Overview on the Kyoto Protocol’s carbon budget

Legal assistance paper

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 However, the materials have been prepared for informational purposes only and may have been superseded by more recent developments.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: 29/11/2013

1. Could you explain the current framework for the allocation of greenhouse gases emissions under the Kyoto Protocol, including how are the mitigation targets and timetables established and expressed quantitatively in the current framework?

2. Which parties have mitigation commitments under the Kyoto Protocol?

3. What are the means by which parties can achieve their targets? What are AAUs, ERUs, CERs and RMUs?

4. What is the role of market-based approaches in the current framework? Are there any non-market based approaches?

Questions 1 & 2 on  targets

In the Kyoto Protocol as it is currently in force, the countries listed in Annex B agreed to reduce their overall emissions of these GHGs by an average of 5.2% below 1990 levels between the years 2008 and 2012 (the first “CP”, Commitment Period).

The Doha Amendment (COP18/CMP9, Doha 2012) has established targets for the second CP, i.e. the period 2013–2020. However, the Doha Amendment has not yet entered into force, but it will do so on the 90th day after three-quarters of the Parties to the Kyoto Protocol (i.e. 144 of the 192 Parties) have deposited their instruments of ratification with the UN. An extensive description of the Doha Amendment can be found in the Briefing Paper No. 44 of the Legal Response Initiative, available online.

Each Annex B Party has specific binding targets. Below is Annex B of the Kyoto Protocol as amended by the Doha Amendment. It has been simplified for the purposes of this advice. All European Union Member States have been left out because their targets fall under the overall target of the European Union. Another remark is that most of the footnotes have been left out, while some are reiterated in the explanation just below the table (simplified Annex B).

This table provides an overview of the mitigation commitments that parties have under the Kyoto Protocol’s first and second CPs. The second column relates to the first CP, while the third column relates to the second CP (note that the third column, as part of the Doha Amendment, has not yet entered into force).

The last three columns relate to non-binding QELRCs and pledges in light of a so-called “Reference year” (indicated in the 4th column). First, the non-binding QELRCs of the 5th column are an optional rephrasing of the binding QELRCs of the 3rd column, but in light of a “Reference Year”. The 3rd-column binding QELRCs do not relate to “Reference Year”, but to the notion “Base Year” or “Base Period” as defined in the Kyoto Protocol. Second, the 6th column contains emissions reduction pledges, i.e. information communicated by Parties (included in Annex I to the Convention) on the quantified economy-wide emission reduction targets that they intend to implement.

All 192 Parties to the Kyoto Protocol have agreed to the Doha Amendment establishing the second CP. However, only developed country Parties listed in the Kyoto Protocol’s Annex B take on emission commitments under the Protocol. At the bottom of the table, those KP Parties listed have indicated that they would not be participating in the second CP.

Thirty-eight developed country Parties, including the Member States of the EU, have taken on legally-binding emission commitments for the second CP, amounting to an average reduction of at least 18% below 1990 levels.

The number of developed country Parties that committed under the second CP is one more than the number that has committed under the first CP. Four Parties that did not commit under the first CP (i.e. Cyprus and Malta (EU Member States), as well as Belarus and Kazakhstan) have taken on commitments under the second CP. However, Japan, New Zealand, and the Russian Federation, which did have commitments under the first CP, have not taken on commitments under the second CP. This means that the second CP covers a much smaller share—around 14-15%—of global emissions than the first CP.

The Kyoto Protocol is not the only instrument for addressing emissions, however. More than 70 developed and developing countries that do not have commitments under the second CP, including China, the US, India, Japan, and Russia, have made voluntary commitments (pledges) to limit or reduce their emissions by 2020. These pledges, together with the formal targets of the 38 Parties taking part in the Kyoto Protocol’s second CP, mean that more than 80% of global emissions are covered by targets or pledges up to 2020.

Questions 3 & 4 on  means to fulfil binding QELRCs

Kyoto-Units

Kyoto-Units are the units provided for in the Kyoto Protocol that the Annex B-listed parties can use to fulfil their emission reduction commitments. They are emission credits that entitle the holder to emit one ton of CO2 or the CO2-equivalent of other GHGs. Four different categories can be distinguished: AAUs, CERs, ERUs, and RMUs. In order to comply with the Kyoto Protocol, Annex B parties must surrender such Kyoto-Units at the end of the relevant CP. The amount of surrendered Kyoto-Units must equal to the actual GHG emissions for that CP.

The Kyoto Protocol establishes three flexible mechanisms, i.e. International Emission Trading (IET), Clean Development Mechanism (CDM), and Joint Implementation (JI). The flexible mechanisms were introduced in the Kyoto Protocol to reach the goal of GHG emission reduction at a lower cost. On the basis of IET, Parties to the Kyoto Protocol can trade Kyoto-Units. CDM and JI (and the Kyoto-Units generated by these mechanisms) are explained below.

The three flexible mechanisms are market-based approaches.  The Parties to the Kyoto Protocol cannot merely rely on one or more flexible mechanisms to reach their target. From the condition of “supplementarity” laid down in the Kyoto Protocol follows that most of the measures taken to reach the requested amount of GHG emission reduction should be taken nationally. Such national measures can be market-based (such as the EU Emission Trading System or EU ETS) or non-market-based (such as subsidies, taxes, energy efficiency obligations, …). In the Kyoto Protocol, however, only market-based approaches are established.

AAUs

An Assigned Amount Unit (AAU) is each part of the Assigned Amount of an Annex B Party. The Assigned Amount of a Party is the total amount of AAUs that it will receive for the 5- or 8-year CP. To calculate the Assigned Amount, the GHG emissions of 1990 are multiplied by 5 or 8, after which the reduction percentage (e.g. 8% or 20% for the EU) is applied.

We give a concrete example of Belgium, member of the EU. The reduction target in the first CP for the EU15 Member States is 8%. Through internal legislation, the EU redistributed these targets, so Belgium had a reduction target of 7.5% in the first CP. The Assigned Amount of a Party is the total of AAUs that it will receive for the CP. To calculate the Assigned Amount, the GHG emissions of 1990 are multiplied by 5 (for the first CP), after which the reduction percentage (of 7.5%) is applied.

A Commitment Period is the period at the end of which the reduction target should be reached. After the end of the first CP, the parties still have 100 days to buy Assigned Amount Units (AAUs) in order to fulfil their commitments. This is called the “true up period”. If a party cannot fulfil its obligations, the enforcement branch of the Compliance body can decide to add 30% of the shortfall to that party’s obligations for the next commitment period, on top of the shortfall that will have to be made up for anyhow.

The compliance assessment for Kyoto’s second CP will not take place until 2023. Until then, the Parties that have ratified the Doha Amendment will monitor their emission trends and the projections up to 2020 to ensure they stay on track in achieving their targets. When the emissions for the entire second CP have been established (by 2023), there will be an additional period of time for all Parties to buy emission units in order to avoid non-compliance.

Flexible Mechanisms / Project Mechanisms

CDM and JI are called project mechanisms because they are linked to specific projects, contrary to IET (see above). If a CDM- or JI-project is established, the project-realising contracting party can obtain Kyoto-Units for an amount equal to the difference between the baseline- and the actual emissions.

The project mechanisms should be understood in the light of the objectives of the UNFCCC and the Kyoto Protocol, i.e. a reduction in emissions of GHGs. Climate change is a global problem, so – from this global point of view – it is of little importance where GHGs are emitted or reduced. Hence, the reductions can be just as well realised where it is more cost-effective.

JI-projects generate ERUs

JI-projects can be realised between Annex I (“developed”) countries. This means that the two  countries involved in a JI-project agreed to a binding reduction of their GHG emissions. The country investing in the other Annex I country receives from this latter country Emission Reduction Units (ERUs) for the amount of (additional) reduction realised. ERUs are Kyoto-Units converted from AAUs or RMUs on the basis of JI-projects, and they represent one ton of CO2-equivalent GHG emission reductions achieved through a JI-project. In this sense, the total of emission rights does not increase, contrary to a CDM-project activity.

CDM-projects generate CERs

If the project finds place between an Annex I (“developed”) country and a non-Annex I (developing) country, this constitutes a CDM-project. CDM-projects generate Certified Emissions Reductions (CERs). They represent one ton of CO2-equivalent GHG emission reductions achieved through a CDM-project.

CDM-projects should lead to real and measurable advantages in the long term in the fight against climate change. Moreover, these projects should lead to sustainable development of the “receiving” developing countries by, inter alia, the transfer of technology.

The fact that developing countries did not commit themselves to reducing GHG emission constitutes the big difference with JI-projects. Therefore, the CDM activities generate additional emission credits contrary to JI-projects which turn existing Kyoto-Units into ERUs. CDM projects therefore lead to a net increase of allowed GHG emissions in Annex I countries. Nevertheless, since the CDM-project is an alternative to domestic emission reductions, CDM does not imply higher worldwide GHG emissions. Unilateral CDM is allowed, meaning that a developing country can undertake a CDM-project without an Annex I partner and put the resulting emissions credits on the market.

Sinks, more specifically afforestation or reforestation, in non-Annex I countries can also generate CERs. However, because of reasons of fear for oversupply and not having the guarantee of permanent storage of carbon, two separate credits were created: tCERs and lCERs. The tCERs or temporary Certified Emission Reductions expire at the end of the CP after the one in which they were issued. The lCERs or long term Certified Emission Reductions only expire at the end of the crediting period of the CDM-project activity, i.e. till maximum 60 years. When the tCERs and lCERs do expire, an equivalent amount of Kyoto-Units will be annulled. On top of that, these credits cannot be introduced in the EU ETS.

RMU

This Kyoto-Unit was created during the negotiations leading to the Marrakech Accords. If activities, like land use, land-use change, or forestation ((LULUCF), in Annex I countries store carbon from the atmosphere, then credits, i.e. RMUs or Removal Units, can be obtained. Therefore, enhancement of the carbon sinks in Annex I countries is rewarded. The RMUs are fully tradable with other units, like CERs and ERUs, but are nonetheless not bankable into the second CP. In principle there is no overall cap on the amount of credits that a country could claim for sink activities. However, for forest management, Appendix Z establishes country-specific caps for each Annex I country. For cropland management, countries could receive credits only for carbon sequestration increases above 1990 levels.

Banking of Kyoto-Units

In principle, banking is allowed for Kyoto-Units (except RMUs). Nevertheless, the Doha Amendment contains a rather complex system on which basis the surplus AAUs from notably Russia and Ukraine will not de facto be useable in the second CP. The fear that in the second CP the market would be flooded with AAUs from countries with a surplus has thus been addressed.

The banking of CERs and ERUs is allowed, but this is limited to 2.5% of the Assigned Amount.