banked until 2008 to 2012.
2. ``What flexibility'' (gases and sinks)
    The second type of flexibility is ``what flexibility'', along two 
dimensions. The first is the inclusion in the agreement of all six 
greenhouse gases. Emissions of different kinds of gases, not just 
carbon dioxide, contribute to the greenhouse effect. Since the IPCC has 
developed conversion factors for all greenhouse gases by estimating 
their global warming potentials, reductions in emissions of one gas can 
be used to substitute for increases in emissions of another by an 
amount that has equivalent environmental effects. Again at U.S. urging, 
all six gases are included, while Japan and the EU had insisted until 
the end on covering only three. Thus the U.S. succeeded in having the 
Kyoto Protocol stipulate that countries with binding targets are to 
reduce their total greenhouse gas emissions by certain percentages, but 
does not require specific reductions for specific gases. Since a 
molecule of sulfur hexafluoride is 23,900 times more potent over 100 
years than a molecule of CO2, it may be cheaper to achieve 
the same, environmental benefit by eliminating one molecular unit of 
SF6 than nearly 24,000 units of CO2.
    Some initial analysis indicates that a strategy of reducing non-
CO2 greenhouse gas emissions by a greater percent than 
CO2 emissions could lower prices by as much as 10 percent. 
Thus allowing countries flexibility in what gases they reduce--
essentially trading emissions reductions across gases--can help lower 
significantly the costs of meeting their targets.
    The second source of ``what flexibility'' is the treatment of 
sinks, i.e., land use activities that promote the removal of carbon 
from the atmosphere through the growth of plants. At the urging of the 
U.S. delegation, sinks can be used to offset emissions targets. 
Promoting such sinks through afforestation and reforestation may reduce 
atmospheric concentrations of CO2 at much lower costs than 
reducing emissions of greenhouse gases.
3. ``Where flexibility'' (international)
    The third type of flexibility, and perhaps the most important, is 
``where flexibility'' (international). As I have already emphasized, 
emissions have the same environmental consequences regardless of where 
in the world they occur. Therefore, the least-cost approach to 
controlling climate change is to reduce emissions wherever such 
reductions are cheapest. The Kyoto protocol, because of U.S. insistence 
and persistence, includes three important cost-saving provisions of 
this nature.

   First, it provides the opportunity for countries that take 
        on binding targets to trade rights to emit greenhouse gases 
        with each other. This market in emissions permits could ensure 
        that emissions reductions occur where they are least expensive 
        within the industrial countries. In particular, U.S. companies 
        could purchase emissions reductions in other participating 
        countries when doing so would reduce their costs--thus lowering 
        costs without affecting the level of environmental protection. 
        While currently only industrialized countries have emissions 
        caps, this mechanism also offers an incentive for developing 
        countries to take on emissions targets.

   Second, the agreement provides for Joint Implementation by 
        Annex I countries. Thus if some countries do not develop 
        programs to trade permits internationally, U.S. firms could 
        nonetheless implement projects in those countries for which 
        they could receive emissions reductions credits in the U.S.

   Third, the agreement allows industrial countries to invest 
        in ``clean development'' projects in the developing world and 
        use these projects' certified emissions reductions toward 
        meeting their targets. Many such clean development projects may 
        be quite cheap in terms of the cost per ton of emissions 
        avoided, as has been illustrated by the Joint Implementation 
        pilot program that is already in place in the U.S.

    Details of how these provisions will operate will be discussed in 
future negotiations such as the one in Buenos Aires later this year. 
Nonetheless, effective international trading of emission credits, Joint 
Implementation, and the Clean Development Mechanism can lead to 
substantial reductions in costs relative to alternative policies that 
do not exploit the power of market incentives. To illustrate briefly 
the ability of U.S. industry to perform beyond expectations when given 
appropriate economic incentives, consider further EPA's highly 
acclaimed sulfur dioxide (SO2) program, which relies, among 
other things, on a system of tradable permits to reduce emissions of 
SO2 from electric utilities. The SO2 program has 
been successful in several ways: a large number of utilities 
participate, SO2 emissions and ambient concentrations have 
fallen and the costs of reducing emissions are considerably lower than 
originally forecast.
    As has been frequently noted, the average cost of SO2 
emissions reductions has recently been significantly lower than was 
originally forecast, in part due to the role of incentives in fostering 
innovation. Emission permit prices, currently at approximately $100 per 
ton of SO2, are well below earlier estimates of around $250 
to $400 per ton.
    Trading programs may not always bring cost savings as large as 
those achieved by the SO2 program; trading programs will not 
always be accompanied by the discovery of much cheaper control 
strategies. However, the SO2 experience demonstrates clearly how 
programs like international permit trading, Joint Implementation, and 
the Clean Development Mechanism will lead firms to find cheaper ways of 
reducing emissions that can lead to unexpectedly low costs.

        Difficulties of Economic Analysis of the Kyoto Protocol

    Now that we have a Protocol--even if it is not yet fully complete 
nor ready for the President's submission to the Senate--it is possible 
to examine it in somewhat more detail from an economic perspective. 
But, once again the inherent limitations of any such estimates deserve 
emphasis. Such limitations should not be surprising to you: economists 
have a difficult enough time projecting the behavior of the economy 
over the next quarter or year, let alone over the next two decades. The 
scale of the forecasting exercise is therefore daunting, and any 
specific results should be treated with substantial caution.
    The difficulties associated with economic analysis of climate 
change fall into three broad categories. First are the uncertainties 
that still remain over the terms of the ultimate treaty, necessitating 
assumptions on which the analysis is predicated. Second are the 
inherent limitations of available models to analyze even short-term 
costs and benefits. And finally is a topic discussed earlier: the 
impossibility of putting a single monetary number on the long-term 
benefits of climate change mitigation, although there will clearly be 
economic benefits of emission reductions
Uncertainties in the International Effort to Combat Climate Change
    The Kyoto Protocol was an historic accomplishment, delineating the 
broad terms of the international effort to address climate change. But 
although we know a lot more than we did before Kyoto about how that 
international system can work, and that informs our analysis, there is 
still much that we do not know.
    First, some provisions raise complex implementation issues. At 
issue here is the treatment of so-called sinks--activities that affect 
the rate at which carbon is removed from the atmosphere and 
``sequestered,'' e.g., by the planting of trees.
    Second, the details of a number of items--primarily concerning 
international trading, the Clean Development Mechanism, and developing 
countries--are the subject of further discussions including future 
negotiations in Buenos Aires next fall, because they had not been 
definitively settled by the end of the Kyoto talks.
    Finally, and most importantly, we have not yet negotiated 
international agreements to limit emissions beyond the 2012 window. The 
emission cuts agreed upon at Kyoto are only a first step on a long 
journey. The first step that we propose to take over the next 15 years 
is critical. But the reason it is critical is not that, by itself, it 
will solve the climate change problem--emissions during any given 
decade are small compared to the cumulative concentrations in the 
atmosphere. Rather, the first step is critical because we can not take 
the second and third steps until we have taken the first. At the same 
time, any analysis is complicated by the lack of knowledge over what 
the subsequent steps will be.
Inherent Limitations of Models
    In addition to these uncertainties about the details of the 
international effort to address climate change, are the inherent 
limitations of the models used to evaluate that effort. Even within a 
given model, answers depend critically on the precise nature of the 
question asked. For example, the costs of emissions reductions depend 
critically on the extent of global participation and international 
trading that a treaty is assumed to feature. But in addition to the 
dependence of the results from a given model on the precise 
assumptions, different models can give different answers even when all 
the assumptions are specified to be the same--a concrete illustration 
of the range of uncertainty to which we must assign the predictions of 
any one individual model.
    One area in which the uncertainty is particularly large is the pace 
of technological progress--especially the diffusion of existing energy-
efficient technologies, but also the development of new technologies--
and the extent to which the pace will accelerate in response to 
government programs. Models and experts on climate change policy tend 
to have a wider range of disagreement on the scope for speeding the 
diffusion of existing energy-efficient technologies than on any other 
single issue.
    Furthermore, each model has strengths and weaknesses; each has 
questions to which it is better or worse suited to answer. Some, for 
example, model the energy sector in detail. Some allow for the fact 
that a coal-fired power plant cannot costlessly be converted to one 
that runs on natural gas. Some show the effects of hypothetical tax 
cuts made possible by the new revenues earned through the auction of 
emissions permits. Some are capable of showing recessions and booms. 
Others include a long-term ``carbon cycle'' model that can keep track 
of the accumulation of greenhouse gas concentrations in the atmosphere 
and their climatological effects. Some break down the rest of the world 
into regions and so can model international trade. No one model does 
everything, and therefore we must not rely blindly on the results of 
any one model or set of models. Professional judgment and economic 
intuition, along with diplomatic assessments, are also crucial.
Benefits of Averting Climate Change
    As discussed above, it is evident that the benefits of averting 
climate change are potentially immense. But we have chosen not to try 
to quantify them in monetary terms, in light of the difficulties we 
have enumerated. These include the uncertainty of these benefits, their 
timing and therefore the extreme sensitivity of the results to the 
chosen discount rate, and the dependence of benefits on emissions paths 
after the 2008 to 2012 budget period specified in Kyoto.

                      Assessing the Kyoto Protocol

    In order to evaluate the likely net economic impact of the Kyoto 
Protocol, excluding the benefits of mitigating climate change itself, 
we have drawn upon a variety of tools to assess the various possible 
costs and non-climate benefits of the Administration's emissions 
reduction policy. To give away the punch line, our conclusion is as 
follows: the net costs of our policies to reduce emissions are likely 
to be small, assuming those reductions are undertaken in an efficient 
manner and we are successful in securing meaningful developing county 
participation as well as effective international trading, and the Clean 
Development Mechanism in future negotiations. That potential small net 
premium, even excluding the benefits of mitigating climate change, in 
effect, purchases a partial insurance policy against a serious 
environmental threat.
    Because the results from any model must be treated with caution, 
the Administration has employed a broad set of economic tools to assess 
the Kyoto Protocol. We have drawn on the insights of a wide range of 
models of the energy sector and economy over the next 25 years, 
including but not limited to the results of the Stanford Energy 
Modeling Forum exercises, the IPCC's review of the economic and social 
dimensions of climate change, the work of the OECD on Economic 
Dimensions and Policy Responses to Global Warming, and the staff-level 
Interagency Analytical Team analysis produced last year. Other tools 
include simple relevant statistics, ``meta-analyses'' such as work by 
the World Resources Institute, models, and basic economic reasoning. 
Drawing on this broad array of analytical tools is crucial to an 
intelligent evaluation of the policy alternatives.
    To our knowledge, no model--whether used inside the government or 
not--has yet been set up to analyze the implications of the Kyoto 
Protocol, since this agreement is only a few months old and remains 
unfinished. In particular, no model is currently designed to assess 
Kyoto's treatment of sinks, or all six greenhouse gases. Some model-
builders outside the government tend to take as long as several years 
to incorporate changes in policy parameters into their models.
    Our thinking has been informed, however, by simulations conducted 
with the Second Generation Model of Battelle Laboratories, one of the 
leading models in the field. The SGM is one of the models best 
positioned to analyze the role of international trade in emission 
permits, which we consider to be a critical clement of the Kyoto 
Treaty. However, the SGM does not cover all six gases included in the 
Kyoto Protocol or include a role for sinks. We have used the SGM model 
as one input into our overall assessment of the Kyoto treaty, but have 
attempted to supplement its results with additional analysis to account 
for such special features of the agreement as the inclusion of six 
gases, a possible trading arrangement that could include a subset of 
the Annex I countries and the Clean Development Mechanism. We will 
share with you today some preliminary results of this analysis. To the 
extent possible, we have compared results obtained with the SGM model 
with those of other modelling efforts.
    Mindful of the limitations of any single model, we are eager to see 
features of the Kyoto Protocol assessed by other models to obtain a 
better feel for the range of possible effects. This work is just 
beginning and much of it will continue to go on outside the government. 
For example, the Energy Modeling Forum, based at Stanford University, 
is a long-running model comparison exercise involving many of the 
leading climate models. EMF is currently studying how features of the 
Kyoto legal language can be translated into terms recognizable to 
economic modelers. We expect that the group will conduct a full scale 
analysis of the Kyoto Protocol. The Energy Modeling Forum believes that 
its members will need at least until mid-year to update their results.

         Assessing the Potential Costs of Emissions Reductions

    I said in Congressional testimony last July that we can do this 
smart or we can do this dumb. I was referring to the point that the 
costs of cutting emissions can be much reduced if flexible, market-
based mechanisms are used. Our economic analysis highlighted the 
importance of such flexible, market-based mechanisms--which are 
therefore reflected, at the President's insistence, in the Kyoto 
Protocol and our ongoing diplomatic strategy.
    Within the Kyoto Protocol, this means an insistence on 
international trading, Joint Implementation, the Clean Development 
Mechanism, and, ultimately, on meaningful developing country 
participation. Domestically, this means that we implement any emissions 
reductions through a market-based system of tradable emissions permits, 
which ensures that we achieve reductions wherever they are least 
expensive. But this also means taking serious and responsible steps in 
the short run to prepare us to meet our obligations in the longer term.
    The first such step is the inclusion in this year's budget of an 
aggressive, $6.3 billion program of tax cuts and R&D investments--$1.3 
billion more than the $5 billion package the President promised in his 
October 22 speech on this issue. The goal is both to stimulate the 
development of new energy-saving and carbon-saving technologies and to 
encourage the dissemination of those that exist already. The proposed 
package contains $3.6 billion over the next 5 years in tax cuts for 
energy efficient purchases and renewable energy, including tax credits 
of $3,000 to $4,000 for consumers who purchase highly fuel efficient 
vehicles, a 15 percent credit (up to $2,000) for purchases of rooftop 
solar equipment, a 20 percent credit (subject to a cap) for purchasing 
energy-efficient building equipment, a credit up to $2,000 for 
purchasing energy-efficient new homes, an extension of the wind and 
biomass tax credit, and a 10 percent investment credit for the purchase 
of combined heat and power systems. The package also contains $2.1 
billion over the next 3 years in additional research and development 
investments--covering the four major carbon-emitting sectors of the 
economy (buildings, industry, transportation, and electricity), plus 
carbon removal and sequestration, Federal facilities, and cross-cutting 
analyses and research. One example of the R&D effort is the Partnership 
for a New Generation of Vehicles (PNGV). PNGV is a government-industry 
effort to develop attractive, affordable cars that meet all applicable 
safety and environmental standards and get up to three times the fuel 
efficiency of today's cars. In FY 99, the combined proposal for PNGV is 
$277 million, up from $227 million appropriated in FY 98. Similar 
government-industry efforts are proposed to develop more efficient 
diesel engines for both light trucks and heavy trucks.
    A second responsible step entails industry-by-industry 
consultations to prepare emission reduction plans in key industrial 
sectors. The Administration will work in partnership with industry to 
identify ways in which the Federal government might remove regulatory 
hurdles that discourage energy efficiency. In addition, DOE will 
spearhead a comprehensive effort to improve the energy efficiency of 
the Federal government's own operations and purchases.
    The third step is the promotion of an environmentally-responsible 
electricity restructuring bill, which the President identified as part 
of his domestic climate change package in his address to the National 
Geographic Society on October 22. An electricity sector freed from 
government regulation would be a more efficient energy sector. Costs to 
consumers would fall. In addition, stronger incentives for improved 
generation efficiency in conjunction with appropriate market based 
provisions could achieve modest reductions in emissions. A reasonable 
overall estimate of the contribution of federal electricity 
restructuring to the rest of the President's program to address climate 
change is that it would make further progress to the same emission 
reduction goals at a cost saving of roughly $20 billion per year. These 
steps should be taken regardless of Kyoto, because they make sense in 
terms of energy efficiency. But they have the added benefit of 
preparing us for Kyoto.
Estimated Reduction in Costs from Annex I Trading
    In the language of the treaty, ``Annex I,'' is the set of countries 
that have agreed to take on binding limitations in emissions of 
greenhouse gases. Even without meaningful developing country 
participation--which, again, the President has emphasized is essential 
before the treaty would be submitted for ratification--costs could be 
reduced substantially by emission trading among the Annex I countries. 
To provide some indication of the possible efficiency improvements, 
Russia and Ukraine consume six times as much energy per dollar of 
output as does the United States. Such large international differences 
in energy efficiency suggest that adoption of existing U.S. technology 
would yield very large emissions reductions in these countries.
    Estimates derived from the SGM model confirm that emissions trading 
among Annex I countries can reduce the cost to the United States of 
achieving its targets for 2008-2012 emissions by about half relative to 
a situation in which such trading was not available. This concept of 
costs is meant to capture aggregate resource costs to the US economy, 
including the cost to domestic firms of purchasing emission permits 
from other countries where emission reductions may be cheaper than in 
the United States. Although these estimates reflect idealized 
international trading in efficient markets, the overall conclusion is 
clear. The dramatic reduction in costs potentially available from Annex 
I trading within the SGM model--cutting the costs involved by half--
highlights why the President insisted that international trading be 
part of the Kyoto Protocol; and why its achievement by our negotiators 
in Kyoto was such an important accomplishment.
Estimated Reduction in Costs From Umbrella Trading
    One possibility that emerged in Kyoto, which none of us foresaw, 
was the idea developed there by the U.S. delegation that the United 
States might undertake trading with a subset of Annex I countries, 
dubbed the ``umbrella''. Countries that have expressed interest in the 
umbrella include the United States, Australia, Canada, New Zealand and 
Russia, with strong indications of interest from some others. This 
subset of Annex I countries shares a common interest in promoting 
market-based mechanisms, most specifically, fully flexible rules for 
international trading of emissions permits.
    It is too early to state the precise form the umbrella will take. 
But we can envision a number of potential benefits. The umbrella could, 
for example greatly reduce costs to the U.S. Results that we have 
derived from various SGM simulations of efficient international trading 
suggest that, relative to the situation in which there is no trading at 
all, the umbrella can reduce costs by an estimated 60-73 percent, 
depending on whether the former Warsaw Pact countries fall within the 
umbrella. The Kyoto Protocol classifies these countries outside of the 
EU bubble for the first budget period 2008-2012.
Estimated Reduction in Costs From Developing Country Participation
    The next consideration is participation by developing countries. 
The President has said that he will not submit the treaty for 
ratification without meaningful participation by key developing 
countries. Such participation would further reduce the costs involved.
    The substantial potential gains from meaningful developing country 
participation are highlighted by the significant benefits that will 
likely accrue from the limited role that the developing countries have 
already agreed to: the Clean Development Mechanism (CDM), modeled after 
the U.S. joint implementation concept. The CDM cannot realistically be 
expected to yield all the gains of binding targets for developing 
countries, but it might shave costs by roughly another 20 to 23 percent 
from the reduced costs that result from trading among Annex I 
countries.
    Another possibility is that we persuade some of the key developing 
countries that are the largest emitters to commit to targets, and allow 
us to buy emission reductions from those paths. Simulations with the 
SGM model suggest that full participation by non-Annex I countries 
could cut roughly 55 percent off the reduced costs that result from 
Annex I trading. The actual cost reduction would depend on the extent 
of developing country participation that is ultimately obtained as well 
as the effectiveness of international trading arrangements. The more 
developing countries that take on modest binding targets and trade in 
international permit markets, the lower will be costs.
    These cost-saving opportunities are fundamental tenets of the U.S. 
position. The promise of Kyoto cannot be achieved without effective 
emissions trading. Moreover, if we do not get meaningful participation 
by key developing countries, we won't submit the treaty for 
ratification to the Senate. So, while our analysis may be predicated on 
some ambitious conditions concerning trading and developing country 
participation, it is exactly those conditions that form the foundation 
of the U.S. position in international negotiations including those at 
Buenos Aires.
Accounting for Carbon Sinks
    The preceding discussion has emphasized the importance of trading 
arrangements and the CDM. In reaching an overall economic assessment, 
it is also important to factor in the potential role of carbon sinks. 
Again, the U.S. delegation obtained a novel concept, that carbon 
absorbing activities called sinks could be used to offset emissions. 
The arrangements concerning carbon sinks in the Kyoto Protocol have 
received less attention than they merit. The Kyoto Protocol specifies 
that removals of CO2 by sinks count toward meeting the 
target. The Kyoto Protocol counts the net emissions effects of three 
sink activities--afforestation, reforestation, and deforestation. Very 
preliminary estimates of the implications for the United States of the 
Kyoto provision on sinks indicate that carbon sinks could comprise a 
significant portion of the total required emissions reductions. 
Moreover, decreasing the required emissions reduction by, for example, 
10% would likely result in cost-savings greater than 10%.
    Even this estimate of the effect of sinks is conservative in one 
respect: it is based on an assumption for sink activity in the U.S. 
over the 2008-2012 period, and no assumed benefits from sinks elsewhere 
in the world. Very preliminary estimates suggest that incorporating the 
gains from sinks throughout the world can substantially reduce the 
costs of meeting the Kyoto target, on top of the gains from trading 
among Annex I countries. (Furthermore, no model has yet even tried to 
take into account that government policies can help increase the 
activities qualifying as allowable sinks, like some tree-planting.) 
Because the quantitative uncertainty is so large, we do not yet have an 
estimate with which we are comfortable. But we expect that complete 
modelling of the Kyoto provision pertaining to sinks will likely have 
favorable and potentially large effects on projected costs.
Accounting for the Role of Improvements in Energy Efficiency
    Another issue in analyzing the Kyoto protocol concerns future 
improvements in energy efficiency due to innovation and diffusion of 
existing technology. The parameter that figures most prominently in 
analysis of energy efficiency is the rate of improvement in the so-
called Autonomous Energy Efficiency Index (AEEI), that is the rate at 
which the total use of energy falls relative to GDP. A plausible 
assumption on the AEEI is an improvement of 1.0 percent per year. 
Reflecting a conservative interpretation of the 15-year impact of 
various climate change initiatives, this is only a small increase above 
the 0.9 percent number in the Energy Information Administration's 
Annual Energy Outlook. That assumption is not the most optimistic 
outcome that might occur. Some authorities in the field of energy 
policy forecast more rapid technological progress. Experts at five 
national laboratories managed by the Department of Energy, using an 
engineering approach rather than an economic paradigm, found that a 
third of the emissions reductions necessary to return to 1990 levels by 
2010 could be achieved through the adoption of existing energy-
efficient technologies at no net resource cost, or even some savings. 
The National Academy of Sciences reached qualitatively similar 
conclusions in a 1992 report.
    The President's FY 1999 budget, as I have noted, includes a $6.3 
billion package of tax cuts and R&D investments intended to spur the 
discovery and adoption of new technologies. If the Administration is 
successful in this effort, the rate of improvement in energy efficiency 
could rise and such improvements would lower the cost of meeting our 
Kyoto target. For example, published results based on SGM model 
simulations with different assumed rates of AEEI suggest that an 
increase in the AEEI of 25 percent could lead to declines in the permit 
price of approximately 40 percent.
    Our justification for incorporating into our assessment a small 
assumed impact of Administration technology policies is somewhat 
analogous to the Administration's rationale for employing mainstream 
economic assumptions in our budget forecasts: in the presence of 
uncertainty, we are conservative in our estimates of the speed with 
which the economy will grow, tax receipts will rise, and the budget 
will improve. That way, any revisions or surprises that occur are 
likely to be in the pleasant direction. In this instance, we prudently 
and conservatively assume that there will be substantial delays between 
investments in new technology or the diffusion of existing technology, 
and the returns to such investments.
    Moreover, at the recent automobile show in Detroit, General Motors 
announced that it has developed a hybrid-based vehicle that can achieve 
fuel efficiency of 80 miles per gallon, and that this car could be in 
commercial production within a few years. Ford also exhibited a 
prototype of a light-weight highly fuel efficient sedan that could be 
in commercial production by the middle of the next decade. These 
announcements followed an earlier breakthrough announced by DOE and its 
partners of a fuel cell that could run on gasoline and double current 
fuel economy while reducing conventional air pollution emissions by 90 
percent, These technological advances have been made possible through 
the efforts of the Partnership for a New Generation of Vehicles between 
the Administration and the U.S. auto companies and their suppliers.
    Such progress may be replicated in other sectors. VCRs and TVs, 
while switched off, consume about $1 billion worth of electricity 
annually. EPA has established a partnership with major manufacturers 
that has a goal of achieving up to a 70 percent reduction in energy use 
by VCRs and TVs while they are switched off, without sacrificing 
product quality, usefulness, or increasing costs. This partnership 
offers promise of substantial improvements in energy efficiency.
Non-Climate Benefits
    A final factor that should be included in any comprehensive 
assessment of the economic implications of the Kyoto protocol are the 
benefits of the agreement. The literature has emphasized that any 
relative price shifts that prove necessary to reduce emissions should 
produce non-climate benefits in three areas: traffic congestion, 
highway accidents, and air pollution unrelated to climate change. These 
benefits are hard to quantify precisely but are potentially 
significant; our rough estimates suggest that these three benefits 
could offset approximately a quarter of the resource cost of the 
climate change policy.
Synthesis
    A comprehensive evaluation of the economic impact of the Kyoto 
Protocol must integrate all of the factors described above: reliance on 
flexible market-based mechanisms domestically; international trading 
and Joint Implementation among Annex I countries; the Clean Development 
Mechanism; meaningful developing country participation; the potential 
cost-mitigating role of including six gases and carbon sinks; the 
benefits of electricity restructuring; and emissions reductions 
achieved as a consequence of other proposed Administration climate 
change initiatives. Assuming that effective mechanisms for 
international trading, Joint Implementation and the Clean Development 
Mechanism are established, and assuming also that the U.S. achieves 
meaningful developing country participation, our overall assessment is 
that the economic cost to the United States in aggregate and to typical 
households of attaining the targets and timetables specified in the 
Kyoto Protocol, will be modest.
    This conclusion that the impact will be modest is not entirety 
dependent upon, but is fully consistent with, formal model results. I 
have previously emphasized the limitations of relying on any single 
model in assessing the economic impact of the Kyoto Protocol, and 
continue to view any such results as just one input into an overall 
analysis. But it is worth emphasizing that model results reflecting the 
details of the Kyoto Protocol are consistent with our conclusion. For 
example, under the assumptions of either trading under the umbrella or 
within Annex I, the CDM and permit trading with developing countries, 
estimates derived using the SCM model, which adjust for the inclusion 
of six gases and assume little banking of credits beyond 2012, suggest 
that the resource costs of attaining the Kyoto targets for emission 
reductions might amount to $7 to $12 billion per year in 2008 to 2012. 
This implies that overall costs, excluding not only climate and non-
climate benefits, but also such cost mitigating factors as sinks and 
payoffs from the President's electricity restructuring and climate 
change initiatives, would reach roughly one-tenth of one percent of 
projected GDP in 2010.
    A more tangible measure of costs is the estimated effects on energy 
prices. Excluding the impact of electricity restructuring and the 
ancillary benefits of mitigation and better forest management, the SGM-
based estimate, corresponding to the gross resource cost estimate cited 
above, is an emissions price in the range of $14 to $23 per ton of 
carbon equivalent. This translates into an increase in energy prices 
between 2008 and 2012 at the household level of between 3 and 5 
percent, an increase in fuel oil prices of about 5 to 9 percent, 
natural gas prices of 3 to 5 percent, gasoline prices of 3 to 4 percent 
(or around 4 to 6 cents per gallon), and electricity prices of 3 to 4 
percent. This increase in energy prices at the household level would 
raise the average household's energy bill in ten years by between $70 
and $110 per year, although such predictions may not be observable 
because they would be small relative to typical energy price changes, 
and nearly fully offset by electricity price declines from Federal 
electricity restructuring. In particular, this increase in energy 
prices is small relative to the average of year to year real energy 
price changes experienced by U.S. consumers since 1960: such annual 
changes have averaged 3-8 percent. In addition, by 2008-2012, the 
anticipated 10 percent decline in electricity prices from the 
restructuring that is part of our climate change agenda is projected to 
lead to expenditure reductions of about $90 per year for the average 
household,
    As highlighted earlier, there are substantial but unavoidable 
uncertainties surrounding estimates like these. For example, the 
estimate just discussed is predicated, among other things, on the 
developing country participation that we are insisting upon as a 
condition for our ratifying the Kyoto Protocol, but which is not yet 
part of that Protocol, and on effective international trading. 
Moreover, other models will yield other answers and much work remains 
to be done by the modeling community to test the robustness of these 
results. Preliminary comparisons of the SGM model to the few other 
models that have attempted to evaluate the Kyoto accord, suggest that 
its predictions concerning the impact of the Kyoto Protocol on carbon 
permit prices are neither the most conservative nor the most optimistic 
of the models that have been developed. The predictions of the SCM 
model are robust in the sense that virtually all energy models reveal 
the potency of effective, flexible, domestic and international trading 
mechanisms to reduce substantially the cost and energy price impact of 
meeting the Kyoto targets,
    Of course, the most important factor that has been left out of the 
above assessment is the benefit of mitigating climate change itself. A 
hill cost-benefit analysis would include mitigation in the benefits 
column. The only reason we have not done so, explained repeatedly 
above, is the difficulty in coming up with a number to capture the 
monetary benefits. But nobody should lose sight of our ultimate 
objective--keeping our planet the hospitable home that we enjoy today,
Effects on Employment and Aggregate Output
    So far we have said nothing about job losses resulting from climate 
change policy. Although there may be job gains in some sectors and job 
losses in others, we do not anticipate any significant aggregate 
employment effect if we achieve the conditions we have discussed. The 
effects on energy prices described above will occur only 10 to 14 years 
in the future. Not only are these effects small relative to historical 
variations in energy prices, and offset by other policies like 
electricity restructuring, they would occur sufficiently far in the 
future to enable monetary policy to keep the economy operating at its 
potential. In energy-intensive sectors some employment reduction could 
occur, although given the very small predicted change in energy prices, 
impacts in most such sectors are apt to be minimal. Furthermore, a 
large number of jobs will be created in other sectors--many of them 
high-tech jobs paying high wages. The President is finally committed to 
assisting any workers who are adversely affected during the transition 
to a climate-friendly economy.

                               Conclusion

    In conclusion, the Kyoto Protocol and the President's general 
approach to climate change reflect the insight of economic analysis. 
The Kyoto Protocol includes key provisions on international trading and 
Clean Development projects. The President's approach relies on market 
incentives--first, with a system of tax cuts and R&D investments, and 
then later with a market-based system of traceable permits--to ensure 
that our objectives are achieved as efficiently as possible.
    Our overall conclusion is that the economic impact of the Protocol 
will be modest under the conditions we have identified. The purpose of 
this testimony has been to explain the reasoning underlying this 
conclusion, which draws insights from not only the forecasts of 
individual models, any one of which has its own strengths and 
limitations, but also a broad variety of additional analyses.
    I look forward to continuing to work with members of this 
Committee, as well as other interested parties, in further analyzing 
the Kyoto Protocol and evaluating the net effects of reducing 
greenhouse gas emissions. It is my hope that economic analysis will 
continue to play a key role in designing policies in this area.
    I welcome your questions.