1. What are the Assigned Amount Units (AAU) and what are their role in the climate change regime?
2. What does ‘carry over’ mean in regards to AAU’s?
The advice provides a brief explanation of the function of AAUs under the U.N.’s international climate change regime and the meaning of “carry over” in the context of AAUs and the “emissions gap.”
Fundamental Requirement of the KP: limit emissions to an “assigned amount”: The fundamental requirement of the Kyoto Protocol (KP) for industrialized countries, known as “Annex I Parties” under the KP, is for each Annex I Party to ensure that total emissions from certain domestic GHG emission sources do not exceed the country’s allowable level of emissions during a five-year commitment period (CP). The allowable level of emissions is called the Party’s “assigned amount.”
Emission Reduction Target: Each Annex I Party has a specific emissions reduction target inscribed in Annex B to the KP, which is the percentage by which it is obligated to reduce annual GHG emissions from its base year emissions during a CP. The base year for most Annex I Parties is 1990.
Calculation of Initial Assigned Amount: The Annex B emissions target and the Party’s emissions of GHGs in the base year determine the Party’s initial assigned amount. For example, if a Party’s Annex B emissions target is -8% and its GHG emissions in 1990 equaled 100 tonnes, then a party’s initial assigned amount would be 92 tonnes multiplied by five years (460 tonnes).
AAUs: The quantity of the initial assigned amount is denominated in individual units, called assigned amount units (AAUs), each of which represents an allowance to emit one metric tonne of carbon dioxide equivalent (tCO2e). AAUs are created (issued) up to the level of a Party’s initial assigned amount into the Party’s national registry account. Thus, following our example above, the example Party would receive 460 AAUs, or rights to emit 460 tonnes of tCO2e over the five-year CP, in its national registry account.
Trading: The issuance of emission rights as fungible credits (e.g. AAUs) enables Parties to create trading schemes that allow Parties and enterprises within each Party to trade emission rights among and between themselves. As a result, a Party or enterprise that reduces its emissions (thereby removing the need to use AAUs or other units to cover its own emissions) will have the opportunity to sell its extra emission rights on the market. Correspondingly, a Party or enterprise that is unable or unwilling to reduce its emissions will have an opportunity to buy emission rights on the market to cover its excess emissions.
Carry Over: Carry-over refers to the process by which a unit, e.g. an AAU, that was issued and valid for one CP becomes valid for use during the subsequent CP. Under the KP, AAUs, unlike other Kyoto units, e.g. CERs and ERUs, may be carried over without limitation. If, at the end of a CP, a Party completes a compliance assessment and determines—after accounting for all of its emissions and emissions trading during the CP—that it has not used all of the AAUs issued to it as part of its assigned amount, it may carry AAUs over for use during the next CP. Thus, following our example above, if the example Party only had 450 tonnes of GHG emissions during the CP, it would have 10 AAUs to carry over for use during the next CP.
Surplus AAUs: Observers have noted that AAUs were significantly over-allocated to certain Parties at the start of the first KP CP. In particular, AAUs were allocated to Russia, Ukraine and other “Economies-in-Transition” (EITs) in excess of actual business-as-usual emissions in those countries because of the contraction of Soviet-bloc economies following the base year (1990). Observers have suggested that this AAU surplus currently equates to roughly 7.5 to 10 gigatonnes of CO2 (GtCO2e) emission rights.
The Emissions Gap: At the same, a UNEP report recently pointed out that studies show that emission levels of approximately 44 GtCO2e in 2020 would be consistent with a “likely” chance of limiting global warming. The UNEP report also pointed out that even if some of the more aggressive policy options under consideration are implemented there would still be an “emissions gap” of roughly 5 GtCO2e between actual emissions and the “likely” chance limiting global warming scenario. Note that this “emissions gap” increases to 12 GtCOe if aggressive policy measures are not implemented.
Surplus AAUs and the Emissions Gap: In this context, the ability of Parties to carry over all of the surplus AAUs (7.5 to 10 GtCO2e, according to some) into the next CP could have significant implications for the ability of the Parties to bridge the 5 to 12 GtCO2e “emissions gap.” For this reason, several stakeholders and Parties have called for a change or voluntary deviation from the KP rule allowing for limitless carry over of AAUs. At Durban, the AWG-KP was directed to assess the implications of the carry-over of AAUs for the second commitment period with a view to completing its work on this issue in Bonn.