The Kyoto mechanisms and the quest for compliance: Unresolved issues and potential pitfalls

Abstract

The purpose of this paper is to illuminate potential problems with the flexibility mechanism in the Kyoto Protocol connected to the establishment of an enforcement system. The Kyoto mechanisms are emission trading, Joint Implementation with other Annex B countries and finally the Clean Development Mechanism. With regard to emission trading, we discuss new challenges for monitoring, reporting and verification, the issue of supplementarity, intertemporal emission trading, the “hot-air” problem and liability issues. The Joint Implementation mechanism is a credit trading mechanism within an already established emission trading regime. The additional problems for Joint Implementation projects under the Kyoto Protocol compared to emission trading would mainly be higher transaction costs obtained from bargaining between two parties. Increased costs through an enforcement system would not necessarily occur here. The Clean Development Mechanism on the other hand is a credit trading mechanism outside an emission trading system and here several new problems arise. We discuss the problem of additionality and leakages. Finally, we discuss the enforcement of non-compliance under the Protocol. We conclude by discussing the possible incentives for cheating and undermining the intentions of the Protocol that are revealed by the problems with the flexibility mechanisms discussed in the paper