1

Registry Issues for Domestic Emissions Trading and the

Kyoto Mechanisms

Consultations on RegistriesBonn

June 2, 2002

Erik Haites

Margaree Consultants

MARGAREE 2

DET/RET Programs Many Annex B Parties will implement domestic or regional emissions trading (DET/RET) to help meet their commitments

DET/RET programs likely to differ: voluntary/mandatory participation

coverage - sources, gases, sinks stringency of the cap, safety valve distribution of units - auction, free

MARGAREE 3

DET/RET Programs burden on participants - free allocation

rule (rate-based, absolute) or auction revenue distribution

enforcement - effectiveness, penalties opt-ins - sources, project credits compliance period, banking, borrowing definition of unit liability provisions

MARGAREE 4

Links Between Programs Foreign entities may own DET/RET units: only in issuing registry - trading in other registries - trading, compliance

Transfers require transaction log, assurance of integrity of foreign registries

Compliance use in other countries requires host government approval, equivalent transfers of Kyoto Protocol units

MARGAREE 5

Links Between Programs Annex B government may restrict use of foreign DET/RET units for compliance due to environmental integrity concerns: treatment of indirect emissions stringency of the cap, treatment of opt-ins nature of, baselines for, projects permanence of sinks

Equivalent transfer of KP units leaves host government responsible for integrity

MARGAREE 6

Links Between Programs If matched by KP unit transfers, DET/RET transfers may be limited by provisions for: commitment period reserve supplementarity limit on use of LULUCF CERs

If DET/RET designed to ensure low price, foreign transfers may be limited to provide competitive advantage for domestic sources

MARGAREE 7

Registry Issues Units for DET/RET program could be: units specific to the DET/RET program KP units - AAUs, CERs, ERUs, RMUs

Limits on foreign units may be imposed on acquisitions or on use for compliance

Limits on foreign transfers or acquisition/

use may be implemented using permits

MARGAREE 8

Registry Issues Single registry for KP units and DET/RET program likely

Registry will need to track holdings of all units and permits an entity may hold -- DET/RET units for several countries

Transaction log may need to include checks on transfers/acquisitions of DET/RET units

MARGAREE 9

Environmental IntegrityGovernment may prohibit acquisition/use of specified types of units for integrity reasons

Use prohibition allows units to be held in registry for trading purposes

May not be possible to identify DET/RET units by type -- sinks, nuclear, etc. -- so restrictions may be limited to KP units

MARGAREE 10

SupplementarityDomestic action shall constitute a significant element of the effort of Party

Domestic policies should be designed to achieve this requirement

Larger acquisitions of KP units then due to: Large increases in emissions by entities in the

DET/RET Poor performance by non-DET/RET policies

offset through purchases of KP units

MARGAREE 11

SupplementarityAssume program design will meet the requirement, so no restrictions on use/

acquisition of foreign KP or DET/RET units

Impose quantitative limits on acquisition/

use of foreign KP or DET/RET units: by each DET/RET participant in aggregate for DET/RET participants

With no restrictions entities could “wash” units to circumvent restrictions imposed by other countries

MARGAREE 12

Limit on LULUCF CERsTo ensure it complies with the limit on acquisition of LULUCF CERs an Annex B Party could limit use/acquisition: by each DET/RET participant in aggregate by DET/RET participants

Party could decide to accept risk that limit will not be reached

Transaction log will identify transfers that cause the national limit to be violated

MARGAREE 13

Commitment Period ReserveKP units held in the registry can not be less than the prescribed level

Transaction log will identify transfers that would cause reserve requirement to be violated

If transaction proceeds anyway, the KP units can not be used for compliance until any questions of implementation have been resolved

MARGAREE 14

Commitment Period ReserveTransaction log allows transfers on first-come, first-served basis, may have a rush to transfer

Other options include: Specified fraction of units can be transferred Require a permit to transfer and limit the number

of permits (issue permits free for acquisitions)

Will need policy on acquisition/use of units that violated the CPR requirement when transferred

MARGAREE 15

ConclusionsDET/RET programs will differ in design raising integrity and competitiveness concerns

KP unit transfers equal to DET/RET transfers leaves host Party responsible for integrity

A Party may limit transfers or acquisitions/use of units for various reasons

DET/RET programs may use KP units or national units

MARGAREE 16

Conclusions National registries can also serve as registries for DET/RET systems, but may need to track additional types of units

A Party may wish to implement measures in addition to reliance on the transaction log to maintain the commitment period reserve

Need policy on acquisition/use of units that violated the CPR requirement when transferred