6.3 International Policies and Measures
Turning to international policies and measures, the Kyoto Protocol defines
three international policy instruments, the so-called Kyoto mechanisms: international
emissions trading (IET), joint implementation (JI), and the Clean Development
Mechanism (CDM). Each of these international policy instruments provides opportunities
for Annex I Parties to fulfil their commitments cost-effectively. IET essentially
would allow Annex I Parties to exchange part of their assigned national emission
allowances (targets). IET implies that countries with high marginal abatement
costs (MACs) may acquire emission reductions from countries with low MACs. Similarly,
JI would allow Annex I Parties to exchange emission reduction units among themselves
on a project-by-project basis. Under the CDM, Annex I Parties would receive
credit - on a project-by-project basis - for reductions accomplished
in non-Annex I countries.
Economic analyses indicate that the Kyoto mechanisms could reduce significantly
the overall cost of meeting the Kyoto emissions limitation commitments. However,
achievement of the potential cost savings requires the adoption of domestic
policies that allow individual entities to use the mechanisms to meet their
national emissions limitation obligations. If domestic policies limit the use
of the Kyoto mechanisms, or international rules governing the mechanisms limit
their use, the cost savings may be reduced.
In the case of JI, host governments have incentives to ensure that emission
reduction units (ERUs) are issued only for real emission reductions, assuming
that they face strong penalties for non-compliance with national emissions limitation
commitments. In the case of CDM, a process for independent certification of
emission reductions is crucial, because host governments do not have emissions
limitation commitments and hence may have less incentive to ensure that certified
emission reductions (CERs) are issued only for real emission reductions. The
main difficulty in implementing project-based mechanisms, both JI and CDM, is
determining the net additional emission reduction (or sink enhancement) achieved;
baseline definition may be extremely complex. Various other aspects of these
Kyoto mechanisms are awaiting further decision making, including: monitoring
and verification procedures, financial additionality (assurance that CDM projects
will not displace traditional development assistance flows), and possible means
of standardizing methodologies for project baselines.
The extent to which developing country (non-Annex I) Parties will effectively
implement their commitments under the UNFCCC may depend, among other factors,
on the transfer of environmentally sound technologies (ESTs).
6.4 Implementation of National and International Policy Instruments
Any international or domestic policy instrument can be effective only if accompanied
by adequate systems of monitoring and enforcement. There is a linkage between
compliance enforcement and the amount of international co-operation that will
actually be sustained. Many multilateral environmental agreements address the
need to co-ordinate restrictions on conduct taken in compliance with obligations
they impose and the expanding legal regime under the WTO and/or GATT umbrella.
Neither the UNFCCC nor the Kyoto Protocol now provides for specific trade measures
in response to non-compliance. But several domestic policies and measures that
might be developed and implemented in conjunction with the Kyoto Protocol could
conflict with WTO provisions. International differences in environmental regulation
may have trade implications.
One of the main concerns in environmental agreements (including the UNFCCC
and the Kyoto Protocol) has been with reaching wider participation. The literature
on international environmental agreements predicts that participation will be
incomplete, and incentives may be needed to increase participation (see also
Section 10).
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