Kyoto flexibility mechanisms and renewable energy - opportunity or obstacle?

Despite the many concerns over its efficacy, the main strength of the Kyoto Protocol has been to focus the world's attention on implementing legally binding agreements by nations to reduce CO2 emissions, the main greenhouse gas. The key question I will address here is whether – and how – the renewable energy (RE) sector will benefit from the uptake of the Kyoto Flexibility Mechanisms.

The Kyoto Flexibility mechanisms - some definitions

Emissions Trading: enables two countries to trade 'Assigned Amount Units (AAUs') or 'permits' allocated under the Kyoto Protocol for the purpose of meeting their national targets. CERs, ERUs, and sink credits (see below) may also be traded.

Clean Development Mechanism (CDM): allows a developed country to invest in emissions reduction projects in developing countries to acquire Certified Emission Reductions (CERs) or 'credits' to assist in meeting their own national target.

Joint Implementation (JI): allows developed countries to invest in projects in other developed countries to acquire additional Emission Reduction Units (ERUs) towards meeting their own national target. This is effectively the transfer of Assigned Amount Units (AAUs) between two signatory parties to the Kyoto Protocol.

Carbon sequestration: Carbon sink 'credits' created via sequestration activities, e.g. tree planting, may also be traded to cover emissions.

Emissions Trading

With the envisaged emissions trading scheme under the Kyoto Protocol - essentially a market created by governments to facilitate the reduction of GHG at least cost - there are two types of allowances: allocated and created. Firstly, there is an allocated entitlement of AAUs based on parties’ agreed emissions limit. And, secondly, there are created credits. These are CERs from CDM projects, ERUs from JI projects and carbon credits from sequestration projects.

In fact, ERUs are not strictly created as they result in part from one country’s AAUs being transferred to another country, unlike CERs, which are new and additional to the AAUs allocated under the Kyoto Protocol. We can differentiate between JI projects and CDM projects in this respect.

Does RE create new credits?

In a CDM context, RE projects can create additional credits (just as any emission reduction activity would). These can then be counted towards the developed country's domestic emissions. On a domestic level within a Developed country, RE projects do not create new credits. In this context RE projects create emission 'offsets' against the permits that emitters already hold. In other words, RE projects simply help 'free up' existing permits, so that an emitter can sell their extra permits into the market.

Carbon sequestration

Scientists working for the UN's Intergovernmental Panel on Climate Change (IPCC) have confirmed that tree planting will simply buy the world a little time. The IPCC says carbon sinks will soon become saturated with carbon and start returning most of it to the atmosphere, temporarily accelerating global warming, not slowing it down. The problem of sink saturation was barely known even a couple of years ago, when the forests were first assigned an important role under the Kyoto Protocol.

The security of such long-term storage of carbon is uncertain for other reasons such as pests, diseases, land clearing, the threat of illegal logging, forest fires, and climate change itself. Sequestering carbon should not be treated as equivalent to curbing fossil energy emissions, which is guaranteed to result in climate change benefits. At this stage, there is no explicit provision for carbon sequestration projects under Article 12 (CDM).

Concerns with the flexibility mechanisms

If emissions trading can make cutting CO2 emissions reductions less costly, it will be easier to eventually wind-back all such emissions. However, even those who pioneered the adoption of the flexibility mechanisms have concerns that they may lead to the corruption and collapse of global efforts to contain climate change. For example, the flexibility mechanisms may: