ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT INTERNATIONAL ENERGY AGENCY KEEPING TRACK: OPTIONS TO DEVELOP INTERNATIONAL GREENHOUSE GAS UNIT ACCOUNTING AFTER 2012 www.oecd.org/env/cc/CCXG Andrew Prag (OECD), André Aasrud and www.iea.org Christina Hood (IEA) Graphic design: Betrand Sadin May 2011 Unclassified COM/ENV/EPOC/IEA/SLT(2011)1 Organisation de Coopération et de Développement Économiques Organisation for Economic Co-operation and Development 31-May-2011 ___________________________________________________________________________________________ English - Or. English ENVIRONMENT DIRECTORATE INTERNATIONAL ENERGY AGENCY Unclassified COM/ENV/EPOC/IEA/SLT(2011)1 KEEPING TRACK: OPTIONS TO DEVELOP INTERNATIONAL GREENHOUSE GAS UNIT ACCOUNTING AFTER 2012 Andrew Prag (OECD), André Aasrud and Christina Hood (IEA) The ideas expressed in this paper are those of the authors and do not necessarily represent views of the English OECD, the IEA, or their member countries, or the endorsement of any approach described herein. - Or. English JT03302773 Document complet disponible sur OLIS dans son format d'origine Complete document available on OLIS in its original format COM/ENV/EPOC/IEA/SLT(2011)1 Copyright OECD/IEA, 2011 Applications for permission to reproduce or translate all or part of this material should be addressed to: Head of Publications Service, OECD/IEA 2 rue André Pascal, 75775 Paris Cedex 16, France or 9 rue de la Fédération, 75739 Paris Cedex 15, France. 2 COM/ENV/EPOC/IEA/SLT(2011)1 FOREWORD This document was prepared by the OECD and IEA Secretariats in May 2011 in response to a request from the Climate Change Expert Group (CCXG) on the United Nations Framework Convention on Climate Change (UNFCCC). The CCXG oversees development of analytical papers for the purpose of providing useful and timely input to the climate change negotiations. These papers may also be useful to national policy-makers and other decision-makers. Authors work with the CCXG to develop these papers in a collaborative effort. However, the papers do not necessarily represent the views of the OECD or the IEA, nor are they intended to prejudge the views of countries participating in the CCXG. Rather, they are Secretariat information papers intended to inform Member countries, as well as the UNFCCC audience. Members of the CCXG are Annex I and OECD countries. The Annex I Parties or countries referred to in this document are those listed in Annex I of the UNFCCC (as amended by the Conference of the Parties in 1997 and 2010): Australia, Austria, Belarus, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, the European Community, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Monaco, the Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Russian Federation, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, the United Kingdom of Great Britain and Northern Ireland, and the United States of America. As OECD member countries, Korea, Mexico, Chile and Israel are also members of the CCXG. Where this document refers to “countries” or “governments”, it is also intended to include “regional economic organisations”, if appropriate. ACKNOWLEDGEMENTS This paper was prepared by Andrew Prag (OECD), André Aasrud and Christina Hood (IEA). It benefited from direct funding for the work of the CCXG programme in 2010/11, including from Australia, Canada, the European Commission, Finland, Japan, the Netherlands, New Zealand, Norway, Sweden, Switzerland, the United Kingdom, the United States of America, the Word Bank, as well as in-kind support from the OECD and IEA. The authors would like to acknowledge the helpful comments stemming from the discussion in the CCXG/Global Forum on Environment event (28-29 March 2011), where these issues were discussed. More detailed comments were also received and incorporated from representatives of Canada, Japan, Spain, the UK, the US and the European Commission. The authors would also like to thank Richard Baron (IEA), Shardul Agrawala, Gregory Briner, Jan Corfee-Morlot, Jane Ellis, Katia Karousakis, Elisa Lanzi, Virginie Marchal and Marie-Christine Tremblay (OECD), as well as Hassan Bali (Markit), Pedro Martins Barata (Portugal), Henry Derwent (IETA), Rob Fowler (Essential Change), Michael Lazarus (Stockholm Environment Institute), Benoît Leguet (CDC Climat) and Yuko Nishida (Tokyo Metropolitan Government) for their thoughtful comments. Questions and comments should be sent to: Andrew Prag OECD Environment Directorate 2, rue André-Pascal 75775 Paris Cedex 16 France Email: [email protected] All OECD and IEA information papers for the Climate Change Expert Group on the UNFCCC can be downloaded from: www.oecd.org/env/cc/ccxg. 3 COM/ENV/EPOC/IEA/SLT(2011)1 TABLE OF CONTENTS EXECUTIVE SUMMARY ............................................................................................................................. 6 1. INTRODUCTION .................................................................................................................................. 12 2. THE EXISTING INTERNATIONAL EMISSIONS ACCOUNTING AND UNITS FRAMEWORK . 13 2.1 Reporting on emissions and tradable units ...................................................................................... 13 2.2 Existing variety in GHG units pre-2012 ......................................................................................... 13 2.3 Kyoto Protocol units accounting system ......................................................................................... 16 2.3.1 Institutions and structure ........................................................................................................... 17 2.3.2 Allocation of AAUs ................................................................................................................... 18 2.3.3 Trading of AAUs and credits ..................................................................................................... 18 2.3.4 Compliance ................................................................................................................................ 18 2.4 Strengths and weaknesses of the Kyoto framework........................................................................ 19 3. SCENARIOS FOR A POST-2012 ACCOUNTING FRAMEWORK ................................................... 19 3.1 Three groups of country mitigation pledges or commitments ........................................................ 20 3.2 The range of possibilities for unit accounting post-2012 ................................................................ 20 3.2.1 An allowance-based world – Kyoto Protocol for some Annex I ............................................... 21 3.2.2 A country-led world: ‘pledge and review’................................................................................. 23 4. ACCOUNTING FOR TRADABLE OFFSET AND CREDIT UNITS AFTER 2012 ........................... 24 4.1 Evidence for increasing divergence of credit types ........................................................................ 24 4.2 Offsets for meeting national commitments after 2012 .................................................................... 26 4.3 Emissions accounting in developing countries ............................................................................... 28 4.3.1 Double counting of reductions from offset mechanisms ........................................................... 28 4.3.2 CDM host country decisions on offset production and domestic use ....................................... 31 4.4 Impact of sub-national trading scheme offsets on global unit accounting ...................................... 31 5. INTEGRATING UNIT ACCOUNTING INTO POST-2012 SCENARIOS ......................................... 32 5.1 Unit accounting in a continued Kyoto Protocol system .................................................................. 32 5.2 Unit accounting in a pledge-and-review world ............................................................................... 34 5.3 Ensuring a functional unit accounting system................................................................................. 36 6. EXPLORING THE ‘MIDDLE GROUND’ OPTION ............................................................................ 39 6.1 The nature of the ‘middle ground’ .................................................................................................. 39 6.1.1 Demonstrating progress towards objectives .............................................................................. 39 6.1.2 Role of UNFCCC bodies in GHG unit management after 2012 ............................................... 40 6.1.3 Governance of international market mechanisms ...................................................................... 41 6.1.4 Tracking international unit transactions .................................................................................... 43 6.2 Potential lessons from outside of the Kyoto system ....................................................................... 44 6.2.1 Tracking transactions in international financial markets ........................................................... 44 6.2.2 Lessons from aggregation in the voluntary carbon market ....................................................... 44 7. CONCLUSIONS .................................................................................................................................... 46 ANNEX: BACKGROUND