Climate change has become a topical issue both in the United States and around the world.  Legal, political, and business leaders in the United States will have to address climate change in a more structured way.  This article will highlight this issue using a comparison of Europe’s framework and that of the United States, which is still developing its own system.

            The United Nations Conference on Environment and Development took place in Rio de Janeiro in 1992 and developed the United Nations Framework Convention on Climate Change (“UNFCC”), the first major treaty that addressed the issue of climate change in 1992.[1]  The UNFCC laid the groundwork for negotiations that would take place in Kyoto, Japan in 1997.

            The Kyoto Protocol, which came into effect on February 16, 2005, sets binding emissions limitations on signatory states.[2]  The signatory states were separated into Annex I countries, developed countries that made specific emissions reductions commitments under Kyoto and non-Annex I countries, mainly developing countries, that were not required to make similar commitments.[3]  The goal of the Kyoto Protocol was to reduce emissions of six principal types of greenhouse gases (“GHGs”).[4]  Each Annex I signatory has its own required percentage of reduction and these figures are based on the 1990 emissions of the individual state.[5]

            In an effort to encourage signatories to the treaty, particularly developing countries, Kyoto allows the Annex I countries to utilize alternative methods to reduce GHGs.  Kyoto provides for carbon market trading allowing countries with emissions credits to spare to transfer or trade their emissions credits with other signatories.[6]  Kyoto also provides for the Clean Development Mechanism, allowing Annex I parties with an emission-reduction or emission-limitation commitment to implement an emission-reduction project in developing countries and receive credits for that investment.[7]  The third mechanism is Joint Implementation allowing flexibility for countries to limit their GHGs.  Joint Implementation provides for an Annex I country to earn emission reduction units (ERUs) from an emission-reduction or emission removal project in another Annex I country, which can be counted towards meeting its Kyoto target.[8]  These alternatives are meant to be used in conjunction with efforts to reduce emissions by making more fuel efficient vehicles and other existing emissions reduction measures within the country.

            The European Union signed on to Kyoto as a block, rather than separate countries.  The European Union made provisions so that it would decrease its emissions as a whole, allocating among the countries the percentage each country is required to lower its emissions. 

            The European Union also set up the EU Emission Trading Scheme (EU ETS), which allows emitting industries to decrease their emissions by the required percentage or, alternatively, to allow them to buy credits from an entity, which can bring its emissions standards below the Kyoto guidelines and still run their business.

            The United States withdrew its support of the Kyoto Protocol in 2001, thus is not required by international treaty to decrease its GHG emissions.  GHG emissions have become an important issue in the United States and several states and regions have passed initiatives to reduce GHG emissions.  There are some areas where the federal government has acted on this issue: tax incentives for renewable energy, energy efficiency, and restrictions with regard to gas mileage on cars.  However, the federal government has yet to implement a comprehensive program to address GHG emissions on a national level.

            Regions and individual states in the United States have begun to set up emission reduction and/or cap and trade programs to begin to address GHG emissions reductions.

One such program, the Regional Greenhouse Gas Initiative (“RGGI”) is a cooperative effort by nine Northeast and Mid-Atlantic states to discuss the design of a regional cap-and-trade program initially covering carbon dioxide (CO2) emissions from power plants in the region.[9]  In the future, RGGI may be extended to include other sources of GHG emissions, and greenhouse gases other than CO2.[10]  The RGGI Memorandum of Understanding (MOU) calls for signatory states to stabilize their CO2 emissions for the first six years, followed by an emissions decline of 2.5% per year over the following four years, through 2018.[11]  The first auctions will begin in the fall of 2008, with the first three-year compliance period scheduled in begin on January 1, 2009.[12]  The MOU establishes a cap and divides the emissions budget among the participating states.[13]

            California’s plan for decreasing GHG emissions and for establishing carbon markets is set forth in the California Global Warming Solutions Act of 2006.  California’s scheme, also known as AB 32, establishes a 2020 final cap and gradual reductions from 2012 until 2020 and goes well beyond the reductions called for in the RGGI MOU.[14]  The goal is to reduce statewide GHG emissions to 1990 standards by 2020.[15]  California’s plan to implement this goal is the strongest state-wide effort in the United States.  The draft plan proposes that utilities produce a third of their energy from renewable sources such as wind, solar and geothermal, along with expanding and strengthening existing energy efficiency programs and building and appliance standards that have already saved Californians more than $50 billion over the past 30 years in reduced costs for energy.[16]  The draft plan also calls for a cap-and-trade program for more than 85% of the state’s GHG emissions, which would be implemented with the Western Climate Initiative, that includes seven states and four Canadian provinces to create a carbon trading market.[17]

            The Western Climate Initiative (“WCI”) began with an agreement signed by the Governors of Arizona, California, New Mexico, Oregon, and Washington on February 26, 2007 to collaborate and implement measures to reduce GHG emissions.[18]  Since then, the states of Montana and Utah have signed on to the WCI, as well as the provinces of British Columbia, Manitoba, Quebec, and Ontario in Canada.[19]  The regional goal of the WCI is to reduce GHG emissions to 15% below 2005 levels by 2020.[20]   These goals do not replace goals that states have set for themselves; they are meant to be consistent with all separate state initiatives.[21]  The WCI is in the process of developing a cap-and-trade program as one element of the program to meet its goals.[22]  There are currently five subcommittees working on issues, such as Reporting, Electricity, Scope, Allocations, and Offsets.  The subcommittees will be releasing their reports in September 2008, which will also include timelines and critical paths for members to implement programs to meet these goals.[23]

            In addition, there are many different private organizations and businesses developing voluntary emissions trading markets, e.g., The Chicago Board of Trade Climate Exchange.

            While the European Union has developed and begun implementing emissions reductions and cap-and-trade programs among its member states, the United States has opted out of the Kyoto Protocol and has yet to establish a comprehensive national program to begin addressing GHG emissions reductions.  Instead, the regional and state piecemeal regulatory schemes and voluntary private markets have resulted in regulatory uncertainty and no framework for industries to have any security in long term development and planning to reduce emissions.  These regional and state initiatives highlight the need for a national comprehensive program that incorporates regulatory flexibility and a market based approach to drive innovation to address this global problem.[24] 

            For more information on climate change developments, contact Frances B. Stella, Esq. at (973) 403-3149 or Lindsay P. Kern, Esq. at (973) 364-5232 at WolfBlock LLP (www.wolfblock.com).