The potential for the Kyoto Protocol to provide a major push for renewables will only be realized if some of the agreement's many uncertainties can be resolved and its embryonic institutions and processes effectively implemented. In the years ahead, national and international policies will likely evolve synergistically, driven by an intricate array of feedback loops. Though limited progress was made at some follow-up negotiations in June 1998 in Bonn, Germany, the Buenos Aires meeting in November will get more attention from high-level government officials and the media, and may yield more concrete decisions. Renewable energy advocates and developers who wish to be a step ahead of the market will need to understand and closely follow this international process which is often characterized by lulls and spurts.

The most immediate challenge is to overcome strong disagreements between the United States and Europe over trading of the "hot air" credits that Russia appears to have been allocated in the protocol. Europe insists that limits be placed on trading -- equal to 50% of the total reduction commitment undertaken by the Parties to the Convention -- while the United States and several allies want unlimited opportunity to use trading to meet Kyoto targets.⁷⁸ Until these issues are resolved, the stringency of the commitments made in Kyoto will be unclear, and domestic policy implementation will be delayed. During the June 1998 meetings in Bonn, these fissures only deepened; herculean diplomatic efforts may be needed to close them this year.

Developing countries have insisted on keeping the issue of their future protocol commitments off the formal agenda in Buenos Aires. Yet there may be agreement on a "Buenos Aires mandate" that would begin talks toward setting emissions goals for developing countries under a later amendment -- much as the 1995 Berlin mandate set in motion the discussions that resulted in the Kyoto Protocol. And the issue of developing countries will be addressed implicitly in Buenos Aires as attention turns to the institutional nature and functioning of the Clean Development Mechanism. As discussed earlier, the CDM has the potential to have a major influence on the extent to which developing countries advance renewables, and whether companies in industrial countries use such investments as a way to meet their commitments under the protocol. And since the CDM is authorized to begin granting credits as early as 2000, its effects could be felt soon.

Facing legislative pressure to ensure "meaningful participation" of key developing countries, the Clinton administration hopes that the Clean Development Mechanism will serve as a "carrot" for developing countries to assume new commitments -- without which they would not be able to use the credits accumulated by taking part in CDM projects. For their part, developing countries' willingness to discuss new commitments may be influenced by whether the CDM turns out to be an effective mechanism for obtaining the money and technologies that allow them to take stronger action on climate change. But it will also depend on the extent to which industrial countries begin to demonstrate good-faith efforts to honor their own Kyoto commitments.

Following Buenos Aires, the Fifth Conference of the Parties in 1999 will review the adequacy of the commitments made in Kyoto. Although there is not yet a specific timeline for amending that agreement, the 1999 review and the anticipation of the IPCC's Third Assessment Report in 2000 could provide the economic and scientific momentum to strengthen the protocol and its targets and timetables. Whether the political will to do so will have crystallized that soon is far less certain.

The year 2000 will also mark the end of the pilot phase of joint implementation projects and the beginning of credit generation for climate change mitigation projects in developing countries under the CDM. As the absence of credits has been cited as the main hindrance to wider private-sector involvement in joint implementation projects, the number of such projects may increase rapidly in the next few years. Because of their cost competitiveness in many parts of the developing world, their local environmental benefits, and their ability to demonstrate "additional" reductions that otherwise would not have occurred, renewable energy projects could become an attractive investment option for those seeking carbon offsets.

The role of the Global Environment Facility in the climate change process will also need to be sorted out in the next few years. The creation of the CDM may undermine efforts by GEF officials to attract greater private-sector support for climate change projects that are already cost-competitive or nearly so. Still, GEF is likely to continue playing a catalytic role in the near term by opening new markets for renewables in areas where barriers to their commercialization remain, where an "incremental cost" of their application can be identified, and where the availability of financing can stimulate private development as well as governmental policy changes. The biggest problem for GEF is the fact that the U.S. Congress has fallen behind in its funding commitments to the facility. Unless these commitments are met, GEF's already modest financing capability may have to be slashed.

For some countries, the climate policy landscape has changed as much at the national level as it has internationally. In Europe, a broad societal consensus over the need to reduce emissions seems to have formed; serious discussions about raising taxes on energy and carbon emissions resumed under the leadership of the United Kingdom, which chaired the European Union in early1998. The EU's pro-renewables consensus also seems to have been strengthened by the Kyoto agreement, bolstered by the fact that policy reforms have already provided European nations with a strategically important lead in the international marketplace. There is a good chance that the strong "electricity-feed" laws of Denmark, Germany, and Spain will be replicated by other countries, if not by the EU as a whole.

In the United States, the climate policy playing field has also changed since Kyoto. A range of industry voices on the issues has emerged. Both British Petroleum and Royal Dutch Shell have defected from the Global Climate Coalition, which has received increasingly skeptical treatment in the press.⁷⁹ At the same time, other companies -- including American Standard, Enron, Ballard Generation Systems, Honeywell, and United Solar Systems -- have joined the Business Council for Sustainable Energy, an industry group representing companies in energy efficiency, natural gas, cogeneration, and renewable energy that are committed to the new high-growth, low-emissions energy technologies. And in April 1998, a new industry group, the Pew Center for Climate Change, was launched; it represents blue-chip companies such as Boeing, Toyota, Monsanto, Sun Oil, and American Electric Power. Headed by former U.S. chief climate negotiator Eileen Claussen, the group has begun a $5-million ad campaign to persuade the public that there are economical solutions to the climate problem.⁸⁰

Still, the current impasse between the administration and Congress is slowing domestic policy initiatives as well as tying the administration's hands abroad as it attempts to reach new accommodations with Europe and the developing world. Whether the isolationist stance of the Republican-run Congress will change is one of the most important uncertainties in the years immediately ahead.

In sum, the post-Kyoto climate landscape is marked by unprecedented variety, complexity, and contention. It remains to be seen whether this will spur innovation and commercial development of renewables -- or instead mire policy discussions and markets in an angry debate.

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