Climate Change: Information on the U.S. Initiative on Joint
Implementation (Letter Report, 06/29/98, GAO/RCED-98-154).

Pursuant to a congressional request, GAO reviewed selected aspects of
the U.S. Initiative on Joint Implementation, focusing on the: (1)
criteria used to accept proposed projects; (2) number and types of
projects accepted; (3) status of the seven projects accepted in the
first round of proposals in February 1995; and (4) estimated benefits of
pilot projects in terms of emissions reductions.

GAO noted that: (1) the Initiative's Evaluation Panel uses nine criteria
to evaluate proposed projects for acceptance into the program; (2) among
the criteria are acceptance by the host country, a reduction in
greenhouse gases that would result from the proposed project and that
would not have occurred otherwise, and a mechanism to verify the
project's results; (3) the U.S. program generally has more criteria than
similar programs administered by certain other countries; (4) also, the
U.S. criteria are stricter in some respects, for example, by requiring
that benefits be maintained over time; (5) through March 1998,
Initiative officials had reviewed proposals for 97 different projects
and accepted 32 of them; (6) of the 32 accepted projects, 17 involve
reducing greenhouse gas emissions, for example, by constructing and
operating a hydroelectric plant that will provide electricity previously
produced by burning fossil fuels; (7) the other 15 involve capturing
greenhouse gases already emitted; (8) also, 31 of the 32 projects are
intended to reduce emissions of or capture carbon dioxide; the other
project is intended to reduce methane emissions; (9) of the seven
projects accepted into the Initiative as a result of the first round of
evaluations in February 1995, five are in the process of being
implemented; (10) this means that land has been acquired or facilities
have been built, and the projects are in the process of reducing or
capturing greenhouse gas emissions; (11) according to Initiative
officials, as of March 1998, the remaining two projects--one that would
reduce greenhouse gas emissions and one that would capture these
emissions from the atmosphere--had not progressed because their
developers had not been able to obtain financing; (12) the projects'
developers estimate that, over a period of up to 60 years, the 32
approved projects, if fully funded and implemented, will result in net
emissions reductions of about 200 million metric tons of carbon dioxide
and 1.3 million metric tons of methane; (13) Initiative staff do not
verify or attest to the reliability of the net greenhouse gas benefits
estimated by the projects' developers; (14) in part, this is because
standard methods for estimating projects' emissions reduction benefits
specific to the U.S. Initiative have not been developed; (15) the
Environmental Protection Agency has funded studies to develop standard
methods for calculating projects' benefits; and (16) according to EPA
officials, these studies should be completed by the end of fiscal year
1998.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-98-154
     TITLE:  Climate Change: Information on the U.S. Initiative on Joint 
             Implementation
      DATE:  06/29/98
   SUBJECT:  Climate statistics
             Atmospheric research
             Air pollution control
             International cooperation
             Environmental monitoring
             Projections
             Hazardous substances
             Energy efficiency
             Thermal pollution
             Evaluation criteria
IDENTIFIER:  Joint Implementation Pilot Program
             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


Cover
================================================================ COVER


Report to the Ranking Minority Member, Committee on Commerce, House
of Representatives

June 1998

CLIMATE CHANGE - INFORMATION ON
THE U.S.  INITIATIVE ON JOINT
IMPLEMENTATION

GAO/RCED-98-154

Joint Implementation

(160412)


Abbreviations
=============================================================== ABBREV

  DOE - Department of Energy
  EPA - Environmental Protection Agency
  GAO - General Accounting Office
  USIJI - U.S.  Initiative on Joint Implementation

Letter
=============================================================== LETTER


B-279654

June 29, 1998

The Honorable John D.  Dingell
Ranking Minority Member
Committee on Commerce
House of Representatives

Dear Mr.  Dingell: 

Increasing emissions of carbon dioxide, methane, and other
heat-trapping greenhouse gases generated by human activity are
believed to contribute to global climate change.  Accordingly, the
United States, France, Japan, and 35 other industrialized nations
negotiated an agreement--in Kyoto, Japan, in December 1997--that
would limit their overall greenhouse gas emissions by 2012.\1
Although the details have not yet been worked out, the nations that
are parties to this agreement may be allowed to work with other
nations to achieve emissions reductions in a cost-effective manner. 
A concept being considered would allow a developed country to meet at
least part of its obligation to reduce greenhouse gas emissions by
receiving credit for investing in a project that reduces emissions in
another country. 

To evaluate different approaches to implementing this concept, in
1994 the United States established a pilot program, known as the U.S. 
Initiative on Joint Implementation.  This program encourages
investments by U.S.  entities (largely private sector firms) in
projects to reduce greenhouse gas emissions outside the United
States.  Under the Initiative, U.S.  entities, in cooperation with
non-U.S.  partners, develop project proposals and submit them to the
Initiative for review and evaluation to determine which projects will
be accepted into the program.  The decision about whether to accept a
particular project into the program is made by the Initiative's
Evaluation Panel, comprising senior policy-level executives of eight
federal agencies.\2

In recent years, several other countries have also established pilot
programs similar to the U.S.  Initiative. 

Because of your concern about the costs of reducing U.S.  greenhouse
gas emissions, you asked us to examine selected aspects of the U.S. 
pilot program on joint implementation.  Specifically, you asked that
we provide information on (1) the criteria used to accept proposed
projects, (2) the number and types of projects accepted, (3) the
status of the seven projects accepted in the first round of proposals
in February 1995, and (4) the estimated benefits of pilot projects in
terms of emissions reductions. 


--------------------
\1 This agreement, reached at the Third Conference of the Parties to
the United Nations Framework Convention on Climate Change after more
than 2 years of international negotiations, is known as the Kyoto
Protocol.  The Protocol is open for signature from March 16, 1998,
until March 15, 1999.  The Protocol must be signed by the President
and ratified by the Senate before its provisions are binding for the
United States.  As of June 1998, the President had not signed the
Protocol. 

\2 Specifically, these agencies are the departments of Agriculture,
Commerce, Energy, State, the Interior, and the Treasury, as well as
the Agency for International Development and the Environmental
Protection Agency. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

The Initiative's Evaluation Panel uses nine criteria to evaluate
proposed projects for acceptance into the program.  Among the
criteria are acceptance by the host country, a reduction in
greenhouse gases that would result from the proposed project and that
would not have occurred otherwise, and a mechanism to verify the
project's results.  The U.S.  program generally has more criteria
than similar programs administered by certain other countries.  Also,
the U.S.  criteria are stricter in some respects, for example, by
requiring that benefits be maintained over time. 

Through March 1998, Initiative officials had reviewed proposals for
97 different projects and accepted 32 of them.  Of the 32 accepted
projects, 17 involve reducing greenhouse gas emissions, for example,
by constructing and operating a hydroelectric plant that will provide
electricity previously produced by burning fossil fuels.  The other
15 involve capturing greenhouse gases already emitted, for example,
by planting forests or maintaining forests that would have otherwise
been harvested.\3 Also, 31 of the 32 projects are intended to reduce
emissions of or capture carbon dioxide; the other project is intended
to reduce methane emissions. 

Of the seven projects accepted into the Initiative as a result of the
first round of evaluations in February 1995, five are in the process
of being implemented.  This means that land has been acquired or
facilities have been built, and the projects are in the process of
reducing or capturing greenhouse gas emissions.  For example, in one
case, a facility built in the Czech Republic to generate electricity
by burning natural gas rather than coal began operations in September
1996.  According to Initiative officials, as of March 1998, the
remaining two projects--one that would reduce greenhouse gas
emissions and one that would capture these emissions from the
atmosphere--had not progressed because their developers had not been
able to obtain financing. 

The projects' developers estimate that, over a period of up to 60
years, the 32 approved projects, if fully funded and implemented,
will result in net emissions reductions of about 200 million metric
tons of carbon dioxide and 1.3 million metric tons of methane. 
Initiative staff do not verify or attest to the reliability of the
"net greenhouse gas benefits" estimated by the projects' developers. 
In part, this is because standard methods for estimating projects'
emissions reduction benefits specific to the U.S.  Initiative have
not been developed.  The Environmental Protection Agency (EPA) has
funded studies to develop standard methods for calculating projects'
benefits.  According to EPA officials, these studies should be
completed by the end of fiscal year 1998. 


--------------------
\3 When forests are cleared for agriculture or development, most of
the carbon in the burned or decomposing trees escapes to the
atmosphere.  However, when new forests are planted, the growing trees
capture carbon dioxide (for use in photosynthesis), removing it from
the atmosphere. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Many billions of tons of carbon in the form of carbon dioxide, a
major greenhouse gas, are exchanged naturally each year between the
atmosphere, the oceans, and vegetation on the land.  Greenhouse gas
levels in the atmosphere are determined by the difference between
processes that generate greenhouse gases (sources) and processes that
destroy or remove them (sinks).  Oceans and forests are the primary
natural sinks.  Humans have affected greenhouse gas levels (primarily
carbon dioxide) by introducing new sources--primarily by burning
fossil fuels such as coal, oil, and natural gas--and by interfering
with natural sinks--primarily by deforestation.  Scientists have
estimated, for example, that as a result of human activity, the level
of carbon dioxide emissions in the atmosphere has risen by almost 30
percent since industrialization began about 250 years ago.\4 Among
the nations of the world, the United States contributes the largest
amount of carbon dioxide emissions from human activity. 

In a July 1997 report to the United Nations Framework Convention on
Climate Change, the United States estimated that its carbon dioxide
emissions from human activity in 1995 were about 5.2 billion metric
tons.  The United States also estimated that U.S.  emissions of
methane, another major greenhouse gas, from human activity were about
31 million metric tons (which is equivalent to about 650 million
metric tons of carbon dioxide in global warming potential over a
100-year period).\5 The emissions of these two greenhouse gases
represent more than 95 percent of the total U.S.  greenhouse gas
emissions reported.  The report also stated that the 1995 emissions
levels for carbon dioxide had increased approximately 6 percent and
for methane, approximately 4 percent above 1990 levels. 

Recognizing the potential for cost-effective greenhouse gas emissions
reductions in other countries, the United States developed ground
rules for a joint implementation program, formally known as the U.S. 
Initiative on Joint Implementation.\6 Published in final form in June
1994, these ground rules established a pilot program, which is
intended to evaluate possible approaches to joint implementation,
including developing methods to measure and verify the projects'
achievements and helping to serve as a model for international
consideration of joint implementation.\7 Although participants in the
pilot program do not receive formal credit for the emissions
reductions achieved as a result of the pilot projects, they may
receive public recognition for their efforts to combat climate
change.  Other motivating factors for some participants, according to
Initiative officials and other studies of the joint implementation
concept, include establishing operations or markets for their
products in the host countries and anticipation that their pilot
projects will be eligible for credit after the year 2000, when the
United Nations' pilot ends.\8

An interagency Initiative Evaluation Panel, cochaired by senior
executives of the Department of Energy (DOE) and EPA, accepts
projects into the program and is authorized to certify their net
emissions reductions.  The Evaluation Panel is supported by an
interagency Secretariat, which manages the program's day-to-day
operations, including the implementation of the application and
review procedures for project proposals.  In 1997, the Secretariat
was staffed by eight employees on detail from DOE and EPA.  Five of
these employees spent less than full-time on the Initiative's
activities.  In addition to these employees, however, the Secretariat
relies on the expertise and contributions from staff in the other
federal agencies that support the Initiative.  The Initiative's
budget was $3.8 million in fiscal year 1996 and $2.6 million in
fiscal year 1997. 

Under the Kyoto Protocol, negotiated in December 1997, the United
States would be required to reduce its emissions of six greenhouse
gases--namely, carbon dioxide, methane, nitrous oxide,
hydrofluorocarbons, perfluorocarbons, and sulphur hexafluoride--7
percent below its 1990 emissions level by 2012.  The Kyoto Protocol
also includes provisions for market-based approaches to reduce
emissions of greenhouse gases.  Such approaches include emissions
trading, joint implementation, and the "clean development
mechanism."\9 The philosophy behind these approaches is that the cost
of reducing or capturing emissions varies among countries and that it
is more efficient to seek the reductions where the cost is the least. 


--------------------
\4 Climate Change 1995, The Science of Climate Change, from a summary
approved by Working Group I in November 1995 for the Second
Assessment Report of the Intergovernmental Panel of Climate Change. 

\5 Greenhouse gases have varied effects on the atmosphere as measured
by their global warming potentials over a specified period of time. 
These global warming potentials are applied to emissions to arrive at
a common measure for the greenhouse gases; the measure can be
expressed in either million metric tons of carbon dioxide or carbon
equivalent.  Carbon dioxide units can be converted into carbon units
by dividing by 3.67. 

\6 This program is frequently referred to by its acronym USIJI.  For
increased readability, we use the term "Initiative."

\7 In 1995, the United States and other countries that signed the
United Nations Framework Convention on Climate Change also
established a pilot program within the United Nations called
Activities Implemented Jointly.  Under this program, participating
countries may report to the United Nations on joint implementation
projects that they have sponsored.  The pilot program is to be
evaluated no later than the end of 1999. 

\8 These studies include Assessing the Constraints and Opportunities
for Private-Sector Participation in Activities Implemented Jointly: 
Two Case Studies From the U.S.  Initiative for Joint Implementation,
September 1997, by M.  Powell, R.  Lile, and M.  Toman, Resources for
the Future, and Joint Implementation and Its Alternatives:  Choosing
Systems to Distribute Global Emissions Abatement and Finance, April
1997, by E.  Parson and K.  Fisher-Vanden, Center for Science and
International Affairs, John F.  Kennedy School of Government, Harvard
University. 

\9 Prior to the Kyoto Protocol, joint implementation was the
terminology generally used for the concept that would allow a
developed country to meet at least part of its obligation for
reducing greenhouse gas emissions by receiving credit for investing
in projects that reduce emissions in another country.  The Kyoto
Protocol, however, makes a distinction on the basis of whether the
investment is in a developing or developed country:  Investments in
developing countries are included under the Protocol's clean
development mechanism provisions and investments in other developed
countries are included under its joint implementation provisions. 


   NINE CRITERIA ARE USED TO JUDGE
   PROJECT PROPOSALS
------------------------------------------------------------ Letter :3

Through the first six rounds of submissions, Initiative officials
have used nine criteria and considered four other factors to
determine which proposals to accept.  The criteria primarily involve
ways of measuring the project's effect in reducing emissions and
steps for verifying these reductions.  One of the criteria also
requires the project's participants to provide annual reports to the
Evaluation Panel on the emissions reduced or captured (sequestered)
by the project.  The other four factors considered involve
determining whether the actions of U.S.  participants and the host
country support the objectives of United Nations Framework Convention
on Climate Change and the potential positive and negative effects of
the project on greenhouse gas emissions outside the project's
boundaries and apart from its effect on greenhouse gas emissions. 
The Initiative uses more criteria than do certain other countries
with similar programs, and the U.S.  criteria are more strict in some
respects. 

When the pilot program was being developed, an interagency task force
led by the State Department established criteria for determining
which proposed projects would be accepted into the program.  The
criteria were developed to help ensure that proposed projects meet
the development goals of the host country, while providing greenhouse
gas benefits beyond those that would have occurred in the absence of
the project.  Moreover, the criteria are intended to help ensure that
the projects result in real, measurable net emissions reductions. 

An initial set of nine criteria was proposed in a Federal Register
notice on December 17, 1993.  Twelve organizations and individuals
submitted comments on the proposed criteria.  On the basis of these
comments, the criteria were revised, and the final criteria were
published in the Federal Register on June 1, 1994.  These criteria
now have been used for evaluating the six rounds of proposals
considered through March 1998. 

Most of the nine criteria relate to identifying and measuring a
project's benefits.  For example, one criterion asks whether the
proposal provides enough information to determine the level of
current and future emissions both with and without the project.  A
second asks whether the proposal contains adequate provisions for
tracking the emissions reduced or sequestered.  A third asks whether
the proposal provides adequate assurance that the benefits will not
be lost or reversed over time.  Other criteria relate to such matters
as acceptance by the host country and annual reporting, including the
greenhouse gas benefits as they are attained.  Among the other four
factors considered, one is whether the project has potential positive
or negative effects on the host country's employment and public
health.  (All nine criteria and four other considerations used in the
project evaluation process are paraphrased in app.  I.)

The U.S.  Initiative generally uses more criteria than did certain
other countries with similar programs, and the criteria are stricter,
in some respects, than the criteria used in other countries'
programs, according to our analysis of a 1996 report prepared for the
Agency for International Development.\10 This report described the
criteria of the U.S.  Initiative and similar programs in Australia,
Canada, Germany, Japan, and the Netherlands.  Our analysis of this
information showed that the number of criteria used by the U.S. 
Initiative (nine) was equal to the number used by the Netherlands and
larger than the number used by the other four countries (four to
seven each).  In addition, the U.S.  criteria were stricter in some
respects.  For example, only the U.S.  Initiative had requirements
for maintaining benefits over time and for external verification of
benefits.  Conversely, two other countries--Germany and the
Netherlands--had a criterion related to stimulating the use of modern
technology or renewable energy. 

In a July 1996 report to the Secretariat of the United Nations
Framework Convention on Climate Change, the Initiative said that its
Evaluation Panel, which is responsible for accepting or rejecting
project proposals for inclusion in its program, considers not only
how a project measures against all criteria, but also how the project
contributes to the pilot program.  The report stated that while
failure on any single criterion could keep a project from being
approved, the panel may find relatively poor performance on one
criterion to be outweighed by excellent performance on another.  The
report further stated that because the criteria were also being
tested for their appropriateness, the Evaluation Panel did not use a
single rigid approach to applying the criteria but remained flexible
in their interpretation and application to each project. 

In our review of Initiative files, we found that 18 of the 32
projects accepted during the first six rounds had been accepted even
though internal documentation indicated that the proposals were
judged as not clearly meeting one or more of the nine criteria.  For
example, reviewers raised questions about a project involving the
development and operation of a wind electricity-generating plant. 
The project review documentation noted that because the project had
been under discussion since 1992, a year before the U.S.  pilot
program was announced, it was not clear that the project was
initiated either in response to or in reasonable anticipation of the
pilot program--one of the nine criteria for a project's acceptance. 
The documentation also indicated that the project's developers
believed that acceptance of the project into the Initiative would
better enable them to obtain the necessary funding for the project. 
The Evaluation Panel accepted this project.  An Initiative official
said that individual technical reviewers sometimes interpreted the
criteria differently and came to different conclusions.  In such
cases, the Initiative's Secretariat labels these findings as "less
than clear compliance" and requests that the Evaluation Panel make
this judgment on a case-by-case basis.  According to the Secretariat,
when the Evaluation Panel accepts such projects, it believes that the
criteria were adequately met.\11


--------------------
\10 Implementing JI/AIJ:  A Guide for Establishing Joint
Implementation Programs, Center for Sustainable Development in the
Americas (Nov.  1996). 

\11 According to an Initiative official, the criteria that have been
the most difficult to interpret consistently are those related to
"additionality," which is discussed later in this report. 


   ABOUT ONE-THIRD OF THE PROPOSED
   PROJECTS HAVE BEEN ACCEPTED
------------------------------------------------------------ Letter :4

Of the 97 proposed projects submitted during six evaluation rounds,
32 projects have been accepted into the program.  Of the accepted
projects, 17 are designed to reduce emissions, and 15 are designed to
sequester emissions.  All but one of the projects are aimed at
reducing or sequestering carbon dioxide emissions, while the other
project is aimed at reducing methane emissions. 

Through the six rounds, a total of 119 proposals have been submitted,
22 of which have been submitted twice.  Thus, 97 separate proposals
have been submitted.  Thirty applications were submitted in the first
round.  Thereafter, the number of applications declined steadily to
five applications in the fourth round.  Although the number of
applications rebounded to 30 in round five, it declined again to 18
in the most recent round.  Secretariat staff suggested some possible
explanations for the variations in the number of project proposals
submitted in the various rounds.  The staff suggested that the two
largest rounds (rounds one and five), which occurred immediately
prior to the First and Third Conferences of the Parties to the United
Nations Framework Convention on Climate Change, were the result of
project developers' expectations that international crediting of
joint implementation projects might be negotiated at those sessions. 
The staff also suggested that the smallest number of proposals came
in round four because it was the first round occurring after the
Initiative increased the number of rounds conducted a year from one
to three and the resulting short period of time between rounds three
and four (about 4 months).  According to the Secretariat's Director,
in response to project developers' expressed desires for a quicker
turnaround process, the Initiative increased the frequency of its
evaluation rounds by streamlining its application procedures. 

A total of 32 proposals have been accepted into the Initiative,
including at least one proposal in each round.  The proportion of
proposals accepted increased from 23 percent in round one to 67
percent in round three.  However, this proportion declined to 20
percent in round four and 7 percent in round five.  Secretariat
officials said that they had not attempted to determine a reason for
this decline, but they pointed out that many of the proposals
submitted for round five were found not to be complete.  Our analysis
showed that the project reviewers found 19 of the 30 round-five
proposals, or more than 60 percent, did not contain sufficient
information to permit a complete evaluation.  The proportion accepted
in round six was about 22 percent.  (See fig.  1.)

   Figure 1:  Proposed and
   Accepted Projects, by Round

   (See figure in printed
   edition.)

\a Round three (12/96) includes three projects accepted in 2/97 and
3/97. 

Of the 32 approved projects, 31 focus on carbon dioxide, while the
other project focuses on methane.  Seventeen of the approved projects
are designed to reduce emissions.  For example, a project in Costa
Rica involves the construction and operation of a privately owned and
operated hydroelectric plant.  The electricity generated by this
plant will displace electricity that would have otherwise been
generated by burning fossil fuels, thus reducing carbon dioxide
emissions.  The project that focuses on reducing methane emissions is
located in the Russian Federation and will capture natural gas that
is now escaping from a transmission and distribution system by
sealing valves at two compressor stations. 

The other 15 approved projects are designed to capture carbon dioxide
that is already in the atmosphere.  For example, one project will
preserve a tropical forest in Costa Rica by purchasing over 6,000
acres of privately owned land.  Because, according to the project
proposal, this forest land likely would have been either harvested or
converted for agricultural use within the next 15 years, the
greenhouse gas benefits for this project will accrue from preserving
the existing trees. 

The 32 approved projects are located in 12 countries.  Of these, the
largest number, 16 (50 percent), are located in Central America. 
Another seven projects (22 percent) are located in Central and
Eastern Europe, including the Russian Federation.  The other nine
projects (28 percent) are located in North America, specifically,
Mexico (four projects); South America (three projects); and Asia (two
projects). 



                                Table 1
                
                 Location and Type of Approved Projects

                                     Total        Reduce     Sequester
Location                          projects     emissions     emissions
----------------------------  ------------  ------------  ------------
Central America                         16             9             7
Central and Eastern Europe               7             5             2
North America                            4             1             3
South America                            3             1             2
Asia                                     2             1             1
======================================================================
Total                                   32            17            15
----------------------------------------------------------------------
A wide range of U.S.  organizations are participating in the
Initiative.  These include private industry, environmental
nongovernmental organizations, universities, and federal agencies. 
Private industry includes electric utility, oil, and other companies
that have developed techniques to reduce greenhouse gas emissions. 
The nongovernmental organizations include the Center for Clean Air
Policy, the National Fish and Wildlife Foundation, and The Nature
Conservancy.  The nongovernmental organizations provide funding in
some cases, but more often they act as project facilitators. 


   OF THE FIRST SEVEN PROJECTS
   APPROVED, FIVE ARE IN THE
   PROCESS OF BEING IMPLEMENTED
------------------------------------------------------------ Letter :5

Of the seven projects approved in the first round in February 1995,
five have been or are being implemented, and two have not yet
started.  Each of these projects has at least one U.S.  participant;
one project has seven. 

Five of the seven projects approved in the first round are reducing
or sequestering emissions, according to information collected by the
Initiative's staff in March 1998.  Of these five, two projects are
intended to reduce emissions.  In both of these cases, the facilities
have been built and are now in operation.  For example, a project in
the Czech Republic involving several energy efficiency improvements
at a district heating facility, including the conversion of a
coal-burning plant to natural gas, was completed and became
operational in September 1996.  The other three projects are intended
to sequester emissions.  For these projects, one or more of the
following processes have been completed:  Land has been purchased;
surveys have been completed; and trees have been planted.  For
example, at one sequestration project in Costa Rica, land included in
the project proposal and identified as being in danger of
deforestation has been purchased and conveyed to Costa Rica's
national park service. 

The remaining two projects have not been implemented because of an
inability to obtain financing, according to information provided to
Initiative staff by these projects' representatives in March 1998. 
These two projects include one intended to sequester emissions and
one intended to reduce emissions.  For one of these projects, a
sequestration project located in Costa Rica, the host-country
partners reported that they had not been successful in obtaining
financing for either this project or another sequestration project
approved in the Initiative's second evaluation round.  However, the
partners said that the affected forest area covered by these two
projects would be absorbed into two other joint implementation
projects, one a U.S.  Initiative project accepted in the fourth
evaluation round in July 1997 and the other a Norwegian pilot joint
implementation project.  The partners further said that for this
reason they planned to report that the two projects for which they
have not obtained financing should not continue to be listed as
separate projects.  According to Initiative staff, the developer of
the other project that has not progressed is continuing efforts to
obtain financing.  This project is located in Honduras and is
intended to reduce carbon dioxide emissions by providing for
solar-based electrification in rural areas.  The status as of March
1998 for each project accepted during the first evaluation round is
shown in table 2. 



                                     Table 2
                     
                     Status of the Seven Projects Accepted in
                                  February 1995

Projec
t       Country           Objective                   Status, as of March 1998
------  ----------------  --------------------------  --------------------------
Projects to reduce emissions
--------------------------------------------------------------------------------
City    Czech Republic    Reduce emissions by         Facility became
of                        switching from coal to      operational in September
Decin                     natural gas                 1996.
fuel
switch
ing
for
distri
ct
heatin
g

Planta  Costa Rica        Reduce emissions by         Facility became
s                         substituting wind power     operational in June 1996.
Eolica                    for fossil fuel combustion
s
S.A.
wind
facili
ty

Solar-  Honduras          Reduce emissions by using   Developer has not been
based                     photovoltaic-powered        successful in obtaining
rural                     electric lights in rural    financing.
electr                    areas, instead of kerosene
ificat                    lamps
ion


Projects to sequester gases
--------------------------------------------------------------------------------
Ecolan  Costa Rica        Sequester carbon by         Land purchases completed.
d:                        preventing deforestation
Piedra
s
Blanca
s
Nation
al
Park

Rusafo  Russian           Sequester carbon by         All sites have been
r:      Federation        planting trees on marginal  cleared and reforested.
Sarato                    agricultural land and in
v                         burned pine forest
affore
statio
n
projec
t

Carfix  Costa Rica        Sequester carbon by         Project has not been
:                         reforestation, sustainable  successful in obtaining
Sustai                    management of natural       financing. Developers plan
nable                     forest, and forest          to absorb a portion of
forest                    regeneration                this project into two
manage                                                recently accepted pilot
ment                                                  projects.

Rio     Belize            Sequester carbon by         Experiments on mahogany
Bravo                     preventing deforestation    regeneration and reduced-
Carbon                    and implementing a          impact logging conducted.
Seques                    sustainable forest          A fire control regimen
tratio                    management                  implemented.
n                         program
Pilot
Projec
t
--------------------------------------------------------------------------------
The seven projects accepted during the first round of evaluations had
between one and seven U.S.  participants.  For example, the
sustainable forest management project in Costa Rica had one U.S. 
participant, Wachovia Timberland Investment Management; the U.S. 
Initiative project that will absorb much of this project also has a
single U.S.  partner, Earth Council Foundation--U.S.  Conversely, the
Rio Bravo Carbon Sequestration Pilot Project in Belize has seven U.S. 
participants, including The Nature Conservancy, Wisconsin Electric
Power Company, and Detroit Edison Corporation. 


   METHODOLOGIES FOR VERIFYING
   PROJECT BENEFITS ARE BEING
   DEVELOPED
------------------------------------------------------------ Letter :6

Standard methodologies that can be used either to estimate a
project's greenhouse gas benefits or to certify a project's net
emissions benefits are being developed.  Based on information
provided by the projects' developers, the total estimated greenhouse
gas benefits for the 32 projects accepted into the Initiative as of
March 1998 is equivalent to about 235 million metric tons of carbon
dioxide over a period of up to 60 years.  Although the Initiative
reviews the methods, data, and assumptions project developers use to
estimate net greenhouse gas benefits, it does not attest to the
validity of those estimates.  The Initiative does have
responsibility, however, for monitoring and verifying emissions
reductions as they are attained.  As of the latest reporting date
(July 1997), only one of the 25 projects accepted into the Initiative
had reported emissions reduction benefits.  According to the
Initiative staff, it has not yet verified these reported emissions
reductions partially because no standard methods for determining
greenhouse gas benefits specific to joint implementation projects
have been developed.  EPA, as part of its role in providing support
to the Secretariat, is funding studies of several issues related to
determining emissions benefits.  One objective of EPA-funded research
is to develop standard methodologies. 

The 32 projects accepted into the Initiative are projected to yield
benefits over time periods as short as 3 years (for one wind power
generation project and one forest preservation project) and as long
as 60 years (for two reforestation projects).  Based on the project
developers' estimates, these 32 projects will reduce greenhouse gases
by more than 200 million metric tons of carbon dioxide and 1.3
million metric tons of methane (1.3 million metric tons of methane is
equivalent, in terms of global warming potential, to about 31 million
metric tons of carbon dioxide).  Of the total net greenhouse gas
benefits, equivalent to approximately 235 million metric tons of
carbon dioxide, about 65 million tons, or 28 percent, is attributed
to emissions reduction projects, while the remaining 170 million
tons, or 72 percent, is attributed to sequestration projects.  For
example, one project in Nicaragua involves constructing and operating
a flash-steam power generation facility, using the country's abundant
geothermal resources, that will emit only small amounts of carbon
dioxide.  According to the latest project report, this facility will
displace an equivalent-size facility using fossil fuels and is
expected to reduce carbon dioxide emissions by about 14 million
metric tons over about 38 years.  Similarly, a sequestration project
in Ecuador that involves purchasing about 5,000 acres of tropical
forest will be incorporated into a newly created reserve.  According
to the project's developers, by preventing the conversion of these
lands, expected to occur over the next 3 years, to marginal cropland
and cattle pasture, the project will result in net greenhouse gas
benefits of more than 1 million tons of carbon dioxide.  Although the
Initiative reviews, as part of the proposal review process, the
methods, data, and assumptions that the project developers used to
develop their estimates, it does not attest to their validity. 

As of the last reporting period (July 1997), only one accepted
project--a project that combines land acquisition and a sustainable
forestry program to achieve emissions reductions through forest
growth--had reported greenhouse gas benefits.  The emissions
reductions reported for this project were 807,468 metric tons of
carbon dioxide a year for calendar years 1995 and 1996.  The project
developers for another four implemented projects reported to the
Initiative staff in March 1998 that their projects were in operation
and achieving greenhouse gas benefits but pointed out that the
benefit data they provided at that time were estimates because either
detailed monitoring results were not available or the monitoring
results had not been verified.  According to the Initiative's deputy
director, these reductions are likely to be reported in the 1998
annual report. 

Although the Initiative's ground rules state that the Evaluation
Panel is responsible for certifying the greenhouse gas benefits
estimated for the projects, the Initiative staff said that it does
not currently verify reported emissions reductions.  The staff
acknowledged that it has neither provided standard monitoring
guidance to projects nor reviewed the monitoring plans for most
projects, but recognizes that its efforts in these areas need to be
strengthened.  The staff attributed its limited progress in these
areas to the small number of projects that are now either funded or
implemented and the absence of standard methods for determining
greenhouse gas benefits specific to joint implementation projects. 
The staff also said that it was waiting on the EPA-sponsored research
that will provide guidelines for the development of monitoring plans
and verification methods to be completed before certifying reported
emissions reductions. 

EPA is funding research to develop standard methods for quantifying
emissions benefits.  Recently completed studies focused on
implementing uniform reporting formats for the pilot projects
(compatible with a reporting form used by the United Nations
Framework Convention on Climate Change for its pilot program) and
refining ways to measure greenhouse gas emissions from projects. 
Currently under way is a study to examine various aspects of project
baselines (to estimate what would have happened if the pilot project
had not been implemented) and emissions additionality (to help ensure
that project benefits are in addition to what would otherwise have
happened).  In the context of the pilot program, additionality refers
to project acceptance criteria that are designed to ensure that the
financing of a proposed project would not have occurred otherwise,
called financial additionality, and that the associated reduction in
emissions would likewise not have occurred, called emissions
additionality. 

Some phases of the research have been completed and are undergoing
review, while other phases are continuing.  According to EPA
officials, standard methods for estimating emissions reduction
benefits would help to move the program from its current pilot phase
to a fully implemented program with credible reductions.  The
officials were not able to say how long the development of the
standard methods might take, but current studies being funded by EPA
are to be completed during this fiscal year.  An EPA official also
said that the agency is currently funding research on methodologies
for monitoring and plans to fund research on methodologies for
verification in the future.  (App.  II provides additional
information about efforts to develop standard methods.)


   AGENCY COMMENTS
------------------------------------------------------------ Letter :7

We provided a draft of this report to the Director of the Joint
Implementation Secretariat and the Administrator of EPA for review
and comment.  The Secretariat's Director said that the report is
generally a balanced assessment of the Initiative, with a useful
analysis of the projects and the consideration of those projects by
the Initiative's Secretariat and Evaluation Panel.  (The
Secretariat's comments and our responses appear in app.  III.) The
Director also suggested technical corrections to the draft report,
which were incorporated as appropriate.  EPA's Office of Economy and
Environment, within its Office of Policy, Planning and Evaluation,
also suggested technical corrections, which were incorporated as
appropriate. 


---------------------------------------------------------- Letter :7.1

To accomplish our objectives, we interviewed officials of the
Initiative's Secretariat, EPA, and the Department of State.  At the
Secretariat offices, we obtained and reviewed information pertaining
to the Initiative's project evaluation process, including policy
memorandums, technical review summaries of project proposals, and
decision memorandums prepared to assist the Evaluation Panel with its
decision-making process.  At EPA, we obtained and reviewed
information related to its efforts to develop standard methods for
measuring greenhouse gas emissions and for estimating projects'
emissions reduction benefits.  At the Department of State, we
obtained information on the development of the ground rules for the
U.S.  pilot program and public comments on notices published in the
Federal Register.  We limited our work on the third objective
(relating to the status of approved projects) to those approved in
the first round because they had had the longest period of time to be
developed.  This information was obtained by reviewing the latest
annual reports prepared by the participants in the accepted projects. 
The Secretariat staff assisted us in obtaining information from the
project participants when information contained in the reports was
not clear.  We did not independently verify the information provided
by the Secretariat. 

We also reviewed available documents about the joint implementation
concept, the U.S.  Initiative, and the United Nations' pilot program. 
We conducted our review from September 1997 through June 1998 in
accordance with generally accepted government auditing standards. 

As arranged with your office, unless you publicly announce the
report's contents earlier, we plan no further distribution of this
report for 15 days.  At that time, we will send copies to the
appropriate congressional committees, the Director of the
Secretariat, and the Administrator of EPA.  We will also make copies
available to others upon request. 

Major contributors to this report were David Marwick; Stacy L. 
Morgan; William H.  Roach, Jr.; and Robert D.  Wurster.  If you have
any questions or need additional information, please call me at (202)
512-6111. 

Sincerely yours,

Peter F.  Guerrero
Director, Environmental
 Protection Issues


CRITERIA AND OTHER CONSIDERATIONS
USED IN REVIEWING AND EVALUATING
PROPOSED PROJECTS
=========================================================== Appendix I

These criteria and other considerations were published in the June 1,
1994, Federal Register (Vol.  59, No.  104, pp.  28445-28446).  They
are paraphrased below. 


   CRITERIA
--------------------------------------------------------- Appendix I:1

1.  Is the project acceptable to the government of the host country? 

2.  Does it involve specific measures to reduce or sequester
greenhouse gas emissions initiated as a result of the U.S. 
Initiative on Joint Implementation or in reasonable anticipation of
the Initiative? 

3.  Does it provide data and methodological information sufficient to
establish a baseline of current and future greenhouse gas emissions,
both with and without the project? 

4.  Will it reduce or sequester greenhouse gas emissions beyond those
without the project, and, if the project is federally funded, is it
or will it be undertaken with funds in excess of those available for
such activities? 

5.  Does it contain adequate provisions for tracking the greenhouse
gas emissions reduced or sequestered as a result of the project and,
on a periodic basis, for modifying such estimates and comparing
actual results with original projections? 

6.  Does it contain adequate provisions for external verification of
the greenhouse gas emissions reduced or sequestered by the project? 

7.  Does it identify any associated non-greenhouse-gas environmental
impacts and benefits? 

8.  Does it provide adequate assurance that the greenhouse gas
emissions reduced or sequestered will not be lost or reversed over
time? 

9.  Does it provide for annual reports to the Evaluation Panel on the
emissions reduced or sequestered and on the share of such emissions
attributed to each domestic and foreign participant, pursuant to the
terms of the voluntary agreement among the project's participants? 


   OTHER CONSIDERATIONS
--------------------------------------------------------- Appendix I:2

1.  Does the project have a potential to lead to changes in
greenhouse gas emissions outside the project's boundaries? 

2.  Apart from the project's effect on greenhouse gas emissions, does
the project have any potential positive and negative effects on
factors such as local employment and public health? 

3.  Are U.S.  participants who are emitting greenhouse gases within
the United States taking measures to reduce or sequester those
emissions? 

4.  Does the host country have efforts under way to (1) ratify the
United Nations Framework Convention on Climate Change, (2) develop a
national inventory and/or baseline of greenhouse gas emissions and
sinks, and (3) reduce its emissions and enhance its sinks of
greenhouse gases? 


RESEARCH ON EVALUATING BENEFITS
FROM JOINT IMPLEMENTATION PILOT
PROJECTS
========================================================== Appendix II

The awarding of credit for joint implementation projects' results is
a basic distinction between the current pilot program and a fully
developed program.  Under a fully developed program, investors in an
approved project could receive credit for that project's
results--greenhouse gas emissions reduced or sequestered--and thus
offset their own greenhouse gas emissions. 

To help ensure that credits are awarded only when warranted, standard
methods are being developed for estimating a project's emissions
reduction benefits and for measuring greenhouse gas emissions. 
Tracking a project's side effects (e.g., its impact on the local
economy) is also important. 

In support of the pilot program, the Environmental Protection
Agency's (EPA) Office of Policy is sponsoring studies of these
issues, and it currently has a contract and an interagency agreement
for further studies.  EPA officials said that they expect these
studies to help ensure that emissions reductions are properly
identified and reported; to gain international approval of the joint
implementation concept, including the clean development mechanism
provisions of the Kyoto Protocol; and to move the joint
implementation concept from its current pilot phase into full
implementation. 

One key issue currently being studied is estimating a project's
emissions reduction benefits.  In the context of joint
implementation, "additionality" is the term used to describe the
project acceptance criteria that are designed to ensure that the
proposed project's financing and abatement of greenhouse gas
emissions would not have occurred otherwise.\1 Additionality,
however, has meaning only relative to an alternative reference point. 
Determining that reference point requires project developers to
construct a hypothetical baseline. 

For example, as evidence of emissions additionality, project
proposals must present a reference case, which presents projections
of emissions levels without the project, and a project case, which
estimates emissions levels with the project.  In this example, the
emissions additionality is the difference between the emissions
levels without the project (the hypothetical baseline) and the
emissions levels with the project. 

An EPA contractor, ICF, Inc., has completed a report analyzing how
the pilot program has evaluated additionality; the report is
currently undergoing peer review.  By the end of June 1998, the
contractor is expected to review assumptions about emissions made in
the reference case scenario and project case scenario for selected
approved projects.  In addition, the contractor is expected to
develop comprehensive guidelines for developing reference case and
project case scenario emissions for greenhouse gas mitigation
projects.  EPA officials said that they will use this study, along
with the results of other studies, to determine whether a credible,
fair, transparent, and consistent approach to establishing project
baselines and determining project additionality can be developed. 

A second key issue currently being studied relates to standardized
methods for monitoring, evaluating, reporting, and verifying
greenhouse gas emissions benefits.  Through an interagency agreement
with EPA, the Lawrence Berkeley National Laboratory in Berkeley,
California, is expected to complete an assessment of these issues by
the end of September 1998.  Specifically, the laboratory is to
develop comprehensive guidelines for monitoring and evaluating
projects.  These guidelines are to incorporate such principles as
cost-effectiveness, transparency, simplicity, technical soundness,
and internal consistency.  According to the agreement, these
guidelines should also be capable of being used by an independent
organization for verifying a project's benefits. 

Finally, the laboratory is to identify and develop methods for
monitoring environmental, socioeconomic, and other benefits
associated with a project.  These could include the effect on local
economic conditions and on air quality and other environmental
indicators. 



(See figure in printed edition.)Appendix III

--------------------
\1 In the context of the U.S.  Initiative on Joint Implementation,
financial additionality refers to project acceptance criteria that
are designed to ensure that the financing of a proposed project would
not have occurred otherwise, and emissions additionality refers to
the project acceptance criteria that are designed to ensure that the
reduction in emissions associated with the project likewise would not
have occurred. 


COMMENTS FROM THE U.S.  INITIATIVE
ON JOINT IMPLEMENTATION
========================================================== Appendix II



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on the letter from the U.S. 
Initiative on Joint Implementation dated June 3, 1998. 


   GAO COMMENTS
-------------------------------------------------------- Appendix II:1

1.  Prior to the Kyoto Protocol, the term "joint implementation"
generally was used to describe all projects that were sponsored by
developed countries and that were located, and intended to reduce
emissions, in another country.  The Protocol established the "clean
development mechanism" for projects located in developing countries
and distinguished them from projects located in developed countries. 
The Secretariat suggested that we cite the clean development
mechanism in the opening paragraph of this report.  Because projects
accepted into the Initiative, including those accepted in March 1998
(subsequent to the Protocol), are located in both developing
countries and developed countries, in this report we use the term
"joint implementation" in its more general, pre-Protocol context. 
However, we have differentiated between these terms (joint
implementation and clean development mechanism) in footnote 9. 

2.  For increased readability, we have used the word Initiative
rather than the acronym USIJI when referring to the U.S.  Initiative
on Joint Implementation.  This is explained in footnote 6 of this
report. 

3.  This information appeared in the draft report provided to the
Secretariat for comment and, in our judgment, belongs on page 14 of
this report. 

4.  This information appeared in the draft report and, in our
judgment, belongs on page 5 of this report. 

5.  This information appeared in the draft report and, in our
judgment, belongs on page 6 of this report. 

6.  The draft report provided to the Secretariat for comment
discussed the differences of interpretation of the criteria.  We
added footnote 11 to this report to provide additional information on
the nature of the areas of "less than clear compliance" with the
criteria as reported by the Secretariat in its comments. 

7.  The draft report discussed the increase in the number of
evaluation rounds conducted each year as a reason for the small
number of proposals submitted for evaluation in round 4.  Based on
the Secretariat's comments, we also included information on the
reason for the change in the number of evaluation rounds the
Initiative conducts each year. 

8.  The draft report provided in the text information on the
frequency of the evaluation rounds conducted, and the dates of each
evaluation round were provided in the table.  Therefore, an
additional note to the table is not necessary. 

9.  We determined it was not necessary to list the Initiative's
criteria verbatim in the report.  However, in response to the
Secretariat's comments, we added an introductory statement to
appendix I indicating that we have paraphrased the criteria and other
considerations used by the Initiative's Evaluation Panel in
evaluating proposals. 


*** End of document. ***