Business Perspectives

Climate Policy in the US and Japan: Prospects in 2005 and Beyond

Tokyo, Japan

Kevin FayInternational Climate Change

PartnershipMay 11, 2005

2111 Wilson Blvd, 8th Floor, Arlington, VA 22201 Phone: (703) 841-0626 Fax: (703) 243-2874 www.iccp.net

ICCP

Organized in 1991 as Small Group of Large Companies

View that Science is Credible and Issue Not Going Away

Goal to Establish Credible Business Voice

Obtain Seat At Policy Table Make Process go Smarter, Not

Necessarily Faster or Slower

Key ICCP Accomplishments

First Group to Articulate LTO, and overall market-based framework

Prominent role in post-Kyoto Implementation Issues

First Business Group Invited to Brief Bush Cabinet

Current Participant in High Level TransAtlantic Climate Dialogue

How Does ICCP Function

Consensus-based organization Bring parochial corporate

interest Manage issue rather than react Rely on shared information

gathering Earn a seat at decision making

table

Background - Science

Intergovernmental Panel on Climate Change (IPCC) 2001 report concludes the following: The global average surface temperature

is increasing. Global average sea level has risen. There is new and stronger evidence that

most of the warming observed over the last 50 years is attributable to human activities.

Background - Science IPCC Assessment Reports - meet minimum

credibility to drive policy process Recognize general consensus on potential

temperature increase and sea level rise Other Effects - Large uncertainties likely to

be unresolved before policy implementation Current concern more properly focused on

rate of change Changing atmosphere in 200 year period

to CO2 concentrations not seen in 50 million years

Background-Policy

United Nations Framework Convention on Climate Change (UNFCCC) - Rio

Called on developed countries to stabilize GHG emissions at 1990 levels by 2000, non-binding target

Basic principle - developed countries go first

Signed by President Bush (41) and ratified by US Senate in 1992

Kyoto Protocol signed December 1997

Kyoto Protocol Elements

Worldwide differentiated target of 5.2% reduction between 2008-2012

CO2, CH4, N20 - 1990 baseline HFC, PFC, SF6 - 1995 baseline option No international policies and

measures Maintenance of national flexibility

Kyoto Protocol Elements

Single basket of gases all six gases included in reduction

percentage reductions and increases allowed

between gases as long as overall target is met

sinks (forests, soil and land use) included

Kyoto Protocol Elements

Emissions Trading

Clean Development Mechanism (CDM) - including credit for early action

Entry Into Force - 55 Parties, 55% of Annex I Emissions

Kyoto Protocol Status

Political agreement reached in Bonn in 2001 that kept the Protocol process alive

Agreement reached in November 2001 that provides details of how the Protocol will function - Marrakech Accords

Pre-Ratification Lull in 2002-2004 Russian Ratification – 2004 Entry into Force – February 2005

Marrakech Accords Agreement on compliance process and

penalties, final decision on “binding” nature of compliance delayed until after ratification

Includes use of sinks (forest, cropland, and grazing land management, and revegetation are eligible activities)

No quantitative cap on the use of flexible mechanisms (emissions trading, CDM, joint implementation)

U.S. Position The current U.S. position is that it will

not become a Party to the Kyoto Protocol

President Bush has stated that the Protocol is “fatally flawed” because it does not include commitments for developing countries and because it would harm the U.S. economy

Rejection of Kyoto Protocol does not change U.S. commitments under the Framework Convention (UNFCCC)

U.S. Policy

Reduce GHG intensity of U.S. economy by 18% by 2012

Enhanced GHG emissions reporting with baseline protection and credit for early action

Voluntary emission reduction commitments – opt in programs such as Climate Leaders

U.S. Policy

Increased Budget Levels/Tax Incentives Science Technology Energy Efficiency

Bilateral Programs – Canada, Mexico, Japan, others

Technology Partnerships

U.S. Policy - Significance

New metric for success - emissions intensity

Provides transferable credits Change in policy debate

Allows for dialogue to begin, even among Republicans

Sets tone for debate President politically commits to

stabilization

Congress

More focus in Senate than House Energy bill, multi-pollutant

legislation, registry bills, cap and trade

Bills Introduced to Begin Debate Anew - McCain/Lieberman; NCEP

New Byrd/Hagel legislation

States

CA. AB 1493 implementation New England/Eastern Canada

CCAP NY Pledges California-type

program RGGI – 10 New England states,

plus two observers Cooperation among CA, OR, WA

Key Events -Domestic

Implementation of new U.S. policy

Budget outcome New Cabinet Leadership Team State Legislation

International Concerns

Lack of US seats on governing bodies Attacks on technology Violation of single-basket principle Use of trade barriers against non-

parties Lack of consistency between Kyoto and

non-Kyoto parties Increasing gap between parties and

non-parties

Key Events - International

Russian Ratification European Trading System Kyoto Entry Into Force Blair G-8/EU Initiative

Perspectives

KP Process Moving Forward Despite Bush Administration View

KP Remains Market-Based Mechanism But Threatens to Become Less

International Dialogue Slowed by Economic/Competitiveness Concerns

Bush Program Initially Helpful But . . .

Perspectives (cont.)

Legislative activity picking up at Federal and State Level

California and New York programs of concern to industry

9/11 and War(s) continue to take focus away

Budget concerns mounting

Perspectives (cont.)

Environment Not Priority of Bush Political Base

Administration slow to implement its program

Mixed Messages to Industry Unlikely to Produce Enough Voluntary Action in Near Term Nor Spur Technology Revolution

Perspectives (cont.)

KP Probably Not Sustainable Long-Term Without US

No Consensus on Long Term Objective, Policy Cannot Move Forward Without It

Global Cooperation is Key to Achieve Long Term Objective

Perspectives (cont.)

US multi-nationals covered by KP outside US

Significant voluntary announcements (autos, General Electric) show continued engagement

State activity in US causes US business to remain vigilant

Administration Goals

Complete Registry Rulemaking Substantial Technology Program$$ Significant Sector Voluntary

Programs Push Back on Mandatory Legislation Bilateral Program Announcements Technology Partnerships

Path Forward

Global Dialogue on LTO among major emitting nations

Significant Technology Challenge

Develop “Marshall Plan” for developing country climate initiatives

ICCP Activities

Focus on Registry Rulemaking Participate in Legislative

Discussions at Federal and State Level

Monitor Budget and Appropriations Process

Develop Dialogue on Long-Term Objective

ICCP Activities (cont.)

Monitor Market Mechanisms in KP

Maintain Liaison with International Officials and Business Community

Monitor Individual Country Program Development