What are the Kyoto Mechanisms?
Annex-B-Countries of the Kyoto-Protocol have obligated themselves to stay within their individual greenhouse gas emission budgets as within the first commitment period 2008-2012. For most of those countries their commitment implies the need for emission reduction efforts compared to a business-as usual scenario. In order to enable the states to reach their emission objectives at lowest total costs, the Kyoto-Protocol defines the so called "flexible instruments" – namely the "bubble" (allowing parties to jointly reach their commitments), International Emissions Trading as well as the project based mechanisms Joint Implementation and Clean Development Mechanism.
International Emissions trading (IET) as specified in Article 17 of the Kyoto Protocol enables Annex-B-countries to trade their Assigned Amount Units (AAUs) between each other. If country A has the option to mitigate national emissions at relatively low costs and consequently holds a lot of surplus AAUs after realising its mitigation options, it may either bank those certificates into the next commitment period OR sell them to country B with high relative mitigation costs. Thus, both countries will economically profit from emissions trading. IET as defined in the Kyoto-Protocol is trading on state level. The is no rule that other stakeholders – e.g. industry/large emitters – must be integrated into emissions trading directly. They could also be covers indirectly by other “policies and measures”. National authorities will have to decide on the issue. Still, there is a strong tendency that at least relevant emitters will be incorporated in International Emissions Trading directly. Experiences from the NOx/SO2 trading programmes in the USA have been very positive. The implementation of national emissions trading schemes is a very big issue in many European Countries at the moment. In Denmark and Great Britain, such trading schemes already have been implemented, there also are discussions ongoing in Germany, the Netherlands and France. There are not only national initiatives: the European Commission (DG Environment) plans to develop a draft proposal of a directive on a EU-wide emissions trading scheme, possibly starting in 2005 already. In such an emissions trading program, participants are given permits to release a specified number of tons of the pollutant (namely GHGs). Only a limited number of permits are issued, consistent with the desired level of emissions. The owners of the permits may then either keep them and release the pollutants, or reduce their emissions and sell permits to other participants – according to similar principles as on national level. Detailed rules still need to be defined.
Joint Implementation (JI), as detailed in article 6 of the Kyoto Protocol, is a concept where industrialized countries may contribute to meet their greenhouse gas emission reductions by receiving credits (so called "Emission Reduction Units", ERUs) for investing in emissions reduction projects in other industrialized (Annex-I-) countries. Investment in such projects is profitable if mitigation costs are lower than those of national options. For the host country, JI can help to finance certain projects that would otherwise not take place.
Clean Development Mechanism (CDM) (CDM) is a modified version of Joint Implementation that was included in the Kyoto Protocol to allow project-based activities in developing countries, which do not have any emission restriction, yet. Article 12 of the Kyoto Protocol identifies three specific goals for the CDM: 1) to assist in the achievement of sustainable development, 2) to contribute to the attainment of the environmental goals of the Framework Convention on Climate change, and 3) to assist Annex B parties in complying with their emissions reduction commitments. In particular, Article 12 specifies that CDM projects result in "certified emission reductions" (CERs) which industrialised countries may use to comply with their quantified emissions reduction commitments under the Kyoto Protocol. Developing host nations will in return profit from the investment and technology transfer to their country.
Under the supervision of the so called "executive board" which will be established under the UNFCCC-regime, private and public funds may be channeled through this mechanism to finance projects in developing countries. As in the case of JI, any party "may involve private and/or public entities" in the regime. One special aspect of the CDM is that a "share of the proceeds" – which will be 2% of the certificates earned by a project activity - is to be used to help particularly vulnerable developing countries meet the costs of adapting to a changing climate (“adaptation fund”). Additional “fees” will be used to cover the administrative expenses of the clean development mechanism.
A very important issue concerning both Joint Implementation and the Clean Development Mechanism is the calculation of emission reductions achieved by a project. “Baselines” will be needed in this process. A baselines is a reference scenario describing the emission situation that would have occurred in the absence of the project. Having defined the baseline, emission reductions can be calculated by subtracting the emissions of the project activity from the baseline. There are many options how to develop a baseline,. Further scientific research is necessary to identify methodologies that on the one hand safeguard the environmental integrity of the Protocol and on the other hand do not entail high transaction costs, and to assist negotiators in deciding on concrete baseline rules. -As the Protocol stands now, developing country commitments are restricted to voluntary participation in CDM and the undertaking of general obligations such as the formulation of national programs and political as well as scientific cooperation among each other. They do not have any national emission budgets as Annex-B-countries do. Therefore, CDM projects do bring in additional emission certificates – certificates that inflate the total amount of permitted emissions. For this reason, it must be ensured that only activities resulting in real emission reductions receive the responding credits. Any over-crediting of CDM-projects will undermine the ecological integrity of the Kyoto-Protocol!
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