By Kristin Rypdal
By the end of 2006, the countries that have ratified the Kyoto Protocol and have emissions targets (the so-called Annex I countries) are required to report their 1990 emissions (or another approved base year) to the UN Framework Convention on Climate Change (UNFCCC). When the inventories have been reviewed and approved – and corrected for any deficiencies uncovered during the audit – it will be clear how much each country will be allowed to emit during the first commitment period of the Kyoto Protocol (2008-2012). This will form the basis for allocation of emissions quotas (assigned amounts). Before the flexibility mechanisms can be used, a satisfactory national quota registry and an approved national system for reporting emissions and removals in following years must be established. A country can also be refused permission to trade quotas if the quality of its emissions reporting is unacceptable.
Buying and selling quotas
If the number of quotas allocated to a country isn’t enough, there are a number of ways to get more. Buying emissions quotas from Annex I countries with a right to trade is one possibility. Trading can take place between countries, businesses, or other legal entities. In the EU Emissions Trading System, there will be limits to which sources can be included in this type of trade, and there are requirements for measuring and verifying the emissions from legal entities that participate. Important emissions sources in Europe, such as power plants and industries, will be included in the system. Another way to obtain quotas is to invest in mitigation projects in developing countries though the Clean Development Mechanism (CDM) and in other Annex I countries through joint implementation (JI). The projects must be approved in accordance with the regulations and monitored satisfactorily.
In addition to the flexibility mechanisms, the net carbon removal in forests as a result of increased forest area within national borders also gives extra quotas. It is also possible to choose to get credit for uptake, or reduced emissions, resulting from changing the way other areas are managed, areas such as agricultural land, existing forest areas, or areas that are allowed to return to their natural state. This choice must be made in 2006 and will require monitoring and reporting of removals and emissions from these areas also in the following commitment periods.
In addition to selling quotas, a country can lose quotas through cancellation. Canceled quotas disappear from the system and cannot be sold or used to meet commitments. Quotas can be canceled for several reasons, including net emissions from forests. Quotas can also be canceled voluntarily – for example, an environmental organization can purchase quotas and cancel them. After the commitment period, the quotas are retired as settlement for what was emitted during the period. Since the emissions will not be known until two years after the first commitment period is over in 2012, there will be a period when countries can trade quotas to help them to meet commitments or to be rid of extra quotas. If a country is left with extra quotas after that, they can be transferred to a subsequent commitment period. However, there are limits to transferring quotas acquired from mitigation projects or uptake in forests.
Long-term emissions targets
The parties to the Kyoto Protocol have agreed on a comprehensive regulatory framework for the use of the flexibility mechanisms and for allocating and deleting quotas from the management of forests and other land areas. The technical regulations themselves also limit how easy it is to obtain quotas – to ensure that credits are only given for genuine, verifiable, and permanent reductions in emissions or increases in uptake. The question is whether Norway can purchase as many quotas as it needs, as long as it follows the technical regulations. The parties have agreed that domestic action – and not the use of the flexibility mechanisms – should constitute a significant element of the efforts to meet the Kyoto targets, and that the mechanisms should come only as a supplement to domestic action. However, there is no formal ceiling on the use of the mechanisms, and an absolute ceiling would be difficult to quantify since emission levels without domestic action are not easy to define. But all countries must document that their use of the mechanisms takes place in addition to domestic measures. This information will be part of the evaluation of how a party is in compliance with its overall obligations. The last, and perhaps most important, question is whether it is wise to meet the targets by using the flexibility mechanisms extensively instead of implementing more domestic measures.
The usual argument is that it does not make any difference for the climate whether the emissions take place in Norway or in other countries because the ceiling for emissions under the Kyoto Protocol is fixed. From a short-term economic perspective, it is thus only a question of whether it is cheaper to use the mechanisms or to implement domestic measures to meet the targets in 2012. The intention of the Kyoto Protocol is, however, that it should be followed up with a more stringent agreement after 2012. This means it can be sensible to also consider more long-term emissions goals in the decision about whether to buy quotas or to implement domestic measures to meet the targets in 2012. If domestic measures mean more development and investment in new climate-friendly technology than would occur through purchasing quotas from other countries, a longer time-horizon than 2012 can mean that it will pay off to implement domestic measures even though it makes meeting Kyoto targets more expensive.