Article 3.9 of the Kyoto Protocol (Part 1)

Legal assistance paper

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Date produced: 31/03/2010

1. What happens to Kyoto Protocol if no or only some countries agree to a second commitment period?

2. What would happen to the flexible mechanisms if no second commitment period were agreed?

3. If no second commitment period were agreed to, would parties still be able to register CDM/JI projects or would there be no incentive to do so since there are no binding targets?

4. Would there be any way, short of amending the Kyoto Protocol, to allow countries to meet their Copenhagen Accord pledges by implementing CDM/JI projects?

5. What would happen to ‘banked’ CERs? Would these become valueless, or as above, could they be used to meet pledges under the Copenhagen Accord?

Summary:

a)     The status of the KP would depend on how many parties agreed to the second commitment period. That is, pursuant to Article 21(4) of the KP, if three-fourths of the parties agree on, and vote for, a second commitment period, one may be enacted, and this will be binding on all the parties that have given written consent to the amendment pursuant to Article 21(7). If less than three-fourths of the parties vote in favour of a second commitment period, no second commitment period will be established. Nevertheless, the failure to establish a second commitment period does not cause the KP to terminate and some parties’ obligations under the KP will continue (see commentary).

b)     From a legal perspective, if no second commitment period to the KP is agreed to, the governing bodies and mechanics established under the KP to regulate the flexible mechanisms will nevertheless continue. From a commercial perspective, the failure to create a second commitment period may adversely impact on the carbon markets because of the lack of binding targets.

c)     As mentioned in the response to question 3, the mechanisms to register CDM/JI projects would continue from a legal perspective. From a commercial point of view, however, it is unknown if parties will continue to register such projects given the lack of incentive to do so.

d)     Yes, given that the flexible mechanisms will continue, parties can meet their Copenhagen Accord pledges by implementing CDM/JI projects if Parties decide that their pledges include the use of such mechanisms and if the rules developed to implement the Accord provide for that. From a commercial point of view, however, parties will need to ensure that there is a sufficient market for them to be able to do so.

e)     “Banked” CERs could be used to meet pledges made under the Copenhagen Accord on the same basis as in 5. Again, however, whether or not there will be a market for such CERs in the absence of binding targets is uncertain.

1. The KP obliges parties to “make every effort to reach agreement” on, amongst other things, a second commitment period. Nevertheless, if consensus cannot be achieved, pursuant to Article 21(4) of the KP, a second commitment period may become binding if three-fourths of the parties agree on, and vote for, such a commitment period. Pursuant to Article 21(7), only those countries who give written consent to the amendment will be bound by it. If, however, less than three-fourths of the parties vote in favour of one, no such second commitment period will be established under the KP. Accordingly, if targets for the period beyond 2012 are only adopted in the Copenhagen Accord and not in amendments to the KP or some other legally binding agreement, they will operate as voluntary pledges only.

Nevertheless, the failure to establish a second commitment period does not cause the KP to terminate and some provisions of the KP will still be binding on the parties.

Such provisions are largely comprised of machinery provisions (those that are necessary for the operation of the Protocol) found in Articles 1, 2.2, 3.6, 3.13, 9, 13 – 16 and 18 – 28.

Some substantive provisions, however, would continue to have practical effect, for example, in articles 5, 10, 11 and aspects of 12.

Article 10, for example, is a broad obligation upon Parties to the Protocol not limited by the term of the first commitment period, to, among other things, formulate national and regional programmes as well as participate at the international level to counter the effects of climate change

Additionally, the Compliance Committee (established by Article 18 of the KP and Dec. 27/CP1) will continue to oversee the provisions of the KP which do not expire at the end of the first commitment period, such as the submission of national inventory information. Moreover, the approving bodies for projects under the flexible mechanisms will continue, even if no emission targets have been agreed to. The failure to create a second commitment period under the KP, however, will almost certainly detrimentally affect carbon markets.

2. There is nothing in the KP which indicates that the flexible mechanisms and their respective governing bodies will terminate if no second commitment period is agreed to. Accordingly, from a legal perspective, the flexible mechanisms will continue under the KP.

Without binding targets, however, there may not be the commercial incentives to participate in projects under the flexible mechanisms and the carbon market may diminish accordingly. For example, the World Bank has apparently reported that its investors in carbon finance products do not place any value to post-2012 emission credits from the Kyoto mechanisms.[1] The reason cited for this is that “uncertainty about the climate regime after the first commitment period creates such a risk to discount the value of the credits to zero”.[2]

Nevertheless, there are some indications that there will continue to be a market for flexible mechanism projects. For example, the European Union has indicated its preparedness to continue to accept Certified Emission Reductions under the Clean Development Mechanism for the third Phase of its Emissions Trading Scheme. Beyond this, however, the lack of agreement on a second commitment period generates commercial uncertainty about the value of the carbon market.

3. As mentioned, the legal mechanisms in place to register CDM/JI projects would remain in place under the KP. That is, the Joint Implementation Supervisory Committee and the Executive Board and all other authorities established thereunder will continue to function. These bodies are under the guidance of the COP/MOP, so their continuation is at the will of that body and will also, from a practical perspective be subject to parties to the COP/MOP funding their operation.

It is difficult to assess, however, what affect the lack of binding targets may have on the carbon market.  At this stage, there are some CDM projects whose crediting period will be beyond 2012. Nevertheless, it is uncertain how much demand there will be for new projects under the flexible mechanisms without the establishment of a second commitment period.

4. Since, as discussed above, the flexible mechanisms will legally continue under the KP, parties could meet their Copenhagen Accord pledges by implementing such flexible mechanism projects. Given the status of the Accord, pledges made are largely of a voluntary nature with no legally binding sanctions for non-compliance.  Therefore the means by which Parties meet their pledges is largely up to them.  It will be up to Annex I parties to advise whether their targets include the use of such mechanisms and, in operationalising the Accord, rules may need to be established to clarify the extent to which CERs/ERUs may be used.

In addition, whether or not flexible mechanism projects would be able to be used by parties to the Copenhagen Accord, may depend on whether there is a market for such projects. This will obviously depend on parties’ willingness to follow through their otherwise voluntary pledges made under the Copenhagen Accord.

5. Given that CERs will continue to be recognised under the flexible mechanisms, “banked” CERs will maintain their legal value post 2012. In this sense, they could technically be used to meet pledges made under the Copenhagen Accord.

As mentioned, the commercial value of “banked” CERs will depend on the buoyancy of the carbon market post 2012. At this stage, the European Union Emissions Trading Scheme has indicated that CERs will still potentially be available for Phase III. It is unknown whether there will be other domestic schemes that will create a market for such CERs.


[1] A. Michaelowa and S. Butzengeiger, “Looking Beyond 2012”, Environmental Finance, 5, 2, 2003, p. X.

[2] A. Michaelowa and S. Butzengeiger, “Looking Beyond 2012”, Environmental Finance, 5, 2, 2003, p. X.