January 7 1999 MEMORANDUM FOR THE PRESIDENT FROMr TODD STERN SUBJECTr Climate Change Update Domestic Policy Budget Tax On the domestic side we have been focussed over the last several weeks on the budget and tax packages The news is pretty good on these fronts For FY 99 despite intense opposition on the Hill your budget negotiating team secured nearly $200M for your Climate Change Technology Initiative 26% over our FY 98 budget Your FY 2000 budget request will put the CCTl above the level needed to stay on its five-year trajectory Our R D funding request for energy efficiency and renewable energy is over 20% above last year's appropriated level In addition the budget will include a substantial increase in climate change money related to agriculture both on the technology and the research sides altogether some $45M of new money requested as compared to $10M requested last year We have also revised last year's $3 6B tax package to make it more effective and attractive It will include improved tax credit proposals for energy efficient homes certain large home appliances cars and biomass Regarding the auto tax credit we have had extensive discussions with Ford GM and Chrysler and have reconfigured it in a way that they are more supportive of but they still have reservations In essence the credit will go to consumers who buy advanced technology cars such as hybrids or cars that have fuel cells or are all-electric To avoid gaming problems the credit for hybrids is contingent on the cars meeting certain performance standards e g one-third more fuel efficient than a comparable non-hybrid car a requirement the companies dislike We will continue working with them after the budget has been submitted package Your tax package will also include a new Green Bonds proposal which is designed to help finance open space clean water and brownfields development There is a climate component to this since reforestation and replanting will be among the eligible uses of green bond money Finally the budget will include around $200M for a new Clean Air Partnerships Fund to help state and local govemments finance reductions of air pollutants and greenhouse gases Credit for early action As you saw in the very good lead story in last Sunday's New York Times legislation to reward companies that take early action to reduce greenhouse gases will be considered in the 106th Congress It may well become the most important domestic climate change issue for 1999 We have been working intensively on this policy for several months Automate d Record s Management System Hex-Dump Conversion though we have chosen for strategic reasons to let the Hill and the business community take the lead rather than for example sending up our own proposal In this respect I think the Times piece was very good and quite useful for us We worked a lot on background with Jack Cushman who wrote it Executive Orders We have draft orders that need reworking on federal procurement and transportation We are planning to role these out in mid-February to coincide with a federal govemment workshop on energy management that we are also preparing Diplomatic The Buenos Aires Plan of Action charts an aggressive intemational work program on four key issuesr intemational emissions trading the Clean Development Mechanism sinks and compliance Meetings and workshops will be held this winter papers and negotiating text are due during the next several months In many areas this work will fill technical gaps in others it will define differences for further negotiation We are hard at work shaping strategy and submissions on these items We are also working to encourage greater participation from key developing countries Technical delegations are preparing trips to Argentina and Khazakstan both of which agreed to take targets at the Buenos Aires meeting We are exploring possible climate change agreements in connection with your Central America trip in February Preparations are underway for high-level meetings with the Chinese and Russians in the months ahead At the same time we are standing back from these negotiations to consider areas that may be ripe for new strategic direction It is clear that considerable creativity and effort will be required to bridge the many differences in outlook among key countries and shape an agreement acceptable to the U S Senate Priority issues include concems over Russian hot air and mechanisms for engaging the Chinese Automated Records Management System Hex-Dump Conversion