Clinton's surprise for Kyoto hints of climate change policy shift

President Bill Clinton, designating Vice President Al Gore as policy point man at Kyoto Gore is "perfectly prepared to walk away" from any agreement that the U.S. deems unrealistic.

U.S. President Bill Clinton last week surprised delegates to the Third Conference of the Parties (COP3) to the U.N. Framework Convention on Climate Change in Kyoto by announcing that he would send Vice President Al Gore to attend the Dec. 7 session of the meeting to put forward his administration's proposal on climate change.

Just what those proposals are was still unclear at presstime, but indications are that a U.S. policy shift is emerging, one that may scuttle any chances for a far-reaching treaty that would inordinately penalize producers and consumers of fossil fuels worldwide.

Clinton cautioned that Gore is "perfectly prepared to walk away" from any agreement that the U.S. deems unrealistic. Meanwhile, U.S. officials indicated the Clinton administration is willing to embrace the concept of multiple emissions-reduction targets.

That would be a key shift in policy that earlier had called for an across-the-board, uniform cut for all industrialized nations and might lead to a compromise treaty that would allow each nation, or certain groups of nations, to set individual targets.

Changing U.S. stance

The U.S. position has undergone an apparent change since the beginning of the COP3 summit, in offering a surprise compromise on the heated issue of "differentiation" (different emission targets for different countries).

"We are prepared to consider the possibility of limited, carefully bounded differentiation" Melinda Kimble, U.S. assistant secretary of state, told the opening session of the summit.

However, the U.S. has failed to come up with any criteria for "differentiation," and its proposal has generally been greeted with much criticism.

"This is a negotiating tactic to draw other conferees closer to its position," argued one European Union delegate. The summit's chairman, Raul Estrada Oyuela, expressed concern that, when differentiation is discussed, proposed reduction goals "will go through the floor and not the ceiling."

Consensus sought

Nevertheless, treaty proponents hope that the concession by the U.S. will go some way towards achieving some sort of consensus over legally binding targets for the industrialized (the so-called Annex I) nations to reduce their greenhouse gases from 2000 on.

Until now, the U.S. has been pursuing a flat-rate target for all industrialized nations. The European Union, however, has been calling for an overall 15% reduction from 1990 levels, but with individually tailored targets for its members, ranging from a 25% cut in emissions for Germany to a 40% increase for Portugal.

Canada and New Zealand have also unveiled their own proposals, with Canada calling for Annex I nations to cut their greenhouse gas emissions by 3% from 1990 levels by 2010 and to carry out another 5% cut by 2015. New Zealand, meanwhile, is calling for a 5% reduction by 2010.

Meanwhile, the U.S. has continued to insist on "the meaningful participation of key developing nations" in international efforts as a prerequisite for its own reduction commitment. However, this has drawn angry reactions from a number of developing countries: "Such a move would go clearly beyond the Berlin Mandate, and is totally unacceptable" said a Tanzanian delegate. India and Brazil, noting such proposals to bring in developing countries, backed up his comments that "this is an extraneous distraction from the main purpose of reducing emissions from the main Annex I polluters."

The Berlin Mandate, which was agreed to among signatories in their first conference in 1995, stipulates that legally binding targets for industrializ ed nations to reduce greenhouse gas emissions would be set at the Kyoto meeting. It clearly states that developing countries are not required to bear any new commitments.

However, industrialized countries hope to see an agreement that would pave the way for their future participation.

Meanwhile, a Chinese representative sharply criticized industrialized nations' attempts to allow flexibility in setting and achieving targets in their greenhouse gas emissions, as well as trying to impose targets on non-Annex I parties: "These are political moves to let some countries evade their responsibility."

Clear goals sought

Michael Zammit Cutajar, executive secretary on the U.N. Framework Convention on Climate Change, said during the opening session that there should be "no fudge" in whatever agreement is reached in Kyoto, and called for clearly defined goals and rules to attain those goals.

"The outcome of this conference will be a product that has to be sold to legislators and taxpayers, sold to investors, producers, and consumers," he said. "It is important, therefore, that this product be well designed if its marketing is to be successful."

However, rifts are clearly emerging between the various parties. There have been increasing efforts by the U.S. and others to attack the EU position, and one International Energy Agency official told OGJ that he would be surprised to see any really radical proposals coming out of this summit. "They will torture themselves on the last day, hammering out a final agreement that will please very few."

OPEC view

Meanwhile, representatives from the Organization of Petroleum Exporting Countries have said that the widespread introduction of emission reduc- tion targets threatens their nations and would inflict annual losses of at least $20 billion, collectively, on OPEC members.

They added that any restructuring of the current energy tax system "must be accompanied by compensation for those countries that may have suffered economic injuries as a result of climate change itself or the mitigation measures...According to our projections, by the year 2010, 10 of the 12 countries in the world most dependent on fossil fuel sales will be OPEC members.

"This means that they are the ones that will be most hard-hit by any measures taken at this conference."

OPEC is therefore calling for, among other things, a reform of currently proposed carbon taxes to be levied on all fossil fuels in proportion to their carbon content, and not, as is the case now, disproportionately on oil products: "Such an approach is logical, if the threat is indeed real."

IEA statement

Meanwhile, many ministers attending the meeting have endorsed a statement by the International Energy Agency. It points out that, although the last 20 years have seen the overall carbon content of IEA countries' energy requirements declining, the observed rate of "decarbonization" of energy is unlikely to be maintained in the absence of any specific responses, in part because nuclear programs have been halted or slowed in most countries.

It adds that, in the absence of new CO₂ limits and reduction measures, economic growth will continue to cause increased energy-related CO₂ emissions. This is especially true of developing countries, where it estimates CO₂ emissions could double during 1990-2010.

However, IEA points out that national circumstances and energy systems vary widely among and within IEA countries and that there is therefore no single mechanism to reduce emissions.

Nevertheless, it stresses that the timetable of commitments is of particular importance and should be compatible with capital stock turnover in the energy sector and the wider economy, because "the magnitude and age of existing energy infrastructure constrain the rate at which cost-effective reductions in energy-related emissions can be achieved in the near term."

Enhanced use of the best technology available, it says, could help reduce energy requirements and emissions, but barriers to the adoption of available and cost-effective technologies will have to be overcome.

"But in the final analysis, market dynamics, the rigidity of infrastructure, capital stock turnover rates, and consumer preferences fix the basic parameters of viable response options," the agency said.

Given so many factors at play, the IEA notes, there can be no single response option that alone will prove viable. As a result, it is necessary to define a mix of policies.

"Nevertheless, energy pricing that better reflects costs provides both economic and environmental benefits: the phased reduction of fossil fuels subsidies and the incorporation of identifiable and measurable externalities into prices will generally be the key components of the response to climate change.

"At the same time, international or national emissions trading or other innovative means of reducing costs and sharing burdens may offer efficient means of controlling greenhouse gas emissions, provided that an acceptable system can be found."

Industry view

Meanwhile, the European Round Table of Industrialists (ERT) has proposed a 12-point action plan that includes encouraging cooperation between government and industry to reduce emissions on a voluntary basis; calling for incentives to speed up the development and use of renewable energy sources; encouraging technology cooperation with developing countries; developing a system of tradable permits; encouraging of the use of nuclear power; promoting energy efficiency and energy efficiency labeling on energy-consuming products and buildings; and developing CO ₂ "sinks," such as sustainable forestry. (CO ₂ sinks involve the removal of CO ₂ and other greenhouse gases from the atmosphere by trees and other CO ₂-absorbing mechanisms.)

In the meantime, the ERT remains "strongly opposed" to any new or increased carbon, energy, or combined carbon/energy tax.

It notes that Europe already operates with energy costs about 40% higher than other regions and argues that any such tax proposals will harm European competitiveness unless there is full compensation for industry.

Petroleum company views

Robert W. Haines, manager of international government relations at Mobil Corp., told OGJ that any agreement coming out of the summit should be flexible enough to allow individual countries to take appropriate measures.

He added that "a lot of proposals are being put forward, but with little analysis of what they would cost and how they could be effectively implemented. Such issues should be dealt with before, not after, the signing of any agreement."

Clement B. Malin, vice president of international relations at Texaco Inc., added that the oil industry will find any targets and timetables signed at the summit objectionable "per se, since we do not agree to command and control from outside. At the same time, industry feels that the scientific knowledge at this time does not warrant what could be potentially costly actions."

"They are calling this an environmental conference, but in reality this is a conference about energy and economics. Yet industry feels like it's been completely left out of the process, even though it will be the most affected by it," said Haines.

The two officials added that a reasonable outcome to the summit would be one that recognizes: that scientific knowledge of the problems confronting the earth is inconclusive and limited; that viable and large-scale alternative technologies do not as yet exist; that regulatory interference on industry be kept to a minimum; that each country be allowed to develop at its own rate; and that there be compensation for financial hurt caused by any of the (legally binding) proposals reached at the summit.

Nevertheless, they conceded that the drive towards more environmentally friendly energy production and use "provides us with tremendous opportunities for technology transfer. With government aid falling, private sector investment is becoming increasingly important."

Alternate energy funding

This conclusion falls in line with that of the Global Environmental Facility (GEF), which operates the financial mechanism of the U.N. Framework Convention on Climate Change.

"The GEF is only a catalyst for leveraging funds from alternative sources, of which the private sector is by far the most important," a GEF delegate told the conference.

He said that since GEF's implementation, about $10 billion has been spent on environmentally friendly energy projects, yet, of that sum, less than $2 billion has come from the GEF itself: "In other words, the leveraging ratio is about 1:5, and increasing."

"The result is that we can see very impressive results from a limited amount of spending. India, for example, has boosted from 30 MW to 700MW (the amount of) electricity generated by non-fossil fuel power. Yet for the GEF itself, the whole project has cost just $60 million-the rest has come from associated loans from alternative parties."

The GEF says that it will be requesting a further $2 billion in additional funding next year to cover a 4-year period. Adding unused funds rolled over, this amount should increase to $2.75 billion. However, this sum could well be bigger, says the GEF, since the U.S., which to date has only paid 60% of its contribution, has indicated that it will pay the remainder when the fund is replenished next year.

Gas cogeneration prospects

The International Cogeneration Alliance (ICA), meanwhile, argues that substantial cuts in CO ₂ emissions can be achieved by gas-fired cogeneration in particular. It estimates that the EU could reach a 30% gas cogeneration share of total electricity production by 2010. This would eliminate 221 million metric tons/year of CO ₂ emissions by 2010, or 46% of the EU 15% negotiating target for CO ₂ emissions. Australia could see its share of gas cogeneration rise from 5% to around 20% by 2010 if a wide range of market barriers were removed. This would amount to a CO ₂ savings of about 29 million tons/year, or 34% of the cut required by Australia to achieve a 15% emissions reduction from 1990 levels. The U.S., meanwhile, could see up to 680 trillion watt-hr generated by cogeneration plants, cutting about 40 million tons/year of CO ₂ emissions, or 10% of the cut required to bring emissions down to 1990 levels by 2010. The IAE adds that the carbon saving potential for cogeneration in the U.S. is especially great. Not only is the efficiency of power production low (around 30%), but the coal share is also particularly high-around 50%. Meanwhile, a delegate from the European Bank for Reconstruction & Development said that the bank expects "plant rehabilitation with environmental upgrades to account for the largest proportion of investment in the future. A significant proportion of that will comprise cogeneration plants."

Robert Haines
Mobil Corp.

"They are calling this an environmental conference, but in reality, this is a conference about energy and economics. Yet industry feels like it's been completely left out of the process, even though it will be the most affected by it."

This is the second of three articles on how the global climate change will affect the petroleum industry.

Next week: Wrapup of the Kyoto conference.