Update - Nov. 6, 2001

As ministers arrive in Marrakech to begin the high-level segment of negotiations, major differences remain on a broad array of issues critical to the viability of the Kyoto Protocol. As they struggle to convert the broad political agreement struck last July in Bonn into detailed "legal" text, parties are offering conflicting interpretations of the Bonn Agreement and trying to turn its many ambiguities and inconsistencies to their advantage. The European Union and the G-77 are closely allied on many issues, pressing positions opposed by the Umbrella Group.

A major thread running through the negotiations is an effort by the EU and G-77 to quickly create a binding compliance regime and establish additional requirements that parties must meet to remain in compliance and thereby eligible to participate in emissions trading and the Protocol's other flexibility mechanisms. Other key open issues include reporting and accounting procedures; fungibility of emissions credits and allowances under the various Kyoto mechanisms; and Russia's request for a higher ceiling on its sinks allowance; and the text of a Marrakech Declaration to next year's World Summit on Sustainable Development.

The king of Morocco, Mohamed the VI, will open the Ministerial portion on Wednesday, followed by national statements by ministers. The ministers will face more - and more technical - issues than many had hoped. However, with parties expressing a strong desire to maintain the momentum coming out of Bonn, most remain cautiously optimistic that they can resolve outstanding issues by the conference's scheduled close on Friday.

Key Developments

Compliance - While the Bonn Agreement spells out the broad structure of the compliance regime, parties remain deeply at odds over whether the consequences for noncompliance will be "binding." The EU and the G-77 maintain that the Bonn Agreement provides for binding consequences; Umbrella Group countries say the Agreement puts off a decision on binding consequences until the first meeting of the parties following Kyoto's entry into force. The outcome on this issue could influence ratification decisions by key countries including Russia and Japan.

Eligibility to use the Mechanisms - This issue is closely linked to the compliance debate because, under the Bonn Agreement, parties must accept the compliance regime in order to be eligible to participate in emissions trading and the other Kyoto mechanisms (Clean Development Mechanism and Joint Implementation). Umbrella Group countries are opposing efforts by the EU and the G-77 to strengthen the linkage between compliance and eligibility by interpreting other requirements as "mandatory." The G-77, for instance, has proposed making certain reporting activities mandatory by substituting "shall" for "should" in pertinent portions of the text. A key example is Article 7.1 of the Protocol, which calls on parties to report on supplementarity - or the portion of their emissions target met through domestic efforts vs. emissions trading.

Fungibility - Article 7.4 of the Protocol, calling for procedures for the accounting of emissions allowances and credits, has emerged as a linchpin issue. Various proposals could significantly hinder fungibility - the equivalent treatment of allowances and credits under all the Kyoto mechanisms. The G-77 has proposed: establishing a new carbon unit, called the "Removal Unit" (RMU), for credits created through sequestration activities; and requiring that all credits (the proposed RMU, as well as credits under CDM and JI) be used exclusively for meeting a party's target, making them unavailable for trading. The Umbrella Group opposes these proposals.

Clean Development Mechanism - The makeup and mandate of the CDM Executive Board continues to be a source of much debate. A proposal to designate alternates for each seat (bringing the total number of potential members to 20) is opposed by some parties as an unnecessarily complicated way to deal with surplus demand for seats on the Board. Other issues held over for ministers include the definition of a quorum and voting rules.

Carbon Sequestration - Russia maintains that it needs a higher ceiling for sinks credits from forest management in order to ratify the Protocol. It has proposed a ceiling of 33 Mt as opposed to the 17.63 Mt allocated under the country-by-country allowances adopted in Bonn. While Russian delegates have maintained a rigid position in the few open sessions that have addressed the issue, they are reported to be showing some degree of flexibility in closed-door sessions. Flexibility is also reportedly being shown by the members of the EU. Many Parties are hesitant to simply adjust the number of tons because doing so would require reopening the Bonn Agreement. Negotiators are reported to be close to agreeing on an alternative means of making this adjustment and have expressed optimism that a deal will be reached before the close of the Conference.

Marrakech Declaration - Negotiators are drafting a declaration to the World Summit on Sustainable Development, next September in Johannesburg, South Africa. The draft text reportedly underscores the "sobering" findings of the Intergovernmental Panel on Climate Change's Third Assessment Report and stresses the synergies between climate change, biodiversity and desertification.

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