Press Release: Design of Kyoto Mechanisms Is Critical To Overall Success - Pew Insight, Recommendations

For Immediate Release:
September 11, 2000

Contact: Katie Mandes, 703-516-0606
             Dale Curtis, 202-777-3530
             In Lyon: Lisa McNeilly, +44 773 005 2254

Design of Kyoto Mechanisms Is Critical To Overall Success: Pew Center Report Provides Insights, Recommendations

Lyon, France — As international negotiators develop rules to implement the Kyoto Protocol, they can lower the costs of meeting their commitments by making sure that certain provisions strike the right balance between economic efficiency, environmental integrity and global equity. Likewise, domestic climate change policies will need to mesh well with the international rules.

Those are the views of the Pew Center on Global Climate Change, which today released a report with recommendations on the Kyoto Mechanisms: International Emissions Trading, Joint Implementation and the Clean Development Mechanism (CDM). The report, entitled Kyoto Mechanisms and Global Climate Change: Coordination Issues and Domestic Policies, examines the institutional and regulatory implications of the Mechanisms and ways to unlock their full potential.

The report was authored by two leading experts on the Kyoto Mechanisms: Erik Haites of Margaree Consultants Inc. in Toronto, and Malik Amin Aslam of ENVORK: Research & Development Organization in Pakistan.

"The Kyoto Mechanisms were designed to lower the costs of achieving emissions reductions," said Eileen Claussen, President of the Pew Center. "However, there are numerous proposals on the table that could severely limit the use of the Mechanisms or even encourage non-compliance with the Kyoto commitments. The report we are releasing today is intended to help the negotiators strike the right balance between environmental integrity, global equity, and economic efficiency."

Making the Mechanisms Work

The Kyoto Protocol sets greenhouse gas emissions limits for 38 developed countries, to be achieved by the 2008-2012 time period. Negotiators meeting in Lyon, France, this week are working on detailed rules for implementing the Protocol, including the three Mechanisms. Governments hope to reach agreement at the Sixth Conference of Parties (COP6) in The Hague in November.

A number of countries have proposed limiting the use of the Mechanisms to achieve environmental or equity objectives, such as those preventing the participation of private companies in emissions trading or those restricting substitution among allowances. In addition, the lack of integration among the Mechanisms may inadvertently restrict or bias their use. The extent to which countries avail themselves of the Mechanisms also depends in part on the domestic policies developed countries adopt to meet their commitments.

To avoid the economic efficiency losses that will result if the Mechanisms are restricted in these ways, the report says decision-makers can, without losing environmental benefits:

  • Craft rules that allow substitution among the allowances created by each Mechanism to improve economic efficiency by equating prices across the three Mechanisms;
  • Develop rules for International Emissions Trading that allow legal entities — like private companies, or emissions brokers -- to participate subject to the approval of their national governments;
  • Heed the caution that binding supplementarity rules could increase costs, thereby increasing the risks of noncompliance; and
  • Allow private entities easy access to the Kyoto Mechanisms through domestic cap-and-trade systems, since other domestic mitigation options will diminish the potential economic benefits.

Further, significant penalties for non-compliance and effective enforcement of those penalties are crucial to the environmental integrity of emissions trading. If these penalties are relatively weak, negotiators should adopt a liability rule that is maximally effective in encouraging compliance with a minimal increase in costs or environmental risk.

This report complements two others previously released by the Pew Center: International Emissions Trading & Global Climate Change (1999) and Market Mechanisms & Global Climate Change (1998). A complete copy of this report, and information on all previous Pew reports, is available on the Pew Center's web site, www.c2es.org.

The Pew Center was established in May 1998 by the Pew Charitable Trusts, one of the United States' largest philanthropies and an influential voice in efforts to improve the quality of the environment. The Pew Center is a nonprofit, non-partisan and independent organization dedicated to providing credible information, straight answers and innovative solutions in the effort to address global climate change. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs. The Pew Center includes the Business Environmental Leadership Council, which is composed largely of Fortune 500 corporations all working with the Pew Center to address issues related to climate change. The companies do not contribute financially to the Pew Center -- it is solely supported by contributions from charitable foundations.