Past as Prologue? Joint Implementation and the Future for Flexibility Mechanisms

TradingA recent report by the Stockholm Environmental Institute (SEI) raises some serious questions about the integrity of the Joint Implementation (JI) program, one of the Kyoto Protocol’s main flexibility mechanisms. Since flexibility mechanisms are a core part of Geneva Negotiating Text, this report raises the question of how the UNFCCC will learn from its past mistakes as it enters into the new, post-2020 agreement.

JI is one of three flexibility mechanisms created under the Kyoto Protocol (KP) to assist Annex I Parties in meeting their emission reduction targets. JI allows Annex I countries to meet their targets by purchasing emission reduction units (ERUs) countries.  The JI program design is a creature of the changing political landscape of Europe in the early 1990s. Most JI projects transferred ERUs from Economies in Transition (EIT) countries to other Annex 1 countries in Europe. EITs were the Russian Federation and the former Soviet bloc countries emerging from communism in the early 1990s.

The KP built special exemptions into the JI program to help EITs in their transition to a market-based economic system. Decades of central planning left the EITs with inefficient and outdated manufacturing and energy production facilities that could not compete in the EU marketplace. To give the EITs an advantage, the KP let them set their emission baselines at or before 1990 levels. Since their pre-1990 emissions were significantly higher than their post-1990 emissions, the EITs immediately had a surplus of ERUs to sell into the JI market. As of March 2015, almost 872 million ERUs have been transferred through the JI program with four countries – Ukraine, Russia, Poland, and Germany – accounting for 94% of ERUs issued.

The SEI report indicates “significant environmental integrity concerns” for 80% of the ERUs from Ukraine and Russia. What are these concerns?  The main concern is the faulty determination of a JI project’s “newness” of emission reductions.  One of JI’s key requirements is additionality, which means that the emissions reduction would not have occurred without the project. The SEI report revealed that additionality claims were not plausible for 43% of the projects and 73% of the ERUs. For example, seventy-eight projects received credits for preventing the spontaneous combustion of coal waste piles, projects that cannot plausibly produce additional emissions reductions. The report estimates that unqualified JI projects resulted in an extra 600 million t CO2e of global GHG emissions from 2008-12, the first commitment period of the Protocol. How did this happen?  One main reason given was that host countries established their own lenient rules, without international oversight, for approving projects and ERUs.

This happened because KP rules allow JI projects to be approved under two very different tracks. Track 1 allows host countries approve and issue ERUs and determine if the reductions meet the additionality requirement. Track 2 gives the Joint Implementation Supervisory Committee, an UNFCCC body, the power to review projects and requests for ERU issuance and to certify JI auditors. 97% of the ERUs have been issued under Track 1, demonstrating the JI program design incentivizes countries to self-approve non-additional reductions.

Flexibility mechanisms are going to be a crucial element in getting Parties to agree to a post-2020 agreement in Paris, but they need to change how they measure and verify reductions. The SEI report lists a number of options to improve reporting and measurement practices including improving the program’s transparency by making all documentation publicly available, implementing an internationally accepted verification methodology, and banning the practice of retroactively crediting projects. These recommendations need to be implemented in the post-2020 agreement. The past doesn’t need to be the prologue for Paris and beyond.