Law Environment and Development JournalLEAD FROM KYOTO TO COPENHAGEN: RETHINKING THE PLACE OF FLEXIBLE MECHANISMS IN THE KYOTO PROTOCOL’S POST 2012 COMMITMENT PERIOD Damilola S. Olawuyi ARTICLE VOLUME 6/1 LEAD Journal (Law, Environment and Development Journal) is a peer-reviewed academic publication based in New Delhi and London and jointly managed by the School of Law, School of Oriental and African Studies (SOAS) - University of London and the International Environmental Law Research Centre (IELRC). LEAD is published at www.lead-journal.org ISSN 1746-5893 The Managing Editor, LEAD Journal, c/o International Environmental Law Research Centre (IELRC), International Environment House II, 1F, 7 Chemin de Balexert, 1219 Châtelaine-Geneva, Switzerland, Tel/fax: + 41 (0)22 79 72 623, [email protected] ARTICLE FROM KYOTO TO COPENHAGEN: RETHINKING THE PLACE OF FLEXIBLE MECHANISMS IN THE KYOTO PROTOCOL’S POST 2012 COMMITMENT PERIOD Damilola S. Olawuyi* This document can be cited as Damilola S. Olawuyi, ‘From Kyoto to Copenhagen: Rethinking the Place of Flexible Mechanisms in the Kyoto Protocol’s post 2012 Commitment Period’, 6/1 Law, Environment and Development Journal (2010), p. 21, available at http://www.lead-journal.org/content/10021.pdf Published under a Creative Commons Attribution-NonCommercial-NoDerivs 2.0 License * LL.M (Calgary), LL.M (Harvard), Clarendon Scholar and Doctoral Candidate, University of Oxford, United Kingdom. Email: [email protected], Tel: +1 403 918 1983. TABLE OF CONTENTS 1. Introduction 23 1.1 Background 24 1.2 An Assessment of the Market Mechanisms 25 1.2.1 Instrument Choice 25 1.2.2 Sustainability Assessment 27 1.2.3 Additionality 28 1.2.4 Exclusion of Other Projects 29 1.2.5 Carbon Leakage 30 1.2.6 Distribution of CDM Projects 31 2. The Way Forward: Recommendations 33 3. Conclusion 35 Law, Environment and Development Journal change mitigation efforts. These debates, which have been ongoing since 1997, are even more intense now as scholars analyse the future of climate change 1 mitigation and adaptation in the post Copenhagen INTRODUCTION era.4 The most prominent question on many lips are ‘how effective have these mechanisms been and The Kyoto Protocol is recognised as the most do they represent the best approach to climate important global agreement of the late twentieth change mitigation? century, not only for fixing greenhouse gases (GHG) emission limits to be achieved by industrialised This paper analyses the debates surrounding the nations by 2012, but also for providing three flexible market mechanisms and examines how desirable mechanisms through which industrialised countries they are for the post 2012 commitment period. The can achieve their emission reduction objectives. main finding of this paper is that even though These mechanisms: Joint Implementation (JI), markets are inevitable for climate change mitigation, Emission Trading (ET) and the Clean Development the current flexible mechanisms have deficiencies Mechanism (CDM) allow industrialised countries to which must be corrected if they are to be included meet their emission reduction targets through joint in the next climate regime. These include the absence efforts or through projects abroad rather than of clear rules on the question of additionality; through domestic actions alone.1 They give inequitable distribution of projects amongst industrialised countries the opportunity to earn developing countries, the problems of leakage, emission reduction credits anywhere in the world, exclusion of viable projects like CCS and at the lowest cost possible.2 Studies confirm that it afforestation projects; and the concerns on requires US $50 to mitigate one ton of CO2 eq. in sustainability to mention just a few. While arguing developed countries, while in developing countries in favor of flexibility, this paper suggests an overhaul the same reduction can be accomplished at US $ of the Kyoto mechanisms to cater for these concerns. 3 fifteen per ton of CO2 eq. To avoid the leakage problem, I suggest the inclusion of a provision in the new climate change regime However, the ink with which the Kyoto Protocol which will allow the Conference of the Parties was signed had hardly dried when debates began (COP) to periodically review the Annex I and II list between scholars on whether these market to include and remove countries based on their mechanisms have much to contribute to climate current levels of emissions within a five year period. This way, huge emitting developing countries like 1 See Article 3 of the Kyoto Protocol which allows China would have obligations in the new regime countries to individually or jointly achieve their emission based on their current emission level.5 On the issue targets. The Kyoto Protocol, 10 December 1997, U.N Doc. of inequitable project distribution, this paper calls FCCC/CP/1997/L.7/add.1(1998). for the adoption of a quota system to limit the 2 Emission Reductions credits refer to one metric tonne number of projects a developing country can host of CO2 or its GHG equivalent reduced from the atmosphere by a mitigation activity. There is the Certified Emission Reduction (CERs) given for the generation of 4 There are currently over 200 studies including articles, credits under the CDM and Emission Reduction Units conference papers and reports on this debate. See Karen (ERUs) awarded under JI. Both CERs and ERUs are Olsen, The Clean Development Mechanism’s standardised GHG reduction credits that are becoming Contribution to Sustainable Development-A Review of commodities that can be bought and sold on the global the Literature, available at http://www.cd4cdm.org/ market, and in some cases banked for the future. A Publications/CDM&SustainDevelop_literature.pdf. development project is said to be ‘Clean’ if it leads to the 5 Statistics show that China now emits more CO2 than reduction of the volume of GHG emitted into the the United States. China overtook the U.S. in emissions atmosphere. See UNCTAD Earth Council, Glossary of of CO2 by eight per cent in 2006. While China produced Climate Change Acronyms and Jargon, available at http:/ 6.2 billion metric tons of CO2, the U.S. produced 5.8 /unfccc.int/essential_background/glossary/items/ billion metric tons. See the Netherlands Environmental 3666.php. Assessment Agency, China Now No. 1 in CO2 Emissions, 2007, 3 CDMINDIA, ‘Why CDM’, available at http:// available at http://www.pbl.nl/en/news/pressreleases/2007/ www.cdmindia.com/about-cdm.aspx. 20070619Chinanowno1inCO2emissionsUSAinsecondposition.html. 23 From Kyoto to Copenhagen at a given time such that projects can spread across emission reduction projects in other industrialised developing countries. This paper also calls for the countries. Thus, both ET and JI allow joint emission clarification of issues relating to additionality. It is reduction between two industrialised countries.7 advocated here that additionality should be strictly defined in the new regime to mean investment The CDM is the only mechanism that allows additionality such that free rider projects or projects developing countries to be involved in the carbon that do not come under any of the mechanisms market.8 The CDM allows industrialised countries should not be relabeled as clean projects for the to gain Certified Emission Reduction credits (Cers) purpose of claiming credits. Finally, this paper calls by investing in projects that reduce greenhouse gas for the recognition of afforestation projects and the emissions in developing countries. The CDM was CCS as eligible projects under the mechanisms. designed to allow both developed and developing countries involved to benefit from the mechanism. This paper is divided into three parts. Part one While CDM helps to promote sustainable provides the background on the flexible mechanisms development in developing countries, it also allows and the reasons for their adoption during the Kyoto developed countries to attain their emission negotiations. Part two examines the merits and reduction targets at a cheaper rate.9 The carbon shortcomings of the mechanisms under six headings: market can therefore be classified as both project- instrument choice, sustainability assessment, based (a baseline and credit system) as exemplified additionality assessment, other projects, carbon by JI and the CDM; and an allowance market (a cap leakage and equity issues regarding the geographical and trade system) as exemplified by ET.10 distribution of projects. The paper ends in part three with recommendations on what should be done if The process leading to the adoption of these these mechanisms are to contribute meaningfully to mechanisms as part of the Kyoto Protocol was not climate change mitigation. without controversy. The United States had proposed and argued in favor of the market 1.1 Background approach,11 while the Group of 77, an alliance of developing countries (numbering more than 120 ET, CDM, and JI were adopted as flexible countries) and China had constituted a formidable mechanisms under the Kyoto Protocol to allow resistance to the US proposal and asked for fixed developed countries to meet their emission reduction emission limits and penalties for defaulting targets by investing in clean projects in other countries of their choice. Mainly because the three mechanisms allow the trading of CERs and the 7 For an excellent and detailed discussion of the reduction of emissions on a project basis, they are mechanisms, see Jacob Werksman, ‘Unwrapping the often referred to as ‘market mechanisms’.6 Under