The Kyoto Protocol

Background to the Protocol

The Kyoto Protocol was a consequence of the United Nations Framework Convention on Climate Change (UNFCCC – coming into force in 1994 with 166 signatories). The convention had the following objectives and was to be assessed and updated at annual ‘conferences of the parties’ (COPs):
•    Gather and share information on greenhouse gas emissions, national policies and best practices;
•    Launch national strategies for addressing greenhouse emissions and adapting to expected impacts, including the provision of financial and technological support to developing countries;
•    Cooperate in preparing for adaptation to the impacts of climate change.

It was at one of the early COPs – COP3 held in Japan in 1997 – that the Kyoto Protocol was adopted, with legally binding emissions reduction targets (known as ‘assigned amounts’) during its first commitment period (2008-2012) and with proposed market based mechanisms for meeting them. The Protocol eventually came into effect on February 16th 2005 with 125 countries having ratified it. Listed in Annex B of the Protocol are the nations agreeing to emissions reduction targets, and these countries are known collectively as Annex B parties (the UK is one of them). At its adoption in 1997 there was still much negotiating to be done as to how the Kyoto Protocol mechanisms would work and these issues weren’t resolved until COP7 in 2001. Much of this negotiation concerned the integrity of the proposed methods of reducing emissions – ensuring that reductions were made that were supplemental to a country’s own abatement actions, and ensuring that any emission reduction actions being financially incentivised were as a direct result of the Kyoto Protocol and not just “business as usual” (this is the 'additionality' principle).  

The Kyoto market mechanisms (see right column for more) were seated on the economic principles of absolute and comparative advantage and the use of trade. What this means in practice is that if it’s cheaper for you to buy something from someone else than do it yourself, you’ll buy it. In Kyoto terms this means that it may be cheaper for an already relatively efficient and clean factory in a developed country to pay a ‘dirty’ factory in a developing country to clean up its act, than to try to go further itself. Market based methods are appropriate for CO2 emissions because reductions in any country benefit all countries equally. It was this principle, however, that was one of the contributory factors to the US government’s decision not to ratify the treaty. The US believed that high emitting developing nations (such as India and China) should also given emissions reduction targets instead of enjoying the 'free ride' of the stopping of global warming without the effort of reducing emissions.These nations countered that the developed world was enjoying the wealth that had been partly created by unfettered industrial emissions and growth, and should therefore shoulder the significant majority of the burden of resolution. 

Kyoto Protocol - the latest

With the Protocol's first commitment period running until the end of 2012 there have been increasingly urgent negotiations aimed at (a) getting countries signed up to a second commitment period, and (b) designing another system to replace the Protocol (in reflection of the fact that the world's largest emitters were either not required to or not signed up to reduce emissions under the existing protocol). 

Emissions reduction targets

At the 2010 Conference of the Parties to the Protocol (CoP), held in Cancun, it was agreed that the target of limiting warming to 2oC above industrial levels was still the aspiration, but that, as things stood, existing emissions reductions targets would fail to deliver this aspiration. The Inter-Governmental Panel on Climate Change recommends that developed countries should have reduced emissions by 25-40% below 1990 levels by 2020, but only the EU, Switzerland, Japan and Norway have targets in this range. Also formalised, for the first time, at Cancun was an agreement that developing countries would take Nationally Appropriate Mitigation Actions (NAMAs) in order to reduce business-as-usual emissions by 2020. 

Second Commitment Period

At the 2011 CoP, held in Durban, a second commitment period, to run from 2013 to either 2017 or 2020, was agreed, but with actual emissions reductions targets to follow sometime in 2012. Previous pledges by the countries involved fall well short of the recommended 25-40% needed by 2020, and many developing nations are demanding even greater reductions by developed countries.

Parties expected to take part in the second commitment period include the EU, Australia, New Zealand and several non-EU European countries. Japan and Russia will remain Parties to the KP but will not take on new commitments, while Canada has announced its intention to leave the Protocol. The second commitment period will require emissions reductions from countries that account for only 15% of the global total, and in addition some fear that the carrying over of surplus credits from the first commitment period, brought about by the economic downturn reducing emissions, will mean that no real emissions reductions will take place in the second period. These concerns reinforce the need for a new agreement to replace the Protocol.

Although the agreement to extend the Protocol into a second commitment period theoretically ensures that there will be no hiatus between periods, in practice ratification may take some time and there may be a gap between the periods at the end of 2012. It is not clear how this would be managed. 

After Kyoto...

The Durban CoP also agreed the Durban Platform for Enhanced Action - to all intents and purposes an agreement to start again and produce a new "protocol, [another] legal instrument, or an agreed outcome with legal force..." by 2015, to take effect in 2020.

The decision to pursue this new agreement does contain some interesting changes in language, including the absence of any distinction between developed and developing countries, and the absence of reference to "common but differentiated responsibilities" (ie developed countries must do more). The decision does refer to raising the level of ambition and ensuring the highest possible mitigation efforts by all parties.

There is a great deal to be resolved - mitigation, adaptation, finance, technology transfer, capacity building, compliance mechanisms and institutional arrangements - and at this stage there are more questions than answers. Interestingly, the new mechanism would not come into force until 2020 - the year by which developed countries are recommended to have already reduced emissions by 25-40%.

Kyoto Mechanisms

The Kyoto mechanisms are the cap-and-trade based International Emissions Trading (IET) and the project-based models of the Clean Development Mechanism (CDM) and Joint Implementation (JI).

International Emissions Trading
IET is the trade of credits that takes place between governments. It is a cap–and–trade scheme, meaning that the group of countries is given a finite number of permits to do a certain thing – in this case emit CO2 – and they can either use the permits to do the thing, or sell them to someone else to do the thing.  The finite number will be less than the current collective level of activity, meaning somewhere along the line there has to be a reduction in that activity. Where a country finds it cost effective to reduce emissions (by doing things more cleanly) they will do so and sell permits to countries where it’s more expensive to reduce emissions. These finite permits are called Assigned Amount Units (AAUs).

IET has not been without controversy: the number of AAUs allocated to each country was the result of negotiations and many have said that too many were awarded, meaning too little in the way of reductions. Another problem also arose – that of the ‘Hot Air’ credits. Countries with economies in transition (former Soviet Bloc countries moving from Communism to a free market economy) experienced considerable economic decline after their AAU allocations were agreed, meaning they now have surplus credits that do not represent any real attempts at reducing emissions, but that have arisen purely by accident. These credits are not seen as credible by the market, but they still have the same legal status as all AAUs. 

Clean Development Mechanism
The Clean Development Mechanism (CDM) was designed to do two things: (a) enable developed nations to outsource their CO2 reductions to places where it could be done more cost effectively (it’s expensive to reduce emissions by 20% at an already clean factory, cheap to do it at a ‘dirty’ factory, and the environment benefits equally either way), and (b) transfer technology to developing countries in the process. CDM projects must be in countries that are not in Annex B of Kyoto, meaning  that permits arising from CDM projects - called CERs (Ceritifed Emissions Reductions) would be imported into the cap–and–trade system (up to a limit - the primary emphasis has still been on reducing emissions within the system). Examples of CDM projects might include hydro or wind power generation, or vehicle engine emissions.

Joint Implementation
Joint Implementation (JI) is like CDM – project based activities creating new permits – but activities instead take place in Annex B countries, with the credits being transferred to another Annex B country.