Eligibility to CDM in KP CP2

Legal assistance paper

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Date produced: 06/06/2012

Are Annex I Parties which are Parties to the Kyoto Protocol but which do not ratify amendments related to the second commitment period (and as such do not have a QELRO inscribed in Annex B related to the second commitment period) eligible to access the CDM during the second commitment period?

Summary:

The Kyoto Protocol enables Annex I Parties to the Kyoto Protocol who have undertaken binding commitments to limit and reduce GHG emissions (QELROs) to utilize the clean development mechanism (CDM) in partial satisfaction of their QELROs. The meaning of “eligibility” to use the CDM is that a Party may use the CDM to satisfy (some of) its QELROs and it follows that an Annex I Party cannot be “eligible” for the CDM if it does not have QELROs. The Annex I Parties who do not ratify amendments related to the second commitment period will not have any QELROs during the applicable second commitment period and it follows that such Parties are not eligible to utilize the CDM for the second commitment period. This does not necessarily bar individuals, corporations, and municipalities located within a jurisdiction that is not a bound Party to the Kyoto Protocol from voluntarily purchasing CERs or other units representing a reduction of an emission.

Advice:

1. Article 12, paragraph 2 of the Kyoto Protocol provides that the purpose of the clean development mechanism is to assist Parties not included in Annex I in achieving sustainable development and in contributing to the ultimate objective of the Convention, and to assist Parties included in Annex I in achieving compliance with their quantified emission limitation and reduction commitments under Article 3. (KP Article 12, para 2)

2. This underlying purpose should guide the interpretation of paragraph 5 of Decision 2/CMP.1, which provides that the eligibility to participate in the mechanisms by an Annex I Party shall be dependent on its compliance with methodological and reporting requirements under the Kyoto Protocol. The underlying purpose of the CDM and paragraph 6 of Decision 2/CMP.1 inform the meaning of paragraph 5 which is that an Annex I Party may not satisfy its KP commitments with the CDM unless it complies with KP methods and reporting requirements.

3. Paragraph 32 of the annex to Decision 3/CMP.1 was mentioned in the Query to which this Advice is addressed as providing support for the argument that it is not essential for a Party to make a renewed KP commitment in order for such Party to continue to be eligible for the CDM. Such paragraph 32 refers back to paragraph 31 of the same annex for the “eligibility” requirements that are to be met. Such paragraph 31 provides:

“a Party included in Annex I with a commitment inscribed in Annex B is eligible to use CERs, issued in accordance with the relevant provisions, to contribute to compliance with part of its commitment under Article 3, paragraph 1, if it is in compliance with the following eligibility requirements…”

(Decision 3/CMP.1, Annex paragraph 31)

4. Note that Decision 1/CMP.7 provides that it is intended for Annex B of the KP to be amended at the next COP in the form of the annex to Decision 1/CMP.7 (as supplemented by updates from the Parties). If the current form of amendment is adopted, certain Parties (including Canada, Japan, and Russia) will not have any commitments in the next commitment period. Such Parties, under the usage of the term as used in paragraph 31 of the annex to Decision 3/CMP.1 (discussed at paragraph 3 herein), are not eligible to utilize CERs to contribute to their emissions reductions commitments under Article 3, paragraph 1 of the KP.

5. The absence or lack of a QELRO of a Convention Party within which individuals, corporations, or municipalities are located does not preclude such individuals, corporations, or municipalities from voluntarily purchasing CERs or other CDM mechanisms. However, voluntary purchasers are likely to value CERs less than purchasers who are purchasing in satisfaction of a legal obligation. Moreover, certain sub-jurisdictions located within Parties to the Convention who are not Party to the Kyoto Protocol (such as the United States) but who impose legal limits on the GHG emissions of actors located within their sub-jurisdiction (such as the State of California) could adopt rules that would allow the purchase of a CER or other CDM mechanism in partial satisfaction of emission restrictions. The existence of a registry that followed the reporting requirements of national registries under the KP likely would be a prerequisite for voluntary purchases of CDM credits in significant quantities.