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Kyoto Protocol

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Joint Implementation
Under Joint Implementation, an Annex I country can invest in emissions reduction projects in any other Annex I country as an alternative to reducing emissions domestically. This allows countries to reduce emissions in the most cost-effective way, and apply the credits for those reductions towards their own emissions reduction target. Most JI projects are expected to take place in the so-called “economies in transition to a market economy”, mainly Russia and Ukraine. Most of the rest of the “transition economies” have since joined the EU or are in the process of doing so, and therefore are or will be soon covered under the EU emissions reduction legislation.

The credits for JI emission reductions are accounted for in the form of Emission Reduction Units (ERU’s), with one ERU representing a reduction of one ton of equivalent. These ERU’s come out of the host country’s pool of assigned emissions credits, which ensures that the total amount of emissions credits among Annex I parties remains stable.

ERU’s will only be awarded for Joint Implementation projects that produce emissions reductions that are “...additional to any that would otherwise occur” (the so-called “additionality” requirement), which means that a project must prove that it would only be financially viable with the extra revenue of ERU credits. Moreover, Annex I parties may only rely on joint implementation credits to meet their targets to the extent that they are “supplemental to domestic actions”. However, since it is very hard to define which actions are “supplemental”, this clause is largely meaningless in practice.

Clean Development Mechanism
The Clean Development Mechanism allows Annex I parties to generate or purchase emissions reduction credits from projects undertaken in developing (non-Annex I) countries. In exchange, developing countries will have access to resources and technology to assist in development of their economies in a sustainable manner. The credits earned from CDM projects are known as “certified emissions reductions” (CER’s). These projects must also meet the requirement of “additionality”.

A wide variety of projects have been launched under the CDM, including those involving renewable energy, energy efficiency, fuel switching, landfill gases, better management of methane from animal waste, the control of coal mine methane and controlling emissions of certain industrial gases, including HFC’s and N2O.

China has traditionally dominated the CDM market. In 2007 it expanded its market share of transactions to 62%. However, CDM projects have been registered in 45 countries and the UNFCCC points out that investment is now starting to flow into other parts of the world, not only to India and Brazil, but also to Africa, Eastern Europe and Central Asia.

In 2008, the CDM accounted for transactions worth €24bn1), mainly from private sector businesses in the EU, European governments and Japan.

The average time for CDM projects to be agreed is currently about 1-2 years from the moment that they enter the “CDM pipeline” which contains nearly 4,000 projects as of October 2008. More than 500 projects have received CER’s to date, and over two thirds of those CER’s have come from industrial gas projects. Renewable energy projects have been slower to reach fruition, and the rigorous CDM application procedure has been criticized for being too slow and cumbersome. The “additionality” requirement in particular has been a stumbling block since it is difficult to prove that a project would not be viable without the existence of CER’s.

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