Climate after Kyoto.
Implications for Energy.
The Royal Institute of International Affairs,
London, 5 - 6 February, 1998.

The Kyoto Protocol: Flexibility Mechanisms After Kyoto

Keynote Address by

Leiv Lunde
State Secretary
Ministry of Foreign Affairs
Norway

Ladies and Gentlemen,

It is a great pleasure to address this Conference. This gathering provides one of the first opportunities after the 3. Conference of the Parties in Kyoto to exchange views and analysis on the results achieved, and on the way forward. I would like to thank the Royal Institute of International Affairs for inviting me to participate in and address this meeting.

Norway regards the Kyoto Protocol as one of the most notable successes in international environmental co-operation. Climate change is the most complex and truly global environmental problem the world has ever attempted to address through an international treaty establishing quantified emissions limitations. All of us who participated in the negotiations before and during Kyoto, know that the achievements in Kyoto were not least a result of the tireless and effective leadership of ambassador Estrada, assisted by an equally tireless Secretariat under the leadership of Michael Zammit Cutajar. Considering the complexities involved, the Kyoto achievements are remarkable. Not only because we succeeded in agreeing on establishing the targets, but perhaps even more so because of the innovative principles and mechanisms in the Protocol. The principles of differentiated targets, comprehensive approach and flexibility in implementation were necessary conditions for reaching agreement. Having established these principles and mechanisms in the body of the Protocol promise well for the further development of the international climate regime.

After having had nearly two months to congratulate ourselves on the results, it is, however, now time to look forward and focus our attention on where still more needs to be done, and how to achieve it. Among the first conclusions that springs to mind is that the 5% emissions reductions for Annex I countries during the first commitment period 2008-2012 is a long way from the required reductions indicated by the IPCC. If one adds to that the necessary increases in developing countries' emissions due to their required economic growth and development, it becomes clear that we still have a long way to go before the problem of climate change is under control. There is therefore every reason to continue to develop the international climate regime, while stepping up implementation of domestic measures in Annex I countries. In Norway we are currently preparing a Parliamentary White Paper to be presented to the Parliament this spring on our national follow-up to Kyoto.

In this address, I will focus on the flexibility mechanisms of the Protocol. By flexibility mechanisms, I mean the provisions for Joint Implementation (JI) between Annex I countries, the Clean Development Mechanism (CDM) and emissions trading. Thus, I will not refer to other provisions which also provide flexibility, such as the comprehensive approach, commitment periods or the so-called “bubble” option.

A number of issues remain to be clarified and worked out in more detail before the Kyoto agreement can be fully operationalised and adhered to. Some of these issues were identified already in Kyoto, and are reflected in the decision to adopt the Protocol. In this decision, the chairmen of the subsidiary bodies are requested to give guidance on preparatory work needed for consideration at COP 4 inter alia on modalities, rules and guidelines related to the treatment of sinks and emissions trading, guidelines for joint implementation between Annex I countries, as well as analysis of the implications of Article 12, paragraph 10, dealing with the possibility for early counting of emissions reductions from the year 2000 under the Clean Development Mechanism against commitments under the first commitment period.

However, when focusing our attention on these areas of "unfinished business" from Kyoto, it is extremely important not to loose the perspective: Although some details are left pending, we should not underestimate the decisions that indeed were made in Kyoto. It was decided that Annex I Parties may engage in emissions trading. It was decided that Annex I countries may also participate in joint implementation as a tool to achieve larger emissions reductions at lower costs. It was decided to define a Clean Development Mechanism which would assist non-Annex I countries in achieving sustainable development and allow Annex I countries to use the certified emission reductions accruing to contribute to compliance with part of their commitments. Thus, uncertainty with regard to where we are heading in addressing climate change is significantly reduced as a result of Kyoto.

After Kyoto we have moved beyond the discussion of whether or not to make use of the flexibility mechanisms, to a stage were the task is to define more in detail how to make them work as effectively as possible. Indeed, the provisions of the Protocol itself, and the specifications in the accompanying decision on further work related to the flexibility mechanisms, are quite specific in pointing out in which areas work must now concentrate. The post-Kyoto work of clarifying and enriching the level of detail must therefore adhere to the areas specified, and not turn into a process of questioning or re-negotiating what has already been agreed.

This understanding should form the basis for the work ahead towards COP 4 in Buenos Aires. It should also be noted that the inclusion of these mechanisms were the basis for Annex I countries' acceptance of their emissions commitments for the first commitment period. Thus, to ensure early action to ratify and initiate policies and activities to comply with these commitments, it is of paramount importance that the rules of the game, to the extent they are yet to be decided, are clarified at an early stage - which means at the next COP meeting in Buenos Aires.

Let me also underline that in focusing on the “unfinished business”, we must not loose sight of the new opportunities the innovative flexibility mechanisms provide us with. We are establishing new vehicles for international co-operation which, if we do it right, may provide strong, effective mechanisms to meet several objectives. First of all, we can become more effective in combating climate change. Second, we can greatly advance the development, transfer and dissemination of environmentally friendly technologies by expanding the market for such technologies and facilitate technological leap-frogging which promotes developmental objectives. In this context, our experience from carrying out a number of AIJ pilot projects in co-operation with developing countries clearly indicates the potential for combining global environmental concerns with local and national environmental and developmental objectives in host countries.

Against this background, I would now like to turn to some more specific observations regarding the flexibility mechanisms in the Kyoto Protocol.

Firstly, there is an inconsistency in the texts in the Protocol in that art. 6 on joint implementation does not have a similar provision as art. 12 on the Clean Development Mechanism on early counting of emissions reductions against commitments under the first commitment period. This inconsistency should be clarified to avoid any misunderstanding which may hold up early action.

Secondly, with regard to JI between Annex I countries, important elements of the framework are already defined in article 6 of the Protocol. For instance, the Protocol establishes that JI can take place in any sector of the economy, and it would cover all 6 gases included in the Protocol as well as removals by sinks. Consequently, it is stated that the first COP serving as the Meeting of the Parties may elaborate guidelines for the implementation of the Article in addition to those specified in the Protocol itself. Any such further elaboration of guidelines is not set as a precondition for JI activities to start.

Further work on such guidelines should therefore aim at improving on these already existing guidelines, in light of experience gained up to the first Meeting of the Parties. Areas for particular attention up to COP 4 should therefore be those referred to in the Kyoto decision: To establish the framework for registration, certification, verification, monitoring and also approval of emission reduction units.

In this regard, it should be noted that the authority to approve such units rests with the UNFCCC, and the only actors that may forward emission reduction units are the Parties to the Protocol, that is the Governments. Under the Protocol, therefore, we can focus our attention on the relationships between Governments and the Protocol, and not how individual Parties establishes their national systems for JI.

Thirdly, the Clean Development Mechanism (CDM) is a new mechanism, defined during the Kyoto negotiations, not least as a result of the key role played by Dr. Meira Filho. As such, it was not discussed in the process leading up to Kyoto. However, CDM builds partly on an original proposal from Brazil and has several similarities with the AIJ pilot phase. As an example, the CDM criteria established in the Protocol clearly draws from the AIJ criteria established at COP I in Berlin. This provides a very useful basis for clarifying how the CDM would operate. I would like to make the following observations:

Although several aspects need to be developed, the provisions for CDM are in some ways more clearly specified than for JI between Annex I countries. I have already mentioned the provisions for early accounting of certified emission reduction. A number of specific criteria are also defined for project activities under the mechanism. Art. 12, which deals with CDM, also establishes that CDM shall be subject to the authority and guidance of the Meeting of the Parties, and that an executive board shall supervise it. It is also established that the Meeting of the Parties shall designate operational entities which shall certify emission reductions resulting from each project activity on the basis of the defined criteria. These criteria shall be elaborated at the first Meeting of the Parties. However, such elaboration is not established as a precondition for CDM activities to start. This understanding is further substantiated by the provisions for early accounting of certified emission reductions already from the year 2000.

With regard to the CDM, there seems to be a need to focus further work on institutional aspects related to certification, verification and approval of certified emission reductions and the role and functions of the executive board. In this context, I would sincerely hope that we can focus attention on how to ensure effective operation of the CDM and the need to keep these functions under UNFCCC authority, and not get bogged down in any divisive discussion on which body should carry out the functions of the executive board.

Fourthly, emissions trading seems to be the area where more work remains to be done to clarify the provisions for such trading. In addition to clearly stating that emissions trading is permitted under the Protocol, the article on trading simply says that the Conference of the Parties shall establish the principles, modalities, rules and guidelines, in particular for verification, reporting and accountability for emissions trading. It would seem that efforts should focus on establishing the main elements and provisions for an international trading regime. In this context, particular attention should be given to defining criteria which creates the required credibility for the system, while still being sufficiently transparent, flexible and simple to ensure that the system remains attractive. While trading - per definition - can only take place between countries with quantified emissions targets, it is nevertheless important that all Parties have the opportunity to participate in the development of this mechanism, inter alia, to ensure fairness and to avoid any unintentional negative impacts on any Party, or group of Parties, of the system.

I would also like to stress that an international trading system by necessity needs to be adaptable to different national circumstances and systems, and can therefore not be tailor-made to any particular national setting.

Finally, I would point to another area where clarification is needed. COP 3 decided to reaffirm the decision at COP I to establish the AIJ pilot phase. However, no explicit linkages were made to the Kyoto Protocol and its provisions. Seen in the context of the provisions for early accounting of certified emissions reductions in the Protocol, a fair interpretation would be that we now enter into a transitional period between the AIJ pilot phase and the system to become operational over the next few years. Some of the AIJ pilot phase project agreements signed after Kyoto also refer to the provisions of the Kyoto Protocol, and the possibilities for early accounting of emissions reductions units.

Nevertheless, the current somewhat unclear situation is already creating uncertainty regarding the status of the pilot phase which may threaten further progress in gaining project based experience. It is likely that potential investors in AIJ pilot phase projects will consider the current situation as a signal to await further clarifications before they may decide to invest in further projects. To avoid the present ambiguity, the subsidiary bodies in June and COP 4 in November should give priority to clarifying the situation.

In conclusion, my Government regards the flexibility mechanisms established by the Kyoto Protocol as key elements and prerequisites for the agreements reached on targets and time-tables. It is now important to focus attention on making these mechanisms for cost-effectiveness operative as soon as feasible. In doing so, let us keep very clear in our minds why we decided to establish these mechanisms: Because they can be effective in meeting the objectives of the Convention - in combating climate change. These are the key success criteria for the flexibility mechanisms, as well as any other measure under the Protocol.

We need to design these mechanisms to be as reliable, workable, credible and effective as possible for this purpose. If we fail in ensuring progress in these areas, we may experience the development of a flora of different initiatives and systems which may make it very difficult for the climate regime to function coherently and effectively. Thus, continued priority and targeted focus on these matters, building on the decisions made in Kyoto, is urgently needed in the process leading up to the 4th Conference of the Parties in Buenos Aires.