Policy Brief: The Phantom Menace – An introduction to the Kyoto Protocol Allowances surplus

With less than six months left of the first commitment period of the international climate regime, the Kyoto Protocol, there still is no agreement between Parties on the ‘AAU surplus issue’. We explain why resolving this issue – which is currently being negotiated under the United Nations Framework Convention on Climate Change (UNFCCC) – is vital to the viability of any future climate regime.

The paper is structured as follows:

  • Chapter 2 explains AAUs, CERs, ERUs and emissions trading under the Kyoto Protocol
  • Chapter 3 explains the origins of the AAU surplus and explains why it is a problem if carried over into a second Kyoto Protocol commitment period
  • Chapter 4 explains carry-over rules (‘banking’) and why it can compromise environmental integrity
  • Chapter 5 discusses solutions that would minimise a surplus carry-over and explains specific proposals currently being discussed at UNFCCC negotiations
  • Chapter 6 introduces how EU climate policies will interact with the AAU surplus post-2012
  • Chapter 7 concludes with recommendations for different stakeholders and Parties.

Introduction

Assigned Amount Units (AAUs) were introduced under the Kyoto Protocol. One AAU allows a country to emit 1 tonne of CO2e. Each country with an emissions reduction commitment under the Kyoto Protocol’s first commitment period received AAUs equivalent to the number of tonnes it is allowed to emit during that first 5-year commitment period.

Kyoto Protocol rules allow countries to carry over unused AAUs into the next commitment period. A number of countries, such as Russia, Ukraine and Poland, have very large amounts of surplus AAUs. By the end of 2012, up to 13 billion surplus AAUs could be carried over into the Kyoto Protocol’s next commitment period. This is almost three times the annual emissions of the European Union or more than twice those of the United States.

This surplus threatens the viability and effectiveness of international climate policy regimes. If no restrictions are placed on the AAUs surplus, these pledges could lead to no additional emissions reductions compared to business-as-usual emissions projections by 2020. This holds true even if the Russian surplus is excluded. [1] Allowing the full AAU surplus to be carried over could eliminate the chances of avoiding dangerous climate change by overshooting the +2?C limit.[2]

If a solution to these surpluses is not found, it will significantly weaken the environmental integrity of a second commitment period under the Kyoto Protocol.The new 2020 climate deal will likely build on parts of the Kyoto Protocol’s framework. Having a second Kyoto commitment period that is significantly weakened by low targets and participation, and large loopholes such as a massive AAU surplus carry-over would not bode well for the new global climate deal called for by the Durban Platform. This new climate regime is supposed to come into effect in 2020 and needs to be agreed on by 2015.

It is therefore essential to find and then agree on a solution that addresses the surplus at the 18th Conference of the Parties (COP) in Qatar at the end of 2012.

Various proposals have been tabled at the UNFCCC climate negotiations. The proposals by the Africa Group and AOSIS in particular are promising with regard to safeguarding the environmental integrity of the Kyoto Protocol post 2012.

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