The private sector and the implementation of the Kyoto protocol: Experiences, challenges and prospects

Review of European Community and International Environmental Law

Volumn 16, Issue 2, 2007, Pages 145-157

  Kulovesi, Kati ^a  

^a LONDON SCHOOL OF ECONOMICS   (United Kingdom)

Author keywords

[No Author keywords available]

Indexed keywords

CLEAN DEVELOPMENT MECHANISM; CLIMATE CHANGE; EMISSIONS TRADING; JOINT IMPLEMENTATION; KYOTO PROTOCOL; PRIVATE SECTOR;

EID: 34548527498     PISSN: 09628797     EISSN: 14679388     Source Type: Journal    
DOI: 10.1111/j.1467-9388.2007.00551.x     Document Type: Article

References (118)

1. Intergovernmental Panel on Climate Change (IPCC), 'Summary for Policymakers', in S. Solomon et al., Climate Change 2007: The Physical Science Basis: Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel Climate Change (Cambridge University Press, 2007), 1, available .
2. Kyoto Protocol to the United Nations Framework Convention Climate Change (Kyoto, 11 December 1997), Article 6. The name 'Joint Implementation' is not mentioned in the text of the Kyoto Protocol.
3. Ibid., Article 12.
4. Ibid., Article 17.
5. See IPCC, n. 1 above.
6. International Energy Agency (IEA), The World Energy Outlook 2006, Summary and Conclusions (OECD/IEA, 2006), 6-7, available at . This is the estimate for the Reference Scenario. The figures are lower for the Alternative Policy Scenario.
7. Ibid.
8. Ibid.
9. United Nations Framework Convention on Climate Change (New York, 9 May 1992), Article 2, stipulating the ultimate objective of the Convention.
10. P. Sands, Lawless World: America and the Making and Breaking of Global Rules (Penguin Books, 2005), 78, 81 and 93.
11. J. Cameron, 'Climate Change in Business', in D. Freestone and C. Streck (eds), Legal Aspects of Implementing the Kyoto Protocol Mechanisms (Oxford University Press, 2005), 25, at 29.
12. J. Mason, 'California Eyes Joining EU Emissions Trading Scheme', Reuters-Alertnet (30 March 2007), available at .
13. See Kyoto Protocol, n. 2 above, Article 3.1 and Annex B defining the individual targets.
14. Ibid., Article 6.3.
15. Ibid., Article 12.9.
16. Ibid., Article 17. Unlike the CDM and JI, the text of Article 17 on emissions trading does not mention private sector participation. However, this omission was possibly accidental and the Modalities, Rules and Guidelines for Emission Trading adopted in 2001 as part of the Marrakesh Accords also mention the participation of authorized legal entities. See Modalities, Rules and Guidelines for Emission Trading, Decision 11/CMP.1 (FCCC/KP/CMP/2005/8/Add.2, 30 March 2006), para. 5.
17. N. Eddy, 'Public Participation in CDM and JI Projects', in D. Freestone and C. Streck, n. 11 above, 71, at 73.
18. J. Waller-Hunter, Opening Speaking Notes at the First UNFCCC Workshop on Implementation of Projects under Article 6 of the Kyoto Protocol, Moscow 26 May 2004 (UNFCCC, 2004), available at .
19. D. Freestone, 'UNFCCC, the Kyoto Protocol and the Kyoto Mechanisms', in D. Freestone and C. Streck, n. 11 above, 3, at 11.
20. On requirements for national greenhouse gas registries, calculation of assigned amounts and issuance, transfer, cancellation and carry over of the different registry units, see Modalities for the Accounting of Assigned Amounts under Article 7, Paragraph 4, of the Kyoto Protocol, Decision 13/CMP.1 (FCCC/KP/CMP/2005/8/Add.2, 30 March 2006).
21. Ibid., paras 3, 5 and 23.
22. Ibid., paras 4 and 25.
23. Ibid., para. 11.
24. See Modalities and Procedures for a Clean Development Mechanism as Defined in Article 12 of the Kyoto Protocol, Decision 3/CMP.1 (FCCC/KP/ CMP/2005/8/Add.1, 30 March 2006), para. 66 ('CDM Rules'). COP-9 also adopted special rules relating to credits generated by sink projects under the CDM, namely temporary CERs (t-CERs) and long-term CERs (l-CERs). See Modalities and Procedures for Afforestation and Reforestation Project Activities under the Clean development Mechanism in the First Commitment Period of the Kyoto Protocol, Decision 5/CMP.1 (FCCC/KP/CMP/2005/8/Add.1, 30 March 2006), paras 1(g) and (h).
25. See Modalities for the Accounting of Assigned Amounts, n. 20 above, para. 29.
26. Ibid., paras 38-40.
27. Ibid., para. 21.
28. E. Meije and J. Werksman, 'Keeping it Clean - Safeguarding the Environmental Integrity of the Clean Development Mechanism', in D. Freestone and C. Streck, n. 11 above, 191, at 192.
29. Ibid.
30. See CDM Rules, n. 24 above.
31. See Kyoto Protocol, n. 2 above, Article 12.4. The CDM Executive Board was established by COP-7 in 2001. See Modalities and Procedures for a Clean Development Mechanism as Defined in Article 12 of the Kyoto Protocol, Decision 17/CP.7 (FCCC/CP/2001/13/Add.2, 21 January 2002), paras 3-5.
32. See Guidelines for the Implementation of Article 6 of the Kyoto Protocol, Decision 9/CMP.1 (FCCC/KP/CMP/2005/8/Add.2, 30 March 2006) ('JI Rules').
33. Ibid., para. 21 for eligibility criteria for both host and investor countries. Accordingly, the country must be a party to the Kyoto Protocol, it must have established its assigned amount, a greenhouse gas inventory system and a national registry. It must also have complied with the relevant reporting obligations and submitted information concerning sinks.
34. Ibid., para. 23.
35. Ibid., section E. The official name for Track 2 of JI is 'Verification procedure under the Article 6 supervisory committee'.
36. Ibid., para. 24.
37. See Kyoto Protocol, n. 2 above, Article 12.10. When finalizing Article 12.10, negotiators agreed that CDM projects could be implemented starting from the year 2000 and the ensuing CERs could be used for achieving compliance during the first commitment period. In Marrakesh, negotiators also agreed to the early start of JI, with the difference, however, that JI projects can only generate ERUs after the first commitment period begins in 2008. See JI Rules, n. 32 above, para. 5.
38. On the hurdles surrounding the entry into force of the Kyoto Protocol and its ratification by the Russian Federation, see K. Kulovesi, 'How to Prevent Babies from Being Thrown Away with the Bathwater: Perspectives on the International Climate Regime from Buenos Aires to the Future', The Future of Environmental Law: International and European Perspective European University Institute Working Papers (Law, 2006/01, 24), at 22-24, available at .
39. K. Capoor and P. Ambrosi, State and Trends of the Carbon Market 2006 (International Emissions Trading Association/World Bank, 2006), at 23, available at .
40. Ibid., at 27.
41. Ibid.
42. See Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community, [2003] OJ L275/32.
43. Directive 2004/101/EC of the European Parliament and of the Council of 27 October 2004, amending Directive 2003/87/EC in respect of the Kyoto Protocol's project mechanisms, [2004] OJ L338/18 ('Linking Directive').
44. Ibid., third preambular paragraph.
45. R. Rosenzweig, A. Ariño and R. Youngman, 'Price Volatility in EU ETS and Other Environmental Markets', in International Emissions Trading Association, Greenhouse Gas Market 2006: Financing Response to Climate Change. Moving to Action (IETA, 2006), 36, at 36.
46. More information on National Allocation Plans for 2008-2012 and relevant decisions by the European Commission can be found at .
47. See Kyoto Protocol, n. 2 above, Article 12.5(b).
48. The Dutch Government has the most extensive programme to purchase credits from the CDM and JI. (The website of the current Dutch programme, Carboncredits.nl, can be found at .) Other countries with similar programmes include Austria (more information on the Austrian CDM/JI programme is available at ), Belgium (more information on the Belgian JI/CDM tender is available at ) and Finland (more information on the Finnish Finnder Programme is available at ).
49. See CDM Rules, n. 24 above, para. 40(a). In practice, many countries first issue a Letter of Endorsement and the letter of approval is only given when the preparation of the project is at a more advanced stage.
50. Ibid., para. 37 and Appendix B. See also JI Rules, n. 32 above, para. 31.
51. See CDM Rules, n. 24 above, para. 44. The text indicates that 'The baseline for a CDM project activity is the scenario that reasonably represents the anthropogenic emissions by sources of greenhouse gases that would occur in the absence of the proposed project activity. A baseline shall cover emissions from all gases, sectors and source categories listed in Annex A within the project boundary'. A similar provision can be found in JI Rules, n. 32 above, Appendix B, para. 1.
52. See CDM Rules, n. 24 above, Appendix A. See also the Procedure for Accrediting Operational Entities by the Executive Board of the Clean Development Mechanism (CDM-EB-29, 16 February 2007), Annex 1, available at .
53. Ibid.
54. Ibid.
55. Ibid.
56. See JI Rules, n. 32 above, Appendix A.
57. Ibid., para. 1(a).
58. See Implementation of Article 6 of the Kyoto Protocol, Decision 10/CMP.1 (FCCC/KP/CMP/2005/8/Add.2, 30 March 2006), para. 1.
59. Ibid., para. 3.
60. See Procedures for Accrediting Independent Entities by the Joint Implementation Supervisory Committee (JISC 06, 16 February 2007), Annex 3, available at .
61. See CDM Rules, n. 24 above, paras 37(e) and 38. Accordingly, the CDM validation process is slightly different depending on whether the project is using a new or already approved baseline methodology; in case of a new methodology, the DOE must first submit the methodology for validation, before submitting the project PDD for review and registration.
62. Ibid., para. 40(c). See also JI Rules, n. 32 above, para. 32.
63. CDM Rules, n. 24 above, para. 40(f). In practice, the requests consist of the validation report, PDD and the letter(s) of approval.
64. Ibid., para. 41.
65. See JI Rules, n. 32 above, para. 34.
66. Ibid., para. 35.
67. See CDM Rules, n. 24 above, para. 56. The text provides that 'Project participants shall implement the monitoring plan contained in the registered project design document'. A similar obligation is implicit in JI Rules, n. 32 above, para. 36.
68. See CDM Rules, n. 24 above, paras 60-62.
69. Ibid., paras 62 and 63.
70. Ibid., para. 63.
71. Ibid., para. 64.
72. Ibid., para. 65.
73. Ibid.
74. Ibid., para. 66.
75. See JI Rules, n. 32 above, para. 36.
76. Ibid., paras 37 and 38.
77. Ibid., para. 39.
78. See Modalities for the Accounting of Assigned Amounts under Article 7, Paragraph 4, of the Kyoto Protocol, n. 20 above, para. 29.
79. See JI Rules, n. 32 above, para. 43.
80. Ibid. See also CDM Rules, n. 24 above, paras 21-25 for equivalent provisions concerning the CDM and Designated Operational Entities.
81. See Modalities, Rules and Guidelines for Emission Trading, n. 16 above, para. 5.
82. See Proposal from Belarus to amend Annex B to the Kyoto Protocol, Decision 10/CMP.2 (FCCC/KP/CMP/2006/10/Add.1, 2 March 2007), para. 3.
83. G. Peszko et al., Latvia's Participation in International Emissions Trading, Options Study No 47 World Bank ECSSD Sustainable Development Working Paper (The World Bank ECCSSD Sustainable Development Department and ENVCF Carbon Finance Unit, 2007), at ii, available at .
84. Ibid., at 16-19.
85. Ibid.
86. Ibid., at 84.
87. Ibid., at 62 and 63.
88. K. Newcombe, 'Preface', in D. Freestone and C. Streck, n. 11 above, vii, at viii.
89. Ibid.
90. Ibid., at ix.
91. Regularly updated official information on registered CDM projects and their geographical distribution is made available by the UNFCCC Secretariat through its website. The statistics provided in this article were found on the Secretariat's website on 31 March 2007. For the latest information, see the UNFCCC Secretariat, CDM Statistics, available at .
92. Ibid.
93. See Further Guidance Relating to the Clean Development Mechanism, Decision 1/CMP.2 (FCCC/KP/CMP/2006/10/Add.1, 2 March 2007), paras 31-42.
94. See the Gold Standard, The Gold Standard Manual for CDM Project Developers (The Gold Standard Premium Quality Carbon Credits, 2006), available at . According to the Gold Standard criteria, only such projects qualify that focus on energy efficiency and renewable energy and that help to catalyse transition to non-fossil fuel based energy systems. Furthermore, projects need to make a genuine contribution to sustainable development and benefit the local community.
95. W. Strek and B. Wittneben, Addressing Opportunities and Challenges of a Sectoral Approach to the Clean Development Mechanism, 1/2005 JIKO Policy Paper (August 2005), at 4.
96. The question of hydrofluorocarbons (HFCs) has been particularly controversial. HFC-23 is a potent greenhouse gas and its destruction is easy, which is why it generates cheap credits under the CDM. However, HFC-23 is a byproduct of HCFC-22, which, in turn, is both a greenhouse gas and a potent ozone-depleting gas regulated under the Montreal Protocol on Substances that Deplete the Ozone Layer (Montreal, 16 September 1987). The crediting of HFC-23 destruction would create a perverse incentive for establishing new HCFC-22 facilities simply because it is so profitable to destroy their by-product. The question has been subject to separate negotiations and a decision has been taken that new HCFC-22 plants are not eligible under the CDM. See Implications of the Establishment of New Hydrochlorofluorocarbon-22 (HCFC-22) Facilities Seeking to Obtain Certified Emission Reductions for the Destruction of Hydrofluorocarbon-23 (HFC-23), Decision 8/CMP.1 (FCCC/KP/ CMP/2005/8/Add.1, 30 March 2006). Further discussions on the matter are, however, still ongoing.
97. International Emissions Trading Association, CDM in 2006: Position paper by the International Emissions Trading Association (IETA) for COP/ MOP2 (IETA, 2006), available at .
98. According to IETA, '...the project activity is additional if an approved baseline methodology has been followed and the project emissions are lower than the baseline emissions. That is all that an additionality criterion should address'. Ibid.
99. See Tool for the Demonstration and Assessment of Additionality (CDM-EB-16, 22 October 20004), Annex I, available at .
100. Ibid.
101. See Further Guidance Relating to the Clean Development Mechanism, n. 93 above, para. 25.
102. See Methodological Tool: Combined Tool to Identify the Baseline Scenario and Demonstrate Additionality (CDM-EB-27, 1 November 2006), Annex 9, available at .
103. See Tool for the Demonstration and Assessment of Additionality (CDM-EB-29, 16 February 2007), Annex 5, available at .
104. See IETA, n. 97 above, at 19.
105. Ibid.
106. Ibid.
107. See Further Guidance Relating to the Clean Development Mechanism, n. 93 above, paras 7(b) and (c).
108. See K. Capoor and P. Ambrosi, n. 39 above.
109. See Kyoto Protocol, n. 2 above, Article 3.9. This Article establishes the legal basis for the AWG and provides that the consideration of further commitments by Annex I countries must be initiated at least 7 years before the end of the first commitment period. See also Consideration of Commitments for Subsequent Periods for Parties included in Annex I to the Convention under Article 3, Paragraph 9, of the Kyoto Protocol, Decision 1/CMP.1 (FCCC/KP/CMP/2005/8/Add.1, 30 March 2006).
110. See Kyoto Protocol, n. 2 above, Article 9.1.
111. See Review of the Kyoto Protocol pursuant to its Article 9, Decision 7/ CMP.2 (FCCC/KP/CMP/2006/10/Add.1, 2 March 2007), para. 4.
112. Dialogue on Long-Term Cooperative Action to Address Climate Change by Enhancing Implementation of the Convention, Decision 1/CP.11 (FCCC/CP/ 2005/5/Add.1, 30 March 2006).
113. Report of the Conference of the Parties serving as the Meeting of the Parties to the Kyoto Protocol on its First Session, held at Montreal from 28 November to 10 December 2005 (FCCC/KP/CMP/2005/8, 30 March 2006), para. 75.
114. Report of the Conference of the Parties serving as the Meeting of the Parties to the Kyoto Protocol on its Second Session, held at Nairobi from 6 to 17 November 2006 (FCCC/KP/CMP/2006/10, 2 March 2007), paras 122-135.
115. Gleneagles G8 Summit Documents, Gleneagles Plan of Action: Climate Change, Clean Energy and Sustainable Development (8 July 2005), available at .
116. Industry Partnership Project, Climate Change: The Gleneagles Dialogue Industry Partnership Project, an informal information sheet available at .
117. On pressures to reassess the legitimacy of international law and law making outside the climate change context, see, for instance, D. Esty, 'The World Trade Organization's Legitimacy Crisis', 1:1 World Trade Review (2002), 7; M. Kumm, 'The Legitimacy of International Law: A Constitutionalist Framework for Analysis', 15:5 European Journal of International Law (2004), 907; and M. Zürn, Global Governance and Legitimacy Problems', 39:2 Government and Opposition (2004), 260.
118. K. Kulovesi and K. Keinänen, 'Long-Term Climate Policy: International Legal Aspects of Sector-Based Approaches', 6:3 Journal of Climate Policy (2006), 313.