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Joint Implementation: A Credit Blueprint for Europe?

Dr. Moritz von UngerRoundtable: Domestic Offsets

under Article 24a EU ETSBrussels, 1 March 2010

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Offsetting in the EU ETS Today

• Offsetting = Reducing emissions in a non-capped environment in exchange for a right to pollute in another capped environment (in Europe: EU ETS); the tradable right to pollute is the offset credit.

• Currently the EU ETS recognizes two offset credit types: – Certified Emission Reductions (CERs) from the CDM– Emission Reduction Units (ERUs) from JI

• Article 24a mechanism as of 2013?

• Future of intra-Community JI?

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JI and CDM in numbers

Joint Implementation Clean Development Mechanism

Projects Million ERUs up to 2012

Projects Million CERs up to 2012

Pipeline 285 85 Pipeline 4.926 >2.900

Projects with final determination

172 61 Registered 2.059 1.755

Issued 54 5.1 Issued 650 372

Source: UNFCCC and UNEP RISØ, February 2010

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Offsetting under Kyoto and the EU ETS

Global greenhouse gas emissions UNFCCC

Annex 1:

capped emissions

Kyoto Protocol

Non-Annex 1:

emissions not capped

European Union

EU emissions

ETS Non ETS

Emissions from Parties to the Kyoto Protocol

JI CDM

EU Member States

Operators of installations under the

EU ETS

Art 24a

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JI Transaction Structure

Member State Member State

Project

Buyer

LoALoA LoA

LoA

ERU TransferOperator

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24a Transaction Structure

Member State

Project

Buyer

LoALoA

Credit TransferOperator

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Common Aspects: JI and 24a

• Both JI and the 24a Mechanism feed into the EU ETS from within Europe (JI having an int’l sting, too)

• Other than CDM, JI and the 24a Mechanism operate under nation-wide caps:– JI: ERUs are converted AAUs;– 24a Mechanism: Annual Emission Allocation (Effort

Sharing Decision, ESD) to be adjusted “in accordance with” the credits issued under Article 24a

• Thus, the additionality perspective differs from CDM: The stricter the cap is, the stricter the enforcement of additionality

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What is different?

• 24a Mechanism concerns EU Member States only

• The country caps (ESD measures mainly against GDP/capita) are more homogenous than the Kyoto country caps; surplus allocation being largely absent

• Independent governance of Article 24a from the international regime

• Int’l credits are capped, Article 24a credits are not (yet)

• Article 24a allows domestic credit generation, JI does not

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JI and European Domestic Offsets

• JI is not a domestic in the sense of unilateral; JI is (treated as) bilateral mechanism

• “Domestic JI” has, however, its advocates; and several countries practice a light bilateral version only (cf. France)

• An EU offsetting scheme (Article 24a of the new EU ETS) offers the opportunity for pure domestic action

• The bilateral requirement has arguably been one of the reasons why JI had such a shaky start

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Can Article 24a learn from JI?Despite its slow start, JI has achieved a lot:

– A substantial number of projects (285 by February 2010);

– Offsetting potential (5.1 mERUs by 2012);

– Project approval procedures in almost all Member States;

– Validation and know-how infrastructure;

– Despite the laisser-faire Track 1 a broadly homogenous offsetting standard; the JISC acts as standard-setter for project types, additionality, baseline & methodologies and validators

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Where JI is better…

• 2 tracks: JI allows an flexibility by recognizing a 2 Track-national-and-int’l governance

• Homogenous credits with Article 24a handing out a carte blanche to Member States to unilateral measures

• Under the Kyoto Protocol, double-counting is not a problem. The equivalent, a EU ETS covering 100% of emissions not being feasible, the system has to deal with this bug

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JI as a blueprint?

• There are good reasons for Europe to take on board the undisputed achievements of JI and to respond to the harder lessons learnt, too.

• Start with a JI evaluation under Kyoto and Marrakesh• Make use of the developed framework as much as it

is helpful• Use existing standards and credit credentials• Learn from JI’s standard setting governance: consider

two-track approach and stimulate harmonious practices

• Establish clear guidelines for the avoidance of double-counting

• Coordinate Article 24a and future developments of JI

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The Future of European Offsetting• Depending on the expansion of the EU ETS, Article

24a may assume an important role in European mitigation action and emissions trading

• Article 24a may also contribute to the expansion of the EU ETS by bridging the path from non-capped to capped sectors

• Article 24a EU ETS and JI can generate synergies for the establishment of common offsetting schemes. Knowledge, standards and infrastructure can be shared and/or exchanged

• Pilot for sectoral crediting?• Credit linkage between national or supranational

cap-and-trade schemes worldwide?.

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ContactsFor more information:

Dr Moritz von UngerSenior Legal Counsel

Climate Focus+31 20 262 10 37

E-mail: M.vonUnger@climatefocus.co

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