U.S. Stands Firm in Rejecting Kyoto Framework; Europeans and Canada Move Forward with Implementation

In early December 2005, the United Nations hosted an international Climate Change Conference (“Conference”) in Montreal, Canada. The purpose of the Conference was to discuss the future of the Kyoto Protocol after its expiration in 2012. The Conference resulted in the adoption of forty decisions, including an agreement to begin negotiations on a second round of binding emission reduction targets for the post 2012 time period. The results of the Conference were overshadowed however by continuing tension between the United States, which has opposed binding emission restrictions, and those countries that have ratified and begun implementing the Protocol.

Notwithstanding the United State’s refusal to commit to non-voluntary emission reduction measures, the Europeans and other countries that have ratified the Kyoto Protocol focused on moving the existing Kyoto framework forward with willing participants. On this front several significant commitments were achieved. To streamline the implementation of the Kyoto Protocol during the initial 2008-2012 operation, the signatories adopted the so-called Marrakech Accords -- essentially a rule book for Kyoto’s three main mechanisms: International Emissions Trading; Clean Development; and Joint Implementation. The Accords also include accounting principles and procedures; legal rules; and a compliance regime.

A decision was also made to streamline the Protocol’s Clean Development Mechanism (“CDM”). The CDM allows developed countries to earn greenhouse gas reduction credits by investing in clean development projects in developing countries. The CDM process had been criticized for being overly complex and bureaucratic. In Montreal, the parties simplified the process by which projects get approved and strengthened the CDM governing body, thereby reducing red-tape.

The parties also agreed to formally launch the Joint Implementation (“JI”) mechanism of the Protocol. JI is a mechanism whereby developed countries can earn emission allowances, which they can use to meet their emission reduction requirements, for projects undertaken in other developed countries. This will be a particularly valuable tool for Western European nations to earn allowances from projects developed in central and Eastern European countries where numerous emission reduction opportunities exist.

The most significant result coming out of Montreal, however, was an agreement to begin negotiations to extend the Kyoto Protocol beyond 2012. The European Union, Japan, Canada, New Zealand and Russia agreed to begin negotiating the next round of binding emission reduction targets. These negotiations will begin in May 2006 and will focus on the individual emission reduction commitment for each nation that has ratified the Protocol. Australia and the United States were the only major developed nations not to agree to participate in the negotiations.

Overriding the accomplishments of the Conference was the deepening division between the United States and those nations that have ratified Kyoto, led primarily by Europe and Canada. The United States continues to oppose any mandatory limits on emissions or any agreement that requires non-voluntary measures. The Bush Administration has been accused of actively trying to derail the climate change talks. In Montreal, the U.S. position was openly assailed. Canadian Prime Minister Paul Martin called upon the U.S. to join the international process. “To those reticent nations, including the United States, I say this: There is such thing as a global conscience. … Now is the time to listen to it. Now is the time to join with others in our global community. Now is the time for resolve, for commitment, for leadership, and above all, now is the time for action.” To this charge U.S. Undersecretary for Democracy and Global Affairs, Paula Dobriansky replied, “Prime Minister Martin called for action, and the United States is taking action … as a country, we remain very engaged.” However, she noted that the U.S. has a “different” strategy for dealing with the problem.

While disagreement over Kyoto is nothing new, the conference host, Canada, had hoped that Montreal would represent a rapprochement amongst countries with different views on the best approach to tackling climate change.Canadian Environment Minister Stephane Dion opened the conference hopeful to “set our sights on a more effective, more inclusive long-term approach to climate change.” The result was, in fact, the opposite. The Europeans, along with other countries that have ratified Kyoto made it clear that they are prepared to move on without the United States in implementing and extending Kyoto. For its part, the U.S. made it just as clear that it will not succumb to international pressure and will continue to resist mandatory targets.

Caught in the middle of this international political drama are American businesses, including multinationals which, despite the position of the Bush Administration, are being forced to decide how to deal with their global greenhouse gas emissions. Already, some American industries are facing mandatory limits on emissions of carbon dioxide and other greenhouse gases as a result of state and local regulatory efforts. A group of states, including Washington and Oregon, have placed limitations on the emissions from large fossil fuel-fired power plants. Other states, including nine Northeastern states, are on the verge of establishing regional greenhouse gas emissions trading programs. These and other efforts by state regulators are forcing companies to address emission reductions. “[S]tate action will compel more companies to seek nationwide regulation from Congress,” explains Eileen Claussen, president of the Pew Center on Global Climate Change. “Companies don't want to see a patchwork of state regulations. As more states get involved, it ups the ante.”

Other companies are moving swiftly to reduce their greenhouse gas emission — despite the Bush Administration's opposition to mandatory limits on the basis that it makes sound business sense. “If we stonewall this thing to five years out, all of a sudden the cost to us and ultimately to our consumers can be gigantic,” stated Cinergy Corp. CEO James E. Rogers in a recent article in Business Week discussing efforts by American companies to reduce GHG emissions. “The regulations will change someday” Rogers added, “and if we’re not ready, we’re in trouble."