Global Warming: Administration's Proposal in Support of the Kyoto
Protocol (Testimony, 06/04/98, GAO/T-RCED-98-219).

Pursuant to a congressional request, GAO discussed: (1) the potential
impact of efforts to comply with the Kyoto Protocol; (2) whether the
administration has an overall goal for stage 1 and a plan for
accomplishing that goal; (2) if funded, to what extent will the $6.3
billion stage 1 climate change proposal help the United States meet the
protocol's emissions target; and (3) what the current implications are
for the United States if the Senate ratifies the protocol, given the
current status of the administration's efforts to implement the climate
change proposal.

GAO noted that: (1) the administration has several broad goals for what
it wants to accomplish in stage 1 and a broad plan for accomplishing
them; (2) both the broad goals and plan are contained in the President's
October 1997 speech; (3) the administration has not established a
quantitative goal for reducing greenhouse gas emissions by the end of
stage 1--a primary focus of its initiative; (4) while Office of
Management and Budget officials acknowledge that the plan is broad, they
have no specific timeframe for preparing a more detailed plan that would
include overall performance goals and measures to meet the spirit of the
Government Performance and Results Act; (5) the extent to which the $6.3
billion stage 1 proposal will help the United States meet the protocol's
target for emission reductions is unclear; (6) the largest investment
under the proposal, tax credits, with an estimated cost of about $3.6
billion, has no estimate of the expected benefits and thus is not
explicitly tied to the protocol's target for emission reductions; (7)
the administration has set performance goals for most of the $2.7
billion proposed for research and development and the increased use of
energy-efficient products and has estimated potential emissions
reductions; (8) the Department of Energy only recently provided its
estimates, while commenting on a draft of this testimony, and GAO has
not analyzed them; (9) in addition, the Environmental Protection
Agency's estimates may be overstated; (10) therefore, it is uncertain
how much these activities will help the United States meet the target
specified by the protocol; (11) without an overall goal and plan for
stage 1 and complete information on expected outcomes and links to the
protocol's emission reduction target, it is uncertain whether stage 1
will effectively lay the foundation for the 31-percent emissions
reduction required by the protocol; and (12) although the
administration's response to the protocol is relatively recent, a firm
foundation in stage 1 is important because the protocol's targets for
emission reductions are binding on the nations that agree to the
protocol, and penalties for noncompliance with the targets are to be
discussed by the parties to the protocol in November 1998.

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

 REPORTNUM:  T-RCED-98-219
     TITLE:  Global Warming: Administration's Proposal in Support of the 
             Kyoto Protocol
      DATE:  06/04/98
   SUBJECT:  International agreements
             Energy efficiency
             Tax credit
             Projections
             Environmental monitoring
             Voluntary compliance
             Environmental research
             Air pollution control
IDENTIFIER:  DOE Climate Change Technology Initiative
             EPA Green Lights Program
             Kyoto Protocol
             
******************************************************************
** 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


Before the Committee on Energy and Natural Resources, U.S.  Senate

For Release
on Delivery
Expected at
9:30 a.m.  EDT
Thursday
June 4, 1998

GLOBAL WARMING - ADMINISTRATION'S
PROPOSAL IN SUPPORT OF THE KYOTO
PROTOCOL

Statement of Victor S.  Rezendes,
Director of Energy, Resources, and Science Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-98-219

GAO/RCED-97-219T


(160432)


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

  DOE - Department of Energy
  EPA - Environmental Protection Agency
  OMB - Office of Management and Budget

============================================================ Chapter 0

Mr.  Chairman and Members of the Committee: 

We are pleased to be here today to discuss the preliminary results of
our analysis, being conducted at your request, of the
administration's proposal on global climate change.  Our statement is
also based on our recently issued report on the Department of
Energy's part in the proposal.\1 As you know, the President
introduced a three-stage proposal on climate change in October 1997,
in anticipation of an international agreement to be negotiated 2
months later in Kyoto, Japan.  He listed voluntary actions to be
taken during stage 1 (the next 5 years) to reduce the emission of
greenhouse gases by stimulating the development and use of
energy-efficient products and technologies.  The administration
proposes to increase spending for climate change by $6.3 billion
during this period.  The agreement, known as the Kyoto Protocol, was
negotiated in December 1997 by the United States and other nations. 
The protocol must be signed by the President and ratified by the
Senate before its provisions apply to the United States. 

To comply with the Kyoto Protocol, the United States will need to
reduce greenhouse gas emissions substantially--by about 31 percent by
2010, according to the Department of Energy's Energy Information
Administration.  Concerned about the potential impact of efforts to
comply with the protocol, you asked us to answer the following
questions:  (1) Does the administration have an overall goal for
stage 1 and a plan for accomplishing that goal?  (2) If funded, to
what extent will the $6.3 billion stage 1 climate change proposal
help the United States meet the protocol's emissions target?  (3)
What are the implications for the United States if the Senate
ratifies the protocol, given the current status of the
administration's efforts to implement the climate change proposal? 

In summary, our work to date and our recently issued work have shown
the following: 

  -- The administration has several broad goals for what it wants to
     accomplish in stage 1 and a broad plan for accomplishing them. 
     Both the broad goals and plan are contained in the President's
     October 1997 speech.  However, the administration has not
     established a quantitative goal for reducing greenhouse gas
     emissions by the end of stage 1--a primary focus of its
     initiative.  Furthermore, while Office of Management and Budget
     officials acknowledge that the plan is broad, they have no
     specific time frame for preparing a more detailed plan that
     would include overall performance goals and measures to meet the
     spirit of the Government Performance and Results Act. 

  -- The extent to which the $6.3 billion stage 1 proposal will help
     the United States meet the protocol's target for emission
     reductions is unclear.  The largest investment under the
     proposal, tax credits, with an estimated cost of about $3.6
     billion, has no estimate of the expected benefits and thus is
     not explicitly tied to the protocol's target for reduced
     emissions.  The administration has set performance goals for
     most of the $2.7 billion proposed for research and development
     and the increased use of energy-efficient products and has
     estimated potential emissions reductions.  However, the
     Department of Energy only recently provided its estimates, while
     commenting on a draft of this testimony, and we have not
     analyzed them.  In addition, the Environmental Protection
     Agency's estimates may be overstated.  Therefore, it is
     uncertain how much these activities will help the United States
     meet the target specified by the protocol. 

  -- Without an overall goal and plan for stage 1 and complete
     information on expected outcomes and links to the protocol's
     emissions reduction target, it is uncertain whether stage 1 will
     effectively lay the foundation for the 31-percent emissions
     reduction required by the protocol.  Although the
     administration's response to the protocol is relatively recent,
     a firm foundation in stage 1 is important because the protocol's
     targets for reduced emissions are binding on the nations that
     agree to the protocol, and penalties for noncompliance with the
     targets are to be discussed by the parties to the protocol in
     November 1998. 


--------------------
\1 Department of Energy:  Proposed Budget in Support of the
President's Climate Change Technology Initiative (GAO/RCED-98-147,
Apr.  10, 1998). 


   BACKGROUND
---------------------------------------------------------- Chapter 0:1

Emissions of heat-trapping greenhouse gases are believed to
contribute to global warming.  Carbon dioxide, generated both
naturally and by the burning of fossil fuels, accounts for the
majority of emissions.\2 According to administration representatives,
the potential environmental, health, and economic consequences of
increasing accumulations of greenhouse gas emissions are serious. 
For example, according to an Assistant Administrator of the
Environmental Protection Agency (EPA), without significantly
decreased emissions, over the long term, 15 percent or more of the
nation's coastal wetlands could be submerged, the quality of drinking
water in certain states could be severely degraded, malaria and other
infectious diseases could increase, and severe droughts and floods
could increase personal and property damage. 

In October 1997, the President proposed a three-stage response to
climate change, covering a period of 14 years.  Stage 1 (1999-2003)
is intended to put the nation "on a smooth path" to reducing
greenhouse gases through research and development, tax credits for
energy-efficient products, and eight other voluntary actions (listed
in app.  I).  During stage 2 (2004-07), the results of stage 1 would
be studied, and a system would be designed, and perhaps tested, for
awarding and trading permits to emit greenhouse gases.  In stage 3
(2008-12), mandatory limits on emissions would be put in place
through a market-based domestic and international emissions trading
system. 

Under the Kyoto Protocol, the United States agreed to limit its
emissions during the 5-year period 2008 through 2012 to 7 percent
below the 1990 emissions level.  To achieve this new level, emissions
would have to be cut by 31 percent by 2010 (the midpoint of the
5-year period), or the equivalent of about 552 million metric tons of
carbon.\3 In February 1998, the administration submitted its budget
for fiscal year 1999, including a request to add $6.3 billion over
the 5 years of stage 1 to existing funding levels for climate change
activities.  The majority of this sum ($3.6 billion) was for tax
incentives administered by the Department of the Treasury.  The
balance was designated for the Department of Energy (DOE) ($1.9
billion), EPA ($677 million), the U.S.  Department of Agriculture
($86 million), the Department of Commerce ($38 million), and the
Department of Housing and Urban Development ($10 million).  According
to an Office of Management and Budget (OMB) official, that office and
seven other government entities will also be involved--the
departments of Defense and State, the General Services
Administration, the National Science Foundation, the Office of
Science and Technology Policy, a White House task force, and the
Council of Economic Advisers. 

In recent years, the Congress has emphasized the need for good
planning practices to ensure that federal funds are spent effectively
and has directed federal agencies to focus their planning efforts on
the results to be achieved.  The Government Performance and Results
Act of 1993 requires, among other things, that federal agencies set
program goals and measure their performance in achieving those goals. 
In doing this, agencies are to set annual performance goals that have
objective, quantifiable, and measurable target levels and that focus
on results to the extent possible.  In addition, the act implies that
federal programs attempting to achieve the same or similar results
should be closely coordinated to ensure that goals are consistent
and, as appropriate, program efforts are mutually reinforcing. 

To answer the three questions you asked us, we interviewed officials
at DOE, EPA, and Treasury because of their responsibilities for stage
1 actions; we also reviewed budget documents, agencies' strategic and
performance plans, and other documents relating to their programs. 
In addition, we discussed the governmentwide scope of stage 1 efforts
with OMB officials. 

Of the 10 proposed stage 1 actions, we selected 3 for detailed review
because of their significant budgeted costs and our past work:  (1)
tax credits, (2) research and development, and (3) the increased use
of energy-efficient products.  These three actions account for nearly
all of the requested $6.3 billion in additional funding. 

We did not attempt to determine the reasonableness of the
administration's cost estimates.  We performed our review from
January through June 1998 in accordance with generally accepted
government auditing standards. 


--------------------
\2 Other greenhouse gases targeted under the Kyoto Protocol include
methane, nitrous oxide, and three other gases.  These gases have
various effects on the atmosphere, as measured by their global
warming potentials over a specified period of time.  To arrive at a
common measure for the various gases, these global warming potentials
are applied to the volume of emissions.  The measure is expressed in
million metric tons of carbon equivalent. 

\3 Energy Information Administration, International Energy Outlook
1998, Apr.  1998. 


   THE ADMINISTRATION HAS SEVERAL
   BROAD GOALS AND A BROAD PLAN
   FOR STAGE 1
---------------------------------------------------------- Chapter 0:2

The administration has several broad goals for what it wants to
accomplish in stage 1 and a broad plan for accomplishing those goals. 
However, the administration has not established a quantitative goal
for reducing greenhouse gas emissions by the end of stage 1--a
primary focus of its initiative.  Furthermore, while OMB officials
acknowledge that the plan is broad, they have no specific time frame
for preparing a more specific plan that would include overall
performance goals and measures to meet the spirit of the Government
Performance and Results Act. 

The administration's goals and plan for accomplishing its goals are
contained in the President's October 1997 speech, according to OMB's
Office of Natural Resources, Energy and Science.  There are at least
three major goals, according to this office:  (1) to spur energy
efficiency and encourage the development and deployment of energy
sources that produce lower levels of carbon, (2) to provide an
immediate incentive for near-term action to reduce greenhouse
emissions, and (3) to seek win-win solutions to reduce carbon
emissions that can improve energy efficiency and save consumers
money.  However, the administration has not established a
quantitative goal for reducing greenhouse gas emissions by the end of
stage 1.  According to OMB's Associate Director for Natural
Resources, Energy and Science, the administration expects to
establish emissions reduction goals for stage 1 but has not yet done
so because the effort is so new.  He also pointed out that DOE and
EPA have performance measures related to their respective activities. 
He said that OMB expects to continue coordinating and monitoring the
efforts of individual agencies. 

While OMB officials acknowledge that the existing stage 1 plan is
broad, they have no specific time frame for preparing a more detailed
plan that would include overall performance goals and measures to
meet the spirit of the Government Performance and Results Act.  We
believe a quantitative overall stage 1 goal, and a plan to implement
that goal, are desirable primarily because the proposed federal
response is extensive--involving 14 federal entities and budgeted to
cost $6.3 billion in additional funding.  Coordinated program efforts
could help ensure that federal funds are used efficiently and could
contribute to the overall effectiveness of the federal effort. 


   EXTENT TO WHICH STAGE 1 WILL
   MEET KYOTO TARGET IS UNCLEAR
---------------------------------------------------------- Chapter 0:3

The extent to which the $6.3 billion stage 1 proposal will help the
United States meet the protocol's target for reduced emissions is
unclear.  The largest investment under the proposal, tax credits,
with an estimated cost of about $3.6 billion, has no estimate of the
expected benefits and thus is not tied to the protocol's emissions
reduction target.  The administration has set performance goals for
most of the $2.7 billion proposed for research and development and
the increased use of energy-efficient products and has estimated
potential emissions reductions.  However, DOE only recently provided
its estimates, while commenting on a draft of this testimony, and we
have not analyzed the method or assumptions used to support them. 
Such an assessment would require a detailed examination of DOE's
impact analysis for the technology sectors involved.  In addition,
EPA's estimates may be overstated.  Therefore, it is uncertain how
much these activities will help the United States meet the target
specified by the protocol. 


      TAX CREDITS LACK ESTIMATES
      OF EXPECTED BENEFITS
-------------------------------------------------------- Chapter 0:3.1

The administration has proposed a package of nine tax credits
designed to accelerate the adoption of more energy-efficient
technologies.  Treasury will be responsible for administering the tax
credits, which are estimated to cost $421 million in fiscal year 1999
and a total of $3.6 billion during stage 1.  The credits are
primarily intended to encourage more energy-efficient buildings,
transportation, industrial processes, and electricity generation. 
However, the administration has not estimated the benefits that would
result from the credits.  According to the Deputy Assistant Secretary
for Tax Analysis, official estimates of the benefits are being
prepared but are not yet available. 


      RESULTS OF RESEARCH AND
      DEVELOPMENT ARE UNCERTAIN
-------------------------------------------------------- Chapter 0:3.2

DOE is responsible for implementing most of the research and
development activities under the administration's climate change
proposal.  It plans to increase its spending to $1.06 billion for
climate change research and development in fiscal year 1999, a $331
million increase in funding from the 1998 level.  The $331 million
increase, as well as the remaining $729 million, will continue to
support and expand existing research and development programs in
energy efficiency and renewable energy, as well as other programs
related to climate change.  Over the 5-year period, DOE estimates
that it will increase spending for climate change research and
development by about $1.9 billion. 

While DOE plans to spend over $1 billion for research and development
in fiscal year 1999, the results of that spending are uncertain. 
Because the research and development efforts address multiple
objectives, a senior DOE official told us that the agency's
performance goals do not specifically quantify the extent to which
these activities could decrease greenhouse gas emissions.  These
multiple objectives include decreasing U.S.  dependence on foreign
oil, improving air quality, decreasing energy costs for consumers and
businesses, increasing economic competitiveness, and decreasing
greenhouse gas emissions, according to departmental officials. 
However, DOE recently provided us with estimates while commenting on
a draft of this testimony. 

The Department's estimates assume a continuation of its proposed
fiscal year 1999 funding of approximately $1.06 billion per year
during the 5-year period.  DOE estimates reductions in carbon ranging
from 31 million to 48 million metric tons by 2005; 87 million to 140
million metric tons by 2010; and 189 million to 338 million metric
tons by 2020.\4 Because we received the estimates so recently, we
have not analyzed the method or assumptions used to support them. 
Such an assessment would require a detailed examination of DOE's
impact analysis for the technology sectors involved--renewable
energy, transportation, industry, buildings, and federal energy use. 
Nonetheless, we are concerned about the reasons why these estimates
have not been expressed as performance goals and measures in DOE's
annual performance plan.  As such, they would be useful in helping
DOE benchmark its progress in this area. 

Furthermore, in our April 1998 report, we pointed out five common
questions the Congress may want to consider before funding DOE's
proposed increase for research and development or any research and
development:  (1) Would the private sector do the research without
federal funding?  (2) Will consumers buy the product?  (3) Do the
benefits exceed the costs?  (4) Have efforts been coordinated?  (5)
Have implementation concerns been addressed?  In discussing these
themes, we cited previous GAO reports--concerning DOE and other
agencies--to illustrate these areas. 


--------------------
\4 DOE notes that these estimates are strictly for the technology
research, development, and deployment programs and do not include the
effects of complementary policies (such as tax incentives and
electricity restructuring). 


      ESTIMATES OF RESULTS FOR THE
      INCREASED USE OF
      ENERGY-EFFICIENT PRODUCTS
      MAY BE OVERSTATED
-------------------------------------------------------- Chapter 0:3.3

The primary focus of EPA's responsibilities under the climate change
initiative is to increase the use of energy-efficient products.  As
with DOE's research and development activities, EPA's efforts will
largely continue and expand ongoing activities.  For fiscal year
1999, the agency is proposing to spend about $142 million in that
effort; this is an increase of about $77 million over the previous
year's $65 million.  EPA has specified performance goals for this
action.  The goals include reducing U.S.  energy consumption by over
45-billion kilowatt-hours and reducing emissions by 40-million metric
tons of carbon equivalent per year.  However, the goals may overstate
the potential results of EPA's programs. 

In a 1997 report on selected voluntary climate change programs, which
are now included in EPA's portion of the Climate Change Technology
Initiative, we found that, in some cases, EPA did not adjust reported
reductions to take account of nonprogram factors that may have
contributed to the reported results.\5 For example, for the Green
Lights Program (which is intended to encourage businesses and others
to install energy-efficient lighting), we found that EPA did not take
into account the fact that utility companies' financial incentives
and other factors may have induced participants to undertake some
energy-saving activities.  In commenting on our 1997 report, EPA said
it would further study the programs' impact.  In commenting on a
draft of this statement, an EPA official stated that the results of
the further study support EPA's position that it has adequately
accounted for nonprogram factors in reporting results.  We have not
had an opportunity to review the basis for this statement. 


--------------------
\5 For other programs, EPA did adjust reported reductions to take
into account nonprogram factors.  For example, for the Coalbed
Methane Outreach Program, EPA officials determined that 60 percent of
the reductions reported by participating companies was due to factors
other than EPA's program.  See Global Warming:  Information on the
Results of Four of EPA's Voluntary Climate Change Programs
(GAO/RCED-97-163, June 30, 1997). 


   LACK OF KEY INFORMATION ON
   STAGE 1 HAS IMPLICATIONS FOR
   THE FUTURE
---------------------------------------------------------- Chapter 0:4

Because stage 1 lacks a quantitative goal for reducing greenhouse gas
emissions, does not have a specific performance plan, and contains
incomplete information on expected outcomes and links to the
protocol's target, stage 1 may not provide a firm foundation for
stages 2 and 3.  The success of voluntary efforts in stage 1 would
make it easier for the United States to adjust to the mandatory
measures envisioned in stage 3 and to achieve the substantial
reductions in emissions specified in the Kyoto Protocol.  These
mandatory measures would be implemented in the third stage (2008-12),
when the protocol's target must be reached.  There may be penalties
for noncompliance if the United States ratifies the protocol but does
not reach the target, although the specific penalties have not been
agreed upon. 

The various stage 1 actions are designed to stimulate the development
and use of energy-efficient products and technologies, according to
administration officials.  In so doing, they are meant to improve the
nation's energy efficiency, thus reducing greenhouse gas emissions,
and to smooth the transition to the mandatory measures that are to be
implemented in stage 3.  However, because there is no emissions
reduction goal and only a broad plan for stage 1, it is not clear how
the transition is to be accomplished.  A number of factors, including
the short time period for achieving the emissions reduction target,
make an effectively planned and implemented stage 1 important. 

First, the United States would be required by the protocol to meet
the emissions target during the 5-year period, 2008 through 2012. 
This time period coincides with stage 3 of the President's proposal. 

Second, the projected growth in U.S.  carbon emissions will make the
protocol's target challenging to meet, according to an April 1998
estimate by the Energy Information Administration.  Taking into
account both the growth expected from 1990 through 2010\6

and the protocol's target of reducing emissions to 7 percent below
the 1990 level, the United States will need to reduce its emissions
by 31 percent in 2010. 

Finally, according to the Department of State, the protocol's targets
are binding on nations that enter into the accord, and noncompliance
could eventually carry penalties.  The parties are to begin
discussing procedures for eventually establishing penalties for
noncompliance in Buenos Aires in November 1998. 


--------------------
\6 In the protocol, the United States agreed to limit its emissions
during the 5-year period 2008 through 2012, with the midpoint being
2010. 


-------------------------------------------------------- Chapter 0:4.1

Mr.  Chairman, this concludes my statement.  I would be pleased to
answer any questions you may have. 


PROPOSED STAGE 1 ACTIONS
=========================================================== Appendix I

The administration has outlined 10 actions in stage 1, listed below: 

1.  Tax cuts to spur energy efficiency and the development of
lower-carbon energy sources. 

2.  Research and development to accomplish the same goals. 

3.  Use of energy-efficient products, through a broad-based effort to
expand the use of existing energy-efficient technologies. 

4.  Credit for early action, to provide an immediate incentive for
companies to take near-term actions to cut emissions. 

5.  Industry-by-industry consultations, for key industry sectors to
prepare plans for reducing emissions. 

6.  Focus on federal procurement and energy use as a means to reduce
greenhouse gas emissions from federal sources. 

7.  Electricity restructuring, to change the rules that can impede
the introduction of cleaner technologies. 

8.  The setting of a concentration goal for greenhouse gases in the
atmosphere. 

9.  Bilateral dialogues with key developing countries to promote
clean energy. 

10.  Economics and science reviews. 

*** End of document. ***