Business Perspectives Climate Policy in the US and Japan: Prospects in 2005 and Beyond Tokyo, Japan Kevin Fay International Climate Change Partnership May 11, Wilson Blvd, 8th Floor, Arlington, VA Phone: (703) Fax: (703)

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 CO2, CH4, N baseline HFC, PFC, SF 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 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