of Domestic Climate Law: Tracing the United States’ Adherence to Kyoto in
Pending Federal Climate Legislation
“The energy-profligate lifestyle of the United
States inflicts global damage immensely greater than any war it might wage.”
In the past decade, carbon and other greenhouse gas
regulation has merged into international public consciousness as an
environmental concern that must be addressed, and fast. Globalization has been
a driving force in shaping international trade and development and in the
enactment of economic policies worldwide, which in turn effects how nations
work together to build climate change policy.
The development of carbon trade and carbon finance programs, as well as the
implementation of beneficial climate projects, increasingly depends upon
institutions like the World Bank and so-called “implementing agencies” like the
UN Environment Programme (UNEP) and the UN Development Programme (UNDP).
Though a complete consideration of the intersection between the environment and
the economy is beyond the scope of this paper, it is essential to understand
the importance of the inevitable convergence of the two in the international
climate change regime.
First, in Part II, this Article reviews some key
treatises, agreements, and partnerships that have helped shape international
actions on climate change, with the goal of showing the rapid progression in
this area over the past two decades, as well as how the United States fits into
the global puzzle. Specifically, it examines the form and function of the Kyoto
Protocol’s flexibility mechanisms and discusses how the U.S. has thwarted its
momentum towards becoming a multi-national player in the carbon trade market by
failing to ratify Kyoto. Part III takes a closer look at the two proposed
climate changed bills currently under consideration by Congress and examines
the mechanisms they seek to implement in the context of Kyoto’s flexibility
II. Effort and Effect: International and Domestic
A. Select History of International Climate Change Accords
Discussed below are a small selection of climate
agreements—chosen either for their overarching importance in international
climate change law or specific relevance to the proposed domestic policy
discussed herein. The goal is to instill in the reader a broad sense of history
on the topic and to provide a policy and legal background for the proposed
legislation discussed in Part III.A.
1. United Nations
Framework Convention on Climate Change
The United Nations Framework Convention on Climate Change
(FCCC) is the first major international step taken acknowledging and combating
climate change, though it has largely been
overshadowed by the Kyoto Protocol, which was developed within the FCCC’s
framework at the Third Conference of the Parties (COP) in Kyoto, Japan. The
FCCC was signed by 154 nations on June 12, 1992, in Rio de Janeiro, popularly
referred to as the Earth Summit. It
establishes a framework among the governments of the ratifying countries, all
of which have committed to a “voluntary goal to reduce greenhouse gas
concentrations at a level that would prevent interference with the climate
October 15, 1992, after the Senate had ratified the FCCC, President Bush officially
entered into the treaty on behalf of the United States. It
gained the requisite number of ratifications and entered into force in 1994 and
currently has 189 ratifying parties.
The treaty is based on the principles of equity, common
but differentiated responsibilities, and the right to sustainable development
as means to achieve its goals.
It does not establish binding emission targets on any ratifying country, but
attempts to foster a cooperative environment for action.
The greatest initial responsibility for reducing emissions is assigned to the
industrialized nations and countries transitioning from socialist economies,
referred to in the FCCC as “Annex I” countries—the rationale being that these
countries contributed most to greenhouse gas (GHG) build-up through
The “Annex II” countries are those same developed countries included in Annex I
by virtue of their inclusion in the Organization for Economic Cooperation and
Development (OECD), but excluding the poorer transitioning countries.
Annex II countries are required to fully fund the reporting requirements and
costs of implementation of developing nations.
2. The Kyoto Protocol
The Kyoto Protocol was formed under the FCCC and is the
foremost international law regarding the management and reduction of GHGs. The Kyoto Protocol’s objective under the FCCC
is “stabilization of greenhouse gas concentrations in the atmosphere at a level
that would prevent dangerous anthropogenic interference with the climate
system.” The Kyoto Protocol is
based on GHG emission levels as measured in 1990, with the goal that Annex I
parties “shall, individually or jointly, ensure that their aggregate
anthropogenic carbon dioxide equivalent emissions [of six specified GHGs] do
not exceed their assigned amounts….” The
Kyoto Protocol is noteworthy because it provides binding emissions commitment limits of GHGs, but are set to expire
in 2012. The “commitment period”
approach promotes cost-effectiveness because it allows each country to meet its
emission commitment in the form of an average of all the country’s emissions in
This means that externalities can be taken into consideration and accounted for
when it is most financially viable to do so.
Under Kyoto, each ratifying nation has absolute discretion in developing
systems to meet its assigned limits, and may implement the Protocol’s “flexible
mechanisms,” discussed in detail below, as part of the policies and measures
used to meet their commitment goals.
Since ratification in 2005, every industrialized nation,
with the exception of the United States, has ratified the Kyoto Protocol with
186 countries ratifying in all. This is especially interesting considering
the U.S. was actively involved in the document’s development.
In light of the fact that it had little chance of being ratified by Congress,
“[t]he Bush Administration rejected the Kyoto Protocol on the grounds that it …
would be ineffective in any event because large-emitting developing countries,
such as China, India, and Brazil, were also refusing to take on commitments to
reduce emissions.” President
Bush also contended that the Protocol would harm the U.S. economy, for example,
by raising energy prices.
Partnership on Clean Development and Climate
Soon after Kyoto was ratified and the U.S. was feeling
pressure for being a non-ratifying party, the United States, China, India,
Australia, New Zealand, and South Korea signed into force the Asia-Pacific
Partnership on Clean Development and Climate.
The Bush Administration came up with this partnership because under FCCC the
U.S. was still required to inventory GHGs and conduct research into climate
change and related technologies, though there were no binding emissions
targets. The similar absence of
binding limits in this agreement, which provided a voluntary framework for the
transfer of “clean technologies,” is underwhelming, especially considering that
these six countries represent approximately half of all global emissions.
As one commentator put it: “[a]t best, such policies
have achieved a modicum of progress on climate change, at worst they have
undermined more serious efforts undertaken pursuant to the goals of the FCCC
by obfuscating the need for more meaningful international commitments.”
At the fifteenth COP in Copenhagen, Denmark in December
of 2009, many people were hoping that a successor to Kyoto would be
developed—one that would provide more specific targets; provide guidance to
major emitting countries, along with guidance to the financial role of
developed nations and the breadth of obligation for developing nations; and
provide reporting and verification standards.
The parties involved accomplished virtually none of the goals set out for them. Still, the parties did set a cap on the
“permitted rise in the average global temperature of 2 degrees Celsius above
the pre-industrial level.”
The Copenhagen Accord also acquired the signatures of the several major
emitting countries, such as the Unites States, China, India, Brazil, and South
Though the signatures fell short of accomplishing ratification, it reiterated many
of the core elements mentioned above, though often lacking in specifics.
Almost more engaging than what came out of Copenhagen is
how the process has affected the international mood of cooperation. Germany’s
Norbert Roettgen called it an important step in building trust and confidence,
while the European Union said it signaled that the U.S. position on climate
change has remained stagnant.
In the U.S., the lack of progress at Copenhagen made the chance of passing
cap-and-trade provisions seem nearly impossible, especially in light of debates
at home over competing regional interests and program costs.
In an ironic and disconsolate statement made just months before an oil spill
ravaged the Gulf of Mexico in April, 2010, U.S. Senator John Kerry commented on
his strategy to garner support for his proposed climate change bill. He
said he wanted to push for “expansions of nuclear power and offshore oil and
gas exploration in return for unspecified curbs on carbon emission.”
While offshore drilling is in flux, Senator Kerry is likely searching for
another way to quell many Senators’ suspicions that Wall Street would
manipulate a carbon market, were one to be created.
B. Kyoto Protocol’s Flexibility Mechanisms
Kyoto stands out as the preeminent international
authority when considering the long and voluminous history of the relatively
new discipline of climate law. The market-based mechanisms in Kyoto have been
called “[p]erhaps the most important international environmental law
innovation” toward achieving overall global emissions reductions.
The mechanisms developed in Kyoto are the International Emissions Trading
system, Joint Implementation (JI), and the Clean Development Mechanism (CDM).
The mechanisms were put into force so that ratifying countries could meet their
emissions targets within their commitment periods in the most cost-effective
way possible. For example, while an
emission of a ton of carbon has the same environmental impact regardless of the
location of that emission, mitigation costs will often be lower in certain
countries. The goal is to emit where
cost is lowest, and the purpose of the flexibility mechanisms is to allow
countries the freedom to choose the best and most effective course of action
under Article 3 of Kyoto’s emission reduction obligations.
The International Emissions Trading approach under
Article 17 directs the ratifying parties to develop a system by which Assigned
Amount Units (AAUs) may be traded between countries.
The exact system for doing so is laid out in the Marrakesh Accords, developed
at COP 7 in Marrakesh, Morroco.
The Marrakesh Accords include operational rules for emissions trading among
parties and for the CDM and JI, as well as a compliance regime that outlines
penalties for countries not meeting their emission targets, though final
authority lies with the parties to determine whether the repercussions are
legally binding. Under the international
trading approach outlined in Marrakesh, the national governments of the
ratifying parties must hold permits allowing them to trade AAUs.
During negotiations, many countries were suspicious of this scheme: “This
skepticism is reflected in the provision of Article 17 that states that any
trading ‘shall be supplemental to domestic actions’ for the purpose of meeting
Article 3 commitments.” This
language was the result of debates between countries that supported and
strongly opposed the addition of an emissions trading provision to Kyoto; the
final language attempting to affect the compromise that it should be allowed,
but not as a country’s exclusive mechanism.
The request that emissions trading be “supplemental” was defined after some
debate as simply not relying on emissions trading alone as a means to reach
compliance. The result is a
market-based approach where carbon becomes a commodity to be traded, with the
added dimension of being controlled through the establishment of emissions
The JI concept in Article 6 provides that when an Annex 1
country or business invests in emission-reduction activities in other Annex I
countries, the investing country can gain climate credits, called Emission
Reduction Units (ERUs). JI
is an incentive by which any Annex I party may act as the transferor or
transferee with any other Annex I country for “emission reduction units
resulting from projects aimed at reducing anthropogenic emissions by sources or
enhancing anthropogenic removals by sinks of greenhouse gases in any sector of
the economy….” The ERUs are acquired by
the investing country and work as an offset by providing the
purchasing/investing country with ERUs additional to its originally assigned
An important requirement under JI is that “[a]ny such project provide a
reduction in emissions by sources, or an enhancement of removals by sinks, that
is additional to any that would otherwise occur.” Further,
a party cannot acquire any ERUs unless it is in compliance with its reporting
and estimation duties under Articles 7 and 5.
The CDM in Article 12 of the Kyoto Protocol allows Annex
I countries and businesses to purchase Certified Emission Reductions (CERs), which
represent the strides in emissions reductions achieved by projects in Annex I
countries. The overarching purpose
of the CDM is to assist non-Annex I countries “in achieving sustainable
development and in contributing to the ultimate objective of the Convention …
[and to work with Annex I countries] in achieving compliance with their
quantified emission limitation and reduction commitments under Article 3.” Under
the CDM, non-Annex I countries are tied into the clean development mechanisms
that otherwise benefit Annex I countries.
Because the non-Annex I parties do not have binding targets,
those countries would not otherwise have an incentive to make sure that the
required targets are being met in programs established by Annex I countries
under the JI mechanism. Under the CDM, an Annex I country with a binding
emission target could set up a project to reduce emissions in a non-Annex I
country, with no binding target. Once
emissions decline below a baseline that was “invested” by the Annex I country,
the project is seen as generating CERs for the investing country.
This result achieves the dual goals of the CDM: first, putting developing
countries on the path to sustainable development, and second, generating CERs
that make meeting the Annex I country’s emission target less costly.
To protect against non-compliance by non-Annex I countries, “all CDM projects
are subject to a third-party verification process….” “This
process is administered by the CDM Executive Board, a body of officials serving
in their personal capacity, but who typically also hold environmental positions
C. How Saying No to Kyoto Inhibits U.S. International Carbon Trade Efforts
Unless the United States ratifies Kyoto, which at this
point is very unlikely, it may never be an effective player in the
international carbon trade market. This is not necessarily a bad thing, since
by intentionally isolating itself the U.S. is able to monitor the fluidity and
effectiveness with which the markets in the E.U. and elsewhere around the world
operate. Right under the United States’ nose, the countries that have ratified
the Kyoto Protocol have put to use the three market mechanisms discussed in the
In fact, the cap-and-trade system modeled by so many countries has also served
as a framework for some domestic initiatives.
The thought of a domestic or international carbon market operating out of the
U.S. is an exciting prospect for many American financiers.
Journalist Mark Shapiro, who has written extensively on
modern cap-and-trade markets, gives a succinct account of how a carbon market
operates and why it has become the “hottest market in the world”:
it comes to carbon … you get  a certificate that promises X amount of
emission reductions over the next several years. [These certificates] are the
hottest commodity for two reasons [–] one, you have most of the developed world
now operating under this cap-and-trade system, which means you’ve got … major
industries in all of these different countries searching for offsets…. [A]t the
same time [the carbon packages are] being speculated upon … in a secondary
market, which is essentially a derivatives market where people [bet] on the
price of carbon. … The reason [that] Americans may not be so aware of this enormous
economy is that it’s been largely headquartered in London. London is now the
center of this international carbon trade, largely because the United States
pulled out of Kyoto.
The United States’ desire to participate in the market,
now exploding in the rest of the developed world, should hinge on whether the
carbon market is successful, both in terms of reducing overall emissions and
incentivizing other countries to work with it as partners. However, keeping the
cap-and-trade and other market mechanism out
of the international sphere seems to be the United States’ primary objective.
Part of the hesitation to enter into the international carbon market stems from
the concern that setting target emission reduction levels would lessen our
trading power with countries like China and India—countries who are considered
upper level developing countries and do not have binding emission targets under
the Protocol. To keep itself
competitive in the global market, the U.S. has advanced cap-and-trade policies
at home that promise to both help the U.S. through the creation of a domestic
carbon market and ensure that countries like China and India do not gain a
Of course, other countries are looking for ways to
mitigate the real or perceived trade leverage gained by the United States by
opting out of Kyoto. One means of accomplishing this objective would be to
place a high tax on, or ban altogether, American imports made using
This is a way to hold the U.S. accountable for its ability to manufacture goods
using cheap energy sans consequence, while simultaneously encouraging the U.S.
to lessen the use of globally irresponsible methods.
Because environmentally justified taxes are historically more tolerated than
restrictive regulations, this is a viable future avenue for leveling out the
Ironically, the United States may be pulled into the E.U.’s
Emissions Trading System or other countries’ frameworks despite its best
efforts to stay out of them. International treatises such as the North American
Free Trade Agreement (NAFTA), the General Agreement on Tariffs and Trade, and/or
certain provisions of the World Trade Organization (WTO) may reluctantly pull
the U.S. into the international emissions trading market. A
central question of whether and to what extent these treatises will apply is
whether carbon emissions allocations may be considered “products,” a way to
trigger the credits under the WTO.
Most authors on the subject have concluded that the credits are more properly
classified as licenses or permits,
though the WTO has yet to take an official stance on the question.
NAFTA may still apply, however, because it covers tangible and intangible
property, and emissions trading,
certainly an intangible market, may be classified as such.
Still, some believe a property rights approach is
inadequate because Kyoto “does not create individual property rights at the
global level…. Instead, it provides a framework that distributes authority to
create and enforce property rights to international, regional, national,
sub-national, and even private entities.”
This is the idea behind the linking directive, a strategy that incorporates
under one umbrella various worldwide, regional, and national trading measures
already in place.
The benefits to a program like this would be to minimize cost, prevent emissions
fraud, and encourage technology transfer; though implementing it would be complex
and trigger the requirement of compliance under the international treatises
Though the extent of the implications for U.S. emissions
trading on a multi-national scale without having ratified the Kyoto Protocol
are wide-ranging and beyond exhaustive review herein, it seems certain that the
U.S. will need to make more of an effort to engage internationally before real
headway can be made.
III. Carbon as a Commodity: Contrasting Proposed
Federal Legislation With Kyoto’s Flexibility Mechanisms
A. The Waxman-Markey and Kerry-Boxer Clean Energy Acts
A larger issue of climate change is how to fund the
research and development that will wean our economies off high-energy fuels, 
known to be one of the biggest contributors to rising levels of GHGs in the
As economist Thomas C. Schelling puts it, there are two ways to go about it:
“One is to use the price system, the ‘market,’ letting private initiative
finance and direct the work, through appropriate taxes, subsidies, rationing,
and—most important—through convincing the private sector, firms and consumers,
that fossil fuels are going to become…drastically more costly as the decades go
The second is for research and development efforts to be managed by governments
with the help of businesses.
Schelling argues that the market is inadequate, partially because it “will not
induce the necessary outlays; the benefits cannot be ‘captured’ by investors.”
A parallel can be drawn between Schelling’s research and
development postulate and developments underway for a U.S. carbon market. Almost
at odds with creating a commodity market to trade intangible goods and credits
are the acts of researching and developing new technology that would discourage
the use of the very commodities being traded.
To link these two strategies, like the legislation discussed below, creates an
While the United States has historically resisted
entering into or developing a carbon market with other nations, it has borrowed
extensively from the market mechanisms set forth in the Kyoto Protocol in
forming many of its domestic programs.
For example, the competing energy bills in Congress both contemplate some sort
of carbon market operating in the United States. The
House’s climate change bill is the American Clean Energy and Security Act of
2009, proposed by Representatives Waxman and Markey (Waxman-Markey Bill).
The Senate’s bill is the Clean Energy Jobs and American Power Act, introduced
by Senators Kerry and Boxer (Kerry-Boxer Bill) as a companion bill to the
House’s bill. Because amalgamation of
the two proposals is likely, this section examines, compares, and contrasts the
general features of each bill.
On June 26, 2009, the House passed the Waxman-Markey Bill
by a vote of 219-212, with 3 representatives not voting.
The party breakdown was 210 Democrats and 8 Republicans voting “yes.”
Conversely, 169 Republicans and 43 Democrats voted “no.”
The Kerry-Boxer Bill was reported by the committee on November 5, 2009, and has
yet to pass in the Senate.
The Waxman-Markey Bill contains features designed to
encourage carbon capture and storage, energy-efficient programs, smart grid,
and the expansion of renewable energy programs.
The bill’s central feature is a market-based cap-and-trade system that would
directly control the emission of carbon and other GHGs,
with the aim of reducing U.S. emissions 3% by 2012, 20% by 2020 and 83% by
2050, with the reductions’ baseline being 2005 emission levels in the U.S.
The system allows the federal government to set GHG emissions of controlled
industries while also distributing allowances that permit businesses to release
a pre-set (“capped”) amount of the GHGs into the atmosphere.
Each credit is equal to one metric ton of carbon dioxide and may be traded,
bought, or sold between businesses.
Compulsory participation would be required of electric utilities, oil and gas
and other refineries, and additional sources identified as large emitters of
The bill also allow businesses to use carbon offsets in certain circumstances.
“Carbon offsets are created through special government-approved programs that
reduce or sequester greenhouse gas emissions, such as those that address global
deforestation. Carbon offsets may also be bought, sold and traded, and are generally
fungible with government-issued allowances.”
The plan would also fund research for green technologies in building, lighting
and appliance, transportation, and industrial sectors in an effort to make the
economy less dependent on carbon and other GHG intensive processes.
The Kerry-Boxer Bill introduced some key changes to the Waxman-Markey
Bill, namely a 3% increase in the GHG-emission reduction goal for 2020, from 20%
to 17% as compared to 2005 levels, and “setting a goal of, and requiring a
strategic plan for, improving overall U.S. energy productivity by at least 2.5%
per year by 2012 and maintaining that improvement rate through 2030….” The Kerry-Boxer Bill did not provide an exact
answer to how emissions allowances are to be located, as compared to the
Waxman-Markey Bill which “decided mostly in favor of [freely assigned] grants,”
with the remaining 15% to be auctioned off.
Offsets are viewed as an important “cost-control measure”
present in both bills.
It is speculated that offsets, because they are controlled by independently run
projects and not the government, would be cost-variable but ultimately cost
less than an allowance.
This would make it more profitable for businesses to buy offsets rather than
utilize allowances, which as the market expands may result in a demand for more
offset programs than are available or can be created. Both bills support a
limit to the number of international offsets that may be purchased, with the
Kerry-Boxer Bill providing that only 25% of offsets may be international, and
the Waxman-Markey Bill finding that half may be sourced internationally.
Both bills also introduce market regulation through either the Commodity
Futures Trading Commission (CFTC), or split between the CFTC and the Federal
Energy Regulatory Commission.
B. Examining the Federal Acts Within the Flexible Mechanism Framework
The Kyoto Protocol is a framework that attempts to
“distribute authority to create and enforce property rights to international,
regional, national, sub-national, and even private entities.”
It does not create a global assignment of property rights, but a linking
progression that if followed will lead to the creation of an international
market. While the Kyoto Protocol
itself does not impose any national framework, that is what the United States
is trying to create with the implementation of a mandatory carbon trade
program. The question remains why the U.S., if it is pursuing legislation for a
domestic market, did not just ratify Kyoto when it was given the chance—that
way it could be advancing its aim of market creation as well as benefitting
from the advantages of a global market and avoiding the ramifications discussed
in Part II.C.
It is clear that the Waxman-Markey and Kerry-Boxer Bills
are using the emissions trading mechanism, one of the three flexibility
mechanisms outlined in the Kyoto Protocol. The difference is that the system is
not focused internationally, like Kyoto. One view is that keeping the market
domestic avoids the coordination and linking problems to which multi-national
agreements are prone.
The likelihood that the market would eventually turn international is high,
considering the E.U. currently has the largest emissions market in the world,
and acknowledging the possibility that China and India may be more likely to
establish similar markets if the U.S. took the lead.
An interesting mechanism heavily relied on by both bills
is the use of carbon offsets as opposed to allowances. The legislation permits
two billion tons of offsets per year, which is more than 27% of the United
States’ total GHG emissions annually.
A portion of those offsets may be international, which has the potential to
open up the market up to errors in measurement and recording because of its
sheer size and complexity. One source described the controversy over the
offsets and reported:
recent study, for example, reported that between 1/3 and 2/3 of [the offsets]
under the Clean Development Mechanism of the Kyoto Protocol … were for projects
that likely would have happened anyway. If fossil fuel companies used all of
the offsets, there would likely be no, or very little, actual reductions of
carbon emissions by these companies until the middle of the 20’s. This would be
the case even if [GHG] emissions permits were auctioned.
This is problematic
because it mirrors the verifiability problems of the CDM. While offsetting at
home would be easier, international offsets would be harder to manage because
of the distance, methodology required, and the inconsistent reporting of other
nation’s regulatory agencies. Of course, if the U.S. wants to be an
international player it cannot shut itself off completely from other countries.
The lower-level limit on international offsets may be an attempt to reconcile
these competing purposes.
A major goal of the CDM under Kyoto is to promote
sustainable development in non-Annex I countries. On
a practical level this means that “[w]hile the sustainable development concept,
like other broad concepts (democracy, free trade, liberalism) suffers from
significant ambiguities, experts involved in trading under the Kyoto Protocol
clearly associate it with a hope for clean technological development in poorer
countries.” Given this specific
goal’s importance in the context of the broader goals of climate change legislation—namely,
enforcing equity principles and promoting ecological balance in non-Annex I
countries—it seems that the Waxman-Markey Bill should include a provision for
international technology transfer. Though it does include measures for
developing new technologies, nowhere does it say that they will be proliferated
beyond borders, and by not doing so the bill fails to give force to one of the
driving motives behind the CDM, which is promotion of sustainable development.
It is not apparent, that the goal is being accomplished elsewhere in the bill.
The bill is thus reinforced as an insular, economy-based
attempt at climate legislation. One of the driving forces behind this
assessment is a statement written into the Waxman-Markey Bill itself,
foreshadowing abuse by the market: “The privilege of purchasing, holding,
selling, exchanging, transferring, and requesting retirement of emission
allowances, compensatory allowances, or offset credits shall not be restricted
to the owners and operators of covered entities, except as otherwise provided
in this title.”
This means that persons not involved in the energy industry at all, such as
brokerage firms and investors, can buy, sell, and trade permits to pollute.
This principle not only undermines the trust of the public, it is also in
opposition to the guiding principles of the FCCC, to which much of the rest of
the world belongs. The federal proposals provide no guidance involving common
but differentiated responsibilities, no underlying sense of obligation to reducing
GHG emissions, and an inconsistent presentation of flexibility mechanisms. By
incorporating only select provisions of Kyoto and relying mainly on market
mechanisms to guide climate change, the United States makes a fatal mistake in
advancing legislation designed to promote the well being of the planet.
approach taken in this Article is not meant to provide a rigorous analysis of
the specific mechanisms of the Kyoto Protocol or the domestic programs examined
herein. Rather, its aim is to educate the reader of the basic aspects of these
complex agreements and proposed legislations so that the nexus between them
becomes apparent, and the duality expounded upon. The U.S. has had the benefit
not only to be involved in the drafting of Kyoto without the burden of
ratification, it has also had the chance to watch and gauge which mechanisms
work best. By attempting to implement a carbon market as its primary mechanism
to control climate change, the United States misses the warning spelled out in
the pre-Kyoto negotiations around the “additional” and “supplemental” language
that was added after much debate.
That language requires that countries not use the flexibility mechanisms of JI
and international trading to account for reduction that would have occurred
even without those mechanisms. Quite simply, the language seeks to avoid
manipulation of the system by taking credit for “credits” that were not really
By enacting a GHG emission trading market as large as the
one the U.S. is proposing, and setting arbitrary limits concerning
international offsets and market mechanisms, the U.S. runs the risk of “losing
the integrity of its credits.” To
avoid this, future policies should encourage more international offsetting projects
contingent on establishing a domestic regulatory agency to prevent offset
miscalculation. Proposed programs should also continue to allow voluntary
participation in the existing regional markets without imposing mandatory participation
under a federal law. Finally, exploring other options such as carbon tax, and
advancing an industry-centered approach, rather than a market-based approach,
would result in the advancement of policies that are more sustainable and
ecology-minded. Certainly, leaving cap-and-trade behind would clear the air for
change to occur on a global level.
* Nicole Buckoski received her J.D. degree in 2010
from Gonzaga University School of Law. I would like to thank Professor Upendra
D. Acharya for his guidance and percipient insight regarding the substance of
this article and throughout the writing process. I would also like to thank
Professor Cheryl Beckett for instilling in me the know-how and inspiration to
write about the law. Finally, thank you to the editors of the Gonzaga Journal of
International Law for your comprehensive and erudite review.
E. Stiglitz, A New Agenda for Global
Warming, in The Economists’
Voice: Top Economists Take on Today’s Problems 22, 23 (Joseph E. Stiglitz et
al. eds., 2008).
 See Alan S. Miller, International
Trade and Development, in Global
Climate Change and U.S. Law 277, 277 (Michael B. Gerrard ed., 2007).
 See id. at 278-79 (explaining in more detail the ever-expanding
role of World Bank and other international institutions in climate programs).
 United Nations
Conference on Environment and Development: Framework Convention on Climate
Change, May 9, 1992, 31 I.L.M. 849 (1992) [hereinafter FCCC].
 The Conferences of the
Parties is a yearly summit that has taken place at a different international
locale since the first COP was held in Berlin in 1995. See Brendan
P. McGivern, Introductory Note, in Kyoto Protocol to the United Nations
Framework Convention on Climate Change, Dec. 10, 1997, 37 I.L.M. 22, 23-24
(1998). It serves as a forum to review the
effectiveness of current measures, propose new commitments, and review the
adequacy of the convention. See Sarah A. Peay, Joining the Asia-Pacific Partnership: The Environmentally Sound
Decision?, 18 Colo. J. Int’l Envtl. L. & Pol’y 477, 491 (2007). The
last COP will be in 2012, when Kyoto is set to expire, and Qatar and South
Korea are currently engaged in bidding for host country. See COP 18/MOP 8 2012 – 2012 United Nations Climate Change Conference,
Ourglocal.com (June 4, 2010), http://www.ourglocal.com/?c=19%2C4061 .
 Peay, supra note 5, at 490.
 Lauren E. Schmidt &
Geoffrey M. Williamson, Recent
Developments in Climate Change Law, 37 Colo. Law. 63, 64 (2008).
 See Status of Ratification, United Nations, http://unfccc.int/essential_background/conventions/status_of_ratification/items/2631.php
(last visited Oct. 23, 2010) (listing ratifying countries of the FCCC).
 See, e.g., Kevin A. Baumert, Participation
of Developing Countries in the International Climate Change Regime: Lessons for
the Future, 38 Geo. Wash Int’l L. Rev. 365, 370 (2006).
 Kyle W. Danish, The International Regime, in Global Climate Change and U.S. Law, supra note 2, at 31, 33.
 Baumert, supra note 10, at 371.
 See Kyoto Protocol to the United Nations Framework Convention on
Climate Change, Dec. 10, 1997, 37 I.L.M. 22 (1998) [hereinafter Kyoto
Protocol]. The FCCC signed the Kyoto Protocol in Kyoto, Japan, at the third
COP. McGivern, supra note 5, at 24; see also
Philip S. Pulitzer, Trading in the Carbon
Market: Leveling the Playing Field in Sustainable Investment, 33 Suffolk
Transnat’l L. Rev. 113, 115-16 (2010).
The first COP met in Berlin in 1995, and was followed by a second
meeting in Geneva in 1996. McGivern, supra
note 5, at 23-24.
 FCCC, supra note 4, at art. 2.
 Kyoto Protocol, supra note 15, at art. 3.1. Article 3.1
goes on to say that overall emissions should be reduced “by at least 5 per cent
below 1990 levels in the commitment period 2008 to 2012.” Id. Annex I countries represent developed countries, with a
different set of obligations attaching to developing countries. See Baumert, supra note 10, at 371.
 See, e.g., Danish, supra note
11, at 37-38 (providing an overview of the Protocol’s structure and
 Id. at 39.
 See id.
 Id. at 37.
 Mary Simmons Mendoza, Energy and Climate Change Legislative
Update: What’s Hot, What’s Not, and What’s Pending in Congress, 1785
PLI/Corp. 183, 185 (2010).
 Donald M. Goldberg &
Angela Delfino, The Impact of the Kyoto
Protocol on U.S. Business, in
Global Climate Change and U.S. Law, supra
note 2, at 101, 103 (citing Letter to Members of the Senate on the Kyoto
Protocol on Climate Change, 1 Pub. Papers 235, 235 (Mar. 13, 2001), available at http://www.presidency.ucsb.edu/ws/index.php?pid=45811 ).
 See http://www.asiapacificpartnership.org;
see also Surprise US-China Climate Pact Meets with Scepticism [sic],
EurActiv.com (July 29, 2005),
B. Gerrard, Global Warming: Climate
Change and the Law; Global Climate Change: Legal Summary, American Law
Institute – American Bar Association Continuing Legal Education, Cosponsored by
the Environmental Law Institute, SR039 ALI-ABA 397, 417 (2010).
 See id.
 Andrew Greene, Carbon Intensity Standards: A Distraction
and a Danger to Real Action on Climate Change, 15 Hastings W.-N.W. J.
Envtl. L. & Pol’y 91, 95 (2009); but
see Tan Kai Liang, From Kyoto to
Post-2012: The Implications of Engaging China for Environmental Norms and
Justice, 17 U. Balt. J. Envtl. L. 33, 48-49 (2009)
(stating that “[m]ore alliances like the Asia-Pacific Partnership should be
brokered,” to encourage freedom of technology transfer, which is costly for a
country to undertake alone).
 Gary Clyde Hufbauer &
Jisun Kim, Global
Warming: Climate Change and the Law; After the Flop in Copenhagen, American
Law Institute – American Bar Association Continuing Legal Education,
Cosponsored by the Environmental Law Institute, SR039 ALI-ABA 339, 341-342
 See id. at 341.
 Id. at 349-350 (noting that the current temperature is 0.74 degrees
Celsius above that baseline).
 See e.g., id. at 342.
 “Ice Broken” at Climate Meet, But Progress Glacial, TerraNews (May
 John Heilprin, EU
Strategy is to Seek Accord on Climate Elements, Defer Binding Treaty
Negotiations, Associated Press (May 12, 2010), available at http://news.therecord.com/article/710860.
 See Bill Murray, Copenhagen Flop Bodes Ill for US Senate Action on
Carbon Emissions, Oil Daily (Jan. 4, 2010), available
at 2010 WLNR 1188067.
 See id. (noting that several Senators have this precise fear).
 Danish, supra note 11, at 42.
 See Mechanisms Under the
Kyoto Protocol, United Nations Framework Convention On Climate Change, http://unfccc.int/kyoto_protocol/mechanisms/items/1673.php (last visited Oct. 20, 2010); see also Kyoto Protocol, supra note 15, at arts. 17, 6, and 12,
 See Mechanisms Under the Kyoto Protocol, supra note 41.
 Danish, supra note 11, at 42 (contrasting
identical emissions of a forest in Ghana and a power plant in Germany). Of
course, developing countries are usually the ones able to reduce GHG emission
at the lowest cost thus fueling the market economy. See id.
 See Danish, supra note
11, at 42; see also Kyoto Protocol, supra note 15, at art. 3.
 Danish, supra note 11, at 43 (describing AAUs as
the parsed units of the binding GHG emission amount permitted by each country
under the Kyoto Protocol); see Kyoto
Protocol, supra note 15, at art. 17.
 Danish, supra note 11, at 43; See generally FCCC,
Marrakesh, Morocco, Oct. 29-Nov. 10, 2001, Report of the Conference of the
Parties on its Seventh Session, 18/CP.7, UN Doc. FCCC/CP/2001/13/Add.2 (Jan.
21, 2002) [hereinafter Marrakesh
 See Marrakesh Accords, supra note
46, at 18/CP.7.
 Danish, supra note 11, at 43; Marrakesh Accords,
supra note 46, at 18/CP.7.
 Danish, supra note 11, at 43 (quoting Kyoto
Protocol, supra note 14, at art. 17);
but see Gerd Winter, The Climate is No Commodity: Taking Stock of
the Emissions Trading System, 22 J. Envtl. L. 1, 5 (2010) (“In order to
prevent states from refraining from genuine climate policy but relying largely
on the purchase of emission allowances, the Protocol stipulates that emissions
trading shall only be ‘supplemental’ to other domestic climate protection
 McGivern, supra note 15, at 26.
 See id.; see also FCCC, Montreal, Can., Nov. 28-Dec. 10, 2005, Decisions
Adopted by the Conference of the Parties Serving as the Meeting of the Parties
to the Kyoto Protocol, 9/CPM.1 at 65, FCCC/KP/CPM/2005/8/Add.2 (Mar. 30,
 Miranda A. Schreurs, The Climate Change Divide: The European
Union, the United States, and the Future of the Kyoto Protocol, in Green Giants? Environmental Policies
of the United States and the European Union 207, 216 (Norman J. Vig &
Michael G. Faure eds., 2004).
 See, e.g., Ruchi Anand, International Environmental Justice: A
North-South Dimension 48 (2004).
 Kyoto Protocol, supra note 15, at art. 6.
 See id.; see also Danish,
supra note 11, at 44 (observing that
the reason a purchasing country would enter into a JI agreement is to
capitalize on lower abatement costs in the host country).
 Kyoto Protocol, supra note 15, at art. 6, para. 1(b); see also Danish, supra note 11, at 45 (“At the heart of the so-called
‘additionality’ requirement is the view that credits should not go to
reductions that would have occurred even without the intervention of an
investing Annex I party….”).
 Kyoto Protocol, supra note 15, at art. 6, para. 1(c).
at art. 12.
 See id. at art. 12, para.
 See id. at art. 12,
paras. 2, 3(a).
 Danish, supra note 11, at 46.
 See Kyoto Protocol, supra note
15, at art. 12, paras. 2, 3(a).
 See Kyle
W. Danish & Jonathan C. Rotter, Drafting
Contracts for Greenhouse Gas Offset Projects in Developing Countries, 15
Nat. Resources & Env’t. 168, 169 (2001).
 See Danish, supra note
11, at 47; Danish & Rotter, supra note
63, at 168.
 Danish, supra note 11, at 46.
 See, e.g., Fresh Air with
Terry Gross, Cap and Trade and the New Carbon Economy, with Mark Shapiro
(National Public Radio Jan. 28, 2010), available
[hereinafter New Carbon Economy].
 See infra Part II.A–B (discussing the pending climate change
legislation in the United States as compared to mechanisms under the Kyoto
 New Carbon Economy, supra note 67.
 Elias Leake Quinn,
Comment, The Solitary Attempt:
International Trade Law and the Insulation of Domestic Greenhouse Gas Trading
Schemes from Foreign Emissions Credit Markets, 80 U. Colo. L. Rev. 201,
208-09 (2009) (discussing the United States’ “historical reluctance to join
international efforts to reduce greenhouse gases”).
 See, e.g., id. at 208; see also What is the Kyoto Protocol?, Carbonify.com, http://www.carbonify.com/articles/kyoto-protocol.htm
(last visited Nov. 1, 2010) (noting that China and India are exempt from the
Kyoto Protocol’s requirements because they were not the main emitters of GHGs
during the period considered under the treaty, though both countries emissions
are currently on a steady and rapid rise).
 See Quinn, supra note 71,
at 209 (recognizing the appeal of cap-and-trade within the U.S. for its
 Stiglitz, supra note 1, at 24 (highlighting the
author’s position that global environmental concerns should eclipse narrow
business- and market-driven ones).
 Id. at 24-25.
 Quinn, supra note 71, at 209, 242-43. See generally Craig Forcese, The Kyoto Rift: Trade Law Implications of
Canada’s Kyoto Implementation Strategy in an Era of Canadian-U.S. Environmental
Divergence, in The First Decade
of NAFTA: The Future of Free Trade in North America 393, 393-94 (Kevin C.
Kennedy ed., 2004).
 See Quinn, supra note 71,
at 242 (discussing whether emission allocations are considered “products” under
the WTO); see also id. at 243 (“these
concerns bubbled to the surface when Canada ratified the Kyoto Protocol and
first contemplated implementing an emissions trading scheme”).
 Id. at 242.
 E.g., Marisa Martin, Trade
Law Implications of Restricting Participation in the European Union Emissions
Trading Scheme, 19 Geo. Int’l Envtl. L. Rev. 437, 445-46 (2007).
 Quinn, supra note 71, at 242-43 (citing North
America Free Trade Agreement, U.S.-Can.-Mex., Dec. 17, 1992, 32 I.L.M. 289,
pts. IV-VII, art. 1139 (1993)).
 See, e.g., David M. Driesen, Linkage
and Multilevel Governance, 19 Duke J. Comp. & Int’l L. 389, 389 (2009).
 See id. at 389-90.
 This question is posed in
the essay by Thomas C. Schelling, Climate
Change: The Uncertainties, the Certainties, and What They Imply About Action, in The Economists’ Voice: Top
Economists Take on Today’s Problems, supra
note 1, at 5, 8.
 Executive Summary: Multi-Gas Contributors to Global Climate Change:
Climate Impacts and Mitigation Costs of Non-CO2 Gases, Pew Center on Global
Climate Change, http://www.pewclimate.org/global-warming-in-depth/all_reports/multi_gas_contributors/exe_sum.cfm
(last visited Nov. 2, 2010).
 Schelling, supra note 84, at 8.
 See Donald N. Zillman et al., Introduction, in Beyond the Carbon Economy: Energy
Law in Transition 1, 6 (Zillman et al. eds., 2008).
 But see Richard L. Ottinger et al., Renewable Energy in National Legislation: Challenges and Opportunities,
in Beyond the Carbon Economy, supra note 89, at 183, and
Catherine Banet, The Use of
Market-Based Instruments in the Transition from a Carbon-Based Economy, in Beyond the Carbon Economy, supra note 89, at 207-211 (promoting the
use of renewable energy but advocating for the use of market-based instruments
and citing flexibility, decreased costs, and the use of monetary penalties for
non-compliance to be put toward “environmental improvements”).
 For instance, both major
“clean energy” bills currently under consideration by Congress propose GHG
emission reduction targets and contemplate a cap-and-trade system of carbon
regulation. See American Clean Energy
and Security Act of 2009, H.R. 2454, 111th Cong. (2009); Clean Energy Jobs and
American Power Act, S. 1733, 111th Cong. (2009).
 See H.R. 2454 § 341 (amending the Federal Power Act to require the
Federal Energy Regulatory Commission to “promulgate regulations for the
establishment, operation, and oversight of markets for regulated [carbon]
allowances…”); S. 1733 §§ 700 (using the same “additional” and “additionality”
language used in Kyoto Protocol); 727 (discussing permits); 742 (discussing
 See Waxman-Markey Climate
Change Bill, GovTrack, http://www.govtrack.us/congress/bill.xpd?bill=h111-2454.
 See Kerry-Boxer Climate Change Bill, GovTrack, http://www.govtrack.us/congress/bill.xpd?bill=s111-1733.
 House Vote on Passage, GovTrack, http://www.govtrack.us/congress/vote.xpd?vote=h2009-477.
 See Kerry-Boxer Climate Change Bill, supra note 94. This delay
was due in part to the rush to pass healthcare legislation.
 Cecelia Embree et al., Carbon Credit Trading: The U.S. Voluntary
Market, U.S. Regulated Markets, EU-ETS and the Kyoto Protocol, 1785
PLI/Corp 355, 363 (2010).
 See Mendoza, supra note 22, at 189.
 See S. 1733 § 721.
Embree, supra note 99, at 373.
Mendoza, supra note 22, at 189.
 See generally H.R. 2454 §§ 731-43.
Section 743 addresses when international offset credits may be issued, stating
they may be used when: “(A) the United States is a party to a[n] … arrangement
that includes the country in which the project or measure achieving the
relevant greenhouse gas emission reduction or avoidance, or greenhouse gas
sequestration, has occurred; (B) such country is a developing country; and (C)
such agreement … [complies in all manners with this section and] provides for
the appropriate distribution of international offset credits issued.” H.R. 2454
goes on to say that the Administrator may consult with the Secretary of State
to “issue international offset credits in exchange for instruments in the
nature of offset credits that are issued by an international body established
pursuant to the [FCCC], to a protocol to such Convention, or to a treaty that
succeeds such Convention.” H.R. 2454 § 743(d)(1).
Embree, supra note 99, at 373.
 See H.R. 2454 tit. II, subtit. A, B, C
& D (discussing in each section specific means to effectuate energy-saving
technologies in the areas mentioned, with additional areas listed).
Embree, supra note 99, at 374 (noting
that the Kerry-Boxer Bill did include a requirement that 25% of allocations be
reserved for auction).
 See id. at 374-375.
 See id. at 374 (further discussing the
 Id. (The Kerry-Boxer Bill takes the
first approach and the Waxman-Markey Bill the latter).
Driesen, supra note 81, at 389.
 See id. at 389-390.
 But see id. at 396 (recognizing that a
broader market offers more benefit than a constrained one).
 See generally id. at 396-401 (discussing
some problems of multi-level governance).
 See Alex Desbarres, Senate Amendments Could Spell the End of US Cap-and-Trade Legislation:
A New Approach to Carbon Emissions is to be Proposed in the US Senate,
Datamonitor (Mar. 16, 2010), http://about.datamonitor.com/cop15/archives/262
(observing that if the U.S. fails to enact cap-and-trade legislation then the
likelihood that China will do so lowers dramatically).
Ted Glick, A Common Person’s Guide to the
Federal Climate Bill, Chesapeake Climate Action Network (June 2, 2009),
 See Driesen, supra note 81, at 396-397.
 See Id. (highlighting that a major goal
of the CDM is to promote sustainable development).
H.R. 2454 § 724(b).
 See supra notes 51, 52, and 56 and
Driesen, supra note 81, at 393 (using
this phrase to describe the EU system as it links to the flexibility
mechanisms, and concluding that the success of the system depends upon the
level of oversight exercised and the environmental benefits realized globally);
see also supra notes 39 and 124
(discussing the potential for market abuse).