*{A business perspective for SB12 [http://www.iccwbo.org/home/statements_rules/statements/2000/sb12.asp]
 
Commission on Energy jointly with Commission on Environment, 6 June 2000} 

The business community has taken every opportunity to positively engage with and inform the climate policy process through position papers *{(see ICC Statements on the Kyoto Mechanisms and on Monitoring, Compliance, Enforcement and Liability, at www.iccwbo.org)}, side-bar meetings, interventions and dialogue with governments and other stakeholders. Most recently, the ICC has taken part in recent UNFCCC Workshops on Technology Transfer, Compliance, Best Practices and other related issues.

In the final months before COP6, many important and complex issues remain to be resolved in the Kyoto Protocol. This is a matter of shared concern for both the business community and governments in light of the start of the first commitment period, the commencement of operation for the CDM and the need for business to consider implications for planning and investments, now and in subsequent commitment periods. 

Based on those Workshops and other related policy discussions, this paper seeks to highlight these new high priority challenges, the solutions to which will help to promote business engagement, particularly in the Kyoto Mechanisms. 

The success of the Protocol is linked inter alia to the minimization of costs to society. This in turn will depend on the extent to which business is able to satisfy its obligations innovatively and efficiently through market-based implementation of policies including the Kyoto Mechanisms. Climate policies should be designed to minimize costs and other negative economic impacts (employment, competitiveness), stimulate technological innovation, use market-oriented approaches, avoid trade distortion, provide stability and predictability, and stimulate the sharing of good practices.

At this point, from a business perspective, some of the key challenges that require resolution are: 

*partie=titre Participation by Private Entities and Private Property Rights *partie=nil

The Protocol remains unclear concerning the role of private entities in the Kyoto Mechanisms. The broad participation of businesses, particularly their investment and innovation capabilities, will encourage actions which will promote the objectives of UNFCCC and the Kyoto Protocol. To determine its ability to participate in the Kyoto mechanisms, business must be confident of private property rights that would be acquired and generated in Kyoto mechanism-related transactions.

*partie=titre Market, Regulatory and Compliance Mechanisms *partie=nil

The Kyoto mechanisms could provide the opportunity to significantly lower the societal costs of greenhouse gas emissions reductions while providing a unique opportunity to contribute to other important development and environmental goals. Credits generated from greenhouse gas reductions could be a significant incentive for companies to promote investment in projects in developing and transition economies. 

Participation by firms will depend on both the international framework and policies for domestic implementation in all of the countries where they operate. For effective use of Kyoto mechanisms, these must enable firms to: 
acquire emissions credits from projects wherever they operate; 
participate in international emissions trading; 
transfer emissions credits abroad as necessary; and;
utilize such credits to meet domestic obligations or targets. 
In particular, business must understand its domestic obligations and its ability to use internationally acquired credits to satisfy domestic obligations or targets.

The complex inter-relationship of compliance and the Kyoto mechanisms has emerged strongly in the course of the UNFCCC Workshops. Business needs to be confident that mechanism-based transactions it has engaged in good faith will not be unraveled or disqualified because of a transacting country's non-compliance. In particular, companies which operate globally  need the ability to transfer credits freely, without export-import controls, to meet their obligations efficiently.

Furthermore, business needs to understand the market, regulatory and compliance mechanisms that allow long-term investments and product planning to advance technology cooperation, and render other sustainable development benefits. Relevant business investments will often involve facilities, markets and infrastructure with long lifetimes, so transparent information is needed on the procedures that may be used as the agreements evolve with time. The arrangements established under the Kyoto Protocol should recognize the lengthy capital turnover cycle and R&D needs for new process development that many industries, notably capital intensive ones, face. 

In this regard, investment decisions may be affected by changes in the second commitment period including emissions obligations, participating Parties, covered gasses, global warming potentials, and procedures for compliance. 

*partie=titre The Clean Development Mechanism *partie=nil

The Clean Development Mechanism (CDM) can play an important role in the promotion of sustainable development in developing countries. To promote and invest in projects under the CDM, Business needs clear rules and incentives.

Thousands of projects will have to be established to harvest the economic opportunities of the Kyoto mechanisms. The business community will site its investments according to acceptable requirements for investment security and with the potential for a competitive return. Therefore, the initial architecture of the CDM will have to be simple, non-bureaucratic, and transparent. To reduce investment risk and to propose projects with confidence that they will be authorized, firms need clear guidance on the types of projects that may be eligible to qualify for CDM and the procedures required to develop baselines, additionality, and the computation of anticipated emissions reductions. In this regard, technological constraints should not be imposed.

*partie=titre Trade and Investment *partie=nil

Global trade is a complex issue. Business needs to ensure that the Kyoto Protocol and its domestic implementations will not undermine WTO rights of countries where it operates, contradict WTO disciplines, nor provide cover for countries which might use the Protocol to justify trade or market access discrimination.

The Kyoto Protocol and its mechanisms will affect international competitiveness, and their operation may lead to barriers to trade and investment. Such barriers could appear in the form of labeling procedures, unilateral trade measures, border tax adjustments for competitiveness concerns. If such barriers were to develop, they could lead to disputes, including involving non-Parties to the UNFCCC. Business needs confidence that differing international accords on trade and climate will not lead to costly, lengthy, vague dispute resolution procedures, or create unjustified obstacles to market access.

*partie=titre Technological Innovation and Dissemination *partie=nil

Business is convinced that the most economically feasible way to address the long-term challenge of climate change is through the development, commercialization and wide-spread dissemination of both existing technologies and new, currently non-commercial technologies that can help reduce greenhouse gas emissions. In this endeavor, business will play a crucial role, since it possesses the technical, financial and management capacity to develop and make available technologies that can succeed in the marketplace. In this regard, business has contributed numerous analyses of the enabling conditions under which technological innovation, investment, technology transfer and capacity building occur. These points are also reflected in the previous CDM section.

*partie=titre Additional Issues To Be Defined At COP6: *partie=nil

Restrictions and regulations applied to an individual gas, at a country (state) or regional level, are disruptive and have adverse global economic impacts. The negotiators of the Kyoto Protocol recognized that it is counterproductive to environmental gains to single out one gas, or a group of gases, within the six-gas "basket" for action. 
As carbon sequestration will play an important role in lowering the economic costs of GHG emission reductions worldwide, governments should properly credit the role carbon sinks play in the overall carbon cycle. The Kyoto instruments, Articles 3.3 "Definitions" and 3.4 "Options" provide an opening for added clarification of the potential of carbon sinks. At this important time in the negotiations, governments should spell out the clear benefit and provide recognition for the key balance provided by "sinks."
Voluntary agreements, actions and programs offer opportunities for energy efficiency improvements, technological innovation, and capacity building, as have been demonstrated through numerous examples. Country/State voluntary agreements must meet stringent and genuine "fairness" tests for openness, transparency and ensure against the erection of non-tariff trade barriers.

*{Conclusions}

The resolution of these outstanding matters in a constructive and cooperative manner is a priority for business. A successful outcome should provide the conditions that will mobilize the innovation and resources of the private sector in addressing the climate challenge. The business community recognizes that many important and complex issues must be explored and addressed before final agreement on the design of any mechanism is possible. Given the importance and complexities of these issues, business draws attention again to the need in all deliberations to carefully weigh the economic and competitiveness impacts.

For this reason, the ICC would express concern that undue pressure on the negotiation process, imposed by the existing deadlines, could be counterproductive. Agreements reached under such circumstances may reduce the possibility to gain the necessary domestic, national and international support.

The recommendations in this paper are based on practical wide-ranging business experiences with trading, technology development and dissemination, efficiency, investment and sustainable development. Business welcomes the opportunity to continue its discussions with delegations and other stakeholders in the run-up to COP6, and beyond.

*{Document n° 222/309 and 210/574
6 June 2000}