Kyoto conference yields treaty U.S. Congress likely to reject

Most of the world's nations have formally approved an historic agreement at the global climate change conference in Kyoto to reduce greenhouse gas emissions of industrial countries in the 21st century.

The approval came as the delegates were forced to take proceedings into an unscheduled 11th day after what seemed to be an agreement late the prior night was scuppered at the last moment by the U.S., on the grounds that the deal failed to include the issues of emission trading and the inclusion of developing countries in the draft treaty. Both issues have been deferred for a year.

The U.S. has said it will cut its greenhouse gas emissions by 7% by 2012, the European Union has promised reductions of 8% for the same period, and Japan pledged a cut of 6% during 2008-12.

Australia is allowed to increase emissions of greenhouse gases by 8%, Norway can hike its emissions by 1%, and Iceland can boost its emissions by 10%. Russia is allowed no change, and Canada must cut its emissions by 6% under the draft.

Altogether, 38 nations will join the treaty, cutting their overall greenhouse emissions by 5%. The plan relates to baseline emissions of six gases, three based on 1990 levels and three on 1995 levels, which should result in an effective overall reduction in greenhouse gases during 2008-12.

The first group of gases are carbon dioxide, nitrogen oxides, and methane. The other three gases are hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride.

However, U.S. participation in the treaty has been thrown into doubt, as the U.S. Senate is expected to reject it. This would mean that the world's biggest emitter of greenhouse gases will not ratify the agreement. The Senate has already passed a resolution making ratification of any agreement in Kyoto conditional on the presence of developing countries in the treaty.

How accord emerged

The conference began with the European Union pushing for cuts to bring emissions to 15% below 1990 levels by 2010. The U.S. began negotiations saying it could only stabilize emissions at 1990 levels in the same period, while Japan called for an emissions reduction of 2.5%.

Although haggling in Kyoto during the 10-day conference had centered on a cut of 5-8%, the beginnings of a breakthrough came on the evening of Dec. 9, when Estrada proposed that industrialized nations cut emissions of greenhouse gases by an average 5% from 1990 levels.

By Dec. 9, there already were indications that the U.S. might be willing to agree to bigger cuts than it had originally planned-apparently in line with Vice President Al Gore's announcement on Dec. 8 that Washington would show "flexibility" in trying to reach a common target.

Estrada's proposals called for emission cuts of 5% for the U.S., 8% for the European Union, and 4.5% for Japan. The reductions would be based on the emission levels of 1990 and would have to be implemented during 2006-10.

Emissions trading

Industrialized (Annex I) countries were also taken by surprise by a last-minute proposal by U.S. Undersecretary of State Stuart Eizenstat to set up an emissions "trading umbrella," similar to that of the European Union, encompassing the U.S., Canada, Russia, Japan, New Zealand, and Australia.

Eizenstat said the proposal would allow the six nations-and any other country that wanted to join-to trade emissions among themselves to meet their own specific targets for cuts in the next century.

Eizenstat said that, under the system of emissions trading, countries that did not meet their specified targets for reduction would be able to buy the right to produce more emissions from countries that have fallen short of their allocations.

Russia, whose economy collapsed following the breakup of the Soviet Union, has seen a big downturn in the amount of greenhouse gases it emits because factories and other facets of its vast manufacturing sector have closed.

Under the trading plan, which is opposed by a number of countries and many environmental groups, Russia would be able to sell the unused portion of its allowable emissions for badly needed foreign capital.

But critics argue the plan would allow the biggest emitters of greenhouse gases, such as the U.S., to "buy their way out" of cutting their own emissions. The U.S. has responded to such concerns by promising it would achieve most of its emission reductions at home. "It is cheaper, more reliable, and easier to trade at home" pointed out one U.S. delegate.

Although the European Union objects to the establishment of such umbrella groups on the grounds that it creates loopholes through which countries can avoid making significant cuts in emissions, analysts point out that their position is weak given that their "bubble" proposal amounts to more or less the same thing. However, the EU's bubble does not allow EU member states to trade emissions among themselves. Nevertheless, the EU has been conspicuous by its silence on the U.S. proposal.

Interestingly, some companies from the EU that are likely to be affected by the emission curbs have already begun to explore the opportunities offered by trading. British Petroleum Co. plc, for example, is currently conducting a pilot program to test trading among 10 of its subsidiaries.

Veto threat

U.S. lawmakers attending the summit reiterated threats to veto the final treaty when it comes up before Congress.

Senate Majority Leader Trent Lott said Tuesday the climate treaty being negotiated in Japan has only "bleak prospects" of ratification by the U.S. Senate, even if U.S. negotiators agree to it.

"I have made clear to the President personally that the Senate will not ratify a flawed climate change treaty," Lott said in a letter to Sen. Chuck Hagel (R-Neb.), who is in Kyoto leading a U.S. observer group.

Lott listed five criteria he said the Senate would use to judge any climate treaty: no erosion of U.S. sovereignty, no hidden taxes, no loss of U.S. jobs, no disadvantage for U.S. business, and no special advantage for Third World polluters. "The treaty under discussion appears to fail on all five counts," he said.

"It therefore looks almost certain that (the U.S.) Congress will not ratify the convention. Not that that means the U.S. will not make any efforts to reduce greenhouse emissions-it simply means that it will not be legally bound to attain any targets," an International Energy Agency official told OGJ in Kyoto last week.

Canadian dispute

That sort of contentiousness is also likely to be seen as Canadian lawmakers debate acceptance of the Kyoto accord.

Prior to the final accord, Alberta officials had accused Ottawa of betrayal after the Canadian government announced an official position for the climate change conference at Kyoto.

At a November conference, federal and provincial ministers agreed to cut emissions to 1990 levels by 2010. On Dec. 1, at the opening of the Kyoto meeting, Ottawa said Canada would cut emissions to 3% below 1990 levels by 2010 and another 5% by 2015.

Alberta Energy Minister Steve West said the new federal position is a betrayal of the earlier agreement with provinces. West said the Ottawa proposals would have the equivalent economic impact on Alberta of shutting down two major oilsands plants by 2007. Alberta Premier Ralph Klein said Alberta may consider a constitutional challenge to Ottawa's position on the grounds that provinces have jurisdiction and control over their resources.

Alberta produces more than 80% of Canada's oil and gas and is concerned about the effect of any Kyoto agreement on its petroleum industry.

Industry officials were also critical of Ottawa's position, but the Canadian Association of Petroleum Producers said the federal government did get some of it right.

CAPP Vice Pres. Chris Pierce said positive parts of Ottawa's position were: no carbon tax, emission credits for natural gas exports, and for actions "we take in the developing world to reduce emissions there."

Spokesmen for several environmental groups said the Canadian position is too soft and called for stronger action to reduce emissions.

OPEC stance

Meanwhile, members of the Organization of Petroleum Exporting Countries have called for the establishment of a "compensation fund" for economic losses incurred as a result of a global emissions reduction agreement.

Saudi Arabia and other OPEC countries argued that cutting emissions would mean cuts in oil sales, and their economies will greatly suffer as a result of any binding agreement reached at Kyoto.

Saudi delegate Fahad Bin Abdullah Al-Saud lashed out against oil-consuming developed countries for not using the high taxes they charge on oil to help protect the environment.

Nevertheless, he indicated that Saudi Arabia might reverse its decision not to ratify any agreement reached at Kyoto if there were concrete promises regarding the setting up of the compensation fund.

The chances of developed countries actually establishing such a fund are considered to be very slim.

GEF funding

At the same time, developed countries have agreed on the need to replenish by about $2.75 billion the U.N.'s Global Environment Facility (GEF), which funds environmentally friendly energy projects in developing countries.

But the EU has expressed disappointment that delegates have not agreed to establish the GEF as a permanent financial mechanism, while China noted that efforts to advance existing commitments are handicapped by a lack of resources and called for a "substantial" increase in funding at GEF's disposal.

The issue is important in that it greatly affects a much larger and more contentious issue: that of technology transfer. Developing countries argue that any efforts to bring them into the emissions reduction process can only be made after serious efforts on the part of the Annex I countries to provide poorer countries with the technology and know-how required to revamp their industries.

At the forefront of this battle has been China. It, along with India and Pakistan, has argued that developed countries are only interested in the commercial transfer of technical information, while what the developing world really needs is technology transfer on non-commercial and preferential terms.

The South African delegation added that access to technology and transfer of technical know-how "would play a crucial role in meeting the energy implications of moving towards sustainable development."

'Green' energy project aid

Acknowledging such concerns among developing countries, Japan has outlined plans to "significantly" boost assistance for developing countries to combat catastrophic climate change through its Overseas Development Assistance (ODA) program.

The program will offer low-interest concessional loans to promote training, cooperation in energy-saving technology, and the development of new and renewable energy sources.

Projects the ODA says will be eligible for the loans include purchase and installation of energy-saving facilities and equipment; upgrading and rehabilitation of power plants, transmission lines and factories for energy conservation; and power generation fueled by natural gas, photovoltaic, wind, geo- thermal, and hydroelectric sources.

However, an Australian delegate pointed out that much of the technology, especially environmentally-friendly technologies (EST), is in the hands of the private sector, and that while governments can help provide funding for their acquisition, it is important that developing countries make their markets attractive to investors from the private sector. "If companies feel that countries are too heavily regulated and the efforts required to work in them not worth their while, there is little governments can do about it," a European delegate told OGJ.

Legal, regulatory concerns

Indeed, a constant theme running throughout a conference of business leaders at Kyoto was the importance that any agreement coming out of Kyoto provides long-term certainty about the legal framework for the operations of industrial companies.

Officials pointed out that new plant and production methods were always more energy-efficient than the ones they displaced but noted that investing in updating plants requires a stable legal background.

The conference welcomed the proposal on a joint implementation program (the system whereby developing countries give "credits" to industrialized countries that provide them with financial assistance to fund projects that reduce their greenhouse gas emissions on a voluntary basis) as a good opportunity for technology transfer, with one speaker adding, "It allows developed countries to offset their own emissions of greenhouse gases by investing in lower-cost emissions reductions in other countries. Both countries then share the result."

Business speakers pointed out that joint implementation would be valuable because countries with advanced technology are running up against the law of diminishing returns, finding that further reductions in greenhouse gas emissions achieve less at a greater cost. Such an arrangement would enable companies in industrialized countries to effect emissions reductions in developing countries, where factories and installations are outdated and waste energy.

But the key, they argued, is that any agreement should include market mechanisms and avoid excessive regulations. Michael Kohn, a European authority on energy issues and honorary chairman of the International Chamber of Commerce (ICC) Energy Commission, described some of the drawbacks of governments directly regulating efforts to achieve environmental objectives, including the lack of flexibility and escalating costs. "In many countries, environmental regulations have become so technically detailed, strict and bureaucratic that they have begun to be counter-productive."

In contrast, voluntary agreements are becoming increasingly widespread, and experience shows how effective they can be in meeting government targets. They also enable industry to ensure that its views are taken into account: "Voluntary approaches are market-friendly and a viable and attractive policy to address climate change," Kohn said.

But he warned that failure by industry to carry out its voluntary initiatives might prompt governments to resort to other instruments such as regulation and taxes: "Voluntary initiatives have to produce concrete results if they are to be deemed by governments and the public alike to be viable alternatives."

Labor concerns

However, the International Confederation of Free Trade Unions (Icftu) argues that any global program on climate change must also include a sustainable employment strategy: "Any combined environmental/employment policy cannot be achieved by relying solely on market mechanisms but must require careful planning by governments, employers, and trade unions."

As the vast majority of greenhouse gas emissions come from the manufacturing industry, energy production and supply, and transportation and construction sectors in industrialized nations, workers in these sectors are most at risk from proposals to reduce emissions. Total U.S. job losses, Icftu estimates, could total 900,000-1.6 million, with comparable consequences in other countries. While new jobs will be created in "green" industries such as energy saving in buildings, "it is unclear where and how many and therefore what training and adjustment measures are needed."

Developing countries, it adds, must be encouraged to participate in emission reductions, because, first, their emissions are rising fast and will soon reach significant levels. Second, once locked into a high-emissions development pattern, it becomes increasingly costly to break out of it.

U.S. lawmakers attending the conference added their voice over concerns regarding the effect of a climate change agreement on U.S. jobs and are becoming increasingly vocal in their insistence that, at the very least, China, India, and Brazil set greenhouse gas emissions reduction targets along with the Annex I nations.

Sen. Chuck Hagel told journalists, "If the objective...is to address long-term greenhouse gas emissions, how is that accomplished if 134 developing countries are not included?" Hagel cosponsored a resolution adopted by U.S. lawmakers earlier this year that said that the Senate would not ratify any Kyoto treaty if developing nations were not involved in the effort to cut gas emissions.

"I am very concerned that the American proposal as it currently is on the table will result in massive cost increases for American consumers for energy," added Rep. Jim Sensenbrenner (D.-Wis.).

Nuclear lobbying

Interestingly, one group struggling to have its voice heard at the conference, in spite of the low regard in which it is held by the environmental community, is the nuclear power lobby.

Out in force, it is keen to point out that, in terms of greenhouse emissions, nuclear power has a clear advantage. According to industry groups, nuclear power generation prevents the emission of 2.3 billion metric tons/year of CO₂, if the same power were generated using oil or gas.

But if the reticence of one big nuclear-generating country is anything to go by, pushing the "green nuclear energy" message is proving to be a losing battle.

Japan has one of the lowest per-capita CO₂ emission rates among developed countries-helped in no small measure by its use of nuclear power. It is also looking to increase its dependence on nuclear power to generate further cuts in CO₂ emissions, but that fact is not one it chooses to promote at the Kyoto conference. Questions on the subject at press conferences invariably received extremely curt replies.

The reason for this is that, after decades of public acceptance for nuclear power, a recent spate of accidents and related cover-ups in Japan's nuclear industry have turned public opinion sharply against it. There are now serious doubts as to whether Japan will be able to build more than a couple of the 20 plants planned-which, in turn, would threaten its planned cuts in greenhouse gas emissions.

What the Kyoto conference amounts to is that the Japanese public may soon be presented with a clear choice: make significant lifestyle changes in terms of domestic energy consumption and car use or accept more nuclear power.

U.S. industry reactions

U.S. industry groups were dismayed at the direction the agreement was apparently taking.

Connie Holmes, chairman of the Global Climate Coalition's operating committee, said the interim agreement for the U.S. to make a 7% reduction below 1990 levels was "totally unrealistic."

Gail McDonald, GCC president, said the pending deal would cost the U.S. more than 2 million jobs by 2010 and would require an additional gasoline tax greater than 50¢/gal.

Holmes said Vice President Al Gore had set three prerequisites for U.S. support of an agreement: It must include emissions trading, allow credits for U.S. firms that cut emissions and enhance carbon "sinks" in other nations, and include meaningful efforts by developing countries to lower their emissions. "The administration lost all three legs of that stool," she said.

Holmes said Gore pressured U.S. negotiators "to get any kind of an agreement they could." She predicted there was "no chance" the U.S. Senate would ratify the pending agreement.

Earlier, GCC chairman William O'Keefe noted, "President Clinton said he would walk away from a bad climate treaty. We expect him to keep his word.

"However, the Vice President appears to have given U.S. negotiators in Kyoto an open checkbook to get a treaty, no matter what the costs to American families, businesses, farmers, workers, and consumers.

O'Keefe said, "There can be no real solution to this that isn't global and that does not have meaningful, actual participation of developing countries."

Lott pessimistic

Sen. Majority Leader Trend Lott (R-Miss.) elaborated on his contention that the pending deal did not meet the requirements of the Byrd-Hagel resolution, which the Senate approved in a 95-0 vote on July 25.

Lott said, "The concerns of business, labor, and agriculture...have not been addressed in the negotiations."

He also observed that Gore had instructed U.S. negotiators to "show increased negotiating flexibility," and Gore had predicted the Senate would approve any treaty that was drafted.

Lott said, "Recent developments at Kyoto have only added to the bleak prospects for Senate ratification of the treaty under negotiation, should the Clinton-Gore administration choose to demonstrate 'increased flexibility' and sign the accord."

"It...looks almost certain that the U.S. Congress will not ratify the convention. Not that that means the U.S. will not make any efforts to reduce greenhouse emissions-it simply means that it will not be legally bound to attain any targets," an International Energy Agency official told OGJ in Kyoto last week.