Good Morning, Mr. Chairman and members of the Committee. 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 Committee 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 on this issue. A list of our member companies and associations is attached.

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. In circumstances where there is marginal value in an emission reduction investment, granting credit may provide the incentive for such investments.

Companies that have already taken action or are contemplating doing so want to ensure that these contributions are not ignored 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, while potentially benefiting competitors who save their least costly reductions to respond to regulatory mandates.

Industry's aim is to ensure that these early investments that result in emission reductions are recognized and "credited." Such credit could be used to offset future obligations that may arise from any domestic allocation, cap, tax or permit program or sold to parties unable to meet their obligations in a cost-effective manner.

ICCP has outlined a series of principles on credit for early action that we believe should guide the legislative and policy process on this issue.

ICCP Credit for Early Action Principles

• Credit for early action programs will require new statutory authority. Failure to enact a credit program at the Federal level may stop companies from making commitments now and encourages a patchwork of inconsistent Federal, state, and local initiatives.
• No limit should be placed on the amount of emissions reductions or enhancement of sinks for which early action credit can be earned.
• Credit should be granted for actions resulting in verified emissions reductions or enhancement of sinks that occur between 1990 and the beginning of any official budget commitment period, whether or not such actions were part of a government-sponsored voluntary initiative.
• A process should be established to determine and "lock-in" appropriate baselines for emission reduction activities including facility operations, product-based initiatives, and enhancement of sinks. Such a process should be flexible enough to reflect special circumstances, including unique considerations related to reductions already achieved.
• Credits granted prior to a first budget commitment period should be available without discount as offsets against any greenhouse gas emission allocation, cap, tax, permit, or other requirement to limit or reduce greenhouse gas emissions that subsequently may be imposed.
• Credits granted prior to a first budget commitment period should be usable in any national emission budget that may be subsequently imposed. Credits should remain with the earning entity for use at their discretion.
• Emissions reductions or enhancement of sinks produced from participation in the Clean Development Mechanism, Joint Implementation, or a domestic emissions trading program should be eligible for early action credit if they occur prior to a first budget commitment period.
• Credits generated from credit for early action programs should be eligible for emissions trading.
• Credit accounts should be updated on an annual basis.
• Credit programs should be integrated to ensure consistency and to avoid "double counting".

In February of this year ICCP sent a letter to each member of the Senate urging them to co-sponsor S.547, the "Credit for Voluntary Reductions Act." At that time we stated that the bill was a credible start in addressing the issue of credit for early action, but we also identified several issues that needed additional discussion and resolution such as how to address products that use or emit greenhouse gases and how to deal with growth.

As discussions on this issue have progressed, ICCP has come to the conclusion that, in the current political climate, efforts to enact credit for early action legislation would be enhanced by pursuing a simplified approach. We are currently having discussions with Senate staff on how to address these issues.

The goal of the legislation should be to accomplish three things:

1. Provide legal guarantees to any entity that acts voluntarily to achieve verifiable reductions related to products, processes, or operations, that it will not be disadvantaged by a future regulatory program to control greenhouse gas emissions.
2. Provide a mechanism for verifying any actions that occurred between 1990 and 1999, under Energy Policy Act Section 1605 (b), as part of the US Climate Change Action Plan, or any other activity in which the entity is able to demonstrate verifiable reductions.
3. Provide a mechanism for prospective actions which, subject to negotiation of an agreement with the government, produce verifiable reductions.

We believe that S.547 embodies these three goals.

With respect to past and future reductions, a series of principles should be delineated to guide the private sector, other entities, and government officials to use in both verifying past reductions and negotiating agreements for future reductions.

The intent of the program should be to encourage experimentation on the part of government, industry, and the environment community, and not to constrain the ability to develop new and creative methods for implementing and achieving verifiable reductions.

While this program may require flexibility in terms of the precise value of the credited reductions, it should be firm that the credits exist as a matter of legal right.

In order to ensure an open process, it should also provide for public participation in the verification procedure, notice and , and public disclosure of future negotiated agreements.

The program should not limit government participation by any particular department or agency. The principles of the bill could be used by any department or entity to craft verification agreements. These principles, in our view, should be consistent with those we have previously outlined and are found in S.547.

For purposes of prior acts, the bill should require all those who seek credits for prior acts to file a request with the government within 12 months of enactment. The government would be required to certify the credited reductions within 12 months after submission in a direct final rule. The direct final rule would be subject to and would take effect unless challenged during the period.

It has been suggested that supporting credit for early action legislation may unwittingly create support for the Kyoto Protocol. We do not agree. Many companies have already taken action based on the Framework Convention on Climate Change, which was ratified by the U.S. Senate in 1992. This agreement called for the US to attempt to stabilize its greenhouse gas emissions at their 1990 level by the year 2000. Those who have acted in good faith or who take action prior to any mandatory program should receive legally binding assurances that their verified reductions will be credited, regardless of the underlying basis for some future regulatory mandate.

The Energy Information Administration of the Department of Energy just released a report that summarizes voluntary actions taken in 1997. (Executive Summary is attached.) Similarly, the Environmental Protection Agency reports annually on the results of efforts under the voluntary Climate Change Action Plan. These actions amount to hundreds of millions of metric tons of carbon equivalent emission reductions.

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 the program in advance of any regulatory requirements.

Climate change presents a complex environmental challenge. The political and economic concerns raised in attempts to address the issue are significant both internationally and here in the United States. Credit for early action discussions can be neutral on whether it advances or detracts from the Kyoto Protocol.

The fact remains, though, that 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.

At this time we are discussing a voluntary and verifiable program. To the extent that some wish to see much greater detail in this legislation, to turn the discussion to the design of a pseudo-regulatory program, we would say that such detail may be unachievable.

We are prepared to work constructively to arrive at a consensus with other business groups, environment NGOs, and government officials, on a workable voluntary program.

We applaud Senator Chafee and the co-sponsors of S.547 for a commendable start. We look forward to working with you to ensure a successful conclusion.