Kyoto Protocol
The UNFCCC encouraged industrialized countries to stabilize GHG emissions, the Kyoto Protocol commits them to do so. In 1997, the COP 3 agreed on the first update to the UNFCCC: The Kyoto Protocol. It commits industrialized countries (Annex-I countries) to an average reduction of 5,2% of GHGs against 1990 levels over the five-year period between 2008 and 2012 (first commitment period). Because of the fact that industrialized countries are principally responsible for the current high levels of GHG concentrations in the atmosphere, the Protocol sets no binding emission reduction targets for developing countries (Non-Annex-I countries). The Kyoto Protocol sets binding targets for reducing emissions from 6 GHGs: CO2, CH4, HFCs, PFCs, N2O, SF6, which are translated into CO2 equivalents (CO2e) to account for their different global warming potential. In 2005, the Kyoto Protocol entered into force (COP 11/ CMP 1) after the condition that 55 countries, including those accounting for 55% of developed-country emissions of GHG in 1990, ratified it, was fulfilled. Since then the CMP (Conference of the Parties serving as the Meeting of the Parties to the Kyoto Protocol) is held parallel to the COP.
The detailed rules for the implementation of the Kyoto Protocol were adopted in 2001 at COP 7 in Marrakesh, and are called the “Marrakesh Accords”. It is stated that countries must meet their emission reduction targets primarily through national measures. However, the Kyoto Protocol offers them an additional means of meeting their targets by way of three market-based “flexible” mechanisms: International Emissions Trading (IET), Joint Implementation (JI), and Clean Development Mechanism (CDM).
Emissions Trading
Emission reduction targets of each country are expressed as levels of allowed emissions, or “assigned amounts,” over the first commitment period. These allowed emissions are divided into AAUs (assigned amount units) whereat one AAU equals one ton of CO2e. AAUs can be traded on the “Carbon Market”, which has the aim to achieve the pollution reduction at the lowest cost to society. Countries that did not “use” all of their AAUs, because they were able to reduce their emissions beyond the reduction targets, can sell these AAUs to countries that cannot meet their reduction targets. By this market based mechanism emissions are reduced first in countries where the costs for doing so are lowest. In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions. Besides AAUs, it is also possible to trade Emission Reduction Units (ERUs) and Certified Emission Reductions (CERs), which can be generated through JI or CDM projects respectively, and Removal Units (RMUs) resulting from land use, land-use change and forestry (LULUCF) activities within an Annex-I country. For trading reduction units (“carbon credits”) several markets with differing regulations exist. On compliance markets like the California Action Registry or the Chicago Emissions Reduction Market System (ERMS) companies, governments, or other entities buy carbon credits in order to comply with caps on the total amount of carbon dioxide they are allowed to emit. The largest multi-national, greenhouse gas emissions trading scheme in the world is the European Union Emissions Trading Scheme (EU ETS). The EU ETS is one of the EU's central policy instruments to meet their emissions reductions targets set in the Kyoto Protocol. Besides the compliance markets, voluntary markets like the Voluntary Over-The-Counter Market exist, where individuals, companies, or governments can purchase carbon credits to mitigate their own GHG emissions from transportation, electricity use, and other sources on a voluntary basis.
Joint Implementation (JI) and Clean Development Mechanism (CDM)
JI and CDM are the two project-based mechanisms by which “carbon credits” can be generated and which feed the carbon market. The difference between these two mechanisms is that in a JI project two Annex-I countries are involved, whereas in a CDM project an Annex-I and a Non-Annex-I are cooperating.
A JI project is an emission reduction project located in an Annex-I country, which generates Emission Reduction Units (ERUs) that can then be bought by other Annex-I countries to fulfill their emissions reduction targets. In a CDM project Annex-I countries pay for credits from emissions reductions that occur within developing nations (non-Annex-I countries) that have signed the Kyoto Protocol. Those credits can be used for compliance and are called Certified Emission Reductions (CERs). Removal units (RMU) on the basis of LULUCF activities such as afforestation/reforestation (AR) can be generated by an Annex-I country within its national borders; in contrary to JI and CDM projects no second party is involved. AR comprises human induced conversion of non-forest land through planting, seeding and/or human induced promotion of natural seed sources. Afforestation and reforestation only differ in such a way that the activity will be afforestation if the land has not been forested for at least 50 years, whereas reforestation refers to activities taking place on land that has not contained forest before 1990. Mono-specific or multi-species plantations are in agreement with this definition, whereas plantations established immediately after cutting down forests are not. Both plantations and natural forest have to meet the forest definition chosen by the Party within the following ranges: Forest is a minimum area of land of 0.05 – 1.0 hectares with tree crown cover (or equivalent stocking level) of more than 10 – 30 per cent with trees with the potential to reach a minimum height of 2 – 5 meters at maturity in situ. These definitions are formulated in Decision 16 adopted by the CMP.
Additionality and Leakage
A prerequisite in the approval of a JI or CDM project is its additionality. This requires that a project can only be approved if it would not have happened anyhow, i.e., without the incentives provided by the CDM and JI mechanisms. Another requirement for the project approval is to account for leakage. Leakage describes the increase in GHG emissions outside the project area that are caused by the project activity. E.g., afforestation projects on agricultural land could force farmers to clear forest areas to establish new agricultural units. This leakage must be included when calculating the emission reductions achieved or the amount of carbon captured and stored. Within a REDD scheme which is currently under discussion the criteria additionality and leakage need to be obeyed as well.
