Meaning of new proposed para 7 ter in Article 3 KP

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All reasonable efforts have been made to ensure the accuracy of this information at the time the advice was produced. However, the materials have been prepared for informational purposes only and may have been superseded by more recent developments. They do not constitute formal legal advice or create a lawyer- client relationship. To the extent permitted any liability is excluded. Those consulting the database may wish to contact LRI for clarifications and an updated analysis.

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Date produced: 12/07/2012

What does “G. Article 3, paragraph 7 ter” mean?

” The following paragraph shall be inserted after paragraph 7 bis of Article 3 of the Protocol:

7 ter. The difference between the assigned amount of the second commitment period for a Party included in the Annex I and the emissions in the last year of the first commitment period multiplied by eight shall be transferred to the cancellation account of that Party.”

Summary:

In our view, this appears to be a provision that attempts to ensure Annex I Parties in the second commitment period (CP2) have commitments that are at least ambitious enough to keep emissions at or below 2012 levels. It increases ambition by requiring Annex I Parties to cancel AAUs that exceed those required to keep emissions at 2012 levels, in a sense taking some potential “hot air” out of the system.

Advice:

Which AAUs:

It is not clear whether this provision addresses the extent to which AAUs from the first commitment period (CP1 AAUs) carried over to CP2 (to the extent agreed in the final KP outcome) add “hot air” to the system, or the extent to which CP1 AAUs are captured and cancelled by this provision. This is because it is not clear whether the phrase “assigned amount for the second commitment period” refers: i) to a party’s new assigned amount from CP2 targets alone; or ii) to the total assigned amount available to a party in CP2 which could include the assigned amount represented by CP1 (depending on the final outcome on carry-over).

The implication of referring to the total pool of AAUs (including carried over CP1 AAUs and new CP2 AAUs) is that CP1 AAUs are then more likely to be cancelled since they would raise the likelihood of a party having excess AAUs. On the one hand, the aim of the provision appears to be to raise ambition by cancelling “hot air” AAUs. And cancelling excess AAUs whether they are CP1 AAUs and carried over or new CP2 AAUs is certainly in line with this objective.

On the other hand, the carry-over of AAUs from CP1 to CP2 is a highly contentious issue at COP18 and the notion of carrying over CP1 AAUs to meet CP2 targets only to potentially have them immediately cancelled as “hot air” AAUs seems less likely. If this is the case, the implication here is that CP1 AAUs are indeed more likely to add “hot air” to the system and would not be accounted for by this provision, although whether they do so will at least depend on the amount of CP1 AAUs carried over, if any.

Despite the potential for adding “hot air” through the carry-over of CP1 AAUs, however, this provision would nonetheless increase overall ambition in CP2 by requiring Annex I Parties with relatively unambitious targets to cancel AAUs as stipulated.

The mechanics of the provision:

We are assuming that this provision would apply only where a party’s assigned amount (whether represented by CP2 AAUs alone or together with CP1 AAUs) exceeds their CP2 emissions based on 2012 emission levels throughout the commitment period. If this is indeed the case, it may be that a sentence clarifying that could or should be included to that effect. The following analysis is made on the basis of this fundamental, underlying assumption.

The CP2 AAUs would be calculated using a party’s QELRO (which is relative to 1990 emission levels) and takes into account the length of CP2 to result in a number of units more or less corresponding to the amount of emissions that a party can make in meeting its CP2 target.

The reference to the “emissions in the last year of the first commitment period multiplied by 8” provides a figure roughly representing the total emissions of a party if that party continued to emit at the 2012 level for the 8 years of CP2. This is the trigger line for this provision.

The cancelled AAUs calculated by the difference between a party’s assigned amount in CP2 and their emission at 2012 levels for 8 years represent the amount of AAUs a party would otherwise have had in excess of those required to keep emissions at or below 2012 levels.