Restricting commitment period reserves

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Date produced: 15/12/2009

How could the provision in the Marrakesh accords (Decision 18/CP.7, Annex 1, para 6) requiring parties to maintain a commitment period reserve be amended so as to restrict thereby the international trading of AAUs to a small percentage (e.g. 3%) of a country’s total AAUs held?

The draft decision set out in the Annex to 18/CP.7 was adopted as the Annex to decision 13/CMP.1 at the Montreal COP/MOP.

The Commitment Period Reserve is not specifically provided for in the text of the Kyoto Protocol itself, only in COP and COP/MOP decisions. In light of this, it should be possible to amend the relevant provisions with a Decision only, rather than an amendment to the Kyoto Protocol being required.

Proposed draft text for an amended decision is set out below. The changes to the original text are shown in mark-up.  Some of the key points to note are the following:

(a) 97% of the AAUs issued (and not retired or cancelled) by an Annex 1 Party is likely always to be a higher number than the original Commitment Period Reserve formula of the lower of 90% of the Party’s assigned amount or 5 times its most recent inventory.  For this reason, we have entirely replaced that original formula.

(b) We have assumed that the desired outcome is to restrict trading of all AAUs, including any that have been carried over from previous commitment periods, and have reflected that in the wording of the new paragraph 6(a).

(c) We have assumed that the desired outcome is still to permit the transfer of ERUs from JI activities in Annex 1 countries (assuming the continuance of the JI mechanism). This reflected in element (iii) of paragraph 6 below.

(d) We have not required that an Annex 1 Party should keep its own AAUs, but only that it should hold a minimum number of AAUs (which might include AAUs originally issued by other Annex 1 Parties).  This would allow trading to take place, but the net outcome of the trading would have to be to keep the minimum number of AAUs in the Annex I Party’s account. This would allow, for example, EU ETS trading (where the transfer of an EUA from one national registry to another also constitutes a transfer of an AAU).

(e) This draft text does not allow RMUs to be set off against AAU holdings and thus reduce the number of AAUs which an Annex 1 Party must hold.

Draft language for amendment of Decision 13/CMP.1/18/CP.7

6. Each Party included in Annex I shall maintain, in its national registry, a commitment period reserve which should not drop below 97  90 per cent of the sum of (i) a Party’s assigned amount for the relevant commitment period, calculated pursuant to Article 3, paragraphs 7 and 8, and (ii) the number of AAUs carried over from any previous commitment period in accordance with decision 13/CMP.1 and not retired or cancelled in accordance with decision 13/CMP.1., less (iii) the number of AAUs converted by that Party into ERUs in accordance with decision 13/CMP.1., of the Kyoto Protocol, or 100 per cent of five times its most recently reviewed inventory, whichever is lowest.

7. The commitment period reserve shall consist of holdings of ERUs, CERs, AAUs and/or RMUsvalid for the relevant commitment period which have not been retired or cancelled in accordance with decision 13/CMP.1.

8. Upon establishment of its assigned amount pursuant to Article 3, paragraphs 7 and 8, and until expiration of the additional period for fulfilling commitments, a Party shall not make a transfer which would result in these holdings being below the required level of the commitment period reserve.

9. If calculations under paragraph 6 above, or cancellations of ERUs, CERs, AAUs and/or RMUs, raise the required level of the commitment period reserve above the Party’s holdings of ERUs, CERs, AAUs and/or RMUs valid for the relevant commitment period (including any AAUs carried over from a previous commitment period in accordance with decision 13/CMP.1), which have not been cancelled, the Party shall be notified by the secretariat and, within 30 days of this notification, shall bring its holdings to the required level.

10. Any provisions relating to the commitment period reserve or other limitations to transfers under

Article 17 shall not apply to transfers by a Party of ERUs issued into its national registry which were verified in accordance with the verification procedure under the Article 6 Supervisory Committee.