Update - Nov. 8, 2001

In a major breakthrough, Parties have reached agreement on the Kyoto Protocol's compliance mechanism, deferring once again to a future conference on the question of binding consequences for non-compliance. Significant progress was also made on the makeup of the Clean Development Mechanism Executive Board.

The high-level segment of the Conference, which began Wednesday, continued on Thursday with official statements to the plenary. Meanwhile, negotiations on remaining issues continued in both closed and open sessions amid a cautious sense of optimism that final agreement could by reached on Friday.

Key Developments

Compliance - Conflicting interpretations of the compliance provisions of the Bonn Agreement - particularly with respect to the question of binding consequences - emerged early in the conference as a major stumbling block. The new agreement affirms and elaborates on the basic structure agreed in Bonn. It establishes a compliance committee with two branches: facilitative and enforcement. The principal consequence for failing to meet an emissions target will be the deduction of 1.3 times the amount of the excess emissions from the party's target for the second commitment period.

On the question of whether consequences for non-compliance will be "binding," the agreement incorporates text from the Bonn Agreement, again deferring a decision to the first Conference of Parties following Kyoto's entry into force. The EU and G-77 had pressed in Marrakech for binding consequences, a move opposed by Umbrella Group countries.

CDM Executive Board - The makeup of the CDM Executive Board has been resolved. It will have 20 members, 10 acting and 10 alternate. Parties are reportedly close to agreement on the nations and individuals that will be represented under the formula agreed in Bonn. The Executive will hold its first meeting in two days, following the close of the Conference. The extent of the Board's decision-making authority relative to the Conference of the Parties is to be decided by Ministers. The G-77 and China have proposed that ultimate authority over issues related to the CDM rest with the COP rather than the Board. Several Parties have objected on the grounds that the annual meeting schedule of the COP would hinder timely decision-making.

Outstanding Issues

Article 7.4 - Co-Chairs Estrada and Chow have reportedly drafted a new non-paper on Article 7.4, which defines the accounting system that will govern the use of the Kyoto Mechanisms. A debate has developed around the transferability of the various carbon units. The G-77 has proposed creation of a new Removal Units (RMUs) representing credits produced by domestic carbon sequestration. The G-77 calls for them to be used exclusively for the purpose of establishing compliance with the Kyoto commitments. Several Parties have expressed a willingness to accept the new units as long as fungibility between the other carbon units is not threatened.

LULUCF - Russia's allocation for domestic carbon sequestration under Annex Z of the Bonn Agreement continues to be one of the most significant issues to be addressed by Ministers. Russia is reported to have made the case in that its request for an allocation of 33 Mt is a conservative estimation of the carbon that could be sequestered in Russia's forests and agricultural soils. The issue has become linked with the debate over reporting requirements. The G-77 has suggested that full reporting on domestic sequestration activities be made mandatory and that failure to meet these reporting requirements would result in loss of eligibility to use the mechanisms.

Mechanism Eligibility - One of the more contentious issues that has emerged in the course of the Conference has been the relationship between compliance with reporting requirements and the eligibility to use the Kyoto mechanisms. The G-77 has submitted proposals that would make mandatory reporting measures that had previously been voluntary. Reporting on supplementarity, LULUCF activities, the contribution to sustainable development made by emission reduction projects, and actions to minimise the adverse effects to other Parties of mitigation policies have all been proposed as mandatory requirements. Under these proposals, failure to meet the reporting requirements would result in the loss of eligibility to use the Mechanisms. Several Parties have expressed concerns with these suggested provisions, particularly amongst the Umbrella Group. Technical negotiations continue but this issue is expected to be added to the agenda for Ministers.

Commitment Period Reserve -- A debate has emerged over the nature of the Commitment Period Reserve. Canada has proposed that the 90% of Assigned Amounts that are to be held as a Commitment Period Reserve under the Bonn Agreement be a voluntary guideline rather than a requirement. This is opposed by both the G-77 and the EU. It is expected that this issue will also be added to the agenda for Ministers.