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Point Carbon Study on the Carry-Over of AAUs from CP1 to CP2 – Future Implications for the Climate Regime

Executive Summary

Assigned Amount Units (AAUs) are emission rights that were introduced under the Kyoto Protocol. One AAU allows a country to emit one metric tonne of CO2e. For the first Kyoto commitment period (2008-2012), each country with an emissions reduction commitment (Annex B) received AAUs that were equivalent to the number of tonnes it was allowed to emit during the Kyoto Protocol’s first 5-year commitment period.

The Kyoto Protocol (Art. 17) allows Parties to trade AAUs. Countries whose emissions are above their Kyoto target can purchase AAUs from countries which have a surplus to help them meet their reduction obligations.

This report estimates the size of the AAU surpluses both from the first Kyoto commitment period (2008-2012) and the second commitment period.  It provides an explanation and qualitative analysis of banking AAUs, including how they interact with the EU emissions trading scheme (EU ETS). The report also models the likely scale of the surplus based on projections of actual emissions at country level, and reports on its impact on the second commitment period under the Kyoto Protocol.

What is the scale of surplus from the first Kyoto commitment period?

We estimated the AAU gap or surplus of each Party in the first Kyoto commitment period (CP1) using the publicly-available reduction commitments as well as historical and forecasted input data. They include emissions, AAU transactions between parties, and purchases of CDM and JI offset credits. As the public knowledge on AAU and offset credit purchases is often opaque due to the confidential nature of these transactions, there is a certain degree of uncertainty associated with the data.

The balance of AAUs from CP1 stands at 12,637 Mt in surplus (see exhibit A). Excluding Canada, which has withdrawn from the Kyoto Protocol, the net surplus rises to 13,127 Mt.[1] This figure is over three magnitudes higher than the estimated demand of 11.5 Mt.

Under current Kyoto rules, only those countries that are participating in the relevant Kyoto Protocol commitment period with an emissions reduction target are eligible to trade AAUs. Countries that do not agree to a target under a possible second commitment period (CP2) under Kyoto Protocol, therefore, would not be able to trade AAUs. Since Russia has stated that it does not plan to join CP2, it will, under current rules, not be able to trade its CP1 surplus in CP2. This would remove 5.8 Gt CO2e from the amount of CP1 AAU surplus that could be carried forward to CP2, leaving a CP1 total of 7.3 Gt CO2e.

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