November 23, 2000

Mr. Frank E. Loy, Under Secretary of State for Global Affairs, and Head of the U.S. Delegation and Mr. David B. Sandalow, Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs (OES) and Mr. Roger Ballentine, Deputy Assistant to the President for Environmental Initiatives

U.S. delegates Roger Ballentine (left), Frank Loy, and David Sandalow field questions Nov. 23. Photo courtesy of IISD/ENB-Leila Mead

LOY: Well allow me to pick up where I left off last night (laughter). But before getting to the issues at hand, let me make clear that this is my last clean suit (laughter), and if there is any other pie thrower in here, please...(laughter as he points to Roger Ballentine).

As many of you know, today is Thanksgiving Day, and we have a saying in America that is particularly appropriate on that day: it is time to talk turkey. And I am pleased to say that we are now talking turkey here in this conference. We have gotten down to business, the parties have begun-I think I have to say begun-to narrow our differences. I think that you all know that Minister Pronk intends to release a new negotiating text very shortly. It is my hope that this will move us substantially toward our goal of making Kyoto a really working reality. A strong environmentally effective, cost-effective agreement that will do right by the climate that we are trying to protect. We will have more to say about the various negotiating issues once we have looked at that text.

Let me say a couple of words, though, about the question of assistance to developing countries, which is one of the elements under discussion here. We in the United States take seriously our commitment under the Framework Convention to help developing countries to fight climate change and to help them move along the path of sustainable development. We in the United States have devoted very substantial resources to technology transfer, to capacity building, and to efforts like that. We are strongly committed to strengthening developed countries' support for these developing countries, and for their efforts both near-term and long-term. We have joined with our negotiating partners in the Umbrella Group to table a proposal that provides new and additional funding for developing country efforts. It has two parts: The first part is essentially a call to developed countries to provide immediate increases in funding, and the second involves the creation of a new mechanism to provide a steady and reliable source of additional funding over the long-term-as much as a billion dollars in the first commitment period. These funds would go toward technology transfer, capacity building, adaptation, and emission mitigation. Developed countries under this plan would make contributions to this new long-term mechanism that are proportional to their assigned amounts of emission allowances. In other words, the largest emitters would make the largest contributions. But all developed countries would contribute. And it is our hope that the parties will agree on the broad outlines of this proposal here at The Hague and launch a process to achieve consensus on the details at COP-7.

There are other proposals that have been floated, and we want to see which of those and in what fashion they are reflected in Chairman Pronk's paper. We have thought very long and very hard about how best to provide this reliable stream of additional funds over the years that I have described, and we think that the Umbrella Group proposal meets the needs in an effective and reliable fashion. I very much hope that this conference will look at that very carefully, and our initial reactions indicate that people in fact are looking at it carefully.

Let me stop there and take questions.

MICHAEL MCCARTHY, THE INDEPENDENT (LONDON): I would like to ask Under Secretary Loy a point of clarification about the United States' sinks proposal. It is a point of fine detail, but then that is where the devil is often alleged to reside. The United States proposal as you have laid before us is that-correct me if I am wrong-is that more than 30 percent of the carbon sequestration potential of the United States forest system should be set against your domestic emissions reduction commitments. Article 3.3 of the protocol says, as of course you know perfectly well, that such an offset can be allowed as long as they are, and I quote, "resulting from direct human-induced land-use change and forestry activities limited to,"-I stress that word-"afforestation, reforestation, and deforestation since 1990." Is it really the position of the United States that at least one third of the entire forest system of the country has either been afforested, reforested or deforested in the last ten years, because if it is not your position, I cannot see how your proposal can be legal under the Protocol.

LOY: Let me ask David Sandalow to clarify that for you.

SANDALOW: Thanks for the question. The United States' proposal is pursuant to the next provision in the protocol, which is Article 3.4, and that gives the Conference of Parties authority to add additional land management activities that may result in the sequestration of carbon.

CHRISTOPHER HOLLY, ENERGY DAILY: Secretary Loy, can you give us some more details about the first component of your funding mechanism? It sounded to me as if it is simply a call for developed countries to contribute funds. Does the U.S. plan to lead the way and specify a dollar amount?

LOY: You are right. The first part, in contrast to the second, involves individual actions by nations to contribute for these purposes in some fashion. The fashion might be development assistance, contributions to the GEF, or other ways. It is intended to be in furtherance of the obligations that we have all undertaken under the Framework Convention. The idea and intent is that these would be in addition to those that were already contemplated or committed. The idea is that it would be a serious political commitment that would be discharged, not just words. I am not in a position to talk about an amount for the United States at the moment though.

ANDY REVKIN, NEW YORK TIMES: There was quite a burst of invective directed at the American negotiators this morning from the environmental community over compliance and penalties. And I wanted to get a rough sense of how you anticipate what kind of mix we might anticipate on financial versus environmental penalties coming out of this thing.

LOY: It is an important topic and I am glad the question arose. We believe that this agreement needs a strong compliance regime, one that will enhance the environmental integrity of the treaty, with incentives to promote compliance as well as binding consequences. We think that good faith is not enough. That in a sense is one of the key distinctions between the Kyoto Protocol and the Framework Convention. What that means, I think, is that if a party goes over the allowed tons, it has to restore those tons. That is a fundamental concept that we have, and it has to restore them, and then some. That means that there must be some sort of penalty rate or interest rate that is enough to discourage delay. You don't want a system where it is cheaper to do it later rather than earlier. It means that a party that goes over its allowable would have to submit a plan for showing just how it will restore those tons. The idea is to make the atmosphere whole. Let me just add two additional points: We have said that we do not believe it is wise to include mandatory financial penalties. We said that for several reasons, but one of them is that they in fact are hard to collect. In our case, and in many cases, it requires the equivalent of appropriated funds from a parliament for a particular case. It is not automatic; it is not sure. You can say it is mandated, but unless in fact it happens through the process, it might not. And second, I think our feeling is that we need to put the incentives on staying in compliance if we can, and that is the idea of the restoration. Let me make one more point: One of the principles that we would like to see in any agreement is parity. That is parity for all Annex I parties. The same kinds of consequences or parallel consequences for all Annex I parties that are not in compliance. We have had some problems with various versions of proposals that we have seen; they seem to us not to have that parity.

EMMA ROSS, ASSOCIATED PRESS: Could you explain a bit of your ideas for making the commitments binding if it is not mandatory, financial penalties? Are there other types of mandatory penalties or voluntary penalties? How do you envision it working if it is going to be binding and not mandatory financial penalties?

LOY: The fundamental proposition is that if you miss your target, you have a treaty obligation in here to restore those tons in the fashion that I described. I think of that as binding because the treaty says that. It is not just that you have tried; you have an obligation to restore them. In fact, you have to do more than restore the exact the number of tons-you have to have some extra. I think of that as quite binding. That requires you to do things, to spend money, to take actions that will in fact accomplish the result. Because it is required, it would be required in the agreement. That would be the concept: it is binding.

BALLENTINE: Let me see if this helps clarify your answer. The distinction is that we are for mandatory obligations, but we think that there is a difference between mandatory financial payments to some entity and mandatory payments to the atmosphere. Ultimately, that is what this is about, and our proposal is for mandatory repayment to the atmosphere because we think that is the party that deserves that repayment, and it is absolutely mandatory.

EMMA ROSS, ASSOCIATED PRESS: If we do not comply in the first place, and then this mandatory payback kicks in, they are not going to comply with the first one. How would you make them comply with the second requirement to comply with the requirements?

SANDALOW: The question you raise is an issue for any proposal, not just ours. It would be an issue as well with respect to the payment of money: What would you do with a country that didn't pay the money? This is an international agreement among sovereign states, and ultimately that controls in situations like this. At the same time, another element of this is, under our proposal, countries that are out of compliance would lose the right to sell emissions allowances or to transfer allowances under a bubble as long as they remain out of compliance.

JOHN FIALKA, WALL STREET JOURNAL: Could you tell us a little more about the fund you suggest? Does it have a name? And then the second is what can a developing country use this money for, and how does it work along with the clean development mechanism? It seems to supplement that somehow.

LOY: We are prepared to call it the Fialka Fund (laughter). You are talking about the second part of our funding proposal, right? Each country gets what is called an assigned amount under the agreement, and the notion is-in simplified terms-to take a small fraction of that assigned amount and to monetize it, if you will, and to use that as the fund that would provide countries opportunities to mitigate. As to the method as to how this would be done-that is, the mechanism for distributing that money-we have made a suggestion in our proposal that involves the GEF. Those are all things under discussion, but that is the basic idea. I do not know if I have answered your question.

JOHN FIALKA, WALL STREET JOURNAL: Does this create a new bureaucracy? Who determines how these would be spent?

LOY: Our proposal is that it would be essentially a mechanism within the GEF that would not require a huge new organization.

ODILE MEUVRET, AGENCE FRANCE-PRESSE: Do I understand correctly that under the second part of your proposal that it would be a sort of mandatory contribution that would come on top of the mandatory contributions to the GEF, which are already in existence?

LOY: This is not intended to take the place of any other GEF contribution. This is totally additional. The question of whether it is mandatory, or the question of whether individual nations could substitute a similar amount in a different fashion, is one of the things that is being discussed.

RICHARD INGHAM, AGENCE FRANCE-PRESSE: Mr. Loy, you have talked at length about these additional funds which would be available for developing countries. Is it not the case that the G-77 group and China have already spoken out quite sharply against it? As I understand it, the EU would also be hostile to it because the funding allocation would be made available for sink projects, to which of course the European Union is opposed. Is not this proposal dead in the water?

LOY: No, it absolutely is not. We have had many discussions with G-77 countries and with the EU. Not everybody says this is the best thing since sliced bread, but it is being very carefully studied. Many countries like it a lot, and I heard the Nigerian minister today, whom I think it is fair to say cast some doubt on it, but we have had discussions with many G-77 countries, and I would not by any means consider this dead in the water. It is extremely alive.

ROBIN POMEROY, REUTERS: Have you already met with Mr. Pronk since the plenary sessions? He was going to invite the heads of some delegations when he prepared his paper. I do not know if he has done that yet or if you have...

LOY: Is the question whether I have?

ROBIN POMEROY, REUTERS: I was going to ask a supplementary question, because this is probably a one-word question.

LOY: I have not.

ROBIN POMEROY, REUTERS: In that case, Mr. Pronk said that everyone was going to have to suffer some pain. What kind of pain do you think you would be prepared to accept from him?

LOY: While I recognize that Minister Pronk is a northern European, and we know that they are acquainted with pain, and in fact they think it is quite therapeutic at times. I come from southern California, and you know that is a very different kind of lifestyle (laughter). I do not know. I think Minister Pronk is trying to be fair, and what he is saying is that he is not going to be able to satisfy everyone one hundred percent, and that is a tautological statement that is obviously true in a situation like that. I would not want to speculate as to what kind of pain. I am hoping that it is quite mild and that a small aspirin will cure it.

JAN-HUGO HOLTEN, NORGES MILJOVERNFORBUND: If the sinks' potential turns out to be larger than anticipated, will the United States be willing to put a cap on the sinks?

LOY: Are we talking about sinks in the CDM, or are we talking about sinks under 3.4? I want to make sure I understand the question.

JAN-HUGO HOLTEN, NORGES MILJOVERNFORBUND: I am talking about sinks under 3.4.

LOY: I think that we have put a cap on the bulk of what we have talked about. We put an absolute fraction or number on that. And then we said that we wanted a system, however, that provided incentives to take additional actions-new actions-that would not otherwise be taken and that would either reduce emissions or increase sequestration, and so on. Our sense was that we would not put a cap on it. If that is an issue-the whole sinks question is under discussion-and if other people feel that that is a mistake, we would look at that. We would look at any of those things.

JONATHAN LEAKE, SUNDAY TIMES OF LONDON: In 1990, America emitted, I think it was 1.3 million metric tons of carbon. It rose to something like 1.5 by 1997. Under your own forecast, it was to rise to just under 2 million metric tons, 1,979 million metric tons of carbon in 2020. That is your current prediction. You have currently risen by 11.5 percent since 1990. This is kind of a basic question-as opposed to the arguments about sinks and helping developing countries and so on. What is America actually offering the world in terms of its predicted carbon output by 2010? What do you think it will be under the current proposals you have on the table now? Will there be a reduction of any sort or even a slowdown in the increase?

LOY: I will ask Mr. Ballentine to respond to that.

BALLENTINE: Let me respond in a couple of ways to that without trying to make sure I got all your figures right. Let me see if this will answer your question. We have-and I think Mr. Loy as well-described this several nights ago, the total amount of effort the United States would need to undertake to comply with this Kyoto target, which we intend to do, is an extremely aggressive 35 percent reduction of our emissions. Even under the most robust estimates of our projected increase in emissions, we know that it is an extremely substantial number. Prior to Kyoto, we had already undertaken measures, policies and plans that will result in significant reductions of emissions in the United States. We strongly anticipate, given the growing concern about climate change in the United States, that any future administration and future Congresses will also add to that and add more programs and measures domestically in the United States to reduce emissions. I cannot put a figure on it for you, but we anticipate significant reductions in emissions in the United States, and frankly we believe the current business as usual predictions... we are going to significantly cut into that with our own domestic programs. Certainly one of the reasons that we are supporting strong compliance measures under the Kyoto Protocol is because we intend to comply with this treaty, and we want the incentives and mechanisms in the treaty that will ensure that everyone else complies with it as well so that we can really make a difference in the fight against climate change.

PETER SPOTTS, CHRISTIAN SCIENCE MONITOR: I want to get back to Andy Revkin's question because I am not sure I heard a direct answer to it. The complaint the environmental groups had this morning essentially was that it appeared as though the U.S. delegation was moving toward a willingness to accept financial penalties of some undescribed version, moving away essentially from the position you just described a few minutes ago. Are you moving in that direction at all?

LOY: If I understand the question, I think the answer is no. We make this distinction between the restoration policy that we have described which involves taking steps to restore the tons and being obligated legally to do so, and the payment of sort of a dollar or euro penalty. As Mr. Sandalow pointed out, in both cases there are obligations. In both cases if it is not done, you have the same kind of problem, but we think the former provides the best incentives to do the right thing, and we have not moved from that at all.

Thank you very much.