www.unfccc.intUNFCCC secretariat

Session 4Meeting eligibility requirements

First UNFCCC workshop on implementationof Article 6 projects under the Kyoto Protocol

Moscow26-27 May 2004

Overview of presentation

Eligibility requirements safeguard the integrity of

• the Kyoto Protocol

• JI projects and their credits

• the underlying carbon market

Three linked questions to be examined here

• What do Annex B Parties require for JI eligibility?

- regarding emissions

- regarding assigned amounts

• How do JI credits fit into the targets of the Kyoto Protocol?

• How is the compliance of Parties with targets verified?

Crediting JI projects

• Conversion (“issuance”) of existing units of the host Partyto emission reduction units (ERUs) based on the project

• ERUs are transferred to investing Party/entity

• ERUs may be used by Annex B Parties for compliance

• ERUs differ from CDM credits, which are newly generated units

AAU

RMU

ERU

ERU

for emission reducing projects

for LULUCF projects

Compliance with Annex B targets

Emissions side Assigned amount side

Projectedemissions

Annex Bassignedamount

Finalemissions

LULUCF activities

Mechanismsacquisitions

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Verifying compliance with the targets

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Emissions 2008 - 2012

Secretariat compilation and

accountingdatabase

KyotoProtocol

ComplianceCommittee

Review, adjustment, compliance processes

National systems

Annex I Partysystems

Emissionsinventories

Reportingprocess

National registries

Assigned amount info

Assigned amount

2008 - 2012

Eligibility requirements for JI

a. Party to the Kyoto Protocol

b. Assigned amount calculated

c. National system in place for estimating emissions/removals

d. National registry in place for tracking assigned amount

e. Submission of most recent required emissions inventory

f. Accurate accounting of assigned amount and submission of information

Track 1 (full eligibility)

a. Party to the Kyoto Protocol

b. Assigned amount calculated

d. National registry in place for tracking assigned amount

Track 2

Issuance, transfer and acquisition

All Annex B Parties may develop and run JI projects

eligibility relates to ERU issuance, transfer and acquisition

Can issue, transfer and acquire ERUs

May verify the project and reductions by its own procedures

Track 1 (full eligibility)

No eligibility Cannot issue or transfer ERUs

Track 2 Can issue and transfer ERUs

only after verification of the project and reductions by the Article 6 Supervisory Committee

Reporting and review processes relating to eligibility

Key points on reporting/review procedures

• Determination of eligibility requirements is normal outcome of reporting, review and compliance procedures– All Annex I Parties report and are subject to review

annually– All review reports considered by the Compliance

Committee • 2 phases

- Initial reporting and review calculates and records assigned amount under 3.7 and 3.8 and determines eligibility

- Ongoing (annual) reporting and review maintains or suspends eligibility during commitment period

• Compliance Committee makes determination of eligibility

Initial reporting and review

Initial report and review is “to facilitate calculation of assigned amount and demonstrate capacity to account for emissions and assigned amount”

• GHG inventory focus on base year (1990 or other)

• National system

• National registry

• Calculation of initial assigned amount under Articles 3.7/8

• Calculation of commitment period reserve

• Selection of sinks activities under Article 3.3/4

Annual reporting and review

• Annual greenhouse gas inventory

• Annual assigned amount information

• Changes in the national registry

• Changes in national system

• Calculation of commitment period reserve

Information recorded in the compilation and accounting database of the secretariat after review and consideration by

Compliance Committee

Compliance Committee

Facilitative Branch

• Considers questions related to reporting and accounting prior to commitment period

• Can provide advice, and facilitate financial and technical assistance

Enforcement Branch

• Can apply adjustments to inventories

• Make corrections to Party’s accounting

• Suspend and reinstate eligibility to participate in mechanisms

Requirements relatingto the emissions side

Key points on the emissions side

• Reliable inventories are fundamental for determining compliance of Parties with their Kyoto targets

- calculation of assigned amount under Articles 3.7/8

- maintaining mechanisms eligibility

- end of commitment period compliance test

• Difference between track 1 and 2 hinges on ongoing provision of annual inventory that meets requirements

• Initial inventory with full time-series is important for calculation of assigned amount under both track 1 and 2

National systems for estimating emissions

Institutional, legal and procedural arrangements necessary to prepare national greenhouse gas inventory in accordance with 7.1• Single national entity• Planning (define responsibilities, choice of methods and data)• Preparation (Use of good practice, inventory estimation, documentation)• Quality assurance and quality control procedures• Archive inventory information

Requirements are functional• Flexibility for national circumstances• Compliance depends on ability of system to produce reliable inventory

National GHG inventory requirements

• All gases and sources LULUCF removals not required for base year

• Full geographic coverage

• Complete time-series All years from base year (1990 or other) up to most recent available

• Use of methods that are consistent with IPCC methodologies and Good Practice Guidance

• Common Reporting Format Standardized electronic reporting tables

• National inventory report Description of methods used, data sources, etc.

Inventory adjustment procedure

• Identification of problem during individual review

- Opportunity for Party to correct problem

- Review team calculates and recommends adjustment based on technical guidance

- Party has opportunity to accept or reject adjustment

• If Party does not accept adjustment, Enforcement Branch of Compliance Committee determines whether to apply it

• Adjustments can be removed later during commitment period if inventory problem is corrected

- Not for base year, since initial assigned amount fixed

Inventory adjustments

• Intended to correct inventory problems for purpose of accounting for emissions and assigned amount

• Adjustments are conservative

- Estimates adjusted downwards in base year

- Upward for year of commitment period• Applied only after Party has had opportunity to correct

problems• If adjustment applied, then adjusted estimate is recorded in

compilation and accounting database

Adjustments allow Party to remain in compliance with inventory and eligibility requirements in event

of minor inventory problems

Recording assigned amount (Articles 3.7/8)

Based on reviewed initial GHG inventory

• Assessment of consistency with the IPCC methodologies and Good Practice Guidance (GPG)

• Review of entire time-series

• Adjustments recommended to base year inventory if GPG not correctly applied

Assigned amount recorded only after review and considerationby the Compliance Committee

• AA based on adjusted base year, if applied

• Once recorded, is fixed for entire commitment period

Failure to meet annual inventory requirements

Decision on Article 7.1 of the Kyoto Protocol defines

• Complete annual inventory (both Common Reporting Format and National Inventory Report) not submitted within 6 weeks of due date

• Omission of large key source that accounts for 7% or more of annual emissions

• Total adjustments in any year greater than 7% of submitted inventory

• Sum of the total adjustments for any years of commitment period exceeds 20% of submitted emissions

• A key source that accounts for 2% or more of emissions is adjusted in three consecutive years

Requirements relatingto the assigned amount side

Key points on the assigned amount side

• National registries to be established by all Annex B Parties

• Registries to interact with other registries and the transaction log

• Accurate accounting in accordance with Article 7.4

• Reporting of additions and subtractions to assigned amount

What national registries have to do

National registries established by Annex B Parties

• Electronic databases for tracking the

- issuance and holdings of units

- transfers of units under the mechanisms

- replacement and cancellation of units

- retirement of units for compliance purposes

- carry-over of units to the next commitment period

• Accounts for governments and entities

Independent transaction log established by the secretariat

• Checks transactions when they are proposed against rules

• Ensures the integrity of transactions before completion

National registry accounts

Issuance of AAUs

and RMUs

Cancellation (not for compliance)

Retirement (for compliance)

Czech registry

Party account

Legal entity a/c

Legal entity a/c

Retirement a/c

Cancellation a/c

Replacement a/c

Canadian registry

Party account

Legal entity a/c

Legal entity a/c

Retirement a/c

Cancellation a/c

Replacement a/c

Transfers

tCER

ERU

lCER

CER

RMUAAU

Registries, the ITL and STLs

NR2 NR3 NR4 CDM-RNR1

Independent transaction log

Communications hub

Virtual private network

Basechecks

Supplementarytransaction log1

Supple-mentary

checks

Supplementarytransaction log2

Sufficient harmonization

International rules define

• Basic registry requirements (decision 19/CP.7) Parties have significant scope to implement as they wish

• Basic data exchange standards (decision 24/CP.8) Recognized that exact technical specifications are needed

Detailed specifications of the data exchange standards

• Define how registries enact the mechanisms

• Being developed by the secretariat, with registry developers

• Version 1.0 to be completed by July 2004

• To be enhanced through registry administrator cooperation

Data exchange standards

• Management of secure communications over the Internet

• Transaction and reconciliation sequences

• Serial numbers, account numbers and transaction numbers

• Transaction log response codes

• Message formats to ensure all communications can be read

• Processes for initializing registry activities with the ITL

• Change management procedures for the data exchange standards

Assigned amount info in reporting

Annual electronic reporting

• Aggregate registry information on holdings and transactions

• LULUCF accounting under Article 3.3 (mandatory)

• LULUCF accounting under Article 3.4 (optional)

Reporting at end of the commitment period

• Additions and subtractions to assigned amount

• Total retirement for compliance purpose

• Units available for carry-over the next commitment period

Accurate accounting of additions and subtractions to assigned amount required for continued eligibility

In conclusion

Timing … when is it all to happen?

Eligibility requirements for Annex B Parties are integral to the system to safeguard the integrity of the Kyoto Protocol

Parties are to meet requirements for the following prior to 2007 (or one year after entry into force of the Protocol for the Party),

• National system

• GHG inventory

• Calculation of assigned amount under Articles 3.7/8

• National registry

• Notification of Article 3.3/4 information

• Selection of Article 3.4 activities