With the support of the
California-based EPRI, UCCEE assisted Erik Haites, from
Margaree Consultants in a project, which tested those liability provisions that have been
put forward to foster the compliance of the Kyoto Protocol.
Background and Purpose
Annex I Parties will have emissions
limitation commitments for 2008-2012 under the Kyoto Protocol. Annex I Parties whose
actual emissions are lower than their commitments can sell the rights to the additional
emissions (assigned amount units or AAUs) to other countries through international
emissions trading (IET) or joint implementation (JI). Some governments are concerned that
these mechanisms will encourage countries to sell AAUs they will subsequently need for
compliance purposes (overselling).
A number of countries and non-governmental
organisations have proposed rules for international emissions trading and joint
implementation that are intended to deter non-compliance by Annex I Parties in the form of
overselling. These rules are commonly called "liability" provisions. The purpose
of the study is to develop a simple model to compare the liability proposals in terms of
their impact on how well they can bring the Kyoto Protocol into compliance, and at what
cost.
Compliance under the Kyoto Protocol
The compliance regime for the Kyoto
Protocol is still being developed. It will deal with a number of compliance issues
including inadequate emissions inventories and failure to achieve the national emissions
limitation commitment. The rules governing the international emissions trading and joint
implementation may also include compliance-related provisions, such as eligibility to use
the mechanisms and the procedures to deal with disputed transactions.
Under the Kyoto Protocol each Party accepts
responsibility for meeting its commitments. Thus, each Annex I Party is responsible for
meeting its national emissions limitation commitment even if it sells AAUs to other
countries. Penalties for non-compliance with the emissions limitation commitment could
include financial penalties, reduction of Assigned Amount in next commitment period, trade
sanctions, or limits on ability to acquire or transfer AAUs.
Historically, however, penalties for
non-compliance with international agreements have been weak or difficult to enforce.
Concerns that the rewards from the sale of AAUs may exceed the effective penalties for
non-compliance have prompted a number of proposals that would provide an incentive to sell
only AAUs likely to be surplus to the country's compliance needs.
If liability provisions are adopted as part
of the rules for international emissions trading and joint implementation it is important
that they be related to the broader compliance provisions. The main areas where
consistency appears to be necessary are eligibility of Parties to use the mechanisms and
validity of AAUs for compliance purposes. The eligibility criteria for buyers and sellers
are likely to differ.
Liability Proposals
A number of governments and
non-governmental organisations have proposed liability rules that include over a dozen
liability proposals have been suggested in the literature and the international
negotiations. The proposals reflect several different strategies for limiting sales of IET
quota to amounts surplus to the seller's compliance needs:
