International Environment: Experts' Observations on Enhancing Compliance With a Climate Change Agreement

Published by the Government Accountability Office on 1999-08-23.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  United States General Accounting Office

GAO               Report to the Ranking Minority Member,
                  Committee on Commerce, House of

August 1999
                  Experts’ Observations
                  on Enhancing
                  Compliance With a
                  Climate Change

      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Resources, Community, and
      Economic Development Division


      August 23, 1999

      The Honorable John D. Dingell
      Ranking Minority Member
      Committee on Commerce
      House of Representatives

      Dear Mr. Dingell:

      In December 1997, the parties to the 1992 United Nations Framework
      Convention on Climate Change adopted the Kyoto Protocol. The protocol
      was developed to advance the convention’s objective, which is to stabilize
      concentrations of human-made greenhouse gases in the atmosphere.
      Under the protocol, developed nations (the United States, France, Japan,
      and 35 others) pledged to limit their emissions of carbon dioxide and other
      greenhouse gases for the period 2008 through 2012. If the U.S. Senate
      approves the protocol, the United States would be required to significantly
      reduce its greenhouse gas emissions.

      Ratification has been the subject of much debate. Two main concerns are
      the costs of complying with the protocol and the possibility that U.S.
      businesses that invest in reducing their emissions might have to raise the
      prices of their goods, making them less competitive with goods produced
      by nations that do not limit their emissions. To date, many of the
      protocol’s key provisions have not been decided and are to be worked out
      in upcoming meetings among the nations that are parties to the
      Framework Convention on Climate Change and that negotiated the
      protocol. In that regard, during meetings in November 1998, these nations
      developed an action plan, with a deadline of year-end 2000, for adopting
      the rules and procedures for compliance, including the consequences of

      Concerned about the effectiveness of the rules and procedures now being
      developed, you asked us to identify issues that could enhance compliance
      with the protocol or any climate change agreement. To do this, we
      convened a panel of nine experts—representatives from the federal
      government, industry, academia, and environmental organizations. (See
      app. I.) This report reflects the results of the panel’s discussions, but the
      issues presented were not necessarily endorsed by all panelists. The report
      focuses on three issues that could influence compliance with the protocol
      or other future international environmental treaties on climate change:
      (1) the clarity of the goals and procedures, (2) the use of incentives that

      Page 1                                GAO/RCED-99-248 Climate Change Agreement

                       encourage compliance to supplement punitive measures to punish
                       noncompliance, and (3) the role of environmental and industry groups.

                       According to the panelists, three features could enhance compliance with
Results in Brief       the provisions being negotiated for the Kyoto Protocol on reporting
                       greenhouse gas emissions, monitoring emissions and verifying compliance
                       with emissions limits, and enforcing the protocol’s requirements.

                   •   Clear overall goals and procedures for reporting emissions and for
                       monitoring, verifying, and enforcing emissions reductions. While the
                       protocol specifies country-by-country emissions limits, it is not clear how
                       these limits fit into the long-term objective of stabilizing the concentration
                       of greenhouse gases in the atmosphere. Defining this long-term objective
                       for the concentration levels would help build support for the specific
                       actions needed to ensure that nations meet their limits. Similarly, the
                       procedures for implementing the protocol must be clear. Clear reporting
                       requirements, for instance, will help ensure that the data collected on
                       emissions are accurate and comparable. Clearly defined processes for
                       monitoring nations’ progress toward their goals and for taking action
                       against those that do not comply will help ensure that the monitoring and
                       enforcement processes are perceived as equitable and, ultimately, make
                       them more effective.
                   •   Incentives that encourage nations to comply with the protocol’s
                       requirements. International environmental agreements have tended to use
                       enforcement provisions infrequently or ineffectively. Recent experience
                       with agreements such as the Montreal Protocol on Substances That
                       Deplete the Ozone Layer suggests that supplementing enforcement
                       penalties with incentives can help ensure that nations comply with an
                       agreement’s requirements. The panelists discussed three types of
                       incentives that could be incorporated into the Kyoto Protocol’s provisions:

                       (1) The protocol’s requirements must be binding, but different reporting
                       requirements may be appropriate for different nations, depending on,
                       among other things, their levels of greenhouse gas emissions. For
                       example, a nation that produces relatively low emissions could be held to
                       a less demanding standard of reporting than a nation that produces
                       relatively high emissions.

                       (2) Because the signatory nations vary widely in terms of the resources
                       they have available to implement the protocol’s requirements, some

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                 nations may need technical or financial help to design and implement
                 reporting systems.

                 (3) Because the ability to buy and sell emissions allowances is an incentive
                 for nations to participate, the protocol needs to specify how the risks
                 involved with an international emissions trading system will be allocated
                 (that is, assigning liability—whether to the seller or the buyer—if a nation
                 sells allowances that it is not entitled to sell).

             •   A mechanism to recognize environmental organizations, industry groups,
                 and others involved in making the protocol work. Traditionally, official
                 recognition (“standing”) for the purpose of monitoring compliance with
                 international agreements has been provided only to the authorized
                 delegates of the nations that are parties to the agreement. Thus,
                 environmental and industry groups traditionally lack standing under these
                 agreements. However, such entities may have data on certain greenhouse
                 gas emissions that could be used to help verify the data that nations
                 report, and they may have resources that could assist in the monitoring of
                 compliance. Recently, these entities have been given monitoring
                 responsibilities under treaties such as the Convention on International
                 Trade in Endangered Species of Wild Fauna and Flora—commonly
                 referred to as CITES—which deals with protecting wildlife. Establishing a
                 means to allow such entities to present information under the protocol
                 could help strengthen reporting and compliance.

                 The increased understanding of our environment and the recognition that
Background       environmental problems do not stop at national boundaries have resulted
                 in global concern about the future of our planet and an increasing number
                 of international agreements to address those concerns. There are currently
                 more than 900 international environmental agreements.1

                 Human activities, primarily those involving emissions from the production
                 and use of energy, are increasing the concentrations of carbon dioxide and
                 other “greenhouse gases” in the atmosphere. Greenhouse gases include
                 carbon dioxide (mainly from burning coal, oil, and natural gas); methane
                 and nitrous oxide (due to agriculture and changes in land use); and
                 hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride
                 (manufactured by industry). These gases trap heat in the atmosphere and

                  Edith Brown Weiss, Daniel Barstow Magraw, and Paul C. Szasz, International Environmental Law:
                 Basic Instruments and References, 2 vols. (Ardsley, N.Y.: Transnational Publishers, Inc.; vol. 1, 1992;
                 vol. 2, in press).

                 Page 3                                               GAO/RCED-99-248 Climate Change Agreement

are believed to contribute to global warming, which could lead to future
climatic changes.

The United Nations Framework Convention on Climate Change
(Framework Convention) was signed by 155 nations, including the United
States, in 1992. The Framework Convention’s objective was to stabilize
concentrations of greenhouse gases in the atmosphere at a level that
would prevent dangerous anthropogenic (human-made) interference with
the climate system. Under the Framework Convention, both developed
and developing nations agreed, for example, to report on their greenhouse
gas emissions. In addition to the general provisions agreed to by all
nations, developed nations agreed to report on their policies and measures
with the aim of returning their greenhouse gas emissions to 1990 levels by
the year 2000. However, this goal was not binding on the developed

The Framework Convention entered into force in 1994. However, by 1995,
the parties to the convention, including the United States, realized that
insufficient progress was being made toward its goals and thus decided to
begin negotiations on a follow-up protocol for the post-2000 era. In
December 1997, the parties reconvened in Kyoto, Japan, to finalize binding
measures to reduce greenhouse gas emissions. The resultant Kyoto
Protocol to the Framework Convention established binding emissions
limitations or targets for the period 2008 through 2012 for the 38
developed nations referred to as Annex B nations (because they are listed
in that annex to the protocol, see app. II).2 The protocol also laid the
groundwork for additional measures aimed at decreasing greenhouse gas
emissions, including participation in the protocol by developing nations
that have no emissions limits but that are expected to have increasing
emissions as their economies develop.

The Framework Convention requires all parties to report periodically to
the secretariat of the convention on their greenhouse gas emissions and on
their plans for developing programs to mitigate climate change and
strategies for adapting to the impact of climate change. To date, most
developed nations that are parties have reported this information twice.
Developing nations have reported less often, depending on their
circumstances. The protocol would add the requirement for Annex B
nations to establish national systems for estimating greenhouse gas

 While the Kyoto Protocol specifies that the emissions reductions are binding, the parties have yet to
specify the consequences of not reaching the reduction targets. Those provisions are scheduled to be
complete by year-end 2000.

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    emissions using methodologies adopted by the parties. In addition, Annex
    B nations would have to report those emissions estimates annually.

    One of the Kyoto Protocol’s most significant features is the incorporation
    of market-based mechanisms designed to make it less expensive for Annex
    B nations to meet their required emissions reductions. Annex B nations
    would use the so-called flexibility mechanisms when the cost of reducing
    emissions is higher in one nation than in another, transferring, in effect,
    greenhouse gas emissions between nations. No other international
    agreement to date has relied on flexible market mechanisms to the extent
    called for in the protocol.

    Among the Kyoto Protocol’s flexibility mechanisms are the following:

•   Joint implementation allows Annex B nations to transfer to or acquire
    from each other credits for emissions reductions associated with projects
    that reduce emissions. Thus, one Annex B nation may sponsor an
    emissions reduction project in another Annex B nation; in exchange, the
    sponsoring nation may claim some part or all of the emissions reductions
    resulting from the project.
•   The Clean Development Mechanism allows Annex B nations to sponsor or
    finance emissions reduction projects in developing nations that are parties
    to the protocol and, in exchange, to claim the reduced emissions.
•   Under an international emissions trading system, Annex B nations would
    be able to buy and sell allowances to emit greenhouse gases. For some
    Annex B nations, the cost of taking domestic actions to reduce emissions
    to the target levels will be more expensive than in other nations. In those
    cases, one Annex B nation could increase its target by buying an
    allowance to emit more greenhouse gases from another Annex B nation,
    thereby reducing the first nation’s costs of meeting the emissions
    reduction targets. As a result of this transaction, both parties would adjust
    their net target levels—that of the buyer would be increased, while that of
    the seller would be decreased. Nations likely to have excess emissions
    allowances to sell are those with economies in transition to market
    economies, such as the nations of the former Soviet Union. This is because
    their emissions are substantially lower than their targets.

    Annex B nations vary in the extent to which they expect to rely on the
    flexibility mechanisms. The European Union’s position is to limit the
    amount of emissions reductions to be achieved through joint
    implementation, the Clean Development Mechanism, and international

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emissions trading. The United States, however, opposes quantitative limits
on use of the mechanisms.

All of the flexibility mechanisms require some further clarification by the
nations that are parties to the agreement (party nations). How the
mechanisms are clarified will influence the implementation of, and
compliance with, the obligations of the protocol. Clarification of the
mechanisms will be particularly difficult since the mechanisms have little,
if any, precedent in international law.

Other important issues that were not addressed at Kyoto include the role
of developing nations and the procedures for determining, and the
consequences for, noncompliance. Negotiations are continuing on these
issues, and the parties have set a deadline for resolving them by the sixth
Conference of the Parties, currently scheduled for year-end 2000. The
Kyoto Protocol, initially adopted by all of the parties to the Framework
Convention, was open for signature until mid-March 1999. As of that
deadline, 84 nations, including the United States, had signed, thereby
affirming their commitment to work toward the protocol’s goals. After
signing such an agreement, the nations must also ratify it for it to enter
into force. As of July 1, 1999, 12 nations—all developing nations that are
not subject to emissions limitations and many of which are small island
nations that might be threatened by climate change—have ratified the
protocol. Appendix III lists the nations that have signed the protocol and
highlights those that have ratified it. U.S. ratification of the Kyoto
Protocol, which requires the advice and consent of the Senate, is uncertain
at this time.

Estimates of the economic impact of achieving the emissions reductions
set for the United States vary greatly; however, all agree that some
increase in energy prices and some decrease in gross domestic product
will result. U.S. business interests are particularly concerned because they
expect higher energy prices to increase their costs of production. Because
developing nations do not face emissions limits and comparable energy
price increases, U.S. businesses are concerned that their products will
become relatively more expensive than—and thereby less competitive
with—those of developing nations. Examples of U.S. businesses expected
to be most severely affected include chemical, paper, and electronics

Page 6                                GAO/RCED-99-248 Climate Change Agreement

                          Ambiguity of goals and procedures has been recognized as an obstacle in
Specification of          the implementation of many international environmental agreements.
Overall Goals and         Experience has shown that when goals and procedures are not clearly
Procedures for            stated in an agreement, implementation is often either delayed or
                          prevented until the parties resolve their differences in interpretation.
Reporting,                According to some experts, this ambiguity occurs because of the need to
Monitoring, and           obtain consensus during the negotiating process; the more specific the
                          language, the more difficult it is for all parties to agree. Studies have also
Enforcement Could         indicated, however, that as the economic costs of implementing an
Enhance Compliance        agreement increase, the parties generally insist that the agreement include
                          specific mechanisms that will ensure that all parties are implementing the
                          terms of the agreement. These mechanisms can include requirements for
                          the periodic reporting of information on each party’s implementation of
                          the agreement and monitoring or enforcement procedures.

                          With respect to the Kyoto Protocol, some of the panelists indicated that its
                          long-term goals and the procedures for implementing its provisions need
                          to be specified. This specificity is important so that the parties to the
                          agreement, who must decide whether to ratify it, and the businesses and
                          environmental organizations that will play important roles in
                          implementing it, can have confidence that the agreement is equitable and
                          that all parties will contribute to attaining its goals. The panelists generally
                          agreed that “transparency”—that is, reporting accurate information about
                          each nation’s greenhouse gas emissions, making clear the methodologies
                          used to collect and report the information, and disseminating that
                          information to all parties who have an interest—is one important element
                          needed to obtain the necessary level of confidence and assurance.

The Long-Term Goal for    Under the Kyoto Protocol, the 38 Annex B nations agreed to either limit or
Greenhouse Gas            reduce their greenhouse gas emissions during the period 2008 through
Concentrations Needs to   2012. It is reasonably certain that the greenhouse gas limitations accepted
                          by these nations would result in lower emissions and lower greenhouse
Be Established            gas concentrations than would have occurred without the agreement.
                          However, the agreement will not necessarily result in a net reduction in
                          worldwide emissions of greenhouse gases because emissions by
                          non-Annex B nations are projected to continue to increase, more than
                          offsetting the reductions by Annex B nations. For this reason, atmospheric
                          concentrations will continue to rise. Stabilization of atmospheric
                          concentrations of greenhouse gases would require additional reductions
                          by either Annex B or non-Annex B nations, or both.

                          Page 7                                  GAO/RCED-99-248 Climate Change Agreement

                            A concern expressed during the panel discussions was that without
                            establishment of a long-term goal, such as a specific target for the
                            concentration of carbon dioxide in the atmosphere, the extent of future
                            reductions that will be needed is unclear. One panelist said, for example,
                            that businesses and developing nations are concerned that the agreement
                            does not specify explicit goals for the longer term. (The Kyoto Protocol
                            only specifies emissions limits for the period 2008 through 2012.) Without
                            long-term goals, the emissions reports required by the protocol could
                            simply become the basis for requiring further emissions reductions, he
                            said. The panelist also stated that specific goals would allow not only the
                            parties but also businesses, which will largely be responsible for reducing
                            emissions, to better assess their role in the agreement.

The Procedures for          The collection, analysis, and dissemination of accurate information on
Implementing the Protocol   greenhouse gas emissions are crucial to determining compliance with the
Need to Be Established      protocol’s requirements. In this respect, the panelists discussed the
                            quantity and quality of data being reported under existing international
                            environmental agreements. One panelist who has studied this issue
                            indicated that, in general, the problem of party nations either submitting
                            incomplete reports or not reporting at all appears to be diminishing. This
                            panelist referred to the apparent success of the Montreal Protocol on
                            Substances That Deplete the Ozone Layer (Montreal Protocol) in
                            improving reporting rates by making funds available contingent on a
                            party’s compliance with the agreement’s reporting requirements. Several
                            panelists endorsed the concept of allowing parties to participate in the
                            Kyoto Protocol’s proposed flexibility mechanisms only if they meet the
                            reporting requirements. According to one of the panelists familiar with the
                            negotiations, this is one of the issues being considered by the party
                            nations, but specific criteria for a nation’s eligibility to participate in the
                            proposed flexibility mechanisms have not yet been determined.

                            According to a panelist who has studied reporting under international
                            agreements, although the quantity of information being reported under
                            other international environmental agreements is improving, little is known
                            about the quality of the underlying data because independent checks on
                            data sources and the information contained in the reports that the nations
                            submit are rare. The issue of state sovereignty—nations’ resisting oversight
                            of their activities within their own borders by outside organizations or by
                            other nations—has precluded extensive reviews of the quality of reported
                            data and has resulted, for the most part, in acceptance of the information
                            that nations report. The Kyoto Protocol does provide for the outside

                            Page 8                                 GAO/RCED-99-248 Climate Change Agreement

review of annual inventories of emissions submitted by the Annex B
nations. These reviews would be done by teams selected from experts
nominated by the party nations and intergovernmental organizations such
as the Organization for Economic Cooperation and Development and the
International Energy Agency.

However, under the protocol, the review teams would examine only
Annex B nations’ information; the protocol does not provide for these
teams to review information on compliance submitted by parties other
than the Annex B nations. In addition, guidelines or procedures that clarify
the review teams’ authority and responsibility have not been developed.
For example, whether the teams will have the authority to conduct on-site
inspections and whether they can consider information provided by third
parties such as environmental organizations has not been specified.

The signatories also have not decided which, if any, aspects of compliance
the review teams will be allowed to determine or the criteria they may use.
As one panelist explained, determining a nation’s actual emissions is a
factual issue, but interpreting the agreement’s obligations is a legal issue.
For example, determining the number of trees a nation planted or the
methodologies used in estimating emissions removed by those trees is a
factual issue, but determining whether the trees qualify as afforestation or
reforestation (essentially planting trees on open land or new trees on
previously forested land) under the agreement is a legal issue.3

Providing the review teams with the authority to conduct on-site
monitoring or to make legal interpretations would require the party
nations to relinquish some of their sovereign authority, and obtaining
agreement on such provisions could be difficult. Some panelists
questioned, for example, whether the United States would accept on-site
monitoring of emissions by an international body. One panelist pointed out
that the protocol refers specifically to a nation’s emissions estimates
rather than to actual emissions and therefore does not imply the need for
the monitoring of actual emissions. Instead, the parties would establish
guidelines for estimating emissions, and the review teams would examine
the procedures that a nation followed in developing its estimates.

In addition to these specific procedures related to reporting and
monitoring, specific enforcement procedures also need to be established,

 The levels of greenhouse gases in the atmosphere are determined by the difference between the
processes that generate the gases and the processes that destroy or remove them. Forests are an agent
for removing (sequestering) greenhouse gases. The Kyoto Protocol allows nations to use afforestation
and reforestation to offset their emissions.

Page 9                                            GAO/RCED-99-248 Climate Change Agreement

                       according to the panelists. Although the Kyoto Protocol established a
                       framework and some requirements for monitoring and reporting, the
                       agreement contains at this time only a general statement that the protocol
                       would include procedures for determining and addressing noncompliance.
                       According to a panelist familiar with the protocol negotiations, the lack of
                       enforcement procedures was due more to the time constraints of the
                       negotiations than to substantive disagreements over the issues. One issue
                       that is being negotiated is whether the consequences for noncompliance
                       will be specifically stated in the protocol or whether a process or group
                       will be established for determining the consequences of noncompliance on
                       a case-by-case basis. Another issue is whether the consequences of
                       noncompliance will be discretionary or automatic. For example, one
                       panelist asked whether, if a party does not comply with the reporting
                       requirements, should it be automatically penalized—for example,
                       prevented from participating in emissions trading—or should some body
                       be granted discretion to decide what the consequences should be. If the
                       consequences are automatic, then there is a risk that a nation could be
                       severely penalized for a relatively minor infraction, such as submitting a
                       report 2 days late. However, business interests are concerned that a
                       discretionary body may not act consistently or equitably on

                       In addition to the establishment of procedures for enforcement,
                       substantive procedures and rules are also needed for the flexibility
                       mechanisms, which the signatory nations are developing. Panelists
                       mentioned other areas for which additional procedures or guidance could
                       be beneficial. For example, one panelist suggested the development of a
                       quality assurance system that would require parties to verify and
                       cross-check the data in their own inventories. To support the flexibility
                       mechanisms, another panelist suggested an expedited monitoring
                       procedure that would allow the private sector to make more focused and
                       quick evaluations than the review teams’ comprehensive efforts could

                       Historically, few international environmental treaties have used
Features Other Than    enforcement provisions effectively. Recent experience, such as with the
Penalties May Result   Montreal Protocol, suggests that using economic or other incentives to
in Better Compliance   supplement enforcement penalties can help ensure that nations comply
                       with an agreement’s requirements. The panelists discussed various
                       examples of features for encouraging compliance that could be

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                                 incorporated into an environmental agreement on climate change such as
                                 the Kyoto Protocol.

Enforcement Provisions           In the past, the effectiveness of international environmental agreements’
Have Not Been Effective at       enforcement provisions has been limited for a number of reasons. An
Ensuring Compliance              agreement may not specify enforcement procedures, may allow party
                                 nations to exempt themselves from enforcement, or may be so limited in
                                 scope that the environmental problem is not effectively addressed.

                                 For example, the Northwest Atlantic Fisheries Convention, which applies
                                 to all waters of the northwest Atlantic Ocean, has the authority to
                                 establish and allocate fishing quotas for all convention members. The
                                 convention’s Fisheries Commission, which is the body responsible for
                                 managing the convention’s resources, can adopt proposals for the
                                 enforcement of the convention’s rules. However, the commission has
                                 jurisdiction only in the area that is beyond the 200-mile off-shore economic
                                 zone each coastal nation controls; thus, the commission has no
                                 jurisdiction over some of the most productive fishing areas. In addition,
                                 the convention allows any member of the agreement to exempt itself from
                                 any enforcement proposal from the commission by lodging an objection.

                                 Enforcement provisions have also tended to be ineffective because there
                                 often is no meaningful or practical enforcement mechanism. The
                                 secretariats established by the agreements may not have enforcement
                                 authority, or if they have the authority, they do not have the resources or
                                 the international jurisdiction that would be needed to carry out
                                 enforcement activities. Furthermore, no centralized regulatory body has
                                 jurisdiction or enforcement authority for international environmental
                                 agreements. As a result, the effectiveness of international environmental
                                 agreements has depended almost entirely on voluntary compliance.

Supplementing                    Rather than relying exclusively on penalties to discourage noncompliance,
Enforcement With                 the protocol might be more effective if it included incentives to encourage
Incentive Features May           compliance, some of the panelists suggested. Three of the incentives that
                                 the panelists discussed include
Improve Compliance
                             •   tailoring the protocol’s requirements for reporting emissions so that they
                                 are appropriate for different nations, depending on their level of
                                 greenhouse gas emissions, among other things;

                                 Page 11                               GAO/RCED-99-248 Climate Change Agreement

                                •   providing technical or financial help for nations with insufficient
                                    resources; and
                                •   specifying how the liabilities for noncompliance involved in an
                                    international emissions trading system should be assigned.

Nations With Higher Emissions       Although all parties are required to report periodically on their greenhouse
Should Meet More Rigorous           gas emissions, under the Kyoto Protocol, only Annex B nations are
Requirements                        required to report annually on their emissions. That could change,
                                    however. According to some of the panelists, the implementation of the
                                    flexibility mechanisms could require more frequent or more specific
                                    reporting (for example, project-based reporting) on emissions by the
                                    non-Annex B parties that participate in the mechanisms. The panelists
                                    discussed the need for standardized reporting by all nations, the difficulty
                                    that some nations will have in meeting standardized requirements, and a
                                    two-tier reporting system as a means of encouraging all nations to report
                                    the necessary data.

                                    The panelists generally agreed that it is important that all parties report on
                                    their emissions in a standardized format so that it can be readily
                                    determined whether the Annex B nations are in compliance with the
                                    protocol’s requirements. Standardization is important for other reasons as
                                    well. For example, one panelist noted that standardized requirements that
                                    do not change frequently would help to ensure a higher quality of reported
                                    data. As nations gain experience with the methodologies for collecting and
                                    reporting data and build the infrastructure they need to collect and report
                                    data, the quality of their data tends to improve and they can become better
                                    at targeting their efforts to reduce emissions. Another panelist noted that
                                    consistent, standardized data are needed to assure businesses that they
                                    will be given credit for the activities that they undertake to reduce

                                    The panelists acknowledged that standardized reporting could be difficult
                                    because of the widely varying resources, experience, and technical
                                    capabilities of the nations. Under the Kyoto Protocol, both developed and
                                    developing nations—which have the least resources, experience, and
                                    technical capabilities—will be required to report on emissions. Experience
                                    with the Framework Convention has shown that Annex B nations, which
                                    are mostly industrialized and developed nations and theoretically are in
                                    the best position to comply, have varied in their ability to meet that
                                    agreement’s basic reporting requirements and have often fallen short of

                                    Page 12                                GAO/RCED-99-248 Climate Change Agreement

                                  Because a relatively few nations account for a large proportion of the
                                  world’s greenhouse gas emissions, according to some of the panelists, it is
                                  more important to know whether the nations that emit the most
                                  greenhouse gases are reporting accurately rather than whether all party
                                  nations are doing so. For example, 20 nations accounted for about
                                  80 percent of worldwide carbon dioxide emissions in 1997. The top 20
                                  include Annex B nations—such as the United States, the Russian
                                  Federation, and Japan—and developing nations—such as China, India, and
                                  South Korea. (See app. IV for the complete top 20 list.)

                                  Bearing in mind the differences both in nations’ greenhouse gas emissions
                                  and in their ability to report on their activities to limit emissions, several of
                                  the panelists suggested establishing two levels of requirements. According
                                  to one panelist, the World Trade Organization’s Trade Policy Review
                                  Mechanism is an example of an international agreement that does
                                  this—the mechanism requires large trading nations to undergo more
                                  frequent reviews than small ones. Under the protocol, the first level of
                                  requirements would call for detailed, standardized information on
                                  emissions and activities to reduce emissions. The nations that emit the
                                  most greenhouse gases would be required to comply with these
                                  requirements, thereby furnishing extensive information for analyzing most
                                  of the world’s emissions.

                                  The second level of requirements would call for data containing common
                                  elements needed for good quality reports, but the requirements would be
                                  less extensive. The panelists implied that this would be the minimum
                                  needed to assure businesses that investments they make to reduce
                                  emissions would be acknowledged and to assure signatory nations that
                                  other signatory nations are meeting their obligations under the agreement.
                                  The second level might also require less frequent reporting. Because of the
                                  second level of requirements’ limited nature, meeting them would be less
                                  costly and less difficult. This is particularly important to nations with small
                                  or resource-poor environmental ministries, according to one panelist.
                                  Nations that emit relatively small amounts of greenhouse gases would be
                                  required to comply with the less extensive requirements and therefore
                                  would have an incentive to comply with them. The panelists did not
                                  further specify the requirements that should be included in each level.

Technical or Financial Help for   As of July 1999, 84 nations had signed the protocol. The signatories
Nations With Insufficient         include nations of many sizes and stages of economic development and
Resources                         with different levels of experience in reporting on emissions. Several
                                  panelists expressed concern about the ability of some developing nations

                                  Page 13                                 GAO/RCED-99-248 Climate Change Agreement

and nations in transition to market economies to meet their reporting
obligations. They suggested that technical or financial assistance could
provide an incentive for those nations to comply.

One panelist noted that it is important for businesses that have emission
reduction activities in developing nations to play a role in facilitating data
reporting by those nations. However, according to the panelist, businesses
are concerned about being overburdened with costly reporting
requirements in nations that may not have adequate capacity for that
function and believe that it is important that the responsibility—and
costs—for establishing reporting systems not be shifted from the
governments onto the businesses that invest in those nations.

Other international environmental agreements have successfully provided
financial assistance for developing nations that lacked the resources or
administrative capacity for fulfilling their obligations. For example, as
mentioned earlier, the Montreal Protocol provides funds to boost
developing nations’ activities to comply with that protocol’s provisions.
The fund pays for projects in developing nations to gather baseline data
and build the administrative capacity to report the data. According to
experts, this financial assistance has resulted in better self-reporting of
certain data by developing nations.

According to several panelists, getting developing nations to participate in
international environmental agreements has, to some degree, required that
developed nations pay the additional cost of data reporting by developing
nations. The Framework Convention requires developed nations to pay for
reporting by developing nations. One panelist noted that the data reporting
requirements under a climate change agreement such as the Kyoto
Protocol are likely to be more extensive and difficult, and therefore more
expensive, than for other international environmental agreements. They
anticipated that the developing nations would need assistance if they are
to participate. However, according to one panelist, the developed nations
may not be willing to absorb all of the additional costs for the developing

One solution is to target financial or technical resources to the specific
needs of each developing nation. For example, a nation may give low
priority to devoting resources to reporting on emissions because it faces
more urgent problems, such as providing safe drinking water to its
population. Or a nation may recognize the importance of compliance but
be inexperienced in getting government ministries to work together

Page 14                                GAO/RCED-99-248 Climate Change Agreement

                                administratively. Both nations lack the capacity to comply with reporting
                                requirements, but addressing those capacity issues effectively will require
                                different types of assistance.

                                Another approach would be to encourage nations with similar conditions
                                and problems to work together when their individual resources are
                                insufficient. According to the panelists, some nations have used this
                                technique effectively for other international agreements. For example,
                                officials from Latin American and Asian nations meet periodically to learn
                                from each others’ experiences with the Montreal Protocol’s multilateral
                                fund, focusing on problems they have encountered and solutions that have
                                been effective.

Assignment of Risks Within an   The ability to buy and sell emissions allowances provides an incentive for
International Emissions         nations to participate in the protocol. A nation whose emissions are less
Trading System                  than its limit under the protocol or that can reduce its emissions at low
                                cost stands to gain financially by selling part of its emissions allowance. A
                                nation that finds it expensive to reduce its emissions to meet its limit
                                under the protocol may prefer to buy those allowances rather than make
                                the investments needed to bring down its emissions. However, if a nation
                                that sells allowances fails to meet its emissions target level, then the
                                allowances are not backed by real reductions in emissions.

                                According to most of the panelists, for this incentive to be effective and for
                                an Annex B nation to be willing to participate in international emissions
                                trading, a nation must have assurance that the allowances it is buying are
                                valid (that is, that the seller has not actually exceeded its assigned
                                emissions limit). Thus, the allowances can be used to increase the buyer
                                nation’s emissions target. Which nation—the seller or the buyer—will
                                assume the risk of ensuring that allowances are valid needs to be
                                specified. The Kyoto Protocol does not currently address this issue;
                                however, some analysts believe that seller liability is implied by the

                                A system of seller liability makes sellers responsible for ensuring that the
                                allowances they sell are valid. The seller liability system relies on effective
                                penalties for noncompliance—penalties that are large enough to
                                discourage the seller from selling invalid credits. Seller liability may not be
                                effective in an international emissions trading system, however, for two
                                reasons. First, although the Kyoto Protocol’s penalties for noncompliance
                                remain to be negotiated, as already discussed, penalties for
                                noncompliance with international agreements in general are typically

                                Page 15                                GAO/RCED-99-248 Climate Change Agreement

                     weak and difficult to enforce. Second, no international regulatory body
                     currently has authority to carry out enforcement provisions, although the
                     enforcement regime for the Kyoto Protocol currently being negotiated by
                     the parties may specify that authority.

                     As a result, some panelists have suggested that buyer liability might be
                     appropriate for this agreement because it relies on price incentives rather
                     than penalties and enforcement. If the buyer is liable for ensuring the
                     validity of the allowances being purchased, the buyer will weigh the
                     likelihood that the seller will exceed its emissions limit. Hence, a buyer
                     will offer a lower price for allowances whenever the buyer believes that
                     the risk is higher that the allowances may prove to be invalid. Sellers will
                     therefore have an incentive to comply with their emissions limits because
                     their allowances will then be worth more to buyers.

                     However, according to some of the panelists, a system of buyer liability
                     could be costly and difficult for buyers. Without a mechanism to provide
                     basic information on the reliability of sellers, buyers may have to carry out
                     separate investigations of each seller. Such a process could be costly,
                     especially during the early phases of the agreement’s implementation
                     when there is little experience with evaluating sellers’ performance. In
                     some cases, buyers may not have the capability to perform these
                     investigations. One panelist suggested that some form of insurance might
                     be created to cover some of the costs and difficulty for buyers. It was also
                     suggested that the trading system could include a process for verifying
                     that allowances are valid before they can be traded.

                     The Framework Convention has formal mechanisms for groups other than
Increased            the parties to the convention to provide input into negotiations. Groups
Involvement in the   that have participated in negotiations for the Kyoto Protocol include
Process by Other     intergovernmental organizations—for example, the International Energy
                     Agency—and nongovernmental organizations, including business
Groups Could         representatives—for example, The Nature Conservancy and the Edison
Improve Compliance   Electric Institute. Both of these groups have the knowledge and
                     experience to provide information on possible policy options, technical
                     feasibility, and the costs and benefits of implementing agreements.

                     Some businesses and environmental organizations carry out emissions
                     monitoring programs, and some experts believe that the data that they
                     compile are more reliable than that reported by the signatory nations.
                     Procedures for determining how information provided by groups other

                     Page 16                               GAO/RCED-99-248 Climate Change Agreement

                  than the signatory nations could be included in determining compliance
                  are being considered by the signatory nations. Some of the panelists
                  supported including provisions in the protocol that would allow these
                  groups to provide input into the protocol’s procedures for determining

                  Data collected by such groups have sometimes been used in international
                  environmental agreements. For example, a panelist noted that under the
                  Convention on International Trade in Endangered Species of Wild Fauna
                  and Flora (commonly referred to as CITES), almost all of the major
                  instances of noncompliance have been identified by environmental
                  organizations working inside the nations that signed the convention.
                  Conversely, another panelist cited an example of businesses obtaining
                  information that showed a country was not complying with the provisions
                  of the Montreal Protocol; however, in that case, no action was taken
                  despite attempts by businesses to provide the information to responsible

                  One panelist pointed out that because most fossil fuels, which are the
                  primary source of carbon dioxide (the main source of global warming), are
                  traded in commercial markets, there are many sources of independent
                  data that could be used under the Kyoto Protocol to compute estimated
                  emissions. However, panelists noted that under the protocol as it now
                  exists, there is no mechanism for gathering or considering information
                  from groups other than the signatory nations. Another panelist suggested
                  the possibility that the review teams established to review the inventories
                  submitted by the parties could be given the authority to accept and
                  consider information provided by other groups such as the environmental

                  We provided a draft of this report to the Secretary of State and the
Agency Comments   Administrator of the Environmental Protection Agency for review and
                  comment. Neither agency commented on the report. The panelists from
                  both agencies reviewed the report and suggested technical corrections,
                  which we incorporated as appropriate.

                  This report summarizes the discussions of the panel of nine experts that
Scope and         we convened for one day in Washington, D.C., in December 1998. We
Methodology       selected the panelists because of their prominence in the areas of
                  international environmental agreements and the Kyoto Protocol, choosing

                  Page 17                              GAO/RCED-99-248 Climate Change Agreement

a cross section from the federal government, business, academia, and
environmental organizations. A knowledgeable senior analyst from the
Congressional Research Service moderated the panelists’ discussions. The
panelists discussed reporting, monitoring and verification, and
enforcement of international environmental agreements and the historical
lessons that could be applied to an agreement on climate change such as
the Kyoto Protocol. As a starting point for the discussions, we prepared a
summary of recent literature on those issues.4 The panelists made many
insightful comments throughout the day; we have included in this report
those that were most prominent during the discussion. Profiles of the
panelists and moderator are contained in appendix I. We performed our
work from July 1998 through August 1999.

As arranged with your office, unless you announce its contents earlier, we
plan no further distribution of this report until 30 days after the date of
this letter. At that time, we will send copies to congressional committees
with jurisdiction over international environmental affairs; interested
Members of Congress; the Honorable Madeleine K. Albright, Secretary of
State; the Honorable Carol M. Browner, Administrator, Environmental
Protection Agency; and other interested parties. We will also make copies
available to others on request.

Should you or your staff need further information, please contact me or
David Marwick at (202) 512-6111. Key contributors to this assignment
were Karla Springer; William H. Roach, Jr.; and John A. Crossen.

Sincerely yours,

David G. Wood
Associate Director, Environmental
  Protection Issues

International Environment: Literature on the Effectiveness of International Environmental
Agreements (GAO/RCED-99-148, May 1999).

Page 18                                           GAO/RCED-99-248 Climate Change Agreement
Page 19   GAO/RCED-99-248 Climate Change Agreement

Letter                                                                                            1

Appendix I                                                                                       22

Profiles of the
Participants on the
Expert Panel
Appendix II                                                                                      26

Nations Listed in
Annex B to the Kyoto
Appendix III                                                                                     27

Nations That Have
Signed or Ratified the
Kyoto Protocol
Appendix IV                                                                                      28

Top 20 Carbon


                         CITES     Convention on International Trade in Endangered Species of
                                       Wild Fauna and Flora
                         CRS       Congressional Research Service

                         Page 20                            GAO/RCED-99-248 Climate Change Agreement
Page 21   GAO/RCED-99-248 Climate Change Agreement
Appendix I

Profiles of the Participants on the Expert

                Ruth Greenspan Bell is the director of the International Institutional
                Development and Environmental Assistance Program at Resources for the
                Future. This program is designed to help governments, nongovernmental
                organizations, development banks, and other institutions become more
                effective in implementing natural resource management and
                environmental protection laws and related international environmental
                obligations. Prior to this position, she was an attorney in the Office of
                General Counsel at the Environmental Protection Agency. She has also
                designed and coordinated environmental assistance programs, principally
                in Central and Eastern Europe and the countries of the former Soviet
                Union. She chairs the board of the Women’s Foreign Policy Group and is a
                member of the Council on Foreign Relations.

                Susan Biniaz is an assistant legal adviser in the Bureau of Oceans,
                International Environmental and Scientific Affairs, at the Department of
                State. In this capacity, she has been the legal adviser for many treaty
                negotiations, including the International Space Station agreement, the
                United States-Russian maritime boundary treaty, the 1992 Framework
                Convention on Climate Change, the Kyoto Protocol on Climate Change,
                the United States-Canadian Air Quality Agreement, and various
                amendments to the Montreal Ozone Protocol and Basel Convention on
                Transboundary Movement of Hazardous Waste. Prior to accepting her
                present position, she was the assistant legal adviser for European and
                Canadian Affairs at the State Department.

                Clare Breidenich is a policy analyst at the Environmental Protection
                Agency. In this capacity, she works on the development of international
                policy to address climate change and has been a member of the U.S.
                delegation to the climate change negotiations for the past 5 years. Her
                particular expertise is in matters relating to reporting, verification, and
                review of greenhouse gas emissions. Ms. Breidenich holds masters’
                degrees in environmental science and in public affairs from Indiana
                University, School of Public and Environmental Affairs.

                Edith Brown Weiss is the Francis Cabell Brown Professor of
                International Law at the Georgetown University Law Center and is active
                in the areas of public international, environmental, and water resources
                law. Her professional experience includes positions as associate general
                counsel for international activities at the Environmental Protection
                Agency, assistant professor of civil engineering and politics at Princeton
                University, and a research associate at Columbia University and the
                Brookings Institution. She served as an attorney-adviser to the U.S. Arms

                Page 22                                GAO/RCED-99-248 Climate Change Agreement
Appendix I
Profiles of the Participants on the Expert

Control and Disarmament Agency. She has been a member of numerous
scientific and legal advisory committees on international environmental
law. She served as president of the American Society of International Law
and chair of the Committee for Research in Global Environmental Change
of the Social Science Research Council. She serves on the Board of
Directors of the Japanese Institute for Global Environmental Strategies
and on the Council of Advisers to the Cousteau Society. In 1988, Professor
Brown Weiss became a member of the board of editors of the American
Journal of International Law and a member of the editorial advisory
boards for Global Governance, the Berkeley Journal of International Law,
and Environment Magazine. She has published numerous articles on
international and environmental law and is the author of many books.

Kevin Fay is the executive director for the Alliance for Responsible
Atmospheric Policy, a coalition of several hundred companies and trade
associations working to develop international policies to address ozone
depletion issues. He is also the executive director of the International
Climate Change Partnership, which he helped to organize. The partnership
is an industry organization dedicated to facilitating responsible industry
participation in the climate change policy process at the international and
national levels. He has been an industry representative on the U.S.
delegation at the international climate change negotiations and has been
involved in all the negotiating sessions pertaining to the Montreal Protocol
on Substances That Deplete the Ozone Layer. He also has participated
with U.S. officials in a roundtable dialogue with the European Union on
the subject of trade and the environment; in legislative activities dealing
with energy and environment issues, particularly the Clean Air Act
Amendments of 1990; and numerous other legislative issues at the state
and local level.

Susan Fletcher (moderator of the panel) is a senior analyst in
international environmental policy at the Congressional Research Service
(CRS), Library of Congress—the research arm of the Congress. She advises
the Congress, writing reports and organizing research efforts and assisting
with hearings and legislation on a wide variety of issues pertaining to the
international environment. Currently the division coordinator for climate
change issues, she has written CRS materials on the Kyoto Protocol and
other treaty issues concerning climate change and oversaw the
preparation of an electronic briefing book on these issues. She also has
done research and written on such issues as sustainable development,
trade and the environment, biological diversity, global forests, and foreign
assistance related to the environment. As a congressional observer, she

Page 23                                      GAO/RCED-99-248 Climate Change Agreement
Appendix I
Profiles of the Participants on the Expert

was a member of the U.S. delegation to the 1992 Earth Summit in Rio de
Janeiro and to the preparatory negotiating meetings for the Rio
conference, as well as to three annual follow-up meetings of the United
Nations Commission on Sustainable Development, which is charged with
overseeing the implementation of Earth Summit decisions.

Jennifer Morgan is a senior program associate in the Climate Campaign
Program at the World Wildlife Fund. In this position, she is responsible for
representing World Wildlife Fund-U.S. in the international climate
negotiations and formulating and advocating climate change policies on
the international and national levels. Prior to joining the World Wildlife
Fund, she worked at the U.S. Climate Action Network, which is a network
of over 200 environmental groups worldwide working on global climate
change. In 1996, she received a fellowship with the Robert Bosch
Foundation in Germany, where she worked for the European Business
Council for a Sustainable Energy Future and for the Federal Ministry of
Environment. She also has worked on international trade issues at the
Natural Resources Defense Council and on World Bank policy at the
National Audubon Society.

Stephen Porter is a staff attorney at the Center for International
Environmental Law and an adjunct professor of law at The American
University’s Washington College of Law, where he has taught courses on
trade and the environment and an international environmental law
research seminar. At the Center for International Environmental Law, he
focuses primarily on climate-related work, including most recently a study
of compliance mechanisms in the global climate regime. Previously, he
was an environmental associate in a private law firm, did forestry and
erosion control work in Mali as a Peace Corps volunteer, and was a budget
analyst at the Congressional Budget Office.

David Victor is a Robert W. Johnson, Jr., fellow in science and technology
at the Council on Foreign Relations. In this position, he is writing a book
on “A Technology Strategy to Combat Global Warming” and is leading a
project on protection of the world’s forests. Previously, he directed a
project on implementation of international environmental treaties at the
International Institute for Applied Systems Analysis in Laxenburg, Austria.
He recently published a book on treaty implementation and coauthored an
article in Scientific American that projects worldwide passenger mobility
to the year 2050.

Page 24                                      GAO/RCED-99-248 Climate Change Agreement
Appendix I
Profiles of the Participants on the Expert

Richard C. Visek is an adjunct professor at the Georgetown University
Law Center, where he teaches “Comparative Law: Legal Systems in
Transition.” He recently joined the Department of State’s Office of the
Legal Adviser and, previously, worked on overseas “Rule of Law”
assistance programs and environmental enforcement litigation for the
Department of Justice. He also has taught courses in international law and
European Community law and has worked on environmental litigation in
private practice.

Page 25                                      GAO/RCED-99-248 Climate Change Agreement
Appendix II

Nations Listed in Annex B to the Kyoto

               Thirty-eight nations, including 13 nations in transition to market
               economies (indicated by an asterisk), agreed to emissions limitations or
               reductions in the Kyoto Protocol and are listed in Annex B to the protocol.
               They are Australia, Austria, Belgium, Bulgaria,* Canada, Croatia,* Czech
               Republic,* Denmark, Estonia,* Finland, France, Germany, Greece,
               Hungary,* Iceland, Ireland, Italy, Japan, Latvia,* Liechtenstein, Lithuania,*
               Luxembourg, Monaco, Netherlands, New Zealand, Norway, Poland,*
               Portugal, Romania,* Russian Federation,* Slovakia,* Slovenia,* Spain,
               Sweden, Switzerland, Ukraine,* United Kingdom of Great Britain and
               Northern Ireland, and the United States.

               Page 26                               GAO/RCED-99-248 Climate Change Agreement
Appendix III

Nations That Have Signed or Ratified the
Kyoto Protocol

               Annex B nations
               Australia                           Germany                              Poland
               Austria                             Greece                               Portugal
               Belgium                             Ireland                              Romania
               Bulgaria                            Italy                                Russian Federation
               Canada                              Japan                                Slovakia
               Croatia                             Latvia                               Slovenia
               Czech Republic                      Liechtenstein                        Spain
               Denmark                             Lithuania                            Sweden
               Estonia                             Luxembourg                           Switzerland
               European Union                      Monaco                               Ukraine
               Finland                             Netherlands                          United Kingdom
               France                              New Zealand                          United States
               Georgiaa                            Norway
               Non-Annex B nations
               Antigua and Barbuda                 Israel                               Paraguay
               Argentina                           Jamaica                              Peru
               Bahamasa                            Kazakhstan                           Philippines
               Bolivia                             Korea, Republic of                   Saint Lucia
               Brazil                              Malaysia                             Saint Vincent and the
               Chile                               Maldives                             Samoa
               China                               Mali                                 Seychelles
               Cook Islands                        Malta                                Solomon Islands
               Costa Rica                          Marshall Islands                     Thailand
               Cuba                                Mexico                               Trinidad and Tobago
               Ecuador                             Micronesia, Federal States Turkmenistan
               Egypt                               Nicaragua                            Tuvalu
               El Salvador                         Niger                                Uruguay
               Figi                                Niue                                 Vietnam
               Guatemala                           Panama                               Uzbekistan
               Honduras                            Papua New Guinea                     Zambia
               Notes: Bold type indicates the nation has ratified the Kyoto Protocol.
               This nation ratified the protocol but has not signed it.

               Source: Web site of the U.N. Framework Convention on Climate Change (July 1, 1999).

               Page 27                                              GAO/RCED-99-248 Climate Change Agreement
Appendix IV

Top 20 Carbon Dioxide-Producing Nations

              Metric tons in millions
                                                                                             1997 emissions
              Annex B nations
                  United States                                                                          1,488
                  Russia                                                                                      422
                  Japan                                                                                       297
                  Germany                                                                                     234
                  United Kingdom                                                                              157
                  Canada                                                                                      143
                  Italy                                                                                       116
                  Ukraine                                                                                     106
                  France                                                                                      102
                  Poland                                                                                      95
                  Australia                                                                                   89
                  Spain                                                                                       68
              Non-Annex B nations
                  China                                                                                       822
                  India                                                                                       237
                  South Korea                                                                                 116
                  South Africa                                                                                99
                  Mexico                                                                                      94
                  Brazil                                                                                      77
                  Saudi Arabia                                                                                74
                  Iran                                                                                        73
              Total – 20 largest CO2 emitters                                                            4,909
              Total – worldwide CO2 emissions                                                            6,232
              Percentage of worldwide CO2 emitted by
              top 20 nations                                                                                  79%
              Nation in transition to a market economy.

              Source: World Carbon Dioxide Emissions From the Consumption and Flaring of Fossil Fuels,
              1988-1997; International Energy Annual 1997, Energy Information Administration, Department of
              Energy. These are the latest data available on carbon dioxide emissions.

(160455)      Page 28                                          GAO/RCED-99-248 Climate Change Agreement
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