Kyoto gap and Least Developed Countries

Legal assistance paper

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Date produced: 11/06/2011

By reference to specific provisions of the (Convention and the) Kyoto Protocol and any relevant decisions of the (COP and) CMP, what are the implications of a gap between KP commitment periods on the LDCs?

Summary:

Since the gap between commitment periods is relevant only to the Kyoto Protocol, a gap would have no legal effects on obligations which exist under the Convention (and relevant COP decisions). In particular, the Nairobi Work Programme, the LDC Fund, the LDC Expert Group and National Communications for non-Annex 1 Parties will remain legally unaffected by the gap.

The Kyoto Protocol and bodies established pursuant to the Kyoto Protocol by the CMP, including the CDM Executive Board, the Adaptation Fund Board and the Compliance Committee, continue to exist after 2012 regardless of whether there is a second commitment period or a gap between commitment periods. In this respect, the CDM will continue to operate, facilitating the development of CDM projects and programmes of activities in LDCs; and the share of proceeds from the CDM, which flows to the Adaptation Fund, will continue to provide a source of funding for adaptation projects in particularly vulnerable countries, including LDCs.

A gap between commitment periods does create uncertainty for carbon markets, which has resulted in a decline in the number of new CDM projects in the past year (see World Bank State of the Carbon Market 2011). The volume of CDM projects is also linked to international demand for certified emission reduction units (CERs) from CDM projects. Delay in establishing targets for Annex I parties for a second commitment period limits demand and ultimately investment in new CDM projects. In addition, a decline in the issuance of CERs during a gap period could potentially affect the long-term financing of the Adaptation Fund.

As noted above, the Kyoto Protocol will continue, regardless of whether a second commitment period is agreed to or if there is a gap between commitment periods. The obligations of Annex I parties that are not directly linked to achieving quantified emissions limitation or reduction commitments (e.g. technology transfer and finance, reducing emissions related to bunker fuels), and the obligations of all parties regarding national inventories and the implementation of mitigation and adaptation programmes will still need to be met.

At a more fundamental level, there is a general risk that a gap may result a failure to stabilise GHG emissions leading to temperature increases in excess of those forecast. This could potentially lead to physical (for example due to sea level rise) and economic (for example due more costly mitigation actions in the future) impacts on LDCs.

1. General implications of a gap

The Kyoto Protocol is an agreement that provides a framework of institutions and commitments over an indefinite period, despite the fact that quantified emission limitation or reduction commitments (QELROs) for Annex I Parties are established for specified commitment periods. Therefore, not all institutions and obligations are necessarily affected by a gap.

Articles 6, 12 and 17 of the Kyoto Protocol provide that the Kyoto flexible mechanisms (CDM, JI and International Emissions Trading) may be used by States for meeting their commitments under Article 3 – their quantified emission (reduction) obligations. The absence of a new commitment period following the period 2008-2012, raises questions over whether there is any legal basis for the flexible mechanisms to be used post 2012: if there is no binding reduction target, there is no Assigned Amount. Therefore Joint Implementation projects could no longer generate offsets because countries would no longer have AAUs from which the JI credits (ERUs) are drawn. The same reasoning applies to International Emissions Trading, except to the extent that AAUs are carried over to a subsequent commitment period and countries still see value in holding or transferring them. However, this reasoning does not apply to the CDM. Articles 12(2) and 12(3) state that the purpose of the CDM 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 and that under the CDM:
(a) Parties not included in Annex I will benefit from project activities resulting in certified emission reductions; and
(b) Parties included in Annex I may use the certified emission reductions accruing from such project activities to contribute to compliance with part of their quantified emission limitation and reduction commitments under Article 3, as determined by the COP.

It is clear that helping Annex I Parties meet their emission reduction targets under Article 3 of the Kyoto Protocol is one of the objectives of the CDM, but this does not mean that the CDM cannot exist legally without such emission reduction targets. Indeed, the objective of a legal instrument should not be confused with its conditions for existence. Moreover, helping Annex I Parties to comply with their targets is not the only objective of the CDM:
“contributing to the ultimate objective of the Convention” is another and even more fundamental objective of the CDM. This ultimate objective of the Convention is:
“(…) to achieve (…) stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system”.

This objective is in no way dependent on any commitment period under the Kyoto Protocol. Therefore, while the ultimate objective of the UNFCCC remains in force – and irrespective of the existence of a second commitment period (be it through an amendment to the Kyoto Protocol or a successor agreement) – it follows that the CDM is one of a number of ways of achieving that ultimate objective and thus this mechanism would remain in force. In this regard, reference should also be made to the European Union, which has adopted legislation that, even in a scenario where no global agreement is reached, presupposes the possibility of erecting new CDM projects after 2012.

It is unlikely that it could be argued that emission reduction obligations continue to exist after the end of the first commitment period (where no second period has been agreed) on the basis of the Standstill-principle. However, plenty of other obligations will continue to exist. In particular, the obligation for parties to the Kyoto Protocol to submit National Inventory information will remain in force. Compliance with these obligations, will continue to be overseen by the Compliance Committee.

Based on relevant provisions of the Kyoto Protocol and decisions of the CMP, the following activities relating to the first commitment period are envisaged to occur after 31 December 2012:

• the acquisition and transfer of emission reduction units (ERUs), certified emission reductions (CERs), assigned amount units (AAUs) and removal units (RMUs) under Articles 6, 12 and 17 of the Kyoto Protocol for the purpose of fulfilling commitments under Article 3, paragraph 1, of the Kyoto Protocol relating to the first commitment period until one hundred days after the date set by the CMP for the completion of the expert review process under Article 8 of the Kyoto Protocol – otherwise known as the true-up period;
• the submission by Annex I Parties with a commitment inscribed in Annex B of annual reports covering the final year of the commitment period and the reports upon the expiration of the true-up period;
• the review of the annual report covering the final year of the commitment period and the conduct of a compliance assessment;
• the consideration by the enforcement branch of the Compliance Committee of any questions of implementation arising from the review described above.

Whilst these measures are linked to performance during the first commitment period, they are expected to take place in the years following the end of that period.

Non-Annex I parties (and Annex I parties) are required, pursuant to Article 10 of the Kyoto Protocol, to formulate national and regional programmes to improve the preparation of national inventories and to formulate and publish regularly programmes to mitigate and adapt to climate change and report on those programmes. These obligations are subject to the principle of common but differentiated responsibilities and respective capabilities. Article 10 also contains obligations related to cooperation with respect to promoting access to finance and the transfer of environmentally sound technologies; research and systematic observation; education and training. These obligations continue, notwithstanding a gap.

Since the gap between commitment periods is relevant only to obligations, mechanisms and bodies under the Kyoto Protocol, a gap would have no legal effects on obligations which exist under the Convention (and relevant COP decisions). In particular, the Nairobi Work Programme, the LDC Fund, the LDC Expert Group and National Communications for non-Annex 1 Parties will remain legally unaffected by the gap.

2. Implications relevant to LDCs

(a) CDM: As noted above, neither the text of the Kyoto Protocol, nor the subsequent decisions of the COP and the CMP, explicitly link the CDM to the first commitment period of the Kyoto Protocol, therefore a gap would not prevent the continuation of the CDM. Consequently, the ability of LDCs to participate in CDM projects is not affected. Of note, the EU has indicated that for the third phase of the EU-ETS it will continue to accept CERs from CDM projects and that it will prioritise projects from LDCs.

(b) Adaptation Fund: A decline in the issuance of CERs during a gap period could potentially affect the long-term financing of the Adaptation Fund. However, as noted above, a gap will not affect the existence of the Adaptation Fund as the decisions by COP and CMP do not explicitly reference a commitment period of the Kyoto Protocol and funding has been made available for initial operational expenses.

(c) Continuing obligations regarding MRV, technology transfer, finance and education / training: To the extent appropriate, having regard to their national circumstances, LDCs will have to take steps to improve their national inventory reporting and to formulate, publish and report on programmes to mitigate and adapt to climate change and report on those programmes. LDCs will continue to have access to finance, technology, education and training from Annex I and non-Annex I parties that must continue to fulfil their obligations under Article 10.

(d) Failure to stabilise GHGs: There is a general risk that a gap may result a failure to stabilise GHG emissions leading to temperature increases in excess of those forecast. This could potentially lead to physical (for example due to sea level rise) and economic (for example due more costly mitigation actions in the future) impacts on LDCs.