Good Afternoon, Mr. Chairman and members of the Subcommittee. My name is Kevin Fay and I serve as Executive Director of the International Climate Change Partnership (ICCP), a coalition of U.S. industry representatives and associations, as well as international associations, interested in the policy development process with respect to global climate change. We appreciate the opportunity to appear before the Subcommittee today on the subject of credit for early action to voluntarily reduce greenhouse gas emissions.

ICCP was organized in 1991 to provide a forum to address the issue of global climate change and to be a constructive participant in the policy debate. We continue to recognize the climate change issue as an important matter with which governments should be concerned. We are one of the largest industry coalitions in the world dedicated to this issue.

ICCP has consistently stressed the need to provide legally binding assurances that voluntary actions to reduce greenhouse gas emissions will be credited in any future mandatory scheme adopted by the government. Such "credits" should be granted to those companies that achieve verified reductions between 1990 and the commencement of any mandatory program.

Voluntary efforts to reduce emissions of greenhouse gases now can slow the rate of growth of emissions and contribute to the longer-term goal of achieving appropriate greenhouse gas concentration levels. Because of the long atmospheric lifetimes of these substances, there are significant environmental benefits associated with reductions made today versus sometime in the future. In addition, by flattening the trajectory of the "business as usual" curve, we reduce future economic disruption and dislocation. In circumstances where there is marginal economic value in an emission reduction investment, granting credit may provide the incentive for such investments.

It has been suggested that supporting credit for early action legislation may unwittingly create support for the Kyoto Protocol, and that instituting a credit for early action program is tantamount to implementation of the Kyoto Protocol. We do not agree.

ICCP believes that the Kyoto Protocol is incomplete, should not be ratified in its current form, and should not be implemented without the advice and consent of the Senate. While the treaty is a good start in establishing a market-based framework for addressing the issue on a global basis, it is a work in progress. It sets ambitious targets to be met in an unrealistic timeframe and does not provide for developing country participation. The treaty negotiators have also failed to identify an appropriate long-term objective.

Concern has also been raised that by granting credit for early action, companies who participate will have an economic interest in ratification of the Kyoto Protocol and will become supporters of the treaty. ICCP believes that credit for early action legislation can be "Kyoto Protocol-neutral". Regardless of the fate of the treaty, investments made in energy efficiency and the reduction of greenhouse gas emissions should be legally protected if and when any mandatory program to control greenhouse gas emissions is implemented.

While the U.S. debates whether certain government actions constitute "back door" implementation of the Kyoto Protocol, other countries such as Japan and European Union nations are actively designing and implementing policies and measures that will reduce greenhouse gas emissions. These initiatives will spur technology and innovation in these nations thus potentially giving them a future competitive edge. U.S. companies that compete in these markets are forced to respond to these conditions regardless of their views on the Kyoto Protocol. The competitiveness of these companies could be affected by the lack of resolution of the credit issue and the lack of support in Congress for climate-related research, development, and technology programs.

Under the Bush Administration, the U.S. signed the United Nations Framework Convention on Climate Change (UNFCCC or Rio treaty), which was ratified by the Senate in 1992. This agreement establishes 1990 as the baseline for measuring greenhouse gas emissions and requires all signatories to take measures to reduce them. Responding to this commitment and to the subsequent U.S. Climate Change Action Plan (CCAP), many companies have already taken steps to reduce their greenhouse gas emissions. Enactment of credit for early action legislation represents "open door" compliance with the Framework Convention and sends a positive public policy message that those who acted in response to this national commitment will not be penalized.

Companies that have already taken action or are contemplating doing so want to ensure that these contributions are not ignored if or when a mandatory phase of emission reductions begins. Failure to recognize these contributions could unfairly force companies to make reductions through increasingly more costly options. This would have the perverse effect of penalizing those companies who act early.

The current legal vacuum provides a disincentive to companies that wish to reduce greenhouse gas emissions or enhance carbon storage. Based on past experience, there is a real fear that early actions will be punished by lower emission baselines as the starting point under an eventual regulatory program.

In addition to removing the existing disincentive to action, a credit for early action program could provide an additional incentive for technical innovation. This is the time to experiment with a broad range of options and to more precisely determine the costs and benefits of various opportunities for reduction. This type of experimentation and innovation not only spurs economic growth, it provides an insurance policy against truly wrenching economic impacts in case much deeper cuts in emissions are necessary in the future.

Finally, while many have touted the success of market-based mechanisms in reducing environmental compliance costs, the fact remains that our experience with such mechanisms is very limited. An active credit for early action program could provide useful experience and educate the government and industry alike as to policies that should be avoided.

It has been argued that small businesses and farmers will be hurt by a credit for early action program. We do not agree. ICCP is currently encouraging a simplified approach to credit for early action that will allow small business to participate with minimal administrative or beauracratic burdens. Discussions have also included the issue of credit for changes in land management practices that could allow farmers to participate. In addition, the program should create a market for the technical innovations that are often made by small, entrepreneurial companies. Last but not least, we should keep in mind that this is an entirely voluntary program. There are no mandates for small business or farmers' participation.

It has been argued that companies that do not act early will be hurt if the government provides credit to those that do. Again, we do not agree. A successful early action program will reduce the overall level of reductions required under any regulatory program. Companies that don't make early reductions will thus have fewer reductions to make and will benefit from the lessons learned by the early actors and the innovations and new technologies that have resulted from these experiments. Moreover, because there will be a pool of reduction credits available, non-early actors will have much lower-cost compliance options available to them.

ICCP believes that credit for early action legislation should not discriminate against "non-actors". The window of opportunity for investment in more energy efficient equipment, processes or products varies among companies. Credit for early action legislation should not force premature capitol stock turnover or penalize companies that choose not to make reductions voluntarily.

The precedent for crediting early action was established in the 1990 Clean Air Act amendments, when companies who moved early on sulfur dioxide emissions reductions received additional consideration in the subsequent sulfur trading program. Relying on this statutory precedent is important for the climate change issue. However, given the scope of industries covered and the enormous task to be undertaken, the government should go on record now by developing experience in advance of any regulatory requirements.

The United States is on record in support of responsible action to address greenhouse gas emissions. We have ratified the Framework Convention on Climate Change. Congress has funded a variety of activities under the Climate Change Action Plan and other significant government programs. It is not unreasonable to request assurance from the government that these activities, whether past or in the future, not place the voluntary actors in future regulatory jeopardy.

There are a number of legislative proposals that seek to address this short term aspect of a domestic climate change policy. ICCP commends:

• The efforts of Senators Chafee, Lieberman and Mack to eliminate the disincentives and provide credit for voluntary actions to reduce greenhouse gas emissions and the enhancement of carbon storage.


• The efforts of Senators Murkowski and Hagel to compel more systematic attention to the long-term challenge of climate change and to focus on the necessary role of research and technology in meeting that long-term challenge.


• The efforts of Representatives Lazio and Dooley to advance credit for early action on the House side.

While none of these initiatives meets all of our objectives, we are committed to working with the appropriate parties to address specific ICCP concerns such as provision for growth and product coverage. (ICCP's principles on credit for early action and our simplified approach to credit legislation are attached.)

It is time to start forging a bipartisan national strategy for addressing the climate change challenge. That strategy should begin by liberating and systematically rewarding the leadership of U.S. industry in this global cause.

U.S. industry will be a major player in developing technologies to reduce greenhouse gas emissions, making investments in equipment, facilities and products and generating reductions in their operations and products. Enactment of legislation that removes disincentives for early action and that preserves investments already made will help to retain our competitive edge and provide significant economic and environmental benefits for our nation and the world.