At a conference held December 1-11 1997, in Kyoto, Japan, the parties to the UN Framework Convention on Climate Change (FCCC) agreed to an historic protocol to reduce greenhouse gas emissions by harnessing the forces of the global marketplace to protect the environment. 

The protocol makes a down payment on the meaningful participation of developing countries, but more needs to be done in this area. Securing meaningful developing country participation remains a core U.S. goal. 

EMISSIONS TARGETS  

A central feature of the Kyoto Protocol is a set of binding emissions targets for developed nations. The specific limits vary from country to country, though those for the key industrial powers of the European Union, Japan, and the United States are similar -- 8% below 1990 emissions levels for the EU, 7% for the U.S., 6% for Japan. 

THE FRAMEWORK FOR THESE EMISSIONS TARGETS IS BASED LARGELY ON U.S. PROPOSALS: 

-- Emissions targets are to be reached over a five-year budget period as proposed by the U.S., rather than by a single year. Allowing emissions to be averaged across a budget period increases flexibility by helping to smooth out short-term fluctuations in economic performance or weather, either of which could spike emissions in a particular year. 

-- The first budget period will be the U.S. proposal of 2008-2012. The parties rejected proposals favored by others, including budget periods beginning as early as 2003, that were neither realistic nor achievable. 

-- The emissions targets include all six major greenhouse gases. The EU and Japan initially favored counting only three gases - carbon dioxide, methane, and nitrous oxide. Ensuring the inclusion of the additional gases (synthetic substitutes for ozone-depleting CFCs) that are highly potent and long-lasting in the atmosphere provides more comprehensive environmental protection and lends more certainty concerning the treatment of the additional gases. 

-- Activities that absorb carbon, such as planting trees, will be offset against emissions targets. The treatment of these so-called "sinks" was another controversial issue at Kyoto. Many countries wanted sinks to be excluded. The United States insisted that they be included in the interest of encouraging activities like afforestation and reforestation. Accounting for the role of forests is critical to a comprehensive and environmentally responsible approach to climate change. It also provides the private sector with low-cost opportunities to reduce emissions. 

INTERNATIONAL EMISSIONS TRADING  

The United States prevailed in securing acceptance of emissions trading among nations with emissions targets. This free market approach, pioneered in the U.S., will allow countries to seek out the cheapest emissions reductions, substantially lowering costs for the U.S. and others. 

Under an emissions trading regime, countries or companies can purchase less expensive emissions permits from countries that have more permits than they need (because they have met their targets with room to spare). Structured effectively, emissions trading can provide a powerful economic incentive to cut emissions while also allowing important flexibility for taking cost-effective actions. The Kyoto Protocol enshrines emissions trading. Rules and guidelines -- in particular for verification, reporting, and accountability -- are to be discussed at the next meeting of the parties at Buenos Aires in November 1998. 

The inclusion of emissions trading in the Kyoto Protocol reflects an important decision to address climate change through the flexibility of market mechanisms. Led by the United States, the conference rejected proposals to require all parties with targets to impose specific mandatory measures, such as energy taxes. 

The United States also reached a conceptual agreement with a number of countries, including Australia, Canada, Japan, New Zealand, Russia and Ukraine, to pursue an umbrella group to trade emissions permits. Such a trading group could further contribute to cost-effective solutions to this problem. 

JOINT IMPLEMENTATION AMONG DEVELOPED COUNTRIES 

Countries with emissions targets may get credit towards their targets through project-based emission reductions in other such countries. The private sector may participate in these activities. 

Additional details may be agreed upon by the parties at future meetings. 

CLEAN DEVELOPMENT MECHANISM  

Another important free market component of the Kyoto Protocol is the so-called "clean development mechanism" (CDM). The CDM embraces the U.S. proposal for "joint implementation for credit" in developing countries. 

With the clean development mechanism, developed countries will be able to use certified emissions reductions from project activities in developing countries to contribute to their compliance with greenhouse gas reduction targets. 

This clean development mechanism will allow companies in the developed world to enter into cooperative projects to reduce emissions in the developing world -- such as the construction of high-tech, environmentally sound power plants -- for the benefit of both parties. The companies will be able to reduce emissions at lower costs than they could at home, while developing countries will be able to receive the kind of technology that can allow them to grow more sustainably. The CDM will certify and score projects. The CDM can also allow developing countries to bring projects forward in circumstances where there is no immediate developed country partner. 

Under the clean development mechanism, companies can choose to make investments in projects or to buy emissions reductions. In addition, parties will ensure that a small portion of proceeds be used to help particularly vulnerable developing countries, such as island states, adapt to the environmental consequences of climate change. 

Importantly, certified emissions reductions achieved starting in the year 2000 can count toward compliance with the first budget period. This means that private companies in the developed world will be able to benefit from taking early action. 

DEVELOPING COUNTRIES  

Various protocol provisions, taken together, represent a down payment on developing country participation in efforts to reduce greenhouse gas emissions: 

-- Developing countries will be engaged through the clean development mechanism, noted above. 

-- The Protocol advances the implementation by all parties of their commitments under the 1992 Framework Convention on Climate Change. For example, the Protocol identifies various sectors (including the energy, transport, and industry sectors as well as agriculture, forestry, and waste management) in which actions should be considered in developing national programs to combat climate change and provides for more specific reporting on actions taken. 

-- Developing countries may, as a prerequisite for engaging in emissions trading, voluntarily assume binding emissions targets through amendment to the annex of the Protocol that lists countries with targets. The Kyoto Protocol does not include a separate article for nations to voluntarily assume binding emissions targets. 

Securing meaningful participation from key developing countries remains a priority for the United States. The Administration has stated that without such participation, it will not submit the Kyoto Protocol to the Senate for advice and consent to ratification. 

MILITARY EMISSIONS 

-- Emissions from "bunker" fuels (for international maritime or aviation use) are exempted from emissions limits. 

-- Emissions from multilateral operations pursuant to the United Nations charter are exempted from emissions limits. This includes not only multilateral operations expressly authorized by the UN Security Council (such as Desert Storm, Bosnia, Somalia) but also multilateral operations not expressly authorized that are nonetheless pursuant to the UN charter, such as Grenada. 

-- Countries may decide, among themselves, how to account for emissions relating to multilateral operations (for example, U.S. training in another NATO country). This provision avoids the need to use emissions trading to allocate such emissions. 

COMPLIANCE AND ENFORCEMENT 

The Protocol contains several provisions intended to promote compliance. These include requirements related to measurement of greenhouse gases, reporting, and review of implementation. 

The Protocol also contains certain consequences for failure to meet obligations. For example, as a result of a U.S - proposed provision, a party not in compliance with its measurement and reporting requirements cannot receive credit for joint implementation projects. 

Effective procedures and a mechanism to determine and address non-compliance are to be decided at a later meeting. For both environmental and competitiveness reasons, the United States will be working on proposals to strengthen the compliance and enforcement regime under the protocol. 

ENTRY INTO FORCE  

The Kyoto Protocol will be open for signature in March 1998. To enter into force, it must be ratified by at least 55 countries, accounting for at least 55 percent of the total 1990 carbon dioxide emissions of developed countries. U.S. ratification will require the advice and consent of the Senate.